01/26/2000
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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.
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Distributor
Cusip 302927801 LCGIF Cusip 302927702 LCGF Cusip 302927207 IEF Cusip 302927108
SCEF Cusip 302927603 BF Cusip 302927504 MBF G01710-01 (1/00)FTI Funds
[GRAPHIC]
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FTI FUNDS
ANNUAL REPORT
TO SHAREHOLDERS
NOVEMBER 30, 1999
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PRESIDENT'S MESSAGE
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Dear Shareholder:
I am pleased to present the FTI Funds Annual Report covering the Funds'
operation during the fiscal year from December 1, 1998 through November 30,
1999.
This report begins with commentaries by each Fund's portfolio manager
highlighting economic and market conditions and their impact on Fund performance
and strategy. Following the commentaries is a set of graphs showing each Fund's
total return since inception, followed by a complete list of holdings and the
financial statements.
FTI LARGE CAPITALIZATION GROWTH AND INCOME FUND gives shareholders the
opportunity to own a diversified portfolio of stocks issued by large,
established U.S. companies that have the potential to grow in price and produce
income. During the initial period of the Fund's operation, from December 11,
1998 through November 30, 1999, the Fund produced a total return of 14.20%
through income distributions totaling $0.04 per share and an increase in per
share value. At the end of the reporting period, Fund assets totaled $99.9
million.
FTI LARGE CAPITALIZATION GROWTH FUND offers investors 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 have strong potential to
continue that growth. During the initial period of the Fund's operation, from
December 11, 1998 through November 30, 1999, the Fund produced a total return of
17.90% through an increase in per share value. At the end of the reporting
period, Fund assets totaled $31.2 million.
Reflecting a strong international marketplace in general and a recovery in Japan
in particular, FTI INTERNATIONAL EQUITY FUND'S portfolio of international stocks
produced a total return of 27.22%. The return was due to a per share value
increase from $13.85 to $17.62. Fund net assets totaled $76.0 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 Fund achieved a very strong total return of 56.94% as the per share
value rose from $13.26 to $20.81. The Fund's net assets totaled $72.8 million at
the end of the reporting period.
FTI BOND FUND offers investors the opportunity to participate in a diversified
portfolio of income-producing investments. During the initial period of the
Fund's operation, from December 11, 1998 through November 30, 1999, the Fund
paid a strong income stream totaling $0.59 per share. Reflecting a rising
interest rate environment that caused the prices of existing bonds to decline,
the Fund produced a modest total return of 0.31%. At the end of the reporting
period, Fund net assets totaled $106.9 million.
FTI MUNICIPAL BOND FUND helps tax-sensitive investors pursue income free of
federal income tax through a portfolio of bonds issued by municipalities across
the United States. During the initial period of the Fund's
* 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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operation, from December 11, 1998 through November 30, 1999, the Fund paid
tax-free income totaling $0.38 per share. Due to a rising interest rate
environment that caused the prices of existing bonds to decline, the Fund's
total return was -0.66%. Fund net assets reached $70.7 million on the last day
of the reporting period.+
Thank you for pursuing your financial goals through the FTI Funds family. As we
begin a new year, we will maintain our commitment to keep you up-to-date on your
investment through the highest level of service.
Sincerely,
/s/ Edward C. Gonzales
Edward C. Gonzales
President
January 15, 2000
+ INCOME MAY BE SUBJECT TO THE FEDERAL ALTERNATIVE MINIMUM TAX.
PERFORMANCE QUOTED REPRESENTS PAST PERFORMANCE. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH
MORE OR LESS THAN THEIR ORIGINAL COST.
2
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FTI LARGE CAPITALIZATION GROWTH AND INCOME FUND
PERFORMANCE
FTI Large Capitalization Growth and Income Fund ended its fiscal year with a net
asset value per share of $11.39 and total assets of $99.9 million. Total return
was 14.20% from the Fund's inception on December 11, 1998 through the fiscal
year end on November 30, 1999. By comparison, the Lipper Large Capitalization
Value Index achieved a 12.6% gain.*
MARKET REVIEW
We have worried through the year about the evident strains within the U.S.
economy that might bring an end to investors' enthusiasm to own stocks,
regardless of stocks' earnings. Indeed most of the excitement has been among
companies with no prospect for earnings for many quarters to come. Yet the
dramatic rise in U.S. productivity--a 4.2% annual rate in the third calendar
quarter--provided sufficient reason to sustain our confidence that non-
inflationary growth could continue into the New Year. As investors realized this
possibility, stocks took off after mid-October and the Dow added 761.59 points
by the end of November, a move that made up virtually the entire decline
following the August 25th high. Despite Federal Reserve Board (the "Fed")
Chairman Alan Greenspan's frequently voiced concerns about inflation, none has
appeared, even with stronger growth in Europe and Asia. Also encouraging
optimism is the strong growth in durable goods orders over the four quarters
ended September 30. While we are sure the business cycle is alive, the
impressive impact of technology, free capital flows, absence of conflict and the
global embrace of capitalism should sustain the recovery for some time to come.
We share the concerns of many observers that the extraordinary prices being paid
for Internet stocks may well end as established, large companies deploy their
strategies and give real competition over the coming months. The rise in long
Treasury bond yields over the past year and the almost flat yield curve across
all maturities suggests caution, as does the Fed's intent to raise short-term
rates further to cool growth and deflate some of the market's excess. That large
numbers of equities have shown little or no gains this year also belies the
bull's argument. This said, the prospect of sustained global growth suggests
investors will be rewarded for enduring periods of volatility, should they
appear in coming months.
INVESTMENT OUTLOOK AND STRATEGY
The Fund's strategic investment emphasis upon technology, communications and
financial service companies continues, and these now represent more than 43% of
the market value of the portfolio. The vigorous application of technology and
data communications has brought about the advance in productivity. Financial
companies are responding to the increasing demands from the growing cohort of
older Americans, Europeans and Japanese in need of insurance, banking and other
services as they near retirement. Within these, the focus is upon insurance
where there are early signs that premium rates are turning up, and securities
processing that is a clear beneficiary of the rise in global market activity.
The demographic theme is also strongly represented among leading drug firms.
The creation of real long-term wealth rests upon holding sizeable positions of
leading companies in business sectors benefiting from durable demographic and
economic trends. The strength in economic fundamentals in the U.S., Germany and
Japan suggests rewards for equity investors holding the same leading global
companies held in the Fund.
* Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. As falling
into the respective categories indicated. Lipper figures do not reflect sales
charges.
3
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FTI LARGE CAPITALIZATION GROWTH AND INCOME FUND
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GROWTH OF $10,000 INVESTED IN FTI LARGE CAPITALIZATION GROWTH AND INCOME FUND
The graph below illustrates the hypothetical investment of $10,000* in the FTI
Large Capitalization Growth and Income Fund (the "Fund") from December 11, 1998
(start of performance) to November 30, 1999 compared to Standard and Poor's 500
Composite Stock Price Index (S&P 500).+
GROWTH OF $10,000 AS OF NOVEMBER 30, 1999
[Graphic representation omitted. See Appendix A.1.]
CUMULATIVE TOTAL RETURN FOR THE PERIOD ENDED NOVEMBER 30,
1999
Start of Performance (12/11/98) 14.20%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* THE FUND'S PERFORMANCE ASSUMES THE REINVESTMENT OF ALL DIVIDENDS AND
DISTRIBUTIONS. THE S&P 500 HAS BEEN ADJUSTED TO REFLECT REINVESTMENT OF
DIVIDENDS ON SECURITIES IN THE INDEX.
+ THE S&P 500 IS NOT ADJUSTED TO REFLECT SALES CHARGES, EXPENSES, OR OTHER FEES
THAT THE SECURITIES AND EXCHANGE COMMISSION REQUIRES TO BE REFLECTED IN THE
FUND'S PERFORMANCE. THE INDEX IS UNMANAGED.
4
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FTI LARGE CAPITALIZATION GROWTH FUND
PERFORMANCE
FTI Large Capitalization Growth Fund ended its fiscal year with a net asset
value per share of $11.79 and total assets of $31.2 million. The investment
return for the Fund for the reporting period was 17.90% while its benchmark,
Standard and Poor's 500 Composite Stock Price Index (S&P 500),* was 21.17%.
Though the year ended on a positive note with strong performance in the second
half of the year, as a result of a very challenging second quarter the Fund
underperformed the S&P 500 for the fiscal year ending November 30, 1999.
The second quarter underperformance was mainly a result of the market's vicious
rotation away from the "growth" investment style that has dominated the market
over the last few years and into "value" stocks. Both sector and stock selection
hurt performance during this period. However, this rotation did not last very
long and growth once again became the clear winner as we moved into the second
half of the year. As a result of the Fund's focus on large capitalization growth
stocks, the Fund has outperformed the S&P 500 Index over the last six months.
The main contributors to performance during this period were the Fund's
overweight in technology and telecommunications, as well as some of the holdings
within the consumer sector. Stocks that were major contributors to the
performance of the Fund include (based on a percentage of net assets): Cisco
Systems (5.7%), EMC Corp. (3.5%), American Online (2.6%), Sun Microsystems
(2.8%) and Solectron (2.5%). Outside of technology, other strong performers
during the year included (based on a percentage of net assets): CBS (2.8%), AMFM
(3.4%), Royal Caribbean Cruises (2.7%) and General Electric (3.5%).
MARKET REVIEW
The U.S. equity markets turned in an unprecedented fifth year in a row of total
returns in excess of 20%. The main driver of market performance over the last
few years had been lower interest rates; however, this has not been the case in
1999. The market spent much of the year fighting an unfavorable interest rate
environment as the central bank reversed course from a policy of easing to one
of tightening. In an attempt to slow the economy and keep inflation from
accelerating, on June 30 the Federal Reserve Board (the "Fed") made the first of
three tightenings so far this year. As a result, after a good first half of the
year, the market turned in negative absolute returns in the third quarter of
1999. The only sector within the S&P 500 to turn in positive returns during this
period was technology. The market bottomed in the second week of October and has
made a very dramatic move upward since that time. Strong corporate earnings and
a continuation of a favorable inflation backdrop have helped turn the market
around. After falling in the third quarter of 1998, corporate profits were up
more than 10% in the first half of 1999 and more than 20% in the third quarter
of 1999.
Despite the market's attempt to broaden out in the months of April and May, the
narrowness of the market hit extreme levels. Clearly, not all stocks are
participating in the good times. Evidence of the market's lack of breadth can be
seen in the fact that through the end of November the largest 10% of the stocks
in the S&P 500 contributed to more than 90% of the S&P's return. The dominance
of growth over value is easily witnessed when looking at
* THE S&P 500 IS AN UNMANAGED 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.
5
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sector performance. Technology and telecommunications have dominated the index,
far outpacing all other sectors for the year, while utilities, transportation
and consumer staples were on the other end of the spectrum.
INVESTMENT OUTLOOK AND STRATEGY
We clearly remain in the throws of a consumer and technology-led capital
spending boom. These points were most recently underscored when third quarter
Gross Domestic Product figures were released, showing it rose by a stunning
5.5%. Our biggest concern going forward is getting too much of a good thing.
Namely, an expansion that remains so rapid it may lead to a buildup of
inflationary pressures that could lead to a series of tightenings by the Fed
next year. However, for now, the inflation backdrop remains benign, and the
outlook for early 2000 looks good. The economy appears to have changed, becoming
more productive, competitive and efficient. Productivity gains are largely
responsible for the U.S. economy's remarkable growth with no inflation. Higher
productivity has helped companies boost profits while keeping a lid on labor
costs. In the third quarter, productivity rose at an astonishing 4.9% annual
rate (the biggest gain in almost seven years). This puts us on track for the
fourth year in a row during which productivity has grown more than 2%.
As a result of the continued gains in productivity, coupled with an improving
world economy, the forecast for corporate earnings remains favorable as we move
into 2000. It is expected that S&P 500 earnings will continue to grow in the
range of 10%-12% in the year 2000. Within the Fund, we continue to focus on
sectors and companies that are able to display rapid earnings and revenue
growth, strong cash flow, improving profit margins and strong management teams
that have demonstrated the ability to enhance shareholder value.
The Fund's largest sector weighting is in technology.** Though valuations in
this area are clearly at all-time highs, and despite the high volatility within
the sector, the Fund remains committed to this area. Strong secular trends such
as continued growth in the Internet (business-to-business, as well as
business-to-consumer), further penetration of wireless telecommunications and
bandwidth expansion are some of the reasons we continue to expect high growth
rates in this sector. Some of the stocks held in the Fund that should benefit
from growth in these areas include (based on a percentage of net assets): MCI
Worldcom (3.4%), Lexmark International (2.1%), BroadWing (2.2%) and Comverse
Technology (1.2%). The Fund also remains committed to the area of media and
broadcasting, which is benefiting from unprecedented levels of advertising
spending as a result of dot.com spending, millennium promotions and political
elections. The companies held in the Fund that should benefit from these trends
include (based on a percentage of net assets): Infinity Broadcasting (1.4%), CBS
(2.8%) and AMFM (3.4%). The Fund remains underweight in the financials,
healthcare and intermediate and capital goods due to the less attractive
fundamentals of these sectors in the near-term.
** FUNDS WHOSE INVESTMENTS ARE CONCENTRATED IN A SPECIFIC INDUSTRY OR SECTOR MAY
BE SUBJECT TO A HIGHER DEGREE OF MARKET RISK THAN FUNDS WHOSE INVESTMENTS ARE
DIVERSIFIED.
6
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FTI LARGE CAPITALIZATION GROWTH FUND
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GROWTH OF $10,000* INVESTED IN FTI LARGE CAPITALIZATION GROWTH FUND
The graph below illustrates the hypothetical investment of $10,000* in the FTI
Large Capitalization Growth Fund (the "Fund") from December 11, 1998 (start of
performance) to November 30, 1999 compared to Standard and Poor's 500 Composite
Stock Price Index (S&P 500).+
<TABLE>
<CAPTION>
GROWTH OF $10,000 AS OF NOVEMBER 30, 1999
[Graphic representation omitted. See Appendix A.2.]
<S> <C> <C>
CUMULATIVE TOTAL RETURN FOR THE PERIOD ENDED NOVEMBER 30,
1999
Start of Performance (12/11/98) 17.90%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* THE FUND'S PERFORMANCE ASSUMES THE REINVESTMENT OF ALL DIVIDENDS AND
DISTRIBUTIONS. THE S&P 500 INDEX HAS BEEN ADJUSTED TO REFLECT REINVESTMENT OF
DIVIDENDS ON SECURITIES IN THE INDEX.
