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
-----
Post-Effective Amendment No. 7 .......................... X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. 8 ......................................... 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 31, 2000
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:
John N. Ake, Esquire
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street
51st Floor
Philadelphia, PA 19103-7599
09/09/99
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[LOGO]
FTI FUNDS
PROSPECTUS
March 31, 2000
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[BOX]
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FTI FUNDS
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary of Fund Goals, Strategies, Performance
and Risk 2
Fees and Expenses of the Funds 14
Investment Strategies for the Funds 23
Investment Securities and Techniques Used by the
Funds 27
Principal Securities in which the Funds Invest 30
Principal Investment Risks of the Funds 35
What Shares Cost 40
Share Purchases 41
How the Funds are Distributed/Sold 43
Redemptions and Exchanges 44
Account and Share Information 47
Management of the Funds 49
Financial Information 54
</TABLE>
As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
1
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[BOX]
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PROSPECTUS
March 31, 2000
2
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[BOX]
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[SIDE NOTE]
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.
[END SIDE NOTE]
SUMMARY OF FUND GOALS, STRATEGIES,
PERFORMANCE AND RISK
FTI Funds offer investors a range of investment opportunities.
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 five years.
2
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[BOX]
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[SIDE NOTE]
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.
[END SIDE NOTE]
[PHOTO]
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 substantially all of its assets
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 that 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.
3
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[BOX]
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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 evaluating regions in which to invest, the Adviser
considers a variety of investment factors including macroeconomic data and local
market characteristics to orient the portfolio towards those areas determined to
have the best growth prospects. In selecting securities for the Fund, the
Adviser considers earnings growth potential, relative valuation measures and
quality of company management.
4
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[THIS PAGE INTENTIONALLY LEFT BLANK]
5
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[BOX]
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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. Also, there is
no assurance that a Fund will achieve its investment objective. The shares
offered by this prospectus are not deposits or obligations of any bank, are not
endorsed or guaranteed
<TABLE>
<CAPTION>
<S> <C> <C>
RISKS RELATED TO MUNICIPAL
FIXED INCOME SECURITIES: BOND BOND
Interest Rate 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
Foreign Investing X
Tax Risks X
RISKS RELATED TO EQUITY SECURITIES:
Stock Market
Sector
Liquidity
Investing for Growth
Company Size
Currency
Foreign Investing
</TABLE>
6
<PAGE>
[BOX]
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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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
LARGE CAP
RISKS RELATED TO LARGE CAP GROWTH AND SMALL CAP
INTERNATIONAL
FIXED INCOME SECURITIES: GROWTH INCOME EQUITY EQUITY
Interest Rate
Credit
Call
Prepayment
Liquidity
Sector
Non-Investment Grade
Securities
Complicated CMOs
Foreign Investing
Tax Risks
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 X X
Company Size X
Currency X
Foreign Investing X
</TABLE>
For an explanation of risks related to equity securities and fixed income
securities, see "Principal Investment Risks of the Funds" which begins on Page
35.
7
<PAGE>
[BOX]
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FTI MUNICIPAL BOND FUND
RISK/RETURN BAR CHART AND TABLE
<TABLE>
<S> <C>
The graphic presentation displayed here consists of a bar chart representing the
annual total return of FTI Municipal Bond Fund as of the calendar year- end for
each of one year.
The `y' axis reflects the "% Total Return" beginning with "-10%" and increasing
in increments of 5% up to 10%. The `x' axis represents calculation periods from
the earliest first full calendar year-end of the Fund's start of business
through the calendar year ended 1999. The light gray shaded chart features one
distinct vertical bar, shaded in charcoal, and visually representing by height
the total return percentage for the 1999 calendar year stated directly at its
base. The calculated total return percentage for the Fund for the calendar year
1999 is stated directly at the top of the bar. The percentage noted is: -1.03%.
</TABLE>
The Fund's shares are sold without a sales charge (load). The total returns
displayed above are based upon net asset value.
Within the period shown in the Chart, the Fund's highest quarterly return was
0.37% (quarter ended March 31, 1999). Its lowest quarterly return was -1.75%
(quarter ended June 30, 1999).
AVERAGE ANNUAL TOTAL RETURN TABLE
The following table represents the Fund's Average Annual Total Returns for the
calendar periods ended December 31, 1999. The table shows the Fund's total
returns averaged over a period of years relative to the Lehman Brothers
Municipal Bond 7-Year Index (LBMBI), which is a broad-based market index. The
LBMBI is comprised of municipal bonds with a minimum credit rating of at least
Baa and a maturity range of 4-6 years. Total returns for the index shown do not
reflect sales charges, expenses or other fees the SEC requires to be reflected
in the Fund's performance. Indexes are unmanaged, and it is not possible to
invest directly in an index.
<TABLE>
<CAPTION>
- --------------------------------------------------------
CALENDAR PERIOD FUND LBMBI
- --------------------------------------------------------
<S> <C> <C>
1 Year -1.03% -0.14%
- --------------------------------------------------------
Start of Performance (1) -0.89% 0.48%
- --------------------------------------------------------
</TABLE>
1 The Fund's start of performance date was December 11, 1998.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.
This information gives some indication of the risks of an investment in the Fund
by comparing the Fund's performance with a broad measure of market performance.
8
<PAGE>
[BOX]
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FTI BOND FUND
RISK/RETURN BAR CHART AND TABLE
<TABLE>
<S> <C>
The graphic presentation displayed here consists of a bar chart representing the
annual total return of FTI Bond Fund as of the calendar year- end for each of
one year.
The `y' axis reflects the "% Total Return" beginning with "-10%" and increasing
in increments of 5% up to 10%. The `x' axis represents calculation periods from
the earliest first full calendar year-end of the Fund's start of business
through the calendar year ended 1999. The light gray shaded chart features one
distinct vertical bar, shaded in charcoal, and visually representing by height
the total return percentage for the 1999 calendar year stated directly at its
base. The calculated total return percentage for the Fund for the calendar year
1999 is stated directly at the top of the bar. The percentage noted is: -0.29%.
</TABLE>
The Fund's shares are sold without a sales charge (load). The total returns
displayed above are based upon net asset value.
Within the period shown in the Chart, the Fund's highest quarterly return was
0.44% (quarter ended March 31, 1999). Its lowest quarterly return was -1.17%
(quarter ended June 30, 1999).
AVERAGE ANNUAL TOTAL RETURN TABLE
The following table represents the Fund's Average Annual Total Returns for the
calendar periods ended December 31, 1999. The table shows the Fund's total
returns averaged over a period of years relative to the Lehman Brothers
Aggregate Bond Index (LBABI), which is a broad-based market index. The LBABI
measures the captial price changes and income provided by the underlying
universe of securities, comprised of U.S. Treasury obligations, U.S. agency
obligations, foreign obligations, U.S. investment-grade corporate debt and
mortgage-backed obligations. Total returns for the index shown do not reflect
sales charges, expenses or other fees the SEC requires to be reflected in the
Fund's performance. Indexes are unmanaged, and it is not possible to invest
directly in an index.
<TABLE>
<CAPTION>
- ------------------------------------------------------
CALENDAR PERIOD FUND LBABI
- ------------------------------------------------------
<S> <C> <C>
1 Year -0.29% -0.82%
- ------------------------------------------------------
Start of Performance (1) -0.06% -0.04%
- ------------------------------------------------------
</TABLE>
1 The Fund's start of performance date was December 11, 1998.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.
This information gives some indication of the risks of an investment in the Fund
by comparing the Fund's performance with a broad measure of market performance.
9
<PAGE>
[BOX]
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FTI LARGE CAPITALIZATION GROWTH FUND
RISK/RETURN BAR CHART AND TABLE
<TABLE>
<S> <C>
The graphic presentation displayed here consists of a bar chart representing the
annual total return of FTI Large Capitalization Growth Fund as of the calendar
year-end for each of one year.
The `y' axis reflects the "% Total Return" beginning with "0%" and increasing in
increments of 10% up to 50%. The `x' axis represents calculation periods from
the earliest first full calendar year-end of the Fund's start of business
through the calendar year ended 1999. The light gray shaded chart features one
distinct vertical bar, shaded in charcoal, and visually representing by height
the total return percentage for the 1999 calendar year stated directly at its
base. The calculated total return percentage for the Fund for the calendar year
1999 is stated directly at the top of the bar. The percentage noted is: 20.92%.
</TABLE>
The Fund's shares are sold without a sales charge (load). The total returns
displayed above are based upon net asset value.
Within the period shown in the Chart, the Fund's highest quarterly return was
18.34% (quarter ended December 31, 1999). Its lowest quarterly return was -2.88%
(quarter ended September 30, 1999).
AVERAGE ANNUAL TOTAL RETURN TABLE
The following table represents the Fund's Average Annual Total Returns for the
calendar periods ended December 31, 1999. The table shows the Fund's total
returns averaged over a period of years relative to the S&P 500, which is a
broad-based market index. The S&P 500 is a capitalization weighted index of 500
stocks designed to measure performance of the broad domestic economy through
changes in the aggregate market value of 500 stocks representing all major
industries. Total returns for the index shown do not reflect sales charges,
expenses or other fees the SEC requires to be reflected in the Fund's
performance. Indexes are unmanaged, and it is not possible to invest directly in
an index.
