FUNDMANAGER PORTFOLIOS
THE FIRST FAMILY IN MULTIFUND INVESTING
INVESTMENT ADVISER
Freedom Capital Management
Corporation
M.D. Hirsch Division
One World Financial Center
New York, NY 10281
DISTRIBUTORS
Tucker Anthony, Incorporated
200 World Financial Center
New York, NY 10281
Sutro & Co., Inc.
201 California Street
San Francisco, CA 94111
Freedom Distributors Corporation
One Beacon Street
Boston, MA 02108
Edgewood Services, Inc
Clearing Operations
P.O. Box 897
Pittsburgh, PA 15230-0897
FUNDMANAGER PORTFOLIOS
THE FIRST FAMILY IN MULTIFUND INVESTING
PROSPECTUS
JANUARY 24, 1997
Aggressive Growth Portfolio
Growth Portfolio
Growth with Income Portfolio
Bond Portfolio
Managed Total Return Portfolio
G01966-02 (1/97)
FUNDMANAGER PORTFOLIOS -- FINANCIAL ADVISER CLASS
(FORMERLY, FUNDMANAGER TRUST)
ONE BEACON STREET, BOSTON, MASSACHUSETTS 02108
GENERAL INFORMATION: (800) 344-9033 (TOLL FREE)
FundManager Portfolios (the "Trust") is an open-end, management investment
company consisting of five separate diversified series with different
investment objectives (individually and collectively referred to as
"Portfolio" or "Portfolios," as the context requires). Each Portfolio
(except for Managed Total Return Portfolio) offers two classes of shares.
The shares offered by this Prospectus are the Financial Adviser Class (the
"Class") of shares ("Shares"). The Portfolios seek to achieve their
objectives by investing in shares of other open-end investment companies
commonly called mutual funds. This policy involves certain expenses in
addition to those applicable to direct investment in mutual funds. See
"Risks and Other Considerations -- Expenses." The M.D. Hirsch Division of
Freedom Capital Management Corporation ("Freedom Capital Management" or the
"Adviser") continuously manages each Portfolio's investment portfolio.
AGGRESSIVE GROWTH PORTFOLIO (FORMERLY, AGGRESSIVE GROWTH FUND) SEEKS CAPITAL
APPRECIATION WITHOUT REGARD TO CURRENT INCOME.
GROWTH PORTFOLIO (FORMERLY, GROWTH FUND) PRIMARILY SEEKS LONG-TERM CAPITAL
APPRECIATION. CURRENT INCOME IS A SECONDARY CONSIDERATION.
GROWTH WITH INCOME PORTFOLIO (FORMERLY, GROWTH & INCOME FUND) SEEKS A
COMBINATION OF CAPITAL APPRECIATION AND CURRENT INCOME.
BOND PORTFOLIO (FORMERLY, BOND FUND, AND BEFORE THAT, INCOME FUND) SEEKS A
HIGH LEVEL OF CURRENT INCOME.
MANAGED TOTAL RETURN PORTFOLIO (FORMERLY, MANAGED TOTAL RETURN FUND) SEEKS
HIGH TOTAL RETURN (CAPITAL APPRECIATION AND CURRENT INCOME).
Shares of the Portfolios are offered for sale at net asset value by Edgewood
Services, Inc. ("Edgewood"), Freedom Distributors Corporation ("Freedom
Distributors"), Tucker Anthony Incorporated ("Tucker Anthony") and Sutro &
Co. Incorporated ("Sutro")(collectively, the "Distributors") as an
investment vehicle for individuals, institutions, corporations and
fiduciaries. The Portfolios pay expenses related to the distribution of
their shares. See "Management of the Trust -- The Distributors." In
addition, the Portfolios may invest in shares of mutual funds which charge
sales loads and/or pay their own distribution expenses.
INVESTMENTS IN THE PORTFOLIOS ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. SHARES OF THE PORTFOLIOS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE PORTFOLIOS IS
SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT
INVESTED.
This prospectus sets forth concisely the information a prospective investor
should know before investing in the Portfolios. A Statement of Additional
Information (the "SAI") dated January 24, 1997, and as supplemented from
time to time containing additional and more detailed information about the
Portfolios has been filed with the Securities and Exchange Commission
("SEC") and is hereby incorporated by reference into this prospectus. You
may request a copy of the SAI, or a paper copy of this prospectus, if you
have received your prospectus electronically, free of charge by writing or
calling the Trust at the address and information number printed above. The
SAI, material incorporated by reference into this document, and other
information regarding the Portfolios is maintained electronically with the
SEC at internet web site (http://www.sec.gov).
This Prospectus should be read and retained for information about the
Portfolios.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JANUARY 24, 1997.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
HIGHLIGHTS 1
PORTFOLIO EXPENSES 3
Financial Highlights 4
FUNDMANAGER PORTFOLIOS 10
INVESTMENT OBJECTIVES 10
Investments of and Investment
Techniques Employed by Mutual
Funds in which the Portfolios
May Invest 14
Derivatives 17
Investment Policies and Restrictions 20
RISKS AND OTHER CONSIDERATIONS 21
Expenses 22
MANAGEMENT OF FUNDMANAGER PORTFOLIOS 23
The Adviser 23
The Administrator 23
The Distributors 24
Custodian and Transfer Agent 24
Service Organizations 25
Other Expenses 25
Portfolio Transactions 25
Determination of Net Asset Value 26
PURCHASES OF SHARES 26
Purchases By Clients of the
Distributors Or Authorized
Securities Dealers 27
Certain Service Organizations and
Other Investors -- Purchase by
Check or Wire 27
Automatic Investment Plan 27
Retirement Plans 28
Individual Retirement Accounts ("IRAs") 28
Defined Contribution Plan 28
Exchange Privilege 28
REDEMPTION OF SHARES 29
Redemption of Shares Purchased
Through a Distributor or
Authorized Securities Dealer 29
Direct Redemption 29
Redemption by Wire or Telephone 29
Systematic Withdrawal Plan 30
DIVIDENDS, DISTRIBUTION AND TAXES 30
Other Information 32
Other Classes of Shares 34
Shareholder Inquiries 34
Description of Bond Ratings 34
</TABLE>
HIGHLIGHTS
FUNDMANAGER PORTFOLIOS PAGE 10
The Trust is a Delaware business trust which consists of five separate
series: Aggressive Growth Portfolio, Growth Portfolio, Growth with Income
Portfolio, Bond Portfolio and Managed Total Return Portfolio. Each Portfolio
seeks to achieve its investment objective by investing in mutual funds
registered with the SEC.
INVESTMENT OBJECTIVES PAGE 10
Each Portfolio has distinct investment objectives. Aggressive Growth
Portfolio seeks capital appreciation without regard to current income.
Growth Portfolio primarily seeks capital appreciation with current income a
secondary consideration. Growth with Income Portfolio seeks a combination of
capital appreciation and current income. Bond Portfolio seeks a high level
of current income. Managed Total Return Portfolio seeks high total return
(capital appreciation and current income). The mutual funds in which the
Portfolios invest may invest in securities which entail certain risks. These
risks are described in "Investments of and Investment Techniques employed by
Mutual Funds in Which the Portfolios May Invest."
RISKS AND OTHER CONSIDERATIONS PAGE 21
Investing through a Portfolio in an underlying portfolio of mutual funds
involves certain additional expenses and certain tax results which would not
be present in a direct investment in mutual funds. See "Expenses" and
"Dividends, Distributions and Taxes." In addition, Federal law imposes
certain limits on the purchases of mutual fund shares by the Portfolios.
MANAGEMENT OF FUNDMANAGER PORTFOLIOS PAGE 23
The Trust has retained Freedom Capital Management to act as its investment
adviser. For its services, the Adviser receives from each Portfolio a fee at
the annual rate of 0.50% of the Portfolio's average daily net assets up to
$500 million and 0.40% of its average daily net assets in excess of $500
million. See "The Adviser."
The Trust has retained Federated Administrative Services ("FAS") to provide
certain management and administrative services to the Portfolios. For these
services, each Portfolio pays FAS a fee at the annual rate of 0.150% of the
first $250 million of that Portfolio's average daily net assets, 0.125% of
the next $250 million of such assets, 0.100% of the next $250 million of
such assets, and 0.075% of such assets in excess of $750 million. See "The
Administrator."
With respect to the Class, the Trust has adopted a Distribution Plan
pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "1940
Act"), under which each Portfolio will reimburse the Distributors (in
amounts up to 0.50% of that Portfolio's average daily net assets
attributable to the Class) for marketing costs and payments to other
organizations for services rendered in distributing the Portfolio's Shares.
In addition, Freedom Distributors and Edgewood may receive additional
compensation in connection with the Portfolio's purchases of mutual funds.
See "Portfolio Transactions."
The Trust also contracts with various organizations to provide
administrative services for the Class, such as maintaining shareholder
accounts and records. Each Portfolio pays fees to these organizations in
amounts up to an annual rate of 0.25% of the daily net asset value of that
Portfolio's Shares owned by shareholders with whom the organization has a
servicing relationship.
PURCHASE OF SHARES PAGE 26
Shares of the Portfolios are offered at net asset value by the Distributors
as an investment vehicle for individuals, institutions, corporations and
fiduciaries. The minimum initial investment for each Portfolio is $1,000,
and the minimum subsequent investment is $100, except that the minimum
initial investment for an Individual Retirement Account ("IRA") is $250. The
Trust may issue shares of one or more of the Portfolios in exchange for
mutual fund shares meeting that Portfolio's investment objective as
determined by the Adviser.
REDEMPTION OF SHARES PAGE 29
Shares may be redeemed at their next determined net asset value. See
"Determination of Net Asset Value." Redemptions may be made by letter or
wire. The Trust reserves the right to redeem, upon not less than 30 days'
notice, all shares of a Portfolio in an account (other than an IRA) which
has a value below $50.
DIVIDENDS, DISTRIBUTIONS AND TAXES PAGE 30
Aggressive Growth Portfolio will distribute net investment income annually;
Growth Portfolio will distribute net investment income semiannually; Growth
with Income Portfolio and Managed Total Return Portfolio will distribute net
investment income quarterly; and Bond Portfolio will distribute its net
investment income monthly. Each Portfolio will distribute any net realized
capital gains at least annually unless otherwise instructed. All dividends
and distributions will be reinvested automatically at net asset value in
additional shares of the Portfolio making the distribution.
PORTFOLIO EXPENSES
THE FOLLOWING TABLE ILLUSTRATES THE EXPENSES AND FEES THAT A SHAREHOLDER OF
EACH PORTFOLIO WILL INCUR.
ANNUAL FINANCIAL ADVISER CLASS OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<CAPTION>
GROWTH MANAGED
AGGRESSIVE WITH TOTAL
GROWTH GROWTH INCOME BOND RETURN
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C>
Management Fees 0.50% 0.50% 0.50% 0.50% 0.50%
Distribution and shareholder service expenses(1) 0.50% 0.50% 0.50% 0.50% 0.50%
Other Expenses 0.50% 0.65% 0.65% 0.40% 1.10%
Total Portfolio Operating Expenses 1.50% 1.65% 1.65% 1.40% 2.10%
</TABLE>
(1) The maximum distribution and shareholder service fee is 0.50%. Under
rules of the National Association of Securities Dealers, Inc., (the "NASD"),
a 12b-1 fee may be treated as a sales charge for certain purposes under
those rules. Because the 12b-1 fee is an annual fee charged against the
assets of a Portfolio, long-term shareholders may indirectly pay more total
sales charges than the economic equivalent of the maximum front-end sales
charge permitted by rules of the NASD. See "Management of the Trust -- The
Distributors" in the Prospectus.
Total Portfolio Operating Expenses in the table above are based on expenses
expected during the fiscal year ending September 30, 1997. The total
Portfolio operating expenses were 1.67%, 1.81%, 1.77%, 1.47% and 2.21% for
the Aggressive Growth Portfolio, Growth Portfolio, Growth with Income
Portfolio, Bond Portfolio and Managed Total Return Portfolio, respectively,
for the fiscal year ended September 30, 1996. The Total Portfolio Operating
Expenses would have been 1.73%, 1.87%, 1.83%, 1.52% and 2.27% for the
Aggressive Growth Portfolio, Growth Portfolio, Growth with Income Portfolio,
Bond Portfolio and Managed Total Return Portfolio, respectively, for the
fiscal year ended September 30, 1996, absent the voluntary waiver of a
portion of the administrative fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder will bear, either directly or
indirectly. For more complete descriptions of the various costs and
expenses, see "Management of FundManager Portfolios." Wire-transferred
redemptions may be subject to an additional fee.
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period. The
Portfolio charges no redemption fees.
<TABLE>
<CAPTION>
GROWTH MANAGED
AGGRESSIVE WITH TOTAL
GROWTH GROWTH INCOME BOND RETURN
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<C> <C> <C> <C> <C> <C>
1 year $ 15 $ 17 $ 17 $ 14 $ 21
3 years $ 47 $ 52 $ 52 $ 44 $ 66
5 years $ 82 $ 90 $ 90 $ 77 $113
10 years $179 $195 $195 $168 $243
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
Currently, the Portfolios (except for Managed Total Return Portfolio) offer,
by a separate prospectus, another class of shares which are sold at net
asset value by Tucker Anthony and Sutro, and do not pay expenses related to
the distribution of such shares. Because the expenses vary between the
classes, performance will vary with respect to each class. Additional
information and a prospectus concerning the Portfolios' other class of
shares may be obtained by calling toll-free (800) 344-9033.
FINANCIAL HIGHLIGHTS
The Portfolios' financial data through September 30, 1996, shown below is to
assist investors in evaluating the performance of each Portfolio. Prior to
May 8, 1995, the Portfolios were a diversified series of the Republic Funds
(the "Predecessor Funds"), also an open-end, management investment company.
The information for the years ended September 30, 1996, 1995, 1994, 1993 and
1992 in the following tables have been audited by Ernst & Young LLP, the
Portfolios' Independent Auditors. The report of Ernst & Young LLP, dated
November 21, 1996, on the Portfolios' financial statements for the year then
ended September 30, 1996, and on the following tables for the periods
presented, is included in the Annual Report, which is incorporated by
reference. These tables should be read in conjunction with the Portfolios'
financial statements and notes thereto, which are contained in the Annual
Report. Further information about the Portfolios' performance also is
contained in the Portfolios' Annual Report, dated September 30, 1996, which
can be obtained free of charge. The information in the following tables for
the fiscal year ended September 30, 1991 and for prior fiscal year ends has
been examined by other auditors who have expressed an unqualified opinion.
Freedom Capital Management is the Trust's investment adviser. From September
1, 1993 to February 21, 1995, the M.D. Hirsch Division of Republic Asset
Management Corporation ("Republic Asset Management"), an affiliate of
Republic National Bank of New York ("Republic"), served as investment
adviser to the Predecessor Funds. Prior to September 1, 1993, M.D. Hirsch
Investment Management, Inc. ("Hirsch"), also an affiliate of Republic,
served as the investment adviser to the Predecessor Funds. Prior to February
1, 1991, Republic was the investment adviser to the Predecessor Funds.
AGGRESSIVE GROWTH PORTFOLIO -- FINANCIAL ADVISER CLASS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1996 1995(A) 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $18.31 $15.57 $16.70 $14.71 $14.73 $11.84 $14.67 $12.01 $16.62 $13.13
INCOME FROM INVESTMENT OPERATIONS
Net investment income
(operating loss) 0.12(b) (0.13) (0.08) (0.04) (0.04) 0.06 0.08 0.03 0.03 0.06
Net realized and unrealized
gain (loss) on investments 1.64 3.70 0.62 2.87 0.99 3.81 (2.23) 3.03 (2.46) 3.82
Total from investment 1.76 3.57 0.54 2.83 0.95 3.8 (2.15) 3.06 (2.43) 3.88
operations
LESS DISTRIBUTIONS
Distributions from
net investment income (0.38) -- -- -- -- (0.03) (0.07) -- (0.06) (0.02)
Distributions in execss of
net investment income -- -- -- -- -- -- -- -- (0.13) --
Distributions from
net realized gain
on investments+ (2.89) (0.83) (1.67) (0.84) (0.97) (0.95) (0.61) (0.40) (1.99) (0.37)
Total distributions (3.27) (0.83) (1.67) (0.84) (0.97) (0.98) (0.68) (0.40) (2.18) (0.39)
NET ASSET $16.80 $18.31 $15.57 $16.70 $14.71 $14.73 $11.84 $14.67 $ 12.01 $16.62
VALUE, END
OF PERIOD
Total return(c) 12.10% 24.30% 3.30% 19.90% 6.30% 34.90% (15.20%) 26.30% (12.70%) 30.30%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (in 000's) $38,944 $33,668 $37,766 $31,201 $29,096 $22,644 $16,820 $20,929 $26,364 $49,645
Ratio of expenses to
average net assets 1.67% 1.65% 1.70% 1.52% 1.61% 1.86% 1.96% 1.83% 1.94% 1.48%
Ratio of net investment
income to average
net assets 0.74% (0.68%) (0.57%) (0.24%) (0.17%) 0.36% 0.49% 0.43% 0.23% 0.43%
Ratio of waiver to
average net assets(d) 0.06% -- -- -- -- 0.09% 0.14% 0.09% -- --
Portfolio turnover 158% 50% 43% 35% 24% 45% 31% 15% 26% 64%
+Paid from realized net
short-term gain $0.27 $0.04 $0.253 $-- $0.03 $0.360 $0.146 $0.140 $0.180 $--
</TABLE>
(a) On February 21, 1995, Freedom Capital Management Corporation became the
Investment Adviser.
(b) Per share information is based on average shares outstanding.
(c) Based on net asset value, which does not reflect the sales charge
payable on purchases of shares. Effective May 8, 1995, the Portfolio no
longer imposes a one time sales charge.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
GROWTH PORTFOLIO -- FINANCIAL ADVISER CLASS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1996 1995(A) 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $16.14 $14.09 $14.62 $14.40 $13.96 $11.68 $15.32 $12.73 $15.71 $12.82
INCOME FROM INVESTMENT OPERATIONS
Net investment income
(operating loss) 0.01(b) (0.02) (0.05) 0.02 0.07 0.14 0.24 0.26 0.23 0.22
Net realized and unrealized
gain on investments 1.85 2.99 0.69 2.10 1.23 3.01 (2.23) 2.66 (1.63) 3.05
Total from investment
operations 1.86 2.97 0.64 2.12 1.30 3.15 (1.99) 2.92 (1.40) 3.27
LESS DISTRIBUTIONS
Distributions from net
investment income (0.24) -- -- -- (0.09) (0.37) (0.19) (0.19) (0.36) (0.14)
Distributions from net
realized gain on
investments+ (2.77) (0.92) (1.17) (1.90) (0.77) (0.50) (1.46) (0.14) (1.22) (0.24)
Total distributions (3.01) (0.92) (1.17) (1.90) (0.86) (0.87) (1.65) (0.33) (1.58) (0.38)
NET ASSET VALUE,
END OF PERIOD $14.99 $16.14 $14.09 $14.62 $14.40 $13.96 $11.68 $15.32 $12.73 $15.71
Total return(c) 13.46% 22.6% 4.50% 16.00% 9.40% 28.50% (14.30%) 23.30% (7.40%) 26.10%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (in 000's) $26,639 $26,022 $34,205 $21,919 $21,420 $26,336 $21,232 $26,160 $40,466 $48,556
Ratio of expenses to
average net assets 1.81% 1.71% 1.71% 1.70% 1.60% 1.90% 1.92% 1.78% 1.80% 1.53%
Ratio of net investment
income to average
net assets 0.05% (0.11%) (0.52%) 0.15% 0.59% 1.21% 1.64% 1.87% 1.89% 1.50%
Ratio of waiver to
average net assets(d) 0.06% -- -- -- -- 0.02% 0.08% 0.06% -- --
Portfolio turnover 98% 68% 44% 40% 44% 54% 70% 23% 51% 65%
+Paid from realized net
short-term gain $0.48 $0.10 $0.22 $0.16 $0.03 $0.060 $0.015 $0.140 $0.150 $--
</TABLE>
(a) On February 21, 1995, Freedom Capital Management Corporation became the
Investment Adviser.
(b) Per share information is based on average shares outstanding.
(c) Based on net asset value, which does not reflect the sales charge
payable on purchases of shares. Effective May 8, 1995, the Portfolio no
longer imposes a one time sales charge.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
GROWTH WITH INCOME PORTFOLIO -- FINANCIAL ADVISER CLASS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1996 1995(A) 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $18.28 $15.99 $16.50 $15.11 $14.39 $12.30 $14.96 $12.47 $14.52 $12.86
INCOME FROM INVESTMENT
OPERATIONS
Net investment 0.60(b) 0.27 0.35 0.28 0.31 0.49 0.46 0.47 0.43 0.45
income
Net realized and
unrealized gain
on investments 1.60 3.19 0.18 1.97 1.07 2.59 (2.61) 2.32 (1.14) 2.00
Total from
investment
operations 2.20 3.46 0.53 2.25 1.38 3.08 (2.15) 2.79 (0.71) 2.45
LESS DISTRIBUTIONS
Distributions from
net
investment income (0.86) (0.33) (0.30) (0.33) (0.29) (0.68) (0.51) (0.30) (0.61) (0.43)
Distributions from
net
realized gain
on investments+ (2.93) (0.84) (0.74) (0.53) (0.37) (0.31) -- -- (0.61) (0.36)
Distributions in
execss of
realized capital -- -- -- -- -- -- -- -- (0.12) --
gains
Total distributions (3.79) (1.17) (1.04) (0.86) (0.66) (0.99) (0.51) (0.30) (1.34) (0.79)
NET ASSET $16.69 $18.28 $15.99 $16.50 $15.11 $14.39 $12.30 $14.96 $12.47 $14.52
VALUE, END
OF PERIOD
Total return(c) 13.73% 23.30% 3.30% 15.50% 9.80% 26.20% (14.80%) 22.70% (3.40%) 19.70%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (in 000's) $31,571 $35,643 $52,595 $40,269 $36,603 $35,018 $30,063 $38,852 $53,558 $91,620
Ratio of expenses
to average net 1.77% 1.59% 1.55% 1.49% 1.50% 1.85% 1.87% 1.65% 1.67% 1.39%
assets
Ratio of net
investment
income to average
net assets 3.57% 1.72% 1.88% 1.77% 2.10% 3.67% 3.31% 3.43% 3.55% 3.20%
Ratio of waiver to
average
net assets(d) 0.06% -- -- -- -- 0.02% 0.03% 0.08% -- --
Portfolio turnover 85% 12% 35% 24% 26% 48% 37% 15% 29% 20%
+Paid from realized
net
short-term gain $0.06 $-- $0.14 $0.09 $-- $0.046 $-- $-- $0.140 $0.040
</TABLE>
(a) On February 21, 1995, Freedom Capital Management Corporation became the
Investment Adviser.
(b) Per share information is based on average shares outstanding.
(c) Based on net asset value, which does not reflect the sales charge
payable on purchases of shares. Effective May 8, 1995, the Portfolio no
longer imposes a one time sales charge.
(d) This voluntary expense decrease is reflected in both the expenses and
net investment income ratios shown above.
BOND PORTFOLIO -- FINANCIAL ADVISER CLASS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1996 1995(A) 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.21 $ 9.66 $10.67 $10.28 $9.75 $9.17 $9.60 $9.77 $9.90 $10.68
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.52(b) 0.52 0.48 0.60 0.64 0.70 0.67 0.77 0.83 0.90
Net realized and
unrealized
gain (loss) on (0.14) 0.49 (0.84) 0.43 0.49 0.59 (0.43) (0.13) (0.07) (0.71)
investments
Total from
investment
operations 0.38 1.01 (0.36) 1.03 1.13 1.29 0.24 0.64 0.76 0.19
LESS DISTRIBUTIONS
Distributions from
net
investment income (0.59) (0.46) (0.53) (0.54) (0.60) (0.71) (0.67) (0.78) (0.89) (0.92)
Distributions from
net
realized gain
on investments+ -- -- (0.12) (0.10) -- -- -- -- -- (0.05)
Distributions in
execss of
realized capital -- -- -- -- -- -- -- (0.03) -- (0.01)
gains
Total distributions (0.59) (0.46) (0.65) (0.64) (0.60) (0.71) (0.67) (0.81) (0.89) (0.98)
NET ASSET $10.00 $10.21 $9.66 $10.67 $10.28 $9.75 $9.17 $9.60 $9.77 $9.90
VALUE, END
OF PERIOD
Total return(c) 3.78% 10.80% (3.60%) 10.40% 12.10% 14.70% 2.50% 6.90% 8.00% 1.70%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (in 000's) $70,166 $77,419 $76,769 $54,057 $70,066 $57,632 $40,855 $52,094 $50,631 $53,444
Ratio of expenses
to average net assets 1.47% 1.45% 1.43% 1.29% 1.28% 1.57% 1.75% 1.58% 1.81% 1.61%
Ratio of net
investment
income to average
net assets 5.19% 5.38% 4.67% 5.70% 6.42% 7.00% 7.22% 7.89% 8.51% 8.63%
Ratio of waiver to average
net assets(d) 0.05% -- -- -- -- 0.07% 0.03% 0.04% -- --
Portfolio turnover 93% 53% 41% 53% 21% 46% 48% 109% 52% 27%
+Paid from realized
net short-term gain $-- $-- $-- $-- $-- $-- $-- $-- $-- $0.040
</TABLE>
(a) On February 21, 1995, Freedom Capital Management Corporation became the
Investment Adviser.
(b) Per share information is based on average shares outstanding.
(c) Based on net asset value, which does not reflect the sales charge
payable on purchases of shares. Effective May 8, 1995, the Portfolio no
longer imposes a one time sales charge.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
MANAGED TOTAL RETURN PORTFOLIO -- FINANCIAL ADVISER CLASS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE:
<TABLE>
<CAPTION>
AUGUST 4, 1994
(COMMENCEMENT)
OF
OPERATIONS)
THROUGH
YEAR ENDED SEPTEMBER 30, SEPTEMBER 30,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1995(A) 1994 1993 1992 1991 1990 1989 1988
NET ASSET VALUE,
BEGINNING OF PERIOD $11.65 $11.24 $12.03 $11.48 $11.07 $ 9.60 $11.45 $10.14 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.42(b) 0.28 0.18 0.29 0.34 0.44 0.51 0.54 0.04
Net realized and
unrealized gain
(loss)
on investments 0.40 1.18 (0.16) 0.90 0.57 1.42 (0.94) 0.96 0.10
Total from investment 0.82 1.46 0.02 1.19 0.91 1.86 (0.43) 1.50 0.14
operations
LESS DISTRIBUTIONS
Distributions from
net
investment income (0.50) (0.30) (0.31) (0.26) (0.41) (0.39) (0.63) (0.16) --
Distributions from net
realized
gain on (0.52) (0.75) (0.50) (0.38) (0.09) -- (0.79) (0.03) --
investments+
Total distributions (1.02) (1.05) (0.81) (0.64) (0.50) (0.39) (1.42) (0.19) --
NET ASSET $11.45 $11.65 $11.24 $12.03 $11.48 $11.07 $9.60 $11.45 $10.14
VALUE, END OF
PERIOD
Total return(c) 7.58% 14.30% 0.10% 10.80% 8.40% 20.10% (4.40%) 15.10% 1.40%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (in 000's) $12,123 $14,749 $17,515 $25,519 $20,894 $14,678 $17,041 $17,031 $10,275
Ratio of expenses to
average
net assets 2.21% 2.09% 1.94% 1.80% 1.90% 2.00% 1.93% 1.62% 2.90%(e)
Ratio of net
investment
income to average
net assets 3.68% 2.29% 1.60% 2.54% 3.09% 4.41% 4.89% 5.24% 2.49%(e)
Ratio of waiver to
average
net assets(d) 0.06% -- -- -- 0.11% 0.26% 0.14% 0.16% --
Portfolio turnover 159% 50% 50% 40% 37% 15% 47% 71% 0%
+Paid from realized
net
short-term gain $0.01 $-- $0.132 $0.08 $0.015 $-- $0.313 $0.014 $--
</TABLE>
(a) On February 21, 1995, Freedom Capital Management Corporation became the
Investment Adviser.
(b) Per share information is based on average shares outstanding.
(c) Based on net asset value, which does not reflect the sales charge
payable on purchases of shares. Effective May 8, 1995, the Portfolio no
longer imposes a one time sales charge.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(e) Annualized.
FUNDMANAGER PORTFOLIOS
The Trust was organized as a Delaware business trust on February 7, 1995,
and is an open-end management investment company registered under the 1940
Act consisting of five separate diversified series -- Aggressive Growth
Portfolio, Growth Portfolio, Growth with Income Portfolio, Income Portfolio
and Managed Total Return Portfolio. Investment in shares of one or more of
the Portfolios involves risks and there can be no assurance that the
Portfolios' investment objectives will be achieved.
INVESTMENT OBJECTIVES
Each Portfolio seeks to achieve its investment objective by investing in a
portfolio of approximately ten to fifteen mutual funds (the "underlying
funds") although it may invest up to 25% of its total assets in any one
underlying fund. At times, for temporary defensive purposes when warranted
by general economic and financial conditions, a Portfolio may invest in
money market mutual funds or invest directly in (or enter into repurchase
agreements (maturing in seven days or less) with banks and broker-dealers
with respect to) short-term debt securities, including U.S. Treasury bills
and other short-term U.S. government securities, commercial paper,
certificates of deposit and bankers' acceptances. However, except when a
Portfolio is in a temporary defensive investment position or as may be
considered necessary to accumulate cash in order to satisfy minimum purchase
requirements of the underlying funds or to meet anticipated redemptions, a
Portfolio normally will maintain its assets invested in underlying funds.
Although all of the Portfolios may invest in shares of the same underlying
fund, the percentage of each Portfolio's assets so invested may vary and the
Adviser will determine that such investments are consistent with the
investment objectives and policies of each particular Portfolio. A Portfolio
may not purchase shares of any closed-end investment company or of any
investment company which is not registered with the SEC. Each Portfolio's
investment objectives and certain of its related policies and activities are
fundamental and may not be changed by the Board of Trustees (the "Trustees")
of the Trust, on behalf of a particular Portfolio, without approval of the
shareholders of that Portfolio.
