UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-7369
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FTI FUNDS
(Exact name of registrant as specified in charter)
ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
(Address of principal executive offices) (Zip code)
MURRAY L. SIMPSON, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Name and address of agent for service)
Registrant's telephone number, including area code: (650) 312-2000
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Date of fiscal year end: 11/30
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Date of reporting period: 5/31/03
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ITEM 1. REPORTS TO STOCKHOLDERS.
{GRAPHIC OMITTED]
[LOGO OMITTED]
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FTI
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FUNDS
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SEMIANNUAL REPORT
AND PRESIDENT'S MESSAGE
TO SHAREHOLDERS
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MAY 31, 2003
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FIDUCIARY
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TRUST
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INTERNATIONAL
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Not part of the Semiannual Report
CONTENTS
PRESIDENT'S MESSAGE .................................................... 1
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SEMIANNUAL REPORT
Investment Review
FTI Large Capitalization Growth and Income Fund ..................... 2
FTI Small Capitalization Equity Fund ................................ 4
FTI European Smaller Companies Fund ................................. 6
Financial Highlights and Statements of Investments ..................... 8
Financial Statements ................................................... 20
Notes to Financial Statements .......................................... 24
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PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the accompanying FTI Funds Semiannual Report covering
the first half of the Funds' fiscal year, from December 1, 2002, through May 31,
2003. Each Fund report contains an economic review by the Fund's portfolio
manager covering market conditions and their impact on Fund performance and
strategy. A complete list of each Fund's holdings, as well as the financial
statements, is included in the semiannual report.
We intend to keep you informed on the details of your investment with the
highest level of service possible.
Sincerely,
/S/ GREGORY E. JOHNSON
Gregory E. Johnson
President and Chief Executive Officer - Investment Management
FTI Funds
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NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
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NOT PART OF THE SEMIANNUAL REPORT 1
SEMIANNUAL REPORT
INVESTMENT REVIEW
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FTI LARGE CAPITALIZATION GROWTH AND INCOME FUND
PERFORMANCE
FTI Large Capitalization Growth and Income Fund's total return for the six
months ended May 31, 2003, was 1.75% as a result of a share price increase from
$5.65 to $5.72. In comparison, the Standard & Poor's 500 Composite Stock Index
(S&P 500) returned 3.86%.* Electronic technology made the largest positive
contribution followed by health technology. Within these industries, our
investments in Corning and Amgen were strong contributors. Conversely,
technology services companies such as Microsoft and International Business
Machines, and process industries firms such as Archer Daniels Midland, hindered
performance. Despite their impact on this short-term period, we believed each
company's business outlook was strong. We invested our cash balances from the
beginning of the period; recent inflows account for the current cash reserve.
The Fund was 94.1% invested as of May 31, 2003. At period-end, net assets
totaled approximately $65 million.
MARKET REVIEW
The six months ended May 31, 2003, witnessed several key turning points in U.S.
equity markets. Having staged a significant rally through much of 2002's fourth
quarter following early October lows, equity markets retreated in December. Many
investors took a more defensive stance, and several of the fourth quarter's top
performing sectors quickly showed the largest declines. After staging a
half-hearted rally at the beginning of 2003, equity markets declined through
most of the year's first quarter. The economy was burdened by
colder-than-average winter temperatures in a rising energy price environment, as
well as geopolitical concerns, such as the war in Iraq, which seemed to drive
daily market movements through much of the quarter. Upon the commencement of
military action in Iraq, equity markets began to reverse their downward course
at the end of March and continued their upward
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND COMPLETE LEGAL
TITLES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF
INVESTMENTS (SOI). THE SOI BEGINS ON PAGE 9.
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NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
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2 SEMIANNUAL REPORT
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trend following the conclusion of major combat despite the mixed economic
outlook. Corporate earnings pre-announcements in March, largely confirmed by
actual results in April, showed that many companies began seeing sales and
profit recovery. The dollar's decline began to help export companies. The quick
end to the Iraq war broke the oil price run-up and removed a major obstacle to
global resurgence. Lastly, tax cuts enacted on May 28 underscored the Bush
administration's focus on reviving the economy.
- --------------------------------------------------------------------------------
This discussion reflects our analysis, opinions and portfolio holdings as of May
31, 2003, the end of the reporting period. Our strategies and the Fund's
portfolio composition will change depending on market and economic conditions.
These opinions may not be relied upon as investment advice or an offer for a
particular security. The information is not a complete analysis of every aspect
of any market, country, industry, security or the Fund. Statements of fact are
from sources considered reliable, but the advisor makes no representation or
warranty as to their completeness or accuracy. Although historical performance
is no guarantee of future results, these insights may help you understand our
investment management philosophy.
- --------------------------------------------------------------------------------
*SOURCE: STANDARD & POOR'S MICROPAL. THE S&P 500 CONSISTS OF 500 STOCKS CHOSEN
FOR MARKET SIZE, LIQUIDITY AND INDUSTRY GROUP REPRESENTATION. THE S&P 500 IS
ONE OF THE MOST WIDELY USED BENCHMARKS OF U.S. EQUITY PERFORMANCE.
SEMIANNUAL REPORT 3
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FTI SMALL CAPITALIZATION EQUITY FUND
PERFORMANCE
For the six-month period ended May 31, 2003, FTI Small Capitalization Equity
Fund gained 6.82% as a result of a share price increase from $12.47 to $13.32.
In comparison, the Russell 2000(R) Growth Index of small cap growth stocks rose
9.00%.* At period-end, the Fund's total net assets were approximately $57
million.
During the reporting period, the Fund's investments in the information
technology (IT) industry, particularly in software and services companies, had
the greatest negative effect on relative performance. These issues performed
poorly primarily in the beginning of the calendar year. Our health care holdings
in several equipment and services stocks also hurt performance, although strong
performance from a number of our pharmaceuticals and biotechnology positions
helped. Specific industrial sector holdings, as well as our underweighting of
this sector, contributed positively to returns. Our consumer discretionary
stocks also benefited the Fund, particularly our shares in Marvel Enterprises, a
company that licenses the rights to comic book characters.
MARKET REVIEW
The six months ended May 31, 2003, witnessed several key turning points in U.S.
equity markets. Having staged a significant rally through much of 2002's fourth
quarter following early October lows, equity markets retreated in December. Many
investors took a more defensive stance, and several of the fourth quarter's top
performing sectors quickly showed the largest declines. After staging a
half-hearted rally at the beginning of 2003, equity markets declined through
most of the year's first quarter. The economy was burdened by
colder-than-average winter temperatures in a rising energy price environment, as
well as geopolitical concerns, such as the war in Iraq, which seemed to drive
daily market movements through much of the quarter. Upon the commencement of
military action in Iraq, equity markets began to reverse their downward course
at the end of March and continued their upward trend following the conclusion of
major combat despite the mixed economic outlook. We believe this reflected
greater willingness by many investors to be forward-looking and consider
companies' future growth potential. Consumer confidence recovered from lows
reached in 2003's first quarter as the Consumer Confidence Index hit a six-month
high in May. Meanwhile, the housing sector maintained surprising strength.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND COMPLETE LEGAL
TITLES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF
INVESTMENTS (SOI). THE SOI BEGINS ON PAGE 13.
