As filed with the Securities and Exchange Commission on April 30, 1997.
Registration Nos. 33-27896/811-5796
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. _____
Post-Effective Amendment No. 21 X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 24 X
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FFTW FUNDS, INC.
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(Exact name of registrant as specified in charter)
200 PARK AVENUE, NEW YORK, NEW YORK 10166
(Address of principal executive offices)
Registrant's telephone number: 212-681-3000
STEPHEN J. CONSTANTINE, President
200 Park Avenue
New York, New York 10166
(Name and address of agent for service)
With a copy to:
William E. Vastardis
AMT Capital Services, Inc.
600 Fifth Avenue, 26th Floor
New York, NY 10020
It is proposed that this filing will become effective (check appropriate box)
X immediately upon filing pursuant to paragraph (b) of Rule 485.
on __________(date) pursuant to paragraph (b) of Rule 485.
75 days after filing pursuant to paragraph (a) of Rule 485.
on ________ pursuant to paragraph (a) of Rule 485.
______________________
Registrant has registered an indefinite number of shares pursuant to Rule
24f-2 under the Investment Company Act of 1940. The Registrant filed the
notice required thereunder for the fiscal year ended December 31, 1995 on
February 28, 1997.
The total number of pages is ______.
The Exhibit Index is on page ______.
CROSS REFERENCE SHEET
Pursuant to Rule 481(a)
Form N-1A Location in Prospectus and
Item No. Statement of Additional
Information
1. Cover Page Cover Page of Prospectus
2. Synopsis Prospectus Highlights; Fund
Expenses (in Prospectus)
3. Financial Highlights Financial Highlights (in
Prospectus)
4. General Description of Investment Objectives and
Registrant Policies; Descriptions of
Investments; Investment
Techniques; Investment
Restrictions; Risks Associated
With the Fund's Investment
Policies and Investment
Techniques; Shareholder
Information (in Prospectus)
5. Management of the Fund Fund Expenses; Management of the
Fund (in Prospectus)
6. Capital Stock and Other Shareholder Information;
Securities Purchases and Redemptions;
Dividends; Tax Considerations (in
Prospectus)
7. Purchase of Securities Being Purchases and Redemptions;
Offered Dividends; Determination of Net
Asset Value; Distribution of Fund Shares (in Prospectus)
8. Redemption or Repurchase Purchases and Redemptions;
Dividends (in Prospectus)
9. Pending Legal Proceedings Not applicable
10. Cover Page Cover Page of Statement of
Additional Information
11. Table of Contents Statement of Additional
Information Table of Contents
12. General Information and History History of the Fund;
Organization
of the Fund (in Statement of
Additional Information)
13. Investment Objectives and Policies Supplemental Descriptions of
Investments; Techniques to Hedge
Interest Rate and Foreign
Currency Risks and Other Foreign
Currency Strategies; Supplemental
Discussion of Risks Associated
With the Fund's Investment
Policies and Investment
Techniques; Investment
Restrictions (in Statement of
Additional Information)
14. Management of the Fund Management of the Fund (in
Statement of Additional Information)
15. Control Persons and Principal Control Persons and Principal
Holders of Securities Holders of Securities (in
Statement of Additional Information)
16. Investment Advisory and Other Distribution of Fund Shares;
Services Management of the Fund;
Custodian and Accounting Agent;
Transfer and Dividend Disbursing
Agent; Legal Counsel; Independent
Auditors (in Prospectus);
Management of the Fund (in
Statement of Additional Information)
17. Brokerage Allocation and Other Portfolio Transactions (in
Practices Statement of Additional
Information)
18. Capital Stock and Other Securities Purchases and Redemptions;
Dividends; Shareholder Information
(in Prospectus)
19. Purchase, Redemption and Pricing Purchases and Redemptions;
of Securities Being Offered Determination of Net Asset Value
(in Prospectus)
20. Tax Status Tax Considerations (in Statement
of Additional Information)
21. Underwriters Distribution of Fund Shares (in
Prospectus)
22. Calculation of Performance Data Performance Information (in
Prospectus); Calculation of
Performance Data (in Statement of
Additional Information)
23. Financial Statements Financial Highlights (in
Prospectus); Financial Statements
(in Statement of Additional
Information)
FFTW FUNDS, INC.
200 Park Avenue, 46th Floor
New York, New York 10166
(212) 681-3000
Distributed by:
AMT CAPITAL SERVICES, INC.
600 Fifth Avenue, 26th Floor
New York, New York 10020
(212) 332-5211
(800) 762-4848 (outside New York City)
Prospectus - April 30, 1997
FFTW Funds, Inc. (the "Fund") is a no-load, open-end management investment
company managed by Fischer Francis Trees & Watts, Inc. (the "Investment
Adviser"). The Fund currently consists of thirteen separate Portfolios (each a
"Portfolio"), each of which is an actively-managed portfolio and, other than
Emerging Markets Portfolio, invests in high-quality debt securities. There is
no sales charge for purchases of shares. Shares of each Portfolio may be
purchased through AMT Capital Services, Inc. ("AMT Capital"), the exclusive
distributor. The minimum initial investment in any Portfolio is $100,000;
additional investments or redemptions may be of any amount.
The thirteen Portfolios are: (1) U.S. Fixed Income Portfolios - Money
Market, U.S. Short-Term, Stable Return, U.S. Treasury, Mortgage Total Return and
Broad Market (the "U.S. Portfolios") and (2) Global and International Fixed
Income Portfolios - Worldwide, Worldwide-Hedged, International, International-
Hedged, Emerging Markets, Inflation-Indexed and Inflation-Indexed Hedged (the
"Global and International Portfolios").
No assurance can be given that a Portfolio's investment objectives will be
attained. Investments in the Money Market Portfolio are neither guaranteed nor
insured by the United States Government. There is also no assurance that the
Money Market Portfolio will maintain a stable net asset value of $1.00 per
share.
This Prospectus contains a concise statement of information investors
should know before they invest in the Fund. Please retain this Prospectus for
future reference. A statement containing additional information about the Fund,
dated April 30, 1997 (the "Statement of Additional Information"), has been
filed with the Securities and Exchange Commission (the "Commission") and can be
obtained without charge by calling or writing AMT Capital at the telephone
numbers or address stated above. The Statement of Additional Information is
hereby incorporated by reference into this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
Page
Prospectus Highlights...........................................
Fund Expenses...................................................
Financial Highlights............................................
The Fund........................................................
Investment Objectives and Policies..............................
Description of Investments......................................
Investment Techniques...........................................
Investment Restrictions.........................................
Risks Associated With the Fund's Investment Policies
and Investment Techniques..................................
Distribution of Fund Shares.....................................
Purchases and Redemptions.......................................
Determination of Net Asset Value................................
Dividends.......................................................
Management of the Fund..........................................
Tax Considerations..............................................
Shareholder Information.........................................
<PAGE>
PROSPECTUS HIGHLIGHTS
THE FUND
FFTW Funds, Inc. is a no-load, open-end management investment company
consisting of thirteen different Portfolios, each of which, other than Emerging
Markets Portfolio, invests primarily in high-quality debt securities. The Fund
is primarily designed to provide pension and profit sharing plans, employee
benefit trusts, endowments, foundations, other institutions, corporations, and
high net worth individuals with access to the professional investment management
services of Fischer Francis Trees & Watts, Inc., the Fund's Investment Adviser.
(See The FUND.)
THE PORTFOLIOS - INVESTMENT OBJECTIVES
The thirteen Portfolios and their investment objectives are (see INVESTMENT
OBJECTIVES AND POLICIES):
U.S. FIXED INCOME PORTFOLIOS
Money Market Portfolio ("Money Market") seeks to attain current income,
liquidity, and the maintenance of a stable net asset value per share through
investments in high quality, short-term obligations.
U.S. Short-Term Portfolio ("U.S. Short-Term") seeks to attain a high level
of total return as may be consistent with the preservation of capital and to
maintain liquidity by investing primarily in high-quality fixed income
securities with an average U.S. dollar-weighted duration of less than one year.
U.S. Short-Term is not a money market fund and its shares are not guaranteed by
the U.S. Government.
Stable Return Portfolio ("Stable Return") seeks to maintain a stable level of
total return as may be consistent with the preservation of capital by investing
primarily in high-quality debt securities with an average U.S. dollar-weighted
duration of less than three years and by using interest rate hedging as a
stabilizing technique.
U.S. Treasury Portfolio ("U.S. Treasury") seeks to attain a high level of
total return as may be consistent with the preservation of capital and to avoid
credit quality risk by investing primarily in securities issued by the U.S.
Treasury Department with an average U.S. dollar-weighted duration of less than
five years which will provide investors in most jurisdictions with income exempt
from stateand local tax.
Mortgage Total Return Portfolio ("Mortgage Total Return") seeks to attain a high
level of total return as may be consistent with the preservation of capital by
investing primarily in mortgage-related securities, maintaining an average U.S.
dollar-weighted duration in the range of two to six years.
Broad Market Portfolio ("Broad Market") seeks to attain a high level of
total return as may be consistent with the preservation of capital by investing
primarily in high-quality fixed income securities reflective of the broad
spectrum of the U.S. bond market with an average U.S. dollar-weighted duration
of less than eight years.
GLOBAL AND INTERNATIONAL FIXED INCOME PORTFOLIOS
Worldwide Portfolio ("Worldwide") seeks to attain a high level of total
return as may be consistent with the preservation of capital by investing
primarily in high-quality fixed income securities from bond markets worldwide,
denominated in both U.S. dollars and foreign currencies, with an average U.S.
dollar-weighted duration of less than eight years.
Worldwide-Hedged Portfolio ("Worldwide-Hedged") seeks to attain a high level
of total return as may be consistent with the preservation of capital by
investing primarily in high-quality fixed income securities from bond markets
worldwide, denominated in both U.S. dollars and foreign currencies, with an
average U.S. dollar-weighted duration of less than eight years and by actively
utilizing currency hedging techniques.
International Portfolio ("International") seeks to attain a high level of
total return as may be consistent with the preservation of capital by investing
primarily in high-quality fixed income securities from bond markets worldwide,
denominated in foreign currencies, with an average U.S. dollar-weighted
duration of less than eight years.
International-Hedged Portfolio ("International-Hedged") seeks to attain a
high level of total return as may be consistent with the preservation of capital
by investing primarily in high-quality fixed income securities from bond markets
worldwide, denominated in foreign currencies, with an average U.S. dollar-
weighted duration of less than eight years and by actively utilizing currency
hedging techniques.
Emerging Markets Portfolio ("Emerging Markets") seeks to attain a high level
of total return as may be consistent with the preservation of capital by
investing primarily in fixed income securities from bond markets in emerging
markets countries, denominated in local currencies or currencies of OECD
countries, with an average U.S. dollar-weighted duration of less than eight
years.
Inflation-Indexed Portfolio ("Inflation-Indexed") seeks to attain a high
level of return in excess of inflation as may be consistent with the
preservation of capital by investing primarily in securities with a coupon rate
or principal amount or both linked to the inflation rate from bond markets
worldwide, denominated in both U.S. dollars and foreign currencies.
Inflation-Indexed Hedged Portfolio ("Inflation-Indexed Hedged") seeks to
attain a high level of return in excess of inflation as may be consistent with
the preservation of capital by investing primarily in securities with a coupon
rate or principal amount or both linked to the inflation rate from bond markets
worldwide, denominated in both U.S. dollars and foreign currencies and by
actively utilizing currency hedging techniques.
Each of Worldwide, International, Emerging Markets and Inflation-Indexed
Portfolios may hedge all or any part of its assets against foreign currency
risk and may engage in foreign currency transactions to enhance total return.
However, each of Worldwide-Hedged, International-Hedged and Inflation-Indexed
Hedged Portfolios will, as a fundamental policy, seek to hedge at least 65% of
its foreign currency-denominated assets against foreign currency risks to the
extent feasible.
PORTFOLIO QUALITY RATINGS
Each Portfolio, other than Emerging Markets, will maintain minimum quality
standards for overall average quality and individual securities.
Portfolio S&P Moody's S&P Moody's Thompson Average
(Corp.) (Corp.) (Short- (Short- Bamkwatch Portfolio
Term) Term) Quality
U.S. Treasury AAA Aaa A-1 P-1 A AAA
(Aaa)
Emerging Markets none none none none none none
Inflation-Indexed
Portfolios A A A-2 P-2 B AA (Aa)
Other Portfolios BBB Baa A-2 P-2 B AA (Aa)
Money Market quality ratings are described below in the Portfolio's investment
policies.
INVESTMENT ADVISER AND SUB-ADVISER
Fischer Francis Trees & Watts, Inc. serves as Investment Adviser to the Fund.
The Investment Adviser, organized in 1972, is a registered investment adviser
that currently manages approximately $22 billion in assets entirely in
portfolios of debt securities for in excess of 90 major institutional clients
including banks, central banks, pension funds and other institutional clients.
The average size of a client relationship with the Investment Adviser is in
excess of $200 million. Fischer Francis Trees & Watts (the "Sub-Adviser"), a
corporate partnership organized in 1989 under the laws of the United Kingdom
and an affiliate of the Investment Adviser, serves as Sub-Adviser to the
Global and International Portfolios. The Sub-Adviser is also a registered
investment adviser that currently manages in excess of $6 billion in multi-
currency fixed income portfolios for institutional clients. (See MANAGEMENT
OF THE FUND)
ADMINISTRATOR AND DISTRIBUTOR
AMT Capital Services, Inc. serves as administrator to the Fund, supervising
the general day-to-day business activities and operations of the Fund other
than investment advisory activity (see MANAGEMENT OF THE FUND). AMT Capital
also serves as the exclusive distributor of shares of each of the Fund's
Portfolios. (See DISTRIBUTION OF FUND SHARES)
HOW TO INVEST
Shares of each Portfolio, other than Mortgage Total Return, may be purchased at
the net asset value of the Portfolio next determined after receipt of the order,
by submitting a completed Account Application to AMT Capital and wiring federal
funds to AMT Capital's "Fund Purchase Account" at Investors Bank & Trust Company
in Boston, Massachusetts (the "Transfer Agent"). The minimum initial investment
in each Portfolio is $100,000, which may be waived at the discretion of the
Investment Adviser or Distributor. There is no minimum amount for subsequent
investments. There are no sales commissions (loads) or 12b-1 fees. (See
PURCHASES AND REDEMPTIONS)
Shares of the Mortgage Total Return Portfolio may only be purchased at the
on the last Business Day of each month and on any other Business Days in which
the Investment Adviser approves a purchase at the net asset valued determined
on those days.
