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
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Post-Effective Amendment No. 6 .................................X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 7 ................................................X
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FTI FUNDS
(Exact name of Registrant as Specified in Charter)
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7010
(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)
It is proposed that this filing will become effective:
_ immediately upon filing pursuant to paragraph (b)
X__ on March 30, 1999, pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i).
_ 75 days after filing pursuant to paragraph (a)(ii) on _________________
pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Copy to:
Dewey Ballantine
1301 Avenue of the Americas
New York, NY 10019-6092
FTI Funds
Prospectus
March 31, 1999
Not part of the Prospectus
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Summary of Fund Goals, Strategies, Performance 2
and Risk
Fees and Expenses of the Funds 10
Investment Strategies for the Funds 19
Investment Securities and Techniques Used by the Funds 23
Principal Investment Risks of the Funds 31
What Shares Cost 36
Share Purchases 37
How the Funds Are Distributed/Sold 38
Redemptions and Exchanges 39
Account and Share Information 42
Management of FTI Funds 44
Financial Information 48
</TABLE>
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
Prospectus
March 31, 1999
Summary of Fund Goals, Strategies, Performance and Risk FTI Funds offer
investment opportunities to a wide range of investors.
FTI Municipal Bond Fund
(Municipal Bond Fund)
Goal: The Fund's goal is total return with emphasis on income.
Strategy: To seek its goal, the Fund invests in high quality municipal
securities of intermediate duration and fixed income securities so that at least
80% of its annual interest income is exempt from federal regular income tax.
(Federal regular income tax does not include the federal individual alternative
minimum tax or the federal alternative minimum tax for corporations.) The Fund
may invest in obligations subject to alternative minimum tax without limit.
Under normal market conditions, at least 80% of the Fund's assets are invested
in investment grade securities or unrated securities deemed by the Adviser to be
of comparable quality to investment grade securities. No more than 20% of the
assets may be invested in securities rated as low as B. In selecting securities
for the Fund, the Adviser assesses the impact of anticipated interest rates and
market risks. The Adviser actively allocates securities among market sectors.
FTI Bond Fund
(Bond Fund)
Goal: The Fund's goal is total return with emphasis on income. Strategy: To
seek its goal, the Fund invests in fixed income securities so that, under normal
market conditions, at least 80% of its assets are invested in investment grade
securities or unrated securities deemed by the Adviser to be of comparable
quality to investment grade securities. In selecting securities for the Fund,
the Adviser evaluates the impact of economic and political trends and market
risks. Up to 30% of the assets may be invested in securities of foreign issuers,
provided that the securities are denominated in U.S. dollars. In order to
control risks, the Adviser manages domestic bond and foreign markets as distinct
asset classes. The securities in which the Fund invests may be of any maturity,
but under normal market conditions the Fund's duration is within one and a half
years of the Lehman Brothers Aggregate Bond Index which is currently about four
and one half years.
Mutual Fund--
A registered investment company that offers an affordable, diversified and
professionally managed way for people to invest in the financial marketplace. A
mutual fund pools the money of its shareholders to invest in a "mix" of
securities, called a portfolio, that pursues a specific objective. The money
earned from the portfolio of investments is distributed back to shareholders as
dividends, or, if any securities are sold at a profit, as capital gains.
Shareholders can reinvest their earnings to purchase additional shares of the
fund, or receive their earnings in cash.
FTI Large Capitalization Growth Fund
(Large Capitalization Growth Fund)
Goal: The Fund's goal is long-term growth of principal.
Strategy: To seek its goal, the Fund invests in equity securities of companies
with market capitalizations in excess of $5 billion at the time of purchase,
that the Adviser believes are of above-average financial quality and offer the
prospect for above-average growth of earnings, cash flow, or assets relative to
the companies that comprise the Standard & Poor's 500 Composite Stock Price
Index (S&P 500). In selecting securities for the Fund, the Adviser considers
earnings growth, relative valuation measures and quality of company management.
FTI Large Capitalization
Growth and Income Fund
(Large Capitalization Growth and Income Fund)
Goal: The Fund's goal is long-term growth of principal and income. Strategy:
To seek its goal, the Fund invests in dividend-paying equity securities of
companies, with market capitalizations in excess of $5 billion at the time of
purchase, that the Adviser believes will approximate the dividend yield of the
companies which comprise the S&P 500, while attempting to keep taxable capital
gains distributions relatively low. In selecting securities for the Fund, the
Adviser uses methods very similar to those described above for Large
Capitalization Growth Fund. However, for the Fund, the Adviser focuses on a
company's securities' dividend paying prospects in an effort to generate income.
A Tax-Sensitive Approach to Investing: In pursuing its goal, the Fund will be
managed in an attempt to keep its distributions of capital gains relatively low.
For example, it will generally buy securities that it intends to hold for a
number of years and avoid short-term trading. In deciding which securities to
sell, the Adviser will consider their capital gain or loss situation, and may
attempt to offset capital gains by timing its sales of securities that have gone
down in value. Also, the Adviser will consider selling any security that has not
met growth expectations, in which case the capital gain, if any, would be
relatively small. Successful application of this strategy may result in
shareholders incurring relatively larger amounts of capital gains when they
ultimately sell their shares.
Risk--
The chance that the value of an investment could decline or that income from the
investment could be different than expected. There are several types of risk
that vary according to the type of investment.
FTI Small Capitalization Equity Fund
(Small Capitalization Equity Fund)
Goal: The Fund's goal is to provide growth of principal.
Strategy: To seek its goal, the Fund invests in the common stock of companies,
with market capitalizations below $1.5 billion at the time of purchase, that the
Adviser believes are undervalued in the marketplace or have earnings that might
be expected to grow faster than the U.S. economy in general. In selecting
securities for the Fund, the Adviser focuses on companies with unique franchise
opportunities, and companies that have high barriers of entry to competitors,
strong balance sheets and cash flows, and superior management.
FTI International Equity Fund
(International Equity Fund)
Goal: The Fund's goal is to provide growth of principal.
Strategy: To seek its goal, the Fund invests in the equity and debt obligations
of issuers in at least three countries outside the United States so that at
least 65% of its assets are invested in securities denominated in foreign
currencies and at least 65% of its assets are invested in equity securities.
Under normal market conditions, the Adviser invests substantially all of the
Fund's assets in equity securities either denominated in foreign currencies or
issued by issuers located in at least three countries outside of the United
States. In selecting securities for the Fund, the Adviser uses fundamental
research and value screening to select underpriced quality growth companies from
higher growth regions of the world.
Investment Risks of the Funds
In addition to the risks set forth below that are specific to an investment in a
particular Fund, there are risks common to mutual funds. For example, a Fund's
share price may decline and an investor could lose money, perhaps even your
entire investment. Also, there is no assurance that a Fund will achieve its
investment objective. You should be aware that the shares offered by this
prospectus are not deposits or obligations of any
<TABLE>
<CAPTION>
Risks Related to Municipal Bond Large Cap Large Cap Small Cap International
Fixed Income Securities: Bond Growth Growth & Income Equity Equity
<S> <C> <C> <C> <C> <C> <C>
Bond Market X X
Credit X X
Call X X
Prepayment X X
Liquidity X X
Sector X X
Non-Investment Grade Securities X X
Complicated CMOs X
Currency
Euro
Foreign Investing X X
Emerging Market Countries
Leveraging X
Tax Risks X
Risks Related to Equity Securities:
Stock Market X X X X
Sector X X X X
Liquidity X X X X
Investing for Growth X X
Investing for Value X
Company Size
Currency
Euro X
Foreign Investing X
Emerging Market Countries X
Leveraging
Credit (Counter-Party)
</TABLE>
bank, are not endorsed or guaranteed by any bank and are not insured or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency. An investment in any
one or all of the Funds does not necessarily constitute a balanced investment
program for any one investor. Finally, all of the Funds bear the risk of Year
2000 readiness.
FTI Small Capitalization Equity Fund
Risk/Return Bar Chart
[CHART APPEARS HERE]
The bar chart shows the variability of the Fund's actual total return on a
yearly basis.
The Fund does not impose a sales charge. Hence, the total return displayed above
is based on net asset value.
Within the period shown in the Chart, the Fund's highest quarterly return was
24.04% (quarter ended December 31, 1998). Its lowest quarterly return was -
21.53% (quarter ended September 30, 1998).
Average Annual Return for the Fund compared to the Russell 2000 Growth Index.
Calendar Period Fund Russell 2000 Growth Index
1 Year 3.03% 1.23%
Since Inception* 14.27% 8.96%
*The Fund's inception date was December 22, 1995.
The table shows the Fund's average annual total returns compared to the Russell
2000 Growth Index, which includes those Russell 2000 companies with higher than
average price-to-book ratios and higher than average forecasted growth values.
While past performance does not necessarily predict future performance, this
information provides historical performance information so that you can analyze
whether the Fund's investment risks are balanced by its potential rewards.
FTI International Equity Fund
Risk/Return Bar Chart
[CHART APPEARS HERE]
The bar chart shows the variability of the Fund's actual total return on a
yearly basis.
The Fund does not impose a sales charge. Hence, the total return displayed above
is based on net asset value.
Within the period shown in the Chart, the Fund's highest quarterly return was
20.47% (quarter ended March 31, 1998). Its lowest quarterly return was -19.01%
(quarter ended September 30, 1998).
Average Annual Return for the Fund, compared to the Morgan Stanley Capital
International Europe, Australia and Far East Index (MSCI EAFE)
<TABLE>
<CAPTION>
Calendar Period Fund MSCI EAFE
<S> <C> <C>
1 Year 12.86% 20.00 %
Since Inception* 12.87% 9.00%
</TABLE>
*The Fund's inception date was December 22, 1995.
The table shows the Fund's average annual total returns compared to the MSCI
EAFE, a market capitalization-weighted foreign securities index, which is widely
used to measure the performance of European, Australian, New Zealand, and Far
Eastern stock markets. Indices are unmanaged and investments cannot be made in
an index.
While past performance does not necessarily predict the future performance, this
information provides historical performance information so that you can analyze
whether the Fund's investment risks are balanced by its potential rewards.
Fees and Expenses of the Funds
FTI Municipal Bond Fund
Fees And Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the FTI Municipal Bond Fund.
Shareholder Fees (Fees Paid Directly From Your Investment)
Maximum Sales Charge (Load) None Imposed on Purchases (as a percentage of
offering price) Maximum Deferred Sales Charge (Load) None (as a percentage of
original purchase price or redemption proceeds, as applicable) Maximum Sales
Charge (Load) None Imposed on Reinvested Dividends (and other Distributions) (as
a percentage of offering price) Redemption Fee (as a percentage of None amount
redeemed, if applicable) Exchange Fee None
Annual Fund Operating Expenses (Before Waiver) (1)
Expenses That Are Deducted From Fund Assets
(as a percentage of average net assets)
Management Fee (2) 0.50%
Shareholder Services Fee (3) 0.25%
Distribution (12b-1) Fee (3) 0.75%
Other Expenses (4) 0.47%
Total Annual Fund Operating Expenses
(before waiver) (5) 1.97%
1 Although not contractually obligated to do so, the Adviser, Distributor and
Shareholder Services provider have agreed to waive certain amounts. These are
shown below along with the net expenses the Fund is expected to actually pay for
the fiscal year ending November 30, 1999.
Waiver of Fund Expenses 1.15%
Total Expected Annual Fund Operating Expenses (after waiver) 0.82%
2 The Adviser will waive a portion of the management fee. The Adviser can
terminate this voluntary waiver at any time. The management fee the Fund is
expected to pay (after the voluntary waiver) is 0.35% for the year ending
November 30, 1999.
3 The Fund has no present intention of paying or accruing the Distribution (12b-
1) fee or Shareholder Services fee during the fiscal year ending November 30,
1999.
4 Other Expenses are based on estimated amounts for the fiscal year ending
November 30, 1999.
5 As noted above in (2) and (3), certain fees are being voluntarily waived or
are not currently being accrued.
Example
This Example is intended to help you compare the cost of investing in FTI
Municipal Bond Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses are before waivers as shown in the table and remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 Year 3 Years
FTI Municipal Bond Fund $200 $618
Management Fee--
This is a basic fee associated with all mutual funds. It is the fee paid by the
fund to the investment adviser who makes all the day-to-day investment decisions
for the fund.
FTI Bond Fund
Fees And Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the FTI Bond Fund.
Shareholder Fees (Fees Paid Directly From Your Investment)
Maximum Sales Charge (Load) None
Imposed on Purchases (as a percentage of offering price)
Maximum Deferred Sales Charge (Load) None
(as a percentage of original purchase
price or redemption proceeds, as applicable)
Maximum Sales Charge (Load) None
Imposed on Reinvested Dividends
(and other Distributions) (as a percentage of offering price)
Redemption Fee (as a percentage of amount redeemed,
if applicable) None
Exchange Fee None
Annual Fund Operating Expenses (Before Waiver) (1)
Expenses That Are Deducted From Fund Assets
(as a percentage of average net assets)
Management Fee 0.50%
Shareholder Services Fee (2) 0.25%
Distribution (12b-1) Fee (2) 0.75%
Other Expenses (3) 0.48%
Total Annual Fund Operating Expenses
(before waiver) (4) 1.98%
1 Although not contractually obligated to do so, the Distributor and Shareholder
Services provider have agreed to waive certain amounts. These are shown below
along with the net expenses the Fund is expected to actually pay for the fiscal
year ending November 30, 1999.
Waiver of Fund Expenses 1.00%
Total Expected Annual Fund Operating Expenses (after waiver) 0.98%
2 The Fund has no present intention of paying or accruing the Distribution (12b-
1) fee or Shareholder Services fee during the fiscal year ending November 30,
1999.
3 Other Expenses are based on estimated amounts for the fiscal year ending
November 30, 1999.
4 As noted above in (2), certain fees are being voluntarily waived or are not
currently being accrued.
Example
This Example is intended to help you compare the cost of investing
in FTI Bond Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses are before waivers as shown in the table and remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 Year 3 Years
FTI Bond Fund $201 $621
Annual Fund Operating Expenses (Before Waiver) (1)
Expenses That Are Deducted From Fund Assets
(as a percentage of average net assets)
Management Fee 0.50%
Shareholder Services Fee (2) 0.25%
Distribution (12b-1) Fee (2) 0.75%
Other Expenses (3) 0.48%
Total Annual Fund Operating Expenses
(before waiver) (4) 1.98%
1 Although not contractually obligated to do so, the Distributor and Shareholder
Services provider have agreed to waive certain amounts. These are shown below
along with the net expenses the Fund is expected to actually pay for the fiscal
year ending November 30, 1999.
Waiver of Fund Expenses 1.00%
Total Expected Annual Fund Operating Expenses (after waiver) 0.98%
2 The Fund has no present intention of paying or accruing the Distribution (12b-
1) fee or Shareholder Services fee during the fiscal year ending November 30,
1999.
3 Other Expenses are based on estimated amounts for the fiscal year ending
November 30, 1999.
4 As noted above in (2), certain fees are being voluntarily waived or are not
currently being accrued.
Example
This Example is intended to help you compare the cost of investing in FTI Bond
Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses are before waivers as shown in the table and remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 Year 3 Years
FTI Bond Fund $201 $621
FTI Large Capitalization Growth Fund
Fees And Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the FTI Large Capitalization Growth Fund.
Shareholder Fees (Fees Paid Directly From Your Investment)
Maximum Sales Charge (Load) None
Imposed on Purchases (as a percentage of offering price)
Maximum Deferred Sales Charge (Load) None
(as a percentage of original purchase
price or redemption proceeds, as applicable)
Maximum Sales Charge (Load) None
Imposed on Reinvested Dividends
(and other Distributions) (as a percentage of offering price)
Redemption Fee (as a percentage of
amount redeemed, if applicable) None
Exchange Fee None
Annual Fund Operating Expenses (Before Waiver) (1)
Expenses That Are Deducted From Fund Assets
(as a percentage of average net assets)
Management Fee 0.75%
Shareholder Services Fee (2) 0.25%
Distribution (12b-1) Fee (2) 0.75%
Other Expenses (3) 0.61%
Total Annual Fund Operating Expenses
(before waiver) (4) 2.36%
1 Although not contractually obligated to do so, the Distributor and Shareholder
Services provider have agreed to waive certain amounts. These are shown below
along with the net expenses the Fund is expected to actually pay for the fiscal
year ending November 30, 1999.
