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FTI
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Funds
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ANNUAL REPORT
TO SHAREHOLDERS
NOVEMBER 30, 1998
FTI SMALL CAPITALIZATION
EQUITY FUND
FTI INTERNATIONAL EQUITY FUND
EDGEWOOD SERVICES, INC.
- ------------------------------
Distributor
Cusip 302927108 SCEF [LOGO RECYCLED PAPER]
Cusip 302927207 IEF
G01980-01 (1/99)
President's Message
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Dear Shareholder:
I am pleased to present the third Annual Report to Shareholders for the FTI
Funds, which covers each Fund's operation over the fiscal year from December
1, 1997, through November 30, 1998.
This report begins with 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 is a set of graphs showing each Fund's total
return since inception, followed by a complete list of each Fund's holdings
and the financial statements.
FTI Small Capitalization Equity Fund
This Fund seeks growth through a diversified portfolio of small-company
stocks. After a strong 1997, the Fund's performance reflected the volatility
that impacted small-cap stocks in 1998.* As a result, the Fund produced a
negative total return of (5.34%)** as the net asset value declined from $14.37
to $13.26. The Fund paid capital gains of $0.35. Net assets totaled $46
million at the end of the reporting period.
FTI International Equity Fund
This Fund seeks growth by investing in a diversified portfolio of stocks and
debt obligations of issuers located outside the United States. In a volatile
international marketplace, characterized by continued difficulties in the
Asian and Latin American regions and a strong Europe, the Fund's portfolio of
international stocks continued to perform well over the year.+ The fund's
total return of 14.61%** was achieved through dividends totaling $0.12 per
share and a net asset value increasing from $12.20 to $13.85. Net assets
reached $74 million at the end of the reporting period.
I am pleased to announce that on December 8, 1998, four new funds were added
to the FTI family--a tax-free municipal bond fund, an investment grade bond
fund, a large-cap stock fund and a large-cap growth and income stock fund.
These funds will be included in future shareholder reports. Shareholders
desiring further information about any of these funds, including a Prospectus,
may call 1-888-FIDUCIARY.
Thank you for pursuing your financial goals through the FTI Funds. As we begin
a new year, we look forward to keeping you up-to-date on your investment
progress through the highest level of service possible.
Sincerely,
/s/ Edward C. Gonzales
President
January 15, 1999
*Small-cap stocks have historically experienced greater volatility than
stocks of companies with larger capitalizations.
**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.
Investment Review
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FTI Small Capitalization Equity Fund
Performance
The Small Capitalization Equity Fund (the "Fund") ended the fiscal year with a
net asset value ("NAV") per share of $13.26 and net assets of $46.2 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 1.8% for the fiscal year ended November 30, 1998. The reasons for
the out-performance were a slight overweighting in technology, and an
underweighting in finance and oil service areas. The Fund ranked in the second
quartile in its peer group according to Lipper Analytical Services, Inc. (it
was ranked number 225 out of 625 small-cap funds for the year ended November
30, 1998).
<TABLE>
<CAPTION>
Annualized
Fiscal Year Since
Ended 11/30/98 Inception+
-------------- ----------
<S> <C> <C>
FTI Small Capitalization Equity Fund (5.3%)** 11.0%**
+Inception date is December 22, 1995
Russell 2000 Growth Index (7.1%) 6.0%
</TABLE>
*The Russell 2000 Growth Index is represented by those Russell 2000 companies
with higher price-to-book ratios and higher forecasted growth values.
**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.
- -------------------------------------------------------------------------------
November 1998 Fiscal Year-End Market Review
Small-cap stocks* underperformed large-cap stocks by a wide margin in 1998.
Only in 1929 and 1937 was the performance of small-cap stocks similarly
disappointing. This year, the Russell 2000 Index** lagged behind the Standard
& Poor's 500 Index*** by more than 20%.
The major cause for the underperformance of small-cap stocks was investor
concern. Beginning in October 1997 and extending for a full year, the global
capital markets shunned riskier asset classes even if some of them, such as
small-cap growth stocks, offered very compelling return potential. The burst
of negative sentiment began with the collapse of Asian economies and peaked
with the downfall of Long Term Capital Management. During shorter time
periods, irrational sentiment can drive certain sectors of the market, and
small-cap stocks experienced this phenomenon in 1998.
Since October 8, 1998 (the nadir of the small-cap market), small-cap stocks
have outperformed large-cap stocks by several percentage points. Based on
compelling indicators, we believe this rebound will continue through the year
2000 and beyond. For the first three quarters of 1998, two of three catalysts
for a small-cap stock resurgence were present:
1) Small-cap earnings growth is predicted to be 27% for 1999 compared to
single-digit growth for large-cap stocks.
2) Small-cap stocks are valued at 15 times their 1999 earnings potential
compared to 27 times for large-cap stocks.
During the fourth quarter, the third catalyst appeared to fall into place:
positive investor sentiment (and the resulting cash flows). As U.S. Federal
Reserve Chairman Alan Greenspan adeptly managed the economy, fears of a global
financial crisis subsided. Cash flows into small-cap funds had been negative
or negligible during August through October, but in November, flows were $3.2
billion. As demand increased for small-cap stocks, supply remained low
(classic Economics 101 for price increases). Initial Public Offerings (IPOs)
were almost nonexistent in November (14 IPOs compared with 82 in November
1997).
We believe that small-cap stocks are positioning themselves for growth at the
expense of large-cap stocks. In the long-term, price appreciation is a result
of earnings growth. If that axiom holds in 1999, small-cap growth stocks will
show price appreciation, both real and relative.
*Small-cap stocks have historically experienced greater volatility than
stocks of companies with larger capitalizations.
**The Russell 2000 Index is a trademark/service mark of the Frank Russell
Company. RussellTM is a trademark of the Frank Russell Company. The fund is
neither affiliated with nor promoted, sponsored, or endorsed by the Frank
Russell Company. Frank Russell's only relationship to the fund is the
licensing of the use of the Index. Frank Russell Company is the owner of
the trademarks and copyrights relating to the Index. Frank Russell Company
is not responsible for and has not reviewed the fund nor any associated
literature or publications and Frank Russell Company makes no
representation or warranty, express or implied, as to their accuracy, or
completeness, or otherwise.
***The Standard & Poors 500 Index 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.
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Investment Outlook and Strategy
We continue to have a positive long-term outlook for the small capitalization
asset class. The stocks held by the Fund are selling at a reasonable discount
to their growth rates. We continue to find plenty of companies that offer
excellent long-term growth potential. We believe that current demographics
will favorably impact the growth of new money invested in this sector through
substantial increases in retirement savings as well as greater investment
diversity within these savings.
