----------------------------------
FTI
----------------------------------
FUNDS
----------------------------------
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
MAY 31, 1998
FTI SMALL CAPITALIZATION
EQUITY FUND
FTI INTERNATIONAL EQUITY FUND
FTI INTERNATIONAL BOND FUND
FTI GLOBAL BOND FUND
EDGEWOOD SERVICES, INC.
- -----------------------
Distributor
Cusip 302927108 SCEF
Cusip 302927207 IEF
Cusip 302927306 IBF
Cusip 302927405 GBF
G01710-01 (7/98) [LOGO]
<PAGE>
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I'm pleased to present the Semi-Annual Report to Shareholders for the FTI Funds.
This Report covers activity over the first half of each Fund's fiscal year,
which was the six-month period from December 1, 1997, through May 31, 1998.
First, you'll find a commentary by each Fund's portfolio manager, which covers
economic and market conditions and their impact on Fund performance and
strategy. After the commentary there is a complete list of each Fund's holdings
and financial statements.
The following is a Fund-by-Fund summary of performance over the period.
FTI SMALL CAPITALIZATION EQUITY FUND
This Fund is managed to pursue a high level of growth through a diversified
portfolio of small-company stocks. During the period, the Fund's performance,
while positive, reflected the recent weakness in the small-capitalization
market* compared to large-capitalization stocks. The Fund achieved a total
return of 3.30%** through capital gains totaling $0.35 per share and a net asset
value increase of $0.10. The Fund's net assets reached $46.3 million at the end
of the period.
FTI INTERNATIONAL EQUITY FUND
Reflecting a significantly stronger European stock market, the Fund's portfolio
of international stocks produced a total return of 27.55%** through $0.08 per
share in income and an increase in net asset value of $3.26+. Net assets reached
$65.1 million at the end of the period.
FTI INTERNATIONAL BOND FUND
This Fund's bond portfolio is diversified among government and corporate bonds
across 14 countries+. During the period, international bond market returns were
weak but positive. As a result, the Fund produced a total return of 3.33%**
through a $0.31 increase in net asset value. This return was consistent with the
total return of the overall international bond market. At the end of the period,
the Fund's net assets totaled $4.4 million.
* Small cap stocks have historically experienced greater volatility than
average.
** Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so that
an investor's shares, when redeemed, may be worth more or less than their
original cost.
+ Foreign investing involves special risks including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards.
<PAGE>
FTI GLOBAL BOND FUND
At the end of the period, this Fund was invested in government and corporate
bonds across 12 countries+, including the U.S., to pursue total return over the
long term. The Fund achieved a total return of 3.77%** through a net asset value
increase of $0.31 and dividends totaling $0.05 per share. Fund assets totaled
$1.7 million on the last day of the period.
Thank you for putting your money to work in key financial markets through the
diversification and professional management of the FTI Funds. We look forward to
keeping you up-to-date on the details of your investment through the highest
level of service possible.
Sincerely,
LOGO
President
July 15, 1998
+ Foreign investing involves special risks including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards.
** Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so that
an investor's shares, when redeemed, may be worth more or less than their
original cost.
<PAGE>
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
FTI SMALL CAPITALIZATION EQUITY FUND
PERFORMANCE
The FTI Small Capitalization Equity Fund ended the month of May with a net asset
value ("NAV") per share of $14.47 and net assets of $46.3 million. The
investment return for the Fund versus the Russell 2000 Growth Index* is shown
below. The Fund out-performed its benchmark, the Russell 2000 Growth Index, by
over 570 basis points for the 12 months ended May 31, 1998. The month of May had
a substantial decline in technology stocks, which brought down the six-month
performance numbers. This decline was driven by fears of the affect of Far
Eastern problems on domestic high technology companies. The impact on the
portfolio took the technology sector from 29% in April to 26% at the end of May.
<TABLE>
<CAPTION>
TOTAL RETURN ANNUALIZED
AS OF MAY 31, 1998** 6 MONTHS 1 YEAR SINCE INCEPTION
-------------------- -------- ------ ---------------
<S> <C> <C> <C>
FTI Small Capitalization Equity
Fund 3.3% 21.5% 17.6%
Russell 2000 Growth Index 4.4% 15.8% 12.6%
</TABLE>
Inception date is 12/22/95
* The Russell 2000 Growth Index is represented by those Russell 2000 companies
with higher price-to-book ratios and higher forecasted growth values. Indices
are unmanaged and investments cannot be made in an index.
** Past performance is not indicative of future results. Investment return and
principal value will fluctuate, so when shares are redeemed they may be worth
more or less than their original cost. Total return represents the change in
the value of an investment after reinvesting all income and capital gains.
Total returns would have been lower in the absence of temporary expense
waivers or reimbursements.
<PAGE>
- --------------------------------------------------------------------------------
MARKET REVIEW
After a strong first quarter, the second quarter performance was weaker in
consecutive months. The fears of the Asian problems causing earnings disruptions
in technology companies caused the weakness to occur in areas that have little
or no dependency on Far Eastern markets. The high quality consistent growth
small-cap technology companies were affected by the pull-back just as much as
the large-cap technology companies that had Far Eastern exposure. The two best
performing stocks in the second quarter were both technology stocks;
Realnetworks, up 54%, and Lernout & Hauspie Speech Products, up 41% (even after
taking into account declines of 32% and 16%, respectively, during May 1998). The
best performing area in the second quarter was the consumer sector, which
represented 27% of the Fund.
The outlook for the high growth sector of the small cap market in 1998 is
excellent. As can be seen from the charts below, the estimated growth rate for
the stocks in the Russell 2000 Growth Index for 1998 (using IBES numbers) is
25.5% while the index is selling at 21.7X earnings. This compares very favorably
with alternate investments domestically such as the Standard & Poor's 500 Index*
("S&P 500") which is estimated to have a 8.8% growth while selling at 22.1X
earnings.
RUSSELL 2000 GROWTH
1998 AND 1999
PROJECTED PRICE TO EARNINGS AND EARNINGS PER SHARE GROWTH
<TABLE>
<CAPTION>
MEASUREMENT
PERIOD
(FISCAL YEAR
COVERED) P/E EPS GROWTH
<S> <C> <C>
1998 21.7 25.5
1999 17.3 28.6
</TABLE>
S&P 500
1998 AND 1999
PROJECTED PRICE TO EARNINGS AND EARNINGS PER SHARE GROWTH
<TABLE>
<CAPTION>
MEASUREMENT
PERIOD
(FISCAL YEAR
COVERED) P/E EPS GROWTH
<S> <C> <C>
1998 22.1 8.8
1999 19.2 14.9
</TABLE>
SOURCE: IBES ESTIMATES, AS OF MAY 31, 1998
Small capitalization stocks are more volatile than large capitalization
stocks. Past performance is not a guarantee of future results.
* The S&P 500 is an index consisting of common stocks of industrial, utility,
transportation, and financial companies in the United States market. This
index is unmanaged, and investments cannot be made in an index.
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT OUTLOOK AND STRATEGY
We continue to have a very positive outlook for the Fund and the small cap high
growth sector. We find many companies that have a high growth rate and sell at a
reasonable discount to that growth rate. There continues to be favorable
demographics to positively impact the sector and cause new money to be invested
in this area through increases in retirement savings and a desire for
controlling risk through greater investment diversity.
The chart below shows the relative low cost of the small cap high growth market.
This chart compares the Salomon Smith Barney Emerging Growth Index* and the S&P
500 price/earnings ratios on the following year's estimated earnings per share.
Whenever the Salomon Smith Barney Emerging Growth Index and the S&P 500
price/earnings ratios on one year forward earnings sell close to parity, the
small capitalization stocks have had a period of outperformance.
ATTRACTIVE CURRENT VALUATIONS
Salomon Smith Barney Emerging Growth Index versus the S&P 500.
Relative price/earnings ratios. Using Estimated earning per share one year
forward.
<TABLE>
<S> <C> <C> <C> <C>
1979 1.58
1980 1.57
1981 1.87
1982 1.83
1983 2.35
1984 1.7
1985 1.84
1986 1.63
1987 1.56
1988 1.49
1989 1.57
1990 1.33
1991 1.48
1992 1.26
1993 1.31
1994 1.5
1995 1.77
1996 1.75
1997 1.22
1998 1.18
</TABLE>
* 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.
<PAGE>
- --------------------------------------------------------------------------------
Our strategy is to focus primarily on stock selection as the key to performance.
We search for under-researched companies with excellent balance sheets,
recurring revenues, franchise value, and strong committed managements that are
likely to be paid for their performance in the stock of their company. The Fund
is invested broadly across all sectors to diversify risk. We believe that the
Fund is advantageously positioned to benefit from the positive forces in the
U.S. economy in the latter half of 1998.
FTI SMALL CAPITALIZATION EQUITY FUND
SECTOR ALLOCATION AS OF MAY 31, 1998
<TABLE>
<S> <C> <C> <C> <C>
SCIENCE & TECH. 25.8
CONSUMER 27
ENERGY 5.2
FINANCIAL 14.4
INTER. & CAP. GOODS 8
UTILITIES 5.6
DRUG & HEALTH 14
</TABLE>
TOP TEN EQUITY HOLDINGS
<TABLE>
<CAPTION>
COMPANY NAME COMPANY DESCRIPTION % OF EQUITY PORTFOLIO
------------ ------------------- ---------------------
<S> <C> <C>
International Isotopes Inc. Health Care 2.15
Ciber Inc. Technology 2.06
Ameritrade Holding Corp. Financial 1.96
Lemout & Hauspie Speech Products Technology 1.94
Hanover Compressor Co. Oil Service 1.76
Atwood Oceanics Inc. Oil Service 1.76
Cambridge Technology Partners Inc. Technology 1.70
Safeguard Scientifics Inc. Technology 1.66
Consolidated Graphics Inc. Consumer 1.62
Maximus Inc. Service 1.62
</TABLE>
<PAGE>
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
FTI INTERNATIONAL EQUITY FUND
PERFORMANCE
The International Equity Fund ended May 1998 with an NAV per share of $15.46 and
net assets of $65.1 million. The investment returns for the Fund versus the
Morgan Stanley Capital International Europe, Australia, and Far East Index*
("MSCI EAFE") are shown below. The Fund experienced a period of strong returns
on both an absolute basis and relative to the underlying index. The
outperformance versus the benchmark during the past six months was attributable
to several factors: 1) our overweight positions in Europe, particularly Italy,
Ireland, and the Iberian peninsula, offset by being underexposed to Japan; 2)
stock selection in the Netherlands, Spain, and the U.K.; and 3) the portfolio's
Japanese yen hedges which increased in value as the yen continued to weaken.