+ THE S&P 500 INDEX IS NOT ADJUSTED TO REFLECT SALES CHARGES, EXPENSES, OR OTHER
FEES THAT THE SECURITIES AND EXCHANGE COMMISSION REQUIRES TO BE REFLECTED IN
THE FUND'S PERFORMANCE. THE INDEX IS UNMANAGED.
7
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FTI INTERNATIONAL EQUITY FUND
PERFORMANCE
FTI International Equity Fund ended its fiscal year with a net asset value per
share of $17.62 and total assets of $76.0 million. The investment return for the
Fund for the reporting period was 16.29% while its benchmark, the Morgan Stanley
Capital International Europe, Australia, and Far East Index (MSCI EAFE),* was
21.10%. The Fund outperformed the benchmark by 6.12% over the year. The gains
were attributable to favorable regional allocation and strong stock selection.
Most of the strength in stock selection was due to the Fund's heavy emphasis on
technology and telecommunications, sectors that gained in importance throughout
the year. Our overweight position in both Japan and the emerging markets all
contributed positively to the outperformance in fiscal 1999.
MARKET REVIEW
The year contained many positive surprises for international markets and
investors. Economic recoveries gained speed in Asia and Latin America, while
Europe and Japan began to show increasing signs of strength. As in the U.S., the
recoveries were accompanied by little sign of inflation which provided a strong
environment for financial assets. Bandwidth, e-commerce, and outsourcing became
key buzzwords in the international markets as the technology and
telecommunications sectors became market leaders around the world. In addition
to the economic recoveries, investors were cheered by the increased merger and
acquisition activity seen in Europe, corporate restructuring that began in both
Europe and Japan and the unwinding of "cross shareholdings" in Japan. These
movements represent secular changes that should benefit shareholders in
international markets over the coming two to three years. The Japanese equity
market was surprisingly strong as investors began to move back into this market.
The recovery is tenuous at best and requires continued support in the form of
fiscal stimulus from the Japanese government. With economic growth in the
non-U.S. economies in the 2 1/2% to 3% range and earnings growing at a
double-digit rate, it was no surprise that investors began to view the non-U.S.
equity markets favorably for the first time in many years.
INVESTMENT OUTLOOK AND STRATEGY
As we move into the new millennium, we anticipate another favorable year for
non-U.S. equity markets. Economic growth is expected to be in a range of 3% to 3
1/2% again with little sign of inflation. Productivity is improving worldwide as
corporations increasingly focus on information technology as a way to enhance
corporate profitability. Japan could yet again be one of the best performing
markets benefiting from the powerful earnings recovery. We anticipate that many
of last year's leaders will lead the market again in 2000, namely technology and
telecommunications. The Fund will maintain its overweight position in Japan and
the emerging markets where earnings growth remains the strongest. These regions
should benefit from funds flows as investors reenter the equity markets. The
stocks within the Fund have continued to benefit from the secular changes
occurring around the world: changing demographics, increased use of technology,
and industry consolidation and restructuring.
* THE MSCI EAFE IS A STANDARD UNMANAGED FOREIGN SECURITIES INDEX WIDELY USED TO
MEASURE THE PERFORMANCE OF EUROPEAN, AUSTRALIAN, NEW ZEALAND, AND FAR EASTERN
STOCK MARKETS.
8
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FTI INTERNATIONAL EQUITY FUND
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GROWTH OF $10,000* INVESTED IN FTI INTERNATIONAL EQUITY FUND
The graph below illustrates the hypothetical investment of $10,000* in the FTI
International Equity Fund (the "Fund") from December 22, 1995 (start of
performance) to November 30, 1999 compared to the Morgan Stanley Capital
International Europe, Australia, and Far East Index (MSCI EAFE).+
<TABLE>
<CAPTION>
GROWTH OF $10,000 AS OF NOVEMBER 30, 1999
[Graphic representation omitted. See Appendix A.3.]
<S> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIOD ENDED NOVEMBER 30, 1999
1 Year 27.22%
Start of Performance (12/22/95) 16.29%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* THE FUND'S PERFORMANCE ASSUMES THE REINVESTMENT OF ALL DIVIDENDS AND
DISTRIBUTIONS. THE MSCI EAFE INDEX HAS BEEN ADJUSTED TO REFLECT REINVESTMENT
OF DIVIDENDS ON SECURITIES IN THE INDEX.
+ THE MSCI EAFE INDEX IS NOT ADJUSTED TO REFLECT SALES CHARGES, EXPENSES, OR
OTHER FEES THAT THE SECURITIES AND EXCHANGE COMMISSION REQUIRES TO BE
REFLECTED IN THE FUND'S PERFORMANCE. THIS INDEX IS UNMANAGED.
9
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FTI SMALL CAPITALIZATION EQUITY FUND
PERFORMANCE
FTI Small Capitalization Equity Fund outperformed its benchmark, the Russell
2000 Growth Index,* by a healthy margin for the fiscal year ended November 30,
1999. The Fund returned 56.9% during the reporting period while the Russell 2000
Growth Index returned 32.6%. Our outperformance is attributable to overweight
exposure to several strong-performing market sectors--technology,
telecommunications, and biotechnology--coupled with superior stock selection.**
Within the technology sector, our exposure to software, specialty semiconductors
and Internet stocks boosted performance. One of the portfolio's best performers
was JDS Uniphase Corp. (JDS), which returned more than 600% for the year. JDS
makes semiconductor lasers, optical switches, fiber-optic components and modules
for the telecommunications industry. Its customers include global large cap
companies such as Lucent, Nortel, and Siemens. JDS is one example of how we are
investing in the growth opportunities of Internet bandwidth (analogous to the
size of "pipeline" that carries all of the data) to expand the capacity of the
Net and make high-speed connections possible.
Within the telecommunications sector, our exposure to commercial Internet
service providers (ISPs), cable, and telephone companies added to performance.
One of the sector's best performers was PsiNet. PsiNet is a leading provider of
Internet access services and related products such as Web hosting, remote user
access, multi-currency electronic commerce, and voice-over-Internet. The company
provides dedicated and dial-up Internet connections to businesses in 90 of the
100 largest metropolitan statistical areas and in Europe and Asia. The stock
returned more than 200%. We believe that business-to-business e-commerce will
approach more than $1.3 trillion by 2003, far surpassing business-to-consumer
e-commerce which is expected to approach $100 billion by 2003 (source: Forrester
Research, Morgan Stanley). PsiNet should benefit from this trend.
We also successfully exploited other trends in the technology and
telecommunications industries. For example, we maintained several Internet
infrastructure positions. The number of Internet users is expected to reach 320
million by 2002 (source: The Gilder Report, Goldman Sachs). No matter which
online merchants survive in the competitive Internet retailing environment, they
will all have to invest in hardware and software to do business on the Web. In
addition, we held positions in network security companies. Within the
telecommunications industry, we invested to take advantage of the growth of
wireless. Usage of wireless minutes in the U.S. is expected to grow from 200
billion this year to 600 billion by 2004 (source: Wall Street Journal, The
Yankee Group).
* THE RUSSELL 2000 GROWTH INDEX MEASURES THE PERFORMANCE OF SMALL-CAP
COMPANIES WITH HIGHER PRICE-TO-BOOK RATIOS AND HIGHER FORECASTED GROWTH
VALUES.
** FUNDS WHOSE INVESTMENTS ARE CONCENTRATED IN A SPECIFIC INDUSTRY OR SECTOR
MAY BE SUBJECT TO A HIGHER DEGREE OF MARKET RISK THAN FUNDS WHOSE
INVESTMENTS ARE DIVERSIFIED.
10
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The biotechnology sector, in which we maintained exposure, was the only industry
within the healthcare sector that performed well. Many healthcare stocks
languished due to fears of increased government regulation and wage inflation.
On the other hand, the fundamentals of the biotechnology sector never looked
stronger. The industry had a record number of products in advanced clinical
trials. Furthermore, an increased number of companies approached earnings
profitability. Although we took profits in this industry in September due to
valuations, several stocks added value to your portfolio. One strong performer
was Affymetrix. Affymetrix's GeneChip system is used to acquire, analyze and
manage complex genetic information in order to improve the diagnosis,
monitoring, and treatment of disease. The company sells its products to
pharmaceutical/biotechnology companies such as Pfizer, Eli Lilly, Glaxo Wellcome
and Merck. We continue to be bullish on biotechnology fundamentals.
Overall, investments in these sectors and in stocks that we believe meet
Fiduciary's time-tested "Nine Criteria of a Successful Growth Business" lead to
the Fund's outperformance. The Nine Criteria are companies with 1) exceptional
owner-management with clear goals; 2) proprietary products and services;
3) strong, sustainable unit growth and consistent earnings growth; 4) high
probability of retaining or widening margins; 5) high proportion of recurring
revenues and sales to multiple markets; 6) strong balance sheet with excess cash
flow; 7) excellent track record and strong revenue history; 8) few mid-sized
competitors; and 9) minimal institutional ownership/relatively undiscovered.
MARKET REVIEW
The fiscal year ended November 30, 1999 saw a dramatic rise in interest rates as
the world rebounded smartly from the financial crisis of Fall 1998. Major
central banks began to reverse the easing of monetary policy implemented in
response to the crisis, and commodity prices surged, led by a more than doubling
in the price of oil from its mid-February lows. Despite this, U.S. equities
continued their rise.
Small capitalization growth stocks dominated the U.S. stock market. For the
fiscal year ended November 30, 1999, the Russell 2000 Growth Index returned
32.6% versus 30.0% for Standard and Poor's 500 Composite Stock Price Index (S&P
500).*** Small cap growth stocks were the second-best performing U.S. asset
class, second only to mid cap growth stocks.
Several factors contributed to small cap stocks' turnaround. First, the
technology and telecommunication sectors provided a good portion of the
recovery. For the first eleven months of 1999 the small cap growth technology
sector returned 63% while the telecommunications sector returned 97%. In
addition, Internet stocks continued to perform well, contributing more than
one-third of the small cap growth market's return.
Second, consolidation fever continued to mount, and it is likely that more than
200 smaller U.S. companies will merge as we move into 2000. The corporate sector
has begun to aggressively seek out opportunities in this segment after small cap
stocks collapsed in 1998, resulting in valuation disparities not seen in 40
years.
*** THE S&P 500 IS AN UNMANAGED 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.
11
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Third, overall investor sentiment improved. Investors became more willing to
invest money in less liquid stocks with good earnings outlooks, causing riskier
asset classes such as small cap stocks and emerging market equities to soar.
INVESTMENT OUTLOOK AND STRATEGY
We believe that small cap growth stocks should continue to perform well during
the next twelve months. The springboard for continued strong performance is the
combination of reasonable relative valuations and several catalysts.
Reasonable valuations provide the foundation. Currently, the Russell 2000 Growth
Index has a price/earnings ratio of 17X 2000 earnings. Earnings are expected to
grow 30% in 2000 (source: I/B/E/S). This valuation is at a discount to large cap
stocks, which sell at a fairly large premium to their growth rates.
Coupled with decent valuations is a good profit growth outlook. Fourth quarter
1999 small cap profits are expected to be 19% greater than the fourth quarter
profits of 1998. If the results come in close to expectations, it would mark the
third consecutive quarter in which small cap profits are in excess of 10%. As
mentioned above, 2000 earnings are expected to grow by 30%.
The greatest driver of the last 12 months has been technology. We expect this
trend to continue during 2000. Technology spending has rapidly accelerated over
the past few years, and the demand for technology is unlikely to be derailed.
Both the top-line (sales) and bottom-line (earnings) offer a supportive
fundamental backdrop. More importantly, factors such as cyclical economic
growth, increased consumer participation, global demand, a difficult pricing
environment for companies and e-commerce offer compelling arguments for
sustained, if not accelerated, demand for technology. As technology stocks
currently represent 31% of the small cap growth market, this bodes well for
performance of small cap stocks. One note of caution is that many technology
stocks are becoming expensive, making a valuation-based setback possible.
12
<PAGE>
FTI SMALL CAPITALIZATION EQUITY FUND
- ---------------------------------------------------------
GROWTH OF $10,000 INVESTED IN FTI SMALL CAPITALIZATION EQUITY FUND
The graph below illustrates the hypothetical investment of $10,000* in the FTI
Small Capitalization Equity Fund (the "Fund") from December 22, 1995 (start of
performance) to November 30, 1999 compared to the Russell 2000 Growth Index.+
<TABLE>
<CAPTION>
GROWTH OF $10,000 AS OF NOVEMBER 30, 1999
[Graphic representation omitted. See Appendix A.4.]
<S> <C> <C>
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIOD ENDED NOVEMBER 30, 1999
1 Year 56.94%
Start of Performance (12/22/95) 21.21%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* THE FUND'S PERFORMANCE ASSUMES THE REINVESTMENT OF ALL DIVIDENDS AND
DISTRIBUTIONS. THE RUSSELL 2000 GROWTH INDEX HAS BEEN ADJUSTED TO REFLECT
REINVESTMENT OF DIVIDENDS ON SECURITIES IN THE INDEX.
+ THE RUSSELL 2000 GROWTH INDEX IS NOT ADJUSTED TO REFLECT SALES CHARGES,
EXPENSES, OR OTHER FEES THAT THE SECURITIES AND EXCHANGE COMMISSION REQUIRES
TO BE REFLECTED IN THE FUND'S PERFORMANCE. THE INDEX IS UNMANAGED.
13
<PAGE>
- ---------------------------------------------------------
FTI BOND FUND
PERFORMANCE
FTI Bond Fund's total return from its inception on December 11, 1998 through its
fiscal year end of November 30, 1999 was 0.31%, while the Lehman Brothers
Aggregate Bond Index* (the Fund's performance benchmark) posted a return of
- -0.39% for the same reporting period. The Fund's performance relative to the
Lehman Brothers Aggregate Bond Index was attributable primarily to our
maintenance of an overweight position in non-Treasury sectors, chiefly
corporates. Our strong emphasis in corporate debt has increased the portfolio's
yield. During the summer, corporate treasurers borrowed the majority of funds
needed for the year, as they feared Y2K would hinder their flexibility in the
fourth calendar quarter. The increased issuance came at a concession, which made
the purchase of these securities very attractive.
MARKET REVIEW
The fiscal year ended November 30, 1999 saw a dramatic rise in interest rates as
the world rebounded smartly from the financial crisis of Fall 1998. Major
central banks began to reverse the easing of monetary policy implemented in
response to the crisis, and commodity prices surged, led by a more than doubling
in the price of oil from mid-February lows.