SEMIANNUAL REPORT 4
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Although the past six months witnessed significant swings in relative
performance of growth and value stocks, performance by style among small-cap
stocks differed very little. Smaller-cap stocks exhibited greater sensitivity to
changes in market direction, lagging larger companies as markets retreated in
the first quarter of 2003 and then outperforming in March, April and May as
markets rallied. As a result, smaller companies as measured by the Russell 2000
Index (9.34% total return) performed better than larger companies as measured by
the Russell 1000(R) Index (4.60% total return) over the six-month period ended
May 31, 2003.**
Despite similar returns by style, the Russell 2000 Growth Index's performance
appeared somewhat more defensive on a sector or industry basis, with utilities
and energy among the top-performing sectors and the IT industry and consumer
discretionary sector lagging the market. Consumer staples, however, was the
poorest performing sector over the period and the only sector in the index to
show a loss.
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This discussion reflects our analysis, opinions and portfolio holdings as of May
31, 2003, the end of the reporting period. Our strategies and the Fund's
portfolio composition will change depending on market and economic conditions.
These opinions may not be relied upon as investment advice or an offer for a
particular security. The information is not a complete analysis of every aspect
of any market, country, industry, security or the Fund. Statements of fact are
from sources considered reliable, but the advisor makes no representation or
warranty as to their completeness or accuracy. Although historical performance
is no guarantee of future results, these insights may help you understand our
investment management philosophy.
- --------------------------------------------------------------------------------
*SOURCE: STANDARD & POOR'S MICROPAL. THE RUSSELL 2000 GROWTH INDEX IS MARKET
CAPITALIZATION-WEIGHTED AND MEASURES THE PERFORMANCE OF THOSE RUSSELL 2000
COMPANIES WITH HIGHER PRICE-TO-BOOK RATIOS AND HIGHER FORECASTED GROWTH
VALUES.
**SOURCE: STANDARD & POOR'S MICROPAL. THE RUSSELL 2000 INDEX IS MARKET
CAPITALIZATION-WEIGHTED AND MEASURES THE PERFORMANCE OF THE 2,000 SMALLEST
COMPANIES IN THE RUSSELL 3000(R) INDEX, WHICH REPRESENT APPROXIMATELY 8% OF
THE TOTAL MARKET CAPITALIZATION OF THE RUSSELL 3000 INDEX. THE RUSSELL 1000
INDEX IS MARKET CAPITALIZATION-WEIGHTED AND MEASURES THE PERFORMANCE OF THE
1,000 LARGEST COMPANIES IN THE RUSSELL 3000 INDEX, WHICH REPRESENT
APPROXIMATELY 92% OF THE TOTAL MARKET CAPITALIZATION OF THE RUSSELL 3000
INDEX.
SEMIANNUAL REPORT 5
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FTI EUROPEAN SMALLER COMPANIES FUND
PERFORMANCE
For the six-month period ended May 31, 2003, FTI European Smaller Companies Fund
gained 14.02% while its benchmark, the HSBC Smaller European Companies Index,
rose 15.49%.* The Fund's share price rose from $5.27 on November 30, 2002, to
$6.00 on May 31, 2003. At period-end, net assets totaled nearly $12 million.
Although the Fund's absolute performance was positive in U.S. dollars, it was
driven by a currency gain resulting from strength in the euro, which appreciated
18.5% against the U.S. dollar during the reporting period. Fund performance was
helped by holdings in the health technology industry, especially in medical
specialties stocks during December 2002 when Instrumentarium, a Finnish
anesthesiology equipment company, was acquired by General Electric at a 33%
premium to its market price. A number of stocks in the distribution services
sector also increased in value, as did many capital goods stocks. In particular,
Fund performance was boosted by holdings in the building products industry, as
Zardoya Otis, a Spanish elevator company, and Geberit, a Swiss sanitary systems
company, increased in value by 35.6% and 22.1% during the period. Fund positions
that detracted from performance included such specific holdings in the
electronic technology industry as Tandberg, a Norwegian videoconferencing firm,
which suffered from a downward revision in company forecasts. Several of our
U.K. holdings in the consumer services sector also hindered relative performance
during the reporting period.
MARKET REVIEW
The six-month period ended May 31, 2003, witnessed several key turning points in
European equity markets. In December 2002, European small-cap companies
experienced a clear departure from trends seen earlier in the quarter, as
investors seemed to return to a more defensive stance. Consequently, many of the
top performing sectors from earlier in the quarter quickly became some of the
largest decliners. After staging a half-hearted rally at the beginning of 2003,
global equity markets fell throughout most of 2003's first quarter, when equity
market movements appeared to be influenced by speculation about the likely start
of war in Iraq and then by the war's progress and expected duration. Upon the
commencement of military action in March, equity markets reversed course and
continued their upward trend following the conclusion of military operations.
The European market rebound occurred despite a relatively poor economic outlook
and concern that a strong euro could have a negative impact on corporate
profitability.
Although the past six months saw significant swings in relative performance of
growth and value stocks in the U.S., performance by style among small-cap stocks
differed very little. During the six months under review, small-cap stocks
exhibited greater sensitivity to changes in market direction, lagging larger
companies as markets retreated in 2003's first quarter and outperforming in
March, April and May as markets rallied. Consequently, smaller companies as
measured by the Russell 2000 Index (9.34% total return) performed better than
larger companies as measured by the Russell 1000 Index (4.60% total return) over
the six-month reporting period.**
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND COMPLETE LEGAL
TITLES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF
INVESTMENTS (SOI). THE SOI BEGINS ON PAGE 17.
6 SEMIANNUAL REPORT
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Despite similar performance for small caps by style, performance for small caps
on a sector basis appeared somewhat more defensive during the period. Within the
HSBC Smaller European Companies Index, all sectors showed gains in U.S. dollar
terms, but lagging sectors were more aggressive growth industries that had shown
the greatest gains from the end of September through the beginning of December
2002. In particular, electronic technology and technology services were the
index's poorest performing sectors during the reporting period, while utilities,
telecommunications and health technology were some of the strongest performers.
The finance sector outperformed the broad market and significantly impacted
index performance because it constitutes almost 20% of the HSBC Smaller European
Companies Index.
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This discussion reflects our analysis, opinions and portfolio holdings as of May
31, 2003, the end of the reporting period. Our strategies and the Fund's
portfolio composition will change depending on market and economic conditions.
These opinions may not be relied upon as investment advice or an offer for a
particular security. The information is not a complete analysis of every aspect
of any market, country, industry, security or the Fund. Statements of fact are
from sources considered reliable, but the advisor makes no representation or
warranty as to their completeness or accuracy. Although historical performance
is no guarantee of future results, these insights may help you understand our
investment management philosophy.
- --------------------------------------------------------------------------------
*SOURCE: STANDARD & POOR'S MICROPAL. THE HSBC SMALLER EUROPEAN COMPANIES INDEX
COMPRISES ABOUT 1,500 COMPANIES IN EUROPE HAVING MARKET CAPITALIZATIONS IN A
SIMILAR RANGE TO THAT USED BY THE FUND. THE INDEX COMPOSITION IS UPDATED
QUARTERLY.
**SOURCE: STANDARD & POOR'S MICROPAL. THE RUSSELL 2000 INDEX IS MARKET
CAPITALIZATION-WEIGHTED AND MEASURES THE PERFORMANCE OF THE 2,000 SMALLEST
COMPANIES IN THE RUSSELL 3000 INDEX, WHICH REPRESENT APPROXIMATELY 8% OF THE
TOTAL MARKET CAPITALIZATION OF THE RUSSELL 3000 INDEX. THE RUSSELL 1000 INDEX
IS MARKET CAPITALIZATION-WEIGHTED AND MEASURES THE PERFORMANCE OF THE 1,000
LARGEST COMPANIES IN THE RUSSELL 3000 INDEX, WHICH REPRESENT APPROXIMATELY 92%
OF THE TOTAL MARKET CAPITALIZATION OF THE RUSSELL 3000 INDEX.