HOW TO REDEEM SHARES
Shares of each Portfolio may be redeemed, without a transaction charge, at the
net asset value of such Portfolio next determined after receipt by the
Transfer Agent of the redemption request. (See PURCHASES AND REDEMPTIONS)
RISKS
Prospective investors should consider various risks associated with the
Portfolios prior to investing in any Portfolio, including: (1) each Portfolio
may be influenced by changes in interest rates which generally have an inverse
relationship with corresponding market values; (2) each Portfolio may, but
generally each of the Global and International Portfolios will, invest a
significant portion of its assets in securities denominated in foreign
currencies which carry the risk of fluctuations of exchange rates to the U.S.
dollar; (3) each Portfolio may invest in mortgage- and other asset-backed
securities that carry the risk of a faster or slower than expected prepayment
of principal which may affect the duration and return of the security; (4)
each Portfolio may invest a portion of its assets in derivatives including
futures and options which entail certain costs and risks, including imperfect
correlation between the value of the securities held by the Portfolio and the
value of the particular derivative instrument, and the risk that a portfolio
could not close out a futures or options position when it would be most
advantageous to do so; (5) each of Mortgage Total Return, Inflation-Indexed
and Inflation-Indexed Hedged Portfolios may make short sales, the potential
loss from which is unlimited unless accompanied by the purchase of an option;
(6) the Emerging Markets Portfolio will primarily invest in debt securities
from emerging markets countries which are rated below investment grade quality
and carry the risk of default of payment of interest and principal or decline
in the local currency relative to the U.S. dollar; (7) each Portfolios may, at
times, concentrate its investments in bank obligations and may, therefore,
have greater exposure to certain risks associated with the banking industry;
and (8) each Portfolio, other than U.S. Short-Term, is "non-diversified" under
the Investment Company Act of 1940 (the "1940 Act"), which may entail a
greater exposure to credit and market risks than a diversified portfolio.
(See RISKS ASSOCIATED WITH THE FUND'S INVESTMENT POLICIES AND INVESTMENT
TECHNIQUES)
FUND EXPENSES
The following table illustrates the expenses and fees that a shareholder
of the Fund can expect to incur. The purpose of this table is to assist the
investor in understanding the various expenses that an investor in the Fund will
bear directly or indirectly.
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES (after expense reimbursements, shown as a
percentage of average net assets)
<TABLE>
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Advisory 12b-1 Administration Other Intrest
Total
Fees Fees(1) Fees(2) Expenses(7) Expense(9) Expenses
U.S. Fixed Income
Portfolios
Money Market
Portfolio 0.10% None 0.06% 0.09% 0.00% 0.25% (5)
U.S. Short-Term
Portfolio 0.15% (3) None 0.06% 0.04% 0.12% 0.37% (3)
Stable Return
Portfolio 0.15% (4) None 0.06% 0.09% 0.18% 0.48% (4)
U.S. Treasury
Portfolio 0.30% None 0.06% 0.09% 0.00% 0.45% (5)
Mortgage Total
Return Portfolio 0.30% None 0.06% 0.09% 0.43% 0.88% (5)
Broad Market
Portfolio 0.30% None 0.06% 0.09% 0.00% 0.45% (5)
Global and
International Fixed
Income Portfolios
Worldwide Portfolio 0.40% None 0.06% 0.14% 0.00% 0.60% (6)
Worldwide-Hedged
Portfolio 0.25% (8) None 0.06% 0.14% 0.00% 0.45% (8)
International
Portfolio 0.40% None 0.06% 0.14% 0.00% 0.60% (5)
International-Hedged
Portfolio 0.40% None 0.06% 0.14% 0.00% 0.60% (5)
Emerging Markets
Portfolio 0.75% None 0.06% 0.69% 0.00% 1.50% (5)
Inflation-Indexed
Portfolio 0.40% None 0.06% 0.14% 0.00% 0.60% (5)
Inflation-Indexed
Hedged Portfolio 0.40% None 0.06% 0.14% 0.00% 0.60% (5)
</TABLE>
(1) Pursuant to a Distribution Agreement dated as of February 1, 1995,
between the Fund and AMT Capital, AMT Capital provides distribution
services at no cost to the Fund. See "Distribution of Fund Shares".
(2) The Administration Agreement dated as of February 1, 1995, between the
Fund and AMT Capital pursuant to which AMT Capital provides
administrative services to the Fund, includes an incentive fee, capped
at 0.02% of the average daily net assets of a Portfolio, for reducing
the expense ratio for one or more Portfolios. See "Management of the
Fund - Administrator". The incentive fee is not included in the figures
set forth above.
(3) By agreement with the Investment Adviser, total operating expenses
(exclusive of interest expense) are capped at 0.40% (on an annualized
basis) of the average daily net assets of U.S. Short-Term. All
operating expenses in excess of the cap will be paid by the Investment
Adviser. Effective March 1, 1996 and until further notice, the
Investment Adviser has voluntarily agreed to lower the advisory fee to
0.15% from 0.30% (on an annualized basis) and cap total operating
expenses (exclusive of interest expense) at 0.25% (on an annualized
basis). The Investment Adviser will not attempt to recover prior period
reimbursements in the event that expenses fall below the cap. Without
such cap, the total operating expenses excluding interest expense for
the fiscal year ending December 31, 1996 were 0.30% of U.S. Short-Term's
average daily net assets.
(4) The Investment Adviser has voluntarily agreed to cap the total operating
expenses (exclusive of interest expense) at 0.50% (on an annualized
basis) of Stable Return's average daily net assets. Effective March 1,
1996 and until further notice, the Investment Adviser has voluntarily
agreed to lower the advisory fee to 0.15% from 0.35% (on an annualized
basis) and cap total operating expenses (exclusive of interest expense)
at 0.30% (on an annualized basis). The Investment Adviser will not
attempt to recover prior period reimbursements in the event that
expenses fall below the cap. Without such cap and waiver, the total
operating expenses excluding interest expense for the fiscal year ending
December 31, 1996, were 0.45% of Stable Return's average daily net
assets.
(5) The Investment Adviser has voluntarily agreed to cap the total operating
expenses (exclusive of interest expense) at 0.25% (on an annualized
basis) of Money Market's average daily net assets, at 0.45% (on an
annualized basis) of each of U.S. Treasury's, Broad Market's and
Mortgage Total Return's average daily net assets, at 0.60% (on an
annualized basis) of each of International's, International-Hedged's,
Inflation-Indexed's and Inflation-Indexed Hedged's average daily net
assets, and at 1.50% (on an annualized basis) of Emerging Markets'
average daily net assets. The Investment Adviser will not attempt to
recover prior period reimbursements in the event that expenses fall
below the cap. Without such caps, the total operating expenses
excluding interest expense (on an annualized basis) for Mortgage Total
Return, International and International-Hedged for the fiscal year
ending December 31, 1996 were 0.55%, 0.92% and 0.66% respectively, of
their average daily net assets.
(6) By agreement with the Investment Adviser, total operating expenses
(exclusive of interest expense) are capped at 0.60% (on an annualized
basis) of the average daily net assets of Worldwide. All operating
expenses in excess of the cap will be paid by the Investment Adviser.
The Investment Adviser will not attempt to recover prior period
reimbursements in the event that expenses fall below the cap. Without
such cap, the total operating expenses excluding interest expense for
Worldwide for the fiscal year ending December 31, 1996 were 0.65% of its
average daily net assets.
(7) "Other Expenses" are based on estimated expenses for the current fiscal
year.
(8) By agreement with the Investment Adviser, total operating expenses
(exclusive of interest expense) are capped at 0.60% (on an annualized
basis) of the average daily net assets of Worldwide-Hedged. All
operating expenses in excess of the cap will be paid by the Investment
Adviser. Effective July 1, 1995 and until further notice, the
Investment Adviser has voluntarily agreed to lower the advisory fee to
0.25% from 0.40%(on an annualized basis) and cap total operating
expenses (exclusive of interest expense) at 0.45% (on an annualized
basis). The Investment Adviser will not attempt to recover prior period
reimbursements in the event that expenses fall below the cap. Without
such cap, the total operating expenses excluding interest expense for
the fiscal year ending December 31, 1996 were 0.69% of Worldwide-
Hedged's average daily net assets.
The following table illustrates the expenses that an investor would pay
on each $1,000 increment of its investment over various time periods,
assuming a 5% annual return. As noted in the table above, the Fund charges
no redemption fees of any kind.
EXPENSES PER $1,000 INVESTMENT
1 Year 3 Years 5 Years 10 Years
U.S. Fixed Income Portfolios
Money Market $3 $8
U.S. Short-Term $3 $8 $14 $32
Stable Return $3 $10 $17 $39
U.S. Treasury $5 $15
Mortgage Total Return $5 $15 $25 $58
Broad Market $5 $15
Global and International
Fixed Income Portfolios
Worldwide $6 $19 $33 $75
Worldwide-Hedged $5 $15 $25 $58
International $6 $19 $33 $75
International-Hedged $6 $19 $33 $75
Emerging Markets $15 $48
Inflation-Indexed $6 $19
Inflation-Indexed Hedged $6 $19
These examples should not be considered a representation of future
expenses or performance. Actual operating expenses and annual returns may be
greater or lesser than those shown.
Each Portfolio's active management approaches could lead to higher
portfolio transaction expenses as a result of a higher volume of such
transactions. These transaction expenses are not fully reflected in the
expenses subject to the cap described above. See "Investment Techniques -
Portfolio Turnover". The Investment Adviser, at its discretion, may waive
any portion of the advisory fees in any Portfolio.
FINANCIAL HIGHLIGHTS
The financial information in the following tables has been audited in
conjunction with the audit of the financial statements of the Fund by Ernst &
Young LLP, independent auditors. The audited financial statements for the year
ended December 31,1996 are incorporated by reference in the Statement of
Additional Information. The financial information should be read in conjunction
with the financial statements which can be obtained upon request. The Money
Market Portfolio, previously the AMT Capital Fund, Inc.-Money Market Portfolio
(the "AMT Capital Portfolio"), commenced operations on November 1, 1993.
Effectiveas of the close of business on April 29, 1997, the AMT Capital
Portfolio merged into the Money Market Portfolio pursuant to shareholder
approval of the reorganization on April 28, 1997. The financial information for
the periods ended December 31, 1996, December 31, 1995, December 31, 1994 and
December 31, 1993 in the following table have been audited in conjunction with
the audit of the financial statements of the AMT Capital Portfolio by Ernst &
Young LLP, independent auditors.
Financial Highlights
Money Market Portfolio
- --------------------------------------------------------------------------------
Financial Highlights
For the Periods Ended
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<TABLE>
<S> <C> <C> <C> <C>
December 31, 1996 December 31, 1995 December 31, 1994 December 31, 1993*
Per Share Data
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Investment income, net 0.05 0.06 0.04 0.00 **
Net realized gain on investments 0.00 ** 0.00 ** 0.00 (b) -
Net increase from investment
operations 0.05 0.06 0.04 0.00
Less Distributions from
Investment income, net 0.05 0.06 0.04 0.00 **
Net realized gain from investments 0.00 ** - - -
Temporary overdistribution of
net realized gain on investments - - 0.00 ** -
Total distributions 0.05 0.06 0.04 0.00
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return 5.18% 5.74% 4.13% 2.69% (a)
Ratios/Supplemental Data
Net assets, end of period $ 25,047,023 $ 25,870,153 $ 22,006,141 $ 2,335,633
Ratio of expenses to average
net assets 0.40% 0.40% 0.40% 0.40% (a)
Ratio of net investment income to
average net assets 5.05% 5.58% 4.16% 2.67% (a)
Decrease in above ratio due to
waiver of investment advisory
and administration fees, and
reimbursement of other expenses 0.30% 0.37% 0.64% 25.54% (a)
</TABLE>
(a) Annualized
(b) Includes the effect of net realized gains prior to significant increases
in shares outstanding.
* Commencement of Operations was November 1, 1993
** Rounds to less than $0.01
FFTW Funds, Inc.
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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.
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.
FFTW Funds, Inc.
- -------------------------------------------------------------------------------
Financial Highlights
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.
FFTW Funds, Inc.
- -------------------------------------------------------------------------------
Financial Highlights
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
FFTW Funds, Inc.
- ------------------------------------------------------------------------------
Financial Highlights
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.
THE FUND
The Fund is a no-load, open-end management investment company
organized as a Maryland corporation. The Fund currently consists of thirteen
Portfolios of debt securities, each with its own investment objectives and
policies: (1) U.S. Fixed Income Portfolios - Money Market, U.S. Short-Term,
Stable Return, U.S. Treasury, Mortgage Total Return and Broad Market and (2)
Global and International Fixed Income Portfolios - Worldwide, Worldwide-
Hedged, International, International-Hedged, Emerging Markets, Inflation-
Indexed and Inflation-Indexed Hedged.
INVESTMENT OBJECTIVES AND POLICIES
Each Portfolio seeks a high or stable level of total return as may
be consistent with the preservation of capital. The total return sought by
each Portfolio will consist of current income, capital appreciation, or a
combination of capital appreciation and current income, depending on whether
the Investment Adviser believes that current and anticipated levels of
interest rates, exchange rates and other factors affecting domestic and
foreign investments generally favor emphasizing one element or another in
seeking maximum total return. There can be no assurance that the investment
objectives of any Portfolio will be achieved.
Each Portfolio will invest only in debt securities that are rated
per the following table by Standard & Poor's Corporation ("S&P") or Moody's
Investors Services, Inc. ("Moody's"), or by Thomson Bankwatch in the case of
bank obligations, or similarly rated by IBCA Ltd. ("IBCA") in the case of
foreign bank obligations, or determined by the Investment Adviser (or the Sub-
Adviser to the Global and International Portfolios) to be of similar
creditworthiness. The minimum allowable quality rating is indicated.
Portfolio S&P Moody's S&P Moody's Thompson Average
(Corp.) (Corp.) (Short- (Short- Bankwatch Portfolio
Term) Term) Quality
U.S. Treasury AAA Aaa A-1 P-1 A AAA
(Aaa)
Emerging Markets none none none none none none
Inflation-Indexed
Portfolios A A A-2 P-2 B AA (Aa)
Other Portfolios BBB Baa A-2 P-2 B AA (Aa)
Money Market quality ratings are described below in the Portfolio's investment
policies.
