February 24, 1995
Dear Shareholder:
We are pleased to present the annual report for the fiscal year ended
December 31, 1994, which marks the end of our fifth successful year as the
sponsor of high quality institutional mutual funds for our investors. The FFTW
Funds, Inc. currently consists of five portfolios, each reflecting a strategy
pursued for many years by our investment adviser, Fischer Francis Trees &
Watts, Inc.
1994 proved to be a demanding and difficult year for fixed income
markets and for investors. Amid concerns about speculative and inflationary
pressures in the economy and continuing evidence of robust economic growth,
the Federal Reserve acted aggressively throughout the year. Long rates rose by
about 150 basis points in the U.S. while short-term rates nearly doubled,
soaring by over 350 basis points. Although many expected the dollar to revive,
it continued to deteriorate against the yen and deutsche mark until late in the
year. Overseas, rates rose in all major markets. While Japan saw only moderate
rises, other markets suffered price declines of similar or greater magnitude to
the U.S.
We greatly appreciate your participation in the FFTW Funds. We
welcome the opportunity to discuss our funds in a continuing effort to meet
your investment needs. Please do not hesitate to contact us with questions or
comments regarding this report, or for assistance in general.
Yours sincerely,
by: \s\John Olcay
O. John Olcay
Table of Contents
U.S. Short-Term Fixed Income Portfolio
Overview 1
Statement Of Net Assets 2
Stable Return Portfolio
Overview 5
Statement Of Net Assets 6
Statement Of Cash Flows 7
Worldwide Short-Term Fixed Income Portfolio
Overview 8
Statement Of Net Assets 9
Worldwide Fixed Income Portfolio
Overview 10
Statement Of Net Assets 11
Worldwide Fixed Income-Hedged Portfolio
Overview 13
Statement Of Net Assets 14
Statement Of Operations 15
Statement of Changes in Net Assets 17
Financial Highlights 20
Notes to Financial Statements 24
Report of Independent Auditors 37
U.S. Short-Term Fixed Income Portfolio
Graph: Comparison of change in value of $10,000 investment in U.S. Short-Term
Fixed Income portfolio and the IBC/Donoghue's Money Fund Average where the
Y-axis ranges from $10,000 to $13,000 and the X-axis ranges from 12/6/89 to
12/31/94.
The U.S. Short-Term Fixed Income Portfolio ("U.S. Short-Term")
ended 1994 with a total return for the year of 3.71%, slightly ahead of its
benchmark, IBC Donoghue's Money Market Fund Average, and with a total of
$290.7 million of net assets. U.S. Short-Term invests in high-quality, short-
term, dollar denominated securities. It seeks to attain a high level of total
return while preserving capital and maintaining liquidity. Average weighted
duration is maintained at less than one year.
Developments in the First Quarter
Fear of inflation dominated the quarter as the Fed acted quickly and
decisively to raise rates. The portfolio was long of its benchmark at the time,
but was shortened and remained short to neutral thereafter, compensating for
being too long earlier and for the effect of widening spreads in corporates,
asset-backs and mortgages.
Developments in the Second Quarter
Turmoil continued in the second quarter, with rates continuing to rise
and the dollar coming under increasing pressure. Rates around the world began
to rise, even though economic growth and inflation prospects appeared less
threatening than in the U.S. The portfolio's duration was kept short to
neutral throughout the period, which helped performance, but widening spreads
for non-Treasuries slightly more than offset this, producing a modest
underperformance for the quarter.
Developments in the Third Quarter
Rates continued upward and market participants grew increasingly
uneasy as a strong economy prompted fears of inflation. Fallout from what was
proving to be the worst bond market in decades continued to unsettle markets.
The Portfolio maintained its defensive stance, keeping duration short of the
benchmark and anticipating a flattening of the yield curve. Mortgage-backed
securities added to performance, but were partially offset by widening
corporate and asset-back spreads, producing a modest net outperformance.
Developments in the Fourth Quarter
Interest rates rose across the spectrum, while the yield curve flattened
as short rates rose by over 100 basis points more than long rates. The quarter
ended with yields close to 8% for two- to thirty-year maturities. Economic data
remained uniformly strong showing no effect of the Fed's rate hikes earlier in
the year. Accordingly, the Fed moved again in November, boosting the Fed Funds
and discount rates by a further 75 basis points. Markets around the world were
roiled by the Orange County crisis and in late December by the sudden collapse
of the Mexican peso. The Portfolio outperformed its benchmark, primarily due
to favorable duration and strategic yield curve positions.
U.S. Short-Term Fixed Income Portfolio - Statement Of Net Assets
December 31, 1994
<TABLE> <C> <C>
Face
Amount Value
<S>
Asset- & Mortgage-Backed Securities - 22.7%
HFC Home Equity Loan 90-2 A1, 6.84% due 9/20/05++ 765,797 768,424
HFC Home Equity Loan 92-1-A1, 6.56% due 5/20/07++ 4,957,650 4,977,778
HFC Home Equity Loan 92-2-A2, 6.485% due 10/20/07++ 1,860,594 1,862,920
HFC Home Equity Loan 93-1-A1, 6.51% due 5/20/08++ 3,061,113 3,066,837
John Deere 1992-A-A2, 5.55% due 9/29/99++ 3,439,735 3,440,810
Merrill Lynch Home Equity Loan 93-1A, 6.5625% due 2/15/03++ 1,573,963 1,574,308
Merrill Lynch Trust Series 10B, 6.225% due 7/25/17++ 12,440,032 12,453,330
MLCC Mortgage Investors 94B-A1, 6.525% due 12/15/19++ 2,000,000 2,000,000
Novus Home Equity Loan 93-1-A, 6.64% due 12/31/03++ 5,231,772 5,246,473
RTC 92 11-A5, 6.76% due 10/25/24++ 9,534,857 9,451,427
RTC 92 M2-A1, 6.74% due 3/25/20++ 3,652,566 3,661,697
RTC 92 CHF, 7.03% due 12/25/20++ 820,087 827,519
Santa Barbara II-A1, 6.9625% due 3/20/18++ 635,652 635,543
Security Pacific Home Equity Loan 91-2 4, 8.1% due 6/15/20 603,661 600,014
SMM Trust 94A, 5.113% due 3/17/95++** 8,000,000 8,000,000
Society Student Loan Trust 93-A A2, 5.96295% due 7/25/03++ 5,000,000 5,006,250
Town & Country Funding, 6.4125% due 8/15/00++ 2,400,000 2,400,000
Total (Cost - $66,384,413) 65,973,330
Bank Obligations - 28.8%
Bank of Boston Nassau TD, 5% due 1/3/95 3,759,000 3,759,000
Commerzbank Yankee CD, 5.56% due 1/5/95 5,000,000 5,000,123
FCC National Bank Note, 6.59% due 2/20/96++ 4,000,000 3,994,000
Harris Trust & Savings Bank CD 6% due 1/3/95 13,000,000 13,000,000
Mellon Bank BA, 6.12% due 2/13/95 3,000,000 2,977,560
Nationsbank TD, 6.25% due 1/3/95 14,500,000 14,500,000
Republic National Bank NY TD 5.875%, due 1/3/95 13,000,000 13,000,000
Societe Generale TD, 3.25% due 1/3/95 10,000,000 10,000,000
Societe Generale TD, 5.75% due 1/3/95 4,500,000 4,500,000
Swiss Bank Yankee CD, 5.42% due 1/4/95 5,000,000 5,000,000
Wachovia Bank Note, 5.98% due 1/11/95 8,000,000 7,999,574
Total (Cost - $83,734,657) 83,730,257
*Commercial Paper - 7.4%
ABN-AMRO N.A. Finance, 5.94% due 1/4/95 1,500,000 1,499,010
Cheltenham Gloucester Bld. Soc., 5.77% due 1/25/95 7,000,000 6,971,952
Koch Industries, 5.95% due 1/3/95 13,000,0000 12,993,554
Total (Cost - $21,464,516) 21,464,516
Corporate Obligations - 6.9%
AT&T Capital, 6.01% due 10/5/95++ 4,000,000 4,004,375
AT&T Capital, 6.53% due 5/24/96++ 6,000,000 5,994,000
CIT Group Holdings, 6.73% due 5/2/97++ 4,000,000 4,003,996
General Electric Capital Corp., 6.63% due 5/12/97++ 6,200,000 6,181,400
Total (Cost - $20,191,811) 20,183,771
*U.S. Government Obligations - 0.9%
U.S. Treasury Bill, 5.506% due 3/2/95
(Cost - $2,667,940) 2,700,000 2,676,378
U.S. Government Agency Obligations - 27.4%
FNMA Discount Note, 5.74% due 1/4/95* 6,920,000 6,915,586
FNMA Discount Note, 5.74% due 1/6/95* 13,920,000 13,906,683
FNMA Discount Note, 5.75% due 1/9/95* 18,000,000 17,974,125
FHLMC Discount Note, 5.5% due 1/3/95* 33,975,000 33,959,429
SLFC, Inc. Ohio SL FRN, 3.825% due 7/1/97++ 6,780,000 6,780,000
Total (Cost - $79,535,823) 79,535,823
Repurchase Agreements - 3.8%
Eastbridge Capital, 5.38% due 1/3/95; Issued 12/30/94
(Collateralized by $11,550,000 U.S. Treasury Bills, 5.97% due 6/1/95*)
(Cost - $11,000,000) 11,000,000 11,000,000
Total Investments - 97.9% (Cost - $284,979,160) 284,564,075
Other Assets and Liabilities - 2.1%
Receivable From Investment Adviser 228,823
Receivable for Capital Stock Sold 5,163,195
Other Assets 844,786
Liabilities (106,011)
Total Other Assets and Liabilities, net 6,130,793
Net Assets - 100.0%
Applicable to 29,396,631 outstanding $.001 par value shares
(authorized 200,000,000) shares 290,694,868
Net Asset Value Per Share 9.89
Components of Net Assets as of December 31, 1994 were as follows:
Capital Stock at par value ($.001) 29,397
Capital Stock in excess of par value 294,602,705
Temporary overdistribution of net investment income (69,947)
Accumulated net realized (loss) (3,452,202)
Net unrealized (loss) on investments (415,085)
290,694,868
<FN>
* Interest rate shown represents yield to maturity at date of purchase
++ Variable or floating rate securities. Coupon rate shown reflects current rate.