SEMIANNUAL REPORT 7
FTI FUNDS
FINANCIAL HIGHLIGHTS
LARGE CAPITALIZATION GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED NOVEMBER 30,
MAY 31, 2003 -----------------------------------------------
(UNAUDITED) 2002 2001 2000 1999 E
----------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ...................... $5.65 $7.21 $9.63 $11.39 $10.00
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Income from investment operations:
Net investment income .................................... .03 b .04 b .04 b .03 .04 b
Net realized and unrealized gains (losses) ............... .07 (1.19) (.81) (.22) 1.38
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Total from investment operations .......................... .10 (1.15) (.77) (.19) 1.42
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Less distributions from:
Net investment income .................................... (.03) (.05) (.04) (.03) (.03)
Net realized gains ....................................... -- (.36) (1.61) (1.54) --
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Total distributions ....................................... (.03) (.41) (1.65) (1.57) (.03)
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Net asset value, end of period ............................ $5.72 $5.65 $7.21 $9.63 $11.39
=============================================================
Total return a ............................................ 1.75% (16.93)%d (9.22)% (1.98)% 14.20%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .........................$64,774 $60,904 $74,634 $87,052 $99,887
Ratios to average net assets:
Expenses ................................................. 1.03%c 1.03% 1.03% .97% 1.08%c
Expenses excluding waiver and payments by affiliate ...... 1.11%c 1.10% 1.09% 1.02% 1.11%c
Net investment income .................................... 1.07%c .73% .61% .28% .37%c
Portfolio turnover rate ................................... 32.21% 64.46% 37.59% 8.74% 60.59%
aTotal return is not annualized for periods less than one year.
bBased on average shares outstanding.
cAnnualized
dThe Fund's advisor fully reimbursed the Fund for a loss on a transaction not
meeting the Fund's investment guidelines, which otherwise would have reduced
total return by .15%.
eFor the period December 11, 1998 (effective date) to November 30, 1999.
See notes to financial statements.
8 SEMIANNUAL REPORT
FTI FUNDS
STATEMENT OF INVESTMENTS, MAY 31, 2003 (UNAUDITED)
LARGE CAPITALIZATION GROWTH AND INCOME FUND SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS 93.3%
COMMUNICATIONS 2.0%
Verizon Communications Inc. ............................ 35,000 $ 1,324,750
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CONSUMER SERVICES 6.8%
a AOL Time Warner Inc. ................................... 90,000 1,369,800
a Clear Channel Communications Inc. ...................... 35,000 1,424,500
a Viacom Inc., A ......................................... 35,000 1,597,750
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4,392,050
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ELECTRONIC TECHNOLOGY 18.6%
a Analog Devices Inc. .................................... 40,000 1,542,000
a Applied Materials Inc. ................................. 90,000 1,400,400
a Cisco Systems Inc. ..................................... 90,000 1,465,200
a Corning Inc. ........................................... 210,000 1,535,100
Intel Corp. ............................................ 90,000 1,875,600
Lockheed Martin Corp. .................................. 25,000 1,160,500
Northrop Grumman Corp. ................................. 20,000 1,759,000
Raytheon Co. ........................................... 41,000 1,313,640
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12,051,440
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ENERGY MINERALS 6.6%
BP PLC, ADR (United Kingdom) ........................... 50,000 2,094,500
Exxon Mobil Corp. ...................................... 60,000 2,184,000
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4,278,500
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FINANCE 16.7%
American International Group Inc. ...................... 22,000 1,273,360
Bank of America Corp. .................................. 18,000 1,335,600
Citigroup Inc. ......................................... 35,000 1,435,700
Fifth Third Bancorp .................................... 25,000 1,437,500
Fleet Boston Financial Corp. ........................... 45,000 1,330,650
St. Paul Cos. Inc. ..................................... 35,000 1,280,300
Unitrin Inc. ........................................... 50,000 1,309,000
Washington Mutual Inc. ................................. 35,000 1,427,300
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10,829,410
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HEALTH TECHNOLOGY 12.0%
a Amgen Inc. ............................................. 30,000 1,941,300
a IDEC Pharmaceuticals Corp. ............................. 35,000 1,335,950
Johnson & Johnson ...................................... 40,000 2,174,000
SEMIANNUAL REPORT 9
FTI FUNDS
STATEMENT OF INVESTMENTS, MAY 31, 2003 (UNAUDITED) (CONT.)
LARGE CAPITALIZATION GROWTH AND INCOME FUND SHARES VALUE
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COMMON STOCKS (CONT.)
HEALTH TECHNOLOGY (CONT.)
Merck & Co. Inc. ....................................... 25,000 $ 1,389,500
Pfizer Inc. ............................................ 29,000 899,580
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7,740,330
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PROCESS INDUSTRIES 2.9%
Archer Daniels Midland Co. ............................. 159,000 1,903,230
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PRODUCER MANUFACTURING 10.3%
Eaton Corp. ............................................ 16,000 1,342,880
Honeywell International Inc. ........................... 80,000 2,096,000
Ingersoll Rand Co., A (Bermuda) ........................ 35,000 1,533,000
United Technologies Corp. .............................. 25,000 1,706,250
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6,678,130
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RETAIL TRADE 3.1%
Home Depot Inc. ........................................ 20,000 649,800
a USA Interactive ........................................ 36,000 1,384,200
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2,034,000
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TECHNOLOGY SERVICES 9.8%
Affiliated Computer Services Inc., A ................... 25,000 1,158,500
Electronic Data Systems Corp. .......................... 15,000 302,250
First Data Corp. ....................................... 30,000 1,242,600
International Business Machines Corp. .................. 20,000 1,760,800
Microsoft Corp. ........................................ 50,000 1,230,500
a Symantec Corp. ......................................... 14,000 633,080
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6,327,730
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TRANSPORTATION 2.4%
United Parcel Service Inc., B .......................... 25,000 1,560,750
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UTILITIES 2.1%
FPL Group Inc. ......................................... 20,000 1,329,400
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TOTAL COMMON STOCKS (COST $50,550,701) ................. 60,449,720
-----------
CONVERTIBLE PREFERRED STOCK (COST $539,652) .8%
TECHNOLOGY SERVICES
Electronic Data Systems Corp., 7.625%, cvt. pfd. ....... 25,000 531,750
-----------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENT
(COST $51,090,353) .................................... 60,981,470
-----------
10 SEMIANNUAL REPORT
FTI FUNDS
STATEMENT OF INVESTMENTS, MAY 31, 2003 (UNAUDITED) (CONT.)
PRINCIPAL
LARGE CAPITALIZATION GROWTH AND INCOME FUND AMOUNT VALUE
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT (COST $3,205,000) 5.0%
b Dresdner Kleinwort Wasserstein Securities
LLC., 1.20%, 6/02/03
(Maturity Value $3,205,320) ......................... $3,205,000 $ 3,205,000
-----------
Collateralized by U.S. Treasury Notes
TOTAL INVESTMENTS (COST $54,295,353) 99.1% .......... 64,186,470
OTHER ASSETS, LESS LIABILITIES .9% .................. 587,797
-----------
NET ASSETS 100.0% ................................... $64,774,267
===========
aNon-income producing
bSee Note 1(c) regarding repurchase agreements.
See notes to financial statements.
