FUNDMANAGER PORTFOLIOS, 485APOS, 1998-10-01

FUNDMANAGER PORTFOLIOS
485APOS, 1998-10-01

Previous: FLAG INVESTORS EQUITY PARTNERS FUND INC, 497, 1998-10-01

Next: CBT GROUP PLC, 8-K, 1998-10-01

1933 Act File No. 33-89754
1940 Act File No. 811-8992

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
---

Pre-Effective Amendment No. ....................

Post-Effective Amendment No. 12 ...................... X
----- ---

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

Amendment No. 13 ................................... X
------- ---

FUNDMANAGER PORTFOLIOS
(Exact Name of Registrant as Specified in Charter)

One Beacon Street, Boston, Massachusetts 02108
(Address of Principal Executive Offices)

(412) 288-1900
(Registrant's Telephone Number)

Victor R. Siclari, Esquire
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)

It is proposed that this filing will become effective
(check appropriate box)

__ immediately upon filing pursuant to paragraph (b) __on ________________
pursuant to paragraph (b) X 60 days after filing pursuant to paragraph (a) (i)
on ____________ pursuant to paragraph (a) (i) 75 days after filing pursuant
to paragraph (a)(ii) on _________________ pursuant to paragraph (a)(ii) of
Rule 485

If appropriate, check the following box:

[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

Copies to:

John J. Danello Edward T. O'Dell, P.C
Freedom Capital Management Corporation Goodwin, Procter & Hoar
One Beacon Street One Exchange Place
Boston, Massachusetts 02108 Boston, Massachusetts 02109

FUNDMANAGER PORTFOLIOS

CLASS A SHARES
CLASS B SHARES

AGGRESSIVE GROWTH PORTFOLIO BOND PORTFOLIO

GROWTH PORTFOLIO MANAGED TOTAL RETURN PORTFOLIO

GROWTH WITH INCOME PORTFOLIO INTERNATIONAL PORTFOLIO

SHARES OF THE FUNDMANAGER PORTFOLIOS, LIKE SHARES OF ALL MUTUAL FUNDS, ARE NOT
BANK DEPOSITS, FEDERALLY INSURED, OR GUARANTEED, AND MAY LOSE VALUE. As with all
mutual funds, the Securities and Exchange Commission has not approved or
disapproved these securities or passed upon the adequacy of this prospectus, and
any representation to the contrary is a criminal offense.

[INSERT TOC]

November 30, 1998

<PAGE>

FUND GOALS, STRATEGIES, PERFORMANCE AND INVESTMENT RISKS

The FundManager Portfolios (the "Trust") offer investment opportunities to a
wide range of investors, from those who are investing for the short-term and
wish to take little investment risk to those with long-term goals willing to
bear the risks of the stock market for potentially greater rewards.

Each FundManager Portfolio is a "fund of funds" - meaning it invests in other
mutual funds rather than directly in stocks and bonds. These underlying mutual
funds will be open-end funds and have similar investment goals as the
Portfolios. Open-end mutual funds continuously sell their shares to the public
and will purchase (redeem) their shares from shareholders. In addition, the
International Portfolio may purchase closed-end funds and unit investment
trusts. Closed-end funds initially sell a limited number of shares that are
traded on the open market and do not redeem their shares.

GENERAL RISKS. In all types of investments, reward and risk go hand in hand. All
mutual funds, including the FundManager Portfolios and the underlying funds in
which they invest, take investment risks. These risks may result in a decline in
the value of your fund shares. For example, equity funds must contend with the
volatility and unpredictability of the U.S. stock market. Funds that purchase
foreign securities may experience additional uncertainty in foreign markets and
with foreign currency transactions. Funds that focus on stocks of smaller
companies have special risks since those stocks have historically been more
volatile than stocks of larger companies. Income and bond funds invest in debt
securities, the price of which can be expected to decrease when interest rates
increase. Funds that invest in high-yield, high-risk bonds (junk bonds) may be
exposed to lower-rated companies that are more likely to default on their
payment obligations than higher-rated companies. Funds that use options and
futures contracts to protect their investments or increase their income take a
risk that the prices of securities subject to the futures or options may not
correlate with the prices of the securities in the fund's portfolio.
Mortgage-backed and asset-backed securities are subject to prepayment risks,
which generally occurs when interest rates fall.

In addition, an investment in any of the FundManager Portfolios is not a deposit
of a bank and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.

FUNDMANAGER PORTFOLIOS

WHAT IS THE INVESTMENT APPROACH OF THE PORTFOLIOS?
The Portfolios' fund of funds investment approach relieves you from having to
select from over 9,000 mutual fund investment choices in existence today. The
Adviser utilizes a disciplined research and investment selection process to
choose generally from six to ten mutual funds with complementary investment
styles. This provides you with broader diversification than available in one
mutual fund. It also offers you a wider range of portfolio management talent,
investment styles, companies, industries and markets than would be available
through one mutual fund. Also, with the broader diversification of a fund of
funds investment approach, the Adviser seeks to minimize the volatility
associated with owning a single mutual fund and to achieve long-term performance
that avoids the extremes of an up and down market. Plus, the Portfolios may have
access to institutional funds unavailable to individual investors and may
qualify for lower or no sales charges.

Before a fund is chosen for the Portfolios, it must meet strict investment
criteria employed by the Adviser, and that criteria uses one or more of these
qualitative and quantitative factors:
the fund's investment style (is it clearly defined and consistently applied,
does it complement rather than duplicate the styles of other selected funds),
the depth of the portfolio manager's research capability (what kind of
internal research staff exists, how long is the portfolio manager's tenure),
overlap of the fund's portfolio securities with other selected funds, the
presence of a long-term, consistent performance history, direct access to
the portfolio manager.

The Growth Portfolio, Bond Portfolio and Managed Total Return Portfolio have the
following additional characteristics.

Growth Portfolio and Bond Portfolio utilize a core/non-core selection of funds.
The "core" component generally consists of unmanaged, index-like mutual funds
that maintain fairly consistent securities holdings and thereby are lower cost
investments with performance that track or model certain securities indices.
There is generally low turnover rates for these core mutual fund holdings. This
core component is supplemented by a "non-core" selection of mutual funds, which
are actively managed mutual funds employing various complementary investment
styles. The non-core component tend to have a correspondingly higher portfolio
turnover rate than the core holdings.

Managed Total Return Portfolio utilizes an ongoing assessment of the relative
risk-reward of various classes of assets (such as stock, hybrid, bond and money
market funds) deemed appropriate by the Adviser based on past experience and
analysis of current financial and economic conditions.

Following is a description of each Portfolio's goals, the types of funds in
which the Portfolios invest, and the principal investments of the underlying
funds. The underlying funds may invest in a wide variety of securities. Detailed
descriptions of these securities are located in the Portfolio's Statement of
Additional Information.

AGGRESSIVE GROWTH PORTFOLIO

WHAT IS THE PORTFOLIO'S GOAL?
The Portfolio's goal is capital appreciation without regard to current income.

WHAT TYPES OF FUNDS DOES THE PORTFOLIO INVEST IN?
The Portfolio offers long-term investors growth potential through a variety of
stock funds, including small cap, mid-cap, sector, and capital appreciation
funds. These underlying funds will invest primarily in common stocks,
convertible securities, including convertible debentures and warrants. The
Portfolio may also invest in funds that invest primarily in long- or short-term
bonds and other fixed income securities whenever the Adviser believes that these
funds offer the potential for capital appreciation.

[Graphic representation omitted. See Appendix A.]

GROWTH PORTFOLIO

WHAT IS THE PORTFOLIO'S GOAL?
The Portfolio's goal is capital appreciation with current income a secondary
consideration.

WHAT TYPES OF FUNDS DOES THE PORTFOLIO INVEST IN?
The Portfolio offers long-term growth investors exposure to funds that invest in
large-cap, blue chip, mid-cap and style (such as value, growth, or
capitalization) index funds. These underlying funds will invest primarily in
common stocks, convertible securities, including convertible debentures and
warrants. The Portfolio may also invest in funds that invest primarily in long-
or short-term bonds and other fixed income securities whenever the Adviser
believes that these funds offer the potential for capital appreciation.

[Graphic representation omitted. See Appendix B.]

GROWTH WITH INCOME PORTFOLIO

WHAT IS THE PORTFOLIO'S GOAL?
The Portfolio's goal is a combination of capital appreciation and current
income.

WHAT TYPES OF FUNDS DOES THE PORTFOLIO INVEST IN?
The Portfolio offers investors the opportunity to participate in a diversified
portfolio of funds that seek long-term capital appreciation and/or funds that
invest in growth and income, equity income and balanced funds These underlying
funds will invest primarily in common stocks, preferred stocks, bonds and other
fixed-income securities including convertible preferred stock and convertible
debentures.

[Graphic representation omitted. See Appendix C.]

BOND PORTFOLIO

WHAT IS THE PORTFOLIO'S GOAL?
The Portfolio's goal is a high level of current income.

WHAT TYPES OF FUNDS DOES THE PORTFOLIO INVEST IN?
The Portfolio offers income-oriented investors an opportunity to participate in
bond funds that invest in income-producing securities. These underlying funds
will invest primarily in corporate, government, and mortgage securities with
short-, intermediate- and long-term maturities. The Portfolio may also invest
without limitation in underlying funds that invest significantly in corporate
bonds rated below investment grade, commonly referred to as "junk bonds."

[Graphic representation omitted. See Appendix D.]

<PAGE>

MANAGED TOTAL RETURN PORTFOLIO

WHAT IS THE PORTFOLIO'S GOAL?
The Portfolio's goal is high total return (capital appreciation and current
income).

WHAT TYPES OF FUNDS DOES THE PORTFOLIO INVEST IN?
The Portfolio offers investors a convenient way to seek high total return
consistent with prudent risk by investing in mutual funds across all asset
classes (from aggressive growth to money market funds). These underlying funds
will invest primarily in common stocks, preferred stocks, convertible securities
(such as convertible preferred stock, convertible debentures and warrants),
long- or short-term bonds and other fixed income securities ( such as government
and corporate securities), and high quality, short-term money market
instruments.

[Graphic representation omitted. See Appendix E.]

INTERNATIONAL PORTFOLIO

WHAT IS THE PORTFOLIO'S GOAL?
The Portfolio's goal is long-term capital appreciation with current income a
secondary consideration.

WHAT TYPES OF FUNDS DOES THE PORTFOLIO INVEST IN?
The Portfolio offers investors the opportunity to invest in international,
global and emerging markets funds as a complement to investing solely in U.S.
domestic securities. The Portfolio will invest at least 65% of its total assets
in international equity funds. These underlying funds will invest primarily in
foreign common stocks, or foreign securities convertible into or exchangeable
for common stock.

[Table to be provided.]

WHAT ARE THE MAIN RISKS OF INVESTING IN FUNDMANAGER PORTFOLIOS?

As a "fund-of-funds", the FundManager Portfolios invest primarily in other mutul
funds that invest in a wide variety securities and use various investment
practices. The securities in which underlying funds invest and the practices
they utilize are subject to risks; therefore, the Portfolios are also subject to
these same risks.

GENERAL RISKS. The principal types of securities in which underlying funds
invest generally fall into two broad categories: equity securities
(stocks) and fixed income securities (bonds).

EQUITY SECURITIES RISKS. Equity securities are subject to fluctuations in
the stock market which has periods of increasing and decreasing values.
Stocks have greater volatility than debt securities. While greater
volatility increases risk, it offers the potential for greater reward.

FIXED INCOME SECURITIES RISKS. Prices of fixed-rate debt securities
generally move in the opposite direction of interest rates. The interest
payments on fixed-rate debt securities do not change when interest rates
change. Therefore, the price of these securities can be expected to
decrease when interest rates increase and the underlying fund's NAV may go
down.

In addition, debt securities with longer maturities or durations will
experience greater price volatility than those with shorter maturities or
durations, and an underlying Fund's NAV can be expected to fluctuate
accordingly.

The credit quality of a debt security is based upon the ability of the
issuer to repay the security. Payments on a fixed income security may not
be paid when due. If the credit quality of securities declines, the
underlying fund's NAV could go down.