Each Portfolio seeks to achieve its investment objective by
investing in debt securities of varying durations. Duration incorporates a
bond's yield, coupon interest payments, final maturity and call features into
one measure. Duration is a measure of the expected life of a debt security on
a present value basis. It takes the length of the time intervals between the
present time and the time that the interest and principal payments are
scheduled or, in the case of a callable bond, expected to be received, and
weights them by the present values of the cash to be received at each future
point in time. For any debt security with interest payments occurring prior
to the payment of principal, duration is always less than maturity. In
general, for the same maturity, the lower the stated or coupon rate of
interest of a debt security, the longer the duration of the security;
conversely, the higher the stated or coupon rate of interest of a debt
security, the shorter the duration of the security.
Futures, options and options on futures have durations which, in
general, are closely related to the duration of the securities that underlie
them. Holding long futures or call options (backed by a segregated account of
cash and cash equivalents) will lengthen a Portfolio's duration by
approximately the same amount that holding an equivalent amount of the
underlying securities would. Short futures or put option positions have
durations roughly equal to the negative duration of the securities that
underlie those positions, and have the effect of reducing portfolio duration
by approximately the same amount that selling an equivalent amount of the
underlying securities would. In the case of Mortgage Total Return, Inflation-
Indexed and Inflation-Indexed Hedged Portfolios, short positions as a result
of short selling have an equivalent negative impact to duration.
The Investment Adviser or Sub-Adviser may exceed the stated duration cap
of a Portfolio for temporary defensive purposes.
U.S. FIXED INCOME PORTFOLIOS
Each of the U.S. Portfolios will invest at least 65% of its total
assets in U.S. dollar-denominated debt securities. Each of the U.S.
Portfolios, other than U.S. Treasury and Money Market , may invest up to 35%
of its total assets in foreign currency-denominated (non-U.S. dollar) debt
securities, although it is not currently expected that any of the U.S.
Portfolios will invest more than a minor portion of their total assets in such
securities.
MONEY MARKET PORTFOLIO
The investment objective of Money Market is to provide the maximum
current income that is consistent with the preservation of capital and liquidity
through investments in money market securities.
Money Market seeks to attain its objective by investing at least 80%
of its total assets in the following high quality, short-term instruments:
(a) obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities;
(b) commercial paper, loan participation interests, medium term notes,
asset-backed securities and other promissory notes, including floating
or variable rate obligations;
(c) domestic, Yankeedollar (U.S. branches or subsidiaries of foreign
depository institutions) and Eurodollar (foreign branches or
subsidiaries of U.S. depository institutions) certificates of deposit,
time deposits, bankers' acceptances, commercial paper, bearer deposit
notes and other promissory notes including floating or variable rate
obligations issued by U.S. or foreign bank holding companies and their
bank subsidiaries, branches and agencies; and
(d) repurchase and reverse repurchase agreements.
Money Market will invest only in issuers or instruments that at the time
of purchase:
(a) are issued or guaranteed by the U.S. Government, its agencies, or
instrumentalities;
(b) have received the highest short-term rating by at least two nationally
recognized statistical rating organizations ("NRSROs") such as "A-1" by
Standard & Poor's and "P-1" by Moody's, or are single rated and have
received the highest short-term rating by the NRSRO ("First Tier
Securities");
(c) are rated by two NRSROs in the second highest category, or rated by
one agency in the highest category and by another agency in the second
highest category or by one agency in the second highest category
("Second Tier Securities"), provided that Second Tier Securities are
limited in total to 5% of the Portfolio's total assets and on a per
issuer basis, to no more than the greater of 1% of the Portfolio's total
assets or $1,000,000; or
(d) are unrated, but are determined to be of comparable quality by the
Investment Adviser and sub-adviser pursuant to guidelines approved by
the Board of Directors.
Single rated and unrated securities are subject to ratification by
the Board of Directors. See "Descriptions of Investments" and the Statement of
Additional Information for definitions of the foregoing instruments and rating
systems.
Portfolio investments in Money Market are valued based on the
amortized cost valuation technique pursuant to Rule 2a-7 under the 1940 Act.
See the Statement of Additional Information for an explanation of the amortized
cost valuation method. All obligations in which Money Market invests generally
have remaining maturities of 397 days or less, although obligations subject to
repurchase agreements and certain variable and floating rate obligations may
bear longer final maturities.
U.S. SHORT-TERM PORTFOLIO
The investment objective of U.S. Short-Term is to attain a high
level of total return as may be consistent with the preservation of capital
and to maintain liquidity by investing at least 65% of its total assets in
high-quality fixed income securities with an average U.S. dollar-weighted
duration of less than one year.
U.S. Short-Term seeks to attain its objectives by investing in:
debt securities of U.S. and foreign issuers, including securities issued or
guaranteed by the U.S. Government and its agencies or instrumentalities;
municipal obligations; obligations issued or guaranteed by a foreign
government or any of its political subdivisions, authorities, agencies or
instrumentalities or by supranational organizations; obligations of domestic
or foreign corporations or other entities; obligations of domestic or foreign
banks; and mortgage- and asset-backed securities. The Portfolio may also
engage in repurchase and reverse repurchase agreements. These investments are
described below under "Description of Investments". In addition, U.S. Short-
Term may utilize up to 5% of its total assets as margin and premiums to
purchase and sell options, futures and options on futures contracts. U.S.
Short-Term may not invest more than 5% of its total assets in the securities
of any issuer (other than the U.S. Government and its agencies).
The shares of U.S. Short-Term are not guaranteed by the U.S.
Government. U.S. Short-Term is not a "money market fund" and may make
investments that are not permitted by money market funds under applicable
regulations. For example, U.S. Short-Term may have a dollar-weighted average
maturity in excess of ninety days. Except for temporary defensive purposes,
U.S. Short-Term will not have a dollar-weighted average maturity in excess of
three years.
STABLE RETURN PORTFOLIO
The investment objective of Stable Return is to maintain a stable
level of total return as may be consistent with the preservation of capital by
investing at least 65% of its total assets in high-quality debt securities
with an average U.S. dollar-weighted duration of less than three years and by
using interest rate hedging as a stabilizing technique.
Stable Return seeks to attain its objective by investing in debt
securities and instruments of the same type as U.S. Short-Term. Stable Return
will generally purchase securities included in the Merrill Lynch 1-2.99 Year
Treasury Index, which has historically maintained stable returns from quarter
to quarter, relative to longer-term securities. (See "Appendix" in the
Statement of Additional Information.) The price and yield of securities in
the 1 to 3 year duration range are generally less volatile than those of
securities with a longer duration. Stable Return will seek to match the
average duration of the Index but cannot guarantee that it will do so. At no
time will the average duration of the Portfolio be more than one year in
excess of the average duration of the Index.
Stable Return is suitable as an investment option for defined
contribution and retirement plans. Stable Return will be managed by the
Investment Adviser in a manner designed to produce returns similar to those of
a guaranteed investment contract ("GIC"). However, unlike a GIC, Stable
Return is not guaranteed by an insurer.
U.S. TREASURY PORTFOLIO
The investment objective of U.S. Treasury is to attain a high
level of total return as may be consistent with the preservation of capital
and to avoid credit quality risk by investing primarily in securities issued
by the U.S. Treasury with an average U.S. dollar-weighted duration of less
than five years which will provide investors in most jurisdictions with income
exempt from state and local tax. (Check with a tax adviser to determine if
your state and local tax laws exempt income derived from U.S. Treasury mutual
fund portfolios.)
U.S. Treasury seeks to attain its objective by investing at least
95% of its total assets in U.S. dollar-denominated obligations issued by the
U.S. Treasury, and repurchase and reverse repurchase agreements collateralized
by such obligations. U.S. Treasury may invest up to 5% of its total assets in
U.S. dollar- or foreign currency-denominated debt securities and instruments
of the same type as U.S. Short-Term.
MORTGAGE TOTAL RETURN PORTFOLIO
The investment objective of Mortgage Total Return is to attain a
high level of total return as may be consistent with the preservation of
capital by investing primarily in mortgage- and asset-backed, and other
mortgage-related securities, maintaining an average U.S. dollar-weighted
duration in the range of two to six years.
Mortgage Total Return seeks to attain its objective by investing
at least 65% of its total assets in mortgage- and asset-backed, and other
mortgage-related debt obligations of U.S. and foreign issuers. Mortgage Total
Return may also invest up to 35% of its total assets in debt securities and
instruments of the same type as U.S. Short-Term. The Portfolio may, for
temporary defensive purposes, invest up to 100% of its total assets in short-
term U.S. Government securities and money market instruments.
BROAD MARKET PORTFOLIO
The investment objective of Broad Market is to attain a high level
of total return as may be consistent with the preservation of capital by
investing at least 65% of its total assets in high-quality fixed income
securities reflective of the broad spectrum of the U.S. bond market with an
average U.S. dollar-weighted duration of less than eight years.
Broad Market seeks to attain its objective by investing in debt
securities and instruments of the same type as U.S. Short-Term. The broad
market of fixed income securities includes all investment grade fixed income
securities in the corporate, U.S. Government and mortgage- and asset-backed
markets with durations of greater than one year. The allocation among markets
will vary based upon the issuance of new securities and the retirement of
outstanding securities. The current market allocation is comprised of
approximately 20% in corporate securities, 50% in U.S. Government securities
and 30% in mortgage- and asset-backed securities. The Investment Adviser will
manage Broad Market to approximate broad market allocations by purchasing and
selling representative securities in each market, but Broad Market cannot
guarantee that it will match such broad market allocations. The Portfolio
may, for temporary defensive purposes, invest up to 100% of its total assets
in short-term U.S. Government securities and money market instruments.
GLOBAL AND INTERNATIONAL PORTFOLIOS
Each of the Worldwide Portfolios will invest at least 65% of its
total assets in debt securities of issuers from at least three different
countries, including the United States, with a significant portion of its
assets in debt securities of issuers located outside the United States. Each
of the International Portfolios will invest at least 65% of its total assets
in debt securities of issuers from at least three different countries,
excluding the United States. Each of Inflation-Indexed and Inflation-Indexed
Hedged are not required to invest any minimum percentage of assets in debt
securities of issuers located outside the United States, nor in any minimum
number of countries or currencies. Each of the Portfolios may, for temporary
defensive purposes, invest up to 100% of its total assets in short-term U.S.
Government securities and money market instruments.
WORLDWIDE PORTFOLIO
The investment objective of Worldwide is to attain a high level of
total return as may be consistent with the preservation of capital by
investing at least 65% of its total assets in high-quality fixed income
securities from bond markets worldwide, denominated in both U.S. dollars and
foreign currencies, with an average U.S. dollar-weighted duration of less than
eight years.
Worldwide seeks to attain its objective by investing in debt
securities of U.S. and foreign issuers, including securities issued or
guaranteed by the U.S. Government and its agencies or instrumentalities;
municipal obligations; obligations issued or guaranteed by a foreign
government, or any of its political subdivisions, authorities, agencies or
instrumentalities or by supranational organizations; obligations of domestic
or foreign corporations or other entities; obligations of domestic or foreign
banks; and mortgage- and asset-backed securities. The Portfolio may also
engage in repurchase and reverse repurchase agreements. Each of these
investments are described below under "Descriptions of Investments". In
addition, Worldwide may utilize up to 5% of its total assets as margin and
premiums to purchase and sell options, futures and options on futures
contracts. The Adviser or Sub-Adviser intends to actively manage the
Portfolio and the allocations of the Portfolio's investment assets among
various world bond markets (and currencies) are not expected to be comparable
to, or as diverse as, the allocations accorded to such markets (and
currencies) by the major bond market indices. The Portfolio will maintain
investments in debt securities of issuers from at least three different
countries, including the United States.
At the Investment Adviser's or Sub-Adviser's discretion, Worldwide
may at times seek to hedge all or part of its foreign currency-denominated
assets against foreign currency risks. Worldwide may also enter into
transactions in foreign currencies and related instruments, based on
expectations of changes in the exchange rates among foreign currencies, in an
effort to enhance total return.
WORLDWIDE-HEDGED PORTFOLIO
The investment objective of Worldwide-Hedged is to attain a high
level of total return as may be consistent with the preservation of capital by
investing at least 65% of its total assets in high-quality fixed income
securities from bond markets worldwide, denominated in both U.S. dollars and
foreign currencies, with an average U.S. dollar-weighted duration of less than
eight years and by actively utilizing currency hedging techniques.
Worldwide-Hedged seeks to attain its objective by investing in
debt securities and instruments of the same type as Worldwide. The Adviser or
Sub-Adviser intends to actively manage the Portfolio and the allocations of
the Portfolio's investment assets among various world bond markets are not
expected to be comparable to, or as diverse as, the allocations accorded to
such markets by the major bond market indices. The Portfolio will maintain
investments in debt securities of issuers from at least three different
countries, including the United States.
Worldwide-Hedged, as a fundamental policy of the Portfolio, which
may only be changed by a vote of shareholders, will attempt to hedge at least
65% of its foreign currency-denominated total assets against foreign currency
risks to the extent feasible. Worldwide-Hedged may also enter into
transactions in foreign currencies and related instruments, based on
expectations of changes in the exchange rates among foreign currencies, in an
effort to enhance total return.
INTERNATIONAL PORTFOLIO
The investment objective of International is to attain a high
level of total return as may be consistent with the preservation of capital by
investing at least 65% of its total assets in high-quality fixed income
securities from bond markets worldwide, denominated in foreign currencies,
with an average U.S. dollar-weighted duration of less than eight years.
International will seek to attain its objective by investing in
foreign currency-denominated debt securities and instruments of the same type
as Worldwide. Up to 35% of the balance of its total assets may be invested in
U.S. dollar-denominated securities of the same type.
At the Investment Adviser's or Sub-Adviser's discretion,
International may at times seek to hedge all or part of its foreign currency-
denominated assets against foreign currency risks. International may also
enter into transactions in foreign currencies and related instruments, based
on expectations of changes in the exchange rates among foreign currencies, in
an effort to enhance total return.
INTERNATIONAL-HEDGED PORTFOLIO
The investment objective of International-Hedged is to attain a
high level of total return as may be consistent with the preservation of
capital by investing at least 65% of its total assets in high-quality fixed
income securities from bond markets worldwide, denominated in foreign
currencies, with an average U.S. dollar-weighted duration of less than eight
years and by actively utilizing currency hedging techniques.
