-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AS1N2raZFUh4l6MDJnfbZrwGr1KRiYrs9g3mAUzoCAUYTW69iHmdbWCxwXHG+R9C saNE3DrBXLA6AK2a5PUSvQ== /in/edgar/work/20000915/0000898432-00-000650/0000898432-00-000650.txt : 20000923 0000898432-00-000650.hdr.sgml : 20000923 ACCESSION NUMBER: 0000898432-00-000650 CONFORMED SUBMISSION TYPE: N-1A/A PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 20000915 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MPAM FUNDS TRUST CENTRAL INDEX KEY: 0001111565 STANDARD INDUSTRIAL CLASSIFICATION: [ ] FILING VALUES: FORM TYPE: N-1A/A SEC ACT: SEC FILE NUMBER: 333-34844 FILM NUMBER: 723907 FILING VALUES: FORM TYPE: N-1A/A SEC ACT: SEC FILE NUMBER: 811-09903 FILM NUMBER: 723908 BUSINESS ADDRESS: STREET 1: 200 PARK AVENUE CITY: NEW YORK STATE: NY ZIP: 10166 BUSINESS PHONE: 2129226787 N-1A/A 1 0001.txt 1933 Act Registration No. 333-34844 1940 Act Registration No. 811-09903 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ] Pre-Effective Amendment No. 2 [ X ] Post-Effective Amendment No. [ ] and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ] Amendment No. 2 [ X ] MPAM FUNDS TRUST (Exact Name of Registrant as Specified in Charter) c/o The Dreyfus Corporation 200 Park Avenue, New York, New York 10166 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, including Area Code: (212) 922-6000 Mark N. Jacobs, Esq. 200 Park Avenue New York, New York 10166 (Name and Address of Agent for Service) Copies to: Thomas M. Leahey, Esq. Donald W. Smith, Esq. Kirkpatrick & Lockhart LLP 1800 Massachusetts Avenue, N.W., Second Floor Washington, D.C. 20036-1800 Telephone: (202) 778-9000 Approximate Date of Proposed Public Offering: As soon as practicable after the effective date of this Registration Statement. Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Mellon Private Asset Management(SM) MPAM(SM) Family of Mutual Funds - -------------------------------------------------------------------------------- MPAM Large Cap Stock Fund MPAM Income Stock Fund MPAM Mid Cap Stock Fund MPAM Small Cap Stock Fund MPAM International Fund MPAM Emerging Markets Fund MPAM Bond Fund MPAM Intermediate Bond Fund MPAM Short-Term U.S. Government Securities Fund MPAM National Intermediate Municipal Bond Fund MPAM National Short-Term Municipal Bond Fund MPAM Pennsylvania Intermediate Municipal Bond Fund MPAM Balanced Fund PROSPECTUS SEPTEMBER 21, 2000 As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. [LOGO] Mellon Mellon Private Asset Management(SM) CONTENTS THE FUNDS MPAM Large Cap Stock Fund................................................2 MPAM Income Stock Fund...................................................6 MPAM Mid Cap Stock Fund.................................................10 MPAM Small Cap Stock Fund...............................................14 MPAM International Fund.................................................18 MPAM Emerging Markets Fund..............................................22 MPAM Bond Fund..........................................................26 MPAM Intermediate Bond Fund.............................................30 MPAM Short-Term U.S. Government Securities Fund.........................34 MPAM National Intermediate Municipal Bond Fund..........................38 MPAM National Short-Term Municipal Bond Fund............................42 MPAM Pennsylvania Intermediate Municipal Bond Fund......................46 MPAM Balanced Fund......................................................50 Management..............................................................56 YOUR INVESTMENT Account Policies and Services...........................................59 Distributions and Taxes.................................................62 FOR MORE INFORMATION..................................................Back Cover 2 THE FUNDS The funds are designed primarily for Mellon Private Asset ManagementSM (MPAMSM) clients that maintain qualified fiduciary, custody or other accounts with Mellon Bank, N.A. or Boston Safe Deposit and Trust Company, or their bank affiliates. "Mellon Private Asset Management" and "MPAM" are service marks of Mellon Financial Corporation. WHAT EACH FUND IS - AND ISN'T Each fund is a mutual fund: a pooled investment that is professionally managed and gives you the opportunity to participate in financial markets. It strives to reach its stated goal, although as with all mutual funds, it cannot offer guaranteed results. An investment in each fund is not a bank deposit. It is not insured or guaranteed by the FDIC or any other government agency. It is not a complete investment program. You could lose money in each fund, but you also have the potential to make money. MPAM LARGE CAP STOCK FUND GOAL/APPROACH - ------------- The fund seeks investment returns (consisting of capital appreciation and income) that are consistently superior to those of the Standard & Poor's(R) 500 Composite Stock Price Index (S&P 500). This objective may be changed without shareholder approval. To pursue its goal, the fund normally invests at least 65% of its total assets in a blended portfolio of growth and value stocks chosen through a disciplined investment process that combines computer modeling techniques, fundamental analysis and risk management. Consistency of returns and stability of the fund's share price compared to the S&P 500 are primary goals of the investment process. In selecting securities, the investment adviser uses a computer model to identify and rank stocks within an industry or sector, based on: o VALUE, or how a stock is priced relative to its perceived intrinsic worth o GROWTH, in this case the sustainability or growth of earnings o FINANCIAL PROFILE, which measures the financial health of the company Next, based on fundamental analysis, the investment adviser generally selects the most attractive of the higher ranked securities, drawing on information technology as well as Wall Street sources and company management. The investment adviser manages risk by diversifying across companies and industries, limiting the potential adverse impact from any one stock or industry. The fund is structured so that its sector weightings and risk characteristics, such as growth, size, quality and yield, are similar to those of the S&P 500. 3 Concepts to understand - ---------------------- COMPUTER MODEL: a proprietary program that evaluates and ranks a universe of over 2,000 stocks. The model screens each stock for relative attractiveness within its economic sector and industry. The investment adviser reviews each of the screens on a regular basis, and maintains the flexibility to adapt the screening criteria to changes in market conditions. S&P 500: an unmanaged index of 500 common stocks chosen to reflect the industries of the U.S. economy. The S&P 500 is often considered a proxy for the stock market in general. MAIN RISKS - ---------- While stocks have historically been a leading choice of long-term investors, they do fluctuate in price. The value of your investment in the fund will go up and down, which means that you could lose money. Although the fund seeks to manage risk by broadly diversifying among industries and by maintaining a risk profile very similar to the S&P 500, the fund is expected to hold fewer securities than the index. Owning fewer securities and the ability to purchase companies not listed in the index can cause the fund to underperform the index. By investing in a mix of growth and value companies, the fund assumes the risks of both, and may achieve more modest gains than funds that use only one investment style. Because stock prices of growth companies are based in part on future expectations, they may fall sharply if earnings expectations are not met or investors believe the prospects for a stock, industry or the economy in general are weak, even if earnings do increase. Growth stocks also typically lack the dividend yield that could cushion stock prices in market downturns. With value stocks, there is the risk that they may never reach what the investment adviser believes is their full market value, either because the market fails to recognize the stock's intrinsic worth, or the portfolio manager misgauged that worth. They also may decline in price even though in theory they are already underpriced. While investments in value stocks may limit downside risk over time, they may produce smaller gains than riskier stocks. PERFORMANCE OF SIMILAR COMMON TRUST FUND - ---------------------------------------- The fund has been recently organized and does not yet have a performance record as an investment company registered under the Investment Company Act of 1940 (1940 Act). The performance presented at right is that of a predecessor common trust fund (CTF) that, in all material respects, had the same investment objective, policies, guidelines and restrictions as the fund, and is for periods before the effective date of this prospectus. Before the fund's commencement of operations, substantially all of the assets of the predecessor CTF (and those of another CTF) will be transferred to the fund. The performance presented has been adjusted to reflect the fund's fees and expenses, by subtracting from the actual performance of the CTF the estimated expenses of the fund as set forth in the summary of "Expenses" on page 5. The predecessor CTF was not registered under 4 the 1940 Act and therefore was not subject to certain investment restrictions that might have adversely affected performance. The bar chart at right shows you how the predecessor CTF's performance has varied from year to year. The table compares the predecessor CTF's performance over time to that of the S&P 500, a widely recognized unmanaged index of stock performance. All performance figures reflect the reinvestment of dividends and distributions. Of course, past performance is no guarantee of future results. Year by year total return as of 12/31 each year (%) [BAR CHART] 0.30 35.96 7.47 12.33 -1.32 37.64 25.61 33.40 27.16 18.60 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Best Quarter: Q4 `98 +22.58% Worst Quarter: Q3 `90 -13.48% The year-to-date total return as of 6/30/00 was 0.36%. Average annual total return as of 12/31/99 1 Year 5 Years 10 Years Predecessor CTF 18.60% 28.32% 18.91% S&P 500 21.04% 28.56% 18.21% EXPENSES - -------- As an investor, you pay certain fees and expenses in connection with the fund, which are described in the table below. Because annual fund operating expenses are paid out of fund assets, their effect is included in the share price. The fund has no sales charge (load) or Rule 12b-1 distribution fees. FEE TABLE ANNUAL FUND OPERATING EXPENSES % OF AVERAGE DAILY NET ASSETS Investment advisory fees 0.65% Other expenses 0.17% Total annual fund operating expenses 0.82% 5 EXPENSE EXAMPLE 1 Year 3 Years $84 $262 This example shows what you could pay in expenses over time. It uses the same hypothetical conditions other funds use in their prospectuses: $10,000 initial investment, 5% total return each year and no changes in expenses. The figures shown would be the same whether you sold your shares at the end of a period or kept them. Because actual return and expenses will be different, the example is for comparison only. Concepts to understand - ---------------------- INVESTMENT ADVISORY FEE: the fee paid to the investment adviser for managing the fund's portfolio. OTHER EXPENSES: estimated fees to be paid by the fund for the current fiscal year, including an administration fee of 0.146% (based on the estimated assets of the MPAM funds in the aggregate) payable to Mellon Bank, N.A. for providing or arranging for fund accounting, transfer agency, and certain other fund administration services, and miscellaneous items such as custody and professional service fees. 6 MPAM INCOME STOCK FUND GOAL/APPROACH The fund's investment objective is to exceed the total return performance of the Russell 1000(TM) Value Index over time. This objective may be changed without shareholder approval. To pursue its goal, the fund normally invests at least 65% of its total assets in dividend-paying stocks. The investment adviser chooses stocks through a disciplined investment process that combines computer modeling techniques, fundamental analysis and risk management. Because the fund invests primarily in dividend-paying stocks, it will emphasize those stocks with value characteristics, although it may also purchase growth stocks. The remainder of the fund's total assets may be invested in convertible bonds, preferred stocks, fixed-income securities, American Depositary Receipts (ADRs) and money market instruments. In selecting securities, the investment adviser uses a computer model to identify and rank stocks within an industry or sector, based on: o VALUE, or how a stock is priced relative to its perceived intrinsic worth o GROWTH, in this case the sustainability or growth of earnings o FINANCIAL PROFILE, which measures the financial health of the company Next, based on fundamental analysis, the investment adviser generally selects the most attractive of the higher ranked securities, drawing on information technology as well as Wall Street sources and company management. The investment adviser manages risk by diversifying across companies and industries, limiting the potential adverse impact from any one stock or industry. The fund may at times overweight certain sectors in attempting to achieve higher yields. Concepts to understand - ---------------------- DIVIDEND: a distribution of earnings to shareholders, usually paid in the form of cash or stock. COMPUTER MODEL: a proprietary program that evaluates and ranks a universe of over 2,000 stocks. The model screens each stock for relative attractiveness within its economic sector and industry. The investment adviser reviews each of the screens on a regular basis, and maintains the flexibility to adapt the screening criteria to changes in market conditions. RUSSELL 1000 VALUE INDEX: is an unmanaged, market-capitalization-weighted index that measures the performance of those of the 1,000 largest U.S. companies based on total market capitalization that have lower price-to-book ratios and lower forecasted growth values. 7 MAIN RISKS - ---------- While stocks have historically been a leading choice of long-term investors, they do fluctuate in price. The value of your investment in the fund will go up and down, which means that you could lose money. The fund will hold fewer securities than the Russell 1000 Value Index. Owning fewer securities and the ability to purchase companies not listed in the index can cause the fund to underperform the index. By investing in a mix of value and growth companies, the fund assumes the risks of both, and may achieve more modest gains than funds that use only one investment style. With value stocks, there is the risk that they may never reach what the investment adviser believes is their full market value, either because the market fails to recognize the stock's intrinsic worth, or the portfolio manager misgauged that worth. They also may decline in price even though in theory they are already underpriced. While investments in value stocks may limit downside risk over time, they may produce smaller gains than riskier stocks. Because stock prices of growth companies are based in part on future expectations, they may fall sharply if earnings expectations are not met or investors believe the prospects for a stock, industry or the economy in general are weak, even if earnings do increase. Growth stocks also typically lack the dividend yield that could cushion stock prices in market downturns. Other potential risks - --------------------- The fund may invest in ADRs, which represent indirect ownership of securities issued by foreign companies. The securities of foreign issuers carry additional risks, such as less liquidity, changes in currency exchange rates, a lack of comprehensive company information and political instability. PERFORMANCE OF SIMILAR COMMON TRUST FUND - ---------------------------------------- The fund has been recently organized and does not yet have a performance record as an investment company registered under the 1940 Act. The performance presented at right is that of a predecessor common trust fund (CTF) that, in all material respects, had the same investment objective, policies, guidelines, and restrictions as the fund, and is for periods before the effective date of this prospectus. Before the fund's commencement of operations, substantially all of the assets of the predecessor CTF (and those of another CTF) will be transferred to the fund. The performance presented has been adjusted to reflect the fund's fees and expenses, by subtracting from the actual performance of the CTF the estimated expenses of the fund as set forth in the summary of "Expenses" on page 9. The predecessor CTF was not registered under the 1940 Act and therefore was not subject to certain investment restrictions that might have adversely affected performance. Before June 1, 2000, the CTF sought to exceed the total return performance of the S&P 500 over time. Beginning June 1, 2000, the CTF has sought to exceed the total return performance of the Russell 1000 Value Index over time. The S&P 500 8 is an unmanaged index of 500 common stocks chosen to reflect the industries in the U.S. economy. The Russell 1000 Value Index is an unmanaged, market-capitalization-weighted index that measures the performance of those 1,000 of the largest U.S. companies based on total market capitalization that have lower price-to-book ratios and lower forecasted growth values. The CTF changed its benchmark due to the value orientation of the CTF and the Russell 1000 Value Index. The bar chart at right shows you how the predecessor CTF's performance has varied from year to year. The table compares the predecessor CTF's performance over time to that of the Russell 1000 Value Index, a widely recognized unmanaged index of large-capitalization value stock performance. All performance figures reflect the reinvestment of dividends and distributions. Of course, past performance is no guarantee of future results. Year-by-year total return as of 12/31 each year (%) [BAR CHART]
- -0.41 33.83 7.28 10.48 -1.15 37.26 23.34 35.27 23.38 5.55 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Best Quarter: Q4 `98 +19.78% Worst Quarter: Q3 `90 -12.31% The year-to-date total return as of 6/30/00 was -1.54%. Average annual total return as of 12/31/99 1 Year 5 Years 10 Years Predecessor CTF 5.55% 24.43% 16.63% Russell 1000 Value Index 7.35% 23.08% 15.57% EXPENSES - -------- As an investor, you pay certain fees and expenses in connection with the fund, which are described in the table below. Because annual fund operating expenses are paid out of fund assets, their effect is included in the share price. The fund has no sales charge (load) or Rule 12b-1 distribution fees. FEE TABLE ANNUAL FUND OPERATING EXPENSES % OF AVERAGE DAILY NET ASSETS Investment advisory fees 0.65% Other expenses 0.18% Total 0.83% 9 EXPENSE EXAMPLE 1 Year 3 Years $85 $264 This example shows what you could pay in expenses over time. It uses the same hypothetical conditions other funds use in their prospectuses: $10,000 initial investment, 5% total return each year and no changes in expenses. The figures shown would be the same whether you sold your shares at the end of a period or kept them. Because actual return and expenses will be different, the example is for comparison only. Concepts to understand - ---------------------- INVESTMENT ADVISORY FEE: the fee paid to the investment adviser for managing the fund's portfolio. OTHER EXPENSES: estimated fees to be paid by the fund for the current fiscal year, including an administration fee of 0.146% (based on the estimated assets of the MPAM funds in the aggregate) payable to Mellon Bank, N.A. for providing or arranging for fund accounting, transfer agency, and certain other fund administration services, and miscellaneous items such as custody and professional service fees. 10 MPAM MID CAP STOCK FUND GOAL/APPROACH - ------------- The fund seeks investment returns (consisting of capital appreciation and income) that are consistently superior to those of the Standard & Poor's MidCap 400(R) Index (S&P MidCap 400). This objective may be changed without shareholder approval. To pursue its goal, the fund normally invests at least 65% of its total assets in a blended portfolio of growth and value stocks of small and midsize domestic companies, whose market capitalizations generally range between $500 million and $5 billion. The fund may purchase securities of companies in initial public offerings or shortly thereafter. Stocks are chosen through a disciplined investment process that combines computer modeling techniques, fundamental analysis and risk management. Consistency of returns and stability of the fund's share price compared to the S&P MidCap 400 are primary goals of the investment process. In selecting securities, the investment adviser uses a computer model to identify and rank stocks within an industry or sector, based on: o VALUE, or how a stock is priced relative to its perceived intrinsic worth o GROWTH, in this case the sustainability or growth of earnings o FINANCIAL PROFILE, which measures the financial health of the company Next, based on fundamental analysis, the investment adviser generally selects the most attractive of the higher ranked securities, drawing on information technology as well as Wall Street sources and company management. The investment adviser manages risk by diversifying across companies and industries, limiting the potential adverse impact from any one stock or industry. The fund is structured so that its sector weightings and risk characteristics, such as growth, size, quality and yield, are similar to those of the S&P MidCap 400. Concepts to understand - ---------------------- SMALL AND MID-CAP COMPANIES: new and often entrepreneurial companies. Small and mid-cap companies can, if successful, grow faster than larger-cap companies and typically use any profits for expansion rather than for paying dividends. Their share prices are more volatile than those of larger companies. These companies fail more often. COMPUTER MODEL: a proprietary program that evaluates and ranks a universe of over 2,000 stocks. The model screens each stock for relative attractiveness within its economic sector and industry. The investment adviser reviews each of the screens on a regular basis, and maintains the flexibility to adapt the screening criteria to changes in market conditions. S&P MIDCAP 400: a market-capitalization-weighted index of 400 medium-capitalization stocks. 11 MAIN RISKS - ---------- While stocks have historically been a leading choice of long-term investors, they do fluctuate in price. The value of your investment in the fund will go up and down, which means that you could lose money. Small and midsize companies carry additional risks because their operating histories tend to be more limited, their earnings are less predictable, and their share prices tend to be more volatile. The shares of smaller companies tend to trade less frequently than those of larger, more established companies, which can have an adverse effect on the pricing of smaller companies' securities and on the fund's ability to sell them when the portfolio manager deems it appropriate. These companies may have limited product lines, markets, and/or financial resources. In addition, these companies may be dependent on a limited management group. The prices of securities purchased in initial public offerings or shortly thereafter may be very volatile. Some of the fund's investments will rise and fall based on investor perception rather than economics. Although the fund seeks to manage risk by broadly diversifying among industries and by maintaining a risk profile similar to the S&P MidCap 400, the fund is expected to hold fewer securities than the index. Owning fewer securities and the ability to purchase companies not listed in the index can cause the fund to underperform the index. By investing in a mix of growth and value companies, the fund assumes the risks of both, and may achieve more modest gains than funds that use only one investment style. Because stock prices of growth companies are based in part on future expectations, they may fall sharply if earnings expectations are not met or investors believe the prospects for a stock, industry or the economy in general are weak, even if earnings do increase. Growth stocks also typically lack the dividend yield that could cushion stock prices in market downturns. With value stocks, there is the risk that they may never reach what the investment adviser believes is their full market value, either because the market fails to recognize the stock's intrinsic worth, or the portfolio manager misgauged that worth. They also may decline in price even though in theory they are already underpriced. While investments in value stocks may limit downside risk over time, they may produce smaller gains than riskier stocks. Other potential risks - --------------------- The fund may invest in securities of foreign issuers, which carry additional risks such as changes in currency exchange rates, less liquidity, a lack of comprehensive company information and political instability. PERFORMANCE OF SIMILAR COMMON TRUST FUND - ---------------------------------------- The fund has been recently organized and does not yet have a performance record as an investment company registered under the 1940 Act. The performance presented at right is that of a predecessor common trust fund (CTF) that, in all material respects (except as discussed below), had the same investment objective, policies, guidelines and restrictions as the fund, and is for periods before the effective date of this prospectus. Before the fund's commencement of 12 operations, substantially all of the assets of the predecessor CTF will be transferred to the fund. The performance presented has been adjusted to reflect the fund's fees and expenses, by subtracting from the actual performance of the CTF the estimated expenses of the fund as set forth in the summary of "Expenses" on page 13. The predecessor CTF was not registered under the 1940 Act and therefore was not subject to certain investment restrictions that might have adversely affected performance. Before June 1, 2000, the CTF sought to maintain a portfolio of stocks of companies with an average market capitalization of between $500 million and $3 billion, similar to the Russell 2500TM Stock Index (the Russell 2500), an unmanaged index based on the stocks of 3,000 large U.S. companies, as determined by market capitalization, but excluding the 500 largest such companies. Beginning June 1, 2000, the CTF has sought to maintain a portfolio of stocks of companies with an average market capitalization of between $500 million and $5 billion, similar to the S&P MidCap 400, an unmanaged, capitalization-weighted index of 400 medium-capitalization stocks. The change in average market capitalization of companies held by the CTF was largely reflective of changes in the market value of companies in the benchmark. The weighted average capitalization of the Russell 2500 and the S&P MidCap 400 are similar, as are their sector and industry weightings. The change by the CTF reflected the view of its manager that the turnover of companies represented in the S&P MidCap 400 was less volatile than that of the Russell 2500, and that the S&P MidCap 400 was more familiar to investors. The bar chart below shows you how the predecessor CTF's performance has varied from year to year. The table compares the predecessor CTF's performance over time to that of the S&P MidCap 400. All performance figures reflect the reinvestment of dividends and distributions. Of course, past performance is no guarantee of future results. Year-by-year total return as of 12/31 each year (%) [BAR CHART]
- -8.40 54.07 17.04 15.57 -1.64 39.72 22.41 23.50 -5.63 10.82 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Best Quarter: Q1 `91 +22.82% Worst Quarter: Q3 `98 -21.74% The year-to-date total return as of 6/30/00 was 4.78%. Average annual total return as of 12/31/99 1 Year 5 Years 10 Years Predecessor CTF 10.82% 17.17% 15.28% S&P MidCap 400 14.72% 23.05% 17.32% 13 EXPENSES - -------- As an investor, you pay certain fees and expenses in connection with the fund, which are described in the table below. Because annual fund operating expenses are paid out of fund assets, their effect is included in the share price. The fund has no sales charge (load) or Rule 12b-1 distribution fees. FEE TABLE ANNUAL FUND OPERATING EXPENSES % OF AVERAGE DAILY NET ASSETS Investment advisory fees 0.75% Other expenses 0.17% TOTAL 0.92% EXPENSE EXAMPLE 1 Year 3 Years $95 $296 This example shows what you could pay in expenses over time. It uses the same hypothetical conditions other funds use in their prospectuses: $10,000 initial investment, 5% total return each year and no changes in expenses. The figures shown would be the same whether you sold your shares at the end of a period or kept them. Because actual return and expenses will be different, the example is for comparison only. Concepts to understand - ---------------------- INVESTMENT ADVISORY FEE: the fee paid to the investment adviser for managing the fund's portfolio. OTHER EXPENSES: estimated fees to be paid by the fund for the current fiscal year, including an administration fee of 0.146% (based on the estimated assets of the MPAM funds in the aggregate) payable to Mellon Bank, N.A. for providing or arranging for fund accounting, transfer agency, and certain other fund administration services, and miscellaneous items such as custody and professional service fees. 14 MPAM SMALL CAP STOCK FUND GOAL/APPROACH - ------------- The fund seeks total investment returns (consisting of capital appreciation and income) that surpass those of the Standard & Poor's SmallCap 600(R) Index (S&P SmallCap 600). This objective may be changed without shareholder approval. To pursue its goal, the fund normally invests at least 65% of its total assets in a blended portfolio of growth and value stocks of small-capitalization companies, whose market capitalizations generally range between $100 million and $2 billion. The fund may purchase securities of companies in initial public offerings or shortly thereafter. Stocks are chosen through a disciplined investment process that combines computer modeling techniques, fundamental analysis and risk management. In selecting securities, the investment adviser uses a computer model to identify and rank stocks within an industry or sector, based on: o VALUE, or how a stock is priced relative to its perceived intrinsic worth o GROWTH, in this case the sustainability or growth of earnings o FINANCIAL PROFILE, which measures the financial health of the company Next, based on fundamental analysis, the investment adviser generally selects the most attractive of the higher ranked securities and to determine those issues that should be sold. The investment adviser uses information technology as well as Wall Street sources and company management to stay abreast of current developments. The investment adviser manages risk by diversifying across companies and industries, limiting the potential adverse impact from any one stock or industry. The fund is structured so that its sector weightings and risk characteristics are similar to those of the S&P SmallCap 600. Concepts to understand - ---------------------- SMALL-CAPITALIZATION COMPANIES: new and often entrepreneurial companies. Small-cap companies can, if successful, grow faster than larger-cap companies and typically use any profits for expansion rather than for paying dividends. Their share prices are more volatile than those of larger companies. Small companies fail more often. COMPUTER MODEL: a proprietary program that evaluates and ranks a universe of over 2,000 stocks. The model screens each stock for relative attractiveness within its economic sector and industry. The investment adviser reviews each of the screens on a regular basis, and maintains the flexibility to adapt the screening criteria to changes in market conditions. S&P SmallCap 600: an unmanaged index consisting of the stocks of 600 publicly traded U.S. companies chosen for market size, liquidity and industry-group representation. The stocks comprising the S&P SmallCap 600 have market capitalizations generally ranging between $50 million and $2 billion. 15 MAIN RISKS - ---------- While stocks have historically been a leading choice of long-term investors, they do fluctuate in price. The value of your investment in the fund will go up and down, which means that you could lose money. Small companies carry additional risks because their operating histories tend to be more limited, their earnings are less predictable, and their share prices tend to be more volatile. The shares of smaller companies tend to trade less frequently than those of larger, more established companies, which can have an adverse effect on the pricing of smaller companies' securities and on the fund's ability to sell them when the portfolio manager deems it appropriate. These companies may have limited product lines, markets, and/or financial resources. In addition, these companies may be dependent on a limited management group. The prices of securities purchased in initial public offerings or shortly thereafter may be very volatile. Some of the fund's investments will rise and fall based on investor perception rather than economics. Although the fund seeks to manage risk by broadly diversifying among industries and by maintaining a risk profile very similar to the S&P SmallCap 600, the fund is expected to hold fewer securities than the index. Owning fewer securities and the ability to purchase companies not listed in the index can cause the fund to underperform the index. By investing in a mix of growth and value companies, the fund assumes the risks of both, and may achieve more modest gains than funds that use only one investment style. Because stock prices of growth companies are based in part on future expectations, they may fall sharply if earnings expectations are not met or investors believe the prospects for a stock, industry or the economy in general are weak, even if earnings do increase. Growth stocks also typically lack the dividend yield that could cushion stock prices in market downturns. With value stocks, there is the risk that they may never reach what the investment adviser believes is their full market value, either because the market fails to recognize the stock's intrinsic worth, or the portfolio manager misgauged that worth. They also may decline in price even though in theory they are already underpriced. While investments in value stocks may limit downside risk over time, they may produce smaller gains than riskier stocks. At times, the fund may engage in active trading, which could produce higher brokerage costs and taxable distributions and lower the fund's after-tax performance accordingly. Other potential risks - --------------------- The fund may invest in securities of foreign issuers, which carry additional risks such as changes in currency exchange rates, less liquidity, a lack of comprehensive company information and political instability. 16 PERFORMANCE OF SIMILAR COMMON TRUST FUND - ---------------------------------------- The fund has been recently organized and does not yet have a performance record as an investment company registered under the 1940 Act. The performance presented at right is that of a predecessor common trust fund (CTF) that, in all material respects, had the same investment objective, policies, guidelines and restrictions as the fund, and is for periods before the effective date of this prospectus. Before the fund's commencement of operations, substantially all of the assets of the predecessor CTF will be transferred to the fund. The performance presented has been adjusted to reflect the fund's fees and expenses, by subtracting from the actual performance of the CTF the estimated expenses of the fund as set forth in the summary of "Expenses" on page 17 (net of certain fund expenses that will be borne by Mellon Bank, N.A. or the investment adviser). The predecessor CTF was not registered under the 1940 Act and therefore was not subject to certain investment restrictions that might have adversely affected performance. The bar chart at right shows you how the predecessor CTF's performance has varied from year to year. The table compares the predecessor CTF's performance over time to that of the S&P SmallCap 600, an unmanaged index of small-cap stock performance. All performance figures reflect the reinvestment of dividends and distributions. Of course, past performance is no guarantee of future results. Year-by-year total return as of 12/31 each year (%) [BAR CHART] 0.94 31.18 1998 1999 Best Quarter: Q4 `99 +26.95% Worst Quarter: Q3 `98 -22.71% The year-to-date total return as of 6/30/00 was 0.65%. Average annual total return as of 12/31/99 1 Year Since Inception (1/1/98) Predecessor CTF 31.18% 15.07% S&P SmallCap 600 12.40% 5.33% 17 EXPENSES - -------- As an investor, you pay certain fees and expenses in connection with the fund, which are described in the table below. Because annual fund operating expenses are paid out of fund assets, their effect is included in the share price. The fund has no sales charge (load) or Rule 12b-1 distribution fees. FEE TABLE ANNUAL FUND OPERATING EXPENSES % OF AVERAGE DAILY NET ASSETS Investment advisory fees 0.85% Other expenses 0.22% TOTAL ANNUAL FUND OPERATING EXPENSES 1.07% Less: Fee waiver and/or expense reimbursement* 0.02% EQUALS: NET EXPENSES 1.05% *Pursuant to a contractual arrangement with the fund, Mellon Bank, N.A. has agreed to waive fees and/or reimburse fund expenses through 9/30/03, so that the total annual operating expenses of the fund are limited to the net expenses of the fund, as shown above. EXPENSE EXAMPLE 1 Year 3 Years $108 $336 This example shows what you could pay in expenses over time. It uses the same hypothetical conditions other funds use in their prospectuses: $10,000 initial investment, 5% total return each year and no changes in expenses. The figures shown would be the same whether you sold your shares at the end of a period or kept them. Because actual return and expenses will be different, the example is for comparison only. Concepts to understand - ---------------------- INVESTMENT ADVISORY FEE: the fee paid to the investment adviser for managing the fund's portfolio. OTHER EXPENSES: estimated fees to be paid by the fund for the current fiscal year, including an administration fee of 0.146% (based on the estimated assets of the MPAM funds in the aggregate) payable to Mellon Bank, N.A. for providing or arranging for fund accounting, transfer agency, and certain other fund administration services, and miscellaneous items such as custody and professional service fees. 18 MPAM INTERNATIONAL FUND GOAL/APPROACH - ------------- The fund seeks long-term capital growth. This objective may be changed without shareholder approval. To pursue its goal, the fund normally invests at least 65% of its total assets in equity securities of foreign issuers. The fund also primarily invests in companies which the investment adviser considers to be "value" companies. To a limited extent, the fund may invest in debt securities of foreign issuers. Though not specifically limited, the fund ordinarily will invest in companies in at least ten foreign countries, and limit its investments in any single company to no more than 5% of its assets at the time of purchase. The fund's investment approach is value oriented, research driven, and risk averse. In selecting stocks, the investment adviser identifies potential investments through extensive quantitative and fundamental research. Emphasizing individual stock selection rather than economic and industry trends, the fund focuses on three key factors: o VALUE, or how a stock is valued relative to its intrinsic worth based on traditional value measures o BUSINESS HEALTH, or overall efficiency and profitability as measured by return on assets and return on equity o BUSINESS MOMENTUM, or the presence of a catalyst (such as corporate restructuring or change in management) that potentially will trigger a price increase near term or midterm The fund typically sells a stock when it is no longer considered a value company, appears less likely to benefit from the current market and economic environment, shows deteriorating fundamentals or declining momentum, or falls short of the investment adviser's expectations. Concepts to understand - ---------------------- VALUE COMPANIES: companies that appear underpriced according to certain financial measurements of their intrinsic worth or business prospects (such as price-to-earnings or price-to-book ratios). For international investing, "value" is determined relative to a company's home market. Because a stock can remain undervalued for years, value investors often look for factors that could trigger a rise in price. MAIN RISKS - ---------- The value of your investment in the fund will go up and down, which means that you could lose money. The fund's performance will be influenced by political, social and economic factors affecting investments in companies in foreign countries. Special risks include exposure to currency fluctuations, less liquidity, less developed or efficient trading markets, a lack of comprehensive company information, political instability and differing auditing and legal standards. Each of those risks could result in more volatility for the fund. 19 The fund's investments in value stocks are subject to the risk that their intrinsic values may never be realized by the market, or that their prices may decline. Further, while the fund's investment in value stocks may limit the overall downside risk of the fund over time, the fund may produce more modest gains than riskier stock funds as a trade-off for its potentially lower risk. Because different types of stocks tend to shift in and out of favor depending on market and economic conditions, the fund's performance may sometimes be lower or higher than that of other types of funds (such as those emphasizing growth stocks). The fund may invest in companies of any size. Investments in small and mid-sized companies carry additional risks because their operating histories tend to be more limited, their earnings are less predictable, and their share prices tend to be more volatile. The shares of smaller companies tend to trade less frequently than those of larger, more established companies, which can have an adverse effect on the pricing of smaller companies' securities and on the fund's ability to sell them when the portfolio manager deems it appropriate. These companies may have limited product lines, markets, and/or financial resources. In addition, these companies may be dependent on a limited management group. Under adverse market conditions, the fund could invest some or all of its assets in the securities of U.S. issuers or money market instruments. Although the fund would do this to avoid losses, it could reduce the benefit from any upswing in the market. During such periods, the fund may not achieve its investment objective. Other potential risks - --------------------- The fund, at times, may invest in certain derivatives, such as options and futures, and in foreign currencies. When employed, these practices are used primarily to hedge the fund's portfolio, but may be used to increase returns; however, such practices may lower returns or increase volatility. Derivatives can be illiquid and highly sensitive to changes in their underlying instruments. A small investment in certain derivatives could have a potentially large impact on the fund's performance. PERFORMANCE OF SIMILAR COMMON TRUST FUND - ---------------------------------------- The fund has been recently organized and does not yet have a performance record as an investment company registered under the 1940 Act. The performance presented at right is that of a predecessor common trust fund (CTF) that, in all material respects, had the same investment objective, policies, guidelines and restrictions as the fund, and is for periods before the effective date of this prospectus. Before the fund's commencement of operations, substantially all of the assets of the predecessor CTF (and those of another CTF) will be transferred to the fund. The performance presented has been adjusted to reflect the fund's fees and expenses, by subtracting from the actual performance of the CTF the estimated expenses of the fund as set forth in the summary of "Expenses" on page 21 (net of certain fund expenses that will be borne by Mellon Bank, N.A. or the investment adviser). The predecessor CTF was not registered under the 1940 Act and therefore was not subject to certain investment restrictions that might have adversely affected performance. 20 The bar chart at right shows you the predecessor CTF's performance for its first full calendar year of operations. The table compares the predecessor CTF's performance over time to that of the Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East (EAFE(R)) Index, an unmanaged index of foreign stock performance. All performance figures reflect the reinvestment of dividends and distributions. Of course, past performance is no guarantee of future results. Year-by-year total return as of 12/31 each year (%) [BAR CHART] 25.94% 1999 Best Quarter: Q4 `99 +8.78% Worst Quarter: Q1 `99 +0.68% The year-to-date total return as of 6/30/00 was -1.32%. Average annual total return as of 12/31/99 Inception Date 1 Year Since Inception Predecessor CTF (7/15/98) 25.94% 6.44% MSCI EAFE(R)Index (7/1/98) 26.96% 19.98% EXPENSES - -------- As an investor, you pay certain fees and expenses in connection with the fund, which are described in the table below. Because annual fund operating expenses are paid out of fund assets, their effect is included in the share price. The fund has no sales charge (load) or Rule 12b-1 distribution fees. FEE TABLE ANNUAL FUND OPERATING EXPENSES % OF AVERAGE DAILY NET ASSETS Investment advisory fees 0.85% Other expenses 0.25% TOTAL ANNUAL FUND OPERATING EXPENSES 1.10% Less: Fee waiver and/or expense reimbursement* 0.05% EQUALS: NET EXPENSES 1.05% 21 *Pursuant to a contractual arrangement with the fund, Mellon Bank, N.A. has agreed to waive fees and/or reimburse fund expenses through 9/30/03, so that the total annual operating expenses of the fund are limited to the net expenses of the fund, as shown above. EXPENSE EXAMPLE 1 Year 3 Years $108 $336 This example shows what you could pay in expenses over time. It uses the same hypothetical conditions other funds use in their prospectuses: $10,000 initial investment, 5% total return each year and no changes in expenses. The figures shown would be the same whether you sold your shares at the end of a period or kept them. Because actual return and expenses will be different, the example is for comparison only. Concepts to understand - ---------------------- INVESTMENT ADVISORY FEE: the fee paid to the investment adviser for managing the fund's portfolio. OTHER EXPENSES: estimated fees to be paid by the fund for the current fiscal year, including an administration fee of 0.146% (based on the estimated assets of the MPAM funds in the aggregate) payable to Mellon Bank, N.A. for providing or arranging for fund accounting, transfer agency, and certain other fund administration services, and miscellaneous items such as custody and professional service fees. 22 MPAM EMERGING MARKETS FUND GOAL/APPROACH - ------------- The fund seeks long-term capital growth. This objective may be changed without shareholder approval. To pursue its goal, the fund invests primarily in equity securities of companies organized, or with a majority of assets or operations, in countries considered to be emerging markets. Normally, the fund will not invest more than 25% of its total assets in the securities of companies in any one emerging market country. In choosing stocks, the fund uses a value-oriented, research driven approach. In selecting stocks, the investment adviser identifies potential investments through extensive quantitative and fundamental research. Emphasizing individual stock selection rather than economic and industry trends, the fund focuses on three key factors: o VALUE, or how a stock is valued relative to its intrinsic worth based on traditional value measures o BUSINESS HEALTH, or overall efficiency and profitability as measured by return on assets and return on equity o BUSINESS MOMENTUM, or the presence of a catalyst (such as corporate restructuring or change in management) that potentially will trigger a price increase near term or midterm The fund typically sells a stock when it is no longer considered a value company, appears less likely to benefit from the current market and economic environment, shows deteriorating fundamentals or declining momentum, or falls short of the investment adviser's expectations. Concepts to understand - ---------------------- VALUE COMPANIES: companies that appear underpriced according to certain financial measurements of their intrinsic worth or business prospects (such as price-to-earnings or price-to-book ratios). For international investing, "value" is determined relative to a company's home market. Because a stock can remain undervalued for years, value investors often look for factors that could trigger a rise in price. EMERGING MARKET COUNTRIES: consist of all countries represented by the Morgan Stanley Capital International Emerging Markets (Free) Index, which currently includes Argentina, Brazil, Chile, Colombia, the Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Israel, Jordan, Korea, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, Sri Lanka, South Africa, Taiwan, Thailand, Turkey and Venezuela, together with any other country the investment adviser believes has an emerging economy or market. 23 MAIN RISKS - ---------- The stock markets of emerging market countries can be extremely volatile. The value of your investment in the fund will go up and down, sometimes dramatically, which means that you could lose money. The fund's performance will be influenced by political, social and economic factors affecting companies in emerging market countries. These risks include changes in currency exchange rates, a lack of comprehensive company information, political instability, differing auditing and legal standards, less diverse and less mature economic structures, and less liquidity. The fund's investments in value stocks are subject to the risk that their intrinsic values may never be realized by the market, or that their prices may decline. Further, while the fund's investment in value stocks may limit the overall downside risk of the fund over time, the fund may produce more modest gains than riskier stock funds as a trade-off for its potentially lower risk. Because different types of stocks tend to shift in and out of favor depending on market and economic conditions, the fund's performance may sometimes be lower or higher than that of other types of funds (such as those emphasizing growth stocks). The fund may invest in companies of any size. Investments in small and midsize companies carry additional risks because their operating histories tend to be more limited, their earnings are less predictable, and their share prices tend to be more volatile. The shares of smaller companies tend to trade less frequently than those of larger, more established companies, which can have an adverse effect on the pricing of smaller companies' securities and on the fund's ability to sell them when the portfolio manager deems it appropriate. These companies may have limited product lines, markets, and/or financial resources. In addition, these companies may be dependent on a limited management group. Under adverse market conditions, the fund could invest some or all of its assets in money market instruments. Although the fund would do this to avoid losses, it could reduce the benefit from any upswing in the market. During such periods, the fund may not achieve its investment objective. OTHER POTENTIAL RISKS - --------------------- The fund, at times, may invest in certain derivatives, such as options and futures, and in foreign currencies. When employed, these practices are used primarily to hedge the fund's portfolio, but may be used to increase returns; however, such practices may lower returns or increase volatility. Derivatives can be illiquid and highly sensitive to changes in their underlying instrument. A small investment in certain derivatives could have a potentially large impact on the fund's performance. At times, the fund may engage in active trading, which could produce higher brokerage costs and taxable distributions and lower the fund's after-tax performance accordingly. 24 PAST PERFORMANCE - ---------------- Because the fund is newly organized, it does not yet have any performance to report. EXPENSES - -------- As an investor, you pay certain fees and expenses in connection with the fund, which are described in the table below. Because annual fund operating expenses are paid out of fund assets, their effect is included in the share price. The fund has no sales charge (load) or Rule 12b-1 distribution fees. FEE TABLE ANNUAL FUND OPERATING EXPENSES % OF AVERAGE DAILY NET ASSETS Investment advisory fees 1.15% Other expenses 0.58% TOTAL ANNUAL FUND OPERATING EXPENSES 1.73% Less: Fee waiver and/or expense reimbursement* 0.38% EQUALS: NET EXPENSES 1.35% *Pursuant to a contractual arrangement with the fund, Mellon Bank, N.A. has agreed to waive fees and/or reimburse fund expenses through 9/30/03, so that the total annual operating expenses of the fund are limited to the net expenses of the fund, as shown above. EXPENSE EXAMPLE 1 Year 3 Years $138 $430 This example shows what you could pay in expenses over time. It uses the same hypothetical conditions other funds use in their prospectuses: $10,000 initial investment, 5% total return each year and no changes in expenses. The figures shown would be the same whether you sold your shares at the end of a period or kept them. Because actual return and expenses will be different, the example is for comparison only. Concepts to understand - ---------------------- INVESTMENT ADVISORY FEE: the fee paid to the investment adviser for managing the fund's portfolio. OTHER EXPENSES: estimated fees to be paid by the fund for the current fiscal year, including an administration fee of 0.146% (based on the estimated assets of the MPAM funds in the aggregate) payable to Mellon Bank, N.A. for providing or arranging for fund accounting, transfer agency, and certain other fund administration services, and miscellaneous items such as custody and professional service fees. 25 MPAM BOND FUND GOAL/APPROACH - ------------- The fund seeks to outperform the Lehman Brothers Aggregate Bond Index while maintaining a similar risk level. This objective may be changed without shareholder approval. To pursue its goal, the fund actively manages bond market and maturity exposure and invests at least 65% of its total assets in debt securities, such as: o U.S. government and agency bonds o corporate bonds o mortgage-related securities, including commercial mortgage-backed securities o foreign corporate and government bonds (up to 20% of total assets) The fund's investments in debt securities must be of investment grade quality at the time of purchase or, if unrated, deemed of comparable quality by the investment adviser. Generally, the fund's effective duration will not exceed eight years. The fund may invest in individual debt securities of any duration. In calculating effective duration, the fund may treat a security that can be repurchased by its issuer on an earlier date (known as a "call date") as maturing on the call date rather than on its stated maturity date. The investment adviser uses a disciplined process to select securities and manage risk. The investment adviser chooses securities based on yield, credit quality, the level of interest rates and inflation, general economic and financial trends, and its outlook for the securities markets. Securities selected must fit within management's predetermined targeted positions for quality, duration, coupon, maturity and sector. The process includes computer modeling and scenario testing of possible changes in market conditions. The investment adviser will use other techniques in an attempt to manage market risk and duration. Concepts to understand - ---------------------- DURATION: a way of measuring a security's maturity in terms of the average time required to receive the present value of all interest and principal payments, which incorporates the security's yield, coupon interest payments, final maturity and option features into one measure. Generally, the longer a bond's duration, the more likely it is to react to interest rate fluctuations and the greater its long-term risk/return potential. INVESTMENT GRADE BONDS: independent rating organizations analyze and evaluate a bond issuer's credit history and ability to repay debts. Based on their assessment, they assign letter grades that reflect the issuer's creditworthiness. AAA or Aaa represents the highest credit rating, AA/Aa the second highest, and so on down to D, for defaulted debt. Bonds rated BBB or Baa and above are considered investment grade. COMMERCIAL MORTGAGE-BACKED SECURITIES: represent direct or indirect participations in, or are secured by and payable from, pools of loans or leases secured by commercial properties, including retail, office or industrial properties, health-care facilities and multifamily residential properties. 26 MAIN RISKS - ---------- Prices of bonds tend to move inversely with changes in interest rates. While a rise in rates may allow the fund to invest for higher yields, the most immediate effect is usually a drop in bond prices, and, therefore, in the fund's share price as well. As a result, the value of your investment in the fund could go up and down, which means that you could lose money. To the extent the fund maintains a longer duration than other bond funds, its share price typically will react more strongly to interest rate movements. Other risk factors that could have an effect on the fund's performance include: o if an issuer fails to make timely interest or principal payments, or there is a decline in the credit quality of a bond, or perception of a decline, the bond's value could fall, potentially lowering the fund's share price o if the loans underlying the fund's mortgage-related securities are paid off earlier or later than expected, which could occur because of movements in market interest rates, the fund's share price or yield could be hurt o the price and yield of foreign debt securities could be affected by such factors as political and economic instability, changes in currency exchange rates and less liquid markets for such securities o under certain market conditions, usually during periods of market illiquidity or rising interest rates, prices of the fund's "callable" issues are subject to increased price fluctuation because they can be expected to perform more like longer-term securities than shorter-term securities While some of the fund's securities may carry guarantees of the U.S. government or its agencies or instrumentalities, these guarantees do not apply to the market value of those securities or to shares of the fund itself. Under adverse market conditions, the fund could invest some or all of its assets in money market instruments. Although the fund would do this to avoid losses, it could reduce the benefit from any upswing in the market. During such periods, the fund may not achieve its investment objective. Other potential risks - --------------------- The fund may invest in certain derivatives, including futures, options, and some mortgage-related securities. Derivatives can be illiquid and highly sensitive to changes in their underlying security, interest rate or index, and, as a result, can be highly volatile. The value and interest rate of some derivatives, such as inverse floaters, may be inversely related to their underlying security, interest rate, or index. A small investment in certain derivatives could have a potentially large impact on the fund's performance. 27 Although debt securities must be of investment grade quality when purchased by the fund, they may subsequently be downgraded. In the case of commercial mortgage-backed securities, the ability of borrowers to make payments on underlying loans, and the recovery on collateral sufficient to provide repayment on such loans, may be less than for other mortgage-backed securities. At times, the fund may engage in active trading, which could produce higher transaction costs and taxable distributions and lower the fund's after-tax performance accordingly. PERFORMANCE OF SIMILAR COMMON TRUST FUND - ---------------------------------------- The fund has been recently organized and does not yet have a performance record as an investment company registered under the 1940 Act. The performance presented at right is that of a predecessor common trust fund (CTF) that, in all material respects (except as discussed below), had the same investment objective, policies, guidelines and restrictions as the fund, and is for periods before the effective date of this prospectus. Before the fund's commencement of operations, substantially all of the assets of the predecessor CTF (and those of two other CTFs) will be transferred to the fund. The performance presented has been adjusted to reflect the fund's fees and expenses, by subtracting from the actual performance of the CTF the estimated expenses of the fund as set forth in the summary of "Expenses" on page 29 (net of certain fund expenses that will be borne by Mellon Bank, N.A. or the investment adviser). The predecessor CTF was not registered under the 1940 Act and therefore was not subject to certain investment restrictions that might have adversely affected performance. The CTF was not authorized to invest in Rule 144A securities, convertible bonds or futures, forward or option contracts. Although the fund is authorized to invest in futures, forward and option contracts, it anticipates that any use it makes of them would be as an alternative means of managing or maintaining risk exposure similar to that associated with the CTF and that its investment in such derivatives would in no event exceed 10% of its total assets. The fund also does not anticipate that its authority to invest in futures, forward and option contracts, Rule 144A securities and convertible bonds will cause its performance to differ materially from what it would be if it could not so invest. In addition, the fund expects that its effective duration will not exceed eight years. The CTF had no maximum duration policy. During the period for which performance is presented at right, the CTF's duration generally ranged between 3.32 and 6.05 years. The bar chart below shows you how the predecessor CTF's performance has varied from year to year. The table compares the predecessor CTF's performance over time to that of the Lehman Brothers Aggregate Bond Index, a broad-based, unmanaged, market-weighted index that covers the U.S. investment grade fixed-rate bond market and is comprised of U.S. government, corporate, mortgage-backed and asset-backed securities. All performance figures reflect the reinvestment of dividends and distributions. Of course, past performance is no guarantee of future results. Year-by-year total return as of 12/31 each year (%) 28 [BAR CHART]
8.78 15.45 6.73 11.59 -1.85 17.42 3.07 9.40 8.23 -1.42 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Best Quarter: Q3 `91 +5.63% Worst Quarter: Q1 `94 -2.18% The year-to-date total return as of 6/30/00 was 3.38%. Average annual total return as of 12/31/99 1 Year 5 Years 10 Years Predecessor CTF -1.42% 7.15% 7.57% Lehman Brothers Aggregate Bond Index -0.82% 7.73% 7.70% EXPENSES - -------- As an investor, you pay certain fees and expenses in connection with the fund, which are described in the table below. Because annual fund operating expenses are paid out of fund assets, their effect is included in the share price. The fund has no sales charge (load) or Rule 12b-1 distribution fees. FEE TABLE ANNUAL FUND OPERATING EXPENSES % OF AVERAGE DAILY NET ASSETS Investment advisory fees 0.40% Other expenses 0.18% TOTAL ANNUAL FUND OPERATING EXPENSES 0.58% Less: Fee waiver and/or expense reimbursement* 0.02% EQUALS: NET EXPENSES 0.56% *Pursuant to a contractual arrangement with the fund, Mellon Bank, N.A. has agreed to waive fees and/or reimburse fund expenses through 9/30/03, so that the total annual operating expenses of the fund are limited to the net expenses of the fund, as shown above. EXPENSE EXAMPLE 1 Year 3 Years $57 $180 29 This example shows what you could pay in expenses over time. It uses the same hypothetical conditions other funds use in their prospectuses: $10,000 initial investment, 5% total return each year and no changes in expenses. The figures shown would be the same whether you sold your shares at the end of a period or kept them. Because actual return and expenses will be different, the example is for comparison only. Concepts to understand - ---------------------- INVESTMENT ADVISORY FEE: the fee paid to the investment adviser for managing the fund's portfolio. OTHER EXPENSES: estimated fees to be paid by the fund for the current fiscal year, including an administration fee of 0.146% (based on the estimated assets of the MPAM funds in the aggregate) payable to Mellon Bank, N.A. for providing or arranging for fund accounting, transfer agency, and certain other fund administration services, and miscellaneous items such as custody and professional service fees. 30 MPAM INTERMEDIATE BOND FUND GOAL/APPROACH - ------------- The fund seeks to outperform the Lehman Brothers Intermediate Government/Corporate Bond Index while maintaining a similar risk level. This objective may be changed without shareholder approval. To pursue its goal, the fund actively manages bond market and maturity exposure and invests at least 65% of its total assets in debt securities, such as: o U.S. government and agency bonds o corporate bonds o mortgage-related securities including commercial mortgage-backed securities (up to 25% of total assets) o foreign corporate and government bonds (up to 20% of total assets) o municipal bonds The fund's investments in debt securities must be of investment grade quality at the time of purchase or, if unrated, deemed of comparable quality by the investment adviser. Generally, the fund's effective duration will be between 2.5 and 5.5 years. The fund may invest in individual debt securities of any duration. In calculating effective duration, the fund may treat a security that can be repurchased by its issuer on an earlier date (known as a "call date") as maturing on the call date rather than on its stated maturity date. The investment adviser uses a disciplined process to select securities and manage risk. The investment adviser chooses securities based on yield, credit quality, the level of interest rates and inflation, general economic and financial trends, and its outlook for the securities markets. Securities selected must fit within management's predetermined targeted positions for quality, duration, coupon, maturity and sector. The process includes computer modeling and scenario testing of possible changes in market conditions. The investment adviser will use other techniques in an attempt to manage market risk and duration. Concepts to understand - ---------------------- DURATION: a way of measuring a security's maturity in terms of the average time required to receive the present value of all interest and principal payments, which incorporates the security's yield, coupon interest payments, final maturity and option features into one measure. Generally, the longer a bond's duration, the more likely it is to react to interest rate fluctuations and the greater its long-term risk/return potential. INVESTMENT GRADE BONDS: independent rating organizations analyze and evaluate a bond issuer's credit history and ability to repay debts. Based on their assessment, they assign letter grades that reflect the issuer's creditworthiness. AAA or Aaa represents the highest credit rating, AA/Aa the second highest, and so on down to D, for defaulted debt. Bonds rated BBB or Baa and above are considered investment grade. 31 COMMERCIAL MORTGAGE-BACKED SECURITIES: represent direct or indirect participations in, or are secured by and payable from, pools of loans or leases secured by commercial properties, including retail, office or industrial properties, health-care facilities and multifamily residential properties. MAIN RISKS - ---------- Prices of bonds tend to move inversely with changes in interest rates. While a rise in rates may allow the fund to invest for higher yields, the most immediate effect is usually a drop in bond prices, and, therefore, in the fund's share price as well. As a result, the value of your investment in the fund could go up and down, which means that you could lose money. To the extent the fund maintains a longer duration than short-term bond funds, its share price typically will react more strongly to interest rate movements. Other risk factors that could have an effect on the fund's performance include: o if an issuer fails to make timely interest or principal payments, or there is a decline in the credit quality of a bond, or perception of a decline, the bond's value could fall, potentially lowering the fund's share price o if the loans underlying the fund's mortgage-related securities are paid off earlier or later than expected, which could occur because of movements in market interest rates, the fund's share price or yield could be hurt o the price and yield of foreign debt securities could be affected by such factors as political and economic instability, changes in currency exchange rates and less liquid markets for such securities o under certain market conditions, usually during periods of market illiquidity or rising interest rates, prices of the fund's "callable" issues are subject to increased price fluctuation because they can be expected to perform more like longer-term securities than shorter-term securities o changes in economic, business or political conditions relating to a particular municipal project, municipality or state in which the fund invests may have an impact on the fund's share price While some of the fund's securities may carry guarantees of the U.S. government or its agencies or instrumentalities, these guarantees do not apply to the market value of those securities or to shares of the fund itself. Under adverse market conditions, the fund could invest some or all of its assets in money market instruments. Although the fund would do this to avoid losses, it could reduce the benefit from any upswing in the market. During such periods, the fund may not achieve its investment objective. Other potential risks - --------------------- The fund may invest in certain derivatives, including futures, options, and some mortgage-related securities. Derivatives can be illiquid and highly sensitive to changes in their underlying security, interest rate or index and, as a result, can be highly volatile. The value and interest rate of some derivatives, such as 32 inverse floaters, may be inversely related to their underlying security, interest rate or index. A small investment in certain derivatives could have a potentially large impact on the fund's performance. Although debt securities must be of investment grade quality when purchased by the fund, they may subsequently be downgraded. In the case of commercial mortgage-backed securities, the ability of borrowers to make payments on underlying loans, and the recovery on collateral sufficient to provide repayment on such loans, may be less than for other mortgage-backed securities. At times, the fund may engage in active trading, which could produce higher transaction costs and taxable distributions and lower the fund's after-tax performance accordingly. PERFORMANCE OF SIMILAR COMMON TRUST FUND - ---------------------------------------- The fund has been recently organized and does not yet have a performance record as an investment company registered under the 1940 Act. The performance presented at right is that of a predecessor common trust fund (CTF) that, in all material respects (except as discussed below), had the same investment objective, policies, guidelines, and restrictions as the fund, and is for periods before the effective date of this prospectus. Before the fund's commencement of operations, substantially all of the assets of the predecessor CTF will be transferred to the fund. The performance presented has been adjusted to reflect the fund's fees and expenses, by subtracting from the actual performance of the CTF the estimated expenses of the fund as set forth in the summary of "Expenses" on page 33 (net of certain fund expenses that will be borne by Mellon Bank, N.A. or the investment adviser). The predecessor CTF was not registered under the 1940 Act and therefore was not subject to certain investment restrictions that might have adversely affected performance. The CTF was not authorized to invest in Rule 144A securities, convertible bonds or futures, forward or option contracts. Although the fund is authorized to invest in futures, forward and option contracts, it anticipates that any use it makes of them would be as an alternative means of managing or maintaining risk exposure similar to that associated with the CTF and that its investment in such derivatives would in no event exceed 10% of its total assets. The fund also does not anticipate that its authority to invest in futures, forward and option contracts, Rule 144A securities and convertible bonds will cause its performance to differ materially from what it would be if it could not so invest. In addition, the fund expects that its effective duration will range between 2.5 and 5.5 years. The CTF's policy with respect to duration was tied to the weighted average duration of a market index and, during the period for which performance is presented at right, the CTF's duration generally ranged between 2.46 and 4.17 years. The bar chart below shows you how the predecessor CTF's performance has varied from year to year. The table compares the predecessor CTF's performance over time to that of the Lehman Brothers Intermediate Government/Corporate Bond Index, a broad-based, unmanaged, market-weighted index that covers the U.S. government and corporate investment grade bond market and is comprised of issues that must have a maturity from one to (but not including) ten years. All 33 performance figures reflect the reinvestment of dividends and distributions. Of course, past performance is no guarantee of future results. Year-by-year total return as of 12/31 each year (%) [BAR CHART]
8.50 13.53 6.84 9.23 -2.72 14.74 3.56 7.63 7.62 -0.55 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Best Quarter: Q2 `95 +4.84% Worst Quarter: Q1 `94 -2.40% The year-to-date total return as of 6/30/00 was 2.35%. Average annual total return as of 12/31/99 1 Year 5 Years 10 Years Predecessor CTF -0.55% 6.48% 6.71% Lehman Brothers Intermediate 0.39% 7.10% 7.26% Government/Corporate Bond Index EXPENSES - -------- As an investor, you pay certain fees and expenses in connection with the fund, which are described in the table below. Because annual fund operating expenses are paid out of fund assets, their effect is included in the share price. The fund has no sales charge (load) or Rule 12b-1 distribution fees. FEE TABLE ANNUAL FUND OPERATING EXPENSES % OF AVERAGE DAILY NET ASSETS Investment advisory fees 0.40% Other expenses 0.19% TOTAL ANNUAL FUND OPERATING EXPENSES 0.59% Less: Fee waiver and/or expense reimbursement* 0.03% EQUALS: NET EXPENSES 0.56% *Pursuant to a contractual arrangement with the fund, Mellon Bank, N.A. has agreed to waive fees and/or reimburse fund expenses through 9/30/03, so that the total annual operating expenses of the fund are limited to the net expenses of the fund, as shown above. 34 EXPENSE EXAMPLE 1 Year 3 Years $57 $180 This example shows what you could pay in expenses over time. It uses the same hypothetical conditions other funds use in their prospectuses: $10,000 initial investment, 5% total return each year and no changes in expenses. The figures shown would be the same whether you sold your shares at the end of a period or kept them. Because actual return and expenses will be different, the example is for comparison only. Concepts to understand - ---------------------- INVESTMENT ADVISORY FEE: the fee paid to the investment adviser for managing the fund's portfolio. OTHER EXPENSES: estimated fees to be paid by the fund for the current fiscal year, including an administration fee of 0.146% (based on the estimated assets of the MPAM funds in the aggregate) payable to Mellon Bank, N.A. for providing or arranging for fund accounting, transfer agency, and certain other fund administration services, and miscellaneous items such as custody and professional service fees. 35 MPAM SHORT-TERM U.S. GOVERNMENT SECURITIES FUND GOAL/APPROACH - ------------- The fund seeks to provide as high a level of current income as is consistent with the preservation of capital. This objective may be changed without shareholder approval. To pursue its goal, the fund invests primarily in securities issued or guaranteed by the U.S. government or its agencies or instrumentalities, and in repurchase agreements. The fund may invest up to 35% of its net assets in mortgage-related securities issued by U.S. government agencies or instrumentalities, such as mortgage pass-through securities issued by the Government National Mortgage Association, the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, and collateralized mortgage obligations (CMOs), including stripped mortgage-backed securities. Typically in choosing securities, the portfolio manager first examines U.S. and global economic conditions and other market factors in order to estimate long- and short-term interest rates. Using a research-driven investment process, generally the portfolio manager then seeks to identify potentially profitable sectors before they are widely perceived by the market, and seeks underpriced or mispriced securities that appear likely to perform well over time. Generally, the fund's effective duration will be less than three years. The fund may invest in individual debt securities of any duration. In calculating effective duration, the fund may treat a security that can be repurchased by its issuer on an earlier date (known as a "call date") as maturing on the call date rather than on its stated maturity date. Concepts to understand - ---------------------- DURATION: a way of measuring a security's maturity in terms of the average time required to receive the present value of all interest and principal payments, which incorporates the security's yield, coupon interest payments, final maturity and option features into one measure. Generally, the longer a bond's duration, the more likely it is to react to interest rate fluctuations and the greater its long-term risk/return potential. MORTGAGE PASS-THROUGH SECURITIES: pools of residential or commercial mortgages whose cash flows are "passed through" to the holders of the securities via monthly payments of interest and principal. CMOs: multi-class bonds backed by pools of mortgage pass-through securities or mortgage loans. STRIPPED MORTGAGE-BACKED SECURITIES: the separate income or principal components of a mortgage-backed security. CMOs may be partially stripped so that each investor receives some interest and some principal, or fully stripped into interest-only and principal-only components. 36 MAIN RISKS - ---------- Prices of bonds tend to move inversely with changes in interest rates. While a rise in rates may allow the fund to invest for higher yields, the most immediate effect is usually a drop in bond prices and, therefore, in the fund's share price as well. As a result, the value of your investment in the fund could go up and down, which means that you could lose money. To the extent the fund maintains a longer duration than other short-term bond funds, its share price typically will react more strongly to interest rate movements. Other risk factors that could have an effect on the fund's performance include: o if the loans underlying the fund's mortgage-related securities are paid off earlier or later than expected, which could occur because of movements in market interest rates, the fund's share price or yield could be hurt o the value of certain types of stripped mortgage-backed securities may move in the same direction as interest rates o because many types of U.S. government securities trade actively among investors outside the U.S., their prices may rise and fall as changes in global economic conditions affect the demand for these securities o under certain market conditions, usually during periods of market illiquidity or rising interest rates, prices of the fund's "callable" issues are subject to increased price fluctuation because they can be expected to perform more like longer-term securities than shorter-term securities While most of the fund's securities may carry guarantees by the U.S. government or its agencies or instrumentalities, these guarantees do not apply to the market value of those securities or to shares of the fund itself. Under adverse market conditions, the fund could invest some or all of its assets in money market instruments. Although the fund would do this to avoid losses, it could reduce the benefit from any upswing in the market. During such periods, the fund may not achieve its investment objective. Other potential risks - --------------------- Some mortgage-backed securities are a form of derivative. Derivatives can be illiquid and highly sensitive to changes in their underlying security, interest rate or index and, as a result, can be highly volatile. The value and interest rates of some derivatives may be inversely related to their underlying security, interest rate or index. A small investment in certain derivatives could have a potentially large impact on the fund's performance. At times, the fund may engage in active trading, which can produce higher transaction costs and taxable distributions and lower the fund's after-tax performance accordingly. 37 PERFORMANCE OF SIMILAR COMMON TRUST FUND - ---------------------------------------- The fund has been recently organized and does not yet have a performance record as an investment company registered under the 1940 Act. The performance presented at right is that of a predecessor common trust fund (CTF) that, in all material respects (except as discussed below), had the same investment objective, policies, guidelines and restrictions as the fund, and is for periods before the effective date of this prospectus. Before the fund's commencement of operations, substantially all of the assets of the predecessor CTF will be transferred to the fund. The performance presented has been adjusted to reflect the fund's fees and expenses, by subtracting from the actual performance of the CTF the estimated expenses of the fund as set forth in the summary of "Expenses" on page 37 (net of certain fund expenses that will be borne by Mellon Bank, N.A. or the investment adviser). The predecessor CTF was not registered under the 1940 Act and therefore was not subject to certain investment restrictions that might have adversely affected performance. Although the CTF was authorized to invest in mortgage-backed securities (not including CMOs), it did not do so. The fund is authorized to invest in mortgage-backed securities, including CMOs, and anticipates that it will do so. The CTF was not authorized to invest in Rule 144A securities or derivative instruments. Although the fund is authorized to invest in derivatives, it anticipates that any use it makes of them would be as an alternative means of managing or maintaining risk exposure similar to that associated with the CTF and that its investment in derivatives would in no event exceed 10% of its total assets. The fund also does not anticipate that its authority to invest in derivative instruments and Rule 144A securities will cause its performance to differ materially from what it would be if it could not so invest. In addition, the fund expects that its effective duration will be less than three years. The CTF operated under a policy that its average maturity would be maintained between eighteen months and three years. During the period for which performance is presented below, the CTF's duration generally ranged between 1.30 and 2.16 years. The bar chart below shows you how the predecessor CTF's performance has varied from year to year. The table compares the predecessor CTF's performance over time to that of the Lehman 1-3 Year U.S. Government Index, a widely recognized, unmanaged performance benchmark for Treasury and agency securities with maturities between one and three years. All performance figures reflect the reinvestment of dividends and distributions. Of course, past performance is no guarantee of future results. Year-by-year total return as of 12/31 each year (%) [BAR CHART]
9.02 10.95 6.37 6.63 -0.39 10.57 4.22 5.98 6.60 2.44 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Best Quarter: Q3 `91 +3.46% Worst Quarter: Q1 `94 -0.90% 38 The year-to-date total return as of 6/30/00 was 2.76%. Average annual total return as of 12/31/99 1 Year 5 Years 10 Years Predecessor CTF 2.44% 5.93% 6.19% Lehman 1-3 Year U.S. Government Index 2.97% 6.47% 6.56% EXPENSES - -------- As an investor, you pay certain fees and expenses in connection with the fund, which are described in the table below. Because annual fund operating expenses are paid out of fund assets, their effect is included in the share price. The fund has no sales charge (load) or Rule 12b-1 distribution fees. FEE TABLE ANNUAL FUND OPERATING EXPENSES % OF AVERAGE DAILY NET ASSETS Investment advisory fees 0.35% Other expenses 0.22% TOTAL ANNUAL FUND OPERATING EXPENSES 0.57% Less: Fee waiver and/or expense reimbursement* 0.02% EQUALS: NET EXPENSES 0.55% *Pursuant to a contractual arrangement with the fund, Mellon Bank, N.A. has agreed to waive fees and/or reimburse fund expenses through 9/30/03, so that the total annual operating expenses of the fund are limited to the net expenses of the fund, as shown above. EXPENSE EXAMPLE 1 Year 3 Years $56 $177 This example shows what you could pay in expenses over time. It uses the same hypothetical conditions other funds use in their prospectuses: $10,000 initial investment, 5% total return each year and no changes in expenses. The figures shown would be the same whether you sold your shares at the end of a period or kept them. Because actual return and expenses will be different, the example is for comparison only. 39 Concepts to understand - ---------------------- INVESTMENT ADVISORY FEE: the fee paid to the investment adviser for managing the fund's portfolio. OTHER EXPENSES: estimated fees to be paid by the fund for the current fiscal year, including an administration fee of 0.146% (based on the estimated assets of the MPAM funds in the aggregate) payable to Mellon Bank, N.A. for providing or arranging for fund accounting, transfer agency, and certain other fund administration services, and miscellaneous items such as custody and professional service fees. 40 MPAM NATIONAL INTERMEDIATE MUNICIPAL BOND FUND GOAL/APPROACH - ------------- The fund seeks to maximize current income exempt from federal income tax to the extent consistent with the preservation of capital. This objective may be changed without shareholder approval. To pursue its goal, the fund normally invests substantially all of its assets in municipal bonds that provide income exempt from federal income tax. The fund occasionally, including for temporary defensive purposes, may invest in taxable bonds. The fund's investments in municipal and taxable bonds must be of investment grade quality at the time of purchase or, if unrated, deemed of comparable quality by the investment adviser. Generally, the fund's effective duration will not exceed eight years. The fund may invest in individual municipal and taxable bonds of any duration. In calculating effective duration, the fund may treat a security that can be repurchased by its issuer on an earlier date (known as a "call date") as maturing on the call date rather than on its stated maturity date. Municipal bonds are typically of two types: o GENERAL OBLIGATION BONDS, which are secured by the full faith and credit of the issuer and its taxing power o REVENUE BONDS, which are payable from the revenues derived from a specific revenue source, such as charges for water and sewer service or highway tolls Concepts to understand - ---------------------- DURATION: a way of measuring a security's maturity in terms of the average time required to receive the present value of all interest and principal payments, which incorporates the security's yield, coupon interest payments, final maturity and option features into one measure. Generally, the longer a bond's duration, the more likely it is to react to interest rate fluctuations and the greater its long-term risk/return potential. INVESTMENT GRADE BONDS: independent rating organizations analyze and evaluate a bond issuer's credit history and ability to repay debts. Based on their assessment, they assign letter grades that reflect the issuer's creditworthiness. AAA or Aaa represents the highest credit rating, AA/Aa the second highest, and so on down to D, for defaulted debt. Bonds rated BBB or Baa and above are considered investment grade. MAIN RISKS - ---------- Prices of bonds tend to move inversely with changes in interest rates. While a rise in rates may allow the fund to invest for higher yields, the most immediate effect is usually a drop in bond prices and, therefore, in the fund's share price as well. As a result, the value of your investment in the fund could go up and down, which means that you could lose money. To the extent the fund maintains a longer duration than short-term bond funds, its share price typically will react more strongly to interest rate movements. 41 Other risk factors that could have an effect on the fund's performance include: o if an issuer fails to make timely interest or principal payments, or there is a decline in the credit quality of a bond, or perception of a decline, the bond's value could fall, potentially lowering the fund's share price o changes in economic, business or political conditions relating to a particular municipal project, municipality, or state in which the fund invests may have an impact on the fund's share price o under certain market conditions, usually during periods of market illiquidity or rising interest rates, prices of the fund's "callable" issues are subject to increased price fluctuation because they can be expected to perform more like longer-term securities than shorter-term securities The fund is non-diversified, which means that a relatively high percentage of the fund's assets may be invested in a limited number of issuers. Therefore, its performance may be more vulnerable to changes in the market value of a single issuer or a group of issuers. Although municipal and taxable debt securities must be of investment grade quality when purchased by the fund, they may subsequently be downgraded. Although the fund's objective is to generate income exempt from federal income tax, interest from some of its holdings may be subject to federal income tax including the alternative minimum tax. In addition, for temporary defensive purposes, the fund may invest up to all of its assets in taxable bonds. During such periods, the fund may not achieve its investment objective. Other potential risks - --------------------- The fund, at times, may invest in certain derivatives, such as futures and options and debt obligations having similar features. Derivatives can be illiquid and highly sensitive to changes in their underlying security, interest rate or index and, as a result, can be highly volatile. The value and interest rate of some derivatives, such as inverse floaters, may be inversely related to their underlying security, interest rate or index. A small investment in certain derivatives could have a potentially large impact on the fund's performance. PERFORMANCE OF SIMILAR COMMON TRUST FUND - ---------------------------------------- The fund has been recently organized and does not yet have a performance record as an investment company registered under the 1940 Act. The performance presented at right is that of a predecessor common trust fund (CTF) that, in all material respects (except as discussed below), had the same investment objective, policies, guidelines and restrictions as the fund, and is for periods before the effective date of this prospectus. Before the fund's commencement of operations, substantially all of the assets of the predecessor CTF will be transferred to the fund. The performance presented has been adjusted to reflect the fund's fees and expenses, by subtracting from the actual performance of the CTF the estimated expenses of the fund as set forth in the summary of "Expenses" on page 41 (net of certain fund expenses that will be borne by Mellon Bank, N.A. 42 or the investment adviser). The predecessor CTF was not registered under the 1940 Act and therefore was not subject to certain investment restrictions that might have adversely affected performance. The CTF was not authorized to invest in futures or option contracts. Although the fund is authorized to invest in futures and option contracts, it anticipates that any use it makes of them would be as an alternative means of managing or maintaining risk exposure similar to that associated with the CTF and that its investment in such derivatives would in no event exceed 10% of its total assets. The fund also does not anticipate that its authority to invest in futures and option contracts will cause its performance to differ materially from what it would be if it could not so invest. In addition, the fund expects that its effective duration will not exceed eight years. The CTF had no maximum duration policy. During the period for which performance is presented at right, the CTF's duration generally ranged between 4.25 and 6.50 years. The bar chart below shows you how the predecessor CTF's performance has varied from year to year. The table compares the predecessor CTF's performance over time to that of the Lehman Brothers 7-Year Municipal Bond Index, a broad-based, unmanaged total return performance benchmark of investment grade municipal bonds maturing in the 6-to-8-year range. All performance figures reflect the reinvestment of dividends and distributions. Of course, past performance is no guarantee of future results. Year-by-year total return as of 12/31 each year (%) [BAR CHART]
7.25 11.65 7.57 10.50 -3.83 12.98 4.45 7.31 6.30 -1.49 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Best Quarter: Q1 `95 +4.86% Worst Quarter: Q1 `94 -3.44% The year-to-date total return as of 6/30/00 was 3.68%. Average annual total return as of 12/31/99 1 Year 5 Years 10 Years Predecessor CTF -1.49% 5.81% 6.14% Lehman Brothers 7-Year -0.14% 6.35% 6.59% Municipal Bond Index 43 EXPENSES - -------- As an investor, you pay certain fees and expenses in connection with the fund, which are described in the table below. Because annual fund operating expenses are paid out of fund assets, their effect is included in the share price. The fund has no sales charge (load) or Rule 12b-1 distribution fees. FEE TABLE ANNUAL FUND OPERATING EXPENSES % OF AVERAGE DAILY NET ASSETS Investment advisory fees 0.35% Other expenses 0.19% TOTAL ANNUAL FUND OPERATING EXPENSES 0.54% Less: Fee waiver and/or expense reimbursement* 0.02% EQUALS: NET EXPENSES 0.52% *Pursuant to a contractual arrangement with the fund, Mellon Bank, N.A. has agreed to waive fees and/or reimburse fund expenses through 9/30/03, so that the total annual operating expenses of the fund are limited to the net expenses of the fund, as shown above. EXPENSE EXAMPLE 1 Year 3 Years $53 $167 This example shows what you could pay in expenses over time. It uses the same hypothetical conditions other funds use in their prospectuses: $10,000 initial investment, 5% total return each year and no changes in expenses. The figures shown would be the same whether you sold your shares at the end of a period or kept them. Because actual return and expenses will be different, the example is for comparison only. Concepts to understand - ---------------------- INVESTMENT ADVISORY FEE: the fee paid to the investment adviser for managing the fund's portfolio. OTHER EXPENSES: estimated fees to be paid by the fund for the current fiscal year, including an administration fee of 0.146% (based on the estimated assets of the MPAM funds in the aggregate) payable to Mellon Bank, N.A. for providing or arranging for fund accounting, transfer agency, and certain other fund administration services, and miscellaneous items such as custody and professional service fees. 44 MPAM NATIONAL SHORT-TERM MUNICIPAL BOND FUND GOAL/APPROACH - ------------- The fund seeks to maximize current income exempt from federal income tax to the extent consistent with the preservation of capital. This objective may be changed without shareholder approval. To pursue its goal, the fund normally invests primarily in municipal bonds that provide income exempt from federal income tax. The fund occasionally, including for temporary defensive purposes, may invest in taxable bonds. The fund's investments in municipal and taxable bonds must be of investment grade quality at the time of purchase or, if unrated, deemed of comparable quality by the investment adviser. Generally, the fund's effective duration will be less than three years. The fund may invest in individual municipal and taxable bonds of any duration. In calculating effective duration, the fund may treat a security that can be repurchased by its issuer on an earlier date (known as a "call date") as maturing on the call date rather than on its stated maturity date. Municipal bonds are typically of two types: o GENERAL OBLIGATION BONDS, which are secured by the full faith and credit of the issuer and its taxing power o REVENUE BONDS, which are payable from the revenues derived from a specific revenue source, such as charges for water and sewer service or highway tolls Concepts to understand - ---------------------- DURATION: a way of measuring a security's maturity in terms of the average time required to receive the present value of all interest and principal payments, which incorporates the security's yield, coupon interest payments, final maturity and option features into one measure. Generally, the longer a bond's duration, the more likely it is to react to interest rate fluctuations and the greater its long-term risk/return potential. INVESTMENT GRADE BONDS: independent rating organizations analyze and evaluate a bond issuer's credit history and ability to repay debts. Based on their assessment, they assign letter grades that reflect the issuer's creditworthiness. AAA or Aaa represents the highest credit rating, AA/Aa the second highest, and so on down to D, for defaulted debt. Bonds rated BBB or Baa and above are considered investment grade. MAIN RISKS - ---------- Prices of bonds tend to move inversely with changes in interest rates. While a rise in rates may allow the fund to invest for higher yields, the most immediate effect is usually a drop in bond prices and, therefore, in the fund's share price as well. As a result, the value of your investment in the fund could go up and down, which means that you could lose money. To the extent the fund maintains a longer duration than other short-term bond funds, its share price typically will react more strongly to interest rate movements. 45 Other risk factors that could have an effect on the fund's performance include: o if an issuer fails to make timely interest or principal payments, or there is a decline in the credit quality of a bond, or perception of a decline, the bond's value could fall, potentially lowering the fund's share price o changes in economic, business or political conditions relating to a particular municipal project, municipality, or state in which the fund invests may have an impact on the fund's share price o under certain market conditions, usually during periods of market illiquidity or rising interest rates, prices of the fund's "callable" issues are subject to increased price fluctuation because they can be expected to perform more like longer-term securities than shorter-term securities The fund is non-diversified, which means that a relatively high percentage of the fund's assets may be invested in a limited number of issuers. Therefore, its performance may be more vulnerable to changes in the market value of a single issuer or a group of issuers. Although municipal and taxable debt securities must be of investment grade quality when purchased by the fund, they may subsequently be downgraded. Although the fund's objective is to generate income exempt from federal income tax, interest from some of its holdings may be subject to federal income tax including the alternative minimum tax. In addition, for temporary defensive purposes, the fund may invest up to all of its assets in taxable bonds. During such periods, the fund may not achieve its investment objective. Other potential risks - --------------------- The fund, at times, may invest in certain derivatives, such as futures and options and debt obligations having similar features. Derivatives can be illiquid and highly sensitive to changes in their underlying security, interest rate or index and, as a result, can be highly volatile. The value and interest rate of some derivatives, such as inverse floaters, may be inversely related to their underlying security, interest rate or index. A small investment in certain derivatives could have a potentially large impact on the fund's performance. PAST PERFORMANCE - ---------------- Because the fund is newly organized, it does not yet have any performance to report. EXPENSES - -------- As an investor, you pay certain fees and expenses in connection with the fund, which are described in the table below. Because annual fund operating expenses are paid out of fund assets, their effect is included in the share price. The fund has no sales charge (load) or Rule 12b-1 distribution fees. 46 FEE TABLE ANNUAL FUND OPERATING EXPENSES % OF AVERAGE DAILY NET ASSETS Investment advisory fees 0.35% Other expenses 0.21% TOTAL ANNUAL FUND OPERATING EXPENSES 0.56% Less: Fee waiver and/or expense reimbursement* 0.04% EQUALS: NET EXPENSES 0.52% *Pursuant to a contractual arrangement with the fund, Mellon Bank, N.A. has agreed to waive fees and/or reimburse fund expenses through 9/30/03, so that the total annual operating expenses of the fund are limited to the net expenses of the fund, as shown above. EXPENSE EXAMPLE 1 Year 3 Years $53 $167 This example shows what you could pay in expenses over time. It uses the same hypothetical conditions other funds use in their prospectuses: $10,000 initial investment, 5% total return each year and no changes in expenses. The figures shown would be the same whether you sold your shares at the end of a period or kept them. Because actual return and expenses will be different, the example is for comparison only. Concepts to understand - ---------------------- INVESTMENT ADVISORY FEE: the fee paid to the investment adviser for managing the fund's portfolio. OTHER EXPENSES: estimated fees to be paid by the fund for the current fiscal year, including an administration fee of 0.146% (based on the estimated assets of the MPAM funds in the aggregate) payable to Mellon Bank, N.A. for providing or arranging for fund accounting, transfer agency, and certain other fund administration services, and miscellaneous items such as custody and professional service fees. 47 MPAM PENNSYLVANIA INTERMEDIATE MUNICIPAL BOND FUND GOAL/APPROACH - ------------- The fund seeks as high a level of income exempt from federal and Pennsylvania state income taxes as is consistent with the preservation of capital. This objective may be changed without shareholder approval. To pursue its goal, the fund normally invests at least 65% of its net assets in municipal bonds, the interest from which is exempt from federal and Pennsylvania state personal income taxes. The fund also may invest in municipal bonds that are exempt from federal income taxes, but not Pennsylvania personal income taxes, and in taxable bonds. The fund's investments in municipal and taxable bonds must be of investment grade quality at the time of purchase or, if unrated, deemed of comparable quality by the investment adviser. Generally, the fund's effective duration will not exceed eight years. The fund may invest in individual municipal and taxable bonds of any duration. In calculating effective duration, the fund may treat a security that can be repurchased by its issuer on an earlier date (known as a "call date") as maturing on the call date rather than on its stated maturity date. Municipal bonds are typically of two types: o GENERAL OBLIGATION BONDS, which are secured by the full faith and credit of the issuer and its taxing power o REVENUE BONDS, which are payable from the revenues derived from a specific revenue source, such as charges for water and sewer service or highway tolls Concepts to understand - ---------------------- DURATION: a way of measuring a security's maturity in terms of the average time required to receive the present value of all interest and principal payments, which incorporates the security's yield, coupon interest payments, final maturity and option features into one measure. Generally, the longer a bond's duration, the more likely it is to react to interest rate fluctuations and the greater its long-term risk/return potential. INVESTMENT GRADE BONDS: independent rating organizations analyze and evaluate a bond issuer's credit history and ability to repay debts. Based on their assessment, they assign letter grades that reflect the issuer's creditworthiness. AAA or Aaa represents the highest credit rating, AA/Aa the second highest, and so on down to D, for defaulted debt. Bonds rated BBB or Baa and above are considered investment grade. MAIN RISKS - ---------- Prices of bonds tend to move inversely with changes in interest rates. While a rise in rates may allow the fund to invest for higher yields, the most immediate effect is usually a drop in bond prices, and, therefore, in the fund's share price as well. As a result, the value of your investment in the fund could go up and down, which means that you could lose money. To the extent the fund 48 maintains a longer duration than short-term bond funds, its share price typically will react more strongly to interest rate movements. Other risk factors that could have an effect on the fund's performance include: o if an issuer fails to make timely interest or principal payments, or there is a decline in the credit quality of a bond, or perception of a decline, the bond's value could fall, potentially lowering the fund's share price o Pennsylvania's economy and revenues underlying municipal bonds may decline, meaning that the ability of the issuer to make timely principal and interest payments may be reduced o investing primarily in a single state may make the fund's portfolio securities more sensitive to risks specific to the state o under certain market conditions, usually during periods of market illiquidity or rising interest rates, prices of the fund's "callable" issues are subject to increased price fluctuation because they can be expected to perform more like longer-term securities than shorter-term securities The fund is non-diversified, which means that a relatively high percentage of the fund's assets may be invested in a limited number of issuers. Therefore, its performance may be more vulnerable to changes in the market value of a single issuer or a group of issuers. Although the fund's objective is to generate income exempt from federal and Pennsylvania state income taxes, interest from some of its holdings may be subject to federal income tax including the alternative minimum tax. In addition, the fund may invest in taxable bonds and/or municipal bonds that are exempt only from federal income taxes. During such periods, the fund may not achieve its investment objective. Other potential risks - --------------------- The fund, at times, may invest in certain derivatives, such as futures and options and debt obligations having similar features. Derivatives can be illiquid and highly sensitive to changes in their underlying security, interest rate or index, and, as a result, can be highly volatile. The value and interest rate of some derivatives, such as inverse floaters, may be inversely related to their underlying security, interest rate or index. A small investment in certain derivatives could have a potentially large impact on the fund's performance. Although municipal and taxable debt securities must be of investment grade quality when purchased by the fund, they may subsequently be downgraded. PERFORMANCE OF SIMILAR COMMON TRUST FUND - ---------------------------------------- The fund has been recently organized and does not yet have a performance record as an investment company registered under the 1940 Act. The performance presented at right is that of a predecessor common trust fund (CTF) that, in all material respects (except as discussed below), had the same investment objective, policies, guidelines and restrictions as the fund, and is for periods before the effective date of this prospectus. Before the fund's commencement of 49 operations, substantially all of the assets of the predecessor CTF will be transferred to the fund. The performance presented has been adjusted to reflect the fund's fees and expenses, by subtracting from the actual performance of the CTF the estimated expenses of the fund as set forth in the summary of "Expenses" on page 49 (net of certain fund expenses that will be borne by Mellon Bank, N.A. or the investment adviser). The predecessor CTF was not registered under the 1940 Act and therefore was not subject to certain investment restrictions that might have adversely affected performance. The CTF was not authorized to invest in futures or option contracts. Although the fund is authorized to invest in futures and option contracts, it anticipates that any use it makes of them would be as an alternative means of managing or maintaining risk exposure similar to that associated with the CTF and that its investment in such derivatives would in no event exceed 10% of its total assets. In addition, before June 1, 2000, the CTF had a stated policy that, under normal circumstances, it sought to maintain a minimum of 60% of its assets in issues that are exempt from federal and Pennsylvania personal income taxes. Beginning June 1, 2000, the CTF increased this percentage to 65%. The fund maintains a policy that it normally invests at least 65% of its net assets in municipal bonds, the interest from which is exempt from federal and Pennsylvania personal income taxes. The bar chart below shows you how the predecessor CTF's performance has varied from year to year. The table compares the predecessor CTF's performance over time to that of the Lehman Brothers 7-Year Municipal Bond Index, a broad-based, unmanaged total return performance benchmark of investment grade municipal bonds maturing in the 6-to-8-year range. All performance figures reflect the reinvestment of dividends and distributions. Of course, past performance is no guarantee of future results. Year-by-year total return as of 12/31 each year (%) [BAR CHART]
