As filed with the Securities and Exchange Commission on September 12, 1995.
Registration Nos. 33-27896/811-5796
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. _____
Post-Effective Amendment No. 16 X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 19 X
FFTW FUNDS, INC.
(Exact name of registrant as specified in charter)
200 PARK AVENUE, NEW YORK, NEW YORK 10166
(Address of principal executive offices)
Registrant's telephone number: 212-681-3000
STEPHEN J. CONSTANTINE, President
200 Park Avenue
New York, New York 10166
(Name and address of agent for service)
With a copy to:
William E. Vastardis
AMT Capital Services, Inc.
430 Park Avenue, 17th Floor
New York, NY 10022
It is proposed that this filing will become effective (check appropriate box)
immediately upon filing pursuant to paragraph (b) of Rule 485.
on __________(date) pursuant to paragraph (b) of Rule 485.
60 days after filing pursuant to paragraph (a) of Rule 485.
X on November 28, 1995 pursuant to paragraph (a) of Rule 485.
______________________
Registrant has registered an indefinite number of shares pursuant to Rule
24f-2 under the Investment Company Act of 1940. The Registrant filed the
notice required thereunder for the fiscal year ended December 31, 1994 on
February 28, 1995.
The total number of pages is ______.
The Exhibit Index is on page ______.
CROSS REFERENCE SHEET
Pursuant to Rule 481(a)
Form N-1A Location in Prospectus and
Item No. Statement of Additional
Information
1 Cover Page Cover Page of Prospectus
2 Synopsis Prospectus Highlights; Fund
Expenses (in Prospectus)
3 Financial Highlights Financial Highlights (in
Prospectus)
4 General Description of Investment Objectives and
Registrant Policies; Descriptions of
Investments; Investment
Techniques; Investment
Restrictions; Risks Associated
With the Fund's Investment
Policies and Investment
Techniques; Shareholder
Information (in Prospectus)
5 Management of the Fund Fund Expenses; Management of the
Fund (in Prospectus)
6 Capital Stock and Other Shareholder Information;
Securities Purchases and Redemptions;
Dividends; Tax Considerations (in
Prospectus)
7 Purchase of Securities Being Purchases and Redemptions;
Offered Dividends; Determination of Net
Asset Value; Distribution of Fund
Shares (in Prospectus)
8 Redemption or Repurchase Purchases and Redemptions;
Dividends (in Prospectus)
9 Pending Legal Proceedings Not applicable
10 Cover Page Cover Page of Statement of
Additional Information
11 Table of Contents Statement of Additional
Information Table of Contents
12 General Information and History of the Fund; Organization
History of the Fund (in Statement of
Additional Information)
13 Investment Objectives and Supplemental Descriptions of
Policies Investments; Techniques to Hedge
Interest Rate and Foreign
Currency Risks and Other Foreign
Currency Strategies; Supplemental
Discussion of Risks Associated
With the Fund's Investment
Policies and Investment
Techniques; Investment
Restrictions (in Statement of
Additional Information)
14 Management of the Fund Management of the Fund (in
Statement of Additional
Information)
15 Control Persons and Principal Control Persons and Principal
Holders of Securities Holders of Securities (in
Statement of Additional
Information)
16 Investment Advisory and Other Distribution of Fund Shares;
Services Management of the Fund;
Custodian and Accounting Agent;
Transfer and Dividend Disbursing
Agent; Legal Counsel; Independent
Auditors (in Prospectus);
Management of the Fund (in
Statement of Additional
Information)
17 Brokerage Allocation and Other Portfolio Transactions (in
Practices Statement of Additional
Information)
18 Capital Stock and Other Purchases and Redemptions;
Securities Dividends; Shareholder
Information (in Prospectus)
19 Purchase, Redemption and Purchases and Redemptions;
Pricing of Securities Being Determination of Net Asset Value
Offered (in Prospectus)
20 Tax Status Tax Considerations (in Statement
of Additional Information)
21 Underwriters Distribution of Fund Shares (in
Prospectus)
22 Calculation of Performance Performance Information (in
Data Prospectus); Calculation of
Performance Data (in Statement of
Additional Information)
23 Financial Statements Financial Highlights (in
Prospectus); Financial Statements
(in Statement of Additional
Information)
Information contained herein is subject to completion or amendment.
A registration statement relating to these securities has been filed
with the Securities and Exchange Commission. These securities may not
be sold nor may offers to buy be accepted prior to the time the
registration statement becomes effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
Subject To Completion - September 12, 1995
FFTW FUNDS, INC.
200 Park Avenue, 46th Floor
New York, New York 10166
(212) 681-3000
Distributed by:
AMT CAPITAL SERVICES, INC.
430 Park Avenue, 17th Floor
New York, New York 10022
(212) 308-4848
(800) 762-4848 (outside New York City)
Prospectus - November ___, 1995
FFTW Funds, Inc. (the "Fund") is a no-load, open-end management investment
company managed by Fischer Francis Trees & Watts, Inc. (the "Investment
Adviser"). The Fund currently consists of ten separate portfolios (each a
"Portfolio"), each of which is an actively-managed portfolio invested in high-
quality debt securities. There is no sales charge for purchases of shares.
Shares of each Portfolio may be purchased through AMT Capital Services, Inc.
("AMT Capital"), the exclusive distributor. The minimum initial investment
in any Portfolio is $100,000; additional investments or redemptions may be of
any amount.
The ten Portfolios are: (1) U.S. Portfolios - U.S. Short-Term Fixed
Income, Stable Return, U.S. Treasury, Mortgage Total Return, and Broad Market
Fixed Income (the "U.S. Portfolios"); and (2) Global and International
Portfolios - Worldwide Short-Term Fixed Income, Worldwide Fixed Income,
Worldwide Fixed Income-Hedged, International Fixed Income and International
Fixed Income-Hedged (the "Global and International Portfolios").
This Prospectus contains a concise statement of information investors
should know before they invest in the Fund. Please retain this Prospectus for
future reference. A statement containing additional information about the Fund,
dated November ___, 1995 (the "Statement of Additional Information"), has been
filed with the Securities and Exchange Commission (the "Commission") and can be
obtained without charge by calling or writing AMT Capital at the telephone
numbers or address stated above. The Statement of Additional Information is
hereby incorporated by reference into this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
Page
Prospectus Highlights 3
Fund Expenses 6
Financial Highlights 9
The Fund 14
Investment Objectives and Policies 14
Description of Investments 19
Investment Techniques 21
Investment Restrictions 24
Risks Associated With the Fund's Investment Policies
and Investment Techniques 25
Distribution of Fund Shares 27
Purchases and Redemptions 27
Determination of Net Asset Value 29
Dividends 29
Management of the Fund 30
Tax Considerations 32
Shareholder Information 34
PROSPECTUS HIGHLIGHTS
THE FUND
FFTW Funds, Inc. is a no-load, open-end management investment
company consisting of ten different Portfolios, each of which invests
primarily in high-quality debt securities. (Page 14) The Fund is primarily
designed to provide pension and profit sharing plans, employee benefit
trusts, endowments, foundations, other institutions, corporations, and high
net worth individuals with access to the professional investment
management services of Fischer Francis Trees & Watts, Inc., the Fund's
Investment Adviser.
THE PORTFOLIOS - INVESTMENT OBJECTIVES
The ten Portfolios and their investment objectives are:
U.S. PORTFOLIOS
U.S. Short-Term Fixed Income Portfolio ("U.S. Short-Term")
seeks to attain a high level of total return as may be consistent with the
preservation of capital and to maintain liquidity by investing primarily in
high-quality fixed income securities with an average U.S. dollar-weighted
duration of less than one year. (Page 15) This Portfolio seeks to maintain
a constant net asset value by employing the "full payout method" of
declaring dividends. See "Dividends - U.S. Short-Term Fixed Income
Portfolio". (Page 29) U.S. Short-Term is not a money market fund and its
shares are not guaranteed by the U.S. Government.
Stable Return Portfolio ("Stable Return") seeks to maintain a stable
level of total return as may be consistent with the preservation of capital by
investing primarily in high-quality debt securities with an average U.S.
dollar-weighted duration of less than three years and by using interest rate
hedging as a stabilizing technique. (Page 15)
U.S. Treasury Portfolio ("U.S. Treasury") seeks to attain a high level
of total return as may be consistent with the preservation of capital and to
avoid credit quality risk by investing primarily in securities issued by the
U.S. Treasury Department with an average U.S. dollar-weighted duration
of less than five years which will provide investors in most jurisdictions
with income exempt from state and local tax. (Page16)
Mortgage Total Return Portfolio ("Mortgage Total Return") seeks
to attain a high level of total return as may be consistent with the
preservation of capital by investing primarily in mortgage-related securities,
maintaining an average U.S. dollar-weighted duration in the range of two
to six years. (Page 16)
Broad Market Fixed Income Portfolio ("Broad Market") seeks to
attain a high level of total return as may be consistent with the preservation
of capital by investing primarily in high-quality fixed income securities
reflective of the broad spectrum of the U.S. bond market with an average
U.S. dollar-weighted duration of less than eight years. (Page 16)
GLOBAL AND INTERNATIONAL PORTFOLIOS
Worldwide Short-Term Fixed Income Portfolio ("Worldwide
Short-Term") seeks to attain a high level of total return as may be consistent
with the preservation of capital by investing primarily in high-quality fixed
income securities from bond markets worldwide, denominated in both U.S.
dollars and foreign currencies, with an average U.S. dollar-weighted
duration of less than three years. (Page 17)
Worldwide Fixed Income Portfolio ("Worldwide") seeks to attain
a high level of total return as may be consistent with the preservation of
capital by investing primarily in high-quality fixed income securities from
bond markets worldwide, denominated in both U.S. dollars and foreign
currencies, with an average U.S. dollar-weighted duration of less than eight
years. (Page 17)
Worldwide Fixed Income-Hedged Portfolio ("Worldwide-
Hedged") seeks to attain a high level of total return as may be consistent
with the preservation of capital by investing primarily in high-quality fixed
income securities from bond markets worldwide, denominated in both U.S.
dollars and foreign currencies, with an average U.S. dollar-weighted
duration of less than eight years and by actively utilizing currency hedging
techniques. (Page 18)
International Fixed Income Portfolio ("International") seeks to
attain a high level of total return as may be consistent with the preservation
of capital by investing primarily in high-quality fixed income securities
from bond markets worldwide, denominated in foreign currencies, with an
average U.S. dollar-weighted duration of less than eight years. (Page 18)
International Fixed Income-Hedged Portfolio ("International-
Hedged") seeks to attain a high level of total return as may be consistent
with the preservation of capital by investing primarily in high-quality fixed
income securities from bond markets worldwide, denominated in foreign
currencies, with an average U.S. dollar-weighted duration of less than eight
years and by actively utilizing currency hedging techniques. (Page 18)
Each of Worldwide Short-Term, Worldwide and International Portfolios
may hedge all or any part of its assets against foreign currency risk and may
engage in foreign currency transactions to enhance total return. However,
each of Worldwide-Hedged and International-Hedged will, as a
fundamental policy, seek to hedge at least 65% of its foreign currency-
denominated assets against foreign currency risks to the fullest extent
feasible, and will not engage in foreign currency transactions to enhance
total return.
INVESTMENT ADVISER AND SUB-ADVISER
Fischer Francis Trees & Watts, Inc. serves as Investment Adviser to the
Fund. The Investment Adviser, organized in 1972, is a registered
investment adviser that currently manages approximately $20 billion in
assets entirely in portfolios of debt securities for 65 major institutional
clients including banks, central banks, pension funds and other institutional
clients. The average size of a client relationship with the Investment
Adviser is in excess of $250 million. Fischer Francis Trees & Watts (the
Sub-Adviser), a corporate partnership organized in 1989 under the laws
of the United Kingdom and an affiliate of the Investment Adviser, serves as
Sub-Adviser to the Global and International Portfolios. The Sub-Adviser is
also a registered investment adviser that currently manages in excess of $4
billion in multi-currency fixed income portfolios for institutional clients.
(Page 31)
ADMINISTRATOR AND DISTRIBUTOR
AMT Capital Services, Inc. serves as administrator to the Fund,
supervising the general day-to-day business activities and operations of the
Fund other than investment advisory activities. (Page 32) AMT Capital
also serves as the exclusive distributor of shares of each of the Fund's
Portfolios. (Page 27)
HOW TO INVEST
Shares of each Portfolio, other than Mortgage Total Return, may be
purchased at the net asset value of the Portfolio next determined after
receipt of the order, and shares of the Mortgage Total Return Portfolio may
be purchased at the net asset value determined on the last Business Day of
the month, by submitting a completed Account Application to AMT
Capital and wiring federal funds to AMT Capital's "Fund Purchase
Account" at Investors Bank & Trust Company in Boston, Massachusetts
(the "Transfer Agent"). The minimum initial investment in each Portfolio
is $100,000, which may be waived at the discretion of the Investment
Adviser or Distributor. There is no minimum amount for subsequent
investments. There are no sales commissions (loads) or 12b-1 fees. (Page
27)
HOW TO REDEEM SHARES
Shares of each Portfolio may be redeemed, without a transaction charge, at
the net asset value of such Portfolio next determined after receipt by the
Transfer Agent of the redemption request. (Page 28)
RISKS
Prospective investors should consider various risks associated with the
Portfolios prior to investing in any Portfolio, including: (1) each Portfolio
may be influenced by changes in interest rates which generally have an
inverse relationship with corresponding market values (Page 25); (2) each
Portfolio may, but generally each of the Global and International Portfolios
will, invest a significant portion of its assets in securities denominated in
foreign currencies which carry the risk of fluctuations of exchange rates to
the U.S. dollar (Page 25); (3) each Portfolio may invest in mortgage- and
other asset-backed securities that carry the risk of a faster or slower than
expected prepayment of principal which may affect the duration and return
of the security (Page 25); (4) each Portfolio may invest a portion of its
assets in derivatives including futures and options which entail certain
costs and risks, including imperfect correlation between the value of the
securities held by the Portfolio and the value of the particular derivative
instrument, and the risk that a portfolio could not close out a futures or
options position when it would be most advantageous to do so (Page 26);
(5) the Mortgage Total Return Portfolio may make short sales, the
potential loss from which is unlimited unless accompanied by the
purchase of an option; (Page 26) (6) each Portfolio, other than U.S.
Short-Term, is "non-diversified" under the Investment Company Act of
1940, which may entail a greater exposure to credit and market risks than a
diversified portfolio (Page 26); and (7) U.S. Short-Term may, as a result of
the "full payout method", reduce the number of shares held by a shareholder
in order to maintain a stable net asset value per share. (Page 29)
FUND EXPENSES
The following table illustrates the expenses and fees that a
shareholder of the Fund can expect to incur. The purpose of this table is to
assist the investor in understanding the various expenses that an investor in
the Fund will bear directly or indirectly.
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES
(after expense reimbursements, shown as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C> <C> <C>
Advisory 12b-1 Administratio Other Total
Fees Fees (1) Fees (2) Expenses Expenses
U.S. Portfolios
U.S. Short-Term Fixed Income Portfolio 0.30% None 0.07% 0.03% 0.40% (3)
Stable Return Portfolio 0.35% None 0.07% 0.08% 0.50% (4)
U.S. Treasury Portfolio 0.35% None 0.07% 0.08% (6) 0.50% (4)
Mortgage Total Return Portfolio 0.30% None 0.07% 0.08% (6) 0.45% (4)
Broad Market Fixed Income Portfolio 0.35% None 0.07% 0.08% (6) 0.50% (4)
Global and International Portfolios
Worldwide Short-Term Fixed Income Portfo 0.35% None 0.07% 0.08% 0.50% (4)
Worldwide Fixed Income Portfolio 0.40% None 0.07% 0.13% 0.60% (5)
Worldwide Fixed Income-Hedged Portfolio 0.40% None 0.07% 0.13% 0.60% (5)
International Fixed Income Portfolio 0.40% None 0.07% 0.13% (6) 0.60% (4)
International Fixed Income-Hedged Portf 0.40% None 0.07% 0.13% (6) 0.60% (4)
</TABLE>
(1) Pursuant to a Distribution Agreement dated as of February 1, 1995,
between the Fund and AMT Capital, AMT Capital provides distribution
services at no cost to the Fund. See "Distribution of Fund Shares".
(2) The Administration Agreement dated as of February 1, 1995, between
AMT Capital and the Fund, pursuant to which AMT Capital provides
administrative services to the Fund, includes an incentive fee,
capped at 0.02% of the average daily net assets of a Portfolio, for
reducing the expense ratio for one or more Portfolios. See
"Management of the Fund - Administrator". The incentive fee is not
included in the figures set forth above.
(3) By agreement with the Investment Adviser, total operating expenses
(exclusive of interest expense) are capped at 0.40% (on an annualized
basis) of the average daily net assets of U.S. Short-Term. All
operating expenses in excess of the cap will be paid by the
Investment Adviser. The Investment Adviser will not attempt to
recover prior period reimbursements in the event that expenses fall
below the cap. Without such cap, the total operating expenses
xcluding interest expense (on an annualized basis) for the fiscal
year ending December 31, 1995 is estimated to be 0.49% of U.S. Short-
Term's average daily net assets.
(4) The Investment Adviser has voluntarily agreed to cap the total
operating expenses (exclusive of interest expense) at 0.50% (on
an annualized basis) of each of Stable Return's, U.S. Treasury's,
Broad Market's, and Worldwide Short-Term's average daily net assets,
at 0.45% (on an annualized basis) of Mortgage Total Return's average
daily net assets, and at 0.60% (on an annualized basis) of each of
International's and International-Hedged's average daily net assets.
Without such caps, the total operating expenses excluding interest
expense (on an annualized basis) for Stable Return and Worldwide
Short-Term for the fiscal year ending December 31, 1995 are estimated
to be 1.02% and 0.61%, respectively, of their average daily net
assets.
(5) By agreement with the Investment Adviser, total operating expenses
(exclusive of interest expense) are capped at 0.60% (on an annualized
basis) of the average daily net assets of each of Worldwide and
Worldwide-Hedged. All operating expenses in excess of the cap will be
paid by the Investment Adviser. The Investment Adviser will not
attempt to recover prior period reimbursements in the event that
expenses fall below the cap. Without such cap, the total operating
expenses excluding interest expense (on an annualized basis) for
Worldwide and Worldwide-Hedged for the fiscal year ending December
31, 1995 are estimated to be 0.88% and 1.48%, respectively, of their
average daily net assets.
(6) Other Expenses are based on estimated expenses for the current fiscal
year.
The following table illustrates the expenses that an investor would
pay on each $1,000 increment of its investment over various time periods,
assuming a 5% annual return. As noted in the table above, the Fund charges
no redemption fees of any kind.
EXPENSES PER $1,000 INVESTMENT
1 Year 3 Years 5 Years 10 Years
U.S. Portfolios
U.S. Short-Term Fixed Income $4 $13 $22 $51
Stable Return $5 $16 $28 $63
U.S. Treasury $5 $16
Mortgage Total Return $5 $14
Broad Market Fixed Income $5 $16
Global and International Portfolios
Worldwide Short-Term Fixed
Income $5 $16 $28 $63
Worldwide Fixed Income $6 $19 $33 $75
Worldwide Fixed Income-Hedged $6 $19 $33 $75
International Fixed Income $6 $19
International Fixed Income-
Hedged $6 $19
These examples should not be considered a representation of
future expenses or performance. Actual operating expenses and annual returns
may be greater or lesser than those shown.
In no case will the expenses charged to U.S. Short-Term exceed
0.40% of its average daily net assets for any fiscal year without the consent of
the holders of a majority of the outstanding shares of such Portfolio. Expenses
to either Worldwide or Worldwide-Hedged will not exceed 0.60% of such
Portfolio's average daily net assets for any fiscal year without the consent
of the holders of a majority of the outstanding shares of Worldwide or
Worldwide-Hedged, as the case may be.
At the discretion of and until further notice from the Investment
Adviser, expenses to Stable Return, U.S. Treasury, Broad Market and Worldwide
Short-Term will not exceed 0.50% of each such Portfolio's net assets for any
fiscal year, expenses to Mortgage Total Return will not exceed 0.45% of the
Portfolio's net assets for any fiscal year, and expenses to International and
International-Hedged will not exceed 0.60% of each such Portfolio's net assets
for any fiscal year.
The Portfolio's active management approaches could lead to
higher portfolio transaction expenses as a result of a higher volume of such
transactions. These transaction expenses are not fully reflected in the
expenses subject to the cap described above. See "Investment Techniques -
Portfolio Turnover". The Investment Adviser, at its discretion, may waive any
portion of the advisory fees in any Portfolio.
FINANCIAL HIGHLIGHTS
The financial information in the following tables for the periods
ended December 31, 1994 has been audited in conjunction with the audit of the
financial statements of the Fund by Ernst & Young LLP, independent auditors. The
audited financial statements for the periods ended December 31, 1994 are
incorporated by reference in the Statement of Additional Information. The
financial information in the following tables for the periods ended June 30,
1995 has not been audited. The unaudited financial statements for the periods
ended June 30, 1995 are incorporated by reference in the Statement of Additional
Information. The financial information should be read in conjunction with the
financial statements which can be obtained upon request.
<TABLE>
FINANCIAL HIGHLIGHTS (Unaudited)
U.S. Portfolios
U.S. Short-Term Fixed Income Portfolio
<S> <C> <C> <C>
Six Months Year Ended Year Ended
Ended 6/30/95 12/31/94 12/31/93
Per Share Data
Net asset value, beginning of period $ 9.889 $ 9.976 $ 10.000
Increases (Decreases) From Operations
Investment income, net 0.289 0.443 0.321
Net realized and unrealized (loss)
on investments, and options
and financial futures contracts 0.001(d) -0.078 -0.03
Total from operations 0.29 0.365 0.291
Less Distributions
From investment income, net 0.289 0.449 0.315
In excess of investment income, net 0.000 0.003 -
From net realized and unrealized gain
on investments, and options and
financial futures contracts - - -
Total distributions 0.289 0.452 0.315
Net asset value, end of period $ 9.890 $ 9.889 $ 9.976
Total Return 2.95%(c) 3.71% 2.88%
Ratios/Supplemental Data
Net assets, end of period $ 322,313,944 $ 290,694,868 $417,727,821
Ratio of operating expenses
to average net assets (a) 0.40%(b) 0.40% 0.40%
Ratio of interest expense
to average net assets 0.02%(b) 0.03% 0.08%
Ratio of investment income,
net to average net assets 5.88%(b) 4.14% 3.28%
Decrease in above ratios
due to waiver of investment
advisory fees 0.09%(b) 0.08% 0.03%
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
U.S. Short-Term Fixed Income Portfolio
Year Ended 12/31/92 Three Months Year Ended Period From
Ended 12/31/91 9/30/91 12/6/89* to 9/30/90
Per Share Data
Net asset value, beginning of period $ 10.000 $ 10.000 $ 10.000 $ 10.000
Increases (Decreases) From Operations
Investment income, net 0.337 0.119 0.627 0.621
Net realized and unrealized gain
(loss) on investments, and options
and financial futures contracts 0.008 0.023 0.057 0.037
Total from operations 0.345 0.142 0.684 0.658
Less Distributions
From investment income, net 0.337 0.119 0.627 0.621
In excess of investment income, net - - - -
From net realized and unrealized gain
on investments, and options and
financial futures contracts 0.008 0.023 0.057 0.037
Total distributions 0.345 0.142 0.684 0.658
Net asset value, end of period $ 10.000 $ 10.000 $ 10.000 $ 10.000
Total Return 3.45% 1.43% 7.11% 6.81%(c)
Ratios/Supplemental Data
Net assets, end of period $ 682,513,193 $ 365,310,697 $ 269,114,721 $ 111,956,929
Ratio of operating expenses
to average net assets (a) 0.40% 0.40%(b) 0.40% 0.50%(b)
Ratio of interest expense
to average net assets 0.03% - 0.03% -
Ratio of investment income,
net to average net assets 3.37% 4.67%(b) 5.99% 8.23%(b)
Decrease in above ratios
due to waiver of investment
advisory fees and reimburse-
ment of other expenses - 0.03%(b) 0.11% 0.86%(b)
</TABLE>
<TABLE>
Stable Return Portfolio
<S> <C> <C> <C>
Six Months Year Ended Period From
Ended 6/30/95 12/31/94 7/26/93* to 12/31/93
Per Share Data
Net asset value, beginning of period $ 9.546 $ 9.947 $ 10.000
Increases (Decreases) From Operations
Investment income, net 0.312 0.428 0.138
Net realized and unrealized gain
(loss) on investments and
financial futures contracts 0.351 -0.401 0.043
Total from operations 0.663 0.027 0.181
Less Distributions
From investment income, net 0.312 0.428 0.138
From net realized gain on investments and
financial futures contracts - - 0.031
In excess of net realized and unrealized
gains on investments and financial futures
contracts - - 0.065
Total distributions 0.312 0.428 0.234
Net asset value, end of period $ 9.897 $ 9.546 $ 9.947
Total Return 7.03%(c) 0.29% 1.86%(c)
Ratios/Supplemental Data
Net assets, end of period $ 4,794,326 $ 4,338,339 $ 3,482,439
Ratio of operating expenses
to average net assets (a) 0.50%(b) 0.50% 0.50%(b)
Ratio of interest expense
to average net assets 1.25%(b) 1.24% -
Ratio of investment income,
net to average net assets 6.47%(b) 4.43% 3.68%(b)
Decrease in above ratios
due to waiver of investment
advisory fees and reimburse-
ment of other expenses 0.52%(b) 0.57% 1.46%(b)
Portfolio turnover 588%(c) 343% 1841%(c)
</TABLE>
<TABLE>
Worldwide Short-Term Fixed Income Portfolio
Six Months Year Ended Period From
Ended 6/30/95 12/31/94 12/13/93* to 12/31/93
<S> <C> <C> <C>
Per Share Data
Net asset value, beginning of period $ 9.924 $ 10.013 $ 10.000
Increases (Decreases) From Operations
Investment income, net 0.314 0.328 0.012
Net realized and unrealized gain (loss) on
investments, options and financial future contracts,
and foreign currency-related transactions (0.207) (0.089) 0.013
Total from operations 0.107 0.239 0.025
Less Distributions
From investment income, net 0.313 0.254 0.012
In excess of investment income, net - 0.000 -
From capital stock in excess of par value - 0.074 -
Total distributions 0.313 0.328 0.012
Net asset value, end of period $ 9.718 $ 9.924 $ 10.013
Total Return 1.16%(c) 2.72% 0.22%(c)
Ratios/Supplemental Data
Net assets, end of period $ 37,376,407 $ 79,761,931 $ 6,014,986
Ratio of operating expenses
to average net assets (a) 0.50%(b) 0.50% 0.50%(b)
Ratio of investment income,
net to average net assets 6.57%(b) 4.17% 2.43%(b)
Decrease in above ratios due to waiver of
investment advisory fees and reimburse-
ment of other expenses 0.11%(b) 0.09% 0.76%(b)
</TABLE>
<TABLE>
Worldwide Fixed Income Portfolio
Six Months Year Ended Year Ended Period From
Ended 6/30/95 12/31/94 12/31/93 4/15/92* to 12/31/92
<S> <C> <C> <C> <C>
Per Share Data
Net asset value, beginning of period $ 9.267 $ 10.023 $ 9.976 $ 10.000
Increases (Decreases) From Operations
Investment income, net 0.290 0.503 0.454 0.387
Net realized and unrealized gain (loss) on
investments, options and financial future contracts,
and foreign currency-related transactions 0.419 -0.737 1.042 0.530
Total from operations 0.709 -0.234 1.496 0.917
Less Distributions
From investment income, net 0.288 0.225 0.453 0.387
In excess of investment income, net - 0.008 - -
From capital stock in excess of par value - 0.289 - -
From net realized gain on investments,
options and financial futures contracts,
and foreign currency-related transactions - - 0.866 0.554
In excess of net realized gain on investments,
options and financial futures contracts, and
foreign currency-related transactions - - 0.130 0.000
Total distributions 0.288 0.522 1.449 0.941
Net asset value, end of period $ 9.688 $ 9.267 $ 10.023 $ 9.976
Total Return 7.74%(C) (2.25)% 15.86% 9.62%(c)
Ratios/Supplemental Data
Net assets, end of period $ 34,879,340 $ 53,721,481 $ 217,163,036 $ 82,757,009
Ratio of operating expenses
to average net assets (a) 0.60%(b) 0.006 0.0059 0.006(b)
Ratio of interest expense to average net assets - 0.03% 0.27% 0.19%(b)
Ratio of investment income,
net to average net assets 6.28%(b) 5.11% 4.48% 5.39%(b)
Decrease in above ratios due to waiver of
investment advisory fees and reimbursement
of other expenses 0.28%(b) 0.02% - 0.72%(b)
Portfolio Turnover 923%(c) 1479% 1245% 850%(c)
Worldwide Fixed Income-Hedged Portfolio
Six Months Year Ended Year Ended Period From
Ended 6/30/95 12/31/94 12/31/93 4/15/92* to 12/31/92
Per Share Data
Net asset value, beginning of period $ 10.410 $ 10.077 $ 9.848 $ 10.000
Increases From Operations
Investment income, net 0.321 0.338 0.448 0.319
Net realized and unrealized gain on
investments, options and financial future contracts,
and foreign currency-related transactions - 0.434 (c) 0.754 0.247
Total from operations 0.321 0.772 1.202 0.566
Less Distributions
From investment income, net 0.221 0.437 0.448 0.319
In excess of investment income, net - 0.002 - -
From net realized gain on investments,
options and financial futures contracts,
and foreign currency-related transactions - - 0.525 0.399
Total distributions 0.221 0.439 0.973 0.718
Net asset value, end of period $ 10.510 $ 10.410 $ 10.077 $ 9.848
Total Return 3.11%(e) 7.84% 12.89% 5.88%(e)
Ratios/Supplemental Data
Net assets, end of period $ 281,215 $ 272,725 $41,137,515 $21,785,134
Ratio of operating expenses
to average net assets (a) 0.16%(b) 0.60% 0.60% 0.60%(b)
Ratio of interest expense to average net assets - 0.05% 0.26% 0.23%(b)
Ratio of investment income,
net to average net assets 5.81%(b) 4.72% 4.49% 5.13%(b)
Decrease in above ratios due to waiver of
investment advisory fees and reimburse-
ment of other expenses 1,344.28%(b) 0.17% 0.09% 1.01%(b)
Portfolio Turnover 0% 1622% 1254% 826%(e)
<FN>
(a) Net of waivers and reimbursements, exclusive of interest.
(b) Annualized
(c) Includes the effect of net realized losses prior to significant decreases in shares outstanding.
(d) In addition to net realized and unrealized (loss) on investments, this amount includes an
increase in net asset value per share resulting from the timing and issuances or redemption of
shares in relation to fluctuating market values for the portfolio.
(e) Not annualized
* Commencement of Operations
See Notes To Financial Statements
</FN>
</TABLE>
THE FUND
The Fund is a no-load, open-end management investment
company organized as a Maryland corporation. The Fund currently consists of ten
Portfolios of high-quality debt securities, each with its own investment
objectives and policies: (1) U.S. Portfolios - U.S. Short-Term Fixed Income,
Stable Return, U.S. Treasury, Mortgage Total Return and Broad Market Fixed
Income; and (2) Global and International Portfolios - Worldwide Short-Term
Fixed Income, Worldwide Fixed Income, Worldwide Fixed Income-Hedged,
International Fixed Income and International Fixed Income-Hedged.
INVESTMENT OBJECTIVES AND POLICIES
Each Portfolio seeks a high or stable level of total return as may
be consistent with the preservation of capital. The total return sought by
each Portfolio will consist of current income, capital appreciation, or a
combination of capital appreciation and current income, depending on whether
the Investment Adviser believes that current and anticipated levels of interest
rates, exchange rates and other factors affecting domestic and foreign
investments generally favor emphasizing one element or another in seeking
maximum total return. There can be no assurance that the investment objectives
of any Portfolio will be achieved.
Each Portfolio, other than U.S. Treasury, will invest only in debt
securities that are rated "A" or better by Standard & Poor's Corporation ("S&P")
or A or better by Moody's Investors Services, Inc. ("Moody's") or "B" or better
by Thomson Bankwatch in the case of bank obligations, or "A-1" by S&P or "Prime-
1" by Moody's in the case of commercial paper, or similarly rated by IBCA Ltd.
("IBCA") in the case of foreign bank obligations, or determined by the
Investment Adviser (or the Sub-Adviser to the Global and International
Portfolios) to be of similar creditworthiness. Each Portfolio, other than U.S.
Treasury, will invest at least 65% of its assets in debt securities rated "AA"
or better as rated by S&P, "Aa" or better as rated by Moody's, "B" or better as
rated by Thomson Bankwatch in the case of bank obligations, or "A-1" by S&P or
"P-1" by Moody's in the case of commercial paper, or similarly rated by IBCA in
the case of foreign bank obligations, or determined by the Investment Adviser
(or the Sub-Adviser to the Global and International Portfolios) to be of similar
creditworthiness.
U.S. Treasury will invest only in debt securities that are rated
AAA by S&P or "Aaa" by Moody's or "A" by Thomson Bankwatch in the case of
bank obligations, or "A-1" by S&P or "Prime-1" by Moody's in the case of
commercial paper, or determined by the Investment Adviser to be of similar
creditworthiness.
Each Portfolio seeks to achieve its investment objective by
investing in debt securities of varying durations. Duration incorporates a
bond's yield, coupon interest payments, final maturity and call features into
one measure. Duration is a measure of the expected life of a debt security
on a present value basis. It takes the length of the time intervals between
the present time and the time that the interest and principal payments are
scheduled or, in the case of a callable bond, expected to be received, and
weights them by the present values of the cash to be received at each future
point in time. For any debt security with interest payments occurring prior
to the payment of principal, duration is always less than maturity. In
general, for the same maturity, the lower the stated or coupon rate of interest
of a debt security, the longer the duration of the security; conversely, the
higher the stated or coupon rate of interest of a debt security, the shorter
the duration of the security.
Futures, options and options on futures have durations which, in
general, are closely related to the duration of the securities that underlie
them. Holding long futures or call options (backed by a segregated account of
cash and cash equivalents) will lengthen a Portfolio's duration by approximately
the same amount that holding an equivalent amount of the underlying securities
would. Short futures or put option positions have durations roughly equal to
the negative duration of the securities that underlie those positions, and have
the effect of reducing portfolio duration by approximately the same amount that
selling an equivalent amount of the underlying securities would.
The Investment Adviser or Sub-Adviser may exceed the stated
duration cap of a Portfolio for temporary defensive purposes.
U.S. PORTFOLIOS
Each of the U.S. Portfolios will invest at least 65% of its assets in
U.S. dollar-denominated debt securities. Each of the U.S. Portfolios, other
than U.S. Treasury, may invest up to 35% of its assets in foreign currency-
denominated (non-U.S. dollar) debt securities, although it is not currently
expected that any of the U.S. Portfolios will invest more than a minor portion
of their assets in such securities.