SEMIANNUAL REPORT 11
FTI FUNDS
FINANCIAL HIGHLIGHTS
SMALL CAPITALIZATION EQUITY FUND
- --------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED NOVEMBER 30,
MAY 31, 2003 -----------------------------------------------------------
(UNAUDITED) 2002 2001 2000 1999 1998
-----------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ..................... $12.48 $18.71 $21.00 $20.81 $13.26 $14.37
-------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) ............................ (.05)b (.15)b (.13)b (.15) (.16) (.15)b
Net realized and unrealized gains
(losses) ................................................ .89 (4.37) (2.16) 2.25 7.71 (.61)
-------------------------------------------------------------------------
Total from investment operations ......................... .84 (4.52) (2.29) 2.10 7.55 (.76)
-------------------------------------------------------------------------
Less distributions from net realized gains ............... -- (1.71) -- (1.91) -- (.35)
-------------------------------------------------------------------------
Net asset value, end of period ........................... $13.32 $12.48 $18.71 $21.00 $20.81 $13.26
=========================================================================
Total return a ........................................... 6.82% (26.65)% (10.90)% 10.22% 56.94% (5.34)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........................ $56,561 $59,882 $97,660 $109,385 $72,752 $46,233
Ratios to average net assets:
Expenses ................................................ 1.30%c 1.30% 1.30% 1.27% 1.44% 1.50%
Expenses excluding waiver and payments
by affiliate ........................................... 1.35%c 1.34% 1.32% 1.29% 1.44% 1.51%
Net investment income (loss) ............................ (.81)%c (1.01)% (.67)% (.68)% (.95)% (1.08)%
Portfolio turnover rate .................................. 64.00% 178.05% 111.67% 90.01% 130.23% 157.96%
aTotal return is not annualized for periods less than one year.
bBased on average shares outstanding.
cAnnualized
See notes to financial statements.
12 SEMIANNUAL REPORT
FTI FUNDS
STATEMENT OF INVESTMENTS, MAY 31, 2003 (UNAUDITED)
SMALL CAPITALIZATION EQUITY FUND SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS 95.4%
COMMERCIAL SERVICES 2.8%
a Charles River Associates Inc. .......................... 23,700 $ 512,394
a FTI Consulting Inc. .................................... 22,000 807,620
a Portfolio Recovery Associates Inc. ..................... 6,400 191,744
a Tradestation Group Inc. ................................ 6,300 51,345
-----------
1,563,103
-----------
COMMUNICATIONS 1.6%
a Commonwealth Telephone Enterprises Inc. ................ 21,100 886,411
-----------
CONSUMER DURABLES 5.8%
a Fossil Inc. ............................................ 50,400 1,131,480
a Furniture Brands International Inc. .................... 31,000 814,680
a Marvel Enterprises Inc. ................................ 28,000 625,800
a Meritage Corp. ......................................... 15,200 717,136
-----------
3,289,096
-----------
CONSUMER SERVICES 6.3%
a Corinthian Colleges Inc. ............................... 16,900 794,976
a Emmis Communications Corp., A .......................... 49,700 1,052,646
Intrawest Corp. (Canada) ............................... 36,300 427,251
a Panera Bread Co. ....................................... 14,800 516,668
a Shuffle Master Inc. .................................... 29,200 782,794
-----------
3,574,335
-----------
DISTRIBUTION SERVICES 1.0%
a United Natural Foods Inc. .............................. 20,200 559,540
-----------
ELECTRONIC TECHNOLOGY 19.7%
a Actel Corp. ............................................ 77,100 1,710,849
a Artisan Components Inc. ................................ 6,200 136,586
a ATMI Inc. .............................................. 32,100 803,142
a Avid Technology Inc. ................................... 23,200 782,768
a Credence Systems Corp. ................................. 66,700 540,270
a Cypress Semiconductor Corp. ............................ 37,600 415,480
a DSP Group Inc. ......................................... 16,300 379,301
a Emulex Corp. ........................................... 17,900 442,130
a International Rectifier Corp. .......................... 44,600 1,167,628
a Kopin Corp. ............................................ 65,200 350,776
a Lexar Media Inc. ....................................... 124,200 915,354
a Photon Dynamics Inc. ................................... 35,300 875,087
a Pinnacle Systems Inc. .................................. 193,200 2,057,580
a Polycom Inc. ........................................... 43,700 555,864
-----------
11,132,815
-----------
SEMIANNUAL REPORT 13
FTI FUNDS
STATEMENT OF INVESTMENTS, MAY 31, 2003 (UNAUDITED) (CONT.)
SMALL CAPITALIZATION EQUITY FUND SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
ENERGY MINERALS 4.2%
a Evergreen Resources Inc. ............................... 15,300 $ 814,878
a Quicksilver Resources Inc. ............................. 31,400 785,314
a Westport Resources Corp. ............................... 35,700 792,540
-----------
2,392,732
-----------
FINANCE 6.3%
a Affiliated Managers Group Inc. ......................... 8,300 456,500
IPC Holdings Ltd. (Bermuda) ............................ 15,700 506,953
Jefferies Group Inc. ................................... 13,500 616,815
Renaissance Holdings Ltd. (Bermuda) .................... 12,400 554,280
Texas Regional Bancshares Inc., A ...................... 21,560 789,096
UCBH Holdings Inc. ..................................... 25,300 656,535
-----------
3,580,179
-----------
HEALTH SERVICES 7.7%
a LifePoint Hospitals Inc. ............................... 25,500 544,425
a Pediatrix Medical Group Inc. ........................... 67,400 2,531,544
a Select Medical Corp. ................................... 20,100 429,135
a United Surgical Partners International Inc. ............ 38,400 837,120
-----------
4,342,224
-----------
HEALTH TECHNOLOGY 15.7%
a Advanced Neuromodulation Systems Inc. .................. 23,800 1,141,686
a Alkermes Inc. .......................................... 99,100 1,277,399
a Alteon Inc. ............................................ 149,000 731,590
a Celgene Corp. .......................................... 24,400 768,112
a Cell Genesys Inc. ...................................... 36,000 405,432
a CV Therapeutics Inc. ................................... 38,500 1,245,475
a Cyberonics Inc. ........................................ 10,300 195,082
a Nektar Therapeutics .................................... 59,300 656,451
a ResMed Inc. ............................................ 33,000 1,313,400
a Telik Inc. ............................................. 38,400 561,024
a Xoma Ltd. .............................................. 100,500 607,020
-----------
8,902,671
-----------
INDUSTRIAL SERVICES 1.2%
a Oceaneering International Inc. ......................... 11,700 321,165
a OMI Corp. .............................................. 61,200 350,676
-----------
671,841
-----------
PROCESS INDUSTRIES 1.6%
Minerals Technologies Inc. ............................. 18,500 928,700
-----------
14 SEMIANNUAL REPORT
FTI FUNDS
STATEMENT OF INVESTMENTS, MAY 31, 2003 (UNAUDITED) (CONT.)
