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. 11 ...................... X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 12 ................................... X
FUNDMANAGER PORTFOLIOS
(formerly, FUNDMANAGER TRUST)
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
Victor R. Siclari, Esquire
Federated Investors Tower
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)
X on January 31, 1998 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i) on ____________ pursuant
to paragraph (a) (i) 75 days after filing pursuant to paragraph (a)(ii) on
_________________ pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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
<PAGE>
CROSS-REFERENCE SHEET
This Amendment to the Registration Statement of FUNDMANAGER PORTFOLIOS
(formerly, FundManager Trust)),which is comprised of six Portfolios: (1)
Aggressive Growth Portfolio, consisting of two classes of shares (a) Financial
Adviser Class and (b) No-Load Class; (2) Growth Portfolio, consisting of two
classes of shares (a) Financial Adviser Class and (b) No-Load Class; (3) Growth
with Income Portfolio, consisting of two classes of shares (a) Financial Adviser
Class and (b) No-Load Class; (4) Bond Portfolio, consisting of two classes of
shares (a) Financial Adviser Class and (b) No-Load Class; (5) Managed Total
Return Portfolio, consisting of one class of shares (a) Financial Adviser Class,
and (6) International Portfolio, consisting of two classes of shares (a)
Financial Adviser Class and (b) No-Load Class relates to all portfolios and is
comprised of the following (The remaining references to other portfolios have
been kept for easier cross reference.):
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page....................(1-6) Cover Page.
Item 2. Synopsis......................(1-6) Summary of Fund Expenses.
Item 3. Condensed Financial
Information..................(1-5) Financial Highlights;
(1-6) Performance Information.
Item 4. General Description of
Registrant...................(1-6) FundManager Portfolios; (1-5)
Investment Objectives; (6) Investment
Objective; (1-6) Investments of
and Investment Techniques Employed By
Mutual Funds in which the Portfolio
May Invest; (1-6) Investment
Policies and Restrictions; (1-5)
Risks and Other Considerations;
(6) Additional Risks and Other
Considerations; (1-6) Capitalization.
Item 5. Management of the Fund (1-6)
Management of FundManager Portfolios;
(1-6) The Adviser; (1-6) The
Administrator; (1-6) The
Distributors;(1-5) Custodian and
Transfer Agent; (6) Custodian; (6)
Transfer Agent, Dividend Disbursing
Agent, and Shareholder Servicing
Agent; (1a-5a,6) Service
Organizations; (1-6) Other Expenses;
(1-6) Portfolio Transactions.
Item 6. Capital Stock and Other
Securities...................(1-6) Dividends, Distributions and
Taxes; (1-6) Voting; (1-6)
Shareholder Inquiries.
Item 7. Purchase of Securities Being
Offered......................(1-6) The Distributors;
(1-6) Determination of Net Asset
Value;(1-6) Purchase of Shares;
(1a-5a, 6) Retirement Plans;
(1a-5a,6) Individual Retirement
Accounts; (1a-5a,6) Defined
Contribution Plan; (1a-5a,6)
Exchange Privilege; (1b-4b,6)
FundManager Advisory Program.
<PAGE>
Item 8. Redemption or Repurchase (1-6)
Redemption of Shares; (1a-5a,6)
Redemption of Shares Purchased Through
a Distributor or Authorized Securities
Dealer; (1b-5b) Redemption of Shares
Purchased Through a Distributor; (1-5)
Direct Redemption; (6) Financial
Adviser Class; (1a-5a,6) Redemption By
Wire or Telephone; (1a-5a,6)
Systematic Withdrawal Plan; (6) Limits
on Redemptions.
Item 9. Legal Proceedings.............None.
<PAGE>
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page....................(1-6) Cover Page.
Item 11. Table of Contents.............(1-6) Table of Contents.
Item 12. General Information and
History (1-6) Other Information.
Item 13. Investment Objectives and
Policies.....................(1-6) Investment Policies;
(1-6) Investment Restrictions.
Item 14. Management of the Fund (1-6) Management; (1-6) Trustees
Compensation.
Item 15. Control Persons and Principal
Holders of Securities........(1-6) Management;
(1-6) Other Information.
Item 16. Investment Advisory and Other
Services.....................(1-6) Management; (1-6) Investment
Adviser
Item 17. Brokerage Allocation..........(1-6) Portfolio Transactions.
Item 18. Capital Stock and Other
Securities (1-6) Other Information.
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered......................(1-6) See Part A Prospectus - Purchase
of Shares; (1-6) See Part A Prospectus
- Redemption of Shares; (1-6) See Part
A Prospectus - Determination of Net
Asset Value.
Item 20. Tax Status....................(1-5) See Part A Prospectus -
Dividends, Distributions and Taxes;
(6) The Portfolio's Tax Status.
Item 21. Underwriters (1-6) Management;
(1-6) Administrator;
(1-6) Distributors; (6) Service
Organizations.
Item 22. Calculation of Performance
Data.........................(1-6) Other Information;
(1-6) Performance Information.
Item 23. Financial Statements..........(1-5) The
Financial Statements for the fiscal
year ended September 30, 1997 are
incorporated herein by reference to
the Portfolios' Annual Report dated
September 30, 1997 (File Nos. 33-89754
and 811-8992).
FUNDMANAGER PORTFOLIOS--FINANCIAL ADVISER CLASS
One Beacon Street, Boston, Massachusetts 02108
- --------------------------------------------------------------------------------
General Information: (800) 344-9033 (Toll Free)
FundManager Portfolios (the "Trust") is an open-end, management investment
company consisting of six separate diversified series with different investment
objectives (individually and collectively referred to as "Portfolio" or
"Portfolios," as the context requires). Each Portfolio (except for Managed Total
Return Portfolio) offers two classes of shares. The shares offered by this
Prospectus are the Financial Adviser Class (the "Class") of shares ("Shares").
The Portfolios seek to achieve their objectives by investing in shares of other
open-end investment companies commonly called mutual funds and, in the case of
International Portfolio, by also investing in shares of closed-end management
companies and unit investment trusts. These policies involve certain expenses in
addition to those applicable to direct investment in mutual funds. See "Risks
and Other Considerations--Expenses." The M.D. Hirsch Division of Freedom Capital
Management Corporation ("Freedom Capital Management" or the "Adviser")
continuously manages each Portfolio's investment portfolio.
AGGRESSIVE GROWTH PORTFOLIO SEEKS CAPITAL APPRECIATION WITHOUT REGARD TO CURRENT
INCOME.
GROWTH PORTFOLIO PRIMARILY SEEKS LONG-TERM CAPITAL APPRECIATION. CURRENT INCOME
IS A SECONDARY CONSIDERATION.
GROWTH WITH INCOME PORTFOLIO SEEKS A COMBINATION OF CAPITAL APPRECIATION AND
CURRENT INCOME.
BOND PORTFOLIO SEEKS A HIGH LEVEL OF CURRENT INCOME.
MANAGED TOTAL RETURN PORTFOLIO SEEKS HIGH TOTAL RETURN (CAPITAL APPRECIATION AND
CURRENT INCOME).
INTERNATIONAL PORTFOLIO SEEKS LONG-TERM CAPITAL APPRECIATION. CURRENT INCOME IS
A SECONDARY CONSIDERATION.
Shares of the Portfolios are offered for sale at net asset value plus any
applicable sales charges (except Bond Portfolio) by Edgewood Services, Inc.
("Edgewood"), Freedom Distributors Corporation ("Freedom Distributors"), Tucker
Anthony Incorporated ("Tucker Anthony") and Sutro & Co. Incorporated ("Sutro")
(collectively, the "Distributors") as an investment vehicle for individuals,
institutions, corporations and fiduciaries. The Portfolios pay expenses related
to the distribution of their Shares. See "Management of the Trust--The
Distributors." In addition, the Portfolios may invest in shares of mutual funds
which charge sales loads and/or pay their own distribution expenses.
INVESTMENTS IN THE PORTFOLIOS ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. SHARES OF THE PORTFOLIOS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE PORTFOLIOS IS SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
This prospectus sets forth concisely the information a prospective investor
should know before investing in the Portfolios. A Statement of Additional
Information (the "SAI") dated January 31, 1998, and as supplemented from time to
time containing additional and more detailed information about the Portfolios
has been filed with the Securities and Exchange Commission ("SEC") and is hereby
incorporated by reference into this prospectus. You may request a copy of the
SAI, or a paper copy of this prospectus, if you have received your prospectus
electronically, free of charge by writing or calling the Trust at the address
and information number printed above. The SAI, material incorporated by
reference into this document, and other information regarding the Portfolios is
maintained electronically with the SEC at internet web site
(http://www.sec.gov).
--------------------
This Prospectus should be read and retained for
information about the Portfolios.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JANUARY 31, 1998
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Highlights 1
Portfolio Expenses 2
Financial Highlights 3
FundManager Portfolios 7
Investment Objectives and Policies 7
Investments of and Investment
Techniques Employed by Mutual
Funds in which the Portfolios
May Invest 12
Investment Policies and Restrictions 21
Risks and Other Considerations 22
Expenses 23
Management of FundManager Portfolios 23
The Adviser 24
The Administrator 24
The Distributors 25
Custodian 26
Transfer Agent, Dividend
Disbursing Agent, and Shareholder
Servicing Agent 26
Service Organizations 26
Other Expenses 26
Portfolio Transactions 26
Determination of Net Asset Value 27
Purchase of Shares 27
Investing in the Portfolios 28
Purchases By Clients of the
Distributors or Authorized
Securities Dealers 30
Certain Service Organizations and
Other Investors--Purchase by
Check or Wire 30
Automatic Investment Plan 31
Retirement Plans 31
Individual Retirement Accounts ("IRAs") 31
Exchange Privilege 32
FundManager Advisory Program 32
Redemption of Shares 32
Redemption of Shares Purchased
Through a Distributor or
Authorized Securities Dealer 33
Direct Redemption 33
Redemption by Wire or Telephone 33
Systematic Withdrawal Plan 34
Dividends, Distributions and Taxes 34
Other Information 36
Other Classes of Shares 37
Shareholder Inquiries 37
Description of Bond Ratings 37
HIGHLIGHTS
- --------------------------------------------------------------------------------
FUNDMANAGER PORTFOLIOS Page 7
The Trust is a Delaware business trust which consists of six separate series:
Aggressive Growth Portfolio, Growth Portfolio, Growth with Income Portfolio,
Bond Portfolio, Managed Total Return Portfolio and International Portfolio. Each
Portfolio seeks to achieve its investment objective by investing in mutual funds
registered with the SEC.
INVESTMENT OBJECTIVES AND POLICIES Page 7
Each Portfolio has distinct investment objectives. Aggressive Growth Portfolio
seeks capital appreciation without regard to current income. Growth Portfolio
primarily seeks capital appreciation with current income a secondary
consideration. Growth with Income Portfolio seeks a combination of capital
appreciation and current income. Bond Portfolio seeks a high level of current
income. Managed Total Return Portfolio seeks high total return (capital
appreciation and current income). International Portfolio seeks long-term
capital appreciation with current income a secondary consideration. The mutual
funds in which the Portfolios invest may invest in securities which entail
certain risks. These risks are described in "Investments of and Investment
Techniques Employed by Mutual Funds in Which the Portfolios May Invest."
RISKS AND OTHER CONSIDERATIONS Page 22
Investing in a Portfolio that consists of an underlying portfolio of open-end,
and also closed-end in the case of International Portfolio, mutual funds
("underlying funds") involves certain additional expenses and certain tax
results which would not be present in a direct investment in mutual funds. See
"Expenses" and "Dividends, Distributions and Taxes." In addition, Federal law
imposes certain limits on the purchases of mutual fund shares by the Portfolios.
MANAGEMENT OF FUNDMANAGER PORTFOLIOS Page 23
The Trust has retained Freedom Capital Management to act as its investment
adviser. For its services, the Adviser receives from each Portfolio a fee at the
annual rate of 0.50% of the Portfolio's average daily net assets up to $500
million and 0.40% of its average daily net assets in excess of $500 million. See
"The Adviser."
The Trust has retained Federated Administrative Services ("FAS") to provide
certain management and administrative services to the Portfolios. For these
services, each Portfolio pays FAS a fee at the annual rate of 0.150% of the
first $250 million of that Portfolio's average daily net assets, 0.125% of the
next $250 million of such assets, 0.100% of the next $250 million of such
assets, and 0.075% of such assets in excess of $750 million. See "The
Administrator."
With respect to the Class, the Trust has adopted a Distribution Plan pursuant to
Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act"), under
which each Portfolio will reimburse the Distributors (in amounts up to 0.50% of
that Portfolio's average daily net assets attributable to the Class) for
marketing costs and payments to other organizations for services rendered in
distributing the Portfolio's Shares. In addition, Freedom Distributors and
Edgewood may receive additional compensation in connection with the Portfolio's
purchases of mutual funds. See "Portfolio Transactions."
The Trust also contracts with various organizations to provide administrative
services for the Class, such as maintaining shareholder accounts and records.
Each Portfolio pays fees to these organizations in amounts up to an annual rate
of 0.25% of the daily net asset value of that Portfolio's Shares owned by
shareholders with whom the organization has a servicing relationship.
PURCHASE OF SHARES Page 27
Shares of the Portfolios are offered at net asset value plus any applicable
sales charges (except Bond Portfolio) by the Distributors as an investment
vehicle for individuals, institutions, corporations and fiduciaries. The minimum
initial investment for each Portfolio is $1,000, and the minimum subsequent
investment is $100, except that the minimum initial investment for an Individual
Retirement Account ("IRA") is $250. The Trust may issue Shares of one or more of
the Portfolios in exchange for mutual fund shares meeting that Portfolio's
investment objective as determined by the Adviser.
REDEMPTION OF SHARES Page 32
Shares may be redeemed at their next determined net asset value. See
"Determination of Net Asset Value." Redemptions may be made by letter or wire.
The Trust reserves the right to redeem, upon not less than 30 days' notice, all
Shares of a Portfolio in an account (other than an IRA) which has a value below
$500.
DIVIDENDS, DISTRIBUTIONS AND TAXES Page 34
Aggressive Growth Portfolio will distribute net investment income annually;
Growth Portfolio will distribute net investment income semiannually; Growth with
Income Portfolio and Managed Total Return Portfolio will distribute net
investment income quarterly; and Bond Portfolio will distribute its net
investment income monthly. Each Portfolio will distribute any net realized
capital gains at least annually unless otherwise instructed. All dividends and
distributions generally will be reinvested automatically at net asset value in
additional Shares of the Portfolio making the distribution.
PORTFOLIO EXPENSES
- --------------------------------------------------------------------------------
The following table illustrates the expenses and fees that a shareholder of each
Portfolio will incur.
<TABLE>
<CAPTION>
Growth Managed
Aggressive with Total
Growth** Growth* Income* Bond* Return** International**
<S> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expense
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 4.50% 4.50% 4.50% 0.00% 4.50% 4.50%
Annual Financial Adviser Class Operating Expenses (As a percentage of average
net assets)* (As a percentage of projected average net assets)**
Management Fees 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Distribution and shareholder
service expenses(1) 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Other Expenses (after waivers) 0.71% 0.65% 0.62% 0.39% 1.42% 1.39%
Total Portfolio Operating Expenses
(after waivers)(2) 1.71% 1.65% 1.62% 1.39% 2.42% 2.39%
</TABLE>
(1) The maximum distribution and shareholder service fee is 0.50%. Under rules
of the National Association of Securities Dealers, Inc., (the "NASD"), a
12b-1 fee may be treated as a sales charge for certain purposes under those
rules. Because the 12b-1 fee is an annual fee charged against the assets of
a Portfolio, long-term shareholders may indirectly pay more total sales
charges than the economic equivalent of the maximum front-end sales charge
permitted by rules of the NASD. See "Management of FundManager Portfolios--
The Distributors" in the Prospectus.
(2) In the table above, the Total Portfolio Operating Expenses for the Growth,
Growth with Income and Bond Portfolios are based on expenses incurred during
the fiscal year ended September 30, 1997. The Total Portfolio Operating
Expenses for the Aggressive Growth, Managed Total Return and International
Portfolios are based on expenses expected during the fiscal year ending
September 30, 1998. The Total Portfolio Operating Expenses for the
Aggressive Growth and Managed Total Return Portfolios were 1.59% and 2.08%,
respectively, for the fiscal year ended September 30, 1997. Total Portfolio
Operating Expenses would have been 1.62%, 1.70%, 1.67%, 1.43% and 2.19% for
the Aggressive Growth, Growth, Growth with Income, Bond and Managed Total
Return Portfolios, respectively, for the fiscal year ended September 30,
1997, absent the voluntary waiver of a portion of the administrative fee.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder will bear, either directly or indirectly.
For more complete descriptions of the various costs and expenses, see
"Management of FundManager Portfolios." Wire-transferred redemptions may be
subject to an additional fee.
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period. The Portfolio
charges no redemption fees.
<TABLE>
<CAPTION>
Growth Managed
Aggressive with Total
Growth Growth Income Bond Return International
<S> <C> <C> <C> <C> <C> <C>
1 year..... $ 62 $ 61 $ 61 $ 14 $ 68 $ 68
3 years.... $ 96 $ 95 $ 94 $ 44 $117 $116
5 years.... $134 $131 $129 $ 76 $168 N/A
10 years... $238 $232 $229 $167 $308 N/A
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS EXAMPLE
IS BASED ON ESTIMATED DATA FOR THE AGGRESSIVE GROWTH PORTFOLIO, THE MANAGED
TOTAL RETURN PORTFOLIO, AND THE INTERNATIONAL PORTFOLIO FISCAL YEAR ENDING
SEPTEMBER 30, 1998.
FINANCIAL HIGHLIGHTS
The Portfolios' financial data through September 30, 1997, shown below is to
assist investors in evaluating the performance of each Portfolio. Prior to May
8, 1995, the Portfolios were a diversified series of the Republic Funds (the
"Predecessor Funds"), also an open-end, management investment company. The
information for the years ended September 30, 1997, 1996, 1995, 1994, and 1993
in the following tables have been audited by Ernst & Young LLP, the Portfolios'
Independent Auditors. The report of Ernst & Young LLP, dated November 25, 1997,
on the Portfolios' financial statements for the year then ended September 30,
1997, and on the following tables for the periods presented, is included in the
Annual Report, which is incorporated by reference. These tables should be read
in conjunction with the Portfolios' financial statements and notes thereto,
which are contained in the Annual Report. Further information about the
Portfolios' performance also is contained in the Portfolios' Annual Report,
dated September 30, 1997, which can be obtained free of charge. The information
in the following tables for the fiscal year ended September 30, 1991 and for
prior fiscal year ends has been examined by other auditors who have expressed an
unqualified opinion.
Freedom Capital Management is the Trust's investment adviser. From September 1,
1993 to February 21, 1995, the M.D. Hirsch Division of Republic Asset Management
Corporation ("Republic Asset Management"), an affiliate of Republic National
Bank of New York ("Republic"), served as investment adviser to the Predecessor
Funds. Prior to September 1, 1993, M.D. Hirsch Investment Management, Inc.
("Hirsch"), also an affiliate of Republic, served as the investment adviser to
the Predecessor Funds. Prior to February 1, 1991, Republic was the investment
adviser to the Predecessor Funds.
AGGRESSIVE GROWTH PORTFOLIO--FINANCIAL ADVISER CLASS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout the:
<TABLE>
<CAPTION>
Year Ended September 30,
1997 1996 1995(a) 1994 1993
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period $ 16.80 $ 18.31 $ 15.57 $ 16.70 $ 14.71
------- ------- ------- ------- -------
Income from investment operations
Net investment income (operating loss) (0.12)(b) 0.12(b) (0.13) (0.08) (0.04)
Net realized and unrealized gain (loss) on investments 3.75 1.64 3.70 0.62 2.87
------- ------- ------- ------- -------
Total from investment operations 3.63 1.76 3.57 0.54 2.83
------- ------- ------- ------- -------
Less distributions
Distributions from net investment income (0.07) (0.38) -- -- --
Distributions from net realized gain on investments+ (1.92) (2.89) (0.83) (1.67) (0.84)
------- ------- ------- ------- -------
Total distributions (1.99) (3.27) (0.83) (1.67) (0.84)
------- ------- ------- ------- -------
Net Asset Value, end of period $ 18.44 $ 16.80 $ 18.31 $ 15.57 $ 16.70
======= ======= ======= ======= =======
Total return(C) 24.16% 12.10% 24.30% 3.30% 19.90%
Ratios/Supplemental data
Net assets, end of period (in 000's) $36,200 $38,944 $33,668 $37,766 $31,201
Ratio of expenses to average net assets 1.59% 1.67% 1.65% 1.70% 1.52%
Ratio of net investment income to average net assets (0.70%) 0.74% (0.68%) (0.57%) (0.24%)
Ratio of waiver to average net assets(d) 0.03% 0.06% -- -- --
Portfolio turnover 51% 158% 50% 43% 35%
+Paid from realized net short-term gain $ 0.28 $ 0.27 $ 0.04 $ 0.25 $ --
</TABLE>
GROWTH PORTFOLIO--FINANCIAL ADVISER CLASS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout the:
<TABLE>
<CAPTION>
Year Ended September 30,
1997 1996 1995(a) 1994 1993
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period $ 14.99 $ 16.14 $ 14.09 $ 14.62 $ 14.40
------- ------- ------- ------- -------
Income from investment operations
Net investment income (operating loss) 0.04(b) 0.01(b) (0.02) (0.05) 0.02
Net realized and unrealized gain on investments 4.91 1.85 2.99 0.69 2.10
------- ------- ------- ------- -------
Total from investment operations 4.95 1.86 2.97 0.64 2.12
------- ------- ------- ------- -------
Less distributions
Distributions from net investment income (0.30) (0.24) -- -- --
Distributions from net realized gain on investments+ (1.83) (2.77) (0.92) (1.17) (1.90)
------- ------- ------- ------- -------
Total distributions (2.13) (3.01) (0.92) (1.17) (1.90)
------- ------- ------- ------- -------
Net Asset Value, end of period $ 17.81 $ 14.99 $ 16.14 $ 14.09 $ 14.62
======= ======= ======= ======= =======
Total return(C) 36.92% 13.46% 22.60% 4.50% 16.00%
Ratios/Supplemental data
Net assets, end of period (in 000's) $32,835 $26,639 $26,022 $34,205 $31,919
Ratio of expenses to average net assets 1.65% 1.61% 1.71% 1.71% 1.70%
Ratio of net investment income to average net assets 0.23% 0.05% (0.11%) (0.52%) 0.15%
Ratio of expense waivers to average net assets(d) 0.05% 0.06% -- -- --
Portfolio turnover 95% 98% 68% 44% 40%
+Paid from realized net short-term gain $ 0.12 $ 0.48 $ 0.10 $ 0.22 $ 0.16
</TABLE>
- --------------------------------------------------------------------------------
(a) On February 21, 1995, Freedom Capital Management Corporation became the
Investment Adviser.
(b) Per share information is based on average shares outstanding. (c) Based
on net asset value, which does not reflect the sales charge payable
on purchases of shares.
(d) This voluntary expense waivers and earnings credits are reflected in both
the expense and net investment income ratios shown above.
GROWTH WITH INCOME PORTFOLIO-- FINANCIAL ADVISER CLASS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout the:
<TABLE>
<CAPTION>
Year Ended September 30,
1997 1996 1995(a) 1994 1993
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period $ 16.69 $ 18.28 $ 15.99 $ 16.50 $ 15.11
------- ------- ------- ------- -------
Income from investment operations
Net investment income 0.26(b) 0.60(b) 0.27 0.35 0.28
Net realized and unrealized gain (loss) on investments 4.78 1.60 3.19 0.18 1.97
------- ------- ------- ------- -------
Total from investment operations 5.04 2.20 3.46 0.53 2.25
------- ------- ------- ------- -------
Less distributions
Distributions from net investment income (0.43) (0.86) (0.33) (0.30) (0.33)
Distributions from net realized gain on investments+ (2.33) (2.93) (0.84) (0.74) (0.53)
------- ------- ------- ------- -------
Total distributions (2.76) (3.79) (1.17) (1.04) (0.86)
------- ------- ------- ------- -------
Net Asset Value, end of period $ 18.97 $ 16.69 $ 18.28 $ 15.99 $ 16.50
======= ======= ======= ======= =======
Total return(C) 34.27% 13.73% 23.30% 3.30% 15.50%
Ratios/Supplemental data
Net assets, end of period (in 000's) $37,274 $31,571 $35,643 $52,595 $40,269
Ratio of expenses to average net assets 1.62% 1.77% 1.59% 1.55% 1.49%
Ratio of net investment income to average net assets 1.49% 3.57% 1.72% 1.88% 1.77%
Ratio of waiver to average net assets(d) 0.05% 0.06% -- -- --
Portfolio turnover 61% 85% 12% 35% 24%
+Paid from realized net short-term gain -- $ 0.06 -- $ 0.14 $ 0.09
</TABLE>
BOND PORTFOLIO-- FINANCIAL ADVISER CLASS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout the:
<TABLE>
<CAPTION>
Year Ended September 30,
1997 1996 1995(a) 1994 1993
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period $ 10.00 $ 10.21 $ 9.66 $ 10.67 $ 10.28
------- ------- ------- ------- -------
Income from investment operations
Net investment income 0.51(b) 0.52(b) 0.52 0.48 0.60
Net realized and unrealized gain (loss) on investments 0.31 (0.14) 0.49 (0.84) 0.43
------- ------- ------- ------- -------
Total from investment operations 0.82 0.38 1.01 (0.36) 1.03
------- ------- ------- ------- -------
Less distributions
Distributions from net investment income (0.54) (0.59) (0.46) (0.53) (0.54)
Distributions from net realized gain on investments+ -- -- -- (0.12) (0.10)
------- ------- ------- ------- -------
Total distributions (0.54) (0.59) (0.46) (0.65) (0.64)
------- ------- ------- ------- -------
Net Asset Value, end of period $ 10.28 $ 10.00 $ 10.21 $ 9.66 $ 10.67
======= ======= ======= ======= =======
Total return(C) 8.45% 3.78% 10.80% (3.60%) 10.40%
Ratios/Supplemental data
Net assets, end of period (in 000's) $63,557 $70,166 $77,419 $76,769 $54,057
Ratio of expenses to average net assets 1.43% 1.47% 1.45% 1.43% 1.29%
Ratio of net investment income to average net assets 5.07% 5.19% 5.38% 4.67% 5.70%
Ratio of expense waivers to average net assets(d) 0.04% 0.05% -- -- --
Portfolio turnover 142% 93% 53% 41% 53%
</TABLE>
- --------------------------------------------------------------------------------
(a) On February 21, 1995, Freedom Capital Management Corporation became the
Investment Adviser.
(b) Per share information is based on average shares outstanding. (c) Based
on net asset value, which does not reflect the sales charge payable
on purchases of shares.
(d) The voluntary expense waivers and earnings credits are reflected in both the
expense and net investment income ratios shown above.
MANAGED TOTAL RETURN PORTFOLIO -- FINANCIAL ADVISER CLASS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout the:
<TABLE>
<CAPTION>
Year Ended September 30,
1997 1996 1995(a) 1994 1993
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period $ 11.45 $ 11.65 $ 11.24 $ 12.03 $ 11.48
------- ------- ------- ------- -------
Income from investment operations
Net investment income 0.28(b) 0.42(b) 0.28 0.18 0.29
Net realized and unrealized gain (loss) on investments 1.55 0.40 1.18 (0.16) 0.90
------- ------- ------- ------- -------
Total from investment operations 1.83 0.82 1.46 0.02 1.19
------- ------- ------- ------- -------
Less distributions
Distributions from net investment income (0.32) (0.50) (0.30) (0.31) (0.26)
Distributions from net realized gain on investments+ (0.90) (0.52) (0.75) (0.50) (0.38)
------- ------- ------- ------- -------
Total distributions (1.22) (1.02) (1.05) (0.81) (0.64)
------- ------- ------- ------- -------
Net Asset Value, end of period $ 12.06 $ 11.45 $ 11.65 $ 11.24 $ 12.03
======= ======= ======= ======= =======
Total return(C) 17.42% 7.58% 14.30% 0.10% 10.80%
Ratios/Supplemental data
Net assets, end of period (in 000's) $11,606 $12,123 $14,749 $17,515 $25,519
Ratio of expenses to average net assets 2.08% 2.21% 2.09% 1.94% 1.80%
Ratio of net investment income to average net assets 2.26% 3.68% 2.29% 1.60% 2.54%
Ratio of expense waivers to average net assets(d) 0.11% 0.06% -- -- --
Portfolio turnover 73% 159% 50% 50% 40%
+Paid from realized net short-term gain -- $ 0.01 -- $ 0.13 $ 0.08
</TABLE>
- --------------------------------------------------------------------------------
(a) On February 21, 1995, Freedom Capital Management Corporation became the
Investment Adviser.
(b) Per share information is based on average shares outstanding. (c) Based
on net asset value, which does not reflect the sales charge payable
on purchases of shares.
(d) The voluntary expense waivers and earnings credits are reflected in both the
expense and net investment income ratios shown above.
FUNDMANAGER PORTFOLIOS
- --------------------------------------------------------------------------------
The Trust was organized as a Delaware business trust on February 7, 1995, and is
an open-end management investment company registered under the 1940 Act
consisting of six separate diversified series--Aggressive Growth Portfolio,
Growth Portfolio, Growth with Income Portfolio, Bond Portfolio, Managed Total
Return Portfolio and International Portfolio. Investment in Shares of one or
more of the Portfolios involves risks and there can be no assurance that the
Portfolios' investment objectives will be achieved.
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
Each Portfolio seeks to achieve its investment objective by investing in a
portfolio of other open-end registered investment companies. The International
Portfolio also may invest in closed-end investment companies and unit investment
trusts. At times, for temporary defensive purposes when warranted by general
economic and financial conditions, a Portfolio may invest in money market mutual
funds or invest directly in (or enter into repurchase agreements (maturing in
seven days or less) with banks and broker-dealers with respect to) short-term
debt securities, including U.S. Treasury bills and other short-term U.S.
government securities, commercial paper, certificates of deposit and bankers'
acceptances. However, except when a Portfolio is in a temporary defensive
investment position or as may be considered necessary to accumulate cash in
order to satisfy minimum purchase requirements of the underlying funds or to
meet anticipated redemptions, a Portfolio normally will maintain its assets
invested in underlying funds. Although all of the Portfolios may invest in
shares of the same underlying fund, the percentage of each Portfolio's assets so
invested may vary and the Adviser will determine that such investments are
consistent with the investment objectives and policies of each particular
Portfolio. A Portfolio (with the exception of International Portfolio) may not
purchase shares of any closed-end investment company. In addition, a Portfolio
may not purchase shares of any investment company which is not registered with
the SEC. Each Portfolio's investment objectives and certain of its related
policies and activities are fundamental and may not be changed by the Board of
Trustees (the "Trustees") of the Trust, on behalf of a particular Portfolio,
without approval of the shareholders of that Portfolio.
AGGRESSIVE GROWTH PORTFOLIO
The investment objective of Aggressive Growth Portfolio is capital appreciation
without regard to current income. The underlying funds in which it invests will
consist of funds which seek capital growth or appreciation by investing
primarily in common stock or securities convertible into or exchangeable for
common stock (such as convertible preferred stock, convertible debentures or
warrants). For temporary defensive purposes, these funds also may invest in (or
enter into repurchase agreements with banks and broker-dealers with respect to)
corporate bonds, U.S. government securities, commercial paper, certificates of
deposit or other money market securities.
The Portfolio also may invest in funds which invest primarily in long- or
short-term bonds and other fixed income securities (such as securities issued or
guaranteed or insured by the U.S. government, its agencies or instrumentalities,
commercial paper, preferred stock, convertible preferred stock or convertible
debentures) whenever the Adviser believes that these funds offer a potential for
capital appreciation. These underlying funds may invest in investment grade
bonds or in bonds which are not considered investment grade (commonly referred
to as "junk bonds"). The Portfolio will limit its direct and indirect investment
in junk bonds to less than 5% of its assets. See "Bond Portfolio" and
"Description of Bond Ratings."
The underlying funds in which Aggressive Growth Portfolio invests may incur more
risk than those in which Growth Portfolio and Growth with Income Portfolio
invest. For example, they may trade their portfolios more actively (which
results in higher brokerage commissions and increased realization of taxable
capital gains) and/or invest in companies whose securities are subject to more
erratic market movements. The underlying funds also may invest up to 100% of
their assets in securities of foreign issuers and engage in foreign currency
transactions with respect to these investments; invest up to 15% of their assets
in illiquid securities (excluding Rule 144A securities which are deemed liquid
by the Trustees) ("Illiquid Securities"); invest their assets in warrants; lend
their portfolio securities; sell securities short; borrow money in amounts up to
one-third of their assets for investment purposes (i.e., leverage their
portfolios); write (sell) or purchase call or put options on securities or on
stock indexes; concentrate more than 25% of their assets in one industry; invest
up to 100% of their assets in master demand notes; and enter into futures
contracts and options on futures contracts. The risks associated with these
investments are described in the "Investments of and Investment Techniques
Employed by Mutual Funds in Which the Portfolios May Invest."
As a result, an investment in Aggressive Growth Portfolio can be expected to
involve greater risk than an investment in any of the other Portfolios.
GROWTH PORTFOLIO
The primary investment objective of Growth Portfolio is long-term capital
appreciation. Current income is of secondary importance. The underlying funds in
which it invests will consist of funds which invest primarily in common stock or
securities convertible into or exchangeable for common stock (such as
convertible preferred stock, convertible debentures or warrants) and which seek
long-term capital growth or appreciation with current income typically of
secondary importance. For temporary defensive purposes, these underlying funds
also may invest in (or enter into repurchase agreements with banks and
broker-dealers with respect to) corporate bonds, U.S. government securities,
commercial paper, certificates of deposit or other money market instruments.
The Portfolio also may invest in funds which invest primarily in long- or
short-term bonds and other fixed income securities (such as securities issued or
guaranteed or insured by the U.S. government, its agencies or instrumentalities,
commercial paper, preferred stock, convertible preferred stock or convertible
debentures) whenever the Adviser believes that these funds offer a potential for
capital appreciation. These underlying funds may invest in investment grade
bonds or in bonds which are not considered investment grade (commonly referred
to as "junk bonds"). The Portfolio will limit its direct and indirect investment
in junk bonds to less than 5% of its assets. See "Bond Portfolio" and
"Description of Bond Ratings."
The underlying funds in which the Portfolio invests may be authorized to invest
up to 100% of their assets in the securities of foreign issuers and engage in
foreign currency transactions with respect to these investments; invest up to
15% of their assets in Illiquid Securities; invest their assets in warrants;
lend their portfolio securities; sell securities short; borrow money in amounts
up to one-third of their assets for investment purposes; write or purchase call
or put options on securities or stock indexes; concentrate more than 25% of
their assets in one industry; invest up to 100% of their assets in master demand
notes; and enter into futures contracts and options on futures contracts. The
risks associated with these investments are described in "Investments of and
Investment Techniques Employed by Mutual Funds in Which the Portfolios May
Invest."
GROWTH WITH INCOME PORTFOLIO
The investment objective of Growth with Income Portfolio is realization of a
combination of capital appreciation and current income. The underlying funds in
which it invests will consist of funds which seek long-term capital appreciation
and/or funds which seek: (i) income from dividends; (ii) income from interest;
or (iii) growth of income (or any combination of (i)-(iii)). These underlying
funds invest in common stocks, preferred stocks, bonds and other fixed-income
securities (including convertible preferred stock and convertible debentures).
The underlying funds also may, for temporary defensive purposes, invest in (or
enter into repurchase agreements with banks and broker-dealers with respect to)
U.S. government securities, commercial paper, certificates of deposit or other
money market securities.
The Portfolio also may invest in funds which invest primarily in long- or
short-term bonds and other fixed income securities (such as securities issued or
guaranteed or insured by the U.S. government, its agencies or instrumentalities,
commercial paper, preferred stock, convertible preferred stock or convertible
debentures) whenever the Adviser believes that these funds offer a potential for
capital appreciation. These underlying funds may invest in investment grade
bonds or in bonds which are not considered investment grade (commonly referred
to as "junk bonds"). The Portfolio will limit its direct and indirect investment
in junk bonds to less than 5% of its assets. See "Bond Portfolio" and
"Description of Bond Ratings."
These underlying funds may invest up to 100% of their assets in the securities
of foreign issuers and engage in foreign currency transactions with respect to
these investments; invest up to 15% of their assets in Illiquid Securities;
invest their assets in warrants; lend their portfolio securities; sell
securities short; borrow money in amounts up to one-third of their assets for
investment purposes; write or purchase call or put options on securities or on
stock indexes; concentrate more than 25% of their assets in any one industry;
invest up to 100% of their assets in master demand notes; invest in long- or
short-term corporate bonds (see "Bond Portfolio") and other fixed income
securities (such as U.S. government securities, commercial paper, preferred
stock, convertible preferred stock and convertible debentures); and enter into
futures contracts and options on futures contracts. The risks associated with
these investments are described below.
BOND PORTFOLIO
The investment objective of Bond Portfolio is a high level of current income.
The underlying funds in which it invests will include funds which seek high
current income by investing in long- or short-term bonds and other fixed income
securities (such as securities issued or guaranteed or insured by the U.S.
government, its agencies or instrumentalities, commercial paper, preferred
stock, convertible preferred stock or convertible debentures).
The underlying funds also may lend their portfolio securities; sell securities
short; borrow money in amounts up to one-third of their assets for investment
purposes; write or purchase call or put options on securities or on stock
indexes; invest up to 100% of their assets in master demand notes; and enter
into futures contracts and options on futures contracts.
The Portfolio will invest in underlying funds which limit their corporate bond
investments to investment grade bonds which generally are considered to be bonds
rated within one of the four highest quality grades assigned by a nationally
recognized statistical rating organization ("NRSRO"), such as Standard & Poor's
Ratings Group ("S&P") or Moody's Investor Services, Inc. ("Moody's"), or which
are unrated but are deemed by an underlying fund's investment adviser to be of
comparable quality. These include bonds rated AAA, AA, A and BBB by S&P and
bonds rated Aaa, Aa, A and Baa by Moody's. Bonds rated BBB by S&P or Baa by
Moody's normally indicate a greater degree of investment risk than bonds with
higher ratings.
The Portfolio also will invest (without limitation) in underlying funds which
themselves may invest in corporate bonds which are not considered investment
grade bonds (commonly referred to as "junk bonds") by an NRSRO, such as Moody's
or S&P, or which are unrated, and thus may carry a greater degree of risk than
bonds considered investment grade. These include bonds rated BB, B, CCC and CC
by S&P, and Ba, B, Caa, Ca and C by Moody's. These ratings may indicate that the
bonds are predominantly speculative with respect to the issuer's ability to pay
interest and repay principal and may indicate that the issuer soon may be or
currently is in default. The risks associated with these investments are
described in "Description of Bond Ratings." The Portfolio will limit its direct
and indirect investment in junk bonds to less than 35% of its net assets.
As a general matter, the current value of bonds varies inversely with changes in
prevailing interest rates. If interest rates increase after a bond is purchased,
the value of that security will normally decline. Conversely, should prevailing
interest rates decrease after a bond is purchased, its market price will
normally rise.