U.S. SHORT-TERM FIXED INCOME PORTFOLIO
The investment objective of U.S. Short-Term is to attain a high
level of total return as may be consistent with the preservation of capital and
to maintain liquidity by investing primarily in high-quality fixed income
securities with an average U.S. dollar-weighted duration of less than one year.
U.S. Short-Term seeks to attain its objectives by investing in: debt
securities of U.S. and foreign issuers, including securities issued or
guaranteed by the U.S. Government and its agencies or instrumentalities;
municipal obligations; obligations issued or guaranteed by a foreign government
or any of its political subdivisions, authorities, agencies or instrumentalities
or by supranational organizations; obligations of domestic or foreign
corporations or other entities; obligations of domestic or foreign banks; and
mortgage- and asset-backed securities. The Portfolio may also engage in
repurchase and reverse repurchase agreements. These investments are described
below under "Description of Investments". In addition, U.S. Short-Term may
utilize up to 5% of its assets as margin and premiums to purchase and sell
options, futures and options on futures contracts. U.S. Short-Term may not
invest more than 5% of its total assets in the securities of any issuer
(other than the U.S. Government and its agencies).
U.S. Short-Term seeks to maintain a constant net asset value of
$10 per share by employing the "full payout method" of declaring dividends. See
Dividends - U.S. Short-Term Fixed Income Portfolio. Currently, this policy has
been suspended and the NAV has fallen below $10.00 per share. No assurance can
be given that U.S. Short-Term can maintain a constant net asset value of $10 per
share. Additionally, the Portfolio may have to reduce the number of shares held
by shareholders in order to maintain a constant net asset value of $10 per
share.
The shares of U.S. Short-Term are not guaranteed by the U.S.
Government. U.S. Short-Term is not a "money market fund" and may make
investments that are not permitted by money market funds under applicable
regulations. For example, U.S. Short-Term may have a dollar-weighted average
maturity in excess of ninety days. Except for temporary defensive purposes,
U.S. Short-Term will not have a dollar-weighted average maturity in excess of
three years.
STABLE RETURN PORTFOLIO
The investment objective of Stable Return is to maintain a stable
level of total return as may be consistent with the preservation of capital by
investing primarily in high-quality debt securities with an average U.S. dollar-
weighted duration of less than three years and by using interest rate hedging as
a stabilizing technique.
Stable Return seeks to attain its objective by investing in debt
securities and instruments of the same type as U.S. Short-Term. Stable Return
will generally purchase securities included in the Merrill Lynch 1-2.99 Year
Treasury Index, which has historically maintained stable returns from quarter to
quarter, relative to longer-term securities. (See "Appendix" in the Statement of
Additional Information.) The price and yield of securities in the 1 to 3 year
duration range are generally less volatile than those of securities with a
longer duration. Stable Return will seek to match the average duration of
the Index but cannot guarantee that it will do so. At no time will the average
duration of the Portfolio be more than one year in excess of the average
duration of the Index.
Stable Return is suitable as an investment option for defined
contribution and retirement plans. Stable Return will be managed by the
Investment Adviser in a manner designed to produce returns similar to those
of a guaranteed investment contract ("GIC"). However, unlike a GIC, Stable
Return is not guaranteed by an insurer.
U.S. TREASURY PORTFOLIO
The investment objective of U.S. Treasury is to attain a high level
of total return as may be consistent with the preservation of capital and to
avoid credit quality risk by investing primarily in securities issued by the
U.S. Treasury with an average U.S. dollar-weighted duration of less than five
years which will provide investors in most jurisdictions with income exempt from
state and local tax. (Check with a tax adviser to determine if your state and
local tax laws exempt income derived from U.S. Treasury mutual fund portfolios.)
U.S. Treasury seeks to attain its objective by investing at least
95% of its assets in U.S. dollar-denominated obligations issued by the U.S.
Treasury, and repurchase and reverse repurchase agreements collateralized by
such obligations. U.S. Treasury may invest up to 5% of its assets in U.S.
dollar- or foreign currency-denominated debt securities and instruments of
the same type as U.S. Short-Term.
MORTGAGE TOTAL RETURN PORTFOLIO
The investment objective of Mortgage Total Return is to attain a
high level of total return as may be consistent with the preservation of capital
by investing primarily in mortgage-related securities, maintaining an average
U.S. dollar-weighted duration in the range of two to six years.
Mortgage Total Return seeks to attain its objective by investing at
least 65% of its assets in mortgage-related debt obligations of U.S. and foreign
issuers. Mortgage Total Return may also invest up to 35% of its assets in debt
securities and instruments of the same type as U.S. Short-Term. The Portfolio
may, for temporary defensive purposes, invest up to 100% of its assets in short-
term U.S. Government securities and money market instruments.
BROAD MARKET FIXED INCOME PORTFOLIO
The investment objective of Broad Market is to attain a high level
of total return as may be consistent with the preservation of capital by
investing primarily in high-quality fixed income securities reflective of the
broad spectrum of the U.S. bond market with an average U.S. dollar-weighted
duration of less than eight years.
Broad Market seeks to attain its objective by investing in debt
securities and instruments of the same type as U.S. Short-Term. The broad
market of fixed income securities includes all investment grade fixed income
securities in the corporate, U.S. Government and mortgage- and asset-backed
markets with durations of greater than one year. The allocation among markets
will vary based upon the issuance of new securities and the retirement of
outstanding securities. The current market allocation is comprised of
approximately 20% in corporate securities, 50% in U.S. Government securities
and 30% in mortgage- and asset-backed securities. The Investment Adviser will
manage Broad Market to approximate broad market allocations by purchasing and
selling representative securities in each market, but Broad Market cannot
guarantee that it will match such broad market allocations. The Portfolio may,
for temporary defensive purposes, invest up to 100% of its assets in short-term
U.S. Government securities and money market instruments.
GLOBAL AND INTERNATIONAL PORTFOLIOS
Each of the Worldwide Portfolios will invest at least 65% of its
assets in debt securities of issuers from at least three different countries,
including the United States, with a significant portion of its assets in debt
securities of issuers located outside the United States. Each of the
International Portfolios will invest at least 65% of its assets in debt
securities of issuers from at least three different countries, excluding the
United States. Each of the Portfolios may, for temporary defensive purposes,
invest up to 100% of its assets in short-term U.S. Government securities and
money market instruments.
WORLDWIDE SHORT-TERM FIXED INCOME PORTFOLIO
The investment objective of Worldwide Short-Term is to attain a
high level of total return as may be consistent with the preservation of capital
by investing primarily in high-quality fixed income securities from bond markets
worldwide, denominated in both U.S. dollars and foreign currencies, with an
average U.S. dollar-weighted duration of less than three years.
Worldwide Short-Term seeks to attain its objective by investing
in: debt securities of U.S. and foreign issuers, including securities issued or
guaranteed by the U.S. Government and its agencies or instrumentalities;
municipal obligations; obligations issued or guaranteed by a foreign government,
or any of its political subdivisions, authorities, agencies or instrumentalities
or by supranational organizations; obligations of domestic or foreign
corporations or other entities; obligations of domestic or foreign banks; and
mortgage- and asset-backed securities. The Portfolio may also engage in
repurchase and reverse repurchase agreements. Each of these investments are
described below under "Descriptions of Investments". In addition, Worldwide
Short-Term may utilize up to 5% of its assets as margin and premiums to
purchase and sell options, futures and options on futures contracts.
At the Investment Adviser's or Sub-Adviser's discretion,
Worldwide Short-Term may at times seek to hedge all or part of its foreign
currency-denominated assets against foreign currency risks. Worldwide Short-
Term may also enter into transactions in foreign currencies and related
instruments, based on predictions of changes in the exchange rates between
foreign currencies, in an effort to enhance total return. Except for temporary
defensive purposes, Worldwide Short-Term will not have a dollar-weighted average
maturity in excess of three years.
WORLDWIDE FIXED INCOME PORTFOLIO
The investment objective of Worldwide is to attain a high level of
total return as may be consistent with the preservation of capital by investing
primarily in high-quality fixed income securities from bond markets worldwide,
denominated in both U.S. dollars and foreign currencies, with an average U.S.
dollar-weighted duration of less than eight years.
Worldwide seeks to attain its objective by investing in debt
securities and instruments of the same type as Worldwide Short-Term, but
generally of a longer average U.S. dollar-weighted duration. The Adviser or
Sub-Adviser intends to actively manage the Portfolio and the allocations of
the Portfolio's investment assets among various world bond markets (and
currencies) are not expected to be comparable to, or as diverse as, the
allocations accorded to such markets (and currencies) by the major bond
market indices. The Portfolio will maintain investments in debt securities
of issuers from at least three different countries, including the United States.
At the Investment Adviser's or Sub-Adviser's discretion,
Worldwide may at times seek to hedge all or part of its foreign currency-
denominated assets against foreign currency risks. Worldwide may also enter
into transactions in foreign currencies and related instruments, based on
predictions of changes in the exchange rates between foreign currencies, in
an effort to enhance total return.
WORLDWIDE FIXED INCOME-HEDGED PORTFOLIO
The investment objective of Worldwide-Hedged is to attain a high
level of total return as may be consistent with the preservation of capital by
investing primarily in high-quality fixed income securities from bond markets
worldwide, denominated in both U.S. dollars and foreign currencies, with an
average U.S. dollar-weighted duration of less than eight years and by actively
utilizing currency hedging techniques.
Worldwide-Hedged seeks to attain its objective by investing in
debt securities and instruments of the same type as Worldwide. The Adviser or
Sub-Adviser intends to actively manage the Portfolio and the allocations of the
Portfolio's investment assets among various world bond markets are not expected
to be comparable to, or as diverse as, the allocations accorded to such markets
by the major bond market indices. The Portfolio will maintain investments in
debt securities of issuers from at least three different countries, including
the United States.
While currency hedging decisions for Worldwide Short-Term,
Worldwide and International are at the discretion of the Investment Adviser or
Sub-Adviser, Worldwide-Hedged, as a fundamental policy of the Portfolio, which
may only be changed by a vote of shareholders, will attempt to hedge at least
65% of its foreign currency-denominated assets against foreign currency risks
to the fullest extent feasible. Worldwide-Hedged may not enter into
transactions in foreign currencies and related instruments for non-hedging
purposes.
INTERNATIONAL FIXED INCOME PORTFOLIO
The investment objective of International is to attain a high level
of total return as may be consistent with the preservation of capital by
investing primarily in high-quality fixed income securities from bond markets
worldwide, denominated in foreign currencies, with an average U.S. dollar-
weighted duration of less than eight years.
International will seek to attain its objective by investing at least
65% of its assets in foreign currency-denominated debt securities and
instruments of the same type as Worldwide. Up to 35% of the balance of its
assets may be invested in U.S. dollar-denominated securities of the same type.
At the Investment Adviser's or Sub-Adviser's discretion,
International may at times seek to hedge all or part of its foreign currency-
denominated assets against foreign currency risks. International may also enter
into transactions in foreign currencies and related instruments, based on
predictions of changes in the exchange rates between foreign currencies, in
an effort to enhance total return.
INTERNATIONAL FIXED INCOME-HEDGED PORTFOLIO
The investment objective of International-Hedged is to attain a
high level of total return as may be consistent with the preservation of capital
by investing primarily in high-quality fixed income securities from bond markets
worldwide, denominated in foreign currencies, with an average U.S. dollar-
weighted duration of less than eight years and by actively utilizing currency
hedging techniques.
International-Hedged seeks to attain its objective by investing at
least 65% of its assets in foreign currency-denominated debt securities and
instruments of the same type as Worldwide. Up to 35% of the balance of its
assets may be invested in U.S. dollar-denominated securities of the same type.
While currency hedging decisions for Worldwide Short-Term,
Worldwide and International are at the discretion of the Investment Adviser or
Sub-Adviser, International-Hedged, as a fundamental policy of the Portfolio,
which may only be changed by a vote of shareholders, will attempt to hedge at
least 65% of its foreign currency-denominated assets against foreign currency
risks to the fullest extent feasible. International-Hedged may not enter into
transactions in foreign currencies and related instruments for non-hedging
purposes.
DESCRIPTION OF INVESTMENTS
The following briefly describes some of the different types of
securities in which the ten Portfolios may invest, subject to each Portfolio's
investment objectives and policies. For a more extensive description of these
assets and the risks associated with them, see the Statement of Additional
Information.
U.S. Treasury and other U.S. Government and Government Agency
Securities. Each Portfolio may purchase securities issued by or guaranteed as
to principal and interest by the U.S. Government, its agencies or
instrumentalities and supported by the full faith and credit of the United
States ("U.S. Government Securities"). Each Portfolio may also purchase
securities issued by a U.S. Government-sponsored enterprise or federal agency
that is supported either by its ability to borrow from the U.S. Treasury (e.g.,
Student Loan Marketing Association) or by its own credit standing (e.g., Federal
National Mortgage Association). Such securities do not constitute direct
obligations of the United States but are issued, in general, under the
authority of an Act of Congress.
Foreign Government and International and Supranational Agency
Securities. Each Portfolio may purchase debt obligations issued or guaranteed
by foreign governments or their subdivisions, agencies and instrumentalities,
and debt obligations issued or guaranteed by international agencies and
supranational entities.
Bank Obligations. Each Portfolio may invest in obligations of
domestic and foreign banks, including time deposits, certificates of deposit,
bankers' acceptances, bank notes, deposit notes, Eurodollar time deposits,
Eurodollar certificates of deposit, variable rate notes, loan participations,
variable amount master demand notes and custodial receipts ("Bank Obligations").
Each Portfolio may, from time to time, concentrate more than 25% of its assets
in such Bank Obligations.
Corporate Debt Instruments. Each Portfolio may purchase
commercial paper, notes and other obligations of U.S. and foreign corporate
issuers meeting the Portfolio's credit quality standards (including medium-term
and variable rate notes).
Repurchase and Reverse Repurchase Agreements. Each Portfolio
may enter into repurchase agreements under which a bank or securities firm
(that is a dealer in U.S. Government Securities reporting to the Federal
Reserve Bank of New York) agrees, upon entering into the contract, to sell U.S.
Government Securities to a Portfolio and repurchase such securities from the
Portfolio at a mutually agreed-upon price and date. Each Portfolio may enter
into reverse repurchase agreements under which a primary or reporting dealer
in U.S. Government Securities purchases U.S. Government Securities from a
Portfolio and the Portfolio agrees to repurchase the securities at an agreed-
upon price and date.
For each reverse repurchase agreement, the Fund will maintain for
a Portfolio a segregated custodial account containing cash, U.S. Government
Securities or other appropriate high-grade debt securities having an aggregate
value at least equal to the amount of such commitments to repurchase, including
accrued interest, until payment is made. Repurchase and reverse repurchase
agreements will generally be restricted to those that mature within seven days.
The Portfolios will engage in such transactions with parties selected on the
basis of such party's creditworthiness. U.S. Short-Term, Worldwide, and
Worldwide-Hedged may not enter into a repurchase agreement or reverse
repurchase agreement if, as a result thereof, more than 25% of each such
Portfolio's assets would be subject to repurchase agreements or reverse
repurchase agreements.
Dollar Roll Transactions. Each Portfolio may enter into dollar roll
transactions with selected banks and broker-dealers. Dollar roll transactions
are treated as reverse repurchase agreements for purposes of a Portfolio's
borrowing restrictions and consist of the sale by the Portfolio of mortgage-
backed securities, together with a commitment to purchase similar, but not
identical, securities at a future date, at the same price. In addition, the
Portfolio is paid a fee as consideration for entering into the commitment to
purchase. Dollar rolls may be renewed after cash settlement and initially
involve only a firm commitment agreement by the Portfolio to buy a security.
Mortgage-Backed Securities. Each Portfolio may and Mortgage
Total Return Portfolio primarily will purchase securities that are secured or
backed by mortgages or other mortgage-related assets. Mortgage-backed
securities are securities which represent ownership interests in, or are debt
obligations secured entirely or primarily by, "pools" of residential or
commercial mortgage loans or other mortgage-backed securities (the "Underlying
Assets"). Such securities may be issued by such entities as the Government
National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC"),
commercial banks, savings and loan associations, mortgage banks or by issuers
that are affiliates of or sponsored by such entities.
Mortgage-backed securities may take a variety of forms, but the
two most common are mortgage pass-through securities, which represent ownership
interests in the Underlying Assets, and collateralized mortgage obligations
("CMOs"), which are debt obligations collateralized by the Underlying Assets.
Mortgage-backed securities are often backed by a pool of
Underlying Assets representing the obligations of a number of different parties.
To lessen the effect of failures by obligors on Underlying Assets to make
payments, such securities may contain elements of credit support. Such credit
support falls into two categories: (i) liquidity protection; and (ii)
protection against losses resulting from ultimate default by an obligor on
the Underlying Assets. Liquidity protection refers to the provision of
advances, generally by the entity administering the pool of assets, to ensure
that the receipt of payments on the underlying pool occurs in a timely fashion.
Protection against losses resulting from ultimate default ensures ultimate
payment of obligations on at least a portion of the assets in the pool. Such
protection may be provided through guarantees, insurance policies or letters
of credit obtained by the issuer or sponsor from third parties, through various
means of structuring the transaction or through a combination of such
approaches. A Portfolio will not pay any additional fees for such credit
support, although the existence of credit support may increase the price of a
security.
The Investment Adviser expects that governmental, government-related
and private entities may create new types of mortgage-backed securities offering
asset pass-through and asset-collateralized investments in addition to those
described above. As such new types of mortgage-related securities are
developed and offered to investors, the Investment Adviser will, consistent with
each Portfolio's investment objectives, policies and quality standards, consider
whether it would be appropriate for such Portfolio to make investments in them.
The duration of a mortgage-backed security, for purposes of a
Portfolio's average duration restrictions, will be computed based upon the
expected average life of that security.
Other Asset-Backed Securities. Each Portfolio may also purchase
securities that are secured or backed by assets other than mortgage-related
assets, such as automobile and credit card receivables, and that are sponsored
by such institutions as finance companies, finance subsidiaries of industrial
companies and investment banks. Each Portfolio will only purchase asset-backed
securities that the Investment Adviser determines to be liquid. No Portfolio
will purchase non-mortgage, asset-backed securities that are not rated at
least "AA" by S&P or Aa by Moody's, or determined by the Investment Adviser to
be of comparable quality.
Foreign Securities. Each Portfolio may, but generally the Global
and International Portfolios will, invest in securities denominated in
currencies other than the U.S. dollar. The Investment Adviser and the Sub-
Adviser will seek to manage the Global and International Portfolios in
accordance with a global market strategy. Consistent with such a strategy,
these Portfolios may invest in debt securities denominated in any single
currency or multi-currency units. The Investment Adviser and the Sub-Adviser
will adjust the exposure of these Portfolios to different currencies based on
their perception of the most favorable markets and issuers. In allocating
assets among multiple markets, the Investment Adviser and the Sub-Adviser will
assess the relative yield and anticipated direction of interest rates in
particular markets, general market and economic conditions and the
relationship of currencies of various countries to each other. In their
evaluations, the Investment Adviser and the Sub-Adviser will use internal
financial, economic and credit analysis resources as well as information
obtained from external sources.
The Global and International Portfolios will invest
primarily in securities denominated in the currencies of the United States
(other than International and International-Hedged), Japan, Canada,
Western European nations, New Zealand and Australia, as well as
securities denominated in the European Currency Unit. Further, it is
anticipated that such securities will be issued primarily by governmental
and private entities located in such countries and by supranational entities.
No Portfolio will invest in countries that are not considered by the
Investment Adviser or the Sub-Adviser to have stable governments, based
on the Investment Adviser's and the Sub-Adviser's analysis of factors such
as general political or economic conditions relating to the government and
the likelihood of expropriation, nationalization, freezes or confiscation of
private property, or whose currencies are not convertible into U.S. dollars.
Under certain adverse conditions and for the duration of such conditions,
each Portfolio may restrict the financial markets or currencies in which its
assets are invested and it may invest its assets solely in one financial
market or in obligations denominated in one currency.
Indexed Notes, Currency Exchange-Related Securities
and Similar Securities. Each Portfolio may purchase notes, the principal
amount of which and/or the rate of interest payable on which is determined
by reference to an index, which may be (i) the rate of exchange between the
specified currency for the note and one or more other currencies or
composite currencies; (ii) the difference in the price or prices of one or more
specified commodities on specified dates; or (iii) the difference in the level
of one or more specified stock indices on specified dates. Each Portfolio
may also purchase principal exchange rate linked securities, performance-
indexed paper and foreign currency warrants. See "Supplemental
Descriptions of Investments" in the Statement of Additional Information.
Securities Denominated in Multi-National Currency
Units or More Than One Currency. Each Portfolio may invest in securities
denominated in a multi-national currency unit, such as the European
Currency Unit, which is a "basket" consisting of specified amounts of the
currencies of the member states of the European Community, a Western
European economic cooperative organization. Each Portfolio may also
invest in securities denominated in the currency of one nation although
issued by a governmental entity, corporation or financial institution of
another nation.
Municipal Instruments. Each Portfolio may, from time
to time, purchase municipal instruments when, in the Investment Adviser's
opinion, such instruments will provide a greater rate of return than taxable
instruments of comparable quality. It is not anticipated that such
instruments will ever represent a significant portion of any Portfolio's
assets.
INVESTMENT TECHNIQUES
PORTFOLIO TURNOVER
The costs associated with turnover have been and are
expected to remain low relative to equity fund turnover costs. However,
due to the Investment Adviser's and Sub-Adviser's active management
style, portfolio turnover may be higher than other mutual fund portfolios
investing primarily in debt securities. Custodial turnover charges are
usually under 1/1000 of 1% of the transaction value. Turnover costs also
include the spread between the "bid" and the "asked" price of the security
bought or sold.
U.S. Short-Term Fixed Income Portfolio. Turnover of
U.S. Short-Term's assets (excluding those having a maturity of one year or
less) is expected to be between 2,000% and 6,000% per year but may,
depending upon market conditions, be higher. This anticipated turnover
rate is believed to be higher than the turnover experienced by most short-
term funds, due to the Investment Adviser's active management of duration.
Worldwide Fixed Income and Worldwide Fixed Income-
Hedged Portfolios. Turnover of the assets of each of Worldwide and
Worldwide-Hedged (excluding those having a maturity of one year or less)
is expected to be between 500% and 1,000% per year, but may, depending
upon market conditions, be higher.
Other Portfolios. It is anticipated that the Worldwide
Short-Term will experience turnover similar to that of the U.S. Short-Term
(2,000% to 6,000%), while Stable Return, U.S. Treasury, Mortgage Total
Return, Broad Market, International and International-Hedged will
experience turnover similar to that of the Worldwide and Worldwide-
Hedged (500% to 1,000%).
HEDGING STRATEGIES
Interest Rate Hedging. In order to hedge against
changes in interest rates, each Portfolio may purchase and sell exchange-
traded or over-the-counter ("OTC") put and call options on any security in
which it is permitted to invest or on any security index or other index based
on the securities in which it may invest, and may purchase and sell (on a
covered basis) financial futures contracts for the future delivery of fixed-
income securities or contracts based on financial indices, and options on
such futures. Each Portfolio may engage in such activities from time to
time at the Investment Adviser's and Sub-Adviser's discretion, and may not
necessarily be engaging in such activities when movements in interest rates
that could affect the value of the assets of the Portfolio occur.
Foreign Currency Hedging. Each Portfolio may, but
generally the Global and International Portfolios will, enter into forward
foreign currency exchange contracts and may purchase and sell exchange
traded and OTC options on currencies, foreign currency futures contracts
and options on foreign currency futures contracts to hedge the currency
exchange risk associated with its assets or obligations denominated in
foreign currencies. A Portfolio may also engage in synthetic hedging.
Synthetic hedging entails entering into a forward contract to sell a currency
whose changes in value are generally considered to be linked to a currency
or currencies in which some or all of the Portfolio's securities are or are
expected to be denominated, and to buy U.S. dollars. (The amount of the
contract will not exceed the value of the Portfolio's holdings in linked
currencies.) There is the risk that the perceived linkage between various
currencies may not be present or may not be present during the particular
time that a Portfolio is engaging in proxy hedging. Each Portfolio may also
cross-hedge currencies by entering into forward contracts to sell one or
more currencies that are expected to decline in value relative to other
currencies to which the Portfolio has or in which the Portfolio expects to
have portfolio exposure. Except when a Portfolio enters into a forward
contract for the purchase or sale of a security denominated in a particular
currency, where a corresponding forward currency contract will require no
segregation, a currency contract which obligates a Portfolio to buy or sell
currency will generally require the Portfolio to hold an amount of that
currency or liquid securities denominated in that currency equal to the
Portfolio's obligations or to segregate cash, U.S. Government securities or
other appropriate high-grade debt obligations equal to the amount of the
Portfolio's obligations.
As a result of hedging techniques, the net exposure of
each Portfolio to any one currency may be different from that of its total
assets denominated in such currency. Each of Worldwide-Hedged and
International-Hedged intends to hedge its currency exchange risk to the
extent practicable, but there can be no assurance that all of the assets of
either Portfolio denominated in foreign currencies will be hedged at any
time, or that any such hedge will be effective. Each of Worldwide Short-
Term, Worldwide and International may at times, at the discretion of the
Investment Adviser and the Sub-Adviser, hedge all or part of its currency
exchange risk.
Worldwide Short-Term, Worldwide and International
may also decide which securities to purchase or sell, whether to hedge
foreign currency positions and engage in the transactions described in the
previous paragraph in an effort to profit from anticipated changes in the
relation between or among the rates of exchange between various
currencies of the countries in which they are permitted to invest.
Coverage Requirements. All options on securities,
securities indices, other indices and foreign currency written by a Portfolio
are required to be covered. When a Portfolio sells a call option, this means
that during the life of the option the Portfolio will own or have the
contractual right to acquire the securities or foreign currency subject to the
option, or will maintain with the Fund's custodian in a segregated account
cash, U.S. Government Securities or other appropriate high-grade debt
obligations in an amount at least equal to the market value of the securities
or foreign currency underlying the option. When a Portfolio writes a put
option, this means that the Portfolio will maintain with the Fund's
custodian in a segregated account cash, U.S. Government Securities or
other appropriate high-grade debt obligations in an amount at least equal to
the exercise price of the option.
All futures and forward currency contracts purchased or
sold for non-hedging purposes by a Portfolio are also required to be
covered. When a Portfolio purchases a futures or forward currency contract
for non-hedging purposes, this means that the Portfolio will deposit an
amount of cash, U.S. Government Securities or other appropriate high-
grade debt obligations in a segregated account with the Fund's custodian so
that the amount so segregated, plus the amount of initial and variation
margin held in the account of its broker, if applicable, equals the market
value of the futures or forward currency contract.
When a Portfolio sells a futures or forward currency
contract for non-hedging purposes, this means that during the life of the
futures or forward currency contract the Portfolio will own or have the
contractual right to acquire the securities or foreign currency subject to the
futures or forward currency contract, or will maintain with the Fund's
custodian in a segregated account cash, U.S. Government Securities or
other appropriate high-grade debt obligations in an amount at least equal to
the market value of the securities or foreign currency underlying the futures
or forward currency contract.
If the market value of the contract moves adversely to
the Portfolio, or if the value of the securities in the segregated account
declines, the Portfolio will be required to deposit additional cash or
securities in the segregated account at a time when it may be
disadvantageous to do so.
Restrictions on Use of Futures Transactions.
Regulations of the Commodity Futures Trading Commission (the "CFTC")
applicable to the Fund require that all of a Portfolio's futures and options on
futures transactions constitute bona fide hedging transactions and that the
Portfolio not enter into such transactions if immediately thereafter, the sum
of the amount of initial margin deposits on the Portfolio's existing futures
positions and premiums paid for related options would exceed 5% of the
market value of the Portfolio's total assets. Each Portfolio is also permitted
to engage in transactions in futures contracts, and options thereon,
incidental to such Portfolio's activities in the securities markets. Under
applicable CFTC regulations, the value of the assets underlying futures
positions is not allowed to exceed the sum of cash set aside in an
identifiable manner or short-term U.S. Government or other U.S.
dollar-denominated high-grade short-term debt obligations segregated for
this purpose.
ILLIQUID SECURITIES
Although mutual fund portfolios are allowed to invest
up to 15% of the value of their net assets in illiquid assets, it is not
expected that any Portfolio will invest a significant portion of its assets in
illiquid securities. All OTC options; repurchase agreements, time deposits and
dollar roll transactions maturing in more than seven days; and loan
participations are treated as illiquid assets.
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES
Each Portfolio may purchase when-issued securities
and other securities that meet the investment criteria of such Portfolio on
a forward commitment basis at fixed purchase terms at a future date
beyond customary settlement time. The purchase will be recorded on
the date a Portfolio enters into the commitment, and the value of the
security will thereafter be reflected in the calculation of the Portfolio's
net asset value. The value of the security on the delivery date may be
more or less than its purchase price. No interest generally will accrue to
the Portfolio until settlement. The Fund will maintain for each Portfolio
a segregated custodial account containing cash, U.S. Government
Securities or other appropriate high-grade debt securities having a value
at least equal to the aggregate amount of a Portfolio's forward
commitments.
TBA (TO BE ANNOUNCED) TRANSACTIONS
The typical mortgage-related security
transaction, called a TBA (to be announced) transaction, in which the
type of mortgage-related securities to be delivered is specified at the
time of trade but the actual pool numbers of the securities that will be
delivered are not known at the time of the trade. For example, in a
TBA transaction, an investor could purchase $1 million 30 year
FNMA 9's and receive up to three pools on the settlement date. The
pool numbers of the pools to be delivered at settlement will be
announced shortly before settlement takes place. Generally, agency
pass-through mortgage-backed securities are traded on a TBA basis.
SHORT SELLING
Mortgage Total Return may make short sales, which are
transactions in which the Portfolio sells a security it does not own in
anticipation of a decline in the market value of that security. Short
selling provides the Investment Adviser with flexibility to: (1) reduce
certain risks of the Portfolio's holdings; and (2) increase the Portfolio's
total return. To complete a short sales transaction, Mortgage Total
Return must borrow the security to make delivery to the buyer. The
Portfolio then is obligated to replace the borrowed security, which
generally entails purchasing it at the market price at the time of
replacement. Until the security is replaced, the Portfolio is required to
pay to the lender amounts equal to any dividends or interest which
accrue during the period of the loan. The Portfolio also may be
required to pay a premium to borrow the security. The proceeds of the
short sale will be retained by the broker, to the extent necessary to meet
margin requirements, until the short position is closed out. To the extent
that the Portfolio has sold securities short, it will maintain a daily
segregated account, containing cash or U.S. Government securities, at
such a level that (a) the amount deposited in the account plus the amount
deposited with the broker as collateral will equal the current value of the
security sold short and (b) the amount deposited in the segregated
account plus the amount deposited with the broker as collateral will not
be less than the market value of the security at the time it was sold short.
The Portfolio may not enter into short sales exceeding 25% of the net
equity of the Portfolio and may not acquire short positions in securities
of a single issuer if the value of such positions exceeds 2% of the
securities of any class of any issuer. The foregoing restrictions do not
apply to the sale of securities if the Portfolio contemporaneously owns or
has the right to obtain securities equivalent in kind and amount to those
sold.
INVESTMENT RESTRICTIONS
The Fund has adopted certain fundamental
investment restrictions for each Portfolio which may only be changed
with approval of a Portfolio's shareholders. Among these policies are
(i) that a Portfolio may not borrow money, except by engaging in
reverse repurchase agreements and dollar roll transactions or from a
bank as a temporary measure, provided that borrowings, excluding
reverse repurchase agreements and dollar roll transactions, will not
exceed one-third of total assets and will not be engaged in for
leveraging purposes; (ii) that each Portfolio, other than Mortgage
Total Return, may not engage in short sales of securities; and (iii) that
a Portfolio may not invest for the purpose of exercising control or
management. Mortgage Total Return may engage in short sales,
providing that acquisitions of short positions in the securities of a
single issuer (other than the U.S. government, its agencies and
instrumentalities), as measured by the amounts needed to close such
positions, not exceed 2% of the Portfolio's total assets.
RISKS ASSOCIATED WITH THE FUND'S INVESTMENT POLICIES
AND INVESTMENT TECHNIQUES
A more detailed discussion of the risks associated
with the investment policies and investment techniques of the
Portfolios appears in the Statement of Additional Information.
Changes in Interest Rates. The returns that the
Portfolios provide to investors will be influenced by changes in
prevailing interest rates. In addition, changes in market yields will
affect a Portfolio's net asset value since the prices of portfolio debt
securities generally increase when interest rates decline and decrease
when interest rates rise. Prices of shorter-term securities generally
fluctuate less in response to interest rate changes than do longer-term
securities.
Foreign Investments. Securities issued by foreign
governments, foreign corporations, international agencies and
obligations of foreign banks involve risks not associated with
securities issued by U.S. entities. With respect to certain foreign
countries, there is the possibility of expropriation of assets,
confiscatory taxation and political or social instability or diplomatic
developments that could affect investment in those countries. There
may be less publicly available information about a foreign financial
instrument than about a United States instrument and foreign entities
may not be subject to accounting, auditing and financial reporting
standards and requirements comparable to those of United States
entities. A Portfolio could encounter difficulties in obtaining or
enforcing a judgment against the issuer in certain foreign countries.
In addition, certain foreign investments may be subject to foreign
withholding or other taxes, although the Fund will seek to minimize
such withholding taxes whenever practicable. Investors may be able
to deduct such taxes in computing their taxable income or to use such
amounts as credits against their United States income taxes if more
than 50% of a Portfolio's total assets at the close of any taxable year
consist of stock or securities of foreign corporations. See "Tax
Considerations".
Currency Exchange Risks. Changes in foreign
currency exchange rates may affect the value of investments of a
Portfolio, especially the Global and International Portfolios. While
Worldwide-Hedged and International-Hedged will, to the fullest
extent practicable, and the other Portfolios may, hedge their assets
against foreign currency risk, no assurance can be given that currency
values will change as predicted, and a Portfolio may suffer losses as a
result of this investment strategy. As a result of hedging techniques,
the net exposure of each such Portfolio to any one currency may be
different from that of its total assets denominated in such currency.
The foreign currency markets can be highly volatile and subject to
sharp price fluctuations, and a high degree of leverage is typical of the
foreign currency instruments in which each Portfolio may invest.
Since each Portfolio, other than Worldwide-Hedged and International-
Hedged, may invest in such instruments in an effort to enhance total
return, each such Portfolio will be subject to additional risks in
connection with the volatile nature of these markets to which the other
Portfolios are not subject.
Mortgage and Other Asset-Backed Securities. The yield characteristics of
mortgage- and other asset-backed securities differ from traditional debt
securities. A major difference is that the principal amount of the
obligation generally may be prepaid at any time because the underlying
assets (i.e., loans) generally may be prepaid at any time. As a result,
if an asset-backed security is purchased at a premium, a prepayment rate
that is faster than expected will reduce yield to maturity, while a prepayment
rate that is slower than expected will have the opposite effect of increasing
yield to maturity. Conversely, if an asset-backed security is purchased at
a discount, faster than expected prepayments will increase, while slower
than expected prepayments will decrease yield to maturity.
