1933 Act File No. 33-63621
1940 Act File No. 811-7369
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. 1 ................. X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 1 ............................... X
FTI FUNDS
(formerly, FT FUNDS)
(Exact name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esq., Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering As soon as possible after
the effectiveness of the Registration Statement
Pursuant to the provisions of Rule 24f-2 of the Investment Company Act of
1940, Registrant hereby elects to register an indefinite number of shares.
Amendment Pursuant to Rule 473
The 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.
Copy to:
Dewey Ballantine
1301 Avenue of the Americas
New York, NY 10019-6092
CROSS-REFERENCE SHEET
This amendment to the Registration Statement of FTI Funds (formerly,
FT Funds), which consists of four portfolios: (1) FTI Small Cap Equity
Fund, (2) FTI International Equity Fund, (3) FTI International Bond Fund,
and (4) FTI Global Bond Fund, is comprised of the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page...............(1,2,3,4) Cover Page.
Item 2. Synopsis.................(1,2,3,4) Synopsis; (1,2,3,4) Expenses
of the Funds.
Item 3. Condensed Financial
Information..............(1,2,3,4) Performance Information.
Item 4. General Description of
Registrant...............(1,2,3,4) Investment Objective of Each
Fund; (1) Small Capitalization Fund; (2)
International Equity Fund; (3)
International Bond Fund; (4) Global Bond
Fund; (1,2,3,4) Portfolio Investments
and Strategies.
Item 5. Management of the Fund...(1,2,3,4) FTI Funds Information;
(1,2,3,4) Management of FTI Funds;
(1,2,3,4) Distribution of Shares of the
Funds; (1,2,3,4) Administrative
Arrangements; (1,2,3,4) Administration
of the Funds; (1,2,3,4) Brokerage
Transactions; (1,2,3,4) Expenses of the
Funds.
Item 6. Capital Stock and Other
Securities...............(1,2,3,4) Dividends; (1,2,3,4) Capital
Gains; (1,2,3,4) Shareholder
Information; (1,2,3,4) Voting Rights;
(1,2,3,4) Effect of Banking Laws;
(1,2,3,4) Tax Information; (1,2,3,4)
Federal Income Tax.
Item 7. Purchase of Securities Being
Offered..................(1,2,3,4) Net Asset Value; (1,2,3,4)
Investing in the Funds; (1,2,3,4) Share
Purchases; (1,2,3,4) Minimum Investment
Required; (1,2,3,4) What Shares Cost;
(1,2,3,4) Certificates and
Confirmations.
Item 8. Redemption or Repurchase.(1,2,3,4) Exchange Privilege; (1,2,3,4)
Requirements for Exchange; (1,2,3,4) Tax
Consequences; (1,2,3,4) Redeeming
Shares; (1,2,3,4) Accounts with Low
Balances.
Item 9. Pending Legal Proceedings None
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page...............(1,2,3,4) Cover Page
Item 11. Table of Contents........(1,2,3,4) Table of Contents.
Item 12. General Information and
History..................(1,2,3,4) General Information About the
Trust; (1,2,3,4) Massachusetts
Partnership Law.
Item 13. Investment Objectives and
Policies.................(1,2,3,4) Investment Objective and
Policies of the Funds; (1,2,3,4)
Investment Limitations.
Item 14. Management of the Fund...(1,2,3,4) FTI Funds Management.
Item 15. Control Persons and Principal
Holders of Securities....Not applicable.
Item 16. Investment Advisory and Other
Services.................(1,2,3,4) Investment Advisory Services;
(1,2,3,4) Administrative Services;
(1,2,3,4) Transfer Agent, Dividend
Disbursing Agent and Portfolio
Recordkeeper; (1,2,3,4) Custodian.
Item 17. Brokerage Allocation.....(1,2,3,4) Brokerage Transactions.
Item 18. Capital Stock and Other
Securities...............Not applicable.
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered............(1,2,3,4) Purchasing Shares; (1,2,3,4)
Determining Net Asset Value; (1,2,3,4)
Redeeming Shares.
Item 20. Tax Status...............(1,2,3,4) Tax Status.
Item 21. Underwriters.............(1,2,3,4) Distribution Plan and
Shareholder Services Agreement.
Item 22. Calculation of Performance
Data.....................(1,2,3,4) Total Return; (1,2,3,4) Yield;
(1,2,3,4) Performance Comparisons;
(1,2,3,4) Appendix.
Item 23. Financial Statements.....(Filed in Part A)
FTI FUNDS
PROSPECTUS
FTI Funds (the "Trust") is an open-end, management investment company (a
mutual fund). This combined prospectus offers investors interests in the
following four separate investment portfolios (individually referred to as
the "Fund," and collectively as the "Funds"), each having a distinct
investment objective and policies:
o FTI Small Capitalization Equity Fund;
o FTI International Equity Fund;
o FTI International Bond Fund; and
o FTI Global Bond Fund.
The investment adviser to the Funds is Fiduciary International, Inc.
Edgewood Services, Inc. serves as the distributor. This combined
prospectus contains the information you should read and know before you
invest in any of the Funds in the Trust. Keep this prospectus for future
reference.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF
ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR
ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
Additional information about the Trust is contained in the Trust's Combined
Statement of Additional Information, dated December , 1995, which has
--
also been filed with the Securities and Exchange Commission. The
information contained in the Combined Statement of Additional Information
is incorporated by reference into this prospectus. You may request a copy
of the Combined Statement of Additional Information free of charge, obtain
other information, or make inquiries about any of the Funds by writing to
the Trust or by calling (212) 466-4100.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated December , 1995
--
SYNOPSIS 1 Derivative Contracts and
Securities 42
SUMMARY OF FUND EXPENSES 3
Duration 43
INVESTMENT OBJECTIVE OF EACH FUND Portfolio Turnover 43
11 FTI FUNDS INFORMATION 44
PORTFOLIO INVESTMENTS AND Management of FTI Funds 44
STRATEGIES 22 Distribution of Shares of the
Funds 47
Borrowing Money 22
Administrative Arrangements 50
Diversification 23
Administration of the Funds 50
Restricted and Illiquid
Brokerage Transactions 51
Securities 23
Expenses of the Funds 52
Repurchase Agreements 24
When-Issued and Delayed Delivery
Transactions 24
Forward Commitments 24
Lending of Portfolio Securities
25
Convertible Securities 25
Asset-Backed Securities 26
Depositary Receipts 30
Foreign Government Securities 31
U.S. Government Securities31
Investing in Securities of Other
Investment Companies 32
Risk Factors 33
Hedging Vehicles and Strategies
38
Hedging Strategies 40
NET ASSET VALUE 52
INVESTING IN THE FUNDS 53
Share Purchases 53
Minimum Investment Required 54
What Shares Cost 54
Certificates and Confirmations
55
Dividends 55
Capital Gains 55
EXCHANGE PRIVILEGE 55
Requirements for Exchange56
Tax Consequences 57
REDEEMING SHARES 57
Accounts with Low Balances59
SHAREHOLDER INFORMATION 60
Voting Rights 60
EFFECT OF BANKING LAWS 60
TAX INFORMATION 61
Federal Income Tax 61
PERFORMANCE INFORMATION 63
REPORT OF ERNST & YOUNG LLP,
INDEPENDENt AUDITORS 65
ADDRESSES 66
SYNOPSIS
The Trust, an open-end, management investment company, was established as a
Massachusetts business trust under a Declaration of Trust dated October 18,
1995. The Declaration of Trust permits the Trust to offer separate series of
shares of beneficial interest representing interests in separate portfolios of
securities. The shares of any one portfolio may be offered in separate classes.
The Funds are designed for customers of financial institutions such as banks,
fiduciaries, custodians of public funds and investment advisers.
As of the date of this prospectus, the Board of Trustees (the "Trustees") of the
Trust has established the following four Funds:
o FTI Small Capitalization Equity Fund ("Small Capitalization Fund") --
seeks to provide growth of principal by investing primarily in domestic
equity securities of small to mid-size companies having a market value
capitalization between $50 million and $1.5 billion;
o FTI International Equity Fund ("International Equity Fund") --seeks to
provide growth of principal by investing in foreign equity securities;
o FTI International Bond Fund ("International Bond Fund") --seeks to
provide total return through investments in foreign corporate and
foreign government fixed income securities; and
o FTI Global Bond Fund ("Global Bond Fund") --seeks to provide total
return by investing in both foreign and U.S. corporate and government
fixed income securities.
For information on how to purchase shares of any of the Funds, please refer to
"Investing in the Funds." A minimum initial investment of $10,000 is required
for each Fund. This prospectus should be read together with any account
agreement for minimum investment requirements imposed by Fiduciary Trust Company
International or any of its affiliates. See "Minimum Investment Required."
Shares of each Fund are sold at net asset value without the imposition of any
sales charge, and are redeemed at net asset value. Information on redeeming
shares may be found under "Redeeming Shares." The Funds are advised by
Fiduciary International, Inc.
SPECIAL CONSIDERATIONS AND RISK FACTORS. Investors should be aware of the
following general considerations and risk factors. The market value of fixed
income securities, which constitute a major portion of the investments of
several Funds, may vary inversely in response to changes in prevailing interest
rates. The market value of the equity securities in which the Small
Capitalization and International Equity Funds invest will also fluctuate, and
the possibility exists that the value of common stocks could decline over short
or even extended periods of time. The section entitled "Risk Factors -- Equity
Investment Considerations" also discloses the potential risks related to small
capitalization stocks, in which the Small Capitalization Fund primarily invests.
The International Bond Fund and the Global Bond Fund may invest in asset-backed
and mortgage-backed securities, which involve unique risks. The foreign
securities in which all of the Funds may invest may be subject to certain risks
in addition to those inherent in U.S. investments, and these risks are more
fully discussed in the section entitled "Risk Factors -- Foreign Securities
Considerations." The Funds may make certain investments and employ certain
investment techniques that involve other risks, including entering into
repurchase agreements and forward commitments, lending portfolio securities and
entering into futures contracts and related options as hedges. These risks and
those associated with investing in when-issued securities, options and futures
are described under "Investment Objective of Each Fund" and "Portfolio
Investments and Strategies."
SUMMARY OF FUND EXPENSES
SMALL CAPITALIZATION FUND
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)
..........................................................None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering
price).........................................................None
Deferred Sales Load (as a percentage of original purchase price or redemption
proceeds, as applicable).......................................None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee...................................................None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF PROJECTED AVERAGE NET ASSETS) *
Management Fee ...............................................1.00%
12b-1 Fee (1) ................................................0.00%
Total Other Expenses (after waiver/reimbursement) (2).........0.50%
Shareholder Services Fee (after waiver)(3) ...... 0.00%
Total Fund Operating Expenses (after waiver/reimbursement) (2). 1.50%
(1)The Fund has no present intention of paying or accruing the 12b-1 fee
during the period ending November 30, 1996. If the Fund were paying or
accruing the 12b-1 fee, the Fund would be able to pay up to 0.75% of its
average daily net assets for the 12b-1 fee. When the Fund begins to pay
or accrue its 12b-1 fee, long-term shareholders may pay more than the
economic equivalent of the maximum front-end sales charges permitted
under the rules of the National Association of Securities Dealers, Inc.
See "FTI Funds Information."
(2)The total other expenses and the total operating expenses are estimated
to be 1.10% and 2.10%, respectively, absent the anticipated voluntary
waiver of fees and/or reimbursement of expenses by the administrator,
and the voluntary waiver of the shareholder services fee.
(3)The Fund has no present intention of paying or accruing the shareholder
services fee during the period ending November 30, 1996. The maximum
shareholder services fee is 0.25%.
* Total operating expenses are estimated based on average expenses
expected to be incurred during the period ending November 30, 1996. During
the course of this period, expenses may be more or less than the average
amount shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "INVESTING IN THE FUNDS" AND "FTI FUNDS INFORMATION." WIRE-
TRANSFERRED REDEMPTIONS OF LESS THAN $5,000 MAY BE SUBJECT TO ADDITIONAL FEES.
EXAMPLE ............................ 1 year 3 years
You would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period. $15 $47
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING NOVEMBER
30, 1996.
SUMMARY OF FUND EXPENSES
INTERNATIONAL EQUITY FUND
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)
..........................................................None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering
price).........................................................None
Deferred Sales Load (as a percentage of original purchase price or redemption
proceeds, as applicable).......................................None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee...................................................None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF PROJECTED AVERAGE NET ASSETS) *
Management Fee ...............................................1.00%
12b-1 Fee (1) ................................................0.00%
Total Other Expenses (after waiver/reimbursement) (2).........0.60%
Shareholder Services Fee (after waiver)(3) ...... 0.00%
Total Fund Operating Expenses (after waiver/reimbursement) (2). 1.60%
(1)The Fund has no present intention of paying or accruing the 12b-1 fee
during the period ending November 30, 1996. If the Fund were paying or
accruing the 12b-1 fee, the Fund would be able to pay up to 0.75% of its
average daily net assets for the 12b-1 fee. When the Fund begins to pay
or accrue its 12b-1 fee, long-term shareholders may pay more than the
economic equivalent of the maximum front-end sales charges permitted
under the rules of the National Association of Securities Dealers, Inc.
See "FTI Funds Information."
(2)The total other expenses and the total operating expenses are estimated
to be 1.48% and 2.48%, respectively, absent the anticipated voluntary
waiver of fees and/or reimbursement of expenses by the administrator,
and the voluntary waiver of the shareholder services fee.
(3)The Fund has no present intention of paying or accruing the shareholder
services fee during the period ending November 30, 1996. The maximum
shareholder services fee is 0.25%.
* Total operating expenses are estimated based on average expenses
expected to be incurred during the period ending November 30, 1996. During
the course of this period, expenses may be more or less than the average
amount shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "INVESTING IN THE FUNDS" AND "FTI FUNDS INFORMATION." WIRE-
TRANSFERRED REDEMPTIONS OF LESS THAN $5,000 MAY BE SUBJECT TO ADDITIONAL FEES.
EXAMPLE ............................ 1 year 3 years
You would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period. $16 $51
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING NOVEMBER
30, 1996.
SUMMARY OF FUND EXPENSES
INTERNATIONAL BOND FUND
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)
..........................................................None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering
price).........................................................None
Deferred Sales Load (as a percentage of original purchase price or redemption
proceeds, as applicable).......................................None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee...................................................None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF PROJECTED AVERAGE NET ASSETS) *
Management Fee ...............................................0.70%
12b-1 Fee (1) ................................................0.00%
Total Other Expenses (after waiver/reimbursement) (2).........0.50%
Shareholder Services Fee (after waiver)(3) ...... 0.00%
Total Fund Operating Expenses (after waiver/reimbursement) (2). 1.20%
(1)The Fund has no present intention of paying or accruing the 12b-1 fee
during the period ending November 30, 1996. If the Fund were paying or
accruing the 12b-1 fee, the Fund would be able to pay up to 0.75% of its
average daily net assets for the 12b-1 fee. When the Fund begins to pay
or accrue its 12b-1 fee, long-term shareholders may pay more than the
economic equivalent of the maximum front-end sales charges permitted
under the rules of the National Association of Securities Dealers, Inc.
See "FTI Funds Information."
(2)The total other expenses and the total operating expenses are estimated
to be 1.40% and 2.10%, respectively, absent the anticipated voluntary
waiver of fees and/or reimbursement of expenses by the administrator,
and the voluntary waiver of the shareholder services fee.
(3)The Fund has no present intention of paying or accruing the shareholder
services fee during the period ending November 30, 1996. The maximum
shareholder services fee is 0.25%.
* Total operating expenses are estimated based on average expenses
expected to be incurred during the period ending November 30, 1996. During
the course of this period, expenses may be more or less than the average
amount shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "INVESTING IN THE FUNDS" AND "FTI FUNDS INFORMATION." WIRE-
TRANSFERRED REDEMPTIONS OF LESS THAN $5,000 MAY BE SUBJECT TO ADDITIONAL FEES.
EXAMPLE ............................ 1 year 3 years
You would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period. $12 $38
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING NOVEMBER
30, 1996.
SUMMARY OF FUND EXPENSES
GLOBAL BOND FUND
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)
..........................................................None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering
price).........................................................None
Deferred Sales Load (as a percentage of original purchase price or redemption
proceeds, as applicable).......................................None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee...................................................None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF PROJECTED AVERAGE NET ASSETS) *
Management Fee ...............................................0.70%
12b-1 Fee (1) ................................................0.00%
Total Other Expenses (after waiver/reimbursement) (2).........0.50%
Shareholder Services Fee (after waiver)(3) ...... 0.00%
Total Fund Operating Expenses (after waiver/reimbursement) (2). 1.20%
(1)The Fund has no present intention of paying or accruing the 12b-1 fee
during the period ending November 30, 1996. If the Fund were paying or
accruing the 12b-1 fee, the Fund would be able to pay up to 0.75% of its
average daily net assets for the 12b-1 fee. When the Fund begins to pay
or accrue its 12b-1 fee, long-term shareholders may pay more than the
economic equivalent of the maximum front-end sales charges permitted
under the rules of the National Association of Securities Dealers, Inc.
See "FTI Funds Information."
(2)The total other expenses and the total operating expenses are estimated
to be 1.40% and 2.10%, respectively, absent the anticipated voluntary
waiver of fees and/or reimbursement of expenses by the administrator,
and the voluntary waiver of the shareholder services fee.
(3)The Fund has no present intention of paying or accruing the shareholder
services fee during the period ending November 30, 1996. The maximum
shareholder services fee is 0.25%.
* Total operating expenses are estimated based on average expenses
expected to be incurred during the period ending November 30, 1996. During
the course of this period, expenses may be more or less than the average
amount shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "INVESTING IN THE FUNDS" AND "FTI FUNDS INFORMATION." WIRE-
TRANSFERRED REDEMPTIONS OF LESS THAN $5,000 MAY BE SUBJECT TO ADDITIONAL FEES.
EXAMPLE ............................ 1 year 3 years
You would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period. $12 $38
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING NOVEMBER
30, 1996.
INVESTMENT OBJECTIVE OF EACH FUND
The investment objective and policies of each Fund appear below. The investment
objective of a Fund cannot be changed without the approval of holders of a
majority of that Fund's shares. While there is no assurance that a Fund will
achieve its investment objective, it endeavors to do so by following the
investment policies described in this prospectus.
Unless indicated otherwise, the investment policies and limitations of a Fund
may be changed by the Trustees without approval of shareholders. Shareholders
will be notified before any material change in these policies and limitations
becomes effective.
Additional information about investment limitations, strategies that one or more
Funds may employ, and certain investment policies mentioned below, appear in the
"Portfolio Investments and Strategies" section of this prospectus and in the
Combined Statement of Additional Information.
SMALL CAPITALIZATION FUND
The investment objective of the Small Capitalization Fund is to provide
growth of principal. The Fund seeks to achieve its investment objective by
investing primarily in the common stock of small capitalization companies with
total market capitalizations below $1.5 billion. Dividend income is not a
consideration in the selection of investments. In selecting investments for the
Fund's portfolio, the adviser seeks to select companies it believes are
undervalued in the market place, or which have earnings that might be expected
to grow faster than the U.S. economy in general. The investment adviser also
looks to purchase stocks whose expected growth rates exceed their current price-
earnings ratio. These companies typically possess a relatively high rate of
return on invested capital so that future growth can be internally financed.
These companies may offer the possibility of accelerating earnings growth
because they often represent the first opportunity to participate in new
products, new services and new technologies. Companies in which the Fund is
likely to invest are those that have a unique franchise opportunity, exhibit
high barriers of entry to competitors, have strong balance sheets and cash flow,
and have an exceptional management team. The securities of these companies may
have more limited marketability and may be subject to more abrupt market
movements than securities of larger, more established companies or the market
averages in general. There is no assurance that the adviser's attempts to pursue
these approaches will result in benefits to the Fund.
ACCEPTABLE INVESTMENTS. The securities in which the Fund invests include, but
are not limited to:
o common stocks, and securities convertible into common stocks, which
will be primarily composed of issues of small capitalization domestic
companies. See "Portfolio Investments and Strategies" and "Equity
Investment Considerations." Under normal market conditions, at least
65% of the total assets of the Fund's portfolio will be invested in the
common stock of small capitalization companies, which the Fund defines
as those having a market value capitalization below $1.5 billion.
Small capitalization companies would generally be those stocks included
in the Russell 2000 Index or the Standard & Poor's Small Cap 600 Index,
or have characteristics similar to the stocks in those indices.
o preferred stocks, corporate bonds, notes, warrants, and rights;
o American Depositary Receipts ("ADRs"), which are receipts typically
issued by a United States bank or trust company that evidence ownership
of underlying securities issued by a foreign issuer. The Fund may
invest up to 20% of its net assets in ADRs. See "Depositary Receipts"
in "Portfolio Investments and Strategies;"
o commercial paper rated A-1 by Standard & Poor's Ratings Group ("S&P"),
Prime-1 by Moody's Investors Service, Inc. ("Moody's") or F-1 by Fitch
Investors Service, Inc. ("Fitch"), and money market instruments
(including commercial paper) which are unrated but deemed to be of
comparable quality by the investment adviser, including Canadian
Commercial Paper and Europaper;
o certificates of deposits, demand and time deposits, savings shares,
bankers' acceptances and other instruments of domestic and foreign
banks, savings and loans and other deposit or thrift institutions
("Bank Instruments");
o shares of other investment companies. See "Investing in Securities of
Other Investment Companies" in "Portfolio Investments and Strategies;"
o foreign securities which are traded publicly in the United States. The
Fund may invest up to 10% of its net assets in foreign securities; and
o securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, including those obligations purchased on a when-
issued or delayed delivery basis ("U.S. Government Securities"). See
"Portfolio Investments and Strategies."
The Fund may also purchase corporate debt obligations that, at the time of
purchase, are rated in the top four rating categories (i.e., investment grade)
by nationally recognized statistical rating organizations ("NRSROs") such as S&P
or Moody's. Obligations rated in the lowest of the top four rating categories,
such as Baa by Moody's or BBB by S&P or Fitch, have speculative characteristics.
As to these securities, changes in economic conditions or other circumstances
are more likely to lead to weakened capacity to make principal and interest
payments than higher rated bonds. In the event that any such security is
downgraded by an NRSRO below the fourth highest rating category, the Fund will
consider disposing of the security, but is not required to do so. A description
of the rating categories of NRSROs is contained in the Appendix to the Combined
Statement of Additional Information.
In addition, the Fund may borrow money, lend portfolio securities, invest in
restricted and illiquid securities and repurchase agreements, and engage in
forward commitment and when-issued and delayed delivery transactions. The Fund
may also invest in put and call options, futures, and options on futures, in
order to implement its investment strategy and for hedging purposes. See
"Portfolio Investments and Strategies" for a discussion of these investments, as
well as the potential risks related to small capitalization stocks.
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," "Diversification" and "Restricted and Illiquid
Securities."
INTERNATIONAL EQUITY FUND
The investment objective of the International Equity Fund is to provide growth
of principal. The Fund pursues its investment objective through a flexible
policy of investing in a broad, diversified portfolio of stocks and debt
obligations of issuers located outside the United States. Under normal market
conditions, at least 65% of the Fund's total assets will be invested in
securities denominated in foreign currencies, including the European Currency
Unit (the "ECU"), of issuers located in at least three different nations outside
of the United States, and at least 65% of the Fund's total assets will be
invested in equity securities, i.e., common stocks and preferred stocks. The
Fund may also invest up to 35% of its total assets in debt securities. The ECU
is a multinational currency unit which represents specified amounts of the
currencies of certain member states of the European Economic Community.
In seeking to achieve the Fund's investment objective, the investment adviser
believes there are three potential advantages to investing in foreign equity
securities:
o the opportunity to invest in non-U.S. companies believed to possess
superior growth potential;
o the opportunity to invest in foreign nations with business and economic
policies different from those in the United States; and
o the opportunity to reduce portfolio volatility to the extent that
securities markets inside and outside the United States do not move in
harmony.
In managing the Fund's portfolio, the investment adviser, through both
fundamental research and a value screen, will identify foreign equity securities
that it determines to be underpriced. The adviser uses fundamental analysis to
assess the world economies and makes projections regarding the likely future
trends in economic activity. They will use these projections to determine
whether current securities prices are reflecting the level of anticipated
economic activity that they foresee. In selecting securities based on this
analysis, the adviser will chose securities whose near-term growth and long-term
growth prospects are not being fully valued in the marketplace. The goal is to
create a diversified portfolio emphasizing the higher growth regions of the
world and investing in underpriced, quality growth companies within these
regions. The Fund will invest primarily in foreign industrialized companies
throughout the world that comprise the Morgan Stanley Capital International EAFE
(Europe, Australia, and the Far East) Index. There is no assurance that the
adviser's attempts to pursue these approaches will result in benefits to the
Fund.
ACCEPTABLE INVESTMENTS. The securities in which the Fund invests include, but
are not limited to:
o common stocks, and securities convertible into common stocks, of
established foreign companies that appear to have growth potential and
are located in economically developed nations. The Fund may also
invest up to 10% of its total assets in common stocks of issuers
located in emerging market nations;
o foreign preferred stocks, warrants and convertible securities;
o ADRs, Global Depositary Receipts ("GDRs"), International Depositary
Receipts ("IDRs") and European Depositary Receipts ("EDRs"). See
"Portfolio Investments and Strategies;"
o fixed income securities of foreign companies or governments that are
rated investment grade by an NRSRO or, if unrated, determined by the
investment adviser to be of comparable quality;
o shares of other investment companies, as described in "Investing in
Securities of Other Investment Companies," in "Portfolio Investments
and Strategies" in this prospectus;
o Bank Instruments, as described above under "Small Capitalization Fund,"
and U.S. Government Securities. See "Portfolio Investments and
Strategies;" and
o other money market instruments.