<TABLE>
<CAPTION>
- --------------------------------------------------------
CALENDAR PERIOD FUND S&P 500
- --------------------------------------------------------
<S> <C> <C>
1 Year 20.92% 21.05%
- --------------------------------------------------------
Start of Performance (1) 26.23% 21.17%
- --------------------------------------------------------
</TABLE>
1 The Fund's start of performance date was December 11, 1998.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.
This information gives some indication of the risks of an investment in the Fund
by comparing the Fund's performance with a broad measure of market performance.
10
<PAGE>
[BOX]
- ---------------------------------------------------------
FTI LARGE CAPITALIZATION GROWTH AND INCOME FUND
RISK/RETURN BAR CHART AND TABLE
<TABLE>
<S> <C>
The graphic presentation displayed here consists of a bar chart representing the
annual total return of FTI Large Capitalization Growth and Income Fund as of the
calendar year-end for each of one year.
The `y' axis reflects the "% Total Return" beginning with "0%" and increasing in
increments of 10% up to 40%. The `x' axis represents calculation periods from
the earliest first full calendar year-end of the Fund's start of business
through the calendar year ended 1999. The light gray shaded chart features one
distinct vertical bar, shaded in charcoal, and visually representing by height
the total return percentage for the 1999 calendar year stated directly at its
base. The calculated total return percentage for the Fund for the calendar year
1999 is stated directly at the top of the bar. The percentage noted is: 8.42%.
</TABLE>
The Fund's shares are sold without a sales charge (load). The total returns
displayed above are based upon net asset value.
Within the period shown in the Chart, the Fund's highest quarterly return was
7.64% (quarter ended June 30, 1999). Its lowest quarterly return was -4.84%
(quarter ended September 30, 1999).
AVERAGE ANNUAL TOTAL RETURN TABLE
The following table represents the Fund's Average Annual Total Returns for the
calendar periods ended December 31, 1999. The table shows the Fund's total
returns averaged over a period of years relative to the S&P 500, which is a
broad-based market index. Total returns for the index shown do not reflect sales
charges, expenses or other fees the SEC requires to be reflected in the Fund's
performance. Indexes are unmanaged, and it is not possible to invest directly in
an index.
<TABLE>
<CAPTION>
- --------------------------------------------------------
CALENDAR PERIOD FUND S&P 500
- --------------------------------------------------------
<S> <C> <C>
1 Year 8.42% 21.05%
- --------------------------------------------------------
Start of Performance (1) 14.99% 21.17%
- --------------------------------------------------------
</TABLE>
1 The Fund's start of performance date was December 11, 1998.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.
This information gives some indication of the risks of an investment in the Fund
by comparing the Fund's performance with a broad measure of market performance.
11
<PAGE>
[BOX]
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FTI SMALL CAPITALIZATION EQUITY FUND
RISK/RETURN BAR CHART AND TABLE
<TABLE>
<S> <C>
The graphic presentation displayed here consists of a bar chart representing the
annual total return of FTI Small Capitalization Equity Fund as of the calendar
year-end for each of 4 years.
The `y' axis reflects the "% Total Return" beginning with "0%" and increasing in
increments of 10% up to 80%. The `x' axis represents calculation periods from
the earliest first full calendar year-end of the Fund's start of business
through the calendar year ended 1999. The light gray shaded chart features four
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 1999. The percentages noted are: 23.40%, 17.80%, 3.03% and
69.30%, respectively.
</TABLE>
The bar chart shows the variability of the Fund's total returns on a calendar
year-end basis.
The Fund's shares are sold without a sales charge (load). The total returns
displayed above are based upon net asset value.
Within the period shown in the Chart, the Fund's highest quarterly return was
40.92% (quarter ended December 31, 1999). Its lowest quarterly return was
- -21.53% (quarter ended September 30, 1998).
AVERAGE ANNUAL TOTAL RETURN TABLE
The following table represents the Fund's Average Annual Total Returns for the
calendar periods ended December 31, 1999. The table shows the Fund's total
returns averaged over a period of years relative to the Russell 2000 Growth
Index (RUS2), which is a broad-based market index. The RUS2 measures the
performance of small cap companies with higher price-to-book ratios and higher
forecasted growth values. Total returns for the index shown do not reflect sales
charges, expenses or other fees the SEC requires to be reflected in the Fund's
performance. Indexes are unmanaged, and it is not possible to invest directly in
an index.
<TABLE>
<CAPTION>
- --------------------------------------------------------
CALENDAR PERIOD FUND RUS2
- --------------------------------------------------------
<S> <C> <C>
1 Year 69.30% 21.26%
- --------------------------------------------------------
Start of Performance (1) 25.99% 14.20%
- --------------------------------------------------------
</TABLE>
1 The Fund's start of performance date was December 22, 1995.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.
12
<PAGE>
[BOX]
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FTI INTERNATIONAL EQUITY FUND
RISK/RETURN BAR CHART AND TABLE
<TABLE>
<S> <C>
The graphic presentation displayed here consists of a bar chart representing the
annual total return of FTI International Equity Fund as of the calendar year-end
for each of 4 years.
The `y' axis reflects the "% Total Return" beginning with "0%" and increasing in
increments of 10% up to 50%. The `x' axis represents calculation periods from
the earliest first full calendar year-end of the Fund's start of business
through the calendar year ended 1999. The light gray shaded chart features four
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 1999. The percentages noted are: 12.79%, 13.34%, 12.86% and
43.81%, respectively.
</TABLE>
The bar chart shows the variability of the Fund's total returns on a calendar
year-end basis.
The Fund's shares are sold without a sales charge (load). The total returns
displayed above are based upon net asset value.
Within the period shown in the Chart, the Fund's highest quarterly return was
31.09% (quarter ended December 31, 1999). Its lowest quarterly return was
- -19.01% (quarter ended September 30, 1998).
AVERAGE ANNUAL TOTAL RETURN TABLE
The following table represents the Fund's Average Annual Total Returns for the
calendar periods ended December 31, 1999. The table shows the Fund's total
returns averaged over a period of years relative to the Morgan Stanley Capital
International Europe, Australia, and Far East Index (MSCI EAFE), which is a
broad-based market index. The MSCI EAFE is a standard foreign securities index
used to measure the performance of European, Australian, New Zealand and Far
Eastern stock markets. Total returns for the index do not reflect sales charges,
expenses or other fees the SEC requires to be reflected in the Fund's
performance. Indexes are unmanaged, and it is not possible to invest directly in
an index.
<TABLE>
<CAPTION>
- ----------------------------------------------------------
CALENDAR PERIOD FUND MSCI EAFE
- ----------------------------------------------------------
<S> <C> <C>
1 Year 43.81% 25.27%
- ----------------------------------------------------------
Start of Performance (1) 19.87% 11.70%
- ----------------------------------------------------------
</TABLE>
1 The Fund's start of performance date was December 22, 1995.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.
13
<PAGE>
[BOX]
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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 FTI Municipal Bond Fund.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- -----------------------------------------------------------------------
<S> <C> 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 None
of amount redeemed, if applicable)
EXCHANGE FEE None
- -----------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (Before Waivers) (1)
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
- -----------------------------------------------------------------------
MANAGEMENT FEE (2) 0.50%
DISTRIBUTION (12b-1) FEE (3) 0.25%
OTHER EXPENSES (4) 0.41%
TOTAL ANNUAL FUND OPERATING EXPENSES (before waivers) (5) 1.16%
- -----------------------------------------------------------------------
</TABLE>
1 Annual Fund Operating Expenses include a reduction in the amount payable as
a Distribution (12b-1) Fee from 0.75% to 0.25% and a reduction in the
amount payable as a Shareholder Services Fee from 0.25% to 0. Although not
contractually obligated to do so, the Adviser and Distributor waived
certain amounts. These are shown below along with the net expenses the Fund
ACTUALLY PAID for the fiscal year ended November 30, 1999.
<TABLE>
<S> <C>
Waivers of Fund Expenses 0.36%
Total Annual Fund Operating Expenses (after
waivers) 0.80%
</TABLE>
2 The Adviser voluntarily waived a portion of the management fee. The Adviser
can terminate this voluntary waiver at any time. The management fee paid by
the Fund (after the voluntary waiver) was 0.42% for the year ended November
30, 1999.
3 The Fund did not pay or accrue the Distribution (12b-1) Fee during the
fiscal year ended November 30, 1999. The Fund has no present intention of
paying or accruing the Distribution (12b-1) Fee during the fiscal year
ending November 30, 2000.
4 The Adviser voluntarily waived certain operating expenses of the Fund. The
Adviser can terminate this voluntary waiver at any time. The other expenses
paid by the Fund (after the voluntary waiver) were 0.38% for the year ended
November 30, 1999.
5 As noted above in (2) and (3), certain fees are being voluntarily waived or
are not currently being accrued.