SMALL CAPITALIZATION EQUITY FUND SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
REAL ESTATE 2.1%
Ventas Inc. ............................................ 82,600 $ 1,168,790
-----------
RETAIL TRADE 8.3%
a Abercrombie & Fitch Co., A ............................. 22,900 653,795
a Chico's FAS Inc. ....................................... 31,800 680,520
Claire's Stores Inc. ................................... 28,700 858,417
a Movie Gallery Inc. ..................................... 47,100 877,944
a PETCO Animal Supplies Inc. ............................. 26,400 554,928
Regis Corp. ............................................ 36,900 1,077,480
-----------
4,703,084
-----------
TECHNOLOGY SERVICES 7.6%
a Cognizant Technology Solutions Corp., A ................ 22,500 466,875
a Concord Communications Inc. ............................ 23,500 346,625
a Digital River Inc. ..................................... 47,900 941,714
a Documentum Inc. ........................................ 48,300 1,023,477
a Packeteer Inc. ......................................... 23,200 359,136
a Red Hat Inc. ........................................... 117,100 865,369
a Tier Technologies Inc., B .............................. 34,700 305,707
-----------
4,308,903
-----------
TRANSPORTATION 1.8%
a AirTran Holdings Inc. .................................. 77,100 572,082
a Heartland Express Inc. ................................. 18,200 429,520
-----------
1,001,602
-----------
UTILITIES 1.7%
Philadelphia Suburban Corp. ............................ 40,100 943,151
-----------
TOTAL COMMON STOCKS (COST $44,696,998) ................. 53,949,177
-----------
PRINCIPAL
AMOUNT
---------
REPURCHASE AGREEMENT (COST $1,080,000) 1.9%
b Dresdner Kleinwort Wasserstein Securities LLC.,
1.20%, 6/02/03 (Maturity Value $1,080,108) ...........$1,080,000 1,080,000
-----------
Collateralized by U.S. Treasury Notes
TOTAL INVESTMENTS (COST $45,776,998) 97.3% ........... 55,029,177
OTHER ASSETS, LESS LIABILITIES 2.7% .................. 1,532,222
-----------
NET ASSETS 100.0% .................................... $56,561,399
===========
aNon-income producing
bSee Note 1(c) regarding repurchase agreements.
See notes to financial statements.
SEMIANNUAL REPORT 15
FTI FUNDS
FINANCIAL HIGHLIGHTS
EUROPEAN SMALLER COMPANIES FUND
- --------------------------------------------------------------------------------
YEAR ENDED
SIX MONTHS ENDED NOVEMBER 30,
MAY 31, 2003 -----------------------
(UNAUDITED) 2002 2001 C
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ....................................... $5.27 $6.89 $10.00
-------------------------------------
Income from investment operations:
Net investment income (loss) .............................................. .07 (.01) (.02)
Net realized and unrealized gains (losses) ................................ .67 (1.61) (3.09)
-------------------------------------
Total from investment operations ........................................... .74 (1.62) (3.11)
-------------------------------------
Less distributions from net investment income .............................. (.01) -- --
-------------------------------------
Net asset value, end of period ............................................. $6.00 $5.27 $6.89
=====================================
Total return a ............................................................. 14.02% (23.51)% ( 31.10)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .......................................... $11,993 $14,970 $14,495
Ratios to average net assets:
Expenses .................................................................. 1.20%b 1.20% 1.20%b
Expenses excluding waiver and payments by affiliate ....................... 1.79%b 1.61% 2.62%b
Net investment income (loss) .............................................. 2.61%b (.14)% (.28)%b
Portfolio turnover rate .................................................... 53.81% 131.90% 82.43%
aTotal return is not annualized for periods less than one year.
bAnnualized
cFor the period January 2, 2001 (effective date) to November 30, 2001.
See notes to financial statements.
16 SEMIANNUAL REPORT
FTI FUNDS
STATEMENT OF INVESTMENTS, MAY 31, 2003 (UNAUDITED)
EUROPEAN SMALLER COMPANIES FUND INDUSTRY SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS 95.9%
BELGIUM 3.5%
Barco NV ........................ Electronic Technology 3,300 $ 202,022
Mobistar SA ..................... Communications 5,324 212,276
-----------
414,298
-----------
DENMARK 3.1%
Radiometer AS, B ................ Health Technology 3,045 172,689
Topdanmark AS ................... Finance 5,220 198,462
-----------
371,151
-----------
FINLAND 4.9%
Elcoteq Network Corp., A ........ Electronic Technology 8,575 116,185
Nokian Renkaat OYJ .............. Consumer Durables 4,320 218,533
Tietoenator OY .................. Technology Services 3,330 57,848
Yit-Yhtyma OYJ .................. Industrial Services 10,250 199,399
-----------
591,965
-----------
FRANCE 3.9%
April Group ..................... Finance 10,460 145,785
Beneteau ........................ Consumer Durables 4,012 149,820
Bonduelle SCA ................... Consumer Non-Durables 2,190 167,554
-----------
463,159
-----------
GERMANY 12.0%
Beru AG ......................... Producer Manufacturing 3,500 193,065
Iwka Ag ......................... Producer Manufacturing 12,820 183,955
Medion AG ....................... Commercial Services 4,741 227,228
Puma AG ......................... Consumer Non-Durables 2,080 221,644
Stada Arzneimittel AG ........... Health Technology 4,059 267,344
Vossloh AG ...................... Producer Manufacturing 4,700 173,024
Zapf Creation AG ................ Consumer Durables 4,870 178,709
-----------
1,444,969
-----------
GREECE 4.3%
Germanos SA ..................... Retail Trade 12,955 198,996
Hellenic Technodomiki TEV SA .... Industrial Services 19,235 127,595
Titan Cement Co. ................ Non-Energy Minerals 4,950 188,515
-----------
515,106
-----------
IRISH REPUBLIC 8.8%
Depfa Bank PLC .................. Finance 3,112 217,049
First Active PLC ................ Finance 28,800 138,880
Fyffes PLC ......................Distribution Services 76,790 130,959
Grafton Group ...................Distribution Services 41,228 185,718
SEMIANNUAL REPORT 17
FTI FUNDS
STATEMENT OF INVESTMENTS, MAY 31, 2003 (UNAUDITED) (CONT.)
EUROPEAN SMALLER COMPANIES FUND INDUSTRY SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
IRISH REPUBLIC (CONT.)
Iaws Group PLC .................. Process Industries 13,100 $ 116,328
Jurys Doyle Hotel Group PLC ..... Consumer Services 13,200 115,352
United Drug PLC ................. Distribution Services 8,548 145,780
-----------
1,050,066
-----------
ITALY 7.5%
Bulgari SpA ..................... Retail Trade 39,510 202,144
Davide Campari-Milano SpA ....... Consumer Non-Durables 5,746 212,139
Gruppo Editoriale L'espresso .... Consumer Services 50,551 202,149
Merloni Elettrodomestici SpA .... Consumer Durables 14,028 188,254
Permasteelisa SpA ............... Industrial Services 6,655 101,129
-----------
905,815
-----------
NORWAY 2.8%
Ekornes ASA ..................... Consumer Durables 8,550 114,977
Prosafe ASA ..................... Industrial Services 6,250 113,932
a Tandberg ASA .................... Electronic Technology 26,250 113,353
-----------
342,262
-----------
SPAIN 8.6%
a Baron De Ley SA ................. Consumer Non-Durables 3,650 128,789
Enagas SA ....................... Industrial Services 3,310 187,800
a Grupo Auxiliar Metalurgico
SA (GAMESA) ..................... Electronic Technology 8,390 186,010
Prosegur CIA De Seguridad SA .... Commercial Services 8,380 123,202
a Telefonica Publicidad E
Informacion SA .................. Commercial Services 43,570 211,642
Zardoya Otis SA ................. Producer Manufacturing 11,526 189,653
-----------
1,027,096
-----------
SWEDEN 9.9%
a D. Carnegie & Co. AB ............ Finance 29,600 205,763
a Elekta AB, B .................... Health Technology 19,860 264,607
Getinge AB, B ................... Health Technology 9,190 236,607
Gunnebo AB ...................... Producer Manufacturing 7,270 132,894
Intrum Justitia AB .............. Commercial Services 4,615 22,576
a Modern Times Group AB ........... Consumer Services 13,836 189,689
Observer AB ..................... Commercial Services 41,070 136,933
-----------
1,189,069
-----------
SWITZERLAND 6.2%
Geberit AG ......................Producer Manufacturing 590 206,111
Lindt & Spruengli
Chocolate Works Ltd. ............ Consumer Non-Durables 27 186,157
a Micronas Semiconductor
Holdings AG .....................Electronic Technology 7,840 179,078
Straumann Holding AG ............ Health Technology 1,905 174,053
-----------
745,399
-----------
18 SEMIANNUAL REPORT
FTI FUNDS
STATEMENT OF INVESTMENTS, MAY 31, 2003 (UNAUDITED) (CONT.)
