FTI Funds
Semi-Annual Report
To Shareholders
May 31, 1999
FTI Funds
FTI Large Capitalization Growth and Income Fund
FTI Large Capitalization Growth Fund
FTI International Equity Fund
FTI Small Capitalization Equity Fund
FTI Bond Fund
FTI Municipal Bond Fund
Edgewood Services, Inc.
Distributor
Cusip 302927801 LCGIF
Cusip 302927702 LCGF
Cusip 302927207 IEF
Cusip 302927108 SCEF
Cusip 302927603 BF
Cusip 302927504 MBF
G01710-01 (7/99)
President's Message
- -------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report to Shareholders for FTI Funds.
This Report covers the activity of the first half of the Funds' fiscal year,
which is the six-month period from December 1, 1998 through May 31, 1999. Also
included is information on four additions to the FTI Funds family that began
operations on December 11, 1998.
This six-month review begins with commentaries by each Fund's portfolio
manager covering economic and market conditions and their impact on Fund
performance and strategy. Following the commentaries, the Funds' holdings and
financial statements are disclosed.
At the end of the reporting period, FTI Large Capitalization Growth and Income
Fund was invested in 32 equity securities of primarily large capitalization
companies. The Fund's securities are chosen with the goal of attaining income
from both dividends and capital gains of long-term positions. During the
initial period of the Fund's operation, from December 11, 1998 through May 31,
1999, the Fund produced a total return of 7.11%* through income totaling $0.01
per share and an increase in net asset value from $10.00 to $10.70. At the end
of the reporting period, assets totaled $95.6 million.
FTI Large Capitalization Growth Fund gives shareholders the opportunity to own
a diversified portfolio of stocks issued by large, established U.S. companies
that have a record of growth in price and earnings--and we believe have strong
potential to continue that growth. At the end of the reporting period, the
Fund's portfolio included such household names as America Online, AT&T, Bank
of America, CBS, General Electric, Home Depot, Intel, Microsoft and Pfizer.
During the initial period of the Fund's operation, from December 11, 1998
through May 31, 1999, the Fund produced a total return of 3.80%* and its net
asset value increased from $10.00 to $10.38. At the end of the reporting
period, Fund assets totaled $27.2 million.
Reflecting weakness in the European stock market, FTI International Equity
Fund's portfolio of international stocks produced a flat total return of
0.29%* and an increase in net asset value from $13.85 to $13.89.** On the last
day of the reporting period, portfolio holdings in Japan (22.9%) and the
United Kingdom (20%) represented the Fund's largest country commitments.
Assets totaled $73.5 million at the end of the reporting period.
FTI Small Capitalization Equity Fund is managed to pursue a high level of
growth through a diversified portfolio of small company stocks. During the
reporting period, the small capitalization market*** recorded positive gains,
and FTI Small Capitalization Equity Fund achieved a total return of 13.42%* as
the net asset value rose from $13.26 to $15.04. The Fund's net assets totaled
$55.7 million at the end of the reporting period.
* 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
the original cost.
** Foreign investing involves special risks including currency risk,
increased volatility of foreign securities, and differences in auditing
and other financial standards.
*** Small cap stocks have historically experienced greater volatility than
average.
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On May 31, 1999, FTI Bond Fund's portfolio of income-producing investments was
diversified among U.S. Treasury securities (43.8%), corporate bonds (28.7%),
collateralized mortgage obligations (11.8%), preferred stocks (7%), mortgage
backed securities (5.5%) and repurchase agreements (2.2%). During the initial
period of the Fund's operation, from December 11, 1998 through May 31, 1999,
the Fund paid income totaling $0.27 per share. Reflecting weak bond market
returns due to rising interest rates, the Fund produced a total return
of -0.09%* as the net asset value declined from $10.00 to $9.72. At the end of
the reporting period, Fund assets totaled $70.6 million.
FTI Municipal Bond Fund helps tax-sensitive investors pursue income,+ free of
federal income tax, through a portfolio of bonds issued by U.S.
municipalities. During the initial period of its operation, from December 11,
1998 through May 31, 1999, the Fund paid tax-free income totaling $0.18 per
share. The Fund achieved a flat total return of 0.11%* as the net asset value
decreased from $10.00 to $9.83 due to rising interest rates. Fund assets
reached $66.7 million on the last day of the reporting period.
Thank you for putting your investments to work in key financial markets
through the diversification and professional management of the growing FTI
Funds family. We look forward to keeping you informed on the details of the
Funds and providing the highest level of service possible.
Sincerely,
Edward C. Gonzales
President
July 15, 1999
* 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 the
original cost.
+ Income may be subject to the federal alternative minimum tax and state and
local taxes.
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FTI Large Capitalization Growth and Income Fund
Performance
It was difficult for a diversified portfolio invested for the long term in
leading growth companies to sustain a high total return without frequent,
costly trading. Our emphasis on long-term growth continues. The FTI Large
Capitalization Growth and Income Fund, however, as previous reports noted, was
not static, and changes increased exposure to enduring economic trends
supporting promising growth.
<TABLE>
<CAPTION>
Cumulative
Total Return*
Information as of 5/31/99 Since Inception+
----------------------------------------------- ----------------
<S> <C>
FTI Large Capitalization Growth and Income Fund 7.11%
+Inception date is December 11, 1998
Standard & Poor's 500 Index** 12.26%
</TABLE>
May 1999 Semi-Annual Market Review
The rate cuts by the Federal Reserve Board (the "Fed") last fall following
Russian default on some private debt set the markets up for recovery this
year. Underlying growth had never really faltered, but with the added stimulus
of lower interest rates and liberal money growth, investors correctly
calculated that U.S. Gross Domestic Product (GDP) growth above 4% was more
than a possibility. Market leadership early this year changed dramatically
from less than fifty growth companies, to more economically cyclical firms,
such as paper and metals. The Dow Jones Industrial Average,** long a laggard
to the broader Standard & Poor's 500 Index, began to lead, confirming this
change.
Outside the U.S., Japanese authorities began taking serious steps to reform
the banks and thereby restart their beleaguered economy. Euro-zone governments
showed a willingness to allow more vigorous corporate restructuring. These
events suggest that business conditions in Europe and Asia have stopped
declining. Lower interest rates in the U.S. and early reports of GDP growth at
4% for the first quarter increased the possibility of a synchronized global
boom. It is little surprise that on June 17, 1999, Fed Chairman Alan Greenspan
said in Congressional testimony, "While this stellar noninflationary economic
expansion still appears remarkably stress free on the surface, there are
developing imbalances that give us pause and raise the question: Do these
imbalances place our economic expansion at risk?" Indeed, markets anticipated
his caution and sold off bonds, thereby raising interest rates among long
dated maturities by 20%.
Investment Outlook and Strategy
The Fund's investment emphasis on technology and financial services companies
continues and represented approximately 47% of the portfolio on May 31, 1999
(based on net assets). Technology enables a rise in productivity, while
financial companies are growing in response to the increasing cohort of older
Americans in need of insurance, banking and other services.
* 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
the original cost.
** The Standard & Poor's 500 Index is a capitalization-weighted index of 500
stocks designed to measure performance of the broad domestic economy
through changes in the aggregate market value of 500 stocks representing
all major industries. The Dow Jones Industrial Average represents share
prices of select blue chip industrial corporations as well as public
utility and transportation companies. These indexes are unmanaged, and
investments cannot be made in an index.
- -------------------------------------------------------------------------------
A solid long-term performance rests upon holding sizeable positions of leading
companies in business sectors benefiting from durable demographic and economic
trends. Currently, the ten largest investments comprise approximately 40% of
the Fund's portfolio (based on net assets). Prompt sales of companies with
deteriorating outlooks sustain a positive long-term return--for example
Compaq, First Union, Texas Utilities and Florida Power. We selectively
increased exposure to technology: Corning (fiber optic cable), MCI WorldCom
(digital and voice communications), and Lexmark (printers and supplies) and
exploited improving industry fundamentals, such as Marsh & McLennan Companies,
which should benefit from firming insurance premium rates.
- -------------------------------------------------------------------------------
FTI Large Capitalization Growth Fund
Performance
The key element of this semi-annual performance review is the month of April
1999. Through the first quarter of the year, FTI Large Capitalization Growth
Fund was only slightly underperforming the Standard & Poor's 500 Index ("S&P
500")* by about 1%. During the month of April 1999, however, the Fund
underperformed the S&P 500 by more than 6%. The cause of this is outlined in
the comments below. As a result of this one-month period, the Fund's
performance as of May 31, 1999 continues to lag that of its benchmark. Most
managers with a similar style reported that this was a difficult period, and
though a level of comfort can be gained by viewing the Fund against its peers,
our benchmark is of paramount importance. Thus, it is our intention to keep
managing the Fund with the performance of the S&P 500 in mind.
<TABLE>
<CAPTION>
Cumulative
Total Return**
Information as of 5/31/99 Since Inception+
------------------------------------ ----------------
<S> <C>
FTI Large Capitalization Growth Fund 3.80%
+Inception date is December 11, 1998
S&P 500 Index 12.26%
</TABLE>
May 1999 Semi-Annual Market Review
The story behind the first half of this year is a simple--and painful--
one: the broadening of the equity markets to embrace the cyclical/value stocks
that of late had been significantly out of favor. Fiduciary is, by style
choice, a growth equity investment firm. As such, the Fund did not hold the
cyclical/value names that produced the exceptionally strong performance in the
month of April 1999. This extremely abrupt change, especially in the U.S.
markets, is unprecedented.
Importantly, it should be noted that the first quarter was really a
continuation of the strong growth seen in late 1998. Indeed, the backdrop for
the economy continues to be strong. It was only in the month of April 1999
that the impact of this style change was visible. While the Fund was
definitely hurt by this movement, we are not yet sure that this trend is here
to stay and remain confident that the names that are held represent some of
the best stocks in their respective sectors.
Performance of selected industry groups further highlights the unusually
abrupt shift in April 1999. As growth equity investors by philosophy, our
weightings in the technology and healthcare areas are significant at
approximately 26% and 12% of the portfolio, respectively (based on net
assets). In April 1999, these two sectors each underperformed the S&P 500 by
more than 7%, while traditional cyclical sectors such as basic materials,
transportation and capital goods outperformed by 28%, 12% and 9%,
respectively. A view of these sectors on a
* The S&P 500 is a capitalization-weighted index of 500 stocks designed to
measure performance of the broad domestic economy through changes in the
aggregate market value of 500 stocks representing all major industries.
This index is unmanaged, and investments cannot be made in an index.
** 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
the original cost.
- -------------------------------------------------------------------------------
year-to-date basis as of the end of March 1999--or just a few weeks earlier
than this shift--provides a dramatically different scenario, with these same
cyclical sectors heavily out of favor. April 1999 saw the best one-month
performance by this group of cyclical stocks in the past 50 years. While we
were looking for a broadening of the market, the abruptness of the shift was a
surprise, and the impact on the portfolio can clearly be seen.
While our investment style of growth stock investing remains unchanged, we are
positioning the Fund to lessen exposure to the stocks with higher price to
earnings (P/E) ratios that have recently faltered due to sharply higher bond
yields. In their place, we are adding to those selected capital goods stocks
that offer solid growth potential, many of which are names we already hold in
the portfolio. We remain confident that the sectors we do hold in the Fund
that have recently pulled back, such as technology and drug/healthcare, remain
fundamentally solid with exceptional long-term growth prospects.
Investment Outlook and Strategy
The background of approximately 3.5% or slightly more Gross Domestic Product
growth, very moderate inflation and better earnings is very positive. The main
question is, are P/E multiples too high? With the S&P 500 at 25 times this
year's earnings, indications are that these multiples are about 4 times the
average stock growth rate. While this does suggest that one exercise a healthy
degree of caution regarding high P/Es, we are confident in the names we own.
We believe that the Federal Reserve Board is going to enact a preventive rate
hike, which is now fully anticipated by the market and thus should be a
positive tonic for the newly skittish investor. Corporate profits look to be
better than expected, productivity improvements are still attainable and
restructuring gains are not over. In general, we continue to feel positive
about the markets and the Fund's positioning within this environment.