If interest rates are declining, an issuer may repay a debt security held
in the underlying fund's portfolio prior to its maturity. If this occurs,
the Adviser may have to reinvest the proceeds in debt securities paying
lower interest rates resulting in lower yields to the underlying fund.

ADDITIONAL RISKS. Each Portfolio may be subject to additional risks associated
with investment policies or techniques used by the particular types of
underlying funds in which they invest.

SMALL/MID-CAP RISKS. Equity risk is also related to the size of the
company issuing stock. Companies may be categorized as having a small,
medium, or large capitalization (market value). The potential risks are
higher with small capitalization companies and lower with large
capitalization companies. Therefore, investors should expect underlying
funds which invest primarily in small-capitalization and
medium-capitalization stocks, like the Aggressive Growth Portfolio, to be
more volatile than and to fluctuate independently of, broad stock market
indices such as the S&P 500.

PREPAYMENT/CALL RISKS. Certain types of fixed income securities, such as
asset-backed and mortgage-backed securities, are subject to risks of
prepayment which generally occurs when interest rates fall. Prepayment
risks on mortgage-backed securities tend to increase during periods of
declining mortgage interest rates because many borrowers refinance their
mortgages to take advantage of the more favorable rates. Prepayments on
mortgage-backed securities are also affected by other factors, such as the
frequency with which people sell their homes or elect to make unscheduled
payments on their mortgages. Reinvesting these prepayments in a lower
interest rate environment will reduce an underlying fund's income. The
risk of prepayment may also decrease the value of mortgage-backed
securities. Asset-backed securities may have a higher level of default and
recovery risk than mortgage-backed securities. However, both of these
types of securities may decline in value because of mortgage foreclosures
or defaults on the underlying obligations.

The issuer of fixed income securities may have the right to prepay
principal earlier than scheduled, which is commonly referred to as a
"call". Issuers are more likely to exercise call features when interest
rates decrease. If a security owned by an underying fund is called, the
fund will have to reinvest the proceeds in lower-yielding instruments.
Call features may also negatively affect the value of a fixed income
security.

FOREIGN SECURITIES RISKS. The International Portfolio will invest
primarily in international mutual funds that invest significantly in
foreign securities. Foreign securities pose additional risks over domestic
securities because foreign economic, governmental, and political systems
may be less favorable than those of the United States. Foreign governments
may exercise greater control over their economies, industries, and
citizen's rights, which can have an adverse impact on investments. Other
risk factors related to foreign securities include: rates of inflation,
structure and regulation of financial markets, liquidity and volatility of
investments, taxation policies, currency exchange rates, and accounting
standards. In addition, a fund may incur higher costs and expenses when
making foreign investments, which could impact the fund's performance. If
an underlying fund invests primarily in a particular country or region, it
may be adversely affected by the above factors or events particular to
that country or region.

Foreign securities in which the underlying funds invest may be listed on
foreign stock exchanges and may trade on weekends and other days when the
underlying funds or the Portfolios do not price their shares. As a result,
an underlying fund's NAV may be significantly affected by trading on days
when the Adviser does not have access to the portfolio and shareholders
cannot purchase or redeem shares.

Foreign securities may be denominated in foreign currencies. Therefore,
the value of an underlying fund's assets and income in U.S. dollars may be
affected by changes in exchange rates and regulations, since exchange
rates for foreign currencies change daily. The combination of currency
risk and market risk tends to make securities traded in foreign markets
more volatile than securities traded exclusively in the United States.
Although underlying funds value their assets daily in U.S. dollars they
generally do not convert their holdings of foreign currencies to U.S.
dollars daily. Therefore, the underlying fund may be exposed to currency
risks over an extended period of time.

HIGH YIELD SECURITIES RISKS. Each of the Portfolios may invest in
underlying funds that invest in high-yield securities, also known as junk
bonds. These securities generally have greater risks than higher quality
debt obligations because, in comparison, there prices are more volatile,
they have less favorable credit rating, and their trading market may be
limited. High yield bonds are also negatively impacted by economic
downturns and declining equity valuations. In return for their higher
risks, they offer the potential for higher yields. However, there is no
guarantee that their total return will exceed that of higher quality debt
obligations.

WHAT ARE THE PORTFOLIOS' FEES AND EXPENSES?

THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY WHEN YOU BUY, HOLD,
AND REDEEM SHARES OF CLASS A OR CLASS B SHARES OF EACH OF THE PORTFOLIOS.

SHAREHOLDER FEES (FEES PAID DIRECTLY BY YOU)

CLASS A CLASS B
Maximum Sales Charge (Load) Imposed on Purchases (as
a 4.50% None
percentage of offering price) (1)............
Maximum Deferred Sales Charge (Load) (as a percentage
of 0.00% 5.00%
original purchase price or redemption proceeds,
as applicable) (1)...........................
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends (and other Distributions) (as a percentage None None
of
offering price)..............................
Redemption Fee (as a percentage of amount redeemed, None None
if applicable) (1)...........................
Exchange Fee................................. None None
Maximum Account Fee.......................... None None

ANNUAL OPERATING EXPENSES (MAXIMUM EXPENSES THAT COULD BE DEDUCTED FROM A
PORTFOLIO'S ASSETS)* - CLASS A SHARES

Growth Managed
Aggressive With Total
GROWTH GROWTH INCOME BOND RETURN INTERNATIONAL

Management Fee........... 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Distribution and
Shareholder Service 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Expenses.................
Other Expenses.(before waivers% (2)... % % % % %
Total Operating Expenses % % % % % % (4)
(before waivers and
reimbursements) (3)....

ANNUAL OPERATING EXPENSES (MAXIMUM EXPENSES THAT COULD BE DEDUCTED FROM A
PORTFOLIO'S ASSETS)* - CLASS B SHARES

Growth Managed
Aggressive With Total
GROWTH GROWTH INCOME BOND RETURN INTERNATIONAL

Management Fee........... 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Distribution and
Shareholder Service 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Expenses.................
Other Expenses.(before waivers% (2)... % % % % %
Total Operating Expenses % % % % % % (4)
(before waivers and
reimbursements) (3)....
* Expenses are expressed as a percentage of each Portfolio's Class A and Class B
Shares.

(1) The current maximum sales charge for Bond Portfolio is 0.00%. For
shareholders of Class B Shares, the maximum deferred sales charge ( load) is
5.00% in the first year declining to 1.00% in the sixth year and 0.00%
thereafter. For a more complete description, see Contingent Deferred Sales
Charge.

(2) The adviser voluntarily reimbursed other expenses. The adviser can terminate
this voluntary reimbursement at any time. Other expenses paid by the Fund (
after the voluntary reimbursements) were _____% for the year ended September 30,
1998.

(3) THE ACTUAL TOTAL OPERATING EXPENSES FOR CLASS A SHARES (FORMERLY FINANCIAL
ADVISER CLASS) WERE ____% FOR AGGRESSIVE GROWTH, _____% FOR GROWTH, ____% FOR
GROWTH WITH INCOME, _____% FOR BOND, _____% FOR MANAGED TOTAL RETURN, AND _____%
FOR INTERNATIONAL, FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998 AFTER THE
VOLUNTARY REDUCTIONS OF THE MANAGEMENT FEE AND REIMBURSEMENT OF OTHER EXPENSES.
[INCLUDE PROJECTED EXPENSES FOR CLASS B SHARES?]

(4) Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase.

EXAMPLE
This Example is intended to help you compare the cost of investing in a
Portfolio's Class A and B Shares with the cost of investing in other mutual
funds.

The Example assumes that you invest $10,000 in the Portfolio's Class A and B
Shares for the time periods indicated and then redeem all of your shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Portfolios' Class A and B Shares operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:

CLASS A SHARES
(Payment of the maximum Growth Managed
sales charge/Expenses Aggressive with Total
assuming no redemption)Growth Growth Income Bond Return International
-------------------------------------------------------
1 $0/$0 $0/$0 $0/$0 $0/$0 $0/$0 $0/$0
Year...............................................
3 $0/$0 $0/$0 $0/$0 $0/$0 $0/$0 $0/$0
Years..............................................
5 $0/$0 $0/$0 $0/$0 $0/$0 $0/$0 $0/$0
Years..............................................
10 $0/$0 $0/$0 $0/$0 $0/$0 $0/$0 $0/$0
Years............................................

CLASS B SHARES
(Payment of the maximum Growth
sales charge/Expenses Aggressive with Managed
assuming no redemption)Growth Growth Income Bond Total International
Return
-------------------------------------------------------
1 $0/$0 $0/$0 $0/$0 $0/$0 $0/$0 $0/$0
Year................................................
3 $0/$0 $0/$0 $0/$0 $0/$0 $0/$0 $0/$0
Years..............................................
5 $0/$0 $0/$0 $0/$0 $0/$0 $0/$0 $0/$0
Years..............................................
10 $0/$0 $0/$0 $0/$0 $0/$0 $0/$0 $0/$0
Years............................................

<PAGE>

PORTFOLIO TURNOVER.
The funds in which the Portfolios invest may actively trade their portfolios. A
higher portfolio turnover rate involves greater transaction expenses which must
be borne directly by a fund (and thus, indirectly by its shareholders), and
impact fund performance. In addition, a high rate of portfolio turnover may
result in the realization of larger amounts of capital gains which, when
distributed to that fund's shareholders, are taxable to them.

TEMPORARY INVESTMENTS
The Portfolios may temporarily depart from their principal investment strategies
by investing up to 100% of their assets in cash, cash items, and shorter-term,
higher quality debt securities. They may do this to minimize potential losses
and maintain liquidity to meet shareholder redemptions during adverse market
conditions. This may cause the Portfolios to forego greater investment returns
for the safety of principal.

HOW TO PURCHASE AND REDEEM SHARES...

WHAT DO SHARES COST?

You can purchase, redeem, or exchange shares any day the New York Stock Exchange
(NYSE) is open. When the Trust receives your transaction request in proper form,
it is processed at the next determined public offering price.

The public offering price is the net asset value (NAV) plus any applicable sales
charge. NAV is determined at the end of regular trading (normally 4 p.m. Eastern
time) each day the NYSE is open.

The NAV and public offering price of the Portfolios are listed in your
newspaper's mutual fund quotations section under the heading "FUNDMANAGER
PORTFOLIOS".

The following table summarizes the minimum required investment amount and the
maximum sales charge, if any, that you will pay on an investment in a Portfolio.
Keep in mind that financial intermediaries may charge you fees for their
services in connection with your share transactions.

- -------------------------------------------------------------------------
MAXIMUM SALES CHARGE
MINIMUM FRONT-END MAXIMUM
INITIAL/SUBSEQUENT SALES CONTINGENT
INVESTMENT CHARGE(2) DEFERRED
AMOUNTS(1) SALES
CHARGE(3)
- -------------------------------------------------------------------------
CLASS A SHARES $1000/$100 4.50% None
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
CLASS B SHARES $1000/$100 None 5.00%
- -------------------------------------------------------------------------

(1)The minimum initial and subsequent investment amounts for retirement plans
are $250 and $100, respectively, except that there are no minimum initial
investment amounts for FundManager prototype defined contribution plans. The
minimum subsequent investment amounts for Automatic Investment Plans is $25.
Financial intermediaries may impose higher or lower minimum investment
requirements on their customers than those imposed by the Trust. Class B
Shares will convert to Class A Shares at NAV approximately eight years after
purchase.
(2) Front-End Sales Charge is expressed as a percentage of public offering
price. See Sales Charge When You Purchase below.
(3) See Sales Charge When You Redeem below.