The Treasury yield curve moved up sharply during the year, with most of the
movement occurring in February, April and May. The release of the fourth quarter
1998 Gross Domestic Product (GDP) at the end of January was the beginning of the
1999 bear market. The GDP data changed bond market sentiment tremendously, as it
was clear economic activity was ending 1998 on a strong note. Federal Reserve
Board (the "Fed") Chairman Alan Greenspan injected caution into the bond market
at his semi-annual Humphrey-Hawkins testimony in February, indicating that
prolongation of the current boom environment might lead to a firming of monetary
policy. In February, the bond market recorded its worst monthly performance
since December 1981.
Interest rates lurched upward again in April and May following a strong first
quarter GDP report as well as a surge in the Consumer Price Index (CPI) in
April. In May, the Fed shifted to a tightening bias, citing improved prospects
for foreign economies and domestic markets, already tight domestic labor markets
and ongoing strength in demand in excess of productivity. On June 30, the Fed
again raised interest rates by 0.25%, stating that in the current dynamic
environment, it must be "especially alert to the emergence or potential
emergence of inflationary forces that could undermine economic growth."
In spite of the Fed's second rate hike, August interest rates moved generally
sideways, then rose more predictably in September and October. The Fed raised
interest rates again by 0.25% in November. November's rate hike followed a
rebound in activity, relative to the economy's below-trend pace in the second
quarter and a mild uptick in the inflation rate. The fiscal year ended with
market expectations that the Fed will remain on hold at its
* THE LEHMAN BROTHERS AGGREGATE BOND INDEX IS AN UNMANAGED INDEX MEASURING 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.
14
<PAGE>
- ---------------------------------------------------------
December Federal Open Market Committee meeting. Further, growth should remain
solid and inflation pressures subdued.
All non-Treasury (spread) sectors outperformed Treasuries this year, led by the
asset-backed and corporate sectors. After posting solid outperformance January
through April, spread sectors dramatically underperformed from early May until
mid-August on the back of tightening liquidity (caused by the Fed's rate hikes),
a flat equity market and slow second-quarter activity. The summer's
underperformance was reversed in early September with a strong rebound in
economic activity, a rebound in the equity market and reduced new issue supply.
With this rally, corporate spreads finished November near last year's levels,
with returns over Treasuries on the order of 1.5%.
INVESTMENT OUTLOOK AND STRATEGY
We believe the economy should continue to post solid growth over the next three
to six months, though perhaps marginally slower growth than the year-to-date
rate. Inflation appears to have bottomed below 2% and is likely to rise
non-threateningly from here, primarily due to the rise in oil prices and as the
effects of the strong U.S. dollar fade. While the Fed remains concerned with
potential inflation pressures, we do not expect another rate hike at the
December Federal Open Market Committee meeting. Finally, the outlook for
corporate profits is solid, which, along with the solid growth outlook, should
underpin corporate valuations.
Our strategy is to have a neutral to the market average maturity, given our
expectation that the economic activity is likely to see a mild deceleration from
the current robust pace while inflation is expected to remain relatively
subdued. From a sector allocation standpoint, we remain comfortably overweight
in non-Treasury sectors (primarily corporate and mortgage securities) given the
positive outlook for the economy and corporate profits.
We expect that issuance of corporate debt will be muted in the fourth calendar
quarter, and possibly through January 2000, allowing the Fund to benefit from
the narrowing of the high current yields between corporate securities and
Treasuries. The lower quality issues in the Fund have very attractive yields
that we expect to enjoy in the next six months, as the concerns of liquidity are
expected to dissipate in the first quarter of next year.
The mortgage sector should continue to benefit from diminished issuance, as
higher mortgage rates have reduced the number of refinancings. The index that
measures refinancings in the single family mortgage market declined by a third
in the last quarter and is expected to maintain current low levels. The Fund's
emphasis on high yielding and liquid mortgage securities should continue to
benefit from the premium the market places on those attributes. In addition,
these securities should benefit from the relaxation of the collateral criteria
for repurchase agreements that the Fed instituted to increase liquidity over the
turn of the year in light of Y2K concerns.
15
<PAGE>
FTI BOND FUND
- ---------------------------------------------------------
GROWTH OF $10,000 INVESTED IN FTI BOND FUND
The graph below illustrates the hypothetical investment of $10,000* in the FTI
Bond Fund (the "Fund") from December 11, 1998 (start of performance) to November
30, 1999 compared to the Lehman Brothers Aggregate Bond Index.+
<TABLE>
<CAPTION>
GROWTH OF $10,000 AS OF NOVEMBER 30, 1999 [Graphic representation omitted. See
Appendix A.5.] <S> <C> <C> CUMULATIVE TOTAL RETURN FOR THE PERIOD ENDED NOVEMBER
30, 1999 START OF PERFORMANCE (12/11/98) 0.31% </TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* THE FUND'S PERFORMANCE ASSUMES THE REINVESTMENT OF ALL DIVIDENDS AND
DISTRIBUTIONS. THE LEHMAN BROTHERS AGGREGATE BOND INDEX HAS BEEN ADJUSTED TO
REFLECT REINVESTMENT OF DIVIDENDS ON SECURITIES IN THE INDEX.
+ THE LEHMAN BROTHERS AGGREGATE BOND INDEX IS NOT ADJUSTED TO REFLECT SALES
CHARGES, EXPENSES, OR OTHER FEES THAT THE SECURITIES AND EXCHANGE COMMISSION
REQUIRES TO BE REFLECTED IN THE FUND'S PERFORMANCE. THE INDEX IS UNMANAGED.
16
<PAGE>
- ---------------------------------------------------------
FTI MUNICIPAL BOND FUND
PERFORMANCE
FTI Municipal Bond Fund posted a year-to-date return for the fiscal year ended
November 30, 1999 of -0.66%, and the Lipper Intermediate Municipal Bond Funds
Average* posted a return of -1.18% for the same period. The Fund's solid
performance was attributed to the high quality and premium coupon bond structure
of the portfolio. The rise in municipal yields had an adverse impact on discount
bonds resulting in impaired liquidity and dramatic underperformance relative to
current and premium coupon bonds. In addition, the lack of exposure to the
healthcare sector and other lower rated issues proved beneficial as both sectors
performed poorly during the year.
MARKET REVIEW
The fiscal year ended November 1999 saw a dramatic rise in interest rates as the
world rebounded smartly from the financial crisis of Fall 1998. Major central
banks began to reverse the easing of monetary policy implemented in response to
the crisis, and commodity prices surged, led by a more than doubling in the
price of oil from mid-February lows.
The Treasury yield curve moved up sharply during the year, with most of the
movement occurring in February, April and May. The release of the fourth quarter
1998 Gross Domestic Product (GDP) figures at the end of January was the
beginning of the 1999 bear market. The GDP data changed bond market sentiment
tremendously, as it was clear economic activity was ending 1998 on a strong
note. Federal Reserve Board (the "Fed") Chairman Alan Greenspan injected caution
into the bond market at his semi-annual Humphrey-Hawkins testimony in February,
indicating that prolongation of the current boom environment might lead to a
firming of monetary policy. In February, the bond market recorded its worst
monthly performance since December 1981.
Interest rates lurched upward again in April and May following a strong first
quarter GDP report as well as a surge in the Consumer Price Index (CPI) in
April. In May, the Fed shifted to a tightening bias, citing improved prospects
for foreign economies and domestic markets, already tight domestic labor markets
and ongoing strength in demand in excess of productivity. On June 30, the Fed
again raised interest rates by 0.25%, stating that in the current dynamic
environment, it must be "especially alert to the emergence or potential
emergence of inflationary forces that could undermine economic growth."
In spite of the Fed's second rate hike, August interest rates moved generally
sideways, then rose more predictably in September and October. The Fed raised
interest rates again by 0.25% in November. November's rate hike followed a
rebound in activity relative to the economy's below-trend pace in the second
quarter and a mild uptick in the inflation rate. The fiscal year ended with
market expectations that the Fed will remain on hold at its December Federal
Open Market Committee meeting. Further, growth should remain solid and inflation
pressures subdued.
* LIPPER FIGURES REPRESENT THE AVERAGE OF THE TOTAL RETURNS REPORTED BY ALL OF
THE MUTUAL FUNDS DESIGNATED BY LIPPER ANALYTICAL SERVICES, INC. AS FALLING
INTO THE RESPECTIVE CATEGORIES INDICATED. LIPPER FIGURES DO NOT REFLECT SALES
CHARGES.
17
<PAGE>
- ---------------------------------------------------------
Tax exempt ratios, which began the new year at such attractive levels to their
taxable counterparts, tightened from 90% in the 10-year sector to a historically
"fair value" level of 80%. This year's decline in supply of more than 20%
contributed to the outperformance of municipals. Although total new issuance
declined, new money issuance remained strong while refunding issuance plunged
more than 50% compared to the same period last year.
Since early summer, the virtual disappearance of net demand from institutions,
such as the erosion of demand from insurance companies, had resulted in a
thinner, more volatile market. More specifically, property and casualty
insurance companies continue to struggle with profitability, while most funds
are experiencing actual cash outflows, as individual investors continue to shun
mutual funds in favor of direct purchases of municipal securities. With the
absence of institutional buying, it has been the retail investor that has
supported the market. Throughout the fiscal year, retail demand has been
extremely strong as a result of a mixed equity market and higher bond yields.
INVESTMENT OUTLOOK AND STRATEGY
We believe the economy should continue to post solid growth over the next three
to six months, though perhaps marginally slower growth than the year-to-date
rate. Inflation appears to have bottomed below 2% and is likely to rise
non-threateningly from here, primarily due to the rise in oil prices and as the
effects of the strong U.S. dollar fade. While the Fed remains concerned with
potential inflation pressures, we do not expect another rate hike at the
December Federal Open Market Committee meeting.
Our outlook for the municipal market is favorable as we expect a continuation of
the strong retail demand we have experienced, and we anticipate a modest
increase in institutional demand based on attractive relative valuations and
improving technicals. Institutional investors are beginning to draw their
attention beyond current supply conditions and focus on the December/January
period which historically has seen favorable seasonals, whereby demand exceeds
supply. Generally, new issuance is low and demand is strong, supported by the
reinvestment of cash proceeds from December and January coupons and
matured/refunded issues.
Our strategy is to have a slightly longer than market average maturity, given
our expectation that the economic activity is likely to see a mild deceleration
from the current robust pace, while inflation is expected to remain relatively
subdued.
18
<PAGE>
FTI MUNICIPAL BOND FUND
- ---------------------------------------------------------
GROWTH OF $10,000 INVESTED IN FTI MUNICIPAL BOND FUND
The graph below illustrates the hypothetical investment of $10,000* in the FTI
Municipal Bond Fund (the "Fund") from December 11, 1998 (start of performance)
to November 30, 1999 compared to the Lehman Brothers Municipal Bond 7-Year
Index.+
<TABLE>
<CAPTION>
GROWTH OF $10,000 AS OF NOVEMBER 30, 1999
[Graphic representation omitted. Insert Appendix A.6.]
<S> <C> <C>
CUMULATIVE TOTAL RETURN FOR THE PERIOD ENDED NOVEMBER 30,
1999
Start of Performance (12/11/98) -0.66%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* THE FUND'S PERFORMANCE ASSUMES THE REINVESTMENT OF ALL DIVIDENDS AND
DISTRIBUTIONS. THE LEHMAN BROTHERS MUNICIPAL BOND 7-YEAR INDEX HAS BEEN
ADJUSTED TO REFLECT REINVESTMENT OF DIVIDENDS ON SECURITIES IN THE INDEX.
+ THE LEHMAN BROTHERS MUNICIPAL BOND 7-YEAR INDEX IS NOT ADJUSTED TO REFLECT
SALES CHARGES, EXPENSES, OR OTHER FEES THAT THE SECURITIES AND EXCHANGE
COMMISSION REQUIRES TO BE REFLECTED IN THE FUND'S PERFORMANCE. THE INDEX IS
UNMANAGED.
19
<PAGE>
FTI LARGE CAPITALIZATION GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ----------------------------------------------------------------
COMMON STOCKS--99.4%
CONSUMER DURABLES--2.5%
50,000 Ford Motor Co. $ 2,525,000
------------
CONSUMER NON-DURABLES--6.3%
48,000 BestFoods 2,631,000
34,000 Procter & Gamble Co. 3,672,000
------------
Total 6,303,000
------------
CONSUMER SERVICES--10.1%
70,000 (1)AMFM, Inc. 4,948,125
115,000 (1)Fox Entertainment Group, Inc., Class
A 2,645,000
50,000 Royal Caribbean Cruises Ltd. 2,468,750
------------
Total 10,061,875
------------
ELECTRONIC TECHNOLOGY--13.8%
45,000 Hewlett-Packard Co. 4,269,375
70,000 Intel Corp. 5,368,125
40,000 International Business Machines Corp. 4,122,500
------------
Total 13,760,000
------------
ENERGY MINERALS--9.0%
76,000 BP Amoco PLC, ADR 4,631,250
55,000 Exxon Corp. 4,362,187
------------
Total 8,993,437
------------
FINANCE--11.8%
40,000 AXA-UAP, ADR 2,672,500
82,000 Bank of New York Co., Inc. 3,269,750
50,000 Fannie Mae 3,331,250
50,000 Federal Home Loan Mortgage Corp. 2,468,750
------------
Total 11,742,250
------------
HEALTH TECHNOLOGY--8.8%
47,000 Johnson & Johnson 4,876,250
50,000 Merck & Co., Inc. 3,925,000
------------
Total 8,801,250
------------
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -----------------------------------------------------------------
COMMON STOCKS (continued)
PROCESS INDUSTRIES--5.9%
40,000 Corning, Inc. $ 3,747,500
125,000 Engelhard Corp. 2,101,562
------------
Total 5,849,062
------------
PRODUCER MANUFACTURING--12.9%
60,000 Allied-Signal, Inc. 3,588,750
53,000 General Electric Co. 6,890,000
60,000 Tyco International Ltd. 2,403,750
------------
Total 12,882,500
------------
RETAIL TRADE--2.1%
120,000 Family Dollar Stores, Inc. 2,152,500
------------
TECHNOLOGY SERVICES--2.4%
72,000 (1)Compuware Corp. 2,434,500
------------
TRANSPORTATION--4.6%
375,000 (1)British Aerospace PLC 2,164,737
80,000 Canadian National Railway 2,395,000
------------
Total 4,559,737
------------
UTILITIES--9.2%
50,000 Bell Atlantic Corp. 3,165,625
35,000 (1)MCI Worldcom, Inc. 2,894,063
35,000 Nippon Telegraph & Telephone Corp., ADR 3,123,750
------------
Total 9,183,438
------------
TOTAL COMMON STOCKS
(identified cost $48,459,672) 99,248,549
------------
U.S. TREASURY--0.5%
$500,000 United States Treasury Bill, 1/27/2000
(identified cost $496,042) 496,026
------------
(2)REPURCHASE AGREEMENTS--0.2%
183,000 J.P. Morgan & Co., Inc., 4.60%, dated
11/30/1999, due 12/1/1999 (at amortized
cost) 183,000
------------
TOTAL INVESTMENTS
(identified cost $49,138,714)(3) $ 99,927,575
============
</TABLE>
20
<PAGE>
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 $49,138,714.
