FTI FUNDS, 485BPOS, 1998-01-28

FTI FUNDS
485BPOS, 1998-01-28

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1933 Act File No. 33-63621
1940 Act File No. 811-7369

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

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

Post-Effective Amendment No. 3 .......................... X

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

Amendment No. 4 ......................................... X

FTI FUNDS

(Exact name of Registrant as Specified in Charter)

5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7010
(Address of Principal Executive Offices)

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

John W. McGonigle, Esq., Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)

It is proposed that this filing will become effective:

_ immediately upon filing pursuant to paragraph (b)
X_ on 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.

Copy to:

Dewey Ballantine
1301 Avenue of the Americas
New York, NY 10019-6092

<PAGE>

CROSS-REFERENCE SHEET

This amendment to the Registration Statement of FTI Funds (formerly, FT
Funds), which consists of four portfolios: (1) FTI Small Capitalization Equity
Fund, (2) FTI International Equity Fund, (3) FTI International Bond Fund, and
(4) FTI Global Bond Fund, is comprised of the following:

PART A. INFORMATION REQUIRED IN A PROSPECTUS.

Prospectus Heading
(Rule 404(c) Cross Reference)

Item 1. Cover Page....................(1,2,3,4) Cover Page.

Item 2. Synopsis......................(1,2,3,4) Synopsis; (1,2,3,4)
Summary of Fund Expenses.

Item 3. Condensed Financial
Information...................(1,2,3,4) Performance Information.
(1,2,3,4) Financial Highlights.

Item 4. General Description of
Registrant....................(1,2,3,4) Investment Objective of
Each Fund; (1) Small Capitalization
Fund; (2) International Equity Fund;
(3) International Bond Fund;
(4) Global Bond Fund; (1,2,3,4)
Portfolio Investments and Strategies.

Item 5. Management of the Fund........(1,2,3,4) FTI Funds Information;
(1,2,3,4) Management of FTI Funds;
(1,2,3,4) Distribution of Shares of
the Funds; (1,2,3,4) Administrative
Arrangements; (1,2,3,4)
Administration of the Funds; (1,2,3,4)
Brokerage Transactions; (1,2,3,4)
Summary of Fund Expenses

Item 6. Capital Stock and Other
Securities....................(1,2,3,4) Dividends; (1,2,3,4)
Capital Gains; (1,2,3,4) Shareholder
Information; (1,2,3,4) Voting Rights;
(1,2,3,4) Effect of Banking Laws;
(1,2,3,4) Tax Information; (1,2,3,4)
Federal Income Tax.

Item 7. Purchase of Securities Being
Offered.......................(1,2,3,4) Net Asset Value; (1,2,3,4)
Investing in the Funds; (1,2,3,4)
Share Purchases; (1,2,3,4) Minimum
Investment Required; (1,2,3,4) What
Shares Cost; (1,2,3,4) Confirmations
and Account Statements.

Item 8. Redemption or Repurchase......(1,2,3,4) Exchange Privilege;
(1,2,3,4) Requirements for Exchange;
(1,2,3,4) Tax Consequences; (1,2,3,4)
Redeeming Shares; (1,2,3,4) Accounts
with Low Balances.

Item 9. Pending Legal Proceedings None

<PAGE>

PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.

Item 10. Cover Page....................(1,2,3,4) Cover Page

Item 11. Table of Contents (1,2,3,4) Table of Contents.

Item 12. General Information and
History.......................(1,2,3,4) General Information About
the Trust.

Item 13. Investment Objectives and
Policies......................(1,2,3,4) Investment Objective and
Policies of the Funds; (1,2,3,4)
Types of Investments and Investment
Techniques; (1,2,3,4) Investment
Limitations.

Item 14. Management of the Fund (1,2,3,4) FTI Funds Management.

Item 15. Control Persons and Principal
Holders of Securities Not applicable.

Item 16. Investment Advisory and Other
Services......................(1,2,3,4) Investment Advisory
Services; (1,2,3,4) Administrative
Services; (1,2,3,4) Transfer Agent,
Dividend Disbursing Agent and
Portfolio Accountant;
(1,2,3,4) Custodian.

Item 17. Brokerage Allocation (1,2,3,4) Brokerage Transactions.

Item 18. Capital Stock and Other
Securities Not applicable.

Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered.................(1,2,3,4) Purchasing Shares;
(1,2,3,4) Determining Net Asset
Value; (1,2,3,4) Redeeming Shares.

Item 20. Tax Status (1,2,3,4) Tax Status.

Item 21. Underwriters..................(1,2,3,4) Distribution Plan and
Shareholder Services Agreement.

Item 22. Calculation of Performance
Data..........................(1,2,3,4) Total Return; (1,2,3,4)
Yield; (1,2,3,4) Performance
Comparisons; (1,2,3,4) Appendix.

Item 23. Financial Statements..........Incorporated by reference to the
Registrant's Annual Report to
Shareholders dated November 30, 1997.
(File Nos. 33-63621 and 811-7369)

- --------------------------------------------------------------------------------
FTI FUNDS
PROSPECTUS

FTI Funds (the "Trust") is an open-end, management investment company (a mutual
fund). This combined prospectus offers investors interests in the following four
separate investment portfolios (individually referred to as the "Fund," and
collectively as the "Funds"), each having a distinct investment objective and
policies:

- FTI Small Capitalization Equity Fund;

- FTI International Equity Fund;

- FTI International Bond Fund; and

- FTI Global Bond Fund.

The investment adviser to the Funds is Fiduciary International, Inc. Edgewood
Services, Inc. serves as the distributor. This combined prospectus contains the
information you should read and know before you invest in any of the Funds in
the Trust. Keep this prospectus for future reference.

THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENTAL AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

Additional information about the Trust is contained in the Trust's Statement of
Additional Information, dated January 31, 1998, which has also been filed with
the Securities and Exchange Commission ("SEC"). The information contained in the
Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information
free of charge, obtain other information, or make inquiries about any of the
Funds by writing to the Trust at the address listed in the back of this
prospectus or by calling (212) 524-7300.

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.

Prospectus dated January 31, 1998

TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SYNOPSIS 1
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES--
SMALL CAPITALIZATION FUND 2
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES--
INTERNATIONAL EQUITY FUND 3
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES--
INTERNATIONAL BOND FUND 4
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES--
GLOBAL BOND FUND 5
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
SMALL CAPITALIZATION FUND 6
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INTERNATIONAL EQUITY FUND 7
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INTERNATIONAL BOND FUND 8
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
GLOBAL BOND FUND 9
- ------------------------------------------------------
INVESTMENT OBJECTIVE OF EACH FUND 10
- ------------------------------------------------------
Small Capitalization Fund 10

International Equity Fund 11

International Bond Fund 13
Global Bond Fund 14
PORTFOLIO INVESTMENTS AND STRATEGIES 16
- ------------------------------------------------------
Borrowing Money 16
Diversification 16
Restricted and Illiquid Securities 16
Repurchase Agreements 17
When-Issued and Delayed Delivery
Transactions 17
Forward Commitments 17
Lending of Portfolio Securities 17

Convertible Securities 18

Asset-Backed Securities 18
Depositary Receipts 20
Foreign Government Securities 21
U.S. Government Securities 21
Investing in Securities of Other
Investment Companies 21

Risk Factors 22

Hedging Vehicles and Strategies 25
Hedging Strategies 26
Derivative Contracts and Securities 27
Duration 27
Portfolio Turnover 28
FTI FUNDS INFORMATION 28
- ------------------------------------------------------
Management of FTI Funds 28
Distribution of Shares of the Funds 30
Administrative Arrangements 31
Administration of the Funds 31
Brokerage Transactions 32
NET ASSET VALUE 32
- ------------------------------------------------------
INVESTING IN THE FUNDS 33
- ------------------------------------------------------
Share Purchases 33
Minimum Investment Required 33
What Shares Cost 34
Confirmations and Account Statements 34
Dividends 34
Capital Gains 34
EXCHANGE PRIVILEGE 34
- ------------------------------------------------------
Requirements for Exchange 35
Tax Consequences 35
REDEEMING SHARES 35
SHAREHOLDER INFORMATION 37
- ------------------------------------------------------
Voting Rights 37
EFFECT OF BANKING LAWS 37
- ------------------------------------------------------
TAX INFORMATION 38
- ------------------------------------------------------
Federal Income Tax 38
PERFORMANCE INFORMATION 39
- ------------------------------------------------------
ADDRESSES 40
- ------------------------------------------------------
SYNOPSIS
- --------------------------------------------------------------------------------

The Trust, an open-end, management investment company, was established as a
Massachusetts business trust under a Declaration of Trust dated October 18,
1995. The Declaration of Trust permits the Trust to offer separate series of
shares of beneficial interest representing interests in separate portfolios of
securities. The shares of any one portfolio may be offered in separate classes.

As of the date of this prospectus, the Board of Trustees (the "Trustees") of the
Trust has established the following four Funds:

- FTI Small Capitalization Equity Fund ("Small Capitalization Fund")--seeks
to provide growth of principal by investing primarily in domestic equity
securities of small capitalization companies having a market value
capitalization below $1.5 billion;

- FTI International Equity Fund ("International Equity Fund")--seeks to
provide growth of principal by investing in foreign equity securities;

- FTI International Bond Fund ("International Bond Fund")--seeks to provide
total return through investments in foreign corporate and foreign
government fixed income securities; and

- FTI Global Bond Fund ("Global Bond Fund")--seeks to provide total return
by investing in both foreign and U.S. corporate and government fixed
income securities.

For information on how to purchase shares of any of the Funds, please refer to
"Investing in the Funds." A minimum initial investment of $10,000 is required
for each Fund. This prospectus should be read together with any account
agreement for minimum investment requirements imposed by Fiduciary Trust Company
International or any of its affiliates. See "Minimum Investment Required."
Shares of each Fund are sold at net asset value without the imposition of any
sales charge, and are redeemed at net asset value. Information on redeeming
shares may be found under "Redeeming Shares." The Funds are advised by Fiduciary
International, Inc. (the "Adviser").

SPECIAL CONSIDERATIONS AND RISK FACTORS. Investors should be aware of the
following general considerations and risk factors. The market value of fixed
income securities, which constitute a major portion of the investments of
several Funds, may vary inversely in response to changes in prevailing interest
rates. The market value of the equity securities in which the Small
Capitalization and International Equity Funds invest will also fluctuate, and
the possibility exists that the value of common stocks could decline over short
or even extended periods of time. The section entitled "Risk Factors-- Equity
Investment Considerations" also discloses the potential risks related to small
capitalization stocks, in which the Small Capitalization Fund primarily invests.
The International Bond Fund and the Global Bond Fund may invest in asset-backed
and mortgage-backed securities, which involve unique risks. The foreign
securities in which all of the Funds may invest may be subject to certain risks
in addition to those inherent in U.S. investments, and these risks are more
fully discussed in the section entitled "Risk Factors--Foreign Securities
Considerations." The Funds may make certain investments and employ certain
investment techniques that involve other risks, including entering into
repurchase agreements and forward commitments, lending portfolio securities and
entering into futures contracts and related options as hedges. These risks and
those associated with investing in when-issued securities, options and futures
are described under "Investment Objective of Each Fund" and "Portfolio
Investments and Strategies."

SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SMALL CAPITALIZATION FUND
SHAREHOLDER TRANSACTION EXPENSES

Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price).......................................................... None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price).......................................................... None
Contingent Deferred Sales Charge (as a percentage of purchase price
or redemption proceeds, as applicable)....................................................... None
Redemption Fee (as a percentage of amount redeemed, if applicable)............................. None
Exchange Fee................................................................................... None

ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)

Management Fee................................................................................. 1.00%
12b-1 Fee(1)................................................................................... 0.00%
Total Other Expenses (after expense reimbursement)(2).......................................... 0.50%
Shareholder Services Fee(1).................................................. 0.00%
Total Fund Operating Expenses (after expense reimbursement)(3)............................. 1.50%
</TABLE>

(1) The Fund has no present intention of paying or accruing 12b-1 fees or
shareholder services fees during the fiscal year ending November 30, 1998. If
the Fund were paying or accruing 12b-1 fees or shareholder services fees, the
Fund would be able to pay up to 0.75% of its average daily net assets for 12b-1
fees and up to 0.25% of its average daily net assets for shareholder services
fees. See "FTI Funds Information."

(2) Total other expenses have been reduced to reflect the voluntary
reimbursement of certain other operating expenses. This voluntary reimbursement
may be modified or terminated at any time.

(3) The total Fund operating expenses would have been 1.74% absent the voluntary
reimbursement of certain other operating expenses.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Fund will bear, either
directly or indirectly. For more complete descriptions of the various costs and
expenses, see "Investing in the Funds" and "FTI Funds Information."
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.

LONG-TERM SHAREHOLDERS MAY PAY MORE OVER TIME THAN THE ECONOMIC EQUIVALENT
OF THE MAXIMUM FRONT-END SALES CHARGES PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC.

<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
- -------------------------------------------------------------- ------- -------- -------- ---------
<S> <C> <C> <C> <C>
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.............................................. $15 $ 47 $ 82 $ 179
</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.

SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
INTERNATIONAL EQUITY FUND
SHAREHOLDER TRANSACTION EXPENSES

Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................. None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)....... None
Contingent Deferred Sales Charge (as a percentage of purchase price
or redemption proceeds, as applicable)....................................................... None
Redemption Fee (as a percentage of amount redeemed, if applicable)............................. None
Exchange Fee................................................................................... None

ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)

Management Fee................................................................................. 1.00%
12b-1 Fee(1)................................................................................... 0.00%
Total Other Expenses (after expense reimbursement)(2).......................................... 0.60%
Shareholder Services Fee(1).................................................. 0.00%
Total Fund Operating Expenses (after expense reimbursement)(3)............................. 1.60%
</TABLE>

(2) Total other expenses have been reduced to reflect the voluntary
reimbursement of certain other operating expenses. This voluntary reimbursement
may be modified or terminated at any time.

(3) The total Fund operating expenses would have been 1.73% absent the voluntary
reimbursement of certain other operating expenses.

LONG-TERM SHAREHOLDERS MAY PAY MORE OVER TIME THAN THE ECONOMIC EQUIVALENT
OF THE MAXIMUM FRONT-END SALES CHARGES PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC.

<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
- ----------------------------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
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................................................. $ 16 $51 $87 $190
</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.

SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INTERNATIONAL BOND FUND
SHAREHOLDER TRANSACTION EXPENSES

ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)

Management Fee................................................................................. 0.70%
12b-1 Fee(1)................................................................................... 0.00%
Total Other Expenses (after expense reimbursement)(2).......................................... 0.50%
Shareholder Services Fee(1).................................................. 0.00%
Total Fund Operating Expenses (after expense reimbursement)(3)............................. 1.20%
</TABLE>

(1) The Fund has no present intention of paying or accruing 12b-1 fees or
shareholder services fees during the fiscal year ending November 30, 1998. If
the Fund were paying or accruing 12b-1 fees or shareholder services fees, the
Fund would be able to pay up to 0.75% of its average daily net assets for 12b-1
fee and up to 0.25% of its average daily net assets for shareholder services
fees. See "FTI Funds Information."

(2) Total other expenses have been reduced to reflect the voluntary
reimbursement of certain other operating expenses. This voluntary reimbursement
may be modified or terminated at any time.

(3) The total Fund operating expenses would have been 3.55% absent the voluntary
reimbursement of certain other operating expenses.

LONG-TERM SHAREHOLDERS MAY PAY MORE OVER TIME THAN THE ECONOMIC EQUIVALENT
OF THE MAXIMUM FRONT-END SALES CHARGES PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC.

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
GLOBAL BOND FUND
SHAREHOLDER TRANSACTION EXPENSES

Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)........................................................... None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)........................................................... None
Contingent Deferred Sales Charge (as a percentage of purchase price
or redemption proceeds, as applicable)........................................................ None
Redemption Fee (as a percentage of amount redeemed, if applicable).............................. None
Exchange Fee.................................................................................... None

ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)

Management Fee.................................................................................. 0.70%
12b-1 Fee(1).................................................................................... 0.00%
Total Other Expenses (after waiver/expense reimbursement)(2).................................... (0.20%)
Shareholder Services Fee(1)................................................... 0.00%
Total Fund Operating Expenses (after waiver/expense reimbursement)(3)....................... 0.50%
</TABLE>

(1) The Fund has no present intention of paying or accruing 12b-1 fees or
shareholder services fees during the fiscal year ending November 30, 1998. If
the Fund were paying or accruing 12b-1 fees or shareholder services fees, the
Fund would be able to pay up to 0.75% of its average daily net assets for 12b-1
fees or up to 0.25% of its average daily net assets for shareholder services
fees. See "FTI Funds Information."

(2) Total other expenses have been reduced to reflect the voluntary waiver of a
portion of the custodian fee and the voluntary reimbursement of certain other
operating expenses. This voluntary waiver/reimbursement can be modified or
terminated at any time.

(3) The total Fund operating expenses would have been 14.74% absent the
voluntary waiver/reimbursement of certain other operating expenses.

LONG-TERM SHAREHOLDERS MAY PAY MORE OVER TIME THAN THE ECONOMIC EQUIVALENT
OF THE MAXIMUM FRONT-END SALES CHARGES PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC.

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

FTI SMALL CAPITALIZATION EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report dated January 26, 1998, on the Fund's
financial statements for the period ended November 30, 1997, and on the
following table for the periods presented, is included in the Annual Report,
which is incorporated by reference. This table should be read in conjunction
with the Fund's financial statements and notes thereto, which may be obtained
free of charge.

<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
NOVEMBER 30, NOVEMBER 30,
1997 1996(A)
------------ ------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.08 $10.00
- ----------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------
Net operating loss (0.09) (0.04)
- ----------------------------------------------------------------
Net realized and unrealized gain on investments 2.38 2.12
- ---------------------------------------------------------------- --------- ---------
Total from investment operations 2.29 2.08
- ---------------------------------------------------------------- --------- ---------
NET ASSET VALUE, END OF PERIOD $14.37 $12.08
- ---------------------------------------------------------------- --------- ---------
TOTAL RETURN(B) 18.96% 20.80%
- ----------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------
Expenses 1.50% 1.50%*
- ----------------------------------------------------------------
Net operating loss (0.89%) (0.68%)*
- ----------------------------------------------------------------
Expense waiver/reimbursement(c) 0.24% 1.51%*
- ----------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------
Net assets, end of period (000 omitted) $40,505 $19,318
- ----------------------------------------------------------------
Average commission rate paid(d) $.0620 $0.0334
- ----------------------------------------------------------------
Portfolio turnover 111% 94%
- ----------------------------------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from December 22, 1995 (start of
performance) to November 30, 1996.

(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.

Further information about the Fund's performance is contained in the Fund's
annual report dated November 30, 1997, which can be obtained free of charge.

FTI INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
NOVEMBER 30, NOVEMBER 30,
1997 1996(A)
------------ ------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.99 $10.00
- ----------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------
Net investment income 0.02 0.01(b)
- ----------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign currency 1.39 0.99
- ---------------------------------------------------------------------- --------- ---------
Total from investment operations 1.41 1.00
- ---------------------------------------------------------------------- --------- ---------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------
Distributions from net investment income (0.20) (0.01)
- ---------------------------------------------------------------------- --------- ---------
NET ASSET VALUE, END OF PERIOD $12.20 $10.99
- ---------------------------------------------------------------------- --------- ---------
TOTAL RETURN(C) 13.01% 10.04%
- ----------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------
Expenses 1.60% 1.68%*
- ----------------------------------------------------------------------
Net investment income 0.13% 0.05%*
- ----------------------------------------------------------------------
Expense waiver/reimbursement(d) 0.13% 3.05%*
- ----------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------
Net assets, end of period (000 omitted) $40,869 $12,065
- ----------------------------------------------------------------------
Average commission rate paid(e) $0.0363 $0.0365
- ----------------------------------------------------------------------
Portfolio turnover 55% 29%
- ----------------------------------------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from December 22, 1995 (start of
performance) to November 30, 1996.

(b) Per share information is based on average shares outstanding.

(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

(e) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.

Further information about the Fund's performance is contained in the Fund's
annual report dated November 30, 1997, which can be obtained free of charge.

FTI INTERNATIONAL BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
NOVEMBER 30, NOVEMBER 30,
1997 1996(A)
------------ ------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.20 $10.00
- ----------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------
Net investment income 0.50 0.47(b)
- ----------------------------------------------------------------------
Net realized and unrealized loss on investments and foreign currency (1.04) (0.10)
- ---------------------------------------------------------------------- --------- ---------
Total from investment operations (0.54) 0.37
- ---------------------------------------------------------------------- --------- ---------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------
Distributions from net investment income (0.13) (0.17)
- ----------------------------------------------------------------------
Return of capital distributions (0.23) --
- ---------------------------------------------------------------------- --------- ---------
Total Distributions (0.36) (0.17)
- ---------------------------------------------------------------------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 9.30 $10.20
- ---------------------------------------------------------------------- --------- ---------
TOTAL RETURN(C) (5.43%) 3.75%
- ----------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------
Expenses 1.20% 1.20%*
- ----------------------------------------------------------------------
Net investment income 5.44% 5.46%*
- ----------------------------------------------------------------------
Expense waiver/reimbursement(d) 2.35% 4.63%*
- ----------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------
Net assets, end of period (000 omitted) $7,381 $5,201
- ----------------------------------------------------------------------
Portfolio turnover 184% 190%
- ----------------------------------------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from December 22, 1995 (start of
performance) to November 30, 1996.

(b) Per share information is based on average shares outstanding.

(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

Further information about the Fund's performance is contained in the Fund's
annual report dated November 30, 1997, which can be obtained free of charge.

