FFTW FUNDS, INC.
Annual Report
December 31, 1996
200 PARK AVENUE
NEW YORK, NY 10166
TELEPHONE 212.681.3000
FACSIMILE 212.681.3250
February 28, 1997
Dear Shareholder:
We are pleased to present the Annual Report for the year ended December
31, 1996. The FFTW Funds, Inc. continues to enjoy strong growth in its seven
Portfolios, each reflecting a specific strategy to meet the objectives of our
investors.
During the year, we introduced the Mortgage Total Return Portfolio for
institutional investors who wish to participate in mortgage-related
securities. We also opened the International Portfolio to expand our
investors' options for participating in the non-U.S. dollar bond markets.
Four new Portfolios have recently completed registration with the SEC:
Inflation-Indexed, Inflation-Indexed Hedged, Emerging Markets and Money
Market. The growth in our fund family reflects the increasing success of the
Fund as it enters its eighth year.
We greatly appreciate your participation in the FFTW Funds. We welcome
the opportunity to discuss the objectives and results of 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,
O. John Olcay
Chairman of the Board and Chief Executive Officer
FFTW Funds, Inc.
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Table Of Contents
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U.S. Short-Term Portfolio
Overview 1
Schedule of Investments 3
Stable Return Portfolio
Overview 6
Schedule of Investments 8
Mortgage Total Return Portfolio
Overview 10
Schedule of Investments 12
Worldwide Portfolio
Overview 16
Schedule of Investments 18
Worldwide-Hedged Portfolio
Overview 20
Schedule of Investments 22
International Portfolio
Overview 24
Schedule of Investments 26
International-Hedged Portfolio
Overview 28
Schedule of Investments 29
Statements of Assets and Liabilities 31
Statements of Operations 35
Statements of Changes in Net Assets 38
Financial Highlights 42
Notes to Financial Statements 49
FFTW Funds, Inc.
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U.S. Short-Term Portfolio
December 31, 1996
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GRAPH: Comparison of changes in Value of $10,000 Investment in US Short-Term
Portfolio and the IBC's Money Fund Report Averages-All Taxable
Investment performance for the periods ended December 31, 1996:
Average Annual Total Return
One Since
Year Five Years Inception*
U.S. Short-Term Portfolio 5.45% 4.25% 5.18%
IBC's Money Fund Report
AveragesTM-All Taxable 4.95% 4.05% 4.85%
* U.S. Short-Term Portfolio commenced operations on December 6, 1989.
The U.S. Short-Term Portfolio outperformed its benchmark, the IBC's Money
Fund Report AveragesTM-All Taxable, for the one-year ended December 31, 1996 by
50 basis points (see above) with the help of strong third and fourth quarter
returns. For the five-year period ended December 31, 1996, the Portfolio
returned 4.25% annually, outperforming its benchmark by an annualized rate of
20 basis points. The Portfolio ended the period with net assets of $355.3
million. The Portfolio invests in 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.
In the first six months of the year, interest rates rose in response to
stronger economic data. After a 25 basis point reduction in the discount rate
and the federal funds rate on January 31, Federal Reserve Chairman Alan
Greenspan dismissed any major concerns about downside risks to economic growth,
causing a significant readjustment of market expectations and a one-day rise in
yields of nearly one quarter of one percent. Without prospects for further near
term reductions in the federal funds rate, Treasury yields rose steadily
throughout the remainder of the first two quarters. The third quarter of 1996
was a difficult one for fixed-income investors. The yield on five-year
Treasuries fluctuated in a range of nearly 60 basis points. Ultimately, U.S.
interest rates changed very little across the yield curve during the quarter
particularly on the shorter end of the curve, giving bond investors, already
suffering the effects of negative total returns in the first half of the year,
the modest relief of achieving at least the coupon rate on their holdings.
Sector allocation and yield curve positioning were the major contributors to
overall return.
The fourth quarter proved to be the best period of the year for fixed-income
investors. Positive economic and inflation data and favorable political
developments helped the market retrace some of the ground lost in the first
half of the year. Economic data released early in the quarter showed signs of
a slowing economy and low inflation. On October 29, lower-than-expected
employment costs and consumer confidence signaled that the Federal Reserve
would not need to raise rates. In response, bond yields fell to levels not seen
since the beginning of the year. The Portfolio's duration (long relative to the
benchmark's), yield curve allocation, and the selection of non-Treasury holdings
all added to return.
The major issue for 1997 will be whether the economy continues its upward
momentum, and if this continuing growth will raise investors' fear of inflation.
The market is divided on this question, as evidenced by implied forward rates
along the yield curve. The Portfolio begins the new year neutral in duration
but poised to move shorter if signs of a stronger economy emerge. Yield curve
exposure continues to be slightly barbelled to reflect the view that yield curve
volatility will remain low and lead to a slight flattening of the curve among
shorter maturities.
FFTW Funds, Inc.
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U.S. Short-Term Portfolio - Schedule of Investments
December 31, 1996
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Face
Amount (a) Value
Asset- and Mortgage-Backed Securities - 45.3%
American Express Master Trust,
Ser. 1-A, Class A, 6.050% due 6/15/98 10,000,000 $ 10,026,000
Beneficial Home Equity Loan Trust FRN,
Ser. 1995-1, Class A1, 5.880% due 3/28/25 3,823,490 3,826,477
Beneficial Mortgage Corp. FRN, Ser. 1996-1,
Class A, 5.840% due 4/28/26 3,003,597 3,005,459
Case Equipment Loan Trust, Ser. 1993-B,
Class A, 4.300% due 5/15/99 592,516 583,723
Chase Manhattan Grantor Trust, Ser. 1993-A,
Class A, 4.200% due 4/15/99 280,351 280,261
Chase Manhattan Home Equity Loan Trust,
Ser. 1995-1, Class A1, 5.845% due 10/15/25 7,281,419 7,287,108
Contimortgage Home Equity Loan Trust,
Ser. 1996-1, Class A8, 5.945% due 3/15/27 3,303,842 3,303,842
Fairfax Financial Hldgs, 7.750% due 12/15/03 3,000,000 3,074,589
FHLMC, 8.000% due 11/15/20 5,400,000 5,499,176
FHLMC, 9.000% due 6/1/97 525,996 526,195
Fireman's Fund Mortgage Corp., 8.875%
due 10/15/01 350,000 378,280
FNMA ARM, 7.134% due 9/1/16 10,082,994 10,413,450
FNMA FRN, Ser. 1993-54, Class FK,
6.319% due 4/25/21 4,485,760 4,527,921
FNMA, Ser. 1992-155, Class C, 5.600%
due 6/25/01 2,297,338 2,288,838
FNMA, Ser. 1993-245, Class PC,
5.000% due 7/25/13 4,261,012 4,232,804
FNMA, Ser. 1993-26, Class C,
5.500% due 12/25/09 94,720 94,380
FNMA, Ser. 1994-93, Class PC,
7.000% due 5/25/13 6,041,000 6,088,301
Ford Credit Auto Loan Master Trust, Ser.
1996-2, Class A, 5.630% due 2/15/03 7,000,000 7,000,140
Ford Credit Auto Loan Master Trust, Ser.
1992-2, Class A, 7.375% due 4/15/99 3,000,000 3,018,210
HFC Home Equity Loan FRN, Ser. 1992-1,
Class A1, 6.230% due 5/20/07 3,417,471 3,423,862
HFC Home Equity Loan FRN, Ser. 1992-1,
Class A2, 6.130% due 5/20/07 2,073,262 2,073,262
HFC Home Equity Loan FRN, Ser. 1992-2,
Class A2, 6.110% due 10/20/07 1,838,798 1,845,106
HFC Home Equity Loan FRN, Ser. 1993-1,
Class A1, 6.180% due 5/20/08 5,153,196 5,166,079
Independent National Mortgage Corp. FRN,
Ser. 1996-A, Class A7, 6.039% due 9/25/26 2,867,036 2,884,840
Independent National Mortgage Corp.,
7.500%, Ser. 1994-O, Class A10 due 9/25/24 1,572,307 1,568,046
MBNA Master Credit Card Trust, Ser. 1991-1,
Class A, 7.750% due 10/15/98 5,264,000 5,268,948
MBNA Master Credit Card Trust, Ser. 1992-1,
Class A, 7.250% due 6/15/99 7,500,000 7,542,225
Merrill Lynch Home Equity Loan FRN, Ser.
1993-1, Class A, 6.063% due 2/15/03 377,273 377,303
Merrill Lynch Mortgage Investors FRN, Ser.
1993-F, Class A2, 5.975% due 9/15/23 9,398,760 9,604,311
Merrill Lynch Mortgage Investors FRN, Ser.
1993-I, Class A1, 5.955% due 11/15/23 246,921 246,997
Merrill Lynch Mortgage Investors FRN, Ser.
1994-F, Class A1, 5.880% due 4/15/19 1,269,920 1,269,920
Norwest Auto Trust, Ser. 1996-A, Class A1,
5.465% due 12/5/97 3,202,829 3,205,872
Novus Home Equity Credit Trust FRN, Ser.
1993-1, Class A, 6.055% due 12/31/03 5,230,589 5,232,785
People's Bank Credit Card Trust, Ser.
1994-1, Class A, 5.100% due 8/15/01 3,300,000 3,296,997
PNC Mortgage Securities Corp., Ser. 1994-2,
Class A1, 6.744% due 5/25/24 1,199,312 1,198,188
Premier Auto Trust, Ser. 1995-2,
Class A4, 7.050% due 7/4/98 3,933,291 3,949,693
Prudential Home Mortgage Securities,
Ser. 1992-48, Class A2, 7.500% due 1/25/23 2,613,411 2,613,150
Prudential Home Mortgage Securities, Ser.
1993-8, Class A9, 7.350% due 3/25/23 62,145 61,902
Prudential Home Mortgage Securities, Ser.
1993-35, Class A3, 6.750% due 9/25/08 552,691 552,818
Prudential Securities Secured-Fin. Corp.,
Ser. 1993-3, Class A3, 7.500% due 6/25/23 538,009 537,019
Residential Asset Sec. Trust, Ser. 1996-A11,
Class A3, 7.300% due 2/25/27 4,000,000 4,000,000
Residential Funding Mortgage, Ser. 1993-S26,
Class A3, 7.050% due 7/25/23 5,440,226 5,437,561
Residential Funding Mortgage, Ser. 1993-S31,
Class A1, 7.000% due 9/25/23 772,618 769,837
Residential Funding Mortgage, Ser. 1993-S41,
Class A1, 6.850% due 9/25/23 1,082,902 1,082,902
Residential Funding Mortgage, Ser. 1995-S8,
Class A1, 7.650% due 5/25/25 1,056,168 1,055,608
Resolution Trust Corp. FRN, Ser. 1992-11,
Class A5, 6.510% due 10/25/24 5,334,933 5,338,268
Asset- and Mortgage-Backed Securities (continued)
Santa Barbara Funding II FRN, Ser. A,
Class 1, 6.280% due 3/20/18 435,111 $ 438,653
Superior Wholesale Inv Financing, Ser.
1994-A, Class A, 5.755% due 1/15/99 5,500,000 5,500,000
Total (Cost - $160,742,039) 160,997,306
Bank Obligations - 16.6%
ABN/Amro Bank Yankee CD, 6.120% due 7/14/97 9,000,000 9,024,549
Bank of Boston (Nassau) Time Deposit,
5.250% due 1/2/97 22,437,000 22,437,000
Bank of Montreal Yankee CD, 5.430%
due 1/9/97 6,000,000 6,000,000
Bankers Trust Company CD, 5.420% due 5/23/97 5,000,000 5,000,000
Chase Manhattan Bank BA, 5.290% due 1/2/97* 1,500,000 1,499,780
Den Danske Bank Time Deposit, 6.875%
due 1/2/97 10,000,000 10,000,000
NatWest NY Yankee CD, 5.430% due 2/18/97 5,000,000 5,000,000
Total (Cost - $58,961,329) 58,961,329
Corporate Obligations - 6.0%
Ameritech Cap FRN, 5.550% due 5/12/98 5,000,000 5,006,230
General Electric Capital Corp. FRN,
5.420% due 5/12/97 6,200,000 6,194,767
National Westminster Bank FRN,
6.363% due 9/29/49 3,000,000 2,992,200
NationsBank N.C. FRN, 5.571% due 10/28/99 7,000,000 7,000,000
Total (Cost - $21,197,005) 21,193,197
Commercial Paper - 6.0%*
American Brands, Inc., 5.400% due 1/22/97 4,500,000 4,485,825
Banc One Corp., 5.310% due 1/6/97 6,000,000 5,995,575
Caisse D'amort Dette Sociale,
5.260% due 7/1/97 5,000,000 4,867,770
McKenna Triangle National Corp.,
5.280% due 2/6/97 6,000,000 5,968,320
Total (Cost - $21,317,490) 21,317,490
Foreign Obligations - 9.8%
Banco Latino Americano (144A),
7.050% due 7/19/99 (b) 3,250,000 3,253,047
Celulosa Arauco y Constitucion,
6.750% due 12/15/03 3,449,000 3,334,193
Corp. Andina de Fomento (144A),
7.250% due 4/30/98 (b) 1,000,000 1,000,000
Corp. Andina de Fomento, 7.250%
due 4/30/98 2,330,000 2,332,167
Mexican United States FRN,
7.563% due 8/6/01 750,000 750,900
Mexican United States FRN (144A),
7.563% due 8/6/01 (b) 2,250,000 2,252,813
Netherlands Government, 7.750%
due 1/15/00 NLG 15,000,000 9,582,210
Poland Non-U.S. Global FRN,
6.500% due 10/27/24 4,500,000 4,371,750
Ras Laffan Liquid Natural Gas (144A),
7.628% due 9/15/06 (b) 2,500,000 2,500,000
Republic of Columbia, 8.750% due 10/6/99 1,575,000 1,644,973
YPF Sociedad Anonima, 7.500% due 10/26/02 3,903,587 3,947,502
Total (Cost - $34,922,768) 34,969,555
U.S. Government Obligations - 0.8%
U.S. Treasury Bill, 5.303% due 2/6/97* @
(Cost- $2,984,685) 3,000,000 $ 2,985,327
Repurchase Agreements - 14.1%
Citibank Repurchase Agreement, 5.550%
due 1/2/97; Issued 12/31/96;
(Collateralized by $19,665,000
U.S. Treasury Note, 7.000% due 4/15/99,
value $20,397,859) 20,000,000 20,000,000
Citibank Repurchase Agreement, 6.100%
due 1/2/97; Issued 12/31/96;
(Collateralized by $2,000,000 U.S.
Treasury Note, 6.875% due 2/28/97,
value $2,050,829) 2,000,000 2,000,000
Eastbridge Capital Repurchase Agreement,
6.000% due 1/2/97; Issued 12/31/96;
(Collateralized by $13,600,000 U.S.
Treasury Note, 5.450% due 9/30/97,
value $14,450,697) 14,000,000 14,000,000
Sanwa Bank Repurchase Agreement, 6.000%
due 1/2/97; Issued 12/31/96;
(Collateralized by $12,305,000 U.S.
Treasury Note, 7.875% due 2/15/21,
value $14,277,709) 14,000,000 14,000,000
Total (Cost - $50,000,000) 50,000,000
Total Investments - 98.6% (Cost - $350,125,316) 350,424,204
Other Assets, net of Liabilities - 1.4% 4,832,510
Net Assets - 100.0% $ 355,256,714
Summary of Abbreviations
ARM Adjustable Rate Mortgage
BA Bankers Acceptance
CD Certificate of Deposit
DN Discount Note
FRN Floating Rate Note
NLG Netherlands Guilder
TBA To Be Announced
* Interest rate shown represents yield to maturity at date of purchase.
@ Security, or a portion thereof, is held in a margin account to cover
financial futures contracts.
(a) Face Amount shown in U.S. dollars unless otherwise indicated.
(b) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At December 31,
1996, these securities were valued at $9,005,860 or 2.7% of assets.
See Notes to Financial Statements
FFTW Funds, Inc.
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Stable Return Portfolio
December 31, 1996
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GRAPH: Comparison of Changes in Value of $10,000 Investment in Stable Return
Portfolio and the Merill Lynch 1-2.99 Year Treasury Index.
Investment performance for the periods ended December 31, 1996:
Total Return
One Since
Year Inception*
Stable Return Portfolio 5.29% 5.36%
Merrill Lynch 1-2.99 Year Treasury Index 4.99% 5.28%
* Stable Return Portfolio commenced operations on July 26,1993.
The total return for the Stable Return Portfolio for the year was 5.29%,
compared to the 4.99% return of its benchmark, the Merrill Lynch 1-2.99 Year
Treasury Index. Since inception, the Portfolio has produced an annualized
returned of 5.36%. The Portfolio ended the period with net assets of $42.1
million. The Portfolio's 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 weighted duration of less than three
years and by using interest rate hedging as a stabilizing technique.