Waiver of Fund Expenses 1.00%
Total Expected Annual Fund Operating Expenses (after waiver) 1.36%
2 The Fund has no present intention of paying or accruing the Distribution (12b-
1) fee or Shareholder Services fee during the fiscal year ending November 30,
1999.
3 Other Expenses are based on estimated amounts for the fiscal year ending
November 30, 1999.
4 As noted above in (2), certain fees are being voluntarily waived or are not
currently being accrued.
Example
This Example is intended to help you compare the cost of investing in FTI Large
Capitalization Growth Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses are before waivers as shown in the table and remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 Year 3 Years
FTI Large Capitalization Growth Fund $239 $736
FTI Large Capitalization Growth and Income Fund
Fees And Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the FTI Large Capitalization Growth & Income Fund
Shareholder Fees (Fees Paid Directly From Your Investment)
Maximum Sales Charge (Load) None
Imposed on Purchases (as a percentage of offering price)
Maximum Deferred Sales Charge (Load) None
(as a percentage of original purchase
price or redemption proceeds, as applicable)
Maximum Sales Charge (Load) None
Imposed on Reinvested Dividends
(and other Distributions) (as a percentage of offering price)
Redemption Fee (as a percentage of
amount redeemed, if applicable) None
Exchange Fee None
Annual Fund Operating Expenses (Before Waiver) (1)
Expenses That Are Deducted From Fund Assets
(as a percentage of average net assets)
Management Fee 0.75%
Shareholder Services Fee (2) 0.25%
Distribution (12b-1) Fee (2) 0.75%
Other Expenses (3) 0.33%
Total Annual Fund Operating Expenses
(before waiver) (4) 2.08%
1 Although not contractually obligated to do so, the Distributor and Shareholder
Services provider have agreed to waive certain amounts. These are shown below
along with the net expenses the Fund is expected to actually pay for the fiscal
year ending November 30, 1999.
Waivers of Fund Expenses 1.00%
Total Expected Annual Fund Operating Expenses (after waiver) 1.08%
2 The Fund has no present intention of paying or accruing the Distribution (12b-
1) fee or Shareholder Services fee during the fiscal year ending November 30,
1999.
3 Other Expenses are based on estimated amounts for the fiscal year ending
November 30, 1999.
4 As noted above in (2), certain fees are being voluntarily waived or are not
currently being accrued.
Example
This Example is intended to help you compare the cost of investing in FTI Large
Capitalization Growth and Income Fund with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses are before waivers as shown in the table and remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 Year 3 Years
FTI Large Capitalization Growth & Income Fund $211 $652
FTI Small Capitalization Equity Fund
Fees And Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the FTI Small Capitalization Equity Fund.
Shareholder Fees (Fees Paid Directly From Your Investment)
Maximum Sales Charge (Load) None
Imposed on Purchases (as a percentage of offering price)
Maximum Deferred Sales Charge (Load) None
(as a percentage of original purchase
price or redemption proceeds, as applicable)
Maximum Sales Charge (Load) None
Imposed on Reinvested Dividends
(and other Distributions) (as a percentage of offering price)
Redemption Fee (as a percentage of
amount redeemed, if applicable) None
Exchange Fee None
Annual Fund Operating Expenses
(Before Reimbursement and Waiver) (1)
Expenses That Are Deducted From Fund Assets
(as a percentage of average net assets)
Management Fee 1.00%
Shareholder Services Fee (2) 0.25%
Distribution (12b-1) Fee (2) 0.75%
Other Expenses (3) 0.51%
Total Annual Fund Operating Expenses
(before reimbursement and waiver) (4) 2.51%
1 Although not contractually obligated to do so, the Adviser, Distributor and
Shareholder Services provider waived and reimbursed certain amounts. These are
shown below along with the net expenses the Fund actually paid for the fiscal
year ended November 30, 1998.
Reimbursement and Waiver of Fund Expenses 1.01%
Total Actual Annual Fund Operating Expenses
(after reimbursement and waiver) 1.50%
2 The Fund did not pay or accrue the Distribution (12b-1) fee or the Shareholder
Services fee during the fiscal year ended November 30, 1998. The Fund has no
present intention of paying or accruing the Distribution (12b-1) fee or
Shareholder Services fee during the fiscal year ending November 30, 1999.
3 The Adviser voluntarily reimbursed certain operating expenses of the Fund. The
Adviser can terminate this voluntary reimbursement at any time. Total other
expenses paid by the Fund (after the voluntary reimbursement) was 0.50% for the
fiscal year ended November 30, 1998.
4 As noted above in (2), certain fees are being voluntarily waived or are not
currently being accrued.
Example
This Example is intended to help you compare the cost of investing in FTI Small
Capitalization Equity Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses are before reimbursements and waivers as shown in the
table and remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
FTI Small Capitalization Equity Fund $254 $782 $1,335 $2,846
FTI International Equity Fund
Fees And Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the FTI International Equity Fund.
Shareholder Fees (Fees Paid Directly From Your Investment)
Maximum Sales Charge (Load) None
Imposed on Purchases (as a percentage of offering price)
Maximum Deferred Sales Charge (Load) None
(as a percentage of original purchase
price or redemption proceeds, as applicable)
Maximum Sales Charge (Load) None
Imposed on Reinvested Dividends
(and other Distributions) (as a percentage of offering price)
Redemption Fee (as a percentage of
amount redeemed, if applicable) None
Exchange Fee None
Annual Fund Operating Expenses
(Before Reimbursement and Waiver) (1)
Expenses That Are Deducted From Fund Assets
(as a percentage of average net assets)
Management Fee 1.00%
Shareholder Services Fee (2) 0.25%
Distribution (12b-1) Fee (2) 0.75%
Other Expenses (3) 0.49%
Total Annual Fund Operating Expenses
(before reimbursement and waiver) (4) 2.49%
1Although not contractually obligated to do so, the Adviser, Distributor and
Shareholder Services provider waived and reimbursed certain amounts. These are
shown below along with the net expenses the Fund actually paid for the fiscal
year ended November 30, 1998.
Reimbursement and Waiver of Fund Expenses 1.10%
Total Actual Annual Fund Operating Expenses
(after reimbursement and waiver) 1.39%
2The Fund did not pay or accrue the Distribution (12b-1) fee or the Shareholder
Services fee during the fiscal year ended November 30, 1998. The Fund has no
present intention of paying or accruing the Distribution (12b-1) fee or
Shareholder Services fee during the fiscal year ending November 30, 1999.
3The Adviser voluntarily reimbursed certain operating expenses of the Fund. The
Adviser can terminate this voluntary reimbursement at any time. Total other
expenses paid by the Fund (after the voluntary reimbursement) was 0.39% for the
year ended November 30, 1998.
4As noted above in (2), certain fees are being voluntarily waived or are not
currently being accrued.
Example
This Example is intended to help you compare the cost of investing in FTI
International Equity Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses are before reimbursements and waivers as shown in the
table and remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
FTI International Equity Fund $252 $776 $1,326 $2,826
Investment Strategies for the Funds Municipal Bond Fund
Strategy: The Adviser's strategy is to produce tax-exempt income, seek
opportunities for capital appreciation and control risks of capital losses. To
seek total return, the Adviser invests primarily in high quality securities of
intermediate (5-15 years) duration. To seek capital appreciation, the Adviser
uses moderate interest rate anticipation, active sector allocation and
disciplined security selection. The Adviser employs a gradual approach when
shifting a portfolio's duration with a local market. As confirmations of
forecasts are received, the Adviser begins a gradual process of lengthening or
shortening duration. The Adviser relies on historical data as well as investment
research. The focus of the Adviser's research process is identifying and
quantifying the risks inherent in specific bond market sectors and securities
within those sectors. To enhance after-tax total return, the Adviser may,
from time to time, select taxable securities such as U.S. Treasury securities.
The Adviser may purchase Treasury securities as a short-term investment while it
seeks other buying opportunities, or to capitalize on a market rally. Treasury
securities possess superior performance and generally outperform municipal
securities in an up market.
The Fund does not intend to purchase securities if, as a result of such
purchase, more than 25% of the value of its total assets would be invested in
the securities of governmental subdivisions located in any one state, territory
or possession of the United States. As noted, the Fund seeks to produce
total return, with emphasis on tax exempt income. Total return measures the
overall change in the value of an investment in the Fund (assuming reinvestment
of dividend and capital gain distributions). Two factors make up total return:
income produced by the Fund's investments (at least 80% of which will be exempt
from federal regular income tax), and the change in value of the Fund's
investments (which will be reflected in changes in the value of the Fund's
shares). A positive change in value is called capital appreciation. Capital
appreciation of securities the Fund continues to hold is known as "unrealized"
appreciation, and is reflected in an increase in the value of the Fund's shares.
When the Fund sells such a security, it "realizes" the capital appreciation (or
"capital gains"). The Fund must distribute capital gains (which are taxable) to
shareholders. When the Fund makes distributions, its share price will decline by
the amount of the per share distribution.
The Municipal Bond Fund generally seeks to provide tax-exempt income, whereas
the Bond Fund seeks to generate taxable income.
Bond Fund
Strategy: The Adviser's strategy is to produce income, seek opportunities for
capital appreciation and control risks of capital losses. To seek capital
appreciation, the Adviser evaluates economic and political trends to assess the
expected distribution of returns. As a general matter, the Fund's investments
are expected to produce income in the form of interest payments to the Fund. As
investment strategies are implemented, the Adviser's forecasts are continually
reviewed to confirm investment views. The Adviser reviews forecast returns to
determine preferred markets. The Adviser actively manages sector allocation,
duration targets and issue selection.
The average credit quality of the portfolio is a minimum of AA. No more than 20%
of the assets may be invested in securities rated as low as B. Under normal
market conditions, the Fund's duration is within one and a half years of the
Lehman Brothers Aggregate Bond Index which is currently about four and one half
years. Lehman Brothers Aggregate Bond Index is comprised of U.S. Treasury
obligations, U.S. agency obligations, foreign obligations, U.S. investment-grade
corporate debt and mortgage-backed obligations.
Large Capitalization Growth Fund
Strategy: Investments are allocated among different industries and companies and
these holdings are adjusted based on long-term 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 large capitalization
companies, which the Fund defines as those having a market value capitalization
in excess of $5 billion. The Fund emphasizes U.S. securities but may also invest
up to 10% of its net assets in equity securities of foreign growth companies
which meet the criteria applicable to U.S. securities and up to 20% of its net
assets in American Depositary Receipts (ADRs). In selecting securities, the
Adviser considers earnings growth, relative valuation measures and company
management. When analyzing earnings growth, the Adviser looks for strong,
sustainable internal growth and a high proportion of recurring revenues. The
Adviser also evaluates the quality of an issuer's earnings and the probability
of retaining or widening profitability. In analyzing relative valuation, the
Adviser performs a risk/reward analysis and a review of price/earnings ratios,
growth estimates and return on invested capital. The Adviser's management
analysis favors management with a proven track record, wide equity ownership and
incentive programs. Large Capitalization Growth and Income Fund
Strategy: In pursuing its goal, the Adviser uses methodologies very similar to
those described above for Large Capitalization Growth Fund, except that it will
manage the Large Capitalization Growth and Income Fund with a greater focus on
dividends. The Fund is expected to have fewer holdings than Large Capitalization
Growth Fund and may commit a larger portion of its assets to a single holding.
Under normal market conditions, at least 65% of the total assets of the Fund's
portfolio will be invested in the common stock of large capitalization
companies, which the Fund defines as those having a market value capitalization
in excess of $5 billion. The Fund may invest up to 10% of its net assets in
equity securities of foreign growth companies which meet the criteria applicable
to U.S. securities.
Small Capitalization Equity Fund
Strategy: The Fund invests in common stock of small capitalization companies
that have a market capitalization below $1.5 billion at the time of purchase.
Under normal market conditions, at least 65% of the total assets of the Fund's
portfolio will be invested in these securities. The Fund may also invest up to
10% of its net assets in foreign securities traded publically in the United
States. The Adviser seeks companies that are undervalued in the market place, or
that have earnings that are expected to grow faster than the U.S. economy. The
Adviser also seeks stocks of companies whose expected growth rates exceed their
current price-earnings ratio. Such companies typically possess a relatively high
rate of return on invested capital so that future growth can be internally
financed. They may offer the potential for accelerating earnings growth because
they offer an opportunity to participate in new products, services and
technologies. The Adviser also selects companies that have unique franchise
opportunities, high barriers to competition, strong balance sheets and cash
flows and superior management.
Growth and Income is managed with a sensitivity to incurring taxes Large
Capitalization Growth and Income Fund seeks to minimize capital gains tax
implications by applying a buy-and-hold approach to managing the portfolio.
International Equity Fund
Strategy: Through fundamental research and a value screen, the Adviser
identifies foreign equity securities determined to be underpriced. Through
meetings with company management and on-site visits, the Adviser evaluates the
company's recent price performance earnings estimate together with consensus
sell-side analysts' estimates, cash flow, valuation multiples, the Fund's price
targets and total return potential. The Adviser uses fundamental analysis to
assess world economies and make projections regarding future trends in economic
activity. The Adviser then determines whether it believes that current
securities prices reflect these projected trends, selecting for purchase those
securities whose near-term growth and long-term growth prospects are not
perceived fully valued in the market place. The Adviser seeks to create a
diversified portfolio of underpriced quality growth companies from higher growth
regions of the world. The Adviser selects securities from foreign industrialized
countries that comprise the Morgan Stanley Capital International EAFE Index
(Europe, Australia and the Far East). The Fund may invest up to 20% of its total
assets in common stocks of issuers located in emerging market nations. The Fund
may also invest up to 35% of its total assets in debt securities.
Fundamental Research--
A standard way to analyze the strength of a stock, this form of analysis focuses
on the basic financial and operating strength of the company issuing the stock.
Investment Securities and Techniques Used by the Funds Following is a table
that indicates which types of securities are a: P = Principal investment of a
Fund; (shaded in chart) A = Acceptable (but not principal) investment of a Fund;
or N = Not an acceptable investment of a Fund.
Securities in Large Large Cap Small
which the Municipal Cap Growth & Cap Internationl
Funds Invest: Bond Bond Growth Income Equity Equity
Equity Securities N N P P P P
Common Stocks N N P P P P
Preferred Stocks N A P A A P
Real Estate
Investment Trusts N N A A A N
Warrants N N A A A A
Fixed Income P P A A A A
Securities
Treasury Securities A P A A A A
Agency Securities A P A A A A
Corporate Debt
Securities A P A A A A
Commercial
Paper A A A A A A
Demand
Instruments A A A A N N
Taxable Municipal
Securities A P N N N N
Mortgage Backed
Securities A P N N N N
Collateralized
Mortgage
Obligations
(CMOs) A A N N N N
Sequential
CMOs A A N N N N
PACs, TACs &
Companion
Classes A A N N N N
IOs and POs N A N N N N
Securities in Large Large Cap Small
which the Municipal Cap Growth & Cap Internationl
Funds Invest: Bond Bond Growth Income Equity Equity
Floaters
and Inverse
Floaters N A N N N N
Z Classes
and Residual
Classes N A N N N N
Asset Backed
Securities A A N N N N
Zero Coupon
Securities A A A A A A
Bank Instruments A A A A A A
Credit
Enhancement P A N N N N
Convertible
Securities N A A A A A
Tax Exempt
Securities P A N N N N
General
Obligation Bonds P A N N N N
Special
Revenue Bonds P A N N N N
Private
Activity Bonds A A N N N N
Tax Increment
Financing Bonds A A N N N N
Municipal Notes A A N N N N
Variable Rate
Demand
Instruments A A N N A N
Municipal
Leases P A N N N N
Foreign
Securities A A A A A P
Depository
Receipts N N A A A A
Foreign
Exchange
Contracts N N N N N A
Foreign
Government
Securities A A N N N A
Securities in Large Large Cap Small
which the Municipal Cap Growth & Cap Internationl
Funds Invest: Bond Bond Growth Income Equity Equity
Derivative
Contracts A A A A A A
Futures
Contracts A A A A N A
Options A A A A A A
Swaps N A N N N N
Interest Rate
Swaps N A N N N N
Currency
Swaps N A N N N N
Caps & Floors N A N N N N
Total Return
Swaps N A N N N N
Hybrid
Instruments N A N N N N
Special Transactions A A A A A A
Repurchase
Agreements A A A A A A
Reverse
Repurchase
Agreements A A A A A A
Delayed
Delivery
Transactions A A A A A A
To Be
Announced
Securities
(TBAs) A A N N N N
Dollar Rolls A A N N N N
Securities
Lending A A A A A A
Asset Coverage A A N N N N
Shares of
Other
Investment
Companies A A A A A A
Restricted
and Illiquid
Securities A A A A A A
Other securities and techniques used by the Funds to meet their respective goals
are described in the Statement of Additional Information.