FTI GLOBAL BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
NOVEMBER 30, NOVEMBER 30,
1997 1996(A)
------------ ------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.42 $10.00
- ----------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------
Net investment income 0.62 0.37
- ----------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign
currency (0.66) 0.13
- ---------------------------------------------------------------------------- -------- --------
Total from investment operations (0.04) 0.50
- ---------------------------------------------------------------------------- -------- --------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------
Distributions from net investment income (0.39) (0.08)
- ----------------------------------------------------------------------------
Return of capital distributions (0.30) --
- ----------------------------------------------------------------------------
Distributions from net realized gain on investments and foreign currency
transactions (0.04) 0.00
- ---------------------------------------------------------------------------- -------- --------
Total distributions (0.73) (0.08)
- ---------------------------------------------------------------------------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 9.65 $10.42
- ---------------------------------------------------------------------------- -------- --------
TOTAL RETURN(B) (0.42%) 5.02%
- ----------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------
Expenses 0.50% 0.95%*
- ----------------------------------------------------------------------------
Net investment income 6.12% 5.83%*
- ----------------------------------------------------------------------------
Expense waiver/reimbursement(c) 14.24% 26.94%*
- ----------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------
Net assets, end of period (000 omitted) $1,402 $1,058
- ----------------------------------------------------------------------------
Portfolio turnover 176% 287%
- ----------------------------------------------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from December 22, 1995 (start of
performance) to November 30, 1996.

(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

Further information about the Fund's performance is contained in the Fund's
annual report dated November 30, 1997, which can be obtained free of charge.

INVESTMENT OBJECTIVE OF EACH FUND
- --------------------------------------------------------------------------------
The investment objective and policies of each Fund appear below. The investment
objective of a Fund cannot be changed without the approval of holders of a
majority of that Fund's shares. While there is no assurance that a Fund will
achieve its investment objective, it endeavors to do so by following the
investment policies described in this prospectus.

Unless indicated otherwise, the investment policies and limitations of a Fund
may be changed by the Trustees without approval of shareholders. Shareholders
will be notified before any material change in these policies and limitations
becomes effective.

Additional information about investment limitations, strategies that one or more
Funds may employ, and certain investment policies mentioned below, appear in the
"Portfolio Investments and Strategies" section of this prospectus and in the
Statement of Additional Information.

SMALL CAPITALIZATION FUND

The investment objective of the Small Capitalization Fund is to provide growth
of principal. The Fund seeks to achieve its investment objective by investing
primarily in the common stock of small capitalization companies with total
market capitalizations below $1.5 billion. Dividend income is not a
consideration in the selection of investments. In selecting investments for the
Fund's portfolio, the Adviser seeks to select companies it believes are
undervalued in the marketplace, or which have earnings that might be expected to
grow faster than the U.S. economy in general. The Adviser also looks to purchase
stocks whose expected growth rates exceed their current price-earnings ratio.
These companies typically possess a relatively high rate of return on invested
capital so that future growth can be internally financed. These companies may
offer the possibility of accelerating earnings growth because they often
represent the first opportunity to participate in new products, new services and
new technologies. Companies in which the Fund is likely to invest are those that
have a unique franchise opportunity, exhibit high barriers of entry to
competitors, have strong balance sheets and cash flow, and have an exceptional
management team. The securities of these companies may have more limited
marketability and may be subject to more abrupt market movements than securities
of larger, more established companies or the market averages in general. There
is no assurance that the Adviser's attempts to pursue these approaches will
result in benefits to the Fund.

ACCEPTABLE INVESTMENTS. The securities in which the Fund invests include, but
are not limited to:

- common stocks, and securities convertible into common stocks, which will
be primarily composed of issues of small capitalization domestic
companies. See "Portfolio Investments and Strategies" and "Equity
Investment Considerations." Under normal market conditions, at least 65%
of the total assets of the Fund's portfolio will be invested in the common
stock of small capitalization companies, which the Fund defines as those
having a market value capitalization below $1.5 billion. Small
capitalization companies would generally be those stocks included in the
Russell 2000 Index or the Standard & Poor's Small Cap 600 Index, or have
characteristics similar to the stocks in those indices;

- preferred stocks, corporate bonds, notes, warrants, and rights;

- American Depositary Receipts ("ADRs"), which are receipts typically
issued by a United States bank or trust company that evidence ownership of
underlying securities issued by a foreign issuer. The Fund may invest up
to 20% of its net assets in ADRs. See "Depositary Receipts" in "Portfolio
Investments and Strategies;"

- commercial paper rated A-1 by Standard & Poor's Ratings Group ("S&P"),
Prime-1 by Moody's Investors Service, Inc. ("Moody's") or F-1 by Fitch
Investors Service, Inc. ("Fitch"), and money market instruments (including
commercial paper) which are unrated but deemed to be of comparable quality
by the Adviser, including Canadian Commercial Paper and Europaper;

- certificates of deposits, demand and time deposits, savings shares,
bankers' acceptances and other instruments of domestic and foreign banks,
savings and loans and other deposit or thrift institutions ("Bank
Instruments");

- shares of other investment companies. See "Investing in Securities of
Other Investment Companies" in "Portfolio Investments and Strategies;"

- foreign securities which are traded publicly in the United States. The
Fund may invest up to 10% of its net assets in foreign securities; and

- securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities, including those obligations purchased on a when-issued
or delayed delivery basis ("U.S. Government Securities"). See "Portfolio
Investments and Strategies."

The Fund may also purchase corporate debt obligations that, at the time of
purchase, are rated in the top four rating categories (i.e., investment grade)
by nationally recognized statistical rating organizations ("NRSROs") such as S&P
or Moody's. Obligations rated in the lowest of the top four rating categories,
such as Baa by Moody's or BBB by S&P or Fitch, have speculative characteristics.
As to these securities, changes in economic conditions or other circumstances
are more likely to lead to weakened capacity to make principal and interest
payments than higher rated bonds. In the event that any such security is
downgraded by an NRSRO below the fourth highest rating category, the Fund will
consider disposing of the security, but is not required to do so. A description
of the rating categories of NRSROs is contained in the Appendix to the Statement
of Additional Information.

INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," "Diversification" and "Restricted and Illiquid
Securities."

INTERNATIONAL EQUITY FUND

The investment objective of the International Equity Fund is to provide growth
of principal. The Fund pursues its investment objective through a flexible
policy of investing in a broad, diversified portfolio of stocks and debt
obligations of issuers located outside the United States. Under normal market
conditions, at least 65% of the Fund's total assets will be invested in
securities denominated in foreign currencies, including the European Currency
Unit (the "ECU"), of issuers located in at least three different nations outside
of the United States, and at least 65% of the Fund's total assets will be
invested in equity securities, i.e., common stocks and preferred stocks. The ECU
is a multinational currency unit which represents specified amounts of the
currencies of certain member states of the European Economic Community. The Fund
may also invest up to 35% of its total assets in debt securities.

In seeking to achieve the Fund's investment objective, the Adviser believes
there are three potential advantages to investing in foreign equity securities:

- the opportunity to invest in non-U.S. companies believed to possess
superior growth potential;

- the opportunity to invest in foreign nations with business and economic
policies different from those in the United States; and

- the opportunity to reduce portfolio volatility to the extent that
securities markets inside and outside the United States do not move in
harmony.

In managing the Fund's portfolio, the Adviser, through both fundamental research
and a value screen, will identify foreign equity securities that it determines
to be underpriced. The Adviser uses fundamental analysis to assess the world
economies and makes projections regarding the likely future trends in economic
activity. It will use these projections to determine whether current securities
prices are reflecting the level of anticipated economic activity that it
foresees. In selecting securities based on this analysis, the Adviser will
choose securities whose near-term growth and long-term growth prospects are not
being fully valued in the marketplace (in the opinion of the Adviser). The goal
is to create a diversified portfolio emphasizing the higher growth regions of
the world and investing in underpriced, quality growth companies within these
regions. The Fund will invest primarily in foreign industrialized countries
throughout the world that comprise the Morgan Stanley Capital International EAFE
(Europe, Australia, and the Far East) Index. There is no assurance that the
Adviser's attempts to pursue these approaches will result in benefits to the
Fund.

ACCEPTABLE INVESTMENTS. The securities in which the Fund invests include, but
are not limited to:

- common stocks, and securities convertible into common stocks, of
established foreign companies that appear to have growth potential and are
located in economically developed nations. The Fund may also invest up to
20% of its total assets in common stocks of issuers located in emerging
market nations;

- foreign preferred stocks, warrants and convertible securities;

- ADRs, Global Depositary Receipts ("GDRs"), International Depositary
Receipts ("IDRs") and European Depositary Receipts ("EDRs"). See
"Portfolio Investments and Strategies;"

- fixed income securities of foreign companies or governments that are rated
investment grade by an NRSRO or, if unrated, determined by the Adviser to
be of comparable quality;

- shares of other investment companies, as described in "Investing in
Securities of Other Investment Companies," in "Portfolio Investments and
Strategies" in this prospectus;

- Bank Instruments, as described above under "Small Capitalization Fund,"
and U.S. Government Securities. See "Portfolio Investments and
Strategies;" and

- other money market instruments.

In addition, the Fund may borrow money, lend portfolio securities, invest in
restricted and illiquid securities and repurchase agreements, and engage in
forward commitment and when-issued and delayed delivery transactions. The Fund
may also invest in forward foreign currency exchange contracts, put and call
options, futures and options on futures, in order to implement its investment
strategy and for hedging purposes. See "Portfolio Investments and Strategies"
for a discussion of these investments, as well as the potential risks related to
foreign securities and investing in emerging market nations. In the event that
any fixed income security owned by the Fund is downgraded by an NRSRO below
investment grade, the Fund may consider disposing of the security, but will not
be required to do so.

INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," "Diversification" and "Restricted and Illiquid
Securities."

INTERNATIONAL BOND FUND

The investment objective of the International Bond Fund is to provide total
return. The Fund pursues its investment objective by investing primarily in a
broad, diversified portfolio of fixed income obligations of governments and
companies located outside the United States. Under normal market conditions, at
least 65% of the Fund's total assets will be invested in high-quality debt
securities denominated in foreign currencies (including the ECU) of issuers
located in at least three different nations outside of the United States. In
managing the Fund's portfolio, the Adviser actively manages country and currency
allocations and maturity structure according to the fundamental economic and
interest-rate outlook for each foreign nation. The goal is to combine the most
appropriate bond markets with the strongest foreign currencies to create a
portfolio with above average return potential. There is no assurance that the
Adviser's attempts to pursue these approaches will result in benefits to the
Fund.

ACCEPTABLE INVESTMENTS. The securities in which the Fund invests include, but
are not limited to:

- high-quality fixed income government securities denominated in the
currencies of the nations that are members of the Organization for
Economic Cooperation and Development. These nations include, but are not
limited to, the following: Australia, Austria, Belgium, Canada, Denmark,
Finland, France, Germany, Greece, Hong Kong, Iceland, Ireland, Italy,
Luxembourg, The Netherlands, New Zealand, Norway, Portugal, Spain, Sweden,
Switzerland, and the United Kingdom. The Fund may also invest up to 10% of
its total assets in debt securities or other instruments of issuers
located in emerging market nations;

- high-quality fixed income obligations of foreign corporations located
outside the United States;

- fixed income obligations of supranational entities, such as the
International Bank for Reconstruction and Development and the
Inter-American Development Bank. See "Foreign Government Securities" in
"Portfolio Investments and Strategies;"

- convertible securities and warrants;

- asset-backed and mortgage-backed securities, including collateralized
mortgage obligations ("CMOs"), rated in one of the four highest rating
categories by an NRSRO (i.e., BBB, Baa or higher) or, if unrated,
determined by the Adviser to be of comparable quality, which may comprise
up to 35% of the Fund's assets. See "Asset-Backed Securities" in
"Portfolio Investments and Strategies;"

- shares of other investment companies. See "Investing in Securities of
Other Investment Companies" in "Portfolio Investments and Strategies;"

- debt obligations of national, state or "quasi-governmental agencies"
which are not supported by the full faith and credit or general taxing
power of such entities. See "Foreign Government Securities" in "Portfolio
Investments and Strategies;"

- Bank Instruments, as described above under "Small Capitalization Fund;"
and

- other money market instruments.

In addition, the Fund may borrow money, lend portfolio securities, invest in
restricted and illiquid securities and repurchase agreements, and engage in
forward commitment and when-issued and delayed delivery transactions. The Fund
may also invest in forward foreign currency exchange contracts, put and call
options, futures and options on futures, in order to implement its investment
strategy and for hedging purposes. See "Portfolio Investments and Strategies"
for a discussion of these investments, as well as the potential risks related to
foreign securities, asset-backed and mortgage-backed securities and investing in
emerging market nations.

The high-quality debt securities in which the Fund will invest will possess a
minimum credit rating of A as assigned by S&P or Moody's, or, if unrated, will
be judged by the Fund's Adviser to be of comparable quality. Because the average
quality of the Fund's portfolio investments should remain constantly between A
and AAA, or A and Aaa, the Fund will seek to avoid the adverse consequences that
may arise for some debt securities in difficult economic circumstances. In the
event that a security held by the Fund is downgraded by an NRSRO below the
quality parameters discussed above, the Fund may consider disposing of the
security, but will not be required to do so.

The Fund's portfolio of debt securities will be comprised mainly of foreign
government, foreign governmental agency or supranational institution bonds. In
addition, the Fund will also invest in high-quality debt securities issued by
corporations in the currencies specified above and subject to the quality
limitations listed above.

It is anticipated that the average portfolio duration of the Fund will be in the
three-to-ten year range. See "Duration" in "Portfolio Investments and
Strategies." The prices of fixed income securities generally fluctuate inversely
to the direction of interest rates.

INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed below
under "Borrowing Money," "Diversification" and "Restricted and Illiquid
Securities."

GLOBAL BOND FUND

The investment objective of the Global Bond Fund is to provide total return. The
Fund pursues its investment objective by investing primarily in a broad,
diversified portfolio of fixed income securities of both United States and
foreign governments and companies. Under normal market conditions, at least 65%
of the Fund's total assets will be invested in high-quality debt securities of
issuers located in at least three different nations, one of which may be the
United States. Securities of non-U.S. issuers may be denominated in foreign
currencies or multinational currencies, such as the ECU. The Adviser's approach
to selecting investments for the Fund is oriented to country selection and is
value driven. In selecting fixed income instruments for the Fund, the Adviser
identifies those nations' fixed income markets which it believes will provide
the United States' domiciled investor the highest return over a market cycle,
through a combination of income sources, while also offering capital gain and
currency appreciation. The Adviser conducts extensive fundamental research on a
global basis, and it is through this effort that attractive fixed income markets
are selected for investment. The outlook for each foreign market is compared to
the returns available in the U.S. market. The focus is on selecting those
nations whose fixed income fundamentals are superior to those available
domestically. There is no assurance that the Adviser's attempts to pursue these
approaches will result in benefits to the Fund.

ACCEPTABLE INVESTMENTS. The securities in which the Fund invests include, but
are not limited to:

- high-quality debt securities of foreign and United States issuers. The
Fund may also invest up to 10% of total assets in debt securities and
other instruments of issuers located in emerging market nations;

- convertible securities and warrants. See "Convertible Securities" in
"Portfolio Investments and Strategies;"

- asset-backed and mortgage-backed securities, including CMOs, rated in one
of the four highest rating categories by an NRSRO (i.e., BBB, Baa or
higher) or, if unrated, determined by the Adviser to be of comparable
quality, which may comprise up to 35% of the Fund's assets. See
"Asset-Backed Securities" in "Portfolio Investments and Strategies;"

- U.S. Government Securities. See "Portfolio Investments and Strategies;"

- debt securities of supranational entities. See "Foreign Government
Securities" in this prospectus;

- Bank Instruments, as described above under "Small Capitalization Fund;"

- shares of other investment companies. See "Investing in Securities of
Other Investment Companies" in "Portfolio Investments and Strategies;" and

- other money market instruments.

In addition, the Fund may borrow money, lend portfolio securities, invest in
restricted and illiquid securities and repurchase agreements, and engage in
forward commitment and when-issued and delayed delivery transactions. The Fund
may also invest in forward foreign currency exchange contracts, put and call
options, futures and options on futures, in order to implement its investment
strategy and for hedging purposes. See "Portfolio Investments and Strategies"
for a discussion of these investments, as well as the potential risks related to
foreign securities, asset-backed and mortgage-backed securities and investing in
emerging market nations.

The high-quality debt securities in which the Fund will invest will possess a
minimum credit rating of A as assigned by S&P or Moody's, or, if unrated, will
be judged by the Fund's Adviser to be of comparable quality. Because the average
quality of the Fund's portfolio investments should remain constantly between A
and AAA or A and Aaa, the Fund will seek to avoid the adverse consequences that
may arise for some debt securities in difficult economic circumstances. In the
event that a security held by the Fund is downgraded by an NRSRO below the
quality parameters discussed above, the Fund may consider disposing of the
security, but will not be required to do so.

INVESTMENT LIMITATIONS. The Fund's investment limitations are discussed
below under "Borrowing Money," "Diversification" and "Restricted and Illiquid
Securities."

PORTFOLIO INVESTMENTS AND STRATEGIES
- --------------------------------------------------------------------------------
BORROWING MONEY

The Funds will not borrow money directly or through reverse repurchase
agreements (arrangements in which a Fund sells a money market instrument for a
percentage of its cash value with an agreement to buy it back on a set date) or
pledge securities except, under certain circumstances, a Fund may borrow money
up to one-third of the value of its total assets and pledge up to 15% of the
value of those assets to secure such borrowings. These limitations cannot be
changed by a Fund without shareholder approval.

DIVERSIFICATION

With respect to 75% of the value of its total assets, each Fund will not invest
more than 5% in securities of any one issuer other than cash, cash items or
securities issued or guaranteed by the government of the United States or its
agencies or instrumentalities and repurchase agreements collateralized by U.S.
Government Securities. No Fund will acquire more than 10% of the outstanding
voting securities of any one issuer. These limitations cannot be changed by a
Fund without shareholder approval.

RESTRICTED AND ILLIQUID SECURITIES

The Funds may invest in restricted securities. Restricted securities are any
securities in which a Fund may invest pursuant to its investment objective and
policies but which are subject to restriction on resale under federal securities
law. The Funds will limit investment in illiquid securities (including certain
restricted securities not determined by the Trustees to be liquid,
non-negotiable time deposits, over-the-counter options, and repurchase
agreements providing for settlement in more than seven days after notice) to 15%
of their respective net assets.

A Fund may invest in commercial paper issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933. Section
4(2) commercial paper is restricted as to disposition under federal securities
law, and is generally sold to institutional investors, such as one of the Funds,
which agrees to purchase the paper for investment purposes and not with a view
to public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) commercial paper is normally resold to other
institutional investors through or with the assistance of the issuer or
investment dealers who make a market in Section 4(2) commercial paper, thus
providing liquidity. The Funds believe that Section 4(2) commercial paper and
certain other restricted securities, which meet the criteria for liquidity
established by the Trustees, are quite liquid. Therefore, the Funds intend to
treat these securities as liquid and not subject to the investment limitation
applicable to illiquid securities. In addition, because these securities are
liquid, the Funds will not subject such securities to the limitation otherwise
applicable to restricted securities.

REPURCHASE AGREEMENTS

The securities in which each Fund invests may be purchased pursuant to
repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. Government
Securities or other securities to a Fund and agree at the time of sale to
repurchase them at a mutually agreed upon time and price. To the extent that the
original seller does not repurchase the securities from a Fund, that Fund could
receive less than the repurchase price on any sale of such securities. The Funds
will only enter into repurchase agreements with banks and other recognized
financial institutions, such as broker/dealers, which are deemed by the Funds'
Adviser to be creditworthy pursuant to guidelines established by the Trustees.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

The Funds may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which a Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete the transaction may cause a Fund to miss a price or yield considered to
be advantageous. Settlement dates may be a month or more after entering into
these transactions, and the market values of the securities purchased may vary
from the purchase prices. Accordingly, a Fund may pay more or less than the
market value of the securities on the settlement date.

FORWARD COMMITMENTS

Forward commitments are contracts to purchase securities for a fixed price at a
date beyond customary settlement time. The International Equity Fund, the
International Bond Fund and the Global Bond Fund each may enter into these
contracts if liquid securities in amounts sufficient to meet the purchase price
(but not to exceed, in the aggregate, 10% of its assets) are segregated on a
Fund's records at the trade date and maintained until the transaction has been
settled. Risk is involved if the value of the security declines before
settlement. Although a Fund enters into forward commitments with the intention
of acquiring the securities, it may dispose of the commitments prior to
settlement and realize short-term profits or losses.

LENDING OF PORTFOLIO SECURITIES

In order to generate additional income, each Fund may lend portfolio securities
on a short-term or long-term basis, or both, up to one-third the value of its
total assets, to broker/dealers, banks, or other institutional borrowers of
securities. A Fund will only enter into loan arrangements with broker/ dealers,
banks, or other institutions which the Funds' Adviser has determined are
creditworthy under guidelines established by the Trustees and will receive
collateral in the form of cash or U.S. Government Securities equal to at least
100% of the value of the securities loaned.

There is the risk that when lending portfolio securities, the securities may not
be available to a Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.

CONVERTIBLE SECURITIES

The Funds may invest in convertible securities rated, at the time of purchase,
BBB or better by S&P or Fitch or Baa by Moody's, or, if unrated, are of
comparable quality as determined by the Adviser. (If a security's rating is
reduced below the required minimum after a Fund has purchased it, the Fund may
consider disposing of the security, but will not be required to do so.)