6.91 9.60 8.04 10.28 -3.34 13.18 3.83 7.11 5.73 -1.75 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Best Quarter: Q1 `95 +5.44% Worst Quarter: Q1 `94 -3.37% The year-to-date total return as of 6/30/00 was 3.37%. 50 Average annual total return as of 12/31/99 1 Year 5 Years 10 Years Predecessor CTF -1.75% 5.51% 5.84% Lehman Brothers 7-Year -0.14% 6.35% 6.59% Municipal Bond Index* * Unlike the fund, this index is not limited to obligations issued by a single state or municipalities in that state. EXPENSES - -------- As an investor, you pay certain fees and expenses in connection with the fund, which are described in the table below. Because annual fund operating expenses are paid out of fund assets, their effect is included in the share price. The fund has no sales charge (load) or Rule 12b-1 distribution fees. FEE TABLE ANNUAL FUND OPERATING EXPENSES % OF AVERAGE DAILY NET ASSETS Investment advisory fees 0.50% Other expenses 0.17% TOTAL ANNUAL FUND OPERATING EXPENSES 0.67% Less: Fee waiver and/or expense reimbursement* 0.00% EQUALS: NET EXPENSES 0.67% *Pursuant to a contractual arrangement with the fund, Mellon Bank, N.A. has agreed to waive fees and/or reimburse fund expenses through 9/30/03, so that the total annual operating expenses of the fund are limited to the net expenses of the fund, as shown above. Based on estimated expenses, any such waiver or reimbursement is expected to be less than 0.01% of average daily net assets of the fund. EXPENSE EXAMPLE 1 Year 3 Years $69 $215 This example shows what you could pay in expenses over time. It uses the same hypothetical conditions other funds use in their prospectuses: $10,000 initial investment, 5% total return each year and no changes in expenses. The figures shown would be the same whether you sold your shares at the end of a period or kept them. Because actual return and expenses will be different, the example is for comparison only. 51 Concepts to understand - ---------------------- INVESTMENT ADVISORY FEE: the fee paid to the investment adviser for managing the fund's portfolio. OTHER EXPENSES: estimated fees to be paid by the fund for the current fiscal year, including an administration fee of 0.146% (based on the estimated assets of the MPAM funds in the aggregate) payable to Mellon Bank, N.A. for providing or arranging for fund accounting, transfer agency, and certain other fund administration services, and miscellaneous items such as custody and professional service fees. 52 MPAM BALANCED FUND GOAL/APPROACH - ------------- The fund seeks long-term growth of principal in conjunction with current income. This objective may be changed without shareholder approval. The fund is designed for investors who seek capital appreciation and current income. The fund may invest in both individual securities and other MPAM funds (referred to below as the "underlying funds"). To pursue its goal, the fund currently intends to invest in a combination of equity securities, income-producing bonds, MPAM Mid Cap Stock Fund, MPAM International Fund and MPAM Emerging Markets Fund. MPAM Mid Cap Stock Fund, MPAM International Fund and MPAM Emerging Markets Fund, in turn, may invest in a wide range of securities, including those of foreign issuers. The fund may also invest a portion of its assets in money market instruments. The fund has established target allocations for its assets of 55% in the aggregate to equity securities (directly and through underlying funds that invest principally in equity securities), and 45% to bonds and money market instruments (directly and, possibly in the future, through underlying funds that invest principally in such securities). The fund may deviate from these target allocations within ranges of 10% above or below the target amount. The fund's investment in each of MPAM Mid Cap Stock Fund, MPAM International Fund, and MPAM Emerging Markets Fund is subject to a separate limit of 20% of the fund's total assets, as is the fund's investment in money market instruments. Subject to these percentage limitations, the fund's investment adviser allocates the fund's investments (directly, through MPAM Mid Cap Stock Fund, MPAM International Fund and MPAM Emerging Markets Fund, or, possibly in the future, through other underlying funds) among equity securities, bonds, and money market instruments using fundamental and quantitative analysis, its outlook for the economy and financial markets, and the relative performance of the underlying funds. The fund's investment adviser normally considers reallocating the fund's investments at least quarterly, but may change allocations more frequently if it believes that market conditions warrant such a change. The target allocations and the investment percentage ranges for the fund are based on the investment adviser's expectation that the selected securities and underlying funds, in combination, will be appropriate to achieve the fund's investment objective. If appreciation or depreciation in the value of selected securities or an underlying fund's shares causes the percentage of the fund's assets invested in a type of security or underlying fund or the allocation among the different types of securities or underlying funds to fall outside the applicable investment range, the investment adviser will consider whether to reallocate the fund's assets, but is not required to do so. The underlying funds, the target allocations among security or fund types, and the investment percentage ranges for securities and each underlying fund may be changed by the fund's board at any time. In selecting equity securities in which the fund invests directly, the investment adviser uses a computer model to identify and rank stocks within an industry or sector, based on: 53 o VALUE, or how a stock is priced relative to its perceived intrinsic worth o GROWTH, in this case the sustainability or growth of earnings o FINANCIAL PROFILE, which measures the financial health of the company Next, based on fundamental analysis, the investment adviser generally selects the most attractive of the higher ranked securities, drawing on information technology as well as Wall Street sources and company management. The investment adviser manages risk by diversifying across companies and industries, limiting the potential adverse impact from any one stock or industry. Debt securities in which the fund may invest include: o U.S. government and agency bonds o corporate bonds o mortgage-related securities, including commercial mortgage-backed securities o foreign corporate and government bonds The fund's investments in debt securities must be of investment grade quality at the time of purchase or, if unrated, deemed of comparable quality by the investment adviser. Generally, the effective duration of bonds in the fund's portfolio will not exceed eight years. The fund may invest in individual debt securities of any duration. In calculating effective duration, the fund may treat a security that can be repurchased by its issuer on an earlier date (known as a "call date") as maturing on the call date rather than on its stated maturity date. The investment adviser uses a disciplined process to select debt securities and manage risk. The investment adviser chooses securities based on yield, credit quality, the level of interest rates and inflation, general economic and financial trends, and its outlook for the securities markets. Securities selected must fit within management's predetermined targeted positions for quality, duration, coupon, maturity and sector. The process includes computer modeling and scenario testing of possible changes in market conditions. The investment adviser will use other techniques in an attempt to manage market risk and duration. Concepts to understand - ---------------------- COMPUTER MODEL: a proprietary program that evaluates and ranks a universe of over 2,000 stocks. The model screens each stock for relative attractiveness within its economic sector and industry. The investment adviser reviews each of the screens on a regular basis, and maintains the flexibility to adapt the screening criteria to changes in market conditions. DURATION: a way of measuring a security's maturity in terms of the average time required to receive the present value of all interest and principal payments, which incorporates the security's yield, coupon interest payments, final maturity and option features into one measure. Generally, the longer a bond's 54 duration, the more likely it is to react to interest rate fluctuations and the greater its long-term risk/return potential. INVESTMENT GRADE BONDS: independent rating organizations analyze and evaluate a bond issuer's credit history and ability to repay debts. Based on their assessment, they assign letter grades that reflect the issuer's creditworthiness. AAA or Aaa represents the highest credit rating, AA/Aa the second highest, and so on down to D, for defaulted debt. Bonds rated BBB or Baa and above are considered investment grade. COMMERCIAL MORTGAGE-BACKED SECURITIES: represent direct or indirect participations in, or are secured by and payable from, pools of loans or leases secured by commercial properties, including retail, office or industrial properties, health-care facilities and multifamily residential properties. MAIN RISKS - ---------- The value of your investment in the fund will go up and down, which means that you could lose money. Your investment in the fund is subject to both the risks of investment in the securities held directly by the fund and the risks of investments in the securities held by the underlying funds. The fund's performance therefore depends not only on the allocation of its assets among securities and the various underlying funds, but also on the performance of the securities themselves and the underlying funds' ability to meet their investment objectives. The investment adviser may not accurately assess the attractiveness or risk potential of particular securities or underlying funds. In addition, the fund will bear both its own operating expenses and its pro rata share of the operating expenses of the underlying funds in which it invests. One underlying fund may purchase the same securities that another underlying fund sells. By investing in both underlying funds, the fund would indirectly bear a portion of the costs of these trades without accomplishing any investment purpose. Any taxable gains that the fund distributes to its shareholders will be generated by transactions in its portfolio securities or in shares of the underlying funds and by the underlying funds' own portfolio transactions. Because the fund invests, directly and through the underlying funds, in both common stocks and bonds, the fund is subject to equity risk, interest rate risk, and credit risk. Investing in the fund includes the principal risks summarized below, although not all of those risks apply to each underlying fund. For more information on the investment objectives of, and the main risks associated with investment in, the underlying funds, please read the underlying funds' descriptions described above in this prospectus. 55 Equity securities and the underlying funds - ------------------------------------------ While stocks have historically been a leading choice of long-term investors, they do fluctuate in price. By investing, directly and through the underlying funds, in a mix of growth and value companies, the fund assumes the risks of both types of companies, and may achieve more modest gains than funds that use only one investment style. Because stock prices of growth companies are based in part on future expectations, they may fall sharply if earnings expectations are not met or investors believe the prospects for a stock, industry or the economy in general are weak, even if earnings do increase. Growth stocks also typically lack the dividend yield that could cushion stock prices in market downturns. With value stocks, there is the risk that they may never reach what the investment adviser believes is their full market value, either because the market fails to recognize the stock's intrinsic worth, or the portfolio manager misgauged that worth. They also may decline in price even though in theory they are already underpriced. While investments in value stocks may limit downside risk over time, they may produce smaller gains than riskier stocks. Small and midsize companies carry additional risks because their operating histories tend to be more limited, their earnings are less predictable, and their share prices tend to be more volatile. The shares of smaller companies tend to trade less frequently than those of larger, more established companies, which can have an adverse effect on the pricing of smaller companies' securities and on the fund's ability to sell them when the portfolio manager deems it appropriate. These companies may have limited product lines, markets, and/or financial resources. In addition, these companies may be dependent on a limited management group. The prices of securities purchased in initial public offerings or shortly thereafter may be very volatile. Some such securities will rise and fall based on investor perception rather than economics. Because all of the underlying funds may invest in foreign securities, and MPAM International Fund and MPAM Emerging Markets Fund normally invest most of their assets in such securities, the fund's performance will be influenced by political, social and economic factors affecting investments in foreign countries. Special risks include exposure to currency fluctuations, less liquidity, less developed or efficient trading markets, a lack of comprehensive company information, political instability and differing auditing and legal standards. These risks are intensified with respect to emerging market securities, and the stock markets of emerging market countries can be extremely volatile. Bonds - ----- Prices of bonds tend to move inversely with changes in interest rates. While a rise in rates may allow investing for higher yields, the most immediate effect is usually a drop in bond prices, which could cause the fund's share price to drop as well. To the extent the fund maintains a longer duration than other bond funds, its share price typically will react more strongly to interest rate movements. An investment in bonds could be subject to additional risk factors, including: 56 o if an issuer fails to make timely interest or principal payments, or there is a decline in the bond's credit quality, or perception of a decline, the bond's value could fall, potentially lowering the fund's share price o if the loans underlying the fund's mortgage-related securities are paid off earlier or later than expected, which could occur because of movements in market interest rates, the fund's share price or yield could be hurt o the price and yield of foreign debt securities could be affected by such factors as political and economic instability, changes in currency exchange rates and less liquid markets for such securities o under certain market conditions, usually during periods of market illiquidity or rising interest rates, prices of the fund's "callable" issues are subject to increased price fluctuation because they can be expected to perform more like longer-term securities than shorter-term securities While some of the fund's securities may carry guarantees of the U.S. government or its agencies or instrumentalities, these guarantees do not apply to the market value of those securities or to shares of the fund itself. Money market instruments - ------------------------ The fund may invest, and under adverse market conditions MPAM International Fund and MPAM Emerging Markets Fund may also invest, in money market instruments. Although the funds would do this to avoid losses, it could reduce the benefit from any upswing in the market. During such periods, the funds may not achieve their investment objectives. Other potential risks - --------------------- The fund, at times, may invest in certain derivatives, including futures, options, and some mortgage-related securities. Derivatives can be illiquid and highly sensitive to changes in their underlying security, interest rate or index, and, as a result, can be highly volatile. The value and interest rate of some derivatives, such as inverse floaters, may be inversely related to their underlying security, interest rate or index. A small investment in certain derivatives could have a potentially large impact on the fund's performance. Certain of the underlying funds may invest in initial public offerings, options, futures and foreign currencies to hedge the fund's portfolio or to increase returns. There is the risk that such practices may reduce returns or increase volatility. Although debt securities must be of investment grade quality when purchased by the fund, they may subsequently be downgraded. In the case of commercial mortgage-backed securities, the ability of borrowers to make payments on underlying loans, and the recovery on collateral sufficient to provide repayment on such loans, may be less than for other mortgage-backed securities. 57 At times, the fund or MPAM Emerging Markets Fund may engage in active trading, which could produce higher transaction costs and taxable distributions, and lower the fund's after-tax performance accordingly. PAST PERFORMANCE - ---------------- Because the fund is newly organized, it does not yet have any past performance to report. EXPENSES - -------- As an investor, you pay certain fees and expenses in connection with the fund, which are described below. Because annual fund operating expenses are paid out of fund assets, their effect is included in the share price. The fund has no sales charge (load) or Rule 12b-1 distribution fees. The fund has agreed to pay an investment advisory fee at the rate of 0.65% applied to that portion of its average daily net assets allocated to direct investments in equity securities, at the rate of 0.40% applied to that portion of its average daily net assets allocated to direct investments in debt securities, and at the rate of 0.15% applied to that portion of its average daily net assets allocated to money market instruments or the underlying funds. The fund will also indirectly bear its pro rata share of the expenses of the underlying funds. Each of the underlying funds pays an investment advisory fee to the investment adviser and also pays other operating expenses. An investor in the fund will indirectly pay the investment advisory fees and other expenses of the underlying funds it holds. The following table shows the estimated total annual expense ratios for each underlying fund as a percentage of average net assets. Note that the fund's pro rata share of expenses fluctuates along with changes in the average assets in each of the underlying funds. Expense ratio table Underlying fund Estimated total annual expense ratio - --------------- ------------------------------------ MPAM Mid Cap Stock Fund 0.92% MPAM International Fund 1.05%* MPAM Emerging Markets Fund 1.35%* *Pursuant to a contractual arrangement with each fund, Mellon Bank, N.A. has agreed to waive fees and/or reimburse fund expenses through 9/30/03, so that the total annual operating expenses of each of these funds are limited to the respective estimated total annual expense ratio, as shown above. The fund has also agreed to pay an administration fee to Mellon Bank, N.A. for providing or arranging for fund accounting, transfer agency, and certain other fund administration services, at the rate of approximately 0.146% (based on the estimated assets of the MPAM funds in the aggregate), applied to that portion of 58 its average daily net assets allocated to direct investments in equity or debt securities. In addition, the fund will pay certain expenses for custody and other items. The following table shows the estimated total annual expenses of the fund, assuming an asset allocation of 65% to direct investment in equity securities and 35% to direct investment in debt securities. FEE TABLE ANNUAL FUND OPERATING EXPENSES % OF AVERAGE DAILY NET ASSETS Investment advisory fees 0.56% Other expenses 0.18% TOTAL ANNUAL FUND OPERATING EXPENSES 0.74% Less: Fee waiver and/or expense reimbursement* 0.10% EQUALS: NET EXPENSES 0.64% *Pursuant to a contractual arrangement with the fund, Mellon Bank, N.A. has agreed to waive fees and/or reimburse fund expenses through 9/30/03, so that the total annual operating expenses of the fund are limited to the net expenses of the fund, as shown above. EXPENSE EXAMPLE 1 Year 3 Years $66 $206 This example shows what you could pay in expenses over time. It uses the same hypothetical conditions other funds use in their prospectuses: $10,000 initial investment, 5% total return each year and no changes in expenses. The figures shown would be the same whether you sold your shares at the end of a period or kept them. Because actual return and expenses will be different, the example is for comparison only. Concepts to understand - ---------------------- INVESTMENT ADVISORY FEE: the fee paid to the investment adviser for managing the fund's portfolio. OTHER EXPENSES: estimated fees to be paid by the fund for the current fiscal year, including an administration fee of 0.146% (based on the estimated assets of the MPAM funds in the aggregate) payable to Mellon Bank, N.A. for providing or arranging for fund accounting, transfer agency, and certain other fund administration services, and miscellaneous items such as custody and professional service fees. 59 MANAGEMENT The investment adviser for the funds is MPAM Advisers, a division of The Dreyfus Corporation, 200 Park Avenue, New York, New York 10166. Founded in 1947, Dreyfus manages more than $134 billion in over 160 mutual fund portfolios and is the primary mutual fund business of Mellon Financial Corporation, a global financial services company with approximately $2.8 trillion of assets under management, administration or custody, including approximately $521 billion under management. Mellon provides wealth management, global investment services and a comprehensive array of banking services for individuals, businesses and institutions. Mellon is headquartered in Pittsburgh, Pennsylvania. PORTFOLIO MANAGERS
NAME OF FUND PRIMARY PORTFOLIO MANAGER MPAM Large Cap Stock Fund MPAM's Equity Management Team MPAM Income Stock Fund Bert Mullins MPAM Mid Cap Stock Fund Anthony J. Galise MPAM Small Cap Stock Fund Gene F. Cervi MPAM International Fund Sandor Cseh MPAM Emerging Markets Fund D. Kirk Henry MPAM Bond Fund Daniel J. Fasciano and Stephen P. Fiorella MPAM Intermediate Bond Fund Stephen P. Fiorella and Lawrence R. Dunn MPAM Short-Term U.S. Government Securities Fund Carol D. Miltenberger and Lawrence R. Dunn MPAM National Intermediate Municipal Bond Fund John F. Flahive and Kristin D. Lindquist MPAM National Short-Term Municipal Bond Fund Mary Collette O'Brien and Timothy J. Sanville MPAM Pennsylvania Intermediate Municipal Bond Fund John F. Flahive and Mary Collette O'Brien MPAM Balanced Fund Bert Mullins and Lawrence R. Dunn
BIOGRAPHICAL INFORMATION GENE F. CERVI, CFA, has been a portfolio manager at Dreyfus since September 1998. Mr. Cervi is also director of investment research for Laurel Capital Advisors, an affiliate of Dreyfus, and a vice president of Mellon Bank, N.A., which he joined in 1982. SANDOR CSEH, CFA, has been a portfolio manager for The Boston Company Asset Management, an affiliate of Dreyfus, since 1994. In May 1996, he became a dual employee of Dreyfus and The Boston Company. 60 LAWRENCE R. DUNN, CFA, has been a portfolio manager at Dreyfus since November 1995. He started with Mellon Bank, N.A. in April of 1990. He is also an assistant vice president of Mellon Bank, N.A. DANIEL J. FASCIANO, CFA, senior portfolio manager of Boston Safe Deposit and Trust Company, an affiliate of Dreyfus, has been a portfolio manager at Dreyfus since October 1995. Mr. Fasciano joined Boston Safe Deposit and Trust Company in 1990. He is also a vice president of Mellon Bank, N.A. STEPHEN P. FIORELLA has been a portfolio manager at Dreyfus since July 1998. He joined The Boston Company and Boston Safe Deposit and Trust Company in July 1989. He is also an assistant vice president of Boston Safe Deposit and Trust Company and Mellon Bank, N.A. JOHN FLAHIVE, CFA, has been a portfolio manager at Dreyfus since November 1994. Mr. Flahive is also first vice president of Boston Safe Deposit and Trust Company, an affiliate of Dreyfus, which he joined in October 1994. ANTHONY J. GALISE, CFA, has been a portfolio manager at Dreyfus since April 1996. He is also a portfolio manager at Laurel Capital Advisors, an affiliate of Dreyfus, and a vice president and portfolio manager at Mellon Bank, N.A. He joined Mellon in 1993 with over 20 years of equity investment experience. D. KIRK HENRY, CFA, has been a portfolio manager at Dreyfus since May 1996. He is also senior vice president and international equity portfolio manager of The Boston Company Asset Management, an affiliate of Dreyfus. He has held that position since May 1994. KRISTIN D. LINDQUIST has been a portfolio manager at Dreyfus since October 1994. She is also a vice president of Mellon Bank, N.A. and Boston Safe Deposit and Trust Company, which she joined in May 1991. CAROL D. MILTENBERGER, CFA, has been a portfolio manager at Dreyfus since July 2000. She also is an assistant vice president of Mellon Bank, N.A., which she joined in October 1994. BERT MULLINS has been a portfolio manager at Dreyfus since October 1994, and has been employed as a portfolio manager by Laurel Capital Advisors, an affiliate of Dreyfus, since October 1990. He is also a first vice president, portfolio manager and senior securities analyst for Mellon Bank, N.A. MARY COLLETTE O'BRIEN, CFA, has been a portfolio manager at Dreyfus since July 1996. She is a vice president of Mellon Bank, N.A. and Boston Safe Deposit and Trust Company, which she joined in April 1995. TIMOTHY J. SANVILLE, CFA, has been a portfolio manager at Dreyfus since July 2000. He also is an assistant vice president of Boston Safe Deposit and Trust Company and Mellon Bank, N.A. He has been with Boston Safe Deposit and Trust Company since 1992. 61 The funds, the investment adviser and Dreyfus Service Corporation (each fund's distributor) each has adopted a code of ethics that permits its personnel, subject to such code, to invest in securities, including securities that may be purchased or held by a fund. The investment adviser's code of ethics restricts the personal securities transactions of its employees, and requires portfolio managers and other investment personnel to comply with the code's preclearance and disclosure procedures. Its primary purpose is to ensure that personal trading by the investment adviser's employees does not disadvantage any fund managed by the investment adviser. INVESTMENT ADVISORY FEE Each of the funds has agreed to pay the investment adviser an investment advisory fee at the annual rates set forth in the table below: Investment advisory fees
Name of fund Investment advisory fee (as a percentage of average daily net assets) MPAM Large Cap Stock Fund 0.65% MPAM Income Stock Fund 0.65% MPAM Mid Cap Stock Fund 0.75% MPAM Small Cap Stock Fund 0.85% MPAM International Fund 0.85% MPAM Emerging Markets Fund 1.15% MPAM Bond Fund 0.40% MPAM Intermediate Bond Fund 0.40% MPAM Short-Term U.S. Government Securities Fund 0.35% MPAM National Intermediate Municipal Bond Fund 0.35% MPAM National Short-Term Municipal Bond Fund 0.35% MPAM Pennsylvania Intermediate Municipal Bond Fund 0.50% MPAM Balanced Fund 0.56%*
*The investment advisory fee of MPAM Balanced Fund is estimated, assuming an asset allocation of 65% to direct investment in equity securities and 35% to direct investment in debt securities. YOUR INVESTMENT ACCOUNT POLICIES AND SERVICES - ----------------------------- BUYING SHARES The funds are designed primarily for Mellon Private Asset Management clients that maintain qualified fiduciary, custody or other accounts with Mellon Bank, N.A. or Boston Safe Deposit and Trust Company, or their bank affiliates (MPAM Clients). Shares owned by MPAM Clients will be held in omnibus accounts, or individual institutional accounts, with the funds' transfer agent (MPAM 62 Accounts). MPAM Clients may transfer fund shares from an MPAM Account to other existing MPAM Clients for their MPAM Accounts, and to individuals, corporations, partnerships and other entities that do not have MPAM Accounts to be held in separate accounts (Individual Accounts). MPAM Clients who terminate their relationship with Mellon Bank, N.A. or Boston Safe Deposit and Trust Company, or their bank affiliates, but who wish to continue to hold MPAM fund shares may do so only by establishing Individual Accounts. The funds may, at some future time, establish a separate class of shares for shareholders who are not MPAM Clients and whose shares are therefore not held in MPAM Accounts. That separate class, into which Individual Accounts may be required to convert, may carry additional fees. You pay no sales charges to invest in any fund. Your price for fund shares is the fund's net asset value per share (NAV), which is generally calculated as of the close of trading on the New York Stock Exchange (usually 4:00 p.m. Eastern time), every day the exchange is open. Your order will be priced at the next NAV calculated after your order is accepted by the fund's transfer agent or other authorized entity. Investments in equity securities are generally valued based on market value or, where market quotations are not readily available, based on fair value as determined in good faith by the fund's board. Investments in debt securities are generally valued by one or more independent pricing services approved by the fund's board. Because MPAM National Intermediate Municipal Bond Fund, MPAM National Short-Term Municipal Bond Fund and MPAM Pennsylvania Intermediate Municipal Bond Fund seek tax-exempt income, they are not recommended for purchase by qualified retirement plans or other tax-advantaged accounts. SELLING SHARES You may sell (redeem) shares at any time. Your shares will be sold at the next NAV calculated after your order is accepted by the fund's transfer agent or other authorized entity. Your order will be processed promptly and you will generally receive the proceeds within a week. BEFORE SELLING shares recently purchased by check or TeleTransfer, please note that: o if you send a written request to sell such shares, the fund may delay sending the proceeds for up to eight business days following the purchase of those shares o the fund will not process wire, telephone or TeleTransfer redemption requests for up to eight business days following the purchase of those shares PURCHASES, REDEMPTIONS AND EXCHANGES THROUGH MELLON ACCOUNTS MPAM Clients should contact their account officer for information concerning purchasing, selling (redeeming), and exchanging fund shares. The policies and fees applicable to MPAM Clients under their agreements with Mellon Bank, N.A., Boston Safe Deposit and Trust Company, or their bank affiliates, may differ from those described in this prospectus, and different minimum investments or limitations on buying, selling and exchanging shares may apply. 63 PURCHASES AND REDEMPTIONS THROUGH INDIVIDUAL ACCOUNTS PURCHASING SHARES - ----------------- Individual Accounts may be opened only by the transfer of fund shares from an MPAM Account, by MPAM Clients who terminate their relationship with Mellon Bank, N.A. or Boston Safe Deposit and Trust Company, or their bank affiliates, but who wish to continue to hold MPAM fund shares, by Trustees of the MPAM Funds Trust, or by exchange from Individual Accounts holding other MPAM funds as described below under "Individual account services and policies - Exchange privilege". The minimum initial investment in a fund through an Individual Account is $10,000, and the minimum for subsequent investments is $1,000. You may purchase additional shares for an Individual Account by mail, wire, electronic check or TeleTransfer. MAIL. To purchase additional shares by mail, fill out an investment slip and send the slip and a check with your account number written on it to: Name of Fund MPAM Family of Funds P.O. Box 105, Newark, NJ 07101-0105 Make checks payable to: MPAM Family of Funds. WIRE. To purchase additional shares by wire, have your bank send your investment to Boston Safe Deposit and Trust Company, with these instructions: o ABA# 011001234 o DDA# 00-0388 o the fund name o your account number o name(s) of investor(s) ELECTRONIC CHECK. To purchase additional shares by electronic check, which will transfer money out of your bank account, follow the instructions for purchases by wire, but before your account number insert "5680." Your transaction is entered automatically, but may take up to eight business days to clear. Electronic checks usually are available without a fee at all Automated Clearing House (ACH) banks. TELETRANSFER. To purchase additional shares through TeleTransfer call 1-800-896-8167 (outside the U.S. 516-794-5452) to request your transaction. SELLING (REDEEMING) SHARES - -------------------------- You may sell (redeem) shares by mail, telephone, wire or TeleTransfer. WRITTEN SELL ORDERS - ------------------- Some circumstances require written sell orders along with signature guarantees. These include: 64 o amounts of $10,000 or more on accounts whose address has been changed within the last 30 days o requests to send the proceeds to a different payee or address Written sell orders of $100,000 or more must also be signature guaranteed. A signature guarantee helps protect against fraud. You can obtain one from most banks or securities dealers, but not from a notary public. For joint accounts, each signature must be guaranteed. Please call us to ensure that your signature guarantee will be processed correctly. MAIL. To sell (redeem) shares by mail, write a letter of instruction that includes: o your name(s) and signatures(s) o your account number o the fund name o the dollar amount you want to sell o how and where to send the proceeds Obtain a signature guarantee or other documentation, if required. Mail your request to: MPAM Family of Funds P.O. Box 6587, Providence, RI 02940-6587 Unless you have declined telephone privileges on your account application, you may also redeem your shares by telephone (maximum $250,000 per day) by calling 1-800-896-8167 (outside the U.S. 516-794-5452), and requesting that a check be mailed to your address of record. WIRE OR TELETRANSFER. To sell (redeem) shares by wire or TeleTransfer (minimum $1,000; maximum $500,000 for joint accounts every 30 days), call 1-800-645-6561 (outside the U.S. 516-794-5452) to request your transaction. Be sure the fund has your bank account information on file. Proceeds will be sent to your bank by wire for wire redemptions and by electronic check for TeleTransfer redemptions. INDIVIDUAL ACCOUNT SERVICES AND POLICIES EXCHANGE PRIVILEGE: You CAN EXCHANGE SHARES WORTH $1,000 OR MORE from one MPAM fund into another. However, each fund account, including those established through exchanges, must continue to meet the minimum account balance requirement of $10,000. You can request your exchange in writing or by phone. Be sure to read the current prospectus for any fund into which you are exchanging before investing. Any new account established through an exchange will generally have the same privileges as your original account (as long as they are available). There is currently no fee for exchanges. TELETRANSFER PRIVILEGE: TO MOVE MONEY BETWEEN YOUR BANK ACCOUNT and your MPAM fund account with a phone call, use the TeleTransfer privilege. You can set up TeleTransfer on your account by providing bank account information and following the instructions on your application. 65 USE OF TELEPHONE PRIVILEGES: UNLESS YOU DECLINE TELEPHONE PRIVILEGES on your application, you may be responsible for any fraudulent telephone order as long as the fund's distributor takes reasonable measures to verify the order. ACCOUNT BALANCE REQUIREMENT: If your account falls below $10,000, a fund may ask you to increase your balance. If it is still below $10,000 after 30 days, a fund may close your account and send you the proceeds. GENERAL POLICIES FOR MPAM ACCOUNTS AND INDIVIDUAL ACCOUNTS EACH FUND RESERVES THE RIGHT TO: - -------------------------------- o refuse any purchase or exchange request that could adversely affect any fund or its operations, including those from any individual or group who, in a fund's view, is likely to engage in excessive trading (usually defined as more than four exchanges out of a fund within a calendar year) o refuse any purchase or exchange request in excess of 1% of any fund's total assets o change or discontinue its exchange privilege, or temporarily suspend this privilege during unusual market conditions o change its minimum investment amounts o delay sending out redemption proceeds for up to seven days (generally applies only in cases of very large redemptions, excessive trading or during unusual market conditions) Each fund also reserves the right to make a "redemption in kind" - payment in portfolio securities rather than cash - if the amount you are redeeming is large enough to affect fund operations (for example, if it represents more than 1% of the fund's assets). DISTRIBUTIONS AND TAXES - ----------------------- EACH FUND USUALLY PAYS ITS SHAREHOLDERS dividends, if any, from its net investment income as follows: FUND DIVIDEND FREQUENCY MPAM Large Cap Stock Fund Monthly MPAM Income Stock Fund Monthly MPAM Mid Cap Stock Fund Annually MPAM Small Cap Stock Fund Annually MPAM International Fund Annually MPAM Emerging Markets Fund Annually MPAM Bond Fund Monthly MPAM Intermediate Bond Fund Monthly MPAM Short-Term U.S. Government Securities Fund Monthly MPAM National Intermediate Municipal Bond Fund Monthly MPAM National Short-Term Municipal Bond Fund Monthly MPAM Pennsylvania Intermediate Municipal Bond Fund Monthly MPAM Balanced Fund Monthly 66 Each fund generally distributes any net capital gains it has realized once a year. For Individual Accounts, dividends and other distributions will be reinvested in fund shares unless you instruct the fund otherwise. For information on reinvestment of dividends and other distributions on MPAM Accounts, contact your account officer. There are no fees or sales charges on reinvestments. FUND DIVIDENDS (EXCEPT TO THE EXTENT ATTRIBUTABLE TO TAX-EXEMPT INCOME) AND DISTRIBUTIONS ARE TAXABLE to most investors (unless your investment is in a tax-advantaged account). The tax status of any distribution is the same regardless of how long you have been in the fund and whether you reinvest your distributions or take them in cash. In general, distributions are federally taxable as follows: TAXABILITY OF DISTRIBUTIONS
TYPE OF DISTRIBUTION TAX RATE FOR 15% BRACKET TAX RATE FOR 28% BRACKET OR ABOVE - -------------------- ------------------------ --------------------------------- Income dividends Ordinary income rate Ordinary income rate Short-term capital gains Ordinary income rate Ordinary income rate Long-term capital gains 10% 20%
The tax status of your dividends and distributions will be detailed in your annual tax statement, which may be issued by a fund. MPAM National Intermediate Municipal Bond Fund, MPAM National Short-Term Municipal Bond Fund, and MPAM Pennsylvania Intermediate Municipal Bond Fund anticipate that a substantial portion of income dividends will be exempt from federal income tax (and, in the case of MPAM Pennsylvania Intermediate Municipal Bond Fund, a substantial portion of those dividends will normally be exempt from Pennsylvania state personal income tax). However, any dividends paid from interest on taxable investments or short-term capital gains will be taxable as ordinary income, and any distributions of long-term capital gains will be taxable as such. Because everyone's tax situation is unique, always consult your tax professional about federal, state and local tax consequences. Taxes on transactions - --------------------- Except for tax-advantaged accounts, any sale or exchange of fund shares may generate a tax liability. Of course, withdrawals or distributions from tax-deferred accounts are taxable when received. The table above also can provide a guide for potential tax liability when selling or exchanging fund shares. "Short-term capital gains" applies to fund shares sold or exchanged up to 12 months after buying them. "Long-term capital gains" applies to shares sold or exchanged after 12 months. 67 FOR MORE INFORMATION MPAM Large Cap Stock Fund MPAM Income Stock Fund MPAM Mid Cap Stock Fund MPAM Small Cap Stock Fund MPAM International Fund MPAM Emerging Markets Fund MPAM Bond Fund MPAM Intermediate Bond Fund MPAM Short-Term U.S. Government Securities Fund MPAM National Intermediate Municipal Bond Fund MPAM National Short-Term Municipal Bond Fund MPAM Pennsylvania Intermediate Municipal Bond Fund MPAM Balanced Fund Series of MPAM Funds Trust SEC file number: 811-09903 More information on any fund is available free upon request, including the following: STATEMENT OF ADDITIONAL INFORMATION (SAI) Provides more details about each fund and its policies. A current SAI is on file with the Securities and Exchange Commission (SEC) and is incorporated by reference (is legally considered part of this prospectus). TO OBTAIN INFORMATION: BY TELEPHONE MPAM Clients, please contact your MPAM Account Officer or call 1-888-281-7350. Individual Account holders, please call Dreyfus at 1-800-896-8167. BY MAIL MPAM Clients, write to your MPAM Account Officer C/O Mellon Bank, N.A. One Mellon Bank Center Pittsburgh, PA 15258 Individual Account holders, write to MPAM Family of Funds P.O. Box 105 Newark, NJ 07101-0105 68 ON THE INTERNET Text-only versions of certain fund documents can be viewed online or downloaded from: http://www.sec.gov You can also obtain copies by visiting the SEC's Public Reference Room in Washington, DC (for information, call 1-202-942-8090), or, after paying a duplicating fee, by e-mail request to publicinfo@sec.gov, or by writing to the SEC's Public Reference Section, Washington DC 20549-0102. (C)2000 Dreyfus Service Corporation MPAM-P0900 69 MPAM FUNDS TRUST: MPAM LARGE CAP STOCK FUND MPAM INCOME STOCK FUND MPAM MID CAP STOCK FUND MPAM SMALL CAP STOCK FUND MPAM INTERNATIONAL FUND MPAM EMERGING MARKETS FUND MPAM BOND FUND MPAM INTERMEDIATE BOND FUND MPAM SHORT-TERM U.S. GOVERNMENT SECURITIES FUND MPAM NATIONAL INTERMEDIATE MUNICIPAL BOND FUND MPAM NATIONAL SHORT-TERM MUNICIPAL BOND FUND MPAM PENNSYLVANIA INTERMEDIATE MUNICIPAL BOND FUND MPAM BALANCED FUND STATEMENT OF ADDITIONAL INFORMATION SEPTEMBER 21, 2000 This Statement of Additional Information, which is not a prospectus, supplements and should be read in conjunction with the current combined Prospectus of the funds named above (each, a "Fund" and collectively, the "Funds") dated September 21, 2000, as it may be revised from time to time. The Funds are separate portfolios of MPAM Funds Trust, an open-end management investment company (the "Trust") that is registered with the Securities and Exchange Commission (the "SEC"). To obtain a copy of the Funds' Prospectus, please write to the Funds at 144 Glenn Curtiss Boulevard, Uniondale, New York 11556-0144, or call one of the following numbers: MPAM CLIENTS ------------ Call Toll Free - 1-888-281-7350 Outside the U.S. Call Collect - 1-617-248-3014 INDIVIDUAL ACCOUNT HOLDERS -------------------------- Call Toll Free - 1-800-896-8167 Outside the U.S. Call Collect - 1-516-794-5452 TABLE OF CONTENTS PAGE ---- DESCRIPTION OF THE TRUST AND FUNDS...........................................3 THE FUNDS AND THEIR INVESTMENTS..............................................3 THE FUNDS' INVESTMENTS, RELATED RISKS AND LIMITATIONS........................8 MANAGEMENT OF THE FUNDS.....................................................46 MANAGEMENT ARRANGEMENTS.....................................................50 HOW TO BUY SHARES...........................................................52 HOW TO REDEEM SHARES........................................................54 SHAREHOLDER SERVICES........................................................56 ADDITIONAL INFORMATION ABOUT PURCHASES, EXCHANGES AND REDEMPTIONS...........56 DETERMINATION OF NET ASSET VALUE............................................57 DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES....................................58 PORTFOLIO TRANSACTIONS......................................................66 PERFORMANCE INFORMATION.....................................................67 INFORMATION ABOUT THE FUNDS/TRUST...........................................70 FINANCIAL STATEMENTS........................................................71 COUNSEL AND INDEPENDENT AUDITORS............................................71 APPENDIX A.................................................................A-1 APPENDIX B.................................................................B-1 APPENDIX C.................................................................C-1 2 DESCRIPTION OF THE TRUST AND FUNDS The Trust is an open-end management investment company organized as an unincorporated business trust under the laws of the Commonwealth of Massachusetts by a Declaration of Trust dated April 12, 2000. The Trust is authorized to issue an unlimited number of shares of beneficial interest, each without par value. The investment objectives, policies, restrictions, practices and procedures of the Funds, unless otherwise specified, may be changed without shareholder approval. As with other mutual funds, there is no assurance that a Fund will achieve its investment objective. MPAM Advisers, a division of The Dreyfus Corporation ("Dreyfus"), serves as each Fund's investment manager (the "Investment Adviser"). Dreyfus Service Corporation (the "Distributor"), a subsidiary of Dreyfus, is the distributor of each Fund's shares. THE FUNDS AND THEIR INVESTMENTS The following information supplements and should be read in conjunction with the Funds' Prospectus. The following summaries briefly describe the portfolio securities in which the Funds can invest and the investment techniques they can employ. Additional information about these portfolio securities and investment techniques is provided under "The Funds' Investments, Related Risks and Limitations." DOMESTIC EQUITY FUNDS --------------------- MPAM Large Cap Stock Fund, MPAM Income Stock Fund, MPAM Mid Cap Stock Fund, and MPAM Small Cap Stock Fund are sometimes referred to herein as the "Domestic Equity Funds." MPAM LARGE CAP STOCK FUND seeks investment returns (consisting of capital appreciation and income) that are consistently superior to those of the Standard & Poor's(R) 500 Composite Stock Price Index ("S&P 500"). The Fund may invest in the following portfolio securities: common stock, foreign securities including American Depositary Receipts ("ADRs") and New York Shares, government obligations, illiquid securities, other investment companies, and money market instruments. The Fund may utilize the following investment techniques: borrowing, when-issued securities and delayed delivery transactions, securities lending, 3 reverse repurchase agreements, and derivative instruments (including options, futures contracts and options on futures contracts). MPAM INCOME STOCK FUND seeks to exceed the total return performance of the Russell 1000(TM) Value Index over time. The Fund may invest in the following portfolio securities: common stock, preferred stock, convertible securities, corporate obligations, foreign securities including ADRs and New York Shares, government obligations, illiquid securities, other investment companies, and money market instruments. The Fund may utilize the following investment techniques: borrowing, when-issued securities and delayed-delivery transactions, securities lending, reverse repurchase agreements, and derivative instruments (including options, futures contracts and options on futures contracts). MPAM MID CAP STOCK FUND seeks investment returns (consisting of capital appreciation and income) that are consistently superior to those of the Standard & Poor's MidCap 400(R) Index ("S&P MidCap 400"). The Fund may invest in the following portfolio securities: common stock, foreign securities including ADRs and New York Shares, government obligations, illiquid securities, initial public offerings, other investment companies, and money market instruments. The Fund may utilize the following investment techniques: borrowing, when-issued securities and delayed-delivery transactions, securities lending, reverse repurchase agreements, derivative instruments (including options, futures contracts and options on futures contracts), foreign currency transactions, forward contracts, swaps, caps, collars and floors. MPAM SMALL CAP STOCK FUND seeks total investment returns (consisting of capital appreciation and income) that surpass those of the Standard & Poor's SmallCap 600(R) Index ("S&P SmallCap 600"). The Fund may invest in the following portfolio securities: common stock, foreign securities including ADRs and New York Shares, government obligations, illiquid securities, initial public offerings, other investment companies, and money market instruments. The Fund may utilize the following investment techniques: borrowing, when-issued securities and delayed delivery transactions, securities lending, reverse repurchase agreements, derivative instruments (including options, futures contracts and options on futures contracts), foreign currency transactions, forward contracts, swaps, caps, collars and floors. INTERNATIONAL EQUITY FUNDS -------------------------- MPAM International Fund and MPAM Emerging Markets Fund are sometimes referred to herein as the "International Equity Funds." MPAM INTERNATIONAL FUND seeks long-term capital growth. The Fund may invest in the following portfolio securities: common stock, preferred stock, convertible securities, foreign securities including ADRs, Global Depositary Receipts ("GDRs"), and New York Shares, illiquid securities, other investment companies, warrants, foreign bank deposit obligations, and money market instruments. The Fund may utilize the following investment techniques: borrowing, when-issued securities and delayed delivery transactions, derivative instruments 4 (including options, futures contracts and options on futures contracts), securities lending, short-selling, foreign currency transactions and forward contracts. MPAM EMERGING MARKETS FUND seeks long-term capital growth. The Fund may invest in the following portfolio securities: common stock, preferred stock, convertible securities, foreign securities including ADRs, GDRs, and New York Shares, foreign government obligations, securities of supranational entities, illiquid securities, other investment companies, foreign bank deposit obligations, and money market instruments. The Fund may utilize the following investment techniques: borrowing, when-issued securities and delayed delivery transactions, derivative instruments (including options, futures contracts and options on futures contracts), securities lending, short-selling, foreign currency transactions and forward contracts. TAXABLE BOND FUNDS ------------------ MPAM Bond Fund, MPAM Intermediate Bond Fund, and MPAM Short-Term U.S. Government Securities Fund are sometimes referred to herein as the "Taxable Bond Funds." MPAM BOND FUND seeks to outperform the Lehman Brothers Aggregate Bond Index while maintaining a similar risk level. MPAM INTERMEDIATE BOND FUND seeks to outperform the Lehman Brothers Intermediate Government/Corporate Bond Index while maintaining a similar risk level. Each Fund may invest in the following portfolio securities: corporate obligations, government obligations, variable and floating rate securities, mortgage-related securities (including commercial mortgage backed securities), asset-backed securities, convertible securities, zero coupon securities, preferred stock, illiquid securities, foreign securities, other investment companies, and money market instruments. MPAM Intermediate Bond Fund may also invest in municipal bonds, municipal notes, and municipal commercial paper. Each Fund may utilize the following investment techniques: borrowing, when-issued securities and delayed delivery transactions, derivative instruments (including options, futures contracts and options on futures contracts), securities lending, foreign currency transactions, forward contracts, swaps, caps, collars, floors, and mortgage dollar rolls. MPAM SHORT-TERM U.S. GOVERNMENT SECURITIES FUND seeks to provide as high a level of current income as is consistent with the preservation of capital. The Fund may invest up to 35% of its net assets in mortgage-related securities, including those with fixed, floating or variable interest rates, those with interest rates that change based on multiples of changes in a specified index of interest rates and those with interest rates that change inversely to a change in interest rates, as well as stripped mortgage-backed securities which do not bear interest. The Fund may invest in the following portfolio securities: government obligations, mortgage-related securities (including collateralized mortgage 5 obligations, multi-class pass-through securities, stripped mortgage-backed securities, and adjustable-rate mortgage loans), illiquid securities, and money market instruments. The Fund may utilize the following investment techniques: borrowing, when-issued securities and delayed delivery transactions, derivative instruments (including options, futures contracts and options on futures contracts), securities lending, short-selling, and mortgage dollar rolls. MUNICIPAL BOND FUNDS -------------------- MPAM National Intermediate Municipal Bond Fund, MPAM National Short-Term Municipal Bond Fund and MPAM Pennsylvania Intermediate Municipal Bond Fund are sometimes referred to herein as the "Municipal Bond Funds." MPAM NATIONAL INTERMEDIATE MUNICIPAL BOND FUND and MPAM NATIONAL SHORT-TERM MUNICIPAL BOND FUND each seeks to maximize current income exempt from Federal income tax to the extent consistent with the preservation of capital. Each Fund seeks to achieve its objective by investing primarily in debt obligations issued by states, cities, counties, municipalities, municipal agencies and regional districts that are of "investment grade" quality at the time of purchase, the interest from which is, in the opinion of bond counsel to the respective issuers, exempt from Federal income tax ("Municipal Obligations"). Under normal market conditions, each Fund will invest a minimum of 80% of its net assets in Municipal Obligations. However, each Fund may invest without limit in obligations the interest on which is an item of tax preference for purposes of the alternative minimum tax (a "Tax Preference Item"), and may invest under normal market conditions up to 20% of its net assets in taxable obligations. In addition, each Fund may, for defensive purposes under abnormal market conditions, temporarily invest more than 20% of its net assets in taxable obligations. In managing each Fund, the Investment Adviser seeks to take advantage of market developments, yield disparities and variations in the creditworthiness of issuers. Each Fund may invest in the following portfolio securities: Municipal Obligations including municipal bonds, municipal notes, municipal commercial paper, municipal lease obligations, tender option bonds (up to 10% of the value of its assets), floating rate and variable rate obligations, stand-by commitments, tax-exempt participation interests, illiquid securities, zero coupon securities, taxable investments, other investment companies, and money market instruments. Each Fund may utilize the following investment techniques: borrowing, securities lending, when-issued securities and delayed delivery transactions, municipal bond index and interest rate futures contracts, and options on municipal bond index and interest rate futures contracts. A Fund's use of certain of these investment techniques may give rise to taxable income. MPAM PENNSYLVANIA INTERMEDIATE MUNICIPAL BOND FUND seeks as high a level of income exempt from federal and Pennsylvania state income taxes as is consistent with the preservation of capital. 6 Under normal market conditions, the Fund invests 65% of its net assets in debt securities of the Commonwealth of Pennsylvania, its political subdivisions, authorities and corporations, and certain other specified securities, the interest from which is, in the opinion of bond counsel to the issuer, exempt from Federal and Pennsylvania personal income taxes (collectively, "Pennsylvania Municipal Obligations"). However, the Fund may invest without limit in obligations the interest on which is a Tax Preference Item, and may invest under normal market conditions up to 35% of its net assets in taxable obligations and in Municipal Obligations the interest on which is exempt from Federal, but not Pennsylvania, income taxes. In addition, the Fund may, for defensive purposes under abnormal market conditions, temporarily invest more than 35% of its net assets in securities the interest from which is subject to Federal or Pennsylvania personal income taxes or both. In managing the Fund, the Investment Adviser seeks to take advantage of market developments, yield disparities and variations in the creditworthiness of issuers. The Fund may invest in the following portfolio securities: municipal obligations including municipal bonds, municipal notes, municipal commercial paper, and municipal lease obligations, tender option bonds (up to 10% of the value of its assets), floating rate and variable rate obligations, custodial receipts, stand-by commitments, tax-exempt participation interests, illiquid securities, zero coupon securities, taxable investments, other investment companies, and money market instruments. The Fund may utilize the following investment techniques: borrowing, securities lending, when-issued securities and delayed delivery transactions, municipal bond index and interest rate futures contracts, and options on municipal bond index and interest rate futures contracts. The Fund's use of certain of these investment techniques may give rise to taxable income. BALANCED FUND ------------- MPAM BALANCED FUND seeks long-term growth of principal in conjunction with current income. The Fund may invest in individual equity and debt securities of the types in which MPAM Large Cap Stock Fund and MPAM Bond Fund may invest, and in shares of MPAM Mid Cap Stock Fund, MPAM International Fund, and MPAM Emerging Markets Fund, as well as in money market instruments. The Fund may utilize the following investment techniques: borrowing, when-issued securities and delayed delivery transactions, securities lending, reverse repurchase agreements, derivative instruments (including options, futures contracts and options on futures contracts), foreign currency transactions, forward contracts, swaps, caps, collars, floors, and mortgage dollar rolls. CLASSIFICATION OF THE FUNDS --------------------------- The MPAM Large Cap Stock Fund, MPAM Income Stock Fund, MPAM Mid Cap Stock Fund, MPAM Small Cap Stock Fund, MPAM International Fund, MPAM Emerging Markets Fund, MPAM Bond Fund, MPAM Intermediate Bond Fund, MPAM Short-Term U.S. 7 Government Securities Fund, and MPAM Balanced Fund are "diversified," as defined in the Investment Company Act of 1940, as amended ("1940 Act"), which means that, with respect to 75% of its total assets, each Fund will not invest more than 5% of its assets in the securities of any single issuer, nor hold more than 10% of the outstanding voting securities of any single issuer (other than, in each case, securities of other investment companies, and securities issued or guaranteed by the U.S. government, its agencies or instrumentalities). The Municipal Bond Funds are classified as "non-diversified," as defined under the 1940 Act, and therefore, each Fund could invest all of its assets in the obligations of a single issuer or relatively few issuers. Due to these Funds' non-diversified status, changes in the financial condition or in the market's assessment of an individual issuer in which the Funds invest may cause a Fund's share price to fluctuate to a greater degree than if the Fund were diversified. However, each Fund intends to conduct its operations so that it will qualify under the Internal Revenue Code of 1986, as amended (the "Code"), as a "regulated investment company." To qualify, among other requirements, a Fund will be required to limit its investments so that at the close of each quarter of its taxable year, with respect to at least 50% of its total assets, not more than 5% of such assets will be invested in the securities of a single issuer. In addition, not more than 25% of the value of each Fund's total assets may be invested in the securities of a single issuer at the close of each quarter of its taxable year. THE FUNDS' INVESTMENTS, RELATED RISKS AND LIMITATIONS The following information supplements and should be read in conjunction with the Funds' Prospectus and the section entitled "The Funds and Their Investments" above, concerning the Funds' investments, related risks and limitations. Except as otherwise indicated in the Prospectus or this Statement of Additional Information, the Funds have established no policy limitations on their ability to use the investments or techniques discussed in these documents. CERTAIN PORTFOLIO SECURITIES ADRS, NEW YORK SHARES AND GDRS. ADRs typically are issued by an American bank or trust company and evidence ownership of underlying securities issued by foreign companies. New York Shares are securities of foreign companies that are issued for trading in the United States. GDRs are negotiable certificates evidencing ownership of a company's shares and are available for purchase in markets other than the market in which the shares themselves are traded. GDRs allow purchasers to gain exposure to companies that are traded on foreign markets without having to purchase the shares directly in the market in which they are traded. ADRs, New York Shares and GDRs are traded in the United States on national securities exchanges or in the over-the-counter market. Investment in securities of foreign issuers presents certain risks, including those resulting from adverse political and economic developments and the imposition of foreign governmental laws or restrictions. See "Foreign Bank Deposits and Foreign Securities." 8 ASSET-BACKED SECURITIES. Asset-backed securities are securities that represent direct or indirect participations in, or are secured by and payable from, assets such as motor vehicle installment sales contracts, installment loan contracts, leases of various types of real and personal property, and receivables from revolving credit (credit card) agreements. Such assets are securitized through the use of trusts and special purpose corporations. The value of such securities partly depends on loan repayments by individuals, which may be adversely affected during general downturns in the economy. Payments or distributions of principal and interest on asset-backed securities may be supported by credit enhancements, such as various forms of cash collateral accounts or letters of credit. As discussed at greater length below under "Mortgage-Related Securities," asset-backed securities are subject to the risk of prepayment. The risk that recovery or repossessed collateral might be unavailable or inadequate to support payments on asset-backed securities, however, is greater than is the case for mortgage-backed securities. COMMON STOCK. Common stock represents an equity or ownership interest in the issuer of the stock. If the issuer is liquidated or declares bankruptcy, the claims of owners of bonds and preferred stock have priority over the claims of holders of common stock against assets of the issuer. CONVERTIBLE SECURITIES. Convertible securities may be converted at either a stated price or stated rate into underlying shares of common stock. Convertible securities have characteristics similar to both fixed-income and equity securities. Convertible securities generally are subordinated to other similar but non-convertible securities of the same issuer, although convertible bonds, as corporate debt obligations, enjoy seniority in right of payment to all equity securities, and convertible preferred stock is senior to common stock of the same issuer. Because of the subordination feature, however, convertible securities typically have lower ratings than similar non-convertible securities. Although to a lesser extent than with fixed-income securities, the market value of convertible securities tends to decline as interest rates increase and, conversely, tends to increase as interest rates decline. In addition, because of the conversion feature, the market value of convertible securities tends to vary with fluctuations in the market value of the underlying common stock. A unique feature of convertible securities is that as the market price of the underlying common stock declines, convertible securities tend to trade increasingly on a yield basis, and so may not experience market value declines to the same extent as the underlying common stock. When the market price of the underlying common stock increases, the prices of the convertible securities tend to rise as a reflection of the value of the underlying common stock. While no securities investments are without risk, investments in convertible securities generally entail less risk than investments in common stock of the same issuer. Convertible securities provide for a stable stream of income with generally higher yields than common stocks, but there can be no assurance of current income because the issuers of the convertible securities may default on their obligations. A convertible security, in addition to providing fixed income, offers the potential for capital appreciation through the conversion feature, which enables the holder to benefit from increases in the market price of the underlying common stock. There can be no assurance of capital appreciation, however, because securities prices fluctuate. Convertible securities generally offer lower interest or dividend yields than non- convertible securities of similar quality because of the potential for capital appreciation. 9 CORPORATE OBLIGATIONS. The relevant Funds may purchase corporate obligations rated at least Baa by Moody's Investors Service, Inc. ("Moody's") or BBB by Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"), or if unrated, of comparable quality as determined by the Investment Adviser. Securities rated Baa by Moody's or BBB by S&P or higher are considered by those rating agencies to be "investment grade" securities, although Moody's considers securities rated Baa to have speculative characteristics. Further, while bonds rated BBB by S&P exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and principal for debt in this category than debt in higher rated categories. FOREIGN BANK DEPOSIT OBLIGATIONS AND FOREIGN SECURITIES. The relevant Funds may purchase securities of foreign issuers and may invest in foreign currencies and deposit obligations of foreign banks. Investment in such foreign currencies, securities and obligations presents certain risks, including those resulting from fluctuations in currency exchange rates, revaluation of currencies, adverse political and economic developments, the possible imposition of currency exchange blockages or other foreign governmental laws or restrictions, reduced availability of public information concerning issuers, and the fact that foreign issuers are not generally subject to uniform accounting, auditing and financial reporting standards or to other regulatory practices and requirements comparable to those applicable to domestic issuers. Moreover, securities of many foreign issuers may be less liquid and their prices more volatile than those of comparable domestic issuers. In addition, with respect to certain foreign countries, there is the possibility of expropriation, confiscatory taxation and limitations on the use or removal of funds or other assets of the Fund, including withholding of dividends. Foreign securities may be subject to foreign government taxes that would reduce the yield on such securities. Evidence of ownership of portfolio securities may be held outside of the United States, and a Fund may be subject to the risks associated with holding such property overseas. FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES. The relevant Funds may invest in obligations issued or guaranteed by one or more foreign governments or any of their political subdivisions, agencies or instrumentalities that are determined by the Investment Adviser to be of comparable quality to the other obligations in which the Funds may invest. Such securities also include debt obligations of supranational entities. Supranational entities include international organizations designated or supported by governmental entities to promote economic reconstruction or development and international banking institutions and related government agencies. Examples include the International Bank for Reconstruction and Development (the World Bank), the European Coal and Steel Community, the Asian Development Bank and the InterAmerican Development Bank. GOVERNMENT OBLIGATIONS. U.S. Treasury obligations can differ in their interest rates, maturities and times of issuance: (a) U.S. Treasury bills have a maturity of one year or less, (b) U.S. Treasury notes have maturities of one to ten years, and (c) U.S. Treasury bonds generally have maturities of greater than ten years. Government obligations also include obligations issued or guaranteed by U.S. government agencies and instrumentalities that are supported by any of the following: (a) the full faith and credit of the U.S. Treasury, (b) the right of the issuer to borrow an amount limited to a specific line of credit from the 10 U.S. Treasury, (c) the discretionary authority of the U.S. Treasury to lend to such government agency or instrumentality, or (d) the credit of the instrumentality. (Examples of agencies and instrumentalities are: Federal Land Banks, Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Central Bank for Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks, General Services Administration, Maritime Administration, Tennessee Valley Authority, District of Columbia Armory Board, Inter-American Development Bank, Asian-American Development Bank, Student Loan Marketing Association, International Bank for Reconstruction and Development, and Fannie Mae). No assurance can be given that the U.S. government will provide financial support to the agencies or instrumentalities described in (b), (c), and (d) in the future, other than as set forth above, since it is not obligated to do so by law. ILLIQUID SECURITIES. None of the relevant Funds will knowingly invest more than 15% of the value of its net assets in illiquid securities, including time deposits and repurchase agreements having maturities longer than seven days. Securities that have readily available market quotations are not deemed illiquid for purposes of this limitation (irrespective of any legal or contractual restrictions on resale). A Fund may invest in commercial paper issued in reliance on the so-called "private placement" exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended ("Section 4(2) paper"). A Fund may also purchase securities that are not registered under the Securities Act of 1933, as amended, but that can be sold to qualified institutional buyers in accordance with Rule 144A under that Act ("Rule 144A securities"). Liquidity determinations with respect to Section 4(2) paper and Rule 144A securities will be made by the Investment Adviser pursuant to guidelines established by the Board of Trustees. The Investment Adviser will consider availability of reliable price information and other relevant information in making such determinations. Section 4(2) paper is restricted as to disposition under the federal securities laws, and generally is sold to institutional investors, such as the Funds, that agree that they are purchasing the paper for investment and not with a view to public distribution. Any resale by the purchaser must be pursuant to registration or an exemption therefrom. Section 4(2) paper normally is resold to other institutional investors like the Funds through or with the assistance of the issuer or investment dealers who make a market in the Section 4(2) paper, thus providing liquidity. Rule 144A securities generally must be sold to other qualified institutional buyers. If a particular investment in Section 4(2) paper or Rule 144A securities is not determined to be liquid, that investment will be included within the percentage limitation on investment in illiquid securities. Investing in Rule 144A securities could have the effect of increasing the level of a Fund's illiquidity to the extent that qualified institutional buyers become, for a time, uninterested in purchasing these securities from the Funds or other holder. INITIAL PUBLIC OFFERINGS ("IPOS"). An IPO is a corporation's first offering of stock to the public. The prices of securities issued in IPOs can be very volatile. Shares are given a market value reflecting expectations for the corporation's future growth. Special rules of the National Association of Securities Dealers, Inc. apply to the distribution of IPOs. Corporations offering IPOs generally have a limited operating history and may involve greater risk. MONEY MARKET INSTRUMENTS. Money market instruments consist of high quality, short-term debt obligations, including U.S. government securities, repurchase agreements, bank obligations and commercial paper. A Fund may purchase money market instruments when it has cash reserves. Where indicated for 11 a Fund in the Prospectus, purchases of money market instruments in excess of cash reserves will be limited to periods when the Investment Adviser determines that adverse market conditions exist, during which the Fund may adopt a temporary defensive position by investing some or all of its assets in money market instruments. BANK OBLIGATIONS. Certificates of deposit are short-term negotiable obligations of commercial banks; time deposits are non-negotiable deposits maintained in banking institutions for specified periods of time at stated interest rates; and bankers' acceptances are time drafts drawn on commercial banks by borrowers, usually in connection with international transactions. Domestic commercial banks organized under Federal law are supervised and examined by the Comptroller of the Currency and are required to be members of the Federal Reserve System and to be insured by the Federal Deposit Insurance Corporation. Domestic banks organized under state law are supervised and examined by state banking authorities but are members of the Federal Reserve System only if they elect to join. As a result of governmental regulations, domestic branches of foreign banks are, among other things, generally required to maintain specified levels of reserves, and are subject to other supervision and regulations designed to promote financial soundness. Obligations of foreign banks or foreign branches of domestic banks may be general obligations of the parent bank in addition to the issuing branch, or may be limited by the terms of a specific obligation and by governmental regulations. Payment of interest and principal upon obligations of foreign banks and foreign branches of domestic banks may be affected by governmental action in the country of domicile of the branch (generally referred to as sovereign risk). Examples of such action would be the imposition of currency controls, interest limitations, seizure of assets, or the declaration of a moratorium. In addition, there may be less publicly available information about a branch of a foreign bank than about a domestic bank. COMMERCIAL PAPER. Commercial paper instruments are short-term obligations issued by banks and corporations that have maturities ranging from two to 270 days. Each instrument may be backed only by the credit of the issuer or may be backed by some form of credit enhancement, typically in the form of a guarantee by a commercial bank. Commercial paper backed by guarantees of foreign banks may involve additional risk due to the difficulty of obtaining and enforcing judgments against such banks and the generally less restrictive regulations to which such banks are subject. The commercial paper purchased by a Fund will consist only of obligations which, at the time of their purchase, are (a) rated at least Prime-1 by Moody's, A-1 by S&P, F-1 by Fitch IBCA, Inc. ("Fitch") or D-1 by Duff & Phelps Inc. ("Duff & Phelps"); (b) issued by companies having an outstanding unsecured debt issue currently rated at least Aa by Moody's, or AA- by S&P, Fitch or Duff & Phelps; or (c) if unrated, determined by the Investment Adviser to be of comparable quality to those rated obligations which may be purchased by the Fund. REPURCHASE AGREEMENTS. The relevant Funds may enter into repurchase agreements with member banks of the Federal Reserve System or certain non-bank dealers. Under each repurchase agreement the selling institution will be required to maintain the value of the securities subject to the agreement at not less than their repurchase price. If a particular bank or non-bank dealer defaults on its obligation to repurchase the underlying debt instrument as required by the terms of a repurchase agreement, a Fund will incur a loss to the extent that the proceeds it realizes on the sale of the collateral are less than the repurchase price of the instrument. In addition, should the defaulting bank 12 or non-bank dealer file for bankruptcy, a Fund could incur certain costs in establishing that it is entitled to dispose of the collateral and its realization on the collateral may be delayed or limited. MORTGAGE-RELATED SECURITIES. --------------------------- ADJUSTABLE-RATE MORTGAGE LOANS ("ARMS"). ARMs eligible for inclusion in a mortgage pool will generally provide for a fixed initial mortgage interest rate for a specified period of time, generally for either the first three, six, twelve, thirteen, thirty-six, or sixty scheduled monthly payments. Thereafter, the interest rates are subject to periodic adjustments based on changes in an index. ARMs typically have minimum and maximum rates beyond which the mortgage interest rate may not vary over the lifetime of the loans. Certain ARMs provide for additional limitations on the maximum amount by which the mortgage interest rate may adjust for any single adjustment period. Limitations on monthly payments can result in monthly payments that are greater or less than the amount necessary to amortize a negatively amortizing ARM by its maturity at the interest rate in effect during any particular month. COLLATERALIZED MORTGAGE POOLS. Collateralized mortgage pool securities are a form of derivative composed of interests in pools of commercial or residential mortgages. Pools of mortgage loans are assembled as securities for sale to investors by various governmental, government-related and private organizations. These securities may include complex instruments such as collateralized mortgage obligations, stripped mortgage-backed securities, mortgage pass-through securities, interest in real estate mortgage investment conduits ("REMICs"), and ARMs. RESIDENTIAL MORTGAGE-RELATED SECURITIES. Residential mortgage-related securities represent participation interests in pools of one- to four-family residential mortgage loans issued or guaranteed by governmental agencies or instrumentalities, such as the Government National Mortgage Association ("GNMA"), the Federal National Mortgage Association ("FNMA"), and the Federal Home Loan Mortgage Corporation ("FHLMC"), or issued by private entities. Similar to commercial mortgage-related securities, residential mortgage-related securities have been issued using a variety of structures, including multi-class structures featuring senior and subordinated classes. MORTGAGE PASS-THROUGH CERTIFICATES. Mortgage pass-through certificates are issued by governmental, government-related and private entities and are backed by pools of mortgages (including those on residential properties and commercial real estate). The mortgage loans are made by savings and loan institutions, mortgage bankers, commercial banks and other lenders. The securities are "pass-through" securities because they provide investors with monthly payments of principal and interest which, in effect, are a "pass-through" of the monthly payments made by the individual borrowers on the underlying mortgages, net of any fees paid to the issuer or guarantor of the pass-through certificates. The principal governmental issuer of such securities is GNMA, which is a wholly-owned U.S. government corporation within the Department of Housing and Urban Development. Government-related issuers include FHLMC and FNMA, both government sponsored corporations owned entirely by private stockholders. Commercial banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers and other secondary market issues also create pass-through pools of conventional residential and commercial mortgage loans. 13 Such issuers may be the originators of the underlying mortgage loans as well as the guarantors of the mortgage-related securities. (1) GNMA Mortgage Pass-Through Certificates ("Ginnie Maes"). Ginnie Maes represent an undivided interest in a pool of mortgages that are insured by the Federal Housing Administration or the Farmers Home Administration or guaranteed by the Veterans Administration. Ginnie Maes entitle the holder to receive all payments (including prepayments) of principal and interest owed by the individual mortgagors, net of fees paid to GNMA and to the issuer which assembles the mortgage pool and passes through the monthly payments to the certificate holders (typically, a mortgage banking firm), regardless of whether the individual mortgagor actually makes the payment. Because payments are made to certificate holders regardless of whether payments are actually received on the underlying mortgages, Ginnie Maes are of the "modified pass-through" mortgage certificate type. The GNMA is authorized to guarantee the timely payment of principal and interest on the Ginnie Maes as securities backed by an eligible pool of mortgages. The GNMA guarantee is backed by the full faith and credit of the United States, and the GNMA has unlimited authority to borrow funds from the U.S. Treasury to make payments under the guarantee. This is not a guarantee against market decline of the value of these securities or the shares of a Fund. It is possible that the availability (i.e., liquidity) of these securities could be adversely affected by actions of the U.S. government to tighten the availability of its credit. The market for Ginnie Maes is highly liquid because of the size of the market and the active participation in the secondary market of securities dealers and a variety of investors. (2) FHLMC Mortgage Participation Certificates ("Freddie Macs"). Freddie Macs represent interests in groups of specified first lien residential conventional mortgages underwritten and owned by FHLMC. Freddie Macs entitle the holder to timely payments of interest, which is guaranteed by FHLMC. FHLMC guarantees either ultimate collection or timely payment of all principal payments on the underlying mortgage loans. In cases where FHLMC has not guaranteed timely payment of principal, FHLMC may remit the amount due on account of its guarantee of ultimate payment of principal at any time after default on an underlying mortgage, but in no event later than one year after it becomes payable. Freddie Macs are not guaranteed by the United States or by any of the Federal Home Loan Banks and do not constitute a debt or obligation of the United States or of any Federal Home Loan Bank. The secondary market for Freddie Macs is highly liquid because of the size of the market and the active participation in the secondary market of FHLMC, securities dealers and a variety of investors. (3) FNMA Guaranteed Mortgage Pass-Through Certificates ("Fannie Maes"). Fannie Maes represent an undivided interest in a pool of conventional mortgage loans secured by first mortgages or deeds of trust, on one family, or two to four family, residential properties. FNMA is obligated to distribute scheduled monthly installments of principal and interest on the mortgages in the pool, whether or not received, plus full principal of any foreclosed or otherwise liquidated mortgages. The obligation of FNMA under its guaranty is solely the obligation of FNMA and is not backed by, nor entitled to, the full faith and credit of the United States. (4) Private issue mortgage certificates are pass-through securities structured in a similar fashion to Ginnie Maes, Fannie Maes, and Freddie Macs. 14 Private issuer mortgage certificates are generally backed by conventional single family, multi-family and commercial mortgages. Private issuer mortgage certificates typically are not guaranteed by the U.S. government, its agencies or instrumentalities, but generally have some form of credit support in the form of over-collateralization, pool insurance or other form of credit enhancement. The market value of mortgage-related securities depends on, among other things, the level of interest rates, the certificates' coupon rates and the payment history of the mortgagors of the underlying mortgages. COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTI-CLASS PASS-THROUGH SECURITIES. Collateralized mortgage obligations or "CMOs" are multi-class bonds backed by pools of mortgage pass-through certificates or mortgage loans. CMOs in which a Fund may invest may be collateralized by (a) pass-through certificates issued or guaranteed by GNMA, FNMA or FHLMC, (b) unsecuritized mortgage loans insured by the Federal Housing Administration or guaranteed by the Department of Veterans' Affairs or (c) any combination thereof. Each class of CMOs, often referred to as a "tranche," is issued at a specific coupon rate and has a stated maturity or final distribution date. Principal prepayments on collateral underlying a CMO may cause it to be retired substantially earlier than the stated maturities or final distribution dates. The principal and interest on the underlying mortgages may be allocated among the several classes of a series of a CMO in many ways. One or more tranches of a CMO may have coupon rates which reset periodically at a specified increment over an index, such as the London Interbank Offered Rate ("LIBOR") (or sometimes more than one index). These floating rate CMOs typically are issued with lifetime caps on the coupon rate thereon. A Fund also may invest in inverse floating rate CMOs. Inverse floating rate CMOs constitute a tranche of a CMO with a coupon rate that moves in the reverse direction of an applicable index such as the LIBOR. Accordingly, the coupon rate thereon will increase as interest rates decrease. Inverse floating rate CMOs are typically more volatile than fixed or floating rate tranches of CMOs. Many inverse floating rate CMOs have coupons that move inversely to a multiple of an applicable index such as LIBOR. The effect of the coupon varying inversely to a multiple of an applicable index creates a leverage factor. The markets for inverse floating rate CMOs with highly leveraged characteristics may at times be very thin. A Fund's ability to dispose of its positions in such securities will depend on the degree of liquidity in the markets for such securities. It is impossible to predict the amount of trading interest that may exist in such securities, and therefore the future degree of liquidity. It should be noted that inverse floaters based on multiples of a stated index are designed to be highly sensitive to changes in interest rates and can subject the holders thereof to extreme reductions of yield and loss of principal. As CMOs have evolved, some classes of CMO bonds have become more prevalent. The planned amortization class (PAC) and targeted amortization class (TAC), for example, were designed to reduce prepayment risk by establishing a sinking-fund structure. PAC and TAC bonds assure to varying degrees that investors will receive payments over a predetermined period under varying prepayment scenarios. Although PAC and TAC bonds are similar, PAC bonds are better able to provide stable cash flows under various prepayment scenarios than TAC bonds because of the order in which these tranches are paid. 15 STRIPPED MORTGAGE-BACKED SECURITIES. Stripped mortgage-backed securities are created by segregating the cash flows from underlying mortgage loans or mortgage securities to create two or more new securities, each with a specified percentage of the underlying security's principal or interest payments. Mortgage securities may be partially stripped so that each investor class receives some interest and some principal. When securities are completely stripped, however, all of the interest is distributed to holders of one type of security, known as an interest-only security, or IO, and all of the principal is distributed to holders of another type of security known as a principal-only security, or PO. Strips can be created in a pass-through structure or as tranches of a CMO. The yields to maturity on IOs and POs are very sensitive to the rate of principal payments (including prepayments) on the related underlying mortgage assets. If the underlying mortgage assets experience greater than anticipated prepayments of principal, a Fund may not fully recoup its initial investment in IOs. Conversely, if the underlying mortgage assets experience less than anticipated prepayments of principal, the yield on POs could be materially and adversely affected. COMMERCIAL MORTGAGE-BACKED SECURITIES. Commercial mortgage-backed securities are securities that represent direct or indirect participation in, or are secured by and payable from, pools of loans or leases secured by commercial properties, including but not limited to retail, office or industrial properties, hotels, health-care facilities and multi-family residential properties. Such assets are securitized through the use of trusts and special purpose corporations. The value of such securities partly depends on loan repayments by individual commercial borrowers, which can depend in turn on rent payments from tenants in secured properties, either of which may be adversely affected during general downturns in the economy. Payments or distributions of principal and interest on commercial mortgage-backed securities may be supported by credit enhancements, such as various forms of cash collateral accounts or letters of credit. Like mortgage-backed securities, commercial mortgage-backed securities are subject to the risks of prepayment. The risks that recovery or repossessed collateral might be unavailable or inadequate to support payments on commercial mortgage-backed securities, however, is greater than is the case for non-multifamily residential mortgage-backed securities. MUNICIPAL OBLIGATIONS. --------------------- GENERAL. Unless otherwise specified, "Municipal Obligations," when referred to below, include Pennsylvania Municipal Obligations. Municipal Obligations generally include debt obligations issued to obtain funds for various public purposes as well as certain private activity bonds issued by or on behalf of public authorities. Municipal Obligations include general obligation bonds, revenue bonds and notes. General obligation bonds are secured by the issuer's pledge of its faith, credit and taxing power for the payment of principal and interest. Revenue bonds are payable from the revenue derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise or other specific revenue source, but not from the general taxing power. Notes are short-term instruments that are obligations of the issuing municipalities or agencies and are sold in anticipation of a bond sale, collection of taxes or receipt of other revenues. Municipal Obligations also include municipal lease/purchase agreements, which are similar to installment purchase contracts for property or equipment issued by municipalities. Municipal Obligations bear fixed, floating or variable rates of interest, which are determined in some instances by formulas under which the Municipal Obligation's interest rate will change directly or inversely to changes in interest rates or an index, or multiples thereof, in many cases subject to a maximum and minimum. Certain Municipal Obligations are subject to 16 redemption at a date earlier than their stated maturity pursuant to call options, which may be separated from the related Municipal Obligation and purchased and sold separately. The yields on Municipal Obligations are dependent on a variety of factors, including general economic and monetary conditions, money market factors, conditions in the Municipal Obligations market, size of a particular offering, maturity of the obligation and rating of the issue. The imposition of a Fund's management fee, as well as other operating expenses, will have the effect of reducing the yield to investors. Municipal Obligations may be repayable out of revenue streams generated from economically related projects or facilities or whose issuers are located in the same state. The latter is likely to be the case with respect to investments of MPAM Pennsylvania Intermediate Municipal Bond Fund. Sizable investments in these obligations could increase risk to the Funds should any of the related projects or facilities experience financial difficulties. Obligations of issuers of Municipal Obligations are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of creditors. In addition, the obligations of such issuers may become subject to laws enacted in the future by Congress, state legislators, or referenda extending the time for payment of principal and/or interest, or imposing other constraints upon enforcement of such obligations or upon municipalities to levy taxes. There is also the possibility that, as a result of litigation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its Municipal Obligations may be materially affected. Other types of tax-exempt instruments that may become available in the future may be purchased by a Fund as long as the Investment Adviser believes the quality of these instruments meets the Fund's quality standards. MUNICIPAL BONDS. Municipal bonds, which generally have a maturity of more than one year when issued, have two principal classifications: general obligation bonds and revenue bonds. A private activity bond is a particular kind of revenue bond. The classifications of general obligation bonds, revenue bonds and private activity bonds are discussed below. 1. General Obligation Bonds. The proceeds of these obligations are used to finance a wide range of public projects, including construction or improvement of schools, highways and roads, and water and sewer systems. General obligation bonds are secured by the issuer's pledge of its faith, credit, and taxing power for the payment of principal and interest. 2. Revenue Bonds. Revenue bonds are issued to finance a wide variety of capital projects including: electric, gas, water and sewer systems; highways, bridges and tunnels; port and airport facilities; colleges and universities; and hospitals. The principal security for a revenue bond is generally the net revenues derived from a particular facility, group of facilities or, in some cases, the proceeds of a special excise or other specific revenue source. Although the principal security behind these bonds may vary, many provide additional security in the form of a debt service reserve fund whose money may be used to make principal and interest payments on the issuer's obligations. 17 Some authorities provide further security in the form of a state's ability (without obligation) to make up deficiencies in the debt service reserve fund. 3. Private Activity Bonds. Private activity bonds, which are considered Municipal Obligations if the interest paid thereon is exempt from Federal income tax, are issued by or on behalf of public authorities to raise money to finance various privately operated facilities for business and manufacturing, housing, sports and pollution control. These bonds are also used to finance public facilities such as airports, mass transit systems, ports and parking. The payment of the principal and interest on such bonds is dependent solely on the ability of the facility's user to meet its financial obligations and the pledge, if any, of real and personal property so financed as security for such payment. As discussed below under "Dividends, Other Distributions and Taxes," interest income on these bonds may be a Tax Preference Item. MUNICIPAL NOTES. Municipal notes generally are used to provide for short-term capital needs and generally have maturities of thirteen months or less. Municipal notes include: 1. Tax Anticipation Notes. Tax anticipation notes are issued to finance working capital needs of municipalities. Generally, they are issued in anticipation of various seasonal tax revenue, such as income, sales, use and business taxes, and are payable from these specific future taxes. 2. Revenue Anticipation Notes. Revenue anticipation notes are issued in expectation of receipt of other kinds of revenue, such as Federal revenues available under Federal Revenue Sharing programs. 