The net unrealized appreciation of investments on a federal tax basis
amounts to $50,788,861 which is comprised of $51,436,882 appreciation and
$648,021 depreciation at November 30, 1999.
Note: The categories of investments are shown as a percentage of net assets
($99,887,336) at November 30, 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)
21
<PAGE>
FTI LARGE CAPITALIZATION GROWTH FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------------------------------------------------------------
COMMON STOCKS--95.4%
CONSUMER NON-DURABLES--2.3%
6,500 Procter & Gamble Co. $ 702,000
------------
CONSUMER SERVICES--11.7%
15,000 (1)AMFM, Inc. 1,060,312
16,800 CBS Corp. 873,600
12,000 (1)Infinity Broadcasting Corp., Class A 437,250
5,800 (1)MediaOne Group, Inc. 459,650
16,900 Royal Caribbean Cruises Ltd. 834,437
------------
Total 3,665,249
------------
ELECTRONIC TECHNOLOGY--24.2%
20,000 (1)Cisco Systems, Inc. 1,783,750
3,000 (1)Comverse Technology, Inc. 362,625
13,000 (1)EMC Corp. 1,086,312
13,400 Intel Corp. 1,027,612
5,600 International Business Machines Corp. 577,150
1,800 (1)JDS Uniphase Corp. 411,750
9,000 Lucent Technologies, Inc. 657,562
9,500 (1)Solectron Corp. 782,562
6,500 (1)Sun Microsystems, Inc. 859,625
------------
Total 7,548,948
------------
ENERGY MINERALS--3.8%
7,600 Mobil Corp. 792,775
7,000 Royal Dutch Petroleum Co., ADR 406,000
------------
Total 1,198,775
------------
FINANCE--9.7%
8,343 American International Group, Inc. 861,415
12,000 Bank of America Corp 702,000
15,000 Citigroup, Inc. 808,125
10,000 Fannie Mae 666,250
------------
Total 3,037,790
------------
HEALTH SERVICES--2.5%
15,000 Cardinal Health, Inc. 784,687
------------
HEALTH TECHNOLOGY--5.0%
8,000 (1)Amgen, Inc. 364,500
4,800 Bristol-Myers Squibb Co. 350,700
8,000 Merck & Co., Inc. 628,000
6,000 Pfizer, Inc. 217,125
------------
Total 1,560,325
------------
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------------------------------------------------------------
COMMON STOCKS (continued)
INDUSTRIAL SERVICES--1.7%
9,000 Schlumberger Ltd. $ 540,563
------------
PRODUCER MANUFACTURING--11.5%
8,500 General Electric Co. 1,105,000
6,000 Honeywell, Inc. 671,625
8,000 (1)Lexmark International Group, Class A 664,000
14,000 Masco Corp. 353,500
20,000 Tyco International Ltd. 801,250
------------
Total 3,595,375
------------
RETAIL TRADE--8.5%
7,000 Dayton-Hudson Corp. 493,938
13,000 Home Depot, Inc. 1,027,813
25,650 (1)Staples, Inc. 602,775
9,000 Wal-Mart Stores, Inc. 518,625
------------
Total 2,643,151
------------
TECHNOLOGY SERVICES--5.1%
11,000 (1)American Online, Inc. 799,563
8,800 (1)Microsoft Corp. 801,213
------------
Total 1,600,776
------------
UTILITIES--9.4%
12,600 Bell Atlantic Corp. 797,738
24,000 BroadWing, Inc. 699,000
10,000 Coastal Corp. 352,500
13,000 (1)MCI Worldcom, Inc. 1,074,938
------------
Total 2,924,176
------------
TOTAL COMMON STOCKS
(identified cost $19,707,930) 29,801,815
------------
(2)REPURCHASE AGREEMENTS--4.7%
$1,452,000 J.P. Morgan & Co., Inc., 4.60%, dated
11/30/1999, due 12/1/1999 (at amortized
cost) 1,452,000
------------
TOTAL INVESTMENTS
(identified cost $21,159,930)(3) $ 31,253,815
============
</TABLE>
22
<PAGE>
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 $21,159,930.
The net unrealized appreciation of investments on a federal tax basis
amounts to $10,093,885 which is comprised of $10,413,366 appreciation and
$319,481 depreciation at November 30, 1999.
Note: The categories of investments are shown as a percentage of net assets
($31,237,803) at November 30, 1999.
The following acronym is used throughout this portfolio:
ADR -- American Depositary Receipt
(See Notes which are an integral part of the Financial Statements)
23
<PAGE>
FTI INTERNATIONAL EQUITY FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--98.2%
AUSTRALIA--1.0%
27,000 Brambles Industries Ltd. $ 741,486
------------
BRAZIL--1.0%
8,000 (1)Telecomunicacoes Brasileiras SA, ADR 726,000
------------
DENMARK--1.9%
24,200 ISS International Service, Class B 1,409,454
------------
FINLAND--3.2%
17,300 Nokia Oyj 2,451,230
------------
FRANCE--6.0%
4,000 Cap Gemini SA 707,843
5,100 Castorama Dubois 1,325,997
4,300 Havas Advertising SA 1,629,330
6,727 Total Fina SA, Class B 895,523
------------
Total 4,558,693
------------
GERMANY--3.7%
20,800 Douglas Holdings AG 901,331
9,100 Mannesmann AG 1,892,796
------------
Total 2,794,127
------------
GREECE--0.6%
24,500 (1)STET Hellas Telecommunications SA,
ADR 483,875
------------
HONG KONG--1.6%
110,000 Cheung Kong (Holdings) Ltd. 1,239,297
------------
IRELAND--1.0%
91,894 Bank of Ireland 759,374
------------
ITALY--3.7%
45,000 Arn Mondadori Edit 922,393
195,000 ENI SPA 1,069,021
171,000 Unicredito Italiano SPA 797,865
------------
Total 2,789,279
------------
JAPAN--29.5%
9,100 Advantest 1,521,509
67,000 Bank of Tokyo-Mitsubishi Ltd. 971,482
40,000 Canon, Inc. 1,178,840
19,500 Circle K Japan Co. Ltd. 862,027
182 East Japan Railway Co. 1,072,744
166,000 Fuji Bank Ltd. 1,992,750
153,000 Hitachi Ltd. 2,119,259
6,000 Keyence Corp. 1,709,318
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued)
JAPAN (continued)
258,000 Komatsu Ltd. $ 1,457,341
112 NTT Mobile Communication Network, Inc. 3,938,897
5,000 Rohm Co. 1,359,595
5,000 Sony Corp. 928,336
8,000 TDK Corp. 880,200
41,000 Takeda Chemical Industries 2,424,677
------------
Total 22,416,975
------------
KOREA, REPUBLIC OF--0.7%
15,200 Pohang Iron and Steel Co. Ltd., ADR 546,250
------------
MEXICO--2.4%
460,000 (1)Cifra SA de CV, Series V 869,122
64,000 Coca-Cola Femsa SA, ADR 984,000
------------
Total 1,853,122
------------
NETHERLANDS--9.3%
50,000 (1)KPN QWEST BV 1,912,500
43,955 Nutreco Holding NV 1,284,573
15,400 (1)STMicroelectronics NV 2,095,111
10,000 (1)United Pan-Europe Communications NV 982,556
26,160 Wolters Kluwer NV 789,564
------------
Total 7,064,304
------------
PORTUGAL--0.8%
48,000 Telecel - Comunicacoes Pessoais 635,608
------------
SINGAPORE--2.8%
166,309 DBS Group Holdings Ltd. 2,157,415
------------
SWEDEN--4.2%
25,200 Pharmacia & Upjohn, Inc. 1,386,178
106,700 Securitas AB, Class B 1,774,571
------------
Total 3,160,749
------------
SWITZERLAND--4.1%
531 Baer Holdings AG 1,586,421
5,500 UBS AG 1,504,812
------------
Total 3,091,233
------------
TAIWAN, PROVINCE OF CHINA--1.4%
29,274 (1)Taiwan Semiconductor Manufacturing
Co., ADR 1,048,375
------------
</TABLE>
24
<PAGE>
FTI INTERNATIONAL EQUITY FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued)
UNITED KINGDOM--19.3%
82,000 Amvescap PLC $ 848,641
142,000 British Petroleum Amoco PLC 1,450,350
53,000 (1)British Aerospace PLC 305,949
18,000 (1)COLT Telecom Group PLC 680,278
122,000 Compass Group PLC 1,478,559
65,000 Dixons Group 1,412,780
55,000 Glaxo Wellcome PLC 1,645,359
83,617 HSBC Holdings PLC 1,103,553
145,000 Hays PLC 2,208,191
109,094 Lloyds TSB Group PLC 1,398,692
48,000 Ocean Group PLC 842,740
273,425 Vodafone AirTouch PLC 1,288,430
------------
Total 14,663,522
------------
TOTAL COMMON STOCKS
(identified cost $54,419,362) 74,590,368
------------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<C> <S> <C>
(2)REPURCHASE AGREEMENTS--4.4%
$3,359,000 J.P. Morgan & Co., Inc., 4.60%, dated
11/30/1999, due 12/1/1999
(at amortized cost) $ 3,359,000
------------
TOTAL INVESTMENTS
(identified cost $55,778,362)(3) $ 77,949,368
============
</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 $55,778,362.
The net unrealized appreciation of investments on a federal tax basis
amounts to $22,171,006 which is comprised of $24,210,904 appreciation and
$2,039,898 depreciation at November 30, 1999.
Note: The categories of investments are shown as a percentage of net assets
($75,988,868) at November 30, 1999.
The following acronyms are used throughout this portfolio:
ADR -- American Depositary Receipt
PLC -- Public Limited Company
SA -- Support Agreement
SPA -- Standby Purchase Agreement
(See Notes which are an integral part of the Financial Statements)
25
<PAGE>
FTI SMALL CAPITALIZATION EQUITY FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--92.3%
AEROSPACE AND DEFENSE--0.5%
20,900 AAR Corp. $ 344,850
------------
BASIC INDUSTRIES--0.6%
11,000 Minerals Technologies, Inc. 434,500
------------
BASIC MATERIALS--1.5%
36,000 (1)CompX International, Inc. 659,250
16,600 Kaydon Corp. 454,425
------------
Total 1,113,675
------------
COMMERCIAL SERVICES--7.9%
20,000 (1)Corporate Executive Board Co. 930,000
25,000 (1)Data Transmission Network Corp. 514,062
17,000 G & K Services, Inc., Class A 575,875
36,000 (1)Interim Services, Inc. 663,750
20,000 (1)Lamar Advertising Co. 1,147,500
30,000 (1)On Assignment, Inc. 841,875
15,000 (1)Ritchie Bros. Auctioneers, Inc. 453,750
40,000 (1)School Specialty, Inc. 650,000
------------
Total 5,776,812
------------
CONSUMER DURABLES--0.8%
30,000 (1)Furniture Brands International, Inc. 585,000
------------
CONSUMER SERVICES--6.5%
16,351 (1)AMFM, Inc. 1,155,811
16,000 (1)Emmis Communications, Corp., Class A 1,296,000
14,000 (1)Entercom Communication Corp. 800,625
32,000 (1)IDG Books Worldwide, Inc., Class A 480,000
20,000 (1)SFX Entertainment, Inc., Class A 675,000
13,000 (1)XM Satellite Radio Holdings, Inc.,
Class A 346,937
------------
Total 4,754,373
------------
EDUCATION--1.0%
36,000 (1)DeVRY, Inc. 726,750
------------
ELECTRONIC TECHNOLOGY--12.9%
12,000 (1)Alpha Industries, Inc. 726,000
3,300 (1)Cobalt Networks, Inc. 557,081
13,000 (1)Comverse Technology, Inc. 1,571,375
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued)
ELECTRONIC TECHNOLOGY (continued)
3,600 (1)Copper Mountain Networks, Inc. $ 300,375
4,600 (1)Electro Scientific Industries, Inc. 268,812
20,000 (1)Electroglas, Inc. 569,375
5,000 (1)Extreme Networks, Inc. 331,875
8,000 (1)Gemstar International Group Ltd. 902,000
9,900 (1)JDS Uniphase Corp. 2,264,625
7,400 (1)Network Appliance, Inc. 870,887
5,100 (1)PC-Tel, Inc. 188,062
8,000 (1)PMC-Sierra, Inc. 824,500
------------
Total 9,374,967
------------
ENVIRONMENTAL CONTROL--0.6%
38,000 (1)Tetra Tech, Inc. 432,250
------------
FINANCIAL SERVICES--7.8%
26,000 (1)ChoicePoint, Inc. 867,750
17,200 Hooper Holmes, Inc. 406,350
25,000 INMC Mortgage Holdings, Inc. 276,562
77,200 (1)Imperial Credit Industries, Inc. 434,250
27,200 Investment Technology Group, Inc. 729,300
16,000 Legg Mason, Inc. 563,000
22,000 Queens County Bancorp, Inc. 638,000
18,200 Radiant Group, Inc. 889,525
30,000 Roslyn Bancorp, Inc. 583,125
9,700 WestAmerica Bancorporation 304,944
------------
Total 5,692,806
------------
HEALTH SERVICES--1.9%
25,000 (1)First Consulting Group, Inc. 237,500
20,000 (1)First Health Group Corp. 503,750
32,000 (1)Renal Care Group, Inc. 656,000
------------
Total 1,397,250
------------
HEALTH TECHNOLOGY--5.4%
7,600 (1)Affymetrix, Inc. 744,800
21,500 (1)Alkermes, Inc. 913,750
4,700 (1)IDEC Pharmaceuticals Corp. 595,725
7,300 (1)Medimmune, Inc. 877,369
17,000 (1)QLT Phototherapeutics, Inc. 758,625
------------
Total 3,890,269
------------
</TABLE>
26
<PAGE>
FTI SMALL CAPITALIZATION EQUITY FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued)
INDUSTRIAL SERVICES--3.6%
25,000 (1)BJ Services Co. $ 871,875
30,000 Helmerich & Payne, Inc. 678,750
18,000 (1)Quanta Services, Inc. 504,000
40,000 (1)Tuboscope, Inc. 570,000
------------
Total 2,624,625
------------
INSURANCE--0.5%
2,500 (1)Markel Corp. 393,125
------------
MEDICAL SUPPLIES--1.4%
34,500 (1)Lincare Holdings, Inc. 978,937
------------
NON-ENERGY MINERALS--1.0%
14,700 Elcor Corp. 475,912
20,000 (1)U.S. Aggregates, Inc. 237,500
------------
Total 713,412
------------
PROCESS INDUSTRIES--2.1%
30,000 Aptargroup, Inc. 813,750
19,000 MacDermid, Inc. 723,188
------------
Total 1,536,938
------------
PRODUCER MANUFACTURING--0.8%
23,700 (1)Cable Design Technologies, Class A 567,319
------------
RETAIL TRADE--1.9%
30,900 (1)Valuevision International, Inc.,
Class A 1,390,500
------------
SERVICES--4.3%
25,000 (1)Charles River Associates, Inc. 756,250
23,000 (1)Maximus, Inc. 644,000
25,600 (1)Profit Recovery Group International,
Inc. 948,400
37,200 Regis Corp. Minnesota 767,250
------------
Total 3,115,900
------------
TECHNOLOGY SERVICES--24.8%
5,000 (1)Active Software, Inc. 318,750
10,000 (1)Allaire Corp. 1,518,750
20,000 (1)Bisys Group, Inc. 1,158,750
11,000 (1)Braun Consulting, Inc. 390,500
3,300 (1)Business Objects SA, ADR 292,050
12,300 (1)Clarify, Inc. 1,146,398
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued)
TECHNOLOGY SERVICES (continued)
21,000 (1)Diamond Technology Partners, Class A $ 1,102,500
8,820 (1)DoubleClick, Inc. 1,411,751
27,000 (1)Entrust Technologies, Inc. 973,688
4,200 (1)Exodus Communications, Inc. 452,813
26,000 (1)FIserv, Inc. 923,000
19,000 (1)ISS Group, Inc. 916,750
1,800 (1)Intertrust Technologies Corp. 231,413
10,000 (1)Mercury Interactive Corp. 831,250
7,000 (1)Micromuse, Inc. 800,625
9,000 (1)Open Market, Inc. 331,313
20,000 (1)PsiNet, Inc. 1,000,000
19,000 (1)Rare Medium Group, Inc. 527,250
8,000 (1)Rational Software Corp. 409,000
21,000 (1)TSI International Software Ltd. 913,500
15,400 (1)Verio, Inc. 553,438
19,800 (1)Veritas Software Corp. 1,812,938
------------
Total 18,016,427
------------
TELECOMMUNICATIONS--1.9%
38,100 (1)Primus Telecommunications Group, Inc. 1,133,475
13,800 (1)RSL Communications Ltd., Class A 279,450
------------
Total 1,412,925
------------
UTILITIES--2.6%
32,512 BroadWing, Inc. 946,912
6,500 (1)Clarent Corp. 528,125
11,500 (1)iBasis, Inc. 389,563
------------
Total 1,864,600
------------
TOTAL COMMON STOCKS
(identified cost $43,747,868) 67,138,210
------------
(2)REPURCHASE AGREEMENT--5.5%
$4,019,000 J.P. Morgan & Co., Inc., 4.60%, dated
11/30/1999, due 12/1/1999 (at amortized
cost) 4,019,000
------------
TOTAL INVESTMENTS
(identified cost $47,766,868)(3) $ 71,157,210
============
</TABLE>
27
<PAGE>
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 $48,420,775.