** Security exempt from registration under Rule 144A of the Securities Exchange Act of 1933
and is restricted to resale to qualified institutional buyers.
See Notes To Financial Statements
</FN>
</TABLE>
Stable Return Portfolio
Graph: Comparison of change in value of $10,000 investment in Stable Return
Portfolio and the Merrill Lynch 1-2.99 Year Treasury Index where the Y-axis
ranges from $9,900 to $10,300 and the X-axis ranges from 7/26/93 to 12/31/94.
The Stable Return Portfolio ended 1994 with a total return of 0.29%,
just behind its benchmark, the Merrill Lynch 1-2.99 Year Treasury Index which
rose 0.57%. Its investment objective is to maintain as stable a rate of return
as is consistent with preservation of capital by investing primarily in high-
quality debt securities with an average duration of less than three years.
While its return in 1994 was only slightly positive, it achieved that return
in one of the worst years for fixed income securities in decades when even two-
year Treasuries lost more than 0.5%.
Developments in the First Quarter
Although the Portfolio was a bit longer than its benchmark when the
Fed began to increase rates, it was quickly shortened and kept neutral to
defensive through the rest of the quarter. This view, together with beneficial
yield curve strategies, provided a slight outperformance of the benchmark for
the quarter.
Developments in the Second Quarter
As markets saw continued turmoil in the second quarter, hope faded
that earlier rate rises might be either sufficient or reversible. The manager
maintained a defensive duration strategy for the first half of the period,
moving to a more neutral position around mid-May. The positive effect of these
moves was offset by unanticipated changes in the shape of the yield curve,
leading to a modest underperformance for the quarter.
Developments in the Third Quarter
Rates continued to rise, reflecting strong growth around the world and,
especially in the U.S., renewed fears of inflationary resurgence.
The Portfolio was kept modestly short of the benchmark throughout
the period, as rates gyrated in July, stabilized in August and rose steadily in
September. Anticipating a flatter yield curve also helped to produce a modestly
positive return over the quarter.
Developments in the Fourth Quarter
Interest rates continued to rise in the fourth quarter, with the greatest
increases coming in the shorter part of the yield curve where maturities out to
three years (the sector in which this Portfolio invests) increased by about 100
basis points. The Portfolio was positioned somewhat defensively but the
significant flattening of the yield curve which accompanied the rate increase
largely offset the benefits of the duration strategy, so the Portfolio performed
just slightly worse than the Merrill Lynch 1-2.99 year index.
<TABLE>
Stable Return Portfolio - Statement Of Net Assets
December 31, 1994
<C> <C>
Face
Amount Value
<S>
Long-Term Investments - 107.6%
U.S. Treasury Note, 4% due 1/31/96 3,500,000 3,378,588
U.S. Treasury Note, 7.25% due 11/30/96 750,000 744,139
U.S. Treasury Note, 7.5% due 12/31/96 300,000 298,969
U.S. Treasury Note, 7.375% due 11/15/97 250,000 247,344
(Cost - $4,675,441) 4,669,040
Short-Term Investments - 20.5%
Bank of Boston Nassau TD, 5% due 1/3/95 39,000 39,000
FHLB Discount Note, 5.75% due 1/3/95* 750,000 749,641
U.S. Treasury Bill, 4.915% due 3/2/95* 100,000 99,034
Total (Cost - $887,675) 887,675
Total Investments - 128.1% (Cost - $5,563,116) 5,556,715
Other Assets and Liabilities - (28.1%)
Receivable from Investment Adviser 22,994
Other Assets 66,709
Payable for Securities Purchased (299,373)
Shearson Lehman Reverse Repurchase Agreement, 1.5% due 1/3/95 (dated 12/30/94
collateralized by $750,000 U.S. Treasury Note, 7.25% due 11/30/96) (749,063)
Eastbridge Capital Reverse Repurchase Agreement, 5.3% due 1/3/95 (dated 12/30/94
collateralized by $250,000 U.S. Treasury Note, 7.375% due 11/15/97) (249,687)
Other Liabilities (9,956)
Other Assets and Liabilities, net (1,218,376)
Net Assets - 100.0%
Applicable to 454,447 outstanding $.001 par value shares
(authorized 100,000,000 shares) 4,338,339
Net Asset Value Per Share 9.55
Components of Net Assets as of December 31, 1994 were as follows:
Capital Stock at par value ($.001) 454
Capital Stock in excess of par value 4,521,168
Accumulated net realized (loss) on investments and financial futures contracts (176,659)
Net unrealized (loss) on investments and financial futures contracts (6,624)
4,338,339
<FN>
* Interest rate shown represents yield to maturity at date of purchase
See Notes To Financial Statements
</FN>
Stable Return Portfolio - Statement Of Cash Flows
Year Ended December 31, 1994
Increase (Decrease) in Cash
Cash Flows from Operating Activities
Net Investment income 179,805
Adjustments to reconcile net investment income
to net cash provided by operating activities:
(Increase) in receivables and other assets related to operations (20,591)
Increase in payables related to operations 1,216
Net amortization of discount/premium 31,287
Net cash provided by operating activities 191,717
Cash Flows used for Investing Activities
Purchases of investments (16,325,312)
Sales of investments 13,938,167
Net purchases of short-term investments 358,444
Net cash used for investing activities (2,028,701)
Cash Flows provided by Financing Activities
Shares of capital stock sold 857,000
Shares of capital stock redeemed (14,400)
Net proceeds from issuance of reverse repurchase agreements 998,750
Dividends to shareholders (net of reinvestments of $175,508) (3,876)
Net cash provided by financing activities 1,837,474
Net increase in cash 490
Cash at beginning of year 202
Cash at end of year 692
Cash paid during the period for interest 49,467
</TABLE>
Worldwide Short-Term Fixed Income Portfolio
Graph: Comparison of change in value of $10,000 investment in Short-Term
Fixed Income Portfolio and the JP Morgan 3-Month EuroDeposit Index where the
Y-axis ranges from $9,900 to $10,500 and the X-axis ranges from 12/13/93 to
12/31/94.
The Worldwide Short-Term Fixed Income Portfolio rose by 2.72%
during 1994 but fell behind its benchmark, the J.P. Morgan 3-Month Eurodollar
Index which rose 4.48%. The Portfolio seeks as high a return as is consistent
with preservation of principal by investing in debt securities from bond markets
around the world, with an average duration of less than one year.
Developments in the First Quarter
With global economic activity picking up and the Federal Reserve
acting aggressively to forestall a rise in inflation, rates rose dramatically.
Contrary to many expectations, the dollar also declined, falling 4% and 8%
against the deutsche mark and yen respectively. An underweighting in the U.S.
markets was more than offset by even larger declines in other markets in which
the fund was overweighted, most notably Australia and the UK. With the absence
of well defined trends, currency weightings had little impact on the Portfolio.