Our investment 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 with stock in their
companies. The Fund is invested broadly across all sectors to diversify risk,
and we believe the Fund is advantageously positioned for growth in 1999.
FTI SMALL CAPITALIZATION EQUITY FUND
TOP TEN EQUITY HOLDINGS
<TABLE>
<S> <C> <C>
COMPANY NAME COMPANY DESCRIPTIONS % OF PORTFOLIO
Veritas Software Corp. Technology 1.91%
Inktomi Corp. Technology 1.69
Agouron Pharmaceuticals, Inc. Biotech 1.67
AmeriTrade Holding Corp. Finance 1.58
On Assignment, Inc. Service 1.51
Jones Pharmaceutical, Inc. Healthcare 1.49
Lycos, Inc. Internet 1.48
Comverse Technology, Inc. Technology 1.47
DeVry, Inc. Education 1.46
Metzler Group, Inc. Service 1.46
</TABLE>
SECTOR ALLOCATION AS OF NOVEMBER 30, 1998
[GRAPHIC] - See Appendix A.
FTI Small Capitalization Equity Fund
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Growth of $10,000 Invested in FTI Small Capitalization Equity Fund
The graph below illustrates the hypothetical investment of $10,000* in the FTI
Small Capitalization Equity Fund (the "Fund") from December 22, 1995 (start of
performance) to November 30, 1998, compared to the Russell 2000 Growth Index.+
[GRAPHIC] - See Appendix B.
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
* The Fund's performance assumes the reinvestment of all dividends and
distributions. The Russell 2000 Growth Index has been adjusted to reflect
reinvestment of dividends on securities in the index.
+ The Russell 2000 Growth Index is not adjusted to reflect sales charges,
expenses, or other fees that the Securities and Exchange Commission requires
to be reflected in the Fund's performance. This index is unmanaged.
- -------------------------------------------------------------------------------
FTI International Equity Fund
Performance
The FTI International Equity Fund (the "Fund") ended the fiscal year with an
NAV per share of $13.85 and net assets of $74.4 million. The investment
returns for the Fund versus the Morgan Stanley Capital International Europe,
Australia, and Far East Index (the "MSCI EAFE")* are shown below. In recent
years the MSCI EAFE has underperformed most actively managed funds; the
excessive currency and market volatility seen this year led to a reversal of
this trend with the MSCI EAFE delivering top quartile returns over the past
twelve months. Though the Fund underperformed the MSCI EAFE over this
reporting period, the 14.6% return over the past year compares favorably with
our mutual fund peer group, placing the Fund in the second quartile of
comparable mutual funds investing in international equities, according to
Lipper Analytical Services, Inc. (it was ranked number 134 out of 512
international funds for the year ended November 30, 1998). The 1.9%
underperformance of the Fund versus the benchmark index, the MSCI EAFE, during
the fiscal year was due to the combination of several factors: 1) negative
contribution from the Fund's Japanese yen and core-European currency hedges;
2) stock selection weakness in U.K. and German shares which suffered during
the volatile third quarter market corrections; partially offset by 3) regional
asset allocation gains, primarily from the Fund's overweight position in
European shares at the expense of Japanese equities. (Note: all returns herein
refer to MSCI indices and are in U.S. dollars, unless otherwise noted.)
<TABLE>
<CAPTION>
Fiscal Year Annualized
Ended Since
11/30/98 Inception+
----------- ----------
<S> <C> <C>
FTI International Equity Fund 14.6%** 12.8%**
+Inception date is December 22, 1995
MSCI EAFE (incl. net dividends) 16.5% 8.0%
</TABLE>
* Morgan Stanley Capital International Europe, Australia, and Far East Index
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. This index is an unmanaged index 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.
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November 1998 Fiscal Year-End Market Review
The MSCI EAFE 16.5% headline return for international equities for the year
ended November 30, 1998, masks the extreme volatility that was a constant
feature in global financial markets during the reporting period. Equity
markets were participants in three separate stages over the past twelve
months. The first stage, lasting until the end of June, saw Western equity
markets register strong gains fueled by the acceleration of the economic and
earnings recovery that began in 1997. Russia's devaluation and debt default,
the unprecedented turnaround in the Japanese yen, hedge fund collapses, a
potential Brazilian devaluation, and the lack of U.S. leadership from a
scandal-plagued President comprised the second stage, leading to massive
selling by global investors during the third quarter. The third stage began on
an ominous note; however, the global uncertainty was apparently lifted after
the U.S. Federal Reserve Chairman Alan Greenspan cut interest rates, paving
the way for a coordinated effort by central bankers to counter a panic-driven
credit crunch that threatened all economies and financial markets.
From a regional perspective, European equities were the international leaders
over the past twelve months, delivering an average gain of 27.7%. Interest
rate convergence in preparation for European Monetary Union, relatively strong
earnings growth, and the move to an Anglo-Saxon equity culture were the
principal drivers of equity performance for European shares. Though economic
growth was relatively weak in Italy and Spain, both countries were prime
beneficiaries of lower interest rates and increased equity ownership by retail
investors, resulting in gains of 51.3% and 48.9%, respectively in those
markets. French equities (+40.7%) benefited from a pick-up in consumer
spending, while German equities (+31.5%) turned in a solid performance despite
the market's global economic exposure via German financials and exporters. To
no one's surprise, Norwegian equities (-27.5%) lagged all equity markets as
weak oil prices, combined with interest rate hikes designed to control
domestic economic strength, proved too much for investors to handle.
While cyclical stocks outperformed in the early part of this reporting period,
defensive sectors emerged as the star performers as more realistic growth
assumptions crept into the markets during the latter half of 1998. Throughout
the fiscal year, the portfolio was consistently exposed to service,
technology, pharmaceutical, and domestic financial companies, which performed
relatively well. The primary drag on the Fund's European equity performance
occurred during the third quarter as our exposure to investment management
companies and reports on restructuring of cyclical companies, particularly in
the specialty chemicals sector, led to sharp underperformance during the
market decline. Our overweighting of European shares in the first half of the
year contributed to strong outperformance for the Fund. After having had 90%
of the Fund's assets in U.K. and European equities during the third quarter,
we have scaled back the portfolio's exposure to 82% (heading toward 76%). Our
principal worry at this juncture is that earnings growth expectations across
Europe are still too high and may lead to earnings disappointments early next
year. It is not surprising that in such an environment, we have positioned the
portfolio defensively, focusing on pharmaceuticals (Novartis, Glaxo Wellcome),
technology (Nokia, Misys), publishing (Wolters Kluwer), and domestic
financials (Bank of Ireland, HypoVereinsbank).