EUROPEAN SMALLER COMPANIES FUND INDUSTRY SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
UNITED KINGDOM 20.4%
Aegis Group PLC .................. Commercial Services 160,970 $ 224,166
Balfour Beatty PLC ............... Industrial Services 70,101 222,235
Bovis Homes Group PLC ............ Consumer Durables 32,273 205,946
Cattles PLC ...................... Finance 974 5,290
Chrysalis Group PLC .............. Consumer Services 52,930 190,346
a easyJet PLC ...................... Transportation 37,900 116,736
Enterprise Inns PLC .............. Consumer Services 18,850 228,379
First Choice Holidays PLC ........ Consumer Services 88,535 133,447
Garban-Intercapital PLC .......... Finance 7,745 134,503
Hiscox PLC ....................... Finance 67,000 177,278
HIT Entertainment PLC ............ Consumer Services 51,015 210,205
Intermediate Capital Group PLC ... Finance 13,066 194,480
MFI Furniture Group PLC .......... Consumer Durables 82,460 201,296
Weir Group PLC ...................Producer Manufacturing 46,870 197,733
-----------
2,442,040
-----------
TOTAL COMMON STOCKS
(COST $9,416,325) ................ 11,502,395
-----------
PRINCIPAL
AMOUNT
---------
REPURCHASE AGREEMENT (COST $470,000) 3.9%
b Dresdner Kleinwort Wasserstein
Securities LLC., 1.20%, 6/02/03,
(Maturity Value $470,047) ......... $470,000 470,000
-----------
Collateralized by U.S. Treasury Notes
TOTAL INVESTMENTS
(COST $9,886,325) 99.8% ........... 11,972,395
OTHER ASSETS, LESS LIABILITIES .2% . 20,802
-----------
NET ASSETS 100.0% .................. $11,993,197
===========
aNon-income producing
bSee Note 1(c) regarding repurchase agreements.
See notes to financial statements.
SEMIANNUAL REPORT 19
FTI FUNDS
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
MAY 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
LARGE EUROPEAN
CAPITALIZATION SMALL SMALLER
GROWTH AND CAPITALIZATION COMPANIES
INCOME FUND EQUITY FUND FUND
-----------------------------------------------
Assets:
Investments in securities:
Cost ........................................................... $54,295,353 $ 45,776,998 $ 9,886,325
===============================================
Value .......................................................... 64,186,470 55,029,177 11,972,395
Cash ............................................................ 2,608 5,093 --
Foreign cash, at value (Cost $147,781) .......................... -- -- 155,323
Receivables:
Investment securities sold ..................................... -- -- 260,900
Capital shares sold ............................................ 478,000 1,601,550 --
Dividends and interest ......................................... 138,126 32,007 100,936
-----------------------------------------------
Total assets ............................................... 64,805,204 56,667,827 12,489,554
-----------------------------------------------
Liabilities:
Payables:
Investment securities purchased ................................ -- 51,634 444,698
Affiliates ..................................................... 30,937 50,093 6,403
Funds advanced by custodian .................................... -- -- 2,843
Other liabilities ............................................... -- 4,701 42,413
-----------------------------------------------
Total liabilities .......................................... 30,937 106,428 496,357
-----------------------------------------------
Net assets, at value ...................................... $64,774,267 $ 56,561,399 $ 11,993,197
===============================================
Net assets consist of:
Undistributed net investment income ............................. $ 156,730 $ (202,966) $ 158,115
Net unrealized appreciation (depreciation) ...................... 9,891,117 9,252,179 2,100,528
Accumulated net realized gain (loss) ............................ (531,121) (25,115,800) (11,911,595)
Capital shares .................................................. 55,257,541 72,627,986 21,646,149
-----------------------------------------------
Net assets, at value ...................................... $64,774,267 $ 56,561,399 $ 11,993,197
===============================================
Shares outstanding .............................................. 11,333,514 4,245,915 1,999,046
===============================================
Net asset value and maximum offering price per share ............ $5.72 $13.32 $6.00
===============================================
See notes to financial statements.
20 SEMIANNUAL REPORT
FTI FUNDS
Financial Statements (CONTINUED)
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MAY 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
LARGE EUROPEAN
CAPITALIZATION SMALL SMALLER
GROWTH AND CAPITALIZATION COMPANIES
INCOME FUND EQUITY FUND FUND
---------------------------------------------
Investment income:a
Dividends .........................................................$ 565,902 $ 113,748 $ 229,049
Interest .......................................................... 43,073 11,305 1,728
---------------------------------------------
Total investment income ...................................... 608,975 125,053 230,777
---------------------------------------------
Expenses:
Management fees (Note 3) .......................................... 216,868 252,296 60,468
Administrative fees (Note 3) ...................................... 57,832 50,492 12,094
Transfer agent fees (Note 3) ...................................... 497 1,964 1,234
Custodian fees .................................................... 2,670 620 3,264
Reports to shareholders ........................................... 2,644 3,652 10,084
Registration and filing fees ...................................... 5,450 12,687 3,269
Professional fees ................................................. 28,747 7,726 14,458
Trustees' fees and expenses ....................................... 7,445 11,001 2,300
Other ............................................................. 864 515 1,084
---------------------------------------------
Total expenses ............................................... 323,017 340,953 108,255
---------------------------------------------
Expenses waived/paid by affiliate (Note 3) ................... (25,634) (12,934) (35,691)
---------------------------------------------
Net expenses ................................................ 297,383 328,019 72,564
---------------------------------------------
Net investment income (loss) ............................... 311,592 (202,966) 158,213
---------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ...................................................... 2,575,814 (594,157) (293,333)
Foreign currency transactions .................................... -- -- (10,350)
---------------------------------------------
Net realized gain (loss) .................................... 2,575,814 (594,157) (303,683)
---------------------------------------------
Net unrealized appreciation (depreciation) on:
Investments ...................................................... (1,813,112) 3,390,084 1,450,298
Translation of assets and liabilities denominated in
foreign currencies .............................................. -- -- 9,717
---------------------------------------------
Net unrealized appreciation (depreciation) .................. (1,813,112) 3,390,084 1,460,015
---------------------------------------------
Net realized and unrealized gain (loss) ............................ 762,702 2,795,927 1,156,332
---------------------------------------------
Net increase (decrease) in net assets resulting from operations ....$ 1,074,294 $2,592,961 $1,314,545
=============================================
aNet of foreign taxes and fees of $2,400 and $28,063 for the Large
Capitalization Growth and Income Fund and the European Smaller Companies Fund,
respectively.
See notes to financial statements.