Convertible securities are fixed income securities which may be exchanged or
converted into a predetermined number of the issuer's underlying common stock at
the option of the holder during a specified time period. Convertible securities
may take the form of convertible bonds, convertible preferred stock or
debentures, units consisting of "usable" bonds and warrants or a combination of
the features of several of these securities. The investment characteristics of
each convertible security vary widely, which allows convertible securities to be
employed for a variety of different investment strategies. In selecting a
convertible security, the Adviser evaluates the investment characteristics of
the convertible security as a fixed income investment, and the investment
potential of the underlying security for capital appreciation.

ASSET-BACKED SECURITIES

The International Bond Fund and the Global Bond Fund may invest in
mortgage-backed and asset-backed securities. Asset-backed securities are created
by the grouping of certain governmental, government-related and private loans,
receivables and other lender assets into pools. Interests in these pools are
sold as individual securities. These securities differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Asset-backed
securities, however, provide periodic payments which generally consist of both
interest and principal payments. The estimated life of an asset-backed security
and the average maturity of a portfolio including such assets vary with the
prepayment experience with respect to the underlying debt instruments. The
credit characteristics of asset-backed securities also differ in a number of
respects from those of traditional debt securities.

The credit quality of most asset-backed securities depends primarily upon the
credit quality of the assets underlying such securities, how well the entity
issuing the securities is insulated from the credit risk of the originator or
any other affiliated entities, and the amount and quality of any credit support
provided to such securities.

NON-MORTGAGE RELATED ASSET-BACKED SECURITIES. Non-mortgage related asset-backed
securities include, but are not limited to, interests in pools of receivables,
such as motor vehicle installment purchase obligations and credit card
receivables. These securities may be in the form of pass-through instruments or
asset-backed bonds. The securities, all of which are issued by non-governmental
entities and carry no direct or indirect government guarantee, are structurally
similar to CMOs and mortgage pass-through securities, which are described below.

MORTGAGE-RELATED ASSET-BACKED SECURITIES. The International Bond Fund and the
Global Bond Fund may invest in various mortgage-related asset-backed securities.
These types of investments may include ARMS, CMOs and REMICs (as such terms are
defined below), or other securities collateralized by or representing an
interest in real estate mortgages (collectively, "mortgage securities"). The
mortgage securities may have interest rates which reset at least annually and
generally will be issued or guaranteed by government agencies.

ADJUSTABLE RATE MORTGAGE SECURITIES ("ARMS"). ARMS are pass-through mortgage
securities with adjustable, rather than fixed, interest rates. The ARMS in which
the International Bond Fund and the Global Bond Fund may invest are issued by
the Government National Mortgage Association ("GNMA"), the Federal National
Mortgage Association ("FNMA"), and the Federal Home Loan Mortgage Corporation
("FHLMC") and are actively traded. The underlying mortgages that collateralize
ARMS issued by GNMA are fully guaranteed by the Federal Housing Administration
or Veterans Administration, while mortgages that collateralize ARMS issued by
FHLMC or FNMA are typically conventional residential mortgages conforming to
strict underwriting, size and maturity constraints.

Unlike conventional bonds, ARMS pay back principal over the life of the ARMS
rather than at maturity. Thus, a holder of the ARMS, such as the International
Bond Fund or Global Bond Fund, would receive monthly scheduled payments of
principal and interest, and may receive unscheduled principal payments
representing prepayments on the underlying mortgages. At the time that a holder
of the ARMS reinvests the payments and any unscheduled prepayments of principal
that it receives, the holder may receive a rate of interest which is actually
lower than the rate of interest paid on the existing ARMS. As a consequence,
ARMS may be a less effective means of "locking in" long-term interest rates than
other types of U.S. Government Securities.

Like other U.S. Government Securities, the market value of ARMS will generally
vary inversely with changes in market interest rates. Thus, the market value of
ARMS generally declines when interest rates rise and generally rises when
interest rates decline.

While ARMS generally entail less risk of a decline during periods of rapidly
rising rates, ARMS may also have less potential for capital appreciation than
other similar investments (e.g., investments with comparable maturities) because
as interest rates decline, the likelihood increases that mortgages will be
prepaid. Furthermore, if ARMS are purchased at a premium, mortgage foreclosures
and unscheduled principal payments may result in some loss of a holder's
principal investment to the extent of the premium paid. Conversely, if ARMS are
purchased at a discount, both a scheduled payment of principal and an
unscheduled prepayment of principal would increase current and total returns and
would accelerate the recognition of income, which would be taxed as ordinary
income when distributed to shareholders.

COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). CMOs are a form of asset-backed
security issued by single-purpose, stand-alone finance subsidiaries or trusts of
financial institutions, government agencies, investment banks, or companies
related to the construction industry.

The International Bond Fund and Global Bond Fund will invest only in CMOs which
are rated BBB or Baa or higher by an NRSRO and which may be: (a) collateralized
by pools of mortgages in which each mortgage is guaranteed as to payment of
principal and interest by an agency or instrumentality of the U.S. government;
(b) collateralized by pools of mortgages in which payment of principal and
interest is guaranteed by the issuer and such guarantee is collateralized by
U.S. Government Securities; or (c) securities in which the proceeds of the
issuance are invested in mortgage securities and payment of the principal and
interest are supported by the credit of any agency or instrumentality of the
U.S. government.

CONSIDERATIONS FOR MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Mortgage-backed
and asset-backed securities generally pay back principal and interest over the
life of the security. At the time either the International Bond Fund or the
Global Bond Fund reinvests the payments and any unscheduled prepayments of
principal received, the Fund may receive a rate of interest which is actually
lower than the rate of interest paid on these securities ("prepayment risks").
Mortgage-backed and asset-backed securities are subject to higher prepayment
risks than most other types of debt instruments with prepayment risks because
the underlying mortgage loans or the collateral supporting asset-backed
securities may be prepaid without penalty or premium. Prepayment risks on
mortgage-backed securities are also affected by other factors, such as the
frequency with which people sell their homes or elect to make unscheduled
payments on their mortgages. Although asset-backed securities generally are less
likely to experience substantial prepayments than are mortgage-backed
securities, certain of the factors that affect the rate of prepayments on
mortgage-backed securities also affect the prepayments on asset-backed
securities.

Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the benefit
of the same security interest in the related collateral. Credit card receivables
are generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which give such
debtors the right to set off certain amounts owed on the credit cards, thereby
reducing the balance due. Most issuers of asset-backed securities backed by
motor vehicle installment purchase obligations permit the servicer of such
receivables to retain possession of the underlying obligations. If the servicer
sells these obligations to another party, there is a risk that the purchaser
would acquire an interest superior to that of the holders of the related
asset-backed securities. Further, if a vehicle is registered in one state, and
is then reregistered because the owner and obligor moves to another state, such
reregistration could defeat the original security interest in the vehicle in
certain cases. In addition, because of the large number of vehicles involved in
a typical issuance and the technical requirements under state laws, the trustee
for the holders of asset-backed securities backed by automobile receivables may
not have a proper security interest in all of the obligations backing such
receivables. Therefore, there is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on these
securities.

DEPOSITARY RECEIPTS

Both the Small Capitalization Fund and International Equity Fund may invest in
foreign issuers by purchasing sponsored or unsponsored ADRs, and the
International Equity Fund may also purchase sponsored and unsponsored GDRs, IDRs
and EDRs. ADRs evidence ownership of underlying securities issued by a foreign
corporation, and are generally issued by a United States bank or trust company.
EDRs, GDRs and IDRs are typically issued by foreign banks or trust companies,
although they also may be issued by United States banks or trust companies, and
evidence ownership of underlying securities issued by either a foreign or a
United States corporation. ADRs, EDRs, GDRs and IDRs are collectively known as
"Depositary Receipts." Generally, Depositary Receipts in registered form are
designed for use in the United States securities market and Depositary Receipts
in bearer form are designed for use in securities markets outside the United
States. Depositary Receipts may not necessarily be denominated in the same
currency as the underlying securities into which they may be converted.
Ownership of unsponsored Depositary Receipts may not entitle the Small
Capitalization Fund and International Equity Fund 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.

FOREIGN GOVERNMENT SECURITIES

The foreign government securities in which the International Equity Fund, the
International Bond Fund and Global Bond Fund may invest generally consist of
obligations supported by national, state or provincial governments or similar
political subdivisions. Foreign government securities also include debt
obligations of supranational entities, which include international organizations
designed or supported by governmental entities to promote economic
reconstruction or development, international banking institutions and related
government agencies. Examples of these include, but are not limited to, the
International Bank for Reconstruction and Development (the World Bank), the
Asian Development Bank, the European Investment Bank and the Inter-American
Development Bank.

Foreign government securities also include debt securities of
"quasi-governmental agencies." Debt securities of quasi-governmental agencies
are either debt securities issued by entities which are owned by a national,
state or equivalent government or are obligations of a political unit that are
not backed by the national government's full faith and credit and general taxing
powers. Further, foreign government securities include mortgage-related
securities issued or guaranteed by national, state or provincial governmental
instrumentalities, including quasi-governmental agencies.

U.S. GOVERNMENT SECURITIES

The U.S. Government Securities in which the Funds may invest include but are not
limited to: direct obligations of the U.S. Treasury (such as Treasury bills,
notes and bonds), and obligations issued by U.S. government agencies or
instrumentalities, including securities that are supported by the full faith and
credit of the United States (such as GNMA certificates); securities that are
supported by the right of the issuer to borrow from the U.S. Treasury (such as
securities of Federal Home Loan Banks); and securities that are supported by the
credit of the instrumentality (such as FNMA and FHLMC).

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

Due to restrictions on direct investment by foreign entities in certain foreign
nations, investment in other investment companies may be the most practical or
only manner in which the Funds can invest in securities markets of certain
foreign countries. The Funds may invest in the securities of other investment
companies, but they will not own more than 3% of the total outstanding voting
stock of any investment company, invest more than 5% of their respective total
assets in any one investment company, or invest more than 10% of their
respective total assets in investment companies in general unless permitted to
do so by action of the SEC. Such investments may involve the payment of
substantial premiums above the net asset value of such issuers' portfolio
securities, and may be constrained by market availability. There can be no
assurance that investment companies that invest in certain foreign nations will
be available. The Funds will invest in such companies when, in the Adviser's
judgment, the potential benefits of such investment justify the payment of any
applicable premium or sales charge. It should be noted that investment companies
incur certain expenses, such as management fees, and, therefore, any investment
by the Funds in shares of other investment companies may be subject to such
duplicate expenses.

RISK FACTORS

EQUITY INVESTMENT CONSIDERATIONS. With respect to the Small Capitalization Fund,
as with other mutual funds that invest primarily in equity securities, the Fund
is subject to market risks. Since equity markets tend to be cyclical, the
possibility exists that the value of common stocks could decline over short or
even extended periods of time. Furthermore, because the Fund invests primarily
in small capitalization stocks, there are some additional risk factors
associated with investments in this Fund.

Small capitalization stocks have historically been more volatile in price than
larger capitalization stocks, such as those included in the Standard & Poor's
Daily Stock Price Index of 500 Common Stocks (the "S&P 500 Index"). This is
because, among other things, smaller companies have a lower degree of liquidity
in the equity market and tend to have a greater sensitivity to changing economic
conditions. In addition to exhibiting greater volatility, these stocks may, to
some degree, fluctuate independently of the stocks of large companies. That is,
the stocks of small capitalization companies may decline in price as the price
of large company stocks rise, or vice versa. Therefore, investors should expect
that there will be periods of time when the Fund will exhibit greater volatility
than broad stock market indices such as the S&P 500 Index.

FOREIGN SECURITIES CONSIDERATIONS. Investing in foreign securities carries
substantial risks in addition to those associated with investments in domestic
securities. The risks associated with investments in foreign securities relate
to political and economic developments abroad, as well as those that result from
the differences between the regulation of domestic securities and issuers and
foreign securities and issuers. In an attempt to reduce some of these risks, the
International Equity Fund, the International Bond Fund and the Global Bond Fund
will attempt to distribute their investments broadly among foreign nations. The
securities of at least three different foreign nations will always be
represented in the Funds' portfolios.

The economies of foreign countries may differ from the U.S. economy in such
respects as growth of gross national product, the rate of inflation, currency
depreciation, capital reinvestment, resource self-sufficiency, and balance of
payments position. Further, the economies of emerging market nations 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. The usual risks of investing
in foreign securities of developed nations are magnified when investing in
emerging market nations. As a general matter, emerging market investments are
more volatile and exhibit greater and more rapid fluctuations in value. The
International Equity Fund may invest up to 20% of its total assets, and the
International Bond Fund and the Global Bond Fund may each invest up to 10% of
its respective total assets, in issuers located in emerging market nations, and
this component of the Funds' investment portfolios should be considered
speculative.

With reference to investment in foreign securities of both developed and
emerging market nations, prior governmental approval for such investments may be
required under certain circumstances, and the extent of foreign investment in
certain debt or equity 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. The International Equity Fund, the International Bond Fund and the
Global Bond 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 will be considered illiquid
by a Fund if it appears reasonably likely that this process will take more than
seven days.

With respect to any foreign nation, there is the possibility of currency
fluctuations, 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 Funds' investments in those countries. In addition, because of
differences in the legal systems, it may be more difficult to obtain and enforce
a contractual obligation or court judgment in a court outside of the U.S.

Brokerage commissions, custodial services, and other costs relating to
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 the International Equity Fund, the International Bond Fund and
the Global Bond Fund to make intended security purchases due to settlement
problems could cause the Funds to miss attractive investment opportunities.
Inability to dispose of a portfolio security due to settlement problems could
result either in losses to a Fund due to subsequent declines in value of the
portfolio security or, if the Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser.

Additional differences exist between investing in foreign and domestic
securities. Examples of such differences include:

- less publicly available information about foreign issuers;

- credit risks associated with certain foreign governments;

- the lack of uniform accounting, auditing, and financial reporting
standards and practices or regulatory requirements comparable to those
applicable to U.S. companies;

- less readily available market quotations on foreign issues;

- differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;

- the limited size of many foreign securities markets and limited trading
volume in issuers, compared to the volume of trading in U.S. securities,
could cause prices to be erratic for reasons apart from factors that
affect the quality of securities;

- the likelihood that securities of foreign issuers may be less liquid or
more volatile;

- unreliable mail service between countries;

- political or financial changes which adversely affect investments in some
nations;

- increased risk of delayed settlements of portfolio transactions or loss
of certificates for portfolio securities;

- certain markets may require payment for securities before delivery;

- religious and ethnic instability; and

- certain national policies which may limit the use or transfer of Fund
assets, or may restrict the Funds' investment opportunities, including
restrictions on investment in issuers or industries deemed sensitive to
national interests.

U.S. GOVERNMENT POLICIES. In the past, U.S. government policies have
discouraged or restricted certain investments abroad by investors similar to the
International Equity Fund, the International Bond Fund and the Global Bond Fund.
Investors are advised that when such policies are instituted, the Funds will
abide by them.

CURRENCY RISKS. Because the majority of the debt and equity securities purchased
by the International Equity Fund, the International Bond Fund and the Global
Bond Fund are denominated in currencies other than the U.S. dollar, changes in
foreign currency exchange rates will affect the Funds' net asset values; the
value of interest earned; gains and losses realized on the sale of securities;
and net investment income and capital gains, if any, to be distributed to
shareholders by the Funds. If the value of a foreign currency rises against the
U.S. dollar, the value of 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 Fund assets denominated in that currency will
decrease. Under the United States Internal Revenue Code, as amended (the
"Code"), the Funds are required to separately account for the foreign currency
component of gains or losses, which will usually be viewed under the Code as
items of ordinary and distributable income or loss, thus affecting the Funds'
distributable income (see "Federal Income Tax" in this prospectus).

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 the International Equity Fund,
the International Bond Fund and the Global Bond Fund value their assets daily in
U.S. dollars, the Funds will not convert their holdings of foreign currencies to
U.S. dollars daily. When a 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.

The Funds will engage in foreign currency exchange transactions in connection
with their investments in foreign securities. The Funds will conduct their
foreign currency exchange transactions either on a spot (i.e. cash) basis at the
spot rate prevailing in the foreign currency exchange market, or through forward
contracts to purchase or sell foreign currencies.

The Funds' Adviser believes that active management of currency risks through a
variety of hedging vehicles and strategies (as described further below) can
considerably limit the risk of capital loss through movements in the foreign
exchange markets, such as those described above. The Adviser will not engage in
currency transactions for speculative purposes.

ALLOCATION. With respect to the International Equity Fund, the International
Bond Fund, and the Global Bond Fund, the allocation of each Fund's respective
assets in a particular market and currency will be based on a fundamental
assessment of the economic strength of each relevant country combined with
considerations of credit quality and currency and interest rate trends. These
factors are reviewed on a regular basis by the Adviser in order to derive
specific interest rate and currency forecasts, which are quantified in terms of
total return. The market and currency allocation of the Funds will vary to
achieve an optimal mix of investments in pursuit of the Funds' investment
objective.

HEDGING VEHICLES AND STRATEGIES

HEDGING VEHICLES. As noted in "Investment Objective of Each Fund," the Funds may
use the following hedging vehicles in an attempt to manage the currency and
interest rate risks described above:

- forward foreign currency exchange contracts;

- options contracts; and

- futures contracts.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency exchange
contract involves an obligation to purchase or sell 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. These
contracts are traded directly between currency traders (usually large commercial
banks) and their customers. When a Fund enters into a contract for the purchase
or sale of a security denominated in a foreign currency, it may want to
establish the U.S. dollar cost or proceeds, as the case may be. By entering into
a forward contract in U.S. dollars for the purchase or sale of the amount of
foreign currency involved in an underlying security transaction, a Fund is able
to protect itself against a possible loss between trade and settlement dates
resulting from an adverse change in the relationship between the U.S. dollar and
such foreign currency. However, this tends to limit potential gains which might
result from a positive change in such currency relationships.

There is no limitation as to the percentage of a Fund's assets that may be
committed under forward foreign currency exchange contracts. The Funds do not
enter into such forward contracts or maintain a net exposure in such contracts
where the Funds would be obligated to deliver an amount of foreign currency in
excess of the value of the Funds' portfolio securities or other assets
denominated in that currency or, in the case of a "cross-hedge" (see "Hedging
Strategies" below), denominated in a currency or currencies that the investment
adviser believes will reflect a high degree of correlation with the currency
with regard to price movements. The Funds generally do not enter into a forward
foreign currency exchange contract with a term longer than one year.

OPTIONS. The Funds may deal in options on foreign currencies, foreign currency
futures, securities, and securities indices, which options may be listed for
trading on a national securities exchange or traded over-the-counter. (The Small
Capitalization Fund will deal solely in options on domestic securities,
including ADRs, in which the Fund can invest directly.) The Funds may write
covered call options and secured put options on up to 25% of their respective
net assets and may purchase put and call options provided that no more than 5%
of the fair market value of their respective net assets may be invested in
premiums on such options.

A call option gives the purchaser the right to buy, and the writer the
obligation to sell, the underlying currency, security or other asset at the
exercise price during the option period. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying currency,
security or other asset at the exercise price during the option period. The
writer of a covered call owns assets that are acceptable for escrow and the
writer of a secured put invests an amount not less than the exercise price in
eligible assets to the extent that it is obligated as a writer. If a call
written by a Fund is exercised, the Fund forgoes any possible profit from an
increase in the market price of the underlying asset over the exercise price
plus the premium received. In writing puts, there is a risk that the Funds may
be required to take delivery of the underlying asset at a disadvantageous price.

Over-the-counter options ("OTC options") differ from exchange traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and there is a risk of non-performance by the dealer as a
result of the insolvency of such dealer or otherwise, in which event a Fund may
experience material losses. However, in writing options the premium is paid in
advance by the dealer of OTC options. While OTC options may not be continuously
liquid, they are available for a greater variety of assets, and a wider range of
expiration dates and exercise prices, than are exchange traded options.

FUTURES. Futures contracts are contracts that obligate the long or short holder
to take or make delivery of a specified quantity of an asset, such as a
currency, a security, or the cash value of a securities index at a specified
future date at a specified price. The Funds may engage in futures transactions,
but will not participate in futures contracts if the sum of their initial margin
deposits on open contracts will exceed 5% of the fair market value of each
Fund's respective net assets.

HEDGING STRATEGIES

CURRENCY HEDGING. In the case of the International Equity Fund, the
International Bond Fund and the Global Bond Fund, when the Adviser believes that
the currency of a particular foreign country 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 for a fixed U.S. dollar amount approximating the value
of some or all of a Fund's portfolio securities denominated in such foreign
currency (i.e., "hedge"). A Fund may, as an alternative, enter into a forward
contract to sell a different foreign currency for a fixed U.S. dollar amount
where the Adviser believes that the U.S. dollar value of the currency to be sold
pursuant to the forward contract will fall whenever there is a decline in the
U.S. dollar value of the currency in which portfolio securities of the Fund are
denominated (i.e., "cross-hedge"). A cross-hedge can be achieved not only by
using a "proxy" currency in which Fund securities are denominated, but also by
using the Canadian Dollar as a "proxy" currency for the U.S. dollar. This
strategy may be beneficial because the level of divergence in the exchange rates
of U.S. and Canadian currencies has historically tended to be relatively small.

INTEREST RATE HEDGING. The International Equity Fund, the International Bond
Fund and the Global Bond Fund may engage in futures transactions and may use
options in an attempt to hedge against the effects of fluctuations in interest
rates and other market conditions.