14
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[BOX]
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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:
<TABLE>
<CAPTION>
- ----------------------------------------------------------
1 3 5 10
YEAR YEARS YEARS YEARS
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
FTI Municipal Bond Fund $118 $368 $638 $1,409
- ----------------------------------------------------------
</TABLE>
FTI BOND FUND
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold
Shares of FTI Bond Fund.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- ----------------------------------------------------------------------
<S> <C> 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 None
of amount redeemed, if applicable)
EXCHANGE FEE None
- ----------------------------------------------------------------------
</TABLE>
15
<PAGE>
[BOX]
- ---------------------------------------------------------
<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES (Before Waivers) (1)
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
- ----------------------------------------------------------------------
MANAGEMENT FEE 0.50%
DISTRIBUTION (12b-1) FEE (2) 0.25%
OTHER EXPENSES (3) 0.38%
TOTAL ANNUAL FUND OPERATING EXPENSES (before waivers) (4) 1.13%
- ----------------------------------------------------------------------
</TABLE>
1 Annual Fund Operating Expenses include a reduction in the amount payable as
a Distribution (12b-1) Fee from 0.75% to 0.25% and a reduction in the
amount payable as a Shareholder Services Fee from 0.25% to 0. Although not
contractually obligated to do so, the Adviser and Distributor waived
certain amounts. This is shown below along with the net expenses the Fund
ACTUALLY PAID for the fiscal year ended November 30, 1999.
<TABLE>
<S> <C>
Waivers of Fund Expenses 0.28%
Total Annual Fund Operating Expenses (after
waivers) 0.85%
</TABLE>
2 The Fund did not pay or accrue the Distribution (12b-1) Fee during the
fiscal year ended November 30, 1999. The Fund has no present intention of
paying or accruing the Distribution (12b-1) Fee during the fiscal year
ending November 30, 2000.
3 The Adviser voluntarily waived certain operating expenses of the Fund. The
Adviser can terminate this voluntary waiver at any time. Total other
expenses paid by the Fund (after the voluntary waiver) were 0.35% for the
year ended November 30, 1999.
4 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 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:
<TABLE>
<CAPTION>
- ----------------------------------------------------------
1 3 5 10
YEAR YEARS YEARS YEARS
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
FTI Bond Fund $115 $359 $622 $1,375
- ----------------------------------------------------------
</TABLE>
16
<PAGE>
[BOX]
- ---------------------------------------------------------
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 FTI Large Capitalization Growth Fund.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- -----------------------------------------------------------------------
<S> <C> 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 None
of amount redeemed, if applicable)
EXCHANGE FEE None
- -----------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(Before Waivers and Reimbursements) (1)
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
- -----------------------------------------------------------------------
MANAGEMENT FEE 0.75%
DISTRIBUTION (12b-1) FEE (2) 0.25%
OTHER EXPENSES (3) 0.81%
TOTAL ANNUAL FUND OPERATING EXPENSES (before waiver and 1.81%
reimbursements) (4)
- -----------------------------------------------------------------------
</TABLE>
1 Annual Fund Operating Expenses include a reduction in the amount payable as
a Distribution (12b-1) Fee from 0.75% to 0.25% and a reduction in the
amount payable as a Shareholder Services Fee from 0.25% to 0. Although not
contractually obligated to do so, the Adviser and Distributor 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,
1999.
<TABLE>
<S> <C>
Waivers and Reimbursements of Fund Expenses 0.73%
Total Annual Fund Operating Expenses (after
waivers and reimbursements) 1.08%
</TABLE>
2 The Fund did not pay or accrue the Distribution (12b-1) Fee during the
fiscal year ended November 30, 1999. The Fund has no present intention of
paying or accruing the Distribution (12b-1) Fee during the fiscal year
ending November 30, 2000.
3 The Adviser voluntarily waived and reimbursed certain operating expenses of
the Fund. The Adviser can terminate this voluntary waiver and reimbursement
at any time. Total other expenses paid by the Fund (after the voluntary
waiver and reimbursement) were 0.33% for the fiscal year ended November 30,
1999.
4 As noted above in (2) and (3), certain fees are being voluntarily waived,
reimbursed, or are not currently being accrued.
17
<PAGE>
[BOX]
- ---------------------------------------------------------
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 AND REIMBURSEMENTS 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:
<TABLE>
<CAPTION>
- ----------------------------------------------------------
1 3 5 10
YEAR YEARS YEARS YEARS
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
FTI Large Capitalization
Growth Fund $184 $569 $980 $2,127
- ----------------------------------------------------------
</TABLE>
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 FTI Large Capitalization Growth and Income Fund.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- ----------------------------------------------------------------------
<S> <C> 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 None
of amount redeemed, if applicable)
EXCHANGE FEE None
- ----------------------------------------------------------------------
</TABLE>
18
<PAGE>
[BOX]
- ---------------------------------------------------------
<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES (Before Waivers) (1)
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
- ----------------------------------------------------------------------
MANAGEMENT FEE 0.75%
DISTRIBUTION (12b-1) FEE (2) 0.25%
OTHER EXPENSES (3) 0.36%
TOTAL ANNUAL FUND OPERATING EXPENSES (before waivers) (4) 1.36%
- ----------------------------------------------------------------------
</TABLE>
1 Annual Fund Operating Expenses include a reduction in the amount payable as
a Distribution (12b-1) Fee from 0.75% to 0.25% and a reduction in the
amount payable as a Shareholder Services Fee from 0.25% to 0. Although not
contractually obligated to do so, the Adviser and Distributor waived
certain amounts. These are shown below along with the net expenses the Fund
ACTUALLY PAID for the fiscal year ended November 30, 1999.
<TABLE>
<S> <C>
Waivers of Fund Expenses 0.28%
Total Annual Fund Operating Expenses (after
waivers) 1.08%
</TABLE>
2 The Fund did not pay or accrue the Distribution (12b-1) Fee during the
fiscal year ended November 30, 1999. The Fund has no present intention of
paying or accruing the Distribution (12b-1) Fee during the fiscal year
ending November 30, 2000.
3 The Adviser voluntarily waived certain operating expenses of the Fund. The
Adviser can terminate this voluntary waiver at any time. Total other
expenses paid by the Fund (after the voluntary waiver) were 0.33% for the
year ended November 30, 1999.
4 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 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:
<TABLE>
<CAPTION>
- ----------------------------------------------------------
1 3 5 10
YEAR YEARS YEARS YEARS
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
FTI Large Capitalization
Growth and Income Fund $138 $431 $745 $1,635
- ----------------------------------------------------------
</TABLE>
19
<PAGE>
[BOX]
- ---------------------------------------------------------
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 FTI Small Capitalization Equity Fund.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- ----------------------------------------------------------------------
<S> <C> 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 None
of amount redeemed, if applicable)
EXCHANGE FEE None
- ----------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(Before Waivers) (1)
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
- ----------------------------------------------------------------------
MANAGEMENT FEE 1.00%
DISTRIBUTION (12b-1) FEE (2) 0.25%
OTHER EXPENSES 0.44%
TOTAL ANNUAL FUND OPERATING EXPENSES (before waivers) (3) 1.69%
- ----------------------------------------------------------------------
</TABLE>
1 Annual Fund Operating Expenses include a reduction in the amount payable as
a Distribution (12b-1) Fee from 0.75% to 0.25% and a reduction in the
amount payable as a Shareholder Services Fee from 0.25% to 0. Although not
contractually obligated to do so, the Distributor waived certain amounts.
These are shown below along with the net expenses the Fund ACTUALLY PAID
for the fiscal year ended November 30, 1999.
<TABLE>
<S> <C>
Waivers of Fund Expenses 0.25%
Total Annual Fund Operating Expenses (after
waivers) 1.44%
</TABLE>
2 The Fund did not pay or accrue the Distribution (12b-1) Fee during the
fiscal year ended November 30, 1999. The Fund has no present intention of
paying or accruing the Distribution (12b-1) Fee during the fiscal year
ending November 30, 2000.
3 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
20
<PAGE>
[BOX]
- ---------------------------------------------------------
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:
<TABLE>
<CAPTION>
- ----------------------------------------------------------
1 3 5 10
YEAR YEARS YEARS YEARS
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
FTI Small Capitalization
Equity Fund $172 $533 $918 $1,998
- ----------------------------------------------------------
</TABLE>
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 FTI International Equity Fund.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- -----------------------------------------------------------------------
<S> <C> 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 None
of amount redeemed, if applicable)
EXCHANGE FEE None
- -----------------------------------------------------------------------
</TABLE>
21
<PAGE>
[BOX]
- ---------------------------------------------------------
<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES
(Before Waivers and Reimbursements) (1)
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
- -----------------------------------------------------------------------
MANAGEMENT FEE 1.00%
DISTRIBUTION (12b-1) FEE (2) 0.25%
OTHER EXPENSES (3) 0.40%
TOTAL ANNUAL FUND OPERATING EXPENSES (before waivers and 1.65%
reimbursements) (4)
- -----------------------------------------------------------------------
</TABLE>
1 Annual Fund Operating Expenses include a reduction in the amount payable as
a Distribution (12b-1) Fee from 0.75% to 0.25% and a reduction in the
amount payable as a Shareholder Services Fee from 0.25% to 0. Although not
contractually obligated to do so, the Adviser and Distributor 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,
1999.
<TABLE>
<S> <C>
Waivers and Reimbursements of Fund Expenses 0.45%
Total Annual Fund Operating Expenses (after
waivers and reimbursements) 1.20%
</TABLE>
2 The Fund did not pay or accrue the Distribution (12b-1) Fee during the
fiscal year ended November 30, 1999. The Fund has no present intention of
paying or accruing the Distribution (12b-1) Fee during the fiscal year
ending November 30, 2000.