3. Bond Anticipation Notes. Bond anticipation notes are issued to provide interim financing until long-term financing can be arranged. In most cases, the long-term bonds then provide the money for the repayment of the notes. MUNICIPAL COMMERCIAL PAPER. Issues of municipal commercial paper typically represent short-term, unsecured, negotiable promissory notes. These obligations are issued by agencies of state and local governments to finance seasonal working capital needs of municipalities or to provide interim construction financing and are paid from general revenues of municipalities or are refinanced with long-term debt. In most cases, municipal commercial paper is backed by letters of credit, lending agreements, note repurchase agreements, or other credit facility agreements offered by banks or other institutions. MUNICIPAL LEASE OBLIGATIONS. Municipal leases may take the form of a lease or a certificate of participation in a purchase contract issued by state and local government authorities to obtain funds to acquire a wide variety of equipment and facilities, such as fire and sanitation vehicles, computer equipment and other capital assets. A lease obligation does not constitute a general obligation of the municipality for which the municipality's taxing power is pledged, although the lease obligation is ordinarily backed by the municipality's covenant to budget for, appropriate and make payments due under the lease obligation. Municipal leases have special risks not normally associated with municipal bonds. These obligations frequently contain 18 "non-appropriation" clauses that provide that the governmental issuer of the obligation has no obligation to make future payments under the lease or contract unless money is appropriated for such purposes by the legislative body on a yearly or other periodic basis. In addition to the non-appropriation risk, municipal leases represent a type of financing that has not yet developed the depth of marketability associated with municipal bonds; moreover, although the obligations will be secured by the leased equipment, the disposition of the equipment in the event of foreclosure might prove difficult. For purposes of the 15% limitation on the purchase of illiquid securities, a Fund will not consider the municipal lease obligations or certificates of participation in municipal lease obligations in which it invests as liquid, unless the Investment Adviser shall determine, based upon such factors as the frequency of trades and quotes for the obligation, the number of dealers willing to purchase or sell the security and the number of other potential buyers, the willingness of dealers to undertake to make a market in the security and the nature of marketplace trades, that a security shall be treated as liquid for purposes of such limitation. In evaluating the liquidity and credit quality of a lease obligation that is unrated, the Fund's Board has directed the Investment Adviser to consider (a) whether the lease can be canceled; (b) what assurance there is that the assets represented by the lease can be sold; (c) the strength of the lessee's general credit (e.g., its debt, administrative, economic, and financial characteristics); (d) the likelihood that the municipality will discontinue appropriating funding for the leased property because the property is no longer deemed essential to the operations of the municipality (e.g., the potential for an "event of nonappropriation"); (e) the legal recourse in the event of failure to appropriate; and (f) such other factors concerning credit quality as the Investment Adviser may deem relevant. TAX-EXEMPT PARTICIPATION INTERESTS. The relevant Funds may purchase from financial institutions tax-exempt participation interests in Municipal Obligations (such as private activity bonds and municipal lease/purchase agreements). A participation interest gives a Fund an undivided interest in the Municipal Obligation in the proportion that the Fund's participation interest bears to the total principal amount of the Municipal Obligation. These instruments may have fixed, floating or variable rates of interest. If the participation interest is unrated, it will be backed by an irrevocable letter of credit or guarantee of a bank that the Fund's Board has determined meets prescribed quality standards for banks, or the payment obligation otherwise will be collateralized by U.S. government securities. For certain participation interests, a Fund will have the right to demand payment, on not more than seven days' notice, for all or any part of the Fund's participation interest in the Municipal Obligation, plus accrued interest. As to these instruments, a Fund intends to exercise its right to demand payment only upon a default under the terms of the Municipal Obligation, as needed to provide liquidity to meet redemptions, or to maintain or improve the quality of its investment portfolio. TENDER OPTION BONDS. A tender option bond is a Municipal Obligation (generally held pursuant to a custodial arrangement) having a relatively long maturity and bearing interest at a fixed rate substantially higher than prevailing short-term tax-exempt rates, that has been coupled with the agreement of a third party, such as a bank, broker-dealer or other financial institution, pursuant to which such institution grants the security holders the option, at periodic intervals, to tender their securities to the institution and receive the face value thereof. As consideration for providing the option, the financial institution receives periodic fees equal to the difference between the Municipal Obligation's fixed coupon rate and the rate, as determined by a remarketing or similar agent at or near the commencement of such period, that would cause the securities, coupled with the tender option, to trade at par on the date of such determination. Thus, after payment of this fee, the security holder effectively holds a demand obligation that bears interest at the prevailing short-term 19 tax-exempt rate. The Investment Adviser, on behalf of each Fund, will consider on an ongoing basis the creditworthiness of the issuer of the underlying Municipal Obligation, of any custodian and of the third-party provider of the tender option. In certain instances and for certain tender option bonds, the option may be terminable in the event of a default in payment of principal or interest on the underlying Municipal Obligations and for other reasons. No Fund will invest more than 15% of the value of its net assets in illiquid securities, which would include tender option bonds for which the required notice to exercise the tender feature is more than seven days if there is no secondary market available for these obligations. A Fund will purchase tender option bonds only when it is satisfied that the custodial and tender option arrangements, including the fee payment arrangements, will not adversely affect the tax-exempt status of the underlying Municipal Obligations and that payment of any tender fees will not have the effect of creating taxable income for the Fund. Based on the tender option bond agreement, a Fund expects to be able to value the tender option bond at par; however, the value of the instrument will be monitored to assure that it is valued at fair value. VARIABLE AND FLOATING RATE DEMAND NOTES. Variable and floating rate demand notes and bonds are tax-exempt obligations that ordinarily have stated maturities in excess of one year, but which permit the holder to demand payment of principal at any time or at specified intervals. Variable rate demand notes include master demand notes which are obligations that permit the Funds to invest fluctuating amounts, at varying rates of interest, pursuant to direct arrangements between the Funds, as lender, and the borrower. These obligations permit daily changes in the amount borrowed. Because these obligations are direct lending arrangements between the lender and borrower, it is not contemplated that such instruments generally will be traded, and generally there is no established secondary market for these obligations, although they are redeemable at face value, plus accrued interest. Accordingly, where these obligations are not secured by letters of credit or other credit support arrangements, a Fund's right to redeem is dependent on the ability of the borrower to pay principal and interest on demand. Each obligation purchased by the Funds will meet the quality criteria established for the purchase of Municipal Obligations. CUSTODIAL RECEIPTS. MPAM Pennsylvania Intermediate Municipal Bond Fund may purchase securities, frequently referred to as "custodial receipts," representing the right to receive future principal and interest payments on Municipal Obligations underlying such receipts. A number of different arrangements are possible. In a typical custodial receipt arrangement, an issuer or a third party owner of a Municipal Obligation deposits such obligation with a custodian in exchange for two or more classes of receipts. The two classes have different characteristics, but in each case, payments on the two classes are based on payments received on the underlying Municipal Obligations. One class has the characteristics of a typical auction rate security, where at specified intervals its interest rate is adjusted, and ownership changes, based on an auction mechanism. The interest rate on this class generally is expected to be below the coupon rate of the underlying Municipal Obligations and generally is at a level comparable to that of a Municipal Obligation of similar quality and having a maturity equal to the period between interest rate adjustments. The second class bears interest at a rate that exceeds the interest rate typically borne by a security of comparable quality and maturity; this rate is also adjusted, but in this case inversely to changes in the rate of interest of the first class. In no event will the aggregate interest paid with respect to the two classes exceed the interest paid by the underlying Municipal Obligations. The value of the second class and similar securities should be expected to 20 fluctuate more than the value of a Municipal Obligation of comparable quality and maturity and their purchase by the Fund should increase the volatility of its net asset value and, thus, its price per share. These custodial receipts are sold in private placements. The Fund also may purchase directly from issuers, and not in a private placement, Municipal Obligations having characteristics similar to custodial receipts. These securities may be part of a multi-class offering and the interest rate on certain classes may be subject to a cap or floor. OTHER INVESTMENT COMPANIES. A Fund (other than MPAM Short-Term U.S. Government Securities Fund) may invest in securities issued by other investment companies to the extent such investments are consistent with the Fund's investment objective and policies and permissible under the 1940 Act. As a shareholder of another investment company, a Fund would bear, along with other shareholders, its pro rata portion of the other investment company's expenses, including advisory fees. These expenses would be in addition to the advisory and other expenses that the Fund bears directly in connection with its own operations. Under the 1940 Act, a Fund's investment in securities of another investment company, subject to certain exceptions, currently is limited to (i) 3% of the total voting stock of any one investment company, (ii) 5% of the Fund's total assets with respect to any one investment company and (iii) 10% of the Fund's total assets in the aggregate. PREFERRED STOCK. Preferred stock is a class of capital stock that typically pays dividends at a specified rate. Preferred stock is generally senior to common stock, but subordinate to debt securities, with respect to the payment of dividends and on liquidation of the issuer. In general, the market value of preferred stock is its "investment value," or its value as a fixed-income security. Accordingly, the market value of preferred stock generally increases when interest rates decline and decreases when interest rates rise, but, as with debt securities, is also affected by the issuer's ability to make payments on the preferred stock. STAND-BY COMMITMENTS. Each Municipal Bond Fund may acquire "stand-by commitments" with respect to Municipal Obligations held in its portfolio. Under a stand-by commitment, a Fund obligates a broker, dealer or bank to repurchase, at the Fund's option, specified securities at a specified price and, in this respect, stand-by commitments are comparable to put options. The exercise of a stand-by commitment, therefore, is subject to the ability of the seller to make payment on demand. A Fund will acquire stand-by commitments solely to facilitate its portfolio liquidity and does not intend to exercise its rights thereunder for trading purposes. A Fund may pay for stand-by commitments if such action is deemed necessary, thus increasing to a degree the cost of the underlying Municipal Obligation and similarly decreasing such security's yield to investors. Gains realized in connection with stand-by commitments will be taxable. A Fund also may acquire call options on specific Municipal Obligations. A Fund generally would purchase these call options to protect a Fund from the issuer of the related Municipal Obligation redeeming, or other holder of the call option from calling away, the Municipal Obligation before maturity. The sale by a Fund of a call option that it owns on a specific Municipal Obligation could result in its receipt of taxable income. TAXABLE INVESTMENTS. (MPAM Intermediate Municipal Bond Fund and MPAM National Short-Term Municipal Bond Fund Only) Because each Fund's goal is to 21 provide income exempt from Federal income tax, it will invest in taxable obligations only if and when the Investment Adviser believes it would be in the best interests of its shareholders to do so. (MPAM Pennsylvania Intermediate Municipal Bond Fund Only) The Fund anticipates being as fully invested as practicable in Municipal Obligations. Although the Fund's goal is to provide income exempt from Federal and Pennsylvania personal income taxes, it is anticipated that the Fund may invest up to 35% of its total assets in obligations on which the interest is subject to Federal and Pennsylvania personal income taxes. Situations in which a Fund may invest in taxable securities include: (a) pending investment of proceeds of sales of shares of the Funds or of portfolio securities, (b) pending settlement of purchases of portfolio securities, and (c) when the Fund is attempting to maintain liquidity for the purpose of meeting anticipated redemptions. A Fund may temporarily invest more than 20% of its total assets (35% for MPAM Pennsylvania Intermediate Municipal Bond Fund) in Federally taxable securities to maintain a "defensive" posture when, in the opinion of the Investment Adviser, it is advisable to do so because of adverse market conditions affecting the market for Municipal Obligations. Under such circumstances, a Fund may invest in the kinds of taxable securities described above under "Money Market Instruments." Dividends paid by a Fund that are attributable to income earned by the Fund from taxable investments will be taxable to investors. See "Dividends, Other Distributions and Taxes." VARIABLE AND FLOATING RATE SECURITIES. The relevant Funds may purchase floating rate and variable rate obligations, including participation interests therein. Floating rate or variable rate obligations provide that the rate of interest is set as a specific percentage of a designated base rate (such as the prime rate at a major commercial bank) and that a Fund can demand payment of the obligation at par plus accrued interest. Variable rate obligations provide for a specified periodic adjustment in the interest rate, while floating rate obligations have an interest rate which changes whenever there is a change in the external interest rate. Frequently such obligations are secured by letters of credit or other credit support arrangements provided by banks. The quality of the underlying creditor or of the bank, as the case may be, as determined by the Investment Adviser, must be equivalent to the quality standard prescribed for the Fund. In addition, the Investment Adviser monitors the earning power, cash flow and other liquidity ratios of the issuers of such obligations, as well as the creditworthiness of the institution responsible for paying the principal amount of the obligations under the demand feature. Changes in the credit quality of banks and other financial institutions that provide such credit or liquidity enhancements to a Fund's portfolio securities could cause losses to the Fund and affect its share price. WARRANTS. A warrant gives the holder the right to subscribe to a specified amount of the issuing corporation's capital stock at a set price for a specified period of time. ZERO COUPON SECURITIES. Zero coupon securities are debt securities issued or sold at a discount from their face value which do not entitle the holder to any periodic payment of interest prior to maturity or a specified redemption date (or cash payment date). The amount of the discount varies depending on the time remaining until maturity or cash payment date, prevailing interest rates, 22 liquidity of the security and perceived credit quality of the issuer. Zero coupon securities also may take the form of debt securities that have been stripped of their unmatured interest coupons, the coupons themselves and receipts or certificates representing interest in such stripped debt obligations and coupons. The market prices of zero coupon securities generally are more volatile than the market prices of securities that pay interest periodically and are likely to respond to a greater degree to changes in interest rates than non-zero coupon securities having similar maturities and credit qualities. The Code requires the holder of a zero coupon security to accrue income with respect to the security prior to the receipt of cash payments. To maintain its qualification as a regulated investment company and avoid liability for Federal income tax, a Fund may be required to distribute the income accrued with respect to these securities and may have to dispose of portfolio securities under disadvantageous circumstances in order to generate cash to satisfy this distribution requirement. INVESTMENT TECHNIQUES In addition to the principal investment strategies discussed in the Prospectus, to the extent indicated above under "The Funds and Their Investments," a Fund may utilize the investment techniques described below. A Fund might not use any of these strategies and there can be no assurance that any strategy that is used will succeed. A Fund's use of certain of these investment techniques may give rise to taxable income. BORROWING MONEY. The Funds are permitted to borrow to the extent permitted under the 1940 Act, which permits an investment company to borrow in an amount up to 33-1/3% of the value of its total assets. The Funds currently intend to borrow money only for temporary or emergency (not leveraging) purposes, in an amount up to 15% of the value of its total assets (including the amount borrowed) valued at the lesser of cost or market, less liabilities (not including the amount borrowed) at the time the borrowing is made. While such borrowings exceed 5% of the Fund's total assets, the Fund will not make any additional investments. FOREIGN CURRENCY TRANSACTIONS. The relevant Funds may engage in currency exchange transactions on a spot or forward basis. The Fund may exchange foreign currency on a spot basis at the spot rate then prevailing for purchasing or selling foreign currencies in the foreign exchange market. A Fund may also enter into forward currency contracts for the purchase or sale of a specified currency at a specified future date either with respect to specific transactions or portfolio positions in order to minimize the risk to the Fund from adverse changes in the relationship between the U.S. dollar and foreign currencies. For example, when a Fund anticipates purchasing or selling a security denominated in a foreign currency, a Fund may enter into a forward contract in order to set the exchange rate at which the transaction will be made. A Fund may also enter into a forward contract to sell an amount of foreign currency approximating the value of some or all of the Fund's securities positions denominated in that currency. Forward currency contracts may substantially change a Fund's investment exposure to changes in currency exchange rates and could result in losses if currencies do not perform as the Investment Adviser anticipates. There is no 23 assurance that the Investment Adviser's use of forward currency contracts will be advantageous to a Fund or that it will hedge at an appropriate time. FOREIGN CURRENCY STRATEGIES - SPECIAL CONSIDERATIONS. The relevant Funds may enter into various financial contracts (such as interest rate, index and foreign currency futures contracts) and options (such as options on U.S. and foreign securities or indices of such securities, foreign currencies and futures contracts), forward currency contracts and interest rate and currency swaps, collars and floors, to hedge against movements in the values of the foreign currencies in which a Fund's securities are denominated. Such currency hedges can protect against price movements in a security that a Fund owns or intends to acquire that are attributable to changes in the value of the currency in which it is denominated. Such hedges do not, however, protect against price movements in the securities that are attributable to other causes. A Fund may seek to hedge against changes in the value of particular currency by using various techniques. In some such cases, a Fund may hedge against price movements in that currency by entering into transactions using futures contracts, options, forward currency contracts and currency swaps, collars and floors. Such transaction may involve another currency or a basket of currencies, the values of which the Investment Adviser believes will have a high degree of positive correlation to the value of the currency being hedged. The risk that movements in the costs associated with such transactions, including the prices of the underlying currencies, will not correlate perfectly with movements in the price of the currency being hedged is magnified when this strategy is used. The value of such transactions involving foreign currencies depends on the value of the underlying currency relative to the U.S. dollar. Because foreign currency transactions occurring in the interbank market might involve substantially larger amounts than those involved in the use of foreign currency transactions, a Fund could be disadvantaged by having to deal in the odd-lot market (generally consisting of transactions of less than $1 million) for the underlying foreign currencies at prices that are less favorable than for round lots. There is no systematic reporting of last sale information for foreign currencies or any regulatory requirement that quotations available through dealers or other market sources be firm or revised on a timely basis. Quotation information generally is representative of very large transactions in the interbank market and thus might not reflect odd-lot transactions where rates might be less favorable. The interbank market in foreign currencies is a global, round-the-clock market. Settlement of transactions involving foreign currencies might be required to take place within the country issuing the underlying currency. Thus, a Fund might be required to accept or make delivery of the underlying foreign currency in accordance with any U.S. or foreign regulations regarding the maintenance of foreign banking arrangements by U.S. residents and might be required to pay any fees, taxes and charges associated with such delivery assessed in the issuing country. FORWARD CONTRACTS. A forward foreign currency exchange contract ("forward contract") is a contract to purchase or sell a currency at a future date. The two parties to the contract set the number of days and the price. Forward 24 contracts are used as a hedge against future movements in foreign exchange rates. A Fund may enter into forward contracts to purchase or sell foreign currencies for a fixed amount of U.S. dollars or other foreign currency. Forward contracts may serve as long hedges - for example, a Fund may purchase a forward contract to lock in the U.S. dollar price of a security denominated in a foreign currency that the Fund intends to acquire. Forward contracts may also serve as short hedges for example, a Fund may sell a forward contract to lock in the U.S. dollar equivalent of the proceeds from the anticipated sale of a security denominated in a foreign currency or from anticipated dividend or interest payments denominated in a foreign currency. The Investment Adviser may seek to hedge against changes in the value of a particular currency by using forward contracts on another foreign currency or basket of currencies, the value of which the Investment Adviser believes will bear a positive correlation to the value of the currency being hedged. The cost to a Fund of engaging in forward contracts varies with factors such as the currency involved, the length of the contract period and the market conditions then prevailing. Because forward contracts are usually entered into on a principal basis, no fees or commissions are involved. When a Fund enters into a forward contract, it relies on the counterparty to make or take delivery of the underlying currency at the maturity of the contract. Failure by the counterparty to do so would result in the loss of any expected benefit of the transaction. Buyers and sellers of forward contracts can enter into offsetting closing transactions by selling or purchasing, respectively, an instrument identical to the instrument purchased or sold. Secondary markets generally do not exist for forward contracts, with the result that closing transactions generally can be made for forward contracts only by negotiating directly with the counterparty. Thus, there can be no assurance that a Fund will in fact be able to close out a forward contract at a favorable price prior to maturity. In addition, in the event of insolvency of the counterparty, a Fund might be unable to close out a forward contract at any time prior to maturity. In either event, a Fund would continue to be subject to market risk with respect to the position, and would continue to be required to maintain a position in the securities or currencies that are the subject of the hedge or to maintain cash or securities in a segregated account. The precise matching of forward currency contract amounts and the value of the securities involved generally will not be possible because the value of such securities measured in the foreign currency will change after the forward contract has been established. Thus, a Fund might need to purchase or sell foreign currencies in the spot (cash) market to the extent such foreign currencies are not covered by forward contracts. The projection of short-term currency market movements is extremely difficult, and the successful execution of a short-term hedging strategy is highly uncertain. FORWARD ROLL TRANSACTIONS. To enhance current income, the Taxable Bond Funds may enter into forward roll transactions with respect to mortgage-related securities. In a forward roll transactions, a Fund sells mortgage-related securities to a financial institution, such as a bank or broker-dealer, and simultaneously agrees to repurchase a similar security from the institution at a later date at an agreed upon price. The securities that are repurchased will bear the same interest rate as those sold, but generally will be collateralized by different pools or mortgages with different pre-payment histories than those 25 sold. During the period between the sale and repurchase, a Fund will not be entitled to receive interest and principal payments on the securities sold. Proceeds of the sale will be invested in short-term instruments, typically repurchase agreements, and the income from these investments, together with any additional fee income received on the sale is expected to generate income for a Fund exceeding the yield on the securities sold. Forward roll transactions involve the risk that the market value of the securities sold by a Fund may decline below the purchase price of those securities. A Fund will segregate permissible liquid assets at least equal to the amount of the repurchase price (including accrued interest). The Taxable Bond Funds may enter into mortgage "dollar rolls" in which a Fund sells mortgage-related securities for delivery in the current month and simultaneously contracts to purchase substantially similar securities on a specified future date. The mortgage-related securities that are purchased will be of the same type and will have the same interest rate as those securities sold, but generally will be supported by different pools of mortgages with different prepayment histories than those sold. The Fund forgoes principal and interest paid during the roll period on the securities sold in a dollar roll, but the Fund is compensated by the difference between the current sales price and the lower prices of the future purchase, as well as by any interest earned on the proceeds of the securities sold. The Fund could be compensated also through the receipt of fee income equivalent to a lower forward price. The dollar rolls entered into by the Fund normally will be "covered." A covered roll is a specific type of dollar roll for which there is an offsetting cash position or a cash equivalent security position that matures on or before the forward settlement date of the related dollar roll transaction. Covered rolls are not treated as borrowings or other senior securities and will be excluded from the calculation of a Fund's borrowings and other senior securities. FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS. ------------------------------------------------- GENERAL. The relevant Funds may purchase and sell various financial instruments ("Derivative Instruments"), including financial futures contracts (such as interest rate, index and foreign currency futures contracts) and options (such as options on U.S. and foreign securities or indices of such securities, foreign currencies and futures contracts), forward currency contracts and interest rate, equity index and currency swaps, collars and floors. The index Derivative Instruments which a Fund may use may be based on indices of U.S. or foreign equity or debt securities. These Derivative Instruments may be used, for example, to preserve a return or spread, to lock in unrealized market value gains or losses, to facilitate or substitute for the sale or purchase of securities, to manage the duration of securities, to alter the exposure of a particular investment or portion of a Fund's portfolio to fluctuations in interest rates or currency rates, to uncap a capped security, or to convert a fixed rate security into a variable rate security or a variable rate security into a fixed rate security. Hedging strategies can be broadly categorized as "short hedges" and "long hedges." A short hedge is a purchase or sale of a Derivative Instrument intended partially or fully to offset potential declines in the value of one or more investments held in a Fund's portfolio. Thus, in a short hedge a Fund takes a position in a Derivative Instrument whose price is expected to move in the opposite direction of the price of the investment being hedged. Conversely, a long hedge is a purchase or sale of a Derivative Instrument intended partially or fully to offset potential increases in the acquisition 26 cost of one or more investments that a Fund intends to acquire. Thus, in a long hedge a Fund takes a position in a Derivative Instrument whose price is expected to move in the same direction as the price of the prospective investment being hedged. A long hedge is sometimes referred to as an anticipatory hedge. In an anticipatory hedge transaction, a Fund does not own a corresponding security and, therefore, the transaction does not relate to a security the Fund owns. Rather, it relates to a security that the Fund intends to acquire. If a Fund does not complete the hedge by purchasing the security it anticipated purchasing, the effect on the Fund's portfolio is the same as if the transaction were entered into for speculative purposes. Derivative Instruments on securities generally are used to hedge against price movements in one or more particular securities positions that a Fund owns or intend to acquire. Derivative Instruments on indices, in contrast, generally are used to attempt to hedge against price movements in market sectors in which a Fund has invested or expects to invest. Derivative Instruments on debt securities may be used to hedge either individual securities or broad debt market sectors. The use of Derivative Instruments is subject to applicable regulations of the SEC, the several options and futures exchanges upon which they are traded, the Commodity Futures Trading Commission ("CFTC") and various state regulatory authorities. In addition, a Fund's ability to use Derivative Instruments may be limited by tax considerations. See "Dividends, Other Distributions and Taxes." In addition to the instruments, strategies and risks described below and in the Fund's Prospectus, the Investment Adviser expects to discover additional opportunities in connection with other Derivative Instruments. These new opportunities may become available as the Investment Adviser develops new techniques, as regulatory authorities broaden the range of permitted transactions and as new techniques are developed. The Investment Adviser may utilize these opportunities to the extent that they are consistent with a Fund's investment objective, and permitted by the Fund's investment policies and applicable regulatory authorities. SPECIAL RISKS. The use of Derivative Instruments involves special considerations and risks, certain of which are described below. Risks pertaining to particular Derivative Instruments are described in the sections that follow. (1) Successful use of most Derivative Instruments depends upon the ability of the Investment Adviser not only to forecast the direction of price fluctuations of the investment involved in the transaction, but also to predict movements of the overall securities and interest rate markets, which requires different skills than predicting changes in the prices of individual securities. There can be no assurance that any particular strategy will succeed. (2) There might be imperfect correlation, or even no correlation, between price movements of a Derivative Instrument and price movements of the investments being hedged. For example, if the value of a Derivative Instrument used in a short hedge increased by less than the decline in value of the hedged investment, the hedge would not be fully successful. Such a lack of correlation might occur due to factors unrelated to the value of the investments being hedged, such as speculative or other pressures on the markets in which Derivative Instruments are traded. The effectiveness of hedges using Derivative 27 Instruments on indices will depend on the degree of correlation between price movements in the index and price movements in the securities being hedged. Because there are a limited number of types of exchange-traded options and futures contracts, it is likely that the standardized contracts available will not match a Fund's current or anticipated investments exactly. A Fund may invest in options and futures contracts based on securities with different issuers, maturities, or other characteristics from the securities in which it typically invests, which involves a risk that the options or futures position will not track the performance of the Fund's other investments. Options and futures prices can also diverge from the prices of their underlying instruments, even if the underlying instruments match a Fund's investments well. Options and futures prices are affected by such factors as current and anticipated short-term interest rates, changes in volatility of the underlying instrument, and the time remaining until expiration of the contract, which may not affect security prices the same way. Imperfect correlation may also result from differing levels of demand in the options and futures markets and the securities markets, from structural differences in how options and futures and securities are traded, or from imposition of daily price fluctuation limits or trading halts. A Fund may purchase or sell options and futures contracts with a greater or lesser value than the securities it wishes to hedge or intends to purchase in order to attempt to compensate for differences in volatility between the contract and the securities, although this may not be successful in all cases. If price changes in a Fund's options or futures positions are poorly correlated with its other investments, the positions may fail to produce anticipated gains or result in losses that are not offset by gains in other investments. (3) If successful, the above-discussed strategies can reduce risk of loss by wholly or partially offsetting the negative effect of unfavorable price movements. However, such strategies can also reduce opportunity for gain by offsetting the positive effect of favorable price movements. For example, if a Fund entered into a short hedge because the Investment Adviser projected a decline in the price of a security in the Fund's portfolio, and the price of that security increased instead, the gain from that increase might be wholly or partially offset by a decline in the price of the Derivative Instrument. Moreover, if the price of the Derivative Instrument declined by more than the increase in the price of the security, a Fund could suffer a loss. In either such case, a Fund would have been in a better position had it not attempted to hedge at all. (4) As described below, a Fund might be required to maintain assets as "cover," maintain segregated accounts or make margin payments when it takes positions in Derivative Instruments involving obligations to third parties (i.e., Derivative Instruments other than purchased options). If a Fund was unable to close out its position in such Derivative Instruments, it might be required to continue to maintain such assets or accounts or make such payments until the position expired or matured. These requirements might impair a Fund's ability to sell a portfolio security or make an investment at a time when it would otherwise be favorable to do so, or require that the Fund sell a portfolio security at a disadvantageous time. A Fund's ability to close out a position in a Derivative Instrument prior to expiration or maturity depends on the existence of a liquid secondary market or, in the absence of such a market, the ability and willingness of the other party to the transaction ("counterparty") to enter into a transaction closing out the position. Therefore, there is no assurance 28 that any position can be closed out at a time and price that is favorable to a Fund. (5) The purchase and sale of Derivative Instruments could result in a loss if the counterparty to the transaction does not perform as expected, and may increase portfolio turnover rates, which results in correspondingly greater commission expenses and transaction costs and may result in certain tax consequences. COVER FOR DERIVATIVE INSTRUMENTS. Transactions using Derivative Instruments may expose the relevant Funds to an obligation to another party. A Fund will not enter into any such transactions unless it owns either (1) an offsetting ("covered") position in securities, futures or options, currencies or forward contracts or (2) cash and short-term liquid debt securities with a value sufficient at all times to cover its potential obligations to the extent not covered as provided in (1) above. A Fund will comply with SEC guidelines regarding cover for Derivative Instruments and will, if the guidelines so require, set aside permissible liquid assets in a segregated account with its custodian in the prescribed amount. Assets used as cover or held in a segregated account cannot be sold while the position in the corresponding Derivative Instrument is open, unless they are replaced with other appropriate assets. As a result, the commitment of a large portion of a Fund's assets to cover or segregated accounts could impede portfolio management or the Fund's ability to meet redemption requests or other current obligations. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. When a Fund purchases a futures contract, it incurs an obligation to take delivery of a specified amount of the security underlying the futures contract at a specified time in the future for a specified price. When a Fund sells a futures contract, it incurs an obligation to deliver a specified amount of the security underlying the futures contract at a specified time in the future for an agreed upon price. With respect to index futures, no physical transfer of the securities underlying the index is made. Rather, the parties settle by exchanging in cash an amount based on the difference between the contract price and the closing value of the index on the settlement date. When a Fund writes an option on a futures contract, it becomes obligated, in return for the premium paid, to assume a position in a futures contract at a specified exercise price at any time during the term of the option. If a Fund writes a call, it assumes a short futures position. If a Fund writes a put, it assumes a long futures position. When a Fund purchases an option on a futures contract, it acquires the right, in return for the premium it pays, to assume a position in a futures contract (a long position if the option is a call and a short position if the option is a put). The purchase of futures or call options on futures can serve as a long hedge, and the sale of futures or the purchase of put options on futures can serve as a short hedge. Writing call options on futures contracts can serve as a limited short hedge, using a strategy similar to that used for writing call options on securities or indices. Similarly, writing put options on futures contracts can serve as a limited long hedge. Futures strategies also can be used to manage the average duration of a Fund's fixed income portfolio. If the Investment Adviser wishes to shorten the 29 average duration of a Fund's fixed income portfolio, the Fund may sell an interest rate futures contract or a call option thereon, or purchase a put option on that futures contract. If the Investment Adviser wishes to lengthen the average duration of a Fund's fixed income portfolio, the Fund may buy an interest rate futures contract or a call option thereon, or sell a put option thereon. No price is paid upon entering into a futures contract. Instead, at the inception of a futures contract a Fund is required to deposit "initial margin" consisting of cash or U.S. government securities in an amount generally equal to 10% or less of the contract value. Margin must also be deposited when writing a call or put option on a futures contract, in accordance with applicable exchange rules. Unlike margin in securities transactions, initial margin on futures contracts does not represent a borrowing, but rather is in the nature of a performance bond or good-faith deposit that is returned to a Fund at the termination of the transaction if all contractual obligations have been satisfied. Under certain circumstances, such as periods of high volatility, a Fund may be required by an exchange to increase the level of its initial margin payment. Subsequent "variation margin" payments are made to and from the futures broker daily as the value of the futures position varies, a process known as "marking-to-market." Variation margin does not involve borrowing, but rather represents a daily settlement of a Fund's obligations to or from a futures broker. When a Fund purchases an option on a future, the premium paid plus transaction costs is all that is at risk. In contrast, when a Fund purchases or sells a futures contract or writes a call or put option thereon, it is subject to daily variation margin calls that could be substantial in the event of adverse price movements. If a Fund has insufficient cash to meet daily variation margin requirements, it might need to sell securities at a time when such sales are disadvantageous. Purchasers and sellers of futures contracts and options on futures can enter into offsetting closing transactions, similar to closing transactions on options, by selling or purchasing, respectively, an instrument identical to the instrument purchased or sold. Positions in futures and options on futures may be closed only on an exchange or board of trade that provides a secondary market. Although the Funds intend to enter into futures and options on futures only on exchanges or boards of trade where there appears to be a liquid secondary market, there can be no assurance that such a market will exist for a particular contract at a particular time. In such event, it may not be possible to close a futures contract or options position. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures or an option on a futures contract can vary from the previous day's settlement price; once that limit is reached, no trades may be made that day at a price beyond the limit. Daily price limits do not limit potential losses because prices could move to the daily limit for several consecutive days with little or no trading, thereby preventing liquidation of unfavorable positions. If a Fund were unable to liquidate a futures or options on futures position due to the absence of a liquid secondary market or the imposition of price limits, it could incur substantial losses. A Fund would continue to be subject to market risk with respect to the position. In addition, except in the case of purchased options, a Fund would continue to be required to make daily variation margin payments and might be required to maintain the position being hedged by the future or option or to maintain cash or securities in a segregated account. 30 To the extent that a Fund enters into futures contracts, options on futures contracts, or options on foreign currencies traded on an exchange regulated by the CFTC, in each case other than for bona fide hedging purposes (as defined by the CFTC), the aggregate initial margin and premiums required to establish those positions (excluding the amount by which options are "in-the-money" at the time of purchase) will not exceed 5% of the liquidation value of the Fund's portfolio, after taking into account unrealized profits and unrealized losses on any contracts the Fund has entered into. This policy does not limit to 5% the percentage of the Fund's assets that are at risk in futures contracts and options on futures contracts for hedging purposes. OPTIONS. A call option gives the purchaser the right to buy, and obligates the writer to sell, the underlying investment at the agreed upon exercise price during the option period. A put option gives the purchaser the right to sell, and obligates the writer to buy, the underlying investment at the agreed upon exercise price during the option period. A purchaser of an option pays an amount, known as the premium, to the option writer in exchange for rights under the option contract. Options on indices are similar to options on securities or currencies except that all settlements are in cash and gain or loss depends on changes in the index in question rather than on price movements in individual securities or currencies. The purchase of call options can serve as a long hedge, and the purchase of put options can serve as a short hedge. Writing put or call options can enable a Fund to enhance income or yield by reason of the premiums paid by the purchasers of such options. However, if the market price of the security or other instrument underlying a put option declines to less than the exercise price on the option, minus the premium received, a Fund would expect to suffer a loss. Writing call options can also serve as a limited short hedge because declines in the value of the hedged investment would be offset to the extent of the premium received for writing the option. However, if the investment appreciates to a price higher than the exercise price of the call option, it can be expected that the option will be exercised and a Fund will be obligated to sell the investment at less than its market value unless the option is closed out in an offsetting transaction. Writing put options can serve as a limited long hedge because increases in the value of the hedged investment would be offset to the extent of the premium received for writing the option. However, if the investment depreciates to a price lower than the exercise price of the put option, it can be expected that the put option will be exercised and a Fund will be obligated to purchase the investment at more than its market value. The value of an option position will reflect, among other things, the current market value of the underlying investment, the time remaining until expiration, the relationship of the exercise price to the market price of the underlying investment, the historical price volatility of the underlying investment and general market conditions. Options that expire unexercised have no value and a Fund would experience losses to the extent of premiums paid for them. A Fund may effectively terminate its right or obligation under an option by entering into a closing transaction. For example, a Fund may terminate its 31 obligation under a call or put option that it had written by purchasing an identical call or put option; this is known as a closing purchase transaction. Conversely, a Fund may terminate a position in a put or call option it had purchased by writing an identical put or call option; this is known as a closing sale transaction. Closing transactions permit a Fund to realize profits or limit losses on an option position prior to its exercise or expiration. A Fund may purchase and sell both exchange-traded and over-the-counter ("OTC") options. Exchange-traded options in the United States are issued by a clearing organization that, in effect, guarantees completion of every exchange-traded option transaction. In contrast, OTC options are contracts between a Fund and its counterparty (usually a securities dealer or a bank) with no clearing organization guarantee. Thus, when a Fund purchases an OTC option, it relies on the counterparty from whom it purchased the option to make or take delivery of the underlying investment upon exercise of the option. Failure by the counterparty to do so would result in the loss of any premium paid by a Fund as well as the loss of any expected benefit of the transaction. A Fund will enter into only those option contracts that are listed on a national securities or commodities exchange or traded in the OTC market for which there appears to be a liquid secondary market. A Fund will not purchase put or call options that are traded on a national exchange in an amount exceeding 5% of its net assets. A Fund will not purchase or write OTC options if, as a result of such transaction, the sum of (i) the market value of outstanding OTC options purchased by the Fund, (ii) the market value of the underlying securities covered by outstanding OTC call options written by the Fund, and (iii) the market value of all other assets of the Fund that are illiquid or are not otherwise readily marketable, would exceed 15% of the Fund's net assets, taken at market value. However, if an OTC option is sold by a Fund to a primary U.S. government securities dealer recognized by the Federal Reserve Bank of New York and the Fund has the unconditional contractual right to repurchase such OTC option from the dealer at a predetermined price, then the Fund will treat as illiquid such amount of the underlying securities as is equal to the repurchase price less the amount by which the option is "in-the-money" (the difference between the current market value of the underlying securities and the price at which the option can be exercised). The repurchase price with primary dealers is typically a formula price that is generally based on a multiple of the premium received for the option plus the amount by which the option is "in-the-money." Generally, the OTC debt and foreign currency options used by a Fund are European style options. This means that the option is only exercisable immediately prior to its expiration. This is in contrast to American style options, which are exercisable at any time prior to the expiration date of the option. A Fund's ability to establish and close out positions in exchange-listed options depends on the existence of a liquid market. However, there can be no assurance that such a market will exist at any particular time. Closing transactions can be made for OTC options only by negotiating directly with the counterparty, or by a transaction in the secondary market if any such market exists. Although a Fund will enter into OTC options only with major dealers in unlisted options, there is no assurance that the Fund will in fact be able to close out an OTC option position at a favorable price prior to expiration. In the event of insolvency of the counterparty, a Fund might be unable to close out an OTC option position at any time prior to its expiration. 32 If a Fund were unable to effect a closing transaction for an option it had purchased, it would have to exercise the option to realize any profit. The inability to enter into a closing purchase transaction for a covered call option written by a Fund could cause material losses because the Fund would be unable to sell the investment used as cover for the written option until the option expires or is exercised. A Fund may write only covered call options on securities. A call option is covered if a Fund owns the underlying security or a call option on the same security with a lower strike price. The relevant Funds may purchase and sell call and put options in respect of specific securities (or groups or "baskets" of specific securities) or stock indices listed on national securities exchanges or traded in the OTC market. An option on a stock index is similar to an option in respect of specific securities, except that settlement does not occur by delivery of the securities comprising the index. Instead, the option holder receives an amount of cash if the closing level of the stock index upon which the option is based is greater than in the case of a call, or less than in the case of a put, the exercise price of the option. Thus, the effectiveness of purchasing or writing stock index options will depend upon price movements in the level of the index rather than the price of a particular stock. MUNICIPAL BOND INDEX AND INTEREST RATE FUTURES CONTRACTS AND OPTIONS ON MUNICIPAL BOND INDEX AND INTEREST RATE FUTURES CONTRACTS. The relevant Funds may invest in municipal bond index futures contracts and interest rate futures contracts and purchase and sell options on these futures contracts that are traded on a domestic exchange or board of trade. Such investments may be made by a Fund solely for the purpose of hedging against changes in the value of its portfolio securities due to anticipated changes in interest rates and market conditions, and not for purposes of speculation. Further, such investments will be made only in unusual circumstances, such as when the Investment Adviser anticipates an extreme change in interest rates or market conditions. An interest rate futures contract provides for the future purchase or sale of specified interest rate sensitive debt securities such as United States Treasury bills, bonds and notes, obligations of the GNMA and bank certificates of deposit. Although most interest rate futures contracts require the delivery of the underlying securities, some settle in cash. Each contract designates the price, date, time and place of delivery. Entering into a futures contract to deliver the index or instrument underlying the contract is referred to as entering into a "short" position in the futures contract, whereas entering into a futures contract to take delivery of the index or instrument is referred to as entering into a "long" position in the futures contract. A municipal bond index futures contract is an agreement pursuant to which two parties agree to take or make delivery of an amount of cash equal to a specific dollar amount times the difference between the value of the index at the close of the last trading day of the contract and the price at which the index contract was originally written. No physical delivery of the underlying municipal bonds in the index is made. The purpose of the acquisition or sale of a municipal bond index futures contract by a Fund, as the holder of long-term municipal securities, is to protect the Fund from fluctuations in interest rates on tax-exempt securities without actually buying or selling long-term municipal securities. 33 Unlike the purchase or sale of a Municipal Obligation, no consideration is paid or received by a Fund upon the purchase or sale of a futures contract. Initially, a Fund will be required to deposit with the broker an amount of cash or cash equivalents equal to approximately 10% of the contract amount (this amount is subject to change by the board of trade on which the contract is traded and members of such board of trade may charge a higher amount). This amount is known as initial margin and is in the nature of a performance bond or good faith deposit on the contract which is returned to a Fund upon termination of the futures contract, assuming that all contractual obligations have been satisfied. Subsequent payments, known as variation margin, to and from the broker, will be made on a daily basis as the price of the underlying instrument or index fluctuates, making the long and short positions in the futures contract more or less valuable, a process known as marking-to-market. At any time prior to the expiration of the contract, a Fund may elect to close the position by taking an opposite position, which will operate to terminate the Fund's existing position in the futures contract. There are several risks in connection with the use of a municipal bond index or interest rate futures contract as a hedging device. There can be no assurance that there will be a correlation between movements in the price of the underlying instruments of the municipal bond index and movements in the price of the Municipal Obligations which are the subject of the hedge. The degree of imperfection of correlation depends upon various circumstances, such as variations in speculative market demand for futures contracts and municipal securities, technical influences on futures trading, and differences between the municipal securities being hedged and the municipal securities underlying the municipal bond index or interest rate futures contracts, in such respects as interest rate levels, maturities and creditworthiness of issuers. A decision of whether, when, and how to hedge involves the exercise of skill and judgment and even a well-conceived hedge may be unsuccessful to some degree because of market behavior or unexpected trends in interest rates. Although the Funds intend to purchase or sell municipal bond index and interest rate futures contracts only if there is an active market for such contracts, there is no assurance that a liquid market will exist for the contracts at any particular time. Most domestic futures exchanges and boards of trade limit the amount of fluctuation permitted in futures contract prices during a single trading day. The daily limit establishes the maximum amount the price of a futures contract may vary either up or down from the previous day's settlement price at the end of a trading session. Once the daily limit has been reached in a particular contract, no trades may be made that day at a price beyond that limit. The daily limit governs only price movement during a particular trading day and, therefore, does not limit potential losses because the limit may prevent the liquidation of unfavorable positions. It is possible that futures contract prices could move to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures positions and subjecting some futures traders to substantial losses. In such event, it will not be possible to close a futures position and, in the event of adverse price movements, a Fund would be required to make daily cash payments of variation margin. In such circumstances, an increase in the value of the portion of the portfolio being hedged, if any, may partially or completely offset losses on the futures contract. As described above, however, there is no guarantee that the price of Municipal Obligations will, in fact, correlate with the price movements in the municipal bond index or interest rate futures contract and thus provide an offset to losses on a futures contract. 34 If a Fund has hedged against the possibility of an increase in interest rates adversely affecting the value of the Municipal Obligations held in its portfolio and rates decrease instead, the Fund will lose part or all of the benefit of the increased value of the Municipal Obligations it has hedged because it will have offsetting losses in its futures positions. In addition, in such situations, if a Fund has insufficient cash, it may have to sell securities to meet daily variation margin requirements. Such sales of securities may, but will not necessarily, be at increased prices which reflect the decline in interest rates. A Fund may have to sell securities at a time when it may be disadvantageous to do so. The ability of a Fund to trade in municipal bond index or interest rate futures contracts and options on interest rate futures contracts may be materially limited by the requirements of the Code applicable to regulated investment companies. See "Dividends, Other Distributions and Taxes" below. The relevant Funds may purchase put and call options on municipal bond index or interest rate futures contracts which are traded on a domestic exchange or board of trade as a hedge against changes in interest rates, and may enter into closing transactions with respect to such options to terminate existing positions. A Fund will sell put and call options on interest rate futures contracts only as part of closing sale transactions to terminate its options positions. There is no guarantee that such closing transactions can be effected. A put or call on a municipal bond index or interest rate futures contract gives the purchaser the right, in return for the premium paid, to assume a short or long position, respectively, in the underlying futures contract at a specified exercise price at any time prior to the expiration date of the option. The Funds may purchase put and call options on both municipal bond index and interest rate futures contracts. The Funds will sell options on these futures contracts only as part of closing purchase transactions to terminate its options position, although no assurance can be given that closing transactions can be effected. A Fund may purchase options when the Investment Adviser believes that interest rates will increase and consequently the value of the Fund's portfolio securities will decrease. A Fund may enter into futures contracts to buy an index or debt security or may purchase call options when the Investment Adviser anticipates purchasing portfolio securities at a time of declining interest rates. Options on municipal bond index or interest rate futures contracts, as contrasted with the direct investment in such contracts, gives the purchaser the right, in return for the premium paid, to assume a position in such contracts at a specified exercise price at any time prior to the expiration date of the options. Upon exercise of an option, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writer's futures contract margin account, which represents the amount by which the market price of the futures contract exceeds, in the case of a call, or is less than, in the case of a put, the exercise price of the option on the futures contract. The potential loss related to the purchase of an option is limited to the premium paid for the option (plus transaction costs). Because the value of the option is fixed at the point of sale, there are no daily cash payments to reflect changes in the value of the underlying contract; however, the value of the option does change daily and that change would be reflected in the net asset value of a Fund. 35 There are several risks relating to options on futures contracts. The ability to establish and close out positions on such options will be subject to the existence of a liquid market. In addition, a Fund's purchase of put or call options will be based upon predictions as to anticipated interest rate trends by the Investment Adviser, which could prove to be inaccurate. Even if the Investment Adviser's expectations are correct there may be an imperfect correlation between the change in the value of the options and of a Fund's portfolio securities. The Funds may not enter into futures contracts or purchase options on futures contracts if, immediately thereafter, the sum of the amount of margin deposits on the Funds' existing futures contracts and premiums paid for options would exceed 5% of the value of a Fund's total assets, after taking into account unrealized profits and losses on any existing contracts. Any income earned by the Funds from transactions in futures contracts and options on futures contracts will be taxable. Accordingly, it is anticipated that such investments will be made by the Municipal Bond Funds only in unusual circumstances, such as when the Investment Adviser anticipates an extreme change in interest rates or market conditions. FUTURE DEVELOPMENTS. A Fund may take advantage of opportunities in the area of options and futures contracts and options on futures contracts and any other derivatives which are not presently contemplated for use by the Fund or which are not currently available but which may be developed, to the extent such opportunities are both consistent with the Fund's investment objective and legally permissible for the Fund. REVERSE REPURCHASE AGREEMENTS. The relevant Funds may enter into reverse repurchase agreements to meet redemption requests where the liquidation of portfolio securities is deemed by a Fund to be inconvenient or disadvantageous. A reverse repurchase agreement is a transaction whereby a Fund transfers possession of a portfolio security to a bank or broker-dealer in return for a percentage of the portfolio security's market value. The Fund retains record ownership of the security involved including the right to receive interest and principal payments. At an agreed upon future date, the Fund repurchases the security by paying an agreed upon purchase price plus interest. Cash or liquid high-grade debt obligations of a Fund equal in value to the repurchase price including any accrued interest will be maintained in a segregated account while a reverse repurchase agreement is in effect. SECURITIES LENDING. The relevant Funds may lend securities from its portfolio to brokers, dealers and other financial organizations. Such loans, if and when made, may not exceed 33-1/3% of the Fund's total assets, taken at value. The Fund may not lend portfolio securities to its affiliates without specific authorization from the SEC. Loans of portfolio securities by a Fund will be collateralized by cash, letters of credit or securities issued or guaranteed by the U.S. government or its agencies which will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. From time to time, a Fund may return a part of the interest earned from the investment of collateral received for securities loaned to the borrower and/or a third party, which is unaffiliated with the Fund and which is acting as a "finder." By lending portfolio securities, a Fund can increase its income by continuing to receive interest on the loaned securities as well as by either 36 investing the cash collateral in short-term instruments or by obtaining yield in the form of interest paid by the borrower when U.S. government securities are used as collateral. Requirements of the SEC, which may be subject to future modifications, currently provide that the following conditions must be met whenever portfolio securities are loaned: (1) the Fund must receive at least 100% cash collateral or equivalent securities from the borrower; (2) the borrower must increase such collateral whenever the market value of the loaned securities rises above the level of such collateral; (3) the Fund must be able to terminate the loan at any time; (4) the Fund must receive reasonable interest on the loaned securities and any increase in market value; (5) the Fund may pay only reasonable custodian fees in connection with the loan; and (6) voting rights on the loaned securities may pass to the borrower; however, if a material event adversely affecting the investment occurs, the Trustees must terminate the loan and regain the right to vote the securities. The risks in lending portfolio securities, as well as with other extensions of secured credit, consist of possible delay in receiving additional collateral or in the recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. Loans will be made to firms deemed by the Investment Adviser to be of good standing and will not be made unless, in the judgment of the Investment Adviser, the consideration to be earned from such loans would justify the risk. SHORT-SELLING. In these transactions, the International Equity Funds and MPAM Short-Term Government Securities Fund may sell securities they do not own in anticipation of a decline in the market value of the security. To complete the transaction, a Fund must borrow the security to make delivery to the buyer. A Fund is obligated to replace the security borrowed by purchasing it subsequently at the market price at the time of replacement. The price at such time may be more or less than the price at which the security was sold by the Fund, which would result in a loss or gain, respectively. Securities will not be sold short if, after effect is given to any such short sale, the total market value of all securities sold short would exceed 25% of the value of a Fund's net assets. A Fund may not make a short sale which results in the Fund having sold short in the aggregate more than 5% of the outstanding securities of any class of an issuer. A Fund also may make short sales "against the box," in which a Fund enters into a short sale of a security it owns. At no time will more than 15% of the value of a Fund's net assets be in deposits on short sales against the box. Until a Fund closes its short position or replaces the borrowed security, it will: (a) segregate permissible liquid assets in an amount that, together with the amount deposited with the broker as collateral, always equals the current value of the security sold short; or (b) otherwise cover its short position. SWAPS, CAPS, COLLARS AND FLOORS. Swap agreements, including interest rate, equity index and currency swaps, caps, collars and floors, may be individually negotiated and structured to include exposure to a variety of different types of investments or market factors. Swaps involve two parties exchanging a series of cash flows at specified intervals. In the case of an interest rate swap, the parties exchange interest payments based on an agreed upon principal amount (referred to as the "notional principal amount"). Under the most basic scenario, Party A would pay a fixed rate on the notional principal amount to Party B, which would pay a floating rate on the same notional principal amount to Party A. Depending on their structure, swap agreements may increase or decrease a Fund's exposure to long- or short-term interest rates (in the United States or abroad), foreign currency values, mortgage securities, corporate borrowing 37 rates, or other factors. Swap agreements can take many different forms and are known by a variety of names. In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the other party. For example, the buyer of an interest rate cap obtains the right to receive payments to the extent that a specified interest rate exceeds an agreed-upon level, while the seller of an interest rate floor is obligated to make payments to the extent that a specified interest rate falls below an agreed-upon level. An interest rate collar combines elements of buying a cap and selling a floor. A Fund will set aside cash or appropriate liquid assets to cover its current obligations under swap transactions. If a Fund enters into a swap agreement on a net basis (that is, the two payment streams are netted out, with the Fund receiving or paying, as the case may be, only the net amount of the two payments), the Fund will maintain cash or liquid assets with a daily value at least equal to the excess, if any, of the Fund's accrued obligations under the swap agreement over the accrued amount the Fund is entitled to receive under the agreement. If a Fund enters into a swap agreement on other than a net basis or writes a cap, collar or floor, it will maintain cash or liquid assets with a value equal to the full amount of the Fund's accrued obligations under the agreement. The most important factor in the performance of swap agreements is the change in the specific interest rate, currency or other factor(s) that determine the amounts of payments due to and from a Fund. If a swap agreement calls for payments by a Fund, the Fund must be prepared to make such payments when due. In addition, if the counterparty's creditworthiness declines, the value of a swap agreement would likely decline, potentially resulting in losses. A Fund will enter into swaps, caps, collars and floors only with banks and recognized securities dealers believed by the Investment Adviser to present minimal credit risks. If there is a default by the other party to such a transaction, a Fund will have to rely on its contractual remedies (which may be limited by bankruptcy, insolvency or similar laws) pursuant to the agreement relating to the transaction. The Funds understand that it is the position of the SEC staff that assets involved in swap transactions are illiquid and, therefore, are subject to the limitations on illiquid investments. WHEN-ISSUED SECURITIES AND DELAYED DELIVERY TRANSACTIONS. New issues of U.S. Treasury, other government securities and Municipal Obligations are often offered on a "when-issued" basis. This means that delivery and payment for the securities normally will take place approximately 3 to 45 days after the date the buyer commits to purchase them. The payment obligation and the interest rate that will be received on securities purchased on a "when-issued" basis are each fixed at the time the buyer enters into the commitment. A Fund will make commitments to purchase such securities only with the intention of actually acquiring the securities, but the Fund may sell these securities or dispose of the commitment before the settlement date if it is deemed advisable as a matter of investment strategy. Permissible liquid assets having a market value equal to the amount of the above commitments will be segregated on each Fund's records. For the purpose of determining the adequacy of these securities the segregated securities will be valued at market. If the market value of such securities declines, additional cash or securities will be segregated on each Fund's 38 records on a daily basis so that the market value of the account will equal the amount of such commitments by the Fund. Securities purchased on a "when-issued" basis and the securities held by a Fund are subject to changes in market value based upon the public's perception of changes in the creditworthiness of the issuer and the level of interest rates. Generally, the value of such securities will fluctuate inversely to changes in interest rates, I.E., they will appreciate in value when interest rates decline and decrease in value when interest rates rise. Therefore, if in order to achieve higher interest income a Fund remains substantially fully invested at the same time that it has purchased securities on a "when-issued" basis, there will be a greater possibility of fluctuation in the Fund's net asset value. When payment for "when-issued" securities is due, a Fund will meet its obligations from then-available cash flow, the sale of segregated securities, the sale of other securities and/or, although it would not normally expect to do so, from the sale of the "when-issued" securities themselves (which may have a market value greater or less than the Fund's payment obligation). The sale of securities to meet such obligations carries with it a greater potential for the realization of capital gains, which are subject to federal income taxes. To secure advantageous prices or yields, a Fund may purchase or sell securities for delayed delivery. In such transactions, delivery of the securities occurs beyond the normal settlement periods, but no payment or delivery is made by the Fund prior to the actual delivery or payment by the other party to the transaction. The purchase of securities on a delayed delivery basis involves the risk that the value of the securities purchased will decline prior to the settlement date. The sale of securities for delayed delivery involves the risk that the prices available in the market on the delivery date may be greater than those obtained in the sale transaction. A Fund will establish a segregated account consisting of permissible liquid assets in an amount at least equal at all times to the amounts of its delayed delivery commitments. SPECIAL FACTORS AFFECTING THE FUNDS CERTAIN INVESTMENTS. From time to time, to the extent consistent with relevant investment objectives, policies and restrictions, a Fund may invest in securities of companies with which Mellon Bank, N.A. ("Mellon Bank"), the parent company of Dreyfus, has a lending relationship. EQUITY SECURITIES. Equity securities fluctuate in value, often based on factors unrelated to the value of the issuer of the securities, and such fluctuations can be pronounced. Changes in the value of a Fund's investments will result in changes in the value of its shares and thus the Fund's total return to investors. The prices of securities of small- and mid-capitalization companies may be subject to more abrupt or erratic market movements than larger, more established companies, because these securities typically are traded in lower volume and the issuers typically are more subject to changes in earnings and prospects. FIXED-INCOME SECURITIES. Even though interest-bearing securities are investments which promise a stable stream of income, the prices of such securities generally are inversely affected by changes in interest rates and, 39 therefore, are subject to the risk of market price fluctuations. The values of fixed-income securities also may be affected by changes in the credit rating or financial condition of the issuer. Securities rated Baa by Moody's and BBB by S&P, Fitch and Duff & Phelps, may be subject to such risk with respect to the issuing entity and to greater market fluctuations than certain lower yielding, higher rated fixed-income securities. Once the rating of a portfolio security has been changed, the Funds will consider all circumstances deemed relevant in determining whether to continue to hold the security. See "Appendix B," for a summary of bond ratings. FOREIGN SECURITIES. Foreign securities markets generally are not as developed or efficient as those in the United States. Securities of some foreign issuers are less liquid and more volatile than securities of comparable U.S. issuers. Similarly, volume and liquidity in most foreign securities markets are less than in the United States and, at times, volatility of price can be greater than in the United States. Because evidences of ownership of foreign securities usually are held outside the United States, a Fund will be subject to additional risks which include: possible adverse political and economic developments, seizure or nationalization of foreign deposits and adoption of governmental restrictions which might adversely affect or restrict the payment of principal, interest and dividends on the foreign securities to investors located outside the country of the issuer, whether from currency blockage or otherwise. Moreover, foreign securities held by a Fund may trade on days when the Fund does not calculate its net asset value and thus affect the Fund's net asset value on days when investors have no access to the Fund. The risks associated with investing in foreign securities are often heightened for investments in emerging markets countries. These heightened risks include (i) greater risks of expropriation, confiscatory taxation, nationalization, and less social, political and economic stability; (ii) the small current size of the markets for securities of emerging markets issuers and the currently low or nonexistent volume of trading, resulting in lack of liquidity and price volatility; (iii) certain national policies which may restrict a Fund's investment opportunities including restrictions on investing in issuers or industries deemed sensitive to relevant national interests; and (iv) the absence of developed legal structures governing private or foreign investment and private property. In addition, some emerging markets countries may have fixed or managed currencies which are not free-floating against the U.S. dollar. Further, certain emerging markets countries' currencies may not be internationally traded. Certain of these currencies have experienced a steady devaluation relative to the U.S. dollar. If a Fund is unable to hedge the U.S. dollar value of securities it owns denominated in such currencies, the Fund's net asset value will be adversely affected. Many emerging markets countries have experienced substantial, and in some periods extremely high, rates of inflation for many years. Inflation and rapid fluctuations in inflation rate have had, and may continue to have, negative effects on the economies and securities markets of certain emerging markets countries. Since foreign securities often are purchased with and payable in currencies of foreign countries, the value of these assets as measured in U.S. dollars may be affected favorably or unfavorably by changes in currency rates and exchange control regulations. LOWER-RATED BONDS. See "Appendix B" for a general description of Moody's, S&P, Duff & Phelps and Fitch ratings of debt obligations. Although ratings may 40 be useful in evaluating the safety of interest and principal payments, they do not evaluate the market value risk of these bonds. The Funds will rely on the Investment Adviser's judgment, analysis and experience in evaluating the creditworthiness of an issuer. After being purchased by a Fund, the rating of an obligation may be reduced below the minimum rating required for purchase by the Fund or the issuer of the obligation may default on its obligations. Although neither event will require the sale of such obligation by a Fund, you should be aware that the market values of bonds below investment grade tend to be more sensitive to economic conditions than are higher rated securities and will fluctuate over time. These bonds generally are considered by S&P, Moody's, Duff & Phelps and Fitch to be, on balance, predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation and generally will involve more credit risk than securities in the higher rating categories. Because there may be no established retail secondary market for some of these securities, it is possible that such securities could be sold only to a limited number of dealers or institutional investors. To the extent a secondary trading market for these bonds does exist, it generally is not as liquid as the secondary market for higher rated securities. The lack of a liquid secondary market may have an adverse impact on market price and yield and a Fund's ability to dispose of particular issues when necessary to meet the Fund's liquidity needs or in response to a specific economic event such as a deterioration in the creditworthiness of the issuer. The lack of a liquid secondary market for certain securities also may make it more difficult for a Fund to obtain accurate market quotations for purposes of valuing the Fund's portfolio and calculating its net asset value. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of these securities. In such cases, judgment may play a greater role in valuation because less reliable objective data may be available. Lower-rated bonds may be particularly susceptible to economic downturns. It is likely that any economic recession could disrupt severely the market for such securities and may have an adverse impact on the value of such securities. In addition, it is likely that any such economic downturn could adversely affect the ability of the issuers of such securities to repay principal and pay interest thereon and increase the incidence of default for such securities. The credit risk factors pertaining to lower rated securities also apply to lower rated zero coupon bonds. Zero coupon, or delayed interest bonds, carry an additional risk in that unlike an investment in bonds that pay interest throughout the period to maturity, a Fund will realize no cash until the cash payment date unless a portion of the bonds are sold, and if the issuer defaults, the Fund may obtain no return at all on its investment. MORTGAGE-RELATED SECURITIES. Mortgage-related securities can be complex Derivative Instruments, subject to both credit and prepayment risk, and may be more volatile and less liquid than more traditional debt securities. Mortgage-related securities are subject to credit risks associated with the performance of the underlying mortgage properties. Adverse changes in economic conditions and circumstances are more likely to have an adverse impact on mortgage-related securities secured by loans on certain types of commercial properties than on those secured by loans on residential properties. In addition, these securities are subject to prepayment risk, although commercials mortgages typically have shorter maturities than residential mortgages and 41 prepayment protection features. Some mortgage-related securities have structures that make their reactions to interest rate changes and other factors difficult to predict, making their value highly volatile. In certain instances, the credit risk associated with mortgage-related securities can be reduced by third party guarantees or other forms of credit support. Improved credit risk does not reduce prepayment risk which is unrelated to the rating assigned to the mortgage-related security. Prepayment risk can lead to fluctuations in value of the mortgage-related security which may be pronounced. If a mortgage-related security is purchased at a premium, all or part of the premium may be lost if there is a decline in the market value of the security, whether resulting from changes in interest rates or prepayments on the underlying mortgage collateral. Certain mortgage-related securities that may be purchased by a Fund, such as inverse floating rate collateral mortgage obligations, have coupons that move inversely to a multiple of a specific index which may result in a form of leverage. As with other interest-bearing securities, the prices of certain mortgage-related securities are inversely affected by changes in interest rates. However, although the value of a mortgage-related security may decline when interest rates rise, the converse is not necessarily true, since in periods of declining interest rates the mortgages underlying the security are more likely to be prepaid. For this and other reasons, a mortgage-related security's stated maturity may be shortened by unscheduled prepayments on the underlying mortgages, and, therefore, it is not possible to predict accurately the security's return to a Fund. Moreover, with respect to certain stripped mortgage-backed securities, if the underlying mortgage securities experience greater than anticipated prepayments of principal, a Fund may fail to fully recoup its initial investment even if the securities are rated in the highest rating category by a nationally recognized statistical rating organization. During periods of rapidly rising interest rates, prepayments of mortgage-related securities may occur at slower than expected rates. Slower prepayments effectively may lengthen a mortgage-related security's expected maturity which generally would cause the value of such security to fluctuate more widely in response to changes in interest rates. Were the prepayments of a Fund's mortgage-related securities to decrease broadly, the Fund's effective duration, and thus sensitivity to interest rate fluctuations, would increase. MUNICIPAL OBLIGATIONS. The relevant Funds may invest more than 25% of the value of their total assets in Municipal Obligations which are related in such a way that an economic, business or political development or change affecting one such security also would affect the other securities; for example, securities the interest upon which is paid from revenues of similar types of projects. As a result, a Fund may be subject to greater risk as compared to a fund that does not follow this practice. Certain municipal lease/purchase obligations in which a Fund may invest may contain "non-appropriation" clauses which provide that the municipality has no obligation to make lease payments in future years unless money is appropriated for such purpose on a yearly basis. Although "non-appropriation" lease/purchase obligations are secured by the leased property, disposition of the leased property in the event of foreclosure might prove difficult. In evaluating the credit quality of a municipal lease/purchase obligation that is unrated, the Investment Adviser will consider, on an ongoing basis, a number of factors including the likelihood that the issuing municipality will discontinue appropriating funding for the leased property. 42 Certain Code provisions relating to the issuance of Municipal Obligations may reduce the volume of Municipal Obligations qualifying for Federal tax exemption. One effect of these provisions could be to increase the cost of the Municipal Obligations available for purchase by a Fund and thus reduce available yield. Shareholders should consult their tax advisers concerning the effect of these provisions on an investment in a Fund. Proposals that may restrict or eliminate the income tax exemption for interest on Municipal Obligations may be introduced in the future. If any such proposal were enacted that would reduce the availability of Municipal Obligations for investment by a Fund so as to adversely affect its shareholders, the Fund would reevaluate its investment objective and policies and submit possible changes in the its structure to shareholders for their consideration. If legislation were enacted that would treat a type of Municipal Obligation as taxable, a Fund would treat that security as a permissible Taxable Investment within the applicable limits set forth herein. PENNSYLVANIA MUNICIPAL OBLIGATIONS. An investor in MPAM Pennsylvania Intermediate Municipal Bond Fund should consider carefully the special risks inherent in its investment in Pennsylvania Municipal Obligations. These risks result from the financial condition of the Commonwealth of Pennsylvania (the "Commonwealth"). If there should be a default or other financial crisis relating to the Commonwealth or an agency or municipality thereof, the market value and marketability of Pennsylvania Municipal Obligations held by the Fund and the interest income to the Fund could be adversely affected. The Commonwealth has been historically identified as a heavy industry state although that reputation has recently changed as the coal, steel and railroad industries declined. A more diversified economy has developed in the Commonwealth historically identified as a heavy industry state although that reputation has recently changed as the coal, steel and railroad industries declined as a long-term shift in jobs, investment and workers away from the northeast part of the nation took place. The major new sources of growth currently are in the service sector, including trade, medical and health services, education and financial institutions. The Commonwealth is highly urbanized, with almost 44% of its total population contained in the metropolitan areas which include the cities of Philadelphia and Pittsburgh. The Commonwealth's adopted fiscal 1998-99 General Fund Budget provided for a decrease in taxes of over $ 240 million. You should review "Appendix A" which sets forth additional information relating to investing in Pennsylvania Municipal Obligations. RATINGS AS INVESTMENT CRITERIA. The ratings of nationally recognized statistical rating organizations ("NRSROs") such as S&P, Moody's, Duff & Phelps and Fitch, represent the opinions of these agencies as to the quality of obligations that they rate. It should be emphasized, however, that such ratings are relative and subjective and are not absolute standards of quality. These ratings will be used by the Fund as initial criteria for the selection of portfolio securities, but the Fund will also rely upon the independent advice of the Investment Adviser to evaluate potential investments. Among the factors which will be considered are the long-term ability of the issuer to pay principal and interest and general economic trends. Further information concerning the ratings of the NRSROs and their significance is contained in Appendix B to this SAI. After being purchased by a Fund, the rating of an obligation may be reduced below the minimum rating required for purchase by the Fund or the issuer of the obligation may default on its obligations. Although neither event will require the sale of such obligation by a Fund, the Investment Adviser will 43 consider such event in determining whether the Fund should continue to hold the obligation. In addition, if an NRSRO changes its rating system, a Fund will attempt to use comparable ratings as standards for its investments in accordance with its investment objective and policies. For a discussion of special risks are associated with bonds not rated investment grade, see "Lower Rated Bonds." SIMULTANEOUS INVESTMENTS. Investment decisions for the Funds are made independently from those of other investment companies advised by the Investment Adviser. If, however, such other investment companies desire to invest in, or dispose of, the same securities as the Funds, available investments or opportunities for sales will be allocated equitably to each investment company. In some cases, this procedure may adversely affect the size of the position obtained for or disposed of by the Funds or the price paid or received by the Funds. MASTER/FEEDER OPTION The Trust may in the future seek to achieve a Fund's investment objective by investing all of the Fund's net investable assets in another investment company having the same investment objective and substantially the same investment policies and restrictions as those applicable to the Fund. Shareholders of a Fund will be given at least 30 days' prior notice of any such investment. Such investment would be made only if the Trust's Board of Trustees determines it to be in the best interest of a Fund and its shareholders. In making that determination, the Trust's Board of Trustees will consider, among other things, the benefits to shareholders and/or the opportunity to reduce costs and achieve operational efficiency. Although the Funds believe that the Board of Trustees will not approve an arrangement that is likely to result in higher costs, no assurance is given that risks will be materially reduced if this option is implemented. INVESTMENT RESTRICTIONS FUNDAMENTAL. The following limitations have been adopted by each Fund. Each Fund may not change any of these fundamental investment limitations without the consent of: (a) 67% or more of the shares present at a meeting of shareholders duly called if the holders of more than 50% of the outstanding shares of the Fund are present or represented by proxy; or (b) more than 50% of the outstanding shares of the Fund, whichever is less. Each Fund may not: 1. Purchase any securities which would cause more than 25% of the value of a Fund's total assets at the time of such purchase to be invested in the securities of one or more issuers conducting their principal activities in the same industry. (For purposes of this limitation, U.S. government securities and state or municipal governments and their political subdivisions are not considered members of any industry.) 2. Borrow money or issue senior securities as defined in the 1940 Act, except that (a) a Fund may borrow money in an amount not exceeding one-third of the Fund's total assets at the time of such borrowing, and (b) a Fund may issue multiple classes of shares. The purchase or sale of options, forward contracts, futures contracts, including those relating to indices, and options on futures contracts or indices shall not be considered to involve the borrowing of money or issuance of senior securities. 44 3. Make loans or lend securities, if as a result thereof more than one-third of the Fund's total assets would be subject to all such loans. For purposes of this restriction, debt instruments and repurchase agreements shall not be treated as loans. 4. Underwrite securities issued by any other person, except to the extent that the purchase of securities and the later disposition of such securities in accordance with the Fund's investment program may be deemed an underwriting. 5. Purchase or sell real estate unless acquired as a result of ownership of securities or other instruments (but this shall not prevent a Fund from investing in securities or other instruments backed by real estate, including mortgage loans, or securities of companies that engage in the real estate business or invest or deal in real estate or interests therein). 6. Purchase or sell commodities, except that a Fund may enter into options, forward contracts, and futures contracts, including those relating to indices, and options on futures contracts or indices. The following fundamental limitation does not apply to MPAM Pennsylvania Intermediate Municipal Bond Fund, MPAM Intermediate Municipal Bond Fund, and MPAM National Short-Term Municipal Bond Fund. 7. Purchase with respect to 75% of the Fund's total assets securities of any one issuer (other than securities issued or guaranteed by the U.S. government, its agencies or instrumentalities) if, as a result, (a) more than 5% of the Fund's total assets would be invested in the securities of that issuer, or (b) the Fund would hold more than 10% of the outstanding voting securities of that issuer. Each Fund may, notwithstanding any other fundamental investment policy or limitation, invest all of its investable assets in securities of a single, open-end management investment company with substantially the same investment objective, policies, and limitations as the Fund. NON-FUNDAMENTAL. Each Fund has adopted the following additional non-fundamental investment restrictions. These non-fundamental restrictions may be changed without shareholder approval, in compliance with applicable law and regulatory policy. 1. The Fund will not invest more than 15% of the value of its net assets in illiquid securities, including repurchase agreements with remaining maturities in excess of seven days, time deposits with maturities in excess of seven days, and other securities which are not readily marketable. For purposes of this restriction, illiquid securities shall not include commercial paper issued pursuant to Section 4(2) of the Securities Act of 1933, as amended, and securities which may be resold under Rule 144A under the Act, provided that the Board of Trustees, or its delegate, determines that such securities are liquid, based upon the trading markets for the specific security. 2. The Fund will not invest in securities of other investment companies, except as they may be acquired as part of a merger, consolidation or acquisition of assets and except to the extent otherwise permitted by the 1940 Act. 45 3. The Fund will not sell securities short, unless it owns or has the right to obtain securities equivalent in kind and amount to the securities sold short, and provided that transactions in futures contracts and options are not deemed to constitute selling short. This Investment Restriction has not been adopted with respect to MPAM International Fund, MPAM Emerging Markets Fund, and MPAM Short-Term U.S. Government Securities Fund. 4. The Fund will not purchase securities on margin, except that a Fund may obtain such short-term credits as are necessary for the clearance of transactions, and provided that margin payments in connection with futures contracts and options shall not constitute purchasing securities on margin. 5. The Fund will not purchase any security while borrowings representing more than 5% of such Fund's total assets are outstanding. If a percentage restriction is adhered to at the time of an investment, a later increase or decrease in such percentage resulting from a change in the values of assets will not constitute a violation of such restriction, except as otherwise required by the 1940 Act. If a Fund's investment objective, policies, restrictions, practices or procedures change, shareholders should consider whether the Fund remains an appropriate investment in light of the shareholder's then-current position and needs. MANAGEMENT OF THE FUNDS TRUSTEES AND OFFICERS OF THE TRUST The Trust's Board is responsible for the management and supervision of the Funds. The Board approves all significant agreements between the Trust, on behalf of the Funds, and those companies that furnish services to the Funds. These companies are as follows: MPAM Advisers, a division of The Dreyfus Corporation............................ Investment Adviser Dreyfus Service Corporation............ Distributor Dreyfus Transfer, Inc.................. Transfer Agent Mellon Bank............................ Custodian for the Funds except MPAM International Fund and MPAM Emerging Markets Fund Boston Safe Deposit and Trust Company.. Custodian for MPAM International Fund and MPAM Emerging Markets Fund 46 The Trust has a Board composed of seven Trustees. The following lists the Trustees and officers and their positions with the Trust and their present and principal occupations during the past five years. Each Trustee who is an "interested person" of the Trust, as defined in the 1940 Act, is indicated by an asterisk (*). TRUSTEES OF THE TRUST *RONALD R. DAVENPORT, TRUSTEE. Since 1972, Mr. Davenport has been the Chairman of Sheridan Broadcasting Corporation. He is the Co-Chairman of American Urban Radio Networks and also serves on the Board of Aramark Corporation. From 1982 to 1984, he was a Partner at Buchanan Ingersoll Professional Corporation. From 1970 to 1982, he served as Dean of the Duquesne University School of Law. He has served on the Boards of several state, federal, and non-profit organizations. He is 64 years old and his address is c/o Sheridan Broadcasting Corporation, 960 Penn Avenue - Suite 200, Pittsburgh, Pennsylvania 15222. JOHN L. DIEDERICH, TRUSTEE. Since 1998, Mr. Diederich has been the Chairman of Digital Site Systems, Inc., a privately held software company providing Internet service to the construction materials industry. From 1960 to 1997, he served in various capacities at the Aluminum Company of America (ALCOA), including Executive Vice President and Chairman's Council (1991-1997). He has also served on the Board of Continental Mills, United States Filter Corporation, Copperweld Steel Corporation and various non-profit organizations in Pittsburgh. He is 63 years old and his address is 1120 South Negley Avenue, Pittsburgh, Pennsylvania 15217. MAUREEN D. MCFALLS, TRUSTEE. Since January 2000, Ms. McFalls has been the Director of the Office of Government Relations at Carnegie Mellon University. From 1994 to 1999, she served as the Manager of Government Communications at the Software Engineering Institute (SEI) at Carnegie Mellon University. From 1990 to 1993, she managed the state and local government programs regarding hazardous materials information for small business, industry and government in Pennsylvania at the Center for Hazardous Materials Research, University of Pittsburgh. Prior to that, she served as President of Environmental Compliance, Inc. She is 54 years old and her address is 7521 Graymore Road, Pittsburgh, Pennsylvania 15221. *PATRICK J. O'CONNOR, CHAIRMAN OF THE BOARD AND TRUSTEE. Since 1973, Mr. O'Connor has been an attorney with Cozen and O'Connor, P.C. He currently serves as Vice Chairman of Cozen and O'Connor, P.C. He serves on the Board of Consultors for Villanova University School of Law. Mr. O'Connor has served on the Board of Villanova University School of Law, Founders Bank, College Misericordia, Temple University, and Kings College. He is 57 years old and his address is c/o Cozen and O'Connor, P.C., 1900 Market Street, Philadelphia, Pennsylvania 19103. KEVIN C. PHELAN, TRUSTEE. Since 1978, Mr. Phelan has been a mortgage banker with Meredith & Grew, Inc. He serves as the Executive Vice President and Director of Meredith & Grew, Inc. Prior to 1978, he worked in various capacities for State Street Bank & Trust Co. Mr. Phelan is currently a Trustee/Director of Greater Boston Chamber of Commerce, Fiduciary Trust Bank, St. Elizabeth's Medical Center, Providence College, Boston Municipal Research Bureau, and the 47 Boys & Girls Clubs of Boston. He is 55 years old and his address is c/o Meredith & Grew, Inc., 160 Federal Street, Boston, Massachusetts 02110. PATRICK J. PURCELL, TRUSTEE. Since February 1994, Mr. Purcell has been the President and Publisher of the Boston Herald. In July 1996, he founded jobfind.com., an employment search site on the World Wide Web, and now serves as its President. Prior to 1994, Mr. Purcell served as President and Chief Executive Officer of News America Publishing, Inc. and as publisher of the New York Post. Mr. Purcell is the Vice Chairman of the American Ireland Fund, a Board Member of The Genesis Fund, United Way of Massachusetts Bay, John F. Kennedy Library Foundation, and Greater Boston Chamber of Commerce. He is 52 years old and his address is 339 Wellesley St., Weston, Massachusetts 02493. THOMAS F. RYAN, JR, TRUSTEE. Prior to retiring in April 1999, from October 1995 to April 1999, Mr. Ryan served as President and Chief Operating Officer of the American Stock Exchange. Until April 1999, Mr. Ryan served as a Director of Securities Industry Automation Corporation, National Securities Clearing Corporation, and the American Stock Exchange. From August 1968 to September 1995, Mr. Ryan served in various capacities at Kidder, Peabody & Company, Inc., including Chairman. He is presently a Trustee/Director of Boston College, Brigham & Women's Hospital, New York State Independent System Operator, and Paragon Trade Brands, Inc. He is 58 years old and his address is 220 Boylston Street, Apartment #9017, Boston, Massachusetts 02116. The Trust pays its Board members an annual retainer and a per meeting fee and reimburses them for their expenses. The aggregate amount of compensation estimated to be paid to each Board member by the Trust and by all funds in the fund complex for which such person is a Board member (which are the thirteen Funds) for the year ending December 31, 2000, is as follows: - --------------------------------------------------------------------------- Aggregate Compensation Total Compensation NAME OF TRUSTEE FROM THE TRUST FROM THE FUND COMPLEX --------------- -------------- ---------------------- - --------------------------------------------------------------------------- Ronald R. Davenport $26,500 $26,500 - --------------------------------------------------------------------------- John L. Diederich $26,500 $26,500 - --------------------------------------------------------------------------- Maureen D. McFalls $26,500 $26,500 - --------------------------------------------------------------------------- Patrick J. O'Connor $26,500 $26,500 - --------------------------------------------------------------------------- Kevin C. Phelan $26,500 $26,500 - --------------------------------------------------------------------------- Patrick J. Purcell $26,500 $26,500 - --------------------------------------------------------------------------- Thomas F. Ryan Jr. $23,500 $23,500 - --------------------------------------------------------------------------- OFFICERS OF THE TRUST - --------------------- David F. Lamere, PRESIDENT. Executive Vice President of Mellon Financial Corporation ("Mellon") and Boston Safe Deposit and Trust Company. As President of Mellon Private Asset Management, Mr. Lamere oversees all investment management, fiduciary, administrative and charitable planned giving services for the firm's family office, endowment, foundation and high net worth clients. He has been with the firm since 1983 and is 40 years old. 48 Prior to his current position, Mr. Lamere held several management positions within Mellon Private Asset Management and The Boston Company. He is a member of Mellon's Senior Management Committee and a Director of the Boards of The Boston Company, Boston Safe Deposit and Trust Company, Laurel Capital Advisors, LLP, Mellon United National Bank, and Newton Management, Ltd., of London, England. In addition, he is Chairman of the Board for Mellon Trust of New York, Mellon Trust of California, and Mellon Trust of Florida, National Association. He is also a member of Mellon's Committee for Public Responsibility. H. Vernon Winters, VICE PRESIDENT. As Chief Investment Officer of Mellon Private Asset Management, Mr. Winters is responsible for investment strategy, policy and implementation for Mellon Private Asset Management. He serves as a Director of Boston Safe Deposit and Trust Company and The Boston Company. He is also the Chairman and CEO of Laurel Capital Advisors, LLP. He is 59 years old. Mark N. Jacobs, VICE PRESIDENT. Vice President, Secretary, and General Counsel of Dreyfus, and an officer of other investment companies advised and administered by Dreyfus. He is 54 years old. Joseph Connolly, VICE PRESIDENT AND TREASURER. Director - Mutual Fund Accounting of Dreyfus, and an officer of other investment companies advised and administered by Dreyfus. He is 43 years old. Jeff Prusnofsky, SECRETARY. Assistant General Counsel of Dreyfus, and an officer of other investment companies advised and administered by Dreyfus. He is 35 years old. Steven F. Newman, ASSISTANT SECRETARY. Assistant Secretary and Associate General Counsel of Dreyfus, and an officer of other investment companies advised and administered by Dreyfus. He is 51 years old. Michael A. Rosenberg, ASSISTANT SECRETARY. Associate General Counsel of Dreyfus, and an officer of other investment companies advised and administered by Dreyfus. He is 40 years old. Gregory S. Gruber, ASSISTANT TREASURER. Senior Accounting Manager - Municipal Bond Funds of Dreyfus, and an officer of other investment companies advised and administered by Dreyfus. He is 41 years old. William McDowell, ASSISTANT TREASURER. Senior Accounting Manager - Taxable Fixed Income of Dreyfus, and an officer of other investment companies advised and administered by Dreyfus. He is 41 years old. James Windels, ASSISTANT TREASURER. Senior Treasury Manager of Dreyfus, and an officer of other investment companies advised and administered by Dreyfus. He is 41 years old. The address of each officer of the Trust is 200 Park Avenue, New York, New York 10166. 