These securities may not have the benefit of any
security interest in the underlying assets and recoveries on repossessed
collateral may not, in some cases, be available to support payments on
these securities. The Portfolios will only invest in asset-backed
securities that the Investment Adviser believes are liquid.
Short Selling. Mortgage Total Return will incur a
loss as a result of a short sale if the price of the security increases
between the date of the short sale and the date on which the Portfolio
replaces the borrowed security. The amount of any loss will be
increased by the amount of any premium or amounts in lieu of interest
the Portfolio may be required to pay in connection with a short sale.
Unlike long positions, where the potential loss is limited to the
purchase price, the potential loss from a short sale transaction is
unlimited unless accompanied by the purchase of an option to buy the
security at a specified price.
Non-Diversified Portfolios. U.S. Short-Term is
"diversified" under the Investment Company Act of 1940, while the
other nine Portfolios are each "non-diversified" for purposes of such
Act and so are subject only to the diversification requirements
necessary for treatment as a "regulated investment company" under
the Internal Revenue Code of 1986 (the "Code"). Under the Code,
with respect to 50% of its assets, a Portfolio may invest up to 25% of
its assets in the obligations of an individual issuer (except that this
limitation does not apply to U.S. Government Securities, as defined
above), and with respect to the remaining 50% of its assets may not
invest more than 5% of its assets in the obligations of an individual
issuer (other than U.S. Government Securities). Because a
"non-diversified" portfolio may invest a larger percentage of its assets
in individual issuers than a diversified portfolio, its exposure to credit
and market risks associated with such investments is increased.
Hedging Transactions. The use of hedging
techniques involves the risk of imperfect correlation in movements in
the price of the hedge and movements in the price of the securities
that are the subject of the hedge. In addition, if interest or currency
exchange rates do not move in the direction against which a Portfolio
has hedged, the Portfolio will be in a worse position than if a hedging
strategy had not been pursued, because it will lose part or all of the
benefit of the favorable rate movement due to the cost of the hedge or
offsetting positions. Moreover, hedging transactions that are not
entered into on a U.S. or foreign exchange may subject a Portfolio to
exposure to the credit risk of its counterparty.
Repurchase Agreements. In the event the other
party to a repurchase agreement or a reverse repurchase agreement
becomes subject to a bankruptcy or other insolvency proceeding or
such party fails to satisfy its obligations thereunder, a Portfolio could
(i) experience delays in recovering cash or the securities sold (and
during such delay the value of the underlying securities may change in
a manner adverse to the Portfolio) or (ii) lose all or part of the
income, proceeds or rights in the securities to which the Portfolio
would otherwise be entitled.
Dollar Roll Transactions. If the broker-dealer to
whom a Portfolio sells the security underlying a dollar roll transaction
becomes insolvent, the Portfolio's right to purchase or repurchase the
security may be restricted; the value of the security may change
adversely over the term of the dollar roll, the security which the
Portfolio is required to repurchase may be worth less than a security
which the Portfolio originally held, and the return earned by the
Portfolio with the proceeds of a dollar roll may not exceed transaction
costs.
Zero Coupon Securities. Because they do not pay
interest until maturity, zero coupon securities tend to be subject to
greater interim fluctuation of market value in response to changes in
interest rates than interest-paying securities of similar maturities.
Additionally, for tax purposes, zero coupon securities accrue income
daily even though no cash payments are received which may require a
Portfolio to sell securities that would not ordinarily be sold to provide
cash for the Portfolio's required distributions.
Concentration in Bank Obligations. Each Portfolio
may, at times, invest in excess of 25% of its assets in Bank
Obligations, as defined above. By concentrating investments in the
banking industry, a Portfolio may have a greater exposure to certain
risks associated with the banking industry. In particular, economic or
regulatory developments in or related to the banking industry will
affect the value of and investment return on a Portfolio's shares. As
discussed above, each Portfolio will seek to minimize its exposure to
such risks by investing only in debt securities that are determined by
the Investment Adviser or Sub-Adviser to be of high quality.
DISTRIBUTION OF FUND SHARES
Shares of the Fund are distributed by AMT Capital
Services, Inc. pursuant to a Distribution Agreement (the "Distribution
Agreement") dated as of February 1, 1995 between the Fund and
AMT Capital. No fees are payable by the Fund pursuant to the
Distribution Agreement, and AMT Capital bears the expense of its
distribution activities.
Under a sales incentive fee agreement dated as of
September 21, 1992 between AMT Capital and the Investment
Adviser, the Investment Adviser has agreed to pay AMT Capital a
monthly sales incentive fee at an annual rate of 0.30% of the average
daily net asset value of shares purchased as a result of the sales efforts
of AMT Capital (to the extent such average daily net asset value
exceeds $100 million). For purposes of calculating the monthly sales
incentive fee, the daily net asset value of shares purchased as a result
of the sales efforts of AMT Capital shall not include shares so
purchased and held for more than twelve months.
Charter Atlantic Corporation, an affiliate of the
Investment Adviser, has a 10% equity interest in AMT Capital.
PURCHASES AND REDEMPTIONS
PURCHASES
There is no sales charge imposed by the Fund. The
minimum initial investment in any Portfolio of the Fund is $100,000;
additional purchases or redemptions may be of any amount.
The offering of shares of each Portfolio of the Fund,
other than Mortgage Total Return, is continuous and purchases of
shares of the Fund may be made Monday through Friday, except for
the holidays declared by the Federal Reserve Banks of New York or
Boston. At the present time, these holidays are: New Year's Day,
Martin Luther King's Birthday, Presidents' Day, Patriot's Day,
Memorial Day, Fourth of July, Labor Day, Columbus Day, Veterans
Day, Thanksgiving, and Christmas. These Portfolios offer shares at a
public offering price equal to the net asset value next determined after
a purchase order becomes effective. Mortgage Total Return offers
shares at a public offering price equal to the net asset value
determined on the last Business Day of the month. If a purchase
order for Mortgage Total Return is placed prior to the last Business
Day of the month, the funds will be placed temporarily in U.S. Short-
Term and transferred to Mortgage Total Return on the last Business
Day of the month.
Purchases of shares must be made by wire transfer
of Federal funds. Subject to the above offering dates, initial share
purchase orders are effective on the date when AMT Capital receives
a completed Account Application Form (and other required
documents) and Federal funds become available to the Fund in the
Fund's account with the Transfer Agent as set forth below. The
shareholder's bank may impose a charge to execute the wire transfer.
In order to purchase shares on a particular Business
Day, subject to the offering dates described above, a purchaser must
call AMT Capital at (800) 762-4848 [or within the City of New York,
(212) 308-4848] prior to 4:00 p.m. Eastern time to inform the Fund
of the incoming wire transfer and must clearly indicate which
Portfolio is to be purchased. If Federal funds are received by the
Fund that same day, the order will be effective on that day. If the
Fund receives notification after 4:00 p.m. Eastern time, or if Federal
funds are not received by the Transfer Agent, such purchase order
shall be executed as of the date that Federal funds are received.
Shares purchased will begin accruing dividends on the day Federal
funds are received.
REDEMPTIONS
The Fund will redeem all full and fractional shares
of the Fund upon request of shareholders. The redemption price is the
net asset value per share next determined after receipt by the Transfer
Agent of proper notice of redemption as described below. If such
notice is received by the Transfer Agent by 4:00 p.m. Eastern time on
any Business Day, the redemption will be effective and payment will
be made (i) in the case of U.S. Short-Term, on such Business Day;
(ii) in the case of all other U.S. Portfolios, within seven calendar
days, but generally on the day following receipt of such notice; and
(iii) in the case of the Global and International Portfolios, within
seven calendar days, but generally two business days following
receipt of such notice. If the notice is received on a day that is not a
Business Day or after 4:00 p.m. Eastern time, the redemption notice
will be deemed received as of the next Business Day.
There is no charge imposed by the Fund to redeem
shares of the Fund; however, a shareholder's bank may impose its
own wire transfer fee for receipt of the wire. Redemptions may be
executed in any amount requested by the shareholder up to the amount
such shareholder has invested in the Fund.
To redeem shares, a shareholder or any authorized
agent (so designated on the Account Application Form) must provide
the Transfer Agent with the dollar or share amount to be redeemed,
the account to which the redemption proceeds should be wired (which
account shall have been previously designated by the shareholder on its
Account Application Form), the name of the shareholder and the
shareholder's account number. Shares redeemed receive dividends declared
up to and including the day preceding the day of the redemption.
A shareholder may change its authorized agent or the
account designated to receive redemption proceeds at any time by writing to
the Transfer Agent with an appropriate signature guarantee. Further
documentation may be required when deemed appropriate by the Transfer
Agent.
A shareholder may request redemption by calling the
Transfer Agent at (800) 247-0473. Telephone redemption is made
available to shareholders of the Fund on the Account Application. The
Fund or the Transfer Agent may employ procedures designed to confirm
that instructions communicated by telephone are genuine. If the Fund does
not employ such procedures, it may be liable for losses due to unauthorized
or fraudulent instructions. The Fund or the Transfer Agent may require
personal identification codes and will only wire funds through pre-existing
bank account instructions. No bank instruction changes will be accepted
via telephone.
EXCHANGE PRIVILEGE
Shares of a Portfolio may be exchanged for shares of any
other of the Fund's Portfolios or for other funds distributed by AMT Capital
based on the respective net asset values of the shares involved in the
exchange, assuming that shareholders wishing to exchange shares reside in
states where these mutual funds are qualified for sale. The Fund's Portfolio
minimum amounts of $100,000 would still apply. An exchange order is
treated the same as a redemption followed by a purchase. Investors who
wish to make exchange requests should telephone AMT Capital or the
Transfer Agent.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Portfolio is
determined by adding the market value of all the assets of the Portfolio,
subtracting all of the Portfolio's liabilities, dividing by the number of
shares outstanding and adjusting to the nearest cent. The net asset value is
calculated by the Fund's Accounting Agent as of 4:00 p.m. Eastern time on
each Business Day for each Portfolio, other than Mortgage Total Return.
The net asset value of Mortgage Total Return is calculated by the Fund's
Accounting Agent as of 4:00 p.m. Eastern time on the last Business Day of
each month for accommodating Portfolio purchases, and on each Business
Day for which a redemption order has been placed.
The following methods are used to calculate the value of
a Portfolio's assets: (1) all portfolio securities for which over-the-counter
market quotations are readily available (including asset-backed securities)
are valued at the latest bid price; (2) deposits and repurchase agreements
are valued at their cost plus accrued interest unless the Investment Adviser
or Sub-Adviser determines in good faith, under procedures established by
and under the general supervision of the Fund's Board of Directors, that
such value does not approximate the fair value of such assets; (3) positions
(e.g., futures and options) listed or traded on an exchange are valued at
their last sale price on that exchange (or if there were no sales that day for
a particular position, that position is valued at the closing bid price); and
(4) the value of other assets will be determined in good faith by the Investment
Adviser or Sub-Adviser at fair value under procedures established by and
under the general supervision of the Fund's Board of Directors. Quotations
of foreign securities denominated in a foreign currency are converted to
U.S. dollar-equivalents using the bid price of such currencies (quoted by
any major bank) in effect at the time net asset value is computed.
Since U.S. Short-Term's daily dividend accrual includes
unrealized gains and losses, the net asset value is expected to remain
constant at $10.00 per share (although, the net asset value will fluctuate if
the Board of Directors suspends the full payout method). Fluctuations in
value may reduce the number of shares held by shareholders. None of the
other Portfolios employs the full payout method of declaring dividends (see
"Dividends" below), and the net asset value of each will fluctuate with
changes in the market prices of the assets held by such Portfolio.
DIVIDENDS
Dividends are automatically reinvested in additional
shares of a Portfolio on the last day of each month at the net asset value per
share on the last Business Day of that month. Shareholders must indicate
their desire to receive dividends in cash (payable on the first business day
of the following month) on the Account Application Form. Otherwise all
dividends will be reinvested in additional shares as described above. In the
unlikely event that a Portfolio realizes net long-term capital gains (i.e.,
with respect to assets held more than one year), it will distribute them at
least annually by automatically reinvesting (unless a shareholder has elected
to receive cash) such long-term capital gains in additional shares of the
Portfolio at the net asset value on the date the distribution is declared.
U.S. SHORT-TERM FIXED INCOME PORTFOLIO
U.S. Short-Term employs the "full payout method" of
paying dividends to shareholders. Under the full payout method, dividends
are determined and, if a positive amount, declared on each Business Day.
In determining the dividend, there is first calculated the "Full Payout
Amount" for the day. The Full Payout Amount is equal to (1) that day's net
investment income (including accrued but unpaid interest and amortization
of original issue and market discount or premium), plus (2) that day's net
capital gains (both realized and unrealized), or minus (3) that day's net
capital loss (both realized and unrealized). The amount of that day's
dividend declaration is equal to the average of the Full Payout Amounts for
the previous thirty days (adjusted to the extent necessary to maintain a
constant $10.00 per share net asset value), a procedure which reduces the
likelihood (discussed below) that a particular day's dividend will be
determined to be a negative amount.
U.S. Short-Term expects that each day's dividend will
ordinarily be a positive amount. Such dividends will reflect all capital
gains and losses on U.S. Short-Term's investments (both realized and
unrealized); thus, the net asset value per share, determined as described
above, will remain constant. However, if the dividend amount so
determined is negative for any day (e.g., realized and unrealized capital
losses plus expenses exceed realized and unrealized capital gains plus
investment income), a dividend will not be declared. Instead, each
shareholder's accumulated dividend accrual for the month will be
proportionately reduced. If, on the last Business Day of the month or at the
time a shareholder closes his or her account, such shareholder's dividend
accrual to date is negative, the shareholder's account value will be reduced
by the negative accrual to date (i.e., the shareholder will be deemed to have
contributed the relevant number of shares to the capital of U.S. Short-Term)
so that U.S. Short-Term's net asset value per share for such day will be
maintained at $10.00. Thus, although the net asset value per share will
remain stable, the aggregate net asset value of the shares in a shareholder's
account will decrease if such dividend accrual is negative. By purchasing
shares in U.S. Short-Term, shareholders are deemed to have agreed to make
such contributions of capital in the form of shares as may be necessary to
maintain a stable net asset value per share. As a result of the foregoing
procedure, the distributions paid by U.S. Short-Term for any particular
month may be more or less than the amount of net investment income and
net realized and unrealized capital gains or losses actually earned by the
Portfolio during such period.
The Full Payout Amount reflects both short-term capital
gains and any long-term capital gains on U.S. Short-Term's investments.
The Full Payout Method has currently been suspended.
If, in the view of the Board of Directors, it is inadvisable
to continue the practice of maintaining the net asset value of $10.00 per
share by using the full payout method, the Board of Directors reserves the
right to alter, suspend or terminate the procedures described above. If such
procedures are altered, the Fund will so inform shareholders.
ALL OTHER PORTFOLIOS
The other Portfolios do not employ the "full payout
method". The net investment income (including accrued but unpaid interest
and amortization of original issue and market discount or premium) of each
Portfolio, other than U.S. Short-Term and Mortgage Total Return, will be
declared as a dividend payable daily to the respective shareholders of record
as of the close of each Business Day. The net investment income of
Mortgage Total Return will be declared as a dividend payable to the
respective shareholders of record as of the last Business Day of the month
for Mortgage Total Return. Each Portfolio will also declare, to the extent
necessary, a net short-term capital gain dividend once per year.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The Board of Directors of the Fund is responsible for the
overall management and supervision of the Fund. The Fund's Directors are
Stephen J. Constantine, John C Head III, Lawrence B. Krause, Paul Meek
and Onder John Olcay. Additional information about the Directors and the
Fund's executive officers may be found in the Statement of Additional
Information under the heading "Management of the Fund - Board of
Directors".
INVESTMENT ADVISER
Subject to the direction and authority of the Fund's
Board of Directors, Fischer Francis Trees & Watts, Inc. is responsible for
deciding upon investments for each Portfolio. The Investment Adviser
continuously conducts investment research and is responsible for the
purchase, sale or exchange of portfolio assets.
Organized in 1972, the Investment Adviser is a
registered investment adviser and a New York corporation that currently
manages approximately $20 billion in assets entirely in fixed-income
portfolios for 65 major institutional clients including banks, central banks,
pension funds and other institutional clients. The average size of a client
relationship with the Investment Adviser is in excess of $250 million. Over
$10 billion of the amount managed is made up of short-term assets
constituting institutional reserves. The Investment Adviser is also the
sub-adviser to three portfolios of two other open-end management
investment companies. The Investment Adviser's offices are located at 200
Park Avenue, New York, New York 10166.
SUB-ADVISER
Fischer Francis Trees & Watts, a corporate partnership
organized under the laws of the United Kingdom and an affiliate of the
Investment Adviser, is the foreign sub-adviser to the Global and
International Portfolios. Organized in 1989, the Sub-Adviser is a U.S.-
registered investment adviser and currently manages approximately $4
billion in multi-currency fixed-income portfolios for institutional clients.
The Investment Adviser pays the Sub-Adviser monthly from its investment
advisory fee. The Sub-Adviser's annual fee is 0.35% of the average foreign
currency-denominated net assets of Worldwide Short-Term and 0.40% of
the average foreign currency-denominated net assets of each of Worldwide,
Worldwide-Hedged, International and International-Hedged Portfolios.
From the inception date of both Portfolios, through December 31, 1992,
the Sub-Adviser voluntarily agreed to waive its fees for both Worldwide
and Worldwide-Hedged. The Sub-Adviser is under no obligation to waive
its fees for any Portfolio subsequent to December 31, 1992. The Sub-
Adviser's offices are located at 3 Royal Court, The Royal Exchange,
London, EC 3V 3RA.
PORTFOLIO MANAGERS
U.S. Portfolios - David J. Marmon, Portfolio Manager.
Mr. Marmon is responsible for management of the U.S. short-term
portfolios. He joined FFTW in 1990 from Yamaichi International
(America) where he was head of futures and options research. Mr.
Marmon was previously a financial analyst and strategist at the First
Boston Corporation, where he developed hedging programs for financial
institutions and industrial firms. Mr. Marmon has a B.A. summa cum
laude in economics from Alma College and an M.A. in economics from
Duke University. Stewart M. Russell, Portfolio Manager. Mr. Russell is
also responsible for management of the U.S. short-term portfolios. He
joined FFTW in 1992 from the short-term proprietary trading desk in the
global markets area of J.P. Morgan, where he was responsible for
proprietary positioning of U.S. and non-U.S. government obligations,
corporate bonds, and asset-backed securities. Earlier at the bank, Mr.
Russell managed the short-term interest rate risk group, coordinating a $10
billion book of assets and liabilities. Mr. Russell holds a B.A. in
government from Cornell University and an M.B.A. in finance from New
York University. Patricia L. Cook, Managing Director. Ms. Cook is
responsible for management of the U.S. long-term portfolios. She joined
FFTW in 1991 after twelve years with Salomon Brothers, where she most
recently established and headed the bond strategy team that analyzes
relative values among mortgages, treasuries, and other sectors of the fixed-
income markets and developed portfolio strategies for Salomon Brothers'
global institutional clients. Ms. Cook worked initially as an analyst in the
firm's proprietary trading unit before joining the firm's financing desk. Ms.
Cook has a B.A. from St. Mary's College and an M.B.A. from New York
University.
Global and International Portfolios - Liaquat Ahamed,
General Manager of the Sub-Adviser. Mr. Ahamed is responsible for
management of the global and international portfolios. He joined FFTW in
1988 after nine years with the World Bank, where he was in charge of all
investments in non-U.S. dollar government bond markets. Mr. Ahamed
also served as an economist with senior government officials in the
Philippines, Korea, and Bangladesh. He has a B.A. in economics from
Trinity College, Cambridge University and an A.M. in economics from
Harvard University.
ADMINISTRATOR
Pursuant to an Administration Agreement dated as of
February 2, 1995 between the Fund and AMT Capital Services, Inc., AMT
Capital is Administrator to the Fund and provides for or assists in
managing and supervising all aspects of the general day-to-day business
activities and operations of the Fund other than investment advisory
activities, including custodial, transfer agency, dividend disbursing,
accounting, auditing, compliance and related services.
Founded in early 1992, AMT Capital is a registered
broker-dealer whose senior managers are former officers of Morgan Stanley
and The Vanguard Group, where they were responsible for the
administration and distribution of The Pierpont Funds, a $5 billion fund
complex now owned by J.P. Morgan, and the private label administration
group of Vanguard, which administered nearly $10 billion in assets for 45
portfolios, respectively.
The Fund pays AMT Capital a monthly fee at an annual
rate of 0.07% of the average daily net assets of the Fund on the first $350
million. 0.05% thereafter up to $3 billion, 0.04% thereafter up to $5 billion,
and 0.03% on assets over $5 billion. The Fund also reimburses AMT
Capital for certain costs. In addition, the Fund has agreed to pay the
Administrator an incentive fee for reducing the expense ratio of one or more
Portfolios of the Fund below the specified expense ratio established for
such Portfolios. The maximum incentive fee is 0.02% of the average daily
net assets of a Portfolio.
TAX CONSIDERATIONS
The following discussion is for general information only.
An investor should consult with his or her own tax adviser as to the tax
consequences of an investment in a Portfolio, including the status of
distributions from each Portfolio under applicable state or local law.
FEDERAL INCOME TAXES
Each active Portfolio has qualified for and intends to
continue to qualify to be treated as a regulated investment company ("RIC")
under the Internal Revenue Code of 1986, as amended. To qualify, a
Portfolio must meet certain income, distribution and diversification
requirements. In any year in which a Portfolio qualifies as a RIC and
distributes all of its taxable income on a timely basis, the Portfolio will not
pay U.S. federal income or excise tax. Each Portfolio intends to distribute
all of its taxable income by automatically reinvesting such amount in
additional shares of the Portfolio and distributing those shares to its
shareholders, unless a shareholder elects, on the Account Application
Form, to receive cash payments for such distributions.
Dividends paid by a Portfolio are taxable to shareholders
even though the dividends are automatically reinvested in additional shares
of a Portfolio. Dividends paid by a Portfolio from its investment company
taxable income (including interest and net short-term capital gains) will be
taxable to a U.S. shareholder as ordinary income. Distributions of net
capital gains (the excess of net long-term capital gains over net short-term
capital losses), if any, designated as capital gains dividends are taxable to
shareholders as long-term capital gain, regardless of how long they have
held their Portfolio shares. None of the amounts treated as distributed to a
Portfolio's shareholders will be eligible for the corporate dividends received
deduction.
A distribution will be treated as paid on December 31 of
the current calendar year if it is declared by a Portfolio in October,
November or December with a record date in any such month and paid by
the Portfolio during January of the following calendar year. Such
distributions will be taxable to shareholders in the calendar year in which
the distributions are declared, rather than the calendar year in which the
distributions are received. Each Portfolio will inform shareholders of the
amount and tax status of all amounts treated as distributed to them not later
than 60 days after the close of each calendar year.
Any gain or loss realized by a shareholder upon the sale
or other disposal of shares of a Portfolio, or upon receipt of a distribution in
a complete liquidation of the Portfolio, generally will be a capital gain or
loss which will be long-term or short-term, generally depending upon the
shareholder's holding period for the shares.
Each Portfolio may be required to withhold U.S. federal
income tax at the rate of 31% of all taxable distributions payable to
shareholders who fail to provide the Portfolio with their correct taxpayer
identification number or to make required certifications, or who have been
notified by the IRS that they are subject to backup withholding. Backup
withholding is not an additional tax. Any amounts withheld may be
credited against the shareholder's U.S. federal income tax liability.
Income received by a Portfolio from sources within
foreign countries may be subject to withholding and other taxes imposed by
such countries. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes. In certain circumstances, a
Portfolio may be eligible and may elect to "pass through" to the Portfolio's
shareholders the amount of foreign income and similar taxes paid by the
Portfolio. Each shareholder will be notified within 60 days after the close
of a Portfolio's taxable year whether the foreign taxes paid by the Portfolio
will "pass through" for the year.
U.S. SHORT-TERM FIXED INCOME PORTFOLIO
Under the full payout method of paying dividends
adopted by U.S. Short-Term, it is possible that shareholders may receive
distributions in excess of their ratable share of U.S. Short-Term's earnings
and profits from time to time. It is also possible that Full Payout Income
may be negative, and that the number of shares held by a shareholder will
be reduced through a contribution of capital. See "Dividends" above. As a
result, the shareholder may have taxable income that is greater or less than
the net increase in shares in the shareholder's account at the end of the
month. A shareholder's basis in shares of U.S. Short-Term may be adjusted
to reflect an excess distribution or contribution to capital, which would
affect the amount of capital gain or loss realized when the shares are sold.
STATE AND LOCAL TAXES
A Portfolio may be subject to state, local or foreign
taxation in any jurisdiction in which the Portfolio may be deemed to be
doing business.
Portfolio distributions may be subject to state and local
taxes. Distributions of a Portfolio which are derived from interest on
obligations of the U.S. Government and certain of its agencies, authorities
and instrumentalities may be exempt from state and local taxes in certain
states.
Shareholders should consult their own tax advisers
regarding the possible exclusion for state and local income tax purposes of
the portion of dividends paid by a Portfolio which is attributable to interest
from obligations of the U.S. Government and its agencies, authorities and
instrumentalities.
SHAREHOLDER INFORMATION
DESCRIPTION OF THE FUND
The Fund was established under Maryland law by the
filing of its Articles of Incorporation on February 23, 1989. The Fund has
been in operation since December 6, 1989. The Fund's Articles of
Incorporation permit the Directors to authorize the creation of additional
portfolios, each of which will issue a separate class of shares. Currently,
the Fund has ten separate Portfolios. The Fund bears all expenses of its
operations other than those incurred by the Investment Adviser under its
investment advisory agreement. In particular, the Fund pays: investment
advisory fees; administration fees; custodian, transfer agent, accounting
agent and dividend disbursing agent fees and expenses; legal and auditing
fees; expenses of preparing and printing shareholder reports; registration
fees and expenses; proxy and annual shareholder meeting expenses, if any;
and directors' fees and expenses.
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in
Director elections and other matters submitted to shareholders for their
vote. Matters to be acted upon that affect a particular Portfolio, including
approval of the investment advisory agreement with the Investment Adviser
and the submission of changes of fundamental investment policy of a
Portfolio, will require the affirmative vote of the shareholders of such
Portfolio. The election of the Fund's Board of Directors and the approval of
the Fund's independent public accountants are voted upon by shareholders
on a Fund-wide basis. As a Maryland corporation, the Fund is not required
to hold annual shareholder meetings. Shareholder approval will be sought
only for certain changes in the Fund's or a Portfolio's operation and for the
election of Directors under certain circumstances.
Directors may be removed by shareholders at a special
meeting. A special meeting of the Fund shall be called by the Directors
upon written request of shareholders owning at least 10% of the Fund's
outstanding shares.
PERFORMANCE INFORMATION
From time to time the Fund may advertise a Portfolio's
"yield" and "total return". A Portfolio's yield for any 30-day (or one month)
period is computed by dividing the net investment income per share earned
during such period by the maximum public offering price per share on the
last day of the period, and then annualizing such 30-day (or one month)
yield in accordance with a formula prescribed by the Commission which
provides for compounding on a semiannual basis. Advertisements of a
Portfolio's total return may disclose its average annual compounded total
return for the period since the Portfolio's inception. A Portfolio's total
return for such period is computed by finding, through use of a formula
prescribed by the Commission, the average annual compounded rate of
return over the period that would equate an assumed initial amount
invested to the value of the investment at the end of the period. For
purposes of computing total return, dividends and capital gains
distributions paid on shares are assumed to have been reinvested when
received. As described above, the Fund imposes no sales charges
applicable to purchases and redemptions. Total return and yield figures are
based on a Portfolio's historical performance and are not intended to
indicate future performance. The value of an investment in a Portfolio will
fluctuate and the shares in an investor's account, when redeemed, may be
worth more or less than their original cost.
CUSTODIAN AND ACCOUNTING AGENT
Investors Bank & Trust Company, P.O. Box 1537,
Boston, Massachusetts 02205-1537, is Custodian and Accounting Agent
for the Fund.
TRANSFER AND DIVIDEND DISBURSING AGENT
Investors Bank & Trust Company, P.O. Box 1537,
Boston, Massachusetts 02205-1537, is Transfer Agent for the shares of the
Fund, and Dividend Disbursing Agent for the Fund.
LEGAL COUNSEL
Dechert Price & Rhoads, 1500 K Street, N.W.,
Washington, D.C. 20005-1208, is legal counsel for the Fund.
INDEPENDENT AUDITORS
Ernst & Young LLP, 787 Seventh Avenue, New York,
New York 10019, is the independent auditor for the Fund. Ernst & Young
LLP also renders accounting services to the Investment Adviser and the
Sub-Adviser.
SHAREHOLDER INQUIRIES
Inquiries concerning the Fund may be made by writing
to AMT Capital Services, Inc., 430 Park Avenue, 17th Floor, New York,
New York 10022 or by calling AMT Capital at (800) 762-4848 [or (212)
308-4848, if within New York City].
Information contained herein is subject to completion or amendment.
A registration statement relating to these securities has been filed
with the Securities and Exchange Commission. These securities may not
be sold nor may offers to buy be accepted prior to the time the
registration statement becomes effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
SUBJECT TO COMPLETION - September 12, 1995
STATEMENT OF ADDITIONAL INFORMATION
FFTW FUNDS, INC.
200 Park Avenue, 46th Floor
New York, New York 10166
(212) 681-3000
FFTW Funds, Inc. (the "Fund") is a no-load, open-end
management investment company managed by Fischer Francis Trees &
Watts, Inc. (the "Investment Adviser"). The Fund currently consists of
ten separate portfolios (each a "Portfolio"): (1) U.S. Portfolios - U.S.
Short-Term Fixed Income Portfolio ("U.S. Short-Term"); Stable Return
Portfolio ("Stable Return"); U.S. Treasury Portfolio ("U.S. Treasury");
Mortgage Total Return Portfolio ("Mortgage Total Return"); and Broad
Market Fixed Income Portfolio ("Broad Market"); and (2) Global and
International Portfolios - Worldwide Short-Term Fixed Income
Portfolio ("Worldwide Short-Term"); Worldwide Fixed Income Portfolio
("Worldwide"); Worldwide Fixed Income-Hedged Portfolio
("Worldwide-Hedged"); International Fixed Income Portfolio
("International"); and International Fixed Income-Hedged Portfolio
("International-Hedged"). Shares of each Portfolio may be purchased
through AMT Capital Services, Inc. ("AMT Capital"), the exclusive
distributor.
This Statement of Additional Information is not a
prospectus and should be read in conjunction with the prospectus of the
Fund, dated November __, 1995 (the "Prospectus"), which has been filed
with the Securities and Exchange Commission (the "Commission") and
can be obtained, without charge, by calling or writing AMT Capital at
the telephone number or address stated below. This Statement of
Additional Information incorporates by reference the Prospectus.
Distribute by: AMT Capital Services, Inc.
430 Park Avenue, 17th Floor
New York, New York 10022
(212) 308-4848
(800) 762-4848 (outside New York City)
The date of this Statement of Additional Information is
November ___, 1995.
TABLE OF CONTENTS
Page
History of the Fund 3
Organization of the 3
Management of the Fund 3
Board of Directors and Officers 3
Investment Adviser and Sub-Adviser 5
Administrator 7
Control Persons and Principal Holders of
Securities 3
Distribution of Fund Shares 10
Supplemental Description of Investments 10
Supplemental Investment Technique 16
Supplemental Discussion of Risks Associated
With the Fund's Investment 16
Supplemental Techniques to Hedge Interest Rate and Foreign
Currency Risks and 19
Forward Foreign Currency Exchange Contracts
and Associated Risks 19
Options 21
Futures Contracts and Options
on Futures Contracts 25
Other Hedging Techniques 28
Investment Restrictions 28
Portfolio Transactions 30
Tax Considerations 31
Shareholder Information 36
Calculation of Performance Data 36
Financial Statements 38
Appendix 39
Merrill Lynch 1-2.99 39
Quality Rating Descriptions 40
HISTORY OF THE FUND
From its inception on February 23, 1989 to September
27, 1989, the name of the Fund was "FFTW Institutional Reserves Fund,
Inc.". The Fund commenced operations on December 6, 1989. From
September 27, 1989 to July 22, 1991 the name of the Fund was "FFTW
Reserves, Inc." On July 22, 1991 the name of the Fund was changed to
its present name, "FFTW Funds, Inc." The U.S. Short-Term Fixed
Income Portfolio which commenced operations on December 6, 1989,
Worldwide Fixed Income Portfolio which commenced operations on
April 15, 1992, and Worldwide Fixed Income-Hedged Portfolio which
commenced operations on May 19, 1992, were known as Short-Term
Series (and prior to September 18, 1991 as FFTW Institutional Reserves
Fund), Worldwide Series and Worldwide Hedged Series, respectively.
ORGANIZATION OF THE FUND
The authorized capital stock of the Fund consists of
1,000,000,000 shares with $.001 par value, allocated as follows: (i)
100,000,000 shares each to Stable Return, U.S. Treasury, Mortgage
Total Return, Broad Market, Worldwide Short-Term, Worldwide and
Worldwide-Hedged; (ii) 50,000,000 shares each to International and
International-Hedged; and (iii) 200,000,000 shares to U.S. Short-Term.
Each share of each Portfolio has equal voting rights as to each share of
such Portfolio. Shareholders have one vote for each share held. All
shares issued and outstanding are fully paid and non-assessable,
transferable, and redeemable at net asset value at the option of the
shareholder. Shares have no preemptive or conversion rights.
The shares of the Fund have non-cumulative voting
rights, which means that the holders of more than 50% of the shares
voting for the election of Directors can elect 100% of the Directors if
they choose to do so, and, in such event, the holders of the remaining less
than 50% of the shares voting for the election of Directors will not be
able to elect any person or persons to the Board of Directors.
No Portfolio of the Fund shall be liable for the
obligations of any other Portfolio.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS AND OFFICERS
The Fund is managed by its Board of Directors. The
individuals listed below are the officers and directors of the Fund. An
asterisk (*) has been placed next to the name of each director who is an
interested person of the Fund, as such term is defined in the Investment
Company Act of 1940, as amended (the "1940 Act"), by virtue of his
affiliation with the Fund or the Investment Adviser.
*Stephen J. Constantine, 200 Park Avenue, New York,
NY. President and Director of the Fund. Mr. Constantine has been a
shareholder and Managing Director of the Investment Adviser for the last
five years.
John C Head III, 545 Madison Avenue, New York, NY.
Director of the Fund. Mr. Head has been a general partner of John Head
& Partners L.P., a merchant banking firm providing financial advice to
corporations in the insurance industry, since August 1987. He is a
director of Sphere Drake Holding Plc, Anglo American Insurance
Company Ltd. and Integon Corporation. From 1986 until August 1987,
Mr. Head was chairman of Odyssey Investors, Inc., an affiliate of
Odyssey Partners (a partnership making specific and designated
investments). From 1983 until 1986, Mr. Head was a managing director
of Morgan Stanley & Co. Incorporated.