International-Hedged seeks to attain its objective by investing in
foreign currency-denominated debt securities and instruments of the same type
as Worldwide. Up to 35% of the balance of its total assets may be invested in
U.S. dollar-denominated securities of the same type.
International-Hedged, as a fundamental policy of the Portfolio,
which may only be changed by a vote of shareholders, will attempt to hedge at
least 65% of its foreign currency-denominated total assets against foreign
currency risks to the extent feasible. Hedging techniques may at times
include the purchase of an interest rate swap pursuant to which the Portfolio
agrees to pay the return on a specified global index in exchange for a fixed
interest payment. The effect of such a hedge is to exchange the market
exposure imbedded in the index for a fixed interest return, while retaining on
behalf of the Portfolio any incremental return achieved in excess of the index
return. This type of transaction also serves to hedge the Portfolio's
currency exposure. International-Hedged may also enter into transactions in
foreign currencies and related instruments, based on expectations of changes
in the exchange rates among foreign currencies, in an effort to enhance total
return.
EMERGING MARKETS PORTFOLIO
The investment objective of Emerging Markets is to attain a high
level of total return as may be consistent with the preservation of capital by
investing at least 65% of its total assets in fixed income securities from bond
markets in emerging markets countries, denominated in local currencies or
currencies of OECD countries, with an average U.S. dollar-weighted duration of
less than eight years.
Emerging Markets seeks to attain its objective by investing in
debt securities of foreign issuers from emerging markets countries (see
below), including obligations issued or guaranteed by a foreign government, or
any of its political subdivisions, authorities, agencies or instrumentalities
or by supranational organizations; obligations of foreign corporations or
other entities; obligations of foreign banks; Brady Bonds; Eurobonds; and
Yankee Bonds. Up to 35% of the balance of its total assets may be invested in
securities of the same type as Worldwide. The Portfolio may also engage in
repurchase and reverse repurchase agreements. The Portfolio may also invest
in loan participation instruments from major bank lenders to emerging market
countries. Each of these investments are described below under "Descriptions
of Investments". In addition, Emerging Markets may utilize up to 5% of its
total assets as margin and premiums to purchase and sell options, futures and
options on futures contracts. The Adviser or Sub-Adviser intends to actively
manage the Portfolio and the allocations of the Portfolio's investment assets
among various emerging markets (and currencies) are not expected to be
comparable to, or as diverse as, the allocations accorded to such markets (and
currencies) by the major bond market indices. The Portfolio will maintain
investments in debt securities of issuers from at least three different
countries.
The management of the Portfolio will employ a combination of
fundamental economic analysis as well as internally developed models to screen
out credit or default risk and to highlight potentially risky currencies of
emerging markets countries.
The Portfolio primarily invests in the following emerging markets:
1) Latin America - Argentina, Brazil, Chile, Colombia, Costa Rica, Ecuador,
Jamaica, Mexico, Panama, Peru and Venezuela; 2) Asia - China, India,
Indonesia, Malaysia, Philippines and Thailand; 3) Africa - Morocco, Nigeria
and South Africa; and 4) Europe - Bulgaria, Czech Republic, Greece, Hungary,
Poland, Portugal, Russia and Turkey. Other countries may be added in the
future.
At the Investment Adviser's or Sub-Adviser's discretion, Emerging
Markets may at times seek to hedge all or part of its foreign currency-
denominated assets against foreign currency risks. Emerging Markets may also
enter into transactions in foreign currencies and related instruments, based
on expectations of changes in the exchange rates among foreign currencies, in
an effort to enhance total return.
INFLATION-INDEXED PORTFOLIO
The investment objective of Inflation-Indexed is to attain a high
level of return in excess of inflation as may be consistent with the
preservation of capital by investing at least 65% of its total assets in
securities with a coupon rate or principal amount or both linked to the
inflation rate from bond markets worldwide, denominated in both U.S. dollars
and foreign currencies.
Inflation-Indexed seeks to attain its objective by investing in
debt securities of U.S. and foreign issuers, including securities issued or
guaranteed by the U.S. Government and its agencies or instrumentalities;
municipal obligations; obligations issued or guaranteed by a foreign
government, or any of its political subdivisions, authorities, agencies or
instrumentalities or by supranational organizations; obligations of domestic
or foreign corporations or other entities; obligations of domestic or foreign
banks; and mortgage- and asset-backed securities. At least 65% of these
securities will be linked to the inflation rate in the applicable market of
the issuer. The Portfolio may also engage in repurchase and reverse
repurchase agreements. Each of these investments are described below under
"Descriptions of Investments". In addition, Inflation-Indexed may utilize up
to 5% of its total assets as margin and premiums to purchase and sell options,
futures and options on futures contracts. The Adviser or Sub-Adviser intends
to actively manage the Portfolio and the allocations of the Portfolio's
investment assets among various world bond markets (and currencies) are not
expected to be comparable to, or as diverse as, the allocations accorded to
such markets (and currencies) by the major bond market indices.
At the Investment Adviser's or Sub-Adviser's discretion,
Inflation-Indexed may at times seek to hedge all or part of its foreign
currency-denominated assets against foreign currency risks. Inflation-Indexed
may also enter into transactions in foreign currencies and related
instruments, based on expectations of changes in the exchange rates among
foreign currencies, in an effort to enhance total return.
INFLATION-INDEXED HEDGED PORTFOLIO
The investment objective of Inflation-Indexed Hedged is to attain a
high level of return in excess of inflation as may be consistent with the
preservation of capital by investing investing at least 65% of its total
assets
in securities with a coupon rate or principal amount or both linked to the
inflation rate from bond markets worldwide, denominated in both U.S. dollars
and foreign currencies and by actively utilizing currency hedging techniques.
Inflation-Indexed Hedged seeks to attain its objective by
investing in debt securities and instruments of the same type as Inflation-
Indexed. The Adviser or Sub-Adviser intends to actively manage the Portfolio
and the allocations of the Portfolio's investment assets among various world
bond markets are not expected to be comparable to, or as diverse as, the
allocations accorded to such markets by the major bond market indices.
Inflation-Indexed Hedged, as a fundamental policy of the
Portfolio, which may only be changed by a vote of shareholders, will attempt
to hedge at least 65% of its foreign currency-denominated total assets against
foreign currency risks to the extent feasible. Inflation-Indexed Hedged may
also enter into transactions in foreign currencies and related instruments,
based on expectations of changes in the exchange rates among foreign
currencies, in an effort to enhance total return.
DESCRIPTION OF INVESTMENTS
The following briefly describes some of the different types of
securities in which the thirteen Portfolios may invest, subject to each
Portfolio's investment objectives and policies. For a more extensive
description of these assets and the risks associated with them, see the
Statement of Additional Information.
U.S. Treasury and other U.S. Government and Government Agency
Securities. Each Portfolio may purchase securities issued by or guaranteed as
to principal and interest by the U.S. Government, its agencies or
instrumentalities and supported by the full faith and credit of the United
States ("U.S. Government Securities"). Each Portfolio may also purchase
securities issued by a U.S. Government-sponsored enterprise or federal agency
that is supported either by its ability to borrow from the U.S. Treasury
(e.g., Student Loan Marketing Association) or by its own credit standing
(e.g., Federal National Mortgage Association). Such securities do not
constitute direct obligations of the United States but are issued, in general,
under the authority of an Act of Congress.
Foreign Government and International and Supranational Agency
Securities. Each Portfolio may purchase debt obligations issued or guaranteed
by foreign governments or their subdivisions, agencies and instrumentalities,
and debt obligations issued or guaranteed by international agencies and
supranational entities.
Bank Obligations. Each Portfolio may invest in obligations of
domestic and foreign banks, including time deposits, certificates of deposit,
bankers' acceptances, bank notes, deposit notes, Eurodollar time deposits,
Eurodollar certificates of deposit, variable rate notes, loan participations,
variable amount master demand notes and custodial receipts ("Bank
Obligations"). Each Portfolio (in particular, Money Market and U.S. Short-Term)
may, from time to time, concentrate more than 25% of its total assets in such
Bank Obligations.
Zero Coupon Securities. Each Portfolio may invest in zero coupon
securities, which are securities that make no periodic interest payments but
instead are sold at a deep discount from their face value. The buyer of these
securities receives a rate of return by the gradual appreciation of the
security, which results from the fact that it will be redeemed at face value on
a specified maturity date. There are many kinds of zero coupon securities. Some
are issued in zero-coupon form, including stripped U.S. Government Securities
issued through the U.S. Treasury. Others are created by brokerage firms that
strip (separate) the coupons (unmatured interest payments) off of interest-
paying bonds and sell the principal and the coupons separately.
Corporate Debt Instruments. Each Portfolio may purchase
commercial paper, notes and other obligations of U.S. and foreign corporate
issuers meeting the Portfolio's credit quality standards (including medium-
term and variable rate notes).
Repurchase and Reverse Repurchase Agreements. Each Portfolio may
enter into repurchase agreements under which a bank or securities firm (that
is a dealer in U.S. Government Securities reporting to the Federal Reserve
Bank of New York) agrees, upon entering into the contract, to sell U.S.
Government Securities to a Portfolio and repurchase such securities from the
Portfolio at a mutually agreed-upon price and date. Each Portfolio may enter
into reverse repurchase agreements under which a primary or reporting dealer
in U.S. Government Securities purchases U.S. Government Securities from a
Portfolio and the Portfolio agrees to repurchase the securities at an
agreed-upon price and date.
For each reverse repurchase agreement, the Fund will maintain for
a Portfolio a segregated custodial account containing cash, U.S. Government
Securities or other appropriate securities having an aggregate
value at least equal to the amount of such commitments to repurchase,
including accrued interest, until payment is made. Repurchase and reverse
repurchase agreements will generally be restricted to those that mature within
seven days. The Portfolios will engage in such transactions with parties
selected on the basis of such party's creditworthiness. U.S. Short-Term,
Worldwide, and Worldwide-Hedged may not enter into a repurchase agreement or
reverse repurchase agreement if, as a result thereof, more than 25% of each
such Portfolio's total assets would be subject to repurchase agreements or
reverse repurchase agreements.
Dollar Roll Transactions. Each Portfolio may enter into dollar
roll transactions with selected banks and broker-dealers. Dollar roll
transactions are treated as reverse repurchase agreements for purposes of a
Portfolio's borrowing restrictions and consist of the sale by the Portfolio of
mortgage-backed securities, together with a commitment to purchase similar,
but not identical, securities at a future date, at the same price. In
addition, the Portfolio is paid a fee as consideration for entering into the
commitment to purchase. Dollar rolls may be renewed after cash settlement and
initially involve only a firm commitment agreement by the Portfolio to buy a
security.
Mortgage-Backed Securities. Each Portfolio may, and Mortgage
Total Return Portfolio primarily will, purchase securities that are secured or
backed by mortgages or other mortgage-related assets. Mortgage-backed
securities are securities which represent ownership interests in, or are debt
obligations secured entirely or primarily by, "pools" of residential or
commercial mortgage loans or other mortgage-backed securities (the "Underlying
Assets"). Such securities may be issued by such entities as the Government
National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC"),
commercial banks, savings and loan associations, mortgage banks or by issuers
that are affiliates of or sponsored by such entities.
Mortgage-backed securities may take a variety of forms, but the two
most common are mortgage pass-through securities, which represent ownership
interests in the Underlying Assets, and collateralized mortgage obligations
("CMOs"), which are debt obligations collateralized by the Underlying Assets.
Some CMOs are directly supported by other CMOs, which in turn are
supported by mortgage pools. Investors typically receive payments out of the
interest and principal on the Underlying Assets. The portions of these payments
the investors receive, as well as the priority of their rights to receive
payments, are determined by the specific terms of the CMO class. CMOs involve
special risks, and evaluating them required special knowledge.
Mortgage-backed securities are often backed by a pool of Underlying
Assets representing the obligations of a number of different parties. To lessen
the effect of failures by obligors on Underlying Assets to make payments, such
securities may contain elements of credit support. Such credit support falls
into two categories: (i) liquidity protection; and (ii) protection against
losses resulting from ultimate default by an obligor on the Underlying Assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
resulting from ultimate default ensures ultimate payment of obligations on at
least a portion of the assets in the pool. Such protection may be provided
through guarantees, insurance policies or letters of credit obtained by the
issuer or sponsor from third parties, through various means of structuring the
transaction or through a combination of such approaches. A Portfolio will not
pay any additional fees for such credit support, although the existence of
credit support may increase the price of a security.
The Investment Adviser expects that governmental, government-related
and private entities may create new types of mortgage-backed securities offering
asset pass-through and asset-collateralized investments in addition to those
described above. As such new types of mortgage-related securities are developed
and offered to investors, the Investment Adviser will, consistent with each
Portfolio's investment objectives, policies and quality standards, consider
whether it would be appropriate for such Portfolio to make investments in
them.
The duration of a mortgage-backed security, for purposes of a
Portfolio's average duration restrictions, will be computed based upon the
expected average life of that security.
Other Asset-Backed Securities. Each Portfolio may also purchase
securities that are secured or backed by assets other than mortgage-related
assets, such as automobile and credit card receivables, and that are sponsored
by such institutions as finance companies, finance subsidiaries of industrial
companies and investment banks. Asset-backed securities have structural
characteristics similar to mortgage-backed securities. However, the underlying
assets are not first lien mortgage loans or interests therein, but include
assets such as motor vehicle installment sale contracts, other installment sale
contracts, home equity loans, leases of various types of real and personal
property, and receivables from revolving credit (credit card) agreements. Such
assets are securitized through the use of trusts or special purpose
corporations. Payments or distributions of principal and interest may be
guaranteed up to a certain amount and for a certain period of time by a letter
of credit or pool insurance issued by a financial institution unaffiliated with
the issuer, or other credit enhancements may be present. Each Portfolio will
only purchase asset-backed securities that the Investment Adviser determines to
be liquid.
Foreign Securities. Each Portfolio may, and generally the Global
and International Portfolios will, invest in securities denominated in
currencies other than the U.S. dollar. The Investment Adviser and the
Sub-Adviser will seek to manage the Global and International Portfolios in
accordance with a global market strategy. Consistent with such a strategy,
these Portfolios may invest in debt securities denominated in any single
currency or multi-currency units. The Investment Adviser and the Sub-Adviser
will adjust the exposure of these Portfolios to different currencies based on
their perception of the most favorable markets and issuers. In allocating
assets among multiple markets, the Investment Adviser and the Sub-Adviser will
assess the relative yield and anticipated direction of interest rates in
particular markets, general market and economic conditions and the
relationship of currencies of various countries to each other. In their
evaluations, the Investment Adviser and the Sub-Adviser will use internal
financial, economic and credit analysis resources as well as information
obtained from external sources.