MANAGED TOTAL RETURN PORTFOLIO
The investment objective of Managed Total Return Portfolio is to realize high
total return (capital appreciation and current income). The Portfolio seeks to
achieve its objective by investing in a broad range of underlying funds. It will
allocate its assets among one or more of five general types of mutual funds:
aggressive growth funds, growth funds, growth and income funds, fixed income
(bond) funds and money market funds. The Portfolio is unlikely at any particular
moment to have all its assets invested in only one of these general types of
funds. The Adviser will vary the proportion of each type of underlying fund
based on the mix of such funds that may, in the Adviser's view, be most likely
to achieve the Portfolio's investment objective.
In allocating assets among the five general types of underlying funds, the
Adviser will follow a multi-step investment analysis. First, the Adviser will
consider general political and economic trends and current financial and market
conditions in order to determine the current phase of the business and
investment cycle and to assess the risks and opportunities in the financial
markets. The Adviser will seek the most likely combination of fund types which
will provide the best opportunity for maximizing total return consistent with
prudent investment risk. The Adviser will not rely on a model in reaching asset
allocation decisions, but will make its own assessment of the relative risk-
reward levels of various asset types based on its past experience and analysis
of current conditions.
If the Adviser determines that the values of equity securities are likely to
rise, it may emphasize aggressive and conservative growth funds. In periods of
rising interest rates, it may emphasize holdings of money market funds or in
periods of falling interest rates it may emphasize fixed income funds, depending
upon conditions in the equity markets.
Second, after determining the relative proportion of assets to be allocated to
particular types of funds, the Adviser will identify whether certain specific
categories of funds offer greater potential for positive returns. For example,
the Adviser may choose to emphasize international equity funds or funds that
concentrate in a particular industry sector; or the Adviser may select fixed
income funds based on whether they invest primarily in long- or short-term debt
securities.
Finally, the Adviser will select those funds within the general or more specific
categories, as discussed, that offer the greatest potential for positive returns
in the Adviser's judgment.
Within the framework of the foregoing guidelines, the underlying funds in which
the Portfolio will invest will consist of funds which seek capital growth and
appreciation by investing primarily in common stock or securities convertible
into or exchangeable for common stock (such as convertible preferred stock,
convertible debentures or warrants); funds which seek a combination of capital
appreciation and current income (including income from dividends, income from
interest, growth of income or any combination thereof) by investing primarily in
common stocks, preferred stocks, bonds and other fixed income securities
(including convertible preferred stock and convertible debentures); funds which
seek high current income by investing primarily in long- or short-term bonds and
other fixed income securities (such as securities issued, guaranteed or insured
by the U.S. government, its agencies or instrumentalities, commercial paper,
preferred stock, convertible preferred stock or convertible debentures); and
funds which seek as high a level of current income as is consistent with
preservation of capital and liquidity by investing in a broad range of high
quality, short-term money market instruments which have remaining maturities not
exceeding one year (including U.S. government securities, bank obligations,
commercial paper, corporate debt securities and repurchase agreements).
Some of the underlying funds in which the Portfolio invests may incur more risk
than others. For example, they may trade their portfolios more actively (which
results in higher brokerage commissions and increased realization of taxable
capital gains) and/or invest in companies whose securities are subject to more
erratic market movements. The underlying funds also may invest up to 100% of
their assets in securities of foreign issuers and engage in foreign currency
transactions with respect to these investments; invest up to 15% of their assets
in Illiquid Securities; invest their assets in warrants; lend their portfolio
securities; sell securities short; borrow money in amounts of up to one-third of
their assets for investment purposes (i.e., leverage their portfolios); write
(sell) or purchase call or put options on securities or on stock indexes;
concentrate more than 25% of their assets in one industry; invest up to 100% of
their assets in master demand notes; and enter into futures contracts and
options on futures contracts. The risks associated with these investments are
described below.
The Portfolio may invest in underlying funds which limit their corporate bond
investments to investment grade bonds which generally are considered to be bonds
rated within one of the four highest quality grades assigned by an NRSRO, such
as S&P or Moody's, or underlying funds which invest in corporate bond
investments which are unrated but are deemed by an underlying fund's investment
adviser to be of comparable quality. It may also invest in underlying funds
which invest in corporate bonds which are not considered investment grade bonds
(commonly referred to as "junk bonds") by an NRSRO, such as Moody's or S&P, or
which are unrated, and thus may carry a greater degree of risk than bonds
considered investment grade. These ratings may indicate that the bonds are
predominantly speculative with respect to the issuer's ability to pay interest
and repay principal and may indicate that the issuer soon may be or currently is
in default. The risks associated with these investments are described below. The
Portfolio will limit its direct and indirect investment in junk bonds to less
than 35% of its assets.
At times, for temporary defensive purposes when warranted by general economic
and financial conditions, the Portfolio may invest in a variety of short-term
debt securities, including U.S. Treasury bills and other U.S. government
securities, commercial paper, certificates of deposit, bankers' acceptances and
repurchase agreements with respect to such securities. However, except when the
Portfolio is in a temporary defensive investment position or as may be
considered necessary to accumulate cash in order to satisfy minimum purchase
requirements of the underlying funds or to meet anticipated redemptions, it
normally will maintain its assets invested in underlying funds.
INTERNATIONAL PORTFOLIO
The investment objective of the Portfolio is long-term capital appreciation;
current income is a secondary, non-fundamental consideration. The Portfolio
seeks to achieve its investment objective by investing primarily in shares of
international mutual funds. Under normal market conditions, and as a non-
fundamental investment policy, the Portfolio will invest at least 65% of its
total assets in international equity funds (those funds that invest primarily in
foreign common stocks, or foreign securities convertible into or exchangeable
for common stock). The remaining assets of the Portfolio may consist of
international bond funds (those funds that invest primarily in foreign
government and corporate bonds) or global bond or stock funds. International
funds invest primarily in the securities of companies or issuers located in at
least three countries other than the United States. Global funds invest
primarily in securities of companies or issuers located in at least three
countries, including the United States. The Portfolio may also invest in
closed-end investment companies and unit investment trusts with similar
investment emphasis. (Unlike open-end funds that offer and sell their shares at
net asset value plus any applicable sales charge, the shares of closed-end funds
and unit investment trusts may trade at a market value that represents a
premium, discount, or spread to net asset value.)
The underlying funds will typically have an investment objective of long-term
capital growth or appreciation with current income typically of secondary
importance. Investment in foreign securities entails unique risks in addition to
the risks involved in investing in domestic securities. In addition, foreign
securities investments may include investments in developing or emerging market
countries, which tend to have economic, political and social structures that are
less stable than developed market countries. The risks of investing in foreign
securities as well as developing or emerging markets are described further under
"Investments Of And Investment Techniques Employed By Mutual Funds In Which The
Portfolio May Invest." All of the underlying funds in which the Portfolio
invests must be registered under the 1940 Act.
The Portfolio may invest in underlying funds which limit their corporate bond
investments to investment grade category, which are rated within one of the four
highest quality grades assigned by a NRSRO such as S&P or Moody's or underlying
funds which invest in corporate bond investments which are unrated but are
deemed by an underlying fund's investment adviser to be of comparable quality.
The Portfolio may also invest in underlying funds which invest in corporate
bonds which are not considered investment grade bonds (commonly referred to as
"junk bonds") by an NRSRO or which are unrated, and thus may carry a greater
degree of risk than bonds considered investment grade. These ratings may
indicate that the bonds are predominantly speculative with respect to the
issuer's ability to pay interest and repay principal and may indicate that the
issuer soon may be or currently is in default. The risks associated with these
investments are described below under "High Yield Securities."
At times, for temporary defensive purposes when warranted by general economic
and financial conditions, the Portfolio may invest up to 100% of its total
assets in money market mutual funds or invest directly in (or enter into
repurchase agreements maturing in seven days or less with banks and
broker-dealers with respect to) short-term debt securities, including U.S.
Treasury bills and other short-term U.S. government securities, commercial
paper, certificates of deposit and bankers' acceptances. The underlying funds
may also have a similar temporary defensive investment policy. However, except
when the Portfolio is in a temporary defensive investment position or as may be
considered necessary to accumulate cash in order to satisfy minimum purchase
requirements of the underlying funds or to meet anticipated redemptions, the
Portfolio normally will maintain its assets invested in underlying funds.
The underlying funds in which the Portfolio invests may invest up to 100% of
their assets in securities of foreign issuers and engage in foreign currency
transactions with respect to these investments; invest up to 15% or more of
their assets in illiquid securities (excluding Rule 144a securities which are
deemed illiquid by the Trustees) ("Illiquid Securities"); invest their assets in
warrants; lend their portfolio securities; sell securities short; borrow money
in amounts up to one-third of their assets for investment purposes (i.e.,
leverage their portfolios); write (sell) or purchase call or put options on
securities or stock indexes; concentrate more than 25% of their assets in one
industry; invest up to 100% of their assets in master demand notes; and enter
into futures contracts and options on futures contracts. The risk associated
with these investments are described in the "Investments Of And Investment
Techniques Employed By Mutual Funds In Which The Portfolio May Invest."
INVESTMENTS OF AND INVESTMENT
TECHNIQUES EMPLOYED BY MUTUAL FUNDS
IN WHICH THE PORTFOLIOS MAY INVEST
Illiquid Securities. Except as noted below, an underlying fund may invest not
more than 15% of its net assets in securities for which there is no readily
available market ("Illiquid Securities"), which would include certain restricted
securities the disposition of which would be subject to legal restrictions and
repurchase agreements having more than seven days to maturity. A considerable
period of time may elapse between an underlying fund's decision to dispose of
such securities and the time when the fund is able to dispose of them, during
which time the value of the securities (and therefore the value of the
underlying fund's shares held by a Portfolio) could decline. A closed-end
investment company may have greater than 15% of its net assets in illiquid
securities since closed-end funds are not required to redeem their shares under
the 1940 Act.
Foreign Securities. An underlying fund may invest up to 100% of its assets in
securities of foreign issuers. There may be less publicly available information
about these issuers than is available about companies in the U.S. and foreign
auditing requirements may not be comparable to those in the U.S. In addition,
the value of the fund's foreign securities may be adversely affected by
fluctuations in the exchange rates between foreign currencies and the U.S.
dollar, as well as other political and economic developments, including the
possibility of expropriation, confiscatory taxation, exchange controls or other
foreign governmental restrictions. In addition, income received by an underlying
fund from sources within foreign countries, such as dividends and interest
payable on foreign securities, may be subject to foreign taxes, including taxes
withheld from payments on those securities. Moreover, the underlying funds will
generally calculate their net asset values and complete orders to purchase,
exchange or redeem shares only on a Monday-Friday basis (excluding holidays on
which the New York Stock Exchange ("NYSE") is closed). Foreign securities in
which the underlying funds may invest may be listed primarily on foreign stock
exchanges which may trade on other days (such as Saturday or NYSE holidays). As
a result, the net asset value of an underlying fund's portfolio may be
significantly affected by such trading on days when the Adviser does not have
access to the underlying funds and shareholders of the Trust do not have access
to their respective Portfolios. Under the 1940 Act, an underlying fund may
maintain its foreign securities in custody of non-U.S. banks and securities
depositories.
Other differences between foreign and U.S. companies include: less readily
available market quotations on foreign companies; differences in government
regulation and supervision of foreign stock exchanges, brokers, listed
companies, and banks; differences in legal systems which may affect the ability
to enforce contractual obligations or obtain court judgments; the limited size
of many foreign securities markets and limited trading volume in issuers
compared to the volume of trading in U.S. securities, which could cause prices
to be erratic for reasons apart from factors that affect the quality of
securities; the likelihood that foreign securities may be less liquid or more
volatile; unreliable mail service between countries; political or financial
changes which adversely affect investments in some countries; certain markets
may require payment for securities before delivery; and religious and ethnic
instability.
To the extent that a Portfolio invests in underlying funds that invest primarily
in the securities of issuers located in a single country, any political,
economic or regulatory developments within that country affecting the value of
the securities in the underlying fund's portfolio will have a greater impact on
the total value of the portfolio underlying funds than would be the case if the
portfolio were diversified among the securities of more countries.
The economies of foreign countries may differ from the U.S. economy in such
respects as growth of gross domestic product, rate of inflation, currency
depreciation, capital reinvestment, resource self-sufficiency, and balance of
payments position. Further, the economies of developing countries generally are
heavily dependent on international trade and, accordingly, have been, and may
continue to be, adversely affected by trade barriers, exchange controls, managed
adjustments in relative currency values, and other protectionist measures
imposed or negotiated by the countries with which they trade. These economies
also have been, and may continue to be, adversely affected by economic
conditions in the countries with which they trade.
Prior governmental approval for foreign investments may be required under
certain circumstances in some countries, or in issuers or industries deemed
sensitive to national interests, and the extent of foreign investment in certain
debt securities and domestic companies may be subject to limitation. Foreign
ownership limitations also may be imposed by the charters of individual
companies to prevent, among other concerns, violation of foreign investment
limitations.
Repatriation of investment income, capital, and the proceeds of sales by foreign
investors may require governmental registration and/or approval in some
countries. An underlying fund could be adversely affected by delays in, or a
refusal to grant, any required governmental registration or approval for such
repatriation. Any investment subject to such repatriation controls would be
considered illiquid if it appears reasonably likely that this process will take
more than seven days.
With respect to any foreign country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
governmental regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such countries or
the value of the investments in those countries.
Brokerage commissions, custodial services, and other costs relating to foreign
investment may be more expensive than in the United States. Foreign markets may
have different clearance and settlement procedures and in certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
The inability of an underlying fund to make intended security purchases due to
settlement problems could cause the underlying fund to miss attractive
investment opportunities. Inability to dispose of a portfolio security due to
settlement problems could result either in losses due to subsequent declines in
value of the portfolio security or, if the underlying fund has entered into a
contract to sell the security, could result in possible liability to the
purchaser.
In the past, U.S. government policies have discouraged or restricted certain
investments abroad by investors. Investors are advised that when such policies
are instituted, the Portfolios will abide by them, and the Portfolios anticipate
compliance by the underlying funds.
Depositary Receipts. An underlying fund may also invest in equity or debt
securities of foreign issuers traded on the New York or American Stock
Exchanges, other exchanges, or in the over-the-counter market in the form of
sponsored or unsponsored American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), and European Depositary Receipts ("EDRs")
(collectively, "Depositary Receipts"). ADRs are receipts typically issued by an
American bank or trust company that evidences ownership of underlying securities
issued by a foreign issuer. ADRs may not necessarily be denominated in the same
currency as the securities into which they may be converted. Generally, ADRs, in
registered form, are designed for use in U.S. securities markets. EDRs and GDRs
are typically issued by foreign banks or trust companies, although they also may
be issued by U.S. banks or trust companies, and evidence ownership of underlying
securities issued by either a foreign or a U.S. corporation. Generally,
Depositary Receipts in registered form are designed for use in the U.S.
securities market and Depositary Receipts in bearer form are designed for use in
securities markets outside the U.S. Depositary Receipts may not necessarily be
denominated in the same currency as the underlying securities into which they
may be converted. Depositary Receipts may be available for investment through
"sponsored" or "unsponsored" facilities. A sponsored facility is established
jointly by the issuer of the security underlying the receipt and a depositary,
whereas an unsponsored facility may be established by a depositary without
participation by the issuer of the receipt's underlying security. Holders of an
unsponsored Depositary Receipt generally bear all the costs of the unsponsored
facility. The depositary of an unsponsored facility frequently is under no
obligation to distribute shareholder communications received from the issuer of
the deposited security or to pass through to the holders of the receipts voting
rights with respect to the deposited securities. Ownership of unsponsored
Depositary Receipts may not entitle the Portfolio or the underlying funds to
financial or other reports from the issuer of the underlying security, to which
they would be entitled as the owner of sponsored Depositary Receipts.
Emerging Markets. Generally included in emerging markets are all countries in
the world except Australia, Canada, Japan, New Zealand, the United States, and
most western European countries. The risks of investing in developing or
emerging markets are similar to, but greater than, the risks of investing in the
securities of developed international markets since emerging or developing
markets tend to have economic structures that are less diverse and mature, and
political systems that are less stable, than developed countries.
In certain emerging market countries, there is less government supervision and
regulation of business and industry practices, stock exchanges, brokers, and
listed companies than in the United States. The economies of emerging market
countries may be predominantly based on a few industries and may be highly
vulnerable to change in local or global trade conditions. The securities markets
of many of these countries also may be smaller, less liquid, and subject to
greater price volatility than those in the United States. Some emerging market
countries also may have fixed or managed currencies which are not free-floating
against the U.S. dollar. Further, certain emerging market country currencies may
not be internationally traded. Certain of these currencies have experienced a
steady devaluation relative to the U.S. dollar. Any devaluations in the
currencies in which portfolio securities are denominated may have an adverse
impact on the underlying fund, including the Portfolio. Finally, many emerging
market countries have experienced substantial, and in some periods, extremely
high, rates of inflation for many years. Inflation and rapid fluctuations in
inflation rates have had, and may continue to have, negative effects on the
economies for individual emerging market countries. Moreover, the economies of
individual emerging market countries may differ favorably or unfavorably from
the U.S. economy in such respects as the rate of growth of domestic product,
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
Currency Risks. Because an underlying fund may purchase securities denominated
in currencies other than the U.S. dollar, changes in foreign currency exchange
rates could affect: the underlying fund's net asset value; the value of interest
earned; gains and losses realized on the sale of securities; and net investment
income and capital gain, if any, to be distributed to shareholders by the
underlying fund, including the Portfolio. If the value of a foreign currency
rises against the U.S. dollar, the value of the underlying fund assets
denominated in that currency will increase; correspondingly, if the value of a
foreign currency declines against the U.S. dollar, the value of underlying fund
assets denominated in that currency will decrease.
The exchange rates between the U.S. dollar and foreign currencies are a function
of such factors as supply and demand in the currency exchange markets,
international balances of payments, governmental interpretation, speculation and
other economic and political conditions. Although 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. When an underlying fund converts its
holdings to another currency, it may incur conversion costs. Foreign exchange
dealers may realize a profit on the difference between the price at which they
buy and sell currencies.
Industry Concentration. An underlying fund may concentrate its investments
within one industry. Because the scope of investment alternatives within an
industry is limited, the value of the shares of such an underlying fund may be
subject to greater market fluctuation than an investment in a fund which invests
in a broader range of securities.
Master Demand Notes. Although the Portfolios themselves will not do so,
underlying funds (particularly money market mutual funds) may invest up to 100%
of their assets in master demand notes. Master demand notes are unsecured
obligations of U.S. corporations redeemable upon notice that permit investment
by a fund of fluctuating amounts at varying rates of interest pursuant to direct
arrangements between the fund and the issuing corporation. Because they are
direct arrangements between the fund and the issuing corporation, there is no
secondary market for the notes. However, they are redeemable at face value, plus
accrued interest, at any time.
Repurchase Agreements. Underlying funds, particularly money market funds, may
enter into repurchase agreements with banks and broker-dealers under which they
acquire securities subject to an agreement with the seller to repurchase the
securities at an agreed upon time and price. The Portfolios also may enter into
repurchase agreements. These agreements are considered under the 1940 Act to be
loans by the purchaser collateralized by the underlying securities. If the
seller should default on its obligation to repurchase the securities, the
underlying fund may experience delay or difficulties in exercising its rights to
dispose of the securities held as collateral and might incur a loss if the value
of the securities should decline. For a more complete discussion of repurchase
agreements, see "Investment Policies" in the SAI.
Loans of Portfolio Securities. An underlying fund may lend its portfolio
securities provided it complies with the following general requirements: (i) the
loan is secured continuously by collateral consisting of U.S. government
securities or cash or cash equivalents maintained on a daily mark-to-market
basis in an amount at least equal to the current market value of the securities
loaned; (ii) the fund may at any time call the loan and obtain the return of the
securities loaned; (iii) the fund will receive any interest or dividends paid on
the loaned securities; and (iv) the aggregate market value of securities loaned
will not at any time exceed one-third of the total assets of the fund. Loans of
securities involve a risk that the borrower may fail to return the securities or
may fail to provide additional collateral. Closed-end funds may have a greater
percentage of their assets on loan.
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.
Foreign Currency Transactions. In connection with its portfolio transactions in
securities traded in a foreign currency, an underlying fund may enter into
forward contracts to purchase or sell an agreed upon amount of a specific
currency at a future date which may be any fixed number of days from the date of
the contract agreed upon by the parties at a price set at the time of the
contract. Under such an arrangement, concurrently with the entry into a contract
to acquire a foreign security for a specified amount of currency, the fund would
purchase with U.S. dollars the required amount of foreign currency for delivery
at the settlement date of the purchase; the fund would enter into similar
forward currency transactions in connection with the sale of foreign securities.
The effect of such transactions would be to fix a U.S. dollar price for the
security to protect against a possible loss resulting from an adverse change in
the relationship between the U.S. dollar and the subject foreign currency during
the period between the date the security is purchased or sold and the date on
which payment is made or received, the normal range of which is three to 14
days. These contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers. A
forward contract generally has no deposit requirement and no commissions are
charged at any stage for trades. Although such contracts tend to minimize the
risk of loss due to a decline in the value of the subject currency, they tend to
limit commensurately any potential gain which might result should the value of
such currency increase during the contract period.
Leverage Through Borrowing. An underlying fund may borrow up to one-third of the
value of its net assets on an unsecured basis from banks to increase its
holdings of portfolio securities. Under the 1940 Act, the fund is required to
maintain continuous asset coverage of 300% with respect to such borrowings and
to sell (within three days) sufficient portfolio holdings to restore such
coverage if it should decline to less than 300% due to market fluctuations or
otherwise, even if disadvantageous from an investment standpoint. Leveraging
will exaggerate the effect of any increase or decrease in the value of portfolio
securities on the fund's net asset value, and money borrowed will be subject to
interest costs (which may include commitment fees and/or the cost of maintaining
minimum average balances) which may or may not exceed the interest and option
premiums received from the securities purchased with borrowed funds. Closed-end
funds may borrow a greater percentage of their assets.
Warrants. An underlying fund may invest in warrants, which are options to
purchase equity securities at specific prices valid for a specific period of
time. The prices do not necessarily move parallel to the prices of the
underlying securities. Warrants have no voting rights, receive no dividends and
have no rights with respect to the assets of the issuer. If a warrant is not
exercised within the specified time period, it will become worthless and the
fund will lose the purchase price and the right to purchase the underlying
security.
High Yield Securities. An underlying fund may invest in high yield, high risk
securities. Investing in 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.
There may be special tax considerations associated with investing in high yield,
high risk securities structured as zero coupon or payment-in-kind securities. A
fund records the interest on these securities as income even though it receives
no cash interest until the security's maturity or payment date. A fund will be
required to distribute all or substantially all such amounts annually and may
have to obtain the cash to do so by selling securities which otherwise would
continue to be held. Shareholders will be taxed on these distributions.
The use of credit ratings as the sole method of evaluating high yield, high risk
securities can involve certain risks. For example, credit ratings evaluate the
safety of principal and interest payments, not the market value risk of high
yield, high risk securities. Also, credit rating agencies may fail to change
credit ratings in a timely fashion to reflect events since the security was last
rated.
Derivatives. An underlying fund may invest in the following instruments that are
commonly known as derivatives. Generally, a derivative is a financial
arrangement, the value of which is based on, or "derived" from, a traditional
security, asset, or market index.
Options Activities. An underlying fund may write (i.e., sell) listed call
options ("calls") if the calls are "covered" throughout the life of the option.
A call is "covered" if the fund owns the optioned securities. When a fund writes
a call, it receives a premium and gives the purchaser the right to buy the
underlying security at any time during the call period (usually not more than
nine months in the case of common stock) at a fixed exercise price regardless of
market price changes during the call period. If the call is exercised, the fund
will forgo any gain from an increase in the market price of the underlying
security over the exercise price.
A fund may purchase a call on securities only to effect a "closing purchase
transaction" which is the purchase of a call covering the same underlying
security and having the same exercise price and expiration date as a call
previously written by the fund on which it wishes to terminate its obligation.
If the fund is unable to effect a closing purchase transaction, it will not be
able to sell the underlying security until the call previously written by the
fund expires (or until the call is exercised and the fund delivers the
underlying security).
An underlying fund also may write and purchase put options ("puts"). When a fund
writes a put, it receives a premium and gives the purchaser of the put the right
to sell the underlying security to the fund at the exercise price at any time
during the option period. When a fund purchases a put, it pays a premium in
return for the right to sell the underlying security at the exercise price at
any time during the option period. An underlying fund also may purchase stock
index puts which differ from puts on individual securities in that they are
settled in cash based on the values of the securities in the underlying index
rather than by delivery of the underlying securities. Purchase of a stock index
put is designed to protect against a decline in the value of the portfolio
generally rather than an individual security in the portfolio. If any put is not
exercised or sold, it will become worthless on its expiration date.
An underlying fund may purchase and write put and call options on foreign
currencies for the purpose of protecting against declines in the U.S. dollar
value of foreign currency-denominated portfolio securities and against increases
in the U.S. dollar cost of such securities to be acquired. As in the case of
other kinds of options, however, the writing of an option on a foreign currency
constitutes only a partial hedge, up to the amount of the premium received, and
the fund could be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on a foreign currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate movements adverse
to the fund's position, it may forfeit the entire amount of the premium plus
related transaction costs. Options on foreign currencies to be written or
purchased by an underlying fund are traded on U.S. and foreign exchanges or
over-the-counter.
A fund's option positions may be closed out only on an exchange which provides a
secondary market for options of the same series, but there can be no assurance
that a liquid secondary market will exist at a given time for any particular
option. In this regard, trading in options on certain securities (such as U.S.
government securities) is relatively new so that it is impossible to predict to
what extent liquid markets will develop or continue.
The underlying fund's custodian, or a securities depository acting for it,
generally acts as escrow agent as to the securities on which the fund has
written puts or calls, or as to other securities acceptable for such escrow so
that no margin deposit is required of the fund. Until the underlying securities
are released from escrow, they cannot be sold by the fund.
In the event of a shortage of the underlying securities deliverable on exercise
of an option, the Options Clearing Corporation ("OCC") has the authority to
permit other, generally comparable securities to be delivered in fulfillment of
option exercise obligations. If the OCC exercises its discretionary authority to
allow such other securities to be delivered, it may also adjust the exercise
prices of the affected options by setting different prices at which otherwise
ineligible securities may be delivered. As an alternative to permitting such
substitute deliveries, the OCC may impose special exercise settlement
procedures.
Futures Contracts. An underlying fund may enter into futures contracts for the
purchase or sale of debt securities and stock indexes. A futures contract is an
agreement between two parties to buy and sell a security or an index for a set
price on a future date. Futures contracts are traded on designated "contract
markets" which, through their clearing corporations, guarantee performance of
the contracts.
Generally, if market interest rates increase, the value of outstanding debt
securities declines (and vice versa). Entering into a futures contract for the
sale of securities has an effect similar to the actual sale of securities,
although sale of the futures contract might be accomplished more easily and
quickly. For example, if a fund holds long-term U.S. government securities and
it anticipates a rise in long-term interest rates, it could, in lieu of
disposing of its portfolio securities, enter into futures contracts for the sale
of similar long-term securities. If rates increased and the value of the fund's
portfolio securities declined, the value of the fund's futures contracts would
increase, thereby protecting the fund by preventing the net asset value from
declining as much as it otherwise would have. Similarly, entering into futures
contracts for the purchase of securities has an effect similar to the actual
purchase of the underlying securities, but permits the continued holding of
securities other than the underlying securities. For example, if the fund
expects long-term interest rates to decline, it might enter into futures
contracts for the purchase of long-term securities so that it could gain rapid
market exposure that may offset anticipated increases in the cost of securities
it intends to purchase while continuing to hold higher-yield short-term
securities or waiting for the long-term market to stabilize. Futures contracts
for foreign currencies are similarly structured to provide a hedge against
fluctuations in foreign currency.
A stock index futures contract may be used to hedge an underlying fund's
portfolio with regard to market risk as distinguished from risk relating to a
specific security. A stock index futures contract does not require the physical
delivery of securities, but merely provides for profits and losses resulting
from changes in the market value of the contract to be credited or debited at
the close of each trading day to the respective accounts of the parties to the
contract. On the contract's expiration date, a final cash settlement occurs.
Changes in the market value of a particular stock index futures contract reflect
changes in the specified index of equity securities on which the future is
based.
There are several risks in connection with the use of futures contracts. In the
event of an imperfect correlation between the futures contract and the portfolio
position which is intended to be protected, the desired protection may not be
obtained and the fund may be exposed to risk of loss. Further, unanticipated
changes in interest rates or stock price movements may result in a poorer
overall performance for the fund than if it had not entered into futures
contracts on debt securities or stock indexes.
In addition, the market prices of futures contracts may be affected by certain
factors. First, all participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting additional margin
deposit requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the securities
and futures markets. Second, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market. Therefore, increased participation by speculators in the
futures market may also cause temporary price distortions.
Finally, positions in futures contracts may be closed out only on an exchange or
board of trade which provides a secondary market for such futures. There is no
assurance that a liquid secondary market on an exchange or board of trade will
exist for any particular contract or at any particular time.
Options on Futures Contracts. A fund also may purchase and sell listed put and
call options on futures contracts. An option on a futures contract gives the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract (a long position if the option is a call and a short position
if the option is a put), at a specified exercise price at any time during the
option period. When an option on a futures contract is exercised, delivery of
the futures position is accompanied by cash representing the difference between
the current market price of the futures contract and the exercise price of the
option. The fund may purchase put options on futures contracts in lieu of, and
for the same purpose as, a sale of a futures contract. It also may purchase such
put options in order to hedge a long position in the underlying futures contract
in the same manner as it purchases "protective puts" on securities.
As with options on securities, the holder of an option may terminate his
position by selling an option of the same series. There is no guarantee that
such closing transactions can be effected. The fund is required to deposit
initial margin and maintenance margin with respect to put and call options on
futures contracts written by it pursuant to brokers' requirements similar to
those applicable to futures contracts described above and, in addition, net
option premiums received will be included as initial margin deposits.
In addition to the risks which apply to all options transactions, there are
several special risks relating to options on futures contracts. The ability to
establish and close out positions on such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain that
this market will develop. Compared to the use of futures contracts, the purchase
of options on futures contracts involves less potential risk to the fund because
the maximum amount at risk is the premium paid for the options (plus transaction
costs). However, there may be circumstances when the use of an option on a
futures contract would result in a loss to the fund when the use of futures
contract would not, such as when there is no movement in the prices of the
underlying securities. Writing an option on a futures contract involves risks
similar to those arising in the sale of futures contracts, as described above.
Hedging. An underlying fund may employ many of the investment techniques
described in this section not only for investment purposes which may be
considered speculative, but also for hedging purposes. For example, an
underlying fund may purchase or sell put and call options on common stocks to
hedge against movements in individual common stock prices, or purchase and sell
stock index futures and related options to hedge against marketwide movements in
common stock prices. Although such hedging techniques generally tend to minimize
the risk of loss that is hedged against, they also may limit commensurately the
potential gain that might have resulted had the hedging transaction not
occurred. Also, the desired protection generally resulting from hedging
transactions may not always be achieved.
INVESTMENT POLICIES AND RESTRICTIONS
The Portfolios have adopted certain fundamental investment policies (i.e.,
policies which may not be changed as to a Portfolio without the vote of a
majority of that Portfolio's outstanding Shares, as defined under "Other
Information--Voting") as well as certain investment policies which are not
fundamental and therefore may be changed by the Trustees without shareholder
approval. These policies reflect self-imposed standards or the requirements of
federal law.
The Trust may, in the future, seek to achieve each Portfolio's investment
objective by investing all of the Portfolio's assets in a no-load, diversified,
open-end management investment company having substantially the same investment
objective as the Portfolio. Each Portfolio's investment policies permit such an
investment. Shareholders will receive prior written notice with respect to any
such investment.
Under each Portfolio's fundamental investment policies, no Portfolio may invest
more than 25% of its total assets in the securities of underlying funds which
themselves concentrate (i.e., invest more than 25% of their assets) in any one
industry. Nevertheless, through its investment in underlying funds, a Portfolio
indirectly may invest more than 25% of its assets in one industry. The Portfolio
also may not borrow money, except that a Portfolio may, as a temporary measure
for extraordinary or emergency purposes, borrow from a bank in an amount not in
excess of 5% of the Portfolio's total assets, or pledge or hypothecate its
assets, except that the Portfolio may pledge not more than 5% of its total
assets to secure such borrowings. A Portfolio will not make additional
investments at any time during which it has outstanding borrowings.
Under each Portfolio's policies which are not fundamental, no Portfolio may (i)
purchase or otherwise acquire the securities of any open-end investment company,
and also any closed-end investment company or unit investment trust in the case
of International Portfolio, (except in connection with a merger, consolidation,
acquisition of substantially all of the assets or reorganization of another
investment company) if, as a result, a Portfolio and all of its affiliates
including the other Portfolios would own more than 3% of the total outstanding
stock of that company, or (ii) purchase a security which is not readily
marketable if, as a result, more than 15% of that Portfolio's net assets would
consist of such securities. For this purpose, securities which are not readily
marketable include repurchase agreements having more than seven days to maturity
(see "Investments of and Investment Techniques Employed by Mutual Funds in Which
the Portfolios May Invest") and may include shares of an investment company
owned by the Portfolio in an amount exceeding 1% of the issuer's total
outstanding securities. See "Risks and Other Considerations."
Each Portfolio may invest up to 5% of its net assets in repurchase agreements
with banks and broker-dealers. This and other investment policies and
restrictions are discussed in the SAI under the heading "Investment Policies."
The underlying funds in which a Portfolio invests may, but need not, have the
same investment policies as the Portfolio. For example, although Aggressive
Growth Portfolio will not borrow money for investment purposes, it may invest
its assets in an underlying fund which borrows money for investment purposes
(i.e., engages in leveraging). The investments which may be made by underlying
funds in which the Portfolios invest and the risks associated with those
investments are described under "Investment Objectives," "Investment Policies
and Restrictions" and "Investments of and Investment Techniques Employed by
Mutual Funds in Which the Portfolios May Invest."
RISKS AND OTHER CONSIDERATIONS
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Any investment in a mutual fund involves risk and, although the Portfolios
invest in a number of underlying funds, this practice does not eliminate
investment risk. Moreover, investing through the Portfolios in an underlying
portfolio of mutual funds involves certain additional expenses and certain tax
results which would not be present in a direct investment in the underlying
funds. See "Expenses" and "Dividends, Distributions and Taxes."
A Portfolio, together with the other Portfolios and any "affiliated persons" (as
defined in the 1940 Act) may purchase only up to 3% of the total outstanding
securities of any underlying fund. For this purpose, shares of underlying funds
held by private discretionary investment advisory accounts managed by the
Adviser will be aggregated with those held by the Portfolios. Accordingly, when
affiliated persons and other accounts managed by the Adviser hold shares of any
of the underlying funds, each Portfolio's ability to invest fully in shares of
those funds is restricted, and the Adviser must then, in some instances, select
alternative investments that would not have been its first preference.
The 1940 Act also provides that an underlying investment company whose shares
are purchased by a Portfolio will be obligated to redeem shares held by the
Portfolio only in an amount up to 1% of the underlying investment company's
outstanding securities during any period of less than 30 days. Shares held by a
Portfolio in excess of 1% of an underlying investment company's outstanding
securities, therefore, may be considered not readily marketable securities which
together with other such securities may not exceed 15% of that Portfolio's net
assets. See "Investment Policies and Restrictions." These limitations are not
fundamental investment policies and may be changed by the Trustees without
shareholder approval.
Under certain circumstances, an underlying investment company may determine to
make payment of a redemption by a Portfolio wholly or partly by a distribution
in kind of securities from its portfolio, in lieu of cash, in conformity with
the rules of the SEC. In such cases, the Portfolios may hold securities
distributed by an underlying investment company until the Adviser determines
that it is appropriate to dispose of such securities.
Investment decisions by the investment advisers of the underlying funds are made
independently of the Trust and its Adviser. Therefore, the investment adviser of
one underlying fund may be purchasing shares of the same issuer whose shares are
being sold by the investment adviser of another such fund. The result of this
would be an indirect expense to a Portfolio without accomplishing any investment
purpose.
Each Portfolio may purchase shares of both load and no-load underlying funds. To
the extent an underlying fund offers multiple classes of shares, the Portfolios
will purchase the share class available to it with the lowest sales charges.
However, the Portfolios will not invest in shares of underlying funds which are
sold with a contingent deferred sales charge.
Under the 1940 Act, a mutual fund must sell its shares at the price (including
sales load, if any) described in its prospectus, and current rules under the
1940 Act do not permit negotiation of sales charges. Therefore, a Portfolio
currently is not able to negotiate the level of the sales charges at which it
will purchase shares of load funds, which may be as great as 8.5% of the public
offering price (or 9.29% of the net amount invested) under rules of the National
Association of Securities Dealers ("NASD"). Nevertheless, when appropriate, a
Portfolio will purchase such shares pursuant to (i) letters of intent,
permitting it to obtain reduced sales charges by aggregating its intended
purchases over time (generally 13 months from the initial purchase under the
letter); (ii) rights of accumulation, permitting it to obtain reduced sales
charges as it purchases additional shares of an underlying fund; and (iii) the
right to obtain reduced sales charges by aggregating its purchases of several
funds within a family of mutual funds. Based upon these privileges, it is
expected that, in the majority of cases, the sales charges paid by a Portfolio
on a load fund purchase will not exceed 1% of the public offering price (1.01%
of the net amount invested). See "Portfolio Transactions." Furthermore, under
conditions of an SEC exemption, each Portfolio must aggregate any sales charges
and distribution and shareholder service expenses it pays on underlying funds to
ensure that such aggregate amounts do not exceed the limits of the NASD rules
noted above.
Under certain circumstances, a sales charge incurred by a Portfolio in acquiring
shares of an underlying fund may not be taken into account in determining the
gain or loss for federal income tax purposes on the disposition of the shares
acquired. If shares are disposed of within 90 days from the date they were
purchased and if shares of a new underlying fund are subsequently acquired
without imposition of a sales charge or imposition of a reduced sales charge
pursuant to a right granted to the Portfolio to acquire shares without payment
of a sales charge or with the payment of a reduced charge, then the sales charge
paid upon the purchase of the initial shares will be treated as paid in
connection with the acquisition of the new underlying fund's shares rather than
the initial shares.
EXPENSES
As an investor in the Portfolios, you should recognize that you may invest
directly in mutual funds and that, by investing in mutual funds indirectly
through the Portfolios, you will bear not only your proportionate share of the
expenses of the Portfolios (including operating costs and investment advisory
and administrative fees) but also, indirectly, similar expenses of the
underlying funds. If you are an investor in the Portfolios through a managed
account program and pay an advisory fee for asset allocation, you should
recognize that the combined expenses of the program and of the Portfolios
(including their indirect expenses) may involve greater fees and expenses than
present in other types of investments without the benefit of professional asset
allocation recommendations. In addition, as a Portfolio shareholder, you will
bear your proportionate share of expenses related to the distribution of the
Portfolio's Shares, see "Management of the Trust--The Distributors," and also
may indirectly bear expenses paid by an underlying fund related to the
distribution of its shares. As a Portfolio shareholder, you also will bear your
proportionate share of any sales charges incurred by the Portfolio related to
the purchase of shares of the underlying funds. Finally, as an investor, you
should recognize that, as a result of the Portfolios' policies of investing in
other mutual funds, you may receive taxable capital gains distributions to a
greater extent than would be the case if you invested directly in the underlying
funds. See "Dividends, Distributions and Taxes."