- -------------------------------------------------------------------------------
FTI International Equity Fund
Performance
FTI International Equity Fund ended May 1999 with an NAV per unit of $13.89
and total assets of $73.5 million. The investment returns for FTI
International Equity Fund versus the Morgan Stanley Capital International
Europe, Australia, and Far East Index ("MSCI EAFE")* are shown below. The Fund
underperformed the benchmark by 3.71% over the past six months; it was
attributable to losses from currency hedges, as the yen further strengthened
last December, as well as from stock selection in the United Kingdom and
Europe. Most of the stock picking weakness was due to the sharp and sudden
correction in global growth stocks during April 1999, as investors reacted to
signs of a worldwide growth recovery by buying cyclical value stocks. Our
slightly overweight positions in Asia Pacific and Latin America partially
offset the negative contribution from United Kingdom and European stock
selection. (Note: all returns herein refer to MSCI indices and are in U.S.
dollars, unless otherwise noted)
<TABLE>
<CAPTION>
Annualized
Since
Information as of 5/31/99 6 Months** 1 Year** Inception**+
------------------------------------ ---------- -------- ------------
<S> <C> <C> <C>
FTI International Equity Fund 0.29% -9.88% 10.94%
+Inception date is December 22, 1995
MSCI EAFE 4.00% 4.36% 8.53%
</TABLE>
May 1999 Semi-Annual Market Review
Foreign economies' ability to recover from last October's depression-like
sentiment has been the biggest surprise in international markets over the past
six months, enabling international equities to register a 4.2% gain. While
international economic growth is hardly robust, the bias has clearly shifted
to the upside. It is no surprise that Asian markets, showing signs of economic
recovery after having suffered for almost eighteen months, outperformed in
this environment (+15.3%). Looking briefly at Europe, the Euro's less than
stellar debut (falling 11% versus the dollar due primarily to relative growth
prospects in the two regions) led to weak performance from European shares,
which were essentially flat over the past six months. No overview would be
complete without mentioning the Brazilian devaluation that occurred in January
1999. The actual event came as little surprise to international investors.
What caught investors off-guard was the turnaround that occurred in the
ensuing months. By maintaining fiscal discipline, and with inflation kept in
control, the government was able to reduce interest rates from 45% to 25%,
thereby providing fuel for the rallies that spread across Latin American
equity markets (+15.4%).
* MSCI EAFE 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. This index is unmanaged, and
investments cannot be made in an index.
** 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
the original cost.
- -------------------------------------------------------------------------------
Our decision to significantly increase the portfolio's Japanese exposure
during the end of last year and the first quarter of this year was rewarded,
as Japanese shares increased 14.6% over the past six months. As the
government's fiscal stimulus package and bank rescue plan were implemented,
and as more Japanese companies announced shareholder-friendly restructuring
plans, investor sentiment turned strongly positive. The markets were surprised
with the release of the first quarter Gross Domestic Product data, showing the
Japanese economy expanded at a 7.9% annualized growth rate. Though close
inspection of the data reveals that most of the growth was due to government
spending and one-off seasonal distortions, the economy does appear to have
bottomed and could be positioned for a recovery in 2000. As the financial
health of the banking system was strengthened, the banking sector outperformed
significantly over the past six months. As we increased the portfolio's weight
in Japan, we diversified the portfolio by adding domestic exposure in
defensive sectors (cellular telecom and pharmaceutical) as well as more
economic-sensitive areas (banking, building, and restructuring plays).
Keeping pace with their Japanese counterparts, Asian (ex-Japan) equities
delivered gains of 15.3% over the past six months, with the previously beaten
down Asian emerging markets delivering even stronger returns (+35.6%). A
confluence of events led to the outperformance of Asian shares over the
period. Strong U.S. economic growth rejuvenated the technology export sectors
in Taiwan, Singapore, and Korea. As currencies began to stabilize, governments
were able to reduce interest rates by 3% to 4%, helping to revive residential
property markets in Hong Kong and Singapore. The virtuous circle was completed
as consumer sentiment rebounded. The portfolio participated in the Asian
rebound, primarily through holdings in Hong Kong and Singapore financials.
Investment Outlook and Strategy
Our aggressive move into Japan was vindicated by the strong performance in
that market over the past few quarters. While evidence of a full-scale
economic recovery remains scant, a commitment from the government, the Bank of
Japan, and Japanese corporations to turning the ship appears to be in place.
We maintain our relatively high exposure to Japan, only awaiting clearer signs
of an accelerating economic recovery before further increasing exposure. The
Asian recovery seems to be gaining momentum (barring any significant U.S.
interest rate increases); thus our bias going forward will be to increase our
exposure to emerging markets in the region. Looking at Latin America, we
anticipate maintaining our focus on Mexican shares, as the Mexican economy
continues to benefit from economic strength in the U.S., the destination for
80% of Mexican exports. Finally, nascent signs of a return to growth in the
United Kingdom and Europe are leading us to marginally shift toward a greater
emphasis on cyclicals in those regions, focusing on growth companies
benefiting from secular trends in their businesses, yet tied to the pick-up in
economic activity.
Investment Review
- -------------------------------------------------------------------------------
FTI Small Capitalization Equity Fund
Performance
Small capitalization stocks rebounded relative to large capitalization stocks
during the last few months of the current period. The Russell 2000 Growth
Index returned 16.87% versus 12.60% for the Standard & Poor's 500 Index ("S&P
500") from December 1, 1998 through May 31, 1999.* The FTI Small
Capitalization Equity Fund returned 13.42% for the reporting period.**
Our positions in selected technology, telecommunication, and Internet stocks
assisted performance for the reporting period. Within the technology sector,
we focused on several cellular phone-related companies and high-quality
software stocks. Our exposure in the telecommunication industry centered on
the increasing need to transmit large amounts of data across networks. Within
the Internet industry, we maintained positions in security, advertising and
Web site testing companies. During the last few months, the consumer
discretionary sector lost some of its momentum. Longer term, this sector has
been one of the strongest performing sectors in the Russell 2000 Growth Index
and the Fund. Within that sector, our positions in for-profit adult education
and niche temporary help companies detracted from performance.
May 1999 was a particularly difficult month in the small capitalization high
growth sector. The high quality service companies in the consumer area were
affected by profit taking, as were the software stocks and the biotech and
healthcare stocks affected by fears of Y2K problems and future cash flow
problems. The healthcare sector also felt the pressure of an uncertain future
regulatory environment. None of these problems have materialized, and the
stocks have rebounded from their May lows. We believe that this
underperformance was a one-month phenomenon, and feel that the remainder of
fiscal 1999 should be profitable for the small cap high growth sector. The
stocks continue to be undervalued relative to other domestic investments, and
the portfolio is broadly based and not dependent on any one sector for
performance. The Fund continues to have an out-performance of 2.6% since
inception over its benchmark index, the Russell 2000 Growth Index.
<TABLE>
<CAPTION>
Annualized
Since
Information as of 5/31/99 6 Months** 1 Year** Inception**+
------------------------------------ ---------- -------- ------------
<S> <C> <C> <C>
FTI Small Capitalization Equity Fund 13.42% 3.94% 13.43%
+Inception date is December 22, 1995
Russell 2000 Growth Index 16.87% 3.77% 9.97%
</TABLE>
May 1999 Semi-Annual Market Review
The period of December 1, 1998 through May 31, 1999 resembled a boxing match
between the reigning champion, Large Cap Growth stocks, and the contender,
Small Cap Growth stocks. For this six-month round, Small Cap stocks pulled no
punches and earned the right to wear the champion belt.
* The Russell 2000 Growth Index measures the performance of those Russell
2000 companies with higher price-to-book ratios and higher forecasted
growth values. The S&P 500 is a capitalization-weighted index of 500 stocks
designed to measure performance of the broad domestic economy through
changes in the aggregate market value of 500 stocks representing all major
industries. These indexes are unmanaged, and investments cannot be made in
an index.
** 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
the original cost.
- -------------------------------------------------------------------------------
As we noted in the November 1998 report to our shareholders, April through
September 1998 was a challenging time for small capitalization stocks.
Deteriorating events overseas and political scandal in the U.S. led to the
stock market's virtual abandonment of small cap stocks. Russia's debt default,
Japan's banking reform delay, continued emerging markets' meltdowns, the
effective collapse of a prominent hedge fund and President Clinton's scandal
overwhelmed investors.
However, small cap growth stocks were rejuvenated in December 1998. The
Russell 2000 Growth Index returned 9.04% for the month versus 5.82% for the
S&P 500. Initially, investors surmised that December 1998 was setting the
stage for a possible first quarter 1999 rally. Sentiment had improved, and
investors were taking note of the compelling investment opportunities offered
by small cap stocks. However, December turned out to be a temporary false
start.
The first three months of 1999 were reminiscent of most of 1998. The large cap
stock market managed to overcome numerous obstacles during the quarter,
including the impeachment trial, a run-up in market interest rates as
inflation worries temporarily surfaced, an increase in oil prices as OPEC
flexed its muscle, and the intensifying war in Kosovo. Despite these
formidable hurdles, investors deemed the U.S. large cap market a safe haven
relative to overseas stock markets and other asset classes. As such, global
investors funneled money into the largest and perceived "safest" stocks in the
U.S., leading to an S&P 500 return of 5.0%. Index funds captured a large
percentage of these inflows, which intensified the lack of market breadth. Due
to lack of investor demand, the Russell 2000 Growth Index lagged with a return
of -1.7%.
Of course, in the stock market, leaders are constantly challenged. Asset
classes rotate in and out of the capital market's spotlight. Small cap growth
stocks handily outperformed large cap stocks in April and May 1999 by enough
of a margin (in addition to December's strong showing) to return 16.9% for the
full six-month reporting period versus a return of 12.60% for the S&P 500.
What caused the small cap victory? The small cap market had reached an extreme
state of undervaluation relative to the large cap market. In fact, relative
valuations are still at 40-year lows. For example, the table below illustrates
that the Russell 2000 Growth Index is selling at a price to earnings (P/E)
ratio of 15.8 times in anticipation of 28.7% earnings growth in 2000. The S&P
500 has a P/E ratio that actually exceeds its expected growth for 2000. (It
should also be noted that most market strategists are actually anticipating
9%-10% earnings growth for the S&P 500.)
Compelling Valuations of Small Capitalization Stocks
<TABLE>
<CAPTION>
Projected Earnings
Price/Earnings Growth Rate
(Year 2000) (Year 2000)
-------------- ------------------
<S> <C> <C>
Russell 2000 Growth Index 15.8X 28.7%
S&P 500 Index 21.3X 16.5%
</TABLE>
Source: I/B/E/S (bottom-up Wall Street consensus estimates)
Investors took heed of the bargain-basement prices of these small cap stocks.
In addition, two major catalysts propelled small cap stocks from investors'
neglect into the capital market's spotlight: 1) the large capitalization
market's abrupt shift from growth to value stocks; and 2) a deluge of small
cap mergers and acquisitions.
- -------------------------------------------------------------------------------
Firstly, in April 1999 investors shifted substantial large cap money away from
growth stocks into value stocks based on valuations and increased confidence
in the global economy. As investors stepped back to reevaluate their large cap
portfolio structure, they also exploited the compelling opportunities
available in the small cap market. Historically, when investors gain increased
confidence in the global economy and the earnings of cyclical companies, small
cap stocks perform well.
Secondly, institutional strategic investors such as merchant banks, large
companies and leveraged buyout firms took heed of small cap opportunities.
According to Merrill Lynch & Co., 200 small cap mergers and acquisitions
transpired during the first four months of 1999. As these large, sophisticated
investors swallowed up entire small cap companies, the interests of other
investors were piqued, and small cap stock price appreciation resulted.
Investment Outlook and Strategy
We are confident that the equity market will return to trading on traditional,
time-tested fundamentals and provide small capitalization growth stocks with
the recognition, respect, and return potential that they have received in the
past. Small cap stock valuation measures, relative to large cap stocks, remain
at 30% average discounts to their long-term averages despite strong earnings
growth prospects and numerous exciting growth stories. In fact, small cap
growth relative valuations sit at 40-year lows, creating unprecedented
opportunities for patient investors.
Clearly, small cap stocks are positioning themselves to challenge the current
market leadership. In the long term, price appreciation is a result of
earnings growth. If that axiom holds in 1999, small cap growth stocks may
continue to lead the market.
The small companies included in the Fund provide you with exposure to strong
earnings growth, entrepreneurial high-quality management teams, dynamic new
products and reasonable relative valuations. Over past long-term cycles, these
types of companies have rewarded investors. Of course, past performance does
not guarantee future results, and small cap stocks carry higher risks than
large cap stocks.
- -------------------------------------------------------------------------------
FTI Bond Fund
Performance
FTI Bond Fund generated a total return of -0.09% for the period since
inception through May 31, 1999.* The Fund's performance benefited from its
overweight in the mortgage and corporate sectors, especially from lower
quality corporate securities, which received a boost from the strong equity
market and renewed investor confidence following the 1998 global financial
crisis. Positive news on the merger and acquisition front aided two of our
holdings during the reporting period, Newcourt Credit Group and KN Energy, as
their credit ratings are expected to be upgraded. The success of the largest
corporate deal ever, AT&T's $8 billion three-tranche offering, was the clear
highlight of the corporate market during the reporting period. The Fund's
mortgage exposure to securities with low prepayment risk and stable average
life provided solid performance during a period of rising overall yields.