The net unrealized appreciation of investments on a federal tax basis
amounts to $22,736,435 which is comprised of $24,481,383 appreciation and
$1,744,948 depreciation at November 30, 1999.
Note: The categories of investments are shown as a percentage of net assets
($72,751,944) at November 30, 1999.
The following acronyms are used throughout this portfolio:
ADR -- American Depositary Receipt
SA -- Support Agreement
(See Notes which are an integral part of the Financial Statements)
28
<PAGE>
FTI BOND FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------
<C> <S> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS--6.2%
$2,218,942 DLJ Mortgage Acceptance Corp. 1998-2,
Class 1PA, 6.75%, 6/19/2028 $ 2,105,110
2,945,267 LB Commercial Conduit Mortgage Trust
1998-C4, Class A1A, 5.87%, 8/15/2006 2,822,582
1,672,676 Residential Asset Securitization Trust
1997-A11, Class A3, 7.00%, 1/25/2028 1,667,600
-------------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS (identified cost
$6,767,842) 6,595,292
-------------
CORPORATE BONDS--35.5%
BANKING--5.5%
3,135,000 (1)KBC Bank Funding, Bond 8.625%,
11/29/2049 3,275,680
2,580,000 Sovereign Bancorp, Inc., Sr. Note,
6.625%, 3/15/2001 2,564,863
-------------
Total 5,840,543
-------------
CABLE TELEVISION--3.8%
1,175,000 Charter Communications Holdings Capital
Corp., Sr. Note, 8.625%, 4/1/2009 1,116,250
1,625,000 CSC Holdings, Inc., 8.125%, 7/15/2009 1,633,124
505,000 CSC Holdings, Inc., Sr. Deb., 7.625%,
7/15/2018 465,862
870,000 Heritage Media Corp., Sr. Sub. Note,
8.75%, 2/15/2006 886,313
-------------
Total 4,101,549
-------------
CHEMICALS--1.4%
1,500,000 Union Carbide Corp., Sr. Note, 6.25%,
6/15/2003 1,459,652
-------------
FINANCIAL SERVICES--2.7%
70,000 Associates Corp. of North America, Sr.
Note, 5.75%, 11/1/2003 67,242
2,090,000 (1)(2)Dresdner Funding Trust, Note,
8.151%, 6/30/2031 2,004,651
810,000 Lehman Brothers Holdings, Inc., Note,
6.375%, 5/7/2002 797,480
-------------
Total 2,869,373
-------------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS (continued)
INDUSTRIAL COMPONENTS--2.3%
$2,480,000 (1)TRW, Inc., Note, 6.50%, 6/1/2002 $ 2,443,023
-------------
MERCHANDISING--2.5%
2,840,000 Saks, Inc., Unsecd. Note, 7.00%,
7/15/2004 2,682,888
-------------
MULTI-INDUSTRY--0.6%
705,000 Textron, Inc., Note, 6.75%, 9/15/2002 701,556
-------------
OTHER--1.9%
1,825,000 News America Holdings, Inc., 10.125%,
10/15/2012 1,997,504
-------------
REAL ESTATE--1.3%
1,425,000 Host Marriott, L.P., 8.375%, 2/15/2006 1,346,625
-------------
SPECIAL PURPOSE ENTITY--5.7%
2,600,000 (1)Air 2 Us, Equip. Trust, 8.027%,
10/1/2019 2,629,198
2,425,000 (1)Osprey Trust, Sr. Secd. Note, 8.31%,
1/15/2003 2,418,353
1,000,000 RBF Finance Co., Company Guarantee,
11.00%, 3/15/2006 1,055,000
-------------
Total 6,102,551
-------------
TELECOMMUNICATIONS--0.7%
800,000 AT&T Capital Corp., Note, 6.75%,
2/4/2002 796,163
-------------
TRANSPORTATION-AIRLINES--0.2%
235,000 Northwest Airlines, Inc., Note, 8.52%,
4/7/2004 220,528
-------------
UTILITIES--6.2%
156,047 (1)East Coast Power, Sr. Secd. Note,
6.737%, 3/31/2008 147,890
2,600,000 (1)PSEG Energy Holdings, Note, 10.00%,
10/1/2009 2,647,427
375,000 Southern Union Co., Note, 8.25%,
11/15/2029 381,252
3,500,000 Utilicorp United, Inc., Sr. Note,
7.625%, 11/15/2009 3,403,726
-------------
Total 6,580,295
-------------
</TABLE>
29
<PAGE>
FTI BOND FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
- -------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS (continued)
UTILITIES - ELECTRICAL &
GAS--0.7%
$ 740,000 El Paso Electric Co., 1st Mtg. Note,
9.40%, 5/1/2011 $ 803,140
-------------
TOTAL CORPORATE BONDS
(identified cost $38,206,256) 37,945,390
-------------
MORTGAGE BACKED SECURITIES--29.4%
FEDERAL HOME LOAN BANK SYSTEM--3.0%
3,225,000 6.905%, 10/18/2004 3,224,845
-------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION--24.3%
26,192,569 6.00%-8.00%, 11/1/2028 - 1/1/2030 25,919,629
-------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION--2.1%
2,251,241 7.50%, 7/15/2025 - 9/15/2025 2,249,485
-------------
TOTAL MORTGAGE BACKED SECURITIES
(identified cost $31,539,850) 31,393,959
-------------
PREFERRED STOCKS--6.5%
REAL ESTATE--2.0%
96,300 Equity Office Properties Trust,
Cumulative Pfd., Series A, $2.25 2,148,694
-------------
SPECIAL PURPOSE ENTITY--4.2%
4,495 (1)(2)Centaur Funding Corp., Pfd. 4,568,044
-------------
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
- -------------------------------------------------------------------
<C> <S> <C>
PREFERRED STOCKS (continued)
TELECOMMUNICATIONS--0.3%
11,300 AT&T Corp., Cumulative Pfd., $2.43 $ 302,275
-------------
TOTAL PREFERRED STOCKS
(identified cost $7,455,286) 7,019,013
-------------
U.S. TREASURY--20.0%
$8,850,000 United States Treasury Bond, 7.25%,
8/15/2022 9,552,469
2,620,000 United States Treasury Bond, 7.88%,
2/15/2021 2,998,263
670,000 United States Treasury Note, 6.50%,
10/15/2006 678,166
3,495,000 United States Treasury Note, 7.50%,
2/15/2005 3,689,409
4,400,000 United States Treasury Note, 8.50%,
2/15/2000 4,428,877
-------------
TOTAL U.S. TREASURY
(identified cost $22,364,952) 21,347,184
-------------
(3)REPURCHASE AGREEMENTS--1.9%
2,030,000 J.P. Morgan & Co., Inc., 4.60%, dated
11/30/1999, due 12/1/1999 (at amortized
cost) 2,030,000
-------------
TOTAL INVESTMENTS
(identified cost $108,364,186)(4) $ 106,330,838
=============
</TABLE>
(1) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At November 30, 1999, these securities
amounted to $20,134,266 which represents 18.8% of net assets. Included in
these amounts, securities which have been deemed liquid amounted to
$6,572,695 which represents 6.1% 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 $108,589,452.
The net unrealized depreciation of investments on a federal tax basis
amounts to $2,258,614 which is comprised of $318,627 appreciation and
$2,577,241 depreciation at November 30, 1999.
Note: The categories of investments are shown as a percentage of net assets
($106,887,657) at November 30, 1999.