The Global and International Portfolios, other than Emerging
Markets, will invest primarily in securities denominated in the currencies of
the United States (other than International and International-Hedged), Japan,
Canada, Western European nations, New Zealand and Australia, as well as
securities denominated in the European Currency Unit. Further, it is
anticipated that such securities will be issued primarily by governmental and
private entities located in such countries and by supranational entities. No
Portfolio will invest in countries that are not considered by the Investment
Adviser or the Sub-Adviser to have stable governments, based on the Investment
Adviser's and the Sub-Adviser's analysis of factors such as general political
or economic conditions relating to the government and the likelihood of
expropriation, nationalization, freezes or confiscation of private property,
or whose currencies are not convertible into U.S. dollars. Under certain
adverse conditions and for the duration of such conditions, each Portfolio may
restrict the financial markets or currencies in which its assets are invested
and it may invest its assets solely in one financial market or in obligations
denominated in one currency.
Brady Bonds. Emerging Markets, subject to limitations, may invest
in "Brady Bonds" which are debt securities issued or guaranteed by foreign
governments in exchange for existing external commercial bank indebtedness under
a plan announced by former U.S. Treasury Secretary Nicholas F. Brady in 1989.
To date, over $154 billion (face amount) of Brady Bonds have been issued by the
governments of thirteen countries, the largest proportion having been issued by
Argentina, Brazil, Mexico and Venezuela. Brady Bonds have been issued only
recently, and accordingly, they do not have a long payment history. Brady Bonds
may be collateralized or uncollateralized, are issued in various currencies
(primarily the U.S. dollar) and are actively traded in the over-the-counter
secondary market.
The Portfolio may invest in either collateralized or uncollateralized
Brady Bonds. U.S. dollar-denominated, collateralized Brady Bonds, which
may be fixed rate par bonds or floating rate discount bonds, are
collateralized in full as to principal by U.S. Treasury zero coupon bonds having
the same maturity as the bonds. Interest payments on such bonds generally are
collateralized by cash or securities in an amount that, in the case of fixed
rate bonds, is equal to at least one year of rolling interest payments or, in
the case of floating rate bonds, initially is equal to at least one year's
rolling interest payments based on the applicable interest rate at the time
and is adjusted at regular intervals thereafter. Brady Bonds which have been
issued to date are rated BB or B by S&P or Ba or B by Moody's or, in cases in
which a rating by S&P or Moody's has not been assigned, are generally considered
by the Adviser to be of comparable quality.
Indexed Notes, Currency Exchange-Related Securities and Similar
Securities. Each Portfolio may, and generally Inflation-Indexed and
Inflation-Indexed Hedged will, purchase notes, the principal amount of which
and/or the rate of interest payable on which is determined by reference to an
index, which may be (i) the rate of exchange between the specified currency
for the note and one or more other currencies or composite currencies; (ii)
the difference in the price or prices of one or more specified commodities on
specified dates; or (iii) the difference in the level of one or more specified
stock indices on specified dates. Each Portfolio may also purchase principal
exchange rate linked securities, performance-indexed paper and foreign
currency warrants. See "Supplemental Descriptions of Investments" in the
Statement of Additional Information.
Inflation-Indexed Securities. Each Portfolio may, and generally
Inflation-Indexed and Inflation-Indexed Hedged will, invest in securities with
a nominal return linked to the inflation rate from bond markets worldwide such
as the U.S. Treasury Department's recently announced "inflation-protection"
issues. The initial issues are ten-year notes which are issued quarterly.
Other maturities will be added at a later date. The principal is adjusted for
inflation (payable at maturity) and the semi-annual interest payments equal a
fixed percentage of the inflation-adjusted principal amount. The inflation
adjustments are based upon the Consumer Price Index for Urban Consumers ("CPI-
U"). These securities are also be eligible for coupon stripping under the U.S.
Treasury "STRIPS" program.
In addition to the U.S. Treasury's issues, the Portfolios may also
purchase inflation-indexed securities from other countries such as Australia,
Canada, New Zealand, Sweden and the United Kingdom, or other inflation-indexed
securities that may be issued in the future.
Securities Denominated in Multi-National Currency Units or More
Than One Currency. Each Portfolio may invest in securities denominated in a
multi-national currency unit, such as the European Currency Unit, which is a
"basket" consisting of specified amounts of the currencies of the member
states of the European Community, a Western European economic cooperative
organization. Each Portfolio may also invest in securities denominated in the
currency of one nation although issued by a governmental entity, corporation
or financial institution of another nation.
Municipal Instruments. Each Portfolio may, from time to time,
purchase municipal instruments when, in the Investment Adviser's opinion, such
instruments will provide a greater rate of return than taxable instruments of
comparable quality. It is not anticipated that such instruments will ever
represent a significant portion of any Portfolio's assets.
INVESTMENT TECHNIQUES
PORTFOLIO TURNOVER
The costs associated with turnover have been and are expected to
remain low relative to equity fund turnover costs. However, due to the
Investment Adviser's and Sub-Adviser's active management style, portfolio
turnover may be higher than other mutual fund portfolios investing primarily
in debt securities. Custodial turnover charges are usually under 1/1000 of 1%
of the transaction value. Turnover costs also include the spread between the
"bid" and the "asked" price of the security bought or sold.
U.S. Short-Term . Turnover of U.S. Short-Term's assets (excluding
those having a maturity of one year or less) is expected to be between 2,000%
and 6,000% per year, but may, depending upon market conditions, be higher.
This anticipated turnover rate is believed to be higher than the turnover
experienced by most short-term funds, due to the Investment Adviser's active
management of duration.
Other Portfolios. Turnover of the assets of each of Stable
Return, U.S. Treasury, Mortgage Total Return, Broad Market, Worldwide,
Worldwide-Hedged, International, International-Hedged, Emerging Markets,
Inflation-Indexed and Inflation-Indexed Hedged (excluding those having a
maturity of one year or less) is expected to be between 500% and 1,000% per
year, but may, depending upon market conditions, be higher.
HEDGING STRATEGIES
Interest Rate Hedging. In order to hedge against changes in
interest rates, each Portfolio may purchase and sell exchange-traded or over-
the-counter ("OTC") put and call options on any security in which it is
permitted to invest or on any security index or other index based on the
securities in which it may invest, and may purchase and sell (on a covered
basis) financial futures contracts for the future delivery of fixed-income
securities or contracts based on financial indices, and options on such
futures. Each Portfolio may engage in such activities from time to time at
the Investment Adviser's and Sub-Adviser's discretion, and may not necessarily
be engaging in such activities when movements in interest rates that could
affect the value of the assets of the Portfolio occur.
Foreign Currency Hedging. Each Portfolio may, and generally the
Global and International Portfolios will, enter into forward foreign currency
exchange contracts and may purchase and sell exchange traded and OTC options
on currencies, foreign currency futures contracts and options on foreign
currency futures contracts to hedge the currency exchange risk associated with
its assets or obligations denominated in foreign currencies. A Portfolio may
also engage in synthetic hedging. Synthetic hedging entails entering into a
forward contract to sell a currency whose changes in value are generally
considered to be linked to a currency or currencies in which some or all of
the Portfolio's securities are or are expected to be denominated, and to buy
U.S. dollars. (The amount of the contract will not exceed the value of the
Portfolio's holdings in linked currencies.) There is the risk that the
perceived linkage between various currencies may not be present or may not be
present during the particular time that a Portfolio is engaging in proxy
hedging. Each Portfolio may also cross-hedge currencies by entering into
forward contracts to sell one or more currencies that are expected to decline
in value relative to other currencies to which the Portfolio has or in which
the Portfolio expects to have portfolio exposure. Except when a Portfolio
enters into a forward contract for the purchase or sale of a security
denominated in a particular currency, where a corresponding forward currency
contract will require no segregation, a currency contract which obligates a
Portfolio to buy or sell currency will generally require the Portfolio to hold
an amount of that currency or liquid securities denominated in that currency
equal to the Portfolio's obligations or to segregate cash, U.S. Government
securities or other appropriate obligations equal to the amount of the
Portfolio's obligations.
As a result of hedging techniques, the net exposure of each
Portfolio to any one currency may be different from that of its total assets
denominated in such currency. Each of Worldwide-Hedged, International-Hedged
and Inflation-Indexed Hedged intends to hedge its currency exchange risk to
the extent practicable, but there can be no assurance that all of the assets
of each Portfolio denominated in foreign currencies will be hedged at any
time, or that any such hedge will be effective. Each of Worldwide,
International, Emerging Markets and Inflation-Indexed may at times, at the
discretion of the Investment Adviser and the Sub-Adviser, hedge all or part of
its currency exchange risk.
The Global and International Portfolios may also decide which
securities to purchase or sell, whether to hedge foreign currency positions
and engage in the transactions described in the previous paragraph in an
effort to profit from anticipated changes in the relation between or among the
rates of exchange between various currencies of the countries in which they
are permitted to invest.
Coverage Requirements. All options on securities, securities
indices, other indices and foreign currency written by a Portfolio are
required to be covered. When a Portfolio sells a call option, this means that
during the life of the option the Portfolio will own or have the contractual
right to acquire the securities or foreign currency subject to the option, or
will maintain with the Fund's custodian in a segregated account cash, U.S.
Government Securities or other appropriate securities in an
amount at least equal to the market value of the securities or foreign
currency underlying the option. When a Portfolio writes a put option, this
means that the Portfolio will maintain with the Fund's custodian in a
segregated account cash, U.S. Government Securities or other appropriate
securities in an amount at least equal to the exercise price of the option.
All futures and forward currency contracts purchased or sold for
non-hedging purposes by a Portfolio are also required to be covered. When a
Portfolio purchases a futures or forward currency contract for non-hedging
purposes, this means that the Portfolio will deposit an amount of cash, U.S.
Government Securities or other appropriate securities in a segregated account
with the Fund's custodian so that the amount so segregated, plus the amount
of initial and variation margin held in the account of its broker, if
applicable, equals the market value of the futures or forward currency
contract.
When a Portfolio sells a futures or forward currency contract for
non-hedging purposes, this means that during the life of the futures or
forward currency contract the Portfolio will own or have the contractual right
to acquire the securities or foreign currency subject to the futures or
forward currency contract, or will maintain with the Fund's custodian in a
segregated account cash, U.S. Government Securities or other appropriate
securities in an amount at least equal to the market value of the
securities or foreign currency underlying the futures or forward currency
contract.
If the market value of the contract moves adversely to the
Portfolio, or if the value of the securities in the segregated account
declines, the Portfolio will be required to deposit additional cash or
securities in the segregated account at a time when it may be disadvantageous
to do so.
Restrictions on Use of Futures Transactions. Regulations of the
Commodity Futures Trading Commission (the "CFTC") applicable to the Fund
require that all of a Portfolio's futures and options on futures transactions
constitute bona fide hedging transactions and that the Portfolio not enter
into such transactions if immediately thereafter, the sum of the amount of
initial margin deposits on the Portfolio's existing futures positions and
premiums paid for related options would exceed 5% of the market value of the
Portfolio's total assets. Each Portfolio is also permitted to engage in
transactions in futures contracts, and options thereon, incidental to such
Portfolio's activities in the securities markets. Under applicable CFTC
regulations, the value of the assets underlying futures positions is not
allowed to exceed the sum of cash set aside in an identifiable manner or
short-term U.S. Government or other U.S. dollar-denominated obligations
segregated for this purpose.
ILLIQUID SECURITIES
Although mutual fund portfolios are allowed to invest up to 15%
(10% in the case of the Money Market Portfolio) of the value of their net
assets in illiquid assets, it is not expected that any Portfolio will invest a
significant portion of its assets in illiquid securities. All OTC options;
repurchase agreements, time deposits and dollar roll transactions maturing in
more than seven days; and loan participations are treated as illiquid assets.
Illiquid securities are securities which may not be sold or disposed of in the
ordinary course of business within seven days at approximately the value at
which a Portfolio has valued the investments, and include securities with
legal or contractual restrictions on resale, time deposits, repurchase
agreements having maturities longer than seven days and securities that do not
have readily available market quotations. In addition, a Portfolio may invest
in securities that are sold in private placement transactions between their
issuers and their purchasers and that are neither listed on an exchange nor
traded over-the counter. These factors may have an adverse effect on the
Portfolio's ability to dispose of particular securities and may limit a
Portfolio's ability to obtain accurate market quotations for purposes of
valuing securities and calculating net asset value and to sell securities at
fair value. If any privately placed securities held by a Portfolio are
required to be registered under the securities laws of one or more
jurisdictions before being resold, the Portfolio may be required to bear the
expenses of registration. A Portfolio may also purchase securities that are
not registered under the Securities Act of 1933, as amended (the "1933 Act"),
but which can be sold to qualified institutional buyers in accordance with
Rule 144A under that Act ("Rule 144A securities"). Rule 144A securities
generally must be sold to other qualified institutional buyers. A Portfolio
may also invest in commercial obligations issued in reliance on the so-called
"private placement" exemption from registration afforded by Section 4(2) of
the 1933 Act ("Section 4(2) paper"). Section 4(2) paper is restricted as to
disposition under the federal securities laws, and generally is sold to
institutional investors such as the Portfolio who agree that they are
purchasing the paper for investment and not with a view to public
distribution. Any resale by the purchaser must be in an exempt transaction.
Section 4(2) paper normally is resold to other institutional investors like
the Portfolio through or with the assistance of the issuer or investment
dealers who make a market in the Section 4(2) paper, thus providing liquidity.
If a particular investment in Rule 144A securities, Section 4(2) paper or
private placement securities is not determined to be liquid, that investment
will be included within the 15% (or 10%) limitation on investment in illiquid
securities. The ability to sell Rule 144A securities to qualified
institutional buyers is a recent development and it is not possible to predict
how this market will mature. The Investment Adviser or Sub-Adviser will
monitor the liquidity of such restricted securities under the supervision of
the Board of Directors.
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES
Each Portfolio may purchase when-issued securities and other
securities that meet the investment criteria of such Portfolio on a forward
commitment basis at fixed purchase terms at a future date beyond customary
settlement time. The purchase will be recorded on the date a Portfolio enters
into the commitment, and the value of the security will thereafter be
reflected in the calculation of the Portfolio's net asset value. The value of
the security on the delivery date may be more or less than its purchase price.