In addition, the Fund may borrow money, lend portfolio securities, invest in
restricted and illiquid securities and repurchase agreements, and engage in
forward commitment and when-issued and delayed delivery transactions. The Fund
may also invest in forward foreign currency exchange contracts, put and call
options, futures and options on futures, in order to implement its investment
strategy and for hedging purposes. See "Portfolio Investments and Strategies"
for a discussion of these investments, as well as the potential risks related to
foreign securities and investing in emerging market nations. In the event that
any fixed income security owned by the Fund is downgraded by an NRSRO below
investment grade, the Fund will consider disposing of the security, but is not
required to do so.
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," "Diversification" and "Restricted and Illiquid
Securities."
INTERNATIONAL BOND FUND
The investment objective of the International Bond Fund is to provide total
return. The Fund pursues its investment objective by investing primarily in a
broad, diversified portfolio of fixed income obligations of governments and
companies located outside the United States. Under normal market conditions, at
least 65% of the Fund's total assets will be invested in high-quality debt
securities denominated in foreign currencies (including the ECU) of issuers
located in at least three different nations outside of the United States. In
managing the Fund's portfolio, the investment adviser actively manages country
and currency allocations and maturity structure according to the fundamental
economic and interest-rate outlook for each foreign nation. The goal is to
combine the most appropriate bond markets with the strongest foreign currencies
to create a portfolio with above average return potential. There is no assurance
that the adviser's attempts to pursue these approaches will result in benefits
to the Fund.
ACCEPTABLE INVESTMENTS. The securities in which the Fund invests include, but
are not limited to:
o high-quality fixed income government securities denominated in the
currencies of the nations that are members of the Organization for
Economic Cooperation and Development. These nations include, but are
not limited to, the following: Australia, Austria, Belgium, Canada,
Denmark, Finland, France, Germany, Greece, Hong Kong, Iceland, Ireland,
Italy, Luxembourg, The Netherlands, New Zealand, Norway, Portugal,
Spain, Sweden, Switzerland, and the United Kingdom. The Fund may also
invest up to 10% of its total assets in debt securities or other
instruments of issuers located in emerging market nations;
o high-quality fixed income obligations of foreign corporations located
outside the United States;
o fixed income obligations of supranational entities, such as the
International Bank for Reconstruction and Development and the Inter-
American Development Bank. See "Foreign Government Securities" in
"Portfolio Investments and Strategies;"
o convertible securities and warrants;
o asset-backed and mortgage-backed securities, including collateralized
mortgage obligations ("CMOs"), rated in one of the four highest rating
categories by an NRSRO (i.e., BBB, Baa or higher) or, if unrated,
determined by the investment adviser to be of comparable quality, which
may comprise up to 35% of the Fund's assets. See "Asset-Backed
Securities" in "Portfolio Investments and Strategies;"
o shares of other investment companies. See "Investing in Securities of
Other Investment Companies" in "Portfolio Investments and Strategies;"
o debt obligations of national, state or "quasi-governmental agencies"
which are not supported by the full faith and credit or general taxing
power of such entities. See "Foreign Government Securities" in
"Portfolio Investments and Strategies;"
o Bank Instruments, as described above under "Small Capitalization Fund;"
and
o other money market instruments.
In addition, the Fund may borrow money, lend portfolio securities, invest in
restricted and illiquid securities and repurchase agreements, and engage in
forward commitment and when-issued and delayed delivery transactions. The Fund
may also invest in forward foreign currency exchange contracts, put and call
options, futures and options on futures, in order to implement its investment
strategy and for hedging purposes. See "Portfolio Investments and Strategies"
for a discussion of these investments, as well as the potential risks related to
foreign securities, asset-backed and mortgage-backed securities and investing in
emerging market nations.
The high-quality debt securities in which the Fund will invest will possess a
minimum credit rating of A as assigned by S&P or Moody's, or, if unrated, will
be judged by the Fund's investment adviser to be of comparable quality. Because
the average quality of the Fund's portfolio investments should remain constantly
between A and AAA, or A andAaa, the Fund will seek to avoid the adverse
consequences that may arise for some debt securities in difficult economic
circumstances. In the event that a security held by the Fund is downgraded by
an NRSRO below the quality parameters discussed above, the Fund may consider
disposing of the security, but is not required to do so.
The Fund's portfolio of debt securities will be comprised mainly of foreign
government, foreign governmental agency or supranational institution bonds. In
addition, the Fund will also invest in high-quality debt securities issued by
corporations in the currencies specified above and subject to the quality
limitations listed above.
It is anticipated that the average portfolio duration of the Fund will be in the
three-to-ten year range. See "Duration" in "Portfolio Investments and
Strategies." The prices of fixed income securities generally fluctuate
inversely to the direction of interest rates.
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," "Diversification" and "Restricted and Illiquid
Securities."
GLOBAL BOND FUND
The investment objective of the Global Bond Fund is to provide total return.
The Fund pursues its investment objective by investing primarily in a broad,
diversified portfolio of fixed income securities of both United States and
foreign governments and companies. Under normal market conditions, at least 65%
of the Fund's total assets will be invested in high-quality debt securities of
issuers located in at least three different nations, one of which may be the
United States. Securities of non-U.S. issuers may be denominated in foreign
currencies or multinational currencies, such as the ECU. The investment
adviser's approach to selecting investments for the Fund is oriented to country
selection and is value driven. In selecting fixed income instruments for the
Fund, the investment adviser identifies those nations' fixed income markets
which it believes will provide the United States' domiciled investor the highest
return over a market cycle, through a combining of income sources, while also
offering capital gain and currency appreciation. The investment adviser
conducts extensive fundamental research on a global basis, and it is through
this effort that attractive fixed income markets are selected for investment.
The outlook for each foreign market is compared to the returns available in the
U.S. market. The focus is on selecting those nations whose fixed income
fundamentals are superior to those available domestically. There is no assurance
that the adviser's attempts to pursue these approaches will result in benefits
to the Fund.
ACCEPTABLE INVESTMENTS. The securities in which the Fund invests include, but
are not limited to:
o high-quality debt securities of foreign and United States issuers. The
Fund may also invest up to 10% of total assets in debt securities and
other instruments of issuers located in emerging market nations;
o convertible securities and warrants. See "Convertible Securities" in
"Portfolio Investments and Strategies;"
o asset-backed and mortgage-backed securities, including CMOs, rated in
one of the four highest rating categories by an NRSRO (i.e., BBB, Baa
or higher) or, if unrated, determined by the investment adviser to be
of comparable quality, which may comprise up to 35% of the Fund's
assets. See "Asset-Backed Securities" in "Portfolio Investments and
Strategies;"
o U.S. Government Securities. See "Portfolio Investments and
Strategies;"
o debt securities of supranational entities. See "Foreign Government
Securities" in this prospectus;
o Bank Instruments, as described above under "Small Capitalization Fund;"
o shares of other investment companies. See "Investing in Securities of
Other Investment Companies" in "Portfolio Investments and Strategies;"
and
o other money market instruments.
In addition, the Fund may borrow money, lend portfolio securities, invest in
restricted and illiquid securities and repurchase agreements, and engage in
forward commitment and when-issued and delayed delivery transactions. The Fund
may also invest in forward foreign currency exchange contracts, put and call
options, futures and options on futures, in order to implement its investment
strategy and for hedging purposes. See "Portfolio Investments and Strategies"
for a discussion of these investments, as well as the potential risks related to
foreign securities, asset-backed and mortgage-backed securities and investing in
emerging market nations.
The high-quality debt securities in which the Fund will invest will possess a
minimum credit rating of A as assigned by S&P or Moody's, or, if unrated, will
be judged by the Fund's investment adviser to be of comparable quality. Because
the average quality of the Fund's portfolio investments should remain constantly
between A and AAA or A and Aaa, the Fund will seek to avoid the adverse
consequences that may arise for some debt securities in difficult economic
circumstances. In the event that a security held by the Fund is downgraded by
an NRSRO below the quality parameters discussed above, the Fund may consider
disposing of the security, but is not required to do so.
It is anticipated that the average portfolio duration of the Fund will be in the
three-to-ten year range. See "Duration" in "Portfolio Investments and
Strategies." The prices of fixed income securities generally fluctuate
inversely to the direction of interest rates.
INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," "Diversification" and "Restricted and Illiquid
Securities."
PORTFOLIO INVESTMENTS AND STRATEGIES
BORROWING MONEY
The Funds will not borrow money directly or through reverse repurchase
agreements (arrangements in which a Fund sells a money market instrument for a
percentage of its cash value with an agreement to buy it back on a set date) or
pledge securities except, under certain circumstances, a Fund may borrow money
up to one-third of the value of its total assets and pledge up to 15% of the
value of those assets to secure such borrowings. These limitations cannot be
changed by a Fund without shareholder approval.
DIVERSIFICATION
With respect to 75% of the value of its total assets, each Fund will not invest
more than 5% in securities of any one issuer other than cash, cash items or
securities issued or guaranteed by the Government of the United States or its
agencies or instrumentalities and repurchase agreements collateralized by U.S.
Government Securities. The Funds will not acquire more than 10% of the
outstanding voting securities of any one issuer. These limitations cannot be
changed by a Fund without shareholder approval.
RESTRICTED AND ILLIQUID SECURITIES
The Funds may invest in restricted securities. Restricted securities are any
securities in which a Fund may invest pursuant to its investment objective and
policies but which are subject to restriction on resale under federal securities
law. The Funds will limit investment in illiquid securities (including certain
restricted securities not determined by the Trustees to be liquid, non-
negotiable time deposits, over-the-counter options, and repurchase agreements
providing for settlement in more than seven days after notice) to 15% of their
respective net assets.
A Fund may invest in commercial paper issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933. Section
4(2) commercial paper is restricted as to disposition under federal securities
law, and is generally sold to institutional investors, such as one of the Funds,
which agrees to purchase the paper for investment purposes and not with a view
to public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) commercial paper is normally resold to other
institutional investors through or with the assistance of the issuer or
investment dealers who make a market in Section 4(2) commercial paper, thus
providing liquidity. The Funds believe that Section 4(2) commercial paper and
certain other restricted securities, which meet the criteria for liquidity
established by the Trustees, are quite liquid. Therefore, the Funds intend to
treat these securities as liquid and not subject to the investment limitation
applicable to illiquid securities. In addition, because these securities are
liquid, the Funds will not subject such securities to the limitation otherwise
applicable to restricted securities.
REPURCHASE AGREEMENTS
The securities in which each Fund invests may be purchased pursuant to
repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. Government
Securities or other securities to a Fund and agree at the time of sale to
repurchase them at a mutually agreed upon time and price. To the extent that
the original seller does not repurchase the securities from a Fund, that Fund
could receive less than the repurchase price on any sale of such securities.
The Funds will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Funds' investment adviser to be creditworthy pursuant to guidelines
established by the Trustees.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Funds may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which a Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete the transaction may cause a Fund to miss a price or yield considered to
be advantageous. Settlement dates may be a month or more after entering into
these transactions, and the market values of the securities purchased may vary
from the purchase prices. Accordingly, a Fund may pay more or less than the
market value of the securities on the settlement date.
FORWARD COMMITMENTS
Forward commitments are contracts to purchase securities for a fixed price at
a date beyond customary settlement time. The International Equity, the
International Bond and the Global Bond Funds may enter into these contracts if
liquid securities in amounts sufficient to meet the purchase price (but not to
exceed, in the aggregate, 10% of its assets) are segregated on the Funds'
records at the trade date and maintained until the transaction has been settled.
Risk is involved if the value of the security declines before settlement.
Although the Funds enter into forward commitments with the intention of
acquiring the securities, they may dispose of the commitments prior to
settlement and realize short-term profits or losses.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, each Fund may lend portfolio securities
on a short-term or long-term basis, or both, up to one-third the value of its
total assets to broker/dealers, banks, or other institutional borrowers of
securities. A Fund will only enter into loan arrangements with broker/dealers,
banks, or other institutions which the Funds' investment adviser has determined
are creditworthy under guidelines established by the Trustees and will receive
collateral in the form of cash or U.S. Government Securities equal to at least
100% of the value of the securities loaned.
There is the risk that when lending portfolio securities, the securities may not
be available to a Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
CONVERTIBLE SECURITIES
The Funds may invest in convertible securities rated, at the time of
purchase, BBB or better by S&P or Fitch or Baa by Moody's, or, if unrated, are
of comparable quality as determined by the Fund's adviser. (If a security's
rating is reduced below the required minimum after a Fund has purchased it, the
Fund may consider disposing of the security, but is not required to do so.)
Convertible securities are fixed income securities which may be exchanged or
converted into a predetermined number of the issuer's underlying common stock at
the option of the holder during a specified time period. Convertible securities
may take the form of convertible bonds, convertible preferred stock or
debentures, units consisting of "usable" bonds and warrants or a combination of
the features of several of these securities. The investment characteristics of
each convertible security vary widely, which allows convertible securities to be
employed for a variety of different investment strategies. In selecting a
convertible security, the Funds' investment adviser evaluates the investment
characteristics of the convertible security as a fixed income investment, and
the investment potential of the underlying security for capital appreciation.
ASSET-BACKED SECURITIES
The International Bond Fund and the Global Bond Fund may invest in mortgage-
backed and asset-backed securities. Asset-backed securities are created by the
grouping of certain governmental, government-related and private loans,
receivables and other lender assets into pools. Interests in these pools are
sold as individual securities. These securities differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Asset-backed
securities, however, provide periodic payments which generally consist of both
interest and principal payments. The estimated life of an asset-backed security
and the average maturity of a portfolio including such assets vary with the
prepayment experience with respect to the underlying debt instruments. The
credit characteristics of asset-backed securities also differ in a number of
respects from those of traditional debt securities.
The credit quality of most asset-backed securities depends primarily upon the
credit quality of the assets underlying such securities, how well the entity
issuing the securities is insulated from the credit risk of the originator or
any other affiliated entities, and the amount and quality of any credit support
provided to such securities.
NON-MORTGAGE RELATED ASSET-BACKED SECURITIES. Non-mortgage related asset-backed
securities include, but are not limited to, interests in pools of receivables,
such as motor vehicle installment purchase obligations and credit card
receivables. These securities may be in the form of pass-through instruments or
asset-backed bonds. The securities, all of which are issued by non-governmental
entities and carry no direct or indirect government guarantee, are structurally
similar to CMOs and mortgage pass-through securities, which are described below.
MORTGAGE-RELATED ASSET-BACKED SECURITIES. The International Bond and the Global
Bond Funds may also invest in various mortgage-related asset-backed securities.
These types of investments may include ARMS, CMOs and REMICs (as such terms are
defined below), or other securities collateralized by or representing an
interest in real estate mortgages (collectively, "mortgage securities"). The
mortgage securities may have interest rates which reset at least annually and
generally will be issued or guaranteed by government agencies.
ADJUSTABLE RATE MORTGAGE SECURITIES ("ARMS"). ARMS are pass-through mortgage
securities with adjustable rather than fixed interest rates. The ARMS in which
the International Bond and the Global Bond Funds may invest are issued by the
Government National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA"), and the Federal Home Loan Mortgage Corporation ("FHLMC")
and are actively traded. The underlying mortgages which collateralize ARMS
issued by GNMA are fully guaranteed by the Federal Housing Administration or
Veterans Administration, while those collateralized by ARMS issued by FHLMC or
FNMA are typically conventional residential mortgages conforming to strict
underwriting, size and maturity constraints.
Unlike conventional bonds, ARMS pay back principal over the life of the ARMS
rather than at maturity. Thus, a holder of the ARMS, such as the International
Bond or Global Bond Funds, would receive monthly scheduled payments of principal
and interest, and may receive unscheduled principal payments representing
prepayments on the underlying mortgages. At the time that a holder of the ARMS
reinvests the payments and any unscheduled prepayments of principal that it
receives, the holder may receive a rate of interest which is actually lower than
the rate of interest paid on the existing ARMS. As a consequence, ARMS may be a
less effective means of "locking in" long-term interest rates than other types
of U.S. government securities.
Like other U.S. government securities, the market value of ARMS will generally
vary inversely with changes in market interest rates. Thus, the market value of
ARMS generally declines when interest rates rise and generally rises when
interest rates decline.
While ARMS generally entail less risk of a decline during periods of rapidly
rising rates, ARMS may also have less potential for capital appreciation than
other similar investments (e.g., investments with comparable maturities) because
as interest rates decline, the likelihood increases that mortgages will be
prepaid. Furthermore, if ARMS are purchased at a premium, mortgage foreclosures
and unscheduled principal payments may result in some loss of a holder's
principal investment to the extent of the premium paid. Conversely, if ARMS are
purchased at a discount, both a scheduled payment of principal and an
unscheduled prepayment of principal would increase current and total returns and
would accelerate the recognition of income, which would be taxed as ordinary
income when distributed to shareholders.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). CMOs are a form of asset-backed
security issued by single-purpose, stand-alone finance subsidiaries or trusts of
financial institutions, government agencies, investment banks, or companies
related to the construction industry.
The International Bond and Global Bond Funds will invest only in CMOs which
are rated BBB or Baa or higher by an NRSRO and which may be: (a) collateralized
by pools of mortgages in which each mortgage is guaranteed as to payment of
principal and interest by an agency or instrumentality of the U.S. Government;
(b) collateralized by pools of mortgages in which payment of principal and
interest is guaranteed by the issuer and such guarantee is collateralized by
U.S. Government Securities; or (c) securities in which the proceeds of the
issuance are invested in mortgage securities and payment of the principal and
interest are supported by the credit of any agency or instrumentality of the
U.S. Government.
CONSIDERATIONS FOR MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Mortgage-backed
and asset-backed securities generally pay back principal and interest over the
life of the security. At the time either the International Bond Fund or the
Global Bond Fund reinvests the payments and any unscheduled prepayments of
principal received, the Fund may receive a rate of interest which is actually
lower than the rate of interest paid on these securities ("prepayment risks").
Mortgage-backed and asset-backed securities are subject to higher prepayment
risks than most other types of debt instruments with prepayment risks because
the underlying mortgage loans or the collateral supporting asset-backed
securities may be prepaid without penalty or premium. Prepayment risks on
mortgage-backed securities are also affected by other factors, such as the
frequency with which people sell their homes or elect to make unscheduled
payments on their mortgages. Although asset-backed securities generally are
less likely to experience substantial prepayments than are mortgage-backed
securities, certain of the factors that affect the rate of prepayments on
mortgage-backed securities also affect the prepayments on asset-backed
securities.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the benefit
of the same security interest in the related collateral. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to set off certain amounts owed on the credit cards,
thereby reducing the balance due. Most issuers of asset-backed securities
backed by motor vehicle installment purchase obligations permit the servicer of
such receivables to retain possession of the underlying obligations. If the
servicer sells these obligations to another party, there is a risk that the
purchaser would acquire an interest superior to that of the holders of the
related asset-backed securities. Further, if a vehicle is registered in one
state, and is then reregistered because the owner and obligor moves to another
state, such reregistration could defeat the original security interest in the
vehicle in certain cases. In addition, because of the large number of vehicles
involved in a typical issuance and technical requirements under state laws, the
trustee for the holders of asset-backed securities backed by automobile
receivables may not have a proper security interest in all of the obligations
backing such receivables. Therefore, there is the possibility that recoveries
on repossessed collateral may not, in some cases, be available to support
payments on these securities.
DEPOSITARY RECEIPTS
Both the Small Capitalization and International Equity Funds may invest in
foreign issuers by purchasing sponsored or unsponsored ADRs, and the
International Equity Fund may also purchase sponsored and unsponsored GDRs, IDRs
and EDRs. ADRs evidence ownership of underlying securities issued by a foreign
corporation, and are generally issued by a United States bank or trust company.
EDRs, GDRs and IDRs are typically issued by foreign banks or trust companies,
although they also may be issued by United States banks or trust companies, and
evidence ownership of underlying securities issued by either a foreign or a
United States corporation. ADRs, EDRs, GDRs and IDRs are collectively known as
"Depositary Receipts." Generally, Depositary Receipts in registered form are
designed for use in the United States securities market and Depositary Receipts
in bearer form are designed for use in securities markets outside the United
States. Depositary Receipts may not necessarily be denominated in the same
currency as the underlying securities into which they may be converted.
Ownership of unsponsored Depositary Receipts may not entitle the International
Equity Fund to financial or other reports from the issuer of the underlying
security, to which it would be entitled as the owner of sponsored Depositary
Receipts.
FOREIGN GOVERNMENT SECURITIES
The foreign government securities in which the International Equity, the
International Bond and Global Bond Funds may invest generally consist of
obligations supported by national, state or provincial governments or similar
political subdivisions. Foreign government securities also include debt
obligations of supranational entities, which include international organizations
designed or supported by governmental entities to promote economic
reconstruction or development, international banking institutions and related
government agencies. Examples of these include, but are not limited to, the
International Bank for Reconstruction and Development (the World Bank), the
Asian Development Bank, the European Investment Bank and the Inter-American
Development Bank.
Foreign government securities also include debt securities of "quasi-
governmental agencies." Debt securities of quasi-governmental agencies are
either debt securities issued by entities which are owned by a national, state
or equivalent government or are obligations of a political unit that are not
backed by the national government's full faith and credit and general taxing
powers. Further, foreign government securities include mortgage-related
securities issued or guaranteed by national, state or provincial governmental
instrumentalities, including quasi-governmental agencies.
U.S. GOVERNMENT SECURITIES
The U.S Government Securities in which the Funds may invest include: direct
obligations of the U.S. Treasury (such as Treasury bills, notes and bonds), and
obligations issued by U.S. Government agencies or instrumentalities, including
securities that are supported by the full faith and credit of the United States
(such as GNMA certificates); securities that are supported by the right of the
issuer to borrow from the U.S. Treasury (such as securities of Federal Home Loan
Banks); and securities that are supported by the credit of the instrumentality
(such as FNMA and FHLMC).
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
Due to restrictions on direct investment by foreign entities in certain foreign
nations, investment in other investment companies may be the most practical or
only manner in which the Funds can invest in securities markets of certain
foreign countries. The Funds may invest in the securities of other investment
companies, but they will not own more than 3% of the total outstanding voting
stock of any investment company, invest more than 5% of their respective total
assets in any one investment company, or invest more than 10% of their
respective total assets in investment companies in general. Such investments
may involve the payment of substantial premiums above the net asset value of
such issuers' portfolio securities, and may be constrained by market
availability. There can be no assurance that investment companies for investing
in certain foreign nations will be available for investment. The Funds will
invest in such companies when, in the investment adviser's judgment, the
potential benefits of such investment justify the payment of any applicable
premium or sales charge. While it is the investment adviser's policy to waive
its investment advisory fee on assets invested in securities of open-end
investment companies, it should be noted that investment companies incur certain
expenses, such as custodian and transfer agent fees, and therefore, any
investment by the Funds in shares of another investment company would be subject
to such duplicate expenses. The Funds will, however, continue to pay their own
investment advisory fees and other expenses with respect to investments in
shares of closed-end companies.
RISK FACTORS
EQUITY INVESTMENT CONSIDERATIONS. With respect to the Small Capitalization
Fund, as with other mutual funds that invest primarily in equity securities, the
Fund is subject to market risks. Since equity markets tend to be cyclical, the
possibility exists that the value of common stocks could decline over short or
even extended periods of time. Furthermore, because the Fund invests primarily
in small capitalization stocks, there are some additional risk factors
associated with investments in this Fund.
Small capitalization stocks have historically been more volatile in price than
larger capitalization stocks, such as those included in the Standard & Poor's
Daily Stock Price Index of 500 Common Stocks (the "S&P 500 Index"). This is
because, among other things, smaller companies have a lower degree of liquidity
in the equity market and tend to have a greater sensitivity to changing economic
conditions. In addition to exhibiting greater volatility, these stocks may, to
some degree, fluctuate independently of the stocks of large companies. That is,
the stocks of small capitalization companies may decline in price as the price
of large company stocks rise, or vice versa. Therefore, investors should expect
that there will be periods of time when the Fund will exhibit greater volatility
from broad stock market indices such as the S&P 500 Index.
FOREIGN SECURITIES CONSIDERATIONS. Investing in foreign securities carries
substantial risks in addition to those associated with investments in domestic
securities. The risks associated with investments in foreign securities relate
to political and economic developments abroad, as well as those that result from
the differences between the regulation of domestic securities and issuers and
foreign securities and issuers. In an attempt to reduce some of these risks,
the International Equity, the International Bond and the Global Bond Funds will
attempt to distribute their investments broadly among foreign nations. The
securities of at least three different foreign nations will always be
represented in the Funds' portfolios.
The economies of foreign countries may differ from the U.S. economy in such
respects as growth of gross national product, the rate of inflation, currency
depreciation, capital reinvestment, resource self-sufficiency, and balance of
payments position. Further, the economies of emerging market nations generally
are heavily dependent on international trade and, accordingly, have been, and
may continue to be, adversely affected by trade barriers, exchange controls,
managed adjustments in relative currency values, and other protectionist
measures imposed or negotiated by the countries with which they trade. These
economies also have been, and may continue to be, adversely affected by economic
conditions in the countries with which they trade. The usual risks of investing
in foreign securities of developed nations are magnified when investing in
emerging market nations. As a general matter, emerging market investments are
more volatile and exhibit greater and more rapid fluctuations in value. The
International Equity, the International Bond, and the Global Bond Funds may each
invest up to 10% its respective total assets in issuers located in emerging
market nations, and this component of the Funds' investment portfolios should be
considered speculative.
With reference to investment in foreign securities of both developed and
emerging market nations, prior governmental approval for such investments may be
required under certain circumstances, and the extent of foreign investment in
certain debt or equity securities and domestic companies may be subject to
limitation. Foreign ownership limitations also may be imposed by the charters
of individual companies to prevent, among other concerns, violation of foreign
investment limitations.
Repatriation of investment income, capital, and the proceeds of sales by foreign
investors may require governmental registration and/or approval in some
countries. The International Equity, the International Bond and the Global Bond
Funds could be adversely affected by delays in, or a refusal to grant, any
required governmental registration or approval for such repatriation. Any
investment subject to such repatriation controls will be considered illiquid by
a Fund if it appears reasonably likely that this process will take more than
seven days.