<PAGE>

SALES CHARGE WHEN YOU PURCHASE CLASS A SHARES

------------------------------------------------------------
CLASS A SHARES
PURCHASE AMOUNT SALES CHARGE AS SALES CHARGE
A PERCENTAGE OF AS A
PUBLIC OFFERING PERCENTAGE OF
PRICE NAV
------------------------------------------------------------
------------------------------------------------------------
Less than $99,999 4.50% 4.71%
------------------------------------------------------------
------------------------------------------------------------
$100,000 but less
than $249,000 4.25% 4.43%
------------------------------------------------------------
------------------------------------------------------------
$250,000 but less
than $499,999 4.00% 4.16%
------------------------------------------------------------
------------------------------------------------------------
$500,000 but less
than $999,999 3.75% 3.89%
------------------------------------------------------------
------------------------------------------------------------
$1 million or greater(1) 0.00% 0.00%
------------------------------------------------------------
------------------------------------------------------------
(1) Although there is no sales charge on purchases of $1 million or more,
the Distributors will make four quarterly payments to the dealer totaling
0.50% of the public offering price over the first year following the
purchase.

IN SOME SITUATIONS, CLASS A SHARES MAY BE PURCHASED "NO-LOAD" (I.E.,
WITHOUT A SALES CHARGE).
There is no sales charge on Class A Shares purchased with reinvested
dividends and distributions. In addition, certain types of individuals may
purchase shares no-load:

Shareholders that owned Financial Adviser Class Shares as of January 31,
1998; Trustees, officers, and employees (including retired employees) of the
Trust, Freedom Capital Management, the Distributors, and their affiliates;
Investment advisory clients of the Adviser; Employees or registered
representatives of dealers and other financial institutions that have a sales
agreement with the Distributors; and Immediate family members (spouses and
children under the age of

21) of the aforementioned persons.

In addition, no sales charge is imposed on: Any trust company or bank trust
department which exercises discretionary investment authority and holds
unallocated accounts in a fiduciary, agency, custodial or similar capacity;
Trustees or other fiduciaries purchasing Class A Shares for employee benefit
plans of employers with ten or more employees; or Class A Shares purchased
through the Adviser's FundManager Advisory Account program, "wrap accounts" or
similar fee based programs sponsored by a registered investment adviser or
financial institution.

If you purchase Class A Shares through a trust department, investment
adviser, or other financial intermediary, you may be charged a service or
other fee by the financial intermediary.

No sales charge is imposed on shares acquired by investments through
certain dealers (including registered investment advisers and financial
planners) which have established certain operational arrangements with the
Trust which include a requirement that such shares be sold for the sole
benefit of clients participating in a mutual fund "supermarket" account or
a similar program under which such clients pay a fee to such dealer.

THE SALES CHARGE ON CLASS A SHARES MAY BE REDUCED OR ELIMINATED BY:
Oquantity purchases of shares; Ocombining concurrent purchases of:
*shares by you, your spouse, and your children under age 21; or
*shares of the same class of two or more FundManager Portfolios
oaccumulating purchases (in calculating the sales charge on an additional
purchase, you may count the current value of previous Class A Share
purchases still invested in a Portfolio);
osigning a letter of intent to purchase a specific dollar amount of Class
A Shares within 13 months (call the Trust for an application and more
information); or
using the reinvestment privilege.

If your investment qualifies for a reduction or elimination of the sales
charge, you or your investment professional must notify the Trust's
Distributors at the time of purchase. If you fail to notify a Distributor,
you will receive the reduced sales charge only on additional purchases,
and not retroactively on your previous purchases.

QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table above,
larger purchases reduce the sales charge you will pay. The Trust will combine
purchases of Class A Shares (other than Bond Portfolio since no sales charges
are assessed) made on the same day by the investor and immediate family members
when it calculates the sales charge. In addition, the sales charge is reduced
for purchases made at one time by a trustee or fiduciary for a single trust
estate or a single fiduciary account.

If you purchase additional Class A Shares, the Trust will consider the previous
purchases still invested in the same Portfolio. For example, if a shareholder
already owns Class A Shares having a current value at the public offering price
of $90,000 and the shareholder purchases $10,000 more at the current public
offering price, the sales charge on the additional purchase would be 4.25%, not
4.50%, according to the above sales charge schedule.

CONCURRENT PURCHASES. You may also combine concurrent purchases of Class A
Shares of more than one Portfolio (except the Bond Portfolio) to reduce the
sales charge. For example, if you purchase $30,000 of Class A Shares of one
Portfolio, and $70,000 in Class A Shares of another Portfolio, the sales charge
would be reduced to 4.25%, according to the above sales charge schedule.

LETTER OF INTENT. You may reduce the sales charge by signing a letter of intent
that states the total amount of Class A Shares of the Portfolios (except Bond
Portfolio) you intend to purchase over the next 13 months, which must be at
least $100,000. The Trust's custodian bank will hold up to 4.50% of the total
amount intended to be purchased in escrow (in Class A Shares) until such
purchase is completed. The sales charge you will pay will be adjusted depending
on the total amount you actually purchase over the 13-month period.

The Class A Shares held in escrow will be released when you have purchased the
amount specified in the letter of intent or the end of the 13- month period,
whichever comes first. If the amount specified in the letter of intent is not
purchased, an appropriate number of Class A Shares in escrow may be redeemed in
order to realize the difference in the sales charge.

While this letter of intent will not obligate the shareholder to purchase Class
A Shares, each purchase during the period will be at the sales charge applicable
to the total amount intended to be purchased. When you sign the letter of
intent, you will receive a credit towards the fulfillment of the letter of
intent for your current FundManager Portfolio account balances, excluding Bond
Portfolio. However, prior trade prices will not be adjusted.

REINVESTMENT PRIVILEGE. If you redeem Class A Shares, you may reinvest the
redemption proceeds within 120 days without any sales charge at the current NAV.
The Distributors must be notified by the shareholder in writing or by the
shareholder's financial intermediary of the reinvestment in order to eliminate a
sales charge.

SALES CHARGE WHEN YOU REDEEM CLASS B SHARES
When you redeem Class B Shares, you may pay a sales charge, commonly referred to
as a contingent deferred sales charge (CDSC).

------------------------------------------------------------
CLASS B SHARES
SHARES HELD UP TO: CDSC
------------------------------------------------------------
------------------------------------------------------------
1 year 5.00%
------------------------------------------------------------
------------------------------------------------------------
2 years 4.00%
------------------------------------------------------------
------------------------------------------------------------
3 years 3.00%
------------------------------------------------------------
------------------------------------------------------------
4 years 3.00%
------------------------------------------------------------
------------------------------------------------------------
5 years 2.00%
------------------------------------------------------------
------------------------------------------------------------
6 years 1.00%
------------------------------------------------------------
------------------------------------------------------------
7 years or more 0.00%
------------------------------------------------------------

YOU WILL NOT BE CHARGED A CDSC WHEN REDEEMING CLASS B SHARES:
opurchased with reinvested dividends or capital gains, or purchased within
120 days of redeeming shares of an equal or lesser amount; othat you
exchange into Class B Shares another FundManager Portfolio where the
original shares were held for seven years or more; opurchased through
financial intermediaries that did not receive advanced sales payments; or
oif you have certain disabilities as defined by the IRS.

In addition, you will not be charged a CDSC:
owhen the Fund redeems your Class B Shares and closes your account for
failing to meet the minimum balance requirement;

oif your redemption is a required retirement plan distribution;

oupon the death of the shareholder(s) of the account or the redemption of
Class B Shares by a designated beneficiary.

If your redemption qualifies, you or your investment professional must
notify the Distributor at the time of redemption to eliminate the CDSC.

TO KEEP THE SALES CHARGE AS LOW AS POSSIBLE, THE TRUST SELLS YOUR CLASS B
SHARES IN THE FOLLOWING ORDER: oClass B Shares that are not subject to a
CDSC; oClass B Shares held the longest; and othen, the CDSC is based on
the NAV at the time you purchased or redeemed those Class B Shares,
whichever is lower.

HOW TO PURCHASE SHARES

You may purchase shares through an investment professional, directly from the
Portfolios, or through an exchange from another FundManager Portfolio.

If you do not specify the Class choice on your form of payment, you will
automatically receive Class A Shares.

The Fund reserves the right to reject any request to purchase or exchange
shares.

THROUGH AN INVESTMENT PROFESSIONAL
o Establish an account with your investment professional; and
o Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4 p.m. Eastern time). You will receive
that day's NAV if the investment professional forwards the order to the Trust
on the same day and the Trust receives payment within three business days. You
will become the owner of the shares and receive dividends when the Trust
receives your payment.
o Financial intermediaries should send payments according to the instructions in
the sections By Wire or By Check.

DIRECTLY FROM THE PORTFOLIOS
w Establish your account with the Trust by submitting a completed account
application; and w Send your payment to the Trust by Federal Reserve wire or
check.

You will become a shareholder and your shares will be priced at the NAV on the
day the Trust receives your wire or your check.

An institution may establish an account and place an order by calling the Trust
and the shares will be priced at the NAV on the day the Trust receives the
order.

BY WIRE. Send your wire to:
State Street Bank and Trust Company, Boston, MA
ABA Number 011000028
Attention: TRANSFER AGENT
Wire Order Number, Dealer Number, or Group Number
Dollar Amount
For Credit to: FundManager Portfolios - (Name of Portfolio, Name of Class,
Account Name and Number).

You cannot purchase shares by wire on holidays when wire transfers are
restricted.

BY CHECK. Make your check payable to (Portfolio/Class Name), note your account
number on the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8609, Boston, MA 02266-8609.

If you send your check by a private courier or overnight delivery service that
requires a street address, send it to:
Federated Shareholder Services Company
1099 Hingham Street, Rockland, MA 02370-3317.

Payment should be made in U.S. dollars and drawn on a U.S. bank. The Trust will
not accept third-party checks (checks originally payable to someone other than
the Portfolio). If your check does not clear, your purchase will be canceled and
you could be liable for any losses or fees the Portfolio or its transfer agent
incurs.

THROUGH AN EXCHANGE
You may purchase shares through an exchange from the same share Class of another
FundManager Portfolio. You must meet the minimum initial investment requirement
for purchasing shares and both accounts must have a common owner.

BY AUTOMATIC INVESTMENT PLAN
Once you have opened an account, you may automatically purchase additional
shares on a regular basis (at $25 minimum in monthly, quarterly, semiannual or
annual intervals) by completing the Automatic Investment Plan section of the
account application or contacting the Trust or your investment professional.

RETIREMENT INVESTMENTS
You may purchase shares as retirement investments (such as qualified plans and
IRAs). Application forms and further information about qualified retirement
plans, including applicable fees, are available from the Trust or a Distributor
upon request. To request this information or to ask a question about investing
for retirement, call the Trust or one of the Distributors. We suggest that you
discuss these retirement investments with your tax adviser. You may be charged
an IRA account fee.

FUNDMANAGER ADVISORY PROGRAM
The Adviser, through the FundManager Advisory Program (the "Program") provides
discretionary advisory services in connection with investments among the
Portfolios. Under the Program, investment executives help investors identify
their financial objectives, preferences and risk tolerances. Based on this
evaluation of the investor's financial goals and circumstances, the Adviser
allocates the investor's assets among Automated Cash Management Trust,
California Municipal Cash Trust, and New York Municipal Cash Trust money market
funds and some or all of the Portfolios. The Adviser will adjust each investor's
Program portfolio among these money market funds and the Portfolios from time to
time based on its assessment of the economy, interest rates, the financial
markets and worldwide macro- economic events. Investors receive periodic reports
(at least quarterly) containing an analysis and evaluation of the investor's
portfolio. Investment executives may review the quarterly report with the
investor, monitor identified changes in the investor's financial characteristics
and communicate any changes to the Adviser.

HOW TO REDEEM AND EXCHANGE SHARES

You should redeem or exchange shares:
o through an investment professional if you purchased shares through an
investment professional or the Program; or o directly from the Trust if you
purchased shares directly from the Trust.

THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4 p.m. Eastern time). The
redemption amount you will receive is based upon the NAV on the day the Trust
receives the order from your investment professional.

DIRECTLY FROM THE PORTFOLIOS
BY TELEPHONE. You may redeem or exchange shares by calling the Trust at
1-800-344-9033 once you have completed the appropriate authorization form for
telephone transactions. If you call before the end of regular trading on the
NYSE (normally 4 p.m. Eastern time) you will receive a redemption amount based
on that day's NAV.