<TABLE>
<CAPTION>
Cumulative
Total Return*
Information as of 5/31/99 Since Inception+
-------------------------------------- ----------------
<S> <C>
FTI Bond Fund -0.09%
+Inception date is December 11, 1998
Lehman Brothers Aggregate Bond Index** -1.10%
</TABLE>
May 1999 Semi-Annual Market Review
Interest rates rose sharply during the reporting period as the Treasury yield
curve moved higher to reflect an economy that continues to grow well above
trend, a mild pickup in inflation pressures and a Federal Reserve Board (the
"Fed") leaning toward raising rates. Thirty-year Treasury yields rose from
5.03% to 5.83%, 10-year yields rose from 4.62% to 5.62% while 2-year yields
rose from 4.46% to 5.41%.
On the back of the 6% plus pace in fourth quarter 1998 Gross Domestic Product
(GDP), bond market sentiment changed rapidly, as it became crystal clear that
economic activity ended 1998 on a very strong note. Fourth quarter growth was
boosted by specific factors--the end of the General Motors strike, favorable
weather in December 1998 and unexpectedly strong export activity. Interest
rates jumped further ahead following Fed Chairman Alan Greenspan's semi-annual
Humphrey-Hawkins testimony on February 23, 1999. Although Chairman Greenspan's
comments presented a generally balanced view of the economy, he served notice
that prolongation of the current boom environment might well lead to some
firming of Fed policy, possibly quickly. Specifically, the Fed "might have to
consider whether the full extent of the policy easings undertaken last fall
remain appropriate." With market sentiment having already shifted to the
negative, these comments fueled even greater fear that sustained strong
growth, even in the absence of any signs of inflation picking up, could lead
to a hike in the benchmark federal funds rate from the 4.75% level.
* 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
the original cost.
** Lehman Brothers Aggregate Bond Index is an index that measures both the
capital price changes and income provided by the underlying universe of
securities, comprised of U.S. Treasury obligations, U.S. agency
obligations, foreign obligations, U.S. investment-grade corporate debt and
mortgage-backed obligations. This index is unmanaged, and investments
cannot be made in an index.
- -------------------------------------------------------------------------------
The Treasury market stabilized in March 1999, as the activity data, primarily
the February 1999 employment report, was not as strong as feared, though still
quite strong, and inflation indicators remained tame. The Producer Price Index
recorded a surprising drop, while fears of an imminent Fed hike eased as a
more realistic assessment arose given their "balanced outlook." Though focus
during the first quarter was almost solely on the strength of the economy and
the Fed, oil price trends came to the forefront as well. After trading
sideways until mid-February 1999, oil prices started to skyrocket with news
that output-reduction agreements had been reached. Crude oil futures rose from
a low of $11.50 in mid-February 1999 to $17 by the end of the quarter.
Following further stabilization into the end of April 1999, news of a much
stronger-than-expected GDP in the first quarter, coupled with a surge in the
April Consumer Price Index, pushed yields to levels not seen since June 1998.
Negative sentiment was further compounded when the Fed moved to a tightening
bias on May 18, 1999, citing improved prospects for foreign economies and
domestic financial markets, already tight domestic labor markets and ongoing
strength in demand in excess of productivity gains. Thirty-year Treasury
yields reached 5.83% on May 31, 1999.
Investment Outlook and Strategy
The economy continues to be strong in this ninth year of the longest post-war
expansion. Growth has averaged a strong 4% over the past two years and has
brought the unemployment rate to 4.2%, a 23-year low. In the U.S., full-year
growth is expected to moderate, though remain above trend. Consumer spending
should soften on the back of rising interest rates and oil prices, while some
payback should be seen in business and residential investment following the
surge in 1998.
Inflation is at a 30-year low and should remain around 2%, aided not only by
currency devaluations in Asia and South America, but also by worldwide surplus
capacity in almost every industry. Although oil prices have risen sharply, and
if sustained will add to the Consumer Price Index, most commodity prices will
likely remain soft. Labor costs will remain subdued as layoffs continue and
productivity improvements are maintained.
However, monetary policy is poised to tighten, possibly as early as the June
30, 1999 Federal Open Market Committee (FOMC) meeting. While a hike in
interest rates is not assured, if it occurs, the market will likely remain
unsettled until the next FOMC meeting in August 1999. News on the fiscal front
should remain positive for bonds as the deficit and government bond issuance
continue to drop, though government agency/corporate issuance may fill the
void caused by reduced Treasury financing needs.
Our strategy going into the next six months is to maintain a slightly longer-
than-market average maturity given our outlook for a moderation in growth and
continued low inflation. We believe the current yield curve configuration
fully reflects the tightening bias adopted by the Fed on May 18, 1999. In
addition, yields are very attractive both on an inflation-adjusted basis and
compared to yields available in major foreign markets.
From a sector-weighting viewpoint, we are maintaining our underweight in
Treasuries and overweights in the corporate and mortgage sectors. While a weak
supply/demand picture may remain a drag on the corporate sector through the
summer, solid earnings and growth prospects are expected to lead to stronger
performance relative to Treasuries. Attractive yields combined with diminished
prepayment risk--due to the sharp drop in the percentage of mortgages re-
financeable--highlight the relative value of the mortgage sector.
- -------------------------------------------------------------------------------
FTI Municipal Bond Fund
Performance
FTI Municipal Bond Fund registered a return of 0.11% during the period since
inception through May 31, 1999.* Municipals handily outperformed the taxable
sectors of the bond market on the back of a powerful combination of heavy cash
reinvestments from coupons, maturities and redemptions as well as relatively
muted supply. New issuance volume for the period was 24% below the same period
in 1998, as continuing strong sales of new-money debt was not enough to offset
the plunge in refunding volume. Further contributing to the dramatic
outperformance was the fact that municipal yields began the year at very
"cheap" ratios relative to Treasuries.
<TABLE>
<CAPTION>
Cumulative
Total Return*
Information as of 5/31/99 Since Inception+
-------------------------------------------------- ------------------
<S> <C>
FTI Municipal Bond Fund 0.11%
+Inception date is December 11, 1998
Lehman Brothers 7-Year General Obligations Index** 0.59%
(12/31/98-5/31/99)
</TABLE>
May 1999 Semi-Annual Market Review
Interest rates rose sharply during the reporting period as the Treasury yield
curve moved higher to reflect an economy that was growing well above trend, a
mild pickup in inflation pressures, and a Federal Reserve Board (the "Fed")
leaning toward raising rates. Thirty-year tax-exempt yields rose from 4.82% to
5.08%, 10-year yields rose from 4.16% to 4.45% while the 2-year yields rose
from 3.36% to 3.52%. The rise in tax-exempt yields was considerably less than
the change in Treasury yields as tax-exempt yields rose on average 0.29%
compared to 0.90% for Treasury yields.
On the back of the 6% plus pace in fourth quarter 1998 Gross Domestic Product
(GDP), bond market sentiment changed rapidly as it became crystal clear that
economic activity ended 1998 on a very strong note. Fourth quarter growth was
boosted by special factors--the end of the General Motors strike, favorable
weather in December 1998 and unexpectedly strong export activity. Interest
rates jumped further ahead following Fed Chairman Alan Greenspan's semi-annual
Humphrey-Hawkins testimony on February 23, 1999. Although Chairman Greenspan's
comments presented a generally balanced view of the economy, he served notice
that prolongation of the current boom environment might well lead to some
firming of Fed policy, possibly quickly. Specifically, the Fed "might have to
consider whether the full extent of the policy easings undertaken last fall
remain appropriate." With market sentiment having already shifted to the
negative, these comments fueled even greater fear that sustained strong
growth, even in the absence of any signs of inflation picking up, could lead
to a hike in the benchmark federal funds rate from the 4.75% level.
* 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
the original cost.
** Lehman Brothers 7-Year General Obligations Index is an index comprised of
general obligation bonds rated A or better with maturities between six and
eight years. This index is unmanaged and investments cannot be made in an
index.
- -------------------------------------------------------------------------------
The Treasury market stabilized in March 1999, as the activity data, primarily
the February 1999 employment report, was not as strong as feared, though still
quite strong, and inflation indicators remained tame. The Producer Price Index
recorded a surprising drop, while fears of an imminent Fed hike eased as a
more realistic assessment arose given their "balanced outlook." Though focus
during the first quarter was almost solely on the strength of the economy and
the Fed, oil price trends came to the forefront as well. After trading
sideways until mid- February 1999, oil prices started to skyrocket with news
that output-reduction agreements had been reached. Crude oil futures rose from
a low of $11.50 in mid-February 1999 to $17 by the end of the quarter.
Following further stabilization into the end of April 1999, news of a much
stronger-than-expected GDP in the first quarter, coupled with a surge in the
April Consumer Price Index, pushed yields to levels not seen since June 1998.
Negative sentiment was further compounded when the Fed moved to a tightening
bias on May 18, 1999, citing improved prospects for foreign economies and
domestic financial markets, already tight domestic labor markets, and ongoing
strength in demand in excess of productivity gains. Starting in late April
1999, there began the first signs of selling by non-traditional municipal
investors as municipals dramatically outperformed the Treasury market during
the first quarter. The selling began as a trickle but intensified as we
approached late May 1999. Yield ratios had dropped from over 90% to 80% during
the time period, and that contraction coupled with large-scale issuance from
prominent corporate entities helped turn the non-traditional buyer into a net
seller of municipals.
Investment Outlook and Strategy
The economy continues to be strong in this ninth year of the longest post-war
expansion. Growth has averaged a strong 4% over the past two years and has
brought the unemployment rate to 4.2%, a 23-year low. The weak conditions in
the rest of the world and the resulting adverse change in the trade balance,
slowing capital expenditures and a sloppy manufacturing sector, and eventually
a consumer slowdown, should lower domestic growth to a more moderate 3.5%
level over the next six months.
Inflation is at a 30-year low and should remain around 2%, aided not only by
currency devaluations in Asia and South America, but also by worldwide surplus
capacity in almost every industry. Although oil prices have risen sharply, and
if sustained will add to the Consumer Price Index, most commodity prices will
likely remain soft. Labor costs will remain subdued as layoffs continue and
productivity improvements are maintained.
Monetary policy is moderately restrictive with fairly high real rates, though
money supply continues to grow very rapidly. Low inflation and fragile global
financial conditions will likely keep the Fed "on hold," in spite of strong
economic activity. News on the fiscal front should remain positive for bonds
as the deficit and government bond issuance continue to drop. The dollar faces
a dichotomous environment. The U.S. trade deficit should deteriorate sharply,
reflecting the role the United States plays as the locomotive of the global
economy. At the same time, the country's status as a "safe haven" will remain
as long as U.S. growth and financial markets remain rock solid in an otherwise
slow-growing, difficult world.
Our strategy going into the next six months is to maintain a slightly longer-
than-market average maturity given our outlook for a moderation in growth and
continued low inflation. We believe the current yield curve configuration
fully reflects the tightening bias adopted by the Fed on May 18, 1999. In
addition, yields are very attractive on an inflation-adjusted basis and
relative to Treasuries based on historical yield relationships.
- -------------------------------------------------------------------------------
We will be looking for opportunities to modestly extend duration in the event
interest rates rise further. As selling by non-traditional investors winds
down, we anticipate municipals will perform at least in line with Treasuries.
If, however, the municipal sector continues to outperform the taxable sector,
we may look to establish a position in Treasuries. Recently, higher yields
have attracted greater interest from retail investors, and therefore we will
look to capitalize on this development by exchanging current coupon callable
bonds favored by retail investors for premium coupon non-callable bonds.
Consequently, this structure could realize relative outperformance in either a
rising or declining interest rate environment.