After the powerful year-end bond market rally of the fourth quarter of 1995
that continued into January, market participants had difficulty determining how
much of the economy's weakness was temporary and how much reflected a cyclical
faltering of the economic expansion. After a 25 basis point reduction in the
discount rate and the federal funds rate on January 31, Federal Reserve Chairman
Alan Greenspan dismissed any major concerns about downside risks to economic
growth in early February. Without prospects for further near term reductions
in the federal funds rate, Treasury yields rose steadily throughout the
remainder of the quarter. The Portfolio's duration was kept close to the
duration of the benchmark which helped the Portfolio's performance during the
quarter.
Although second quarter employment reports did not contain the type of
dramatic news that the February release did, the bond market reacted strongly to
each report. Over the quarter, the return on Treasury securities varied
significantly, ranging between +1.3% and -0.5%, depending upon maturity. The
Portfolio's duration was kept close to the duration of the benchmark through
much of the first six months of the year until June when it was moved
substantially short of the benchmark which detracted from performance.
During the third quarter of 1996, the specter of inflation resulting from a
strong US economy and a potential reaction by the Federal Reserve caused market
participants to react quickly and strongly to signs that the economy was either
overheating or beginning to slow. Interest rates seesawed up and down, changing
direction by over 20 basis points seven times during the course of the quarter.
Ultimately, U.S. interest rates changed very little across the yield curve
during the quarter. In this environment, duration positioning was difficult and
the Portfolio's short duration position relative to the benchmark detracted from
performance for the quarter.
In the fourth quarter, positive economic and inflation data and favorable
political developments helped the market retrace some of the ground lost in the
first half of the year. Economic data released early in the quarter showed
signs of a slowing economy and low inflation. Lower-than-expected employment
costs and consumer confidence ratings released at mid-quarter signaled that the
Federal Reserve would not need to raise rates. In response, bond yields fell to
levels not seen since the beginning of the year. Declining interest rates and
conflicting economic data made for a volatile market which allowed the Portfolio
to capitalize upon a longer duration position relative to the benchmark.
The Portfolio maintained a neutral duration position at the start of 1997 but
is poised to move shorter if signs of a stronger economy emerge. Yield curve
exposure continues to be slightly barbelled to reflect the view that yield curve
volatility will remain low and lead to a slight flattening of the curve among
shorter maturities. Yield spreads of non-Treasuries remain narrow and the
Portfolio is overweighted in issues of high credit quality, to provide
protection against any spread widening.
FFTW Funds, Inc.
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Stable Return Portfolio - Schedule of Investments
December 31, 1996
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Face
Amount (a) Value
Long-Term Investments - 97.0%
Asset- and Mortgage-Backed Securities - 45.8%
Bear Stearns Mtg. Sec. Inc., Ser. 1996-4,
Class AI4, 7.350% due 9/25/27 400,000 $ 403,216
Bear Stearns Mtg. Sec. Inc., Ser. 1996-5,
Class A3, 7.250% due 9/25/27 1,000,000 1,006,094
Bear Stearns Mtg. Sec. Inc., Ser. 1996-8,
Class A4, 7.250% due 11/25/27 668,000 671,549
Capita Equipment Rec. Trust, Ser. 1996-1,
Class B, 6.570% due 3/15/01 400,000 400,728
FHLMC, Ser. 1625, Class DA, 5.500% due 7/15/04 2,000,000 1,984,480
FHLMC, Ser. 1627, Class PD, 5.250% due 8/15/13 1,000,000 987,560
FHLMC, Ser. 1733, Class PD, 7.250% due 1/15/17 500,000 506,949
First Plus Home Loan Trust, Ser. 1996-3,
Class A2, 6.850% due 6/20/07 1,000,000 1,006,830
FNMA, Ser. 1994-56, Class D, 6.000%
due 3/25/14 2,000,000 1,988,520
Independent National Mortgage Corp., Ser.
1994-Q, Class A5, 7.500% due 9/25/14 1,000,000 1,011,271
Olympic Auto Receivable Trust, Ser. 1996-C,
Class A3, 6.625% due 12/15/00 1,300,000 1,313,260
Premier Auto Trust, Ser. 1995-2, Class
CTFS, 7.350% due 6/4/01 1,500,000 1,534,380
Residential Accredit Loans, Ser. 1996-QS2,
Class A3, 7.050% due 3/25/19 1,000,000 1,001,800
Residential Accredit Loans, Ser. 1996-QS4,
Class AI4, 7.500% due 8/25/26 600,000 605,263
Residential Asset Sec. Trust, Ser. 1996-A11,
Class A3, 7.300% due 2/25/27 800,000 800,000
Residential Asset Sec. Trust, Ser. 1996-A5,
Class A3, 7.750% due 9/25/26 1,000,000 1,012,750
Residential Asset Sec. Trust, Ser. 1996-A7,
Class A2, 7.050% due 10/25/26 1,500,000 1,504,305
Residential Funding Mortgage Sec., Ser.
1996-S20, Class A1, 7.100% due 9/25/26 1,000,000 1,009,550
Standard Credit Card Master Trust, Ser.
1991-3, Class B, 9.250% due 9/7/99 500,000 524,047
Total (Cost - $19,173,471) 19,272,552
Foreign Government Obligations - 6.8%
Netherlands Government, 7.750% due 1/15/00
(Cost - $2,869,138) NLG 4,500,000 2,874,663
U.S. Treasuries - 44.4%
U.S. Treasury Note, 6.875% due 2/28/97 150,000 150,281
U.S. Treasury Note, 5.250% due 12/31/97 2,850,000 2,831,295
U.S. Treasury Note, 5.875% due 4/30/98 430,000 429,597
U.S. Treasury Note, 6.250% due 7/31/98 7,850,000 7,886,793
U.S. Treasury Note, 5.875% due 10/31/98 5,300,000 5,293,375
U.S. Treasury Note, 6.375% due 5/15/99 470,000 474,113
U.S. Treasury Note, 5.875% due 11/15/99 770,000 766,871
U.S. Treasury Note, 5.500% due 12/31/00 20,000 19,538
U.S. Treasury Note, 6.375% due 9/30/01 50,000 50,281
U.S. Treasury Note, 6.125% due 12/31/01 800,000 797,000
Total (Cost - $18,689,582) 18,699,144
Total Long-Term Investments (Cost- $40,732,191) 40,846,359
Short-Term Investments - 1.5%
Bank of Boston (Nassau) Time Deposit,
5.250% due 1/2/97
(Cost - $638,000) 638,000 $ 638,000
Total Investments - 98.5% (Cost - $41,370,191) 41,484,359
Other Assets net of Liabilities - 1.5% 616,102
Net Assets - 100.0% $ 42,100,461
Summary of Abbreviations
NLG Netherlands Guilder
(a) Face Amount shown in U.S. dollars unless otherwise indicated.
See Notes to Financial Statements
FFTW Funds, Inc.
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Mortgage Total Return Portfolio
December 31, 1996
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GRAPH: Comparison of Changes in Value of $10,000 Investment in Mortgage Total
Return Portfolio and the Lehman Mortgage-Backed Securities Index.
Investment performance for the period ended December 31, 1996:
Total Return
Since
Inception*
(Not Annualized)
Mortgage Total Return Portfolio 6.54%
Lehman Mortgage-Backed Securities Index 5.77%
* Mortgage Total Return Portfolio commenced operations on April 29, 1996.
The Mortgage Total Return Portfolio commenced operations on April 29, 1996.
The Portfolio's investment objective is to seek a high level of total return
consistent with preservation of capital and to maintain liquidity by investing
primarily in mortgage-related securities. The Portfolio maintains an average
weighted duration of between two and six years. In the eight-month period since
inception through December 31, 1996, the Portfolio's total return was 6.54%
compared to its benchmark, the Lehman Mortgage-Backed Securities Index with a
total return of 5.77%. Total net assets in the Portfolio as of December 31,
1996, were $221.0 million.
The mortgage sector outperformed Treasuries and corporates during the second
quarter. A combination of higher interest rates, lower expected supply, and
declining prepayment volatility raised investors' expectations for future
returns. The rise in interest rates during the first half of 1996 resulted
in improved convexity characteristics for the market, since borrowers found it
less attractive to prepay their mortgages in the rising rate environment, and
reduced the prospects for gross mortgage supply. lndividual bond selection
played a key role in bolstering the Portfolio's performance relative to the
benchmark.
Mortgages also outperformed Treasuries during the third quarter as option-
adjusted yield spreads tightened. Several mortgage pass-through holdings
benefited from this tightening and added to performance. At the same time, a
strategic allocation to off-the-run mortgages added to returns as their higher
yields tightened even more than those of pass-throughs. Specific security
selection also provided incremental return opportunities.
While mortgages outperformed Treasuries on a duration-adjusted basis by over
100 basis points for the year, the most difficult quarter for mortgages was the
fourth quarter. Initially the spread on mortgage-backed securities widened as
Treasuries rallied and yields fell below their range of the prior six months.
By year end, however, mortgages had recovered and posted a fourth quarter return
advantage of approximately 10 basis points over Treasuries on a duration-
adjusted basis. Mortgage spreads ended the fourth quarter virtually unchanged,
despite periods of spread volatility during the quarter. The net effect was
near benchmark performance of the Portfolio over the quarter.
As of the date of this report, the Portfolio continues to be somewhat
defensive due to the continued low spreads between mortgages and Treasuries.
Seasoned pass-through collateral has been exchanged for new issue pass-through
collateral due to the superior financing of the sector and the lack of relative
value of the seasoned collateral. Currently, the Portfolio maintains its
allocation to interest-only securities which was increased in December, 1996.
FFTW Funds, Inc.
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Mortgage Total Return Portfolio - Schedule of Investments
December 31, 1996
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Face
Amount Value
Long-Term Investments - 213.2%
To Be Announced Pools (TBAs) - 116.2%
FHLMC Gold, 7.500% due (1/1/12 - 1/1/27) $ 92,900,000 $ 93,940,014
FNMA, 8.000% due 1/1/27 54,090,000 55,087,311
FNMA, 8.500% due 1/1/26 6,700,000 6,935,547
FNMA Dwarf, 6.500% due 1/1/27 50,000 49,062
FNMA Dwarf, 7.500% due 1/1/12 39,700,000 40,245,875
GNMA, 7.500% due (4/1/98 - 8/15/98) 6,899,177 6,752,569
GNMA, 8.000% due 1/1/27 52,700,000 53,754,000
Total (Cost - $257,733,895) 256,764,378
Pools - 22.1%
FHLMC (ARM), 7.567% due 5/1/25 2,193,530 2,275,788
FNMA (ARM), 7.417% due 4/1/25 3,629,643 3,763,486
FNMA (ARM), 7.639% due 1/1/31 955,693 998,699
FNMA (ARM), 7.680% due 6/1/24 2,603,248 2,697,616
FNMA 8.500% due (6/1/24 - 7/1/25) 25,368,920 26,304,244
FNMA 9.000% due (6/1/24 - 7/1/25) 11,037,599 11,627,425
GNMA 7.500% due (4/15/99 - 10/1/26) 1,073,535 1,082,537
Total (Cost - $48,676,043) 48,749,795
Interest Only Obligations (IOs)- 18.5% (a)
FHLMC IO Strip, Ser. 1255, Class I,
(12.259%-19.323%) due 7/15/21 867,402 816,123
FHLMC IO Strip, Ser. 1295, Class JA,
(13.203%-13.850%) due 3/15/07 620,802 614,900
FHLMC IO Strip, Ser. 1428, Class N,
10.998% due 11/15/07 117,015 114,000
FHLMC IO Strip, Ser. 1464, Class L,
10.562% due 6/15/22 905,893 868,000
FHLMC IO Strip, Ser. 162, Class IO,
10.913% due 2/1/24 1,213,371 1,176,210
FHLMC IO Strip, Ser. 169, Class IO,
(8.345%-10.052%) due 3/1/23 2,803,928 2,800,699
FHLMC IO Strip, Ser. 1687, Class IO,
6.255% due 3/15/07 43,478 44,165
FNMA ACES IO, Ser. 1993-M2, Class J,
11.887% due 11/25/03 1,605,859 1,610,468
FNMA ACES IO, Ser. 1996-M7, Class N,
9.326% due 5/17/36 1,151,606 1,141,793
FNMA IO Strip, Ser. 203, Class 2,
(10.697%-13.077%) due 2/1/23 2,421,863 2,538,356
FNMA IO Strip, Ser. 231, Class 2,
(9.722%-10.521%) due 7/1/23 870,604 851,911
FNMA IO Strip, Ser. 235, Class 2,
8.954% due 8/1/23 559,387 528,571
FNMA IO Strip, Ser. 237, Class 2,
10.637% due 8/1/23 1,219,808 1,235,554
FNMA IO Strip, Ser. 251, Class 2,
12.948% due 11/1/23 1,396,872 1,533,753
FNMA IO Strip, Ser. 267, Class 2,
14.340% due 10/1/24 1,585,355 1,793,587
FNMA IO Strip, Ser. 274, Class 2,
5.785% due 10/1/25 1,503,385 1,434,240
FNMA IO Strip, Ser. 275, Class 2,
10.188% due 11/1/26 3,351,282 3,060,498
FNMA IO, Ser. 1990-103, Class L,
(10.384%-13.784%) due 9/25/20 1,258,857 1,209,779
FNMA IO, Ser. 1991-161, Class L,
9.966% due 12/25/21 1,116,459 1,043,964
FNMA IO, Ser. 1991-56, Class U,
(11.460%-12.644%) due 6/25/21 244,026 239,308
FNMA IO, Ser. 1991-77, Class PL,
(10.740%-12.735%) due 7/25/21 1,139,473 1,085,952
FNMA IO, Ser. 1992-108, Class L,
(12.929%-13.298%) due 7/25/07 388,007 372,496
FNMA IO, Ser. 1992-109, Class L,
(12.092%-13.381%) due 7/25/07 630,599 588,748
Interest Only Obligations (continued)
FNMA IO, Ser. 1992-170, Class H,
10.825% due 9/25/07 $ 516,722 $ 492,846
FNMA IO, Ser. 1992-24, Class N,
(12.969%-14.354%) due 3/25/07 226,548 230,647
FNMA IO, Ser. 1992-47, Class L,
12.052% due 2/25/07 423,481 413,544
FNMA IO, Ser. 1992-70, Class M,
(12.443%-15.767%) due 4/25/07 701,657 687,032
FNMA IO, Ser. G92-1, Class G,
(12.499-16.614%) due 1/25/22 231,460 217,957
FNMA IO, Ser. G92-6, Class E,
(13.625%-16.941%) due 12/25/21 516,477 495,424
FNMA IO, Ser. G92-8, Class L,
(13.346%-16.849%) due 1/25/22 552,332 513,381
DLJ Mortgage Acceptance Corp. IO, Ser.
1996-CF2, Class S, 9.780% due 11/12/21 1,035,050 1,034,158
Morgan Stanley Mortgage Trust IO, Ser. 40,
Class 14, 13.619% due 12/20/21 254,845 228,411
Prudential Home Mtg. Sec. IO Strip, Ser.
1994-29, Class A8, (16.957%-18.590%)
due 10/25/04 272,358 260,951
Prudential Home Mtg. Sec. IO, Ser.
1994-30, Class A11, 15.280% due 10/25/24 1,055,124 920,123
Structured Asset Sec. Corp. IO, Ser.
