FTI FUNDS, 485APOS, 1999-01-29

FTI FUNDS
485APOS, 1999-01-29

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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. 5 ...................................X
----- -----

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

Amendment No. 6 ................................................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)
__ on _________________, pursuant to paragraph (b)
X 60 days after filing pursuant to paragraph (a) (i)

on pursuant to paragraph (a) (i).
_ 75 days after filing pursuant to paragraph (a)(ii)

on _________________ pursuant to paragraph (a)(ii) of Rule 485.

If appropriate, check the following box:

This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

Copy to:

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

FTI FUNDS

FTI MUNICIPAL BOND FUND

FTI BOND FUND

FTI LARGE CAPITALIZATION GROWTH FUND

FTI LARGE CAPITALIZATION GROWTH AND INCOME FUND

FTI SMALL CAPITALIZATION EQUITY FUND

FTI INTERNATIONAL EQUITY FUND

PROSPECTUS

MARCH , 1999

As with all mutual funds, the Securities and Exchange Commission has not
approved any fund's shares as an investment or determined whether this
prospectus is accurate or complete. Anyone who tells you otherwise is committing
a crime.

CONTENTS

Summary of Fund Goals, Strategies, Performance and Risks
Fees and Expenses of the Funds
Investment Strategies for the Funds
Investment Securities and Techniques Used by the Funds
Investment Risks of the Funds
What Shares Cost
Share Purchases
How the Funds Are Distributed
Redemptions and Exchanges
Account and Share Information
Management of FTI Funds
Financial Information

<PAGE>

SUMMARY OF FUND GOALS, STRATEGIES, PERFORMANCE AND RISKS

FTI Funds offer investment opportunities to a wide range of investors.

FTI MUNICIPAL BOND FUND

(MUNICIPAL BOND FUND)

GOAL: The Fund's goal is total return with emphasis on tax-exempt income.

STRATEGY: To seek its goal, the Fund invests in high quality municipal
securities of intermediate duration and fixed income securities such that at
least 80% of its annual interest income is exempt from federal regular income
tax. (Federal regular income tax does not include the federal individual
alternative minimum tax or the federal alternative minimum tax for
corporations.) Under normal market conditions at least 80% of the Fund's assets
are invested in investment grade securities or unrated securities deemed by the
Adviser to be of comparable quality to investment grade securities. In selecting
securities for the Fund, the Adviser assesses the impact of anticipated interest
rates and market risks. The Adviser actively allocates securities among market
sectors.

FTI BOND FUND

(BOND FUND)

GOAL: The Fund's goal is total return with emphasis on income.

STRATEGY: To seek its goal, the Fund invests in fixed income securities so
that under normal market conditions, at least 80% of its assets are invested in
investment grade securities or unrated securities deemed by the Adviser to be of
comparable quality to investment grade securities. In selecting securities for
the Fund, the Adviser evaluates the impact of economic and political trends and
market risks. In order to control risks, the Adviser manages domestic and
foreign markets as distinct asset classes.

FTI LARGE CAPITALIZATION GROWTH FUND

(LARGE CAPITALIZATION GROWTH FUND)

GOAL: The Fund's goal is long-term growth of principal.

STRATEGY: To seek its goal, the Fund invests in equity securities of
companies, with market capitalizations in excess of $5 billion at the time of
purchase, that the Adviser believes are of above-average financial quality and
offer the prospect for above-average growth of earnings, cash flow, or assets
relative to the companies that comprise the Standard & Poor's 500 Composite
Stock Price Index (S&P 500). In selecting securities for the Fund, the Adviser
considers earnings growth, relative valuation measures and quality of company
management.

FTI LARGE CAPITALIZATION GROWTH AND INCOME FUND

(LARGE CAPITALIZATION GROWTH AND INCOME FUND)

GOAL: The Fund's goal is long-term growth of principal and income.

STRATEGY: To seek its goal, the Fund invests in dividend-paying equity
securities of companies, with market capitalizations in excess of $5 billion at
the time of purchase, that the Adviser believes will approximate the dividend
yield of the companies which comprise the S&P 500, while attempting to keep
taxable capital gains distributions relatively low. In selecting securities for
the Fund, the Adviser uses methods very similar to those described above for
Large Capitalization Growth Fund. However, for the Fund, the Adviser focuses on
a company's dividend paying prospects.

A TAX-SENSITIVE APPROACH TO INVESTING: In pursuing its goal, the Fund will
be managed in an attempt to keep its distributions of capital gains relatively
low. For example, it will generally buy securities that it intends to hold for a
number of years and avoid short-term trading. In deciding which securities to
sell, the Adviser will consider their capital gain or loss situation, and may
attempt to offset capital gains by timing its sales of securities that have gone
down in value. Also, the Adviser will consider selling any security that has not
met growth expectations, in which case the capital gain, if any, could be
relatively small.

<PAGE>

FTI SMALL CAPITALIZATION EQUITY FUND (SMALL CAPITALIZATION EQUITY FUND)

GOAL: The Fund's goal is growth of principal.

STRATEGY: To seek its goal, the Fund invests in the common stock of
companies, with market capitalizations below $1.5 billion at the time of
purchase, that the Adviser believes are undervalued in the marketplace or have
earnings that might be expected to grow faster than the U.S. economy in general.
In selecting securities for the Fund, the Adviser focuses on companies with
unique franchise opportunities, and companies that have high barriers of entry
to competitors, strong balance sheets and cash flows and superior management.

RISK/RETURN BAR CHART AND TABLE [1998 BAR TO COME]

[OBJECT OMITTED]

AVERAGE ANNUAL RETURN FOR THE FUND COMPARED TO THE RUSSELL 2000 GROWTH INDEX.

--------------------- ---------- ----------------------------
CALENDAR PERIOD FUND RUSSELL 2000 GROWTH INDEX

--------------------- ---------- ----------------------------
--------------------- ---------- ----------------------------
1 Year 17.80%
--------------------- ---------- ----------------------------
--------------------- ---------- ----------------------------
Since Inception* 20.26%

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

*The Fund's inception date was December 22, 1995.

The table shows the Fund's average annual total returns compared to the
Russell 2000 Growth Index, which includes those Russell 2000 companies with
higher than average price-to-book ratios and higher than average forecasted
growth values.

While past performance does not necessarily predict future performance,
this information provides historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
rewards.

<PAGE>

FTI INTERNATIONAL EQUITY FUND (INTERNATIONAL EQUITY FUND)

GOAL: The Fund's goal is growth of principal.

STRATEGY: To seek its goal, the Fund invests in the equity and debt
obligations of issuers in at least three countries outside the United States
such that at least 65% of its assets are invested in securities denominated in
foreign currencies and at least 65% of its assets are invested in equity
securities. Under normal market conditions, the Adviser invests substantially
all of the Fund's assets in equity securities either denominated in foreign
currencies or issued by issuers located in at least three countries outside of
the United States. In selecting securities for the Fund, the Adviser uses
fundamental research and value screening to select underpriced quality growth
companies from higher growth regions of the world.

RISK/RETURN BAR CHART AND TABLE [1998 BAR TO COME]

[OBJECT OMITTED]

AVERAGE ANNUAL RETURN FOR THE FUND, COMPARED TO THE MORGAN STANLEY CAPITAL
INTERNATIONAL EUROPE, AUSTRALIA AND FAR EAST INDEX (MSCI EAFE).

--------------------- ---------- ----------------------------
CALENDAR PERIOD FUND MSCI EAFE

--------------------- ---------- ----------------------------
--------------------- ---------- ----------------------------
1 Year 13.34%
--------------------- ---------- ----------------------------
--------------------- ---------- ----------------------------
Since Inception* 12.88%

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

*The Fund's inception date was December 22, 1995.

The table shows the Fund's average annual total returns compared to the
MSCI EAFE, 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. Indices are unmanaged and investments cannot be made
in an index.

While past performance does not necessarily predict the future performance,
this information provides historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
rewards.

INVESTMENT RISKS OF THE FUNDS

In addition to the risks set forth below that are specific to an investment
in a particular Fund, there are risks common to mutual funds. For example, a
Fund's share price may decline and an investor could lose money. Also, there is
no assurance that a Fund will achieve its investment objective. You should be
aware that 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 or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency. An investment in any
one or all of the Funds, does not necessarily constitute a balanced investment
program for any one investor. Finally, all of the Funds bear the risk of Year
2000 readiness.

<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------- ----------- ------- ----------- ----------- ---------- --------------
RISKS RELATED TO FIXED INCOME MUNICIPAL BOND LARGE CAP LARGE CAP SMALL INTERNATIONAL
SECURITIES: BOND GROWTH GROWTH & CAP EQUITY
INCOME EQUITY

- -------------------------------------- ----------- ------- ----------- ----------- ---------- --------------
TAX RISKS

- -------------------------------------- ----------- ------- ----------- ----------- ---------- --------------
RISKS RELATED TO EQUITY SECURITIES: MUNICIPAL BOND LARGE CAP LARGE CAP SMALL INTERNATIONAL
BOND GROWTH GROWTH & CAP EQUITY

INCOME EQUITY

- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
CREDIT (COUNTER-PARTY)

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

</TABLE>

<PAGE>

FEES AND EXPENSES OF THE FUNDS

FTI MUNICIPAL BOND FUND

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and
hold shares of the FTI Municipal Bond Fund.
<TABLE>
<CAPTION>

SHAREHOLDER FEES
<S> <C>
FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering None
price)
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase None
price or redemption proceeds, as applicable)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other None
Distributions) (as a percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None

ANNUAL FUND OPERATING EXPENSES (Before Waivers)(1)
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF AVERAGE NET
ASSETS)
Management Fee 0.50%
Shareholder Services Fee(2) 0.25%
Distribution (12b-1) Fee(2) 0.75%
Other Expenses 0.47%(3)
Total Annual Fund Operating Expenses (before waivers)(4) 1.97%
1 Although not contractually obligated to do so, the Distributor and
Shareholder Services provider will waive certain amounts. These are shown
below along with the net expenses the Fund is expected to ACTUALLY PAY for
the fiscal year ending November 30, 1999.
Waivers of Fund Expenses 1.00%
Total Expected Annual Fund Operating Expenses (after waivers) 0.97%
</TABLE>

2 The Fund has no present intention of paying or accruing the Distribution
(12b-1) fee or Shareholder Services fee during the year ended November 30, 1999.

3 Other Expenses are based on estimated amounts for the fiscal year ending
November 30, 1999.

4 As noted above in (2), certain fees are being voluntarily waived or are
not currently being accrued.

EXAMPLE

This Example is intended to help you compare the cost of investing in FTI
Municipal Bond Fund with the cost of investing in other mutual funds. The
Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses are BEFORE WAIVERS as shown in the table and remain
the same.

Although your actual costs may be higher or lower, based on these
assumptions your costs would be:

1 YEAR 3 YEARS

$ $
- ------------
$ $
- ------------

<PAGE>

FTI BOND FUND

FEES AND EXPENSES
<TABLE>
<CAPTION>

This table describes the fees and expenses that you may pay if you buy and
hold shares of the FTI Bond Fund.

ANNUAL FUND OPERATING EXPENSES (Before Waivers)(1)
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF AVERAGE NET
ASSETS)
Management Fee 0.50%
Shareholder Services Fee(2) 0.25%
Distribution (12b-1) Fee(2) 0.75%
Other Expenses 0.48%(3)
Total Annual Fund Operating Expenses (before waivers)(4) 1.98%
1 Although not contractually obligated to do so, the Distributor and
Shareholder Services provider will waive certain amounts. These are shown
below along with the net expenses the Fund is expected to ACTUALLY PAY for
the fiscal year ending November 30, 1999.
Waivers of Fund Expenses 1.00%
Total Expected Annual Fund Operating Expenses (after waivers) 0.98%

2 The Fund has no present intention of paying or accruing Distribution (12b-1) fees or
Shareholders Service fees during the year ending November 30, 1999.
</TABLE>

3 Other Expenses are based on estimated amounts for the fiscal year ending
November 30, 1999.

4 As noted above in (2), certain fees are being voluntary waived or are not
currently being accrued.

EXAMPLE

This Example is intended to help you compare the cost of investing in FTI
Bond Fund with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses are BEFORE WAIVERS as shown in the table
and remain the same.

Although your actual costs may be higher or lower, based on these
assumptions your costs would be:

1 YEAR 3 YEARS

$ $
- ------------
$ $
- ------------

<PAGE>

FTI LARGE CAPITALIZATION GROWTH FUND

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and
hold shares of the FTI Large Capitalization Growth Fund.

ANNUAL FUND OPERATING EXPENSES (Before Waivers)(1)
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF AVERAGE NET
ASSETS)
Management Fee 0.75%
Shareholder Services Fee(2) 0.25%
Distribution (12b-1) Fee(2) 0.75%
Other Expenses 0.61%(3)
Total Annual Fund Operating Expenses (before waivers)(4) 2.36%
1 Although not contractually obligated to do so, the Distributor and
Shareholder Services provider have agreed to waive certain amounts. These
are shown below along with the net expenses the Fund is expected to ACTUALLY
PAy for the fiscal year ending November 30, 1999.
Waivers of Fund Expenses 1.00%
Total Expected Annual Fund Operating Expenses (after waivers) 1.36%
</TABLE>

2 The Fund did not pay or accrue the Distribution (12b-1) fee or the
Shareholder Services fees during the year ended November 30, 1998. The
Fund has no present intention of paying or accruing the Distribution
(12b-1) fee or shareholder services fee during the year ending
November 30, 1999.

3 Other expenses are based on estimated amounts for the fiscal year
ending November 30, 1999.

4 As noted above in (2), certain fees are being voluntarily waived or
are not currently being accrued.

EXAMPLE

This Example is intended to help you compare the cost of investing in FTI
Large Capitalization Growth Fund with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses are BEFORE WAIVERS as shown in the table
and remain the same.