AGGRESSIVE GROWTH PORTFOLIO
The investment objective of Aggressive Growth Portfolio is capital
appreciation without regard to current income. The underlying funds in which
it invests will consist of funds which seek capital growth or appreciation
by investing primarily in common stock or securities convertible into or
exchangeable for common stock (such as convertible preferred stock,
convertible debentures or warrants). For temporary defensive purposes, these
funds also may invest in (or enter into repurchase agreements with banks and
broker-dealers with respect to) corporate bonds, U.S. government securities,
commercial paper, certificates of deposit or other money market securities.
The Portfolio also may invest in funds which invest primarily in long- or
short-term bonds and other fixed income securities (such as securities
issued or guaranteed or insured by the U.S. government, its agencies or
instrumentalities, commercial paper, preferred stock, convertible preferred
stock or convertible debentures) whenever the Adviser believes that these
funds offer a potential for capital appreciation. These underlying funds may
invest in investment grade bonds or in bonds which are not considered
investment grade (commonly referred to as "junk bonds"). The Portfolio will
limit its direct and indirect investment in junk bonds to less than 5% of
its assets. See "Bond Portfolio" and "Description of Bond Ratings."
The underlying funds in which Aggressive Growth Portfolio invests may incur
more risk than those in which Growth Portfolio and Growth with Income
Portfolio invest. For example, they may trade their portfolios more actively
(which results in higher brokerage commissions and increased realization of
taxable capital gains) and/or invest in companies whose securities are
subject to more erratic market movements. The underlying funds also may
invest up to 100% of their assets in securities of foreign issuers and
engage in foreign currency transactions with respect to these investments;
invest up to 15% of their assets in illiquid securities (excluding Rule 144A
securities which are deemed liquid by the Trustees) ("Illiquid Securities");
invest their assets in warrants; lend their portfolio securities; sell
securities short; borrow money in amounts up to one-third of their assets
for investment purposes (i.e., leverage their portfolios); write (sell) or
purchase call or put options on securities or on stock indexes; concentrate
more than 25% of their assets in one industry; invest up to 100% of their
assets in master demand notes; and enter into futures contracts and options
on futures contracts. The risks associated with these investments are
described in the "Investments of and Investment Techniques Employed by
Mutual Funds in Which the Portfolios May Invest."
As a result, an investment in Aggressive Growth Portfolio can be expected to
involve greater risk than an investment in any of the other Portfolios.
GROWTH PORTFOLIO
The primary investment objective of Growth Portfolio is long-term capital
appreciation. Current income is of secondary importance. The underlying
funds in which it invests will consist of funds which invest primarily in
common stock or securities convertible into or exchangeable for common stock
(such as convertible preferred stock, convertible debentures or warrants)
and which seek long-term capital growth or appreciation with current income
typically of secondary importance. For temporary defensive purposes, these
funds also may invest in (or enter into repurchase agreements with banks and
broker-dealers with respect to) corporate bonds, U.S. government securities,
commercial paper, certificates of deposit or other money market instruments.
The Portfolio also may invest in funds which invest primarily in long- or
short-term bonds and other fixed income securities (such as securities
issued or guaranteed or insured by the U.S. government, its agencies or
instrumentalities, commercial paper, preferred stock, convertible preferred
stock or convertible debentures) whenever the Adviser believes that these
funds offer a potential for capital appreciation. These underlying funds may
invest in investment grade bonds or in bonds which are not considered
investment grade (commonly referred to as "junk bonds"). The Portfolio will
limit its direct and indirect investment in junk bonds to less than 5% of
its assets. See "Bond Portfolio" and "Description of Bond Ratings."
The underlying funds in which the Portfolio invests may be authorized to
invest up to 100% of their assets in the securities of foreign issuers and
engage in foreign currency transactions with respect to these investments;
invest up to 15% of their assets in Illiquid Securities; invest their assets
in warrants; lend their portfolio securities; sell securities short; borrow
money in amounts up to one-third of their assets for investment purposes;
write or purchase call or put options on securities or stock indexes;
concentrate more than 25% of their assets in one industry; invest up to 100%
of their assets in master demand notes; and enter into futures contracts and
options on futures contracts. The risks associated with these investments
are described in "Investments of and Investment Techniques Employed by
Mutual Funds in Which the Portfolios May Invest."
GROWTH WITH INCOME PORTFOLIO
The investment objective of Growth with Income Portfolio is realization of a
combination of capital appreciation and current income. The underlying funds
in which it invests will consist of funds which seek long-term capital
appreciation and/or funds which seek: (i) income from dividends; (ii) income
from interest; or (iii) growth of income (or any combination of (i)-(iii)).
These underlying funds invest in common stocks, preferred stocks, bonds and
other fixed-income securities (including convertible preferred stock and
convertible debentures). The underlying funds also may, for temporary
defensive purposes, invest in (or enter into repurchase agreements with
banks and broker-dealers with respect to) U.S. government securities,
commercial paper, certificates of deposit or other money market securities.
The Portfolio also may invest in funds which invest primarily in long- or
short-term bonds and other fixed income securities (such as securities
issued or guaranteed or insured by the U.S. government, its agencies or
instrumentalities, commercial paper, preferred stock, convertible preferred
stock or convertible debentures) whenever the Adviser believes that these
funds offer a potential for capital appreciation. These underlying funds may
invest in investment grade bonds or in bonds which are not considered
investment grade (commonly referred to as "junk bonds"). The Portfolio will
limit its direct and indirect investment in junk bonds to less than 5% of
its assets. See "Bond Portfolio" and "Description of Bond Ratings."
These underlying funds may invest up to 100% of their assets in the
securities of foreign issuers and engage in foreign currency transactions
with respect to these investments; invest up to 15% of their assets in
Illiquid Securities; invest their assets in warrants; lend their portfolio
securities; sell securities short; borrow money in amounts up to one-third
of their assets for investment purposes; write or purchase call or put
options on securities or on stock indexes; concentrate more than 25% of
their assets in any one industry; invest up to 100% of their assets in
master demand notes; invest in long- or short-term corporate bonds (see
"Bond Portfolio") and other fixed income securities (such as U.S. government
securities, commercial paper, preferred stock, convertible preferred stock
and convertible debentures); and enter into futures contracts and options on
futures contracts. The risks associated with these investments are described
below.
BOND PORTFOLIO
The investment objective of Bond Portfolio is a high level of current
income. The underlying funds in which it invests will include funds which
seek high current income by investing in long- or short-term bonds and other
fixed income securities (such as securities issued or guaranteed or insured
by the U.S. government, its agencies or instrumentalities, commercial paper,
preferred stock, convertible preferred stock or convertible debentures). The
underlying funds also may lend their portfolio securities; sell securities
short; borrow money in amounts up to one-third of their assets for
investment purposes; write or purchase call or put options on securities or
on stock indexes; invest up to 100% of their assets in master demand notes;
and enter into futures contracts and options on futures contracts.
The Portfolio will invest in underlying funds which limit their corporate
bond investments to investment grade bonds which generally are considered to
be bonds rated within one of the four highest quality grades assigned by a
nationally recognized statistical rating organization ("NRSRO"), such as
Standard & Poor's Ratings Group ("S&P") or Moody's Investor Services, Inc.
("Moody's"), or which are unrated but are deemed by an underlying fund's
investment adviser to be of comparable quality. These include bonds rated
AAA, AA, A and BBB by S&P and bonds rated Aaa, Aa, A and Baa by Moody's.
Bonds rated BBB by S&P or Baa by Moody's normally indicate a greater degree
of investment risk than bonds with higher ratings.
The Portfolio also will invest (without limitation) in underlying funds
which themselves may invest in corporate bonds which are not considered
investment grade bonds (commonly referred to as "junk bonds") by an NRSRO,
such as Moody's or S&P, or which are unrated, and thus may carry a greater
degree of risk than bonds considered investment grade. These include bonds
rated BB, B, CCC and CC by S&P, and Ba, B, Caa, Ca and C by Moody's. These
ratings may indicate that the bonds are predominantly speculative with
respect to the issuer's ability to pay interest and repay principal and may
indicate that the issuer soon may be or currently is in default. The risks
associated with these investments are described in "Description of Bond
Ratings." The Portfolio will limit its direct and indirect investment in
junk bonds to less than 35% of its net assets.
As a general matter, the current value of bonds varies inversely with
changes in prevailing interest rates. If interest rates increase after a
bond is purchased, the value of that security will normally decline.
Conversely, should prevailing interest rates decrease after a bond is
purchased, its market price will normally rise.
MANAGED TOTAL RETURN PORTFOLIO
The investment objective of Managed Total Return Portfolio is to realize
high total return (capital appreciation and current income). The Portfolio
seeks to achieve its objective by investing in a broad range of underlying
funds. It will allocate its assets among one or more of five general types
of mutual funds: aggressive growth funds, growth funds, growth and income
funds, fixed income (bond) funds and money market funds. The Portfolio is
unlikely at any particular moment to have all its assets invested in only
one of these general types of funds. The Adviser will vary the proportion of
each type of underlying fund based on the mix of such funds that may, in the
Adviser's view, be most likely to achieve the Portfolio's investment
objective.
In allocating assets among the five general types of underlying funds, the
Adviser will follow a multi-step investment analysis. First, the Adviser
will consider general political and economic trends and current financial
and market conditions in order to determine the current phase of the
business and investment cycle and to assess the risks and opportunities in
the financial markets. The Adviser will seek the most likely combination of
fund types which will provide the best opportunity for maximizing total
return consistent with prudent investment risk. The Adviser will not rely on
a model in reaching asset allocation decisions, but will make its own
assessment of the relative risk-reward levels of various asset types based
on its past experience and analysis of current conditions.
If the Adviser determines that the values of equity securities are likely to
rise, it may emphasize aggressive and conservative growth funds. In periods
of rising interest rates, it may emphasize holdings of money market funds or
in periods of falling interest rates it may emphasize fixed income funds,
depending upon conditions in the equity markets.
Second, after determining the relative proportion of assets to be allocated
to particular types of funds, the Adviser will identify whether certain
specific categories of funds offer greater potential for positive returns.
For example, the Adviser may choose to emphasize international equity funds
or funds that concentrate in a particular industry sector; or the Adviser
may select fixed income funds based on whether they invest primarily in
long- or short-term debt securities.
Finally, the Adviser will select those funds within the general or more
specific categories, as discussed, that offer the greatest potential for
positive returns in the Adviser's judgment.
Within the framework of the foregoing guidelines, the underlying funds in
which the Portfolio will invest will consist of funds which seek capital
growth and appreciation by investing primarily in common stock or securities
convertible into or exchangeable for common stock (such as convertible
preferred stock, convertible debentures or warrants); funds which seek a
combination of capital appreciation and current income (including income
from dividends, income from interest, growth of income or any combination
thereof) by investing primarily in common stocks, preferred stocks, bonds
and other fixed income securities (including convertible preferred stock and
convertible debentures); funds which seek high current income by investing
primarily in long- or short-term bonds and other fixed income securities
(such as securities issued, guaranteed or insured by the U.S. government,
its agencies or instrumentalities, commercial paper, preferred stock,
convertible preferred stock or convertible debentures); and funds which seek
as high a level of current income as is consistent with preservation of
capital and liquidity by investing in a broad range of high quality,
short-term money market instruments which have remaining maturities not
exceeding one year (including U.S. government securities, bank obligations,
commercial paper, corporate debt securities and repurchase agreements).
Some of the underlying funds in which the Portfolio invests may incur more
risk than others. For example, they may trade their portfolios more actively
(which results in higher brokerage commissions and increased realization of
taxable capital gains) and/or invest in companies whose securities are
subject to more erratic market movements. The underlying funds also may
invest up to 100% of their assets in securities of foreign issuers and
engage in foreign currency transactions with respect to these investments;
invest up to 15% of their assets in Illiquid Securities; invest their assets
in warrants; lend their portfolio securities; sell securities short; borrow
money in amounts of up to one-third of their assets for investment purposes
(i.e., leverage their portfolios); write (sell) or purchase call or put
options on securities or on stock indexes; concentrate more than 25% of
their assets in one industry; invest up to 100% of their assets in master
demand notes; and enter into futures contracts and options on futures
contracts. The risks associated with these investments are described below.
The Portfolio may invest in underlying funds which limit their corporate
bond investments to investment grade bonds which generally are considered to
be bonds rated within one of the four highest quality grades assigned by an
NRSRO, such as S&P or Moody's, or underlying funds which invest in corporate
bond investments which are unrated but are deemed by an underlying fund's
investment adviser to be of comparable quality. It may also invest in
underlying funds which invest in corporate bonds which are not considered
investment grade bonds (commonly referred to as "junk bonds") by an NRSRO,
such as Moody's or S&P, or which are unrated, and thus may carry a greater
degree of risk than bonds considered investment grade. These ratings may
indicate that the bonds are predominantly speculative with respect to the
issuer's ability to pay interest and repay principal and may indicate that
the issuer soon may be or currently is in default. The risks associated with
these investments are described below. The Portfolio will limit its direct
and indirect investment in junk bonds to less than 35% of its assets.
At times, for temporary defensive purposes when warranted by general
economic and financial conditions, the Portfolio may invest in a variety of
short-term debt securities, including U.S. Treasury bills and other U.S.
government securities, commercial paper, certificates of deposit, bankers'
acceptances and repurchase agreements with respect to such securities.
However, except when the Portfolio is in a temporary defensive investment
position or as may be considered necessary to accumulate cash in order to
satisfy minimum purchase requirements of the underlying funds or to meet
anticipated redemptions, it normally will maintain its assets invested in
underlying funds.
INVESTMENTS OF AND INVESTMENT TECHNIQUES EMPLOYED BY MUTUAL FUNDS
IN WHICH THE PORTFOLIOS MAY INVEST
ILLIQUID SECURITIES. An underlying fund may invest not more than 15% of its
total assets in securities for which there is no readily available market
("Illiquid Securities") which would include certain restricted securities
the disposition of which would be subject to legal restrictions and
repurchase agreements having more than seven days to maturity. A
considerable period of time may elapse between an underlying fund's decision
to dispose of such securities and the time when the fund is able to dispose
of them, during which time the value of the securities (and therefore the
value of the underlying fund's shares held by a Portfolio) could decline.
FOREIGN SECURITIES. An underlying fund may invest up to 100% of its assets
in securities of foreign issuers. There may be less publicly available
information about these issuers than is available about companies in the
U.S. and foreign auditing requirements may not be comparable to those in the
U.S. In addition, the value of the fund's foreign securities may be
adversely affected by fluctuations in the exchange rates between foreign
currencies and the U.S. dollar, as well as other political and economic
developments, including the possibility of expropriation, confiscatory
taxation, exchange controls or other foreign governmental restrictions. In
addition, income received by an underlying fund from sources within foreign
countries, such as dividends and interest payable on foreign securities, may
be subject to foreign taxes, including taxes withheld from payments on those
securities. Moreover, the underlying funds will generally calculate their
net asset values and complete orders to purchase, exchange or redeem shares
only on a Monday-Friday basis (excluding holidays on which the New York
Stock Exchange ("NYSE") is closed). Foreign securities in which the
underlying funds may invest may be listed primarily on foreign stock
exchanges which may trade on other days (such as Saturday or NYSE holidays).
As a result, the net asset value of an underlying fund's portfolio may be
significantly affected by such trading on days when the Adviser does not
have access to the underlying funds and shareholders of the Trust do not
have access to their respective Portfolios. Under the 1940 Act, an
underlying fund may maintain its foreign securities in custody of non-U.S.
banks and securities depositories.
INDUSTRY CONCENTRATION. An underlying fund may concentrate its investments
within one industry. Because the scope of investment alternatives within an
industry is limited, the value of the shares of such an underlying fund may
be subject to greater market fluctuation than an investment in a fund which
invests in a broader range of securities.
MASTER DEMAND NOTES. Although the Portfolios themselves will not do so,
underlying funds (particularly money market mutual funds) may invest up to
100% of their assets in master demand notes. Master demand notes are
unsecured obligations of U.S. corporations redeemable upon notice that
permit investment by a fund of fluctuating amounts at varying rates of
interest pursuant to direct arrangements between the fund and the issuing
corporation. Because they are direct arrangements between the fund and the
issuing corporation, there is no secondary market for the notes. However,
they are redeemable at face value, plus accrued interest, at any time.
REPURCHASE AGREEMENTS. Underlying funds, particularly money market funds,
may enter into repurchase agreements with banks and broker-dealers under
which they acquire securities subject to an agreement with the seller to
repurchase the securities at an agreed upon time and price. The Portfolios
also may enter into repurchase agreements. These agreements are considered
under the 1940 Act to be loans by the purchaser collateralized by the
underlying securities. If the seller should default on its obligation to
repurchase the securities, the underlying fund may experience delay or
difficulties in exercising its rights to dispose of the securities held as
collateral and might incur a loss if the value of the securities should
decline. For a more complete discussion of repurchase agreements, see
"Investment Policies" in the SAI.
LOANS OF PORTFOLIO SECURITIES. An underlying fund may lend its portfolio
securities provided it complies with the following general requirements: (i)
the loan is secured continuously by collateral consisting of U.S. government
securities or cash or cash equivalents maintained on a daily mark-to-market
basis in an amount at least equal to the current market value of the
securities loaned; (ii) the fund may at any time call the loan and obtain
the return of the securities loaned; (iii) the fund will receive any
interest or dividends paid on the loaned securities; and (iv) the aggregate
market value of securities loaned will not at any time exceed one-third of
the total assets of the fund. Loans of securities involve a risk that the
borrower may fail to return the securities or may fail to provide additional
collateral.
SHORT SALES. An underlying fund may sell securities short. In a short sale,
the fund sells stock which it does not own, making delivery with securities
"borrowed" from a broker. The fund is then obligated to replace the security
borrowed by purchasing it at the market price at the time of replacement.
This price may or may not be less than the price at which the security was
sold by the fund. Until the security is replaced, the fund is required to
pay to the lender any dividends or interest which accrue during the period
of the loan. In order to borrow the security, the fund may also have to pay
a premium which would increase the cost of the security sold. The proceeds
of the short sale will be retained by the broker, to the extent necessary to
meet margin requirements, until the short position is closed out.
The fund also must deposit in a segregated account (or earmark) an amount of
cash or U.S. government securities equal to the difference between (a) the
market value of the securities sold short at the time they were sold short
and (b) the value of the collateral deposited with the broker in connection
with the short sale (not including the proceeds from the short sale). While
the short position is open, the fund must maintain daily the segregated
account at such a level that (i) the amount deposited in it plus the amount
deposited with the broker as collateral equals the current market value of
the securities sold short and (ii) the amount deposited in it plus the amount
deposited with the broker as collateral is not less than the market value of
the securities at the time they were sold short. Depending upon market
conditions, up to 80% of the value of a fund's net assets may be deposited as
collateral for the obligation to replace securities borrowed to effect short
sales and allocated to a segregated account in connection with short sales.
The fund will incur a loss as a result of the short sale if the price of the
security increases between the date of the short sale and the date on which
the fund replaces the borrowed security. The fund will realize a gain if the
security declines in price between those dates. The amount of any gain will
be decreased and the amount of any loss increased by the amount of any
premium, dividends or interest the fund may be required to pay in connection
with a short sale.
A short sale is "against the box" if at all times when the short position is
open the fund owns an equal amount of the securities or securities
convertible into, or exchangeable without further consideration for,
securities of the same issue as the securities sold short. Such a
transaction serves to defer a gain or loss for Federal income tax purposes.
FOREIGN CURRENCY TRANSACTIONS. In connection with its portfolio transactions
in securities traded in a foreign currency, an underlying fund may enter
into forward contracts to purchase or sell an agreed upon amount of a
specific currency at a future date which may be any fixed number of days
from the date of the contract agreed upon by the parties at a price set at
the time of the contract. Under such an arrangement, concurrently with the
entry into a contract to acquire a foreign security for a specified amount
of currency, the fund would purchase with U.S. dollars the required amount
of foreign currency for delivery at the settlement date of the purchase; the
fund would enter into similar forward currency transactions in connection
with the sale of foreign securities. The effect of such transactions would
be to fix a U.S. dollar price for the security to protect against a possible
loss resulting from an adverse change in the relationship between the U.S.
dollar and the subject foreign currency during the period between the date
the security is purchased or sold and the date on which payment is made or
received, the normal range of which is three to 14 days. These contracts are
traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement and no commissions are charged at any
stage for trades. Although such contracts tend to minimize the risk of loss
due to a decline in the value of the subject currency, they tend to limit
commensurately any potential gain which might result should the value of
such currency increase during the contract period.
LEVERAGE THROUGH BORROWING. An underlying fund may borrow up to one-third of
the value of its net assets on an unsecured basis from banks to increase its
holdings of portfolio securities. Under the 1940 Act, the fund is required
to maintain continuous asset coverage of 300% with respect to such
borrowings and to sell (within three days) sufficient portfolio holdings to
restore such coverage if it should decline to less than 300% due to market
fluctuations or otherwise, even if disadvantageous from an investment
standpoint. Leveraging will exaggerate the effect of any increase or
decrease in the value of portfolio securities on the fund's net asset value,
and money borrowed will be subject to interest costs (which may include
commitment fees and/or the cost of maintaining minimum average balances)
which may or may not exceed the interest and option premiums received from
the securities purchased with borrowed funds.
WARRANTS. An underlying fund may invest in warrants, which are options to
purchase equity securities at specific prices valid for a specific period of
time. The prices do not necessarily move parallel to the prices of the
underlying securities. Warrants have no voting rights, receive no dividends
and have no rights with respect to the assets of the issuer. If a warrant is
not exercised within the specified time period, it will become worthless and
the fund will lose the purchase price and the right to purchase the
underlying security.
HIGH YIELD SECURITIES. An underlying fund may invest in high yield, high
risk securities. Investing in high yield, high risk securities (also called
"junk bonds") involves special risks in addition to the risks associated
with investments in higher rated debt securities. High yield, high risk
securities may be regarded as predominantly speculative with respect to the
issuer's continuing ability to meet principal and interest payments.
High yield, high risk securities may be more susceptible to real or
perceived adverse economic and competitive industry conditions than higher
grade securities. The prices of high yield, high risk securities have been
found to be less sensitive to interest rate changes than more highly rated
investments, but more sensitive to adverse economic downturns or individual
corporate developments. A projection of an economic downturn or of a period
of rising interest rates, for example, could cause a decline in high yield,
high risk security prices because the advent of a recession could lessen the
ability of a highly leveraged company to make principal and interest
payments on its debt securities. If the issuer of high yield, high risk
securities defaults, a fund may incur additional expenses to seek recovery.
In the case of high yield securities structured as zero coupon or
payment-in-kind securities, the market prices of such securities are
affected to a greater extent by interest rate changes, and therefore tend to
be more volatile than securities which pay interest periodically and in
cash.
The secondary markets on which high yield, high risk securities are traded
may be less liquid than the market for higher grade securities. Less
liquidity in the secondary trading markets could adversely affect and cause
large fluctuations in the daily net asset value of a fund's shares. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of high yield, high risk
securities, especially in a thinly traded market.
There may be special tax considerations associated with investing in high
yield, high risk securities structured as zero coupon or payment-in-kind
securities. A fund records the interest on these securities as income even
though it receives no cash interest until the security's maturity or payment
date. A fund will be required to distribute all or substantially all such
amounts annually and may have to obtain the cash to do so by selling
securities which otherwise would continue to be held. Shareholders will be
taxed on these distributions.
The use of credit ratings as the sole method of evaluating high yield, high
risk securities can involve certain risks. For example, credit ratings
evaluate the safety of principal and interest payments, not the market value
risk of high yield, high risk securities. Also, credit rating agencies may
fail to change credit ratings in a timely fashion to reflect events since
the security was last rated.
DERIVATIVES
An underlying fund may invest in the following instruments that are commonly
known as derivatives. Generally, a derivative is a financial arrangement,
the value of which is based on, or "derived" from, a traditional security,
asset, or market index.
OPTIONS ACTIVITIES. An underlying fund may write (i.e., sell) listed call
options ("calls") if the calls are "covered" throughout the life of the
option. A call is "covered" if the fund owns the optioned securities. When a
fund writes a call, it receives a premium and gives the purchaser the right
to buy the underlying security at any time during the call period (usually
not more than nine months in the case of common stock) at a fixed exercise
price regardless of market price changes during the call period. If the call
is exercised, the fund will forgo any gain from an increase in the market
price of the underlying security over the exercise price.
A fund may purchase a call on securities only to effect a "closing purchase
transaction" which is the purchase of a call covering the same underlying
security and having the same exercise price and expiration date as a call
previously written by the fund on which it wishes to terminate its
obligation. If the fund is unable to effect a closing purchase transaction,
it will not be able to sell the underlying security until the call
previously written by the fund expires (or until the call is exercised and
the fund delivers the underlying security).
An underlying fund also may write and purchase put options ("puts"). When a
fund writes a put, it receives a premium and gives the purchaser of the put
the right to sell the underlying security to the fund at the exercise price
at any time during the option period. When a fund purchases a put, it pays a
premium in return for the right to sell the underlying security at the
exercise price at any time during the option period. An underlying fund also
may purchase stock index puts which differ from puts on individual
securities in that they are settled in cash based on the values of the
securities in the underlying index rather than by delivery of the underlying
securities. Purchase of a stock index put is designed to protect against a
decline in the value of the portfolio generally rather than an individual
security in the portfolio. If any put is not exercised or sold, it will
become worthless on its expiration date.
A fund's option positions may be closed out only on an exchange which
provides a secondary market for options of the same series, but there can be
no assurance that a liquid secondary market will exist at a given time for
any particular option. In this regard, trading in options on certain
securities (such as U.S. government securities) is relatively new so that it
is impossible to predict to what extent liquid markets will develop or
continue.
The underlying fund's custodian, or a securities depository acting for it,
generally acts as escrow agent as to the securities on which the fund has
written puts or calls, or as to other securities acceptable for such escrow
so that no margin deposit is required of the fund. Until the underlying
securities are released from escrow, they cannot be sold by the fund.
In the event of a shortage of the underlying securities deliverable on
exercise of an option, the Options Clearing Corporation ("OCC") has the
authority to permit other, generally comparable securities to be delivered
in fulfillment of option exercise obligations. If the OCC exercises its
discretionary authority to allow such other securities to be delivered, it
may also adjust the exercise prices of the affected options by setting
different prices at which otherwise ineligible securities may be delivered.
As an alternative to permitting such substitute deliveries, the OCC may
impose special exercise settlement procedures.
FUTURES CONTRACTS. An underlying fund may enter into futures contracts for
the purchase or sale of debt securities and stock indexes. A futures
contract is an agreement between two parties to buy and sell a security or
an index for a set price on a future date. Futures contracts are traded on
designated "contract markets" which, through their clearing corporations,
guarantee performance of the contracts.
Generally, if market interest rates increase, the value of outstanding debt
securities declines (and vice versa). Entering into a futures contract for
the sale of securities has an effect similar to the actual sale of
securities, although sale of the futures contract might be accomplished more
easily and quickly. For example, if a fund holds long-term U.S. government
securities and it anticipates a rise in long-term interest rates, it could,
in lieu of disposing of its portfolio securities, enter into futures
contracts for the sale of similar long-term securities. If rates increased
and the value of the fund's portfolio securities declined, the value of the
fund's futures contracts would increase, thereby protecting the fund by
preventing the net asset value from declining as much as it otherwise would
have. Similarly, entering into futures contracts for the purchase of
securities has an effect similar to the actual purchase of the underlying
securities, but permits the continued holding of securities other than the
underlying securities. For example, if the fund expects long-term interest
rates to decline, it might enter into futures contracts for the purchase of
long-term securities so that it could gain rapid market exposure that may
offset anticipated increases in the cost of securities it intends to
purchase while continuing to hold higher-yield short-term securities or
waiting for the long-term market to stabilize.
A stock index futures contract may be used to hedge an underlying fund's
portfolio with regard to market risk as distinguished from risk relating to
a specific security. A stock index futures contract does not require the
physical delivery of securities, but merely provides for profits and losses
resulting from changes in the market value of the contract to be credited or
debited at the close of each trading day to the respective accounts of the
parties to the contract. On the contract's expiration date, a final cash
settlement occurs. Changes in the market value of a particular stock index
futures contract reflect changes in the specified index of equity securities
on which the future is based.
There are several risks in connection with the use of futures contracts. In
the event of an imperfect correlation between the futures contract and the
portfolio position which is intended to be protected, the desired protection
may not be obtained and the fund may be exposed to risk of loss. Further,
unanticipated changes in interest rates or stock price movements may result
in a poorer overall performance for the fund than if it had not entered into
futures contracts on debt securities or stock indexes.
In addition, the market prices of futures contracts may be affected by
certain factors. First, all participants in the futures market are subject
to margin deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors may close futures
contracts through offsetting transactions which could distort the normal
relationship between the securities and futures markets. Second, from the
point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
also cause temporary price distortions.
Finally, positions in futures contracts may be closed out only on an
exchange or board of trade which provides a secondary market for such
futures. There is no assurance that a liquid secondary market on an exchange
or board of trade will exist for any particular contract or at any
particular time.
OPTIONS ON FUTURES CONTRACTS. A fund also may purchase and sell listed put
and call options on futures contracts. An option on a futures contract gives
the purchaser the right, in return for the premium paid, to assume a
position in a futures contract (a long position if the option is a call and
a short position if the option is a put), at a specified exercise price at
any time during the option period. When an option on a futures contract is
exercised, delivery of the futures position is accompanied by cash
representing the difference between the current market price of the futures
contract and the exercise price of the option. The fund may purchase put
options on futures contracts in lieu of, and for the same purpose as, a sale
of a futures contract. It also may purchase such put options in order to
hedge a long position in the underlying futures contract in the same manner
as it purchases "protective puts" on securities.
As with options on securities, the holder of an option may terminate his
position by selling an option of the same series. There is no guarantee that
such closing transactions can be effected. The fund is required to deposit
initial margin and maintenance margin with respect to put and call options
on futures contracts written by it pursuant to brokers' requirements similar
to those applicable to futures contracts described above and, in addition,
net option premiums received will be included as initial margin deposits.