Equity Securities
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. A Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business.
The following describes the types of equity securities in which the Funds invest
as noted in the chart.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
Preferred Stocks
Preferred stocks have the right to receive specified dividends or distributions
before the issuer makes payments on its common stock. Some preferred stocks also
participate in dividends and distributions paid on common stock. Preferred
stocks may also permit the issuer to redeem the stock. A Fund may also treat
such redeemable preferred stock as a fixed income security.
Fixed Income Securities
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
30-Day SEC Yield--
The Securities and Exchange Commission (SEC) has standardized this way to
calculate the yield of a mutual fund. It is calculated by dividing the net
investment income per share earned by the fund over a 30-day period by the share
price on that date. The figure is compounded and annualized.
The following describes the types of fixed income securities in which the Funds
invest as noted in the chart.
Treasury Securities
Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks. Agency Securities Agency securities are issued or
guaranteed by a federal agency or other government sponsored entity acting under
federal authority (a GSE). The United States supports some GSEs with its full
faith and credit. Other GSEs receive support through federal subsidies, loans or
other benefits. A few GSEs have no explicit financial support, but are regarded
as having implied support because the federal government sponsors their
activities. Agency securities are generally regarded as having low credit risks,
but not as low as treasury securities.
A Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risks, it does not
reduce the market and prepayment risks of these mortgage backed securities.
Corporate Debt Securities
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities. A Fund may also purchase interests in bank loans to
companies. The credit risks of corporate debt securities vary widely among
issuers. In addition, the credit risk of an issuer's debt security may vary
based on its priority for repayment. For example, higher ranking (senior) debt
securities have a higher priority than lower ranking (subordinated) securities.
This means that the issuer might not make payments on subordinated securities
while continuing to make payments on senior securities. In addition, in the
event of bankruptcy, holders of senior securities may receive amounts otherwise
payable to the holders of subordinated securities. Some subordinated securities,
such as trust preferred and capital securities notes, also permit the issuer to
defer payments under certain circumstances. For example, insurance companies
issue securities known as surplus notes that permit the insurance company to
defer any payment that would reduce its capital below regulatory requirements.
Investment Grade Bonds--
Corporate and municipal bonds rated within the top four categories (Baa or
higher by Moody's or BBB or higher by Standard & Poor's) based on the issuer's
ability to pay the interest and principal. Bonds rated lower are more
speculative. U.S. Treasury and government agency bonds are not rated because the
payment of principal and interest are guaranteed directly by the U.S. government
or the issuing agency.
Municipal Securities
Municipal securities are issued by states, counties, cities and other political
subdivisions and authorities. Although many municipal securities are exempt from
federal income tax, a Fund may invest in taxable municipal securities.
Mortgage Backed Securities
Mortgage backed securities represent interests in pools of mortgages. The
mortgages that comprise a pool normally have similar interest rates, maturities
and other terms. Mortgages may have fixed or adjustable interest rates.
Interests in pools of adjustable rate mortgages are known as ARMs.
Mortgage backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage backed securities are
pass-through certificates. An issuer of pass-through certificates gathers
monthly payments from an underlying pool of mortgages. Then, the issuer deducts
its fees and expenses and passes the balance of the payments onto the
certificate holders once a month. Holders of pass-through certificates receive a
pro rata share of all payments and pre-payments from the underlying mortgages.
As a result, the holders assume all the prepayment risks of the underlying
mortgages.
Credit Enhancement
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security if the issuer defaults. In some cases the
company providing credit enhancement makes all payments directly to the security
holders and receives reimbursement from the issuer. Normally, the credit
enhancer has greater financial resources and liquidity than the issuer. For this
reason, the Adviser usually evaluates the credit risk of a fixed income security
based solely upon its credit enhancement.
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security. If
a default occurs, these assets may be sold and the proceeds paid to security's
holders. Either form of credit enhancement reduces credit risks by providing
another source of payment for a fixed income security. Convertible
Securities Convertible securities are fixed income securities that a Fund
has the option to exchange for equity securities at a specified conversion
price. The option allows a Fund to realize additional returns if the market
price of the equity securities exceeds the conversion price. For example, a Fund
may hold fixed income securities that are convertible into shares of common
stock at a conversion price of $10 per share. If the market value of the shares
of common stock reached $12, a Fund could realize an additional $2 per share by
converting its fixed income securities. Convertible securities have lower
yields than comparable fixed income securities. In addition, at the time a
convertible security is issued the conversion price exceeds the market value of
the underlying equity securities. Thus, convertible securities may provide lower
returns than non-convertible fixed income securities or equity securities
depending upon changes in the price of the underlying equity securities.
However, convertible securities permit a Fund to realize some of the potential
appreciation of the underlying equity securities with less risk of losing its
initial investment.
Tax Exempt Securities
Tax exempt securities are fixed income securities that pay interest that is not
subject to regular federal income taxes. Typically, states, counties, cities and
other political subdivisions and authorities issue tax exempt securities. The
market categorizes tax exempt securities by their source of repayment.
General Obligation Bonds
General obligation bonds are supported by the issuer's power to exact property
or other taxes. The issuer must impose and collect taxes sufficient to pay
principal and interest on the bonds. However, the issuer's authority to impose
additional taxes may be limited by its charter or state law.
Special Revenue Bonds
Special revenue bonds are payable solely from specific revenues received by the
issuer such as specific taxes, assessments, tolls, or fees. Bondholders may not
collect from the municipality's general taxes or revenues. For example, a
municipality may issue bonds to build a toll road, and pledge the tolls to repay
the bonds. Therefore, a shortfall in the tolls normally would result in a
default on the bonds. Municipal Leases Municipalities may enter into
leases for equipment or facilities. In order to comply with state public
financing laws, these leases are typically subject to annual appropriation. In
other words, a municipality may end a lease, without penalty, by not providing
for the lease payments in its annual budget. After the lease ends, the lessor
can resell the equipment or facility but may lose money on the sale. A Fund
may invest in securities supported by pools of municipal leases. The most common
type of lease backed securities are certificates of participation (COPs).
However, the Fund may also invest directly in individual leases.
Investment Ratings for Investment
Grade Securities
The Adviser will determine whether a security is investment grade based upon the
credit ratings given by one or more nationally recognized rating services. For
example, Standard and Poor's, a rating service, assigns ratings to investment
grade securities (AAA, AA, A, and BBB) based on their assessment of the
likelihood of the issuer's inability to pay interest or principal (default) when
due on each security. Lower credit ratings correspond to higher credit risk. If
a security has not received a rating, the Fund must rely entirely upon the
Adviser's credit assessment that the security is comparable to investment grade.
Foreign Securities
Foreign securities are securities of issuers based outside the United States. A
Fund considers an issuer to be based outside the United States if:
. it is organized under the laws of, or has a principal office located in,
another country;
. the principal trading market for its securities is in another country; or
. it (or its subsidiaries) derived in its most current fiscal year at least 50%
of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.
ADR vs. Foreign-Listed Stocks
American Depositary Receipts (ADRs) are interests in underlying securities
issued by a foreign company. Unlike other foreign securities, ADRs are:
.traded in U.S. markets; and
.denominated in U.S. dollars.
ADRs involve many of the same risks as investing directly in foreign securities.
Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing. Trading
in certain foreign markets is also subject to liquidity risks.
Portfolio Turnover
The Large Capitalization Growth and Income Fund's approach to portfolio turnover
has been discussed above. The following discussion relates to the other Funds.
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 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 Statement of Additional Information under the sections "Brokerage
Transactions" and "Tax Information.") 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 Adviser deems it appropriate to
make changes in a Fund's portfolio. A portfolio turnover rate exceeding 100% is
considered to be high. Principal Investment Risks of the Funds
Risks Related to Fixed Income Securities
Interest Rate Risks
.Prices of fixed income securities rise and fall in response to changes in the
interest paid by similar securities. Generally, when interest rates rise,
prices of fixed income securities fall. However, market factors, such as the
demand for particular fixed income securities, may cause the price of certain
fixed income securities to fall while the prices of other securities rise or
remain unchanged. (If the bond was held to maturity, no loss or gain normally
would be realized.)
.Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.
Credit Risks
.Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, a Fund
will lose money.
.Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services, Inc. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not received
a rating, a Fund must rely entirely upon the Adviser's credit assessment.
.Fixed income securities generally compensate for greater credit risk by paying
interest at a higher rate. The difference between the yield of a security and
the yield of a U.S. Treasury security with a comparable maturity (the spread)
measures the additional interest paid for risk. Spreads may increase generally
in response to adverse economic or market conditions. A security's spread may
also increase if the security's rating is lowered, or the security is perceived
to have an increased credit risk. An increase in the spread will cause the
price of the security to decline.
.Credit risk includes the possibility that a party to a transaction involving a
Fund will fail to meet its obligations. This could cause a Fund to lose the
benefit of the transaction or prevent a Fund from selling or buying other
securities to implement its investment strategy.
Prepayment Risks
.Generally, homeowners have the option to prepay their mortgages at any time
without penalty. Homeowners frequently refinance high interest rate mortgages
when mortgage rates fall. This results in the prepayment of mortgage backed
securities with higher interest rates. Conversely, prepayments due to
refinancings decrease when mortgage rates increase. This extends the life of
mortgage backed securities with lower interest rates. As a result, increases in
prepayments of high interest rate mortgage backed securities, or decreases in
prepayments of lower interest rate mortgage backed securities, may reduce their
yield and price. This relationship between interest rates and mortgage
prepayments makes the price of mortgage backed securities more volatile than
most other types of fixed income securities with comparable credit risks.
Tax Risks
.In order to be tax-exempt, municipal securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by a Fund to shareholders to be taxable.
. Changes or proposed changes in federal tax laws may cause the prices of
municipal securities to fall.
Sector Risks
.A substantial part of the Municipal Bond Fund's portfolio may be comprised of
securities issued or credit enhanced by companies in similar businesses, or
with other similar characteristics. As a result, the Fund will be more
susceptible to any economic, business, political, or other developments which
generally affect these issuers.
Risks Related to Equity Securities
Stock Market Risks
.The value of equity securities in a Fund's portfolio will rise and fall. These
fluctuations could be a sustained trend or a drastic movement and a Fund's
share price may decline.
Risks Related to Investing for Growth
.Due to their relatively high valuations, growth stocks are typically more
volatile than value stocks. For instance, the price of a growth stock may
experience a larger decline on a forecast of lower earnings, a negative
fundamental development, or an adverse market development. Further, growth
stocks may not pay dividends or may pay lower dividends than value stocks. This
means they depend more on price changes for returns and may be more adversely
affected in a down market compared to value stocks that pay higher dividends.
Risks Related to Investing for Value
.Due to their relatively low valuations, value stocks are typically less
volatile than growth stocks. For instance, the price of a value stock may
experience a smaller increase on a forecast of higher earnings, a positive
fundamental development, or positive market development. Further, value stocks
tend to have higher dividends than growth stocks. This means they depend less
on price changes for returns and may lag behind growth stocks in an up market.
Risks Related to Company Size
.Generally, the smaller the market capitalization of a company, the fewer the
number of shares traded daily, the less liquid its stock and the more volatile
its price. Market capitalization is determined by multiplying the number of its
outstanding shares by the current market price per share.
.Companies with smaller market capitalizations also tend to have unproven track
records, a limited product or service base and limited access to capital. These
factors also increase risks and make these companies more likely to fail than
companies with larger market capitalization.
Risks Related to Foreign Investing
Currency Risks
.Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risk tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
Euro Risks
.A Fund may make significant investments in securities denominated in the Euro,
the new single currency of the European Monetary Union (EMU). Therefore, the
exchange rate between the Euro and the U.S. dollar will have a significant
impact on the value of a Fund's investments.
. With the advent of the Euro, the participating countries in the EMU can no
longer follow independent monetary policies. This may limit these countries'
ability to respond to economic downturns or political upheavals, and
consequently reduce the value of their foreign government securities.
The Euro Countries: The 11 countries initially participating in the euro
currency are:
. Austria
. Belgium
. Finland
. France
. Germany
. Ireland
. Italy
. Luxembourg
. Netherlands
. Portugal
. Spain
Risks of Foreign Investing
. Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable than those of the United States.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.
.Foreign countries may have restrictions on foreign ownership or may impose
exchange controls, capital flow restrictions or repatriation restrictions which
could adversely affect a Fund's investments.
.Foreign financial markets may have fewer investor protections than U.S.
markets. For instance, there may be less publicly available information about
foreign companies, and the information that is available may be difficult to
obtain or may not be current. In addition, foreign countries may lack financial
controls and reporting standards, or regulatory requirements, comparable to
those applicable to U.S. companies.
.Due to these risk factors, foreign securities may be more volatile and less
liquid than similar securities traded in the U.S.
Year 2000 Readiness
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999. The Year 2000 problem may cause systems to process information incorrectly
and could disrupt businesses that rely on computers, like the Funds.
While it is impossible to determine in advance all of the risks to a Fund, a
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Funds' service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working
to gather information from third-party providers to determine their Year 2000
readiness.
Year 2000 problems would also increase the risks of the Funds' investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities a Fund
may purchase. However, this may be difficult with certain issuers. For example,
Funds dealing with foreign service providers or investing in foreign securities
will have difficulty determining the Year 2000 readiness of those entities. This
is especially true of entities or issuers in emerging markets.
The financial impact of these issues for a Fund is still being determined. There
can be no assurance that potential Year 2000 problems would not have a material
adverse effect on the Funds.
What Shares Cost
An investor can purchase, redeem, or exchange shares, without a sales charge,
any day the New York Stock Exchange (NYSE) and the Federal Reserve Wire System
are open. Investors who purchase, redeem, or exchange shares through a financial
intermediary may be charged a service fee by that financial intermediary. When a
Fund receives your transaction request in proper form, it is processed at the
next calculated net asset value (NAV), otherwise known as a Fund's public
offering price. NAV is determined at the end of regular trading (normally 4 p.m.
Eastern time) each day the NYSE is open.
Trading in Foreign Securities
If a Fund owns foreign securities that trade in foreign markets on days the NYSE
is closed, the value of a Fund's assets may change on days you cannot purchase,
redeem or exchange shares. In computing its NAV, the Fund values foreign
securities at the latest closing price on the exchange on which they are traded
immediately prior to the closing of the NYSE. Certain foreign currency exchange
rates may also be determined at the latest rate prior to the closing of the
NYSE. Foreign securities quoted in foreign currencies are translated into U.S.
dollars at current rates. Occasionally, events that affect these values and
exchange rates may occur between the times at which they are determined and the
closing of the NYSE. 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 a Fund's Board, although the actual calculation may be done by
others. Minimum Investment Amount
The required minimum initial investment for Fund shares is $10,000. Minimum
investments for clients of financial intermediaries (such as brokers and
dealers) will be calculated by combining all accounts maintained in a Fund by
the intermediary. This prospectus should be read together with any account
agreement maintained for required minimum investment amounts imposed by
Fiduciary Trust Company International or its affiliates. The required minimum
investment amount may be waived for employees of the Adviser or its affiliates.
Share Purchases
Shares of the Funds may be purchased through Fiduciary International, Inc. or
through authorized broker/dealers. The Funds reserve the right to reject any
purchase request. 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.
Through Fiduciary International, Inc.