Under these conditions, returns in this Portfolio were below that of U.S. cash
instruments for the period.
Developments in the Second Quarter
The manager maintained a defensive bias in bond markets around the world as
market turmoil continued. Currency views varied during the quarter with a bias
toward underweighting what was seen as an overly strong yen. Japanese
institutions focusing on domestic strategies and turning from foreign securities
markets helped push the yen unexpectedly higher toward the end of the period.
These strategies produced offsetting results with slightly below benchmark
performance and a positive absolute return for the quarter.
Developments in the Third Quarter
Dashing hopes of a summer rally, the U.S. fixed income markets
continued to decline. Strong domestic and global growth continued and
inflationary indicators showed disconcerting strength. As the quarter
progressed the manager continued to shorten duration, anticipating higher rates
and a flattening yield curve. These tactics produced modest outperformance and
a positive return for the quarter.
Developments in the Fourth Quarter
The manager took a generally neutral to defensive posture in major
bond markets except for a brief period of optimism in October vis-a-vis Europe.
Currency rates remained volatile without well-defined trends and only modest
tactical exposures were taken. The Portfolio underperformed its dollar-based,
short-term index, as a result of generally rising interest rates and the
strengthening of the dollar for most of the period.
Worldwide Short-Term Fixed Income Portfolio - Statement Of Net Assets
December 31, 1994
<TABLE> <C> <C>
Face
Amount Value
<S>
U.S. Obligations - 56.7%
AT & T Capital FRN, 6.53% due 5/24/96++ 2,000,000 1,998,000
Bank of Boston Nassau TD, 5.0% due 1/3/95 10,687,000 10,687,000
CIT Group Holdings FRN, 6.73% due 5/2/97++ 2,000,000 2,002,000
General Electric Capital Corp. FRN, 6.63% due 5/12/97++ 3,000,000 2,991,000
Toyota Motor Credit Corp. FRN, 5.89% due 6/3/96++ 2,500,000 2,497,250
U.S. Treasury Bill, 4.98% due 1/12/95* 500,000 499,170
U.S. Treasury Bill, 5.655% due 4/13/95* 25,000,000 24,597,900
Total (Cost - $45,043,502) 45,272,320
Foreign Government Obligations - 35.0%
French Treasury Bill, 7.0% due 11/12/99 7,308,161 7,011,771
Bundesobligationen, 8.0% due 9/22/97 7,619,786 7,801,617
Bundesobligationen, 7.5% due 10/20/97 7,555,211 7,634,355
Deutscheland Republic, 7.25% due 10/21/02 64,574 63,077
Spanish Government, 10.25% due 11/30/98 75,988 72,660
UK Gilt Floater, 6.1875% due 3/11/99++ 4,701,000 4,672,965
UK Gilt Stock, 9.0% due 3/3/00 626,800 633,622
Total (Cost - $27,643,093) 27,890,067
Total Investments - 91.7% (Cost - $72,686,595) 73,162,387
Other Assets and Liabilities - 8.3%
Receivable from Investment Advisor 66,981
Receivable from Securities Sold 12,291,879
Foreign Currency Holdings 982,971
Interest Receivable 455,930
Other Assets 128,243
Payable for Securities Purchased (6,886,489)
Other Liabilities (439,971)
Other Assets and Liabilities, net 6,599,544
Net Assets - 100.0%
Applicable to 8,037,190 outstanding $.001 par value shares
(authorized 100,000,000 shares) 79,761,931
Net Asset Value Per Share 9.92
Components of Net Assets as of December 31, 1994 were as follows:
Capital Stock at par value ($.001) 8,037
Capital Stock in excess of par value 79,658,698
Temporary overdistribution of net investment income (95)
Accumulated net realized (loss) on investments, options and
financial futures contracts, and foreign currency-related transactions (129,078)
Net unrealized gain on investments, options and financial futures contracts,
and on assets and liabilities denominated in foreign currency 224,369
<FN> 79,761,931
* Interest rate shown represents yield to maturity at date of purchase
++ Variable or floating rate securities. Coupon rate shown reflects current rate.
See Notes To Financial Statements
</FN>
</TABLE>
Worldwide Fixed Income Portfolio
Graph: Comparison of change in value of $10,000 investment in Worldwide Fixed
Income Portfolio and the JP Morgan Global Unhedged Bond Index and the
Salomon Brothers 1-10 Year Treasury Index where the Y-axis ranges from $9,700
to $12,700 and the X-axis ranges from 4/15/92 to 12/31/94.
The Worldwide Fixed Income Portfolio fell by 2.25% during 1994,
versus its benchmarks, the Salomon 1-10 year Treasury Index which fell 1.76%,
and the J.P. Morgan Global Unhedged Bond Index which rose by 1.26% over the
year. The Portfolio's net assets totaled $53.7 million at year-end.
The Portfolio's objective is to achieve a high level of total return,
consistent with preservation of capital by investing in high-quality bonds from
around the world, denominated in both U.S. dollars and other currencies. The
Portfolio's duration should not exceed six years.
Developments in the First Quarter
As rates rose sharply and the dollar fell in the first quarter, the Portfolio
was weighted toward Japanese, Australian and UK bond markets where domestic
conditions appeared to support a more favorable outlook than in the U.S. Sharply
rising U.S. rates had more of an international impact than expected and
Australia and UK rates rose even more than in the U.S. This positioning had a
negative effect on performance both absolutely and in relation to the indices.
Currency weightings had little effect in the absence of well-defined trends,
although the decline of the dollar favorably affected absolute returns.
Developments in the Second Quarter
Rates continued to rise sharply around the World. U.S. bond exposure
was kept defensive during the quarter while European and Japanese positions
were generally neutral to defensive. At the same time there was a continuing
depreciation of the dollar versus the deutsche mark and (less expectedly)
against the yen. As a result the Portfolio under-performed both medium-term U.S.
Treasuries and global bonds.
Developments in the Third Quarter
Around the world evidence of increasing growth mounted, providing
upward pressure on rates. A strongly defensive stance relative to bond markets
around the world paid off in outperformance of both domestic and global bonds
markets. On the other hand, the ebb and flow of concerns about the U.S. led to
overweighting, then underweighting the dollar versus the deutsche mark but the
positions were modest and had limited effect on the Portfolio.
Developments in the Fourth Quarter
Global growth remained strong amid few signs of the inflation so feared
by the markets. Bond markets and the dollar fell early in the quarter but tended
to stabilize as one of the more difficult years in memory for investors drew to
a close. Major markets were underweighted since higher rates were expected. A
defensive stance, with occasional forays into neutral territory characterized
strategy for the fourth quarter. Volatile foreign exchange rates swamped the
effects of any well-defined trends but modest tactical exposures produced
results in line with domestic and global markets.
Worldwide Fixed Income Portfolio - Statement Of Net Assets
December 31, 1994
<TABLE> <C> <C>
Face
Amount Value
<S>
Long-Term Investments - 92.3%
U.S. Obligations - 18.4%
U.S. Treasury Note, 7.75% due 11/30/99 4,480,000 4,463,200
U.S. Treasury Bond, 8.875% due 8/15/17 4,970,000 5,409,527
Total (Cost - $9,958,506) 9,872,727
Foreign Government Obligations - 73.9%
Australian Government Bond, 9.0% due 9/15/04 465,480 435,908
Kingdom of Belgium Bond, 9.0% due 6/27/01 1,666,143 1,729,602
Canadian Government Bond, 7.75% due 9/1/99 2,067,294 1,970,130
Denmark Bullet Bond, 9.0% due11/15/00 822,301 822,300
French Treasury Bill, 7.0% due 11/12/99 12,630,001 12,118,452
Bundesobligationen, 7.5% due 10/20/97 4,520,212 4,571,742
Bundesobligationen, 8.0% due 9/22/97 4,520,212 4,632,313
Staatsbank Berlin FRN, 5.30317% due 4/25/96++ 3,228,723 3,229,205
Japanese Government Bond, 6.6% due 6/20/01 1,858,363 2,084,025
Netherlands Government, 6.25% due 7/15/98 3,171,308 3,068,236
Spanish Government, 10.25% due 11/30/98 1,631,459 1,560,440
Swedish Government Note, 11% due 1/21/99 956,036 977,926
UK Gilt Floater, 6.1875% due 3/11/99++ 2,507,200 2,496,238
Total (Cost - $39,219,278) 39,696,517
Total Long-Term Investments (Cost - $49,177,784) 49,569,244
Short-Term Investments - 1.8%
Bank of Boston Nassau TD, 5.0% due 1/3/95 688,000 688,000
U.S. Treasury Bill, 4.98% due 1/12/95* 300,000 297,925
Total (Cost - $985,925) 985,925
Total Long-Term Investments - 94.1% (Cost - $50,163,709) 50,555,169
Other Assets and Liabilities - 5.9%
Receivable From Investment Adviser 28,971
Receivable From Securities Sold 36,017,494
Foreign Currency Holdings 3,789,443
Interest Receivable 902,486
Other Assets 136,956
Payable For Securities Purchased (35,665,260)
Payable For Capital Shares Redeemed (1,442,115)
Other Liabilities (601,663)
Other Assets and Liabilities, net 3,166,312
Net Assets - 100.0%
Applicable to 5,796,948 outstanding $.001 par value shares
(authorized 100,000,000 shares) 53,721,481
Net Asset Value Per Share 9.27
Components of Net Assets as of December 31, 1994 were as follows:
Capital Stock at par value ($.001) 5,797
Capital Stock in excess of par value 65,752,836
Temporary overdistribution of net investment income (105,966)
Accumulated net realized (loss) on investments, options and financial futures
contracts, and foreign currency-related transactions (11,969,696)
Net unrealized gain on investments, options and financial futures contracts,
and on assets and liabilities denominated in foreign currency 38,510
<FN>
* Interest rate shown represents yield to maturity at date of purchase 53,721,481
++ Variable or floating rate securities. Coupon rate shown reflects current rate.