(Note: all returns herein refer to MSCI indices and are in U.S. dollars, unless
otherwise noted)
<TABLE>
<CAPTION>
ANNUAL
TOTAL RETURN AS OF 1 YEAR SINCE
MAY 31, 1998** 6 MONTHS 1998 INCEPTION
-------------- -------- ---- ---------
<S> <C> <C> <C>
FTI INTERNATIONAL
EQUITY FUND 27.6% 28.8% 20.8%
MSCI EAFE
(INCLUDING NET
DIVIDENDS) 16.1% 11.1% 9.6%
Inception date is 12/22/95
</TABLE>
* MSCI EAFE Index is a market capitalization-weighted foreign securities index,
which is widely used to measure the performance of European, Australian and
New Zealand, and Far Eastern stock markets. Indices are unmanaged and
investments cannot be made in an index.
** Past performance is not indicative of future results. Investment return and
principal value will fluctuate, so when shares are redeemed they may be worth
more or less than their original cost. Total return represents the change in
the value of an investment after reinvesting all income and capital gains.
<PAGE>
- --------------------------------------------------------------------------------
MARKET REVIEW
The trends in international equity markets during the past six months are easily
summarized; European strength, and continued weakness in Japan, Asia Pacific,
and Latin America. EUROPEAN EQUITIES are in an investment "sweet spot," and
although a pullback after the 29.7% gain during this period is entirely
possible, the long term fundamentals clearly favor the region. Having been led
by export growth, the economic recovery is accelerating and is now spilling over
to the domestic sectors, with consumers starting to spend. Low interest rates
continue to support equities, and while valuations may be somewhat stretched,
local investors appear to be underestimating two key factors. The first is the
positive impact that accelerating economic growth will have on corporate
earnings. The second has been one of the major drivers of the 1990's U.S. bull
market: the magnitude and duration of inflows into investment funds by
individual investors. Europe is quickly becoming more Anglo-Saxon in its
approach to financial markets. This is seen in corporations' newly found focus
on restructuring and increasing shareholder value, as well as an increase in
retail ownership of equities. The portfolio is positioned to exploit these
trends, investing in financial services companies (FORENINGSSPARBANKEN, CREDITO
ITALIANO, BANK OF IRELAND), as well as companies that are going through positive
restructuring (AKZO NOBEL, HENKEL).
While European markets are bolstered by strong fundamentals, the converse is
true for JAPANESE EQUITIES, which declined 9.5% over the past six months. The
problems in Japan are fairly well documented. Tax hikes, the Asian implosion in
the second half of 1997, and an unstable banking system have all contributed to
Japan's current economic downturn and further yen weakness. Recently released
figures revealed a gross domestic product ("GDP") decline of 3.5% during the
first quarter of calendar 1998, leading to further yen weakness. Japan's
problems would be challenging enough for most governments, let alone one in
which the political machine has made it difficult to make substantial and far
reaching structural changes. The bank rescue package, while providing stability
in the short term, failed to provide a backdrop to stimulate lending growth. The
real concern in the marketplace presently, is what the government can do to spur
economic growth. Interest rates are already close to 0%, and the government has
announced fiscal stimulus packages greater than $100 billion, yet the yen
continues to weaken and consumers show no willingness to start spending. Time is
needed to judge the success of the recent joint Federal Reserve Bank--Bank of
Japan ("Fed-BOJ") intervention to stop the deterioration of the yen, however,
without a credible and substantial fiscal plan from Tokyo, the yen's recent
rebound is likely to be short lived. In the current investment environment, our
policy remains the same; we continue to focus on export plays that are
beneficiaries of the weak yen and are less dependent on the Japanese economy
(CANON, SONY).
Much to our surprise, some of the ASIAN MARKETS started 1998 with strong
currency and equity rallies. Investors had apparently decided the worst was over
after last year's turmoil. Expecting much greater economic pain to come, we
viewed the rallies as premature, hesitating to increase exposure to the region.
As economic data was released during the ensuing months, investors began to see
the impact of currency weakness and high interest rates in the region. Markets
have since come full circle, declining 11.4% over the past six months. Looking
forward, the region must continue to grapple with high interest rates and their
impact on excessive public and corporate debt levels, as well as stopping the
deterioration in consumer sentiment. Of key interest for investors in the region
is the direction of the yen. If the recent Fed-BOJ intervention is unsuccessful,
China and Hong Kong may be forced to devalue, an event which would undoubtedly
lead to another round of currency weakness
<PAGE>
- --------------------------------------------------------------------------------
throughout all global emerging markets. With so much uncertainty, we maintained
minimal exposure to the region, focusing on higher quality defensive companies
(HSBC, TELSTRA).
Though not plagued by all of Asia's problems, LATIN AMERICAN EQUITIES fell in
sympathy during the past six months, declining 9.1%. The fundamentals in Latin
America are relatively strong versus their Asian counterparts, with Argentina
and Mexico still growing at a respectable pace. To date, Brazil has been able to
defend its currency, but the high interest rates required have taken their toll
on the domestic economy. We still find attractive values in these markets,
however, currency and political risks are higher and warrant a relatively
cautious investment stance in the near term. We maintained our exposure to the
region in defensive sectors such as public utilities and beverages (TELECOM,
ARGENTINA, PANAMCO).
INVESTMENT OUTLOOK AND STRATEGY
As highlighted above, European and U.K. equities offer the most attractive
investment opportunities. The combination of an accelerating domestic economic
recovery, low and stable interest rates, and the development of an Anglo-Saxon
equity culture (from the corporate as well as the individual sector) is
supporting what should be the continuation of a multi-year bull market in
European equities. The attractiveness of these markets is even more apparent
when compared to Japan and Asia Pacific. Our opinion would change if the
recently announced pledge by the Japanese government to spur economic growth and
address the banking system's bad debt levels was more than just talk. Over the
past several years, Japanese politicians have consistently demonstrated an
inability to deliver on their promises. This time, the verdict is still out; we
would like to buy the market, but need to see more proof before changing our
investment stance.
<PAGE>
FTI INTERNATIONAL EQUITY FUND--MAY 31, 1998
- --------------------------------------------------------------------------------
REGIONAL ALLOCATION
<TABLE>
<S> <C> <C> <C> <C>
EUROPE 50
CASH 5
LATAM/OTHER 4
ASIA PACIFIC 4
JAPAN 12
U.K./IRELAND 25
</TABLE>
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) 0
<S> <C>
EUROPE -2
U.K./IRELAND 4
JAPAN -9
ASIA PACIFIC -2
LATAM/OTHER 5
CASH 5
0
</TABLE>
SECTOR ALLOCATION
<TABLE>
<S> <C> <C> <C> <C>
FINANCIALS 28
TRANSPORT. 0
INTER. & CAP. GOODS 20
SCIENCE & TECH. 16
DRUG & HEALTH 6
CONSUMER 17
ENERGY 2
UTILITIES 9
</TABLE>
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) 0
<S> <C>
FINANCIAL 3
UTILITIES 2
ENERGY -3
CONSUMER -5
DRUGS/HEALTH -2
SCIENCE/TECH 4
INT/CAPGOODS 2
TRANSPORTATION -2
0
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
TOP REGIONAL HOLDINGS
<TABLE>
<CAPTION>
REGION COMPANY SECTOR % OF PORTFOLIO
------ ------- ------ --------------
<S> <C> <C> <C>
U.K./IRELAND Misys Technology Services 3.8
Compass Services 2.9
EUROPE Phillips Electronics Electronics 2.6
Credito Italiano Banking 2.6
JAPAN Canon Inc. Technology 2.1
Sony Electronics 1.8
ASIA PACIFIC HSBC Banking 0.8
Cheung Kong Real Estate 0.7
LATIN AMERICA Telecom Argentina Telecommunications 1.3
Companhia Energetica de Minas Gerias Electricity 1.2
</TABLE>
<PAGE>
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
FTI INTERNATIONAL BOND FUND
FTI GLOBAL BOND FUND
PERFORMANCE
The investment returns for the FTI International Bond Fund and the FTI Global
Bond Fund versus the Salomon Brothers Non-U.S. World Government Bond Index* and
the Salomon Brothers World Government Bond Index,* respectively, are shown
below. For the six months ended May 31, 1998, the Global Bond Fund outperformed
its benchmark by 1.4% while the International Bond Fund outperformed by 1.9% (in
both cases after expenses). The relative outperformance (before expenses) was
due to two primary factors: 1) underweighted exposure to the Japanese yen, which
fell 8.5% during the period under review; and 2) the overweighted interest rate
exposure (duration), which boosted returns as bond yields fell.
<TABLE>
<CAPTION>
TOTAL RETURN ANNUAL RETURN
AS OF MAY 31, 1998** 6 MONTHS 1 YEAR SINCE INCEPTION
-------------------- -------- ------ ---------------
<S> <C> <C> <C>
FTI INTERNATIONAL BOND FUND 3.3% 2.7% 0.6%
SALOMON NON-US WGBI 1.4% 2.5% 3.0%
FTI GLOBAL BOND FUND 3.8% 6.1% 3.4%
SALOMON WGBI 2.3% 5.4% 7.7%
Inception date is 12/22/95
</TABLE>
* The Salomon World Government Bond Index and Salomon Non-US World Government
Bond Index are market capitalization-weighted indices consisting of
government bond markets of the following countries: Australia, Austria,
Belgium, Canada, Denmark, France, Germany, Italy, Japan, The Netherlands,
Spain, Sweden, and the United Kingdom (collectively the "WGBI Countries"),
and are stated in US dollar terms. The Salomon World Government Bond Index
also includes US Government Bonds. Indices are unmanaged and investments
cannot be made in an index.
** Past performance is not indicative of future results. Investment return and
principal value will fluctuate, so when shares are redeemed they may be worth
more or less than their original cost. Total return represents the change in
the value of an investment after reinvesting all income and capital gains.
<PAGE>
- --------------------------------------------------------------------------------
MARKET REVIEW
Without doubt, the dominant influence in global financial markets for the past
six months has been the unraveling of the Asian "economic miracle." During this
period, economic developments in the U.S. and Europe, which tend to dominate
trends in global fixed income markets, have been largely overlooked as the Asian
crisis continued to unfold. This occurred for two reasons. First there was
growing recognition by central bankers that the impact of the Asian currency
collapses would have a restraining impact on economic growth and inflation,
which persuaded them against raising interest rates, even as domestic demand
growth accelerated. Second, a large flow of flight capital out of Asia buoyed
bond prices in the developed markets. As the crisis spread from Thailand to
Korea to Indonesia, more and more investors fled these and other emerging
markets in favor of the U.S. and European bond markets.