In addition to the risks which apply to all options transactions, there are
several special risks relating to options on futures contracts. The ability
to establish and close out positions on such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain
that this market will develop. Compared to the use of futures contracts, the
purchase of options on futures contracts involves less potential risk to the
fund because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However, there may be circumstances when the use
of an option on a futures contract would result in a loss to the fund when
the use of futures contract would not, such as when there is no movement in
the prices of the underlying securities. Writing an option on a futures
contract involves risks similar to those arising in the sale of futures
contracts, as described above.
HEDGING. An underlying fund may employ many of the investment techniques
described in this section not only for investment purposes which may be
considered speculative, but also for hedging purposes. For example, an
underlying fund may purchase or sell put and call options on common stocks
to hedge against movements in individual common stock prices, or purchase
and sell stock index futures and related options to hedge against marketwide
movements in common stock prices. Although such hedging techniques generally
tend to minimize the risk of loss that is hedged against, they also may
limit commensurately the potential gain that might have resulted had the
hedging transaction not occurred. Also, the desired protection generally
resulting from hedging transactions may not always be achieved.
INVESTMENT POLICIES AND RESTRICTIONS
The Portfolios have adopted certain fundamental investment policies (i.e.,
policies which may not be changed as to a Portfolio without the vote of a
majority of that Portfolio's outstanding shares, as defined under "Other
Information -- Voting") as well as certain investment policies which are not
fundamental and therefore may be changed by the Trustees without shareholder
approval. These policies reflect self-imposed standards or the requirements
of Federal law.
The Trust may, in the future, seek to achieve each Portfolio's investment
objective by investing all of the Portfolio's assets in a no-load,
diversified, open-end management investment company having substantially the
same investment objective as the Portfolio. Each Portfolio's investment
policies permit such an investment. Shareholders will receive prior written
notice with respect to any such investment.
Under each Portfolio's fundamental investment policies, no Portfolio may
invest more than 25% of its total assets in the securities of underlying
funds which themselves concentrate (i.e., invest more than 25% of their
assets) in any one industry. Nevertheless, through its investment in
underlying funds, a Portfolio indirectly may invest more than 25% of its
assets in one industry. The Portfolio also may not borrow money, except that
a Portfolio may, as a temporary measure for extraordinary or emergency
purposes, borrow from a bank in an amount not in excess of 5% of the
Portfolio's total assets, or pledge or hypothecate its assets, except that
the Portfolio may pledge not more than 5% of its total assets to secure such
borrowings. A Portfolio will not make additional investments at any time
during which it has outstanding borrowings.
Under each Portfolio's policies which are not fundamental, no Portfolio may
(i) invest more than 25% of its assets in the shares of any one open-end
investment company; (ii) purchase or otherwise acquire the securities of any
open-end investment company (except in connection with a merger,
consolidation, acquisition of substantially all of the assets or
reorganization of another investment company) if, as a result, a Portfolio
and all of its affiliates including the other Portfolios would own more than
3% of the total outstanding stock of that company, or (iii) purchase a
security which is not readily marketable if, as a result, more than 10% of
that Portfolio's assets would consist of such securities. For this purpose,
securities which are not readily marketable include repurchase agreements
having more than seven days to maturity (see "Investments of and Investment
Techniques Employed by Mutual Funds in Which the Portfolios May Invest") and
shares of an open-end investment company owned by the Portfolio in an amount
exceeding 1% of the issuer's total outstanding securities. See "Risks and
Other Considerations."
In addition, no Portfolio will invest more than 5% of its total assets in
the securities of an underlying fund which itself invests more than 5% of
its total assets in (i) the securities of any one issuer (excluding U.S.
government securities), (ii) securities of issuers which have been in
operation for less than three years and equity securities of issuers which
are not readily marketable or (iii) puts, calls, straddles, spreads, and
combinations thereof, and futures contracts.
Each Portfolio may invest up to 5% of its net assets in repurchase
agreements with banks and broker-dealers. This and other investment policies
and restrictions are discussed in the SAI under the heading "Investment
Policies."
The underlying funds in which a Portfolio invests may, but need not, have
the same investment policies as the Portfolio. For example, although
Aggressive Growth Portfolio will not borrow money for investment purposes,
it may invest up to 25% of its total assets in an underlying fund which
borrows money for investment purposes (i.e., engages in leveraging). The
investments which may be made by underlying funds in which the Portfolios
invest and the risks associated with those investments are described under
"Investment Objectives," "Investment Policies and Restrictions" and
"Investments of and Investment Techniques Employed by Mutual Funds in Which
the Portfolios May Invest."
RISKS AND OTHER CONSIDERATIONS
Any investment in a mutual fund involves risk and, although the Portfolios
invest in a number of underlying funds, this practice does not eliminate
investment risk. Moreover, investing through the Portfolios in an underlying
portfolio of mutual funds involves certain additional expenses and certain
tax results which would not be present in a direct investment in the
underlying funds. See "Expenses" and "Dividends, Distributions and Taxes."
A Portfolio, together with the other Portfolios and any "affiliated persons"
(as defined in the 1940 Act) may purchase only up to 3% of the total
outstanding securities of any underlying fund. For this purpose, shares of
underlying funds held by private discretionary investment advisory accounts
managed by the Adviser will be aggregated with those held by the Portfolios.
Accordingly, when affiliated persons and other accounts managed by the
Adviser hold shares of any of the underlying funds, each Portfolio's ability
to invest fully in shares of those funds is restricted, and the Adviser must
then, in some instances, select alternative investments that would not have
been its first preference.
The 1940 Act also provides that an underlying fund whose shares are
purchased by a Portfolio will be obligated to redeem shares held by the
Portfolio only in an amount up to 1% of the underlying fund's outstanding
securities during any period of less than 30 days. Shares held by a
Portfolio in excess of 1% of an underlying fund's outstanding securities,
therefore, will be considered not readily marketable securities which
together with other such securities may not exceed 10% of that Portfolio's
assets. See "Investment Policies and Restrictions." These limitations are
not fundamental investment policies and may be changed by the Trustees
without shareholder approval.
Under certain circumstances, an underlying fund may determine to make
payment of a redemption by a Portfolio wholly or partly by a distribution in
kind of securities from its portfolio, in lieu of cash, in conformity with
the rules of the SEC. In such cases, the Portfolios may hold securities
distributed by an underlying fund until the Adviser determines that it is
appropriate to dispose of such securities.
Investment decisions by the investment advisers of the underlying funds are
made independently of the Trust and its Adviser. Therefore, the investment
adviser of one underlying fund may be purchasing shares of the same issuer
whose shares are being sold by the investment adviser of another such fund.
The result of this would be an indirect expense to a Portfolio without
accomplishing any investment purpose.
Each Portfolio may purchase shares of both load and no-load underlying
funds. To the extent an underlying fund offers multiple classes of shares,
the Portfolios will purchase the share class available to it with the lowest
sales charges. However, the Portfolios will not invest in shares of
underlying funds which are sold with a contingent deferred sales charge.
Under the 1940 Act, a mutual fund must sell its shares at the price
(including sales load, if any) described in its prospectus, and current
rules under the 1940 Act do not permit negotiation of sales charges.
Therefore, a Portfolio currently is not able to negotiate the level of the
sales charges at which it will purchase shares of load funds, which may be
as great as 8.5% of the public offering price (or 9.29% of the net amount
invested). Nevertheless, when appropriate, a Portfolio will purchase such
shares pursuant to (i) letters of intent, permitting it to obtain reduced
sales charges by aggregating its intended purchases over time (generally 13
months from the initial purchase under the letter); (ii) rights of
accumulation, permitting it to obtain reduced sales charges as it purchases
additional shares of an underlying fund; and (iii) the right to obtain
reduced sales charges by aggregating its purchases of several funds within a
family of mutual funds. Based upon these privileges, it is expected that, in
the majority of cases, the sales charges paid by a Portfolio on a load fund
purchase will not exceed 1% of the public offering price (1.01% of the net
amount invested). See "Portfolio Transactions."
Under certain circumstances, a sales charge incurred by a Portfolio in
acquiring shares of an underlying fund may not be taken into account in
determining the gain or loss for federal income tax purposes on the
disposition of the shares acquired. If shares are disposed of within 90 days
from the date they were purchased and if shares of a new underlying fund are
subsequently acquired without imposition of a sales charge or imposition of
a reduced sales charge pursuant to a right granted to the Portfolio to
acquire shares without payment of a sales charge or with the payment of a
reduced charge, then the sales charge paid upon the purchase of the initial
shares will be treated as paid in connection with the acquisition of the new
underlying fund's shares rather than the initial shares.
EXPENSES
As an investor in the Portfolios, you should recognize that you may invest
directly in mutual funds and that, by investing in mutual funds indirectly
through the Portfolios, you will bear not only your proportionate share of
the expenses of the Portfolios (including operating costs and investment
advisory and administrative fees) but also, indirectly, similar expenses of
the underlying funds. If you are an investor in the Portfolios through a
managed account program and pay an advisory fee for asset allocation, you
should recognize that the combined expenses of the program and of the
Portfolios (including their indirect expenses) may involve greater fees and
expenses than present in other types of investments without the benefit of
professional asset allocation recommendations. In addition, as a Portfolio
shareholder, you will bear your proportionate share of expenses related to
the distribution of the Portfolio's Shares, see "Management of the Trust --
The Distributors," and also may indirectly bear expenses paid by an
underlying fund related to the distribution of its shares. As a Portfolio
shareholder, you also will bear your proportionate share of any sales
charges incurred by the Portfolio related to the purchase of shares of the
underlying funds. Finally, as an investor, you should recognize that, as a
result of the Portfolios' policies of investing in other mutual funds, you
may receive taxable capital gains distributions to a greater extent than
would be the case if you invested directly in the underlying funds. See
"Dividends, Distributions and Taxes."
MANAGEMENT OF FUNDMANAGER PORTFOLIOS
The business and affairs of the Trust are managed under the direction of the
Trustees. Additional information about the Trustees, as well as the Trust's
executive officers, may be found in the SAI under the heading "Management
Trustees and Officers."
THE ADVISER
Freedom Capital Management has its principal office at One Beacon Street,
Boston, Massachusetts. The Adviser advises the Trust through the M.D. Hirsch
Division of Freedom Capital Management. Michael D. Hirsch, Chairman of the
M.D. Hirsch Division of Freedom Capital Management, has provided
discretionary investment advisory services relating to investments in mutual
funds to individual accounts since 1975.
Freedom Capital Management is an indirect, wholly-owned subsidiary of JHFSC
Acquisition Corp. whose stock is held by the following companies in the
approximate percentages: Thomas H. Lee Equity Fund III, L.P. (49%), a
Massachusetts limited partnership; SCP Private Equity Partners, L.P. (13%),
a Delaware limited partnership; John Hancock Subsidiaries, Inc. (4.9%), a
wholly-owned subsidiary of John Hancock Mutual Life Insurance Company; and
certain members of management and employees of John Hancock Freedom
Securities Corporation (the direct parent of the Adviser and a subsidiary of
JHFSC Acquisition Corp.) and its subsidiaries, including the Adviser (32%).
Prior to November 29, 1996, Freedom Capital Management was an indirect,
wholly-owned subsidiary of John Hancock Mutual Life Insurance Company ("John
Hancock"). John Hancock is a major mutual life insurance company based in
Boston, Massachusetts.
Pursuant to an Investment Advisory Contract, the Adviser is responsible for
the investment management of each Portfolio's assets, including the
responsibility for making investment decisions and placing orders for the
purchase and sale of the Portfolio's investments directly with the issuers
or with brokers or dealers, selected by it in its discretion, including
Freedom Distributors and Edgewood. See "Portfolio Transactions." The Adviser
also furnishes to the Trustees, which have overall responsibility for the
business and affairs of the Trust, periodic reports on the investment
performance of the Trust. For these services, the Adviser receives from each
Portfolio a fee, payable monthly, at the annual rate of 0.50% of that
Portfolio's average daily net assets up to $500 million and 0.40% of its
average daily net assets in excess of $500 million.
Michael Hirsch is the Portfolio Manager of the Portfolios and is responsible
for the day to day management of the Portfolios. Currently, Mr. Hirsch is
Chairman of the M.D. Hirsch Division of Freedom Capital Management. Prior to
February 21, 1995, Mr. Hirsch was the Vice Chairman and Managing Director of
the M.D. Hirsch Division of Republic Asset Management. Mr. Hirsch served as
President of Hirsch from February, 1991 until June, 1993 and Chief
Investment Officer of Republic from 1981 until February, 1991. Mr. Hirsch
pioneered the concept of investing his clients' assets in a portfolio of
mutual funds in 1975. Mr. Hirsch is now a noted authority on mutual funds
and has authored two books, "Multifund Investing" in 1987 and "The Mutual
Fund Wealth Builder" in 1991.
THE ADMINISTRATOR
FAS, a wholly-owned subsidiary of Federated Investors with its principal
business offices at Federated Investors Tower, Pittsburgh, Pennsylvania
15222-3779, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the
Portfolios. FAS provides these at an annual rate which relates to the
average aggregate daily net assets of the Portfolios as specified below:
MAXIMUM
ADMINISTRATIVE AVERAGE AGGREGATE
FEE DAILY NET ASSETS
.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$75,000 per Portfolio and $35,000 per each additional class of shares. FAS
may choose voluntarily to waive a portion of its fee or minimums from time
to time in its sole discretion.
THE DISTRIBUTORS
The Trustees of the Trust have approved a Distribution Contract (the
"Distribution Contract") between the Trust and each of Edgewood, Freedom
Distributors, Tucker Anthony and Sutro pursuant to which each will serve as
a Distributor of the Trust and of the Shares of each of the Portfolios.
Pursuant to a Distribution Plan adopted by the Portfolios with respect to
the Class (the "Plan"), each Portfolio will reimburse the Distributors
monthly (subject to a limit of 0.50% per annum of the Portfolio's average
daily net assets attributable to the Class) for costs and expenses incurred
by the Distributors in connection with the distribution of Portfolio Shares
and for the provision of certain shareholder services with respect to
Portfolio Shares. Payments to the Distributors will be for various types of
activities, including: (i) payments to broker-dealers who advise
shareholders regarding the purchase, sale, or retention of Portfolio Shares
and who provide shareholders with personal services and account maintenance
services ("service fee"), (ii) payments to employees of the Distributors,
and (iii) printing and advertising expenses. Such payments by the
Distributors to broker-dealers may be in amounts up to 0.50% per annum of
each Portfolio's average daily net assets attributable to the Class,
provided, however, that the service fee will be limited to 0.25% of each
Portfolio's average daily net assets attributable to the Class. The fees and
reimbursements paid by the Portfolios to the Distributors may equal up to
0.50% of each Portfolio's average daily net assets attributable to the
Class, of which up to 0.25% of the Portfolio's average daily net assets may
be paid for shareholder servicing expenses. Salary expense of salesmen who
are responsible for marketing Shares of the Portfolios and related travel
expenses may be allocated to various Portfolios on the basis of average net
assets attributable to the Class.
Any payment by a Distributor or reimbursement of a Distributor by the
Portfolio made pursuant to the Plan is contingent upon the Trustees'
approval. Each Portfolio will not be liable for distribution and shareholder
servicing expenditures in any given year in excess of the maximum amount
(0.50% per annum of each Portfolio's average daily net assets attributable
to the Class) payable under the Plan in that year. The Plan also permits the
Distributors to receive and retain brokerage commissions with respect to
portfolio transactions for underlying funds, including funds which have a
policy of considering sales of their shares in selecting broker-dealers for
the execution of their portfolio transactions.
The Distributors may provide promotional incentives to investment executives
who support the sale of shares of the Portfolios. In some instances, these
incentives may be offered only to certain investment executives which
provide services in connection with the sale or expected sale of significant
amounts of shares.
Edgewood, a registered broker/dealer, is a wholly-owned subsidiary of
Federated Investors with principal business offices at Clearing Operations,
P.O. Box 897, Pittsburgh, Pennsylvania 15230-0897. Freedom Distributors is a
registered broker/dealer with principal business offices at One Beacon
Street, Boston, Massachusetts 02108. Tucker Anthony is a brokerage firm
which is a member of the New York Stock Exchange continuing an investment
banking and brokerage business established in 1892. The principal business
address of Tucker Anthony is One Beacon Street, Boston, Massachusetts 02108.
Sutro is brokerage firm and a member of the New York Stock Exchange. The
principal business address of Sutro is 201 California Street, San Francisco,
California 94111. Freedom Distributors, Tucker Anthony, and Sutro are
subsidiaries of John Hancock Freedom Securities Corporation. See description
of "The Adviser" above.
CUSTODIAN AND TRANSFER AGENT
The Trustees of the Trust has also approved a Custodian Agreement and a
Transfer Agency and Service Agreement (the "IBT Contracts") between the
Trust and Investors Bank & Trust Company ("IBT") pursuant to which IBT
provides custodial, portfolio accounting, transfer agency, dividend
disbursing and shareholder servicing services to the Trust and each of the
Portfolios. The principal business address of IBT is 89 South Street,
Boston, Massachusetts 02111.
SERVICE ORGANIZATIONS
The Trust also contracts with various banks, trust companies, broker-dealers
(other than the Distributors) or other financial organizations
(collectively, "Service Organizations") to provide administrative services
for the Class such as maintaining shareholder accounts and records. Each
Portfolio pays fees to Service Organizations (which vary depending upon the
services provided) in amounts up to an annual rate of 0.25% of the daily net
asset value of a Portfolio's Shares owned by shareholders with whom the
Service Organization has a servicing relationship.
Some Service Organizations may impose additional or different conditions on
their clients such as requiring their clients to invest more than the
minimum initial or subsequent investments specified by the Trust or charging
a direct fee for servicing. If imposed, these fees would be in addition to
any amounts which might be paid to the Service Organization by the Trust.
Each Service Organization has agreed to transmit to its clients a schedule
of any such fees. Shareholders using Service Organizations are urged to
consult them regarding any such fees or conditions.
OTHER EXPENSES
The Trust bears all costs of its operations other than expenses specifically
assumed by the Administrator, Distributors or the Adviser. See "Management"
in the SAI. Expenses directly attributable to a Portfolio or class are
charged to that Portfolio or class; other expenses are allocated
proportionately among the Portfolios or class, as the case may be, in
relation to the net assets of each Portfolio or class.
PORTFOLIO TRANSACTIONS
Pursuant to the Investment Advisory Contract, the Adviser places orders for
the purchase and sale of portfolio investments for a Portfolio's accounts
with brokers or dealers, selected by it in its discretion, including Freedom
Distributors and Edgewood. With respect to purchases of certain money market
instruments, purchase orders are placed directly with the issuer or its
agent. With respect to purchases of shares of underlying funds, the
Portfolio may pay a sales charge. Sales charges of the underlying funds
generally consist of two parts, the "dealer reallowance" (which typically
comprises at least 80% of the amount of the charge and is paid to the broker
participating in the sale of the underlying fund shares) and the
underwriter's retention. To the extent permissible by law, Freedom
Distributors and Edgewood will be designated as the participating brokers
entitled to receive the dealer reallowance portion of the sales charge on
purchases of load fund shares by the Portfolios. However, Freedom
Distributors will not retain any dealer reallowance in excess of 1% of the
public offering price on any transaction nor will it be designated as the
broker entitled to receive the dealer reallowance portion of the sales
charge where such reallowance would exceed 1% of the public offering price.
With respect to purchases of underlying fund shares, the Adviser directs
substantially all of the Portfolios' orders to either Freedom Distributors
or Edgewood, which may, in its discretion, direct the order to other
broker-dealers in consideration of sales of that Portfolio's shares, except
where the direction to another broker-dealer would increase the dealer
reallowance paid by a fund to Freedom Distributors above 1% of the public
offering price.
Freedom Distributors and Edgewood may also assist in the execution of a
Portfolio's purchase of underlying fund shares and they may receive
additional compensation (such as distribution payments, shareholder
servicing fees, and/or trailer fees) from the underlying funds or their
underwriters. In providing execution assistance, Freedom Distributors and
Edgewood receive orders from the Adviser; place them with the underlying
fund's distributor, transfer agent or other person, as appropriate; confirm
the trade, price and number of shares purchased; and assure prompt payment
by the Portfolio and proper completion of the order. Payment of sales
charges or other forms of compensation to Freedom Distributors or Edgewood
is not a factor that the Adviser considers when selecting an underlying fund
for purchase.
Each Portfolio is actively managed and has no restrictions upon portfolio
turnover, although its annual turnover rate is not expected to exceed 100%.
A 100% annual portfolio turnover rate would be achieved if each security in
each Portfolio's portfolio (other than securities with less than one year
remaining to maturity) were replaced once during the year. To the extent
each Portfolio is purchasing shares of load funds, a higher turnover rate
would result in correspondingly higher sales loads paid by that Portfolio.
Trading also may result in realization of net short-term capital gains which
would not otherwise be realized, and shareholders are taxed on such gains
when distributed from that Portfolio at ordinary income tax rates. See
"Dividends, Distributions and Taxes." There is no limit on the portfolio
turnover rates of the underlying funds in which the Portfolio may invest.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Portfolio is determined as of the
close of trading (normally
4:00 p.m., Eastern time) on the NYSE, Monday through Friday, except on: (i)
days on which there are not sufficient changes in the value of a Portfolio's
portfolio securities that its net asset value might be materially affected;
(ii) days during which no shares are tendered for redemption and no orders
to purchase shares are received; and (iii) the following holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, and Christmas Day. Net asset value per share is
calculated by dividing the aggregate value of a Portfolio's assets allocable
to the Class less all liabilities by the number of that Portfolio's
outstanding shares.
The assets of each Portfolio consist primarily of the underlying funds,
which are valued at their respective net asset values under the 1940 Act.
The underlying funds value securities in their portfolios for which market
quotations are readily available at their current market value (generally
the last reported sale price) and all other securities and assets at fair
value pursuant to methods established in good faith by the boards of
directors or trustees of the underlying fund. Money market mutual funds may
use the amortized cost or penny-rounding methods to value their securities.
Securities having 60 days or less remaining to maturity generally are valued
at their amortized cost which approximates market value.
Other assets of each Portfolio are valued at their current market value if
market quotations are readily available and, if market quotations are not
available, they are valued at fair value pursuant to methods established in
good faith by the Trustees. Debt instruments having 60 days or less
remaining to maturity are valued at their amortized cost.
PURCHASE OF SHARES
Shares of the Portfolios are offered by the Distributors as an investment
vehicle for individuals, institutions, corporations and fiduciaries. Shares
of the Portfolios may also be offered to participants in certain managed
account programs who receive, for a fee at a maximum annual rate based upon
a percentage of assets invested, certain services, including asset
allocation recommendations with respect to the Portfolios based on an
evaluation of their investment objectives and risk tolerances. Each
Portfolio pays expenses related to the distribution of its shares. See
"Management of the Trust -- The Distributors." Each Portfolio may invest in
underlying funds which are sold with a sales charge. Prospectuses, sales
material and applications relating to the Portfolios can be obtained from
the Distributors.
The minimum initial investment is $1,000, except that the minimum initial
investment for an IRA is $250. The minimum subsequent investment is $100.
There are no minimum investment requirements for FundManager prototype
defined contribution plans. The minimum initial investment is waived for
purchases by Trustees, officers and employees of the Trust, the Adviser or a
Distributor, including their immediate families and certain accounts. Each
Portfolio also reserves the right to vary the initial and subsequent
investment minimums. All purchase payments are invested in full and
fractional shares. The Trust and each Distributor are authorized to reject
any purchase order.
For each shareholder of record, the Trust, as the shareholder's agent,
establishes an open account to which all shares purchased are credited
together with any dividends and capital gains distributions which are paid
in additional shares. See "Dividends, Distributions and Taxes."
PURCHASES BY CLIENTS OF THE DISTRIBUTORS OR AUTHORIZED SECURITIES DEALERS
If you have a brokerage account or Program account with a Distributor or an
authorized securities dealer, you may purchase any Portfolio's Shares
through your investment executive. Your investment executive has the
responsibility of submitting your purchase order to IBT on such day in order
to obtain that day's applicable purchase price. Purchase orders received by
IBT after the time of determining that day's purchase price (generally 4:00
p.m., New York time), are priced according to the net asset value per Share
of the Portfolio next determined on the following business day. Payment for
purchase orders must be made to such Distributor or dealer within three
business days of the purchase order.
Your Distributor or dealer will receive statements and dividends directly
from the Portfolios and will in turn provide you with account statements
reflecting the Portfolios' purchases, redemptions and dividend payments. If
you wish additional information concerning your investment, please call your
investment executive.
CERTAIN SERVICE ORGANIZATIONS AND OTHER INVESTORS -- PURCHASE BY CHECK OR
WIRE
PURCHASE BY MAIL. If you do not have a brokerage account with a Distributor,
you may purchase shares of the Portfolios directly by completing the
Purchase Application included in this Prospectus and mailing it, together
with a check written on a U.S. bank in a minimum amount of $1,000 payable to
[Name of Portfolio], to Investors Bank and Trust Company, P.O. Box 1537
MFD23, Boston, MA 02205-1537. Investors wishing to purchase Shares through
their account at a Service Organization should contact the organization
directly for appropriate instructions.
Subsequent purchases of $100 or more may also be made through IBT by
forwarding payment, together with the detachable stub from your account
statement or a letter containing your account number.
PURCHASE BY WIRE. Service Organizations (on behalf of customers) may
transmit purchase payments by wire directly to the Portfolios' Custodian at
the following address:
Investors Bank and Trust Company
Boston, Massachusetts
Attn: Transfer Agent
ABA# 011001438
Acct. #796543460
For further credit to FundManager Portfolios -- Financial Adviser Class
(name of Portfolio, account name, account #).
The wire order must specify the name of the Portfolio in which the
investment is being made, the account name, number, confirmation number,
address, social security or tax identification number (where applicable),
amount to be wired, name of the wiring bank and name and telephone number of
the person to be contacted in connection with the order. Where the initial
purchase is by wire, an account number will be assigned and a Purchase
Application must be completed and mailed to the Trust.
Investors making purchases through a Service Organization should be aware
that it is the responsibility of the Service Organization to transmit orders
for purchases of shares by its customers to the Transfer Agent and to
deliver required funds on a timely basis, in accordance with the procedures
stated above.
AUTOMATIC INVESTMENT PLAN
The Trust offers a plan for regularly investing specified dollar amounts
($25 minimum in monthly, quarterly, semiannual or annual intervals) in
Shares of the Portfolios. If an Automatic Investment Plan is selected,
subsequent investments will be automatic and will continue until such time
as the Portfolio and the investor's bank are notified to discontinue further
investments. Due to the varying procedures to prepare, process and forward
the bank withdrawal information to a Portfolio, there may be a delay between
the time of the bank withdrawal and the time the money reaches the
Portfolio. The investment in the Portfolio will be made at the public
offering price per Share determined on the day that both the check and bank
withdrawal data are received in required form by the Distributor. Further
information about the plan may be obtained from IBT at the telephone number
listed on the back cover of the Prospectus.
RETIREMENT PLANS
The Trust offers Shares of each Portfolio in connection with tax-deferred
retirement plans. Application forms and further information about these
plans, including applicable fees, are available from the Trust or a
Distributor upon request. Before investing in Shares of a Portfolio through
one or more such plans, an investor should consult a tax adviser regarding
the Federal income tax treatment of contributions to retirement plans, such
as those listed below.
INDIVIDUAL RETIREMENT ACCOUNTS ("IRAs")
Shares of the Portfolios may be used as a funding medium for an IRA. An
Internal Revenue Service-approved IRA plan is available from each
Distributor naming IBT as custodian. The minimum initial investment for an
IRA is $250; the minimum subsequent investment is $100. IRAs are available
to individuals who receive compensation or earned income and their spouses
whether or not they are active participants in a tax-qualified or
government-approved retirement plan. An IRA contribution by an individual
who participates, or whose spouse participates, in a tax-qualified or
government-approved retirement plan may not be deductible depending upon the
individual's income. Individuals also may establish an IRA to receive a
"rollover" contribution of distributions from another IRA or a qualified
plan. Tax advice should be obtained before planning a rollover.
DEFINED CONTRIBUTION PLAN
Investors who are self-employed may purchase Shares of the Portfolios for
retirement plans for self-employed persons which are known as Defined
Contribution Plans (formerly Keogh or H.R. 10 Plans). The Class offers a
prototype Defined Contribution Plan for Money Purchase or Profit Sharing
Plans, 401(k) Plans, Simplified Employee Pension Plans (SEPs) and SAR
(SEPs).
Section 401(k) Plan
Shares of the Portfolios may be used as a vehicle for a cash or deferred
arrangement designed to qualify under Section 401(k) of the Internal Revenue
Code of 1986, as amended (the "Code").
Section 403(b) Plan
Shares of the Portfolios may be used as vehicle for certain deferred
compensation plans designed to qualify under Section 403(b) of the Code for
use by employees of certain educational, non-profit hospital and charitable
organizations.
Section 457 Plan
Shares of the Portfolios may be used as a vehicle for certain deferred
compensation plans provided for by Section 457 of the Code with respect to
service for state governments, local governments, rural electric
cooperatives and political subdivisions, agencies, instrumentalities and
certain affiliates of such entities which enjoy special treatment.
EXCHANGE PRIVILEGE
By contacting their brokerage account executive, service organization or
transfer agent, shareholders may exchange some or all of their Portfolio
Shares for Shares of one or more other Portfolios or the Freedom Cash
Management Fund ("Fund") at net asset value. An exchange may result in a
change in the number of shares held, but not in the value of such shares,
immediately after the exchange. Each exchange involves the redemption of the
Portfolio or Fund Shares to be exchanged and the purchase of the Shares of
the other Portfolio or Fund. As a result, any gain or loss on the redemption
of the shares exchanged is reportable on the shareholder's Federal income
tax return. The exchange privilege (or any aspect of it) may be changed or
discontinued upon 60 days' written notice to shareholders and is available only
to shareholders in states where such exchanges may be legally made. A
shareholder considering an exchange should obtain and read the prospectus of
the Portfolios or Fund and consider the differences in investment objectives
and policies before making any exchange.