See Notes To Financial Statements
</FN>
</TABLE>
Worldwide Fixed Income-Hedged Portfolio
Graph: Comparison of change in value of $10,000 investment Worldwide Fixed
Income-Hedged Portfolio and the JP Morgan Global Unhedged Bond Index and
the Salomon Brothers 1-10 Year Treasury Index where the Y-axis ranges from
$9,700 to $12,700 and the X-axis ranges from 5/19/92 to 12/31/94.
The Worldwide Fixed Income - Hedged Portfolio rose by 7.84% during
1994, far outpacing its benchmarks of the Salomon 1-10 year Treasury index the
J.P. Morgan Global Hedged Bond Index which fell by 1.76% and 4.05%
respectively. The Portfolio's net assets totaled $0.3 million at year-end. Its
objective is to seek a high level of total return consistent with preservation
of principal by investing in high quality fixed income securities from bond
markets worldwide and by actively utilizing currency hedging techniques.
Developments in the First Quarter
Severe corrections in bond markets in the U.S., Australia, Canada, and
the UK contributed to negative returns. The benefit of a correctly negative
position on the U.S. market was more than offset by even worse declines in some
non-U.S. markets, providing returns well below those of both domestic and global
hedged indices.
Developments in the Second Quarter
With rates continuing to rise around the world, the Portfolio benefited
from a consistently defensive view of U.S. bond markets and a neutral to
defensive view of Japanese and European rates. Positioning duration nearly a
year short of the benchmark in Japan when markets declined helped propel the
Portfolio to a solid outperformance of its benchmarks and a positive return in
the quarter.
Developments in the Third Quarter
Strengthening and remarkably synchronized global economic activity
pushed bond markets down further as the Fed continued its aggressive stance
and world rates followed the upward move. Performance for the quarter was
extremely strong both in absolute and relative terms. This positive result came
from a heavy underweighting of major markets and successful rate anticipation
through alternatively neutral and very defensive positioning in Europe, the U.S.
and Japan during the quarter.
Developments in the Fourth Quarter
The portfolio manager continued to underweight major markets as
U.S., European and Japanese markets were all expected to face rising rates. That
view transpired in the U.S. and Europe, but the smaller markets were hard hit by
significant currency declines relative to the deutsche mark and rate rises
generally. The Portfolio outperformed U.S. Markets and rose in line with the
J.P. Morgan Global Hedged Bond Index.
Worldwide Fixed Income-Hedged Portfolio - Statement Of Net Assets
December 31, 1994
<TABLE> <C>
Value
<S>
Cash - 89.4%
Cash 243,714
Other Assets and Liabilities - 10.6%
Receivable From Investment Adviser 27,569
Other Assets 7,251
Other Liabilities (5,809)
Other Assets and Liabilities, net 29,011
Net Assets - 100.0%
Applicable to 26,198 outstanding $.001 par value shares
(authorized 100,000,000 shares) 272,725
Net Asset Value Per Share 10.41
Components of Net Assets as of December 31, 1994 were as follows:
Capital Stock at par value ($.001) 26
Capital Stock in excess of par value 2,058,526
Temporary overdistribution of net investment income (2,647)
Accumulated net realized (loss) on investments, options and financial futures
contracts, and foreign currency-related transactions (1,783,180)
272,725
<FN>
See Notes To Financial Statements
</FN>
</TABLE>
Statement Of Operations
Year Ended December 31, 1994
U.S. Portfolios
U.S. Short-Term Stable
Fixed Income Return
Portfolio Portfolio
Investment Income
Interest 12,957,987 250,258
Expenses
Investment advisory fees 854,144 14,209
Administration fees 113,943 1,624
Custodian fees 197,922 12,380
Shareholder recordkeeping fees 43,584 3,863
Legal fees 14,971 420
Audit fees 64,035 8,540
Directors' fees and expenses 34,815 579
Other fees and expenses 44,839 1,638
Total operating expenses 1,368,253 43,253
Waiver of investment advisory fees
and reimbursement of expenses (228,823) (22,994)
Operating expenses, net 1,139,430 20,259
Interest expense 98,357 50,194
Total expenses 1,237,787 70,453
Investment income, net 11,720,200 179,805
Net Realized and Unrealized
(Loss) on Investments, and Options
and Financial Futures Contracts
Net realized (loss) on investments (1,576,785) (146,830)
Net realized (loss) on options and
financial futures contracts (402,807) (8,830)
Net unrealized (depreciation)
on investments (286,714) (6,238)
Net unrealized (depreciation)
on options and financial futures
contracts (39,199) (310)
Net realized and unrealized (loss)
on investments, and options and financial
futures contracts (2,305,505) (162,208)
Net Increase in Net Assets
Resulting From Operations 9,414,695 17,597
See Notes To Financial Statements
<TABLE>
Global & International Portfolios
<C> <C> <C>
Worldwide Short- Worldwide Worldwide Fixed
Term Fixed Income Fixed Income Income-Hedged
Portfolio Portfolio Portfolio
<S>
Investment Income
Interest 3,332,568 7,786,136 850,934
Expenses
Investment advisory fees 249,458 546,460 63,378
Administration fees 28,509 54,646 6,338
Custodian fees 71,092 149,267 37,114
Shareholder recordkeeping fees 2,466 18,299 5,970
Legal fees 8,981 10,599 150
Audit fees 44,587 36,645 3,916
Directors' fees and expenses 11,446 16,117 1,574
Other fees and expenses 6,915 16,628 4,306
Total operating expenses 423,454 848,661 122,746
Waiver of investment advisory
fees and reimbursement of
expenses (66,981) (28,971) (27,569)
Operating expenses, net 356,473 819,690 95,177
Interest expense - 38,739 7,308
Total expenses 356,473 858,429 102,485
Investment income, net 2,976,095 6,927,707 748,449
Net Realized and Unrealized Gain (Loss)
on Investments, Options and Financial
Futures Contracts, and Foreign Currency-
Related Transactions
Net realized (loss) on investments (740,671) (12,510,547) (2,297,051)
Net realized (loss) on foreign currency-
related transactions (531,301) (3,843,470) (315,218)
Net realized gain on options
and financial future contracts 472,637 3,148,806 687,312
Net unrealized appreciation on
investments 475,792 2,158,612 392,193
Net unrealized (depreciation) on assets and
liabilities denominated in foreign
currency (407,844) (3,636,334) (655,495)
Net unrealized appreciation on options and
financial futures contracts 148,619 289,731 55,479
Net realized and unrealized (loss) on investments,
options and financial futures contracts, and
foreign currency-related transactio (582,768) (14,393,202) (2,132,780)
Net Increase (Decrease) in Net Assets
Assets Resulting From Operations 2,393,327 (7,465,495) (1,384,331)
</TABLE>
Statement Of Changes In Net Assets
U.S. Portfolios
<TABLE> <C> <C> <C> <C>
U.S. Short-Term
Fixed Income Portfolio Stable Return Portfolio
Year Year Year Period From
Ended Ended Ended 7/26/93* to
12/31/94 12/31/93 12/31/94 12/31/93
Increase in Net Assets From Operations
Investment income, net 11,720,200 16,311,252 179,805 41,454
Net realized gain (loss) on investments,
and options and financial futures
contracts (1,979,59) (1,472,610) (155,660) 9,865
Net unrealized (depreciation)
on investments, and options and
financial futures contracts (325,913) (187,745) (6,548) (76)
Net increase in net assets resulting
from operations 9,414,69 14,650,897 17,597 51,243
Distributions to Shareholders
From investment income, net 12,010,085 16,021,367 179,805 41,454
In excess of investment income, net 69,947 - - -
From net realized gains on investments,
and options and financial
futures contracts - - - 9,865
In excess of net realized gains on investments,
and options and financial
futures contracts - - - 20,999
Total Distributions 12,080,032 16,021,367 179,805 72,318
Capital Share Transactions, Net (27,032,953) (263,414,902) 1,018,108 3,503,514