FTI Large Capitalization Growth and Income Fund
Portfolio of Investments
May 31, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- -------------------------------------------------------------------
<C> <S> <C>
Common Stocks--100.4%
Consumer Durables--5.4%
50,000 Ford Motor Co. $ 2,853,125
33,000 Maytag Corp. 2,328,562
-----------
Total 5,181,687
-----------
Consumer Non-Durables--8.9%
60,000 Avon Products, Inc. 2,966,250
48,000 BestFoods 2,400,000
34,000 Procter & Gamble Co. 3,174,750
-----------
Total 8,541,000
-----------
Consumer Services--6.4%
70,000 (1)Chancellor Media Corp., Class A 3,556,875
100,000 (1)Fox Entertainment Group, Inc., Class A 2,550,000
-----------
Total 6,106,875
-----------
Electronic Technology--13.0%
19,000 (1)Cisco Systems, Inc. 2,071,000
30,000 Hewlett-Packard Co. 2,829,375
70,000 Intel Corp. 3,784,375
32,000 International Business Machines Corp. 3,722,000
-----------
Total 12,406,750
-----------
Energy Minerals--4.6%
55,000 Exxon Corp. 4,393,125
-----------
Finance--14.8%
44,000 AXA-UAP, ADR 2,574,000
82,000 Bank of New York Co., Inc. 2,931,500
50,000 Fannie Mae 3,400,000
50,000 Federal Home Loan Mortgage Corp. 2,915,625
32,000 Marsh & McLennan Cos., Inc. 2,328,000
-----------
Total 14,149,125
-----------
Health Technology--10.9%
45,000 American Home Products Corp. 2,593,125
48,000 Johnson & Johnson 4,446,000
50,000 Merck & Co., Inc. 3,375,000
-----------
Total 10,414,125
-----------
Oil--4.4%
39,000 BP Amoco PLC, ADR 4,177,875
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares or
Principal
Amount Value
- -------------------------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Process Industries--4.8%
42,000 Corning, Inc. $ 2,294,250
115,000 Engelhard Corp. 2,328,750
-----------
Total 4,623,000
-----------
Producer Manufacturing--11.6%
60,000 Allied-Signal, Inc. 3,483,750
53,000 General Electric Co. 5,389,437
16,000 (1)Lexmark Intl. Group, Class A 2,178,000
-----------
Total 11,051,187
-----------
Technology Services--8.0%
63,000 Computer Associates International, Inc. 2,980,688
37,000 (1)Computer Sciences Corp. 2,393,438
28,000 (1)Microsoft Corp. 2,259,250
-----------
Total 7,633,376
-----------
Telecommunications--2.4%
32,000 Nokia Oyj, Class A, ADR 2,272,000
-----------
Utilities--5.2%
50,000 Bell Atlantic Corp. 2,737,500
26,000 (1)MCI Worldcom, Inc. 2,245,750
-----------
Total 4,983,250
-----------
Total Common Stocks
(identified cost $49,580,495) 95,933,375
-----------
(2)Repurchase Agreement--0.1%
$124,000 J.P. Morgan & Co., Inc., 3.85%, dated 5/28/1999, due
6/1/1999 (at amortized cost) 124,000
-----------
Total Investments
(identified cost $49,704,495)(3) $96,057,375
===========
</TABLE>
FTI Large Capitalization Growth and Income Fund
- -------------------------------------------------------------------------------
(1) Non-income producing security.
(2) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
(3) The cost of investments for federal tax purposes amounts to $49,704,495.
The net unrealized appreciation of investments on a federal tax basis
amounts to $46,352,880 which is comprised of $46,500,181 appreciation and
$147,301 depreciation at May 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($95,606,869) at May 31, 1999.
The following acronyms are used throughout this portfolio:
ADR -- American Depositary Receipt
PLC -- Public Limited Company
(See Notes which are an integral part of the Financial Statements)
FTI Large Capitalization Growth Fund
Portfolio of Investments
May 31, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- -------------------------------------------------------------
<C> <S> <C>
Common Stocks--92.8%
Consumer Services--10.0%
13,600 CBS Corp. $ 567,800
28,000 (1)Capstar Broadcasting Corp., Class A 703,500
6,900 (1)Chancellor Media Corp., Class A 350,606
5,800 (1)MediaOne Group, Inc. 428,475
16,900 Royal Caribbean Cruises Ltd. 661,212
-----------
Total 2,711,593
-----------
Electronic Technology--17.5%
13,000 (1)Cisco Systems, Inc. 1,417,000
6,500 (1)EMC Corp. Mass 647,563
13,400 Intel Corp. 724,438
9,000 Lucent Technologies, Inc. 511,875
7,500 (1)Solectron Corp. 410,625
6,000 (1)Sun Microsystems, Inc. 358,500
11,400 United Technologies Corp. 707,512
-----------
Total 4,777,513
-----------
Energy Minerals--2.8%
7,600 Mobil Corp. 769,500
-----------
Finance--13.3%
6,675 American International Group, Inc. 763,036
10,800 Associates First Capital Corp., Class A 442,800
12,200 Bank of America Corp. 789,188
20,000 Bank of New York Co., Inc. 715,000
9,700 Fannie Mae 659,600
6,600 Washington Mutual, Inc. 252,037
-----------
Total 3,621,661
-----------
Health Services--3.7%
12,000 Cardinal Health, Inc. 724,500
8,300 McKesson HBOC, Inc. 282,719
-----------
Total 1,007,219
-----------
Health Technology--8.1%
8,300 Lilly (Eli) & Co. 592,931
7,300 Medtronic, Inc. 518,300
7,200 Merck & Co., Inc. 486,000
5,700 Pfizer, Inc. 609,900
-----------
Total 2,207,131
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares or
Principal
Amount Value
- ------------------------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Industrial Services--2.4%
10,800 Schlumberger Ltd. $ 650,025
-----------
Producer Manufacturing--8.5%
8,500 General Electric Co. 864,344
20,000 Masco Corp. 571,250
10,000 Tyco International Ltd. 873,750
-----------
Total 2,309,344
-----------
Retail Trade--10.3%
9,500 Dayton-Hudson Corp. 598,500
18,200 Home Depot, Inc. 1,035,125
8,200 Lowe's Cos., Inc. 425,887
25,650 (1)Staples, Inc. 737,438
-----------
Total 2,796,950
-----------
Technology Services--8.1%
5,200 (1)America Online, Inc. 620,750
13,500 (1)Computer Sciences Corp. 873,281
8,800 (1)Microsoft Corp. 710,050
-----------
Total 2,204,081
-----------
Utilities--8.1%
13,600 AT&T Corp. 754,800
12,600 Bell Atlantic Corp. 689,850
8,800 (1)MCI Worldcom, Inc. 760,100
-----------
Total 2,204,750
-----------
Total Common Stocks (identified cost $18,795,471) 25,259,767
-----------
(2)Repurchase Agreement--4.2%
$1,156,000 J.P. Morgan & Co., Inc., 3.85%, dated 5/28/1999, due
6/1/1999 (at amortized cost) 1,156,000
-----------
Total Investments (identified cost $19,951,471)(3) $26,415,767
===========
</TABLE>
FTI Large Capitalization Growth Fund
- -------------------------------------------------------------------------------
(1) Non-income producing security.
(2) The repurchase agreement is fully collateralized by U.S. government
and/or agency obligations based on market prices at the date of the
portfolio.
(3) The cost of investments for federal tax purposes amounts to $19,951,471.
The net unrealized appreciation of investments on a federal tax basis
amounts to $6,464,296 which is comprised of $6,965,988 appreciation and
$501,692 depreciation at May 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($27,224,218) at May 31, 1999.
(See Notes which are an integral part of the Financial Statements)
FTI International Equity Fund
Portfolio of Investments
May 31, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------------
<C> <S> <C>
Common Stocks--95.9%
Australia--1.0%
27,000 Brambles Industries Ltd. $ 720,414
-----------
Brazil--1.0%
32,700 (1)Telesp Participacoes SA, ADR 715,313
-----------
Denmark--2.2%
32,000 ISS International Service, Class B 1,607,183
-----------
Finland--2.4%
25,300 Nokia Oyj 1,798,791
-----------
France--10.6%
12,000 Axa 1,382,354
7,600 Castorama Dubois 1,853,981
6,800 Groupe Danone 1,871,495
6,300 Havas Advertising SA 1,231,453
12,127 Total SA, Class B 1,472,839
-----------
Total France 7,812,122
-----------
Germany--4.4%
14,600 DaimlerChrysler AG 1,259,496
14,600 Mannesmann AG 1,993,885
-----------
Total Germany 3,253,381
-----------
Greece--0.8%
24,500 (1)STET Hellas Telecommunications SA, ADR 557,375
-----------
Hong Kong--3.8%
160,000 (1)Cheung Kong (Holdings) Ltd. 1,299,832
46,539 HSBC Holdings PLC 1,524,324
-----------
Total Hong Kong 2,824,156
-----------
Ireland--4.0%
95,947 Bank of Ireland 1,806,596
20,300 (1)Elan Corp. PLC, ADR 1,096,200
-----------
Total Ireland 2,902,796
-----------
Italy--6.0%
195,000 ENI SPA 1,217,692
167,000 Telecom Italia SPA 1,720,082
309,000 Unicredito Italiano SPA 1,452,817
-----------
Total Italy 4,390,591
-----------
Japan--22.9%
9,100 Advantest 722,007
117,000 Bank of Tokyo-Mitsubishi Ltd. 1,568,131
</TABLE>
<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Japan (continued)
58,000 Canon, Inc. $ 1,463,556
34,500 Circle K Japan Co. Ltd. 1,404,319
166,000 Fuji Bank, Ltd., Tokyo 1,050,633
231,000 Hitachi Ltd. 1,699,007
6,000 Keyence Corp. 868,702
128,000 Komatsu Ltd. 760,354
40 (1)NTT Mobile Communication Network, Inc. 2,187,474
8,000 Rohm Co. 1,047,737
10,000 Sony Corp. 939,853
41,000 Takeda Chemical Industries 1,821,544
61,000 Tokyo Electric Power Co. 1,329,817
-----------
Total Japan 16,863,134
-----------
Mexico--3.1%
460,000 (1)Cifra SA de CV, Class V 794,481
16,500 Grupo Televisa SA, GDR 689,906
10,300 Telefonos de Mexico, Class L, ADR 823,356
-----------
Total Mexico 2,307,743
-----------
Netherlands--3.9%
32,100 Nutreco Holding NV 1,187,980
41,160 Wolters Kluwer NV 1,654,153
-----------
Total Netherlands 2,842,133
-----------
Portugal--0.8%
4,800 Telecel--Comunicacoes Pessoai 603,983
-----------
Singapore--2.0%
143,000 Development Bank of Singapore Ltd. 1,477,307
-----------
Sweden--4.8%
73,000 ForeningsSparbanken AB 1,494,266
25,200 Pharmacia & Upjohn, Inc. 1,377,498
46,000 Securitas AB, Class B 655,370
-----------
Total Sweden 3,527,134
-----------
Switzerland--2.2%
5,500 UBS AG 1,590,708
-----------
United Kingdom--20.0%
166,000 Alliance Unichem PLC 1,205,601
82,000 Amvescap PLC 754,195
71,000 BP Amoco PLC 1,269,639
131,000 Compass Group PLC 1,328,717
151,000 Electrocomponents PLC 1,213,404
</TABLE>
FTI International Equity Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
United Kingdom (continued)
55,000 Glaxo Wellcome PLC $ 1,543,144
107,985 Lloyds TSB Group PLC 1,441,339
205,656 Misys PLC 1,723,458
60,700 Select Appointments Holdings PLC, ADR 1,456,800
220,000 St. James's Place Capital PLC 826,653
102,429 Vodafone Group PLC 1,946,549
-----------
Total United Kingdom 14,709,499
-----------
Total Common Stocks (identified cost $63,681,720) 70,503,763
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares or
Principal
Amount Value
- ----------------------------------------------------------------------------
<C> <S> <C>
Preferred Stocks--1.1%
Germany, Federal Republic Of--1.1%
5,100 Fresenius AG, Pfd. (identified cost $1,041,708) $ 797,512
-----------
(2)Repurchase Agreement--3.7%
$2,757,000 J.P. Morgan & Co., Inc., 3.85%, dated 5/28/1999,
due 6/1/1999 (at amortized cost) 2,757,000
-----------
Total Investments (identified cost $67,480,428)(3) $74,058,275
===========
</TABLE>
(1) Non-income producing security.
(2) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
(3) The cost of investments for federal tax purposes amounts to $67,480,428.
The net unrealized appreciation of investments on a federal tax basis
amounts to $6,577,847 which is comprised of $9,575,225 appreciation and
$2,997,378 depreciation at May 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($73,509,865) at May 31, 1999.