To place an order to purchase shares of a Fund, an investor (except residents of
Texas) may write or call Fiduciary International, Inc. Purchase orders must be
received by Fiduciary International, Inc. before 3:00 p.m. (Eastern time) by
calling 1-888-FIDUCIARY. Payment is normally required on the next business day.
Payment may be made either by mail or by wire. 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:
FTI Funds
c/o Federated Shareholder Services Company
P.O. Box 8609
Boston, MA 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 1-888-FIDUCIARY. Representatives are
available from 9:00 a.m. to 5:00 p.m. (Eastern time). Shares of the Funds cannot
be purchased on holidays when wire transfers are restricted. 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: Account Number 550000100
Further credit to: (Name of Fund)
Re: (customer name)
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.
Through Authorized Broker/Dealers
An investor may place an order through authorized brokers and dealers to
purchase shares of a Fund. These brokers and dealers may designate others to
receive purchase orders on the Funds' behalf. Shares will be purchased at the
net asset value next calculated after the Fund receives the purchase request. A
Fund will be deemed to have received a purchase order when an authorized broker
or its designee receives the order. The order will be priced at the next
calculated NAV after it is received by the Fund, the broker, or the broker's
designee, as applicable. Purchase requests through authorized brokers and
dealers must be received before 3:00 p.m. (Eastern time) in order for shares to
be purchased at that day's NAV. Through an Exchange
A shareholder may exchange shares of one Fund for shares of any of the other
Funds in the Trust by calling 1-888-FIDUCIARY or by writing to Fiduciary
International, Inc. Shares purchased by check are eligible for exchange after
seven days.
How the Funds are Distributed/Sold
The Fund's Distributor, Edgewood Services, Inc., markets the shares described in
this prospectus to institutions or individuals, directly or through investment
professionals. When the Distributor receives marketing fees, it may pay some or
all of them to investment professionals. The Distributor and its affiliates may
pay out of their assets other amounts (including items of material value) to
investment professionals for marketing and servicing shares. The Distributor is
a subsidiary of Federated Investors, Inc. (Federated). Rule12B-1 Plan
The Trust has adopted a Rule 12b-1 Plan (Plan), which allows it to pay marketing
fees to the Distributor and investment professionals for the sale, distribution
and customer servicing of the Funds' shares. The Trust has no present intention
to activate the Plan and the Distributor has no present intention to collect any
fees pursuant to the Plan. Once a Fund begins accruing the 12b-1 fee, Fund
expenses will rise. If the Trust were to activate the Plan, it would be
permitted to pay up to 0.75% of the average net assets of a Fund as a
distribution fee to the Distributor and up to 0.25% of the average net assets of
a Fund as a fee to Shareholder Services providers. Redemptions and
Exchanges
By Telephone
To redeem or exchange shares of a Fund by telephone, call Fiduciary
International, Inc. at 1-888-FIDUCIARY. An authorization form for telephone
transactions must first be completed. If not completed with an investor's
initial application, the forms can be obtained from the Funds. The Funds reserve
the right to reject any exchange request. If you call before 3:00 p.m., you will
receive a redemption amount based on the next calculated NAV. Although Fiduciary
International, Inc. 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.
Through Authorized Broker/Dealers
Submit your redemption or exchange request to your broker by the end of regular
trading on the NYSE(normally 4:00 p.m. Eastern time). These brokers and dealers
may designate others to receive redemption and exchange requests on the Funds'
behalf. A Fund will be deemed to have received a redemption or exchange request
when an authorized broker or its designee receives the request. The redemption
amount you receive is based upon the next calculated NAV after it is received by
the Fund, the broker, or the broker's designee, as applicable.
Tax Information on Redemptions and Exchanges:
Redemptions and exchanges are taxable sales.
Please consult with your tax adviser regarding your federal, state, and local
tax liability.
By Mail
To redeem or exchange shares by mail send a written request to:
Federated Shareholder Services Company
P.O. Box 8609
Boston, MA 02266-8609
If share certificates have been issued, they should be sent by insured mail with
the written request. You will receive a redemption amount based on the NAV on
the day your written request is received in proper form.
All requests must include:
. Fund name, registered account name and number;
. amount to be redeemed or exchanged;
. signatures of all shareholders exactly as registered; and
. if exchanging, the Fund name, registered account name and number into
which you are exchanging.
Signature Guarantees
Signatures must be guaranteed if:
. a redemption is to be sent to an address other than the address of record;
. a redemption is to be sent to an address of record that was changed within
the last thirty days;
. a redemption is payable to someone other than the shareholder(s)
of record; or
. if exchanging (transferring) into another fund with a different shareholder
registration.
Your signature can be guaranteed by any federally insured financial institution
(such as a bank or credit union) or a broker/dealer that is a domestic stock
exchange member, but not by a notary public.
Limitations on Redemption Proceeds
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. However, payment may be delayed up to seven
days:
. to allow your purchase payment to clear;
. during periods of market volatility; or
. when a shareholder's trade activity or amount adversely impacts a Fund's
ability to manage its assets.
Redemption in Kind
Although the Funds intend to pay redemptions in cash, they reserve the right to
pay the redemption price in whole or in part by a distribution of their
respective portfolio securities. Exchange Privileges
Investors may exchange shares of a Fund into shares of another Fund in the Trust
or certain money market funds for which affiliates or subsidiaries of Federated
serve as investment adviser and/or principal underwriter (Federated Money
Funds). Exchanges are made at net asset value and none of the Funds impose
additional fees on exchanges. To do this, an investor must:
. complete an authorization form permitting a Fund to accept telephone exchange
requests;
. meet any minimum initial investment requirements; and
. receive a prospectus if the exchange is into a Federated Money Fund. Further
information on the exchange privilege and prospectuses for the Federated Money
Funds are available by contacting the Trust.
An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction.
The Trust may modify or terminate the exchange privilege at any time. The
Trust's management or Adviser may determine from the amount, frequency and
pattern of exchanges that a shareholder is engaged in excessive trading which is
detrimental to a Fund and other shareholders. If this occurs, the Trust may
terminate the availability of exchanges to that shareholder and may bar that
shareholder from purchasing shares of other Funds.
Additional Conditions
Telephone Transactions
A Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. The Fund will notify you if it changes
telephone transaction privileges.
Account and Share Information
Confirmation and Account Statements
You will receive confirmation of purchases, redemptions and exchanges. In
addition, you will receive periodic statements reporting all account activity,
dividends and capital gains paid. The Funds do not issue share certificates.
Dividends and Capital Gains
The Municipal Bond Fund and Bond Fund declare any dividends daily and pay them
monthly to shareholders. If you purchase shares by wire, you begin earning
dividends on the day your wire is received. If you purchase shares by check, you
begin earning dividends on the business day after the Fund receives your check.
In either case, you earn dividends through the day your redemption request is
received.
The Large Capitalization Growth Fund and Large Capitalization Growth and Income
Fund declare and pay any dividends quarterly to shareholders. The Small
Capitalization Fund and International Equity Fund declare and pay any dividends
semi-annually to shareholders. Dividends are paid to all shareholders invested
in a Fund on the record date. The record date is the date on which a shareholder
must officially own shares in order to earn a dividend.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
shares without a sales charge, unless you elect cash payments.
Dividend--
In a mutual fund, money paid to shareholders which the fund has earned from the
income on its investments.
Accounts with Low Balances
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions or exchanges cause the account balance to fall below the
minimum initial investment amount of $10,000. Before an account is closed, you
will be notified and allowed 30 days to purchase additional shares to meet the
minimum. Tax Information
The Funds send an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. For all Funds (except
Municipal Bond Fund), Fund distributions of dividends and capital gains are
taxable to you whether paid in cash or reinvested in the Fund. Dividends are
taxable as ordinary income; capital gains are taxable at different rates
depending upon the length of time a Fund has held the securities on which gains
are realized.
With respect to Municipal Bond Fund, it is anticipated that Fund distributions
will be primarily dividends that are exempt from federal regular income tax,
although a portion of the Fund's dividends may not be exempt. Additionally, the
Municipal Bond Fund may invest in obligations subject to the alternative minimum
tax without limit. Shareholders should consult their own tax advisers. Whether
or not dividends are exempt from federal income tax, they may be subject to
state and local taxes. Capital gains and non-exempt dividends are taxable
whether paid in cash or reinvested in the Fund. Fund distributions are
expected to be as follows: Fund Distributions are
expected to be primarily:
Municipal Bond Fund Dividends
Bond Fund Dividends
Large Capitalization Growth Fund Capital Gains
Large Capitalization Growth
& Income Fund Capital Gains
Small Capitalization Equity Fund Capital Gains
International Equity Fund Capital Gains
Capital Gain--
Profits realized on the sale of an investment. In a mutual fund, profits from
the sale of securities in the fund's portfolio are usually distributed to
shareholders annually. Shareholders are urged to consult their own tax
advisers regarding the status of their accounts under federal, state, local, and
foreign tax laws, including treatment of distributions as income or return of
capital. Capital Gains Considerations for Municipal Bond Fund, Bond
Fund, Large Capitalization Growth Fund, and Large Capitalization Growth and
Income Fund Each of these Funds is the successor of one or more common trust
funds ("CTFs" ) previously managed by Fiduciary Trust Company International
("FTCI"). These Funds acquired the portfolio securities of the CTFs in a
tax-free transaction, and therefore, will calculate the gain or loss upon sale
of those securities based on the CTF's original purchase cost of the security.
Because many of the CTFs' securities had risen in value before being acquired by
the Funds, unusually large capital gains may be realized by the Funds (and
distributed to shareholders) when the Funds sell these securities. As noted,
shareholders must pay taxes on capital gains distributions. Management
of FTI Funds The Board of Trustees governs the Trust. The Board selects and
oversees the Adviser, Fiduciary International, Inc. The Adviser manages the
Funds' assets, including buying and selling portfolio securities. The Adviser's
address is Two World Trade Center, New York, New York 10048-0772. Advisory
Fees The Adviser receives an annual investment advisory fee equal to 0.50%
of each of Municipal Bond Fund's and Bond Fund's respective average daily net
assets, 0.75% of each of Large Capitalization Growth Fund's and Large
Capitalization Growth and Income Fund's respective average daily net assets, and
1.00% of each of the Small Capitalization Equity Fund's and International Equity
Fund's respective average daily net assets. 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 Investment 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 FTCI. FTCI has more than 60 years of investment management experience,
including more than 30 years experience in managing pooled investment vehicles
which invest in the international markets. FTCI is a New York state-chartered
bank specializing in investment management activities. As of December 31, 1998,
FTCI had total assets under management of approximately $45 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 was formed to act as investment adviser to mutual funds. The Adviser has
three clients which are registered investment companies and one client which is
a collective fund established by a limited purpose trust company. Assets under
management as of December 31, 1998 were $779.5 million.
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. Portfolio Managers for FTI Funds
Municipal Bond Fund
Ronald Sanchez and Jon S. Mastrandrea have been primarily responsible for the
day-to-day investment management of the Municipal Bond Fund since its inception,
December 14, 1998. Mr. Sanchez, Certified Financial Analyst and Senior Vice
President of FTCI, is a manager of tax-exempt fixed income portfolios. Mr.
Sanchez received a B.S. degree from C.W. Post College. He joined FTCI in 1993
with six years prior experience as a fixed income portfolio manager with Public
Service Mutual Insurance Company. Mr. Mastrandrea, Vice President of FTCI, is a
manager of tax exempt fixed income portfolios. Mr. Mastrandrea received a B.A.
degree from State University of New York at Binghamton, attended Brunel
University, London, England, and received an M.B.A. from the Stern School of
Business, New York University. He joined FTCI in 1998 with twelve years
experience in tax-exempt financing and was most recently an executive director
at CIBC-Oppenheimer in their public finance division.
Bond Fund
Michael Rohwetter and Michael Materasso have been primarily responsible for the
day-to-day investment management of the Bond Fund since its inception, December
14, 1998. Mr. Rohwetter, Senior Vice President of FTCI, is a manager of
institutional domestic fixed income portfolios. Mr. Rohwetter received a B.B.A.
degree from Pace University. He joined FTCI in 1983 from the New York Mercantile
Exchange.
Mr. Materasso, Senior Vice President of FTCI, is head of the Domestic Fixed
Income Group. He is a member of the Global Investment Committee and Investment
Policy Committee. Mr. Materasso received a B.A. degree from Baruch College. He
joined FTCI in 1988 with sixteen years experience at Chase Manhattan Bank,
Sterling National and Glickenhaus & Co.
Large Capitalization Growth Fund
Thomas Dempsey, Coleen Barbeau, and John Hartz have been primarily responsible
for the day-to-day investment management of the Large Capitalization Growth Fund
since its inception, December 14, 1998.
Mr. Dempsey, Vice President of FTCI, is responsible for managing institutional
portfolios in the large capitalization growth equity sector.
Mr. Dempsey received a B.A. degree from Georgetown University in 1988, and
joined FTCI the same year. Mr. Dempsey was previously responsible for the sales
and marketing of all of Fiduciary Trust's institutional equity products. Ms.
Barbeau, Senior Vice President of FTCI, is responsible for managing
institutional and individual portfolios. She is a member of the Global
Investment Committee, Investment Policy Committee and Co-chair of the Large
Capitalization Equity Committee. Ms. Barbeau received a B.A. degree from
Montclair University in 1981. Prior to joining FTCI in 1983, she was with
Shearson/American Express. Mr. Hartz, Senior Vice President of FTCI, manages
institutional large capitalization equity portfolios. Mr. Hartz received a B.A.
degree from Trinity College in 1959 and an M.B.A. from Columbia Business School
in 1962. Prior to joining FTCI in 1987, he was an investment manager for 26
years at several leading institutions, most recently as vice president of the
Investment Advisory Division of MONY Financial Services. He is a member of the
Investment Policy Committee and Co-chair of the Large Capitalization Committee.
Large Capitalization Growth and Income Fund
S. Mackintosh Pulsifer and Carl Scaturo have been primarily responsible for the
day-to-day investment management of the Large Capitalization Growth and Income
Fund since its inception, December 14, 1998. Mr. Pulsifer, Senior Vice
President of FTCI, manages individual and trust portfolios and is a member of
the Investment Policy Committee. Mr. Pulsifer received an A.B. degree from
Bowdoin College and an M.B.A. from New York University Graduate School of
Business Administration. He joined FTCI in 1988 after 15 years of investment
experience with a New York City based private, independent investment counseling
firm. Mr. Scaturo, Senior Vice President of FTCI, is responsible for managing
individual and trust portfolios. Mr. Scaturo received a B.A. degree in Business
Administration from the University of Southern Connecticut in 1985 and is
presently attending New York University. Prior to joining FTCI in 1990, he was
with Citibank. Small Capitalization Equity Fund
Helen Degener, Grant Babyak and Yvette Bockstein are primarily responsible for
the day-to-day investment management of the Small Capitalization Equity Fund.
Ms. Degener, Senior Vice President of FTCI, has managed the Fund since its
inception, December 22, 1995, and, along with Mr. Babyak and Ms. Bockstein,
serves on its Small Cap Investment Committee. Ms. Degener has been with FTCI
since 1994 during which time she has managed individual and institutional
portfolios in small cap and special situation sectors. Prior to FTCI, she spent
thirteen years at Morgan Guaranty Trust Company as a Vice President and manager
of several small capitalization equity funds. Mr. Babyak is a Senior Vice
President of FTCI and has been with the Adviser since 1996 managing individual
and institutional portfolios in small cap and special situation sectors. Prior
to joining Fiduciary, Mr. Babyak worked for six years at Avatar Associates as an
institutional portfolio manager and two years at United States Trust Company as
an analyst. Ms. Bockstein, Senior Vice President of FTCI, has been with the
Adviser since 1978, and manages institutional and individual portfolios in the
small capitalization and special situations sectors.
International Equity Fund
Steven Miller, Sheila Coco, and William Yun have been primarily responsible for
the day-to-day investment management of the International Equity Fund since its
inception, December 22, 1995. Mr. Miller joined FTCI in 1994 and is a Senior
Vice President responsible for managing institutional portfolios. Previously, he
had spent seven years with Vital Forsikring, a Norwegian life insurance company,
and Heller Financial. Ms. Coco and Mr. Yun are both Executive 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
with responsibility for institutional global equity accounts and had previously
spent four years in the investment division of Morgan Guaranty Trust Company.