With respect to any foreign nation, there is the possibility of currency
fluctuations, nationalization, expropriation or confiscatory taxation, political
changes, governmental regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such countries or
the value of the Funds' investments in those countries. In addition, because of
differences in the legal systems, it may be more difficult to obtain and enforce
a contractual obligation or court judgment in a court outside of the U.S.
Brokerage commissions, custodial services, and other costs relating to
investment may be more expensive than in the United States. Foreign markets may
have different clearance and settlement procedures and in certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
The inability of the International Equity, the International Bond and the Global
Bond Funds to make intended security purchases due to settlement problems could
cause the Funds to miss attractive investment opportunities. Inability to
dispose of a portfolio security due to settlement problems could result either
in losses to a Fund due to subsequent declines in value of the portfolio
security or, if the Fund has entered into a contract to sell the security, could
result in possible liability to the purchaser.
Additional differences exist between investing in foreign and domestic
securities. Examples of such differences include:
o less publicly available information about foreign issuers;
o credit risks associated with certain foreign governments;
o the lack of uniform accounting, auditing, and financial reporting
standards and practices or regulatory requirements comparable to those
applicable to U.S. companies;
o less readily available market quotations on foreign issues;
o differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;
o the limited size of many foreign securities markets and limited trading
volume in issuers, compared to the volume of trading in U.S.
securities, could cause prices to be erratic for reasons apart from
factors that affect the quality of securities;
o the likelihood that securities of foreign issuers may be less liquid or
more volatile;
o unreliable mail service between countries;
o political or financial changes which adversely affect investments in
some nations;
o increased risk of delayed settlements of portfolio transactions or loss
of certificates for portfolio securities;
o certain markets may require payment for securities before delivery;
o religious and ethnic instability; and
o certain national policies which may limit the use or transfer of Fund
assets, or may restrict the Funds' investment opportunities, including
restrictions on investment in issuers or industries deemed sensitive to
national interests.
U.S. GOVERNMENT POLICIES. In the past, U.S. Government policies have
discouraged or restricted certain investments abroad by investors similar to the
International Equity, the International Bond and the Global Bond Funds.
Investors are advised that when such policies are instituted, the Funds will
abide by them.
CURRENCY RISKS. Because the majority of the debt and equity securities
purchased by the International Equity, the International Bond and the Global
Bond Funds are denominated in currencies other than the U.S. Dollar, changes in
foreign currency exchange rates will affect the Funds' net asset values; the
value of interest earned; gains and losses realized on the sale of securities;
and net investment income and capital gains, if any, to be distributed to
shareholders by the Funds. If the value of a foreign currency rises against the
U.S. Dollar, the value of Fund assets denominated in that currency will
increase; correspondingly, if the value of a foreign currency declines against
the U.S. Dollar, the value of Fund assets denominated in that currency will
decrease. Under the United States Internal Revenue Code, as amended (the
"Code"), the Funds are required to separately account for the foreign currency
component of gains or losses, which will usually be viewed under the Code as
items of ordinary and distributable income or loss, thus affecting the Funds'
distributable income (see "Federal Income Tax" in this prospectus).
The exchange rates between the U.S. Dollar and foreign currencies are a function
of such factors as supply and demand in the currency exchange markets,
international balances of payments, governmental interpretation, speculation and
other economic and political conditions. Although the International Equity, the
International Bond and the Global Bond Funds value their assets daily in U.S.
Dollars, the Funds will not convert their holdings of foreign currencies to U.S.
Dollars daily. When a Fund converts its holdings to another currency, it may
incur conversion costs. Foreign exchange dealers may realize a profit on the
difference between the price at which they buy and sell currencies.
The Funds will engage in foreign currency exchange transactions in connection
with their investments in foreign securities. The Funds will conduct their
foreign currency exchange transactions either on a spot (i.e. cash) basis at the
spot rate prevailing in the foreign currency exchange market, or through forward
contracts to purchase or sell foreign currencies.
The Funds' investment adviser believes that active management of currency risks
through a variety of hedging vehicles and strategies can considerably limit the
risk of capital loss through movements in the foreign exchange markets, such as
those described above. The investment adviser will not engage in hedging for
speculative purposes.
ALLOCATION. With respect to the International Equity, the International Bond,
and the Global Bond Funds, the allocation of each Fund's respective assets in a
particular market and currency will be based on a fundamental assessment of the
economic strength of each relevant country combined with considerations of
credit quality and currency and interest rate trends. These factors are
reviewed on a regular basis by the investment adviser in order to derive
specific interest rate and currency forecasts, which are quantified in terms of
total return. The market and currency allocation of the Funds will vary to
achieve an optimal mix of investments to achieve the investment objectives of
the Funds.
HEDGING VEHICLES AND STRATEGIES
HEDGING VEHICLES. The International Equity, the International Bond and the
Global Bond Funds may use the following hedging vehicles in an attempt to manage
the currency and interest rate risks describe above:
o forward foreign currency exchange contracts;
o options contracts; and
o futures contracts.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
These contracts are traded directly between currency traders (usually large
commercial banks) and their customers. When a Fund enters into a contract for
the purchase or sale of a security denominated in a foreign currency, it may
want to establish the U.S. Dollar cost or proceeds, as the case may be. By
entering into a forward contract in U.S. Dollars for the purchase or sale of the
amount of foreign currency involved in an underlying security transaction, a
Fund is able to protect itself against a possible loss between trade and
settlement dates resulting from an adverse change in the relationship between
the U.S. Dollar and such foreign currency. However, this tends to limit
potential gains which might result from a positive change in such currency
relationships.
There is no limitation as to the percentage of a Fund's assets that may be
committed under forward foreign currency exchange contracts. The Funds do not
enter into such forward contracts or maintain a net exposure in such contracts
where the Funds would be obligated to deliver an amount of foreign currency in
excess of the value of the Funds' portfolio securities or other assets
denominated in that currency or, in the case of a "cross-hedge" (see "Hedging
Strategies" below), denominated in a currency or currencies that the investment
adviser believes will reflect a high degree of correlation with the currency
with regard to price movements. The Funds generally do not enter into a forward
foreign currency exchange contract with a term longer than one year.
OPTIONS. The Funds may deal in options on foreign currencies, foreign currency
futures, securities, and securities indices, which options may be listed for
trading on a national securities exchange or traded over-the-counter. (The
Small Capitalization Fund will deal solely in options on domestic securities,
including ADRs, in which the Fund can invest directly.) The Funds may write
covered call options and secured put options on up to 25% of their respective
net assets and may purchase put and call options provided that no more than 5%
of the fair market value of their respective net assets may be invested in
premiums on such options.
A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying currency, security or other asset at the
exercise price during the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying currency,
security or other asset at the exercise price during the option period. The
writer of a covered call owns assets that are acceptable for escrow and the
writer of a secured put invests an amount not less than the exercise price in
eligible assets to the extent that it is obligated as a writer. If a call
written by a Fund is exercised, the Fund forgoes any possible profit from an
increase in the market price of the underlying asset over the exercise price
plus the premium received. In writing puts, there is a risk that the Funds may
be required to take delivery of the underlying asset at a disadvantageous price.
Over-the-counter options ("OTC options") differ from exchange traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and there is a risk of non-performance by the dealer as a
result of the insolvency of such dealer or otherwise, in which event a Fund may
experience material losses. However, in writing options the premium is paid in
advance by the dealer of OTC options, which may not be continuously liquid, are
available for a greater variety of assets, and a wider range of expiration dates
and exercise prices, than are exchange traded options.
FUTURES. Futures contracts are contracts that obligate the long or short holder
to take or make delivery of a specified quantity of an asset, such as a
currency, a security, or the cash value of a securities index at a specified
future date at a specified price. The Funds may engage in futures transactions,
but will not participate in futures contracts if the sum of their initial margin
deposits on open contracts will exceed 5% of the fair market value of each
Fund's respective net assets.
HEDGING STRATEGIES
CURRENCY HEDGING. In the case of the International Equity, the International
Bond and the Global Bond Funds, when the investment adviser believes that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. Dollar, it may enter into a forward contract to sell an amount
of that foreign currency for a fixed U.S. Dollar amount approximating the value
of some or all of a Fund's portfolio securities denominated in such foreign
currency (i.e., "hedge"). A Fund may, as an alternative, enter into a forward
contract to sell a different foreign currency for a fixed U.S. Dollar amount
where the investment adviser believes that the U.S. Dollar value of the currency
to be sold pursuant to the forward contract will fall whenever there is a
decline in the U.S. Dollar value of the currency in which portfolio securities
of the Fund are denominated (i.e., "cross-hedge"). A cross-hedge can be
achieved not only by using a "proxy" currency in which Fund securities are
denominated, but also by using the Canadian Dollar as a "proxy" currency for the
U.S. Dollar. This strategy may be beneficial because the level of divergence in
the exchange rates of U.S. and Canadian currencies has historically tended to be
relatively small.
INTEREST RATE HEDGING. The International Equity, the International Bond and the
Global Bond Funds may engage in futures transactions and may use options in an
attempt to hedge against the effects of fluctuations in interest rates and other
market conditions.
GENERAL. The Funds might not employ any of the techniques or strategies
described above, and there can be no assurance that any technique or strategy
(or combination thereof) used will succeed. The use of these techniques and
strategies involves certain risks, including:
o dependence on the investment adviser's ability to predict movements in
the prices of assets being hedged or movements in interest rates and
currency markets;
o imperfect correlation between the hedging instruments and the
securities or currencies being hedged;
o the fact that skills needed to use these instruments are different from
those needed to select the Funds' securities;
o the possible absence of a liquid secondary market for any particular
instrument at any particular time;
o possible impediments to effective portfolio management or the ability
to meet redemption requests or other short-term obligations because of
the percentage of the Funds' assets segregated to cover its
obligations; and
o the possible need to defer closing out hedged positions to avoid
adverse tax consequences.
New futures contracts, options thereon and other financial products and risk
management techniques continue to be developed. The Funds may use these
investments and techniques to the extent consistent with their investment
objectives and regulatory and federal tax considerations.
DERIVATIVE CONTRACTS AND SECURITIES
The term "derivative" has traditionally been applied to certain contracts
(including, futures, forward, option and swap contracts) that "derive" their
value from changes in the value of an underlying security, currency, commodity
or index. Certain types of securities that incorporate the performance
characteristics of these contracts are also referred to as "derivatives." The
term has also been applied to securities "derived" from the cash flows from
underlying securities, mortgages or other obligations.
Derivative contracts and securities can be used to reduce or increase the
volatility of an investment portfolio's total performance. While the response
of certain derivative contracts and securities to market changes may differ from
traditional investments, such as stock and bonds, derivatives do not necessarily
present greater market risks than traditional investments. The Funds will only
use derivative contracts for the purposes disclosed in the applicable prospectus
sections above. To the extent that the Funds invest in securities that could be
characterized as derivatives, such as futures, asset-backed and mortgage-backed
securities, they will only do so in a manner consistent with their investment
objectives, policies and limitations.
DURATION
With reference to the International Bond and Global Bond Funds, duration is a
measure of a debt security's price sensitivity expressed in years and is a
measure of the interest rate risk of a debt security, taking into consideration
that there may be cash flows before the maturity date and that the cash flows
must be considered in terms of their present value. Duration is similar to, but
more precise than, average life. It is a measure of the number of years until
the average dollar--in present value terms--is received from coupon and
principal payments. As such, it is one measure of systematic risk. Duration is
computed by multiplying each principal and interest payment by its present
value, summing these products, and dividing the sum by the full price of the
debt security. A more complete description of this calculation is available
upon request from the Trust.
Duration measures the magnitude of the change in the price of a debt security
relative to a given change in the market rate of interest. The duration of a
debt security depends primarily upon the security's coupon rate, maturity date,
and level of market interest rates for similar debt securities. There will be
no limit on the duration of any one individual issue purchased by the
International Bond and Global Bond Funds, except that the purchase of an issue
that has no final maturity date shall not be permitted. The weighted average
duration of the Funds shall not exceed ten years and shall not be less than one
year, but will normally fall within a range of three to seven years. The
investment adviser regards that range as being consistent with a prudent
attitude towards risk. Shifts outside this range would be made only under
unusual circumstances.
PORTFOLIO TURNOVER
Although the Funds do not intend to invest for the purpose of seeking short-
term profits, securities in their portfolios will be sold whenever the
investment adviser believes it is appropriate to do so in light of each Fund's
investment objective, without regard to the length of time a particular security
may have been held. The rate of portfolio turnover for each Fund may exceed
that of certain other mutual funds with the same investment objective. A higher
rate of portfolio turnover involves correspondingly greater transaction expenses
which must be borne directly by a Fund and, thus, indirectly by its
shareholders. In addition, a high rate of portfolio turnover may result in the
realization of larger amounts of capital gains which, when distributed to a
Fund's shareholders, are taxable to them. (Further information is contained in
the Trust's Combined Statement of Additional Information under the sections
"Brokerage Transactions" and "Tax Status.") Nevertheless, transactions for each
Fund's portfolio will be based only upon investment considerations and will not
be limited by any other considerations when the investment adviser deems it
appropriate to make changes in a Fund's portfolio. It is currently anticipated
that the Funds' annual rates of portfolio turnover will be: 100% for the Small
Capitalization Fund; 80% for the International Equity Fund; 200% for the
International Bond Fund; and 240% for the Global Bond Fund. A portfolio
turnover rate exceeding 100% is considered to be high.
FTI FUNDS INFORMATION
MANAGEMENT OF FTI FUNDS
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees (the
"Trustees"). The Trustees are responsible for managing the business affairs of
the Trust and for exercising all the Trust's powers except those reserved for
the shareholders.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Trust are made by Fiduciary International, Inc.
("Fiduciary"), the Trust's investment adviser (the "Adviser"), subject to
direction by the Trustees. The Adviser continually conducts investment research
and supervision for each Fund and is responsible for the purchase or sale of
portfolio instruments, for which it receives an annual fee from the assets of
each Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory fee
equal to 0.70 of 1% of each of the Global and International Bond Funds'
respective average daily net assets, and 1.00% of each of the Small
Capitalization and International Equity Funds' respective average daily
net assets. The advisory fees paid by the Small Capitalization and
International Equity Funds, while higher than the advisory fees paid by
other mutual funds in general, are comparable to fees paid by other
mutual funds with similar objectives and policies to the Funds. The
investment advisory contract provides for the voluntary waiver of
expenses by the Adviser from time to time. The Adviser can terminate
this voluntary waiver of expenses at any time with respect to a Fund at
its sole discretion. The Adviser has also undertaken to reimburse the
Funds for operating expenses in excess of limitations established by
certain states.
ADVISER'S BACKGROUND. Fiduciary International, Inc. ("FII") is a New
York corporation that was organized in 1982 as Fir Tree Advisers, Inc.
FII is a wholly-owned subsidiary of Fiduciary Investment Corporation,
which, in turn, is a wholly-owned subsidiary of Fiduciary Trust Company
International ("FTCI"). FTCI has more than 60 years of investment
experience, including more than 30 years experience in managing pooled
investment vehicles which invest in the international markets. FII is
an indirect subsidiary of FTCI. FTCI is a New York state-chartered
bank specializing in investment management activities. As of December
31, 1994, FTCI had total assets of approximately $350 million, and
total assets under management of approximately $30 billion. These
assets included investments managed for individuals and institutional
clients, including employee benefit plans of corporations, public
retirement systems, unions, endowments, foundations and others.
FII is a registered investment adviser under the Investment Advisers
Act of 1940. The Adviser and its officers, affiliates, and employees
may act as investment managers for parties other than the Trust,
including other investment companies. FII presently serves as
investment adviser or subadviser to the Van Eck Global Balanced Fund,
the Blanchard Global Growth Fund, the Prudential Securities Target
Program's International Bond Portfolio, the Frank Russell Investment
Company's Equity II Fund, and the International Income Fund. Fiduciary
Trust International Limited, another wholly-owned subsidiary of
Fiduciary Trust Company International, serves as a sub-adviser to
International Income Fund, an open-end investment company.
Yvette Bockstein, Helen Degener and Catherine Fischetti are primarily
responsible for the day-to-day investment management of the Small
Capitalization Fund. Both Ms. Bockstein and Ms. Degener are Senior
Vice Presidents of FTCI and, along with Ms. Fischetti, serve on its
Small Cap Investment Committee. Ms. Bockstein has been with FTCI since
1978. Prior to joining the Adviser, she was with Davis, Palmer & Biggs
and The Bank of New York. Ms. Degener has been with FTCI since 1994.
Prior to FTCI, she spent thirteen years at Morgan Guaranty Trust
Company as a Vice President and manager of several small capitalization
equity funds. Ms. Fischetti is a Vice President of FTCI and has been
with the Adviser since 1992. Prior to Fiduciary, Ms. Fischetti worked
for two years with Babcock & Brown Capital Markets and two years with
Praxis Partners.
Sheila Coco, William Yun and Steven Miller are primarily responsible
for the day-to-day investment management of the International Equity
Fund. Ms. Coco and Mr. Yun are both Senior Vice Presidents of FTCI and
Chartered Financial Analysts. Along with Mr. Miller, they serve on the
Adviser's Global Investment Committee. Ms. Coco has been with FTCI
since 1980 and had previously spent four years in the investment
division of Morgan Guaranty Trust Company. Mr. Yun joined Fiduciary in
1992, and has nine years of prior investment experience with CB
Commercial Holdings, The First Boston Corp. and Blyth Eastman Paine
Webber, Inc. He is a member of the New York Society of Security
Analysts. Mr. Miller joined FTCI in 1994 and is a Vice President.
Previously, he had spent seven years with Vital Forsikring, a Norwegian
life insurance company, and Heller Financial.
Stuart Hochberger and Anthony Gould are primarily responsible for the
day-to-day investment management of both the International Bond Fund
and Global Bond Fund. Mr. Hochberger is an Executive Vice President of
FTCI and is Director of its Fixed Income Group. He also serves as the
Chairman of the Adviser's Fixed Income Policy Committee and is a member
of both the Global Investment Committee and the Investment Policy
Committee. Mr. Hochberger joined FTCI in 1981 from Morgan Guaranty
Trust Company. Mr. Gould joined FTCI in 1995 and is currently a Vice
President and global portfolio manager. Previously, he had spent six
years with BZW Investment Management, the asset management subsidiary
of the Barclays Group, as a global bond manager. Prior to BZW, he was
employed by J.P. Morgan, London. Mr. Gould is a Chartered Financial
Analyst and a member of the New York Society of Security Analysts.
DISTRIBUTION OF SHARES OF THE FUNDS
Edgewood Services, Inc. is the principal distributor (the "Distributor") for
shares of the Funds. Edgewood Services, Inc. is a New York corporation and a
wholly-owned subsidiary of Federated Investors. The Distributor is a registered
broker/dealer. Its principal offices are at Clearing Operations, P.O. Box 897,
Pittsburgh, PA 15230-0897.
DISTRIBUTION PLAN. Under a distribution plan adopted in accordance with the
Investment Company Act of 1940's Rule 12b-1 (the "Plan"), the Funds may pay to
the Distributor an amount computed at an annual rate of 0.75 of 1% of the
average daily net asset value of each Fund's shares to finance any activity
which is principally intended to result in the sale of shares subject to the
Plan. However, the Plan will not be activated, and the Distributor has no
present intention to collect any fees pursuant to the Plan, unless and until
such time as a second "trust" class of shares of the Funds is created for
shareholders that are trust clients.
The Distributor may from time to time and for such periods as it deems
appropriate, voluntarily reduce its compensation under the Plan to the extent
the expenses attributable to the shares exceed such lower expense limitation as
the Distributor may, by notice to the Trust, voluntarily declare to be
effective.
The Distributor may select financial institutions, such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers ("brokers")
to provide distribution and/or administrative services as agents for their
clients or customers. Administrative services may include, but are not limited
to, the following functions: providing office space, equipment, telephone
facilities, and various clerical, supervisory, computer, and other personnel as
necessary or beneficial to establish and maintain shareholder accounts and
records; processing purchase and redemption transactions and automatic
investments of client account cash balances; answering routine client inquiries;
assisting clients in changing dividend options, account designations, and
addresses; and providing such other services as may reasonably be requested.
The Distributor will pay financial institutions a fee based upon shares subject
to the Plan and owned by their clients or customers. The schedules of such fees
and the basis upon which such fees will be paid will be determined from time to
time by the Distributor.
The Funds' Plan is a compensation type plan. As such, the Funds make no
payments to the Distributor except as described above. Therefore, the Funds do
not pay for unreimbursed expenses of the Distributor, including amounts expended
by the Distributor in excess of amounts received by it from the Funds, interest,
carrying or other financing charges in connection with excess amounts expended,
or the Distributor's overhead expenses. However, the Distributor may be able to
recover such amounts or may earn a profit from future payments made by the Funds
under the Plan.
Furthermore, the Distributor may offer to pay a fee from its own assets to
financial institutions as financial assistance for providing substantial
marketing and sales support. The support may include sponsoring sales,
educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Funds. Such assistance will be predicated upon the amount of
shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution.
Any payments made by the Distributor may be reimbursed by the Adviser or its
affiliates.
SHAREHOLDER SERVICES ARRANGEMENTS. The Trust and FII have entered into a
Shareholder Services Agreement (the "Services Agreement") with respect to the
shares of the Funds to provide administrative support services to customers who
from time to time may be owners of record or beneficial owners of the Funds'
shares. In return for providing these support services, FII (or a financial
institution which has an agreement with FII) may receive payments from a Fund at
a rate not exceeding 0.25 of 1% of the average daily net assets of the shares
beneficially owned by the financial institution's customers for whom it is
holder of record or with whom it has a servicing relationship. These
administrative services may include, but are not limited to, the following
functions: providing office space, equipment, telephone facilities, and various
personnel, including clerical, supervisory, and computer, as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries regarding the
Funds; assisting clients in changing dividend options, account designations, and
addresses; and providing such other services as the Funds reasonably request.
Certain trust clients, including ERISA plans, will not be affected by the
Services Agreement because the Services Agreement will not be activated unless
and until a second, "trust" class of shares of the Funds (which would not have a
Services Agreement) is created and such trust clients' investments in a Fund are
converted to such trust class.
ADMINISTRATIVE ARRANGEMENTS
The Distributor may pay financial institutions and other financial service
providers, such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers, a fee based upon the average net asset value of
shares of their customers for providing administrative services. This fee, if
paid, will be reimbursed to the Distributor by the Adviser and not the Funds.
ADMINISTRATION OF THE FUNDS
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides the Funds with certain administrative personnel
and services necessary to operate each Fund. Such services include shareholder
servicing and certain legal and accounting services. Federated Administrative
Services provides these at an annual rate as specified below:
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
.150 of 1% on the first $250 million
.125 of 1% on the next $250 million
.100 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least $75,000
per Fund. Federated Administrative Services may choose voluntarily to waive a
portion of its fee.
CUSTODIAN. Fiduciary Trust Company International, Two World Trade Center, New
York, New York 10048-0772, is custodian for the securities and cash of the
Funds. Foreign instruments purchased by the Funds are held by foreign banks
participating in a network coordinated by Fiduciary Trust Company International.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND PORTFOLIO RECORDKEEPER. Federated
Services Company, Pittsburgh, Pennsylvania, a subsidiary of Federated Investors,
with offices in Boston, Massachusetts, is transfer agent for the shares of the
Funds and dividend disbursing agent for the Funds. Federated Services Company
also provides certain accounting and recordkeeping services with respect to the
portfolio investments of the Funds.
INDEPENDENT AUDITORS. The independent auditors for the Funds are Ernst & Young
LLP, Pittsburgh, Pennsylvania.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Funds' investment adviser looks for prompt execution of the
order at a favorable price. In working with dealers, the investment adviser
will generally utilize those who are recognized dealers in specific portfolio
instruments, except when a better price and execution of the order can be
obtained elsewhere. In selecting among firms believed to meet these criteria,
the investment adviser may give consideration to those firms which have sold or
are selling shares of the Funds and other funds distributed by Edgewood
Services, Inc. or Federated Securities Corp. The investment adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
EXPENSES OF THE FUNDS
The Funds pay all of their own expenses and their allocable share of Trust
expenses. These expenses include, but are not limited to, the costs of:
organizing the Trust and continuing its existence; Trustees' fees; investment
advisory and administrative services; printing prospectuses and other Fund
documents for shareholders; registering the Trust, the Funds and shares of the
Funds; taxes and commissions; issuing, purchasing, repurchasing, and redeeming
shares; fees for custodian, transfer agent, dividend disbursing agent,
shareholder servicing agents, and registrars; printing, mailing, auditing,
accounting, and legal expenses; reports to shareholders and government agencies;
meetings of Trustees and shareholders and proxy solicitations therefor;
insurance premiums; association membership dues; and such nonrecurring and
extraordinary items as may arise. However, the Funds' investment adviser may
voluntarily waive and/or reimburse some expenses.
NET ASSET VALUE
The net asset value per share of each Fund fluctuates. Net asset value is
determined by dividing the sum of the market value of all securities and other
assets of a Fund, less liabilities, by the number of Fund shares outstanding.
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange. As a result, in computing the net asset
values of the International Equity, the International Bond and the Global Bond
Funds, the Funds value foreign securities at the latest closing price on the
exchange on which they are traded immediately prior to the closing of the New
York Stock Exchange. Foreign securities quoted in foreign currencies are
translated into U.S. Dollars at the foreign exchange rate in effect at noon,
Eastern time, on the day the value of the foreign security is determined.
Occasionally, events that effect these values and exchange rates may occur
between the times at which they are determined and the closing of the New York
Stock Exchange. If such events materially affect the value of portfolio
securities, these securities may be valued at their fair value as determined in
good faith by the Trustees, although the actual calculation may be done by
others.