For further information as to how to purchase or exchange shares, an
investor should contact their Service Organization or Transfer Agent.
REDEMPTION OF SHARES
Upon receipt by the Trust of a redemption request in proper form, shares of
a Portfolio will be redeemed at the next determined net asset value. See
"Determination of Net Asset Value." For the shareholder's convenience, the
Trust has established several different direct redemption procedures.
REDEMPTION OF SHARES PURCHASED THROUGH A DISTRIBUTOR OR AUTHORIZED
SECURITIES DEALER
In order to redeem your shares purchased through a brokerage account, you
should advise your investment executive, by telephone or mail, to execute
the redemption. Redemption requests received by the close of the NYSE
(generally 4:00 p.m., New York time), are effective that day. Your
investment executive has the responsibility of submitting your redemption
request to IBT on such day in order to obtain that day's applicable
redemption price. There is no redemption charge. Redemption proceeds will be
held in your brokerage account unless you give instructions to your
investment executive to remit the proceeds to you.
DIRECT REDEMPTION
Direct redemptions are not available for shares purchased through a
Distributor's brokerage account. Any such redemption requests received will
be forwarded to your investment executive who will process them as described
above.
Redemptions may be made by letter to the Trust specifying the dollar amount
or number of shares to be redeemed, account number and the applicable
Portfolio. The letter must be signed in exactly the same way the account is
registered (if there is more than one owner of the shares, all must sign)
and all signatures must be guaranteed by an Eligible Guarantor Institution,
which includes a domestic bank, broker, dealer, credit union, national
securities exchange, registered securities association, clearing agency or
savings association. The Portfolios' transfer agent, however, may reject
redemption instructions if the guarantor is neither a member of nor a
participant in a signature guarantee program (currently known as "STAMP,"
"SEMP," or "NYSE MSP"). Corporations, partnerships, trusts or other legal
entities may be required to submit additional documentation.
An investor may redeem shares in any amount by written request mailed to the
Trust at the following address:
FundManager Portfolios
c/o Investors Bank & Trust Company
P.O. Box 1537 MFD23
Boston, Massachusetts 02205-1537
If shares to be redeemed are held in certificate form, the certificates must
be enclosed with the letter. Do not sign the certificates and for protection
use registered mail.
Checks for redemption proceeds normally will be mailed within three days,
but will not be mailed until all checks in payment for the purchase of the
shares to be redeemed have been cleared, which may take up to 15 days.
Unless other instructions are given in proper form, a check for the proceeds
of a redemption will be sent to the shareholder's address of record.
REDEMPTION BY WIRE OR TELEPHONE
An investor may redeem Portfolio Shares by wire or by telephone if the
investor has checked the appropriate box on the Purchase Application or has
filed a Telephone Authorization Form with the Portfolios. These redemptions
may be paid by the Portfolios by wire or by check. The Trust reserves the
right to refuse telephone wire redemptions and may limit the amount involved
or the number of telephone redemptions. The telephone redemption procedure
may be modified or ended at any time by the Trust. Instructions for wire
redemptions are set forth in the Purchase Application. The Trust employs
reasonable procedures to confirm that instructions communicated by telephone
are genuine. For instance, the following information must be verified by the
shareholder or broker at the time a request for a telephone redemption is
effected: (i) shareholder's account number; (ii) shareholder's social
security number; and (iii) name and account number of shareholder's
designated securities dealer or bank. If the Trust fails to follow these or
other established procedures, it may be liable for any losses due to
unauthorized or fraudulent instructions.
A Service Organization may request a wire redemption, provided a Wire
Authorization Form is on file with the Trust. There is no charge to the
Service Organization for wire redemptions. The proceeds of a wire redemption
will be sent to an account with a Service Organization designated on the
appropriate form. The Trust reserves the right to restrict or terminate wire
redemption privileges. Proceeds of wire redemptions generally will be
transferred within three days after receipt of the request.
The Trust may suspend the right of redemption during any period when (i)
trading on the NYSE is restricted or the NYSE is closed, other than
customary weekend and holiday closings, (ii) the SEC has by order permitted
such suspension or (iii) an emergency, as defined by rules of the SEC,
exists making disposal of portfolio investments or determination of the
value of the net assets of the Portfolios not reasonably practicable.
If the Trustees should determine that it would be detrimental to the best
interests of the remaining shareholders of a Portfolio to make payment
wholly or partly in cash, that Portfolio may pay the redemption price in
whole or in part by a distribution in kind of readily marketable securities
(mutual fund shares or money market instruments) from the portfolio of that
Portfolio, in lieu of cash, in conformity with applicable rules of the SEC.
The Trust will, however, redeem shares solely in cash up to the lesser of
$250,000 or 1% of its net assets during any 90-day period for any one
shareholder.
The proceeds of redemption may be more or less than the amount invested and,
therefore, a redemption may result in a gain or loss for Federal income tax
purposes.
Because the Portfolios incur fixed costs in maintaining shareholder
accounts, the Portfolios reserve the right to redeem your account if its
total value falls below $500 at the end of any month, unless the decrease is
solely the result of a reduction in net asset value per share. If a
Portfolio elects to redeem your account, it will notify you of its intention
to do so and will provide you with an opportunity to increase your account
by investing a sufficient amount to bring the account up to $500 or more
within 30 days of the notice.
SYSTEMATIC WITHDRAWAL PLAN
Any shareholder who owns shares of a Portfolio with an aggregate value of
$10,000 or more may establish a Systematic Withdrawal Plan under which the
shareholder redeems at net asset value the number of full and fractional
shares which will produce the monthly, quarterly, semi-annual or annual
payments specified (minimum $50 per payment). Depending on the amounts
withdrawn, systematic withdrawals may deplete the investor's principal.
Investors contemplating participation in this Plan should consult their tax
advisers. No additional charge to the shareholder is made for this service.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Portfolio intends to continue to qualify as a regulated investment
company under Subchapter M of the Code. In any year in which a Portfolio
qualifies as a regulated investment company and distributes substantially
all of its investment company taxable income (which includes, among other
items, the excess of net short-term capital gains over net
long-term capital losses) and its net capital gains (the excess of net
long-term capital gains over net short-term capital losses), the Portfolio
will not be subject to Federal income tax to the extent it distributes to
shareholders such income and capital gains in the manner required under the
Code. Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax.
To prevent imposition of the excise tax, each Portfolio must distribute for
each calendar year an amount equal to the sum of (i) at least 98% of its net
ordinary income (excluding any capital gains or losses) for the calendar year,
(ii) at least 98% of the excess of its capital gains over capital losses
(adjusted for certain ordinary losses) realized during the one-year period
ending October 31 of such year, and (iii) all ordinary income and capital gains
for previous years that were not distributed during such years. If a
distribution is declared by the Portfolio in December to shareholders of record
as of a specified date in December and paid by the Portfolio during January of
the following calendar year, the distribution will be treated as a dividend
paid during the calendar year. Such distributions will be taxable to
shareholders in the calendar year in which the distributions are declared,
rather than the calendar year in which the distributions are received. The
Portfolio intends to distribute its income in accordance with this requirement
to prevent application of the excise tax.
Each year the Trust will notify shareholders of the tax status of dividends
and distributions.
Income received by a Portfolio from a mutual fund in that Portfolio's
portfolio (including dividends and distributions of short-term capital
gains), as well as interest received on money market instruments and net
short-term capital gains received by the Portfolio on the sale of mutual
fund shares, will be distributed by the Portfolio (after deductions for
expenses) and will be taxable to shareholders as ordinary income. Because
the Portfolios are actively managed and can realize taxable net short-term
capital gains by selling shares of an underlying fund with unrealized
portfolio appreciation, investing in the Portfolio rather than directly in
the underlying funds may result in increased tax liability to the
shareholder, since the Portfolio must distribute its gain in accordance with
the rules in the Code. The Portfolio's ability to dispose of shares of
mutual funds held less than three months may be limited by requirements
relating to a Portfolio's qualification as a regulated investment company
for federal income tax purposes.
Distributions of net capital gains (the excess of net long-term capital
gains over net short-term capital losses) received by a Portfolio from
mutual funds, as well as net long-term capital gains realized by a Portfolio
from the purchase and sale (or redemption) of mutual fund shares or other
securities held (generally) by a Portfolio for more than one year, will be
distributed by the Portfolio and will be taxable to shareholders as
long-term capital gains (even if the shareholder has held the Shares for
less than one year). However, if you receive a capital gains distribution
and suffer a loss on the sale of your shares not more than six months after
purchase, the loss will be treated as a long-term capital loss to the extent
of the capital gains distribution received. The long-term capital gains,
including distributions of net capital gains are currently subject to a
maximum federal tax rate of 28% which is less than the maximum rate imposed
on other types of taxable income. Furthermore, capital gains may be
advantageous because, unlike ordinary income, they may be offset by capital
losses.
For purposes of determining the character of income received by the
Portfolio when an underlying fund distributes net capital gains to the
Portfolio, the Portfolio will treat the distribution as a long-term capital
gain, even if it has held shares of the mutual fund for less than one year.
However, any loss incurred by the Portfolio on the sale of that underlying
fund's shares held for six months or less will be treated as a long-term
capital loss to the extent of the gain distribution.
The tax treatment of distributions from a Portfolio is the same whether the
distributions are received in additional shares or in cash. Shareholders
receiving distributions in the form of additional shares will have a cost
basis for Federal income tax purposes in each share received equal to the
net asset value of a share of the Portfolio on the reinvestment date.
A Portfolio may invest in underlying funds with capital loss carry-forwards.
If such an underlying fund realizes capital gains, it will be able to offset
the gains to the extent of its loss carry-forwards in determining the amount
of capital gains which must be distributed to its shareholders. To the
extent that gains are offset in this manner, the Portfolio will not realize
gains on the related fund until such time as the underlying fund is sold.
Depending on the residence of the shareholder for tax purposes,
distributions also may be subject to state and local taxes, including
withholding taxes. Shareholders should consult their own tax advisers as to
the tax consequences of ownership of shares of the Portfolios in their
particular circumstances.
The Portfolios generally will be required to withhold Federal income tax at
a rate of 31% ("backup withholding") from dividends paid to shareholders if
(a) the payee fails to furnish the Trust with and to certify the payee's
correct taxpayer identification number or social security number, (b) the
Internal Revenue Service (the "IRS") notifies the Trust that the payee has
failed to report properly certain interest and dividend income to the IRS
and to respond to notices to that effect or (c) the payee fails to certify
that he or she is not subject to backup withholding.
Aggressive Growth Portfolio will distribute investment company taxable
income annually; Growth Portfolio will distribute investment company taxable
income semi-annually; Growth with Income Portfolio and Managed Total Return
Portfolio will distribute investment company taxable income quarterly; and
Bond Portfolio will distribute investment company taxable income monthly.
Each Portfolio will distribute any net realized capital gains at least
annually. All dividends and distributions will be reinvested automatically
at net asset value in additional shares of the Portfolio making the
distribution, unless you have notified the Portfolio in writing of your
election to receive distributions in cash.
OTHER INFORMATION
Capitalization
The Trust (initially named FundManager Trust, and since renamed FundManager
Portfolios) was organized as a Delaware business trust on February 7, 1995
as a successor, with respect to the Portfolios, to Republic Funds (formerly
FundTrust) a Massachusetts business trust (organized on April 22, 1987).
Republic Funds succeeded two previously existing Massachusetts business
trusts, FundTrust Tax-Free Trust (organized on July 30, 1986) and FundVest
(organized on July 17, 1984 and since renamed Fund Source). The Trust
currently consists of five separately-managed portfolios each offering two
classes of shares of beneficial interest, the Financial Adviser Class and
the No-Load Class (except for Managed Total Return, which only offers
Financial Adviser Class). The Trustees may establish additional portfolios
and divide shares in each portfolio into additional classes in the future.
The capitalization of the Trust consists solely of an unlimited number of
shares of beneficial interest with a par value of $0.001 each. When issued,
shares of the Portfolios are fully paid, non-assessable and freely
transferable.
Voting
Shareholders have the right to vote in the election of Trustees and on any
and all matters on which by law or the provisions of the Master Trust
Agreement they may be entitled to vote. When matters are submitted for
shareholder vote, shareholders will have one vote for each full share held
and proportionate, fractional votes for fractional shares held. A separate
vote of a Portfolio or class is required on any matter affecting that
Portfolio or class on which shareholders are entitled to vote. Shareholders
of a Portfolio or class are not entitled to vote on Trust matters that do
not affect the Portfolio or class and do not require a separate vote of the
Portfolio or class. The Trust is not required to hold regular annual
meetings of its shareholders and does not intend to do so. See "Other
Information -- Voting Rights" in the SAI. As of January 8, 1997, Turtle &
Co. FC1202, c/o State Street Bank & Trust Company, P.O. Box 9242, Boston, MA
02209, was the owner of record of 25.72% of the voting securities of the
Growth Portfolio, and therefore, may, for certain purposes be deemed to
control the Portfolio and be able to affect the outcome of certain matters
presented for a vote of shareholders. As of January 8, 1997, Turtle & Co.
FC1202, c/o State Street Bank & Trust Company, P.O. Box 9242, Boston, MA
02209, was the owner of record of 25.66% of the voting securities of the
Growth with Income Portfolio, and therefore, may, for certain purposes be
deemed to control the Portfolio and be able to affect the outcome of certain
matters presented for a vote of shareholders. As of January 8, 1997, Turtle
& Co. FC1202, c/o State Street Bank & Trust Company, P.O. Box 9242, Boston,
MA 02209, was the owner of record of 73.98% of the voting securities of the
Bond Portfolio, and therefore, may, for certain purposes be deemed to
control the Portfolio and be able to affect the outcome of certain matters
presented for a vote of shareholders.
The Master Trust Agreement provides that the holders of not less than
three-fourths of the outstanding shares of the Trust may remove a person
serving as Trustee either by declaration in writing or at a meeting called
for such purpose. The Trustees are required to call a meeting for the
purpose of considering the removal of a person serving as Trustee if
requested in writing to do so by the holders of not less than 10% of the
outstanding shares of the Trust.
Shares entitle their holders to one vote per share (with proportionate
voting for fractional shares). As used in this Prospectus, the phrase "vote
of a majority of the outstanding shares" of the Trust, Portfolio or Class
means the vote of the lesser of: (i) 67% of the shares of the Trust,
Portfolio or Class present at a meeting if the holders of more than 50% of
the outstanding shares of the Trust, Portfolio or Class are present in
person or by proxy or (ii) more than 50% of the outstanding shares of the
Trust, Portfolio or Class.
In compliance with applicable provisions of the 1940 Act, shares of the
underlying funds owned by the Portfolios will be voted in the same
proportion as the vote of all other holders of those shares.
Performance Information
The Trust may, from time to time, include quotations of the Portfolios'
yield and total return in advertisements or reports to shareholders or
prospective investors. Quotations of yield will be based on the investment
income per share earned during a particular 30-day period (including
dividends and interest), less expenses accrued during the period ("net
investment income"), and will be computed by dividing net investment income
by the maximum public offering price per share on the last day of the
period. Quotations of total return will be expressed in terms of the average
annual compounded rate of return of a hypothetical investment in the
Portfolio over periods of 1, 5 and 10 years (up to the life of such
Portfolio). All total return figures will reflect a proportional share of
Portfolio expenses on an annual basis, and will assume that all dividends
and distributions are reinvested when paid. Quotations of yield or total
return reflect only the performance of a hypothetical investment in the
Portfolio during the particular time period on which the calculations are
based. Yield and total return for a Portfolio will vary based on changes in
market conditions and the level of such Portfolio's expenses, and no
reported performance figure should be considered an indication of
performance which may be expected in the future.
For the period prior to its establishment, the Class has adopted the
performance of the Predecessor Portfolios. The performance for this period
will reflect the deduction of expenses set forth in the Portfolio Expense
Table. See " Portfolio Expenses."
In connection with communicating the Portfolios' yield and total return to
current or prospective shareholders, the Trust also may compare these
figures to the performance of other mutual funds tracked by mutual fund
rating services or to other unmanaged indexes which may assume reinvestment
of dividends but generally do not reflect deductions for administrative and
management costs and expenses.
For a more detailed description of the methods used to calculate each
Portfolio's yield and total return, see the SAI.
OTHER CLASSES OF SHARES
The Aggressive Growth Portfolio, Growth Portfolio, Growth with Income
Portfolio and Bond Portfolio also offer another class of shares called
No-Load Class shares. No-Load Class shares are sold at net asset value to
participants in the FundManager Advisory Program (the "Program"). The
Program is an investment advisory service that directly provides to
investors asset allocation recommendations with respect to the Portfolios
based on an evaluation of an investor's investment objectives and risk
tolerances. The minimum investment by participants in the Program is
$50,000. The minimum initial investment for other qualified investors of
each Portfolio is $1,000, and the minimum subsequent investment is $100
except that the minimum initial investment for an Individual Retirement
Account ("IRA") is $250.
Both classes are subject to certain of the same expenses. However, No-Load
Class shares are distributed without 12b-1 fees.
Expense differences between classes may affect the performance of each
class.
SHAREHOLDER INQUIRES
All shareholder inquires should be directed to your investment executive or
financial adviser, or call (800) 344-9033 (Toll Free).
DESCRIPTION OF BOND RATINGS
Excerpts from Moody's description of its bond ratings: Aaa -- judged to be
the best quality. They carry the smallest degree of investment risk; Aa --
judged to be of high quality by all standards. Together with the Aaa group
they comprise what are generally known as high grade bonds; A -- possess
many favorable investment attributes and are to be considered as "upper
medium grade obligations"; Baa -- 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; Ba -- judged to have speculative elements,
their future cannot be considered as well assured; B -- generally lack
characteristics of the desirable investment; Caa -- are of poor standing.
Such issues may be in default or there may be present elements of danger
with respect to principal or interest; Ca -- speculative in a high degree;
often in default; C -- lowest rated class of bonds; regarded as having
extremely poor prospects.
Moody's also supplies numerical indicators 1, 2 and 3 to rating categories.
The modifier 1 indicates that the security is in the higher end of its
rating category; the modifier 2 indicates a mid-range ranking; and 3
indicates a ranking toward the lower end of the category.
Excerpts from S&P's description of its bond ratings: AAA -- highest grade
obligations. Capacity to pay interest and repay principal is extremely
strong; AA -- also qualify as high grade obligations. A very strong capacity
to pay interest and repay principal and differs from AAA issues only in a
small degree; A -- regarded as upper medium grade. They have a strong
capacity to pay interest and repay principal although it is somewhat more
susceptible to the
adverse effects of changes in circumstances and economic conditions than
debt in higher rated categories; BBB -- 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. This group is the lowest which qualifies for commercial bank
investment. BB, B, CCC, CC -- predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with terms of the
obligations; BB indicates the lowest degree of speculation and CC the
highest.
S&P applies indicators "+", no character, and "-" to its rating categories.
The indicators show relative standing within the major rating categories.
FUNDMANAGER PORTFOLIOS
THE FIRST FAMILY IN MULTIFUND INVESTING
INVESTMENT ADVISER
Freedom Capital Management
Corporation
M.D. Hirsch Division
One World Financial Center
New York, NY 10281
DISTRIBUTORS
Tucker Anthony, Incorporated
200 World Financial Center
New York, NY 10281
Sutro & Co., Inc.
201 California Street
San Francisco, CA 94111
FUNDMANAGER PORTFOLIOS
THE FIRST FAMILY IN MULTIFUND INVESTING
PROSPECTUS
JANUARY 24, 1997
Aggressive Growth Portfolio
Growth Portfolio
Growth with Income Portfolio
Bond Portfolio
G01966-01 (1/97)
FUNDMANAGER PORTFOLIOS -- NO-LOAD CLASS
(FORMERLY, FUNDMANAGER TRUST)
ONE BEACON STREET, BOSTON, MASSACHUSETTS 02108
GENERAL INFORMATION: (800) 344-9033 (TOLL FREE)
FundManager Portfolios (the "Trust") is an open-end management investment
company consisting of five separate diversified series with different
investment objectives. This Prospectus describes four diversified series
(individually and collectively referred to as "Portfolio" or "Portfolios,"
as the context requires) of the Trust. Each Portfolio offers two classes of
shares. The shares offered by this Prospectus are the No-Load class (the
"Class") of shares ("Shares"). The Portfolios seek to achieve their
objectives by investing in shares of other open-end investment companies
commonly called mutual funds. This policy involves certain expenses in
addition to those applicable to direct investment in mutual funds. See
"Risks and Other Considerations -- Expenses." The M.D. Hirsch Division of
Freedom Capital Management Corporation ("Freedom Capital Management" or the
"Adviser") continuously manages each Portfolio's investment portfolio.
AGGRESSIVE GROWTH PORTFOLIO (FORMERLY, AGGRESSIVE GROWTH FUND) SEEKS CAPITAL
APPRECIATION WITHOUT REGARD TO CURRENT INCOME.
GROWTH PORTFOLIO (FORMERLY, GROWTH FUND) PRIMARILY SEEKS LONG-TERM CAPITAL
APPRECIATION. CURRENT INCOME IS A SECONDARY CONSIDERATION.
GROWTH WITH INCOME PORTFOLIO (FORMERLY, GROWTH & INCOME FUND) SEEKS A
COMBINATION OF CAPITAL APPRECIATION AND CURRENT INCOME.
BOND PORTFOLIO (FORMERLY, BOND FUND, AND BEFORE THAT, INCOME FUND) SEEKS A
HIGH LEVEL OF CURRENT INCOME.
Shares of the Portfolios are only offered for sale at net asset value by
Tucker Anthony Incorporated ("Tucker Anthony") and Sutro & Co. Incorporated
("Sutro")(collectively, the "Distributors") to participants in the
FundManager Advisory Program (the "Program"). In addition to Tucker Anthony
and Sutro, Freedom Distributors Corporation ("Freedom Distributors") and
Edgewood Services, Inc. ("Edgewood") serve as co-distributors for the
Portfolios. The Program is an investment advisory service that directly
provides to investors asset allocation recommendations with respect to the
Portfolios based on an evaluation of an investor's investment objectives and
risk tolerances. See "Purchase of Shares." In addition, the Portfolios may
invest in shares of mutual funds which charge sales loads and/or pay their
own distribution expenses.
INVESTMENTS IN THE PORTFOLIOS ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. SHARES OF THE PORTFOLIOS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE PORTFOLIOS IS
SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT
INVESTED.
This prospectus sets forth concisely the information a prospective investor
should know before investing in the Portfolios. A Statement of Additional
Information (the "SAI") dated January 24, 1997, and as supplemented from
time to time containing additional and more detailed information about the
Portfolios has been filed with the Securities and Exchange Commission
("SEC") and is hereby incorporated by reference into this prospectus. You
may request a copy of the SAI, or a paper copy of this prospectus, if you
have received your prospectus electronically, free of charge by writing or
calling the Trust at the address and information number printed above. The
SAI, material incorporated by reference into this document, and other
information regarding the Portfolios is maintained electronically with the
SEC at internet web site (http://www.sec.gov).
This Prospectus should be read and retained for information about the
Portfolios.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JANUARY 24, 1997.
TABLE OF CONTENTS
HIGHLIGHTS 1
PORTFOLIO EXPENSES 3
Financial Highlights 4
FUNDMANAGER PORTFOLIOS 7
INVESTMENT OBJECTIVES 7
Investments of and Investment Techniques Employed by Mutual Funds in
which the Portfolios May Invest
10
Derivatives 13
Investment Policies and Restrictions 15
RISKS AND OTHER CONSIDERATIONS 16
Expenses 17
MANAGEMENT OF FUNDMANAGER PORTFOLIOS 18
The Adviser 18
The Administrator 19
The Distributors 19
Custodian and Transfer Agent 19
Other Expenses 19
Portfolio Transactions 20
Determination of Net Asset Value 20
PURCHASE OF SHARES 21
Purchases by Clients of the Distributors
or Authorized Securities Dealers 21
FundManager Advisory Program 22
REDEMPTION OF SHARES 22
Redemption of Shares Purchased
Through a Distributor 22
Direct Redemption 22
DIVIDENDS, DISTRIBUTIONS AND TAXES 23
Other Information 25
Other Classes of Shares 26
Shareholder Inquiries 26
Description of Bond Ratings 26
HIGHLIGHTS
FUNDMANAGER PORTFOLIOS PAGE 7
Aggressive Growth Portfolio, Growth Portfolio, Growth with Income Portfolio
and Bond Portfolio are series of the Trust, a Delaware business trust. Each
Portfolio seeks to achieve its investment objective by investing in mutual
funds registered with the SEC.
INVESTMENT OBJECTIVES PAGE 7
Each Portfolio has distinct investment objectives. Aggressive Growth
Portfolio seeks capital appreciation without regard to current income.
Growth Portfolio primarily seeks capital appreciation with current income a
secondary consideration. Growth with Income Portfolio seeks a combination of
capital appreciation and current income. Bond Portfolio seeks a high level
of current income. The mutual funds in which the Portfolios invest may
invest in securities which entail certain risks. These risks are described
in "Investments of and Investment Techniques employed by Mutual Funds in
Which the Portfolios May Invest."
RISKS AND OTHER CONSIDERATIONS PAGE 16
Investing through a Portfolio in an underlying portfolio of mutual funds
involves certain additional expenses and certain tax results which would not
be present in a direct investment in mutual funds. See "Expenses" and
"Dividends, Distributions and Taxes." In addition, Federal law imposes
certain limits on the purchases of mutual fund shares by the Portfolios.
MANAGEMENT OF FUNDMANAGER PORTFOLIOS PAGE 18
The Trust has retained Freedom Capital Management to act as its investment
adviser. For its services, the Adviser receives from each Portfolio a fee at
the annual rate of 0.50% of the Portfolio's average daily net assets up to
$500 million and 0.40% of its average daily net assets in excess of $500
million. See "The Adviser."
The Trust has retained Federated Administrative Services ("FAS") to provide
certain management and administrative services to the Portfolios. For these
services, each Portfolio pays FAS a fee at the annual rate of 0.150% of the
first $250 million of that Portfolio's average daily net assets, 0.125% of
the next $250 million of such assets, 0.100% of the next $250 million of
such assets, and 0.075% of such assets in excess of $750 million. See "The
Administrator." In addition, Freedom Distributors and Edgewood may receive
additional compensation in connection with the Portfolios' purchases of
mutual funds. See "Portfolio Transactions."
PURCHASE OF SHARES PAGE 21
Purchases of shares of the Trust by participants in the Program must be
through a brokerage account maintained with the Distributors. The minimum
investment by participants in the Program is $50,000. The minimum initial
investment for other qualified investors of each Portfolio is $1,000, and
the minimum subsequent investment is $100, except that the minimum initial
investment for an Individual Retirement Account ("IRA") is $250.
REDEMPTION OF SHARES PAGE 22
Shares may be redeemed at their next determined net asset value. See
"Determination of Net Asset Value." Redemptions may be made by letter or
wire. The Trust reserves the right to redeem, upon not less than 30 days'
notice, all shares of a Portfolio in an account (other than an IRA) which
has a value below $50.
DIVIDENDS, DISTRIBUTIONS AND TAXES PAGE 23
Aggressive Growth Portfolio will distribute net investment income annually;
Growth Portfolio will distribute net investment income semiannually; Growth
with Income Portfolio will distribute net investment income quarterly; and
Bond Portfolio will distribute its net investment income monthly. Each
Portfolio will distribute any net realized capital gains at least annually.
All dividends and distributions generally will be reinvested automatically
at net asset value in additional shares of the Portfolio making the
distribution.
PORTFOLIO EXPENSES
THE FOLLOWING TABLE ILLUSTRATES THE EXPENSES AND FEES THAT A SHAREHOLDER OF
EACH PORTFOLIO WILL INCUR.
ANNUAL NO-LOAD CLASS OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<CAPTION>
GROWTH
AGGRESSIVE WITH
GROWTH GROWTH INCOME BOND
PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C>
PORTFOLIO
Management Fees 0.50% 0.50% 0.50% 0.50%
Distribution and shareholder service expenses None None None None
Other Expenses 0.50% 0.65% 0.65% 0.40%
Total Portfolio Operating Expenses 1.00% 1.15% 1.15% 0.90%
</TABLE>
Total Portfolio Operating Expenses in the table above are based on expenses
expected during the fiscal year ending September 30, 1997. The total
portfolio operating expenses were 1.15%, 1.30%, 1.28%, and 0.99% for the
Aggressive Growth Portfolio, Growth Portfolio, Growth with Income Portfolio
and Bond Portfolio, respectively, for the fiscal year ended September 30,
1996. The total portfolio operating expenses would have been 1.21%, 1.36%,
1.34% and 1.04% for the Aggressive Growth Portfolio, Growth Portfolio,
Growth with Income Portfolio and Bond Portfolio, respectively, for the
fiscal year ended September 30, 1996, absent the voluntary waiver of a
portion of the administrative fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder will bear, either directly or
indirectly. For more complete descriptions of the various costs and
expenses, see "Management of FundManager Portfolios." Wire-transferred
redemptions may be subject to an additional fee.
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period. The
Portfolio charges no redemption fees.
<TABLE>
<CAPTION>
GROWTH
AGGRESSIVE WITH
GROWTH GROWTH INCOME BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C>
1 year $ 10 $ 12 $ 12 $ 9
3 years $ 32 $ 37 $ 37 $ 29
5 years $ 55 $ 63 $ 63 $ 50
10 years $122 $140 $140 $111
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
Currently, the Portfolios, offer by a separate prospectus, another class of
shares which are sold at net asset value by Edgewood, Freedom Distributors,
Tucker Anthony and Sutro, and which pay expenses related to the distribution
of such shares. Because the expenses vary between the classes, performance
will vary with respect to each class. Additional information and a
prospectus concerning the Portfolios' other class of shares may be obtained
by calling toll-free (800) 344-9033.