No interest generally will accrue to the Portfolio until settlement. The Fund
will maintain for each Portfolio a segregated custodial account containing
cash, U.S. Government Securities or other appropriate securities having a
value at least equal to the aggregate amount of a Portfolio's forward
commitments.
TBA (TO BE ANNOUNCED) TRANSACTIONS
The typical mortgage-related security transaction, called a TBA
(to be announced) transaction, in which the type of mortgage-related
securities to be delivered is specified at the time of trade but the actual
pool numbers of the securities that will be delivered are not known at the
time of the trade. For example, in a TBA transaction, an investor could
purchase $1 million 30 year FNMA 9's and receive up to three pools on the
settlement date. The pool numbers of the pools to be delivered at settlement
will be announced shortly before settlement takes place. Generally, agency
pass-through mortgage-backed securities are traded on a TBA basis.
SHORT SELLING
Mortgage Total Return, Inflation-Indexed and Inflation-Indexed
Hedged Portfolios may make short sales, which are transactions in which a
Portfolio sells a security it does not own in anticipation of a decline in the
market value of that security. Short selling provides the Investment Adviser
with flexibility to: (1) reduce certain risks of the Portfolio's holdings;
and (2) increase the Portfolio's total return. To complete a short sales
transaction, the Portfolio must borrow the security to make delivery to the
buyer. The Portfolio then is obligated to replace the borrowed security,
which generally entails purchasing it at the market price at the time of
replacement. Until the security is replaced, the Portfolio is required to pay
to the lender amounts equal to any dividends or interest which accrue during
the period of the loan. The Portfolio also may be required to pay a premium
to borrow the security. The proceeds of the short sale will be retained by the
broker, to the extent necessary to meet margin requirements, until the short
position is closed out. To the extent that the Portfolio has sold securities
short, it will maintain a daily segregated account, containing cash or U.S.
Government or other appropriate securities, at such a level that (a) the amount
deposited in the account plus the amount deposited with the broker as collateral
will equal the current value of the security sold short and (b) the amount
deposited in the segregated account plus the amount deposited with the broker
as collateral will not be less than the market value of the security at the time
it was sold short. Each of Mortgage Total Return, Inflation-Indexed and
Inflation-Indexed Hedged may not enter into short sales exceeding 25% of the
net equity of the Portfolio and may not acquire short positions in securities
of a single issuer if the value of such positions exceeds 2% of the securities
of any class of any issuer. The foregoing restrictions do not apply to the sale
of securities if the Portfolio contemporaneously owns or has the right to obtain
securities equivalent in kind and amount to those sold.
CURRENCY AND MORTGAGE SWAPS, AND INTEREST RATE SWAPS, CAPS, FLOORS AND COLLARS
Each Portfolio may enter into currency swaps for hedging purposes
and may also enter into mortgage and interest rate swaps and interest rate
caps and floors for hedging purposes or to seek to enhance total return.
Interest rate swaps involve the exchange by a Portfolio with another party of
their respective commitments to pay or receive interest, such as an exchange
of fixed rate payments for floating rate payments. Mortgage swaps are similar
to interest rate swaps in that they represent commitments to pay and receive
funds, the amount of which is determined by reference to an underlying
mortgage security. The notional principal amount, however, is tied to a
reference pool or pools of mortgages. Currency swaps involve the exchange of
their respective rights to make or receive payments in specified currencies.
The purchase of an interest rate cap entitles the purchaser, to the extent
that a specified index exceeds a predetermined interest rate, to receive
payment of interest on a notional principal amount from the party selling such
interest rate cap. The purchase of an interest rate floor entitles the
purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest on a notional principal amount
from the party selling the interest rate floor.
A Portfolio will usually enter into interest rate and mortgage
swaps on a net basis, which means that the two payment streams are netted out,
with the Portfolio receiving or paying, as the case may be, only the net
amount of the two payments. Interest rate and mortgage swaps usually do not
involve the delivery of securities, other underlying assets or principal.
Accordingly, the risk of loss with respect to interest rate and mortgage swaps
is limited to the net amount of interest payments that the Portfolio is
contractually obligated to make. If the other party to an interest rate or
mortgage swap defaults, the Portfolio's risk of loss consists of the net
amount of interest payments that the Portfolio is contractually entitled to
receive. In contrast, currency swaps usually involve the delivery of a gross
payment stream in one designated currency in exchange for the gross payment
stream in another designated currency. Therefore, the entire payment stream
under a currency swap is subject to the risk that the other party to the swap
will default on its contractual delivery obligations. To the extent that the
net amount payable by the Portfolio under an interest rate or mortgage swap
and the entire amount of the payment stream payable by the Portfolio under a
currency swap or an interest rate floor, cap or collar are held in a
segregated account consisting of cash and other appropriate securities.
The Portfolio and the Investment Adviser (or Sub-Adviser) believe that swaps
do not constitute senior securities under the Act and, accordingly, will not
treat them as being subject to the Portfolio's borrowing restriction.
A Portfolio will not enter into currency swap, interest rate swap,
mortgage swap, cap or floor transactions unless the unsecured commercial
paper, senior debt or claims paying ability of the other party is rated either
A or A-1 or better by S&P or A or P-1 or better by Moody's or, if unrated by
such rating organizations, determined to be of comparable quality by the
Investment Adviser or Sub-Adviser.
INVESTMENT RESTRICTIONS
The Fund has adopted certain fundamental investment restrictions
for each Portfolio which may only be changed with approval of a Portfolio's
shareholders. Among these policies are (i) that a Portfolio may not borrow
money, except by engaging in reverse repurchase agreements and dollar roll
transactions or from a bank as a temporary measure, provided that borrowings,
excluding reverse repurchase agreements and dollar roll transactions, will not
exceed one-third of total assets and will not be engaged in for leveraging
purposes; (ii) that each Portfolio, other than Mortgage Total Return,
Inflation-Indexed and Inflation-Indexed Hedged Portfolios, may not engage in
short sales of securities; and (iii) that a Portfolio may not invest for the
purpose of exercising control of management. Mortgage Total Return, Inflation-
Indexed and Inflation-Indexed Hedged Portfolios may engage in short sales,
providing that acquisitions of short positions in the securities of a single
issuer (other than the U.S. government, its agencies and instrumentalities),
as measured by the amounts needed to close such positions, not exceed 2% of
the Portfolio's total assets.
RISKS ASSOCIATED WITH THE FUND'S INVESTMENT POLICIES
AND INVESTMENT TECHNIQUES
A more detailed discussion of the risks associated with the
investment policies and investment techniques of the Portfolios appears in the
Statement of Additional Information.
Changes in Interest Rates. The returns that the Portfolios
provide to investors will be influenced by changes in prevailing interest
rates. In addition, changes in market yields will affect a Portfolio's net
asset value since the prices of portfolio debt securities generally increase
when interest rates decline and decrease when interest rates rise. Prices of
shorter-term securities generally fluctuate less in response to interest rate
changes than do longer-term securities.
Foreign Investments. Securities issued by foreign governments,
foreign corporations, international agencies and obligations of foreign banks
involve risks not associated with securities issued by U.S. entities. With
respect to certain foreign countries, there is the possibility of
expropriation of assets, confiscatory taxation and political or social
instability or diplomatic developments that could affect investment in those
countries. There may be less publicly available information about a foreign
financial instrument than about a United States instrument and foreign
entities may not be subject to accounting, auditing and financial reporting
standards and requirements comparable to those of United States entities. A
Portfolio could encounter difficulties in obtaining or enforcing a judgment
against the issuer in certain foreign countries. In addition, certain foreign
investments may be subject to foreign withholding or other taxes, although the
Fund will seek to minimize such withholding taxes whenever practicable.
Investors may be able to deduct such taxes in computing their taxable income
or to use such amounts as credits against their United States income taxes if
more than 50% of a Portfolio's total assets at the close of any taxable year
consist of stock or securities of foreign corporations. See "Tax
Considerations".
Emerging Markets Securities. The risks of investing in foreign
securities may be intensified in the case of investments in issuers domiciled
or doing substantial business in emerging markets or countries with limited or
developing capital markets. Security prices in emerging markets can be
significantly more volatile than in the more developed nations of the world,
reflecting the greater uncertainties of investing in less established markets
and economies. In particular, countries with emerging markets may have
relatively unstable governments, present the risk of sudden adverse government
action and even nationalization of businesses, restrictions on foreign
ownership, or prohibitions of repatriation of assets, and may have less
protection of property rights than more developed countries. The economies of
countries with emerging markets may be predominantly based on only a few
industries, may be highly vulnerable to changes in local or global trade
conditions, and may suffer from extreme and volatile debt burdens or inflation
rates. Local securities markets may trade a small number of securities and may
be unable to respond effectively to increases in trading volume, potentially
making prompt liquidation of substantial holdings difficult or impossible at
times. Transaction settlement procedures may be less reliable in emerging
markets than in developed markets. Securities of issuers located in countries
with emerging markets may have limited marketability and may be subject to
more abrupt or erratic price movements.
High Yield/High Risk Securities. Emerging Markets may invest its
assets in debt securities rated lower than "BBB" by S&P or "Baa" by Moody's, or
"B" by Thomson Bankwatch in the case of bank obligations, or "A-2" by S&P or
"Prime-2" by Moody's in the case of commercial paper, or similarly rated by
IBCA in the case of foreign bank obligations, or determined by the Investment
Adviser (or the Sub-Adviser) to be of similar creditworthiness (commonly
referred to as "junk bonds"). Such investments are regarded as speculative by
the major rating agencies.
Currency Exchange Risks. Changes in foreign currency exchange
rates may affect the value of investments of a Portfolio, especially the
Global and International Portfolios. While Worldwide-Hedged, International-
Hedged and Inflation-Indexed Hedged will, to the fullest extent practicable,
and the other Portfolios may, hedge their assets against foreign currency risk,
no assurance can be given that currency values will change as predicted, and a
Portfolio may suffer losses as a result of this investment strategy. As a
result of hedging techniques, the net exposure of each such Portfolio to any
one currency may be different from that of its total assets denominated in such
currency. The foreign currency markets can be highly volatile and subject to
sharp price fluctuations, and a high degree of leverage is typical of the
foreign currency instruments in which each Portfolio may invest. Since each
Portfolio, may invest in such instruments in an effort to enhance total return,
each such Portfolio will be subject to additional risks in connection with the
volatile nature of these markets to which the other Portfolios are not subject.
Mortgage and Other Asset-Backed Securities. The yield characteristics
of mortgage- and other asset-backed securities differ from traditional debt
securities. A major difference is that the principal amount of the obligation
generally may be prepaid at any time because the underlying assets (i.e., loans)
generally may be prepaid at any time. As a result, if an asset-backed security
is purchased at a premium, a prepayment rate that is faster than expected will
reduce yield to maturity, while a prepayment rate that is slower than expected
will have the opposite effect of increasing yield to maturity. Conversely, if
an asset-backed security is purchased at a discount, faster than expected
prepayments will increase, while slower than expected prepayments will decrease
yield to maturity.
Generally, prepayments on fixed-rate mortgage loans will increase during a
period of falling interest rates and decrease during a period of rising interest
rates. Mortgage- and asset-backed securities may also decrease in value as a
result of increases in interest rates and, because of prepayments, may benefit
less than other fixed-income securities from declining interest rates.
Reinvestment of prepayments may occur at lower interest rates than the original
investment, thus adversely affecting a Portfolio's yield. Actual prepayment
experience may cause the yield of mortgage-backed securities to differ from what
was assumed when the Portfolio purchased the security.
The market for privately issued mortgage- and asset-backed securities is
smaller and less liquid than the market for U.S. Government mortgage- and asset-
backed securities. CMO classes may be specially structured in a manner that
provides any of a wide variety of investment characteristics, such as yield,
effective maturity and interest rate sensitivity. As market conditions change,
however, and especially during periods of rapid or unanticipated changes in
market interest rates, the attractiveness of some CMO classes and the ability of
the structure to provide the anticipated investment characteristics may be
significantly reduced. These changes can result in volatility in the market
value, and in some instances reduced liquidity, of the CMO class.
Certain classes of CMOs are structured in a manner that makes them
extremely sensitive to changes in prepayment rates. Interest-only ("IO") and
principal-only ("PO") classes are examples of this. IOs are entitled to receive
all or a portion of the interest, but none (or only a nominal amount) of the
principal payments, from the underlying mortgage assets. If the mortgage assets
underlying an IO experience greater than anticipated principal prepayments, than
the total amount of interest payments allocable to the IO class, and therefore
the yield to investors, generally will be reduced. In some instances, an
investor in an IO may fail to recoup all of his or her initial investment, even
if the securities is government guaranteed or considered to be of the highest
quality (rated AAA or the equivalent). Conversely, PO classes are entitled to
receive all or a portion of the principal payments, but none of the interest,
from the underlying mortgage assets. PO classes are purchased at substantial
discounts from par, and the yield to investors will be reduced if principal
prepayments are slower than expected. Some IOs and POs, as well as other CMO
classes, are structured to have special protections against the effect of
prepayments. These structural protections, however, normally are effective only
within certain ranges of prepayments rates and thus will not protect investors
in all circumstances.
Inverse floating rate CMO classes also may be extremely volatile. These
classes pay interest at a rate that decreases when a specified index of market
rates increases.
During 1994, the value and liquidity of many mortgage-backed securities
declined sharply due primarily to increases in interest rates. There can be no
assurance that such declines will not recur. The market value of certain
mortgage-backed securities, including IO and PO class of mortgage-backed
securities, can be extremely volatile and these securities may become illiquid.
The Investment Adviser will seek to manage the Portfolio's investments in
mortgage-backed securities so that the volatility of a portfolio's investments,
taken as a whole, is consistent with the Portfolio's investment objective. If
market interest rates or other factors that affect the volatility of securities
held by a Portfolio change in ways that the Investment Adviser does not
anticipate, the Portfolio's ability to meet its investment objective may be
reduced.
Non-mortgage related asset-backed securities may not have the benefit of
any security interest in the underlying assets and recoveries on repossessed
collateral may not, in some cases, be available to support payments on these
securities. The Portfolios will only invest in asset-backed securities that the
Investment Adviser believes are liquid.