49 As of September 10, 2000, the officers and Trustees of the Trust as a group owned beneficially less than 1% of each Fund's total shares outstanding. MANAGEMENT ARRANGEMENTS INVESTMENT ADVISER. MPAM Advisers is a division of Dreyfus, a wholly-owned subsidiary of Mellon. Mellon is a global multibank financial holding company incorporated under Pennsylvania law in 1971 and registered under the Federal Bank Holding Company Act of 1956, as amended. Mellon provides a comprehensive range of financial products and services in domestic and selected international markets. Mellon is among the 25 largest bank holding companies in the United States based on total assets. INVESTMENT ADVISORY AGREEMENT. Pursuant to an Investment Advisory Agreement with the Trust (the "Investment Advisory Agreement"), the Investment Adviser provides investment management services to each Fund, including the day-to-day management of the Fund's investments. The Investment Advisory Agreement will continue from year to year as to each Fund provided that a majority of the Trustees who are not "interested persons" of the Trust and either a majority of all Trustees or a majority (as defined in the 1940 Act) of the shareholders of the respective Fund respectively approve its continuance. The Trust may terminate the Investment Advisory Agreement with respect to each Fund upon the vote of a majority of the Board of Trustees or upon the vote of a majority of the respective Fund's outstanding voting securities on 60 days' written notice to the Investment Adviser. The Investment Adviser may terminate the Investment Advisory Agreement upon 60 days' written notice to the Trust. The Investment Advisory Agreement will terminate immediately and automatically upon its assignment. The following persons are officers and/or directors of Dreyfus: Christopher M. Condron, Chairman of the Board and Chief Executive Officer; Stephen E. Canter, President, Chief Operating Officer, Chief Investment Officer and a director; Thomas F. Eggers, Vice Chairman-Institutional and a director; Lawrence S. Kash, Vice Chairman; Ronald P. O'Hanley III, Vice Chairman; J. David Officer, Vice Chairman and a director; William T. Sandalls, Jr., Executive Vice President; Stephen R. Byers, Senior Vice President; Patrice M. Kozlowski, Senior Vice President-Corporate Communications; Mark N. Jacobs, Vice President, General Counsel and Secretary; Diane P. Durnin, Vice President-Product Development; Mary Beth Leibig, Vice President-Human Resources; Ray Van Cott, Vice President-Information Systems; Theodore A. Schachar, Vice President-Tax; Wendy Strutt, Vice President; William H. Maresca, Controller; James Bitetto, Assistant Secretary; Steven F. Newman, Assistant Secretary; and Mandell L. Berman, Burton Borgelt, Steven G. Elliott, Martin G. McGuinn, Richard W. Sabo, and Richard F. Syron, directors. The Investment Adviser manages each Fund's investments in accordance with the stated policies of the Fund, subject to the approval of the Trust's Board. The Investment Adviser is responsible for investment decisions, and provides each Fund with portfolio managers who are authorized by the Board to execute purchases and sales of securities. The Investment Adviser also maintains a 50 research department with a professional staff of portfolio managers and securities analysts who provide research services for the Funds and for other funds advised by the Investment Adviser. Mellon Bank, the parent company of Dreyfus, and its affiliates may have deposit, loan and commercial banking or other relationships with issuers of securities purchased by a Fund. The Investment Adviser has informed the Trust that in making investment decisions it does not obtain or use material inside information that Mellon Bank or its affiliates may possess with respect to such issuers. The Investment Adviser may make such advertising and promotional expenditures, using its own resources, as it from time to time deems appropriate. The Investment Adviser's Code of Ethics (the "Ethics Code") subjects its employees' personal securities transactions to various restrictions to ensure that such trading does not disadvantage any fund it advises. In that regard, portfolio managers and other investment personnel of the Investment Adviser must preclear and report their personal securities transactions and holdings, which are reviewed for compliance with the Ethics Code and are also subject to the oversight of Mellon's Investment Ethics Committee. Portfolio managers and other investment personnel who comply with the Ethics Code's preclearance and disclosure procedures and the requirements of the Committee, may be permitted to purchase, sell or hold securities which also may be or are held in fund(s) they manage or for which they otherwise provide investment advice. ADMINISTRATION AGREEMENT. Mellon Bank serves as administrator for the Funds pursuant to an Administration Agreement with the Trust (the "Administration Agreement"). Pursuant to the Administration Agreement, Mellon Bank: supplies office facilities, data processing services, clerical, accounting and bookkeeping services, auditing and legal services, internal executive and administrative services, sub-accounting and recordkeeping services, stationery and office supplies; prepares reports to shareholders, tax returns, reports to and filings with the SEC and state Blue Sky authorities; pays for transfer agency services and first year SEC registration fees; calculates the net asset value of Fund shares; and generally assists in all aspects of Fund operations. Mellon Bank, directly and through its affiliates, maintains all accounts of Fund shareholders that maintain a qualified fiduciary, custody or other accounts with Mellon Bank, Boston Safe Deposit and Trust Company, or their bank affiliates ("MPAM Clients"). Mellon Bank is also responsible for providing ongoing information and communication to MPAM Clients regarding the Funds and their investment in the Funds. Mellon Bank has entered into a Sub-Administration Agreement with Dreyfus pursuant to which Mellon Bank pays Dreyfus for performing certain of these administrative services. DISTRIBUTOR. The Distributor, located at 200 Park Avenue, New York, New York 10166, serves as each Fund's distributor on a best efforts basis pursuant to an agreement which is renewable annually. Dreyfus may pay the Distributor for shareholder services from the assets of Dreyfus, including past profits but not including the investment advisory fee paid by a Fund. The Distributor may use part or all of such payments to pay certain banks, securities brokers or dealers and other financial institutions ("Agents") for these services. The Distributor also acts as distributor for the funds in the Dreyfus Family of Funds. 51 CUSTODIAN. Mellon Bank, the parent of Dreyfus, One Mellon Bank Center, Pittsburgh, Pennsylvania 15258, acts as custodian for the investments of each Fund, except MPAM International Fund and MPAM Emerging Markets Fund. Boston Safe Deposit and Trust Company, One Boston Place, Boston, Massachusetts 02108 ("Boston Safe"), an indirect subsidiary of Mellon, acts as custodian for the investments of MPAM International Fund and MPAM Emerging Markets Fund. Under the custody agreements with the Trust, the custodians hold the Funds' portfolio securities and keep all necessary accounts and records. For its custody services, each custodian receives a monthly fee based on the market value of a Fund's assets held in custody and receives certain securities transaction charges. TRANSFER AND DIVIDEND DISBURSING AGENT. Dreyfus Transfer, Inc., a wholly-owned subsidiary of Dreyfus, P.O. Box 9671, Providence, Rhode Island 02940-9671, is each Fund's transfer and dividend disbursing agent. Under a transfer agency agreement with the Trust, the transfer agent arranges for the maintenance of shareholder account records for the Trust, the handling of certain communications between shareholders and the Funds and the payment of dividends and distributions payable by the Funds. For these services, the transfer agent receives a monthly fee computed on the basis of the number of shareholder accounts it maintains for the Trust during the month, and is reimbursed for certain out-of-pocket expenses. EXPENSES. The investment advisory fee for each Fund is stated in the Prospectus. The administration fee is calculated from the following administration fee schedule based on the level of assets of the Funds, in the aggregate: TOTAL ASSETS ANNUAL FEE ------------ ---------- $0 to $6 billion .15% Greater than $6 billion to $12 billion .12% Greater than $12 billion .10% The Investment Adviser and Mellon Bank bear all expenses in connection with the performance of their services under the Investment Advisory Agreement and Administration Agreement, respectively. All other expenses to be incurred in the operation of the Funds are borne by the Funds, except to the extent specifically assumed by the Investment Adviser or Mellon Bank. HOW TO BUY SHARES GENERAL. Shares are sold without a sales charge. The Funds reserve the right to reject any purchase order. There is no minimum initial or subsequent investment requirement for shareholders that are MPAM Clients. Shares owned by MPAM Clients will be held in omnibus accounts, or individual institutional accounts, with the Funds' transfer agent ("MPAM Accounts"). MPAM Clients may also transfer Fund shares from an MPAM Account to individuals or corporations that do not have MPAM Accounts, for whom such Fund shares will be held in separate accounts ("Individual Accounts"). MPAM Clients that have had qualified fiduciary, custody or other accounts with Mellon Bank, Boston Safe, or their bank affiliates, and who terminate such 52 relationships but who wish to continue to hold MPAM Fund shares, may do so only by establishing Individual Accounts. Initial investments in Individual Accounts must be accompanied by an Account Application. For Individual Accounts, the minimum initial investment is $10,000, and subsequent investments must be at least $1,000. Trustees of the Trust may also purchase shares of the Funds, and are offered the same Shareholder services and privileges as holders of Individual Accounts. Management understands that Mellon Bank, Boston Safe, or their bank affiliates may impose certain conditions on MPAM Clients which are different from those described in the MPAM Funds' Prospectus and this Statement of Additional Information, and, to the extent permitted by applicable regulatory authority, may charge their clients direct fees. Holders of MPAM Accounts should consult their account officers in this regard. Fund shares are sold on a continuous basis at the net asset value per share ("NAV") next determined after an order in proper form is received by the transfer agent or other entity authorized to receive orders on behalf of a Fund. NAV is determined as of the close of trading on the floor of the New York Stock Exchange ("NYSE") (currently 4:00 p.m., New York time), on each day the NYSE is open for business. For purposes of determining NAV, options and futures contracts will be valued 15 minutes after the close of trading on the floor of the NYSE. NAV is computed by dividing the value of a Fund's net assets (i.e., the value of its assets less liabilities) by the total number of Fund shares outstanding. The Fund's investments are valued based on market value or, where market quotations are not readily available, based on fair value as determined in good faith by the Trust's Board. Certain securities may be valued by an independent pricing service approved by the Trust's Board and are valued at fair value as determined by the pricing service. For information regarding the methods employed in valuing each Fund's investments, see "Determination of Net Asset Value." TELETRANSFER PRIVILEGE. Holders of Individual Accounts may purchase Fund shares (minimum $1,000 and maximum $150,000 per day) by telephone through the TELETRANSFER Privilege if they have checked the appropriate box and supplied the necessary information on the Account Application or have filed a Shareholder Services Form with the transfer agent. The proceeds will be transferred between the bank account designated in one of these documents and the holder's Fund account. Only a bank account maintained in a domestic financial institution that is an ACH member may be so designated. TELETRANSFER purchase orders may be made at any time. Purchase orders received by 4:00 p.m., New York time, on any day that the transfer agent and the NYSE are open for business will be credited to the shareholder's Fund account on the next bank business day following such purchase order. Purchase orders made after 4:00 p.m., New York time, on any day the transfer agent and the NYSE are open for business, or orders made on Saturday, Sunday or any Fund holiday (e.g., when the NYSE is not open for business), will be credited to the shareholder's Fund account on the second bank business day following such purchase order. To qualify to use the TELETRANSFER Privilege, the initial payment for purchase of Fund shares must be drawn on, and redemption proceeds paid to, the same bank and account as are designated on the Account Application or Shareholder Services Form on file. If the proceeds of a particular redemption are to be wired to an account at any other bank, the request must be in writing and signature-guaranteed. See "How To Redeem Shares - TELETRANSFER Privilege." Each 53 Fund may modify or terminate this Privilege at any time or charge a service fee upon notice to shareholders. No such fee currently is contemplated by the Funds. IN-KIND PURCHASES. If the following conditions are satisfied, a Fund may at its discretion, permit the purchase of shares through an "in-kind" exchange of securities. Any securities exchanged must meet the investment objective, policies and limitations of the applicable Fund, must have a readily ascertainable market value, must be liquid and must not be subject to restrictions on resale. The market value of any securities exchanged, plus any cash, must be at least equal to $25,000. Shares purchased in exchange for securities generally cannot be redeemed for fifteen days following the exchange in order to allow time for the transfer to settle. The basis of the exchange will depend upon the relative NAVs of the shares purchased and securities exchanged. Securities accepted by a Fund will be valued in the same manner as the Fund values its assets. Any interest earned on the securities following their delivery to a Fund and prior to the exchange will be considered in valuing the securities. All interest, dividends, subscription or other rights attached to the securities become the property of the Fund, along with the securities. For further information about "in-kind" purchases, call 1-888-281-7350. HOW TO REDEEM SHARES WIRE REDEMPTION PRIVILEGE. Holders of Individual Accounts may redeem Fund shares by wire. By using this Privilege, you authorize the transfer agent to act on wire, telephone or letter redemption instructions from any person representing himself or herself to be you and reasonably believed by the transfer agent to be genuine. Ordinarily, the Trust will initiate payment for shares redeemed pursuant to this Privilege on the next business day after receipt by the transfer agent of the redemption request in proper form. Redemption proceeds ($1,000 minimum) will be transferred by Federal Reserve wire only to the commercial bank account specified by you on the Account Application or Shareholder Services Form, or to a correspondent bank if your bank is not a member of the Federal Reserve System. Fees ordinarily are imposed by such bank and borne by the investor. Immediate notification by the correspondent bank to your bank is necessary to avoid a delay in crediting the funds to your bank account. If you have access to telegraphic equipment, you may wire redemption requests to the transfer agent by employing the following transmittal code which may be used for domestic or overseas transmissions: Transfer Agent's TRANSMITTAL CODE ANSWER BACK SIGN ---------------- ---------------- 144295 144295 TSSG PREP 54 If you do not have direct access to telegraphic equipment, you may have the wire transmitted by contacting a TRT Cables operator at 1-800-654-7171, toll free. You should advise the operator that the above transmittal code must be used and should also inform the operator of the transfer agent's answer back sign. To change the commercial bank or account designated to receive wire redemption proceeds, a written request must be sent to the transfer agent. This request must be signed by each shareholder, with each signature guaranteed as described below under "Signatures." TELETRANSFER PRIVILEGE. Holders of Individual Accounts may request by telephone that redemption proceeds be transferred between their Fund account and their bank account. Only a bank account maintained in a domestic financial institution which is an ACH member may be designated. Holders of jointly registered Individual Accounts or bank accounts may redeem through the TELETRANSFER Privilege for transfer to their bank account not more than $500,000 within any 30-day period. You should be aware that if you have selected the TELETRANSFER Privilege, any request for a wire redemption will be effected as a TeleTransfer transaction through the ACH system unless more prompt transmittal specifically is requested. Redemption proceeds will be on deposit in your account at an ACH member bank ordinarily two business days after receipt of the redemption request. See "How to Buy Shares TELETRANSFER Privilege." SIGNATURES. Written redemption requests must be signed by each shareholder, including each holder of a joint account, and each signature must be guaranteed. The transfer agent has adopted standards and procedures pursuant to which signature-guarantees in proper form generally will be accepted from domestic banks, brokers, dealers, credit unions, national securities exchanges, registered securities associations, clearing agencies and savings associations as well as from participants in the NYSE Medallion Signature Program, the Securities Transfer Agents Medallion Program ("STAMP") and the Stock Exchanges Medallion Program. Guarantees must be signed by an authorized signatory of the guarantor and "Signature- Guaranteed" must appear with the signature. The transfer agent may request additional documentation from corporations, executors, administrators, trustees or guardians, and may accept other suitable verification arrangements from foreign investors, such as consular verification. For more information with respect to signature-guarantees, please call (800)645-6561. REDEMPTION COMMITMENT. The Trust has committed itself to pay in cash all redemption requests by any shareholder of record of a Fund, limited in amount during any 90-day period to the lesser of $250,000 or 1% of the value of the Fund's net assets at the beginning of such period. Such commitment is irrevocable without the prior approval of the SEC. In the case of requests for redemption in excess of such amount, the Trust's Trustees reserve the right to make payments in whole or in part in securities or other assets in case of an emergency or any time a cash distribution would impair the liquidity of the Fund to the detriment of the existing shareholders. In such event, the securities would be valued in the same manner as each Fund's portfolio is valued. If the recipient sold such securities, brokerage charges might be incurred. SUSPENSION OF REDEMPTIONS. The right to redeem Fund shares may be suspended or the date of payment postponed (a) during any period when the NYSE is closed (other than customary weekend and holiday closings); (b) when trading 55 in the markets a Fund ordinarily utilizes is restricted or when an emergency exists as determined by the SEC so that disposal of the Fund's investments or determination of its NAV is not reasonably practicable; or (c) for such other periods as the SEC, by order, may permit to protect a Fund's shareholders. SHAREHOLDER SERVICES FUND EXCHANGES. Shareholders may purchase, in exchange for shares of a Fund, shares of other Funds, to the extent such shares are offered for sale in their state of residence. To request an exchange, holders of MPAM Accounts must contact their account representative and holders of Individual Accounts must give exchange instructions to the transfer agent in writing or by telephone. Before any exchange, you must obtain and should review a copy of the current prospectus of the Fund into which the exchange is being made. Prospectuses may be obtained by calling 1-888-281-7350. The shares being exchanged must have a current value of at least $1,000. However, each Fund account, including those established through exchanges, must continue to meet the minimum account balance requirement of $10,000. The ability to issue exchange instructions by telephone is given to all holders of Individual Accounts automatically, unless the account holder checks the relevant "No" box on the Account Application, indicating that this privilege is specifically refused. By using the Telephone Exchange Privilege, the investor authorizes the transfer agent to act on telephonic instructions (including over The Dreyfus Touch(R) automated telephone system) from any person representing himself or herself to be the investor or a representative of the investor's Agent, and reasonably believed by the transfer agent to be genuine. Telephone exchanges may be subject to limitations as to the amount involved or the number of telephone exchanges permitted. No fees currently are charged shareholders directly in connection with exchanges, although each Fund reserves the right, upon not less than 60 days' written notice, to charge shareholders a nominal fee in accordance with rules promulgated by the SEC. Each Fund reserves the right to reject any exchange request in whole or in part. The availability of fund exchanges may be modified or terminated at any time upon notice to shareholders Shareholder Services Forms may be obtained by calling 1-800-896-8167. The Funds reserve the right to reject any exchange request in whole or in part. The Fund Exchange service may be modified or terminated at any time upon notice to shareholders. ADDITIONAL INFORMATION ABOUT PURCHASES, EXCHANGES AND REDEMPTIONS The Funds are intended to be long-term investment vehicles and are not designed to provide investors with a means of speculating on short-term market movements. A pattern of frequent purchases and exchanges can be disruptive to efficient portfolio management and, consequently, can be detrimental to a Fund's performance and its shareholders. Accordingly, if a Fund's management determines 56 that an investor is engaged in excessive trading, the Fund, with or without prior notice, may temporarily or permanently terminate the availability of Fund Exchanges, or reject in whole or part any purchase or exchange request, with respect to such investor's account. Such investors also may be barred from purchasing other Funds or funds in the Dreyfus Family of Funds. Generally, an investor who makes more than four exchanges out of a Fund during any calendar year or who makes exchanges that appear to coincide with an active market-timing strategy may be deemed to be engaged in excessive trading. Accounts under common ownership or control will be considered as one account for purposes of determining a pattern of excessive trading. In addition, a Fund may refuse or restrict purchase or exchange requests by any person or group if, in the judgment of the Fund's management, the Fund would be unable to invest the money effectively in accordance with its investment objective and policies or could otherwise be adversely affected or if the Fund receives or anticipates receiving simultaneous orders that may significantly affect the Fund (e.g., amounts equal to 1% or more of the Fund's total assets). If an exchange request is refused, a Fund will take no other action with respect to the shares until it receives further instructions from the investor. A Fund may delay forwarding redemption proceeds for up to seven days if the investor redeeming shares is engaged in excessive trading or if the amount of the redemption request otherwise would be disruptive to efficient portfolio management or would adversely affect the Fund. A Fund's policy on excessive trading applies to investors who invest in the Fund directly or through financial intermediaries, but does not apply to any automatic investment or withdrawal privilege described herein. During times of drastic economic or market conditions, a Fund may suspend Fund Exchanges temporarily without notice and treat exchange requests based on their separate components - redemption orders with a simultaneous request to purchase the other Fund's shares. In such a case, the redemption request would be processed at the Fund's next determined NAV but the purchase order would be effective only at the NAV next determined after the Fund being purchased receives the proceeds of the redemption, which may result in the purchase being delayed. DETERMINATION OF NET ASSET VALUE VALUATION OF PORTFOLIO SECURITIES. Each Fund's equity securities, including covered call options written by a Fund, are valued at the last sale price on the securities exchange or national securities market on which such securities primarily are traded. Securities not listed on an exchange or national securities market, or securities in which there were no transactions, are valued at the average of the most recent bid and asked prices, except that open short positions are valued at the asked price. Bid price is used when no asked price is available. Debt securities are valued by an independent pricing service (the "Service") approved by the Trust's board. Securities valued by the Service for which quoted bid prices in the judgment of the Service are readily available and are representative of the bid side of the market are valued at the mean between the quoted bid prices (as obtained by the Service from dealers in such securities) and asked prices (as calculated by the Service based upon its evaluation of the market for such securities). Other debt securities valued by the Service are carried at fair value as determined by the Service, based on methods that include consideration of: yields or prices of securities of comparable quality, coupon, maturity and type; indications as to value from dealers; and general market conditions. Debt securities that are not valued by 57 the Service are valued at the average of the most recent bid and asked prices in the market in which such investments are primarily traded, or at the last sales price for securities traded primarily on an exchange. Bid price is used when no asked price is available. Short-term investments may be carried at amortized cost, which approximates value. Expenses and fees, including the investment advisory fee and administration fee, are accrued daily and taken into account for the purpose of determining NAV. Any assets or liabilities initially expressed in terms of foreign currency will be translated into U.S. dollars at the midpoint of the New York interbank market spot exchange rate as quoted on the day of such translation or, if no such rate is quoted on such date, such other quoted market exchange rate as may be determined to be appropriate by the Investment Adviser. Forward currency contracts will be valued at the current cost of offsetting the contract. If a Fund has to obtain prices as of the close trading on various exchanges throughout the world, the calculation of NAV may not take place contemporaneously with the determination of prices of certain of the Fund's securities. Restricted securities, as well as securities or other assets for which recent market quotations are not readily available, or are not valued by a pricing service approved by the Board, are valued at fair value as determined in good faith by the Board. The Board will review the method of valuation on a current basis. In making their good faith valuation of restricted securities, the Board members generally will take the following factors into consideration: restricted securities which are, or are convertible into, securities of the same class of securities for which a public market exists usually will be valued at market value less the same percentage discount at which purchased. This discount will be revised periodically by the Board if the Board members believe that it no longer reflects the value of the restricted securities. Restricted securities not of the same class as securities for which a public market exists usually will be valued initially at cost. Any subsequent adjustment from cost will be based upon considerations deemed relevant by the Board. NEW YORK STOCK EXCHANGE CLOSINGS. The holidays (as observed) on which the NYSE is currently scheduled to be closed are: New Year's Day, Dr. Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES DISTRIBUTIONS Each Fund usually pays its shareholders dividends from its net investment income as follows: 58 FUND DIVIDEND FREQUENCY MPAM Large Cap Stock Fund Monthly MPAM Income Stock Fund Monthly MPAM Mid Cap Stock Fund Annually MPAM Small Cap Stock Fund Annually MPAM International Fund Annually MPAM Emerging Markets Fund Annually MPAM Bond Fund Monthly MPAM Intermediate Bond Fund Monthly MPAM Short-Term U.S. Government Securities Fund Monthly MPAM National Intermediate Municipal Bond Fund* Monthly MPAM National Short-Term Municipal Bond Fund* Monthly MPAM Pennsylvania Intermediate Municipal Bond Fund* Monthly MPAM Balanced Fund Monthly * Declares dividends daily. Each Fund distributes any net capital gains it has realized once a year. A Fund will make distributions from net realized capital gains only if all its capital loss carryovers, if any, have been utilized or have expired. All expenses are accrued daily and deducted before the declaration of dividends to investors. Generally, shares purchased on a day on which a Fund calculates its NAV will begin to accrue dividends on that day, and redemption orders effected on any particular day will receive dividends declared only through the business day prior to the day of redemption. Holders of Individual Accounts may choose whether to receive dividends and other distributions in cash, to receive dividends in cash and reinvest other distributions in additional Fund shares at NAV or to reinvest both dividends and other distributions in additional Fund shares at NAV. For Individual Accounts, dividends and other distributions will be reinvested in Fund shares unless the shareholder instructs the Fund otherwise. Holders of MPAM Accounts should contact their account officer for information on reinvestment of dividends and other distributions. If you elect to receive dividends and other distributions in cash, and your distribution check is returned to a Fund as undeliverable or remains uncashed for six months, the Fund reserves the right to reinvest that distribution and all future distributions payable to you in additional Fund shares at NAV. No interest will accrue on amounts represented by uncashed distribution or redemption checks. Any dividend or other distribution paid shortly after an investor's purchase of shares may have the effect of reducing the NAV of the shares below the cost of his or her investment. Such a dividend or other distribution would be a return on investment in an economic sense, although taxable (to the extent not tax-exempt) as stated under "Dividends, Other Distributions and Taxes" in the Funds' Prospectus. 59 TAXES GENERAL. It is expected that each Fund, each of which is treated as a separate corporation for Federal income tax purposes, will qualify for treatment as a "regulated investment company" ("RIC") under the Code so long as that qualification is in the best interests of its shareholders. Qualification as such will relieve a Fund of any liability for Federal income tax to the extent it distributes its net earnings and realized gains to its shareholders. To qualify for that treatment, a Fund (1) must distribute to its shareholders each taxable year at least 90% of its investment company taxable income (generally consisting of taxable net investment income, net short-term capital gains and net gains from certain foreign currency transactions) in the case of a Municipal Bond Fund, at least 90% of the sum of that income plus its net interest income excludable from gross income under section 103(a) of the Code ("Distribution Requirement"), (2) must derive at least 90% of its annual gross income from specified sources ("Income Requirement"), and (3) must meet certain asset diversification and other requirements. The term "regulated investment company" does not imply the supervision of management or investment practices or policies by any government agency. If any Fund failed to qualify for treatment as a RIC for any taxable year, (1) it would be taxed as an ordinary corporation on the full amount of its taxable income for that year without being able to deduct the distributions it makes to its shareholders and (2) the shareholders would treat all those distributions, including distributions that otherwise would be "exempt-interest dividends" described below and distributions of net capital gain (i.e., the excess of net long-term capital gain over net short-term capital loss) ("capital gain distributions"), as taxable dividends (that is, ordinary income) to the extent of the Fund's earnings and profits. In addition, the Fund could be required to recognize unrealized gains, pay substantial taxes and interest and make substantial distributions before requalifying for RIC treatment. A Fund may be subject to a non-deductible 4% excise tax ("Excise Tax"), measured with respect to certain undistributed amounts of taxable investment income and capital gains. TAX CONSEQUENCES OF MUNICIPAL BOND FUNDS' DIVIDENDS. If a Municipal Bond Fund satisfies the requirement that, at the close of each quarter of its taxable year, at least 50% of the value of its total assets consists of securities the interest on which is excludable from gross income under section 103(a) of the Code, it may pay "exempt-interest dividends" to its shareholders. Those dividends constitute the portion of its aggregate dividends (excluding capital gain distributions) equal to the excess of its excludable interest over certain amounts disallowed as deductions. Exempt-interest dividends are excludable from a shareholder's gross income for Federal income tax purposes, although the amount of those dividends must be reported on the recipient's Federal income tax return. Shareholders' treatment of dividends from a Municipal Bond Fund under state and local income tax laws may differ from the treatment thereof under the Code. Investors should consult their tax advisers concerning this matter. Because the Municipal Bond Funds distribute exempt-interest dividends, interest on indebtedness incurred or continued by a shareholder to purchase or carry Fund shares is not deductible for Federal income tax purposes. If a shareholder receives any exempt-interest dividends with respect to Municipal Bond Fund shares held for six months or less, then any loss on the redemption or exchange of those shares will be disallowed to the extent of those exempt-interest dividends. In addition, (1) the Code may require a shareholder that receives exempt-interest dividends to treat as taxable income a portion of certain otherwise non-taxable social security and railroad retirement benefit payments, (2) the portion of an exempt-interest dividend paid by a Municipal 60 Bond Fund that represents interest from private activity bonds may be taxable in the hands of a shareholder who is a "substantial user" of a facility financed by those bonds or a "related person" thereof (both as defined for Federal income tax purposes), and (3) some or all of a Municipal Bond Fund's dividends may be a Tax Preference Item, or a component of an adjustment item, for purposes of the Federal alternative minimum tax. Shareholders should consult their own tax advisers as to whether they (1) are, or are related to, substantial users of a facility (as so defined) or (2) are subject to the Federal alternative minimum tax or any applicable state alternative minimum tax. Dividends paid by a Municipal Bond Fund derived from the interest income earned on any day are designated as tax-exempt in the same percentage of the day's dividend as the actual tax-exempt income bears to the total income earned that day. Thus, the percentage of the dividend designated as tax-exempt may vary from day to day. Similarly, dividends paid by a Municipal Bond Fund derived from interest income earned on a particular state's Municipal Obligations are designated as exempt from that state's taxation in the same percentage of the day's dividend as the actual interest on that state's Municipal Obligations bears to the total income earned that day. A Municipal Bond Fund may invest in bonds that are purchased, ordinarily not on their original issue, with "market discount" (that is, generally at a price less than the principal amount of the bond or, in the case of a bond that was issued with original issue discount, a price less than the amount of the issue price plus accrued original issue discount) ("market discount bonds"). Gain on the disposition of a market discount bond (other than a bond with a fixed maturity date within one year from its issuance) generally is treated as ordinary (taxable) income, rather than capital gain, to the extent of the bond's accrued market discount at the time of disposition. In lieu of that treatment, a Municipal Bond Fund may elect to include market discount in its gross income currently, for each taxable year to which it is attributable. TAX CONSEQUENCES OF OTHER DISTRIBUTIONS. Dividends paid by a Fund derived from taxable investments, together with distributions from net realized short-term capital gains and all or a portion of any gains realized from the sale or other disposition of certain market discount bonds (collectively "dividends"), are taxable to its U.S. shareholders as ordinary income to the extent of the Fund's earnings and profits, whether received in cash or reinvested in Fund shares. Distributions from a Fund's net capital gain for a taxable year (designated as such in a written notice mailed by the Fund to its shareholders after the close of that year) are taxable to its U.S. shareholders as long-term capital gains, regardless of how long they have held their Fund shares and whether those distributions are received in cash or reinvested in additional Fund shares. Dividends and other distributions also may be subject to state and local taxes. If a shareholder receives any capital gain distributions with respect to Fund shares held for six months or less, then any loss incurred on the redemption or exchange of those shares will be treated as a long-term capital loss to the extent of those capital gain distributions. Dividends and other distributions declared by a Fund in October, November or December of any year and payable to shareholders of record on a date in any of those months will be deemed to have been paid by the Fund and received by the 61 shareholders on December 31 of that year if the Fund pays the distributions during the following January. Accordingly, those distributions will be taxed to shareholders for the year in which that December 31 falls. The receipt of Fund distributions may affect a foreign corporate shareholder's Federal "branch profits" tax liability and a Subchapter S corporation shareholder's Federal "excess net passive income" tax liability. Shareholders should consult their own tax advisers as to whether they are subject to those taxes. Notice as to the tax status of your dividends and other distributions will be mailed to you annually. You also will receive periodic summaries of your account that will include information as to dividends and other distributions, if any, paid during the year. A Fund must withhold and remit to the U.S. Treasury 31% of taxable dividends, capital gain distributions and redemption proceeds, regardless of the extent to which gain or loss may be realized, payable to any individual or certain other non-corporate shareholder if the shareholder fails to certify that the "TIN" furnished to the Fund is correct ("backup withholding"). Backup withholding at that rate also is required from a Fund's dividends and capital gain distributions payable to such a shareholder if (1) the shareholder fails to certify that he or she has not received notice from the Internal Revenue Service ("IRS") that the shareholder is subject to backup withholding as a result of a failure to properly report taxable dividend or interest income on a Federal income tax return or (2) the IRS notifies the Fund to institute backup withholding because the IRS determines that the shareholder's TIN is incorrect or the shareholder has failed to properly report such income. A TIN is either the Social Security number, IRS individual taxpayer identification number or employer identification number of the record owner of the account. Any tax withheld as a result of backup withholding does not constitute an additional tax imposed on the record owner and may be claimed as a credit on the record owner's Federal income tax return. A portion of the dividends paid by a Domestic Equity Fund or MPAM Balanced Fund, whether received in cash or reinvested in additional Fund shares, may be eligible for the dividends-received deduction allowed to corporations. The eligible portion may not exceed the aggregate dividends received by a Fund from U.S. corporations. However, dividends received by a corporate shareholder and deducted by it pursuant to the dividends-received deduction are subject indirectly to the Federal alternative minimum tax. TAX CONSEQUENCES OF CERTAIN INVESTMENTS. Dividends and interest received by a Fund, and gains realized thereby, on foreign securities may be subject to income, withholding or other taxes imposed by foreign countries and U.S. possessions that would reduce the yield and/or total return on those securities. Tax conventions between certain countries and the United States may reduce or eliminate these taxes, however, and many foreign countries do not impose taxes on capital gains in respect of investments by foreign investors. Gains from the sale or other disposition of foreign currencies (except certain gains therefrom that may be excluded by future regulations), and gains from options, futures and forward contracts (collectively, "Derivatives") derived by a Fund with respect to its business of investing in securities or foreign currencies, will be treated as qualifying income under the Income Requirement. 62 A Fund may invest in the stock of "passive foreign investment companies" ("PFICs"). A PFIC is any foreign corporation (with certain exceptions) that, in general, meets either of the following tests: (1) at least 75% of its gross income is passive or (2) an average of at least 50% of its assets produce, or are held for the production of, passive income. Under certain circumstances, a Fund will be subject to Federal income tax on a portion of any "excess distribution" received on the stock of a PFIC or of any gain on disposition of the stock (collectively "PFIC income"), plus interest thereon, even if the Fund distributes the PFIC income as a dividend to its shareholders. The balance of the PFIC income will be included in the Fund's investment company taxable income and, accordingly, will not be taxable to it to the extent it distributes that income to its shareholders. If a Fund invests in a PFIC and elects to treat the PFIC as a "qualified electing fund" ("QEF"), then in lieu of the foregoing tax and interest obligation, the Fund would be required to include in income each year its pro rata share of the QEF's annual ordinary earnings and net capital gain which the Fund likely would have to distribute to satisfy the Distribution Requirement and avoid imposition of the Excise Tax even if the QEF did not distribute those earnings and gain to the Fund. In most instances it will be very difficult, if not impossible, to make this election because of certain requirements thereof. A Fund may elect to "mark to market" its stock in any PFIC. "Marking-to-market," in this context, means including in ordinary income each taxable year the excess, if any, of the fair market value of the stock over a Fund's adjusted basis therein as of the end of that year. Pursuant to the election, a Fund also may deduct (as an ordinary, not capital, loss) the excess, if any, of its adjusted basis in PFIC stock over the fair market value thereof as of the taxable year-end, but only to the extent of any net mark-to-market gains with respect to that stock included in income by the Fund for prior taxable years under the election. A Fund's adjusted basis in each PFIC's stock subject to the election would be adjusted to reflect the amounts of income included and deductions taken thereunder. Gains and losses realized from portfolio transactions ordinarily will be treated as capital gains and losses. However, a portion of the gains and losses from the disposition of foreign currencies and certain non-U.S.-dollar-denominated securities (including debt instruments, certain financial Derivatives and certain preferred stock) may be treated as ordinary income and losses under section 988 of the Code. In addition, all or a portion of any gains realized from the sale or other disposition of certain market discount bonds will be treated as ordinary income. Moreover, all or a portion of the gains realized from engaging in "conversion transactions" may be treated as ordinary income under section 1258 of the Code. "Conversion transactions" are defined to include certain Derivative and straddle transactions, transactions marketed or sold to produce capital gains and transactions described in Treasury regulations to be issued in the future. Under section 1256 of the Code, any gain or loss realized by a Fund from certain Derivatives will be treated as 60% long-term capital gain or loss and 40% short-term capital gain or loss. Gain or loss will arise on exercise or lapse of those Derivatives as well as from closing transactions. In addition, any such Derivatives remaining unexercised at the end of a Fund's taxable year will be treated as sold for their then fair market value (i.e., "marked-to-market"), resulting in additional gain or loss to the Fund characterized in the manner described above. 63 Offsetting positions held by a Fund involving certain Derivatives may constitute "straddles," which are defined to include offsetting positions in actively traded personal property. In certain circumstances, the Code sections that govern the tax treatment of straddles override or modify sections 988 and 1256. As such, all or a portion of any capital gain from certain straddle transactions may be recharacterized as ordinary income. If a Fund were treated as entering into straddles by reason of its engaging in certain Derivatives transactions, those straddles would be characterized as "mixed straddles" if the Derivatives comprising a part of the straddles were governed by section 1256. Each Fund may make one or more elections with respect to mixed straddles. Depending on which election is made, if any, the results to a Fund may differ. If no election is made, then to the extent the straddle and conversion transaction rules apply to positions established by a Fund, losses realized by it will be deferred to the extent of unrealized gain in the offsetting position. Moreover, as a result of those rules, short-term capital loss on straddle positions may be recharacterized as long-term capital loss and long-term capital gains may be treated as short-term capital gains or ordinary income. If a Fund has an "appreciated financial position" generally, an interest (including an interest through a Derivative or short sale) with respect to any stock, debt instrument (other than "straight debt") or partnership interest the fair market value of which exceeds its adjusted basis and enters into a "constructive sale" of the position, the Fund will be treated as having made an actual sale thereof, with the result that it will recognize gain at that time. A constructive sale generally consists of a short sale, an offsetting notional principal contract, or a futures or forward contract entered into by a Fund or a related person with respect to the same or substantially identical property. In addition, if the appreciated financial position is itself a short sale or such a contract, acquisition of the underlying property or substantially identical property will be deemed a constructive sale. The foregoing will not apply, however, to any transaction by a Fund during any taxable year that otherwise would be treated as a constructive sale if the transaction is closed within 30 days after the end of that year and the Fund holds the appreciated financial position unhedged for 60 days after that closing (i.e., at no time during that 60-day period is the Fund's risk of loss regarding that position reduced by reason of certain specified transactions with respect to substantially identical or related property, such as having an option to sell, being contractually obligated to sell, making a short sale or granting an option to buy substantially identical stock or securities). Investment by a Fund in securities issued at a discount (for example, zero coupon securities) could, under special tax rules, affect the amount and timing of distributions to shareholders by causing the Fund to recognize income prior to the receipt of cash payments. For example, a Fund could be required to take into gross income annually a portion of the discount (or deemed discount) at which the securities were issued and to distribute that income to satisfy the Distribution Requirement and avoid the Excise Tax. In that case, the Fund may have to dispose of securities it might otherwise have continued to hold in order to generate cash to make the necessary distribution. STATE AND LOCAL TAXES. Depending on the extent of a Fund's activities in states and localities in which it is deemed to be conducting business, it may be subject to the tax laws thereof. Shareholders are advised to consult their tax advisers concerning the application of state and local taxes to them. 64 FOREIGN SHAREHOLDERS - U.S. FEDERAL INCOME TAXATION. U.S. Federal income taxation of a shareholder who, as to the United States, is a nonresident alien individual, a foreign trust or estate, a foreign corporation or a foreign partnership (a "foreign shareholder") depends on whether the income from a Fund is "effectively connected" with a U.S. trade or business carried on by the shareholder, as discussed generally below. Special U.S. Federal income tax rules that differ from those described below may apply to certain foreign persons who invest in a Fund, such as a foreign shareholder entitled to claim the benefits of an applicable tax treaty. Foreign shareholders are advised to consult their own tax advisers with respect to the particular tax consequences to them of an investment in a Fund. FOREIGN SHAREHOLDERS - DIVIDENDS. Dividends (other than exempt-interest dividends) distributed to a foreign shareholder whose ownership of Fund shares is not effectively connected with a U.S. trade or business carried on by the foreign shareholder ("effectively connected") generally will be subject to a U.S. Federal withholding tax of 30% (or lower treaty rate). If a foreign shareholder's ownership of Fund shares is effectively connected, however, then distributions to that shareholder will not be subject to such withholding and instead will be subject to U.S. Federal income tax at the graduated rates applicable to U.S. citizens and domestic corporations, as the case may be. Foreign shareholders also may be subject to the Federal branch profits tax. Capital gains realized by foreign shareholders on the sale of Fund shares and capital gain distributions to them generally will not be subject to U.S. Federal income tax unless the foreign shareholder is a nonresident alien individual and is physically present in the United States for more than 182 days during the taxable year. In the case of certain foreign shareholders, the Fund may be required to withhold U.S. Federal income tax at a rate of 31% of capital gain distributions and of the gross proceeds from a redemption of Fund shares unless the shareholder furnishes the Fund with a certificate regarding the shareholder's foreign status. Distributions paid by the Funds to a non-resident foreign investor, as well as the proceeds of any redemptions by such an investor, regardless of the extent to which gain or loss may be realized, generally are not subject to U.S. withholding tax. However, those distributions may be subject to backup withholding, unless the foreign investor certifies his or her non-U.S. residency status. FOREIGN SHAREHOLDERS - ESTATE TAX. Foreign individuals generally are subject to U.S. Federal estate tax on their U.S. situs property, such as Fund shares, that they own at the time of their death. Certain credits against that tax and relief under applicable tax treaties may be available. * * * The foregoing is only a summary of certain tax considerations generally affecting the Funds and their shareholders, and is not intended as a substitute for careful tax planning. Investors are urged to consult their tax advisers with specific reference to their own tax situations. 65 PORTFOLIO TRANSACTIONS All portfolio transactions of a Fund are placed on behalf of each Fund by the Investment Adviser. Debt securities purchased and sold by a Fund are generally traded on a net basis (i.e., without commission) through dealers acting for their own account and not as brokers, or otherwise involve transactions directly with the issuer of the instrument. This means that a dealer (the securities firm or bank dealing with a Fund) makes a market for securities by offering to buy at one price and sell at a slightly higher price. The difference between the prices is known as a spread. Other portfolio transactions may be executed through brokers acting as agent. Each Fund will pay a spread or commissions in connection with such transactions. The Investment Adviser uses its best efforts to obtain execution of portfolio transactions at prices which are advantageous to each Fund and at spreads and commission rates, if any, which are reasonable in relation to the benefits received. The Investment Adviser also places transactions for other accounts that it provides with investment advice. Brokers and dealers involved in the execution of portfolio transactions on behalf of a Fund are selected on the basis of their professional capability and the value and quality of their services. In selecting brokers or dealers, the Investment Adviser will consider various relevant factors, including, but not limited to, the size and type of the transaction; the nature and character of the markets for the security to be purchased or sold; the execution efficiency, settlement capability, and financial condition of the broker-dealer; the broker-dealer's execution services rendered on a continuing basis; and the reasonableness of any spreads (or commissions, if any). The Investment Adviser may use research services of and place brokerage transactions with broker-dealers affiliated with it or Mellon Bank if the commissions are reasonable, fair and comparable to commissions charged by non-affiliated brokerage firms for similar services. Any spread, commission, fee or other remuneration paid to an affiliated broker-dealer is paid pursuant to the Trust's procedures adopted in accordance with Rule 17e-1 under the 1940 Act. Brokers or dealers may be selected who provide brokerage and/or research services to a Fund and/or other accounts over which the Investment Adviser or its affiliates exercise investment discretion. Such services may include advice concerning the value of securities; the advisability of investing in, purchasing or selling securities; the availability of securities or the purchasers or sellers of securities; furnishing analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy and performance of accounts; and effecting securities transactions and performing functions incidental thereto (such as clearance and settlement). The receipt of research services from broker-dealers may be useful to the Investment Adviser in rendering investment management services to a Fund and/or its other clients; and, conversely, such information provided by brokers or dealers who have executed transaction orders on behalf of other clients of the Investment Adviser may be useful to the Investment Adviser in carrying out its obligations to the Fund. The receipt of such research services does not reduce the normal independent research activities of the Investment Adviser; however, it enables it to avoid the additional expenses which might otherwise be incurred if it were to attempt to develop comparable information through its own staff. 66 The Funds will not purchase Municipal Obligations during the existence of any underwriting or selling group relating thereto of which an affiliate is a member, except to the extent permitted by the SEC. Under certain circumstances, the Funds may be at a disadvantage because of this limitation in comparison with other investment companies which have a similar investment objective but are not subject to such limitations. Although the Investment Adviser manages other accounts in addition to the Funds, investment decisions for the Funds are made independently from decisions made for these other accounts. It sometimes happens that the same security is held by more than one of the accounts managed by the Investment Adviser. Simultaneous transactions may occur when several accounts are managed by the same Investment Adviser, particularly when the same investment instrument is suitable for the investment objective of more than one account. When more than one account is simultaneously engaged in the purchase or sale of the same investment instrument, the prices and amounts are allocated in accordance with a formula considered by the Investment Adviser to be equitable to each account. In some cases this system could have a detrimental effect on the price or volume of the investment instrument as far as the Funds are concerned. In other cases, however, the ability of the Funds to participate in volume transactions will produce better executions for the Funds. While the Trustees will continue to review simultaneous transactions, it is their present opinion that the desirability of retaining the Investment Adviser as investment manager to the Funds outweighs any disadvantages that may be said to exist from exposure to simultaneous transactions. PORTFOLIO TURNOVER. While securities are purchased for a Fund on the basis of potential for obtaining the Fund's specific objective and not for short-term trading profits, a Fund's portfolio turnover rate may exceed 100%. A portfolio turnover rate of 100% would occur, for example, if all the securities held by a Fund were replaced once in a period of one year. A higher rate of portfolio turnover involves correspondingly greater transaction costs and other expenses that must be borne directly by the Funds and, thus, indirectly by their shareholders. In addition, a higher rate of portfolio turnover may result in the realization of larger amounts of short-term and/or long-term capital gains that, when distributed to the Fund's shareholders, are taxable to them at the then current rate. Nevertheless, securities transactions for the Funds will be based only upon investment considerations and will not be limited by any other considerations when the Investment Adviser deems its appropriate to make changes in the Funds' assets. The portfolio turnover rate for a Fund is calculated by dividing the lesser of the Fund's annual sales or purchases of portfolio securities (exclusive of purchases and sales of securities whose maturities at the time of acquisition were one year or less) by the monthly average value of securities in the Fund during the year. Portfolio turnover may vary from year to year as well as within a year. PERFORMANCE INFORMATION The following information supplements and should be read in conjunction with the paragraphs in the Funds' Prospectus entitled "Performance of Similar Common Trust Fund." 67 Average annual total return is calculated by determining the ending redeemable value of an investment purchased at net asset value per share with a hypothetical $1,000 payment made at the beginning of the period (assuming the reinvestment of dividends and other distributions), dividing by the amount of the initial investment, taking the "n"th root of the quotient (where "n" is the number of years in the period) and subtracting 1 from the result. Total return is calculated by subtracting the NAV of a Fund share at the beginning of a stated period from the NAV at the end of the period (after giving effect to the reinvestment of dividends and other distributions during the period), and dividing the result by the NAV at the beginning of the period. Yields are computed by using standardized methods of calculation required by the SEC. Yields are calculated by dividing the net investment income per share earned during a 30-day (or one-month) period by the maximum offering price per share on the last day of the period, according to the following formula: YIELD = 2[(a-b +1)6 -1] --- cd Where: a = dividends and interest earned during the period; b = expenses accrued for the period (net of reimbursements); c = average daily number of shares outstanding during the period that were entitled to receive dividends; and d = maximum offering price per share on the last day of the period. Yield information may be useful in reviewing a Fund's performance, but because yields fluctuate, such information cannot necessarily be used to compare an investment in a Fund's shares with bank deposits, savings accounts and similar investment alternatives which often provide an agreed or guaranteed fixed yield for a stated period of time. Shareholders should remember that yield is a function of the kind and quality of the instruments in the Funds' portfolios, portfolio maturity, operating expenses and market conditions. The Funds' yields and total returns will also be affected if the Investment Adviser, Mellon Bank, or an affiliate waives any portion of otherwise applicable fees. A Fund's net investment income may change in response to fluctuations in interest rates and the expenses of the Fund. Consequently, any given performance quotation should not be considered as representative of a Fund's performance for any specified period in the future. For the purpose of determining the interest earned on debt obligations that were purchased by a Fund at a discount or premium, the formula generally calls for amortization of the discount or premium; the amortization schedule will be adjusted monthly to reflect changes in the market values of the debt obligations. A Fund's equivalent taxable yield is computed by dividing that portion of the Fund's yield which is tax-exempt by one minus a stated income tax rate and adding the product to that portion, if any, of the Fund's yield that is not tax-exempt. 68 Investors should recognize that in periods of declining interest rates a Fund's yield will tend to be somewhat higher than prevailing market rates, and in periods of rising interest rates a Fund's yield will tend to be somewhat lower. Also, when interest rates are falling, the inflow of net new money to a Fund from the continuous sale of its shares will likely be invested in portfolio instruments producing lower yields than the balance of the Fund's portfolio, thereby reducing the current yield of the Fund. In periods of rising interest rates, the opposite can be expected to occur. Performance information for a Fund may be compared in reports and promotional literature to indexes including, but not limited to: (i) the S&P 500; (ii) the Russell 1000 Value Index; (iii) the S&P MidCap 400; (iv) S&P SmallCap 600; (v) Lehman Brothers Aggregate Bond Index; (vi) Lehman Brothers Intermediate Government/Corporate Bond Index; (vii) Lehman 1-3 Year U.S. Government Index; (viii) Lehman Brothers 7-Year Municipal Bond Index; (ix) the Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East (EAFE) Index; (x) the Morgan Stanley Capital International Emerging Markets (Free) Index or other appropriate unmanaged domestic or foreign indices of performance of various types of investments so that investors may compare a Fund's results with those of indices widely regarded by investors as representative of the securities markets in general; (xi) other groups of mutual funds tracked by Lipper Analytical Services, Inc., a widely used independent research firm which ranks mutual funds by overall performance, investment objectives and assets, or tracked by other services, companies, publications, or persons who rank mutual funds on overall performance or other criteria; (xii) the Consumer Price Index (a measure of inflation) to assess the real rate of return from an investment in the respective Fund; and (xiii) products managed by a universe of money managers with similar country allocation and performance objectives. Unmanaged indices may assume the reinvestment of dividends but generally do not reflect deductions or administrative and management costs and expenses. From time to time, advertising materials for a Fund may refer to Morningstar ratings and related analyses supporting the rating. Performance rankings as reported in CHANGING TIMES, BUSINESS WEEK, INSTITUTIONAL INVESTOR, THE WALL STREET JOURNAL, MUTUAL FUND FORECASTER, NO LOAD INVESTOR, MONEY MAGAZINE, MORNINGSTAR MUTUAL FUND VALUES, U.S. NEWS AND WORLD REPORT, FORBES, FORTUNE, BARRON'S, FINANCIAL PLANNING, FINANCIAL PLANNING ON WALL STREET, CERTIFIED FINANCIAL PLANNER TODAY, INVESTMENT ADVISOR, KIPLINGER'S, SMART MONEY and similar publications may also be used in comparing a Fund's performance. Furthermore, a Fund may quote its yields in advertisements or in shareholder reports. Advertisements for MPAM Mid Cap Stock Fund and MPAM Small Cap Stock Fund also may discuss the potential benefits and risks of small- and mid-cap investing. From time to time, advertising material for a Fund may also include: (i) biographical information relating to its portfolio manager and may refer to, or include commentary by the portfolio manager relating to investment strategy, asset growth, current or past business, political, economic or financial conditions and other matters of general interest to investors; (ii) information concerning retirement and investing for retirement, including statistical data or general discussions about the growth and development of the Investment Adviser and its affiliates (including in terms of new customers, assets under management and market share) and their presence in the defined contribution plan market; (iii) the approximate number of then current Fund shareholders; and (iv) references to a Fund's quantitative, disciplined approach to stock market investing and the number of stocks analyzed by the Investment Adviser. 69 From time to time, advertising materials may refer to studies performed by Dreyfus or its affiliates, such as "The Dreyfus Tax Informed Investing Study" or "The Dreyfus Gender Investment Comparison Study (1996-1997)" or other such studies. From time to time, a Fund may use hypothetical tax equivalent yields or charts in its advertising. These hypothetical yields or charts will be used for illustrative purposes only and are not indicative of a Fund's past or future performance. INFORMATION ABOUT THE FUNDS/TRUST Each Fund share has one vote and, when issued and paid for in accordance with the terms of the offering, is fully paid and non-assessable. Fund shares are of one class and have equal rights as to dividends and in liquidation. Fund shares are without par value, have no preemptive or subscription rights, and are freely transferable. The Trust is a "series fund," which is a mutual fund divided into separate portfolios, each of which is treated as a separate entity for certain matters under the 1940 Act and for other purposes. A shareholder of one portfolio is not deemed to be a shareholder of any other portfolio. For certain matters shareholders vote together as a group; as to others they vote separately by portfolio. The Trustees have authority to create an unlimited number of shares of beneficial interest, without par value, in separate series. The Trustees have authority to create additional series at any time in the future without shareholder approval. On each matter submitted to a vote of the shareholders, all shares of each Fund shall vote together, except as to any matter for which a separate vote of any Fund is required by 1940 Act and except as to any matter which affects the interest of a particular Fund, in which case only the holders of shares of the one or more affected Funds shall be entitled to vote. The assets received by the Trust for the issue or sale of shares of each Fund and all income, earnings, profits and proceeds thereof, subject only to the rights of creditors, are specifically allocated to such Fund, and constitute the underlying assets of such Fund. The underlying assets of each Fund are required to be segregated on the books of account, and are to be charged with the expenses in respect to such Fund and with a share of the general expenses of the Trust. Any general expenses of the Trust not readily identifiable as belonging to a particular Fund shall be allocated by or under the direction of the Trustees in such manner as the Trustees determine to be fair and equitable, taking into consideration, among other things, the relative sizes of the Funds and the relative difficulty in administering each Fund. Each share of each Fund represents an equal proportionate interest in that Fund with each other share and is entitled to such dividends and distributions out of the income belonging to such Fund as are declared by the Trustees. Upon any liquidation of a Fund, shareholders thereof are entitled to share pro rata in the net assets belonging to that Fund available for distribution. The Trust does not hold annual meetings of shareholders. There will normally be no meetings of shareholders for the purpose of electing Trustees unless and until such time as less than a majority of the Trustees holding office have been elected by shareholders, at which time the Trustees then in office will call a shareholders' meeting for the election of Trustees. Under the 1940 Act, 70 shareholders of record of no less than two-thirds of the outstanding shares of the Trust may remove a Trustee through a declaration in writing or by a vote cast in person or by proxy at a meeting called for that purpose. The Trustees are required to call a meeting of shareholders for the purposes of voting upon the question of removal of any Trustee when requested in writing to do so by the shareholders of record of not less than 10% of the Trust's outstanding shares. Rule 18f-2 under the 1940 Act provides that any matter required to be submitted under the provisions of the 1940 Act or applicable state law or otherwise to the holders of the outstanding voting securities of an investment company, such as the Trust, will not be deemed to have been effectively acted upon unless approved by the holders of a majority of the outstanding shares of each series affected by such matter. Rule 18f-2 further provides that a series shall be deemed to be affected by a matter unless it is clear that the interests of each series in the matter are identical or that the matter does not affect any interest of such series. The Rule exempts the selection of independent accountants and the election of Trustees from the separate voting requirements of the Rule. Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Agreement and Declaration of Trust disclaims shareholder liability for acts or obligations of the Trust and requires that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by the Trust or a Trustee. The Agreement and Declaration of Trust provides for indemnification from the Trust's property for all losses and expenses of any shareholder held personally liable for the obligations of the Trust. Thus, the risk of a shareholder's incurring financial loss on account of shareholder liability is limited to circumstances in which the Trust itself would be unable to meet its obligations, a possibility which the Investment Adviser believes is remote. Upon payment of any liability incurred by the Trust, the shareholder paying such liability will be entitled to reimbursement from the general assets of the Trust. The Trustees intend to conduct the operations of each Fund in such a way so as to avoid, as far as possible, ultimate liability of the shareholders for liabilities of such Fund. FINANCIAL STATEMENTS The Funds will send annual and semi-annual financial statements to all of its shareholders of record. COUNSEL AND INDEPENDENT AUDITORS Kirkpatrick & Lockhart, LLP, 1800 Massachusetts Avenue, N.W., Second Floor, Washington, D.C., 20036-1800, has passed upon the legality of the shares offered by the Funds' Prospectus and this Statement of Additional Information. Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York 10038-4982, serves as counsel to the non-interested Trustees of the Funds. 71 KPMG LLP, 757 Third Avenue, New York, NY 10017, was appointed by the Trustees to serve as the Funds' independent auditors, providing audit services including (1) examination of the annual financial statements (2) assistance, review and consultation in connection with SEC filings (3) and review of the annual Federal income tax return filed on behalf of the Funds. 72 APPENDIX A Risk Factors--Investing In Pennsylvania Municipal Obligations The following information constitutes only a brief summary, does not purport to be a complete description, and is based on information drawn from official statements relating to securities offerings of the Commonwealth of Pennsylvania (the "Commonwealth") and various local agencies, available as of the date of this Statement of Additional Information. While the Fund has not independently verified such information, it has no reason to believe that such information is not correct in all material respects. General. Pennsylvania historically has been dependent on heavy industry although recent declines in the coal, steel and railroad industries have led to diversification of the Commonwealth's economy. Recent sources of economic growth in Pennsylvania are in the service sector, including trade, medical and health services, education and financial institutions. Agriculture continues to be an important component of the Commonwealth's economic structure, with nearly one-fourth of the Commonwealth's total land area devoted to cropland, pasture and farm woodlands. In 1997, the population of Pennsylvania was 12.02 million people, ranking fifth in the nation. According to the U.S. Bureau of the Census, Pennsylvania experienced a slight increase in population from the 1988 population of 11.85 million. Pennsylvania has a high proportion of persons 65 or older, and is highly urbanized, with 79% of the 1990 census population residing in metropolitan statistical areas. The cities of Philadelphia and Pittsburgh, the Commonwealth's largest metropolitan statistical areas, together comprise almost 44% of the Commonwealth's total population. The State's workforce is estimated at 5.9 million people, ranking as the sixth largest labor pool in the nation. Pennsylvania's average annual unemployment rate remained below the national average between 1986 and 1990. Slower economic growth caused the rate to rise to 6.9% in 1991 and 7.5% in 1992. The resumption of faster economic growth resulted in a decrease in the Commonwealth's unemployment rate to 7.1% in 1993. Seasonally adjusted as of December 1997 shows an unemployment rate of 4.8%, compared to an unemployment rate of 4.9% for the United States as a whole. Financial Accounting. Pennsylvania utilizes the fund method of accounting and over 150 funds have been established for the purpose of recording receipts and disbursements, of which the General Fund is the largest. Most of the operating and administrative expenses are payable from the General Fund. The Motor License Fund is a special revenue fund that receives tax and fee revenues relating to motor fuels and vehicles (except one-half cent per gallon of the liquid fuels tax which is deposited in the Liquid Fuels Tax Fund for distribution to local municipalities) and all such revenues are required to be used for highway purposes. Other special revenue funds have been established to receive specified revenues appropriated to specific departments, boards and/or commissions. Such funds include the Game, Fish, Boat, Banking Department, Milk Marketing, State Farm Products Show, State Racing and State Lottery Funds. The A-1 General Fund, all special revenue funds, the Debt Service Funds and the Capital Project Funds combine to form the Governmental Fund Types. Enterprise funds are maintained for departments or programs operated like private enterprises. The largest of the Enterprise funds is the State Stores Fund, which is used for the receipts and disbursements of the Commonwealth's liquor store system. Sale and distribution of all liquor within Pennsylvania is a government enterprise. Financial information for the funds is maintained on a budgetary basis of accounting ("Budgetary"). Since 1984, the Commonwealth has also prepared financial statements in accordance with generally accepted accounting principles ("GAAP"). The GAAP statements have been audited jointly by the Auditor General of the Commonwealth and an independent public accounting firm. The Budgetary information is adjusted at fiscal year end to reflect appropriate accruals for financial reporting in conformity with GAAP. The Commonwealth maintains a June 30th fiscal year end. The Constitution of Pennsylvania provides that operating budget appropriations may not exceed the actual and estimated revenues and available surplus in the fiscal year for which funds are appropriated. Annual budgets are enacted for the General Fund and for certain special revenue funds which represent the majority of expenditures of the Commonwealth. Revenues and Expenditures. Pennsylvania's Governmental Fund Types receive over 57% of their revenues from taxes levied by the Commonwealth. Interest earnings, licenses and fees, lottery ticket sales, liquor store profits, miscellaneous revenues, augmentations and federal government grants supply the balance of the receipts to these funds. Revenues not required to be deposited in another fund are deposited in the General Fund. The major tax sources for the General Fund are the 6% sales and use tax (34.9% of General Fund revenues in fiscal 1997), the 2.8% personal income tax (33.2% of General Fund revenues in fiscal 1997) and the 9.99% corporate net income tax (19.8% of General Fund revenues in fiscal 1997). Tax and fee proceeds relating to motor fuels and vehicles are constitutionally dedicated to highway purposes and are deposited into the Motor License Fund. The major sources of revenues for the Motor License Fund include the liquid fuels tax and the oil company franchise tax. That Fund also receives revenues from fees levied on heavy trucks and from taxes on fuels used for aviation purposes. These latter revenues are restricted to the repair and construction of highway bridges and aviation programs, respectively. Revenues from lottery ticket sales are deposited in the State Lottery Fund and are reserved by statute for programs to benefit senior citizens. Pennsylvania's major expenditures include funding for education ($6.67 billion of fiscal 1995 expenditures, $6.99 billion of the fiscal 1996 expenditures and $7.0 billion of fiscal 1997 expenditures) and public health and human services ($12.4 billion of fiscal 1995 expenditures, $12.9 billion of fiscal 1996 expenditures and $13.4 billion of fiscal 1997 expenditures). Governmental Fund Types: Financial Condition/Results of Operations (GAAP Basis). The period from fiscal year 1993 through fiscal 1997 was a time of steady, modest economic growth and low rates of inflation. These economic conditions, together with tax reductions in the several years following the tax rate increases and tax base expansions enacted in fiscal 1991 for the General A-2 Fund, produced tax revenue gains averaging 4.1% per year during the period. Total revenues during this same period increased at a 4.7% average rate. Intergovernmental revenue recorded the largest percentage gain during this period, averaging 8.1%. A large portion of the increase for intergovernmental revenue occurred in fiscal 1996 when an accounting change in the General Fund resulted in food stamp coupon revenue received from the federal government being recorded as income to the Commonwealth. Expenditures and other uses during the fiscal 1993 through fiscal 1997 period rose at a 3.8% rate, led by an average 13.8% annual increase for protection of persons and property program costs. This high rate of increase reflects the costs to acquire, staff and operate expanded prison facilities to house a larger prison population. Public health and welfare program costs expanded an average 5.4% annually during this period, the second largest rate of increase for program categories. Assets for the governmental fund types at the end of fiscal 1997 were $6,575.2 million, an increase of $782.6 million over the previous fiscal year, while liabilities declined by $132.0 million to $3,674.3 million. At the close of fiscal 1997, the fund balance for the governmental fund types totaled $2,900.9 million, an increase of $914.6 million. General Fund: Financial Condition/Results of Operations. Five Year Overview (GAAP Basis). For the five year period fiscal 1992 through fiscal 1997, total revenues and other sources rose at a 4.7% average annual rate while total expenditures and other uses grew by 6.0% annually. During the five year period from fiscal 1993 through fiscal 1997, revenues and other sources increased by an average 4.7% annually. Tax revenues during this same period increased by an annual average of 4.1%. Intergovernmental revenues, at an 8.5% annual average rate of increase, were the revenue source with the largest rate of growth over the five-year period. An accounting change in fiscal 1996 that made food stamp coupon revenue from the federal government an item of intergovernmental revenue is largely responsible for this increase. Expenditures and other uses during the fiscal 1993 through fiscal 1997 period rose at an average annual rate of 4.9%. Program costs for protection of persons and property increased an average 13.8% annually, the largest growth rate of all programs. Its high rate of increase reflects the costs to acquire, staff and operate expanded prison facilities to house a larger prison population. Public health and welfare program cost increased at a 5.7% annual average rate during the period. Efforts to control costs for various social programs and the presence of favorable economic conditions have helped restrain these costs. Fiscal 1995 Financial Results (GAAP Basis). Revenues and other sources totaled $23.772 billion, an increase of $1.135 billion (5.0%) over the prior fiscal year. The greatest increase was $817.9 million in taxes which represents a 5.6% increase over taxes in the prior fiscal year. Expenditures and other uses rose by $1.364 billion to $23.821 billion, an increase over the prior fiscal year of 6.1 percent. Consequently, an operating deficit of $49.8 million was recorded for the fiscal year and led to a decline in fund balance to $688.3 million at June 30, 1995. Two items predominately contributed to the fund balance decline. First, a more comprehensive procedure was used for fiscal 1995 to compute the liabilities for certain public welfare programs leading to an increase for the year-end accruals. Second, a change to the methodology used to calculate the year-end accrual for corporate tax payables increased the tax A-3 refund liability by $72 million for the 1995 fiscal year when compared to the previous fiscal year. Fiscal 1995 Financial Results (Budgetary Basis). Commonwealth revenues for the 1995 fiscal year were above estimate and exceeded fiscal year expenditures and encumbrances. Fiscal 1995 was the fourth consecutive fiscal year the Commonwealth reported an increase in the fiscal year-end unappropriated balance. Prior to reserves for transfer to the Tax Stabilization Reserve Fund, the fiscal 1995 closing unappropriated surplus was $540.0 million, an increase of $204.2 million over the fiscal 1994 closing unappropriated surplus prior to transfers. Commonwealth revenues were $459.4 million, 2.9%, above the estimate of revenues used at the time the budget was enacted. Corporation taxes contributed $329.4 million of the additional receipts due largely to higher receipts from the corporate net income tax. Sales and use tax revenues also showed strong year-over-year growth that produced above-estimate revenue collections. Sales and use tax revenues were $5.527 billion, $128.8 million above the enacted budget estimate and 7.9% over fiscal 1994 collections. Personal income tax receipts for fiscal 1995 were slightly above the budgeted estimate. The higher than estimated revenues from tax sources were due to faster economic growth in the national and state economy than had been projected when the budget was adopted. The higher rate of economic growth for the nation and the state gave rise to increases in employment, income and sales that were higher than expected and translated into above-estimate tax revenues. Fiscal 1996 Financial Results (GAAP Basis): For fiscal 1996 the fund balance was drawn down $53.1 million from the balance at the end of fiscal 1995 to $635.2 million. A planned draw down of the budgetary unappropriated surplus during fiscal 1996 contributed to expenditures and other uses exceeding revenues and other sources by $28.0 million. Consequently, the unreserved fund balance declined by $61.1 million, reducing the balance to $381.8 million at the end of fiscal 1996. Total revenues and other sources increased by 8.7% for the fiscal year led by a 24.2% increase in intergovernmental revenues. Fiscal 1996 Financial Results (Budgetary Basis): Commonwealth revenues for the fiscal year were above estimate and exceeded fiscal year expenditures and encumbrances. Prior to reserves for transfer to the Tax Stabilization Reserve Fund, the fiscal 1996 closing unappropriated surplus was $183.8 million, $65.5 million above estimate. Commonwealth revenues (prior to tax refunds) for the fiscal year increased by $113.9 million over the prior fiscal year to $16.339 billion representing a growth rate of 0.7%. Tax rate reductions and other tax law changes substantially reduced the amount and rate of revenue growth for the fiscal year. Sales and use tax revenues were $5.682 billion or 2.8% over fiscal 1995 collections. Personal income tax receipts for fiscal 1996 totaled $5.374 billion, or 5.7% over collections for fiscal 1995. Included in that increase was $67 million in net receipts from a tax amnesty program that was available for a portion of the 1996 fiscal year. Some portion of the tax amnesty receipts represent normal collections of delinquent taxes. The tax amnesty program is not expected to be repeated. Funds held in reserve at the end of fiscal 1995 for transfer to the Tax Stabilization Reserve Fund totaled $111.0 million. The Tax Stabilization Reserve Fund was anticipated to have an available balance of $182.8 million at June 30, 1996, representing approximately 1.1% of general fund annual commonwealth revenues. A-4 Fiscal 1997 Financial Results (GAAP Basis): For fiscal 1997, assets increased $563.4 million and liabilities declined $166.3 million to produce a $729.7 million increase in fund balance at June 30, 1997. The fund balance increase during fiscal 1997 has brought a restoration of an undesignated-unreserved balance. The $187.3 million undesignated-unreserved balance is the first recorded since fiscal 1994 and is the largest amount since fiscal 1987. Total revenues and other sources rose 3.5% for fiscal 1997. An increase of 5.5% in tax revenue aided by an improving state economy was partially offset by a $175.2 million decline in intergovernmental revenues. Expenditures and other uses increased by 1.0% for the fiscal year. As in the past several fiscal years, expenditure increases were led by protection of persons and property program costs. Fiscal 1997 costs for this program rose by 4.7%, the largest increase for a program, but well below the 17.1% average annual increase that occurred over the four fiscal years prior to fiscal 1997. General government program costs for fiscal 1997 declined by 14.3% from the fiscal year earlier. A reduction in estimated expenditures for maintaining the Commonwealth's self-insured worker's compensation program is largely responsible for the decline. Fiscal 1997 Financial Results (Budgetary Basis): The unappropriated balance of commonwealth revenues increased during the 1997 fiscal year by $432.9 million. Higher than estimated revenues and slightly lower expenditures than budgeted caused the increase. The unappropriated balance rose from an adjusted amount of $158.5 million at the beginning of fiscal 1997, to $591.4 million (prior to reserves for transfer to the Tax Stabilization Reserve Fund) at the close of the fiscal year. Transfers to the Tax Stabilization Reserve Fund for fiscal 1997 operations were $88.7 million, representing the normal 15% of the ending unappropriated balance, plus an additional $100 million authorized by the General Assembly when it enacted the fiscal 1998 budget. Commonwealth revenues (prior to tax refunds) during the fiscal year totaled $17,320.6 million, $576.1 million (3.4%) above the estimate made at the time the budget was enacted. Revenue from taxes was the largest contributor to higher than estimated receipts. Tax revenue in fiscal 1997 grew 6.1% over tax revenues in fiscal 1996. This rate of increase was not adjusted for legislated tax reductions that affected receipts during both of those fiscal years and therefore understates the actual underlying rate of tax revenue for the fiscal year. Personal income collections were $236.3 million over estimate, representing a 6.9% increase over fiscal 1996 receipts. Receipts of the sales and use tax were $185.6 million over estimate, representing a 6.2% increase. Collections of corporate taxes,, led by the capital stock and franchise and the gross receipts taxes, also exceeded their estimates for the fiscal year. Non-tax revenues were $19.8 million (5.8%) over estimate mostly due to higher than anticipated interest earnings. Expenditures from commonwealth revenues (excluding pooled financing expenditures) during fiscal 1997 totaled $16,347.7 million and were close to the estimate made in February 1997 with the presentation of the Governor's fiscal 1998 budget request. Total expenditures represent an increase over fiscal 1996 expenditures of 1.7%. Supplemental appropriations for fiscal 1997 totaled $169.3 million. The largest supplemental appropriations included $100.1 million for medical assistance costs due to implementation of managed medical care for a portion of the medical assistance caseload, and an additional $50 million for bond debt service for potential use to produce present value savings. A-5 Fiscal 1998 Budget: The budget for fiscal 1998 was enacted in May 1997. Commonwealth revenues for the fiscal year at that time were estimated to be $17.435 billion before reserves for tax refunds. That estimate represented an increase over estimated fiscal 1997 commonwealth revenues of 1.0 percent. Although actual fiscal 1997 revenues exceeded the estimate, the adopted fiscal 1998 budget revenue estimate was not changed and represents a 0.7 percent increase over actual fiscal 1997 revenues. Commonwealth Debt. Current constitutional provisions permit Pennsylvania to issue the following types of debt: (i) debt to suppress insurrection or rehabilitate areas affected by disaster, (ii) electorate approved debt, (iii) debt for capital projects subject to an aggregate debt limit of 1.75 times the annual average tax revenues of the preceding five fiscal years, (iv) tax anticipation notes payable in the fiscal year of issuance. All debt except tax anticipation notes must be amortized in substantial and regular amounts. General obligation for non-highway purposes debt totaled $4.047 billion at June 30, 1997. Over the 10-year period ended June 30, 1997, total outstanding general obligation debt for non-highway purposes increased at an annual rate of 3.3%. All outstanding general obligation bonds of the Commonwealth are rated AA- by Standard and Poor's Ratings Group, Al by Moody's Investors Service Inc., and AA- by Fitch IBCA, Inc. Ratings Group. The ratings reflect only the views of the rating agencies. Pennsylvania engages in short-term borrowing to fund expenses within a fiscal year through the sale of tax anticipation notes which must mature within the fiscal year of issuance. The principal amount issued, when added to that already outstanding, may not exceed an aggregate 200 of the revenues estimated to accrue to the appropriate fund in the fiscal year. The Commonwealth is not permitted to fund deficits between fiscal years with any form of debt. All year-end deficit balances must be funded within the succeeding fiscal year's budget. Pennsylvania issued a total of $550.0 million of tax anticipation notes for the account of the General Fund in fiscal 1997, all of which matured on June 30, 1997, to be paid from fiscal 1997 General Fund receipts. Pending the issuance of bonds, Pennsylvania may issue bond anticipation notes subject to the applicable statutory and constitutional limitations generally imposed on bonds. The term of such borrowings may not exceed three years. As of December 31, 1997, there were $46.4 million of bond anticipation notes outstanding. State-related Obligations. Certain state-created agencies have statutory authorization to incur debt for which no legislation providing for state appropriations to pay debt service thereon is required. The debt of these agencies is supported by assets of, or revenues derived from, the various projects financed, and the debt of such agencies is not an obligation of Pennsylvania although some of the agencies are indirectly dependent on Commonwealth appropriations. The following agencies had debt currently outstanding as of December 31, 1997: Delaware River Joint Toll Bridge Commission ($52.7 million), Delaware River Port Authority ($512.3 million), Pennsylvania Economic Development Financing Authority ($1.081 billion), Pennsylvania Energy Development Authority ($72.8 million), Pennsylvania Higher Education Assistance Agency ($1.584 billion), Pennsylvania Higher Educational Facilities Authority ($2.777 billion), Pennsylvania Industrial Development Authority ($402.1 million), Pennsylvania Infrastructure Investment Authority ($196.4 million), Pennsylvania Turnpike Commission ($1.178 billion), Philadelphia Regional Port A-6 Authority ($59.5 million), and the State Public School Building Authority ($310.5 million). In addition, the Governor is statutorily required to place in the budget of the Commonwealth an amount sufficient to make up any deficiency in the capital reserve fund created for, or to avoid default on, bonds issued by the Pennsylvania Housing Finance Agency ($2.631 billion of revenue bonds as of December 31, 1997), and an amount of funds sufficient to alleviate any deficiency that may arise in the debt service reserve fund for bonds issued by The Hospitals and Higher Education Facilities Authority of Philadelphia ($1.19 million of the loan principal was outstanding as of June 30, 1997). Litigation. Certain litigation is pending against the Commonwealth that could adversely affect the ability of the Commonwealth to pay debt service on its obligations, including suits relating to the following matters: (a) Approximately 3,500 tort suits are pending against the Commonwealth pursuant to the General Assembly's 1978 approval of a limited waiver of sovereign immunity which permits recovery of damages for any loss up to $250,000 per person and $1,000,000 per accident ($27 million was appropriated from the Motor License Fund for fiscal 1998); (b) The ACLU filed suit in April 1990 in federal court demanding additional funding for child welfare services (no estimates of potential liability are available), which the Commonwealth is seeking to have dismissed based on, among other things, the settlement in a similar Commonwealth Court action that provided for more funding in fiscal 1991 as well as a commitment to pay to counties $30.0 million over 5 years. In January 1992, the district court denied the ACLU's motion for class certification, but that ruling was overturned by the Third Circuit and the parties have resumed discovery; (c) In 1987, the Supreme Court of Pennsylvania held that the statutory scheme for county funding of the judicial system was in conflict with the Pennsylvania Constitution but stayed judgment pending enactment by the legislature of funding consistent with the opinion. The legislature has yet to consider legislation implementing the judgment; (d) In November 1990, the ACLU brought a class action suit on behalf of the inmates in thirteen Commonwealth correctional institutions challenging confinement conditions and including a variety of other allegations. In 1995, the parties agreed to a three-year court monitored settlement which will expire in January 1998; (e) Actions have been filed in both state and federal court by an association of rural and small schools and several individual school districts and parents challenging the constitutionality of the Commonwealth's system for funding local school districts. The federal case has been stayed pending resolution of the state case. The state trial was held in January 1997, and the record remains open. There is no available estimate of potential liability; and (f) Several banks have filed suit against the Commonwealth contesting the constitutionality of a 1989 law imposing a bank shares tax on banking institutions. After the Commonwealth Court ruled in favor of the Commonwealth, finding no constitutional deficiencies, Fidelity Bank, the Commonwealth, and certain intervenor banks filed Notices of Appeal to the Pennsylvania Supreme Court on August 5, 1994. Pursuant to a Settlement Agreement, dated as of April 21, 1995, the Commonwealth agreed to enter a credit in favor of Fidelity in the amount of $4,100,000 in settlement of the constitutional and non-constitutional issues including interest. Pursuant to a separate Settlement Agreement, dated as of April 21, 1995, the Commonwealth settled with the intervening banks, referred to as "New Banks." As part of the settlement, the Commonwealth agreed neither to assesses nor attempt to recoup any new bank tax credits which had been granted or taken by any of the intervening banks. Although the described settlements have quantified the Commonwealth's exposure to Fidelity and the intervening banks, other banks have filed protective Petitions, and one or more of these banks may pursue new constitutional challenges in the Commonwealth Court; however, the Commonwealth Court has previously examined and confirmed the Act's constitutionality; (g) On A-7 November 11, 1993, the Commonwealth of Pennsylvania, Department of Transportation and Envirotest/Synterra Partners ("Envirotest"), a partnership, entered into a "Contract for Centralized Emissions Inspection Facilities." Thereafter, Envirotest acquired certain land and constructed approximately 85 automobile emissions inspection facilities throughout various regions of the Commonwealth. By Act of the General Assembly in October 1994 (Act No. 1994-95), the program was suspended and the Department of Transportation was prohibited from expending funds to implement the program. Envirotest sued, and on December 15, 1995, Envirotest Systems Corporation, Envirotest Partners (successor to Envirotest/Synterra Partners) and the Commonwealth of Pennsylvania entered into a Settlement Agreement pursuant to which Envirotest will receive $145 million by installment payments through 1998; and (h) In November 1995, the Commonwealth and the Governor, along with the City of Philadelphia and its Mayor, were joined as additional respondents in an enforcement action commenced in Commonwealth Court in 1973 by the Pennsylvania Human Relations Commission against the School District of Philadelphia pursuant to the Pennsylvania Human Relations Act. The enforcement action was pursued to remedy unintentional conditions of segregation in the public schools of Philadelphia. The Commonwealth and the City were joined in the "remedial phase" of the proceeding to determine their liability, if any, and to pay additional costs necessary to remedy the unlawful conditions found to exist in the Philadelphia public schools. After trial, Judge Smith issued an Opinion and Order, granting in relevant part, judgment in favor of the School District of Philadelphia and ASPIRA and against the Commonwealth and Governor. The Commonwealth appealed and requested the Supreme Court to enter judgments in favor of the Commonwealth and the Governor on all claims. Briefs have been filed, and the matter is awaiting argument before the Supreme Court. Philadelphia. The City of Philadelphia is the largest city in the Commonwealth, with an estimated population of 1,585,577 people according to the 1990 Census. Philadelphia functions both as a city of the first class and as a county for the purpose of administering various governmental programs. Legislation providing for the establishment of the Pennsylvania Intergovernmental Cooperation Authority ("PICA") to assist first class cities in remedying fiscal emergencies was enacted by the General Assembly and approved by the Governor in June 1991. PICA is designed to provide assistance through the issuance of funding debt to liquidate budget deficits and to make factual findings and recommendations to the assisted city concerning its budgetary and fiscal affairs. An intergovernmental cooperation agreement between Philadelphia and PICA was approved by City Council and the PICA Board and signed by the Mayor in January, 1992. At this time, Philadelphia is operating under a five year fiscal plan approved by PICA on May 20, 1997. PICA has issued $1,761,710,000 of its Special Tax Revenue Bonds. This financial assistance has included the refunding of certain general obligation bonds to fund capital projects and to liquidate the Cumulative General Fund balance deficit as of June 30, 1992, of $224.9 million. The audited General Fund balance as of June 30, 1997, showed a surplus of approximately $128.8 million. A-8 APPENDIX B MUNICIPAL BOND, MUNICIPAL NOTE, BOND, NOTE AND COMMERCIAL PAPER RATINGS S&P MUNICIPAL BOND AND BOND RATINGS - ------------------------------- AAA An obligation rated "AAA" has the highest rating assigned by S&P. The obligor's capacity to meet its financial commitment on the obligation is extremely strong. AA An obligation rated "AA" differs from the highest rated issues only in small degree. The obligors capacity to meet its financial commitment on the obligation is very strong. A An obligation rated "A" is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong. BBB An obligation rated "BBB" exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. The ratings from "AA" to "BBB" may be modified by the addition of a plus (+) or a minus (-) sign to show relative standing within the major rating categories MUNICIPAL NOTE AND NOTE RATINGS - ------------------------------- SP-1 Strong capacity to pay principal and interest. An issue determined to possess a very strong capacity to pay debt service is given a plus (+) designation. SP-2 Satisfactory capacity to pay principal and interest, with some vulnerability to adverse finance and economic changes over the term of the notes. COMMERCIAL PAPER RATINGS - ------------------------ An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. A-1 This designation indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issuers designated "A-1." B-1 A-3 Issues carrying this designation have an adequate capacity for timely payment. They are, however, more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations. MOODY'S MUNICIPAL BOND AND BOND RATINGS - ------------------------------- Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and generally are referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what generally are known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. A Bonds which are rated A possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment some time in the future. Baa Bonds which are rated Baa are considered as medium grade obligations (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Moody's applies the numerical modifiers 1, 2 and 3 to show relative standing within each generic rating classification from Aa through Baa. The modifier 1 indicates a ranking for the security in the higher end of a rating category; the modifier 2 indicates a midrange ranking; and the modifier 3 indicates a ranking in the lower end of a rating category. MUNICIPAL NOTE, NOTE AND OTHER SHORT-TERM OBLIGATIONS - ----------------------------------------------------- There are four rating categories for short-term obligations that define an investment grade situation. These are designated Moody's Investment Grade as MIG 1 (best quality) through MIG 4 (adequate quality). Short-term obligations of speculative quality are designated SG. In the case of variable rate demand obligations (VRDOs), a two component rating is assigned. The first element represents an evaluation of the degree of risk associated with scheduled principal and interest payments, and the other B-2 represents an evaluation of the degree of risk associated with the demand feature. The short-term rating assigned to the demand feature of VRDOs is designated as VMIG. When either the long- or short-term aspect of a VRDO is not rated, that piece is designated NR, e.g., Aaa/NR or NR/VMIG 1. MIG 1/ VMIG 1 This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing. MIG-2/ MIG 2 This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group. MIG 3/ VMIG 3 This designation denotes favorable quality. All security elements are accounted for but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established. MIG 4/ VMIG 4 This designation denotes adequate quality. Protection commonly regarded as required of an investment security is present and although not distinctly or predominantly speculative, there is specific risk. COMMERCIAL PAPER RATING - ----------------------- Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment ability of rated issuers: Prime-1 Issuers rated Prime-1 (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics: 1. Leading market positions in well-established industries. 2. High rates of return on funds employed. 3. Conservative capitalization structure with moderate reliance on debt and ample asset protection. 4. Broad margins in earnings coverage of fixed financial charges and high internal cash generation. 5. Well-established access to a range of financial markets and assured sources of alternate liquidity. B-3 Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser agree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Prime-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternative liquidity is maintained. FITCH IBCA, INC. ("FITCH") MUNICIPAL BOND AND BOND RATINGS - ------------------------------- AAA Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. AA Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated "F-1+". A Bonds considered to be investment grade and of high credit quality, The obligor's ability to pay interest an repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB Bonds considered to be investment grade and satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds and, therefore, impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings +/- Plus and minus signs are used with a rating symbol to indicate the relative position of a credit within the rating category. SHORT-TERM AND COMMERCIAL PAPER RATINGS - --------------------------------------- Fitch's short-term ratings apply to debt obligations that are payable on demand or have original maturities of up to three years, including commercial paper, certificates of deposit, medium-term notes, and municipal and investment notes. B-4 Although the credit analysis is similar to Fitch's bond rating analysis, the short-term rating places greater emphasis than bond ratings on the existence of liquidity necessary to meet the issuer's obligations in a timely manner. F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are regarded as having the strongest degree of assurance for timely payment. F-1 Very Strong Credit Quality. Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than issues rated "F-1+". F-2 Good Credit Quality. Issues assigned this rating have a satisfactory degree of assurance for timely payment, but the margin of safety is not as great as for issues assigned "F-1+" and "F-1" ratings. DUFF & PHELPS INC. ("DUFF & PHELPS") LONG-TERM RATINGS - ----------------- AAA Highest credit quality. The risks factors are negligible, being only slightly more than for risk-free U.S. Treasury debt. AA+ AA High credit quality. Protection factors are strong. Risk is modest AA- but AA may vary slightly from time to time because of economic conditions. A+ Protections factors are average but adequate. However, risk factors A are more variable and greater in periods of economic stress. A- BBB+ Below-average protection factors but still considered sufficient for BBB prudent BBB investment. Considerable variability in risk during BBB- economic cycles. SHORT-TERM AND COMMERCIAL PAPER RATINGS - --------------------------------------- D-1+ Highest certainty of timely payment. Short-term liquidity, including internal operating factors and/or access to alternative sources of funds, is outstanding, and safety is just below risk-free U.S. Treasury short-term obligations. D-1 Very high certainty of timely payment. Liquidity factors are excellent and supported by good fundamental protection factors. Risk factors are minor. D-1- High certainly of timely payment. Liquidity factors are strong and supported by good fundamental protection factors. Risk factors are very small. B-5 D-2 Good certainty of timely payment. Liquidity factors and company fundamentals are sound. Although ongoing funding needs may enlarge total financial requirements, access to capital markets is good. Risk factors are small. D-3 Satisfactory liquidity and other protection factors qualify issues as to investment grade. Risk factors are larger and subject to more variation. Nevertheless, timely payment is expected. B-6 APPENDIX C FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT AUDITORS -------------------------------------------------------- Independent Auditors' Report ---------------------------- The Board of Trustees MPAM Funds Trust: We have audited the accompanying statements of assets and liabilities of MPAM Funds Trust (comprised of the MPAM Large Cap Stock Fund, MPAM Income Stock Fund, MPAM Mid Cap Stock Fund, MPAM Small Cap Stock Fund, MPAM International Fund, MPAM Emerging Market Fund, MPAM Bond Fund, MPAM Intermediate Bond Fund, MPAM Short-Term U.S. Government Securities Fund, MPAM National Intermediate Municipal Bond Fund, MPAM National Short-Term Municipal Bond Fund, MPAM Pennsylvania Intermediate Municipal Bond Fund and MPAM Balanced Fund) (collectively the "Trust") as of September 1, 2000, and the related statements of operations for the day then ended. These financial statements are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of MPAM Funds Trust as of September 1, 2000, and the result of its operations for the day then ended in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP ------------ KPMG LLP September 7, 2000 C-1