GENERAL. The Funds might not employ any of the techniques or strategies
described above, and there can be no assurance that any technique or strategy
(or combination thereof) used will succeed. The use of these techniques and
strategies involves certain risks, including:

- dependence on the Adviser's ability to predict movements in the prices of
assets being hedged or movements in interest rates and currency markets;

- imperfect correlation between the hedging instruments and the securities
or currencies being hedged;

- the fact that skills needed to use these instruments are different from
those needed to select the Funds' securities;

- the possible absence of a liquid secondary market for any particular
instrument at any particular time;

- possible impediments to effective portfolio management or the ability to
meet redemption requests or other short-term obligations because of the
percentage of the Funds' assets segregated to cover its obligations; and

- the possible need to defer closing out hedged positions to avoid adverse
tax consequences.

New futures contracts, options thereon and other financial products and risk
management techniques continue to be developed. A Fund may use these investments
and techniques to the extent consistent with its investment objective and
regulatory and federal tax considerations.

DERIVATIVE CONTRACTS AND SECURITIES

The term "derivative" has traditionally been applied to certain contracts
(including, futures, forward, option and swap contracts) that "derive" their
value from changes in the value of an underlying security, currency, commodity
or index. Certain types of securities that incorporate the performance
characteristics of these contracts are also referred to as "derivatives." The
term has also been applied to securities "derived" from the cash flows from
underlying securities, mortgages or other obligations.

Derivative contracts and securities can be used to reduce or increase the
volatility of an investment portfolio's total performance. While the response of
certain derivative contracts and securities to market changes may differ from
traditional investments, such as stock and bonds, derivatives do not necessarily
present greater market risks than traditional investments. The Funds will only
use derivative contracts for the purposes disclosed in the applicable prospectus
sections above. To the extent that a Fund invests in securities that could be
characterized as derivatives, such as futures, asset-backed and mortgage-backed
securities, it will only do so in a manner consistent with its investment
objective, policies and limitations.

DURATION

With reference to the International Bond Fund and Global Bond Fund, duration is
a measure of a debt security's price sensitivity expressed in years and is a
measure of the interest rate risk of a debt security, taking into consideration
that there may be cash flows before the maturity date and that the cash flows
must be considered in terms of their present value. Duration is similar to, but
more precise than, average life. It is a measure of the number of years until
the average dollar--in present value terms--is received from coupon and
principal payments. As such, it is one measure of systematic risk. Duration is
computed by multiplying each principal and interest payment by its present
value, summing these products, and dividing the sum by the full price of the
debt security. A more complete description of this calculation is available upon
request from the Trust.

Duration measures the magnitude of the change in the price of a debt security
relative to a given change in the market rate of interest. The duration of a
debt security depends primarily upon the security's coupon rate, maturity date,
and level of market interest rates for similar debt securities. There will be no
limit on the duration of any one individual issue purchased by the International
Bond Fund and Global Bond Fund, except that the purchase of an issue that has no
final maturity date shall not be permitted. The weighted average duration of the
Funds shall not exceed ten years and shall not be less than one year, but will
normally fall within a range of three to seven years. The Adviser regards that
range as being consistent with a prudent attitude towards risk. Shifts outside
this range would be made only under unusual circumstances.

PORTFOLIO TURNOVER

Although the Funds do not intend to invest for the purpose of seeking short-term
profits, securities in their portfolios will be sold whenever the Adviser
believes it is appropriate to do so in light of each Fund's investment
objective, without regard to the length of time a particular security may have
been held. The rate of portfolio turnover for each Fund may exceed that of
certain other mutual funds with the same investment objective. A higher rate of
portfolio turnover involves correspondingly greater transaction expenses which
must be borne directly by a Fund and, thus, indirectly by its shareholders. In
addition, a high rate of portfolio turnover may result in the realization of
larger amounts of capital gains which, when distributed to a Fund's
shareholders, are taxable to them. (Further information is contained in the
Trust's Statement of Additional Information under the sections "Brokerage
Transactions" and "Tax Status.") Nevertheless, transactions for each Fund's
portfolio will be based only upon investment considerations and will not be
limited by any other considerations when the Adviser deems it appropriate to
make changes in a Fund's portfolio. A portfolio turnover rate exceeding 100% is
considered to be high.

FTI FUNDS INFORMATION
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MANAGEMENT OF FTI FUNDS

BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees are
responsible for managing the business affairs of the Trust and for exercising
all the Trust's powers except those reserved for the shareholders.

INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Trust are made by Fiduciary International, Inc.,
the Trust's investment adviser, subject to direction by the Trustees. The
Adviser continually conducts investment research and supervision for each Fund
and is responsible for the purchase or sale of portfolio instruments, for which
it receives an annual fee from the assets of each Fund.

ADVISORY FEES. The Adviser receives an annual investment advisory fee equal to
0.70% of each of the Global Bond Fund's and International Bond Fund's respective
average daily net assets, and 1.00% of each of the Small Capitalization and
International Equity Fund's respective average daily net assets. The advisory
fees paid by the Small Capitalization Fund and International Equity Fund, while
higher than the advisory fees paid by other mutual funds in general, are
comparable to fees paid by other mutual funds with similar objectives and
policies to those Funds. The investment advisory contract provides for the
voluntary waiver of expenses by the Adviser from time to time. The Adviser can
terminate this voluntary waiver of expenses at any time with respect to a Fund
at its sole discretion.

ADVISER'S BACKGROUND. Fiduciary International, Inc. ("FII") is a New York
corporation that was organized in 1982 as Fir Tree Advisers, Inc. FII is a
wholly-owned subsidiary of Fiduciary Investment Corporation, which, in turn, is
a wholly-owned subsidiary of Fiduciary Trust Company International ("FTCI").
FTCI has more than 60 years of investment experience, including more than 30
years experience in managing pooled investment vehicles which invest in the
international markets. FII is an indirect subsidiary of FTCI. FTCI is a New York
state-chartered bank specializing in investment management activities. As of
December 31, 1997, FTCI had total assets of approximately $531 million, and
total assets under management of approximately $37.7 billion. These assets
included investments managed for individuals and institutional clients,
including employee benefit plans of corporations, public retirement systems,
unions, endowments, foundations and others.

FII is a registered investment adviser under the Investment Advisers Act of
1940. The Adviser and its officers, affiliates, and employees may act as
investment managers for parties other than the Trust, including other investment
companies. FII presently serves as investment adviser or subadviser to the Van
Eck Global Balanced Fund, the Blanchard Global Growth Fund, the Prudential
Securities Target Program's International Bond Portfolio, and the Frank Russell
Investment Company's Equity II Fund.

Yvette Bockstein, Helen Degener and Grant Babyak are primarily responsible for
the day-to-day investment management of the Small Capitalization Fund. Both Ms.
Bockstein and Ms. Degener, Senior Vice Presidents of FTCI, have managed the Fund
since its inception, and, along with Mr. Babyak, serve on its Small Cap
Investment Committee. Ms. Bockstein has been with FTCI since 1978. Prior to
joining the Adviser, she was with Davis, Palmer & Biggs and The Bank of New
York. Ms. Degener has been with FTCI since 1994. Prior to FTCI, she spent
thirteen years at Morgan Guaranty Trust Company as a Vice President and manager
of several small capitalization equity funds. Mr. Babyak is a Senior Vice
President of FTCI and has been with the Adviser since 1996. Prior to joining
Fiduciary, Mr. Babyak worked for six years at Avatar Associates as an
institutional portfolio manager and two years at United States Trust Company as
an analyst.

Sheila Coco, William Yun and Steven Miller have been primarily responsible for
the day-to-day investment management of the International Equity Fund since its
inception. Ms. Coco and Mr. Yun are both Executive Vice Presidents of FTCI and
Chartered Financial Analysts. Along with Mr. Miller, they serve on the Adviser's
Global Investment Committee. Ms. Coco has been with FTCI since 1980 and had
previously spent four years in the investment division of Morgan Guaranty Trust
Company. Mr. Yun joined Fiduciary in 1992, and has nine years of prior
investment experience with CB Commercial Holdings, The First Boston Corp. and
Blyth Eastman Paine Webber, Inc. He is a member of the New York Society of
Security Analysts. Mr. Miller joined FTCI in 1994 and is a Senior Vice
President. Previously, he had spent seven years with Vital Forsikring, a
Norwegian life insurance company, and Heller Financial.

Stuart Hochberger and Anthony Gould have been primarily responsible for the
day-to-day investment management of both the International Bond Fund and Global
Bond Fund since their inception. Mr. Hochberger is an Executive Vice President
and a Director of FTCI and is Director of its Fixed Income Group. He also serves
as the Chairman of the Adviser's Fixed Income Policy Committee and is a member
of both the Global Investment Committee and the Investment Policy Committee. Mr.
Hochberger joined FTCI in 1981 from Morgan Guaranty Trust Company. Mr. Gould
joined FTCI in 1995 and is currently a Senior Vice President and global
portfolio manager. Previously, he had spent six years with BZW
Investment Management, the asset management subsidiary of the Barclays
Group, as a global bond manager. Prior to BZW, he was employed by J.P.
Morgan, London. Mr. Gould is a Chartered Financial Analyst and a member
of the New York Society of Security Analysts.

DISTRIBUTION OF SHARES OF THE FUNDS

Edgewood Services, Inc., the principal distributor (the "Distributor") for
shares of the Funds, is a New York corporation and a wholly-owned subsidiary of
Federated Investors. The Distributor is a registered broker/dealer. Its
principal offices are at Clearing Operations, P.O. Box 897, Pittsburgh, PA
15230-0897.

DISTRIBUTION PLAN. Under a distribution plan adopted in accordance with the
Investment Company Act of 1940's Rule 12b-1 (the "Plan"), the Funds may pay to
the Distributor an amount computed at an annual rate of 0.75% of the average
daily net asset value of each Fund's shares to finance any activity which is
principally intended to result in the sale of shares subject to the Plan.
However, the Plan will not be activated, and the Distributor has no present
intention to collect any fees pursuant to the Plan, unless and until such time
as a second "trust" class of shares of the Funds is created for shareholders
that are trust clients.

The Distributor may from time to time and for such periods as it deems
appropriate, voluntarily reduce its compensation under the Plan to the extent
the expenses attributable to the shares exceed such lower expense limitation as
the Distributor may, by notice to the Trust, voluntarily declare to be
effective.

The Distributor may select financial institutions, such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers ("brokers")
to provide distribution and/or administrative services as agents for their
clients or customers. Administrative services may include, but are not limited
to, the following functions: providing office space, equipment, telephone
facilities, and various clerical, supervisory, computer, and other personnel as
necessary or beneficial to establish and maintain shareholder accounts and
records; processing purchase and redemption transactions and automatic
investments of client account cash balances; answering routine client inquiries;
assisting clients in changing dividend options, account designations, and
addresses; and providing such other services as may reasonably be requested.

The Distributor will pay financial institutions a fee based upon shares subject
to the Plan and owned by their clients or customers. The schedules of such fees
and the basis upon which such fees will be paid will be determined from time to
time by the Distributor.

The Funds' Plan is a compensation type plan. As such, the Funds make no payments
to the Distributor except as described above. Therefore, the Funds do not pay
for unreimbursed expenses of the Distributor, including amounts expended by the
Distributor in excess of amounts received by it from the Funds, interest,
carrying or other financing charges in connection with excess amounts expended,
or the Distributor's overhead expenses. However, the Distributor may be able to
recover such amounts or may earn a profit from future payments made by the Funds
under the Plan.

Furthermore, the Distributor may offer to pay a fee from its own assets to
financial institutions as financial assistance for providing substantial
marketing and sales support. The support may include sponsoring sales,
educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Funds. Such assistance will be predicated upon the amount of
shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution. Any
payments made by the Distributor may be reimbursed by the Adviser or its
affiliates.

SHAREHOLDER SERVICES ARRANGEMENTS. The Trust and FII have entered into a
Shareholder Services Agreement (the "Services Agreement") with respect to the
shares of the Funds to provide administrative support services to customers who
from time to time may be owners of record or beneficial owners of the Funds'
shares. In return for providing these support services, FII (or a financial
institution which has an agreement with FII) may receive payments from a Fund at
a rate not exceeding 0.25% of the average daily net assets of the shares
beneficially owned by the financial institution's customers for whom it is
holder of record or with whom it has a servicing relationship. These
administrative services may include, but are not limited to, the following
functions: providing office space, equipment, telephone facilities, and various
personnel, including clerical, supervisory, and computer, as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries regarding the
Funds; assisting clients in changing dividend options, account designations, and
addresses; and providing such other services as the Funds reasonably request.
Certain trust clients, including ERISA plans, will not be affected by the
Services Agreement because the Services Agreement will not be activated unless
and until a second "trust" class of shares of the Funds (which would not have a
Services Agreement) is created and such trust clients' investments in a Fund are
converted to such trust class.

ADMINISTRATIVE ARRANGEMENTS

The Distributor may pay financial institutions and other financial service
providers, such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers, a fee based upon the average net asset value of
shares of their customers for providing administrative services. This fee, if
paid, will be reimbursed to the Distributor by the Adviser and not the Funds.

ADMINISTRATION OF THE FUNDS

ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Services Company, provides the Funds with certain administrative
personnel and services necessary to operate each Fund.

Such services include shareholder servicing and certain legal and accounting
services. Federated Administrative Services provides these at an annual rate as
specified below:

<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
- --------------------- -----------------------------------
<S> <C>
.15% on the first $250 million
.125% on the next $250 million
.10% 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 Fund. Federated Administrative Services may choose voluntarily to waive a
portion of its fee.

CUSTODIAN. Fiduciary Trust Company International, Two World Trade Center, New
York, New York 10048-0772, is custodian for the securities and cash of the
Funds. Foreign instruments purchased by the Funds are held by foreign banks
participating in a network coordinated by Fiduciary Trust Company International.

TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND PORTFOLIO ACCOUNTANT. Federated
Shareholder Services Company, Pittsburgh, Pennsylvania, a subsidiary of
Federated Services Company, with offices in Boston, Massachusetts, is transfer
agent for the shares of the Funds and dividend disbursing agent for the Funds.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the portfolio investments of the Funds.

INDEPENDENT AUDITORS. The independent auditors for the Funds are Ernst & Young
LLP, Pittsburgh, Pennsylvania.

LEGAL COUNSEL TO THE TRUST. Legal counsel to the Trust is provided by Dewey
Ballantine LLP, New York, New York; and Dickstein Shapiro Morin & Oshinsky LLP,
Washington, D.C.

BROKERAGE TRANSACTIONS

When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Funds' Adviser looks for prompt execution of the order at a
favorable price. In working with dealers, the Adviser will generally utilize
those who are recognized dealers in specific portfolio instruments, except when
a better price and execution of the order can be obtained elsewhere. In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling shares of the Funds
and other funds distributed by Edgewood Services, Inc. or Federated Securities
Corp. The Adviser makes decisions on portfolio transactions and selects brokers
and dealers subject to review by the Trustees.

NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value per share of each Fund fluctuates. Net asset value is
determined by dividing the sum of the market value of all securities and other
assets of a Fund, less liabilities, by the number of Fund shares outstanding.
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange ("NYSE"). As a result, in computing the
net asset values of the International Equity Fund, the International Bond Fund
and the Global Bond Fund, the Funds value foreign equity securities at the
latest closing price on the exchange on which they are traded immediately prior
to the closing of the NYSE. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at the foreign exchange rate in effect at noon,
Eastern time, on the day the value of the foreign security is determined.
Occasionally, events that effect these values and exchange rates may occur
between the times at which they are determined and the closing of the NYSE. If
such events materially affect the value of portfolio securities, these
securities may be valued at their fair value as determined in good faith by the
Trustees, although the actual calculation may be done by others.

INVESTING IN THE FUNDS
- --------------------------------------------------------------------------------
SHARE PURCHASES

Shares of the Funds are sold on days on which both the NYSE and the Federal
Reserve Wire System are open for business. Shares of the Funds may be purchased
through Fiduciary International, Inc. or through authorized broker/dealers. In
connection with the sale of shares of the Funds, Edgewood Services, Inc. may,
from time to time, offer certain items of nominal value to any shareholder or
investor. The Funds reserve the right to reject any purchase request.

THROUGH FIDUCIARY INTERNATIONAL, INC. An investor may write or call Fiduciary
International, Inc. to place an order to purchase shares of a Fund. Call (212)
524-7300. Representatives are available from 9:00 a.m. to 5:00 p.m. (Eastern
time). Payment may be made either by mail or federal funds. Purchase orders must
be received by Fiduciary International, Inc. before 3:00 p.m. (Eastern time).
Payment is normally required on the next business day. Texas residents must
purchase shares through Edgewood Services, Inc. at 1-800-356-2805.

BY MAIL. To purchase shares of a Fund by mail, send a check made payable to
"FTI Funds" (and identify the appropriate Fund) to: Federated Shareholder
Services Company, P.O. Box 8609, Boston, Massachusetts 02266-8609. Orders by
mail are considered received after payment by check is converted into federal
funds. This is normally the next business day after the Fund receives the check.

BY WIRE. To purchase shares of a Fund by wire, call (212) 524-7300. Payment by
wire must be received by Fiduciary International, Inc. before 3:00 p.m. (Eastern
time) on the next business day after placing the order. Fiduciary Trust Company
International is on-line with the Federal Reserve Bank of New York. Accordingly,
to purchase shares of the Funds by wire, wire funds as follows:
Fiduciary Trust Company International
ABA #026007922
Credit: Account Number 550000100
Further credit to: (Name of Fund)
Re: (customer name)

Shares of the Funds cannot be purchased by Federal Reserve Wire on Columbus Day,
Veterans' Day, or Martin Luther King Day.

THROUGH AUTHORIZED BROKER/DEALERS. An investor may place an order through
authorized brokers and dealers to purchase shares of a Fund. Shares will be
purchased at the net asset value next determined after the Fund receives the
purchase request from Fiduciary International, Inc. Purchase requests through
authorized brokers and dealers must be received by Fiduciary International, Inc.
and transmitted to the Fund before 3:00 p.m. (Eastern time) in order for shares
to be purchased at that day's public offering price.

MINIMUM INVESTMENT REQUIRED

The minimum initial investment in shares of each Fund is $10,000. This
prospectus should be read together with any account agreement for minimum
investment requirements imposed by Fiduciary Trust Company International or its
affiliates. The minimum investment required may be waived for employees of the
Adviser or its affiliates.

WHAT SHARES COST

Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Funds. The net asset value of
each Fund 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 Fund's portfolio securities that its
net asset value might be materially affected; (ii) days during which no shares
of a Fund are tendered for redemption and no orders to purchase shares are
received; or (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.

CONFIRMATIONS AND ACCOUNT STATEMENTS

As transfer agent for the Trust, Federated Shareholder Services Company
maintains a share account for each shareholder of record. Share certificates are
not issued.

Detailed confirmations of each purchase and redemption are sent to each
shareholder. In addition, shareholders will receive statements showing all
account activity for the statement period.

DIVIDENDS

For shareholders invested in the Funds on the record date, dividends are
declared and paid semi-annually. Dividends are automatically reinvested in
additional shares of a Fund on the payment date, at the ex-dividend date net
asset value, unless shareholders request cash payments on the new account form
or by writing to the appropriate Fund. All shareholders on the record date are
entitled to the dividend. If shares are redeemed or exchanged prior to the
record date, or purchased after the record date, those shares are not entitled
to that dividend. A portion of distributions to shareholders could, under some
circumstances, be reclassified as a return of capital for income tax purposes
(See "Federal Income Tax").

CAPITAL GAINS

Capital gains realized by a Fund, if any, will be distributed at least once
every twelve months.

EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
In order to provide greater flexibility to shareholders whose investment
objectives have changed, shareholders of the Funds may exchange all or some of
their shares in one Fund for shares in other Funds in the Trust. Shareholders of
the Funds may also exchange into certain money market funds for which affiliates
or subsidiaries of Federated Investors serve as investment adviser and/or
principal underwriter ("Federated Money Funds"). These exchanges are made at net
asset value. None of the Funds imposes any additional fees on exchanges.
Shareholders in certain Federated Money Funds may exchange their shares in the
Federated Money Funds for shares in the Funds.

REQUIREMENTS FOR EXCHANGE

A shareholder may exchange shares of one Fund for shares of any of the other
Funds in the Trust by calling (212) 524-7300 or by writing to Fiduciary
International, Inc. Shares purchased by check are eligible for exchange after
seven days.

Orders to exchange shares of one Fund for shares of any of the other Funds will
be executed by redeeming the shares owned and purchasing shares of any of the
other Funds at the net asset value determined after the exchange request is
received. Orders for exchanges received by a Fund prior to 3:00 p.m. (Eastern
time) on any day the Funds are open for business will be executed as of the
close of business that day. Orders for exchanges received after 3:00 p.m.
(Eastern time) on any business day will be executed at the close of the next
business day.

An authorization form permitting a Fund to accept telephone exchange requests
must first be completed. It is recommended that investors request this privilege
on the account application at the time of their initial application. If not
completed at the time of initial application, authorization forms and
information on this service can be obtained through Fiduciary International,
Inc. Telephone exchange instructions may be recorded. If reasonable procedures
are not followed by a Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.

An excessive number of exchanges may be disadvantageous to the Trust. Therefore,
the Trust, in addition to its right to reject any exchange request, reserves the
right to modify or terminate the exchange privilege at any time. Shareholders
would be notified prior to any modification or termination.

An exchange order must comply with the requirements for a redemption and must
specify the dollar value or number of shares to be exchanged. Exchanges are
subject to the minimum initial investment requirement of the Fund being
acquired. Prior to any exchange, the shareholder must receive a copy of the
current prospectus of the Fund into which an exchange is to be effected.

Further information on the exchange privilege and prospectuses for certain
Federated Money Funds are available by contacting the Trust.

TAX CONSEQUENCES

An exercise of the exchange privilege is treated as a sale for federal income
tax purposes. Depending on the circumstances, a short-term or long-term capital
gain or loss may be realized.