Although your actual costs may be higher or lower, based on these
assumptions your costs would be:

1 YEAR 3 YEARS

$ $
- ------------
$ $
- ------------

<PAGE>

FTI LARGE CAPITALIZATION GROWTH & INCOME FUND

FEES AND EXPENSES
<TABLE>
<CAPTION>

This table describes the fees and expenses that you may pay if you buy and
hold shares of the FTI Capitalization Growth & Income Fund.
<S> <C>
SHAREHOLDER FEES

FEES PAID DIRECTLY FROM YOUR INVESTMENT
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering None
price)
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase None
price or redemption proceeds, as applicable)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other None
Distributions) (as a percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None

ANNUAL FUND OPERATING EXPENSES (Before Waivers)(1)
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF AVERAGE NET
ASSETS)
Management Fee 0.75%
Shareholder Services Fee(2) 0.25%
Distribution (12b-1) Fee(2) 0.75%
Other Expenses 0.33%(3)
Total Annual Fund Operating Expenses (before waivers)(4) 2.08%
1 Although not contractually obligated to do so, the Distributor and
Shareholder Services provider have agreed to waive certain amounts. These
are shown below along with the net expenses the Fund is expected to ACTUALLY
PAy for the fiscal year ending November 30, 1999.
Waivers of Fund Expenses 1.00%
Total Expected Annual Fund Operating Expenses (after waivers) 1.08%
</TABLE>

2 The Fund has no present intention of paying or accruing the
Distribution (12b-1) fee or Shareholder Services fee during the year
ending November 30, 1999.

3 Other Expenses are based on estimated amounts for the fiscal year
ending November 30, 1999.

4 As noted above in (2), certain fees are being voluntarily waived or
are not currently being accrued.

EXAMPLE

This Example is intended to help you compare the cost of investing in FTI
Capitalization Growth and Income Fund with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses are BEFORE WAIVERS as shown in the table
and remain the same.

Although your actual costs may be higher or lower, based on these
assumptions your costs would be:

1 YEAR 3 YEARS

$ $
- ------------
$ $
- ------------

<PAGE>

FTI SMALL CAPITALIZATION EQUITY FUND

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and
hold shares of the FTI Small Capitalization Equity Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES

FEES PAID DIRECTLY FROM YOUR INVESTMENT
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering None
price)
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase None
price or redemption proceeds, as applicable)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other None
Distributions) (as a percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None

ANNUAL FUND OPERATING EXPENSES (Before Reimbursements andWaivers)(1)
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF AVERAGE NET
ASSETS)
Management Fee 1.00%
Shareholder Services Fee(2) 0.25%
Distribution (12b-1) Fee(2) 0.75%
Other Expenses 0.47%(3)
Total Annual Fund Operating Expenses (before waivers and reimbursements)(4) 0.50%
1 Although not contractually obligated to do so, the Adviser waived a portion
of the management fee or reimbursed the Fund for certain operating
expenses. The Distributor and Shareholder Services provider waived all or a
portion of their fees. These are shown below along with the net expenses the
Fund ACTUALLY PAID for the fiscal year ended November 30, 1998.
Reimbursements and Waivers of Fund Expenses 1.00%
Total Actual Annual Fund Operating Expenses (after reimbursements and 1.50%
waivers)
</TABLE>

2 The Fund has no present intention of paying or accruing the Distribution
(12b-1) fee or Shareholder Services fee during the year ending November 30,
1999.

3 The Adviser voluntarily reimbursed certain operating expenses of the
Fund. The Adviser can terminate this voluntary reimbursement at any time. Total
other expenses paid by the Fund (after the voluntary reimbursement) was ____%
for the year ended November 30, 1998.

4 As noted above in (2), certain fees are being voluntarily waived or are
not currently being accrued.

EXAMPLE

This Example is intended to help you compare the cost of investing in FTI
Small Capitalization Equity Fund with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses are BEFORE REIMBURSEMENTS AND WAIVERS as
shown in the table and remain the same. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:

1 YEAR 3 YEARS
$ $

- ------------
$ $
- ------------

<PAGE>

FTI INTERNATIONAL EQUITY FUND

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and
hold shares of the FTI International Equity Fund.

ANNUAL FUND OPERATING EXPENSES (Before Reimbursements and Waivers)(1)
EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS (AS A PERCENTAGE OF AVERAGE NET
ASSETS)
Management Fee 1.00%
Shareholder Services Fee(2) 0.25%
Distribution (12b-1) Fee(2) 0.75%
Other Expenses 0.49%(3)
Total Annual Fund Operating Expenses (before waivers and reimbursements)(4) 2.49%
1 Although not contractually obligated to do so, the Adviser waived a portion
of the management fee or reimbursed certain operating expenditures of the
Fund. The Distributor and Shareholder Services provider waived all or a
portion of their fees. These are shown below along with the net expenses the
Fund ACTUALLY PAID for the fiscal year ended November 30, 1998.
Reimbursements and Waivers of Fund Expenses 1.29%
Total Actual Annual Fund Operating Expenses (after reimbursements and 1.20%
waivers)
2 The Fund has no present intention of paying or accuring the Distribution (12b-1) fee or
Shareholder Services fee during the year ending November 30, 1999.
</TABLE>

3 The Adviser voluntarily reimbursed certain operating expenses of the Fund. The
Adviser can terminate this voluntary reimbursement at any time. Total other
expenses paid by the Fund (after the voluntary reimbursement) was ____% for the
year ended November 30, 1998.

4 As noted above in (2), certain fees are being voluntarily waived or are not
currently being accrued.

EXAMPLE

This Example is intended to help you compare the cost of investing in FTI
International Equity FUnd with the cost of investing in other mutual funds. The
Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses are BEFORE REIMBURSEMENTS AND WAIVERS as shown in the
table and remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:

1 YEAR 3 YEARS
$ $

- -----------
$ $
- -----------

<PAGE>

INVESTMENT STRATEGIES FOR THE FUNDS

MUNICIPAL BOND FUND

STRATEGY: The Adviser's goal is to produce tax-exempt income, seek
opportunities for capital appreciation and control risks of capital losses. To
seek total return, the Adviser invests primarily in high quality securities of
intermediate (5-15 years) duration. To seek capital appreciation, the Adviser
uses moderate interest rate anticipation, active sector allocation and
disciplined security selection. The focus of the Adviser's research process is
identifying and quantifying the risks inherent in specific bond market sectors
and securities within those sectors.

To enhance after-tax total return, the Adviser may, from time to time,
select taxable securities such as U.S. Treasury securities. The Adviser may
purchase Treasury securities as a short-term investment while it seeks other
buying opportunities, or to capitalize on a market rally. Treasury securities
possess superior performance and generally outperform municipal securities in an
up market.

The Fund does not intend to purchase securities if, as a result of such
purchase, more than 25% of the value of its total assets would be invested in
the securities of governmental subdivisions located in any one state, territory
or possession of the United States.

BOND FUND

STRATEGY: The Adviser's goal is to produce income, seek opportunities for
capital appreciation and control risks of capital losses. To seek capital
appreciation, the Adviser evaluates economic and political trends to assess the
expected distribution of returns. As investment strategies are implemented, the
Adviser's forecasts are continually reviewed to confirm investment views. The
Adviser reviews forecast returns to determine preferred markets. Up to 30% of
the assets may be invested in securities of foreign issuers, provided that the
securities are denominated in U.S. dollars. The Adviser actively manages sector
allocation, duration targets and issue selection.

The average credit quality of the portfolio is a minimum of AA. Under
normal market conditions, the Fund's duration is within one and a half years of
the Lehman
Brothers Aggregate Bond Index which is currently about four and one half years.

LARGE CAPITALIZATION GROWTH FUND

STRATEGY: Investments are allocated among different industries and
companies and these holdings are adjusted based on long-term investment
considerations. The Fund emphasizes U.S. securities but may also invest up to
10% of its net assets in equity securities of foreign growth companies which
meet the criteria applicable to U.S. securities. In selecting securities, the
Adviser considers earnings growth, relative valuation measures and company
management. When analyzing earnings growth, the Adviser looks for strong,
sustainable internal growth and a high proportion of recurring revenues. The
Adviser also evaluates the quality of an issuer's earnings and the probability
of retaining or widening profitability. In analyzing relative valuation, the
Adviser performs a risk/reward analysis and a review of price/earnings ratios,
growth estimates and return on invested capital. The Adviser's management
analysis favors management with a proven track record, wide equity ownership and
incentive programs.

LARGE CAPITALIZATION GROWTH AND INCOME FUND

STRATEGY: In pursuing its goal, the Adviser uses methodologies very similar
to those described above for Large Capitalization Growth Fund, except that it
will manage the Large Capitalization Growth and Income Fund with a greater focus
on dividends. The Fund is expected to have fewer holdings than Large
Capitalization Growth Fund and may commit a larger portion of its assets to a
single holding.

<PAGE>

SMALL CAPITALIZATION EQUITY FUND

STRATEGY: The Fund invests in common stock of small capitalization
companies that have a market capitalization below $1.5 billion at the time of
purchase. The Adviser seeks companies that are undervalued in the market place,
or that have earnings that are expected to grow faster than the U.S. economy.
The Adviser also seeks stocks of companies whose expected growth rates exceed
their current price-earnings ratio. Such companies typically possess a
relatively high rate of return on invested capital so that future growth can be
internally financed. They may offer the potential for accelerating earnings
growth because they offer an opportunity to participate in new products,
services and technologies. The Adviser also selects companies that have unique
franchise opportunities, high barriers to competition, strong balance sheets and
cash flows and superior management.

INTERNATIONAL EQUITY FUND

STRATEGY: Through fundamental research and a value screen, the Adviser
identifies foreign equity securities determined to be underpriced. The Adviser
uses fundamental analysis to assess world economies and make projections
regarding future trends in economic activity. The Adviser then determines
whether it believes that current securities prices reflect these projected
trends, selecting for purchase those securities whose near-term growth and
long-term growth prospects are not perceived fully valued in the market place.
The Adviser seeks to create a diversified portfolio of underpriced quality
growth companies from higher growth regions of the world. The Adviser selects
securities from foreign industrialized countries that comprise the Morgan
Stanley Capital International EAFE Index (Europe, Australia and the Far East).

INVESTMENT SECURITIES AND TECHNIQUES USED BY THE FUNDS

Following is a table that indicates which types of securities are a:
P = PRINCIPAL investment of a Fund; (shaded in chart)
A = ACCEPTABLE (but not principal) investment of a Fund; or
N = NOT AN ACCEPTABLE investment of a Fund.
<TABLE>
<CAPTION>

- -------------------------------------- ----------- ------- ----------- ----------- ---------- --------------
SECURITIES IN WHICH THE FUNDS INVEST: MUNICIPAL BOND LARGE CAP LARGE CAP SMALL INTERNATIONAL
BOND GROWTH GROWTH & CAP EQUITY

INCOME EQUITY
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------- ----------- ------- ----------- ----------- ---------- --------------
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------

- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
EQUITY SECURITIES N N P P P P
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
- --------------------------------------- ----------- ----------- ---------- --------------
COMMON STOCKS N N P P P P
- --------------------------------------- ---------- ------- ----------- ----------- ----------
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
PREFERRED STOCKS N A P A A P
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- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
INTEREST IN OTHER LIMITED LIABILITY

COMPANIES N N N N N N
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- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
REAL ESTATE INVESTMENT TRUSTS N N A A A N
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- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
WARRANTS N N A A N A
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FIXED INCOME SECURITIES P P A A A A
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
- ---------------------------------------
TREASURY SECURITIES A P A A A A
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
AGENCY SECURITIES A P A A A A
- --------------------------------------- ------- ----------- ----------- ---------- --------------
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
CORPORATE DEBT SECURITIES A P A A A A
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
COMMERCIAL PAPER A A A A A A
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
DEMAND INSTRUMENTS A A A N

<PAGE>

- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
CONVERTIBLE SECURITIES N A P A A A
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
TAX EXEMPT SECURITIES P A N N N N
- --------------------------------------- ------- ----------- ----------- ---------- --------------
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
GENERAL OBLIGATION BONDS P A N N N N
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
SPECIAL REVENUE BONDS P A N N N N
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
PRIVATE ACTIVITY BONDS A A N N N N
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
TAX INCREMENT FINANCING BONDS A A N N N N
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
MUNICIPAL NOTES A A N N N N
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
VARIABLE RATE DEMAND INSTRUMENTS A A N N N N
- --------------------------------------- ------- ----------- ----------- ---------- --------------
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
MUNICIPAL LEASES P A N N N N
----------
- --------------------------------------- ------- ----------- ----------- ---------- --------------
FOREIGN SECURITIES A A A A A P
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
DEPOSITARY RECEIPTS N N A A A A
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
FOREIGN EXCHANGE CONTRACTS N N N N N A
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
FOREIGN GOVERNMENT SECURITIES A A N N A

- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
BRADY BONDS N N N N N N
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
DERIVATIVE CONTRACTS A A A A N A
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
FUTURES CONTRACTS A A A A N A
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
OPTIONS A A A A N A
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
SWAPS N N N N N N
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
INTEREST RATE SWAPS N N N N N N
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
CURRENCY SWAPS N N N N N N
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
CAPS AND FLOORS N N N N N N
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
TOTAL RETURN SWAPS N N N N N N
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
HYBRID INSTRUMENTS N N N N N N
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
SPECIAL TRANSACTIONS A A A A A A
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
REPURCHASE AGREEMENTS A A A A A A
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
REVERSE REPURCHASE AGREEMENTS A A N A N A
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
DELAYED DELIVERY TRANSACTIONS A A A A N A
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
TO BE ANNOUNCED SECURITIES (TBAS) A A N N N N
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
- --------------------------------------- ---------- ------- ----------- ----------- ---------- --------------
DOLLAR ROLLS A A N N

EQUITY SECURITIES

Equity securities represent a share of an issuer's earnings and assets,
after the issuer pays its liabilities. A Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business.

The following describes the types of equity securities in which the Funds
invest as noted in the chart above.

COMMON STOCKS

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

PREFERRED STOCKS

Preferred stocks have the right to receive specified dividends or
distributions before the issuer makes payments on its common stock. Some
preferred stocks also participate in dividends and distributions paid on common
stock. Preferred stocks may also permit the issuer to redeem the stock. A Fund
may also treat such redeemable preferred stock as a fixed income security.

FIXED INCOME SECURITIES

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

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

The following describes the types of fixed income securities in which the
Funds invest as noted in the chart above.

TREASURY SECURITIES

Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.

AGENCY SECURITIES

Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The United
States supports some GSEs with its full, faith and credit. Other GSEs receive
support through federal subsidies, loans or other benefits. A few GSEs have no
explicit financial support, but are regarded as having implied support because
the federal government sponsors their activities. Agency securities are
generally regarded as having low credit risks, but not as low as treasury
securities.

A Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risks, it does not
reduce the market and prepayment risks of these mortgage backed securities.

CORPORATE DEBT SECURITIES

Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities. A Fund may also purchase interests in bank loans to
companies. The credit risks of corporate debt securities vary widely among
issuers.