INVESTING IN THE FUNDS
SHARE PURCHASES
Shares of the Funds are sold on days on which both the New York Stock Exchange
and the Federal Reserve Wire System are open for business. Shares of the Funds
may be purchased through Fiduciary International, Inc. or through authorized
broker/dealers. In connection with the sale of shares of the Funds, Edgewood
Services, Inc. may, from time to time, offer certain items of nominal value to
any shareholder or investor. The Funds reserve the right to reject any purchase
request.
THROUGH FIDUCIARY INTERNATIONAL, INC. An investor may write or call Fiduciary
International, Inc. to place an order to purchase shares of a Fund. Call (212)
466-4100. Representatives are available from 9:00 a.m. to 5:00 p.m. (Eastern
time). Payment may be made either by mail or federal funds. Purchase orders
must be received by Fiduciary International, Inc. before 3:00 P.M. (Eastern
time). Payment is normally required on the next business day. Texas residents
must purchase shares through Edgewood Services, Inc. at 1-800-356-2805.
BY MAIL. To purchase shares of a Fund by mail, send a check made payable to
"FTI Funds" (and identify the appropriate Fund) to: Federated Services Company,
P.O. Box 8609, Boston, Massachusetts 02266-8609. Orders by mail are considered
received after payment by check is converted into federal funds. This is
normally the next business day after the Fund receives the check.
BY WIRE. To purchase shares of a Fund by wire, call (212) 466-4100. Payment by
wire must be received by Fiduciary International, Inc. before 3:00 p.m. (Eastern
time) on the next business day after placing the order. Fiduciary Trust Company
International is on-line with the Federal Reserve Bank of New York.
Accordingly, to purchase shares of the Funds by wire, wire funds as follows:
Fiduciary Trust Company International
ABA #026007922
Credit:
Further credit to: (Name of Fund)
Re: (customer name)
Shares of the Funds cannot be purchased by Federal Reserve Wire on Columbus Day,
Veterans' Day, or Martin Luther King Day.
THROUGH AUTHORIZED BROKER/DEALERS. An investor may place an order through
authorized brokers and dealers to purchase shares of a Fund. Shares will be
purchased at the net asset value next determined after the Fund receives the
purchase request from Fiduciary International, Inc. Purchase requests through
authorized brokers and dealers must be received by Fiduciary and transmitted to
the Fund before 3:00 p.m. (Eastern time) in order for shares to be purchased at
that day's public offering price.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in shares of each Fund is $10,000. This
prospectus should be read together with any account agreement for minimum
investment requirements imposed by Fiduciary Trust Company International or its
affiliates.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Funds. The net asset value
of each Fund is determined as of the close of trading (normally 4:00 p.m.,
Eastern time) on the New York Stock Exchange, Monday through Friday, except on:
(i) days on which there are not sufficient changes in the value of a Fund's
portfolio securities that its net asset value might be materially affected; (ii)
days during which no shares of a Fund are tendered for redemption and no orders
to purchase shares are received; or (iii) the following holidays: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Trust, Federated Services Company maintains a share
account for each shareholder of record. Share certificates are not issued
unless requested in writing to Federated Services Company.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. In addition, shareholders will receive statements showing all
account activity for the statement period.
DIVIDENDS
For shareholders invested in the Funds on the record date, dividends are
declared and paid semi-annually. Dividends are automatically reinvested in
additional shares of a Fund on the payment date, at the ex-dividend date net
asset value, unless shareholders request cash payments on the new account form
or by writing to the appropriate Fund. All shareholders on the record date are
entitled to the dividend. If shares are redeemed or exchanged prior to the
record date, or purchased after the record date, those shares are not entitled
to that dividend. A portion of distributions to shareholders could, under some
circumstances, be reclassified as a return of capital for income tax purposes
(See "Federal Income Tax").
CAPITAL GAINS
Capital gains realized by a Fund, if any, will be distributed at least once
every twelve months.
EXCHANGE PRIVILEGE
In order to provide greater flexibility to shareholders of the Funds whose
investment objectives have changed, shareholders may exchange all or some of
their shares in one Fund for shares in other Funds in the Trust. Shareholders
of the Funds may also exchange into certain money market funds for which
affiliates or subsidiaries of Federated Investors serve as investment adviser
and/or principal underwriter ("Federated Money Funds"). These exchanges are
made at net asset value. None of the Funds imposes any additional fees on
exchanges. Shareholders in certain Federated Money Funds may exchange their
shares in the Federated Money Funds for shares in the Funds.
REQUIREMENTS FOR EXCHANGE
A shareholder may exchange shares of one Fund for shares of any of the other
Funds in the Trust by calling (212) 466-4100 or by writing to Fiduciary
International, Inc. Shares purchased by check are eligible for exchange after
seven days.
Orders to exchange shares of one Fund for shares of any of the other Funds will
be executed by redeeming the shares owned and purchasing shares of any of the
other Funds at the net asset value determined after the exchange request is
received. Orders for exchanges received by a Fund prior to 3:00 p.m. (Eastern
time) on any day the Funds are open for business will be executed as of the
close of business that day. Orders for exchanges received after 3:00 p.m.
(Eastern time) on any business day will be executed at the close of the next
business day.
An authorization form permitting a Fund to accept telephone exchange requests
must first be completed. It is recommended that investors request this
privilege on the account application at the time of their initial application.
If not completed at the time of initial application, authorization forms and
information on this service can be obtained through Fiduciary International,
Inc. Telephone exchange instructions may be recorded. If reasonable procedures
are not followed by a Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
An excessive number of exchanges may be disadvantageous to the Trust.
Therefore, the Trust, in addition to its right to reject any exchange request,
reserves the right to modify or terminate the exchange privilege at any time.
Shareholders would be notified prior to any modification or termination.
An exchange order must comply with the requirements for a redemption and must
specify the dollar value or number of shares to be exchanged. Exchanges are
subject to the minimum initial investment requirement of the Fund being
acquired. Prior to any exchange, the shareholder must receive a copy of the
current prospectus of the fund into which an exchange is to be effected. An
exchange constitutes a sale for federal income tax purposes.
The exchange privilege is only available in states where shares of the Fund
being acquired may legally be sold.
Further information on the exchange privilege and prospectuses for certain
Federated Money Funds are available by contacting the Trust.
TAX CONSEQUENCES
An exercise of the exchange privilege is treated as a sale for federal income
tax purposes. Depending on the circumstances, a short-term or long-term capital
gain or loss may be realized.
REDEEMING SHARES
Each Fund redeems shares at their net asset value next determined after
Fiduciary International, Inc. receives the redemption request. Redemptions will
be made on days on which both the New York Stock Exchange and the Federal
Reserve Wire System are open for business. Telephone or written requests for
redemption must be received in proper form by Fiduciary International, Inc.
BY TELEPHONE. A shareholder may redeem shares of a Fund by calling Fiduciary
International, Inc. to request a redemption. (Call (212) 466-4100 to redeem
shares.) Shares will be redeemed at the net asset value next determined after a
Fund receives the redemption request from Fiduciary International, Inc.
Although Fiduciary does not charge for telephone redemptions, it reserves the
right to charge a fee for the cost of wire-transferred redemptions of less than
$5,000, or in excess of one per month. Fiduciary is responsible for promptly
submitting redemption requests and providing proper written redemption
instructions to a Fund. If, at any time, a Fund should determine it necessary
to terminate or modify this method of redemption, shareholders would be promptly
notified. A redemption request must be received by Fiduciary International,
Inc. before 3:00 p.m. (Eastern time) in order for shares to be redeemed at that
day's net asset value.
An authorization form permitting a Fund to accept telephone redemption requests
must first be completed. It is recommended that investors request this
privilege at the time of their initial application. If not completed at the
time of initial application, authorization forms and information on this service
can be obtained from the Trust. Telephone redemption instructions may be
recorded. If reasonable procedures are not followed by a Fund, it may be liable
for losses due to unauthorized or fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "By Mail," should be considered.
BY MAIL. Shareholders may redeem shares of a Fund by sending a written
request to: Federated Services Company, P.O. Box 8609, Boston, Massachusetts
02266-8609. The written request should include the shareholder's name, the Fund
name, the account number, and the share or dollar amount requested, and should
be signed by each registered owner exactly as the shares are registered. If
share certificates have been issued, they should be sent by insured mail with
the written request to Federated Services Company.
SIGNATURES. Shareholders requesting a redemption of any amount to be sent to an
address other than that on record with a Fund, or a redemption payable other
than to the shareholder of record must have signatures on written redemption
requests guaranteed by:
o a trust company or commercial bank whose deposits are insured by the
Bank Insurance Fund ("BIF"), which is administered by the Federal
Deposit Insurance Company ("FDIC");
o a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchanges;
o a savings bank or savings and loan association whose deposits are
insured by the Savings Association Insurance Fund ("SAIF"), which is
administered by the FDIC; or
o any other "eligible guarantor institution," as defined in the
Securities Exchange Act of 1934.
The Funds do not accept signatures guaranteed by a notary public.
The Funds and their transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Funds may elect in the
future to limit eligible signature guarantors to institutions that are members
of a signature guarantee program. The Funds and the transfer agent reserve the
right to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Trust may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below the required minimum value of $10,000 due to
shareholder redemptions. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each share of a Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of each Fund in
the Trust have equal voting rights, except that in matters affecting only a
particular Fund, only shares of that Fund are entitled to vote. As a
Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the operation of the Trust or a Fund and for the election of Trustees
under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special
meeting. The Trustees shall call a special meeting of shareholders upon the
written request of shareholders owning at least 10% of the Trust's outstanding
shares entitled to vote.
EFFECT OF BANKING LAWS
Banking laws and regulations presently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, or distributing securities. However, such banking
laws and regulations do not prohibit such a holding company affiliate or banks
generally from acting as investment adviser, transfer agent or custodian to such
an investment company or from purchasing shares of such a company as agent for
and upon the order of such customer. Fiduciary is subject to such banking laws
and regulations.
Fiduciary believes, based on the advice of its counsel, that Fiduciary may
perform the services for any Fund contemplated by its advisory agreement with
the Trust without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. Changes in either federal or state statutes and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of such or future statutes and regulations, could
prevent Fiduciary from continuing to perform all or a part of the above services
for its customers and/or a Fund. If it were prohibited from engaging in these
customer-related activities, the Trustees would consider alternative advisers
and means of continuing available investment services. In such event, changes
in the operation of a Fund may occur, including possible termination of any
automatic or other Fund share investment and redemption services then being
provided by Fiduciary. It is not expected that existing shareholders would
suffer any adverse financial consequences (if another adviser with equivalent
abilities to Fiduciary is found) as a result of any of these occurrences.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state laws.
TAX INFORMATION
FEDERAL INCOME TAX
The Funds anticipate that they will pay no federal income tax because each Fund
expects to meet requirements of the Code, applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.
Each Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by one
Fund will not be combined for tax purposes with those realized by any of the
other Funds.
Investment income received by the Funds from sources within foreign countries
may be subject to foreign taxes withheld at the source. The United States has
entered into tax treaties with many foreign countries that entitle the Funds to
reduced tax rates or exemptions on this income. The effective rate of foreign
tax cannot be predicted, since the amount of Fund assets to be invested within
various countries is unknown. However, the Funds intends to operate so as to
qualify for treaty-reduced tax rates where applicable.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the shares. No federal income tax is due on any
dividends earned in an IRA or qualified retirement plan until distributed.
Due to differences in the book and tax treatment of fixed-income securities
denominated in foreign currencies, it is difficult to project currency effects
on an interim basis. Therefore, to the extent that currency fluctuations can
not be anticipated, a portion of distributions to shareholders could later be
designated as a return of capital, rather than income, for income tax purposes,
which may be of particular concern to simple trusts.
If more than 50% of the value of a Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns.
The Code may limit a shareholder's ability to claim a foreign tax credit.
Furthermore, shareholders who elect to deduct their portion of a Fund's foreign
taxes rather than take the foreign tax credit must itemize deductions on their
income tax returns.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws, including treatment of
distributions as income or return of capital.
PERFORMANCE INFORMATION
From time to time, the Funds may advertise their total returns and yields.
Total return represents the change, over a specified period of time, in the
value of an investment in a Fund after reinvesting all income and capital gains
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of a Fund is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the maximum offering price per share of the Fund on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
the Fund and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
From time to time, advertisements for a Fund may refer to ratings, rankings, and
other information in certain financial publications and/or compare the
performance of the Fund to certain indices.
<TABLE>
<CAPTION>
FTI GLOBAL BOND FUND
(A PORTFOLIO OF FTI FUNDS)
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 19, 1995
<S> <C> <C>
ASSETS:
Cash $ 100,000
LIABILITIES: ------
Net Assets for 10,000 Trust Shares of beneficial $ 100,000
interest outstanding
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION
PROCEEDS PER SHARE:
$100,000 10,000 shares of beneficial interest $ 10.00
outstanding
</TABLE>
NOTES:
(1) The Trust was established as a Massachusetts business trust
under a Declaration of Trust dated October 18, 1995, and has had
no operations since that date other than those relating to
organizational matters, including the issuance on December 18,
1995, of 10,000 shares at $10.00 per share to Federated Services
Co. Expenses of organization incurred by the Fund, estimated at
$44,655, were borne initially by Federated Administrative
Services, Administrator to the Fund. The Fund has agreed to
reimburse the Administrator for the organization expenses
initially borne by the Administrator during the five year period
following the date the Fund's registration statement first became
effective.
(2) Reference is made to "Management of FTI Funds" (on page 26),
"Administration of the Funds" (on page 29), and "Tax Information"
(on page 36) in this prospectus for a description of the
investment advisory fee, administrative and other services and
federal tax aspects of the Fund.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Trustees and Shareholders of
FTI Funds:
We have audited the accompanying statement of assets and liabilities of FTI
Global Bond Fund as of December 19, 1995. This statement of assets and
liabilities is the responsibility of the Fund's management. Our responsibility
is to express an opinion on this statement of assets and liabilities based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of assets and liabilities is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in these statement of assets and
liabilities. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
statement of assets and liabilities presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above
present fairly, in all material respects, the net assets of FTI Global Bond
Fund, as of December 19, 1995, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
December 19, 1995
ADDRESSES
FTI Funds
FTI Small Capitalization Equity Fund
FTI International Equity Fund
FTI International Bond Fund
FTI Global Bond Fund
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Distributor
Edgewood Services, Inc. Clearing Operations
P.O. Box 897
Pittsburgh, Pennsylvania 15230-0897
Investment Adviser
Fiduciary International, Inc.
Two World Trade Center
New York, New York 10048-0772
Custodian
Fiduciary Trust Company
Two World Trade Center
New York, New York 10048-0772
Transfer Agent, Dividend Disbursing Agent, and Portfolio Accounting
Services
Federated Services Company Federated
Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
FTI FUNDS
Prospectus
An Open-End, Management
Investment Company
FTI Small Capitalization Fund
FTI International Equity Fund
FTI International Bond Fund
FTI Global Bond Fund
Prospectus dated December , 1995
--
EDGEWOOD SERVICES, INC.
RE
Distributor
A subsidiary of FEDERATED INVESTORS
Federated Investors Tower Fiduciary International, Inc.
Pittsburgh, PA 15222-3779 Investment Adviser
CUSIP #s
FTI FUNDS
-
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Combined Statement of Additional Information relates to the
following four separate investment portfolios (individually referred to as
the "Fund," and collectively as the "Funds") of FTI Funds (the "Trust"):
-
o FTI Small Capitalization Equity Fund;
-
o FTI International Equity Fund;
-
o FTI International Bond Fund; and
-
o FTI Global Bond Fund.
-
This Combined Statement of Additional Information should be read with the
combined prospectus for the Funds dated December , 1995. This Statement
--
is not a prospectus itself. To receive a copy of the prospectus, write or
call the Trust.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated December , 1995
---
EDGEWOOD SERVICES, INC.
Distributor
A subsidiary of FEDERATED
INVESTORS
GENERAL INFORMATION ABOUT THE TRUST 1
INVESTMENT OBJECTIVES AND POLICIES OF THE
FUNDS 1
TYPES OF INVESTMENTS AND INVESTMENT
TECHNIQUES 1
REPURCHASE AGREEMENTS 1
REVERSE REPURCHASE AGREEMENTS 2
WHEN-ISSUED AND DELAYED DELIVERY
TRANSACTIONS 2
LENDING PORTFOLIO SECURITIES 3
RESTRICTED AND ILLIQUID SECURITIES 3
U.S. GOVERNMENT SECURITIES 4
BANK INSTRUMENTS 5
CONVERTIBLE SECURITIES 6
REAL ESTATE MORTGAGE INVESTMENT CONDUITS
("REMICS") 6
INVESTING IN NEW ISSUERS 7
FORWARD FOREIGN CURRENCY EXCHANGE
CONTRACTS 7
FOREIGN CURRENCY OPTIONS 8
SPECIAL RISKS ASSOCIATED WITH FOREIGN
CURRENCY OPTIONS 9
FUTURES CONTRACTS 10
OPTIONS ON FUTURES CONTRACTS 12
FOREIGN CURRENCY FUTURES TRANSACTIONS 13
SPECIAL RISKS ASSOCIATED WITH FOREIGN
CURRENCY FUTURES CONTRACTS AND RELATED
OPTIONS 13
OPTIONS ON SECURITIES 14
OVER-THE-COUNTER OPTIONS 16
OPTIONS ON SECURITIES INDICES 17
REGULATORY RESTRICTIONS 18
ADDITIONAL RISK CONSIDERATIONS 19
PORTFOLIO TURNOVER 20
INVESTMENT LIMITATIONS 21
FTI FUNDS MANAGEMENT 27
OFFICERS AND TRUSTEES 27
TRUST OWNERSHIP 32
TRUSTEES COMPENSATION 32
TRUSTEE LIABILITY 33
INVESTMENT ADVISORY SERVICES 34
ADVISER TO THE TRUST 34
ADVISORY FEES 34
ADMINISTRATIVE SERVICES 35
TRANSFER AGENT, DIVIDEND DISBURSING AGENT
AND PORTFOLIO RECORDKEEPER 35
CUSTODIAN 35
BROKERAGE TRANSACTIONS 35
PURCHASING SHARES 37
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
AGREEMENT 37
CONVERSION TO FEDERAL FUNDS 38
DETERMINING NET ASSET VALUE 38
DETERMINING MARKET VALUE OF SECURITIES 38
TRADING IN FOREIGN SECURITIES 39
REDEEMING SHARES 39
REDEMPTION IN KIND 40
MASSACHUSETTS PARTNERSHIP LAW 40
TAX STATUS 41
THE FUNDS' TAX STATUS 41
FOREIGN TAXES 41
SHAREHOLDERS' TAX STATUS 42
CAPITAL GAINS 42
TOTAL RETURN 42
YIELD 42
PERFORMANCE COMPARISONS 43
APPENDIX 47
GENERAL INFORMATION ABOUT THE TRUST
The Trust was established as a Massachusetts business trust, under a
Declaration of Trust dated October 198, 1995. As of the date of this Combined
-
Statement of Additional Information, the Trust consists of four separate
portfolios of securities (the "Funds"), which are as follows: FTI Small
-
Capitalization Equity Fund ("Small Capitalization Fund"), FTFTI International
----
Equity Fund ("International Equity Fund"), FTI International Bond Fund
-
("International Bond Fund"), and FTI Global Bond Fund ("Global Bond Fund").
-
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
The prospectus discusses the objective of each Fund and the policies it employs
to achieve those objectives. The following discussion supplements the
description of the Funds' investment objectives in the prospectus. The
investment objectives of the Funds cannot be changed without the approval of
shareholders. The investment policies described below may be changed by the
Board of Trustees (the "Trustees") without shareholder approval. Shareholders
will be notified before any material change in these policies becomes effective.
TYPES OF INVESTMENTS AND INVESTMENT TECHNIQUES
REPURCHASE AGREEMENTS
The Funds or their custodian will take possession of the securities subject to
repurchase agreements and these securities will be marked to market daily. In
the event that a defaulting seller filed for bankruptcy or became insolvent,
disposition of such securities by a Fund might be delayed pending court action.
The Funds believe that under the regular procedures normally in effect for
custody of a Fund's portfolio securities subject to repurchase agreements, a
court of competent jurisdiction would rule in favor of a Fund and allow
retention or disposition of such securities. The Funds will only enter into
repurchase agreements with banks and other recognized financial institutions,
such as broker/dealers, which are deemed by the investment adviser to be
creditworthy pursuant to guidelines established by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Funds may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement, a Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable a Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that a Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of a Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated on the Fund's records at the trade date. These assets are marked
to market daily and maintained until the transaction is settled.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Funds may engage in when-issued and delayed delivery transactions. These
transactions are made to secure what is considered to be an advantageous price
or yield for a Fund. No fees or other expenses, other than normal transaction
costs, are incurred. However, liquid assets of a Fund sufficient to make
payment for the securities to be purchased are segregated on the Fund's records
at the trade date. These assets are marked to market daily and are maintained
until the transaction has been settled. A Fund may dispose of a commitment
prior to settlement if the investment adviser deems it appropriate to do so. In
addition, a Fund may enter into transactions to sell its purchase commitments to
third parties at current market values and simultaneously acquire other
commitments to purchase similar securities at later dates. A Fund may realize
short-term profits or losses upon the sale of such commitments. As a matter of
policy, the Funds do not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more 20% of the
total value of their respective assets.
LENDING PORTFOLIO SECURITIES
A Fund may lend its portfolio securities to broker-dealers, banks, or other
institutional borrowers of securities. A Fund will only enter into loan
arrangements with broker-dealers, banks, or other institutions which the
investment adviser has determined are creditworthy under guidelines established
by the Trustees and will receive collateral equal to at least 100% of the value
of the securities loaned.
The collateral received when a Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the particular Fund. During the
time portfolio securities are on loan, the borrower pays a Fund any dividends or
interest paid on such securities. Loans are subject to termination at the
option of a Fund or the borrower. A Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker. A Fund does not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
RESTRICTED AND ILLIQUID SECURITIES
The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission (the "SEC")
Staff position set forth in the adopting release for Rule 144A under the
Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive, safe-harbor
for certain secondary market transactions involving securities subject to
restrictions on resale under federal securities laws. The Rule provides an
exemption from registration for resales of otherwise restricted securities to
qualified institutional buyers. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for resale under the
Rule. The Trust, on behalf of the Funds, believes that the Staff of the SEC has
left the question of determining the liquidity of all restricted securities
(eligible for resale under Rule 144A) for determination to the Trustees. The
Trustees consider the following criteria in determining the liquidity of certain
restricted securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace trades.
Notwithstanding the foregoing, securities of foreign issuers which are not
listed on a recognized domestic or foreign exchange or for which a bona fide
market does not exist at the time of purchase or subsequent transaction shall be
treated as illiquid securities by the Trustees.
When a Fund invests in certain restricted securities determined by the Trustees
to be liquid, such investments could have the effect of increasing the level of
Fund illiquidity to the extent that the buyers in the secondary market for such
securities (whether in Rule 144A resales or other exempt transactions) become,
for a time, uninterested in purchasing these securities.
U.S. GOVERNMENT SECURITIES
The types of U.S. Government securities in which Funds may invest generally
include direct obligations of the U.S. Treasury (such as U.S. Treasury bills,
notes, and bonds) and obligations issued or guaranteed by U.S. Government
agencies or instrumentalities. These securities are backed by:
o the full faith and credit of the U.S. Treasury;
o the issuer's right to borrow from the U.S. Treasury;
o the discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; or
o the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities whose obligations are permissible
investments but may not always receive financial support form the U.S.
Government are: Federal Land Banks; Central Bank for Cooperatives; Federal
Intermediate Credit Banks; Federal Home Loan Banks; Farmers Home Administration;
and Federal National Mortgage Association.
BANK INSTRUMENTS
The Funds may invest in the instruments of banks and savings and loans whose
deposits are insured by the Bank Insurance Fund, which is administered by the
Federal Deposit Insurance Corporation ("FDIC"), or the Savings Association
Insurance Fund, which is administered by the FDIC, such as certificates of
deposit, demand and time deposits, savings shares, and bankers' acceptances.
These instruments are not necessarily guaranteed by those organizations.
In addition, the Funds may invest in:
o Eurodollar Certificates of Deposits ("ECDs") issued by foreign branches of
U.S. or foreign banks;
o Eurodollar Time Deposits ("ETDs"), which are U.S. Dollar-denominated
deposits in foreign branches of U.S. or foreign banks;
o Canadian Time Deposits, which are U.S. Dollar-denominated deposits issued
by branches of major Canadian banks located in the United States; and
o Yankee Certificates of Deposit ("Yankee CDs"), which are U.S. Dollar-
denominated certificates of deposit issued by U.S. branches of foreign
banks and held in the United States.
CONVERTIBLE SECURITIES
The convertible bonds and convertible preferred stocks in which the Funds may
invest generally retain the investment characteristics of fixed income
securities until they have been converted but also react to movements in the
underlying equity securities. The prices of fixed income securities fluctuate
inversely to the direction of interest rates. The holder is entitled to receive
the fixed income of a bond or the dividend preference of a preferred stock until
the holder elects to exercise the conversion privilege. Usable bonds are
corporate bonds that can be used in whole or in part, customarily at full face
value, in lieu of cash to purchase the issuer's common stock.