REDEEMING SHARES
- --------------------------------------------------------------------------------
Each Fund redeems shares at their net asset value next determined after
Fiduciary International, Inc. receives the redemption request. Redemptions will
be made on days on which both the NYSE and the Federal Reserve Wire System are
open for business. Telephone or written requests for redemption must be received
in proper form by Fiduciary International, Inc.

BY TELEPHONE. A shareholder may redeem shares of a Fund by calling Fiduciary
International, Inc. to request a redemption. Call (212) 524-7300 to redeem
shares. Shares will be redeemed at the net asset value next determined after a
Fund receives the redemption request from Fiduciary International, Inc.

Although Fiduciary International, Inc. does not charge for telephone
redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000, or in excess of one per month.
Fiduciary International, Inc. is responsible for promptly submitting redemption
requests and providing proper written redemption instructions to a Fund. If, at
any time, a Fund should determine it necessary to terminate or modify this
method of redemption, shareholders would be promptly notified. A redemption
request must be received by Fiduciary International, Inc. before 3:00 p.m.
(Eastern time) in order for shares to be redeemed at that day's net asset value.

An authorization form permitting a Fund to accept telephone redemption requests
must first be completed. It is recommended that investors request this privilege
at the time of their initial application. If not completed at the time of
initial application, authorization forms and information on this service can be
obtained from the Trust. Telephone redemption instructions may be recorded. If
reasonable procedures are not followed by a Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions.

In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "By Mail," should be considered.

BY MAIL. Shareholders may redeem shares of a Fund by sending a written request
to: Federated Shareholder Services Company, P.O. Box 8609, Boston, Massachusetts
02266-8609. The written request should include the shareholder's name, the Fund
name, the account number, and the share or dollar amount requested, and should
be signed by each registered owner exactly as the shares are registered. If
share certificates have been issued, they should be sent by insured mail with
the written request to Federated Shareholder Services Company.

SIGNATURES. Shareholders requesting a redemption of any amount to be sent to an
address other than that on record with a Fund, or a redemption payable other
than to the shareholder of record, must have signatures on written redemption
requests guaranteed by:

- a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund , which is administered by the Federal Deposit Insurance
Company ("FDIC");

- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchanges;

- a savings bank or savings association whose deposits are insured by the
Savings Association Insurance Fund, which is administered by the FDIC; or

- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.

The Funds do not accept signatures guaranteed by a notary public.

The Funds and their transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Funds may elect in the
future to limit eligible signature guarantors to institutions that are members
of a signature guarantee program. The Funds and the transfer agent reserve the
right to amend these standards at any time without notice.

Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, the Trust may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below the required minimum value of $10,000 due to
shareholder redemptions. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement.

SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS

Each share of a Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of each Fund in the
Trust have equal voting rights, except that in matters affecting only a
particular Fund, only shares of that Fund are entitled to vote. As a
Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the operation of the Trust or a Fund and for the election of Trustees
under certain circumstances. As of January 7, 1998, Fiduciary Trust Company
International may for certain purposes be deemed to control the Funds because it
is owner of record of certain shares of the Funds.

As of January 7, 1998, Greenwich Academy may for certain purposes be deemed to
control the Global Bond Fund because it is owner of record of certain shares of
the Fund.

Trustees may be removed by the Trustees or by shareholders at a special meeting.
The Trustees shall call a special meeting of shareholders upon the written
request of shareholders owning at least 10% of the Trust's outstanding shares
entitled to vote.

EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
Banking laws and regulations presently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, or distributing securities. However, such banking
laws and regulations do not prohibit such a holding company affiliate or banks
generally from acting as investment adviser, transfer agent or custodian to such
an investment company or from purchasing shares of such a company as agent for
and upon the order of such customer. The Adviser is subject to such banking laws
and regulations.

The Adviser believes, based on the advice of its counsel, that it may perform
the services for any Fund contemplated by its advisory agreement with the Trust
without violation of the Glass-Steagall Act or other applicable banking laws or
regulations. Changes in either federal or state statutes and regulations
relating to the permissible activities of banks and their subsidiaries or
affiliates, as well as further judicial or administrative decisions or
interpretations of such or future statutes and regulations, could prevent the
Adviser from continuing to perform all or a part of the above services for its
customers and/or a Fund. If it were prohibited from engaging in these
customer-related activities, the Trustees would consider alternative advisers
and means of continuing available investment services. In such event, changes in
the operation of a Fund may occur, including possible termination of any
automatic or other Fund share investment and redemption services then being
provided by the Adviser. It is not expected that existing shareholders would
suffer any adverse financial consequences (if another adviser with equivalent
abilities to Fiduciary is found) as a result of any of these occurrences.

TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX

The Funds anticipate that they will pay no federal income tax because each Fund
expects to meet requirements of Subchapter M of the Code applicable to regulated
investment companies and to receive the special tax treatment afforded to such
companies.

Each Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by one
Fund will not be combined for tax purposes with those realized by any of the
other Funds.

Investment income received by the Funds from sources within foreign countries
may be subject to foreign taxes withheld at the source. The United States has
entered into tax treaties with many foreign countries that entitle the Funds to
reduced tax rates or exemptions on this income. The effective rate of foreign
tax cannot be predicted, since the amount of Fund assets to be invested within
various countries is unknown. However, the Funds intend to operate so as to
qualify for treaty-reduced tax rates where applicable.

Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the shares. No federal income tax is due on any
dividends earned in an individual retirement account or qualified retirement
plan until distributed.

Due to differences in the book and tax treatment of fixed-income securities
denominated in foreign currencies, it is difficult to project currency effects
on an interim basis. Therefore, to the extent that currency fluctuations can not
be anticipated, a portion of distributions to shareholders could later be
designated as a return of capital, rather than income, for income tax purposes,
which may be of particular concern to simple trusts.

If more than 50% of the value of a Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns.

The Code may limit a shareholder's ability to claim a foreign tax credit.
Furthermore, shareholders who elect to deduct their portion of a Fund's foreign
taxes rather than take the foreign tax credit must itemize deductions on their
income tax returns.

Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws, including treatment of
distributions as income or return of capital.

PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Funds may advertise their total returns and yields.

Total return represents the change, over a specified period of time, in the
value of an investment in a Fund after reinvesting all income and capital gains
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.

The yield of a Fund is calculated by dividing the net investment income per
share (as defined by the SEC) earned by the Fund over a thirty-day period by the
maximum offering price per share of the Fund on the last day of the period. This
number is then annualized using semi-annual compounding. The yield does not
necessarily reflect income actually earned by the Fund and, therefore, may not
correlate to the dividends or other distributions paid to shareholders.

From time to time, advertisements for a Fund may refer to ratings, rankings, and
other information in certain financial publications and/or compare the
performance of the Fund to certain indices.

ADDRESSES
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
FTI Funds
FTI Small Capitalization Equity Fund 5800 Corporate Drive
FTI International Equity Fund Pittsburgh, Pennsylvania 15237-7010
FTI International Bond Fund
FTI Global Bond Fund
- -------------------------------------------------------------------------------------------------------
Distributor
Edgewood Services, Inc. Clearing Operations
P.O. Box 897
Pittsburgh, Pennsylvania 15230-0897
- -------------------------------------------------------------------------------------------------------
Investment Adviser
Fiduciary International, Inc. Two World Trade Center
New York, New York 10048-0772
- -------------------------------------------------------------------------------------------------------
Custodian
Fiduciary Trust Company International Two World Trade Center
New York, New York 10048-0772
- -------------------------------------------------------------------------------------------------------
Transfer Agent, Dividend Disbursing Agent
and Portfolio Accountant Services
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -------------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
- -------------------------------------------------------------------------------------------------------
Legal Counsel
Dewey Ballantine LLP 1301 Avenue of the Americas
New York, New York 10019-6092
- -------------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein Shapiro Morin & Oshinsky LLP 2101 L. Street, N.W.
Washington, D.C. 20037
- -------------------------------------------------------------------------------------------------------
</TABLE>

- --------------------------------------------------------------------------------

FTI FUNDS
PROSPECTUS

An Open-End Management
Investment Company

FTI Small Capitalization Equity Fund

FTI International Equity Fund
FTI International Bond Fund

FTI Global Bond Fund

Prospectus dated January 31, 1998

EDGEWOOD SERVICES, INC.
(LOGO)
- ---------------------------------------

Distributor

A subsidiary of FEDERATED INVESTORS

FEDERATED INVESTORS TOWER

PITTSBURGH, PA 15222-3779

CUSIP 302927108 SCEF
CUSIP 302927207 IEF
CUSIP 302927306 IBF
CUSIP 302927405 GBF

G01548-02 (1/98)

Fiduciary International, Inc.

Investment Adviser

FTI FUNDS

STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information relates to the following four
separate investment portfolios (individually referred to as the "Fund," and
collectively as the "Funds") of FTI Funds (the "Trust"):

o FTI Small Capitalization Equity Fund;

o FTI International Equity Fund;

o FTI International Bond Fund; and

o FTI Global Bond Fund.

This Statement of Additional Information should be read with the prospectus
for the Funds dated January 31, 1998. This Statement is not a prospectus
itself. To receive a copy of the prospectus, write or call the Trust.

FTI FUNDS
5800 CORPORATE DRIVE
PITTSBURGH, PENNSYLVANIA 15237-7010

Statement dated January 31, 1998

EDGEWOOD SERVICES, INC.

Distributor

A subsidiary of FEDERATED INVESTORS

Cusip #302927108 SCEF Cusip #302927207 IEF Cusip #302927306 IBF Cusip
#302927405 GBF G01548-03(1/98)

<PAGE>

TABLE OF CONTENTS

GENERAL INFORMATION ABOUT THE TRUST 1

INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS 1

TYPES OF INVESTMENTS AND INVESTMENT TECHNIQUES 1
Repurchase Agreements 1
Reverse Repurchase Agreements 1
When-Issued and Delayed Delivery Transactions 1
Lending Portfolio Securities 2
Restricted and Illiquid Securities 2
U.S. Government Securities 2
Bank Instruments 3
Convertible Securities 3
Real Estate Mortgage Investment Conduits ("REMICs") 3
Forward Foreign Currency Exchange Contracts 3
Foreign Currency Options 4
Special Risks Associated with Foreign Currency Options 4
Futures Contracts 5
Options on Futures Contracts 5
Foreign Currency Futures Transactions6
Special Risks Associated with Foreign
Currency Futures Contracts and Related Options 6
Options on Securities 6
Over-the-Counter Options 7
Options on Securities Indices 7
Regulatory Restrictions 8
Additional Risk Considerations 8
Portfolio Turnover 8

INVESTMENT LIMITATIONS 8

FTI FUNDS MANAGEMENT 12
Officers and Trustees 12
Trust Ownership 13
Trustees Compensation 14
Trustee Liability 14

INVESTMENT ADVISORY SERVICES 14
Adviser to the Trust 14
Advisory Fees 14

ADMINISTRATIVE SERVICES 15
Transfer Agent, Dividend Disbursing
Agent and Portfolio Accountant 15
Custodian 15
Independent Auditors 15

BROKERAGE TRANSACTIONS 15

PURCHASING SHARES 16
Distribution Plan and Shareholder
Services Agreement 16
Conversion to Federal Funds 16

DETERMINING NET ASSET VALUE 16
Determining Market Value of Securities16
Trading in Foreign Securities 17

REDEEMING SHARES 17
Redemption in Kind 17

MASSACHUSETTS PARTNERSHIP LAW 17

TAX STATUS 18
The Funds' Tax Status 18
Foreign Taxes 18
Shareholders' Tax Status 18
Capital Gains 18

TOTAL RETURN 18

YIELD 19

PERFORMANCE COMPARISONS 19
Economic and Market Information 21

FINANCIAL STATEMENTS 21

APPENDIX 22

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GENERAL INFORMATION ABOUT THE TRUST

The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated October 18, 1995. As of the date of this Statement of Additional
Information, the Trust consists of four separate portfolios of securities which
are as follows: FTI Small Capitalization Equity Fund ("Small Capitalization
Fund"), FTI International Equity Fund ("International Equity Fund"), FTI
International Bond Fund ("International Bond Fund"), and FTI Global Bond Fund
("Global Bond Fund").

INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS

The prospectus discusses the objectives of each Fund and the policies it employs
to achieve those objectives. The following discussion supplements the
description of the Funds' investment objectives in the prospectus. A Fund's
investment objective cannot be changed without the approval of shareholders. The
investment policies described below may be changed by the Board of Trustees (the
"Trustees") without shareholder approval. Shareholders will be notified before
any material change in these policies becomes effective.

TYPES OF INVESTMENTS AND INVESTMENT TECHNIQUES

REPURCHASE AGREEMENTS

The Funds or their custodian will take possession of the securities subject to
repurchase agreements and these securities will be marked to market daily. In
the event that a defaulting seller filed for bankruptcy or became insolvent,
disposition of such securities by a Fund might be delayed pending court action.
The Funds believe that under the regular procedures normally in effect for
custody of a Fund's portfolio securities subject to repurchase agreements, a
court of competent jurisdiction would rule in favor of a Fund and allow
retention or disposition of such securities. The Funds will only enter into
repurchase agreements with banks and other recognized financial institutions,
such as broker/dealers, which are deemed by the investment adviser to be
creditworthy pursuant to guidelines established by the Trustees.

REVERSE REPURCHASE AGREEMENTS

The Funds may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement, a Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable a Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that a Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.

When effecting reverse repurchase agreements, liquid assets of a Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated on the Fund's records at the trade date. These assets are marked
to market daily and maintained until the transaction is settled.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

The Funds may engage in when-issued and delayed delivery transactions. These
transactions are made to secure what is considered to be an advantageous price
or yield for a Fund. No fees or other expenses, other than normal transaction
costs, are incurred. However, liquid assets of a Fund sufficient to make payment
for the securities to be purchased are segregated on the Fund's records at the
trade date. These assets are marked to market daily and are maintained until the
transaction has been settled. A Fund may dispose of a commitment prior to
settlement if the investment adviser deems it appropriate to do so. In addition,
a Fund may enter into transactions to sell its purchase commitments to third
parties at current market values and simultaneously acquire other commitments to
purchase similar securities at later dates. A Fund may realize short-term
profits or losses upon the sale of such commitments. As a matter of policy, the
Funds do not intend to engage in when-issued and delayed delivery transactions
to an extent that would cause the segregation of more 20% of the total value of
their respective assets.

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LENDING PORTFOLIO SECURITIES

A Fund may lend its portfolio securities to broker-dealers, banks, or other
institutional borrowers of securities. A Fund will only enter into loan
arrangements with broker-dealers, banks, or other institutions which the
investment adviser has determined are creditworthy under guidelines established
by the Trustees and will receive collateral equal to at least 100% of the value
of the securities loaned.

The collateral received when a Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the particular Fund. During the
time portfolio securities are on loan, the borrower pays a Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of a Fund or the borrower. A Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker. A Fund does not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.

RESTRICTED AND ILLIQUID SECURITIES

The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission (the "SEC")
Staff position set forth in the adopting release for Rule 144A under the
Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive, safe-harbor
for certain secondary market transactions involving securities subject to
restrictions on resale under federal securities laws. The Rule provides an
exemption from registration for resales of otherwise restricted securities to
qualified institutional buyers. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for resale under the
Rule. The Trust, on behalf of the Funds, believes that the Staff of the SEC has
left the question of determining the liquidity of all restricted securities
(eligible for resale under Rule 144A) for determination to the Trustees. The
Trustees consider the following criteria in determining the liquidity of certain
restricted securities:

o the frequency of trades and quotes for the security;

o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;

o dealer undertakings to make a market in the security; and

o the nature of the security and the nature of the marketplace trades.

Notwithstanding the foregoing, securities of foreign issuers which are not
listed on a recognized domestic or foreign exchange or for which a bona fide
market does not exist at the time of purchase or subsequent transaction shall be
treated as illiquid securities by the Trustees.

When a Fund invests in certain restricted securities determined by the Trustees
to be liquid, such investments could have the effect of increasing the level of
Fund illiquidity to the extent that the buyers in the secondary market for such
securities (whether in Rule 144A resales or other exempt transactions) become,
for a time, uninterested in purchasing these securities.

U.S. GOVERNMENT SECURITIES

The types of U.S. government securities in which Funds may invest generally
include direct obligations of the U.S. Treasury (such as U.S. Treasury bills,
notes, and bonds) and obligations issued or guaranteed by U.S. government
agencies or instrumentalities. These securities are backed by:

o the full faith and credit of the U.S. Treasury;

o the issuer's right to borrow from the U.S. Treasury;

o the discretionary authority of the U.S. government to purchase certain
obligations of the agency or instrumentality; or

o the credit of the agency or instrumentality issuing the obligations.

Examples of agencies and instrumentalities whose obligations are permissible
investments but may not always receive financial support from the U.S.
government are: Federal Land Banks; Central Bank for Cooperatives; Federal
Intermediate Credit Banks; Federal Home Loan Banks; Farmers Home Administration;
and Federal National Mortgage Association.

<PAGE>

BANK INSTRUMENTS

The Funds may invest in the instruments of banks and savings and loans whose
deposits are insured by the Bank Insurance Fund, which is administered by the
Federal Deposit Insurance Corporation ("FDIC"), or the Savings Association
Insurance Fund, which is administered by the FDIC, such as certificates of
deposit, demand and time deposits, savings shares, and bankers' acceptances.
These instruments are not necessarily guaranteed by those organizations.

In addition, the Funds may invest in:

o Eurodollar Certificates of Deposits issued by foreign branches of U.S.
or foreign banks;

o Eurodollar Time Deposits, which are U.S. dollar-denominated deposits
in foreign branches of U.S. or foreign banks;

o Canadian Time Deposits, which are U.S. dollar-denominated deposits
issued by branches of major Canadian banks located in the United
States; and

o Yankee Certificates of Deposit, which are U.S. dollar-denominated
certificates of deposit issued by U.S. branches of foreign banks and
held in the United States.

CONVERTIBLE SECURITIES

The convertible bonds and convertible preferred stocks in which the Funds may
invest generally retain the investment characteristics of fixed income
securities until they have been converted but also react to movements in the
underlying equity securities. The prices of fixed income securities fluctuate
inversely to the direction of interest rates. The holder is entitled to receive
the fixed income of a bond or the dividend preference of a preferred stock until
the holder elects to exercise the conversion privilege. Usable bonds are
corporate bonds that can be used in whole or in part, customarily at full face
value, in lieu of cash to purchase the issuer's common stock.

Convertible securities are senior to equity securities, and therefore have a
claim to assets of the corporation prior to the holders of common stock in the
case of liquidation. However, convertible securities are generally subordinated
to similar nonconvertible securities of the same company. The interest income
and dividends from convertible bonds and preferred stocks provide a stable
stream of income with generally higher yields than common stocks, but lower than
nonconvertible securities of similar quality. The Funds will exchange or convert
the convertible securities held in their portfolios into shares of the
underlying common stocks when, in the Funds' investment adviser's opinion, the
investment characteristics of the underlying common shares will assist a Fund in
achieving its investment objective. Otherwise, the Funds will hold or trade the
convertible securities.

REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("REMICS")

The International Bond Fund and the Global Bond Fund may invest in REMICs.
REMICs are offerings of multiple class real estate mortgage-backed securities
which qualify and elect treatment as such under provisions of the Internal
Revenue Code. Issuers of REMICs may take several forms, such as trusts,
partnerships, corporations, associations, or a segregated pool of mortgages.
Once REMIC status is elected and obtained, the entity is not subject to federal
income taxation. Instead, income is passed through the entity and is taxed to
the person or persons who hold interest in the REMIC. A REMIC interest must
consist of one or more classes of "regular interests," some of which offer
adjustable rates, and a single class of "residual interests." To qualify as a
REMIC, substantially all of the assets of the entity must be in assets directly
or indirectly secured principally by real property.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

The International Equity Fund, the International Bond Fund and the Global Bond
Fund may each enter into forward foreign currency exchange contracts in order to
protect itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and a foreign currency involved in an
underlying transaction. As an example of the Funds' ability to engage in hedging
strategies, a Fund may invest in securities denominated in a Western European
currency, such as the French Franc, and seek to hedge against the effect of an
increase in the value of the U.S. dollar against that currency by entering into
a forward foreign currency exchange contract to sell the lower yielding German
Mark, which has historically had price movements that tend to correlate closely
with those of the French Franc, thereby creating a hedge similar to the simple
Dollar/Franc hedge, but at a possibly lower cost. In addition, the Fund might
arrange to sell those Marks against Canadian Dollars in an effort to minimize
hedging costs. It should be noted that forward foreign currency exchange
contracts may limit potential gains which could result from a positive change in
such currency relationships. The investment adviser believes that it is
important to have the flexibility to enter into forward foreign currency
exchange contracts whenever it determines that it is in a Fund's best interest
to do so. The Funds will not speculate in foreign currency exchange.

There is no limitation as to the percentage of a Fund's assets that may be
committed to such contracts. The International Equity Fund, the International
Bond Fund and the Global Bond Fund do not enter into forward foreign currency
exchange contracts or maintain a net exposure in such contracts when the Funds
would be obligated to deliver an amount of foreign currency in excess of the
value of the Funds' respective portfolio securities or other assets denominated
in that currency or, in the case of a 'cross-hedge,' denominated in a currency
or currencies that the investment adviser believes will tend to be closely
correlated with that currency with regard to price movements. Generally, a Fund
will not enter into a forward foreign currency exchange contract with a term
longer than one year.

FOREIGN CURRENCY OPTIONS

A foreign currency option provides the option buyer with the right to buy or
sell a stated amount of foreign currency at the exercise price on a specified
date or during the option period. The owner of a call option has the right, but
not the obligation, to buy the currency. Conversely, the owner of a put option
has the right, but not the obligation, to sell the currency.