In addition, the credit risk of an issuer's debt security may vary based on
its priority for repayment. For example, higher ranking (senior) debt securities
have a higher priority than lower ranking (subordinated) securities. This means
that the issuer might not make payments on subordinated securities while
continuing to make payments on senior securities. In addition, in the event of
bankruptcy, holders of senior securities may receive amounts otherwise payable
to the holders of subordinated securities. Some subordinated securities, such as
trust preferred and capital securities notes, also permit the issuer to defer
payments under certain circumstances. For example, insurance companies issue
securities known as surplus notes that permit the insurance company to defer any
payment that would reduce its capital below regulatory requirements.

MUNICIPAL SECURITIES

Municipal securities are issued by states, counties, cities and other
political subdivisions and authorities. Although many municipal securities are
exempt from federal income tax, a Fund may invest in taxable municipal
securities.

MORTGAGE BACKED SECURITIES

Mortgage backed securities represent interests in pools of mortgages. The
mortgages that comprise a pool normally have similar interest rates, maturities
and other terms. Mortgages may have fixed or adjustable interest rates.
Interests in pools of adjustable rate mortgages are known as ARMs.

Mortgage backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage backed securities are
pass-through certificates. An issuer of pass-through certificates gathers
monthly payments from an underlying pool of mortgages. Then, the issuer deducts
its fees and expenses and passes the balance of the payments onto the
certificate holders once a month. Holders of pass-through certificates receive a
pro rata share of all payments and pre-payments from the underlying mortgages.
As a result, the holders assume all the prepayment risks of the underlying
mortgages.

CREDIT ENHANCEMENT

Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security if the issuer defaults. In some cases
the company providing credit enhancement makes all payments directly to the
security holders and receives reimbursement from the issuer. Normally, the
credit enhancer has greater financial resources and liquidity than the issuer.
For this reason, the Adviser usually evaluates the credit risk of a fixed income
security based solely upon its credit enhancement.

Common types of credit enhancement include guarantees, letters of credit,
bond insurance and surety bonds. Credit enhancement also includes arrangements
where securities or other liquid assets secure payment of a fixed income
security. If a default occurs, these assets may be sold and the proceeds paid to
security's holders. Either form of credit enhancement reduces credit risks by
providing another source of payment for a fixed income security.

CONVERTIBLE SECURITIES

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

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

TAX EXEMPT SECURITIES

Tax exempt securities are fixed income securities that pay interest that is
not subject to regular federal income taxes. Typically, states, counties, cities
and other political subdivisions and authorities issue tax exempt securities.
The market categorizes tax exempt securities by their source of repayment.

GENERAL OBLIGATION BONDS

General obligation bonds are supported by the issuer's power to exact
property or other taxes. The issuer must impose and collect taxes sufficient to
pay principal and interest on the bonds. However, the issuer's authority to
impose additional taxes may be limited by its charter or state law.

SPECIAL REVENUE BONDS

Special revenue bonds are payable solely from specific revenues received by
the issuer such as specific taxes, assessments, tolls, or fees. Bondholders may
not collect from the municipality's general taxes or revenues. For example, a
municipality may issue bonds to build a toll road, and pledge the tolls to repay
the bonds. Therefore, a shortfall in the tolls normally would result in a
default on the bonds.

MUNICIPAL LEASES

Municipalities may enter into leases for equipment or facilities. In order
to comply with state public financing laws, these leases are typically subject
to annual appropriation. In other words, a municipality may end a lease, without
penalty, by not providing for the lease payments in its annual budget. After the
lease ends, the lessor can resell the equipment or facility but may lose money
on the sale.

A Fund may invest in securities supported by pools of municipal leases. The
most common type of lease backed securities are certificates of participation
(COPs).
However, the Fund may also invest directly in individual leases.

FOREIGN SECURITIES

Foreign securities are securities of issuers based outside the United
States. A Fund considers an issuer to be based outside the United States if: o
it is organized under the laws of, or has a principal office located in, another
country;

o the principal trading market for its securities is in another country; or

o it (or its subsidiaries) derived in its most current fiscal year at least
50% of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.

Foreign securities are primarily denominated in foreign currencies. Along
with the risks normally associated with domestic securities of the same type,
foreign securities are subject to currency risks and risks of foreign investing.
Trading in certain foreign markets is also subject to liquidity risks.

INVESTMENT RISKS OF THE FUNDS

RISKS RELATED TO FIXED INCOME SECURITIES

BOND MARKET RISKS

o Prices of fixed income securities rise and fall in response to interest
rate changes for similar securities. Generally, when interest rates rise, prices
of fixed income securities fall.

O Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.

CREDIT RISKS

o Credit risk is the possibility that an issuer will default on a security
by failing to pay interest or principal when due. If an issuer defaults, a Fund
will lose money. o Many fixed income securities receive credit ratings from
services such as Standard & Poor's and Moody's Investor Services. These services
assign ratings to securities by assessing the likelihood of issuer default.
Lower credit ratings correspond to higher credit risk. If a security has not
received a rating, a Fund must rely entirely upon the Adviser's credit
assessment.

o Fixed income securities generally compensate for greater credit risk by
paying interest at a higher rate. The difference between the yield of a security
and the yield of a U.S. Treasury security with a comparable maturity (the
spread) measures the additional interest paid for risk. Spreads may increase
generally in response to adverse economic or market conditions. A security's
spread may also increase if the security's rating is lowered, or the security is
perceived to have an increased credit risk. An increase in the spread will cause
the price of the security to decline.

o Credit risk includes the possibility that a party to a transaction
involving a Fund will fail to meet its obligations. This could cause a Fund to
lose the benefit of the transaction or prevent a Fund from selling or buying
other securities to implement its investment strategy.

PREPAYMENT RISKS

o Generally, homeowners have the option to prepay their mortgages at any
time without penalty. Homeowners frequently refinance high interest rate
mortgages when mortgage rates fall. This results in the prepayment of mortgage
backed securities with higher interest rates. Conversely, prepayments due to
refinancings decrease when mortgage rates increase. This extends the life of
mortgage backed securities with lower interest rates. As a result, increases in
prepayments of high interest rate mortgage backed securities, or decreases in
prepayments of lower interest rate mortgage backed securities, may reduce their
yield and price. This relationship between interest rates and mortgage
prepayments makes the price of mortgage backed securities more volatile than
most other types of fixed income securities with comparable credit risks.

TAX RISKS

o In order to be tax-exempt, municipal securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by a Fund to shareholders to be taxable.

o Changes or proposed changes in federal tax laws may cause the prices of
municipal securities to fall.

RISKS RELATED TO EQUITY SECURITIES

STOCK MARKET RISKS

o The value of equity securities in a Fund's portfolio will rise and fall.
These fluctuations could be a sustained trend or a drastic movement and a Fund's
share price may decline. RISKS RELATED TO INVESTING FOR GROWTH

o Due to their relatively high valuations, growth stocks are typically more
volatile than value stocks. For instance, the price of a growth stock may
experience a larger decline on a forecast of lower earnings, a negative
fundamental development, or an adverse market development. Further, growth
stocks may not pay dividends or may pay lower dividends than value stocks. This
means they depend more on price changes for returns and may be more adversely
affected in a down market compared to value stocks that pay higher dividends.

RISKS RELATED TO INVESTING FOR VALUE

o Due to their relatively low valuations, value stocks are typically less
volatile than growth stocks. For instance, the price of a value stock may
experience a smaller increase on a forecast of higher earnings, a positive
fundamental development, or positive market development. Further, value stocks
tend to have higher dividends than growth stocks. This means they depend less on
price changes for returns and may lag behind growth stocks in an up market.

RISKS RELATED TO COMPANY SIZE

o Generally, the smaller the market capitalization of a company, the fewer
the number of shares traded daily, the less liquid its stock and the more
volatile its price. Market capitalization is determined by multiplying the
number of its outstanding shares by the current market price per share.

o Companies with smaller market capitalizations also tend to have unproven
track records, a limited product or service base and limited access to capital.
These factors also increase risks and make these companies more likely to fail
than companies with larger market capitalization.

<PAGE>

RISKS RELATED TO FOREIGN INVESTING

CURRENCY RISKS

o Exchange rates for currencies fluctuate daily. The combination of
currency risk and market risk tends to make securities traded in foreign markets
more volatile than securities traded exclusively in the U.S.

EURO RISKS

o A Fund may make significant investments in securities denominated in the
Euro, the new single currency of the European Monetary Union (EMU). Therefore,
the exchange rate between the Euro and the U.S. dollar will have a significant
impact on the value of a Fund's investments.

o With the advent of the Euro, the participating countries in the EMU can
no longer follow independent monetary policies. This may limit these countries'
ability to respond to economic downturns or political upheavals, and
consequently reduce the value of their foreign government securities.

RISKS OF FOREIGN INVESTING

o Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable than those of the United States.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.

o Foreign countries may have restrictions on foreign ownership or may
impose exchange controls, capital flow restrictions or repatriation restrictions
which could adversely affect a Fund's investments.

o Foreign financial markets may have fewer investor protections than U.S.
markets. For instance, there may be less publicly available information about
foreign companies, and the information that is available may be difficult to
obtain or may not be current. In addition, foreign countries may lack financial
controls and reporting standards, or regulatory requirements, comparable to
those applicable to U.S. companies.

o Due to these risk factors, foreign securities may be more volatile and
less liquid than similar securities traded in the U.S.

YEAR 2000 READINESS

The "Year 2000" problem is the potential for computer errors or failures
because certain computer systems may be unable to interpret dates after December
31, 1999. The Year 2000 problem may cause systems to process information
incorrectly and could disrupt businesses that rely on computers, like the Funds.

While it is impossible to determine in advance all of the risks to a Fund,
a Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.

The Funds' service providers are making changes to their computer systems
to fix any Year 2000 problems. In addition, they are working to gather
information from third-party providers to determine their Year 2000 readiness.

Year 2000 problems would also increase the risks of the Funds' investments.
To assess the potential effect of the Year 2000 problem, the Adviser is
reviewing information regarding the Year 2000 readiness of issuers of securities
a Fund may purchase. However, this may be difficult with certain issuers. For
example, Funds dealing with foreign service providers or investing in foreign
securities, will have difficulty determining the Year 2000 readiness of those
entities. This is especially true of entities or issuers in emerging markets.

The financial impact of these issues for a Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Funds.

WHAT SHARES COST

An investor can purchase, redeem, or exchange shares, without a sales
charge, any day the New York Stock Exchange (NYSE) and the Federal Reserve Wire
System are open. When a Fund receives your transaction request in proper form,
it is processed at the next calculated net asset value (NAV), otherwise known as
a Fund's public offering price. NAV is determined at the end of regular trading
(normally 4 p.m. Eastern time) each day the NYSE is open.

TRADING IN FOREIGN SECURITIES

If a Fund owns foreign securities that trade in foreign markets on days the
NYSE is closed, the value of a Fund's assets may change on days you cannot
purchase, redeem or exchange shares. In computing its NAV, the Fund values
foreign securities at the latest closing price on the exchange on which they are
traded immediately prior to the closing of the NYSE. Certain foreign currency
exchange rates may also be determined at the latest rate prior to the closing of
the NYSE. Foreign securities quoted in foreign currencies are translated into
U.S. dollars at current rates. Occasionally, events that affect these values and
exchange rates may occur between the times at which they are determined and the
closing of the NYSE. If such events materially affect the value of portfolio
securities, these securities may be valued at their fair value as determined in
good faith by a Fund's Board, although the actual calculation may be done by
others.

MINIMUM INVESTMENT AMOUNT

The required minimum initial investment for Fund shares is $10,000. Minimum
investments for clients of financial intermediaries (such as brokers and
dealers) will be calculated by combining all accounts maintained in a Fund by
the intermediary. This prospectus should be read together with any account
agreement maintained for required minimum investment amounts imposed by
Fiduciary Trust Company International or its affiliates. The required minimum
investment amount may be waived for employees of the Adviser or its affiliates.

SHARE PURCHASES

Shares of the Funds may be purchased through Fiduciary International, Inc. or
through authorized broker/dealers. The Funds reserves the right to reject any
purchase request. In connection with the sale of shares of the Funds, Edgewood
Services, Inc. may, from time to time, offer certain items of nominal value to
any shareholder or investor.

THROUGH FIDUCIARY INTERNATIONAL, INC.

To place an order to purchase shares of a Fund, an investor (except
residents of Texas) may write or call Fiduciary International, Inc. Purchase
orders must be received by Fiduciary International, Inc. before 3:00 p.m.
(Eastern time) by calling 1-888-FIDUCIARY. Payment is normally required on the
next business day. Payment may be made either by mail or by wire. Texas
residents must purchase shares through Edgewood Services, Inc. at
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:

FTI Funds

c/o Federated Shareholder Services Company
P.O. Box 8609

Boston, MA 02266-8609

Orders by mail are considered received after payment by check is converted
into federal funds. This is normally the next business day after the Fund
receives the check.

BY WIRE

To purchase shares of a Fund by wire, call 1-888-FIDUCIARY. Representatives
are available from 9:00 a.m. to 5:00 p.m. (Eastern time). Shares of the Funds
cannot be purchased on holidays when wire transfers are restricted. Fiduciary
Trust Company International is on-line with the Federal Reserve Bank of New
York. Accordingly, to purchase shares of the Funds by wire, wire funds as
follows:

Fiduciary Trust Company International

ABA #026007922
Credit: Account Number 550000100
Further credit to: (Name of Fund)

Re: (customer name)

Payment by wire must be received by Fiduciary International, Inc. before
3:00 p.m. (Eastern time) on the next business day after placing the order.

THROUGH AUTHORIZED BROKER/DEALERS

An investor may place an order through authorized brokers and dealers to
purchase shares of a Fund. Shares will be purchased at the net asset value next
calculated 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 NAV.

<PAGE>

THROUGH AN EXCHANGE

A shareholder may exchange shares of one Fund for shares of any of the
other Funds in the Trust by calling 1-888-FIDUCIARY or by writing to Fiduciary
International, Inc. Shares purchased by check are eligible for exchange after
seven days.

HOW THE FUNDS ARE DISTRIBUTED

The Fund's Distributor, Edgewood Services, Inc., markets the shares described in
this prospectus to institutions or individuals, directly or through investment
professionals. When the Distributor receives marketing fees, it may pay some or
all of them to investment professionals. The Distributor and its affiliates may
pay out of their assets other amounts (including items of material value) to
investment professionals for marketing and servicing shares. The Distributor is
a subsidiary of Federated Investors, Inc. (Federated).