Short Selling. Each of Mortgage Total Return, Inflation-Indexed
and Inflation-Indexed Hedged Portfolios will incur a loss as a result of a
short sale if the price of the security increases between the date of the
short sale and the date on which the Portfolio replaces the borrowed security.
The amount of any loss will be increased by the amount of any premium or
amounts in lieu of interest the Portfolio may be required to pay in connection
with a short sale. Unlike long positions, where the potential loss is limited
to the purchase price, the potential loss from a short sale transaction is
unlimited unless accompanied by the purchase of an option to buy the security
at a specified price.
Non-Diversified Portfolios. U.S. Short-Term is "diversified"
under the Investment Company Act of 1940, while the other twelve Portfolios
are each "non-diversified" for purposes of such Act and so, other than the
Money Market Portfolio, are subject only to the diversification requirements
necessary for treatment as a "regulated investment company" under the Internal
Revenue Code of 1986 (the "Code"). Under the Code, with respect to 50% of its
total assets, a Portfolio may invest up to 25% of its total assets in the
obligations of an individual issuer (except that this limitation does not
apply to U.S. Government Securities, as defined above), and with respect to
the remaining 50% of its total assets may not invest more than 5% of its total
assets in the obligations of an individual issuer (other than U.S. Government
Securities). Money Market is subject to the diversification requirements of
Rule 2a-7 under the 1940 Act. Because a "non-diversified" portfolio may invest
a larger percentage of its assets in individual issuers than a diversified
portfolio, its exposure to credit and market risks associated with such
investments is increased.
Hedging Transactions. The use of hedging techniques involves the
risk of imperfect correlation in movements in the price of the hedge and
movements in the price of the securities that are the subject of the hedge.
In addition, if interest or currency exchange rates do not move in the
direction against which a Portfolio has hedged, the Portfolio will be in a
worse position than if a hedging strategy had not been pursued, because it
will lose part or all of the benefit of the favorable rate movement due to the
cost of the hedge or offsetting positions. Moreover, hedging transactions
that are not entered into on a U.S. or foreign exchange may subject a
Portfolio to exposure to the credit risk of its counterparty.
Repurchase Agreements. In the event the other party to a
repurchase agreement or a reverse repurchase agreement becomes subject to a
bankruptcy or other insolvency proceeding or such party fails to satisfy its
obligations thereunder, a Portfolio could (i) experience delays in recovering
cash or the securities sold (and during such delay the value of the underlying
securities may change in a manner adverse to the Portfolio) or (ii) lose all
or part of the income, proceeds or rights in the securities to which the
Portfolio would otherwise be entitled.
Dollar Roll Transactions. If the broker-dealer to whom a
Portfolio sells the security underlying a dollar roll transaction becomes
insolvent, the Portfolio's right to purchase or repurchase the security may be
restricted; the value of the security may change adversely over the term of
the dollar roll, the security which the Portfolio is required to repurchase
may be worth less than a security which the Portfolio originally held, and the
return earned by the Portfolio with the proceeds of a dollar roll may not
exceed transaction costs.
Zero Coupon Securities. Because they do not pay interest until
maturity, zero coupon securities tend to be subject to greater interim
fluctuation of market value in response to changes in interest rates than
interest-paying securities of similar maturities. Additionally, for tax
purposes, zero coupon securities accrue income daily even though no cash
payments are received which may require a Portfolio to sell securities that
would not ordinarily be sold to provide cash for the Portfolio's required
distributions.
Concentration in Bank Obligations. Each Portfolio may, at times,
invest in excess of 25% of its assets in Bank Obligations, as defined above.
By concentrating investments in the banking industry, a Portfolio may have a
greater exposure to certain risks associated with the banking industry. In
particular, economic or regulatory developments in or related to the banking
industry will affect the value of and investment return on a Portfolio's
shares. As discussed above, each Portfolio will seek to minimize its exposure
to such risks by investing only in debt securities that are determined by the
Investment Adviser or Sub-Adviser to be of high quality.
Counterparties. The Portfolios may be exposed to the risk of insolvency
of another party with which a Portfolio enters into a transaction, such as a
repurchase agreement or a dollar-roll transaction. Subject to Board
supervision, the Investment Adviser monitors and evaluates the creditworthiness
of these counterparties to help minimize those risks.
DISTRIBUTION OF FUND SHARES
Shares of the Fund are distributed by AMT Capital Services, Inc.
pursuant to a Distribution Agreement (the "Distribution Agreement") dated as
of February 1, 1995 between the Fund and AMT Capital. No fees are payable by
the Fund pursuant to the Distribution Agreement, and AMT Capital bears the
expense of its distribution activities.
PURCHASES AND REDEMPTIONS
PURCHASES
There is no sales charge imposed by the Fund. The minimum initial
investment in any Portfolio of the Fund is $100,000; additional purchases or
redemptions may be of any amount.
The offering of shares of each Portfolio of the Fund, other than
Mortgage Total Return, is continuous and purchases of shares of the Fund may
be made Monday through Friday, except for the holidays declared by the Federal
Reserve Banks of New York or Boston. At the present time, these holidays are:
New Year's Day, Martin Luther King's Birthday, Presidents' Day, Memorial Day,
Fourth of July, Labor Day, Columbus Day, Veterans Day, Thanksgiving, and
Christmas. These Portfolios offer shares at a public offering price equal to
the net asset value next determined after a purchase order becomes effective.
Mortgage Total Return offers shares at a public offering price equal to the
net asset value determined on the last Business Day of each month and on any
other Business Days in which the Investment Adviser approves a purchase at
the net asset value determined on those days.
Purchases of shares must be made by wire transfer of Federal
funds. Subject to the above offering dates, initial share purchase orders are
effective on the date when AMT Capital receives a completed Account
Application Form (and other required documents) and Federal funds become
available to the Fund in the Fund's account with the Transfer Agent as set
forth below. The shareholder's bank may impose a charge to execute the wire
transfer.
In order to purchase shares on a particular Business Day, subject
to the offering dates described above, a purchaser must call AMT Capital at
(800) 762-4848 [or within the City of New York, (212) 332-5211] prior to 4:00
p.m. Eastern time (12:00 p.m. Eastern Time in the case of the Money Market
Portfolio) to inform the Fund of the incoming wire transfer and must clearly
indicate which Portfolio is to be purchased. If Federal funds are received by
the Fund that same day, the order will be effective on that day. If the Fund
receives notification after 4:00 p.m. Eastern time (12:00 p.m. Eastern Time in
the case of the Money Market Portfolio), or if Federal funds are not received
by the Transfer Agent, such purchase order shall be executed as of the date
that Federal funds are received. Shares purchased will begin accruing
dividends on the day Federal funds are received.
REDEMPTIONS
The Fund will redeem all full and fractional shares of the Fund
upon request of shareholders. The redemption price is the net asset value per
share next determined after receipt by the Transfer Agent of proper notice of
redemption as described below. If such notice is received by the Transfer
Agent by 4:00 p.m. Eastern time (12:00 p.m. Eastern Time in the case of the
Money Market Portfolio) on any Business Day, the redemption will be effective
and payment will be made (i) in the case of Money Market and U.S. Short-Term,
on such Business Day; (ii) in the case of all other U.S. Portfolios, within
seven calendar days, but generally on the day following receipt of such
notice; and (iii) in the case of the Global and International Portfolios,
within seven calendar days, but generally two business days following receipt
of such notice. If the notice is received on a day that is not a Business Day
or after 4:00 p.m. Eastern time (12:00 p.m. Eastern Time in the case of the
Money Market Portfolio), the redemption notice will be deemed received as of
the next Business Day.
There is no charge imposed by the Fund to redeem shares of the
Fund; however, a shareholder's bank may impose its own wire transfer fee for
receipt of the wire. Redemptions may be executed in any amount requested by
the shareholder up to the amount such shareholder has invested in the Fund.
To redeem shares, a shareholder or any authorized agent (so
designated on the Account Application Form) must provide the Transfer Agent
with the dollar or share amount to be redeemed, the account to which the
redemption proceeds should be wired (which account shall have been previously
designated by the shareholder on its Account Application Form), the name of
the shareholder and the shareholder's account number. Shares redeemed receive
dividends declared up to and including the day preceding the day of the
redemption payment.
A shareholder may change its authorized agent or the account
designated to receive redemption proceeds at any time by writing to the
Transfer Agent with an appropriate signature guarantee. Further documentation
may be required when deemed appropriate by the Transfer Agent.
A shareholder may request redemption by calling the Transfer Agent
at (800) 247-0473. Telephone redemption is made available to shareholders of
the Fund on the Account Application. The Fund or the Transfer Agent may
employ procedures designed to confirm that instructions communicated by
telephone are genuine. If the Fund does not employ such procedures, it may be
liable for losses due to unauthorized or fraudulent instructions. The Fund or
the Transfer Agent may require personal identification codes and will only
wire funds through pre-existing bank account instructions. No bank
instruction changes will be accepted via telephone.
In an attempt to reduce the expenses of the Portfolios, each
Portfolio may redeem all of the shares of any shareholder whose account in any
Portfolio has a net asset value of less than $100,000. Involuntary
redemptions will not be implemented if the value of a shareholder's account
falls below the minimum required investment solely as a result of market
conditions. The Fund will give 60 day's prior written notice to shareholders
whose shares are being redeemed to allow them to purchase sufficient
additional shares of the applicable Portfolio to avoid such redemption. The
Fund may also redeem shares in an account of the shareholder as reimbursement
for loss due to the failure of a check or wire to clear in payment of shares
purchased.
EXCHANGE PRIVILEGE
Shares of a Portfolio may be exchanged for shares of any other of
the Fund's Portfolios or for other funds distributed by AMT Capital based on
the respective net asset values of the shares involved in the exchange,
assuming that shareholders wishing to exchange shares reside in states where
these mutual funds are qualified for sale. The Fund's Portfolio minimum
amounts of $100,000 would still apply. An exchange order is treated the same
as a redemption followed by a purchase. Investors who wish to make exchange
requests should telephone AMT Capital or the Transfer Agent.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Portfolio is determined by
adding the market value of all the assets of the Portfolio, subtracting all of
the Portfolio's liabilities, dividing by the number of shares outstanding and
adjusting to the nearest cent. The net asset value is calculated by the
Fund's Accounting Agent as of 4:00 p.m. Eastern time on each Business Day for
each Portfolio, other than Mortgage Total Return and Money Market. The net
asset value of Mortgage Total Return is calculated by the Fund's Accounting
Agent as of 4:00 p.m. Eastern time on the last Business Day of each month, 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.
The net asset value per share of the Money Market Portfolio is
calculated as of 12:00 noon Eastern Time on Business Days. The Money Market
Portfolio seeks to maintain a stable net asset value per share of $1.00. For
purposes of calculating the Money Market Portfolio's net asset values,
securities are valued by the "amortized cost" method of valuation, which does
not take into account unrealized gains or losses. This involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method
provides certainty in valuation, it may result in periods during which value
based on amortized cost is higher or lower than the price a Portfolio would
receive if it sold the instrument.
The use of amortized cost and the maintenance of the Portfolio's per
share net asset value at $1.00 is based on its election to operate under the
provisions of Rule 2a-7 under the 1940 Act. As conditions of operating under
Rule 2a-7, the Money Market Portfolio must maintain a dollar-weighted average
portfolio maturity of 90 days of less, purchase only instruments having
remaining maturities of thirteen months or less and invest only in U.S. dollar-
denominated securities which are determined by the Board of Directors to present
minimal credit risks and which are of eligible quality as determined under the
Rule.
The following methods are used to calculate the value of the other
Portfolio's assets: (1) all portfolio securities for which over-the-counter
market quotations are readily available (including asset-backed securities)
are valued at the latest bid price; (2) deposits and repurchase agreements are
valued at their cost plus accrued interest unless the Investment Adviser or
Sub-Adviser determines in good faith, under procedures established by and
under the general supervision of the Fund's Board of Directors, that such
value does not approximate the fair value of such assets; (3) positions (e.g.,
futures and options) listed or traded on an exchange are valued at their last
sale price on that exchange (or if there were no sales that day for a
particular position, that position is valued at the closing bid price); and
(4) the value of other assets will be determined in good faith by the
Investment Adviser or Sub-Adviser at fair value under procedures established
by and under the general supervision of the Fund's Board of Directors.
Quotations of foreign securities denominated in a foreign currency are
converted to U.S. dollar-equivalents using the bid price of such currencies
(quoted by any major bank) in effect at the time net asset value is computed.
DIVIDENDS
Dividends are automatically reinvested in additional shares of a
Portfolio on the last day of each month at the net asset value per share on
the last Business Day of that month. Shareholders must indicate their desire
to receive dividends in cash (payable on the first business day of the
following month) on the Account Application Form. Otherwise all dividends
will be reinvested in additional shares as described above. In the unlikely
event that a Portfolio realizes net long-term capital gains (i.e., with
respect to assets held more than one year), it will distribute them at least
annually by automatically reinvesting (unless a shareholder has elected to
receive cash) such long-term capital gains in additional shares of the
Portfolio at the net asset value on the date the distribution is declared.
The net investment income (including accrued but unpaid interest
and amortization of original issue and market discount or premium) of each
Portfolio, other than Mortgage Total Return, will be declared as a dividend
payable daily to the respective shareholders of record as of the close of each
Business Day. The net investment income of Mortgage Total Return will be
declared as a dividend payable to the respective shareholders of record as of
the last Business Day of each month. Each Portfolio will also declare, to the
extent necessary, a net short-term capital gain dividend once per year.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The Board of Directors of the Fund is responsible for the overall
management and supervision of the Fund. The Fund's Directors are Stephen J.
Constantine, John C Head III, Lawrence B. Krause, Paul Meek and Onder John
Olcay. Additional information about the Directors and the Fund's executive
officers may be found in the Statement of Additional Information under the
heading "Management of the Fund - Board of Directors".
INVESTMENT ADVISER
Subject to the direction and authority of the Fund's Board of
Directors, Fischer Francis Trees & Watts, Inc. is responsible for deciding
upon investments for each Portfolio. The Investment Adviser continuously
conducts investment research and is responsible for the purchase, sale or
exchange of portfolio assets.
Organized in 1972, the Investment Adviser is a registered
investment adviser and a New York corporation that currently manages
approximately $24 billion in assets entirely in fixed-income portfolios for in
excess of 90 major institutional clients including banks, central banks,
pension funds and other institutional clients. The average size of a client
relationship with the Investment Adviser is in excess of $200 million. The
Investment Adviser is also the sub-adviser to three portfolios of two other
open-end management investment companies. The Investment Adviser's offices
are located at 200 Park Avenue, New York, New York 10166.