1996-CFL, Class X1, (11.426%-12.109%)
due 2/25/28 848,628 829,176
Structured Asset Sec. Corp. IO, Ser. 1996-CFL,
Class X2, (2.220%-7.345%) due 2/25/28 2,633,536 2,728,777
Vendee Mortgage Trust IO, Ser. 1992-2,
Class IO, (8.440%-11.005%) due 9/15/22 1,939,826 1,940,801
Vendee Mortgage Trust IO, Ser. 1993-2,
Class IO, 8.824% due 6/15/23 527,068 528,700
Vendee Mortgage Trust IO, Ser. 1994-2,
Class 3IO, (10.242%-12.836%) due 6/15/24 210,546 219,864
Vendee Mortgage Trust IO, Ser. 1994-3A,
Class 1IO, (9.655%-12.675%) due 9/15/24 713,997 739,643
Vendee Mortgage Trust IO, Ser. 1994-3B,
Class 2IO, (12.701%-13.467%) due 9/15/24 201,778 208,465
Vendee Mortgage Trust IO, Ser. 1995-1C,
Class 3IO, (8.168%-10.161%) due 2/15/25 247,054 242,669
Vendee Mortgage Trust IO, Ser. 1996-1,
Class 1IO, (9.374%-12.060%) due 2/15/26 956,675 1,000,886
Vendee Mortgage Trust, Ser. 1996-2,
Class 1IO, (9.168%-11.133%) due 6/15/26 399,952 324,267
Total (Cost - $41,471,991) 40,960,797
Principal Only Obligations (POs)- 13.8% (a)
FNMA PO, Ser. 1993-219, Class C,
(6.842%-7.975%) due 8/25/23 2,539,951 2,543,292
FNMA PO, Ser. 1993-184, Class M,
(6.274%-6.858%) due 9/25/23 1,685,170 1,858,775
FNMA PO, Ser. 1993-159, Class PA,
6.582% due 1/25/21 244,204 242,291
FNMA PO, Ser. 1993-157, Class E,
(6.902%-8.095%) due 5/25/22 2,422,460 2,486,412
FNMA PO, Ser. 1993-152, Class K,
(7.346%-8.925%) due 8/25/23 929,147 1,034,772
FNMA PO, Ser. 1993-152, Class J,
(6.471%-7.721%) due 8/25/23 2,619,358 2,792,350
FNMA PO, Ser. 1993-111, Class B,
(6.455%-7.515%) due 12/25/20 2,674,112 2,664,918
FNMA PO, Ser. 1993-100, Class N,
(6.815%-8.108%) due 6/25/23 958,701 987,856
FNMA PO, Ser. 1993-100, Class M,
7.162% due 6/25/23 741,677 758,896
FNMA PO, Ser. 1993-100, Class L,
7.162% due 6/25/23 1,578,037 1,614,671
FNMA PO, Ser. 1993-100, Class J,
(6.815%-8.124%) due 6/25/23 1,330,127 1,375,861
FNMA PO, Ser. 193-213, Class E,
6.137% due 9/25/23 261,325 260,508
FNMA PO Strip, Ser. 275, Class 1,
6.701% due 11/1/26 6,674,362 7,025,068
FNMA PO Strip, Ser. 274, Class 1,
8.306% due 10/1/25 3,468,129 3,574,307
FNMA PO Strip, Ser. 1996-34, Class A,
(5.502%-6.910%) due 10/25/21 1,364,692 1,338,703
Total (Cost - $29,491,452) 30,558,680
Collateralized Mortgage Obligations (CMOs) - 36.4%
FHLMC, Ser. 1511, Class L, 6.000%
due 5/15/08 6,505,788 5,930,026
FHLMC, Ser. 1490, Class J,
7.000% due 2/15/23 2,250,000 2,189,531
Collateralized Mortgage Obligations (continued)
FHLMC, Ser. 1765-B, Class BA, 10.000%
due 1/15/17 $ 2,914,141 $ 3,059,849
FHLMC, Ser. 1792, Class B,
9.500% due 1/15/22 2,410,000 2,633,407
FHLMC, Ser. 1906, Class A,
7.500% due 8/15/21 4,327,944 4,349,584
FNMA, Ser. 1992-129, Class J,
4.000% due 7/25/20 1,220,000 1,016,260
FNMA, Ser. 1993-180, Class SB,
3.661% due 9/25/00 3,690,754 3,344,746
FNMA, Ser. 1993-240, Class Z,
6.250% due 12/25/13 2,025,481 1,744,142
FNMA, Ser. 1996-1, Class B,
7.500% due 11/25/22 1,820,000 1,831,102
FNMA, Ser. 1996-52, Class A,
7.500% due 11/25/20 12,618,836 12,681,930
FNMA, Ser. G93-10, Class H,
5.000% due 8/25/22 1,060,000 866,232
FNMA, Ser. X-19B, Class ED,
6.500% due 1/25/22 1,900,000 1,702,020
Contimortgage Home Equity Loan Trust,
Ser. 1996-2, Class A7, 7.600% due 2/15/15 2,410,000 2,441,631
CTS Adjustable Rate Mortgage Trust, Ser.
1995-1, Class A, 6.360% due 5/25/26 3,574,708 3,589,232
Delta Funding Home Equity Loan Trust, Ser.
1996-1, Class A6, 7.720% due 5/25/20 2,120,000 2,154,450
GE Capital Mortgage Services, Inc., Ser.
1996-11, Class B1, 7.500% due 7/25/26 1,175,988 1,142,914
GE Capital Mortgage Services, Ser. 1996-11,
Class A9, 7.500% due 7/25/26 538,164 532,782
GE Capital Mortgage Services, Ser. 1996-9,
Class M, 7.500% due 6/25/26 806,603 793,496
Homart A1, 6.625% due 12/29/98 6,814,000 6,818,259
Independent National Mortgage Corp.,
Ser. 1996-E, Class A4, 7.000% due 5/25/26 1,840,237 1,762,027
Mellon Bank Home Equity Loan Trust, Ser.
1996-1, Class A1, 5.795% due 4/15/26 300,000 300,188
PNC Mortgage Sec. Corp., Ser. 1996-1,
Class B2, 7.500% due 6/25/26 672,791 653,869
Residential Accredit Loans, Inc., Ser.
1996-QS3, Class A11, 7.750% due 6/25/11 1,273,555 1,283,998
Residential Asset Trust, Ser. 1996-A4,
Class A12, 7.500% due 9/25/26 6,120,000 6,071,040
Residential Funding Mortgage Sec., Ser.
1996-S15, Class A20, 7.750% due 6/25/26 4,462,028 4,495,494
Resolution Trust Corp. FRN, Ser. 1993-C3,
Class A3, 6.500% due 12/25/24 992,218 994,997
Signet Home Equity Loan Corp. Trust FRN,
Ser. 1995-A, Class A, 5.915% due 6/20/04 2,506,389 2,509,130
Structured Asset Sec, Corp., Ser. 1996-2,
Class B1, 7.000% due 8/25/26 764,712 728,388
Structured Asset Sec, Corp., Ser. 1996-2,
Class B2, 7.000% due 8/25/26 353,000 330,055
Structured Asset Sec. Corp., Ser. 1996-CFL,
Class A2A, 7.750% due 2/25/28 2,539,102 2,573,126
Total (Cost - $80,165,516) 80,523,905
U.S. Treasury Securities - 6.2%
U.S. Treasury Note, 5.875% due 11/30/11 3,760,000 3,704,777
U.S. Treasury Note, 6.500% due 10/15/06 9,820,000 9,876,772
Total (Cost - $13,704,797) 13,581,549
Total Long-Term Investments (Cost - $471,243,694) 471,139,104
Short-Term Investments - 5.6%
Bank of Boston (Nassau) Time Deposit,
5.250% due 1/2/97 11,982,000 11,982,000
U.S. Treasury Bill, 5.516% due 3/6/97 500,000 495,515
Total (Cost - $12,472,653) 12,477,515
Contracts Value
Long Options - 0.5%
Swap Option OTC 9.000% Strike Expiring 9/19/11 7 $ 60,000
Swap Option OTC 9.000% Strike Expiring 9/19/11 7 139,500
Swap Option OTC 10.500% Strike Expiring 9/19/11 10 105,000
U.S.T. Note (10 Yr.) $110 Call Expiring 5/17/97 745 803,185
U.S.T. Note (10 Yr.) $111 Call Expiring 5/17/97 19 14,546
Total (Cost - $1,530,177) 1,122,231
Total Investments - (Cost - $485,246,524) 484,738,850
Other Assets net of Liabilities - (119.3%) (263,749,061)
Net Assets - 100.0% $ 220,989,789
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Schedule of Securities Sold Short Face
December 31, 1996 Amount Value
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TBAs - (49.4%)
FNMA (TBA), 8.500% due 1/1/27 $ (38,890,000) $ (40,287,629)
FNMA Dwarf (TBA), 7.000% due 1/1/12 (39,700,000) (39,650,375)
GNMA (TBA), 7.000% due 1/1/27 (30,000,000) (29,325,000)
Total (Cost - ($109,789,853)) $ (109,263,004)
Summary of Abbreviations
ARM Adjustable Rate Mortgage
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
FRN Floating Rate Note
GNMA Government National Mortgage Association
(a) Interest rate shown represents yield to maturity at date of purchase.
Face amount shown represents amortized cost.
See Notes to Financial Statements
FFTW Funds, Inc.
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Worldwide Portfolio
December 31, 1996
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GRAPH: Comparison of Changes in Value of $10,000 Investment in Worldwide
Portfolio and the JP Morgan Global Government Bond Index (Unhedged)
Investment performance for the periods ended December 31, 1996:
Average Annual Total Return
One Since
Year Inception*
Worldwide Portfolio 5.77% 8.64%
JP Morgan Global Government Bond Index (Unhedged) 4.39% 9.19%
* Worldwide Portfolio commenced operations on April 15, 1992.
The Worldwide Portfolio outperformed its benchmark, the JP Morgan Global
Government Bond Index (Unhedged), by 138 basis points for the twelve months
ended December 31, 1996. Since inception, the Portfolio has produced an
annualized return of 8.64%, slightly behind the benchmark return of 9.19% for
the same period. The Portfolio's net assets totaled $74.9 million on December
31, 1996. Its objective is to achieve a high level of total return, consistent
with the preservation of capital by investing in bonds from around the world,
denominated in U.S. dollars and other currencies. The Portfolio's average
weighted duration may not exceed eight years.
Global short-term interest rates generally declined during the first quarter
with the exception of Japanese rates, which remained unchanged. Higher yielding
bond markets and currencies outperformed due to declining inflation
expectations. The Portfolio held an underweighted position in the U.S. bond
market relative to the benchmark with the belief that resurgent domestic demand
would boost the production side of the economy, and that expectations of a
monetary easing that were priced into the market were unjustified. The
Portfolio's exposure to the European bond markets was reduced to account for
increasing global growth expectations. Anticipation of an improving situation
in Japan drove the Portfolio's underweighting in this bond market. In the
second quarter, U.S. Treasury yields rose an average of 40 basis points and
Japanese interest rates began to fluctuate as expectations for monetary policy
varied. At the same time, the yen declined as short-term rates remained low and
the trade surplus with the U.S. declined. The Portfolio's exposure to the major
markets remained consistent with that of the first quarter.
Due to slower than expected economic growth in the United States and Japan,
and only modestly stronger than expected growth in Germany, the markets
witnessed a further decline in global bond yields during the third quarter.
European high yielding markets continued to outperform with the help of
declining domestic inflation and apparently stringent budgets. The Portfolio
maintained an overweighted position in higher yielding European markets.
In the fourth quarter, global financial market and real economic conditions
created the ideal environment for a decline in bond yields. Global inflation
remained quiescent despite a modest rise in commodity prices. For the
Portfolio, interest rate exposure had a somewhat modest impact upon relative
performance during the quarter. Duration was kept near the benchmark, the J.P.
Morgan Global Government Bond Index (Unhedged), reflecting the belief that
global interest rates were near a trough. Within Europe, the Portfolio was
overweighted in Spain and Sweden to benefit from a continued easing in monetary
policy in these countries and the increasing probability that yield
differentials would move to the credit spreads implied by monetary union. The
adviser instituted a brief underwieght exposure to the Japanese bond market
before reverting to the view that domestic institutional cash flow would in fact
support the bond market at the expense of the equity market until unequivocal
economic recovery was underway. Japanese forecasters predicted that tax
increases would hamper such a recovery during 1997. In currencies, the yen was
underweighted in the Portfolio, predominantly in favor of the Canadian dollar.
In Europe, the Portfolio remained overweighted in higher yielding European
currencies (i.e., sterling and peseta).
Since fourth quarter economic growth was stronger than expected and the
Federal Reserve appears set to persist with an asymmetric bias to monetary
policy, U.S. Treasuries will be underweighted in the Portfolio in early 1997.
As long as the trade account does not deteriorate, the U.S. dollar should
benefit from relatively stronger growth in North America than in Europe or the
Far East. Neither the Bundesbank nor the Bank of Japan has exhibited much
interest in stronger currencies at present and both may prefer steady weak
currencies to further easing in interest rates. We expect the Spanish peseta
to continue to outperform the deutschmark and the Swiss franc based on the
interest rate differential and limited scope for depreciation.
FFTW Funds, Inc.
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Worldwide Portfolio - Schedule of Investments
December 31, 1996
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Long-Term Investments - 72.0%
Australia - 0.9%
Australian Government, 10.000% due 2/15/06 AUD 470,000 $ 437,575
Australian Government, 10.000% due 10/15/02 AUD 290,000 261,756
Total (Cost - $670,764) 699,331
Canada - 2.3%
Canadian Government, 7.000% due 12/1/06 CAD 250,000 190,217
Canadian Government, 7.250% due 6/1/07 CAD 2,020,000 1,558,396
Total (Cost - $1,730,276) 1,748,613
Denmark - 1.3%
Kingdom of Denmark, 8.000% due 3/15/06
(Cost - $979,659) DKK 5,400,000 1,008,110
Germany - 17.4%
Deutschland Republic, 7.375% due 1/3/05 DEM 6,000,000 4,323,894
Deutschland Republic, 8.000% due 7/22/02 DEM 11,700,000 8,685,343
Total (Cost - $13,173,230) 13,009,237
Italy - 1.7%
Buoni Poliennali del Tes, 9.500% due 2/1/06 ITL 1,540,000,000 1,155,000
Buoni Poliennali del Tes, 9.500% due 2/1/01 ITL 210,000,000 151,830
Total (Cost - $1,265,498) 1,306,830
Japan - 10.3%
Government of Japan, Ser. 184, 2.900%
due 12/20/05 JPY 280,000,000 2,461,200
Government of Japan, Ser. 170, 4.100%
due 6/21/04 JPY 544,000,000 5,229,472
Total (Cost - $7,903,277) 7,690,672
Netherlands - 2.9%
Bank Nederlandse Gemeenten, 6.750%
due 10/3/05
(Cost - $2,186,744) NLG 3,540,000 2,175,372
Spain - 2.1%
Bonos y Obligacion del Estado, 10.150%
due 1/31/06
(Cost - $1,574,063) ESP 167,000,000 1,567,963
Sweden - 5.3%
Kingdom of Sweden, 6.000% due 2/9/05 SEK 6,800,000 966,586
Swedish Government, 11.000% due 1/21/99 SEK 18,000,000 2,967,750
Total (Cost - $3,966,083) 3,934,336
United Kingdom - 1.9%
United Kingdom Treasury, 9.000% due 8/6/12
(Cost - $1,217,214) GBP 740,000 1,423,528
United States - 25.9%
U.S. Treasury Note, 6.375% due 5/15/99 1,090,000 $ 1,099,538
U.S. Treasury Note, 6.500% due 8/31/01 950,000 960,390
U.S. Treasury Note, 6.250% due 10/31/01 1,250,000 1,250,781
U.S. Treasury Note, 5.875% due 11/30/01 5,200,000 5,123,622
U.S. Treasury Note, 6.125% due 12/31/01 2,250,000 2,241,563
U.S. Treasury Note, 6.500% due 10/15/06 4,650,000 4,676,156
U.S. Treasury Bond, 7.125% due 2/15/23 1,030,000 1,074,740
U.S. Treasury Bond, 7.625% due 2/15/25 330,000 366,403
U.S. Treasury Bond, 6.750% due 8/15/26 2,600,000 2,617,875
Total (Cost - $19,538,595) 19,411,068
Total Long-Term Investments (Cost - $54,205,403) 53,975,060
Short- Term Investments - 35.2%
Bank of Boston (Nassau) Time Deposit,
5.250% due 1/2/97 21,831,000 21,831,000
FNMA DN, 5.310% due 3/21/97* 4,000,000 3,953,390
U.S. Treasury Bill, 5.543% due 1/23/97* @ 600,000 598,288
Total (Cost - $26,382,407) 26,382,678
Total Investments - 107.2% (Cost - $80,587,810) 80,357,738
Other Assets net of Liabilities - (7.2%) (5,418,301)
Net assets - 100.0% $ 74,939,437
Summary of Abbreviations
AUD Australian Dollar
CAD Canadian Dollar
DEM German Deutschemark
DKK Danish Krone
DN Discount Note
ESP Spanish Peseta
GBP Great British Pound
ITL Italian Lira
JPY Japanese Yen
NLG Netherlands Guilder
SEK Swedish Krona
(a) Face amount shown in U.S. dollars unless otherwise indicated.
* Interest rate shown represents yield to maturity at date of purchase.
@ Security, or a portion thereof, is held in a margin account to cover
financial futures contracts.
See Notes to Financial Statements
FFTW Funds, Inc.
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Worldwide-Hedged Portfolio
December 31, 1996
- -------------------------------------------------------------------------------
GRAPH: Comparison of Changes in Value of $10,000 Investment in Worldwide-
Hedged Portfolio and a Customized Benchmark.
Investment performance for the periods ended December 31, 1996:
Average Annual Total Return
One Since
Year Inception**
Worldwide-Hedged Portfolio 10.03% 10.31%
Customized Benchmark* 8.65% 7.23%
* Customized Benchmark:
May 19, 1992 through July 31, 1994 - JP Morgan Global Government Bond Index
(Hedged)
August 1, 1994 through June 30, 1995 - IBC's Money Fund Report AveragesTM-
All Taxable
July 1, 1995 to present - JP Morgan Global Government Bond Index (Hedged)
** Worldwide-Hedged Portfolio commenced operations on May 19, 1992.
The Worldwide-Hedged Portfolio seeks a high level of total return consistent
with preservation of capital by investing in high-quality fixed income
securities from bond markets worldwide and actively utilizes currency hedging
techniques. The Portfolio's average weighted duration may not exceed eight
years. For an eleven-month period between August 1, 1994 and June 30, 1995, the
Worldwide-Hedged Portfolio was invested in cash or short-term instruments due to
its small size. Consequently, the Portfolio's performance is compared to a
Customized Benchmark* (see description of benchmark above). The Portfolio rose
by 10.03% in the one-year period ending December 31, 1996. The Portfolio's net
assets were $30.0 million as of December 31, 1996.
Short-term interest rates around the globe generally declined during the
first quarter with the exception of Japanese rates which remained unchanged.