MPAM FUNDS TRUST STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 1, 2000 MPAM MPAM MPAM MPAM LARGE CAP INCOME MID CAP STOCK SMALL CAP STOCK FUND STOCK FUND FUND STOCK FUND -------------------------------------------------------- ASSETS : CASH 13,156 13,156 13,156 13,156 LIABILITIES: Accrued Organization Expense Payable 5,464 5,464 5,464 5,464 -------------------------------------------------------- NET ASSETS 7,692 7,692 7,692 7,692 ======================================================== COMPOSITION OF NET ASSETS: PAID-IN CAPITAL 13,156 13,156 13,156 13,156 NET INVESTMENT (LOSS) (5,464) (5,464) (5,464) (5,464) -------------------------------------------------------- NET ASSETS 7,692 7,692 7,692 7,692 ======================================================== SHARES OUTSTANDING 615.385 615.385 615.385 615.385 NET ASSET VALUE PER SHARE 12.50 12.50 12.50 12.50 ========================================================
See accompanying notes to the financial statements. C-2
MPAM FUNDS TRUST STATEMENT OF ASSETS AND LIABILITIES (continued) SEPTEMBER 1, 2000 MPAM MPAM MPAM INTERNATIONAL EMERGING MPAM INTERMEDIATE FUND MARKETS FUND BOND FUND BOND FUND ------------------------------------------------------- ASSETS : CASH 13,156 13,156 13,156 13,156 LIABILITIES: Accrued Organization Expense Payable 5,464 5,464 5,464 5,464 ------------------------------------------------------- NET ASSETS 7,692 7,692 7,692 7,692 ======================================================= COMPOSITION OF NET ASSETS: PAID-IN CAPITAL 13,156 13,156 13,156 13,156 NET INVESTMENT (LOSS) (5,464) (5,464) (5,464) (5,464) ------------------------------------------------------- NET ASSETS 7,692 7,692 7,692 7,692 ======================================================= SHARES OUTSTANDING 615.385 615.385 615.385 615.385 NET ASSET VALUE PER SHARE 12.50 12.50 12.50 12.50 =======================================================
See accompanying notes to the financial statements. C-3
MPAM FUNDS TRUST STATEMENT OF ASSETS AND LIABILITIES (continued) SEPTEMBER 1, 2000 MPAM MPAM MPAM MPAM SHORT-TERM NATIONAL NATIONAL PENNSYLVANIA U.S. GOVERN- INTERMEDIATE SHORT-TERM INTERMEDIATE MPAM MENT SECURIT- MUNICIPAL MUNICIPAL MUNICIPAL BALANCED IES FUND BOND FUND BOND FUND BOND FUND FUND ----------------------------------------------------------------- ASSETS : CASH 13,156 13,156 13,156 13,156 13,156 LIABILITIES: Accrued Organization Expense Payable 5,464 5,464 5,464 5,464 5,464 ----------------------------------------------------------------- NET ASSETS 7,692 7,692 7,692 7,692 7,692 ================================================================= COMPOSITION OF NET ASSETS: PAID-IN CAPITAL 13,156 13,156 13,156 13,156 13,156 NET INVESTMENT (LOSS) (5,464) (5,464) (5,464) (5,464) (5,464) ----------------------------------------------------------------- NET ASSETS 7,692 7,692 7,692 7,692 7,692 ================================================================= SHARES OUTSTANDING 615.385 615.385 615.385 615.385 615.385 NET ASSET VALUE PER SHARE 12.50 12.50 12.50 12.50 12.50 ===================================================================
See accompanying notes to the financial statements. C-4 MPAM FUNDS TRUST STATEMENT OF OPERATIONS SEPTEMBER 1, 2000 MPAM MPAM MPAM MPAM LARGE CAP INCOME MID CAP SMALL CAP STOCK FUND STOCK FUND STOCK FUND STOCK FUND ---------------------------------------------------- INVESTMENT INCOME - - - - EXPENSES ORGANIZATION EXPENSE (5,464) (5,464) (5,464) (5,464) ---------------------------------------------------- NET INVESTMENT (LOSS) (5,464) (5,464) (5,464) (5,464) ==================================================== See accompanying notes to the financial statements. C-5
MPAM FUNDS TRUST STATEMENT OF OPERATIONS (continued) SEPTEMBER 1, 2000 MPAM SHORT-TERM MPAM MPAM MPAM U.S. GOVERN- INTERNATIONAL EMERGING MPAM INTERMEDIATE MENT SECURIT- FUND MARKETS FUND BOND FUND BOND FUND IES FUND ------------------------------------------------------------------ INVESTMENT INCOME - - - - - EXPENSES ORGANIZATION EXPENSE (5,464) (5,464) (5,464) (5,464) (5,464) ------------------------------------------------------------------ NET INVESTMENT (LOSS) (5,464) (5,464) (5,464) (5,464) (5,464) ==================================================================
See accompanying notes to the financial statements. C-6 MPAM FUNDS TRUST STATEMENT OF OPERATIONS (continued) SEPTEMBER 1, 2000 MPAM MPAM MPAM NATIONAL NATIONAL PENNSYLVANIA INTERMEDIATE SHORT-TERM INTERMEDIATE MPAM MUNICIPAL MUNICIPAL MUNICIPAL BALANCED BOND FUND BOND FUND BOND FUND FUND ----------------------------------------------------- INVESTMENT INCOME - - - - EXPENSES ORGANIZATION EXPENSE (5,464) (5,464) (5,464) (5,464) ----------------------------------------------------- NET INVESTMENT (LOSS) (5,464) (5,464) (5,464) (5,464) ===================================================== See accompanying notes to the financial statements. C-7 MPAM FUNDS TRUST NOTES TO FINANCIAL STATEMENTS MPAM FUNDS TRUST ( the "Company") was organized as a Massachusetts business trust and has had no operations as of the date hereof other than matters relating to its organization and registration as an open-end investment company under the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended, and the sale and issuance of 8,000 shares of beneficial interest, divided equally among its thirteen series. MPAM Advisers, a division of The Dreyfus Corporation ("Dreyfus"), serves as each Fund's investment adviser. Dreyfus Service Corporation, a subsidiary of Dreyfus, is the distributor of each Fund's shares. Mellon Bank, N.A., the parent company of Dreyfus, serves as each Fund's administrator. Mellon Bank, N.A. is a wholly owned subsidiary of Mellon Financial Corporation. Pursuant to an Investment Advisory Agreement with MPAM Advisers, the Investment Advisory Fee is payable monthly computed at the following annual rates based on average daily net assets:
rate -------------- MPAM Large Cap Stock Fund .65 of 1% MPAM Income Stock Fund .65 of 1% MPAM Mid Cap Stock Fund .75 of 1% MPAM Small Cap Stock Fund .85 of 1% MPAM InternationalFund .85 of 1% MPAM Emerging Markets Fund 1.15% MPAM Bond Fund .40 of 1% MPAM Intermediate Bond Fund .40 of 1% MPAM Short-Term U.S. Government Securities Fund .35 of 1% MPAM National Intermediate Municipal Bond Fund .35 of 1% MPAM National Short-Term Municipal Bond Fund .35 of 1% MPAM Pennsylvania Intermediate Municipal Bond Fund .50 of 1% MPAM Balanced Fund .65 of 1% (equity investments),.40 of 1% (debt securities) and .15 of 1% (money market investments and other underlying MPAM funds)
Pursuant to an Administration Agreement with Mellon Bank, N.A., Mellon Bank N.A. provides or arranges for fund accounting, transfer agency and other fund administration services and receives a fee based on the total net assets of the Company based on the following annual rates: rate --------------- $0 to $6 billion .15 of 1% Greater than $6 billion to $12 billion .12 of 1% Greater than $12 billion .10 of 1% The Company is authorized to issue an unlimited number of shares of beneficial interest. The Company's financial statements are prepared in accordance with generally accepted accounting principles which may require the use of management's estimates and assumptions. Actual results could differ from those estimates. The Company accounts separately for the assets, liabilities and operations of each series. Expenses directly attributable to each series are charged to that series' operations. Expenses attributable to all series are allocated among them on a pro-rata basis. C-8 In accordance with AICPA Statement of Position 98-5 "Reporting on the Costs of Start-Up Activities", organizational costs of $71,027 ($5,464 per series) have been charged to expense. Each series intends to qualify as a regulated investment company by complying with the applicable provisions of the Internal Revenue Code of 1986, as amended, and to make distributions of income and net realized capital gains sufficient to relieve it from substantially all federal income and excise taxes. C-9 MPAM FUNDS TRUST PART C OTHER INFORMATION ----------------- Item 23. Exhibits -------- (a) Amended and Restated Agreement and Declaration of Trust dated June 5, 2000, is incorporated herein by reference to Exhibit (a) of Pre-effective Amendment #1 filed on July 7, 2000. (b) By-Laws dated June 5, 2000, are incorporated herein by reference to Exhibit (b) of Pre- effective Amendment #1 filed on July 7, 2000. (c) Not Applicable. (d) Investment Advisory Agreement between MPAM Funds Trust and MPAM Advisers dated June 14, 2000, is filed herein. (e) Distribution Agreement dated June 14, 2000, is filed herein. (f) Not Applicable. (g) (1) Custodian Agreement dated as of June 14, 2000, between MPAM Funds Trust and Boston Safe Deposit and Trust Company, is filed herein. (2) Custodian Agreement dated as of June 14, 2000, between MPAM Funds Trust and Mellon Bank, N.A., is filed herein. (h) (1) Form of Transfer Agent Agreement dated as of June 14, 2000, is incorporated herein by reference to Exhibit h (1) of Pre-effective Amendment #1 filed on July 7, 2000. (2) Administration Agreement dated June 14, 2000, is filed herein. (3) Fee Waiver Agreement dated June 14, 2000, is filed herein. (i) Opinion and Consent of counsel dated September 15, 2000, is filed herein. (j) Auditor's Consent dated September 13, 2000, is filed herein. (k) Not Applicable. (l) Not Applicable. (m) Not Applicable. (n) Not Applicable. (o) Not Applicable. (p) Code of Ethics is filed herein. Item 24. Persons Controlled by or Under Common Control with Registrant ------------------------------------------------------------- Not Applicable. Item 25. Indemnification --------------- (a) The Trust shall indemnify each of its Trustees and officers (including persons who serve at the Trust's request as directors, officers or trustees of another organization in which the Trust has any interest as a shareholder, creditor or otherwise) (hereinafter referred to as a "Covered Person") against all liabilities and expenses, including but not limited to amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and counsel fees reasonably incurred by any Covered Person in connection with the defense or disposition of any action, suit or other proceeding, whether civil or criminal, before any court or administrative or legislative body, in which such Covered Person may be or may have been involved as a party or otherwise or with which such person may be or may have been threatened, while in office or thereafter, by reason of being or having been such a Trustee or officer, except with respect to any matter as to which such Covered Person shall have been finally adjudicated in a decision on the merits in any such action, suit or other proceeding not to have acted in good faith in the reasonable belief that such Covered Person's action was in the best interests of the Trust and except that no Covered Person shall be indemnified against any liability to the Trust or its Shareholders to which such Covered Person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person's office. Expenses, including counsel fees so incurred by any such Covered Person (but excluding amounts paid in satisfaction of judgments, in compromise or as fines or penalties), may be paid from time to time by the Trust in advance of the final disposition or any such action, suit or proceeding upon receipt of an undertaking by or on behalf of such Covered Person to repay amounts so paid to the Trust if it is ultimately determined that indemnification of such expenses is not authorized under this Article, provided that (i) such Covered Person shall provide security for his or her undertaking, (ii) the Trust shall be insured against losses arising by reason of such Covered Person's failure to fulfill his or her undertaking, or (iii) a majority of the Trustees who are disinterested persons and who are not Interested Persons (as that term is defined in the Investment Company Act of 1940) (provided that a majority of such Trustees then in office act on the matter), or independent legal counsel in a written opinion, shall determine, based on a review of readily available facts (but not a full trial-type inquiry), that there is reason to believe such Covered Person ultimately will be entitled to indemnification. (b) As to any matter disposed of (whether by a compromise payment, pursuant to a consent decree or otherwise) without an adjudication in a decision on the merits by a court, or by any other body before which the proceeding was brought, that such Covered Person either (i) did not act in good faith in the reasonable belief that such Covered Person's action was in the best interests of the Trust or (ii) is liable to the Trust or its Shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person's office, indemnification shall be provided if (i) approved as in the best interest of the Trust, after notice that it involves such indemnification, by at least a majority of the Trustees who are disinterested persons and are not Interested Persons (provided that a majority of such Trustees then in office act on the matter), upon a determination, based upon a review of readily available facts (but not a full trial-type inquiry) that such Covered Person acted in good faith in the reasonable belief that such Covered Person's action was in the best interests of the Trust and is not liable to the Trust or its Shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person's office, or (ii) there has been obtained an opinion in writing of independent legal counsel, based upon a review of readily available facts (but not a full trial-type inquiry) to the effect that such Covered Person appears to have acted in good faith in the reasonable belief that such Covered Person's action was in the best interests of the Trust and that such indemnification would not protect such Covered Person against any liability to the Trust to which such Covered Person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. Any approval pursuant to this Section shall not prevent the recovery from any Covered Person of any amount paid to such Covered Person in accordance with this Section as indemnification if such Covered Person is subsequently adjudicated by a court of competent jurisdiction not to have acted in good faith in the reasonable belief that such Covered Person's action was in the best interests of the Trust or to have been liable to the Trust or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person's office. (c) The right of indemnification hereby provided shall not be exclusive of or affect any other rights to which any such Covered Person may be entitled. As used in this Article 10, the term "Covered Person" shall include such person's C-2 heirs, executors and administrators, and a "disinterested person" is a person against whom none of the actions, suits or other proceedings in question or another action, suit, or other proceeding on the same or similar grounds is then or has been pending. Nothing contained in this Article shall affect any rights to indemnification to which personnel of the Trust, other than Trustees and officers, and other persons may be entitled by contract or otherwise under law, nor the power of the Trust to purchase and maintain liability insurance on behalf of such person. (d) Notwithstanding any provisions in the Declaration of Trust and these By-Laws pertaining to indemnification, all such provisions are limited by the following undertaking set forth in the rules promulgated by the Securities and Exchange Commission: In the event that a claim for indemnification is asserted by a Trustee, officer or controlling person of the Trust in connection with the registered securities of the Trust, the Trust will not make such indemnification unless (i) the Trust has submitted, before a court or other body, the question of whether the person to be indemnified was liable by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of duties, and has obtained a final decision on the merits that such person was not liable by reason of such conduct or (ii) in the absence of such decision, the Trust shall have obtained a reasonable determination, based upon review of the facts, that such person was not liable by virtue of such conduct, by (a) the vote of a majority of Trustees who are neither interested persons as such term is defined in the Investment Company Act of 1940, nor parties to the proceeding or (b) an independent legal counsel in a written opinion. The Trust will not advance attorneys' fees or other expenses incurred by the person to be indemnified unless (i) the Trust shall have received an undertaking by or on behalf of such person to repay the advance unless it is ultimately determined that such person is entitled to indemnification and (ii) one of the following conditions shall have occurred: (a) such person shall provide security for his undertaking, (b) the Trust shall be insured against losses arising by reason of any lawful advances or (c) a majority of the disinterested, non-party Trustees of the Trust, or an independent legal counsel in a written opinion, shall have determined that based on a review of readily available facts there is reason to believe that such person ultimately will be found entitled to indemnification. Item 26. Business and Other Connections of the Investment Adviser -------------------------------------------------------- MPAM Advisers is a division of the Dreyfus Corporation ("Dreyfus"), a wholly-owned subsidiary of Mellon Financial Corporation. Dreyfus and subsidiary companies comprise a financial service organization whose business consists primarily of providing investment management services as the investment adviser, manager and distributor for sponsored investment companies registered under the Investment Company Act of 1940 and as an investment adviser to institutional and individual accounts. Dreyfus also serves as sub-investment adviser to and/or administrator of other investment companies. Dreyfus Service Corporation, a wholly-owned subsidiary of Dreyfus, serves primarily as a registered broker-dealer of shares of investment companies sponsored by Dreyfus and of other investment companies for which Dreyfus acts as investment adviser, sub-investment adviser or administrator. Dreyfus Management, Inc., another wholly-owned subsidiary, provides investment management services to various pension plans, institutions and individuals. Officers and Directors of Investment Adviser - --------------------------------------------
Name and Position With Dreyfus Other Businesses Position Held Dates - ----------------- ---------------- ------------- ----- CHRISTOPHER M. CONDRON Franklin Portfolio Associates, Director 1/97 - Present Chairman of the Board and LLC* Chief Executive Officer TBCAM Holdings, Inc.* Director 10/97 - Present President 10/97 - 6/98 Chairman 10/97 - 6/98 C-3 The Boston Company Director 1/98 - Present Asset Management, LLC* Chairman 1/98 - 6/98 President 1/98 - 6/98 The Boston Company President 9/95 - 1/98 Asset Management, Inc.* Chairman 4/95 - 1/98 Director 4/95 - 1/98 Franklin Portfolio Holdings, Inc.* Director 1/97 - Present Certus Asset Advisors Corp.** Director 6/95 - Present Mellon Capital Management Director 5/95 - Present Corporation*** Mellon Bond Associates, LLP+ Executive Committee 1/98 - Present Member Mellon Bond Associates+ Trustee 5/95 - 1/98 Mellon Equity Associates, LLP+ Executive Committee 1/98 - Present Member Mellon Equity Associates+ Trustee 5/95 - 1/98 Boston Safe Advisors, Inc.* Director 5/95 - Present President 5/95 - Present Mellon Bank, N.A. + Director 1/99 - Present Chief Operating Officer 3/98 - Present President 3/98 - Present Vice Chairman 11/94 - 3/98 Mellon Financial Corporation+ Chief Operating Officer 1/99 - Present President 1/99 - Present Director 1/98 - Present Vice Chairman 11/94 - 1/99 Founders Asset Management, Chairman 12/97 - Present LLC**** Director 12/97 - Present The Boston Company, Inc.* Vice Chairman 1/94 - Present Director 5/93 - Present Laurel Capital Advisors, LLP+ Executive Committee 1/98 - 8/98 Member Laurel Capital Advisors+ Trustee 10/93 - 1/98 Boston Safe Deposit and Trust Director 5/93 - Present Company* The Boston Company Financial President 6/89 - 1/97 Strategies, Inc. * Director 6/89 - 1/97 C-4 MANDELL L. BERMAN Self-Employed Real Estate Consultant, 11/74 - Present Director 29100 Northwestern Highway Residential Builder and Suite 370 Private Investor Southfield, MI 48034 BURTON C. BORGELT DeVlieg Bullard, Inc. Director 1/93 - Present Director 1 Gorham Island Westport, CT 06880 Mellon Financial Corporation+ Director 6/91 - Present Mellon Bank, N.A. + Director 6/91 - Present Dentsply International, Inc. Director 2/81 - Present 570 West College Avenue York, PA Quill Corporation Director 3/93 - Present Lincolnshire, IL STEPHEN E. CANTER Dreyfus Investment Chairman of the Board 1/97 - Present President, Chief Operating Advisors, Inc.++ Director 5/95 - Present Officer, Chief Investment President 5/95 - Present Officer, and Director Newton Management Limited Director 2/99 - Present London, England Mellon Bond Associates, LLP+ Executive Committee 1/99 - Present Member Mellon Equity Associates, LLP+ Executive Committee 1/99 - Present Member Franklin Portfolio Associates, Director 2/99 - Present LLC* Franklin Portfolio Holdings, Inc.* Director 2/99 - Present The Boston Company Asset Director 2/99 - Present Management, LLC* TBCAM Holdings, Inc.* Director 2/99 - Present Mellon Capital Management Director 1/99 - Present Corporation*** Founders Asset Management, Member, Board of 12/97 - Present LLC**** Managers Acting Chief Executive 7/98 - 12/98 Officer The Dreyfus Trust Company+++ Director 6/95 - Present Chairman 1/99 - Present President 1/99 - Present Chief Executive Officer 1/99 - Present THOMAS F. EGGERS Dreyfus Service Corporation++ Chief Executive Officer 3/00 - Present Vice Chairman - Institutional and Chairman of the and Director Board Executive Vice President 4/96 - 3/00 Director 9/96 - Present Founders Asset Management, Member, Board of 2/99 - Present LLC**** Managers Dreyfus Investment Advisors, Inc. Director 1/00 - Present Dreyfus Service Organization, Director 3/99 - Present Inc.++ Dreyfus Insurance Agency of Director 3/99 - Present Massachusetts, Inc. +++ Dreyfus Brokerage Services, Inc. Director 11/97 - 6/98 401 North Maple Avenue Beverly Hills, CA. C-5 STEVEN G. ELLIOTT Mellon Financial Corporation+ Senior Vice Chairman 1/99 - Present Director Chief Financial Officer 1/90 - Present Vice Chairman 6/92 - 1/99 Treasurer 1/90 - 5/98 Mellon Bank, N.A.+ Senior Vice Chairman 3/98 - Present Vice Chairman 6/92 - 3/98 Chief Financial Officer 1/90 - Present Mellon EFT Services Corporation Director 10/98 - Present Mellon Bank Center, 8th Floor 1735 Market Street Philadelphia, PA 19103 Mellon Financial Services Director 1/96 - Present Corporation #1 Vice President 1/96 - Present Mellon Bank Center, 8th Floor 1735 Market Street Philadelphia, PA 19103 Boston Group Holdings, Inc.* Vice President 5/93 - Present APT Holdings Corporation Treasurer 12/87 - Present Pike Creek Operations Center 4500 New Linden Hill Road Wilmington, DE 19808 Allomon Corporation Director 12/87 - Present Two Mellon Bank Center Pittsburgh, PA 15259 Collection Services Corporation Controller 10/90 - 2/99 500 Grant Street Director 9/88 - 2/99 Pittsburgh, PA 15258 Vice President 9/88 - 2/99 Treasurer 9/88 - 2/99 Mellon Financial Company+ Principal Exec. Officer 1/88 - Present Chief Executive Officer 8/87 - Present Director 8/87 - Present President 8/87 - Present Mellon Overseas Investments Director 4/88 - Present Corporation+ Mellon Financial Services Treasurer 12/87 - Present Corporation # 5+ Mellon Financial Markets, Inc.+ Director 1/99 - Present Mellon Financial Services Director 1/99 - Present Corporation #17 Fort Lee, NJ Mellon Mortgage Company Director 1/99 - Present Houston, TX Mellon Ventures, Inc. + Director 1/99 - Present LAWRENCE S. KASH Dreyfus Investment Director 4/97 - 12/99 Vice Chairman Advisors, Inc.++ Dreyfus Brokerage Services, Inc. Chairman 11/97 - 2/99 401 North Maple Ave. Chief Executive Officer 11/97 - 2/98 Beverly Hills, CA Dreyfus Service Corporation++ Director 1/95 - 2/99 President 9/96 - 3/99 Dreyfus Precious Metals, Inc.+++ Director 3/96 - 12/98 President 10/96 - 12/98 Dreyfus Service Director 12/94 - 3/99 Organization, Inc.++ President 1/97 - 3/99 Seven Six Seven Agency, Inc. ++ Director 1/97 - 4/99 Dreyfus Insurance Agency of Chairman 5/97 - 3/99 Massachusetts, Inc.++++ President 5/97 - 3/99 Director 5/97 - 3/99 The Dreyfus Trust Company+++ Chairman 1/97 - 1/99 President 2/97 - 1/99 Chief Executive Officer 2/97 - 1/99 Director 12/94 - Present C-6 LAWRENCE S. KASH The Dreyfus Consumer Credit Chairman 5/97 - 6/99 Vice Chairman Corporation++ President 5/97 - 6/99 (Continued) Director 12/94 - 6/99 Founders Asset Management, Member, Board of 12/97 - 12/99 LLC**** Managers The Boston Company Advisors, Chairman 12/95 - 1/99 Inc. Chief Executive Officer 12/95 - 1/99 Wilmington, DE President 12/95 - 1/99 The Boston Company, Inc.* Director 5/93 - 1/99 President 5/93 - 1/99 Mellon Bank, N.A.+ Executive Vice President 6/92 - Present Laurel Capital Advisors, LLP+ Chairman 1/98 - 8/98 Executive Committee 1/98 - 8/98 Member Chief Executive Officer 1/98 - 8/98 President 1/98 - 8/98 Laurel Capital Advisors, Inc. + Trustee 12/91 - 1/98 Chairman 9/93 - 1/98 President and CEO 12/91 - 1/98 Boston Group Holdings, Inc.* Director 5/93 - Present President 5/93 - Present Boston Safe Deposit and Trust Director 6/93 - 1/99 Company+ Executive Vice President 6/93 - 4/98 MARTIN G. MCGUINN Mellon Financial Corporation+ Chairman 1/99 - Present Director Chief Executive Officer 1/99 - Present Director 1/98 - Present Vice Chairman 1/90 - 1/99 Mellon Bank, N. A. + Chairman 3/98 - Present Chief Executive Officer 3/98 - Present Director 1/98 - Present Vice Chairman 1/90 - 3/98 Mellon Leasing Corporation+ Vice Chairman 12/96 - Present Mellon Bank (DE) National Director 4/89 - 12/98 Association Wilmington, DE Mellon Bank (MD) National Director 1/96 - 4/98 Association Rockville, Maryland J. DAVID OFFICER Dreyfus Service Corporation++ President 3/00 - Present Vice Chairman Executive Vice President 5/98 - 3/00 and Director Director 3/99 - Present Dreyfus Service Organization, Director 3/99 - Present Inc.++ Dreyfus Insurance Agency of Director 5/98 - Present Massachusetts, Inc.++++ Dreyfus Brokerage Services, Inc. Chairman 3/99 - Present 401 North Maple Avenue Beverly Hills, CA Seven Six Seven Agency, Inc.++ Director 10/98 - Present Mellon Residential Funding Corp. + Director 4/97 - Present Mellon Trust of Florida, N.A. Director 8/97 - Present 2875 Northeast 191st Street North Miami Beach, FL 33180 Mellon Bank, NA+ Executive Vice President 7/96 - Present The Boston Company, Inc.* Vice Chairman 1/97 - Present Director 7/96 - Present Mellon Preferred Capital Director 11/96 - 1/99 Corporation* RECO, Inc.* President 11/96 - Present Director 11/96 - Present C-7 J. DAVID OFFICER The Boston Company Financial President 8/96 - 6/99 Vice Chairman Services, Inc.* Director 8/96 - 6/99 and Director (Continued) Boston Safe Deposit and Trust Director 7/96 - Present Company* President 7/96 - 1/99 Mellon Trust of New York Director 6/96 - Present 1301 Avenue of the Americas New York, NY 10019 Mellon Trust of California Director 6/96 - Present 400 South Hope Street Suite 400 Los Angeles, CA 90071 Mellon United National Bank Director 3/98 - Present 1399 SW 1st Ave., Suite 400 Miami, Florida Boston Group Holdings, Inc.* Director 12/97 - Present Dreyfus Financial Services Corp. + Director 9/96 - Present Dreyfus Investment Services Director 4/96 - Present Corporation+ RICHARD W. SABO Founders Asset Management, President 12/98 - Present Director LLC**** Chief Executive Officer 12/98 - Present Prudential Securities Senior Vice President 07/91 - 11/98 New York, NY Regional Director 07/91 - 11/98 RICHARD F. SYRON Thermo Electron President 6/99 - Present Director 81 Wyman Street Chief Executive Officer 6/99 - Present Waltham, MA 02454-9046 American Stock Exchange Chairman 4/94 - 6/99 86 Trinity Place Chief Executive Officer 4/94 - 6/99 New York, NY 10006 RONALD P. O'HANLEY Franklin Portfolio Holdings, Inc.* Director 3/97 - Present Vice Chairman Franklin Portfolio Associates, Director 3/97 - Present LLC* Boston Safe Deposit and Trust Executive Committee 1/99 - Present Company* Member Director 1/99 - Present The Boston Company, Inc.* Executive Committee 1/99 - Present Member 1/99 - Present Director Buck Consultants, Inc.++ Director 7/97 - Present Newton Asset Management LTD Executive Committee 10/98 - Present (UK) Member London, England Director 10/98 - Present Mellon Asset Management Non-Resident Director 11/98 - Present (Japan) Co., LTD Tokyo, Japan TBCAM Holdings, Inc.* Director 10/97 - Present The Boston Company Asset Director 1/98 - Present Management, LLC* Boston Safe Advisors, Inc.* Chairman 6/97 - Present Director 2/97 - Present Pareto Partners Partner Representative 5/97 - Present 271 Regent Street London, England W1R 8PP Mellon Capital Management Director 2/97 -Present Corporation*** Certus Asset Advisors Corp.** Director 2/97 - Present Mellon Bond Associates, LLP+ Trustee 1/98 - Present Chairman 1/98 - Present C-8 RONALD P. O'HANLEY Mellon Equity Associates, LLP+ Trustee 1/98 - Present Vice Chairman Chairman 1/98 - Present (Continued) Mellon-France Corporation+ Director 3/97 - Present Laurel Capital Advisors+ Trustee 3/97 - Present STEPHEN R. BYERS Dreyfus Service Corporation++ Senior Vice President 3/00 - Present Director of Investments and Senior Vice President Gruntal & Co., LLC Executive Vice President 5/97 - 11/99 New York, NY Partner 5/97 - 11/99 Executive Committee 5/97 - 11/99 Member Board of Directors 5/97 - 11/99 Member Treasurer 5/97 - 11/99 Chief Financial Officer 5/97 - 6/99 PATRICE M. KOZLOWSKI None Senior Vice President - Corporate Communications MARK N. JACOBS Dreyfus Investment Director 4/97 - Present General Counsel, Advisors, Inc.++ Secretary 10/77 - 7/98 Vice President, and Secretary The Dreyfus Trust Company+++ Director 3/96 - Present The TruePenny Corporation++ President 10/98 - Present Director 3/96 - Present Dreyfus Service Director 3/97 - 3/99 Organization, Inc.++ WILLIAM H. MARESCA The Dreyfus Trust Company+++ Chief Financial Officer 3/99 - Present Controller Treasurer 9/98 - Present Director 3/97 - Present Dreyfus Service Corporation++ Chief Financial Officer 12/98 - Present Director 8/00 - Present Dreyfus Consumer Credit Corp. ++ Treasurer 10/98 - Present Dreyfus Investment Treasurer 10/98 - Present Advisors, Inc. ++ Dreyfus-Lincoln, Inc. Vice President 10/98 - Present 4500 New Linden Hill Road Wilmington, DE 19808 The TruePenny Corporation++ Vice President 10/98 - Present Dreyfus Precious Metals, Inc. +++ Treasurer 10/98 - 12/98 The Trotwood Corporation++ Vice President 10/98 - Present Trotwood Hunters Corporation++ Vice President 10/98 - Present Trotwood Hunters Site A Corp. ++ Vice President 10/98 - Present Dreyfus Transfer, Inc. Chief Financial Officer 5/98 - Present One American Express Plaza, Providence, RI 02903 Dreyfus Service Treasurer 3/99 - Present Organization, Inc.++ Assistant Treasurer 3/93 - 3/99 Dreyfus Insurance Agency of Assistant Treasurer 5/98 - Present Massachusetts, Inc.++++ C-9 WILLIAM T. SANDALLS, JR Dreyfus Transfer, Inc. Chairman 2/97 - Present Executive Vice President One American Express Plaza, Providence, RI 02903 Dreyfus Service Corporation++ Director 1/96 - 8/00 Executive Vice President 2/97 - Present Chief Financial Officer 2/97 - 12/98 Dreyfus Investment Director 1/96 - Present Advisors, Inc.++ Treasurer 1/96 - 10/98 Dreyfus-Lincoln, Inc. Director 12/96 - Present 4500 New Linden Hill Road President 1/97 - Present Wilmington, DE 19808 Seven Six Seven Agency, Inc.++ Director 1/96 - 10/98 Treasurer 10/96 - 10/98 The Dreyfus Consumer Director 1/96 - Present Credit Corp.++ Vice President 1/96 - Present Treasurer 1/97 - 10/98 The Dreyfus Trust Company +++ Director 1/96 - Present Dreyfus Service Organization, Treasurer 10/96 - 3/99 Inc.++ Dreyfus Insurance Agency of Director 5/97 - 3/99 Massachusetts, Inc.++++ Treasurer 5/97 - 3/99 Executive Vice President 5/97 - 3/99 DIANE P. DURNIN Dreyfus Service Corporation++ Senior Vice President - 5/95 - 3/99 Vice President - Product Marketing and Advertising Development Division MARY BETH LEIBIG None Vice President - Human Resources THEODORE A. SCHACHAR Dreyfus Service Corporation++ Vice President -Tax 10/96 - Present Vice President - Tax The Dreyfus Consumer Credit Chairman 6/99 - Present Corporation ++ President 6/99 - Present Dreyfus Investment Advisors, Vice President - Tax 10/96 - Present Inc.++ Dreyfus Precious Metals, Inc. +++ Vice President - Tax 10/96 - 12/98 Dreyfus Service Organization, Vice President - Tax 10/96 - Present Inc.++ WENDY STRUTT None Vice President RAYMOND J. VAN COTT Mellon Financial Corporation+ Vice President 7/98 - Present Vice President - Information Systems Computer Sciences Corporation Vice President 1/96 - 7/98 El Segundo, CA JAMES BITETTO The TruePenny Corporation++ Secretary 9/98 - Present Assistant Secretary Dreyfus Service Corporation++ Assistant Secretary 8/98 - Present Dreyfus Investment Assistant Secretary 7/98 - Present Advisors, Inc.++ Dreyfus Service Assistant Secretary 7/98 - Present Organization, Inc.++ C-10 STEVEN F. NEWMAN Dreyfus Transfer, Inc. Vice President 2/97 - Present Assistant Secretary One American Express Plaza Director 2/97 - Present Providence, RI 02903 Secretary 2/97 - Present Dreyfus Service Secretary 7/98 - Present Organization, Inc.++ Assistant Secretary 5/98 - 7/98 - ------------------------- * The address of the business so indicated is One Boston Place, Boston, Massachusetts, 02108. ** The address of the business so indicated is One Bush Street, Suite 450, San Francisco, California 94104. *** The address of the business so indicated is 595 Market Street, Suite 3000, San Francisco, California 94105. **** The address of the business so indicated is 2930 East Third Avenue, Denver, Colorado 80206. + The address of the business so indicated is One Mellon Bank Center, Pittsburgh, Pennsylvania 15258. ++ The address of the business so indicated is 200 Park Avenue, New York, New York 10166. +++ The address of the business so indicated is 144 Glenn Curtiss Boulevard, Uniondale, New York 11556-0144. ++++ The address of the business so indicated is 53 State Street, Boston, Massachusetts 02109.
Item 27. Principal Underwriters ---------------------- (a) Other investment companies for which Registrant's principal underwriter (exclusive distributor) acts as principal underwriter or exclusive distributor: 1) Dreyfus A Bonds Plus, Inc. 2) Dreyfus Appreciation Fund, Inc. 3) Dreyfus Balanced Fund, Inc. 4) Dreyfus BASIC GNMA Fund 5) Dreyfus BASIC Money Market Fund, Inc. 6) Dreyfus BASIC Municipal Fund, Inc. 7) Dreyfus BASIC U.S. Government Money Market Fund 8) Dreyfus California Intermediate Municipal Bond Fund 9) Dreyfus California Tax Exempt Bond Fund, Inc. 10) Dreyfus California Tax Exempt Money Market Fund 11) Dreyfus Cash Management 12) Dreyfus Cash Management Plus, Inc. 13) Dreyfus Connecticut Intermediate Municipal Bond Fund 14) Dreyfus Connecticut Municipal Money Market Fund, Inc. 15) Dreyfus Florida Intermediate Municipal Bond Fund 16) Dreyfus Florida Municipal Money Market Fund 17) Dreyfus Founders Funds, Inc. 18) The Dreyfus Fund Incorporated 19) Dreyfus Global Bond Fund, Inc. 20) Dreyfus Global Growth Fund 21) Dreyfus GNMA Fund, Inc. 22) Dreyfus Government Cash Management Funds 23) Dreyfus Growth and Income Fund, Inc. 24) Dreyfus Growth and Value Funds, Inc. 25) Dreyfus Growth Opportunity Fund, Inc. 26) Dreyfus Debt and Equity Funds 27) Dreyfus Index Funds, Inc. 28) Dreyfus Institutional Money Market Fund 29) Dreyfus Institutional Preferred Money Market Fund 30) Dreyfus Institutional Short Term Treasury Fund 31) Dreyfus Insured Municipal Bond Fund, Inc. 32) Dreyfus Intermediate Municipal Bond Fund, Inc. 33) Dreyfus International Funds, Inc. 34) Dreyfus Investment Grade Bond Funds, Inc. 35) Dreyfus Investment Portfolios 36) The Dreyfus/Laurel Funds, Inc. 37) The Dreyfus/Laurel Funds Trust 38) The Dreyfus/Laurel Tax-Free Municipal Funds 39) Dreyfus LifeTime Portfolios, Inc. 40) Dreyfus Liquid Assets, Inc. 41) Dreyfus Massachusetts Intermediate Municipal Bond Fund 42) Dreyfus Massachusetts Municipal Money Market Fund 43) Dreyfus Massachusetts Tax Exempt Bond Fund 44) Dreyfus MidCap Index Fund 45) Dreyfus Money Market Instruments, Inc. 46) Dreyfus Municipal Bond Fund, Inc. 47) Dreyfus Municipal Cash Management Plus 48) Dreyfus Municipal Money Market Fund, Inc. 49) Dreyfus New Jersey Intermediate Municipal Bond Fund 50) Dreyfus New Jersey Municipal Bond Fund, Inc. C-11 51) Dreyfus New Jersey Municipal Money Market Fund, Inc. 52) Dreyfus New Leaders Fund, Inc. 53) Dreyfus New York Municipal Cash Management 54) Dreyfus New York Tax Exempt Bond Fund, Inc. 55) Dreyfus New York Tax Exempt Intermediate Bond Fund 56) Dreyfus New York Tax Exempt Money Market Fund 57) Dreyfus U.S. Treasury Intermediate Term Fund 58) Dreyfus U.S. Treasury Long Term Fund 59) Dreyfus 100% U.S. Treasury Money Market Fund 60) Dreyfus U.S. Treasury Short Term Fund 61) Dreyfus Pennsylvania Intermediate Municipal Bond Fund 62) Dreyfus Pennsylvania Municipal Money Market Fund 63) Dreyfus Premier California Municipal Bond Fund 64) Dreyfus Premier Equity Funds, Inc. 65) Dreyfus Premier International Funds, Inc. 66) Dreyfus Premier GNMA Fund 67) Dreyfus Premier Opportunity Funds 68) Dreyfus Premier Worldwide Growth Fund, Inc. 69) Dreyfus Premier Municipal Bond Fund 70) Dreyfus Premier New York Municipal Bond Fund 71) Dreyfus Premier State Municipal Bond Fund 72) Dreyfus Premier Value Equity Funds 73) Dreyfus Short-Intermediate Government Fund 74) Dreyfus Short-Intermediate Municipal Bond Fund 75) The Dreyfus Socially Responsible Growth Fund, Inc. 76) Dreyfus Stock Index Fund 77) Dreyfus Tax Exempt Cash Management 78) The Dreyfus Premier Third Century Fund, Inc. 79) Dreyfus Treasury Cash Management 80) Dreyfus Treasury Prime Cash Management 81) Dreyfus Variable Investment Fund 82) Dreyfus Worldwide Dollar Money Market Fund, Inc. 83) General California Municipal Bond Fund, Inc. 84) General California Municipal Money Market Fund 85) General Government Securities Money Market Funds, Inc. 86) General Money Market Fund, Inc. 87) General Municipal Bond Fund, Inc. 88) General Municipal Money Market Funds, Inc. 89) General New York Municipal Bond Fund, Inc. 90) General New York Municipal Money Market Fund (b)
Positions and Name and principal offices with business address Positions and offices with the Distributor Registrant - ---------------- ------------------------------------------ ---------- Thomas F. Eggers * Chief Executive Officer and Chairman of the Board None J. David Officer * President and Director None Stephen Burke * Executive Vice President None Charles Cardona * Executive Vice President and Director None Anthony DeVivio ** Executive Vice President and Director None Michael Millard ** Executive Vice President and Director None David K. Mossman ** Executive Vice President and Director None Jeffrey N. Nachman *** Executive Vice President and Chief Operations Officer None William T. Sandalls, Jr. * Executive Vice President None William H. Maresca * Chief Financial Officer and Director None James Book ** Senior Vice President None Ken Bradle ** Senior Vice President None Stephen R. Byers * Senior Vice President None Joseph Connolly * Senior Vice President Vice President and Treasurer Joseph Eck + Senior Vice President None William Glenn * Senior Vice President None Bradley Skapyak * Senior Vice President None Jane Knight * Chief Legal Officer and Secretary None Stephen Storen * Chief Compliance Officer None Jeffrey Cannizzaro * Vice President - Compliance None John Geli ** Vice President None Maria Georgopoulos * Vice President - Facilities Management None William Germenis * Vice President - Compliance None Walter T. Harris * Vice President None Janice Hayles * Vice President None Hal Marshall * Vice President - Compliance None Paul Molloy * Vice President None B.J. Ralston ** Vice President None Theodore A. Schachar * Vice President - Tax None James Windels * Vice President Assistant Treasurer C-12 James Bitetto * Assistant Secretary None Ronald Jamison * Assistant Secretary None - ------------------------- * Principal business address is 200 Park Avenue, New York, NY 10166. ** Principal business address is 144 Glenn Curtiss Blvd., Uniondale, NY 11556-0144. *** Principal business address is 401 North Maple Avenue, Beverly Hills, CA 90210. **** Principal business address is One Mellon Bank Center, Pittsburgh, PA 15258 + Principal business address is One Boston Place, Boston, MA 02108
Item 28. Location of Accounts and Records -------------------------------- 1. Mellon Bank, N.A. One Mellon Bank Center Pittsburgh, Pennsylvania 15258 2. Dreyfus Transfer, Inc. P.O. Box 9671 Providence, Rhode Island 02940-9671 3. The Dreyfus Corporation 200 Park Avenue New York, New York 10166 Item 29. Management Services ------------------- Not Applicable Item 30. Undertakings ------------ None C-13 SIGNATURES ---------- Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Pittsburgh, and Commonwealth of Pennsylvania on the 15th day of September 2000. MPAM FUNDS TRUST /s/ David F. Lamere* BY: -------------------------- David F. Lamere, President Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, this Amendment to the Registration Statement has been signed below by the following persons in the capacities and on the date indicated. Signatures Title Date ---------- ----- ---- /s/ David F. Lamere* President September 15, 2000 - ------------------------------ David F. Lamere /s/ Joseph Connolly* Treasurer September 15, 2000 - ------------------------------ Joseph Connolly /s/ Ronald R. Davenport* Trustee September 15, 2000 - ------------------------------ Ronald R. Davenport /s/ John L. Diederich* Trustee September 15, 2000 - ------------------------------ John L. Diederich /s/ Maureen D. McFalls* Trustee September 15, 2000 - ------------------------------ Maureen D. McFalls /s/ Patrick J. O'Connor* Trustee September 15, 2000 - ------------------------------ Patrick J. O'Connor /s/ Kevin C. Phelan* Trustee September 15, 2000 - ------------------------------ Kevin C. Phelan /s/ Patrick J. Purcell* Trustee September 15, 2000 - ------------------------------ Patrick J. Purcell *Signatures affixed by Jeff Prusnofsky pursuant to a power of attorney dated June 13, 2000 and filed July 7, 2000 in Pre-Effective Amendment No. 1 to the MPAM Funds Trust registration statement on Form N-1A. Exhibit List a Amended and Restated Agreement and Declaration of Trust dated June 5, 2000, is incorporated herein by reference to Exhibit (a) of Pre-effective Amendment #1 filed on July 7, 2000. b By-Laws dated June 5, 2000, are incorporated herein by reference to Exhibit (b) of Pre- effective Amendment #1 filed on July 7, 2000. c Not Applicable. d Investment Advisory Agreement between MPAM Funds Trust and MPAM Advisers dated June 14, 2000, is filed herein. e Distribution Agreement dated June 14, 2000, is filed herein. f Not Applicable. g (1) Custodian Agreement dated as of June 14, 2000, between MPAM Funds Trust and Boston Safe Deposit and Trust Company, is filed herein. (2) Custodian Agreement dated as of June 14, 2000, between MPAM Funds Trust and Mellon Bank, N.A., is filed herein. h (1) Form of Transfer Agent Agreement dated as of June 14, 2000, is incorporated herein by reference to Exhibit h (1) of Pre-effective Amendment #1 filed on July 7, 2000. (2) Administration Agreement dated June 14, 2000, is filed herein. (3) Fee Waiver Agreement dated June 14, 2000, is filed herein. i Opinion and Consent of counsel dated September 15, 2000, is filed herein. j Auditor's Consent dated September 13, 2000, is filed herein. k Not Applicable. l Not Applicable. m Not Applicable. n Not Applicable. o Not Applicable. p Code of Ethics is filed herein. EX-99.D 2 0002.txt INVESTMENT ADVISORY AGREEMENT MPAM FUNDS TRUST 200 Park Avenue New York, New York 10166 June 14, 2000 MPAM Advisers, a division of The Dreyfus Corporation 200 Park Avenue New York, New York 10166 Dear Sirs: The above-named investment company (the "Fund") consisting of the series named on Schedule 1 hereto, as such Schedule may be revised from time to time (each, a "Series"), herewith confirms its agreement with you as follows: The Fund desires to employ its capital by investing and reinvesting the same in investments of the type and in accordance with the limitations specified in its charter documents and in the Prospectuses and Statements of Additional Information of the Series as from time to time in effect, copies of which have been or will be submitted to you, and in such manner and to such extent as from time to time may be approved by the Fund's Board. The Fund desires to employ you to act as its investment adviser. In this connection it is understood that from time to time you will employ or associate with yourself such person or persons as you may believe to be particularly fitted to assist you in the performance of this Agreement. Such person or persons may be officers or employees who are employed by both you and the Fund. The compensation of such person or persons shall be paid by you and no obligation may be incurred on the Fund's behalf in any such respect. Subject to the supervision and approval of the Fund's Board, you will provide investment management of the Fund's portfolio in accordance with the investment objectives and policies of the Series as stated in their respective Prospectuses and Statements of Additional Information as from time to time in effect. You will furnish to the Fund such statistical information, with respect to the investments which the Fund may hold or contemplate purchasing, as the Fund may reasonably request. The Fund wishes to be informed of important developments materially affecting the Series and shall expect you, on your own initiative, to furnish to the Fund from time to time such information as you may believe appropriate for this purpose. You shall exercise your best judgment in rendering the services to be provided to the Fund hereunder and the Fund agrees as an inducement to your undertaking the same that you shall not be liable hereunder for any error of judgment or mistake of law or for any loss suffered by the Fund, provided that nothing herein shall be deemed to protect or purport to protect you against any liability to the Fund or to its security holders to which you would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of your duties hereunder, or by reason of your reckless disregard of your obligations and duties hereunder. In consideration of services rendered pursuant to this Agreement, the Fund will pay you on the first business day of each month a fee with respect to each Series at the annual rate specified on Schedule 1 hereto. For that purpose, the value of the net assets of each Series and the net asset value per share shall be computed in the manner specified in the Fund's charter documents and computed on such days and at such time or times, and otherwise in the manner, as described in the then-current Prospectus and Statement of Additional Information with respect to each Series. The fee for the period from the date of the commencement of the public sale of the Fund's shares to the end of the month during which such sale shall have been commenced shall be pro-rated according to the proportion which such period bears to the full monthly period, and upon any termination of this Agreement before the end of any month, the fee for such part of a month shall be pro-rated 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. You will bear all expenses in connection with the performance of your services under this Agreement. All other expenses to be incurred in the operation of the Fund will be borne by the Fund, except to the extent specifically assumed by you. The expenses to be borne by the Fund include, without limitation, the following: organizational costs, taxes, interest, loan commitment fees, interest and distributions paid on securities sold short, brokerage fees and commissions, if any, fees of Board members who are not officers, directors or employees or holders of 5% or more of the outstanding voting securities of you or any affiliate of you, Securities and Exchange Commission fees and state Blue Sky qualification fees, advisory and administration fees, charges of custodians, transfer and dividend disbursing -2- agents' fees, office facilities, data processing services, clerical, accounting and bookkeeping services, internal auditing and legal services, internal executive and administrative services, stationery and office supplies, preparation of reports to the Fund's stockholders, tax returns, reports to and filings with the Securities and Exchange Commission and state Blue Sky authorities, calculation of the net asset value of the Fund's shares, insurance premiums, industry association fees, outside auditing and legal expenses, costs of independent pricing services, costs of maintaining the Fund's existence, costs attributable to investor services (including, without limitation, telephone and personnel expenses), costs of preparing and printing prospectuses and statements of additional information for regulatory purposes and for distribution to existing stockholders, costs of stockholders' reports and meetings, and any extraordinary expenses. The Fund understands that you now act, and that from time to time hereafter you may act, as investment adviser to one or more other investment companies and fiduciary or other managed accounts, and the Fund has no objection to your so acting, provided that when the purchase or sale of securities of the same issuer is suitable for the investment objectives of two or more companies or accounts managed by you which have available funds for investment, the available securities will be allocated in a manner believed by you to be equitable to each company or account. It is recognized that in some cases this procedure may adversely affect the price paid or received by the Fund or the size of the position obtainable for or disposed of by the Fund. In addition, it is understood that the persons employed by you to assist in the performance of your duties hereunder will not devote their full time to such service and nothing contained herein shall be deemed to limit or restrict your right or the right of any of your affiliates to engage in and devote time and attention to other businesses or to render services of whatever kind or nature. You shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the matters to which this Agreement relates, except for a loss resulting from willful misfeasance, bad faith or gross negligence on your part in the performance of your duties or from reckless disregard by you of your obligations and duties under this Agreement. Any person, even though also your officer, director, partner, employee or agent, who may be or become an officer, Board member, or employee of the Fund, shall be deemed, when acting in the capacity of officer, Board member, or employee of the Fund, to be rendering such services to or acting solely for the Fund and not as -3- your officer, director, partner, employee or agent or one under your control or direction even though paid by you. This Agreement shall continue until June 1, 2002 and thereafter shall continue automatically for successive annual periods ending on June 1 of each year, provided such continuance is specifically approved at least annually by (i) the Fund's Board or (ii) vote of a majority (as defined in the Investment Company Act of 1940) of the Fund's outstanding voting securities, provided that in either event its continuance also is approved by a majority of the Fund's Board members who are not "interested persons" (as defined in said Act) of any party to this Agreement, by vote cast in person at a meeting called for the purpose of voting on such approval. This Agreement is terminable without penalty, on 60 days' notice, by the Fund's Board or by vote of holders of a majority of the Fund's shares or, upon not less than 90 days' notice, by you. This Agreement also will terminate automatically in the event of its assignment (as defined in said Act). The Fund recognizes that from time to time your directors, officers and employees may serve as directors, trustees, partners, officers and employees of other corporations, business trusts, partnerships or other entities (including other investment companies), and that your corporation or its affiliates may enter into investment advisory or other agreements with such other entities. If you cease to act as the Fund's investment adviser, the Fund agrees that, at your request, the Fund will take all necessary action to change the name of the Fund to a name not including "MPAM," "Mellon Private Asset Management," or "Dreyfus" in any form or combination of words. This Agreement has been executed on behalf of the Fund by the undersigned officer of the Fund in his capacity as an officer of the Fund. The obligations of this Agreement shall only be binding upon the assets and property of the Fund and shall not be binding upon any Board member, officer or shareholder of the Fund individually. -4- If the foregoing is in accordance with your understanding, will you kindly so indicate by signing and returning to us the enclosed copy hereof. Very truly yours, MPAM FUNDS TRUST By: /s/ Jeff Prusnofsky ----------------------- Jeff Prusnofsky Accepted: MPAM Advisers, a division of THE DREYFUS CORPORATION By: /s/ David F. Lamere ----------------------- David F. Lamere -5- SCHEDULE 1 Annual Fee as a Percentage of Average Name of Series Daily Net Assets -------------- ---------------- MPAM Large Cap Stock Fund 0.65% MPAM Income Stock Fund 0.65% MPAM Mid Cap Stock Fund 0.75% MPAM Small Cap Stock Fund 0.85% MPAM International Fund 0.85% MPAM Emerging Markets Fund 1.15% MPAM Bond Fund 0.40% MPAM Intermediate Bond Fund 0.40% MPAM Short-Term U.S. Government Securities Fund 0.35% MPAM National Intermediate Municipal Bond Fund 0.35% MPAM National Short-Term Municipal Bond Fund 0.35% MPAM Pennsylvania Intermediate Municipal Bond Fund 0.50% MPAM Balanced Fund * * MPAM Balanced Fund's proposed investment advisory fee will be calculated at the rate of .65% applied to that portion of its average daily net assets allocated to direct investments in equity securities, .40% to that portion of its average daily net assets allocated to direct investments in debt securities, and .15% to that portion of its average daily net assets allocated to money market instruments and underlying MPAM Funds. -6- EX-99.E 3 0003.txt DISTRIBUTION AGREEMENT MPAM FUNDS TRUST 200 Park Avenue New York, New York 10166 June 14, 2000 Dreyfus Service Corporation 200 Park Avenue New York, New York 10166 Ladies and Gentlemen: This is to confirm that, in consideration of the agreements hereinafter contained, the above-named investment company (the "Fund") has agreed that you shall be, for the period of this agreement, the distributor of (a) shares of each series of the Fund set forth on Exhibit A hereto, as such Exhibit may be revised from time to time (each a "Series") or (b) if no Series are set forth on such Exhibit, shares of the Fund. For purposes of this agreement the term "Shares" shall mean the authorized shares of the relevant Series, if any, and otherwise shall mean the Fund's authorized shares. 1. Services as Distributor 1.1 You will act as agent for the distribution of Shares covered by, and in accordance with, the registration statement and prospectus then in effect under the Securities Act of 1933, as amended, and will transmit promptly any orders received by you for purchase or redemption of Shares to the Transfer and Dividend Disbursing Agent for the Fund of which the Fund has notified you in writing. 1.2 You agree to use your best efforts to solicit orders for the sale of Shares. 1.3 You shall act as distributor of Shares in compliance with all applicable laws, rules and regulations, including, without limitation, all rules and regulations made or adopted pursuant to the Investment Company Act of 1940, as amended, by the Securities and Exchange Commission or any securities association registered under the Securities Exchange Act of 1934, as amended. 1.4 Whenever in their judgment such action is warranted by market, economic or political conditions, or by abnormal circumstances of any kind, the Fund's officers may decline to accept any orders for, or make any sales of, any Shares until such time as they deem it advisable to accept such orders and to make such sales and the Fund shall advise you promptly of such determination. 1.5 The Fund agrees to pay all costs and expenses in connection with the registration of Shares under the Securities Act of 1933, as amended, and all expenses in connection with maintaining facilities for the issue and transfer of Shares and for supplying information, prices and other data to be furnished by the Fund hereunder, and all expenses in connection with the preparation and printing of the Fund's prospectuses and statements of additional information for regulatory purposes and for distribution to shareholders; provided, however, that nothing contained herein shall be deemed to require the Fund to pay any of the costs of advertising the sale of Shares. 1.6 The Fund agrees to execute any and all documents and to furnish any and all information and otherwise to take all actions which may be reasonably necessary in the discretion of the Fund's officers in connection with the qualification of Shares for sale in such states as you may designate to the Fund and the Fund may approve, and the Fund agrees to pay all expenses which may be incurred in connection with such qualification. You shall pay all expenses connected with your own qualification as a dealer under state or Federal laws and, except as otherwise specifically provided in this agreement, all other expenses incurred by you in connection with the sale of Shares as contemplated in this agreement, provided that the Fund's Administrator has agreed to pay the costs of preparing and printing advertising materials and of printing prospectuses for distribution to persons who are not shareholders of the Fund. 1.7 The Fund shall furnish you from time to time, for use in connection with the sale of Shares, such information with respect to the Fund or any relevant Series and the Shares as you may reasonably request, all of which shall be signed by one or more of the Fund's duly authorized officers; and the Fund warrants that the statements contained in any such information, when so signed by the Fund's officers, shall be true and correct. The Fund also shall furnish you upon request with: (a) semi-annual reports and annual audited reports of the Fund's books and accounts made by independent public accountants regularly retained by the Fund, (b) quarterly earnings statements prepared by the Fund, (c) a monthly itemized list of the securities in the Fund's or, if applicable, each Series' portfolio, (d) monthly balance sheets as soon as practicable after the end of each month, and (e) from time to time such additional information regarding the Fund's financial condition as you may reasonably request. 1.8 The Fund represents to you that all registration statements and prospectuses filed by the Fund with the Securities and Exchange Commission under the Securities Act of 1933, as amended, and under the Investment Company Act of 1940, as amended, with respect to the Shares have been carefully prepared in conformity with the requirements of said Acts and rules and regulations of the Securities and Exchange Commission thereunder. As used in this agreement the terms "registration statement" and "prospectus" shall mean any registration statement and prospectus, including the statement of additional information incorporated by reference therein, filed with the Securities and Exchange Commission and any amendments and supplements thereto which at any time shall -2- have been filed with said Commission. The Fund represents and warrants to you that any registration statement and prospectus, when such registration statement becomes effective, will contain all statements required to be stated therein in conformity with said Acts and the rules and regulations of said Commission; that all statements of fact contained in any such registration statement and prospectus will be true and correct when such registration statement becomes effective; and that neither any registration statement nor any prospectus when such registration statement becomes effective will include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Fund may but shall not be obligated to propose from time to time such amendment or amendments to any registration statement and such supplement or supplements to any prospectus as, in the light of future developments, may, in the opinion of the Fund's counsel, be necessary or advisable. If the Fund shall not propose such amendment or amendments and/or supplement or supplements within fifteen days after receipt by the Fund of a written request from you to do so, you may, at your option, terminate this agreement or decline to make offers of the Fund's securities until such amendments are made. The Fund shall not file any amendment to any registration statement or supplement to any prospectus without giving you reasonable notice thereof in advance; provided, however, that nothing contained in this agreement shall in any way limit the Fund's right to file at any time such amendments to any registration statement and/or supplements to any prospectus, of whatever character, as the Fund may deem advisable, such right being in all respects absolute and unconditional. 1.9 The Fund authorizes you to use any prospectus in the form furnished to you from time to time, in connection with the sale of Shares. The Fund agrees to indemnify, defend and hold you, your several officers and directors, and any person who controls you within the meaning of Section 15 of the Securities Act of 1933, as amended, free and harmless from and against any and all claims, demands, liabilities and expenses (including the cost of investigating or defending such claims, demands or liabilities and any counsel fees incurred in connection therewith) which you, your officers and directors, or any such controlling person, may incur under the Securities Act of 1933, as amended, or under common law or otherwise, arising out of or based upon any untrue statement, or alleged untrue statement, of a material fact contained in any registration statement or any prospectus or arising out of or based upon any omission, or alleged omission, to state a material fact required to be stated in either any registration statement or any prospectus or necessary to make the statements in either thereof not misleading; provided, however, that the Fund's agreement to indemnify you, your officers or directors, and any such controlling person shall not be deemed to cover any claims, demands, liabilities or expenses arising out of any untrue statement or alleged untrue statement or omission or alleged omission made in any registration statement or prospectus in reliance upon and in conformity with written information furnished to the Fund by you specifically for use in the preparation thereof. The Fund's agreement to indemnify you, your officers and directors, and any such controlling person, as aforesaid, is expressly conditioned upon the Fund's being notified of any action brought against you, your officers or directors, or any such controlling person, such notification to be given by letter or by telegram addressed to the Fund at its address set forth above within ten days after the summons or other first legal process shall have been served. The failure so to notify the Fund of any -3- such action shall not relieve the Fund from any liability which the Fund may have to the person against whom such action is brought by reason of any such untrue, or alleged untrue, statement or omission, or alleged omission, otherwise than on account of the Fund's indemnity agreement contained in this paragraph 1.9. The Fund will be entitled to assume the defense of any suit brought to enforce any such claim, demand or liability, but, in such case, such defense shall be conducted by counsel of good standing chosen by the Fund and approved by you. In the event the Fund elects to assume the defense of any such suit and retain counsel of good standing approved by you, the defendant or defendants in such suit shall bear the fees and expenses of any additional counsel retained by any of them; but in case the Fund does not elect to assume the defense of any such suit, or in case you do not approve of counsel chosen by the Fund, the Fund will reimburse you, your officers and directors, or the controlling person or persons named as defendant or defendants in such suit, for the fees and expenses of any counsel retained by you or them. The Fund's indemnification agreement contained in this paragraph 1.9 and the Fund's representations and warranties in this agreement shall remain operative and in full force and effect regardless of any investigation made by or on behalf of you, your officers and directors, or any controlling person, and shall survive the delivery of any Shares. This agreement of indemnity will inure exclusively to your benefit, to the benefit of your several officers and directors, and their respective estates, and to the benefit of any controlling persons and their successors. The Fund agrees promptly to notify you of the commencement of any litigation or proceedings against the Fund or any of its officers or Board members in connection with the issue and sale of Shares. 1.10 You agree to indemnify, defend and hold the Fund, its several officers and Board members, and any person who controls the Fund within the meaning of Section 15 of the Securities Act of 1933, as amended, free and harmless from and against any and all claims, demands, liabilities and expenses (including the cost of investigating or defending such claims, demands or liabilities and any counsel fees incurred in connection therewith) which the Fund, its officers or Board members, or any such controlling person, may incur under the Securities Act of 1933, as amended, or under common law or otherwise, but only to the extent that such liability or expense incurred by the Fund, its officers or Board members, or such controlling person resulting from such claims or demands, shall arise out of or be based upon any untrue, or alleged untrue, statement of a material fact contained in information furnished in writing by you to the Fund specifically for use in the Fund's registration statement and used in the answers to any of the items of the registration statement or in the corresponding statements made in the prospectus, or shall arise out of or be based upon any omission, or alleged omission, to state a material fact in connection with such information furnished in writing by you to the Fund and required to be stated in such answers or necessary to make such information not misleading. Your agreement to indemnify the Fund, its officers and Board members, and any such controlling person, as aforesaid, is expressly conditioned upon your being notified of any action brought against the Fund, its officers or Board members, or any such controlling person, such notification to be given by letter or telegram addressed to you at your address set forth above within ten days after the summons or other first legal process shall have been served. You shall have the right to control the defense of such action, with counsel of your own choosing, satisfactory to the Fund, if such action is based solely upon such alleged misstatement or omission on your part, and in any other event the Fund, -4- its officers or Board members, or such controlling person shall each have the right to participate in the defense or preparation of the defense of any such action. The failure so to notify you of any such action shall not relieve you from any liability which you may have to the Fund, its officers or Board members, or to such controlling person by reason of any such untrue, or alleged untrue, statement or omission, or alleged omission, otherwise than on account of your indemnity agreement contained in this paragraph 1.10. This agreement of indemnity will inure exclusively to the Fund's benefit, to the benefit of the Fund's officers and Board members, and their respective estates, and to the benefit of any controlling persons and their successors. You agree promptly to notify the Fund of the commencement of any litigation or proceedings against you or any of your officers or directors in connection with the issue and sale of Shares. 1.11 No Shares shall be offered by either you or the Fund under any of the provisions of this agreement and no orders for the purchase or sale of such Shares hereunder shall be accepted by the Fund if and so long as the effectiveness of the registration statement then in effect or any necessary amendments thereto shall be suspended under any of the provisions of the Securities Act of 1933, as amended, or if and so long as a current prospectus as required by Section 10 of said Act, as amended, is not on file with the Securities and Exchange Commission; provided, however, that nothing contained in this paragraph 1.11 shall in any way restrict or have an application to or bearing upon the Fund's obligation to repurchase any Shares from any shareholder in accordance with the provisions of the Fund's prospectus or charter documents. 1.12 The Fund agrees to advise you immediately in writing: (a) of any request by the Securities and Exchange Commission for amendments to the registration statement or prospectus then in effect or for additional information; (b) in the event of the issuance by the Securities and Exchange Commission of any stop order suspending the effectiveness of the registration statement or prospectus then in effect or the initiation of any proceeding for that purpose; (c) of the happening of any event which makes untrue any statement of a material fact made in the registration statement or prospectus then in effect or which requires the making of a change in such registration statement or prospectus in order to make the statements therein not misleading; and (d) of all actions of the Securities and Exchange Commission with respect to any amendments to any registration statement or prospectus which may from time to time be filed with the Securities and Exchange Commission. -5- 2. Offering Price Shares of any class of the Fund offered for sale by you shall be offered for sale at a price per share (the "offering price") approximately equal to (a) their net asset value (determined in the manner set forth in the Fund's charter documents) plus (b) a sales charge, if any and except to those persons set forth in the then-current prospectus, which shall be the percentage of the offering price of such Shares as set forth in the Fund's then-current prospectus. The offering price, if not an exact multiple of one cent, shall be adjusted to the nearest cent. In addition, Shares of any class of the Fund offered for sale by you may be subject to a contingent deferred sales charge as set forth in the Fund's then-current prospectus. You shall be entitled to receive any sales charge or contingent deferred sales charge in respect of the Shares. Any payments to dealers shall be governed by a separate agreement between you and such dealer and the Fund's then-current prospectus. 3. Term This agreement shall continue until the date (the "Reapproval Date") set forth on Exhibit A hereto (and, if the Fund has Series, a separate Reapproval Date shall be specified on Exhibit A for each Series), and thereafter shall continue automatically for successive annual periods ending on the day (the "Reapproval Day") of each year set forth on Exhibit A hereto, provided such continuance is specifically approved at least annually by (i) the Fund's Board or (ii) vote of a majority (as defined in the Investment Company Act of 1940) of the Shares of the Fund, or the Series, as the case may be, provided that in either event its continuance also is approved by a majority of the Board members who are not "interested persons" (as defined in said Act) of any party to this agreement, by vote cast in person at a meeting called for the purpose of voting on such approval. This agreement is terminable without penalty, on 60 days' notice, (a) by vote of holders of a majority of the Fund's or, as to any relevant Series, such Series' outstanding voting securities, or (b) by the Fund's Board as to the Fund or the relevant Series, as the case may be, or (c) by you. This agreement also will terminate automatically, as to the Fund or the relevant Series, as the case may be, in the event of its assignment (as defined in said Act). 4. Miscellaneous 4.1 The Fund recognizes that from time to time your directors, officers, and employees may serve as trustees, directors, partners, officers, and employees of other business trusts, corporations, partnerships, or other entities (including other investment companies) and that such other entities may include the name "Dreyfus" as part of their name, and that your corporation or its affiliates may enter into distribution or other agreements with such other entities. 4.2 This agreement has been executed on behalf of the Fund by the undersigned officer of the Fund in his or her capacity as an officer of the Fund. The obligations of this agreement shall only be binding upon the assets and property of the Fund and shall not be binding upon any Board member, officer or shareholder of the Fund individually. -6- Please confirm that the foregoing is in accordance with your understanding and indicate your acceptance hereof by signing below, whereupon it shall become a binding agreement between us. Very truly yours, MPAM FUNDS TRUST By: /s/ Jeff Prusnofsky ---------------------------------- Jeff Prusnofsky Accepted: DREYFUS SERVICE CORPORATION By: /s/ Janice Hayles ---------------------------------- Janice Hayles -7- EXHIBIT A Name of Series Reapproval Date Reapproval Day - -------------- --------------- -------------- MPAM Large Cap Stock Fund June 1, 2002 June 1 MPAM Income Stock Fund June 1, 2002 June 1 MPAM Mid Cap Stock Fund June 1, 2002 June 1 MPAM Small Cap Stock Fund June 1, 2002 June 1 MPAM International Fund June 1, 2002 June 1 MPAM Emerging Markets Fund June 1, 2002 June 1 MPAM Bond Fund June 1, 2002 June 1 MPAM Intermediate Bond Fund June 1, 2002 June 1 MPAM Short-Term U.S. Government Securities Fund June 1, 2002 June 1 MPAM National Intermediate Municipal Bond Fund June 1, 2002 June 1 MPAM National Short-Term Municipal Bond Fund June 1, 2002 June 1 MPAM Pennsylvania Intermediate Municipal Bond Fund June 1, 2002 June 1 MPAM Balanced Fund June 1, 2002 June 1 EX-99.G(1) 4 0004.txt CUSTODY AGREEMENT ----------------- AGREEMENT dated as of June 14, 2000, between MPAM FUNDS TRUST (the "Fund"), a business trust organized under the laws of the Commonwealth of Massachusetts, having its principal office and place of business at 200 Park Avenue, New York, New York 10166, and MELLON BANK, N.A. (the "Custodian"), a national banking association, having its principal place of business at One Mellon Bank Center, Pittsburgh, PA 15258, with respect to the Fund's series named on Schedule 1 hereto, as such Schedule may be revised from time to time (each, a "Series"). W I T N E S S E T H: - - - - - - - - - - That for and in consideration of the mutual promises hereinafter set forth, the Fund and the Custodian agree as follows: 1. DEFINITIONS. ----------- Whenever used in this Agreement or in any Schedules to this Agreement, the following words and phrases, unless the context otherwise requires, shall have the following meanings: (a) "Affiliated Person" shall have the meaning of the term within Section 2(a)(3) of the 1940 Act. (b) "Authorized Person" shall mean those persons duly authorized by the Fund's Board to give Oral Instructions and Written Instructions on behalf of the Fund and listed in the certification annexed hereto as Appendix A or such other certification as may be received by the Custodian from time to time. (c) "Book-Entry System" shall mean the Federal Reserve/Treasury book-entry system for United States and federal agency Securities, its successor or successors and its nominee or nominees, in which the Custodian is hereby specifically authorized and instructed on a continuous and on-going basis to deposit all Securities eligible for deposit therein, and to utilize the Book-Entry System to the extent possible in connection with its performance hereunder. (d) "Business Day" shall mean each day on which the Fund is required to determine its net asset value, and any other day on which the Securities and Exchange Commission may require the Fund to be open for business. (e) "Certificate" shall mean any notice, instruction or other instrument in writing, authorized or required by this Agreement to be given to the Custodian, which is actually received by the Custodian and signed on behalf of the Fund by any two Authorized Persons or any two officers of the Fund. (f) "Depository" shall mean Depository Trust and Clearing Corporation ("DTC"), a clearing agency registered with the Securities and Exchange Commission under Section 17A of the Securities Exchange Act of 1934, as amended, its successor or successors and its nominee or nominees, in which the Custodian is hereby specifically authorized and instructed on a continuous and on-going basis to deposit all Securities eligible for deposit therein, and to utilize the Depository to the extent possible in connection with its performance hereunder. The term "Depository" shall further mean and include any other person to be named in a Certificate authorized to act as a depository under the 1940 Act, its successor or successors and its nominee or nominees. (g) "Money Market Security" shall be deemed to include, without limitation, debt obligations issued or guaranteed as to interest and principal by the government of the United States or agencies or instrumentalities thereof ("U.S. government securities"), commercial paper, bank certificates of deposit, bankers' acceptances and short-term corporate obligations, where the purchase or sale of such securities normally requires settlement in federal funds on the same day as such purchase or sale, and repurchase and reverse repurchase agreements with respect to any of the foregoing types of securities and bank time deposits. (h) "Oral Instructions" shall mean verbal instructions actually received by the Custodian from a person reasonably believed by the Custodian to be an Authorized Person. (i) "Prospectus" shall mean the Fund's current prospectus and statement of additional information relating to the registration of the Fund's Shares under the Securities Act of 1933, as amended. (j) "Shares" shall mean all or any part of each class of shares of beneficial interest of the Fund, allocated to a particular Series, listed in the Certificate annexed hereto as Appendix B, as it may be amended from time to time, which from time to time are authorized and/or issued by the Fund. (k) "Security" or "Securities" shall be deemed to include bonds, debentures, notes, stocks, shares, evidences of indebtedness, and other securities, commodities interests and investments from time to time owned by the Fund. (l) "Transfer Agent" shall mean the person which performs the transfer agent, dividend disbursing agent and shareholder servicing agent functions for the Fund. (m) "Written Instructions" shall mean a written communication actually received by the Custodian from a person reasonably believed by the Custodian to be an Authorized Person by any system, including, without limitation, electronic transmissions, facsimile and telex, whereby the receiver of such communication is able to verify by codes or otherwise with a reasonable degree of certainty the authenticity of the sender of such communication. (n) The "1940 Act" refers to the Investment Company Act of 1940, and the Rules and Regulations thereunder, all as amended from time to time. 2. APPOINTMENT OF CUSTODIAN. ------------------------ (a) The Fund hereby constitutes and appoints the Custodian as custodian of all the Securities and monies at the time owned by or in the possession of the Fund during the period of this Agreement. (b) The Custodian hereby accepts appointment as such custodian and agrees to perform the duties thereof as hereinafter set forth. -2- 3. COMPENSATION. ------------ (a) The Fund will compensate the Custodian for its services rendered under this Agreement in accordance with the fees set forth in the Fee Schedule annexed hereto as Schedule 2 and incorporated herein. Such Fee Schedule does not include out-of-pocket disbursements of the Custodian for which the Custodian shall be entitled to bill separately. Out-of-pocket disbursements shall consist of the items specified in the Schedule of Out-of-pocket charges annexed hereto as Schedule 3 and incorporated herein, which schedule may be modified by the Custodian upon not less than thirty days prior written notice to the Fund. (b) Any compensation agreed to hereunder may be adjusted from time to time by attaching to Schedule 2 of this Agreement a revised Fee Schedule, dated and signed by an Authorized Officer or authorized representative of each party hereto. (c) The Custodian will bill the Fund as soon as practicable after the end of each calendar month, and said billings will be detailed in accordance with Schedule 2, as amended from time to time. The Fund will promptly pay to the Custodian the amount of such billing. The Custodian may charge against any monies held on behalf of the Fund pursuant to this Agreement such compensation and disbursements incurred by the Custodian in the performance of its duties pursuant to this Agreement. The Custodian shall also be entitled to charge against any money held on behalf of the Fund pursuant to this Agreement the amount of any loss, damage, liability or expense incurred with respect to the Fund, including counsel fees, for which it shall be entitled to reimbursement under the provisions of this Agreement. 4. CUSTODY OF CASH AND SECURITIES. ------------------------------ (a) RECEIPT AND HOLDING OF ASSETS. The Fund will deliver or cause to be delivered to the Custodian or its permitted Sub-Custodians all Securities and monies owned by the Series at any time during the period of this Agreement and shall specify the Series to which the same are to be specifically allocated. The Custodian will not be responsible for such Securities and monies until actually received by it. The Fund shall instruct the Custodian from time to time in its sole discretion, by means of Written Instructions, or, in connection with the purchase or sale of Money Market Securities, by means of Oral Instructions confirmed in writing in accordance with Section 11(h) hereof or Written Instructions, as to the manner in which and in what amounts Securities and monies are to be deposited on behalf of the Series in the Book-Entry System or the Depository. Securities and monies of such Series deposited in the Book-Entry System or the Depository will be represented in accounts which include only assets held by the Custodian for customers, including but not limited to accounts for which the Custodian acts in a fiduciary or representative capacity. (b) ACCOUNTS AND DISBURSEMENTS. The Custodian shall establish and maintain a separate account for the Fund with respect to each Series and shall credit to the separate account all monies received by it for the account of the Fund with respect to such Series and shall disburse the same only: 1. In payment for Securities purchased for the Series, as provided in Section 5 hereof; 2. In payment of dividends or distributions with respect to the Shares, as provided in Section 7 hereof; -3- 3. In payment of original issue or other taxes with respect to the Shares, as provided in Section 8 hereof; 4. In payment for Shares which have been redeemed by the Fund, as provided in Section 8 hereof; 5. Pursuant to a Certificate setting forth the name and address of the person to whom the payment is to be made, the Series account from which payment is to be made, the amount to be paid and the purpose for which payment is to be made, provided that in the event of disbursements pursuant to this paragraph 5 of Section 4(b), the Fund shall indemnify and hold the Custodian harmless from any claims or losses arising out of such disbursements in reliance on such Certificate; or 6. In payment of fees and in reimbursement of the expenses and liabilities of the Custodian attributable to the Fund, as provided in Sections 3 and 11(i). (c) CONFIRMATION AND STATEMENTS. Promptly after the close of business on each day, the Custodian shall furnish the Fund with confirmations and a summary of all transfers to or from the account of each Series during said day. Where securities purchased by a Series are in a fungible bulk of securities registered in the name of the Custodian (or its nominee) or shown on the Custodian's account on the books of the Depository or the Book-Entry System, the Custodian shall by book-entry or otherwise identify the quantity of those securities belonging to such Series. At least monthly, the Custodian shall furnish the Fund with a detailed statement of the Securities and monies held for each Series under this Agreement. (d) REGISTRATION OF SECURITIES AND PHYSICAL SEPARATION. All Securities held for a Series which are issued or issuable only in bearer form, except such Securities as are held in the Book-Entry System, shall be held by the Custodian in that form; all other Securities held for a Series may be registered in the name of such Series, in the name of the Custodian, in the name of any duly appointed registered nominee of the Custodian as the Custodian may from time to time determine, or in the name of the Book-Entry System or the Depository or their successor or successors, or their nominee or nominees. The Fund reserves the right to instruct the Custodian as to the method of registration and safekeeping of the Securities. The Fund agrees to furnish to the Custodian appropriate instruments to enable the Custodian to hold or deliver in proper form for transfer, or to register in the name of its registered nominee or in the name of the Book-Entry System or the Depository, any Securities which it may hold for the account of a Series and which may from time to time be registered in the name of such Series. The Custodian shall hold all such Securities specifically allocated to a Series which are not held in the Book-Entry System or the Depository in a separate account for the Fund in the name of such Series physically segregated at all times from those of any other person or persons. (e) SEGREGATED ACCOUNTS. Upon receipt of a Certificate, the Custodian will establish segregated accounts on behalf of each Series to hold liquid or other assets as it shall be directed by a Certificate and shall increase or decrease the assets in such segregated accounts only as it shall be directed by subsequent Certificate. (f) COLLECTION OF INCOME AND OTHER MATTERS AFFECTING SECURITIES. Unless otherwise instructed to the contrary by a Certificate, the Custodian by itself, or through the use of the Book-Entry System or the Depository with respect to Securities therein deposited, shall with respect to all Securities held for each Series in accordance with this Agreement: -4- 1. Collect all income due or payable; 2. Present for payment and collect the amount payable upon all Securities which may mature or be called, redeemed, retired or otherwise become payable. Notwithstanding the foregoing, the Custodian only shall have such responsibility to the Fund for Securities which are called if either (i) the Custodian received a written notice of such call; or (ii) notice of such call appears in one or more of the publications listed in Appendix C annexed hereto, which may be amended at any time by the Custodian upon five (5) Business Days prior notification to the Fund; 3. Surrender Securities in temporary form for definitive Securities; 4. Execute any necessary declarations or certificates of ownership under the Federal income tax laws or the laws or regulations of any other taxing authority now or hereafter in effect; and 5. Hold directly, or through the Book-Entry System or the Depository with respect to Securities therein deposited, for the account of each Series all rights and similar Securities issued with respect to any Securities held by the Custodian hereunder for the Series. (g) DELIVERY OF SECURITIES AND EVIDENCE OF AUTHORITY. Upon receipt of a Certificate, the Custodian, directly or through the use of the Book-Entry System or the Depository, shall: 1. Execute and deliver or cause to be executed and delivered to such persons as may be designated in such Certificate, proxies, consents, authorizations, and any other instruments whereby the authority of the Fund as owner of any Securities may be exercised; 2. Deliver or cause to be delivered any Securities held for the Series in exchange for other Securities or cash issued or paid in connection with the liquidation, reorganization, refinancing, merger, consolidation or recapitalization of any corporation, or the exercise of any conversion privilege; 3. Deliver or cause to be delivered any Securities held for the Series to any protective committee, reorganization committee or other person in connection with the reorganization, refinancing, merger, consolidation or recapitalization or sale of assets of any corporation, and receive and hold under the terms of this Agreement in the separate account for the Series such certificates of deposit, interim receipts or other instruments or documents as may be issued to it to evidence such delivery; 4. Make or cause to be made such transfers or exchanges of the assets specifically allocated to the separate account of the Series and take such other steps as shall be stated in a Certificate to be for the purpose of effectuating any duly authorized plan of liquidation, reorganization, merger, consolidation or recapitalization of the Fund; 5. Deliver Securities upon the receipt of payment in connection with any repurchase agreement related to such Securities entered into by the Fund; -5- 6. Deliver Securities owned by the Series to the issuer thereof or its agent when such Securities are called or otherwise become payable. Notwithstanding the foregoing, the Custodian shall have no responsibility for monitoring or ascertaining any call, redemption or retirement dates with respect to put bonds which are owned by the Series and held by the Custodian or its nominees. Nor shall the Custodian have any responsibility or liability to the Fund for any loss by the Series for any missed payments or other defaults resulting therefrom; unless the Custodian received timely notification from the Fund specifying the time, place and manner for the presentment of any such put bond owned by the Series and held by the Custodian or its nominee. The Custodian shall not be responsible and assumes no liability to the Fund for the accuracy or completeness of any notification the Custodian may furnish to the Fund with respect to put bonds; 7. Deliver Securities for delivery in connection with any loans of Securities made by the Series but only against receipt of adequate collateral as agreed upon from time to time by the Custodian and the Fund which may be in the form of cash or U.S. government securities or a letter of credit; 8. Deliver Securities for delivery as security in connection with any borrowings by the Series requiring a pledge of Fund assets, but only against receipt of amounts borrowed; 9. Deliver Securities upon receipt of a Certificate from the Fund for delivery to the Transfer Agent or to the holders of Shares in connection with distributions in kind, as may be described from time to time in the Fund's Prospectus, in satisfaction of requests by holders of Shares for repurchase or redemption; 10. Deliver Securities as collateral in connection with short sales by the Series of common stock for which the Series owns the stock or owns preferred stocks or debt securities convertible or exchangeable, without payment or further consideration, into shares of the common stock sold short; 11. Deliver Securities for any purpose expressly permitted by and in accordance with procedures described in the Fund's Prospectus; and 12. Deliver Securities for any other proper business purpose, but only upon receipt of, in addition to Written Instructions, a certified copy of a resolution of the Fund's Board signed by an Authorized Person and certified by the Secretary of the Fund, specifying the Securities to be delivered, setting forth the purpose for which such delivery is to be made, declaring such purpose to be a proper business purpose, and naming the person or persons to whom delivery of such Securities shall be made. (h) ENDORSEMENT AND COLLECTION OF CHECKS, ETC. The Custodian is hereby authorized to endorse and collect all checks, drafts or other orders for the payment of money received by the Custodian for the account of the Series. -6- 5. PURCHASE AND SALE OF INVESTMENTS. -------------------------------- (a) Promptly after each purchase of Securities by the Fund, the Fund shall deliver to the Custodian (i) with respect to each purchase of Securities which are not Money Market Securities, a Certificate; and (ii) with respect to each purchase of Money Market Securities, either a Written Instruction or Oral Instruction, in either case specifying with respect to each purchase: (1) the Series to which the Securities purchased are to be specifically allocated; (2) the name of the issuer and the title of the Securities; (3) the number of shares or the principal amount purchased and accrued interest, if any; (4) the date of purchase and settlement; (5) the purchase price per unit; (6) the total amount payable upon such purchase; (7) the name of the person from whom or the broker through whom the purchase was made, if any; and (8) whether or not such purchase is to be settled through the Book-Entry System or the Depository. The Custodian shall receive the Securities purchased by or for such Series and upon receipt of Securities shall pay out of the monies held for the account of such Series the total amount payable upon such purchase, provided that the same conforms to the total amount payable as set forth in such Certificate, Written or Oral Instruction. (b) Promptly after each sale of Securities by the Fund, the Fund shall deliver to the Custodian (i) with respect to each sale of Securities which are not Money Market Securities, a Certificate, and (ii) with respect to each sale of Money Market Securities, either Written Instruction or Oral Instructions, in either case specifying with respect to such sale: (1) the Series to which such Securities sold were specifically allocated; (2) the name of the issuer and the title of the Securities; (3) the number of shares or principal amount sold, and accrued interest, if any; (4) the date of sale; (5) the sale price per unit; (6) the total amount payable to such Series upon such sale; (7) the name of the broker through whom or the person to whom the sale was made; and (8) whether or not such sale is to be settled through the Book-Entry System or the Depository. The Custodian shall deliver or cause to be delivered the Securities to the broker or other person designated by the Fund upon receipt of the total amount payable to such Series upon such sale, provided that the same conforms to the total amount payable to the Series as set forth in such Certificate, Written or Oral Instruction. Subject to the foregoing, the Custodian may accept payment in such form as shall be satisfactory to it, and may deliver Securities and arrange for payment in accordance with the customs prevailing among dealers in Securities. 6. LENDING OF SECURITIES. --------------------- If the Fund is permitted by the terms of its organization documents and as disclosed in its Prospectus to lend securities, within 24 hours after each loan of Securities, the Fund shall deliver to the Custodian a Certificate specifying with respect to each such loan: (a) the Series to which the Securities to be loaned are specifically allocated; (b) the name of the issuer and the title of the Securities; (c) the number of shares or the principal amount loaned; (d) the date of loan and delivery; (e) the total amount to be delivered to the Custodian, and specifically allocated against the loan of the Securities, including the amount of cash collateral and the premium, if any, separately identified; and (f) the name of the broker, dealer or financial institution to which the loan was made. Promptly after each termination of a loan of Securities, the Fund shall deliver to the Custodian a Certificate specifying with respect to each such loan termination and return of Securities: (a) the Series to which the Securities to be returned are specifically allocated; (b) the name of the issuer and the title of the Securities to be returned; (c) the number of shares or the principal amount to be returned; (d) the date of termination; (e) the total amount to be delivered by the Custodian -7- (including the cash collateral for such Securities minus any offsetting credits as described in said Certificate); and (f) the name of the broker, dealer or financial institution from which the Securities will be returned. The Custodian shall receive all Securities returned from the broker, dealer or financial institution to which such Securities were loaned and upon receipt thereof shall pay the total amount payable upon such return of Securities as set forth in the Certificate. Securities returned to the Custodian shall be held as they were prior to such loan. 7. PAYMENT OF DIVIDENDS OR DISTRIBUTIONS. ------------------------------------- (a) For each Series, the Fund shall furnish to the Custodian a Certificate specifying the date of payment of any dividend or distribution, and the total amount payable to the Transfer Agent on the payment date. (b) Upon the payment date specified in such Certificate, the Custodian shall pay out of the monies held for the account of the Series the total amount payable to the Transfer Agent of the Fund. 8. SALE AND REDEMPTION OF SHARES. ----------------------------- (a) Whenever the Fund shall sell any Shares, or whenever any Shares are redeemed, the Fund shall deliver or cause to be delivered to the Custodian a Written Instruction from the Transfer Agent duly specifying: 1. The net amount of money to be received by the Custodian, where the sale of such Shares exceeds redemption; and 2. The net amount of money to be paid for such Shares, where redemptions exceed purchases. The Custodian understands and agrees that Written Instructions may be furnished subsequent to the purchase of Shares and that the information contained therein will be derived from the sales of Shares as reported to the Fund by the Transfer Agent. (b) Upon receipt of money from the Transfer Agent, the Custodian shall credit such money to the separate account of the Series. (c) Upon issuance of any Shares in accordance with the foregoing provisions of this Section 8, the Custodian shall pay all original issue or other taxes required to be paid for the account of the Series in connection with such issuance upon the receipt of a Written Instruction specifying the amount to be paid. (d) Upon receipt from the Transfer Agent of Written Instructions setting forth the net amount of money to be paid for Shares received by the Transfer Agent for redemption, the Custodian shall make payment to the Transfer Agent of such net amount out of the monies held for the account of the Series. -8- 9. INDEBTEDNESS. ------------ (a) The Fund will cause to be delivered to the Custodian by any bank (excluding the Custodian) from which the Fund borrows money for investment or for temporary administrative or emergency purposes using Securities as collateral for such borrowings, a notice or undertaking in the form currently employed by any such bank setting forth the amount which such bank will loan to the Fund against delivery of a stated amount of collateral. The Fund shall promptly deliver to the Custodian a Certificate stating with respect to each such borrowing: (1) the Series to which the borrowing relates; (2) the name of the bank; (3) the amount and terms of the borrowing, which may be set forth by incorporating by reference an attached promissory note, duly endorsed by the Fund, or other loan agreement; (4) the time and date, if known, on which the loan is to be entered into (the "borrowing date"); (5) the date on which the loan becomes due and payable; (6) the total amount payable to the Fund for the account of such Series on the borrowing date; (7) the market value of Securities to be delivered as collateral for such loan, including the name of the issuer, the title and the number of shares or the principal amount of any particular Securities; and (8) a statement that such loan is in conformance with the 1940 Act and the Fund's Prospectus. (b) Upon receipt of the Certificate referred to in subparagraph (a) above, the Custodian shall deliver on the borrowing date the specified collateral and the executed promissory note, if any, against delivery by the lending bank of the total amount of the loan payable, provided that the same conforms to the total amount payable as set forth in the Certificate. The Custodian may, at the option of the lending bank, keep such collateral in its possession, but such collateral shall be subject to all rights therein given the lending bank by virtue of any promissory note or loan agreement. The Custodian shall deliver as additional collateral in the manner directed by the Fund from time to time such Securities as may be specified in the Certificate to collateralize further any transaction described in this Section 9. The Fund shall cause all Securities released from collateral status to be returned directly to the Custodian, and the Custodian shall receive from time to time such return of collateral as may be tendered to it. In the event that the Fund fails to specify in the Certificate all of the information required by this Section 9, the Custodian shall not be under any obligation to deliver any Securities. Collateral returned to the Custodian shall be held hereunder as it was prior to being used as collateral. 