Lawrence B. Krause, University of California - San
Diego ("UCSD"), La Jolla, CA. Director of the Fund. Mr. Krause is a
member of the Editorial Advisory Board of the Political Science
Quarterly, a member of the Council on Foreign Relations, and
Vice-Chairman of the U.S. National Committee for Pacific Economic
Cooperation. In December, 1990, he was selected as the first holder of
the Pacific Economic Cooperation Chair at UCSD. In 1989, Mr. Krause
became the Director, Korea-Pacific Program at UCSD. In 1988, he was
named Coordinator of the Pacific Economic Outlook Project for the
Pacific Economic Cooperation Conference. Mr. Krause was the first
appointment to the new Graduate School of International Relations and
Pacific Studies at UCSD and joined the faculty as a professor on January
1, 1987. From 1969 - 1986 Mr. Krause was a senior fellow of the
Brookings Institution. Mr. Krause is also an author of numerous
publications.
Paul Meek, 5837 Cove Landing Road, Burke, Va.
Director of the Fund. Since 1985, Mr. Meek has been a financial and
economic consultant to foreign central banks under the auspices of each
of the Harvard Institute for International Development, the International
Monetary Fund and the World Bank. Mr. Meek is a principal in PM
Consulting (financial and economic consulting) and has been since 1985.
PM Consulting was a consultant to the Investment Adviser from 1985 -
January, 1989; such consulting arrangement has been terminated. From
1982-1985, Mr. Meek was Vice President and Monetary Adviser of the
Federal Reserve Bank of New York. Mr. Meek has been a trustee of the
Weiss, Peck & Greer group of mutual funds since 1988.
*Onder John Olcay, 200 Park Avenue, New York, NY.
Chairman of the Board of the Fund. Mr. Olcay has been a shareholder
and Managing Director of the Investment Adviser for the last five years.
Stephen P. Casper, 200 Park Avenue, New York, NY.
Treasurer of the Fund. Mr. Casper has been a shareholder and
Managing Director of the Investment Adviser since December 1991. In
addition, Mr. Casper has been the Chief Financial Officer of the
Investment Adviser since February 1990. From March 1984 through
January 1990, Mr. Casper was Treasurer of Rockefeller & Company, a
registered investment adviser.
Kyle L. Chang, 200 Park Avenue, New York, NY.
Secretary of the Fund. Ms. Chang has been an Administrative Assistant
with the Investment Adviser since April 1989. Ms. Chang was employed
by Salomon Brothers Inc from June 1987 to April 1989 as an Executive
Assistant. From November 1984 to June 1987 she was a Benefits
Administrator at the Bank of New York.
Carla E. Dearing, 430 Park Avenue, New York, NY.
Assistant Treasurer of the Fund. Ms. Dearing has served as Managing
Director, Principal, and Director of AMT Capital Services since its
inception in March 1992. Ms. Dearing is also Senior Vice President and
Principal of AMT Capital Advisers, Inc. since January 1992. Ms.
Dearing was a former Vice President of Morgan Stanley & Co., where
she worked from June 1984 to August 1986 and from November 1988 to
January 1992.
William E. Vastardis, 430 Park Avenue, New York,
NY. Assistant Secretary of the Fund. Mr. Vastardis serves as Senior
Vice President and administrator of the Fund on behalf of AMT Capital
Services. Prior to April 1992, Mr. Vastardis served as Vice President
and head of the Vanguard Group Inc.'s private label administration unit
for seven years, after six years in Vanguard's fund accounting
operations.
Directors and officers of the Fund collectively owned
less than 1% of the Fund's outstanding shares as of August 31, 1995.
INVESTMENT ADVISER AND SUB-ADVISER
The Fund has two sets of advisory agreements, one for
U.S. Short-Term, Worldwide and Worldwide-Hedged (the "original"
agreement), and one for each of the other seven Portfolios (the "new"
agreements). The Fund also has two sets of sub-advisory agreements,
one for Worldwide and Worldwide-Hedged, and one for each of
Worldwide Short-Term, International and International-Hedged.
Pursuant to their terms, the advisory agreements
between the Fund and the Investment Adviser (the "Advisory
Agreements") and the sub-advisory agreements (the "Sub-Advisory
Agreements") between the Investment Adviser and its affiliate Fischer
Francis Trees & Watts (the "Sub-Adviser"), a corporate partnership
organized under the laws of the United Kingdom, remain in effect for two
years following their date of execution and thereafter will automatically
continue for successive annual periods, so long as such continuance is
specifically approved at least annually by (a) the Board of Directors or
(b) the vote of a "majority" (as defined in the 1940 Act) of a Portfolio's
outstanding shares voting as a single class; provided, that in either event
the continuance is also approved by at least a majority of the Board of
Directors who are not "interested persons" (as defined in the 1940 Act) of
the Fund, the Investment Adviser or the Sub-Adviser by vote cast in
person at a meeting called for the purpose of voting on such approval.
Each Advisory Agreement except Mortgage Total Return
was most recently approved by the Directors on February 1, 1995.
Mortgage Total Return was approved by Directors on ______________.
The original Advisory Agreement was approved by U.S. Short-Term's
shareholders on April 3, 1991 and by Worldwide's and Worldwide-
Hedged's shareholders on December 31, 1992, and the new Advisory
Agreements except Mortgage Total Return were approved by the
Investment Adviser as sole shareholder of each Portfolio on February
18, 1993. Mortgage Total Return was approved by the Investment
Adviser as sole shareholder on ______________. The Sub-
Advisory Agreements were most recently approved by the Directors on
February 1, 1995. The original Sub-Advisory Agreement was approved
by Worldwide and Worldwide-Hedged shareholders on December 31,
1992, and the new Sub-Advisory Agreements were approved by the
Investment Adviser as sole shareholder of each Portfolio on
February 18, 1993
Each Advisory and Sub-Advisory Agreement is
terminable without penalty on not less than 60 days' notice by the Board
of Directors or by a vote of the holders of a majority of the relevant
Portfolio's outstanding shares voting as a single class, or upon not less
than 60 days' notice by the Investment Adviser or the Sub-Adviser. Each
Advisory and Sub-Advisory Agreement will terminate automatically in
the event of its "assignment" (as defined in the 1940 Act).
The Investment Adviser pays all of its expenses arising
from the performance of its obligations under the Advisory Agreements,
including all executive salaries and expenses of the directors and officers
of the Fund who are employees of the Investment Adviser or its affiliates
and office rent of the Fund. The Investment Adviser also pays a monthly
sales incentive fee to AMT Capital Services, Inc., the Distributor for the
Fund. See "Distribution of Fund Shares" in the Prospectus. In addition,
the Investment Adviser will pay all of the fees payable to its affiliate as
Sub-Adviser. The Sub-Adviser pays all of its expenses arising from the
performance of its obligations under the Sub-Advisory Agreements.
Subject to the expense reimbursement provisions described in the
Prospectus under "Fund Expenses", other expenses incurred in the
operation of the Fund are borne by the Fund, including, without
limitation, investment advisory fees, brokerage commissions, interest,
fees and expenses of independent attorneys, auditors, custodians,
accounting agents, transfer agents, taxes, cost of stock certificates and
any other expenses (including clerical expenses) of issue, sale,
repurchase or redemption of shares, expenses of registering and
qualifying shares of the Fund under federal and state laws and
regulations, expenses of printing and distributing reports, notices and
proxy materials to existing shareholders, expenses of printing and filing
reports and other documents filed with governmental agencies, expenses
of annual and special shareholders' meetings, fees and expenses of
directors of the Fund who are not employees of the Investment Adviser or
its affiliates, membership dues in the Investment Company Institute,
insurance premiums and extraordinary expenses such as litigation
expenses. Fund expenses directly attributable to a Portfolio are charged
to that Portfolio; other expenses are allocated proportionately among all
the Portfolios in relation to the net assets of each Portfolio.
Both the Investment Adviser and the Sub-Adviser are
directly or indirectly wholly-owned by Charter Atlantic Corporation, a
New York corporation.
As compensation (subject to expense caps as described
under "Fund Expenses" in the Prospectus) for the services rendered by
the Investment Adviser under the Advisory Agreements, each Portfolio
pays the Investment Adviser a monthly advisory fee (each of U.S. Short-
Term, Worldwide and Worldwide-Hedged pays its fees quarterly)
calculated by applying the following annual percentage rates to such
Portfolio's average daily net assets for the month (quarter):
Rate
U.S. Portfolios
U.S. Short-Term 0.30%
Stable Return 0.35%
U.S. Treasury 0.35%
Mortgage Total Retur 0.30%
Broad Market 0.35%
Global and International Portfolios
Worldwide Short-Term 0.35%
Worldwide 0.40%
Worldwide-Hedged 0.40%
International 0.40%
International-Hedged 0.40%
For the fiscal year ended December 31, 1994, the periods ended
December 31, 1993 and the periods ended December 31, 1992, the
amount of advisory fees (net of waivers and reimbursements) paid by
each Portfolio were as follows:
<TABLE>
<S> <C> <C> <C> <C>
Portfolio Six Months Ended Year Ended Periods Ended Periods Ended
June 30, 1995 December 31, 1994 December 31, 1993 December 31, 1992
U.S. Short-Term
Fixed Income
Portfolio $331,859 $625,321 $1,369,875 $2,038,477
Worldwide Fixed
Income Portfolio 26,589 517,489 595,287 0
Worldwide Fixed
Income-Hedged
Portfolio 0 35,809 120,271 0
Stable Return
Portfolio 0 0 0 N/A
Worldwide Short-
Term Fixed Income
Portfolio 62,436 182,477 0 N/A
(1) Commencement of Operations was April 15, 1992.
(2) Commencement of Operations was May 19, 1992.
(3) Commencement of Operations was July 26, 1993.
(4) Commencement of Operations was December 13, 1993.
ADMINISTRATOR
Pursuant to its terms, the Administration Agreement
between the Fund and AMT Capital Services, Inc., a Delaware
corporation will automatically continue for successive annual periods
subject to the approval of the Fund's Board of Directors. AMT Capital
provides for, or assists in managing and supervising all aspects of, the
general day-to-day business activities and operations of the Fund other
than investment advisory activities, including custodial, transfer agency,
dividend disbursing, accounting, auditing, compliance and related
services.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of _________, 1995, no shareholder was a "control
person" (as such term is defined in the 1940 Act) of the Fund.
As of _________, 1995, the following persons held 5
percent or more of the outstanding shares of U.S. Short-Term:
Title of Class Name and Address of Amount and Nature Percent of
Beneficial Owner of Beneficial Portfolio
Ownership
Common Stock, $.001 State Street Bank & Direct Ownership 24.00%
per Share Trust Co., Trustee
for Bull HN Information
Systems, Inc. - Retirement
Distribution Account, One
Enterprise Drive, North Quincy,
MA 02171
Common Stock, $.001 Wachovia Bank of Direct Ownership 17.55%
per Share North Carolina, Trustee
for RJR Nabisco Defined
Benefit Plan, P.O. Box
3099, Winston-Salem, NC
27150-3099
Common Stock, $.001 Philip Morris Companies, Direct Ownership 11.93%
per Share Inc., 120 Park Avenue,
New York 10017-5523
Common Stock, $.001 State Street Bank & Direct Ownership 7.93%
per Share Trust Co., Trustee for
Pacific Gas and Electric
Co Short_Term Liquidity
Portfolio, One Enterprise
Drive, North Quincy, MA
02171
Common Stock, $.001 State Street Bank & Direct Ownership 7.63%
per Share Trust Co., Trustee for
Bull HN Information
Systems, Inc. - Retirement
Aggregate Account, One
Enterprise Drive, North
Quincy, MA 02171
Common Stock, $.001 U.S. Trust Co., Trustee Direct Ownership 5.68%
for Corning, Inc., 777 Broadway,
10th Floor, New York, NY 10003-9598
As of ___________, 1995, the following person held 5
percent or more of the outstanding shares of Stable Return:
Title of Class Name and Address Amount and Nature Percent of
of Beneficial Owner of Beneficial Portfolio
Ownership
Common Stock, $.001 Corporation for Supportive Direct Ownership 95.87%
per Share Housing, 342 Madison
Avenue, Suite 505, New York,
NY 10173
As of ___________, 1995, the following persons held 5 percent or more
of the outstanding shares of Worldwide Short-Term:
Common Stock, $.001 Monsanto Company, 800 N. Direct Ownership 81.66%
per Share Lindbergh Blvd., Bldg. E,
St. Lousi, MO 63167
Common Stock, $.001 Henry J. Kaiser Family Direct Ownership 8.20%
per Share Foundation, c/o Bankers
Trust Co., 34 Exchange
Place - 2nd Floor Jersey
City, NJ 07302
Common Stock, $.001 Sprint (Short/Intermediate), Direct Ownership 5.75%
per Share 2330 Shawnee Mission Parkway
Westwood, KS 66205-2005
As of _____________, 1995, the following persons held 5 percent or
more of the outstanding shares of Worldwide:
Common Stock, $.001 Northrop Corporation Direct Ownership 45.53%
per Share Employee Benefit Plan,
1840 Century Park East,
Los Angeles, CA 90067-2101
Common Stock, $.001 Chase Manhattan Bank, Direct Ownership 16.04%
per Share for Amoco Corporation
Master Trust Employee
Pension Plan, 3 Chase
Metrotech Center,
Brooklyn, NY 11245
Common Stock, $.001 The Edna McConnell Clark Direct Ownership 8.20%
per Share Foundation, 250 Park
Avenue, New York, NY
10017
Common Stock, $.001 Western Pennsylvania Direct Ownership 7.69%
per Share Teamsters and Employees
Pension Fund, 49 Auto
Way, Pittsburgh, PA
15206-0260
Common Stock, $.001 U.S. Trust Company, Direct Ownership 6.94%
per Share Corning, Inc., 114 West
47th Street, New York,
NY 10036-8701
Common Stock, $.001 Cornell University, Direct Ownership 6.69%
per Share Ithaca, NY 14853-0001
Common Stock, $.001 Pension Fund of the Direct Ownership 6.36%
per Share Retirement Plan of Norfolk
Southern Corp. and Participating
Subsidiary Cos., 3 Commercial
Place, Norfolk, VA 23510-2191
As of _____________, 1995, the following persons held 5 percent or
more of the outstanding shares of Worldwide-Hedged:
Common Stock, $.001 Bankers Trust Co., Direct Ownerwhip 95.93%
per Share Trustee for Premark
International Master
Defined Benefit Trust
105884-99, 34 Exchange
Place, Jersey City, NJ
07302
DISTRIBUTION OF FUND SHARES
Shares of the Fund are distributed by AMT Capital
Services, Inc. pursuant to a Distribution Agreement (the "Distribution
Agreement") dated as of February 1, 1995 between the Fund and AMT
Capital. No fees are payable by the Fund pursuant to the Distribution
Agreement, and AMT Capital bears the expense of its distribution
activities. The Fund and AMT Capital have agreed to indemnify one
another against certain liabilities.
SUPPLEMENTAL DESCRIPTIONS OF INVESTMENTS
The different types of securities in which the Portfolios
may invest, subject to their respective investment objectives, policies and
restrictions, are described in the Prospectus under "Descriptions of
Investments". Additional information concerning the characteristics of
certain of the Portfolio's investments are set forth below.
U.S. Treasury and U.S. Government Agency Securities.
U.S. Government Securities include instruments issued by the U.S.
Treasury, including bills, notes and bonds. These instruments are direct
obligations of the U.S. Government and, as such, are backed by the full
faith and credit of the United States. They differ primarily in their
interest rates, the lengths of their maturities and the dates of their
issuances. In addition, U.S. Government Securities include securities
issued by instrumentalities of the U.S. Government, such as the
Government National Mortgage Association ("GNMA"), which are also
backed by the full faith and credit of the United States. U.S. Government
Agency Securities include instruments issued by instrumentalities
established or sponsored by the U.S. Government, such as the Student
Loan Marketing Association ("SLMA"), the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage
Corporation ("FHLMC"). While these securities are issued, in general,
under the authority of an Act of Congress, the U.S. Government is not
obligated to provide financial support to the issuing instrumentalities.
Foreign Government and International and
Supranational Agency Securities. Obligations of foreign governmental
entities have various kinds of government support and include obligations
issued or guaranteed by foreign governmental entities with taxing powers
or issued or guaranteed by international or supranational entities. These
obligations may or may not be supported by the full faith and credit of a
foreign government or several foreign governments. Examples of
international and supranational entities include the International Bank for
Reconstruction, and Development ("World Bank"), the European Steel
and Coal Community, the Asian Development Bank, the European Bank
for Reconstruction and Development and the Inter-American
Development Bank. The governmental members, or "shareholders",
usually make initial capital contributions to the supranational entity and
in many cases are committed to make additional capital contributions if
the supranational entity is unable to repay its borrowings.
Bank Obligations. The Fund limits its investments in
U.S. bank obligations to obligations of U.S. banks that in the Investment
Adviser's opinion meet sufficient creditworthiness criteria.
The Fund limits its investments in foreign bank
obligations to obligations of foreign banks (including U.S. branches of
foreign banks) that, in the opinion of the Investment Adviser or the Sub-
Adviser, are of an investment quality comparable to obligations of U.S.
banks in which each Portfolio may invest.
Corporate Debt Instruments. Corporate debt securities
of domestic and foreign issuers include such instruments as corporate
bonds, debentures, notes, commercial paper, medium-term notes,
variable rate notes and other similar corporate debt instruments. As
described in the Fund's Prospectus, U.S. Treasury will only invest in
securities rated in the highest rating category or of comparable
creditworthiness in the opinion of the Investment Adviser. Each of the
other Portfolios will invest only in those securities that are rated at least
A by S&P or Moody's rating service or determined by the Investment
Adviser or the Sub-Adviser to be of similar creditworthiness. Bonds
rated in these categories are generally described as high-grade debt
obligations with a very strong capacity to pay principal and interest on a
timely basis.
Repurchase and Reverse Repurchase Agreements.
When participating in repurchase agreements, a Portfolio buys securities
from a vendor (e.g., a bank or securities firm) with the agreement that the
vendor will repurchase the securities at the same price plus interest at a
later date. Repurchase agreements may be characterized as loans
secured by the underlying securities. Such transactions afford an
opportunity for the Portfolio to earn a return on available cash at
minimal market risk, although the Portfolio may be subject to various
delays and risks of loss if the vendor becomes subject to a proceeding
under the U.S. Bankruptcy Code or is otherwise unable to meet its
obligation to repurchase. The securities underlying a repurchase
agreement will be marked to market every business day so that the value
of such securities is at least equal to the value of the repurchase price
thereof, including the accrued interest thereon.
When participating in reverse repurchase agreements, a
Portfolio sells U.S. Government Securities and simultaneously agrees to
repurchase them at an agreed upon price and date. The difference
between the amount the Portfolio receives for the securities and the
amount it pays on repurchase is deemed to be a payment of interest. The
Fund will maintain for each Portfolio a segregated custodial account
containing cash, U.S. Government Securities or other appropriate high-
grade debt securities having an aggregate value at least equal to the
amount of such commitments to repurchase, including accrued interest,
until payment is made. Reverse repurchase agreements create leverage, a
speculative factor, but will be not considered as borrowings for the
purposes of limitations on borrowings.
In addition, repurchase and reverse repurchase
agreements may also involve the securities of certain foreign
governments in which there is an active repurchase market. The
Investment Adviser expects that such repurchase and reverse repurchase
agreements will primarily involve government securities of countries
belonging to the Organization for Economic Cooperation and
Development ("OECD"). Transactions in foreign repurchase and reverse
repurchase agreements may involve additional risks.
Dollar Roll Transactions. "Dollar roll" transactions
consist of the sale by a Portfolio to a bank or broker-dealer (the
counterparty) of GNMA certificates or other mortgage-backed
securities together with a commitment to purchase from the counterparty
similar, but not identical, securities at a future date, at the same price.
The counterparty receives all principal and interest payments, including
prepayments, made on the security while it is the holder. The Portfolio
receives a fee from the counterparty as consideration for entering into the
commitment to purchase. Dollar rolls may be renewed over a period of
several months with a new purchase and repurchase price fixed and a
cash settlement made at each renewal without physical delivery of
securities. Moreover, the transaction may be preceded by a firm
commitment agreement pursuant to which the Portfolio agrees to buy a
security on a future date.
A Portfolio will not use such transactions for leverage
purposes and, accordingly, will segregate cash, U.S. Government
securities or other high grade debt obligations in an amount sufficient to
meet its purchase obligations under the transactions.
Dollar rolls are similar to reverse repurchase agreements
because they involve the sale of a security coupled with an agreement to
repurchase. Like all borrowings, a dollar roll involves costs to a
Portfolio. For example, while a Portfolio receives a fee as consideration
for agreeing to repurchase the security, the Portfolio may forgo the right
to receive all principal and interest payments while the counterparty
holds the security. These payments to the counterparty may exceed the
fee received by the Portfolio, thereby effectively charging the Portfolio
interest on its borrowing. Further, although the Portfolio can estimate
the amount of expected principal prepayment over the term of the dollar
roll, a variation in the actual amount of prepayment could increase or
decrease the cost of the Portfolio's borrowing.
Mortgage-Backed Securities. Mortgage-backed
securities are securities which represent ownership interests in, or are
debt obligations secured entirely or primarily by, "pools" of residential or
commercial mortgage loans or other mortgage-backed securities (the
Underlying Assets). In the case of mortgage-backed securities
representing ownership interests in the Underlying Assets, the principal
and interest payments on the underlying mortgage loans are distributed
monthly to the holders of the mortgage-backed securities. In the case of
mortgage-backed securities representing debt obligations secured by the
Underlying Assets, the principal and interest payments on the underlying
mortgage loans, and any reinvestment income thereon, provide the funds
to pay debt service on such mortgage-backed securities.
Certain mortgaged-backed securities are issued that
represent an undivided fractional interest in the entirety of the Underlying
Assets (or in a substantial portion of the Underlying Assets, with
additional interests junior to that of the mortgage-backed security), and
thus have payment terms that closely resemble the payment terms of the
Underlying Assets.
In addition, many mortgage-backed securities are issued
in multiple classes. Each class of such multi-class mortgage-backed
securities ("MBS"), often referred to as a "traunche", is issued at a
specific fixed or floating coupon rate and has a stated maturity or final
distribution date. Principal prepayment on the Underlying Assets may
cause the MBSs to be retired substantially earlier than their stated
maturities or final distribution dates. Interest is paid or accrues on all or
most classes of the MBSs on a periodic basis, typically monthly or
quarterly. The principal of and interest on the Underlying Assets may be
allocated among the several classes of a series of a MBS in many
different ways. In a relatively common structure, payments of principal
(including any principal prepayments) on the Underlying Assets are
applied to the classes of a series of a MBS in the order of their respective
stated maturities so that no payment of principal will be made on any
class of MBSs until all other classes having an earlier stated maturity
have been paid in full.
Other Asset-Backed Securities. The Investment Adviser
expects that other asset-backed securities (unrelated to mortgage loans)
will be developed and offered to investors in the future. Several types of
such asset-backed securities have already been offered to investors,
including securities backed by automobile loans and credit card
receivables. Consistent with each Portfolio's investment objectives and
policies, a Portfolio may invest in other types of asset-backed securities
as they become available.
Zero Coupon Securities and Custodial Receipts. Zero
coupon securities include securities issued directly by the U.S. Treasury,
and U.S. Treasury bonds or notes and their unmatured interest coupons
and receipts for their underlying principal (the "coupons") which have
been separated by their holder, typically a custodian bank or investment
brokerage firm. A holder will separate the interest coupons from the
underlying principal (the "corpus") of the U.S. Treasury security. A
number of securities firms and banks have stripped the interest coupons
and receipts and then resold them in custodial receipt programs with a
number of different names, including "Treasury Income Growth
Receipts" ("TIGRS") and "Certificate of Accrual on Treasuries"
("CATS"). The underlying U.S. Treasury bonds and notes themselves
are held in book-entry form at the Federal Reserve Bank or, in the case of
bearer securities (i.e., unregistered securities which are owned ostensibly
by the bearer or holder thereof), in trust on behalf of the owners thereof.
Counsel to the underwriters of these certificates or other evidences of
ownership of the U.S. Treasury securities have stated that for Federal tax
and securities law purposes, in their opinion, purchasers of such
certificates, such as a Portfolio, most likely will be deemed the beneficial
holders of the underlying U.S. Treasury securities.
Recently, the Treasury has facilitated transfer of
ownership of zero coupon securities by accounting separately for the
beneficial ownership of particular interest coupon and corpus payments
on Treasury securities through the Federal Reserve book-entry record-
keeping system. The Federal Reserve program as established by the
Treasury Department is known as "Separate Trading of Registered
Interest and Principal of Securities" ("STRIPS"). Under the STRIPS
program, a Portfolio can be able to have its beneficial ownership of zero
coupon securities recorded directly in the book-entry record-keeping
system in lieu of holding certificates or other evidences of ownership of
the underlying U.S. Treasury securities.
When U.S. Treasury obligations have been stripped of
their unmatured interest coupons by the holder, the principal or corpus is
sold at a deep discount because the buyer receives only the right to
receive a future fixed payment on the security and does not receive any
rights to periodic interest (cash) payments. Once stripped or separated,
the corpus and coupons may be sold separately. Typically, the coupons
are sold separately or grouped with other coupons with like maturity
dates and sold in such bundled form. Purchasers of stripped obligations
acquire, in effect, discount obligations that are economically identical to
the zero coupon securities that the Treasury sells itself.
Loan Participations. A loan participation is an interest
in a loan to a U.S. corporation (the "corporate borrower") which is
administered and sold by an intermediary bank. The borrower of the
underlying loan will be deemed to be the issuer of the participation
interest except to the extent the Portfolio derives its rights from the
intermediary bank who sold the loan participation. Such loans must be
to issuers in whose obligations a Portfolio may invest. Any participation
purchased by a Portfolio must be issued by a bank in the United States
with assets exceeding $1 billion. See "Supplemental Discussion of Risks
Associated With the Fund's Investment Policies and Investment
Techniques".
Variable Amount Master Demand Notes. Variable
amount master demand notes permit the investment of fluctuating
amounts at varying rates of interest pursuant to direct arrangements
between a Portfolio (as lender) and the borrower. These notes are direct
lending arrangements between lenders and borrowers, and are generally
not transferable, nor are they ordinarily rated by either Moody's or S&P.
Currency-Indexed Notes. In selecting the two currencies
with respect to which currency-indexed notes are adjusted, the
Investment Adviser and the Sub-Adviser will consider the correlation and
relative yields of various currencies. Each Portfolio may purchase a
currency-indexed obligation using the currency in which it is
denominated and, at maturity, will receive interest and principal
payments thereon in that currency. The amount of principal payable by
the issuer at maturity, however, will vary (i.e., increase or decrease) in
response to the change (if any) in the exchange rate between the two
specified currencies during the period from the date the instrument is
issued to its maturity date. The potential for realizing gains as a result of
changes in foreign currency exchange rates may enable a Portfolio to
hedge the currency in which the obligation is denominated (or to effect
cross-hedges against other currencies) against a decline in the U.S. dollar
value of investments denominated in foreign currencies while providing
an attractive market rate of return. Each Portfolio will purchase such
indexed obligations to generate current income or for hedging purposes
and will not speculate in such obligations.
Principal Exchange Rate Linked Securities. Principal
exchange rate linked securities (or "PERLs") are debt obligations, the
principal on which is payable at maturity in an amount that may vary
based on the exchange rate between the U.S. dollar and a particular
foreign currency at or about that time. The return on "standard"
principal exchange rate linked securities is enhanced if the foreign
currency to which the security is linked appreciates against the U.S.
dollar, and is adversely affected by increases in the foreign exchange
value of the U.S. dollar; "reverse" principal exchange rate linked
securities are like the "standard" securities, except that their return is
enhanced by increases in the value of the U.S. dollar and adversely
impacted by increases in the value of the foreign currency. Interest
payments on the securities are generally made in U.S. dollars at rates that
reflect the degree of foreign currency risk assumed or given up by the
purchaser of the notes.
Performance Indexed Paper. Performance indexed
paper (or "PIPs") is U.S. dollar-denominated commercial paper, the yield
of which is linked to certain foreign exchange rate movements. The yield
to the investor on performance indexed paper is established at maturity
as a function of spot exchange rates between the U.S. dollar and a
designated currency as of that time. The yield to the investor will be
within a range stipulated at the time of purchase of the obligation,
generally with a guaranteed minimum rate of return that is below, and a
potential maximum rate of return that is above, market yields on U.S.
dollar-denominated commercial paper, with both the minimum and
maximum rates of return on the investment corresponding to the
minimum and maximum values of the spot exchange rate two business
days prior to maturity.
Other Foreign Currency Exchange-Related Securities.
Securities may be denominated in the currency of one nation although
issued by a governmental entity, corporation or financial institution of
another nation. For example, a Portfolio may invest in a British pound
sterling-denominated obligation issued by a United States corporation.
Such investments involve credit risks associated with the issuer and
currency risks associated with the currency in which the obligation is
denominated.
The Investment Adviser or the Sub-Adviser bases its
decision for a Portfolio to invest in any foreign currency exchange-
related securities that may be offered in the future on the same general
criteria applicable to the Investment Adviser's or Sub-Adviser's decision
for such Portfolio to invest in any debt security, including the Portfolio's
minimum ratings and investment quality criteria, with the additional
element of foreign currency exchange rate exposure added to the
Investment Adviser's or Sub-Adviser's analysis of interest rates, issuer
risk and other factors.
Securities Denominated in Multi-National Currency
Units or More Than One Currency. An illustration of a multi-national
currency unit is the European Currency Unit (the "ECU"), which is a
basket consisting of specified amounts of the currencies of the member
states of the European Community, a Western European economic
cooperative organization. The specific amounts of currencies comprising
the ECU may be adjusted by the Council of Ministers of the European
Community to reflect changes in relative values of the underlying
currencies. The Investment Adviser does not believe that such
adjustments will adversely affect holders of ECU-denominated
obligations or the marketability of such securities. European
supranational entities, in particular, issue ECU-denominated obligations.
Foreign Currency Warrants. Foreign currency warrants
such as currency exchange warrants ("CEWs") are warrants that entitle
the holder to receive from their issuer an amount of cash (generally, for
warrants issued in the United States in U.S. dollars) which is calculated
pursuant to a predetermined formula and based on the exchange rate
between a specified foreign currency and the U.S. dollar as of the
exercise date of the warrant. Foreign currency warrants generally are
exercisable upon their issuance and expire as of a specified date and
time. Foreign currency warrants have been issued in connection with
U.S. dollar-denominated debt offerings by major corporate issuers in an
attempt to reduce the foreign currency exchange risk which, from the
point of view of prospective purchasers of the securities, is inherent in
the international fixed income marketplace. The formula used to
determine the amount payable upon exercise of a foreign currency
warrant may make the warrant worthless unless the applicable foreign
currency exchange rate moves in a particular direction (e.g., unless the
U.S. dollar appreciates or depreciates against the particular foreign
currency to which the warrant is linked or indexed). In addition, foreign
currency warrants are subject to other risks associated with foreign
securities, including risks arising from complex political or economic
factors.
Municipal Instruments. Municipal notes may include
such instruments as tax anticipation notes, revenue anticipation notes,
and bond anticipation notes. Municipal notes are issued by state and
local governments and public authorities as interim financing in
anticipation of tax collections, revenue receipts or bond sales. Municipal
bonds, which may be issued to raise money for various public purposes,
include general obligation bonds and revenue bonds. General obligation
bonds are backed by the taxing power of the issuing municipality and are
considered the safest type of bonds. Revenue bonds are backed by the
revenues of a project or facility such as the tolls from a toll bridge.
Industrial development revenue bonds are a specific type of revenue bond
backed by the credit and security of a private user. Revenue bonds are
generally considered to have more potential risk than general obligation
bonds.
Municipal obligations can have floating, variable or
fixed rates. The value of floating and variable rate obligations generally
is more stable than that of fixed rate obligations in response to changes in
interest rate levels. Variable and floating rate obligations usually carry
rights that permit a Portfolio to sell them at par value plus accrued
interest upon short notice. The issuers or financial intermediaries
providing rights to sell may support their ability to purchase the
obligations by obtaining credit with liquidity supports. These may
include lines of credit, which are conditional commitments to lend, letters
of credit, which will ordinarily be irrevocable, both issued by domestic
banks or foreign banks which have a branch, agency or subsidiary in the
United States. When considering whether an obligation meets a
Portfolio's quality standards, the Investment Adviser will look at the
creditworthiness of the party providing the right to sell as well as to the
quality of the obligation itself.
Municipal securities may be issued to finance private
activities, the interest from which is an item of tax preference for
purposes of the federal alternative minimum tax. Such "private activity"
bonds might include industrial development revenue bonds, and bonds
issued to finance such projects as solid waste disposal facilities, student
loans or water and sewage projects.
SUPPLEMENTAL INVESTMENT TECHNIQUES
Borrowing. Each Portfolio may borrow money
temporarily from banks when (i) it is advantageous to do so in order to
meet redemption requests, (ii) a Portfolio fails to receive transmitted
funds from a shareholder on a timely basis, (iii) the custodian of the Fund
fails to complete delivery of securities sold or (iv) a Portfolio needs cash
to facilitate the settlement of trades made by the Portfolio. In addition,
each Portfolio may, in effect, lend securities by engaging in reverse
repurchase agreements and/or dollar roll transactions and may, in effect,
borrow money by doing so. Securities may be borrowed by engaging in
repurchase agreements. See "Investment Restrictions" and
Supplemental Descriptions of Investments.
Securities Lending. Each Portfolio, except U.S. Short-
Term, is authorized to lend securities from its investment portfolios, with
a value not exceeding 33 1/3% of its total assets, to banks, brokers and
other financial institutions if it receives collateral in cash, U.S.
Government Securities or irrevocable bank stand-by letters of credit
which will be maintained at all times in an amount equal to at least 100%
of the current market value of the loaned securities. The loans will be
terminable at any time by the Fund and the relevant Portfolio will then
receive the loaned securities within five days. During the period of such
a loan, the Portfolio receives the income on the loaned securities and a
loan fee and may thereby increase its total return.
SUPPLEMENTAL DISCUSSION OF RISKS ASSOCIATED WITH THE FUND'S INVESTMENT
POLICIES AND INVESTMENT TECHNIQUES
The risks associated with the different types of securities
in which the Portfolios may invest are described in the Prospectus under
Risks Associated With the Fund's Investment Policies and Investment
Techniques. Additional information concerning risks associated with
certain of the Portfolio's investments is set forth below.
Foreign Investments. Foreign financial markets, while
growing in volume, have, for the most part, substantially less volume
than United States markets, and securities of many foreign companies are
less liquid and their prices more volatile than securities of comparable
domestic companies. The foreign markets also have different clearance
and settlement procedures, and in certain markets there have been times
when settlements have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions.