Higher yielding bond markets outperformed due to declining inflation
expectations. The Portfolio held an underweighted position in the U.S. bond
market relative to the benchmark with the belief that resurgent domestic demand
would boost the production side of the economy, and that expectations of a
monetary easing that were priced into the market were unjustified. The
Portfolio's exposure to the European bond markets was reduced to account for
increasing global growth expectations. Anticipation of an improving situation
in Japan drove the Portfolio's underweighting in this bond market. In the
second quarter, U.S. Treasury yields rose an average of 40 basis points in
response to evidence of strong domestic demand, industrial production figures,
and rapid job creation. Japanese interest rates began to fluctuate as
expectations for monetary policy varied. At the same time, the yen declined
as short-term rates remained low and the trade surplus with the U.S. declined.
Investors witnessed slower than expected economic growth in the US and Japan
in the third quarter, and only modestly stronger than expected growth in
Germany. These markets drove a further decline in global bond yields during the
quarter. The declines continued in the fourth quarter due to global financial
market and real economic conditions. Fourth quarter economic activity was
generally weaker than expected and seemed to assure the prolongation of a low
interest rate environment. Global inflation remained quiescent despite a modest
rise in commodity prices. For the Portfolio, interest rate exposure had a
somewhat modest impact upon relative performance during the quarter. Duration
was kept near the benchmark, the JP Morgan Global Government Bond Index
(Hedged), reflecting the belief that global interest rates were near a trough.
Within Europe, the Portfolio was overweighted in Spain and Sweden to benefit
from a continued easing in monetary policy in these countries and the increasing
probability that yield differentials would move to the credit spreads implied
by monetary union. The adviser instituted a brief underwieght exposure to the
Japanese bond market before reverting to the view that domestic institutional
cash flow would in fact support the bond market at the expense of the equity
market until unequivocal economic recovery was underway. Japanese forecasters
predicted that tax increases would hamper such a recovery during 1997.
Since fourth quarter economic growth was stronger than expected and the
Federal Reserve appears set to persist with an asymmetric bias to monetary
policy, U.S. Treasuries will be underweighted in the Portfolio in early 1997.
The adviser has also identified glimmerings of inflationary pressure within the
labor market in the US. Growth, inflation and job creation in 1996 all
surpassed the Federal Reserve's forecasts.
FFTW Funds, Inc.
- -------------------------------------------------------------------------------
Worldwide-Hedged Portfolio - Schedule of Investments
December 31, 1996
- -------------------------------------------------------------------------------
Face
Amount (a) Value
Long-Term Investments - 71.7%
Australia - 0.8%
Australian Government, 10.000% due 2/15/06 AUD 250,000 $ 232,754
Australian Government, 10.000% due 10/15/02 AUD 20,000 18,052
Total (Cost - $233,198) 250,806
Canada - 2.4%
Canadian Government, 7.000% due 12/1/06 CAD 160,000 121,740
Canadian Government, 7.250% due 6/1/07 CAD 770,000 594,042
Total (Cost - $709,053) 715,782
Denmark - 1.3%
Kingdom of Denmark, 8.000% due 3/15/06
(Cost - $380,978) DKK 2,100,000 392,042
Germany - 19.1%
Deutschland Republic, 7.375% due 1/3/05 DEM 2,800,000 2,017,817
Deutschland Republic, 8.000% due 7/22/02 DEM 5,000,000 3,711,685
Total (Cost - $5,802,062) 5,729,502
Italy - 5.0%
Buoni Poliennali del Tes, 9.500% due 2/1/06 ITL 470,000,000 352,500
Buoni Poliennali del Tes, 9.500% due 2/1/01 ITL1,570,000,000 1,135,110
Total (Cost - $1,411,692) 1,487,610
Japan - 4.7%
Government of Japan, Ser. 184, 2.900%
due 12/20/05
(Cost- $1,455,848) JPY 161,000,000 1,415,190
Netherlands - 2.7%
Bank Nederlandse Gemeenten, 6.750%
due 10/3/05
(Cost - $803,098) NLG 1,300,000 798,866
Spain - 2.1%
Bonos y Obligacion del Estado, 10.150%
due 1/31/06
(Cost - $630,278) ESP 67,000,000 629,063
Sweden - 5.6%
Kingdom of Sweden, 6.000% due 2/9/05 SEK 2,500,000 355,363
Swedish Government, 11.000% due 1/21/99 SEK 8,000,000 1,319,000
Total (Cost - $1,697,944) 1,674,363
United Kingdom - 2.8%
United Kingdom Treasury, 9.000% due 8/6/12
(Cost - $723,749) GBP 440,000 846,421
United States - 25.2%
U.S. Treasury Note, 6.500% due 8/31/01 1,550,000 $ 1,566,952
U.S. Treasury Note, 5.875% due 11/30/01 2,050,000 2,019,889
U.S. Treasury Note, 6.125% due 12/31/01 750,000 747,188
U.S. Treasury Note, 6.500% due 10/15/06 1,650,000 1,659,281
U.S. Treasury Bond, 7.125% due 2/15/23 350,000 365,202
U.S. Treasury Bond, 7.625% due 2/15/25 283,000 314,218
U.S. Treasury Bond, 6.750% due 8/15/26 900,000 906,188
Total (Cost - $7,614,503) 7,578,918
Total Long-Term Investments (Cost - $21,462,403) 21,518,563
Short-Term Investments - 29.5%
Bank of Boston (Nassau) Time Deposit,
5.250% due 1/2/97 8,715,000 8,715,000
U.S. Treasury Bill, 5.543% due 1/23/97* @ 150,000 149,572
Total (Cost - $8,864,511) 8,864,572
Total Investments - 101.2% (Cost - $30,326,914) 30,383,135
Oher Assets net of Liabilities - (1.2%) (359,478)
Net Assets - 100% $ 30,023,657
Summary of Abbreviations
AUD Australian Dollar
CAD Canadian Dollar
DEM German Deutschemark
DKK Danish Krone
ESP Spanish Peseta
GBP Great British Pound
ITL Italian Lira
JPY Japanese Yen
NLG Netherlands Guilder
SEK Swedish Krona
(a) Face amount shown in U.S. dollars unless otherwise indicated.
* Interest rate shown represents yield to maturity at date of purchase.
@ Security, or a portion thereof, is held in a margin account to cover
financial futures contracts.
See Notes to Financial Statements
FFTW Funds, Inc.
- -------------------------------------------------------------------------------
International Portfolio
December 31, 1996
- -------------------------------------------------------------------------------
GRAPH: Comparison of Changes in Value of $10,000 Investment in International
Portfolio and the JP Morgan Global Government Bond Index (Non-U.S.
Unhedged)
Investment performance for the period ended December 31, 1996:
Total Return
Since Inception*
(Not Annualized)
International Portfolio 6.66%
JP Morgan Global Government Bond Index 7.02%
(Non-U.S. Unhedged)
* International Portfolio commenced operations on May 9, 1996.
The International Portfolio commenced operations on May 9, 1996. The
Portfolio's net assets totaled $35.7 million on December 31, 1996. The
Portfolio's objective is to achieve a high level of total return, consistent
with the preservation of capital by investing in bonds from outside the U.S.,
denominated in non-U.S. currencies. The Portfolio's average weighted duration
may not exceed eight years.
The Portfolio was slightly overweighted in the higher yielding European bond
markets relative to the benchmark in the second quarter to account for
increasing global growth expectations and improving inflation expectations. The
Japanese bond market was underweighted due to anticipated economic
strengthening. The markets witnessed a further decline in global bond yields
during the third quarter due to slower than expected economic growth in the U.S.
and Japan, and only modestly stronger than expected growth in Germany. European
high yielding markets continued to outperform with the help of declining
domestic inflation and apparently stringent budgets. Currencies barely changed
in the quarter.
In the fourth quarter, global inflation remained quiescent despite a modest
rise in commodity prices. For the Portfolio, duration was kept near the
benchmark, reflecting the belief that global interest rates were near a trough.
Within Europe, the Portfolio was overweighted in Spain and Sweden to benefit
from a continued easing in monetary policy in these countries and the increasing
probability that yield differentials would approximate to the credit spreads
implied by monetary union. The adviser instituted a brief underweight exposure
to the Japanese bond market before reverting to the view that domestic
institutional cash flow would in fact support the bond market at the expense of
the equity market until unequivocal economic recovery was underway. In
currencies, the yen was underweighted in the Portfolio, predominantly in favor
of the Canadian dollar. In Europe, the Portfolio remained overweighted in
higher yielding European currencies (i.e., sterling and peseta).
Prospectively, the Portfolio holds an underweight position relative to the
benchmark in Canadian bonds on the belief that, with the stronger than expected
growth seen in the U.S. at year end, Canadian bond yields are likely to rise as
U.S. bond yields rise in the coming months. In currencies, the Portfolio
continues to hold an overweighted position in higher yielding European
currencies such as the peseta which should continue to outperform the
deutschmark and the Swiss franc based on the interest rate differential and
limited scope for depreciation.
FFTW Funds, Inc.
- -------------------------------------------------------------------------------
International Portfolio - Schedule of Investments
December 31, 1996
- -------------------------------------------------------------------------------
Face
Amount (a) Value
Long-Term Investments - 73.1%
Australia - 1.0%
Australian Government, 10.000% due 2/15/06
(Cost - $368,153) AUD 400,000 $ 372,404
Canada - 3.4%
Canadian Government, 7.000% due 12/1/06 CAD 980,000 745,652
Canadian Government, 7.250% due 6/1/07 CAD 620,000 478,319
Total (Cost - $1,224,431) 1,223,971
Denmark - 2.1%
Kingdom of Denmark, 8.000% due 3/15/06
(Cost - $719,592) DKK 3,950,000 737,414
Germany - 31.5%
Deutschland Republic, 7.375% due 1/3/05 DEM 2,800,000 2,017,817
Deutschland Republic, 8.000% due 7/22/02 DEM 12,430,000 9,227,248
Total (Cost - $11,337,065) 11,245,065
Italy - 9.0%
Buoni Poliennali del Tes, 9.500%
due 2/1/06 ITL 590,000,000 442,500
Buoni Poliennali del Tes, 9.500%
due 2/1/01 ITL 3,860,000,000 2,790,780
Total (Cost - $3,082,840) 3,233,280
Japan - 6.7%
Government of Japan, Ser. 184, 2.900%
due 12/20/05
(Cost - $2,463,723) JPY 272,000,000 2,390,880
Netherlands - 4.6%
Netherlands Government, 6.000%
due 1/15/06
(Cost - $1,605,744) NLG 2,760,000 1,633,768
Spain - 3.3%
Bonos y Obligacion del Estado, 10.150%
due 1/31/06
(Cost - $1,162,904) ESP 124,900,000 1,172,686
Sweden - 7.2%
Kingdom of Sweden, 6.000% due 2/9/05 SEK 4,000,000 568,580
Swedish Government, 11.000% due 1/21/99 SEK 12,100,000 1,994,988
Total (Cost - $2,561,635) 2,563,568
United Kingdom - 4.3%
United Kingdom Treasury, 8.000%
due 12/7/15 GBP 300,000 533,108
United Kingdom Treasury, 9.000% due 8/6/12 GBP 530,000 1,019,554
Total (Cost - $1,403,053) 1,552,662
Total Long-Term Investments (Cost - $25,929,140) 26,125,698
Short-Term Investments - 44.4%
Bank of Boston (Nassau) Time Deposit,
5.250% due 1/2/97 15,584,000 $ 15,584,000
U.S. Treasury Bill, 4.705% due 1/23/97* @ 100,000 99,718
U.S. Treasury Bill, 5.035% due 1/23/97* @ 100,000 99,697
U.S. Treasury Bill, 5.276% due 1/23/97* @ 100,000 99,715
Total (Cost - $15,883,097) 15,883,130
Total Investments - 117.5% (Cost - $41,812,237) 42,008,828
Other Assets net of Liabilities - (17.5%) (6,262,891)
Net Assets - 100.0% $ 35,745,937
Summary of Abbreviations
AUD Australian Dollar
CAD Canadian Dollar
DEM German Deutschemark
DKK Danish Krone
ESP Spanish Peseta
GBP Great British Pound
ITL Italian Lira
JPY Japanese Yen
NLG Netherlands Guilder
SEK Swedish Krona
(a) Face amount shown in U.S. dollars unless otherwise indicated.
* Interest rate shown represents yield to maturity at date of purchase.
@ Security, or a portion thereof, is held in a margin account to cover
financial futures contracts.
See Notes to Financial Statements
FFTW Funds, Inc.
- -------------------------------------------------------------------------------
International-Hedged Portfolio
December 31, 1996
- -------------------------------------------------------------------------------
Investment performance for the periods ended December 31, 1996:
Average Annual Total Return
Since
One Recommencement
Year of Operations*
International-Hedged Portfolio 3.18% 5.42%
JP Morgan 3-Month Eurodeposit Index 5.82% 5.87%
JP Morgan Global Government Bond Index
(Non-U.S. Hedged) 12.22% 13.01%
* The Portfolio redeemed all of its assets on December 30, 1994, and began
selling shares again on September 14, 1995. The total return (on an
annualized basis) from its original inception of March 25, 1993 through December
30, 1994, was 5.39%, versus the JP Morgan Global Government Bond Index (Non-U.S.
Hedged), which had an annualized return of 2.98% for the same period, and the JP
Morgan 3-Month Eurodeposit Index, which had an annualized return of 4.05% for
the same period. The return stated is for the period commencing September 14,
1995.
The International-Hedged Portfolio seeks to achieve a high level of total
return consistent with the preservation of capital by investing in bonds from
outside the U.S., denominated in non-U.S. currencies but hedged into U.S.
dollars. The Portfolio is used exclusively by the adviser for the portion of
its client base that seeks the incremental return that a limited exposure to the
international markets may bring. The investment strategy employed by the
adviser involves investing the Portfolio in a diversified international
portfolio but swapping the return of the international index in exchange for a
LIBOR-based payment to the Portfolio. The success of this strategy should be
measured relative to the JP Morgan 3-Month Eurodeposit Index (see above). This
strategy was not employed until mid-fourth quarter so an analysis of the past
year's performance is not informative at this time.
FFTW Funds, Inc.
- -------------------------------------------------------------------------------
International-Hedged Portfolio - Schedule of Investments
December 31, 1996
- -------------------------------------------------------------------------------
Face
Amount (a) Value
Long-Term Investments - 69.3%
Australia - 1.7%
Australian Government, 10.000% due 2/15/06
(Cost - $2,142,321) AUD 2,320,000 $ 2,159,942
Canada - 3.5%
Canadian Government, 7.000% due 12/1/06
(Cost - $ 4,420,189) CAD 5,750,000 4,374,997
Denmark - 1.9%
Kingdom of Denmark, 8.000% due 3/15/06
(Cost - $2,410,117) DKK 13,000,000 2,426,931
Germany - 24.7%
Bundesibligation Series 117, 5.125%
due 11/21/00 DEM 1,000 668
Deutschland Republic, 7.375%
due 1/3/05 DEM 36,900,000 26,591,948
Deutschland Republic, 8.000%
due 7/22/02 DEM 6,400,000 4,750,957
Total (Cost - $31,678,333) 31,343,573
Italy - 9.3%
Buoni Poliennali del Tes, 9.500%
due 2/1/01
(Cost - $11,547,952) ITL 16,300,000,000 11,784,900
Netherlands - 4.1%
Netherlands Government, 6.000%
due 1/15/06
(Cost - $5,167,702) NLG 8,700,000 5,149,922
Spain - 3.3%
Bonos y Obligacion del Estado, 10.150%
due 1/31/06 ESP 446,000,000 4,187,494
Spanish Government, 12.250%
due 3/25/00 ESP 120,000 1,095
Total (Cost - $4,197,494) 4,188,589
Sweden - 14.7%
Swedish Government, 11.000% due 1/21/99
(Cost - $18,897,091) SEK 113,000,000 18,630,875
United Kingdom - 6.1%
United Kingdom Treasury, 9.000%
due 8/6/12
(Cost - $7,171,427) GBP 4,000,000 7,694,744
Total Long-Term Investments (Cost - $87,632,626) 87,754,473
Short-Term Investments - 25.5%
Bank of Boston (Nassau) Time Deposit,
5.250% due 1/2/97 26,597,000 $ 26,597,000
FNMA DN, 5.220% due 1/17/97* 4,000,000 3,990,720
U.S. Treasury Bill, 4.638% due 1/23/97* @ 100,000 99,697
U.S. Treasury Bill, 5.095% due 1/23/97* 100,000 99,722
U.S. Treasury Bill, 5.130% due 1/23/97* 750,000 747,713
U.S. Treasury Bill, 5.115% due 1/23/97* 750,000 747,706
Total (Cost - $32,282,558) 32,282,558
Total Investments - 94.8% (Cost - $119,915,184) 120,037,031
Other Assets net of Liabilities - 5.2% 6,608,080
Net Assets - 100.0% $ 126,645,111
Summary of Abbreviations
AUD Australian Dollar
CAD Canadian Dollar
DEM German Deutschemark
DKK Danish Krone
DN Discount Note
ESP Spanish Peseta
GBP Great British Pound
ITL Italian Lira
JPY Japanese Yen
NLG Netherlands Guilder
SEK Swedish Krona
(a) Face amount shown in U.S. dollars unless otherwise indicated.