10. PERSONS HAVING ACCESS TO ASSETS OF THE FUND. ------------------------------------------- (a) No Board member or agent of the Fund, and no officer, director, employee or agent of the Fund's investment adviser, of any sub-investment adviser of the Fund, or of the Fund's administrator, shall have physical access to the assets of the Fund held by the Custodian or be authorized or permitted to withdraw any investments of the Fund, nor shall the Custodian deliver any assets of the Fund to any such person. No officer, director, employee or agent of the Custodian who holds any similar position with the Fund's investment adviser, with any sub-investment adviser of the Fund or with the Fund's administrator shall have access to the assets of the Fund. (b) Nothing in this Section 10 shall prohibit any duly authorized officer, employee or agent of the Fund, or any duly authorized officer, director, employee or agent of the investment adviser, of any sub-investment adviser of the Fund or of the Fund's administrator, from giving Oral Instructions or Written Instructions to the Custodian or executing a Certificate so long as it does not result in delivery of or access to assets of the Fund prohibited by Section 10(a). -9- 11. CONCERNING THE CUSTODIAN. ------------------------ (a) STANDARD OF CONDUCT. Notwithstanding any other provision of this Agreement, neither the Custodian nor its nominee shall be liable for any loss or damage, including counsel fees, resulting from its action or omission to act or otherwise, except for any such loss or damage arising out of the negligence, misfeasance or willful misconduct of the Custodian or any of its employees, Sub-Custodians or agents. The Custodian may, with respect to questions of law, apply for and obtain the advice and opinion of counsel to the Fund or of its own counsel, at the expense of the Fund, and shall be fully protected with respect to anything done or omitted by it in good faith in conformity with such advice or opinion. The Custodian shall not be liable to the Fund for any loss or damage resulting from the use of the Book-Entry System or the Depository, except to the extent such loss or damage arises by reason of any negligence, misfeasance or willful misconduct on the part of the Custodian or any of its employees or agents. (b) LIMIT OF DUTIES. Without limiting the generality of the foregoing, the Custodian shall be under no duty or obligation to inquire into, and shall not be liable for: 1. The validity of the issue of any Securities purchased by the Fund, the legality of the purchase thereof, or the propriety of the amount paid therefor; 2. The legality of the sale of any Securities by the Fund or the propriety of the amount for which the same are sold; 3. The legality of the issue or sale of any Shares, or the sufficiency of the amount to be received therefor; 4. The legality of the redemption of any Shares, or the propriety of the amount to be paid therefor; 5. The legality of the declaration or payment of any distribution of the Fund; or 6. The legality of any borrowing for temporary or emergency administrative purposes. (c) NO LIABILITY UNTIL RECEIPT. The Custodian shall not be liable for, or considered to be the Custodian of, any money, whether or not represented by any check, draft, or other instrument for the payment of money, received by it on behalf of the Fund until the Custodian actually receives and collects such money directly or by the final crediting of the account representing the Fund's interest in the Book-Entry System or the Depository. (d) AMOUNTS DUE FROM TRANSFER AGENT. The Custodian shall not be under any duty or obligation to take action to effect collection of any amount due to the Fund from the Transfer Agent nor to take any action to effect payment or distribution by the Transfer Agent of any amount paid by the Custodian to the Transfer Agent in accordance with this Agreement. (e) COLLECTION WHERE PAYMENT REFUSED. The Custodian shall not be under any duty or obligation to take action to effect collection of any amount, if the Securities upon which such amount is payable are in default, or if payment is refused after due demand or presentation, unless and until (a) it shall be directed to take such action by a Certificate and (b) it shall be assured to its satisfaction of reimbursement of its costs and expenses in connection with any such action. -10- (f) APPOINTMENT OF AGENTS AND SUB-CUSTODIANS. The Custodian may appoint one or more banking institutions, including but not limited to banking institutions located in foreign countries, to act as Depository or Depositories or as Sub-Custodian or as Sub-Custodians of Securities and monies at any time owned by the Fund. The Custodian shall use reasonable care in selecting a Depository and/or Sub-Custodian located in a country other than the United States ("Foreign Sub-Custodian"), which selection shall be in accordance with the requirements of Rule 17f-5 under the 1940 Act, and shall oversee the maintenance of any Securities or monies of the Fund by any Foreign Sub-Custodian. In addition, the Custodian shall hold the Fund harmless from, and indemnify the Fund against, any loss, action, claim, demand, expense and proceeding, including counsel fees, that occurs as a result of the failure of any Foreign Sub-Custodian or Depository to exercise reasonable care with respect to the safekeeping of Securities and monies of the Fund. Notwithstanding the generality of the foregoing, however, the Custodian shall not be liable for any losses resulting from the general risk of investing or holding Securities and monies in a particular country, including, but not limited to, losses resulting from nationalization, expropriation, devaluation, revaluation, confiscation, seizure, cancellation, destruction or similar action by any governmental authority, de facto or de jure; or enactment, promulgation, imposition or enforcement by any such governmental authority of currency restrictions, exchange controls, taxes, levies or other charges affecting the Fund's property; or acts of war, terrorism, insurrection or revolution; or any other similar act or event beyond the Custodian's control. (g) NO DUTY TO ASCERTAIN AUTHORITY. The Custodian shall not be under any duty or obligation to ascertain whether any Securities at any time delivered to or held by it for the Fund are such as may properly be held by the Fund under the provisions of its organization documents and the Prospectus. (h) RELIANCE ON CERTIFICATES AND INSTRUCTIONS. The Custodian shall be entitled to rely upon any Certificate, notice or other instrument in writing received by the Custodian and reasonably believed by the Custodian to be genuine and to be signed by an officer or Authorized Person of the Fund. The Custodian shall be entitled to rely upon any Written Instructions or Oral Instructions actually received by the Custodian pursuant to the applicable Sections of this Agreement and reasonably believed by the Custodian to be genuine and to be given by an Authorized Person. The Fund agrees to forward to the Custodian Written Instructions from an Authorized Person confirming such Oral Instructions in such manner so that such Written Instructions are received by the Custodian, whether by hand delivery, telex or otherwise, by the close of business on the same day that such Oral Instructions are given to the Custodian. The Fund agrees that the fact that such confirming instructions are not received by the Custodian shall in no way affect the validity of the transactions or enforceability of the transactions hereby authorized by the Fund. The Fund agrees that the Custodian shall incur no liability to the Fund in acting upon Oral Instructions given to the Custodian hereunder concerning such transactions provided such instructions reasonably appear to have been received from a duly Authorized Person. (i) OVERDRAFT FACILITY AND SECURITY FOR PAYMENT. In the event that the Custodian is directed by Written Instruction (or Oral Instructions confirmed in writing in accordance with Section 11(h) hereof) to make any payment or transfer of monies on behalf of a Series for which there would be, at the close of business on the date of such payment or transfer, insufficient monies held by the Custodian on behalf of such Series, the Custodian may, in its sole discretion, provide an overdraft (an "Overdraft") to the Fund in an amount sufficient to allow the completion of -11- such payment or transfer. Any Overdraft provided hereunder: (a) shall be payable on the next Business Day, unless otherwise agreed by the Fund and the Custodian; and (b) shall accrue interest from the date of the Overdraft to the date of payment in full by the Fund at a rate agreed upon in writing, from time to time, by the Custodian and the Fund. The Custodian and the Fund acknowledge that the purpose of such Overdraft is to temporarily finance the purchase of Securities for prompt delivery in accordance with the terms hereof, to meet unanticipated or unusual redemption, to allow the settlement of foreign exchange contracts or to meet other emergency expenses not reasonably foreseeable by the Fund. The Custodian shall promptly notify the Fund in writing (an "Overdraft Notice") of any Overdraft by facsimile transmission or in such other manner as the Fund and the Custodian may agree in writing. To secure payment of any Overdraft, the Fund hereby grants to the Custodian a continuing security interest in and right of setoff against the Securities and cash in the Series' account from time to time in the full amount of such Overdraft. Should the Fund fail to pay promptly any amounts owed hereunder, the Custodian shall be entitled to use available cash in the Series' account and to liquidate Securities in the account as is necessary to meet the Fund's obligations under the Overdraft. In any such case, and without limiting the foregoing, the Custodian shall be entitled to take such other actions(s) or exercise such other options, powers and rights as the Custodian now or hereafter has as a secured creditor under the Pennsylvania Uniform Commercial Code or any other applicable law. (j) INSPECTION OF BOOKS AND RECORDS. The books and records of the Custodian shall be open to inspection and audit at reasonable times by officers and auditors employed by the Fund and by the appropriate employees of the Securities and Exchange Commission. The Custodian shall provide the Fund with any report obtained by the Custodian on the system of internal accounting control of the Book-Entry System or the Depository and with such reports on its own systems of internal accounting control as the Fund may reasonably request from time to time. 12. TERM AND TERMINATION. --------------------- (a) This Agreement shall become effective on the date first set forth above (the "Effective Date") and shall continue in effect thereafter until such time as this Agreement may be terminated in accordance with the provisions hereof. (b) Either of the parties hereto may terminate this Agreement by giving to the other party a notice in writing specifying the date of such termination, which shall be not less than 60 days after the date of receipt of such notice. In the event such notice is given by the Fund, it shall be accompanied by a certified vote of the Fund's Board, electing to terminate this Agreement and designating a successor custodian or custodians, which shall be a person qualified to so act under the 1940 Act. In the event such notice is given by the Custodian, the Fund shall, on or before the termination date, deliver to the Custodian a certified vote of the Fund's Board, designating a successor custodian or custodians. In the absence of such designation by the Fund, the Custodian may designate a successor custodian, which shall be a person qualified to so act under the 1940 Act. If the Fund fails to designate a successor custodian, the Fund shall upon the date specified in the notice of termination of this Agreement and upon the delivery by the Custodian of all Securities (other than Securities held in the Book-Entry System which cannot be delivered to the Fund) and monies then owned by the Fund, be deemed to be its own custodian and the Custodian shall thereby be relieved of all duties and responsibilities pursuant to this Agreement, other than the duty with respect to Securities held in the Book-Entry System which cannot be delivered to the Fund. -12- (c) Upon the date set forth in such notice under paragraph (b) of this Section 12, this Agreement shall terminate to the extent specified in such notice, and the Custodian shall upon receipt of a notice of acceptance by the successor custodian on that date deliver directly to the successor custodian all Securities and monies then held by the Custodian on behalf of the Fund, after deducting all fees, expenses and other amounts for the payment or reimbursement of which it shall then be entitled. 13. LIMITATION OF LIABILITY. ------------------------ The Fund and the Custodian agree that the obligations of the Fund under this Agreement shall not be binding upon any of the Board members, shareholders, nominees, officers, employees or agents, whether past, present or future, of the Fund, individually, but are binding only upon the assets and property of the Fund. The execution and delivery of this Agreement have been authorized by the Fund's Board members, and signed by an authorized officer of the Fund, acting as such, and neither such authorization by such Board members nor such execution and delivery by such officer shall be deemed to have been made by any of them or any shareholder of the Fund individually or to impose any liability on any of them or any shareholder of the Fund personally, but shall bind only the assets and property of the Fund. 14. MISCELLANEOUS. -------------- (a) Annexed hereto as Appendix A is a certification signed by the Secretary of the Fund setting forth the names and the signatures of the present Authorized Persons. The Fund agrees to furnish to the Custodian a new certification in similar form in the event that any such present Authorized Person ceases to be such an Authorized Person or in the event that other or additional Authorized Persons are elected or appointed. Until such new certification shall be received, the Custodian shall be fully protected in acting under the provisions of this Agreement upon Oral Instructions or signatures of the present Authorized Persons as set forth in the last delivered certification. (b) Annexed hereto as Appendix D is a certification signed by the Secretary of the Fund setting forth the names and the signatures of the present officers of the Fund. The Fund agrees to furnish to the Custodian a new certification in similar form in the event any such present officer ceases to be an officer of the Fund or in the event that other or additional officers are elected or appointed. Until such new certification shall be received, the Custodian shall be fully protected in acting under the provisions of this Agreement upon the signature of an officer as set forth in the last delivered certification. (c) Any notice or other instrument in writing, authorized or required by this Agreement to be given to the Custodian, shall be sufficiently given if addressed to the Custodian and mailed or delivered to it at its offices at One Mellon Bank Center, Pittsburgh, PA 15258 or at such other place as the Custodian may from time to time designate in writing. (d) Any notice or other instrument in writing, authorized or required by this Agreement to be given to the Fund, shall be sufficiently given if addressed to the Fund and mailed or delivered to it at its offices at 200 Park Avenue, New York, New York 10166 or at such other place as the Fund may from time to time designate in writing. (e) This Agreement may not be amended or modified in any manner except by a written agreement executed by both parties with the same formality as this Agreement, (i) authorized, or ratified and approved by a vote of the Fund's -13- Board, including a majority of the Board members who are not "interested persons" of the Fund (as defined in the 1940 Act), or (ii) authorized, or ratified and approved by such other procedures as may be permitted or required by the 1940 Act. (f) This Agreement shall extend to and shall be binding upon the parties hereto, and their respective successors and assigns; provided, however, that this Agreement shall not be assignable by the Fund without the written consent of the Custodian, or by the Custodian without the written consent of the Fund authorized or approved by a vote of the Fund's Board. Nothing in this Agreement shall give or be construed to give or confer upon any third party any rights hereunder. (g) The Fund represents that copies of its organization documents are on file with the Secretary of the Commonwealth of Massachusetts. (h) This Agreement shall be construed in accordance with the laws of the Commonwealth of Pennsylvania. (i) The captions of the Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. (j) This agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one instrument. -14- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective representatives duly authorized as of the day and year first above written. MPAM FUNDS TRUST, on behalf of the Series listed on Schedule 1 By: /s/ Jeff Prusnofsky ----------------------------------- Name: Jeff Prusnofsky Title: Secretary MELLON BANK, N.A. By: /s/ Chris Healy ----------------------------------- Name: Chris Healy Title: First Vice President -15- SCHEDULE 1 NAME OF SERIES - -------------- MPAM Large Cap Stock Fund MPAM Income Stock Fund MPAM Mid Cap Stock Fund MPAM Small Cap Stock Fund MPAM Bond Fund MPAM Intermediate Bond Fund MPAM Short-Term U.S. Government Securities Fund MPAM National Intermediate Municipal Bond Fund MPAM National Short-Term Municipal Bond Fund MPAM Pennsylvania Intermediate Municipal Bond Fund MPAM Balanced Fund -16-
SCHEDULE 2 I. ASSET BASED CHARGES A. U.S. SECURITIES (NET ASSET VALUE) First $1 Billion 0.70 Basis Points Next $1 Billion 0.50 Basis Points Excess 0.25 Basis Points B. INTERNATIONAL SECURITIES (MARKET VALUE) Foreign Assets in all funds will be totaled by country and charged a basis point fee by category. Euroclear 5.00 Basis Points Category I 8.00 Basis Points Category II 14.00 Basis Points Category III 16.00 Basis Points Category IV 45.00 Basis Points (A complete listing of countries is on page 2 of this fee schedule) II. TRANSACTION CHARGES A. DOMESTIC U.S. Buy/Sell transaction (DTC, PTC, Fed) $7.00 Physical U.S. Buy/Sell transaction $20 -17- B. INTERNATIONAL Euroclear $ 25 Category I $ 35 Category II $ 60 Category III $ 80 Category IV $100 C. OTHER TRANSACTIONS Futures Transaction $ 8 Paydown Transaction $ 5 Margin Variation Wire $ 10 F/X not executed at BSDT $ 20 Options Round Trip $ 20 Wire Transfer $ 5
III. The Custodian reserves the right to amend its fees if the service requirements change in a way that materially affects our responsibilities or costs. Support of other derivative investment strategies or special processing requirements (e.g., external cash sweep, third party securities lending etc.) may result in additional fees. -18- IV. COUNTRY BY COUNTRY CATEGORIES:
CATEGORY I CATEGORY II CATEGORY III CATEGORY IV Australia Argentina Austria Bangladesh Belgium Denmark Indonesia Brazil Canada Finland Israel Colombia France Hong Kong South Korea China Germany Malaysia Philippines Czech Republic Ireland Mexico Singapore Greece Italy Norway Thailand India Japan Spain Jordan Netherlands Luxembourg New Zealand Pakistan South Africa Peru Sweden Poland Switzerland Portugal United Kingdom Sri Lanka Cedel Taiwan Turkey Uruguay Venezuela Egypt
-19- SCHEDULE 3 The Custodian will pass through to the client any out-of-pocket expenses including, but not limited to, postage, courier expense, registration fees, stamp duties telex charges, custom reporting or custom programming, internal/external tax, legal or consulting costs, proxy voting expenses, etc. The Fund will pay to the Custodian as soon as possible after the end of each month all out-of-pocket expenses reasonably incurred in connection with the assets of the Fund. -20- APPENDIX A I, Jeff Prusnofsky, Secretary of the Fund, do hereby certify that: The following individuals have been duly authorized as Authorized Persons to give Oral Instructions and Written Instructions on behalf of the Fund and the specimen signatures set forth opposite their respective names are their true and correct signatures: NAME SIGNATURE - ---- --------- SEE APPENDIX A-1 MPAM FUNDS TRUST, on behalf of the Series listed on Schedule 1 /s/ Jeff Prusnofsky -------------------------- Jeff Prusnofsky, Secretary Dated: June 14, 2000 -21- APPENDIX A-1 MPAM LARGE CAP STOCK FUND MPAM INCOME STOCK FUND MPAM MID CAP STOCK FUND MPAM SMALL CAP STOCK FUND MPAM BALANCED FUND AUTHORIZED SIGNATORIES ---------------------- GROUP I GROUP II - ------- -------- Paul R. Casti, Jr., Michael Condon, Paul R. Casti, Jr., Michael Condon, William McDowell, Jean Farley, Christopher Condron, Joseph Gregory Gruber, Paul Molloy, James Connolly, Gregory Gruber, William Windels, Frank Brensic, Phyllis McDowell, James Windels, Paul Meiner, Robert Robol, Laura Molloy, William T. Sandalls, Jr., Sanderson, Lori McNab, Lucy Jean Farley and Robert Robol Dermezis, Rob Svagna, Michael Stalzer, Robert Salviolo and Erik Naviloff 1. Fees payable to Mellon Bank, N.A. or Boston Safe Deposit and Trust Company pursuant to written agreement with the Fund for services rendered in its capacity as Custodian or agent of the Fund, or to Dreyfus Transfer, Inc. in its capacity as Transfer Agent or agent of the Fund: Two (2) signatures required, one of which must be from Group II, except that no individual shall be authorized to sign more than once. 2. Other expenses of the Fund, $5,000 and under: Any combination of two (2) signatures from either Group I or Group II, or both such Groups, except that no individual shall be authorized to sign more than once. 3. Other expenses of the Fund, over $5,000 but not over $25,000: Two (2) signatures required, one of which must be from Group II, except that no individual shall be authorized to sign more than once. 4. Other expenses of the Fund, over $25,000: Two (2) signatures required, one from Group I or Group II, including any one of the following: Paul Molloy, Paul R. Casti, Jr., Christopher Condron, James Windels, Joseph Connolly or William T. Sandalls, Jr., except that no individual shall be authorized to sign more than once. CUSTODIAN ACCOUNT FOR PORTFOLIO SECURITIES TRANSACTIONS - ------------------------------------------------------- -22- Two (2) signatures required from any of the following: Veda Balli, Michelle Pressa, Lucy Dermezis, John Livanos. -23- APPENDIX A-1 MPAM BOND FUND MPAM INTERMEDIATE BOND FUND MPAM SHORT-TERM U.S. GOVERNMENT SECURITIES FUND AUTHORIZED SIGNATORIES ---------------------- GROUP I GROUP II - ------- -------- Paul R. Casti., Michael Condon, Paul R. Casti, Jr., Michael Condon, Joseph Bruno, Jean Farley, Gregory Christopher Condron, Joseph Gruber, Paul Molloy, James Windels, Connolly, Gregory Gruber, William William Maeder, Lori McNab, Phyllis McDowell, James Windels, Paul Meiner, William McDowell, Laura Molloy, William T. Sandalls, Jr., Sanderson, Lisa Waldman, Lucy Jean Farley and Robert Robol Dermezis and Robert Robol 1. Fees payable to Mellon Bank, N.A. or Boston Safe Deposit and Trust Company pursuant to written agreement with the Fund for services rendered in its capacity as Custodian or agent of the Fund, or to Dreyfus Transfer, Inc. in its capacity as Transfer Agent or agent of the Fund: Two (2) signatures required, one of which must be from Group II, except that no individual shall be authorized to sign more than once. 2. Other expenses of the Fund, $5,000 and under: Any combination of two (2) signatures from either Group I or Group II, or both such Groups, except that no individual shall be authorized to sign more than once. 3. Other expenses of the Fund, over $5,000 but not over $25,000: Two (2) signatures required, one of which must be from Group II, except that no individual shall be authorized to sign more than once. 4. Other expenses of the Fund, over $25,000: Two (2) signatures required, one from Group I or Group II, including any one of the following: Paul Molloy, Paul R. Casti, Jr., Christopher Condron, James Windels, Joseph Connolly or William T. Sandalls, Jr., except that no individual shall be authorized to sign more than once. -24- CUSTODIAN ACCOUNT FOR PORTFOLIO SECURITIES TRANSACTIONS - ------------------------------------------------------- Two (2) signatures required from any of the following: Cynthia Chan, Lori McNab, Vincent Grolli, Ken Nguyen, Maria DeVinney. -25- APPENDIX A-1 MPAM NATIONAL INTERMEDIATE MUNICIPAL BOND FUND MPAM NATIONAL SHORT-TERM MUNICIPAL BOND FUND MPAM PENNSYLVANIA INTERMEDIATE MUNICIPAL BOND FUND AUTHORIZED SIGNATORIES ---------------------- GROUP I GROUP II - ------- -------- Paul R. Casti, Jr., Jean Farley, Paul R. Casti, Jr., Michael Condon, Gregory Gruber, Paul Molloy, James William T. Sandalls, Jr., Windels, Laura Sanderson, Phyllis Christopher Condron, Joseph Meiner, Michael Condon, Lori McNab, Connolly, Gregory Gruber, James Richard Wiener, Richard Cassaro, Windels, Paul Molloy, Jean Farley, Steve Powanda, Lucy Dermezis, Robert Robol and William McDowell Robert Robol and William McDowell 1. Fees payable to Mellon Bank, N.A. or Boston Safe Deposit and Trust Company pursuant to written agreement with the Fund for services rendered in its capacity as Custodian or agent of the Fund, or to Dreyfus Transfer, Inc. in its capacity as Transfer Agent or agent of the Fund: Two (2) signatures required, one of which must be from Group II, except that no individual shall be authorized to sign more than once. 2. Other expenses of the Fund, $5,000 and under: Any combination of two (2) signatures from either Group I or Group II, or both such Groups, except that no individual shall be authorized to sign more than once. 3. Other expenses of the Fund, over $5,000 but not over $25,000: Two (2) signatures required, one of which must be from Group II, except that no individual shall be authorized to sign more than once. 4. Other expenses of the Fund, over $25,000: Two (2) signatures required, one from Group I or Group II, including any one of the following: Paul Molloy, Paul R. Casti, Jr., Christopher Condron, James Windels, Joseph Connolly or William T. Sandalls, Jr., except that no individual shall be authorized to sign more than once. -26- CUSTODIAN ACCOUNT FOR PORTFOLIO SECURITIES TRANSACTIONS - ------------------------------------------------------- Two (2) signatures required from any of the following: Cynthia Chan, Lori McNab, Vincent Grolli, Ken Nguyen, Maria DeVinney. -27- APPENDIX A-2 AUTHORIZED PERSONS: FOR PAYMENT OF BLUE SKY FEES 1. The Custodian shall be authorized to draw from the Fund's custodial account, upon request by the Dreyfus Legal Department and only upon compliance with these procedures for payment of state blue sky fees for the purpose of, including but not limited to, state notification or registration, exemption, amendment and filing fees. 2. The Dreyfus Legal Department shall prepare a Wire Transfer Authorization Form addressed to the Custodian that includes an attached invoice containing the following information: the name of the Fund, the Fund's internal code number, the amount to be funded, the state and type of filing, and the appropriate general ledger account. 3. Each Wire Transfer Authorization Form must be signed by two (2) of the following authorized Blue Sky Administrators: James Bitetto Joni L. Charatan Janette Farragher John Hammalian Mark N. Jacobs Emile Molineaux Robert R. Mullery Steven Newman Jeff Prusnofsky Michael Rosenberg Adam Scaramella -28- APPENDIX B I, Jeff Prusnofsky, Secretary of the Fund, do hereby certify that the only classes of shares of the Fund issued and/or authorized by the Fund as of the date of this Custody Agreement are shares of beneficial interest, without par value, as follows: MPAM Large Cap Stock Fund MPAM Income Stock Fund MPAM Mid Cap Stock Fund MPAM Small Cap Stock Fund MPAM Bond Fund MPAM Intermediate Bond Fund MPAM Short-Term U.S. Government Securities Fund MPAM National Intermediate Municipal Bond Fund MPAM National Short-Term Municipal Bond Fund MPAM Pennsylvania Intermediate Municipal Bond Fund MPAM Balanced Fund MPAM FUNDS TRUST, on behalf of the Series listed on Schedule 1 /s/ Jeff Prusnofsky -------------------------- Jeff Prusnofsky, Secretary Dated: June 14, 2000 -29- APPENDIX C The following are designated publications for purposes of paragraph 2 of Section 4 (f): The Bond Buyer Depository Trust and Clearing Corporation Notices Financial Daily Card Service New York Times Standard & Poor's Called Bond Record Wall Street Journal APPENDIX D I, Jeff Prusnofsky, Secretary of the Fund, do hereby certify that: The following individuals serve in the following positions with the Fund and each individual has been duly elected or appointed to each such position and qualified therefor in conformity with the Fund's Master Trust Agreement and the specimen signatures set forth opposite their respective names are their true and correct signatures: NAME POSITION SIGNATURE - ---- -------- --------- Patrick J. O'Connor Chairman of the Board David Lamere President Mark N. Jacobs Vice President Vernon Winter Vice President Jospeh Connolly Vice President and Treasurer Jeff Prusnofsky Secretary Steven F. Newman Assistant Secretary Michael A. Rosenberg Assistant Secretary -31- Gregory S. Gruber Assistant Treasurer William McDowell Assistant Treasurer James Windels Assistant Treasurer MPAM FUNDS TRUST, on behalf of the Series listed on Schedule 1 /s/ Jeff Prusnofsky ------------------------------------- Jeff Prusnofsky, Secretary Dated: June 14, 2000 -32- EX-99.G(2) 5 0005.txt CUSTODY AGREEMENT ----------------- AGREEMENT dated as of June 14, 2000, between MPAM FUNDS TRUST (the "Fund"), a business trust organized under the laws of the Commonwealth of Massachusetts, having its principal office and place of business at 200 Park Avenue, New York, New York 10166, and BOSTON SAFE DEPOSIT AND TRUST COMPANY (the "Custodian"), a Massachusetts trust company, having its principal place of business at One Boston Place, Boston, MA 02108, with respect to the Fund's series named on Schedule 1 hereto, as such Schedule may be revised from time to time (each, a "Series"). W I T N E S S E T H: - - - - - - - - - - That for and in consideration of the mutual promises hereinafter set forth, the Fund and the Custodian agree as follows: 1. Definitions. ----------- Whenever used in this Agreement or in any Schedules to this Agreement, the following words and phrases, unless the context otherwise requires, shall have the following meanings: (a) "Affiliated Person" shall have the meaning of the term within Section 2(a)(3) of the 1940 Act. (b) "Authorized Person" shall mean those persons duly authorized by the Fund's Board to give Oral Instructions and Written Instructions on behalf of the Fund and listed in the certification annexed hereto as Appendix A or such other certification as may be received by the Custodian from time to time. (c) "Book-Entry System" shall mean the Federal Reserve/Treasury book-entry system for United States and federal agency Securities, its successor or successors and its nominee or nominees, in which the Custodian is hereby specifically authorized and instructed on a continuous and on-going basis to deposit all Securities eligible for deposit therein, and to utilize the Book-Entry System to the extent possible in connection with its performance hereunder. (d) "Business Day" shall mean each day on which the Fund is required to determine its net asset value, and any other day on which the Securities and Exchange Commission may require the Fund to be open for business. (e) "Certificate" shall mean any notice, instruction or other instrument in writing, authorized or required by this Agreement to be given to the Custodian, which is actually received by the Custodian and signed on behalf of the Fund by any two Authorized Persons or any two officers of the Fund. (f) "Depository" shall mean Depository Trust and Clearing Corporation ("DTC"), a clearing agency registered with the Securities and Exchange Commission under Section 17A of the Securities Exchange Act of 1934, as amended, its successor or successors and its nominee or nominees, in which the Custodian is hereby specifically authorized and instructed on a continuous and on-going basis to deposit all Securities eligible for deposit therein, and to utilize the Depository to the extent possible in connection with its performance hereunder. The term "Depository" shall further mean and include any other person to be named in a Certificate authorized to act as a depository under the 1940 Act, its successor or successors and its nominee or nominees. (g) "Money Market Security" shall be deemed to include, without limitation, debt obligations issued or guaranteed as to interest and principal by the government of the United States or agencies or instrumentalities thereof ("U.S. government securities"), commercial paper, bank certificates of deposit, bankers' acceptances and short-term corporate obligations, where the purchase or sale of such securities normally requires settlement in federal funds on the same day as such purchase or sale, and repurchase and reverse repurchase agreements with respect to any of the foregoing types of securities and bank time deposits. (h) "Oral Instructions" shall mean verbal instructions actually received by the Custodian from a person reasonably believed by the Custodian to be an Authorized Person. (i) "Prospectus" shall mean the Fund's current prospectus and statement of additional information relating to the registration of the Fund's Shares under the Securities Act of 1933, as amended. (j) "Shares" shall mean all or any part of each class of shares of beneficial interest of the Fund, allocated to a particular Series, listed in the Certificate annexed hereto as Appendix B, as it may be amended from time to time, which from time to time are authorized and/or issued by the Fund. (k) "Security" or "Securities" shall be deemed to include bonds, debentures, notes, stocks, shares, evidences of indebtedness, and other securities, commodities interests and investments from time to time owned by the Fund. (l) "Transfer Agent" shall mean the person which performs the transfer agent, dividend disbursing agent and shareholder servicing agent functions for the Fund. (m) "Written Instructions" shall mean a written communication actually received by the Custodian from a person reasonably believed by the Custodian to be an Authorized Person by any system, including, without limitation, electronic transmissions, facsimile and telex, whereby the receiver of such communication is able to verify by codes or otherwise with a reasonable degree of certainty the authenticity of the sender of such communication. (n) The "1940 Act" refers to the Investment Company Act of 1940, and the Rules and Regulations thereunder, all as amended from time to time. 2. Appointment of Custodian. ------------------------ (a) The Fund hereby constitutes and appoints the Custodian as custodian of all the Securities and monies at the time owned by or in the possession of the Fund during the period of this Agreement. (b) The Custodian hereby accepts appointment as such custodian and agrees to perform the duties thereof as hereinafter set forth. -2- 3. Compensation. ------------ (a) The Fund will compensate the Custodian for its services rendered under this Agreement in accordance with the fees set forth in the Fee Schedule annexed hereto as Schedule 2 and incorporated herein. Such Fee Schedule does not include out-of-pocket disbursements of the Custodian for which the Custodian shall be entitled to bill separately. Out-of-pocket disbursements shall consist of the items specified in the Schedule of Out-of-pocket charges annexed hereto as Schedule 3 and incorporated herein, which schedule may be modified by the Custodian upon not less than thirty days prior written notice to the Fund. (b) Any compensation agreed to hereunder may be adjusted from time to time by attaching to Schedule 2 of this Agreement a revised Fee Schedule, dated and signed by an Authorized Officer or authorized representative of each party hereto. (c) The Custodian will bill the Fund as soon as practicable after the end of each calendar month, and said billings will be detailed in accordance with Schedule 2, as amended from time to time. The Fund will promptly pay to the Custodian the amount of such billing. The Custodian may charge against any monies held on behalf of the Fund pursuant to this Agreement such compensation and disbursements incurred by the Custodian in the performance of its duties pursuant to this Agreement. The Custodian shall also be entitled to charge against any money held on behalf of the Fund pursuant to this Agreement the amount of any loss, damage, liability or expense incurred with respect to the Fund, including counsel fees, for which it shall be entitled to reimbursement under the provisions of this Agreement. 4. Custody of Cash and Securities. ------------------------------ (a) Receipt and Holding of Assets. The Fund will deliver or cause to be delivered to the Custodian or its permitted Sub-Custodians all Securities and monies owned by the Series at any time during the period of this Agreement and shall specify the Series to which the same are to be specifically allocated. The Custodian will not be responsible for such Securities and monies until actually received by it. The Fund shall instruct the Custodian from time to time in its sole discretion, by means of Written Instructions, or, in connection with the purchase or sale of Money Market Securities, by means of Oral Instructions confirmed in writing in accordance with Section 11(h) hereof or Written Instructions, as to the manner in which and in what amounts Securities and monies are to be deposited on behalf of the Series in the Book-Entry System or the Depository. Securities and monies of such Series deposited in the Book-Entry System or the Depository will be represented in accounts which include only assets held by the Custodian for customers, including but not limited to accounts for which the Custodian acts in a fiduciary or representative capacity. (b) Accounts and Disbursements. The Custodian shall establish and maintain a separate account for the Fund with respect to each Series and shall credit to the separate account all monies received by it for the account of the Fund with respect to such Series and shall disburse the same only: 1. In payment for Securities purchased for the Series, as provided in Section 5 hereof; 2. In payment of dividends or distributions with respect to the Shares, as provided in Section 7 hereof; -3- 3. In payment of original issue or other taxes with respect to the Shares, as provided in Section 8 hereof; 4. In payment for Shares which have been redeemed by the Fund, as provided in Section 8 hereof; 5. Pursuant to a Certificate setting forth the name and address of the person to whom the payment is to be made, the Series account from which payment is to be made, the amount to be paid and the purpose for which payment is to be made, provided that in the event of disbursements pursuant to this paragraph 5 of Section 4(b), the Fund shall indemnify and hold the Custodian harmless from any claims or losses arising out of such disbursements in reliance on such Certificate; or 6. In payment of fees and in reimbursement of the expenses and liabilities of the Custodian attributable to the Fund, as provided in Sections 3 and 11(i). (c) Confirmation and Statements. Promptly after the close of business on each day, the Custodian shall furnish the Fund with confirmations and a summary of all transfers to or from the account of each Series during said day. Where securities purchased by a Series are in a fungible bulk of securities registered in the name of the Custodian (or its nominee) or shown on the Custodian's account on the books of the Depository or the Book-Entry System, the Custodian shall by book-entry or otherwise identify the quantity of those securities belonging to such Series. At least monthly, the Custodian shall furnish the Fund with a detailed statement of the Securities and monies held for each Series under this Agreement. (d) Registration of Securities and Physical Separation. All Securities held for a Series which are issued or issuable only in bearer form, except such Securities as are held in the Book-Entry System, shall be held by the Custodian in that form; all other Securities held for a Series may be registered in the name of such Series, in the name of the Custodian, in the name of any duly appointed registered nominee of the Custodian as the Custodian may from time to time determine, or in the name of the Book-Entry System or the Depository or their successor or successors, or their nominee or nominees. The Fund reserves the right to instruct the Custodian as to the method of registration and safekeeping of the Securities. The Fund agrees to furnish to the Custodian appropriate instruments to enable the Custodian to hold or deliver in proper form for transfer, or to register in the name of its registered nominee or in the name of the Book-Entry System or the Depository, any Securities which it may hold for the account of a Series and which may from time to time be registered in the name of such Series. The Custodian shall hold all such Securities specifically allocated to a Series which are not held in the Book-Entry System or the Depository in a separate account for the Fund in the name of such Series physically segregated at all times from those of any other person or persons. (e) Segregated Accounts. Upon receipt of a Certificate, the Custodian will establish segregated accounts on behalf of each Series to hold liquid or other assets as it shall be directed by a Certificate and shall increase or decrease the assets in such segregated accounts only as it shall be directed by subsequent Certificate. (f) Collection of Income and Other Matters Affecting Securities. Unless otherwise instructed to the contrary by a Certificate, the Custodian by itself, or through the use of the Book-Entry System or the Depository with respect to Securities therein deposited, shall with respect to all Securities held for each Series in accordance with this Agreement: -4- 1. Collect all income due or payable; 2. Present for payment and collect the amount payable upon all Securities which may mature or be called, redeemed, retired or otherwise become payable. Notwithstanding the foregoing, the Custodian only shall have such responsibility to the Fund for Securities which are called if either (i) the Custodian received a written notice of such call; or (ii) notice of such call appears in one or more of the publications listed in Appendix C annexed hereto, which may be amended at any time by the Custodian upon five (5) Business Days prior notification to the Fund; 3. Surrender Securities in temporary form for definitive Securities; 4. Execute any necessary declarations or certificates of ownership under the Federal income tax laws or the laws or regulations of any other taxing authority now or hereafter in effect; and 5. Hold directly, or through the Book-Entry System or the Depository with respect to Securities therein deposited, for the account of each Series all rights and similar Securities issued with respect to any Securities held by the Custodian hereunder for the Series. (g) Delivery of Securities and Evidence of Authority. Upon receipt of a Certificate, the Custodian, directly or through the use of the Book-Entry System or the Depository, shall: 1. Execute and deliver or cause to be executed and delivered to such persons as may be designated in such Certificate, proxies, consents, authorizations, and any other instruments whereby the authority of the Fund as owner of any Securities may be exercised; 2. Deliver or cause to be delivered any Securities held for the Series in exchange for other Securities or cash issued or paid in connection with the liquidation, reorganization, refinancing, merger, consolidation or recapitalization of any corporation, or the exercise of any conversion privilege; 3. Deliver or cause to be delivered any Securities held for the Series to any protective committee, reorganization committee or other person in connection with the reorganization, refinancing, merger, consolidation or recapitalization or sale of assets of any corporation, and receive and hold under the terms of this Agreement in the separate account for the Series such certificates of deposit, interim receipts or other instruments or documents as may be issued to it to evidence such delivery; 4. Make or cause to be made such transfers or exchanges of the assets specifically allocated to the separate account of the Series and take such other steps as shall be stated in a Certificate to be for the purpose of effectuating any duly authorized plan of liquidation, reorganization, merger, consolidation or recapitalization of the Fund; 5. Deliver Securities upon the receipt of payment in connection with any repurchase agreement related to such Securities entered into by the Fund; -5- 6. Deliver Securities owned by the Series to the issuer thereof or its agent when such Securities are called or otherwise become payable. Notwithstanding the foregoing, the Custodian shall have no responsibility for monitoring or ascertaining any call, redemption or retirement dates with respect to put bonds which are owned by the Series and held by the Custodian or its nominees. Nor shall the Custodian have any responsibility or liability to the Fund for any loss by the Series for any missed payments or other defaults resulting therefrom; unless the Custodian received timely notification from the Fund specifying the time, place and manner for the presentment of any such put bond owned by the Series and held by the Custodian or its nominee. The Custodian shall not be responsible and assumes no liability to the Fund for the accuracy or completeness of any notification the Custodian may furnish to the Fund with respect to put bonds; 7. Deliver Securities for delivery in connection with any loans of Securities made by the Series but only against receipt of adequate collateral as agreed upon from time to time by the Custodian and the Fund which may be in the form of cash or U.S. government securities or a letter of credit; 8. Deliver Securities for delivery as security in connection with any borrowings by the Series requiring a pledge of Fund assets, but only against receipt of amounts borrowed; 9. Deliver Securities upon receipt of a Certificate from the Fund for delivery to the Transfer Agent or to the holders of Shares in connection with distributions in kind, as may be described from time to time in the Fund's Prospectus, in satisfaction of requests by holders of Shares for repurchase or redemption; 10. Deliver Securities as collateral in connection with short sales by the Series of common stock for which the Series owns the stock or owns preferred stocks or debt securities convertible or exchangeable, without payment or further consideration, into shares of the common stock sold short; 11. Deliver Securities for any purpose expressly permitted by and in accordance with procedures described in the Fund's Prospectus; and 12. Deliver Securities for any other proper business purpose, but only upon receipt of, in addition to Written Instructions, a certified copy of a resolution of the Fund's Board signed by an Authorized Person and certified by the Secretary of the Fund, specifying the Securities to be delivered, setting forth the purpose for which such delivery is to be made, declaring such purpose to be a proper business purpose, and naming the person or persons to whom delivery of such Securities shall be made. (h) Endorsement and Collection of Checks, Etc. The Custodian is hereby authorized to endorse and collect all checks, drafts or other orders for the payment of money received by the Custodian for the account of the Series. -6- 5. Purchase and Sale of Investments. -------------------------------- (a) Promptly after each purchase of Securities by the Fund, the Fund shall deliver to the Custodian (i) with respect to each purchase of Securities which are not Money Market Securities, a Certificate; and (ii) with respect to each purchase of Money Market Securities, either a Written Instruction or Oral Instruction, in either case specifying with respect to each purchase: (1) the Series to which the Securities purchased are to be specifically allocated; (2) the name of the issuer and the title of the Securities; (3) the number of shares or the principal amount purchased and accrued interest, if any; (4) the date of purchase and settlement; (5) the purchase price per unit; (6) the total amount payable upon such purchase; (7) the name of the person from whom or the broker through whom the purchase was made, if any; and (8) whether or not such purchase is to be settled through the Book-Entry System or the Depository. The Custodian shall receive the Securities purchased by or for such Series and upon receipt of Securities shall pay out of the monies held for the account of such Series the total amount payable upon such purchase, provided that the same conforms to the total amount payable as set forth in such Certificate, Written or Oral Instruction. (b) Promptly after each sale of Securities by the Fund, the Fund shall deliver to the Custodian (i) with respect to each sale of Securities which are not Money Market Securities, a Certificate, and (ii) with respect to each sale of Money Market Securities, either Written Instruction or Oral Instructions, in either case specifying with respect to such sale: (1) the Series to which such Securities sold were specifically allocated; (2) the name of the issuer and the title of the Securities; (3) the number of shares or principal amount sold, and accrued interest, if any; (4) the date of sale; (5) the sale price per unit; (6) the total amount payable to such Series upon such sale; (7) the name of the broker through whom or the person to whom the sale was made; and (8) whether or not such sale is to be settled through the Book-Entry System or the Depository. The Custodian shall deliver or cause to be delivered the Securities to the broker or other person designated by the Fund upon receipt of the total amount payable to such Series upon such sale, provided that the same conforms to the total amount payable to the Series as set forth in such Certificate, Written or Oral Instruction. Subject to the foregoing, the Custodian may accept payment in such form as shall be satisfactory to it, and may deliver Securities and arrange for payment in accordance with the customs prevailing among dealers in Securities. 6. Lending of Securities. --------------------- If the Fund is permitted by the terms of its organization documents and as disclosed in its Prospectus to lend securities, within 24 hours after each loan of Securities, the Fund shall deliver to the Custodian a Certificate specifying with respect to each such loan: (a) the Series to which the Securities to be loaned are specifically allocated; (b) the name of the issuer and the title of the Securities; (c) the number of shares or the principal amount loaned; (d) the date of loan and delivery; (e) the total amount to be delivered to the Custodian, and specifically allocated against the loan of the Securities, including the amount of cash collateral and the premium, if any, separately identified; and (f) the name of the broker, dealer or financial institution to which the loan was made. Promptly after each termination of a loan of Securities, the Fund shall deliver to the Custodian a Certificate specifying with respect to each such loan termination and return of Securities: (a) the Series to which the Securities to be returned are specifically allocated; (b) the name of the issuer and the title of the Securities to be returned; (c) the number of shares or the principal amount to be returned; (d) the date of termination; (e) the total amount to be delivered by the Custodian (including the cash collateral for such Securities minus any offsetting credits as described in said Certificate); and (f) the name of the broker, dealer or financial -7- institution from which the Securities will be returned. The Custodian shall receive all Securities returned from the broker, dealer or financial institution to which such Securities were loaned and upon receipt thereof shall pay the total amount payable upon such return of Securities as set forth in the Certificate. Securities returned to the Custodian shall be held as they were prior to such loan. 7. Payment of Dividends or Distributions. ------------------------------------- (a) For each Series, the Fund shall furnish to the Custodian a Certificate specifying the date of payment of any dividend or distribution, and the total amount payable to the Transfer Agent on the payment date. (b) Upon the payment date specified in such Certificate, the Custodian shall pay out of the monies held for the account of the Series the total amount payable to the Transfer Agent of the Fund. 8. Sale and Redemption of Shares. ----------------------------- (a) Whenever the Fund shall sell any Shares, or whenever any Shares are redeemed, the Fund shall deliver or cause to be delivered to the Custodian a Written Instruction from the Transfer Agent duly specifying: 1. The net amount of money to be received by the Custodian, where the sale of such Shares exceeds redemption; and 2. The net amount of money to be paid for such Shares, where redemptions exceed purchases. The Custodian understands and agrees that Written Instructions may be furnished subsequent to the purchase of Shares and that the information contained therein will be derived from the sales of Shares as reported to the Fund by the Transfer Agent. (b) Upon receipt of money from the Transfer Agent, the Custodian shall credit such money to the separate account of the Series. (c) Upon issuance of any Shares in accordance with the foregoing provisions of this Section 8, the Custodian shall pay all original issue or other taxes required to be paid for the account of the Series in connection with such issuance upon the receipt of a Written Instruction specifying the amount to be paid. (d) Upon receipt from the Transfer Agent of Written Instructions setting forth the net amount of money to be paid for Shares received by the Transfer Agent for redemption, the Custodian shall make payment to the Transfer Agent of such net amount out of the monies held for the account of the Series. -8- 9. Indebtedness. ------------ (a) The Fund will cause to be delivered to the Custodian by any bank (excluding the Custodian) from which the Fund borrows money for investment or for temporary administrative or emergency purposes using Securities as collateral for such borrowings, a notice or undertaking in the form currently employed by any such bank setting forth the amount which such bank will loan to the Fund against delivery of a stated amount of collateral. The Fund shall promptly deliver to the Custodian a Certificate stating with respect to each such borrowing: (1) the Series to which the borrowing relates; (2) the name of the bank; (3) the amount and terms of the borrowing, which may be set forth by incorporating by reference an attached promissory note, duly endorsed by the Fund, or other loan agreement; (4) the time and date, if known, on which the loan is to be entered into (the "borrowing date"); (5) the date on which the loan becomes due and payable; (6) the total amount payable to the Fund for the account of such Series on the borrowing date; (7) the market value of Securities to be delivered as collateral for such loan, including the name of the issuer, the title and the number of shares or the principal amount of any particular Securities; and (8) a statement that such loan is in conformance with the 1940 Act and the Fund's Prospectus. (b) Upon receipt of the Certificate referred to in subparagraph (a) above, the Custodian shall deliver on the borrowing date the specified collateral and the executed promissory note, if any, against delivery by the lending bank of the total amount of the loan payable, provided that the same conforms to the total amount payable as set forth in the Certificate. The Custodian may, at the option of the lending bank, keep such collateral in its possession, but such collateral shall be subject to all rights therein given the lending bank by virtue of any promissory note or loan agreement. The Custodian shall deliver as additional collateral in the manner directed by the Fund from time to time such Securities as may be specified in the Certificate to collateralize further any transaction described in this Section 9. The Fund shall cause all Securities released from collateral status to be returned directly to the Custodian, and the Custodian shall receive from time to time such return of collateral as may be tendered to it. In the event that the Fund fails to specify in the Certificate all of the information required by this Section 9, the Custodian shall not be under any obligation to deliver any Securities. Collateral returned to the Custodian shall be held hereunder as it was prior to being used as collateral. 10. Persons Having Access to Assets of the Fund. ------------------------------------------- (a) No Board member or agent of the Fund, and no officer, director, employee or agent of the Fund's investment adviser, of any sub-investment adviser of the Fund, or of the Fund's administrator, shall have physical access to the assets of the Fund held by the Custodian or be authorized or permitted to withdraw any investments of the Fund, nor shall the Custodian deliver any assets of the Fund to any such person. No officer, director, employee or agent of the Custodian who holds any similar position with the Fund's investment adviser, with any sub-investment adviser of the Fund or with the Fund's administrator shall have access to the assets of the Fund. (b) Nothing in this Section 10 shall prohibit any duly authorized officer, employee or agent of the Fund, or any duly authorized officer, director, employee or agent of the investment adviser, of any sub-investment adviser of the Fund or of the Fund's administrator, from giving Oral Instructions or Written Instructions to the Custodian or executing a Certificate so long as it does not result in delivery of or access to assets of the Fund prohibited by Section 10(a). -9- 11. Concerning the Custodian. ------------------------ (a) Standard of Conduct. Notwithstanding any other provision of this Agreement, neither the Custodian nor its nominee shall be liable for any loss or damage, including counsel fees, resulting from its action or omission to act or otherwise, except for any such loss or damage arising out of the negligence, misfeasance or willful misconduct of the Custodian or any of its employees, Sub-Custodians or agents. The Custodian may, with respect to questions of law, apply for and obtain the advice and opinion of counsel to the Fund or of its own counsel, at the expense of the Fund, and shall be fully protected with respect to anything done or omitted by it in good faith in conformity with such advice or opinion. The Custodian shall not be liable to the Fund for any loss or damage resulting from the use of the Book-Entry System or the Depository, except to the extent such loss or damage arises by reason of any negligence, misfeasance or willful misconduct on the part of the Custodian or any of its employees or agents. (b) Limit of Duties. Without limiting the generality of the foregoing, the Custodian shall be under no duty or obligation to inquire into, and shall not be liable for: 1. The validity of the issue of any Securities purchased by the Fund, the legality of the purchase thereof, or the propriety of the amount paid therefor; 2. The legality of the sale of any Securities by the Fund or the propriety of the amount for which the same are sold; 3. The legality of the issue or sale of any Shares, or the sufficiency of the amount to be received therefor; 4. The legality of the redemption of any Shares, or the propriety of the amount to be paid therefor; 5. The legality of the declaration or payment of any distribution of the Fund; or 6. The legality of any borrowing for temporary or emergency administrative purposes. (c) No Liability Until Receipt. The Custodian shall not be liable for, or considered to be the Custodian of, any money, whether or not represented by any check, draft, or other instrument for the payment of money, received by it on behalf of the Fund until the Custodian actually receives and collects such money directly or by the final crediting of the account representing the Fund's interest in the Book-Entry System or the Depository. (d) Amounts Due from Transfer Agent. The Custodian shall not be under any duty or obligation to take action to effect collection of any amount due to the Fund from the Transfer Agent nor to take any action to effect payment or distribution by the Transfer Agent of any amount paid by the Custodian to the Transfer Agent in accordance with this Agreement. (e) Collection Where Payment Refused. The Custodian shall not be under any duty or obligation to take action to effect collection of any amount, if the Securities upon which such amount is payable are in default, or if payment is refused after due demand or presentation, unless and until (a) it shall be directed to take such action by a Certificate and (b) it shall be assured to its satisfaction of reimbursement of its costs and expenses in connection with any such action. -10- (f) Appointment of Agents and Sub-Custodians. The Custodian may appoint one or more banking institutions, including but not limited to banking institutions located in foreign countries, to act as Depository or Depositories or as Sub-Custodian or as Sub-Custodians of Securities and monies at any time owned by the Fund. The Custodian shall use reasonable care in selecting a Depository and/or Sub-Custodian located in a country other than the United States ("Foreign Sub-Custodian"), which selection shall be in accordance with the requirements of Rule 17f-5 under the 1940 Act, and shall oversee the maintenance of any Securities or monies of the Fund by any Foreign Sub-Custodian. In addition, the Custodian shall hold the Fund harmless from, and indemnify the Fund against, any loss, action, claim, demand, expense and proceeding, including counsel fees, that occurs as a result of the failure of any Foreign Sub-Custodian or Depository to exercise reasonable care with respect to the safekeeping of Securities and monies of the Fund. Notwithstanding the generality of the foregoing, however, the Custodian shall not be liable for any losses resulting from the general risk of investing or holding Securities and monies in a particular country, including, but not limited to, losses resulting from nationalization, expropriation, devaluation, revaluation, confiscation, seizure, cancellation, destruction or similar action by any governmental authority, de facto or de jure; or enactment, promulgation, imposition or enforcement by any such governmental authority of currency restrictions, exchange controls, taxes, levies or other charges affecting the Fund's property; or acts of war, terrorism, insurrection or revolution; or any other similar act or event beyond the Custodian's control. (g) No Duty to Ascertain Authority. The Custodian shall not be under any duty or obligation to ascertain whether any Securities at any time delivered to or held by it for the Fund are such as may properly be held by the Fund under the provisions of its organization documents and the Prospectus. (h) Reliance on Certificates and Instructions. The Custodian shall be entitled to rely upon any Certificate, notice or other instrument in writing received by the Custodian and reasonably believed by the Custodian to be genuine and to be signed by an officer or Authorized Person of the Fund. The Custodian shall be entitled to rely upon any Written Instructions or Oral Instructions actually received by the Custodian pursuant to the applicable Sections of this Agreement and reasonably believed by the Custodian to be genuine and to be given by an Authorized Person. The Fund agrees to forward to the Custodian Written Instructions from an Authorized Person confirming such Oral Instructions in such manner so that such Written Instructions are received by the Custodian, whether by hand delivery, telex or otherwise, by the close of business on the same day that such Oral Instructions are given to the Custodian. The Fund agrees that the fact that such confirming instructions are not received by the Custodian shall in no way affect the validity of the transactions or enforceability of the transactions hereby authorized by the Fund. The Fund agrees that the Custodian shall incur no liability to the Fund in acting upon Oral Instructions given to the Custodian hereunder concerning such transactions provided such instructions reasonably appear to have been received from a duly Authorized Person. (i) Overdraft Facility and Security for Payment. In the event that the Custodian is directed by Written Instruction (or Oral Instructions confirmed in writing in accordance with Section 11(h) hereof) to make any payment or transfer of monies on behalf of a Series for which there would be, at the close of business on the date of such payment or transfer, insufficient monies held by the Custodian on behalf of such Series, the Custodian may, in its sole discretion, provide an overdraft (an "Overdraft") to the Fund in an amount sufficient to allow the completion of such payment or transfer. Any Overdraft provided hereunder: (a) shall be payable on the next Business Day, unless otherwise agreed by the Fund and the Custodian; and (b) shall accrue -11- interest from the date of the Overdraft to the date of payment in full by the Fund at a rate agreed upon in writing, from time to time, by the Custodian and the Fund. The Custodian and the Fund acknowledge that the purpose of such Overdraft is to temporarily finance the purchase of Securities for prompt delivery in accordance with the terms hereof, to meet unanticipated or unusual redemption, to allow the settlement of foreign exchange contracts or to meet other emergency expenses not reasonably foreseeable by the Fund. The Custodian shall promptly notify the Fund in writing (an "Overdraft Notice") of any Overdraft by facsimile transmission or in such other manner as the Fund and the Custodian may agree in writing. To secure payment of any Overdraft, the Fund hereby grants to the Custodian a continuing security interest in and right of setoff against the Securities and cash in the Series' account from time to time in the full amount of such Overdraft. Should the Fund fail to pay promptly any amounts owed hereunder, the Custodian shall be entitled to use available cash in the Series' account and to liquidate Securities in the account as is necessary to meet the Fund's obligations under the Overdraft. In any such case, and without limiting the foregoing, the Custodian shall be entitled to take such other actions(s) or exercise such other options, powers and rights as the Custodian now or hereafter has as a secured creditor under the Massachusetts Uniform Commercial Code or any other applicable law. (j) Inspection of Books and Records. The books and records of the Custodian shall be open to inspection and audit at reasonable times by officers and auditors employed by the Fund and by the appropriate employees of the Securities and Exchange Commission. The Custodian shall provide the Fund with any report obtained by the Custodian on the system of internal accounting control of the Book-Entry System or the Depository and with such reports on its own systems of internal accounting control as the Fund may reasonably request from time to time. 12. Term and Termination. --------------------- (a) This Agreement shall become effective on the date first set forth above (the "Effective Date") and shall continue in effect thereafter until such time as this Agreement may be terminated in accordance with the provisions hereof. (b) Either of the parties hereto may terminate this Agreement by giving to the other party a notice in writing specifying the date of such termination, which shall be not less than 60 days after the date of receipt of such notice. In the event such notice is given by the Fund, it shall be accompanied by a certified vote of the Fund's Board, electing to terminate this Agreement and designating a successor custodian or custodians, which shall be a person qualified to so act under the 1940 Act. In the event such notice is given by the Custodian, the Fund shall, on or before the termination date, deliver to the Custodian a certified vote of the Fund's Board, designating a successor custodian or custodians. In the absence of such designation by the Fund, the Custodian may designate a successor custodian, which shall be a person qualified to so act under the 1940 Act. If the Fund fails to designate a successor custodian, the Fund shall upon the date specified in the notice of termination of this Agreement and upon the delivery by the Custodian of all Securities (other than Securities held in the Book-Entry System which cannot be delivered to the Fund) and monies then owned by the Fund, be deemed to be its own custodian and the Custodian shall thereby be relieved of all duties and responsibilities pursuant to this Agreement, other than the duty with respect to Securities held in the Book-Entry System which cannot be delivered to the Fund. -12- (c) Upon the date set forth in such notice under paragraph (b) of this Section 12, this Agreement shall terminate to the extent specified in such notice, and the Custodian shall upon receipt of a notice of acceptance by the successor custodian on that date deliver directly to the successor custodian all Securities and monies then held by the Custodian on behalf of the Fund, after deducting all fees, expenses and other amounts for the payment or reimbursement of which it shall then be entitled. 13. Limitation of Liability. ------------------------ The Fund and the Custodian agree that the obligations of the Fund under this Agreement shall not be binding upon any of the Board members, shareholders, nominees, officers, employees or agents, whether past, present or future, of the Fund, individually, but are binding only upon the assets and property of the Fund. The execution and delivery of this Agreement have been authorized by the Fund's Board members, and signed by an authorized officer of the Fund, acting as such, and neither such authorization by such Board members nor such execution and delivery by such officer shall be deemed to have been made by any of them or any shareholder of the Fund individually or to impose any liability on any of them or any shareholder of the Fund personally, but shall bind only the assets and property of the Fund. 14. Miscellaneous. -------------- (a) Annexed hereto as Appendix A is a certification signed by the Secretary of the Fund setting forth the names and the signatures of the present Authorized Persons. The Fund agrees to furnish to the Custodian a new certification in similar form in the event that any such present Authorized Person ceases to be such an Authorized Person or in the event that other or additional Authorized Persons are elected or appointed. Until such new certification shall be received, the Custodian shall be fully protected in acting under the provisions of this Agreement upon Oral Instructions or signatures of the present Authorized Persons as set forth in the last delivered certification. (b) Annexed hereto as Appendix D is a certification signed by the Secretary of the Fund setting forth the names and the signatures of the present officers of the Fund. The Fund agrees to furnish to the Custodian a new certification in similar form in the event any such present officer ceases to be an officer of the Fund or in the event that other or additional officers are elected or appointed. Until such new certification shall be received, the Custodian shall be fully protected in acting under the provisions of this Agreement upon the signature of an officer as set forth in the last delivered certification. (c) Any notice or other instrument in writing, authorized or required by this Agreement to be given to the Custodian, shall be sufficiently given if addressed to the Custodian and mailed or delivered to it at its offices at One Boston Place, Boston, MA 02108 or at such other place as the Custodian may from time to time designate in writing. (d) Any notice or other instrument in writing, authorized or required by this Agreement to be given to the Fund, shall be sufficiently given if addressed to the Fund and mailed or delivered to it at its offices at 200 Park Avenue, New York, New York 10166 or at such other place as the Fund may from time to time designate in writing. (e) This Agreement may not be amended or modified in any manner except by a written agreement executed by both parties with the same formality -13- as this Agreement, (i) authorized, or ratified and approved by a vote of the Fund's Board, including a majority of the Board members who are not "interested persons" of the Fund (as defined in the 1940 Act), or (ii) authorized, or ratified and approved by such other procedures as may be permitted or required by the 1940 Act. (f) This Agreement shall extend to and shall be binding upon the parties hereto, and their respective successors and assigns; provided, however, that this Agreement shall not be assignable by the Fund without the written consent of the Custodian, or by the Custodian without the written consent of the Fund authorized or approved by a vote of the Fund's Board. Nothing in this Agreement shall give or be construed to give or confer upon any third party any rights hereunder. (g) The Fund represents that copies of its organization documents are on file with the Secretary of the Commonwealth of Massachusetts. (h) This Agreement shall be construed in accordance with the laws of the Commonwealth of Massachusetts. (i) The captions of the Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. (j) This agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one instrument. -14- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective representatives duly authorized as of the day and year first above written. MPAM FUNDS TRUST, on behalf of the Series listed on Schedule By: /s/ Jeff Prusnofsky ------------------- Name: Jeff Prusnofsky Title: Secretary BOSTON SAFE DEPOSIT AND TRUST COMPANY By: /s/ Chris Healy --------------- Name: Chris Healy Title: First Vice President -15- SCHEDULE 1 Name of Series - -------------- MPAM International Fund MPAM Emerging Markets Fund -16- SCHEDULE 2 I. Asset Based Charges A. U.S. Securities (Net Asset Value) First $1 Billion 0.70 Basis Points Next $1 Billion 0.50 Basis Points Excess 0.25 Basis Points B. International Securities (Market Value) Foreign Assets in all funds will be totaled by country and charged a basis point fee by category. Euroclear 5.00 Basis Points Category I 8.00 Basis Points Category II 14.00 Basis Points Category III 16.00 Basis Points Category IV 45.00 Basis Points (A complete listing of countries is on page 2 of this fee schedule) II. Transaction Charges A. Domestic U.S. Buy/Sell transaction (DTC, PTC, Fed) $7.00 Physical U.S. Buy/Sell transaction $20 -17- B. International Euroclear $ 25 Category I $ 35 Category II $ 60 Category III $ 80 Category IV $100 C. Other Transactions Futures Transaction $ 8 Paydown Transaction $ 5 Margin Variation Wire $ 10 F/X not executed at BSDT $ 20 Options Round Trip $ 20 Wire Transfer $ 5 III. The Custodian reserves the right to amend its fees if the service requirements change in a way that materially affects our responsibilities or costs. Support of other derivative investment strategies or special processing requirements (e.g., external cash sweep, third party securities lending etc.) may result in additional fees. -18- IV. Country by Country Categories: Category I Category II Category III Category IV Australia Argentina Austria Bangladesh Belgium Denmark Indonesia Brazil Canada Finland Israel Colombia France Hong Kong South Korea China Germany Malaysia Philippines Czech Republic Ireland Mexico Singapore Greece Italy Norway Thailand India Japan Spain Jordan Netherlands Luxembourg New Zealand Pakistan South Africa Peru Sweden Poland Switzerland Portugal United Kingdom Sri Lanka Cedel Taiwan Turkey Uruguay Venezuela Egypt -19- SCHEDULE 3 The Custodian will pass through to the client any out-of-pocket expenses including, but not limited to, postage, courier expense, registration fees, stamp duties telex charges, custom reporting or custom programming, internal/external tax, legal or consulting costs, proxy voting expenses, etc. The Fund will pay to the Custodian as soon as possible after the end of each month all out-of-pocket expenses reasonably incurred in connection with the assets of the Fund. -20- APPENDIX A I, Jeff Prusnofsky, Secretary of the Fund, do hereby certify that: The following individuals have been duly authorized as Authorized Persons to give Oral Instructions and Written Instructions on behalf of the Fund and the specimen signatures set forth opposite their respective names are their true and correct signatures: Name Signature - ---- --------- SEE APPENDIX A-1 MPAM FUNDS TRUST, on behalf of the Series listed on Schedule 1 /s/ Jeff Prusnofsky ---------------------------------- Jeff Prusnofsky, Secretary Dated: June 14, 2000 -21- APPENDIX A-1 MPAM INTERNATIONAL FUND MPAM EMERGING MARKETS FUND AUTHORIZED SIGNATORIES ----------------------
Group I Group II Paul R. Casti, Jr., Michael Condon, Paul R. Casti, Jr., Michael Condon, William McDowell, Jean Farley, Gregory Christopher Condron, Joseph Connolly, Gruber, Paul Molloy, James Windels, Gregory Gruber, William McDowell, Frank Brensic, Phyllis Meiner, Robert James Windels, Paul Molloy, William T. Robol, Laura Sanderson, Lori McNab, Sandalls, Jr., Jean Farley and Robert Robol Lucy Dermezis, Rob Svagna, Michael Stalzer, Robert Salviolo and Erik Naviloff
1. Fees payable to Mellon Bank, N.A. or Boston Safe Deposit and Trust Company pursuant to written agreement with the Fund for services rendered in its capacity as Custodian or agent of the Fund, or to Dreyfus Transfer, Inc. in its capacity as Transfer Agent or agent of the Fund: Two (2) signatures required, one of which must be from Group II, except that no individual shall be authorized to sign more than once. 2. Other expenses of the Fund, $5,000 and under: Any combination of two (2) signatures from either Group I or Group II, or both such Groups, except that no individual shall be authorized to sign more than once. 3. Other expenses of the Fund, over $5,000 but not over $25,000: Two (2) signatures required, one of which must be from Group II, except that no individual shall be authorized to sign more than once. 4. Other expenses of the Fund, over $25,000: Two (2) signatures required, one from Group I or Group II, including any one of the following: Paul Molloy, Paul R. Casti, Jr., Christopher Condron, James Windels, Joseph Connolly or William T. Sandalls, Jr., except that no individual shall be authorized to sign more than once. Custodian Account for Portfolio Securities Transactions - ------------------------------------------------------- Two (2) signatures required from any of the following: Erik Naviloff, Christopher Schiller, Maria Schiller, Robert Robol, Rob Svagna. -22- APPENDIX A-2 AUTHORIZED PERSONS: FOR PAYMENT OF BLUE SKY FEES 1. The Custodian shall be authorized to draw from the Fund's custodial account, upon request by the Dreyfus Legal Department and only upon compliance with these procedures for payment of state blue sky fees for the purpose of, including but not limited to, state notification or registration, exemption, amendment and filing fees. 2. The Dreyfus Legal Department shall prepare a Wire Transfer Authorization Form addressed to the Custodian that includes an attached invoice containing the following information: the name of the Fund, the Fund's internal code number, the amount to be funded, the state and type of filing, and the appropriate general ledger account. 3. Each Wire Transfer Authorization Form must be signed by two (2) of the following authorized Blue Sky Administrators: James Bitetto Joni L. Charatan Janette Farragher John Hammalian Mark N. Jacobs Emile Molineaux Robert R. Mullery Steven Newman Jeff Prusnofsky Michael Rosenberg Adam Scaramella -23- APPENDIX B I, Jeff Prusnofsky, Secretary of the Fund, do hereby certify that the only classes of shares of the Fund issued and/or authorized by the Fund as of the date of this Custody Agreement are shares of beneficial interest, without par value, as follows: MPAM International Fund MPAM Emerging Markets Fund MPAM FUNDS TRUST, on behalf of the Series listed on Schedule 1 /s/ Jeff Prusnofsky ----------------------------------------- Jeff Prusnofsky, Secretary Dated: June 14, 2000 -24- APPENDIX C The following are designated publications for purposes of paragraph 2 of Section 4 (f): The Bond Buyer Depository Trust and Clearing Corporation Notices Financial Daily Card Service New York Times Standard & Poor's Called Bond Record Wall Street Journal -25- APPENDIX D I, Jeff Prusnofsky, Secretary of the Fund, do hereby certify that: The following individuals serve in the following positions with the Fund and each individual has been duly elected or appointed to each such position and qualified therefor in conformity with the Fund's Master Trust Agreement and the specimen signatures set forth opposite their respective names are their true and correct signatures: Name Position Signature Patrick J. O'Connor Chairman of the Board David Lamere President Mark N. Jacobs Vice President Vernon Winter Vice President Jospeh Connolly Vice President and Treasurer Jeff Prusnofsky Secretary Steven F. Newman Assistant Secretary Michael A. Rosenberg Assistant Secretary -26- Gregory S. Gruber Assistant Treasurer William McDowell Assistant Treasurer James Windels Assistant Treasurer MPAM FUNDS TRUST, on behalf of the Series listed on Schedule 1 /s/ Jeff Prusnofsky ------------------------------------- Jeff Prusnofsky, Secretary Dated: June 14, 2000 -27- EX-99.H(2) 6 0006.txt ADMINISTRATION AGREEMENT MPAM FUNDS TRUST 200 Park Avenue New York, New York 10166 June 14, 2000 Mellon Bank, N.A. One Mellon Bank Center Pittsburgh, PA 15258 Dear Sirs: The above-named investment company (the "Fund") herewith confirms its agreement with you as follows: The Fund desires to employ its capital by investing and reinvesting the same in investments of the type and in accordance with the limitations specified in its charter documents and in its Prospectus and Statement of Additional Information as from time to time in effect, copies of which have been or will be submitted to you, and in such manner and to such extent as from time to time may be approved by the Fund's Board. The Fund intends to employ MPAM Advisers, a division of The Dreyfus Corporation, (the "Adviser") to act as its investment adviser and desires to employ you to act as its administrator. In this connection it is understood that from time to time you will employ or associate with yourself such person or persons as you may believe to be particularly fitted to assist it in the performance of this Agreement. Such person or persons may be officers or employees who are employed by both you and the Fund. The compensation of such person or persons shall be paid by you and no obligation may be incurred on the Fund's behalf in any such respect. We have discussed and concur in your employing on this basis The Dreyfus Corporation to act as the Fund's sub-administrator (the "Sub-Administrator") to provide sub-administrative services to the Fund. Subject to the supervision and control of the Fund's Board, you will assist in supervising all aspects of the Fund's operations except investment management of the Fund's portfolio, which shall be performed by the Adviser under its Investment Advisory Agreement with the Fund. It is understood that you shall not act and shall not be required to act as an investment adviser or have any authority to supervise the investment or reinvestment of the cash, securities or other property comprising the Fund's assets or to determine what securities or other property may be purchased or sold by the Fund. You shall be responsible for maintaining records relating to the individual "MPAM Accounts" and for maintaining relations with the "MPAM Clients" as these terms are defined in the Fund's prospectus. These services shall include aggregation of the purchase and redemption orders for the MPAM Accounts and transmission to the Fund's transfer agent, providing information to the MPAM Clients concerning their investments in the Fund, and responding to inquiries regarding the Funds from the MPAM Clients. You will supply office facilities (which may be in your own offices), data processing services, clerical, accounting and bookkeeping services, internal auditing and legal services, internal executive and administrative services, and stationery and office supplies; and prepare reports to the Fund's stockholders, tax returns, reports to and filings with the Securities and Exchange Commission and state Blue Sky authorities; and calculate the daily net asset value of the Fund's shares in accordance with the Fund's Declaration of Trust and then-current registration statement. In addition, you will pay the fees and expenses of the Fund's transfer agent. You shall exercise your best judgment in rendering the services to be provided hereunder and the Fund agrees as an inducement to your undertaking the same that you shall not be liable hereunder for any error of judgment or mistake of law or for any loss suffered by the Fund, provided that nothing herein shall be deemed to protect or purport to protect you against any liability to the Fund or to its security holders to which you would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of your duties hereunder, or by reason of your reckless disregard of your obligations and duties hereunder. In consideration of the services rendered pursuant to this Agreement, the Fund will pay you a fee calculated daily and paid monthly at the annual rate of the following percentages of the Fund's aggregate average daily net assets: 0.15% of such assets through $6 billion; 0.12% of such assets greater than $6 billion through $12 billion; and 0.10% of such assets greater than $12 billion. No fee shall be applied to assets held by the MPAM Balanced Fund which are invested in (i) cash or money market instruments or (ii) shares of the other series of the Fund. Net asset value shall be computed on such days and at such time or times as described in the Fund's then -current Prospectus and Statement of Additional Information. The fee for the period from the date of the commencement of the public sale of the Fund's shares to the end of the month during which -2- such sale shall have been commenced shall be pro-rated according to the proportion which such period bears to the full monthly period, and upon any termination of this Agreement before the end of any month, the fee for such part of a month shall be pro-rated 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. For the purpose of determining fees payable to you, the value of the Fund's net assets shall be computed in the manner specified in the Fund's charter documents for the computation of the value of the Fund's net assets. You will bear all expenses in connection with the performance of its services under this Agreement. All other expenses to be incurred in the operation of the Fund will be borne by the Fund, except to the extent specifically assumed by you or the Adviser. The expenses to be borne by the Fund include, without limitation, the following: organizational costs, taxes, interest, loan commitment fees, interest and distributions paid on securities sold short, brokerage fees and commissions, if any, fees of Board members who are not officers, directors, employees or holders of 5% or more of the outstanding voting securities of the Adviser or you or any of the Adviser's or your affiliates, Securities and Exchange Commission fees, except those share registration fees paid during the Fund's first year of operation, which shall be paid by you, and state Blue Sky qualification fees, advisory and administration fees, charges of custodians, insurance premiums, industry association fees, outside auditing and legal expenses, costs of maintaining the Fund's existence, costs of independent pricing services, costs of shareholders' reports and corporate meetings, costs of preparing and printing certain prospectuses and statements of additional information for regulatory purposes and for distribution to existing shareholders, and any extraordinary expenses. The Fund understands that you may act as administrator of various investment companies and fiduciary or other managed accounts, and the Fund has no objection to your so acting. In addition, it is understood that the persons employed by you to assist in the performance of duties hereunder will not devote their full time to such service and nothing contained herein shall be deemed to limit or restrict the right of you or the right of any of your affiliates to engage in and devote time and attention to other businesses or to render services of whatever kind or nature. Any person, even though also your officer, director, partner, employee or agent, who may be or become an officer, Board member, or employee of the Fund, shall be deemed, when acting in the capacity of officer, Board member or employee of the Fund, to be rendering such services to or acting solely for the -3- Fund and not as your officer, director, partner, employee, or agent or one under your control or direction even though paid by you. This Agreement shall continue until June 1, 2002 and thereafter shall continue automatically for successive annual periods ending on June 1 of each year, provided such continuance is specifically approved at least annually by (i) the Fund's Board or (ii) vote of a majority (as defined in the Investment Company Act of 1940) of the Fund's outstanding voting securities, provided that in either event its continuance also is approved by a majority of the Fund's Board members who are not "interested persons" (as defined in said Act) of any party to this Agreement, by vote cast in person at a meeting called for the purpose of voting on such approval. This Agreement is terminable without penalty, on 60 days' notice, by the Fund's Board or by vote of holders of a majority of the Fund's shares or, upon not less than 90 days' notice, by you. This Agreement also will terminate automatically in the event of its assignment (as defined in said Act). The Fund recognizes that from time to time your directors, officers and employees may serve as directors, trustees, partners, officers and employees of other corporations, business trusts, partnerships and other entities (including other investment companies) and that your corporation or its affiliates may enter into administration or other agreements with such other entities. If you cease to act as the Fund's administrator, the Fund agrees that, at your request, the Fund will take all necessary action to change the name of the Fund to a name not including "MPAM" or "Mellon Private Asset Management" in any form or combination of words. This Agreement has been executed on behalf of the Fund by the undersigned officer of the Fund in his capacity as an officer of the Fund. The obligations of this Agreement shall only be binding upon the assets and property of the Fund and shall not be binding upon any Board member, officer or shareholder of the Fund individually. If the foregoing is in accordance with your understanding, will you kindly so indicate by signing and returning to us the enclosed copy hereof. -4- Very truly yours, MPAM FUNDS TRUST By: /s/ Jeff Prusnofsky ---------------------- Jeff Prusnofsky Accepted: MELLON BANK, N.A. By: /s/ David F. Lamere ---------------------- David F. Lamere EX-99.H(3) 7 0007.txt MPAM FUNDS TRUST 200 Park Avenue New York, New York 10166 June 14, 2000 Mellon Bank, N.A. One Mellon Bank Center Pittsburgh, PA 15258 Dear Ladies and Gentlemen: Each fund listed on Schedule A, which may be amended from time to time ("Fund"), is a series of MPAM Funds Trust, a Massachusetts business trust ("Trust"). Mellon Bank, N.A. serves as the Trust's administrator. You hereby agree, during the period from September 30, 2000 through September 30, 2003, to waive your fees with respect to each Fund, and/or to reimburse a portion of each Fund's operating expenses (excluding interest, taxes, brokerage commissions, and extraordinary expenses of the Fund) so that the Fund's operating expenses do not exceed, in the aggregate, the rate per annum of the Fund's average daily net assets listed in Schedule A attached hereto ("Expense Limitation"). You agree that this obligation shall constitute a contractual commitment enforceable by the Trust. The Trust agrees to furnish or otherwise make available to you such copies of its financial statements, reports, and other information relating to its business and affairs as you may, at any time or from time to time, reasonably request in connection with this agreement. You understand that you shall look only to the assets of a Fund for performance of this agreement as it relates to that Fund and for payment of any claim you may have hereunder relating to that Fund, and neither any other series of the Trust, nor any of the Trust's trustees, officers, employees, agents, or shareholders, whether past, present or future, shall be personally liable therefor. This agreement is effective as of June 14, 2000, and it will terminate upon the earlier of the termination of your contract with the Trust or September 30, 2003. This agreement was approved by the Trustees of the Trust at their meeting on June 14, 2000. This agreement is made and to be performed principally in the Commonwealth of Pennsylvania, and except insofar as the Investment Company Act of 1940, as amended ("1940 Act"), or other federal laws and regulations may be controlling, this agreement shall be governed by, and construed and enforced in accordance with, the internal laws of the Commonwealth of Pennsylvania. Any amendment to this agreement shall be in writing signed by the parties hereto. If you are in agreement with the foregoing, please sign the form of acceptance on the enclosed counterpart hereof and return the same to us. Very truly yours, MPAM FUNDS TRUST on behalf of the Funds listed on Schedule A By: /s/ Jeff Prusnofsky ----------------------------------- Jeff Prusnofsky The foregoing agreement is hereby accepted as of June 14, 2000 MELLON BANK, N.A. By: /s/ David F. Lamere ----------------------------- David F. Lamere Title: SCHEDULE A - -------------------------------------------------------------------------------- FUND EXPENSE LIMITATION - -------------------------------------------------------------------------------- MPAM SMALL CAP STOCK FUND 1.05% MPAM INTERNATIONAL FUND 1.05% MPAM EMERGING MARKETS FUND 1.35% MPAM BOND FUND 0.56% MPAM INTERMEDIATE BOND FUND 0.56% MPAM SHORT-TERM U.S. GOVERNMENT SECURITIES FUND 0.55% MPAM NATIONAL INTERMEDIATE MUNICIPAL BOND FUND 0.52% MPAM NATIONAL SHORT-TERM MUNICIPAL BOND FUND 0.52% MPAM PENNSYLVANIA INTERMEDIATE MUNICIPAL BOND FUND 0.67% MPAM BALANCED FUND 0.64% - -------------------------------------------------------------------------------- EX-99.I 8 0008.txt KIRKPATRICK & LOCKHART LLP 1800 Massachusetts Avenue, N.W. Second Floor Washington, D.C. 20036-1800 202/778-9000 www.kl.com September 15, 2000 MPAM Funds Trust c/o The Dreyfus Corporation 200 Park Avenue New York, New York 10166 Ladies and Gentlemen: You have requested our opinion, as counsel to MPAM Funds Trust (the "Trust"), as to certain matters regarding the issuance of Shares of the Trust. As used in this letter, the term "Shares" means the shares of beneficial interest of MPAM Large Cap Stock Fund, MPAM Income Stock Fund, MPAM Mid Cap Stock Fund, MPAM Small Cap Stock Fund, MPAM International Fund, MPAM Emerging Markets Fund, MPAM Bond Fund, MPAM Intermediate Bond Fund, MPAM Short-Term U.S. Government Securities Fund, MPAM National Intermediate Municipal Bond Fund, MPAM National Short-Term Municipal Bond Fund, MPAM Pennsylvania Intermediate Municipal Bond Fund, and MPAM Balanced Fund, each a series of the Trust. As such counsel, we have examined certified or other copies, believed by us to be genuine, of the Trust's Declaration of Trust and by-laws and such resolutions and minutes of meetings of the Trust's Board of Trustees as we have deemed relevant to our opinion, as set forth herein. Our opinion is limited to the laws and facts in existence on the date hereof, and it is further limited to the laws (other than the conflict of law rules) in the Commonwealth of Massachusetts that in our experience are normally applicable to the issuance of shares by unincorporated voluntary associations and to the Securities Act of 1933 ("1933 Act"), the Investment Company Act of 1940 ("1940 Act") and the regulations of the Securities and Exchange Commission ("SEC") thereunder. Based on present laws and facts, we are of the opinion that the issuance of the Shares has been duly authorized by the Trust and that, when sold in accordance with the terms contemplated by Pre-Effective Amendment No. 2 to the Trust's Registration Statement on Form N-1A ("PEA"), including receipt by the Trust of full payment for the Shares and compliance with the 1933 Act and the 1940 Act, the Shares will have been validly issued, fully paid and non-assessable. The Trust is an entity of the type commonly known as a "Massachusetts business trust." Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. The Declaration of Trust states that all persons extending credit to, contracting with or having any claim against the Trust or the Trustees shall look only to the assets of the appropriate series of the Trust for payment under such credit, contract or claim; and neither the shareholders nor the Trustees, nor any of their agents, whether past, present or future, shall be personally liable MPAM FUNDS TRUST September 15, 2000 Page 2 therefor. It also requires that every note, bond, contract or other undertaking issued by or on behalf of the Trust or the Trustees relating to the Trust shall include a recitation limiting the obligation represented thereby to the Trust and its assets. The Declaration of Trust further provides: (1) for indemnification from the assets of the series of the Trust for all loss and expense of any shareholder held personally liable for the obligations of the Trust by virtue of ownership of shares of the Trust; and (2) for the series of the Trust to assume the defense of any claim against the shareholder for any act or obligation of the series of the Trust. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Trust or series would be unable to meet its obligations. We hereby consent to this opinion accompanying or being incorporated by reference in the PEA when it is filed with the SEC. Very truly yours, /s/ Kirkpatrick & Lockhart LLP ------------------------------ KIRKPATRICK & LOCKHART LLP EX-99.J 9 0009.txt CONSENT OF INDEPENDENT AUDITORS The Board of Trustees MPAM Funds Trust: We consent to the reference to our firm under the heading "Counsel and Independent Auditors" in the Statement of Additional Information and to the use of report dated September 7, 2000 contained herein. /s/ KPMG LLP ------------ KPMG LLP New York, New York September 13, 2000 EX-99.P 10 0010.txt MELLON SECURITIES TRADING POLICY Questions Concerning the Securities Trading Policy? Contact Corporate Compliance, (412) 234-1661 AIM 151-4340, Mellon Bank, Pittsburgh, PA 15258-0001 1 Dear Colleague: At Mellon, we take great pride in our transformation over the years from a regional bank to a global financial services company. Our growth makes us better able to meet customers' changing needs, gives us greater stability during any unexpected economic downturn and affords us the opportunity to be the best performing financial services company. This diversity of our businesses also makes us a complex organization, which is why it's more important than ever that you clearly understand Mellon's Securities Trading Policy. Mellon has long maintained strict policies regarding securities transactions, all with the same clear-cut objective: to establish and demonstrate our compliance with the high standards with which we conduct our business. If you are new to Mellon, please take the time to fully understand the Policy and consult it whenever you are unsure about appropriate actions. If you have seen the Policy previously, I urge you to renew your understanding of the entire document and its implications for you. Only by strict adherence to the Policy can we ensure that our well-deserved reputation for integrity is preserved. Sincerely yours, Martin G. McGuinn CONTENTS - -------- PAGE INTRODUCTION 1 CLASSIFICATION OF EMPLOYEES 2 -Insider Risk Employees -Investment Employees -Access Decision Makers -Other Employees -Consultants, Independent Contractors and Temporary Employees PERSONAL SECURITIES TRADING PRACTICES 3 SECTION ONE - APPLICABLE TO INSIDER RISK EMPLOYEES 3 Quick Reference - Insider Risk Employees 5 Standards of Conduct for Insider Risk Employees 6 Restrictions on Transactions in Mellon Securities 9 Restrictions on Transactions in Other Securities 11 Protecting Confidential Information 14 SECTION TWO - APPLICABLE TO INVESTMENT EMPLOYEES 17 Quick Reference - Investment Employees 19 Standards of Conduct for Investment Employees 20 Restrictions on Transactions in Mellon Securities 24 Restrictions on Transactions in Other Securities 26 Protecting Confidential Information 29 SECTION THREE - APPLICABLE TO OTHER EMPLOYEES 31 Quick Reference - Other Employees 33 Standards of Conduct for Other Employees 34 Restrictions on Transactions in Mellon Securities 35 Restrictions on Transactions in Other Securities 37 Protecting Confidential Information 39 GLOSSARY Definitions 43 Exhibit A - Sample Letter to Broker 49