MANAGEMENT OF FUNDMANAGER PORTFOLIOS
- --------------------------------------------------------------------------------
The business and affairs of the Trust are managed under the direction of the
Trustees. Additional information about the Trustees, as well as the Trust's
executive officers, may be found in the SAI under the heading "Management
Trustees and Officers."
THE ADVISER
Freedom Capital Management has its principal office at One Beacon Street,
Boston, Massachusetts. The Adviser advises the Trust through the M.D. Hirsch
Division of Freedom Capital Management. Michael D. Hirsch, Chairman of the M.D.
Hirsch Division of Freedom Capital Management, has provided discretionary
investment advisory services relating to investments in mutual funds to
individual accounts since 1975.
Freedom Capital Management is an indirect, wholly-owned subsidiary of JHFSC
Acquisition Corp. whose stock is held by the following companies in the
approximate percentages: Thomas H. Lee Equity Fund III, L.P. (49%), a
Massachusetts limited partnership; SCP Private Equity Partners, L.P. (13%), a
Delaware limited partnership; John Hancock Subsidiaries, Inc. (4.9%), a
wholly-owned subsidiary of John Hancock Mutual Life Insurance Company; and
certain members of management and employees of Freedom Securities Corporation
(the direct parent of the Adviser and a subsidiary of JHFSC Acquisition Corp.)
and its subsidiaries, including the Adviser (32%). Prior to November 29, 1996,
Freedom Capital Management was an indirect, wholly-owned subsidiary of John
Hancock Mutual Life Insurance Company ("John Hancock"). John Hancock is a major
mutual life insurance company based in Boston, Massachusetts.
Pursuant to an Investment Advisory Contract, the Adviser is responsible for the
investment management of each Portfolio's assets, including the responsibility
for making investment decisions and placing orders for the purchase and sale of
the Portfolio's investment directly with the issuers or with brokers or dealers,
selected by it in its discretion, including Freedom Distributors and Edgewood.
See "Portfolio Transactions." The Adviser also furnishes to the Trustees, which
have overall responsibility for the business and affairs of the Trust, periodic
reports on the investment performance of the Trust. For these services, the
Adviser receives from each Portfolio a fee, payable monthly, at the annual rate
of 0.50% of that Portfolio's average daily net assets up to $500 million and
0.40% of its average daily net assets in excess of $500 million.
Michael 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 Hirsch from February, 1991 until June, 1993 and Chief Investment
Officer of Republic from 1981 until February, 1991. Mr. Hirsch pioneered the
concept of investing his clients' assets in a portfolio of mutual funds in 1975.
Mr. Hirsch is now a noted authority on mutual funds and has authored two books,
"Multifund Investing" in 1987 and "The Mutual Fund Wealth Builder" in 1991.
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.
THE ADMINISTRATOR
FAS, a wholly-owned subsidiary of Federated Investors with its principal
business offices at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-
3779, provides administrative personnel and services (including certain legal
and financial reporting services) necessary to operate the Portfolios. FAS
provides these at an annual rate which relates to the average aggregate daily
net assets of the Portfolios as specified below:
<TABLE>
<CAPTION>
Maximum
Administrative Average Aggregate
Fee Daily Net Assets
- -------------- --------------------------
<S> <C>
.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least $75,000
per Portfolio and $35,000 per each additional class of shares. FAS may choose
voluntarily to waive a portion of its fee or minimums from time to time in its
sole discretion.
THE DISTRIBUTORS
The Trustees of the Trust have approved a Distribution Contract (the
"Distribution Contract") between the Trust and each of Edgewood, Freedom
Distributors, Tucker Anthony and Sutro pursuant to which each will serve as a
Distributor of the Trust and of the Shares of each of the Portfolios.
Pursuant to a Distribution Plan adopted by the Portfolios with respect to the
Class (the "Plan"), each Portfolio will reimburse the Distributors monthly
(subject to a limit of 0.50% per annum of the Portfolio's average daily net
assets attributable to the Class) for costs and expenses incurred by the
Distributors in connection with the distribution of Portfolio Shares and for the
provision of certain shareholder services with respect to Portfolio Shares.
Payments to the Distributors will be for various types of activities, including:
(i) payments to broker-dealers who advise shareholders regarding the purchase,
sale, or retention of Portfolio Shares and who provide shareholders with
personal services and account maintenance services ("service fee"), (ii)
payments to employees of the Distributors, and (iii) printing and advertising
expenses. Such payments by the Distributors to broker-dealers may be in amounts
up to 0.50% per annum of each Portfolio's average daily net assets attributable
to the Class, provided, however, that the service fee will be limited to 0.25%
of each Portfolio's average daily net assets attributable to the Class. The fees
and reimbursements paid by the Portfolios to the Distributors may equal up to
0.50% of each Portfolio's average daily net assets attributable to the Class, of
which up to 0.25% of the Portfolio's average daily net assets may be paid for
shareholder servicing expenses. Salary expense of salesmen who are responsible
for marketing Shares of the Portfolios and related travel expenses may be
allocated to various Portfolios on the basis of average net assets attributable
to the Class.
Any payment by a Distributor or reimbursement of a Distributor by the Portfolio
made pursuant to the Plan is contingent upon the Trustees' approval. Each
Portfolio will not be liable for distribution and shareholder servicing
expenditures in any given year in excess of the maximum amount (0.50% per annum
of each Portfolio's average daily net assets attributable to the Class) payable
under the Plan in that year. The Plan also permits the Distributors to receive
and retain brokerage commissions with respect to portfolio transactions for
underlying funds, including funds which have a policy of considering sales of
their shares in selecting broker-dealers for the execution of their portfolio
transactions. The Distributors may be reimbursed for expenses permitted under
the plan that were incurred in a prior year, but not yet paid to the Distributor
or other service providers.
The Distributors may provide promotional incentives to investment executives who
support the sale of Shares of the Portfolios. In some instances, these
incentives may be offered only to certain investment executives which provide
services in connection with the sale or expected sale of significant amounts of
Shares.
Edgewood, a registered broker/dealer, is a wholly-owned subsidiary of Federated
Investors with principal business offices at Clearing Operations, P.O. Box 897,
Pittsburgh, Pennsylvania 15230-0897. Freedom Distributors is a registered
broker/dealer with principal business offices at One Beacon Street, Boston,
Massachusetts 02108. Tucker Anthony is a brokerage firm which is a member of the
New York Stock Exchange continuing an investment banking and brokerage business
established in 1892. The principal business address of Tucker Anthony is One
Beacon Street, Boston, Massachusetts 02108. Sutro is a brokerage firm and a
member of the New York Stock Exchange. The principal business address of Sutro
is 201 California Street, San Francisco, California 94111. Freedom Distributors,
Tucker Anthony, and Sutro are subsidiaries of Freedom Securities Corporation.
See description of "The Adviser" above.
CUSTODIAN
State Street Bank and Trust Company ("State Street Bank") provides custodial and
portfolio accounting services to the Trust and the Portfolios. The principal
business address of State Street Bank is P.O. Box 8600, Boston, Massachusetts
02266-8600.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT,
AND SHAREHOLDER SERVICING AGENT
Federated Shareholder Services Company ("FSSC") maintains all necessary
shareholder records. All written correspondence, including purchase and
redemption requests, changes of address and other shareholder account changes,
should be sent to: FundManager Portfolios, c/o Federated Shareholder Services
Company, P.O. Box 8609, Boston, Massachusetts, 02266-8609.
SERVICE ORGANIZATIONS
The Trust also contracts with various banks, trust companies, broker-dealers
(other than the Distributors) or other financial organizations (collectively,
"Service Organizations") to provide administrative services for the Class such
as maintaining shareholder accounts and records. Each Portfolio pays fees to
Service Organizations (which vary depending upon the services provided) in
amounts up to an annual rate of 0.25% of the daily net asset value of a
Portfolio's Shares owned by shareholders with whom the Service Organization has
a servicing relationship.
Some Service Organizations may impose additional or different conditions on
their clients such as requiring their clients to invest more than the minimum
initial or subsequent investments specified by the Trust or charging a direct
fee for servicing. If imposed, these fees would be in addition to any amounts
which might be paid to the Service Organization by the Trust. Each Service
Organization has agreed to transmit to its clients a schedule of any such fees.
Shareholders using Service Organizations are urged to consult them regarding any
such fees or conditions.
OTHER EXPENSES
The Trust bears all costs of its operations other than expenses specifically
assumed by the Administrator, Distributors or the Adviser. See "Management" in
the SAI. Expenses directly attributable to a Portfolio or class are charged to
that Portfolio or class; other expenses are allocated proportionately among the
Portfolios or class, as the case may be, in relation to the net assets of each
Portfolio or class.
PORTFOLIO TRANSACTIONS
Pursuant to the Investment Advisory Contract, the Adviser places orders for the
purchase and sale of portfolio investments for a Portfolio's accounts with
brokers or dealers, selected by it in its discretion, including Freedom
Distributors and Edgewood. With respect to purchases of certain money market
instruments, purchase orders are placed directly with the issuer or its agent.
With respect to purchases of shares of underlying funds, the Portfolio may pay a
sales charge. Sales charges of the underlying funds generally consist of two
parts, the "dealer reallowance" (which typically comprises at least 80% of the
amount of the charge and is paid to the broker participating in the sale of the
underlying fund shares) and the underwriter's retention. To the extent
permissible by law, Freedom Distributors and Edgewood will be designated as the
participating brokers entitled to receive the dealer reallowance portion of the
sales charge on purchases of load fund shares by the Portfolios. However,
Freedom Distributors will not retain any dealer reallowance in excess of 1% of
the public offering price on any transaction nor will it be designated as the
broker entitled to receive the dealer reallowance portion of the sales charge
where such reallowance would exceed 1% of the public offering price. With
respect to purchases of underlying fund shares, the Adviser directs
substantially all of the Portfolios' orders to either Freedom Distributors or
Edgewood, which may, in its discretion, direct the order to other broker-dealers
in consideration of sales of that Portfolio's Shares, except where the direction
to another broker-dealer would increase the dealer reallowance paid by a fund to
Freedom Distributors above 1% of the public offering price.
Freedom Distributors and Edgewood may also assist in the execution of a
Portfolio's purchase of underlying fund shares and they may receive additional
compensation (such as distribution payments, shareholder servicing fees, and/or
trailer fees) from the underlying funds or their underwriters. In providing
execution assistance, Freedom Distributors and Edgewood receive orders from the
Adviser; place them with the underlying fund's distributor, transfer agent or
other person, as appropriate; confirm the trade, price and number of Shares
purchased; and assure prompt payment by the Portfolio and proper completion of
the order. Payment of sales charges or other forms of compensation to Freedom
Distributors or Edgewood is not a factor that the Adviser considers when
selecting an underlying fund for purchase.
Each Portfolio is actively managed and has no restrictions upon portfolio
turnover, although its annual turnover rate is not expected to exceed 100%. A
100% annual portfolio turnover rate would be achieved if each security in each
Portfolio's portfolio (other than securities with less than one year remaining
to maturity) were replaced once during the year. To the extent each Portfolio is
purchasing shares of load funds, a higher turnover rate would result in
correspondingly higher sales loads paid by that Portfolio. Trading also may
result in realization of net short-term capital gains which would not otherwise
be realized, and shareholders are taxed on such gains when distributed from that
Portfolio at ordinary income tax rates. See "Dividends, Distributions and
Taxes." There is no limit on the portfolio turnover rates of the underlying
funds in which the Portfolio may invest.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Portfolio is determined as of the close of
trading (normally
4:00 p.m., Eastern time) on the NYSE, Monday through Friday, except on: (i) days
on which there are not sufficient changes in the value of a Portfolio's
portfolio securities that its net asset value might be materially affected; (ii)
days during which no shares are tendered for redemption and no orders to
purchase shares are received; and (iii) the following holidays: New Year's Day,
Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day, and Christmas Day. Net asset value per share
is calculated by dividing the aggregate value of a Portfolio's assets allocable
to the Class less all liabilities by the number of that Class' outstanding
shares.
The assets of each Portfolio consist primarily of the underlying funds, which
are valued at their respective net asset values under the 1940 Act. The
underlying funds value securities in their portfolios for which market
quotations are readily available at their current market value (generally the
last reported sale price) and all other securities and assets at fair value
pursuant to methods established in good faith by the boards of directors or
trustees of the underlying fund. Money market mutual funds may use the amortized
cost or penny-rounding methods to value their securities. Securities having 60
days or less remaining to maturity generally are valued at their amortized cost
which approximates market value.
Other assets of each Portfolio are valued at their current market value if
market quotations are readily available and, if market quotations are not
available, they are valued at fair value pursuant to methods established in good
faith by the Trustees. Debt instruments having 60 days or less remaining to
maturity are valued at their amortized cost.
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
Shares of the Portfolios are offered by the Distributors as an investment
vehicle for individuals, institutions, corporations and fiduciaries. Shares of
the Portfolios may also be offered to participants in certain managed account
programs who receive, for a fee at a maximum annual rate based upon a percentage
of assets invested, certain services, including asset allocation recommendations
with respect to the Portfolios based on an evaluation of their investment
objectives and risk tolerances. Each Portfolio pays expenses related to the
distribution of its Shares. See "Management of the Trust--The Distributors."
Each Portfolio may invest in underlying funds which are sold with a sales
charge. Prospectuses, sales material and applications relating to the Portfolios
can be obtained from the Distributors.
The minimum initial investment is $1,000, except that the minimum initial
investment for an IRA is $250. The minimum subsequent investment is $100. There
are no minimum investment requirements for FundManager prototype defined
contribution plans. The minimum initial investment is waived for purchases by
Trustees, officers and employees of the Trust, the Adviser or a Distributor,
including their immediate families and certain accounts. Each Portfolio also
reserves the right to vary the initial and subsequent investment minimums. All
purchase payments are invested in full and fractional Shares. The Trust and each
Distributor are authorized to reject any purchase order.
For each shareholder of record, the Trust, as the shareholder's agent,
establishes an open account to which all Shares purchased are credited together
with any dividends and capital gains distributions which are paid in additional
Shares. See "Dividends, Distributions and Taxes."
INVESTING IN THE PORTFOLIOS
Financial Adviser Class Shares (except the Bond Portfolio) are sold at their net
asset value (NAV) next determined after an order is received, plus a sales
charge as follows:
<TABLE>
<CAPTION>
SALES SALES DEALER
CHARGE CHARGE CONCESSION
AS A AS A AS A
PERCENTAGE PERCENTAGE PERCENTAGE
OF PUBLIC OF NET OF PUBLIC
OFFERING AMOUNT OFFERING
AMOUNT OF TRANSACTION PRICE INVESTED PRICE
<S> <C> <C> <C>
Less than $99,999 4.50% 4.71% 4.00%
$100,000 but less
than $249,999 4.25% 4.43% 3.75%
$250,000 but less
than $499,999 4.00% 4.16% 3.50%
$500,000 but less
than $999,999 3.75% 3.89% 3.25%
$1 million or more 0.00% 0.00% 0.50%*
</TABLE>
* See sub-section entitled "Dealer Concession."
No-Load Purchases. No sales charge is imposed for Financial Adviser Class Shares
purchased as a result of reinvested dividends and distributions or by any trust
company or bank trust department which exercises discretionary investment
authority and holds unallocated accounts in a fiduciary, agency, custodial or
similar capacity. However, investors who purchase Financial Adviser Class Shares
through a trust department, investment adviser, or other financial intermediary
may be charged a service or other fee by the financial intermediary. No sales
charge is imposed on trustees or other fiduciaries purchasing Financial Adviser
Class Shares for employee benefit plans of employers with ten or more employees.
No sales charge is imposed on Financial Adviser Class Shares purchased for
existing shareholders on January 31, 1998 or on Financial Adviser Class Shares
purchased through the Adviser's FundManager Managed Account program, "wrap
accounts" or similar fee based programs sponsored by a registered investment
adviser or financial institution. Additionally, the following individuals may
buy Financial Adviser Class Shares at net asset value without a sales charge:
Trustees, officers, and employees (including retired employees) of the
Portfolios, Freedom Capital Management, the Distributors, and their affiliates;
investment advisory clients of the Adviser; and employees or registered
representatives of dealers and other financial institutions that have a sales
agreement with the Distributors. Immediate family members include spouses and
children under the age of 21 of the aforementioned persons.
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.
Dealer Concession. For sales of Financial Adviser Class Shares, a dealer will
normally receive a percentage of the applicable sales charge. Any portion of the
sales charge which is not paid to a dealer will be retained by the Distributors.
However, the Distributors may offer to pay dealers up to 100% of the sales
charge retained by it. Such payments may take the form of cash or promotional
incentives, such as reimbursement of certain expenses of qualified employees and
their spouses to attend informational meetings about the Portfolios or other
special events at recreational-type facilities, or items of material value. In
some instances, these incentives will be made available only to dealers whose
employees have sold or may sell a significant amount of Financial Adviser Class
Shares. On purchases of $1 million or more, the investor pays no sales charge;
however, 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. Such payments are based on the original purchase price of Financial
Adviser Class Shares outstanding at each quarter end. The sales charge for
Financial Adviser Class Shares sold other than through registered broker/dealers
will be retained by the Distributors.
The Distributors may pay fees to banks out of the sales charge in exchange for
sales and/or administrative services performed on behalf of the bank's customers
in connection with the establishment of customer accounts and purchases of
Financial Adviser Class Shares.
In addition to the dealer concession as noted above, the Distributors or the
Adviser, in their sole discretion, may uniformly offer to pay all dealers
selling Financial Adviser Class Shares additional amounts, all or a portion of
which may be paid from the sales charge they normally retain or any other source
available to them.
Reducing or Eliminating the Sales Charge. The sales charge can be reduced or
eliminated on the purchase of Financial Adviser Class Shares (other than Bond
Portfolio since no sales charges are assessed) through:
. quantity discounts and accumulated purchases;
. concurrent purchases;
. signing a 13-month letter of intent; or
. using the reinvestment privilege.
Quantity Discounts and Accumulated Purchases. Larger purchases reduce the sales
charge paid. A Portfolio will combine purchases of Financial Adviser Class
Shares (other than Bond Portfolio since no sales charges are assessed) made on
the same day by the investor, the investor's spouse, and the investor's children
under age 21 when it calculates the sales charge. In addition, the sales charge,
if applicable, is reduced for purchases made at one time by a trustee or
fiduciary for a single trust estate or a single fiduciary account.
If an additional purchase of Financial Adviser Class Shares is made, the
Portfolio will consider the previous purchases still invested in the Portfolio.
For example, if a shareholder already owns Financial Adviser Class 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 according to the schedule now in effect would be 4.25%,
not 4.50%.
To receive the sales charge reduction, the Distributors must be notified by the
shareholder in writing or by the shareholder's financial intermediary at the
time the purchase is made that Financial Adviser Class Shares are already owned
or that purchases are being combined. The Portfolio will reduce or eliminate the
sales charge, after it confirms the purchases.
Concurrent Purchases. For purposes of qualifying for a sales charge reduction, a
shareholder has the privilege of combining concurrent purchases of Financial
Adviser Class Shares of two or more Portfolios, the purchase price of which
includes a sales charge. For example, if a shareholder concurrently invested
$30,000 in the Financial Adviser Class Shares of a Portfolio with a sales
charge, and $70,000 in another Portfolio with a sales charge, the sales charge
would be reduced.
To receive this sales charge reduction, the Distributors must be notified by the
shareholder in writing or by the shareholder's financial intermediary at the
time the concurrent purchases are made. The Portfolio will reduce the sales
charge after it confirms the purchases.
Letter of Intent. If a shareholder intends to purchase at least $100,000 of
Financial Adviser Class Shares of FundManager Portfolios (except the Bond
Portfolio) over the next 13 months, the sales charge may be reduced by signing a
letter of intent to that effect. This letter of intent includes a provision for
a sales charge adjustment depending on the amount actually purchased within the
13-month period and a provision for the custodian to hold up to 4.50% of the
total amount intended to be purchased in escrow (in Financial Adviser Class
Shares) until such purchase is completed.
The Financial Adviser Class Shares held in escrow in the shareholder's account
will be released upon fulfillment of 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 escrowed Financial Adviser
Class Shares 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
Financial Adviser Class Shares, each purchase during the period will be at the
sales charge applicable to the total amount intended to be purchased. At the
time a letter of intent is established, current balances in accounts in any
Financial Adviser Class Shares of any FundManager Portfolio, excluding the Bond
Portfolio accounts, will be aggregated to provide a purchase credit towards
fulfillment of the letter of intent. Prior trade prices will not be adjusted.
Reinvestment Privilege. If Financial Adviser Class Shares in a Portfolio have
been redeemed, the shareholder has the privilege, within 120 days, to reinvest
the redemption proceeds at the next-determined net asset value without any sales
charge. 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. If the shareholder redeems Financial Adviser Class
Shares in a Portfolio, there may be tax consequences.
PURCHASES BY CLIENTS OF THE DISTRIBUTORS
OR AUTHORIZED SECURITIES DEALERS
If you have a brokerage account or Program account with a Distributor or an
authorized securities dealer, you may purchase any Portfolio's Shares through
your investment executive. Your investment executive has the responsibility of
submitting your purchase order to FSSC on such day in order to obtain that day's
applicable purchase price. Purchase orders received by FSSC after the time of
determining that day's purchase price (generally 4:00 p.m., New York time), are
priced according to the net asset value per Share of the Portfolio next
determined on the following business day plus any applicable sales charge.
Payment for purchase orders must be made to such Distributor or dealer within
three business days of the purchase order.
The Distributor or your dealer will receive statements and dividends directly
from the Portfolios and will in turn provide you with account statements
reflecting the Portfolios' purchases, redemptions and dividend payments. If you
wish additional information concerning your investment, please call your
investment executive.
CERTAIN SERVICE ORGANIZATIONS AND OTHER
INVESTORS--PURCHASE BY CHECK OR WIRE
Purchase by Mail. If you do not have a brokerage account with a Distributor, you
may purchase Shares of the Portfolios directly by completing the Purchase
Application included in this Prospectus and mailing it, together with a check
written on a U.S. bank in a minimum amount of $1,000 payable to [Name of
Portfolio], to Federated Shareholder Services Company, P.O. Box 8609, Boston,
Massachusetts 02266-8609. Investors wishing to purchase Shares through their
account at a Service Organization should contact the organization directly for
appropriate instructions.
Subsequent purchases of $100 or more may also be made through FSSC by forwarding
payment, together with the detachable stub from your account statement or a
letter containing your account number.
Purchase by Wire. Service Organizations (on behalf of customers) may transmit
purchase payments by wire directly to the Portfolios' Custodian at the following
address:
State Street Bank and Trust Company
Boston, Massachusetts
Attn: Transfer Agent
ABA #011000028
Deposit account #2303-298-0
For further credit to FundManager Portfolios--Financial Adviser Class (name of
Portfolio, account name, account #).
The wire order must specify the name of the Portfolio in which the investment is
being made, the account name, number, confirmation number, address, social
security or tax identification number (where applicable), amount to be wired,
name of the wiring bank and name and telephone number of the person to be
contacted in connection with the order. Where the initial purchase is by wire,
an account number will be assigned and a Purchase Application must be completed
and mailed to the Trust.
Investors making purchases through a Service Organization should be aware that
it is the responsibility of the Service Organization to transmit orders for
purchases of Shares by its customers to the Transfer Agent and to deliver
required funds on a timely basis, in accordance with the procedures stated
above.
AUTOMATIC INVESTMENT PLAN
The Trust offers a plan for regularly investing specified dollar amounts ($25
minimum in monthly, quarterly, semiannual or annual intervals) in Shares of the
Portfolios. If an Automatic Investment Plan is selected, subsequent investments
will be automatic and will continue until such time as the Portfolio and the
investor's bank are notified to discontinue further investments. Due to the
varying procedures to prepare, process and forward the bank withdrawal
information to a Portfolio, there may be a delay between the time of the bank
withdrawal and the time the money reaches the Portfolio. The investment in the
Portfolio will be made at the public offering price per Share determined on the
day that both the check and bank withdrawal data are received in required form
by the Distributor plus any applicable sales charge. Further information about
the plan may be obtained from FSSC at the telephone number listed on the back
cover of the Prospectus.
RETIREMENT PLANS
The Trust offers Shares of each Portfolio in connection with tax-deferred
retirement plans. Application forms and further information about these plans,
including applicable fees, are available from the Trust or a Distributor upon
request. Before investing in Shares of a Portfolio through one or more such
plans, an investor should consult a tax adviser regarding the federal income tax
treatment of contributions to retirement plans, such as those listed below.
INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS")
Shares of the Portfolios may be used as a funding medium for an IRA. An Internal
Revenue Service-approved IRA plan is available from each Distributor naming
State Street Bank as custodian. The minimum initial investment for an IRA is
$250; the minimum subsequent investment is $100. IRAs are available to
individuals who receive compensation or earned income and their spouses whether
or not they are active participants in a tax-qualified or government-approved
retirement plan. An IRA contribution by an individual who participates, or whose
spouse participates, in a tax-qualified or government-approved retirement plan
may not be deductible depending upon the individual's income. Individuals also
may establish an IRA to receive a "rollover" contribution of distributions from
another IRA or a qualified plan. Tax advice should be obtained before planning a
rollover.
EXCHANGE PRIVILEGE
By contacting their brokerage account executive, service organization or
transfer agent, Financial Adviser Class Shareholders may exchange some or all of
their Portfolio Shares for Financial Adviser Class Shares of one or more of the
Trust's other portfolios or shares of Automated Cash Management Trust--
Institutional Service Shares, New York Municipal Cash Trust or California
Municipal Cash Trust (the "Fund" or "Funds", as the context requires) at net
asset value. The Funds offer checkwriting at no charge. An exchange may result
in a change in the number of shares held, but not in the value of such shares,
immediately after the exchange. Each exchange involves the redemption of the
Portfolio or Fund shares to be exchanged and the purchase of the Financial
Adviser Class Shares of the other Portfolio or Fund. As a result, any gain or
loss on the redemption of the shares exchanged is reportable on the
shareholder's federal income tax return. The exchange privilege (or any aspect
of it) may be changed or discontinued upon 60 days' written notice to
shareholders and is available only to shareholders in states where such
exchanges may be legally made. A shareholder considering an exchange should
obtain and read the prospectus of the Portfolios or Fund and consider the
differences in investment objectives and policies before making any exchange.
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 net asset value
plus the applicable sales charge.
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 provide services to an
investor by assisting the investor in identifying his or her financial
objectives, preferences and risk tolerances through evaluation of a confidential
questionnaire-Client Information Guide. Based on its evaluation of the
investor's financial goals and circumstances, the Adviser allocates the
investor's assets among 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 macro-
economic events worldwide. The Program is a continuing investment advisory
program. Once a Program is active, the investor receives, at least quarterly, a
report containing an analysis and evaluation of the investor's portfolio.
Investment executives may review the quarterly report with the investor, monitor
identified changes in the investor's financial characteristics and communicate
any changes to the Adviser.
For further information as to how to purchase or exchange shares, an investor
should contact their Service Organization or Transfer Agent.
REDEMPTION OF SHARES
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Upon receipt by the Trust of a redemption request in proper form, Shares of a
Portfolio will be redeemed at the next determined net asset value. See
"Determination of Net Asset Value." For the shareholder's convenience, the Trust
has established several different direct redemption procedures.
REDEMPTION OF SHARES PURCHASED
THROUGH A DISTRIBUTOR OR AUTHORIZED
SECURITIES DEALER
In order to redeem your shares purchased through a Distributor in the Program or
through a brokerage account, you should advise your investment executive, by
telephone or mail, to execute the redemption. Redemption requests received by
the close of the NYSE (generally 4:00 p.m., New York time), are effective that
day. Your investment executive has the responsibility of submitting your
redemption request to FSSC on such day in order to obtain that day's applicable
redemption price. There is no redemption charge. Redemption proceeds will be
held in your brokerage account unless you give instructions to your investment
executive to remit the proceeds to you.
DIRECT REDEMPTION
Direct redemptions are not available for shares purchased through a
Distributor's brokerage account. Any such redemption requests received will be
forwarded to your investment executive who will process them as described above.
Redemptions may be made by letter to the Trust specifying the dollar amount or
number of shares to be redeemed, account number and the applicable Portfolio.
The letter must be signed in exactly the same way the account is registered (if
there is more than one owner of the shares, all must sign). Shareholders
requesting a redemption of any amount to be sent to an address other than that
on record with the Portfolio or a redemption payable other than to the
shareholder of record must have their signatures guaranteed by a commercial or
savings bank, trust company or savings association whose deposits are insured by
an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of 1934. The
Portfolio does not accept signatures guaranteed by a notary public.
Corporations, partnerships, trusts or other legal entities may be required to
submit additional documentation.
An investor may redeem Shares in any amount by written request mailed to the
Trust at the following address:
FundManager Portfolios
c/o Federated Shareholder Services Company
P.O. Box 8609
Boston, Massachusetts 02266-8609
Checks for redemption proceeds normally will be mailed within three days, but
will not be mailed until all checks in payment for the purchase of the Shares to
be redeemed have been cleared, which may take up to 15 days. Unless other
instructions are given in proper form, a check for the proceeds of a redemption
will be sent to the shareholder's address of record.
REDEMPTION BY WIRE OR TELEPHONE
An investor may redeem Portfolio Shares by wire or by telephone if the investor
has checked the appropriate box on the Purchase Application or has filed a
Telephone Authorization Form with the Portfolios. These redemptions may be paid
by the Portfolios by wire or by check. The Trust reserves the right to refuse
telephone wire redemptions and may limit the amount involved or the number of
telephone redemptions. The telephone redemption procedure may be modified or
ended at any time by the Trust. Instructions for wire redemptions are set forth
in the Purchase Application. The Trust employs reasonable procedures to confirm
that instructions communicated by telephone are genuine. For instance, the
following information must be verified by the shareholder or broker at the time
a request for a telephone redemption is effected: (i) shareholder's account
number; (ii) shareholder's social security number; and (iii) name and account
number of shareholder's designated securities dealer or bank. If the Trust fails
to follow these or other established procedures, it may be liable for any losses
due to unauthorized or fraudulent instructions.
A Service Organization may request a wire redemption, provided a Wire
Authorization Form is on file with the Trust. There is no charge to the Service
Organization for wire redemptions. The proceeds of a wire redemption will be
sent to an account with a Service Organization designated on the appropriate
form. The Trust reserves the right to restrict or terminate wire redemption
privileges. Proceeds of wire redemptions generally will be transferred within
three days after receipt of the request.
The Trust may suspend the right of redemption during any period when (i) trading
on the NYSE is restricted or the NYSE is closed, other than customary weekend
and holiday closings, (ii) the SEC has by order permitted such suspension or
(iii) an emergency, as defined by rules of the SEC, exists making disposal of
portfolio investments or determination of the value of the net assets of the
Portfolios not reasonably practicable.
If the Trustees should determine that it would be detrimental to the best
interests of the remaining shareholders of a Portfolio to make payment wholly or
partly in cash, that Portfolio may pay the redemption price in whole or in part
by a distribution in kind of readily marketable securities (mutual fund shares
or money market instruments) from the portfolio of that Portfolio, in lieu of
cash, in conformity with applicable rules of the SEC. The Trust will, however,
redeem Shares solely in cash up to the lesser of $250,000 or 1% of its net
assets during any 90-day period for any one shareholder.
The proceeds of redemption may be more or less than the amount invested and,
therefore, a redemption may result in a gain or loss for Federal income tax
purposes.
Because the Portfolios incur fixed costs in maintaining shareholder accounts,
the Portfolios reserve the right to redeem your account if its total value falls
below $500 at the end of any month, unless the decrease is solely the result of
a reduction in net asset value per share. If a Portfolio elects to redeem your
account, it will notify you of its intention to do so and will provide you with
an opportunity to increase your account by investing a sufficient amount to
bring the account up to $500 or more within 30 days of the notice.
SYSTEMATIC WITHDRAWAL PLAN
Any shareholder who owns Shares of a Portfolio with an aggregate value of
$10,000 or more may establish a Systematic Withdrawal Plan under which the
shareholder redeems at net asset value the number of full and fractional Shares
which will produce the monthly, quarterly, semi-annual or annual payments
specified (minimum $50 per payment). Depending on the amounts withdrawn,
systematic withdrawals may deplete the investor's principal. Investors
contemplating participation in this plan should consult their tax advisers. No
additional charge to the shareholder is made for this service.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Portfolio intends to qualify for and elect the special tax treatment
applicable to regulated investment companies under Subchapter M of the Code. To
qualify as a regulated investment company, the Portfolios must meet certain
complex tests concerning their investments and distributions. It is anticipated
that the Portfolios will not be subject to federal income or excise tax. If a
distribution is declared by the Portfolio in December to shareholders of record
as of a specified date in December and paid by the Portfolio during January of
the following calendar year, the distribution will be treated as a dividend paid
during the calendar year. Such distributions will be taxable to shareholders in
the calendar year in which the distributions are declared, rather than the
calendar year in which the distributions are received.
Income received by a Portfolio from an underlying mutual fund (including
dividends and distributions of short-term capital gains), as well as interest
received on money market instruments and net short-term capital gains received
by the Portfolio on the sale of mutual fund shares, will be distributed by the
Portfolio (after deductions for expenses) and will be taxable to shareholders as
ordinary income. Because the Portfolios are actively managed and can realize
taxable net short-term capital gains by selling shares of an underlying fund
with unrealized portfolio appreciation, investing in the Portfolio rather than
directly in the underlying funds may result in increased tax liability to the
shareholder, since the Portfolio must distribute its gain in accordance with the
rules in the Code.
Distributions of net capital gains (the excess of net long-term capital gains
over net short-term capital losses) received by a Portfolio from underlying
mutual funds, as well as net long-term capital gains realized by a Portfolio
from the purchase and sale (or redemption) of mutual fund shares or other
securities held (generally) by a Portfolio for more than one year, will be
distributed by the Portfolio and will be taxable to shareholders as long-term
capital gains (even if the shareholder has held the shares for less than one
year). The Taxpayer Relief Act of 1997 creates additional categories of capital
gains taxable at different rates. The categories of gain and related rates will
be passed through to shareholders in capital gains dividends. Shareholders will
report on Form 1040 Schedule D the full amount of capital gain dividends
received from the Portfolio and the portion thereof that is taxed at a maximum
28% rate. However, if you receive a capital gains distribution and suffer a loss
on the sale of your shares not more than six months after purchase, the loss
will be treated as a long-term capital loss to the extent of the capital gains
distribution received.
The tax treatment of distributions from a Portfolio is the same whether the
distributions are received in additional shares or in cash. Each year the Trust
will notify shareholders of the tax status of dividends and distributions.
A Portfolio may invest in underlying funds with capital loss carry-forwards. If
such an underlying fund realizes capital gains, it will be able to offset the
gains to the extent of its loss carry-forwards in determining the amount of
capital gains which must be distributed to its shareholders. To the extent that
gains are offset in this manner, the Portfolio will not realize gains on the
related fund until such time as the underlying fund is sold.
Depending on the residence of the shareholder for tax purposes, distributions
also may be subject to state and local taxes, including withholding taxes.
Shareholders should consult their own tax advisers as to the tax consequences of
ownership of Shares of the Portfolios in their particular circumstances.
The Portfolios generally will be required to withhold federal income tax at a
rate of 31% ("backup withholding") from dividends paid to shareholders for whom
no certified tax identification number is on file with the Portfolio or who, to
the Portfolio's knowledge, have furnished an incorrect number.
Aggressive Growth Portfolio and International Portfolio will distribute
investment company taxable income annually; Growth Portfolio will distribute
investment company taxable income semi-annually; Growth with Income Portfolio
and Managed Total Return Portfolio will distribute investment company taxable
income quarterly; and Bond Portfolio will distribute investment company taxable
income monthly. Each Portfolio will distribute any net realized capital gains at
least annually. All dividends and distributions will be reinvested automatically
at net asset value in additional Shares of the Portfolio making the
distribution, unless you have notified the Portfolio in writing of your election
to receive distributions in cash.
Income received by the underlying funds from sources within various foreign
countries may be subject to foreign income taxes withheld at the source.
International Portfolio is not permitted to "pass through" to its shareholders
the amount of foreign income taxes paid by the underlying mutual funds.
The underlying funds' transactions in foreign currencies and hedging activities
may give rise to ordinary income or loss to the extent such income or loss
results from fluctuations in value of the foreign currency concerned. In
addition, such activities will likely produce a difference between book income
and taxable income. This difference may cause a portion of the underlying funds'
income distributions to constitute a return of capital for tax purposes or
require the underlying fund to make distributions exceeding book income to
qualify as a regulated investment company for tax purposes.
OTHER INFORMATION
Capitalization
The Trust (initially named FundManager Trust, and since renamed FundManager
Portfolios) was organized as a Delaware business trust on February 7, 1995 as a
successor, with respect to the Portfolios, to Republic Funds (formerly
FundTrust) a Massachusetts business trust (organized on April 22, 1987).
Republic Funds succeeded two previously existing Massachusetts business trusts,
FundTrust Tax-Free Trust (organized on July 30, 1986) and FundVest (organized on
July 17, 1984 and since renamed Fund Source). The Trust currently consists of
six separately-managed portfolios, each offering two classes of shares of
beneficial interest, the Financial Adviser Class and the No-Load Class (except
for Managed Total Return, which only offers Financial Adviser Class). The
Trustees may establish additional portfolios and divide Shares in each portfolio
into additional classes in the future. The capitalization of the Trust consists
solely of an unlimited number of Shares of beneficial interest with a par value
of $0.001 each. When issued, Shares of the Portfolios are fully paid,
non-assessable and freely transferable.
Voting
Shareholders have the right to vote in the election of Trustees and on any and
all matters on which by law or the provisions of the Master Trust Agreement they
may be entitled to vote. When matters are submitted for shareholder vote,
shareholders will have one vote for each full share held and proportionate,
fractional votes for fractional shares held. A separate vote of a Portfolio or
class is required on any matter affecting that Portfolio or class on which
shareholders are entitled to vote. Shareholders of a Portfolio or class are not
entitled to vote on Trust matters that do not affect the Portfolio or class and
do not require a separate vote of the Portfolio or class. The Trust is not
required to hold regular annual meetings of its shareholders and does not intend
to do so. See "Other Information--Voting Rights" in the SAI. As of January 7,
1998, Turtle & Co. FC1202, c/o State Street Bank & Trust Company, P.O. Box 9242,
Boston, MA 02209, was the owner of record of 26.40% of the voting securities of
the Growth Portfolio, and therefore, may, for certain purposes be deemed to
control the Growth Portfolio and be able to affect the outcome of certain
matters presented for a vote of shareholders. As of January 7, 1998, Turtle &
Co. FC1202, c/o State Street Bank & Trust Company, P.O. Box 9242, Boston, MA
02209, was the owner of record of 28.24% of the voting securities of the Growth
with Income Portfolio, and therefore, may, for certain purposes be deemed to
control the Growth with Income Portfolio and be able to affect the outcome of
certain matters presented for a vote of shareholders. As of January 7, 1998,
Turtle & Co. FC1202, c/o State Street Bank & Trust Company, P.O. Box 9242,
Boston, MA 02209, was the owner of record of 45.38% of the voting securities of
the Bond Portfolio and Turtle & Co. FC-RR, P.O. Box 9427, Boston, MA 02209, was
the owner of record of 32.76% of the voting securities of the Bond Portfolio,
and therefore, may, for certain purposes be deemed to control the Bond Portfolio
and be able to affect the outcome of certain matters presented for a vote of
shareholders.