Mr. Yun joined Fiduciary in 1992, managing institutional global equity accounts
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.
Financial Information
Financial Highlights
(For a share outstanding thoughout each period)
The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report dated January 20, 1999, on the Fund's
financial statements for the period ended November 30, 1998, and on the
following table for the periods presented, is included in the Annual Report,
which is incorporated by reference. This table should be read in conjunction
with the Funds' financial statements and notes thereto, which may be obtained
free of charge. <TABLE> <CAPTION>
Distributions
Net Net Realized from Net
Investment and Unrealized Realized Gain
Net Asset Income/ Gain/(Loss) on Distributions on Investments
Value, (Net Investments Total from from Net and Foreign
Year Ended Beginning Operating and Foreign Investment Investment Currency
November 30, of Period Loss) Currency Operations Income Transactions
<S> <C> <C> <C> <C> <C> <C>
Small Capitalization Fund
1996(a) $10.00 (0.04) 2.12 2.08 -- --
1997 $12.08 (0.09) 2.38 2.29 -- --
1998 $14.37 (0.15)(b) (0.61) (0.76) -- (0.35)
International Equity Fund
1996(a) $10.00 0.01(b) 0.99 1.00 (0.01) --
1997 $10.99 0.02 1.39 1.41 (0.20) --
1998 $12.20 0.04 1.73 1.77 (0.12) --
</TABLE>
(a) Reflects operations for the period from December 22, 1995 (start of
performance) to November 30, 1996.
(b) Per share information is based on average shares outstanding. (c) Based on
net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) Computed on an annualized basis.
(e) This voluntary expense decrease is reflected in both the expense and net
investment income (net operating loss) ratios shown above.
<TABLE>
<CAPTION>
Ratios Average Net Assets
Expense
Net Asset Waiver/
Value, Net Reim- Net Assets,
Total End of Total Investment burse- End of Period Portfolio
Distributions Period Return(c) Expenses Income ment(e) (000 omitted) Turnover
<S> <C> <C> <C> <C> <C> <C> <C>
-- $12.08 20.80% 1.50%(d) (0.68%)(d) 1.51%(d) $19,318 94%
-- $14.37 18.96% 1.50% (0.89%) 0.24% $40,505 111%
(0.35) $13.26 (5.34%) 1.50% (1.08%) 0.01% $46,233 158%
(0.01) $10.99 10.04% 1.68%(d) 0.05%(d) 3.05%(d) $12,065 29%
(0.20) $12.20 13.01% 1.60% 0.13% 0.13% $40,869 55%
(0.12) $13.85 14.61% 1.39% 0.27% 0.10% $74,445 68%
</TABLE>
FTI Municipal Bond Fund
FTI Bond Fund
FTI Large Capitalization Growth Fund
FTI Large Capitalization Growth
And Income Fund
FTI Small Capitalization Equity Fund
FTI International Equity Fund
Portfolios of FTI FUNDS
A Statement of Additional Information (SAI) dated March 31, 1999 contains
additional information about the Funds and is incorporated by reference into
this prospectus. Additional information about the FTI Small Capitalization
Equity Fund's and International Equity Fund's investments is available in the
Funds' annual report to shareholders. The annual report discusses market
conditions and investment strategies that significantly affected the Funds'
performance during their last fiscal year. To obtain the SAI, the annual report
and other information without charge, call your investment professional or the
Funds at 1-888-FIDUCIARY.
Internet Address:
www.fiduciarytrust.com
You can obtain information about the Funds (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, D.C. 20549-6009 or from the Commission's Internet site at
http://www.sec.gov. You can call 1-800-SEC-0330 for information on the Public
Reference Room's operations and copying charges.
FTI Funds
FTI Municipal Bond Fund
FTI Bond Fund
FTI Large Capitalization Growth Fund
FTI Large Capitalization Growth and Income Fund
FTI Small Capitalization Equity Fund
FTI International Equity Fund
Cusip 302927504 MBF Cusip 302927603 BF Cusip 302927702 LCGF Cusip 302927801
LCGIF Cusip 302927108 SCEF Cusip 302927207 IEF G01548-04(3/99) 811-7369
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of FTI Small Capitalization Equity Fund as of the calendar
year-end for each of 3 years.
The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of 5% up to 30%.
The `x' axis represents calculation periods (from the earliest calendar year end
of the Funds start of business through the calendar year ended December 31,
1998. The light gray shaded chart features 3 distinct vertical bars, each shaded
in charcoal, and each visually representing by height the total return
percentages for the calendar year stated directly at its base. The calculated
total return percentage for the Fund for each calendar year is stated directly
at the top of each respective bar, for the calendar years 1996 through 1998. The
percentages noted are: 23.40%, 17.80%, and 3.03% respectively. The total returns
displayed for the Fund do not reflect the payment of any sales charges or
recurring shareholder account fees. If these charges or fees had been included,
the returns shown would have been lower. The Fund's highest quarterly total
return was 24.04% (quarter ended December 31, 1998. It's lowest quarterly return
was -21.53% (quarter ended September 30, 1998).
AVERAGE ANNUAL TOTAL RETURN
LIFE OF THE FUND1 1 YEAR
FTI Small Capitalization Equity Fund 14.27% 3.03%%
Russell 2000 Growth Index 8.96% 1.23%
1 Since inception date of December 22, 1995
Past performance does not necessarily predict future performance. This
information provides you with historical performance so that you can analyze
whether the Fund's investment risks are balanced by its potential rewards.
<PAGE>
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of FTI International Equity Fund as of the calendar
year-end for each of 3 years.
The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of 5% up to 30%.
The `x' axis represents calculation periods (from the earliest calendar year end
of the Funds start of business through the calendar year ended December 31,
1998. The light gray shaded chart features 2 distinct vertical bars, each shaded
in charcoal, and each visually representing by height the total return
percentages for the calendar year stated directly at its base. The calculated
total return percentage for the Fund for each calendar year is stated directly
at the top of each respective bar, for the calendar years 1996 through 1998. The
percentages noted are: 12.79%, 13.34%, and 12.86%, respectively. The total
returns displayed for the Fund do not reflect the payment of any sales charges
or recurring shareholder account fees. If these charges or fees had been
included, the returns shown would have been lower. Within the period shown in
the Chart, the Fund's highest quarterly return was 20.47% (quarter ended March
31, 1998). Its lowest quarterly return was -19.01% (quarter ended September 30,
1998).
AVERAGE ANNUAL TOTAL RETURN
LIFE OF THE FUND1 1 YEAR
FTI International Equity Fund 12.87% 12.86%
MSCI EAFE 9.00% 20.00%
1 Since inception date of December 22, 1995
Past performance does not necessarily predict future performance. This
information provides you with historical performance so that you can analyze
whether the Fund's investment risks are balanced by its potential rewards.
FTI FUNDS
FTI MUNICIPAL BOND FUND
FTI BOND FUND
FTI LARGE CAPITALIZATION GROWTH FUND
FTI LARGE CAPITALIZATION GROWTH AND INCOME FUND
FTI SMALL CAPITALIZATION EQUITY FUND
FTI INTERNATIONAL EQUITY FUND
STATEMENT OF ADDITIONAL INFORMATION
MARCH 31, 1999
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for FTI Funds (the "Trust") dated March
31, 1999.
This SAI incorporates by reference the Trust's Annual Report. Obtain the
prospectus or the Annual Report without charge by calling 1-888-FIDUCIARY.
CONTENTS
Fund Organization 1
Securities in Which the Funds Invest 2
Investment Risks 8
Investment Limitations 10
Determining the Market Value of Securities 12
How the Funds Are Sold 12
Redemption in Kind 13
Massachusetts Partnership Law 13
Account and Share Information 13
Effect of Banking Laws 14
Tax Information 14
Fund Management and Service Providers 15
How the Funds Measure Performance 18
Financial Information 22
Investment Ratings 22
Addresses
CUSIP 302927504
CUSIP 302927603
CUSIP 302927702
CUSIP 302927801
CUSIP 302927108
CUSIP 302927207
G01548-05(3/99)
811-7369
<PAGE>
30
FUND ORGANIZATION
The Funds are diversified portfolios of FTI Funds (Trust). The Trust is an
open-end management investment company that was established under the laws of
the Commonwealth of Massachusetts on October 18, 1995. The Trust may offer
separate series of shares representing interests in separate portfolios of
securities.
The Board of Trustees (Board) has established six separate series of the Trust
which are as follows: FTI Municipal Bond Fund (Municipal Bond Fund), FTI Bond
Fund (Bond Fund), FTI Large Capitalization Growth Fund (Large Capitalization
Growth Fund), FTI Large Capitalization Growth and Income Fund (Large
Capitalization Growth and Income Fund), FTI Small Capitalization Equity Fund
(Small Capitalization Equity Fund) and FTI International Equity Fund
(International Equity Fund).
SECURITIES IN WHICH THE FUNDS INVEST
Permitted securities and investment techniques are set forth in the securities
chart in the prospectus. Securities and techniques principally used by the Funds
to meet their respective objectives are also described in the prospectus. Other
securities and techniques used by the Funds to meet their respective objectives
are described below.
EQUITY SECURITIES
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. A Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business.
REAL ESTATE INVESTMENT TRUSTS (REITS)
REITs are real estate investment trusts that lease, operate and finance
commercial real estate. REITs are exempt from federal corporate income tax if
they limit their operations and distribute most of their income. Such tax
requirements limit a REIT's ability to respond to changes in the commercial real
estate market.
WARRANTS
Warrants give a Fund the option to buy an issuer's equity securities at a
specified price (the exercise price) at a specified future date (the expiration
date). A Fund may buy the designated securities by paying the exercise price
before the expiration date. Warrants may become worthless if the price of the
stock does not rise above the exercise price by the expiration date. This
increases the market risks of warrants as compared to the underlying security.
Rights are the same as warrants, except companies typically issue rights to
existing stockholders.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
COMMERCIAL PAPER
Commercial paper is an issuer's obligation with a maturity of less than nine
months. Companies typically issue commercial paper to pay for current
expenditures. Most issuers constantly reissue their commercial paper and use the
proceeds (or bank loans) to repay maturing paper. If the issuer cannot continue
to obtain liquidity in this fashion, its commercial paper may default. The short
maturity of commercial paper reduces both the market and credit risks as
compared to other debt securities of the same issuer.
DEMAND INSTRUMENTS
Demand instruments are corporate debt securities that the issuer must repay upon
demand. Other demand instruments require a third party, such as a dealer or
bank, to repurchase the security for its face value upon demand. A Fund treats
demand instruments as short-term securities, even though their stated maturity
may extend beyond one year.
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COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)
CMOs, including interests in real estate mortgage investment conduits (REMICs),
allocate payments and prepayments from an underlying pass-through certificate
among holders of different classes of mortgage backed securities. This creates
different prepayment and market risks for each CMO class.
SEQUENTIAL CMOS
In a sequential pay CMO, one class of CMOs receives all principal
payments and prepayments. The next class of CMOs receives all principal
payments after the first class is paid off. This process repeats for
each sequential class of CMO. As a result, each class of sequential pay
CMOs reduces the prepayment risks of subsequent classes.
PACS, TACS AND COMPANION CLASSES
More sophisticated CMOs include planned amortization classes (PACs) and
targeted amortization classes (TACs). PACs and TACs are issued with
companion classes. PACs and TACs receive principal payments and
prepayments at a specified rate. The companion classes receive principal
payments and prepayments in excess of the specified rate. In addition,
PACs will receive the companion classes' share of principal payments, if
necessary, to cover a shortfall in the prepayment rate. This helps PACs
and TACs to control prepayment risks by increasing the risks to their
companion classes.
IOS AND POS
CMOs may allocate interest payments to one class (Interest Only or IOs)
and principal payments to another class (Principal Only or POs). POs
increase in value when prepayment rates increase. In contrast, IOs
decrease in value when prepayments increase, because the underlying
mortgages generate less interest payments. However, IOs tend to increase
in value when interest rates rise (and prepayments decrease), making IOs
a useful hedge against market risks.
FLOATERS AND INVERSE FLOATERS
Another variant allocates interest payments between two classes of CMOs.
One class (Floaters) receives a share of interest payments based upon a
market index such as LIBOR. The other class (Inverse Floaters) receives
any remaining interest payments from the underlying mortgages. Floater
classes receive more interest (and Inverse Floater classes receive
correspondingly less interest) as interest rates rise. This shifts
prepayment and market risks from the Floater to the Inverse Floater
class, reducing the price volatility of the Floater class and increasing
the price volatility of the Inverse Floater class.
Z CLASSES AND RESIDUAL CLASSES
CMOs must allocate all payments received from the underlying mortgages
to some class. To capture any unallocated payments, CMOs generally have
an accrual (Z) class. Z classes do not receive any payments from the
underlying mortgages until all other CMO classes have been paid off.
Once this happens, holders of Z class CMOs receive all payments and
prepayments. Similarly, REMICs have residual interests that receive any
mortgage payments not allocated to another REMIC class.
The degree of increased or decreased prepayment risks depends upon the structure
of the CMOs. However, the actual returns on any type of mortgage backed security
depend upon the performance of the underlying pool of mortgages, which no one
can predict and will vary among pools.
ASSET BACKED SECURITIES
Asset backed securities are payable from pools of obligations other than
mortgages. Most asset backed securities involve consumer or commercial debts
with maturities of less than ten years. However, almost any type of fixed income
assets (including other fixed income securities) may be used to create an asset
backed security. Asset backed securities may take the form of commercial paper,
notes, or pass through certificates. Asset backed securities have prepayment
risks. Like CMOs, asset backed securities may be structured like Floaters,
Inverse Floaters, IOs and POs.
ZERO COUPON SECURITIES
Zero coupon securities do not pay interest or principal until final maturity
unlike debt securities that provide periodic payments of interest (referred to
as a coupon payment). Investors buy zero coupon securities at a price below the
amount payable at maturity. The difference between the purchase price and the
amount paid at maturity represents interest on the zero coupon security.
Investors must wait until maturity to receive interest and principal, which
increases the market and credit risks of a zero coupon security.
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There are many forms of zero coupon securities. Some are issued at a discount
and are referred to as zero coupon or capital appreciation bonds. Others are
created from interest bearing bonds by separating the right to receive the
bond's coupon payments from the right to receive the bond's principal due at
maturity, a process known as coupon stripping. Treasury STRIPs, IOs and POs are
the most common forms of stripped zero coupon securities. In addition, some
securities give the issuer the option to deliver additional securities in place
of cash interest payments, thereby increasing the amount payable at maturity.
These are referred to as pay-in-kind or PIK securities.
BANK INSTRUMENTS
Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit and
banker's acceptances. Yankee instruments are denominated in U.S. dollars and
issued by U.S. branches of foreign banks. Eurodollar instruments are denominated
in U.S. dollars and issued by non-U.S. branches of U.S. or foreign banks.
TAX EXEMPT SECURITIES
Tax exempt securities are fixed income securities that pay interest that is not
subject to regular federal income taxes. Typically, states, counties, cities and
other political subdivisions and authorities issue tax exempt securities. The
market categorizes tax exempt securities by their source of repayment.
PRIVATE ACTIVITY BONDS
Private activity bonds are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new
factory to improve its local economy. The municipality would lend the
proceeds from its bonds to the company using the factory, and the
company would agree to make loan payments sufficient to repay the bonds.
The bonds would be payable solely from the company's loan payments, not
from any other revenues of the municipality. Therefore, any default on
the loan normally would result in a default on the bonds.
The interest on many types of private activity bonds is subject to the
federal alternative minimum tax (AMT). The Fund may invest in bonds subject to
AMT.
TAX INCREMENT FINANCING BONDS
Tax increment financing (TIF) bonds are payable from increases in taxes or other
revenues attributable to projects financed by the bonds. For example, a
municipality may issue TIF bonds to redevelop a commercial area. The TIF bonds
would be payable solely from any increase in sales taxes collected from
merchants in the area. The bonds could default if merchants' sales, and related
tax collections, failed to increase as anticipated.