- ------------------------------------------------------------------------------- INTRODUCTION The SECURITIES TRADING POLICY (the "Policy") is designed to reinforce Mellon Financial Corporation's ("Mellon's") reputation for integrity by avoiding even the appearance of impropriety in the conduct of Mellon's business. The Policy sets forth procedures and limitations which govern the personal securities transactions of every Mellon Employee. Mellon and its employees are subject to certain laws and regulations governing personal securities trading. Mellon has developed this Policy to promote the highest standards of behavior and ensure compliance with applicable laws. Employees should be aware that they may be held personally liable for any improper or illegal acts committed during the course of their employment, and that "ignorance of the law" is not a defense. Employees may be subject to civil penalties such as fines, regulatory sanctions including suspensions, as well as criminal penalties. Employees outside the United States are also subject to applicable laws of foreign jurisdictions, which may differ substantially from US law and which may subject such employees to additional requirements. Such employees must comply with applicable requirements of pertinent foreign laws as well as with the provisions of the Policy. To the extent any particular portion of the Policy is inconsistent with foreign law, employees should consult the General Counsel or the Manager of Corporate Compliance. Any provision of this Policy may be waived or exempted at the discretion of the Manager of Corporate Compliance. Any such waiver or exemption will be evidenced in writing and maintained in the Audit and Risk Review Department. Employees must read the Policy and must comply with it. Failure to comply with the provisions of the Policy may result in the imposition of serious sanctions, including but not limited to disgorgement of profits, dismissal, substantial personal liability and referral to law enforcement agencies or other regulatory agencies. Employees should retain the Policy in their records for future reference. Any questions regarding the Policy should be referred to the Manager of Corporate Compliance or his/her designee. - ------------------------------------------------------------------------------- CLASSIFICATION OF The Policy is applicable to all employees of Mellon and all EMPLOYEES of its subsidiaries which are more than 50% owned by Mellon. This includes all full-time, part-time, benefited and non-benefited, exempt and non-exempt, domestic and international employees. It does not include consultants and contract or temporary employees, nor employees of subsidiaries which are 50% or less owned by Mellon. Although the Policy provisions generally have worldwide applicability, some sections of the Policy may conflict with the laws or customs of the countries in which Mellon operations are located. The Policy may be amended for operations outside the United States only with the approval of the Manager of Corporate Compliance. Employees are engaged in a wide variety of activities for Mellon. In light of the nature of their activities and the impact of federal and state laws and the regulations thereunder, the Policy imposes different requirements and limitations on employees based on the nature of their activities for Mellon. To assist employees in complying with the requirements and limitations imposed on them in light of their activities, employees are classified into one of four categories: Insider Risk Employee, Investment Employee, Access Decision Maker and Other Employee. Appropriate requirements and limitations are specified in the Policy based upon an employee's classification. Business line management, in conjunction with the Manager of Corporate Compliance, will determine the classification of each employee based on the following guidelines. Employees should confirm their classification with their Preclearance Compliance Officer or the Manager of Corporate Compliance. 1 INSIDER RISK You are considered to be an Insider Risk Employee if, in the EMPLOYEE normal conduct of your Mellon responsibilities, you are likely to receive or be perceived to possess or receive, material nonpublic information concerning Mellon's commercial credit or corporate finance customers. This will typically include certain employees in the credit, lending and leasing businesses, certain members of the Audit and Risk Review, and Legal Departments, and all members of the Senior Management Committee who are not Investment Employees. INVESTMENT You are considered to be an Investment Employee if, in the EMPLOYEE normal conduct of your Mellon responsibilities, you are likely to receive or be perceived to possess or receive, material nonpublic information concerning Mellon's trading in securities for Mellon's account or for the accounts of others, and/or if you provide investment advice. This will typically include: o certain employees in fiduciary securities sales and trading, investment management and advisory services, investment research and various trust or fiduciary functions; o an employee of a Mellon entity registered under the Investment Advisers Act of 1940 who is also an "Access Person" as defined by Rule 17j-1 of the Investment Company Act of 1940 (see glossary); and o any member of Mellon's Senior Management Committee who, as part of his/her usual duties, has management responsibility for fiduciary activities or routinely has access to information about customers' securities transactions. ACCESS DECISION A person designated as such by the Investment Ethics MAKER (ADM) Committee. Generally, this will be portfolio managers and research analysts who make recommendations or decisions regarding the purchase or sale of equity, convertible debt, and non-investment grade debt securities for mutual funds and other managed accounts. See further details in the Access Decision Maker edition of the Policy. OTHER You are considered to be an Other Employee if you are an EMPLOYEE employee of Mellon Financial Corporation or any of its direct or indirect subsidiaries who is not an Insider Risk Employee, Investment Employee, or an ADM. CONSULTANTS, Managers should inform consultants, independent contractors INDEPENDENT and temporary employees of the general provisions of the CONTRACTORS AND Policy (such as the prohibition on trading while in TEMPORARY possession of material nonpublic information), but generally EMPLOYEES they will not be required to preclear trades or report their personal securities holdings. If one of these persons would be considered an Insider Risk Employee, Investment Employee or Access Decision Maker if the person were a Mellon employee, the person's manager should advise the Manager of Corporate Compliance who will determine whether such individual should be subject to the preclearance and reporting requirements of the Policy. 2 PERSONAL SECURITIES TRADING PRACTICES SECTION ONE - APPLICABLE TO INSIDER RISK EMPLOYEES 3 CONTENTS - -------- PAGE ---- PERSONAL SECURITIES TRADING PRACTICES SECTION ONE - APPLICABLE TO INSIDER RISK EMPLOYEES Quick Reference - Insider Risk Employees 5 Standards of Conduct for Insider Risk Employees 6 --Conflict of Interest 6 --Material Nonpublic Information 6 --Brokers 6 --Personal Securities Transaction Reports 6 --Preclearance for Personal Securities Transactions 6 --Exemptions from Requirement to Preclear 7 --Gifting of Securities 8 --DRIPs, DPPs and AIPs 8 --Restricted List 8 --Confidential Treatment 9 Restrictions on Transactions in Mellon Securities 9 --Mellon 401(k) Plan 10 --Mellon Employee Stock Options 11 Restrictions on Transactions in Other Securities 11 --Prohibition on Investments in Securities of Financial Services Organizations Beneficial Ownership 13 Non-Mellon Employee Benefit Plans 13 Protecting Confidential Information --Insider Trading and Tipping 15 --The "Chinese Wall" GLOSSARY Definitions 43 Exhibit A - Sample Letter to Broker 49 4 QUICK REFERENCE - INSIDER RISK EMPLOYEES - ------------------------------------------------------------------------------- SOME THINGS 1. DUPLICATE STATEMENTS & CONFIRMATIONS - Instruct your broker, YOU MUST DO trust account manager or other entity through which you have a securities trading account to send directly to MANAGER OF CORPORATE COMPLIANCE, MELLON BANK, PO BOX 3130, PITTSBURGH, PA 15230-3130: o Trade confirmations summarizing each transaction o Periodic statements Exhibit B of this Policy can be used to notify your broker. This applies to all accounts in which you have a beneficial interest. (See Glossary) 2. PRECLEARANCE - Before initiating a securities transaction, written preclearance must be obtained from the Manager of Corporate Compliance. This can be done by completing a Preclearance Request Form and: o delivering the request to the Manager of Corporate Compliance, AIM 151-4340, o faxing the request to (412) 234-1516, or o contacting the Manager of Corporate Compliance for other available notification options. Preclearance Request Forms can be obtained from Corporate Compliance (412) 234-1661. If preclearance approval is received the trade must be executed before the end of the 3rd business day (with the date of approval being the 1st business day), at which time the preclearance approval will expire. 3. SPECIAL APPROVALS o Acquisition of securities in a Private Placement must be precleared by the employee's Department/Entity head and the Manager of Corporate Compliance. o Acquisition of securities through an allocation by the underwriter of an Initial Public Offering (IPO) is prohibited without the approval of the Manager of Corporate Compliance. Approval can be given only when the allocation is the result of a direct family relationship. - -------------------------------------------------------------------------------- SOME THINGS MELLON SECURITIES - The following transactions in Mellon YOU MUST NOT DO securities are prohibited for all Mellon Employees: o Short sales o Purchasing and selling or selling and purchasing within 60 days o Purchasing or selling during a blackout period o Margin purchases or options other than employee options. NON-MELLON SECURITIES - New investments in financial services organizations are prohibited for CERTAIN EMPLOYEES ONLY - see page 12. OTHER RESTRICTIONS are detailed throughout Section One. Read the Policy! ================ - -------------------------------------------------------------------------------- EXEMPTIONS Preclearance is NOT required for: --- o Purchases or sales of municipal bonds, non-financial commodities (such as agricultural futures, metals, oil, gas, etc.), currency futures, financial futures, index futures, index securities, securities issued by investment companies, commercial paper; CDs; bankers' acceptances; repurchase agreements; and direct obligations of the government of the United States. o Transactions in any account over which the employee has no direct or indirect control over the investment decision making process. o Transactions that are non-volitional on the part of an employee (such as stock dividends). 5 o Changes in elections under Mellon's 401(k) Retirement Savings Plan. o An exercise of an employee stock option administered by Human Resources. o Automatic reinvestment of dividends under a DRIP or Automatic Investment Plan. (Optional cash purchases under a DRIP or Direct Purchase Plan do require preclearance.) o Sales of securities pursuant to tender offers and sales or exercises of "Rights".(see page 8). - -------------------------------------------------------------------------------- QUESTIONS? (412) 234-1661 - -------------------------------------------------------------------------------- This page is for reference purposes only. Employees are reminded they must read the Policy and comply with its provisions. 5A - -------------------------------------------------------------------------------- STANDARDS OF Because of their particular responsibilities, Insider Risk CONDUCT FOR Employees are subject to preclearance and personal securities INSIDER RISK reporting requirements, as discussed below. EMPLOYEES Every Insider Risk Employee must follow these procedures or risk serious sanctions, including dismissal. If you have any questions about these procedures you should consult the Manager of Corporate Compliance. Interpretive issues that arise under these procedures shall be decided by, and are subject to the discretion of, the Manager of Corporate Compliance. CONFLICT OF No employee may engage in or recommend any securities INTEREST tansaction that places, or appears to place, his or her own interests above those of any customer to whom financial services are rendered, including mutual funds and managed accounts, or above the interests of Mellon. MATERIAL No employee may engage in or recommend a securities NONPUBLIC transaction, for his or her own benefit or for the benefit INFORMATION of others, including Mellon or its customers, while in possession of material nonpublic information regarding such securities. No employee may communicate material nonpublic information to others unless it is properly within his or her job responsibilities to do so. BROKERS Trading Accounts - All Insider Risk Employees are encouraged to conduct their personal investing through a Mellon affiliate brokerage account. This will assist in the monitoring of account activity on an ongoing basis in order to ensure compliance with the Policy. PERSONAL Trading Accounts - All Insider Risk Employees are required SECURITIES to instruct their broker, trust account manager or other TRANSACTIONS entity through which they have a securities trading account REPORTS to submit directly to the Manager of Corporate Compliance copies of all trade confirmations and statements relating to each account of which they are a beneficial owner regardless of what, if any, securities are maintained in such accounts. Thus, for example, even if the brokerage account contains only mutual funds or other exempt securities as that term is defined by the Policy and the account has the capability to have reportable securities traded in it, the Insider Risk Employee maintaining such an account must arrange for duplicate account statements and trade confirmations to be sent by the broker to the Manager of Corporate Compliance. An example of an instruction letter to a broker is contained in Exhibit A. PRECLEARANCE All Insider Risk Employees must notify the Manager of FOR PERSONAL Corporate Compliance in writing and receive preclearance SECURITIES before they engage in any purchase or sale of a TRANSACTIONS security. Insider Risk Employees should refer to the provisions under "Beneficial Ownership" below, which are applicable to these provisions. All requests for preclearance for a securities transaction shall be submitted by completing a Preclearance Request Form which can be obtained from the Manager of Corporate Compliance. The Manager of Corporate Compliance will notify the Insider Risk Employee whether the request is approved or denied, without disclosing the reason for such approval or denial. Notifications may be given in writing or verbally by the Manager of Corporate Compliance to the Insider Risk Employee. A record of such notification will be maintained by the Manager of Corporate Compliance. However, it shall be the responsibility of the Insider Risk Employee to obtain a written record of the Manager of Corporate Compliance's notification within 24 hours of such notification. The Insider Risk Employee should retain a copy of this written record. As there could be many reasons for preclearance being granted or denied, Insider Risk Employees should not infer from the preclearance response anything regarding the security for which preclearance was requested. 6 Although making a preclearance request does not obligate an Insider Risk Employee to do the transaction, it should be noted that: o preclearance requests should not be made for a transaction that the Insider Risk Employee does not intend to make. o preclearance authorization will expire at the end of the third business day after it is received. The day authorization is granted is considered the first business day. o Insider Risk Employees should not discuss with anyone else, inside or outside Mellon, the response they received to a preclearance request. If the Insider Risk Employee is preclearing as beneficial owner of another's account, the response may be disclosed to the other owner. o Good Until Canceled/Stop Loss Orders ("Limit Orders") must be precleared, and security transactions receiving preclearance authorization must be executed before the preclearance expires. At the end of the three-day preclearance authorization period, any unexecuted Limit Order must be canceled or a new preclearance authorization must be obtained. EXEMPTIONS FROM Preclearance by Insider Risk Employees is not required for REQUIREMENT TO the following transactions: PRECLEAR o Purchases or sales of Exempt Securities (direct obligations of the government of the United States; high quality short-term debt instruments; bankers' acceptances; CDs; commercial paper; repurchase agreements; and securities issued by open-end investment companies); o Purchases or sales of municipal bonds, closed-end mutual funds; non-financial commodities (such as agricultural futures, metals, oil, gas, etc.), currency futures, financial futures, index futures and index securities; o Purchases or sales effected in any account over which an employee has no direct or indirect control over the investment decision making process (e.g., discretionary trading accounts). Discretionary trading accounts may only be exempted from preclearance procedures, when the Manager of Corporate Compliance, after a thorough review, is satisfied that the account is truly discretionary; o Transactions that are non-volitional on the part of an employee (such as stock dividends); o The sale of Mellon stock received upon the exercise of an employee stock option if the sale is part of a "netting of shares" or "cashless exercise" administered by the Human Resources Department (for which the Human Resources Department will forward information to the Manager of Corporate Compliance); o Changes to elections in the Mellon 401(k) plan; o Purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of securities, to the extent such rights were acquired from such issuer; o Sales of rights acquired from an issuer, as described above; and/or o Sales effected pursuant to a bona fide tender offer. 7 GIFTING OF Insider Risk Employees desiring to make a bona fide gift of SECURITIES securities or who receive a bona fide gift, including an inheritance, of securities do not need to preclear the transaction. However, Insider Risk Employees must report such bona fide gifts to the Manager of Corporate Compliance. The report must be made within 10 days of making or receiving the gift and must disclose the following information: the name of the person receiving (giving) the gift, the date of the transaction, and the name of the broker through which the transaction was effected. A bona fide gift is one where the donor does not receive anything of monetary value in return. An Insider Risk Employee who purchases a security with the intention of making a gift must preclear the purchase transaction. DRIPS, DPPS AND Certain companies with publicly traded securities establish: AIPS o Dividend Reinvestment Plans (DRIPs) - These permit shareholders to have their dividend payments channeled to the purchase of additional shares of such company's stock. An additional benefit offered to DRIP participants is the right to buy additional shares by sending in a check before the dividend reinvestment date ("optional cash purchases"). o Direct Purchase Plans (DPPs) - These allow purchasers to buy stock by sending a check directly to the issuer, without using a broker. o Automatic Investment Plans (AIPs) - These allow purchasers to set up a plan whereby a fixed amount of money is automatically deducted from their checking account each month and used to purchase stock directly from the issuer. Participation in a DRIP, DPP or AIP is voluntary. Insider Risk Employees who enroll in a DRIP or AIP are not required to preclear enrollment, the periodic reinvestment of dividend payments into additional shares of company stock through a DRIP, or the periodic investments through an AIP. Insider Risk Employees must preclear all optional cash purchases through a DRIP and all purchases through a DPP. Insider Risk Employees must also preclear all sales through a DRIP, DPP or AIP. RESTRICTED LIST The Manager of Corporate Compliance will maintain a list (the "Restricted List") of companies whose securities are deemed appropriate for implementation of trading restrictions for Insider Risk Employees. The Restricted List will not be distributed outside of the office of Corporate Compliance. From time to time, such trading restrictions may be appropriate to protect Mellon and its Insider Risk Employees from potential violations, or the appearance of violations, of securities laws. The inclusion of a company on the Restricted List provides no indication of the advisability of an investment in the company's securities or the existence of material nonpublic information on the company. Nevertheless, the contents of the Restricted List will be treated as confidential information to avoid unwarranted inferences. To assist the Manager of Corporate Compliance in identifying companies that may be appropriate for inclusion on the Restricted List, the department/entity heads in which Insider Risk Employees are employed are required to inform the Manager of Corporate Compliance in writing of any companies they believe should be included on the Restricted List, based upon facts known or readily available to such department heads. Although the reasons for inclusion on the Restricted List may vary, they could typically include the following: o Mellon is involved as a lender, investor or adviser in a merger, acquisition or financial restructuring involving the company; o Mellon is involved as a selling shareholder in a public distribution of the company's securities; 8 o Mellon is involved as an agent in the distribution of the company's securities; o Mellon has received material nonpublic information on the company; o Mellon is considering the exercise of significant creditors' rights against the company; or o The company is a Mellon borrower in Credit Recovery. Department heads of sections in which Insider Risk Employees are employed are also responsible for notifying the Manager of Corporate Compliance in writing of any change in circumstances making it appropriate to remove a company from the Restricted List. The Manager of Corporate Compliance will retain copies of the restricted lists for five years. CONFIDENTIAL The Manager of Corporate Compliance will use his or her best TREATMENT efforts to assure that all requests for preclearance, all personal securities transaction reports and all reports of securities holdings are treated as "Personal and Confidential." However, such documents will be available for inspection by appropriate regulatory agencies and by other parties within and outside Mellon as are necessary to evaluate compliance with or sanctions under this Policy. - -------------------------------------------------------------------------------- RESTRICTIONS ON Employees who engage in transactions involving Mellon TRANSACTIONS IN securities should be aware of their unique responsibilities MELLON with respect to such transactions arising from the SECURITIES employment relationship and should be sensitive to even the appearance of impropriety. The following restrictions apply to all transactions in Mellon's publicly traded securities occurring in the employee's own account and in all other accounts over which the employee could be presumed to exercise influence or control (see provisions under "Beneficial Ownership" below for a more complete discussion of the accounts to which these restrictions apply). These restrictions are to be followed in addition to any restrictions that apply to particular officers or directors (such as restrictions under Section 16 of the Securities Exchange Act of 1934). o Short Sales - Short sales of Mellon securities by employees are prohibited. o Short Term Trading - Employees are prohibited from purchasing and selling, or from selling and purchasing, Mellon securities within any 60 calendar day period. o Margin Transactions - Purchases on margin of Mellon's publicly traded securities by employees is prohibited. Margining Mellon securities in connection with a cashless exercise of an employee stock option through the Human Resources Department is exempt from this restriction. Further, Mellon securities may be used to collateralize loans or the acquisition of securities other than those issued by Mellon. o Option Transactions - Option transactions involving Mellon's publicly traded securities are prohibited. Transactions under Mellon's Long-Term Incentive Plan or other employee option plans are exempt from this restriction. o Major Mellon Events - Employees who have knowledge of major Mellon events that have not yet been announced are prohibited from buying or selling Mellon's publicly traded securities before such public announcements, even if the employee believes the event does not constitute material nonpublic information. 9 o Mellon Blackout Period - Employees are prohibited from buying or selling Mellon's publicly traded securities during a blackout period. The blackout period begins the 16th day of the last month of each calendar quarter and ends 3 business days after Mellon Financial Corporation publicly announces the financial results for that quarter. Thus, the blackout periods begin on March 16, June 16, September 16 and December 16. The end of the blackout period is determined by counting business days only, and the day of the earnings announcement is day 1. The blackout period ends at the end of day 3, and employees can trade Mellon securities on day 4. MELLON 401(K) For purposes of the blackout period and the short term PLAN trading rule, employees' changing their existing account balance allocation to increase or decrease the amount allocated to Mellon Common Stock will be treated as a purchase or sale of Mellon Stock, respectively. This means: o Employees are prohibited from increasing or decreasing their existing account balance allocation to Mellon Common Stock during the blackout period. o Employees are prohibited from increasing their existing account balance allocation to Mellon Common Stock and then decreasing it within 60 days. Similarly, employees are prohibited from decreasing their existing account balance allocation to Mellon Common Stock and then increasing it within 60 days. However, changes to existing account balance allocations in the 401(k) plan will not be compared to transactions in Mellon securities outside the 401(k) for purposes of the 60-day rule. (Note: this does not apply to members of the Executive Management Group, who should consult with the Legal Department.) Except for the above there are no other restrictions applicable to the 401(k) plan. This means, for example: o Employees are not required to preclear any elections or changes made in their 401(k) account. o There is no restriction on employees' changing their salary deferral contribution percentages with regard to either the blackout period or the 60-day rule. o The regular salary deferral contribution to Mellon Common Stock in the 401(k) that takes place with each pay will not be considered a purchase for the purposes of either the blackout or the 60-day rule. MELLON EMPLOYEE Receipt - Your receipt of an employee stock option from STOCK OPTIONS Mellon is not deemed to be a purchase of a security. Therefore, it is exempt from preclearance and reporting requirements, can take place during the blackout period and does not constitute a purchase for purposes of the 60-day prohibition. Exercises - The exercise of an employee stock option that results in your holding the shares is exempt from preclearance and reporting requirements, can take place during the blackout period and does not constitute a purchase for purposes of the 60-day prohibition. "Cashless" Exercises - The exercise of an employee stock option which is part of a "cashless exercise" or "netting of shares" that is administered by the Human Resources Department or Chase Mellon Shareholder Services is exempt from the preclearance and reporting requirements and will not constitute a purchase or a sale for purposes of the 60-day prohibition. A "cashless exercise" or "netting of shares" transaction is permitted during the blackout period for ShareSuccess plan options only. They are not permitted during the blackout period for any other plan options. 10 Sales - The sale of the Mellon securities that were received in the exercise of an employee stock option is treated like any other sale under the Policy (regardless of how little time has elapsed between the option exercise and the sale). Thus, such sales are subject to the preclearance and reporting requirements, are prohibited during the blackout period and constitute sales for purposes of the 60-day prohibition. - -------------------------------------------------------------------------------- RESTRICTIONS ON Purchases or sales by an employee of the securities of TRANSACTIONS IN issuers with which Mellon does business, or other third OTHER party issuers, could result in liability on the part of such SECURITIES employee. Employees should be sensitive to even the appearance of impropriety in connection with their personal securities transactions. Employees should refer to "Beneficial Ownership" below, which is applicable to the following restrictions. The Mellon Code of Conduct contains certain restrictions on investments in parties that do business with Mellon. Employees should refer to the Code of Conduct and comply with such restrictions in addition to the restrictions and reporting requirements set forth below. The following restrictions apply to all securities transactions by employees: o Credit, Consulting or Advisory Relationship - Employees may not buy or sell securities of a company if they are considering granting, renewing, modifying or denying any credit facility to that company, acting as a benefits consultant to that company, or acting as an adviser to that company with respect to the company's own securities. In addition, lending employees who have assigned responsibilities in a specific industry group are not permitted to trade securities in that industry. This prohibition does not apply to transactions in open end mutual funds. o Customer Transactions - Trading for customers and Mellon accounts should always take precedence over employees' transactions for their own or related accounts. o Excessive Trading, Naked Options - Mellon discourages all employees from engaging in short-term or speculative trading, in trading naked options, in trading that could be deemed excessive or in trading that could interfere with an employee's job responsibilities. o Front Running - Employees may not engage in "front running," that is, the purchase or sale of securities for their own accounts on the basis of their knowledge of Mellon's trading positions or plans. o Initial Public Offerings - Insider Risk Employees are prohibited from acquiring securities through an allocation by the underwriter of an Initial Public Offering (IPO) without the approval of the Manager of Corporate Compliance. Approval can be given only when the allocation comes through an employee of the issuer who is a direct family relation of the Insider Risk Employee. Due to NASD rules, this approval may not be available to employees of registered broker/dealers. o Material Nonpublic Information - Employees possessing material nonpublic information regarding any issuer of securities must refrain from purchasing or selling securities of that issuer until the information becomes public or is no longer considered material. 11 o Private Placements - Insider Risk Employees are prohibited from acquiring any security in a private placement unless they obtain the prior written approval of the Manager of Corporate Compliance and the employee's department head. Approval must be given by both persons for the acquisition to be considered approved. After receipt of the necessary approvals and the acquisition, employees are required to disclose that investment if they participate in any subsequent consideration of credit for the issuer, or of an investment in the issuer for an advised account. Final decision to acquire such securities for an advised account will be subject to independent review. o Scalping - Employees may not engage in "scalping," that is, the purchase or sale of securities for their own or Mellon's accounts on the basis of knowledge of customers' trading positions or plans. o Short Term Trading - All Employees are discouraged from purchasing and selling, or from selling and purchasing, the same (or equivalent) securities within any 60 calendar day period. PROHIBITION ON You are prohibited from acquiring any security issued by a INVESTMENTS IN financial services organization if you are: SECURITIES OF FINANCIAL o a member of the Mellon Senior Management Committee. SERVICES ORGANIZATIONS o employed in any of the following departments: o Corporate Strategy & Development o Legal (Pittsburgh only) o Finance (Pittsburgh only) o an employee specifically designated by the Manager of Corporate Compliance and informed that this prohibition is applicable to you. Financial Services Organizations - The term "security issued by a financial services organization" includes any security issued by: - Commercial Banks other than - Thrifts Mellon - Savings and Loan - Bank Holding Companies other Associations than Mellon - Broker/Dealers - Insurance Companies - Transfer Agents - Investment Advisory Companies - Other Depository - Shareholder Servicing Companies Institutions The term "securities issued by a financial services organization" DOES NOT INCLUDE securities issued by mutual funds, variable annuities or insurance policies. Further, for purposes of determining whether a company is a financial services organization, subsidiaries and parent companies are treated as separate issuers. Effective Date - Securities of financial services organizations properly acquired before the employee's becoming subject to this prohibition may be maintained or disposed of at the owner's discretion consistent with this policy. 12 Additional securities of a financial services organization acquired through the reinvestment of the dividends paid by such financial services organization through a dividend reinvestment program (DRIP), or through an automatic investment plan (AIP) are not subject to this prohibition, provided the employee's election to participate in the DRIP or AIP predates the date of the employee's becoming subject to this prohibition. Optional cash purchases through a DRIP or direct purchase plan (DPP) are subject to this prohibition. Securities acquired in any account over which an employee has no direct or indirect control over the investment decision making process (e.g., discretionary trading accounts) are not subject to this prohibition. Within 30 days of becoming subject to this prohibition, all holdings of securities of financial services organizations must be disclosed in writing to the Manager of Corporate Compliance. BENEFICIAL The provisions of the Policy apply to transactions in the OWNERSHIP employee's own name and to all other accounts over which the employee could be presumed to exercise influence or control, including: o accounts of a spouse, minor children or relatives to whom substantial support is contributed; o accounts of any other member of the employee's household (e.g., a relative living in the same home); o trust or other accounts for which the employee acts as trustee or otherwise exercises any type of guidance or influence; o corporate accounts controlled, directly or indirectly, by the employee; o arrangements similar to trust accounts that are established for bona fide financial purposes and benefit the employee; and o any other account for which the employee is the beneficial owner (see Glossary for a more complete legal definition of "beneficial owner"). NON-MELLON The provisions discussed above do not apply to transactions EMPLOYEE BENEFIT done under a bona fide employee benefit plan administered by an PLANS organization not affiliated with Mellon and by an employee of that organization who shares beneficial interest with a Mellon employee, and in the securities of the employing organization. This means if a Mellon employee's spouse is employed at a non-Mellon company, the Mellon employee is not required to obtain approval for transactions in the employer's securities done by the spouse as part of the spouse's employee benefit plan. The Securities Trading Policy does not apply in such a situation. Rather, the other organization is relied upon to provide adequate supervision with respect to conflicts of interest and compliance with securities laws. - -------------------------------------------------------------------------------- PROTECTING As an employee you may receive information about Mellon, its CONFIDENTIAL customers and other parties that, for various reasons, INFORMATION should be treated as confidential. All employees are expected to strictly comply with measures necessary to preserve the confidentiality of information. Employees should refer to the Mellon Code of Conduct. INSIDER TRADING Federal securities laws generally prohibit the trading of AND TIPPING securities while in possession of "material nonpublic" information regarding the issuer of those securities (insider trading). 13 LEGAL PROHIBITIONS Any person who passes along material nonpublic information upon which a trade is based (tipping) may also be liable. Information is "material" if there is a substantial likelihood that a reasonable investor would consider it important in deciding whether to buy, sell or hold securities. Obviously, information that would affect the market price of a security would be material. Examples of information that might be material include: o a proposal or agreement for a merger, acquisition or divestiture, or for the sale or purchase of substantial assets; o tender offers, which are often material for the party making the tender offer as well as for the issuer of the securities for which the tender offer is made; o dividend declarations or changes; o extraordinary borrowings or liquidity problems; o defaults under agreements or actions by creditors, customers or suppliers relating to a company's credit standing; o earnings and other financial information, such as large or unusual write-offs, write-downs, profits or losses; o pending discoveries or developments, such as new products, sources of materials, patents, processes, inventions or discoveries of mineral deposits; o a proposal or agreement concerning a financial restructuring; o a proposal to issue or redeem securities, or a development with respect to a pending issuance or redemption of securities; o a significant expansion or contraction of operations; o information about major contracts or increases or decreases in orders; o the institution of, or a development in, litigation or a regulatory proceeding; o developments regarding a company's senior management; o information about a company received from a director of that company; and o information regarding a company's possible noncompliance with environmental protection laws. This list is not exhaustive. All relevant circumstances must be considered when determining whether an item of information is material. "Nonpublic" - Information about a company is nonpublic if it is not generally available to the investing public. Information received under circumstances indicating that it is not yet in general circulation and which may be attributable, directly or indirectly, to the company or its insiders is likely to be deemed nonpublic information. 14 If you obtain material non-public information you may not trade related securities until you can refer to some public source to show that the information is generally available (that is, available from sources other than inside sources) and that enough time has passed to allow wide dissemination of the information. While information appearing in widely accessible sources--such as in newspapers or on the internet--becomes public very soon after publication, information appearing in less accessible sources--such as regulatory filings, may take up to several days to be deemed public. Similarly, highly complex information might take longer to become public than would information that is easily understood by the average investor. MELLON'S POLICY Employees who possess material nonpublic information about a company--whether that company is Mellon, another Mellon entity, a Mellon customer or supplier, or other company--may not trade in that company's securities, either for their own accounts or for any account over which they exercise investment discretion. In addition, employees may not recommend trading in those securities and may not pass the information along to others, except to employees who need to know the information in order to perform their job responsibilities with Mellon. These prohibitions remain in effect until the information has become public. Employees who have investment responsibilities should take appropriate steps to avoid receiving material nonpublic information. Receiving such information could create severe limitations on their ability to carry out their responsibilities to Mellon's fiduciary customers. Employees managing the work of consultants and temporary employees who have access to the types of confidential information described in this Policy are responsible for ensuring that consultants and temporary employees are aware of Mellon's policy and the consequences of noncompliance. Questions regarding Mellon's policy on material nonpublic information, or specific information that might be subject to it, should be referred to the General Counsel. RESTRICTIONS ON As a diversified financial services organization, Mellon THE faces unique challenges in complying with the prohibitions FLOW OF on insider trading and tipping of material non-public INFORMATION information, and misuse of confidential information. This is WITHIN because one Mellon unit might have material nonpublic MELLON information about a company while other Mellon units may (THE "CHINESE have a desire, or even a fiduciary duty, to buy or sell that WALL) company's securities or recommend such purchases or sales to customers. To engage in such broad-ranging financial services activities without violating laws or breaching Mellon's fiduciary duties, Mellon has established a "Chinese Wall" policy applicable to all employees. The "Chinese Wall" separates the Mellon units or individuals that are likely to receive material nonpublic information (Potential Insider Functions) from the Mellon units or individuals that either trade in securities--for Mellon's account or for the accounts of others--or provide investment advice (Investment Functions). Employees should refer to CPP 903-2(C) The Chinese Wall. have a desire, or even a fiduciary duty, to buy or sell that company's securities or recommend such purchases or sales to customers. To engage in such broad-ranging financial services activities without violating laws or breaching Mellon's fiduciary duties, Mellon has established a "Chinese Wall" policy applicable to all employees. The "Chinese Wall" separates the Mellon units or individuals that are likely to receive material nonpublic information (Potential Insider Functions) from the Mellon units or individuals that either trade in securities--for Mellon's account or for the accounts of others--or provide investment advice (Investment Functions). Employees should refer to CPP 903-2(C) The Chinese Wall. 15 PERSONAL SECURITIES TRADING PRACTICES SECTION TWO - APPLICABLE TO INVESTMENT EMPLOYEES 16 CONTENTS PAGE - -------- ---- PERSONAL SECURITIES TRADING PRACTICES SECTION TWO - APPLICABLE TO INVESTMENT EMPLOYEES Quick Reference - Investment Employees .......................19 Standards of Conduct for Investment Employees ................20 --Conflict of Interest .....................................20 --Material Nonpublic Information ...........................20 --Brokers ..................................................20 --Personal Securities Transaction Reports ..................20 --Preclearance for Personal Securities Transactions ........21 --Blackout Policy ..........................................22 --Exemptions from Requirement to Preclear ..................22 --Gifting of Securities ....................................22 --DRIPs, DPPs and AIPs .....................................23 --Statement of Securities Accounts and Holdings ............23 --Restricted List ..........................................24 --Confidential Treatment ...................................24 Restrictions on Transactions in Mellon Securities ............24 --Mellon 401(k) Plan .......................................25 --Mellon Employee Stock Options ............................26 Restrictions on Transactions in Other Securities .............26 --Prohibition on Investments in Securities of Financial Services Organizations .........................27 Beneficial Ownership .........................................28 Non-Mellon Employee Benefit Plans ............................28 Protecting Confidential Information ..........................29 --Insider Trading and Tipping ..............................29 --The "Chinese Wall" .......................................30 Special Procedures for Access Decision Makers ................30 GLOSSARY Definitions ..................................................43 Exhibit A - Sample Letter to Broker ..........................49 17 QUICK REFERENCE - INVESTMENT EMPLOYEES - ----------------------------------------------------------------------------- SOME THINGS 1. Statement of Accounts and Holdings - Provide to your YOU MUST DO Preclearance Compliance Officer a statement of all securities accounts and holdings within 10 days of becoming an Investment Employee, and again annually on request. 2. Duplicate Statements & Confirmations - Instruct your broker, trust account manager or other entity through which you have a securities trading account to send directly to Compliance: o Trade confirmations summarizing each transaction o Periodic statements Exhibit A can be used to notify your broker. Contact your designated Preclearance Compliance Officer for the correct address. This applies to all accounts in which you have a beneficial interest. 3. Preclearance - Before initiating a securities transaction, written preclearance must be obtained from the designated Preclearance Compliance Officer. This can be accomplished by completing a Preclearance Request Form and: o delivering or faxing the request to the designated Preclearance Compliance Officer, or o contacting the designated Preclearance Compliance Officer for other available notification options. Preclearance Request Forms can be obtained from the designated Preclearance Compliance Officer. If preclearance approval is received the trade must be communicated to the broker on the same day, and executed before the end of the next business day, at which time the preclearance approval will expire. 4. Special Approvals o Acquisition of securities in a Private Placement must be precleared by the employee's Department/Entity head, the Manager of Corporate Compliance and the designated Preclearance Compliance Officer. o Acquisition of securities through an allocation by the underwriter of an Initial Public Offering (IPO) is prohibited without the approval of the Manager of Corporate Compliance. Approval can be given only when the allocation is the result of a direct family relationship. - ----------------------------------------------------------------------------- SOME THINGS Mellon Securities - The following transactions in Mellon YOU MUST NOT securities are prohibited for all Mellon Employees: DO o Short sales o Purchasing and selling or selling and purchasing within 60 days o Purchasing or selling during a blackout period o Margin purchases or options other than employee options. Non-Mellon Securities o Purchasing and selling or selling and purchasing within 60 days is discouraged, and any profits must be disgorged. o New investments in financial services organizations are prohibited for certain employees only - see page 27. Other restrictions are detailed throughout Section Two. Read the Policy! - ----------------------------------------------------------------------------- EXEMPTIONS Preclearance is NOT required for: o Purchases or sales of high quality short-term debt instruments, non-financial commodities (such as agricultural futures, metals, oil, gas, etc.), currency futures, financial futures, index futures, index securities, open-end mutual funds, non-affiliated closed-end investment companies, commercial paper; CDs; bankers' acceptances; repurchase agreements; and direct obligations of the government of the United States.) o Transactions in any account over which the employee has no direct or indirect control over the investment decision making process. o Transactions that are non-volitional on the part of an employee (such as stock dividends). o Changes in elections under Mellon's 401(k) Retirement Savings Plan. o An exercise of an employee stock option administered by Human Resources. o Automatic reinvestment of dividends under a DRIP or Automatic Investment Plan. (Optional cash purchases under a DRIP or Direct Purchase Plan do require preclearance. o Sales of securities pursuant to tender offers and sales or exercises of "Rights".(see page 22). - ----------------------------------------------------------------------------- QUESTIONS? Contact your designated Preclearance Compliance Officer. If you don't know who that is, call 412-234-1661 - ----------------------------------------------------------------------------- This page is for reference purposes only. Employees are reminded they must read the Policy and comply with its provisions. 18 - ----------------------------------------------------------------------------- STANDARDS OF Because of their particular responsibilities, Investment CONDUCT FOR Employees are subject to preclearance and personal INVESTMENT securities reporting requirements, as discussed below. EMPLOYEES Every Investment Employee must follow these procedures or risk serious sanctions, including dismissal. If you have any questions about these procedures you should consult the Manager of Corporate Compliance. Interpretive issues that arise under these procedures shall be decided by, and are subject to the discretion of, the Manager of Corporate Compliance. CONFLICT OF No employee may engage in or recommend any securities INTEREST transaction that places, or appears to place, his or her own interests above those of any customer to whom financial services are rendered, including mutual funds and managed accounts, or above the interests of Mellon. MATERIAL No employee may divulge the current portfolio positions, or NONPUBLIC current or anticipated portfolio transactions, programs or INFORMATION studies, of Mellon or any Mellon customer to anyone unless it is properly within his or her job responsibilities to do so. No employee may engage in or recommend a securities transaction, for his or her own benefit or for the benefit of others, including Mellon or its customers, while in possession of material nonpublic information regarding such securities. No employee may communicate material nonpublic information to others unless it is properly within his or her job responsibilities to do so. BROKERS Trading Accounts - All Investment Employees are encouraged to conduct their personal investing through a Mellon affiliate brokerage account. This will assist in the monitoring of account activity on an ongoing basis in order to ensure compliance with the Policy. PERSONAL Statements & Confirmations - All Investment Employees are SECURITIES required to instruct their broker, trust account manager or TRANSACTIONS other entity through which they have a securities trading REPORTS account to submit directly to the Manager of Corporate Compliance or designated Preclearance Compliance Officer copies of all trade confirmations and statements relating to each account of which they are a beneficial owner regardless of what, if any, securities are maintained in such accounts. Thus, for example, even if the brokerage account contains only mutual funds or other exempt securities as that term is defined by the Policy and the account has the capability to have reportable securities traded in it, the Investment Employee maintaining such an account must arrange for duplicate account statements and trade confirmations to be sent by the broker to the Manager of Corporate Compliance or designated Preclearance Compliance Officer. Exhibit A is an example of an instruction letter to a broker. Other securities transactions which were not completed through a brokerage account, such as gifts, inheritances, spin-offs from securities held outside brokerage accounts, or other transfers must be reported to the designated Preclearance Compliance Officer within 10 days. 19 PRECLEARANCE All Investment Employees must notify the designated FOR PERSONAL Preclearance Compliance Officer in writing and receive SECURITIES preclearance before they engage in any purchase or sale of TRANSACTIONS a security for their own accounts. Investment Employees should refer to the provisions under "Beneficial Ownership" below, which are applicable to these provisions. All requests for preclearance for a securities transaction shall be submitted by completing a Preclearance Request Form which can be obtained from the designated Preclearance Compliance Officer. The designated Preclearance Compliance Officer will notify the Investment Employee whether the request is approved or denied, without disclosing the reason for such approval or denial. Notifications may be given in writing or verbally by the designated Preclearance Compliance Officer to the Investment Employee. A record of such notification will be maintained by the designated Preclearance Compliance Officer. However, it shall be the responsibility of the Investment Employee to obtain a written record of the designated Preclearance Compliance Officer's notification within 48 hours of such notification. The Investment Employee should retain a copy of this written record. As there could be many reasons for preclearance being granted or denied, Investment Employees should not infer from the preclearance response anything regarding the security for which preclearance was requested. Although making a preclearance request does not obligate an Investment Employee to do the transaction, it should be noted that: o Preclearance requests should not be made for a transaction that the Investment Employee does not intend to make. o The order for a transaction must be placed with the broker on the same day that preclearance authorization is received. The broker must execute the trade close of business on the next business day, at which time the preclearance authorization will expire. o Investment Employees should not discuss with anyone else, inside or outside Mellon, the response they received to a preclearance request. If the Investment Employee is preclearing as beneficial owner of another's account, the response may be disclosed to the other owner. o Good Until Canceled/Stop Loss Orders ("Limit Orders") must be precleared, and security transactions receiving preclearance authorization must be executed before the preclearance expires. At the end of the preclearance authorization period, any unexecuted Limit Order must be canceled or a new preclearance authorization must be obtained. BLACKOUT POLICY Except as described below, Investment Employees will not generally be given clearance to execute a transaction in any security that is on the restricted list maintained by their Preclearance Compliance Officer, or for which there is a pending buy or sell order for an affiliated account. This provision does not apply to transactions effected or contemplated by index funds. Exceptions - Regardless of any restrictions above, Investment Employees will generally be given clearance to execute the following transactions: o Purchase or sale of up to $50,000 of securities of the top 200 issuers on the Russell list of largest publicly traded companies. o Purchase or sale of up to the greater of 100 shares or $10,000 of securities ranked 201 to 500 on the Russell list of largest publicly traded companies. The Investment Employee is limited to two such trades in the securities of any one issuer in any calendar month. 20 EXEMPTIONS Preclearance is not required for the following transactions: FROM REQUIREMENT TO o Purchases or sales of Exempt Securities (direct PRECLEAR obligations of the government of the United States; high quality short-term debt instruments; bankers' acceptances; CDs; commercial paper; repurchase agreements; and securities issued by open-end investment companies); o Purchases or sales of non-affiliated closed-end investment companies; non-financial commodities (such as agricultural futures, metals, oil, gas, etc.), currency futures, financial futures, index futures and index securities; o Purchases or sales effected in any account over which an employee has no direct or indirect control over the investment decision making process (e.g., discretionary trading accounts). Discretionary trading accounts may only be maintained, without being subject to preclearance procedures, when the Manager of Corporate Compliance, after a thorough review, is satisfied that the account is truly discretionary; o Transactions that are non-volitional on the part of an employee (such as stock dividends); o The sale of Mellon stock received upon the exercise of an employee stock option if the sale is part of a "netting of shares" or "cashless exercise" administered by the Human Resources Department (for which the Human Resources Department will forward information to the Manager of Corporate Compliance); o Changes to elections in the Mellon 401(k) plan; o Purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of securities, to the extent such rights were acquired from such issuer; o Sales of rights acquired from an issuer, as described above; and/or o Sales effected pursuant to a bona fide tender offer. GIFTING OF Investment Employees desiring to make a bona fide gift of SECURITIES securities or who receive a bona fide gift of securities do not need to preclear the transaction. However, Investment Employees must report such bona fide gifts to the Manager of Corporate Compliance. The report must be made within 10 days of making or receiving the gift and must disclose the following information: the name of the person receiving (giving) the gift, the date of the transaction, and the name of the broker through which the transaction was effected. A bona fide gift is one where the donor does not receive anything of monetary value in return. An Investment Employee who purchases a security with the intention of making a gift must preclear the purchase transaction. 21 DRIPS, DPPS Certain companies with publicly traded securities establish: AND AIPS o Dividend Reinvestment Plans (DRIPs) - These permit shareholders to have their dividend payments channeled to the purchase of additional shares of such company's stock. An additional benefit offered to DRIP participants is the right to buy additional shares by sending in a check before the dividend reinvestment date ("optional cash purchases"). o Direct Purchase Plans (DPPs) - These allow purchasers to buy stock by sending a check directly to the issuer, without using a broker. o Automatic Investment Plans (AIPs) - These allow purchasers to set up a plan whereby a fixed amount of money is automatically deducted from their checking account each month and used to purchase stock directly from the issuer. Participation in a DRIP, DPP or AIP is voluntary. Investment Employees who enroll in a DRIP or AIP are not required to preclear enrollment, the periodic reinvestment of dividend payments into additional shares of company stock through a DRIP, or the periodic investments through an AIP. Investment Employees must preclear all optional cash purchases through a DRIP and all purchases through a DPP. Investment Employees must also preclear all sales through a DRIP, DPP or AIP. STATEMENT OF Within ten days of receiving this Policy and on an annual SECURITIES basis thereafter, all Investment Employees must submit to ACCOUNTS AND the Manager of Corporate Compliance: HOLDINGS o a listing of all securities trading accounts in which the employee has a beneficial interest. o a statement of all securities in which they presently have any direct or indirect beneficial ownership other than Exempt Securities, as defined in the Glossary. The annual report must be completed upon the request of Corporate Compliance, and the information submitted must be current within 30 days of the date the report is submitted. The annual statement of securities holdings contains an acknowledgment that the Investment Employee has read and complied with this Policy. 22 RESTRICTED LIST Each Preclearance Compliance Officer will maintain a list (the "Restricted List") of companies whose securities are deemed appropriate for implementation of trading restrictions for Investment Employees in their area. From time to time, such trading restrictions may be appropriate to protect Mellon and its Investment Employees from potential violations, or the appearance of violations, of securities laws. The inclusion of a company on the Restricted List provides no indication of the advisability of an investment in the company's securities or the existence of material nonpublic information on the company. Nevertheless, the contents of the Restricted List will be treated as confidential information in order to avoid unwarranted inferences. The Preclearance Compliance Officer will retain copies of the restricted lists for five years. CONFIDENTIAL The Manager of Corporate Compliance and/or Preclearance TREATMENT Compliance Officer will use his or her best efforts to assure that all requests for preclearance, all personal securities transaction reports and all reports of securities holdings are treated as "Personal and Confidential." However, such documents will be available for inspection by appropriate regulatory agencies, and by other parties within and outside Mellon as are necessary to evaluate compliance with or sanctions under this Policy. Documents received from Investment Employees are also available for inspection by the boards of directors of 40-Act entities and by the boards of directors (or trustees or managing general partners, as applicable) of the investment companies managed or administered by 40-Act entities. - ----------------------------------------------------------------------------- RESTRICTIONS Investment Employees who engage in transactions involving ON Mellon securities should be aware of their unique TRANSACTIONS responsibilities with respect to such transactions arising IN MELLON from the employment relationship and should be sensitive to SECURITIES even the appearance of impropriety. The following restrictions apply to all transactions in Mellon's publicly traded securities occurring in the employee's own account and in all other accounts over which the employee could be presumed to exercise influence or control (see provisions under "Beneficial Ownership" below for a more complete discussion of the accounts to which these restrictions apply). These restrictions are to be followed in addition to any restrictions that apply to particular officers or directors (such as restrictions under Section 16 of the Securities Exchange Act of 1934). o Short Sales - Short sales of Mellon securities by employees are prohibited. o Short Term Trading - Investment Employees are prohibited from purchasing and selling, or from selling and purchasing Mellon securities within any 60 calendar day period. In addition to any other sanction, any profits realized on such short term trades must be disgorged in accordance with procedures established by senior management. o Margin Transactions - Purchases on margin of Mellon's publicly traded securities by employees is prohibited. Margining Mellon securities in connection with a cashless exercise of an employee stock option through the Human Resources Department is exempt from this restriction. Further, Mellon securities may be used to collateralize loans or the acquisition of securities other than those issued by Mellon. o Option Transactions - Option transactions involving Mellon's publicly traded securities are prohibited. Transactions under Mellon's Long-Term Incentive Plan or other employee option plans are exempt from this restriction. 23 o Major Mellon Events - Employees who have knowledge of major Mellon events that have not yet been announced are prohibited from buying or selling Mellon's publicly traded securities before such public announcements, even if the employee believes the event does not constitute material nonpublic information. o Mellon Blackout Period - Employees are prohibited from buying or selling Mellon's publicly traded securities during a blackout period. The blackout period begins the 16th day of the last month of each calendar quarter and ends 3 business days after Mellon Financial Corporation publicly announces the financial results for that quarter. Thus, the blackout periods begin on March 16, June 16, September 16 and December 16. The end of the blackout period is determined by counting business days only, and the day of the earnings announcement is day 1. The blackout period ends at the end of day 3, and employees can trade Mellon securities on day 4. MELLON 401(K) For purposes of the blackout period and the short term PLAN trading rule, employees' changing their existing account balance allocation to increase or decrease the amount allocated to Mellon Common Stock will be treated as a purchase or sale of Mellon Stock, respectively. This means: o Employees are prohibited from increasing or decreasing their existing account balance allocation to Mellon Common Stock during the blackout period. o Employees are prohibited from increasing their existing account balance allocation to Mellon Common Stock and then decreasing it within 60 days. Similarly, employees are prohibited from decreasing their existing account balance allocation to Mellon Common Stock and then increasing it within 60 days. However: o with respect to Investment Employees, any profits realized on short term changes in the 401(k) will not have to be disgorged. o changes to existing account balance allocations in the 401(k) plan will not be compared to transactions in Mellon securities outside the 401(k) for purposes of the 60-day rule. (Note: this does not apply to members of the Executive Management Group, who should consult with the Legal Department.) Except for the above there are no other restrictions applicable to the 401(k) plan. This means, for example: o Employees are not required to preclear any elections or changes made in their 401(k) account. o There is no restriction on employees' changing their salary deferral contribution percentages with regard to either the blackout period or the 60-day rule. o The regular salary deferral contribution to Mellon Common Stock in the 401(k) that takes place with each pay will not be considered a purchase for the purposes of either the blackout or the 60-day rule. 24 MELLON Receipt - Your receipt of an employee stock option from EMPLOYEE STOCK Mellon is not deemed to be a purchase of a security. OPTIONS Therefore, it is exempt from preclearance and reporting requirements, can take place during the blackout period and does not constitute a purchase for purposes of the 60-day prohibition. Exercises - The exercise of an employee stock option that results in your holding the shares is exempt from preclearance and reporting requirements, can take place during the blackout period and does not constitute a purchase for purposes of the 60-day prohibition. "Cashless" Exercises - The exercise of an employee stock option which is part of a "cashless exercise" or "netting of shares" that is administered by the Human Resources Department or Chase Mellon Shareholder Services is exempt from the preclearance and reporting requirements and will not constitute a purchase or a sale for purposes of the 60-day prohibition. A "cashless exercise" or "netting of shares" transaction is permitted during the blackout period for ShareSuccess plan options only. They are not permitted during the blackout period for any other plan options. Sales - The sale of the Mellon securities that were received in the exercise of an employee stock option is treated like any other sale under the Policy (regardless of how little time has elapsed between the option exercise and the sale). Thus, such sales are subject to the preclearance and reporting requirements, are prohibited during the blackout period and constitute sales for purposes of the 60-day prohibition. - -------------------------------------------------------------------------------- RESTRICTIONS Purchases or sales by an employee of the securities of ON issuers with which Mellon does business, or other third TRANSACTIONS party issuers, could result in liability on the part of IN OTHER such employee. Employees should be sensitive to even the SECURITIES appearance of impropriety in connection with their personal securities transactions. Employees should refer to "Beneficial Ownership" below, which is applicable to the following restrictions. The Mellon Code of Conduct contains certain restrictions on investments in parties that do business with Mellon. Employees should refer to the Code of Conduct and comply with such restrictions in addition to the restrictions and reporting requirements set forth below. The following restrictions apply to all securities transactions by employees: o Customer Transactions - Trading for customers and Mellon accounts should always take precedence over employees' transactions for their own or related accounts. o Excessive Trading, Naked Options - Mellon discourages all employees from engaging in short-term or speculative trading, in trading naked options, in trading that could be deemed excessive or in trading that could interfere with an employee's job responsibilities. o Front Running - Employees may not engage in "front running," that is, the purchase or sale of securities for their own accounts on the basis of their knowledge of Mellon's trading positions or plans. o Initial Public Offerings - Investment Employees are prohibited from acquiring securities through an allocation by the underwriter of an Initial Public Offering (IPO) without the approval of the Manager of Corporate Compliance. Approval can be given only when the allocation comes through an employee of the issuer who is a direct family relation of the Investment Employee. Due to NASD rules, this approval may not be available to employees of registered broker/dealers. 25 o Material Nonpublic Information - Employees possessing material nonpublic information regarding any issuer of securities must refrain from purchasing or selling securities of that issuer until the information becomes public or is no longer considered material. o Private Placements - Investment Employees are prohibited from acquiring any security in a private placement unless they obtain the prior written approval of the Manager of Corporate Compliance, the designated Preclearance Compliance Officer and the Investment Employee's department head. Approval must be given by all three persons for the acquisition to be considered approved. After receipt of the necessary approvals and the acquisition, Investment Employees are required to disclose that investment if they participate in any subsequent consideration of credit for the issuer, or of an investment in the issuer for an advised account. Final decision to acquire such securities for an advised account will be subject to independent review. o Scalping - Employees may not engage in "scalping," that is, the purchase or sale of securities for their own or Mellon's accounts on the basis of knowledge of customers' trading positions or plans. o Short Term Trading - All Employees are discouraged from purchasing and selling, or from selling and purchasing, the same (or equivalent) securities within any 60 calendar day period. With respect to Investment Employees, any profits realized on such short term trades must be disgorged in accordance with procedures established by senior management. Exception: securities may be sold pursuant to a bona fide tender offer without disgorgement under the 60-day rule. PROHIBITION ON You are prohibited from acquiring any security issued by a INVESTMENTS IN financial services organization if you are: SECURITIES OF FINANCIAL o a member of the Mellon Senior Management Committee. SERVICES ORGANIZATIONS o employed in any of the following departments: o Corporate Strategy & Development o Legal (Pittsburgh only) o Finance (Pittsburgh only) o an employee specifically designated by the Manager of Corporate Compliance and informed that this prohibition is applicable to you. Financial Services Organizations - The term "security issued by a financial services organization" includes any security issued by: -Commercial Banks other - Thrifts than Mellon - Savings and Loan -Bank Holding Companies Associations other than Mellon - Broker/Dealers -Insurance Companies - Transfer Agents -Investment Advisory - Other Depository Companies Institutions -Shareholder Servicing Companies The term "securities issued by a financial services organization" DOES NOT INCLUDE securities issued by mutual funds, variable annuities or insurance policies. Further, for purposes of determining whether a company is a financial services organization, subsidiaries and parent companies are treated as separate issuers. 26 Effective Date - Securities of financial services organizations properly acquired before the employee's becoming subject to this prohibition may be maintained or disposed of at the owner's discretion consistent with this policy. Additional securities of a financial services organization acquired through the reinvestment of the dividends paid by such financial services organization through a dividend reinvestment program (DRIP), or through an automatic investment plan (AIP) are not subject to this prohibition, provided the employee's election to participate in the DRIP or AIP predates the date of the employee's becoming subject to this prohibition. Optional cash purchases through a DRIP or direct purchase plan (DPP) are subject to this prohibition. Securities acquired in any account over which an employee has no direct or indirect control over the investment decision making process (e.g. discretionary trading accounts) are not subject to this prohibition. Within 30 days of becoming subject to this prohibition, all holdings of securities of financial services organizations must be disclosed in writing to the Manager of Corporate Compliance. BENEFICIAL The provisions of the Policy apply to transactions in the OWNERSHIP employee's own name and to all other accounts over which the employee could be presumed to exercise influence or control, including: o accounts of a spouse, minor children or relatives to whom substantial support is contributed; o accounts of any other member of the employee's household (e.g., a relative living in the same home); o trust or other accounts for which the employee acts as trustee or otherwise exercises any type of guidance or influence; o corporate accounts controlled, directly or indirectly, by the employee; o arrangements similar to trust accounts that are established for bona fide financial purposes and benefit the employee; and o any other account for which the employee is the beneficial owner (see Glossary for a more complete legal definition of "beneficial owner"). NON-MELLON The provisions discussed above do not apply to transactions EMPLOYEE done under a bona fide employee benefit plan administered BENEFIT PLANS by an organization not affiliated with Mellon and by an employee of that organization who shares beneficial interest with a Mellon employee, and in the securities of the employing organization. This means if a Mellon employee's spouse is employed at a non-Mellon company, the Mellon employee is not required to obtain approval for transactions in the employer's securities done by the spouse as part of the spouse's employee benefit plan. The Securities Trading Policy does not apply in such a situation. Rather, the other organization is relied upon to provide adequate supervision with respect to conflicts of interest and compliance with securities laws. - -------------------------------------------------------------------------------- PROTECTING As an employee you may receive information about Mellon, CONFIDENTIAL its customers and other parties that, for various reasons, INFORMATION should be treated as confidential. All employees are expected to strictly comply with measures necessary to preserve the confidentiality of information. Employees should refer to the Mellon Code of Conduct. INSIDER Federal securities laws generally prohibit the trading of TRADING AND securities while in possession of "material nonpublic" TIPPING information regarding the issuer of those securities (insider trading). 27 LEGAL Any person who passes along material PROHIBITIONS nonpublic information upon which a trade is based (tipping) may also be liable. Information is "material" if there is a substantial likelihood that a reasonable investor would consider it important in deciding whether to buy, sell or hold securities. Obviously, information that would affect the market price of a security would be material. Examples of information that might be material include: o a proposal or agreement for a merger, acquisition or divestiture, or for the sale or purchase of substantial assets; o tender offers, which are often material for the party making the tender offer as well as for the issuer of the securities for which the tender offer is made; o dividend declarations or changes; o extraordinary borrowings or liquidity problems; o defaults under agreements or actions by creditors, customers or suppliers relating to a company's credit standing; o earnings and other financial information, such as large or unusual write-offs, write-downs, profits or losses; o pending discoveries or developments, such as new products, sources of materials, patents, processes, inventions or discoveries of mineral deposits; o a proposal or agreement concerning a financial restructuring; o a proposal to issue or redeem securities, or a development with respect to a pending issuance or redemption of securities; o a significant expansion or contraction of operations; o information about major contracts or increases or decreases in orders; o the institution of, or a development in, litigation or a regulatory proceeding; o developments regarding a company's senior management; o information about a company received from a director of that company; and o information regarding a company's possible noncompliance with environmental protection laws. This list is not exhaustive. All relevant circumstances must be considered when determining whether an item of information is material. "Nonpublic" - Information about a company is nonpublic if it is not generally available to the investing public. Information received under circumstances indicating that it is not yet in general circulation and which may be attributable, directly or indirectly, to the company or its insiders is likely to be deemed nonpublic information. 28 If you obtain material non-public information you may not trade related securities until you can refer to some public source to show that the information is generally available (that is, available from sources other than inside sources) and that enough time has passed to allow wide dissemination of the information. While information appearing in widely accessible sources--such as in newspapers or on the internet--becomes public very soon after publication, information appearing in less accessible sources--such as regulatory filings, may take up to several days to be deemed public. Similarly, highly complex information might take longer to become public than would information that is easily understood by the average investor. MELLON'S Employees who possess material nonpublic information POLICY about a company--whether that company is Mellon, another Mellon entity, a Mellon customer or supplier, or other company--may not trade in that company's securities, either for their own accounts or for any account over which they exercise investment discretion. In addition, employees may not recommend trading in those securities and may not pass the information along to others, except to employees who need to know the information in order to perform their job responsibilities with Mellon. These prohibitions remain in effect until the information has become public. Employees who have investment responsibilities should take appropriate steps to avoid receiving material nonpublic information. Receiving such information could create severe limitations on their ability to carry out their responsibilities to Mellon's fiduciary customers. Employees managing the work of consultants and temporary employees who have access to the types of confidential information described in this Policy are responsible for ensuring that consultants and temporary employees are aware of Mellon's policy and the consequences of noncompliance. Questions regarding Mellon's policy on material nonpublic information, or specific information that might be subject to it, should be referred to the General Counsel. RESTRICTIONS As a diversified financial services organization, Mellon ON THE FLOW OF faces unique challenges in complying with the prohibitions INFORMATION on insider trading and tipping of material non-public WITHIN MELLON information, and misuse of confidential information. This (THE "CHINESE is because one Mellon unit might have material nonpublic WALL") information about a company while other Mellon units may have a desire, or even a fiduciary duty, to buy or sell that company's securities or recommend such purchases or sales to customers. To engage in such broad-ranging financial services activities without violating laws or breaching Mellon's fiduciary duties, Mellon has established a "Chinese Wall" policy applicable to all employees. The "Chinese Wall" separates the Mellon units or individuals that are likely to receive material nonpublic information (Potential Insider Functions) from the Mellon units or individuals that either trade in securities--for Mellon's account or for the accounts of others--or provide investment advice (Investment Functions). Employees should refer to CPP 903-2(C) The Chinese Wall. - ----------------------------------------------------------------------------- SPECIAL Certain Portfolio Managers and Research Analysts in the PROCEDURES FOR fiduciary businesses have been designated as Access ACCESS Decision Makers and are subject to additional procedures DECISION MAKERS which are discussed in a separate edition of the Securities Trading Policy. If you have reason to believe that you may be an Access Decision Maker, contact your supervisor, designated Preclearance Compliance Officer or the Manager of Corporate Compliance. 29 PERSONAL SECURITIES TRADING PRACTICES SECTION THREE - APPLICABLE TO OTHER EMPLOYEES 30 CONTENTS Page PERSONAL SECURITIES TRADING PRACTICES SECTION THREE - APPLICABLE TO OTHER EMPLOYEES Quick Reference - Other Employees ..........................33 Standards of Conduct .......................................34 --Conflict of Interest ................................34 --Material Nonpublic Information ......................34 --Brokers .............................................34 --Personal Securities Transaction Reports .............34 --Brokerage Account Statements ........................34 --Confidential Treatment ..............................34 Restrictions on Transactions in Mellon Securities ..........35 --Mellon 401(k) Plan ..................................36 --Mellon Employee Stock Options .......................36 Restrictions on Transactions in Other Securities ...........37 --Prohibition on Investments in Securities of .........38 Financial Services Organizations Beneficial Ownership .......................................39 Non-Mellon Employee Benefit Plans ..........................39 Protecting Confidential Information ........................39 --Insider Trading and Tipping .........................39 --The "Chinese Wall" ..................................41 GLOSSARY Definitions ................................................43 Exhibit A - Sample Letter to Broker ........................49 31 QUICK REFERENCE - OTHER EMPLOYEES - -------------------------------------------------------------------------------- SOME THINGS YOU o If you buy or sell Mellon Financial Corporation securities MUST DO you must provide a report of the trade and a copy of the broker confirmation within 10 days of transaction to the Manager of Corporate Compliance, AIM 151-4340. This does not apply to the exercise of employee stock options, or changes in elections under Mellon's 401(k) Retirement Savings Plan. o If you want to purchase any security in a Private Placement you must first obtain the approval of your Department/Entity head and the Manager of Corporate Compliance. Contact the Manager of Corporate Compliance at 412-234-0810. o Acquisition of securities through an allocation by the underwriter of an Initial Public Offering (IPO) is prohibited without the approval of the Manager of Corporate Compliance. Approval can be given only when the allocation is the result of a direct family relationship. o For Employees who are subject to the prohibition on new investments in financial services organizations (certain employees only - see page 38), broker must send directly to MANAGER OF CORPORATE COMPLIANCE, MELLON BANK, PO BOX 3130, PITTSBURGH, PA 15230-3130: o Broker trade confirmations summarizing each transaction o Periodic statements Exhibit A can be used to notify your broker of all accounts for which your broker will be responsible for sending duplicate confirmations and statements. - -------------------------------------------------------------------------------- SOME THINGS YOU Mellon Securities - The following transactions in MUST NOT DO Mellon securities are prohibited for all Mellon employees: o Short sales o Purchasing and selling or selling and purchasing within 60 days o Purchasing or selling during a blackout period o Margin purchases or options other than employee options. Non-Mellon Securities o New investments in financial services organizations (certain employees only - see page 38.) Other restrictions are detailed throughout Section Three. Read the Policy! =============== - -------------------------------------------------------------------------------- QUESTIONS? (412) 234-1661 - -------------------------------------------------------------------------------- This page is for reference purposes only. Employees are reminded they must read the Policy and comply with its provisions. 32 - -------------------------------------------------------------------------------- STANDARDS OF Every Other Employee must follow these procedures or risk CONDUCT FOR serious sanctions, including dismissal. If you have any OTHER EMPLOYEES questions about these procedures you should consult the Manager of Corporate Compliance. Interpretive issues that arise under these procedures shall be decided by, and are subject to the discretion of, the Manager of Corporate Compliance. CONFLICT OF No employee may engage in or recommend any securities INTEREST transaction that places, or appears to place, his or her own interests above those of any customer to whom financial services are rendered, including mutual funds and managed accounts, or above the interests of Mellon. MATERIAL No employee may engage in or recommend a securities NONPUBLIC transaction, for his or her own benefit or for the benefit INFORMATION of others, including Mellon or its customers, while in possession of material nonpublic information regarding such securities. No employee may communicate material nonpublic information to others unless it is properly within his or her job responsibilities to do so. BROKERS Trading Accounts - All employees are encouraged to conduct their personal investing through a Mellon affiliate brokerage account. PERSONAL Other Employees must report in writing to the Manager of SECURITIES Corporate Compliance within ten calendar days whenever they TRANSACTIONS purchase or sell Mellon securities. Purchases and sales REPORTS include optional cash purchases under Mellon's Dividend Reinvestment and Common Stock Purchase Plan (the "Mellon DRIP"). It should be noted that the reinvestment of dividends under the DRIP, changes in elections under Mellon's 401(k) Retirement Savings Plan, the receipt of stock under Mellon's Restricted Stock Award Plan, and the receipt or exercise of options under Mellon's employee stock option plans are not considered purchases or sales for the purpose of this reporting requirement. BROKERAGE Certain Other Employees are subject to the restriction on ACCOUNT investments in financial services organizations and are STATEMENTS required to instruct their brokers to send statements directly to Corporate Compliance. See page 38. An example of an instruction letter to a broker is contained in Exhibit A. CONFIDENTIAL The Manager of Corporate Compliance will use his or her TREATMENT best efforts to assure that all personal securities transaction reports and all reports of securities holdings are treated as "Personal and Confidential." However, such documents will be available for inspection by appropriate regulatory agencies and by other parties within and outside Mellon as are necessary to evaluate compliance with or sanctions under this Policy. 33 - ----------------------------------------------------------------------------- RESTRICTIONS Employees who engage in transactions involving Mellon ON securities should be aware of their unique responsibilities TRANSACTIONS with respect to such transactions arising from the IN MELLON employment relationship and should be sensitive to even the SECURITIES appearance of impropriety. The following restrictions apply to all transactions in Mellon's publicly traded securities occurring in the employee's own account and in all other accounts over which the employee could be expected to exercise influence or control (see provisions under "Beneficial Ownership" below for a more complete discussion of the accounts to which these restrictions apply). These restrictions are to be followed in addition to any restrictions that apply to particular officers or directors (such as restrictions under Section 16 of the Securities Exchange Act of 1934). o Short Sales - Short sales of Mellon securities by employees are prohibited. o Short Term Trading - Employees are prohibited from purchasing and selling, or from selling and purchasing Mellon securities within any 60 calendar day period. o Margin Transactions - Purchases on margin of Mellon's publicly traded securities by employees is prohibited. Margining Mellon securities in connection with a cashless exercise of an employee stock option through the Human Resources Department is exempt from this restriction. Further, Mellon securities may be used to collateralize loans or the acquisition of securities other than those issued by Mellon. o Option Transactions - Option transactions involving Mellon's publicly traded securities are prohibited. Transactions under Mellon's Long-Term Incentive Plan or other employee option plans are exempt from this restriction. o Major Mellon Events - Employees who have knowledge of major Mellon events that have not yet been announced are prohibited from buying or selling Mellon's publicly traded securities before such public announcements, even if the employee believes the event does not constitute material nonpublic information. o Mellon Blackout Period - Employees are prohibited from buying or selling Mellon's publicly traded securities during a blackout period. The blackout period begins the 16th day of the last month of each calendar quarter and ends 3 business days after Mellon Financial Corporation publicly announces the financial results for that quarter. Thus, the blackout periods begin on March 16, June 16, September 16 and December 16. The end of the blackout period is determined by counting business days only, and the day of the earnings announcement is day 1. The blackout period ends at the end of day 3, and employees can trade Mellon securities on day 4. 34 MELLON 401(K) For purposes of the blackout period and the short term PLAN trading rule, employees' changing their existing account balance allocation to increase or decrease the amount allocated to Mellon Common Stock will be treated as a purchase or sale of Mellon Stock, respectively. This means: o Employees are prohibited from increasing or decreasing their existing account balance allocation to Mellon Common Stock during the blackout period. o Employees are prohibited from increasing their existing account balance allocation to Mellon Common Stock and then decreasing it within 60 days. Similarly, employees are prohibited from decreasing their existing account balance allocation to Mellon Common Stock and then increasing it within 60 days. However, changes to existing account balance allocations in the 401(k) plan will not be compared to transactions in Mellon securities outside the 401(k) for purposes of the 60-day rule. (Note: this does not apply to members of the Executive Management Group, who should consult with the Legal Department.) Except for the above there are no other restrictions applicable to the 401(k) plan. This means, for example: o There is no restriction on employees' changing their salary deferral contribution percentages with regard to either the blackout period or the 60-day rule. o The regular salary deferral contribution to Mellon Common Stock in the 401(k) that takes place with each pay will not be considered a purchase for the purposes of either the blackout or the 60-day rule. MELLON Receipt - Your receipt of an employee stock option from EMPLOYEE STOCK Mellon is not deemed to be a purchase of a security. OPTIONS Therefore, it is exempt from reporting requirements, can take place during the blackout period and does not constitute a purchase for purposes of the 60-day prohibition. Exercises - The exercise of an employee stock option that results in your holding the shares is exempt from reporting requirements, can take place during the blackout period and does not constitute a purchase for purposes of the 60-day prohibition. "Cashless" Exercises - The exercise of an employee stock option which is part of a "cashless exercise" or "netting of shares" that is administered by the Human Resources Department or Chase Mellon Shareholder Services is exempt from the preclearance and reporting requirements and will not constitute a purchase or a sale for purposes of the 60-day prohibition. A "cashless exercise" or "netting of shares" transaction is permitted during the blackout period for ShareSuccess plan options only. They are not permitted during the blackout period for any other plan options. Sales - The sale of the Mellon securities that were received in the exercise of an employee stock option is treated like any other sale under the Policy (regardless of how little time has elapsed between the option exercise and the sale). Thus, such sales are subject to the reporting requirements, are prohibited during the blackout period and constitute sales for purposes of the 60-day prohibition. 35 - -------------------------------------------------------------------------------- RESTRICTIONS Purchases or sales by an employee of the securities of ON issuers with which Mellon does business, or other third TRANSACTIONS party issuers, could result in liability on the part of IN OTHER such employee. Employees should be sensitive to even the SECURITIES appearance of impropriety in connection with their personal securities transactions. Employees should refer to "Beneficial Ownership" below, which is applicable to the following restrictions. The Mellon Code of Conduct contains certain restrictions on investments in parties that do business with Mellon. Employees should refer to the Code of Conduct and comply with such restrictions in addition to the restrictions and reporting requirements set forth below. The following restrictions apply to all securities transactions by employees: o Credit, Consulting or Advisory Relationship - Employees may not buy or sell securities of a company if they are considering granting, renewing, modifying or denying any credit facility to that company, acting as a benefits consultant to that company, or acting as an adviser to that company with respect to the company's own securities. In addition, lending employees who have assigned responsibilities in a specific industry group are not permitted to trade securities in that industry. This prohibition does not apply to transactions in open end mutual funds. o Customer Transactions - Trading for customers and Mellon accounts should always take precedence over employees' transactions for their own or related accounts. o Excessive Trading, Naked Options - Mellon discourages all employees from engaging in short-term or speculative trading, in trading naked options, in trading that could be deemed excessive or in trading that could interfere with an employee's job responsibilities. o Front Running - Employees may not engage in "front running," that is, the purchase or sale of securities for their own accounts on the basis of their knowledge of Mellon's trading positions or plans. o Initial Public Offerings - Other Employees are prohibited from acquiring securities through an allocation by the underwriter of an Initial Public Offering (IPO) without the approval of the Manager of Corporate Compliance. Approval can be given only when the allocation comes through an employee of the issuer who is a direct family relation of the Other Employee. Due to NASD rules, this approval may not be available to employees of registered broker/dealers. o Material Nonpublic Information - Employees possessing material nonpublic information regarding any issuer of securities must refrain from purchasing or selling securities of that issuer until the information becomes public or is no longer considered material. o Private Placements - Other Employees are prohibited from acquiring any security in a private placement unless they obtain the prior written approval of the Manager of Corporate Compliance and the employee's department head. Approval must be given by both persons for the acquisition to be considered approved. After receipt of the necessary approvals and the acquisition, employees are required to disclose that investment if they participate in any subsequent consideration of credit for the issuer, or of an investment in the issuer for an advised account. Final decision to acquire such securities for an advised account will be subject to independent review. o Scalping - Employees may not engage in "scalping," that is, the purchase or sale of securities for their own or Mellon's accounts on the basis of knowledge of customers' trading positions or plans. o Short Term Trading - Employees are discouraged from purchasing and selling, or from selling and purchasing, the same (or equivalent) securities within any 60 calendar day period. 36 PROHIBITION ON You are prohibited from acquiring any security issued by a INVESTMENTS IN financial services organization if you are: SECURITIES OF FINANCIAL o a member of the Mellon Senior Management Committee. SERVICES ORGANIZATIONS o employed in any of the following departments: o Corporate Strategy & Development o Legal (Pittsburgh only) o Finance (Pittsburgh only) o an employee specifically designated by the Manager of Corporate Compliance and informed that this prohibition is applicable to you. Brokerage Accounts - All employees subject to this restriction on investments in financial services organizations are required to instruct their brokers to submit directly to the Manager of Corporate Compliance copies of all trade confirmations and statements relating to each account of which they are a beneficial owner regardless of what, if any, securities are maintained in such accounts. Thus, for example, even if the brokerage account has no reportable securities traded in it, the employee maintaining such an account must arrange for duplicate account statements and trade confirmations to be sent by the broker to the Manager of Corporate Compliance. An example of an instruction letter to a broker is contained in Exhibit A. Financial Services Organizations - The term "security issued by a financial services organization" includes any security issued by: - Commercial Banks other - Thrifts than Mellon - Savings and Loan - Bank Holding Companies Associations other than Mellon - Broker/Dealers - Insurance Companies - Transfer Agents - Investment Advisory - Other Depository Companies Institutions - Shareholder Servicing Companies The term "securities issued by a financial services organization" DOES NOT INCLUDE securities issued by mutual funds, variable annuities or insurance policies. Further, for purposes of determining whether a company is a financial services organization, subsidiaries and parent companies are treated as separate issuers. Effective Date - Securities of financial services organizations properly acquired before the employee's becoming subject to this prohibition may be maintained or disposed of at the owner's discretion consistent with this policy. Additional securities of a financial services organization acquired through the reinvestment of the dividends paid by such financial services organization through a dividend reinvestment program (DRIP), or through an automatic investment plan (AIP) are not subject to this prohibition, provided the employee's election to participate in the DRIP or AIP predates the date of the employee's becoming subject to this prohibition. Optional cash purchases through a DRIP or direct purchase plan (DPP) are subject to this prohibition. Securities acquired in any account over which an employee has no direct or indirect control over the investment decision making process (e.g. discretionary trading accounts) are not subject to this prohibition. Within 30 days of becoming subject to this prohibition, all holdings of securities of financial services organizations must be disclosed in writing to the Manager of Corporate Compliance. 37 BENEFICIAL The provisions of the Policy apply to transactions in the OWNERSHIP employee's own name and to all other accounts over which the employee could be presumed to exercise influence or control, including: o accounts of a spouse, minor children or relatives to whom substantial support is contributed; o accounts of any other member of the employee's household (e.g., a relative living in the same home); o trust or other accounts for which the employee acts as trustee or otherwise exercises any type of guidance or influence; o corporate accounts controlled, directly or indirectly, by the employee; o arrangements similar to trust accounts that are established for bona fide financial purposes and benefit the employee; and o any other account for which the employee is the beneficial owner (see Glossary for a more complete legal definition of "beneficial owner"). NON-MELLON The provisions discussed above do not apply to transactions EMPLOYEE done under a bona fide employee benefit plan administered BENEFIT PLANS by an organization not affiliated with Mellon and by an employee of that organization who shares beneficial interest with a Mellon employee, and in the securities of the employing organization. This means if a Mellon employee's spouse is employed at a non-Mellon company, the Mellon employee is not required to obtain approval for transactions in the employer's securities done by the spouse as part of the spouse's employee benefit plan. The Securities Trading Policy does not apply in such a situation. Rather, the other organization is relied upon to provide adequate supervision with respect to conflicts of interest and compliance with securities laws. - -------------------------------------------------------------------------------- PROTECTING As an employee you may receive information about Mellon, CONFIDENTIAL its customers and other parties that, for various reasons, INFORMATION should be treated as confidential. All employees are expected to strictly comply with measures necessary to preserve the confidentiality of information. Employees should refer to the Mellon Code of Conduct. INSIDER Federal securities laws generally prohibit the trading of TRADING AND securities while in possession of "material nonpublic" TIPPING information regarding the issuer of those securities (insider trading). 38 Any person who passes along material LEGAL nonpublic information upon which a trade is based (tipping) PROHIBITIONS may also be liable. Information is "material" if there is a substantial likelihood that a reasonable investor would consider it important in deciding whether to buy, sell or hold securities. Obviously, information that would affect the market price of a security would be material. Examples of information that might be material include: o a proposal or agreement for a merger, acquisition or divestiture, or for the sale or purchase of substantial assets; o tender offers, which are often material for the party making the tender offer as well as for the issuer of the securities for which the tender offer is made; o dividend declarations or changes; o extraordinary borrowings or liquidity problems; o defaults under agreements or actions by creditors, customers or suppliers relating to a company's credit standing; o earnings and other financial information, such as large or unusual write-offs, write-downs, profits or losses; o pending discoveries or developments, such as new products, sources of materials, patents, processes, inventions or discoveries of mineral deposits; o a proposal or agreement concerning a financial restructuring; o a proposal to issue or redeem securities, or a development with respect to a pending issuance or redemption of securities; o a significant expansion or contraction of operations; o information about major contracts or increases or decreases in orders; o the institution of, or a development in, litigation or a regulatory proceeding; o developments regarding a company's senior management; o information about a company received from a director of that company; and o information regarding a company's possible noncompliance with environmental protection laws. This list is not exhaustive. All relevant circumstances must be considered when determining whether an item of information is material. "Nonpublic" - Information about a company is nonpublic if it is not generally available to the investing public. Information received under circumstances indicating that it is not yet in general circulation and which may be attributable, directly or indirectly, to the company or its insiders is likely to be deemed nonpublic information. 