The Master Trust Agreement provides that the holders of not less than
three-fourths of the outstanding Shares of the Trust may remove a person serving
as Trustee either by declaration in writing or at a meeting called for such
purpose. The Trustees are required to call a meeting for the purpose of
considering the removal of a person serving as Trustee if requested in writing
to do so by the holders of not less than 10% of the outstanding Shares of the
Trust.
Shares entitle their holders to one vote per share (with proportionate voting
for fractional Shares). As used in this Prospectus, the phrase "vote of a
majority of the outstanding Shares" of the Trust, Portfolio or Class means the
vote of the lesser of: (i) 67% of the Shares of the Trust, Portfolio or Class
present at a meeting if the holders of more than 50% of the outstanding Shares
of the Trust, Portfolio or Class are present in person or by proxy or (ii) more
than 50% of the outstanding Shares of the Trust, Portfolio or Class.
In compliance with applicable provisions of the 1940 Act, shares of the
underlying funds owned by the Portfolios will be voted in the same proportion as
the vote of all other holders of those shares.
Performance Information
The Trust may, from time to time, include quotations of the Portfolios' yield
and total return in advertisements or reports to shareholders or prospective
investors. Quotations of yield will be based on the investment income per share
earned during a particular 30-day period (including dividends and interest),
less expenses accrued during the period ("net investment income"), and will be
computed by dividing net investment income by the maximum public offering price
per share on the last day of the period. Quotations of total return will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the Portfolio over periods of 1, 5 and 10 years (up
to the life of such Portfolio). All total return figures will reflect a
proportional share of Portfolio expenses on an annual basis, and will assume
that all dividends and distributions are reinvested when paid. Quotations of
yield or total return reflect only the performance of a hypothetical investment
in the Portfolio during the particular time period on which the calculations are
based. The performance information reflects the effect of non-recurring charges,
such as the maximum sales charge, which, if excluded, would increase the yield
and total return. Yield and total return for a Portfolio will vary based on
changes in market conditions and the level of such Portfolio's expenses, and no
reported performance figure should be considered an indication of performance
which may be expected in the future.
For the period prior to its establishment, the Class has adopted the performance
of the Predecessor Portfolios. The performance for this period will reflect the
deduction of expenses set forth in the Portfolio Expense Table See "Portfolio
Expenses."
In connection with communicating the Portfolios' yield and total return to
current or prospective shareholders, the Trust also may compare these figures to
the performance of other mutual funds tracked by mutual fund rating services or
to other unmanaged indexes which may assume reinvestment of dividends but
generally do not reflect deductions for administrative and management costs and
expenses.
For a more detailed description of the methods used to calculate each
Portfolio's yield and total return, see the SAI.
OTHER CLASSES OF SHARES
The Aggressive Growth Portfolio, Growth Portfolio, Growth with Income Portfolio,
Bond Portfolio and International Portfolio also offer another class of shares
called No-Load Class shares. No-Load Class shares are sold at net asset value to
participants in the FundManager Advisory Program (the "Program"). The Program is
an investment advisory service that directly provides to investors asset
allocation recommendations with respect to the Portfolios based on an evaluation
of an investor's investment objectives and risk tolerances. The minimum
investment by participants in the Program is $50,000.
Both classes are subject to certain of the same expenses. However, No-Load Class
Shares are distributed without sales charges or 12b-1 fees.
Expense differences between classes may affect the performance of each class.
SHAREHOLDER INQUIRES
All shareholder inquires should be directed to your investment executive or
financial adviser, or call (800) 344-9033 (Toll Free).
DESCRIPTION OF BOND RATINGS
Excerpts from Moody's description of its bond ratings: Aaa--judged to be the
best quality. They carry the smallest degree of investment risk; Aa--judged to
be of high quality by all standards. Together with the Aaa group they comprise
what are generally known as high grade bonds; A--possess many favorable
investment attributes and are to be considered as "upper medium grade
obligations"; Baa--considered as medium grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time;
Ba--judged to have speculative elements, their future cannot be considered as
well assured; B--generally lack characteristics of the desirable investment;
Caa--are of poor standing. Such issues may be in default or there may be present
elements of danger with respect to principal or interest; Ca--speculative in a
high degree; often in default; C--lowest rated class of bonds; regarded as
having extremely poor prospects.
Moody's also supplies numerical indicators 1, 2 and 3 to rating categories. The
modifier 1 indicates that the security is in the higher end of its rating
category; the modifier 2 indicates a mid-range ranking; and 3 indicates a
ranking toward the lower end of the category.
Excerpts from S&P's description of its bond ratings: AAA--highest grade
obligations. Capacity to pay interest and repay principal is extremely strong;
AA--also qualify as high grade obligations. A very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small degree;
A--regarded as upper medium grade. They have a strong capacity to pay interest
and repay principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in higher
rated categories; BBB--regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories. This group is the lowest
which qualifies for commercial bank investment. BB, B, CCC, CC--predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with terms of the obligations; BB indicates the lowest degree of
speculation and CC the highest.
S&P applies indicators "+," no character, and "" to its rating categories. The
indicators show relative standing within the major rating categories.
[Graphic]
Investment Adviser
Freedom Capital Management Corporation
One Beacon Street
Boston, MA 02108
Distributors
Tucker Anthony, Incorporated
200 World Financial Center
New York, NY 10281
Sutro & Co., Inc.
201 California Street
San Francisco, CA 94111
Freedom Distributors Corporation
One Beacon Street
Boston, MA 02108
Edgewood Services, Inc.
Clearing Operations
P.O. Box 897
Pittsburgh, PA 15230-0897
G01966-02 (1/98)
[Graphic]
January 31, 1998
* Aggressive Growth Portfolio
* Growth Portfolio
* Growth with Income Portfolio
* Bond Portfolio
* Managed Total Return Portfolio
* International Portfolio
FundManager Portfolios--No-Load Class
One Beacon Street, Boston, Massachusetts 02108
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General Information: (800) 344-9033 (Toll Free)
FundManager Portfolios (the "Trust") is an open-end management investment
company consisting of six separate diversified series with different investment
objectives. This Prospectus describes five diversified series (individually and
collectively referred to as "Portfolio" or "Portfolios," as the context
requires) of the Trust. Each Portfolio offers two classes of shares. The shares
offered by this Prospectus are the No-Load Class (the "Class") of shares
("Shares"). The Portfolios seek to achieve their objectives by investing in
shares of other open-end investment companies commonly called mutual funds and,
in the case of International Portfolio, by also investing in shares of
closed-end management companies and unit investment trusts. These policies
involve certain expenses in addition to those applicable to direct investment in
mutual funds. See "Risks and Other Considerations--Expenses." The M.D. Hirsch
Division of Freedom Capital Management Corporation ("Freedom Capital Management"
or the "Adviser") continuously manages each Portfolio's investment portfolio.
Aggressive Growth Portfolio seeks capital appreciation without regard to current
income.
Growth Portfolio primarily seeks long-term capital appreciation. Current income
is a secondary consideration.
Growth with Income Portfolio seeks a combination of capital appreciation and
current income.
Bond Portfolio seeks a high level of current income.
International Portfolio seeks long-term capital appreciation. Current income is
a secondary consideration.
Shares of the Portfolios are only offered for sale at net asset value by Tucker
Anthony Incorporated ("Tucker Anthony") and Sutro & Co. Incorporated ("Sutro")
(collectively, the "Distributors") to participants in the FundManager Advisory
Program (the "Program"). In addition to Tucker Anthony and Sutro, Freedom
Distributors Corporation ("Freedom Distributors") and Edgewood Services, Inc.
("Edgewood") serve as co-distributors for the Portfolios. The Program is an
investment advisory service that directly provides to investors asset allocation
recommendations with respect to the Portfolios based on an evaluation of an
investor's investment objectives and risk tolerances. See "Purchase of Shares."
In addition, the Portfolios may invest in shares of mutual funds which charge
sales loads and/or pay their own distribution expenses.
Investments in the Portfolios are neither insured nor guaranteed by the U.S.
government. Shares of the Portfolios are not deposits or obligations of, or
guaranteed or endorsed by, any bank, and the Shares are not federally insured by
the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other government agency. An investment in the Portfolios is subject to
investment risks, including possible loss of the principal amount invested.
This prospectus sets forth concisely the information a prospective investor
should know before investing in the Portfolios. A Statement of Additional
Information (the "SAI") dated January 31, 1998, and as supplemented from time to
time containing additional and more detailed information about the Portfolios
has been filed with the Securities and Exchange Commission ("SEC") and is hereby
incorporated by reference into this prospectus. You may request a copy of the
SAI, or a paper copy of this prospectus, if you have received your prospectus
electronically, free of charge by writing or calling the Trust at the address
and information number printed above. The SAI, material incorporated by
reference into this document, and other information regarding the Portfolios is
maintained electronically with the SEC at internet web site
(http://www.sec.gov).
This Prospectus should be read and retained for
information about the Portfolios.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JANUARY 31, 1998
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------
HIGHLIGHTS 1
Portfolio Expenses 2
Financial Highlights 3
FundManager Portfolios 6
Investment Objectives and Policies 6
Investments of and Investment Techniques
Employed by Mutual Funds in which the
Portfolios May Invest 10
Investment Policies and Restrictions 18
Risks and Other Considerations 19
Expenses 20
Management of FundManager Portfolios 21
The Adviser 21
The Administrator 22
The Distributors 22
Custodian 22
Transfer Agent, Dividend Disbursing
Agent, and Shareholder Servicing Agent 22
Other Expenses 23
Portfolio Transactions 23
Determination of Net Asset Value 23
Purchase of Shares 24
Purchases by Clients of the Distributors
or Authorized Securities Dealers 24
FundManager Advisory Program 25
Redemption of Shares 25
Redemption of Shares Purchased
Through a Distributor or
Authorized Securities Dealer 25
Direct Redemption 25
Dividends, Distributions and Taxes 26
Other Information 27
Other Classes of Shares 29
Shareholder Inquiries 29
Description of Bond Ratings 29
HIGHLIGHTS
- -------------------------------------------------------------------------------
FUNDMANAGER PORTFOLIOS Page 6
Aggressive Growth Portfolio, Growth Portfolio, Growth with Income Portfolio,
Bond Portfolio and International Portfolio are series of the Trust, a Delaware
business trust. Each Portfolio seeks to achieve its investment objective by
investing in mutual funds registered with the SEC. INVESTMENT OBJECTIVES
AND POLICIES Page 6 Each Portfolio has distinct investment objectives.
Aggressive Growth Portfolio seeks capital appreciation without regard to current
income. Growth Portfolio primarily seeks capital appreciation with current
income a secondary consideration. Growth with Income Portfolio seeks a
combination of capital appreciation and current income. Bond Portfolio seeks a
high level of current income. International Portfolio seeks long-term capital
appreciation with current income a secondary consideration. The mutual funds in
which the Portfolios invest may invest in securities which entail certain risks.
These risks are described in "Investments of and Investment Techniques Employed
by Mutual Funds in Which the Portfolios May Invest." RISKS AND OTHER
CONSIDERATIONS Page 19 Investing in a Portfolio that consists of an
underlying portfolio of open-end, and also closed-end in the case of
International Portfolio, mutual funds ("underlying funds") involves certain
additional expenses and certain tax results which would not be present in a
direct investment in mutual funds. See "Expenses" and "Dividends, Distributions
and Taxes." In addition, Federal law imposes certain limits on the purchases of
mutual fund shares by the Portfolios. MANAGEMENT OF FUNDMANAGER PORTFOLIOS
Page 21
The Trust has retained Freedom Capital Management to act as its investment
adviser. For its services, the Adviser receives from each Portfolio a fee at the
annual rate of 0.50% of the Portfolio's average daily net assets up to $500
million and 0.40% of its average daily net assets in excess of $500 million. See
"The Adviser."
The Trust has retained Federated Administrative Services ("FAS") to provide
certain management and administrative services to the Portfolios. For these
services, each Portfolio pays FAS a fee at the annual rate of 0.150% of the
first $250 million of that Portfolio's average daily net assets, 0.125% of the
next $250 million of such assets, 0.100% of the next $250 million of such
assets, and 0.075% of such assets in excess of $750 million. See "The
Administrator." In addition, Freedom Distributors and Edgewood may receive
additional compensation in connection with the Portfolios' purchases of mutual
funds. See "Portfolio Transactions."
PURCHASE OF SHARES Page 24
Purchases of Shares of the Trust by participants in the Program must be through
a brokerage account maintained with the Distributors. The minimum investment by
participants in the Program is $50,000. The Trust may issue Shares of the
Portfolios in exchange for mutual fund shares meeting the Portfolios' investment
objective, as determined by the Adviser. REDEMPTION OF SHARES Page 25
Shares may be redeemed at their next determined net asset value. See
"Determination of Net Asset Value." Redemptions may be made by letter or wire.
The Trust reserves the right to redeem, upon not less than 30 days' notice, all
Shares of a Portfolio in an account (other than an IRA) which has a value below
$500.
DIVIDENDS, DISTRIBUTIONS AND TAXES Page 26
Aggressive Growth Portfolio and International Portfolio will distribute net
investment income annually; Growth Portfolio will distribute net investment
income semiannually; Growth with Income Portfolio will distribute net investment
income quarterly; and Bond Portfolio will distribute its net investment income
monthly. Each Portfolio will distribute any net realized capital gains at least
annually unless otherwise instructed. All dividends and distributions generally
will be reinvested automatically at net asset value in additional Shares of the
Portfolio making the distribution.
<PAGE>
PORTFOLIO EXPENSES
- -------------------------------------------------------------------------------
The following table illustrates the expenses and fees that a shareholder of each
Portfolio will incur.
ANNUAL NO LOAD CLASS OPERATING EXPENSES
(As a percentage of average net assets)*
(As a percentage of projected average net assets)**
<TABLE>
<CAPTION>
Growth
Aggressive with
Growth** Growth* Income* Bond* International**
<S> <C> <C> <C> <C> <C>
Management Fees 0.50% 0.50% 0.50% 0.50% 0.50%
Distribution and shareholder service expenses None None None None None
Other Expenses 0.71% 0.65% 0.62% 0.39% 1.39%
Total Portfolio Operating Expenses(1) 1.21% 1.15% 1.12% 0.89% 1.89%
</TABLE>
(1) Total Portfolio Operating Expenses in the table above, with the exception of
the Aggressive Growth Portfolio and the International Portfolio, are based
on expenses incurred during the fiscal year ended September 30, 1997. Total
Portfolio Operating Expenses in the table above, for the Aggressive Growth
Portfolio and the International Portfolio, are based on expenses expected
during the fiscal year ending September 30, 1998. The total portfolio
operating expenses were 1.09%, 1.15%, 1.12% and 0.89% for the Aggressive
Growth Portfolio, Growth Portfolio, Growth with Income Portfolio and Bond
Portfolio, respectively, for the fiscal year ended September 30, 1997. The
total portfolio operating expenses would have been 1.12%, 1.20%, 1.17% and
0.93% for the Aggressive Growth Portfolio, Growth Portfolio, Growth with
Income Portfolio and Bond Portfolio, respectively, for the fiscal year ended
September 30, 1997, absent the voluntary waiver of a portion of the
administrative fee.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder will bear, either directly or indirectly.
For more complete descriptions of the various costs and expenses, see
"Management of FundManager Portfolios." Wire-transferred redemptions may be
subject to an additional fee.
Example
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period. The portfolio
charges no redemption fees.
<TABLE>
<CAPTION>
Growth
Aggressive with
Growth Growth Income Bond International
<S> <C> <C> <C> <C> <C>
1 year $ 12 $ 12 $ 11 $ 9 $19
3 years $ 38 $ 37 $ 36 $ 28 $59
5 years $ 67 $ 63 $ 62 $ 49 N/A
10 years $147 $140 $136 $110 N/A
</TABLE>
The above example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown. This example
is based on estimated data for the Aggressive Growth Portfolio and the
International Portfolio fiscal year ending September 30, 1998.
<PAGE>
FINANCIAL HIGHLIGHTS
The Portfolios' financial data through September 30, 1997, shown below is to
assist investors in evaluating the performance of each Portfolio. Prior to May
8, 1995, the Portfolios were a diversified series of the Republic Funds (the
"Predecessor Funds"), also an open-end, management investment company. The
information for the years ended September 30, 1997, 1996, 1995, 1994, and 1993
in the following tables have been audited by Ernst & Young LLP, the Portfolios'
Independent Auditors. The report of Ernst & Young LLP, dated November 25, 1997,
on the Portfolios' financial statements for the year then ended September 30,
1997, and on the following tables for the periods presented, is included in the
Annual Report, which is incorporated by reference. These tables should be read
in conjunction with the Portfolios' financial statements and notes thereto,
which are contained in the Annual Report. Further information about the
Portfolios' performance also is contained in the Portfolios' Annual Report,
dated September 30, 1997, which can be obtained free of charge. The information
in the following tables for the fiscal year ended September 30, 1991 and for
prior fiscal year ends has been examined by other auditors who have expressed an
unqualified opinion.
Freedom Capital Management is the Trust's investment adviser. From September 1,
1993 to February21, 1995, the M.D. Hirsch Division of Republic Asset Management
Corporation ("Republic Asset Management"), an affiliate of Republic National
Bank of New York ("Republic"), served as investment adviser to the Predecessor
Funds. Prior to September1, 1993, M.D. Hirsch Investment Management, Inc.
("Hirsch"), also an affiliate of Republic, served as the investment adviser to
the Predecessor Funds. Prior to February 1, 1991, Republic was the investment
adviser to the Predecessor Funds.
Aggressive Growth Portfolio--No-Load Class
- ------------------------------------------------------------------------------
Selected data for a share outstanding throughout the:
<TABLE>
<CAPTION>
Year Ended
September 30,
1997 1996
<S> <C> <C>
Net Asset Value, beginning of period $16.91 $18.31
Income from investment operations
Net investment income (operating loss) (0.04)(a) (0.04)(a)
Net realized and unrealized gain on investments 3.76 1.63
Total from investment operations 3.72 1.87
Less distributions
Distributions from net investment income (0.15) (0.36)
Distributions from net realized gain on investments+ (1.92) (2.89)
Total distributions (2.07) (3.27)
Net Asset Value, end of period $18.56 $16.91
Total return(b) 24.76% 12.77%
Ratios/Supplemental data
Net assets, end of period (in 000's) $1,921 $ 1432
Ratio of expenses to average net assets 1.09% 1.15%
Ratio of net investment income to average net assets (0.25%) 0.24%
Ratio of waiver to average net assets(c) 0.03% 0.06%
Portfolio turnover 51% 1.58%
+Paid from realized net short-term gain $ 0.28 $ 0.27
</TABLE>
Growth Portfolio--No-Load Class
- ------------------------------------------------------------------------------
Selected data for a share outstanding throughout the:
<TABLE>
<CAPTION>
Year Ended
September 30,
1997 1996
<S> <C> <C>
Net Asset Value, beginning of period $15.04 $16.14
Income from investment operations
Net investment income (operating loss) 0.11(a) (0.06)
Net realized and unrealized gain on investments 4.93 2.02
Total from investment operations 5.04 1.96
Less distributions
Distributions from net investment income (0.41) (0.29)
Distributions from net realized gain on investments+ (1.83) (2.77)
Total distributions (2.24) (3.06)
Net Asset Value, end of period $17.84 $15.04
Total return(b) 37.59% 14.21%
Ratios/Supplemental data
Net assets, end of period (in 000's) $1,264 $ 877
Ratio of expenses to average net assets 1.15% 1.30%
Ratio of net investment income to average net assets 0.69% (0.39%)
Ratio of waiver to average net assets(c) 0.05% 0.06%
Portfolio turnover 95% 98%
+Paid from realized net short-term gain $ 0.12 --
- -------------------------------------------------------------------------------------
</TABLE>
(a) Per share information is based on average shares outstanding.
(b) Based on net asset value.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
Growth with Income Portfolio--No-Load Class
- -------------------------------------------------------------------------------
Selected data for a share outstanding throughout the:
<TABLE>
<CAPTION>
Year Ended
September 30,
1997 1996
<S> <C> <C>
Net Asset Value, beginning of period $16.71 $18.28
Income from investment operations
Net investment income 0.32(a) 0.39(a)
Net realized and unrealized gain on investments 4.75 1.86
Total from investment operations 5.07 2.25
Less distributions
Distributions from net investment income (0.68) (0.89)
Distributions from net realized gain on investments+ (2.33) (2.93)
Total distributions (3.01) (3.82)
Net Asset Value, end of period $18.77 $16.71
Total return(b) 34.89% 14.06%
Ratios/Supplemental data
Net assets, end of period (in 000's) $ 800 $ 621
Ratio of expenses to average net assets 1.12% 1.28%
Ratio of net investment income to average net assets 1.84% 2.42%
Ratio of waiver to average net assets(c) 0.05% 0.06%
Portfolio turnover 61% 85%
+Paid from realized net short-term gain -- $ 0.06
</TABLE>
Bond Portfolio--No-Load Class
- -------------------------------------------------------------------------------
Selected data for a share outstanding throughout the:
<TABLE>
<CAPTION>
Year Ended
September 30,
1997 1996
<S> <C> <C>
Net Asset Value, beginning of period $10.04 $10.21
Income from investment operations
Net investment income(a) 0.57(a) 0.55(a)
Net realized and unrealized gain (loss) on investments 0.30 (0.16)
Total from investment operations 0.87 0.39
Less distribution
Distributions from net investment income (0.57) (0.56)
Distributions from net realized gain on investments -- --
Total distributions (0.57) (0.56)
Net Asset Value, end of period $10.34 $10.04
Total return(b) 8.92% 3.88%
Ratios/Supplemental data
Net assets, end of period (in 000's) $2,221 $1,988
Ratio of expenses to average net assets 0.89% 0.99%
Ratio of net investment income to average net assets 5.57% 5.57%
Ratio of waiver to average net assets(c) 0.04% 0.05%
Portfolio turnover 142% 93%
- -------------------------------------------------------------------------------
</TABLE>
(a) Per share information is based on average shares outstanding.
(b) Based on net asset value.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
FUNDMANAGER PORTFOLIOS
- --------------------------------------------------------------------------------
The Trust was organized as a Delaware business trust on February 7, 1995, and is
an open-end management investment company registered under the Investment
Company Act of 1940 ("1940 Act") consisting of six diversified separate series -
- - Aggressive Growth Portfolio, Growth Portfolio, Growth with Income Portfolio,
Bond Portfolio, Managed Total Return Portfolio and International Portfolio. This
prospectus relates only to the No-Load Class of Shares of Aggressive Growth
Portfolio, Growth Portfolio, Growth with Income Portfolio, Bond Portfolio and
International Portfolio. Investment in Shares of one or more of the Portfolios
involves risks and there can be no assurance that the Portfolios' investment
objectives will be achieved.
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
Each Portfolio seeks to achieve its investment objective by investing in a
portfolio of other open-end registered investment companies. The Investment
Portfolio also may invest in closed-end investment companies and unit investment
trusts. At times, for temporary defensive purposes when warranted by general
economic and financial conditions, a Portfolio may invest in money market mutual
funds or invest directly in (or enter into repurchase agreements maturing in
seven days or less with banks and broker-dealers with respect to) short-term
debt securities, including U.S. Treasury bills and other short-term U.S.
government securities, commercial paper, certificates of deposit and bankers'
acceptances. However, except when a Portfolio is in a temporary defensive
investment position or as may be considered necessary to accumulate cash in
order to satisfy minimum purchase requirements of the underlying funds or to
meet anticipated redemptions, a Portfolio normally will maintain its assets
invested in underlying funds. Although all of the Portfolios may invest in
shares of the same underlying fund, the percentage of each Portfolio's assets so
invested may vary and the Adviser will determine that such investments are
consistent with the investment objectives and policies of each particular
Portfolio. A Portfolio (with the exception of International Portfolio) may not
purchase shares of any closed-end investment company. In addition, a Portfolio
may not purchase shares of any investment company which is not registered with
the SEC. Each Portfolio's investment objectives and certain of its related
policies and activities are fundamental and may not be changed by the Board of
Trustees (the "Trustees") of the Trust, on behalf of a particular Portfolio,
without approval of the shareholders of that Portfolio.
AGGRESSIVE GROWTH PORTFOLIO
The investment objective of Aggressive Growth Portfolio is capital appreciation
without regard to current income. The underlying funds in which it invests will
consist of funds which seek capital growth or appreciation by investing
primarily in common stock or securities convertible into or exchangeable for
common stock (such as convertible preferred stock, convertible debentures or
warrants). For temporary defensive purposes, these funds also may invest in (or
enter into repurchase agreements with banks and broker-dealers with respect to)
corporate bonds, U.S. government securities, commercial paper, certificates of
deposit or other money market securities.
The Portfolio also may invest in funds which invest primarily in long- or
short-term bonds and other fixed income securities (such as securities issued or
guaranteed or insured by the U.S. government, its agencies or instrumentalities,
commercial paper, preferred stock, convertible preferred stock or convertible
debentures) whenever the Adviser believes that these funds offer a potential for
capital appreciation. These underlying funds may invest in investment grade
bonds or in bonds which are not considered investment grade (commonly referred
to as "junk bonds"). The Portfolio will limit its direct and indirect investment
in junk bonds to less than 5% of its assets. See "Bond Portfolio" and
"Description of Bond Ratings."
The underlying funds in which Aggressive Growth Portfolio invests may incur more
risk than those in which Growth Portfolio and Growth with Income Portfolio
invest. For example, they may trade their portfolios more actively (which
results in higher brokerage commissions and increased realization of taxable
capital gains) and/or invest in companies whose securities are subject to more
erratic market movements. The underlying funds also may invest up to 100% of
their assets in securities of foreign issuers and engage in foreign currency
transactions with respect to these investments; invest up to 15% of their assets
in illiquid securities (excluding Rule 144A securities which are deemed liquid
by the Trustees) ("Illiquid Securities"); invest their assets in warrants; lend
their portfolio securities; sell securities short; borrow money in amounts up to
one-third of their assets for investment purposes (i.e., leverage their
portfolios); write (sell) or purchase call or put options on securities or on
stock indexes; concentrate more than 25% of their assets in one industry; invest
up to 100% of their assets in master demand notes; and enter into futures
contracts and options on futures contracts. The risks associated with these
investments are described in the "Investments of and Investment Techniques
Employed by Mutual Funds in Which the Portfolios May Invest."
As a result, an investment in Aggressive Growth Portfolio can be expected to
involve greater risk than an investment in any of the other Portfolios.
GROWTH PORTFOLIO
The primary investment objective of Growth Portfolio is long-term capital
appreciation. Current income is of secondary importance. The underlying funds in
which it invests will consist of funds which invest primarily in common stock or
securities convertible into or exchangeable for common stock (such as
convertible preferred stock, convertible debentures or warrants) and which seek
long-term capital growth or appreciation with current income typically of
secondary importance. For temporary defensive purposes, these underlying funds
also may invest in (or enter into repurchase agreements with banks and
broker-dealers with respect to) corporate bonds, U.S. government securities,
commercial paper, certificates of deposit or other money market instruments.
The Portfolio also may invest in funds which invest primarily in long- or
short-term bonds and other fixed income securities (such as securities issued or
guaranteed or insured by the U.S. government, its agencies or instrumentalities,
commercial paper, preferred stock, convertible preferred stock or convertible
debentures) whenever the Adviser believes that these funds offer a potential for
capital appreciation. These underlying funds may invest in investment grade
bonds or in bonds which are not considered investment grade (commonly referred
to as "junk bonds"). The Portfolio will limit its direct and indirect investment
in junk bonds to less than 5% of its assets. See "Bond Portfolio" and
"Description of Bond Ratings."
The underlying funds in which the Growth Portfolio invests may be authorized to
invest up to 100% of their assets in the securities of foreign issuers and
engage in foreign currency transactions with respect to these investments;
invest up to 15% of their assets in Illiquid Securities; invest their assets in
warrants; lend their portfolio securities; sell securities short; borrow money
in amounts up to one-third of their assets for investment purposes; write or
purchase call or put options on securities or stock indexes; concentrate more
than 25% of their assets in one industry; invest up to 100% of their assets in
master demand notes; and enter into futures contracts and options on futures
contracts. The risks associated with these investments are described in
"Investments of and Investment Techniques Employed by Mutual Funds in Which the
Portfolios May Invest."
GROWTH WITH INCOME PORTFOLIO
The investment objective of Growth with Income Portfolio is realization of a
combination of capital appreciation and current income. The underlying funds in
which it invests will consist of funds which seek long-term capital appreciation
and/or funds which seek (i) income from dividends, (ii) income from interest, or
(iii) growth of income (or any combination of (i)-(iii)). These underlying funds
invest in common stocks, preferred stocks, bonds and other fixed-income
securities (including convertible preferred stock and convertible debentures).
The underlying funds also may, for temporary defensive purposes, invest in (or
enter into repurchase agreements with banks and broker-dealers with respect to)
U.S. government securities, commercial paper, certificates of deposit or other
money market securities.
The Portfolio also may invest in funds which invest primarily in long- or
short-term bonds and other fixed income securities (such as securities issued or
guaranteed or insured by the U.S. government, its agencies or instrumentalities,
commercial paper, preferred stock, convertible preferred stock or convertible
debentures) whenever the Adviser believes that these funds offer a potential for
capital appreciation. These underlying funds may invest in investment grade
bonds or in bonds which are not considered investment grade (commonly referred
to as "junk bonds"). The Portfolio will limit its direct and indirect investment
in junk bonds to less than 5% of its assets. See "Bond Portfolio" and
"Description of Bond Ratings."
These underlying funds may invest up to 100% of their assets in the securities
of foreign issuers and engage in foreign currency transactions with respect to
these investments; invest up to 15% of their assets in Illiquid Securities;
invest their assets in warrants; lend their portfolio securities; sell
securities short; borrow money in amounts up to one-third of their assets for
investment purposes; write or purchase call or put options on securities or on
stock indexes; concentrate more than 25% of their assets in any one industry;
invest up to 100% of their assets in master demand notes; invest in long or
short-term corporate bonds (see "Bond Portfolio ") and other fixed income
securities (such as U.S. government securities, commercial paper, preferred
stock, convertible preferred stock and convertible debentures); and enter into
futures contracts and options on futures contracts. The risks associated with
these investments are described below.
BOND PORTFOLIO
The investment objective of Bond Portfolio is a high level of current income.
The underlying funds in which it invests will include funds which seek high
current income by investing in long or short-term bonds and other fixed income
securities (such as securities issued or guaranteed or insured by the U.S.
government, its agencies or instrumentalities, commercial paper, preferred
stock, convertible preferred stock or convertible debentures). The underlying
funds also may lend their portfolio securities; sell securities short; borrow
money in amounts up to one-third of their assets for investment purposes; write
or purchase call or put options on securities or on stock indexes; invest up to
100% of their assets in master demand notes; and enter into futures contracts
and options on futures contracts.
The Portfolio will invest in underlying funds which limit their corporate bond
investments to investment grade bonds which generally are considered to be bonds
rated within one of the four highest quality grades assigned by a nationally
recognized statistical rating organization ("NRSRO"), such as Standard & Poor's
Ratings Group ("S&P") or Moody's Investor Services, Inc. ("Moody's"), or which
are unrated but are deemed by an underlying fund's investment adviser to be of
comparable quality. These include bonds rated AAA, AA, A and BBB by S&P and
bonds rated Aaa, Aa, A and Baa by Moody's. Bonds rated BBB by S&P or Baa by
Moody's normally indicate a greater degree of investment risk than bonds with
higher ratings.
The Portfolio also will invest (without limitation) in underlying funds which
themselves may invest in corporate bonds which are not considered investment
grade bonds (commonly referred to as "junk bonds") by an NRSRO, such as Moody's
or S&P, or which are unrated, and thus may carry a greater degree of risk than
bonds considered investment grade. These include bonds rated BB, B, CCC and CC
by S&P, and Ba, B, Caa, Ca and C by Moody's. These ratings may indicate that the
bonds are predominantly speculative with respect to the issuer's ability to pay
interest and repay principal and may indicate that the issuer soon may be or
currently is in default. The risks associated with these investments are
described in "Description of Bond Ratings." The Portfolio will limit its direct
and indirect investment in junk bonds to less than 35% of its net assets.
As a general matter, the current value of bonds varies inversely with changes in
prevailing interest rates. If interest rates increase after a bond is purchased,
the value of that security will normally decline. Conversely, should prevailing
interest rates decrease after a bond is purchased, its market price will
normally rise. INTERNATIONAL PORTFOLIO THE INVESTMENT OBJECTIVE OF THE
PORTFOLIO IS LONG-TERM CAPITAL APPRECIATION; CURRENT INCOME IS A SECONDARY,
NON-FUNDAMENTAL CONSIDERATION. THE PORTFOLIO SEEKS TO ACHIEVE ITS INVESTMENT
OBJECTIVE BY INVESTING PRIMARILY IN SHARES OF INTERNATIONAL MUTUAL FUNDS. UNDER
NORMAL MARKET CONDITIONS, AND AS A NON- FUNDAMENTAL INVESTMENT POLICY, THE
PORTFOLIO WILL INVEST AT LEAST 65% OF ITS TOTAL ASSETS IN INTERNATIONAL EQUITY
FUNDS (THOSE FUNDS THAT INVEST PRIMARILY IN FOREIGN COMMON STOCKS, OR FOREIGN
SECURITIES CONVERTIBLE INTO OR EXCHANGEABLE FOR COMMON STOCK). THE REMAINING
ASSETS OF THE PORTFOLIO MAY CONSIST OF INTERNATIONAL BOND FUNDS (THOSE FUNDS
THAT INVEST PRIMARILY IN FOREIGN GOVERNMENT AND CORPORATE BONDS) OR GLOBAL BOND
OR STOCK FUNDS. INTERNATIONAL FUNDS INVEST PRIMARILY IN THE SECURITIES OF
COMPANIES OR ISSUERS LOCATED IN AT LEAST THREE COUNTRIES OTHER THAN THE UNITED
STATES. GLOBAL FUNDS INVEST PRIMARILY IN SECURITIES OF COMPANIES OR ISSUERS
LOCATED IN AT LEAST THREE COUNTRIES, INCLUDING THE UNITED STATES. THE PORTFOLIO
MAY ALSO INVEST IN CLOSED-END INVESTMENT COMPANIES AND UNIT INVESTMENT TRUSTS
WITH SIMILAR INVESTMENT EMPHASIS. (UNLIKE OPEN-END FUNDS THAT OFFER AND SELL
THEIR SHARES AT NET ASSET VALUE PLUS ANY APPLICABLE SALES CHARGE, THE SHARES OF
CLOSED-END FUNDS AND UNIT INVESTMENT TRUSTS MAY TRADE AT A MARKET VALUE THAT
REPRESENTS A PREMIUM, DISCOUNT, OR SPREAD TO NET ASSET VALUE.)
THE UNDERLYING FUNDS WILL TYPICALLY HAVE AN INVESTMENT OBJECTIVE OF LONG-TERM
CAPITAL GROWTH OR APPRECIATION WITH CURRENT INCOME TYPICALLY OF SECONDARY
IMPORTANCE. INVESTMENT IN FOREIGN SECURITIES ENTAILS UNIQUE RISKS IN ADDITION TO
THE RISKS INVOLVED IN INVESTING IN DOMESTIC SECURITIES. IN ADDITION, FOREIGN
SECURITIES INVESTMENTS MAY INCLUDE INVESTMENTS IN DEVELOPING OR EMERGING MARKET
COUNTRIES, WHICH TEND TO HAVE ECONOMIC, POLITICAL AND SOCIAL STRUCTURES THAT ARE
LESS STABLE THAN DEVELOPED MARKET COUNTRIES. THE RISKS OF INVESTING IN FOREIGN
SECURITIES AS WELL AS DEVELOPING OR EMERGING MARKETS ARE DESCRIBED FURTHER UNDER
"INVESTMENTS OF AND INVESTMENT TECHNIQUES EMPLOYED BY MUTUAL FUNDS IN WHICH THE
PORTFOLIO MAY INVEST." ALL OF THE UNDERLYING FUNDS IN WHICH THE PORTFOLIO
INVESTS MUST BE REGISTERED UNDER THE 1940 ACT.
THE PORTFOLIO MAY INVEST IN UNDERLYING FUNDS WHICH LIMIT THEIR CORPORATE BOND
INVESTMENTS TO INVESTMENT GRADE CATEGORY, WHICH ARE RATED WITHIN ONE OF THE FOUR
HIGHEST QUALITY GRADES ASSIGNED BY A NRSRO SUCH AS S&P OR MOODY'S OR UNDERLYING
FUNDS WHICH INVEST IN CORPORATE BOND INVESTMENTS WHICH ARE UNRATED BUT ARE
DEEMED BY AN UNDERLYING FUND'S INVESTMENT ADVISER TO BE OF COMPARABLE QUALITY.
THE PORTFOLIO MAY ALSO INVEST IN UNDERLYING FUNDS WHICH INVEST IN CORPORATE
BONDS WHICH ARE NOT CONSIDERED INVESTMENT GRADE BONDS (COMMONLY REFERRED TO AS
"JUNK BONDS") BY AN NRSRO OR WHICH ARE UNRATED, AND THUS MAY CARRY A GREATER
DEGREE OF RISK THAN BONDS CONSIDERED INVESTMENT GRADE. THESE RATINGS MAY
INDICATE THAT THE BONDS ARE PREDOMINANTLY SPECULATIVE WITH RESPECT TO THE
ISSUER'S ABILITY TO PAY INTEREST AND REPAY PRINCIPAL AND MAY INDICATE THAT THE
ISSUER SOON MAY BE OR CURRENTLY IS IN DEFAULT. THE RISKS ASSOCIATED WITH THESE
INVESTMENTS ARE DESCRIBED BELOW UNDER "HIGH YIELD SECURITIES."
AT TIMES, FOR TEMPORARY DEFENSIVE PURPOSES WHEN WARRANTED BY GENERAL ECONOMIC
AND FINANCIAL CONDITIONS, THE PORTFOLIO MAY INVEST UP TO 100% OF ITS TOTAL
ASSETS IN MONEY MARKET MUTUAL FUNDS OR INVEST DIRECTLY IN (OR ENTER INTO
REPURCHASE AGREEMENTS MATURING IN SEVEN DAYS OR LESS WITH BANKS AND BROKER-
DEALERS WITH RESPECT TO) SHORT-TERM DEBT SECURITIES, INCLUDING U.S. TREASURY
BILLS AND OTHER SHORT-TERM U.S. GOVERNMENT SECURITIES, COMMERCIAL PAPER,
CERTIFICATES OF DEPOSIT AND BANKERS' ACCEPTANCES. THE UNDERLYING FUNDS MAY ALSO
HAVE A SIMILAR TEMPORARY DEFENSIVE INVESTMENT POLICY. HOWEVER, EXCEPT WHEN THE
PORTFOLIO IS IN A TEMPORARY DEFENSIVE INVESTMENT POSITION OR AS MAY BE
CONSIDERED NECESSARY TO ACCUMULATE CASH IN ORDER TO SATISFY MINIMUM PURCHASE
REQUIREMENTS OF THE UNDERLYING FUNDS OR TO MEET ANTICIPATED REDEMPTIONS, THE
PORTFOLIO NORMALLY WILL MAINTAIN ITS ASSETS INVESTED IN UNDERLYING FUNDS.