RULE 12B-1 PLAN

The Trust has adopted a Rule 12b-1 Plan (Plan), which allows it to pay
marketing fees to the Distributor and investment professionals for the sale,
distribution and customer servicing of the Funds' shares. The Trust has no
present intention to activate the Plan and the Distributor has no present
intention to collect any fees pursuant to the Plan. Once a Fund begins accruing
the 12b-1 fee, Fund expenses will rise. If the Trust were to activate the Plan,
it would be permitted to pay up to 0.75% of the average net assets of a Fund as
a distribution fee to the Distributor and up to 0.25% of the average net assets
of a Fund as a fee to Shareholder Services providers.

REDEMPTIONS AND EXCHANGES

BY TELEPHONE

To redeem or exchange shares of a Fund by telephone, call Fiduciary
International, Inc. at 1-888-FIDUCIARY. An authorization form for telephone
transactions must first be completed. If not completed with an investor's
initial application, the forms can be obtained from the Funds. The Funds reserve
the right to reject any exchange request. If you call before 3:00 p.m., you will
receive a redemption amount based on that day's NAV. Although Fiduciary
International, Inc. does not charge for telephone redemptions, it reserves the
right to charge a fee for the cost of wire-transferred redemptions of less than
$5,000, or in excess of one per month.

BY MAIL

To redeem or exchange shares by mail send a written request to:

Federated Shareholder Services Company
P.O. Box 8609

Boston, MA 02266-8609

If share certificates have been issued, they should be sent by insured mail
with the written request. You will receive a redemption amount based on the NAV
on the
day your written request is received in proper form.

ALL REQUESTS MUST INCLUDE:

o Fund name, registered account name and number;
o amount to be redeemed or exchanged;
o signatures of all shareholders exactly as registered; and

o if exchanging, the Fund name, registered account name and number into
which you are exchanging.

SIGNATURE GUARANTEES
Signatures must be guaranteed if:

o a redemption is to be sent to an address other than the address of
record;

o a redemption is to be sent to an address of record that was changed
within the last thirty days;

o a redemption is payable to someone other than the shareholder(s) of
record; or

o if exchanging (transferring) into another fund with a different
shareholder registration.

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

LIMITATIONS ON REDEMPTION PROCEEDS

Redemption proceeds normally are wired or mailed within one business day
after receiving a request in proper form. However, payment may be delayed up to
seven days:

o to allow your purchase payment to clear;

o during periods of market volatility; or

o when a shareholder's trade activity or amount adversely impacts a Fund's
ability to manage its assets.

REDEMPTION IN KIND

Although the Funds intend to pay redemptions in cash, they reserve the
right to pay the redemption price in whole or in part by a distribution of their
respective
portfolio securities.

EXCHANGE PRIVILEGES

Investors may exchange shares of a Fund into shares of another Fund in the
Trust or certain money market funds for which affiliates or subsidiaries of
Federated Investors serve as investment adviser and/or principal underwriter
(Federated Money Funds). Exchanges are made at net asset value and none of the
Funds impose additional fees on exchanges. To do this, an investor must:

o complete an authorization form permitting a Fund to accept telephone
exchange requests; o meet any minimum initial investment requirements; and

o receive a prospectus if the exchange is into a Federated Money Fund.
Further information on the exchange privilege and prospectuses for the Federated
Money
Funds are available by contacting the Trust.

An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction.

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

ADDITIONAL CONDITIONS

TELEPHONE TRANSACTIONS

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

ACCOUNT AND SHARE INFORMATION

CONFIRMATIONS AND ACCOUNT STATEMENTS

You will receive confirmation of purchases, redemptions and exchanges. In
addition, you will receive periodic statements reporting all account activity,
dividends and capital gains paid. The Funds do not issue share certificates.

DIVIDENDS AND CAPITAL GAINS

The Municipal Bond Fund and Bond Fund declare any dividends daily and pay
them monthly to shareholders. If you purchase shares by wire, you begin earning
dividends on the day your wire is received. If you purchase shares by check, you
begin earning dividends on the business day after the Fund receives your check.
In either case, you earn dividends through the day your redemption request is
received.

The Large Capitalization Growth Fund and Large Capitalization Growth and
Income Fund declare and pay any dividends quarterly to shareholders. The Small
Capitalization Fund and International Equity Fund declare and pay any dividends
semi-annually to shareholders. Dividends are paid to all shareholders invested
in a Fund on the record date. The record date is the date on which a shareholder
must officially own shares in order to earn a dividend.

In addition, the Fund pays any capital gains at least annually. Your
dividends and capital gains distributions will be automatically reinvested in
additional shares without a sales charge, unless you elect cash payments.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, accounts
may be closed if redemptions or exchanges cause the account balance to fall
below the minimum initial investment amount of $10,000. Before an account is
closed, you will be notified and allowed 30 days to purchase additional shares
to meet the minimum.

TAX INFORMATION

The Fund sends an annual statement of your account activity to assist you
in completing your federal, state and local tax returns. For all Funds (except
Municipal Bond Fund), Fund distributions of dividends and capital gains are
taxable to you whether paid in cash or reinvested in the Fund. Dividends are
taxable as ordinary income; capital gains are taxable at different rates
depending upon the length of time a Fund has held the securities on which gains
are realized.

With respect to Municipal Bond Fund, it is anticipated that Fund
distributions will be primarily dividends that are exempt from federal income
tax, although a portion of the Fund's dividends may not be subject to state and
local taxes. Capital gains and non-exempt dividends are taxable whether paid in
cash or reinvested in the Fund.

Fund distributions are expected to be as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
- ------------------------------------------------ -----------------------------------------------
FUND DISTRIBUTIONS ARE EXPECTED TO BE PRIMARILY:

- ------------------------------------------------ -----------------------------------------------
Municipal Bond Fund Dividends

- ------------------------------------------------ -----------------------------------------------
</TABLE>

CAPITAL GAINS CONSIDERATIONS FOR MUNICIPAL BOND FUND, BOND FUND, LARGE
CAPITALIZATION GROWTH FUND, AND LARGE CAPITALIZATION GROWTH AND INCOME FUND Each
of these Funds is the successor of one or more common trust funds ("CTFs")
previously managed by FTCI. These Funds acquired the portfolio securities of the
CTFs in a tax-free transaction, and therefore, will calculate the gain or loss
upon sale of those securities based on the CTF's original purchase cost of the
security. Because many of the CTFs' securities had risen in value before being
acquired by the Funds, unusually large capital gains may be realized by the
Funds (and distributed to shareholders) when the Funds sell these securities. As
noted above, shareholders must pay taxes on capital gains distributions.

MANAGEMENT OF FTI FUNDS

The Board of Trustees governs the Trust. The Board selects and oversees the
Adviser, Fiduciary International, Inc. The Adviser manages the Funds' assets,
including buying and selling portfolio securities. The Adviser's address is Two
World Trade Center, New York, New York 10048-0772.

ADVISORY FEES

The Adviser receives an annual investment advisory fee equal to 0.50% of
each of Municipal Bond Fund's and Bond Fund's respective average daily net
assets, 0.75% of each of Large Capitalization Growth Fund's and Large
Capitalization Growth and Income Fund's respective average daily net assets, and
1.00% of each of the Small Capitalization Equity Fund's and International Equity
Fund's respective average daily net assets. The investment advisory contract
provides for the voluntary waiver of expenses by the Adviser from time to time.
The Adviser can terminate this voluntary waiver of expenses at any time with
respect to a Fund at its sole discretion.

<PAGE>

THE INVESTMENT ADVISER

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 management 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, 1998, FTCI
had total assets under management of approximately $___ 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.

PORTFOLIO MANAGERS FOR FTI FUNDS

MUNICIPAL BOND FUND

Ronald Sanchez and Jon S. Mastrandrea have been primarily responsible for
the day-to-day investment management of the Municipal Bond Fund since its
inception. Mr. Sanchez, Certified Financial Analyst and Senior Vice President of
FTCI, is a manager of tax-exempt fixed income portfolios. Mr. Sanchez received a
B.S. degree from C.W. Post College. He joined FTCI in 1993 with six years prior
experience as a fixed income portfolio manager with Public Service Mutual
Insurance Company. Mr. Mastrandrea, Vice President of FTCI, received a B.A.
degree from State University of New York at Binghamton, attended Brunel
University, London, England, and received an M.B.A. from the Stern School of
Business, New York University. He joined FTCI in 1998 with fifteen years
experience at CIBC Oppenheimer Corporation, Donaldson, Lufkin & Jenrette, Smith
Barney, and Citibank, N.A.

BOND FUND

Michael Rohwetter and Michael Materasso have been primarily responsible for
the day-to-day investment management of the Bond Fund since its inception. Mr.
Rohwetter, Senior Vice President of FTCI, is a manager of institutional domestic
fixed income portfolios. Mr. Rohwetter received a B.B.A. degree from Pace
University. He joined FTCI in 1983 from the New York Mercantile Exchange. Mr.
Materasso, Senior Vice President of FTCI, is head of the Domestic Fixed Income
Group. He is a member of the Global Investment Committee and Investment Policy
Committee. Mr. Materasso received a B.A. degree from Baruch College. He joined
FTCI in 1988 with sixteen years experience at Chase Manhattan Bank, Sterling
National and Glickenhaus & Co.

LARGE CAPITALIZATION GROWTH FUND

Thomas Dempsey, Coleen Barbeau, and John Hartz have been primarily
responsible for the day-to-day investment management of the Large Capitalization
Growth Fund since its inception. Mr. Dempsey, Vice President of FTCI, is
responsible for managing institutional portfolios in the large capitalization
growth equity sector. Mr. Dempsey received a B.A. degree from Georgetown
University in 1988, and joined FTCI the same year. Mr. Dempsey was previously
responsible for the sales and marketing of all of Fiduciary Trust's
institutional equity products. Ms. Barbeau, Senior Vice President of FTCI, is
responsible for managing institutional and individual portfolios. She is a
member of the Global Investment Committee, Investment Policy Committee and
Co-chair of the Large Capitalization Equity Committee. Ms. Barbeau received a
B.A. degree from Montclair University in 1981. Prior to joining FTCI in 1983,
she was with Shearson/American Express. Mr. Hartz, Senior Vice President of
FTCI, manages institutional large capitalization equity portfolios. Mr. Hartz
received a B.A. degree from Trinity College in 1959 and an M.B.A. from Columbia
Business School in 1962. Prior to joining FTCI in 1987, he was an investment
manager for 26 years at several leading institutions, most recently as vice
president of the Investment Advisory Division of MONY Financial Services. He is
a member of the Investment Policy Committee and Co-chair of the Large
Capitalization Committee.

LARGE CAPITALIZATION GROWTH AND INCOME FUND

S. Mackintosh Pulsifer and Carl Scaturo have been primarily responsible for
the day-to-day investment management of the Large Capitalization Growth and
Income Fund since its inception. Mr. Pulsifer, Senior Vice President of FTCI,
manages individual and trust portfolios and is a member of the Investment Policy
Committee. Mr. Pulsifer received an A.B. degree from Bowdoin College and an
M.B.A. from New York University Graduate School of Business Administration. He
joined FTCI in 1988 after 15 years of investment experience with a New York City
based private, independent investment counseling firm. Mr. Scaturo, Senior Vice
President of FTCI, is responsible for managing individual and trust portfolios.
Mr. Scaturo received a B.A. degree in Business Administration from the
University of Southern Connecticut in 1985 and is presently attending New York
University. Prior to joining FTCI in 1990, he was with Citibank.

SMALL CAPITALIZATION EQUITY FUND

Helen Degener, Grant Babyak and Yvette Bockstein are primarily responsible
for the day-to-day investment management of the Small Capitalization Equity
Fund. Ms. Degener, Senior Vice President of FTCI, has managed the Fund since its
inception, and, along with Mr. Babyak and Ms. Bockstein, serves on its Small Cap
Investment Committee. 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. Ms. Bockstein, Senior Vice President of FTCI, has been with the
Adviser since 1978, and manages institutional and individual portfolios in the
small capitalization and special situations sectors.

INTERNATIONAL EQUITY FUND

Steven Miller, Sheila Coco, and William Yun have been primarily responsible
for the day-to-day investment management of the International Equity Fund since
its inception. 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. 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.

FINANCIAL INFORMATION

FINANCIAL HIGHLIGHTS [TO COME]

<PAGE>

FTI MUNICIPAL BOND FUND

FTI BOND FUND

FTI LARGE CAPITALIZATION GROWTH FUND

FTI LARGE CAPITALIZATION GROWTH AND INCOME FUND

FTI SMALL CAPITALIZATION EQUITY FUND

FTI INTERNATIONAL EQUITY FUND

PORTFOLIOS OF FTI FUNDS

A Statement of Additional Information (SAI) dated March , 1999 contains
additional information about the Funds and is incorporated by reference into
this prospectus. Additional information about the FTI Small Capitalization
Equity Fund's and International Equity Fund's investments is available in the
Funds' annual report to shareholders. The annual report discusses market
conditions and investment strategies that significantly affected the Funds'
performance during their last fiscal year. To obtain the SAI, the annual report
and other information without charge, call your investment professional or the
Funds at 1-888-FIDUCIARY.

Internet Address: www.fiduciarytrust.com

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

CUSIP 302927504 MBF
CUSIP 302927603 BF
CUSIP 302927702 LCGF
CUSIP 302927801 LCGIF
CUSIP 302927108 SCEF
CUSIP 302927207 IEF
G01548-04(X/99)
811-7369

The graphic presentation displayed here consists of a bar chart
representing the annual total returns of FTI Small Capitalization Equity Fund as
of the calendar year-end for each of 2 years.

The `y' axis reflects the "% Total Return" beginning with "0" and
increasing in increments of 5% up to 25%.

The `x' axis represents calculation periods (from the earliest calendar
year end of the Funds start of business through the calendar year ended December
31, 1997. The light gray shaded chart features 2 distinct vertical bars, each
shaded in charcoal, and each visually representing by height the total return
percentages for the calendar year stated directly at its base. The calculated
total return percentage for the Fund for each calendar year is stated directly
at the top of each respective bar, for the calendar years 1996 through 1997. The
percentages noted are: 23.40% and 17.00%, respectively. The total returns
displayed for the Fund do not reflect the payment of any sales charges or
recurring shareholder account fees. If these charges or fees had been included,
the returns shown would have been lower.

The Fund's total return from January 1, 1996 to December 31, 1998 was
____%.

Within the period shown in the Chart, the Fund's highest quarterly return
was 21.04% (quarter ended June 30, 1997). Its lowest quarterly return was
- -12.97% (quarter ended March 31, 1997).

AVERAGE ANNUAL TOTAL RETURN

LIFE OF THE FUND1 1 YEAR

FTI Small Capitalization Equity Fund 20.26% 17.80%%

Russell 2000 Growth Index % % 1 Since inception date of December 22, 1995 Past
performance does not necessarily predict future performance. This information
provides you with historical performance so that you can analyze whether the
Fund's investment risks are balanced by its potential rewards.