Total increase (decrease) in net
assets (127,032,953) (264,785,372) 855,900 3,482,439
Net Assets
Beginning of period 417,727,821 682,513,193 3,482,439 -
End of period 290,694,868 417,727,821 4,338,339 3,482,439
Undistributed net investment income - 289,885 - -
<FN>
* Commencement of Operations
See Notes To Financial Statements
</FN>
</TABLE>
Global & International Portfolios
<TABLE>
<C> <C> <C> <C>
Worldwide Short-Term Worldwide
Fixed Income Portfolio Fixed Income Portfolio
Year Period From Year Year
Ended 12/13/93* to Ended Ended
12/31/94 12/31/93 12/31/94 12/31/93
Increase (Decrease) in Net Assets
From Operations
Investment income, net 2,976,095 7,184 6,927,707 6,668,494
Net realized gain (loss) on investments,
options and financial futures contracts, and
foreign currency-related transaction (799,335) - (13,205,211) 13,328,375
Net unrealized appreciation (depreciation) on
investments, options and financial futures
contracts, and on assets and liabilities
denominated in foreign currency 216,567 7,802 (1,187,991) 947,778
Net increase (decrease) in net assets resulting
from operations 2,393,327 14,986 (7,465,495) 20,944,647
Distributions to Shareholders
From investment income, net 2,305,838 7,184 3,041,000 6,652,895
In excess of investment income, net 95 - 105,966 -
From capital stock in excess of par 670,257 - 3,902,306 -
From net realized gain on investments,
options and financial futures contracts, and
foreign currency-related transaction - - - 13,328,375
In excess of net realized gains on investments,
options and financial futures contracts, and
foreign currency-related transactio - - - 1,992,466
Total Distributions 2,976,190 7,184 7,049,272 21,973,736
Capital Share Transactions, Net 74,329,808 6,007,184 (148,926,788) 135,435,116
Total increase (decrease) in net as 73,746,945 6,014,986 (163,441,555) 134,406,027
Net Assets
Beginning of period 6,014,986 - 217,163,036 82,757,009
End of period 79,761,931 6,014,986 53,721,481 217,163,036
Undistributed Net Investment Income - - - 15,599
</TABLE>
Worldwide Fixed Income
Hedged Portfolio
Year Year
Ended Ended
12/31/94 12/31/93
Increase (Decrease) in Net Assets
From Operations
Investment income, net 748,449 1,736,378
Net realized gain (loss) on investments,
options and financial futures contracts, and
foreign currency-related transactions (1,924,957) 2,529,800
Net unrealized appreciation (depreciation) on
investments, options and financial futures
contracts, and on assets and liabilities
denominated in foreign currency (207,823) 239,597
Net increase (decrease) in net assets resulting
from operations (1,384,331) 4,505,775
Distributions to Shareholders
From investment income, net 748,449 1,736,378
In excess of investment income, net 2,647 -
From net realized gain on investments,
options and financial futures contracts, and
foreign currency-related transactions - 2,095,911
Total Distributions 751,096 3,832,289
Capital Share Transactions, Net (38,729,363) 18,678,895
Total increase (decrease) in net assets (40,864,790) 19,352,381
Net Assets
Beginning of period 41,137,515 21,785,134
End of period 272,725 41,137,515
Undistributed Net Investment Income - -
<TABLE>
Financial Highlights
U.S. Portfolios
U.S Short-Term Fixed Income Portfolio
For a share outstanding Fiscal Year Fiscal Year 3 Month Fiscal Year Period From
throughout the period: Ended Ended Ended Ended Ended 12/6/89* to
12/31/94 12/31/93 12/31/92 12/31/91 9/31/91 9/31/90
<S>
Per Share Data
Net asset value, <C> <C> <C> <C> <C> <C>
beginning of period 9.976 10.000 10.000 10.000 10.000 10.000
Increases (Decreases) From
Investment Operations
Investment income, net 0.443 0.321 0.337 0.119 0.627 0.621
Net realized and unrealized gain
(loss) on investments, and options
and financial futures
contracts (0.078) (0.030) 0.008 0.023 0.057 0.037
Total from investment
operations 0.365 0.291 0.345 0.142 0.684 0.658
Less Distributions
From investment
income, net 0.449 0.315 0.337 0.119 0.627 0.621
In excess of investment
income, net 0.003 - - - - -
From net realized and unrealized gain
on investments, and options and
financial futures
contracts - - 0.008 0.023 0.057 0.037
Total distributions 0.452 0.315 0.345 0.142 0.684 0.658
Net asset value, end of
period 9.889 9.976 10.000 10.000 10.000 10.000
Total Return 3.71% 2.88% 3.45% 5.67%(b) 7.11% 8.31%(b)
Ratios/Supplemental Data
Net assets, end
of period 290694868 417727821 682513193 365310697 269114721 111956929
Ratio of operating expenses
to average net assets
(a) 0.40% 0.40% 0.40% 0.40%(b) 0.40% 0.50%(b)
Ratio of interest expense
to average net assets 0.30% 0.08% 0.03% - 0.30% -
Ratio of investment income,
net to average net assets 4.14% 3.28% 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 0.08% 0.03% - 0.03%(b) 0.11% 0.86%(b)
</TABLE>
Stable Return Porfolio
For a share outstanding Year Period From
throughout the period: Ended 7/26/93* to
12/31/94 12/3193
Per Share Data
Net asset value, beginni 9.947 10.000
Increases (Decreases) From
Investment Operations
Investment income, net 0.428 0.138
Net realized and unrealized gain
(loss) on investments and
financial futures contra (0.401) 0.043
Total from investment op 0.027 0.181
Less Distributions
From investment income, 0.428 0.138
From net realized gain on investments
and financial futures co - 0.031
In excess of net realized and
unrealized gains on investments
and financial futures co - 0.065
Total distributions 0.428 0.234
Net asset value, end of 9.546 9.947
Total Return 0.29% 4.27%
Ratios/Supplemental Data
Net assets, end of period 4,338,339 3,482,439
Ratio of operating expenses
to average net assets (a) 0.50% 0.50%
Ratio of interest expense
to average net assets 1.24% -
Ratio of investment income,
net to average net asset 4.43% 3.68%
Decrease in above ratios
due to waiver of investment
advisory fees and reimburse-
ment of other expenses 0.57% 1.46%
Porfolio turnover 342.75% 1841%
(a) Net of waivers and reimbursements, exclusive of interest.
(b) Annualized.
* Commencement of Operations
<TABLE>
Worldwide Short-Term
Fixed Income Portfolio Worldwide Fixed Income Portfolio
Fiscal Year Period from Fiscal Year Fiscal Year Period from
For a share outstanding Ended 12/13/93* to Ended Ended 4/15/92* to
throughout the period: 12/31/94 12/31/93 12/31/94 12/31/93 12/31/92
<S>
Per Share Data <C> <C> <C> <C> <C>
Net asset value, beginni 10.013v 10.000 10.023 9.976 10.000
Increases (Decreases) From
Investment Operations
Investment income, net 0.328 0.012 0.503 0.454 0.387
Net realized and unrealized gain
(loss) on investments, options and financial
futures contracts, and foreign currency-
related transactions (0.089) 0.013 (0.737) 1.042 0.530
Total from investment
operations 0.239 0.025 (0.234) 1.496 0.917
Less Distributions
From investment income, 0.254 0.012 0.225 0.453 0.387
In excess of investment 0.000 - 0.008 - -
From capital stock in
excess of par value 0.074 - 0.289 - -
From net realized gain on investments,
options and financial futures contracts,
and foreign currency-related
transactions - - - 0.866 0.554 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 0.328 0.012 0.522 1.449 0.941
Net asset value, end of 9.924 10.013 9.267 10.023 9.976
Total Return 2.72% 4.22% -2.25% 15.86% 13.46% (b)
Ratios/Supplemental Data
Net assets, end of period 79,761,931 6,014,98 53,721,481 217,163,036 82,757,009
Ratio of operating expenses
to average net assets (a) 0.50% 0.50%(b) 0.60% 0.59% 0.60% (b)
Ratio of interest expense
to average net assets - - 0.03% 0.27% 0.19% (b)
Ratio of investment income,
net to average net asset 4.17% 2.43% 5.11% 4.48% 5.39% (b)
Decrease in above ratios
due to waiver of investment
advisory fees and reimburse-
ment of other expenses 0.09% 0.76% 0.02%- 0.72% (b)
Portfolio Turnover n/a n/a 1479% 1245% 850%
<FN>
(a) Net of waivers and reimbursements, exclusive of interest.