A false beginning occurred for Japanese equities early in 1998 as investors
naively marked up Japanese shares in line with rallies taking place elsewhere
in the world's equity markets. As investors quickly tuned in to the severity
of Japan's economic problems and the country's desperate need for a bailout of
its banking system, the Japanese market underperformed, declining 4.7% over
the past twelve months. For the past year, the Japanese economy has been in
the middle of the worst economic decline since the government began to compile
statistics
- -------------------------------------------------------------------------------
in 1955. The country's problems have been well documented: tax hikes in 1997,
a credit crunch due to a severely undercapitalized banking system, loss of
competitiveness with neighboring Asian trading partners, and political
inaction. With all of these problems evident, the 2% decline in Japanese
equities for the seven months ended June 30, 1998 was not surprising. Though
the market fell in harmony with other global markets during the third quarter,
declining 15%, the yen's dramatic turnaround set the stage for Japanese
outperformance towards the end of the year.
The movement of the yen throughout the year closely paralleled the relative
strengths of various sectors in the Japanese market during this reporting
period. With poor economic growth and a weak yen, exporters outperformed
during the first half of the year. With the yen turnaround and encouraging
signs coming from the government regarding a fiscal stimulus package and a
recapitalization of the banking system, domestic cyclicals, banks, and
construction companies outperformed during the second half of the year. We
have noted several times in the past that the Japanese government habitually
promises less than what the market (and economy) needs, then delivers less
than what it promises. We do not think that the present government has
suddenly changed; however, what does seem apparent this time is that with the
economy performing as poorly as it is, they seem to be grasping the severity
of the problem. The (Yen)24 trillion stimulus package and a (Yen)60 trillion
bank bailout are steps in the right direction.
Partly as a result of diminished prospects in Europe and the U.K., and partly
due to improving prospects in Japan, we have increased the Fund's exposure to
Japanese equities from a low of 10% earlier in the year, to its present 15%
level (heading toward 18%). While we maintain our traditional holdings in
export and technology (Sony, Canon), the focus of the increased exposure is in
more defensive areas such as pharmaceuticals (Takeda Chemical Industries) and
cellular telephony (NTT Mobile Communication).
Asian Pacific equities' participation in the first stage lasted about six
weeks before investors realized that any hopes for a "V"-style economic
recovery after 1997's turmoil were unrealistic. As reality crept back into the
markets, Asian equities registered a decline of 16.8% for the seven months
ended June 30, 1998. Though emerging markets were the initial source of much
of the pain felt by international investors during the third quarter, on a
relative basis Asian Pacific equities were the surprising stars, declining
only 8.9%. The second-half strength exhibited by Asian Pacific markets was due
to several factors: 1) a weakening dollar versus the yen gave Asian currencies
an effective devaluation versus Japan; 2) U.S. interest rate cuts took
pressure off of Asian currencies, paving the way for interest rate reductions
across the region; and 3) with a sense of calm restored, investors saw the 50%
to 60% decline in the Hong Kong property market as the bottom and thus a
buying opportunity, triggering a rally in the property-sensitive Hong Kong
equity market. The portfolio benefited from minimal exposure to the region
over the past year, as Asian Pacific equities registered a decline of 5.3% (-
18.1% for Emerging Asia). Looking forward, we expect the economies to have a
rough 1999; however, with the sense of panic removed, and a more favorable
interest rate and currency environment, we have recently begun to build
exposure to the region (Cheung Kong, a Hong Kong property/conglomerate).
Though growth prospects were relatively attractive in Latin America, Latin
American equities were weak over the past twelve months, declining 25.0%.
Investors continued to overlook respectable growth in Argentina and Mexico,
focusing instead on a likely Brazilian devaluation. President Cardoso's re-
election, the subsequent $42 billion IMF rescue package, an announced fiscal
austerity plan, and progress with social security reform kept investor worries
at bay during October and November, leading to a gain of 16.1%. Looking at
Latin America's
- -------------------------------------------------------------------------------
relative growth prospects versus the historically low valuations for the
region's equity markets, it is clear that investors continue to expect some
level of Brazilian devaluation in 1999. While we agree that a Brazilian real
devaluation is easily possible, we are comfortable taking a relatively
defensive position in a Mexican beverage company (FEMSA), which should
experience little operational impact from any Brazilian devaluation.
Investment Outlook and Strategy
Our current investment outlook is focused on managing expectations. We
acknowledge that Europe has the best absolute growth prospects for 1999,
however, with sell-side earnings growth estimates of 12%-14% versus our
internal estimates of mid single-digit growth, we feel there is potential for
European companies to disappoint investors in the first half of the year.
Accordingly, the portfolio's U.K. and European exposure is primarily focused
on defensive companies with more predictable earnings streams. The Fund's
other significant exposure is in Japanese equities. Here too, we are focusing
on expectations. The bad news is that the Japanese government will most likely
fail to deliver on this year's announced fiscal stimulus packages and bank
rescue plans. The good news is that no one is expecting them to deliver, and,
equally important, the Nikkei does not appear to be pricing in any kind of
significant economic recovery in the near future (which is good, because
neither are we). What the Japanese equity market does offer is: 1) the
potential to outperform if the government recognizes the severity of the
problems facing the Japanese economy and delivers most of what they promised;
and 2) low correlation to global markets (i.e. Japan is a relatively good
hedge on any potential correction in global markets due to a Brazilian
devaluation or from Western growth estimates being significantly reduced).
Source for international market performance information is the Morgan Stanley
Capital International Europe, Australia, and Far East Index.
FTI International Equity Fund--November 30, 1998
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Regional Allocation Sector Allocation
[GRAPHIC]-See Appendix C. [GRAPHIC]-See Appendix D.
Top Regional Holdings
<TABLE>
<CAPTION>
Region Company Sector % of Portfolio
- ------ ------- ------ --------------
<S> <C> <C> <C>
Europe HypoVereinsbank Banking 3.1%
ForeningsSparbanken AB Banking 3.0%
U.K./Ireland Williams PLC Services 2.8%
Glaxo Wellcome PLC Pharmaceutical 2.8%
Japan Bank of Tokyo-Mitsubishi Ltd. Banking 2.1%
Sony Corp. Consumer Electronics 2.0%
Asia Pacific Cheung Kong (Holdings) Ltd. Property Development 1.0%
Latin America Fomento Economico Mexicano, SA de C.V., ADR Beverage 0.9%
</TABLE>
FTI International Equity Fund
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Growth of $10,000 Invested in FTI International Equity Fund
The graph below illustrates the hypothetical investment of $10,000* in the FTI
International Equity Fund (the "Fund") from December 22, 1995 (start of
performance) to November 30, 1998 compared to the Morgan Stanley Capital
International Europe, Australia, and Far East Index ("MSCI EAFE").+
[GRAPHIC] - See Appendix E.