THE UNDERLYING FUNDS IN WHICH THE PORTFOLIO INVESTS MAY INVEST UP TO 100% OF
THEIR ASSETS IN SECURITIES OF FOREIGN ISSUERS AND ENGAGE IN FOREIGN CURRENCY
TRANSACTIONS WITH RESPECT TO THESE INVESTMENTS; INVEST UP TO 15% OR MORE OF
THEIR ASSETS IN ILLIQUID SECURITIES (EXCLUDING RULE 144A SECURITIES WHICH ARE
DEEMED ILLIQUID BY THE TRUSTEES) ("ILLIQUID SECURITIES"); INVEST THEIR ASSETS IN
WARRANTS; LEND THEIR PORTFOLIO SECURITIES; SELL SECURITIES SHORT; BORROW MONEY
IN AMOUNTS UP TO ONE-THIRD OF THEIR ASSETS FOR INVESTMENT PURPOSES (I.E.,
LEVERAGE THEIR PORTFOLIOS); WRITE (SELL) OR PURCHASE CALL OR PUT OPTIONS ON
SECURITIES OR STOCK INDEXES; CONCENTRATE MORE THAN 25% OF THEIR ASSETS IN ONE
INDUSTRY; INVEST UP TO 100% OF THEIR ASSETS IN MASTER DEMAND NOTES; AND ENTER
INTO FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. THE RISK ASSOCIATED
WITH THESE INVESTMENTS ARE DESCRIBED IN THE "INVESTMENTS OF AND INVESTMENT
TECHNIQUES EMPLOYED BY MUTUAL FUNDS IN WHICH THE PORTFOLIO MAY INVEST."
INVESTMENTS OF AND INVESTMENT TECHNIQUES EMPLOYED BY MUTUAL FUNDS IN WHICH THE
PORTFOLIOS MAY INVEST Illiquid Securities. Except as noted below, an
underlying fund may invest not more than 15% of its net assets in securities for
which there is no readily available market ("Illiquid Securities"), which would
include certain restricted securities the disposition of which would be subject
to legal restrictions and repurchase agreements having more than seven days to
maturity. A considerable period of time may elapse between an underlying fund's
decision to dispose of such securities and the time when the fund is able to
dispose of them, during which time the value of the securities (and therefore
the value of the underlying fund's shares held by a Portfolio) could decline. A
closed-end investment company may have greater than 15% of its net assets in
illiquid securities since closed-end funds are not required to redeem their
shares under the 1940 Act. Foreign Securities. An underlying fund may
invest up to 100% of its assets in securities of foreign issuers. There may be
less publicly available information about these issuers than is available about
companies in the U.S. and foreign auditing requirements may not be comparable to
those in the U.S. In addition, the value of the fund's foreign securities may be
adversely affected by fluctuations in the exchange rates between foreign
currencies and the U.S. dollar, as well as other political and economic
developments, including the possibility of expropriation, confiscatory taxation,
exchange controls or other foreign governmental restrictions. In addition,
income received by an underlying fund from sources within foreign countries,
such as dividends and interest payable on foreign securities, may be subject to
foreign taxes, including taxes withheld from payments on those securities.
Moreover, the underlying funds will generally calculate their net asset values
and complete orders to purchase, exchange or redeem shares only on a
Monday-Friday basis (excluding holidays on which the New York Stock Exchange
("NYSE") is closed). Foreign securities in which the underlying funds may invest
may be listed primarily on foreign stock exchanges which may trade on other days
(such as Saturday or NYSE holidays). As a result, the net asset value of an
underlying fund's portfolio may be significantly affected by such trading on
days when the Adviser does not have access to the underlying funds and
shareholders of the Trust do not have access to their respective Portfolios.
Under the 1940 Act, an underlying fund may maintain its foreign securities in
custody of non-U.S. banks and securities depositories. Other differences
between foreign and U.S. companies include: less readily available market
quotations on foreign companies; differences in government regulation and
supervision of foreign stock exchanges, brokers, listed companies, and banks;
differences in legal systems which may affect the ability to enforce contractual
obligations or obtain court judgments; the limited size of many foreign
securities markets and limited trading volume in issuers compared to the volume
of trading in U.S. securities, which could cause prices to be erratic for
reasons apart from factors that affect the quality of securities; the likelihood
that foreign securities may be less liquid or more volatile; unreliable mail
service between countries; political or financial changes which adversely affect
investments in some countries; certain markets may require payment for
securities before delivery; and religious and ethnic instability.
To the extent that a Portfolio invests in underlying funds that invest primarily
in the securities of issuers located in a single country, any political,
economic or regulatory developments within that country affecting the value of
the securities in the underlying fund's portfolio will have a greater impact on
the total value of the portfolio underlying funds than would be the case if the
portfolio were diversified among the securities of more countries.
The economies of foreign countries may differ from the U.S. economy in such
respects as growth of gross domestic product, rate of inflation, currency
depreciation, capital reinvestment, resource self-sufficiency, and balance of
payments position. Further, the economies of developing countries generally are
heavily dependent on international trade and, accordingly, have been, and may
continue to be, adversely affected by trade barriers, exchange controls, managed
adjustments in relative currency values, and other protectionist measures
imposed or negotiated by the countries with which they trade. These economies
also have been, and may continue to be, adversely affected by economic
conditions in the countries with which they trade.
Prior governmental approval for foreign investments may be required under
certain circumstances in some countries, or in issuers or industries deemed
sensitive to national interests, and the extent of foreign investment in certain
debt securities and domestic companies may be subject to limitation. Foreign
ownership limitations also may be imposed by the charters of individual
companies to prevent, among other concerns, violation of foreign investment
limitations.
Repatriation of investment income, capital, and the proceeds of sales by foreign
investors may require governmental registration and/or approval in some
countries. An underlying fund could be adversely affected by delays in, or a
refusal to grant, any required governmental registration or approval for such
repatriation. Any investment subject to such repatriation controls would be
considered illiquid if it appears reasonably likely that this process will take
more than seven days.
With respect to any foreign country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
governmental regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such countries or
the value of the investments in those countries.
Brokerage commissions, custodial services, and other costs relating to foreign
investment may be more expensive than in the United States. Foreign markets may
have different clearance and settlement procedures and in certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
The inability of an underlying fund to make intended security purchases due to
settlement problems could cause the underlying fund to miss attractive
investment opportunities. Inability to dispose of a portfolio security due to
settlement problems could result either in losses due to subsequent declines in
value of the portfolio security or, if the underlying fund has entered into a
contract to sell the security, could result in possible liability to the
purchaser.
In the past, U.S. government policies have discouraged or restricted certain
investments abroad by investors. Investors are advised that when such policies
are instituted, the Portfolios will abide by them, and the Portfolios anticipate
compliance by the underlying funds.
Depositary Receipts. An underlying fund may also invest in equity or debt
securities of foreign issuers traded on the New York or American Stock
Exchanges, other exchanges, or in the over-the-counter market in the form of
sponsored or unsponsored American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), and European Depositary Receipts ("EDRs")
(collectively, "Depositary Receipts"). ADRs are receipts typically issued by an
American bank or trust company that evidences ownership of underlying securities
issued by a foreign issuer. ADRs may not necessarily be denominated in the same
currency as the securities into which they may be converted. Generally, ADRs, in
registered form, are designed for use in U.S. securities markets. EDRs and GDRs
are typically issued by foreign banks or trust companies, although they also may
be issued by U.S. banks or trust companies, and evidence ownership of underlying
securities issued by either a foreign or a U.S. corporation. Generally,
Depositary Receipts in registered form are designed for use in the U.S.
securities market and Depositary Receipts in bearer form are designed for use in
securities markets outside the U.S. Depositary Receipts may not necessarily be
denominated in the same currency as the underlying securities into which they
may be converted. Depositary Receipts may be available for investment through
"sponsored" or "unsponsored" facilities. A sponsored facility is established
jointly by the issuer of the security underlying the receipt and a depositary,
whereas an unsponsored facility may be established by a depositary without
participation by the issuer of the receipt's underlying security. Holders of an
unsponsored Depositary Receipt generally bear all the costs of the unsponsored
facility. The depositary of an unsponsored facility frequently is under no
obligation to distribute shareholder communications received from the issuer of
the deposited security or to pass through to the holders of the receipts voting
rights with respect to the deposited securities. Ownership of unsponsored
Depositary Receipts may not entitle the Portfolio or the underlying funds to
financial or other reports from the issuer of the underlying security, to which
they would be entitled as the owner of sponsored Depositary Receipts.
Emerging Markets. Generally included in emerging markets are all countries in
the world except Australia, Canada, Japan, New Zealand, the United States, and
most western European countries. The risks of investing in developing or
emerging markets are similar to, but greater than, the risks of investing in the
securities of developed international markets since emerging or developing
markets tend to have economic structures that are less diverse and mature, and
political systems that are less stable, than developed countries.
In certain emerging market countries, there is less government supervision and
regulation of business and industry practices, stock exchanges, brokers, and
listed companies than in the United States. The economies of emerging market
countries may be predominantly based on a few industries and may be highly
vulnerable to change in local or global trade conditions. The securities markets
of many of these countries also may be smaller, less liquid, and subject to
greater price volatility than those in the United States. Some emerging market
countries also may have fixed or managed currencies which are not free-floating
against the U.S. dollar. Further, certain emerging market country currencies may
not be internationally traded. Certain of these currencies have experienced a
steady devaluation relative to the U.S. dollar. Any devaluations in the
currencies in which portfolio securities are denominated may have an adverse
impact on the underlying fund, including the Portfolio. Finally, many emerging
market countries have experienced substantial, and in some periods, extremely
high, rates of inflation for many years. Inflation and rapid fluctuations in
inflation rates have had, and may continue to have, negative effects on the
economies for individual emerging market countries. Moreover, the economies of
individual emerging market countries may differ favorably or unfavorably from
the U.S. economy in such respects as the rate of growth of domestic product,
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
Currency Risks. Because an underlying fund may purchase securities denominated
in currencies other than the U.S. dollar, changes in foreign currency exchange
rates could affect: the underlying fund's net asset value; the value of interest
earned; gains and losses realized on the sale of securities; and net investment
income and capital gain, if any, to be distributed to shareholders by the
underlying fund, including the Portfolio. If the value of a foreign currency
rises against the U.S. dollar, the value of the underlying fund assets
denominated in that currency will increase; correspondingly, if the value of a
foreign currency declines against the U.S. dollar, the value of underlying fund
assets denominated in that currency will decrease.
The exchange rates between the U.S. dollar and foreign currencies are a function
of such factors as supply and demand in the currency exchange markets,
international balances of payments, governmental interpretation, speculation and
other economic and political conditions. Although 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. When an underlying fund converts its
holdings to another currency, it may incur conversion costs. Foreign exchange
dealers may realize a profit on the difference between the price at which they
buy and sell currencies. Industry Concentration. An underlying fund may
concentrate its investments within one industry. Because the scope of investment
alternatives within an industry is limited, the value of the shares of such an
underlying fund may be subject to greater market fluctuation than an investment
in a fund which invests in a broader range of securities.
Master Demand Notes. Although the Portfolios themselves will not do so,
underlying funds (particularly money market mutual funds) may invest up to 100%
of their assets in master demand notes. Master demand notes are unsecured
obligations of U.S. corporations redeemable upon notice that permit investment
by a fund of fluctuating amounts at varying rates of interest pursuant to direct
arrangements between the fund and the issuing corporation. Because they are
direct arrangements between the fund and the issuing corporation, there is no
secondary market for the notes. However, they are redeemable at face value, plus
accrued interest, at any time.
Repurchase Agreements. Underlying funds, particularly money market funds, may
enter into repurchase agreements with banks and broker-dealers under which they
acquire securities subject to an agreement with the seller to repurchase the
securities at an agreed upon time and price. The Portfolios also may enter into
repurchase agreements. These agreements are considered under the 1940 Act to be
loans by the purchaser that are collateralized by the underlying securities. If
the seller should default on its obligation to repurchase the securities, the
underlying fund may experience delay or difficulties in exercising its rights to
realize upon the securities held as collateral and might incur a loss if the
value of the securities should decline. For a more complete discussion of
repurchase agreements, see "Investment Policies" in the SAI.
Loans of Portfolio Securities. An underlying fund may lend its portfolio
securities provided it complies with the following general requirements: (1) the
loan is secured continuously by collateral consisting of U.S. government
securities or cash or cash equivalents maintained on a daily mark-to-market
basis in an amount at least equal to the current market value of the securities
loaned; (2) the fund may at any time call the loan and obtain the return of the
securities loaned; (3) the fund will receive any interest or dividends paid on
the loaned securities; and (4) the aggregate market value of securities loaned
will not at any time exceed one-third of the total assets of the fund. Loans of
securities involve a risk that the borrower may fail to return the securities or
may fail to provide additional collateral. Closed-end funds may have a greater
percentage of their assets on loan. 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 underlying fund must maintain daily the
segregated account at such a level that (1) the amount deposited in it plus the
amount deposited with the broker as collateral equals the current market value
of the securities sold short and (2) the amount deposited in it plus the amount
deposited with the broker as collateral is not less than the market value of the
securities at the time they were sold short. Depending upon market conditions,
up to 80% of the value of 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 underlying 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. Foreign Currency
Transactions. In connection with its portfolio transactions in securities traded
in a foreign currency, an underlying fund may enter into forward contracts to
purchase or sell an agreed upon amount of a specific currency at a future date
which may be any fixed number of days from the date of the contract agreed upon
by the parties at a price set at the time of the contract. Under such an
arrangement, concurrently with the entry into a contract to acquire a foreign
security for a specified amount of currency, the fund would purchase with U.S.
dollars the required amount of foreign currency for delivery at the settlement
date of the purchase; the fund would enter into similar forward currency
transactions in connection with the sale of foreign securities. The effect of
such transactions would be to fix a U.S. dollar price for the security to
protect against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the subject foreign currency during the
period between the date the security is purchased or sold and the date on which
payment is made or received, the normal range of which is three to 14 days.
These contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A forward
contract generally has no deposit requirement and no commissions are charged at
any stage for trades. Although such contracts tend to minimize the risk of loss
due to a decline in the value of the subject currency, they tend to limit
commensurately any potential gain which might result should the value of such
currency increase during the contract period. Leverage Through Borrowing. An
underlying fund may borrow up to one-third of the value of its net assets on an
unsecured basis from banks to increase its holdings of portfolio securities.
Under the 1940 Act, the fund is required to maintain continuous asset coverage
of 300% with respect to such borrowings and to sell (within three days)
sufficient portfolio holdings to restore such coverage if it should decline to
less than 300% due to market fluctuations or otherwise, even if disadvantageous
from an investment standpoint. Leveraging will exaggerate the effect of any
increase or decrease in the value of portfolio securities on the fund's net
asset value, and money borrowed will be subject to interest costs (which may
include commitment fees and/or the cost of maintaining minimum average balances)
which may or may not exceed the interest and option premiums received from the
securities purchased with borrowed funds. Closed-end funds may borrow a greater
percentage of their assets. Warrants. An underlying fund may invest in
warrants, which are options to purchase equity securities at specific prices
valid for a specific period of time. The prices do not necessarily move parallel
to the prices of the underlying securities. Warrants have no voting rights,
receive no dividends and have no rights with respect to the assets of the
issuer. If a warrant is not exercised within the specified time period, it will
become worthless and the fund will lose the purchase price and the right to
purchase the underlying security.
High Yield Securities. An underlying fund may invest in high yield, high risk
securities. Investing in 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.
There may be special tax considerations associated with investing in high yield,
high risk securities structured as zero coupon or payment-in-kind securities. A
fund records the interest on these securities as income even though it receives
no cash interest until the security's maturity or payment date. A fund will be
required to distribute all or substantially all such amounts annually and may
have to obtain the cash to do so by selling securities which otherwise would
continue to be held. Shareholders will be taxed on these distributions.
The use of credit ratings as the sole method of evaluating high yield, high risk
securities can involve certain risks. For example, credit ratings evaluate the
safety of principal and interest payments, not the market value risk of high
yield, high risk securities. Also, credit rating agencies may fail to change
credit ratings in a timely fashion to reflect events since the security was last
rated.
Derivatives. An underlying fund may invest in the following instruments that are
commonly known as derivatives. Generally, a derivative is a financial
arrangement, the value of which is based on, or "derived" from, a traditional
security, asset, or market index.
Options Activities. An underlying fund may write (i.e., sell) listed call
options ("calls") if the calls are "covered" throughout the life of the option.
A call is "covered" if the fund owns the optioned securities. When a fund writes
a call, it receives a premium and gives the purchaser the right to buy the
underlying security at any time during the call period (usually not more than
nine months in the case of common stock) at a fixed exercise price regardless of
market price changes during the call period. If the call is exercised, the fund
will forgo any gain from an increase in the market price of the underlying
security over the exercise price.
A fund may purchase a call on securities only to effect a "closing purchase
transaction" which is the purchase of a call covering the same underlying
security and having the same exercise price and expiration date as a call
previously written by the fund on which it wishes to terminate its obligation.
If the fund is unable to effect a closing purchase transaction, it will not be
able to sell the underlying security until the call previously written by the
fund expires (or until the call is exercised and the fund delivers the
underlying security).
An underlying fund also may write and purchase put options ("puts"). When a fund
writes a put, it receives a premium and gives the purchaser of the put the right
to sell the underlying security to the fund at the exercise price at any time
during the option period. When a fund purchases a put, it pays a premium in
return for the right to sell the underlying security at the exercise price at
any time during the option period. An underlying fund also may purchase stock
index puts which differ from puts on individual securities in that they are
settled in cash based on the values of the securities in the underlying index
rather than by delivery of the underlying securities. Purchase of a stock index
put is designed to protect against a decline in the value of the portfolio
generally rather than an individual security in the portfolio. If any put is not
exercised or sold, it will become worthless on its expiration date.
An underlying fund may purchase and write put and call options on foreign
currencies for the purpose of protecting against declines in the U.S. dollar
value of foreign currency-denominated portfolio securities and against increases
in the U.S. dollar cost of such securities to be acquired. As in the case of
other kinds of options, however, the writing of an option on a foreign currency
constitutes only a partial hedge, up to the amount of the premium received, and
the fund could be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on a foreign currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate movements adverse
to the fund's position, it may forfeit the entire amount of the premium plus
related transaction costs. Options on foreign currencies to be written or
purchased by an underlying fund are traded on U.S. and foreign exchanges or
over-the-counter. A fund's option positions may be closed out only on an
exchange which provides a secondary market for options of the same series, but
there can be no assurance that a liquid secondary market will exist at a given
time for any particular option. In this regard, trading in options on certain
securities (such as U.S. government securities) is relatively new so that it is
impossible to predict to what extent liquid markets will develop or continue.
The underlying fund's custodian, or a securities depository acting for it,
generally acts as escrow agent as to the securities on which the fund has
written puts or calls, or as to other securities acceptable for such escrow so
that no margin deposit is required of the fund. Until the underlying securities
are released from escrow, they cannot be sold by the fund.
In the event of a shortage of the underlying securities deliverable on exercise
of an option, the Options Clearing Corporation ("OCC") has the authority to
permit other, generally comparable securities to be delivered in fulfillment of
option exercise obligations. If the OCC exercises its discretionary authority to
allow such other securities to be delivered, it may also adjust the exercise
prices of the affected options by setting different prices at which otherwise
ineligible securities may be delivered. As an alternative to permitting such
substitute deliveries, the OCC may impose special exercise settlement
procedures.
Futures Contracts. An underlying fund may enter into futures contracts for the
purchase or sale of debt securities and stock indexes. A futures contract is an
agreement between two parties to buy and sell a security or an index for a set
price on a future date. Futures contracts are traded on designated "contract
markets" which, through their clearing corporations, guarantee performance of
the contracts. Generally, if market interest rates increase, the value of
outstanding debt securities declines (and vice versa). Entering into a futures
contract for the sale of securities has an effect similar to the actual sale of
securities, although sale of the futures contract might be accomplished more
easily and quickly. For example, if a fund holds long-term U.S. government
securities and it anticipates a rise in long-term interest rates, it could, in
lieu of disposing of its portfolio securities, enter into futures contracts for
the sale of similar long-term securities. If rates increased and the value of
the fund's portfolio securities declined, the value of the fund's futures
contracts would increase, thereby protecting the fund by preventing the net
asset value from declining as much as it otherwise would have. Similarly,
entering into futures contracts for the purchase of securities has an effect
similar to the actual purchase of the underlying securities, but permits the
continued holding of securities other than the underlying securities. For
example, if the fund expects long-term interest rates to decline, it might enter
into futures contracts for the purchase of long-term securities so that it could
gain rapid market exposure that may offset anticipated increases in the cost of
securities it intends to purchase while continuing to hold higher-yield
short-term securities or waiting for the long-term market to stabilize. Futures
contracts for foreign currencies are similarly structured to provide a hedge
against fluctuations in foreign currency. A stock index futures contract
may be used to hedge an underlying fund's portfolio with regard to market risk
as distinguished from risk relating to a specific security. A stock index
futures contract does not require the physical delivery of securities, but
merely provides for profits and losses resulting from changes in the market
value of the contract to be credited or debited at the close of each trading day
to the respective accounts of the parties to the contract. On the contract's
expiration date, a final cash settlement occurs. Changes in the market value of
a particular stock index futures contract reflect changes in the specified index
of equity securities on which the future is based.
There are several risks in connection with the use of futures contracts. In the
event of an imperfect correlation between the futures contract and the portfolio
position which is intended to be protected, the desired protection may not be
obtained and the fund may be exposed to risk of loss. Further, unanticipated
changes in interest rates or stock price movements may result in a poorer
overall performance for the fund than if it had not entered into futures
contracts on debt securities or stock indexes.
In addition, the market prices of futures contracts may be affected by certain
factors. First, all participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting additional margin
deposit requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the securities
and futures markets. Second, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market. Therefore, increased participation by speculators in the
futures market may also cause temporary price distortions.
Finally, positions in futures contracts may be closed out only on an exchange or
board of trade which provides a secondary market for such futures. There is no
assurance that a liquid secondary market on an exchange or board of trade will
exist for any particular contract or at any particular time.
Options on Futures Contracts. A fund also may purchase and sell listed put and
call options on futures contracts. An option on a futures contract gives the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract (a long position if the option is a call and a short position
if the option is a put), at a specified exercise price at any time during the
option period. When an option on a futures contract is exercised, delivery of
the futures position is accompanied by cash representing the difference between
the current market price of the futures contract and the exercise price of the
option. The fund may purchase put options on futures contracts in lieu of, and
for the same purpose as, a sale of a futures contract. It also may purchase such
put options in order to hedge a long position in the underlying futures contract
in the same manner as it purchases "protective puts" on securities.
As with options on securities, the holder of an option may terminate his
position by selling an option of the same series. There is no guarantee that
such closing transactions can be effected. The fund is required to deposit
initial margin and maintenance margin with respect to put and call options on
futures contracts written by it pursuant to brokers' requirements similar to
those applicable to futures contracts described above and, in addition, net
option premiums received will be included as initial margin deposits.
In addition to the risks which apply to all options transactions, there are
several special risks relating to options on futures contracts. The ability to
establish and close out positions on such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain that
this market will develop. Compared to the use of futures contracts, the purchase
of options on futures contracts involves less potential risk to the fund because
the maximum amount at risk is the premium paid for the options (plus transaction
costs). However, there may be circumstances when the use of an option on a
futures contract would result in a loss to the fund when the use of futures
contract would not, such as when there is no movement in the prices of the
underlying securities. Writing an option on a futures contract involves risks
similar to those arising in the sale of futures contracts, as described above.
Hedging. An underlying fund may employ many of the investment techniques
described in this section not only for investment purposes which may be
considered speculative, but also for hedging purposes. For example, an
underlying fund may purchase or sell put and call options on common stocks to
hedge against movements in individual common stock prices, or purchase and sell
stock index futures and related options to hedge against marketwide movements in
common stock prices. Although such hedging techniques generally tend to minimize
the risk of loss that is hedged against, they also may limit commensurately the
potential gain that might have resulted had the hedging transaction not
occurred. Also, the desired protection generally resulting from hedging
transactions may not always be achieved.
INVESTMENT POLICIES AND RESTRICTIONS
The Portfolios have adopted certain fundamental investment policies (i.e.,
policies which may not be changed as to a Portfolio without the vote of a
majority of that Portfolio's outstanding Shares, as defined under "Other
Information--Voting") as well as certain investment policies which are not
fundamental and therefore may be changed by the Trustees without shareholder
approval. These policies reflect self-imposed standards or the requirements of
federal law.
The Trust may, in the future, seek to achieve each Portfolio's investment
objective by investing all of the Portfolio's assets in a no-load, diversified,
open-end management investment company having substantially the same investment
objective as the Portfolio. Each Portfolio's investment policies permit such an
investment. Shareholders will receive prior written notice with respect to any
such investment.
Under each Portfolio's fundamental investment policies, no Portfolio may invest
more than 25% of its total assets in the securities of underlying funds which
themselves concentrate (i.e., invest more than 25% of their assets) in any one
industry. Nevertheless, through its investment in underlying funds, a Portfolio
indirectly may invest more than 25% of its assets in one industry. The Portfolio
also may not borrow money, except that a Portfolio may, as a temporary measure
for extraordinary or emergency purposes, borrow from a bank in an amount not in
excess of 5% of the Portfolio's total assets, or pledge or hypothecate its
assets, except that the Portfolio may pledge not more than 5% of its total
assets to secure such borrowings. A Portfolio will not make additional
investments at any time during which it has outstanding borrowings.
Under each Portfolio's policies which are not fundamental, no Portfolio may (i)
purchase or otherwise acquire the securities of any open-end investment company,
and also any closed-end investment company or unit investment trust in the case
of International Portfolio, (except in connection with a merger, consolidation,
acquisition of substantially all of the assets or reorganization of another
investment company) if, as a result, a Portfolio and all of its affiliates
including the other Portfolios would own more than 3% of the total outstanding
stock of that company, or (ii) purchase a security which is not readily
marketable if, as a result, more than 15% of that Portfolio's net assets would
consist of such securities. For this purpose, securities which are not readily
marketable include repurchase agreements having more than seven days to maturity
(see "Investments of and Investment Techniques Employed by Mutual Funds in Which
the Portfolios May Invest") and may include shares of an investment company
owned by the Portfolios in an amount exceeding 1% of the issuer's total
outstanding securities. See "Risks and Other Considerations." Each
Portfolio may invest up to 5% of its net assets in repurchase agreements with
banks and broker-dealers. This and other investment policies and restrictions
are discussed in the SAI under the heading "Investment Policies."
The underlying funds in which a Portfolio invests may, but need not, have the
same investment policies as the Portfolio. For example, although Aggressive
Growth Portfolio will not borrow money for investment purposes, it may invest
its assets in an underlying fund which borrows money for investment purposes
(i.e., engages in leveraging). The investments which may be made by underlying
funds in which the Portfolios invest and the risks associated with those
investments are described under "Investment Objectives," "Investment Policies
and Restrictions" and "Investments of and Investment Techniques Employed by
Mutual Funds in Which the Portfolios May Invest."
RISKS AND OTHER CONSIDERATIONS
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Any investment in a mutual fund involves risk and, although the Portfolios
invest in a number of underlying funds, this practice does not eliminate
investment risk. Moreover, investing through the Portfolios in an underlying
portfolio of mutual funds involves certain additional expenses and certain tax
results which would not be present in a direct investment in the underlying
funds. See "Expenses" and "Dividends, Distributions and Taxes."
A Portfolio, together with the other Portfolios and any "affiliated persons" (as
defined in the 1940 Act) may purchase only up to 3% of the total outstanding
securities of any underlying fund. For this purpose, shares of underlying funds
held by private discretionary investment advisory accounts managed by the
Adviser will be aggregated with those held by the Portfolios. Accordingly, when
affiliated persons and other accounts managed by the Adviser hold shares of any
of the underlying funds, each Portfolio's ability to invest fully in shares of
those funds is restricted, and the Adviser must then, in some instances, select
alternative investments that would not have been its first preference.
The 1940 Act also provides that an underlying investment company whose shares
are purchased by a Portfolio will be obligated to redeem shares held by the
Portfolio only in an amount up to 1% of the underlying investment company's
outstanding securities during any period of less than 30 days. Shares held by a
Portfolio in excess of 1% of an underlying investment company's outstanding
securities, therefore, may be considered not readily marketable securities which
together with other such securities may not exceed 15% of that Portfolio's net
assets. See "Investment Policies and Restrictions." These limitations are not
fundamental investment policies and may be changed by the Trustees without
shareholder approval.
Under certain circumstances, an underlying investment company may determine to
make payment of a redemption by a Portfolio wholly or partly by a distribution
in kind of securities from its portfolio, in lieu of cash, in conformity with
the rules of the SEC. In such cases, the Portfolios may hold securities
distributed by an underlying investment company until the Adviser determines
that it is appropriate to dispose of such securities. Investment decisions
by the investment advisers of the underlying funds are made independently of the
Trust and its Adviser. Therefore, the investment adviser of one underlying fund
may be purchasing shares of the same issuer whose shares are being sold by the
investment adviser of another such fund. The result of this would be an indirect
expense to a Portfolio without accomplishing any investment purpose.
Each Portfolio may purchase shares of both load and no-load underlying funds. To
the extent an underlying fund offers multiple classes of shares, the Portfolios
will purchase the share class available to it with the lowest sales charges.
However, the Portfolios will not invest in shares of underlying funds which are
sold with a contingent deferred sales charge. Under the 1940 Act, a mutual
fund must sell its shares at the price (including sales load, if any) described
in its prospectus, and current rules under the 1940 Act do not permit
negotiation of sales charges. Therefore, a Portfolio currently is not able to
negotiate the level of the sales charges at which it will purchase shares of
load funds, which may be as great as 8.5% of the public offering price (or 9.29%
of the net amount invested) under rules of the National Association of
Securities Dealers. Nevertheless, when appropriate, a Portfolio will purchase
such shares pursuant to (i) letters of intent, permitting it to obtain reduced
sales charges by aggregating its intended purchases over time (generally 13
months from the initial purchase under the letter); (ii) rights of accumulation,
permitting it to obtain reduced sales charges as it purchases additional shares
of an underlying fund; and (iii) the right to obtain reduced sales charges by
aggregating its purchases of several funds within a family of mutual funds.
Based upon these privileges, it is expected that, in the majority of cases, the
sales charges paid by a Portfolio on a load fund purchase will not exceed 1% of
the public offering price (1.01% of the net amount invested). See "Portfolio
Transactions." Under certain circumstances, a sales charge incurred by a
Portfolio in acquiring shares of an underlying fund may not be taken into
account in determining the gain or loss for federal income tax purposes on the
disposition of the shares acquired. If shares are disposed of within 90 days
from the date they were purchased and if shares of a new underlying fund are
subsequently acquired without imposition of a sales charge or imposition of a
reduced sales charge pursuant to a right granted to the Portfolio to acquire
shares without payment of a sales charge or with the payment of a reduced
charge, then the sales charge paid upon the purchase of the initial shares will
be treated as paid in connection with the acquisition of the new underlying
fund's shares rather than the initial shares.
EXPENSES
As an investor in the Portfolios, you should recognize that you may invest
directly in mutual funds and that, by investing in mutual funds indirectly
through the Portfolios, you will bear not only your proportionate share of the
expenses of the Portfolios (including operating costs and investment advisory
and administrative fees) but also, indirectly, similar expenses of the
underlying funds. If you are an investor in the Portfolios through the Program
offered by the Distributors you should recognize that the combined expenses of
the Program and of the Portfolios (including their indirect expenses) may
involve greater fees and expenses than present in other types of investments
without the benefit of professional asset allocation recommendations, and you
may indirectly bear expenses paid by an underlying fund related to the
distribution of its shares. As a Portfolio shareholder, you also will bear your
proportionate share of any sales charges incurred by the Portfolio related to
the purchase of shares of the underlying funds. Finally, as an investor, you
should recognize that, as a result of the Portfolios' policies of investing in
other mutual funds, you may receive taxable capital gains distributions to a
greater extent than would be the case if you invested directly in the underlying
funds. See "Dividends, Distributions and Taxes."
MANAGEMENT OF FUNDMANAGER
PORTFOLIOS
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The business and affairs of the Trust are managed under the direction of the
Trustees. Additional information about the Trustees, as well as the Trust's
executive officers, may be found in the SAI under the heading "Management
Trustees and Officers."
THE ADVISER
Freedom Capital Management has its principal office at One Beacon Street,
Boston, Massachusetts. The Adviser advises the Trust through the M.D. Hirsch
Division of Freedom Capital Management. Michael D. Hirsch, Chairman of the M.D.
Hirsch Division of Freedom Capital Management, has provided discretionary
investment advisory services relating to investments in mutual funds to
individual accounts since 1975. Freedom Capital Management is an indirect,
wholly-owned subsidiary of JHFSC Acquisition Corp. whose stock is held by the
following companies in the approximate percentages: Thomas H. Lee Equity Fund
III, L.P. (49%), a Massachusetts limited partnership; SCP Private Equity
Partners, L.P. (13%), a Delaware limited partnership; John Hancock Subsidiaries,
Inc. (4.9%), a wholly-owned subsidiary of John Hancock Mutual Life Insurance
Company; and certain members of management and employees of Freedom Securities
Corporation (the direct parent of the Adviser and a subsidiary of JHFSC
Acquisition Corp.) and its subsidiaries, including the Adviser (32%). Prior to
November 29, 1996, Freedom Capital Management was an indirect, wholly-owned
subsidiary of John Hancock Mutual Life Insurance Company ("John Hancock"). John
Hancock is a major mutual life insurance company based in Boston,Massachusetts.
Pursuant to an Investment Advisory Contract, the Adviser is responsible for
the investment management of each Portfolio's assets, including the
responsibility for making investment decisions and placing orders for the
purchase and sale of the Portfolio's investments directly with the issuers or
with brokers or dealers, selected by it in its discretion, including Freedom
Distributors and Edgewood. See "Portfolio Transactions." The Adviser also
furnishes to the Trustees, which have overall responsibility for the business
and affairs of the Trust, periodic reports on the investment performance of the
Trust. For these services, the Adviser receives from each Portfolio a fee,
payable monthly, at the annual rate of 0.50% of that Portfolio's average daily
net assets up to $500 million and 0.40% of its average daily net assets in
excess of $500 million. Michael 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.
THE ADMINISTRATOR
FAS, a wholly-owned subsidiary of Federated Investors with its principal
business offices at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-
3779, provides administrative personnel and services (including certain legal
and financial reporting services) necessary to operate the Portfolios. FAS
provides these at an annual rate which relates to the average aggregate daily
net assets of the Portfolios as specified below:
<TABLE>
<CAPTION>
Maximum
Administrative Average Aggregate
Fee Daily Net Assets
<S> <C>
.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least $75,000
per Portfolio and $35,000 per each additional class of shares. FAS may choose
voluntarily to waive a portion of its fee or minimums from time to time in its
sole discretion.
THE DISTRIBUTORS
The Trustees of the Trust have approved a Distribution Contract (the
"Distribution Contract") between the Trust and each of Edgewood, Freedom
Distributors, Tucker Anthony and Sutro pursuant to which each will serve as a
distributor of the Trust and of the Shares of each of the Portfolios.
The distributors may provide promotional incentives to investment executives who
support the sale of Shares of the Portfolios. In some instances, these
incentives may be offered only to certain investment executives which provide
services in connection with the sale or expected sale of significant amounts of
Shares. Edgewood, a registered broker/dealer, is a wholly-owned subsidiary
of Federated Investors with principal business offices at Clearing Operations,
P.O. Box 897, Pittsburgh, Pennsylvania 15230-0897. Freedom Distributors is a
registered broker/dealer with principal business offices at One Beacon Street,
Boston, Massachusetts 02108. Tucker Anthony is a brokerage firm which is a
member of the New York Stock Exchange continuing an investment banking and
brokerage business established in 1892. The principal business address of Tucker
Anthony is One Beacon Street, Boston, Massachusetts 02108. Sutro is brokerage
firm and a member of the New York Stock Exchange. The principal business address
of Sutro is 201 California Street, San Francisco, California 94111. Freedom
Distributors, Tucker Anthony, and Sutro are subsidiaries of Freedom Securities
Corporation. See description of "The Adviser" above.
CUSTODIAN
State Street Bank and Trust Company ("State Street Bank") provides custodial and
portfolio accounting services to the Trust and the Portfolios. The principal
business address of State Street Bank is P.O. Box 8600, Boston, Massachusetts
02266-8600.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND SHAREHOLDER SERVICING AGENT
Federated Shareholder Services Company ("FSSC") maintains all necessary
shareholder records. All written correspondence, including purchase and
redemption requests, changes of address and other shareholder account changes,
should be sent to: FundManager Portfolios, c/o Federated Shareholder Services
Company, P.O. Box 8609, Boston, Massachusetts, 02266-8609.
OTHER EXPENSES
The Trust bears all costs of its operations other than expenses specifically
assumed by the Administrator, Distributors or the Adviser. See "Management" in
the SAI. Expenses directly attributable to a Portfolio or class are charged to
that Portfolio or class; other expenses are allocated proportionately among the
Portfolios or classes, as the case may be, in relation to the net assets of each
Portfolio or class.
PORTFOLIO TRANSACTIONS
Pursuant to the Investment Advisory Contract, the Adviser places orders for the
purchase and sale of portfolio investments for a Portfolio's accounts with
brokers or dealers, selected by it in its discretion, including Freedom
Distributors and Edgewood. With respect to purchases of certain money market
instruments, purchase orders are placed directly with the issuer or its agent.
With respect to purchases of shares of underlying funds, the Portfolio may pay a
sales charge. Sales charges of the underlying funds generally consist of two
parts, the "dealer reallowance" (which typically comprises at least 80% of the
amount of the charge and is paid to the broker participating in the sale of the
underlying fund shares) and the underwriter's retention. To the extent
permissible by law, Freedom Distributors and Edgewood will be designated as the
participating brokers entitled to receive the dealer reallowance portion of the
sales charge on purchases of load fund shares by the Portfolios. However,
Freedom Distributors will not retain any dealer reallowance in excess of 1% of
the public offering price on any transaction nor will it be designated as the
broker entitled to receive the dealer reallowance portion of the sales charge
where such reallowance would exceed 1% of the public offering price. With
respect to purchases of underlying fund shares, the Adviser directs
substantially all of the Portfolios' orders to either Freedom Distributors or
Edgewood, which may, in its discretion, direct the order to other broker-dealers
in consideration of sales of that Portfolio's Shares, except where the direction
to another broker-dealer would increase the dealer reallowance paid by a fund to
Freedom Distributors above 1% of the public offering price.