The following acronyms are used throughout this portfolio:
ADR -- American Depositary Receipt
GDR -- Global Depositary Receipt
PLC -- Public Limited Company
SA -- Support Agreement
SPA -- Standby Purchase Agreement
(See Notes which are an integral part of the Financial Statements)
FTI Small Capitalization Equity Fund
Portfolio of Investments
May 31, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- -------------------------------------------------------------------
<C> <S> <C>
Common Stocks--91.4%
Aerospace & Defense--0.7%
20,900 AAR Corp. $ 412,775
-----------
Basic Industry--1.1%
11,000 Minerals Technologies, Inc. 585,750
-----------
Basic Materials--2.2%
20,000 Aptargroup, Inc. 550,000
10,900 (1)CompX International, Inc. 164,862
15,000 Kaydon Corp. 499,688
-----------
Total 1,214,550
-----------
Commercial Services--9.8%
10,500 (1)Abacus Direct Corp. 772,406
19,000 Central Parking Corp. 617,500
25,000 (1)Data Transmission Network Corp. 557,812
17,000 G & K Services, Inc., Class A 803,250
21,500 (1)Lamar Advertising Co. 733,687
35,000 Nielsen Media Research 936,250
20,000 (1)On Assignment, Inc. 512,500
34,000 (1)School Specialty, Inc. 505,750
-----------
Total 5,439,155
-----------
Consulting Services--0.4%
7,500 (1)Metzler Group, Inc. 245,625
-----------
Consumer Durables--1.1%
25,000 (1)Furniture Brands International, Inc. 606,250
-----------
Consumer Services--2.6%
14,000 (1)Entercom Communication Corp. 456,750
12,000 (1)IDG Books Worldwide, Inc., Class A 258,000
30,000 (1)ITT Educational Services, Inc. 714,375
-----------
Total 1,429,125
-----------
Education--1.0%
26,000 (1)DeVRY, Inc. 578,500
-----------
Electronic Technology--9.6%
8,000 (1)Alpha Industries, Inc. 278,500
13,900 (1)Comverse Technology, Inc. 939,119
3,600 (1)Copper Mountain Networks, Inc. 230,400
7,600 (1)Electro Scientific Industries, Inc. 285,000
12,000 (1)Extreme Networks, Inc. 511,500
</TABLE>
<TABLE>
<CAPTION>
Shares Value
- -----------------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Electronic Technology (continued)
8,000 (1)Gemstar International Group Ltd. $ 494,500
11,100 (1)Hi/fn, Inc. 649,350
14,500 (1)Information Resource Engineer, Inc. 344,375
15,000 (1)Kroll-O'Gara Co. 301,406
9,600 (1)Network Appliance, Inc. 452,700
9,800 (1)PMC-Sierra, Inc. 475,912
36,000 (1)Tekelec, Inc. 364,500
-----------
Total 5,327,262
-----------
Environmental Control--0.9%
23,477 (1)Tetra Tech, Inc. 498,886
-----------
Financial Services--10.5%
16,500 CMAC Investment Corp. 834,281
13,000 (1)ChoicePoint, Inc. 781,625
20,000 (1)HealthCare Financial Partners, Inc. 675,000
17,200 Hooper Holmes, Inc. 311,750
17,500 INMC Mortgage Holdings, Inc. 259,219
77,200 (1)Imperial Credit Industries, Inc. 636,900
16,000 Legg Mason, Inc. 541,000
40,000 Premier National Bancorp, Inc. 685,000
18,000 Queens County Bancorp, Inc. 569,250
30,000 Roslyn Bancorp, Inc. 543,750
-----------
Total 5,837,775
-----------
Forest Products & Paper--0.6%
20,000 Universal Forest Products, Inc. 360,000
-----------
Health Services--2.0%
19,000 Bindley Western Industries, Inc. 572,375
19,500 (1)Pharmaceutical Product Development, Inc. 521,625
-----------
Total 1,094,000
-----------
Health Technology--6.5%
22,000 (1)Affymetrix, Inc. 772,750
32,500 (1)Alkermes, Inc. 804,375
11,000 (1)IDEC Pharmaceuticals Corp. 554,812
14,000 (1)Medimmune, Inc. 890,750
9,000 (1)Sepracor, Inc. 573,750
-----------
Total 3,596,437
-----------
</TABLE>
FTI Small Capitalization Equity Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Healthcare--1.4%
40,000 (1)American Oncology Resources, Inc. $ 406,250
40,000 (1)International Isotopes, Inc. 377,500
-----------
Total 783,750
-----------
Industrial Services--2.8%
25,000 (1)BJ Services Co. 689,062
24,000 Helmerich & Payne, Inc. 559,500
21,400 (1)Marine Drilling Cos., Inc. 307,625
-----------
Total 1,556,187
-----------
Insurance--0.8%
2,500 (1)Markel Corp. 471,875
-----------
Medical Supplies--1.1%
24,000 (1)Lincare Holdings, Inc. 591,000
-----------
Non-Energy Minerals--0.7%
9,800 Elcor Corp. 395,675
-----------
Oil--0.6%
25,000 (1)Transmontaigne, Co. 353,125
-----------
Process Industries--2.3%
1,000 (1)Hines Horticulture, Inc. 8,875
14,000 MacDermid, Inc. 563,500
11,000 Optical Coating Laboratories, Inc. 713,625
-----------
Total 1,286,000
-----------
Producer Manufacturing--2.4%
23,700 (1)Cable Design Technologies, Class A 334,762
21,750 (1)MotivePower Industries, Inc. 368,391
25,000 (1)Rayovac Corp. 631,250
-----------
Total 1,334,403
-----------
Retail Trade--1.9%
20,000 (1)Rent-A-Center, Inc. 516,250
34,000 (1)Valuevision International, Inc., Class A 522,750
-----------
Total 1,039,000
-----------
Services--3.9%
13,000 (1)Charles River Associates, Inc. 284,375
23,000 (1)Maximus, Inc. 684,250
18,000 (1)Profit Recovery Group International, Inc. 662,625
22,500 Regis Corp. Minnesota 542,813
-----------
Total 2,174,063
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares or
Principal
Amount Value
- ----------------------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Technology--18.5%
4,800 (1)Allaire Corp. $ 259,200
15,000 (1)Bisys Group, Inc. 823,594
2,700 (1)CNET, Inc. 292,275
25,000 (1)Clarify, Inc. 807,813
25,000 (1)Diamond Technology Partners, Class A 600,000
4,500 (1)DoubleClick, Inc. 438,469
5,000 (1)Exodus Communications, Inc. 375,000
7,200 Henry Jack & Associates, Inc. 254,250
16,400 (1)Manhattan Associates, Inc. 146,575
5,100 (1)Marimba, Inc. 309,825
6,000 (1)Media Metrix, Inc. 285,375
22,400 (1)Mercury Interactive Corp. 736,400
8,500 (1)Micromuse, Inc. 338,938
7,000 (1)New Era of Networks, Inc. 311,500
21,800 (1)PsiNet, Inc. 970,100
60,500 (1)Santa Cruz Operation, Inc. 359,219
14,300 (1)TSI International Software Ltd. 316,388
9,000 (1)Uniphase Corp. 1,206,000
7,700 (1)Verio, Inc. 417,725
12,200 (1)Veritas Software Corp. 1,076,650
-----------
Total 10,325,296
-----------
Telecommunications--4.7%
33,000 (1)Capstar Broadcasting Corp., Class A 829,125
13,500 (1)IXC Communications, Inc. 486,000
50,000 (1)Primus Telecommunications Group, Inc. 831,250
21,000 (1)RSL Communications Ltd., Class A 472,500
-----------
Total 2,618,875
-----------
Transportation--1.3%
25,000 (1)Coach USA, Inc. 728,125
-----------
Total Common Stocks
(identified cost $44,213,666) 50,883,464
-----------
(2)Repurchase Agreement--5.6%
$3,145,000 J.P. Morgan & Co., Inc., 3.85%, dated 5/28/1999,
due 6/1/1999 (at amortized cost) 3,145,000
-----------
Total Investments
(identified cost $47,358,666)(3) $54,028,464
===========
</TABLE>
FTI Small Capitalization Equity Fund
- -------------------------------------------------------------------------------
(1) Non-income producing security.
(2) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
(3) The cost of investments for federal tax purposes amounts to $47,358,666.
The net unrealized appreciation of investments on a federal tax basis
amounts to $6,669,798 which is comprised of $9,592,765 appreciation and
$2,922,967 depreciation at May 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($55,700,343) at May 31, 1999.
(See Notes which are an integral part of the Financial Statements)
FTI Bond Fund
Portfolio of Investments
May 31, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
- -------------------------------------------------------------------------------
<C> <S> <C>
Collateralized Mortgage Obligations--11.8%
$1,488,227 DLJ Mortgage Acceptance Corp. 1998-2, Class 1PA,
6.75%, 6/19/2028 $ 1,458,158
1,973,575 LB Commercial Conduit Mortgage Trust 1998-C4, Class
A1A, 5.87%, 8/15/2006 1,925,923
760,434 PNC Mortgage Securities Corp. 1998-2, Class 3A7,
6.75%, 3/25/2013 758,216
1,090,374 Residential Accredit Loans, Inc. 1997-QS13, Class
A9, 7.00%, 12/25/2027 1,097,924
966,430 Residential Asset Securitization Trust 1997-A11,
Class A3, 7.00%, 1/25/2028 972,504
1,485,000 Residential Asset Securitization Trust 1998-A2,
Class A5, 6.75%, 6/25/2028 1,460,588
680,000 Residential Funding Mortgage Securities I 1997-S12,
Class A18, 6.75%, 8/25/2027 665,139
-----------
Total Collateralized Mortgage Obligations
(identified cost $8,432,647) 8,338,452
-----------
Corporate Bonds--28.7%
Banking--2.4%
1,700,000 Sovereign Bancorp, Inc., Sr. Note, 6.63%, 3/15/2001 1,699,249
-----------
Building Residential--1.1%
775,000 D. R. Horton, Inc., Sr. Note, 8.00%, 2/1/2009 758,531
-----------
Cable Television--2.4%
900,000 (1)(2)Charter Communications Holdings Capital
Corp., Sr. Note, 8.63%, 4/1/2009 882,000
815,000 CSC Holdings, Inc., Sr. Deb., 7.63%, 7/15/2018 787,494
-----------
Total 1,669,494
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
- -------------------------------------------------------------------------------
<C> <S> <C>
Corporate Bonds (continued)
Electrical & Electronics--2.1%
$1,500,000 (1)(2)Empresa Nacional Electricidad SA, 8.50%,
4/1/2009 $ 1,494,190
-----------
Energy Equipment & Services--3.3%
2,300,000 Noble Drilling Corp., Sr. Note, 7.50%, 3/15/2019 2,315,339
-----------
Financial Services--7.2%
2,120,000 (1)(2)Dresdner Funding Trust, Note, 8.15%,
6/30/2031 2,104,747
2,000,000 (1)(2)Newcourt Credit Group, Inc., 6.88%, 2/16/2005 1,951,926
1,000,000 (1)(2)RBF Finance Co., Gtd. Note, 11.00%, 3/15/2006 1,005,000
-----------
Total 5,061,673
-----------
Industrial Components--2.4%
1,700,000 (1)TRW, Inc., Note, 6.50%, 6/1/2002 1,697,722
-----------
Insurance--0.1%
40,000 CIT Group, Inc., Sr. Note, 5.92%, 11/8/2002 39,460
-----------
Other--4.4%
1,450,000 (1)(2)CE Generation LLC, Note, 7.42%, 12/15/2018 1,429,016
1,500,000 News America Holdings, Inc., 10.13%, 10/15/2012 1,690,747
-----------
Total 3,119,763
-----------
Real Estate--1.5%
1,100,000 (1)(2)Host Marriott, L.P., Sr. Note, 8.38%,
2/15/2006 1,064,250
-----------
Telecommunications--1.1%
800,000 AT&T Capital Corp., Note, 6.75%, 2/4/2002 801,893
-----------
Transportation--Airlines--0.7%
550,000 Northwest Airlines, Inc., Note, 8.52%, 4/7/2004 533,437
-----------
Total Corporate Bonds
(identified cost $20,497,856) 20,255,001
-----------
</TABLE>
FTI Bond Fund
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
or Shares Value
- -----------------------------------------------------------------------------
<C> <S> <C>
Mortgage Backed Securities--5.5%
Federal Home Loan Mortgage
Corporation--3.3%
$2,384,308 6.00%, 1/1/2014--4/1/2014 $ 2,332,554
-----------
Government National Mortgage
Association--2.2%
1,537,810 7.50%, 7/15/2025--9/15/2025 1,575,916
-----------
Total Mortgage Backed Securities (identified cost
$3,917,145) 3,908,470
-----------
Preferred Stocks--7.0%
Real Estate--2.5%
66,100 Equity Office Properties Trust, Cumulative Pfd.,
Series A, $2.25 1,722,731
-----------
Special Purpose Entity--4.1%
2,650 (1)(2)Centaur Funding Corp., Pfd. 2,876,906
-----------
Telecommunications--0.4%
11,300 AT&T Corp., Cumulative Pfd., $2.43 310,044
-----------
Total Preferred Stocks (identified cost $4,773,962) 4,909,681
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
- -----------------------------------------------------------------------------
<C> <S> <C>
U.S. Treasury--43.8%
$ 6,705,000 United States Treasury Bond, 7.25%, 8/15/2022 $ 7,622,747
5,320,000 United States Treasury Note, 5.63%, 2/15/2006 5,263,475
800,000 United States Treasury Note, 6.63%, 3/31/2002 821,500
3,700,000 United States Treasury Note, 7.00%, 7/15/2006 3,948,596
13,000,000 United States Treasury Note, 8.50%, 2/15/2000 13,308,750
-----------
Total U.S. Treasury
(identified cost $31,566,747) 30,965,068
-----------
(3)Repurchase Agreement--2.2%
1,572,000 J.P. Morgan & Co., Inc., 3.85%, dated 5/28/1999,
due 6/1/1999
(at amortized cost) 1,572,000
-----------
Total Investments
(identified cost $70,760,357)(4) $69,948,672
===========
</TABLE>
(1) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities Laws. At May 31, 1999, these securities amounted
to $14,505,757 which represents 20.5% of net assets. Included in these
amounts, securities which have been deemed liquid amounted to $12,808,035
which represents 18.1% of net assets.