Convertible securities are senior to equity securities, and therefore have a
claim to assets of the corporation prior to the holders of common stock in the
case of liquidation. However, convertible securities are generally subordinated
to similar nonconvertible securities of the same company. The interest income
and dividends from convertible bonds and preferred stocks provide a stable
stream of income with generally higher yields than common stocks, but lower than
nonconvertible securities of similar quality. The Funds will exchange or
convert the convertible securities held in their portfolios into shares of the
underlying common stocks when, in the Funds' investment adviser's opinion, the
investment characteristics of the underlying common shares will assist the Funds
in achieving their investment objectives. Otherwise, the Funds will hold or
trade the convertible securities.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("REMICS")
The International Bond and the Global Bond Funds may invest in REMICs. REMICs
are offerings of multiple class real estate mortgage-backed securities which
qualify and elect treatment as such under provisions of the Internal Revenue
Code. Issuers of REMICs may take several forms, such as trusts, partnerships,
corporations, associations, or a segregated pool of mortgages. Once REMIC
status is elected and obtained, the entity is not subject to federal income
taxation. Instead, income is passed through the entity and is taxed to the
person or persons who hold interest in the REMIC. A REMIC interest must consist
of one or more classes of "regular interests," some of which offer adjustable
rates, and a single class of "residual interests." To qualify as a REMIC,
substantially all of the assets of the entity must be in assets directly or
indirectly secured principally by real property.
INVESTING IN NEW ISSUERS
The Funds will not invest more than 5% of their total assets in securities of
issuers that have records of less than three years of continuous operations,
including the operation of any predecessor.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Each of the International Equity, the International Bond and the Global Bond
Funds may enter into forward foreign currency exchange contracts in order to
protect itself against a possible loss resulting from an adverse change in the
relationship between the U.S. Dollar and a foreign currency involved in an
underlying transaction. As an example of the Funds' ability to engage in
hedging strategies, a Fund may invest in securities denominated in a Western
European currency, such as the French Franc, and seek to hedge against the
effect of an increase in the value of the U.S. Dollar against that currency by
entering into a forward foreign currency exchange contract to sell the lower
yielding German Mark, which has historically had price movements that tend to
correlate closely with those of the French Franc, thereby creating a hedge
similar to the simple Dollar/Franc hedge, but at a possibly lower cost. In
addition, the Fund might arrange to sell those Marks against Canadian Dollars in
an effort to minimize hedging costs. It should be noted that forward foreign
currency exchange contracts may limit potential gains which could result from a
positive change in such currency relationships. The investment adviser believes
that it is important to have the flexibility to enter into forward foreign
currency exchange contracts whenever it determines that it is in a Fund's best
interest to do so. The Funds will not speculate in foreign currency exchange.
There is no limitation as to the percentage of a Fund's assets that may be
committed to such contracts. The International Equity, the International Bond
and the Global Bond Funds do not enter into forward foreign currency exchange
contracts or maintain a net exposure in such contracts when the Funds would be
obligated to deliver an amount of foreign currency in excess of the value of the
Funds' portfolio securities or other assets denominated in that currency or, in
the case of a 'cross-hedge,' denominated in a currency or currencies that the
investment adviser believes will tend to be closely correlated with that
currency with regard to price movements. Generally, a Fund does not enter into
a forward foreign currency exchange contract with a term longer than one year.
FOREIGN CURRENCY OPTIONS
A foreign currency option provides the option buyer with the right to buy or
sell a stated amount of foreign currency at the exercise price on a specified
date or during the option period. The owner of a call option has the right, but
not the obligation, to buy the currency. Conversely, the owner of a put option
has the right, but not the obligation, to sell the currency.
When the option is exercised, the seller (i.e., writer) of the option is
obligated to fulfill the terms of the sold option. However, either the seller
or the buyer may, in the secondary market, close its position during the option
period at any time prior to expiration.
A call option on foreign currency generally rises in value if the underlying
currency appreciates in value, and a put option on foreign currency generally
falls in value if the underlying currency depreciates in value.
Although purchasing a foreign currency option can protect a Fund against an
adverse movement in the value of a foreign currency, the option will not limit
the movement in the value of such currency. For example, if a Fund were holding
securities denominated in a foreign currency that was appreciating and had
purchased a foreign currency put to hedge against a decline in the value of the
currency, the Fund would not have to exercise its put option. Likewise, if the
Fund were to enter into a contract to purchase a security denominated in a
foreign currency and, in conjunction with that purchase, were to purchase a
foreign currency call option to hedge against a rise in value of the currency,
and if the value of the currency instead depreciated between the date of
purchase and the settlement date, the Fund would not have to exercise its call.
Instead, the Fund could acquire in the spot market the amount of foreign
currency needed for settlement.
SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY OPTIONS
Buyers and sellers of foreign currency options are subject to the same risks
that apply to options generally. In addition, there are certain additional
risks associated with foreign currency options. The markets in foreign currency
options are relatively new, and the Funds' ability to establish and close out
positions on such options is subject to the maintenance of a liquid secondary
market. Although the Funds will not purchase or write such options unless and
until, in the opinion of the investment adviser, the market for them has
developed sufficiently to ensure that the risks in connection with such options
are not greater than the risks in connection with the underlying currency, there
can be no assurance that a liquid secondary market will exist for a particular
option at any specific time.
In addition, options on foreign currencies are affected by all of those factors
that influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the underlying
currency relative to U.S. Dollars. As a result, the price of the option
position may vary with changes in the value of either or both currencies and may
have no relationship to the investment merits of a foreign security. Because
foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 millon) 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. Available quotation
information is generally representative of very large transactions in the
interbank market and thus may not reflect relatively smaller transactions (i.e.
less than $1 million) where rates may be less favorable. The interbank market
in foreign currencies is a global, around-the-clock market subject to
significant price and rate movements.
FUTURES CONTRACTS
The International Equity, the International Bond and the Global Bond Funds may
enter into contracts for the future delivery of a financial instrument, such as
an amount of foreign currency, a security, or the cash value of a securities
index during a specified future period at a specified price. In addition, the
Small Capitalization Fund may enter into contracts for the future delivery of
securities of small to mid-capitalization issuers. This investment technique is
designed primarily to hedge against anticipated future changes in foreign
exchange rates, interest rates or market conditions, all of which might
otherwise have an adverse effect upon the value of securities or other assets
which the Funds hold or intend to purchase. A "sale" of a futures contract
means the undertaking of a contractual obligation to deliver the underlying
foreign currency, security or cash value of a securities index called for by the
contract at a specified price during a specified delivery period. A "purchase"
of a futures contract means the undertaking of a contractual obligation to
acquire the underlying foreign currency, security or cash value of a securities
index at a specified price during a specified delivery period. At the time of
delivery, in the case of fixed income securities pursuant to the contract,
adjustments are made to recognize differences in value resulting from the
delivery of securities with a different interest rate than the rate specified in
the contract. In some cases, securities called for by a futures contract may
not have been issued at the time the contract was written.
Although some futures contracts by their terms call for the actual delivery or
acquisition of assets, in most cases a party will close out the contractual
commitment before delivery without having to make or take delivery of the
underlying assets by purchasing (or selling, as the case may be) on a
commodities exchange an identical futures contract calling for delivery in the
same month. Such a transaction, if effected through a member of an exchange,
cancels the obligation to make or take delivery of the underlying assets. All
transactions in the futures market are made, offset or fulfilled through a
clearing house associated with the exchange on which the contracts are traded.
Brokerage fees will be incurred by a Fund when it purchases or sells contracts,
and the Fund will be required to maintain margin deposits. At the time a Fund
enters into a futures contract, it is required to deposit with its custodian, on
behalf of the broker, a specified amount of cash or eligible securities, called
"initial margin." The initial margin required for a futures contract is set by
the exchange on which the contract is traded. Subsequent payments, which are
called "variation margin," to and from the broker are made on a daily basis as
the market price of the futures contract fluctuates. The costs incurred in
connection with futures transactions could reduce the Funds' returns.
Futures contracts entail risks. If the investment adviser's judgment about the
general direction of interest rates, markets or exchange rates is wrong, the
overall performance may be poorer than if no such contracts had been entered
into. An imperfect correlation may exist between movements in the prices of
futures contracts and portfolio assets being hedged. Further, the market prices
of futures contracts may be affected by certain factors. For example, the
normal relationship between the assets and futures markets could be distorted if
participants in the futures market were to elect to close out their contracts
through offsetting transactions rather than by meeting margin requirements.
Price distortions also could result if investors in futures contracts were to
decide to make or take delivery of underlying assets rather than engaging in
closing transactions because of the resultant liquidity of the futures market.
Further, increased participation by speculators in the futures market could
cause temporary price distortions because, as perceived by speculators, margin
requirements in the futures market are less onerous than margin requirements in
the cash market. Because of the possibility of price distortions in the futures
market and the imperfect correlation between movements in the prices of
securities or other assets and movements in the prices of futures contracts, a
correct forecast of market trends by the investment adviser still may not result
in a successful hedging transaction. If one of these events were to occur, a
Fund could lose money on the futures contracts as well as on its portfolio
assets.
OPTIONS ON FUTURES CONTRACTS
The Funds may engage in futures transactions and may use options in an attempt
to hedge against the effects of fluctuations in interest rates and other market
conditions. For example, if a Fund owned long-term bonds and interest rates
were expected to rise, it could sell futures contracts or the cash value of a
securities index. If interest rates did increase, the value of the bonds owned
by the Fund would decline, but this decline would be offset in whole or in part
by an increase in the value of the Fund's futures contracts or the cash value of
the securities index.
If, on the other hand, long-term interest rates were expected to decline, the
Fund could hold short-term debt securities and benefit from the income earned by
holding such securities, while at the same time the Fund could purchase futures
contracts on long-term bonds or the cash value of a securities index. Thus, the
Fund could take advantage of the anticipated rise in the value of long-term
bonds without actually buying them. The futures contracts and short-term debt
securities could then be liquidated and the cash proceeds used to buy long-term
bonds.
The Fund may also purchase and write call and put options on futures contracts.
An option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract at a specified price at
any time during the period of the option. When the option is exercised, the
writer of the option delivers the futures contract to the holder at the exercise
price. With regard to put and call options on futures contracts written by a
Fund, the Fund would be required to deposit initial and maintenance margin with
the custodian. Options on futures contracts involve risks similar to those
discussed above that relate to transactions in futures contracts. Furthermore,
an option on a futures contract purchased by a Fund may expire as worthless,
which would cause the Fund to lose the premium paid for the option.
FOREIGN CURRENCY FUTURES TRANSACTIONS
By using foreign currency futures contracts and options on such contracts, the
International Equity, the International Bond and the Global Bond Funds may be
able to achieve many of the same objectives as they would through the use of
forward foreign currency exchange contracts. The Funds may be able to achieve
these objectives possibly more effectively and at a lower cost by using futures
transactions instead of forward foreign currency exchange contracts.
SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED
OPTIONS
Buyers and sellers of foreign currency futures contracts are subject to the same
risks that apply to the use of futures generally. In addition, there are risks
associated with foreign currency futures contracts and their use as a hedging
device similar to those associated with options on foreign currencies, as
described above.
Options on foreign currency futures contracts may involve certain additional
risks. Trading options on foreign currency futures contracts is relatively new.
The ability to establish and close out positions on such options is subject to
the maintenance of a liquid secondary market. To reduce this risk, the
International Equity, the International Bond and the Global Bond Funds will not
purchase or write options on foreign currency futures contracts unless and
until, in the investment adviser's opinion, the market for such options has
developed sufficiently that the risks in connection with such options are not
greater than the risks in connection with transactions in the underlying foreign
currency futures contracts. Compared to the purchase or sale of foreign
currency futures contracts, the purchase of call or put options on futures
contracts involves less potential risk to a Fund because the maximum amount at
risk is the premium paid for the option (plus transaction costs). However,
there may be circumstances when the purchase of a call or put option on a
futures contract would result in a loss, such as when there is no movement in
the price of the underlying currency or futures contract.
OPTIONS ON SECURITIES
A Fund may write (sell) covered call options on securities if it owns securities
that are acceptable for escrow purposes. Additionally, a Fund may write secured
put options on securities. When writing a secured put option, a Fund will
invest an amount not less than the exercise price of the put option in eligible
securities, so long as the Fund is obligated as a writer of a put option. A
call option gives the purchaser the right to buy, and the writer the obligation
to sell, the underlying security at the exercise price during the option period.
A put option gives the purchaser the right to sell, and the writer the
obligation to buy, the underlying security at the exercise price during the
option period. The premium received for writing an option will reflect such
factors as the current market price of the underlying security, the relationship
of the exercise price to such market price, the option period, supply and
demand, and interest rates. The exercise price of an option may be below, equal
to or above the current market value of the underlying security at the time that
the option is written. The Funds may also write or purchase spread options. A
spread option is an option for which the exercise price may be a fixed dollar
spread or yield spread between the security underlying the option and another
security that a Fund does not own but uses as a benchmark.
The purchase of a put option by the owner of the related security protects the
purchaser against any decline in the related security's price below the exercise
price (less the amount paid for the option). The ability of a Fund to purchase
put options allows it to protect capital gains in an appreciated security
without actually requiring the Fund to sell the appreciated security. On
occasion, a Fund would like to establish a position in a security upon which
call options are available. The purchase of a call option enables the Fund to
fix the cost of acquiring the security, which would be the cost of the call plus
the exercise price of the option. In addition, this method of acquiring
securities provides some protection from an unexpected downturn in the market.
This is because the Fund is at risk only for the amount of the premium paid for
the call option, which it can allow to lapse, if it so chooses.
During the option period, the covered call writer gives up the potential for
capital appreciation above the exercise price if the underlying asset rises in
value, and the secured put writer retains the risk of loss if the underlying
asset declines in value. For the covered call writer, substantial appreciation
in the value of the underlying asset would result in the asset being "called
away." For the secured put writer, substantial depreciation in the value of the
underlying asset could result in the asset being "put to" the writer. If a
covered call option expired unexercised, the writer of the call would realize a
gain and the buyer would realize a loss in the amount of the premium. If the
covered call option writer had to sell the underlying asset because of the
exercise of the call option, it would realize a gain or loss from the sale of
the underlying asset, with the proceeds being increased by the amount of the
premium.
If a secured put option expired unexercised, the writer would realize a gain and
the buyer would realize a loss on the amount of the premium. If the secured put
writer would have to buy the underlying asset because of the exercise of the put
option, the writer would incur an unrealized loss to the extent that the current
market value of the underlying asset is less than the exercise price of the put
option, less the premium received.
OVER-THE-COUNTER OPTIONS
The Funds may deal in over-the-counter traded options ("OTC options") in
addition to exchange-traded options. OTC options differ from exchange-traded
options in several respects. First, they are transacted with dealers rather
than a clearing corporation. Second, a risk of nonperformance by the dealer
exists, whether as a result of the insolvency of the dealer or otherwise, which
could cause a Fund to experience material losses; however, in writing OTC
options, the premium is paid in advance by the dealer. Third, in contrast to
exchange-traded options, OTC options are available for a greater variety of
securities and wider range of expiration dates and exercise prices. Because
there is no exchange in the case of OTC options, pricing is normally done with
reference to information from market makers, which is carefully monitored by the
investment adviser and verified in appropriate cases.
A writer or purchaser of a put or call option can terminate it voluntarily only
by entering into a closing transaction. In the case of OTC options, there
cannot be any assurance that a continuous liquid secondary market will exist for
any particular option at any given time. As a result, a Fund may be able to
realize the value of an OTC option it has purchased only by exercising it or by
entering into a closing sale transaction with the dealer that issued it.
Likewise, in cases where a Fund writes an OTC option, it generally can close out
that option prior to its expiration only by entering into a closing purchase
transaction with the dealer to whom the Fund wrote the option. If a covered
call option writer is unable to effect a closing transaction, it cannot sell the
underlying asset until the option either expires or is exercised. Thus, a
covered call option writer of an OTC option may not be able to sell an
underlying asset even though it might otherwise be advantageous to do so.
Moreover, a secured put writer of an OTC option may be unable to sell the assets
pledged to secure the put for other investment purposes so long as it is
obligated as a put writer, and a purchaser of the put or call option might also
find it difficult to terminate its position on a timely basis when no secondary
market exists.
OPTIONS ON SECURITIES INDICES
The International Equity, the International Bond and the Global Bond Funds also
may purchase and write call and put options on securities indices in order to
hedge against market conditions which affect the values of securities that the
Funds own or intend to purchase. The Funds will not purchase and write such
options for speculation. By writing and purchasing index options, a Fund may be
able to achieve many of the same objectives as through the purchasing and
writing of options on individual securities. Options on securities indices are
similar to options on individual securities. However, unlike an option on an
individual security, which gives the right to take or make delivery of a
security at a specified price, an option on a securities index gives the holder
upon exercise the right to receive an amount of cash if the closing level of the
securities index upon which the option is based exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option. Upon
exercise of the option, the amount of cash received by the holder is equal to
the difference between the closing price of the index and the exercise price of
the option. In consideration for the premium received, the writer of the option
has an obligation to make delivery of the amount of cash resulting from the
exercise of the option. Unlike options on individual securities, all
settlements are in cash, and the gain or loss depends upon price movements in
the market generally or in a segment of the market, rather than upon price
movements in individual securities.
The Funds cover call options written on a securities index through the ownership
of securities whose changes in price, in the opinion of the investment adviser,
are anticipated to be similar to the price changes of the index, or in such
other manner or may be in conformance with applicable laws, regulations and
exchange rules. Any changes in the prices of the securities owned by a Fund
probably will not be perfectly correlated with the securities index. A Fund
will secure put options written on a securities index by means of segregating
liquid high-grade securities equal to the exercise price, or in such other
manner as may be in conformance with applicable laws, regulations and exchange
rules. Upon writing an option on a securities index, a Fund will be required to
deposit with its custodian and mark-to-market eligible securities that are equal
in value to at least 100% of the exercise price in the case of a put or, in the
case of a call, the value of the contract. Additionally, if a Fund writes a
call option on a securities index at a time when the value of the contract is
greater than the exercise price, the Fund will segregate and mark-to-market,
until such time as the option expires or is closed out, cash or a cash
equivalent equal in value to the excess of the contract value.
In addition, a Fund may purchase and write options on other appropriate indices,
as available (e.g., foreign currency indices).
Index options involve risks similar to those associated with transactions in
futures contracts, as described above. Also, an option purchased by a Fund may
expire as worthless. In such case, the Fund could lose the premium paid for the
option.
REGULATORY RESTRICTIONS
To the extent required to comply with SEC Release No. 10666, when purchasing a
futures contract, writing a put option or entering into a delayed delivery
purchase or forward foreign currency exchange purchase, the Funds will establish
and maintain a segregated account consisting of cash or liquid high-grade
securities equal to the value of such contracts.
To the extent required to comply with federal or state regulations, and thereby
avoid status as a "commodity pool operator," the Funds will not enter into a
futures contract, or purchase an option thereon, if immediately thereafter the
initial margin deposits for futures contracts held by a Fund, plus premiums paid
by it for open options of futures, would exceed 5% of the total assets of the
Fund. The Funds will not engage in transactions in futures contracts or options
thereon for speculation, but only to attempt to hedge against changes in market
conditions affecting the values of assets which a Fund holds or intends to
purchase. When futures contracts or options thereon are purchased in order to
protect against a price increase on securities or other assets intended to be
purchased later, it is anticipated that at least 75% of such intended purchases
will be completed. When other futures contracts or options thereon are
purchased, the underlying value of such contracts will at all times not exceed
the sum of (1) accrued profit on such contracts held by the broker; (2) cash or
high-quality money market instruments set aside in an identifiable manner; and
(3) cash proceeds from investments due in 30 days or less.
ADDITIONAL RISK CONSIDERATIONS
In the case of the International Equity, the International Bond and the Global
Bond Funds, the Trustees consider at least annually the likelihood of the
imposition by any foreign government of exchange control restrictions which
would affect the liquidity of a Fund's assets maintained with custodians in
foreign countries, as well as the degree of risk from political acts of foreign
governments to which such assets may be exposed. The Trustees also consider the
degree of risk involved through the holding of portfolio securities in domestic
and foreign securities depositories. However, in the absence of willful
misfeasance, bad faith or gross negligence on the part of the investment
adviser, any losses resulting from the holding of the Funds' portfolio
securities in foreign countries and/or with securities depositories will be at
the risk of shareholders. No assurance can be given that the Trustees'
appraisal of the risks will always be correct or that such exchange control
restrictions or political acts of foreign governments might not occur.
DURATION
With reference to the International Bond and Global Bond Funds, duration is a
measure of a debt security's price sensitivity expressed in years and is a
measure of the interest rate risk of a debt security, taking into consideration
that there may be cash flows before the maturity date and that the cash flows
must be considered in terms of their present value. Duration is similar to, but
more precise than, average life. It is a measure of the number of years until
the average dollar--in present value terms--is received from coupon and
principal payments. As such, it is one measure of systematic risk. Average
life, on the other hand, is a measure of the time to receive a dollar of
principal--it takes into consideration neither interest payments nor present
value. Duration is computed by multiplying each principal and interest payment
by its present value, summing these products, and dividing the sum by the full
price of the debt security. A more complete description of this calculation is
available upon request from the Trust.
PORTFOLIO TURNOVER
Although the Funds do not intend to invest for the purpose of seeking short-term
profits, securities in their portfolios will be sold whenever the investment
adviser believes it is appropriate to do so in light of the Funds' investment
objectives, without regard to the length of time a particular security may have
been held.
INVESTMENT LIMITATIONS
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Funds will not issue senior securities, except that a Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amount borrowed;
and except to the extent that a Fund may enter into futures contracts. The
Funds will not borrow money or engage in reverse repurchase agreements for
investment leverage, but rather as a temporary, extraordinary, or emergency
measure or to facilitate management of the portfolio by enabling a Fund to
meet redemption requests when the liquidation of portfolio securities is
deemed to be inconvenient or disadvantageous. A Fund will not purchase any
securities while any borrowings in excess of 5% of its total assets are
outstanding. During the period any reverse repurchase agreements are
outstanding, a Fund will restrict the purchase of portfolio securities to
money market instruments maturing on or before the expiration date of the
reverse repurchase agreements, but only to the extent necessary to assure
completion of the reverse repurchase agreements.
SELLING SHORT AND BUYING ON MARGIN
The Funds will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as are necessary for
clearance of purchases and sale of securities. The deposit or payment by
the Funds of initial or variation margin in connection with futures
contracts or related options transactions is not considered the purchase of
a security on margin.
PLEDGING ASSETS
The Funds will not mortgage, pledge, or hypothecate any assets, except to
secure permitted borrowings. In these cases, the Funds may pledge assets
having a value of 15% of assets taken at cost. For purposes of this
restriction, (a) the deposit of assets in escrow in connection with the
writing of covered put or call options and the purchase of securities on a
when-issued basis, and (b) collateral arrangements with respect to (i) the
purchase and sale of stock options and (ii) initial or variation margin for
futures contracts, will not be deemed to be pledges of a Fund's assets.
Margin deposits for the purchase and sale of futures contracts and related
options are not deemed to be a pledge.
LENDING CASH OR SECURITIES
The Funds will not lend any of their respective assets except portfolio
securities up to one-third of the value of total assets. This shall not
prevent a Fund from purchasing or holding U.S. government obligations,
money market instruments, bonds, debentures, notes, certificates of
indebtedness, or other debt securities, entering into repurchase
agreements, or engaging in other transactions where permitted by a Fund's
investment objective, policies, and limitations, or the Trust's Declaration
of Trust.
INVESTING IN RESTRICTED SECURITIES
The Funds will not invest more than 15% of their respective net assets in
securities subject to restrictions on resale under the Securities Act of
1933, except for commercial paper issued under Section 4(2) of the
Securities Act of 1933 and certain other restricted securities which meet
the criteria for liquidity as established by the Trustees.
INVESTING IN COMMODITIES
None of the Funds will invest in commodities, except to the extent that the
Funds may engage in transactions involving futures contracts or options on
futures contracts.
INVESTING IN REAL ESTATE
None of the Funds will purchase or sell real estate, including limited
partnership interests, although the Funds may invest in securities of
issuers whose business involves the purchase or sale of real estate or in
securities which are secured by real estate or interests in real estate.
DIVERSIFICATION OF INVESTMENTS
With respect to 75% of the value of its total assets, each Fund will not
purchase securities issued by any other issuer (other than cash, cash items
or securities issued or guaranteed by the government of the United States
or its agencies or instrumentalities and repurchase agreements
collateralized by such securities), if, as a result, more than 5% of the
value of its total assets would be invested in the securities of that
issuer. No Fund will acquire more than 10% of the outstanding voting
securities of any one issuer.
CONCENTRATION OF INVESTMENTS
No Fund will invest 25% or more of the value of its respective total assets
in any one industry (other than securities issued by the U.S. government,
its agencies, or instrumentalities or repurchase agreements collateralized
by these securities).
UNDERWRITING
A Fund will not underwrite any issue of securities, except as a Fund may be
deemed to be an underwriter under the Securities Act of 1933 in connection
with the sale of securities in accordance with its investment objective,
policies, and limitations.
The above investment limitations cannot be changed with respect to a Fund
without the approval of the holders of a majority of that Fund's shares. The
following limitations may be changed by the Trustees without shareholder
approval. Shareholders will be notified before any material change in these
limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Funds will not invest more than 15% of the value of their respective
net assets in illiquid securities, including: repurchase agreements
providing for settlement more than seven days after notice; over-the-
counter options; and certain restricted securities not determined by the
Trustees to be liquid.
INVESTING IN RESTRICTED SECURITIES
----------------------------------
The Funds will not invest more than 10% of their respective net assets in
-------------------------------------------------------------------------
securities subject to restrictions on resale under the Securities Act of
------------------------------------------------------------------------
1933, except for commercial paper issued under Section 4(2) of the
------------------------------------------------------------------
Securities Act of 1933 and certain other restricted securities which meet
-------------------------------------------------------------------------
the criteria for liquidity as established by the Trustees.
----------------------------------------------------------
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Funds will limit their respective investment in other investment
companies to no more than 3% of the total outstanding voting stock of any
investment company, invest no more than 5% of their total assets in any one
investment company, or invest more than 10% of their total assets in
investment companies in general. The Funds will purchase securities of
closed-end investment companies only in open market transactions involving
only customary broker's commissions. However, these limitations are not
applicable if the securities are acquired in a merger, consolidation,
reorganization, or acquisition of assets.