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they may
be worth more or less than original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
* The Fund's performance assumes the reinvestment of all dividends and
distributions. The MSCI EAFE Index has been adjusted to reflect reinvestment
of dividends on securities in the index.
+ The MSCI EAFE Index is not adjusted to reflect sales charges, expenses, or
other fees that the Securities and Exchange Commission requires to be
reflected in the Fund's performance. This index is unmanaged.
FTI Small Capitalization Equity Fund
Portfolio of Investments
November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ----------------------------------------------------------------------------
<C> <S> <C>
Common Stocks--95.2%
Aerospace & Defense--1.2%
22,500 AAR Corp. $ 568,125
-----------
Banking--0.5%
7,750 Texas Regional Bancshares, Inc., Class A 212,156
-----------
Basic Industry--1.8%
11,000 Minerals Technologies, Inc. 482,625
19,300 Schnitzer Steel Industries, Inc., Class A 347,400
-----------
Total 830,025
-----------
Basic Materials--2.7%
7,100 Aptargroup, Inc. 198,356
21,000 (a)CompX International, Inc. 526,312
15,000 Kaydon Corp. 529,687
-----------
Total 1,254,355
-----------
Commercial Services--5.6%
4,900 (a)Abacus Direct Corp. 282,056
11,000 (a)Consolidated Graphics, Inc. 633,187
30,000 Nielsen Media Research 450,000
20,000 (a)On Assignment, Inc. 711,250
30,000 (a)School Specialty, Inc. 506,250
-----------
Total 2,582,743
-----------
Computer Software--0.9%
11,200 (a)Real Networks, Inc. 431,200
-----------
Computers--0.5%
6,000 (a)Transaction Systems Architects, Inc., Class A 228,000
-----------
Consulting Services--2.8%
7,000 (a)Cambridge Technology Partners, Inc. 146,125
20,000 (a)First Consulting Group, Inc. 470,000
16,500 (a)Metzler Group, Inc. 684,750
-----------
Total 1,300,875
-----------
Consumer Durables--1.0%
18,000 (a)Furniture Brands International, Inc. 457,875
-----------
Consumer Non-Durables--1.6%
25,000 (a)Gardenburger, Inc. 262,500
4,400 Tootsie Roll Industries, Inc. 167,750
19,000 (a)Twinlab Corp. 315,875
-----------
Total 746,125
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Consumer Services--2.5%
15,000 (a)ITT Educational Services, Inc. $ 493,125
30,000 (a)Medialink Worldwide, Inc. 652,500
-----------
Total 1,145,625
-----------
Education--1.5%
26,000 (a)DeVRY, Inc. 685,750
-----------
Electronic Technology--7.1%
12,000 (a)Comverse Technology, Inc. 690,000
8,400 (a)MIPS Technologies, Inc. 203,175
18,000 (a)Macrovision Corp. 654,750
8,400 (a)Network Appliance, Inc. 631,050
10,000 (a)PMC-Sierra, Inc. 538,750
36,000 (a)Tekelec, Inc. 558,000
-----------
Total 3,275,725
-----------
Energy--0.1%
5,800 (a)Tuboscope Inc. 48,212
-----------
Environmental Control--1.2%
26,977 (a)Tetra Tech, Inc. 566,517
-----------
Financial Services--8.1%
30,000 (a)AmeriTrade Holding Corp., Class A 742,500
5,700 (a)ChoicePoint, Inc. 331,313
17,000 (a)E*Trade Group, Inc. 460,063
49,300 (a)Franchise Mortgage Acceptance Co. LLC 474,512
20,000 (a)HealthCare Financial Partners, Inc. 657,500
60,000 (a)Imperial Credit Industries, Inc. 607,500
16,000 Legg Mason, Inc. 477,000
-----------
Total 3,750,388
-----------
Forest Products & Paper--0.9%
20,000 Universal Forest Products, Inc. 397,500
-----------
Health Technology--2.0%
25,000 (a)Alkermes, Inc. 459,375
7,000 (a)Medimmune, Inc. 468,125
-----------
Total 927,500
-----------
Healthcare--8.7%
18,000 (a)Agouron Pharmaceuticals, Inc. 785,250
40,000 (a)American Oncology Resources, Inc. 447,500
12,100 (a)Curative Health Services, Inc. 347,875
35,000 (a)Fuisz Technologies Ltd. 424,375
14,700 (a)Genset, ADR 424,463
</TABLE>
FTI Small Capitalization Equity Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Healthcare (continued)
1,800 (a)Gentle Dental Service Corp. $ 14,400
40,000 (a)International Isotopes, Inc. 470,000
19,500 Jones Pharmaceutical, Inc. 702,000
24,000 (a)RehabCare Group, Inc. 430,500
-----------
Total 4,046,363
-----------
Industrial Services--1.5%
25,000 (a)BJ Services Co. 345,313
18,000 (a)Core Laboratories N.V. 340,875
-----------
Total 686,188
-----------
Insurance--3.9%
25,000 Arm Financial Group, Inc, Class A 537,500
10,500 Executive Risk, Inc. 567,000
2,500 (a)Markel Corp. 417,500
3,600 Transatlantic Holdings, Inc. 273,600
-----------
Total 1,795,600
-----------
Medical Supplies--1.2%
15,700 (a)Lincare Holdings, Inc. 541,650
-----------
Oil--1.5%
16,000 (a)Atwood Oceanics, Inc. 300,000
25,000 (a)Transmontaigne Oil Co. 375,000
-----------
Total 675,000
-----------
Process Industries--0.8%
20,000 (a)Hines Horticulture, Inc. 165,000
6,000 OM Group, Inc. 217,125
-----------
Total 382,125
-----------
Producer Manufacturing--3.3%
32,000 (a)Cable Design Technologies, Class A 590,000
20,000 (a)Hanover Compressor Co. 452,500
16,000 (a)MotivePower Industries, Inc. 487,000
-----------
Total 1,529,500
-----------
Services--9.1%
5,000 (a)Bally Total Fitness Holding Corp. 118,438
17,900 (a)Charles River Associates, Inc. 407,225
12,400 (a)Maximus, Inc. 378,200
17,500 (a)Peterson Cos., Inc. 418,906
15,000 (a)Profit Recovery Group International, Inc. 506,250
31,000 (a)Provant, Inc. 627,750
5,000 (a)Quintiles Transnational Corp. 249,375
19,300 Regis Corp. Minnesota 646,550
</TABLE>
<TABLE>
<CAPTION>
Shares or
Principal
Amount Value
- -----------------------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Services (continued)
15,000 (a)Renters Choice, Inc. $ 361,875
18,000 (a)Wackenhut Corrections Corp. 486,000
-----------
Total 4,200,569
-----------
Technology--18.0%
14,000 (a)Aspect Development, Inc. 468,125