3 The Adviser voluntarily waived and reimbursed certain operating expenses of
the Fund. The Adviser can terminate this voluntary waiver and reimbursement
at any time. Total other expenses paid by the Fund (after the voluntary
waiver and reimbursement) were 0.20% for the fiscal year ended November 30,
1999.
4 As noted above in (2) and (3), certain fees are being voluntarily waived,
reimbursed, 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 WAIVERS AND REIMBURSEMENTS 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:
<TABLE>
<CAPTION>
- ----------------------------------------------------------
1 3 5 10
YEAR YEARS YEARS YEARS
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
FTI International Equity Fund $168 $520 $897 $1,955
- ----------------------------------------------------------
</TABLE>
22
<PAGE>
[BOX]
- ---------------------------------------------------------
[SIDE NOTE]
The Municipal Bond Fund generally seeks to provide tax-exempt income, whereas
the Bond Fund seeks to generate taxable income.
[END SIDE NOTE]
[PHOTO]
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) maturities. 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. 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 characteristics 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.
23
<PAGE>
[BOX]
- ---------------------------------------------------------
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 one-half years of the
Lehman Brothers Aggregate Bond Index, which is currently about five 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 sectors 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
that meet the criteria applicable to U.S. securities and up to 20% of its net
assets in American Depositary Receipts (ADRs).
In allocating investments to particular sectors the Adviser will consider the
weighting in that sector within the Russell 1000 Growth Index ("Russell 1000
Growth"). The Adviser will allocate more or less of the portfolio's assets to
any given sector than the percentage of the Russell 1000 Growth allocated to
that sector, depending upon the Adviser's perceptions regarding current economic
and market conditions.
In selecting companies, the Adviser considers earnings growth, relative
valuation measures and company management. When analyzing earnings growth, the
Adviser looks for strong, sustainable internal
24
<PAGE>
[BOX]
- ---------------------------------------------------------
[SIDE NOTE]
GROWTH AND INCOME
IS MANAGED WITH
A SENSITIVITY TO
MINIMIZING 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.
[END SIDE NOTE]
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, may commit a larger portion of its assets to a
single holding and will not generally follow Large Capitalization Growth Fund's
sector allocation strategy. 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 that meet the
criteria applicable to U.S. securities.
SMALL CAPITALIZATION EQUITY FUND
STRATEGY: The Fund invests in common stocks 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
25
<PAGE>
[BOX]
- ---------------------------------------------------------
[SIDE NOTE]
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.
[END SIDE NOTE]
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.
INTERNATIONAL EQUITY FUND
STRATEGY: Through fundamental research on both regions and companies, the
Adviser seeks to create a diversified portfolio of high quality growth companies
weighted toward the regions in the world with the best growth prospects. In
evaluating the prospects for each region outside the United States, the Adviser
considers a variety of investment factors that are key to their assessment of
the relative attractiveness of each area. These factors include economic growth,
monetary and fiscal policy, political environment, market liquidity and
momentum, and market valuations. Based on quantitative analysis of this data,
the Fund is weighted toward those regions that are determined to have the best
overall growth prospects. In selecting individual securities for the Fund, the
Adviser engages in detailed fundamental analysis including meetings and on-site
visits with company management to evaluate the earnings growth potential, as
well as the quality of management for each security. Based on this analysis, the
current market price and valuation of the security are reviewed in order to
isolate those companies that have good long-term growth prospects and quality
management, but are not considered to be fully valued in the market place. 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 also invest up to 20% of its total assets in common
stocks of issuers located in emerging market nations and may invest up to 35% of
its total assets in debt securities.
26
<PAGE>
[BOX]
- ---------------------------------------------------------
INVESTMENT SECURITIES AND
TECHNIQUES USED BY THE FUNDS
Following is a table that indicates which types of securities are a(n): 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.
<TABLE>
<CAPTION>
LARGE CAP
SECURITIES IN LARGE
GROWTH
WHICH THE FUNDS MUNICIPAL CAP
AND SMALL CAP INTERNATIONAL
INVEST: BOND BOND GROWTH
INCOME EQUITY EQUITY
<S> <C> <C> <C>
<C> <C> <C>
Equity Securities N N
P P P P
Common Stocks N N
P P P P
Preferred Stocks N A
A A A A
Real Estate N N
A A A N
Investment Trusts
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 A P
A A A A
Securities
Commercial A A
A A A A
Paper
Demand A A
A A N N
Instruments
Taxable Municipal A P
N N N N
Securities
Mortgage Backed A P
N N N N
Securities
Collateralized A A
N N N N
Mortgage
Obligations
(CMOs)
Sequential A A
N N N N
CMOs
PACs, TACs & A A
N N N N
Companion
Classes
IOs and POs N A
N N N N
</TABLE>
27
<PAGE>
[BOX]
- ---------------------------------------------------------
<TABLE>
<CAPTION>
LARGE CAP
SECURITIES IN LARGE
GROWTH
WHICH THE FUNDS MUNICIPAL CAP
AND SMALL CAP INTERNATIONAL
INVEST: BOND BOND GROWTH
INCOME EQUITY EQUITY
<S> <C> <C> <C>
<C> <C> <C>
Floaters N A
N N N N
and Inverse
Floaters
Z Classes N A
N N N N
and Residual
Classes
Asset Backed A A
N N N N
Securities
Zero Coupon A A
A A A A
Securities
Bank Instruments A A
A A A A
Credit P A
N N N N
Enhancement
Convertible N A
A A A A
Securities
Tax-Exempt P A
N N N N
Securities
General P A
N N N N
Obligation Bonds
Special P A
N N N N
Revenue Bonds
Private A A
N N N N
Activity Bonds
Tax Increment A A
N N N N
Financing Bonds
Municipal Notes A A
N N N N
Variable Rate A A
N N A N
Demand
Instruments
Municipal P A
N N N N
Leases
Foreign A A
A A A P
Securities
Depository N N
A A A A
Receipts
Foreign N N
N N N A
Exchange
Contracts
Foreign A A
N N N A
Government
Securities
</TABLE>
28
<PAGE>
[BOX]
- ---------------------------------------------------------
<TABLE>
<CAPTION>
LARGE CAP
SECURITIES IN LARGE
GROWTH
WHICH THE FUNDS MUNICIPAL CAP
AND SMALL CAP INTERNATIONAL
INVEST: BOND BOND GROWTH
INCOME EQUITY EQUITY
<S> <C> <C> <C>
<C> <C> <C>
Derivative A A
A A A A
Contracts
Futures A A
A A N A
Contracts
Options A A
A A A A
Swaps N A
N N N N
Interest Rate N A
N N N N
Swaps
Currency N A
N N N N
Swaps
Caps & Floors N A
N N N N
Total Return N A
N N N N
Swaps
Hybrid N A
N N N N
Instruments
Special Transactions A A
A A A A
Repurchase A A
A A A A
Agreements
Reverse A A
A A A A
Repurchase
Agreements
Delayed A A
A A A A
Delivery
Transactions
To Be A A
N N N N
Announced
Securities
(TBAs)
Dollar Rolls A A
N N N N
Securities A A
A A A A
Lending
Asset Coverage A A
N N N N
Shares of A A
A A A A
Other
Investment
Companies
Restricted A A
A A A A
and Illiquid
Securities
</TABLE>
Other securities and techniques used by the Funds to meet their respective goals
are described in the Statement of Additional Information.
29
<PAGE>
[BOX]
- ---------------------------------------------------------
[SIDE NOTE]
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.
[END SIDE NOTE]
PRINCIPAL SECURITIES IN WHICH THE FUNDS INVEST
[PHOTO]
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 type of equity security 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.
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
30
<PAGE>
[BOX]
- ---------------------------------------------------------
[SIDE NOTE]
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.
[END SIDE NOTE]
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.
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)
31
<PAGE>
[BOX]
- ---------------------------------------------------------
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.
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 on to 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.
32
<PAGE>
[BOX]
- ---------------------------------------------------------
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 the 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.
33
<PAGE>
[BOX]
- ---------------------------------------------------------
[SIDE NOTE]
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.
[END SIDE NOTE]
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
34
<PAGE>
[BOX]
- ---------------------------------------------------------
- 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.
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 has 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 that
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. [PHOTO] 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 rate 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 were held to maturity, no loss or gain
normally would be realized.)
35
<PAGE>
[BOX]
- ---------------------------------------------------------
- - 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 Service. 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.
CALL RISKS
- - 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.
- - 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.
36
<PAGE>
[BOX]
- ---------------------------------------------------------
PREPAYMENT RISKS
- - Unlike traditional fixed income securities, which pay a fixed rate of interest
until maturity (when the entire principal amount is due) payments on mortgage
backed securities include both interest and a partial payment of principal.
Partial payment of principal may be comprised of scheduled principal payments
as well as unscheduled payments from the voluntary prepayment, refinancing, or
foreclosure of the underlying loans. These unscheduled prepayments of
principal create risks that can adversely affect a Fund holding mortgage
backed securities.
For example, when interest rates decline, the values of mortgage backed
securities generally rise. However, when interest rates decline, unscheduled
prepayments can be expected to accelerate, and a Fund would be required to
reinvest the proceeds of the prepayments at the lower interest rates then
available. Unscheduled prepayments would also limit the potential for capital
appreciation on mortgage backed securities.