Freedom Distributors and Edgewood may also assist in the execution of a
Portfolio's purchase of underlying fund shares and they may receive additional
compensation (such as distribution payments, shareholder servicing fees, and/or
trailer fees) from the underlying funds or their underwriters. In providing
execution assistance, Freedom Distributors and Edgewood receive orders from the
Adviser; place them with the underlying fund's distributor, transfer agent or
other person, as appropriate; confirm the trade, price and number of shares
purchased; and assure prompt payment by the Portfolio and proper completion of
the order. Payment of sales charges or other forms of compensation to Freedom
Distributors or Edgewood is not a factor that the Adviser considers when
selecting an underlying fund for purchase.
Each Portfolio is actively managed and has no restrictions upon portfolio
turnover, although its annual turnover rate is not expected to exceed 100%. A
100% annual portfolio turnover rate would be achieved if each security in each
Portfolio's portfolio (other than securities with less than one year remaining
to maturity) were replaced once during the year. To the extent each Portfolio is
purchasing shares of load funds, a higher turnover rate would result in
correspondingly higher sales loads paid by that Portfolio. Trading also may
result in realization of net short-term capital gains which would not otherwise
be realized, and shareholders are taxed on such gains when distributed from that
Portfolio at ordinary income tax rates. See "Dividends, Distributions and
Taxes." There is no limit on the portfolio turnover rates of the underlying
funds in which the Portfolio may invest.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Portfolio is determined as of the close of
trading (normally 4:00p.m., Eastern time) on the NYSE, Monday through Friday,
except on: (i) days on which there are not sufficient changes in the value of a
Portfolio's portfolio securities that its net asset value might be materially
affected; (ii) days during which no shares are tendered for redemption and no
orders to purchase Shares are received; and (iii) the following holidays: New
Year's Day, Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. Net asset
value per share is calculated by dividing the aggregate value of a Portfolio's
assets allocable to the Class less all liabilities by the number of that Class'
outstanding shares.
The assets of each Portfolio consist primarily of the underlying funds, which
are valued at their respective net asset values under the 1940 Act. The
underlying funds value securities in their portfolios for which market
quotations are readily available at their current market value (generally the
last reported sale price) and all other securities and assets at fair value
pursuant to methods established in good faith by the boards of directors or
trustees of the underlying fund. Money market mutual funds may use the amortized
cost or penny-rounding methods to value their securities. Securities having 60
days or less remaining to maturity generally are valued at their amortized cost
which approximates market value.
Other assets of each Portfolio are valued at their current market value if
market quotations are readily available and, if market quotations are not
available, they are valued at fair value pursuant to methods established in good
faith by the Trustees. Debt instruments having 60 days or less remaining to
maturity are valued at their amortized cost.
PURCHASE OF SHARES
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Shares of the Portfolios are offered by the Distributors as an investment
vehicle for individuals, institutions, corporations and fiduciaries in the
Program offered by the Distributors. The participants in the Program receive,
for a fee at a maximum annual rate based upon a percentage of assets invested,
certain services, including asset allocation recommendations with respect to the
Portfolios based on an evaluation of their investment objectives and risk
tolerances. Shares of the Portfolios are offered for sale at net asset value by
the Distributors to participants in the Program. Shares of the Portfolios may
also be offered to employees through tax-deferred retirement plans of the
Distributors and the Adviser. Each Portfolio may invest in underlying funds
which are sold with a sales charge. Prospectuses, sales material and
applications relating to the Portfolios can be obtained from the Distributors.
Purchases of Shares of the Trust by participants in the Program must be through
a brokerage account maintained with the Distributors. The minimum investment by
participants in the Program is $50,000. Each Portfolio also reserves the right
to vary the initial and subsequent investment minimums. All purchase payments
are invested in full and fractional Shares. The Trust and each Distributor are
authorized to reject any purchase order.
For each shareholder of record, the Trust, as the shareholder's agent,
establishes an open account to which all Shares purchased are credited together
with any dividends and capital gains distributions which are paid in additional
Shares. See "Dividends, Distributions and Taxes."
PURCHASES BY CLIENTS OF THE DISTRIBUTORS OR AUTHORIZED SECURITIES DEALERS If you
have a Program account with a Distributor, you may purchase any Portfolio's
Shares through your investment executive. Your investment executive has the
responsibility of submitting your purchase order to FSSC on such day in order to
obtain that day's applicable purchase price. Purchase orders received by FSSC
after the time of determining that day's purchase price (generally 4:00 p.m.,
New York time), are priced according to the net asset value per Share of the
Portfolio next determined on the following business day. Payment for purchase
orders must be made to such Distributor within three business days of the
purchase order.
The Distributors will receive statements and dividends directly from the
Portfolios and will in turn provide you with account statements reflecting the
Portfolios' purchases, redemptions and dividend payments. If you wish additional
information concerning your investment in the Program made through a
Distributor, please call your investment executive.
FUNDMANAGER ADVISORY PROGRAM
The Adviser, through the Program, provides discretionary advisory services in
connection with investments among the Portfolios. Under the Program, investment
executives of the Distributors provide services to an investor by assisting the
investor in identifying his or her financial objectives, preferences and risk
tolerances through evaluation of a confidential questionnaire-Client Information
Guide. Based on its evaluation of the investor's financial goals and
circumstances, the Adviser allocates the investor's assets among 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 the money fund and the Portfolios
from time to time based on its assessment of the economy, interest rates, the
financial markets and macro-economic events worldwide. The Program is a
continuing investment advisory program. Once a Program is active, the investor
receives, at least quarterly, a report containing an analysis and evaluation of
the investor's portfolio. Investment executives of the Distributors may review
the quarterly report with the investor, monitor identified changes in the
investor's financial characteristics and communicate any changes to the Adviser.
The Distributors are paid a quarterly fee for the services comprising the
Program at the maximum annual rate of 1.35% of assets held in a Program account.
Where the investor is a qualified retirement plan, a different fee schedule may
apply. Investment executives of the Distributors will receive, and the Adviser
may receive, a portion of any fee paid by Program clients. The Adviser also
receives advisory fees from the Portfolios. The Program fees may be subject to
negotiation based on a number of factors including, but not limited to, the size
of the Program account. The operating expenses of the Portfolios, when combined
with the Program fee, may involve greater fees and expenses than other mutual
funds whose shares are purchased without the benefit of asset allocation
recommendations rendered by investment advisers such as the Adviser.
For participants in the Program, Shares of the Portfolios may be purchased
directly through the Distributors only after the completion and processing of
the investor's Client Information Guide and applicable documents. The offering
price is the net asset value per share next determined following receipt of an
order by the Distributors.
REDEMPTION OF SHARES
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Upon receipt by the Trust of a redemption request in proper form, Shares of a
Portfolio will be redeemed at the next determined net asset value. See
"Determination of Net Asset Value." For the shareholder's convenience, the Trust
has established several different direct redemption procedures.
REDEMPTION OF SHARES PURCHASED THROUGH A DISTRIBUTOR OR AUTHORIZED SECURITIES
DEALER In order to redeem your shares purchased through a Distributor in the
Program or through a brokerage account, you should advise your investment
executive, by telephone or mail, to execute the redemption. Redemption requests
received by the close of the NYSE (generally 4:00 p.m., New York time), are
effective that day. Your investment executive has the responsibility of
submitting your redemption request to FSSC on such day in order to obtain that
day's applicable redemption price. There is no redemption charge. Redemption
proceeds will be held in your brokerage account unless you give instructions to
your investment executive to remit the proceeds to you. DIRECT REDEMPTION
Direct redemptions are not available for shares purchased through a
Distributor's brokerage account. Any such redemption requests received will be
forwarded to your investment executive who will process them as described above.
The Trust may suspend the right of redemption during any period when (i) trading
on the NYSE is restricted or the NYSE is closed, other than customary weekend
and holiday closings, (ii) the SEC has by order permitted such suspension or
(iii) an emergency, as defined by rules of the SEC, exists making disposal of
portfolio investments or determination of the value of the net assets of the
Portfolios not reasonably practicable.
If the Trustees should determine that it would be detrimental to the best
interests of the remaining shareholders of a Portfolio to make payment wholly or
partly in cash, that Portfolio may pay the redemption price in whole or in part
by a distribution in kind of readily marketable securities (mutual fund shares
or money market instruments) from the portfolio of that Portfolio, in lieu of
cash, in conformity with applicable rules of the SEC. The Trust will, however,
redeem shares solely in cash up to the lesser of $250,000 or 1% of its net
assets during any 90-day period for any one shareholder.
The proceeds of redemption may be more or less than the amount invested and,
therefore, a redemption may result in a gain or loss for federal income tax
purposes. Because the Portfolios incur fixed costs in maintaining
shareholder accounts, the Portfolios reserve the right to redeem your account if
its total value falls below $500 at the end of any month, unless the decrease is
solely the result of a reduction in net asset value per share. If a Portfolio
elects to redeem your account, it will notify you of its intention to do so and
will provide you with an opportunity to increase your account by investing a
sufficient amount to bring the account up to $500 or more within 30 days of the
notice.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
Each Portfolio intends to qualify for and elect the special tax treatment
applicable to regulated investment companies under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). To qualify as a regulated
investment company, the Portfolios must meet certain complex tests concerning
their investments and distributions. It is anticipated that the Portfolios will
not be subject to federal income or excise tax. A distribution will be treated
as paid on December 31 of the calendar year if it is declared by the Portfolio
in October, November or December of that year with a record date in such a month
and paid by the Portfolio during January of the following calendar year. If a
distribution is declared by a Portfolio in December to shareholders of record as
of a specified date in December and paid by the Portfolio during January of the
following calendar year, the distribution will be treated as a dividend paid
during the calendar year. Such distributions will be taxable to shareholders in
the calendar year in which the distributions are declared, rather than the
calendar year in which the distributions are received.
Income received by a Portfolio from an underlying mutual fund (including
dividends and distributions of short-term capital gains), as well as interest
received on money market instruments and net short-term capital gains received
by the Portfolio on the sale of mutual fund shares, will be distributed by the
Portfolio (after deductions for expenses) and will be taxable to shareholders as
ordinary income. Because the Portfolios are actively managed and can realize
taxable net short-term capital gains by selling shares of an underlying fund
with unrealized portfolio appreciation, investing in the Portfolio rather than
directly in the underlying funds may result in increased tax liability to the
shareholder, since the Portfolio must distribute its gain in accordance with the
rules in the Code.
Distributions of net capital gains (the excess of net long-term capital gains
over net short-term capital losses) received by a Portfolio from underlying
mutual funds, as well as net long-term capital gains realized by a Portfolio
from the purchase and sale (or redemption) of mutual fund shares or other
securities held (generally) by a Portfolio for more than one year, will be
distributed by the Portfolio and will be taxable to shareholders as long-term
capital gains (even if the shareholder has held the shares for less than one
year). The Taxpayer Relief Act of 1997 creates additional categories of capital
gains taxable at different rates. The categories of gain and related rates will
be passed through to shareholders in capital gains dividends. Shareholders will
report on Form 1040 Schedule D the full amount of capital gain dividends
received from the Portfolio and the portion thereof that is taxed at a maximum
28% rate. However, if you receive a capital gains distribution and suffer a loss
on the sale of your shares not more than six months after purchase, the loss
will be treated as a long-term capital loss to the extent of the capital gains
distribution received.
The tax treatment of distributions from a Portfolio is the same whether the
distributions are received in additional shares or in cash. Each year the Trust
will notify shareholders of the tax status of dividends and distributions.
A Portfolio may invest in underlying funds with capital loss carry-forwards. If
such an underlying fund realizes capital gains, it will be able to offset the
gains to the extent of its loss carry-forwards in determining the amount of
capital gains which must be distributed to its shareholders. To the extent that
gains are offset in this manner, the Portfolio will not realize gains on the
related fund until such time as the underlying fund is sold.
Depending on the residence of the shareholder for tax purposes, distributions
also may be subject to state and local taxes, including withholding taxes.
Shareholders should consult their own tax advisers as to the tax consequences of
ownership of shares of the Portfolios in their particular circumstances.
The Portfolios generally will be required to withhold federal income tax at a
rate of 31% ("backup withholding") from dividends paid to shareholders for whom
no certified tax identification number is on file with the Portfolio or who, to
the Portfolio's knowledge, have furnished an incorrect number.
Aggressive Growth Portfolio and International Portfolio will distribute
investment company taxable income annually; Growth Portfolio will distribute
investment company taxable income semi-annually; Growth with Income Portfolio
and Bond Portfolio will distribute investment company taxable income monthly.
Each Portfolio will distribute any net realized capital gains at least annually.
All dividends and distributions will be reinvested automatically at net asset
value in additional Shares of the Portfolio making the distribution, unless you
have notified the Portfolio in writing of your election to receive distributions
in cash.
Income received by the underlying funds from sources within various foreign
countries may be subject to foreign income taxes withheld at the source.
International Portfolio is not permitted to "pass through" to its shareholders
the amount of foreign income taxes paid by the underlying mutual funds.
The underlying funds' transactions in foreign currencies and hedging activities
may give rise to ordinary income or loss to the extent such income or loss
results from fluctuations in value of the foreign currency concerned. In
addition, such activities will likely produce a difference between book income
and taxable income. This difference may cause a portion of the underlying funds'
income distributions to constitute a return of capital for tax purposes or
require the underlying fund to make distributions exceeding book income to
qualify as a regulated investment company for tax purposes.
OTHER INFORMATION
Capitalization
The Trust (initially named FundManager Trust, and since renamed FundManager
Portfolios) was organized as a Delaware business trust on February 7, 1995 as a
successor, with respect to the Portfolios, to Republic Funds (formerly,
FundTrust) a Massachusetts business trust (organized on April 22, 1987).
Republic Funds succeeded two previously existing Massachusetts business trusts,
FundTrust Tax-Free Trust (organized on July 30, 1986) and FundVest (organized on
July 17, 1984 and since renamed Fund Source). The Trust currently consists of
six separately-managed portfolios--each offering two classes of shares of
beneficial interest, the Financial Adviser Class and the No-Load Class (except
for Managed Total Return, which only offers Financial Adviser Class). The
Trustees may establish additional portfolios and divide shares in each portfolio
into classes in the future. The capitalization of the Trust consists solely of
an unlimited number of shares of beneficial interest with a par value of $0.001
each. When issued, shares of the Portfolios are fully paid, non-assessable and
freely transferable.
Voting
Shareholders have the right to vote in the election of Trustees and on any and
all matters on which by law or the provisions of the Master Trust Agreement they
may be entitled to vote. When matters are submitted for shareholder vote,
shareholders will have one vote for each full share held and proportionate,
fractional votes for fractional shares held. A separate vote of a Portfolio or
class is required on any matter affecting that Portfolio or class on which
shareholders are entitled to vote. Shareholders of a Portfolio or class are not
entitled to vote on Trust matters that do not affect the Portfolio or class and
do not require a separate vote of the Portfolio or class. The Trust is not
required to hold regular annual meetings of its shareholders and does not intend
to do so. See "Other Information--Voting Rights" in the SAI. As of January 7,
1998, Turtle & Co. FC1202, c/o State Street Bank & Trust Company, P.O. Box 9242,
Boston, MA 02209, was the owner of record of 26.40% of the voting securities of
the Growth Portfolio, and therefore, may, for certain purposes be deemed to
control the Growth Portfolio and be able to affect the outcome of certain
matters presented for a vote of shareholders. As of January 7, 1998, Turtle &
Co. FC1202, c/o State Street Bank & Trust Company, P.O. Box 9242, Boston, MA
02209, was the owner of record of 28.24% of the voting securities of the Growth
with Income Portfolio, and therefore, may, for certain purposes be deemed to
control the Growth with Income Portfolio and be able to affect the outcome of
certain matters presented for a vote of shareholders. As of January 7, 1998,
Turtle & Co. FC1202, c/o State Street Bank & Trust Company, P.O. Box 9242,
Boston, MA 02209, was the owner of record of 45.38% of the voting securities of
the Bond Portfolio, and Turtle & Co. FC-RR, P.O. Box 9427, Boston, MA 02209, was
the owner of record of 32.76% of the voting securities of the Bond Portfolio,
and therefore, may, for certain purposes be deemed to control the Bond Portfolio
and be able to affect the outcome of certain matters presented for a vote of
shareholders. The Master Trust Agreement provides that the holders of not
less than three-fourths of the outstanding shares of the Trust may remove a
person serving as Trustee either by declaration in writing or at a meeting
called for such purpose. The Trustees are required to call a meeting for the
purpose of considering the removal of a person serving as Trustee if requested
in writing to do so by the holders of not less than 10% of the outstanding
shares of the Trust.
Shares entitle their holders to one vote per share (with proportionate voting
for fractional shares). As used in this Prospectus, the phrase "vote of a
majority of the outstanding shares" of the Trust, Portfolio or Class means the
vote of the lesser of: (i) 67% of the shares of the Trust, Portfolio or Class
present at a meeting if the holders of more than 50% of the outstanding shares
of the Trust, Portfolio or Class are present in person or by proxy or (ii) more
than 50% of the outstanding shares of the Trust, Portfolio or Class.
In compliance with applicable provisions of the 1940 Act, shares of the
underlying funds owned by the Portfolios will be voted in the same proportion as
the vote of all other holders of those shares.
Performance Information
The Trust may, from time to time, include quotations of the Portfolios' yield
and total return in advertisements or reports to shareholders or prospective
investors. Quotations of yield will be based on the investment income per share
earned during a particular 30-day period (including dividends and interest),
less expenses accrued during the period ("net investment income"), and will be
computed by dividing net investment income by the maximum public offering price
per share on the last day of the period. Quotations of total return will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the Portfolio over periods of 1, 5 and 10 years (up
to the life of such Portfolio). All total return figures will reflect a
proportional share of Portfolio expenses on an annual basis, and will assume
that all dividends and distributions are reinvested when paid. Quotations of
yield or total return reflect only the performance of a hypothetical investment
in the Portfolio during the particular time period on which the calculations are
based. Yield and total return for a Portfolio will vary based on changes in
market conditions and the level of such Portfolio's expenses, and no reported
performance figure should be considered an indication of performance which may
be expected in the future.
Consistent with applicable regulatory guidance, for the period prior to its
establishment, the Class will adopt the performance of the Portfolios and the
predecessor Portfolios. The performance for this period will reflect the
deduction of expenses set forth in the Portfolio Expense Table. See "Portfolio
Expenses."
In connection with communicating the Portfolios' yield and total return to
current or prospective shareholders, the Trust also may compare these figures to
the performance of other mutual funds tracked by mutual fund rating services or
to other unmanaged indexes which may assume reinvestment of dividends but
generally do not reflect deductions for administrative and management costs and
expenses.
For a more detailed description of the methods used to calculate each
Portfolio's yield and total return, see the SAI.
OTHER CLASSES OF SHARES
The Portfolios also offer another class of shares called Financial Adviser Class
Shares. Financial Adviser Class Shares are sold at net asset value plus any
applicable sales charges (except Bond Portfolio) as an investment vehicle for
individuals, institutions, corporations and fiduciaries. The minimum initial
investment for Financial Adviser Class Shares of each Portfolio is $1,000, and
the minimum subsequent investment is $100, except that the minimum initial
investment for an Individual Retirement Account ("IRA") is $250.
Both classes are subject to certain of the same expenses. However, Financial
Adviser Class Shares are distributed with sales charges (except Bond Portfolio)
and 12b-1 fees. Expense differences between classes may affect the
performance of each class.
SHAREHOLDER INQUIRIES
All shareholder inquiries should be directed to your investment executive or
financial adviser or call (800)344-9033 (Toll Free).
DESCRIPTION OF BOND RATINGS
Excerpts from Moody's description of its bond ratings: Aaa--judged to be the
best quality. They carry the smallest degree of investment risk; Aa--judged to
be of high quality by all standards. Together with the Aaa group they comprise
what are generally known as high grade bonds; A--possess many favorable
investment attributes and are to be considered as "upper medium grade
obligations"; Baa--considered as medium grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time;
Ba--judged to have speculative elements, their future cannot be considered as
well assured; B--generally lack characteristics of the desirable investment;
Caa--are of poor standing. Such issues may be in default or there may be present
elements of danger with respect to principal or interest; Ca--speculative in a
high degree; often in default; C--lowest rated class of bonds; regarded as
having extremely poor prospects.
Moody's also supplies numerical indicators 1, 2 and 3 to rating categories. The
modifier 1 indicates that the security is in the higher end of its rating
category; the modifier 2 indicates a mid-range ranking; and 3 indicates a
ranking toward the lower end of the category.
Excerpts from S&P's description of its bond ratings: AAA--highest grade
obligations. Capacity to pay interest and repay principal is extremely strong;
AA--also qualify as high grade obligations. A very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small degree;
A--regarded as upper medium grade. They have a strong capacity to pay interest
and repay principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in higher
rated categories; BBB--regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories. This group is the lowest
which qualifies for commercial bank investment. BB, B, CCC, CC--predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with terms of the obligations; BB indicates the lowest degree of
speculation and CC the highest.
S&P applies indicators "+," no character, and "" to its rating categories. The
indicators show relative standing within the major rating categories.
[Graphic]
Investment Adviser
Freedom Capital Management Corporation
One Beacon Street
Boston, MA 02108
Distributors
Tucker Anthony, Incorporated
200 World Financial Center
New York, NY 10281
Sutro & Co., Inc.
201 California Street
San Francisco, CA 94111
G01966-01 (1/98)
[Graphic]
January 31, 1998
* Aggressive Growth Portfolio
* Growth Portfolio
* Growth with Income Portfolio
* Bond Portfolio
* International Portfolio
FUNDMANAGER PORTFOLIOS
One Beacon Street
Boston, Massachusetts 02108
Information: (800) 344-9033 (Toll Free)
STATEMENT OF ADDITIONAL INFORMATION
No-Load Class of Shares
Financial Adviser Class of Shares
FundManager Portfolios (the "Trust") is an open-end management investment
company consisting of six separate series (the "Portfolios"). The Portfolios
seek to achieve their objectives by investing in shares of other open-end
investment companies N commonly called mutual funds. The International Portfolio
also may invest in closed-end investment companies and unit investment trusts.
Aggressive Growth Portfolio seeks capital appreciation without regard to current
income.
Growth Portfolio primarily seeks long-term capital appreciation; current income
is a secondary consideration.
Growth with Income Portfolio seeks a combination of capital appreciation and
current income.
Bond Portfolio seeks a high level of current income.
Managed Total Return Portfolio seeks high total return (capital appreciation and
current income).
International Portfolio seeks long-term capital appreciation; current income is
a secondary consideration.
Two classes of shares, the No-Load Class and the Financial Adviser Class (each a
"Class" and collectively the "Classes"), of the Aggressive Growth Portfolio,
Growth Portfolio, Growth with Income Portfolio, Bond Portfolio, and
International Portfolio are offered for sale. The Managed Total Return Portfolio
offers only one Class of shares, the Financial Adviser Class. The No-Load Class
is offered for sale at net asset value by Tucker Anthony Incorporated ("Tucker
Anthony") and Sutro & Co. Incorporated ("Sutro") to participants in the
FundManager Advisory Program, and the Financial Adviser Class is offered for
sale at net asset value plus applicable sales charges (except Bond Portfolio) by
Tucker Anthony, Sutro, Edgewood Services, Inc. ("Edgewood") and Freedom
Distributors Corporation ("Freedom Distributors") (collectively, the
"Distributors") as an investment vehicle for individuals, institutions,
corporations and fiduciaries. The Financial Adviser Class pays a distribution
fee in connection with the distribution of its shares pursuant to a Distribution
Plan. This Statement of Additional Information is not a prospectus and is
only authorized for distribution when preceded or accompanied by the applicable
Prospectus for the No-Load Class or Financial Adviser Class, each dated January
31, 1998 (each a "Prospectus"). This Statement of Additional Information
contains additional and more detailed information than that set forth in each
Prospectus and should be read in conjunction with such Prospectus. You may
request additional copies of a Prospectus or a paper copy of this Statement of
Additional Information, if you have received it electronically, without charge
by writing or calling the Trust at the address and information number printed
above.
This Statement of Additional Information is dated January 31, 1998.
Table of Contents
<TABLE>
<S> <C>
Investment Policies 1
U.S. Government Securities 1
Bank Obligations 1
Commercial Paper 1
Repurchase Agreements 1
Foreign Securities 1
Foreign Currency Hedging Transactions 2
Investment Restrictions 3
Management 4
Trustees and Officers 4
Trustees' Compensation 5
Investment Adviser 6
Administrator 7
Distributors 8
Service Organizations 9
FundManager Advisory Program 9
Portfolio Transactions 10
Tax Status 11
International Portfolio 11
Other Information 11
Capitalization 11
Voting Rights 11
Performance Information 11
Independent Auditors 14
Counsel 14
Registration Statement 14
Financial Statements 14
</TABLE>
INVESTMENT POLICIES
Although the Portfolios invest primarily in the shares of other mutual funds,
they also are authorized to invest for temporary defensive purposes or as may be
considered necessary to accumulate cash for investments or to meet anticipated
redemptions in a variety of short-term debt securities, including U.S. Treasury
bills and other U.S. government securities, commercial paper, certificates of
deposit, bankers' acceptances and repurchase agreements with respect to such
securities. The following information supplements the discussion of the
investment objectives and policies of the Portfolios found under "Investment
Objectives" in each Prospectus.
U.S. Government Securities
The Portfolios may invest in obligations issued or guaranteed by the United
States government or its agencies or instrumentalities which have remaining
maturities not exceeding one year. The U.S. government securities in which the
Portfolios invest are either issued or guaranteed by the U.S. government, its
agencies or instrumentalities. The U.S. government securities in which the
Portfolios invest include, but are not limited to:
. direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes and bonds;
. notes, bonds, and discount notes issued or guaranteed by U.S. government
agencies and instrumentalities supported by the full faith and credit of the
United States;
. notes, bonds, and discount notes of U.S. government agencies or
instrumentalities which receive or have access to federal funding; and
. notes, bonds, and discount notes of other U.S. government
instrumentalities supported only by the credit of the instrumentalities.
Bank Obligations
The Portfolios may invest in obligations of U.S. banks (including certificates
of deposit and bankers' acceptances) having total assets at the time of purchase
in excess of $1 billion. Such banks shall be members of the Federal Deposit
Insurance Corporation. A certificate of deposit is an interest-bearing
negotiable certificate issued by a bank against funds deposited in the bank. A
bankers' acceptance is a short-term draft drawn on a commercial bank by a
borrower, usually in connection with an international commercial transaction.
Although the borrower is liable for payment of the draft, the bank
unconditionally guarantees to pay the draft at its face value on the maturity
date.
Commercial Paper
Commercial paper represents short-term unsecured promissory notes issued in
bearer form by bank holding companies, corporations and finance companies. The
commercial paper purchased by the Portfolios consists of direct obligations of
domestic issuers which, at the time of investment, are: (i) rated in the highest
commercial paper rating category by a nationally recognized statistical rating
organization ("NRSRO"), such as "P-1" by Moody's Investors Service, Inc.
("Moody's") or "A-1" or better by Standard & Poor's ("Standard & Poor's"); (ii)
issued or guaranteed as to principal and interest by issuers or guarantors
having an existing debt security rating of "Aa" or better by Moody's or "AA" or
better by Standard & Poor's or a similar high grade rating by another NRSRO; or
(iii) securities which, if not rated, are, in the opinion of Freedom Capital
Management Corporation, the Portfolios' investment adviser ("Freedom Capital
Management" or the "Adviser"), of an investment quality comparable to rated
commercial paper in which the Funds may invest. The rating "P-1" is the highest
commercial paper rating assigned by Moody's and the ratings "A-1" and "A-1+" are
the highest commercial paper ratings assigned by Standard & Poor's. Debts rated
"Aa" or better by Moody's or "AA" or better by Standard & Poor's are generally
regarded as high-grade obligations and such ratings indicate that the ability to
pay principal and interest is very strong.
Repurchase Agreements
The Portfolios may invest in securities subject to repurchase agreements with
banks or broker-dealers. A repurchase agreement is a transaction in which the
seller of a security commits itself at the time of the sale to repurchase that
security from the buyer at a mutually agreed upon time and price. The repurchase
price exceeds the sale price, reflecting an agreed upon interest rate effective
for the period the buyer owns the security subject to repurchase. The agreed
upon rate is unrelated to the interest rate on that security. The Adviser will
monitor the value of the underlying security at the time the transaction is
entered into and at all times during the term of the repurchase agreement to
insure that the value of the security always equals or exceeds the repurchase
price. In the event of default by the seller under the repurchase agreement, a
Portfolio may have problems in exercising its rights to the underlying
securities and may incur costs and experience time delays in connection with the
disposition of such securities. Repurchase agreements are considered to be loans
under the Investment Company Act of 1940 (the "1940 Act") collateralized by the
underlying securities. Foreign Securities
If an underlying fund maintains its assets abroad, the board members of the
underlying fund or their delegate must determine whether maintaining the fund's
assets with eligible foreign custodians will be subject to reasonable care,
based on the standards applicable to the particular market. In addition, the
board members or their delegates must monitor the continual appropriateness of
these foreign custody arrangements. However, any losses resulting from the
holding of the underlying fund's portfolio securities in foreign countries
and/or with foreign custodians or securities depositories may be at the risk of
shareholders, unless the losses are insured. No assurance can be given that the
determination of the board members' or their delegates will always be correct or
that exchange control restrictions or political acts of foreign governments
might not occur.
Securities that are acquired by an underlying fund outside the United States and
that are publicly traded in the United States on a foreign securities exchange
or in a foreign securities market are not considered by the underlying fund to
be illiquid assets provided that: (i) the underlying fund acquires and holds the
securities with the intention of reselling the securities in the foreign trading
market, (ii) the underlying fund reasonably believes it can readily dispose of
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.
Investments may be in securities of foreign issuers, whether located in
developed or undeveloped countries. Investments in foreign securities where
delivery takes place outside the United States will have to be made in
compliance with any applicable 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. Changes
of government administrations or economic or monetary policies in the United
States or abroad, or changed circumstances regarding convertibility or exchange
rates, could result in investment losses for the Portfolio.
Foreign Currency Hedging 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.
The underlying funds may enter into forward foreign currency exchange contracts
("forward contracts") to attempt to minimize the risk to the underlying funds
from adverse changes in the relationship between the U.S. dollar and foreign
currencies. A forward contract is an obligation to purchase or sell a specific
currency for an agreed price at a future date which is individually negotiated
and privately traded by currency traders and their customers. An underlying fund
may enter into a forward contract, for example, when it enters into a contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of the security. In addition, for
example, when an underlying fund believes that a foreign currency may suffer a
substantial decline against the U.S. dollar, it may enter into a forward
contract to sell an amount of that foreign currency approximating the value of
some or all of the underlying fund's portfolio securities denominated in such
foreign currency, or when an underlying fund believes that the U.S. dollar may
suffer a substantial decline against a foreign currency, it may enter into a
forward contract to buy that foreign currency for a fixed dollar amount. This
second investment practice is generally referred to as "cross-hedging." Because
in connection with an underlying fund's forward foreign currency transactions an
amount of the underlying fund's assets equal to the amount of the purchase will
be held aside or segregated to be used to pay for the commitment, the underlying
fund will always have cash, cash equivalents or high quality debt securities
available sufficient to cover any commitments under these contracts or to limit
any potential risk. The segregated account will be marked to market on a daily
basis. While these contracts are not presently regulated by the Commodities
Futures Trading Commission ("CFTC"), the CFTC may in the future assert authority
to regulate forward contracts. In such event, the underlying fund's ability to
utilize forward contracts in the manner set forth above may be restricted.
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 the
underlying fund than if it had not engaged in such contracts.
The underlying funds may purchase and write put and call options on foreign
currencies for the purpose of protecting against declines in the dollar value of
foreign portfolio securities and against increases in the dollar cost of foreign
securities to be acquired. As is the case with other kinds of options, however,
the writing of an option on foreign currency will constitute only a partial
hedge, up to the amount of the premium received, and an underlying fund could be
required to purchase or sell foreign currencies at disadvantageous exchange
rates, thereby incurring losses. The purchase of an option on foreign currency
may constitute an effective hedge against fluctuation in exchange rates,
although, in the event of rate movements adverse to the underlying fund's
position, the underlying fund may forfeit the entire amount of the premium plus
related transaction costs. Options on foreign currencies to be written or
purchased by the underlying funds will be traded on U.S. and foreign exchanges
or over-the-counter.
The underlying funds may enter into exchange-traded contracts for the purchase
or sale for future delivery of foreign currencies ("foreign currency futures").
This investment technique will be used only to hedge against anticipated future
changes in exchange rates which otherwise might adversely affect the value of an
underlying fund's portfolio securities or adversely affect the prices of
securities that an underlying fund intends to purchase at a later date. The
successful use of foreign currency futures will usually depend on the ability of
the underlying fund's adviser to forecast currency exchange rate movements
correctly. Should exchange rates move in an unexpected manner, an underlying
fund may not achieve the anticipated benefits of foreign currency futures or may
realize losses.
INVESTMENT RESTRICTIONS
The following investment restrictions are in addition to those described under
"Investment Objectives" and "Investment Policies and Restrictions" in each
Prospectus. The following restrictions may not be changed with respect to a
Portfolio without the approval of the holders of a majority of that Portfolio's
outstanding securities. Except that a Portfolio may invest all of its investable
assets in an open-end investment company with substantially the same investment
policies and restrictions as the Portfolio.
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.
In addition, as non-fundamental policies, a Portfolio will not: (i) invest in
securities for the purpose of exercising control over or management of the
issuer, although the International Portfolio may own more than 25% of the assets
of another investment company; (ii) 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); (iii) except for International
Portfolio, 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. These additional policies
may be changed as to a Portfolio by the Board of Trustees (the "Trustees")
without shareholder approval. The underlying funds in which a Portfolio
invests may, but need not, have the same investment policies as a Portfolio.
Although all of the Portfolios may, from time to time, invest in shares of the
same underlying fund, the percentage of each Portfolio's Fund's assets so
invested may vary, and the Adviser will determine that such investments are
consistent with the investment objectives and policies of each particular
Portfolio.
MANAGEMENT
Trustees and Officers
The principal occupations of the Trustees and executive officers of the Trust
for the past five years and their ages are listed below. The address of each,
unless otherwise indicated, is One Beacon Street, Boston, Massachusetts 02108.
Dexter A. Dodge* (63), 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.
Ernest T. Kendall (65), Trustee, 230 Beacon Street, Boston, Massachusetts 02116.
President, Commonwealth Research Group, Inc., Boston, Massachusetts, a
consulting firm specializing in microeconomics, regulatory economics and labor
economics, since 1978. Trustee of Freedom Mutual Fund and Freedom Group of Tax
Exempt Funds since September 1993. John R. Haack (55), Trustee, since
December 16, 1996, 311 Commonwealth Avenue, #81, Boston, Massachusetts 02115.
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.
Richard B. Osterberg (53), Trustee, 84 State Street, Boston, Massachusetts
02109. 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.
Charles B. Lipson (51), President and Principal Executive Officer, One Beacon
Street, Boston, Massachusetts 02108. President and founding partner of the M.D.
Hirsch Division of Freedom Capital since January 1995. President and Chief
Operating Officer of the M.D. Hirsch Division of Republic Asset Management
Corporation from February 1991 to December 1994. Senior Vice President and Chief
Operating Officer of Home Capital Services, Inc. prior to February 1991.
John J. Danello (42), Executive Vice President. Chief Operating Officer and
Secretary of the Adviser since October 1994. Vice President-Managing Director,
Clerk and General Counsel of the Adviser from November 1986 to October 1994.
President and Director since February 1989 and Clerk since February 1987 of
Freedom Distributors Corporation. President and Secretary of Freedom Mutual Fund
and Freedom Group of Tax Exempt Funds since July 1992.
Michael D. Hirsch (52), Executive Vice President and Portfolio Manager,
Chairman, M.D. Hirsch Division of the Adviser since February 1995. Vice Chairman
and Managing Director, M.D. Hirsch Division of Republic Asset Management
Corporation from June 1993 to February 1994. President M.D. Hirsch Investment
Management, Inc. from February 1991 to June 1993. Chief Investment 'fficer,
Republic National Bank of New York prior to February 1991.
Victor R. Siclari (36), Secretary, Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. Vice President and Corporate Counsel, Federated
Administrative Services since 1992; Associate of Morrison & Foerster, a law
firm, from 1990 to 1992.
Judith J. Mackin (37), Treasurer, Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. Vice President and Director of Administration for
Mutual Fund Services Group of Federated Investors.
Edward C. Gonzales (67), Executive Vice President, Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. Vice Chairman, Treasurer, and Trustee,
Federated Investors; Vice President, Federated Advisers, Federated Management,
Federated Research, Federated Research Corp., Federated Global Research Corp.
and Passport Research, Ltd.; Executive Vice President and Director, Federated
Securities Corp.; Trustee, Federated Shareholder Services Company; Chairman,
Treasurer, and Trustee, Federated Administrative Services.
* Trustee may be deemed to be an "interested person" of the Trust as
defined by the 1940 Act.
Mr. Danello is also an officer of certain other investment companies for which
the Adviser or an affiliate is the investment adviser. Messrs. Gonzales and
Siclari and Ms. Mackin are also directors, trustees and/or officers of certain
other investment companies for which Federated Investors or its subsidiaries
serve as investment adviser, administrator and/or principal underwriter.
Trustees' Compensation
<TABLE>
<CAPTION>
Name, Aggregate Compensation Total Compensation Paid
Position with Trust from Trust*# from Trust and Freedom Complex **
<S> <C> <C>
Dexter A. Dodge $ 0 $0 for the Trust and
Trustee 4 other investment companies in the Freedom Complex Ernest T. Kendall
$6,600 $21,500 for the Trust and Trustee 4 other investment companies in the
Freedom Complex John R. Haack $4,241 $14,000 for the Trust and Trustee 4 other
investment companies in the Freedom Complex Richard B. Osterberg $6,600 $25,500
for the Trust and Trustee 4 other investment companies in the Freedom Complex
</TABLE> * Information is furnished for the fiscal year ended September 30,
1997.
** Freedom Complex refers to both Freedom Mutual Fund and Freedom Group of
Tax Exempt Funds.
# The aggregate compensation is provided for the Trust which is comprised
of six Portfolios.
+ The information is provided for the last fiscal year.
++ Mr. Haack became a Trustee on December 16, 1996.
Trustees who are not interested persons of the Trust receive an annual retainer
of $3,600 and a fee of $600 for each meeting of the Trustees or committee
thereof attended. The chairperson of each of the Audit and Contracts Committee
receives an additional fee per annum of $600. Mr. Kendall serves as chairperson
of the Audit Committee and Mr. Osterberg serves as chairperson of the Contracts
Committee. Interested persons of the Trust who serve as Trustee receive no fees
from the Trust. All Trustees of the Trust are reimbursed for expenses for
attendance at meetings. The Trust has no bonus, profit sharing, pension or
retirement plans. For the fiscal year ended September 30, 1997, the Trust paid
$17,441 in Trustee fees and expenses. The Trustees of the Trust have two
committees, an Audit Committee and a Contracts Committee. The Audit Committee
assists the Board in fulfilling its duties relating to accounting and financial
reporting practices and serves as a direct line of communication between the
Board and the independent auditors. The Audit Committee is responsible for
recommending the engagement or retention of the independent accountants,
reviewing with the independent accountants the plan and the results of the
auditing engagement, approving professional services provided by the independent
accountants prior to the performance of such services, considering the range of
audit and non-audit fees, reviewing the independence of the independent
auditors, reviewing the scope and results of procedures for internal auditing,
and reviewing the system of internal accounting control.