16,100 (a)BEA Systems, Inc. 193,200
10,000 (a)CNET, Inc. 530,625
8,000 (a)Citrix Systems Inc. 664,000
20,000 (a)Genesys Telecommunications Laboratories, Inc. 573,750
11,100 Henry Jack & Associates, Inc. 557,775
20,000 (a)Infoseek Corp. 681,250
6,000 (a)Inktomi Corp. 794,250
11,800 (a)Lycos, Inc. 696,200
25,000 (a)Manhattan Associates, Inc. 434,375
8,000 (a)MicroStrategy, Inc. 180,000
30,000 (a)PsiNet, Inc. 562,500
15,000 (a)TSI International Software Ltd. 547,500
10,000 (a)Uniphase Corp. 541,875
15,000 (a)Veritas Software Corp. 896,250
-----------
Total 8,321,675
-----------
Telecommunications--3.2%
30,000 (a)Capstar Broadcasting Corp., Class A 536,250
12,000 (a)IXC Communications, Inc. 328,500
50,000 (a)Primus Telecommunications Group, Inc. 637,500
-----------
Total 1,502,250
-----------
Transportation--2.0%
13,000 ASA Holdings Ltd. 441,188
17,500 (a)Coach USA, Inc. 496,563
-----------
Total 937,751
-----------
Total Common Stocks (identified cost $38,468,289) 44,027,367
-----------
(b)Repurchase Agreement--6.4%
$2,944,000 J.P. Morgan & Co., Inc., 4.00%, dated 11/30/1998,
due 12/1/1998 (at amortized cost) 2,944,000
-----------
Total Investments (identified cost $41,412,289)(c) $46,971,367
===========
</TABLE>
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,
November 30, 1998.
(c) The cost of investments for federal tax purposes amounts to $42,232,235.
The net unrealized appreciation of investments on a federal tax basis
amounts to $4,739,132 which is comprised of $7,652,874 appreciation and
$2,913,742 depreciation at November 30, 1998.
Note: The categories of investments are shown as a percentage of net assets
($46,232,806) at November 30, 1998.
The following acronym is used throughout this portfolio:
ADR -- American Depositary Receipt
(See Notes which are an integral part of the Financial Statements)
FTI International Equity Fund
Portfolio of Investments
November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- -------------------------------------------------------------------------
<C> <S> <C>
Common Stocks--96.3%
Denmark--1.8%
20,500 ISS International Service System A/S, Class B $ 1,350,985
-----------
Finland--2.5%
18,700 Nokia Oyj 1,830,668
-----------
France--9.1%
12,000 Axa 1,550,306
7,600 Castorama Dubois 1,536,244
3,800 Danone 1,108,767
6,300 Havas Advertising SA 1,090,751
12,127 Total SA, Class B 1,502,766
-----------
Total France 6,788,834
-----------
Germany--7.5%
26,500 HypoVereinsbank 2,293,142
3,920 Buderus AG 1,513,514
28,900 Douglas Holding AG 1,805,771
-----------
Total Germany 5,612,427
-----------
Hong Kong--1.0%
104,000 (a)Cheung Kong (Holdings) Ltd. 748,805
-----------
Ireland--3.4%
95,093 Bank of Ireland 1,973,876
7,900 (a)Elan Corp. PLC, ADR 538,188
-----------
Total Ireland 2,512,064
-----------
Italy--9.1%
195,000 ENI SPA 1,209,064
274,600 Telecom Italia Mobile SPA 1,798,244
205,000 Telecom Italia SPA 1,660,381
374,000 Unicredito Italiano SPA 2,125,215
-----------
Total Italy 6,792,904
-----------
Japan--15.2%
143,000 Bank of Tokyo-Mitsubishi Ltd. 1,555,357
58,000 Canon, Inc. 1,280,518
34,500 Circle K Japan Co. Ltd. 1,405,763
131,000 NGK Spark Plug Co., Ltd. 1,210,049
39 (a)NTT Mobile Communication Network, Inc. 1,487,825
8,000 Rohm Co., Ltd. 675,325
21,000 Sony Corp. 1,535,795
22,000 Takeda Chemical Industries 741,071
</TABLE>
<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Japan (continued)
61,000 Tokyo Electric Power Co. $ 1,391,315
-----------
Total Japan 11,283,018
-----------
Mexico--0.9%
28,200 (a)Fomento Economico Mexicano, SA de C.V., ADR 669,750
-----------
Netherlands--7.5%
28,500 Akzo Nobel N.V. 1,168,283
32,100 Nutreco Holding N.V. 1,258,791
27,300 Koninklijke (Royal) Philips Electronics N.V. 1,727,171
7,700 Wolters Kluwer N.V. 1,467,491
-----------
Total Netherlands 5,621,736
-----------
Portugal--1.6%
39,700 Banco Comercial Portugues, SA Class R 1,209,268
-----------
Spain--2.2%
41,700 Sol Melia, SA 1,652,400
-----------
Sweden--6.3%
15,000 Assa Abloy AB 599,041
80,300 ForeningsSparbanken AB 2,249,742
66,000 Telefonaktiebolaget LM Ericsson 1,832,883
-----------
Total Sweden 4,681,666
-----------
Switzerland--5.0%
2,011 Adecco SA 872,782
1,036 Novartis 1,943,938
2,580 (a)Swisscom AG 868,438
-----------
Total Switzerland 3,685,158
-----------
United Kingdom--23.2%
163,000 Amvescap PLC 1,326,825
47,000 British Petroleum Co. PLC 733,766
156,000 Compass Group PLC 1,644,237
151,000 Electrocomponents PLC 1,070,987
66,000 Glaxo Wellcome PLC 2,086,916
83,000 Alliance Unichem PLC 818,688
182,000 Hays PLC 1,537,023
106,520 Lloyds TSB Group PLC 1,480,267
205,240 Misys PLC 1,445,535
</TABLE>
FTI International Equity Fund
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- -----------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
United Kingdom (continued)
60,700 Select Appointments Holdings PLC, ADR $ 1,214,000
122,000 Vodafone Group PLC 1,801,033
341,846 Williams PLC 2,114,466
-----------
Total United Kingdom 17,273,743
-----------
Total Common Stocks (identified
cost $64,524,571) 71,713,426
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares or
Principal
Amount Value
- -----------------------------------------------------------------------------
<C> <S> <C>
Preferred Stocks--1.4%
Germany--1.4%
5,100 Fresenius AG (identified cost $1,041,708) $ 1,016,122
-----------
(b)Repurchase Agreement--3.2%
$2,386,000 J.P. Morgan & Co., Inc., 4.00%, dated 11/30/1998,
due 12/1/1998
(at amortized cost) 2,386,000
-----------
Total Investments (identified
cost $67,952,279)(c) $75,115,548
===========
</TABLE>
(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,
November 30, 1998.