(b) Annualized.
See Notes To Financial Statements
* Commencement of Operations
</FN>
</TABLE>
Worldwide Fixed Income-Hedged Portfolio
For a share outstanding Fiscal Year Fiscal Year Period From
throughout the period: Ended Ended 5/19/92* to
12/31/94 12/31/93 12/31/92
Per Share Data
Net asset value, beginning of perio 10.077 9.848 10.000
Increases (Decreases) From
Investment Operations
Investment income, net 0.338 0.448 0.319
Net realized and unrealized gain
(loss) on investments, options and
financial futures contracts, and
foreign currency-related
transactions 0.434 0.754 0.247
Total from investment operations 0.772 1.202 0.566
Less Distributions
From investment income, net 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 0.439 0.973 0.718
Net asset value, end of period 10.410 10.077 9.848
Total Return 7.84% 12.89% 9.45%
Ratios/Supplemental Data
Net assets, end of period 272,725 41,137,515 21,785,134
Ratio of operating expenses
to average net assets (a) 0.60% 0.60% 0.60%
Ratio of interest expense
to average net assets 0.05% 0.26% 0.23%
Ratio of investment income,
net to average net assets 4.72% 4.49% 5.13%
Decrease in above ratios
due to waiver of investment
advisory fees and reimburse-
ment of other expenses 0.17% 0.09% 1.01%
Portfolio Turnover 1622% 1254% 826%
(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
See Notes to Financial Statements
FFTW Funds, Inc.
Notes to Financial Statements
December 31, 1994
1. Organization
FFTW Funds, Inc. (the "Fund") was organized as a Maryland corporation on
February 23, 1989 and is registered under the Investment Company Act of
1940, as amended, as an open-end, management investment company. The
Fund currently has ten Portfolios, five of which were active as of December
31, 1994. The five active Portfolios are: U.S. Short-Term Fixed Income
Portfolio ("U.S. Short-Term"); Stable Return Portfolio ("Stable Return");
Worldwide Short-Term Fixed Income Portfolio ("Worldwide Short-Term");
Worldwide Fixed Income Portfolio ("Worldwide"); and Worldwide Fixed
Income-Hedged Portfolio ("Worldwide-Hedged"). The costs incurred by the
Fund in connection with the organization and initial registration of shares
were borne by the Adviser.
2. Summary of Significant Accounting Policies
Securities
All securities transactions are recorded on a trade date basis. Interest income
and expense are recorded on an accrual basis. The Fund amortizes discount
or premium on a daily basis to interest income. The Fund uses the specific
identification method for determining gain or loss on sales of securities.
Valuation
All investments are valued daily at their market price, which results in
unrealized gains or losses. Securities traded on an exchange are valued at
their last sales price on that exchange. Securities for which over-the-counter
market quotations are available are valued at the latest bid price. Deposits
and repurchase agreements and reverse repurchase agreements are generally
valued at their cost plus accrued interest. The value of other investments is
determined under procedures established by the Fund's Board of Directors.
Expenses
Expenses directly attributed to each Portfolio in the Fund are charged to that
Portfolio's operations; expenses which are applicable to all Portfolios are
allocated among them based on average daily net assets.
Income Tax
There is no provision for Federal income or excise tax since each Portfolio
has elected to be taxed as a regulated investment company ("RIC") and
therefore complies with the requirements of Subchapter M of the Internal
Revenue Code applicable to RICs and distributes all of its taxable income.
At December 31, 1994, the Fund had the following capital loss
carryforwards, to offset future net capital gains, to the extent provided by
regulations. Net realized losses attributable to security transactions after
October 31, 1994, are treated for federal income tax purposes as arising on
the first day of the Portfolio's next fiscal year.
Portfolio Carryforward Amount Expiration Date
U.S. Short Term $ 1,779,703 12/31/02
1,404,714 12/31/02
Stable Return 176,908 12/31/02
Worldwide Short-Term 13,607 12/31/02
Worldwide 11,233,871 12/31/02
Worldwide-Hedged 1,916,115 12/31/02
2. Summary of Significant Accounting Policies (cont'd)
Dividends to Shareholders
It is the policy of the U.S. Short-Term to employ the "Full Payout Method" of
paying dividends. As such, income is determined daily and, if positive, a
dividend is declared daily from net investment income, net short-term capital
gains or losses and net unrealized gains or losses ("Full Payout Income"). If a
day's distribution is negative, each shareholder's accumulated dividend
accrual for the month is proportionately reduced. Actual dividends declared
each day are based on an average daily rate (based on the previous 30 days)
to reduce the possibility of a negative rate on a particular day. The "Full
Payout Method" was suspended by the Board at the beginning of 1994 and
will remain so until further notice to shareholders. In the interim, U.S.
Short-Term is declaring daily dividends from net investment income.
It is the policy of the other four Portfolios to declare dividends daily from
net investment income. Dividends are paid in cash or reinvested monthly for
all Portfolios.
Dividends from net short-term capital gains of each Portfolio (currently
including U.S. Short-Term), if any, are normally declared and paid annually,
but each Portfolio may make distributions on a more frequent basis to comply
with the distribution requirements of the Internal Revenue Code.
Dividends from net long-term capital gains of each Portfolio, if any, are
normally declared and paid annually, but each Portfolio may make
distributions on a more frequent basis to comply with the distribution
requirements of the Internal Revenue Code. To the extent that a net realized
capital gain can be reduced by a capital loss carryover, such gain will not be
distributed.
Dividends from net investment income and distributions from realized gains
from investment transactions have been determined in accordance with
income tax regulations and may differ from net investment income and
realized gains recorded by the Fund for financial reporting purposes.
Differences result primarily from foreign currency transactions and timing
differences related to recognition of income, and gains and losses from
investment transactions. To the extent that those differences which are
permanent in nature result in overdistributions to shareholders, amounts are
reclassified to capital stock in excess of par value. Worldwide Short-Term
and Worldwide reclassed $670,257 and $3,902,306, respectively, to capital
stock in excess of par value as a result of differences in treatments of
foreign currency transactions. Dividends and distributions which exceed net
investment income and net realized capital gains for financial reporting
purposes but not for tax purposes are reported as distributions in excess of
net investment income and net realized capital gains, respectively.
Currency Translation
Assets and liabilities denominated in foreign currencies and commitments
under forward exchange currency contracts are translated into U.S. dollars at
the mean of the quoted bid and asked prices of such currencies against the
U.S. dollar. Purchases and sales of portfolio securities are translated at the
rates of exchange prevailing when such securities were acquired or sold.
Income and expenses are translated at exchange rates prevailing when
accrued. The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Reported net realized gains or losses on foreign currency-related transactions
arise from sales and maturities of short-term securities, sales of foreign
currency, currency gains or losses realized between the trade and settlement
dates on securities transactions, the difference between the amounts of
dividends, interest, and foreign withholding taxes recorded on the Fund's
books, and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized appreciation or depreciation on assets and liabilities
denominated in foreign currency arise from changes in the value of assets
and liabilities other than investments in securities at fiscal year end,
resulting from changes in the exchange rate.
3. Investment Advisory Agreement and Affiliated Transactions
The Fund's Board of Directors has approved investment management
agreements (the "Agreements") with the Adviser. The advisory fees to be
paid to the Adviser are computed daily at annual rates set forth below. The
fees are payable quarterly for U.S. Short-Term, Worldwide, and Worldwide-
Hedged, and monthly for Stable Return and Worldwide Short-Term. The
Agreement with U.S. Short-Term, Worldwide, and Worldwide-Hedged
provides that to the extent that the aggregate annual expenses, including the
advisory fee but excluding interest expense, exceed 0.40% of U.S. Short-
Term's and 0.60% of Worldwide's and Worldwide-Hedged's average daily net
assets, the Adviser has agreed to waive its investment management fee and
reimburse the Portfolios for any excess expenses. The Adviser has voluntarily
agreed to waive its investment management fees and reimburse for any
excess expenses of Stable Return and Worldwide Short-Term Portfolios to the
extent that each Portfolio's aggregate expenses, including investment
management fees, but excluding interest expense, exceed 0.50% of the
respective Portfolio's average daily net assets. Accordingly, the Adviser has
agreed to waive its investment management fee and reimburse excess
expenses for each Portfolio as illustrated below.