Delivery of securities may not occur at the same time as payment in some
foreign markets. Delays in settlement could result in temporary periods
when a portion of the assets of a Portfolio is uninvested and no return is
earned thereon. The inability of a Portfolio to make intended security
purchases due to settlement problems could cause the Portfolio to miss
attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to a
Portfolio due to subsequent declines in value of the portfolio security or,
if the Portfolio has entered into a contract to sell the security, could result
in possible liability to the purchaser. There is generally less government
supervision and regulation of exchanges, financial institutions and issuers
in foreign countries than there is in the United States. In addition, a
foreign government may impose exchange control regulations which may
have an impact on currency exchange rates.
Foreign Bank Obligations. Obligations of foreign banks
involve somewhat different investment risks than those affecting
obligations of United States banks, including the possibilities that their
liquidity could be impaired because of future political and economic
developments, that their obligations may be less marketable than
comparable obligations of United States banks, that a foreign jurisdiction
might impose withholding taxes on interest income payable on those
obligations, that foreign deposits may be seized or nationalized, that
foreign governmental restrictions such as exchange controls may be
adopted that might adversely affect the payment of principal and interest
on those obligations and that the selection of those obligations may be
more difficult because there may be less publicly available information
concerning foreign banks or the accounting, auditing and financial
reporting standards, practices and requirements applicable to foreign
banks may differ from those applicable to United States banks. Foreign
banks are not generally subject to examination by any United States
government agency or instrumentality. Also, investments in commercial
banks located in several foreign countries are subject to additional risks
due to the combination in such banks of commercial banking and
diversified securities activities.
Dollar Roll Transactions. The entry into dollar rolls
involves potential risks of loss which are different from those related to
the securities underlying the transactions. For example, if the
counterparty becomes insolvent, a Portfolio's right to purchase from the
counterparty might be restricted. Additionally, the value of such
securities may change adversely before the Portfolio is able to purchase
them. Similarly, a Portfolio may be required to purchase securities in
connection with a dollar roll at a higher price than may otherwise be
available on the open market. Since, as noted above under
Supplemental Descriptions of Investments, the counterparty is required
to deliver a similar, but not identical, security to a Portfolio, the security
which the Portfolio is required to buy under the dollar roll may be worth
less than an identical security. Finally, there can be no assurance that a
Portfolio's use of cash that it receives from a dollar roll will provide a
return that exceeds borrowing costs.
Mortgage and Other Asset-Backed Securities.
Prepayments on securitized assets such as mortgages, automobile loans
and credit card receivables ("Securitized Assets") generally increase with
falling interest rates and decrease with rising interest rates; furthermore,
prepayment rates are influenced by a variety of economic and social
factors. In general, the collateral supporting non-mortgage asset-backed
securities is of shorter maturity than mortgage loans and is less likely to
experience substantial prepayments. In addition to prepayment risk,
borrowers on the underlying Securitized Assets may default in their
payments creating delays or loss of principal.
Non-mortgage asset-backed securities involve certain
risks that are not presented by mortgage-backed securities. Primarily,
these securities do not have the benefit of a security interest in assets
underlying the related mortgage collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which give
such debtors the right to set off certain amounts owed on the credit cards,
thereby reducing the balance due. Most issuers of automobile
receivables permit the servicers to retain possession of the underlying
obligations. If the servicer were to sell these obligations to another party,
there is a risk that the purchaser would acquire an interest superior to
that of the holders of the related automobile receivables. In addition,
because of the large number of vehicles involved in a typical issuance
and technical requirements under state laws, the trustee for the holders of
the automobile receivables may not have an effective security interest in
all of the obligations backing such receivables. Therefore, there is a
possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities.
Some forms of asset-backed securities are relatively new
forms of investments. Although each Portfolio will only invest in
asset-backed securities that the Investment Adviser believes are liquid,
because the market experience in certain of these securities is limited, the
market's ability to sustain liquidity through all phases of a market cycle
may not have been tested.
Forward Commitments. Each Portfolio may purchase
securities on a when-issued or forward commitment basis, which involves
a risk of loss if the value of the securities to be purchased increases prior
to the settlement date and the counterparty to the trade fails to execute
the transaction. If this were to occur, the net asset value of a Portfolio,
which includes any appreciation or depreciation of a security purchased
on a forward basis, would decline by the amount of such unrealized
appreciation.
Loan Participations. Because the issuing bank of a loan
participation does not guarantee the participation in any way, it is subject
to the credit risks generally associated with the underlying corporate
borrower. In addition, because it may be necessary under the terms of
the loan participation for a Portfolio to assert through the issuing bank
such rights as may exist against the underlying corporate borrower, in
the event that the underlying corporate borrower should fail to pay
principal and interest when due, the Portfolio could be subject to delays,
expenses and risks which are greater than those which would have been
involved if the Portfolio had purchased a direct obligation (such as
commercial paper) of the borrower. Moreover, under the terms of the
loan participation, the purchasing Portfolio may be regarded as a creditor
of the issuing bank (rather than of the underlying corporate borrower), so
that the Portfolio also may be subject to the risk that the issuing bank
may become insolvent. Further, in the event of the bankruptcy or
insolvency of the corporate borrower, the loan participation might be
subject to certain defenses that can be asserted by a borrower as a result
of improper conduct by the issuing bank. The secondary market, if any,
for these loan participation interests is limited, and any such participation
purchased by a Portfolio will be treated as illiquid, until the Board of
Directors determines that a liquid market exists for such participations.
Loan participations will be valued at their fair market value, as
determined by procedures approved by the Board of Directors.
Short Selling. As discussed in detail in the
Prospectus, the risks of shorting securities are distinctly different from
the risks of holding long positions. Investors, however, are not
exposed to the type of risk typically associated with short sales
techniques the risk of losing all of the capital they have invested as
a result of an increase in the value of a security since the Mortgage
Total Return Portfolio is restricted to purchasing short positions in a
single security to not more than 2% of the Portfolio's net assets.
SUPPLEMENTAL TECHNIQUES TO HEDGE INTEREST RATE AND FOREIGN CURRENCY RISKS
AND OTHER FOREIGN CURRENCY STRATEGIES
Each of the Portfolios may enter into forward foreign
currency contracts (a "forward contract") and may purchase and write
(on a covered basis) exchange-traded or over-the-counter ("OTC")
options on currencies, foreign currency futures contracts and options on
foreign currency futures contracts primarily to protect against a decrease
in the U.S. Dollar equivalent value of its foreign currency portfolio
securities or the payments thereon that may result from an adverse
change in foreign currency exchange rates. Under normal circumstances,
each of Worldwide-Hedged and International-Hedged intends to hedge its
currency exchange risk to the fullest extent feasible, but there can be no
assurance that all of the assets of either Portfolio denominated in foreign
currencies will be hedged at any time, or that any such hedge will be
effective. Each of the other Portfolios may at times, at the discretion of
the Investment Adviser and the Sub-Adviser, hedge all or some portion of
its currency exchange risk.
Conditions in the securities, futures, options and foreign
currency markets will determine whether and under what circumstances
the Fund will employ any of the techniques or strategies described below.
The Fund's ability to pursue certain of these strategies may be limited by
applicable regulations of the Commodity Futures Trading Commission
("CFTC") and the federal tax requirements applicable to regulated
investment companies. See "Restrictions on the Use of Futures
Transactions" under "Investment Techniques - Hedging Strategies" in the
Prospectus, and "Tax Considerations" below.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS AND ASSOCIATED RISKS
Each Portfolio may, but generally the Global Portfolios
will, purchase forward contracts. A forward contract obligates one party
to purchase and the other party to sell a definite amount of a given
foreign currency at some specified future date.
In some circumstances the purchase or sale of
appropriate forward contracts may help offset declines in the U.S. dollar-
equivalent value of a Portfolio's foreign currency denominated assets and
income available for distribution to such Portfolio's shareholders that
result from adverse changes in the exchange rate between the U.S. dollar
and the various foreign currencies in which a Portfolio's assets or income
may be denominated. The U.S. dollar-equivalent value of the principal
of and rate of return on foreign currency denominated securities will
decline if the exchange rate of the U.S. dollar rises in relation to that
currency. Such declines could be partially or completely offset by an
increase in the value of a forward contract on that foreign currency.
In addition to entering into forward contracts with
respect to assets that a Portfolio holds (a "position hedge"), the
Investment Adviser or the Sub-Adviser may purchase or sell forward
contracts or foreign currency options in a particular currency with
respect to specific anticipated transactions (a "transaction hedge"). By
purchasing forward contracts, the Investment Adviser or Sub-Adviser
can establish the rate at which a Portfolio will be contractually entitled to
exchange U.S. dollars for a foreign currency or a foreign currency for
U.S. dollars at some point in the future and thereby lock in the U.S.
dollar cost of purchasing foreign currency denominated portfolio
securities or set the U.S. dollar value of the income from securities it
owns or the proceeds from securities it intends to sell.
While the use of foreign currency forward contracts may
protect a Portfolio against declines in the U.S. dollar-equivalent value of
the Portfolio's assets, such use will reduce the possible gain from
advantageous changes in the value of the U.S. dollar against particular
currencies in which their assets are denominated. Moreover, the use of
foreign currency forward contracts will not eliminate fluctuations in the
underlying U.S. dollar-equivalent value of the prices of or rates of return
on the assets held in the portfolio and the use of such techniques will
subject the Portfolio to certain risks.
The foreign exchange markets can be highly volatile,
subject to sharp price fluctuations. In addition, trading forward contracts
can involve a degree of leverage. As a result, relatively small movements
in the rates of exchange between the currencies underlying a contract
could result in immediate and substantial losses to the investor. Trading
losses that are not offset by corresponding gains in assets being hedged
could reduce the value of assets held by a Portfolio.
Moreover, the precise matching of the forward contract
amounts and the value of the hedged portfolio securities involved will not
generally be possible because the future value of such foreign currency
denominated portfolio securities will change as a consequence of market
movements in the value of those securities unrelated to changes in
exchange rates and the U.S. dollar-equivalent value of such assets
between the date the forward contract is entered into and the date that it
is sold. Accordingly, it may be necessary for a Portfolio to purchase
additional foreign currency in the cash market (and to bear the expense of
such purchase) if the market value of the security is less than the amount
of the foreign currency it may be obligated to deliver pursuant to the
forward contract.
The success of any currency hedging technique will
depend on the ability of the Investment Adviser or Sub-Adviser correctly
to predict movements in foreign currency exchange rates. If the
Investment Adviser or Sub-Adviser incorrectly predicts the direction of
such movements or if unanticipated changes in foreign currency
exchange rates occur, a Portfolio's performance will be poorer than if
they had not entered into such contracts. The accurate projection of
currency market movements is extremely difficult, and the successful
execution of a hedging strategy is highly uncertain.
The cost to a Portfolio of engaging in foreign currency
forward contracts will vary with factors such as the foreign currency
involved, the length of the contract period and the market conditions then
prevailing, including general market expectations as to the direction of
the movement of various foreign currencies against the U.S. dollar.
Furthermore, the Investment Adviser or Sub-Adviser may not be able to
purchase forward contracts with respect to all of the foreign currencies in
which the Portfolio's portfolio securities may be denominated. In those
circumstances the correlation between the movements in the exchange
rates of the subject currency and the currency in which the portfolio
security is denominated may not be precise. Moreover, if the forward
contract is entered into in an over-the-counter transaction, the Portfolio
generally will be exposed to the credit risk of its counterparty. If a
Portfolio enters into such contracts on a foreign exchange, the contract
will be subject to the rules of that foreign exchange. Foreign exchanges
may impose significant restrictions on the purchase, sale or trading of
such contracts, including the imposition of limits on price moves. Such
limits may significantly affect the ability to trade such a contract or
otherwise to close out the position and could create potentially significant
discrepancies between the cash and market value of the position in the
forward contract. Finally, the cost of purchasing forward contracts in a
particular currency will reflect, in part, the rate of return available on
instruments denominated in that currency. The cost of purchasing
forward contracts to hedge portfolio securities that are denominated in
currencies that in general yield high rates of return may thus tend to
reduce that rate of return toward the rate of return that would be earned
on assets denominated in U.S. dollars.
Other Strategies of Worldwide Short-Term, Worldwide
and International. The Global and International Portfolios may use
forward contracts to hedge the value of portfolio securities against
changes in exchange rates; however, unlike the other Global and
International Portfolios, Worldwide-Hedged and International-Hedged
will not use forward contracts to seek to enhance the rate of return on its
portfolio. Each of Worldwide Short-Term, Worldwide and International
may also attempt to enhance the return on its portfolio by entering into
forward contracts and currency options, as discussed below, in a
particular currency in an amount in excess of the value of its assets
denominated in that currency or when it does not own assets denominated
in that currency. If the Investment Adviser or Sub-Adviser is not able
correctly to predict the direction and extent of movements in foreign
currency exchange rates, entering into such forward or option contracts
may decrease rather than enhance the return on such Portfolio. In
addition, if such a Portfolio enters into forward contracts when it does
not own assets denominated in that currency, the Portfolio's volatility
may increase and losses on such contracts will not be offset by increases
in the value of Portfolio assets.
OPTIONS
Options on Foreign Currencies. Each Portfolio may
purchase and sell (or write) put and call options on foreign currencies to
protect against a decline in the U.S. dollar-equivalent value of its
portfolio securities or payments due thereon or a rise in the U.S. dollar-
equivalent cost of securities that it intends to purchase. A foreign
currency put option grants the holder the right, but not the obligation, at
a future date to sell a specified amount of a foreign currency to its
counterparty at a predetermined price. Conversely, a foreign currency
call option grants the holder the right, but not the obligation, to purchase
at a future date a specified amount of a foreign currency at a
predetermined price.
As in the case of other types of options, the benefit to a
Portfolio deriving from the purchase of foreign currency options will be
reduced by the amount of the premium and related transaction costs. In
addition, where currency exchange rates do not move in the direction or
to the extent anticipated, the Portfolio could sustain losses on
transactions in foreign currency options which would require them to
forego a portion or all of the benefits of advantageous changes in such
rates.
Each Portfolio may write options on foreign currencies
for hedging purposes. For example, where a Portfolio anticipates a
decline in the dollar value of foreign currency denominated securities due
to adverse fluctuations in exchange rates it could, instead of purchasing a
put option, write a call option on the relevant currency. If the expected
decline occurs, the option will most likely not be exercised, and the
decrease in value of portfolio securities will be offset by the amount of
the premium received.
Similarly, instead of purchasing a call option to hedge
against an anticipated increase in the dollar costs of securities to be
acquired, a Portfolio could write a put option on the relevant currency
which, if rates move in the manner projected, will expire unexercised and
allow the Portfolio to hedge such increased costs up to the amount of the
premium. As in the case of other types of options, however, the writing
of a foreign currency option will constitute only a partial hedge up to the
amount of the premium, and only if rates move in the expected direction.
If this movement does not occur, the option may be exercised
Portfolio would be required to purchase or sell the underlying currency at
a loss which may not be fully offset by the amount of the premium.
Through the writing of options on foreign currencies, a Portfolio also
may be required to forego all or a portion of the benefits that might
otherwise have been obtained from favorable movements in exchange
rates.
Options on Securities. Each Portfolio may also enter
into closing sale transactions with respect to options it has purchased. A
put option on a security grants the holder the right, but not the obligation,
at a future date to sell the security to its counterparty at a predetermined
price. Conversely, a call option on a security grants the holder the right,
but not the obligation, to purchase at a future date the security
underlying the option at a predetermined price.
A Portfolio would normally purchase put options in
anticipation of a decline in the market value of securities in its portfolio
or securities it intends to purchase. If such Portfolio purchased a put
option and the value of the security in fact declined below the strike price
of the option, such Portfolio would have the right to sell that security to
its counterparty for the strike price (or realize the value of the option by
entering into a closing transaction), and consequently would protect itself
against any further decrease in the value of the security during the term
of the option.
Conversely, if the Investment Adviser or Sub-Adviser
anticipates that a security that it intends to acquire will increase in value,
it might cause a Portfolio to purchase a call option on that security or
securities similar to that security. If the value of the security does rise,
the call option may wholly or partially offset the increased price of the
security. As in the case of other types of options, however, the benefit to
the Portfolio will be reduced by the amount of the premium paid to
purchase the option and any related transaction costs. If, however, the
value of the security fell instead of rose, the Portfolio would have
foregone a portion of the benefit of the decreased price of the security in
the amount of the option premium and the related transaction costs.
A Portfolio would purchase put and call options on
securities indices for the same purposes as it would purchase options on
securities. Options on securities indices are similar to options on
securities except that the options reflect the change in price of a group of
securities rather than an individual security and the exercise of options on
securities indices are settled in cash rather than by delivery of the
securities comprising the index underlying the option.
Transactions by a Portfolio in options on securities and
securities indices will be governed by the rules and regulations of the
respective exchanges, boards of trade or other trading facilities on which
the options are traded.
Considerations Concerning Options. The writer of an
option receives a premium which it retains regardless of whether the
option is exercised. The purchaser of a call option has the right, for a
specified period of time, to purchase the securities or currency subject to
the option at a specified price (the "exercise price"). By writing a call
option, the writer becomes obligated during the term of the option, upon
exercise of the option, to sell the underlying securities or currency to the
purchaser against receipt of the exercise price. The writer of a call
option also loses the potential for gain on the underlying securities or
currency in excess of the exercise price of the option during the period
that the option is open.
Conversely, the purchaser of a put option has the right,
for a specified period of time, to sell the securities or currency subject to
the option to the writer of the put at the specified exercise price. The
writer of a put option is obligated during the term of the option, upon
exercise of the option, to purchase securities or currency underlying the
option at the exercise price. A writer might, therefore, be obligated to
purchase the underlying securities or currency for more than their current
market price or U.S. dollar value, respectively.
Each Portfolio may purchase and sell both exchange-
traded and OTC options. Currently, although many options on equity
securities and options on currencies are exchange-traded, options on debt
securities are primarily traded in the over-the-counter market. The writer
of an exchange-traded option that wishes to terminate its obligation may
effect a "closing purchase transaction". This is accomplished by buying
an option of the same series as the option previously written. Options of
the same series are options with respect to the same underlying security
or currency, having the same expiration date and the same exercise price.
Likewise, an investor who is the holder of an option may liquidate a
position by effecting a "closing sale transaction". This is accomplished
by selling an option of the same series as the option previously
purchased. There is no guarantee that either a closing purchase or a
closing sale transaction can be effected.
An exchange-traded option position may be closed out
only where there exists a secondary market for an option of the same
series. For a number of reasons, a secondary market may not exist for
options held by a Portfolio, or trading in such options might be limited or
halted by the exchange on which the option is trading, in which case it
might not be possible to effect closing transactions in particular options
the Portfolio has purchased with the result that the Portfolio would have
to exercise the options in order to realize any profit. If the Portfolio is
unable to effect a closing purchase transaction in a secondary market in
an option the Portfolio has written, it will not be able to sell the
underlying security or currency until the option expires or deliver the
underlying security or currency upon exercise or otherwise cover its
position.
Exchange-traded options in the United States are issued
by a clearing organization affiliated with the exchange on which the
option is listed which, in effect, guarantees every exchange-traded option
transaction. In contrast, OTC options are contracts between a Portfolio
and its counterparty with no clearing organization guarantee. Thus,
when the Portfolio purchases OTC options, it relies on the dealer from
which it purchased the OTC option to make or take delivery of the
securities underlying the option. Failure by the dealer to do so would
result in the loss of the premium paid by the Portfolio as well as the loss
of the expected benefit of the transaction. The Investment Adviser or
Sub-Adviser will only purchase options from dealers determined by the
Investment Adviser to be creditworthy.
Exchange-traded options generally have a continuous
liquid market whereas OTC options may not. Consequently, a Portfolio
will generally be able to realize the value of an OTC option it has
purchased only by exercising it or reselling it to the dealer who issued it.
Similarly, when the Portfolio writes an OTC option, it generally will be
able to close out the OTC option prior to its expiration only by entering
into a closing purchase transaction with the dealer to which the Portfolio
originally wrote the OTC option. Although a Portfolio will enter into
OTC options only with dealers that agree to enter into, and that are
expected to be capable of entering into, closing transactions with the
Portfolio, there can be no assurance that the Portfolio will be able to
liquidate an OTC option at a favorable price at any time prior to
expiration. Until the Portfolio is able to effect a closing purchase
transaction in a covered OTC call option the Portfolio has written, it will
not be able to liquidate securities used as cover until the option expires or
is exercised or different cover is substituted. In the event of insolvency
of the counterparty, the Portfolio may be unable to liquidate an OTC
option. In the case of options written by a Portfolio, the inability to enter
into a closing purchase transaction may result in material losses to the
Portfolio. For example, since the Portfolio must maintain a covered
position with respect to any call option on a security it writes, the
Portfolio may be limited in its ability to sell the underlying security while
the option is outstanding. This may impair the Portfolio's ability to sell a
portfolio security at a time when such a sale might be advantageous.
There is no systematic reporting of last sale information
for foreign currencies or any regulatory requirement that quotations
available through dealers or other market sources be firm or revised on a
timely basis. Quotation information available is generally representative
of very large transactions in the interbank market and thus may not
reflect relatively smaller transactions (i.e., less than $1 million) where
rates may be less favorable. The interbank market in foreign currencies
is a global, around-the-clock market. To the extent that the U.S. options
markets are closed while the markets for the underlying currencies
remain open, significant price and rate movements may take place in the
underlying markets that cannot be reflected in the options market until
they reopen. Because foreign currency transactions occurring in the
interbank market involve substantially larger amounts than those that
may be involved in the use of foreign currency options, investors may be
disadvantaged by having to deal in an odd lot market (generally
consisting of transactions of less than $1 million) for the underlying
foreign currencies at prices that are less favorable than for round lots.
The use of options to hedge a Portfolio's foreign
currency-denominated portfolio, or to enhance Worldwide Short-Term's,
Worldwide's or International's return raises additional considerations. As
described above, a Portfolio may, among other things, purchase call
options on securities it intends to acquire in order to hedge against
anticipated market appreciation in the price of the underlying security or
currency. If the market price does increase as anticipated, the Portfolio
will benefit from that increase but only to the extent that the increase
exceeds the premium paid and related transaction costs. If the
anticipated rise does not occur or if it does not exceed the amount of the
premium and related transaction costs, the Portfolio will bear the expense
of the options without gaining an offsetting benefit. If the market price
of the underlying currency or securities should fall instead of rise, the
benefit the Portfolio obtains from purchasing the currency or securities at
a lower price will be reduced by the amount of the premium paid for the
call options and by transaction costs.
Each Portfolio also may purchase put options on
currencies or portfolio securities when it believes a defensive posture is
warranted. Protection is provided during the life of a put option because
the put gives the Portfolio the right to sell the underlying currency or
security at the put exercise price, regardless of a decline in the underlying
currency's or security's market price below the exercise price. This right
limits the Portfolio's losses from the currency's or security's possible
decline in value below the exercise price of the option to the premium
paid for the option and related transaction costs. If the market price of
the currency or the Portfolio's securities should increase, however, the
profit that the Portfolio might otherwise have realized will be reduced by
the amount of the premium paid for the put option and by transaction
costs.
The value of an option position will reflect, among other
things, the current market price of the underlying currency or security,
the time remaining until expiration, the relationship of the exercise price
to the market price, the historical price volatility of the underlying
currency or security and general market conditions. For this reason, the
successful use of options as a hedging strategy depends upon the ability
of the Investment Adviser or the Sub-Adviser to forecast the direction of
price fluctuations in the underlying currency or securities market.
Options normally have expiration dates of up to nine
months. The exercise price of the options may be below, equal to or
above the current market values of the underlying securities or currency
at the time the options are written. Options purchased by a Portfolio that
expire unexercised have no value, and therefore a loss will be realized in
the amount of the premium paid (and related transaction costs). If an
option purchased by any Portfolio is in-the-money prior to its expiration
date, unless the Portfolio exercises the option or enters into a closing
transaction with respect to that position, the Portfolio will not realize any
gain on its option position.
A Portfolio's activities in the options market may result
in a higher portfolio turnover rates and additional brokerage costs.
Nevertheless, the Portfolio may also save on commissions and
transaction costs by hedging through such activities rather than buying or
selling securities or foreign currencies in anticipation of market moves or
foreign exchange rate fluctuations.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Futures Contracts. Each Portfolio may enter into
contracts for the purchase or sale for future delivery (a "futures
contract") of fixed-income securities or foreign currencies, or contracts
based on financial indices including any index of U.S. Government
Securities, foreign government securities or corporate debt securities.
U.S. futures contracts have been designed by exchanges which have been
designated as "contracts markets" by the CFTC, and must be executed
through a futures commission merchant, or brokerage firm, which is a
member of the relevant contract market. Futures contracts trade on a
number of exchange markets and, through their clearing corporations, the
exchanges guarantee performance of the contracts as between the
clearing members of the exchange. A Portfolio will enter into futures
contracts that are based on debt securities that are backed by the full
faith and credit of the U.S. Government, such as long-term U.S.
Treasury Bonds, Treasury Notes, GNMA-modified pass-through
mortgage-backed securities and three-month U.S. Treasury Bills. Each
Portfolio may also enter into futures contracts that are based on
securities that would be eligible investments for such Portfolio and that
are denominated in currencies other than the U.S. dollar, including,
without limitation, futures contracts based on government bonds issued
in the United Kingdom, Japan, the Federal Republic of Germany, France
and Australia and futures contracts based on three-month Euro-deposit
contracts in the major currencies.
A Portfolio would purchase or sell futures contracts to
attempt to protect the U.S. dollar-equivalent value of its securities from
fluctuations in interest or foreign exchange rates without actually buying
or selling securities or foreign currency. For example, if a Portfolio
expected the value of a foreign currency to increase against the U.S.
dollar, the Portfolio might enter into futures contracts for the sale of that
currency. Such a sale would have much the same effect as selling an
equivalent value of foreign currency. If the currency did increase, the
value of the securities in the portfolio would decline, but the value of the
futures contracts to the Portfolio would increase at approximately the
same rate, thereby keeping the net asset value of the Portfolio from
declining as much as it otherwise would have.
Although futures contracts by their terms call for the
actual delivery or acquisition of securities or currency, in most cases the
contractual obligation is fulfilled before the date of the contract without
having to make or take delivery of the securities or currency. The
offsetting of a contractual obligation is accomplished by buying (or
selling, as the case may be) on a commodities exchange an identical
futures contract calling for delivery in the same month. Such a
transaction, which is effected through a member of an exchange, cancels
the obligation to make or take delivery of the securities or currency.
Since all transactions in the futures market are made, offset or fulfilled
through a clearinghouse associated with the exchange on which the
contracts are traded, a Portfolio will incur brokerage fees when it
purchases or sells futures contracts.
At the time a futures contract is purchased or sold, the
Portfolio must allocate cash or securities as a deposit payment ("initial
margin"). It is expected that the initial margin on U.S. exchanges may
range from approximately 3% to approximately 15% of the value of the
securities or commodities underlying the contract. Under certain
circumstances, however, such as periods of high volatility, the Portfolio
may be required by an exchange to increase the level of its initial margin
payment. Additionally, initial margin requirements may be increased
generally in the future by regulatory action. An outstanding futures
contract is valued daily and the payment in cash of "variation margin"
may be required, a process known as "marking to the market". Each day
the Portfolio will be required to provide (or will be entitled to receive)
variation margin in an amount equal to any decline (in the case of a long
futures position) or increase (in the case of a short futures position) in the
contract's value since the preceding day.
Futures contracts entail special risks. Among other
things, the ordinary spreads between values in the cash and futures
markets, due to differences in the character of these markets, are subject
to distortions relating to (1) investors' obligations to meet additional
variation margin requirements, (2) decisions to make or take delivery,
rather than entering into offsetting transactions and (3) the difference
between margin requirements in the securities markets and margin
deposit requirements in the futures market. The possibility of such
distortion means that a correct forecast of general market, foreign
exchange rate or interest rate trends by the Investment Adviser or Sub-
Adviser may still not result in a successful transaction.
Although the Investment Adviser believes that use of
such contracts and options thereon will benefit the Portfolios, if the
Investment Adviser's judgment about the general direction of securities
market movements, foreign exchange rates or interest rates is incorrect, a
Portfolio's overall performance would be poorer than if it had not entered
into any such contracts or purchased or written options thereon. For
example, if a Portfolio had hedged against the possibility of an increase
in interest rates which would adversely affect the price of debt securities
held in its portfolio and interest rates decreased instead, the Portfolio
would lose part or all of the benefit of the increased value of its assets
which it had hedged because it would have offsetting losses in its futures
positions. In addition, particularly in such situations, if the Portfolio has
insufficient cash, it may have to sell assets from its portfolio to meet
daily variation margin requirements. Any such sale of assets may, but
will not necessarily, be at increased prices which reflect the rising
market. Consequently, the Portfolio may have to sell assets at a time
when it may be disadvantageous to do so.
A Portfolio's ability to establish and close out positions
in futures contracts and options on futures contracts will be subject to the
development and maintenance of a liquid market. Although a Portfolio
generally will purchase or sell only those futures contracts and options
thereon for which there appears to be a liquid market, there is no
assurance that a liquid market on an exchange will exist for any
particular futures contract or option thereon at any particular time.
Where it is not possible to effect a closing transaction in a contract to do
so at a satisfactory price, the Portfolio would have to make or take
delivery under the futures contract or, in the case of a purchased option,
exercise the option. In the case of a futures contract that a Portfolio has
sold and is unable to close out, the Portfolio would be required to
maintain margin deposits on the futures contract and to make variation
margin payments until the contract is closed.
Under certain circumstances, exchanges may establish
daily limits in the amount that the price of a futures contract or related
option contract may vary either up or down from the previous day's
settlement price. Once the daily limit has been reached in a particular
contract, no trades may be made that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading
day and therefore does not limit potential losses because the limit may
prevent the liquidation of unfavorable positions. Futures or options
contract prices could move to the daily limit for several consecutive
trading days with little or no trading and thereby prevent prompt
liquidation of positions and subject some traders to substantial losses.
Buyers and sellers of foreign currency futures contracts
are subject to the same risks that apply to the use of futures generally. In
addition, there are risks associated with foreign currency futures
contracts and their use as hedging devices similar to those associated
with options on foreign currencies described above. Further, settlement
of a foreign currency futures contract must occur within the country
issuing the underlying currency. Thus, a Portfolio must accept or make
delivery of the underlying foreign currency in accordance with any U.S.
or foreign restrictions or regulations regarding the maintenance of foreign
banking arrangements by U.S. residents and may be required to pay any
fees, taxes or charges associated with such delivery that are assessed in
the country of the underlying currency.
Options on Futures Contracts. The purchase of a call
option on a futures contract is similar in some respects to the purchase of
a call option on an individual security or currency. Depending on the
pricing of the option compared to either the price of the futures contract
upon which it is based or the price of the underlying securities or
currency, it may or may not be less risky than ownership of the futures
contract or the underlying securities or currency. As with the purchase
of futures contracts, when a Portfolio is not fully invested it may
purchase a call option on a futures contract to hedge against a market
advance due to declining interest rates or a change in foreign exchange
rates.
The writing of a call option on a futures contract
constitutes a partial hedge against declining prices of the security or
foreign currency which is deliverable upon exercise of the futures
contract. If the futures price at expiration of the option is below the
exercise price, a Portfolio will retain the full amount of the option
premium which provides a partial hedge against any decline that may
have occurred in the Portfolio's portfolio holdings. The writing of a put
option on a futures contract constitutes a partial hedge against increasing
prices of the security or foreign currency which is deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is higher than the exercise price, the Portfolio will retain the full
amount of the option premium which provides a partial hedge against
any increase in the price of securities which a Portfolio intends to
purchase. If a put or call option a Portfolio has written is exercised, the
Portfolio will incur a loss that will be reduced by the amount of the
premium it receives. Depending on the degree of correlation between
changes in the value of its portfolio securities and changes in the value of
its futures positions, a Portfolio's losses from existing options on futures
may to some extent be reduced or increased by changes in the value of
portfolio securities.
The purchase of a put option on a futures contract is
similar in some respects to the purchase of protective put options on
portfolio securities. For example, a Portfolio may purchase a put option
on a futures contract to hedge its portfolio against the risk of rising
interest rates.
The amount of risk a Portfolio assumes when it
purchases an option on a futures contract is the premium paid for the
option plus related transaction costs. In addition to the correlation risks
discussed above, the purchase of an option also entails the risk that
changes in the value of the underlying futures contract will not be fully
reflected in the value of the option purchased.
Options on foreign currency futures contracts may
involve certain additional risks. Trading options on foreign currency
futures contracts is relatively new. The ability to establish and close out
positions in such options is subject to the maintenance of a liquid
secondary market. To mitigate this problem, a Portfolio will not
purchase or write options on foreign currency futures contracts unless
and until, in the Investment Adviser's or Sub-Adviser's opinion, the
market for such options has developed sufficiently that the risks in
connection with such options are not greater than the risks in connection
with transactions in the underlying foreign currency futures contracts.
Compared to the purchase or sale of foreign currency futures contracts,
the purchase of call or put options thereon involves less potential risk to
the Portfolio because the maximum amount at risk is the premium paid
for the option (plus transaction costs). However, there may be
circumstances when the purchase of a call or put option on a foreign
currency futures contract would result in a loss, such as when there is no
movement in the price of the underlying currency or futures contract,
when use of the underlying futures contract would not.
OTHER HEDGING TECHNIQUES
Among the other hedging techniques that a Portfolio
may use are interest rate, currency and index swaps and the purchase or
sale of related caps, floors and collars. Each Portfolio may enter into
these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against
any increase in the price of securities the Portfolio anticipates purchasing
at a later date. Each Portfolio intends to use these transactions as hedges
and not as speculative investments and will not sell interest rate caps or
floors where it does not own securities or other instruments providing the
income stream the Portfolio may be obligated to pay. Interest rate swaps
involve the exchange by a Portfolio with another party of their respective
commitments to pay or receive interest, for example, an exchange of
floating rate payments for fixed rate payments with respect to a notional
amount of principal. A currency swap is an agreement to exchange cash
flows on a notional amount of two or more currencies based on the
relative value differential among them and an index swap is an agreement
to swap cash flows on a notional amount based on changes in the values
of the referenced indices. The purchase of a cap entitles the purchaser to
receive payments on a notional principal amount from the party selling
such cap to the extent that a specified index exceeds a predetermined
interest rate or amount. The purchase of a floor entitles the purchaser to
receive payments on a notional principal amount from the party selling
such floor to the extent that a specified index falls below a predetermined
interest rate or amount. A collar is a combination of a cap and a floor
that preserves a certain return within a predetermined range of interest
rates or values. Segregated accounts may be required when using such
techniques.