BY MAIL. You may redeem or exchange shares by mailing a written request to the
Trust. You will receive a redemption amount based on the NAV on the day your
written request is received by the Trust in proper form. Send requests by mail
to:
Federated Shareholder Services Company
P.O. Box 8609, Boston, MA 02266-8609.

ALL REQUESTS MUST INCLUDE:
o Portfolio/Class Name, registered account name and number; o amount to be
redeemed or exchanged; o signatures of all shareholders exactly as registered;
and
o if exchanging, the Portfolio/Class Name, registered account name and number
into which you are exchanging.

SIGNATURE GUARANTEES. Signatures must be guaranteed if:
w your redemption is to be sent to an address other than the address of record;
w your redemption is to be sent to an address of record that was changed within
the last thirty days; or w a redemption is payable to someone other than the
shareholder(s) of record.

Your signature can be guaranteed by any federally insured financial institution
(such as a bank or credit union) or a broker/dealer that is a domestic stock
exchange member, BUT NOT BY A NOTARY PUBLIC.

PAYMENT OPTIONS
Your redemption proceeds will be mailed by check to your address of record.
However, the following payment options are available if you complete the
appropriate authorization form. These payment options require a signature
guarantee if they were not established prior to redeeming shares:

o an electronic transfer to your depository account at a financial institution
that is an ACH member; or o wire payment to your account at a domestic
commercial bank that is a Federal Reserve System member.

LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. However, payment may be delayed up to seven
days:
w to allow your purchase payment to clear;
w during periods of market volatility; or
w when a shareholder's trade activity or amount adversely impacts a Portfolio's
ability to manage its assets.

You will not accrue interest or dividends on uncashed checks from the
Portfolios. If those checks are undeliverable and returned to the Trust, the
proceeds will be reinvested in Class A Shares of the Portfolio from which the
redemption was made.

EXCHANGE PRIVILEGES
You may exchange shares of a FundManager Portfolio into shares of the same class
of another FundManager Portfolio with common account owners, or shares of
Automated Cash Management Trust-Institutional Service Shares, New York Municipal
Cash Trust or California Municipal Cash Trust at net asset value. To do this,
you must: w meet any minimum initial investment requirements; and w receive a
prospectus for the fund into which you wish to exchange.

An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction. Signatures must be guaranteed if you request an exchange
into another Portfolio with a different shareholder registration.

The Trust may modify or terminate the exchange privilege at any time. The
Trust's management or Adviser may determine from the amount, frequency and
pattern of exchanges that a shareholder is engaged in excessive trading which is
detrimental to the Portfolios and other shareholders. If this occurs, the Trust
or management may terminate the availability of exchanges to that shareholder
and may bar that shareholder from purchasing shares of other Portfolios.

When exchanging into and out of Portfolios with a sales charge and Portfolios
without a sales charge, shareholders who have paid a sales charge once upon
purchasing shares of any Portfolio, including those shares acquired by the
reinvestment of dividends, will not have to pay a sales charge again on an
exchange. Shares of the Bond Portfolio acquired by direct purchase may be
exchanged for shares of other Portfolios with a sales charge at NAV plus the
applicable sales charge.

For further information on exchanging shares, you should contact the Trust or
their investment professional.

SYSTEMATIC WITHDRAWAL/EXCHANGE PROGRAM
You may automatically redeem or exchange shares on a regular basis by completing
the appropriate form or contacting your investment professional or the Trust.
Your account value must meet the minimum initial investment amount at the time
the program is established. This program may reduce, and eventually deplete,
your account, and the payments should not be considered yield or income.
Generally, it is not advisable to continue to purchase shares subject to a sales
charge while redeeming shares using this program.

SYSTEMATIC WITHDRAWAL PROGRAM (SWP) ON CLASS B SHARES. You will not be
charged a CDSC on SWP redemptions if: you redeem 12% or less of your
account value in a single year; your account is at least one year old;
you reinvest all dividends and capital gains distributions; and your
account has at least a $10,000 balance when you establish the SWP (you
cannot aggregate multiple Class B Share accounts to meet
this minimum balance).

You will be subject to a CDSC on redemption amounts that exceed the 12%
annual limit. In measuring the redemption percentage, your account is valued
when you establish the SWP and then annually at calendar year-end. You can
redeem only at a rate of 1% monthly, 3% quarterly, or 6% semi-annually.

ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS. The Trust will record your telephone instructions. If
the Trust does not follow reasonable procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Trust will notify you
if it changes telephone transaction privileges.

SHARE CERTIFICATES. The Portfolios do not issue share certificates. If you are
redeeming or exchanging shares represented by certificates previously issued by
a Portfolio, you must return the certificates with your written redemption or
exchange request. For your protection, send your certificates by registered or
certified mail, but do not endorse them.

REDEMPTIONS IN-KIND. Large cash redemptions may be detrimental to the best
interests of a Portfolio and its shareholders. A Portfolio may pay redemption
proceeds in whole or in part by a distribution of Portfolio securities (mutual
fund shares or money market instruments), 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

ACCOUNT AND SHARE INFORMATION

CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases, redemptions and exchanges (except
for systematic program transactions). In addition, you will receive periodic
statements reporting all account activity, including systematic transactions,
dividends and capital gains paid.

<PAGE>

DIVIDENDS AND CAPITAL GAINS
Dividends are paid to all shareholders invested in the Portfolios on the record
date. The frequency of these distributions is as follows:

- -----------------------------------------------------------------------------
PORTFOLIO CAPITAL GAINS DIVIDENDS
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Aggressive Growth Annually Annually
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Growth Annually Semi-Annually
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Growth with Income Annually Quarterly
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Managed Total Return Annually Quarterly
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Bond Annually Monthly
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
International Annually Annually
- -----------------------------------------------------------------------------

Your dividends and capital gains distributions will be automatically reinvested
in additional shares without a sales charge, unless you elect cash payments. If
you elect cash payments and the payment is returned as undeliverable, your cash
payment will be reinvested in shares and your distribution option will convert
to automatic reinvestment. If any distribution check remains uncashed for six
months the check will no longer be honored, the check amount will be reinvested
in shares, and you will not accrue any interest or dividends on this amount
prior to the reinvestment.

If you purchase shares just before a Portfolio declares a dividend or capital
gain distribution, you will pay the full price for the hares and then receive a
portion of the price back in the form of a distribution, whether or not you
reinvest the distribution in shares. Therefore, you should consider the tax
implications of purchasing shares shortly before a Portfolio declares a dividend
or capital gain. Contact your investment professional or the Portfolios for
information concerning the date dividends and capital gains will be paid.

ACCOUNTS WITH LOW BALANCES
Non-retirement accounts may be closed if redemptions or exchanges cause the
account balance to fall below $500 at the end of any month. Before an account is
closed, the shareholder will be notified and allowed 30 days to purchase
additional shares to meet the minimum.

TAX INFORMATION
You will receive an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Distributions of dividends
and capital gains are taxable to you whether paid in cash or reinvested in a
Portfolio. Capital gains distributions are taxable at different rates depending
upon the length of time the Portfolio holds its assets.

With respect to the Aggressive Growth Portfolio, Growth Portfolio and
International Portfolio, distributions are expected to be primarily capital
gains. Bond Portfolio's distributions are expected to primarily be dividends.
With respect to the Growth with Income Portfolio and Managed Total Return
Portfolio, distributions are expected to be both dividends and capital gains.
Redemptions and exchanges are taxable sales.
Please consult your tax adviser regarding your federal, state, and local tax
liability.

WHO MANAGES THE TRUST?

The Board of Trustees governs the Trust and each Portfolio. The Board selects
and oversees the Adviser, Freedom Capital Management. The Adviser advises the
Portfolios and manages the Portfolios' assets, including buying and selling
portfolio securities, through the M.D. Hirsch Division of Freedom Capital
Management. The Adviser's address is One Beacon Street, Boston, MA 02108.

ADVISER'S BACKGROUND

Freedom Capital Management is a wholly-owned subsidiary of Freedom Securities
Corporation. On April 2, 1998, 7.400,000 shares of common stock of Freedom
Securities Corporation, formerly known as JHFSC Acquisition Corporation, were
sold to the public in an initial public offering. As a consequence of this
offering of stock, as well as other transactions, the previous controlling
shareholder of Freedom Securities Corporation, Thomas H. Lee Equity Fund III,
L.P. (and certain related equity shareholders), own less than 25% of the common
stock of Freedom Securities Corporation. In addition to managing the Portfolios,
Freedom Capital Management also manages the Freedom Group of Money Market Funds.

PORTFOLIO MANAGERS

Michael D. 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. from February,
1991 until June, 1993 and Chief Investment Officer of Republic National Bank of
New York 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.

Martin S. Orgel is the Senior Investment Analyst and Assistant Portfolio
Manager for the Portfolios. Mr. Orgel graduated from the University of
California at Los Angeles (U.C.L.A.) in 1994 with a B.A. degree, double-majoring
in Business Economics and Political Science. Upon graduating from school, Mr.
Orgel spent a brief tenure as a trading assistant with Swiss Bank Corporation.
Mr. Orgel has been employed by Freedom Capital Management since November 1995.

ADVISORY FEES

The Adviser is entitled to receive an annual investment advisory fee equal to
0.50% of each Portfolio's average daily net assets up to $500 million and 0.40%
of each Portfolio's average daily net assets in excess of $500 million.

<PAGE>

DISTRIBUTION OF FUND SHARES

THE DISTRIBUTORS

The Trustees have approved a Distribution Contract (the "Distribution Contract")
between the Trust and each of Edgewood Services, Inc., Freedom Distributors
Corporation, Tucker Anthony, Incorporated and Sutro & Co., Inc. pursuant to
which each will serve as a Distributor of the Trust and of the shares of each of
the Portfolios.

The Trust's Distributors market the Class A and Class B Shares to institutions
or individuals, directly or through financial intermediaries. When the
Distributor receives sales charges and marketing fees, it may pay some or all of
them to financial intermediaries. The Distributor and its affiliates may pay out
of their assets other amounts (including items of material value) to financial
intermediaries for marketing and servicing shares.

DISTRIBUTION PLAN

The Portfolios have adopted a Distribution Plan under Rule 12b-1 of the
Investment Company Act of 1940, which allows them to pay a fee of up to 0.50% of
the Class A Shares assets and up to 1.00% of the Class B Shares assets. Payments
under the Distribution Plan are designed to reimburse the Distributors for costs
and expenses incurred by the Distributors in connection with the sale,
distribution and customer servicing of the Portfolios' Class A Shares and Class
B Shares. Because these shares pay marketing fees on an ongoing basis, your
investment cost may be higher over time than shares with different sales charges
and marketing fees.

YEAR 2000 STATEMENT. Many computers cannot properly recognize dates of January
1, 2000 and beyond. The Portfolios' service providers are making changes to
their computer systems to fix this problem since it could disrupt Portfolio
operations. The financial impact on the Portfolios is still being determined,
but the Trust and its service providers are working to make sure this problem
does not adversely affect the Portfolios

FINANCIAL INFORMATION

FINANCIAL HIGHLIGHTS

The following financial highlights are intended to help you understand each
Portfolio's financial performance for its past five fiscal years, or since
inception, if the life of the Portfolio is shorter. Some of the information is
presented on a per share basis. Total returns represent the rate an investor
would have earned (or lost) on an investment in the Portfolio, assuming
reinvestment of all dividends and distributions.

This information has been audited by Ernst & Young, LLP whose report, along with
the Portfolios' audited financial statements, is included in the Annual Report.

<PAGE>

FUNDMANAGER PORTFOLIOS
CLASS A SHARES

CLASS B SHARES

CCLA

AGGRESSIVE GROWTH PORTFOLIO
GROWTH PORTFOLIO
GROWTH WITH INCOME PORTFOLIO
BOND PORTFOLIO
MANAGED TOTAL RETURN PORTFOLIO
INTERNATIONAL PORTFOLIO

A Statement of Additional Information (SAI) dated November 30, 1998 is
incorporated by reference into this prospectus. Additional information about
each Portfolio's investments is available in the Portfolios' annual and
semi-annual report to shareholders. The annual report discusses market
conditions and investment strategies that significantly affected each
Portfolio's performance during its last fiscal year. To obtain the SAI, the
annual and semi-annual report, and other information without charge call your
investment professional or the Trust at 1-800-344-9033.