(See Notes which are an integral part of the Financial Statements)
30
<PAGE>
FTI MUNICIPAL BOND FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- --------------------------------------------------------------------------
<C> <S> <C> <C>
LONG-TERM MUNICIPALS--92.9%
ALABAMA--1.1%
$ 750,000 Birmingham, AL, GO UT Bonds, 6.45%
(Original Issue Yield: 6.50%),
7/1/2006 AA/Aa3 $ 791,212
------------
CALIFORNIA--0.7%
500,000 Los Angeles, CA, Department of Water & Power, Revenue Bonds, 6.875%
(Original Issue Yield:
6.90%), 4/1/2009 AA/Aa3 526,255
------------
COLORADO--1.5%
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 1,028,450
------------
FLORIDA--1.6%
500,000 Florida State Turnpike Authority,
Revenue Bonds (Series A), 6.95%
(AMBAC INS), 7/1/2003 AAA/Aaa 530,040
550,000 Palm Beach County, FL, GO UT
Refunding Bonds, 5.50%, 12/1/2012 AA/Aa2 567,292
------------
Total 1,097,332
------------
GEORGIA--3.1%
1,000,000 Fulton County, GA, School District,
GO UT Refunding Bonds, 5.25%,
1/1/2013 AA/Aa2 993,880
350,000 Georgia State, UT GO, 6.00%,
9/1/2007 AAA/Aaa 376,306
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- --------------------------------------------------------------------------
<C> <S> <C> <C>
LONG-TERM MUNICIPALS (continued)
GEORGIA (continued)
$ 750,000 Houston County, GA, Development
Authority, Multifamily Revenue Bond
(Series A), 6.85%, 8/1/2018 NR $ 694,972
160,000 Houston County, GA, Development
Authority, Multifamily Revenue
Bonds, 6.40%, 8/1/2006 NR 154,192
------------
Total 2,219,350
------------
HAWAII--0.7%
500,000 Hawaii State, GO UT Bonds
(Series CJ), 5.80% (Original Issue
Yield: 5.85%), 1/1/2005 A+/A1 519,450
------------
ILLINOIS--3.0%
1,000,000 Du Page, IL, Water Commission,
GO UT Refunding Bonds, 6.25%
(Original Issue Yield: 6.35%),
3/1/2005 AAA/Aaa 1,053,930
1,055,000 Illinois State Sales Tax, Refunding
Revenue Bond (Series Y), 5.25%,
6/15/2010 AAA/Aa2 1,062,195
------------
Total 2,116,125
------------
KENTUCKY--1.5%
1,000,000 Kentucky Turnpike Authority,
Refunding Revenue Bonds, 5.50%
(AMBAC INS), 7/1/2006 AAA/Aaa 1,036,510
------------
MAINE--1.3%
905,000 Maine State Housing Authority,
Refunding Revenue Bonds
(Series D-1), 5.05%, 11/15/2016 AA/Aa2 905,063
------------
</TABLE>
31
<PAGE>
FTI MUNICIPAL BOND FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- --------------------------------------------------------------------------
<C> <S> <C> <C>
LONG-TERM MUNICIPALS (continued)
MASSACHUSETTS--3.9%
$2,705,000 Massachusetts State Special
Obligation Revenue, Refunding
Revenue Bonds, 5.50%, 6/1/2013 AA/Aa3 $ 2,744,953
------------
MICHIGAN--2.8%
2,000,000 Jenison, MI, Public Schools, GO UT
Refunding Revenue Bonds, 5.25%,
5/1/2013 AAA/Aaa 1,976,220
------------
MINNESOTA--4.9%
1,000,000 Minnesota Public Facilities
Authority, Refunding Revenue Bonds,
5.00%, 3/1/2003 AAA/Aaa 1,017,480
2,500,000 Minnesota State HFA, 4.85%,
1/1/2024 AA+/Aa2 2,450,125
------------
Total 3,467,605
------------
MISSISSIPPI--2.3%
240,000 Mississippi Home Corp., Refunding
Revenue Bonds (Series G), 5.25%
(GNMA COL), 11/1/2017 AAA/Aaa 221,129
1,400,000 Rankin County, MS, School District,
GO UT, 5.50% (MBIA INS
LOC)/(Original Issue Yield: 4.80%),
2/1/2012 AAA/Aaa 1,420,370
------------
Total 1,641,499
------------
MISSOURI--0.8%
500,000 Missouri State Regulatory
Convention & Sports Complex
Authority, Revenue Bonds
(Series A), 6.70%, 8/15/2004 AAA/Aaa 537,230
------------
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- --------------------------------------------------------------------------
<C> <S> <C> <C>
LONG-TERM MUNICIPALS (continued)
NEVADA--1.4%
$1,000,000 Clark County, NV, School District,
GO LT (Series B) Revenue Bonds,
5.00% (FGIC INS), 6/15/2004 AAA/Aaa $ 1,013,960
------------
NEW HAMPSHIRE--1.5%
1,000,000 New Hampshire Municipal Bond Bank,
Revenue Bonds (Series C), 5.625%
(MBIA INS), 8/15/2005 AAA/Aaa 1,044,490
------------
NEW JERSEY--4.6%
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 395,637
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 1,038,180
1,250,000 New Jersey State, GO UT (Series F)
Refunding Bond, 5.50%, 8/1/2011 AA+/Aa1 1,295,137
500,000 Ocean County, NJ, (Series A) GO UT
Bonds, 6.25%, 10/1/2002 NR/Aa1 525,260
------------
Total 3,254,214
------------
NEW MEXICO--2.2%
1,500,000 New Mexico State Highway
Commission, Revenue Bond, 5.125%,
6/15/2007 AA+/Aa2 1,518,675
------------
</TABLE>
32
<PAGE>
FTI MUNICIPAL BOND FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- --------------------------------------------------------------------------
<C> <S> <C> <C>
LONG-TERM MUNICIPALS (continued)
NEW YORK--17.3%
$1,000,000 Housing NY Corp., Revenue Refunding
Bonds, 5.10% (Original Issue Yield:
5.25%), 11/1/2005 AA/A1 $ 997,890
1,110,000 Municipal Assistance Corp. of New
York, (Series G), 5.50% (Original
Issue Yield: 4.45%), 7/1/2001 AA/Aa2 1,131,101
500,000 Nassau County, NY, GO UT Bonds
(Series V), 5.15% (AMBAC INS),
3/1/2007 AAA/Aaa 505,235
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 1,020,350
750,000 New York City, NY, Transitional
Finance Authority, (Series A),
5.25%, 11/15/2012 AA/Aa3 740,625
1,250,000 New York City, NY, Transitional
Finance Authority, Revenue Bonds
(Series C), 5.25%, 5/1/2012 AA/Aa3 1,234,800
700,000 New York State Environmental
Facilities Corp., Refunding Revenue
Bonds, 5.50% (Original Issue Yield:
5.55%), 6/15/2004 AA-/Aa1 725,396
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 567,600
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- --------------------------------------------------------------------------
<C> <S> <C> <C>
LONG-TERM MUNICIPALS (continued)
NEW YORK (continued)
$ 750,000 New York State Power Authority,
Refunding Revenue Bonds
(Series Y), 6.25% (Original Issue
Yield: 6.70%), 1/1/2005 AAA/Aaa $ 780,832
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 1,036,400
400,000 New York State Urban Development
Corp., Refunding Revenue Bonds,
5.50% (HUD Section 236 GTD),
7/1/2005 AAA/Aaa 414,056
2,500,000 New York State, GO UT Refunding
Bonds (Series F), 5.00%, 9/15/2004 A/A2 2,534,350
500,000 Triborough Bridge & Tunnel
Authority, NY, Refunding Revenue
Bonds (Series Y), 5.90% (Original
Issue Yield: 5.95%), 1/1/2007 A+/Aa3 527,310
------------
Total 12,215,945
------------
OHIO--3.0%
2,000,000 Columbus, OH, GO, (Series 2),
6.00%, 6/15/2007 AAA/Aaa 2,144,440
------------
OREGON--1.6%
1,000,000 Oregon State, GO LT, 6.75%,
5/1/2005 AA/Aa2 1,099,790
------------
</TABLE>
33
<PAGE>
FTI MUNICIPAL BOND FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- --------------------------------------------------------------------------
<C> <S> <C> <C>
LONG-TERM MUNICIPALS (continued)
PUERTO RICO--0.7%
$ 500,000 Puerto Rico Electric Power
Authority, Revenue Bond, 6.60%
(MBIA INS)/(Original Issue Yield:
6.65%), 7/1/2001 AAA/Aaa $ 518,865
------------
RHODE ISLAND--0.5%
345,000 Rhode Island Housing & Mortgage
Finance Corp., Refunding Revenue
Bonds (Series 25-A), 4.95%,
10/1/2016 AA+/Aa2 344,741
------------
SOUTH DAKOTA--3.2%
2,250,000 South Dakota Housing Development
Authority, (Series A) Revenue
Bonds, 5.30%, 5/1/2004 AAA/Aa1 2,281,703
------------
TENNESSEE--4.8%
2,275,000 Municipal Energy Acquisition Corp.,
Refunding Revenue Bonds, 5.00% (FSA
LOC)/(Original Issue Yield: 3.85%),
3/1/2002 AAA/Aaa 2,303,438
1,080,000 Williamson County,TN, GO UT
Refunding Bonds, 5.50%, 9/1/2008 NR/Aa1 1,122,077
------------
Total 3,425,515
------------
TEXAS--6.7%
1,030,000 Galena Park, TX, ISD, GO UT Bonds,
6.25% (PSFG INS), 8/15/2005 NR/Aaa 1,103,975
500,000 Garland, TX, ISD, GO UT Refunding
Bonds, 4.00% (PSFG LOC)/(Original
Issue Yield: 3.75%), 2/15/2002 AAA/Aaa 495,240
795,000 Plano, TX, ISD, GO UT Bonds, 5.50%
(PSFG INS), 2/15/2005 AAA/Aaa 822,348
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- --------------------------------------------------------------------------
<C> <S> <C> <C>
LONG-TERM MUNICIPALS (continued)
TEXAS (continued)
$ 990,000 San Antonio, TX, Electric & Gas,
Revenue Bonds, 5.00% (Original
Issue Yield: 5.25%), 2/1/2012 AA/Aa1 $ 959,657
10,000 San Antonio, TX, Electric & Gas,
Revenue Bonds, 5.00%, 2/1/2012 AA/NR 9,659
1,225,000 Texas State, GO UT, Refunding
Bonds (Series A), 6.00% (Original
Issue Yield: 6.10%), 10/1/2006 AA/Aa2 1,310,824
------------
Total 4,701,703
------------
UTAH--0.6%
750,000 Salt Lake City, UT, Water
Conservancy District, Refunding
Bonds (Series A), 6.90% (AMBAC
INS)/(Original Issue Yield: 6.90%),
10/1/2009 AAA/Aaa 444,915
------------
VIRGINIA--1.1%
550,000 Portsmouth, VA, GO UT Refunding
Bonds, 5.35% (Original Issue Yield:
5.45%), 8/1/2005 AA-/A3 566,335
190,000 Virginia State Public School
Authority, GO UT Bonds (Series B),
6.00%, 8/1/2005 AA/Aa2 204,246
------------
Total 770,581
------------
WASHINGTON--4.4%
200,000 Clark County, WA, Public Utilities
District NO. 001, Revenue Bonds,
6.00% (FGIC INS), 1/1/2008 AAA/Aaa 212,136
1,750,000 Washington State, GO UT Bonds,
6.25% (Original Issue Yield:
6.35%), 2/1/2011 AA+/Aa1 1,906,380
</TABLE>
34
<PAGE>
FTI MUNICIPAL BOND FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- --------------------------------------------------------------------------
<C> <S> <C> <C>
LONG-TERM MUNICIPALS (continued)
WASHINGTON (continued)
$1,000,000 Washington State, GO UT, 5.375%
(Original Issue Yield: 5.55%),
5/1/2008 AA+/Aa1 $ 1,021,680
------------
Total 3,140,196
------------
WISCONSIN--10.1%
1,100,000 Wisconsin State Clean Water,
Revenue Bonds (Series 1), 5.00%,
6/1/2010 AA+/Aa2 1,081,927
1,000,000 Wisconsin State Transportation,
(Series A) Refunding Bonds, 5.50%,
7/1/2011 AA-/A1 1,021,880
2,700,000 Wisconsin State, GO UT (Series 1)
Refunding Bond, 5.50%, 11/1/2011 AA/Aa2 2,779,623
<CAPTION>
SHARES
OR
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- --------------------------------------------------------------------------
<C> <S> <C> <C>
LONG-TERM MUNICIPALS (continued)
WISCONSIN (continued)
$ 700,000 Wisconsin State, GO UT Refunding
Bonds (Series 2), 5.40%, 5/1/2004 AA/Aa2 $ 716,940
1,500,000 Wisconsin State, GO UT, 5.50%
(Original Issue Yield: 4.69%),
11/1/2013 AA/Aa2 1,521,075
------------
Total 7,121,445
------------
TOTAL LONG-TERM MUNICIPALS
(identified cost $65,830,991) 65,648,432
------------
MUTUAL FUNDS--6.1%
4,000 Dreyfus Tax Exempt Fund 4,000
4,340,500 Merrill Lynch Tax Exempt Fund 4,340,500
------------
TOTAL MUTUAL FUNDS
(at net asset value) 4,344,500
------------
TOTAL INVESTMENTS
(identified cost $70,175,491)(1) $ 69,992,932
============
</TABLE>
(1) The cost of investments for federal tax purposes amounts to $70,175,491.
The net unrealized depreciation of investments on a federal tax basis
amounts to $182,559 which is comprised of $763,570 appreciation and
$946,129 depreciation at November 30, 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
($70,698,342) at November 30, 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 --
Guaranteed HFA -- Housing Finance Authority HUD -- Housing and Urban Development
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)
35
<PAGE>
FTI FUNDS
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LARGE
CAPITALIZATION
GROWTH AND LARGE SMALL
MUNICIPAL
INCOME CAPITALIZATION INTERNATIONAL CAPITALIZATION BOND BOND
FUND GROWTH FUND EQUITY FUND EQUITY FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
ASSETS:
Total investments in
securities at value $ 99,927,575 $31,253,815 $77,949,368 $71,157,210 $106,330,838
$69,992,932
Income receivable 120,361 9,662 201,243 21,903 1,500,933
1,027,303
Cash 588 31,738 14,634 -- 89
423
Cash denominated in
foreign currencies
(identified cost $11,532) -- -- 11,102 -- --
- --
Receivable for
investments sold -- -- -- 1,526,393 3,807,667
- --
Receivable for Shares
sold -- -- 118,476 139,491 1,200
1,519,515
Deferred organizational
costs -- -- 13,825 13,828 --
- --
------------ ----------- ----------- ----------- ------------
- -----------
Total Assets 100,048,524 31,295,215 78,308,648 72,858,825 111,640,727
72,540,173
------------ ----------- ----------- ----------- ------------
- -----------
LIABILITIES:
Payable for investments
purchased $ -- $ -- $ -- $ -- $ 4,035,887 $
1,509,829
Payable for Shares
redeemed 12,000 -- 2,222,975 -- 118
1,019
Payable for taxes
withheld 2,530 -- 9,049 -- --
- --
Income distribution
payable -- -- -- -- 609,123
244,827
Accrued expenses 146,658 57,412 87,756 106,881 107,942
86,156
------------ ----------- ----------- ----------- ------------
- -----------
Total liabilities 161,188 57,412 2,319,780 106,881 4,753,070
1,841,831
------------ ----------- ----------- ----------- ------------
- -----------
Net Assets $ 99,887,336 $31,237,803 $75,988,868 $72,751,944 $106,887,657
$70,698,342
------------ ----------- ----------- ----------- ------------
- -----------
NET ASSETS CONSIST OF:
Paid in capital $ 35,476,946 $19,265,869 $50,018,903 $43,221,771 $110,723,441
$71,433,707
Net unrealized
appreciation/(depreciation)
of investments and
translation of assets
and liabilities in
foreign currency 50,788,861 10,093,885 22,162,879 23,390,342 (2,033,348)
(182,559)
Accumulated net realized
gain/(loss) on
investments and foreign
currency transactions 13,513,570 1,878,049 3,807,086 6,139,831 (1,820,635)
(553,873)
Undistributed net
investment income 107,959 -- -- -- 18,199
1,067
------------ ----------- ----------- ----------- ------------
- -----------
Total Net Assets $ 99,887,336 $31,237,803 $75,988,868 $72,751,944 $106,887,657
$70,698,342
============ =========== =========== =========== ============
===========
NET ASSET PER SHARE,
OFFERING PRICE AND
REDEMPTION PROCEEDS PER
SHARE $ 11.39 $ 11.79 $ 17.62 $ 20.81 $ 9.44 $
9.56
============ =========== =========== =========== ============
===========
Shares Outstanding 8,772,925 2,650,442 4,313,151 3,496,557 11,325,780
7,394,867
------------ ----------- ----------- ----------- ------------
- -----------
Investments, at
identified cost $ 49,138,714 $21,159,930 $55,778,362 $47,766,868 $108,364,186
$70,175,491
------------ ----------- ----------- ----------- ------------
- -----------
Investments, at tax cost $ 49,138,714 $21,159,930 $55,778,362 $48,420,775 $108,589,452
$70,175,491
------------ ----------- ----------- ----------- ------------
- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
36
<PAGE>
FTI FUNDS
STATEMENTS OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1999
- --------------------------------------------------------------------------------
<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 $ 1,232,515(2) $ 169,768(3) $ 838,574(4) $ 121,435 $ 558,150 $ --
Interest 133,377 55,798 70,104 166,388 4,740,686 2,939,819
----------- ----------- ----------- ----------- ----------- ----------
Total income 1,365,892 225,566 908,678 287,823 5,298,836 2,939,819
EXPENSES:
Investment adviser fee 710,472 195,351 761,149 579,875 363,052 305,943
Administrative personnel
and services fee 133,503 72,123 107,308 82,268 101,621 85,862
Custodian fees 26,951 18,761 69,967 24,850 23,509 20,003
Transfer and dividend
disbursing agent fees
and expenses 24,022 17,537 19,288 17,485 17,773 16,363
Directors' fees 11,744 2,482 11,988 15,223 6,004 5,998
Auditing fees 16,991 17,035 21,172 17,040 17,222 17,037
Legal fees 9,966 5,007 5,981 7,136 5,042 11,772
Portfolio accounting fees 44,477 45,097 30,950 44,293 45,528 45,266
Share registration costs 45,484 23,393 11,650 20,971 44,027 34,464
Printing and postage 11,961 7,035 5,968 11,722 7,212 10,468
Insurance premiums 1,998 1,000 754 825 2,024 1,989
Miscellaneous 7,346 2,464 13,046 15,577 3,888 4,104
----------- ----------- ----------- ----------- ----------- ----------
Total expenses 1,044,915 407,285 1,059,221 837,265 636,902 559,269
WAIVERS AND
REIMBURSEMENTS:
Waiver of investment
adviser fee -- -- -- -- --
(48,858)
Waiver of custodian fee (26,951) (18,761) -- -- (23,509)
(20,003)
Reimbursements of other
operating expenses -- (106,847) (149,966) -- -- --
----------- ----------- ----------- ----------- ----------- ----------
Total Waivers and
Reimbursements (26,951) (125,608) (149,966) -- (23,509)
(68,861)
----------- ----------- ----------- ----------- ----------- ----------
Net expenses 1,017,964 281,677 909,255 837,265 613,393 490,408
----------- ----------- ----------- ----------- ----------- ----------
Net investment income
(loss) 347,928 (56,111) (577) (549,442) 4,685,443 2,449,411
----------- ----------- ----------- ----------- ----------- ----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS AND FOREIGN
CURRENCY:
Net realized gain (loss)
on investments and
foreign currency 13,530,982 1,878,049 3,657,019 9,402,531 (1,818,237)
(553,873)
Net change in unrealized
appreciation
(depreciation) of
investments and
translation of assets
and liabilities in
foreign currency 50,788,861 10,093,885 14,816,150 17,831,264 (2,033,348)
(182,559)
----------- ----------- ----------- ----------- ----------- ----------
Net realized and
unrealized gain (loss)
on investments and
foreign currency 64,319,843 11,971,934 18,473,169 27,233,795 (3,851,585)
(736,432)
----------- ----------- ----------- ----------- ----------- ----------
Change in net assets
resulting from
operations $64,667,771 $11,915,823 $18,472,592 $26,684,353 $ 833,858 $1,712,979
=========== =========== =========== =========== =========== ==========
</TABLE>
(1) Reflects operations for the period from December 11, 1998 (commencement of
operations) to November 30, 1999.