INVESTMENT RESTRICTIONS
The Fund has adopted the investment restrictions listed
below relating to the investment of each Portfolio's assets and its
activities. These are fundamental policies that may not be changed
without the approval of the holders of a majority of the outstanding
voting securities of a Portfolio (which for this purpose and under the
1940 Act means the lesser of (i) 67% of the shares represented at a
meeting at which more than 50% of the outstanding shares are
represented or (ii) more than 50% of the outstanding shares). None of
the Portfolios may: (1) borrow money except by engaging in reverse
repurchase agreements or dollar roll transactions or from a bank as a
temporary measure for the reasons enumerated in "Supplemental
Investment Techniques - Borrowing", provided that a Portfolio will not
borrow, more than an amount equal to one-third of the value of its assets,
nor will it borrow for leveraging purposes (i.e., a Portfolio will not
purchase securities while temporary bank borrowings in excess of 5% of
its total assets are outstanding); (2) issue senior securities (other than as
specified in clause (1)); (3) purchase securities on margin (although
deposits referred to as "margin" will be made in connection with
investments in futures contracts, as explained above, and a Portfolio may
obtain such short-term credits as may be necessary for the clearance of
purchases and sales of securities); (4) make short sales of securities,
except for Mortgage Total Return; (5) underwrite securities of other
issuers; (6) invest in companies for the purpose of exercising control or
management; (7) purchase or sell real estate (other than marketable
securities representing interests in, or backed by, real estate); or (8)
purchase or sell physical commodities or related commodity contracts.
For the purposes of restriction (1), reverse repurchase
agreements and dollar roll transactions that are covered pursuant to SEC
regulations or staff positions, will not be considered borrowing. For the
purposes of restriction (4), the word "securities" does not include options,
futures, options on futures or forward currency contracts.
In addition, each Portfolio is prohibited from: 1) the
purchase or retention of the securities of any issuer if the officers,
directors or trustees of the Fund, its advisors, or managers owning
beneficially more than one half of one percent of the securities of an
issuer together own beneficially more than five percent of the securities
of that issuer; 2) the purchase of securities of any issuer if, as to seventy-
five percent (75%) of the assets of the company at the time of the
purchase, more than ten percent of the voting securities of any issuer
would be held by the company; 3) the investment in the securities of
other investment companies, except by purchase in the open market
where no commission or profit to a sponsor or dealer results from the
purchase other than the customary broker's commission, or except when
the purchase is part of a plan of merger, consolidation, reorganization or
acquisition; and 4) the investment of more than fifteen percent (15%) of
the Fund's total assets in the securities of issuers which together with any
predecessors have a record of less than three years continuous operation
or securities of issuers which are restricted as to disposition.
Whenever an investment policy or limitation states a
maximum percentage of a Portfolio's assets that may be invested in any
security or other asset or sets forth a policy regarding quality standards,
such standard or percentage limitation shall be determined immediately
after and as a result of the Portfolio's acquisition of such security or
other asset. Accordingly, any later increase or decrease in a percentage
resulting from a change in values, net assets or other circumstances will
not be considered when determining whether that investment complies
with the Portfolio's investment policies and limitations.
Each Portfolio's investment objectives and other
investment policies not designated as fundamental in this Statement of
Additional Information are non-fundamental and may be changed at any
time by action of the Board of Directors.
U.S. Short-Term Fixed Income Portfolio
U.S. Short-Term has adopted five additional
fundamental policies that may not be changed without the approval of the
holders of a majority of the shares of the Portfolio. The Portfolio may
not: (1) invest more than 5% of its total assets in the securities of any
issuer (other than U.S. Government Securities and repurchase
agreements); (2) invest more than 25% of its total assets in the securities
of issuers in any industry (other than U.S. Government Securities and the
banking industry); (3) enter into repurchase agreements if, as a result
thereof, more than 25% of its assets would be subject to repurchase
agreements; (4) make loans to other persons, except by (i) the purchase
of a portion of an issue of debt obligations in which a Portfolio is
authorized to invest in accordance with its investment objectives and (ii)
engaging in repurchase agreements; or (5) purchase or sell commodities
or commodity contracts, except that the Portfolio may utilize up to 5% of
its assets as margin and premiums to purchase and sell futures and
options contracts on CFTC-regulated exchanges.
Worldwide Fixed Income and Worldwide Fixed Income-Hedged
Portfolios
Worldwide and Worldwide-Hedged each have adopted
two additional fundamental policies that may not be changed without the
approval of the holders of a majority of the shares of either Portfolio.
Each Portfolio may not: (1) enter into repurchase agreements if, as a
result thereof, more than 25% of its assets would be subject to
repurchase agreements; or (2) purchase or sell commodities or
commodity contracts, except that each Portfolio may utilize up to 5% of
its assets as margin and premiums to purchase and sell futures and
options contracts on CFTC-regulated exchanges.
Illiquid Securities
The staff of the Commission has taken the position that
purchased OTC options and the assets used as cover for written OTC
options are illiquid securities. Therefore, each Portfolio has adopted an
investment policy pursuant to which it generally will not purchase or sell
OTC options if, as a result of such transaction, the sum of the market
value of OTC options currently outstanding that are held by such
Portfolio, the market value of the underlying securities covered by OTC
call options currently outstanding that were sold by such Portfolio and
margin deposits on such Portfolio's existing OTC options on futures
contracts exceed 15% of the net assets of such Portfolio, taken at market
value, together with all other assets of the Portfolio that are illiquid or are
not otherwise readily marketable. This policy as to OTC options is not a
fundamental policy of the Portfolios and may be amended by the
Directors of the Fund without the approval of the Fund's or a Portfolio's
shareholders. However, the Fund will not change or modify this policy
prior to a change or modification by the Commission staff of its position.
PORTFOLIO TRANSACTIONS
The debt securities in which the Fund invests are traded primarily
in the over-the-counter market by dealers who are usually
acting as principal for their own account. On occasion, securities may be
purchased directly from the issuer. Such securities are generally traded
on a net basis and do not normally involve either brokerage commissions
or transfer taxes. For the period ended June 30, 1995, U.S. Short-
Term, Stable Return, Worldwide, Worldwide-Hedged and Worldwide
Short-Term paid brokerage commissionsof $120,843, $79, $4,693,
$0 and $21,987, respectively. For the period ended December 31, 1994,
U.S. Short-Term, Worldwide, and Worldwide-Hedged paid brokerage
commissions of $35,790, $47,983, and $13,547 respectively. For the
period ended December 31, 1993, U.S. Short-Term, Stable Return, Worldwide,
Worldwide-Hedged, International-Hedged and Worldwide Short-Term
paid brokerage commissions of $68,793, $13, $106,448, $32,026, $0
and $141, respectively. The cost of executing transactions will consist
primarily of dealer spreads. The spread is not included in the expenses
of a Portfolio and therefore is not subject to the expenses cap; nevertheless,
the incurrence of this spread, ignoring the other intended positive
effects of each such transaction, will decrease the total return of the
Portfolio. However, a Portfolio will buy one asset and sell another
only if the Investment Adviser and/or the Sub-Adviser believes it
is advantageous to do so after considering the effect of the additional
custodial charges and the spread on the Portfolio's total return.
All purchases and sales will be executed with major
dealers and banks on a best net price basis. No trades will be executed
with the Investment Adviser, the Sub-Adviser, their affiliates, officers or
employees acting as principal or agent for others, although such entities
and persons may be trading contemporaneously in the same or similar
securities. To the extent an investment that may be appropriate for one
of the Portfolios is considered for purchase by the Investment Adviser
and/or Sub-Adviser for the account of another Portfolio, client or fund,
the investment opportunity, as well as the expenses incurred in the
transaction, will be allocated in a manner deemed equitable by the
Investment Adviser.
The Global and International Portfolios are expected to
invest substantial portions of their assets in foreign securities. Since
costs associated with transactions in foreign securities are generally
higher than costs associated with transactions in domestic securities, the
operating expense ratios of these Portfolios can be expected to be higher
than that of an investment company investing exclusively in domestic
securities.
TAX CONSIDERATIONS
The following summary of tax consequences, which
does not purport to be complete, is based on U.S. federal tax laws and
regulations in effect on the date of this Statement of Additional
Information, which are subject to change by legislative or administrative
action.
Qualification as a Regulated Investment Company.
Each active Portfolio has qualified and intends to continue to qualify to
be treated as a regulated investment company ("RIC") under the Internal
Revenue Code of 1986, as amended (the "Code"). To qualify as a RIC, a
Portfolio must, among other things, (a) derive at least 90% of its gross
income each taxable year from dividends, interest, payments with respect
to securities loans and gains from the sale or other disposition of
securities or foreign currencies, or other income (including gains from
options, futures or forward contracts) derived from its business of
investing in securities or foreign currencies (the "Qualifying Income
Requirement"); (b) derive less than 30% of its gross income each taxable
year from sales or other dispositions of certain assets (namely, (i)
securities; (ii) options, futures and forward contracts (other than those on
foreign currencies); and (iii) foreign currencies (including options,
futures and forward contracts on such currencies) not directly related to
the Portfolio's principal business of investing in stocks or securities (or
options and futures with respect to stocks or securities) held less than
three months (the "30% Limitation"); (c) diversify its holdings so that, at
the end of each quarter of the Portfolio's taxable year, (i) at least 50% of
the market value of the Portfolio's assets is represented by cash and cash
items (including receivables), U.S. Government Securities, securities of
other RICs and other securities, with such other securities of any one
issuer limited to an amount not greater than 5% of the value of the
Portfolio's total assets and not greater than 10% of the outstanding voting
securities of such issuer and (ii) not more than 25% of the value of the
Portfolio's total assets is invested in the securities of any one issuer (other
than U.S. Government Securities or the securities of other RICs); and (d)
distribute at least 90% of its investment company taxable income (which
includes, among other items, interest and net short-term capital gains in
excess of net long-term capital losses). The U.S. Treasury Department
has authority to promulgate regulations pursuant to which gains from
foreign currency (and options, futures and forward contracts on foreign
currency) not directly related to a RIC's principal businessFFTW FUNDS,
stocks and securities would not be treated as qualifying income for
purposes of the Qualifying Income Requirement. To date, such
regulations have not been promulgated.
If for any taxable year a Portfolio does not qualify as a
RIC, all of its taxable income will be taxed to the Portfolio at corporate
rates. For each taxable year that the Portfolio qualifies as a RIC, it will
not be subject to federal income tax on that part of its investment
company taxable income and net capital gains (the excess of net long
term capital gain over net short-term capital loss) that it distributes to its
shareholders. In addition, to avoid a nondeductible 4% federal excise
tax, the Portfolio must distribute during each calendar year an amount at
least equal to the sum of 98% of its ordinary income (not taking into
account any capital gains or losses), determined on a calendar year basis,
98% of its capital gains in excess of capital losses, determined in general
on an October 31 year-end basis, and any undistributed amounts from
previous years. Each Portfolio intends to distribute all of its net income
and gains by automatically reinvesting such income and gains in
additional shares of the Portfolio. The 30% Limitation may require that
a Portfolio defer closing out certain positions beyond the time when it
otherwise would be advantageous to do so, in order not to be disqualified
as a RIC. Each Portfolio will monitor its compliance with all of the rules
set forth in the preceding paragraph.
Distributions. Each Portfolio's automatic reinvestment
of its ordinary income, net short-term capital gains and net long-term
capital gains in additional shares of the Portfolio and distribution of such
shares to shareholders will be taxable to the Portfolio's shareholders. In
general, such shareholders will be treated as if such income and gains
had been distributed to them by the Portfolio and then reinvested by them
in shares of the Portfolio, even though no cash distributions have been
made to shareholders. The automatic reinvestment of ordinary income
and net realized short-term capital gains of the Portfolio will be taxable
to the Portfolio's shareholders as ordinary income. Each Portfolio's
automatic reinvestment of any net long-term capital gains designated by
the Portfolio as capital gain dividends will be taxable to the shareholders
as long-term capital gain, regardless of how long they have held their
Portfolio shares. None of the amounts treated as distributed to a
Portfolio's shareholders will be eligible for the corporate dividends
received deduction. A distribution will be treated as paid on December
31 of the current calendar year if it is declared by a Portfolio in October,
November or December with a record date in such a month and paid by
the Portfolio during January of the following calendar year. Such
distributions will be taxable to shareholders in the calendar year in which
the distributions are declared, rather than in the calendar year in which
the distributions are received. Each Portfolio will inform shareholders of
the amount and tax status of all amounts treated as distributed to them
not later than 60 days after the close of each calendar year.
Sale of Shares. Upon the sale or other disposition of
shares of a Portfolio, or upon receipt of a distribution in complete
liquidation of a Portfolio, a shareholder generally will realize a capital
gain or loss which will be long-term or short-term, generally depending
upon the shareholder's holding period for the shares. Any loss realized
on the sale or exchange will be disallowed to the extent the shares
disposed of are replaced (including shares acquired pursuant to a
dividend reinvestment plan) within a period of 61 days beginning 30
days before and ending 30 days after disposition of the shares. In such a
case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by the shareholder on a disposition of
Portfolio shares held by the shareholder for six months or less will be
treated as a long-term capital loss to the extent of any distributions of net
capital gains deemed received by the shareholder with respect to such
shares.
Zero Coupon Securities. Investments by a Portfolio in
zero coupon securities will result in income to the Portfolio equal to a
portion of the excess of the face value of the securities over their issue
price (the "original issue discount") each year that the securities are held,
even though the Portfolio receives no cash interest payments. This
income is included in determining the amount of income which the
Portfolio must distribute to maintain its status as a RIC and to avoid the
payment of Federal income tax and the 4% excise tax.
Hedging Transactions. Certain options, futures and
forward contracts in which a Portfolio may invest are "section 1256
contracts." Gains and losses on section 1256 contracts are generally
treated as 60 percent long-term and 40 percent short-term capital gains
or losses ("60/40 treatment"), regardless of the Portfolio's actual holding
period for the contract. Also, a section 1256 contract held by a Portfolio
at the end of each taxable year (and generally, for the purposes of the 4%
excise tax, on October 31 of each year) must be treated as if the contract
had been sold at its fair market value on that day ("mark to market
treatment"), and any deemed gain or loss on the contract is subject to
60/40 treatment. Foreign currency gain or loss (discussed below) arising
from section 1256 contracts may, however, be treated as ordinary income
or loss.
The hedging transactions undertaken by a Portfolio may
result in "straddles" for federal income tax purposes. The straddle rules
may affect the character of gains or losses realized by the Portfolio. In
addition, losses realized by a Portfolio on positions that are part of a
straddle may be deferred under the straddle rules rather than being taken
into account in calculating the taxable income for the taxable year in
which such losses are realized. Further, a Portfolio may be required to
capitalize, rather than deduct currently, any interest expense on
indebtedness incurred or continued to purchase or carry any positions
that are part of a straddle. Because only a few regulations implementing
the straddle rules have been implemented, the tax consequences to the
Portfolios of engaging in hedging transactions are not entirely clear.
Hedging transactions may increase the amount of short-term capital gain
realized by the Portfolios which is taxed as ordinary income when
distributed to shareholders.
A Portfolio may make one or more of the elections
available under the Code that are applicable to straddles. If a Portfolio
makes any of the elections, the amount, character and timing of the
recognition of gains or losses from the affected straddle positions will be
determined under rules that vary according to the election(s) made. The
rules applicable under certain of the elections may accelerate the
recognition of gains or losses from the affected straddle positions.
Because the straddle rules may affect the amount,
character and timing of gains or losses from the positions that are part of
a straddle, the amount of Portfolio income that is distributed to
shareholders and that is taxed to them as ordinary income or long-term
capital gain may be increased or decreased as compared to a fund that
did not engage in such hedging transactions.
The 30% limitation and the distribution requirements
applicable to each Portfolio's assets may limit the extent to which each
Portfolio will be able to engage in transactions in options, futures and
forward contracts.
Foreign Currency-Related Transactions. Gains or losses
attributable to fluctuations in exchange rates that occur between the time
a Portfolio accrues interest or other receivables, or accrues expenses or
other liabilities, denominated in a foreign currency and the time the
Portfolio actually collects such receivables, or pays such liabilities,
generally are treated as ordinary income or ordinary loss. Similarly,
gains or losses on disposition of certain options, futures and forward
contracts and, on disposition of debt securities denominated in a foreign
currency, gains or losses attributable to fluctuations in the value of
foreign currency between the date of acquisition of the security or
contract and the date of disposition also are treated as ordinary gain or
loss. These gains or losses, referred to under the Code as "section 988"
gains or losses, may increase or decrease the amount of a Portfolio's
investment company taxable income to be distributed to shareholders as
ordinary income.
Backup Withholding. A Portfolio may be required to
withhold U.S. federal income tax at the rate of 31% of all amounts
deemed to be distributed as a result of the automatic reinvestment by the
Portfolio of its income and gains in additional shares of the Portfolio and
all redemption payments made to shareholders who fail to provide the
Portfolio with their correct taxpayer identification number or to make
required certifications, or who have been notified by the Internal Revenue
Service that they are subject to backup withholding. Backup withholding
is not an additional tax. Any amounts withheld will be credited against a
shareholder's U.S. federal income tax liability. Corporate shareholders
and certain other shareholders are exempt from such backup withholding.
Foreign Shareholders. U.S. taxation of a shareholder
who, as to the United States, is a non-resident alien individual, a foreign
trust or estate, foreign corporation, or foreign partnership ("foreign
shareholder") depends on whether the income from the Portfolio is
effectively connected with a U.S. trade or business carried on by such
shareholder.
If the income from a Portfolio is not "effectively
connected" with a U.S. trade or business carried on by the foreign
shareholder, deemed distributions by the Portfolio of investment
company taxable income will be subject to a U.S. tax of 30% (or lower
treaty rate), which tax is generally withheld from such distributions.
Deemed distributions of capital gain dividends and any gain realized
upon redemption, sale or exchange of shares will not be subject to U.S.
tax at the rate of 30% (or lower treaty rate) unless the foreign
shareholder is a nonresident alien individual who is physically present in
the U.S. for more than 182 days during the taxable year and meets
certain other requirements. However, this 30% tax on capital gains of
non-resident alien individuals who are physically present in the United
States for more than the 182-day period only applies in exceptional cases
because any individual present in the United States for more than 182
days during the taxable year is generally treated as a resident for U.S.
federal income tax purposes. In that case, he or she would be subject to
U.S. federal income tax on his or her worldwide income at the graduated
rates applicable to U.S. citizens, rather than the 30% U.S. tax. In the
case of a foreign shareholder who is a non-resident alien individual, the
Portfolio may be required to withhold U.S. federal income tax at a rate of
31% of deemed distributions of net capital gains unless the foreign
shareholder certifies his or her non-U.S. status under penalties of perjury
or otherwise establishes an exemption. See "Backup Withholding"
above.
If the income from a Portfolio is effectively connected
with a U.S. trade or business carried on by a foreign shareholder, then
deemed distributions of investment company taxable income and capital
gain dividends and any gain realized upon the redemption, sale or
exchange of shares of the Portfolio will be subject to U.S. Federal
income tax at the graduated rates applicable to U.S. citizens or domestic
corporations. Such shareholders may also be subject to the branch
profits tax at a 30% rate.
The tax consequences to a foreign shareholder entitled to
claim the benefits of an applicable tax treaty may be different from those
described herein. Foreign shareholders are advised to consult their own
advisers with respect to the particular tax consequences to them of an
investment in a Portfolio.
Short Sales. Mortgage Total Return will not realize
gain or loss on the short sale of a security until it closes the
transaction by delivering the borrowed security to the lender.
Pursuant to Code section 1233, all or a portion of any gain arising
from a short sale may be treated as short-term capital gain, regardless
of the period for which the Portfolio held the security used to close
the short sale. In addition, the Portfolio's holding period for any
security which is substantially identical to that which is sold short
may be reduced or eliminated as a result of the short sale. The 30%
limitation and the distribution requirements applicable to the
Portfolio's assets may limit the extent to which each Portfolio will be
able to engage in short sales and transactions in options, futures and
forward contracts.
U.S. Short-Term Fixed Income Portfolio
As a result of its expected high portfolio turnover rate,
U.S. Short-Term may recognize more short-term capital gains which
must be distributed to shareholders than mutual funds with turnover rates
that are lower than that of U.S. Short-Term. In addition, U.S. Short-
Term may realize a greater amount of gains subject to the 30%
Limitation described above than it would realize if its portfolio turnover
rate were lower.
U.S. Short-Term has adopted the Full Payout Method
for paying dividends. Under the full payout method it is possible that
shareholders may receive distributions in excess of their ratable share of
U.S. Short-Term's earnings and profits from time to time. Such
distributions might result, for example, if U.S. Short-Term had
substantial unrealized capital gains. Such distributions will be first
applied to reduce shareholders' tax basis in their shares, and then will be
treated as gain from the sale or exchange of such shares. To the extent a
distribution reduces basis, it is a non-taxable return of capital; however,
a reduction in basis will generally increase capital gain or decrease
capital loss realized when the shares are sold.
It is also possible that Full Payout Income may be
negative if realized and unrealized capital losses plus expenses exceed
realized and unrealized capital gains plus investment income. See
Dividends in the Prospectus. In such a case, the number of shares held
by a shareholder will be reduced through a contribution of capital, and
the shareholder may have greater taxable income than the net increase in
shares in the shareholder's account at the end of the month in which the
contribution to capital occurred. A shareholder's basis in shares of U.S.
Short-Term may be adjusted to reflect the contribution to capital, which
would affect the amount of capital gain or loss realized when the shares
are sold. The Full Payment Method has currently been suspended.
Global and International Portfolios
Income received by a Portfolio from sources within
foreign countries may be subject to withholding and other taxes imposed
by such countries. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. The amount of foreign
tax cannot be predicted in advance because the amount of a Portfolio's
assets that may be invested in a particular country is subject to change.
If more than 50% of the value of the total assets of a
Portfolio at the end of its taxable year consists of securities of foreign
corporations, as the Global and International Portfolios more than likely
may be, such Portfolio will be eligible and may elect to "pass through" to
such Portfolio's shareholders the amount of foreign income and similar
taxes paid by such Portfolio. Pursuant to this election, a shareholder will
be required to include in gross income (in addition to taxable dividends
actually received) a pro rata share of the foreign taxes paid by such
Portfolio, and will be entitled either to deduct (as an itemized deduction)
that amount in computing taxable income or to use that amount as a
foreign tax credit against U.S. federal income tax liability. The amount
of foreign taxes for which a shareholder can claim a credit in any year
will be subject to limitations set forth in the Code, including a separate
limitation for "passive income," which includes, among other items,
dividends, interest and certain foreign currency gains. Shareholders not
subject to U.S. federal income tax on income from a Portfolio may not
claim such a deduction or credit. Each shareholder of the Global and
International Portfolios will be notified within 60 days after the close of
such Portfolio's taxable year whether the foreign taxes paid by such
Portfolio will "pass through" for the year.
Other Taxes
A Portfolio may be subject to state, local or foreign
taxes in any jurisdiction in which the Portfolio may be deemed to be
doing business. In addition, shareholders of a Portfolio may be subject to
state, local or foreign taxes on distributions from the Portfolio. In many
states, Portfolio distributions which are derived from interest on certain
U.S. Government obligations may be exempt from taxation. Shareholders
should consult their own tax advisers concerning these matters.
SHAREHOLDER INFORMATION
Certificates representing shares of a particular Portfolio
will not be issued to shareholders. Investors Bank & Trust Company, the
Fund's Transfer Agent, will maintain an account for each shareholder
upon which the registration and transfer of shares are recorded, and any
transfers shall be reflected by bookkeeping entry, without physical
delivery. Detailed confirmations of each purchase or redemption are sent
to each shareholder. Monthly statements of account are sent which
include shares purchased as a result of a reinvestment of Portfolio
distributions.
The Transfer Agent will require that a shareholder
provide requests in writing, accompanied by a valid signature guarantee
form, when changing certain information in an account (i.e., wiring
instructions, telephone privileges, etc.). None of the Fund, AMT Capital
or the Transfer Agent will be responsible for the validity of written or
telephonic requests.
The Fund reserves the right, if conditions exist which
make cash payments undesirable, to honor any request for redemption of
a Portfolio by making payment in whole or in part in readily marketable
securities chosen by the Fund and valued as they are for purposes of
computing the Portfolio's net asset value (redemption-in-kind). If
payment is made in securities, a shareholder may incur transaction
expenses in converting theses securities to cash. The Fund has elected,
however, to be governed by Rule 18f-1 under the Investment Company
Act of 1940 as a result of which the Fund is obligated to redeem shares,
with respect to any one shareholder during any 90-day period, solely in
cash up to the lesser of $250,000 or 1% of the net asset value of a
Portfolio at the beginning of the period.
CALCULATION OF PERFORMANCE DATA
The Fund may, from time to time, include the yield and
total return of a Portfolio in reports to shareholders or prospective
investors. Quotations of yield for a Portfolio of the Fund will be based
on all investment income per share during a particular 30-day (or one
month) period (including dividends and interest), less expenses accrued
during the period ("net investment income"), and are computed by
dividing net investment income by the maximum, offering price per share
on the last day of the period, according to the following formula which is
prescribed by the Commission:
YIELD = 2[(( a - b + 1)^6) - 1]
cd
Where a = dividends and interest earned during the period,
b = expenses accrued for the period (net of
reimbursements),
c = the average daily number of Shares of a
Portfolio outstanding during he period
that were entitled to receive dividends, and
d = the maximum offering price per share
on the last day of the period.
The yield as defined above for the Fund's Portfolios for
the 30-day period ended June 30, 1995 were as follows:
U.S. Portfolios
U.S. Short-Term Fixed Income 5.42%
Stable Return 6.45%
Global and International Portfolios
Worldwide Short-Term Fixed Income 5.38%
Worldwide Fixed Income 6.21%
Quotations of average annual total return will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in a Portfolio of the Fund over periods of 1, 5
and 10 years (up to the life of the Portfolio), calculated pursuant to the
following formula which is prescribed by the SEC:
P(1 + T)^n = ERV
Where P = a hypothetical initial payment of $1,000,
T = the average annual total return,
n = the number of years, and
ERV = the ending redeemable value of a
hypothetical $1,000 payment made at
the beginning of the period.
All total return figures assume that all dividends are
reinvested when paid.
The total return as defined above for the Fund's
Portfolios for the 1 year and 5 year periods ended June 30,1995
and since the commencement of operations of each Portfolio to June 30, 1995
are as follows:
One Year Five Years Life of Portfolio
U.S. Portfolios
U.S. Short-Term Fixed
Income 5.39% 4.78%* 5.11%*
Stable Return 8.02% n/a 4.73%*
Global and International Portfolios
Worldwide Short-Term
Fixed Income 3.44% n/a 2.66%*
Worldwide Fixed Income 10.16% n/a 9.48%*
Worldwide Fixed Income-
Hedged 14.49% n/a 9.55%*
* Annualized
FINANCIAL STATEMENTS
The Fund's audited Financial Statements for the year ended December
31, 1994 and the Financial Highlights for each of the periods appearing in the
Annual Report to Shareholders and the report thereon of Ernst & Young LLP,
independent auditors, appearing therein are hereby incorporated by reference in
this Statement of Additional Information. The Fund's unaudited Financial
Statement for the six months ended June 30, 1995 and the Financial Highlights
for each of the periods appearing in the Semi-Annual Report to Shareholders,
appearing therein are hereby incorporated by reference in this Statement of
Additional Information. The Annual and Semi-Annual Report to Shareholders is
delivered with this Statement of Additional Information to shareholders
requesting this Statement.
APPENDIX
MERRILL LYNCH 1-2.99 YEAR TREASURY INDEX1
Quarterly Returns: June 1984 - June 1995
Quarter-End Return Quarter-End Return
Mar-89 1.24
Jun-89 4.98
Sep-84 4.86 Sep-89 1.46
Dec-84 5.92 Dec-89 2.82
Mar-85 2.17 Mar-90 0.89
Jun-85 5.41 Jun-90 2.8
Sep-85 2.09 Sep-90 2.38
Dec-85 3.65 Dec-90 3.32
Mar-86 3.62 Mar-91 2.2
Jun-86 1.99 Jun-91 1.97
Sep-86 2.6 Sep-91 3.36
Dec-86 1.77 Dec-91 3.68
Mar-87 1.25 Mar-92 0.16
Jun-87 0.65 Jun-92 2.88
Sep-87 0.18 Sep-92 2.98
Dec-87 3.48 Dec-92 0.18
Mar-88 2.64 Mar-93 2.21
Jun-88 1.04 Jun-93 1.08
Sep-88 1.45 Sep-93 1.43
Dec-88 0.96 Dec-93 0.59
Mar-94 -0.5
Jun-94 0.08
Sep-94 0.99
Dec-94 0.01
Mar-95 3.36
Jun-95 3.21
1Time-weighted rates of return, unannualized.
QUALITY RATING DESCRIPTIONS
Standard & Poors Corporation
AAA. Bonds rated AAA are highest grade debt obligations.
This rating indicates an extremely strong capacity to pay principal and
interest.
AA. Bonds rated AA also qualify as high-quality obligations.
Capacity to pay principal and interest is very strong, and in the majority
of instances they differ from AAA issues only in small degree.
A. Bonds rated A have a strong capacity to pay principal and
interest, although they are more susceptible to the adverse effects of
changes in circumstances and economic conditions.
The ratings AA and A may be modified by the addition of a plus
or minus sign to show relative standing within the major rating
categories.
Municipal notes issued since July 29, 1984 are designated "SP-
1", "SP-2", and "SP-3". The designation SP-1 indicates a very strong
capacity to pay principal and interest. A "+" is added to those issues
determined to possess overwhelming safety characteristics.
A-1. Standard & Poor's Commercial Paper ratings are current
assessments of the likelihood of timely payments of debts having original
maturity of no more than 365 days. The A-1 designation indicates the
degree of safety regarding timely payment is very strong.
Moody's Investors Service, Inc.
Aaa. Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge". Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa. Bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in Aaa
securities or fluctuations of protective elements may be of greater
amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than the Aaa securities.
A. Bonds which are rated A possess many favorable investment
attributes and may be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered adequate
but elements may be present which suggest a susceptibility to impairment
sometime in the future.
Moody's applies numerical modifiers, 1, 2, and 3 in each generic
rating classification from Aa through B in its corporate bond rating
system. The modifier 1 indicates that the security ranks in the higher end
of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end
of its generic rating category.
Moody's ratings for state and municipal and other short-term
obligations will be designated Moody's Investment Grade ("MIG"). This
distinction is in recognition of the differences between short-term credit
risk and long-term risk. Factors affecting the liquidity of the borrower
are uppermost in importance in short-term borrowing, while various
factors of the first importance in long-term borrowing risk are of lesser
importance in the short run.
MIG-1. Notes bearing this designation are of the best quality
enjoying strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the market for
refinancing, or both.
P-1. Moody's Commercial Paper ratings are opinions of the
ability of issuers to repay punctually promissory obligations not having
an original maturity in excess of nine months. The designation "Prime-1"
or "P-1" indicates the highest quality repayment capacity of the rated
issue.
Thomson Bankwatch, Inc.
A. Company possess an exceptionally strong balance sheet and
earnings record, translating into an excellent reputation and unquestioned
access to its natural money markets. If weakness or vulnerability exists
in any aspect of the company's business, it isis entirely mitigated by the
strengths of the organization.
A/B. Company is financially very solid with a favorable track
record and no readily apparent weakness. Its overall risk profile, while
low, is not quite as favorable as companies in the highest rating category.
IBCA Limited
A1. Short-term obligations rated A1 are supported by a very
strong capacity for timely repayment. A plus sign is added to those
issues determined to possess the highest capacity for timely payment.
Part C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements and Schedules:
Part A Financial Highlights.
Part B: The financial statements, notes to financial
statements and reports set forth below are filed
herewith by the Registrant, and are specifically
incorporated by reference in Part B.
-Report of Independent Auditors dated February
24, 1995.
-Statements of Net Assets dated December 31,
1994.
-Statements of Net Assets dated June 30, 1995
(unaudited).
-Statements of Operations for the year ended
December 31, 1994.
-Statements of Operations for the six months
ended June 30, 1995 (unaudited).
-Statements of Change in Net Assets for the
year ended December 31, 1994 and the periods
ended December 31, 1993. Statement of Changes
in Net Assets for the six months ended June 30
1995 (unaudited).
-Notes to Financial Statements.
-Financial Highlights of U.S. Short-Term for the
period December 6, 1989 (commencement of
operations) to September 30, 1990, for the year
ended September 30, 1991, for the three months
ended December 31, 1991, for the year ended
December 31, 1992, for the year ended December
31, 1993, for the year ended December 31, 1994
and for the six months ended June 30, 1995
(unaudited); of Stable Return for the period July
31, 1993, for the lyear ended December 31, 1994,
and for the six months ended June 30, 1995
(unaudited); of Worldwide Short-Term for the
period December 13, 1993 (commencement of
operations) to December 31, 1993, for the year
ended December 31, 1994, and for the six months
ended June 30, 1994 (unaudited); of Worldwide
for the period April 15, 1992 (commencement of
operations) to December 31, 1992, for the year
ended Decembr 31, 1993, for the year ended
December 31, 1994 and for the six months ended
June 30, 1995 (unaudited); and of Worldwide-
Hedged for lthe period May 19, 1992 (commence-
ment of operations) to December 31, 1992, for
the year ended December 31, 1993, for the year
ended December 31, 1994 and for the six months
ended June 30, 1995 (unaudited).
(b) Exhibits
The following exhibits are incorporated herein by reference,
are not required to be filed or are filed herewith (as
indicated):
(1) Articles of Incorporation, dated February 23, 1989,
filed as Exhibit 1 to Registrant's Registration Statement
on Form N-1A.
(1a) Articles of Amendment, dated July 1, 1991, filed as
Exhibit 1(a) to Post-Effective Amendment No. 4 to
Registrant's Registration Statement on Form N-1A.
(1b) Articles of Amendment, dated July 26, 1991, filed as
Exhibit 1(a) to Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form N-1A.
(1c) Articles Supplementary, dated February 16, 1993,
filed as Exhibit 1(c) to Post-Effective Amendment No. 10
to Registrant's Registration Statement on Form N-1A.
(2) By-laws, filed as Exhibit 2 to Registrant's
Registration Statement on Form N-1A.
(2a) Amended By-laws, filed as Exhibit 2 to Post-Effective
Amendment No. 2 to Registrant's Registration Statement
on Form N-1A.
(2b) Amendment to By-laws, filed as Exhibit 2(a) to Post-
Effective Amendment No. 5 to Registrant's Registration
Statement on Form N-1A.
(3) Not Applicable.
(4) Specimen of Stock Certificate, filed as Exhibit 4 to
Registrant's Registration Statement on Form N-1A.
(5) Management Agreement between the Registrant and
Fischer Francis Trees & Watts, Inc., dated November 30,
1989, filed as Exhibit 5 to Pre-Effective Amendment No.
3 to Registrant's Registration Statement on Form N-1A.
(5a) Amendment to Management Agreement between the
Registrant and Fischer Francis Trees & Watts, Inc., dated
September 25, 1990, filed as Exhibit 5 to Post-Effective
Amendment No. 2 to Registrant's Registration Statement
on Form N-1A.
(5b) Amended and Restated Management Agreement between
the Registrant and Fischer Francis Trees & Watts, Inc.,
dated August 31, 1991, filed as Exhibit 5 to Post-Effective
Amendment No. 5 to Registrant's Registration Statement
on Form N-1A.