You can obtain information about the Fund by visiting or writing the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
20549-6009 or from the Commission's Internet site at http://www.sec.gov. You can
call 1-800-SEC-0330 for information on the Public Reference Room's operations
and copying charges.

[Insert Cusip Numbers, Product Code, Federated Name, Logo and
the 1940 Act Number]

APPENDIX A

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of the Class A Shares of FundManager Aggressive Growth
Portfolio (the "Portfolio") as of the calendar year-end for each of ten years.

The `y' axis reflects the "% Total Return" beginning with -10.00% and increasing
in increments of 5.00% up to 40.00%.

The `x' axis represents calculation for the last ten calendar years of the
Portfolio beginning with the earliest year. The light gray shaded chart features
nine distinct vertical bars, each shaded in charcoal, and each visually
representing by height the total return percentages for the calendar year stated
directly at its base. The calculated total return percentages for the Class A
Shares of the Portfolio, which appear directly above each respective bar, for
the calendar years 1988 through 1997, are 11.76%, 21.87%, -7.43%, 38.02%, 5.50%,
14.08%, -1.15%, 24.75%, 16.58% and 16.65%, respectively.

The total returns displayed for the Portfolio do not reflect the payment of any
sales charges or recurring shareholder account fees. If these charges or fees
had been included, the returns shown would have been lower.

The Portfolio's average annual total return as of the most recent calendar
quarter ended June 30, 1998, was 10.98%.

Within the period shown in the Chart, the Portfolio's highest quarterly return
was 38.02%. Its lowest quarterly return was -13.20%.

Average Annual Total Return for the Portfolio Compared to the Russell 2000.

CALENDAR PERIOD PORTFOLIO... RUSSELL 2000
- --------------- --------- ------------
10 Year ......13.38% ..... 15.76%
5 Year ......13.85% ..... 16.41%
1 Year ......16.65% ..... 22.36%

The bar chart shows the variability of the Portfolio's actual total return on a
yearly basis. The table shows the Portfolio's total returns averaged over a
period of years relative to the Russell 2000, a broad-based market index. While
past performance does not necessarily predict future performance, this
information provides you with historical performance information so that you can
analyze whether the Portfolio's investment risks are balanced by its potential
rewards.

<PAGE>

APPENDIX B

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of the Class A Shares of FundManager Growth Portfolio (the
"Portfolio") as of the calendar year-end for each of ten years.

The `y' axis reflects the "% Total Return" beginning with -10.00% and increasing
in increments of 5.00% up to 30.00%.

The `x' axis represents calculation for the last ten calendar years of the
Portfolio beginning with the earliest year. The light gray shaded chart features
ten distinct vertical bars, each shaded in charcoal, and each visually
representing by height the total return percentages for the calendar year stated
directly at its base. The calculated total return percentages for the Class A
Shares of the Portfolio, which appear directly above each respective bar, for
the calendar years 1988 through 1997, are 14.40%, 18.62%, -6.22%, 28.83%, 8.87%,
12.52%, -0.48%, 28.15%, 19.32% and 27.51%, respectively.

The Portfolio's average annual total return as of the most recent calendar
quarter ended June 30, 1998, was 10.79%.

Within the period shown in the Chart, the Portfolio's highest quarterly return
was 28.83%. Its lowest quarterly return was -12.26%.

Average Annual Total Return for the Portfolio Compared to the Standard & Poor's
Composite Index of 500 Stocks.

CALENDAR PERIOD PORTFOLIO... S&P 500 INDEX
- --------------- --------- -------------
10 Year ......14.57% ..... 18.02%
5 Year ......16.90% ..... 20.27%
1 Year ......27.51% ..... 33.36%

The bar chart shows the variability of the Portfolio's actual total return on a
yearly basis. The table shows the Portfolio's total returns averaged over a
period of years relative to the Standard & Poor's Composite Index of 500 Stocks,
a broad-based market index. While past performance does not necessarily predict
future performance, this information provides you with historical performance
information so that you can analyze whether the Portfolio's investment risks are
balanced by its potential rewards.

<PAGE>

APPENDIX C

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of the Class A Shares of FundManager Growth with Income
Portfolio (the "Portfolio") as of the calendar year-end for each of ten years.

The `y' axis reflects the "% Total Return" beginning with -10.00% and increasing
in increments of 5.00% up to 35.00%.

The `x' axis represents calculation for the last ten calendar years of the
Portfolio beginning with the earliest year. The light gray shaded chart features
ten distinct vertical bars, each shaded in charcoal, and each visually
representing by height the total return percentages for the calendar year stated
directly at its base. The calculated total return percentages for the Class A
Shares of the Portfolio, which appear directly above each respective bar, for
the calendar years 1988 through 1997, are 19.21%, 19.38%, -8.31%, 23.30%, 9.19%,
12.75%, -0.12%, 32.55%, 15.59% and 25.24%, respectively.

The Portfolio's average annual total return as of the most recent calendar
quarter ended June 30, 1998, was 9.73%.

Within the period shown in the Chart, the Portfolio's highest quarterly return
was 32.55%. Its lowest quarterly return was -14.61%.

Average Annual Total Return for the Portfolio Compared to the Standard & Poor's
Composite Index of 500 Stocks.

CALENDAR PERIOD PORTFOLIO... S&P 500 INDEX
- --------------- --------- --------------
10 Year ......14.27% ..... 18.02%
5 Year ......16.66% ..... 20.27%
1 Year ......25.24% ..... 33.36%

The bar chart shows the variability of the Portfolio's actual total return on a
yearly basis. The table shows the Portfolio's total returns averaged over a
period of years relative to the Standard & Poor's Composite Index of 500 Stocks,
a broad-based market index. While past performance does not necessarily predict
future performance, this information provides you with historical performance
information so that you can analyze whether the Portfolio's investment risks are
balanced by its potential rewards.

<PAGE>

APPENDIX D

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of the Class A Shares of FundManager Bond Portfolio (the
"Portfolio") as of the calendar year-end for each of ten years.

The `y' axis reflects the "% Total Return" beginning with -5.00% and increasing
in increments of 5.00% up to 20.00%.

The `x' axis represents calculation for the last ten calendar years of the
Portfolio beginning with the earliest year. The light gray shaded chart features
ten distinct vertical bars, each shaded in charcoal, and each visually
representing by height the total return percentages for the calendar year stated
directly at its base. The calculated total return percentages for the Class A
Shares of the Portfolio, which appear directly above each respective bar, for
the calendar years 1988 through 1997, are 8.30%, 7.66%, 4.81%, 14.81%, 7.14%,
10.57%, -4.29%, 15.89%, 2.27% and 7.80%, respectively.

The Portfolio's average annual total return as of the most recent calendar
quarter ended June 30, 1998, was 3.24%.

Within the period shown in the Chart, the Portfolio's highest quarterly return
was 15.89%. Its lowest quarterly return was -4.29%.

Average Annual Total Return for the Portfolio Compared to the Lehman Brothers
Government/Corporate Bond Total Index

CALENDAR PERIOD PORTFOLIO...LEHMAN GOV'T/CB INDEX
- --------------- --------- ---------------------
10 Year ......7.35% ...... 9.15%
5 Year ......6.22% ...... 7.61%
1 Year ......7.80% ...... 9.75%

The bar chart shows the variability of the Portfolio's actual total return on a
yearly basis. The table shows the Portfolio's total returns averaged over a
period of years relative to the Lehman Brothers Government/Corporate Bond Total
Index, a broad-based market index. While past performance does not necessarily
predict future performance, this information provides you with historical
performance information so that you can analyze whether the Portfolio's
investment risks are balanced by its potential rewards.

<PAGE>

APPENDIX E

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of the Class A Shares of FundManager Managed Total Return
Portfolio (the "Portfolio") as of the calendar year-end for each of nine years.

The `y' axis reflects the "% Total Return" beginning with -5.00% and increasing
in increments of 5.00% up to 20.00%.

The `x' axis represents calculation for the last nine calendar years of the
Portfolio beginning with the earliest year. The light gray shaded chart features
nine distinct vertical bars, each shaded in charcoal, and each visually
representing by height the total return percentages for the calendar year stated
directly at its base. The calculated total return percentages for the Class A
Shares of the Portfolio, which appear directly above each respective bar, for
the calendar years 1989 through 1997, are 14.56%, 0.31%, 18.78%, 6.34%, 9.00%,
- -1.15%, 19.26%, 8.25% and 13.50%, respectively.

The Portfolio's average annual total return as of the most recent calendar
quarter ended June 30, 1998, was 6.95%.

Within the period shown in the Chart, the Portfolio's highest quarterly return
was 19.26%. Its lowest quarterly return was -4.86%.

Average Annual Total Return for the Portfolio Compared to the Lehman Brothers
Government/Corporate Bond Total Index

CALENDAR PERIOD ......PORTFOLIO... LEHMAN GOV'T/CB INDEX
- --------------- --------- ---------------------
Since Inception (8/4/88)......9.49% 9.35%
5 Year ............9.56% 7.61%
1 Year ............13.50% 9.75%

The bar chart shows the variability of the Portfolio's actual total return on a
yearly basis. The table shows the Portfolio's total returns averaged over a
period of years relative to the Lehman Brothers Government/Corporate Bond Total
Index, a broad-based market index. While past performance does not necessarily
predict future performance, this information provides you with historical
performance information so that you can analyze whether the Portfolio's
investment risks are balanced by its potential rewards.

STATEMENT OF ADDITIONAL INFORMATION NOVEMBER 30, 1998

FUNDMANAGER PORTFOLIOS

CLASS A SHARES
CLASS B SHARES

AGGRESSIVE GROWTH PORTFOLIO BOND PORTFOLIO

GROWTH PORTFOLIO MANAGED TOTAL RETURN PORTFOLIO

GROWTH WITH INCOME PORTFOLIO INTERNATIONAL PORTFOLIO

This Statement of Additional Information (SAI) is not a prospectus. Read
this SAI in conjunction with the prospectus for FundManager Portfolios,
dated November 30, 1998. This SAI incorporates by reference the Portfolios'
Annual Report. You may obtain the prospectus or the Annual Report without
charge by calling 1-800-344-9033.

CONTENTS [TO BE GENERATED]

[Federated Investors Logo]
Federated Securities Corp., Distributor,
subsidiary of Federated Investors
CUSIP [#]
[Product Code and Date]

<PAGE>

HOW ARE THE PORTFOLIOS ORGANIZED?

FundManager Portfolios (the "Trust") is an open-end, management investment
company that was established as a Delaware business trust on February 7, 1995.
The Portfolios are six separate diversified series of the Trust. The Trust may
offer separate series of shares representing interests in separate portfolios of
securities, and the shares in any one Portfolio may be offered in separate
classes. This Statement uses the same terms as defined in the prospectus.

SECURITIES IN WHICH THE UNDERLYING FUNDS INVEST

Following is a table that indicates which types of securities are a:

P = PRINCIPAL investment of a Fund; (shaded in chart) A = ACCEPTABLE (but
not principal) investment of a Fund; or N = NOT AN ACCEPTABLE investment
of a Fund.