INVESTING IN NEW ISSUERS
A Fund will not invest more than 5% of the value of its total assets in
securities of issuers which have records of less than three years of
continuous operations, including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
A Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or the Funds' investment adviser, owning
individually more than 1/2 of 1% of the issuer's securities, together own
more than 5% of the issuer's securities.
INVESTING IN MINERALS
A Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, except it may purchase the
securities of issuers which invest in or sponsor such programs.
ARBITRAGE TRANSACTIONS
A Fund will not enter into transactions for the purpose of engaging in
arbitrage.
INVESTING IN PUTS AND CALLS
The Funds may not write or purchase options, except that a Fund may write
covered call options and secured put options on up to 25% of its net assets
and may purchase put and call options, provided that no more than 5% of a
Fund's net assets may be invested in premiums on such options.
PURCHASING SECURITIES TO EXERCISE CONTROL
A Fund will not purchase securities of a company for the purpose of
exercising control or management.
INVESTING IN WARRANTS
The Funds will not invest in warrants, except that the Funds may invest not
more than 5% of their respective net assets in warrants, including those
acquired in units or attached to other securities. To comply with certain
state restrictions, the Funds will limit their investment in such warrants
not listed on the New York or American Stock Exchanges to 2% of their
respective net assets. warrants. No more than 2% of a Fund's net assets, to
----------------------------------------------------
be included within the overall 5% limit on investments in warrants, may be
--------------------------------------------------------------------------
warrants which are not listed on the New York Stock Exchange or the
-------------------------------------------------------------------
American Stock Exchange. (If state restrictions change, this latter
------------------------
restriction may be revised without notice to shareholders.) For purposes
of this investment restriction, warrants will be valued at the lower of
cost or market, except that warrants acquired by the Funds in units with or
attached to securities may be deemed to be without value.
Except with respect to the Funds' policy of borrowing money, if a percentage
limitation is adhered to at the time of investment, a later increase or decrease
in percentage resulting from any change in value or net assets will not result
in a violation of such restriction.
The Funds have no present intention to borrow money or pledge securities in
excess of 5% of the value of their respective net assets.
To comply with registration requirements in certain states, each Fund (1) will
limit the aggregate value of the assets underlying covered call options or put
options written by the Fund to not more than 25% of its net assets, (2) will
limit the premiums paid for options purchased by the Fund to 5% of its net
assets, and (3) will limit the margin deposits on futures contracts entered into
by the Fund to 5% of its net assets. (If state requirements change, these
restrictions may be revised without shareholder notification.)
For purposes of its policies and limitations, the Funds consider certificates
of deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings and loanssociations having capital, surplus, and undivided
-----------
profits in excess of $100,000,000 at the time of investment to be "cash items."
FTI FUNDS MANAGEMENT
-
OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, principal occupations
over the past five years and their present positions, including any with FT
Funds, including any affiliation with Fiduciary International, Inc., Federated
Investors, Federated Administrative Services, Edgewood Services, Inc., Federated
Services Company, and their various birthdates, present positions with FTI Funds
--------------------------------------------
and principal occupations.
- ---------------------------
AFFILIATES AND SUBSIDIARIES.
Edward C. Gonzales *
- --------------------
Federated Investors Tower
- -------------------------
Pittsburgh, Pennsylvania
- ------------------------
Birthdate: October 22, 1930
- ----------------------------
President, Treasurer, and Trustee
- ---------------------------------
Vice President, Treasurer, and Trustee, Federated Investors; Vice President,
- ----------------------------------------------------------------------------
Federated Advisers, Federated Management, Federated Research, Federated Research
- --------------------------------------------------------------------------------
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
- -----------------------------------------------------------------------------
Vice President and Director, Federated Securities Corp.; Trustee, Federated
- ----------------------------------------------------------------------------
Services Company; Chairman, Treasurer, and Trustee, Federated Administrative
- ----------------------------------------------------------------------------
Services; Trustee or Director of certain investment companies distributed,
- --------------------------------------------------------------------------
organized, or advised by Federated Investors and its affiliates (Federated
- --------------------------------------------------------------------------
Funds); Executive Vice President, President, or Trustee of the Federated Funds.
- -------------------------------------------------------------------------------
Peter A. Aron
- -------------
20 Pond Road
- ------------
Kings Point, NY 11024
- ---------------------
Birthdate: May 26, 1946
- ----------------- ------
Trustee
- -------
Vice President, Lafayette Enterprises, Inc. (privately owned Investment Advisory
- --------------------------------------------------------------------------------
Company); President, J. Aron Charitable Foundation, Inc.
- --------------------------------------------------------
Nancy L. Close
- --------------
12 Pheasant Run
- ---------------
73 Weaver Street
- ----------------
Greenwich, CT 06831
- -------------------
Birthdate: December 2, 1946
- ----------------------------
Trustee
- -------
Trustee, Asset Manager, and Treasurer of The Esther M. Mertz Trust.
- -------------------------------------------------------------------
James C. Goodfellow *
- ---------------------
Upper Clubhouse Road
- --------------------
Tuxedo, NY 10987
- ----------------
Birthdate: April 6, 1945
- -------------------------
Trustee
- -------
Executive Vice President, Fiduciary Trust Company International, Managing
- -------------------------------------------------------------------------
Director - J.P. Morgan and Co.
- ------------------------------
Burton J. Greenwald
- -------------------
2009 Spruce Street
- ------------------
Philadelphia, PA 19103
- ----------------------
Birthdate: December 6, 1929
- ----------------------------
Trustee
- -------
Managing Director, B. J. Greenwald Associates, Management Consultants to the
- ----------------------------------------------------------------------------
Financial Services Industry.
- ----------------------------
Joseph S. Machi
- ---------------
Federated Investors Tower
- -------------------------
Pittsburgh, Pennsylvania
- ------------------------
Birthdate: May 22, 1962
- ------------------------
Vice President and Assistant Treasurer
- --------------------------------------
Vice President, Federated Administrative Services; Vice President and Assistant
- -------------------------------------------------------------------------------
Treasurer of some of the Federated Funds.
- -----------------------------------------
Jay S. Neuman
- -------------
Federated Investors Tower
- -------------------------
Pittsburgh, Pennsylvania
- ------------------------
Birthdate: April 22, 1950
- --------------------------
Secretary
- ---------
Corporate Counsel, Federated Investors; prior to January 1991, Associate
- ------------------------------------------------------------------------
Counsel, The Boston Company Advisors, Inc.
- ------------------------------------------
* This Trustee is deemed to be an "interested person" as defined in the
- -----------------------------------------------------------------------
Investment Company Act of 1940.
-------------------------------
TRUST OWNERSHIP
- ---------------
Officers and Trustees own less than 1% of the outstanding shares of each Fund.
- ------------------------------------------------------------------------------
TRUSTEES COMPENSATION
- ---------------------
AGGREGATE
- ----------------------------------------
NAME , COMPENSATION
- ---------------------------------------------
POSITION WITH FROM
- ----------------------------------------
THE TRUST THE TRUST*#
- ---------------------------------------------
Edward C. Gonzales
- ------------------
President, Treasurer,
- ---------------------
and Trustee $ 0
========================================
Peter A. Aron
- -------------
Trustee $ 9,000
=================================== -----
Nancy L. Close
- --------------
Trustee $ 9,000
=================================== -----
James C. Goodfellow
- -------------------
Trustee $ 0
=================================== ----
Burton J. Greenwald
- -------------------
Trustee $ 9,000
- ----------------------------------- -----
*Information is estimated for the period from December 20, 1995, the date of the
- -------------------------------------------------------- -------- ------------
organizational meeting of the Board of Trustees of the Trust, to November 30,
----------------------
1996. The Trust is the only investment company in the Fund complex.
- --------------------------------------------------------------------
#The aggregate compensation is provided for the Trust which is comprised of four
- --------------------------------------------------------------------------------
portfolios.
- ------------
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE TRUST
The Trust's investment adviser is Fiduciary International, Inc. (the "Adviser"
or "Fiduciary"). Fiduciary is a New York corporation, and is a registered
investment adviser under the Investment Advisers Act of 1940. The Adviser shall
not be liable to the Trust, a Fund, or any shareholder of any of the Funds for
any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Fiduciary receives an annual investment advisory fee
as described in the prospectus.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If a Fund's normal operating expenses
(including the investment advisory fee, but not including brokerage
commissions, interest, taxes, and extraordinary expenses) exceed 2-1/2% per
year of the first $30 million of average net assets, 2% per year of the
next $70 million of average net assets, and 1-1/2% per year of the
remaining average net assets, the Adviser will reimburse a Fund for its
expenses over the limitation.
If a Fund's monthly projected operating expenses exceed this limitation,
the investment advisory fee paid will be reduced by the amount of the
excess, subject to an annual adjustment. If the expense limitation is
exceeded, the amount to be reimbursed by the Adviser will be limited, in
any single fiscal year, by the amount of the investment advisory fee.
This arrangement is not part of the investment advisory contract and may be
amended or rescinded in the future.
ADMINISTRATIVE SERVICES
Federated Administrative Services, which is a subsidiary of Federated Investors,
provides administrative personnel and services to the Funds for a fee as
described in the prospectus.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND PORTFOLIO RECORDKEEPER
Federated Services Company ("FServ") serves as transfer agent and dividend
disbursing agent for the Funds. The FServ fee is based on the size, number of
accounts and transactions made by the Funds' shareholders.
FServ also maintains the Funds' accounting records. The FServ fee paid for this
service is based upon the level of the Funds' average net assets for the period,
plus out-of-pocket expenses.
CUSTODIAN
For its services as custodian, Fiduciary Trust Company International (the
"Custodian") receives an annual fee, payable monthly, based upon the Funds'
average aggregate daily net assets, plus transaction charges. The Custodian is
reimbursed for out-of-pocket expenses.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments for the Funds, the Adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the Adviser will generally use
those who are recognized dealers in specific portfolio instruments, except when
a better price and execution of the order can be obtained elsewhere. The
Adviser makes decisions on portfolio transactions and selects brokers and
dealers subject to guidelines established by the Trustees. The Adviser may
select brokers and dealers who offer brokerage and research services. These
services may be furnished directly to the Funds or to the Adviser, and may
include:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the Adviser or its
affiliates in advising certain other accounts. To the extent that receipt of
these services may supplant services for which the Adviser might otherwise have
paid, it would tend to reduce its expenses.
Investment decisions for the Funds will be made independently from those of any
fiduciary or other accounts that may be managed by the Adviser or its
subsidiaries. If, however, such accounts and the Funds are simultaneously
engaged in transactions involving the same securities, the transactions may be
combined and allocated to each account. This system may adversely affect the
price the Funds pay or receive, or the size of the positions they obtain.
The Adviser may engage in other non-U.S. transactions that may have adverse
effects on the market for securities in the Funds' portfolios. The Adviser is
not obligated to obtain any material non-public ("inside") information about any
securities issuer, or to base purchase or sale recommendations on such
information.
PURCHASING SHARES
Shares of the Funds are sold at their net asset value on days on which the New
York Stock Exchange and the Federal Reserve Wire are open for business. The
procedure for purchasing shares of the Funds is explained in the prospectus
under 'Investing in the Funds.'
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES PLANSAGREEMENT
----- ---------
As explained in the prospectus, the Funds have adopted a Shareholder Services
PlanAgreement and Distribution Plan pursuant to Rule 12b-1 of the Investment
---------
Company Act of 1940 (the "1940 Act"). These arrangements permit the payment of
fees to financial institutions, Edgewood Services, Inc., the Trust's
distributor, and Federated Shareholder ServicesII to stimulate distribution
--
activities and to cause services to be provided to shareholders by a
representative who has knowledge of the shareholders' particular circumstances
and goals. These activities may include, but are not limited to: marketing
efforts; providing office space, equipment, telephone facilities, and various
clerical, supervisory, computer, and other personnel as necessary or beneficial
to establish and maintain shareholder accounts and records; processing purchase
and redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses.
By adopting the Distribution Plan, the Trustees expect that the Funds will be
able to achieve a more predictable flow of cash for investment purposes and to
meet redemptions. This will facilitate more efficient portfolio management and
assist the Funds in pursuing their investment objectives. By identifying
potential investors whose needs are served by the Funds' objectives, and
properly servicing these accounts, it may be possible to curb sharp fluctuations
in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative activity; (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.
CONVERSION TO FEDERAL FUNDS
It is the Funds' policy to be as fully invested as possible so that maximum
income may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds before shareholders begin to
earn dividends. Fiduciary acts as the shareholder's agent in depositing checks
and converting them to federal funds.
DETERMINING NET ASSET VALUE
The net asset values of the Funds generally change each day. The days on which
net asset value is calculated by the Funds are described in the prospectus.
DETERMINING MARKET VALUE OF SECURITIES
The market or appraised values of the Funds' portfolio securities are
determined as follows:
o for equity securities, according to the last sale price on a national
securities exchange, if available;
o in the absence of recorded sales for listed equity securities, according to
the mean between the last closing bid and asked prices;
o for unlisted equity securities, the latest bid prices;
o for bonds and other fixed income securities, as determined by an
independent pricing service;
o for short-term obligations, according to the mean between the bid and asked
prices as furnished by an independent pricing service or for short-term
obligations with remaining maturities of 60 days or less at the time of
purchase, at amortized cost; or
o for all other securities, at fair value as determined in good faith by the
Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect: institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data.
The Funds will value futures contracts, options and put options on futures at
their market values established by the exchanges at the close of option trading
on such exchanges, unless the Trustees determine in good faith that another
method of valuing option positions is necessary to appraise fair value.
TRADING IN FOREIGN SECURITIES
Trading in foreign cities may be completed at times which vary from the
closing of the New York Stock Exchange. In computing the net asset values, the
Funds value foreign securities at the latest closing price on the exchange on
which they are traded immediately prior to the closing of the New York Stock
Exchange. Foreign securities quoted in foreign currencies are translated into
U.S. Dollars at the foreign exchange rate in effect at noon, Eastern time, on
the day the value of the foreign security is determined.
Occasionally, events that affect values and exchange rates may occur between the
times at which they are determined and the closing of the New York Stock
Exchange. If such events materially affect the value of portfolio securities,
these securities may be valued at their fair value as determined in good faith
by the Trustees, although the actual calculation may be done by others.
REDEEMING SHARES
Each Fund redeems shares at the next computed net asset value after Fiduciary
receives the redemption request. Redemption procedures are explained in the
prospectus under 'Redeeming Shares.'
Since portfolio securities of the Funds may be traded on foreign exchanges which
trade on Saturdays or on holidays on which the Funds will not make redemptions,
the net asset values of the Funds may be significantly affected on days when
shareholders do not have an opportunity to redeem their shares.
REDEMPTION IN KIND
Although the Trust intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price, in whole or in part, by a
distribution of securities from a Fund's portfolio. The Trust has elected to be
governed by Rule 18f-1 of the 1940 Act, under which the Trust is obligated to
redeem shares for any one shareholder in cash only up to the lesser of $250,000
or 1% of a Fund's net asset value during any 90-day period. Any redemption
beyond this amount will also be in cash unless the Trustees determine that
further cash payments will have a materially adverse effect on remaining
shareholders. In such a case, the Fund will pay all or a portion of the
remainder of the redemption in portfolio instruments, valued in the same way as
the Fund determines net asset value. The portfolio instruments will be selected
in a manner that the Trustees deem fair and equitable.
Redemption in kind will be made in conformity with applicable SEC rules, taking
such securities at the same value employed in determining net asset value and
selecting the securities in a manner the Trustees determine to be fair and
equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of shareholders for such acts or
obligations of the Trust. These documents require notice of this disclaimer to
be given in each agreement, obligation, or instrument the Trust or its Trustees
enter into or sign.
In the unlikely event a shareholder is held personally liable for obligations of
the Trust, the Trust is required to use its property to protect or to compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder (above and
beyond the loss of Trust property) will occur only if the Trust cannot meet its
obligations to indemnify shareholders and to pay judgments against them from its
assets.
TAX STATUS
THE FUNDS' TAX STATUS
The Funds will pay no federal income tax because they expect to meet the
requirements of Subchapter M of the Internal Revenue Code of 1986, as amended,
applicable to regulated investment companies and to receive the special tax
treatment afforded to such companies. To qualify for this treatment, each Fund
must, among other requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
FOREIGN TAXES
Investment income on certain foreign securities in which the Funds may invest
may be subject to foreign withholding or other taxes that could reduce the
return on these securities. Tax treaties between the United States and foreign
countries, however, may reduce or eliminate the amount of foreign taxes to which
the Funds would be subject.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional shares. The Funds' dividends, and any short-term
capital gains, are taxable as ordinary income.
CAPITAL GAINS
Shareholders will pay federal tax at capital gains rates on long-term capital
gains distributed to them regardless of how long they have held shares in the
Funds.
TOTAL RETURN
The Funds' average annual total return is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the offering pricnet asset value per share at the end of the period. The number
--------------
of shares owned at the end of the period is based on the number of shares
purchased at the beginning of the period with $1,000, less any applicable sales
load, adjusted over the period by any additional shares, assuming the
reinvestment, as applicable, of all dividends and distributions.
Cumulative total return reflects total performance over a specific period of
time.
YIELD
The yield for the Funds is determined by dividing the net investment income per
share (as defined by the SEC) earned by a Fund over a thirty-day period by the
maximum offering price per share on the last day of the period. This value is
then annualized using semi-annual compounding. This means that the amount of
income generated during the thirty-day period is assumed to be generated each
month over a 12-month period and is reinvested every six months. The yield does
not necessarily reflect income actually earned by the Fund because of certain
adjustments required by the SEC and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in a Fund,
the performance will be reduced for those shareholders paying those fees.
PERFORMANCE COMPARISONS
The performance of each Fund depends upon such variables as:
o portfolio quality;
o average portfolio maturity,;
-
o type of instruments in which the portfolio is invested;
o changes in interest rates on money market instruments;
o changes in each Fund's expenses; and
o various other factors.
Investors may use financial publications and/or indices to obtain a more
complete view of the Funds' performance. When comparing performance, investors
should consider all relevant factors, such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Funds use in advertising may include:
SMALL CAPITALIZATION FUND:
oLIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all capital gains distributions and income
dividends and takes into account any change in offering price over a
specific period of time. From time to time, the Fund will quote its
Lipper ranking in advertising and sales literature.
oMORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.
oRUSSELL 2000 INDEX is a broadly diversified index consisting of
approximately 2,000 small capitalization common stocks that can be used
to compare to the total returns of funds whose portfolios are invested
primarily in small capitalization stocks.
oDOW JONES INDUSTRIAL AVERAGE ("DJIA") is an unmanaged index representing
share prices of major industrial corporations, public utilities, and
transportation companies. Produced by the Dow Jones & Company, it is
cited as a principal indicator of market conditions.
oSTANDARD & POOR'S MIDCAP 400 INDEX is a diversified index consisting of
400 domestic stocks chosen for market size (median market capitalization
of about $993 million, as of February 1995), liquidity, and industry
group representation. It is a market-weighted index with each stock
affecting the index in proportion to its market value.
oSTANDARD & POOR'S SMALLCAP 600 INDEX is an index consisting of 600
domestic stocks chosen for market size (median market capitalization of
$264 million, as of February 1995), liquidity, and industry group
representation. It is a market-weighted index, with each stock affecting
the index in proportion to its market value.
oSTANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX covers 500 industrial,
utility, transportation, and financial companies in the United States
market (mostly New York Stock Exchange ("NYSE") issues). The index
represents about 75% of NYSE market capitalization and 30% of all NYSE
issues. It is a capitalization-weighted index calculated on a total
return basis with dividends reinvested.
oRUSSELL MIDCAPTM INDEX consists of the smallest 800 securities in the
Russell 1000 Index, as ranked by total market capitalization. This index
captures the medium-sized universe of securities and represents
approximately 35% of the Russell 1000 total market capitalization.
INTERNATIONAL EQUITY FUND:
oMORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALIA, AND FAR EAST
INDEX (EAFE) is a market capitalization-weighted foreign securities
index, which is widely used to measure the performance of European,
Australian and New Zealand and Far Eastern stock markets. The index
covers approximately 1,020 companies drawn from 18 countries in the above
regions. The index values its securities daily in both U.S. Dollars and
local currency, and calculates total returns monthly. EAFE U.S. Dollar
total return is a net dividend figure less Luxembourg withholding tax.
The EAFE is monitored by Capital International, S.A., Geneva,
Switzerland.
oLIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all capital gains distributions and income
dividends and takes into account any change in net asset value over a
specific period of time. From time to time, the Fund will quote its
Lipper rating in advertising and sales literature.
oFT-ACTUARIES EUROPE & PACIFIC INDEX is a subindex based on the FT-
Actuaries World Index, excluding Canada, Mexico, South Africa and the
United States. The subindex contains approximately 1,600 securities in
20 countries.
GLOBAL BOND:
OLIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all capital gains distributions and income
dividends and takes into account any change in net asset value over a
specific period of time. From time to time, the Fund will quote its
Lipper rating in advertising and sales literature.
OSALOMON BROTHERS WORLD GOVERNMENT BOND INDEX is a market capitalization-
weighted index consisting of government bond markets of the following
countries: Australia, Austria, Belgium, Canada, Denmark, France,
Germany, Italy, Japan, The Netherlands, Spain, Sweden, the United Kingdom
and the United States (collectively, the "WGBI Countries").
oJ.P. MORGAN GLOBAL GOVERNMENT BOND INDEX is a market capitalization-
weighted index consisting of the government bond markets of the following
countries: Australia, Belgium, Canada, Denmark, France, Germany, Italy,
Japan, The Netherlands, Spain, Sweden, the United Kingdom and United
States (collectively the "JPMGGB Countries"). Issue and country
eligibility are based on market capitalization and investability
criteria. All issues have a remaining maturity of at least one year, and
the index is rebalanced monthly.
oLEHMAN BROTHERS AGGREGATE BOND INDEX is composed of securities from the
Lehman Brothers Government/Corporate Bond Index, Mortgage-Backed
Securities Index, and the Asset-Backed Securities Index. Total return
comprises price appreciation/depreciation and income as a percentage of
the original investment. Each of these indexes are rebalanced monthly by
market capitalization.
INTERNATIONAL BOND:
oLIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all capital gains distributions and income
dividends and takes into account any change in net asset value over a
specific period of time. From time to time, the Fund will quote its
Lipper rating in advertising and sales literature.
oSALOMON BROTHERS NON-US DOLLAR WORLD GOVERNMENT BOND INDEX The indexes
of nonbase currency sectors exclude respective base currency bond markets
from the calculation and, in turn, are stated in terms of the base
currency. Therefore, the Non-US Dollar World Government Bond Index
includes all WGBI Countries, except the United States, and is stated in
US Dollar terms.
oJ.P. MORGAN NON-US GOVERNMENT BOND INDEX consists of the JPMGGB
Countries, excluding the United States market.
Advertisements and sales literature for a Fund may quote total returns which are
calculated on nonstandardized base periods. These total returns also represent
the historic change in the value of an investment in the Fund based on
reinvestment of dividends over a specified period of time.
APPENDIX
STANDARD & POOR'S RATINGS GROUP LONG-TERM DEBT RATING DEFINITIONS
AAA-Debt rated AAA has the highest rating assigned by Standard & Poor's Ratings
Group. Capacity to pay interest and repay principal is extremely strong.
AA-Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A-Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB-Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
MOODY'S INVESTORS SERVICE, INC. LONG-TERM BOND RATING DEFINITIONS
AAA-Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal 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 are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the 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 sometime 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 to be 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.
STANDARD & POOR'S RATINGS GROUP COMMERCIAL PAPER RATING DEFINITIONS
A-1-This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation.
A-2-Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree or safety is not as high as for issues designated
A-1.
MOODY'S INVESTORS SERVICE, INC., COMMERCIAL PAPER RATING DEFINITIONS
P-1-Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. PRIME-1 repayment
capacity will normally be evidenced by the following characteristics:
o Leading market positions in well-established industries;
o High rates of return on funds employed;
o Conservative capitalization structures with moderate reliance on debt and
ample asset protection;
o Broad margins in earning coverage of fixed financial charges and high
internal cash generation; and
o Well-established access to a range of financial markets and assured sources
of alternate liquidity.
PRIME-2-Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
Cusip #s
-----------------
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements (filed in Part A)
(b) Exhibits:
(1) (i)Conformed Copy of Declaration of Trust of the
Registrant; (1.)
(ii)Conformed Copy of Amendment No. 1 to the Declaration
of Trust of the Registrant; +
(2) Copy of By-Laws of the Registrant; (1.)
(3) Not applicable;
(4) Copy of Specimen Certificate for Shares of Beneficial
Interest of the Registrant; +
(5) Form of Investment Advisory Contract of the Registrant; (1.)
(6) Form of Distributor's Contract of the Registrant; (1.)
(7) Not applicable;
(8) Form of Custodian Agreement of the Registrant; +
(9) (i)Form of Administrative Services Agreement; (1.)
(ii)Conformed copy of Agreement for Fund Accounting,
Shareholder Recordkeeping, and Custody Services
Procurement; (1.)
(iii)Form of Shareholder Services Agreement; (1.)
(10) Conformed Copy of Opinion and Consent of Counsel as to
legality of shares being registered; +
(11) Conformed Copy of Consent of Independent Auditors; +
(12) Not applicable;
(13) Conformed Copy of Initial Capital
Understanding; +
(14) Not applicable;
(15) (i)Form of Distribution Plan; (1.)
(ii)Copy of 12b-1 Agreement; (1.)
(16) Not applicable to current filing;
(17) Not applicable to current filing;
(18) Not applicable to current filing;
(19) Conformed Copy of Power of Attorney; +
Item 25. Persons Controlled by or Under Common Control with Registrant
None
+ All exhibits have been filed electronically.
(1.) Response is incorporated by reference to Registrant's Initial Registration
Statement on Form N-1A filed October 23, 1995 (File Nos. 33-63621 and 811-
7369).