Conversely, when interest rates rise, the values of mortgage backed securities
generally fall. Since rising interest rates typically result in decreased
prepayments, this could lengthen the average lives of mortgage backed
securities, and cause their value to decline more than traditional fixed
income securities.
- - Generally, mortgage backed securities compensate for the increased risk
associated with prepayments by paying a higher yield. The additional interest
paid for risk is measured by the difference between the yield of a mortgage
backed security and the yield of a U.S. Treasury security with a comparable
maturity (the spread). An increase in the spread will cause the price of the
mortgage backed security to decline. Spreads generally increase in response to
adverse economic or market conditions. Spreads may also increase if the
security is perceived to have an increased prepayment risk or is perceived to
have less market demand.
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.
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.
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.
37
<PAGE>
[BOX]
- ---------------------------------------------------------
SECTOR RISKS
- - 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
- - Trading opportunities are more limited for equity securities that are not
widely held. This may make it more difficult to sell or buy a security at a
favorable price or time. Consequently, a 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 a Fund's
performance. Infrequent trading of securities may also lead to an increase in
their price volatility.
- - 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.
- - OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.
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 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, including the currency of the European
economic and monetary union (the "euro"), fluctuate
38
<PAGE>
[BOX]
- ---------------------------------------------------------
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.
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 that
could adversely affect the liquidity of 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.
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 (as described in this
prospectus), 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 4:00 p.m. Eastern time) each day the NYSE is open.
The Municipal Bond Fund and Bond Fund generally value fixed income securities at
the last sale price on a national securities exchange, if available, otherwise,
as determined by an independent pricing service. The Large Capitalization Growth
Fund, Large Capitalization Growth and Income Fund, Small Capitalization Equity
Fund and International Equity Fund generally value 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).
[PHOTO]
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
39
<PAGE>
[BOX]
- ---------------------------------------------------------
you cannot purchase, redeem or exchange shares. In computing its NAV, the Fund
values foreign securities on the exchange on which they are traded at the latest
closing price 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 pursuant to procedures adopted 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 $1,000. There is
no required minimum subsequent investment amount. 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 888-FIDUCIARY (888-343-8242). 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 888-898-0600.
40
<PAGE>
[BOX]
- ---------------------------------------------------------
[PHOTO]
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.
[PHOTO]
BY WIRE
To purchase shares of a Fund by wire, call 888-FIDUCIARY (888-343-8242).
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 888-FIDUCIARY (888-343-8242) or by writing to
Fiduciary International, Inc. Shares purchased by check are eligible for
exchange after seven days.
RETIREMENT INVESTMENTS
A shareholder may purchase shares of the Funds as retirement investments (such
as qualified plans and IRAs or transfer or rollover of assets). Call your
financial intermediary or 888-FIDUCIARY
41
<PAGE>
[BOX]
- ---------------------------------------------------------
(888-343-8242) for information on retirement investments. We suggest that you
discuss retirement investments with your tax adviser. You may be subject to an
annual IRA account fee.
HOW THE FUNDS ARE DISTRIBUTED/SOLD
The Fund's Distributor, Edgewood Services, Inc., markets the shares described in
this prospectus to institutions or to 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).
RULE 12B-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 0.25% of the average net assets of a Fund as
a distribution fee to the Distributor.
42
<PAGE>
[BOX]
- ---------------------------------------------------------
REDEMPTIONS AND EXCHANGES
[PHOTO]
BY TELEPHONE
To redeem or exchange shares of a Fund by telephone, call Fiduciary
International, Inc. at 888-FIDUCIARY (888-343-8242). 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.
[SIDE NOTE]
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.
[END SIDE NOTE]
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 an
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.
[PHOTO] 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
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.
44
<PAGE>
[BOX]
- ---------------------------------------------------------
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 30 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.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Funds may be withheld for taxes.
This withholding only applies to certain types of retirement accounts.
EXCHANGE PRIVILEGE
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
45
<PAGE>
[BOX]
- ---------------------------------------------------------
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.
46
<PAGE>
[BOX]
- ---------------------------------------------------------
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.
[PHOTO]
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 Equity Fund declares and pays any dividends semi-annually to
shareholders. The International Equity Fund declares and pays any dividends
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.
[SIDE NOTE]
DIVIDEND--
In a mutual fund, money paid to shareholders that the fund has earned as income
on its investments. [END SIDE NOTE]
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.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances,
non-retirement accounts may be closed if redemptions or exchanges cause the
account balance to fall below the minimum initial investment amount of $1,000.
Before an account is closed, you will be notified and allowed 30 days to
purchase additional shares to meet the minimum.
47
<PAGE>
[BOX]
- ---------------------------------------------------------
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.
[SIDE NOTE]
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.
[END SIDE NOTE]
Fund distributions are expected to be as follows:
<TABLE>
- ------------------------------------------------------------------------------------------------------
DISTRIBUTIONS ARE
FUND EXPECTED TO BE PRIMARILY:
<S> <C>
- ------------------------------------------------------------------------------------------------------
Municipal Bond Fund Dividends
- ------------------------------------------------------------------------------------------------------
Bond Fund Dividends
- ------------------------------------------------------------------------------------------------------
Large Capitalization Growth Fund Dividends and Capital Gains
- ------------------------------------------------------------------------------------------------------
Large Capitalization Growth
and Income Fund Capital Gains
- ------------------------------------------------------------------------------------------------------
Small Capitalization Equity Fund Capital Gains
- ------------------------------------------------------------------------------------------------------
International Equity Fund Capital Gains
- ------------------------------------------------------------------------------------------------------
</TABLE>
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.
48
<PAGE>
[BOX]
- ---------------------------------------------------------
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 each 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 THE 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.
[PHOTO]
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 that invest
in the international markets. FTCI is a New York state-chartered bank
specializing in investment management activities. As of December 31, 1999, FTCI
had total assets under management of approximately $50 billion. These assets
included investments managed for individuals
49
<PAGE>
[BOX]
- ---------------------------------------------------------
and institutional clients, including employee benefit plans of corporations,
public retirement systems, unions, endowments, foundations and others.
FII is a registered investment adviser under the Investment Advisers Act of
1940. The Adviser and its officers, affiliates and employees may act as
investment managers for parties other than the Trust, including other investment
companies.
The Adviser has five clients that are registered investment companies and two
clients that are collective funds established by limited purpose trust
companies. Assets under management as of December 31, 1999 were approximately
$852 million.
PORTFOLIO MANAGERS FOR FTI FUNDS
MUNICIPAL BOND FUND
RONALD SANCHEZ has been primarily responsible for the day-to-day investment
management of the Municipal Bond Fund since its inception, December 11, 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.
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 11, 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
ALISON SCHATZ, COLEEN BARBEAU, and JOHN HARTZ are primarily responsible for the
day-to-day investment management of the Large Capitalization Growth Fund and Ms.
Barbeau and Mr. Hartz have done so since its inception, December 11, 1998. Ms.
Schatz, Certified Financial Analyst
50
<PAGE>
[BOX]
- ---------------------------------------------------------
and Senior Vice President of FTCI, is a manager of large capitalization equity
portfolios. Ms. Schatz received a B.S.B.A. in finance and an M.I.S. from Boston
University in 1985 and joined FTCI the same year. For the past 10 years, Ms.
Schatz has managed portfolios of large capitalization U.S. equity securities
primarily for pension funds, foundations and endowments. She is a member of the
Large Capitalization Equity Committee of FTCI. 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 is 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 11, 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. Prior to
joining FTCI in 1990, he was with Citibank.
SMALL CAPITALIZATION EQUITY FUND
SUSAN MCGARRY, GRANT BABYAK and YVETTE BOCKSTEIN are primarily responsible
for the day-to-day investment management of the Small Capitalization Equity
Fund. Ms. McGarry, Senior Vice President of FTCI, is a manager of smaller
capitalization equity portfolios and is responsible for research on smaller
capitalization stocks. Ms. McGarry received a B.A. in history from Yale College
in 1983 and an M.P.P.M. from the Yale School of Management in 1990. She joined
FTCI in 1995 to become the firm's first dedicated small cap research analyst and
assumed portfolio management responsibilities in 1996 while continuing to
conduct research for the firm. Prior to coming to FTCI, Ms. McGarry worked for
eight years at Lehman Brothers in the Global Asset Management and Corporate
Finance divisions. 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 situations sectors. Prior to joining FTCI, 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
51
<PAGE>
[BOX]
- ---------------------------------------------------------
portfolios in the small capitalization and special situations sectors.
Ms. Bockstein, Ms. McGarry and Mr. Babyak serve on FTCI's Small Cap Investment
Committee.
INTERNATIONAL EQUITY FUND
<R
SHEILA COCO, WILLIAM YUN and JOSHUA ROSENTHAL are primarily responsible for the
day-to-day investment management of the International Equity Fund and Ms. Coco
and Mr. Yun have done so since its inception, December 22, 1995. Ms. Coco is an
Executive Vice President of FTCI and a Chartered Financial Analyst. Mr. Yun is a
Director and Executive Vice President of FTCI and a Chartered Financial Analyst.
Mr. Rosenthal is a Senior Vice President of FTCI. 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 Holding, The First
Boston Corp. and Blyth Eastman Paine Webber, Inc. He is a member of the New York
Society of Security Analysts. Mr. Rosenthal has seven years of prior investment
experience with Grantham, Mayo, Van Otterloo, The Metropolitan Museum of Art,
Amerada Hess and JP Morgan.