<PAGE>

The graphic presentation displayed here consists of a bar chart
representing the annual total returns of FTI International Equity Fund as of the
calendar year-end for each of 2 years.

The `y' axis reflects the "% Total Return" beginning with "0" and
increasing in increments of 5% up to 25%.

The `x' axis represents calculation periods (from the earliest calendar
year end of the Funds start of business through the calendar year ended December
31, 1997. The light gray shaded chart features 2 distinct vertical bars, each
shaded in charcoal, and each visually representing by height the total return
percentages for the calendar year stated directly at its base. The calculated
total return percentage for the Fund for each calendar year is stated directly
at the top of each respective bar, for the calendar years 1996 through 1997. The
percentages noted are: 12.79% and 13.34%, respectively. The total returns
displayed for the Fund do not reflect the payment of any sales charges or
recurring shareholder account fees. If these charges or fees had been included,
the returns shown would have been lower.

The Fund's total return from January 1, 1996 to December 31, 1998 was
____%. Within the period shown in the Chart, the Fund's highest quarterly return
was 12.46% (quarter ended June 30, 1997). Its lowest quarterly return was -4.49%
(quarter ended December 31, 1997).

AVERAGE ANNUAL TOTAL RETURN

LIFE OF THE FUND1 1 YEAR

FTI International Equity Fund 12.88% 13.34%
MSCI EAFE % %
1 Since inception date of December 22, 1995

Past performance does not necessarily predict future performance. This
information provides you with historical performance so that you can analyze
whether the Fund's investment risks are balanced by its potential rewards.

FTI Funds

FTI MUNICIPAL BOND FUND

FTI BOND FUND

FTI LARGE CAPITALIZATION GROWTH FUND

FTI LARGE CAPITALIZATION GROWTH AND INCOME FUND

FTI SMALL CAPITALIZATION EQUITY FUND

FTI INTERNATIONAL EQUITY FUND

STATEMENT OF ADDITIONAL INFORMATION

MARCH , 1999

This Statement of Additional Information (SAI) is not a prospectus. Read
this SAI in conjunction with the prospectus for FTI Funds dated March , 1999

This SAI incorporates by reference the Funds' Annual Report. Obtain the
prospectus or the Annual Report without charge by calling 1-888-FIDUCIARY.

CONTENTS

Fund Organization
Securities in Which the Funds Invest
Investment Risks
Investment Limitations
Determining the Market Value of Securities
How the Funds Are Sold
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Effect of Banking Laws
Tax Information
Fund Management and Service Providers
How the Funds Measure Performance
Financial Information
Investment Ratings
Addresses

CUSIP 302927504
CUSIP 302927603
CUSIP 302927702
CUSIP 302927801
CUSIP 302927108
CUSIP 302927207
G01548-04(X/98)
811-7369

<PAGE>

FUND ORGANIZATION

The Funds are diversified portfolios of FTI Funds (Trust). The Trust is an
open-end management investment company that was established under the laws of
the Commonwealth of Massachusetts on October 18, 1995. The Trust may offer
separate series of shares representing interests in separate portfolios of
securities.

The Board of Trustees (Board) has established six separate series of the
Trust which are as follows: FTI Municipal Bond Fund (Municipal Bond Fund), FTI
Bond Fund (Bond Fund), FTI Large Capitalization Growth Fund (Large
Capitalization Growth Fund), FTI Large Capitalization Growth and Income Fund
(Large Capitalization Growth and Income Fund), FTI Small Capitalization Equity
Fund (Small Capitalization Fund) and FTI International Equity Fund
(International Equity Fund).

SECURITIES IN WHICH THE FUNDS INVEST

Permitted securities and investment techniques are set forth in the securities
chart in the prospectus. Securities and techniques principally used by the Funds
to meet their respective objectives are also described in the prospectus. Other
securities and techniques used by the Funds to meet their respective objectives
are described below.

EQUITY SECURITIES

REAL ESTATE INVESTMENT TRUSTS (REITS)

REITs are real estate investment trusts that lease, operate and finance
commercial real estate. REITs are exempt from federal corporate income tax if
they limit their operations and distribute most of their income. Such tax
requirements limit a REIT's ability to respond to changes in the commercial real
estate market.

WARRANTS

Warrants give a Fund the option to buy an issuer's equity securities at a
specified price (the exercise price) at a specified future date (the expiration
date). A Fund may buy the designated securities by paying the exercise price
before the expiration date. Warrants may become worthless if the price of the
stock does not rise above the exercise price by the expiration date. This
increases the market risks of warrants as compared to the underlying security.
Rights are the same as warrants, except companies typically issue rights to
existing stockholders.

FIXED INCOME SECURITIES

COMMERCIAL PAPER

Commercial paper is an issuer's obligation with a maturity of less than
nine months. Companies typically issue commercial paper to pay for current
expenditures. Most issuers constantly reissue their commercial paper and use the
proceeds (or bank loans) to repay maturing paper. If the issuer cannot continue
to obtain liquidity in this fashion, its commercial paper may default. The short
maturity of commercial paper reduces both the market and credit risks as
compared to other debt securities of the same issuer.

DEMAND INSTRUMENTS

Demand instruments are corporate debt securities that the issuer must repay
upon demand. Other demand instruments require a third party, such as a dealer or
bank,
to repurchase the security for its face value upon demand. A Fund treats
demand instruments as short-term securities, even though their stated maturity
may extend
beyond one year.

<PAGE>

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)

CMOs, including interests in real estate mortgage investment conduits
(REMICs), allocate payments and prepayments from an underlying pass-through
certificate among holders of different classes of mortgage backed securities.
This creates different prepayment and market risks for each CMO class.

SEQUENTIAL CMOS

In a sequential pay CMO, one class of CMOs receives all principal payments
and prepayments. The next class of CMOs receives all principal payments after
the first class is paid off. This process repeats for each sequential class of
CMO. As a result, each class of sequential pay CMOs reduces the prepayment risks
of subsequent classes.

PACS, TACS AND COMPANION CLASSES

More sophisticated CMOs include planned amortization classes (PACs) and
targeted amortization classes (TACs). PACs and TACs are issued with companion
classes. PACs and TACs receive principal payments and prepayments at a specified
rate. The companion classes receive principal payments and prepayments in excess
of the specified rate. In addition, PACs will receive the companion classes'
share of principal payments, if necessary, to cover a shortfall in the
prepayment rate. This helps PACs and TACs to control prepayment risks by
increasing the risks to their companion classes.

IOS AND POS

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

FLOATERS AND INVERSE FLOATERS

Another variant allocates interest payments between two classes of CMOs.
One class (Floaters) receives a share of interest payments based upon a market
index such as LIBOR. The other class (Inverse Floaters) receives any remaining
interest payments from the underlying mortgages. Floater classes receive more
interest (and Inverse Floater classes receive correspondingly less interest) as
interest rates rise. This shifts prepayment and market risks from the Floater to
the Inverse Floater class, reducing the price volatility of the Floater class
and increasing the price volatility of the Inverse Floater class.

Z CLASSES AND RESIDUAL CLASSES

CMOs must allocate all payments received from the underlying mortgages to
some class. To capture any unallocated payments, CMOs generally have an accrual
(Z) class. Z classes do not receive any payments from the underlying mortgages
until all other CMO classes have been paid off. Once this happens, holders of Z
class CMOs receive all payments and prepayments. Similarly, REMICs have residual
interests that receive any mortgage payments not allocated to another REMIC
class.

The degree of increased or decreased prepayment risks depends upon the
structure of the CMOs. However, the actual returns on any type of mortgage
backed security depend upon the performance of the underlying pool of mortgages,
which no one can predict and will vary among pools.

ASSET BACKED SECURITIES

Asset backed securities are payable from pools of obligations other than
mortgages. Most asset backed securities involve consumer or commercial debts
with maturities of less than ten years. However, almost any type of fixed income
assets (including other fixed income securities) may be used to create an asset
backed security. Asset backed securities may take the form of commercial paper,
notes, or pass through certificates. Asset backed securities have prepayment
risks. Like CMOs, asset backed securities may be structured like Floaters,
Inverse Floaters, IOs and POs.

ZERO COUPON SECURITIES

Zero coupon securities do not pay interest or principal until final
maturity unlike debt securities that provide periodic payments of interest
(referred to as a coupon payment). Investors buy zero coupon securities at a
price below the amount payable at maturity. The difference between the purchase
price and the amount paid at maturity represents interest on the zero coupon
security. Investors must wait until maturity to receive interest and principal,
which increases the market and credit risks of a zero coupon security.

<PAGE>

There are many forms of zero coupon securities. Some are issued at a
discount and are referred to as zero coupon or capital appreciation bonds.
Others are created from interest bearing bonds by separating the right to
receive the bond's coupon payments from the right to receive the bond's
principal due at maturity, a process known as coupon stripping. Treasury STRIPs,
IOs and POs are the most common forms of stripped zero coupon securities. In
addition, some securities give the issuer the option to deliver additional
securities in place of cash interest payments, thereby increasing the amount
payable at maturity. These are referred to as pay-in-kind or PIK securities.

BANK INSTRUMENTS

Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit and
banker's acceptances. Yankee instruments are denominated in U.S. dollars and
issued by U.S. branches of foreign banks. Eurodollar instruments are denominated
in U.S.

dollars and issued by non-U.S. branches of U.S. or foreign banks.

TAX EXEMPT SECURITIES

PRIVATE ACTIVITY BONDS

Private activity bonds are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds from its
bonds to the company using the factory, and the company would agree to make loan
payments sufficient to repay the bonds. The bonds would be payable solely from
the company's loan payments, not from any other revenues of the municipality.

Therefore, any default on the loan normally would result in a default on
the bonds.

The interest on many types of private activity bonds is subject to the
federal alternative minimum tax (AMT). The Fund may invest in bonds subject to
AMT.

TAX INCREMENT FINANCING BONDS

Tax increment financing (TIF) bonds are payable from increases in taxes or
other revenues attributable to projects financed by the bonds. For example, a
municipality may issue TIF bonds to redevelop a commercial area. The TIF bonds
would be payable solely from any increase in sales taxes collected from
merchants in the area. The bonds could default if merchants' sales, and related
tax collections, failed to increase as anticipated.

MUNICIPAL NOTES

Municipal notes are short-term tax exempt securities. Many municipalities
issue such notes to fund their current operations before collecting taxes or
other municipal revenues. Municipalities may also issue notes to fund capital
projects prior to issuing long-term bonds. The issuers typically repay the notes
at the end of their fiscal year, either with taxes, other revenues or proceeds
from newly issued notes or bonds.

VARIABLE RATE DEMAND INSTRUMENTS

Variable rate demand instruments are tax exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the security
for its face value upon demand. The securities also pay interest at a variable
rate intended to cause the securities to trade at their face value. A Fund
treats demand instruments as short-term securities, because their variable
interest rate adjusts in response to changes in market rates, even though their
stated maturity may extend beyond thirteen months.

FOREIGN SECURITIES

Foreign securities are securities of issuers based outside the United
States. A Fund considers an issuer to be based outside the United States if:

o it is organized under the laws of, or has a principal office located in,
another country; o the principal trading market for its securities is in another
country; or

DEPOSITARY RECEIPTS

Depositary receipts represent interests in underlying securities issued by
a foreign company. Depositary receipts are not traded in the same market as the
underlying security. The foreign securities underlying American Depositary
Receipts (ADRs) are traded in the United States. ADRs provide a way to buy
shares of foreign-based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for foreign
exchange transactions. The foreign securities underlying European Depositary
Receipts (EDRs), Global Depositary Receipts (GDRs), and International Depositary
Receipts (IDRs), are traded globally or outside the United States. Depositary
receipts involve many of the same risks of investing directly in foreign
securities, including currency risks and risks of foreign investing.

FOREIGN EXCHANGE CONTRACTS

In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a foreign
security into U.S. dollars, a Fund may enter into spot currency trades. In a
spot trade, a Fund agrees to exchange one currency for another at the current
exchange rate. A Fund may also enter into derivative contracts in which a
foreign currency is an underlying asset. The exchange rate for currency
derivative contracts may be higher or lower than the spot exchange rate. Use of
these derivative contracts may increase or decrease a Fund's exposure to
currency risks.

FOREIGN GOVERNMENT SECURITIES

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

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

DERIVATIVE CONTRACTS

Derivative contracts are financial instruments that require payments based
upon changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty.

Many derivative contracts are traded on securities or commodities
exchanges. In this case, the exchange sets all the terms of the contract except
for the price. Investors make payments due under their contracts through the
exchange. Most exchanges require investors to maintain margin accounts through
their brokers to cover their potential obligations to the exchange. Parties to
the contract make (or collect) daily payments to the margin accounts to reflect
losses (or gains) in the value of their contracts. This protects investors
against potential defaults by the counterparty. Trading contracts on an exchange
also allows investors to close out their contracts by entering into offsetting
contracts.

For example, a Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent a Fund from closing out a position. If this happens, a Fund
will be required to keep the contract open (even if it is losing money on the
contract), and to make any payments required under the contract (even if it has
to sell portfolio securities at unfavorable prices to do so). Inability to close
out a contract could also harm a Fund by preventing it from disposing of or
trading any assets it has been using to secure its obligations under the
contract.

A Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.

<PAGE>

Depending upon how a Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease a Fund's exposure to market and
currency risks, and may also expose a Fund to liquidity and leverage risks. OTC
contracts also expose a Fund to credit risks in the event that a counterparty
defaults on the contract.

The Funds may trade in the following types of derivative contracts as set
forth in the securities chart in the Funds' prospectus.

FUTURES CONTRACTS

Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified price,
date, and time. Entering into a contract to buy an underlying asset is commonly
referred to as buying a contract or holding a long position in the asset.
Entering into a contract to sell an underlying asset is commonly referred to as
selling a contract or holding a short position in the asset. Futures contracts
are considered to be commodity contracts. Futures contracts traded OTC are
frequently referred to as forward contracts.

OPTIONS

Options are rights to buy or sell an underlying asset for a specified price
(the exercise price) during, or at the end of, a specified period. A call option
gives the holder (buyer) the right to buy the underlying asset from the seller
(writer) of the option. A put option gives the holder the right to sell the
underlying asset to the writer of the option. The writer of the option receives
a payment, or premium, from the buyer, which the writer keeps regardless of
whether the buyer uses (or exercises) the option.

To the extent that a Fund utilizes options, it would generally:

o Buy call options in anticipation of an increase in the value of the
underlying asset;

o Buy put options in anticipation of a decrease in the value of the
underlying asset; and

o Buy or write options to close out existing options positions.