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of December 19, 1995
Shares of beneficial interest
(no par value)
FTI Small Capitalization Equity Fund 0
FTI International Equity Fund 0
FTI International Bond Fund 0
FTI Global Bond Fund 1
Item 27. Indemnification: (1.)
Item 28. Business and Other Connections of Investment Adviser:
(a)For a description of the other business of the investment adviser, see
the section entitled "FTI Funds Information - Management of FTI Funds"
in Part A.
(1) (2) (3)
Position with Other Substantial
Fiduciary Business, Profession,
Name International, Inc. Vocation or Employment
For information as to the business, profession, vocation, and employment of a
substantial nature of directors and officers Fiduciary International, Inc.,
reference is made to Fiduciary International, Inc.'s current Form ADV (File No.
801-18352) filed under the Investment Advisers Act of 1940, as amended, which
is incorporated herein by reference.
Item 29. Principal Underwriters:
(a)Edgewood Services, Inc. the Distributor for shares of the Registrant,
also acts as principal underwriter for the following open-end
investment companies: Excelsior Institutional Trust (formerly, UST
Master Funds, Inc.), Excelsior Tax-Exempt Funds, Inc. (formerly, UST
Master Tax-Exempt Funds, Inc.), Excelsior Institutional Trust,
Marketvest Funds, and Marketvest Funds, Inc.
(1.) Response is incorporated by reference to Registrant's Initial Registration
Statement on Form N-1A filed October 23, 1995 (File Nos. 33-63621 and 811-
7369).
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
James J. Dolan Trustee and President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
R. Jeffrey Niss Senior Vice President and --
Federated Investors Tower Trustee, Edgewood Services,
Pittsburgh, PA 15222-3779 Inc.
Douglas L. Hein Trustee, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Frank E. Polefrone Trustee, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Newton Heston, III Vice President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Ernest L. Linane Assistant Vice President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
S. Elliott Cohan Secretary, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Charles H. Field Assistant Secretary, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Jeannette Fisher-Garber Assistant Secretary, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Kenneth W. Pegher, Jr. Treasurer, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
(c) Not applicable
Item 30. Location of Accounts and Records:
All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following locations:
Registrant Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Services Company Federated Investors Tower
("Transfer Agent, Dividend Pittsburgh, PA 15222-3779
Disbursing Agent and Portfolio
Recordkeeper")
Federated Administrative Services Federated Investors Tower
("Administrator") Pittsburgh, PA 15222-3779
Fiduciary International, Inc. Two World Trade Center
("Adviser") New York, NY 10048-0772
Fiduciary Trust Company International Two World Trade Center
("Custodian") New York, NY 10048-0772
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to six
months from the effective date of Registrant's 1933 Act Registration
Statement.
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of Trustees and
the calling of special shareholder meetings by shareholders.
Registrant hereby undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FTI FUNDS (formerly, FT FUNDS),
has duly caused this Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Pittsburgh
and Commonwealth of Pennsylvania, on the 20th day of December, 1995
FTI FUNDS
(formerly, FT FUNDS)
BY: /s/ Jay S. Neuman
Jay S. Neuman, Secretary
Attorney in Fact for Edward C. Gonzales
December 20, 1995
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
NAME TITLE DATE
By:/s/ Jay S. Neuman
Jay S. Neuman Attorney In Fact December 20, 1995
SECRETARY For the Persons
Listed Below
NAME TITLE
Edward C. Gonzales* President, Treasurer and Trustee
(Chief Executive Officer and
Principal Financial and
Accounting Officer)
Peter A. Aron* Trustee
Nancy L. Close* Trustee
James C. Goodfellow* Trustee
Burton J. Greenwald* Trustee
Exhibit (11) under N-1A
Exhibit 23 under Item 601/Reg SK
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent Auditors"
and to the use of our report dated December 19, 1995 on the statement of assets
and liabilities in Pre-Effective Amendment Number 1 to the Registration
Statement (Form N-1A No. 33-63621) and the related Prospectus of FTI Global Bond
Fund (a Portfolio of FTI Funds).
By:ERNST & YOUNG LLP
Ernst & Young LLP
Pittsburgh, Pennsylvania
Exhibit 1 (ii) under Form N-1A
Exhibit 3(a) under Item 601/Reg. S-K
FTI Funds
Amendment No. 1
to
DECLARATION OF TRUST
dated October 18, 1995
This Declaration of Trust is amended as follows:
A. Strike Section 1 of Article I and substitute in its place the
following:
Section 1. Name.
This Trust shall be known as the FTI Funds, and the Trustees may
conduct the business of the Trust under that name or any other name
as they may determine from time to time.
B. Strike the first paragraph of Section 5 of Article III and
substitute in its place the following:
Section 5. Establishment and Designation of Series or Class.
Without limiting the authority of the Trustees set forth in Article
XII, Section 8, inter alia, to establish and designate any
additional Series or Class or to modify the rights and preferences
of any existing Series or Class, the Series shall be, and are
established and designated as,
FTI Emerging Markets Fund,
FTI Global Bond Fund,
FTI International Bond Fund,
FTI International Equity Fund, and
FTI Small Capitalization Equity Fund.
C. Strike the second sentence of Section 3 of Article VIII and
substitute in its place the following:
When any one or more Series or Class is entitled to vote as a
single Series or Class, one-half, or one-third, as appropriate, of
the Shares of each such Series or Class entitled to vote shall
constitute a quorum at a Shareholders' meeting of that Series or
Class.
D. Strike Section 9 of Article XII and substitute in its place the
following:
Section 9. Use of Name.
The Trust acknowledges that Fiduciary International, Inc. has
reserved the right to grant the non-exclusive use of the name
"Fiduciary" or any derivative thereof to any other investment
company, investment company portfolio, investment adviser,
distributor, or other business enterprise, and to withdraw from the
Trust or one or more Series or Classes any right to the use of the
name "FTI FUNDS."
The undersigned Assistant Secretary of FTI Funds hereby certifies that
the above-stated amendment is a true and correct Amendment to the Declaration
of Trust, as adopted by the Board of Trustees on December 4, 1995.
WITNESS the due execution hereof this 5th day of December, 1995.
-2-
/s/ Max F. Miller
Max F. Miller,
Assistant Secretary
Exhibit (4) under Form N-1A
Exhibit 3(c) under Item 601/Reg. S-K
FTI Funds
FTI Small Capitalization Equity Fund
Number Shares
Account No. Alpha Code Organized Under theSee Reverse Side For
Laws of the Certain Definitions
Commonwealth of
Massachusetts
THIS IS TO CERTIFY THAT is the owner of
CUSIP (to be applied for)
Fully Paid and Non-Assessable Shares of Beneficial Interest of FTI Small
Capitalization Equity Fund Portfolio of FTI Funds hereafter called the "Trust,"
transferable on the books of the Trust by the owner in person or by duly
authorized attorney upon surrender of this Certificate properly endorsed.
The shares represented hereby are issued and shall be held subject to the
provisions of the Declaration of Trust and By-Laws of the Trust, and all
amendments thereto, to all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Trust has caused this Certificate to be signed in
its name by its proper officers and to be sealed with its Seal.
Dated: FTI Funds
Corporate Seal
(1995)
Massachusetts
/s/Edward C. Gonzales
President and Treasurer
Countersigned: Federated Services Company
(Pittsburgh)
Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties (Cust)
(Minors)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received hereby sell, assign, and transfer unto
----------
Please insert social security or other
identifying number of assignee
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
shares
- ----------------------------------------------------------------------
of the beneficial interest represented by the within Certificate, and do hereby
irrevocably constitute and appoint
-----------------------------------
Attorney
- -----------------------------------------------------------------
to transfer the said shares on the books of the within named Trust with full
power of substitution in the premises.
Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change whatever.
All persons dealing with FTI Funds, a Massachusetts business trust, must look
solely to the Trust property for the enforcement of any claim against the Trust,
as the Trustees, officers, agents or shareholders of the Trust assume no
personal liability whatsoever for obligations entered into on behalf of the
Trust.
THIS SPACE MUST NOT BE COVERED IN ANY WAY
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Massachusetts corporate seal appears in the bottom middle of the
page.
Page Two
The social security or other identifying number of the assignee appears
in a box in the top-third upper-left area of the page.
FTI Funds
FTI International Equity Fund
Number Shares
Account No. Alpha Code Organized Under theSee Reverse Side For
Laws of the Certain Definitions
Commonwealth of
Massachusetts
THIS IS TO CERTIFY THAT is the owner of
CUSIP (to be applied for)
Fully Paid and Non-Assessable Shares of Beneficial Interest of FTI International
Equity Fund Portfolio of FTI Funds hereafter called the "Trust," transferable on
the books of the Trust by the owner in person or by duly authorized attorney
upon surrender of this Certificate properly endorsed.
The shares represented hereby are issued and shall be held subject to the
provisions of the Declaration of Trust and By-Laws of the Trust, and all
amendments thereto, to all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Trust has caused this Certificate to be signed in
its name by its proper officers and to be sealed with its Seal.
Dated: FTI Funds
Corporate Seal
(1995)
Massachusetts
/s/Edward C. Gonzales
President and Treasurer
Countersigned: Federated Services Company
(Pittsburgh)
Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties (Cust)
(Minors)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received hereby sell, assign, and transfer unto
----------
Please insert social security or other
identifying number of assignee
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
shares
- ----------------------------------------------------------------------
of the beneficial interest represented by the within Certificate, and do hereby
irrevocably constitute and appoint
-----------------------------------
Attorney
- -----------------------------------------------------------------
to transfer the said shares on the books of the within named Trust with full
power of substitution in the premises.
Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change whatever.
All persons dealing with FTI Funds, a Massachusetts business trust, must look
solely to the Trust property for the enforcement of any claim against the Trust,
as the Trustees, officers, agents or shareholders of the Trust assume no
personal liability whatsoever for obligations entered into on behalf of the
Trust.
THIS SPACE MUST NOT BE COVERED IN ANY WAY
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Massachusetts corporate seal appears in the bottom middle of the
page.
Page Two
The social security or other identifying number of the assignee appears
in a box in the top-third upper-left area of the page.
FTI Funds
FTI International Bond Fund
Number Shares
Account No. Alpha Code Organized Under theSee Reverse Side For
Laws of the Certain Definitions
Commonwealth of
Massachusetts
THIS IS TO CERTIFY THAT is the owner of
CUSIP (to be applied for)
Fully Paid and Non-Assessable Shares of Beneficial Interest of FTI International
Bond Fund Portfolio of FTI Funds hereafter called the "Trust," transferable on
the books of the Trust by the owner in person or by duly authorized attorney
upon surrender of this Certificate properly endorsed.
The shares represented hereby are issued and shall be held subject to the
provisions of the Declaration of Trust and By-Laws of the Trust, and all
amendments thereto, to all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Trust has caused this Certificate to be signed in
its name by its proper officers and to be sealed with its Seal.
Dated: FTI Funds
Corporate Seal
(1995)
Massachusetts
/s/Edward C. Gonzales
President and Treasurer
Countersigned: Federated Services Company
(Pittsburgh)
Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties (Cust)
(Minors)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received hereby sell, assign, and transfer unto
----------
Please insert social security or other
identifying number of assignee
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
shares
- ----------------------------------------------------------------------
of the beneficial interest represented by the within Certificate, and do hereby
irrevocably constitute and appoint
-----------------------------------
Attorney
- -----------------------------------------------------------------
to transfer the said shares on the books of the within named Trust with full
power of substitution in the premises.
Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change whatever.
All persons dealing with FTI Funds, a Massachusetts business trust, must look
solely to the Trust property for the enforcement of any claim against the Trust,
as the Trustees, officers, agents or shareholders of the Trust assume no
personal liability whatsoever for obligations entered into on behalf of the
Trust.
THIS SPACE MUST NOT BE COVERED IN ANY WAY
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Massachusetts corporate seal appears in the bottom middle of the
page.
Page Two
The social security or other identifying number of the assignee appears
in a box in the top-third upper-left area of the page.
FTI Funds
FTI Global Bond Fund
Number Shares
Account No. Alpha Code Organized Under theSee Reverse Side For
Laws of the Certain Definitions
Commonwealth of
Massachusetts
THIS IS TO CERTIFY THAT is the owner of
CUSIP (to be applied for)
Fully Paid and Non-Assessable Shares of Beneficial Interest of FTI Global Bond
Fund Portfolio of FTI Funds hereafter called the "Trust," transferable on the
books of the Trust by the owner in person or by duly authorized attorney upon
surrender of this Certificate properly endorsed.
The shares represented hereby are issued and shall be held subject to the
provisions of the Declaration of Trust and By-Laws of the Trust, and all
amendments thereto, to all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Trust has caused this Certificate to be signed in
its name by its proper officers and to be sealed with its Seal.
Dated: FTI Funds
Corporate Seal
(1995)
Massachusetts
/s/Edward C. Gonzales
President and Treasurer
Countersigned: Federated Services Company
(Pittsburgh)
Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties (Cust)
(Minors)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received hereby sell, assign, and transfer unto
----------
Please insert social security or other
identifying number of assignee
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
shares
- ----------------------------------------------------------------------
of the beneficial interest represented by the within Certificate, and do hereby
irrevocably constitute and appoint
-----------------------------------
Attorney
- -----------------------------------------------------------------
to transfer the said shares on the books of the within named Trust with full
power of substitution in the premises.
Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change whatever.
All persons dealing with FTI Funds, a Massachusetts business trust, must look
solely to the Trust property for the enforcement of any claim against the Trust,
as the Trustees, officers, agents or shareholders of the Trust assume no
personal liability whatsoever for obligations entered into on behalf of the
Trust.
THIS SPACE MUST NOT BE COVERED IN ANY WAY
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Massachusetts corporate seal appears in the bottom middle of the
page.
Page Two
The social security or other identifying number of the assignee appears
Exhibit 8 under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
CUSTODIAN CONTRACT
BETWEEN
FTI FUNDS
AND
FIDUCIARY TRUST COMPANY INTERNATIONAL
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held by It......1
2. Duties of the Custodian With Respect to Property of the Funds Held by the
Custodian..................................................2
2.1 Holding Securities....................................2
2.2 Delivery of Securities................................2
2.3 Registration of Securities............................5
2.4 Bank Accounts.........................................6
2.5 Payments for Shares...................................7
2.6 Availability of Federal Funds.........................7
2.7 Collection of Income..................................7
2.8 Payment of Fund Moneys................................8
2.9 Liability for Payment in Advance of Receipt of Securities Purchased.
9
2.10 Payments for Repurchases or Redemptions of Shares of a Fund 9
2.11 Appointment of Agents................................10
2.12 Deposit of Fund Assets in Securities System..........10
2.13 Segregated Account...................................12
2.14 Joint Repurchase Agreements..........................13
2.15 Ownership Certificates for Tax Purposes..............13
2.16 Proxies..............................................13
2.17 Communications Relating to Fund Portfolio Securities.13
2.18 Proper Instructions..................................14
2.19 Actions Permitted Without Express Authority..........14
2.20 Evidence of Authority................................15
2.21 Notice to Trust by Custodian Regarding Cash Movement.15
3. Duties of Custodian With Respect to the Books of Account and
Calculation of Net Asset Value and Net Income.............15
4. Records ..................................................16
5. Opinion of Funds' Independent Public Accountants/Auditors.16
6. Reports to Trust by Independent Public Accountants/Auditors17
7. Compensation of Custodian.................................17
8. Responsibility of Custodian...............................17
9. Effective Period, Termination and Amendment...............19
10. Successor Custodian.......................................20
11. Interpretive and Additional Provisions....................21
12. Massachusetts Law to Apply................................22
13. Notices ..................................................22
14. Counterparts..............................................22
15. Limitations of Liability..................................22
CUSTODIAN CONTRACT
This Contract between those INVESTMENT COMPANIES listed on Exhibit 1, as it
may be amended from time to time, (the "Trust"), which may be Massachusetts
business trusts or Maryland corporations or have such other form of
organization as may be indicated, on behalf of the portfolios (hereinafter
collectively called the "Funds" and individually referred to as a "Fund") of
the Trust, having its principal place of business at Federated Investors
Tower, Pittsburgh, Pennsylvania, 15222-3779, and FIDUCIARY TRUST COMPANY
INTERNATIONAL, a New York bank and trust company, having its principal place
of business at Two World Trade Center, New York, New York 10048-0772,
hereinafter called the "Custodian."
WITNESSETH: That in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It; Eligible
Subcustodians
1.1Establishment of Account. The Trust hereby employs the Custodian as
the custodian of the assets of each of the Funds of the Trust.
Except as otherwise expressly provided herein, the securities and
other assets of each of the Funds shall be segregated from the assets
of each of the other Funds and from all other persons and entities.
The Trust will deliver to the Custodian all securities and cash owned
by the Funds and all payments of income, payments of principal or
capital distributions received by them with respect to all securities
owned by the Funds from time to time, and the cash consideration
received by them for shares ("Shares") of beneficial interest/capital
stock of the Funds as may be issued or sold from time to time. The
Custodian shall not be responsible for any property of the Funds held
or received by the Funds and not delivered to the Custodian.
1.2Eligible Subcustodians. Upon receipt of "Proper Instructions"
(within the meaning of Section 2.18), the Custodian may hold Fund
assets in accounts established by the Custodian with (a) a securities
system, (b) a branch of a qualified U.S. bank (including the
Custodian), an eligible foreign custodian or an eligible foreign
securities depository or (c) a subcustodian of an eligible foreign
custodian, that itself is an eligible foreign custodian or an
eligible foreign securities depository with which that subcustodian
has entered into an agreement for the custody of Fund assets. For
purposes of this Contract, "qualified U.S. bank," "eligible foreign
custodian," and "eligible foreign securities depository" shall have
the meanings provided in Rule 17f-5 under the Investment Company Act
of 1940 as interpreted by the staff of the Securities and Exchange
Commission (the "1940 Act") and a "securities system" shall mean a
clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of 1934,
which acts as a securities depository, or a book-entry system
authorized by the U.S. Department of the Treasury and certain federal
agencies.
Hereinafter the term "subcustodian" will refer to (a) any securities
system, (b) any branch of a qualified U.S. bank, any eligible foreign
custodian or any eligible foreign securities depository with which
the Custodian has entered into an agreement of the type contemplated
hereunder regarding securities and/or cash held in or to be acquired
for the Funds and (c) any subcustodian of an eligible foreign
custodian with which the eligible foreign custodian has entered into
an agreement like that between the Custodian and such eligible
foreign custodian or an eligible foreign securities depository in
which the subcustodians participate. The Custodian shall have no
more or less responsibility or liability to the Trust or any of the
Funds on account of any actions or omissions of any subcustodian so
employed than any such subcustodian has to the Custodian.
2. Duties of the Custodian With Respect to Property of the Funds Held by the
Custodian
2.1Holding Securities. The Custodian shall hold and physically
segregate for the account of each Fund all non-cash property,
including all securities owned by each Fund, other than securities
which are maintained in a securities system or an eligible foreign
securities depository, or securities which are subject to a joint
repurchase agreement with affiliated funds pursuant to Section 2.14.
The Custodian shall maintain records of all receipts, deliveries and
locations of such securities, together with a current inventory
thereof, and shall conduct periodic physical inspections of
certificates representing stocks, bonds and other securities held by
it under this Contract in such manner as the Custodian shall
determine from time to time to be advisable in order to verify the
accuracy of such inventory. With respect to securities held by any
subcustodian, the Custodian may rely upon certificates from such
subcustodian as to the holdings of such subcustodian, it being
understood that such reliance in no way relieves the Custodian of its
responsibilities under this Contract. The Custodian will promptly
report to the Trust the results of such inspections, indicating any
shortages or discrepancies uncovered thereby, and take appropriate
action to remedy any such shortages or discrepancies.
2.2Delivery of Securities. The Custodian shall release and deliver
securities owned by a Fund held by the Custodian or a subcustodian
only upon receipt of Proper Instructions, which may be continuing
instructions when deemed appropriate by the parties, and only in the
following cases:
(1) Upon sale of such securities for the account of a Fund and
receipt of payment therefor;
(2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Trust;
(3) To the depository agent in connection with tender or other
similar offers for portfolio securities of a Fund, in accordance
with the provisions of Section 2.17 hereof;
(4) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to be
delivered to the Custodian;
(5) To the issuer thereof, or its agent, for transfer into the name
of a Fund or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any subcustodian
appointed pursuant to Section 1.2; or for exchange for a
different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units;
provided that, in any such case, the new securities are to be
delivered to the Custodian;
(6) Upon the sale of such securities for the account of a Fund, to
the broker or its clearing agent, against a receipt, (a) for
examination in accordance with "street delivery custom"; or (b)
in accordance with the customary or established securities
trading or securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs provided
that in any such case, the Custodian shall have no responsibility
or liability for any loss arising from the delivery of such
securities prior to receiving payment for such securities except
as may arise from the Custodian's own failure to act in
accordance with the standard of reasonable care or any higher
standard of care imposed upon the Custodian by any applicable law
or regulation if such above-stated standard of reasonable care
were not part of this Contract;
(7) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment
of the securities of the issuer of such securities, or pursuant
to provisions for conversion contained in such securities, or
pursuant to any deposit agreement; provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Custodian;
(8) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that, in
any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
(9) For delivery in connection with any loans of portfolio securities
of a Fund, but only against receipt of adequate collateral in the
form of (a) cash, in an amount specified by the Trust, (b)
certificated securities of a description specified by the Trust,
registered in the name of the Fund or in the name of a nominee of
the Custodian referred to in Section 2.3 hereof or in proper form
for transfer, or (c) securities of a description specified by the
Trust, transferred through a Securities System in accordance with
Section 2.12 hereof;
(10) For delivery as security in connection with any borrowings
requiring a pledge of assets by a Fund, but only against receipt
of amounts borrowed, except that in cases where additional
collateral is required to secure a borrowing already made,
further securities may be released for the purpose;
(11) For delivery in accordance with the provisions of any agreement
among the Trust or a Fund, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934, as amended,
(the "Exchange Act") and a member of The National Association of
Securities Dealers, Inc. ("NASD"), relating to compliance with
the rules of The Options Clearing Corporation and of any
registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions for a Fund;
(12) For delivery in accordance with the provisions of any agreement
among the Trust or a Fund, the Custodian, and a Futures
Commission Merchant registered under the Commodity Exchange Act,
relating to compliance with the rules of the Commodity Futures
Trading Commission and/or any Contract Market, or any similar
organization or organizations, regarding account deposits in
connection with transaction for a Fund;
(13) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for a Fund, for delivery to such Transfer Agent or to the
holders of shares in connection with distributions in kind, in
satisfaction of requests by holders of Shares for repurchase or
redemption; and
(14) For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions, a certified copy of a
resolution of the Executive Committee of the Trust on behalf of a
Fund signed by an officer of the Trust and certified by its
Secretary or an Assistant Secretary, 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 corporate
purpose, and naming the person or persons to whom delivery of
such securities shall be made.
2.3 Registration of Securities. Securities held by the Custodian (other
than bearer securities) may be registered in the name of the
Custodian's nominee or in the name or nominee name of any
subcustodian. All securities accepted by the Custodian on behalf of
a Fund under the terms of this Contract shall be in "street name" or
other good delivery form.
2.4 Bank Accounts. The Custodian shall maintain such bank accounts as
the Trust may specify in writing from time to time, subject only to
draft or order by the Custodian acting pursuant to the terms of this
Contract, and shall hold in such account or accounts, subject to the
provisions hereof, all cash received by it from or for the account of
a Fund, other than cash maintained in a joint repurchase account with
other affiliated funds pursuant to Section 2.14 of this Contract or
by a particular Fund in a bank account established and used in
accordance with Rule 17f-3 under the 1940 Act. Funds held by the
Custodian for a Fund may be deposited by it to its credit as
Custodian in the Banking Department of the Custodian or in such other
banks or trust companies as shall be approved by vote of a majority
of the Board of Trustees/Directors ("Board") of the Trust in
accordance with the 1940 Act. Such funds shall be deposited by the
Custodian in its capacity as Custodian for the Fund and shall be
withdrawable by the Custodian only in that capacity.
2.5Payments for Shares. The Custodian shall make such arrangements with
the Transfer Agent of each Fund, as will enable the Custodian to
receive the cash consideration due to each Fund and will deposit into
each Fund's account such payments as are received from the Transfer
Agent. The Custodian will provide timely notification to the Trust
and the Transfer Agent of any receipt by it of payments for Shares of
the respective Fund.
2.6Availability of Federal Funds. Upon mutual agreement between the
Trust and the Custodian, the Custodian shall make federal funds
available to the Funds as of specified times agreed upon from time to
time by the Trust and the Custodian in the amount of checks, clearing
house funds, and other non-federal funds received in payment for
Shares of the Funds which are deposited into the Funds' accounts.
2.7Collection of Income.
(1) The Custodian shall collect on a timely basis all income and
other payments with respect to registered securities held
hereunder to which each Fund shall be entitled either by law or
pursuant to custom in the securities business, and shall collect
on a timely basis all income and other payments with respect to
bearer securities if, on the date of payment by the issuer, such
securities are held by the Custodian or its agent thereof and
shall credit such income, as collected, to each Fund's custodian
account. Without limiting the generality of the foregoing, the
Custodian shall detach and present for payment all coupons and
other income items requiring presentation as and when they become
due and shall collect interest when due on securities held
hereunder. The collection of income due the Funds on securities
loaned pursuant to the provisions of Section 2.2 (9) shall be the
responsibility of the Trust. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the
Trust with such information or data as may be necessary to assist
the Trust in arranging for the timely delivery to the Custodian
of the income to which each Fund is properly entitled.
(2) The Custodian shall promptly notify the Trust whenever income due
on securities is not collected in due course and will provide the
Trust with monthly reports of the status of past due income
unless the parties otherwise agree.