Investment Year Ended
Advisory 12/31/94
Portfolio Fees Waivers
U.S. Short-Term 0.30% $ 228,823
Stable Return 0.35% 22,994
Worldwide Short-Term 0.35% 66,981
Worldwide 0.40% 28,971
Worldwide-Hedged 0.40% 27,569
Directors' fees and expenses of $64,531 were allocated among the Portfolios
and paid for the year ended December 31, 1994 to Directors who are not
employees of the Adviser.
4. Investment TransactionsPurchase cost and
proceeds from sales of investment securities, other than short-term
investments, for the year ended December 31, 1994 for each of the Portfolios
were as follows:
Purchase Cost Proceeds from
of Investment Sales of Investment
Securities Securities
Portfolio
U.S. Short-Term $ 1,340,236,872 $ 1,339,584,491
Stable Return 16,325,312 13,938,167
Worldwide Short-Term 395,890,470 376,528,868
Worldwide 1,883,729,401 1,993,609,669
Worldwide-Hedged 248,411,786 277,541,133
4. Investment Transactions (cont'd)The components of net unrealized
appreciation (depreciation) of investments at December 31, 1994 for each
Portfolio were as follows:
U.S. Short-
Term Fixed Stable
Income Portfolio Return Portfolio
U.S. Portfolios
Gross Unrealized Appreciation $ 74,623 $ 3,195
Gross Unrealized Depreciation (489,708) (9,596)
(415,085) (6,401)
Global & International Portfolios
Worldwide
Short-Term Worldwide
Fixed Income Fixed Income
Portfolio Portfolio
Gross Unrealized Appreciation $ 491,892 $ 599,550
Gross Unrealized Depreciation (16,100) (208,090)
475,792 391,460
The cost of securities owned by the Fund at December 31, 1994 for Federal
tax purposes was substantially the same as for financial statement purposes.
The Fund enters into forward foreign exchange currency contracts in order to
hedge its exposure to changes in foreign currency exchange rates on its
foreign portfolio holdings. A forward exchange contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. The gain or loss arising from the difference between the original
contracts and the closing of such contracts is included in net realized gains
on foreign currency-related transactions. Fluctuations in the value of forward
foreign currency contracts are recorded for book purposes as unrealized gains
or losses by the Fund. Risks may arise from the potential inability of a
counterparty to meet the terms of a contract and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
4. Investment Transactions (cont'd)
At December 31, 1994, Worldwide Short-Term had outstanding forward
foreign exchange currency contracts, both to purchase and sell foreign
currencies as follows:
<TABLE>
<C>
<S> <C> <C> <C> Unrealized
Contract Cost/ Current Appreciation
Amount Proceeds Value (Depreciation)
Forward Foreign Exchange Buy Contracts
2,900,000 Canadian Dollars maturing 1/19/95 $ 2,093,032 $ 2,067,297 $ (25,738)
7,176,807 German Deutsche Marks maturing 1/19 4,560,406 4,636,580 76,174
42,100,000 Danish Krone maturing 1/19/95 6,814,605 6,924,911 110,306
593,042,219 Spanish Peseta maturing 1/19/95 4,480,749 4,500,928 20,179
228,859,200 Japanese Yen maturing 1/1/9/95 2,284,951 2,304,338 19,387
Forward Foreign Exchange Sell Contracts
100,000 Australian Dollars maturing 1/19/95 77,450 77,507 (57)
3,000,000 Canadian Dollars maturing 1/19/95 2,184,726 2,138,580 46,146
42,170,716 German Deutsche Marks maturing 1/19 26,823,473 27,244,412 (420,939)
41,878,400 Danish Krone maturing 1/19/95 6,827,258 6,888,46 (61,203)
22,534,187 French Franc maturing 1/19/95 4,161,438 4,223,23 (61,795)
680,000 Great British Pound maturing 1/19/9 1,064,388 1,065,44 (1,059)
493,294,800 Japanese Yen maturing 1/1/9/95 4,922,432 4,966,88 (44,456)
$ (343,055)
</TABLE>
4. Investment Transactions (cont'd)
At December 31, 1994, Worldwide had outstanding forward foreign exchange
currency contracts, both to purchase and sell foreign currencies, as follows:
<TABLE>
Contract Cost/ Current Appreciation
Amount Proceeds Value (Depreciation)
Forward Foreign Exchange Buy Contracts <C> <C> <C>
<C>
3,000,000 Canadian Dollars maturing 1/19/95 $ 2,165,205 $ 2,138,580 $ (26,625)
14,014,333 German Deutsche Marks maturing 1/19/95 8,909,059 9,053,967 144,908
42,400,000 Danish Krone maturing 1/19/95 6,863,131 6,974,258 111,127
365,798,916 Spanish Peseta maturing 1/19/95 2,766,973 2,776,252 9,279
7,567,507 Great British Pound maturing 1/19/95 11,823,855 11,857,022 33,167
228,859,200 Japanese Yen maturing 1/1/9/95 2,284,951 2,304,338 19,387
Forward Foreign Exchange Sell Contracts
773,000 Australian Dollars maturing 1/19/95 594,051 56,654,550
56,654,550 Belgian Francs maturing 1/19/95 1,757,715 1,781,926 (24,211)
5,915,483 Canadian Dollars maturing 1/19/95 4,286,157 4,216,911 69,246
44362536 German Deutsche Marks maturing 1/19/95 28,258,641 28,660,439 (401,798)
48,272,250 Danish Krone maturing 1/19/95 7,864,715 7,940,168 (75,453)
32,043,811 French Franc maturing 1/19/95 5,917,591 6,005,475 (87,884)
6,500,000 Great British Pound maturing 1/19/95 10,162,100 10,184,417 (22,317)
100,000,000 Italian Lira maturing 1/19/95 60,601 61,638 (1,037)
472,294,800 Japanese Yen maturing 1/1/9/95 4,710,358 4,755,443 (45,085)
5,500,000 Netherlands Guilder maturing 1/19/95 3,133,903 3,172,772 (38,869)
8,206,080 Swedish Krone maturing 1/19/95 1,090,597 1,103,932 (13,335)
$ (354,575)
</TABLE>
The Fund enters into foreign currency
transactions on the spot markets in order to pay for foreign investment
purchases or to convert to dollars the proceeds from foreign investment sales
or coupon interest receipts. At December 31, 1994, Worldwide, Worldwide-
Hedged and Worldwide Short-Term had no outstanding purchases or sales of
foreign currencies on the spot markets.