(2) Net of foreign taxes withheld of $19,529.
(3) Net of foreign taxes withheld of $424.
(4) Net of foreign taxes withheld of $108,332.
(See Notes which are an integral part of the Financial Statements)
37
<PAGE>
FTI FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- ---------------------------------------------------------
<TABLE>
<CAPTION>
LARGE CAPITALIZATION LARGE CAPITALIZATION
GROWTH AND INCOME FUND GROWTH FUND
---------------------- --------------------
PERIOD PERIOD
ENDED ENDED
NOVEMBER 30, NOVEMBER 30,
1999(1) 1999(1)
<S> <C> <C>
- -----------------------------------------------------------------------
INCREASE (DECREASE) IN
NET ASSETS:
OPERATIONS:
Net investment
income/(loss) $ 347,928 $ (56,111)
Net realized gain (loss)
on investments and
foreign currency
transactions 13,530,982 1,878,049
Net change in unrealized
appreciation/(depreciation)
of investments and
translation of assets
and liabilities in
foreign currency 50,788,861 10,093,885
------------ -----------
Change in net assets
resulting from
operations 64,667,771 11,915,823
------------ -----------
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income (257,381) --
Distributions from net
realized gain on
investments and foreign
currency transactions -- --
------------ -----------
Change in net assets
from distributions to
shareholders (257,381) --
------------ -----------
SHARE TRANSACTIONS:
Proceeds from sale of
shares 50,838,131 21,894,598
Net asset value of shares
issued to shareholders
in payment of
distributions declared 247 --
Cost of shares redeemed (15,361,432) (2,572,618)
------------ -----------
Change in net assets
from share
transactions 35,476,946 19,321,980
------------ -----------
Change in net assets 99,887,336 31,237,803
NET ASSETS:
Beginning of period -- --
------------ -----------
End of period $ 99,887,336 $31,237,803
============ ===========
Undistributed net
investment income
included in net assets
at end of period $ 107,959 $ --
============ ===========
Net gain/(loss) as
computed for federal
tax purposes $ 13,513,570 $ 1,878,049
============ ===========
</TABLE>
(1) Reflects operations for the period from December 11, 1998 (commencement of
operations) to November 30, 1999.
(See Notes which are an integral part of the Financial Statements)
38
<PAGE>
- ---------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL SMALL CAPITALIZATION MUNICIPAL
EQUITY FUND EQUITY FUND BOND FUND BOND FUND
------------------------------ -------------------------- ------------ ------------
YEAR YEAR YEAR YEAR PERIOD PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1999 1998 1999 1998 1999(1) 1999(1)
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN
NET ASSETS:
OPERATIONS:
Net investment
income/(loss) $ (577) $ 168,610 $ (549,442) $ (484,090) $ 4,685,443 $ 2,449,411
Net realized gain (loss)
on investments and
foreign currency
transactions 3,657,019 373,175 9,402,531 (2,675,666) (1,818,237) (553,873)
Net change in unrealized
appreciation/(depreciation)
of investments and
translation of assets
and liabilities in
foreign currency 14,816,150 3,302,983 17,831,264 630,545 (2,033,348) (182,559)
------------ ----------- ------------ ------------ ------------ -----------
Change in net assets
resulting from
operations 18,472,592 3,844,768 26,684,353 (2,529,211) 833,858 1,712,979
------------ ----------- ------------ ------------ ------------ -----------
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income -- (469,709) -- -- (4,669,642) (2,448,344)
Distributions from net
realized gain on
investments and foreign
currency transactions -- -- -- (1,026,646) -- --
------------ ----------- ------------ ------------ ------------ -----------
Change in net assets
from distributions to
shareholders -- (469,709) -- (1,026,646) (4,669,642) (2,448,344)
------------ ----------- ------------ ------------ ------------ -----------
SHARE TRANSACTIONS:
Proceeds from sale of
shares 34,272,002 39,754,427 15,788,436 19,724,465 123,375,777 81,147,820
Net asset value of shares
issued to shareholders
in payment of
distributions declared -- 102,144 -- 356,395 2,343 154
Cost of shares redeemed (51,200,999) (9,655,858) (15,953,651) (10,797,899) (12,654,679) (9,714,267)
------------ ----------- ------------ ------------ ------------ -----------
Change in net assets
from share
transactions (16,928,997) 30,200,713 (165,215) 9,282,961 110,723,441 71,433,707
------------ ----------- ------------ ------------ ------------ -----------
Change in net assets 1,543,595 33,575,772 26,519,138 5,727,104 106,887,657 70,698,342
NET ASSETS:
Beginning of period 74,445,273 40,869,501 46,232,806 40,505,702 -- --
------------ ----------- ------------ ------------ ------------ -----------
End of period $ 75,988,868 $74,445,273 $72,751,944 $46,232,806 $106,887,657 $70,698,342
============ =========== ============ ============ ============ ===========
Undistributed net
investment income
included in net assets
at end of period $ -- -- $ -- -- $ 18,199 $ 1,067
============ =========== ============ ============ ============ ===========
Net gain/(loss) as
computed for federal
tax purposes $ 3,807,086 $ 1,026,551 $ 6,139,831 $(1,893,312) $(1,820,635) $ (553,873)
============ =========== ============ ============ ============ ===========
</TABLE>
(1) Reflects operations for the period from December 11, 1998 (commencement of
operations) to November 30, 1999.
(See Notes which are an integral part of the Financial Statements)
39
<PAGE>
FTI FUNDS
FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
DISTRIBUTIONS
NET REALIZED FROM NET
AND UNREALIZED REALIZED GAINS
NET ASSET NET GAIN/(LOSS) ON DISTRIBUTIONS ON INVESTMENTS
VALUE, INVESTMENT INVESTMENTS TOTAL FROM FROM NET AND FOREIGN
BEGINNING INCOME/ AND FOREIGN INVESTMENT INVESTMENT CURRENCY
PERIOD ENDED NOVEMBER 30, OF PERIOD (LOSS) CURRENCY OPERATIONS INCOME TRANSACTIONS
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
LARGE CAPITALIZATION GROWTH AND INCOME FUND
1999(1) $10.00 $ 0.04(2) $ 1.38 $ 1.42 $(0.03) --
LARGE CAPITALIZATION GROWTH FUND
1999(1) $10.00 (0.02)(2) 1.81 1.79 -- --
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 $13.85 (0.01) 3.78 3.77 -- --
SMALL CAPITALIZATION 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 $13.26 (0.16) 7.71 7.55 -- --
BOND FUND
1999(1) $10.00 0.61(2) (0.58) 0.03 (0.59) --
MUNICIPAL BOND FUND
1999(1) $10.00 0.38(2) (0.44) (0.06) (0.38) --
</TABLE>
(1) Reflects operations for the period from December 11, 1998 (commencement of
operations) to November 30, 1999.
(2) Per share information is based on average shares outstanding. (3) Reflects
operations for the period from December 22, 1995 (commencement of
operations) 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) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(6) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
40
<PAGE>
- ---------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET ASSETS
---------------------------------------------------------
NET ASSET NET
VALUE, INVESTMENT NET
ASSETS,
TOTAL END OF TOTAL INCOME/ EXPENSE WAIVER/ END OF
PERIOD PORTFOLIO
PERIOD ENDED NOVEMBER 30, DISTRIBUTIONS PERIOD RETURN(4) EXPENSES (LOSS) REIMBURSEMENT(5) (000
OMITTED) TURNOVER
<S> <C> <C> <C> <C> <C> <C>
<C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
LARGE CAPITALIZATION GROWTH AND INCOME FUND
1999(1) $(0.03) $11.39 14.20% 1.08%(6) 0.37%(6) 0.03%(6)
$99,887 61%
LARGE CAPITALIZATION GROWTH FUND
1999(1) -- $11.79 17.90% 1.08%(6) (0.21%)(6) 0.48%(6)
$31,238 62%
INTERNATIONAL EQUITY FUND
1996(3) (0.01) $10.99 10.04% 1.68%(6) 0.05%(6) 3.05%(6)
$12,065 29%
1997 (0.20) $12.20 13.01% 1.60% 0.13% 0.13%
$40,869 55%
1998 (0.12) $13.85 14.61% 1.39% 0.27% 0.10%
$74,445 68%
1999 -- $17.62 27.22% 1.20% 0.00% 0.20%
$75,989 72%
SMALL CAPITALIZATION FUND
1996(3) -- $12.08 20.80% 1.50%(6) (0.68%)(6) 1.51%(6)
$19,318 94%
1997 -- $14.37 18.96% 1.50% (0.89%) 0.24%
$40,505 111%
1998 (0.35) $13.26 (5.34%) 1.50% (1.08%) 0.01%
$46,233 158%
1999 -- $20.81 56.94% 1.44% (0.95%) 0.00%
$72,752 130%
BOND FUND
1999(1) (0.59) $9.44 0.31% 0.85%(6) 6.45%(6) 0.03%(6)
$106,888 175%
MUNICIPAL BOND FUND
1999(1) (0.38) $9.56 (0.66%) 0.80%(6) 4.00%(6) 0.11%(6)
$70,698 61%
</TABLE>
(1) Reflects operations for the period from December 11, 1998 (commencement of
operations) to November 30, 1999.
(2) Per share information is based on average shares outstanding. (3) Reflects
operations for the period from December 22, 1995 (commencement of
operations) 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) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(6) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
41
<PAGE>
FTI FUNDS
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999
- --------------------------------------------------------------------------------
(1) ORGANIZATION
FTI Funds (the "Trust") is registered under the Investment Company Act of 1940,
as amended (the "Act"), as an open-end management investment company. The Trust
consists of 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.
The financial statements of the following portfolios (individually referred to
as the "Fund", or collectively as the "Funds") are presented herein:
<TABLE>
<CAPTION>
PORTFOLIO NAME INVESTMENT OBJECTIVE
-------------- --------------------
<S> <C>
FTI Large Capitalization Growth and Income Fund To provide long-term growth of
principal and ("Large Capitalization Growth and Income Fund") income.
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 that vary from the closing of the New York Stock Exchange. Therefore,
42
<PAGE>
FTI FUNDS
- ---------------------------------------------------------
foreign securities are valued at the latest closing price on the exchange on
which they are traded prior to the closing of the New York Stock Exchange.
Foreign securities quoted in foreign currencies are translated into U.S. dollars
at the foreign exchange rate in effect at noon, eastern time, on the day the
value of the foreign security is determined.
REPURCHASE AGREEMENTS--It is the policy of the Funds to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve
Book Entry System or to have segregated within the custodian bank's vault all
securities held as collateral under repurchase agreement transactions.
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.
The Funds will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, that 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. The Trust,
along with other affiliated investment companies, may utilize a joint
trading account for the purpose of entering into one or more repurchase
agreements.
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. Non-cash dividends included in dividend income, if any, are recorded at
fair value.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing
43
<PAGE>
FTI FUNDS
- ---------------------------------------------------------
treatment for foreign currency transactions and net operating losses. The
following reclassifications have been made to the financial statements.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
-------------------------------------------------
UNDISTRIBUTED NET
INVESTMENT
INCOME/ACCUMULATED
ACCUMULATED DISTRIBUTIONS IN
NET REALIZED EXCESS OF NET
FUND NAME PAID-IN-CAPITAL GAIN/LOSS INVESTMENT INCOME
----------------------------------- --------------- ------------ ------------------
<S> <C> <C> <C>
Large Capitalization Growth and
Income Fund $ -- $ (17,412) $ 17,412
-----------------------------------
Large Capitalization Growth Fund (56,111) -- 56,111
-----------------------------------
International Equity Fund (552,674) 373,362 179,312
-----------------------------------
Small Capitalization Equity Fund -- (549,442) 549,442
-----------------------------------
Bond Fund -- (2,398) 2,398
-----------------------------------
Municipal Bond Fund -- -- --
-----------------------------------
</TABLE>
Net investment income, net realized gain/losses, and net assets were not
affected by this reclassification.