When the option is exercised, the seller (i.e., writer) of the option is
obligated to fulfill the terms of the sold option. However, either the seller or
the buyer may, in the secondary market, close its position during the option
period at any time prior to expiration.

A call option on foreign currency generally rises in value if the underlying
currency appreciates in value, and a put option on foreign currency generally
falls in value if the underlying currency depreciates in value.

Although purchasing a foreign currency option can protect a Fund against an
adverse movement in the value of a foreign currency, the option will not limit
the movement in the value of such currency. For example, if a Fund were holding
securities denominated in a foreign currency that was appreciating and had
purchased a foreign currency put to hedge against a decline in the value of the
currency, the Fund would not have to exercise its put option. Likewise, if the
Fund were to enter into a contract to purchase a security denominated in a
foreign currency and, in conjunction with that purchase, were to purchase a
foreign currency call option to hedge against a rise in value of the currency,
and if the value of the currency instead depreciated between the date of
purchase and the settlement date, the Fund would not have to exercise its call.
Instead, the Fund could acquire in the spot market the amount of foreign
currency needed for settlement.

SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY OPTIONS

Buyers and sellers of foreign currency options are subject to the same risks
that apply to options generally. In addition, there are certain additional risks
associated with foreign currency options. The markets in foreign currency
options are relatively new, and the Funds' ability to establish and close out
positions on such options is subject to the maintenance of a liquid secondary
market. Although the Funds will not purchase or write such options unless and
until, in the opinion of the investment adviser, the market for them has
developed sufficiently to ensure that the risks in connection with such options
are not greater than the risks in connection with the underlying currency, there
can be no assurance that a liquid secondary market will exist for a particular
option at any specific time.

In addition, options on foreign currencies are affected by all of those factors
that influence foreign exchange rates and investments generally.

The value of a foreign currency option depends upon the value of the underlying
currency relative to U.S. dollars. As a result, the price of the option position
may vary with changes in the value of either or both currencies and may have no
relationship to the investment merits of a foreign security. Because foreign
currency transactions occurring in the interbank market involve substantially
larger amounts than those that may be involved in the use of foreign currency
options, investors may be disadvantaged by having to deal in an odd lot market
(generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.

There is no systematic reporting of last sale information for foreign currencies
or any regulatory requirement that quotations available through dealers or other
market sources be firm or revised on a timely basis. Available quotation
information is generally representative of very large transactions in the
interbank market and thus may not reflect relatively smaller transactions (i.e.,
less than $1 million) where rates may be less favorable. The interbank market in
foreign currencies is a global, around-the-clock market subject to significant
price and rate movements.

FUTURES CONTRACTS

The International Equity Fund, the International Bond Fund and the Global Bond
Fund may enter into contracts for the future delivery of a financial instrument,
such as an amount of foreign currency, a security, or the cash value of a
securities index during a specified future period at a specified price. In
addition, the Small Capitalization Fund may enter into contracts for the future
delivery of securities of small to mid-capitalization issuers. This investment
technique is designed primarily to hedge against anticipated future changes in
foreign exchange rates, interest rates or market conditions, all of which might
otherwise have an adverse effect upon the value of securities or other assets
which the Funds hold or intend to purchase. A "sale" of a futures contract means
the undertaking of a contractual obligation to deliver the underlying foreign
currency, security or cash value of a securities index called for by the
contract at a specified price during a specified delivery period. A "purchase"
of a futures contract means the undertaking of a contractual obligation to
acquire the underlying foreign currency, security or cash value of a securities
index at a specified price during a specified delivery period. At the time of
delivery, in the case of fixed income securities pursuant to the contract,
adjustments are made to recognize differences in value resulting from the
delivery of securities with a different interest rate than the rate specified in
the contract. In some cases, securities called for by a futures contract may not
have been issued at the time the contract was written.

Although some futures contracts by their terms call for the actual delivery or
acquisition of assets, in most cases a party will close out the contractual
commitment before delivery without having to make or take delivery of the
underlying assets by purchasing (or selling, as the case may be) on a
commodities exchange an identical futures contract calling for delivery in the
same month. Such a transaction, if effected through a member of an exchange,
cancels the obligation to make or take delivery of the underlying assets. All
transactions in the futures market are made, offset or fulfilled through a
clearing house associated with the exchange on which the contracts are traded.
Brokerage fees will be incurred by a Fund when it purchases or sells contracts,
and the Fund will be required to maintain margin deposits. At the time a Fund
enters into a futures contract, it is required to deposit with its custodian, on
behalf of the broker, a specified amount of cash or eligible securities, called
"initial margin." The initial margin required for a futures contract is set by
the exchange on which the contract is traded. Subsequent payments, which are
called "variation margin," to and from the broker are made on a daily basis as
the market price of the futures contract fluctuates. The costs incurred in
connection with futures transactions could reduce the Funds' returns.

Futures contracts entail risks. If the investment adviser's judgment about the
general direction of interest rates, markets or exchange rates is wrong, the
overall performance may be poorer than if no such contracts had been entered
into. An imperfect correlation may exist between movements in the prices of
futures contracts and portfolio assets being hedged. Further, the market prices
of futures contracts may be affected by certain factors. For example, the normal
relationship between the assets and futures markets could be distorted if
participants in the futures market were to elect to close out their contracts
through offsetting transactions rather than by meeting margin requirements.
Price distortions also could result if investors in futures contracts were to
decide to make or take delivery of underlying assets rather than engaging in
closing transactions because of the resultant liquidity of the futures market.
Further, increased participation by speculators in the futures market could
cause temporary price distortions because, as perceived by speculators, margin
requirements in the futures market are less onerous than margin requirements in
the cash market. Because of the possibility of price distortions in the futures
market and the imperfect correlation between movements in the prices of
securities or other assets and movements in the prices of futures contracts, a
correct forecast of market trends by the investment adviser still may not result
in a successful hedging transaction. If one of these events were to occur, a
Fund could lose money on the futures contracts as well as on its portfolio
assets.

OPTIONS ON FUTURES CONTRACTS

The Funds may engage in futures transactions and may use options in an attempt
to hedge against the effects of fluctuations in interest rates and other market
conditions. For example, if a Fund owned long-term bonds and interest rates were
expected to rise, it could sell futures contracts or the cash value of a
securities index. If interest rates did increase, the value of the bonds owned
by the Fund would decline, but this decline would be offset in whole or in part
by an increase in the value of the Fund's futures contracts or the cash value of
the securities index.

If, on the other hand, long-term interest rates were expected to decline, the
Fund could hold short-term debt securities and benefit from the income earned by
holding such securities, while at the same time the Fund could purchase futures
contracts on long-term bonds or the cash value of a securities index. Thus, the
Fund could take advantage of the anticipated rise in the value of long-term
bonds without actually buying them. The futures contracts and short-term debt
securities could then be liquidated and the cash proceeds used to buy long-term
bonds.

The Fund may also purchase and write call and put 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 at a specified price at
any time during the period of the option. When the option is exercised, the
writer of the option delivers the futures contract to the holder at the exercise
price. With regard to put and call options on futures contracts written by a
Fund, the Fund would be required to deposit initial and maintenance margin with
the custodian. Options on futures contracts involve risks similar to those
discussed above that relate to transactions in futures contracts. Furthermore,
an option on a futures contract purchased by a Fund may expire as worthless,
which would cause the Fund to lose the premium paid for the option.

FOREIGN CURRENCY FUTURES TRANSACTIONS

By using foreign currency futures contracts and options on such contracts, the
International Equity Fund, the International Bond Fund and the Global Bond Fund
may be able to achieve many of the same objectives as they would through the use
of forward foreign currency exchange contracts. The Funds may be able to achieve
these objectives possibly more effectively and at a lower cost by using futures
transactions instead of forward foreign currency exchange contracts.

SPECIAL RISKS ASSOCIATED WITH FOREIGN CURRENCY FUTURES CONTRACTS AND
RELATED OPTIONS

Buyers and sellers of foreign currency futures contracts are subject to the same
risks that apply to the use of futures generally. In addition, there are risks
associated with foreign currency futures contracts and their use as a hedging
device similar to those associated with options on foreign currencies, as
described above.

Options on foreign currency futures contracts may involve certain additional
risks. Trading options on foreign currency futures contracts is relatively new.
The ability to establish and close out positions on such options is subject to
the maintenance of a liquid secondary market. To reduce this risk, the
International Equity Fund, the International Bond Fund and the Global Bond Fund
will not purchase or write options on foreign currency futures contracts unless
and until, in the investment adviser's opinion, the market for such options has
developed sufficiently that the risks in connection with such options are not
greater than the risks in connection with transactions in the underlying foreign
currency futures contracts. Compared to the purchase or sale of foreign currency
futures contracts, the purchase of call or put options on futures contracts
involves less potential risk to a Fund because the maximum amount at risk is the
premium paid for the option (plus transaction costs). However, there may be
circumstances when the purchase of a call or put option on a futures contract
would result in a loss, such as when there is no movement in the price of the
underlying currency or futures contract.

OPTIONS ON SECURITIES

A Fund may write (sell) covered call options on securities if it owns securities
that are acceptable for escrow purposes. Additionally, a Fund may write secured
put options on securities. When writing a secured put option, a Fund will invest
an amount not less than the exercise price of the put option in eligible
securities, so long as the Fund is obligated as a writer of a put option. A call
option gives the purchaser the right to buy, and the writer the obligation to
sell, the underlying security at the exercise price during the option period. A
put option gives the purchaser the right to sell, and the writer the obligation
to buy, the underlying security at the exercise price during the option period.
The premium received for writing an option will reflect such factors as the
current market price of the underlying security, the relationship of the
exercise price to such market price, the option period, supply and demand, and
interest rates. The exercise price of an option may be below, equal to or above
the current market value of the underlying security at the time that the option
is written. The Funds may also write or purchase spread options. A spread option
is an option for which the exercise price may be a fixed dollar spread or yield
spread between the security underlying the option and another security that a
Fund does not own but uses as a benchmark.

The purchase of a put option by the owner of the related security protects the
purchaser against any decline in the related security's price below the exercise
price (less the amount paid for the option). The ability of a Fund to purchase
put options allows it to protect capital gains in an appreciated security
without actually requiring the Fund to sell the appreciated security. On
occasion, a Fund would like to establish a position in a security upon which
call options are available. The purchase of a call option enables the Fund to
fix the cost of acquiring the security, which would be the cost of the call plus
the exercise price of the option. In addition, this method of acquiring
securities provides some protection from an unexpected downturn in the market.
This is because the Fund is at risk only for the amount of the premium paid for
the call option, which it can allow to lapse, if it so chooses.

During the option period, the covered call writer gives up the potential for
capital appreciation above the exercise price if the underlying asset rises in
value, and the secured put writer retains the risk of loss if the underlying
asset declines in value. For the covered call writer, substantial appreciation
in the value of the underlying asset would result in the asset being "called
away." For the secured put writer, substantial depreciation in the value of the
underlying asset could result in the asset being "put to" the writer. If a
covered call option expired unexercised, the writer of the call would realize a
gain and the buyer would realize a loss in the amount of the premium. If the
covered call option writer had to sell the underlying asset because of the
exercise of the call option, it would realize a gain or loss from the sale of
the underlying asset, with the proceeds being increased by the amount of the
premium.

If a secured put option expired unexercised, the writer would realize a gain and
the buyer would realize a loss on the amount of the premium. If the secured put
writer would have to buy the underlying asset because of the exercise of the put
option, the writer would incur an unrealized loss to the extent that the current
market value of the underlying asset is less than the exercise price of the put
option, less the premium received.

OVER-THE-COUNTER OPTIONS

The Funds may deal in over-the-counter traded options ("OTC options") in
addition to exchange-traded options. OTC options differ from exchange-traded
options in several respects. First, they are transacted with dealers rather than
a clearing corporation. Second, a risk of nonperformance by the dealer exists,
whether as a result of the insolvency of the dealer or otherwise, which could
cause a Fund to experience material losses; however, in writing OTC options, the
premium is paid in advance by the dealer. Third, in contrast to exchange-traded
options, OTC options are available for a greater variety of securities and wider
range of expiration dates and exercise prices. Because there is no exchange in
the case of OTC options, pricing is normally done with reference to information
from market makers, which is carefully monitored by the investment adviser and
verified in appropriate cases.

A writer or purchaser of a put or call option can terminate it voluntarily only
by entering into a closing transaction. In the case of OTC options, there cannot
be any assurance that a continuous liquid secondary market will exist for any
particular option at any given time. As a result, a Fund may be able to realize
the value of an OTC option it has purchased only by exercising it or by entering
into a closing sale transaction with the dealer that issued it. Likewise, in
cases where a Fund writes an OTC option, it generally can close out that option
prior to its expiration only by entering into a closing purchase transaction
with the dealer to whom the Fund wrote the option. If a covered call option
writer is unable to effect a closing transaction, it cannot sell the underlying
asset until the option either expires or is exercised. Thus, a covered call
option writer of an OTC option may not be able to sell an underlying asset even
though it might otherwise be advantageous to do so. Moreover, a secured put
writer of an OTC option may be unable to sell the assets pledged to secure the
put for other investment purposes so long as it is obligated as a put writer,
and a purchaser of the put or call option might also find it difficult to
terminate its position on a timely basis when no secondary market exists.

OPTIONS ON SECURITIES INDICES

The International Equity Fund, the International Bond Fund and the Global Bond
Fund also may purchase and write call and put options on securities indices in
order to hedge against market conditions which affect the values of securities
that the Funds own or intend to purchase. The Funds will not purchase and write
such options for speculation. By writing and purchasing index options, a Fund
may be able to achieve many of the same objectives as through the purchasing and
writing of options on individual securities. Options on securities indices are
similar to options on individual securities. However, unlike an option on an
individual security, which gives the right to take or make delivery of a
security at a specified price, an option on a securities index gives the holder
upon exercise the right to receive an amount of cash if the closing level of the
securities index upon which the option is based exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option. Upon
exercise of the option, the amount of cash received by the holder is equal to
the difference between the closing price of the index and the exercise price of
the option. In consideration for the premium received, the writer of the option
has an obligation to make delivery of the amount of cash resulting from the
exercise of the option. Unlike options on individual securities, all settlements
are in cash, and the gain or loss depends upon price movements in the market
generally or in a segment of the market, rather than upon price movements in
individual securities.

The Funds cover call options written on a securities index through the ownership
of securities whose changes in price, in the opinion of the investment adviser,
are anticipated to be similar to the price changes of the index, or in such
other manner or may be in conformance with applicable laws, regulations and
exchange rules. Any changes in the prices of the securities owned by a Fund
probably will not be perfectly correlated with the securities index. A Fund will
secure put options written on a securities index by means of segregating liquid
high-grade securities equal to the exercise price, or in such other manner as
may be in conformance with applicable laws, regulations and exchange rules. Upon
writing an option on a securities index, a Fund will be required to deposit with
its custodian and mark-to-market eligible securities that are equal in value to
at least 100% of the exercise price in the case of a put or, in the case of a
call, the value of the contract. Additionally, if a Fund writes a call option on
a securities index at a time when the value of the contract is greater than the
exercise price, the Fund will segregate and mark-to-market, until such time as
the option expires or is closed out, cash or a cash equivalent equal in value to
the excess of the contract value.

In addition, a Fund may purchase and write options on other appropriate indices,
as available (e.g., foreign currency indices).

Index options involve risks similar to those associated with transactions in
futures contracts, as described above. Also, an option purchased by a Fund may
expire as worthless. In such case, the Fund could lose the premium paid for the
option.

REGULATORY RESTRICTIONS

To the extent required to comply with SEC Release No. 10666, when purchasing a
futures contract, writing a put option or entering into a delayed delivery
purchase or forward foreign currency exchange purchase, the Funds will segregate
and maintain liquid securities equal to the value of such contracts.

To the extent required to comply with federal or state regulations, and thereby
avoid status as a "commodity pool operator," the Funds will not enter into a
futures contract, or purchase an option thereon, if immediately thereafter the
initial margin deposits for futures contracts held by a Fund, plus premiums paid
by it for open options of futures, would exceed 5% of the total assets of the
Fund. The Funds will not engage in transactions in futures contracts or options
thereon for speculation, but only to attempt to hedge against changes in market
conditions affecting the values of assets which a Fund holds or intends to
purchase. When futures contracts or options thereon are purchased in order to
protect against a price increase on securities or other assets intended to be
purchased later, it is anticipated that at least 75% of such intended purchases
will be completed. When other futures contracts or options thereon are
purchased, the underlying value of such contracts will at all times not exceed
the sum of (1) accrued profit on such contracts held by the broker; (2) cash or
high-quality money market instruments set aside in an identifiable manner; and
(3) cash proceeds from investments due in 30 days or less.

ADDITIONAL RISK CONSIDERATIONS

In the case of the International Equity Fund, the International Bond Fund and
the Global Bond Fund, the Trustees consider at least annually the likelihood of
the imposition by any foreign government of exchange control restrictions which
would affect the liquidity of a Fund's assets maintained with custodians in
foreign countries, as well as the degree of risk from political acts of foreign
governments to which such assets may be exposed. The Trustees also consider the
degree of risk involved through the holding of portfolio securities in domestic
and foreign securities depositories. However, in the absence of willful
misfeasance, bad faith or gross negligence on the part of the investment
adviser, any losses resulting from the holding of the Funds' portfolio
securities in foreign countries and/or with securities depositories will be at
the risk of shareholders. No assurance can be given that the Trustees' appraisal
of the risks will always be correct or that such exchange control restrictions
or political acts of foreign governments might not occur.

PORTFOLIO TURNOVER

Although the Funds do not intend to invest for the purpose of seeking short-term
profits, securities in their portfolios will be sold whenever the investment
adviser believes it is appropriate to do so in light of a Fund's investment
objective, without regard to the length of time a particular security may have
been held. For the fiscal year ended November 30, 1997, and for the period from
December 22, 1995 (start of performance) to November 30, 1996, the portfolio
turnover rates were: 111% and 94%, respectively, for Small Capitalization Fund;
55% and 29%, respectively, for International Equity Fund; 184% and 190%,
respectively, for International Bond Fund; and 176% and 287%, respectively, for
Global Bond Fund.

INVESTMENT LIMITATIONS

ISSUING SENIOR SECURITIES AND BORROWING MONEY

The Funds will not issue senior securities, except that a Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amount borrowed;
and except to the extent that a Fund may enter into futures contracts. The
Funds will not borrow money or engage in reverse repurchase agreements for
investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by enabling
a Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. A Fund will
not purchase any securities while any borrowings in excess of 5% of its
total assets are outstanding. During the period any reverse repurchase
agreements are outstanding, a Fund will restrict the purchase of portfolio
securities to money market instruments maturing on or before the
expiration date of the reverse repurchase agreements, but only to the
extent necessary to assure completion of the reverse repurchase
agreements.

SELLING SHORT AND BUYING ON MARGIN

The Funds will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as are necessary for
clearance of purchases and sale of securities. The deposit or payment by
the Funds of initial or variation margin in connection with futures
contracts or related options transactions is not considered the purchase
of a security on margin.

PLEDGING ASSETS

The Funds will not mortgage, pledge, or hypothecate any assets, except to
secure permitted borrowings. In these cases, the Funds may pledge assets
having a value of 15% of assets taken at cost. For purposes of this
restriction: (a) the deposit of assets in escrow in connection with the
writing of covered put or call options and the purchase of securities on a
when-issued basis, and (b) collateral arrangements with respect to (i) the
purchase and sale of stock options and (ii) initial or variation margin
for futures contracts, will not be deemed to be pledges of a Fund's
assets. Margin deposits for the purchase and sale of futures contracts and
related options are not deemed to be a pledge.

LENDING CASH OR SECURITIES

The Funds will not lend any of their respective assets except portfolio
securities up to one-third of the value of total assets. This shall not
prevent a Fund from purchasing or holding U.S. government obligations,
money market instruments, bonds, debentures, notes, certificates of
indebtedness, or other debt securities, entering into repurchase
agreements, or engaging in other transactions where permitted by a Fund's
investment objective, policies, and limitations, or the Trust's
Declaration of Trust.

INVESTING IN COMMODITIES

None of the Funds will invest in commodities, except to the extent that
the Funds may engage in transactions involving futures contracts or
options on futures contracts.

INVESTING IN REAL ESTATE

None of the Funds will purchase or sell real estate, including limited
partnership interests, although the Funds may invest in securities of
issuers whose business involves the purchase or sale of real estate or in
securities which are secured by real estate or interests in real estate.

DIVERSIFICATION OF INVESTMENTS

With respect to 75% of the value of its total assets, each Fund will not
purchase securities issued by any other issuer (other than cash, cash
items or securities issued or guaranteed by the government of the United
States or its agencies or instrumentalities and repurchase agreements
collateralized by such securities), if, as a result, more than 5% of the
value of its total assets would be invested in the securities of that
issuer. No Fund will acquire more than 10% of the outstanding voting
securities of any one issuer.

CONCENTRATION OF INVESTMENTS

No Fund will invest 25% or more of the value of its respective total
assets in any one industry (other than securities issued by the U.S.
government, its agencies, or instrumentalities or repurchase agreements
collateralized by these securities).

UNDERWRITING

A Fund will not underwrite any issue of securities, except as a Fund may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.

The above investment limitations cannot be changed with respect to a Fund
without the approval of the holders of a majority of that Fund's shares. The
following limitations may be changed by the Trustees without shareholder
approval. Shareholders will be notified before any material change in these
limitations becomes effective.

INVESTING IN ILLIQUID SECURITIES

The Funds will not invest more than 15% of the value of their respective
net assets in illiquid securities, including: repurchase agreements
providing for settlement more than seven days after notice;
over-the-counter options; and certain restricted securities not determined
by the Trustees to be liquid.