* Interest rate shown represents yield to maturity at date of purchase.
@ Security, or a portion thereof, is held in a margin account to cover
financial futures contracts.
See Notes to Financial Statements
FFTW Funds, Inc.
- ------------------------------------------------------------------------------
Statements of Assets and Liabilities
December 31, 1996 U.S. Portfolios
- ------------------------------------------------------------------------------
U.S. Short-Term Stable Return
Portfolio Portfolio
Assets
Investments in securities, at value
(Cost - $350,125,316 and
$41,370,191, respectively) $ 350,424,204 (a) $ 41,484,359
Cash 673 806
Foreign cash (Cost - $0 and $24,102,
respectively) - 23,426
Receivable from Investment Adviser 49,164 5,760
Receivable for securities sold 4,201 995,628
Receivable for fund shares sold 3,500,000 -
Interest receivable 2,433,157 593,694
Receivable for variation margin 5,052 -
Net unrealized appreciation of forward
foreign exchange contracts 14,532 4,360
Other assets 31,186 3,582
Total assets 356,462,169 43,111,615
Liabilities
Payable for securities purchased 1,142,445 -
Sanwa Bank Reverse Repurchase
Agreement, 6.000% due 1/2/97;
Issued 12/31/96 (Collateralized
by $1,000,000 U.S. Treasury Note,
5.875% due 11/30/01) - 992,500
Distributions payable from income 3,497 -
Accrued expenses and other liabilities 59,513 18,654
Total liabilities 1,205,455 1,011,154
Net Assets $ 355,256,714 $ 42,100,461
Shares Outstanding (par value $0.001) 36,066,356 4,241,463
Net Asset Value Per Share $ 9.85 $ 9.93
Components of Net Assets:
Capital stock at par value ($.001) $ 36,066 $ 4,241
Capital stock in excess of par value 361,039,399 41,934,649
Undistributed investment income, net 19,640 -
Accumulated net realized gain (loss) (6,315,589) 43,462
Net unrealized appreciation on
investments, financial futures
contracts and translation of
other assets and liabilities
denominated in foreign currency 477,198 118,109
$ 355,256,714 $ 42,100,461
(a) Includes repurchase agreements amounting to $50,000,000.
See Notes to Financial Statements
FFTW Funds, Inc.
- -------------------------------------------------------------------------------
Statements of Assets and Liabilities (continued)
December 31, 1996 U.S. Portfolios
- -------------------------------------------------------------------------------
Mortgage
Total Return
Portfolio
Assets
Investments in securities, at value (Cost - $485,246,524) $ 484,738,851
Investments in swap contracts, at value 760
Receivable from Investment Adviser 32,012
Receivable for securities sold 17,604,528
Receivable for securities sold short 109,789,853
Receivable for paydown of principal 889,498
Receivable for fund shares sold 19,800,000
Interest receivable 3,102,342
Receivable for variation margin 248,475
Other assets 8,783
Total assets 636,215,102
Liabilities
Payable for securities purchased 271,073,906
Payable for fund shares redeemed 34,600,000
Market value of securities sold short 109,263,004
Due to custodian 227,280
Accrued expenses and other liabilities 61,123
Total liabilities 415,225,313
Net Assets $ 220,989,789
Shares Outstanding (par value $.001) 21,755,700
Net Asset Value Per Share $ 10.16
Components of Net Assets:
Capital stock at par value ($.001) 21,756
Capital stock in excess of par value 221,509,004
Temporary overdistribution of investment income, net (1,260,264)
Accumulated net realized gain 262,030
Net unrealized appreciation on investments, and
financial futures and options contracts 457,263
$ 220,989,789
See Notes to Financial Statements
FFTW Funds, Inc.
- -------------------------------------------------------------------------------
Statements of Assets and Liabilities (continued)
December 31, 1996 Global & International Portfolios
- -------------------------------------------------------------------------------
Worldwide Worldwide-Hedged
Portfolio Portfolio
Assets
Investments in securities, at value
(Cost - $80,587,810 and $30,326,914,
respectively) $ 80,357,738 $ 30,383,135
Cash 143 6,169
Foreign cash (Cost - $898,776 and
$294,675, respectively) 889,257 291,019
Receivable from Investment Adviser 8,349 11,463
Receivable for securities sold 27,151 -
Interest receivable 1,478,849 675,101
Variation margin receivable 10,111 -
Net unrealized appreciation of forward
foreign exchange contracts 182,034 112,514
Other assets 11,030 4,955
Total assets 82,964,662 31,484,356
Liabilities
Payable for securities purchased 7,802,280 1,432,439
Distributions payable from income 196,046 -
Accrued expenses and other liabilities 26,899 28,260
Total liabilities 8,025,225 1,460,699
Net Assets $ 74,939,437 $ 30,023,657
Shares Outstanding (par value $.001) 7,773,118 2,751,010
Net Asset Value Per Share $ 9.64 $ 10.91
Components of Net Assets:
Capital stock at par value ($.001) $ 7,773 $ 2,751
Capital stock in excess of par value 85,019,109 30,726,896
Undistributed investment income, net - 268,063
Accumulated net realized loss (10,167,778) (1,130,463)
Net unrealized appreciation on
investments, financial futures
contracts, and translation of other
assets and liabilities denominated
in foreign currency 80,333 156,410
$ 74,939,437 $ 30,023,657
See Notes to Financial Statements
FFTW Funds, Inc.
- -------------------------------------------------------------------------------
Statements of Assets and Liabilities (continued)
December 31, 1996 Global & International Portfolios
- -------------------------------------------------------------------------------
International International-Hedged
Portfolio Portfolio
Assets
Investments in securities, at value
(Cost - $41,812,237 and
$119,915,184, respectively) $ 42,008,828 $ 120,037,031
Cash - 206
Foreign cash (Cost - $120,850 and
$553,879, respectively) 117,829 547,415
Receivable from Investment Adviser 12,802 2,075
Receivable for securities sold 3,953 -
Interest receivable 1,035,815 5,122,754
Swap contract receivable - 1,244,538
Receivable for variation margin 1,307 -
Net unrealized appreciation of forward
foreign exchange contracts 51,117 -
Other assets 5,447 9,844
Total assets 43,237,098 126,963,863
Liabilities
Payable for securities purchased 7,450,405 -
Net unrealized depreciation of forward
foreign exchange contracts - 284,472
Accrued expenses and other liabilities 40,756 34,280
Total liabilities 7,491,161 318,752
Net Assets $ 35,745,937 $ 126,645,111
Shares Outstanding (par value $.001) 3,506,088 12,924,222
Net Asset Value Per Share $ 10.20 $ 9.80
Components of Net Assets:
Capital stock at par value ($0.001) $ 3,506 $ 12,925
Capital stock in excess of par value 35,386,013 128,010,835
Accumulated net realized gain (loss) 242,551 (700,724)
Net unrealized appreciation (depreciation)
on investments, financial futures
contracts, and translation of other assets
and liabilities denominated in foreign
currency 113,867 (677,925)
$ 35,745,937 $ 126,645,111
See Notes to Financial Statements
FFTW Funds, Inc.
- -------------------------------------------------------------------------------
Statements of Operations
For the Year Ended December 31, 1996 U.S. Portfolios
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Mortgage
U.S. Short-Term Stable Return Total Return
Portfolio Portfolio Portfolio*
Investment Income
Interest $ 29,467,279 $ 1,414,294 $ 5,163,924
Expenses
Investment advisory fees 846,754 35,493 189,133
Administration fees 288,865 13,271 36,852
Custodian fees 245,548 22,126 72,904
Shareholder recordkeeping fees 40,686 1,563 818
Legal fees 5,230 686 2,030
Audit fees 37,074 24,449 26,400
Directors' fees 39,168 1,661 6,072
SEC filing fees 10,607 121 -
Other fees and expenses 60,292 3,681 11,081
Total operating expenses 1,574,224 103,051 345,290
Waiver of investment advisory fees (238,878) (33,781) (61,591)
Operating expenses, net 1,335,346 69,270 283,699
Interest expense 642,082 40,276 273,617
Total expenses 1,977,428 109,546 557,316
Investment income, net 27,489,851 1,304,748 4,606,608
Net Realized and Unrealized Gain (Loss) on
Investments, Financial Futures and Options
Contracts, and Foreign Currency-Related
Transactions
Net realized gain (loss) on investments (932,605) 243,199 600,256
Net realized loss on financial futures and
options contracts (843,701) - (221,042)
Net realized loss on foreign currency-
related transactions (15,327) (64,649) -
Net unrealized appreciation
(depreciation) on investments (58,968) 84,920 19,937
Net unrealized appreciation on
financial futures and options contracts 174,207 - 437,326
Net unrealized appreciation on other
assets and liabilities denominated in
foreign currency 15,560 3,941 -
Net realized and unrealized gain
(loss) on investments, financial
futures and options contracts
and foreign currency-related
transactions (1,660,834) 267,411 836,477
Net Increase in Net Assets Resulting
From Operations $ 25,829,017 $ 1,572,159 $ 5,443,085
</TABLE>
See Notes to Financial Statements
*Commencement of Operations was April 29, 1996
FFTW Funds, Inc.
- ------------------------------------------------------------------------------
Statement of Operations (continued)
For the year Ended December 31, 1996 Global & International Portfolios
- ------------------------------------------------------------------------------
Worldwide Worldwide-Hedged
Portfolio Portfolio
Investment Income
Interest $ 5,808,233 $ 1,670,781
Expenses
Investment advisory fees 379,871 67,821
Administration fees 56,202 16,069
Custodian fees 102,969 57,734
Shareholder recordkeeping fees 9,986 2,559
Legal fees 1,474 397
Audit fees 31,537 30,276
Directors' fees 8,787 2,383
SEC filing fees 6,958 6,260
Other fees and expenses 17,491 4,753
Total operating expenses 615,275 188,252
Waiver of investment advisory fees (45,469) (66,174)
Operating expenses, net 569,806 122,078
Investment income, net 5,238,427 1,548,703
Net Realized and Unrealized Gain (Loss) On
Investments, Financial Futures Contracts,
and Foreign Currency-Related Transactions
Net realized gain on investments 1,589,481 855,795
Net realized gain on financial
futures contracts 281,612 1,609
Net realized gain (loss) on foreign
currency-related transactions (1,257,815) 603,107
Net unrealized depreciation on investments (1,652,262) (492,204)
Net unrealized depreciation on
financial futures contracts (14,961) (32,918)
Net unrealized appreciation on other
assets and liabilities denominated in
foreign currency 569,513 220,904
Net realized and unrealized gain
(loss) on investments, financial
futures contracts, and foreign
currency-related transactions (484,432) 1,156,293
Net Increase in Net Assets
Resulting From Operations $ 4,753,995 $ 2,704,996
See Notes to Financial Statements
FFTW Funds, Inc.
- -------------------------------------------------------------------------------
Statements of Operations (continued)
For the Year Ended December 31, 1996 Global & International Portfolios
- -------------------------------------------------------------------------------
International-
International Hedged
Portfolio* Portfolio
Investment Income
Interest $ 924,077 $ 2,806,766
Expenses
Investment advisory fees 58,439 213,703
Administration fees 8,601 31,337
Custodian fees 36,469 52,660
Shareholder recordkeeping fees 551 3,090
Legal fees 509 527
Audit fees 26,400 30,364
Directors' fees 882 5,487
SEC filing fees - 7,605
Other fees and expenses 1,924 9,417
Total operating expenses 133,775 354,190
Waiver of investment advisory fees (46,117) (33,636)
Operating expenses, net 87,658 320,554
Investment income, net 836,419 2,486,212
Net Realized and Unrealized Gain (Loss)
on Investments, Financial Futures Contracts,
and Foreign Currency-Related Transactions
Net realized gain on investments 785,345 1,104,475
Net realized gain on financial futures
and swap contracts 180,067 729,425
Net realized loss on foreign
currency-related transactions (446,566) (1,379,202)
Net unrealized appreciation (depreciation)
on investments 196,591 (1,109,948)
Net unrealized depreciation on
financial futures contracts (124,629) (315,620)
Net unrealized appreciation (depreciation)
on other assets and liabilities denominated
in foreign currency 41,905 (174,186)
Net realized and unrealized gain (loss)
on investments, financial futures
contracts, and on foreign currency-
related transactions 632,713 (1,145,056)
Net Increase in Net Assets
Resulting From Operations $ 1,469,132 $ 1,341,156
* Commencement of Operations was May 9, 1996.
See Notes to Financial Statements
FFTW Funds, Inc.
- ------------------------------------------------------------------------------
Statements of Changes in Net Assets
For the Years Ended U.S. Portfolios
- ------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
U.S. Short-Term Stable Return
Portfolio Portfolio
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1996 Dec. 31, 1995
Increase (Decrease) in Net
Assets From Operations
Investment income, net $ 27,489,851 $ 21,144,400 $ 1,304,748 $ 282,869
Net realized gain (loss) on investments,
financial futures and options contracts,
and foreign currency-related transactions (1,791,633) (931,205) 178,550 179,897
Net unrealized appreciation on investments,
financial futures and options contracts,
and other assets and liabilities
denominated in foreign currencies 130,799 761,484 88,861 35,872
Net increase in net assets resulting
from operations 25,829,017 20,974,679 1,572,159 498,638
Distributions to Shareholders
From investment income, net 27,489,851 21,144,400 1,304,748 282,195
In excess of investment income, net - 318 674 -
From net realized gain on investments,
and foreign currency-related transactions - - 138,326 -
Total Distributions 27,489,851 21,144,718 1,443,748 282,195
Capital Share Transactions, Net (100,507,754) 166,900,473 36,891,983 525,285
Total increase (decrease) in net assets (102,168,588) 166,730,434 37,020,394 741,728
Net Assets
Beginning of period 457,425,302 290,694,868 5,080,067 4,338,339
End of period $ 355,256,714 $ 457,425,302 $ 42,100,461 $ 5,080,067
Undistributed Investment Income, Net $ 19,640 $ 72,341 $ - $ 674
</TABLE>
See Notes to Financial Statements
FFTW Funds, Inc.
- ------------------------------------------------------------------------------
Statement of Changes in Net Assets (continued)
For the Period Ended U.S. Portfolios
- ------------------------------------------------------------------------------
Mortgage Total
Return Portfolio
December 31, 1996*
Increase in Net Assets
From Operations
Investment income, net $ 4,606,608
Net realized gain on investments, short sales,
and financial futures and options contracts 379,214
Net unrealized appreciation on investments,
short sales, and financial futures and
options contracts 457,263
Net increase in net assets resulting
from operations 5,443,085
Distributions to Shareholders
From investment income, net 4,606,608
In excess of investment income, net 1,260,264
From net realized gain on investments, short sales,
and financial futures and options contracts 117,184
Total Distributions 5,984,056
Capital Share Transactions, Net 221,530,760
Total increase in net assets 220,989,789
Net Assets
Beginning of period -
End of period $ 220,989,789
See Notes to Financial Statements
*Commencement of operations was April 29, 1996
FFTW Funds, Inc.
- ------------------------------------------------------------------------------
Statement of Changes in Net Assets (continued)
For the Years Ended Global & International Portfolios
- ------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
Worldwide Worldwide-Hedged
Portfolio Portfolio
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1996 Dec. 31, 1995
Increase (Decrease) in Net
Assets From Operations
Investment income, net $ 5,238,427 $ 2,845,363 $ 1,548,703 $ 751,559
Net realized gain on investments,
financial futures contracts, and on
foreign currency-related transactions 613,278 1,227,250 1,460,511 804,916
Net unrealized appreciation (depreciation)
on investments, financial futures contracts,
and assets and liabilities denominated
in foreign currency (1,097,710) 1,139,533 (304,218) 460,628
Net increase in net assets
resulting from operations 4,753,995 5,212,146 2,704,996 2,017,103
Distributions to Shareholders
From investment income, net 5,238,427 1,452,532 1,548,703 1,115,901
In excess of investment income, net - - 977,659 -
From net realized gain on investments,
financial futures contracts, and foreign
currency-related transactions 738,137 - - -
From capital stock in excess of par value 794,254 1,393,024 - -
Total Distributions 6,770,818 2,845,556 2,526,362 1,115,901
Capital Share Transactions, Net (9,229,917) 30,098,106 1,590,193 27,080,903
Total increase (decrease) in net assets (11,246,740) 32,464,696 1,768,827 27,982,105
Net Assets
Beginning of period 86,186,177 53,721,481 28,254,830 272,725
End of period $ 74,939,437 $ 86,186,177 $ 30,023,657 $ 28,254,830
Undistributed Investment Income, Net $ - $ - $ 268,063 $ 655,997
</TABLE>
See Notes to Financial Statements
FFTW Funds, Inc.