FEDERAL TAXES--It is the Funds' policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of their income. Accordingly, no
provision for federal tax is necessary.
Withholding taxes on foreign interest and dividends have been provided for
in accordance with the applicable country's tax rules and rates.
At November 30, 1999, Bond Fund and Municipal Bond Fund, for federal tax
purposes, had a capital loss carryforward, as noted below, that will reduce
taxable income arising from future net realized gain on
44
<PAGE>
FTI FUNDS
- ---------------------------------------------------------
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>
TOTAL TAX LOSS
FUND CARRYFORWARD
-------------------------------------------------- --------------
<S> <C>
Bond Fund $1,595,369
--------------------------------------------------
Municipal Bond Fund 553,873
--------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
BOND FUND
---------------------------------------------------------------------
EXPIRATION YEAR EXPIRATION AMOUNT
-------------------------------------------------- -----------------
<S> <C>
2007 $1,595,369
--------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MUNICIPAL BOND FUND
---------------------------------------------------------------------
EXPIRATION YEAR EXPIRATION AMOUNT
-------------------------------------------------- -----------------
<S> <C>
2007 $ 553,873
--------------------------------------------------
</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.
Losses may occur on these transactions due to changes in market conditions or
the failure of counterparties to perform under the contract.
DEFERRED EXPENSES--The costs incurred by each Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering its shares, have been deferred and are being amortized
over a period not to exceed five years from each Fund's commencement date.
FOREIGN EXCHANGE CONTRACTS--The Funds may enter into foreign currency
commitments for the delayed delivery of securities or foreign currency
exchange transactions. The Funds may enter into foreign currency contract
transactions to protect assets against adverse changes in foreign currency
exchange rates or exchange control regulations. 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
45
<PAGE>
FTI FUNDS
- ---------------------------------------------------------
losses are recorded for financial statement purposes as unrealized until the
settlement date. At November 30, 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. 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.
46
<PAGE>
FTI FUNDS
- ---------------------------------------------------------
Additional information on each restricted security held in the Bond Fund at
November 30, 1999 is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
---------------------------------------- ---------------- ----------------
<S> <C> <C>
Air 2 US, Equip. Trust, 8.027% 11/11/1999 $2,643,628
----------------------------------------
East Coast Power, Sr. Sec'd Note, 6.737% 9/29/1999 $ 148,546
----------------------------------------
KBC Bank Funding, Bond, 8.625% 10/26/1999 $3,135,000
----------------------------------------
Osprey Trust, Sr. Sec'd Note, 8.31% 9/16/1999 $2,425,000
----------------------------------------
PSEG Energy Holdings, Note, 10.00% 10/01/1999 $2,581,820
----------------------------------------
TRW, Inc., Note, 6.50% 5/26/1999 $2,464,641
----------------------------------------
</TABLE>
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 a trade date basis.
(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).
47
<PAGE>
FTI FUNDS
- ---------------------------------------------------------
Transactions in shares were as follows:
<TABLE>
<CAPTION>
LARGE
CAPITALIZATION LARGE
GROWTH AND CAPITALIZATION
INCOME FUND GROWTH FUND
-------------- --------------
PERIOD ENDED PERIOD ENDED
NOVEMBER 30, NOVEMBER 30,
1999(1) 1999(1)
-------------- --------------
<S> <C> <C> <C> <C>
Shares sold 10,219,673 2,887,209
- ----------------------------------------
Shares issued to shareholders in payment
of distributions declared 22 --
- ----------------------------------------
Shares redeemed (1,446,770) (236,767)
- ---------------------------------------- ----------- ----------
Net change resulting from share
transactions 8,772,925 2,650,442
- ---------------------------------------- =========== ==========
</TABLE>
<TABLE>
<CAPTION>
SMALL CAPITALIZATION
INTERNATIONAL EQUITY FUND EQUITY FUND
---------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold 2,235,350 2,741,492 978,601 1,440,048
- ----------------------------------------
Shares issued to shareholders in payment
of distributions declared -- 8,057 -- 26,577
- ----------------------------------------
Shares redeemed (3,298,400) (723,136) (967,747) (798,731)
- ---------------------------------------- ---------- ---------- ---------- ----------
Net change resulting from share
transactions (1,063,050) 2,026,413 10,854 667,894
- ---------------------------------------- ========== ========== ========== ==========
</TABLE>
48
<PAGE>
FTI FUNDS
- ---------------------------------------------------------
<TABLE>
<CAPTION>
BOND FUND MUNICIPAL BOND FUND
--------------- -------------------
PERIOD ENDED PERIOD ENDED
NOVEMBER 30, NOVEMBER 30,
1999(1) 1999(1)
--------------- -------------------
<S> <C> <C>
Shares sold 12,632,926 8,380,636
- ----------------------------------------
Shares issued to shareholders in payment
of distributions declared 246 16
- ----------------------------------------
Shares redeemed (1,307,392) (985,785)
- ---------------------------------------- ----------- ----------
Net change resulting from share
transactions 11,325,780 7,394,867
- ---------------------------------------- =========== ==========
</TABLE>
(1) Reflects operations for the period from December 11, 1998 (commencement of
operations) to November 30, 1999.
(4) INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER FEE--Fiduciary International, Inc., the Funds' investment
adviser (the "Adviser"), receives for its services an annual investment adviser
fee equal to the percentage of the Funds' average daily net assets as follows:
<TABLE>
<CAPTION>
INVESTMENT ADVISER
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 waive any portion of its fee and/or
reimburse certain operating expenses of the Funds. The Adviser can modify or
terminate this voluntary waiver and/or 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 a scale that ranges from 0.15% to 0.075% of the average
49
<PAGE>
FTI FUNDS
- ---------------------------------------------------------
aggregate net assets of the Trust for the period, subject to a minimum fee of
$75,000 per portfolio. FAS may voluntarily choose to waive a portion of its fee.
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 0.25% of average daily net assets, annually, to compensate
Edgewood Services, Inc.
The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
For the period ended November 30, 1999, the Funds did not incur a distribution
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 November 30, 1999, the Fund amortized
organizational expenses as follows:
<TABLE>
<CAPTION>
INITIAL ORGANIZATIONAL
ORGANIZATIONAL EXPENSES
FUND EXPENSES AMORTIZED
- ---------------------------------------- -------------- --------------
<S> <C> <C>
International Equity Fund $34,072 $6,906
- ----------------------------------------
Small Capitalization Equity Fund $34,076 $6,906
- ----------------------------------------
</TABLE>
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the companies listed on Pages 49 and 50.
50
<PAGE>
FTI FUNDS
- ---------------------------------------------------------
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities (and in-kind
contributions), for the period ended November 30, 1999, were as follows:
<TABLE>
<CAPTION>
FUND PURCHASES SALES
- ---------------------------------------- ------------ ------------
<S> <C> <C>
Large Capitalization Growth and Income
Fund $ 94,438,864 $ 59,495,331
- ----------------------------------------
Large Capitalization Growth Fund $ 33,780,405 $ 15,950,524
- ----------------------------------------
International Equity Fund $ 53,481,824 $ 70,621,883
- ----------------------------------------
Small Capitalization Equity Fund $ 70,474,386 $ 74,597,337
- ----------------------------------------
Bond Fund $243,330,755 $132,586,283
- ----------------------------------------
Municipal Bond Fund $103,423,261 $ 36,874,916
- ----------------------------------------
</TABLE>
(6) CONCENTRATION OF CREDIT RISK
CONCENTRATION OF CREDIT RISK--International Equity Fund invests in securities of
non-U.S. issuers. 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.
51
<PAGE>
FTI FUNDS
- ---------------------------------------------------------
At November 30, 1999, the diversification of industries for International Equity
Fund was as follows:
<TABLE>
<CAPTION>
% OF
INDUSTRY NET ASSETS
- -------------------------------------------------- ----------
<S> <C>
Aerospace & Military Technology 0.4%
- --------------------------------------------------
Appliance & Household Durables 1.2%
- --------------------------------------------------
Banking 14.1%
- --------------------------------------------------
Beverage & Tobacco 1.3%
- --------------------------------------------------
Broadcasting & Publishing 2.3%
- --------------------------------------------------
Business & Public Services 16.7%
- --------------------------------------------------
Data Processing & Reproduction 1.6%
- --------------------------------------------------
Electrical & Electronics 8.8%
- --------------------------------------------------
Electronic Components, Instruments 8.6%
- --------------------------------------------------
Energy Sources 4.5%
- --------------------------------------------------
Financial Services 3.2%
- --------------------------------------------------
<CAPTION>
% OF
INDUSTRY NET ASSETS
- -------------------------------------------------- ----------
<S> <C>
Food & Household Products 1.7%
- --------------------------------------------------
Health & Personal Care 5.4%
- --------------------------------------------------
Machinery & Engineering 1.9%
- --------------------------------------------------
Merchandising 5.9%
- --------------------------------------------------
Metals-Steel 0.7%
- --------------------------------------------------
Miscellaneous Materials & Commodities 1.1%
- --------------------------------------------------
Multi-Industry 1.8%
- --------------------------------------------------
Telecommunications Services 14.0%
- --------------------------------------------------
Transportation 1.4%
- --------------------------------------------------
Utilities - Electrical & Gas 1.6%
- --------------------------------------------------
</TABLE>
52
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- ---------------------------------------------------------
To the Trustees and Shareholders of FTI Funds:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of FTI Large Capitalization Growth and Income
Fund, FTI Large Capitalization Growth Fund, FTI International Equity Fund, FTI
Small Capitalization Equity Fund, FTI Bond Fund, and FTI Municipal Bond Fund
(six portfolios constituting FTI Funds) as of November 30, 1999, and the related
statements of operations, statements of changes in net assets, and financial
highlights for each of the periods presented therein. These financial statements
and financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of November 30, 1999, by correspondence with the custodian and brokers
or other appropriate auditing procedures where replies from brokers were not
received. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of FTI
Large Capitalization Growth and Income Fund, FTI Large Capitalization Growth
Fund, FTI International Equity Fund, FTI Small Capitalization Equity Fund, FTI
Bond Fund, and FTI Municipal Bond Fund of FTI Funds at November 30, 1999, and
the results of operations, changes in net assets, and financial highlights for
each of the periods presented therein in conformity with accounting principles
generally accepted in the United States.
[SIGNATURE]
Boston, Massachusetts
January 21, 2000
53
<PAGE>
TRUSTEES OFFICERS
- ---------------------------------------------------------
<TABLE>
<S> <C>
Peter A. Aron Edward C. Gonzales
Edward C. Gonzales CHAIRMAN, PRESIDENT AND TREASURER
James C. Goodfellow Jeffrey W. Sterling
Burton J. Greenwald VICE PRESIDENT AND ASSISTANT TREASURER
Kevin J. O'Donnell Timothy S. Johnson
SECRETARY
Victor R. Siclari
ASSISTANT SECRETARY
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Funds' prospectus which contains facts concerning
the Funds' objectives and policies, management fees, expenses and other
information.
54
APPENDIX
A.1. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The
shares of FTI Large Capitalization Growth and Income Fund (the "Fund") are
represented by a solid line. Standard & Poor's 500 Composite Stock Price
Index (the "S&P 500") is represented by a broken line. The line graph is a
visual representation of a comparison of change in value of a $10,000
hypothetical investment in the shares of the Fund and the S&P 500. The "x"
axis reflects computation periods from 12/11/1998 to 11/30/1999. The "y"
axis reflects the cost of the investment. The right margin reflects the
ending value of the hypothetical investment in the Fund's shares as
compared to the S&P 500. The ending values were $11,420 and $12,117,
respectively.
A.2. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The
shares of FTI Large Capitalization Growth Fund (the "Fund") are represented
by a solid line. Standard & Poor's 500 Composite Stock Price Index (the
"S&P 500") is represented by a broken line. The line graph is a visual
representation of a comparison of change in value of a $10,000 hypothetical
investment in the shares of the Fund and the S&P 500. The "x" axis reflects
computation periods from 12/11/1998 to 11/30/1999. The "y" axis reflects
the cost of the investment. The right margin reflects the ending value of
the hypothetical investment in the Fund's shares as compared to the S&P
500. The ending values were $11,790 and $12,117, respectively.
A.3. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The
shares of FTI International Equity Fund (the "Fund") are represented by a
solid line. The Morgan Stanley Capital International Europe, Australia, and
Far East Index (the "MSCI EAFE") is represented by a broken line. The line
graph is a visual representation of a comparison of change in value of a
$10,000 hypothetical investment in the shares of the Fund and the MSCI
EAFE. The "x" axis reflects computation periods from 12/22/1995 to
11/30/1999. The "y" axis reflects the cost of the investment. The right
margin reflects the ending value of the hypothetical investment in the
Fund's shares as compared to the MSCI EAFE. The ending values were $18,132
and $15,092, respectively.
A.4. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The
shares of FTI Small Capitalization Equity Fund (the "Fund") are represented
by a solid line. The Russell 2000 Growth Index (the "RUS2K") is represented
by a broken line. The line graph is a visual representation of a comparison
of change in value of a $10,000 hypothetical investment in the shares of
the Fund and the RUS2K. The "x" axis reflects computation periods from
12/22/1995 to 11/30/1999. The "y" axis reflects the cost of the investment.
The right margin reflects the ending value of the hypothetical investment
in the Fund's shares as compared to the RUS2K. The ending values were
$21,349 and $15,845, respectively.
<PAGE>
A.5. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The
shares of FTI Bond Fund (the "Fund") are represented by a solid line. The
Lehman Brothers Aggregate Bond Index (the "LBABI") is represented by a
broken line. The line graph is a visual representation of a comparison of
change in value of a $10,000 hypothetical investment in the shares of the
Fund and the LBABI. The "x" axis reflects computation periods from
12/11/1998 to 11/30/1999. The "y" axis reflects the cost of the investment.
The right margin reflects the ending value of the hypothetical investment
in the Fund's shares as compared to the LBABI. The ending values were
$10,031 and $9,996, respectively.
A.6. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The
shares of FTI Municipal Bond Fund (the "Fund") are represented by a solid
line. The Lehman Brothers Municipal Bond 7-Year Index (the "LBMB7Y") is
represented by a broken line. The line graph is a visual representation of
a comparison of change in value of a $10,000 hypothetical investment in the
shares of the Fund and the LBMB7Y. The "x" axis reflects computation
periods from 12/11/1998 to 11/30/1999. The "y" axis reflects the cost of
the investment. The right margin reflects the ending value of the
hypothetical investment in the Fund's shares as compared to the LBMB7Y. The
ending values were $9,934 and $10,048, respectively.