MUNICIPAL NOTES
Municipal notes are short-term tax exempt securities. Many municipalities issue
such notes to fund their current operations before collecting taxes or other
municipal revenues. Municipalities may also issue notes to fund capital projects
prior to issuing long-term bonds. The issuers typically repay the notes at the
end of their fiscal year, either with taxes, other revenues or proceeds from
newly issued notes or bonds.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the security
for its face value upon demand. The securities also pay interest at a variable
rate intended to cause the securities to trade at their face value. A Fund
treats demand instruments as short-term securities, because their variable
interest rate adjusts in response to changes in market rates, even though their
stated maturity may extend beyond thirteen months.
FOREIGN SECURITIES
Foreign securities are securities of issuers based outside the United States. A
Fund considers an issuer to be based outside the United States if:
o it is organized under the laws of, or has a principal office located in,
another country;
o the principal trading market for its securities is in another country; or
o it (or its subsidiaries) derived in its most current fiscal year at least
50% of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.
Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing. Trading
in certain foreign markets is also subject to liquidity risks.
DEPOSITARY RECEIPTS
Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as the
underlying security. The foreign securities underlying American Depositary
Receipts (ADRs) are traded in the United States. ADRs provide a way to buy
shares of foreign-based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for foreign
exchange transactions. The foreign securities underlying European Depositary
Receipts (EDRs), Global Depositary Receipts (GDRs), and International Depositary
Receipts (IDRs), are traded globally or outside the United States. Depositary
receipts involve many of the same risks of investing directly in foreign
securities, including currency risks and risks of foreign investing.
FOREIGN EXCHANGE CONTRACTS
In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a foreign
security into U.S. dollars, a Fund may enter into spot currency trades. In a
spot trade, a Fund agrees to exchange one currency for another at the current
exchange rate. A Fund may also enter into derivative contracts in which a
foreign currency is an underlying asset. The exchange rate for currency
derivative contracts may be higher or lower than the spot exchange rate. Use of
these derivative contracts may increase or decrease a Fund's exposure to
currency risks.
FOREIGN GOVERNMENT SECURITIES
Foreign government securities generally consist of fixed income securities
supported by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations of
supranational entities, such as 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 fixed income securities of
quasi-governmental agencies that are either issued by entities 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. Further,
foreign government securities include mortgage-related securities issued or
guaranteed by national, state or provincial governmental instrumentalities,
including quasi-governmental agencies.
DERIVATIVE CONTRACTS
Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty.
Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.
For example, a Fund could close out an open contract to buy an asset at a future
date by entering into an offsetting contract to sell the same asset on the same
date. If the offsetting sale price is more than the original purchase price, the
Fund realizes a gain; if it is less, the Fund realizes a loss. Exchanges may
limit the amount of open contracts permitted at any one time. Such limits may
prevent a Fund from closing out a position. If this happens, a Fund will be
required to keep the contract open (even if it is losing money on the contract),
and to make any payments required under the contract (even if it has to sell
portfolio securities at unfavorable prices to do so). Inability to close out a
contract could also harm a Fund by preventing it from disposing of or trading
any assets it has been using to secure its obligations under the contract.
A Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.
<PAGE>
Depending upon how a Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease a Fund's exposure to market and
currency risks, and may also expose a Fund to liquidity and leverage risks. OTC
contracts also expose a Fund to credit risks in the event that a counterparty
defaults on the contract.
The Funds may trade in the following types of derivative contracts as set forth
in the securities chart in the Funds' prospectus.
FUTURES CONTRACTS
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified price,
date, and time. Entering into a contract to buy an underlying asset is commonly
referred to as buying a contract or holding a long position in the asset.
Entering into a contract to sell an underlying asset is commonly referred to as
selling a contract or holding a short position in the asset. Futures contracts
are considered to be commodity contracts. Futures contracts traded OTC are
frequently referred to as forward contracts.
OPTIONS
Options are rights to buy or sell an underlying asset for a specified price (the
exercise price) during, or at the end of, a specified period. A call option
gives the holder (buyer) the right to buy the underlying asset from the seller
(writer) of the option. A put option gives the holder the right to sell the
underlying asset to the writer of the option. The writer of the option receives
a payment, or premium, from the buyer, which the writer keeps regardless of
whether the buyer uses (or exercises) the option.
To the extent that a Fund utilizes options, it would generally:
o Buy call options in anticipation of an increase in the value of the
underlying asset;
o Buy put options in anticipation of a decrease in the value of the
underlying asset; and o Buy or write options to close out existing options
positions.
A Fund may also write call options to generate income from premiums, and in
anticipation of a decrease or only limited increase in the value of the
underlying asset. If a call written by a Fund is exercised, the Fund foregoes
any possible profit from an increase in the market price of the underlying asset
over the exercise price plus the premium received.
A Fund may also write put options to generate income from premiums, and in
anticipation of an increase or only limited decrease in the value of the
underlying asset. In writing puts, there is a risk that the Fund may be required
to take delivery of the underlying asset when its current market price is lower
than the exercise price.
When a Fund writes options on futures contracts, it will be subject to margin
requirements similar to those applied to futures contracts.
HEDGING
Hedging transactions are intended to reduce specific risks. For example, to
protect a Fund against circumstances that would normally cause the Fund's
portfolio securities to decline in value, the Fund may buy or sell a derivative
contract that would normally increase in value under the same circumstances. A
Fund may also attempt to hedge by using combinations of different derivatives
contracts, or derivatives contracts and securities. A Fund's ability to hedge
may be limited by the costs of the derivatives contracts. A Fund may attempt to
lower the cost of hedging by entering into transactions that provide only
limited protection, including transactions that (1) hedge only a portion of its
portfolio, (2) use derivatives contracts that cover a narrow range of
circumstances or (3) involve the sale of derivatives contracts with different
terms. Consequently, hedging transactions will not eliminate risk even if they
work as intended. In addition, hedging strategies are not always successful, and
could result in increased expenses and losses to a Fund.
SWAPS
Swaps are contracts in which two parties agree to pay each other (swap) the
returns derived from underlying assets with differing characteristics. Most
swaps do not involve the delivery of the underlying assets by either party, and
the parties might not own the assets underlying the swap. The payments are
usually made on a net basis so that, on any given day, a Fund would receive (or
pay) only the amount by which its payment under the contract is less than (or
exceeds) the amount of the other party's payment. Swap agreements are
sophisticated instruments that can take many different forms, and are known by a
variety of names including caps, floors, and collars.
Common swap agreements that the Bond Fund may use include:
INTEREST RATE SWAPS
Interest rate swaps are contracts in which one party agrees to make
regular payments equal to a fixed or floating interest rate times a
stated principal amount of fixed income securities, in return for
payments equal to a different fixed or floating rate times the same
principal amount, for a specific period. For example, a $10 million
LIBOR swap would require one party to pay the equivalent of the London
Interbank Offered Rate of interest (which fluctuates) on $10 million
principal amount in exchange for the right to receive the equivalent of
a stated fixed rate of interest on $10 million principal amount.
CURRENCY SWAPS
Currency swaps are contracts which provide for interest payments in
different currencies. The parties might agree to exchange the notional principal
amount as well.
CAPS AND FLOORS
Caps and Floors are contracts in which one party agrees to make payments
only if an interest rate or index goes above (Cap) or below (Floor) a
certain level in return for a fee from the other party.
TOTAL RETURN SWAPS
Total return swaps are contracts in which one party agrees to make
payments of the total return from the underlying asset during the
specified period, in return for payments equal to a fixed or floating
rate of interest or the total return from another underlying asset.
HYBRID INSTRUMENTS
Hybrid instruments combine elements of derivative contracts with those of
another security (typically a fixed income security). All or a portion of the
interest or principal payable on a hybrid security is determined by reference to
changes in the price of an underlying asset or by reference to another benchmark
(such as interest rates, currency exchange rates or indices). Hybrid instruments
also include convertible securities with conversion terms related to an
underlying asset or benchmark.
The risks of investing in hybrid instruments reflect a combination of the risks
of investing in securities, options, futures and currencies, and depend upon the
terms of the instrument. Thus, an investment in a hybrid instrument may entail
significant risks in addition to those associated with traditional fixed income
or convertible securities. Hybrid instruments are also potentially more volatile
and carry greater market risks than traditional instruments. Moreover, depending
on the structure of the particular hybrid, it may expose a Fund to leverage
risks or carry liquidity risks. SPECIAL TRANSACTIONS
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which a Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction. This return is unrelated to the interest rate
on the underlying security. A Fund will enter into repurchase agreements only
with banks and other recognized financial institutions, such as securities
dealers, deemed creditworthy by the Adviser.
A Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are repurchase agreements in which a Fund is the
seller (rather than the buyer) of the securities, and agrees to repurchase them
at an agreed upon time and price. A reverse repurchase agreement may be viewed
as a type of borrowing by a Fund. Reverse repurchase agreements are subject to
credit risks. In addition, reverse repurchase agreements create leverage risks
because a Fund must repurchase the underlying security at a higher price,
regardless of the market value of the security at the time of repurchase.
DELAYED DELIVERY TRANSACTIONS
Delayed delivery transactions, including when issued transactions, are
arrangements in which a Fund buys securities for a set price, with payment and
delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by a Fund to the issuer and
no interest accrues to a Fund. A Fund records the transaction when it agrees to
buy the securities and reflects their value in determining the price of its
shares. Settlement dates may be a month or more after entering into these
transactions so that the market values of the securities bought may vary from
the purchase prices. Therefore, delayed delivery transactions create market
risks for a Fund. Delayed delivery transactions also involve credit risks in the
event of a counterparty default.
TO BE ANNOUNCED SECURITIES (TBAS)
As with other delayed delivery transactions, a seller agrees to issue a
TBA security at a future date. However, the seller does not specify the
particular securities to be delivered. Instead, a Fund agrees to accept
any security that meets specified terms. For example, in a TBA mortgage
backed transaction, a Fund and the seller would agree upon the issuer,
interest rate and terms of the underlying mortgages. The seller would
not identify the specific underlying mortgages until it issues the
security. TBA mortgage backed securities increase market risks because
the underlying mortgages may be less favorable than anticipated by a
Fund.
DOLLAR ROLLS
Dollar rolls are transactions where a Fund sells mortgage-backed
securities with a commitment to buy similar, but not identical,
mortgage-backed securities on a future date at a lower price. Normally,
one or both securities involved are TBA mortgage backed securities.
Dollar rolls are subject to market risks and credit risks.
SECURITIES LENDING
A Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if the
market value of the loaned securities increases. Also, the borrower must pay the
Fund the equivalent of any dividends or interest received on the loaned
securities.
The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.
Loans are subject to termination at the option of the Fund or the borrower. The
Fund will not have the right to vote on securities while they are on loan, but
it will terminate a loan in anticipation of any important vote. The Fund may pay
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash collateral to a securities
lending agent or broker.
Securities lending activities are subject to market risks and credit risks.
ASSET COVERAGE
In order to secure its obligations in connection with derivatives contracts or
special transactions, a Fund will either own the underlying assets, enter into
an offsetting transaction, or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless a Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations entering into an offsetting derivative contract or terminating
a special transaction. This may cause the Fund to miss favorable trading
opportunities or to realize losses on derivative contracts or special
transactions.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
A Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient means
of carrying out its investment policies and managing its uninvested cash. Any
such investment by a Fund may be subject to duplicate expenses. However, the
Adviser believes that the benefits and efficiencies of this approach should
outweigh the potential additional expenses.
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:
the frequency of trades and quotes for the security;
the number of dealers willing to purchase or sell the security and the
number of other potential buyers; dealer undertakings to make a market
in the security; and 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.
INVESTMENT RISKS
Risk factors associated with investing in each Fund are set forth in the risk
chart in the prospectus. Principal risks factors associated with an investment
in each Fund are also described in the prospectus. While not an exhaustive list,
other risk factors include the following:
CALL RISKS
o Call risk is the possibility that an issuer may redeem a fixed income
security before maturity (a call) at a price below its current market price.
An increase in the likelihood of a call may reduce the security's price.
o If a fixed income security is called, a Fund may have to reinvest the
proceeds in other fixed income securities with lower interest rates, higher
credit risks, or other less favorable characteristics.
PREPAYMENT RISKS
o Generally, homeowners have the option to prepay their mortgages at any time
without penalty. Homeowners frequently refinance high interest rate
mortgages when mortgage rates fall. This results in the prepayment of
mortgage backed securities with higher interest rates. Conversely,
prepayments due to refinancings decrease when mortgage rates increase. This
extends the life of mortgage backed securities with lower interest rates. As
a result, increases in prepayments of high interest rate mortgage backed
securities, or decreases in prepayments of lower interest rate mortgage
backed securities, may reduce their yield and price. This relationship
between interest rates and mortgage prepayments makes the price of mortgage
backed securities more volatile than most other types of fixed income
securities with comparable credit risks.
RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES
o Securities rated below investment grade, also known as junk bonds, generally
entail greater market, credit and liquidity risks than investment grade
securities. For example, their prices are more volatile, economic downturns
and financial setbacks may affect their prices more negatively, and their
trading market may be more limited.
CURRENCY RISKS
o Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risks tends to make securities traded in foreign markets
more volatile than securities traded exclusively in the U.S.
EURO RISKS
o A Fund may make significant investments in securities denominated in the
Euro, the new single currency of the European Monetary Union (EMU).
Therefore, the exchange rate between the Euro and the U.S. dollar will have
a significant impact on the value of a Fund's investments.
o With the advent of the Euro, the participating countries in the EMU can no
longer follow independent monetary policies. This may limit these countries'
ability to respond to economic downturns or political upheavals, and
consequently reduce the value of their foreign government securities.
RISKS OF FOREIGN INVESTING
o Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable than those of the United States.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.
o Foreign countries may have restrictions on foreign ownership or may impose
exchange controls, capital flow restrictions or repatriation restrictions
which could adversely affect a Fund's investments.
o Foreign financial markets may have fewer investor protections than U.S.
markets. For instance, there may be less publicly available information
about foreign companies, and the information that is available may be
difficult to obtain or may not be current. In addition, foreign countries
may lack financial controls and reporting standards, or regulatory
requirements, comparable to those applicable to U.S. companies.
O Due to these risk factors, foreign securities may be more volatile and less
liquid than similar securities traded in the U.S.
RISKS OF INVESTING IN EMERGING MARKET COUNTRIES
Securities issued or traded in emerging markets generally entail greater risks
than securities issued or traded in developed markets. For example, their prices
may be significantly more volatile than prices in developed countries. Emerging
market economies may also experience more severe downturns (with corresponding
currency devaluations) than developed economies.
Emerging market countries may have relatively unstable governments and may
present the risk of nationalization of businesses, expropriation, confiscatory
taxation or, in certain instances, reversion to closed market, centrally planned
economies. The Adviser is seeking information regarding the Year 2000 readiness
of issuers or Fund service providers located in emerging markets. The Year 2000
problem is the potential for computer errors or failures because certain
computer systems may be unable to interpret dates after December 31, 1999, or
experience other date-related problems. However, this information may not exist,
or may be incomplete, inaccurate or difficult to obtain. As a result, the
Adviser might not be able to assess accurately or avoid the potential effects of
the Year 2000 problem on these companies, and these problems could result in
material losses to the Funds. STOCK MARKET RISKS o The value of equity
securities in a Fund's portfolio will rise and fall. These fluctuations could be
a sustained trend or a drastic movement and a Fund's share
price may decline.
o The Adviser attempts to manage market risk by limiting the amount a Fund
invests in each company's equity securities. However, diversification will
not protect a Fund against widespread or prolonged declines in the stock
market.
SECTOR RISKS
O A substantial part of a Fund's portfolio may be comprised of securities
issued or credit enhanced by companies in similar businesses, by issuers
located in the same state, or with other similar characteristics. Companies
with similar characteristics may be grouped together in broad categories
called sectors. Sector risk is the possibility that a certain sector may
underperform other sectors or the market as a whole. As the Adviser
allocates more of a Fund's portfolio holdings to a particular sector, a
Fund's performance will be more susceptible to any economic, business or
other developments which generally affect that sector.
LIQUIDITY RISKS
o Trading opportunities are more limited for equity securities and fixed
income securities that are not widely held. They are also more limited for
fixed income securities that have not received any credit ratings or have
received ratings below investment grade. These features may make it more
difficult to sell or buy a security at a favorable price or time.