FINANCIAL HIGHLIGHTS
The Portfolios' financial data through September 30, 1996, shown below is to
assist investors in evaluating the performance of each Portfolio. The
following tables have been audited by Ernst & Young LLP, the Portfolios'
Independent Auditors. Their report, dated November 21, 1996, on the Portfolios'
financial statements for the year then ended September 30, 1996, and the
following tables for the period presented, is included in the Annual Report,
which is incorporated by reference. These tables should be read in conjunction
with the Portfolios' financial statements and notes thereto, which are
contained in the Annual Report. Further information about the Portfolios'
performance also is contained in the Portfolios' Annual Report, dated
September 30, 1996, which can be obtained free of charge.
AGGRESSIVE GROWTH PORTFOLIO -- NO-LOAD CLASS
<TABLE>
<CAPTION>
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE: YEAR ENDED
SEPTEMBER 30, 1996
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 18.31
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) 0.04
Net realized and unrealized gain on investments 1.83
Total from investment operations 1.87
LESS DISTRIBUTIONS
Distributions from net investment income (0.38)
Distributions from net realized gain on investments+ (2.89)
Total distributions (3.27)
NET ASSET VALUE, END OF PERIOD $16.91
Total return(b) 12.77%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $ 1,432
Ratio of expenses to average net assets 1.15%
Ratio of net investment income to average net assets 0.24%
Ratio of waiver to average net assets(c) 0.06%
Portfolio turnover 158%
</TABLE>
+ Paid from realized net short-term gain $ 0.27
GROWTH PORTFOLIO -- NO-LOAD CLASS
<TABLE>
<CAPTION>
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE: YEAR ENDED
SEPTEMBER 30, 1996
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $16.14
INCOME FROM INVESTMENT OPERATIONS
Net operating loss(a) (0.06)
Net realized and unrealized gain on investments 2.02
Total from investment operations 1.96
LESS DISTRIBUTIONS
Distributions from net investment income (0.29)
Distributions from net realized gain on investments (2.77)
Total distributions (3.06)
NET ASSET VALUE, END OF PERIOD $15.04
Total return(b) 14.21%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $ 877
Ratio of expenses to average net assets 1.30%
Ratio of net investment income to average net assets (0.39%)
Ratio of waiver to average net assets(c) 0.06%
Portfolio turnover 98%
</TABLE>
(a) Per share information is based on average shares outstanding.
(b) Based on net asset value.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
GROWTH WITH INCOME PORTFOLIO -- NO-LOAD CLASS
<TABLE>
<CAPTION>
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE: YEAR ENDED
SEPTEMBER 30, 1996
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $18.28
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) 0.39
Net realized and unrealized gain on investments 1.86
Total from investment operations 2.25
LESS DISTRIBUTIONS
Distributions from net investment income (0.89)
Distributions from net realized gain on investments+ (2.93)
Total distributions (3.82)
NET ASSET VALUE, END OF PERIOD $16.71
Total return(b) 14.06%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $ 621
Ratio of expenses to average net assets 1.28%
Ratio of net investment income to average net assets 2.42%
Ratio of waiver to average net assets(c) 0.06%
Portfolio turnover 85%
+Paid from realized net short-term gain $0.06
</TABLE>
BOND PORTFOLIO -- NO-LOAD CLASS
<TABLE>
<CAPTION>
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE: YEAR ENDED
SEPTEMBER 30, 1996
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.21
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) 0.55
Net realized and unrealized loss on investments (0.16)
Total from investment operations 0.39
LESS DISTRIBUTIONS
Distributions from net investment income (0.56)
Distributions from net realized gain on investments --
Total distributions (0.56)
NET ASSET VALUE, END OF PERIOD $10.04
Total return(b) 3.88%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $1,988
Ratio of expenses to average net assets 0.99%
Ratio of net investment income to average net assets 5.57%
Ratio of waiver to average net assets(c) 0.05%
Portfolio turnover 93%
</TABLE>
(a) Per share information is based on average shares outstanding.
(b) Based on net asset value.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
FUNDMANAGER PORTFOLIOS
The Trust was organized as a Delaware business trust on February 7, 1995,
and is an open-end management investment company registered under the
Investment Company Act of 1940 ("1940 Act") consisting of five diversified
separate series -- Aggressive Growth Portfolio, Growth Portfolio, Growth
with Income Portfolio, Income Portfolio and Managed Total Return Portfolio.
This prospectus relates only to the No-Load Class of Shares of Aggressive
Growth Portfolio, Growth Portfolio, Growth with Income Portfolio and Bond
Portfolio. Investment in shares of one or more of the Portfolios involves
risks and there can be no assurance that the Portfolios' investment
objectives will be achieved.
INVESTMENT OBJECTIVES
Each Portfolio seeks to achieve its investment objective by investing in a
portfolio of approximately ten to fifteen mutual funds (the "underlying
funds") although it may invest up to 25% of its total assets in any one
underlying fund. At times, for temporary defensive purposes when warranted
by general economic and financial conditions, a Portfolio may invest in
money market mutual funds or invest directly in (or enter into repurchase
agreements (maturing in seven days or less) with banks and broker-dealers
with respect to) short-term debt securities, including U.S. Treasury bills
and other short-term U.S. government securities, commercial paper,
certificates of deposit and bankers' acceptances. However, except when a
Portfolio is in a temporary defensive investment position or as may be
considered necessary to accumulate cash in order to satisfy minimum purchase
requirements of the underlying funds or to meet anticipated redemptions, a
Portfolio normally will maintain its assets invested in underlying funds.
Although all of the Portfolios may invest in shares of the same underlying
fund, the percentage of each Portfolio's assets so invested may vary and the
Adviser will determine that such investments are consistent with the
investment objectives and policies of each particular Portfolio. A Portfolio
may not purchase shares of any closed-end investment company or of any
investment company which is not registered with the SEC. Each Portfolio's
investment objectives and certain of its related policies and activities are
fundamental and may not be changed by the Board of Trustees (the "Trustees")
of the Trust, on behalf of a particular Portfolio, without approval of the
shareholders of that Portfolio.
AGGRESSIVE GROWTH PORTFOLIO
The investment objective of Aggressive Growth Portfolio is capital
appreciation without regard to current income. The underlying funds in which
it invests will consist of funds which seek capital growth or appreciation
by investing primarily in common stock or securities convertible into or
exchangeable for common stock (such as convertible preferred stock,
convertible debentures or warrants). For temporary defensive purposes, these
funds also may invest in (or enter into repurchase agreements with banks and
broker-dealers with respect to) corporate bonds, U.S. government securities,
commercial paper, certificates of deposit or other money market securities.
The Portfolio also may invest in funds which invest primarily in long- or
short-term bonds and other fixed income securities (such as securities
issued or guaranteed or insured by the U.S. government, its agencies or
instrumentalities, commercial paper, preferred stock, convertible preferred
stock or convertible debentures) whenever the Adviser believes that these
funds offer a potential for capital appreciation. These underlying funds may
invest in investment grade bonds or in bonds which are not considered
investment grade (commonly referred to as "junk bonds"). The Portfolio will
limit its direct and indirect investment in junk bonds to less than 5% of
its assets. See "Bond Portfolio" and "Description of Bond Ratings."
The underlying funds in which Aggressive Growth Portfolio invests may incur
more risk than those in which Growth Portfolio and Growth with Income
Portfolio invest. For example, they may trade their portfolios more actively
(which results in higher brokerage commissions and increased realization of
taxable capital gains) and/or invest in companies whose securities are
subject to more erratic market movements. The underlying funds also may
invest up to 100% of their assets in securities of foreign issuers and
engage in foreign currency transactions with respect to these investments;
invest up to 15% of their assets in illiquid securities (excluding Rule 144A
securities which are deemed liquid by the Trustees) ("Illiquid Securities");
invest their assets in warrants; lend their portfolio securities; sell
securities short; borrow money in amounts up to one-third of their assets
for investment purposes (i.e., leverage their portfolios); write (sell) or
purchase call or put options on securities or on stock indexes; concentrate
more than 25% of their assets in one industry; invest up to 100% of their
assets in master demand notes; and enter into futures contracts and options
on futures contracts. The risks associated with these investments are
described in the "Investments of and Investment Techniques Employed by
Mutual Funds in Which the Portfolios May Invest."
As a result, an investment in Aggressive Growth Portfolio can be expected to
involve greater risk than an investment in any of the other Portfolios.
GROWTH PORTFOLIO
The primary investment objective of Growth Portfolio is long-term capital
appreciation. Current income is of secondary importance. The underlying
funds in which it invests will consist of funds which invest primarily in
common stock or securities convertible into or exchangeable for common stock
(such as convertible preferred stock, convertible debentures or warrants)
and which seek long-term capital growth or appreciation with current income
typically of secondary importance. For temporary defensive purposes, these
funds also may invest in (or enter into repurchase agreements with banks and
broker-dealers with respect to) corporate bonds, U.S. government securities,
commercial paper, certificates of deposit or other money market instruments.
The Portfolio also may invest in funds which invest primarily in long- or
short-term bonds and other fixed income securities (such as securities
issued or guaranteed or insured by the U.S. government, its agencies or
instrumentalities, commercial paper, preferred stock, convertible preferred
stock or convertible debentures) whenever the Adviser believes that these
funds offer a potential for capital appreciation. These underlying funds may
invest in investment grade bonds or in bonds which are not considered
investment grade (commonly referred to as "junk bonds"). The Portfolio will
limit its direct and indirect investment in junk bonds to less than 5% of
its assets. See "Bond Portfolio" and "Description of Bond Ratings."
The underlying funds in which the Growth Portfolio invests may be authorized
to invest up to 100% of their assets in the securities of foreign issuers
and engage in foreign currency transactions with respect to these
investments; invest up to 15% of their assets in Illiquid Securities; invest
their assets in warrants; lend their portfolio securities; sell securities
short; borrow money in amounts up to one-third of their assets for
investment purposes; write or purchase call or put options on securities or
stock indexes; concentrate more than 25% of their assets in one industry;
invest up to 100% of their assets in master demand notes; and enter into
futures contracts and options on futures contracts. The risks associated
with these investments are described in "Investments of and Investment
Techniques Employed by Mutual Funds in Which the Portfolios May Invest."
GROWTH WITH INCOME PORTFOLIO
The investment objective of Growth with Income Portfolio is realization of a
combination of capital appreciation and current income. The underlying funds
in which it invests will consist of funds which seek long-term capital
appreciation and/or funds which seek (i) income from dividends, (ii) income
from interest, or (iii) growth of income (or any combination of (i)-(iii)).
These underlying funds invest in common stocks, preferred stocks, bonds and
other fixed-income securities (including convertible preferred stock and
convertible debentures). The underlying funds also may, for temporary
defensive purposes, invest in (or enter into repurchase agreements with
banks and broker-dealers with respect to) U.S. government securities,
commercial paper, certificates of deposit or other money market securities.
The Portfolio also may invest in funds which invest primarily in long- or
short-term bonds and other fixed income securities (such as securities
issued or guaranteed or insured by the U.S. government, its agencies or
instrumentalities, commercial paper, preferred stock, convertible preferred
stock or convertible debentures) whenever the Adviser believes that these
funds offer a potential for capital appreciation. These underlying funds may
invest in investment grade bonds or in bonds which are not considered
investment grade (commonly referred to as "junk bonds"). The Portfolio will
limit its direct and indirect investment in junk bonds to less than 5% of
its assets. See "Bond Portfolio" and "Description of Bond Ratings."
These underlying funds may invest up to 100% of their assets in the
securities of foreign issuers and engage in foreign currency transactions
with respect to these investments; invest up to 15% of their assets in
Illiquid Securities; invest their assets in warrants; lend their portfolio
securities; sell securities short; borrow money in amounts up to one-third
of their assets for investment purposes; write or purchase call or put
options on securities or on stock indexes; concentrate more than 25% of
their assets in any one industry; invest up to 100% of their assets in
master demand notes; invest in long or short-term corporate bonds (see "Bond
Portfolio ") and other fixed income securities (such as U.S. government
securities, commercial paper, preferred stock, convertible preferred stock
and convertible debentures); and enter into futures contracts and options on
futures contracts. The risks associated with these investments are described
below.
BOND PORTFOLIO
The investment objective of Bond Portfolio is a high level of current
income. The underlying funds in which it invests will include funds which
seek high current income by investing in long or short-term bonds and other
fixed income securities (such as securities issued or guaranteed or insured
by the U.S. government, its agencies or instrumentalities, commercial paper,
preferred stock, convertible preferred stock or convertible debentures). The
underlying funds also may lend their portfolio securities; sell securities
short; borrow money in amounts up to one-third of their assets for
investment purposes; write or purchase call or put options on securities or
on stock indexes; invest up to 100% of their assets in master demand notes;
and enter into futures contracts and options on futures contracts.
The Portfolio will invest in underlying funds which limit their corporate
bond investments to investment grade bonds which generally are considered to
be bonds rated within one of the four highest quality grades assigned by a
nationally recognized statistical rating organization ("NRSRO"), such as
Standard & Poor's Ratings Group ("S&P") or Moody's Investor Services, Inc.
("Moody's"), or which are unrated but are deemed by an underlying fund's
investment adviser to be of comparable quality. These include bonds rated
AAA, AA, A and BBB by S&P and bonds rated Aaa, Aa, A and Baa by Moody's.
Bonds rated BBB by S&P or Baa by Moody's normally indicate a greater degree
of investment risk than bonds with higher ratings.
The Portfolio also will invest (without limitation) in underlying funds
which themselves may invest in corporate bonds which are not considered
investment grade bonds (commonly referred to as "junk bonds") by an NRSRO,
such as Moody's or S&P, or which are unrated, and thus may carry a greater
degree of risk than bonds considered investment grade. These
include bonds rated BB, B, CCC and CC by S&P, and Ba, B, Caa, Ca and C by
Moody's. These ratings may indicate that the bonds are predominantly
speculative with respect to the issuer's ability to pay interest and repay
principal and may indicate that the issuer soon may be or currently is in
default. The risks associated with these investments are described in
"Description of Bond Ratings." The Portfolio will limit its direct and
indirect investment in junk bonds to less than 35% of its net assets.
As a general matter, the current value of bonds varies inversely with
changes in prevailing interest rates. If interest rates increase after a
bond is purchased, the value of that security will normally decline.
Conversely, should prevailing interest rates decrease after a bond is
purchased, its market price will normally rise.
INVESTMENTS OF AND INVESTMENT TECHNIQUES EMPLOYED BY MUTUAL FUNDS
IN WHICH THE PORTFOLIOS MAY INVEST
ILLIQUID SECURITIES. An underlying fund may invest not more than 15% of its
total assets in securities for which there is no readily available market
("Illiquid Securities") which would include certain restricted securities
the disposition of which would be subject to legal restrictions and
repurchase agreements having more than seven days to maturity. A
considerable period of time may elapse between an underlying fund's decision
to dispose of such securities and the time when the fund is able to dispose
of them, during which time the value of the securities (and therefore the
value of the underlying fund's shares held by a Portfolio) could decline.
FOREIGN SECURITIES. An underlying fund may invest up to 100% of its assets
in securities of foreign issuers. There may be less publicly available
information about these issuers than is available about companies in the
U.S. and foreign auditing requirements may not be comparable to those in the
U.S. In addition, the value of the fund's foreign securities may be
adversely affected by fluctuations in the exchange rates between foreign
currencies and the U.S. dollar, as well as other political and economic
developments, including the possibility of expropriation, confiscatory
taxation, exchange controls or other foreign governmental restrictions. In
addition, income received by an underlying fund from sources within foreign
countries, such as dividends and interest payable on foreign securities, may
be subject to foreign taxes, including taxes withheld from payments on those
securities. Moreover, the underlying funds will generally calculate their
net asset values and complete orders to purchase, exchange or redeem shares
only on a Monday-Friday basis (excluding holidays on which the New York
Stock Exchange ("NYSE") is closed). Foreign securities in which the
underlying funds may invest may be listed primarily on foreign stock
exchanges which may trade on other days (such as Saturday or NYSE holidays).
As a result, the net asset value of an underlying fund's portfolio may be
significantly affected by such trading on days when the Adviser does not
have access to the underlying funds and shareholders of the Trust do not
have access to their respective Portfolios. Under the 1940 Act, an
underlying fund may maintain its foreign securities in custody of non-U.S.
banks and securities depositories.
INDUSTRY CONCENTRATION. An underlying fund may concentrate its investments
within one industry. Because the scope of investment alternatives within an
industry is limited, the value of the shares of such an underlying fund may
be subject to greater market fluctuation than an investment in a fund which
invests in a broader range of securities.
MASTER DEMAND NOTES. Although the Portfolios themselves will not do so,
underlying funds (particularly money market mutual funds) may invest up to
100% of their assets in master demand notes. Master demand notes are
unsecured obligations of U.S. corporations redeemable upon notice that
permit investment by a fund of fluctuating amounts at varying rates of
interest pursuant to direct arrangements between the fund and the issuing
corporation. Because they are direct arrangements between the fund and the
issuing corporation, there is no secondary market for the notes. However,
they are redeemable at face value, plus accrued interest, at any time.
REPURCHASE AGREEMENTS. Underlying funds, particularly money market funds,
may enter into repurchase agreements with banks and broker-dealers under
which they acquire securities subject to an agreement with the seller to
repurchase the securities at an agreed upon time and price. The Portfolios
also may enter into repurchase agreements. These agreements are considered
under the 1940 Act to be loans by the purchaser collateralized by the
underlying securities. If the seller should default on its obligation to
repurchase the securities, the underlying fund may experience delay or
difficulties in exercising its rights to realize upon the securities held as
collateral and might incur a loss if the value of the securities should
decline. For a more complete discussion of repurchase agreements, see
"Investment Policies" in the SAI.
LOANS OF PORTFOLIO SECURITIES. An underlying fund may lend its portfolio
securities provided it complies with the following general requirements: (1)
the loan is secured continuously by collateral consisting of U.S. government
securities or cash or cash equivalents maintained on a daily mark-to-market
basis in an amount at least equal to the current market value of the
securities loaned; (2) the fund may at any time call the loan and obtain the
return of the securities loaned; (3) the fund will receive any interest or
dividends paid on the loaned securities; and (4) the aggregate market value
of securities loaned will not at any time exceed one-third of the total
assets of the fund. Loans of securities involve a risk that the borrower may
fail to return the securities or may fail to provide additional collateral.
SHORT SALES. An underlying fund may sell securities short. In a short sale,
the fund sells stock which it does not own, making delivery with securities
"borrowed" from a broker. The fund is then obligated to replace the security
borrowed by purchasing it at the market price at the time of replacement.
This price may or may not be less than the price at which the security was
sold by the fund. Until the security is replaced, the fund is required to
pay to the lender any dividends or interest which accrue during the period
of the loan. In order to borrow the security, the fund may also have to pay
a premium which would increase the cost of the security sold. The proceeds
of the short sale will be retained by the broker, to the extent necessary to
meet margin requirements, until the short position is closed out.
The fund also must deposit in a segregated account (or earmark) an amount of
cash or U.S. government securities equal to the difference between (a) the
market value of the securities sold short at the time they were sold short
and (b) the value of the collateral deposited with the broker in connection
with the short sale (not including the proceeds from the short sale). While
the short position is open, the fund must maintain daily the segregated
account at such a level that (1) the amount deposited in it plus the amount
deposited with the broker as collateral equals the current market value of
the securities sold short and (2) the amount deposited in it plus the amount
deposited with the broker as collateral is not less than the market value of
the securities at the time they were sold short. Depending upon market
conditions, up to 80% of the value of a fund's net assets may be deposited as
collateral for the obligation to replace securities borrowed to effect short
sales and allocated to a segregated account in connection with short sales.
The fund will incur a loss as a result of the short sale if the price of the
security increases between the date of the short sale and the date on which
the fund replaces the borrowed security. The fund will realize a gain if the
security declines in price between those dates. The amount of any gain will
be decreased and the amount of any loss increased by the amount of any
premium, dividends or interest the fund may be required to pay in connection
with a short sale.
A short sale is "against the box" if at all times when the short position is
open the fund owns an equal amount of the securities or securities
convertible into, or exchangeable without further consideration for,
securities of the same issue as the securities sold short. Such a
transaction serves to defer a gain or loss for Federal income tax purposes.
FOREIGN CURRENCY TRANSACTIONS. In connection with its portfolio transactions
in securities traded in a foreign currency, an underlying fund may enter
into forward contracts to purchase or sell an agreed upon amount of a
specific currency at a future date which may be any fixed number of days
from the date of the contract agreed upon by the parties at a price set at
the time of the contract. Under such an arrangement, concurrently with the
entry into a contract to acquire a foreign security for a specified amount
of currency, the fund would purchase with U.S. dollars the required amount
of foreign currency for delivery at the settlement date of the purchase; the
fund would enter into similar forward currency transactions in connection
with the sale of foreign securities. The effect of such transactions would
be to fix a U.S. dollar price for the security to protect against a possible
loss resulting from an adverse change in the relationship between the U.S.
dollar and the subject foreign currency during the period between the date
the security is purchased or sold and the date on which payment is made or
received, the normal range of which is three to 14 days. These contracts are
traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement and no commissions are charged at any
stage for trades. Although such contracts tend to minimize the risk of loss
due to a decline in the value of the subject currency, they tend to limit
commensurately any potential gain which might result should the value of
such currency increase during the contract period.
LEVERAGE THROUGH BORROWING. An underlying fund may borrow up to one-third of
the value of its net assets on an unsecured basis from banks to increase its
holdings of portfolio securities. Under the 1940 Act, the fund is required
to maintain continuous asset coverage of 300% with respect to such
borrowings and to sell (within three days) sufficient portfolio holdings to
restore such coverage if it should decline to less than 300% due to market
fluctuations or otherwise, even if disadvantageous from an investment
standpoint. Leveraging will exaggerate the effect of any increase or
decrease in the value of portfolio securities on the fund's net asset value,
and money borrowed will be subject to interest costs (which may include
commitment fees and/or the cost of maintaining minimum average balances)
which may or may not exceed the interest and option premiums received from
the securities purchased with borrowed funds.
WARRANTS. An underlying fund may invest in warrants, which are options to
purchase equity securities at specific prices valid for a specific period of
time. The prices do not necessarily move parallel to the prices of the
underlying securities. Warrants have no voting rights, receive no dividends
and have no rights with respect to the assets of the issuer. If a warrant is
not exercised within the specified time period, it will become worthless and
the fund will lose the purchase price and the right to purchase the
underlying security.
HIGH YIELD SECURITIES. An underlying fund may invest in high yield, high
risk securities. Investing in high yield, high risk securities (also called
"junk bonds") involves special risks in addition to the risks associated
with investments in higher rated debt securities. High yield, high risk
securities may be regarded as predominantly speculative with respect to the
issuer's continuing ability to meet principal and interest payments.
High yield, high risk securities may be more susceptible to real or
perceived adverse economic and competitive industry conditions than higher
grade securities. The prices of high yield, high risk securities have been
found to be less sensitive to interest rate changes than more highly rated
investments, but more sensitive to adverse economic downturns or individual
corporate developments. A projection of an economic downturn or of a period
of rising interest rates, for example, could cause a decline in high yield,
high risk security prices because the advent of a recession could lessen the
ability of a highly leveraged company to make principal and interest
payments on its debt securities. If the issuer of high yield, high risk
securities defaults, a fund may incur additional expenses to seek recovery.
In the case of high yield securities structured as zero coupon or
payment-in-kind securities, the market prices of such securities are
affected to a greater extent by interest rate changes, and therefore tend to
be more volatile than securities which pay interest periodically and in
cash.
The secondary markets on which high yield, high risk securities are traded
may be less liquid than the market for higher grade securities. Less
liquidity in the secondary trading markets could adversely affect and cause
large fluctuations in the daily net asset value of a fund's shares. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of high yield, high risk
securities, especially in a thinly traded market.
There may be special tax considerations associated with investing in high
yield, high risk securities structured as zero coupon or payment-in-kind
securities. A fund records the interest on these securities as income even
though it receives no cash interest until the security's maturity or payment
date. A fund will be required to distribute all or substantially all such
amounts annually and may have to obtain the cash to do so by selling
securities which otherwise would continue to be held. Shareholders will be
taxed on these distributions.
The use of credit ratings as the sole method of evaluating high yield, high
risk securities can involve certain risks. For example, credit ratings
evaluate the safety of principal and interest payments, not the market value
risk of high yield, high risk securities. Also, credit rating agencies may
fail to change credit ratings in a timely fashion to reflect events since
the security was last rated.
DERIVATIVES
An underlying fund may invest in the following instruments that are commonly
known as derivatives. Generally, a derivative is a financial arrangement,
the value of which is based on, or "derived" from, a traditional security,
asset, or market index.
OPTIONS ACTIVITIES. An underlying fund may write (i.e., sell) listed call
options ("calls") if the calls are "covered" throughout the life of the
option. A call is "covered" if the fund owns the optioned securities. When a
fund writes a call, it receives a premium and gives the purchaser the right
to buy the underlying security at any time during the call period (usually
not more than nine months in the case of common stock) at a fixed exercise
price regardless of market price changes during the call period. If the call
is exercised, the fund will forgo any gain from an increase in the market
price of the underlying security over the exercise price.
A fund may purchase a call on securities only to effect a "closing purchase
transaction" which is the purchase of a call covering the same underlying
security and having the same exercise price and expiration date as a call
previously written by the fund on which it wishes to terminate its
obligation. If the fund is unable to effect a closing purchase transaction,
it will not be able to sell the underlying security until the call
previously written by the fund expires (or until the call is exercised and
the fund delivers the underlying security).
An underlying fund also may write and purchase put options ("puts"). When a
fund writes a put, it receives a premium and gives the purchaser of the put
the right to sell the underlying security to the fund at the exercise price
at any time during the option period. When a fund purchases a put, it pays a
premium in return for the right to sell the underlying security at the
exercise price at any time during the option period. An underlying fund also
may purchase stock index puts which differ from puts on individual
securities in that they are settled in cash based on the values of the
securities in the underlying index rather than by delivery of the underlying
securities. Purchase of a stock index put is designed to protect against a
decline in the value of the portfolio generally rather than an individual
security in the portfolio. If any put is not exercised or sold, it will
become worthless on its expiration date.
A fund's option positions may be closed out only on an exchange which
provides a secondary market for options of the same series, but there can be
no assurance that a liquid secondary market will exist at a given time for
any particular option. In this regard, trading in options on certain
securities (such as U.S. government securities) is relatively new so that it
is impossible to predict to what extent liquid markets will develop or
continue.
The underlying fund's custodian, or a securities depository acting for it,
generally acts as escrow agent as to the securities on which the fund has
written puts or calls, or as to other securities acceptable for such escrow
so that no margin deposit is required of the fund. Until the underlying
securities are released from escrow, they cannot be sold by the fund.
In the event of a shortage of the underlying securities deliverable on
exercise of an option, the Options Clearing Corporation ("OCC") has the
authority to permit other, generally comparable securities to be delivered
in fulfillment of option exercise obligations. If the OCC exercises its
discretionary authority to allow such other securities to be delivered, it
may also adjust the exercise prices of the affected options by setting
different prices at which otherwise ineligible securities may be delivered.
As an alternative to permitting such substitute deliveries, the OCC may
impose special exercise settlement procedures.
FUTURES CONTRACTS. An underlying fund may enter into futures contracts for
the purchase or sale of debt securities and stock indexes. A futures
contract is an agreement between two parties to buy and sell a security or
an index for a set price on a future date. Futures contracts are traded on
designated "contract markets" which, through their clearing corporations,
guarantee performance of the contracts.
Generally, if market interest rates increase, the value of outstanding debt
securities declines (and vice versa). Entering into a futures contract for
the sale of securities has an effect similar to the actual sale of
securities, although sale of the futures contract might be accomplished more
easily and quickly. For example, if a fund holds long-term U.S. government
securities and it anticipates a rise in long-term interest rates, it could,
in lieu of disposing of its portfolio securities, enter into futures
contracts for the sale of similar long-term securities. If rates increased
and the value of the fund's portfolio securities declined, the value of the
fund's futures contracts would increase, thereby protecting the fund by
preventing the net asset value from declining as much as it otherwise would
have. Similarly, entering into futures contracts for the purchase of
securities has an effect similar to the actual purchase of the underlying
securities, but permits the continued holding of securities other than the
underlying securities. For example, if the fund expects long-term interest
rates to decline, it might enter into futures contracts for the purchase of
long-term securities so that it could gain rapid market exposure that may
offset anticipated increases in the cost of securities it intends to
purchase while continuing to hold higher-yield short-term securities or
waiting for the long-term market to stabilize.
A stock index futures contract may be used to hedge an underlying fund's
portfolio with regard to market risk as distinguished from risk relating to
a specific security. A stock index futures contract does not require the
physical delivery of securities, but merely provides for profits and losses
resulting from changes in the market value of the contract to be credited or
debited at the close of each trading day to the respective accounts of the
parties to the contract. On the contract's expiration date, a final cash
settlement occurs. Changes in the market value of a particular stock index
futures contract reflect changes in the specified index of equity securities
on which the future is based.
There are several risks in connection with the use of futures contracts. In
the event of an imperfect correlation between the futures contract and the
portfolio position which is intended to be protected, the desired protection
may not be obtained and the fund may be exposed to risk of loss. Further,
unanticipated changes in interest rates or stock price movements may result
in a poorer overall performance for the fund than if it had not entered into
futures contracts on debt securities or stock indexes.
In addition, the market prices of futures contracts may be affected by
certain factors. First, all participants in the futures market are subject
to margin deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors may close futures
contracts through offsetting transactions which could distort the normal
relationship between the securities and futures markets. Second, from the
point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
also cause temporary price distortions.
Finally, positions in futures contracts may be closed out only on an
exchange or board of trade which provides a secondary market for such
futures. There is no assurance that a liquid secondary market on an exchange
or board of trade will exist for any particular contract or at any
particular time.
OPTIONS ON FUTURES CONTRACTS. A fund also may purchase and sell listed put
and call options on futures contracts. An option on a futures contract gives
the purchaser the right, in return for the premium paid, to assume a
position in a futures contract (a long position if the option is a call and
a short position if the option is a put), at a specified exercise price at
any time during the option period. When an option on a futures contract is
exercised, delivery of the futures position is accompanied by cash
representing the difference between the current market price of the futures
contract and the exercise price of the option. The fund may purchase put
options on futures contracts in lieu of, and for the same purpose as, a sale
of a futures contract. It also may purchase such put options in order to
hedge a long position in the underlying futures contract in the same manner
as it purchases "protective puts" on securities.