52
<PAGE>
[BOX]
- ------------------------------------------------------------------------
[THIS PAGE INTENTIONALLY LEFT BLANK]
53
<PAGE>
[BOX]
- ------------------------------------------------------------------------
FINANCIAL INFORMATION
[PHOTO]
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 21, 2000 on the Fund's
financial statements for the period ended November 30, 1999 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
REALIZED FROM NET
AND
UNREALIZED REALIZED GAINS
NET ASSET NET GAIN/(LOSS) ON
DISTRIBUTIONS ON INVESTMENTS
VALUE, INVESTMENT INVESTMENTS TOTAL FROM FROM
NET AND FOREIGN
PERIOD ENDED BEGINNING INCOME/ AND FOREIGN INVESTMENT
INVESTMENT CURRENCY
NOVEMBER 30, OF PERIOD (LOSS) CURRENCY OPERATIONS
INCOME TRANSACTIONS
<S> <C> <C> <C> <C>
<C> <C>
- -----------------------------------------------------------------------------------------------------------
LARGE CAPITALIZATION GROWTH AND INCOME FUND
1999(1) $10.00 $ 0.04(2) $ 1.38 $ 1.42
$(0.03) --
LARGE CAPITALIZATION GROWTH FUND
1999(1) $10.00 (0.02)(2) 1.81 1.79
- -- --
INTERNATIONAL EQUITY FUND
1996(3) $10.00 0.01(2) 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) --
1999 $13.85 (0.01) 3.78 3.77
- -- --
SMALL CAPITALIZATION FUND
1996(3) $10.00 (0.04) 2.12 2.08
- -- --
1997 $12.08 (0.09) 2.38 2.29
- -- --
1998 $14.37 (0.15)(2) (0.61) (0.76)
- -- $(0.35)
1999 $13.26 (0.16) 7.71 7.55
- -- --
BOND FUND
1999(1) $10.00 0.61(2) (0.58) 0.03
(0.59) --
MUNICIPAL BOND FUND
1999(1) $10.00 0.38(2) (0.44) (0.06)
(0.38) --
</TABLE>
(1) Reflects operations for the period from December 11, 1998 (commencement of
operations) to November 30, 1999.
(2) Per share information is based on average shares outstanding.
(3) Reflects operations for the period from December 22, 1995 (commencement of
operations) to November 30, 1996.
(4) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(5) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(6) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
54
<PAGE>
[BOX]
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET
ASSETS
- -----------------------------------------------------------------------------------------------
NET ASSET
NET EXPENSE NET ASSETS,
VALUE,
INVESTMENT WAIVER/ END OF
PERIOD ENDED TOTAL END OF TOTAL INCOME/
REIMBURSE- PERIOD PORTFOLIO
NOVEMBER 30, DISTRIBUTIONS PERIOD RETURN(4) EXPENSES
(LOSS) MENTS(5) (000 OMITTED) TURNOVER
<S> <C> <C> <C> <C> <C>
<C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
LARGE CAPITALIZATION GROWTH AND INCOME FUND
1999(1) $(0.03) $11.39 14.20% 1.08%(6)
0.37%(6) 0.03%(6) $99,887 61%
LARGE CAPITALIZATION GROWTH FUND
1999(1) -- $11.79 17.90% 1.08%(6)
(0.21%)(6) 0.48%(6) $31,238 62%
INTERNATIONAL EQUITY FUND
1996(3) (0.01) $10.99 10.04% 1.68%(6)
0.05%(6) 3.05%(6) $12,065 29%
1997 (0.20) $12.20 13.01% 1.60%
0.13% 0.13% $40,869 55%
1998 (0.12) $13.85 14.61% 1.39%
0.27% 0.10% $74,445 68%
1999 -- $17.62 27.22% 1.20%
0.00% 0.20% $75,989 72%
SMALL CAPITALIZATION FUND
1996(3) -- $12.08 20.80% 1.50%(6)
(0.68%)(6) 1.51%(6) $19,318 94%
1997 -- $14.37 18.96% 1.50%
(0.89%) 0.24% $40,505 111%
1998 (0.35) $13.26 (5.34%) 1.50%
(1.08%) 0.01% $46,233 158%
1999 -- $20.81 56.94% 1.44%
(0.95%) 0.00% $72,752 130%
BOND FUND
1999(1) (0.59) $9.44 0.31% 0.85%(6)
6.45%(6) 0.03%(6) $106,888 175%
MUNICIPAL BOND FUND
1999(1) (0.38) $9.56 (0.66%) 0.80%(6)
4.00%(6) 0.11%(6) $70,698 61%
</TABLE>
(1) Reflects operations for the period from December 11, 1998 (commencement of
operations) to November 30, 1999.
(2) Per share information is based on average shares outstanding.
(3) Reflects operations for the period from December 22, 1995 (commencement of
operations) to November 30, 1996.
(4) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(5) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(6) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
55
<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
Portfolios of FTI FUNDS
A Statement of Additional Information (SAI) dated March 31, 2000 contains
additional information about the Funds and is incorporated by reference into
this prospectus. Additional information about the Funds and their investments is
contained in the Funds' SAI, Annual and Semi-Annual Reports to shareholders. The
Annual Report's Management Discussion and Analysis discusses market conditions
and investment strategies that significantly affected the Funds' performance
during their last fiscal year. To obtain the SAI, Annual Report, Semi-Annual
Report and other information without charge, and make inquiries, call your
investment professional or the Funds at 888-FIDUCIARY (888-343-8242).
Internet Address:
www.ftifunds.com
You can obtain information about the Funds (including the SAI) by writing to or
visiting the Public Reference Room in Washington, DC. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, DC 20549-0102. Call 202-942-8090 for information
on the Public Reference Room's operations and copying fees.
56
<PAGE>
NOTES
57
<PAGE>
NOTES
58
<PAGE>
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(3/00) 811-7369
[LOGO]
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, 2000
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, 2000.
This SAI incorporates by reference the Trust's Annual Report. Obtain the
prospectus or the Annual Report without charge by calling 888-FIDUCIARY
(888-343-8242).
CONTENTS
Fund Organization 1
Securities in which the Funds Invest 1
Investment Risks 8
Investment Limitations 8
Determining the Market Value of Securities 11
How the Funds are Sold 11
Redemption in Kind 12
Massachusetts Law 12
Account and Share Information 12
Tax Information 13
Fund Management and Service Providers 13
How the Funds Measure Performance 17
Financial Information 22
Investment Ratings 22
Addresses 25
CUSIP 302927504 CUSIP 302927603 CUSIP 302927702 CUSIP 302927801 CUSIP 302927108
CUSIP 302927207
G01548-05(3/00)
811-7369
31
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.
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.
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.
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.
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 outside 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.
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.
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.
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.
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 10% 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."
For purposes of its investment limitation regarding industry concentration,
the Funds classify companies by industry based on their primary Standard
Industrial Classification (SIC Code) as listed by a company in its filings with
the SEC.
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;
o for 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 (such as broker-dealers or banks) may be paid fees,
in significant amounts, out of the assets of the Distributor and/or Federated
Shareholder Services (these fees do not come out of Fund 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
and/or shareholder services, such as advertising, providing incentives to their
sales personnel, sponsoring other activities intended to promote sales, and
maintaining shareholder accounts. These payments may be based upon such factors
as the number or value of shares the investment professional sells or may sell;
the value of client assets invested; 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 LAW
Under certain circumstances, shareholders may be held personally liable 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 2, 2000, 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
7,483,093 shares (99.99%); Bond Fund, approximately 10,508,533 shares (92.54%);
Large Capitalization Growth Fund, approximately 2,842,035 shares (99.02%); Large
Capitalization Growth and Income Fund, approximately 9,495,941 shares (98.40%);
Small Capitalization Equity Fund, approximately 3,268,203 shares (75.53%); and
International Equity Fund, approximately 4,560,478 shares (82.36%).
As of March 2, 2000, Bank of New York, as Custodian for the Josiah Macy Jr.
Foundation, New York, New York, owned approximately 836,972 shares (7.37%) of
Bond 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.
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 Municipal Bond Fund, Bond Fund, Small Capitalization Equity Fund and
International Equity Fund are entitled to a capital loss carry-forward, which
may reduce the taxable income or gain that these Funds 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, birth date, 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 2, 2000, the Fund's Board and Officers as a group owned less than 1%
of the Funds' outstanding shares.
Nancy L. Close resigned as Trustee effective July 19, 1999. Ms Close received
$6,000 from the Trust for its most recent fiscal year.
NAME
BIRTH DATE AGGREGATE
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION
POSITION WITH TRUST FOR PAST 5 YEARS FROM TRUST
EDWARD C. GONZALES* Trustee or Director of some of the $0
Birth date: October Funds in the Federated Fund Complex;
22, 1930 President, Executive Vice President
Federated Investors and Treasurer of some of the Funds
Tower in the Federated Fund Complex; Vice
1001 Liberty Avenue Chairman, Federated Investors, Inc.;
Pittsburgh, PA Vice President, Federated
PRESIDENT, Advisers, Federated Management,
TREASURER AND Federated Research,
TRUSTEE FederatedInvestment Management
Company and Federated Investment
Research Corp.Counseling, 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 $14,000
Birth date: May 26, Enterprises, Inc. (privately owned
1946 Investment Advisory Company);
Lafayette President, J. Aron
Enterprises, Inc.