2.8Payment of Fund Moneys. Upon receipt of Proper Instructions, which
may be continuing instructions when deemed appropriate by the
parties, the Custodian shall pay out moneys of each Fund in the
following cases only:
(1) Upon the purchase of securities, futures contracts or options on
futures contracts for the account of a Fund but only (a) against
the delivery of such securities, or evidence of title to futures
contracts, to the Custodian or any subcustodian, registered in
accordance with Section 2.3 hereof or in proper form for
transfer, (b) in accordance with the customary or established
securities trading or securities processing practices and
procedures in the jurisdiction or market in which the transaction
occurs, or (c) in the case of repurchase agreements entered into
between the Trust and any other party, (i) against delivery of
the securities either in certificate form or through an entry
crediting the Custodian's account at the Federal Reserve Bank
with such securities or (ii) against delivery of the receipt
evidencing purchase for the account of the Fund of securities
owned by the Custodian along with written evidence of the
agreement by the Custodian to repurchase such securities from the
Fund;
(2) In connection with conversion, exchange or surrender of
securities owned by a Fund as set forth in Section 2.2 hereof;
(3) For the redemption or repurchase of Shares of a Fund issued by
the Trust as set forth in Section 2.10 hereof;
(4) For the payment of any expense or liability incurred by a Fund,
including but not limited to the following payments for the
account of the Fund: interest; taxes; management, accounting,
transfer agent and legal fees; and operating expenses of the
Fund, whether or not such expenses are to be in whole or part
capitalized or treated as deferred expenses;
(5) For the payment of any dividends on Shares of a Fund declared
pursuant to the governing documents of the Trust;
(6) For payment of the amount of dividends received in respect of
securities sold short;
(7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions, a certified copy of a resolution
of the Executive Committee of the Trust on behalf of a Fund
signed by an officer of the Trust and certified by its Secretary
or an Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose, and naming the
person or persons to whom such payment is to be made.
2.9Liability for Payment in Advance of Receipt of Securities Purchased.
In any and every case where payment for purchase of securities for
the account of a Fund is made by the Custodian in advance of receipt
of the securities purchased, in the absence of specific written
instructions from the Trust to so pay in advance (which may be
standing instructions for certain jurisdictions or markets), the
Custodian shall be absolutely liable to the Fund for such securities
to the same extent as if the securities had been received by the
Custodian.
Notwithstanding the preceding paragraph, settlement and payment for
securities received or delivered for the account of a Fund may be
effected in accordance with the customary or established securities
trading or securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs, including,
without limitation, delivering securities to the purchaser thereof or
to a dealer therefore (or an agent for such purchaser or dealer)
against a receipt with the expectation of receiving later payment for
such securities from such purchaser or dealer.
2.10 Payments for Repurchases or Redemptions of Shares of a Fund. From
such funds as may be available for the purpose of repurchasing or
redeeming Shares of a Fund, but subject to the limitations of the
Declaration of Trust/Articles of Incorporation and any applicable
votes of the Board of the Trust pursuant thereto, the Custodian
shall, upon receipt of instructions from the Transfer Agent, make
funds available for payment to holders of shares of such Fund who
have delivered to the Transfer Agent a request for redemption or
repurchase of their shares including without limitation through bank
drafts, automated clearinghouse facilities, or by other means. In
connection with the redemption or repurchase of Shares of the Funds,
the Custodian is authorized upon receipt of instructions from the
Transfer Agent to wire funds to or through a commercial bank
designated by the redeeming shareholders.
2.11 Appointment of Subcustodians. The Custodian may at any time or
times in accordance with Section 1.2 appoint (and may at any time
remove) any subcustodian as specified in Section 1.2; provided,
however, that the appointment of any subcustodian shall not relieve
the Custodian of its responsibilities or liabilities hereunder.
2.12 Use of Subcustodian. With respect to securities and other assets of
any Fund which are maintained by the Custodian in the custody of a
subcustodian:
(1) The Custodian will identify on its books as belonging to the
Fund any Fund assets held by such subcustodian.
(2) In the event that a subcustodian permits any of the Fund assets
placed in its care to be held in an eligible foreign securities
depository such subcustodian will be required by its agreement
with the Custodian to identify on its books such Fund assets as
being held for the account of the Custodian for its customers.
(3) Any Fund assets in the custody account held by a subcustodian
will be subject only to the instructions of the Custodian or
its agents, and any Fund assets held in an eligible foreign
securities depository for the account of a subcustodian will be
subject only to the instructions of such subcustodian.
(4) The Custodian will only deposit Fund assets other than cash in
an account with a subcustodian which includes exclusively
assets held by the Custodian for its customers, and the
Custodian will cause such account to be designated by such
subcustodian as a special custody account for the exclusive
benefit of customers of the Custodian.
(5) Any agreement the Custodian shall enter into with a subcustdian
with respect to Fund assets shall require that (i) Fund assets
are not subject to any right, charge, security interest, lien
or claim of any kind in favor of such subcustodian or its
creditors except for their safe custody or administration and
(ii) beneficial ownership of such Fund assets is freely
transferable without the payment of money or value other than
for safe custody or administration; provided, however, that the
foregoing shall not apply to the extent that any of the above-
mentioned rights, charges, etc. result from any compensation or
other expenses arising with respect to the safekeeping of Fund
assets pursuant to such agreement or from any arrangement made
by the Trust with any such subcustodian.
(6) The Custodian shall, subject to restrictions under applicable
law, also obtain from any subcustodian with which the Custodian
maintains the physical possession of any Fund assets an
undertaking to permit independent public accountants of the
Fund such reasonable access to the records of such subcustodian
as may be required in connection with their examination of the
books and records pertaining to the affairs of the Fund. Upon
request, the Custodian shall use its best efforts to obtain and
furnish the Fund with reports of each subcutodian's external
auditors relating to the subcustodian's system of internal
accounting controls applicable to the subcustodian's duties
with respect to Fund assets.
(7) The Custodian hereby warrants to the Trust that in the
Custodian's opinion, after due inquiry, the established
procedures to be followed by each subcustodian holding Fund
assets outside of the United States pursuant to this Contract
afford protection for such Fund assets at least equal to the
afforded by the Custodian's established procedures with respect
to similar securities held by the Custodian (and its securities
depositories) in New York.
2.13 Segregated Account. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or accounts
for and on behalf of each Fund, into which account or accounts may be
transferred cash and/or securities, including securities maintained
in an account by the Custodian pursuant to Section 2.12 hereof, (i)
in accordance with the provisions of any agreement among the Trust,
the Custodian and a broker-dealer registered under the Exchange Act
and a member of the NASD (or any futures commission merchant
registered under the Commodity Exchange Act), relating to compliance
with the rules of The Options Clearing Corporation and of any
registered national securities exchange (or the Commodity Futures
Trading Commission or any registered contract market), or of any
similar organization or organizations, regarding escrow or other
arrangements in connection with transactions for a Fund, (ii) for
purpose of segregating cash or government securities in connection
with options purchased, sold or written for a Fund or commodity
futures contracts or options thereon purchased or sold for a Fund,
(iii) for the purpose of compliance by the Trust or a Fund with the
procedures required by any release or releases of the SEC relating to
the maintenance of segregated accounts by registered investment
companies and (iv) for other proper corporate purposes, but only, in
the case of clause (iv), upon receipt of, in addition to Proper
Instructions, a certified copy of a resolution of the Board or of the
Executive Committee signed by an officer of the Trust and certified
by the Secretary or an Assistant Secretary, setting forth the purpose
or purposes of such segregated account and declaring such purposes to
be proper corporate purposes.
2.14 Joint Repurchase Agreements. Upon the receipt of Proper
Instructions, the Custodian shall deposit and/or maintain any assets
of a Fund and any affiliated funds which are subject to joint
repurchase transactions in an account established solely for such
transactions for the Fund and its affiliated funds. For purposes of
this Section 2.14, "affiliated funds" shall include all investment
companies and their portfolios for which subsidiaries or affiliates
of the Custodian or Federated Investors serve as investment advisers,
distributors or administrators in accordance with applicable
exemptive orders from the SEC. The requirements of segregation set
forth in Section 2.1 shall be deemed to be waived with respect to
such assets.
2.15 Ownership Certificates for Tax Purposes. The Custodian shall
execute ownership and other certificates and affidavits for all
federal and state tax purposes in connection with receipt of income
or other payments with respect to securities of a Fund held by it and
in connection with transfers of securities.
2.16 Proxies. The Custodian shall, with respect to the securities held
hereunder, cause to be promptly executed by the registered holder of
such securities, if the securities are registered otherwise than in
the name of a Fund or a nominee of a Fund, all proxies, without
indication of the manner in which such proxies are to be voted, and
shall promptly deliver to the Trust such proxies, all proxy
soliciting materials and all notices relating to such securities.
2.17 Communications Relating to Fund Portfolio Securities. The Custodian
shall transmit promptly to the Trust all written information
(including, without limitation, pendency of calls and maturities of
securities and expirations of rights in connection therewith and
notices of exercise of call and put options written by the Fund and
the maturity of futures contracts purchased or sold by the Fund)
received by the Custodian from issuers of the securities being held
for the Fund. With respect to tender or exchange offers, the
Custodian shall transmit promptly to the Trust all written
information received by the Custodian from issuers of the securities
whose tender or exchange is sought and from the party (or his agents)
making the tender or exchange offer. If the Trust desires to take
action with respect to any tender offer, exchange or any other
similar transaction, the Trust shall notify the Custodian in writing
at least three business days prior to the date on which the Custoidan
is to take such action. However, the Custodian shall nevertheless
exercise its best efforts to take such action in the event that
notification is received three business days or less prior to the
date on which action is required.
The Custodian is not the guarantor of the accuracy or completeness of
information received from issuers of securities being held for the
Fund and the Custodian is not liable to the Fund for potential errors
in valuing a Fund's assets or calculating net asset value per share
of such Fund when the calculations are based upon such information.
2.18 Proper Instructions. Proper Instructions as used throughout this
Contract means a writing signed or initialed by one or more person or
persons as the Board shall have from time to time authorized
("Authorized Persons"). Each such writing shall set forth the
specific transaction or type of transaction involved. Oral
instructions will be deemed to be Proper Instructions if (a) the
Custodian reasonably believes them to have been given by an
Authorized Person with respect to the transaction involved, and (b)
the Trust promptly causes such oral instructions to be confirmed in
writing. However, the failure of the Custodian to obtain written
confirmation of oral instructions reasonably believed in good faith
to be genuine shall not affect the right of the Custodian to rely on
such oral instructions. Upon receipt of a certificate of the
Secretary or an Assistant Secretary as to the authorization by the
Board of the Trust accompanied by a detailed description of
procedures approved by the Board, Proper Instructions may include
communications effected directly between electro-mechanical or
electronic devices provided that the Board and the Custodian are
satisfied that such procedures afford adequate safeguards for a
Fund's assets.
2.19 Actions Permitted Without Express Authority. The Custodian may in
its discretion, without express authority from the Trust:
(1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under
this Contract, provided that all such payments shall be accounted
for to the Trust in such form that it may be allocated to the
affected Fund;
(2) surrender securities in temporary form for securities in
definitive form;
(3) endorse for collection, in the name of a Fund, checks, drafts and
other negotiable instruments; and
(4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and
other dealings with the securities and property of each Fund
except as otherwise directed by the Trust.
2.20 Evidence of Authority. The Custodian shall be protected in acting
upon any instructions, notice, request, consent, certificate or other
instrument or paper reasonably believed by it to be genuine and to
have been properly executed by an Authorized Person on behalf of a
Fund. The Custodian may receive and accept a certified copy of a
vote of the Board of the Trust as conclusive evidence (a) of the
authority of any person to act in accordance with such vote or (b) of
any determination of or any action by the Board pursuant to the
Declaration of Trust/Articles of Incorporation as described in such
vote, and such vote may be considered as in full force and effect
until receipt by the Custodian of written notice to the contrary.
2.21 Notice to Trust by Custodian Regarding Cash Movement. The Custodian
will provide timely notification to the Trust of any receipt of cash,
income or payments to the Trust and the release of cash or payment by
the Trust.
2.22 Contractual Settlement. With respect to any transaction involving
securities held in or to be acquired for the account of a Fund, the
Custodian shall cause the Fund's account to be credited on the
contractual settlement date with the proceeds of any sale or exchange
of securities from the account and to be debited on the contractual
settlement date for the cost of securities purchased or acquired for
the account. The Custodian may reverse any such credit or debit if
the transaction with respect to which such credit or debit was made
fails to settle within a reasonable period, determined by the
Custodian, in its discretion, after the contractual settlement date,
except, that if any securities delivered pursuant to this Section
2.22 are returned by the recipient thereof, the Custodian may cause
any such credits and debits to be reversed at any time.
3. Duties of Custodian With Respect to the Books of Account.
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of the Trust to keep the
books of account of each Fund.
4. Records.
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will
meet the obligations of the Trust and the Funds under the 1940 Act, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2
thereunder, and specifically including identified cost records used for
tax purposes. All such records shall be the property of the Trust and
shall at all times during the regular business hours of the Custodian be
open for inspection by duly authorized officers, employees or agents of
the Trust and employees and agents of the SEC. In the event of
termination of this Contract, the Custodian will deliver all such records
to the Trust, to a successor Custodian, or to such other person as the
Trust may direct. The Custodian shall supply daily to the Trust a
tabulation of securities owned by a Fund and held by the Custodian and
shall, when requested to do so by the Trust and for such compensation as
shall be agreed upon between the Trust and the Custodian, include
certificate numbers in such tabulations.
5. Opinion of Funds' Independent Public Accountants/Auditors.
The Custodian shall take all reasonable action, as the Trust may from
time to time request, to obtain from year to year favorable opinions from
each Fund's independent public accountants/auditors with respect to its
activities hereunder in connection with the preparation of the Fund's
registration statement, periodic reports, or any other reports to the SEC
and with respect to any other requirements of such Commission.
6. Reports to Trust by Independent Public Accountants/Auditors.
The Custodian shall provide the Trust, at such times as the Trust may
reasonably require, with reports by independent public
accountants/auditors for each Fund on the accounting system, internal
accounting control and procedures for safeguarding securities, futures
contracts and options on futures contracts, including securities
deposited and/or maintained in a Securities System, relating to the
services provided by the Custodian for the Fund under this Contract; such
reports shall be of sufficient scope and in sufficient detail, as may
reasonably be required by the Trust, to provide reasonable assurance that
any material inadequacies would be disclosed by such examination and, if
there are no such inadequacies, the reports shall so state.
7. Compensation of Custodian.
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time
between the Trust and the Custodian.
8. Responsibility of Custodian.
The Custodian shall be responsible for the performance of only such
duties as are set forth herein or contained in Proper Instructions which
are not contrary to the provisions of this Contract. The Custodian shall
be held to a standard of reasonable care in carrying out the provisions
of this Contract; provided, however, that the Custodian shall be held to
any higher standard of care which would be imposed upon the Custodian by
any applicable law or regulation if such above stated standard of
reasonable care was not part of this Contract. The Custodian shall be
entitled to rely on and may act upon advice of counsel (who may be
counsel for the Trust) on all matters, and shall be without liability for
any action reasonably taken or omitted pursuant to such advice, provided
that such action is not in violation of applicable federal or state laws
or regulations, and is in good faith and without negligence. Subject to
the limitations set forth in Section 14 hereof, the Custodian shall be
kept indemnified by the Trust but only from the assets of the Fund
involved in the issue at hand and be without liability for any action
taken or thing done by it in carrying out the terms and provisions of
this Contract in accordance with the above standards.
In order that the indemnification provisions contained in this Section 8
shall apply, however, it is understood that if in any case the Trust may
be asked to indemnify or save the Custodian harmless, the Trust shall be
fully and promptly advised of all pertinent facts concerning the
situation in question, and it is further understood that the Custodian
will use all reasonable care to identify and notify the Trust promptly
concerning any situation which presents or appears likely to present the
probability of such a claim for indemnification. The Trust shall have
the option to defend the Custodian against any claim which may be the
subject of this indemnification, and in the event that the Trust so
elects it will so notify the Custodian and thereupon the Trust shall take
over complete defense of the claim, and the Custodian shall in such
situation initiate no further legal or other expenses for which it shall
seek indemnification under this Section. The Custodian shall in no case
confess any claim or make any compromise in any case in which the Trust
will be asked to indemnify the Custodian except with the Trust's prior
written consent.
Notwithstanding the foregoing, the responsibility of the Custodian with
respect to redemptions effected by check shall be in accordance with a
separate Agreement entered into between the Custodian and the Trust.
If the Trust requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action
may, in the reasonable opinion of the Custodian, result in the Custodian
or its nominee assigned to a Fund being liable for the payment of money
or incurring liability of some other form, the Custodian may request the
Trust, as a prerequisite to requiring the Custodian to take such action,
to provide indemnity to the Custodian in an amount and form satisfactory
to the Custodian.
Subject to the limitations set forth in Section 15 hereof, the Trust
agrees to indemnify and hold harmless the Custodian and its nominee from
and against all taxes, charges, expenses, assessments, claims and
liabilities (including counsel fees) (referred to herein as authorized
charges) incurred or assessed against it or its nominee in connection
with the performance of this Contract, except such as may arise from it
or its nominee's own failure to act in accordance with the standard of
reasonable care or any higher standard of care which would be imposed
upon the Custodian by any applicable law or regulation if such above-
stated standard of reasonable care were not part of this Contract. To
secure any authorized charges and any advances of cash or securities made
by the Custodian to or for the benefit of a Fund for any purpose which
results in the Fund incurring an overdraft at the end of any business day
or for extraordinary or emergency purposes during any business day, the
Trust hereby grants to the Custodian a security interest in and pledges
to the Custodian securities held for the Fund by the Custodian, in an
amount not to exceed 10 percent of the Fund's gross assets, the specific
securities to be designated in writing from time to time by the Trust or
the Fund's investment adviser. Should the Trust fail to make such
designation, or should it instruct the Custodian to make advances
exceeding the percentage amount set forth above and should the Custodian
do so, the Trust hereby agrees that the Custodian shall have a security
interest in all securities or other property purchased for a Fund with
the advances by the Custodian, which securities or property shall be
deemed to be pledged to the Custodian, and the written instructions of
the Trust instructing their purchase shall be considered the requisite
description and designation of the property so pledged for purposes of
the requirements of the Uniform Commercial Code. Should the Trust fail
to cause a Fund to repay promptly any authorized charges or advances of
cash or securities, subject to the provision of the second paragraph of
this Section 8 regarding indemnification, the Custodian shall be entitled
to use available cash and to dispose of pledged securities and property
as is necessary to repay any such advances.
9. Effective Period, Termination and Amendment.
This Contract shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, and
may be amended at any time by mutual agreement of the parties.
This Contract may be terminated by any party by 60 days' written notice
to the other, sent by registered mail, provided that any termination by
the Trust shall be authorized by a resolution of its Board of Directors,
a certified copy of which shall accompany such notice of termination, and
provided further, that such resolution shall specify the names of the
persons to whom the Custodian shall deliver Fund assets. If notice of
termination is given by the Custodian, the Trust shall, within 60 days
following the giving of such notice, deliver to the Custodian a certified
copy of a resolution of its Board specifying the names of the persons to
whom the Custodian shall deliver such Fund assets, after deducting
therefrom any amounts which the Custodian determines to be owed to it
under this Contract. If within 60 days following the giving of a notice
of termination by the Custodian, the Custodian does not receive from the
Trust a certified copy of a resolution of Board specifying the names of
the persons to whom the Fund assets shall be delivered, the Custodian, at
its election, may deliver such Fund assets to a bank or trust company
doing business in the state of New York having an aggregate capital,
surplus, and undivided profits, as shown by its last published report, of
not less than $50,000,000 to be held and disposed of pursuant to the
provisions of this Contract, or to Authorized Persons, or may continue to
hold such Fund assets until a certified copy of one or more resolutions
as aforesaid is delivered to the Custodian. The obligations of the
parties hereto regarding the use of reasonable care, indemnities and
payment of fees and expenses shall survive the termination of this
Contract.
10. Interpretive and Additional Provisions.
In connection with the operation of this Contract, the Custodian and the
Trust may from time to time agree on such provisions interpretive of or
in addition to the provisions of this Contract as may in their joint
opinion be consistent with the general tenor of this Contract. Any such
interpretive or additional provisions shall be in a writing signed by
both parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Declaration of
Trust/Articles of Incorporation. No interpretive or additional
provisions made as provided in the preceding sentence shall be deemed to
be an amendment of this Contract.
11.New York Law to Apply.
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of the state of New York.
12. Notices.
Except as otherwise specifically provided herein, Notices and other
writings delivered or mailed postage prepaid to the Trust at Federated
Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to the
Custodian at Two World Trade Center, New York, New York 10048-0772, or to
such other address as the Trust or the Custodian may hereafter specify,
shall be deemed to have been properly delivered or given hereunder to the
respective address.
13. Counterparts.
This Contract may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original.
14. Limitations of Liability.
The Custodian is expressly put on notice of the limitation of liability
as set forth in Article XI of the Declaration of Trust of those Trusts
which are business trusts and agrees that the obligations and liabilities
assumed by the Trust and any Fund pursuant to this Contract, including,
without limitation, any obligation or liability to indemnify the
Custodian pursuant to Section 8 hereof, shall be limited in any case to
the relevant Fund and its assets and that the Custodian shall not seek
satisfaction of any such obligation from the shareholders of the relevant
Fund, from any other Fund or its shareholders or from the Trustees,
Officers, employees or agents of the Trust, or any of them. In addition,
in connection with the discharge and satisfaction of any claim made by
the Custodian against the Trust, for whatever reasons, involving more
than one Fund, the Trust shall have the exclusive right to determine the
appropriate allocations of liability for any such claim between or among
the Funds.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed effective as of the day of ,
1995.
ATTEST: FTI FUNDS
By
Typed Name: Typed Name:
Title: Title:
ATTEST: CUSTODIAN
By
Typed Name: Typed Name:
Title: Title:
EXHIBIT 1
<TABLE>
<S> <C>
CONTRACT
DATE INVESTMENT COMPANY
/95 FTI Funds
</TABLE>
FEDERATED ADMINISTRATIVE
SERVICES
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
412-288-1900
EXHIBIT 10 UNDER FORM N-1A
EXHIBIT 5 UNDER ITEM 601/REG. S-K
December 20, 1995
The Trustees of
FTI Funds
Federated Investors Tower
Pittsburgh, PA 15222-3779
Gentlemen:
FTI Funds ("Trust") proposes to offer and sell shares of beneficial
interest in portfolios of securities known as FTI Small Capitalization Equity
Fund, FTI International Equity Fund, FTI International Bond Fund, and FTI Global
Bond Fund ("Shares") in the manner and on the terms set forth in its
Registration Statement filed with the Securities and Exchange Commission under
the Securities Act of 1933, as amended.
As counsel I have participated in the preparation and filing of the Trust's
amended Registration Statement under the Securities Act of 1933. Further, I have
examined and am familiar with the provisions of the Declaration of Trust dated
October 18, 1995 ("Declaration of Trust"), the Bylaws of the Trust and such
other documents and records deemed relevant. I have also reviewed questions of
law and consulted with counsel thereon as deemed necessary or appropriate by me
for the purposes of this opinion.
Based upon the foregoing, it is my opinion that:
1. The Trust is duly organized and validly existing pursuant to the laws
of the Commonwealth of Massachusetts.
2. The Shares which are currently being registered by the Registration
Statement referred to above may be legally and validly issued from time to time
in accordance with the Declaration of Trust upon receipt of consideration
sufficient to comply with the Declaration of Trust and subject to compliance
with the Securities Act of 1933, as amended, the Investment Company Act of 1940,
as amended, and applicable state laws regulating the sale of securities. Such
Shares, when so issued, will be fully paid and non-assessable by the Trust.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement referred to above and to any application or registration
statement filed under the securities laws of any of the States of the United
States.
The foregoing opinion is limited to the Federal laws of the United States
and the laws of the Commonwealth of Massachusetts, and I am expressing no
opinion as to the effect of the laws of any other jurisdiction.
Very truly yours,
/s/ Jay S. Neuman
Jay S. Neuman
Secretary,
Exhibit 13 under Form N-1A
Exhibit 99 under Item 601/Reg. S-K
FEDERATED SERVICES COMPANY
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
(412) 288-1900
December 18, 1995
FTI Funds
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Gentlemen:
Federated Services Company agrees to purchase 10,000 shares of FTI Global Bond
Fund (a portfolio of the FTI Funds) at the cost of $10.00 each. These shares
are purchased for investment purposes and Federated Services Company has no
present intention of redeeming these shares.
Very truly yours,
/s/ S. Elliott Cohan
S. Elliott Cohan
Assistant Secretary
Federated Services Company
Exhibit 19 under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
the Secretary and Assistant Secretary of FTI FUNDS and the Deputy General
Counsel of Federated Investors, and each of them, their true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
for them and in their names, place and stead, in any and all capacities, to sign
any and all documents to be filed with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, by means of the Securities and Exchange
Commission's electronic disclosure system known as EDGAR; and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to sign and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as each of them might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
SIGNATURES TITLE DATE
/s/ Edward C. Gonzales President, TreasurerDecember 20, 1995
Edward C. Gonzales and Trustee
(Chief Executive Officer and
Principal Financial and
Accounting Officer)
/s/ Peter A. Aron Trustee December 20, 1995
Peter A. Aron
/s/ Nancy L. Close Trustee December 20, 1995
Nancy L. Close
/s/ James C. Goodfellow Trustee December 20, 1995
James C. Goodfellow
/s/ Burton J. Greenwald Trustee December 20, 1995
Burton J. Greenwald
Sworn to and subscribed before me this 20th day of December , 1995.
- -- -----
(SEAL)
/s/ Marie M. Hamm
--------------------------------------------
Notarial Seal
Marie M. Hamm, Notary Public
Plum Boro, Allegheny County
My Commission Expires September 16, 1996