Consequently, the Fund may have to accept a lower price to sell a security,
sell other securities to raise cash or give up an investment opportunity,
any of which could have a negative effect on the Fund's performance.
Infrequent trading of securities may also lead to an increase in their price
volatility.
o Liquidity risk also refers to the possibility that the Fund may not be able
to sell a security or close out a derivative contract when it wants to. If
this happens, the Fund will be required to continue to hold the security or
keep the position open, and the Fund could incur losses.
o OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.
RISKS ASSOCIATED WITH COMPLEX CMOS
CMOs with complex or highly variable prepayment terms, such as companion
classes, IOs, POs, Inverse Floaters and residuals, generally entail greater
market, prepayment and liquidity risks than other mortgage backed securities.
For example, their prices are more volatile and their trading market may be more
limited.
LEVERAGE RISKS
Leverage risk is created when an investment exposes a Fund to a level of risk
that exceeds the amount invested. Changes in the value of such an investment
magnify a Fund's risk of loss and potential for gain. Investments can have these
same results if their returns are based on a multiple of a specified index,
security, or other benchmark.
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 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 and, in the case of the Municipal Bond Fund, tax-exempt securities
issued by governments or their political subdivisions ).
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 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 unless permitted to exceed these limits by action of the SEC. 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' 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 more than 5% of their respective net assets in
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.
Each Fund will, as relevant, (1) 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) limit the premiums paid for options purchased by
the Fund to 5% of its net assets, and (3) limit the margin deposits on futures
contracts entered into by the Fund to 5% of its net assets. 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 associations having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items."
DETERMINING THE MARKET VALUE OF SECURITIES
The Funds' net asset value (NAV) per share fluctuates and is based on the market
value of all securities and other assets of the Funds.
Market values of the Funds' portfolio securities are determined as follows:
for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange or
the over-the-counter market), if available;
in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices;
for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;
for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, except that
short-term obligations with remaining maturities of less than 60 days at the
time of purchase may be valued at amortized cost or at fair market value as
determined in good faith by the Board; and
for all other securities, at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities. When market quotations
are not readily available for securities, a pricing committee established by the
Board determines the fair value of the securities, pursuant to procedures
established by the Board.
The Fund values futures contracts and options at their market values established
by the exchanges on which they are traded at the close of trading on such
exchanges. Options traded in the over-the-counter market are valued according to
the mean between the last bid and the last asked price for the option as
provided by an investment dealer or other financial institution that deals in
the option. The Board may determine in good faith that another method of valuing
such investments is necessary to appraise their fair market value.
HOW THE FUNDS ARE SOLD
Under the Distributor's Contract with the Fund, the Distributor, Edgewood
Services, Inc., located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers shares on a continuous, best-efforts basis.
RULE 12B-1 PLAN
As a compensation type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of shares so that overall Fund assets are maintained or increased. This
helps the Funds achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and share redemptions. Also, the
Funds' service providers that receive asset-based fees benefit from stable or
increasing Fund assets.
The Funds may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Funds pay for any expenses of the Distributor
that exceed the maximum Rule 12b-1 Plan fee.
The maximum Rule 12b-1 Plan fee that can be paid in any one year may not be
sufficient to cover the marketing related expenses the Distributor has incurred.
Therefore, it may take the Distributor a number of years to recoup these
expenses.
SHAREHOLDER SERVICES
The Funds may pay Federated Shareholder Services, a subsidiary of Federated, for
providing shareholder services and maintaining shareholder accounts. Federated
Shareholder Services may select others to perform these services for their
customers and may pay them fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services (but not out of a Fund's assets). The
Distributor and/or Federated Shareholder Services may be reimbursed by the
Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
of qualified employees and their spouses to attend informational meetings about
the Funds or other special events at recreational-type facilities, or items of
material value. These payments will be based upon the amount of shares the
investment professional sells or may sell and/or upon the type and nature of
sales or marketing support furnished by the investment professional.
REDEMPTION IN KIND
Although the Funds intend to pay redemptions in cash, they reserve the right, as
described below, to pay the redemption price in whole or in part by a
distribution of a Fund's portfolio securities.
Because the Funds have elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, they are obligated to pay redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets of
a Fund during any 90-day period.
Any redemption payment greater than this amount will also be in cash unless the
Funds' Board determines that payment should be in kind. In such a case, a Fund
will pay all or a portion of the remainder of the redemption in portfolio
securities, valued in the same way as a Fund determines its NAV. The portfolio
securities will be selected in a manner that the Funds' Board deems fair and
equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the 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 obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or 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 will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
ACCOUNT AND SHARE 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 the Trust have
equal voting rights, except that in matters affecting only a particular Fund,
only shares of that Fund are entitled to vote.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of shareholders will be called by the Trustees upon the
written request of shareholders who own at least 10% of the Trust's outstanding
shares of all series entitled to vote.
As of March 3, 1999, Fiduciary Trust Company International, New York, New York,
on behalf of certain underlying accounts, owned of record, beneficially, or
both, 5% or more of the following Funds: Municipal Bond Fund, approximately
5,528,776 shares (100%); Bond Fund, approximately 5,791,803 shares (99.98%);
Large Capitalization Growth Fund, approximately 2,229,331 shares (99.92%); Large
Capitalization Growth and Income Fund, approximately 9,450,995 shares (100%);
Small Capitalization Equity Fund, approximately 2,906,603 shares (78.37%); and
International Equity Fund, approximately 3,698,729 shares (71.72%).
As of March 3, 1999, State Street Bank and Trust Company, as Trustee for
Centrex Corporation, Boston, Massachusetts, owned approximately 976,475 shares
(18.94%) of International Equity Fund.
Shareholders owning 25% or more of outstanding shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
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. The Adviser is subject to such banking laws
and regulations.
The Adviser believes, based on the advice of its counsel, that it 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 the
Adviser 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 the Adviser. 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.
TAX INFORMATION
FEDERAL INCOME TAX
The Funds expect to pay no federal income tax because they expect to meet
requirements of Subchapter M of the Internal Revenue Code (Code) applicable to
regulated investment companies and to receive the special tax treatment afforded
such companies.
Each Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.
The International Equity Fund is entitled to a loss carry-forward, which may
reduce the taxable income or gain that the Fund would realize, and to which the
shareholder would be subject, in the future.
FOREIGN INVESTMENTS
If a Fund purchases foreign securities, their investment income 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 a Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, a Fund intends to operate so as to qualify for treaty-reduced tax rates
when applicable.
Distributions from a Fund may be based on estimates of book income for the year.
Book income generally consists solely of the coupon income generated by the
portfolio, whereas tax basis income includes gains or losses attributable to
currency fluctuation. 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 cannot 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 a Fund invests in the stock of certain foreign corporations, they may
constitute Passive Foreign Investment Companies (PFIC), and the Fund may be
subject to federal income taxes upon disposition of PFIC investments.
If more than 50% of the value of the International Equity 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. Shareholders who elect to deduct their portion of the Fund's
foreign taxes rather than take the foreign tax credit must itemize deductions on
their income tax returns.
FUND MANAGEMENT AND SERVICE PROVIDERS
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes each
person's: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years, and total compensation received
as a Trustee from the Trust for its most recent fiscal year. The Trust is
comprised of six funds.
As of March 3, 1999, the Fund's Board and Officers as a group owned less than 1%
of the Funds' outstanding shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940.
<TABLE>
<CAPTION>
NAME
BIRTHDATE AGGREGATE
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION
POSITION WITH TRUST FOR PAST 5 YEARS FROM TRUST
<S> <C> <C>
EDWARD C. GONZALES* Trustee or Director of some of the Funds $0
Birthdate: October 22, in the Federated Fund Complex; President,
1930 Executive Vice President and Treasurer of
Federated Investors some of the Funds in the Federated Fund
Tower Complex; Vice Chairman, Federated
1001 Liberty Avenue Investors, Inc.; Vice President, Federated
Pittsburgh, PA Advisers, Federated Management, Federated
PRESIDENT, TREASURER Research, Federated Research Corp.,
AND TRUSTEE Federated Global Research Corp. and
Passport Research, Ltd.; Executive Vice
President and Director, Federated
Securities Corp.; Trustee, Federated
Shareholder Services Company.
PETER A. ARON Vice President, Lafayette Enterprises, $10,500
Birthdate: May 26, 1946 Inc. (privately owned Investment Advisory
Lafayette Enterprises, Company); President, J. Aron charitable
Inc. Foundation, Inc.
126 E. 56th Street
New York, NY 10022
TRUSTEE
NANCY L. CLOSE Asset Manager and Trustee of certain $10,500
Birthdate: December 2, private trusts.
1946
4951 Windsor Park
Sarasota, FL 34235
TRUSTEE
JAMES C. GOODFELLOW* Executive Vice President, Fiduciary Trust $0
Birthdate: April 6, 1945 Company International, Managing Director -
Fiduciary Trust Company J.P. Morgan and Co.
International
Two World Trade Center
New York, NY 10048
TRUSTEE
BURTON J. GREENWALD Managing Director, B.J. Greenwald $10,500
Birthdate: December 6, Associates, Management Consultants to the
1929 Financial Services Industry.
2009 Spruce Street
Philadelphia, PA 19103
TRUSTEE
JEFFREY W. STERLING Vice President and Assistant Treasurer of $0
Birthdate: February 5, certain funds distributed by Edgewood
1947 Services, Inc. or its affiliates.
Federated Investors
Tower
1001 Liberty Avenue
Pittsburgh, PA 15222
VICE PRESIDENT AND
ASSISTANT TREASURER
TIMOTHY S. JOHNSON Associate Corporate Counsel, Federated $0
Birthdate: July 31, 1961 Investors, Inc.
Federated Investors
Tower
1001 Liberty Avenue
Pittsburgh, PA 15222
</TABLE>
SECRETARY
INVESTMENT ADVISER
The Funds' investment adviser is Fiduciary International, Inc. (the "Adviser" or
"Fiduciary"). The Adviser conducts investment research and makes investment
decisions for the Funds.
Under its contract with the Trust, the Adviser shall not be liable to the Trust,
the Funds, or any Fund shareholder 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. Because of the internal controls maintained by the Adviser's
affiliates to restrict the flow of non-public information, Fund investments are
typically made without any knowledge by the Adviser of its affiliates' lending
relationships with an issuer.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. 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 may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling shares of the Funds.
The Adviser makes decisions on portfolio transactions and selects brokers and
dealers subject to review by the Funds' Board.
RESEARCH SERVICES
Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. To the
extent that receipt of these services may replace services for which the Adviser
or its affiliates might otherwise have paid, it would tend to reduce their
expenses. The Adviser and its affiliates exercise reasonable business judgment
in selecting those 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.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When a Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Funds and the account(s) in
a manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit a Fund, it is possible
that this procedure could adversely impact the price paid or received and/or the
position obtained or disposed of by the Fund.
<PAGE>
ADMINISTRATOR
Federated Administrative Services, a subsidiary of Federated, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Funds. Federated Administrative
Services provides these at the following annual rate of the average aggregate
daily net assets as specified below:
MAXIMUM ADMINISTRATIVE AVERAGE AGGREGATE DAILY NET ASSETS OF THE
FEE TRUST
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 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 voluntarily 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.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND PORTFOLIO ACCOUNTANT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Funds pay the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
Ernst & Young LLP is the independent auditor for the Funds.
FEES PAID BY THE FUNDS FOR SERVICES
SMALL CAPITALIZATION EQUITY FUND
FOR THE YEAR ENDED NOVEMBER 30
AND FOR THE PERIOD FROM
DECEMBER 22, 1995 TO NOVEMBER 1998 1997 1996
30, 1996
Advisory Fee Earned $448,146 $288,740 $98,486
Advisory Fee Reduction $0 $0 $0
Brokerage Commissions $107,043 $72,588 $33,089
Administrative Fee $75,000 $75,000 $68,443
12b-1 Fee $0 $0 $0
Shareholder Services Fee $0 $0 $0
<PAGE>
INTERNATIONAL EQUITY FUND
- ------------------------------------------------------------------------
FOR THE YEAR ENDED NOVEMBER 30
AND FOR THE PERIOD FROM
DECEMBER 22, 1995 TO NOVEMBER 1998 1997 1996
30, 1996
Advisory Fee Earned $635,839 $321,927 $55,029
Advisory Fee Reduction $0 $0 $0
Brokerage Commissions $240,556 $173,103 $57,755
Administrative Fee $94,569 $75,000 $67,829
12b-1 Fee $0 $0 $0
Shareholder Services Fee $0 $0 $0
HOW THE FUNDS MEASURE PERFORMANCE
The Funds may advertise share performance by using the SEC standard method for
calculating performance applicable to all mutual funds. The SEC also permits
this standard performance information to be accompanied by non-standard
performance information.
Unless otherwise stated, any quoted share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. Performance depends upon such variables as:
portfolio quality; average portfolio maturity; type and value of portfolio
securities; changes in interest rates; changes or differences in a Fund's
expenses; and various other factors.
Performance fluctuates on a daily basis largely because net earnings fluctuate
daily. Both net earnings and offering price per share are factors in the
computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns given for the one year and since inception periods ended November
30, 1998.
FUND AVERAGE ANNUAL TOTAL RETURN YIELD
SINCE INCEPTION FOR THE 30-DAY PERIOD ENDED
1 YEAR (DECEMBER 22, 1995) NOVEMBER 30, 1998
SMALL CAPITALIZATION (5.34)% 11.02% (19.00%)
EQUITY FUND
INTERNATIONAL EQUITY FUND 14.61% 12.80% (1.71%)
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for shares 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 NAV 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 charge, adjusted over the
period by any additional shares, assuming the annual reinvestment of all
dividends and distributions.
When a Fund has been in existence for less than a year, the Fund may advertise
cumulative total return for that specific period of time, rather than
annualizing the total return.
YIELD
Fund yield is calculated by dividing: (i) the net investment income per share
earned by the shares over a thirty-day period; by (ii) the maximum offering
price per share on the last day of the period. This number 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 tax-equivalent yield of
the Municipal Bond Fund is calculated similarly to the yield, but is adjusted to
reflect the taxable yield that the Fund would have had to earn to equal its
actual yield, assuming a specific tax rate. The yield and tax-equivalent yield
do not necessarily reflect income actually earned by shares 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 investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in shares,
the share performance is lower for shareholders paying those fees.
TAX-EQUIVALENT YIELD FOR MUNICIPAL BOND FUND
The tax-equivalent yield of the Municipal Bond Fund is calculated similarly to
the yield, but is adjusted to reflect the taxable yield that the Fund would have
had to earn to equal its actual yield, assuming a 28% tax and assuming that
income is 100% tax-exempt.
TAX-EQUIVALENCY TABLE FOR MUNICIPAL BOND FUND
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the municipal securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.
<PAGE>
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1999 MULTISTATE MUNICIPAL FUND
<S> <C> <C> <C> <C> <C>
FEDERAL INCOME TAX BRACKET: 15.00% 28.00% 31.00% 36.00% 39.60%
Joint Return $1-43,050 $43,051-104,05$104,051-158,550$158,551-283,150 Over
283,150
Single Return $1-25,750 $25,751-62,450$62,451-130,250 $130,251-283,150 Over
283,150
TAX EXEMPT YIELD: TAXABLE YIELD EQUIVALENT:
1.00% 1.18% 1.39% 1.45% 1.56% 1.66%
1.50% 1.76% 2.08% 2.17% 2.34% 2.48%
2.00% 2.35% 2.78% 2.90% 3.13% 3.31%
2.50% 2.94% 3.47% 3.62% 3.91% 4.14%
3.00% 3.53% 4.17% 4.35% 4.69% 4.97%
3.50% 4.12% 4.86% 5.07% 5.47% 5.79%
4.00% 4.71% 5.56% 5.80% 6.25% 6.62%
4.50% 5.29% 6.25% 6.52% 7.03% 7.45%
5.00% 5.88% 6.94% 7.25% 7.81% 8.28%
5.50% 6.47% 7.64% 7.97% 8.59% 9.11%
6.00% 7.06% 8.33% 8.70% 9.38% 9.93%
6.50% 7.65% 9.03% 9.42% 10.16% 10.76%
7.00% 8.24% 9.72% 10.14% 10.94% 11.59%
7.50% 8.82% 10.42% 10.87% 11.72% 12.42%
8.00% 9.41% 11.11% 11.59% 12.50% 13.25%
</TABLE>
NOTE: THE MAXIMUM MARGINAL TAX RATE FOR EACH BRACKET WAS USED IN
CALCULATING THE TAXABLE YIELD EQUIVALENT.