(2) Denotes a restricted security that has been deemed liquid by criteria
approved by the fund's board of directors.
(3) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
(4) The cost of investments for federal tax purposes amounts to $70,760,357.
The net unrealized depreciation of investments on a federal tax basis
amounts to $811,685 which is comprised of $248,374 appreciation and
$1,060,059 depreciation at May 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($70,624,923) at May 31, 1999.
The following acronyms are used throughout this portfolio:
GTD -- Guaranty
LLC -- Limited Liability Corporation
SA -- Support Agreement
(See Notes which are an integral part of the Financial Statements)
FTI Municipal Bond Fund
Portfolio of Investments
May 31, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Credit
Amount Rating* Value
- ------------------------------------------------------------------------------
<C> <S> <C> <C>
Long-Term Municipals--96%
Alabama--1.2%
$ 750,000 Birmingham, AL, GO UT Bonds, 6.45%
(Original Issue Yield: 6.50%), 7/1/2006 AA/Aa3 $ 807,157
-----------
California--0.8%
500,000 Los Angeles, CA, Department of Water &
Power, Revenue Bonds, 6.875% (Original
Issue Yield: 6.90%), 4/1/2009 AA/Aa3 538,725
-----------
Colorado--1.6%
1,000,000 Denver, CO, City & County School District
No. 01, Certificate Participation, 5.50%
(Denver School Facilities Leasing
Corp.)/(AMBAC INS), 12/15/2008 AAA/Aaa 1,059,100
-----------
Florida--7.8%
2,000,000 Florida State Board of Education Lottery,
School Improvement Revenue Bonds, 4.00%
(FGIC LOC), 7/1/2002 AAA/Aaa 2,013,540
1,750,000 Florida State Turnpike Authority, (Series
A), 5.125% (FSA LOC)/
(Original Issue Yield: 4.55%), 7/1/2013 AAA/Aaa 1,784,212
500,000 Florida State Turnpike Authority, Revenue
Bonds (Series A), 6.95% (AMBAC INS),
7/1/2003 AAA/Aaa 542,030
280,000 Orange County, FL, Refunding Revenue
Bonds, 5.25%, 10/1/2011 NR/Aa3 290,738
</TABLE>
<TABLE>
<CAPTION>
Principal Credit
Amount Rating* Value
- ------------------------------------------------------------------------------
<C> <S> <C> <C>
Long-Term Municipals (continued)
Florida (continued)
$ 550,000 Palm Beach County, FL, GO UT Refunding
Bonds, 5.50%, 12/1/2012 AA/Aa2 $ 587,659
-----------
Total 5,218,179
-----------
Georgia--3.5%
1,000,000 Fulton County, GA School District, GO UT
Refunding Bonds, 5.25%, 1/1/2013 AA/Aa2 1,045,010
350,000 Georgia State, UT GO, 6.00%, 9/1/2007 AAA/Aaa 389,809
750,000 Houston County, GA Development Authority,
Multifamily Revenue Bond (Series A),
6.85%, 8/1/2018 NR 740,460
160,000 Houston County, GA Development Authority,
Multifamily Revenue Bonds, 6.40%,
8/1/2006 NR 159,166
-----------
Total 2,334,445
-----------
Hawaii--0.8%
500,000 Hawaii State, GO UT Bonds (Series CJ),
5.80% (Original Issue Yield: 5.85%),
1/1/2005 A+/A1 534,980
-----------
Illinois--3.3%
1,000,000 Du Page, IL Water Commission, GO UT
Refunding Bonds, 6.25% (Original Issue
Yield: 6.35%), 3/1/2005 AAA/Aaa 1,075,710
1,055,000 Illinois State Sales Tax, Refunding
Revenue Bond (Series Y) , 5.25%,
6/15/2010 AAA/Aa2 1,101,293
-----------
Total 2,177,003
-----------
</TABLE>
FTI Municipal Bond Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Credit
Amount Rating* Value
- ------------------------------------------------------------------------------
<C> <S> <C> <C>
Long-Term Municipals (continued)
Kentucky--1.6%
$1,000,000 Kentucky Turnpike Authority, Refunding
Revenue Bonds, 5.50% (AMBAC INS),
7/1/2006 AAA/Aaa $ 1,070,430
-----------
Maine--1.4%
905,000 Maine State Housing Authority, Refunding
Revenue Bonds (Series D-1), 5.05%,
11/15/2016 AA/Aa2 920,159
-----------
Maryland--0.8%
500,000 Maryland State, GO UT Bonds, 6.75%
(Original Issue Yield: 6.80%), 7/15/2003 AAA/Aaa 523,810
-----------
Massachusetts--2.0%
1,250,000 Massachusetts State Special Oblig Rev,
Refunding Revenue Bonds, 5.50%, 6/1/2013 AA/Aa3 1,333,875
-----------
Minnesota--5.3%
1,000,000 Minnesota Public Facilities Authority,
Refunding Revenue Bonds, 5.00%, 3/1/2003 AAA/Aaa 1,038,230
2,500,000 Minnesota State HFA, 4.85%, 1/1/2024 AA+/Aa2 2,504,650
-----------
Total 3,542,880
-----------
Mississippi--0.6%
385,000 Mississippi Home Corp., Refunding Revenue
Bonds (Series G), 5.25% (GNMA COL),
11/1/2017 AAA/Aaa 386,517
-----------
Missouri--0.8%
500,000 Missouri State Regulatory Convention &
Sports Complex Authority, Revenue Bonds
(Series A), 6.70%, 8/15/2004 AAA/Aaa 552,755
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal Credit
Amount Rating* Value
- ----------------------------------------------------------------------------
<C> <S> <C> <C>
Long-Term Municipals (continued)
New Hampshire--1.6%
$1,000,000 New Hampshire Municipal Bond Bank,
Revenue Bonds (Series C), 5.625% (MBIA
INS), 8/15/2005 AAA/Aaa $ 1,075,740
-----------
New Jersey--5.1%
380,000 Bergen County, NJ Utilities Authority,
Water Pollution Control Revenue
Refunding Bond (Series B), 5.60% (FGIC
INS)/(Original Issue Yield: 5.70%),
12/15/2003 AAA/Aaa 405,775
1,000,000 New Jersey State Transportation Trust
Fund Agency, Revenue Bonds (Series A),
6.00% (United States Treasury LOC)/
(Original Issue Yield: 6.20%), 6/15/2002 NR/Aaa 1,060,800
1,240,000 New Jersey State Transportation Trust
Fund Agency, Revenue Bonds, 6.00%,
6/15/2010 AA-/Aa2 1,379,339
500,000 Ocean County, NJ, GO UT Bonds, 6.25%,
10/1/2002 NR/Aa2 536,150
-----------
Total 3,382,064
-----------
New Mexico--2.9%
1,900,000 Rio Rancho NM Water & Wastewater System
Revenue, Refunding Revenue Bonds, 5.25%
(AMBAC LOC), 5/15/2012 AAA/NR 1,951,148
-----------
New York--23.2%
1,000,000 Housing NY Corp., Revenue Refunding
Bonds, 5.10% (Original Issue Yield:
5.25%), 11/1/2005 AA/A1 1,034,190
</TABLE>
FTI Municipal Bond Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Credit
Amount Rating* Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C>
Long-Term Municipals (continued)
New York (continued)
$1,110,000 Municipal Assistance Corp of New York,
(Series G), 5.50% (Original Issue Yield:
4.45%), 7/1/2001 AA/Aa2 $ 1,148,806
500,000 Nassau County, NY, GO UT Bonds (Series V),
5.15% (AMBAC INS), 3/1/2007 AAA/Aaa 523,550
1,000,000 Nassau County, NY, GO UT Refunding Bonds
(Series B), 5.25% (MBIA INS)/(Original
Issue Yield: 5.35%), 2/1/2004 AAA/Aaa 1,047,760
750,000 New York City, NY Transitional Finance
Authority, Public Improvements, 5.125%
(Original Issue Yield: 4.893%), 11/15/2014 AA/Aa3 754,725
1,250,000 New York City, NY Transitional Finance
Authority, Revenue Bonds (Series C),
5.25%, 5/1/2012 AA/Aa3 1,283,962
1,500,000 New York City, NY Transitional Finance
Authority, Revenue bonds (Series A), 4.50%
(Original Issue Yield: 4.60%), 8/15/2006 AA/Aa3 1,520,670
345,000 New York State Dormitory Authority,
Refunding Revenue Bonds, 5.50% (Fordham
University)/
(FGIC INS)/(Original Issue Yield: 5.55%),
7/1/2006 AAA/Aaa 368,557
</TABLE>
<TABLE>
<CAPTION>
Principal Credit
Amount Rating* Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C>
Long-Term Municipals (continued)
New York (continued)
$ 700,000 New York State Environmental Facilities
Corp., Refunding Revenue Bonds, 5.50%
(Original Issue Yield: 5.55%), 6/15/2004 AA-/Aa1 $ 743,435
550,000 New York State Local Government
Assistance Corp., Revenue Bonds (Series
A), 5.50% (Original Issue Yield: 5.55%),
4/1/2006 A+/A3 585,206
750,000 New York State Power Authority, Refunding
Revenue Bonds (Series Y), 6.25% (Original
Issue Yield: 6.70%), 1/1/2005 AAA/Aaa 794,438
1,000,000 New York State Thruway Authority, Revenue
Bonds (Series A), 5.50% (AMBAC INS)/
(Original Issue Yield: 5.55%), 4/1/2006 AAA/Aaa 1,067,480
1,000,000 New York State Thruway Authority, Revenue
Bonds, 5.40% (Original Issue Yield:
5.50%), 4/1/2003 BBB+/Baa1 1,041,850
400,000 New York State Urban Development Corp.,
Refunding Revenue Bonds, 5.50% (HUD
Section 236 GTD), 7/1/2005 AAA/Aaa 427,788
2,500,000 New York State, GO UT Refunding Bonds
(Series F), 5.00%, 9/15/2004 A/A2 2,603,000
</TABLE>
FTI Municipal Bond Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Credit
Amount Rating* Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C>
Long-Term Municipals (continued)
New York (continued)
$ 500,000 Triborough Bridge & Tunnel Authority, NY,
Refunding Revenue Bonds (Series Y), 5.90%
(Original Issue Yield: 5.95%), 1/1/2007 A+/Aa3 $ 547,295
-----------
Total 15,492,712
-----------
Oregon--1.7%
1,000,000 Oregon State, GO LT, 6.75%, 5/1/2005 AA/Aa2 1,135,010
-----------
Pennsylvania--1.3%
835,000 Delaware County, PA IDA, Refunding Revenue
Bonds (Series A), 6.10%, 1/1/2005 A-/Baa2 871,423
-----------
Puerto Rico--0.8%
500,000 Puerto Rico Electric Power Authority,
Revenue Bond, 6.60% (MBIA INS)/(Original
Issue Yield: 6.65%), 7/1/2001 AAA/Aaa 529,370
-----------
Rhode Island--2.9%
380,000 Rhode Island Housing & Mortgage Finance
Corp., Refunding Revenue Bonds (Series 25-
A), 4.95%, 10/1/2016 AA+/Aa2 385,324
1,500,000 Rhode Island State, GO UT, 4.30%,
11/1/2000 AA-/A1 1,516,965
-----------
Total 1,902,289
-----------
South Carolina--1.8%
1,200,000 Charleston County, SC School District, GO
UT, 4.00%, 2/1/2003 AA/Aa1 1,204,224
-----------
Texas--12.3%
1,375,000 Arlington, TX, GO UT, 4.80%, 8/15/2001 AA/Aa3 1,405,470
1,030,000 Galena Park, TX Independent School
District, GO UT Bonds, 6.25% (PSFG INS),
8/15/2005 NR/Aaa 1,139,314
</TABLE>
<TABLE>
<CAPTION>
Principal Credit
Amount Rating* Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C>
Long-Term Municipals (continued)
Texas (continued)
$ 500,000 Garland, TX ISD, GO UT Refunding Bonds,
4.00% (PSFG LOC)/
(Original Issue Yield: 3.75%), 2/15/2002 AAA/Aaa $ 501,445
500,000 Garland, TX, GO LT Refunding Bonds, 5.90%
(Original Issue Yield: 6.00%), 8/15/2002 AA/Aa2 529,975
1,430,000 Laredo, TX, Refunding Bonds, 5.125% (FGIC
LOC)/(Original Issue Yield: 4.729%),
8/15/2012 AAA/Aaa 1,440,067
795,000 Plano ISD, TX, GO UT Bonds, 5.50% (PSFG
INS), 2/15/2005 AAA/Aaa 845,928
990,000 San Antonio, TX Electric & Gas, Revenue
Bonds, 5.00% (Original Issue Yield:
5.25%), 2/1/2012 AA/Aa1 1,004,335
10,000 San Antonio, TX Electric & Gas, Revenue
Bonds, 5.00%, 2/1/2012 AA/NR 10,120
1,225,000 Texas State, GO UT Refunding Bonds (Series
A), 6.00% (Original Issue Yield: 6.10%),
10/1/2006 AA/Aa2 1,350,379
-----------
Total 8,227,033
-----------
Virginia--1.2%
550,000 Portsmouth, VA, GO UT Refunding Bonds,
5.35% (Original Issue Yield: 5.45%),
8/1/2005 AA-/A3 582,879
190,000 Virginia State Public School Authority, GO
UT Bonds (Series B), 6.00%, 8/1/2005 AA/Aa2 209,982
-----------
Total 792,861
-----------
</TABLE>
FTI Municipal Bond Fund
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Credit
Amount Rating* Value
- -----------------------------------------------------------------------------
<C> <S> <C> <C>
Long-Term Municipals (continued)
Washington--5.3%
$ 200,000 Clark County, WA Public Utilities
District No. 001, Revenue Bonds, 6.00%
(FGIC INS), 1/1/2008 AAA/Aaa $ 219,752
1,250,000 Snohomish County, WA School District No.