126 E cCharitable Foundation, Inc.; Asset
Manager and Trustee of certain
.ast 56th Street private trusts.
New York, NY 10022
TRUSTEE
JAMES C. GOODFELLOW* Executive Vice President, Fiduciary $0
Birth date: April Trust Company International,
6, 1945 Managing Director - J.P. Morgan and
Fiduciary Trust Co.
Company
International
Two World Trade
Center
New York, NY 10048
TRUSTEE
BURTON J. GREENWALD Managing Director, B.J. Greenwald $14,000
Birth date: Associates, Management Consultants
December 6, 1929 to the Financial Services Industry;
2009 Spruce Street Director and Trustee, Fiduciary
Philadelphia, PA Emerging Markets Bond Fund PLC;
19103 Director and Trustee, Fiduciary
TRUSTEE International Ireland Limited.
KEVIN J. O'DONNELL Partner, Pitney Hardin Kipp & Szuch $7,500
Birth date: (a law firm).
September 1, 1948
Park Avenue at
Morris County
200 Campus Drive
Florham Park, NJ
07932
TRUSTEE
JEFFREY W. STERLING Vice President and Assistant $0
Birth date: Treasurer of certain funds
February 5, 1947 distributed by Edgewood Services,
Federated Investors Inc. or its affiliates.
Tower
1001 Liberty Avenue
Pittsburgh, PA 15222
VICE PRESIDENT AND
ASSISTANT TREASURER
TIMOTHY S. JOHNSON AssociateCorporate Counsel, $0
Birth date: July Federated Investors, Inc.;
31, 1961 Secretary, Edgewood Services, Inc.
Federated Investors and Federated Shareholder Services
Tower Company.
1001 Liberty Avenue
Pittsburgh, PA 15222 Previous Positions: Associate, Reed
SECRETARY Smith Shaw & McClay (a law firm).
* AN ASTERISK DENOTES A TRUSTEE WHO IS DEEMED TO BE AN INTERESTED PERSON AS
DEFINED IN THE INVESTMENT COMPANY ACT OF 1940.
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.
CODE OF ETHICS RESTRICTIONS ON PERSONAL TRADING
As required by SEC rules, the Fund, its Adviser, and its Distributor have
adopted codes of ethics. These codes govern securities trading activities of
investment personnel, Fund Trustees, and certain other employees. Although they
do permit these people to trade in securities, including those that the Fund
could buy, they also contain significant safeguards designed to protect the Fund
and its shareholders from abuses in this area, such as requirements to obtain
prior approval for, and to report, particular transactions.
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.
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 AVERAGE AGGREGATE DAILY NET ASSETS
ADMINISTRATIVE FEE OF THE 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. Foreign
instruments purchased by the Fund are held by foreign banks participating in a
network coordinated by Fiduciary Trust Company International.
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
The independent auditor for the Funds, Ernst & Young LLP, plans and performs
its audit so that it may provide an opinion as to whether the Funds' financial
statements and financial highlights are free of material misstatement.
FEES PAID BY THE FUNDS FOR SERVICES
MUNICIPAL BOND FUND
FOR THE PERIOD FROM
DECEMBER 11, 1998
TO NOVEMBER 30, 1999
Advisory Fee Earned $305,943
Advisory Fee Reduction $48,858
Administrative Fee $85,862
12b-1 Fee $0
Shareholder Services Fee $0
For the period from December 11, 1998 to November 30, 1999, Municipal Bond Fund
paid $0 in brokerage commissions.
BOND FUND
FOR THE PERIOD FROM
DECEMBER 11, 1998
TO NOVEMBER 30, 1999
Advisory Fee Earned $363,052
Advisory Fee Reduction $0
Administrative Fee $101,621
12b-1 Fee $0
Shareholder Services Fee $0
For the period from December 11, 1998 to November 30, 1999, Bond Fund paid $0 in
brokerage commissions.
LARGE CAPITALIZATION GROWTH FUND
FOR THE PERIOD FROM
DECEMBER 11, 1998
TO NOVEMBER 30, 1999
Advisory Fee Earned $195,351
Advisory Fee Reduction $0
Administrative Fee $72,123
12b-1 Fee $0
Shareholder Services Fee $0
For the period from December 11, 1998 to November 30, 1999, Large Capitalization
Growth Fund paid $46,973 in brokerage commissions.
LARGE CAPITALIZATION GROWTH AND INCOME
FUND
FOR THE PERIOD FROM
DECEMBER 11, 1998
TO NOVEMBER 30, 1999
Advisory Fee Earned $710,472
Advisory Fee Reduction $0
Administrative Fee $133,503
12b-1 Fee $0
Shareholder Services Fee $0
For the period from December 11, 1998 to November 30, 1999, Large Capitalization
Growth and Income Fund paid $130,299 in brokerage commissions.
SMALL CAPITALIZATION EQUITY FUND
FOR THE YEAR ENDED 1999 1998 1997
NOVEMBER 30
Advisory Fee Earned $579,875 $448,146 $288,740
Advisory Fee Reduction $0 $0 $0
Administrative Fee $82,268 $75,000 $75,000
12b-1 Fee $0 $0 $0
Shareholder Services Fee $0 $0 $0
For the fiscal year ended November 30, 1997, 1998 and 1999, Small Capitalization
Equity Fund paid $72,588, $107,043 and $108,844, respectively, in brokerage
commissions.
INTERNATIONAL EQUITY FUND
- ------------------------------------------------------------
FOR THE YEAR ENDED 1999 1998 1997
NOVEMBER 30
Advisory Fee Earned $761,149 $635,839 $321,927
Advisory Fee Reduction $0 $0 $0
Administrative Fee $107,308 $94,569 $75,000
12b-1 Fee $0 $0 $0
Shareholder Services Fee $0 $0 $0
For the fiscal year ended November 30, 1997, 1998 and 1999, International Equity
Fund paid $173,103, $240,556 and $306,162, respectively, in brokerage
commissions.
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 are given for the one-year and start of performance periods
ended November 30, 1999.
Yield is given for the 30-day period ended November 30, 1999.
FUND AVERAGE ANNUAL TOTAL RETURN YIELD
1 YEAR START OF FOR THE 30-DAY PERIOD
PERFORMANCE*
MUNICIPAL BOND FUND NA -0.66% 4.13%
BOND FUND NA 0.31% 6.34%
LARGE CAPITALIZATION
GROWTH FUND NA 17.90% NA
LARGE CAPITALIZATION
GROWTH AND INCOME NA 14.20% 0.42%
FUND
SMALL CAPITALIZATION
EQUITY FUND 56.94% 21.21% NA
INTERNATIONAL EQUITY 27.22% 16.29% NA
FUND
*THE START OF PERFORMANCE OF MUNICIPAL BOND FUND, BOND FUND, LARGE
CAPITALIZATION GROWTH FUND AND LARGE CAPITALIZATION GROWTH AND INCOME FUND IS
DECEMBER 11, 1998. THE START OF PERFORMANCE OF SMALL CAPITALIZATION EQUITY FUND
AND INTERNATIONAL EQUITY FUND IS DECEMBER 22, 1995. 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 30-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 30-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.
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
TAXABLE YIELD EQUIVALENT FOR YEAR 2000
FEDERAL INCOME TAX 15.00% 28.00% 31.00% 36.00% 39.60%
BRACKET:
Joint Return $1-43,85$43,851-105,$105,951-161,$161,451-288,35Over
288,350
Single Return $1-26,25$26,251-63,5$63,551-132,6$132,601-288,35Over
288,350
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%
8.50% 10.00% 11.81% 12.32% 13.28% 14.07%
9.00% 10.59% 12.50% 13.04% 14.06% 14.90%
</TABLE>
NOTE: THE MAXIMUM MARGINAL TAX RATE FOR EACH BRACKET WAS USED IN
CALCULATING THE TAXABLE YIELD EQUIVALENT.
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.
o 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.
o 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.
o 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.
o 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 1000 GROWTH INDEX measures the performance of those Russell 1000
companies with higher price-to-book ratios and higher forecasted growth
values.
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.
o 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.
o 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,
1999 are incorporated herein by reference to the Annual Report to Shareholders
of the Funds dated November 30, 1999.
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 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 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 IBCA, 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 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.
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; (7)
(b) Copy of By-Laws of the Registrant; (1)
(c) Copy of Specimen Certificate for Shares of Beneficial Interest of
the Registrant; (3)
(d). (i) Conformed copy of Investment Advisory Contract of the
Registrant; (3)
(ii) Conformed copy of Exhibit F to the Investment Advisory Contract
of the Registrant; (6)
(iii) Conformed copy of Exhibit G to the Investment Advisory Contract
of the Registrant; (6)
(iv) Conformed copy of Exhibit H to the Investment Advisory Contract
of the Registrant; (6)
(v) Conformed copy of Exhibit I to the Investment Advisory Contract
of the Registrant; (6)
(e). (i) Conformed copy of Distributor's Contract of the Registrant; (3)
(ii) Conformed copy of Exhibit B to the Distributor's Contract of
the Registrant; (6)
(f) Not applicable;
(g) (i) Conformed copy of Custodian Agreement of the
Registrant; (3) (ii) Conformed copy of Global Custody Fee
Schedule; (5)
(iii) 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).