(5c) Sub-Advisory Agreement between Fischer Francis Trees
& Watts, Inc. and Fischer Francis Trees and Watts, dated
August 31, 1991, filed as Exhibit 5(a) to Post-Effective
Amendment No. 5 to Registrant's Registration Statement on
Form N-1A.
(5d) Advisory Agreement between the Registrant (for the
Stable Return Portfolio) and Fischer Francis Trees & Watts,
Inc., dated February 18, 1993, filed as Exhibit 5(d) to
Post-Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A.
(5e) Advisory Agreement between the Registrant (for the
U.S. Treasury Portfolio) and Fischer Francis Trees & Watts,
Inc., dated February 18, 1993, filed as Exhibit 5(e) to
Post-Effective Amendment No. 10 to Registrant's Registration
Statement on Form N-1A.
(5f) Advisory Agreement between the Registrant (for the
AAA Asset-Backed Portfolio) and Fischer Francis Trees &
Watts, Inc., dated February 18, 1993, filed as Exhibit
5(f) to Post-Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A.
(5g) Advisory Agreement between the Registrant (for the
Broad Market Fixed Income Portfolio) and Fischer Francis
Trees & Watts, Inc., dated February 18, 1993, filed as
Exhibit 5(g) to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A.
(5h) Advisory Agreement between the Registrant (for the
Worldwide Short-Term Fixed Income Portfolio) and Fischer
Francis Trees & Watts, Inc., dated February 18, 1993, filed
as Exhibit 5(h) to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A.
(5i) Advisory Agreement between the Registrant (for the
International Fixed Income Portfolio) and Fischer Francis
Trees & Watts, Inc., dated February 18, 1993 filed, as
Exhibit 5(i) to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A.
(5j) Advisory Agreement between the Registrant (for the
International Fixed Income-Hedged Portfolio) and Fischer
Francis Trees & Watts, Inc., dated February 18, 1993, filed
as Exhibit 5(j) to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A.
(5k) Sub-Advisory Agreement (for the Worldwide Short-Term
Fixed Income Portfolio) between Fischer Francis Trees &
Watts, Inc. and Fischer Francis Trees & Watts, dated
February 18, 1993, filed as Exhibit 5(k) to Post-Effective
Amendment No. 10 to Registrant's Registration Statement
on Form N-1A.
(5l) Sub-Advisory Agreement (for the International Fixed
Income Portfolio) between Fischer Francis Trees & Watts,
Inc. and Fischer Francis Trees & Watts, dated February 18,
1993, filed as Exhibit 5(l) to Post-Effective Amendment No.
10 to Registrant's Registration Statement on Form N-1A.
(5m) Sub-Advisory Agreement (for the International Fixed
Income-Hedged Portfolio) between Fischer Francis Trees &
Watts, Inc. and Fischer Francis Trees & Watts, dated
February 18, 1993, filed as Exhibit 5(m) to Post Effective
Amendment No. 10 to Registrant's Registration Statement on
Form N-1A.
(6) Distribution Agreement between the Registrant and AMT
Capital Services, Inc., dated September 21, 1992, filed as
Exhibit 6 to Post-Effective Amendment No. 8 to Registrant's
Registration Statement on Form N-1A.
(6a) Distribution Agreement between the Registrant and AMT
Capital Services, Inc., dated February 1, 1995 (filed
herewith).
(7) Not Applicable.
(8) Custodian Agreement between Registrant and State
Street Bank & Trust Company, dated November 21, 1989, filed
as Exhibit 8 to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A.
(8a) Custodian Agreement between Registrant and State
Street Bank & Trust Company, dated October 22, 1991, filed
as Exhibit 8 to Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form N-1A.
(8b) Transfer Agency and Service Agreement between
Registrant and State Street Bank & Trust Company, dated
October 22, 1991, filed as Exhibit 8(a) to Post-Effective
Amendment No. 5 to Registrant's Registration Statement on
Form N-1A.
(8c) Transfer Agency and Service Agreement between
Registrant and Investors Bank & Trust Company, dated
November 27, 1992, filed as Exhibit 8(c) to Post-Effective
Amendment No. 9 to Registrant's Registration Statement on
Form N-1A.
(8d) Custodian Agreement between Registrant and Investors
Bank & Trust Company, dated January 10, 1994, filed as
Exhibit 8(d) to Post-Effective Amendment No. 13 to
Registrant's Reegistration Statement on Form N-1A.
(9) Administration Agreement between the Registrant and
AMT Capital Services, Inc., dated September 21, 1992, filed
as Exhibit 9 to Post-Effective Amendment No. 8 to
Registrant's Registration Statement on Form N-1A
(9a) Sales Incentive Fee Agreement between Fischer Francis
Trees & Watts, Inc. and AMT Capital Services, Inc., dated
September 21, 1992, filed as Exhibit 9(a) to Post-Effective
Amendment No. 8 to Registration Statement on Form N-1A.
(9b) Administration Agreement between the Registrant and
AMT Capital Services, Inc., dated February 1, 1995 (filed
herewith).
(10) Opinion and Consent of Counsel, dated June 28, 1989,
filed as Exhibit 10 to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A.
(11) Consent of Independent Auditors (filed herewith).
(12) Not Applicable.
(13) Purchase Agreement for Initial Capital between
Registrant and Fischer Francis Trees & Watts, Inc., dated
November 17, 1989, filed as Exhibit 13 to Pre-Effective
Amendment No. 3 to Registrant's Registration Statement on
Form N-1A.
(14) Not Applicable.
(15) Not Applicable.
(16) Performance Information Schedule (filed herewith).
Item 25. Persons Controlled by or Under Common Control with Registrant
None.
Item 26. Number of Holders of Securities
As of August 31, 1995, there were 26 record holders of Capital
Stock of U.S. Short-Term, 5 record holders of Stable Return, 4
record holders of Worldwide Short-Term, 20 record holders of
Worldwide and 4 record holders of Worldwide-Hedged.
Item 27. Indemnification
The Registrant shall indemnify directors, officers, employees and
agents of the Registrant against judgments, fines, settlements and
expenses to the fullest extent allowed, and in the manner provided,
by applicable federal and Maryland law, including Section 17(h) and
(i) of the Investment Company Act of 1940. In this regard, the
Registrant undertakes to abide by the provisions of Investment
Company Act Release No. 11330 and 7221 until amended or superseded
by subsequent interpretation of legislative or judicial action.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 28. Business and Other Connections of Investment Advisor
The business and other connections of Fischer Francis Trees & Watts,
Inc. (the Investment Adviser) and Fischer Francis Trees & Watts (the
Sub-Adviser) are on the Uniform Application for Investment Adviser
Registration ("Form ADV") of each as currently on file with the
Commission (File Nos. 801-10577 and 801-37205, respectively) the text
of which are hereby incorporated by reference.
Item 29. Principal Underwriters
(a) AMT Capital Services, Inc. does not act as principal underwriter,
depositor or investment adviser for any investment company (other
than the Fund).
(b) For each director or officer of AMT Capital Services, Inc.:
Name and Positions and Positions and
principal business offices with offices with
address underwriter registrant
Alan M. Trager Director, President None
430 Park Avenue and Treasurer
17th floor
New York, NY 10022
Carla E. Dearing Managing Assistant
430 Park Avenue Director, Treasurer
17th floor Director
New York, NY 10022
Richard Fischer Director None
Charter Atlantic Corp.
717 Fifth Avenue
14th floor
New York, NY 10022
Ruth L. Lansner Secretary None
Gilbert, Segall & Young
430 Park Avenue
11th floor
New York, NY 10022
(c) No commissions or other compensation was paid to the principal
underwriter during the registrant's last fiscal year.
Item 30. Location of Accounts and Records
All accounts, book and other documents required to be maintained by
Section 31(a) of an Investment Company Act of 1940 and the Rules (17
CFR 270.32a l to 3la 3) promulgated thereunder will be maintained by
the following:
Accounting and Custodial Records Investors Bank & Trust Company,
P.O. Box 1537, Boston, Massachusetts 02205-1537.
Dividend Disbursing Agent and Transfer Agent - Investors Bank & Trust
Company, P.O. Box 1537, Boston, Massachusetts 02205-1537.
Balance of Accounts and Records: AMT Capital Services, Inc., 430
Park Avenue, 17th Floor, New York, New York 10022 and Fischer
Francis Trees & Watts, Inc., 717 Fifth Avenue, New York, New York
10022.
Item 31. Management Services
None.
Item 32. Undertakings
The Registrant undertakes to file a post-effective amendment with
financial statements for U.S. Treasury, Broad Market Fixed Income and
International Fixed Income Portfolios within four to six months of
their respective commencement dates of operation.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York on the 16th day of August, 1995.
FFTW Funds, Inc.
By: \s\ Onder John Olcay
Onder John Olcay, Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Post Effective
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title Date
\s\Stephen J. Constantine President and Director August 16, 1995
Stephen J. Constantine
\s\ Onder John Olcay Chairman of the Board, August 16, 1995
Onder John Olcay Chief Executive Officer
\s\ John C Head III Director August 16, 1995
John C Head III
\s\ Lawrence B. Krause Director August 16, 1995
Lawrence B. Krause
\s\ Paul Meek Director August 16, 1995
Paul Meek
\s\ Stephen P. Casper Treasurer August 16, 1995
Stephen P. Casper
EXHIBIT INDEX
Exhibit No. Exhibit
(6a) Distribution Agreement
(9b) Administration Agreement
(11) Consent of Independent Auditors
(16) Performance Information Schedule
</TABLE>
Performance Information Schedule
30 Day Yield Calculation
YIELD = (2[( a - b + 1)6 - 1])/cd
WHERE: a = dividends and interest earned during the period.
b = expenses accrued for the period.
c = average daily number of shares outstanding during the period.
d = maximum offering price per share on the last day of the period.
U.S. Short-Term:
a= 1,647,921
b= 115,927
c=34,667,946
d= 9.89
Yield= 5.42%
Stable Return:
a= 27,611
b= 2,281
c= 482,185
d= 9.90
Yield= 6.45%
Worldwide:
a= 195,424
b= 18,138
c= 3,581,664
d= 9.69
Yield= 6.21%
Worldwide Short-Term:
a= 181,815
b= 16,624
c= 3,830,935
d= 9.72
Yield= 5.38%
Performance Information Schedule
Total Return
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Date of Net Cap. Shares Returns
Distribution Income Gains. Reinvested NAV Inception 5 Years 1 Year
U.S. Short-Term:
12/6/89 10.00 1,000.00
12/31/89 0.03969 0.00926 0.489 10.00 1,004.89
1/31/90 0.06594 (0.00170) 0.645 10.01 1,012.35
2/28/90 0.05951 0.00653 0.668 10.00 1,018.02
3/31/90 0.06579 0.00144 0.684 10.00 1,024.86
4/30/90 0.06475 (0.00189) 0.644 10.00 1,031.30
5/31/90 0.06697 0.00743 0.767 10.00 1,038.97
6/30/90 0.06299 0.00666 0.724 9.99 1,045.16 1,000.00
7/31/90 0.06494 0.00258 0.707 9.99 1,052.23 1,006.06
8/31/90 0.06404 0.00501 0.728 9.99 1,059.50 1,013.34
9/30/90 0.06638 0.00194 0.725 10.00 1,067.81 1,021.60
10/31/90 0.06585 0.00172 0.721 10.00 1,075.02 1,028.81
11/30/90 0.06068 0.01240 0.786 9.99 1,081.80 1,035.63
12/31/90 0.06027 0.00879 0.748 10.00 1,090.36 1,044.15
1/31/91 0.05959 0.00288 0.681 10.00 1,097.17 1,050.96
2/28/91 0.04927 0.01201 0.672 10.00 1,103.89 1,057.68
3/31/91 0.04653 (0.00186) 0.493 10.00 1,108.82 1,062.61
4/30/91 0.05344 0.00685 0.669 10.00 1,115.51 1,069.30
5/31/91 0.04858 (0.00339) 0.504 10.00 1,120.55 1,074.34
6/30/91 0.04423 (0.00435) 0.447 10.00 1,125.02 1,078.81
7/31/91 0.05138 0.00074 0.629 10.00 1,131.31 1,085.10
8/31/91 0.04537 0.01601 0.638 10.00 1,137.69 1,091.48
9/30/91 0.04483 0.00813 0.606 10.00 1,143.75 1,097.54
10/31/91 0.04269 0.00489 0.557 10.00 1,149.32 1,103.11
11/30/91 0.03754 0.00782 0.531 10.00 1,154.63 1,108.42
12/31/91 0.03869 0.00981 0.545 10.00 1,160.08 1,113.87
1/31/92 0.03483 0.00032 0.387 10.00 1,163.95 1,117.74
2/29/92 0.02969 (0.00900) 0.256 10.00 1,166.51 1,120.30
3/31/92 0.03323 (0.00005) 0.316 10.00 1,169.67 1,123.46
4/30/92 0.03216 (0.00437) 0.315 10.00 1,172.82 1,126.61
5/31/92 0.02898 0.00136 0.331 10.00 1,176.13 1,129.92
6/30/92 0.03173 0.00296 0.446 10.00 1,180.59 1,134.38
7/31/92 0.02800 0.00629 0.454 10.00 1,185.13 1,138.92
8/31/92 0.02573 0.00039 0.292 10.00 1,188.05 1,141.84
9/30/92 0.02483 0.01205 0.405 10.00 1,192.10 1,145.89
10/31/92 0.02440 (0.00223) 0.210 10.00 1,194.20 1,147.99
11/30/92 0.02454 (0.00208) 0.240 10.00 1,196.60 1,150.39
12/31/92 0.02589 0.00023 0.354 10.00 1,200.14 1,153.93
1/31/93 0.02819 0.00013 0.323 10.00 1,203.37 1,157.16
2/28/93 0.02825 0.00662 0.317 10.00 1,206.54 1,160.33
3/31/93 0.03136 (0.00597) 0.299 10.00 1,209.53 1,163.32
4/30/93 0.02801 (0.00644) 0.257 10.00 1,212.10 1,165.89
5/31/93 0.03011 (0.01314) 0.247 10.00 1,214.57 1,168.36
6/30/93 0.02520 0.00070 0.280 10.00 1,217.37 1,171.16
7/31/93 0.02872 (0.00451) 0.315 10.00 1,220.52 1,174.31
8/31/93 0.02697 0.00879 0.378 10.00 1,224.30 1,178.09
9/30/93 0.02476 (0.00321) 0.367 10.00 1,227.97 1,181.76
10/31/93 0.02463 (0.00726) 0.176 10.00 1,229.73 1,183.52
11/30/93 0.03018 (0.01851) 0.078 10.00 1,230.51 1,184.30
12/31/93 0.05461 0.00777 0.796 9.97 1,234.75 1,188.68
1/31/94 0.02869 0.00000 0.356 9.98 1,239.55 1,193.43
2/28/94 0.02493 0.00000 0.311 9.96 1,240.16 1,194.13
3/31/94 0.02784 0.00000 0.348 9.96 1,243.63 1,197.60
4/30/94 0.03006 0.00000 0.377 9.95 1,246.13 1,200.15
5/31/94 0.03494 0.00000 0.440 9.95 1,250.51 1,204.53
6/30/94 0.03299 0.00000 0.418 9.93 1,252.14 1,206.26 1,000.00
7/31/94 0.04086 0.00000 0.519 9.93 1,257.30 1,211.41 1,004.11
8/31/94 0.04517 0.00000 0.576 9.93 1,263.02 1,217.13 1,008.68
9/30/94 0.04119 0.00000 0.529 9.91 1,265.72 1,219.92 1,010.83
10/31/94 0.04901 0.00000 0.632 9.91 1,271.98 1,226.18 1,015.82
11/30/94 0.04805 0.00000 0.624 9.89 1,275.58 1,229.88 1,018.70
12/31/94 0.04837 0.00000 0.631 9.89 1,281.82 1,236.12 1,023.68
1/31/95 0.04948 0.00000 0.648 9.89 1,288.23 1,242.53 1,028.81
2/28/95 0.04593 0.00000 0.604 9.90 1,295.51 1,249.77 1,034.63
3/31/95 0.04912 0.00000 0.649 9.90 1,301.94 1,256.19 1,039.77
4/30/95 0.04824 0.00000 0.641 9.89 1,306.96 1,261.26 1,043.78
5/31/95 0.04845 0.00000 0.647 9.89 1,313.36 1,267.66 1,048.89
6/30/95 0.04735 0.00000 0.636 9.89 1,319.65 1,273.95 1,053.92
Performance Information Schedule
Total Return
Date of Net Cap. Shares Returns
Distribution Income Gains. Reinvested NAV Inception 5 Years 1 Year
Stable Return:
7/26/93 10.00 1,000.00
7/31/93 0.00436 0.00000 0.044 10.00 1,000.44
8/31/93 0.02811 0.00000 0.280 10.05 1,008.26
9/30/93 0.02783 0.00000 0.276 10.10 1,016.06
10/31/93 0.02823 0.00000 0.282 10.07 1,015.88
11/30/93 0.02401 0.00000 0.242 10.02 1,013.26
12/31/93 0.02593 0.09583 1.238 9.95 1,018.50
1/31/94 0.03149 0.00000 0.323 9.97 1,023.77
2/28/94 0.02869 0.00000 0.298 9.88 1,017.47
3/31/94 0.03312 0.00000 0.348 9.81 1,013.68
4/30/94 0.03211 0.00000 0.341 9.73 1,008.73
5/31/94 0.03248 0.00000 0.347 9.71 1,010.02
6/30/94 0.03024 0.00000 0.324 9.70 1,012.13 1,000.00
7/31/94 0.03040 0.00000 0.325 9.76 1,021.56 1,009.32
8/31/94 0.04100 0.00000 0.441 9.74 1,023.76 1,011.49
9/30/94 0.04062 0.00000 0.441 9.69 1,022.78 1,010.51
10/31/94 0.04358 0.00000 0.476 9.67 1,025.27 1,012.97
11/30/94 0.04229 0.00000 0.469 9.57 1,019.16 1,006.93
12/31/94 0.04188 0.00000 0.467 9.55 1,021.49 1,009.22
1/31/95 0.05899 0.00000 0.656 9.62 1,035.29 1,022.86
2/28/95 0.05089 0.00000 0.563 9.72 1,051.52 1,038.90
3/31/95 0.05599 0.00000 0.623 9.72 1,057.57 1,044.89
4/30/95 0.04959 0.00000 0.554 9.74 1,065.15 1,052.37
5/31/95 0.05036 0.00000 0.559 9.86 1,083.78 1,070.78
6/30/95 0.04651 0.00000 0.516 9.90 1,093.29 1,080.17
Performance Information Schedule
Total Return
Date of Net Cap. Shares Returns
Distribution Income Gains. Reinvested NAV Inception 5 Years 1 Year
Worldwide:
4/15/92 10.00 1,000.00
4/30/92 0.01649 0.00792 0.247 9.89 991.44
5/31/92 0.05095 0.00329 0.543 10.01 1,008.91
6/30/92 0.05265 0.03995 0.930 10.03 1,020.25
7/31/92 0.05272 0.04293 0.962 10.11 1,038.12
8/31/92 0.04900 0.17572 2.319 9.95 1,044.76
9/30/92 0.03726 0.00510 0.440 10.11 1,066.01
10/31/92 0.04467 0.24244 3.055 9.91 1,075.20
11/30/92 0.04119 0.03683 0.858 9.87 1,079.32
12/31/92 0.04169 0.00000 0.457 9.98 1,095.91
1/31/93 0.03875 0.19631 2.594 9.95 1,118.43
2/28/93 0.04722 0.01478 0.685 10.17 1,150.13
3/31/93 0.03748 0.16387 2.275 10.01 1,154.80
4/30/93 0.03960 0.18482 2.610 9.92 1,170.31
5/31/93 0.04207 0.00000 0.498 9.97 1,181.18
6/30/93 0.02911 0.04194 0.834 10.09 1,203.81
7/31/93 0.03977 0.21454 3.022 10.04 1,228.18
8/31/93 0.04433 0.00000 0.533 10.17 1,249.51
9/30/93 0.03798 0.00344 0.498 10.21 1,259.51
10/31/93 0.02788 0.00000 0.332 10.36 1,281.45
11/30/93 0.03121 0.00000 0.380 10.15 1,259.33
12/31/93 0.03774 0.17598 2.647 10.02 1,269.72
1/31/94 0.03247 0.00000 0.409 10.06 1,278.91
2/28/94 0.02993 0.00000 0.386 9.85 1,256.01
3/31/94 0.04422 0.00000 0.591 9.54 1,222.12
4/30/94 0.04358 0.00000 0.591 9.44 1,214.89
5/31/94 0.04435 0.00000 0.607 9.41 1,216.74
6/30/94 0.03837 0.00000 0.531 9.35 1,213.95 1,000.00
7/31/94 0.04220 0.00000 0.581 9.43 1,229.81 1,013.07
8/31/94 0.04480 0.00000 0.618 9.45 1,238.26 1,020.03
9/30/94 0.04130 0.00000 0.575 9.41 1,238.43 1,020.18
10/31/94 0.04731 0.00000 0.663 9.39 1,242.02 1,023.13
11/30/94 0.04839 0.00000 0.683 9.37 1,245.78 1,026.23
12/31/94 0.06529 0.00000 0.937 9.27 1,241.17 1,022.43
1/31/95 0.04856 0.00000 0.701 9.28 1,249.01 1,028.88
2/28/95 0.04728 0.00000 0.681 9.35 1,264.80 1,041.89
3/31/95 0.04788 0.00000 0.685 9.45 1,284.80 1,058.37
4/30/95 0.04799 0.00000 0.685 9.52 1,300.84 1,071.59
5/31/95 0.04627 0.00000 0.649 9.74 1,337.22 1,101.56
6/30/95 0.05049 0.00000 0.715 9.69 1,337.29 1,101.62
Performance Information Schedule
Total Return
Date of Net Cap. Shares Returns
Distribution Income Gains. Reinvested NAV Inception 5 Years 1 Year
Worldwide-Hedged:
5/19/92 10.00 1,000.00
5/31/92 0.01267 0.00000 0.127 9.96 997.26
6/30/92 0.05169 0.07064 1.229 9.97 1,010.52
7/31/92 0.05175 0.06503 1.180 10.03 1,028.44
8/31/92 0.04636 0.23481 2.927 9.85 1,038.81
9/30/92 0.03593 0.00000 0.379 9.99 1,057.36
10/31/92 0.04425 0.01188 0.601 9.89 1,052.72
11/30/92 0.04097 0.01684 0.630 9.76 1,045.03
12/31/92 0.03544 0.00000 0.385 9.85 1,058.46
1/31/93 0.03685 0.14546 1.977 9.91 1,084.50
2/28/93 0.04793 0.01271 0.660 10.05 1,106.45
3/31/93 0.03914 0.15801 2.195 9.89 1,110.55
4/30/93 0.03874 0.07067 1.251 9.82 1,114.97
5/31/93 0.04193 0.00000 0.484 9.83 1,120.87
6/30/93 0.02911 0.00000 0.334 9.95 1,137.87
7/31/93 0.03919 0.10073 1.613 9.92 1,150.44
8/31/93 0.04978 0.00000 0.570 10.12 1,179.41
9/30/93 0.03787 0.00423 0.483 10.15 1,187.80
10/31/93 0.02845 0.00000 0.326 10.22 1,199.33
11/30/93 0.02549 0.00000 0.298 10.04 1,181.20
12/31/93 0.03311 0.03319 0.773 10.09 1,194.88
1/31/94 0.03152 0.00000 0.369 10.11 1,200.98
2/28/94 0.02883 0.00000 0.346 9.90 1,179.46
3/31/94 0.05006 0.00000 0.623 9.58 1,147.30
4/30/94 0.04930 0.00000 0.625 9.45 1,137.64
5/31/94 0.04303 0.00000 0.541 9.58 1,158.47
6/30/94 0.03668 0.00000 0.464 9.56 1,160.49 1,000.00
7/31/94 0.03704 0.00000 0.481 9.35 1,139.49 981.91
8/31/94 0.02532 0.00000 0.295 10.45 1,276.63 1,100.08
9/30/94 0.03293 0.00000 0.385 10.46 1,281.88 1,104.60
10/31/94 0.03204 0.00000 0.375 10.46 1,285.81 1,107.98
11/30/94 0.03674 0.00000 0.432 10.46 1,290.32 1,111.87
12/31/94 0.03543 0.00000 0.418 10.41 1,288.51 1,110.32
1/31/95 0.05739 0.00000 0.680 10.44 1,299.32 1,119.64
2/28/95 0.01627 0.00000 0.194 10.46 1,303.84 1,123.53
3/31/95 0.04164 0.00000 0.496 10.46 1,309.03 1,128.01
4/30/95 0.03902 0.00000 0.467 10.46 1,313.91 1,132.21
5/31/95 0.03993 0.00000 0.480 10.46 1,318.93 1,136.53
6/30/95 0.02685 0.00000 0.322 10.51 1,328.62 1,144.89
Performance Information Schedule
Total Return
Date of Net Cap. Shares Returns
Distribution Income Gains. Reinvested NAV Inception 5 Years 1 Year
Worldwide Short-Term:
12/13/93 10.00 1,000.00
12/31/93 0.01216 0.00000 0.122 10.01 1,002.22
1/31/94 0.02057 0.00000 0.207 9.96 999.27
2/28/94 0.00881 0.00000 0.089 9.97 1,001.16
3/31/94 0.01532 0.00000 0.155 9.92 997.67
4/30/94 0.02564 0.00000 0.260 9.91 999.25
5/31/94 0.03173 0.00000 0.322 9.95 1,006.48
6/30/94 0.03298 0.00000 0.336 9.92 1,006.78 1,000.00
7/31/94 0.04180 0.00000 0.427 9.94 1,013.05 1,006.23
8/31/94 0.04280 0.00000 0.440 9.91 1,014.36 1,007.52
9/30/94 0.03655 0.00000 0.377 9.93 1,020.15 1,013.27
10/31/94 0.03844 0.00000 0.397 9.94 1,025.12 1,018.21
11/30/94 0.03367 0.00000 0.350 9.93 1,027.56 1,020.64
12/31/94 0.02819 0.00000 0.294 9.92 1,029.44 1,022.50
1/31/95 0.03810 0.00000 0.399 9.91 1,032.36 1,025.40
2/28/95 0.07275 0.00000 0.769 9.85 1,033.68 1,026.71
3/31/95 0.06653 0.00000 0.716 9.75 1,030.17 1,023.22
4/30/95 0.05440 0.00000 0.588 9.77 1,038.03 1,031.03
5/31/95 0.04269 0.00000 0.462 9.81 1,046.81 1,039.75
6/30/95 0.03887 0.00000 0.427 9.72 1,041.36 1,034.33
</TABLE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions
"Financial Highlights," "Independent Auditors" and
"Financial Statements" and to the incorporation by
reference of our report dated February 24, 1995 in this
Registration Statement (Form N-1A No. 33-27896) of
FFTW Funds, Inc.
By: \s\ Ernst & Young LLP
Ernst & Young LLP
New York, New York
September 1, 1995
AGREEMENT dated as of February 1, 1995 by and between FFTW FUNDS,
Inc., a Maryland corporation ("Fund"), and AMT CAPITAL SERVICES,
INC., a Delaware corporation ("AMT Capital").
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940
Act"), and offers shares of ten separate series (individually, a
"Series," and collectively, the "Series"), which have been registered
under the Securities Act of 1933, as amended (the "1933 Act");
WHEREAS, AMT Capital is registered as a broker-dealer under
the Securities Act of 1934, as amended (the "1934 Act"), and is a
member of the National Association of Securities Dealers, Inc. (the
"NASD"); and
WHEREAS, the Fund desires to appoint AMT Capital as the
distributor of the Shares, and AMT Capital wishes to become the
distributor of such Shares.
NOW, THEREFORE, in consideration of the above premises and of other
good and valuable consideration, the parties hereto, intending to be
legally bound, agree as follows:
1. Appointment of Distributor
The Fund hereby appoints AMT Capital as the distributor of the
Fund's Shares for the period and on the terms set forth in this
Agreement. This appointment applies to each existing Series of Shares, as
well as any future series provided (i) the Fund does not object to AMT
Capital in writing or (ii) AMT Capital does not object to the Fund
in writing on the basis of the capabilities of AMT Capital. AMT
Capital accepts such appointment and agrees to render the services and
provide, at its own expense, the office space, furnishings and
equipment, and the personnel required by it to perform the services on the
terms herein provided.
2. Duties of the Fund
The Fund shall use its best efforts in maintaining registration
of itself and its securities under the 1940 Act and the 1933 Act, and
shall bear all expenses in connection therewith.
The Fund shall cooperate in the qualification by the investment
adviser or other service provider of the Fund of each Series of Shares
under the laws of such states and other jurisdictions of the United
States as the Fund shall determine and shall execute and deliver such
documents as may reasonably be required for such purpose, but the
Fund shall not be required to qualify as a foreign business entity in any
jurisdiction, nor effect any modification of its policies or
practices without prior approval of the Fund's Directors. The Fund's
officers, subject to the direction of the Board of Directors of the Fund
and with the advice of AMT Capital, shall determine whether it is
desirable to qualify or continue to offer Shares of any Series in any
jurisdiction. AMT Capital shall have no obligation hereunder to assist in
the qualification of Shares of any Series in any jurisdiction or in the
maintenance of any qualification, other than its obligation to serve as
registered agent to the Fund and execute required filings.
The Fund will deliver to AMT Capital copies of each of the
following documents and will deliver to AMT Capital all future amendments
and supplements, if any:
A. a certified copy of the Articles of Incorporation of the Fund
as amended and currently in effect ("Charter");
B. a certified copy of the Fund's By-laws as amended and
currently in effect ("By-laws");
C. the Fund's prospectus and statement of additional information
(including supplements thereto) which relate to the Shares (the
"Prospectus" and "SAI"); and
D. the Fund's current Registration Statement on Form N-1A
as filed under the 1940 and 1933 Acts, as such shall be amended from
time to time (the "Registration Statement").
The Fund shall also furnish AMT Capital, with respect to a Series or
the Fund, as applicable:
E. annual audit reports of the Fund's books and accounts made by
independent public accountants regularly retained by the Fund;
F. such additional copies of the Prospectus and SAI and annual,
semi-annual and other reports and communications to shareholders which
relate to the Shares as AMT Capital may reasonably require for sales purposes;
G. a monthly itemized list of the securities held by each Series;
H. monthly balance sheets as soon as practicable after the end of
each month;
I. a survey indicating the states and jurisdictions in which
each Series is qualified for sale or exempt from the requirements of the
securities laws of such state or jurisdiction and the amounts of
Shares of such Series that may be sold in such states and
jurisdictions, as such may be amended from time to time ("Blue Sky Report"); and
J. from time to time such additional information regarding the
Fund's financial condition or the financial condition of a Series of
Shares as AMT Capital may reasonably request.
3. Duties of AMT Capital
AMT Capital agrees that all solicitations for subscriptions to
Shares of each Series shall be made in accordance with the Charter, By-
Laws, and the Registration Statement, to the extent such documents have
been provided to AMT Capital, and in accordance with the Prospectus and
the SAI, and shall not at any time or in any manner violate any provisions
of the laws of the United States or of any state or other jurisdiction in
which solicitations are then being made, or of any rules and regulations
made or adopted by duly authorized agencies thereunder, including
without limitation those promulgated by the U.S. Securities and Exchange
Commission (the "SEC") and the NASD; provided that AMT Capital shall not
be deemed to have violated any state securities laws if it has acted in
good faith and in accordance with the Blue Sky Report.
AMT Capital acknowledges that the only information provided to it
by the Fund is that contained in the Registration Statement, the
Prospectus, the SAI, and reports and financial information referred to in
Section 2 herein. Neither AMT Capital nor any other person is
authorized by the Fund to give any information or to make any
representations, other than those contained in such documents and any
sales literature or advertisements approved by appropriate
representatives of the Fund.
AMT Capital may undertake or arrange for such advertising and
promotion as it believes reasonable in connection with the solicitation
of orders to purchase Shares; provided, however, that it shall
provide the Fund with and obtain the Fund's approval of copies of any
advertising and promotional materials approved, produced or used by AMT
Capital prior to their use. AMT Capital shall file such materials
with the SEC and the NASD to the extent required by the 1934 Act and
the 1940 Act and the rules and regulations thereunder, and by the
rules of the NASD.
In carrying out its obligations hereunder, AMT Capital shall take, on
behalf of the Fund, all actions which appear to the Fund necessary to carry
into effect the distribution of the Shares of each Series.
4. Distribution of Shares of each Series
The price at which Shares of each Series may be sold shall be the
net asset value per Share of such Series computed in the manner set
forth in the Fund's Prospectus and SAI in effect at the time of sale of
the Shares of such Series.
It is mutually understood and agreed that AMT Capital does not
undertake to sell all or any specific portion of the Shares of any Series.
The Fund shall not sell Shares of any Series except through AMT Capital,
except that the Fund may issue Shares of any Series at their net asset
value to any shareholder of the Fund purchasing Shares with dividends or
other distributions received from the Fund pursuant to an offer made to all
shareholders. In addition, the Fund may issue Shares in connection with
the merger or consolidation of any other investment company or series
thereof with the Fund or one of its Series, or in connection with its
acquisition, by purchase or otherwise, of all or substantially
all of the assets of any investment company or series thereof or
substantially all of the outstanding shares of any such company or series
thereof.
AMT Capital may, and when requested by the Fund shall, suspend
its efforts to effectuate sales of Shares of any Series at any time when
in the opinion of AMT Capital or of the Fund no sales should be made
because of market or other economic considerations or abnormal
circumstances of any kind. The Fund may withdraw the offering of Shares
of any Series (i) at any time with the consent of AMT Capital, or (ii)
without such consent when so required by the provisions of any statute or
of any order, rule or regulation of any governmental body having
jurisdiction.
Whenever in the judgment of the Fund's officers such action is
warranted by unusual market, economic or political conditions, or by
abnormal circumstances of any kind, the Fund's officers may, after notice
is received by AMT Capital, decline to accept any orders for, or make any
sales of the Shares of any Series until such time as those officers
deem it advisable to accept such orders and to make such sales. In
the event of such suspension of sales and until AMT Capital receives
written notification from the Fund that AMT Capital may resume accepting
orders for and making sales of the Shares of such Series, AMT Capital's
duty to distribute Shares of such Series shall be suspended.
5. Effectiveness of Registration
None of the Shares of any Series shall be offered by either AMT
Capital or the Fund under any of the provisions of this Agreement and no
orders for the purchase or sale of the Shares of any Series shall be
accepted by the Fund if and so long as the effectiveness of the
Registration Statement then in effect or any necessary amendments thereto
shall be suspended under any of the provisions of the 1933 Act or if and
so long as a current Prospectus as required by Section 5(b)(2) of the
1933 Act is not on file with the SEC; provided, however, that nothing
contained in this paragraph 5 shall in any way restrict or have
application to or bearing upon the Fund's obligation to repurchase
Shares of any Series from any shareholder in accordance with the
provisions of the Prospectus, SAI, or Charter.