A diagnosis of the causes of the Asian crisis could fill many volumes. In the
International Monetary Fund's ("IMF") view, "changes in market sentiment played
a large role in bringing the crisis to a head and in determining the course of
contagion". By the beginning of the period under review, virtually all of Asia's
pegged currency regimes had been obliterated, promoting large currency
devaluations. (Hong Kong's currency board enabled it to successfully defend its
exchange rate while the inconvertibility of the Chinese renmimbi prevented
speculators from forcing a devaluation). In many of the countries central bank
reserves were substantially below the levels of short term external debt forcing
countries such as Korea, Indonesia and Thailand to reschedule much of the
maturing debt, and to borrow from the IMF and other multilateral sources to
replenish central bank reserves and shore up their battered banking systems.
The second phase of the Asian crisis was prompted by the dramatic worsening of
economic conditions in Japan. The financial sector, already under pressure from
continued falls in asset prices and over-capacity, now had to contend with large
losses on Asian loan portfolios. Meanwhile the continued restructuring of the
Japanese corporate sector was leading to higher unemployment, falling consumer
and business confidence, and plunging retail sales. The Bank of Japan continued
to inject much needed liquidity into the financial system, which put further
pressure on the yen. One round of currency intervention, accompanied by the
announcement of a new government spending package, led to a short term
retracement of part of the yen's decline, before falling to an eight year low
against the dollar. As the yen fell, concerns mounted that a further yen
depreciation would force a devaluation of the Hong Kong dollar and Chinese
renmimbi, escalating the crisis to new heights. Asian currencies and stock
markets fell to new lows, prompting further flights of capital to the relative
safety of the developed bond markets. In Japan, bond yields continued to fall to
new lows, with ten-year yields falling below 1.5%. We continued to be very
underweight in Japanese government bonds, although the drag on performance this
brought was more than offset by our small exposure to the yen.
Meanwhile other economies reliant on short term foreign capital experienced
large outflows and pressure on their exchange rates. These pressures were
further exacerbated by large falls in the price of oil and other commodities.
Most emerging bond and currency markets fell sharply as foreign investors fled.
We eliminated exposure in Mexico (at a small profit) and hedged most of our 2%
position in South African bonds (our only remaining local currency emerging
market exposure).
<PAGE>
- --------------------------------------------------------------------------------
As the crisis intensified and the outlook for U.S. economic growth changed
accordingly, we further increased our exposure to the U.S. market (in the Global
Bond Fund). In Europe, the Council of Ministers paved the way for Monetary Union
to begin in January 1999, with eleven countries as founder members. This had
little market impact and had been widely expected. Deadlines in European bond
yields outpaced U.S. yield declines, in part because U.S. treasuries had already
benefitted from a "flight to quality" before the beginning of the period under
review. U.K. bonds outperformed most of the rest of Europe, despite further
interest rate increases by the Bank of England. Instead, markets were attracted
to the highest yields available in any developed European market with an
increasingly credible central bank. We increased our already overweighted
exposure to 12% in the Global Bond Fund and 23% in the International Bond Fund.
INVESTMENT OUTLOOK AND STRATEGY
For the foreseeable future, events in Asia are likely to dominate financial
markets. The restructuring of Asia's economies will continue to restrain growth
in the rest of the world. There is clearly a risk that a further weakening of
the yen will prompt a Chinese and Hong-Kong devaluation--the question seems to
be if, not when. Until the Japanese economy revives, the crisis is likely to
drag on. It is encouraging that the Japanese government is at last taking
measures to revive its financial system, but this is a slow process, which in
the near term could prompt further currency weakness.
In the U.S., while consumer demand continues to be very robust, there are clear
signs that corporate America is feeling the draft from Asia. U.S. corporate
profits, after five years of strong double digit growth, have fallen 10% over
the past six months, even as the economy was growing above 4% at an annualized
pace.
Throughout this expansion, strong corporate cashflows have helped to fund
investment spending. We therefore expect a slowdown in this important component
of growth in the coming months. Additionally, business inventories are raising
at the fastest pace since early 1995, when a large inventory liquidation cycle
prompted a "soft landing" which saw the Federal Reserve Board cut interest rates
by 0.75%. With exports likely to remain a significant drag on the economy,
consumer spending will need to be very strong for the economy to continue
growing at its recent pace. More likely, growth will slow to a 1% to 2% pace in
the second half of 1998. Against the background of a still volatile Asia,
therefore, the U.S. market remains an attractive bond market to own. With
European growth slowing following a strong first quarter, and budget deficits
under control, yields should fall further, and in particular in the U.K. market.
At some point, we are likely to see some bargains in emerging markets, and we
will be watching closely for such opportunities. In the meanwhile we see further
weakness. Those markets where governments have been quick to respond to recent
market events, such as Mexico, will be the first to recover.
<PAGE>
FTI SMALL CAPITALIZATION EQUITY FUND
PORTFOLIO OF INVESTMENTS
MAY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--95.3%
AEROSPACE & DEFENSE--1.3%
22,500 AAR Corp. $ 594,843
-----------
BANKING--0.5%
7,750 Texas Regional Bancshares, Inc.,
Class A 248,000
-----------
BASIC INDUSTRY--3.1%
15,000 (a)AgriBioTech, Inc. 289,687
12,200 Minerals Technologies, Inc. 645,837
19,300 Schnitzer Steel Industries,
Inc., Class A 495,768
-----------
Total 1,431,292
-----------
BASIC MATERIALS--3.0%
8,000 Aptargroup, Inc. 518,500
21,000 (a)CompX International, Inc. 488,250
10,000 Kaydon Corp. 394,375
-----------
Total 1,401,125
-----------
CAPITAL GOODS--0.7%
13,000 (a)JLK Direct Distribution,
Inc., Class A 305,500
-----------
COMMERCIAL SERVICES--3.0%
14,000 (a)Consolidated Graphics, Inc. 716,625
20,000 (a)On Assignment, Inc. 675,000
-----------
Total 1,391,625
-----------
COMPUTER SOFTWARE--10.7%
14,000 (a)CBT Group PLC, ADR 696,500
28,400 (a)Ciber, Inc. 910,575
16,000 (a)Cognicase, Inc. 246,000
23,000 (a)Discreet Logic, Inc. 322,000
18,400 (a)DocuCorp International, Inc. 140,300
15,000 (a)HNC Software 518,438
30,000 (a)Intersolv, Inc. 431,250
16,000 (a)Lernout and Hauspie Speech
Products N.V. 858,000
19,500 (a)RealNetworks, Inc. 450,937
75,000 (a)Santa Cruz Operation, Inc. 370,275
-----------
Total 4,944,275
-----------
COMPUTERS--0.5%
6,000 (a)Transaction Systems
Architects, Inc., Class A 243,000
-----------
CONSULTING SERVICES--2.6%
15,000 (a)Cambridge Technology
Partners, Inc. 752,343
16,500 (a)Metzler Group, Inc. 460,968
-----------
Total 1,213,311
-----------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
SHARES VALUE
<C> <S> <C>
COMMON STOCKS (continued)
CONSUMER NON-DURABLES--2.6%
16,000 (a)Helen of Troy Ltd. $ 306,000
22,900 (a)Omega Protein Corp. 374,988
14,500 (a)Twinlab Corp. 538,313
-----------
Total 1,219,301
-----------
EDUCATION--1.3%
15,000 (a) DeVRY, Inc. 597,188
-----------
ENERGY--2.4%
30,000 (a)Hanover Compressor Co. 778,125
15,000 (a)Tuboscope Vetco International
Corp. 339,375
-----------
Total 1,117,500
-----------
ENVIRONMENTAL CONTROL--1.1%
23,000 (a)Tetra Tech, Inc. 506,000
-----------
FINANCIAL SERVICES--7.5%
20,000 (a)Americredit Corp. 652,500
30,000 (a)AmeriTrade Holding Corp.,
Class A 866,250
12,000 CCA Prison Realty Trust 375,750
11,800 (a)First Alliance Corp. 126,850
25,000 (a)Franchise Mortgage Acceptance
Co. LLC 550,000
10,000 (a)Silicon Valley Bancshares 327,500
24,500 (a)Wilshire Financial Services
Group 575,750
-----------
Total 3,474,600
-----------
FOOD & BEVERAGE--3.3%
16,000 (a)Beringer Wine Estates
Holdings, Inc., Class B 682,000
9,000 (a)Mondavi Robert Corp., Class A 320,625
9,000 (a)Suiza Foods Corp. 525,938
-----------
Total 1,528,563
-----------
FOREST PRODUCTS--0.8%
20,000 Universal Forest Products, Inc. 343,750
-----------
FUNERAL SERVICES--0.8%
15,700 (a)Equity Corp. International 372,875
-----------
HEALTHCARE--10.7%
40,000 (a)American Oncology Resources,
Inc. 510,000
12,100 (a)Curative Technologies, Inc. 340,313
30,000 (a)Fuisz Technologies Ltd. 352,500