<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
SECURITIES AGGRESSIVE GROWTH GROWTH BOND MANAGED INTERNATIONAL
GROWTH PORTFOLIO WITH PORTFOLIO TOTAL PORTFOLIO
PORTFOLIO INCOME RETURN
PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
AMERICAN DEPOSITARY A A A A A A
RECEIPTS
- ------------------------------------------------------------------- ----------
- ----------------------------------------------------------------------------------------
BANK OBLIGATIONS A A A A P A
- ----------------------------------------------------------------------------------------
- ------------------------------------------------------------------- ----------
BORROWING A A A A A A
- -----------------------
- ----------------------------------------------------------------------------------------
CLOSED-END INVESTMENT N N N N N A
COMPANIES
- -----------------------
- ----------------------------------------------------------------------------------------
COMMERCIAL PAPER A A A P A A
- ----------------------------------------------------------------------------------------
- ----------------------- -----------
COMMON STOCK P P P N P P
- -------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
CONVERTIBLE SECURITIES P P P P P P
- --------------------------------------------- ----------
- ----------------------- ---------------------------------
DEBT OBLIGATIONS A A P P P A
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
EUROPEAN DEPOSITARY A A A A A A
RECEIPTS
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
FOREIGN CURRENCY A A A N A A
TRANSACTIONS
- -------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
FOREIGN SECURITIES A A A N P P
- ----------------------------------------------------------------------------------------
- -------------------------------------------------------------------
FORWARD COMMITMENTS, A A A A A A
WHEN-ISSUED AND
DELAYED DELIVERY
TRANSACTIONS
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
FUTURES AND OPTIONS A A A A A A
TRANSACTIONS
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
GLOBAL DEPOSITARY A A A A A A
RECEIPTS
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
HIGH-YIELD SECURITIES A A A A A A
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
ILLIQUID SECURITIES A A A A A A
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
LENDING OF PORTFOLIO A A A A A A
SECURITIES
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
MASTER DEMAND NOTES A A A A A A
- -----------------------
- ----------------------------------------------------------------------------------------
OPEN-END INVESTMENT A A A A A A
COMPANIES
- ----------------------- ---------------------------------
- ----------------------------------------------------------------------------------------
PREFERRED STOCKS A A P P P A
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS A A A A A A
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
REVERSE REPURCHASE N N N N N A
AGREEMENTS
- -------------------------------------------------------- ----------
- ----------------------------------------------------------------------------------------
U.S. GOVERNMENT A A A P P A
SECURITIES
- ----------------------------------------------------------------------------------------
- -------------------------------------------------------- ----------
UNIT INVESTMENT TRUSTS N N N N N A
- -----------------------
- ----------------------------------------------------------------------------------------
WARRANTS A A A A A A
- ----------------------------------------------------------------------------------------

</TABLE>

<PAGE>

SECURITIES DESCRIPTIONS, TECHNIQUES AND RISKS

BANK INSTRUMENTS. The Portfolios and underlying funds may invest in debt
instruments of U.S. banks (including certificates of deposit and bankers'
acceptances) that have total assets in excess of 1 billion at the time of
purchase and are members of the Federal Deposit Insurance Corporation.

Bank instruments are unsecured interest bearing deposits with banks. A
certificate of deposit is a debt instrument issued by a bank against funds
deposited in the bank. A bankers' acceptance is a short-term draft drawn on a
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.

BORROWING. The funds may borrow money from banks or through reverse repurchase
agreements in amounts up to one-third of total assets, and pledge some assets as
collateral. A fund that borrows will pay interest on borrowed money and may
incur other transaction costs. These expenses could exceed the income received
or capital appreciation realized by a fund from any securities purchased with
borrowed money. With respect to borrowings, the funds are required to maintain
continuous asset coverage to 300% of the amount borrowed. If the coverage
declines to less than 300%, a fund must sell sufficient portfolio securities to
restore the coverage even if it must sell the securities at a loss.

COMMERCIAL PAPER. The Portfolios and underlying funds may purchase commercial
paper which represents unsecured, short term obligations with maturities of less
than nine months. Commercial paper is issued by banks, corporations and other
borrowers to investors with temporarily idle cash. Most issuers constantly
reissue their commercial paper and use the proceeds (or bank loans) to repay
maturing paper. Commercial paper may default if the issuer cannot continue to
obtain liquidity by repaying maturing paper in this manner. The short maturity
of commercial paper reduces both the market and credit risk as compared to other
debt securities of the same issuer.

The Portfolios and underlying funds purchase commercial paper of domestic
issuers which, at the time of purchase, are: (i) rated in the highest commercial
paper rating category by a nationally recognized statistical rating organization
("NRSRO"),

(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 unrated, are, in the opinion the Adviser, of an
investment quality comparable to rated commercial paper in which the Funds may
invest.

CONVERTIBLE SECURITIES. The funds may invest in convertible securities which are
fixed income securities that an underlying fund has the option to exchange for
equity securities at a specified conversion price. The option allows the
underlying fund to realize additional returns if the market price of the equity
securities exceeds the conversion price. For example, an underlying fund may
hold fixed income securities convertible into shares of common stock at a
conversion price of $10 per share. If the market value of the shares reached
$12, the underlying fund could realize an additional $2 per share by converting
its fixed income securities.

Convertible securities have lower yields than comparable fixed income securities
to compensate for the value of the conversion option. In addition, the
conversion price exceeds the market value of the underlying equity securities at
the time a convertible security is issued. Thus, convertible securities may
provide lower returns than non-convertible fixed income securities or equity
securities depending upon changes in the price of the underlying equity
securities. However, convertible securities permit the underlying fund to
realize some of the potential appreciation of the underlying equity securities
with less risk of losing its initial investment.

DEPOSITARY RECEIPTS. American Depositary Receipts (ADRs) are receipts, issued by
a U.S. bank, that represent an interest in shares of a foreign-based
corporation. ADRs provide a way to buy shares of foreign-based companies in the
U.S. rather than in overseas markets. European Depositary Receipts (EDRs) and
Global Depositary Receipts (GDRs) are receipts, issued by foreign banks or trust
companies, or foreign branches of U.S. banks, that represent an interest in
shares of either a foreign or U.S. corporation. Depositary Receipts may not be
denominated in the same currency as the underlying securities into which they
may be converted, and are subject to currency risks. Depositary Receipts
involves many of the same risks of investing directly in foreign securities.

EQUITY SECURITIES. Equity securities represent ownership in a company. They
represent a share of the issuer's earnings and assets, after the issuer pays its
liabilities. Generally, issuers have discretion as to the payment of any
dividends or distributions. As a result, investors cannot predict the income
they will receive from equity securities. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the types of equity securities in which the Fund invests.

COMMON STOCKS are the most prevalent type of equity security. Common
stockholders receive the residual value of the issuer's earnings and assets
after the issuer pays its creditors and any preferred stockholders. As a
result, changes in an issuer's earnings directly influence the value of its
common stock.

PREFERRED STOCKS have the right to receive specified dividends or
distributions before the payment of dividends or distributions on common
stock. Some preferred stocks also participate in dividends and distributions
paid on common stock. Preferred stocks may provide for the issuer to redeem
the stock on a specified date. An underlying fund may treat such redeemable
preferred stock as a fixed income security.

WARRANTS give an underlying fund the option to buy the issuer's stock or
other equity securities at a specified price. A fund may buy the designated
shares by paying the exercise price before the warrant expires. Warrants may
become worthless if the price of the stock does not rise above the exercise
price by the expiration date. Rights are the same as warrants, except they
are typically issued to existing stockholders.

FIXED INCOME SECURITIES. Fixed income securities pay interest, dividends or
distributions at a specified rate. The rate may be fixed or adjusted
periodically. Generally, investors in fixed income securities are creditors of
the issuer. The issuer must repay the principal amount of the security, normally
within a specified time. Fixed income securities provide more regular income
than equity securities. However, the returns on fixed income securities are
limited and normally do not increase with the issuer's earnings. This limits the
potential appreciation of fixed income securities as compared to equity
securities.

A security's YIELD measures the annual income earned on a security as a
percentage of its price. Securities with higher credit risks generally have
higher yields. A security's yield will increase or decrease depending upon
whether it costs less (a discount) or more (a premium) than the principal
amount. Under normal market conditions, securities with longer maturities will
also have higher yields. If the issuer may redeem the security before its
scheduled maturity, the price and yield on a discount or premium security may
change based upon the probability of an early redemption.

The following describes the types of fixed income securities in which an
underlying fund may invest.

AGENCY SECURITIES are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a "GSE"). Some
GSEs are supported by the full, faith and credit of the United States. Other
GSEs receive support through federal subsidies, loans or other benefits. A
few GSEs have no explicit financial support, but are regarded as having
implied support because the federal government sponsors their activities.
Investors regard agency securities as having low credit risk, but not as low
as Treasury securities.

The Portfolios and underlying funds treat mortgage-backed securities
guaranteed by GSEs as agency securities. Although a GSE guarantee protects
against credit risk, it does not reduce the market and prepayment risks of
these mortgage backed securities.

ASSET BACKED SECURITIES are payable from pools of obligations other than
mortgages, such as car loans or credit card receivables. Almost any type of
fixed income asset (including other fixed income securities) may be used to
create an asset backed security. However, most asset backed securities
involve consumer or commercial debts with maturities of less than ten years.
Asset backed securities may take the form of commercial paper or notes, in
addition to pass through certificates. Asset backed securities may also
resemble some types of CMOs, such as Floaters, Inverse Floaters, IOs and POs.

CORPORATE DEBT SECURITIES are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt security. The credit risks of corporate debt securities vary
widely among issuers.

MORTGAGE-BACKED SECURITIES represent interests in pools of mortgages. The
underlying mortgages normally have similar interest rates, maturities and
other terms. Mortgages may have fixed or adjustable interest rates. Interests
in pools of adjustable rate mortgages are know as ARMs.

Mortgage-backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage-backed securities are
"pass-through certificates." Holders of pass-through certificates receive a
pro rata share of the payments from the underlying mortgages. Holders also
receive a pro rata share of any prepayments, so they assume all the
prepayment risk of the underlying mortgages.

Collateralized mortgage obligations (CMOs), including interests in real
estate mortgage investment conduits (REMICs), allocate payments and
prepayments from an underlying pass-through certificate among holders of
different classes of mortgage-backed securities. This creates different
prepayment and market risks for each CMO class. For example, in a sequential
pay CMO, one class of CMOs receives all principal payments (including
prepayments). The next class of CMOs receives all principal payments after
the first class is paid off. This process repeats for each sequential class
of CMO. As a result, each class of sequential pay CMOs reduces the prepayment
risk of subsequent classes.

In addition, CMOs may allocate interest payments to one class (IOs) and
principal payments to another class (POs). POs increase in value when
prepayment rates increase. In contrast, IOs decrease in value when
prepayments increase, because the underlying mortgages generate less interest
payments. However, IOs prices tend to increase when interest rates rise (and
prepayments fall), making IOs a useful hedge against market risk.

TREASURY SECURITIES are direct obligations of the federal government of the
United States. Investors regard treasury securities as having the lowest
credit risk.

FOREIGN SECURITIES. Investments may be in securities of foreign issuers,
whether located in developed or emerging countries.

Investments in foreign securities where delivery of the securities takes place
outside the United States must be made in compliance with U.S. and foreign
currency restrictions and tax laws (including laws imposing withholding taxes on
any dividend or interest income) and laws limiting the amount and types of
foreign investments.

Foreign securities are not considered to be illiquid provided that: (i) the
securities are purchased and held with the intention of reselling them in the
foreign trading market, (ii) a fund believes it can readily sell the securities
in the foreign trading market or for cash in the United States, or (iii) foreign
market and current market quotations are readily available.

If a fund invests in foreign securities, its Board or adviser must determine
that the foreign securities are maintained with foreign custodians who will
exercise reasonable care. The Board or adviser continually monitors the
appropriateness of foreign custody arrangements. However, a fund could lose
money if the Board or adviser is incorrect in its expectations about the
performance of either the foreign securities or the foreign custodians chosen to
hold the securities.

FOREIGN CURRENCY TRANSACTIONS. In order to hedge against foreign currency
exchange rate risks, the underlying funds may enter into forward foreign
currency exchange contracts and foreign currency futures contracts, as well as
purchase put or call options on foreign currencies, as described below. The
underlying funds may also conduct foreign currency exchange transactions on a
spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS (Forward Contracts) are used
to minimize the risks associated with changes in the relationship between
the U.S. dollar and foreign currencies. They are used to lock in the U.S.
dollar price of a foreign security. A Forward Contract is a commitment to
purchase or sell a specific currency for an agreed price at a future date.