SEMIANNUAL REPORT 21
FTI FUNDS
Financial Statements (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED MAY 31, 2003 (UNAUDITED)
AND THE YEAR ENDED NOVEMBER 30, 2002
- --------------------------------------------------------------------------------
LARGE CAPITALIZATION SMALL CAPITALIZATION
GROWTH AND INCOME FUND EQUITY FUND
-----------------------------------------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
MAY 31, 2003 NOVEMBER 30, 2002 MAY 31, 2003 NOVEMBER 30, 2002
-----------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income (loss) ............ $ 311,592 $ 478,800 $ (202,966) $ (813,561)
Net realized gain (loss) from
investments ............................ 2,575,814 (3,106,936) (594,157) (24,521,643)
Net unrealized appreciation
(depreciation) on investments .......... (1,813,112) (10,195,202) 3,390,084 (562,393)
----------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations .......... 1,074,294 (12,823,338) 2,592,961 (25,897,597)
Distributions to shareholders from:
Net investment income ................... (288,416) (505,369) -- --
Net realized gains ...................... -- (3,665,800) -- (8,816,673)
----------------------------------------------------------------------
Total distributions to shareholders ...... (288,416) (4,171,169) -- (8,816,673)
Capital share transactions: (Note 2) ..... 3,084,469 3,264,124 (5,913,677) (3,063,862)
----------------------------------------------------------------------
Net increase (decrease) in
net assets ......................... 3,870,347 (13,730,383) (3,320,716) (37,778,132)
Net assets:
Beginning of period ..................... 60,903,920 74,634,303 59,882,115 97,660,247
----------------------------------------------------------------------
End of period ........................... $64,774,267 $60,903,920 $56,561,399 $ 59,882,115
======================================================================
Undistributed net investment income
included in net assets:
End of period ........................... $ 156,730 $ 133,554 $ (202,966) $ --
======================================================================
See notes to financial statements.
22 SEMIANNUAL REPORT
FTI FUNDS
Financial Statements (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE SIX MONTHS ENDED MAY 31, 2003 (UNAUDITED)
AND THE YEAR ENDED NOVEMBER 30, 2002
- --------------------------------------------------------------------------------
EUROPEAN SMALLER COMPANIES FUND
---------------------------------
SIX MONTHS YEAR
ENDED ENDED
MAY 31, 2003 NOVEMBER 30, 2002
---------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income (loss) ............................................... $ 158,213 $ (22,102)
Net realized gain (loss) from investments and
foreign currency transactions ............................................. (303,683) (6,668,604)
Net unrealized appreciation (depreciation) on
investments and translation of assets
and liabilities denominated in foreign currencies ......................... 1,460,015 1,611,878
---------------------------------
Net increase (decrease) in net assets resulting from operations ........ 1,314,545 (5,078,828)
Distributions to shareholders from net investment income ................... (21,366) --
Capital share transactions: (Note 2) ....................................... (4,269,641) 5,553,659
---------------------------------
Net increase (decrease) in net assets .................................. (2,976,462) 474,831
Net assets:
Beginning of period ........................................................ 14,969,659 14,494,828
---------------------------------
End of period .............................................................. $11,993,197 $14,969,659
---------------------------------
Undistributed net investment income included in net assets:
End of period .............................................................. $ 158,115 $ 21,268
=================================
See notes to financial statements.
SEMIANNUAL REPORT 23
FTI FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
FTI Funds (the Trust) is registered under the Investment Company Act of 1940 as
a diversified, open-end investment company, consisting of three series (the
Funds). The Funds and their investment objectives are:
GROWTH GROWTH AND INCOME
- --------------------------------------------------------------------------------
Small Capitalization Equity Fund Large Capitalization Growth and Income Fund
European Smaller Companies Fund
On May 19, 2003, the Board of Trustees for the FTI Funds approved a proposal to
merge FTI Large Capitalization Growth and Income Fund, FTI Small Capitalization
Equity Fund, and FTI European Smaller Companies Fund into Fiduciary Large
Capitalization Growth and Income Fund, Fiduciary Small Capitalization Equity
Fund, and Fiduciary European Smaller Companies Fund, all series of Franklin
Global Trust, subject to approval by the shareholders of each of the FTI Funds.
The following summarizes the Funds' significant accounting policies.
A. SECURITY VALUATION
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the last reported sales price. Over-the-counter securities and listed
securities for which no sale is reported are valued within the range of the
latest quoted bid and asked prices. Securities for which market quotations are
not readily available are valued at fair value as determined by management in
accordance with procedures established by the Board of Trustees.
B. FOREIGN CURRENCY TRANSLATION
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date.
The Funds do not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
24 SEMIANNUAL REPORT
FTI FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
C. REPURCHASE AGREEMENTS
The Funds may enter into repurchase agreements, which are accounted for as a
loan by the Funds to the seller, collateralized by securities which are
delivered to the Fund's custodian. The market value, including accrued interest,
of the initial collateralization is required to be at least 102% of the dollar
amount invested by the Funds, with the value of the underlying securities marked
to market daily to maintain coverage of at least 100%. At May 31, 2003, all
repurchase agreements held by the Fund had been entered into on May 30, 2003.
D. FOREIGN CURRENCY CONTRACTS
When the European Smaller Companies Fund purchases or sells foreign securities
it may enter into foreign exchange contracts to minimize foreign exchange risk
from the trade date to the settlement date of the transactions. A foreign
exchange contract is an agreement between two parties to exchange different
currencies at an agreed upon exchange rate on a specified date. Realized and
unrealized gains and losses are included in the Statement of Operations.
The risks of these contracts include movement in the values of the foreign
currencies relative to the U.S. dollar and the possible inability of the
counterparties to fulfill their obligations under the contracts.
E. INCOME TAXES
No provision has been made for income taxes because each fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute substantially all of its taxable income.
F. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Certain income from foreign securities is recorded as soon as information is
available to the Funds. Interest income and estimated expenses are accrued
daily. Dividend income and distributions to shareholders are recorded on the
ex-dividend date.
Common expenses incurred by the Trust are allocated among the Funds based on the
ratio of net assets of each Fund to the combined net assets. Other expenses are
charged to each Fund on a specific identification basis.
G. ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the amounts of income
and expenses during the reporting period. Actual results could differ from those
estimates.
SEMIANNUAL REPORT 25
FTI FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
H. GUARANTEES AND INDEMNIFICATIONS
Under the Funds' organizational documents, its officers and trustees are
indemnified against certain liability arising out of the performance of their
duties to the Funds. Additionally, in the normal course of business, the Funds
enter into contracts with service providers that contain general indemnification
clauses. The Funds' maximum exposure under these arrangements is unknown as this
would involve future claims that may be made against the Funds that have not yet
occurred. However, based on experience, the Funds expect the risk of loss to be
remote.