34,000 (a)Gentle Dental Service Corp. 369,750
14,000 (a)Incyte Pharmaceuticals, Inc. 514,063
40,000 (a)International Isotopes, Inc. 950,000
</TABLE>
<PAGE>
FTI SMALL CAPITALIZATION EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued)
HEALTHCARE (continued)
19,500 (a)Jones Pharmaceutical, Inc. $ 599,625
15,000 (a)RehabCare Group, Inc. 389,063
22,900 (a)Respironics, Inc. 376,407
15,000 (a)SPONSORED ADR 555,000
-----------
Total 4,956,721
-----------
INSURANCE--3.7%
18,000 Arm Financial Group, Inc, Class
A 367,875
10,500 Executive Risk, Inc. 660,844
2,500 (a)Markel Corp. 432,031
3,600 Transatlantic Holdings, Inc. 269,325
-----------
Total 1,730,075
-----------
MANUFACTURING--1.6%
20,000 (a)Berg Electronics Corp. 412,500
5,500 Borg-Warner Automotive, Inc. 313,500
-----------
Total 726,000
-----------
MEDICAL SUPPLIES--1.1%
6,900 (a)Lincare Holdings, Inc. 517,500
-----------
OIL--2.5%
15,000 (a)Atwood Oceanics, Inc. 776,250
25,000 (a)Transmontaigne Oil Co. 404,688
-----------
Total 1,180,938
-----------
PRODUCER MANUFACTURING--2.0%
20,000 (a)Cable Design Technologies,
Class A 471,250
16,000 (a)MotivePower Industries, Inc. 443,000
-----------
Total 914,250
-----------
REAL ESTATE--0.5%
14,500 Cornerstone Properties, Inc. 253,750
-----------
SECURITIES--1.4%
14,500 Jefferies Group, Inc. 672,438
-----------
SERVICES--11.9%
5,000 (a)Applied Graphics
Technologies, Inc. 241,250
20,000 (a)Bally Total Fitness Holding
Corp. 645,000
12,700 (a)Charles River Associates,
Inc. 322,263
15,000 (a)Industri-Matematik
International Corp. 240,938
27,000 (a)Maximus, Inc. 715,500
17,500 (a)Peterson Cos., Inc. 430,938
24,600 (a)Profit Recovery Group
International, Inc. 602,700
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
SHARES OR
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
COMMON STOCKS (continued)
SERVICES (continued)
30,000 (a)Provant, Inc. $ 596,250
5,000 (a)Quintiles Transnational Corp. 243,125
2,200 Regis Corp. Minnesota 61,600
15,000 (a)Renters Choice, Inc. 399,375
10,000 (a)Romac International, Inc. 281,875
18,000 (a)THINK New Ideas, Inc. 360,000
15,000 (a)Wackenhut Corrections Corp. 363,750
-----------
Total 5,504,564
-----------
TECHNOLOGY--8.7%
15,000 (a)Aspen Technologies, Inc. 667,969
16,000 (a)Brightpoint, Inc. 253,000
15,000 (a)Genesys Telecommunications
Laboratories, Inc. 430,313
15,500 Henry Jack & Associates, Inc. 505,688
30,000 (a)NewsEdge Corp. 345,000
22,000 (a)PsiNet, Inc. 236,500
17,000 (a)Safeguard Scientifics, Inc. 732,060
20,000 (a)Sequent Computer System, Inc. 331,240
10,000 (a)Uniphase Corp. 510,000
-----------
Total 4,011,770
-----------
TELECOMMUNICATIONS--6.0%
30,000 (a)Capstar Broadcasting Corp.,
Class A 570,000
14,000 (a)Global TeleSystems Group,
Inc., ADR 536,375
16,200 (a)IXC Communications, Inc. 706,219
8,000 (a)Jacor Communications, Inc.,
Class A 423,000
22,000 (a)Primus Telecommunications
Group, Inc. 407,000
8,900 (a)Telegroup, Inc. 117,925
-----------
Total 2,760,519
-----------
TOTAL COMMON STOCKS (identified
cost $37,320,999) 44,161,273
-----------
(B)REPURCHASE AGREEMENT--2.3%
$1,069,000 J.P. Morgan & Co., Inc., 4.45%,
dated 5/29/1998, due 6/1/1998
(at amortized cost) 1,069,000
-----------
TOTAL INVESTMENTS (identified
cost $38,389,999)(c) $45,230,273
===========
</TABLE>
<PAGE>
FTI SMALL CAPITALIZATION EQUITY FUND
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
(c) The cost of investments for federal tax purposes amounts to $38,389,999. The
net unrealized appreciation of investments on a federal tax basis amounts to
$6,840,274 which is comprised of $8,584,673 appreciation and $1,744,399
depreciation at May 31, 1998.
Note: The categories of investments are shown as a percentage of net assets
($46,344,643) at May 31, 1998.
The following acronyms are used throughout this portfolio:
ADR -- American Depository Receipt
LLC -- Limited Liability Corporation
PLC -- Public Limited Company
(See Notes which are an integral part of the Financial Statements)
<PAGE>
FTI INTERNATIONAL EQUITY FUND
PORTFOLIO OF INVESTMENTS
MAY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--91.3%
ARGENTINA--1.3%
27,700 Telecom Argentina SA, ADR $ 858,700
-----------
AUSTRALIA--1.3%
173,000 Telstra Corp. Ltd. 407,363
68,400 Westpac Banking Corp. Ltd. 451,915
-----------
TOTAL AUSTRALIA 859,278
-----------
BRAZIL--2.4%
23,986 Companhia Energetica de Minas
Gerais, ADR 785,152
7,000 Telecomunicacoes Brasileiras SA,
ADR 746,375
-----------
TOTAL BRAZIL 1,531,527
-----------
DENMARK--1.6%
20,500 ISS International Service, Class
B 1,055,473
-----------
FINLAND--0.8%
16,500 Metra OY, Class B 535,467
-----------
FRANCE--6.3%
12,000 AXA 1,365,870
13,300 (a)SGS-Thomas Microelectronics
N.V. 1,071,914
14,100 Scor SA 888,467
6,127 Total SA-B 760,883
-----------
TOTAL FRANCE 4,087,134
-----------
GERMANY--6.5%
4,700 Adidas AG 829,760
11,900 Bayerische Vereinsbank AG,
Munich 997,086
2,420 Buderus AG 1,193,555
9,800 Siemens AG 632,736
8,700 Veba AG 571,467
-----------
TOTAL GERMANY 4,224,604
-----------
HONG KONG--2.0%
83,000 (a)Cheung Kong 448,793
21,569 HSBC Holdings PLC 523,290
194,000 (a)New World Infrastructure 342,986
-----------
TOTAL HONG KONG 1,315,069
-----------
IRELAND--3.4%
91,976 Bank of Ireland 1,736,592
7,900 (a)Elan Corp. PLC, ADR 483,381
-----------
TOTAL IRELAND 2,219,973
-----------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
SHARES VALUE
<C> <S> <C>
COMMON STOCKS (continued)
ITALY--8.1%
298,000 Credito Italiano $ 1,662,053
98,000 Eni Spa 692,912
584,000 Parmalat Finanziaria SPA 1,219,158
160,600 Telecom Italia Mobile SPA 949,623
101,000 Telecom Italia SPA 763,245
-----------
TOTAL ITALY 5,286,991
-----------
JAPAN--11.8%
34,000 Banyu Pharm 409,012
58,000 Canon, Inc. 1,382,049
23,540 Circle K Japan Co. Ltd. 865,179
15,000 Fuji Machine Manufacturing Co. 395,335
59,000 Matsushita Electric Industrial
Co. 924,471
131,000 Ngk Spark Plug Co. 1,041,454
11,000 Rohm Co. 1,143,765
14,000 Sony Corp. 1,182,757
62,000 Sumitomo Trust & Banking 326,363
-----------
TOTAL JAPAN 7,670,385
-----------
MEXICO--1.0%
20,000 Pan American Beverage, Class A 676,250
-----------
NETHERLANDS--6.3%
3,600 Akzo Nobel N.V. 752,204
24,043 ING Groep, N.V. 1,651,047
17,800 Philips Electronics N.V. 1,691,445
-----------
TOTAL NETHERLANDS 4,094,696
-----------
NEW ZEALAND--0.4%
27,100 Tranz Rail Holdings Ltd., ADR 238,819
-----------
PORTUGAL--3.0%
39,700 Banco Commercial Portugues,
Class R 1,314,567
11,900 Portugal Telecom SA, ADR 627,725
-----------
TOTAL PORTUGAL 1,942,292
-----------
SPAIN--4.2%
30,100 Banco de Santander 1,515,427
27,000 Sol Melia SA 1,245,332
-----------
TOTAL SPAIN 2,760,759
-----------
SWEDEN--5.9%
15,000 Assa Abloy AB 587,575
54,300 Mandamus AB 17,321
30,700 SSAB Svenskt Stal AB, Class B 593,451
54,300 Sparbanken Sverige (SwedBank) 1,631,640
35,800 Telefonaktiebolaget LM Ericsson 1,020,926
-----------
TOTAL SWEDEN 3,850,913
-----------
</TABLE>
<PAGE>
FTI INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued)
SWITZERLAND--3.5%
1,660 Adecco SA $ 683,496
416 Novartis AG 704,238
510 Schindler Holding AG 876,105
-----------
TOTAL SWITZERLAND 2,263,839
-----------
UNITED KINGDOM--21.5%
124,000 Amvescap PLC 1,327,580
162,364 British Aerospace 1,439,978
90,000 Compass Group 1,866,863
66,000 Hays PLC 1,206,797
78,520 Lloyds TSB Group PLC 1,140,755
41,048 Misys PLC 2,477,937
66,237 Siebe PLC 1,660,639
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
SHARES OR
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
COMMON STOCKS (continued)
UNITED KINGDOM (continued)
134,395 Smithkline Beecham Corp. $ 1,456,432
202,000 Williams Holdings PLC 1,451,679
-----------
TOTAL UNITED KINGDOM 14,028,660
-----------
TOTAL COMMON STOCKS (identified
cost $45,929,128) 59,500,829
-----------
PREFERRED STOCKS--3.7%
GERMANY--3.7%
5,100 Fresenius AG, Pfd. 1,097,604
14,500 Henkel KGAA, Pfd. 1,300,266
-----------
TOTAL PREFERRED STOCKS
(identified cost $1,886,684) 2,397,870
-----------
(B)REPURCHASE AGREEMENT--4.5%
$2,941,000 J.P. Morgan & Co., Inc., 4.45%,
dated 5/29/1998, due 6/1/1998
(at amortized cost) 2,941,000
-----------
TOTAL INVESTMENTS (identified
cost $50,756,812)(c) $64,839,699
===========
</TABLE>
(a) Non-income producing security.
(b) The repurchase agreement fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
(c) The cost of investments for federal tax purposes amounts to $50,756,812. The
net unrealized appreciation of investments on a federal tax basis amounts to
$14,082,887 which is comprised of $15,749,226 appreciation and $1,666,339
depreciation at May 31, 1998.
Note: The categories of investments are shown as a percentage of net assets
($65,131,406) at May 31, 1998.
The following acronym(s) are used throughout this portfolio:
<TABLE>
<S> <C>
ADR -- American Depository Receipt
PLC -- Public Limited Company
SA -- Support Agreement
SPA -- Standby Purchase Agreement
</TABLE>
(See Notes which are an integral part of the Financial Statements)
<PAGE>
FTI INTERNATIONAL BOND FUND
PORTFOLIO OF INVESTMENTS
MAY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOREIGN
CURRENCY
PAR AMOUNT VALUE
OR PRINCIPAL IN U.S.