- ------------------------------------------------------------------------------
Statements of Changes in Net Assets (continued)
For the Years Ended Global & International Portfolios
- ------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
International International-
Portfolio Hedged Portfolio
Dec. 31, 1996* Dec. 31, 1996 Dec. 31, 1995**
Increase (Decrease) in Net
Assets From Operations
Investment income, net $ 836,419 $ 2,486,212 $ 1,405,519
Net realized gain on investments,
financial futures and swap contracts, and
foreign currency-related transactions 518,846 454,698 186,248
Net unrealized appreciation (depreciation)
on investments, financial futures, and
assets and liabilities denominated in
foreign currency 113,867 (1,599,754) 921,829
Net increase in net assets resulting
from operations 1,469,132 1,341,156 2,513,596
Distributions to Shareholders
From investment income, net 836,419 2,486,212 1,405,519
In excess of investment income, net - - 2,023
From net realized gain on investments,
financial futures and swap contracts,
and foreign currency-related transactions 276,295 454,698 -
In excess of net realized gain on
investments, financial futures and
swap contracts, and foreign currency-
related transactions - 801,949 -
From capital stock in excess of par value - 1,305,588 -
Total Distributions 1,112,714 5,048,447 1,407,542
Capital Share Transactions, Net 35,389,519 96,347,515 32,898,833
Total increase in net assets 35,745,937 92,640,224 34,004,887
Net Assets
Beginning of period - 34,004,887 -
End of period $ 35,745,937 $ 126,645,111 $ 34,004,887
Undistributed Investment Income, Net $ - $ - $ 105,438
</TABLE>
* Commencement of operations was May 9, 1996.
** The Portfolio was fully liquidated on December 30, 1994 and recommenced
operations on September 14, 1995.
See Notes to Financial Statements
FFTW Funds, Inc.
- ------------------------------------------------------------------------------
Financial Highlights
U.S. Short-Term Portfolio
- ------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
For the Year Ended
For a share outstanding Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992
throughout the period:
Per Share Data
Net asset value, beginning of
period $ 9.88 $ 9.89 $ 9.98 $ 10.00 $ 10.00
Increase (Decrease) From
Investment Operations
Investment income, net 0.55 0.56 0.44 0.32 0.34
Net realized and unrealized gain
(loss) on investments, and financial
futures and options contracts, and
foreign currency-related transactions (0.03) (0.01) (0.08) (0.03) 0.01
Total from investment operations 0.52 0.55 0.36 0.29 0.35
Less Distributions
From investment income, net 0.55 0.56 0.45 0.31 0.34
In excess of investment income, net - 0.00 * 0.00 * - -
From net realized gain on investments,
and financial futures and options
contracts - - - - 0.01
Total distributions 0.55 0.56 0.45 0.31 0.35
Net asset value, end of period $ 9.85 $ 9.88 $ 9.89 $ 9.98 $ 10.00
Total Return 5.45% 5.71% 3.71% 2.88% 3.45%
Ratios/Supplemental Data
Net assets, end of period $ 355,256,714 $ 457,425,302 $ 290,694,868 $ 417,727,821 $ 682,513,193
Ratio of operating expenses
to average net assets, exclusive
of interest expense (a) 0.27% 0.40% 0.40% 0.40% 0.40%
Ratio of operating expenses
to average net assets, inclusive
of interest expense (a) 0.40% 0.51% 0.43% 0.48% 0.43%
Ratio of investment income,
net to average net assets 5.62% 5.64% 4.14% 3.28% 3.37%
Decrease in above ratios
due to waiver of investment
advisory fees 0.05% 0.07% 0.08% 0.03% -
</TABLE>
(a) Net of waivers
(b) Annualized
* Rounds to less than $0.01. See Notes to Financial Statements
FFTW Funds, Inc.
- -------------------------------------------------------------------------------
Financial Highlights (continued)
Stable Return Portfolio
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
For the Year Ended Period From
For a share outstanding July 26, 1993* to
throughout the period: Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
Per Share Data
Net asset value, beginning of period $ 10.00 $ 9.55 $ 9.95 $ 10.00
Increase (Decrease) From
Investment Operations
Investment income, net 0.55 0.60 0.43 0.14
Net realized and unrealized gain
(loss) on investments, financial
futures contracts, and foreign
currency-related transactions (0.04) 0.45 (0.40) 0.05
Total from investment operations 0.51 1.05 0.03 0.19
Less Distributions
From investment income, net 0.55 0.60 0.43 0.14
In excess of investment income, net 0.00** - - -
From net realized gains on investments,
financial futures contracts, and
currency-related transactions 0.03 - - 0.03
In excess of net realized gain on
investments and financial futures
contracts - - - 0.07
Total distributions 0.58 0.60 0.43 0.24
Net asset value, end of period $ 9.93 $ 10.00 $ 9.55 $ 9.95
Total Return 5.29% 11.26% 0.29% 4.27% (b)
Ratios/Supplemental Data
Net assets, end of period $ 42,100,461 $ 5,080,067 $ 4,338,339 $ 3,482,439
Ratio of operating expenses
to average net assets, exclusive
of interest expense (a) 0.31% 0.50% 0.50% 0.50% (b)
Ratio of operating expenses
to average net assets, inclusive
of interest expense (a) 0.49% 1.41% 1.74% 0.50% (b)
Ratio of investment income,
net to average net assets 5.79% 6.09% 4.43% 3.68% (b)
Decrease in above ratios
due to waiver of investment
advisory fees and reimbursement
of other expenses 0.15% 0.53% 0.57% 1.46% (b)
Portfolio Turnover 1,387% 1,075% 343% 1,841%
(a) Net of waivers and reimbursements.
(b) Annualized
* Commencement of Operations
** Rounds to less than $.01
FFTW Funds, Inc.
- -------------------------------------------------------------------------------
Financial Highlights (continued)
Mortgage Total Return Portfolio
- -------------------------------------------------------------------------------
Period From
April 29, 1996 *
For a share outstanding to Dec. 31, 1996
throughout the period:
Per Share Data
Net asset value, beginning of period $ 10.00
Increase From Investment
Operations
Investment income, net 0.41
Net realized and unrealized gain on
investments, short sales, and financial
futures and options contracts 0.23
Total from investment operations 0.64
Less Distributions
From investment income, net 0.41
In excess of investment income, net 0.06
From net realized gain on investments,
short sales, and financial futures and
options contracts 0.01
Total distributions 0.48
Net asset value, end of period $ 10.16
Total Return 6.54% (c)
Ratios/Supplemental Data
Net assets, end of period $ 220,989,789
Ratio of operating expenses
to average net assets, exclusive of
interest expense (a) 0.45% (b)
Ratio of operating expenses
to average net assets, inclusive of
interest expense (a) 0.88% (b)
Ratio of investment income,
net to average net assets 7.61% (b)
Decrease reflected in above ratios
due to waiver of investment
advisory fees 0.10% (b)
Portfolio turnover 590%
(a) Net of waivers.
(b) Annualized
(c) Not annualized
* Commencement of Operations See Notes to Financial Statements
FFTW Funds, Inc.
- -------------------------------------------------------------------------------
Financial Highlights (continued)
Worldwide Portfolio
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
For the Year Ended Period From
For a share outstanding Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 April 15, 1992* to
throughout the period: Dec. 31, 1992
Per Share Data
Net asset value, beginning
of period $ 9.83 $ 9.27 $ 10.02 $ 9.98 $ 10.00
Increase (Decrease) From
Investment Operations
Investment income, net 0.53 0.58 0.50 0.45 0.39
Net realized and unrealized
gain (loss) on investments,
financial futures contracts,
and foreign currency-related
transactions 0.01 0.56 (0.74) 1.04 0.53
Total from investment operations 0.54 1.14 (0.24) 1.49 0.92
Less Distributions
From investment income, net 0.53 0.30 0.20 0.45 0.39
In excess of investment
income, net - - 0.01 - -
From net realized gain on
investments, financial futures
contracts, and foreign currency-
related transactions 0.09 - - 0.87 0.55
In excess of net realized gain on
investments, financial futures
contracts, and foreign currency-
related transactions - - - 0.13 0.00 **
From capital stock in excess of
par value 0.11 0.28 0.30 - -
Total distributions 0.73 0.58 0.51 1.45 0.94
Net asset value, end of period $ 9.64 $ 9.83 $ 9.27 $ 10.02 $ 9.98
Total Return 5.77% 12.60% (2.25%) 15.86% 13.46% (b)
Ratios/Supplemental Data
Net assets, end of period $ 74,939,437 $ 86,186,177 $ 53,721,481 $217,163,036 $82,757,009
Ratio of operating expenses
to average net assets, exclusive
of interest expense (a) 0.60% 0.60% 0.60% 0.59% 0.60% (b)
Ratio of operating expenses
to average net assets, inclusive
of interest expense (a) 0.60% 0.60% 0.63% 0.86% 0.79% (b)
Ratio of investment income, net
to average net assets 5.52% 6.13% 5.11% 4.48% 5.39% (b)
Decrease in above ratios due to
waiver of investment advisory
fees and reimbursement of other
expenses 0.05% 0.30% 0.02% - 0.72% (b)
Portfolio turnover 1,126% 1,401% 1,479% 1,245% 850%
</TABLE>
(a) Net of waivers and reimbursements.
(b) Annualized
* Commencement of Operations
** Rounds to less than $0.01.
See Notes to Financial Statements
FFTW Funds, Inc.
- -------------------------------------------------------------------------------
Financial Highlights (continued)
Worldwide-Hedged Portfolio
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
For the Year Ended Period From
For a share outstanding Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 May 19, 1992* to
throughout the period: Dec. 31, 1992
Per Share Data
Net asset value, beginning of
period $ 10.85 $ 10.41 $ 10.08 $ 9.85 $ 10.00
Increase From Investment
Operations
Investment income, net 0.62 0.45 0.34 0.45 0.32
Net realized and unrealized gain
on investments, financial futures
contracts, and foreign currency-
related transactions 0.43 0.66 0.43 (c) 0.76 0.25
Total from investment operations 1.05 1.11 0.77 1.21 0.57
Less Distributions
From investment income, net 0.62 0.67 0.44 0.45 0.32
In excess of investment income, net 0.37 - 0.00 ** - -
From net realized gain on
investments, financial futures
contracts, and foreign
currency-related transactions - - - 0.53 0.40
Total distributions 0.99 0.67 0.44 0.98 0.72
Net asset value, end of period $ 10.91 $ 10.85 $ 10.41 $ 10.08 $ 9.85
Total Return 10.03% 11.00% 7.84% 12.89% 9.45% (b)
Ratios/Supplemental Data
Net assets, end of period $ 30,023,657 $ 28,254,830 $ 272,725 $ 41,137,515 $ 21,785,134
Ratio of operating expenses
to average net assets,
exclusive of interest
expense (a) 0.45% 0.45% 0.60% 0.60% 0.60% (b)
Ratio of operating expenses
to average net assets,
inclusive of interest
expense (a) 0.45% 0.45% 0.65% 0.86% 0.83% (b)
Ratio of investment income,
net to average net assets 5.71% 5.84% 4.72% 4.49% 5.13% (b)
Decrease in above ratios due
to waiver of investment advisory
fees and reimbursement of
other expenses 0.24% 0.54% 0.17% 0.09% 1.01% (b)
Portfolio Turnover 1,087% 500% 1,622% 1,254% 826%
(a) Net of waivers and reimbursements.
(b) Annualized
(c) Includes the effect of net realized losses prior to significant decreases
in shares outstanding.
* Commencement of Operations
** Rounds to less than $0.01.
See Notes to Financial Statements
FFTW Funds, Inc.
- -------------------------------------------------------------------------------
Financial Highlights (continued)
International Portfolio
- -------------------------------------------------------------------------------
Period From
For a share outstanding May 9, 1996 *
throughout the period: to Dec. 31, 1996
Per Share Data
Net asset value, beginning of period $ 10.00
Increase From Investment
Operations
Investment income, net 0.38
Net realized and unrealized gain on
investments, financial futures contracts,
and foreign currency-related transactions 0.28
Total from investment operations 0.66
Less Distributions
From investment income, net 0.38
From net realized gain on investments,
financial futures contracts, and foreign
currency-related transactions 0.08
Total distributions 0.46
Net asset value, end of period $ 10.20
Total Return 6.66% (c)
Ratios/Supplemental Data
Net assets, end of period $ 35,745,937
Ratio of operating expenses
to average net assets (a) 0.60% (b)
Ratio of investment income,
net to average net assets 5.73% (b)
Decrease in above ratios
due to waiver of investment
advisory fees 0.32% (b)
Portfolio turnover 539%
</TABLE>
(a) Net of waivers.
(b) Annualized
(c) Not annualized
* Commencement of Operations
See Notes to Financial Statements
FFTW Funds, Inc.
- ------------------------------------------------------------------------------
Financial Highlights (continued)
International-Hedged Portfolio
- ------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
For the Year Ended Period From
For a share outstanding March 25, 1993* to
throughout the period: Dec. 31, 1996 Dec. 31, 1995*** Dec. 31, 1994 to Dec. 31, 1993
Net asset value, beginning
of period $ 10.19 $ 10.00 $ 10.39 $ 10.00
Increase (Decrease) From
Investment Operations
Investment income, net 0.47 0.19 0.20 0.44
Net realized and unrealized
gain (loss) on investments,
financial futures and swap
contracts, and foreign
currency-related transactions (0.15) 0.19 (0.46) 0.78
Total from investment
operations 0.32 0.38 (0.26) 1.22
Less Distributions
From investment income, net 0.47 0.19 0.20 0.44
In excess of investment
income, net - 0.00 (c) - -
From net realized gain on
investments, financial futures
and swap contracts, and
foreign currency- related
transactions 0.05 - 0.50 0.39
In excess of net realized
gain on investments,
financial futures and swap
contracts, and foreign
currency-related transactions. 0.09 - - -
From capital stock in
excess of par value 0.10 - - -
Total distributions 0.71 0.19 0.70 0.83
Net asset value, end
of period $ 9.80 $ 10.19 $ 9.43 ** $ 10.39
Total Return 3.18% 13.45%(b) (2.53%) 16.37% (b)
Ratios/Supplemental Data
Net assets, end of period $ 126,645,111 $ 34,004,887 $ - $ 17,866,568
Ratio of operating expenses
to average net assets (a) 0.60% 0.60%(b) 0.57% 0.60% (b)
Ratio of investment income,
net to average net assets 4.65% 6.12%(b) 2.87% 5.86% (b)
Decrease in above ratios
due to waiver of investment
advisory fees and reimburse-
ment of other expenses 0.06% 0.17%(b) 0.49% 0.28% (b)
Portfolio Turnover 784% 764% 1,282% 855%
</TABLE>
(a) Net of waivers and reimbursements.
(b) Annualized
(c) Rounds to less than $0.01.
* Commencement of Operations
** Represents net asset value per share at December 30, 1994. The Portfolio
was fully liquidated on December 30, 1994 based on this net asset value.
*** The Portfolio recommenced operations on September 14, 1995.
See Notes to Financial Statements
FFTW Funds, Inc.
- -------------------------------------------------------------------------------
Notes to Financial Statements
December31, 1996
- -------------------------------------------------------------------------------
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 thirteen Portfolios, seven of which were active as of December 31, 1996.
The seven active Portfolios are: U.S. Short-Term Portfolio ("U.S. Short-
Term"); Stable Return Portfolio ("Stable Return"); Mortgage Total Return
Portfolio ("Mortgage"); Worldwide Portfolio ("Worldwide"); Worldwide-Hedged
Portfolio ("Worldwide-Hedged"); International Portfolio ("International"); and
International-Hedged Portfolio ("International-Hedged"). The Board of Directors
recently approved a name change for several Portfolios, eliminating "Fixed
Income" from their name. The Fund is managed by Fischer Francis Trees & Watts,
Inc. (the "Investment Adviser").
2. Summary of Significant Accounting Policies
Net Asset Value
The net asset value per share ("NAV") of each Portfolio is determined by adding
the market value of all of 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 NAV is calculated by the Fund's Accounting
Agent as of 4:00 p.m. Eastern time on each Business Day (as that term is defined
in the Fund's registration statement) for each Portfolio, other than Mortgage.
The NAV of Mortgage is calculated by the Fund's Accounting Agent as of 4:00 p.m.
Eastern time on the last Business Day of each month, on any other Business Days
in which the Investment Adviser approves a purchase, and on each Business Day
for which a redemption order has been placed.
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. Readily marketable fixed-income securities are
valued on the basis of prices provided by a pricing service when such prices
are believed by the Investment Adviser to reflect the fair value of such
securities. 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. Time deposits and repurchase
agreements are generally valued at their cost plus accrued interest. Securities
for which market quotations are not readily available and illiquid securities
will be valued in good faith by methods approved by the Board of Directors.
Securities with maturities less than 60 days are valued at amortized cost,
which approximates market value, unless this method does not represent fair
value.
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
distributes all of its taxable income and qualifies or intends to qualify as a
regulated investment company ("RIC") by complying with the requirements of
Subchapter M of the Internal Revenue Code applicable to RICs.