As with options on securities, the holder of an option may terminate his
position by selling an option of the same series. There is no guarantee that
such closing transactions can be effected. The fund is required to deposit
initial margin and maintenance margin with respect to put and call options
on futures contracts written by it pursuant to brokers' requirements similar
to those applicable to futures contracts described above and, in addition,
net option premiums received will be included as initial margin deposits.
In addition to the risks which apply to all options transactions, there are
several special risks relating to options on futures contracts. The ability
to establish and close out positions on such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain
that this market will develop. Compared to the use of futures contracts, the
purchase of options on futures contracts involves less potential risk to the
fund because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However, there may be circumstances when the use
of an option on a futures contract would result in a loss to the fund when
the use of futures contract would not, such as when there is no movement in
the prices of the underlying securities. Writing an option on a futures
contract involves risks similar to those arising in the sale of futures
contracts, as described above.
HEDGING. An underlying fund may employ many of the investment techniques
described in this section not only for investment purposes which may be
considered speculative, but also for hedging purposes. For example, an
underlying fund may purchase or sell put and call options on common stocks
to hedge against movements in individual common stock prices, or purchase
and sell stock index futures and related options to hedge against marketwide
movements in common stock prices. Although such hedging techniques generally
tend to minimize the risk of loss that is hedged against, they also may
limit commensurately the potential gain that might have resulted had the
hedging transaction not occurred. Also, the desired protection generally
resulting from hedging transactions may not always be achieved.
INVESTMENT POLICIES AND RESTRICTIONS
The Portfolios have adopted certain fundamental investment policies (i.e.,
policies which may not be changed as to a Portfolio without the vote of a
majority of that Portfolio's outstanding shares, as defined under "Other
Information -- Voting") as well as certain investment policies which are not
fundamental and therefore may be changed by the Trustees without shareholder
approval. These policies reflect self-imposed standards or the requirements
of Federal law.
The Trust may, in the future, seek to achieve each Portfolio's investment
objective by investing all of the Portfolio's assets in a no-load,
diversified, open-end management investment company having substantially the
same investment objective as the Portfolio. Each Portfolio's investment
policies permit such an investment. Shareholders will receive prior written
notice with respect to any such investment.
Under each Portfolio's fundamental investment policies, no Portfolio may
invest more than 25% of its total assets in the securities of underlying
funds which themselves concentrate (i.e., invest more than 25% of their
assets) in any one industry. Nevertheless, through its investment in
underlying funds, a Portfolio indirectly may invest more than 25% of its
assets in one industry. The Portfolio also may not borrow money, except that
a Portfolio may, as a temporary measure for extraordinary or emergency
purposes, borrow from a bank in an amount not in excess of 5% of the
Portfolio's total assets, or pledge or hypothecate its assets, except that
the Portfolio may pledge not more than 5% of its total assets to secure such
borrowings. A Portfolio will not make additional investments at any time
during which it has outstanding borrowings.
Under each Portfolio's policies which are not fundamental, no Portfolio may
(i) invest more than 25% of its assets in the shares of any one open-end
investment company; (ii) purchase or otherwise acquire the securities of any
open-end investment company (except in connection with a merger,
consolidation, acquisition of substantially all of the assets or
reorganization of another investment company) if, as a result, a Portfolio
and all of its affiliates including the other Portfolios would own more than
3% of the total outstanding stock of that company, or (iii) purchase a
security which is not readily marketable if, as a result, more than 10% of
that Portfolio's assets would consist of such securities. For this purpose,
securities which are not readily marketable include repurchase agreements
having more than seven days to maturity (see "Investments of and Investment
Techniques Employed by Mutual Funds in Which the Portfolios May Invest") and
shares of an open-end investment company owned by the Portfolios in an
amount exceeding 1% of the issuer's total outstanding securities. See "Risks
and Other Considerations."
In addition, no Portfolio will invest more than 5% of its total assets in
the securities of an underlying fund which itself invests more than 5% of
its total assets in (i) the securities of any one issuer (excluding U.S.
government securities), (ii) securities of issuers which have been in
operation for less than three years and equity securities of issuers which
are not readily marketable or (iii) puts, calls, straddles, spreads, and
combinations thereof, and futures contracts.
Each Portfolio may invest up to 5% of its net assets in repurchase
agreements with banks and broker-dealers. This and other investment policies
and restrictions are discussed in the SAI under the heading "Investment
Policies."
The underlying funds in which a Portfolio invests may, but need not, have
the same investment policies as the Portfolio. For example, although
Aggressive Growth Portfolio will not borrow money for investment purposes,
it may invest up to 25% of its total assets in an underlying fund which
borrows money for investment purposes (i.e., engages in leveraging). The
investments which may be made by underlying funds in which the Portfolios
invest and the risks associated with those investments are described under
"Investment Objectives," "Investment Policies and Restrictions" and
"Investments of and Investment Techniques Employed by Mutual Funds in Which
the Portfolios May Invest."
RISKS AND OTHER CONSIDERATIONS
Any investment in a mutual fund involves risk and, although the Portfolios
invest in a number of underlying funds, this practice does not eliminate
investment risk. Moreover, investing through the Portfolios in an underlying
portfolio of mutual funds involves certain additional expenses and certain
tax results which would not be present in a direct investment in the
underlying funds. See "Expenses" and "Dividends, Distributions and Taxes."
A Portfolio, together with the other Portfolios and any "affiliated persons"
(as defined in the 1940 Act) may purchase only up to 3% of the total
outstanding securities of any underlying fund. For this purpose, shares of
underlying funds held by private discretionary investment advisory accounts
managed by the Adviser will be aggregated with those held by the Portfolios.
Accordingly, when affiliated persons and other accounts managed by the
Adviser hold shares of any of the underlying funds, each Portfolio's ability
to invest fully in shares of those funds is restricted, and the Adviser must
then, in some instances, select alternative investments that would not have
been its first preference.
The 1940 Act also provides that an underlying fund whose shares are
purchased by a Portfolio will be obligated to redeem shares held by the
Portfolio only in an amount up to 1% of the underlying fund's outstanding
securities during any period of less than 30 days. Shares held by a
Portfolio in excess of 1% of an underlying fund's outstanding securities,
therefore, will be considered not readily marketable securities which
together with other such securities may not exceed 10% of that Portfolio's
assets. See "Investment Policies and Restrictions." These limitations are
not fundamental investment policies and may be changed by the Trustees
without shareholder approval.
Under certain circumstances, an underlying fund may determine to make
payment of a redemption by a Portfolio wholly or partly by a distribution in
kind of securities from its portfolio, in lieu of cash, in conformity with
the rules of the SEC. In such cases, the Portfolios may hold securities
distributed by an underlying fund until the Adviser determines that it is
appropriate to dispose of such securities.
Investment decisions by the investment advisers of the underlying funds are
made independently of the Trust and its Adviser. Therefore, the investment
adviser of one underlying fund may be purchasing shares of the same issuer
whose shares are being sold by the investment adviser of another such fund.
The result of this would be an indirect expense to a Portfolio without
accomplishing any investment purpose.
Each Portfolio may purchase shares of both load and no-load underlying
funds. To the extent an underlying fund offers multiple classes of shares,
the Portfolios will purchase the share class available to it with the lowest
sales charges. However, the Portfolios will not invest in shares of
underlying funds which are sold with a contingent deferred sales charge.
Under the 1940 Act, a mutual fund must sell its shares at the price
(including sales load, if any) described in its prospectus, and current
rules under the 1940 Act do not permit negotiation of sales charges.
Therefore, a Portfolio currently is not able to negotiate the level of the
sales charges at which it will purchase shares of load funds, which may be
as great as 8.5% of the public offering price (or 9.29% of the net amount
invested). Nevertheless, when appropriate, a Portfolio will purchase such
shares pursuant to (i) letters of intent, permitting it to obtain reduced
sales charges by aggregating its intended purchases over time (generally 13
months from the initial purchase under the letter); (ii) rights of
accumulation, permitting it to obtain reduced sales charges as it purchases
additional shares of an underlying fund; and (iii) the right to obtain
reduced sales charges by aggregating its purchases of several funds within a
family of mutual funds. Based upon these privileges, it is expected that, in
the majority of cases, the sales charges paid by a Portfolio on a load fund
purchase will not exceed 1% of the public offering price (1.01% of the net
amount invested). See "Portfolio Transactions."
Under certain circumstances, a sales charge incurred by a Portfolio in
acquiring shares of an underlying fund may not be taken into account in
determining the gain or loss for federal income tax purposes on the
disposition of the shares acquired. If shares are disposed of within 90 days
from the date they were purchased and if shares of a new underlying fund are
subsequently acquired without imposition of a sales charge or imposition of
a reduced sales charge pursuant to a right granted to the Portfolio to
acquire shares without payment of a sales charge or with the payment of a
reduced charge, then the sales charge paid upon the purchase of the initial
shares will be treated as paid in connection with the acquisition of the new
underlying fund's shares rather than the initial shares.
EXPENSES
As an investor in the Portfolios, you should recognize that you may invest
directly in mutual funds and that, by investing in mutual funds indirectly
through the Portfolios, you will bear not only your proportionate share of
the expenses of the Portfolios (including operating costs and investment
advisory and administrative fees) but also, indirectly, similar expenses of
the underlying funds. If you are an investor in the Portfolios through the
Program offered by the Distributors you should recognize that the combined
expenses of the Program and of the Portfolios (including their indirect
expenses) may involve greater fees and expenses than present in other types
of investments without the benefit of professional asset allocation
recommendations, and you may indirectly bear expenses paid by an underlying
fund related to the distribution of its shares. As a Portfolio shareholder,
you also will bear your proportionate share of any sales charges incurred by
the Portfolio related to the purchase of shares of the underlying funds.
Finally, as an investor, you should recognize that, as a result of the
Portfolios' policies of investing in other mutual funds, you may receive
taxable capital gains distributions to a greater extent than would be the
case if you invested directly in the underlying funds. See "Dividends,
Distributions and Taxes."
MANAGEMENT OF FUNDMANAGER PORTFOLIOS
The business and affairs of the Trust are managed under the direction of the
Trustees. Additional information about the Trustees, as well as the Trust's
executive officers, may be found in the SAI under the heading "Management
Trustees and Officers."
THE ADVISER
Freedom Capital Management has its principal office at One Beacon Street,
Boston, Massachusetts. The Adviser advises the Trust through the M.D. Hirsch
Division of Freedom Capital Management. Michael D. Hirsch, Chairman of the
M.D. Hirsch Division of Freedom Capital Management, has provided
discretionary investment advisory services relating to investments in mutual
funds to individual accounts since 1975.
Freedom Capital Management is an indirect, wholly-owned subsidiary of JHFSC
Acquisition Corp. whose stock is held by the following companies in the
approximate percentages: Thomas H. Lee Equity Fund III, L.P. (49%), a
Massachusetts limited partnership; SCP Private Equity Partners, L.P. (13%),
a Delaware limited partnership; John Hancock Subsidiaries, Inc. (4.9%), a
wholly-owned subsidiary of John Hancock Mutual Life Insurance Company; and
certain members of management and employees of John Hancock Freedom
Securities Corporation (the direct parent of the Adviser and a subsidiary of
JHFSC Acquisition Corp.) and its subsidiaries, including the Adviser (32%).
Prior to November 29, 1996, Freedom Capital Management was an indirect,
wholly-owned subsidiary of John Hancock Mutual Life Insurance Company ("John
Hancock"). John Hancock is a major mutual life insurance company based in
Boston, Massachusetts.
Pursuant to an Investment Advisory Contract, the Adviser is responsible for
the investment management of each Portfolio's assets, including the
responsibility for making investment decisions and placing orders for the
purchase and sale of the Portfolio's investments directly with the issuers
or with brokers or dealers, selected by it in its discretion, including
Freedom Distributors and Edgewood. See "Portfolio Transactions." The Adviser
also furnishes to the Trustees, which have overall responsibility for the
business and affairs of the Trust, periodic reports on the investment
performance of the Trust. For these services, the Adviser receives from each
Portfolio a fee, payable monthly, at the annual rate of 0.50% of that
Portfolio's average daily net assets up to $500 million and 0.40% of its
average daily net assets in excess of $500 million.
Michael Hirsch is the Portfolio Manager of the Portfolios and is responsible
for the day to day management of the Portfolios. Currently, Mr. Hirsch is
Chairman of the M.D. Hirsch Division of Freedom Capital Management. Prior to
February 21, 1995, Mr. Hirsch was the Vice Chairman and Managing Director of
the M.D. Hirsch Division of Republic Asset Management. Mr. Hirsch served as
President of M.D. Hirsch Investment Management, Inc. ("Hirsch") from
February, 1991 until June, 1993 and Chief Investment Officer of Republic
National Bank of New York ("Republic") from 1981 until February, 1991. Mr.
Hirsch pioneered the concept of investing his clients' assets in a portfolio
of mutual funds in 1975. Mr. Hirsch is now a noted authority on mutual funds
and has authored two books, "Multifund Investing" in 1987 and "The Mutual
Fund Wealth Builder" in 1991.
THE ADMINISTRATOR
FAS, a wholly-owned subsidiary of Federated Investors with its principal
business offices at Federated Investors Tower, Pittsburgh, Pennsylvania
15222-3779, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the
Portfolios. FAS provides these at an annual rate which relates to the
average aggregate daily net assets of the Portfolios as specified below:
MAXIMUM
ADMINISTRATIVE AVERAGE AGGREGATE
FEE DAILY NET ASSETS
.150% on the first $250 million
.125% on the next $250 million
100% on the next $250 million
075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$75,000 per Portfolio and $35,000 per each additional class of shares. FAS
may choose voluntarily to waive a portion of its fee or minimums from time
to time in its sole discretion.
THE DISTRIBUTORS
The Trustees of the Trust have approved a Distribution Contract (the
"Distribution Contract") between the Trust and each of Edgewood, Freedom
Distributors, Tucker Anthony and Sutro pursuant to which each will serve as
a distributor of the Trust and of the Shares of each of the Portfolios.
The distributors may provide promotional incentives to investment executives
who support the sale of shares of the Portfolios. In some instances, these
incentives may be offered only to certain investment executives which
provide services in connection with the sale or expected sale of significant
amounts of shares.
Edgewood, a registered broker/dealer, is a wholly-owned subsidiary of
Federated Investors with principal business offices at Clearing Operations,
P.O. Box 897, Pittsburgh, Pennsylvania 15230-0897. Freedom Distributors is a
registered broker/dealer with principal business offices at One Beacon Street,
Boston, Massachusetts 02108. Tucker Anthony is a brokerage firm which is a
member of the New York Stock Exchange continuing an investment banking and
brokerage business established in 1892. The principal business address of
Tucker Anthony is One Beacon Street, Boston, Massachusetts 02108. Sutro is
brokerage firm and a member of the New York Stock Exchange. The principal
business address of Sutro is 201 California Street, San Francisco, California
94111. Freedom Distributors, Tucker Anthony, and Sutro are subsidiaries of
John Hancock Freedom Securities Corporation. See description of "The
Adviser" above.
CUSTODIAN AND TRANSFER AGENT
The Trustees of the Trust have also approved a Custodian Agreement and a
Transfer Agency and Service Agreement (the "IBT Contracts") between the
Trust and Investors Bank & Trust Company ("IBT") pursuant to which IBT
provides custodial, portfolio accounting, transfer agency, dividend
disbursing and shareholder servicing services to the Trust and each of the
Portfolios. The principal business address of IBT is 89 South Street,
Boston, Massachusetts 02111.
OTHER EXPENSES
The Trust bears all costs of its operations other than expenses specifically
assumed by the Administrator, Distributors or the Adviser. See "Management"
in the SAI. Expenses directly attributable to a Portfolio or class are
charged to that Portfolio or class; other expenses are allocated
proportionately among the Portfolios or classes, as the case may be, in
relation to the net assets of each Portfolio or class. The Trust has
contracted with IBT to provide Portfolio accounting services at a rate not
intended to exceed the cost of such services.
PORTFOLIO TRANSACTIONS
Pursuant to the Investment Advisory Contract, the Adviser places orders for
the purchase and sale of portfolio investments for a Portfolio's accounts
with brokers or dealers, selected by it in its discretion, including Freedom
Distributors and Edgewood. With respect to purchases of certain money market
instruments, purchase orders are placed directly with the issuer or its
agent.With respect to purchases of shares of underlying funds, the Portfolio
may pay a sales charge. Sales charges of the underlying funds generally
consist of two parts, the "dealer reallowance" (which typically comprises at
least 80% of the amount of the charge and is paid to the broker
participating in the sale of the underlying fund shares) and the
underwriter's retention. To the extent permissible by law, Freedom
Distributors and Edgewood will be designated as the participating brokers
entitled to receive the dealer reallowance portion of the sales charge on
purchases of load fund shares by the Portfolios. However, Freedom
Distributors will not retain any dealer reallowance in excess of 1% of the
public offering price on any transaction nor will it be designated as the
broker entitled to receive the dealer reallowance portion of the sales
charge where such reallowance would exceed 1% of the public offering price.
With respect to purchases of underlying fund shares, the Adviser directs
substantially all of the Portfolios' orders to either Freedom Distributors
or Edgewood, which may, in its discretion, direct the order to other
broker-dealers in consideration of sales of that Portfolio's shares, except
where the direction to another broker-dealer would increase the dealer
reallowance paid by a fund to Freedom Distributors above 1% of the public
offering price.
Freedom Distributors and Edgewood may also assist in the execution of a
Portfolio's purchase of underlying fund shares and they may receive
additional compensation (such as distribution payments, shareholder
servicing fees, and/or trailer fees) from the underlying funds or their
underwriters. In providing execution assistance, Freedom Distributors and
Edgewood receive orders from the Adviser; place them with the underlying
fund's distributor, transfer agent or other person, as appropriate; confirm
the trade, price and number of shares purchased; and assure prompt payment
by the Portfolio and proper completion of the order. Payment of sales
charges or other forms of compensation to Freedom Distributors or Edgewood
is not a factor that the Adviser considers when selecting an underlying fund
for purchase.
Each Portfolio is actively managed and has no restrictions upon portfolio
turnover, although its annual turnover rate is not expected to exceed 100%.
A 100% annual portfolio turnover rate would be achieved if each security in
each Portfolio's portfolio (other than securities with less than one year
remaining to maturity) were replaced once during the year. To the extent
each Portfolio is purchasing shares of load funds, a higher turnover rate
would result in correspondingly higher sales loads paid by that Portfolio.
Trading also may result in realization of net short-term capital gains which
would not otherwise be realized, and shareholders are taxed on such gains
when distributed from that Portfolio at ordinary income tax rates. See
"Dividends, Distributions and Taxes." There is no limit on the portfolio
turnover rates of the underlying funds in which the Portfolio may invest.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Portfolio is determined as of the
close of trading (normally 4:00 p.m., Eastern time) on the NYSE, Monday
through Friday, except on: (i) days on which there are not sufficient
changes in the value of a Portfolio's portfolio securities that its net
asset value might be materially affected; (ii) days during which no shares
are tendered for redemption and no orders to purchase shares are received;
and (iii) the following holidays: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day. Net asset value per share is calculated by dividing the
aggregate value of a Portfolio's assets allocable to the Class less all
liabilities by the number of that Portfolio's outstanding shares.
The assets of each Portfolio consist primarily of the underlying funds,
which are valued at their respective net asset values under the 1940 Act.
The underlying funds value securities in their portfolios for which market
quotations are readily available at their current market value (generally
the last reported sale price) and all other securities and assets at fair
value pursuant to methods established in good faith by the boards of
directors or trustees of the underlying fund. Money market mutual funds may
use the amortized cost or penny-rounding methods to value their securities.
Securities having 60 days or less remaining to maturity generally are valued
at their amortized cost which approximates market value.
Other assets of each Portfolio are valued at their current market value if
market quotations are readily available and, if market quotations are not
available, they are valued at fair value pursuant to methods established in
good faith by the Trustees. Debt instruments having 60 days or less
remaining to maturity are valued at their amortized cost.
PURCHASE OF SHARES
Shares of the Portfolios are offered by the Distributors as an investment
vehicle for individuals, institutions, corporations and fiduciaries in the
Program offered by the Distributors. The participants in the Program
receive, for a fee at a maximum annual rate based upon a percentage of
assets invested, certain services, including asset allocation
recommendations with respect to the Portfolios based on an evaluation of
their investment objectives and risk tolerances. Shares of the Portfolios
are offered for sale at net asset value by the Distributors to participants
in the Program. Shares of the Portfolios may also be offered to employees
through tax-deferred retirement plans of the Distributors and the Adviser.
Each Portfolio may invest in underlying funds which are sold with a sales
charge. Prospectuses, sales material and applications relating to the
Portfolios can be obtained from the Distributors.
Purchases of shares of the Trust by participants in the Program must be
through a brokerage account maintained with the Distributors. The minimum
investment by participants in the Program is $50,000. The minimum initial
investment for other qualified investors is $1,000, except that the minimum
initial investment for an IRA is $250. The minimum subsequent investment is
$100. The minimum initial investment is waived for purchases by Trustees,
officers and employees of the Trust, the Adviser or a Distributor, including
their immediate families and certain accounts. Each Portfolio also reserves
the right to vary the initial and subsequent investment minimums. All
purchase payments are invested in full and fractional shares. The Trust and
each Distributor are authorized to reject any purchase order.
For each shareholder of record, the Trust, as the shareholder's agent,
establishes an open account to which all shares purchased are credited
together with any dividends and capital gains distributions which are paid
in additional shares. See "Dividends, Distributions and Taxes."
PURCHASES BY CLIENTS OF THE DISTRIBUTORS OR AUTHORIZED SECURITIES DEALERS
If you have a Program account with a Distributor, you may purchase any
Portfolio's Shares through your investment executive. Your investment
executive has the responsibility of submitting your purchase order to IBT on
such day in order to obtain that day's applicable purchase price. Purchase
orders received by IBT after the time of determining that day's purchase
price (generally 4:00 p.m., New York time), are priced according to the net
asset value per Share of the Portfolio next determined on the following
business day. Payment for purchase orders must be made to such Distributor
within three business days of the purchase order.
The Distributors will receive statements and dividends directly from the
Portfolios and will in turn provide you with account statements reflecting
the Portfolios' purchases, redemptions and dividend payments. If you wish
additional information concerning your investment in the Program made
through a Distributor, please call your investment executive.
FUNDMANAGER ADVISORY PROGRAM
The Adviser, through the Program, provides discretionary advisory services
in connection with investments among the Portfolios. Under the Program,
investment executives of the Distributors provide services to an investor by
assisting the investor in identifying his or her financial objectives,
preferences and risk tolerances through evaluation of a confidential
questionnaire-Client Information Guide. Based on its evaluation of the
investor's financial goals and circumstances, the Adviser allocates the
investor's assets among a money market fund in the Freedom Group of Money
Funds and some or all of the Portfolios. The Adviser will adjust each
investor's Program portfolio among the money fund and the Portfolios from
time to time based on its assessment of the economy, interest rates, the
financial markets and macro-economic events worldwide. The Program is a
continuing investment advisory program. Once a Program is active, the
investor receives, at least quarterly, a report containing an analysis and
evaluation of the investor's portfolio. Investment executives of the
Distributors may review the quarterly report with the investor, monitor
identified changes in the investor's financial characteristics and
communicate any changes to the Adviser.
The Distributors are paid a quarterly fee for the services comprising the
Program at the maximum annual rate of 1.35% of assets held in a Program
account. Where the investor is a qualified retirement plan, a different fee
schedule may apply. Investment executives of the Distributors will receive,
and the Adviser may receive, a portion of any fee paid by Program clients.
The Adviser also receives advisory fees from the Portfolios and from each of
the money market funds in the Freedom Group of Money Funds. The Program fees
may be subject to negotiation based on a number of factors including, but
not limited to, the size of the Program account. The operating expenses of
the money market fund and the Portfolios, when combined with the Program
fee, may involve greater fees and expenses than other mutual funds whose
shares are purchased without the benefit of asset allocation recommendations
rendered by investment advisers such as the Adviser.
For participants in the Program, shares of the Portfolios may be purchased
directly through the Distributors only after the completion and processing
of the investor's Client Information Guide and applicable documents. The
offering price is the net asset value per share next determined following
receipt of an order by the Distributors.
REDEMPTION OF SHARES
Upon receipt by the Trust of a redemption request in proper form, Shares of
a Portfolio will be redeemed at the next determined net asset value. See
"Determination of Net Asset Value." For the shareholder's convenience, the
Trust has established several different direct redemption procedures.
REDEMPTION OF SHARES PURCHASED THROUGH A DISTRIBUTOR
In order to redeem your shares purchased through a Distributor in the
Program, you should advise your investment executive, by telephone or mail,
to execute the redemption. Redemption requests received by the close of the
NYSE (generally 4:00 p.m., New York time), are effective that day. Your
investment executive has the responsibility of submitting your redemption
request to IBT on such day in order to obtain that day's applicable
redemption price. There is no redemption charge. Redemption proceeds will be
held in your brokerage account unless you give instructions to your
investment executive to remit the proceeds to you.
DIRECT REDEMPTION
Direct redemptions are not available for shares purchased through a
Distributor's brokerage account. Any such redemption requests received will
be forwarded to your investment executive who will process them as described
above.
The Trust may suspend the right of redemption during any period when (i)
trading on the NYSE is restricted or the NYSE is closed, other than
customary weekend and holiday closings, (ii) the SEC has by order permitted
such suspension or (iii) an emergency, as defined by rules of the SEC,
exists making disposal of portfolio investments or determination of the
value of the net assets of the Portfolios not reasonably practicable.
If the Trustees should determine that it would be detrimental to the best
interests of the remaining shareholders of a Portfolio to make payment
wholly or partly in cash, that Portfolio may pay the redemption price in
whole or in part by a distribution in kind of readily marketable securities
(mutual fund shares or money market instruments) from the portfolio of that
Portfolio, in lieu of cash, in conformity with applicable rules of the SEC.
The Trust will, however, redeem shares solely in cash up to the lesser of
$250,000 or 1% of its net assets during any 90-day period for any one
shareholder.
The proceeds of redemption may be more or less than the amount invested and,
therefore, a redemption may result in a gain or loss for Federal income tax
purposes.
Because the Portfolios incur fixed costs in maintaining shareholder
accounts, the Portfolios reserve the right to redeem your account if its
total value falls below $500 at the end of any month, unless the decrease is
solely the result of a reduction in net asset value per share. If a
Portfolio elects to redeem your account, it will notify you of its intention
to do so and will provide you with an opportunity to increase your account
by investing a sufficient amount to bring the account up to $500 or more
within 30 days of the notice.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Portfolio intends to continue to qualify as a regulated investment
company under Subchapter M of the Code. In any year in which a Portfolio
qualifies as a regulated investment company and distributes substantially
all of its investment company taxable income (which includes, among other
items, the excess of net short-term capital gains over net long-term capital
losses) and its net capital gains (the excess of net long-term capital gains
over net short-term capital losses), the Portfolio will not be subject to
Federal income tax to the extent it distributes to shareholders such income and
capital gains in the manner required under the Code. Amounts not distributed
on a timely basis in accordance with a calendar year distribution
requirement are subject to a nondeductible 4% excise tax. To prevent
imposition of the excise tax, each Portfolio must distribute for each
calendar year an amount equal to the sum of (1) at least 98% of its net
ordinary income (excluding any capital gains or losses) for the calendar year,
(2) at least 98% of the excess of its capital gains over capital losses
(adjusted for certain ordinary losses) realized during the one-year period
ending October 31 of such year, and (3) all ordinary income and capital gains
for previous years that were not distributed during such years. A distribution
will be treated as paid on December 31 of the calendar year if it is declared
by the Portfolio in October, November or December of that year with a record
date in such a month and paid by the Portfolio during January of the following
calendar year. Such distributions will be taxable to shareholders in the
calendar year in which the distributions are declared, rather than the calendar
year in which the distributions are received. The Portfolio intends to
distribute its income in accordance with this requirement to prevent
application of the excise tax.
Each year the Trust will notify shareholders of the tax status of dividends
and distributions.
Income received by a Portfolio from a mutual fund in that Portfolio's
portfolio (including dividends and distributions of short-term capital
gains), as well as interest received on money market instruments and net
short-term capital gains received by the Portfolio on the sale of mutual
fund shares, will be distributed by the Portfolio (after deductions for
expenses) and will be taxable to shareholders as ordinary income. Because
the Portfolios are actively managed and can realize taxable net short-term
capital gains by selling shares of an underlying fund with unrealized
portfolio appreciation, investing in the Portfolio rather than directly in
the underlying funds may result in increased tax liability to the
shareholder, since the Portfolio must distribute its gain in accordance with
the rules in the Code. The Portfolio's ability to dispose of shares of
mutual funds held less than three months may be limited by requirements
relating to a Portfolio's qualification as a regulated investment company
for federal income tax purposes.
Distributions of net capital gains (the excess of net long-term capital
gains over net short-term capital losses) received by a Portfolio from
mutual funds, as well as net long-term capital gains realized by a Portfolio
from the purchase and sale (or redemption) of mutual fund shares or other
securities held (generally) by a Portfolio for more than one year, will be
distributed by the Portfolio and will be taxable to shareholders as
long-term capital gains (even if the shareholder has held the shares for
less than one year). However, if you receive a capital gains distribution
and suffer a loss on the sale of your shares not more than six months after
purchase, the loss will be treated as a long-term capital loss to the extent
of the capital gains distribution received. The long-term capital gains,
including distributions of net capital gains are currently subject to a
maximum federal tax rate of 28% which is less than the maximum rate imposed
on other types of taxable income. Furthermore, capital gains may be
advantageous because, unlike ordinary income, they may be offset by capital
losses.