AMOUNT DOLLARS
- ----------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS--18.3%
CAYMAN ISLANDS--1.5%
40,000 BA Credit Card Corp., 7.125%,
9/15/2002 $ 66,397
----------
GERMANY, FEDERAL REPUBLIC
OF--5.9%
180,000,000 (a)Bayerische Landesbank
Girozentrale, Unsub., 7.50%,
2/11/1999 104,040
23,300,000 (b)Deutsche Siedlungs LB, Deb.,
8.75%, 10/14/1998 155,955
----------
TOTAL 259,995
----------
JAPAN--3.6%
20,000,000 Export-Import Bank Japan,
Foreign Gov't. Guarantee,
2.875%, 7/28/2005 159,398
----------
SWEDEN--6.4%
2,000,000 Statens Bostads, 10.25%,
5/5/2000 280,173
----------
UNITED STATES--0.9%
70,000 International Bank Recon and
Development, Sr. Unsub.,
7.25%, 5/27/2003 37,668
----------
TOTAL CORPORATE BONDS
(identified cost $863,344) 803,631
----------
GOVERNMENTS/AGENCIES--74.2%
AUSTRALIA--4.7%
115,000 (c)Treasury Corp. of Victoria,
Local Gov't. Guarantee, 8.75%
7/9/2003 206,730
----------
BELGIUM--3.6%
900,000 (d)Belgium Kingdom, 5.75%,
3/28/2008 158,970
----------
FINLAND--4.5%
1,000,000 Finland (Govt of), 6.00%,
4/25/2008 198,634
----------
FRANCE--3.9%
1,000,000 France O.A.T., 5.25%, 4/25/2008 171,402
----------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
FOREIGN
CURRENCY
PAR AMOUNT VALUE
OR PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
GOVERNMENTS/AGENCIES
(continued)
GERMANY, FEDERAL REPUBLIC
OF--14.5%
150,000 Bundesrepublic Deutschland,
5.625%, 1/4/2028 $ 86,129
240,000 Deutsche Bundespost (German
Post Office), 7.50%,
12/2/2002 150,100
130,000 Germany Unity Fund, 8.00%,
1/21/2002 81,588
100,000 Germany, 8.00%, 7/22/2002 63,466
410,000 Treuhandanstalt, 7.125%,
1/29/2003 254,606
----------
TOTAL 635,889
----------
GREECE--2.1%
27,000,000 Hellenic Republic, 13.30%,
12/27/2002 91,698
----------
ITALY--4.9%
160,000,000 Buoni Poliennali Del Tes,
6.50%, 11/1/2027 102,907
180,000,000 Buoni Poliennali Del Tes,
9.50%, 2/1/2001 114,838
----------
TOTAL 217,745
----------
JAPAN--1.1%
6,100,000 Japan, 2.60%, 3/20/2018 47,324
----------
NEW ZEALAND--1.1%
80,000 New Zealand, Government of,
10.00%, 3/15/2002 47,223
----------
SWEDEN--1.3%
400,000 Sweden (Kingdom of), 10.25%,
5/5/2000 56,281
----------
UNITED KINGDOM--8.9%
57,000 United Kingdom Treasury, 7.50%,
12/7/2006 103,572
141,000 United Kingdom Treasury, 8.00%,
12/7/2015 289,258
----------
TOTAL 392,830
----------
UNITED STATES--23.6%
530,000 Tennessee Valley Authority,
6.375%, 9/18/2006 323,926
220,000 Australian Government, 10.00%,
2/15/2006 178,530
</TABLE>
<PAGE>
FTI INTERNATIONAL BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOREIGN
CURRENCY
PAR AMOUNT VALUE
OR PRINCIPAL IN U.S.
AMOUNT DOLLARS
- ----------------------------------------------------------
<C> <S> <C>
GOVERNMENTS/AGENCIES
(continued)
UNITED STATES (continued)
135,000 European Investment Bank, Sr.
Unsub., 8.00%, 6/10/2003 $ 236,695
11,000,000 Japan-140, 6.60%, 6/20/2001 93,868
700,000 Republic of South Africa,
13.00%, 8/31/2010 126,823
38,000 United Kingdom Treasury,
Foreign Gov't. Guarantee,
8.00%, 9/27/2013 75,856
----------
Total 1,035,698
----------
TOTAL GOVERNMENTS/AGENCIES
(identified cost $3,258,728) 3,260,424
----------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
FOREIGN
CURRENCY
PAR AMOUNT VALUE
OR PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
(E)REPURCHASE AGREEMENT--3.4%
UNITED STATES--3.4%
151,000 J.P. Morgan & Co., Inc., 4.45%,
dated 5/29/1998, due 6/1/1998
(at amortized cost) $ 151,000
----------
TOTAL INVESTMENTS (identified
cost $4,273,072)(f) $4,215,055
==========
</TABLE>
(a) Denominated in Italian Lira.
(b) Denominated in Spanish Peseta.
(c) Denominated in British Pound.
(d) Denominated in French Franc.
(e) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(f) The cost of investments for federal tax purposes amounts to $4,273,072. The
net unrealized depreciation of investments on a federal tax basis amounts to
$58,017 which is comprised of $90,069 appreciation and $148,086 depreciation
at May 31, 1998.
Note: The categories of investments are shown as a percentage of net assets
($4,391,157) at May 31, 1998.
(See Notes which are an integral part of the Financial Statements)
<PAGE>
FTI GLOBAL BOND FUND
PORTFOLIO OF INVESTMENTS
MAY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOREIGN VALUE
CURRENCY IN U.S.
PAR AMOUNT DOLLARS
- -----------------------------------------------------------
<C> <S> <C>
COLLATERALIZED MORTGAGE OBLIGATION--1.1%
UNITED STATES--1.1%
20,000 Residential Asset
Securitization Trust 1998-A2,
Series 1998-A2, Class A5,
6.75%, 4/25/2028 $ 19,382
----------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATION (identified cost
$19,763) 19,382
----------
CORPORATE BONDS--3.9%
GERMANY--1.4%
FINANCE--1.4%
40,000,000 (a)Bayerische Landesbank
Girozentrale, Unsub., 7.50%,
2/11/1999 23,120
----------
SWEDEN--1.6%
FINANCE--1.6%
200,000 Statens Bostads, Bond, 10.25%,
5/5/2000 28,017
----------
UNITED STATES--0.9%
FINANCE--0.9%
30,000 International Bank Recon and
Development, Sr. Unsub.,
7.25%, 5/27/2003 16,143
----------
TOTAL CORPORATE BONDS
(identified cost $75,065) 67,280
----------
GOVERNMENT AGENCIES--75.6%
AUSTRALIA--2.1%
20,000 (b)Treasury Corp. of Victoria,
Local Gov't. Guarantee,
8.75%, 7/9/2003 35,953
----------
AUSTRIA--3.8%
800,000 Republic of Austria, Bond,
7.00%, 9/20/1999 65,952
----------
FRANCE--3.5%
350,000 France O.A.T., Bond, 5.25%,
4/25/2008 59,991
----------
GERMANY--6.3%
50,000 Bundesobligation, Bond, 5.75%,
8/22/2000 28,984
30,000 Bundesrepublic Deutschland,
Bond, 5.625%, 1/4/2028 17,226
50,000 Deutsche Bundespost, Bond,
7.50%, 12/2/2002 31,271
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------
FOREIGN VALUE
CURRENCY IN U.S.
PAR AMOUNT DOLLARS
<C> <S> <C>
GOVERNMENT AGENCIES (continued)
GERMANY (continued)
30,000 Deutschland Republic, Deb.,
7.125%, 12/20/2002 $ 18,610
20,000 Germany Unity Fund, Bond,
8.50%, 2/20/2001 12,413
----------
Total 108,504
----------
GREECE--1.8%
9,000,000 Hellenic Republic, Bond,
13.30%, 12/27/2002 30,566
----------
ITALY--3.6%
20,000,000 Buoni Poliennali Del Tes, Bond,
6.50%, 11/1/2027 12,863
30,000,000 Buoni Poliennali Del Tes, Bond,
6.25%, 3/1/2002 17,972
50,000,000 Buoni Poliennali Del Tes, Bond,
9.50%, 2/1/2001 31,900
----------
Total 62,735
----------
JAPAN--4.5%
9,000,000 Japan-140, 6.60%, 6/20/2001 76,801
----------
NEW ZEALAND--1.0%
30,000 New Zealand, Government of,
Bond, 10.00%, 3/15/2002 17,708
----------
SOUTH AFRICA--2.1%
200,000 Republic of South Africa, Bond,
13.00%, 8/31/2010 36,235
----------
SUPRANATIONAL--1.0%
10,000 (b)European Investment Bank,
Sr. Unsub., 8.00%, 6/10/2003 17,533
----------
SWEDEN--0.8%
100,000 Sweden (Kingdom of), 10.25%,
5/5/2000 14,070
----------
UNITED KINGDOM--8.2%
36,000 United Kingdom Treasury, Bond,
7.50%, 12/7/2006 65,414
37,000 United Kingdom Treasury, Bond,
8.00%, 12/7/2015 75,880
----------
Total 141,294
----------
UNITED STATES--36.9%
30,000 Government National Mortgage
Association, Pool TBA, 7.00%,
12/1/2099 30,459
95,000 (c)Tennessee Valley Authority,
Bond, 6.375%, 9/18/2006 58,062
</TABLE>
<PAGE>
FTI GLOBAL BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
- -----------------------------------------------------------
<C> <S> <C>
GOVERNMENT AGENCIES (continued)
UNITED STATES (continued)
50,000 United States Treasury Bond,
6.25%, 8/15/2023 $ 52,313
20,000 United States Treasury Bond,
6.375%, 8/15/2027 21,450
18,000 United States Treasury Bond,
6.625%, 2/15/2027 19,856
35,000 United States Treasury Bond,
8.125%, 8/15/2019 44,319
75,000 United States Treasury Note,
5.50%, 2/28/2003 74,766
20,000 United States Treasury Note,
5.625%, 11/30/2000 20,038
10,000 United States Treasury Note,
6.25%, 6/30/2002 10,234
35,000 United States Treasury Note,
6.375%, 8/15/2002 36,006
105,000 United States Treasury Note,
6.50%, 10/15/2006 110,709
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
GOVERNMENT AGENCIES (continued)
UNITED STATES (continued)
40,000 United States Treasury Note,
6.875%, 3/31/2000 $ 40,925
107,000 United States Treasury Note,
7.00%, 7/15/2006 116,140
----------
Total 635,277
----------
TOTAL GOVERNMENT AGENCIES
(identified cost $1,275,903) 1,302,619
----------
(D)REPURCHASE AGREEMENT--17.1%
295,000 J.P. Morgan & Co., Inc., 4.45%,
dated 5/29/1998, due 6/1/1998
(at amortized cost) 295,000
----------
TOTAL INVESTMENTS
(identified cost
$1,665,731)(e) $1,684,281
==========
</TABLE>
(a) Denominated in Italian Lira.