INVESTING IN RESTRICTED SECURITIES

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

The Funds will limit their respective investment in other investment
companies to no more than 3% of the total outstanding voting stock of any
investment company, invest no more than 5% of their total assets in any
one investment company, or invest more than 10% of their total assets in
investment companies in general unless permitted to do so by action of the
Securities and Exchange Commission. The Funds will purchase securities of
closed-end investment companies only in open market transactions involving
only customary broker's commissions. However, these limitations are not
applicable if the securities are acquired in a merger, consolidation,
reorganization, or acquisition of assets.

INVESTING IN NEW ISSUERS

A Fund will not invest more than 5% of the value of its total assets in
securities of issuers which have records of less than three years of
continuous operations, including the operation of any predecessor.

INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST

A Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or the Funds' investment adviser,
owning individually more than 1/2 of 1% of the issuer's securities,
together own more than 5% of the issuer's securities.

INVESTING IN MINERALS

A Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, except it may purchase the
securities of issuers which invest in or sponsor such programs.

ARBITRAGE TRANSACTIONS

A Fund will not enter into transactions for the purpose of engaging in
arbitrage.

INVESTING IN PUTS AND CALLS

The Funds may not write or purchase options, except that a Fund may write
covered call options and secured put options on up to 25% of its net
assets and may purchase put and call options, provided that no more than
5% of a Fund's net assets may be invested in premiums on such options.

PURCHASING SECURITIES TO EXERCISE CONTROL

A Fund will not purchase securities of a company for the purpose of
exercising control or management.

INVESTING IN WARRANTS

The Funds will not invest more than 5% of their respective net assets in
warrants. No more than 2% of a Fund's net assets, to be included within
the overall 5% limit on investments in warrants, may be warrants which are
not listed on the New York Stock Exchange ("NYSE") or the American Stock
Exchange. (If state restrictions change, this latter restriction may be
revised without notice to shareholders.) For purposes of this investment
restriction, warrants will be valued at the lower of cost or market,
except that warrants acquired by the Funds in units with or attached to
securities may be deemed to be without value.

Except with respect to the Funds' policy of borrowing money, if a percentage
limitation is adhered to at the time of investment, a later increase or decrease
in percentage resulting from any change in value or net assets will not result
in a violation of such restriction.

The Funds have no present intention to borrow money or pledge securities in
excess of 5% of the value of their respective net assets.

Each Fund will, as relevant, (1) limit the aggregate value of the assets
underlying covered call options or put options written by the Fund to not more
than 25% of its net assets, (2) limit the premiums paid for options purchased by
the Fund to 5% of its net assets, and (3) limit the margin deposits on futures
contracts entered into by the Fund to 5% of its net assets. These restrictions
may be revised without shareholder notification.

For purposes of its policies and limitations, the Funds consider certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings associations having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items."

<PAGE>

FTI FUNDS MANAGEMENT

OFFICERS AND TRUSTEES

Officers and Trustees are listed with their addresses, birthdates, present
positions with FTI Funds and principal occupations.

Edward C. Gonzales *
Federated Investors Tower
Pittsburgh, Pennsylvania
Birthdate: October 22, 1930

President, Treasurer, and Trustee

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; Trustee or Director of some of the Funds;
President, Executive Vice President, and Treasurer of some of the Funds.

Peter A. Aron
Lafayette Enterprises, Inc.
126 E. 56th Street
New York, NY 10022
Birthdate: May 26, 1946

Trustee

Vice President, Lafayette Enterprises, Inc. (privately owned Investment
Advisory Company); President, J. Aron Charitable Foundation, Inc.

Nancy L. Close
12 Pheasant Run
73 Weaver Street
Greenwich, CT 06831
Birthdate: December 2, 1946

Trustee

Asset Manager and Trustee of certain private trusts.

James C. Goodfellow *
Fiduciary Trust Company International
Two World Trade Center
New York, NY 10048
Birthdate: April 6, 1945

Trustee

Executive Vice President, Fiduciary Trust Company International, Managing
Director - J.P. Morgan and Co.

<PAGE>

Burton J. Greenwald
2009 Spruce Street
Philadelphia, PA 19103
Birthdate: December 6, 1929

Trustee

Managing Director, B. J. Greenwald Associates, Management Consultants to
the Financial Services Industry.

C. Christine Thomson
Federated Investors Tower
Pittsburgh, Pennsylvania
Birthdate: September 1, 1957

Vice President and Assistant Treasurer

Vice President, Federated Services Company; Vice President and Assistant
Treasurer of some of the Federated Funds.

Jay S. Neuman
Federated Investors Tower
Pittsburgh, Pennsylvania
Birthdate: April 22, 1950

Secretary

Corporate Counsel, Federated Investors.

*This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.

TRUST OWNERSHIP

Officers and Trustees own less than 1% of the outstanding shares of each Fund.

As of January 7, 1998, the following shareholders of record owned 5% or more of
the outstanding shares of Small Capitalization Fund: Fiduciary Trust Company
International, New York, New York, on behalf of certain underlying accounts,
owned approximately 2,413,087 shares (80.10%).

As of January 7, 1998, the following shareholder of record owned 5% or more of
the outstanding shares of International Equity Fund: Fiduciary Trust Company
International, New York, New York, on behalf of certain underlying accounts,
owned approximately 3,410,475 shares (97.65%).

As of January 7, 1998, the following shareholders of record owned 5% or more of
the outstanding shares of International Bond Fund: Fiduciary Trust Company
International, New York, New York, on behalf of certain underlying accounts,
owned approximately 694,797 shares (87.56%); and Post & Company, New York, New
York, owned approximately 68,407 shares (8.62%).

As of January 7, 1998, the following shareholders of record owned 5% or more of
the outstanding shares of Global Bond Fund: Federated Administrative Services,
Pittsburgh, Pennsylvania, owned approximately 10,116 shares (6.98%); Fiduciary
Trust Company International, New York, New York, on behalf of certain underlying
accounts, owned approximately 46,307 shares (31.96%); and Greenwich Academy,
Greenwich, Connecticut, owned approximately 83,507 shares (57.63%).

<PAGE>

TRUSTEES COMPENSATION

AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM
THE TRUST THE TRUST*#

EDWARD C. GONZALES $0
PRESIDENT, TREASURER,
AND TRUSTEE

PETER A. ARON $9,000
TRUSTEE

NANCY L. CLOSE $9,000
TRUSTEE

JAMES C. GOODFELLOW $0
TRUSTEE

BURTON J. GREENWALD $9,000
TRUSTEE

* Information is furnished for the fiscal year ended November 30, 1997.
The Trust is the only investment company in the Fund complex.

# The aggregate compensation is provided for the Trust which is
comprised of four portfolios.

TRUSTEE LIABILITY

The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.

INVESTMENT ADVISORY SERVICES

ADVISER TO THE TRUST

The Trust's investment adviser is Fiduciary International, Inc. (the "Adviser"
or "Fiduciary"). Fiduciary is a New York corporation, and is a registered
investment adviser under the Investment Advisers Act of 1940. The Adviser shall
not be liable to the Trust, a Fund, or any shareholder of any of the Funds for
any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.

ADVISORY FEES

For its advisory services, the Adviser receives an annual investment advisory
fee as described in the prospectus.

For the fiscal year ended November 30, 1997, and for the period from December
22, 1995 (start of performance) to November 30, 1996, the Adviser earned:
$288,740 and $98,486, respectively, from Small Capitalization Fund; $321,927 and
$55,029, respectively, from International Equity Fund; $47,032 and $25,680,
respectively, from International Bond Fund; and $9,468 and $4,453, respectively,
from Global Bond Fund.

ADMINISTRATIVE SERVICES

Federated Administrative Services, which is a subsidiary of Federated Investors,
provides administrative personnel and services to the Funds for a fee as
described in the prospectus.

For the fiscal year ended November 30, 1997, and for the period from December
22, 1995 (start of performance) to November 30, 1996, Federated Administrative
Services earned: $75,000 and $68,443, respectively, from Small Capitalization
Fund; $75,000 and $67,829, respectively, from International Equity Fund; $75,000
and $66,394, respectively, from International Bond Fund; and $75,000 and
$60,861, respectively, from Global Bond Fund.

TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND PORTFOLIO ACCOUNTANT

Federated Services Company through its registered transfer agent Federated
Shareholder Services Company, maintains all necessary shareholder records. For
its services, the transfer agent receives a fee based on the number of accounts
and transactions made by the Funds' shareholders.

Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Funds' portfolio investments. The fee paid for this
service is based upon the level of the Funds' average net assets for the period,
plus out-of-pocket expenses.

CUSTODIAN

For its services as custodian, Fiduciary Trust Company International (the
"Custodian") receives an annual fee, payable monthly, based upon the Funds'
average aggregate daily net assets, plus transaction charges. The Custodian is
reimbursed for out-of-pocket expenses.

INDEPENDENT AUDITORS

The independent auditors for the Trust are Ernst & Young LLP.

BROKERAGE TRANSACTIONS

When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments for the Funds, the Adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the Adviser will generally use
those who are recognized dealers in specific portfolio instruments, except when
a better price and execution of the order can be obtained elsewhere. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to guidelines established by the Trustees. The Adviser may select
brokers and dealers who offer brokerage and research services. These services
may be furnished directly to the Funds or to the Adviser, and may include:

o advice as to the advisability of investing in securities;

o security analysis and reports;

o economic studies;

o industry studies;

o receipt of quotations for portfolio evaluations; and

o similar services.

The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided. For the fiscal year ended November 30, 1997, and for
the period from December 22, 1995 (start of performance) to November 30, 1996,
Small Capitalization Fund paid total brokerage commissions of $72,588 and
$33,089, respectively; International Equity Fund paid total brokerage
commissions of $173,103 and $57,755, respectively; International Bond Fund paid
total brokerage commissions of $0 and $0, respectively; and Global Bond Fund
paid total brokerage commissions of $0 and $0, respectively.

Research services provided by brokers may be used by the Adviser or its
affiliates in advising certain other accounts. To the extent that receipt of
these services may supplant services for which the Adviser might otherwise have
paid, it would tend to reduce its expenses.

Investment decisions for the Funds will be made independently from those of any
fiduciary or other accounts that may be managed by the Adviser or its
subsidiaries. If, however, such accounts and the Funds are simultaneously
engaged in transactions involving the same securities, the transactions may be
combined and allocated to each account. This system may adversely affect the
price the Funds pay or receive, or the size of the positions they obtain.

The Adviser may engage in other non-U.S. transactions that may have adverse
effects on the market for securities in the Funds' portfolios. The Adviser is
not obligated to obtain any material non-public ("inside") information about any
securities issuer, or to base purchase or sale recommendations on such
information.

PURCHASING SHARES

Shares of the Funds are sold at their net asset value on days on which the NYSE
and the Federal Reserve Wire are open for business. The procedure for purchasing
shares of the Funds is explained in the prospectus under "Investing in the
Funds."

DISTRIBUTION PLAN AND SHAREHOLDER SERVICES AGREEMENT

As explained in the prospectus, the Funds have adopted a Distribution Plan
pursuant to Rule 12b-1 of the Investment Company Act of 1940 (the "1940 Act")
and a Shareholder Services Agreement. These arrangements permit the payment of
fees to financial institutions, Edgewood Services, Inc., the Trust's
distributor, and FII to stimulate distribution activities and to cause services
to be provided to shareholders by a representative who has knowledge of the
shareholders' particular circumstances and goals. These activities may include,
but are not limited to: marketing efforts; providing office space, equipment,
telephone facilities, and various clerical, supervisory, computer, and other
personnel as necessary or beneficial to establish and maintain shareholder
accounts and records; processing purchase and redemption transactions and
automatic investments of client account cash balances; answering routine client
inquiries; and assisting clients in changing dividend options, account
designations, and addresses.

By adopting the Distribution Plan, the Trustees expect that the Funds will be
able to achieve a more predictable flow of cash for investment purposes and to
meet redemptions. This will facilitate more efficient portfolio management and
assist the Funds in pursuing their investment objectives. By identifying
potential investors whose needs are served by the Funds' objectives, and
properly servicing these accounts, it may be possible to curb sharp fluctuations
in rates of redemptions and sales.

Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative activity; (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.

CONVERSION TO FEDERAL FUNDS

It is the Funds' policy to be as fully invested as possible so that maximum
income may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds before shareholders begin to
earn dividends. Fiduciary acts as the shareholder's agent in depositing checks
and converting them to federal funds.

DETERMINING NET ASSET VALUE

The net asset values of the Funds generally change each day. The days on
which net asset value is calculated by the Funds are described in the
prospectus.

Dividend income is recorded on the ex-dividend date, except certain dividends
from foreign securities where the ex-dividend date may have passed, are recorded
as soon as the Trust is informed of the ex-dividend date.

DETERMINING MARKET VALUE OF SECURITIES

The market values of the Funds' portfolio securities are determined as follows:

o for equity securities, according to the last sale price on a national
securities exchange, if available;

o in the absence of recorded sales for listed equity securities,
according to the mean between the last closing bid and asked prices;

o for unlisted equity securities, the latest bid prices;

o for bonds and other fixed income securities, as determined by an
independent pricing service;

o for short-term obligations, according to the mean between the bid and
asked prices as furnished by an independent pricing service or for
short-term obligations with remaining maturities of 60 days or less at
the time of purchase, at amortized cost; or

o for all other securities, at fair value as determined in good faith by
the Trustees.

Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect: institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data.

The Funds will value futures contracts, options and put options on futures at
their market values established by the exchanges at the close of option trading
on such exchanges, unless the Trustees determine in good faith that another
method of valuing option positions is necessary to appraise fair value.

TRADING IN FOREIGN SECURITIES

Trading in foreign cities may be completed at times which vary from the closing
of the NYSE. In computing the net asset values, the Funds value foreign
securities at the latest closing price on the exchange on which they are traded
immediately prior to the closing of the NYSE. Foreign securities quoted in
foreign currencies are translated into U.S. dollars at the foreign exchange rate
in effect at noon, Eastern time, on the day the value of the foreign security is
determined.

Occasionally, events that affect values and exchange rates may occur between the
times at which they are determined and the closing of the NYSE. If such events
materially affect the value of portfolio securities, these securities may be
valued at their fair value as determined in good faith by the Trustees, although
the actual calculation may be done by others.

REDEEMING SHARES

Each Fund redeems shares at the next computed net asset value after Fiduciary
receives the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Shares."

Since portfolio securities of the Funds may be traded on foreign exchanges which
trade on Saturdays or on holidays on which the Funds will not make redemptions,
the net asset values of the Funds may be significantly affected on days when
shareholders do not have an opportunity to redeem their shares.

REDEMPTION IN KIND

Although the Trust intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price, in whole or in part, by a
distribution of securities from a Fund's portfolio. The Trust has elected to be
governed by Rule 18f-1 of the 1940 Act, under which the Trust is obligated to
redeem shares for any one shareholder in cash only up to the lesser of $250,000
or 1% of a Fund's net asset value during any 90-day period. Any redemption
beyond this amount will also be in cash unless the Trustees determine that
further cash payments will have a materially adverse effect on remaining
shareholders. In such a case, the Fund will pay all or a portion of the
remainder of the redemption in portfolio instruments, valued in the same way as
the Fund determines net asset value. The portfolio instruments will be selected
in a manner that the Trustees deem fair and equitable.

Redemption in kind will be made in conformity with applicable SEC rules, taking
such securities at the same value employed in determining net asset value and
selecting the securities in a manner the Trustees determine to be fair and
equitable.

Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.

MASSACHUSETTS PARTNERSHIP LAW

Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of shareholders for such acts or
obligations of the Trust. These documents require notice of this disclaimer to
be given in each agreement, obligation, or instrument the Trust or its Trustees
enter into or sign.

In the unlikely event a shareholder is held personally liable for obligations of
the Trust, the Trust is required to use its property to protect or to compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder (above and
beyond the loss of Trust property) will occur only if the Trust cannot meet its
obligations to indemnify shareholders and to pay judgments against them from its
assets.

TAX STATUS

THE FUNDS' TAX STATUS

The Funds will pay no federal income tax because they expect to meet the
requirements of Subchapter M of the Internal Revenue Code of 1986 applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, each Fund must, among other
requirements:

o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;

o invest in securities within certain statutory limits; and

o distribute to its shareholders at least 90% of its net income earned
during the year.

FOREIGN TAXES

Investment income on certain foreign securities in which the Funds may invest
may be subject to foreign withholding or other taxes that could reduce the
return on these securities. Tax treaties between the United States and foreign
countries, however, may reduce or eliminate the amount of foreign taxes to which
the Funds would be subject.

SHAREHOLDERS' TAX STATUS

Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional shares. The Funds' dividends, and any short-term
capital gains, are taxable as ordinary income.

CAPITAL GAINS

Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have held shares
in the Funds.

TOTAL RETURN

For the one-year period ended November 30, 1997, and for the period from
December 22, 1995 (start of performance) to November 30, 1997, the average
annual total returns were 18.96% and 20.52%, respectively, for Small
Capitalization Fund.

For the one-year period ended November 30, 1997, and for the period from
December 22, 1995 (start of performance) to November 30, 1997, the average
annual total returns were 13.01% and 11.88%, respectively, for International
Equity Fund.

For the one-year period ended November 30, 1997, and for the period from
December 22, 1995 (start of performance) to November 30, 1997, the average
annual total returns were (5.43%) and (0.98%), respectively, for International
Bond Fund.

For the one-year period ended November 30, 1997, and for the period from
December 22, 1995 (start of performance) to November 30, 1997, the average
annual total returns were (0.42%) and 2.33%, respectively, for Global Bond Fund.

Total return assumes and is reduced by the payment of the maximum sales charge
and contingent deferred sales charge, if applicable.

The Funds' average annual total return is the average compounded rate of return
for a given period that would equate a $1,000 initial investment to the ending
redeemable value of that investment. The ending redeemable value is computed by
multiplying the number of shares owned at the end of the period by the net asset
value per share at the end of the period. The number of shares owned at the end
of the period is based on the number of shares purchased at the beginning of the
period with $1,000, less any applicable sales charge, adjusted over the period
by any additional shares, assuming the reinvestment, as applicable, of all
dividends and distributions.

YIELD

The yield for the Funds is determined by dividing the net investment income per
share (as defined by the SEC) earned by a Fund over a thirty-day period by the
maximum offering price per share on the last day of the period. This value is
then annualized using semi-annual compounding. This means that the amount of
income generated during the thirty-day period is assumed to be generated each
month over a 12-month period and is reinvested every six months. The yield does
not necessarily reflect income actually earned by the Fund because of certain
adjustments required by the SEC and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.

To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in a Fund,
the performance will be reduced for those shareholders paying those fees.

The SEC yields for International Bond Fund and Global Bond Fund for the 30-day
period ended November 30, 1997 were 4.25% and 5.47%, respectively.

PERFORMANCE COMPARISONS

The performance of each Fund depends upon such variables as:

o portfolio quality;

o average portfolio maturity;

o type of instruments in which the portfolio is invested;

o changes in interest rates on money market instruments;

o changes in each Fund's expenses; and

o various other factors.

Investors may use financial publications and/or indices to obtain a more
complete view of the Funds' performance. When comparing performance, investors
should consider all relevant factors, such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Funds use in advertising may include:

SMALL CAPITALIZATION FUND:

o LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all capital gains distributions and income
dividends and takes into account any change in offering price over a
specific period of time. From time to time, the Fund may quote its
Lipper ranking in advertising and sales literature.

o MORNINGSTAR, INC., an independent rating service, is the publisher of
the bi-weekly MUTUAL FUND VALUES. MUTUAL FUND VALUES rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings
are effective for two weeks.

o RUSSELL 2000 INDEX is a broadly diversified index consisting of
approximately 2,000 small capitalization common stocks that can be used
to compare to the total returns of funds whose portfolios are invested
primarily in small capitalization stocks.

o RUSSELL 2000 GROWTH INDEX measures the performance of those Russell
2000 companies with higher price-to-book ratios and higher forecasted
growth values.

o DOW JONES INDUSTRIAL AVERAGE is an unmanaged index representing share
prices of major industrial corporations, public utilities, and
transportation companies. Produced by the Dow Jones & Company, it is
cited as a principal indicator of market conditions.

o STANDARD & POOR'S MIDCAP 400 INDEX is a diversified index consisting of
400 domestic stocks chosen for market size (median market
capitalization of about $1.513 billion, as of July 1997), liquidity,
and industry group representation. It is a market-weighted index with
each stock affecting the index in proportion to its market value.

o STANDARD & POOR'S SMALLCAP 600 INDEX is an index consisting of 600
domestic stocks chosen for market size (median market capitalization of
$443 million, as of July 1997), liquidity, and industry group
representation. It is a market-weighted index, with each stock
affecting the index in proportion to its market value.

o STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX covers 500
industrial, utility, transportation, and financial companies in the
United States market (mostly NYSE issues). The index represents about
75% of NYSE market capitalization and 30% of all NYSE issues. It is a
capitalization-weighted index calculated on a total return basis with
dividends reinvested.

o RUSSELL MIDCAP(TM) INDEX consists of the smallest 800 securities in the
Russell 1000 Index, as ranked by total market capitalization. This
index captures the medium-sized universe of securities and represents
approximately 35% of the Russell 1000 total market capitalization.

SALOMON SMITH BARNEY EMERGING GROWTH INDEX is composed of companies
that have between $100 million and $2 billion in market capitalization
and all have earnings per share growth rates exceeding 20%; the Index
is rebalanced at least once a year.