2. Summary of Significant Accounting Policies (continued)
At December 31,1996, the Portfolios 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, 1996,
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 $1,404,714 December 31, 2001
1,779,703 December 31, 2002
1,335,380 December 31, 2003
1,594,356 December 31, 2004
Worldwide 9,589,732 December 31, 2002
Worldwide-Hedged 1,113,488 December 31, 2002
Dividends to Shareholders
It is the policy of the Portfolios, other than Mortgage, to declare dividends
daily from net investment income. Mortgage declares dividends monthly from
net investment income on the last Business Day of each month. Dividends are
paid in cash or reinvested monthly for all Portfolios. Distributions from net
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 may not be distributed.
Dividends from net investment income and distributions from realized gains from
investment transactions have been determined in accordance with Federal income
tax regulations and may differ from net investment income and realized gains
recorded by a Portfolio 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 within the capital
accounts based on their federal tax basis treatment. Temporary differences do
not require reclassification. 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. To the
extent that they exceed net investment income and net realized gains for tax
purposes, they are reported as distributions of capital stock in excess of par.
During the year ended December 31, 1996, the Portfolios reclassified the
following permanent book to tax differences [increases (decreases)]:
Portfolio Undistributed Accumulated Capital Stock in
Investment Realized Gain Excess of Par
Income, Net (Loss) Value
- ---------- ------------- ------------- ---------------
U.S. Short-Term $ (52,701) $ 52,701 $ -
Worldwide - 1,975,638 (1,975,638)
Worldwide-Hedged 589,725 (429,862) (159,863)
International-Hedged (105,438) 105,438 -
Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under
forward foreign exchange 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
Portfolios do not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations
are included with the net realized and unrealized gain or loss from investments.
2. Summary of Significant Accounting Policies (continued)
Reported net realized gains or losses on foreign currency-related transactions
arise from sales and maturities of foreign 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
Portfolio's books, and the U.S. dollar equivalent of the amounts actually
received. 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 rates.
Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
3. Investment Advisory Agreements and Affiliated Transactions
The Fund's Board of Directors has approved investment advisory agreements (the
"Agreements") with the Investment Adviser. The investment advisory fees to be
paid to the Investment 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, Mortgage, International and
International-Hedged.
The Agreements with U.S. Short-Term, Worldwide and Worldwide-Hedged provide that
to the extent that the aggregate annual expenses, (exclusive of interest, taxes,
brokerage commissions and other extraordinary expenses) exceed 0.40% of U.S.
Short-Term's, 0.60% of Worldwide's, and 0.60% of Worldwide-Hedged's average
daily net assets, the Investment Adviser has agreed to waive its investment
advisory fee and reimburse the Portfolios for any excess expenses. Additionally,
the Investment Adviser has voluntarily agreed to waive its investment advisory
fees and reimburse the Portfolio for any excess expenses of U.S. Short-Term,
Stable Return, Mortgage, Worldwide-Hedged, International and International-
Hedged to the extent that the aggregate expenses, (exclusive of interest, taxes,
brokerage commissions and other extraordinary expenses) exceed 0.25% of U.S.
Short-Term's, 0.30% of Stable Return's, 0.45% of Mortgage's and Worldwide-
Hedged's and 0.60% of International and International-Hedged's average daily
net assets.
The investment advisory fee rates are summarized below for each of the
Portfolios:
Investment
Advisory
Portfolio Fee
- ---------------------------------------------------
U.S. Short-Term 0.30%*
Stable Return 0 35%**
Mortgage 0.30%
Worldwide 0.40%
Worldwide-Hedged 0.40%***
International 0.40%
International-Hedged 0.40%
* Effective March 1, 1996, the Investment Adviser voluntarily agreed to reduce
the investment advisory fee by an annualized rate of 0.15%. The investment
advisory fee is currently being charged at an annualized rate of 0.15% until
further notice.
** Effective March 1, 1996, the Investment Adviser voluntarily agreed to
reduce the investment advisory fee by an annualized rate of 0.20%. The
investment advisory fee is currently being charged at an annualized rate of
0.15% until further notice.
*** Effective July 1, 1995, the Investment Adviser voluntarily agreed to reduce
the investment advisory fee by an annualized rate of 0.15%. The investment
advisory fee is currently being charged at an annualized rate of 0.25% until
further notice.
3. Investment Advisory Agreements and Affiliated Transactions (continued)
Directors' fees of $60,000 were allocated among the Portfolios and paid for the
year ended December 31, 1996 to Directors who are not employees of the
Investment Adviser. Effective February 12, 1997, Directors who are not
employees of the Investment Adviser receive an annual retainer of $20,000,
payable quarterly and $1,000 per meeting attended.
As of December 31, 1996, the Investment Adviser had discretionary investment
advisory agreements with shareholders of the Fund that represent 67.3% of the
Fund's total net assets and therefore, may be deemed a control person.
4. Investment Transactions
Purchase cost and proceeds from sales of investment securities (including U.S.
Government securities), other than short-term investments, for the year ended
December 31, 1996 for each of the Portfolios were as follows:
_____________________________________________________________________________
Purchase Cost of Proceeds from Sales of
Portfolio Investment Securities Investment Securities
- ----------------------------------------------------------------------------
U.S. Short-Term $1,442,586,214 $1,415,291,295
Stable Return 338,797,915 302,926,023
Mortgage 1,579,796,803 1,122,254,062
Worldwide 765,666,083 804,686,549
Worldwide-Hedged 233,811,501 236,807,680
International 129,239,195 104,031,248
International-Hedged 343,057,633 278,441,401
The components of net unrealized appreciation (depreciation) of investments for
federal income tax purposes at December 31, 1996 for each of the Portfolios
were as follows:
______________________________________________________________________
Portfolio Unrealized Unrealized
Appreciation Depreciation Net
- ----------------------------------------------------------------------
U.S. Short-Term $ 638,315 $ 339,427 $ 298,888
Stable Return 156,780 44,612 114,168
Mortgage 2,889,049 2,869,874 19,175
Worldwide 323,361 553,433 (230,072)
Worldwide-Hedged 251,600 195,377 56,221
International 370,640 174,049 196,591
International-Hedged 797,764 672,917 121,847
The cost of securities owned by each Portfolio at December 31, 1996 for Federal
tax purposes was substantially the same as for financial statement purposes.
5. Forward Foreign Exchange Contracts
Each Portfolio may enter into forward foreign exchange contracts in order to
hedge its exposure to changes in foreign currency exchange rates on its foreign
portfolio holdings. A forward foreign 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
or losses on foreign currency-related transactions. Fluctuations in the value
of forward foreign exchange contracts are recorded for book purposes as
unrealized gains or losses by the Portfolio. The Portfolio's custodian will
place and maintain cash not available for investment, U.S. Government
securities, or other appropriate liquid, unencumbered securities in a separate
account of the Portfolio having a value equal to the aggregate amount of the
Portfolio's commitments under certain open forward exchange contracts. 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.
5. Forward Foreign Exchange Contracts (continued)
At December 31, 1996, U.S. Short-Term had an outstanding forward foreign
exchange contract to sell foreign currency as follows:
<TABLE>
<S> <C> <C> <C>
Contract Unrealized
Amount Proceeds Value Appreciation
Forward Foreign Exchange Sell Contract
17,627,250 Netherlands Guilder closing 1/28/97 $10,236,498 $10,221,966 $ 14,532
</TABLE>
At December 31, 1996, Stable Return had an outstanding forward foreign exchange
contracts to sell foreign currency as follows:
<TABLE>
<S> <C> <C> <C>
Contract Unrealized
Amount Proceeds Value Appreciation
Forward Foreign Exchange Sell Contract
5,288,175 Netherlands Guilder closing 1/28/97 $ 3,070,950 $ 3,066,590 $ 4,360
</TABLE>
At December 31, 1996, Worldwide had outstanding forward foreign exchange
contracts, both to purchase and sell foreign currencies as follows:
<TABLE>
<S> <C> <C> <C>
Unrealized
Contract Cost/ Appreciation
Amount Proceeds Value (Depreciation)
Forward Foreign Exchange Buy Contracts
361,550 Australian Dollar closing 1/28/97 $ 286,348 $ 287,187 $ 839
71,701,481 Belgian Franc closing 1/28/97 2,230,564 2,262,704 32,140
9,284,361 Canadian Dollar closing 1/28/97 6,837,395 6,786,351 (51,044)
2,030,465 Danish Krone closing 1/28/97 340,682 345,193 4,511
31,770,524 French Franc closing 1/28/97 6,110,994 6,131,128 20,134
6,640,240 German Deutschemark closing 1/28/97 4,287,316 4,320,144 32,828
4,640,795 Great British Pound closing 1/28/97 7,706,606 7,945,158 238,552
3,726,556,286 Italian Lira closing 1/28/97 2,450,763 2,450,603 (160)
1,266,995,047 Japanese Yen closing 1/28/97 11,220,889 10,984,212 (236,677)
1,257,253 Netherlands Guilder closing 1/28/97 721,316 729,076 7,760
14,861,184 Norwegian Krone closing 1/28/97 2,320,682 2,332,762 12,080
903,812,800 Spanish Peseta closing 1/28/97 7,028,122 6,946,991 (81,131)
290,000,000 Spanish Peseta closing 4/28/97 2,214,586 2,225,007 10,421
Forward Foreign Exchange Sell Contracts
337,848 Australian Dollar closing 1/28/97 273,657 268,360 5,297
8,875,299 Canadian Dolllar closing 1/28/97 6,532,089 6,487,350 44,739
24,920,848 German Deutschemark closing 1/28/97 16,225,144 16,213,519 11,625
3,406,675 German Deutschemark closing 4/28/97 2,214,586 2,228,715 (14,129)
2,600,000 Great British Pound closing 1/28/97 4,287,316 4,451,266 (163,950)
190,255,377 Spanish Peseta closing 1/28/97 1,464,432 1,462,363 2,069
32,752,665 Swedish Krona closing 1/28/97 4,894,228 4,809,538 84,690
5,597,346 Swiss Franc closing 1/28/97 4,406,634 4,185,194 221,440
$182,034
</TABLE>
5. Forward Foreign Exchange Contracts (continued)
At December 31, 1996, Worldwide-Hedged had outstanding forward foreign exchange
contracts, both to purchase and sell foreign currencies as follows:
<TABLE>
<S> <C> <C> <C>
Unrealized
Contract Cost/ Appreciation
Amount Proceeds Value (Depreciation)
Forward Foreign Exchange Buy Contracts
3,598,652 Canadian Dollar closing 1/28/97 $ 2,650,021 $ 2,630,414 $ (19,607)
2,068,712 German Deutschemark closing 1/28/97 1,335,681 1,345,905 10,224
810,000 Great British Pound closing 1/28/97 1,330,869 1,386,740 55,871
301,431,194 Japanese Yen closing 1/28/97 2,676,316 2,613,257 (63,059)
5,811,104 Norwegian Krone closing 1/28/97 907,446 912,170 4,724
394,443,500 Spanish Peseta closing 1/28/97 3,065,786 3,031,817 (33,969)
90,000,000 Spanish Peseta closing 4/28/97 687,285 690,519 3,234
Forward Foreign Exchange Sell Contracts
498,866 Australian Dollar closing 1/28/97 404,082 396,260 7,822
4,831,647 Canadian Dollar closing 1/28/97 3,565,009 3,531,666 33,343
2,357,180 Danish Krone closing 1/28/97 395,500 400,736 (5,236)
14,414,829 German Deutschemark closing 1/28/97 9,394,117 9,378,296 15,821
1,057,244 German Deutschemark closing 4/28/97 687,285 691,670 (4,385)
1,352,651 Great British Pound closing 1/28/97 2,248,962 2,315,772 (66,810)
2,380,030,437 Italian Lira closing 1/28/97 1,565,223 1,565,120 103
313,766,082 Japanese Yen closing 1/28/97 2,769,339 2,720,194 49,145
1,502,297 Netherlands Guilder closing 1/28/97 861,903 871,175 (9,272)
217,940,943 Spanish Peseta closing 1/28/97 1,677,533 1,675,163 2,370
17,870,795 Swedish Krona closing 1/28/97 2,670,432 2,624,222 46,210
2,363,044 Swiss Franc closing 1/28/97 1,852,858 1,766,873 85,985
$ 112,514
</TABLE>
At December 31, 1996, International had outstanding forward foreign exchange
contracts, both to purchase and sell foreign currencies as follows:
<TABLE>
<S> <C> <C> <C>
Unrealized
Contract Cost/ Appreciation
Amount Proceeds Value (Depreciation)
Forward Foreign Exchange Buy Contracts
433,317 Australian Dollar closing 1/28/97 $ 346,678 $ 344,193 $ (2,485)
57,682,096 Belgian Franc closing 1/28/97 1,796,671 1,820,291 23,620
3,796,079 Canadian Dollar closing 1/28/97 2,800,230 2,774,722 (25,508)
1,103,900 Danish Krone closing 1/3/97 185,614 187,384 1,770
2,864,599 Danish Krone closing 1/28/97 481,387 487,001 5,614
23,433,720 French Franc closing 1/28/97 4,502,825 4,522,278 19,453
3,230,804 German Deutschemark closing 1/3/97 2,078,423 2,098,357 19,934
2,668,712 German Deutschemark closing 1/28/97 1,722,653 1,736,265 13,612
263,950 Great British Pound closing 1/3/97 443,645 452,072 8,427
2,393,856 Great British Pound closing 1/28/97 3,992,359 4,098,342 105,983
1,204,784,000 Italian Lira closing 1/3/97 788,213 793,516 5,303
648,000,000 Italian Lira closing 1/28/97 423,529 426,128 2,599
925,367,078 Japanese Yen closing 1/28/97 8,176,459 8,022,469 (153,990)
539,350 Netherlands Guilder closing 1/3/97 309,126 312,160 3,034
1,375,475 Netherlands Guilder closing 1/28/97 789,961 797,632 7,671
5,577,408 Norwegian Krone closing 1/28/97 869,459 875,486 6,027
25,848,693 Spanish Peseta closing 1/3/97 197,318 198,847 1,529
359,629,000 Spanish Peseta closing 1/28/97 2,757,867 2,741,163 (16,704)
88,000,000 Spanish Peseta closing 4/28/97 677,757 675,175 (2,582)
5,149,968 Swedish Krona closing 1/3/97 750,032 755,494 5,462
Forward Foreign Exchange Sell Contracts
2,997,376 Canadian Dollar closing 1/28/97 2,206,083 2,190,915 15,168
1,103,900 Danish Krone closing 1/28/97 185,842 187,670 (1,828)
15,239,610 German Deutschemark closing 1/28/97 9,902,603 9,914,900 (12,297)
1,033,750 German Deutschemark closing 4/28/97 677,757 676,300 1,457
1,073,950 Great British Pound closing 1/28/97 1,779,117 1,838,630 (59,513)
1,204,784,000 Italian Lira closing 1/28/97 787,122 792,272 (5,150)
539,350 Netherlands Guilder closing 1/28/97 309,615 312,767 (3,152)
25,848,693 Spanish Peseta closing 1/28/97 197,187 198,681 (1,494)
16,841,772 Swedish Krona closing 1/28/97 2,497,830 2,473,116 24,714
2,343,290 Swiss Franc closing 1/28/97 1,816,546 1,752,103 64,443
$ 51,117
</TABLE>
At December 31, 1996, International-Hedged had outstanding forward foreign
exchange contracts, both to purchase and sell foreign currencies as follows:
<TABLE>
<S> <C> <C> <C>
Unrealized
Contract Appreciation
Amount Cost Value (Depreciation)
Forward Foreign Exchange Buy Contracts
201,599,510 Belgian Franc closing 1/28/97 $ 6,271,567 $ 6,361,934 $ 90,367
31,920,519 Canadian Dollar closing 1/28/97 23,553,616 23,332,122 (221,494)
7,568,439 Danish Krone closing 1/28/97 1,269,872 1,286,686 16,814
81,121,144 French Franc closing 1/28/97 15,603,482 15,654,892 51,410
4,162,877 German Deutschemark closing 1/28/97 2,687,782 2,708,370 20,588
4,650,564 Great British Pound closing 1/28/97 7,761,805 7,961,882 200,077
3,399,144,874 Japanese Yen closing 1/28/97 30,056,350 29,468,878 (587,472)
4,058,030 Netherlands Guilder closing 1/28/97 2,328,187 2,353,234 25,047
241,253,375 Spanish Peseta closing 1/28/97 1,856,974 1,854,350 (2,624)
2,961,000,000 Spanish Peseta closing 4/28/97 22,804,991 22,718,089 (86,902)
Forward Foreign Exchange Sell Contracts
30,427,300 Canadian Dollar closing 1/28/97 $22,424,956 $22,240,662 $ 184,294
50,456,608 German Deutschemark closing 1/28/97 32,718,394 32,827,101 (108,707)
34,783,324 German Deutschemark closing 4/28/97 22,804,991 22,755,945 49,046
1,630,000 Great British Pound closing 1/28/97 2,687,782 2,790,601 (102,819)
2,266,034,399 Italian Lira closing 1/28/97 1,490,253 1,490,156 97
108,565,082 Spanish Peseta closing 1/28/97 16,129,956 15,942,150 187,806
$ (284,472)
</TABLE>
Each Portfolio may enter 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, 1996, no Portfolio had an outstanding purchase or sale of foreign currency
on the spot markets.