(b) Denominated in British Pound.
(c) Denominated in Deutsche Mark.
(d) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
(e) The cost of investments for federal tax purposes amounts to $1,665,731. The
net unrealized appreciation of investments on a federal tax basis amounts to
$18,550 which is comprised of $39,394 appreciation and $20,844 depreciation
at May 31, 1998.
Note: The categories of investments are shown as a percentage of net assets
($1,721,996) at May 31, 1998.
The following acronym is used throughout this portfolio:
TBA -- To Be Announced
(See Notes which are an integral part of the Financial Statements)
<PAGE>
FTI FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
MAY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALL CAPITALIZATION INTERNATIONAL INTERNATIONAL GLOBAL
EQUITY FUND EQUITY FUND BOND FUND BOND FUND
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in repurchase agreements $ 1,069,000 $ 2,941,000 $ 151,000 $ 295,000
Investments in securities 44,161,273 61,898,699 4,064,055 1,389,281
------------ ------------ ----------- -----------
Total investments, at value 45,230,273 64,839,699 4,215,055 1,684,281
Income receivable 9,109 198,740 120,845 37,823
Cash 693 675 3,660 --
Cash denominated in foreign currencies
(at identified cost $85,805) -- 85,454 -- --
Net receivable for foreign currency
exchange contracts sold -- 148,051 25,681 --
Receivable for investments sold 1,610,153 -- 32,155 5,466
Prepaid expenses -- -- -- 3,156
Deferred organizational costs 27,640 27,636 27,640 30,997
------------ ------------ ----------- -----------
Total assets 46,877,868 65,300,255 4,425,036 1,761,723
------------ ------------ ----------- -----------
LIABILITIES:
Payable for investments purchased $ 439,361 $ 17,835 $ 7,922 $ 32,160
Payable for taxes withheld -- 7,241 1,270 355
Payable to Bank -- -- -- 7,212
Accrued expenses 93,864 143,773 24,687 --
------------ ------------ ----------- -----------
Total liabilities 533,225 168,849 33,879 39,727
------------ ------------ ----------- -----------
Net Assets $ 46,344,643 $ 65,131,406 $ 4,391,157 $ 1,721,996
------------ ------------ ----------- -----------
NET ASSETS CONSIST OF:
Paid in capital $ 40,001,192 $ 49,694,319 $ 4,368,221 $ 1,674,521
Net unrealized appreciation
(depreciation) of investments and
translation of assets and liabilities
in foreign currency 6,840,274 14,228,731 (33,179) 21,876
Accumulated net realized gain (loss) on
investments and foreign currency
transactions 4,449 1,120,265 (48,668) (482)
Undistributed net investment income/net
operating loss (501,272) 88,091 104,783 26,081
------------ ------------ ----------- -----------
Total Net Assets $ 46,344,643 $ 65,131,406 $ 4,391,157 $ 1,721,996
------------ ------------ ----------- -----------
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PROCEEDS PER SHARE $14.47 $15.46 $9.61 $9.96
------------ ------------ ----------- -----------
Shares Outstanding 3,202,778 4,212,630 456,727 172,921
------------ ------------ ----------- -----------
Investments, at identified cost $ 38,389,999 $ 50,756,812 $ 4,273,072 $ 1,665,731
------------ ------------ ----------- -----------
Investments, at tax cost $ 38,389,999 $ 50,756,812 $ 4,273,072 $ 1,665,731
------------ ------------ ----------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
<PAGE>
FTI FUNDS
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALL CAPITALIZATION INTERNATIONAL INTERNATIONAL GLOBAL
EQUITY FUND EQUITY FUND BOND FUND BOND FUND
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 59,726 $ 534,434(a) $ -- $ --
Interest 41,264 69,015 201,462(b) 49,378(c)
----------- ----------- -------- ---------
Total income 100,990 603,449 201,462 49,378
EXPENSES:
Investment advisory fee 229,977 268,396 21,390 5,343
Administrative personnel and services
fee 37,397 39,460 37,397 37,397
Custodian fees 9,872 33,830 4,572 2,078
Transfer and dividend disbursing agent
fees and expenses 9,332 9,067 8,433 6,686
Directors'/Trustees' fees 4,337 5,018 1,180 298
Auditing fees 10,824 10,879 11,118 10,828
Legal fees 2,670 2,290 2,415 1,992
Portfolio accounting fees 23,925 27,720 25,902 27,315
Share registration costs 6,970 10,336 4,438 5,236
Printing and postage 3,260 5,991 3,829 4,237
Insurance premiums 1,299 1,375 1,322 1,239
Miscellaneous 5,105 5,207 4,447 5,532
----------- ----------- -------- ---------
Total expenses 344,968 419,569 126,443 108,181
Reimbursements--
Reimbursement of other operating
expenses -- -- (89,775) (104,371)
----------- ----------- -------- ---------
Total Reimbursements -- -- (89,775) (104,371)
----------- ----------- -------- ---------
Net expenses 344,968 419,569 36,668 3,810
----------- ----------- -------- ---------
Net investment income (operating loss) (243,978) 183,880 164,794 45,568
----------- ----------- -------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain (loss) on investments
and foreign currency transactions (214,148) 2,351,650 (48,338) (1,343)
Net change in unrealized appreciation of
investments and translation of assets
and liabilities on foreign currency 1,911,741 10,184,985 76,630 11,519
----------- ----------- -------- ---------
Net realized and unrealized gain on
investments and foreign currency 1,697,593 12,536,635 28,292 10,176
----------- ----------- -------- ---------
Change in net assets resulting from
operations $ 1,453,615 $12,720,515 $193,086 $ 55,744
=========== =========== ======== =========
</TABLE>
(a) Net of foreign taxes withheld of $60,393.
(b) Net of foreign taxes withheld of $210.
(c) Net of foreign taxes withheld of $265.
(See Notes which are an integral part of the Financial Statements)
<PAGE>
(This page intentionally left blank)
<PAGE>
FTI FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALL CAPITALIZATION
EQUITY FUND INTERNATIONAL EQUITY FUND
------------------------------ -----------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30, MAY 31, 1998 NOVEMBER 30,
(UNAUDITED) 1997 (UNAUDITED) 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income/(operating loss) $ (243,978) $ (257,294) $ 183,880 $ 41,061
Net realized gain (loss) on
investments and foreign currency
transactions (214,148) 1,470,695 2,351,650 (837,237)
Net change in unrealized appreciation/
depreciation of investments and
translation of assets and
liabilities in foreign currency 1,911,741 3,593,716 10,184,985 3,517,440
------------ ----------- ------------ -----------
Change in net assets resulting from
operations 1,453,615 4,807,117 12,720,515 2,721,264
------------ ----------- ------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment
income -- -- (275,022) (302,675)
Return of capital distributions -- -- -- --
Distributions from net realized gains
on investments and foreign currency
transactions (1,026,646) -- -- --
------------ ----------- ------------ -----------
Change in net assets resulting from
distributions to shareholders (1,026,646) -- (275,022) (302,675)
------------ ----------- ------------ -----------
SHARE TRANSACTIONS:
Proceeds from sale of shares 10,485,455 22,194,894 13,157,548 29,812,212
Net asset value of shares issued to
shareholders in payment of
distributions declared 356,395 -- 77,701 130,938
Cost of shares redeemed (5,429,878) (5,813,874) (1,418,837) (3,557,689)
------------ ----------- ------------ -----------
Change in net assets from share
transactions 5,411,972 16,381,020 11,816,412 26,385,461
------------ ----------- ------------ -----------
Change in net assets 5,838,941 21,188,137 24,261,905 28,804,050
NET ASSETS:
Beginning of period 40,505,702 19,317,565 40,869,501 12,065,451
------------ ----------- ------------ -----------
End of period $ 46,344,643 $40,505,702 $ 65,131,406 $40,869,501
============ =========== ============ ===========
Undistributed net investment income
included in net assets at the end of
period $ -- $ -- $ 88,091 $ 179,233
============ =========== ============ ===========
Net gain (loss) as computed for
federal tax purposes $ (214,148) $ 1,480,440 $ 2,351,650 $ 1,111,192
============ =========== ============ ===========
</TABLE>
(See Notes which are an integral part of the Financial Statements)
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL BOND FUND GLOBAL BOND FUND
- ------------------------------ -----------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30, MAY 31, 1998 NOVEMBER 30,
(UNAUDITED) 1997 (UNAUDITED) 1997
------------------------------------------------------------
<S> <C> <C> <C>
$ 164,794 $ 365,186 $ 45,568 $ 82,808
(48,338) (356,351) (1,343) (77,578)
76,630 (247,489) 11,519 (9,566)
---------- ---------- ---------- ----------
193,086 (238,654) 55,744 (4,336)
---------- ---------- ---------- ----------
-- (84,162) (7,571) (44,222)
-- (148,955) -- (34,838)
-- -- -- (3,639)
---------- ---------- ---------- ----------
-- (233,117) (7,571) (82,699)
---------- ---------- ---------- ----------
1,036 4,413,775 500,535 400,500
-- 25,804 4,586 40,772
(3,184,378) (1,788,288) (233,411) (10,000)
---------- ---------- ---------- ----------
(3,183,342) 2,651,291 271,710 431,272
---------- ---------- ---------- ----------
(2,990,256) 2,179,520 319,883 344,237
7,381,413 5,201,893 1,402,113 1,057,876
---------- ---------- ---------- ----------
$4,391,157 $7,381,413 $1,721,996 $1,402,113
========== ========== ========== ==========
$ 104,783 $ -- $ 26,081 $ (11,916)
========== ========== ========== ==========
$ (48,338) $ 17,857 $ (1,343) $ 861
========== ========== ========== ==========
</TABLE>
<PAGE>
FTI FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NET REALIZED
NET AND UNREALIZED
NET ASSET INVESTMENT GAIN/(LOSS) ON DISTRIBUTIONS
VALUE, INCOME/ INVESTMENTS TOTAL FROM FROM NET RETURN OF
YEAR ENDED BEGINNING (OPERATING AND FOREIGN INVESTMENT INVESTMENT CAPITAL
NOVEMBER 30, OF PERIOD LOSS) CURRENCY OPERATIONS INCOME DISTRIBUTIONS
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SMALL CAPITALIZATION EQUITY FUND
1996(a) $10.00 (0.04) 2.12 2.08 -- --
1997 $12.08 (0.09) 2.38 2.29 -- --
1998(f) $14.37 (0.07) 0.52 0.45 -- --
INTERNATIONAL EQUITY FUND
1996(a) $10.00 0.01(b) 0.99 1.00 (0.01) --
1997 $10.99 0.02 1.39 1.41 (0.20) --
1998(f) $12.20 0.05 3.29 3.34 (0.08) --
INTERNATIONAL BOND FUND
1996(a) $10.00 0.47(b) (0.10) 0.37 (0.17) --
1997 $10.20 0.50 (1.04) (0.54) (0.13) (0.23)
1998(f) $ 9.30 0.31 -- 0.31 -- --
GLOBAL BOND FUND
1996(a) $10.00 0.37 0.13 0.50 (0.08) --
1997 $10.42 0.62 (0.66) (0.04) (0.39) (0.30)
1998(f) $ 9.65 0.28 0.08 0.36 (0.05) --
<CAPTION>
DISTRIBUTIONS
FROM NET REALIZED
GAINS ON
INVESTMENTS
AND FOREIGN
YEAR ENDED CURRENCY
NOVEMBER 30, TRANSACTIONS
<S> <C>
SMALL CAPITALIZATION EQUIT
1996(a) --
1997 --
1998(f) (0.35)
INTERNATIONAL EQUITY FUND
1996(a) --
1997 --
1998(f) --
INTERNATIONAL BOND FUND
1996(a) --
1997 --
1998(f) --
GLOBAL BOND FUND
1996(a) --
1997 (0.04)
1998(f) --
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from December 22, 1995 (start of
performance) to November 30, 1996.