(7) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 6 on Form N-1A filed March 29, 1999 (File Nos. 33-63621 and
811-7369).
(i) Conformed copy of Opinion and Consent of Counsel as to legality
of shares being registered; (3)
(j) Conformed copy of Consent of Independent Accountants; +
(k) Not applicable; (l) Conformed copy of Initial Capital
Understanding; (2) (m) (i) Conformed copy of Amended and
Restated Distribution Plan; +
(ii) Copy of 12b-1 Agreement; (3)
(iii) Conformed copy of Amendment No. 1 to Exhibit A to the 12b-1
Agreement; (6)
(n) Not applicable;
(o) Conformed copy of Power of Attorney; +
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 "Management of the Funds" in
Part A.
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.
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:
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., The Riverfront Funds, Robertsons Stephens Investment
Trust, WesMark Funds, WCT Funds.
- ---------------------
+ 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).
(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).
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
Lawrence Caracciolo Director, President, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-7002
Arthur L. Cherry Director, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-7002
J. Christopher Donahue Director, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-7002
Thomas R. Donahue Director and Executive --
5800 Corporate Drive Vice President,
Pittsburgh, PA 15237-7002 Edgewood Services, Inc.
Christine Johnson Vice President, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-7002
Ernest L. Linane Vice President, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-7002
Denis McAuley, III Treasurer, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-7002
Timothy S. Johnson Secretary, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-7002
Victor R. Siclari Assistant Secretary, --
5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-7002
(c) Not applicable
Item 28. 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 29. MANAGEMENT SERVICES: Not applicable.
-------------------
Item 30. 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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FTI FUNDS, certifies that it
meets all of the requirements for effectiveness of this Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and 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 30th day of March, 2000.
FTI FUNDS
BY: /s/Timothy S. Johnson
Timothy S. Johnson, Secretary
Attorney in Fact for Edward C. Gonzales
March 30, 2000
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 30, 2000
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
James C. Goodfellow* Trustee
Burton J. Greenwald* Trustee
Kevin J. O'Donnell* Trustee
* By Power of Attorney
Exhibit m(i) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
FTI FUNDS
AMENDED AND RESTATED
DISTRIBUTION PLAN
This Distribution Plan ("Plan") adopted as of the 20th day of December,
1995, and Amended and Restated as of the 4th day of August, 1999, by the Board
of Trustees of FTI Funds (the "Trust"), a Massachusetts business trust with
respect to certain classes of shares ("Classes") of the portfolios of the Trust
(the "Funds") set forth in exhibits hereto.
1. This Plan is adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended ("Act"), so as to allow the Trust to make
payments as contemplated herein, in conjunction with the distribution of Classes
of the Funds ("Shares").
2. This Plan is designed to finance activities of Edgewood Services, Inc.
("Edgewood") principally intended to result in the sale of Shares to include:
(a) providing incentives to financial institutions ("Financial Institutions") to
sell Shares; (b) advertising and marketing of Shares to include preparing,
printing and distributing prospectuses and sales literature to prospective
shareholders and with Financial Institutions; and (c) implementing and operating
the Plan. In compensation for services provided pursuant to this Plan, Edgewood
will be paid a fee in respect of the following Classes set forth on the
applicable exhibit.
3. Any payment to Edgewood in accordance with this Plan will be made
pursuant to the "Distributor's Contract" entered into by the Trust and Edgewood.
Any payments made by Edgewood to Financial Institutions with funds received as
compensation under this Plan will be made pursuant to the "Rule 12b-1 Agreement"
entered into by Edgewood and the Institution.
4. Edgewood has the right (i) to select, in its sole discretion, the
Financial Institutions to participate in the Plan and (ii) to terminate without
cause and in its sole discretion any Rule 12b-1 Agreement.
5. Quarterly in each year that this Plan remains in effect, Edgewood shall
prepare and furnish to the Board of Trustees of the Trust, and the Board of
Trustees shall review, a written report of the amounts expended under the Plan
and the purpose for which such expenditures were made.
6. This Plan shall become effective with respect to each Class (i) after
approval as required by Rule 12b-1 under the Act as in effect on the date of the
execution hereof; and (ii) upon execution of an exhibit adopting this Plan with
respect to such Class.
7. This Plan shall remain in effect with respect to each Class presently
set forth on an exhibit and any subsequent Classes added pursuant to an exhibit
during the initial year of this Plan for the period of one year from the date
set forth above and may be continued thereafter if this Plan is approved with
respect to each Class at least annually by a majority of the Trust's Board of
Trustees and a majority of the Disinterested Trustees, cast in person at a
meeting called for the purpose of voting on such Plan. If this Plan is adopted
with respect to a Class after the first annual approval by the Trustees as
described above, this Plan will be effective as to that Class upon execution of
the applicable exhibit pursuant to the provisions of paragraph 6(ii) above and
will continue in effect until the next annual approval of this Plan by the
Trustees and thereafter for successive periods of one year subject to approval
as described above.
8. All material amendments to this Plan must be approved by a vote of the
Board of Trustees of the Trust and of the Disinterested Trustees, cast in person
at a meeting called for the purpose of voting on it.
9. This Plan may not be amended in order to increase materially the costs
which the Classes may bear for distribution pursuant to the Plan without being
approved by a majority vote of the outstanding voting securities of the Classes
as defined in Section 2(a)(42) of the Act.
10. This Plan may be terminated with respect to a particular Class at any
time by: (a) a majority vote of the Disinterested Trustees; or (b) a vote of a
majority of the outstanding voting securities of the particular Class as defined
in Section 2(a)(42) of the Act; or (c) by Edgewood on 60 days' notice to the
Trust.
11. While this Plan shall be in effect, the selection and nomination of
Disinterested Trustees of the Trust shall be committed to the discretion of the
Disinterested Trustees then in office.
12. All agreements with any person relating to the implementation of this
Plan shall be in writing and any agreement related to this Plan shall be subject
to termination, without penalty, pursuant to the provisions of Paragraph 10
herein.
13. This Plan shall be construed in accordance with and governed by the
laws of the Commonwealth of Pennsylvania.
EXHIBIT A
to the
Amended and Restated
Distribution Plan
FTI FUNDS
FTI BOND FUND
FTI INTERNATIONAL EQUITY FUND
FTI LARGE CAPITALIZATION GROWTH AND INCOME FUND
FTI LARGE CAPITALIZATION GROWTH FUND
FTI MUNICIPAL BOND FUND
FTI SMALL CAPITALIZATION EQUITY FUND
This Distribution Plan is adopted by FTI Funds with respect to the Shares
of the portfolios of the Trust set forth above.
In compensation for the services provided pursuant to this Plan, Edgewood
will be paid a monthly fee computed at the annual rate of .25 of 1% of the
average aggregate net asset value of FTI Bond Fund, FTI International Equity
Fund, FTI Large Capital Growth and Income Fund, FTI Large Capitalization Growth
Fund, FTI Municipal Bond Fund and FTI Small Capitalization Equity Fund held
during the month.
Witness the due execution hereof this 4th day of August, 1999.
FTI FUNDS
By:/S/ JEFFREY W. STERLING
Name: Jeffrey W. Sterling
Title: Vice President
Exhibit j under Form N-1A
Exhibit 8 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" in the Prospectus and "Independent Auditors" in the Statement of
Additional Information and to the use of our report dated January 21, 2000 in
Post-Effective Amendment Number 7 to the Registration Statement (Form N-1A No.
33-63621) of FTI Municipal Bond Fund, FTI Bond Fund, FTI Large Capitalization
Growth Fund, FTI Large Capitalization Growth and Income Fund, FTI Small
Capitalization Equity Fund, and FTI International Equity Fund, each a portfolio
of FTI Funds, dated March 31, 2000.
/s/Ernst & Young LLP
ERNST & YOUNG LLP
Boston, Massachusetts
March 27, 2000
Exhibit o under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
the Secretary, Assistant Secretary(ies) of FTI FUNDS and Senior Corporate
Counsel, Mutual Fund Services and each of them, their true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
for them and in their names, place and stead, in any and all capacities, to sign
any and all documents to be filed with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, by means of the Securities and Exchange
Commission's electronic disclosure system known as EDGAR; and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to sign and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as each of them might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
SIGNATURES TITLE DATE
- ---------- ----- ----
/S/ EDWARD C. GONZALES Chairman, President, November 15, 1999
- ---------------------------------
Edward C. Gonzales Treasurer and Trustee
(Chief Executive Officer and
Principal Financial and
Accounting Officer)
/S/ PETER A. ARON Trustee November 15, 1999
- ---------------------------------
Peter A. Aron
/S/ JAMES C. GOODFELLOW Trustee November 15, 1999
- ---------------------------------
James C. Goodfellow
/S/ BURTON J. GREENWALD Trustee November 15, 1999
- ---------------------------------
Burton J. Greenwald
/S/KEVIN J. O'DONNELL Trustee November 15, 1999
- ---------------------------------
Kevin J. O'Donnell
Sworn to and subscribed before me this 15 day of NOV., 1999
---- ----
/S/ MADALINE P. KELLY
Madaline P. Kelly
Notarial Seal
Madaline P. Kelly, Notary Public
Baldwin Boro, Allegheny County
My Commission Expires Feb. 22, 2000
Member, Pennsylvania Association of Notaries