39 If you obtain material non-public information you may not trade related securities until you can refer to some public source to show that the information is generally available (that is, available from sources other than inside sources) and that enough time has passed to allow wide dissemination of the information. While information appearing in widely accessible sources--such as in newspapers or on the internet--becomes public very soon after publication, information appearing in less accessible sources--such as regulatory filings, may take up to several days to be deemed public. Similarly, highly complex information might take longer to become public than would information that is easily understood by the average investor. MELLON'S POLICY Employees who possess material nonpublic information about a company--whether that company is Mellon, another Mellon entity, a Mellon customer or supplier, or other company--may not trade in that company's securities, either for their own accounts or for any account over which they exercise investment discretion. In addition, employees may not recommend trading in those securities and may not pass the information along to others, except to employees who need to know the information in order to perform their job responsibilities with Mellon. These prohibitions remain in effect until the information has become public. Employees who have investment responsibilities should take appropriate steps to avoid receiving material nonpublic information. Receiving such information could create severe limitations on their ability to carry out their responsibilities to Mellon's fiduciary customers. Employees managing the work of consultants and temporary employees who have access to the types of confidential information described in this Policy are responsible for ensuring that consultants and temporary employees are aware of Mellon's policy and the consequences of noncompliance. Questions regarding Mellon's policy on material nonpublic information, or specific information that might be subject to it, should be referred to the General Counsel. RESTRICTIONS As a diversified financial services organization, Mellon ON THE FLOW OF faces unique challenges in complying with the prohibitions INFORMATION on insider trading and tipping of material non-public WITHIN MELLON information, and misuse of confidential information. This (THE "CHINESE is because one Mellon unit might have material nonpublic WALL") information about a company while other Mellon units may have a desire, or even a fiduciary duty, to buy or sell that company's securities or recommend such purchases or sales to customers. To engage in such broad-ranging financial services activities without violating laws or breaching Mellon's fiduciary duties, Mellon has established a "Chinese Wall" policy applicable to all employees. The "Chinese Wall" separates the Mellon units or individuals that are likely to receive material nonpublic information (Potential Insider Functions) from the Mellon units or individuals that either trade in securities--for Mellon's account or for the accounts of others--or provide investment advice (Investment Functions). Employees should refer to CPP 903-2(C) The Chinese Wall. 40 - -------------------------------------------------------------------------------- GLOSSARY DEFINITIONS o 40-ACT ENTITY - A Mellon entity registered under the Investment Company Act and/or the Investment Advisers Act of 1940 o ACCESS DECISION MAKER - A person designated as such by the Investment Ethics Committee. Generally, this will be portfolio managers and research analysts who make recommendations or decisions regarding the purchase or sale of equity, convertible debt, and non-investment grade debt securities for investment companies and other managed accounts. See further details in the Access Decision Maker edition of the Policy. o ACCESS PERSON - As defined by Rule 17j-1 under the Investment Company Act of 1940, "access person" means: (A) With respect to a registered investment company or an investment adviser thereof, any director, officer, general partner, or advisory person (see definition below), of such investment company or investment adviser; (B) With respect to a principal underwriter, any director, officer, or general partner of such principal underwriter who in the ordinary course of his business makes, participates in or obtains information regarding the purchase or sale of securities for the registered investment company for which the principal underwriter so acts, or whose functions or duties as part of the ordinary course of his business relate to the making of any recommendations to such investment company regarding the purchase or sale of securities. (C) Notwithstanding the provisions of paragraph (A) hereinabove, where the investment adviser is primarily engaged in a business or businesses other than advising registered investment companies or other advisory clients, the term "access person" shall mean: any director, officer, general partner, or advisory person of the investment adviser who, with respect to any registered investment company, makes any recommendations, participates in the determination of which recommendation shall be made, or whose principal function or duties relate to the determination of which recommendation will be made, to any such investment company; or who, in connection with his duties, obtains any information concerning securities recommendations being made by such investment adviser to any registered investment company. (D) An investment adviser is "primarily engaged in a business or businesses other than advising registered investment companies or other advisory clients" when, for each of its most recent three fiscal years or for the period of time since its organization, whichever is less, the investment adviser derived, on an unconsolidated basis, more than 50 percent of (i) its total sales and revenues, and (ii) its income (or loss) before income taxes and extraordinary items, from such other business or businesses. o ADVISORY PERSON of a registered investment company or an investment adviser thereof means: (A) Any employee of such company or investment adviser (or any company in a control relationship to such investment company or investment adviser) who, in connection with his regular functions or duties, makes, participates in, or obtains information regarding the purchase or sale of a security by a registered investment company, or whose functions relate to the making of any recommendation with respect to such purchases or sales; and (B) Any natural person in a control relationship to such company or investment adviser who obtains information concerning recommendations made to such company with regard to the purchase or sale of a security. o APPROVAL - written consent or written notice of non-objection. o BENEFICIAL OWNERSHIP - The definition that follows conforms to interpretations of the Securities and Exchange Commission on this matter. Because a determination of beneficial ownership requires a detailed analysis of personal financial 41 circumstances that are subject to change, Corporate Compliance ordinarily will not advise employees on this definition. It is the responsibility of each employee to read the definition and based on that definition, determine whether he/she is the beneficial owner of an account. If the employee determines that he/she is not a beneficial owner of an account and Corporate Compliance becomes aware of the existence of the account, the employee will be responsible for justifying his/her determination. Securities owned of record or held in the employee's name are generally considered to be beneficially owned by the employee. Securities held in the name of any other person are deemed to be beneficially owned by the employee if by reason of any contract, understanding, relationship, agreement or other arrangement, the employee obtains therefrom benefits substantially equivalent to those of ownership, including the power to vote, or to direct the disposition of, such securities. Beneficial ownership includes securities held by others for the employee's benefit (regardless of record ownership), e.g., securities held for the employee or members of the employee's immediate family, defined below, by agents, custodians, brokers, trustees, executors or other administrators; securities owned by the employee, but which have not been transferred into the employee's name on the books of the company; securities which the employee has pledged; or securities owned by a corporation that should be regarded as the employee's personal holding corporation. As a natural person, beneficial ownership is deemed to include securities held in the name or for the benefit of the employee's immediate family, which includes the employee's spouse, the employee's minor children and stepchildren and the employee's relatives or the relatives of the employee's spouse who are sharing the employee's home, unless because of countervailing circumstances, the employee does not enjoy benefits substantially equivalent to those of ownership. Benefits substantially equivalent to ownership include, for example, application of the income derived from such securities to maintain a common home, meeting expenses that such person otherwise would meet from other sources, and the ability to exercise a controlling influence over the purchase, sale or voting of such securities. An employee is also deemed the beneficial owner of securities held in the name of some other person, even though the employee does not obtain benefits of ownership, if the employee can vest or revest title in himself at once, or at some future time. In addition, a person will be deemed the beneficial owner of a security if he has the right to acquire beneficial ownership of such security at any time (within 60 days) including but not limited to any right to acquire: (1) through the exercise of any option, warrant or right; (2) through the conversion of a security; or (3) pursuant to the power to revoke a trust, discretionary account or similar arrangement. With respect to ownership of securities held in trust, beneficial ownership includes ownership of securities as a trustee in instances where either the employee as trustee or a member of the employee's "immediate family" has a vested interest in the income or corpus of the trust, the ownership by the employee of a vested beneficial interest in the trust and the ownership of securities as a settlor of a trust in which the employee as the settlor has the power to revoke the trust without obtaining the consent of the beneficiaries. Certain exemptions to these trust beneficial ownership rules exist, including an exemption for instances where beneficial ownership is imposed solely by reason of the employee being settlor or beneficiary of the securities held in trust and the ownership, acquisition and disposition of such securities by the trust is made without the employee's prior approval as settlor or beneficiary. "Immediate family" of an employee as trustee means the employee's son or daughter (including any legally adopted children) or any descendant of either, the employee's stepson or stepdaughter, the employee's father or mother or any ancestor of either, the employee's stepfather or stepmother and the employee's spouse. To the extent that stockholders of a company use it as a personal trading or investment medium and the company has no other substantial business, stockholders are regarded as beneficial owners, to the extent of their respective 42 interests, of the stock thus invested or traded in. A general partner in a partnership is considered to have indirect beneficial ownership in the securities held by the partnership to the extent of his pro rata interest in the partnership. Indirect beneficial ownership is not, however, considered to exist solely by reason of an indirect interest in portfolio securities held by any holding company registered under the Public Utility Holding Company Act of 1935, a pension or retirement plan holding securities of an issuer whose employees generally are beneficiaries of the plan and a business trust with over 25 beneficiaries. Any person who, directly or indirectly, creates or uses a trust, proxy, power of attorney, pooling arrangement or any other contract, arrangement or device with the purpose or effect of divesting such person of beneficial ownership as part of a plan or scheme to evade the reporting requirements of the Securities Exchange Act of 1934 shall be deemed the beneficial owner of such security. The final determination of beneficial ownership is a question to be determined in light of the facts of a particular case. Thus, while the employee may include security holdings of other members of his family, the employee may nonetheless disclaim beneficial ownership of such securities. o "CHINESE WALL" POLICY - procedures designed to restrict the flow of information within Mellon from units or individuals who are likely to receive material nonpublic information to units or individuals who trade in securities or provide investment advice. o DIRECT FAMILY RELATION - employee's husband, wife, father, mother, brother, sister, daughter or son. Includes the preceding plus, where appropriate, the following prefixes/suffix: grand-, step-, foster-, half- and -in-law. o DISCRETIONARY TRADING ACCOUNT - an account over which the employee has no direct or indirect control over the investment decision making process. o EMPLOYEE - any employee of Mellon Financial Corporation or its more-than-50%-owned direct or indirect subsidiaries; includes all full-time, part-time, benefited and non-benefited, exempt and non-exempt, domestic and international employees; does not include consultants and contract or temporary employees. o EXEMPT SECURITIES - Exempt Securities are defined as: o direct obligations of the government of the United States; o high quality short-term debt instruments; o bankers' acceptances; o bank certificates of deposit and time deposits; o commercial paper; o repurchase agreements; o securities issued by open-end investment companies; o FAMILY RELATION - see direct family relation. o GENERAL COUNSEL - General Counsel of Mellon Financial Corporation or any person to whom relevant authority is delegated by the General Counsel. 43 o INDEX FUND - an investment company or managed portfolio which contains securities of an index in proportions designed to replicate the return of the index. o INITIAL PUBLIC OFFERING (IPO) - the first offering of a company's securities to the public through an allocation by the underwriter. o INVESTMENT CLUB - is a membership organization where investors make joint decisions on which securities to buy or sell. The securities are generally held in the name of the investment club. Since each member of an investment club participates in the investment decision making process, Insider Risk Employees, Investment Employees and Access Decision Makers belonging to such investment clubs must preclear and report the securities transactions contemplated by such investment clubs. In contrast, a private investment company is an organization where the investor invests his/her money, but has no direct control over the way his/her money is invested. Insider Risk Employees, Investment Employees and Access Decision Makers investing in such a private investment company are not required to preclear any of the securities transactions made by the private investment company. Insider Risk Employees, Investment Employees and Access Decision Makers are required to report their investment in a private investment company to the Manager of Corporate Compliance and certify to the Manager of Corporate Compliance that they have no direct control over the way their money is invested. o INVESTMENT COMPANY - a company that issues securities that represent an undivided interest in the net assets held by the company. Mutual funds are investment companies that issue and sell redeemable securities representing an undivided interest in the net assets of the company. o INVESTMENT ETHICS COMMITTEE is composed of investment, legal, compliance, and audit management representatives of Mellon and its affiliates. The members of the Investment Ethics Committee are: President and Chief Investment Officer of The Dreyfus Corporation (Committee Chair) General Counsel, Mellon Financial Corporation Chief Risk Management Officer, Mellon Trust Manager of Corporate Compliance, Mellon Financial Corporation Corporate Chief Auditor, Mellon Financial Corporation Chief Investment Officer, Mellon Private Asset Management Executive Officer of a Mellon investment adviser (rotating membership) The Committee has oversight of issues related to personal securities trading and investment activity by Access Decision Makers. o MANAGER OF CORPORATE COMPLIANCE - the employee within the Audit and Risk Review Department of Mellon Financial Corporation who is responsible for administering the Securities Trading Policy, or any person to whom relevant authority is delegated by the Manager of Corporate Compliance. o MELLON - Mellon Financial Corporation and all of its direct and indirect subsidiaries. o OPTION - a security which gives the investor the right, but not the obligation, to buy or sell a specific security at a specified price within a specified time. For purposes of compliance with the Policy, any Mellon employee who buys/sells an option, is deemed to have purchased/sold the underlying security when the option was purchased/sold. Four combinations are possible as described below. 44 o Call Options If a Mellon employee buys a call option, the employee is considered to have purchased the underlying security on the date the option was purchased. If a Mellon employee sells a call option, the employee is considered to have sold the underlying security on the date the option was sold. o Put Options If a Mellon employee buys a put option, the employee is considered to have sold the underlying security on the date the option was purchased. If a Mellon employee sells a put option, the employee is considered to have bought the underlying security on the date the option was sold. Below is a table describing the above: --------------------------------------------------------- Transaction Type ------------------------------------------------------------------ Option Buy Sale Type ------------------------------------------------------------------ Put Sale of Underlying Purchase of Underlying Security Security ------------------------------------------------------------------ Call Purchase of Underlying Sale of Underlying Security Security ------------------------------------------------------------------ o PRECLEARANCE COMPLIANCE OFFICER - a person designated by the Manager of Corporate Compliance and/or the Investment Ethics Committee to administer, among other things, employees' preclearance requests for a specific business unit. o PRIVATE PLACEMENT - an offering of securities that is exempt from registration under the Securities Act of 1933 because it does not constitute a public offering. Includes limited partnerships. o SENIOR MANAGEMENT COMMITTEE - the Senior Management Committee of Mellon Financial Corporation. o SHORT SALE - the sale of a security that is not owned by the seller at the time of the trade. 45 EXHIBIT A - SAMPLE INSTRUCTION LETTER TO BROKER Date Broker ABC Street Address City, State ZIP Re: John Smith & Mary Smith Account No. xxxxxxxxxxxx In connection with my existing brokerage accounts at your firm noted above, please be advised that the Compliance Department of my employer should be noted as an "Interested Party" with respect to my accounts. They should, therefore, be sent copies of all trade confirmations and account statements relating to my account. Please send the requested documentation ensuring the account holder's name appears on all correspondence to: Manager, Corporate Compliance Preclearance Compliance Officer Mellon Bank or (obtain address from your PO Box 3130 Pittsburgh, PA designated Preclearance 15230-3130 Compliance Officer) Thank you for your cooperation in this request. Sincerely yours, Employee cc: Manager, Corporate Compliance (151-4340) or Preclearance Compliance Officer 46 MELLON SECURITIES TRADING POLICY ACCESS DECISION MAKER EDITION 47 QUICK REFERENCE - ACCESS DECISION MAKERS - ----------------------------------------------------------------------------- SOME THINGS 1. Statement of Holdings - Provide to your Preclearance YOU MUST DO Compliance Officer a statement of all securities holdings within 10 days of becoming an ADM, and within 30 days after every quarter-end thereafter. 2. Duplicate Statements & Confirmations - Instruct your broker, trust account manager or other entity through which you have a securities trading account to send directly to Compliance: o Trade confirmations summarizing each transaction o Periodic statements Exhibit A can be used to notify your broker. Contact your designated Preclearance Compliance Officer for the correct address. This applies to all accounts in which you have a beneficial interest. 3. Preclearance - Before initiating a securities transaction, written preclearance must be obtained from the designated Preclearance Compliance Officer. This can be accomplished by completing a Preclearance Request Form and: o delivering or faxing the request to the designated Preclearance Compliance Officer, or o contacting the designated Preclearance Compliance Officer for other available notification options. Preclearance Request Forms can be obtained from the designated Preclearance Compliance Officer. If preclearance approval is received the trade must be communicated to the broker on the same day, and executed before the end of the next business day, at which time the preclearance approval will expire. 4. Contemporaneous Disclosure - ADMs must obtain written authorization from the ADM's CIO or other Investment Ethics Committee designee prior to making or acting upon a portfolio recommendation in a security which they own personally. 5. Private Placements - Purchases must be precleared by the Investment Ethics Committee. Prior holdings must be approved by the Investment Ethics Committee within 90 days of becoming an ADM. To initiate preclearance or approval, contact the Manager of Corporate Compliance. 6. IPOs - Acquisition of securities through an allocation by the underwriter of an Initial Public Offering (IPO) is prohibited without the approval of the Manager of Corporate Compliance. Approval can be given only when the allocation is the result of a direct family relationship. 7. Micro-Cap Securities - MCADMs are prohibited from purchasing any security of an issuer with a common equity market capitalization of $100 million or less at the time of acquisition unless approved by the Investment Ethics Committee. MCADMs must obtain on their Preclearance Request Forms the written authorization of their immediate supervisor and their Chief Investment Officer prior to trading any security of an issuer with a common equity market capitalization of more than $100 million but less than or equal to $250 million at the time of trade. Any prior holding of such securities must be approved by the CIO. - -------------------------------------------------------------------------------- SOME THINGS Mellon Securities - The following transactions in Mellon YOU MUST NOT securities are prohibited for all Mellon employees: DO o Short sales o Purchasing and selling or selling and purchasing within 60 days o Purchasing or selling during a blackout period o Margin purchases or options other than employee options. Non-Mellon Securities o Portfolio Managers are prohibited from purchasing/selling 7 days before or after a fund or other advised account transaction. o For all ADMs, purchasing and selling or selling and purchasing the same or equivalent security within 60 days is discouraged, and any profits must be disgorged. Other restrictions are detailed throughout the Policy. Read ------------------ ==== the Policy! ========== - ----------------------------------------------------------------------------- EXEMPTIONS Preclearance is NOT required for certain other types of transactions, and transactions in certain other types of securities. See pages 6 & 7. - ----------------------------------------------------------------------------- QUESTIONS? Contact your designated Preclearance Compliance Officer. If you don't know who that is, call 412-234-1661 - ----------------------------------------------------------------------------- This page is for reference purposes only. Employees are reminded they must read the Policy and comply with its provisions. 48 Dear Colleague: At Mellon, we take great pride in our transformation over the years from a regional bank to a global financial services company. Our growth makes us better able to meet customers' changing needs, gives us greater stability during any unexpected economic downturn and affords us the opportunity to be the best performing financial services company. This diversity of our businesses also makes us a complex organization, which is why it's more important than ever that you clearly understand Mellon's SECURITIES TRADING POLICY. Mellon has long maintained strict policies regarding securities transactions, all with the same clear-cut objective: to establish and demonstrate our compliance with the high standards with which we conduct our business. If you are new to Mellon, please take the time to fully understand the POLICY and consult it whenever you are unsure about appropriate actions. If you have seen the POLICY previously, I urge you to renew your understanding of the entire document and its implications for you. Only by strict adherence to the POLICY can we ensure that our well-deserved reputation for integrity is preserved. Sincerely yours, Martin G. McGuinn 49 Questions Concerning the Securities Trading Policy? Contact Corporate Compliance, (412) 234-1661 AIM 151-4340, Mellon Bank, Pittsburgh, PA 15258-0001 50 CONTENTS PAGE ---- INTRODUCTION .................................................................1 Purpose ............................................................1 CLASSIFICATION OF EMPLOYEES ..................................................2 The Investment Ethics Committee ....................................2 PERSONAL SECURITIES TRADING PRACTICES ........................................3 Standards of Conduct for Access Decision Makers ....................3 Conflict of Interest ......................................3 Material Nonpublic Information ............................3 Brokers ...................................................3 Personal Securities Transaction Reports ...................3 Statement of Securities Accounts and Holdings .............4 Quarterly Reporting .......................................4 Preclearance for Personal Securities Transactions .........4 Contemporaneous Disclosure ................................5 Blackout Policy ...........................................6 Exemptions from Requirement to Preclear ...................6 Gifting of Securities .....................................7 DRIPs, DPPs, and AIPs .....................................7 Restricted List ...........................................7 Confidential Treatment ....................................8 Restrictions on Transactions in Mellon Securities ..................9 Mellon 401(k) Plan ........................................9 Mellon Employee Stock Options ............................10 Restrictions on Transactions in Other Securities ..................11 Initial Public Offerings .................................11 Micro-Cap Securities .....................................11 Private Placements .......................................12 Prohibition on Investments in Securities of Financial Services Organizations .........................13 Beneficial Ownership .....................................14 Non-Mellon Employee Benefit Plans ........................14 Protecting Confidential Information ...............................15 Insider Trading and Tipping - Legal Prohibitions .........15 Insider Trading and Tipping - Mellon's Policy ............16 The "Chinese Wall" .......................................16 GLOSSARY Definitions .......................................................17 Exhibit A - Sample Letter to Broker ...............................23 51 - ----------------------------------------------------------------------------- INTRODUCTION The SECURITIES TRADING POLICY (the "Policy") is designed to reinforce Mellon Financial Corporation's ("Mellon's") reputation for integrity by avoiding even the appearance of impropriety in the conduct of Mellon's business. The Policy sets forth procedures and limitations which govern the personal securities transactions of every Mellon Employee. Mellon and its employees are subject to certain laws and regulations governing personal securities trading. Mellon has developed this Policy to promote the highest standards of behavior and ensure compliance with applicable laws. Employees should be aware that they may be held personally liable for any improper or illegal acts committed during the course of their employment, and that "ignorance of the law" is not a defense. Employees may be subject to civil penalties such as fines, regulatory sanctions including suspensions, as well as criminal penalties. Employees outside the United States are also subject to applicable laws of foreign jurisdictions, which may differ substantially from US law and which may subject such employees to additional requirements. Such employees must comply with applicable requirements of pertinent foreign laws as well as with the provisions of the Policy. To the extent any particular portion of the Policy is inconsistent with foreign law, employees should consult the General Counsel or the Manager of Corporate Compliance. Any provision of this Policy may be waived or exempted at the discretion of the Manager of Corporate Compliance. Any such waiver or exemption will be evidenced in writing and maintained in the Audit and Risk Review Department. Employees must read the Policy and must comply with it. Failure to comply with the provisions of the Policy may result in the imposition of serious sanctions, including but not limited to disgorgement of profits, dismissal, substantial personal liability and referral to law enforcement agencies or other regulatory agencies. Employees should retain the Policy in their records for future reference. Any questions regarding the Policy should be referred to the Manager of Corporate Compliance or his/her designee. SPECIAL EDITION This edition of the SECURITIES TRADING POLICY has been prepared especially for Access Decision Makers. If you believe you are not an Access Decision Maker, please contact your supervisor, designated Preclearance Compliance Officer or the Manager of Corporate Compliance to obtain the standard edition of the Policy. PURPOSE It is imperative that Mellon and its affiliates avoid even the appearance of a conflict between the personal securities trading of its employees and its fiduciary duties to investment companies and managed account clients. Potential conflicts of interest are most acute with respect to personal securities trading by those employees most responsible for directing managed fund and account trades: portfolio managers and research analysts. In order to avoid even the appearance of impropriety, an Investment Ethics Committee has been formed. The Committee, in turn, has established the following practices which apply to Access Decision Makers. These practices do not limit the authority of any Mellon affiliate to impose additional restrictions or limitations. 52 - -------------------------------------------------------------------------------- CLASSIFICATION Employees are engaged in a wide variety of activities for OF EMPLOYEES Mellon. In light of the nature of their activities and the impact of federal and state laws and the regulations thereunder, the Policy imposes different requirements and limitations on employees based on the nature of their activities for Mellon. To assist the employees in complying with the requirements and limitations imposed on them in light of their activities, employees are classified into one or both of the following categories: Access Decision Maker and Micro-Cap Access Decision Maker. Appropriate requirements and limitations are specified in the Policy based upon the employee's classification. The Investment Ethics Committee will determine the classification of each employee based on the following guidelines. ACCESS DECISION A person designated as such by the Investment Ethics Committee. MAKER (ADM) Generally, this will be portfolio managers and research analysts who make recommendations or decisions regarding the purchase or sale of equity, convertible debt, and non-investment grade debt securities for mutual funds and other managed accounts. Portfolio managers in Mellon Private Capital Management are generally ADMs; other personal trust officers are generally not ADMs unless the investment discretion they exercise warrants ADM designation. Traders are not ADMs. Portfolio managers of funds which are limited to replicating an index are not ADMs. MICRO-CAP An ADM designated as such by the Investment Ethics Committee. ACCESS Generally, this will be ADMs who make recommendations or DECISION decisions regarding the purchase or sale of any security of an MAKERS MCADM) issuer with a common equity market capitalization equal to or less than two-hundred fifty million dollars. MCADMs are also ADMs. CONSULTANTS, Managers should inform consultants, independent contractors INDEPENDENT and temporary employees of the general provisions of the CONTRACTORS Policy (such as the prohibition on trading while in possession AND of material nonpublic information), but generally they will TEMPORARY not be required to preclear trades or report their personal EMPLOYEES securities holdings. If one of these persons would be considered an ADM if the person were a Mellon employee, the person's manager should advise the Manager of Corporate Compliance who will determine whether such individual should be subject to the preclearance and reporting requirements of the Policy. THE INVESTMENT The Investment Ethics Committee is composed of investment, ETHICS legal, compliance, and audit management representatives of COMMITTEE Mellon and its affiliates. The chief executive officer, senior investment officer and the Preclearance Compliance Officer at each Mellon investment affiliate, working together, will be designees of the Investment Ethics Committee. The Investment Ethics Committee will meet periodically to review the actions taken by its designees and to consider issues related to personal securities trading and investment activity by ADMs. 53 PERSONAL SECURITIES TRADING PRACTICES - ----------------------------------------------------------------------------- STANDARDS OF Because of their particular responsibilities, ADMs CONDUCT FOR are subject to preclearance and personal securities ACCESS reporting requirements, as discussed below. DECISION MAKERS Every ADM must follow these procedures or risk serious sanctions, including dismissal. If you have any questions about these procedures you should consult the Manager of Corporate Compliance or your Preclearance Compliance Officer. Interpretive issues that arise under these procedures shall be decided by, and are subject to the discretion of, the Manager of Corporate Compliance. CONFLICT OF No employee may engage in or recommend any securities INTEREST transaction that places, or appears to place, his or her own interests above those of any customer to whom financial services are rendered, including mutual funds and managed accounts, or above the interests of Mellon. MATERIAL No employee may divulge the current portfolio positions, or NONPUBLIC current or anticipated portfolio transactions, programs or INFORMATION studies, of Mellon or any Mellon customer to anyone unless it is properly within his or her job responsibilities to do so. No employee may engage in or recommend a securities transaction, for his or her own benefit or for the benefit of others, including Mellon or its customers, while in possession of material nonpublic information regarding such securities. No employee may communicate material nonpublic information to others unless it is properly within his or her job responsibilities to do so. BROKERS Trading Accounts - All ADMs are encouraged to conduct their personal investing through a Mellon affiliate brokerage account. This will assist in the monitoring of account activity on an ongoing basis in order to ensure compliance with the Policy. PERSONAL Statements & Confirmations - All ADMs are required to instruct SECURITIES their broker, trust account manager or other entity through TRANSACTIONS which they have a securities trading account to submit REPORTS directly to the Manager of Corporate Compliance or designated Preclearance Compliance Officer copies of all trade confirmations and statements relating to each account of which they are a beneficial owner regardless of what, if any, securities are maintained in such accounts. Thus, for example, even if the brokerage account contains only mutual funds or other Exempt Securities as that term is defined in the glossary and the account has the capability to have reportable securities traded in it, the ADM maintaining such an account must arrange for duplicate account statements and trade confirmations to be sent by the broker to the Manager of Corporate Compliance or designated Preclearance Compliance Officer. Exhibit A is an example of an instruction letter to a broker. Other securities transactions which were not completed through a brokerage account, such as gifts, inheritances, spin-offs from securities held outside brokerage accounts, or other transfers must be reported to the designated Preclearance Compliance Officer within 10 days. 54 STATEMENT OF Within ten days of becoming an ADM and on an annual basis SECURITIES thereafter, all ADMs must submit to their designated ACCOUNTS Preclearance Compliance Officer: AND HOLDINGS o a listing of all securities trading accounts in which the employee has a beneficial interest. o a statement of all securities in which they presently have any direct or indirect beneficial ownership other than Exempt Securities. The annual report must be completed upon the request of Corporate Compliance, and the information submitted must be current within 30 days of the date the report is submitted. The annual statement of securities holdings contains an acknowledgment that the ADM has read and complied with this Policy. QUARTERLY ADMs are required to submit quarterly to their Preclearance REPORTING Compliance Officer the Quarterly Securities Report. This report must be submitted within 30 days of each quarter end and includes information on: o securities beneficially owned at any time during the quarter which were also either recommended for a transaction or in the portfolio managed by the ADM during the quarter. o positions obtained in private placements. o securities of issuers with a common equity market capitalization of $250 million or less at security acquisition or at the date designated by the Preclearance Compliance Officer, whichever is later, which were beneficially owned at any time during the quarter. o Securities transactions which were not completed through a brokerage account, such as gifts inheritances, spin-offs from securities held outside brokerage accounts, or other transfers. A form for making this report can be obtained from your designated Preclearance Compliance Officer or from the Securities Trading Site on the Mellon intranet. PRECLEARANCE All ADMs must notify the designated Preclearance Compliance FOR PERSONAL Officer in writing and receive preclearance before they engage SECURITIES in any purchase or sale of a security for their own accounts. TRANSACTIONS ADMs should refer to the provisions under "Beneficial Ownership" below, which are applicable to these provisions. All requests for preclearance for a securities transaction shall be submitted by completing a Preclearance Request Form which can be obtained from the designated Preclearance Compliance Officer. The designated Preclearance Compliance Officer will notify the ADM whether the request is approved or denied, without disclosing the reason for such approval or denial. Notifications may be given in writing or verbally by the designated Preclearance Compliance Officer to the ADM. A record of such notification will be maintained by the designated Preclearance Compliance Officer. However, it shall be the responsibility of the ADM to obtain a written record of the designated Preclearance Compliance Officer's notification within 48 hours of such notification. The ADM should retain a copy of this written record for at least two years. As there could be many reasons for preclearance being granted or denied, ADMs should not infer from the preclearance response anything regarding the security for which preclearance was requested. Although making a preclearance request does not obligate an ADM to do the transaction, it should be noted that: 55 o Preclearance requests should not be made for a transaction that the ADM does not intend to make. o The order for a transaction must be placed with the broker on the same day that preclearance authorization is received. The broker must execute the trade by 4:00 p.m. Eastern Time on the next business day, at which time the preclearance authorization will expire. o ADMs should not discuss with anyone else, inside or outside Mellon, the response they received to a preclearance request. If the ADM is preclearing as beneficial owner of another's account, the response may be disclosed to the other owner. o Good Until Canceled/Stop Loss Orders ("Limit Orders") must be precleared, and security transactions receiving preclearance authorization must be executed before the preclearance expires. At the end of the preclearance authorization period, any unexecuted Limit Order must be canceled or a new preclearance authorization must be obtained. There are additional pre-approval requirements for initial public offerings, micro-cap securities and private placements. See page 11. CONTEMPORANEOUS ADMs must obtain written authorization prior to making or DISCLOSURE acting upon a portfolio recommendation in a security which they own personally. This authorization must be obtained from the ADM's CIO/CEO or other Investment Ethics Committee designee immediately prior to the first such portfolio recommendation in a particular security in a calendar month. The following personal securities holdings are exempt from the requirement to obtain written authorization immediately preceding a portfolio recommendation or transaction: o Exempt Securities (see glossary). o Securities held in accounts over which the ADM has no investment discretion, which are professionally managed by a non-family member, and where the ADM has no actual knowledge that such account is currently holding the same or equivalent security at the time of the portfolio recommendation. o Personal holdings of equity securities of the top 200 issuers on the Russell list of largest publicly traded companies. o Personal equity holdings of securities of non-US issuers with a common equity market capitalization of $20 billion or more. o Personal holdings of debt securities which do not have a conversion feature and are rated BBB or better. o Personal holdings of ADMs who are index fund managers and who have no investment discretion in replicating an index. o Personal holdings of Portfolio Managers in Mellon Private Capital Management and Mellon Private Asset Management if the Portfolio Manager exactly replicates the model or clone portfolio. A disclosure form is required if the Portfolio Manager recommends securities which are not in the clone or model portfolio or recommends a model or clone security in a different percentage than model or clone amounts. Disclosure forms are also required when the Portfolio Manager recommends individual securities to clients, even if Mellon shares control of the investment process with other parties. 56 If a personal securities holding does not fall under one of these exemptions, the ADM must complete and forward a disclosure form for authorization by the CIO/CEO or designee, immediately prior to the first recommendation or transaction in the security in the current calendar month. Disclosure forms for subsequent transactions in the same security are not required for the remainder of the calendar month as long as purchases (or sales) in all portfolios do not exceed the maximum number of shares, options, or bonds disclosed on the disclosure form. If the ADM seeks to effect a transaction or makes a recommendation in a direction opposite to the most recent disclosure form, a new disclosure form must be completed prior to the transaction or recommendation. Once the CIO/CEO's authorization is obtained, the ADM may make the recommendation or trade the security in the managed portfolio without the Preclearance Compliance Officer's signature. However, the ADM must deliver the authorization form to the Preclearance Compliance Officer on the day of the CIO/CEO's authorization. The Preclearance Compliance Officer will forward a copy of the completed form for the ADM's files. The ADM is responsible for following-up with the Preclearance Compliance Officer in the event a completed form is not returned to the ADM within 5 business days. It is recommended that the ADM retain completed forms for two years. A listing of Investment Ethics Committee designees, a listing of the Russell 200, and the personal securities disclosure forms are available on the Mellon intranet , or can be obtained from your designated Preclearance Compliance Officer. BLACKOUT POLICY Except as described below, ADMs will generally not be given clearance to execute a transaction in any security that is on the restricted list maintained by their Preclearance Compliance Officer, or for which there is a pending buy or sell order for an affiliated account. This provision does not apply to transactions effected or contemplated by index funds. In addition, portfolio managers (except index fund managers) are prohibited from buying or selling a security within seven calendar days before and after their investment company or managed account has effected a transaction in that security. In addition to other appropriate sanctions, if such ADMs effect such a personal transactions during that period, these individuals must disgorge any and all profit realized from such transactions. The amount of the disgorgement will be determined by the Investment Ethics Committee. Exceptions - Regardless of any restrictions above, ADMs will generally be given clearance to buy or sell up to the greater of 100 shares or $10,000 of securities of the top 500 issuers on the Russell list of largest publicly traded companies. In addition, ADMs will be exempt from the 7-day disgorgement for the described transactions (but not the disgorgement for short-term/60-day trading). An ADM is limited to two such purchases or two such sales in the securities of any one issuer in any calendar month. EXEMPTIONS FROM Preclearance is not required for the following transactions: REQUIREMENT TO PRECLEAR o purchases or sales of Exempt Securities (see Glossary); o purchases or sales of securities issued by non-affiliated closed-end investment companies; non-financial commodities (such as agricultural futures, metals, oil, gas, etc.), currency futures, financial futures, index futures and index securities; o purchases or sales effected in any account over which an employee has no direct or indirect control over the investment decision making process (e.g., discretionary trading accounts). Discretionary trading accounts may be maintained, without being subject to preclearance procedures, only when the Manager of Corporate Compliance, after a thorough review, is satisfied that the account is truly discretionary; 57 o transactions that are non-volitional on the part of an employee (such as stock dividends); o the sale of Mellon stock received upon the exercise of an employee stock option if the sale is part of a "netting of shares" or "cashless exercise" administered by the Human Resources Department (for which the Human Resources Department will forward information to the Manager of Corporate Compliance); o changes to elections in the Mellon 401(k) plan; o purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of securities, to the extent such rights were acquired from such issuer; o sales of rights acquired from an issuer, as described above; and/or o sales effected pursuant to a bona fide tender offer. GIFTING OF ADMs desiring to make a bona fide gift of securities or who SECURITIES receive a bona fide gift of securities do not need to preclear the transaction. However, ADMs must report such bona fide gifts to the designated Preclearance Compliance Officer. The report must be made within 10 days of making or receiving the gift and must disclose the following information: the name of the person receiving (giving) the gift, the date of the transaction, and the name of the broker through which the transaction was effected. A bona fide gift is one where the donor does not receive anything of monetary value in return. An ADM who purchases a security with the intention of making a gift must preclear the purchase transaction. DRIPs, DPPs Certain companies with publicly traded securities establish: AND AIPs o Dividend reinvestment plans (DRIPs) - These permit shareholders to have their dividend payments channeled to the purchase of additional shares of such company's stock. An additional benefit offered by many DRIPs to DRIP participants is the right to buy additional shares by sending in a check before the dividend reinvestment date ("optional cash purchases"). o Direct Purchase Plans (DPPs) - These allow purchasers to buy stock by sending a check directly to the issuer, without using a broker. o Automatic Investment Plans (AIPs) - These allow purchasers to set up a plan whereby a fixed amount of money is automatically deducted from their checking account each month and used to purchase stock directly from the issuer. Participation in a DRIP, DPP or AIP is voluntary. ADMs who enroll in a DRIP or AIP are not required to preclear enrollment, the periodic reinvestment of dividend payments into additional shares of company stock through a DRIP, or the periodic investments through an AIP. ADMs must preclear all optional cash purchases through a DRIP and all purchases through a DPP. ADMs must also preclear all sales through a DRIP, DPP or AIP. 58 RESTRICTED LIST Each Preclearance Compliance Officer will maintain a list (the "Restricted List") of companies whose securities are deemed appropriate for implementation of trading restrictions for ADMs in their area. From time to time, such trading restrictions may be appropriate to protect Mellon and its ADMs from potential violations, or the appearance of violations, of securities laws. The inclusion of a company on the Restricted List provides no indication of the advisability of an investment in the company's securities or the existence of material nonpublic information on the company. Nevertheless, the contents of the Restricted List will be treated as confidential information in order to avoid unwarranted inferences. The Preclearance Compliance Officer will retain copies of the restricted lists for five years. CONFIDENTIAL The Manager of Corporate Compliance and/or Preclearance TREATMENT Compliance Officer will use his or her best efforts to assure that all requests for preclearance, all personal securities transaction reports and all reports of securities holdings are treated as "Personal and Confidential." However, such documents will be available for inspection by appropriate regulatory agencies, and by other parties within and outside Mellon as are necessary to evaluate compliance with or sanctions under this Policy. Documents received from ADMs are also available for inspection by the boards of directors of 40-Act entities and by the boards of directors (or trustees or managing general partners, as applicable) of the investment companies managed or administered by 40-Act entities. 59 - -------------------------------------------------------------------------------- RESTRICTIONS ON Employees who engage in transactions involving Mellon TRANSACTIONS IN securities should be aware of their unique responsibilities MELLON with respect to such transactions arising from the employment SECURITIES relationship and should be sensitive to even the appearance of impropriety. The following restrictions apply to all transactions in Mellon's publicly traded securities occurring in the employee's own account and in all other accounts over which the employee could be presumed to exercise influence or control (see provisions under "Beneficial Ownership" below for a more complete discussion of the accounts to which these restrictions apply). These restrictions are to be followed in addition to any restrictions that apply to particular officers or directors (such as restrictions under Section 16 of the Securities Exchange Act of 1934). o Short Sales - Short sales of Mellon securities by employees are prohibited. o Short Term Trading - ADMs are prohibited from purchasing and selling, or from selling and purchasing Mellon securities within any 60 calendar day period. In addition to any other sanctions, any profits realized on such short term trades must be disgorged in accordance with procedures established by senior management. o Margin Transactions - Purchases on margin of Mellon's publicly traded securities by employees is prohibited. Margining Mellon securities in connection with a cashless exercise of an employee stock option through the Human Resources Department is exempt from this restriction. Further, Mellon securities may be used to collateralize loans or the acquisition of securities other than those issued by Mellon. o Option Transactions - Option transactions involving Mellon's publicly traded securities are prohibited. Transactions under Mellon's Long-Term Incentive Plan or other employee option plans are exempt from this restriction. o Major Mellon Events - Employees who have knowledge of major Mellon events that have not yet been announced are prohibited from buying or selling Mellon's publicly traded securities before such public announcements, even if the employee believes the event does not constitute material nonpublic information. o Mellon Blackout Period - Employees are prohibited from buying or selling Mellon's publicly traded securities during a blackout period. The blackout period begins the 16th day of the last month of each calendar quarter and ends 3 business days after Mellon Financial Corporation publicly announces the financial results for that quarter. Thus, the blackout periods begin on March 16, June 16, September 16 and December 16. The end of the blackout period is determined by counting business days only, and the day of the earnings announcement is day 1. The blackout period ends at the end of day 3, and employees can trade Mellon securities on day 4. MELLON 401(K) For purposes of the blackout period and the short term trading PLAN rule, employees' changing their existing account balance allocation to increase or decrease the amount allocated to Mellon Common Stock will be treated as a purchase or sale of Mellon Stock, respectively. This means: o Employees are prohibited from increasing or decreasing their existing account balance allocation to Mellon Common Stock during the blackout period. 60 o Employees are prohibited from increasing their existing account balance allocation to Mellon Common Stock and then decreasing it within 60 days. Similarly, employees are prohibited from decreasing their existing account balance allocation to Mellon Common Stock and then increasing it within 60 days. However: o with respect to ADMs, any profits realized on short term changes in the 401(k) will not have to be disgorged. o changes to existing account balance allocations in the 401(k) plan will not be compared to transactions in Mellon securities outside the 401(k) for purposes of the 60-day rule. (Note: this does not apply to members of the Executive Management Group, who should consult with the Legal Department.) Except for the above there are no other restrictions applicable to the 401(k) plan. This means, for example: o Employees are not required to preclear any elections or changes made in their 401(k) account. o There is no restriction on employees' changing their salary deferral contribution percentages with regard to either the blackout period or the 60-day rule. o The regular salary deferral contribution to Mellon Common Stock in the 401(k) that takes place with each pay will not be considered a purchase for the purposes of either the blackout or the 60-day rule. MELLON EMPLOYEE Receipt - Your receipt of an employee stock option from Mellon STOCK OPTIONS is not deemed to be a purchase of a security. Therefore, it is exempt from preclearance and reporting requirements, can take place during the blackout period and does not constitute a purchase for purposes of the 60-day prohibition. Exercises - The exercise of an employee stock option that results in your holding the shares is exempt from preclearance and reporting requirements, can take place during the blackout period and does not constitute a purchase for purposes of the 60-day prohibition. "Cashless" Exercises - The exercise of an employee stock option which is part of a "cashless exercise" or "netting of shares" that is administered by the Human Resources Department or Chase Mellon Shareholder Services is exempt from the preclearance and reporting requirements and will not constitute a purchase or a sale for purposes of the 60-day prohibition. A "cashless exercise" or "netting of shares" transaction is permitted during the blackout period for ShareSuccess plan options only. They are not permitted during the blackout period for any other plan options. Sales - The sale of the Mellon securities that were received in the exercise of an employee stock option is treated like any other sale under the Policy (regardless of how little time has elapsed between the option exercise and the sale). Thus, such sales are subject to the preclearance and reporting requirements, are prohibited during the blackout period and constitute sales for purposes of the 60-day prohibition. 61 - -------------------------------------------------------------------------------- RESTRICTIONS ON Purchases or sales by an employee of the securities of issuers TRANSACTIONS IN with which Mellon does business, or other third party issuers, OTHER could result in liability on the part of such employee. SECURITIES Employees should be sensitive to even the appearance of impropriety in connection with their personal securities transactions. Employees should refer to "Beneficial Ownership" below, which is applicable to the following restrictions. The Mellon Code of Conduct contains certain restrictions on investments in parties that do business with Mellon. Employees should refer to the Code of Conduct and comply with such restrictions in addition to the restrictions and reporting requirements set forth below. The following restrictions apply to all securities transactions by ADMs: o Customer Transactions - Trading for customers and Mellon accounts should always take precedence over employees' transactions for their own or related accounts. o Excessive Trading, Naked Options - Mellon discourages all employees from engaging in short-term or speculative trading, in trading naked options, in trading that could be deemed excessive or in trading that could interfere with an employee's job responsibilities. o Front Running - Employees may not engage in "front running," that is, the purchase or sale of securities for their own accounts on the basis of their knowledge of Mellon's trading positions or plans. o Initial Public Offerings - ADMs are prohibited from acquiring securities through an allocation by the underwriter of an Initial Public Offering (IPO) without the approval of the Investment Ethics Committee. Approval can be given only when the allocation comes through an employee of the issuer who is a direct family relation of the ADM. Due to NASD rules, this approval may not be available to employees of registered broker/dealers. o Material Nonpublic Information - Employees possessing material nonpublic information regarding any issuer of securities must refrain from purchasing or selling securities of that issuer until the information becomes public or is no longer considered material. o Micro-Cap Securities - Unless specifically authorized in writing by the Investment Ethics Committee, MCADMs are prohibited from voluntarily obtaining beneficial ownership of any security of an issuer with a common equity market capitalization of $100 million or less at the time of acquisition. If any MCADM involuntarily acquires such a micro-cap security through inheritance, gift, or spin-off, this fact must be disclosed in a memo to the MCADM's Preclearance Compliance Officer within 10 business days of the MCADM's knowledge of this fact. A copy of this memo should be attached to the MCADM's next Quarterly Securities Report. A form for making this report can be obtained from your designated Preclearance Compliance Officer. MCADMs must obtain on their Preclearance Request Forms the written authorization of their immediate supervisor and their Chief Investment Officer prior to voluntarily obtaining, or disposing of, a beneficial ownership of any security of an issuer with a common equity market capitalization of more than $100 million but less than or equal to $250 million at the time of acquisition. MCADMs who have prior holdings of securities of an issuer with a common equity market capitalization of $250 million or less must disclose on their next Quarterly Securities Report that they have not yet received CIO/CEO authorization for these holdings. The Preclearance Compliance Officer will utilize these forms to request the appropriate authorizations. 62 o Private Placements - Participation in private placements is prohibited without the prior written approval of the Investment Ethics Committee. The Committee will generally not approve an ADM's acquiring, in a private placement, beneficial ownership of any security of an issuer in which any managed fund or account is authorized to invest within the ADM's fund complex. Private placements include certain co-operative investments in real estate, co-mingled investment vehicles such as hedge funds, and investments in family owned businesses. For the purpose of this policy, time-shares and cooperative investments in real estate used as a primary or secondary residence are not considered to be private placements. When considering requests for participation in private placements, the Investment Ethics Committee will take into account the specific facts and circumstances of the request prior to reaching a decision on whether to authorize a private placement investment by an ADM. These factors include, among other things, whether the opportunity is being offered to an individual by virtue of his or her position with Mellon or its affiliates, or his or her relationship to a managed fund or account. The Investment Ethics Committee will also consider whether a fund or account managed by the ADM is authorized to invest in securities of the issuer in which the ADM is seeking to invest. At its discretion, the Investment Ethics Committee may request any and all information and/or documentation necessary to satisfy itself that no actual or potential conflict, or appearance of a conflict, exists between the proposed private placement purchase and the interests of any managed fund or account. ADMs who have prior holdings of securities obtained in a private placement must request the written authorization of the Investment Ethics Committee to continue holding the security. This request for authorization must be initiated within 90 days of becoming an ADM. To request authorization for prior holdings or new proposed acquisitions of securities issued in an eligible private placement, contact the Manager of Corporate Compliance. o Scalping - Employees may not engage in "scalping," that is, the purchase or sale of securities for their own or Mellon's accounts on the basis of knowledge of customers' trading positions or plans. o Short Term Trading - ADMs are discouraged from purchasing and selling, or from selling and purchasing, the same (or equivalent) securities within any 60 calendar day period. Any profits realized on such short term trades must be disgorged in accordance with procedures established by senior management. Exception: securities may be sold pursuant to a bona fide tender offer without disgorgement under the 60-day rule. 63 PROHIBITION ON You are prohibited from acquiring any security issued by a INVESTMENTS IN financial services organization if you are: SECURITIES OF FINANCIAL o a member of the Mellon Senior Management Committee. SERVICES ORGANIZATIONS o employed in any of the following departments: o Corporate Strategy & Development o Legal (Pittsburgh only) o Finance (Pittsburgh only) o an employee specifically designated by the Manager of Corporate Compliance and informed that this prohibition is applicable to you. Financial Services Organizations - The term "security issued by a financial services organization" includes any security issued by: - Commercial Banks other than Mellon - Thrifts - Bank Holding Companies other than Mellon - Savings and Loan Associations - Insurance Companies - Broker/Dealers - Investment Advisory Companies - Transfer Agents - Shareholder Servicing Companies - Other Depository Institutions The term "securities issued by a financial services organization" does not include securities issued by mutual funds, variable annuities or insurance policies. Further, for purposes of determining whether a company is a financial services organization, subsidiaries and parent companies are treated as separate issuers. Effective Date - Securities of financial services organizations properly acquired before the employee's becoming subject to this prohibition may be maintained or disposed of at the owner's discretion consistent with this policy. Additional securities of a financial services organization acquired through the reinvestment of the dividends paid by such financial services organization through a dividend reinvestment program (DRIP), or through an automatic investment plan (AIP) are not subject to this prohibition, provided the employee's election to participate in the DRIP or AIP predates the date of the employee's becoming subject to this prohibition. Optional cash purchases through a DRIP or direct purchase plan (DPP) are subject to this prohibition. Securities acquired in any account over which an employee has no direct or indirect control over the investment decision making process (e.g. discretionary trading accounts) are not subject to this prohibition. Within 30 days of becoming subject to this prohibition, all holdings of securities of financial services organizations must be disclosed in writing to the Manager of Corporate Compliance. 64 BENEFICIAL The provisions of the Policy apply to transactions in the OWNERSHIP employee's own name and to all other accounts over which the employee could be presumed to exercise influence or control, including: o accounts of a spouse, minor children or relatives to whom substantial support is contributed; o accounts of any other member of the employee's household (e.g., a relative living in the same home); o trust or other accounts for which the employee acts as trustee or otherwise exercises any type of guidance or influence; o corporate accounts controlled, directly or indirectly, by the employee; o arrangements similar to trust accounts that are established for bona fide financial purposes and benefit the employee; and o any other account for which the employee is the beneficial owner (see Glossary for a more complete legal definition of "beneficial owner"). NON-MELLON The provisions discussed above do not apply to transactions EMPLOYEE done under a bona fide employee benefit plan administered by BENEFIT PLANS an organization not affiliated with Mellon and by an employee of that organization who shares beneficial interest with a Mellon employee, and in the securities of the employing organization. This means if a Mellon employee's spouse is employed at a non-Mellon company, the Mellon employee is not required to obtain approval for transactions in the employer's securities done by the spouse as part of the spouse's employee benefit plan. The Securities Trading Policy does not apply in such a situation. Rather, the other organization is relied upon to provide adequate supervision with respect to conflicts of interest and compliance with securities laws. 65 - -------------------------------------------------------------------------------- PROTECTING As an employee you may receive information about Mellon, its CONFIDENTIAL customers and other parties that, for various reasons, should INFORMATION be treated as confidential. All employees are expected to strictly comply with measures necessary to preserve the confidentiality of information. Employees should refer to the Mellon Code of Conduct. INSIDER TRADING Federal securities laws generally prohibit the trading of AND TIPPING securities while in possession of "material nonpublic" information regarding the issuer of those securities (insider LEGAL trading). Any person who passes along material nonpublic PROHIBITIONS information upon which a trade is based (tipping) may also be liable. Information is "material" if there is a substantial likelihood that a reasonable investor would consider it important in deciding whether to buy, sell or hold securities. Obviously, information that would affect the market price of a security would be material. Examples of information that might be material include: o a proposal or agreement for a merger, acquisition or divestiture, or for the sale or purchase of substantial assets; o tender offers, which are often material for the party making the tender offer as well as for the issuer of the securities for which the tender offer is made; o dividend declarations or changes; o extraordinary borrowings or liquidity problems; o defaults under agreements or actions by creditors, customers or suppliers relating to a company's credit standing; o earnings and other financial information, such as large or unusual write-offs, write-downs, profits or losses; o pending discoveries or developments, such as new products, sources of materials, patents, processes, inventions or discoveries of mineral deposits; o a proposal or agreement concerning a financial restructuring; o a proposal to issue or redeem securities, or a development with respect to a pending issuance or redemption of securities; o a significant expansion or contraction of operations; o information about major contracts or increases or decreases in orders; o the institution of, or a development in, litigation or a regulatory proceeding; o developments regarding a company's senior management; o information about a company received from a director of that company; and o information regarding a company's possible noncompliance with environmental protection laws. 66 - -------------------------------------------------------------------------------- This list is not exhaustive. All relevant circumstances must be considered when determining whether an item of information is material. "Nonpublic" - Information about a company is nonpublic if it is not generally available to the investing public. Information received under circumstances indicating that it is not yet in general circulation and which may be attributable, directly or indirectly, to the company or its insiders is likely to be deemed nonpublic information. If you obtain material non-public information you may not trade related securities until you can refer to some public source to show that the information is generally available (that is, available from sources other than inside sources) and that enough time has passed to allow wide dissemination of the information. While information appearing in widely accessible sources--such as in newspapers or on the internet--becomes public very soon after publication, information appearing in less accessible sources--such as regulatory filings, may take up to several days to be deemed public. Similarly, highly complex information might take longer to become public than would information that is easily understood by the average investor. MELLON'S POLICY Employees who possess material nonpublic information about a company--whether that company is Mellon, another Mellon entity, a Mellon customer or supplier, or other company--may not trade in that company's securities, either for their own accounts or for any account over which they exercise investment discretion. In addition, employees may not recommend trading in those securities and may not pass the information along to others, except to employees who need to know the information in order to perform their job responsibilities with Mellon. These prohibitions remain in effect until the information has become public. Employees who have investment responsibilities should take appropriate steps to avoid receiving material nonpublic information. Receiving such information could create severe limitations on their ability to carry out their responsibilities to Mellon's fiduciary customers. Employees managing the work of consultants and temporary employees who have access to the types of confidential information described in this Policy are responsible for ensuring that consultants and temporary employees are aware of Mellon's policy and the consequences of noncompliance. Questions regarding Mellon's policy on material nonpublic information, or specific information that might be subject to it, should be referred to the General Counsel. RESTRICTIONS As a diversified financial services organization, Mellon faces ON THE FLOW OF unique challenges in complying with the prohibitions on INFORMATION insider trading and tipping of material non-public WITHIN MELLON information, and misuse of confidential information. This is (THE "CHINESE because one Mellon unit might have material nonpublic WALL") information about a company while other Mellon units may have a desire, or even a fiduciary duty, to buy or sell that company's securities or recommend such purchases or sales to customers. To engage in such broad-ranging financial services activities without violating laws or breaching Mellon's fiduciary duties, Mellon has established a "Chinese Wall" policy applicable to all employees. The "Chinese Wall" separates the Mellon units or individuals that are likely to receive material nonpublic information (Potential Insider Functions) from the Mellon units or individuals that either trade in securities--for Mellon's account or for the accounts of others--or provide investment advice (Investment Functions). Employees should refer to CPP 903-2(C) The Chinese Wall. 67 - -------------------------------------------------------------------------------- GLOSSARY DEFINITIONS o 40-ACT ENTITY - A Mellon entity registered under the Investment Company Act and/or the Investment Advisers Act of 1940 o ACCESS DECISION MAKER - A person designated as such by the Investment Ethics Committee. Generally, this will be portfolio managers and research analysts who make recommendations or decisions regarding the purchase or sale of equity, convertible debt, and non-investment grade debt securities for investment companies and other managed accounts. o ACCESS PERSON - As defined by Rule 17j-1 under the Investment Company Act of 1940, "access person" means: (A) With respect to a registered investment company or an investment adviser thereof, any director, officer, general partner, or advisory person (see definition below), of such investment company or investment adviser; (B) With respect to a principal underwriter, any director, officer, or general partner of such principal underwriter who in the ordinary course of his business makes, participates in or obtains information regarding the purchase or sale of securities for the registered investment company for which the principal underwriter so acts, or whose functions or duties as part of the ordinary course of his business relate to the making of any recommendations to such investment company regarding the purchase or sale of securities. (C) Notwithstanding the provisions of paragraph (A) hereinabove, where the investment adviser is primarily engaged in a business or businesses other than advising registered investment companies or other advisory clients, the term "access person" shall mean: any director, officer, general partner, or advisory person of the investment adviser who, with respect to any registered investment company, makes any recommendations, participates in the determination of which recommendation shall be made, or whose principal function or duties relate to the determination of which recommendation will be made, to any such investment company; or who, in connection with his duties, obtains any information concerning securities recommendations being made by such investment adviser to any registered investment company. (D) An investment adviser is "primarily engaged in a business or businesses other than advising registered investment companies or other advisory clients" when, for each of its most recent three fiscal years or for the period of time since its organization, whichever is lesser, the investment adviser derived, on an unconsolidated basis, more than 50 percent of (i) its total sales and revenues, and (ii) its income (or loss) before income taxes and extraordinary items, from such other business or businesses. o ADVISORY PERSON of a registered investment company or an investment adviser thereof means: (A) Any employee of such company or investment adviser (or any company in a control relationship to such investment company or investment adviser) who, in connection with his regular functions or duties, makes, participates in, or obtains information regarding the purchase or sale of a security by a registered investment company, or whose functions relate to the making of any recommendation with respect to such purchases or sales; and (B) Any natural person in a control relationship to such company or investment adviser who obtains information concerning recommendations made to such company with regard to the purchase or sale of a security. o APPROVAL - written consent or written notice of non-objection. 68 o BENEFICIAL OWNERSHIP - The definition that follows conforms to interpretations of the Securities and Exchange Commission on this matter. Because a determination of beneficial ownership requires a detailed analysis of personal financial circumstances that are subject to change, Corporate Compliance ordinarily will not advise employees on this definition. It is the responsibility of each employee to read the definition and based on that definition, determine whether he/she is the beneficial owner of an account. If the employee determines that he/she is not a beneficial owner of an account and Corporate Compliance becomes aware of the existence of the account, the employee will be responsible for justifying his/her determination. Securities owned of record or held in the employee's name are generally considered to be beneficially owned by the employee. Securities held in the name of any other person are deemed to be beneficially owned by the employee if by reason of any contract, understanding, relationship, agreement or other arrangement, the employee obtains therefrom benefits substantially equivalent to those of ownership, including the power to vote, or to direct the disposition of, such securities. Beneficial ownership includes securities held by others for the employee's benefit (regardless of record ownership), e.g., securities held for the employee or members of the employee's immediate family, defined below, by agents, custodians, brokers, trustees, executors or other administrators; securities owned by the employee, but which have not been transferred into the employee's name on the books of the company; securities which the employee has pledged; or securities owned by a corporation that should be regarded as the employee's personal holding corporation. As a natural person, beneficial ownership is deemed to include securities held in the name or for the benefit of the employee's immediate family, which includes the employee's spouse, the employee's minor children and stepchildren and the employee's relatives or the relatives of the employee's spouse who are sharing the employee's home, unless because of countervailing circumstances, the employee does not enjoy benefits substantially equivalent to those of ownership. Benefits substantially equivalent to ownership include, for example, application of the income derived from such securities to maintain a common home, meeting expenses that such person otherwise would meet from other sources, and the ability to exercise a controlling influence over the purchase, sale or voting of such securities. An employee is also deemed the beneficial owner of securities held in the name of some other person, even though the employee does not obtain benefits of ownership, if the employee can vest or revest title in himself at once, or at some future time. In addition, a person will be deemed the beneficial owner of a security if he has the right to acquire beneficial ownership of such security at any time (within 60 days) including but not limited to any right to acquire: (1) through the exercise of any option, warrant or right; (2) through the conversion of a security; or (3) pursuant to the power to revoke a trust, nondiscretionary account or similar arrangement. With respect to ownership of securities held in trust, beneficial ownership includes ownership of securities as a trustee in instances where either the employee as trustee or a member of the employee's "immediate family" has a vested interest in the income or corpus of the trust, the ownership by the employee of a vested beneficial interest in the trust and the ownership of securities as a settlor of a trust in which the employee as the settlor has the power to revoke the trust without obtaining the consent of the beneficiaries. Certain exemptions to these trust beneficial ownership rules exist, including an exemption for instances where beneficial ownership is imposed solely by reason of the employee being settlor or beneficiary of the securities held in trust and the ownership, acquisition and disposition of such securities by the trust is made without the employee's prior approval as settlor or beneficiary. "Immediate family" of an employee as trustee means the employee's son or daughter (including any legally adopted children) or any descendant of either, the employee's stepson or stepdaughter, the employee's father or mother or any ancestor of either, the employee's stepfather or stepmother and the employee's spouse. To the extent that stockholders of a company use it as a personal trading or investment medium and the company has no other substantial business, stockholders are regarded as beneficial owners, to the extent of their respective interests, of the stock thus invested or traded in. A general partner in a partnership is considered to have indirect beneficial ownership in the securities held by the partnership to the extent of his pro rata interest in the partnership. Indirect beneficial ownership is not, however, considered to exist solely by reason of an indirect interest in portfolio securities held by any holding company registered under the Public Utility Holding Company Act of 1935, a pension or retirement plan holding securities of an issuer whose employees generally are beneficiaries of the plan and a business trust with over 25 beneficiaries. 69 Any person who, directly or indirectly, creates or uses a trust, proxy, power of attorney, pooling arrangement or any other contract, arrangement or device with the purpose or effect of divesting such person of beneficial ownership as part of a plan or scheme to evade the reporting requirements of the Securities Exchange Act of 1934 shall be deemed the beneficial owner of such security. The final determination of beneficial ownership is a question to be determined in light of the facts of a particular case. Thus, while the employee may include security holdings of other members of his family, the employee may nonetheless disclaim beneficial ownership of such securities. o "CHINESE WALL" POLICY - procedures designed to restrict the flow of information within Mellon from units or individuals who are likely to receive material nonpublic information to units or individuals who trade in securities or provide investment advice. o DIRECT FAMILY RELATION - employee's husband, wife, father, mother, brother, sister, daughter or son. Includes the preceding plus, where appropriate, the following prefixes/suffix: grand-, step-, foster-, half- and -in-law. o DISCRETIONARY TRADING ACCOUNT - an account over which the employee has no direct or indirect control over the investment decision making process. o EMPLOYEE - any employee of Mellon Financial Corporation or its more-than-50%-owned direct or indirect subsidiaries; includes all full-time, part-time, benefited and non-benefited, exempt and non-exempt, domestic and international employees; does not include consultants and contract or temporary employees. o EXEMPT SECURITIES - Exempt Securities are defined as: o direct obligations of the government of the United States; o high quality short-term debt instruments; o bankers' acceptances; o bank certificates of deposit and time deposits; o commercial paper; o repurchase agreements; o securities issued by open-end investment companies; o FAMILY RELATION - see direct family relation. o GENERAL COUNSEL - General Counsel of Mellon Financial Corporation or any person to whom relevant authority is delegated by the General Counsel. o INDEX FUND - an investment company or managed portfolio which contains securities of an index in proportions designed to replicate the return of the index. o INITIAL PUBLIC OFFERING (IPO) - the first offering of a company's securities to the public through an allocation by the underwriter. o INVESTMENT CLUB - is a membership organization where investors make joint decisions on which securities to buy or sell. The securities are generally held in the name of the investment club. Since each member of an investment club participates in the investment decision making process, Insider Risk Employees, Investment Employees and Access Decision Makers belonging to such investment clubs must preclear and report the securities transactions contemplated by such investment clubs. In contrast, a private investment company is an organization where the investor invests his/her money, but has no direct control over the way his/her money is invested. Insider Risk Employees, Investment Employees and Access Decision Makers investing in such a private investment company are not required to preclear any of the securities 70 transactions made by the private investment company. Insider Risk Employees, Investment Employees and Access Decision Makers are required to report their investment in a private investment company to the Manager of Corporate Compliance and certify to the Manager of Corporate Compliance that they have no direct control over the way their money is invested. o INVESTMENT COMPANY - a company that issues securities that represent an undivided interest in the net assets held by the company. Mutual funds are investment companies that issue and sell redeemable securities representing an undivided interest in the net assets of the company. o INVESTMENT ETHICS COMMITTEE is composed of investment, legal, compliance, and audit management representatives of Mellon and its affiliates. The members of the Investment Ethics Committee are: President and Chief Investment Officer of The Dreyfus Corporation (Committee Chair) General Counsel, Mellon Financial Corporation Chief Risk Management Officer, Mellon Trust Manager of Corporate Compliance, Mellon Financial Corporation Corporate Chief Auditor, Mellon Financial Corporation Chief Investment Officer, Mellon Private Asset Management Executive Officer of a Mellon investment adviser (rotating membership) The Committee has oversight of issues related to personal securities trading and investment activity by Access Decision Makers. o MANAGER OF CORPORATE COMPLIANCE - the employee within the Audit and Risk Review Department of Mellon Financial Corporation who is responsible for administering the Securities Trading Policy, or any person to whom relevant authority is delegated by the Manager of Corporate Compliance. o MELLON - Mellon Financial Corporation and all of its direct and indirect subsidiaries. o OPTION - a security which gives the investor the right, but not the obligation, to buy or sell a specific security at a specified price within a specified time. For purposes of compliance with the Policy, any Mellon employee who buys/sells an option, is deemed to have purchased/sold the underlying security when the option was purchased/sold. Four combinations are possible as described below. - Call Options If a Mellon employee buys a call option, the employee is considered to have purchased the underlying security on the date the option was purchased. If a Mellon employee sells a call option, the employee is considered to have sold the underlying security on the date the option was sold. - Put Options If a Mellon employee buys a put option, the employee is considered to have sold the underlying security on the date the option was purchased. If a Mellon employee sells a put option, the employee is considered to have bought the underlying security on the date the option was sold. Below is a table describing the above: --------------------------------------------------- Transaction Type ------------------------------------------------------------ Option Type Buy Sale ------------------------------------------------------------ Put Sale of Underlying Purchase of Security Underlying Security ------------------------------------------------------------ Call Purchase of Underlying Sale of Underlying Security Security ------------------------------------------------------------ 71 o PRECLEARANCE COMPLIANCE OFFICER - a person designated by the Manager of Corporate Compliance and/or the Investment Ethics Committee to administer, among other things, employees' preclearance requests for a specific business unit. o PRIVATE PLACEMENT - an offering of securities that is exempt from registration under the Securities Act of 1933 because it does not constitute a public offering. Includes limited partnerships. o SENIOR MANAGEMENT COMMITTEE - the Senior Management Committee of Mellon Financial Corporation. o SHORT SALE - the sale of a security that is not owned by the seller at the time of the trade. 72 EXHIBIT A - SAMPLE INSTRUCTION LETTER TO BROKER Date Broker ABC Street Address City, State ZIP Re: John Smith & Mary Smith Account No. xxxxxxxxxxxx In connection with my existing brokerage accounts at your firm noted above, please be advised that the Compliance Department of my employer should be noted as an "Interested Party" with respect to my accounts. They should, therefore, be sent copies of all trade confirmations and account statements relating to my account. Please send the requested documentation ensuring the account holder's name appears on all correspondence to: Manager, Corporate Compliance Preclearance Compliance Officer Mellon Bank or (obtain address from your PO Box 3130 Pittsburgh, PA designated Preclearance 15230-3130 Compliance Officer) Thank you for your cooperation in this request. Sincerely yours, Associate cc: Manager, Corporate Compliance (151-4340) or Preclearance Compliance Officer 73 INTRODUCTION The Securities Trading Policy (the "Policy") is designed to reinforce the reputation for integrity of The Dreyfus Corporation and its subsidiaries (collectively, "Dreyfus") by avoiding even the appearance of impropriety in the conduct of their businesses. The Policy sets forth procedures and limitations which govern the personal securities transactions of every Dreyfus employee. SPECIAL This edition of the Policy has been prepared specifically EDITION for Nonmanagement Board Members of Dreyfus and the investment companies advised by Dreyfus (each a "Fund"). NONMANAGEMENT You are considered to be a Nonmanagement Board Member if you are: BOARD MEMBER o a director of Dreyfus who is not also an officer or employee of Dreyfus ("Dreyfus Board Member"); or o a director or trustee of any Fund who is not also an officer or employee of Dreyfus ("Mutual Fund Board Member"). INDEPENDENT The term "Independent Mutual Fund Board Member" means those MUTUAL FUND Mutual Fund Board Members who are not deemed "interested BOARD MEMBER persons" of their Fund(s), as defined by the Investment Company Act of 1940, as amended. STANDARDS OF Outside Activities - Mutual Fund Board Members are prohibited CONDUCT FOR from accepting nomination or serving as a director, trustee or NONMANAGEMENT managing general partner of an investment company not advised by BOARD MEMBERS Dreyfus, or accepting employment with or acting as a consultant to any person acting as a registered investment adviser to an investment company, without the express prior approval of the board of directors/trustees of the pertinent Fund(s) for which the Mutual Fund Board Member serves as a director/trustee. In any such circumstance, management of Dreyfus must be given advance notice by the Mutual Fund Board Member of his/her request in order to allow management to provide its input, if any, for the relevant Fund board of directors/trustees' consideration. o Dreyfus Board Members are prohibited from accepting nomination or serving as a director, trustee or managing general partner of an investment company not advised by Dreyfus, or accepting employment with or acting as a consultant to any person acting as a registered investment adviser to an investment company, without Dreyfus's express prior approval. o Independent Mutual Fund Board Members are prohibited from owning Mellon securities (since that would destroy his or her independent status). o Nonmanagement Board Members are prohibited from buying or selling Mellon's publicly traded securities during a blackout period, which begins the 16th day of the last month of each calendar quarter and ends three business days after Mellon publicly announces the financial results for that quarter. Insider Federal securities laws generally prohibit the trading of Trading and securities while in possession of "material nonpublic" Tipping information regarding the issuer of those securities (insider trading). Any person who passes along material nonpublic information upon which a trade is based (tipping) may also be liable. Information is "material" if there is a substantial likelihood that a reasonable investor would consider it important in deciding whether to buy, sell or hold securities. Obviously, information that would affect the market price of a security would be material. Examples of information that might be material include: o a proposal or agreement for a merger, acquisition or divestiture, or for the sale or purchase of substantial assets; 74 o tender offers, which are often material for the party making the tender offer as well as for the issuer of the securities for which the tender offer is made; o dividend declarations or changes; o extraordinary borrowings or liquidity problems; o defaults under agreements or actions by creditors, customers or suppliers relating to a company's credit standing; o earnings and other financial information, such as large or unusual write-offs, write-downs, profits or losses; o pending discoveries or developments, such as new products, sources of materials, patents, processes, inventions or discoveries of mineral deposits; o a proposal or agreement concerning a financial restructuring; o a proposal to issue or redeem securities, or a development with respect to a pending issuance or redemption of securities; o a significant expansion or contraction of operations; o information about major contracts or increases or decreases in orders; o the institution of, or a development in, litigation or a regulatory proceeding; o developments regarding a company's senior management; o information about a company received from a director of that company; and o information regarding a company's possible noncompliance with environmental protection laws. This list is not exhaustive. All relevant circumstances must be considered when determining whether an item of information is material. "Nonpublic"- Information about a company is nonpublic if it is not generally available to the investing public. Information received under circumstances indicating that it is not yet in general circulation and which may be attributable, directly or indirectly, to the company or its insiders is likely to be deemed nonpublic information. If you obtain material non-public information you may not trade related securities until you can refer to some public source to show that the information is generally available (that is, available from sources other than inside sources) and that enough time has passed to allow wide dissemination of the information, While information appearing in widely accessible sources--such as in newspapers or on the internet--becomes public very soon after publication, information appearing in less accessible sources--such as regulatory filings, may take up to several days to be deemed public. Similarly, highly complex information might take longer to become public than would information that is easily understood by the average investor. Conflict of Interest--No Nonmanagement Board Member may recommend a securities transaction for Mellon, Dreyfus or any Fund without disclosing any interest he or she has in such securities or issuer thereof (other than an interest in publicly traded securities where the total investment is less than or equal to $25,000), including: 75 o any direct or indirect beneficial ownership of any securities of such issuer; o any contemplated transaction by the Nonmanagement Board Member in such securities; o any position with such issuer or its affiliates; and o any present or proposed business relationship between such issuer or its affiliates and the Nonmanagement Board Member or any party in which the Nonmanagement Board Member has a beneficial ownership interest (see "Beneficial Ownership" in the Glossary). Portfolio Information--No Nonmanagement Board Member may divulge the current portfolio positions, or current or anticipated portfolio transactions, programs or studies, of Mellon, Dreyfus or any Fund, to anyone unless it is properly within his or her responsibilities as a Nonmanagement Board Member to do so. Material Nonpublic Information--No Nonmanagement Board Member may engage in or recommend any securities transaction, for his or her own benefit or for the benefit of others, including Mellon, Dreyfus or any Fund, while in possession of material nonpublic information. No Nonmanagement Board Member may communicate material nonpublic information to others unless it is properly within his or her responsibilities as a Nonmanagement Board Member to do so. PRECLEARANCE Nonmanagement Board Members are permitted to engage in personal FOR securities transactions without obtaining prior approval PERSONAL from the Preclearance Compliance Officer. SECURITIES TRANSACTIONS PERSONAL INDEPENDENT MUTUAL FUND BOARD MEMBERS--Any Independent Mutual SECURITIES Fund Board Member, as defined above, who effects a securities TRANSACTIONS transaction where he or she knew, or in the ordinary course of REPORTS fulfilling his or her official duties should have known, that during the 15-day period immediately preceding or after the date of such transaction, the same security was purchased or sold, or was being considered for purchase or sale by Dreyfus (including any Fund or other account managed by Dreyfus), is required to report such personal securities transaction. In the event a personal securities transaction report is required, it must be submitted to the Preclearance Compliance Officer not later than ten days after the end of the calendar quarter in which the transaction to which the report relates was effected. The report must include the date of the transaction, the title and number of shares or principal amount of the security, the nature of the transaction (e.g., purchase, sale or any other type of acquisition or disposition), the price at which the transaction was effected and the name of the broker or other entity with or through whom the transaction was effected. This reporting requirement can be satisfied by sending a copy of the confirmation statement regarding such transaction to the Preclearance Compliance Officer within the time period specified. Dreyfus Board Members and "Interested" Mutual Fund Board Members--Dreyfus Board Members and Mutual Fund Board Members who are "interested persons" of a Fund, as defined by the Investment Company Act of 1940, are required to report their personal securities transactions. Personal securities transaction reports are required to be submitted to the Preclearance Compliance Officer not later than ten days after the end of the calendar quarter in which the transaction to which the report relates was effected. The report must include the date of the transaction, the title and number of shares or principal amount of the security, the nature of the transaction (e.g., purchase, sale or any other type of acquisition or disposition), the price at which the transaction was effected and the name of the broker or other entity with or through whom the transaction was effected. This reporting requirement can be satisfied by sending a copy of the confirmation statement regarding such transaction to the Preclearance Compliance Officer within the time period specified. 76 EXEMPTIONS FROM Notwithstanding the foregoing, securities transaction reports REPORTING are not required for the following transactions purchases or REQUIREMENTS sales of "Exempt Securities" (see Glossary); purchases or sales effected in any account over which the Nonmanagement Board Member has no direct or indirect control over the investment decision-making process (i.e., discretionary trading accounts); transactions which are non-volitional on the part of the Nonmanagement Board Member (such as stock dividends); purchases which are part of an automatic reinvestment of dividends under a DRIP; purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of securities, to the extent such rights were acquired from such issuer; and\or sales of rights acquired from an issuer, as described above. CONFIDENTIAL TREATMENT THE PRECLEARANCE COMPLIANCE OFFICER WILL USE HIS OR HER BEST EFFORTS TO ASSURE THAT ALL PERSONAL SECURITIES TRANSACTION REPORTS ARE TREATED AS "PERSONAL AND CONFIDENTIAL." HOWEVER, SUCH DOCUMENTS WILL BE AVAILABLE FOR INSPECTION BY APPROPRIATE REGULATORY AGENCIES AND OTHER PARTIES WITHIN AND OUTSIDE MELLON AS ARE NECESSARY TO EVALUATE COMPLIANCE WITH OR SANCTIONS UNDER THIS POLICY. 77 - -------------------------------------------------------------------------------- GLOSSARY DEFINITIONS o ACCESS PERSON - As defined by Rule 17j-1 under the Investment Company Act of 1940, "access person" includes, with respect to a registered investment company or an investment adviser thereof, any director of such investment company or investment adviser. Each Nonmanagement Board Member is therefore considered an access person of Dreyfus or their respective Funds. o APPROVAL - written consent or written notice of nonobjection. o BENEFICIAL OWNERSHIP - The definition that follows conforms to interpretations of the Securities and Exchange Commission on this matter. Because a determination of beneficial ownership requires a detailed analysis of personal financial circumstances that are subject to change, Corporate Compliance ordinarily will not advise Nonmanagement Board Members ("NBM") on this definition. It is the responsibility of each NBM to read the definition, and based on that definition determine whether he/she is the beneficial owner of a security. Securities owned of record or held in the NBM's name are generally considered to be beneficially owned by the NBM. Securities held in the name of any other person are deemed to be beneficially owned by the NBM if by reason of any contract, understanding, relationship, agreement or other arrangement, the NBM obtains therefrom benefits substantially equivalent to those of ownership, including the power to vote, or to direct the disposition of, such securities. Beneficial ownership includes securities held by others for the NBM's benefit (regardless of record ownership), e.g., securities held for the NBM or members of the NBM's immediate family, defined below, by agents, custodians, brokers, trustees, executors or other administrators; securities owned by the NBM, but which have not been transferred into the NBM's name on the books of the company; securities which the NBM has pledged; or securities owned by a corporation that should be regarded as the NBM's personal holding corporation. As a natural person, beneficial ownership is deemed to include securities held in the name or for the benefit of the NBM's immediate family, which includes the NBM's spouse, the NBM's minor children and stepchildren and the NBM's relatives or the relatives of the NBM's spouse who are sharing the NBM's home, unless because of countervailing circumstances, the NBM does not enjoy benefits substantially equivalent to those of ownership. Benefits substantially equivalent to ownership include, for example, application of the income derived from such securities to maintain a common home, meeting expenses that such person otherwise would meet from other sources, and the ability to exercise a controlling influence over the purchase, sale or voting of such securities. An NBM is also deemed the beneficial owner of securities held in the name of some other person even through the NBM does not obtain benefits of ownership, if the NBM can vest or revest title in himself or herself at once, or at some future time. In addition, a person will be deemed the beneficial owner of a security if he/she has the right to acquire beneficial ownership of such security at any time (within 60 days) including but not limited to any right to acquire: (1) through the exercise of any option, warrant or right; (2) through the conversion of a security; or (3) pursuant to the power to revoke a trust, discretionary account or similar arrangement. With respect to ownership of securities held in trust, beneficial ownership includes ownership of securities as a trustee in instances where either the NBM as trustee or a member of the NBM's "immediate family" has a vested interest in the income or corpus of the trust, the ownership by the NBM of a vested beneficial interest in the trust and the ownership of securities as a settlor of a trust in which the NBM as the settlor has the power to revoke the trust without obtaining the consent of the beneficiaries. Certain exemptions to these trust beneficial ownership rules exist, including an exemption for instances where beneficial ownership is imposed solely by reason of the NBM being settlor or beneficiary of the 78 securities held in trust and the ownership, acquisition and disposition of such securities by the trust is made without the NBM's prior approval as settlor or beneficiary. "Immediate family" of an NBM as trustee means the NBM's son or daughter (including any legally adopted children or any descendant of either), the NBM's stepson or stepdaughter, the NBM's father or mother or any ancestor of either, the NBM's stepfather or stepmother and the NBM's spouse. To the extent that stockholders of a company use it as a personal trading or investment medium and the company has no other substantial business, stockholders are regarded as beneficial owners, to the extent of their respective interests, of the stock thus invested or traded in. A general partner in a partnership is considered to have indirect beneficial ownership in the securities held by the partnership to the extent of his pro rata interest in the partnership. Indirect beneficial ownership is not, however, considered to exist solely by reason of an indirect interest in portfolio securities held by any holding company registered under the Public Utility Holding Company Act of 1935, a pension or retirement plan holding securities of an issuer whose employees generally are beneficiaries of the plan, and a business trust with over 25 beneficiaries. Any person who, directly or indirectly, creates or uses a trust, proxy, power of attorney, pooling arrangement or any other contract, arrangement or device with the purpose or effect of divesting such person of beneficial ownership as part of a plan or scheme to evade the reporting requirements of the Securities Exchange Act of 1934 shall be deemed the beneficial owner of such security. The final determination of beneficial ownership is a question to be determined in light of the facts of a particular case. Thus, while the NBM may report the security holdings of other members of his family, the NBM may nonetheless disclaim beneficial ownership of such securities. o DISCRETIONARY TRADING ACCOUNT - an account over which the NBM has no direct or indirect control over the investment decision making process. o EXEMPT SECURITIES - Exempt Securities are defined as: o direct obligations of the government of the United States; o bankers' acceptances; o bank certificates of deposit and time deposits; o commercial paper; o high quality short-term debt instruments; o repurchase agreements; o securities issued by open-end investment companies. o INVESTMENT COMPANY - a company that issues securities that represent an undivided interest in the net assets held by the company. Mutual funds are investment companies that issue and sell redeemable securities representing an undivided interest in the net assets of the company. 79 o INVESTMENT ETHICS COMMITTEE is composed of investment, legal, compliance, and audit management representatives of Mellon and its affiliates. The members of the Investment Ethics Committee are: President and Chief Investment Officer of The Dreyfus Corporation (Committee Chair) General Counsel, Mellon Financial Corporation Chief Risk Management Officer, Mellon Trust Manager of Corporate Compliance, Mellon Financial Corporation Corporate Chief Auditor, Mellon Financial Corporation Chief Investment/Executive Officers of two investment departments or affiliates (rotating memberships) The Committee has oversight of issues related to personal securities trading and investment activity by certain employees, including those who make recommendations or decisions regarding the purchase or sale of portfolio securities by Funds or other managed accounts. o MELLON - Mellon Financial Corporation and all of its direct and indirect subsidiaries. o PRECLEARANCE COMPLIANCE OFFICER - a person designated by the Manager of Corporate Compliance and/or the Investment Ethics Committee to administer, among other things, employees' preclearance requests for a specific business unit. 80 Securities Trading Policy Dreyfus Nonmanagement Board Member Edition 81 -----END PRIVACY-ENHANCED MESSAGE-----