(c) The cost of investments for federal tax purposes amounts to $67,970,687.
The net unrealized appreciation of investments on a federal tax basis
amounts to $7,144,861 which is comprised of $10,068,560 appreciation and
$2,923,699 depreciation at November 30, 1998.
Note: The categories of investments are shown as a percentage of net assets
($74,445,273) at November 30, 1998.
The following acronym is used throughout this portfolio:
ADR -- American Depositary Receipt
(See Notes which are an integral part of the Financial Statements)
FTI Funds
Statement of Assets and Liabilities
November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Small
Capitalization International
Equity Fund Equity Fund
- ------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Total investments in securities at value $46,971,367 $75,115,548
Income receivable 11,939 148,071
Cash denominated in foreign currencies
(identified cost $0, and $37,629, respectively) -- 37,526
Net receivable for foreign currency exchange
contracts sold -- 183,739
Receivable for investments sold 174,515 733,690
Receivable for shares sold 220,000 20,000
Deferred organizational costs 20,734 20,731
----------- -----------
Total assets 47,398,555 76,259,305
----------- -----------
Liabilities:
Payable for investments purchased $ 1,011,787 $ 207,438
Payable for taxes withheld -- 15,023
Payable for shares redeemed 78,744 858,755
Payable to Bank 235 605,343
Payable for investment advisory fee 36,726 59,610
Accrued expenses 38,257 67,863
----------- -----------
Total liabilities 1,165,749 1,814,032
----------- -----------
Net Assets $46,232,806 $74,445,273
----------- -----------
Net Assets Consist of:
Paid in capital $43,386,986 $67,500,574
Net unrealized appreciation of investments and
translation of assets
and liabilities in foreign currency 5,559,078 7,346,729
Accumulated net realized loss on investments and
foreign currency transactions (2,713,258) (223,295)
Accumulated distributions in excess of net
investment income -- (178,735)
----------- -----------
Total Net Assets $46,232,806 $74,445,273
----------- -----------
Net Asset Value Per Share, Offering Price and
Redemption Proceeds Per Share $13.26 $13.85
----------- -----------
Shares Outstanding 3,485,703 5,376,201
----------- -----------
Investments, at identified cost $41,412,289 $67,952,279
----------- -----------
Investments, at tax cost $42,232,235 $67,970,687
----------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FTI Funds
Statement of Operations
Year Ended November 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Small
Capitalization International
Equity Fund Equity Fund
- ------------------------------------------------------------------------------
<S> <C> <C>
Investment Income:
Dividends $ 92,445 $ 880,254(a)
Interest 95,684 169,310
----------- ----------
Total income 188,129 1,049,564
Expenses:
Investment advisory fee 448,146 635,839
Administrative personnel and services fee 75,000 94,569
Custodian fees 20,941 72,201
Transfer and dividend disbursing agent fees and
expenses 18,447 16,549
Directors'/Trustees' fees 9,744 8,555
Auditing fees 18,717 18,720
Legal fees 4,563 4,951
Portfolio accounting fees 47,473 49,216
Share registration costs 9,519 20,063
Printing and postage 8,790 9,290
Insurance premiums 2,503 2,883
Miscellaneous 12,825 12,867
----------- ----------
Total expenses 676,668 945,703
Reimbursements--
Reimbursement of other operating expenses (4,449) (64,749)
----------- ----------
Total Reimbursements (4,449) (64,749)
----------- ----------
Net expenses 672,219 880,954
----------- ----------
Net investment income (loss) (484,090) 168,610
----------- ----------
Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency:
Net realized gain (loss) on investments (2,675,666) 373,175
----------- ----------
Net change in unrealized appreciation of
investments and translation of assets and
liabilities in foreign currency 630,545 3,302,983
----------- ----------
Net realized and unrealized gain (loss) on
investments and foreign currency (2,045,121) 3,676,158
----------- ----------
Change in net assets resulting from operations $(2,529,211) $3,844,768
=========== ==========
</TABLE>
(a) Net of foreign taxes withheld of $108,824.
(See Notes which are an integral part of the Financial Statements)
FTI Funds
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Small Capitalization
Equity Fund International Equity Fund
-------------------------- --------------------------
Year Year Year Year
Ended Ended Ended Ended
November 30, November 30, November 30, November 30,
1998 1997 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (Decrease) in
Net Assets:
Operations:
Net investment
income/(net operating
loss) $ (484,090) $ (257,294) $ 168,610 $ 41,061
Net realized gain
(loss) on investments
and foreign currency
transactions (2,675,666) 1,470,695 373,175 (837,237)
Net change in
unrealized
appreciation of
investments and
translation of assets
and liabilities in
foreign currency 630,545 3,593,716 3,302,983 3,517,440
------------ ----------- ----------- -----------
Change in net assets
resulting from
operations (2,529,211) 4,807,117 3,844,768 2,721,264
------------ ----------- ----------- -----------
Distributions to
Shareholders:
Distributions from net
investment income -- -- (469,709) (302,675)
Distributions from net
realized gain on
investments
and foreign currency
transactions (1,026,646) -- -- --
------------ ----------- ----------- -----------
Change in net assets
from distributions to
shareholders (1,026,646) -- (469,709) (302,675)
------------ ----------- ----------- -----------
Share Transactions:
Proceeds from sale of
shares 19,724,465 22,194,894 39,754,427 29,812,212
Net asset value of
shares issued to
shareholders
in payment of
distributions declared 356,395 -- 102,144 130,938
Cost of shares redeemed (10,797,899) (5,813,874) (9,655,858) (3,557,689)
------------ ----------- ----------- -----------
Change in net assets
from share
transactions 9,282,961 16,381,020 30,200,713 26,385,461
------------ ----------- ----------- -----------
Change in net assets 5,727,104 21,188,137 33,575,772 28,804,050
Net Assets:
Beginning of period 40,505,702 19,317,565 40,869,501 12,065,451
------------ ----------- ----------- -----------
End of period $ 46,232,806 $40,505,702 $74,445,273 $40,869,501
============ =========== =========== ===========
Undistributed net
investment income
included
in net assets at end
of period $ -- -- $ -- $ 179,233
============ =========== =========== ===========
Net gain (loss) as
computed for federal
tax purposes $ (1,893,312) $ 1,480,440 $ 1,026,551 $(1,111,192)
============ =========== =========== ===========
</TABLE>
(See Notes which are an integral part of the Financial Statements)
[This Page Intentionally Left Blank]
FTI Funds
Financial Highlights
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Distributions
Net Net Realized from Net
Investment and Unrealized Realized Gain
Net Asset Income/ Gain/(Loss) on Distributions on Investments
Value, (Net Investments Total from from Net and Foreign
Year Ended Beginning Operating and Foreign Investment Investment Currency
November 30, of Period Loss) Currency Operations Income Transactions
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Small Capitalization
Fund
1996(a) $10.00 (0.04) 2.12 2.08 -- --
1997 $12.08 (0.09) 2.38 2.29 -- --
1998 $14.37 (0.15)(b) (0.61) (0.76) -- (0.35)
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 $12.20 0.04 1.73 1.77 (0.12) --
</TABLE>
(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) Computed on an annualized basis.