For purposes of determining the character of income received by the
Portfolio when an underlying fund distributes net capital gains to the
Portfolio, the Portfolio will treat the distribution as a long-term capital
gain, even if it has held shares of the mutual fund for less than one year.
However, any loss incurred by the Portfolio on the sale of that underlying
fund's shares held for six months or less will be treated as a long-term
capital loss to the extent of the gain distribution.
The tax treatment of distributions from a Portfolio is the same whether the
distributions are received in additional shares or in cash. Shareholders
receiving distributions in the form of additional Shares will have a cost
basis for Federal income tax purposes in each share received equal to the
net asset value of a share of the Portfolio on the reinvestment date.
A Portfolio may invest in underlying funds with capital loss carry-forwards.
If such an underlying fund realizes capital gains, it will be able to offset
the gains to the extent of its loss carry-forwards in determining the amount
of capital gains which must be distributed to its shareholders. To the
extent that gains are offset in this manner, the Portfolio will not realize
gains on the related fund until such time as the underlying fund is sold.
Depending on the residence of the shareholder for tax purposes,
distributions also may be subject to state and local taxes, including
withholding taxes. Shareholders should consult their own tax advisers as to
the tax consequences of ownership of shares of the Portfolios in their
particular circumstances.
The Portfolios generally will be required to withhold Federal income tax at
a rate of 31% ("backup withholding") from dividends paid to shareholders if
(a) the payee fails to furnish the Trust with and to certify the payee's
correct taxpayer identification number or social security number, (b) the
Internal Revenue Service (the "IRS") notifies the Trust that the payee has
failed to report properly certain interest and dividend income to the IRS
and to respond to notices to that effect or (c) the payee fails to certify
that he or she is not subject to backup withholding.
Aggressive Growth Portfolio will distribute investment company taxable
income annually; Growth Portfolio will distribute investment company taxable
income semi-annually; Growth with Income Portfolio and Bond Portfolio will
distribute investment company taxable income monthly. Each Portfolio will
distribute any net realized capital gains at least annually. All dividends
and distributions will be reinvested automatically at net asset value in
additional shares of the Portfolio making the distribution, unless you have
notified the Portfolio in writing of your election to receive distributions
in cash.
OTHER INFORMATION
Capitalization
The Trust (initially named FundManager Trust, and since renamed FundManager
Portfolios) was organized as a Delaware business trust on February 7, 1995
as a successor, with respect to the Portfolios, to Republic Funds (formerly,
FundTrust) a Massachusetts business trust (organized on April 22, 1987).
Republic Funds succeeded two previously existing Massachusetts business
trusts, FundTrust Tax-Free Trust (organized on July 30, 1986) and FundVest
(organized on July 17, 1984 and since renamed Fund Source). The Trust
currently consists of five separately-managed portfolios each offering two
classes of shares of beneficial interest, the Financial Adviser Class and
the No-Load Class (except for Managed Total Return, which only offers
Financial Adviser Class). The Trustees may establish additional portfolios
and divide shares in each portfolio into classes in the future. The
capitalization of the Trust consists solely of an unlimited number of shares
of beneficial interest with a par value of $0.001 each. When issued, shares
of the Portfolios are fully paid, non-assessable and freely transferable.
Voting
Shareholders have the right to vote in the election of Trustees and on any
and all matters on which by law or the provisions of the Master Trust
Agreement they may be entitled to vote. When matters are submitted for
shareholder vote, shareholders will have one vote for each full share held
and proportionate, fractional votes for fractional shares held. A separate
vote of a Portfolio or class is required on any matter affecting that
Portfolio or class on which shareholders are entitled to vote. Shareholders
of a Portfolio or class are not entitled to vote on Trust matters that do
not affect the Portfolio or class and do not require a separate vote of the
Portfolio or class. The Trust is not required to hold regular annual
meetings of its shareholders and does not intend to do so. See "Other
Information -- Voting Rights" in the SAI. As of January 8, 1997, Turtle &
Co. FC1202, c/o State Street Bank & Trust Company, P.O. Box 9242, Boston, MA
02209, was the owner of record of 25.72% of the voting securities of the
Growth Portfolio, and therefore, may, for certain purposes be deemed to
control the Portfolio and be able to affect the outcome of certain matters
presented for a vote of shareholders. As of January 8, 1997, Turtle & Co.
FC1202, c/o State Street Bank & Trust Company, P.O. Box 9242, Boston, MA
02209, was the owner of record of 25.66% of the voting securities of the
Growth with Income Portfolio, and therefore, may, for certain purposes be
deemed to control the Portfolio and be able to affect the outcome of certain
matters presented for a vote of shareholders. As of January 8, 1997, Turtle
& Co. FC1202, c/o State Street Bank & Trust Company, P.O. Box 9242, Boston,
MA 02209, was the owner of record of 73.98% of the voting securities of the
Bond Portfolio, therefore, may, for certain purposes be deemed to control
the Portfolio and be able to affect the outcome of certain matters presented
for a vote of shareholders.
The Master Trust Agreement provides that the holders of not less than
three-fourths of the outstanding shares of the Trust may remove a person
serving as Trustee either by declaration in writing or at a meeting called
for such purpose. The Trustees are required to call a meeting for the
purpose of considering the removal of a person serving as Trustee if
requested in writing to do so by the holders of not less than 10% of the
outstanding shares of the Trust.
Shares entitle their holders to one vote per share (with proportionate
voting for fractional shares). As used in this Prospectus, the phrase "vote
of a majority of the outstanding shares" of the Trust, Portfolio or Class
means the vote of the lesser of: (i) 67% of the shares of the Trust,
Portfolio or Class present at a meeting if the holders of more than 50% of
the outstanding shares of the Trust, Portfolio or Class are present in
person or by proxy or (ii) more than 50% of the outstanding shares of the
Trust, Portfolio or Class.
In compliance with applicable provisions of the 1940 Act, shares of the
underlying funds owned by the Portfolios will be voted in the same
proportion as the vote of all other holders of those shares.
Performance Information
The Trust may, from time to time, include quotations of the Portfolios'
yield and total return in advertisements or reports to shareholders or
prospective investors. Quotations of yield will be based on the investment
income per share earned during a particular 30-day period (including
dividends and interest), less expenses accrued during the period ("net
investment income"), and will be computed by dividing net investment income
by the maximum public offering price per share on the last day of the
period. Quotations of total return will be expressed in terms of the average
annual compounded rate of return of a hypothetical investment in the
Portfolio over periods of 1, 5 and 10 years (up to the life of such
Portfolio). All total return figures will reflect a proportional share of
Portfolio expenses on an annual basis, and will assume that all dividends
and distributions are reinvested when paid. Quotations of yield or total
return reflect only the performance of a hypothetical investment in the
Portfolio during the particular time period on which the calculations are
based. Yield and total return for a Portfolio will vary based on changes in
market conditions and the level of such Portfolio's expenses, and no
reported performance figure should be considered an indication of
performance which may be expected in the future.
Consistent with applicable regulatory guidance, for the period prior to its
establishment, the Class will adopt the performance of the Portfolios and
the predecessor Portfolios. The performance for this period will reflect the
deduction of expenses set forth in the Portfolio Expense Table. See
"Portfolio Expenses."
In connection with communicating the Portfolios' yield and total return to
current or prospective shareholders, the Trust also may compare these
figures to the performance of other mutual funds tracked by mutual fund
rating services or to other unmanaged indexes which may assume reinvestment
of dividends but generally do not reflect deductions for administrative and
management costs and expenses.
For a more detailed description of the methods used to calculate each
Portfolio's yield and total return, see the SAI.
OTHER CLASSES OF SHARES
The Portfolios also offer another class of shares called Financial Adviser
Class shares. Financial Adviser Class shares are sold at net asset value as
an investment vehicle for individuals, institutions, corporations and
fiduciaries. The minimum initial investment for Financial Adviser Class
shares of each Portfolio is $1,000, and the minimum subsequent investment is
$100, except that the minimum initial investment for an Individual
Retirement Account ("IRA") is $250.
Both classes are subject to certain of the same expenses. However, Financial
Adviser Class shares are distributed with 12b-1 fees.
Expense differences between classes may affect the performance of each
class.
SHAREHOLDER INQUIRIES
All shareholder inquiries should be directed to your investment executive or
financial adviser or call (800) 344-9033 (Toll Free).
DESCRIPTION OF BOND RATINGS
Excerpts from Moody's description of its bond ratings: Aaa -- judged to be
the best quality. They carry the smallest degree of investment risk; Aa --
judged to be of high quality by all standards. Together with the Aaa group
they comprise what are generally known as high grade bonds; A -- possess
many favorable investment attributes and are to be considered as "upper
medium grade obligations"; Baa -- 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; Ba -- judged to have speculative elements,
their future cannot be considered as well assured; B -- generally lack
characteristics of the desirable investment; Caa -- are of poor standing.
Such issues may be in default or there may be present elements of danger
with respect to principal or interest; Ca -- speculative in a high degree;
often in default; C -- lowest rated class of bonds; regarded as having
extremely poor prospects.
Moody's also supplies numerical indicators 1, 2 and 3 to rating categories.
The modifier 1 indicates that the security is in the higher end of its
rating category; the modifier 2 indicates a mid-range ranking; and 3
indicates a ranking toward the lower end of the category.
Excerpts from S&P's description of its bond ratings: AAA -- highest grade
obligations. Capacity to pay interest and repay principal is extremely
strong;
AA -- also qualify as high grade obligations. A very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree;
A -- regarded as upper medium grade. They have a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
debt in higher rated categories; BBB -- 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. This group is the lowest which qualifies for commercial bank
investment. BB, B, CCC,
CC -- predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with terms of the obligations; BB indicates
the lowest degree of speculation and CC the highest.
S&P applies indicators "+", no character, and "-" to its rating categories.
The indicators show relative standing within the major rating categories.
FUNDMANAGER PORTFOLIOS
(FORMERLY, FUNDMANAGER TRUST)
ONE BEACON STREET
BOSTON, MASSACHUSETTS 02108
INFORMATION: (800) 344-9033 (TOLL FREE)
STATEMENT OF ADDITIONAL INFORMATION
No-Load Class of Shares
Financial Adviser Class of Shares
FundManager Portfolios (the "Trust") is an open-end management investment
company consisting of five separate series (the "Portfolios"). The
Portfolios seek to achieve their objectives by investing in shares of other
open-end investment companies -- commonly called mutual funds.
AGGRESSIVE GROWTH PORTFOLIO (formerly, Aggressive Growth Fund) seeks capital
appreciation without regard to current income.
GROWTH PORTFOLIO (formerly, Growth Fund) primarily seeks long-term capital
appreciation; current income is a secondary consideration.
GROWTH WITH INCOME PORTFOLIO (formerly, Growth & Income Fund) seeks a
combination of capital appreciation and current income.
BOND PORTFOLIO (formerly, Bond Fund, and previously, Income Fund) seeks a
high level of current income.
MANAGED TOTAL RETURN PORTFOLIO (formerly, Managed Total Return Fund) seeks
high total return (capital appreciation and current income).
Two classes of shares, the No-Load Class and the Financial Adviser Class
(each a "Class" and collectively the "Classes"), of the Aggressive Growth
Portfolio, Growth Portfolio, Growth with Income Portfolio and Bond Portfolio
are offered for sale. The Managed Total Return Portfolio offers only one
Class of shares, the Financial Adviser Class. The No-Load Class is offered
for sale at net asset value by Tucker Anthony Incorporated ("Tucker
Anthony") and Sutro & Co. Incorporated ("Sutro") to participants in the
FundManager Advisory Program, and the Financial Adviser Class is offered for
sale at net asset value by Tucker Anthony, Sutro, Edgewood Services, Inc.
("Edgewood") and Freedom Distributors Corporation ("Freedom Distributors")
(collectively, the "Distributors") as an investment vehicle for individuals,
institutions, corporations and fiduciaries. The Financial Adviser Class pays
a distribution fee in connection with the distribution of its shares
pursuant to a Distribution Plan. Prior to May 8, 1995, the Portfolios were a
diversified series of the Republic Funds (the "Predecessor Funds"), also an
open-end, management investment company.
This Statement of Additional Information is not a prospectus and is only
authorized for distribution when preceded or accompanied by the applicable
Prospectus for the No-Load Class or Financial Adviser Class, each dated
January 24, 1997 (each a "Prospectus"). This Statement of Additional
Information contains additional and more detailed information than that set
forth in each Prospectus and should be read in conjunction with such
Prospectus. You may request additional copies of a Prospectus or a paper
copy of this Statement of Additional Information, if you have received it
electronically, without charge by writing or calling the Trust at the
address and information number printed above.
This Statement of Additional Information is dated January 24, 1997.
Table of Contents
<TABLE>
<S> <C>
Investment Policies 1
U.S. Government Securities 1
Bank Obligations 1
Commercial Paper 1
Repurchase Agreements 1
Investment Restrictions 2
Management 3
Trustees and Officers 3
Trustees' Compensation 4
Investment Adviser 5
Administrator 6
Distributors 6
Service Organizations 8
FundManager Advisory Program 8
Portfolio Transactions 9
Other Information 10
Capitalization 10
Voting Rights 10
Performance Information 10
Independent Auditors 12
Counsel 12
Registration Statement 13
Financial Statements 13
</TABLE>
INVESTMENT POLICIES
Although the Portfolios invest primarily in the shares of other mutual
funds, they also are authorized to invest for temporary defensive purposes
or as may be considered necessary to accumulate cash for investments or to
meet anticipated redemptions in a variety of short-term debt securities,
including U.S. Treasury bills and other U.S. government securities,
commercial paper, certificates of deposit, bankers' acceptances and
repurchase agreements with respect to such securities. The following
information supplements the discussion of the investment objectives and
policies of the Portfolios found under "Investment Objectives" in the
Prospectus.
U.S. GOVERNMENT SECURITIES
The Portfolios may invest in obligations issued or guaranteed by the United
States government or its agencies or instrumentalities which have remaining
maturities not exceeding one year. The U.S. government securities in which
the Portfolios invest are either issued or guaranteed by the U.S.
government, its agencies or instrumentalities. The U.S. government
securities in which the Portfolios invest include, but are not limited to:
* direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes and bonds;
* notes, bonds, and discount notes issued or guaranteed by U.S. government
agencies and instrumentalities supported by the full faith and credit of the
United States;
* notes, bonds, and discount notes of U.S. government agencies or
instrumentalities which receive or have access to federal funding; and
* notes, bonds, and discount notes of other U.S. government
instrumentalities supported only by the credit of the instrumentalities.
BANK OBLIGATIONS
The Portfolios may invest in obligations of U.S. banks (including
certificates of deposit and bankers' acceptances) having total assets at the
time of purchase in excess of $1 billion. Such banks shall be members of the
Federal Deposit Insurance Corporation.
A certificate of deposit is an interest-bearing negotiable certificate
issued by a bank against funds deposited in the bank. A bankers' acceptance
is a short-term draft drawn on a commercial bank by a borrower, usually in
connection with an international commercial transaction. Although the
borrower is liable for payment of the draft, the bank unconditionally
guarantees to pay the draft at its face value on the maturity date.
COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory notes issued in
bearer form by bank holding companies, corporations and finance companies.
The commercial paper purchased by the Portfolios consists of direct
obligations of domestic issuers which, at the time of investment, are: (i)
rated in the highest commercial paper rating category by a nationally
recognized statistical rating organization ("NRSRO"), such as "P-1" by
Moody's Investors Service, Inc. ("Moody's") or "A-1" or better by Standard &
Poor's Ratings Group ("Standard & Poor's"); (ii) issued or guaranteed as to
principal and interest by issuers or guarantors having an existing debt
security rating of "Aa" or better by Moody's or "AA" or better by Standard &
Poor's or a similar high grade rating by another NRSRO; or (iii) securities
which, if not rated, are, in the opinion of Freedom Capital Management
Corporation, the Portfolios' investment adviser ("Freedom Capital
Management" or the "Adviser"), of an investment quality comparable to rated
commercial paper in which the Funds may invest.
The rating "P-1" is the highest commercial paper rating assigned by Moody's
and the ratings "A-1" and "A-1+" are the highest commercial paper ratings
assigned by Standard & Poor's. Debts rated "Aa" or better by Moody's or "AA"
or better by Standard & Poor's are generally regarded as high-grade
obligations and such ratings indicate that the ability to pay principal and
interest is very strong.
REPURCHASE AGREEMENTS
The Portfolios may invest in securities subject to repurchase agreements
with banks or broker-dealers. A repurchase agreement is a transaction in
which the seller of a security commits itself at the time of the sale to
repurchase that security from the buyer at a mutually agreed upon time and
price. The repurchase price exceeds the sale price, reflecting an agreed
upon interest rate effective for the period the buyer owns the security
subject to repurchase. The agreed upon rate is unrelated to the interest
rate on that security. The Adviser will monitor the value of the underlying
security at the time the transaction is entered into and at all times during
the term of the repurchase agreement to insure that the value of the
security always equals or exceeds the repurchase price. In the event of
default by the seller under the repurchase agreement, a Portfolio may have
problems in exercising its rights to the underlying securities and may incur
costs and experience time delays in connection with the disposition of such
securities. Repurchase agreements are considered to be loans under the
Investment Company Act of 1940 (the "1940 Act") collateralized by the
underlying securities.
INVESTMENT RESTRICTIONS
The following investment restrictions are in addition to those described
under "Investment Objectives" and "Investment Policies and Restrictions" in
the Prospectus. The following restrictions may not be changed with respect
to a Portfolio without the approval of the holders of a majority of that
Portfolio's outstanding securities. Except that a Portfolio may invest all
of its investable assets in an open-end investment company with
substantially the same investment policies and restrictions as the
Portfolio, a Portfolio will not:
1. Purchase or otherwise acquire interests in real estate, real estate
mortgage loans or interests in oil, gas or other mineral leases, as well as
exploration or development programs, except that a Portfolio may purchase
securities issued by companies, including real estate investment trusts,
which invest in real estate or interests therein.
2. Make loans, except that a Portfolio may purchase and hold publicly
distributed debt securities and it may enter into repurchase agreements.
3. Invest in securities of any issuer which, together with any predecessor,
has been in operation for less than three years if, as a result, more than
5% of the total assets of the Portfolio would then be invested in such
securities.
4. Purchase the securities of an issuer if, to a Portfolio's knowledge, one
or more of the Trustees or Officers of the Trust individually owns more than
one half of 1% of the outstanding securities of such issuer and together
beneficially own more than 5% of such securities.
5. Sell securities short or invest in puts, calls, straddles, spreads or
combinations thereof.
6. Purchase securities on margin, except such short-term credits as are
necessary for the clearance of transactions.
7. Purchase or acquire commodities or commodity contracts.
8. Act as an underwriter of securities.
9. Issue senior securities, except insofar as a Portfolio may be deemed to
have issued a senior security in connection with any repurchase agreement or
any permitted borrowing.
10. Purchase warrants, valued at the lower of cost or market, in excess of
10% of the value of a Portfolio's net assets. Included within that amount,
but not to exceed 2% of the value of the Portfolio's net assets, may be
warrants that are not listed on the New York or American Stock Exchanges or
an exchange with comparable listing requirements. Warrants attached to
securities are not subject to this limitation.
In addition, as non-fundamental policies, a Portfolio will not: (i) invest
in securities for the purpose of exercising control over or management of
the issuer; (ii) purchase or otherwise acquire interests in real estate
limited partnerships; (iii) participate in a joint or a joint-and-several
basis in any trading account in securities; (iv) purchase securities of any
closed-end investment company or any investment company which is not
registered in the United States; (v) invest in commodity futures contracts;
(vi) invest more than 10% of the Funds' total assets (taken at the greater
of cost or market value) in securities (excluding 144A securities) that are
restricted as to resale under the Securities Act of 1933, as amended ("1933
Act"); (vi) purchase warrants valued at the lower of cost or market, in
excess of 5% of the value of a Fund's net assets; (vii) with respect to 75%
of the Fund's total assets, purchase securities of any issuer if such
purchase at the time thereof would cause the Fund to hold more than 10% of
any class of securities of such issuer, for which purposes all indebtedness
of an issuer shall be deemed a single class and all preferred stock of an
issuer shall be deemed a single class, except that futures or option
contracts shall not be subject to this restriction; (ix) invest more than
15% of the Fund's total assets (taken at the greater of cost or market
value) in (a) securities (including Rule 144A securities) that are
restricted as to resale under the 1933 Act, and (b) securities that are
issued by issuers which (including predecessors) have been in operation less
than three years (other than U.S. government securities), provided, however,
that no more than 5% of the Portfolio's (Portfolio's) total assets are
invested in securities issued by issuers which (including predecessors) have
been in operation less than three years. These additional policies may be
changed as to a Portfolio by the Board of Trustees (the "Trustees") without
shareholder approval.
The underlying funds in which a Portfolio invests may, but need not, have
the same investment policies as a Portfolio. Although all of the Portfolios
may, from time to time, invest in shares of the same underlying fund, the
percentage of each Portfolio's Fund's assets so invested may vary, and the
Adviser will determine that such investments are consistent with the
investment objectives and policies of each particular Portfolio.
MANAGEMENT
TRUSTEES AND OFFICERS
The principal occupations of the Trustees and executive officers of the
Trust for the past five years and their ages are listed below. The address
of each, unless otherwise indicated, is One Beacon Street, Boston,
Massachusetts 02108.
DEXTER A. DODGE* (62), TRUSTEE, CHAIRMAN AND CHIEF EXECUTIVE OFFICER,
Chairman of the Adviser since October 1994. President and Managing Director
of the Adviser since 1992. Vice President of Freedom Distributors
Corporation since 1989. Chairman of the Boards and Chief Executive Officer
of Freedom Mutual Fund and Freedom Group of Tax Exempt Funds since July
1992.
ERNEST T. KENDALL (64), TRUSTEE, 230 Beacon Street, Boston, Massachusetts
02116. President, Commonwealth Research Group, Inc., Boston, Massachusetts,
a consulting firm specializing in microeconomics, regulatory economics and
labor economics, since 1978. Trustee of Freedom Mutual Fund and Freedom
Group of Tax Exempt Funds since September 1993.
JOHN R. HAACK (54), TRUSTEE since December 16, 1996, 311 Commonwealth
Avenue, #81, Boston, Massachusetts 02115. Vice President of Operations,
Reliable Transaction Processing, 1995 to present. Major General, Assistant
to the Commander in Chief, U.S. Space Command, 1993 to 1995. General
Manager, Unilect Industries, which is an electrical component manufacturer,
1993 to 1994. Brigadier General, Commander of 102nd Fighter Interceptor
Wing, U.S. Air Force and Air National Guard, 1986 to 1993.
RICHARD B. OSTERBERG (52), TRUSTEE, 84 State Street, Boston, Massachusetts
02109. Member of the law firm of Weston, Patrick, Willard & Redding, Boston,
Massachusetts,since 1978. Trustee of Freedom Mutual Fund and Freedom Group
of Tax Exempt Funds since September 1993.
CHARLES B. LIPSON (50), PRESIDENT AND PRINCIPAL EXECUTIVE OFFICER, 200
Liberty Street, New York, New York 10281. President and founding partner of
the M.D. Hirsch Division of Freedom Capital since January 1995. President
and Chief Operating Officer of the M.D. Hirsch Division of Republic Asset
Management Corporation from February 1991 to December 1994. Senior Vice
President and Chief Operating Officer of Home Capital Services, Inc. prior
to February 1991.
JOHN J. DANELLO (41), EXECUTIVE VICE PRESIDENT. President, Chief Operating
Officer and Secretary of the Adviser since October 1994. Vice
President-Managing Director, Clerk and General Counsel of the Adviser from
November 1986 to October 1994. President and Director since February 1989
and Clerk since February 1987 of Freedom Distributors Corporation. President
and Secretary of Freedom Mutual Fund and Freedom Group of Tax Exempt Funds
since July 1992.
MICHAEL D. HIRSCH (51), EXECUTIVE VICE PRESIDENT AND PORTFOLIO MANAGER, 200
Liberty Street, New York, New York 10281. Chairman, M.D. Hirsch Division of
the Adviser since February 1995. Vice Chairman and Managing Director, M.D.
Hirsch Division of Republic Asset Management Corporation from June 1993 to
February 1994. President M.D. Hirsch Investment Management, Inc. from
February 1991 to June 1993. Chief Investment Officer, Republic National Bank
of New York prior to February 1991.
VICTOR R. SICLARI (35), SECRETARY, Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. Vice President and Corporate Counsel, Federated
Administrative Services since 1992; Associate of Morrison & Foerster, a law
firm, from 1990 to 1992.
JUDITH J. MACKIN (36), TREASURER, Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. Assistant Vice President and Director of the Client
Management and Services Group of Federated Administrative Services.
EDWARD C. GONZALES (66), EXECUTIVE VICE PRESIDENT, Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779. Vice Chairman, Treasurer, and
Trustee, Federated Investors; Vice President, Federated Advisers, Federated
Management, Federated Research, Federated Research Corp., Federated Global
Research Corp. and Passport Research, Ltd.; Executive Vice President and
Director, Federated Securities Corp.; Trustee, Federated Shareholder
Services Company; Chairman, Treasurer, and Trustee, Federated Administrative
Services.
RONALD M. PETNUCH (36), EXECUTIVE VICE PRESIDENT, Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. Vice President and Director of the
Client Management and Services Group of Federated Administrative Services.
* Trustee may be deemed to be an "interested person" of the Trust as defined
by the 1940 Act.
Mr. Danello is also an officer of certain other investment companies for
which the Adviser or an affiliate is the investment adviser. Messrs.
Gonzales, Petnuch, Siclari and Ms. Mackin are also directors, trustees
and/or officers of certain other investment companies for which Federated
Investors or its subsidiaries serve as investment adviser, administrator
and/or principal underwriter.
TRUSTEES' COMPENSATION
<TABLE>
<CAPTION>
<S> <C> <C>
NAME, AGGREGATE COMPENSATION TOTAL COMPENSATION PAID
POSITION WITH TRUST FROM TRUST*# FROM TRUST AND FREEDOM COMPLEX+**
Dexter A. Dodge $0 for the Trust and
Trustee $ 0 4 other investment companies in the Freedom Complex
Ernest T. Kendall $6,600 $20,400 for the Trust and
Trustee 4 other investment companies in the Freedom Complex
John R. Haack $0 for the Trust and
Trustee $ 0 4 other investment companies in the Freedom Complex
Richard B. Osterberg $6,600 $20,400 for the Trust and
Trustee 4 other investment companies in the Freedom Complex
</TABLE>
* Information is furnished for the fiscal year ended September 30, 1996.
* Freedom Complex refers to both Freedom Mutual Fund and Freedom Group of
Tax Exempt Funds.
# The aggregate compensation is provided for the Trust which is comprised of
5 Portfolios.
+ The information is provided for the last fiscal year.
Trustees who are not interested persons of the Trust receive an annual
retainer of $3,600 and a fee of $600 for each meeting of the Trustees or
committee thereof attended. The chairperson of each of the Audit and
Contracts Committee receives an additional fee per annum of $600. Mr.
Kendall serves as chairperson of the Audit Committee and Mr. Osterberg
serves as chairperson of the Contracts Committee. Interested persons of the
Trust who serve as Trustee receive no fees from the Trust. All Trustees of
the Trust are reimbursed for expenses for attendance at meetings. The Trust
has no bonus, profit sharing, pension or retirement plans. For the fiscal
year ended September 30, 1996, the Trust paid $12,893 in Trustee fees and
expenses.
The Trustees of the Trust have two committees, an Audit Committee and a
Contracts Committee. The Audit Committee assists the Board in fulfilling its
duties relating to accounting and financial reporting practices and serves
as a direct line of communication between the Board and the independent
auditors. The Audit Committee is responsible for recommending the engagement
or retention of the independent accountants, reviewing with the independent
accountants the plan and the results of the auditing engagement, approving
professional services provided by the independent accountants prior to the
performance of such services, considering the range of audit and non-audit
fees, reviewing the independence of the independent auditors, reviewing the
scope and results of procedures for internal auditing, and reviewing the
system of internal accounting control.
The function of the Contracts Committee is to assist the Board in fulfilling
its duties with respect to the review and approval of contracts between the
Trust, on behalf of the Portfolios, and other entities, including entering
into new contracts and the renewal of existing contracts. The Contracts
Committee considers investment advisory, distribution, transfer agency,
administrative service and custodial contracts and such other contracts as
the Board deems necessary or appropriate for the continuation of operations
of the Portfolios or the Trust. The Contracts Committee will also be
responsible for the selection and nomination of Trustees who are not
"interested persons" within the meaning of the 1940 Act of the Trust.
Except for Mr. Haack, all of the Trustees who are not "interested persons"
within the meaning of the 1940 Act of the Trust currently serve on the Audit
and Contracts Committees.
As of January 8, 1997, the Trustees and Officers of the Trust, as a group,
owned less than 1% of the outstanding shares of each Portfolio. As of the
same date, the following persons owned of record, or beneficially owned, 5%
or more of a the outstanding shares of the Portfolios (percentage is
percentage of outstanding shares of a Portfolio owned by the shareholder):
AGGRESSIVE GROWTH PORTFOLIO -- Charles Schwab & Co., Inc., Special Custody
Account for the exclusive benefit of customers, Attn: Mutual Funds, 101
Montgomery Street, San Francisco, CA 94104 owned 24.86%; Turtle & Co.
FC1202, c/o State Street Bank & Trust Company, P.O. Box 9242, Boston, MA
02209, owned 14.81%; and Turtle & Co. F00001, c/o State Street Bank & Trust
Company, P.O. Box 9242, Boston, MA 02209, owned 10.16% of the Portfolio's
Financial Adviser Class shares.
Prudential Securities, Inc., Special Custody Account, Exclusive Benefit
Customer, One New York Plaza, New York, NY 10292-0001, owned 99.14% of the
Portfolio's No-Load Class shares.
GROWTH PORTFOLIO -- Turtle & Co. FC1202, c/o State Street Bank & Trust
Company, P.O. Box 9242, Boston, MA 02209, owned 26.71%; Turtle & Co. F00001,
c/o State Street Bank & Trust Company, P.O. Box 9242, Boston, MA 02209,
owned 18.51%; and Charles Schwab & Co., Inc., Special Custody Account for
the exclusive benefit of customers, Attn: Mutual Funds, 101 Montgomery
Street, San Francisco, CA 94104, owned 10.63% of the Portfolio's Financial
Adviser Class shares.