A Fund may also write call options to generate income from premiums, and in
anticipation of a decrease or only limited increase in the value of the
underlying asset. If a call written by a Fund is exercised, the Fund foregoes
any possible profit from an increase in the market price of the underlying asset
over the exercise price plus the premium received.

A Fund may also write put options to generate income from premiums, and in
anticipation of an increase or only limited decrease in the value of the
underlying asset. In writing puts, there is a risk that the Fund may be required
to take delivery of the underlying asset when its current market price is lower
than the exercise price.

When a Fund writes options on futures contracts, it will be subject to
margin requirements similar to those applied to futures contracts.

SPECIAL TRANSACTIONS

REPURCHASE AGREEMENTS

Repurchase agreements are transactions in which a Fund buys a security from
a dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction. This return is unrelated to the interest rate
on the underlying security. A Fund will enter into repurchase agreements only
with banks and other recognized financial institutions, such as securities
dealers, deemed creditworthy by the Adviser.

A Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.

Repurchase agreements are subject to credit risks.

REVERSE REPURCHASE AGREEMENTS

Reverse repurchase agreements are repurchase agreements in which a Fund is
the seller (rather than the buyer) of the securities, and agrees to repurchase
them at an agreed upon time and price. A reverse repurchase agreement may be
viewed as a type of borrowing by a Fund. Reverse repurchase agreements are
subject to credit risks. In addition, reverse repurchase agreements create
leverage risks because a Fund must repurchase the underlying security at a
higher price, regardless of the market value of the security at the time of
repurchase.

<PAGE>

DELAYED DELIVERY TRANSACTIONS

Delayed delivery transactions, including when issued transactions, are
arrangements in which a Fund buys securities for a set price, with payment and
delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by a Fund to the issuer and
no interest accrues to a Fund. A Fund records the transaction when it agrees to
buy the securities and reflects their value in determining the price of its
shares. Settlement dates may be a month or more after entering into these
transactions so that the market values of the securities bought may vary from
the purchase prices. Therefore, delayed delivery transactions create market
risks for a Fund. Delayed delivery transactions also involve credit risks in the
event of a counterparty default.

TO BE ANNOUNCED SECURITIES (TBAS)

As with other delayed delivery transactions, a seller agrees to issue a TBA
security at a future date. However, the seller does not specify the particular
securities to be delivered. Instead, a Fund agrees to accept any security that
meets specified terms. For example, in a TBA mortgage backed transaction, a Fund
and the seller would agree upon the issuer, interest rate and terms of the
underlying mortgages. The seller would not identify the specific underlying
mortgages until it issues the security. TBA mortgage backed securities increase
market risks because the underlying mortgages may be less favorable than
anticipated by a Fund.

DOLLAR ROLLS

Dollar rolls are transactions where a Fund sells mortgage-backed securities
with a commitment to buy similar, but not identical, mortgage-backed securities
on a future date at a lower price. Normally, one or both securities involved are
TBA mortgage backed securities. Dollar rolls are subject to market risks and
credit risks.

SECURITIES LENDING

A Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if the
market value of the loaned securities increases. Also, the borrower must pay the
Fund the equivalent of any dividends or interest received on the loaned
securities.

The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.

Loans are subject to termination at the option of the Fund or the borrower.
The Fund will not have the right to vote on securities while they are on loan,
but it will terminate a loan in anticipation of any important vote. The Fund may
pay administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash collateral to a securities
lending agent or broker.

Securities lending activities are subject to market risks and credit risks.

ASSET COVERAGE

In order to secure its obligations in connection with derivatives contracts
or special transactions, a Fund will either own the underlying assets, enter
into an offsetting transaction, or set aside readily marketable securities with
a value that equals or exceeds the Fund's obligations. Unless a Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations entering into an offsetting derivative contract or terminating
a special transaction. This may cause the Fund to miss favorable trading
opportunities or to realize losses on derivative contracts or special
transactions.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

A Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient means
of carrying out its investment policies and managing its uninvested cash.

RESTRICTED AND ILLIQUID SECURITIES

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

the frequency of trades and quotes for the security;

the number of dealers willing to purchase or sell the security and the
number of other potential buyers; dealer undertakings to make a market in
the security; and the nature of the security and the nature of the
marketplace trades.

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

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

INVESTMENT RISKS

Risk factors associated with investing in each Fund are set forth in the
risk chart in the prospectus. Principal risks factors associated with an
investment in each Fund are also described in the prospectus. While not an
exhaustive list, other risk factors include the following:

BOND MARKET RISKS

o Prices of fixed income securities rise and fall in response to
interest rate changes for similar securities. Generally, when interest
rates rise, prices of fixed income securities fall.

O Interest rate changes have a greater effect on the price of fixed
income securities with longer durations. Duration measures the price
sensitivity of a fixed income security to changes in interest rates.

CREDIT RISKS

o Credit risk is the possibility that an issuer will default on a
security by failing to pay interest or principal when due. If an
issuer defaults, a Fund will lose money.

o Many fixed income securities receive credit ratings from services such
as Standard & Poor's and Moody's Investor Services. These services
assign ratings to securities by assessing the likelihood of issuer
default. Lower credit ratings correspond to higher credit risk. If a
security has not received a rating, a Fund must rely entirely upon the
Adviser's credit assessment.

o Fixed income securities generally compensate for greater credit risk
by paying interest at a higher rate. The difference between the yield
of a security and the yield of a U.S. Treasury security with a
comparable maturity (the spread) measures the additional interest paid
for risk. Spreads may increase generally in response to adverse
economic or market conditions. A security's spread may also increase
if the security's rating is lowered, or the security is perceived to
have an increased credit risk. An increase in the spread will cause
the price of the security to decline.

o Credit risk includes the possibility that a party to a transaction
involving a Fund will fail to meet its obligations. This could cause a
Fund to lose the benefit of the transaction or prevent a Fund from
selling or buying other securities to implement its investment
strategy.

CALL RISKS

o Call risk is the possibility that an issuer may redeem a fixed income
security before maturity (a call) at a price below its current market
price. An increase in the likelihood of a call may reduce the
security's price.

o If a fixed income security is called, a Fund may have to reinvest the
proceeds in other fixed income securities with lower interest rates,
higher credit risks, or other less favorable characteristics.

PREPAYMENT RISKS

o Generally, homeowners have the option to prepay their mortgages at any
time without penalty. Homeowners frequently refinance high interest
rate mortgages when mortgage rates fall. This results in the
prepayment of mortgage backed securities with higher interest rates.
Conversely, prepayments due to refinancings decrease when mortgage
rates increase. This extends the life of mortgage backed securities
with lower interest rates. As a result, increases in prepayments of
high interest rate mortgage backed securities, or decreases in
prepayments of lower interest rate mortgage backed securities, may
reduce their yield and price. This relationship between interest rates
and mortgage prepayments makes the price of mortgage backed securities
more volatile than most other types of fixed income securities with
comparable credit risks.

<PAGE>

RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES

o Securities rated below investment grade, also known as junk bonds,
generally entail greater market, credit and liquidity risks than
investment grade securities. For example, their prices are more
volatile, economic downturns and financial setbacks may affect their
prices more negatively, and their trading market may be more limited.

CURRENCY RISKS

o Exchange rates for currencies fluctuate daily. The combination of
currency risk and market risks tends to make securities traded in
foreign markets more volatile than securities traded exclusively in
the U.S.

EURO RISKS

o A Fund may make significant investments in securities denominated in the
Euro, the new single currency of the European Monetary Union (EMU).
Therefore, the exchange rate between the Euro and the U.S. dollar will have
a significant impact on the value of a Fund's investments.

o With the advent of the Euro, the participating countries in the EMU can no
longer follow independent monetary policies. This may limit these
countries' ability to respond to economic downturns or political upheavals,
and consequently reduce the value of their foreign government securities.

RISKS OF FOREIGN INVESTING

o Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable that those of the United States.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors.

o Foreign countries may have restrictions on foreign ownership or may impose
exchange controls, capital flow restrictions or repatriation restrictions
which could adversely affect a Fund's investments.

o Foreign financial markets may have fewer investor protections than U.S.
markets. For instance, there may be less publicly available information
about foreign companies, and the information that is available may be
difficult to obtain or may not be current. In addition, foreign countries
may lack financial controls and reporting standards, or regulatory
requirements, comparable to those applicable to U.S. companies.

O Due to these risk factors, foreign securities may be more volatile and less
liquid than similar securities traded in the U.S.

TAX RISKS

o In order to be tax-exempt, municipal securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest
received and distributed by a Fund to shareholders to be taxable.

o Changes or proposed changes in federal tax laws may cause the prices of
municipal securities to fall.

STOCK MARKET RISKS

o The value of equity securities in a Fund's portfolio will rise and fall.
These fluctuations could be a sustained trend or a drastic movement and a
Fund's share price may decline.

o The Adviser attempts to manage market risk by limiting the amount a Fund
invests in each company's equity securities. However, diversification will
not protect a Fund against widespread or prolonged declines in the stock
market.

SECTOR RISKS

O A substantial part of a Fund's portfolio may be comprised of securities
issued or credit enhanced by companies in similar businesses, by issuers
located in the same state, or with other similar characteristics. Companies
with similar characteristics may be grouped together in broad categories
called sectors. Sector risk is the possibility that a certain sector may
underperform other sectors or the market as a whole. As the Adviser
allocates more of a Fund's portfolio holdings to a particular sector, a
Fund's performance will be more susceptible to any economic, business or
other developments which generally affect that sector.

LIQUIDITY RISKS

o Trading opportunities are more limited for equity securities and fixed
income securities that are not widely held. They are also more limited for
fixed income securities that have not received any credit ratings or have
received ratings below investment grade. These features may make it more
difficult to sell or buy a security at a favorable price or time.
Consequently, the Fund may have to accept a lower price to sell a security,
sell other securities to raise cash or give up an investment opportunity,
any of which could have a negative effect on the Fund's performance.
Infrequent trading of securities may also lead to an increase in their
price volatility.

o Liquidity risk also refers to the possibility that the Fund may not be able
to sell a security or close out a derivative contract when it wants to. If
this happens, the Fund will be required to continue to hold the security or
keep the position open, and the Fund could incur losses.

o OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.

INVESTMENT LIMITATIONS

ISSUING SENIOR SECURITIES AND BORROWING MONEY

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

SELLING SHORT AND BUYING ON MARGIN

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

PLEDGING ASSETS

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

LENDING CASH OR SECURITIES

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

INVESTING IN COMMODITIES

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

INVESTING IN REAL ESTATE

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

DIVERSIFICATION OF INVESTMENTS

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

CONCENTRATION OF INVESTMENTS

No Fund will invest 25% or more of the value of its respective total assets
in any one industry (other than securities issued by the U.S. government, its
agencies, or instrumentalities or repurchase agreements collateralized by these
securities and, in the case of the Municipal Bond Fund, tax-exempt securities
issued by governments or their political subdivisions ).

<PAGE>

UNDERWRITING

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

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

INVESTING IN ILLIQUID SECURITIES

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

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

The Funds will limit their respective investment in other investment
companies to no more than 3% of the total outstanding voting stock of any
investment company, invest no more than 5% of their total assets in any one
investment company, or invest more than 10% of their total assets in investment
companies in general unless permitted to exceed these limits by action of the
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' Adviser, owning individually
more than 1/2 of 1% of the issuer's securities, together own more than 5% of the
issuer's securities.

INVESTING IN MINERALS

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

ARBITRAGE TRANSACTIONS

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

INVESTING IN PUTS AND CALLS

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

PURCHASING SECURITIES TO EXERCISE CONTROL

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

INVESTING IN WARRANTS

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

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

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

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

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

DETERMINING THE MARKET VALUE OF SECURITIES

The Funds' net asset value (NAV) per share fluctuates and is based on the
market value of all securities and other assets of the Funds.

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

for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;

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

for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;

for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and

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

Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities. When market quotations
are not readily available for securities, a pricing committee established by the
Board determines the fair value of the securities, pursuant to procedures
established by the Board.

The Fund values futures contracts and options at their market values
established by the exchanges on which they are traded at the close of trading on
such exchanges. Options traded in the over-the-counter market are valued
according to the mean between the last bid and the last asked price for the
option as provided by an investment dealer or other financial institution that
deals in the option. The Board may determine in good faith that another method
of valuing such investments is necessary to appraise their fair market value.

HOW THE FUNDS ARE SOLD

Under the Distributor's Contract with the Fund, the Distributor , Edgewood
Services, Inc., located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers shares on a continuous, best-efforts basis.

RULE 12B-1 PLAN

As a compensation type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of shares so that overall Fund assets are maintained or increased. This
helps the Funds achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and share redemptions. Also, the
Funds' service providers that receive asset-based fees benefit from stable or
increasing Fund assets.

The Funds may compensate the Distributor more or less than its actual
marketing expenses. In no event will the Funds pay for any expenses of the
Distributor that exceed the maximum Rule 12b-1 Plan fee.

The maximum Rule 12b-1 Plan fee that can be paid in any one year may not be
sufficient to cover the marketing related expenses the Distributor has incurred.
Therefore, it may take the Distributor a number of years to recoup these
expenses.

<PAGE>

SHAREHOLDER SERVICES

The Funds may pay Federated Shareholder Services, a subsidiary of
Federated, for providing shareholder services and maintaining shareholder
accounts. Federated Shareholder Services may select others to perform these
services for their customers and may pay them fees.

SUPPLEMENTAL PAYMENTS

Investment professionals may be paid fees out of the assets of the
Distributor and/or Federated Shareholder Services (but not out of a Fund's
assets). The Distributor and/or Federated Shareholder Services may be reimbursed
by the Adviser or its affiliates.

Investment professionals receive such fees for providing
distribution-related or shareholder services such as sponsoring sales, providing
sales literature, conducting training seminars for employees, and engineering
sales-related computer software programs and systems. Also, investment
professionals may be paid cash or promotional incentives, such as reimbursement
of certain expenses of qualified employees and their spouses to attend
informational meetings about the Funds or other special events at
recreational-type facilities, or items of material value. These payments will be
based upon the amount of shares the investment professional sells or may sell
and/or upon the type and nature of sales or marketing support furnished by the
investment professional.

REDEMPTION IN KIND

Although the Funds intend to pay redemptions in cash, they reserves the right,
as described below, to pay the redemption price in whole or in part by a
distribution of a Fund's portfolio securities.

Because the Funds have elected to be governed by Rule 18f-1 under the
Investment Company Act of 1940, they are obligated to pay redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets of
a Fund during any 90-day period.