(b) Per share information is based on average shares outstanding.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(e) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
(f) For the six months ended May 31, 1998 (unaudited).
(See Notes which are an integral part of the Financial Statements)
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET ASSETS
-------------------------------------
NET ASSET EXPENSE
VALUE, NET WAIVER/ NET ASSETS, AVERAGE
TOTAL END OF TOTAL RETURN INVESTMENT REIMBURSEMENT END OF PERIOD COMMISSION PORTFOLIO
DISTRIBUTIONS PERIOD (C) EXPENSES INCOME (D) (000 OMITTED) RATE PAID (E) TURNOVER
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-- $12.08 20.80% 1.50%* (0.68%)* 1.51%* $19,318 $0.0334 94%
-- $14.37 18.96% 1.50% (0.89%) 0.24% $40,505 $0.0620 111%
(0.35) $14.47 3.30% 1.50%* (1.06%)* -- $46,345 $0.0548 56%
(0.01) $10.99 10.04% 1.68%* 0.05%* 3.05%* $12,065 $0.0365 29%
(0.20) $12.20 13.01% 1.60% 0.13% 0.13% $40,869 $0.0363 55%
(0.08) $15.46 27.55% 1.56%* 0.69%* -- $65,131 $0.0489 24%
(0.17) $10.20 3.75% 1.20%* 5.46%* 4.63%* $ 5,201 -- 190%
(0.36) $ 9.30 (5.43%) 1.20% 5.44% 2.35% $ 7,381 -- 184%
-- $ 9.61 3.33% 1.20%* 5.42%* 2.95%* $ 4,391 -- 63%
(0.08) $10.42 5.02% 0.95%* 5.83%* 26.94%* $ 1,058 -- 287%
(0.73) $ 9.65 (0.42%) 0.50% 6.12% 14.24% $ 1,402 -- 176%
(0.05) $ 9.96 3.77% 0.50%* 5.97%* 13.67%* $ 1,722 -- 64%
</TABLE>
<PAGE>
FTI FUNDS
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
FTI Funds (the "Trust") is registered under the Investment Company Act of 1940,
as amended (the "Act"), as an open-end management investment company. The Trust
consists of four diversified portfolios (individually referred to as the "Fund",
or collectively as the "Funds") which are presented herein:
<TABLE>
<CAPTION>
PORTFOLIO NAME INVESTMENT OBJECTIVE
-------------- --------------------
<S> <C>
FTI Small Capitalization Equity Fund ("Small To provide growth of principal.
Capitalization Equity Fund")
FTI International Equity Fund ("International To provide growth of principal.
Equity Fund")
FTI International Bond Fund ("International Bond To provide total return.
Fund")
FTI Global Bond Fund ("Global Bond Fund") To provide total return.
</TABLE>
The assets of each portfolio are segregated and a shareholder's interest is
limited to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--U.S. government securities, listed corporate bonds,
other fixed income and asset-backed securities, unlisted securities and
private placement securities are generally valued at the mean of the latest
bid and asked price as furnished by an independent pricing service. Listed
equity securities are valued at the last sale price reported on a national
securities exchange. Short-term securities are valued at the prices
provided by an independent pricing service. However, short-term securities
with remaining maturities of sixty days or less at the time of purchase may
be valued at amortized cost, which approximates fair market value.
Investments in other open-end regulated investment companies are valued at
net asset value. With respect to foreign securities, trading in foreign
cities may be completed at times which vary from the closing of the New
York Stock Exchange. Therefore, foreign securities are valued at the latest
closing price on the exchange on which they are traded prior to the closing
of the New York Stock Exchange. Foreign securities quoted in foreign
currencies are translated into U.S. Dollars at the foreign exchange rate in
effect at noon, eastern time, on the day the value of the foreign security
is determined.
REPURCHASE AGREEMENTS--It is the policy of the Funds to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
<PAGE>
FTI FUNDS
- --------------------------------------------------------------------------------
custodian bank's vault, all securities held as collateral under repurchase
agreement transactions. Additionally, procedures have been established by
the Funds to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.
The Funds will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Funds' adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the
"Trustees"). Risks may arise from the potential inability of counterparties
to honor the terms of the repurchase agreement. Accordingly, the Funds
could receive less than the repurchase price on the sale of collateral
securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code"). Dividend
income and distributions to shareholders are recorded on the ex-dividend
date. Certain dividends from foreign securities may be recorded after the
ex-dividend date based upon when the Fund is reasonably able to obtain
information.
FEDERAL TAXES--It is the Funds' policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of their income. Accordingly, no
provisions for federal tax are necessary.
Withholding taxes on foreign interest and dividends have been provided for
in accordance with the Funds' understanding of the applicable country's tax
rules and rates.
At November 30, 1997, International Equity Fund, for federal tax purposes,
had a capital loss carryforward, as noted below, which will reduce the
International Equity Fund's taxable income arising from future net realized
gain on investments, if any, to the extent permitted by the Code, and thus
will reduce the amount of the distributions to shareholders which would
otherwise be necessary to relieve the International Equity Fund of any
liability for federal tax.
<TABLE>
<CAPTION>
EXPIRING IN EXPIRING IN TOTAL TAX
FUND 2004 2005 LOSS CARRYFORWARD
---- ----------- ----------- -----------------
<S> <C> <C> <C>
International Equity Fund $119,531 $1,111,907 $1,231,438
</TABLE>
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Funds may engage in
when-issued or delayed delivery transactions. The Funds record when-issued
securities on the trade date and maintain security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
FOREIGN EXCHANGE CONTRACTS--The Funds may enter into foreign currency
commitments for the delayed delivery of securities or foreign currency
exchange transactions. Purchased contracts are used to acquire exposure to
foreign currencies; whereas, contracts to sell are used to hedge the Funds'
securities against currency fluctuations. Risks may arise upon entering
these transactions from the potential inability of
<PAGE>
FTI FUNDS
- --------------------------------------------------------------------------------
counter-parts to meet the terms of their commitments and from unanticipated
movements in security prices or foreign exchange rates. The foreign
currency transactions are adjusted by the daily exchange rate of the
underlying currency and any gains or losses are recorded for financial
statement purposes as unrealized until the settlement date.