2. SHARES OF BENEFICIAL INTEREST
At May 31, 2003, there were an unlimited number of shares authorized (no par
value). Transactions in the Funds' shares were as follows:
LARGE CAPITALIZATION
GROWTH AND INCOME FUND
--------------------------------
SHARES AMOUNT
--------------------------------
Period ended May 31, 2003
Shares sold ................................... 941,384 $ 5,121,583
Shares issued in reinvestment
of distributions ............................ 526 2,799
Shares redeemed ............................... (385,946) (2,039,913)
--------------------------------
Net increase (decrease) ....................... 555,964 $ 3,084,469
================================
Year ended November 30, 2002
Shares sold ................................... 1,194,377 $ 7,435,837
Shares issued in reinvestment
of distributions ............................ 525,396 3,577,486
Shares redeemed ............................... (1,293,577) (7,749,199)
--------------------------------
Net increase (decrease) ....................... 426,196 $ 3,264,124
================================
SMALL CAPITALIZATION EQUITY FUND
--------------------------------
SHARES AMOUNT
--------------------------------
Period ended May 31, 2003
Shares sold ................................... 275,980 $ 3,468,959
Shares redeemed ............................... (830,181) (9,382,636)
--------------------------------
Net increase (decrease) ....................... (554,201) $ (5,913,677)
================================
Year ended November 30, 2002
Shares sold ................................... 883,691 $ 14,398,859
Shares issued in reinvestment
of distributions ............................ 444,109 7,536,533
Shares redeemed ............................... (1,746,205) (24,999,254)
--------------------------------
Net increase (decrease) ....................... (418,405) $ (3,063,862)
================================
26 SEMIANNUAL REPORT
FTI FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
EUROPEAN SMALLER COMPANIES FUND
--------------------------------
SHARES AMOUNT
--------------------------------
Period ended May 31, 2003
Shares sold ................................... 85,003 $ 468,280
Shares issued in reinvestment
of distributions ............................ 185 938
Shares redeemed ............................... (925,617) (4,738,859)
--------------------------------
Net increase (decrease) ....................... (840,429) $(4,269,641)
================================
Year ended November 30, 2002
Shares sold ................................... 1,596,356 $10,745,802
Shares redeemed ............................... (861,356) (5,192,143)
--------------------------------
Net increase (decrease) ....................... 735,000 $ 5,553,659
================================
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Trust are also officers and/or directors of
the following entities:
ENTITY AFFILIATION
- ------------------------------------------------------------------------------------
Fiduciary International, Inc. (Advisers) Investment manager
Templeton/Franklin Investment Services, Inc. (Distributors) Principal underwriter
Franklin Templeton Services, LLC (FT Services) Administrative manager
Franklin/Templeton Investor Services, LLC (Investor Services) Transfer agent
The Funds pay an investment management fee to Advisers based on the average
daily net assets of the Funds as follows:
ANNUALIZED
FEE
FUND RATE
- --------------------------------------------------------------------------------
Large Capitalization Growth and Income Fund .75%
Small Capitalization Equity Fund 1.00%
European Smaller Companies Fund 1.00%
SEMIANNUAL REPORT 27
FTI FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONT.)
The Funds pay an administrative fee to FT Services of .20% per year of the
average daily net assets of each fund.
Advisers agreed in advance to waive administrative and management fees, as noted
in the Statement of Operations.
The Funds can reimburse Distributors up to .25% per year of average daily net
assets for costs incurred in marketing the Funds' shares. For the period ended
May 31, 2003, the Funds did not incur a distribution services fee.
The Funds paid transfer agent fees of $3,695, of which $2,073 was paid to
Investor Services.
4. INCOME TAXES
At November 30, 2002, the Funds had tax basis capital losses, which may be
carried over to offset future capital gains. Such losses expire as follows:
LARGE
CAPITALIZATION SMALL EUROPEAN
GROWTH AND CAPITALIZATION SMALLER
INCOME FUND EQUITY FUND COMPANIES FUND
------------------------------------------------
Capital loss carryovers expiring in:
2009 ............................... $ -- $ -- $ 4,886,626
2010 ............................... 3,099,125 23,445,558 6,556,559
------------------------------------------------
$3,099,125 $23,445,558 $11,443,185
================================================
Net investment income (loss) differs for financial statement and tax purposes
primarily due to differing treatment of foreign currency transactions.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales and foreign currency
transactions.
At May 31, 2003, the net unrealized appreciation (depreciation) based on the
cost of investments for income tax purposes was as follows:
LARGE
CAPITALIZATION SMALL EUROPEAN
GROWTH AND CAPITALIZATION SMALLER
INCOME FUND EQUITY FUND COMPANIES FUND
------------------------------------------------
Investments at cost .......................................... $54,295,353 $46,151,026 $9,949,985
================================================
Unrealized appreciation ...................................... 11,845,160 9,798,157 2,107,160
Unrealized depreciation ...................................... (1,954,043) (920,006) (84,750)
------------------------------------------------
Net unrealized appreciation (depreciation) ................... $ 9,891,117 $ 8,878,151 $2,022,410
================================================
28 SEMIANNUAL REPORT
FTI FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended May 31, 2003 were as follows:
LARGE
CAPITALIZATION SMALL EUROPEAN
GROWTH AND CAPITALIZATION SMALLER
INCOME FUND EQUITY FUND COMPANIES FUND
-----------------------------------------------
Purchases .......... $20,948,038 $31,926,392 $6,747,765
Sales .............. $16,793,916 $39,798,440 $9,880,805
SEMIANNUAL REPORT 29
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30
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31
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32
Not part of the Semiannual Report
[LOGO OMITTED]
---------
FTI
---------
FUNDS
---------
FTI FUNDS
----------------
FTI Large Capitalization Growth and Income Fund
Cusip 302927801
FTI Small Capitalization Equity Fund
Cusip 302927108
FTI European Smaller Companies Fund
Cusip 302927884
This report must be preceded or accompanied by the current FTI Funds prospectus,
which contains more complete information including charges and expenses.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
identified by the presence of a regular beeping tone.
ADVISOR
Fiduciary International, Inc.
600 5th Avenue
New York, NY 10020-2302
DISTRIBUTOR
Templeton/Franklin Investment Services, Inc.
1-800/DIAL BEN(R)
FTIF S2003 07/03
--------------
FIDUCIARY
--------------
TRUST
--------------
INTERNATIONAL
--------------
ITEM 2. CODE OF ETHICS. N/A
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. N/A
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. N/A
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. N/A
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES. N/A
ITEM 9. CONTROLS AND PROCEDURES.
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Registrant maintains
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Registrant's filings under the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 is recorded,
processed, summarized and reported within the periods specified in the rules and
forms of the Securities and Exchange Commission. Such information is accumulated
and communicated to the Registrant's management, including its principal
executive officer and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure. The Registrant's management,
including the principal executive officer and the principal financial officer,
recognizes that any set of controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired
control objectives.
Within 90 days prior to the filing date of this Shareholder Report on Form
N-CSR, the Registrant had carried out an evaluation, under the supervision and
with the participation of the Registrant's management, including the
Registrant's principal executive officer and the Registrant's principal
financial officer, of the effectiveness of the design and operation of the
Registrant's disclosure controls and procedures. Based on such evaluation, the
Registrant's principal executive officer and principal financial officer
concluded that the Registrant's disclosure controls and procedures are
effective.
(B) CHANGES IN INTERNAL CONTROLS. There have been no significant changes in the
Registrant's internal controls or in other factors that could significantly
affect the internal controls subsequent to the date of their evaluation in
connection with the preparation of this Shareholder Report on Form N-CSR.
ITEM 10. EXHIBITS.
(A) N/A
(B)(1) CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
OF JIMMY D. GAMBILL, CHIEF EXECUTIVE OFFICER - FINANCE AND ADMINISTRATION, AND
KIMBERLEY H. MONASTERIO, CHIEF FINANCIAL OFFICER
(B)(2) CERTIFICATIONS PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
OF JIMMY D. GAMBILL, CHIEF EXECUTIVE OFFICER - FINANCE AND ADMINISTRATION, AND
KIMBERLEY H. MONASTERIO, CHIEF FINANCIAL OFFICER
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
FTI Funds
By /s/Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date July 31, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date July 31, 2003
By /s/Kimberley H. Monasterio
Chief Financial Officer
Date July 31, 2003