(e) This voluntary expense decrease is reflected in both the expense and net
investment income (net operating loss) ratios shown above.
(See Notes which are an integral part of the Financial Statements)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratios to Average Net Assets
------------------------------------------
Net Asset
Value, Net Net Assets,
Total End of Total Investment Expense Waiver/ End of Period Portfolio
Distributions Period Return (c) Expenses Income Reimbursement (e) (000 omitted) Turnover
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
-- $12.08 20.80% 1.50%(d) (0.68%)(d) 1.51%(d) $19,318 94%
-- $14.37 18.96% 1.50% (0.89%) 0.24% $40,505 111%
(0.35) $13.26 (5.34%) 1.50% (1.08%) 0.01% $46,233 158%
(0.01) $10.99 10.04% 1.68%(d) 0.05%(d) 3.05%(d) $12,065 29%
(0.20) $12.20 13.01% 1.60% 0.13% 0.13% $40,869 55%
(0.12) $13.85 14.61% 1.39% 0.27% 0.10% $74,445 68%
</TABLE>
FTI Funds
Notes to Financial Statements
November 30, 1998
- -------------------------------------------------------------------------------
(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 two 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 To provide growth of principal.
("Small Capitalization Equity Fund")
FTI International Equity Fund To provide growth of principal.
("International Equity Fund")
</TABLE>
The assets of each portfolio are segregated and a shareholder's interest is
limited to the portfolio in which shares are held.
Subsequent Event--Subsequent to the year ended November 30, 1998, four new
funds were added to the Trust. FTI Large Capitalization Growth Fund, FTI Large
Capitalization Growth and Income Fund, FTI Bond Fund, and FTI Municipal Bond
Fund each became effective December 8, 1998.
(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
custodian bank's vault, all securities held as collateral under repurchase
agreement transactions.
FTI Funds
- -------------------------------------------------------------------------------
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.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
foreign currency transactions and net operating losses. The following
reclassifications have been made to the financial statements.
<TABLE>
<CAPTION>
Increase (Decrease)
---------------------------------------------
Accumulated Accumulated
Net Distributions in
Realized Excess of Net
Fund Name Paid-in Capital Loss Investment Income
--------------------------- --------------- ----------- -----------------
<S> <C> <C> <C>
Small Capitalization Equity
Fund $(485,195) $(256,189) $741,384
---------------------------
International Equity Fund (578,046) 634,915 (56,869)
---------------------------
</TABLE>
Net investment income, net realized gains/losses, and net assets were not
affected by this reclassification.
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, 1998, Small Capitalization Equity Fund and International
Equity Fund, for federal tax purposes, had capital loss carryforwards, as
noted below, which will reduce the Funds' 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 Funds of any
liability for federal tax.
FTI Funds
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Expiring Expiring
Fund in 2005 in 2006
-------------------------------- -------- ----------
<S> <C> <C>
Small Capitalization Equity Fund $ -- $1,893,312
-------------------------------- -------- ----------
International Equity Fund 204,887 --
-------------------------------- -------- ----------
</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.
Deferred Expenses--The costs incurred by each Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering its shares, have been deferred and are being
amortized over a period not to exceed five years from each Fund's
commencement 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 counterparts 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 November 30, 1998, the Funds had outstanding foreign currency commitments
as set forth below:
<TABLE>
<CAPTION>
International Equity Fund
Currency Units to In Exchange Contracts at Unrealized
Settlement Date Deliver/Receive For Value Appreciation
--------------- ------------------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Contracts Sold:
1/19/99 832,109,700 Japanese Yen $6,983,715 $6,804,980 $178,735
12/1/98 444,808 Pound Sterling 738,692 733,688 5,004
--------
Net Unrealized Appreciation on
Foreign Exchange Contracts $183,739
========
</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
FTI Funds
- -------------------------------------------------------------------------------
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.
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
------------------------- -------------------------
Year Ended Year Ended Year Ended Year Ended
November 30, November 30, November 30, November 30,
1998 1997 1998 1997
- -------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares sold 1,440,048 1,708,722 2,741,492 2,541,714
- --------------------------
Shares issued to
shareholders in payment of
distributions declared 26,577 -- 8,057 11,515
- --------------------------
Shares redeemed (798,731) (489,606) (723,136) (301,180)
- -------------------------- --------- --------- --------- ---------
Net change resulting from
share transactions 667,894 1,219,116 2,026,413 2,252,049
- -------------------------- ========= ========= ========= =========
</TABLE>
FTI Funds
- -------------------------------------------------------------------------------
(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%
--------------------------------
</TABLE>
The Adviser may voluntarily choose to 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 for which it receives
a fee. 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 may 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 November 30, 1998, the Funds did not accrue or pay a
distribution services fee.
Shareholder Services Fee--Under the terms of a Shareholder Services Agreement
with Fiduciary International, Inc. ("FII"), the Funds may 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 November 30, 1998, the Funds did
not accrue or pay 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 for which it receives a fee. 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
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.