The Fund is engaged in trading financial futures contracts to hedge
investment positions or to enhance investment performance. The Fund is
exposed to market risk as a result of changes in the value of the underlying
financial instruments. Investments in financial futures require the Fund to
"mark to market" on a daily basis, which reflects the change in the market
value of the contract at the close of each day's trading. Accordingly,
variation margin payments are made or received to reflect daily unrealized
gains or losses. When the contracts are closed, the Fund recognizes a
realized gain or loss. These investments require initial margin deposits
which consist of cash or cash equivalents, equal to approximately 5-10% of
the contract amount. At December 31, 1994, the Portfolios placed as
collateral with brokers U.S. Treasury Bills in connection with their margin
accounts with respect to their futures contracts as follows:
4. Investment Transactions (cont'd)
Year Ended
December 31, 1994
Portfolio Collateral Value
U.S. Short-Term $ 292,419
Stable Return 4,952
Worldwide Short-Term 886,158
Worldwide Fixed 298,174
Worldwide-Hedged -
At December 31, 1994, Stable Return had the following open futures contracts:
Market Value
Covered by Unrealized
Contracts Contracts (Depreciation)
Long Futures Contracts
3 March '95 2-Year U.S. T-Note $ 599,859 $ (223)
At December 31, 1994, Worldwide Short-Term had the following
open futures contracts:
<TABLE>
<S> <C> <C>
Market Value Unrealized
Covered by Appreciation
Contracts Contracts (Depreciation)
Long Futures Contracts
114 March '95 Euroyen JPY 2,779,320,000 $ 11,964
Short Futures Contracts
28 March '95 5 Year Treasury Note US$ 2,802,625 6,933
1 March '95 Long Gilt GBP 50,359 1,066
114 June '95 Euroyen JPY 2,774,760,000 (30,832)
46 March '95 French Franc Bond Notionn FFR 25,277,000 97,557
61 March '95 DTB Medium Bond DEM 14,402,100 78,779
4 March '95 10 Year Japan Gov't Bond JPY 434,320,000 (19,459)
22 March '95 LIFFE Italian Gov't Bond ITL 4,350,280,000 2,611
$148,619
4. Investment Transactions (cont'd)
At December 31, 1994, Worldwide had the following open futures contracts:
Market Value
Covered by Unrealized
Contracts Contracts Appreciation
Long Futures Contracts
46 March '95 LIFFE Gilt GBP 2,316,537 $ 3,364
Short Futures Contracts
47 March '95 French Notionnel FFR 25,826,500 99,678
8 March '95 Italian Government Bond ITL 1,581,920,000 946
$ 103,98
</TABLE>
5. Capital Share Transactions
As of December 31, 1994, there were 1,000,000,000 shares of
$0.001 par value capital stock authorized. Transactions in capital stock for
U.S. Short-Term were as follows for the years indicated:
Year Ended Year Ended
December 31, 1994 December 31, 1993
Shares Amount Shares Amount
Shares sold 506,605,624 $5,036,843,719 825,622,623 $8,256,159,504
Shares issued related to reinvestment
of dividends 1,208,822 12,008,654 1,588,070 15,871,212
507,814,446 5,048,852,373 827,210,693 8,272,030,716
Shares redeemed 520,290,568 5,173,219,989 853,591,132 8,535,445,618
Net (decrease) (12,476,122) ($124,367,616) (26,380,439) ($263,414,902)
5. Capital Share Transactions (cont'd)
Transactions in capital stock for Stable Return were as follows for the
periods indicated:
Year Ended Period From 7/26/93*
December 31,1994 to December 31, 1993
Shares Amount Shares Amount
Shares sold 87,759 $ 857,000 342,920 $ 3,431,686
Shares issued related to
reinvestment of
dividends 18,075 175,508 7,184 71,838
105,834 1,032,508 350,104 3,503,524
Shares redeemed 1,490 14,400 1 10
Net increase 104,344 $ 1,018,1 350,103 $ 3,503,514
Transactions in capital stock for Worldwide Short-Term were as follows for
the periods indicated:
<TABLE>
Year Ended Period From July 26, 1993*
December 31,1994 to December 31, 1993
Shares Amount Shares Amount
<S> <C> <C> <C>
Shares sold 18,652,539 $ 185,400,115 600,000 $ 5,999,885
Shares issued related to
reinvestment of dividends 297,020 2,948,491 729 7,299
18,949,559 188,348,606 600,729 6,007,184
Shares redeemed 11,513,098 144,018,798 - -
Net increase 7,436,461 $ 74,329,808 600,729 $ 6,007,184
<FN>
* Commencement of Operations
</FN>
</TABLE>
5. Capital Share Transactions (cont'd)
Transactions in capital stock for Worldwide were as follows for the years
indicated:
Year Ended Year Ended
December 31,1994 December 31, 1993
Shares Amount Shares Amount
Shares sold 1,092,884 $10,420,502 17,887,010 $180,942,985
Shares issued related to reinvestment
of dividends 735,508 6,999,011 2,135,834 21,414,752
1,828,392 17,419,513 20,012,844 202,357,737
Shares redeemed 17,698,224 166,346,301 6,641,571 66,922,621
Net increase (decrease) (15,869,832)(148,926,788) 13,371,273 135,435,116
Transactions in capital stock for Worldwide-Hedged were as follows for the
years indicated:
Year Ended Year Ended
December 31,1994 December 31, 1993
Shares Amount Shares Amount
Shares sold 1,058,719 $10,310,000 1,993,995 $19,870,000
Shares issued related to reinvestment
of dividends 62,526 607,111 379,064 3,770,611
1,121,245 10,917,111 2,373,059 23,640,611
Shares redeemed 5,177,515 49,646,474 502,735 4,961,716
Net increase (decrease) (4,056,270) (38,729,363) 1,870,324 $18,678,895
6. Repurchase and Reverse Repurchase Agreements
Each Portfolio may enter into repurchase agreements under which a bank or
securities firm that is a primary or reporting dealer in U.S. Government
securities agrees, upon entering into the contract, to sell U.S. Government
securities to a Portfolio and repurchase such securities from such Portfolio at
a mutually agreed upon price and date. U.S. Short-Term, Worldwide, and
Worldwide-Hedged may only invest up to 25% of their assets in repurchase
agreements.
Each Portfolio is also permitted to 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 such Portfolio
agrees to repurchase the securities at an agreed upon price and date.
6. Repurchase and Reverse Repurchase Agreements (cont'd)
Each Portfolio will engage in repurchase and reverse repurchase transactions
with parties selected on the basis of such party's creditworthiness. Securities
purchased subject to repurchase agreements must have an aggregate market
value greater than or equal to the repurchase price plus accrued interest at all
times. If the value of the underlying securities falls below the value of the
repurchase price plus accrued interest, the Portfolio will require the seller to
deposit additional collateral by the next business day. If the request for
additional collateral is not met, or the seller defaults on its repurchase
obligation, such Portfolio maintains the right to sell the underlying securities
at market value and may claim any resulting loss against the seller.
7. Written Option Transactions
A summary of put and call options written by U.S. Short-Term for year ended
December 31, 1994 is as follows:
1994 Calls 1994 Puts
# of # of
Contracts Premiums Contracts Premiums
Outstanding, beginning of period
Eurodollars 80 $ 7,469 80 $ 19,019
U.S. Treasury 60 24,289 20 6,117
Options written
Eurodollars 525 209,015 905 312,292
U.S. Treasury - - 225 73,511
Options closed
Eurodollars (512) (201,775) (894) (313,013)
U.S. Treasury (60) (24,289) (234) (76,264)
Options exercised
Eurodollars - - - -
U.S. Treasury - - - -
Options expired
Eurodollars (93) (14,709) (91) (18,298)
U.S. Treasury - - (11) (3,364)
Outstanding, end of period
Eurodollars - - - -
U.S. Treasury - - - -
$ - $ -
7. Written Option Transactions
A summary of put and call options written by Worldwide for year ended
December 31, 1994 is as follows:
1994 Calls 1994 Puts
# of # of
Contracts Premiums Contracts Premiums
Outstanding, beginning of period
Eurodollars - $ - - $ -
U.S. Treasury - - 224 73,075
Options written
Eurodollars - - 56 15,029
U.S. Treasury 224 53,205 700 262,240
Options closed
Eurodollars - - (56) (15,029)
U.S. Treasury (140) (38,886) (924) (335,313)
Options exercised
Eurodollars - - - -
U.S. Treasury - - - -
Options expired
Eurodollars - - - -
U.S. Treasury (84) (14,319) - -
Outstanding, end of period
Eurodollars - - - -
U.S. Treasury - - - -
$ - $ -
7. Written Option Transactions (cont'd)A summary of put and call options
written by Worldwide-Hedged for the year ended December 31, 1994 is as
follows:
1994 Calls 1994 Puts
# of # of
Contract Premiums Contract Premiums
Outstanding, beginning of period
Eurodollars $ $
U.S. Treasury - 64 20,887
Options written
Eurodollars
U.S. Treasury 64 15,201 200 74,925
Options closed
Eurodollars (16) (4,294)
U.S. Treasury (40) (11,110) (264) (95,812)
Options exercised
Eurodollars
U.S. Treasury -
Options expired
Eurodollars
U.S. Treasury (24) (4,091)
Outstanding, end of period
Eurodollars - - - -
U.S. Treasury - - - -
$ - $ -
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Directors
FFTW Funds, Inc.
We have audited the accompanying statements of net assets of FFTW Funds,
Inc. (comprising, respectively, the U.S. Short-Term Fixed Income, Stable
Return, Worldwide Short-Term Fixed Income, Worldwide Fixed Income and
Worldwide Fixed Income-Hedged Portfolios) as of December 31, 1994, and
the related statement of operations for the year then ended, and the statement
of changes in net assets and financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1994 by correspondence with the
custodian and others. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective Portfolios constituting FFTW Funds, Inc., at December 31,
1994, the results of their operations for the year then ended, and the changes
in their net assets and the financial highlights for each of the indicated
periods, in conformity with generally accepted accounting principles.
New York, New York
February 24, 1995