The function of the Contracts Committee is to assist the Board in fulfilling its
duties with respect to the review and approval of contracts between the Trust,
on behalf of the Portfolios, and other entities, including entering into new
contracts and the renewal of existing contracts. The Contracts Committee
considers investment advisory, distribution, transfer agency, administrative
service and custodial contracts and such other contracts as the Board deems
necessary or appropriate for the continuation of operations of the Portfolios or
the Trust. The Contracts Committee will also be responsible for the selection
and nomination of Trustees who are not "interested persons" within the meaning
of the 1940 Act of the Trust.
All of the Trustees who are not "interested persons" within the meaning of the
1940 Act of the Trust currently serve on the Audit and Contracts Committees.
As of January 7, 1998, the Trustees and Officers of the Trust, as a group, owned
less than 1% of the outstanding shares of each Portfolio. As of the same date,
the following persons owned of record, or beneficially owned, 5% or more of the
outstanding shares of the Portfolios (percentage is percentage of outstanding
shares of a Portfolio owned by the shareholder):
Aggressive Growth Portfolio N Turtle & Co. FC 1202 c/o State Street Bank and
Trust Company, P.O. Box 9242, Boston, MA 02209 owned 21.79%; Charles Schwab &
Co. Inc., Special Custody Account for the Exclusive Benefit of Customers, Attn:
Mutual Funds, 101 Montgomery Street, San Francisco, CA 94104, owned 16.05%; and
Turtle & Co. FC-RR, P.O. Box 9427, Boston, MA 02209, owned 11.74% of the
Portfolio's Financial Adviser Class shares.
Wexford Clearing Corp. FBO, Sutro & Co. Cust., FBO Helen E. McCall, IRA R/ODTD
9/10/96, 513 Rosarita Dr., Fullerton, CA 92835, owned 9.85%; Frank C. Griffin MD
Tr, The Orthopedic Medical Clinic, Inc. PFT SHG PLN U/A Dated #1, 158 Twin Oaks,
Los Gatos, CA 95032, owned 6.91%; and Wexford Clearing Services Corp. FBO, Mr.
John A. Fagone TTEE, Salon D. Estiste Inc. Target Benefit Plan, 22 Atlantic
Ave., Marblehead, MA 01945, owned 5.71% of the Portfolio's No-Load Class shares.
Growth Portfolio N Turtle & Co. FC1202, c/o State Street Bank & Trust Co., P.O.
Box 9242, Boston, MA 02209, owned 26.40%; Turtle & Co. FC-RR, P.O. Box 9427,
Boston, MA 02209, owned 20.23%; and Charles Schwab & Co., Inc., Special Custody
Account for the Exclusive Benefit of Customers, Attn: Mutual Funds, 101
Montgomery Street, San Francisco, CA 94104, owned 7.31% of the Portfolio's
Financial Adviser Class shares.
Frank C. Griffin MD Tr, The Orthopedic Medical Clinic, Inc. PFT SHG PLN U/A
Dated #1, 158 Twin Oaks, Los Gatos, CA 95032, owned 8.82%; Wexford Clearing
Services Corp., John A. Fagone TTEE, Salon D. Estiste Inc., Target Benefit Plan,
22 Atlantic Ave., Marblehead, MA 01945, owned 7.50%; Wexford Clearing Services
Corp., Sutro & Co. Inc. C/F, Helen E. McCall IRA R/L, DTD 09/10/96, 513 Rosarita
Dr., Fullerton, CA 92835, owned 6.53%; and Everen Clearing FBO, Don Philip
Grijalva, 111 East Kilbourn Ave., 3rd Floor, Milwaukee, WI 53202, owned 5.14% of
the Portfolio's No-Load Class shares.
Growth with Income Portfolio N Turtle & Co. FC1202, c/o State Street Bank &
Trust Co., P.O. Box 9242, Boston, MA 02209, owned 28.24%; and Turtle & Co., FC-
RR, P.O. Box 9427, Boston, MA 02209, owned 22.09% of the Portfolio's Financial
Adviser Class shares.
Everen Clearing FBO, Don Philip Grijalva, 111 East Kilbourn Ave., 3rd Fl,
Milwaukee, WI 53202, owned 7.05%; Wexford Clearing Services Corp. FBO, Sutro &
Co. Inc. C/F, Helen E. McCall, IRA R/O Dtd 09-10-96, 513 Rosarita Dr.,
Fullerton, CA 92835, owned 5.87%; and Wexford Clearing Services Corp. FBO,
Tucker Anthony Inc. C/F, Carl F. Simone IRA R/O Dtd
10-02-95, 4 Brookside Dr., Colts Neck, NJ 07722, owned 5.40% of the Portfolio's
No-Load Class shares.
Bond Portfolio N Turtle & Co. FC1202, c/o State Street Bank & Trust Co., P.O.
Box 9242, Boston, MA 02209, owned 45.38%; Turtle & Co., FC-RR, P.O. Box 9427,
Boston, MA 02209, owned 32.76%; and Charles Schwab & Co. Inc., Special Custody
Account for the Exclusive Benefit of Customers, Attn: Mutual Funds, 101
Montgomery Street, San Francisco, CA 94104, owned 8.13% of the Portfolio's
Financial Adviser Class shares.
Frank C. Griffin MD Tr, The Orthopedic Medical Clinic, Inc. PFT SHG PLN U/A
Dated #1, 158 Twin Oaks, Los Gatos, CA 95032, owned 10.07%; Wexford Clearing
Services Corp. FBO, John A. Fagone TTEE, Salon D. Estiste Inc., Target
Benefit Plan, 22 Atlantic Ave., Marblehead, MA 01945, owned 8.77%; Wexford
Clearing Services Corp. FBO, Tucker Anthony Inc. Cust., Carl F. Simone IRA R/O
Dtd 10-02-95, 4 Brookside Dr., Colts Neck, NJ 07722, 7.48%; Wexford Clearing
Services Corp. FBO, Ann J. Caswell, 7325 W. 88th Pl., Los Angeles, CA 90045,
owned 6.82%; and Wexford Clearing Services Corp. FBO, Tucker Anthony Inc. Cust.,
Howard J. Sussman IRA R/O, Dtd 6-3-96, 247 Camelback Ridge Ave., Henderson, NV
89012, owned 6.72% of the Portfolio's No-Load Class shares.
Managed Total Return Portfolio N None.
International Portfolio N None.
The Trust's Master Trust Agreement provides that it will indemnify its Trustees
and officers against liabilities and expenses incurred in connection with
litigation in which they may be involved because of their offices with the
Trust, unless, as to liability to the Trust or its shareholders, it is finally
adjudicated that they engaged in wilful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in their offices, or unless with
respect to any other matter it is finally adjudicated that they did not act in
good faith in the reasonable belief that their actions were in the best
interests of the Trust. In the case of settlement, such indemnification will not
be provided unless it has been determined by a court or other body approving the
settlement or other disposition, or by a reasonable determination, based upon a
review of readily available facts, by vote of a majority of disinterested
Trustees or in a written opinion of independent counsel, that such officers or
Trustees have not engaged in wilful misfeasance, bad faith, gross negligence or
reckless disregard of their duties.
Investment Adviser
Pursuant to an Investment Advisory Contract, Freedom Capital Management is
responsible for the investment management of each Portfolio's assets, including
the responsibility for making investment decisions and placing orders for the
purchase and sale of each Portfolio's investments directly with the issuers or
with brokers or dealers selected by it in its discretion, including Freedom
Distributors and Edgewood. See "Portfolio Transactions." The Adviser also
furnishes to the Trustees, which have overall responsibility for the business
and affairs of the Trust, periodic reports on the investment performance of the
Portfolios. The Adviser is a registered investment advisory firm which maintains
a large securities research department, the efforts of which will be made
available to the Portfolios.
Thomas H. Lee Equity Fund III, L.P. is Massachusetts limited partnership. The
general partner of Thomas H. Lee Equity Fund III, L.P. is THL Equity Advisors
III Limited Partnership, a Massachusetts limited partnership. The general
partner of THL Equity Advisors III Limited Partnership is THL Equity Trust III,
a Massachusetts business trust. The sole beneficial owner of THL Equity Trust
III is Thomas H. Lee. The address of Thomas H. Lee Equity Fund III, L.P., THL
Equity Advisors III Limited Partnership and THL Equity Trust III is 75 State
Street, Boston, Massachusetts 02109.
SCP Private Equity Partners, L.P. is a Delaware limited partnership. The general
partner of SCP Private Equity Partners, L.P. is SCP Private Equity Management,
L.P., a Delaware limited partnership. The interests of SCP Private Equity
Management, L.P. are divided equally among its three general partners: Safeguard
Capital Management, Inc. (which is a wholly owned subsidiary of Safeguard
Scientifics, Inc., a publicly held company), Winston J. Churchill and Samuel A.
Plum. The address of SCP Private Equity Partners, L.P., SCP Private Equity
Management, L.P., Safeguard Capital Management, Inc., Winston J. Churchill and
Samuel A. Plum is 435 Devon Park Drive, Wayne, Pennsylvania 19087.
For a more complete description of the Adviser see "Management of FundManager
Portfolios N The Adviser" in your Prospectus.
The investment advisory services of the Adviser to the Portfolios are not
exclusive under the terms of the Investment Advisory Contract. The Adviser is
free to render investment advisory services to others.
For its services as investment adviser, the Adviser receives from each Portfolio
a fee, payable monthly, at the annual rate of 0.50% of each Portfolio's average
daily net assets up to $500 million and 0.40% of its average daily net assets in
excess of $500 million. M.D. Hirsch Investment Management, Inc. ("Hirsch")
served as investment adviser to the Predecessor Funds from the period October 1,
1992 through August 30, 1993, at which time Republic Asset Management
Corporation became investment adviser to the Predecessor Funds.
Republic Asset Management Corporation served as investment adviser to the
Predecessor Funds until February 20, 1995, at which time Freedom Capital
Management became investment adviser to the Predecessor Funds. For the period
from October 1, 1994 through February 20, 1995, Aggressive Growth Portfolio,
Growth Portfolio, Growth with Income Portfolio, Bond Portfolio and Managed Total
Return Portfolio paid advisory fees before reimbursements of $74,692, $66,712,
$99,675, $151,276 and $32,185, respectively to Republic Asset Management
Corporation. For the period from February 21, 1995 through September 30, 1995,
Aggressive Growth Portfolio, Growth Portfolio, Growth with Income Portfolio,
Bond Portfolio and Managed Total Return Portfolio paid advisory fees of
$109,055, $89,497, $130,491, $216,909 and $44,931, respectively, to Freedom
Capital Management. For the period from October 1, 1995 through September 30,
1996, Aggressive Growth Portfolio, Growth Portfolio, Growth with Income
Portfolio, Bond Portfolio and Managed Total Return Portfolio paid advisory fees
before reimbursements of $183,337, $132,472, $167,996, $367,138 and $67,171,
respectively, to the Adviser. For the period from October 1, 1996 through
September 30, 1997, Aggressive Growth Portfolio, Growth Portfolio, Growth with
Income Portfolio, Bond Portfolio and Managed Total Return Portfolio paid
advisory fees before reimbursements of $200,484, $154,313, $167,415, $340,908,
and $58,530, respectively, to the Adviser. The Investment Advisory Contract will
continue in effect from year to year provided such continuance is approved
annually (i) by the holders of a majority of the outstanding voting securities
of a Portfolio or by the Trustees and (ii) by a majority of the Trustees who are
not parties to such Contract or "interested persons" (as defined in the 1940
Act) of any such party. The Contract may be terminated with respect to a
Portfolio on 60 days' written notice by either party to the Contract and will
terminate automatically if assigned. Mr. Osterberg, a Trustee of the Trust,
is a member of the law firm of Weston, Patrick, Willard & Redding, which has
retained the Adviser from time to time to provide investment advisory consulting
services for clients of such firm.
Administrator
The Trustees of the Trust have approved an Administrative Services Contract
between the Trust and Federated Administrative Services ("FAS") (effective
November 11, 1996) pursuant to which FAS replaced Signature Broker-Dealer
Services, Inc. ("Signature") as Administrator of the Trust and each Class of
shares of each of the Portfolios. In this capacity, FAS will provide certain
administrative and personnel services to the Portfolios for a fee as described
in each Prospectus.
The administrative and personnel services necessary for the operation of the
Trust provided by the Administrator include among other things: (i) preparation
of shareholder reports and communications; (ii) regulatory compliance, such as
reports to and filings with the Securities and Exchange Commission ("SEC") and
state securities commissions; and (iii) general supervision of the operation of
the Trust, including coordination of the services performed by the Trust's
investment adviser, transfer agent, custodian, independent auditors, legal
counsel and others. In addition, the Administrator furnishes office space and
facilities required for conducting the business of the Trust and pays the
compensation of the Trust's officers, employees and Trustees (if any) affiliated
with the Administrator. For the period from October 1, 1994 through
September 30, 1995, Signature (the former Administrator) received $91,873,
$78,104, $115,086, $172,206 and $38,540, respectively, from Aggressive Growth
Portfolio, Growth Portfolio, Growth with Income Portfolio, Bond Portfolio and
Managed Total Return Portfolio. For the period from October 1, 1995 through
September 30, 1996, Signature received $91,669, $66,236, $83,998, $171,868 and
$33,586, respectively, from Aggressive Growth Portfolio, Growth Portfolio,
Growth with Income Portfolio, Bond Portfolio and Managed Total Return Portfolio,
of which $22,675, $14,995, $19,270, $37,200 and $7,522, respectively, was
waived. For the period from October 1, 1996 through November 11, 1996, Signature
received $8,607, $5,895, $6,880, $15,162, and $2,602, respectively, from
Aggressive Growth Portfolio, Growth Portfolio, Growth with Income Portfolio,
Bond Portfolio, and Managed Total Return Portfolio, of which $4,131, $2,830,
$3,303, $7,277, and $1,249, respectively, was waived. For the period from
November 11, 1996 through September 30, 1997, FAS received $53,142, $41,478,
$44,608, $89,936, and $15,433, respectively, from Aggressive Growth Portfolio,
Growth Portfolio, Growth with Income Portfolio, Bond Portfolio, and Managed
Total Return Portfolio, of which $7,086, $5,530, $5,948, $11,993, and $2,058,
respectively, was waived. Distributors The Trustees of the Trust have
approved a Distribution Contract between the Trust and the Distributors,
pursuant to which such Distributors provide shareholder servicing services
and/or distribute the Financial Adviser Class of shares of each of the
Portfolios. The Trustees of the Trust have also approved a Distribution Contract
between the Trust and each of Tucker Anthony and Sutro pursuant to which such
distributors provide shareholder servicing services and distribute the No-Load
Class of shares of each of the Aggressive Growth Portfolio, Growth Portfolio,
Growth with Income Portfolio, Bond Portfolio and International Portfolio.
The Distributors are not obligated to sell any specific amount of shares. Under
a Distribution Plan (the "Plan") adopted by the Financial Adviser Class of the
Portfolios, each such Portfolio may reimburse the distributors monthly (subject
to a limit of 0.50% per annum of the Portfolio's average daily net assets
attributable to the Financial Adviser Class) for the sum of (a) direct costs and
expenses incurred by the Distributors in connection with advertising and
marketing of the Financial Adviser Class of shares and (b) payment of fees to
one or more broker-dealers or other organizations (other than banks) for
services rendered in the distribution of the Financial Adviser Class of shares
and for the provision of personal services and account maintenance services with
respect to Portfolio shareholders, including payments in amounts based on the
average daily value of Portfolio shares owned by shareholders in respect of
which the broker-dealer or organization has a relationship. The fees and
reimbursements paid by a Portfolio to the Distributors may equal up to 0.50% of
the Portfolio's average daily net assets attributable to the Financial Adviser
Class of shares, of which up to 0.25% of a Portfolio's average daily net assets
attributable to the Financial Adviser Class may be paid for shareholder
servicing expenses. Any payment by a Distributor or reimbursement of a
Distributor by a Portfolio made pursuant to the Plan is contingent upon
Trustees' approval. A report of the amounts expended pursuant to the Plan, and
the purposes for which such expenditures were incurred, must be made to the
Trustees for their review at least quarterly. The Plan permits, among other
things, payment by the Portfolios of the costs of preparing, printing and
distributing prospectuses and of implementing and operating the Plan. The Plan
also permits the Distributors to receive and retain brokerage commissions with
respect to portfolio transactions for mutual funds in the Portfolios'
portfolios, including funds which have a policy of considering sales of their
shares in selecting broker-dealers for the execution of their portfolio
transactions. In addition, Freedom Distributors and Edgewood may receive dealer
reallowances (up to a maximum of 1% of the public offering price with respect to
Freedom Distributors) and/or distribution payments, shareholder servicing fees
or "trailer fees" from the underlying mutual funds purchased by the Portfolios.
In that regard, for the period from October 1, 1996 to November 30, 1997,
Freedom Distributors received the following compensation in connection with
purchases of underlying funds by the following portfolios: Aggressive Growth
Portfolio - $0; Growth Portfolio - $27,192.07; Growth with Income Portfolio -
$158,728.83; Bond Portfolio - $39,394.73; and Managed Total Return Portfolio -
$23,086.33.
The Plan provides that it may not be amended to increase materially the costs
which a Portfolio may bear pursuant to the Plan without shareholder approval and
that other material amendments of the Plan must be approved by the Trustees, and
by the Trustees who are neither "interested persons" (as defined in the 1940
Act) of the Trust nor have any direct or indirect financial interest in the
operation of the Plan or in any related agreement, by vote cast in person at a
meeting called for the purpose of considering such amendments. While the Plan is
in effect, the selection and nomination of the Trustees of the Trust has been
committed to the discretion of the Trustees who are not "interested persons" of
the Trust. The Plan has been approved, and is subject to annual approval, by the
Trustees and by the Trustees who are neither "interested persons" nor have any
direct or indirect financial interest in the operation of the Plan, by vote cast
in person at a meeting called for the purpose of voting on the Plan. The
Trustees considered alternative methods to distribute the Financial Adviser
Class of shares of the Portfolios and to reduce the Financial Adviser Class' per
share expense ratios and concluded that there was a reasonable likelihood that
the Plan will benefit the Class and its shareholders. The Plan is terminable
with respect to the Financial Adviser Class or a Portfolio at any time by a vote
of a majority of the Trustees who are not "interested persons" of the Trust and
who have no direct or indirect financial interest in the operation of the Plan
or by vote of the holders of a majority of the shares of that Portfolio or the
Financial Adviser Class. During the fiscal year ended September 30, 1997,
the Portfolios spent, pursuant to their 12b-1 plans on behalf of the Financial
Adviser Class, the following amounts on: <TABLE> <CAPTION>
Managed
Aggressive Growth with Total
Growth Growth Income Bond Return
Portfolio Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C>
Advertising, Printing and mailing of prospectuses $ 63,834 $ 45,778 $ 52,134 $111,549 $19,722
to other than current shareholders
Compensation to broker-dealers 128,776 80,808 85,607 188,587 21,334
Total $192,610 $126,586 $137,741 $300,136 $41,056
Total as a percentage of average daily net assets
during period 0.50% 0.43% 0.42% 0.46% 0.35%
</TABLE>
The Portfolios will not invest in any fund which may be affiliated with the
Distributors or any of their affiliates unless otherwise permitted under the
1940 Act.
Service Organizations
Pursuant to the Plan, the Trust also contracts with banks, trust companies,
broker-dealers (other than the Distributors) or other financial organizations
("Service Organizations") to provide certain administrative services for each
Portfolio's Financial Adviser Class of shares. Services provided by service
organizations may include, among other things, providing necessary personnel and
facilities to establish and maintain certain shareholder accounts and records;
assisting in processing purchase and redemption transactions; arranging for the
wiring of funds; transmitting and receiving funds in connection with client
orders to purchase or redeem shares; verifying and guaranteeing client
signatures in connection with redemption orders, transfers among and changes in
client-designated accounts; providing periodic statements showing a client's
account balances and, to the extent practicable, integrating such information
with other client transactions; furnishing periodic and annual statements and
confirmations of all purchases and redemptions of shares in a client's account;
transmitting proxy statements, annual reports, and updating prospectuses and
other communications from the trust to clients; and such other services as the
trust or a client reasonably may request, to the extent permitted by applicable
statute, rule or regulation. The Distributors and the Adviser will not be
service organizations or receive fees for servicing.
FundManager Advisory Program
Shares of the No-Load Class of shares will be offered to participants in the
FundManager Advisory Program who receive, for an advisory fee at a maximum
annual rate based upon a percentage of assets invested, certain services,
including asset allocation recommendations with respect to the funds based on an
evaluation of their investment objectives and risk tolerances.
PORTFOLIO TRANSACTIONS
As part of its obligations under the investment advisory contract, the Adviser
places all orders for the purchase and sale of portfolio investments for the
Portfolios' accounts with brokers or dealers selected by it in its discretion,
including Freedom Distributors or Edgewood. In selecting a broker, the Adviser
considers a number of factors including the research and other investment
information provided by the broker.
The following is the sales charges paid on underlying fund investments.
Sales Charges Paid By Portfolios
For Fiscal Year Ended September 30, 1995
<TABLE>
<CAPTION>
Sales Charges
Gross Sales Paid to Percent of
Charges Signature Total
<S> <C> <C> <C>
Aggressive Growth Portfolio $2,000 $1,500 75.00%
Growth Portfolio $ 150 $ 135 90.00%
Growth with Income Portfolio $ 0 $ 0 N/A
Bond Portfolio $ 0 $ 0 N/A
Managed Total Return Portfolio $ 0 $ 0 N/A
</TABLE>
Total sales charges and total dollar amount of transactions on which sales
charges were paid during the fiscal year ended September 30, 1995, were $2,150
and $230,000, respectively, of which Signature received 76.05%. As of September
30, 1995, the Funds' shares have not been divided into classes.
Sales Charges Paid By Portfolios
For Fiscal Year Ended September 30, 1996
<TABLE>
<CAPTION>
Sales Charges
Gross Sales Paid to Percent of
Charges Signature Total
<S> <C> <C> <C>
Aggressive Growth Portfolio $0 $0 N/A
Growth Portfolio $0 $0 N/A
Growth with Income Portfolio $0 $0 N/A
Bond Portfolio $0 $0 N/A
Managed Total Return Portfolio $0 $0 N/A
</TABLE>
Total sales charges and total dollar amount of transactions on which sales
charges were paid during the fiscal year ended September 30, 1996, were $0 and
$0, respectively.
Sales Charges Paid By Portfolios
For Fiscal Year Ended September 30, 1997
<TABLE>
<CAPTION>
Sales Charges
Paid to Paid to
Signature Freedom
Gross Sales thru Distributors Percent of
Charges 11/11/96 from 11/12/96 Total
<S> <C> <C> <C> <C>
Aggressive Growth Portfolio $0 $0 $0 N/A
Growth Portfolio $0 $0 $0 N/A
Growth with Income Portfolio $0 $0 $0 N/A
Bond Portfolio $0 $0 $0 N/A
Managed Total Return Portfolio $0 $0 $0 N/A
</TABLE>
Total sales charges and total dollar amount of transactions on which sales
charges were paid during the fiscal year ended September 30, 1997, were $0 and
$0, respectively.
TAX STATUS
The underlying funds' transactions in foreign currencies and hedging activities
may give rise to ordinary income or loss to the extent such income or loss
results from fluctuations in value of the foreign currency concerned. In
addition, such activities will likely produce a difference between book income
and taxable income. This difference may cause a portion of the underlying funds'
income distributions to constitute a return of capital for tax purposes or
require the underlying fund to make distributions exceeding book income to
qualify as a regulated investment company for tax purposes.
International Portfolio
International Portfolio may invest in any non-U.S. corporations which could be
treated as passive foreign investment companies ("PFICs"). This could result in
adverse tax consequences upon the disposition of, or the receipt of "excess
distributions" with respect to, such equity investments. To the extent
International Portfolio does invest in PFICs, it may adopt certain tax
strategies to reduce or eliminate the adverse effects of certain federal tax
provisions governing PFIC investments. Many non-U.S. banks and insurance
companies may not be treated as PFICs if they satisfy certain technical
requirements under the Code. To the extent that International Portfolio does
invest in foreign securities which are determined to be PFIC securities and is
required to pay a tax on such investments, a credit for this tax would not be
allowed to be passed through to its shareholders. Therefore, the payment of this
tax would reduce International Portfolio's economic return from its PFIC shares,
and excess distributions received with respect to such shares are treated as
ordinary income rather than capital gains.
An underlying fund may inadvertently invest in non-U.S. corporations which would
be treated PFICs or become a PFIC under the Code. This could result in adverse
tax consequences upon the disposition of, or the receipt of "excess
distributions" with respect to, such equity investments. To the extent an
underlying fund does invest in PFICs, it may elect to treat the PFIC as a
"qualified electing fund" or mark-to-market its investments in PFICs annually.
In either case, the underlying fund may be required to distribute amounts in
excess of its realized income and gains. To the extent that the underlying fund
itself is required to pay a tax on income or gain from investment in PFICs, the
payment of this tax would reduce International Portfolio's economic return.
OTHER INFORMATION
Capitalization
FundManager Portfolios (formerly named FundManager Trust) is a Delaware business
trust established under a Master Trust Agreement dated February 7, 1995. Prior
to May 8, 1995, the Portfolios were series of the Republic Funds (formerly
FundTrust), a Massachusetts business trust (organized April 22, 1987). Republic
Funds was a successor to two previously-existing Massachusetts business trusts,
FundTrust Tax-Free Trust (organized on July 30, 1986) and FundVest (organized on
July 17, 1984, and since renamed Fund Source). The Trust currently consists of
six separately managed portfolios N Aggressive Growth Portfolio (formerly,
Aggressive Growth Fund), Growth Portfolio (formerly, Growth Fund), Growth with
Income Portfolio (formerly, Growth & Income Fund), Bond Portfolio (formerly,
Bond Fund, and before that, Income Fund), and Managed Total Return Portfolio
(formerly, Managed Total Return Fund) N each offering two classes of shares of
beneficial interest (except Managed Total Return Portfolio, which only offers a
Financial Advisers Class). The capitalization of the Trust consists solely of an
unlimited number of shares of beneficial interest with a par value of $0.001
each. The Trustees may establish additional series (with different investment
objectives and fundamental policies) and additional classes of shares at any
time in the future. Establishment and offering of additional series and classes
will not alter the rights of the Trust's shareholders. When issued, shares are
fully paid, nonassessable, redeemable and freely transferable. Shares do not
have preemptive rights or subscription rights. In liquidation of a Portfolio,
each shareholder is entitled to receive his pro rata share of the net assets of
that Portfolio.
Voting Rights
Under the Master Trust Agreement, the Trust is not required to hold annual
meetings to elect Trustees or for other purposes. It is not anticipated that the
Trust will hold shareholders' meetings unless required by law or the Master
Trust Agreement provides that the holders of not less than two thirds of the
outstanding shares of the Trust may remove persons serving as Trustee either by
declaration in writing or at a meeting called for such purpose. The Trustees are
required to call a meeting for the purpose of considering the removal of persons
serving as Trustee if requested in writing to do so by the holders of not less
than 10% of the outstanding shares of the Trust.
Performance Information
The Trust may, from time to time, include quotations of the Portfolios' yield
and average annual total return in advertisements or reports to shareholders or
prospective investors.
Quotations of yield will be based on a Portfolio's investment income per share
earned during a particular 30-day period, less expenses accrued during the
period ("net investment income") and will be computed by dividing net investment
income by the maximum offering price per share on the last day of the period,
according to the following formula:
YIELD = 2[(A cdB + 1)6-1]
(where a = dividends and interest earned during the period, b = expenses accrued
for the period (net of any reimbursements), c = the average daily number of
shares outstanding during the period that were entitled to receive dividends and
d = the maximum offering price per share on the last day of the period).
For the 30-day period ending September 30, 1997, the yields for the Bond
Portfolio's Financial Adviser Class and No-Load Class were 4.84% and 5.34%,
respectively.
Quotations of a Portfolio's average annual total return will be expressed in
terms of the average annual compounded rate of return of a hypothetical
investment in such Portfolio over periods of 1, 5 and 10 years (up to the life
of the Portfolio), calculated pursuant to the following formula:
P (1 + T)n = ERV
(where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years and
ERV = the ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period). All total return figures will reflect the deduction of
Portfolio expenses on an annual basis and will assume that all dividends and
distributions are reinvested when paid.
For the period prior to its establishment, each Class of shares of each
Portfolio will adopt the performance of the Portfolios and their predecessors.
The performance for this period will reflect the deduction of the Class's
charges and expenses. The total returns (based on net asset value) for the
Financial Adviser Class Portfolios for the periods ended September 30, 1997 were
as follows:
<TABLE>
<CAPTION>
1 Year 5-Year 10-Year
Total Total Return Total Return
Return (Average Annual) (Average Annual)
<S> <C> <C> <C>
Aggressive Growth Portfolio 24.16% 16.45% 11.12%
Growth Portfolio 36.92% 18.20% 12.24%
Growth with Income Portfolio 34.27% 17.57% 12.13%
Bond Portfolio 8.45% 5.75% 7.24%
Managed Total Return Portfolio 17.42% 9.85% N/A
</TABLE>
The total returns for the No-Load Class Portfolios for the period ended
September 30, 1997 were as follows:
<TABLE>
<CAPTION>
1 Year Since Inception**
Total Total Return
Return (Average Annual)
<S> <C> <C>
Aggressive Growth Portfolio 24.76% 18.59%
Growth Portfolio 37.59% 25.32%
Growth with Income Portfolio 34.89% 24.00%
Bond Portfolio 8.92% 6.37%
</TABLE>
** Total return from commencement of operations (October 1, 1995)
Quotations of yield and total return will reflect only the performance of a
hypothetical investment in a Portfolio during the particular time period shown.
Yield and total return for a Portfolio will vary based on changes in market
conditions and the level of such Portfolio's expenses, and no reported
performance figure should be considered an indication of performance which may
be expected in the future.
In connection with communicating its performance to current or prospective
shareholders, the Portfolios also may compare these figures to the performance
of other mutual funds tracked by mutual fund rating services or to unmanaged
indices which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs. Evaluations of the
Portfolios' performance made by independent sources may also be used in
advertisements concerning the Portfolios. Sources for the Portfolios'
performance information could include the following:
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.
Bottom Line, a bi-weekly newsletter which periodically reviews mutual funds and
interviews their portfolio managers.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing abroad.
Changing Times, THE KIPLINGER MAGAZINE, a monthly investment advisory
publication that periodically features the performance of a variety of
securities.
CNBC, a cable financial news television station which periodically reviews
mutual funds and interviews portfolio managers.
Consumer Digest, a monthly business/financial magazine that includes a "money
watch" section featuring financial news.
Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly
publication of industry-wide mutual fund averages by type of fund.
Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.
Morningstar, Inc., a publisher of financial information and mutual fund
research. Mutual Funds Magazine, a magazine for the mutual fund investor which
frequently reviews and ranks mutual funds and interviews their portfolio
managers. New York Times, a nationally distributed newspaper which
regularly covers financial news.
Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that includes a
"mutual funds outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.
Success, a monthly magazine targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.
U.S. News and World Report, a national business weekly that periodically reports
mutual fund performance data.
Value Line, a bi-weekly publication that reports on the largest 15,000 mutual
funds.
Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.
Weisenberger Investment Companies Services, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records, and price ranges.
Worth Magazine, a monthly magazine for the individual investor which frequently
reviews and ranks mutual funds and interviews their portfolio managers.
In addition, the Trust may also provide in its communications to current or
prospective shareholders a listing of those open-end investment companies and
mutual fund complexes or the respective funds included in the Portfolios'
portfolio holdings. These may include, but are not limited to, the following:
Fund Complexes N The AIM Family of Funds; The American Funds Group; Dodge & Cox
Investment Managers; Fidelity Investment; First Pacific Advisors, Inc.; Franklin
Custodian Funds, Inc.; Franklin Templeton Group; Friess Associates, Inc.; The
Gabelli Funds; Guardian Investor Services Corporation; Harbor Capital Advisors,
Inc.; Harris Associates, L.P.; Hotchkis & Wiley Funds; IDS Management; Lord
Abbett Family of Funds; Massachusetts Financial Services Company; Miller
Anderson & Sherrerd, LLP; MJ Whitman, Inc.; Mutual Series Fund, Inc.; Neuberger
& Berman Management Inc.; Pacific Financial Research; Pacific Investment
Management Company; Pioneer Funds Distributor; Putnam Funds; The Royce Funds;
Sanford C. Bernstein & Co., Inc.; Societe Generale Asset Management Corp.; T.
Rowe Price Associates, Inc.; The Vanguard Family of Funds; Venture Advisors,
L.P.; Waddell & Reed Asset Management Company; Yacktman Asset Management.
Investors who purchase and redeem Financial Adviser Class shares of the
Portfolios through a customer account maintained at a service organization may
be charged one or more of the following types of fees as agreed upon by the
Service Organization and the investor, with respect to the customer services
provided by the service organization: account fees (a fixed amount per month or
per year); transaction fees (a fixed amount per transaction processed);
compensating balance requirements (a minimum dollar amount a customer must
maintain in order to obtain the services offered); or account maintenance fees
(a periodic charge based upon a percentage of the assets in the account or of
the dividends paid on those assets). Such fees will have the effect of reducing
the yield and effective yield of the Portfolio for those investors. Investors
who maintain accounts with the Trust as transfer agent will not pay these fees.
Independent Auditors
Ernst & Young LLP serves as the independent auditors for the Trust. Ernst &
Young LLP audits the Portfolio's financial statements, prepares the Portfolios'
tax return and assists in filings with the SEC. Ernst & Young LLP's address is
200 Clarendon Street, Boston, MA 02116. Counsel Goodwin, Procter & Hoar,
Exchange Place, Boston, Massachusetts 02109, passes upon certain legal matters
in connection with the shares offered by the Trust and also acts as counsel to
the Trust.
REGISTRATION STATEMENT
The Prospectuses and Statement of Additional Information do not contain all the
information included in the Trust's registration statement filed with the SEC
under the 1933 Act with respect to the securities offered hereby, certain
portions of which have been omitted pursuant to the rules and regulations of the
SEC. The registration statement, including the exhibits filed therewith, may be
examined at the office of the SEC in Washington, D.C.
Statements contained in the Prospectuses and Statement of Additional Information
as to the contents of any contract or other documents referred to are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or other documents filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such
reference.
FINANCIAL STATEMENTS
The Portfolios' current reports to shareholders as filed with the SEC pursuant
to Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder are hereby
incorporated herein by reference to the Trust's Annual Report dated September
30, 1997 (File Nos. 33-89754 and 811-8992). A copy of each such report will be
provided without charge to each person receiving this Statement of Additional
Information.
G01966-03 (1/98)
PART C OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements: To be filed by amendment.
(b) Exhibits:
(l) (i) Conformed copy of the Master Trust Agreement of the
Registrant; (4)
(ii) Conformed copy of the Amendment No. 1 to Master Trust
Agreement; (4)
(iii) Conformed copy of the Amendment No. 2 to Master Trust
Agreement; (11)
(iv) Conformed copy of the Amendment No. 3 to Master Trust
Agreement; (11)
(2) Copy of By-Laws of the Registrant; (4)
(3) Not Applicable
(4) Not Applicable
(5) (i)Conformed copy of the new Master Investment Advisory
Contract and Investment Advisory Contract Supplement
for Aggressive Growth Portfolio, Growth Portfolio, Growth with
Income Portfolio, Bond Portfolio, Managed
Total Return Portfolio; (11)
(ii)Conformed copy of the Investment Advisory Contract
Supplement for the International Portfolio; +
(6) (i) Conformed copy of the Distributors Contract between
Edgewood Services Company and FundManager Portfolios; (11)
(ii) Conformed copy of the Master Distributors Contract
between Tucker Anthony Incorporated and FundManager
Portfolios; (11)
(iii) Conformed copy of the Master Distributors Contract
between Sutro & Co. Incorporated and FundManager
Portfolios; (11)
(iv) Conformed copy of the Master Distributors Contract between
Freedom Distributors Corporation and FundManager
Portfolios; (11)
(v) Form of Mutual Funds Sales and Service Agreement; (14) (vi)
Conformed copy of Exhibit B to the Distributor's
Contract between FundManager Portfolios and Edgewood
Services, Inc. with respect to the Financial Adviser
Class and the No-Load Class of the International
Portfolio; +
(vii) Conformed copy of the Distribution Contract Supplement between
FundManager Portfolios and Freedom Distributors with respect
to the International Portfolio; +
(7) Not Applicable
-----------------------------------
+ All exhibits have been filed electronically.
(4) Incorporated by reference to Post-Effective Amendment No.2 to the
Registrant's Registration Statement as filed with the Commission
on January 30, 1996. (File Nos. 33-89754 and 811-8992)
(11) Incorporated by reference to Post-Effective Amendment No.4 to the
Registrant's Registration Statement as filed with the Commission
on January 23, 1997. (File Nos. 33-89754 and 811-8992)
(14) Incorporated by reference to Post-Effective Amendment No. 10 to
the Registrant's Registration Statement as filed with the
Commission on December 29, 1997. (File Nos. 33-89754 and 811-8992)
<PAGE>
(8) Conformed copy of Custodian Agreement between FundManager
Portfolios and Investors Bank & Trust Company; (11)
(i) Domestic Custody and Accounting Fee Schedule; (12)
(ii) Conformed copy of Custodian Contract between
FundManager Portfolios and State Street Bank and
Trust Company; (13)
(9) (i) Conformed copy of the Administrative Services Agreement between
FundManager Portfolios and Federated Administrative Services; (11)
(ii) Conformed copy of the Transfer Agency and Service Agreement
between FundManager Portfolios and Investors Bank & Trust Company; (11)
(iii) Conformed copy of Agreement for Transfer Agency
Services between FundManager Portfolios and Federated
Shareholder Services Company; (13)
(iv) Conformed copy of Amendment #1 to Schedule A to Administrative
Services Agreement between FundManager Portfolios and
Federated Administrative Services; +
(10) Opinion and Consent of counsel; (2) (11) Conformed copy of Consent of
Independent Auditors; + (12) Not Applicable (13) Not Applicable (14) Not
Applicable
(15) (i) Amended and Restated Master Distribution Plan and
Supplements for the Financial Adviser Class of shares; (3)
(ii) Amended and Restated Master Distribution Plan and
Supplements for the Financial Adviser Class of
shares; (13)
(iii) Conformed copy of the Amended and Restated
Distribution Plan Supplement for the Financial
Adviser Class of International Portfolio; +
-----------------------------------
+ All exhibits have been filed electronically.