*Some portion of the Fund's income may be subject to the federal
alternative minimum tax and state and local income taxes.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
o references to ratings, rankings, and financial publications and/or
performance comparisons of shares to certain indices;
o charts, graphs and illustrations using the Funds' returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
o discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio managers' views on
how such developments could impact the Funds; and
o information about the mutual fund industry from sources such as the Investment
Company Institute.
The Funds may compare their performance, or performance for the types of
securities in which they invest, to a variety of other investments, including
federally insured bank products such as bank savings accounts, certificates of
deposit, and Treasury bills.
The Funds may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of performance. When comparing performance, you should consider all relevant
factors such as the composition of the 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:
MUNICIPAL BOND FUND
o LIPPER 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 may quote its Lipper ranking in
advertising and sales literature.
MORNINGSTAR, 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.
LEHMAN BROTHERS MUNICIPAL INDEX is a broad market performance benchmark
for the tax-exempt bond market. As of December 1995, approximately 29,300
bonds were included in the Municipal Bond Index with a market value of $443
billion. To be included in the Lehman Brothers Municipal Bond Index, bonds
must have a minimum credit rating of at least Baa. They must have an
outstanding par value of at least $3 million and be issued as part of a
transaction of at least $50 million. The index includes both zero coupon
bonds and bonds subject to the alternative minimum tax.
o LEHMAN MUNICIPAL INDEX/7 YEAR is an unmanaged index of municipal bonds
issued after January 1, 1991 with a minimum credit rating of at least Baa,
that were issued as part of an issuance of at least $50 million and have a
maturity value of at least $3 million and a maturity range of 6-8 years. As
of January 1996 the index also includes zero coupon bonds and bonds subject
to the Alternative Minimum Tax.
BOND FUND
o LIPPER 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 may quote its Lipper ranking in
advertising and sales literature.
MORNINGSTAR, 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.
LEHMAN 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.
LARGE CAPITALIZATION GROWTH FUND
o LIPPER 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 may quote its Lipper ranking in
advertising and sales literature.
MORNINGSTAR, 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.
STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX covers 500 industrial,
utility, transportation, and financial companies in the United States market
(mostly 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.
o DOW JONES INDUSTRIAL AVERAGE 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.
o RUSSELL 1000 INDEX measures the performance of the 1,000 largest companies
in the Russell 3000 Index and represents approximately 90% of the total
market capitalization of the Russell 3000 Index.
o RUSSELL 1000 GROWTH INDEX measures the performance of those Russell 1000
companies with higher price-to-book ratios and higher forecasted growth
values.
LARGE CAPITALIZATION GROWTH AND INCOME FUND
o LIPPER 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 may quote its Lipper ranking in
advertising and sales literature.
MORNINGSTAR, 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.
STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX covers 500 industrial,
utility, transportation, and financial companies in the United States market
(mostly 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.
o DOW JONES INDUSTRIAL AVERAGE 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.
SMALL CAPITALIZATION EQUITY FUND
LIPPER 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 may quote its Lipper ranking in
advertising and sales literature.
MORNINGSTAR, 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.
RUSSELL 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.
o RUSSELL 2000 GROWTH INDEX measures the performance of those Russell 2000
companies with higher price-to-book ratios and higher forecasted growth
values.
o DOW JONES INDUSTRIAL AVERAGE 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.
STANDARD & POOR'S MIDCAP 400 INDEX is a diversified index consisting of
400 domestic stocks chosen for market size (median market capitalization of
about $1.513 billion, as of July 1997), liquidity, and industry group
representation. It is a market-weighted index with each stock affecting the
index in proportion to its market value.
STANDARD & POOR'S SMALLCAP 600 INDEX is an index consisting of 600
domestic stocks chosen for market size (median market capitalization of $443
million, as of July 1997), liquidity, and industry group representation. It
is a market-weighted index, with each stock affecting the index in
proportion to its market value.
STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX covers 500 industrial,
utility, transportation, and financial companies in the United States market
(mostly 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.
RUSSELL MIDCAP(TM) 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.
o SALOMON SMITH BARNEY EMERGING GROWTH INDEX is composed of companies that
have between $100 million and $2 billion in market capitalization and all
have earnings per share growth rates exceeding 20%; the Index is rebalanced
at least once a year.
INTERNATIONAL EQUITY FUND
LIPPER 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 may quote its Lipper rating in advertising
and sales literature.
MORNINGSTAR, 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.
MORGAN 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, 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 Morgan
Stanley Capital International, S.A., Geneva, Switzerland.
FT-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.
FINANCIAL INFORMATION
The Financial Statements for the Fund for the fiscal year ended November 30,
1998 are incorporated herein by reference to the Annual Report to Shareholders
of the Funds dated November 30, 1998.
INVESTMENT RATINGS
STANDARD & POOR'S ("S&P") LONG-TERM DEBT RATING DEFINITIONS
AAA-Debt rated AAA has the highest rating assigned by S&P. 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.
BB--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB-rating.
B--Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB-rating.
STANDARD AND POOR'S MUNICIPAL BOND RATING DEFINITIONS
AAA--Debt rated "AAA" has the highest rating assigned by S&P. 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 effect 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.
BB--Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB" rating.
B--Debt rated "B" has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The `B' rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB "or "BB"
rating.
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.
BA--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
MOODY'S INVESTORS SERVICE, INC. MUNICIPAL 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 adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
FITCH INVESTORS SERVICE, INC., LONG-TERM DEBT RATINGS DEFINITIONS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds and, therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
STANDARD & POOR'S 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:
Leading market positions in well-established industries;
High rates of return on funds employed;
Conservative capitalization structures with moderate reliance on debt and
ample asset protection;
Broad margins in earning coverage of fixed financial charges and high
internal cash generation; and
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.
<PAGE>
FTI MUNICIPAL BOND FUND
FTI BOND FUND
FTI LARGE CAPITALIZATION GROWTH FUND
FTI LARGE CAPITALIZATION GROWTH AND INCOME FUND
FTI SMALL CAPITALIZATION EQUITY FUND
FTI INTERNATIONAL EQUITY FUND
FTI FUNDS
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7010
ADDRESSES
DISTRIBUTOR
Edgewood Services, Inc.
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779
INVESTMENT ADVISER
Fiduciary International, Inc.
Two World Trade Center
New York, New York 10048-0772
CUSTODIAN
Fiduciary Trust Company International
Two World Trade Center
New York, New York 10048-0772
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company
P.O. Box 8600
Boston, Massachusetts 02266-8600
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116-5072
PART C. OTHER INFORMATION.
Item 23. Exhibits:
(a) (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.)
(iii)Conformed Copy of Amendment No. 2 to the Declaration
of Trust of the Registrant;+
(b) Copy of By-Laws of the Registrant; (1.)
(c) Copy of Specimen Certificate for Shares of Beneficial
Interest of the Registrant; (3.) (d) Conformed copy of
Investment Advisory Contract of the Registrant; (3.)
(i) Conformed copy of Exhibit F to the Investment
Advisory Contract of the Registrant;(6) (ii)
Conformed copy of Exhibit G to the Investment
Advisory Contract of the Registrant;(6)
(iii) Conformed copy of Exhibit H to the Investment
Advisory Contract of the Registrant;(6)
(iv)Conformed copy of Exhibit I to the Investment
Advisory Contract of the Registrant;(6)
(e) Conformed copy of Distributor's Contract of the
Registrant; (3.)
(i) conformed copy of Exhibit B to the
Distributor's Contract of the Registrant;(6) (f) Not
applicable; (g) Conformed copy of Custodian Agreement of
the Registrant; (3.)
(i) Conformed copy of Global Custody Fee
Schedule; (5)
(ii) Conformed copy of Domestic Custodian Fee
Schedule; (5)
(h) (i) Conformed copy of Administrative Services
Agreement; (3.)
(ii) Conformed copy of Agreement for Fund
Accounting, Shareholder Recordkeeping, and
Custody Services Procurement; (3.)
(iii) Amendment No. 1 to Agreement for Fund
Accounting, Shareholder Recordkeeping, and
Custody Services Procurement; (6)
(iv) Conformed copy of Shareholder Services
Agreement; (3.)
(v) Amendment No. 1 to Schedule A to the
Shareholder Services Agreement; (6)
-----------------------------
+ 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).
(2.) Response is incorporated by reference to Registrant's Registration
Statement filed December 20, 1995 (File Nos. 33-63621 and 811-7369). (3.)
Response is incorporated by reference to Registrant's Post-Effective Amendment
No. 1 on Form N-1A filed July 2, 1996 (File Nos. 33-63621 and 811-7369). (5.)
Response is incorporated by reference to Registrant's Post-Effective Amendment
No. 4 on Form N-1A filed January 28, 1998 (File Nos. 33-63621 and 811-7369).
(6.) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed September 24, 1998 (File Nos. 33-63621 and
811-7369).
<PAGE>
(i) Conformed Copy of Opinion and Consent of Counsel as to
legality of shares being registered; (3.) (j) Not
applicable; (k) Not applicable; (l) Conformed Copy of
Initial Capital Understanding; (2.) (m) (i) Conformed copy
of Distribution Plan;(3.)
(ii) Exhibit B to the Distribution Plan;(6) (iii)
Copy of 12b-1 Agreement; (3.)
(iv) Conformed copy of Amendment No. 1 to Exhibit
A to the 12b-1 Agreement;(6) (n) Copy of Financial Data
Schedules; + (o) Not applicable; (p) Conformed Copy of
Power of Attorney; (4.)
- ---------------------
+ All exhibits have been filed electronically.
(3.) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed July 2, 1996 (File Nos. 33-63621 and
811-7369).
(4.) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 2 on Form N-1A filed February 27, 1997 (File Nos. 33-63621
and 811-7369).
(6.) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed September 24, 1998 (File Nos. 33-63621
and 811-7369).
<PAGE>
Item 24. Persons Controlled by or Under Common Control with Registrant
None
Item 25. Indemnification: (1.)
Item 26. 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 of 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.
- -----------------------------
(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).
<PAGE>
ITEM 27. PRINCIPAL UNDERWRITERS:
(a) Edgewood Services, Inc. the Distributor for shares of the
Registrant, acts as principal underwriter for the following
open-end investment companies, including the Registrant:
Deutsche Portfolios, Deutsche Funds, Inc., Excelsior Funds,
Excelsior Funds, Inc., (formerly, UST Master Funds, Inc.),
Excelsior Institutional Trust, Excelsior Tax-Exempt Funds,
Inc. (formerly, UST Master Tax-Exempt Funds, Inc.), FTI
Funds, FundManager Portfolios, Great Plains Funds, Old
Westbury Funds, Inc., Robertsons Stephens Investment Trust,
WesMark Funds, WCT Funds.
<TABLE>
<CAPTION>
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
<S> <C> <C>
Lawrence Caracciolo Director, President, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-5829
Arthur L. Cherry Director, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-5829
J. Christopher Donahue Director, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-5829
Thomas P. Sholes Vice President, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-5829
Ernest L. Linane Assistant Vice President, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-5829
Christine T. Johnson Assistance Vice President, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-5829
Denis McAuley Treasurer, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-5829
Leslie K. Ross Secretary, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-5829
Amanda J. Reed Assistant Secretary, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-5829
</TABLE>
(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 15237-7010
Federated Services Company Federated Investors Tower
("Transfer Agent, Dividend Pittsburgh, PA 15222-3779
Disbursing Agent and Portfolio
Accountant")
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 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FTI 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 29th day of March, 1999.
FTI FUNDS
BY: /s/Timothy S. Johnson
Timothy S. Johnson, Secretary
Attorney in Fact for Edward C. Gonzales
March 29, 1999
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/ Timothy S. Johnson
Timothy S. Johnson, Attorney In Fact March 29, 1999
SECRETARY For the Persons
Listed Below
NAME TITLE
Edward C. Gonzales* Chairman, 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
* By Power of Attorney
Exhibit J under Form N-1A
Exhibit 23 under Item 601/Reg. S-K
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" and "Independent Auditors" in Post-Effective Amendment Number 6 to
the Registration Statement (Form N-1A Number 33-63621) and to the incorporation
therein of our reports dated January 20, 1999, with respect to the financial
statements included in the Annual Reports of FTI Funds, Inc. (comprising
respectively, FTI Small Capitalization Equity Fund and FTI International Equity
Fund).
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 020
<NAME> FTI INTERNATIONAL EQUITY FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1998
<PERIOD-END> Nov-30-1998
<INVESTMENTS-AT-COST> 67,952,279
<INVESTMENTS-AT-VALUE> 75,115,548
<RECEIVABLES> 1,085,500
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 58,257
<TOTAL-ASSETS> 76,259,305
<PAYABLE-FOR-SECURITIES> 207,438
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,606,594
<TOTAL-LIABILITIES> 1,814,032
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 67,500,574
<SHARES-COMMON-STOCK> 5,376,201
<SHARES-COMMON-PRIOR> 3,349,788
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (178,735)
<ACCUMULATED-NET-GAINS> (223,295)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,346,729
<NET-ASSETS> 74,445,273
<DIVIDEND-INCOME> 880,254
<INTEREST-INCOME> 169,310
<OTHER-INCOME> 0
<EXPENSES-NET> 880,954
<NET-INVESTMENT-INCOME> 168,610
<REALIZED-GAINS-CURRENT> 373,175
<APPREC-INCREASE-CURRENT> 3,302,983
<NET-CHANGE-FROM-OPS> 3,844,768
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (469,709)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,741,492
<NUMBER-OF-SHARES-REDEEMED> (723,136)
<SHARES-REINVESTED> 8,057
<NET-CHANGE-IN-ASSETS> 33,575,772
<ACCUMULATED-NII-PRIOR> 179,233
<ACCUMULATED-GAINS-PRIOR> (1,231,385)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 635,839
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 945,703
<AVERAGE-NET-ASSETS> 63,583,841
<PER-SHARE-NAV-BEGIN> 12.200
<PER-SHARE-NII> 0.040
<PER-SHARE-GAIN-APPREC> 1.730
<PER-SHARE-DIVIDEND> (0.120)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 13.850
<EXPENSE-RATIO> 1.39
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 010
<NAME> FTI SMALL CAPITALIZATION FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1998
<PERIOD-END> Nov-30-1998
<INVESTMENTS-AT-COST> 41,412,289
<INVESTMENTS-AT-VALUE> 46,971,367
<RECEIVABLES> 406,454
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 20,734
<TOTAL-ASSETS> 47,398,555
<PAYABLE-FOR-SECURITIES> 1,011,787
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 153,962
<TOTAL-LIABILITIES> 1,165,749
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 43,386,986
<SHARES-COMMON-STOCK> 3,485,703
<SHARES-COMMON-PRIOR> 2,817,809
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,713,258)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,559,078
<NET-ASSETS> 46,232,806
<DIVIDEND-INCOME> 92,445
<INTEREST-INCOME> 95,684
<OTHER-INCOME> 0
<EXPENSES-NET> 672,219
<NET-INVESTMENT-INCOME> (484,090)
<REALIZED-GAINS-CURRENT> (2,675,666)
<APPREC-INCREASE-CURRENT> 630,545
<NET-CHANGE-FROM-OPS> (2,529,211)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (1,026,646)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,440,048
<NUMBER-OF-SHARES-REDEEMED> (798,731)
<SHARES-REINVESTED> 26,577
<NET-CHANGE-IN-ASSETS> 5,727,104
<ACCUMULATED-NII-PRIOR> (257,294)
<ACCUMULATED-GAINS-PRIOR> 1,245,243
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 448,146
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 676,668
<AVERAGE-NET-ASSETS> 44,814,564
<PER-SHARE-NAV-BEGIN> 14.370
<PER-SHARE-NII> (0.150)
<PER-SHARE-GAIN-APPREC> (0.610)
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> (0.350)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 13.260
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>