At May 31, 1998, the Funds had outstanding foreign currency commitments as
set forth below:
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
UNREALIZED
CURRENCY UNITS TO IN EXCHANGE CONTRACTS APPRECIATION
SETTLEMENT DATE DELIVER/RECEIVE FOR AT VALUE (DEPRECIATION)
------------------ --------------- ------------ ---------- ---------------
<C> <S> <C> <C> <C>
CONTRACTS SOLD:
7/14/98 1,092,922 Swiss Franc $ 733,505 $ 741,373 $ (7,868)
6/23/98 3,192,783 Deutsche Mark 1,796,524 1,791,974 4,550
6/23/98 6,840,520 French Franc 1,148,008 1,144,940 3,068
7/13/98 403,103,000 Japanese Yen 3,053,811 2,929,415 124,396
7/15/98 437,496,000 Japanese Yen 3,200,000 3,180,328 19,672
6/23/98 2,373,828 Netherlands Guilder 1,186,321 1,182,088 4,233
---------
Net Unrealized Appreciation on
Foreign Exchange Contracts $ 148,051
=========
</TABLE>
<PAGE>
FTI FUNDS
- --------------------------------------------------------------------------------
INTERNATIONAL BOND FUND
<TABLE>
<CAPTION>
UNREALIZED
CURRENCY UNITS TO IN EXCHANGE CONTRACTS APPRECIATION
SETTLEMENT DATE DELIVER/RECEIVE FOR AT VALUE (DEPRECIATION)
------------------ --------------- ------------ ---------- ---------------
<C> <S> <C> <C> <C>
CONTRACTS PURCHASED:
6/22/98 3,352,000 Austrian Schilling $ 271,404 $ 267,348 $ (4,056)
6/22/98 416,000 Canadian Dollar 289,754 285,678 (4,076)
6/22/98 384,000 Deutsche Mark 216,205 215,511 (694)
7/30/98 635,000 Finnish Markka 117,331 117,476 145
7/20/98 1,032,571,000 Italian Lira 588,443 587,631 (812)
7/13/98 90,000 Pound Sterling 147,996 146,678 (1,318)
6/26/98 688,000 South African Rand 134,579 132,233 (2,346)
6/17/98 27,918,000 Spanish Peseta 180,679 184,332 3,653
7/14/98 246,000 Swedish Krona 32,411 31,433 (978)
CONTRACTS SOLD:
6/22/98 3,352,000 Austrian Schilling $ 268,332 $ 267,348 $ 984
6/18/98 278,000 Australian Dollar 187,998 174,157 13,841
7/30/98 1,509,000 Finnish Markka 281,038 279,171 1,867
6/22/98 1,894,000 French Franc 318,106 316,992 1,114
6/22/98 27,900,000 Greek Drachma 90,438 91,157 (719)
7/20/98 700,680,000 Italian Lira 400,000 398,753 1,247
7/13/98 40,094,000 Japanese Yen 304,612 291,370 13,242
6/26/98 688,000 South African Rand 135,652 132,233 3,419
7/14/98 338,000 Swedish Krona 44,357 43,189 1,168
---------
Net Unrealized Appreciation
on Foreign Exchange Contracts $ 25,681
=========
</TABLE>
<PAGE>
FTI FUNDS
- --------------------------------------------------------------------------------
GLOBAL BOND FUND
<TABLE>
<CAPTION>
UNREALIZED
CURRENCY UNITS TO IN EXCHANGE CONTRACTS APPRECIATION
SETTLEMENT DATE DELIVER/RECEIVE FOR AT VALUE (DEPRECIATION)
------------------ --------------- ------------ ---------- ---------------
<C> <S> <C> <C> <C>
CONTRACTS PURCHASED:
6/22/98 113,000 Canadian Dollar $ 78,707 $ 77,600 $ (1,107)
6/22/98 253,000 Deutsche Mark 143,077 141,990 (1,087)
6/22/98 54,000 Deutsche Mark 30,395 30,306 (89)
6/17/98 5,275,000 Spanish Peseta 34,139 34,829 690
7/29/98 6,000,000 Spanish Peseta 39,675 39,677 2
7/30/98 220,000 Finnish Markka 40,620 40,701 81
7/13/98 24,000 Pound Sterling 39,379 39,114 (265)
7/20/98 63,387,000 Italian Lira 36,123 36,073 (50)
7/14/98 2,000 Swedish Krona 262 256 (6)
7/14/98 31,000 Swedish Krona 4,084 3,961 (123)
6/26/98 98,000 South African Rand 19,154 18,836 (318)
6/26/98 99,000 South African Rand 19,381 19,027 (354)
CONTRACTS SOLD:
6/22/98 830,000 Austrian Schilling $ 66,443 $ 66,199 $ 244
6/22/98 88,000 Deutsche Mark 49,558 49,388 170
6/22/98 354,000 French Franc 59,456 59,248 208
7/13/98 47,000 Pound Sterling 77,878 76,599 1,279
6/22/98 9,300,000 Greek Drachma 30,146 30,386 (240)
7/13/98 10,375,000 Japanese Yen 78,824 75,397 3,427
6/26/98 197,000 South African Rand 38,851 37,863 988
---------
Net Unrealized Appreciation on
Foreign Exchange Contracts $ 3,450
=========
</TABLE>
FOREIGN CURRENCY TRANSLATION--The accounting records of the Funds are
maintained in U.S. dollars. All assets and liabilities denominated in
foreign currencies ("FC") are translated into U.S. dollars based on the
rate of exchange of such currencies against U.S. dollars on the date of
valuation. Purchases and sales of securities, income and expenses are
translated at the rate of exchange quoted on the respective date that such
transactions are recorded. Differences between income and expense amounts
recorded and collected or paid are adjusted when reported by the custodian
bank. The Funds do not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
<PAGE>
FTI FUNDS
- --------------------------------------------------------------------------------
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales
of FCs, currency gains or losses realized between the trade and settlement
dates on securities transactions, the difference between the amounts of
dividends, interest, and foreign withholding taxes recorded on the Funds'
books, and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes
in the value of assets and liabilities other than investments in securities
at fiscal year end, resulting from changes in the exchange rate.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
SMALL CAPITALIZATION
EQUITY FUND INTERNATIONAL EQUITY FUND
--------------------------- ---------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
MAY 31, NOVEMBER 30, MAY 31, NOVEMBER 30,
1998 1997 1998 1997
- ------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares sold 715,374 1,708,722 955,948 2,541,714
- -------------------------------------
Shares issued to shareholders in
payment of distributions declared 26,577 -- 6,416 11,515
- -------------------------------------
Shares redeemed (356,982) (489,606) (99,522) (301,180)
- ------------------------------------- ---------- ------------ --------- ------------
Net change resulting from share
transactions 384,969 1,219,116 862,842 2,252,049
- ------------------------------------- ---------- ------------ --------- ------------
</TABLE>
<PAGE>
FTI FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL BOND FUND GLOBAL BOND FUND
--------------------------- ---------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
MAY 31, NOVEMBER 30, MAY 31, NOVEMBER 30,
1998 1997 1998 1997
- ------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares sold 110 471,526 50,531 40,588
- -------------------------------------
Shares issued to shareholders in
payment of distributions declared -- 2,628 474 4,198
- -------------------------------------
Shares redeemed (336,805) (190,941) (23,394) (966)
- ------------------------------------- ---------- ---------- -------- --------
Net change resulting from share
transactions (336,695) 283,213 27,611 43,820
- ------------------------------------- ---------- ---------- -------- --------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Fiduciary International, Inc., the Funds' investment
adviser (the "Adviser"), receives for its services an annual investment advisory
fee equal to the percentage of the Funds' average daily net assets as follows:
<TABLE>
<CAPTION>
INVESTMENT ADVISORY
FUND FEE PERCENTAGE
- ------------------------------------------------------------ --------------------
<S> <C>
Small Capitalization Equity Fund 1.00%
- ------------------------------------------------------------
International Equity Fund 1.00%
- ------------------------------------------------------------
International Bond Fund 0.70%
- ------------------------------------------------------------
Global Bond Fund 0.70%
- ------------------------------------------------------------
</TABLE>
The Adviser may voluntarily choose reimburse certain operating expenses of the
Funds. The Adviser can modify or terminate this reimbursement at any time at its
sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Funds
with certain administrative personnel and services. The fee paid to FAS is based
on the level of average aggregate net assets of the Trust for the period.
DISTRIBUTION SERVICES FEE--The Funds have adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the
Funds will compensate Edgewood Services, Inc., the principal distributor, from
the net assets of the Funds to finance activities intended to result in the sale
of each Fund's shares. The Plan provides that each Fund may incur distribution
expenses up to 0.75% of average daily net assets, annually, to compensate
Edgewood Services, Inc. For the period ended May 31, 1998, the Funds did not
incur a distribution services fee.
<PAGE>
FTI FUNDS
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Fiduciary International, Inc. ("FII"), the Funds will pay FII up to 0.25%
of average daily net assets of the Funds for the period. The fee paid to FII is
used to finance certain services for shareholders and to maintain shareholder
accounts. For the period ended May 31, 1998, the Funds did not incur a
shareholder services fee.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services
Company ("FServ"), through its subsidiary, Federated Shareholder Services
Company ("FSSC") serves as transfer and dividend disbursing agent for the Funds.
The fee paid to FSSC is based on the size, type, and number of accounts and
transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Funds' accounting records for
which it receives a fee. The fee is based on the level of each Fund's average
daily net assets for the period, plus out-of-pocket expenses.
CUSTODIAN FEES--Fiduciary Trust Company International is the Funds' custodian.
The fee is based on the level of each Fund's average daily net assets for the
period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses were borne initially by FAS.
The Funds have reimbursed FAS for these expenses. These expenses have been
deferred and are being amortized over the five year period following each Fund's
effective date.
<TABLE>
<CAPTION>
INITIAL
ORGANIZATIONAL
FUND EXPENSES
- ----------------------------------------------------------- ---------------
<S> <C>
Small Capitalization Equity Fund $34,076
- -----------------------------------------------------------
International Equity Fund $34,072
- -----------------------------------------------------------
International Bond Fund $34,077
- -----------------------------------------------------------
Global Bond Fund $38,216
- -----------------------------------------------------------
</TABLE>
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended May 31, 1998, were as follows:
<TABLE>
<CAPTION>
FUND PURCHASES SALES
- --------------------------------------------------------- ----------- -----------
<S> <C> <C>
Small Capitalization Equity Fund $30,470,465 $24,975,825
- ---------------------------------------------------------
International Equity Fund $22,254,013 $12,107,708
- ---------------------------------------------------------
International Bond Fund $ 3,391,012 $ 5,474,102
- ---------------------------------------------------------
Global Bond Fund $ 875,493 $ 908,856
- ---------------------------------------------------------
</TABLE>
<PAGE>
FTI FUNDS
- --------------------------------------------------------------------------------
(6) CONCENTRATION OF CREDIT RISK
CONCENTRATION OF CREDIT RISK--International Equity Fund, International Bond
Fund, and Global Bond Fund invest in securities of non-U.S. issuers. Although
these Funds maintain diversified investment portfolios, the political or
economic developments within a particular country or region may have an adverse
effect on the ability of domiciled issuers to meet their obligations.
Additionally, political or economic developments may have an effect on the
liquidity and volatility of portfolio securities and currency holdings.
At May 31, 1998, the diversification of industries for International Equity Fund
was as follows:
<TABLE>
<CAPTION>
% OF % OF
INDUSTRY NET ASSETS INDUSTRY NET ASSETS
-------- ---------- -------- ----------
<S> <C> <C> <C>
Apparel & Textiles 3.3% Gas Exploration 1.1%
Automobiles 1.8% Household Appliances & Furnishings 5.9%
Banks 17.4% Industrial Machinery 3.6%
Building Construction 0.5% Insurance 2.1%
Business Services 2.7% Leisure Time 4.8%
Chemicals 1.2% Miscellaneous 6.5%
Conglomerates 9.4% Other Utilities 0.6%
Construction Materials 2.2% Petroleum Services 1.2%
Drugs and Healthcare 6.3% Photography 2.1%
Electric Utilities 2.1% Real Estate 0.7%
Electrical Equipment 1.0% Retail Trade 1.2%
Electronics 3.4% Steel 0.9%
Financial Services 2.5% Telecommunications Services 3.8%
Food & Beverages 2.9% Telephone 3.7%
</TABLE>
(7) YEAR 2000
Similar to other financial organizations, the Funds could be adversely affected
if the computer systems used by the Funds' service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Funds' Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Funds' other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Funds.
<PAGE>
<TABLE>
<S> <C>
TRUSTEES OFFICERS
- ------------------------------------------------------------------------------------------------------
Peter A. Aron Edward C. Gonzales
Nancy L. Close Chairman, President and Treasurer
Edward C. Gonzales Jeffrey W. Sterling
James C. Goodfellow Vice President and Assistant Treasurer
Burton J. Greenwald Jay S. Neuman
Secretary
Timothy S. Johnson
Assistant Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not 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. Investment in mutual funds involves investment risk,
including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by a Fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