If the fund's adviser believes a foreign currency will decline against the
U.S. dollar, a Forward Contract may be used to sell an amount of the
foreign currency approximating the value of a fund's security that is
denominated in the foreign currency. The success of this hedging strategy
is highly uncertain due to the difficulties of predicting the values of
foreign currencies, of precisely matching Forward Contract amounts, and
because the constantly changing value of the securities involved. A fund
will not enter into Forward Contracts for hedging purposes in a particular
currency in an amount in excess of a fund's assets denominated in that
currency. Conversely, if the fund's adviser believes that the U.S. dollar
will decline against a foreign currency, a Forward Contract may be used to
buy that foreign currency for a fixed dollar amount, otherwise known as
cross-hedging.

In these transactions, a fund will segregate assets with a market value
equal to the amount of the foreign currency purchased. Therefore, a fund
will always have cash, cash equivalents or high quality debt securities
available to cover Forward Contracts or to limit any potential risk. The
segregated assets will be priced daily.

Forward Contracts may limit potential gain from a positive change in the
relationship between the U.S. dollar and foreign currencies. Unanticipated
changes in currency prices may result in poorer overall performance for a
fund than if it had not engaged in such contracts.

PURCHASING AND WRITING PUT AND CALL OPTIONS on foreign currencies are used
to protect a fund's investments against declines in the U.S. dollar value
of foreign portfolio securities and against increases in the dollar cost
of foreign securities to be acquired. Writing an option on foreign
currency constitutes only a partial hedge, up to the amount of the premium
received. A fund could lose money if it is required to purchase or sell
foreign currencies at disadvantageous exchange rates. If exchange rate
movements are adverse to a fund's position, a fund may forfeit the entire
amount of the premium plus related transaction costs. These options are
traded on U.S. and foreign exchanges or over-the-counter.

EXCHANGE-TRADED FUTURES CONTRACTS are used for the purchase or sale of
foreign currencies (Foreign Currency Futures) AND will be used to hedge
against anticipated changes in exchange rates that might adversely affect
the value of a fund's securities or the prices of securities that a fund
intends to purchase in the future. The successful use of Foreign Currency
Futures depends on the ability to forecast currency exchange rate
movements correctly. Should exchange rates move in an unexpected manner, a
fund may not achieve the anticipated benefits of Foreign Currency Futures
or may realize losses.

FUTURES AND OPTIONS TRANSACTIONS. As a means of reducing fluctuations in
its net asset value, a fund may buy and sell futures contracts and options
on futures contracts, and buy put and call options on portfolio securities
and securities indices to hedge its portfolio. A fund may also write
covered put and call options on portfolio securities to attempt to
increase its current income or to hedge its portfolio. There is no
assurance that a liquid secondary market will exist for any particular
futures contract or option at any particular time. A fund's ability to
establish and close out futures and options positions depends on this
secondary market.

FUTURES CONTRACTS. A futures contract is a commitment by two parties under
which one party agrees to make delivery of an asset (seller) and another
party agrees to take delivery of the asset at a certain time in the
future. A futures contract may involve a variety of assets including
commodities (such as oil, wheat, or corn) or a financial asset (such as a
security). A fund may purchase and sell financial futures contracts to
hedge against anticipated changes in the value of its portfolio without
necessarily buying or selling the securities. Although some financial
futures contracts call for making or taking delivery of the underlying
securities, in most cases these obligations are closed out before the
settlement date. The closing of a futures contract is accomplished by
purchasing or selling an identical offsetting futures contract. Other
financial futures contracts call for cash settlements.

A fund may purchase and sell stock index futures contracts to hedge
against anticipated price changes with respect to any stock index traded
on a recognized stock exchange or board of trade. A stock index futures
contract is an agreement in which two parties agree to take or make
delivery of an amount of cash equal to the difference between the price of
the original contract and the value of the index at the close of the last
trading day of the contract. No physical delivery of the underlying
securities in the index is made. Settlement is made in cash upon
termination of the contract.

MARGIN IN FUTURES TRANSACTIONS. Since a fund does not pay or receive money
upon the purchase or sale of a futures contract, it is required to deposit
an amount of initial margin in cash, U.S. government securities or
highly-liquid debt securities as a good faith deposit. The margin is
returned to a fund upon termination of the contract. Initial margin in
futures transactions does not involve borrowing to finance the
transactions.

As the value of the underlying futures contract changes daily, a fund pays
or receives cash, called variation margin, equal to the daily change in
value of the futures contract. This process is known as marking to market.
Variation margin does not represent a borrowing or loan by a fund. It may
be viewed as settlement between a fund and the broker of the amount one
would owe the other if the futures contract expired. When a fund purchases
futures contracts, an amount of cash and/or cash equivalents, equal to the
underlying commodity value of the futures contracts (less any related
margin deposits), will be deposited in a segregated account with a fund's
custodian to collateralize the position and insure that the use of futures
contracts is unleveraged. The funds are also required to deposit and
maintain margin when it writes call options on futures contracts.

A fund will not enter into a futures contract or purchase an option
thereon for other than hedging purposes if immediately thereafter the
initial margin deposits for futures contracts held by it, plus premiums
paid by it for open options on futures contracts, would exceed 5% of the
market value of its net assets, after taking into account the unrealized
profits and losses on those contracts it has entered into. However, in the
case of an option that is in-the-money at the time of purchase, the
in-the-money amount may be excluded in computing such 5%.

PUT OPTIONS ON FINANCIAL AND STOCK INDEX FUTURES CONTRACTS. A fund may
purchase listed put options on financial and stock index futures contracts
to protect portfolio securities against decreases in value. Unlike
entering directly into a futures contract, which requires the purchaser to
buy a financial instrument on a set date at a specified price, the
purchase of a put option on a futures contract entitles (but does not
obligate) its purchaser to decide on or before a future date whether to
assume a short position at the specified price. Generally, if the hedged
portfolio securities decrease in value during the term of an option, the
related futures contracts will also decrease in value and the option will
increase in value. In such an event, a fund will normally close out its
option by selling an identical option. If the hedge is successful, the
proceeds received by a fund upon the sale of the second option will be
large enough to offset both the premium paid by a fund for the original
option plus the decrease in value of the hedged securities.

Alternatively, a fund may exercise its put option to close out the
position. To do so, it would simultaneously enter into a futures contract
of the type underlying the option (for a price less than the strike price
of the option) and exercise the option. The fund would then deliver the
futures contract in return for payment of the strike price. If a fund
neither closes out nor exercises an option, the option will expire on the
date provided in the option contract, and only the premium paid for the
contract will be lost.

A fund may also write (sell) listed put options on financial or stock
index futures contracts to hedge its portfolio against a decrease in
market interest rates or an increase in stock prices. A fund will use
these transactions to purchase portfolio securities in the future at price
levels existing at the time it enters into the transaction. When a fund
sells a put on a futures contract, it receives a cash premium in exchange
for granting to the buyer of the put the right to receive from a fund, at
the strike price, a short position in such futures contract. This is so
even though the strike price upon exercise of the option is greater than
the value of the futures position received by such holder. As market
interest rates decrease or stock prices increase, the market price of the
underlying futures contract normally increases. When the underlying
futures contract increases, the buyer of the put option has less reason to
exercise the put because the buyer can sell the same futures contract at a
higher price in the market. If the value of the underlying futures
position is not such that exercise of the option would be profitable to
the option holder, the option will generally expire without being
exercised. The premium received by a fund can then be used to offset the
higher prices of portfolio securities to be purchased in the future.

In order to avoid the exercise of an option sold by it, generally a fund
will cancel its obligation under the option by entering into a closing
purchase transaction, unless it is determined to be in a fund's interest
to deliver the underlying futures position. A closing purchase transaction
consists of the purchase by a fund of an option having the same term as
the option sold by a fund, and has the effect of canceling a fund's
position as a seller. The premium which a fund will pay in executing a
closing purchase transaction may be higher than the premium received when
the option was sold, depending in large part upon the relative price of
the underlying futures position at the time of each transaction. If the
hedge is successful, the cost of buying the second option will be less
than the premium received by a fund for the initial option.

CALL OPTIONS ON FINANCIAL AND STOCK INDEX FUTURES CONTRACTS. A fund may
write (sell) listed and over-the-counter call options on financial and
stock index futures contracts to hedge its portfolio. When a fund writes a
call option on a futures contract, it undertakes to sell a futures
contract at the fixed price at any time during the life of the option. As
stock prices fall or market interest rates rise, causing the prices of
futures to go down, a fund's obligation to sell a futures contract costs
less to fulfill, causing the value of a fund's call option position to
increase. In other words, as the underlying futures price goes down below
the strike price, the buyer of the option has no reason to exercise the
call, so that a fund keeps the premium received for the option. This
premium can substantially offset the drop in value of a fund's portfolio
securities.

Prior to the expiration of a call written by a fund, or exercise of it by
the buyer, a fund may close out the option by buying an identical option.
If the hedge is successful, the cost of the second option will be less
than the premium received by a fund for the initial option. The net
premium income of a fund will then substantially offset the decrease in
value of the hedged securities.

A fund may buy a listed call option on a financial or stock index futures
contract to hedge against decreases in market interest rates or increases
in stock price. A fund will use these transactions to purchase portfolio
securities in the future at price levels existing at the time it enters
into the transaction. When a fund purchases a call on a financial futures
contract, it receives in exchange for the payment of a cash premium the
right, but not the obligation, to enter into the underlying futures
contract at a strike price determined at the time the call was purchased,
regardless of the comparative market value of such futures position at the
time the option is exercised. The holder of a call option has the right to
receive a long (or buyer's) position in the underlying futures contract.
As market interest rates fall or stock prices increase, the value of the
underlying futures contract will normally increase, resulting in an
increase in value of a fund's option position. When the market price of
the underlying futures contract increases above the strike price plus
premium paid, a fund could exercise its option and buy the futures
contract below market price. Prior to the exercise or expiration of the
call option, a fund could sell an identical call option and close out its
position. If the premium received upon selling the offsetting call is
greater than the premium originally paid, a fund has completed a
successful hedge.

LIMITATION ON OPEN FUTURES POSITIONS. A fund will not maintain open
positions in futures contracts it has sold or call options it has written
on futures contracts if together the value of the open positions exceeds
the current market value of a fund's portfolio plus or minus the
unrealized gain or loss on those open positions, adjusted for the
correlation of volatility between the hedged securities and the futures
contracts. If this limitation is exceeded at any time, a fund will take
prompt action to close out a sufficient number of open contracts to bring
its open futures and options positions within this limitation.

PURCHASING PUT AND CALL OPTIONS ON SECURITIES. A fund may purchase put
options on portfolio securities to protect against price movements in a
fund's portfolio. A put option gives a fund, in return for a premium, the
right to sell the underlying security to the writer (seller) at a
specified price during the term of the option. A fund may purchase call
options on securities acceptable for purchase to protect against price
movements by locking in on a purchase price for the underlying security. A
call option gives a fund, in return for a premium, the right to buy the
underlying security from the seller at a specified price during the term
of the option.

WRITING COVERED CALL AND PUT OPTIONS ON SECURITIES. A fund may write
covered call and put options to generate income and thereby protect
against price movements in a fund's portfolio securities. As writer of a
call option, a fund has the obligation, upon exercise of the option during
the option period, to deliver the underlying security upon payment of the
exercise price. The fund may only sell call options either on securities
held in its portfolio or on securities which it has the right to obtain
without payment of further consideration (or has segregated cash or U.S.
government securities in the amount of any additional consideration). As a
writer of a put option, a fund has the obligation to purchase a security
from the purchaser of the option upon the exercise of the option. In the
case of put options, a fund will segregate cash or U.S. Treasury
obligations with a value equal to or greater than the exercise price of
the underlying securities.

STOCK INDEX OPTIONS. A fund may purchase or sell put or call options on
stock indices listed on national securities exchanges or traded in the
over-the-counter market. A stock index fluctuates with changes in the
market values of the stocks included in the index. Upon the exercise of
the option, the holder of a call option has the right to receive, and the
writer of a put option has the obligation to deliver, a cash payment equal
to the difference between the closing price of the index and the exercise
price of the option. The effectiveness of purchasing stock index options
will depend upon the extent to which price movements in a fund's portfolio
correlate with price movements of the stock index selected. The value of
an index option depends upon movements in the level of the index rather
than the price of a particular stock. Accordingly, successful use by a
fund of options on stock indices will be subject to the adviser correctly
predicting movements in the directions of the stock market generally or of
a particular industry. This requires different skills and techniques than
predicting changes in the price of individual stocks.