INTERNATIONAL EQUITY FUND:

o MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALIA, AND FAR EAST
INDEX (EAFE) is a market capitalization-weighted foreign securities
index, which is widely used to measure the performance of European,
Australian, New Zealand and Far Eastern stock markets. The index covers
approximately 1,020 companies drawn from 18 countries in the above
regions. The index values its securities daily in both U.S. dollars and
local currency, and calculates total returns monthly. EAFE U.S. dollar
total return is a net dividend figure less Luxembourg withholding tax.
The EAFE is monitored by Morgan Stanley Capital International, S.A.,
Geneva, Switzerland.

o LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all capital gains distributions and income
dividends and takes into account any change in net asset value over a
specific period of time. From time to time, the Fund may quote its
Lipper rating in advertising and sales literature.

o FT-ACTUARIES EUROPE & PACIFIC INDEX is a subindex based on the
FT-Actuaries World Index, excluding Canada, Mexico, South Africa and
the United States. The subindex contains approximately 1,600 securities
in 20 countries.

GLOBAL BOND FUND:

O LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all capital gains distributions and income
dividends and takes into account any change in net asset value over a
specific period of time. From time to time, the Fund may quote its
Lipper rating in advertising and sales literature.
O SALOMON BROTHERS WORLD GOVERNMENT BOND INDEX is a market
capitalization-weighted index consisting of government bond markets of
the following countries: Australia, Austria, Belgium, Canada, Denmark,
France, Germany, Italy, Japan, The Netherlands, Spain, Sweden, the
United Kingdom and the United States (collectively, the "WGBI
Countries").

o J.P. MORGAN GLOBAL GOVERNMENT BOND INDEX is a market
capitalization-weighted index consisting of the government bond markets
of the following countries: Australia, Belgium, Canada, Denmark,
France, Germany, Italy, Japan, The Netherlands, Spain, Sweden, the
United Kingdom and United States (collectively the "JPMGGB Countries").
Issue and country eligibility are based on market capitalization and
investability criteria. All issues have a remaining maturity of at
least one year, and the index is rebalanced monthly.

o LEHMAN BROTHERS AGGREGATE BOND INDEX is composed of securities from the
Lehman Brothers Government/Corporate Bond Index, Mortgage-Backed
Securities Index, and the Asset-Backed Securities Index. Total return
comprises price appreciation/depreciation and income as a percentage of
the original investment. Each of these indexes are rebalanced monthly
by market capitalization.

INTERNATIONAL BOND FUND:

o LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all capital gains distributions and income
dividends and takes into account any change in net asset value over a
specific period of time. From time to time, the Fund may quote its
Lipper rating in advertising and sales literature.

o SALOMON BROTHERS NON-U.S. DOLLAR WORLD GOVERNMENT BOND INDEX The
indexes of nonbase currency sectors exclude respective base currency
bond markets from the calculation and, in turn, are stated in terms of
the base currency. Therefore, the Non-U.S. Dollar World Government
Bond Index includes all WGBI Countries, except the United States, and
is stated in U.S. dollar terms.

o J.P. MORGAN NON-US GOVERNMENT BOND INDEX consists of the JPMGGB
Countries, excluding the United States market.

Advertisements and sales literature for a Fund may quote total returns which are
calculated on nonstandardized base periods. These total returns also represent
the historic change in the value of an investment in the Fund based on
reinvestment of dividends over a specified period of time.

Advertising and other promotional literature may include charts, graphs and
other illustrations using a Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, a Fund can compare
its performance, or performance for the types of securities in which it invests,
to a variety of other investments, such as bank savings accounts, certificates
of deposit, and Treasury bills. ECONOMIC AND MARKET INFORMATION

Advertising and sales literature for a Fund may include discussions of economic,
financial and political developments and their effect on the securities market.
Such discussions may take the form of commentary on these developments by Fund
portfolio managers and their views and analysis on how such developments could
affect a Fund. In addition, advertising and sales literature may quote
statistics and give general information about the mutual fund industry,
including the growth of the industry, from sources such as the Investment
Company Institute ("ICI"). For example, according to the ICI, thirty-seven
percent of American households are pursuing their financial goals through mutual
funds. These investors, as well as businesses and institutions, have entrusted
over $4.4 trillion to the more than 6,700 funds available. FINANCIAL
STATEMENTS

The Financial Statements for the fiscal year ended November 30, 1997, are
incorporated herein by reference to the Annual Report of the Fund dated November
30, 1997 (File Nos. 33-63621 and 811-7369). A copy of the Report may be obtained
without charge by contacting the Fund.

<PAGE>

APPENDIX

STANDARD & POOR'S RATINGS GROUP ("S&P") LONG-TERM DEBT RATING DEFINITIONS

AAA-Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

AA-Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.

A-Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB-Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

MOODY'S INVESTORS SERVICE, INC. LONG-TERM BOND RATING DEFINITIONS

AAA-Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

AA-Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in AAA securities.

A-Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

BAA-Bonds which are rated BAA are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear to be adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

STANDARD & POOR'S RATINGS GROUP COMMERCIAL PAPER RATING DEFINITIONS

A-1-This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation.

A-2-Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree or safety is not as high as for issues designated
A-1.

MOODY'S INVESTORS SERVICE, INC., COMMERCIAL PAPER RATING DEFINITIONS

P-1-Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. PRIME-1 repayment
capacity will normally be evidenced by the following characteristics:

o Leading market positions in well-established industries;

o High rates of return on funds employed;

o Conservative capitalization structures with moderate reliance on debt
and ample asset protection;

o Broad margins in earning coverage of fixed financial charges and high
internal cash generation; and

o Well-established access to a range of financial markets and assured
sources of alternate liquidity.

<PAGE>

PRIME-2-Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.

PART C. OTHER INFORMATION.

Item 24. Financial Statements and Exhibits:

(a) Financial Statements: Incorporated by reference to the
Registrant's Annual Report to Shareholders dated November 30,
1997. (File Nos. 33-63621 and 811-7369)

(b) Exhibits:
(1) (i) Conformed Copy of Declaration of Trust of the
Registrant; (1.)
(ii) Conformed Copy of Amendment No. 1 to the
Declaration of Trust of the Registrant; (2.)
(2) Copy of By-Laws of the Registrant; (1.)
(3) Not applicable;
(4) Copy of Specimen Certificate for Shares of Beneficial
Interest of the Registrant; (3.) (5) Conformed copy of
Investment Advisory Contract of the Registrant; (3.) (6)
Conformed copy of Distributor's Contract of the Registrant;
(3.)
(7) Not applicable;
(8) Conformed copy of Custodian Agreement of the
Registrant; (3.)
(i) Conformed copy of Global Custody Fee
Schedule; +
(ii) Conformed copy of Domestic Custodian Fee Schedule;
+ (9) (i) Conformed copy of Administrative Services
Agreement; (3.)
(ii) Conformed copy of Agreement for Fund Accounting,
Shareholder Recordkeeping, and Custody Services
Procurement; (3.) (iii) Conformed copy of Shareholder
Services Agreement; (3.)
(10) Conformed Copy of Opinion and Consent of Counsel as to
legality of shares being registered; (3.)
(11) Conformed copy of Consent of Independent Auditors; +
(12) Not applicable;
(13) Conformed Copy of Initial Capital Understanding; (2.)
(14) Not applicable;
(15) (i) Conformed copy of Distribution Plan; (3.)
(ii) Copy of 12b-1 Agreement; (3.)

-----------------------------
+ All exhibits have been filed electronically.

(1.) Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-1A filed October 23, 1995 (File Nos.
33-63621 and 811-7369).

(2.) Response is incorporated by reference to Registrant's Registration
Statement filed December 20, 1995 (File Nos. 33-63621 and 811-7369). (3.)
Response is incorporated by reference to Registrant's Post-Effective Amendment
No. 1 on Form N-1A filed July 2, 1996 (File Nos. 33-63621 and 811-7369).

(16) (i) Copy of Schedule for Computation of Fund
Performance Data, FTI Small Capitalization Equity
Fund; (3.)
(ii) Copy of Schedule for Computation of Fund
Performance Data, FTI International Equity Fund; (3.)
(iii) Copy of Schedule for Computation of Fund
Performance Data, FTI International Bond Fund; (3.)
(iv) Copy of schedule for Computation of Fund
Performance Data. FTI Global Bond Fund; (3.)
(17) Copy of Financial Data Schedules; + (18) Not applicable
to current filing; (19) Conformed Copy of Power of Attorney;
(4.)

- ---------------------
+ All exhibits have been filed electronically.

(3.) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed July 2, 1996 (File Nos. 33-63621
and 811-7369).

(4.) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 2 on Form N-1A filed February 27, 1997 (File Nos.
33-63621 and 811-7369).

<PAGE>

Item 25. Persons Controlled by or Under Common Control with Registrant

None

Item 26. Number of Holders of Securities:

Number of Record Holders
Title of Class as of January 7, 1998

Shares of beneficial interest
(no par value)

FTI Small Capitalization Equity Fund 75
FTI International Equity Fund 27
FTI International Bond Fund 10
FTI Global Bond Fund 20

Item 27. Indemnification: (1.)

Item 28. Business and Other Connections of Investment Adviser:

(a) For a description of the other business of the investment adviser, see
the section entitled "FTI Funds Information - Management of FTI Funds"
in Part A.

(1) (2) (3)
Position with Other Substantial
Fiduciary Business, Profession,
Name International, Inc. Vocation or Employment

For information as to the business, profession, vocation, and employment of a
substantial nature of directors and officers of Fiduciary International, Inc.,
reference is made to Fiduciary International, Inc.'s current Form ADV (File No.
801-18352) filed under the Investment Advisers Act of 1940, as amended, which is
incorporated herein by reference.

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.

- -----------------------------

(1.) Response is incorporated by reference to Registrant's Initial Registration
Statement on Form N-1A filed October 23, 1995 (File Nos. 33-63621 and
811-7369).

<PAGE>

(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, Assistant 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

Item 30. Location of Accounts and Records:

All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following locations:

Registrant Federated Investors Tower
Pittsburgh, PA 15237-7010

Federated Services Company Federated Investors Tower
("Transfer Agent, Dividend Pittsburgh, PA 15222-3779
Disbursing Agent and Portfolio
Accountant")

Federated Administrative Services Federated Investors Tower
("Administrator") Pittsburgh, PA 15222-3779

Fiduciary International, Inc. Two World Trade Center
("Adviser") New York, NY 10048-0772

Fiduciary Trust Company International Two World Trade Center
("Custodian") New York, NY 10048-0772

Item 31. Management Services: Not applicable.

Item 32. Undertakings:

Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Trustees and the calling of special shareholder meetings by
shareholders.

Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FTI FUNDS, has duly caused this
Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Pittsburgh and Commonwealth
of Pennsylvania, on the 28th day of January, 1998.

FTI FUNDS

BY: /s/Jay S. Neuman
Jay S. Neuman, Secretary
Attorney in Fact for Edward C. Gonzales
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/ Jay S. Neuman
Jay S. Neuman Attorney In Fact January 28, 1998
SECRETARY For the Persons
Listed Below

NAME TITLE

Edward C. Gonzales* Chairman, President,
Treasurer and Trustee
(Chief Executive Officer and
Principal Financial and
Accounting Officer)

Peter A. Aron* Trustee

Nancy L. Close* Trustee

James C. Goodfellow* Trustee

Burton J. Greenwald* Trustee

* By Power of Attorney

Exhibit 8(i) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
FIDUCIARY TRUST INTERNATIONAL
GLOBAL CUSTODY FEE SCHEDULE

I. Global Custody Services
Maintain custody of fund assets. Settle portfolio purchases and sales. Report
buy and sell fails. Determine and collect portfolio income. Make cash
disbursements and report cash transactions in local and base currency. Withhold
foreign taxes. File foreign tax reclaims. Monitor corporate actions.
Report portfolio positions.

A. COUNTRY GROUPING

Group A Group B Group C Group D Group E Group F

USA Austria Australia Denmark Indonesia Argentina
Canada Belgium Finland Malaysia Bangladesh
Euroclear Hong Kong France Philippines Brazil
Germany Netherlands Ireland Portugal Chile
Japan New Zealand Italy South Korea China
Singapore Luxemborge Spain Colombia
Switzerland Mexico Sri Lanka Cyprus
Norway Sweden Greece
Thailand Taiwan Hungary
U.K. India
Israel
Pakistan
Peru
Turkey
Uruguay
Venezuela
B. TRANSACTION CHARGES

Group A Group B Group C Group D Group E Group F

FTI $25 $50 $60 $70 $150
Repos or
Euros-$7.00

DTC or Fed Book
Entry $9.00
All other - $25.00

C. HOLDING CHARGES IN BASIS POINTS (ANNUAL FEE)

Group A Group B Group C Group D Group E Group F
1.5 5.0 6.0 10.0 25.0 40.0

D. WIRE CHARGES - $3.50 PER WIRE

E. OUT-OF-POCKET EXPENSES

Telephone
Postage
Armored carrier cost
Legal Fees
Supplies related to fund records Processing validation certificates Forms,
envelopes, Xerox copies, supplies, etc.

Fiduciary Exhibit 8(ii) under Form N-1A
Trust Exhibit 10 under Item 601/Reg. S-K
International

DOMESTIC CUSTODIAN FEE PROPOSAL
FOR
FIDUCIARY TRUST COMPANY, FT MUTUAL FUNDS
PER PORTFOLIO/PER ANNUM

SAFEKEEPING/INCOME COLLECTION/REPORTING, DTC-ID AFFIRMATIONS

2 basis points per annum on the first $50MM of each portfolio's net assets

1 basis point on the next $250MM

1/2 of a basis point on the excess

SECURITY TRANSACTION CHARGES/PAYDOWNS

$8 DTC/FRB/PTC
$15 Physicals, options, and futures
$40 Euro C/D's
$6 Paydowns

FED WIRE TRANSACTIONS

$6 Bank Official checks and money transfer in/out not related to securities
transactions

<PAGE>

OVERDRAFTS

Overdrafts, excluding bank errors, will be calculated and charged daily,
computed at 1% above the Federal Funds rate on the day of the overdraft.

OUT-OF-POCKET EXPENSES

FDIC charges shall be assessed on the ledger balance as of the last business day
of the quarter computed at the rate assessed by the FDIC. The charges shall be
added to the overdraft charges.

BILLING CYCLE

The above fees are billed monthly.

Exhibit (11) under N-1A
Exhibit 23 under Item 601/Reg SK

CONSENT OF EARNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the references to our firm under the caption "Financial
Highlights" in Post-Effective Amendment Number 3 to the Registration Statement
(Form N-1A Number 33-63621) and the related Prospectus of FTI Funds (comprising
, FTI Small Capitalization Equity Fund, FTI International Equity Fund, FTI
International Bond Fund, and FTI Global Bond Fund) and to the incorporation
therein of our report dated January 26, 1998 with respect to the financial
statements included in the Annual Report of FTI Funds for the year ended
November 30, 1997.

By: /S/ERNST & YOUNG LLP

Pittsburgh, Pennsylvania
January 27, 1998

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> FTI Funds
FTI Small
Capitalization
Equity Fund

<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Nov-30-1997
<PERIOD-END> Nov-30-1997
<INVESTMENTS-AT-COST> 35,216,230
<INVESTMENTS-AT-VALUE> 40,144,763
<RECEIVABLES> 905,007
<ASSETS-OTHER> 899,490
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 41,077,983
<PAYABLE-FOR-SECURITIES> 492,249
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 80,032
<TOTAL-LIABILITIES> 572,281
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 34,589,220
<SHARES-COMMON-STOCK> 2,817,809
<SHARES-COMMON-PRIOR> 1,598,693
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<ACCUMULATED-NET-GAINS> 1,245,243
<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 40,505,702
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<EXPENSES-NET> 433,109
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<REALIZED-GAINS-CURRENT> 1,470,695
<APPREC-INCREASE-CURRENT> 3,593,716
<NET-CHANGE-FROM-OPS> 4,807,117
<EQUALIZATION> 0
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<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,708,722
<NUMBER-OF-SHARES-REDEEMED> 489,606
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 21,188,137
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (225,452)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 288,740
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 501,739
<AVERAGE-NET-ASSETS> 28,721,229
<PER-SHARE-NAV-BEGIN> 12.080
<PER-SHARE-NII> (0.090)
<PER-SHARE-GAIN-APPREC> 2.380
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 14.370
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> FTI Funds
FTI International Equity
Fund

<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Nov-30-1997
<PERIOD-END> Nov-30-1997
<INVESTMENTS-AT-COST> 36,940,333
<INVESTMENTS-AT-VALUE> 40,859,457
<RECEIVABLES> 194,041
<ASSETS-OTHER> 883,488
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 41,937,076
<PAYABLE-FOR-SECURITIES> 964,104
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 103,471
<TOTAL-LIABILITIES> 1,067,575
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 37,877,907
<SHARES-COMMON-STOCK> 3,349,788
<SHARES-COMMON-PRIOR> 1,097,739
<ACCUMULATED-NII-CURRENT> 179,233
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,231,385)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,043,746
<NET-ASSETS> 40,869,501
<DIVIDEND-INCOME> 444,674
<INTEREST-INCOME> 111,467
<OTHER-INCOME> 0
<EXPENSES-NET> 515,080
<NET-INVESTMENT-INCOME> 41,061
<REALIZED-GAINS-CURRENT> (837,237)
<APPREC-INCREASE-CURRENT> 3,517,440
<NET-CHANGE-FROM-OPS> 2,721,264
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 302,675
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,541,714
<NUMBER-OF-SHARES-REDEEMED> 301,180
<SHARES-REINVESTED> 11,515
<NET-CHANGE-IN-ASSETS> 28,804,050
<ACCUMULATED-NII-PRIOR> 168,457
<ACCUMULATED-GAINS-PRIOR> (119,531)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 321,927
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 555,655
<AVERAGE-NET-ASSETS> 31,518,231
<PER-SHARE-NAV-BEGIN> 10.990
<PER-SHARE-NII> 0.020
<PER-SHARE-GAIN-APPREC> 1.390
<PER-SHARE-DIVIDEND> 0.200
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<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 12.200
<EXPENSE-RATIO> 1.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> FTI Funds
FTI International
Bond Fund

<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Nov-30-1997
<PERIOD-END> Nov-30-1997
<INVESTMENTS-AT-COST> 6,265,926
<INVESTMENTS-AT-VALUE> 6,185,723
<RECEIVABLES> 1,804,902
<ASSETS-OTHER> 154,892
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8,145,517
<PAYABLE-FOR-SECURITIES> 711,732
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 52,372
<TOTAL-LIABILITIES> 764,104
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,551,563
<SHARES-COMMON-STOCK> 793,422
<SHARES-COMMON-PRIOR> 510,209
<ACCUMULATED-NII-CURRENT> (60,011)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (330)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (109,809)
<NET-ASSETS> 7,381,413
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 445,811
<OTHER-INCOME> 0
<EXPENSES-NET> 80,625
<NET-INVESTMENT-INCOME> 365,186
<REALIZED-GAINS-CURRENT> (356,351)
<APPREC-INCREASE-CURRENT> (247,489)
<NET-CHANGE-FROM-OPS> (238,654)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 84,162
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 148,955
<NUMBER-OF-SHARES-SOLD> 471,526
<NUMBER-OF-SHARES-REDEEMED> 190,941
<SHARES-REINVESTED> 2,628
<NET-CHANGE-IN-ASSETS> 2,179,520
<ACCUMULATED-NII-PRIOR> 12,700
<ACCUMULATED-GAINS-PRIOR> (15,581)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 47,032
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 238,803
<AVERAGE-NET-ASSETS> 6,720,700
<PER-SHARE-NAV-BEGIN> 10.200
<PER-SHARE-NII> 0.500
<PER-SHARE-GAIN-APPREC> (1.040)
<PER-SHARE-DIVIDEND> 0.130
<PER-SHARE-DISTRIBUTIONS> 0.230
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.300
<EXPENSE-RATIO> 1.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 04
<NAME> FTI Funds
FTI Global Bond Fund

<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Nov-30-1997
<PERIOD-END> Nov-30-1997
<INVESTMENTS-AT-COST> 1,322,316
<INVESTMENTS-AT-VALUE> 1,334,169
<RECEIVABLES> 262,816
<ASSETS-OTHER> 49,066
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,646,051
<PAYABLE-FOR-SECURITIES> 216,610
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 27,328
<TOTAL-LIABILITIES> 243,938
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,402,811
<SHARES-COMMON-STOCK> 145,310
<SHARES-COMMON-PRIOR> 101,490
<ACCUMULATED-NII-CURRENT> (11,916)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 861
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,357
<NET-ASSETS> 1,402,113
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 89,570
<OTHER-INCOME> 0
<EXPENSES-NET> 6,762
<NET-INVESTMENT-INCOME> 82,808
<REALIZED-GAINS-CURRENT> (77,578)
<APPREC-INCREASE-CURRENT> (9,566)
<NET-CHANGE-FROM-OPS> (4,336)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 44,222
<DISTRIBUTIONS-OF-GAINS> 3,639
<DISTRIBUTIONS-OTHER> 34,838
<NUMBER-OF-SHARES-SOLD> 40,588
<NUMBER-OF-SHARES-REDEEMED> 966
<SHARES-REINVESTED> 4,198
<NET-CHANGE-IN-ASSETS> 344,237
<ACCUMULATED-NII-PRIOR> 29,366
<ACCUMULATED-GAINS-PRIOR> 3,639
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9,468
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 199,383
<AVERAGE-NET-ASSETS> 1,341,227
<PER-SHARE-NAV-BEGIN> 10.420
<PER-SHARE-NII> 0.620
<PER-SHARE-GAIN-APPREC> (0.660)
<PER-SHARE-DIVIDEND> 0.390
<PER-SHARE-DISTRIBUTIONS> 0.300
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.650
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>