2, GO UT Refunding Bonds (Series A),
5.50% (MBIA INS), 12/1/2011 AAA/Aaa 1,330,962
1,750,000 Washington State, GO UT Bonds, 6.25%
(Original Issue Yield: 6.35%), 2/1/2011 AA+/Aa1 1,978,830
-----------
Total 3,529,544
-----------
Wisconsin--4.4%
1,100,000 Wisconsin State Clean Water, Revenue
Bonds (Series 1), 5.00%, 6/1/2010 AA+/Aa2 1,120,361
</TABLE>
<TABLE>
<CAPTION>
Principal Credit
Amount Rating* Value
- -----------------------------------------------------------------------------
<C> <S> <C> <C>
Long-Term Municipals (continued)
Wisconsin (continued)
$1,065,000 Wisconsin State, GO UT Bonds (Series D),
5.10%, 5/1/2011 AA/Aa2 $ 1,087,003
700,000 Wisconsin State, GO UT Refunding Bonds
(Series 2), 5.40%, 5/1/2004 AA/Aa2 736,456
-----------
Total 2,943,820
-----------
Total Long-Term Municipals (identified cost
$62,870,800) 64,037,253
-----------
Mutual Funds--3.0%
1,743,000 Dreyfus Tax Exempt 1,743,000
275,500 Merrill Lynch Tax Exempt Fund 275,500
-----------
Total Mutual Funds (at amortized cost) 2,018,500
-----------
Total Investments
(identified cost $64,889,300)(1) $66,055,753
===========
</TABLE>
(1) The cost of investments for federal tax purposes amounts to $64,889,300.
The net unrealized appreciation of investments on a federal tax basis
amounts to $1,166,453 which is comprised of $1,465,405 appreciation and
$298,952 depreciation at May 31, 1999.
* Please refer to the Appendix of the Statement of Additional Information
for an explanation of the credit ratings. Current credit ratings are
unaudited.
Note: The categories of investments are shown as a percentage of net assets
($66,749,822) at May 31, 1999.
The following acronyms are used throughout this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation
COL -- Collateralized
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Security Assurance
GNMA -- Government National Mortgage Association
GO -- General Obligation
GTD -- Guaranty
HFA -- Housing Finance Authority
IDA -- Industrial Development Authority
INS -- Insured
ISD -- Independent School District
LOC -- Letter of Credit
LT -- Limited Tax
MBIA -- Municipal Bond Investors Assurance
PSFG -- Permanent School Fund Guarantee
UT -- Unlimited Tax
(See Notes which are an integral part of the Financial Statements)
FTI Funds
Statements of Assets and Liabilities
May 31, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Large
Capitalization
Growth and Large Small Municipal
Income Capitalization International Capitalization Bond Bond
Fund (1) Growth Fund (1) Equity Fund Equity Fund Fund (1) Fund (1)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Total investments in
securities at value $96,057,375 $26,415,767 $74,058,275 $54,028,464 $69,948,672 $66,055,753
Income receivable 196,788 15,092 214,450 18,862 1,129,855 959,576
Cash 480 -- 994 402,674 -- 1,315
Cash denominated in foreign
currencies (identified cost
$16,018) -- -- 15,950 -- -- --
Receivable for investments
sold 8,442,622 811,702 -- 2,422,700 1,695,208 --
Deferred organizational
costs -- -- 17,287 17,291 -- --
----------- ----------- ----------- ----------- ----------- -----------
Total Assets 104,697,265 27,242,561 74,306,956 56,889,991 72,773,735 67,016,644
----------- ----------- ----------- ----------- ----------- -----------
Liabilities:
Payable for investments
purchased $ 8,982,304 $ -- $ 708,629 $ 1,105,842 $ 1,697,722 $ --
Payable for taxes withheld 3,196 -- 11,862 -- -- --
Income distribution payable -- -- -- -- 385,399 212,499
Accrued expenses 104,896 18,343 76,600 83,806 65,691 54,323
----------- ----------- ----------- ----------- ----------- -----------
Total liabilities 9,090,396 18,343 797,091 1,189,648 2,148,812 266,822
----------- ----------- ----------- ----------- ----------- -----------
Net Assets $95,606,869 $27,224,218 $73,509,865 $55,700,343 $70,624,923 $66,749,822
----------- ----------- ----------- ----------- ----------- -----------
Net Assets Consist of:
Paid in capital $37,261,084 $19,000,095 $66,381,303 $46,473,551 $72,106,985 $65,577,833
Net unrealized
appreciation/(depreciation)
of investments and
translation of assets and
liabilities in foreign
currency 46,352,880 6,464,296 6,512,901 6,669,798 (811,685) 1,166,453
Accumulated net realized
gain/(loss) on investments
and foreign currency
transactions 11,870,766 1,782,376 698,705 2,842,794 (672,393) 6,947
Undistributed net investment
income/(net operating loss) 122,139 (22,549) (83,044) (285,800) 2,016 (1,411)
----------- ----------- ----------- ----------- ----------- -----------
Total Net Assets $95,606,869 $27,224,218 $73,509,865 $55,700,343 $70,624,923 $66,749,822
=========== =========== =========== =========== =========== ===========
Net Asset Per Share,
Offering Price and
Redemption Proceeds Per
Share $ 10.70 $ 10.38 $ 13.89 $ 15.04 $ 9.72 $ 9.83
=========== =========== =========== =========== =========== ===========
Shares Outstanding 8,933,741 2,621,945 5,291,485 3,703,154 7,267,098 6,790,150
----------- ----------- ----------- ----------- ----------- -----------
Investments, at identified
cost $49,704,495 $19,951,471 $67,480,428 $47,358,666 $70,760,357 $64,889,300
----------- ----------- ----------- ----------- ----------- -----------
Investments, at tax cost $49,704,495 $19,951,471 $67,480,428 $47,358,666 $70,760,357 $64,889,300
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
(1) Reflects operations for the period from December 11, 1998 (start of
performance) to May 31, 1999.
(See Notes which are an integral part of the Financial Statements)
FTI Funds
Statements of Operations
Six Months Ended May 31, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Large Large
Capitalization Capitalization Small Municipal
Growth and Growth International Capitalization Bond Bond
Income Fund (1) Fund (1) Equity Fund Equity Fund Fund (1) Fund (1)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends $ 706,346(2) $ 79,012 $ 522,116(3) $ 50,461 $ 191,812 $ --
Interest -- 21,801 12,333 66,864 1,707,861 1,247,413
----------- ---------- --------- ---------- ----------- ----------
Total income 706,346 100,813 534,449 117,325 1,899,673 1,247,413
Expenses:
Investment advisory fee 340,495 85,668 369,067 269,983 137,306 131,928
Administrative personnel
and services fee 65,444 34,521 52,549 38,264 38,616 37,407
Custodian fees 12,939 8,929 29,367 15,311 9,072 9,587
Transfer and dividend
disbursing agent fees
and expenses 9,023 8,841 8,879 8,927 7,977 8,101
Directors' fees 4,274 3,523 4,511 4,939 3,959 3,959
Auditing fees 9,612 9,598 9,485 10,094 9,597 9,597
Legal fees 3,841 3,589 2,233 3,481 3,827 3,827
Portfolio accounting
fees 24,477 24,467 24,927 25,106 24,228 24,437
Share registration costs 19,511 10,711 6,418 10,640 12,178 10,609
Printing and postage 4,050 3,795 5,002 6,322 3,621 3,416
Insurance premiums 1,370 1,078 2,547 2,088 1,366 1,366
Miscellaneous 3,104 3,071 7,094 7,970 3,104 3,104
----------- ---------- --------- ---------- ----------- ----------
Total expenses 498,140 197,791 522,079 403,125 254,851 247,338
Waivers and
Reimbursements:
Waiver of investment
advisory fee -- -- -- -- -- (32,726)
Waiver of custodian fee (12,939) (8,929) -- -- (9,072) (9,587)
Reimbursements of other
operating expenses -- (65,500) (83,322) -- -- --
----------- ---------- --------- ---------- ----------- ----------
Total Waivers and
Reimbursements (12,939) (74,429) (83,322) -- (9,072) (42,313)
----------- ---------- --------- ---------- ----------- ----------
Net expenses 485,201 123,362 438,757 403,125 245,779 205,025
----------- ---------- --------- ---------- ----------- ----------
Net investment income
(loss) 221,145 (22,549) 95,692 (285,800) 1,653,894 1,042,388
----------- ---------- --------- ---------- ----------- ----------
Realized and Unrealized
Gain (Loss) on
Investments:
Net realized gain (loss)
on investments 11,870,766 1,782,376 922,001 5,556,052 (672,393) 6,947
Net change in unrealized
appreciation
(depreciation) of
investments and
translation of assets
and liabilities in
foreign currency 46,352,880 6,464,296 (833,828) 1,110,720 (811,685) 1,166,453
----------- ---------- --------- ---------- ----------- ----------
Net realized and
unrealized gain (loss)
on investments and
foreign currency 58,223,646 8,246,672 88,173 6,666,772 (1,484,078) 1,173,400
----------- ---------- --------- ---------- ----------- ----------
Change in net assets
resulting from
operations $58,444,791 $8,224,123 $ 183,865 $6,380,972 $ 169,816 $2,215,788
=========== ========== ========= ========== =========== ==========
</TABLE>
(1) Reflects operations for the period from December 11, 1998 (start of
performance) to May 31, 1999.
(2) Net of foreign taxes withheld of $13,412.
(3) Net of foreign taxes withheld of $66,656.
(See Notes which are an integral part of the Financial Statements)
FTI Funds
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Large Capitalization Large Capitalization
Growth and Income Fund Growth Fund
---------------------- --------------------
Period Ended Period Ended
31-May-99 31-May-99
(unaudited)(1) (unaudited)(1)
- -------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Net investment income/(net
operating loss) $ 221,145 $ (22,549)
Net realized gain (loss) on
investments
and foreign currency transactions 11,870,766 1,782,376
Net change in unrealized
appreciation/(depreciation)
of investments and translation of
assets
and liabilities in foreign
currency 46,352,880 6,464,296
------------ -----------
Change in net assets resulting
from operations 58,444,791 8,224,123
------------ -----------
Distributions to Shareholders:
Distributions from net investment
income (99,007) --
Distributions from net realized
gain on
investments and foreign currency
transactions -- --
------------ -----------
Change in net assets from
distributions to shareholders (99,007) --
------------ -----------
Share Transactions:
Proceeds from sale of shares 49,008,393 20,275,393
Net asset value of shares issued
to shareholders
in payment of distributions
declared -- --
Cost of shares redeemed (11,747,308) (1,275,298)
------------ -----------
Change in net assets from share
transactions 37,261,085 19,000,095
------------ -----------
Change in net assets 95,606,869 27,224,218
Net Assets:
Beginning of period -- --
------------ -----------
End of period $ 95,606,869 $27,224,218
============ ===========
Undistributed net investment
income/(net operating loss)
included in net assets at end of
period $ 122,139 $ (22,549)
============ ===========
Net gain (loss) as computed for
federal tax purposes $ 11,870,766 $ 1,782,376
============ ===========
</TABLE>
(1) Reflects operations for the period from December 11, 1998 (start of
performance) to May 31, 1999.