OVER-THE-COUNTER OPTIONS. Over-the-counter options are two-party contracts
with price and terms negotiated between buyer and seller. In contrast,
exchange-traded options are third-party contracts with standardized strike
prices and expiration dates and are purchased from a clearing corporation.
Exchange-traded options have a continuous liquid market while
over-the-counter options may not. A fund may generally purchase and write
over-the-counter options on portfolio securities or securities indices in
negotiated transactions with the buyers or writers of the options when
options on a fund's portfolio securities or securities indices are not
traded on an exchange. The fund purchases and writes options only with
investment dealers and other financial institutions deemed creditworthy by
the adviser.

RISKS. When a fund uses futures and options on futures as hedging devices,
there is a risk that the prices of the securities or foreign currency
subject to the futures contracts may not correlate perfectly with the
prices of the securities or currency in a fund's portfolio. This may cause
the futures contract and any related options to react differently to
market changes than the portfolio securities or foreign currency. In
addition, the adviser could be incorrect in its expectations about the
direction or extent of market factors such as stock price movements or
foreign currency exchange rate fluctuations. In these events, a fund may
lose money on the futures contract or option.

When a fund purchases futures contracts, an amount of cash and cash
equivalents, equal to the underlying commodity value of the futures
contracts (less any related margin deposits), will be deposited in a
segregated account with a fund's custodian or the broker, to collateralize
the position and thereby insure that the use of such futures contract is
unleveraged. When a fund sells futures contracts, it will either own or
have the right to receive the underlying future or security, or will make
deposits to collateralize the position as discussed above.

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.

HIGH YIELD SECURITIES. An underlying fund may invest in high yield, high risk
securities. Investing in these 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, high
risk 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.

LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, a fund
may lend portfolio securities. When a fund lends its securities, it will receive
either cash or liquid securities as collateral from the borrower. A fund will
reinvest cash collateral in short-term liquid securities that qualify as an
otherwise acceptable investment for a fund. If the market value of the loaned
securities increases, the borrower must furnish additional collateral to a fund.
During the time portfolio securities are on loan, the borrower pays a fund any
dividends or interest paid on such securities. Loans are subject to termination
at the option of a fund or the borrower. The fund may pay reasonable
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash or equivalent collateral
to a securities lending agent or broker.

REPURCHASE AGREEMENTS. A repurchase agreement is a transaction in which a
Portfolio or underlying fund buys a security from a dealer or bank and agrees to
sell the security back at a mutually agreed upon time and price. The repurchase
price exceeds the sale price, reflecting an agreed upon interest rate effective
for the period the buyer owns the security subject to repurchase. The agreed
upon interest rate is unrelated to the interest rate on that security.

The adviser will continually monitor the value of the underlying security to
ensure that the value of the security always equals or exceeds the repurchase
price. In the event of default by the seller, a Portfolio or underlying fund 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.

RESTRICTED AND ILLIQUID SECURITIES The funds will not invest more than 15% of
the value of their net assets in illiquid securities including certain
restricted securities not determined to be liquid under criteria established by
the Trustees.

REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreement transactions are
similar to borrowing cash. In a reverse repurchase agreement, a Portfolio or
underlying fund sells a portfolio security to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future a Portfolio or underlying fund will repurchase the portfolio at a price
equal to the original sale price plus interest. A Portfolio or underlying fund
may use reverse repurchase agreements for liquidity and may enable a Portfolio
or underlying fund to avoid selling portfolio instruments at a time when a sale
may be deemed to be disadvantageous. When effecting reverse repurchase
agreements, liquid assets of a Portfolio or underlying fund, in a dollar amount
sufficient to make payment for the obligations to be purchased, are segregated
at the trade date. These securities are marked to market daily and maintained
until the transaction is settled.

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 underlying 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 an underlying 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 underlying 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 underlying 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 underlying 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.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. These transactions are made to
secure what is considered to be an advantageous price or yield. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices. Other than
normal transaction costs, no fees or expenses are incurred. However, liquid
assets of a fund are segregated on a fund's records at the trade date in an
amount sufficient to make payment for the securities to be purchased. These
assets are marked to market daily and are maintained until the transaction has
been settled.

<PAGE>

INVESTMENT LIMITATIONS

FUNDAMENTAL LIMITATIONS

1. A Portfolio will not purchase or otherwise acquire interests in real estate
or real estate mortgage loans, except that a Portfolio may purchase securities
issued by companies, including real estate investment trusts, which invest in
real estate or interests therein. Except for International Portfolio, the
Portfolios will not purchase or otherwise acquire interests in oil, gas, or
other mineral leases, as well as exploration or development programs.

2. With respect to securities comprising 75% of the value of its total assets,
the International Portfolio will not invest more than 5% in securities of any
one issuer (other than cash, cash items, securities of investment companies or
securities issued or guaranteed by the government of the United States or its
agencies or instrumentalities and repurchase agreements collateralized by such
securities) if, as a result, more than 5% of the value of its total assets would
be invested in the securities of that issuer, and will not acquire more than 10%
of the outstanding voting securities of any one issuer.

3. The International Portfolio will not invest 25% or more of the value of its
total assets in any one industry other than investment companies, except that
the Portfolio may invest in securities issued by the U.S. government, its
agencies or instrumentalities.

4. A Portfolio will not make loans, except that a Portfolio may purchase and
hold publicly distributed debt securities and it may enter into repurchase
agreements.

5. Except for International Portfolio, a portfolio will not 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.

6. Except for International Portfolio, a portfolio will not 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.

7. A Portfolio will not sell securities short or invest in puts, calls,
straddles, spreads or combinations thereof.

8. A Portfolio will not purchase securities on margin, except such short-term
credits as are necessary for the clearance of transactions. The deposit or
payment by the International Portfolio of initial or variation margin in
connection with financial futures contracts or options transactions is not
considered the purchase of a security on margin.

9. A Portfolio will not purchase or acquire commodities or commodity contracts
(except that the International Portfolio may engage in foreign currency
exchanges contracts and futures contracts).

10. Act as an underwriter of securities.

11. Except for International Portfolio, a portfolio will not 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.

12. The International Portfolio will not issue senior securities, except that
the Portfolio may borrow money directly or through reverse repurchase agreements
in amounts up to one-third of the value of its total assets, including the
amount borrowed, and except to the extent that the Portfolio may enter into
futures contracts. The Portfolio will not borrow money or engage in reverse
repurchase agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure or to facilitate management of the portfolio
by enabling the Portfolio to meet redemption requests when the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous. The
Portfolio will not purchase any securities while any borrowings in excess of 5%
of its total assets are outstanding.

13. Except for International Portfolio, a Portfolio will not 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.

NON-FUNDAMENTAL LIMITATIONS

The following investment limitations are non-fundamental and, therefore may be
changed by the Trustees without shareholder approval. Shareholders will be
notified before any material change in these limitations becomes effective.

1. A Portfolio will not invest in securities for the purpose of exercising
control over or management of the issuer, although the International Portfolio
may own more than 25% of the assets of another investment company.

2. A Portfolio will not invest more than 15% of the Portfolios' net assets
(taken at the greater of cost or market value) in Illiquid Securities (excluding
144A securities that have been determined to be "liquid" under procedures
established by the Trustees).

3. A Portfolio, except for International Portfolio, will not invest, with
respect to 75% of the Portfolio's total assets, purchase securities of any
issuer (other than U.S. government securities, cash, cash items, and securities
of other investment companies) if such purchase at the time thereof would cause
the Portfolio 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. In
addition, the International Portfolio may not purchase securities of any
closed-end investment company or any investment company which is not registered
in the United States.

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.

<PAGE>

VOTING RIGHTS

Each share of each Portfolio gives the shareholder one vote per share (with
proportional voting for fractional shares) in Trustee elections and other
matters submitted to shareholders for vote. All shares of the Trust have equal
voting rights, except that in matters affecting only a particular Portfolio or
class, only shares of that Portfolio or class are entitled to vote.

Holders of not less than two-thirds of the outstanding shares of the Trust may
remove a person serving as Trustee whether by declaration in writing or at a
meeting called for such purpose. A special meeting of shareholders will be
called by the Trustees upon the written request of shareholders who own at least
10% of the Trust's outstanding shares of all series entitled to vote.

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.

As of September 18, 1998, the following shareholders owned of record,
beneficially, or both, 5% or more of the outstanding Class A Shares of the
Portfolios:

AGGRESSIVE GROWTH PORTFOLIO - Turtle & Co. FC 1202, c/o State Street Bank and
Trust Company, Boston, MA, owned 10.80%; Charles Schwab & Co. Inc., Special
Custody Account for the Exclusive Benefit of Customers, San Francisco, CA, owned
7.96%; and Turtle & Co. FC-RR, Boston, MA, owned 7.59%.

GROWTH PORTFOLIO - Turtle & Co. FC1202, c/o State Street Bank & Trust Co.,
Boston, MA, owned 23.98%; and Turtle & Co., FC-RR, Boston, MA, owned 13.65%.

GROWTH WITH INCOME PORTFOLIO - Turtle & Co. FC1202, c/o State Street Bank &
Trust Co., Boston, MA, owned 29.73%; Turtle & Co., FC- RR, Boston, MA, owned
21.14%; and Andrei Dragomer Radiology Inc., Munster, IN, owned 5.40%.

BOND PORTFOLIO - Turtle & Co. FC1202, c/o State Street Bank & Trust Co., Boston,
MA, owned 45.22%; and Turtle & Co., FC-RR, Boston, MA, owned 32.05%.

INTERNATIONAL PORTFOLIO - Turtle & Co., FC1202, c/o State Street Bank & Trust
Co., Boston, MA, owned 48.59%; and Turtle & Co., FC-RR, Boston, MA, owned
16.81%.

MANAGED TOTAL RETURN PORTFOLIO - None

Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.

<PAGE>

WHO MANAGES AND PROVIDES SERVICES TO THE PORTFOLIOS?

OFFICERS AND TRUSTEES

The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, address, age, present position(s) held with the Trust, principal
occupations for the past five years, total compensation received as a Trustee
from the Trust for its most recent fiscal year. The Trust is comprised of six
portfolios and four other investment companies which comprise the Freedom
Complex.

As of September 18, 1998, the Fund's Board and Officers as a group owned less
than 1% of the Portfolios' outstanding Class A Shares.

An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940.

DEXTER A. DODGE*
One Beacon Street
Boston, MA 02108
Age: 62

Trustee, Chairman and Chief Executive Officer

Chairman of the Adviser since October 1994. Director of the Adviser since 1983.
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.

Compensation from Trust $0
Compensation from the Freedom Complex $0

ERNEST T. KENDALL
230 Beacon Street
Boston, MA 02116
Age: 65

Trustee

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.

Compensation from Trust $6,600
Compensation from the Freedom Complex $14,900

<PAGE>

JOHN R. HAACK
311 Commonwealth Avenue, #81
Boston, MA 02115
Age: 55

Trustee

Superintendent, Suffolk County House of Correction, Boston, Massachusetts,
1996 to present. Vice President of Operations, Reliable Transaction Processing,
1995 to 1996. Major General, Assistant to the Commander in Chief, U.S. Space
Command and Commander in Chief, North American Aerospace Command, 1993 to 1995.
General Manager, Unilect Industries, 1993 to 1994. Brigadier General, Commander
of 102nd Fighter Wing, 1986 to 1993.

Compensation from Trust $4,241
Compensation from the Freedom Complex $9,759

RICHARD B. OSTERBERG
84 State Street
Boston, MA 02109
Age: 53

Trustee

Member of the law firm of Weston, Patrick, Willard & Redding, Boston,
Massachusetts, since 1969. Trustee of Freedom Mutual Fund and Freedom Group of
Tax Exempt Funds since September 1993.

Compensation from Trust $6,600
Compensation from the Freedom Complex $18,900

CHARLES B. LIPSON
One Beacon Street
Boston, MA 02108
Age: 51

Executive Vice President

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.

Compensation from Trust $0