Any redemption payment greater than this amount will also be in cash unless
the Funds' Board determines that payment should be in kind. In such a case, a
Fund will pay all or a portion of the remainder of the redemption in portfolio
securities, valued in the same way as a Fund determines its NAV. The portfolio
securities will be selected in a manner that the Funds' Board deems fair and
equitable and, to the extent available, such securities will be readily
marketable.

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

MASSACHUSETTS PARTNERSHIP LAW

Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust.

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

ACCOUNT AND SHARE INFORMATION

VOTING RIGHTS

Each share of a Fund gives the shareholder one vote in Trustee elections
and other matters submitted to shareholders for vote. All shares of the Trust
have equal voting rights, except that in matters affecting only a particular
Fund, , only shares of that Fund are entitled to vote.

Trustees may be removed by the Trustees or by shareholders at a special
meeting. A special meeting of shareholders will be called by the Trustees upon
the written request of shareholders who own at least 10% of the Trust's
outstanding shares of all series entitled to vote.

As of __________, 1999, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding shares:

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

<PAGE>

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 expect to pay no federal income tax because they expect to meet
requirements of Subchapter M of the Internal Revenue Code (Code) applicable to
regulated investment companies and to receive the special tax treatment afforded
such companies.

Each Fund will be treated as a single, separate entity for federal income
tax purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by the Fund.

The International Equity Fund is entitled to a loss carry-forward, which
may reduce the taxable income or gain that the Fund would realize, and to which
the shareholder would be subject, in the future.

FOREIGN INVESTMENTS

If a Fund purchases foreign securities, their investment income may be
subject to foreign withholding or other taxes that could reduce the return on
these securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which a Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, a Fund intends to operate so as to qualify for treaty-reduced tax rates
when applicable.

Distributions from a Fund may be based on estimates of book income for the
year. Book income generally consists solely of the coupon income generated by
the portfolio, whereas tax basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of fixed
income securities denominated in foreign currencies, it is difficult to project
currency effects on an interim basis. Therefore, to the extent that currency
fluctuations cannot be anticipated, a portion of distributions to shareholders
could later be designated as a return of capital, rather than income, for income
tax purposes, which may be of particular concern to simple trusts.

If a Fund invests in the stock of certain foreign corporations, they may
constitute Passive Foreign Investment Companies (PFIC), and the Fund may be
subject to
Federal income taxes upon disposition of PFIC investments.

If more than 50% of the value of the International Equity Fund's assets at
the end of the tax year is represented by stock or securities of foreign
corporations, the Fund intends to qualify for certain Code stipulations that
would allow shareholders to claim a foreign tax credit or deduction on their
U.S. income tax returns. The Code may limit a shareholder's ability to claim a
foreign tax credit. Shareholders who elect to deduct their portion of the Fund's
foreign taxes rather than take the foreign tax credit must itemize deductions on
their income tax returns.

<PAGE>

FUND MANAGEMENT AND SERVICE PROVIDERS

BOARD OF TRUSTEES

The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes each
person's: name, address, birthdate, present position(s) held with the Trust,
principal occupations for the past five years, and total compensation received
as a Trustee from the Trust for its most recent fiscal year. The Trust is
comprised of six funds.

As of ___________, 1999, the Fund's Board and Officers as a group owned
less than 1% of the Funds' outstanding shares.

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

<PAGE>

NAME
<S> <C> <C>
BIRTHDATE
ADDRESS PRINCIPAL OCCUPATIONS AGGREGATE
POSITION WITH TRUST FOR PAST 5 YEARS COMPENSATION

FROM TRUST

<PAGE>

EDWARD C. GONZALES* Trustee or Director of some of the Funds $
Birthdate: October 22, in the Federated Fund Complex; President,
1930 Executive Vice President and Treasurer of
Federated Investors some of the Funds in the Federated Fund
Tower Complex; Vice Chairman, Federated
1001 Liberty Avenue Investors, Inc.; Vice President, Federated
Pittsburgh, PA Advisers, Federated Management, Federated
PRESIDENT, TREASURER Research, Federated Research Corp.,
AND TRUSTEE Federated Global Research Corp. and
Passport Research, Ltd.; Executive Vice
President and Director, Federated
Securities Corp.; Trustee, Federated
Shareholder Services Company.

- -------------------------
PETER A. ARON Vice President, Lafayette Enterprises, $
Birthdate: May 26, 1946 Inc. (privately owned Investment Advisory
Lafayette Enterprises, Company); President, J. Aron charitable

Inc. Foundation, Inc.
126 E. 56th Street

New York, NY 10022

TRUSTEE

NANCY L. CLOSE Asset Manager and Trustee of certain $
Birthdate: December 2, private trusts.
1946

4951 Windsor Park
Sarasota, FL 34235
TRUSTEE
JAMES C. GOODFELLOW* Executive Vice President, Fiduciary Trust $
Birthdate: April 6, 1945 Company International, Managing Director -
Fiduciary Trust Company J.P. Morgan and Co.
International
Two World Trade Center
New York, NY 10048
TRUSTEE
BURTON J. GREENWALD Managing Director, B.J. Greenwald $
Birthdate: December 6, Associates, Management Consultants to the
1945 Financial Services Industry.
2009 Spruce Street
Philadelphia, PA 19103
TRUSTEE
JEFFREY W. STERLING Vice President and Assistant Treasurer of $0
Birthdate: February 5, certain funds distributed by Edgewood
1947 Services, Inc. or its affiliates.
Federated Investors
Tower
1001 Liberty Avenue
Pittsburgh, PA 15222
Vice President and
Assistant Treasurer
JAY S. NEUMAN Corporate counsel, Federated Investors, $0
Birthdate: April 22, Inc.
1950
Federated Investors
Tower
1001 Liberty Avenue
Pittsburgh, PA 15222
Secretary

</TABLE>

INVESTMENT ADVISER

The Funds' investment adviser is Fiduciary International, Inc. (the
"Adviser" or "Fiduciary"). The Adviser conducts investment research and makes
investment decisions for the Funds.

Under its contract with the Trust, the Adviser shall not be liable to the
Trust, the Funds, or any Fund shareholder for any losses that may be sustained
in the purchase, holding, or sale of any security or for anything done or
omitted by it, except acts or omissions involving willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties imposed upon it by
its contract with the Trust. Because of the internal controls maintained by the
Adviser's affiliates to restrict the flow of non-public information, Fund
investments are typically made without any knowledge by the Adviser of its
affiliates' lending relationships with an issuer.

BROKERAGE TRANSACTIONS

When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the order at a
favorable price. The Adviser will generally use those who are recognized dealers
in specific portfolio instruments, except when a better price and execution of
the order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling shares of the Funds.
The Adviser makes decisions on portfolio transactions and selects brokers and
dealers subject to review by the Funds' Board.

RESEARCH SERVICES

Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. To the
extent that receipt of these services may replace services for which the Adviser
or its affiliates might otherwise have paid, it would tend to reduce their
expenses. The Adviser and its affiliates exercise reasonable business judgment
in selecting those brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.

Investment decisions for the Fund are made independently from those of
other accounts managed by the Adviser. When a Fund and one or more of those
accounts invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Funds and the account(s) in
a manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit a Fund, it is possible
that this procedure could adversely impact the price paid or received and/or the
position obtained or disposed of by the Fund.

ADMINISTRATOR

Federated Administrative Services, a subsidiary of Federated, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Funds. Federated Administrative
Services provides these at the following annual rate of the average aggregate
daily net assets as specified below:

MAXIMUM ADMINISTRATIVE AVERAGE AGGREGATE DAILY NET ASSETS OF THE
FEE TRUST

0.150 of 1% on the first $250 million
- -------------------------
0.125 of 1% on the next $250 million
- -------------------------
0.100 of 1% on the next $250 million
- -------------------------
0.075 of 1% on assets in excess of $750 million
- -------------------------

The administrative fee received during any fiscal year shall be at least
$75,000 per Fund. Federated Administrative Services may voluntarily waive a
portion of its fee.

CUSTODIAN

Fiduciary Trust Company International, Two World Trade Center, New York,
New York 10048-0772, is custodian for the securities and cash of the Funds.

TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND PORTFOLIO ACCOUNTANT

Federated Services Company, through its registered transfer agent
subsidiary, Federated Shareholder Services Company, maintains all necessary
shareholder records. The Funds pay the transfer agent a fee based on the size,
type, and number of accounts and transactions made by shareholders.

INDEPENDENT AUDITORS

Ernst & Young LLP is the independent public auditor for the Funds.

FEES PAID BY THE FUNDS FOR SERVICES

SMALL CAPITALIZATION FUND
FOR THE YEAR ENDED NOVEMBER 30

AND FOR THE PERIOD FROM ---------------------------------------

DECEMBER 22, 1995 TO NOVEMBER

30, 1996 1998 1997 1996
- ---------------------------------
Advisory Fee Earned $ $ $
- ---------------------------------
Advisory Fee Reduction

- ---------------------------------
Brokerage Commissions

- ---------------------------------
Administrative Fee

- ---------------------------------
12b-1 Fee

- ---------------------------------
Shareholder Services Fee

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

<PAGE>

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

<PAGE>

INTERNATIONAL EQUITY FUND

- ------------------------------------------------------------------------
FOR THE YEAR ENDED NOVEMBER 30
AND FOR THE PERIOD FROM ---------------

DECEMBER 22, 1995 TO NOVEMBER ------------------------
30, 1996 1998 1997 1996

- ---------------------------------
Advisory Fee Earned $ $ $
- ---------------------------------
Advisory Fee Reduction

- ---------------------------------
Brokerage Commissions

- ---------------------------------
Administrative Fee

- ---------------------------------
12b-1 Fee

- ---------------------------------
Shareholder Services Fee

- ---------------------------------
HOW THE FUNDS MEASURE PERFORMANCE

The Funds may advertise share performance by using the Securities and
Exchange Commission's (SEC) standard method for calculating performance
applicable to all mutual funds. The SEC also permits this standard performance
information to be accompanied by non-standard performance information.

Unless otherwise stated, any quoted share performance reflects the effect
of non-recurring charges, such as maximum sales charges, which, if excluded,
would increase the total return and yield. Performance depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in a
Fund's or expenses; and various other factors.

Performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per share are factors in
the computation of yield and total return.

AVERAGE ANNUAL TOTAL RETURNS AND YIELD

Total returns given for the one year and since inception periods ended
November 30, 1998.

FUND AVERAGE ANNUAL TOTAL RETURN YIELD

SINCE INCEPTION FOR THE 30-DAY PERIOD ENDED

- ----------(DECEMBER 22, 1995) NOVEMBER 30, 1998

1 YEAR

SMALL CAPITALIZATION FUND
INTERNATIONAL EQUITY FUND

- ---------------------------
TOTAL RETURN

Total return represents the change (expressed as a percentage) in the value
of shares over a specific period of time, and includes the investment of income
and capital gains distributions.

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

When a Fund has been in existence for less than a year, the Fund may
advertise cumulative total return for that specific period of time, rather than
annualizing the total return.

YIELD

Fund yield is calculated by dividing: (i) the net investment income per
share earned by the shares over a thirty-day period; by (ii) the maximum
offering price per Share on the last day of the period. This number is then
annualized using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each month
over a 12-month period and is reinvested every six months. The tax-equivalent
yield of the Municipal Bond Fund is calculated similarly to the yield, but is
adjusted to reflect the taxable yield that the Fund would have had to earn to
equal its actual yield, assuming a specific tax rate. The yield and
tax-equivalent yield do not necessarily reflect income actually earned by shares
because of certain adjustments required by the SEC and, therefore, may not
correlate to the dividends or other distributions paid to shareholders.

To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in shares,
the share performance is lower for shareholders paying those fees.

TAX-EQUIVALENT YIELD FOR MUNICIPAL BOND FUND

The tax-equivalent yield of the Municipal Bond Fund is calculated similarly
to the yield, but is adjusted to reflect the taxable yield that the Fund would
have had to earn to equal its actual yield, assuming a 28% tax and assuming that
income is 100% tax-exempt.

TAX-EQUIVALENCY TABLE FOR MUNICIPAL BOND FUND

Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the municipal securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.

<PAGE>

TAXABLE YIELD EQUIVALENT FOR 1999 MULTISTATE MUNICIPAL FUND

FEDERAL INCOME TAX BRACKET: 15.00% 28.00% 31.00% 36.00% 39.60%
Joint Return $1-43,050 $43,051-104,05$104,051-158,550$158,551-283,150 Over
283,150
Single Return $1-25,750 $25,751-62,450$62,451-130,250 $130,251-283,150 Over
283,150
TAX EXEMPT YIELD: TAXABLE YIELD EQUIVALENT:
<S> <C> <C> <C> <C> <C>
- --------------------------------
1.00% 1.18% 1.39% 1.45% 1.56% 1.66%
1.50% 1.76% 2.08% 2.17% 2.34% 2.48%
2.00% 2.35% 2.78% 2.90% 3.13% 3.31%
2.50% 2.94% 3.47% 3.62% 3.91% 4.14%
3.00% 3.53% 4.17% 4.35% 4.69% 4.97%
3.50% 4.12% 4.86% 5.07% 5.47% 5.79%
4.00% 4.71% 5.56% 5.80% 6.25% 6.62%
4.50% 5.29% 6.25% 6.52% 7.03% 7.45%
5.00% 5.88% 6.94% 7.25% 7.81% 8.28%
5.50% 6.47% 7.64% 7.97% 8.59% 9.11%
6.00% 7.06% 8.33% 8.70% 9.38% 9.93%
6.50% 7.65% 9.03% 9.42% 10.16% 10.76%
7.00% 8.24% 9.72% 10.14% 10.94% 11.59%
7.50% 8.82% 10.42% 10.87% 11.72% 12.42%
8.00% 9.41% 11.11% 11.59% 12.50% 13.25%
- --------------------------------
</TABLE>

NOTE: THE MAXIMUM MARGINAL TAX RATE FOR EACH BRACKET WAS USED IN
CALCULATING THE TAXABLE YIELD EQUIVALENT.

*Some portion of the Fund's income may be subject to the federal
alternative minimum tax and state and local income taxes.

PERFORMANCE COMPARISONS

Advertising and sales literature may include:

o references to ratings, rankings, and financial publications and/or
performance comparisons of shares to certain indices;

o charts, graphs and illustrations using the Funds' returns, or returns in
general, that demonstrate investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment;

o discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio managers' views on how
such developments could impact the Funds; and

o information about the mutual fund industry from sources such as the
Investment Company Institute.