The Fund agrees to advise AMT Capital immediately in writing:
(a) of any request by the SEC for amendments to the Registration
Statement, Prospectus or SAI then in effect or for additional information;
(b) in the event of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement, Prospectus or
SAI then in effect or the initiation of any proceeding for that purpose;
and
(c) of the happening of any event that makes untrue any statement
of a material fact made in the Registration Statement, Prospectus or
SAI then in effect or that requires the making of a change in such
Registration Statement, Prospectus or SAI in order to make the statement
therein not misleading in any material respect.
For the purpose of this paragraph 5, informal requests by the staff of the
SEC shall to be deemed requests by the SEC.
6. Expenses
The expenses connected with the Fund shall be allocable between the
Fund and AMT Capital as follows:
(a) AMT Capital shall furnish, at its expense and without cost to
the Fund, the services of personnel to the extent that such services are
required to carry out its obligations under this Agreement.
(b) The Fund assumes and shall pay or cause to be paid all other
expenses of the Fund, including, with limitation: the fees of the Fund's
investment adviser; the charges and expenses of any registrar, any
custodian or depository appointed by the Fund for the safekeeping of its
cash, portfolio securities and other property, and any stock transfer,
dividend or accounting agent or agents appointed by the Fund; any
administrator; brokers' commissions chargeable to the Fund in connection
with portfolio securities transactions to which the Fund is a
party; any fee paid pursuant to any distribution plan, if and when
adopted by the Fund pursuant to Rule 12b-1 under the 1940 Act; all taxes,
including securities issuance and initial transfer taxes, and corporate
fees payable by the Fund to federal, state or other governmental agencies;
all costs and expenses in connection with the organization of the Fund and
the Series and the registration of the Shares with the SEC and under
state securities laws and in connection with maintenance of
registration of the Fund, Series and the Shares with the SEC and various
states and other jurisdictions (including filing fees and legal fees
and disbursements of counsel); the expenses of printing, including
printing setup charges, and distributing Prospectuses and SAIs of
the Fund and supplements thereto the Fund's shareholders; all expenses of
shareholders' and Directors' meetings and of preparing, printing and
mailing of proxy statements and reports to shareholders; fees and
travel expenses of Directors who are not interested persons (as such term
is defined in the 1940 Act) of the Fund ("Non-Interested Directors") or
members of any advisory board or committee established by the Non-
Interested Directors; all expenses incident to the payment of any
dividend, distribution, withdrawal or redemption, whether in Shares or in
cash; charges and expenses of any outside service used for pricing of
the Fund's Shares; charges and expenses of legal counsel to the Fund
and to the Non-Interested Directors, and of independent accountants to the
Fund, in connection with any matter relating to the Fund; membership dues
of industry associations; interest payable on Fund borrowings; postage;
insurance premiums on property or personnel (including officers and
directors) of the Fund which inure to its benefit; extraordinary expenses
of the Fund (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification related thereto);
and all other charges and costs of the Fund's operation unless otherwise
explicitly provided herein.
7. Indemnity by Fund
The Fund agrees to indemnify and hold AMT Capital, its officers and
directors and each person (if any) who controls AMT Capital within the
meaning of Section 15 of the 1933 Act harmless from and against any losses,
claims, damages or liabilities to which any of such persons may become
subject, under the 1933 Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement, the
Prospectus, or the SAI or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
and will reimburse such persons for any legal or other expenses
reasonably incurred by them in connection with investigating or
defending any such action or claim; provided, however, that the Fund
shall not be liable in any case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission made in the Registration Statement,
the Prospectus or the SAI in reliance upon and in conformity with written
information furnished to the Fund by AMT Capital expressly for use
therein. AMT Capital, its officers, directors and control persons shall
be entitled to advances from the Fund for payment of the reasonable
expenses incurred by it or them in connection with the matter as to
which it or they are seeking indemnification in the manner and to
the fullest extent permissible under the Maryland General Corporation law.
AMT Capital agrees that, promptly upon its receipt of notice
of the commencement of any action against AMT Capital, its officers
and/or directors or against any person so controlling AMT Capital, in
respect of which indemnity or reimbursement may be sought from the
Fund on account of its agreement in the preceding paragraph, notice in
writing will be given to the Fund within 10 days after the summons or
other first legal process shall have been service. The failure to notify
the Fund of any such action shall not relieve the Fund from any liability
which the Fund may have to the person against whom such action is brought
other than by reason of the indemnity agreement contained in this Section
7. Thereupon, the Fund shall be entitled to participate, to the
extent that it shall wish (including the selection of counsel with AMT
Capital's reasonable approval), in defense thereof. In the event the
Fund elects to assume the defense of any such suit and retain counsel of
good standing reasonably approved by AMT Capital, the defendant or
defendants in such suit shall bear the expense of any additional counsel
retained by any of them; but in the case the Fund does not elect to
assume the defense of any such suit or in the case AMT Capital does not
reasonably approve of counsel chosen by the Fund, the Fund will reimburse
AMT Capital, its officers and directors or the controlling person
or persons named as defendant or defendants in such suit for the fees
and expenses of any one counsel or firm which may be retained on behalf
of AMT Capital, its officers and directors and such control persons.
In the event that any such claim for indemnification is made by any
director or person in control of AMT Capital who is also an officer or
director of the Fund, the Fund, at its expense to the extent permitted
by law, will submit to a court of appropriate jurisdiction the question
of whether or not indemnification by it is against public policy as
expressed in the 1933 Act, the 1934 Act, and the 1940 Act, and the Fund
and AMT Capital will be governed by the final adjudication of such
question.
The Fund's indemnification agreement contained in this paragraph
and the Fund's representations and warranties in this agreement shall
remain operative and in full force and effect regardless of any
investigation made by or on behalf of AMT Capital, its officers and
directors or any control person and shall survive the sale of any of the
Shares made pursuant to this Agreement. This agreement of
indemnity will inure exclusively to the benefit of AMT Capital, its
officers, directors and control persons, and the extent permitted by
the 1940 Act to the benefit of any of their successors and assigns. The
Fund agrees promptly to notify AMT Capital of the commencement of any
litigation or proceeding against the Fund in connection with the issue and
sale of any Shares.
8. Indemnity by AMT Capital
AMT Capital agrees to indemnify and hold harmless the Fund, its
officers and directors and persons who control the Fund with the meaning
of Section 15 of the 1933 Act, against any losses, claims, damages
or liabilities to which any of such persons may become subject, under the
1933 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof), arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, the Prospectus, or the SAI
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in the
Registration Statement, the Prospectus or the SAI in reliance
upon and in conformity with written information furnished to the Fund by
AMT Capital expressly for use therein; and will reimburse the Fund
for any legal or other expenses reasonably incurred by the Fund in
connection with investigating or defending any such action or claim.
AMT Capital also agrees to indemnify and hold harmless the Fund, its
officers and directors and control persons from and against any and all
losses, claims, damages and liabilities arising by reason of any
person acquiring any Shares, which may be based upon the 1933 Act or any
other statute or at common law, on account of any wrongful sales
activities of AMT Capital or any of its registered representatives, as
defined under the By-Laws of the NASD, including any failure to
conform with any requirement of any state and federal law relating to the
sale of such Shares. Notwithstanding anything contained herein to the
contrary, AMT Capital shall not be responsible to the Fund for and shall
not indemnify and hold harmless the Fund, its officers and director as
and control persons from and against any such losses, claims, damages or
liabilities arising solely as a result of actions taken or omitted by
AMT Capital in good faith reliance on, and in conformity with, the Blue
Sky Report.
AMT Capital shall also indemnify and hold harmless the Fund, its
officers and directors and control persons for any liability to the Fund
or to the holders of Shares by reason of AMT Capital's willful misfeasance,
bad faith or gross negligence in the performance of its duties or by
reason of its reckless disregard of its obligation and duties under this
Agreement.
The Fund, its officers, directors and control persons shall
be entitled to advances from AMT Capital for payment of the reasonable
expenses incurred by it or them in connection with the matters as to
which it or they are seeking indemnification in the manner and to
the fullest extent permissible under Delaware Corporation law.
In case any action shall be brought against the Fund, its
officers and directors and control persons in respect of which it may
seek indemnity or reimbursement from AMT Capital on account of the
agreement of AMT Capital contained in this Section 8, AMT Capital shall
have the rights and duties given to the Fund, and the Fund, its officers
and directors and control persons shall have the rights and duties
given to AMT Capital in the second and third paragraphs of Section 7.
9. Services Not Exclusive
Nothing herein shall be deemed to limit or restrict AMT Capital's
right or that of any of its affiliates or employees, to engage in
any other business or to devote time and attention to the distribution or
other related aspects of any other registered investment company or to
render services of any kind to any other corporation, firm, individual
or association.
10. Term
This agreement shall become effective at the close of business on
the date hereof and shall continue in full force and effect, subject to
paragraph 13 hereof for one year.
11. Renewal
This Agreement shall continue in full force and effect from year to
year with respect to a Series, provided that such continuance is
specifically approved at least annually;
(a) (i) by the Fund's Board of Directors or (ii) by the vote of a
majority of the outstanding voting securities (as defined) in Section
2(a)(42) of the 1940 Act) that constitute Shares of such Series; and
(b) by the affirmative vote of a majority of the Non-Interested
Directors of the Fund by votes cast in person at a meeting specifically
called for the purpose of voting on such approval.
12. Amendment
This Agreement may be amended by the parties hereto with respect to a
Series only if such amendment is specifically approved (i) by the
Board of Directors of the Fund or by the vote of a majority of outstanding
Shares, and (ii) by a majority of the Non-Interested Directors of the Fund,
which vote must be cast in person at a meeting called for the purpose of
voting on such approval.
13. Termination
This Agreement may be terminated at any time, without the payment of
any penalty, by vote of the Fund's Board of Directors, by vote of a
majority of outstanding Shares (as defined in Section 2(a)(42) of the
1940 Act), or by AMT Capital, on sixty (60) days' written notice to
the other party. The notice provided for herein may be waived by either
party. This Agreement shall automatically terminate in the event
of its assignment, the term "assignment" for this purpose having
the meaning defined in Section 2(a)(4) of the 1940 Act.
14. Miscellaneous
(a) AMT Capital agrees on behalf of itself and its employees to
treat confidentially and as proprietary information of the Fund
all records and other information relative to the Fund and its prior,
present or potential shareholders, and not to use such record and
information for any purpose other than performance of its
responsibilities and hereunder, except after prior notification to
and approval in writing by the Fund, which approval shall not be
unreasonably withheld and may not be withheld where AMT Capital may be
exposed to civil or criminal contempt proceedings for failure to comply,
when requested to divulge such information by duly constituted
authorities, or when so requested by the Fund.
(b) Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise derived
from a term or provision of the 1940 Act shall be resolved by reference to
such term or provision of the 1940 Act and to interpretations thereof,
if any, by the United States courts, or in the absence of any controlling
decision of any such court, by rules, regulations or orders of the SEC
issued pursuant to the 1940 Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this Agreement is
revised by rule, regulation or order of the SEC, such provision shall be
deemed to incorporate the effect of such rule, regulation or order.
Otherwise, the provisions of this Agreement shall be governed by the
laws of the State of New York.
(c) Any notice or other communication authorized or required
hereunder shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. Notice shall be addressed (a) if to the
Fund, 717 Fifth Avenue, 14th Floor, New York, NY 10022, Attention:
Treasurer, and (b) if to AMT Capital, 430 Park Avenue, 17th Floor, New
York, NY 10022, Attention: Carla Dearing. Either party may designate
a different address by notice to the other party. Any such notice or
other communication shall be deemed given when actually received.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers designated below as of the day and
year above written.
ATTEST: FFTW FUNDS, INC.
BY:_____________ BY:_______________________
Kyle A. Chang Stephen P. Casper
Secretary Treasurer
ATTEST: AMT CAPITAL SERVICES, INC.
BY:_____________ BY:_______________________
William E. Vastardis Carla E. Dearing
Senior Vice President Managing Director
ADMINISTRATION AGREEMENT
AGREEMENT dated as of February 1,
1995 by and between FFTW FUNDS, INC., a
Maryland corporation ("Fund"), and AMT
CAPITAL SERVICES, INC., a Delaware
corporation ("AMT Capital").
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and offers shares of ten separate series of its common stock, par value $.001
per share, which have been registered under the Securities Act of 1933, as
amended;
WHEREAS, AMT Capital is a service company which provides management,
administrative and other services to investment companies and other entities;
and
WHEREAS, the Fund desires to retain AMT Capital to render certain
management and administrative services, including supervision of certain
third party vendors to the Fund.
NOW, THEREFORE, in consideration of the above premises and of other
good and valuable consideration the parties hereto, intending to be legally
bound hereby, agree as follows:
1. Appointment of Administrator
The Fund hereby appoints AMT Capital to act as administrator to the
Fund for the period and on the terms set forth in this Agreement. This
appointment applies to each existing series of the Fund, as well as any
future series provided (i) the Fund does not object to AMT Capital in writing or
(ii) AMT Capital does not object to the Fund in writing on the basis of the
capabilities of AMT Capital. AMT Capital accepts such appointment and
agrees to render the services and provide, at its own expense, the office
space, furnishings and equipment, and the personnel required by it to perform
the services on the terms and for the compensation herein provided.
As further delineated on Schedule A of this Agreement, which may be
amended by the parties from time to time AMT Capital shall provide for, or
assist in managing and supervising all aspects of, the general day-to-day
business activities and operations of the Fund except for investment advisory
services, including custodial, transfer agency, dividend disbursing, accounting,
auditing and legal services. AMT Capital shall discharge such
responsibilities subject to the supervision and direction of the Fund's
officers and Board of Directors, and in compliance with the objectives, policies
and limitations set forth in the Fund's registration statement, Articles of
Incorporation, By-Laws and applicable laws and regulations. All agreements
with third parties shall be subject to review and approval by the Fund's
executive officers or Board of Directors.
2. Representation and Warranties of AMT Capital
AMT Capital represents and warrants to the Fund that:
A. AMT Capital is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has full power
and authority, corporate and otherwise, to consummate the transactions
contemplated by this Agreement. AMT Capital is duly qualified to carry out
its business, and is in good standing, in the State of New York.
B. The Board of Directors and stockholders of AMT Capital have taken
all action required by law and AMT CAPITAL's Certificate of Incorporation
and By-Laws to authorize the execution and delivery of this Agreement by AMT
Capital and the consummation on behalf of AMT Capital of the transactions
contemplated by this Agreement. This Agreement constitutes a legal, valid and
binding obligation of AMT Capital enforceable in accordance with its
terms. Neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will result in a
breach of, or constitute a default under, or with lapse of time or giving
of notice or both will result in a breach of or constitute a default under,
or otherwise give any party thereto the right to terminate (a) any mortgage,
indenture, loan or credit agreement or any other agreement or instrument
evidencing indebtedness for money borrowed to which AMT Capital is a party
or by which AMT Capital or any of its properties is bound or affected, or
pursuant to which AMT Capital has guaranteed the indebtedness of any
person, or (b) any lease, license, contract or other agreement to which AMT
Capital is a party or by which AMT Capital or any of its properties is
bound or affected. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
result in, or require, the creation or imposition of any mortgage, deed or
trust, pledge, lien, security interest, or other charge or encumbrance of any
nature upon or with respect to any of the properties now or hereafter owned by
AMT Capital.
C. Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will violate any
provision of the Certificate of Incorporation or By-Laws of AMT Capital.
D. Except such as have been obtained and as are in full force and
effect and subject to no dispute, claim or challenge, no permit, license,
franchise, approval, authorization, qualification or consent of,
registration or filing with, or notice to, any governmental authority is
required in connection with the execution and delivery by AMT Capital of
this Agreement or in connection with the consummation by AMT Capital of any
transactions contemplated by this Agreement, and no such permit, license,
franchise, approval, authorization, qualification or consent of,
registration or filing with, or notice to any federal, state or local
governmental authority is required in connection with AMT Capital's business
or operations as currently conducted or as currently contemplated to be
conducted. AMT Capital has conducted its business and operations in
compliance with all applicable laws and regulations.
3. Duties of the Fund
A. The Fund will deliver to AMT Capital copies of each of the
following documents and will deliver to AMT Capital all future amendments and
supplements, if any:
1. A certified copy of the Articles of Incorporation of the
Fund as amended and currently in effect;
2. A certified copy of the Fund's By-Laws as amended and currently
in effect;
3. A copy of the resolution of the Fund's Board of Directors
authorizing this Agreement;
4. The Fund's registration statement on Form N-1A as filed
with, and declared effective by, the U.S. Securities and Exchange
Commission ("SEC"), and all amendments thereto;
5. Each resolution of the Board of Directors of the Fund
authorizing the original issue of its shares;
6. Certified copies of the resolutions of the Fund's Board of
Directors authorizing: (i) certain officers and employees of AMT
Capital to give instructions to the Fund's custodian and transfer agent
as required by agreements with such parties, and (ii) certain officers
and employees of AMT Capital to sign checks and pay expenses on
behalf of the Fund;
7. A copy of the current Investment Advisory Agreement
between the Fund and Fischer
Francis Trees & Watts, Inc.;
8. A copy of the Custodian Agreement and Transfer Agency
Agreement relating to the Fund; and
9. Such other certificates, documents or opinions which AMT
Capital may in its reasonable discretion, deem necessary or appropriate in
the proper performance of its duties.
B. The Fund will cooperate in providing AMT Capital with all
necessary information to permit AMT Capital to perform its duties hereunder.
C. The Fund certifies to AMT Capital that as of the close of
business on the date of this Agreement, it has authorized capitalization of
two billion five hundred million shares of its common stock, $.001 par value
(the shares), divided among its series, and agrees that AMT Capital will be
promptly notified from time to time when the Fund takes corporate action to
increase the number of authorized shares, including restoring redeemed shares
held in its treasury to the status of authorized and unissued shares.
4. Services To Be Obtained Independently By the Fund
The Fund shall, at its own expense, provide for any of its own:
A. Organizational expenses;
B. Services of an independent accountant;
C. Services of outside legal counsel (including such counsel's
review of the Fund's registration statement, proxy materials and other reports
and materials prepared by AMT Capital under this Agreement);
D. Services contracted for by the Fund directly from parties other
than AMT Capital acting as administrator (or subcontracted for by AMT Capital on
behalf of the Fund, subject to review and approval by the Fund's executive
officers or Board of Directors);
E. Trading operations and brokerage fees, commissions and transfer
taxes in connection with the purchase and sale of securities for its
investment portfolio;
F. Investment advisory services;
G. Taxes, insurance premiums and other fees and expenses applicable
to its operation;
H. Costs incidental to any meeting of shareholders including, but
not limited to, legal and accounting fees, proxy filing fees and costs
incidental to the preparation, printing and mailing of any proxy materials;
I. Cost incidental to Directors' meetings, including fees and
expenses of Directors;
J. The salary and expenses of any officer or employee of the Fund
who is not also an officer or employee of AMT Capital;
K. Custodian and depository banks, and all services related
thereto;
L. Costs incidental to the preparation, printing and distribution
of its registration statement and any amendments thereto, and shareholder
reports, including printing setup, printing and mailing costs;
M. All registration fees and filing fees required under the
securities laws of the United States and state regulatory authorities;
N. Fidelity bond and Director's and officers' liability insurance;
O. Record retention costs of third parties;
P. Distribution fees pursuant to any distribution plan, if and when
adopted pursuant to Rule 12b-1 under the 1940 Act; and
Q. Litigation and indemnification expenses and other extraordinary
expenses not incurred in the ordinary course of the Fund's business.
5. Price, Charges and Instructions
In consideration of the services rendered and expenses assumed by AMT
Capital pursuant to this Agreement, the Fund shall pay AMT Capital (i) a monthly
fee at the annual rate of .07% of the average daily net assets of the Fund on
the first $350 million, .05% thereafter up to $3 billion, .04% thereafter up to
$2 billion, and .03% on assets over $5 billion; and (ii) an incentive fee as
set forth in Schedule B hereto. Such sum shall be paid in monthly
installments by the tenth day of each month for the previous month.
In addition, AMT Capital shall be reimbursed for the reasonable cost of
any and all forms, including blank checks and proxies, used by it in
communicating with shareholders, Directors, Fund management, or any
regulatory agencies on behalf of the Fund, or especially prepared for use in
connection with its obligations hereunder, as well as the reasonable
cost of postage, telephone, telex and telecopy used in communicating with
shareholders, Directors, Fund management, or any regulatory agencies
on behalf of the Fund, travel-related expenses when incurred on official Fund
business and microfilm used each year to record the previous year's transactions
in shareholder accounts and computer tapes used for reasonable permanent
storage of records, permanent storage costs for hard copy Fund records and
reasonable cost of insertion of materials in mailing envelopes by
outside firms. Prior to ordering any forms in such supply as it estimates
will be adequate for more than two years' use, AMT Capital shall obtain the
written consent of the Fund. All forms for which AMT Capital has received
reimbursement from the Fund shall be and remain the property of the Fund until
used.
At any time AMT Capital may apply to any officer of the Fund or officer
of the Fund's investment adviser for instructions, and may consult with legal
counsel for the Fund, if consented to by an officer of the Fund at the expense
of the Fund, with respect to any matter arising in connection with the services
to be performed by AMT Capital under this Agreement and AMT Capital shall not
be liable and shall be indemnified by the Fund for any action taken or omitted
by it in good faith in reliance upon such instructions or upon the opinion of
such counsel. AMT Capital shall be protected and indemnified in acting upon
any paper or document of the Fund reasonably believed by it to be genuine
and to have been signed by the proper person or persons and shall not be held
to have notice of any change of authority of any person, until receipt
of written notice thereof from the Fund. AMT Capital shall also be protected
and indemnified, except where a stop order is in effect, in recognizing transfer
documents which AMT Capital reasonably believes to bear the proper manual or
facsimile signature of the officers of the Fund, and the proper counter-
signatures of any present or former transfer agent.
6. Limitation of Liability and Indemnification
A. AMT Capital shall provide its services in a professional manner
customarily provided by leading mutual fund administration companies. AMT
Capital shall be responsible for the performance of only such duties as are
set forth or contemplated herein or contained in instructions given to it by
the Fund which are not contrary to this Agreement. AMT Capital shall have no
liability for any loss or damage resulting from the performance or non-
performance of its duties hereunder unless caused by or resulting from the
negligence or misconduct of AMT Capital, its officers or employees or the
violation by any of such persons of this Agreement. In any event, AMT Capital
shall not be liable for any consequential damages, except to the
extent resulting from its gross negligence or willful misconduct.
B. The Fund shall indemnify and hold AMT Capital harmless from all
loss, cost, damage and expense, including reasonable expenses for counsel,
incurred by it resulting from any claim, demand, action or suit in connection
with any action or omission by it in the performance of its duties hereunder, or
as a result of acting upon any instructions reasonably believed by it
to have been executed by a duly authorized officer of the Fund, provided
that this indemnification shall not apply to actions or omissions of AMT
Capital, its officers or employees in cases of its or their own negligence or
misconduct or the violation by any of such persons of this Agreement.
C. The Fund will be entitled to participate at its own expense in
the defense, or, if it so elects, to assume the defense of any suit brought to
enforce any liability subject to the indemnification provided above, and if
the Fund elects to assume the defense, such defense shall be conducted by
counsel chosen by the Fund. In the event the Fund elects to assume the
defense of any such suit and retain such counsel, AMT Capital or any of its
affiliated persons, named as defendant or defendants in the suit, may retain
additional counsel unless the Fund shall have specifically authorized the
retaining of such counsel.
7. Confidentiality
AMT Capital agrees that, except as otherwise required by law, AMT
Capital will keep confidential all records and information in its possession
relating to the Fund or its shareholders or shareholder accounts and will not
disclose the same to any person except at the request or with the written
consent of the Fund.
8. Compliance With Governmental Rules and Regulations
The Fund assumes full responsibility for complying with all
applicable requirements of the Securities Act of 1933, the 1940 Act and
the Securities Exchange Act of 1934, all as amended, and any laws, rules and
regulations of governmental authorities having jurisdiction, except to the
extent that AMT Capital specifically assumes any such obligations under the
terms of this Agreement.
AMT Capital shall maintain and preserve for the period prescribed, such
records relating to the services to be performed by AMT Capital under this
Agreement as are required pursuant to the 1940 Act and the Securities Exchange
Act of 1934. All such records shall at all times remain the respective
properties of the Fund, shall be readily accessible during normal business hours
and shall be promptly surrendered upon the termination of this Agreement or
otherwise on written request. Records shall be surrendered in usable machine
readable form.
9. Status of AMT Capital
AMT Capital shall be deemed to be an independent contractor and shall,
unless otherwise expressly provided herein or authorized by the Fund from
time to time, have no authority to act or represent the Fund in any way or
otherwise be deemed an agent of the Fund.
Nothing herein shall be deemed to limit or restrict AMT Capital's right
or that of any of its affiliates or employees, to engage in any other
business or to devote time and attention to the administration or other related
aspects of any other registered investment company or to render services
of any kind to any other corporation, firm, individual or association.
10. Printed Matter Concerning the Fund or AMT CAPITAL
Neither the Fund nor AMT Capital shall publish and circulate any printed
matter which contains any reference to the other party without its prior
written approval, excepting such printed matter as refers in accurate terms to
AMT Capital's appointment under this Agreement and excepting as may be
required by applicable laws or regulations.
11. Term, Amendment and Termination
This Agreement may be modified or amended from time to time by mutual
agreement between the parties hereto. The Agreement shall remain in effect for
a period of one year from the date hereof, and shall automatically continue
in effect thereafter unless terminated by either party at the end of such
period or thereafter on 120 days' prior written notice. Upon termination of the
Agreement, the Fund shall pay to AMT Capital such compensation as may be due
under the terms hereof on the date of such termination. If either of the
parties hereto shall be in default in the performance of any of its duties and
obligations hereunder (the defaulting party), the other party hereto may give
written notice to the defaulting party and if such default shall not have been
remedied within thirty (30) days after such written notice is given, then the
party giving such notice may terminate this Agreement by thirty (30) days
written notice of such termination to the defaulting party, but such
termination shall not affect any rights or obligations of either party arising
from or relating to such default under the terms hereof.
In addition, if, in the reasonable judgement of the Fund, AMT Capital's
performance is consistently below the industry standard for comparable
performance of mutual funds administrative service providers, the
Fund may give written notice to AMT Capital of what needs to be corrected,
stating that AMT Capital has 120 days to improve its performance. If AMT
Capital's performance does not become satisfactory to the Fund within 120
days, then the Fund may terminate this Agreement upon 60 days written notice to
AMT Capital.
12. Notices
Any notice or other communication authorized or required hereunder shall
be in writing or by confirming telegram, cable, telex or facsimile sending
device. Notice shall be addressed (a) if to the Fund, 717 Fifth Avenue,
14th Floor, New York, New York 10022, Attention: Treasurer, and (b) if to AMT
Capital, 430 Park Avenue, 17th Floor, New York, New York 10022, Attention:
Carla E. Dearing. Either party may designate a different address by notice
to the other party. Any such notice or other communication shall be deemed
given when actually received.
13. Non-Assignability
This Agreement shall not be assigned by either of the parties hereto
without the prior consent in writing of the other party. Any purported
assignment in violation of this agreement shall be void and of no effect.
14. Successors
This Agreement shall be binding on and shall insure to the benefit of
the Fund and AMT Capital, and their respective successors and permitted
assigns.
15. Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year above
written.
ATTEST: FFTW FUNDS, INC.
By:___________________ By:____________________
Kyle A. Chang, Stephen P. Casper,
Secretary Treasurer
ATTEST: AMT CAPITAL SERVICES, INC.
By:___________________ By:_____________________
William E. Vastardis, Carla E. Dearing,
Senior Vice President Managing Director
SCHEDULE A
to
ADMINISTRATION AGREEMENT
between
FFTW FUNDS, INC.
and
AMT CAPITAL SERVICES, INC.
Pursuant to the attached Administration Agreement, AMT Capital Services, Inc.
("AMT Capital") will provide the following services to FFTW Funds,
Inc.(the "Fund"):
1) Supervision of all third party vendors to the Fund - AMT Capital
will supervise the quality of service and competitiveness of fees
of all Fund vendors, except the investment adviser and sub-advisers.
AMT Capital will develop day-to-day working relationships with existing
vendors as well as evaluate alternative vendor candidates, as
reasonably requested by the Fund's officers. The vendors that AMT
Capital will be responsible for include:
a) Transfer and Dividend Disbursing Agent, Fund
Accounting Agent and Custodian - AMT Capital will make
necessary efforts to ensure that all legally required
functions are performed at a high quality level and at a
competitive fee. AMT Capital will strive to enhance the
service levels as well as reporting capabilities.
b) Outside Counsel, Independent Accountant and Other
Vendors - AMT Capital will coordinate communications with
all other Fund vendors with a goal of enhancing service
levels while controlling costs.
c) Insurance Providers - AMT Capital will identify
potential insurance providers and evaluate the comparative
terms and costs of fidelity bond, E&O and D&O coverage.
AMT Capital will continually monitor the appropriateness of
the chosen providers and coverage.
2) Monitor and Report on Compliance -
AMT Capital will monitor the Fund's compliance with the regulations of
Sub-Chapter M of the Internal Revenue Code with particular
emphasis on the asset diversification, income and short-
short tests. AMT Capital will monitor the Fund's compliance with
the regulations of the securities laws, particularly the Investment
Company Act of 1940, with particular emphasis on the
diversification, voting stock and Rule 2a-7 tests. AMT Capital will
monitor all Prospectus, Statement of Additional Information and
Board-imposed compliance limitations. AMT Capital will
report compliance status in all required areas in a format and at a
frequency mutually agreed upon between Fund officers and Directors
and AMT Capital, including a quarterly review and reporting
pursuant to the Fund's Code of Ethics policy.
3) Prepare and Monitor Annual Compliance and Administrative
Calendar - AMT Capital will prepare an annual calendar which will
include key dates in the operations of the Fund, such as Board and
Audit Committee Meetings and mailings, filing dates, compliance
monitoring and other mutually agreed upon events. AMT Capital
will monitor the calendar and report on status of activity on a
regular basis to Fund officers.
4) Board of Directors' Meetings - AMT Capital will prepare and
mail all necessary Resolutions, Agenda, Powers of Attorney and other
material in advance of each Board Meeting, and will prepare and mail
all Board written consents. AMT Capital will do a presentation to
the Board of the status of all administrative and operations
functions at each meeting. AMT Capital will coordinate other
Vendor presentations to the Board when required. AMT Capital will
pay all required Directors' fees and expenses, from the Fund's
accounts maintained with its custodian, on a timely and accurate
basis.
5) Monthly Fund Management Reporting -
AMT Capital will collect, review and summarize all Vendor reports.
AMT Capital will prepare a monthly administrative report which will
include the financial statements, a compliance summary, expense ratio
calculations, portfolio turnover ratio calculations and performance
calculations, and will prepare other reasonably requested activity
reports.
6) Shareholder Reports - AMT Capital
will prepare the semi-annual and annual financial reports and
footnotes required by SEC regulation for reporting to the
Shareholders and the SEC. AMT Capital will coordinate with the
Investment Adviser, Sub-advisers, and Independent Accountants to
obtain the appropriate letters to the Shareholders. AMT Capital will
coordinate the printing of the reports and mail to the
Shareholders as well as file copies with the appropriate regulatory
authorities. AMT Capital will respond to any Shareholder
inquiries under the direction of the Fund's officers.
7) Tax Filings - AMT Capital will prepare for Fund officer
review all necessary tax returns and file such
returns on a timely basis with the appropriate regulatory authorities.
These will include all Federal corporate and excise tax returns,
state returns, and 1099 MISC returns for directors fees.
8) SEC Filings - AMT Capital will
prepare for Fund officer review all necessary filings and make such
filings on a timely basis with the SEC. These will include Form N-
SAR, Rule 24e-2 and 24f-2 filings, proxy materials, post-effective
amendments to Form N-1A and any other SEC filings.
9) Blue Sky Monitoring and Filings -
AMT Capital will monitor Blue Sky compliance in each jurisdiction and
perform all administrative functions, including the making of
necessary filings on behalf of the Fund, under the supervision of the
Fund's Distributor. AMT Capital will report the status of the
Fund's registration of each series of shares on a regular basis to the
Fund's Directors and officers.
10) Other Filings - On behalf of the
Fund, AMT Capital will prepare and file any other required documents
with the appropriate jurisdiction, including abandoned property
reports and state corporate law filings.
11) Holdings Reconciliations - AMT Capital will review holdings
reconciliations between the Custodian and Fund Accounting Agent
and between the Investment Adviser, Sub-advisers and the Custodian/Fund
Accounting Agent. All discrepancies will be researched
and reported promptly to the Fund's officers or Directors.
12) Proxy Statement and Annual Meeting - AMT Capital will prepare
all proxy materials, file them with the SEC and mail them to the
Shareholders. AMT Capital will set up the Annual Meeting, prepare the
agenda and script, tabulate and solicit votes if requested to do so
by the Fund's officers or Directors and perform the duties of the
inspector of the elections.
13) Fund Expenses - AMT Capital will review all Fund expenses and
strive to create efficiencies and economies of scale wherever
possible. AMT Capital, under supervision and direction of Fund
officers, will pay all Fund bills in an accurate and timely manner
from the Fund's accounts maintained with its custodian.
14) New Series Registration - AMT Capital will assist management in
the preparation of and filing with the SEC of all new Series or other
changes to the Fund's prospectus and Statement of Additional Information.
15) General - AMT Capital will make its staff available to
management to assist in or to respond to any reasonable request for Fund- or
industry- related information. If requested, AMT Capital will make its
facilities available for a meeting of the Fund's officers or Directors. AMT
Capital will assist in any examination of the Fund by the SEC, IRS or any other
regulatory agency.
SCHEDULE B
The Fund shall pay AMT Capital an incentive fee for reducing the
expense ratio of one or more Portfolios of the Fund on the following basis:
1. AMT Capital shall receive 50% of the dollar value of the
reduction in the target expense ratio of any Portfolio.
2. The target expense ratios are:
Name of Portfolio Annualized Expense Ratio
U.S. Short-Term Fixed Income 0.40%
Stable Return 0.50%
U.S. Treasury 0.50%
AAA Asset-Backed 0.50%
Broad Market Fixed Income 0.50%
Worldwide Short-Term Fixed Income 0.50%
Worldwide Fixed Income 0.60%
Worldwide Fixed Income - Hedged 0.60%
International Fixed Income 0.60%
International Fixed Income - Hed 0.60%
3. The maximum annual fee hereunder shall be .02% of the average
daily net assets of a Portfolio.
4. The reduction from the targeted expense ratio will be calculated
on a monthly basis and paid to the Administrator by the
tenth business day of the following month. Each month's calculation will
include a projection for the remainder of the fiscal
year. In the event that the year-to-date actual expense ratio subsequently
increases to a level that exceeds the previously calculated and paid upon
level, the incentive paid will be deducted from the normal monthly
administration fee to the extent necessary.
5. The targeted and actual expense ratios will be calculated in
accordance with industry standards.
6. The incentive amount paid will not be included in the calculation
of the actual expense ratio.