FTI Funds
- -------------------------------------------------------------------------------
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. For the year ended November 30, 1998, the Funds
amortized organizational expenses as follows:
<TABLE>
<CAPTION>
Initial Organizational
Organizational Expenses
Fund Expenses Amortized
-------------------------------- -------------- --------------
<S> <C> <C>
Small Capitalization Equity Fund $34,076 $6,906
--------------------------------
International Equity Fund $34,072 $6,905
--------------------------------
</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 November 30, 1998, were as follows:
<TABLE>
<CAPTION>
Fund Purchases Sales
-------------------------------- ----------- -----------
<S> <C> <C>
Small Capitalization Equity Fund $59,775,159 $50,670,655
--------------------------------
International Equity Fund $68,836,851 $40,029,405
--------------------------------
</TABLE>
(6) Concentration of Credit Risk
Concentration of Credit Risk--International Equity Fund invests in securities
of non-U.S. issuers. Although the Fund maintains a diversified investment
portfolio, the political or economic developments within a particular country,
region or industry 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 November 30, 1998, the diversification of industries for International
Equity Fund was as follows:
<TABLE>
<CAPTION>
% of
Industry Net Assets
- -------- ----------
<S> <C>
Banks 20.5%
Business Services 15.1%
Chemicals 1.6%
Construction Materials 2.8%
Data Processing &
Reproduction 1.7%
Drugs and Healthcare 1.1%
Electrical Utilities 2.9%
Electronics 7.3%
Financial Services 1.8%
Food & Beverage 4.1%
</TABLE>
<TABLE>
<CAPTION>
% of
Industry Net Assets
- -------- ----------
<S> <C>
Health & Personal Care 8.5%
Household Appliances &
Furnishings 4.4%
Industrial Components 1.6%
Insurance 2.1%
Leisure Time 2.2%
Merchandising 4.5%
Miscellaneous 1.9%
Other Utilities 4.6%
Telecommunications Services 10.2%
</TABLE>
FTI Funds
- -------------------------------------------------------------------------------
(7) Year 2000 (Unaudited)
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.
Report of Ernst & Young LLP, Independent Auditors
- -------------------------------------------------------------------------------
To the Trustees and Shareholders of
FTI FUNDS:
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of FTI Small Capitalization Equity
Fund and FTI International Equity Fund (two of the portfolios of FTI Funds) as
of November 30, 1998, and the related statements of operations for the year
then ended, the statements of changes in net assets for each of the two years
in the period then ended, and the financial highlights for each of the periods
presented therein. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of November 30, 1998, by correspondence with the custodian and
brokers or other appropriate auditing procedures where replies from brokers
were not received. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of FTI
Small Capitalization Equity Fund and FTI International Equity Fund of FTI
Funds at November 30, 1998, and the results of their operations for the year
then ended, the changes in their net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
presented therein, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
January 20, 1999
Trustees Officers
- -------------------------------------------------------------------------------
Peter A. Aron Edward C. Gonzales
Chairman, President and Treasurer
Nancy L. Close
Jeffrey W. Sterling
James C. Goodfellow Vice President and Assistant Treasurer
Edward C. Gonzales Jay S. Neuman
Secretary
Burton J. Greenwald
Timothy S. Johnson
Assistant Secretary
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.
APPENDIX
A. The graphic representation here displayed consists of a boxed pie chart in
the lower center of the page which shows the Sector Allocation for the FTI
Small Capitalization Equity Fund as of November 30, 1998. The pie chart is
made up of eight pieces labeled as follows (going clockwise starting from
12:00 noon): Science & Technology 28.6%, Intermediate & Capital Goods 5.9%,
Transportation 2.1%, Financial 11.3%, Utilities 4.8%, Energy 4.2%, Drug &
Health Care 14.3%, and Consumer 28.8%.
B. The graphic representation here displayed consists of a boxed legend in the
bottom center indicating the components of the corresponding line graph.
FTI Small Capitalization Equity Fund (the "Fund") is represented by a solid
black line. The Russell 2000 Growth Index is represented by a series of
dashes. The line graph is a visual representation of a comparison of a
change in value of a hypothetical $10,000 investment in the Fund, and the
Russell 2000 Growth Index. The "x" axis reflects computation periods from
12/22/95 to 11/30/98. The "y" axis reflects the cost of investment in
$1,000 increments ranging from $9,000 to $15,000. The right margin reflects
the ending value of the hypothetical investment in the Fund as compared to
the Russell 2000 Growth Index; the ending values are $13,603 and $11,944,
respectively. Below the legend are the one-year and Start of Performance
(12/22/95) Average Annual Total Returns for the for the period ended
November 30, 1998; the Average Annual Total Returns are 5.34% and 11.02%,
respectively.
C. The graphic representation here displayed consists of a boxed pie chart in
the upper left portion of the page which shows the Regional Allocation for
the FTI International Equity Fund as of November 30, 1998. The pie chart is
made up of five pieces labeled as follows (going clockwise starting from
12:00 noon): Cash 3%, Latin America Asia Pacific, Japan 15%, U.K./Ireland
25%, and Europe 57%.
D. The graphic representation here displayed consists of a boxed pie chart in
the upper right portion of the page which shows the Sector Allocation for
the FTI International Equity Fund as of November 30, 1998. The pie chart is
made up of seven pieces labeled as follows (going clockwise starting from
12:00 noon): Consumer 25%, Drug & Health 11%, Science & Technology 21%,
Intermediate & Capital Goods 10%, Financials 23%, and Utilities 5%.
E. The graphic representation here displayed consists of a boxed legend in the
bottom center indicating the components of the corresponding line graph.
FTI International Equity Fund (the "Fund") is represented by a solid black
line. The Morgan Stanley Capital International Europe, Australia, and Far
East Index (MSCI EAFE) is represented by a series of dashes. The line graph
is a visual representation of a comparison of a change in value of a
hypothetical $10,000 investment in the Fund, and the MSCI EAFE. The "x"
axis reflects computation periods from 12/22/95 to 11/30/98. The "y" axis
reflects the cost of investment in $1,000 increments ranging from $9,000 to
$15,000. The right margin reflects the ending value of the hypothetical
investment in the Fund as compared to the MSCI EAFE; the ending values are
$14,252 and $12,462, respectively. Below the legend are the one-year and
Start of Performance (12/22/95) Average Annual Total Returns for the for
the period ended November 30, 1998; the Average Annual Total Returns are
14.61% and 12.80%, respectively.
FTI FUNDS
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7010
January 29, 1999
EDGAR Operations Branch
Securities and Exchange Commission
Division of Investment Management
450 Fifth Street, Northwest
Washington, DC 20549
RE: FTI FUNDS (the "Trust")
FTI Small Capitalization Equity Fund
Fti International Equity Fund
1933 Act File No. 33-63621
1940 Act File No. 811-7369
Dear Sir or Madam:
The annual report of the above-referenced Trust dated November 30, 1998, is
hereby electronically transmitted pursuant to Section 30(b)(2) of the Investment
Company Act of 1940, and Rule 30b2-1 thereunder.
If you have any questions regarding this filing, please call me at (412)
288-8157.
Very truly yours,
/s/ Amy S. Wilson
Amy S. Wilson
Compliance Analyst
Enclosures