The Funds may compare their performance, or performance for the types of
securities in which they invest, to a variety of other investments, including
federally insured bank products such as bank savings accounts, certificates of
deposit, and Treasury bills.

The Funds may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.

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

MUNICIPAL BOND FUND

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

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

LEHMAN BROTHERS MUNICIPAL INDEX is a broad market performance benchmark for
the tax-exempt bond market. As of December 1995, approximately 29,300 bonds were
included in the Municipal Bond Index with a market value of $443 billion. To be
included in the Lehman Brothers Municipal Bond Index, bonds must have a minimum
credit rating of at least Baa. They must have an outstanding par value of at
least $3 million and be issued as part of a transaction of at least $50 million.

The index includes both zero coupon bonds and bonds subject to the
Alternative Minimum tax.

o LEHMAN MUNICIPAL INDEX/7 YEAR is an unmanaged index of municipal bonds
issued after January 1, 1991 with a minimum credit rating of at least Baa, that
were issued as part of an issuance of at least $50 million and have a maturity
value of at least $3 million and a maturity range of 6-8 years. As of January
1996 the index also includes zero coupon bonds and bonds subject to the
Alternative Minimum Tax.

BOND FUND

<PAGE>

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

LARGE CAPITALIZATION GROWTH FUND

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

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

o RUSSELL 1000 INDEX measures the performance of the 1,000 largest
companies in the Russell 3000 Index and represents approximately 90% of the
total market
capitalization of the Russell 3000 Index.

o RUSSELL 1000 GROWTH INDEX measures the performance of those Russell 1000
companies with higher price-to-book ratios and higher forecasted growth values.

LARGE CAPITALIZATION GROWTH AND INCOME FUND

SMALL CAPITALIZATION FUND

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

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.

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.

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.

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

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

INTERNATIONAL EQUITY FUND

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

time to time, the Fund may quote its Lipper rating in advertising and sales
literature.

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

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

FINANCIAL INFORMATION

The Financial Statements for the Fund for the fiscal year ended November
30, 1998 are incorporated herein by reference to the Annual Report to
Shareholders of the Funds dated November 30, 1998.

INVESTMENT RATINGS

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

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

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

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

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

BB--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB-rating.

B--Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB-rating.

STANDARD AND POOR'S MUNICIPAL BOND RATING DEFINITIONS

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

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

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

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

BB--Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB" rating.

B--Debt rated "B" has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The `B' rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"BB "or "BB" rating.

MOODY'S INVESTORS SERVICE, 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.

BA--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

MOODY'S INVESTORS SERVICE, INC. MUNICIPAL BOND RATING DEFINITIONS

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

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

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

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

FITCH INVESTORS SERVICE, INC., LONG-TERM DEBT RATINGS DEFINITIONS

AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.

AA--Bonds considered to be investment grade and of very high quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.

A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds and, therefore,
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.

STANDARD & POOR'S COMMERCIAL PAPER RATING DEFINITIONS

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

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

MOODY'S INVESTORS SERVICE, 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:

Leading market positions in well-established industries;

High rates of return on funds employed;

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

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

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

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

<PAGE>

FTI MUNICIPAL BOND FUND

FTI BOND FUND

FTI LARGE CAPITALIZATION GROWTH FUND

FTI LARGE CAPITALIZATION GROWTH AND INCOME FUND

FTI SMALL CAPITALIZATION EQUITY FUND

FTI INTERNATIONAL EQUITY FUND

FTI FUNDS

5800 Corporate Drive

Pittsburgh, Pennsylvania 15237-7010

ADDRESSES

DISTRIBUTOR
Edgewood Services, Inc.

Federated Investors Tower
1001 Liberty Avenue,

Pittsburgh, Pennsylvania 15222-3779

INVESTMENT ADVISER
Fiduciary International, Inc.

Two World Trade Center
New York, New York 10048-0772

CUSTODIAN

Fiduciary Trust Company International

Two World Trade Center
New York, New York 10048-0772

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Federated Services Company

P.O. Box 8600
Boston, Massachusetts 02266-8600

INDEPENDENT AUDITORS

Ernst & Young

One Oxford Centre
Pittsburgh, Pennsylvania 15219

PART C. OTHER INFORMATION.

Item 23. Exhibits:

(a) (i) Conformed Copy of Declaration of Trust of the Registrant; (1.)

(ii) Conformed Copy of Amendment No. 1 to the Declaration of Trust of the
Registrant; (2.) (iii)Conformed Copy of Amendment No. 2 to the Declaration of
Trust of the Registrant;+

(b) Copy of By-Laws of the Registrant; (1.)

(d) Conformed copy of Investment Advisory Contract of the Registrant; (3.)

(i) Conformed copy of Exhibit F to the Investment Advisory Contract of the
Registrant;(6)

(ii) Conformed copy of Exhibit G to the Investment Advisory Contract of the
Registrant;(6)

(iii) Conformed copy of Exhibit H to the Investment Advisory Contract of
the Registrant;(6)

(iv)Conformed copy of Exhibit I to the Investment Advisory Contract of the
Registrant;(6)

(e) Conformed copy of Distributor's Contract of the Registrant; (3.)

(i) conformed copy of Exhibit B to the Distributor's Contract of the
Registrant;(6)

(f) Not applicable;
(g) Conformed copy of Custodian Agreement of the Registrant; (3.)

(i) Conformed copy of Global Custody Fee Schedule; (5)
(ii) Conformed copy of Domestic Custodian Fee Schedule; (5)

(h) (i) Conformed copy of Administrative Services Agreement; (3.)

(ii) Conformed copy of Agreement for Fund Accounting, Shareholder
Recordkeeping, and Custody Services Procurement; (3.)

(iii) Amendment No. 1 to Agreement for Fund Accounting, Shareholder
Recordkeeping, and Custody Services Procurement; (6)

(iv) Conformed copy of Shareholder Services Agreement; (3.)

(v) Amendment No. 1 to Schedule A to the Shareholder Services Agreement;
(6)

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

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

(2.) Response is incorporated by reference to Registrant's Registration
Statement filed December 20, 1995 (File Nos. 33-63621 and 811-7369).

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

(5.) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 4 on Form N-1A filed January 28, 1998 (File Nos. 33-63621 and
811-7369).

(6.) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed September 24, 1998 (File Nos. 33-63621
and 811-7369).

<PAGE>

(i) Conformed Copy of Opinion and Consent of Counsel
as to legality of shares being registered; (3.)
(j) Not applicable;
(k) Not applicable;
(l) Conformed Copy of Initial Capital
Understanding; (2.)
(m) (i) Conformed copy of Distribution Plan;(3.)

(ii) Exhibit B to the Distribution Plan;(6)
(iii) Copy of 12b-1 Agreement; (3.)

(iv) Conformed copy of Amendment No. 1 to
Exhibit A to the 12b-1 Agreement;(6)
(n) Copy of Financial Data Schedules; +
(o) Not applicable;
(p) 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).

(6.) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed September 24, 1998 (File Nos. 33-63621
and 811-7369).

<PAGE>

Item 24. Persons Controlled by or Under Common Control with Registrant

None

Item 25. Indemnification: (1.)

Item 26. Business and Other Connections of Investment Adviser:

(a) For a description of the other business of the investment adviser, see
the section entitled "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.

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

(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>

ITEM 27. PRINCIPAL UNDERWRITERS:

(a) Edgewood Services, Inc. the Distributor for shares of the Registrant, acts
as principal underwriter for the following open-end investment companies,
including the Registrant: Deutsche Portfolios, Deutsche Funds, Inc.,
Excelsior Funds, Excelsior Funds, Inc., (formerly, UST Master Funds, Inc.),
Excelsior Institutional Trust, Excelsior Tax-Exempt Funds, Inc. (formerly,
UST Master Tax-Exempt Funds, Inc.), FTI Funds, FundManager Portfolios,
Great Plains Funds, Old Westbury Funds, Inc., Robertsons Stephens
Investment Trust, WesMark Funds, WCT Funds.

(b)
<TABLE>
<CAPTION>

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
<S> <C> <C>
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
Lawrence Caracciolo Director, President, --

5800 Corporate Drive Edgewood Services, Inc.
Pittsburgh, PA 15237-5829

Arthur L. Cherry Director, --
5800 Corporate Drive Edgewood Services, Inc.

Pittsburgh, PA 15237-5829

J. Christopher Donahue Director, --
5800 Corporate Drive Edgewood Services, Inc.

Pittsburgh, PA 15237-5829

Thomas P. Sholes Vice President, --
5800 Corporate Drive Edgewood Services, Inc.

Pittsburgh, PA 15237-5829

Ernest L. Linane Assistant Vice President, --
5800 Corporate Drive Edgewood Services, Inc.

Pittsburgh, PA 15237-5829

Christine T. Johnson Assistance Vice President, --
5800 Corporate Drive Edgewood Services, Inc.

Pittsburgh, PA 15237-5829

Denis McAuley Treasurer, --
5800 Corporate Drive Edgewood Services, Inc.

Pittsburgh, PA 15237-5829

Leslie K. Ross Secretary, --
5800 Corporate Drive Edgewood Services, Inc.

Pittsburgh, PA 15237-5829

Amanda J. Reed Assistant Secretary, --
5800 Corporate Drive Edgewood Services, Inc.

Pittsburgh, PA 15237-5829
</TABLE>

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 29th day of January, 1999.

FTI FUNDS

BY: /s/Jay S. Neuman
Jay S. Neuman, Secretary

Attorney in Fact for Edward C. Gonzales
January 29, 1999

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 29, 1999
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 23 (a)(iii) under Form N-1A
Exhibit 3(a) under Item 601 Reg. S/K

FTI FUNDS

Amendment No. 2
to

DECLARATION OF TRUST
dated October 18, 1995

This Declaration of Trust is amended as follows:

Strike the first paragraph of Section 5 of Article III and substitute in
its place the following:

SECTION 5. ESTABLISHMENT AND DESIGNATION OF SERIES OR CLASS.

Without limiting the authority of the Trustees set forth in Article XII,
Section 8, INTER ALIA, to establish and designate any additional Series or Class
or to modify the rights and preferences of any existing Series or Class, the
Series shall be, and are established and designated as,

FTI Global Bond Fund,
FTI International Bond Fund,
FTI International Equity Fund,
FTI Small Capitalization Equity Fund,

FTI Bond Fund,
FTI Municipal Bond Fund,

FTI Large Capitalization Growth Fund, and
FTI Large Capitalization Growth and Income Fund.

The undersigned hereby certify that the above-stated amendment is a true
and correct Amendment to the Declaration of Trust, as adopted by the Board of
Trustees on August 5, 1998.

WITNESS the due execution hereof this 5th day of August, 1998.

/S/ PETER A. ARON /S/ JAMES C. GOODFELLOW
Peter A. Aron James C. Goodfellow

/S/ NANCY L. CLOSE /S/ BURTON J. GREENWALD
Nancy L. Close Burton J. Greenwald

/S/ EDWARD C. GONZALES

Edward C. Gonzales

<ARTICLE> 6

<NUMBER> 020

<NAME> FTI INTERNATIONAL EQUITY FUND

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1998
<PERIOD-END> Nov-30-1998
<INVESTMENTS-AT-COST> 67,952,279
<INVESTMENTS-AT-VALUE> 75,115,548
<RECEIVABLES> 1,085,500
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 58,257
<TOTAL-ASSETS> 76,259,305
<PAYABLE-FOR-SECURITIES> 207,438
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,606,594
<TOTAL-LIABILITIES> 1,814,032
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 67,500,574
<SHARES-COMMON-STOCK> 5,376,201
<SHARES-COMMON-PRIOR> 3,349,788
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (178,735)
<ACCUMULATED-NET-GAINS> (223,295)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,346,729
<NET-ASSETS> 74,445,273
<DIVIDEND-INCOME> 880,254
<INTEREST-INCOME> 169,310
<OTHER-INCOME> 0
<EXPENSES-NET> 880,954
<NET-INVESTMENT-INCOME> 168,610
<REALIZED-GAINS-CURRENT> 373,175
<APPREC-INCREASE-CURRENT> 3,302,983
<NET-CHANGE-FROM-OPS> 3,844,768
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (469,709)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,741,492
<NUMBER-OF-SHARES-REDEEMED> (723,136)
<SHARES-REINVESTED> 8,057
<NET-CHANGE-IN-ASSETS> 33,575,772
<ACCUMULATED-NII-PRIOR> 179,233
<ACCUMULATED-GAINS-PRIOR> (1,231,385)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 635,839
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 945,703
<AVERAGE-NET-ASSETS> 63,583,841
<PER-SHARE-NAV-BEGIN> 12.200
<PER-SHARE-NII> 0.040
<PER-SHARE-GAIN-APPREC> 1.730
<PER-SHARE-DIVIDEND> (0.120)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 13.850
<EXPENSE-RATIO> 1.39
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<ARTICLE> 6

<NUMBER> 010

<NAME> FTI SMALL CAPITALIZATION FUND

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Nov-30-1998
<PERIOD-END> Nov-30-1998
<INVESTMENTS-AT-COST> 41,412,289
<INVESTMENTS-AT-VALUE> 46,971,367
<RECEIVABLES> 406,454
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 20,734
<TOTAL-ASSETS> 47,398,555
<PAYABLE-FOR-SECURITIES> 1,011,787
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 153,962
<TOTAL-LIABILITIES> 1,165,749
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 43,386,986
<SHARES-COMMON-STOCK> 3,485,703
<SHARES-COMMON-PRIOR> 2,817,809
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,713,258)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,559,078
<NET-ASSETS> 46,232,806
<DIVIDEND-INCOME> 92,445
<INTEREST-INCOME> 95,684
<OTHER-INCOME> 0
<EXPENSES-NET> 672,219
<NET-INVESTMENT-INCOME> (484,090)
<REALIZED-GAINS-CURRENT> (2,675,666)
<APPREC-INCREASE-CURRENT> 630,545
<NET-CHANGE-FROM-OPS> (2,529,211)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (1,026,646)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,440,048
<NUMBER-OF-SHARES-REDEEMED> (798,731)
<SHARES-REINVESTED> 26,577
<NET-CHANGE-IN-ASSETS> 5,727,104
<ACCUMULATED-NII-PRIOR> (257,294)
<ACCUMULATED-GAINS-PRIOR> 1,245,243
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 448,146
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 676,668
<AVERAGE-NET-ASSETS> 44,814,564
<PER-SHARE-NAV-BEGIN> 14.370
<PER-SHARE-NII> (0.150)
<PER-SHARE-GAIN-APPREC> (0.610)
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> (0.350)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 13.260
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>