(2) Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement as filed with the Commission on May 3,
1995. (File Nos. 33-89754 and 811-8992)
(3) Incorporated by reference to Post-Effective Amendment No.1 to the
Registrant's Registration Statement as filed with the Commission on July
28, 1995. (File Nos. 33-89754 and 811-8992)
(11) Incorporated by reference to Post-Effective Amendment No.4 to the
Registrant's Registration Statement as filed with the Commission on January
23, 1997. (File Nos. 33-89754 and 811-8992)
(12) Incorporated by reference to Post-Effective Amendment No. 7 to the
Registrant's Registration Statement as filed with the Commission on October
21, 1997. (File Nos. 33-89754 and 811-8992)
(13) Incorporated by reference to Post-Effective Amendment No.8 to the
Registrant's Registration Statement as filed with the Commission on
November 26, 1997. (File Nos. 33-89754 and 811-8992)
<PAGE>
(16) Copy of Performance Data Calculations: Aggressive Growth
Portfolio, Growth Portfolio, Growth with Income Portfolio,
Bond Portfolio, Managed Total Return Portfolio; (2)
(17) Copy of Financial Data Schedules; +
(18) (i) Multiple Class Expense Allocation Plan; (3)
(ii) Amended Multiple Class Expense Allocation Plan; (13)
(iii) Addendum #1 to the Multiple Class Expense
Allocation Plan; +
(19) Conformed copy of Powers of Attorney of Trustees and
Officers of Registrant; (11)
ITEM 25. Persons Controlled by or Under Common Control with Registrant:
Not Applicable
ITEM 26. Number of Holders of Securities.
Title of Class Number of Record Holders
as of January 7, 1998
Aggressive Growth Portfolio
Financial Adviser Class 1,623
No-Load Class 148
Growth Portfolio
Financial Adviser Class 808
No-Load Class 130
Growth with Income Portfolio
Financial Adviser Class 921
No-Load Class 134
Bond Portfolio
Financial Adviser Class 270
No-Load Class 111
Managed Total Return Portfolio
Financial Adviser Class 613
International Portfolio
Financial Adviser Class 1
No-Load Class 1
ITEM 27. Indemnification; (4)
- -----------------------------------
+ All exhibits have been filed electronically.
(2) Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement as filed with the Commission on May 3,
1995. (File Nos. 33-89754 and 811-8992)
(3) Incorporated by reference to Post-Effective Amendment No.1 to the
Registrant's Registration Statement as filed with the Commission on July
28, 1995. (File Nos. 33-89754 and 811-8992)
(4) Incorporated by reference to Post-Effective Amendment No.2 to the
Registrant's Registration Statement as filed with the Commission on January
30, 1996. (File Nos. 33-89754 and 811-8992)
(11) Incorporated by reference to Post-Effective Amendment No.4 to the
Registrant's Registration Statement as filed with the Commission on January
23, 1997. (File Nos. 33-89754 and 811-8992)
(13) Incorporated by reference to Post-Effective Amendment No.8 to the
Registrant's Registration Statement as filed with the Commission on
November 26, 1997. (File Nos. 33-89754 and 811-8992)
<PAGE>
ITEM 28. Business and Other Connections of Investment Adviser:
For a description of the other business of the investment adviser, see the
section entitled "Management of FundManager Portfolios-The Adviser" in
Part A.
The names and principal occupations of each director and executive officer of
Freedom Capital Management Corporation are set forth below:
NAME BUSINESS AND OTHER CONNECTIONS
John H. Goldsmith President and Chief Executive Officer of
Freedom Securities Corporation; Chairman and Chief
Executive Officer of Tucker Anthony Incorporated;
Managing Director of Freedom Capital
Henry M. Greenleaf President of Freedom Capital
Dexter A. Dodge Chairman and Director of Freedom Capital;
Vice President of Freedom Distributors Corporation
Lawrence G. Kirshbaum Chief Financial Officer of Freedom
Securities Corporation; Director of Tucker Anthony
Holding Corp., Sutro Group and John
Hancock Clearing Corporation; Managing Director of
Freedom Capital; Registered Principal of
Tucker Anthony Incorporated; Former Chief
Executive Officer of Kirshbaum & Co. and of
Prescott, Ball & Turben
John J. Danello Chief Operating Officer, Managing Director, Clerk and
General Counsel of Freedom Capital; President and
Director of Freedom Distributors Corporation
Richard V. Howe Managing Director of Freedom Capital
Arthur E. McCarthy Managing Director of Tucker Anthony Incorporated
Michael M. Spencer Senior Vice President and Director of
Fixed-Income
Investments of Freedom Capital; Portfolio Manager
at Shawmut Investment Advisers
Terrence J. Gerlich Managing Director of Freedom Capital
Charles B. Lipson President of the M.D. Hirsch Division of the
Adviser since February 1995; President and Chief
Operating Officer of the M.D. Hirsch Division of
Republic Asset Management Corporation from February
1991 to December 1994
Michael D. Hirsch Chairman, M.D. Hirsch Division of the Adviser since
February 1995; Vice President and Executive Vice
Chairman and Managing Director, Portfolio Manager
of M.D. Hirsch Division of Republic Asset Management
Corporation from June 1993 to February 1994
<PAGE>
Item 29. Principal Underwriters:
(a) Edgewood Services, Inc. the Distributor for shares of the
Registrant, acts as principal underwriter for the following
open-end investment companies, including the Registrant: BT
Advisor Funds, BT Institutional Funds, BT Investment Funds, BT
Pyramid Mutual Funds, Excelsior Funds, Excelsior Funds, Inc.,
(formerly, UST Master Funds, Inc.), Excelsior Institutional
Trust, Excelsior Tax-Exempt Funds, Inc. (formerly, UST Master
Tax-Exempt Funds, Inc.), Deutsche Portfolios, FTI Funds,
FundManager Portfolios, Great Plains Funds, Marketvest Funds,
Marketvest Funds, Inc., Old Westbury Funds, Inc., Robertsons
Stephens Investment Trust, WesMark Funds and WCT Funds.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Lawrence Caracciolo Director, President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Arthur L. Cherry Director, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
J. Christopher Donahue Director, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Ronald M. Petnuch Vice President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Thomas P. Schmitt Vice President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Thomas P. Sholes Vice President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Ernest L. Linane Assistant Vice President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
S. Elliott Cohan Secretary, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Thomas J. Ward Assistant Secretary, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Kenneth W. Pegher, Jr. Treasurer, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
<PAGE>
(ai) Freedom Distributors Corp., a Distributor for shares of the Registrant,
also acts as principal underwriter for the following open-end investment
companies: Freedom Mutual Fund and Freedom Group of Tax Exempt Funds.
(bi)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
John J. Danello President and Director Executive Vice
One Beacon Street of Freedom Distributors President of the
Boston, MA 02108 Corp. Registrant.
Michael G. Ferry Treasurer of Freedom --
One Beacon Street Distributors Corp.
Boston, MA 02108
Dexter A. Dodge Director of Freedom Trustee, Chairman
One Beacon Street Distributors Corp. and Chief
Boston, MA 02108 Executive Officer
of the Registrant.
Maureen M. Renzi Vice President and Clerk Assistant
One Beacon Street of Freedom Distributors Secretary of the
Boston, MA 02108 Corp. Registrant.
(aii) Tucker Anthony Incorporated, a Distributor for shares of the Registrant,
also acts as principal underwriter for the following open-end investment
companies: Freedom Mutual Fund and Freedom Group of Tax Exempt Funds.
(bii)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
John H. Goldsmith Chairman, Chief Executive --
One World Financial Center Officer and Director of
New York, NY 10281 Tucker Anthony Incorporated.
Robert H. Yevich President and Director of --
One World Financial Center Tucker Anthony Incorporated.
New York, NY 10281
Marc Menchel Executive Vice President, --
One World Financial Center Secretary and Clerk of
New York, NY 10281 Tucker Anthony Incorporated.
John Mullin Treasurer and Chief Financial --
One World Financial Center Officer of Tucker Anthony
New York, NY 10281 Incorporated.
<PAGE>
(aiii) Sutro & Co. Incorporated, a Distributor for shares of the Registrant,
also acts as principal underwriter for the following open-end investment
companies: Freedom Mutual Fund and Freedom Group of Tax Exempt Funds.
(biii)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
John F. Luikart President and Chief Executive --
201 California Street Officer of Sutro & Co.
San Francisco, CA 94111 Incorporated.
Mary Jane Delaney Executive Vice President --
201 California Street and General Counsel of
San Francisco, CA 94111 Sutro & Co. Incorporated.
John H. Goldsmith Chairman of Sutro & Co. --
One Beacon Street Incorporated.
Boston, MA 02108
John W. Eisele Executive Vice President of --
201 California Street Sutro & Co. Incorporated.
San Francisco, CA 94111
Thomas R. Weinberger Executive Vice President of --
11150 Santa Monica Blvd. Sutro & Co. Incorporated.
Suite 1500
Los Angeles, CA 90025
Ray Minehan Executive Vice President of
201 California Street Sutro & Co. Incorporated
San Francisco, CA 94111
Jerry Phillips Executive Vice President of
201 California Street Sutro & Co. Incorporated
San Francisco, CA 94111
(c) Not Applicable.
ITEM 30. Location of Accounts and Records:
All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and the Rules 31a-1 through 31a-3 promulgated
thereunder will be maintained at one of the following locations:
Registrant Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Freedom Capital Management Corporation One Beacon Street
("Adviser") Boston Massachusetts 02108.
Federated Administrative Services Federated Investors Tower
("Administrator") Pittsburgh, Pennsylvania 15222-3779
Federated Shareholder Services Company P.O. Box 8600
("Transfer Agent and Dividend Boston, Massachusetts 02266-8600
Disbursing Agent and Shareholder
Servicing Agent")
State Street Bank and Trust Company P.O. Box 8600
("Custodian and Portfolio Boston, Massachusetts 02266-8600
Accountant")
<PAGE>
ITEM 31. Management Services:
Not applicable.
ITEM 32. Undertakings
Registrant hereby undertakes to comply with Section 16(c) of the 1940 Act
as though such provisions of the Act were applicable to the Registrant except
that the request referred to in the third full paragraph thereof may only be
made by shareholders who hold in the aggregate at least 10% of the outstanding
shares of the Registrant, regardless of the net asset value or values of shares
held by such requesting shareholders.
Registrant hereby undertakes to furnish to each person to whom a
prospectus is delivered a copy of the Registrant's latest annual report to
shareholders upon request and without charge.
Registrant hereby undertakes to file a post-effective amendment using
financial statements, which need not be certified, within four to six months
from the effective date of Registrant's Post- Effective Amendment No. 5.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, the Registrant, FUNDMANAGER PORTFOLIOS
(formerly, FundManager Trust), certifies that it meets all of the requirements
for effectiveness of this Amendment to its Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment
to its Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Pittsburgh and the Commonwealth of
Pennsylvania on the 28th day of January, 1998.
FUNDMANAGER PORTFOLIOS
(formerly, FUNDMANAGER TRUST)
By: /s/ Victor R. Siclari
Victor R. Siclari, Secretary
January 28, 1998
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
NAME TITLE DATE
By: /s/ Victor R. Siclari Attorney in Fact January 28, 1998
Victor R. Siclari For the Persons
SECRETARY Listed Below
/s/Dexter A. Dodge* Chairman and Trustee
Dexter A. Dodge (Chief Executive Officer)
/s/Charles B. Lipson* President
Charles B. Lipson (Principal Executive Officer)
/s/Judith J. Mackin* Treasurer
Judith J. Mackin (Principal Financial and
Accounting Officer)
/s/Ernest T. Kendall* Trustee
Ernst T. Kendall
/s/Richard B. Osterberg* Trustee
Richard B. Osterberg
/s/John R. Haack* Trustee
John R. Haack
* By Power of Attorney
Exhibit 5(ii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
INVESTMENT ADVISORY CONTRACT SUPPLEMENT
FundManager Portfolios
One Beacon Street
Boston, Massachusetts 02108
May 31, 1997
Freedom Capital Management Corporation
One Beacon Street
Boston, Massachusetts 02108-3105
Dear Sirs:
Re: International Portfolio
This will confirm the agreement between the undersigned (the "Trust") and
Freedom Capital Management Corporation (the "Adviser") as follows:
1. The Trust is an open-end management investment company organized as a
Delaware business trust and consists of such separate investment portfolios as
have been or may be established by the Trustees of the Trust from time to time.
A separate class of shares of beneficial interest of the Trust is offered to
investors with respect to each investment portfolio. International Portfolio
(the "Fund") is a separate investment portfolio of the Trust.
2. The Trust and the Adviser have entered in to a Master Investment
Advisory Contract ("Master Advisory Contract") pursuant to which the Trust has
employed the Adviser to provide investment advisory and other services specified
in the Master Advisory Contract and the Adviser has accepted such employment.
Terms used but not otherwise defined herein shall have the same meanings
assigned to them by the Master Advisory Contract.
3. As provided in paragraph 1 of the Master Advisory Contract, the Trust
hereby adopts the Master Advisory Contract with respect to the Fund and the
Adviser hereby acknowledges that the Master Advisory Contract shall pertain to
the Fund, the terms and conditions of the Master Advisory Contract being hereby
incorporated herein by reference.
4. The term "Fund" as used in the Master Advisory Contract shall, for
purposes of this Supplement, pertain to the Fund.
5. As provided in paragraph 6 of the Master Advisory Contract and subject
to further conditions as set forth therein, the Trust shall with respect to the
Fund pay the Adviser a monthly fee on the first business day of each month based
upon the average daily value (as determined on each business day at the time set
forth in the Prospectus for determining net asset value per share) of the net
assets of the Fund during the preceding month at the following annual rates:
Portion of Average Daily
Value of Net Assets of the Fund Fee Rate
Assets not exceeding $500 million 0.50%
Assets in excess of $500 million 0.40%
6. This Supplement to the Master Advisory Contract (together, the
"Contract") shall become effective with respect to the Fund on May 31, 1997 and
shall thereafter continue in effect with respect to the Fund only so long as the
continuance is specifically approved at least annually (a) by the vote of a
majority of the outstanding voting securities of the Fund (as defined in the
1940 Act) or by the Board of Trustees and (b) by the vote, cast in person at a
meeting called for that purpose, of a majority of the members of the Board of
Trustees who are not parties to this Contract or "interested persons" (as
defined in the 1940 Act) of any such party. This Contract may be terminated with
respect to the Fund at any time, without the payment of any penalty, by vote of
a majority of the outstanding voting securities of the Fund (as defined in the
1940 Act) or by a vote of a majority of the outstanding voting securities of the
Fund (as defined in the 1940 Act) or by a vote of a majority of the members of
the Board of Trustees on 60 days' written notice to the Trust. This Contract
shall terminate automatically in the event of its assignment as defined in the
1940 Act.
If the foregoing correctly sets forth the agreement between the Trust and
the Adviser, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
FUNDMANAGER PORTFOLIOS
By: /s/ Edward C. Gonzales
Title: Executive Vice President
ACCEPTED:
FREEDOM CAPITAL MANAGEMENT
CORPORATION
By: /s/ John Danello
Title: Executive Vice President
Exhibit 6(vi) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
Exhibit B
to the
Distributor's Contract
FUNDMANAGER PORTFOLIOS
INTERNATIONAL PORTFOLIO
FINANCIAL ADVISER CLASS
NO-LOAD CLASS
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated November 11, 1996, between FundManager Portfolios
(the "Trust") and Edgewood Services, Inc. ("Edgewood"), with respect to the
Classes of shares set forth above.
1. The Trust hereby appoints Edgewood to engage in activities principally
intended to result in the sale of shares of the above-listed Classes
("Shares"). Pursuant to this appointment, Edgewood is authorized to
select a group of financial institutions ("Financial Institutions") to
sell Shares at the current offering price thereof as described and set
forth in the respective prospectuses of the Trust.
2. During the term of this Agreement, the Trust may pay Edgewood for
services pursuant to this Agreement, a monthly fee under the Trust's
Rule 12b-1 Plan computed at the annual rate of the average aggregate net
asset value of the Shares held during the month. For the month in which
this Agreement becomes effective or terminates, there shall be an
appropriate proration of any fee payable on the basis of the number of
days that the Agreement is in effect during the month.
3. Edgewood may from time-to-time and for such periods as it deems
appropriate reduce its compensation to the extent any Classes' expenses
exceed such lower expense limitation as Edgewood may, by notice to the
Trust, voluntarily declare to be effective.
4. Edgewood or its affiliate will prepare reports to the Board of Trustees
of the Trust on a quarterly basis showing amounts expended hereunder
including amounts paid to Financial Institutions and the purpose for
such expenditures.
5. Edgewood or its affiliate will review and file all sales literature
(advertisements, brochures and shareholder communications) for the Trust
in accordance with rules and regulations of the National Association of
Securities Dealers, Inc.
In consideration of the mutual covenants set forth in the Distributor's
Contract dated November 11, 1996 between the Trust and Edgewood, the Trust
executes and delivers this Exhibit on behalf of the International Portfolio,
thereof, first set forth in this Exhibit.
Witness the due execution hereof this 31st day of May, 1997.
FUNDMANAGER PORTFOLIOS
By: /s/ Edward C. Gonzales
Executive Vice President
EDGEWOOD SERVICES, INC.
By: /s/ Lawrence Caracciolo
President
Exhibit 6(vii) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
DISTRIBUTION CONTRACT SUPPLEMENT
FundManager Portfolios
One Beacon Street
Boston, Massachusetts 02108
May 31, 1997
Freedom Distributors Corporation
One Beacon Street
Boston, Massachusetts 02106
Re: International Portfolio
Dear Sirs:
This will confirm the agreement between the undersigned (the "Trust") and
you (the "Distributor") as follows:
1. The Trust is an open-end management investment company organized as a
Delaware business trust which consists of separate series (or sub-trusts) of
shares of beneficial interest which may be divided into one or more classes of
shares of beneficial interest as may be established and designated by the
Trustees from time to time. International Portfolio (the "Fund") is a separate
series of the Trust with two classes (individually and collectively, the
"Class") of shares of beneficial interest designated as the Financial Adviser
Class and the No-Load Class of shares (individual and collectively, the
"Shares").
2. The Trust and the Distributor have entered into a Master Distribution
Contract (the "Contract") pursuant to which the Distributor has agreed to be the
distributor of the shares of beneficial interest of such series and classes as
shall be designated from time to time by the Trustees of the Trust in any
Supplement to the Contract.
3. As provided in paragraph 1 of the Contract, the Trust hereby adopts the
Contract with respect to the Fund's Shares, and the Distributor hereby
acknowledges that the Contract shall pertain to the Shares of the Fund, the
terms and conditions of such Contract being hereby incorporated herein by
reference. All terms defined in the Contract and not defined in this Supplement
shall have the same meaning herein as therein.
4. The term "Fund" as used in the Contract shall, for purposes of this
Supplement, pertain to the International Portfolio. The term "Shares" as used in
the Contract shall, for the purposes of this Supplement pertain to the Shares of
the Fund.
5. This Supplement and the Contract shall become effective with respect to
the Trust and the Shares of the Fund on May 31, 1997 and shall continue in
effect until such time as there shall remain no unsold balance of Shares
registered under the 1933 Act, provided that the Contract and this Supplement
shall continue in effect with respect to the Shares of the Fund for a period of
more than two years from the effective date of this Supplement only so long as
such continuance is specifically approved at least annually by (a) the Trust's
Board of Trustees or by the vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of the Class, and (b) the vote, cast in
person at a meeting called for the purpose of voting on such approval, of a
majority of the Trust's trustees who are not parties to the Contract or
"interested persons" (as defined in the 1940 Act) of any such party. The
Contract and this Supplement shall terminate automatically in the event of
assignment (as defined in the 1940 Act). The Contract and this Supplement may,
in any event, be terminated at any time, without the payment of any penalty, by
vote of a majority of the Trust's Trustees who are not parties to this Contract
or "interested persons" (as defined in the 1940 Act) and who have no direct or
indirect financial interest in the operation of this Contract or by vote of a
majority of the outstanding voting securities (as defined in the 1940 Act) of
the Class upon 60 days' written notice to the Distributor and by the Distributor
upon 60 days' written notice to the Trust.
If the foregoing correctly sets forth the agreement between the Trust and
the Distributor, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
FUNDMANAGER PORTFOLIOS
By: /s/ Edward C. Gonzales
Name: Edward C. Gonzales
Title: Executive Vice President
ACCEPTED:
Freedom Distributors Corporation
By: /s/ John Danello
Name: John Danello
Title: President
Exhibit 9(iv) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
Amendment #1 (dated May 31, 1997) to
SCHEDULE A
TO
ADMINISTRATIVE SERVICES AGREEMENT
The Administrative Services Agreement dated November 11, 1996 between
Federated Administrative Services and FundManager Portfolios includes the
following portfolios (and any classes thereof) effective as of the date set
forth above:
AGGRESSIVE GROWTH PORTFOLIO
FINANCIAL ADVISER CLASS
NO-LOAD CLASS
GROWTH & INCOME PORTFOLIO
FINANCIAL ADVISER CLASS
NO-LOAD CLASS
GROWTH PORTFOLIO
FINANCIAL ADVISER CLASS
NO-LOAD CLASS
BOND PORTFOLIO
FINANCIAL ADVISER CLASS
NO-LOAD CLASS
MANAGED TOTAL RETURN PORTFOLIO
FINANCIAL ADVISER CLASS
INTERNATIONAL PORTFOLIO
FINANCIAL ADVISER CLASS
NO-LOAD CLASS
FundManager Portfolios
By: /s/ Edward C. Gonzales
Name: Edward C. Gonzales
Title: Executive Vice President
Federated Administrative Services
By: /s/ Thomas J. Ward
Name: Thomas J. Ward
Title: Senior Vice President
Exhibit 15(iii) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
FUNDMANAGER PORTFOLIOS
AMENDED AND RESTATED DISTRIBUTION PLAN SUPPLEMENT
INTERNATIONAL PORTFOLIO
WHEREAS, FundManager Portfolios (the "Trust") is an open-end investment
company organized as a Delaware business trust which consists of separate series
(or sub-trusts) of shares of beneficial interest which may be divided into one
or more classes of shares of beneficial interest as may be established and
designated by the Trustees from time to time; and
WHEREAS, the Trust has adopted a Master Distribution Plan ("Plan") on
March 14, 1995, as amended and restated on June 13, 1995 and November 11, 1996,
which provides that the Plan shall pertain to the Financial Adviser Class shares
("Financial Adviser Class Shares") of such series as shall be designated from
time to time by the Trustees of the Trust in any Supplement to the Plan; and
WHEREAS, International Portfolio (the "Fund") is a separate series of the
Trust with a class of shares of beneficial interest designated as Financial
Adviser Class Shares.
NOW, THEREFORE, the Trustees of the Trust hereby take the following
actions, subject to the conditions set forth:
1. As provided in paragraph 1 of the Plan, the Trust hereby adopts
the Plan on behalf the Financial Adviser Class Shares of the Fund, the terms and
conditions of such Plan being hereby incorporated herein by reference;
2. The term "Fund" as used in the Plan shall refer to the Fund; and
3. As provided in paragraph 2 of the Plan, the Distributors shall be
reimbursed for such costs, expenses or payments as set forth in the Plan,
subject to an annual limit with respect to the Fund of 0.50% of the fund's
average daily net assets attributable to its Financial Adviser Class Shares.
FundManager Portfolios
By: /s/ Edward C. Gonzales
Name: Edward C. Gonzales
Title: Executive Vice President
Adopted on May 31, 1997.
Exhibit 18(iii) under Form N-1A
Exhibit 99 under Item 601/Reg. S-K
FUNDMANAGER PORTFOLIOS
(FORMERLY, FUNDMANAGER TRUST)
ADDENDUM #1 TO THE
MULTIPLE CLASS EXPENSE ALLOCATION PLAN
ADOPTED PURSUANT TO RULE 18F-3
This Addendum #1 to the Multiple Class Expense Allocation Plan Adopted
Pursuant to Rule 18f-3 reflects the establishment of a new series of the Trust,
International Portfolio with two Classes, established and designated as
"Financial Adviser Class" and "No-Load Class." The Financial Adviser Class and
No-Load Class of Shares of International Portfolio are identical in all material
respects to those Classes of Shares of the Initial Series.
Adopted on May 31, 1997 (to reflect board action on May 20, 1997)
Exhibit (11) under Form N-1A
Exhibit 23 under Item 601/Reg. S-K
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" in the FundManager Portfolios Financial Adviser Class and No-Load
Class Prospectuses and "Independent Auditors" in the FundManager Portfolios
combined Financial Adviser Class and No-Load Class Statement of Additional
Information in Post-Effective Amendment No. 11 to the Registration Statement
(Form N-1A, No. 811-8992) of FundManager Portfolios.
We also consent to the incorporation by reference therein of our report dated
November 25, 1997, with respect to the financial statements and financial
highlights of the FundManager Portfolios in this Form N-1A.
By: ERNST & YOUNG LLP
/s/ Ernst & Young LLP
Boston, Massachusetts
January 28, 1998
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<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> FundManager Portfolios
Aggressive Growth Portfolio
Financial Adviser
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Sep-30-1997
<PERIOD-END> Sep-30-1997
<INVESTMENTS-AT-COST> 28,838,243
<INVESTMENTS-AT-VALUE> 37,726,746
<RECEIVABLES> 36,880
<ASSETS-OTHER> 500,128
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 38,263,754
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 142,966
<TOTAL-LIABILITIES> 142,966
<SENIOR-EQUITY> 0
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<OTHER-INCOME> 0
<EXPENSES-NET> 629,877
<NET-INVESTMENT-INCOME> (272,391)
<REALIZED-GAINS-CURRENT> 3,664,284
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<NET-CHANGE-FROM-OPS> 8,525,627
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 147,770
<DISTRIBUTIONS-OF-GAINS> 4,353,531
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<NUMBER-OF-SHARES-SOLD> 535,301
<NUMBER-OF-SHARES-REDEEMED> 1,182,875
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<NET-CHANGE-IN-ASSETS> (2,255,652)
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<GROSS-EXPENSE> 641,094
<AVERAGE-NET-ASSETS> 40,127,980
<PER-SHARE-NAV-BEGIN> 16.800
<PER-SHARE-NII> (0.120)
<PER-SHARE-GAIN-APPREC> 3.750
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<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
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<NUMBER> 011
<NAME> FundManager Portfolios
Aggressive Growth
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No-Load
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Sep-30-1997
<PERIOD-END> Sep-30-1997
<INVESTMENTS-AT-COST> 28,838,243
<INVESTMENTS-AT-VALUE> 37,726,746
<RECEIVABLES> 36,880
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<SHARES-COMMON-PRIOR> 84,732
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<OVERDISTRIBUTION-GAINS> 0
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<DISTRIBUTIONS-OF-GAINS> 176,417
<DISTRIBUTIONS-OTHER> 0
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<SHARES-REINVESTED> 106
<NET-CHANGE-IN-ASSETS> (2,255,652)
<ACCUMULATED-NII-PRIOR> 100,956
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<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 200,484
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 641,094
<AVERAGE-NET-ASSETS> 40,127,980
<PER-SHARE-NAV-BEGIN> 16.910
<PER-SHARE-NII> (0.040)
<PER-SHARE-GAIN-APPREC> 3.760
<PER-SHARE-DIVIDEND> 0.150
<PER-SHARE-DISTRIBUTIONS> 1.920
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 18.560
<EXPENSE-RATIO> 1.09
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 041
<NAME> FundManager
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Bond Portfolio
Financial Adviser
Class
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Sep-30-1997
<PERIOD-END> Sep-30-1997
<INVESTMENTS-AT-COST> 63,546,924
<INVESTMENTS-AT-VALUE> 65,193,437
<RECEIVABLES> 331,735
<ASSETS-OTHER> 335,281
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 65,860,453
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 82,293
<TOTAL-LIABILITIES> 82,293
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 67,225,091
<SHARES-COMMON-STOCK> 6,184,570
<SHARES-COMMON-PRIOR> 7,015,708
<ACCUMULATED-NII-CURRENT> 470,672
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,564,116)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,646,513
<NET-ASSETS> 63,556,884
<DIVIDEND-INCOME> 4,389,782
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 930,466
<NET-INVESTMENT-INCOME> 3,459,316
<REALIZED-GAINS-CURRENT> 41,868
<APPREC-INCREASE-CURRENT> 1,923,463
<NET-CHANGE-FROM-OPS> 5,424,647
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<DISTRIBUTIONS-OF-INCOME> 3,534,481
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
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<SHARES-REINVESTED> 163,682
<NET-CHANGE-IN-ASSETS> (6,376,061)
<ACCUMULATED-NII-PRIOR> 608,814
<ACCUMULATED-GAINS-PRIOR> (3,543,733)
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<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 949,736
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<PER-SHARE-NII> 0.510
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<EXPENSE-RATIO> 1.39
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 042
<NAME> FundManager Portfolios
Bond Portfolio
No Load Class
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Sep-30-1997
<PERIOD-END> Sep-30-1997
<INVESTMENTS-AT-COST> 63,546,924
<INVESTMENTS-AT-VALUE> 65,193,437
<RECEIVABLES> 331,735
<ASSETS-OTHER> 335,281
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 65,860,453
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 82,293
<TOTAL-LIABILITIES> 82,293
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 67,225,091
<SHARES-COMMON-STOCK> 214,805
<SHARES-COMMON-PRIOR> 198,015
<ACCUMULATED-NII-CURRENT> 470,672
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,564,116)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,646,513
<NET-ASSETS> 2,221,276
<DIVIDEND-INCOME> 4,389,782
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 930,466
<NET-INVESTMENT-INCOME> 3,459,316
<REALIZED-GAINS-CURRENT> 41,868
<APPREC-INCREASE-CURRENT> 1,923,463
<NET-CHANGE-FROM-OPS> 5,424,647
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 125,228
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 64,621
<NUMBER-OF-SHARES-REDEEMED> 54,496
<SHARES-REINVESTED> 6,665
<NET-CHANGE-IN-ASSETS> (6,376,061)
<ACCUMULATED-NII-PRIOR> 608,814
<ACCUMULATED-GAINS-PRIOR> (3,543,733)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 340,908
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 949,736
<AVERAGE-NET-ASSETS> 67,983,748
<PER-SHARE-NAV-BEGIN> 10.040
<PER-SHARE-NII> 0.570
<PER-SHARE-GAIN-APPREC> 0.300
<PER-SHARE-DIVIDEND> 0.570
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.340
<EXPENSE-RATIO> 0.89
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 031
<NAME> FundManager Portfolios
Growth with Income
Portfolio
Financial Adviser Class
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Sep-30-1997
<PERIOD-END> Sep-30-1997
<INVESTMENTS-AT-COST> 29,085,141
<INVESTMENTS-AT-VALUE> 37,794,841
<RECEIVABLES> 36,427
<ASSETS-OTHER> 331,658
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 38,162,926
<PAYABLE-FOR-SECURITIES> 20,939
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 67,451
<TOTAL-LIABILITIES> 88,390
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 23,829,081
<SHARES-COMMON-STOCK> 1,965,232
<SHARES-COMMON-PRIOR> 1,891,259
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 100,268
<ACCUMULATED-NET-GAINS> 5,636,023
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,709,700
<NET-ASSETS> 37,274,165
<DIVIDEND-INCOME> 1,038,342
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 537,187
<NET-INVESTMENT-INCOME> 501,155
<REALIZED-GAINS-CURRENT> 5,684,405
<APPREC-INCREASE-CURRENT> 3,631,243
<NET-CHANGE-FROM-OPS> 9,816,803
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 693,670
<DISTRIBUTIONS-OF-GAINS> 4,130,314
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 298,724
<NUMBER-OF-SHARES-REDEEMED> 498,518
<SHARES-REINVESTED> 273,757
<NET-CHANGE-IN-ASSETS> 5,881,772
<ACCUMULATED-NII-PRIOR> 54,611
<ACCUMULATED-GAINS-PRIOR> 4,242,741
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 167,415
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 546,438
<AVERAGE-NET-ASSETS> 33,395,252
<PER-SHARE-NAV-BEGIN> 16.690
<PER-SHARE-NII> 0.260
<PER-SHARE-GAIN-APPREC> 4.780
<PER-SHARE-DIVIDEND> 0.430
<PER-SHARE-DISTRIBUTIONS> 2.330
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 18.970
<EXPENSE-RATIO> 1.62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 032
<NAME> FundManager Portfolios
Growth with Income
Portfolio
No Load Class
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Sep-30-1997
<PERIOD-END> Sep-30-1997
<INVESTMENTS-AT-COST> 29,085,141
<INVESTMENTS-AT-VALUE> 37,794,841
<RECEIVABLES> 36,427
<ASSETS-OTHER> 331,658
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 38,162,926
<PAYABLE-FOR-SECURITIES> 20,939
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 67,451
<TOTAL-LIABILITIES> 88,390
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 23,829,081
<SHARES-COMMON-STOCK> 42,633
<SHARES-COMMON-PRIOR> 37,188
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 100,268
<ACCUMULATED-NET-GAINS> 5,636,023
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,709,700
<NET-ASSETS> 800,371
<DIVIDEND-INCOME> 1,038,342
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 537,187
<NET-INVESTMENT-INCOME> 501,155
<REALIZED-GAINS-CURRENT> 5,684,405
<APPREC-INCREASE-CURRENT> 3,631,243
<NET-CHANGE-FROM-OPS> 9,816,803
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 25,855
<DISTRIBUTIONS-OF-GAINS> 97,318
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 18,095
<NUMBER-OF-SHARES-REDEEMED> 13,699
<SHARES-REINVESTED> 1,049
<NET-CHANGE-IN-ASSETS> 5,881,772
<ACCUMULATED-NII-PRIOR> 54,611
<ACCUMULATED-GAINS-PRIOR> 4,242,741
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 167,415
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 546,438
<AVERAGE-NET-ASSETS> 33,395,252
<PER-SHARE-NAV-BEGIN> 16.710
<PER-SHARE-NII> 0.320
<PER-SHARE-GAIN-APPREC> 4.750
<PER-SHARE-DIVIDEND> 0.680
<PER-SHARE-DISTRIBUTIONS> 2.330
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 18.770
<EXPENSE-RATIO> 1.12
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> FundManager
Portfolios
Growth Portfolio
Financial Adviser
Class
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Sep-30-1997
<PERIOD-END> Sep-30-1997
<INVESTMENTS-AT-COST> 26,702,247
<INVESTMENTS-AT-VALUE> 33,758,043
<RECEIVABLES> 79,197
<ASSETS-OTHER> 318,623
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 34,155,863
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 56,056
<TOTAL-LIABILITIES> 56,056
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21,269,489
<SHARES-COMMON-STOCK> 1,843,969
<SHARES-COMMON-PRIOR> 1,776,631
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5,774,522
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,055,796
<NET-ASSETS> 32,835,425
<DIVIDEND-INCOME> 581,326
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 501,045
<NET-INVESTMENT-INCOME> 80,281
<REALIZED-GAINS-CURRENT> 5,911,570
<APPREC-INCREASE-CURRENT> 3,662,887
<NET-CHANGE-FROM-OPS> 9,654,738
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 510,906
<DISTRIBUTIONS-OF-GAINS> 3,077,506
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 356,666
<NUMBER-OF-SHARES-REDEEMED> 519,497
<SHARES-REINVESTED> 230,169
<NET-CHANGE-IN-ASSETS> 6,582,975
<ACCUMULATED-NII-PRIOR> 136,071
<ACCUMULATED-GAINS-PRIOR> 3,377,570
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 154,313
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 509,405
<AVERAGE-NET-ASSETS> 30,785,956
<PER-SHARE-NAV-BEGIN> 14.990
<PER-SHARE-NII> 0.040
<PER-SHARE-GAIN-APPREC> 4.910
<PER-SHARE-DIVIDEND> 0.300
<PER-SHARE-DISTRIBUTIONS> 1.830
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 17.810
<EXPENSE-RATIO> 1.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 022
<NAME> FundManager Portfolios
Growth Portfolio
No-Load Class
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Sep-30-1997
<PERIOD-END> Sep-30-1997
<INVESTMENTS-AT-COST> 26,702,247
<INVESTMENTS-AT-VALUE> 33,758,043
<RECEIVABLES> 79,197
<ASSETS-OTHER> 318,623
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 34,155,863
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 56,056
<TOTAL-LIABILITIES> 56,056
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21,269,489
<SHARES-COMMON-STOCK> 70,876
<SHARES-COMMON-PRIOR> 58,324
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5,774,522
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,055,796
<NET-ASSETS> 1,264,382
<DIVIDEND-INCOME> 581,326
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 501,045
<NET-INVESTMENT-INCOME> 80,281
<REALIZED-GAINS-CURRENT> 5,911,570
<APPREC-INCREASE-CURRENT> 3,662,887
<NET-CHANGE-FROM-OPS> 9,654,738
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 26,438
<DISTRIBUTIONS-OF-GAINS> 116,120
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 30,883
<NUMBER-OF-SHARES-REDEEMED> 18,728
<SHARES-REINVESTED> 397
<NET-CHANGE-IN-ASSETS> 6,582,975
<ACCUMULATED-NII-PRIOR> 136,071
<ACCUMULATED-GAINS-PRIOR> 3,377,570
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 154,313
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 509,405
<AVERAGE-NET-ASSETS> 30,785,956
<PER-SHARE-NAV-BEGIN> 15.040
<PER-SHARE-NII> 0.110
<PER-SHARE-GAIN-APPREC> 4.930
<PER-SHARE-DIVIDEND> 0.410
<PER-SHARE-DISTRIBUTIONS> 1.830
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 17.840
<EXPENSE-RATIO> 1.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 05
<NAME> FundManager Portfolios
Managed Total Return
Portfolio
Financial Adviser Class
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Sep-30-1997
<PERIOD-END> Sep-30-1997
<INVESTMENTS-AT-COST> 9,743,274
<INVESTMENTS-AT-VALUE> 11,026,113
<RECEIVABLES> 25,601
<ASSETS-OTHER> 592,753
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 11,644,467
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 38,160
<TOTAL-LIABILITIES> 38,160
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,369,676
<SHARES-COMMON-STOCK> 962,428
<SHARES-COMMON-PRIOR> 1,266,151
<ACCUMULATED-NII-CURRENT> 59,883
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 893,909
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,282,839
<NET-ASSETS> 11,606,307
<DIVIDEND-INCOME> 506,148
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 242,506
<NET-INVESTMENT-INCOME> 263,642
<REALIZED-GAINS-CURRENT> 1,051,278
<APPREC-INCREASE-CURRENT> 540,852
<NET-CHANGE-FROM-OPS> 1,855,772
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 385,086
<DISTRIBUTIONS-OF-GAINS> 889,268
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 105,534
<NUMBER-OF-SHARES-REDEEMED> 323,675
<SHARES-REINVESTED> 122,005
<NET-CHANGE-IN-ASSETS> (516,246)
<ACCUMULATED-NII-PRIOR> 135,353
<ACCUMULATED-GAINS-PRIOR> 585,034
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 58,530
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 245,813
<AVERAGE-NET-ASSETS> 11,671,420
<PER-SHARE-NAV-BEGIN> 11.450
<PER-SHARE-NII> 0.280
<PER-SHARE-GAIN-APPREC> 1.550
<PER-SHARE-DIVIDEND> 0.320
<PER-SHARE-DISTRIBUTIONS> 0.900
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 12.060
<EXPENSE-RATIO> 2.08
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