(See Notes which are an integral part of the Financial Statements)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
International Small Capitalization Municipal
Equity Fund Equity Fund Bond Fund Bond Fund
------------------------- ------------------------- -------------- --------------
Six Months Year Six Months Year Period Period
Ended Ended Ended Ended Ended Ended
31-May-99 November 30, 31-May-99 November 30, 31-May-99 31-May-99
(unaudited) 1998 (unaudited) 1998 (unaudited)(1) (unaudited)(1)
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
$ 95,692 $ 168,610 $ (285,800) $ (484,090) $ 1,653,894 $ 1,042,388
922,001 373,175 5,556,052 (2,675,666) (672,393) 6,947
(833,828) 3,302,983 1,110,720 630,545 (811,685) 1,166,453
----------- ----------- ----------- ------------ ------------ -----------
183,865 3,844,768 6,380,972 (2,529,211) 169,816 2,215,788
----------- ----------- ----------- ------------ ------------ -----------
-- (469,709) -- -- (1,651,878) (1,043,800)
-- -- -- (1,026,646) -- --
----------- ----------- ----------- ------------ ------------ -----------
-- (469,709) -- (1,026,646) (1,651,878) (1,043,800)
----------- ----------- ----------- ------------ ------------ -----------
9,075,535 39,754,427 8,227,636 19,724,465 77,731,474 72,125,325
-- 102,144 -- 356,395 150 --
(10,194,808) (9,655,858) (5,141,071) (10,797,899) (5,624,639) (6,547,491)
----------- ----------- ----------- ------------ ------------ -----------
(1,119,273) 30,200,713 3,086,565 9,282,961 72,106,985 65,577,834
----------- ----------- ----------- ------------ ------------ -----------
(935,408) 33,575,772 9,467,537 5,727,104 70,624,923 66,749,822
74,445,273 40,869,501 46,232,806 40,505,702 -- --
----------- ----------- ----------- ------------ ------------ -----------
$73,509,865 $74,445,273 $55,700,343 $ 46,232,806 $ 70,624,923 $66,749,822
=========== =========== =========== ============ ============ ===========
$ (83,044) -- $ (285,800) -- $ 2,016 $ (1,411)
=========== =========== =========== ============ ============ ===========
$ 922,001 $ 1,026,551 $ 5,556,052 $ (1,893,312) $ (672,393) $ 6,947
=========== =========== =========== ============ ============ ===========
</TABLE>
FTI Funds
Financial Highlights
- -------------------------------------------------------------------------------
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Distributions
Net Realized from Net
Net and Unrealized Realized Gains
Net Asset Investment Gain/(Loss) on Distributions on Investments
Value, Income/ 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> <C>
Large Capitalization Growth
and Income Fund
1999(1) $10.00 0.03 0.68 0.71 (0.01) --
Large Capitalization
Growth Fund
1999(1) $10.00 (0.01) 0.39 0.38 -- --
International Equity
Fund
1996(3) $10.00 0.01(2) 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) --
1999(7) $13.85 0.02 0.02 0.04 -- --
Small Capitalization
Equity Fund
1996(3) $10.00 (0.04) 2.12 2.08 -- --
1997 $12.08 (0.09) 2.38 2.29 -- --
1998 $14.37 (0.15)(2) (0.61) (0.76) -- (0.35)
1999(7) $13.26 (0.08) 1.86 1.78 -- --
Bond Fund
1999(1) $10.00 0.27 (0.28) (0.01) (0.27) --
Municipal Bond Fund
1999(1) $10.00 0.18 (0.17) 0.01 (0.18) --
</TABLE>
(1) Reflects operations for the period from December 11, 1998 (start of
performance) to May 31, 1999 (unaudited).
(2) Per share information is based on average shares outstanding.
(3) Reflects operations for the period from December 22, 1995 (start of
performance) to November 30, 1996.
(4) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(5) During the period, certain fees were voluntarily waived and reimbursed. If
such waivers and reimbursements had not occurred, the ratios would have been
as indicated.
(6) Computed on an annualized basis.
(7) For the six months ended May 31, 1999 (unaudited).
(See Notes which are an integral part of the Financial Statements)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratios to Average Net Assets
---------------------------------------------------------
Net Asset Net
Value, Net Investment Net Assets,
Total End of Total Investment Expenses Income End of Period Portfolio
Distributions Period Return(4) Expense(5) Income(5) (after waivers) (after waivers) (000 omitted) Turnover
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(0.01) $10.70 7.11% 1.07%(6) 0.46%(6) 1.04%(6) 0.49%(6) $95,607 42%
-- $10.38 3.80% 1.74%(6) (0.85%)(6) 1.08%(6) (0.20%)(6) $27,224 38%
(0.01) $10.99 10.04% 4.73%(6) (3.00%)(6) 1.68%(6) 0.05%(6) $12,065 29%
(0.20) $12.20 13.01% 1.73% 0.00% 1.60% 0.13% $40,869 55%
(0.12) $13.85 14.61% 1.49% 0.17% 1.39% 0.27% $74,445 68%
-- $13.89 0.29% 1.42%(6) 0.03%(6) 1.20%(6) 0.26%(6) $73,510 39%
-- $12.08 20.80% 3.01%(6) (2.19%)(6) 1.50%(6) (0.68%)(6) $19,318 94%
-- $14.37 18.96% 1.74% (1.13%) 1.50% (0.89%) $40,505 111%
(0.35) $13.26 (5.34%) 1.51% (1.09%) 1.50% (1.08%) $46,233 158%
-- $15.04 13.42% 1.50%(6) (1.06%)(6) 1.42%(6) (0.98%)(6) $55,700 85%
(0.27) $9.72 (0.09%) 0.93%(6) 5.99%(6) 0.90%(6) 6.02%(6) $70,625 120%
(0.18) $9.83 0.11% 0.94%(6) 3.79%(6) 0.78%(6) 3.95%(6) $66,750 14%
</TABLE>
FTI Funds
Notes to Financial Statements
May 31, 1999 (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 now consists of six diversified portfolios, four additions to the
Trust (FTI Large Capitalization Growth and Income Fund, FTI Large
Capitalization Growth Fund, FTI Bond Fund and FTI Municipal Bond Fund) began
operations on December 11, 1998 (individually referred to as the "Fund", or
collectively as the "Funds") which are presented herein:
<TABLE>
<CAPTION>
Portfolio Name Investment Objective
-------------- --------------------
<S> <C>
FTI Large Capitalization Growth and Income To provide long-term growth of principal and income.
Fund
("Large Capitalization Growth and Income
Fund")
FTI Large Capitalization Growth Fund To provide long-term growth of principal.
("Large Capitalization Growth Fund")
FTI International Equity Fund To provide growth of principal.
("International Equity Fund")
FTI Small Capitalization Equity Fund To provide growth of principal.
("Small Capitalization Equity Fund")
FTI Bond Fund ("Bond Fund") To provide total return with emphasis on income.
FTI Municipal Bond Fund To provide total return with emphasis on income.
("Municipal Bond Fund")
</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
FTI Funds
- -------------------------------------------------------------------------------
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. 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, 1998, International Equity Fund and Small Capitalization
Equity Fund, for federal tax purposes, had a capital loss carryforward, 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.
<TABLE>
<CAPTION>
Expiring Expiring
Fund in 2005 in 2006
-------------------------------- -------- ----------
<S> <C> <C>
International Equity Fund $204,887 $ --
--------------------------------
Small Capitalization Equity Fund -- 1,893,312
--------------------------------
</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.
FTI Funds
- -------------------------------------------------------------------------------
Deferred Expenses--The costs incurred by International Equity Fund and
Small Capitalization Equity 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 May 31, 1999, the Funds had no outstanding
foreign currency commitments.
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.
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.
Restricted Securities--Restricted securities are securities that may only
be resold upon registration under federal securities laws or in
transactions exempt from such registration. In some cases, the issuer of
restricted securities has agreed to register such securities for resale, at
the issuer's expense either upon demand by the Fund or in connection with
another registered offering of the securities. Many restricted securities
may be resold in the secondary market in transactions exempt from
registration. Such restricted securities may be determined to be liquid
under criteria established by the Directors. The Fund will not incur any
registration costs upon such resales. The Fund's restricted securities are
valued at the price provided by dealers in the secondary market or, if no
market prices are available, at the fair value as determined by the Fund's
pricing committee.
Additional information on each restricted security held in the Bond Fund at
May 31, 1999 is as follows:
<TABLE>
<CAPTION>
Security Acquisition Date Acquisition Cost
---------------------- ---------------- ----------------
<S> <C> <C>
TRW, Inc., Note, 6.50% 5/26/1999 $1,697,722
----------------------
</TABLE>
FTI Funds
- -------------------------------------------------------------------------------
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>
Large Capitalization Large Capitalization
Growth and Income Fund Growth Fund
---------------------- --------------------
Period Ended Period Ended
May 31, 1999(1) May 31, 1999(1)
- --------------------------------- ---------------------- --------------------
<S> <C> <C>
Shares sold 10,055,159 2,740,081
- ---------------------------------
Shares issued to shareholders in
payment of distributions declared -- --
- ---------------------------------
Shares redeemed (1,121,418) (118,136)
- --------------------------------- ---------- ---------
Net change resulting from share
transactions 8,933,741 2,621,945
- --------------------------------- ========== =========
</TABLE>
<TABLE>
<CAPTION>
Small Capitalization
International Equity Fund Equity Fund
-------------------------- --------------------------
Six Months Year Ended Six Months Year Ended
Ended May 31, November 30, Ended May 31, November 30,
1999 1998 1999 1998
- ------------------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Shares sold 636,046 2,741,492 560,778 1,440,048
- ------------------------
Shares issued to
shareholders in payment
of distributions
declared -- 8,057 -- 26,577
- ------------------------
Shares redeemed (720,762) (723,136) (343,327) (798,731)
- ------------------------ -------- --------- -------- ---------
Net change resulting
from share transactions (84,716) 2,026,413 217,451 667,894
- ------------------------ ======== ========= ======== =========
</TABLE>
(1) Reflects operations for the period from December 11, 1998 (start of
performance) to May 31, 1999.
FTI Funds
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Bond Fund Municipal Bond Fund
--------------- -------------------
Period Ended Period Ended
May 31, 1999(1) May 31, 1999(1)
- ---------------------------------------- --------------- -------------------
<S> <C> <C>
Shares sold 7,837,411 7,446,874
- ----------------------------------------
Shares issued to shareholders in payment
of distributions declared 15 --
- ----------------------------------------
Shares redeemed (570,328) (656,724)
- ---------------------------------------- --------- ---------
Net change resulting from share
transactions 7,267,098 6,790,150
- ---------------------------------------- ========= =========
</TABLE>
(1) Reflects operations for the period from December 11, 1998 (start of
performance) to May 31, 1999.
(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>
Large Capitalization Growth and Income Fund 0.75%
-------------------------------------------
Large Capitalization Growth Fund 0.75%
-------------------------------------------
International Equity Fund 1.00%
-------------------------------------------
Small Capitalization Equity Fund 1.00%
-------------------------------------------
Bond Fund 0.50%
-------------------------------------------
Municipal Bond Fund 0.50%
-------------------------------------------
</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. 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, 1999, the Funds did not incur a distribution
services fee.
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, 1999, 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 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.
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 period ended May 31, 1999, the Funds amortized
organizational expenses as follows:
<TABLE>
<CAPTION>
Initial Organizational
Organizational Expenses
Fund Expenses Amortized
-------------------------------- -------------- --------------
<S> <C> <C>
International Equity Fund $34,072 $3,443
--------------------------------
Small Capitalization Equity Fund $34,076 $3,443
--------------------------------
</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, 1999, were as follows:
<TABLE>
<CAPTION>
Fund Purchases Sales
------------------------------------------- ------------ -----------
<S> <C> <C>
Large Capitalization Growth and Income Fund $ 71,935,958 $35,562,960
-------------------------------------------
Large Capitalization Growth Fund $ 24,815,460 $ 7,834,357
-------------------------------------------
International Equity Fund $ 28,486,113 $30,244,760
-------------------------------------------
Small Capitalization Equity Fund $ 42,941,003 $42,751,677
-------------------------------------------
Bond Fund $131,271,646 $60,547,290
-------------------------------------------
Municipal Bond Fund $ 69,738,247 $ 6,802,210
-------------------------------------------
</TABLE>
FTI Funds
- -------------------------------------------------------------------------------
(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
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, 1999, 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>
Appliances & Household
Durables 1.3% Food & Household Products 4.2%
Automobile 1.7% Health & Personal Care 8.8%
Banking 22.0% Insurance 1.9%
Broadcasting &
Publishing 3.2% Machinery & Engineering 1.0%
Business & Public
Services 11.9% Merchandising 3.6%
Data Processing &
Reproduction 2.0% Miscellaneous Materials & Commodities 1.9%
Electrical & Electronics 4.8% Multi-Industry 1.9%
Electronic Components,
Instruments 5.2% Telecommunications Services 14.3%
Energy Sources 5.4% Utilities--Electrical & Gas 3.5%
Financial Services 2.1%
</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.
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
Burton J. Greenwald Treasurer
Timothy S. Johnson
Secretary
Victor R. Siclari
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 the Funds' prospectus which contains facts
concerning the Funds' objectives and policies, management fees, expenses and
other information.