6. Financial Futures Contracts
Each Portfolio may enter into financial futures contracts to hedge its interest
rate and foreign currency risk. A Portfolio is exposed to market risk as a
result of changes in the value of the underlying financial instruments.
Investments in financial futures contracts require the Portfolio 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 is
paid or received to reflect daily unrealized gains or losses. When the
contracts are closed, the Portfolio recognizes a realized gain or loss equal
to the difference between the value of the contract at the time it was opened
and the time it was closed. These investments require initial margin deposits
which consist of cash or eligible securities. At December 31, 1996, the
Portfolios placed U.S. Treasury Bills or other liquid securities or cash in
segregated accounts for the benefit of the broker at the Portfolio's custodian
with respect to their financial futures contracts as follows:
- -----------------------------------------------
Portfolio 12/31/96
Collateral Value
- -----------------------------------------------
U.S. Short-Term $ 631,894
Mortgage 113,968
Worldwide 598,288
Worldwide-Hedged 149,572
International 299,130
International-Hedged 847,419
As of December 31, 1996, U.S. Short-Term had the following open financial
futures contracts:
_____________________________________________________________________________
Value
Covered by Unrealized
Contracts Contracts (Depreciation)
- -----------------------------------------------------------------------------
Long Futures Contracts:
485 March `97 Euro Dollars $ 114,508,500 $ (3,676)
Short Futures Contracts:
82 March `97 2 Year U.S. Treasury Notes $ 16,957,344 $ 84,530
32 March `97 10 Year U.S. Treasury Notes 3,492,000 36,622
85 March `97 CBT 5 Year Notes 9,060,467 45,074
$ 162,550
As of December 31, 1996, Mortgage had the following open financial futures
contracts:
Value Unrealized
Covered by Appreciation
Contracts Contracts (Depreciation)
Long Futures Contracts:
190 March `97 10 Year U.S. Treasury Notes $ 20,733,750 $ (211,547)
Short Futures Contracts:
51 March `97 2 Year U.S. Treasury Notes 10,546,641 50,557
3 March `97 U.S. Treasury Bonds 337,875 10,108
358 June `97 10 Year U.S. Treasury Notes 38,854,187 384,756
132 March `97 CBT 5 Year Notes 14,070,375 203,452
$ 437,326
As of December 31, 1996, Worldwide had the following open financial futures
contracts:
Value Unrealized
Covered by Appreciation
Contracts Contracts (Depreciation)
Long Futures Contracts
2 March `97 TSE Japanese Gov't 10
Year Bond JPY 248,400,000 $ (36,690)
27 March `97 LIFFE Long Gilt GBP 1,484,156 (6,677)
9 March `97 LIFFE Italian Gov't ITL 2,329,200,000 28,406
$ (14,961)
6. Financial Futures Contracts (continued)
As of December 31, 1996, Worldwide-Hedged had the following open financial
futures contracts:
Value
Covered by Unrealized
Contracts Contracts (Depreciation)
Long Futures Contracts
2 March `97 TSE Japanese Gov't 10
Year Bond JPY 248,400,000 $ (31,187)
7 March `97 LIFFE Long Gilt GBP 384,781 (1,731)
$ (32,918)
As of December 31, 1996, International had the following open financial futures
contracts:
Value
Covered by Unrealized
Contracts Contracts (Depreciation)
Long Futures Contracts
8 March `97 TSE Japanese Gov't 10
Year Bond JPY 993,600,000 $ (120,691)
13 March `97 LIFFE Long Gilt GBP 714,594 (3,215)
Short Futures Contracts
2 March `97 LIFFE Japanese
Gov't Bond JPY 497,040,000 (723)
$ (124,629)
As of December 31, 1996, International-Hedged had the following open financial
futures contracts:
Value
Covered by Unrealized
Contracts Contracts (Depreciation)
Long Futures Contracts
25 March `97 TSE Japanese Gov't 10
Year Bond JPY 3,105,000,000 $ (417,275)
21 March `97 LIFFE Long Gilt GBP 1,154,344 (5,193)
$ (422,468)
7. Capital Stock Transactions
As of December 31, 1996, 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
periods indicated:
Year Ended Year Ended
December 31, 1996 December 31, 1995
------------------------------------------------------------
Shares Amount Shares Amount
Shares sold 698,753,332 $6,885,689,388 489,693,965 $4,840,215,843
Shares issued
related to
reinvestment
of dividends 2,773,655 27,323,767 2,129,127 21,045,642
-------------------------------------------------------------
701,526,987 6,913,013,155 491,823,092 4,861,261,485
Shares redeemed 711,752,445 7,013,520,909 474,927,909 4,694,361,012
-------------------------------------------------------------
Net increase
(decrease) (10,225,458) $(100,507,754) 16,895,183 $ 166,900,473
-------------------------------------------------------------
Transactions in capital stock for Stable Return were as follows for the periods
indicated:
Year Ended Year Ended
December 31, 1996 December 31,1995
---------------------------------------------------------
Shares Amount Shares Amount
Shares sold 3,600,391 $ 35,567,661 50,525 $ 500,000
Shares issued
related to
reinvestment
of dividends 145,519 1,445,423 28,122 276,555
-----------------------------------------------------------
3,745,910 37,013,084 78,647 776,555
Shares redeemed 12,241 121,101 25,300 251,270
-----------------------------------------------------------
Net increase 3,733,669 $ 36,891,983 53,347 $ 525,285
-----------------------------------------------------------
Transactions in capital stock for Mortgage were as follows for the period
indicated:
Period From April 29, 1996* to
December 31, 1996
------------------------------
Shares Amount
Shares sold 24,698,121 $ 251,360,141
Shares issued related to
reinvestment of dividends 588,076 5,984,056
------------------------------
25,286,197 257,344,197
Shares redeemed 3,530,497 35,813,437
------------------------------
Net increase 21,755,700 $ 221,530,760
------------------------------
*Commencement of Operations
7. Capital Stock Transactions (continued)
Transactions in capital stock for Worldwide were as follows for the periods
indicated:
Year Ended Year Ended
December 31, 1996 December 31,1995
----------------------------------------------------------
Shares Amount Shares Amount
Shares sold 4,903,256 $ 47,314,387 8,600,064 $ 83,105,970
Shares issued
related to
reinvestment
of dividends 565,816 5,450,078 264,481 2,525,673
-----------------------------------------------------------
5,469,072 52,764,465 8,864,545 85,631,643
Shares redeemed 6,462,067 61,994,382 5,895,380 55,533,537
-----------------------------------------------------------
Net increase
(decrease) (992,995) $ (9,229,917) 2,969,165 $ 30,098,106
-----------------------------------------------------------
Transactions in capital stock for Worldwide-Hedged were as follows for the
periods indicated:
Year Ended Year Ended
December 31, 1996 December 31, 1995
---------------------------------------------------------
Shares Amount Shares Amount
Shares sold 170,880 $ 1,849,300 2,499,119 $ 26,240,000
Shares issued
related to
reinvestment
of dividends 231,838 2,529,368 105,484 1,114,755
402,718 4,378,668 2,604,603 27,354,755
----------------------------------------------------------
Shares redeemed 256,253 2,788,475 26,256 273,852
----------------------------------------------------------
Net increase 146,465 $ 1,590,193 2,578,347 $ 27,080,903
----------------------------------------------------------
Transactions in capital stock for International were as follows for the period
indicated:
Period From May 9, 1996* to
December 31, 1996
----------------------------
Shares Amount
Shares sold 3,397,413 $ 34,283,766
Shares issued related to
reinvestment of dividends 109,492 1,114,153
-----------------------------
3,506,905 35,397,919
Shares redeemed 817 8,400
-----------------------------
Net increase 3,506,088 $ 35,389,519
-----------------------------
*Commencement of Operations
7. Capital Stock Transactions (continued)
Transactions in capital stock for International-Hedged were as follows for the
periods indicated:
Year Ended For the Period September 14, 1995*
December 31, 1996 to December 31,1995
------------------------------------------------------------
Shares Amount Shares Amount
Shares sold 17,293,642 $174,000,000 10,600,000 $106,000,000
Shares issued
related to
reinvestment
of dividends 509,355 5,046,775 139,771 1,398,833
-------------------------------------------------------------
17,802,997 179,046,775 10,739,771 107,398,833
Shares redeemed 8,214,673 82,699,260 7,403,873 74,500,000
-------------------------------------------------------------
Net increase 9,588,324 $ 96,347,515 3,335,898 $ 32,898,833
-------------------------------------------------------------
* The International-Hedged Portfolio recommenced operations on September 14,
1995.
8. 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. 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.
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. U.S. Short-Term,
Worldwide, and Worldwide-Hedged may only invest up to 25% of their assets in
reverse repurchase agreements. When a Portfolio engages in reverse repurchase
transcations, the Portfolio will maintain, in a segregated account with its
custodian, securities equal in value to those subject to the agreement.
For the year ended December 31, 1996, the following Portfolios had a maximum
amount of reverse repurchase agreements outstanding, average amount of reverse
repurchase agreements outstanding, and daily weighted average interest rate as
shown:
_______________________________________________________________
Portfolio Maximum Average Average
Balance Balance Rate
- ----------------------------------------------------------------
U.S. Short-Term $141,468,250 $ 11,378,297 5.643%
Stable Return 18,941,000 779,872 5.164
Mortgage 53,126,550 7,608,296 5.333
Each Portfolio will engage in repurchase and reverse repurchase transactions
with parties selected on the basis of such party's creditworthiness.
9. Options Transactions
For hedging purposes, each Portfolio may purchase and write (sell) put and call
options on U.S. and foreign government securities and foreign currencies that
are traded on U.S. and foreign securities exchanges and over-the-counter
markets.
The risk with purchasing an option is that the Portfolio pays a premium whether
or not the option is exercised. Additionally, the Portfolio bears the risk of
loss of premium and change in market value should the counterparty not perform
under the contract.
Put and call options purchased are accounted for in the same manner as portfolio
securities. The cost of securities acquired through the exercise of call
options is increased by the premiums paid. The proceeds from securities sold
through the exercise of put options are decreased by the premiums paid.
When the Portfolio writes an option, the premium received by the Portfolio is
recorded as a liability and is subsequently adjusted to the current market value
of the option written. Premiums received from writing options which expire
unexercised are recorded by the Portfolio on the expiration date as realized
gains from option transactions. The difference between the premium and the
amount paid on effecting a closing purchase transaction, including brokerage
commissions, is also treated as a realized gain, or if the premium is less than
the amount paid for the closing purchase transaction, as a realized loss.
If a call option is exercised, the premium is added to the proceeds from the
sale of the underlying security or currency in determining whether the Portfolio
has a realized gain or loss. If a put option is exercised, the premium reduces
the cost basis of the security or currency purchased by the Portfolio. In
writing an option, the Portfolio bears the market risk of an unfavorable
change in the price of the security or currency underlying the written option.
Exercise of an option written by the Portfolio could result in the Portfolio
selling or buying a security or currency at a price different from the current
market value.
A summary of put and call options written by U.S. Short-Term for the year ended
December 31, 1996 is as follows:
1996 Calls 1996 Puts
# of # of
Contracts Premiums Contracts Premiums
Outstanding, beginning
of period
Eurodollars 270 $ 15,101 - $ -
Options written
Eurodollars - - 250 104,858
U.S. Treasury 335 124,749 - -
Options closed
Eurodollars 270 15,101 250 104,858
U.S. Treasury 294 117,574 - -
Options expired
U.S. Treasury 41 7,175 - -
Outstanding, end
of period
-------------------------------------------------------
Eurodollars - $ - - $ -
U.S. Treasury - $ - - $ -
-------------------------------------------------------
9. Options Transactions (continued)
A summary of put and call options written by Mortgage for the year ended
December 31, 1996 is as follows:
1996 Calls 1996 Puts
--------------------- ----------------------
# of # of
Contracts Premiums Contracts Premiums
Outstanding, beginning
of period - $ - - $ -
Options written
FNMA 42 264,375
U.S. Treasury 30 51,562
Options closed
U.S. Treasury 30 51,562 - -
Options expired
FNMA 42 264,375 - -
-----------------------------------------------------
Outstanding, end
of period - $ - - $ -
------------------------------------------------------
10. Swap Transactions
A swap is an agreement that obligates two parties to exchange a series of cash
flows at specified intervals based upon or calculated by reference to changes in
specified prices or rates for a specified amount of an underlying asset. The
payment flows are usually netted against each other, with the difference being
paid by one party to the other. Risks may arise as a result of the failure of
another party to the swap contract to comply with the terms of the swap
contract. The loss incurred by the failure of a counterparty is generally
limited to the net payment to be received by the Portfolio, and/or the
termination value at the end of thecontract. Therefore, the Portfolio
considers the creditworthiness of each counterparty to a swap contract in
evaluating potential credit risk. Additionally, risks may arise from
unanticipated movements in interest rates or in the value of the underlying
securities or indices.
Mortgage entered into three interest rate swap contracts pursuant to which the
Portfolio makes or receives payments based on (1) changes in the London
Interbank Offered Rate (LIBOR) applied to a notional amount, (2) paydowns of
the outstanding principal amount of underlying mortgage-backed securities, and
(3) the diffrence between the par value of such underlying mortgage-backed
securities and their market value on the termination date of the contract.
The swap contracts are designed to enhance the total return of the Portfolio.
The Portfolio records a net receivable or payable for the amount expected to be
received or paid in the period. Fluctuations in the value of interest rate swap
contracts are recorded for financial statement purposes as unrealized
appreciation (depreciation) on investments.
As of December 31, 1996, Mortgage had entered into the following interest rate
swap contracts:
<TABLE>
<S> <C> <C> <C> <C> <C>
Payments
Swap Notional Termination Payments Made Received by the Unrealized
Counterparty Amount Date by the Portfolio Portfolio Appreciation
Lehman Brothers $50,000,000 9/20/11 (a) 0.1315% $263
Morgan Stanley 50,000,000 10/20/11 (a) 0.17% 497
Nomura 100,000,000 1/1/12 (a) + (b) 0.16% -
</TABLE>
(a) Each contract includes provisions for a termination payment to be made by
the Portfolio if the market value of the underlying mortgage-backed securities
is below par or a payment to be made by the counterparty if the market value
exceeds par value.
(b) LIBOR times 0.04% times notional value plus 0.04% of paydowns of principal
of underlying mortgage securities.
10. Swap Transactions (continued)
International-Hedged entered into a swap agreement pursuant to which the
Portfolio agrees to pay the return of a specified global index in exchange for
an interest payment based on LIBOR. The effect of such is to hedge the market
exposure imbedded in the Portfolio for a current market interest return, plus
(or minus) any incremental return achieved in excess of the index return. This
type of transaction also serves to hedge currency exposure. The index used
pursuant to this hedging technique is the JP Morgan Non-U.S. Traded Total
Return Government Bond Index (Unhedged) ("JP Morgan Index").
The Portfolio records a net receivable or payable on a daily basis for the
amount expected to be received or paid in the period. Income paid or received
on the JP Morgan Index is broken down into an interest expense component
(recorded as an offset to interest income) and a capital component (recorded as
net realized gain or loss on investment). Income received based on LIBOR is
recorded as interest income.
At December 31, 1996, International-Hedged had one outstanding swap contract
with the following terms:
Payments
Swap Notional Termination Payments Made Received by the
Counterparty Amount Date by the Portfolio Portfolio
Morgan Guaranty
Trust Co. $126,000,000 11/4/98 % of change in LIBOR minus
the JP Morgan 26 basis points
Index
11. Segregation of Assets
It is the policy of each of the Fund's Portfolios to have its custodian
segregate certain assets to cover portfolio transactions which are deemed to
create leverage under Section 18(f) of the Investment Company Act of 1940. The
Portfolios turn over assets on a frequent basis which would make it impractical
to specify individual securities to be used for segregation purposes.
Therefore, the Portfolio's custodian has been instructed to segregate all
settled assets. The Portfolios will not enter into transactions deemed to
create leverage in excess of each Portfolio's ability to segregate up to 100%
of its settled assets.
OFFICERS & DIRECTORS AND OTHER PERTINENT INFORMATION
OFFICERS AND DIRECTORS Investment Adviser
Fischer Francis Trees & Watts, Inc.
Stephen J. Constantine 200 Park Avenue
President and Director of the Fund New York, NY 10166
John C Head III Sub-Adviser
Director of the Fund Fischer Francis Trees & Watts
3 Royal Court
Lawrence B. Krause The Royal Exchange
Director of the Fund London, EC3V 3RA
Paul Meek Administrator and Distributor
Director of the Fund AMT Capital Services, Inc.
600 Fifth Avenue
Onder John Olcay New York, NY 10020
Chairman of the Board and
CEO of the Fund Custodian and Fund Accounting Agent
Investors Bank & Trust Company
Stephen P. Casper P.O. Box 1537
Treasurer of the Fund Boston, MA 02205-1537
William E. Vastardis Transfer and Dividend Disbursing Agent
Secretary of the Fund Investors Bank & Trust Company
P.O. Box 1537
Carla E. Dearing Boston, MA 02205-1537
Assistant Treasurer of the Fund
Legal Counsel
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005-1208
Independent Auditors
Ernst & Young LLP
787 Seventh Avenue
New York, NY 10019