Prudential Securities, Inc., Special Custody Account, Exclusive Benefit
Customer, One New York Plaza, New York, NY 10292-0001, owned 99.27% of the
Portfolio's No-Load Class shares.
GROWTH WITH INCOME PORTFOLIO -- Turtle & Co. FC1202, c/o State Street Bank &
Trust Company, P.O. Box 9242, Boston, MA 02209, owned 26.27%; Turtle & Co.
F00001, c/o State Street Bank & Trust Company, P.O. Box 9242, Boston, MA
02209, owned 21.08%; Charles Schwab & Co., Inc., Special Custody Account for
the exclusive benefit of customers, Attn: Mutual Funds, 101 Montgomery
Street, San Francisco, CA 94104, owned 5.34%; and Andrei Dragomer MD.,
Radiology Inc. Profit Sharing Plan Tr, 1230 Franklin Parkway, Munster, IN
46321-3704, owned 5.21% of the Portfolio's Financial Adviser Class shares.
Prudential Securities, Inc., Special Custody Account, Exclusive Benefit
Customer, One New York Plaza, New York, NY 10292-0001, owned 97.11% of the
Portfolio's No-Load Class shares.
BOND PORTFOLIO -- Turtle & Co. FC1202, c/o State Street Bank & Trust
Company, P.O. Box 9242, Boston, MA 02209, owned 76.32%; and Charles Schwab &
Co., Inc., Special Custody Account for the exclusive benefit of customers,
Attn: Mutual Funds, 101 Montgomery Street, San Francisco, CA 94104, owned
9.89% of the Portfolio's Financial Adviser Class shares.
Prudential Securities, Inc., Special Custody Account, Exclusive Benefit
Customer, One New York Plaza, New York, NY 10292-0001, owned 99.26% of the
Portfolio's No-Load Class shares.
MANAGED TOTAL RETURN PORTFOLIO -- Cates Sheet Metal Industries Inc., Profit
Sharing Plan, U/A DTD 7-1-91, Michael E. Coughlin Tr, 5828 Reeds Rd,
Mission, KS 66202-0000, owned 5.39% of the Portfolio's Financial Adviser
Class shares.
The Trust's Master Trust Agreement provides that it will indemnify its
Trustees and officers against liabilities and expenses incurred in
connection with litigation in which they may be involved because of their
offices with the Trust, unless, as to liability to the Trust or its
shareholders, it is finally adjudicated that they engaged in wilful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in their offices, or unless with respect to any other matter it is
finally adjudicated that they did not act in good faith in the reasonable
belief that their actions were in the best interests of the Trust. In the
case of settlement, such indemnification will not be provided unless it has
been determined by a court or other body approving the settlement or other
disposition, or by a reasonable determination, based upon a review of
readily available facts, by vote of a majority of disinterested Trustees or
in a written opinion of independent counsel, that such officers or Trustees
have not engaged in wilful misfeasance, bad faith, gross negligence or
reckless disregard of their duties.
INVESTMENT ADVISER
Pursuant to an Investment Advisory Contract, Freedom Capital Management is
responsible for the investment management of each Portfolio's assets,
including the responsibility for making investment decisions and placing
orders for the purchase and sale of each Portfolio's investments directly
with the issuers or with brokers or dealers selected by it in its
discretion, including Freedom Distributors and Edgewood. See "Portfolio
Transactions." The Adviser also furnishes to the Trustees, which have
overall responsibility for the business and affairs of the Trust, periodic
reports on the investment performance of the Portfolios. The Adviser is a
registered investment advisory firm which maintains a large securities
research department, the efforts of which will be made available to the
Portfolios.
Thomas H. Lee Equity Fund III, L.P. is Massachusetts limited partnership.
The general partner of Thomas H. Lee Equity Fund III, L.P. is THL Equity
Advisors III Limited Partnership, a Massachusetts limited partnership. The
general partner of THL Equity Advisors III Limited Partnership is THL Equity
Trust III, a Massachusetts business trust. The sole beneficial owner of THL
Equity Trust III is Thomas H. Lee. The address of Thomas H. Lee Equity Fund
III, L.P., THL Equity Advisors III Limited Partnership and THL Equity Trust
III is 75 State Street, Boston, Massachusetts 02109.
SCP Private Equity Partners, L.P. is a Delaware limited partnership. The
general partner of SCP Private Equity Partners, L.P. is SCP Private Equity
Management, L.P., a Delaware limited partnership. The interests of SCP
Private Equity Management, L.P. are divided equally among its three general
partners: Safeguard Capital Management, Inc. (which is a wholly owned
subsidiary of Safeguard Scientifics, Inc., a publicly held company), Winston
J. Churchill and Samuel A. Plum. The address of SCP Private Equity Partners,
L.P., SCP Private Equity Management, L.P., Safeguard Capital Management,
Inc., Winston J. Churchill and Samuel A. Plum is 435 Devon Park Drive,
Wayne, Pennsylvania 19087.
For a more complete description of the Adviser see "Management of
FundManager Portfolios--The Adviser" in your Prospectus.
The investment advisory services of the Adviser to the Portfolios are not
exclusive under the terms of the Investment Advisory Contract. The Adviser
is free to render investment advisory services to others.
For its services as investment adviser, the Adviser receives from each
Portfolio a fee, payable monthly, at the annual rate of 0.50% of each
Portfolio's average daily net assets up to $500 million and 0.40% of its
average daily net assets in excess of $500 million. M.D. Hirsch Investment
Management, Inc. ("Hirsch") served as investment adviser to the Predecessor
Funds from the period October 1, 1992 through August 30, 1993, at which time
Republic Asset Management Corporation became investment adviser to the
Predecessor Funds.
For the period from October 1, 1993 through September 30, 1994, Republic
Asset Management Corporation received advisory fees equal to $185,146,
$151,169, $255,691, $367,423 and $111,391, respectively, from the
Predecessor Funds of Aggressive Growth Portfolio, Growth Portfolio, Growth
with Income Portfolio, Bond Portfolio and Managed Total Return Portfolio.
Republic Asset Management Corporation served as investment adviser to the
Predecessor Funds until February 20, 1995, at which time Freedom Capital
Management became investment adviser to the Predecessor Funds. For the
period from October 1, 1994 through February 20, 1995, Aggressive Growth
Portfolio, Growth Portfolio, Growth with Income Portfolio, Bond Portfolio
and Managed Total Return Portfolio paid advisory fees before reimbursements
of $74,692, $66,712, $99,675, $151,276 and $32,185, respectively to Republic
Asset Management Corporation. For the period from February 21, 1995 through
September 30, 1995, Aggressive Growth Portfolio, Growth Portfolio, Growth
with Income Portfolio, Bond Portfolio and Managed Total Return Portfolio
paid advisory fees of $109,055, $89,497, $130,491, $216,909 and $44,931,
respectively, to Freedom Capital Management. For the period from October 1,
1995 through September 30, 1996, Aggressive Growth Portfolio, Growth
Portfolio, Growth with Income Portfolio, Bond Portfolio and Managed Total
Return Portfolio paid advisory fees before reimbursements of $183,337,
$132,472, $167,996, $367,138 and $67,171, respectively, to the Adviser. The
Investment Advisory Contract will continue in effect from year to year
provided such continuance is approved annually (i) by the holders of a
majority of the outstanding voting securities of a Portfolio or by the
Trustees and (ii) by a majority of the Trustees who are not parties to such
Contract or "interested persons" (as defined in the 1940 Act) of any such
party. The Contract may be terminated with respect to a Portfolio on 60
days' written notice by either party to the Contract and will terminate
automatically if assigned.
Mr. Osterberg, a Trustee of the Trust, is a member of the law firm of
Weston, Patrick, Willard & Redding, which has retained the Adviser from time
to time to provide investment advisory consulting services for clients of
such firm.
ADMINISTRATOR
The Trustees of the Trust have approved an Administrative Services Contract
between the Trust and Federated Administrative Services ("FAS") (effective
November 11, 1996) pursuant to which FAS replaced Signature Broker-Dealer
Services, Inc. ("Signature") as Administrator of the Trust and each Class of
shares of each of the Portfolios. In this capacity, FAS will provide certain
administrative and personnel services to the Portfolios for a fee as
described in the Prospectus.
The administrative and personnel services necessary for the operation of the
Trust provided by the Administrator include among other things: (i)
preparation of shareholder reports and communications; (ii) regulatory
compliance, such as reports to and filings with the Securities and Exchange
Commission ("SEC") and state securities commissions; and (iii) general
supervision of the operation of the Trust, including coordination of the
services performed by the Trust's investment adviser, transfer agent,
custodian, independent auditors, legal counsel and others. In addition, the
Administrator furnishes office space and facilities required for conducting
the business of the Trust and pays the compensation of the Trust's officers,
employees and Trustees (if any) affiliated with the Administrator.
For the period from October 1, 1993 through September 30, 1994, Signature
(the former Administrator) received $92,971, $74,730, $125,890, $175,110 and
$55,845, respectively, from the Predecessor Funds of Aggressive Growth
Portfolio, Growth Portfolio, Growth with Income Portfolio, Bond Portfolio
and Managed Total Return Portfolio. For the period from
October 1, 1994 through September 30, 1995, Signature received $91,873,
$78,104, $115,086, $172,206 and $38,540, respectively, from Aggressive
Growth Portfolio, Growth Portfolio, Growth with Income Portfolio, Bond
Portfolio and Managed Total Return Portfolio. For the period from October 1,
1995 through September 30, 1996, Signature received $91,669, $66,236,
$83,998, $171,868 and $33,586, respectively, from Aggressive Growth
Portfolio, Growth Portfolio, Growth with Income Portfolio, Bond Portfolio
and Managed Total Return Portfolio, of which $22,675, $14,995, $19,270,
$37,200 and $7,522, respectively, was waived.
DISTRIBUTORS
The Trustees of the Trust have approved a Distribution Contract between the
Trust and the Distributors, pursuant to which such Distributors provide
shareholder servicing services and/or distribute the Financial Adviser Class
of shares of each of the Portfolios. The Trustees of the Trust has also
approved a Distribution Contract between the Trust and each of Tucker
Anthony and Sutro pursuant to which such distributors provide shareholder
servicing services and distribute the No-Load Class of shares of each of the
Aggressive Growth Portfolio, Growth Portfolio, Growth with Income Portfolio
and Bond Portfolio.
The Distributors are not obligated to sell any specific amount of shares.
Under a Distribution Plan (the "Plan") adopted by the Financial Adviser
Class of the Aggressive Growth Portfolio, Growth Portfolio, Growth with
Income Portfolio, Bond Portfolio and Managed Total Return Portfolio, each
such Portfolio may reimburse the distributors monthly (subject to a limit of
0.50% per annum of the Portfolio's average daily net assets attributable to
the Financial Adviser Class) for the sum of (a) direct costs and expenses
incurred by the Distributors in connection with advertising and marketing of
the Financial Adviser Class of shares and (b) payment of fees to one or more
broker-dealers or other organizations (other than banks) for services
rendered in the distribution of the Financial Adviser Class of shares and
for the provision of personal services and account maintenance services with
respect to Portfolio shareholders, including payments in amounts based on
the average daily value of Portfolio shares owned by shareholders in respect
of which the broker-dealer or organization has a relationship. The fees and
reimbursements paid by a Portfolio to the Distributors may equal up to 0.50%
of the Portfolio's average daily net assets attributable to the Financial
Adviser Class of shares, of which up to 0.25% of a Portfolio's average daily
net assets attributable to the Financial Adviser Class may be paid for
shareholder servicing expenses. Any payment by a Distributor or
reimbursement of a Distributor by a Portfolio made pursuant to the Plan is
contingent upon Trustees' approval. A report of the amounts expended
pursuant to the Plan, and the purposes for which such expenditures were
incurred, must be made to the Trustees for their review at least quarterly.
The Plan permits, among other things, payment by the Portfolios of the costs
of preparing, printing and distributing prospectuses and of implementing and
operating the Plan. The Plan also permits the distributors to receive and
retain brokerage commissions with respect to portfolio transactions for
mutual funds in the Portfolios' portfolios, including funds which have a
policy of considering sales of their shares in selecting broker-dealers for
the execution of their portfolio transactions. In addition, Freedom
Distributors and Edgewood may receive dealer reallowances (up to a maximum
of 1% of the public offering price with respect to Freedom Distributors)
and/or distribution payments, shareholder servicing fees or "trailer fees"
from the underlying mutual funds purchased by the Portfolios.
The Plan provides that it may not be amended to increase materially the
costs which a Portfolio may bear pursuant to the Plan without shareholder
approval and that other material amendments of the Plan must be approved by
the Board of Trustees, and by the Trustees who are neither "interested
persons" (as defined in the 1940 Act) of the Trust nor have any direct or
indirect financial interest in the operation of the Plan or in any related
agreement, by vote cast in person at a meeting called for the purpose of
considering such amendments. While the Plan is in effect, the selection and
nomination of the Trustees of the Trust has been committed to the discretion
of the Trustees who are not "interested persons" of the Trust. The Plan has
been approved, and is subject to annual approval, by the Board of Trustees
and by the Trustees who are neither "interested persons" nor have any direct
or indirect financial interest in the operation of the Plan, by vote cast in
person at a meeting called for the purpose of voting on the Plan. The
Trustees considered alternative methods to distribute the Financial Adviser
Class of shares of the Portfolios and to reduce the Financial Adviser Class'
per share expense ratios and concluded that there was a reasonable
likelihood that the Plan will benefit the Class and its shareholders. The
Plan is terminable with respect to the Financial Adviser Class or a
Portfolio at any time by a vote of a majority of the Trustees who are not
"interested persons" of the Trust and who have no direct or indirect
financial interest in the operation of the Plan or by vote of the holders of
a majority of the shares of that Portfolio or Class.
During the fiscal year ended September 30, 1996, the Portfolios spent,
pursuant to their 12b-1 plans on behalf of the Financial Adviser Class, the
following amounts on:
<TABLE>
<CAPTION>
MANAGED
AGGRESSIVE GROWTH WITH TOTAL
GROWTH GROWTH INCOME BOND RETURN
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C>
Advertising, Printing and mailing of prospectuses $28,302 $18,934 $30,072 $ 98,379 $0
to other than current shareholder
Compensation to broker-dealers 150,322 112,166 141,719 265,319 67,171
Total $178,624 $131,100 $171,791 $363,698 $67,171
Total as a percentage of average daily net assets
during period 0.50% 0.50% 0.50% 0.50% 0.50%
</TABLE>
Sutro, John Hancock, Edgewood, Freedom Distributors and their affiliates
currently provide administration and/or distribution services for other
registered investment companies. The Portfolios will not invest in any fund
which may be affiliated with the Distributors or any of their affiliates
unless otherwise permitted under the 1940 Act.
SERVICE ORGANIZATIONS
Pursuant to the Plan, the Trust also contracts with banks, trust companies,
broker-dealers (other than the Distributors) or other financial
organizations ("Service Organizations") to provide certain administrative
services for each Portfolio's Financial Adviser Class of shares. Services
provided by service organizations may include, among other things, providing
necessary personnel and facilities to establish and maintain certain
shareholder accounts and records; assisting in processing purchase and
redemption transactions; arranging for the wiring of funds; transmitting and
receiving funds in connection with client orders to purchase or redeem
shares; verifying and guaranteeing client signatures in connection with
redemption orders, transfers among and changes in client-designated
accounts; providing periodic statements showing a client's account balances
and, to the extent practicable, integrating such information with other
client transactions; furnishing periodic and annual statements and
confirmations of all purchases and redemptions of shares in a client's
account; transmitting proxy statements, annual reports, and updating
prospectuses and other communications from the trust to clients; and such
other services as the trust or a client reasonably may request, to the
extent permitted by applicable statute, rule or regulation. The Distributors
and the Adviser will not be service organizations or receive fees for
servicing.
FUNDMANAGER ADVISORY PROGRAM
Shares of the No-load Class of shares will be offered to participants in the
FundManager Advisory Program who receive, for an advisory fee at a maximum
annual rate based upon a percentage of assets invested, certain services,
including asset allocation recommendations with respect to the funds based
on an evaluation of their investment objectives and risk tolerances.
PORTFOLIO TRANSACTIONS
As part of its obligations under the investment advisory contract, the
Adviser places all orders for the purchase and sale of portfolio investments
for the Portfolios' accounts with brokers or dealers selected by it in its
discretion, including Freedom Distributors or Edgewood. In selecting a
broker, the Adviser considers a number of factors including the research and
other investment information provided by the broker.
The following is the sales charges paid on underlying fund investments.
SALES CHARGES PAID BY PREDECESSOR FUNDS
FOR FISCAL YEAR ENDED SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
GROSS SALES PAID TO PERCENT OF
CHARGES SIGNATURE TOTAL
<S> <C> <C> <C>
Aggressive Growth Portfolio $22,000 $17,403 76.92%
Growth Portfolio 0 0 N/A
Growth with Income Portfolio 0 0 N/A
Bond Portfolio 0 0 N/A
Managed Total Return Portfolio 300 225 75.00%
</TABLE>
Total sales charges and total dollar amount of transactions on which sales
charges were paid during the fiscal year ended September 30, 1994, were
$22,925 and $2,635,000, respectively, of which Signature received 76.89%.
SALES CHARGES PAID BY PORTFOLIOS
FOR FISCAL YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
SALES CHARGES
GROSS SALES PAID TO PERCENT OF
CHARGES SIGNATURE TOTAL
<S> <C> <C> <C>
Aggressive Growth Portfolio $2,000 $1,500 75.00%
Growth Portfolio 150 135 90.00%
Growth with Income Portfolio 0 0 N/A
Bond Portfolio 0 0 N/A
Managed Total Return Portfolio 0 0 N/A
</TABLE>
Total sales charges and total dollar amount of transactions on which sales
charges were paid during the fiscal year ended September 30, 1995, were
$2,150 and $230,000, respectively, of which Signature received 76.05%. As of
September 30, 1995, the Funds' shares have not been divided into classes.
SALES CHARGES PAID BY PORTFOLIOS
FOR FISCAL YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
SALES CHARGES
GROSS SALES PAID TO PERCENT OF
CHARGES SIGNATURE TOTAL
<S> <C> <C> <C>
Aggressive Growth Portfolio $0 $0 N/A
Growth Portfolio 0 0 N/A
Growth with Income Portfolio 0 0 N/A
Bond Portfolio 0 0 N/A
Managed Total Return Portfolio 0 0 N/A
</TABLE>
Total sales charges and total dollar amount of transactions on which sales
charges were paid during the fiscal year ended September 30, 1996, were $0
and $0, respectively.
OTHER INFORMATION
CAPITALIZATION
FundManager Portfolios (formerly named FundManager Trust) is a Delaware
business trust established under a Master Trust Agreement dated February 7,
1995. Prior to May 8, 1995, the Portfolios were series of the Republic Funds
(formerly FundTrust), a Massachusetts business trust (organized April 22,
1987). Republic Funds was a successor to two previously-existing
Massachusetts business trusts, FundTrust Tax-Free Trust (organized on July
30, 1986) and FundVest (organized on July 17, 1984, and since renamed Fund
Source). The Trust currently consists of five separately managed portfolios
each offering two classes of shares of beneficial interest (except Managed
Total Return Portfolio, which only offers a Financial Advisers Class). The
capitalization of the Trust consists solely of an unlimited number of shares
of beneficial interest with a par value of $0.001 each. The Trustees may
establish additional series (with different investment objectives and
fundamental policies) and additional classes of shares at any time in the
future. Establishment and offering of additional series and classes will not
alter the rights of the Trust's shareholders. When issued, shares are fully
paid, nonassessable, redeemable and freely transferable. Shares do not have
preemptive rights or subscription rights. In liquidation of a Portfolio,
each shareholder is entitled to receive his pro rata share of the net assets
of that Portfolio.
VOTING RIGHTS
Under the Master Trust Agreement, the Trust is not required to hold annual
meetings to elect Trustees or for other purposes. It is not anticipated that
the Trust will hold shareholders' meetings unless required by law or the
Master Trust Agreement provides that the holders of not less than two thirds
of the outstanding shares of the Trust may remove persons serving as Trustee
either by declaration in writing or at a meeting called for such purpose.
The Trustees are required to call a meeting for the purpose of considering
the removal of persons serving as Trustee if requested in writing to do so
by the holders of not less than 10% of the outstanding shares of the Trust.
PERFORMANCE INFORMATION
The Trust may, from time to time, include quotations of the Portfolios'
yield and average annual total return in advertisements or reports to
shareholders or prospective investors.
Quotations of yield will be based on a Portfolio's investment income per
share earned during a particular 30-day period, less expenses accrued during
the period ("net investment income") and will be computed by dividing net
investment income by the maximum offering price per share on the last day of
the period, according to the following formula:
YIELD = 2[(A cdB + 1)6-1]
(where a = dividends and interest earned during the period, b = expenses
accrued for the period (net of any reimbursements), c = the average daily
number of shares outstanding during the period that were entitled to receive
dividends and d = the maximum offering price per share on the last day of
the period).
For the 30-day period ending September 30, 1996, the yields for the Bond
Portfolio's Financial Adviser Class and No-Load Class were 5.05% and 5.57%,
respectively.
Quotations of a Portfolio's average annual total return will be expressed in
terms of the average annual compounded rate of return of a hypothetical
investment in such Portfolio over periods of 1, 5 and 10 years (up to the
life of the Portfolio), calculated pursuant to the following formula:
P (1 + T)n = ERV
(where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years and
ERV = the ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the period). All total return figures will reflect the
deduction of Portfolio expenses on an annual basis and will assume that all
dividends and distributions are reinvested when paid.
For the period prior to its establishment, each Class of shares of each
Portfolio will adopt the performance of the Portfolios and their
predecessors. The performance for this period will reflect the deduction of
the Class's charges and expenses.
The total returns for the Financial Adviser Class Portfolios for the periods
ended September 30, 1996 were as follows:
<TABLE>
<CAPTION>
1 YEAR 5-YEAR 10-YEAR
TOTAL TOTAL RETURN TOTAL RETURN
RETURN (AVERAGE ANNUAL) (AVERAGE ANNUAL)
<S> <C> <C> <C>
Aggressive Growth Portfolio 12.1% 12.9% 11.7%
Growth Portfolio 13.5% 13.0% 11.3%
Growth with Income Portfolio 13.7% 12.9% 10.8%
Bond Portfolio 3.8% 6.4% 6.5%
Managed Total Return Portfolio 7.6% 8.2% 8.8%*
</TABLE>
* Total return from commencement of operations August 4, 1988.
The total returns for the No-Load Class Portfolios for the period ended
September 30, 1996 were as follows:
<TABLE>
<CAPTION>
1 YEAR
TOTAL
RETURN
<S> <C>
Aggressive Growth Portfolio 12.8%
Growth Portfolio 14.2%
Growth with Income Portfolio 14.1%
Bond Portfolio 3.9%
</TABLE>
Quotations of yield and total return will reflect only the performance of a
hypothetical investment in a Portfolio during the particular time period
shown. Yield and total return for a Portfolio will vary based on changes in
market conditions and the level of such Portfolio's expenses, and no
reported performance figure should be considered an indication of
performance which may be expected in the future.
In connection with communicating its performance to current or prospective
shareholders, the Portfolios also may compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or
to unmanaged indices which may assume reinvestment of dividends but
generally do not reflect deductions for administrative and management costs.
Evaluations of the Portfolios'performance made by independent sources may
also be used in advertisements concerning the Portfolios. Sources for the
Portfolios' performance information could include the following:
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.
Bottom Line, a bi-weekly newsletter which periodically reviews mutual funds
and interviews their portfolio managers.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing
abroad.
Changing Times, THE KIPLINGER MAGAZINE, a monthly investment advisory
publication that periodically features the performance of a variety of
securities.
CNBC, a cable financial news television station which periodically reviews
mutual funds and interviews portfolio managers.
Consumer Digest, a monthly business/financial magazine that includes a
"money watch" section featuring financial news.
Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the
performance of a variety of mutual funds.
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a
weekly publication of industry-wide mutual fund averages by type of fund.
Money, a monthly magazine that from time to time features both specific
funds and the mutual fund industry as a whole.
Morningstar, Inc., a publisher of financial information and mutual fund
research.
Mutual Funds Magazine, a magazine for the mutual fund investor which
frequently reviews and ranks mutual funds and interviews their portfolio
managers.
New York Times, a nationally distributed newspaper which regularly covers
financial news.
Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that includes a
"mutual funds outlook" section reporting on mutual fund performance
measures, yields, indices and portfolio holdings.
Success, a monthly magazine targeted to the world of entrepreneurs and
growing business, often featuring mutual fund performance data.
U.S. News and World Report, a national business weekly that periodically
reports mutual fund performance data.
Value Line, a bi-weekly publication that reports on the largest 15,000
mutual funds.
Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.
Weisenberger Investment Companies Services, an annual compendium of
information about mutual funds and other investment companies, including
comparative data on funds' backgrounds, management policies, salient
features, management results, income and dividend records, and price ranges.
Worth Magazine, a monthly magazine for the individual investor which
frequently reviews and ranks mutual funds and interviews their portfolio
managers.
In addition, the Trust may also provide in its communications to current or
prospective shareholders a listing of those open-end investment companies
and mutual fund complexes or the respective funds included in the
Portfolios' portfolio holdings. These may include, but are not limited to,
the following:
FUND COMPLEXES -- The AIM Family of Funds; The American Funds Group; Dodge &
Cox Investment Managers; Fidelity Investment; First Pacific Advisors, Inc.;
Franklin Custodian Funds, Inc.; Franklin Templeton Group; Friess Associates,
Inc.; The Gabelli Funds; Guardian Investor Services Corporation; Harbor
Capital Advisors, Inc.; Harris Associates, L.P.; Hotchkis & Wiley Funds; IDS
Management; Lord Abbett Family of Funds; Massachusetts Financial Services
Company; Miller Anderson & Sherrerd, LLP; MJ Whitman, Inc.; Mutual Series
Fund, Inc.; Neuberger & Berman Management Inc.; Pacific Financial Research;
Pacific Investment Management Company; Pioneer Funds Distributor; Putnam
Funds; The Royce Funds; Sanford C. Bernstein & Co., Inc.; Socie'te
Ge'ne'rale Asset Management Corp.; T. Rowe Price Associates, Inc.; The
Vanguard Family of Funds; Venture Advisors, L.P.; Waddell & Reed Asset
Management Company; Yacktman Asset Management.
FUNDS -- AIM Charter Fund; Bond Fund of America; New Perspective Fund;
Washington Mutual Fund; Dodge & Cox Stock; Fidelity Advisor Equity Income;
Fidelity Fund; FPA Capital; FPA Paramount; Franklin U.S. Government Fund;
Templeton Growth Fund; Brandywine; Gabelli Asset; Guardian Park Avenue Fund;
Harbor Capital Appreciation; Oakmark Fund; Hotchkis & Wiley Equity Income;
IDS Selective; Affiliated Fund; Massachusetts Financial Fund; MAS Equity;
Third Avenue Value Fund; Mutual Beacon Fund; Neuberger Guardian; Clipper
Fund; Pimco Low Duration; Pimco Total Return; Pioneer Three; Putnam Income
Fund; Royce Premier; Bernstein Short Duration; Bernstein Intermediate
Duration SoGen International; T. Rowe Price Equity Income; Vanguard Equity
Income; Vanguard Fixed-Income Treasury; Vanguard Wellington Fund; Davis New
York Venture; United Bond Fund; Yacktman Fund.
Investors who purchase and redeem Financial Adviser Class shares of the
Portfolios through a customer account maintained at a service organization
may be charged one or more of the following types of fees as agreed upon by
the Service Organization and the investor, with respect to the customer
services provided by the service organization: account fees (a fixed amount
per month or per year); transaction fees (a fixed amount per transaction
processed); compensating balance requirements (a minimum dollar amount a
customer must maintain in order to obtain the services offered); or account
maintenance fees (a periodic charge based upon a percentage of the assets in
the account or of the dividends paid on those assets). Such fees will have
the effect of reducing the yield and effective yield of the Portfolio for
those investors. Investors who maintain accounts with the Trust as transfer
agent will not pay these fees.
INDEPENDENT AUDITORS
Ernst & Young LLP serves as the independent auditors for the Trust and
served as the independent auditors for the Predecessor Portfolios since
October 1, 1991. Ernst & Young LLP audits the Portfolios' financial
statements, prepares the Portfolios' tax return and assists in filings with
the SEC. Ernst & Young LLP's address is 200 Clarendon Street, Boston, MA
02116. The financial statements for the Portfolios for each of the five
years in the period ended September 30, 1996, were audited by Ernst & Young
LLP who have expressed an unqualified opinion on those financial statements.
COUNSEL
Goodwin, Procter & Hoar, Exchange Place, Boston, Massachusetts 02109, passes
upon certain legal matters in connection with the shares offered by the
Trust and also acts as counsel to the Trust.
REGISTRATION STATEMENT
The Prospectuses and Statement of Additional Information do not contain all
the information included in the Trust's registration statement filed with
the SEC under the 1933 Act with respect to the securities offered hereby,
certain portions of which have been omitted pursuant to the rules and
regulations of the SEC. The registration statement, including the exhibits
filed therewith, may be examined at the office of the SEC in Washington,
D.C.
Statements contained in the Prospectuses and Statement of Additional
Information as to the contents of any contract or other documents referred
to are not necessarily complete, and, in each instance, reference is made to
the copy of such contract or other documents filed as an exhibit to the
registration statement, each such statement being qualified in all respects
by such reference.
FINANCIAL STATEMENTS
The Portfolios' current reports to shareholders as filed with the SEC
pursuant to Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder are
hereby incorporated herein by reference to the Trust's Annual Report dated
September 30, 1996 (File Nos. 33-62103 and 811-7347). A copy of each such
report will be provided without charge to each person receiving this
Statement of Additional Information.
G01966-03 (1/97)