SUB-ADVISER
Fischer Francis Trees & Watts, a corporate partnership organized
under the laws of the United Kingdom and an affiliate of the Investment
Adviser, is the foreign sub-adviser to the Global and International
Portfolios. Organized in 1989, the Sub-Adviser is a U.S.-registered investment
adviser and currently manages approximately $6 billion in multi-currency
fixed-income portfolios for institutional clients. The Investment Adviser
pays the Sub-Adviser monthly from its advisory fee. The Sub-Adviser's annual
fee is equal to the advisory fee for each of the Global and International
Portfolios. From the inception date of both Portfolios, through December 31,
1992, the Sub-Adviser voluntarily agreed to waive its fees for both Worldwide
and Worldwide-Hedged. The Sub-Adviser is under no obligation to waive its
fees for any Portfolio subsequent to December 31, 1992. The Sub-Adviser's
offices are located at 3 Royal Court, The Royal Exchange, London, EC 3V 3RA.
PORTFOLIO MANAGERS
U.S. Fixed Income Portfolios - David J. Marmon, Managing Director.
Mr. Marmon is responsible for management of the U.S. short-term portfolios.
He joined FFTW in 1990 from Yamaichi International (America) where he was head
of futures and options research. Mr. Marmon was previously a financial
analyst and strategist at the First Boston Corporation, where he developed
hedging programs for financial institutions and industrial firms. Mr. Marmon
has a B.A. summa cum laude in economics from Alma College and an M.A. in
economics from Duke University. Stewart M. Russell, Managing Director. Mr.
Russell is also responsible for management of the U.S. short-term portfolios.
He joined FFTW in 1992 from the short-term proprietary trading desk in the
global markets area of J.P. Morgan, where he was responsible for proprietary
positioning of U.S. and non-U.S. government obligations, corporate bonds, and
asset-backed securities. Earlier at the bank, Mr. Russell managed the short-
term interest rate risk group, coordinating a $10 billion book of assets and
liabilities. Mr. Russell holds a B.A. in government from Cornell University
and an M.B.A. in finance from New York University. Patricia L. Cook, Managing
Director. Ms. Cook is responsible for management of the U.S. long-term
portfolios. She joined FFTW in 1991 after twelve years with Salomon Brothers,
where she most recently established and headed the bond strategy team that
analyzes relative values among mortgages, treasuries, and other sectors of the
fixed-income markets and developed portfolio strategies for Salomon Brothers'
global institutional clients. Ms. Cook worked initially as an analyst in the
firm's proprietary trading unit before joining the firm's financing desk. Ms.
Cook has a B.A. from St. Mary's College and an M.B.A. from New York
University.
Global and International Fixed Income Portfolios - Liaquat Ahamed,
Managing Director. Mr. Ahamed is responsible for management of the global and
international portfolios. He joined FFTW in 1988 after nine years with the
World Bank, where he was in charge of all investments in non-U.S. dollar
government bond markets. Mr. Ahamed also served as an economist with senior
government officials in the Philippines, Korea, and Bangladesh. He has a B.A.
in economics from Trinity College, Cambridge University and an A.M. in
economics from Harvard University. Simon G. Hard, General Manager of the Sub-
Adviser. Mr. Hard is also responsible for management of the global and
international portfolios. He joined FFTW in 1989 from Mercury Asset
Management, the investment affiliate of S.G. Warburg & Co., Ltd. His
responsibilities there included the formulation of global bond and currency
investment policies, and the management of interest rate and currency
exposures of the firm's specialist non-dollar portfolios. Mr. Hard was
previously first vice president and London branch manager of Julius Baer
Investment Management, Inc. Mr. Hard has an MA in modern history from Lincoln
College, Oxford University and an MPhil in the history and philosophy of
science from Wolfson College, Cambridge University.
ADMINISTRATOR
Pursuant to an Administration Agreement dated as of February 2,
1995 between the Fund and AMT Capital Services, Inc., AMT Capital is
Administrator to the Fund and provides for or assists in managing and
supervising all aspects of the general day-to-day business activities and
operations of the Fund other than investment advisory activities, including
custodial, transfer agency, dividend disbursing, accounting, auditing,
compliance and related services.
Founded in early 1992, AMT Capital is a registered broker-dealer
whose senior managers are former officers of Morgan Stanley and The Vanguard
Group, where they were responsible for the administration and distribution of
The Pierpont Funds, a $5 billion fund complex now owned by J.P. Morgan, and
the private label administration group of Vanguard, which administered nearly
$10 billion in assets for 45 portfolios, respectively.
The Fund pays AMT Capital a monthly fee at an annual rate of 0.07%
of the average daily net assets of the Fund on the first $350 million, 0.05%
thereafter up to $3 billion, 0.04% thereafter up to $5 billion, and 0.03% on
assets over $5 billion. The Fund also reimburses AMT Capital for certain
costs. In addition, the Fund has agreed to pay the Administrator an incentive
fee for reducing the expense ratio of one or more Portfolios of the Fund below
the specified expense ratio established for such Portfolios. The maximum
incentive fee is 0.02% of the average daily net assets of a Portfolio.
TAX CONSIDERATIONS
The following discussion is for general information only. An
investor should consult with his or her own tax adviser as to the tax
consequences of an investment in a Portfolio, including the status of
distributions from each Portfolio under applicable state or local law.
FEDERAL INCOME TAXES
Each active Portfolio has qualified for and intends to continue to
qualify to be treated as a regulated investment company ("RIC") under the
Internal Revenue Code of 1986, as amended. To qualify, a Portfolio must meet
certain income, distribution and diversification requirements. In any year in
which a Portfolio qualifies as a RIC and distributes all of its taxable income
on a timely basis, the Portfolio will not pay U.S. federal income or excise
tax. Each Portfolio intends to distribute all of its taxable income by
automatically reinvesting such amount in additional shares of the Portfolio
and distributing those shares to its shareholders, unless a shareholder
elects, on the Account Application Form, to receive cash payments for such
distributions.
Dividends paid by a Portfolio are taxable to shareholders even
though the dividends are automatically reinvested in additional shares of a
Portfolio. Dividends paid by a Portfolio from its investment company taxable
income (including interest and net short-term capital gains) will be taxable
to a U.S. shareholder as ordinary income. Distributions of net capital gains
(the excess of net long-term capital gains over net short-term capital
losses), if any, designated as capital gains dividends are taxable to
shareholders as long-term capital gain, regardless of how long they have held
their Portfolio shares. None of the amounts treated as distributed to a
Portfolio's shareholders will be eligible for the corporate dividends received
deduction.
A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by a Portfolio in October, November or
December with a record date in any such month and paid by the Portfolio during
January of the following calendar year. Such distributions will be taxable to
shareholders in the calendar year in which the distributions are declared,
rather than the calendar year in which the distributions are received. Each
Portfolio will inform shareholders of the amount and tax status of all amounts
treated as distributed to them not later than 60 days after the close of each
calendar year.
Any gain or loss realized by a shareholder upon the sale or other
disposal of shares of a Portfolio, or upon receipt of a distribution in a
complete liquidation of the Portfolio, generally will be a capital gain or
loss which will be long-term or short-term, generally depending upon the
shareholder's holding period for the shares.
Each Portfolio may be required to withhold U.S. federal income tax
at the rate of 31% of all taxable distributions payable to shareholders who
fail to provide the Portfolio with their correct taxpayer identification
number or to make required certifications, or who have been notified by the
IRS that they are subject to backup withholding. Backup withholding is not an
additional tax. Any amounts withheld may be credited against the
shareholder's U.S. federal income tax liability.
Income received by a Portfolio from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States
may reduce or eliminate such taxes. In certain circumstances, a Portfolio may
be eligible and may elect to "pass through" to the Portfolio's shareholders
the amount of foreign income and similar taxes paid by the Portfolio. Each
shareholder will be notified within 60 days after the close of a Portfolio's
taxable year whether the foreign taxes paid by the Portfolio will "pass
through" for the year.
STATE AND LOCAL TAXES
A Portfolio may be subject to state, local or foreign taxation in
any jurisdiction in which the Portfolio may be deemed to be doing business.
Portfolio distributions may be subject to state and local taxes.
Distributions of a Portfolio which are derived from interest on obligations of
the U.S. Government and certain of its agencies, authorities and
instrumentalities may be exempt from state and local taxes in certain states.
Shareholders should consult their own tax advisers regarding the
possible exclusion for state and local income tax purposes of the portion of
dividends paid by a Portfolio which is attributable to interest from
obligations of the U.S. Government and its agencies, authorities and
instrumentalities.
SHAREHOLDER INFORMATION
DESCRIPTION OF THE FUND
The Fund was established under Maryland law by the filing of its
Articles of Incorporation on February 23, 1989. The Fund has been in
operation since December 6, 1989. The Fund's Articles of Incorporation permit
the Directors to authorize the creation of additional portfolios, each of
which will issue a separate class of shares. Currently, the Fund has thirteen
separate Portfolios. The Fund bears all expenses of its operations other than
those incurred by the Investment Adviser under its investment advisory
agreement. In particular, the Fund pays: investment advisory fees;
administration fees; custodian, transfer agent, accounting agent and dividend
disbursing agent fees and expenses; legal and auditing fees; expenses of
preparing and printing shareholder reports; registration fees and expenses;
proxy and annual shareholder meeting expenses, if any; and directors' fees and
expenses.
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Director
elections and other matters submitted to shareholders for their vote. Matters
to be acted upon that affect a particular Portfolio, including approval of the
investment advisory agreement with the Investment Adviser and the submission
of changes of fundamental investment policy of a Portfolio, will require the
affirmative vote of the shareholders of such Portfolio. The election of the
Fund's Board of Directors and the approval of the Fund's independent public
accountants are voted upon by shareholders on a Fund-wide basis. As a
Maryland corporation, the Fund is not required to hold annual shareholder
meetings. Shareholder approval will be sought only for certain changes in the
Fund's or a Portfolio's operation and for the election of Directors under
certain circumstances.
Directors may be removed by shareholders at a special meeting. A
special meeting of the Fund shall be called by the Directors upon written
request of shareholders owning at least 10% of the Fund's outstanding shares.
CONTROL PERSON
As of December 31, 1996, Fischer Francis Trees & Watts, Inc. had
discretionary investment advisory agreements with shareholders of the Fund
that represent 75.13% of the Fund's total net assets and therefore, may be
deemed a control person.
PERFORMANCE INFORMATION
From time to time the Fund may advertise a Portfolio's "yield" and
"total return". A Portfolio's yield for any 30-day (or one month) period is
computed by dividing the net investment income per share earned during such
period by the maximum public offering price per share on the last day of the
period, and then annualizing such 30-day (or one month) yield in accordance
with a formula prescribed by the Commission which provides for compounding on
a semiannual basis. Advertisements of a Portfolio's total return may disclose
its average annual compounded total return for the period since the
Portfolio's inception. A Portfolio's total return for such period is computed
by finding, through use of a formula prescribed by the Commission, the average
annual compounded rate of return over the period that would equate an assumed
initial amount invested to the value of the investment at the end of the
period. For purposes of computing total return, dividends and capital gains
distributions paid on shares are assumed to have been reinvested when
received. As described above, the Fund imposes no sales charges applicable to
purchases and redemptions. Total return and yield figures are based on a
Portfolio's historical performance and are not intended to indicate future
performance. The value of an investment in a Portfolio will fluctuate and the
shares in an investor's account, when redeemed, may be worth more or less than
their original cost.
From time to time the Money Market Portfolio may advertise its
"current yield" and "effective yield." Both yield figures are based on
historical earnings and are not intended to indicate future performance. The
"current yield" refers to the income generated by an investment in a Portfolio
over a seven calendar-day period (which period will be stated in the
advertisement). This income is then "annualized." That is, the amount of
income generated by the investment during that week is assumed to be generated
each week over a one-year period and is shown as a percentage of the investment.
The "effective yield" is calculated similarly but, when annualized, the income
earned by an investment in the Portfolio is assumed to be reinvested. The
"effective yield" will be slightly higher than the "current yield" because of
the compounding effect of this assumed reinvestment.
CUSTODIAN AND ACCOUNTING AGENT
Investors Bank & Trust Company, P.O. Box 1537, Boston, Massachusetts
02205-1537, is Custodian and Accounting Agent for the Fund.
TRANSFER AND DIVIDEND DISBURSING AGENT
Investors Bank & Trust Company, P.O. Box 1537, Boston,
Massachusetts 02205-1537, is Transfer Agent for the shares of the Fund, and
Dividend Disbursing Agent for the Fund.
LEGAL COUNSEL
Dechert Price & Rhoads, 1500 K Street, N.W., Washington, D.C. 20005-1208,
is legal counsel for the Fund.
INDEPENDENT AUDITORS
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019, is the
independent auditor for the Fund. Ernst & Young LLP also renders accounting
services to the Investment Adviser and the Sub-Adviser.
SHAREHOLDER INQUIRIES
Inquiries concerning the Fund may be made by writing to AMT Capital
Services, Inc., 600 Fifth Avenue, 26th Floor, New York, New York 10020 or by
calling AMT Capital at (800) 762-4848 [or (212) 332-5211, if within New York
City].
STATEMENT OF ADDITIONAL INFORMATION
FFTW FUNDS, INC.
200 Park Avenue, 46th Floor
New York, New York 10166
(212) 681-3000
FFTW Funds, Inc. (the "Fund") is a no-load, open-end management
investment company managed by Fischer Francis Trees & Watts, Inc. (the
"Investment Adviser"). The Fund currently consists of thirteen separate
portfolios (each a "Portfolio"): (1) U.S. Fixed Income Portfolios - Money
Market ("Money Market"); U.S. Short-Term ("U.S. Short-Term"); Stable Return
("Stable Return"); U.S. Treasury ("U.S. Treasury"); Mortgage Total Return
("Mortgage Total Return"); and Broad Market ("Broad Market"); and (2) Global and
International Fixed Income Portfolios - Worldwide ("Worldwide"); Worldwide-
Hedged ("Worldwide-Hedged"); International ("International"); International-
Hedged ("International-Hedged"); Emerging Markets ("Emerging Markets");
Inflation-Indexed ("Inflation-Indexed"); and Inflation-Indexed Hedged
("Inflation-Indexed Hedged"). Shares of each Portfolio may be purchased through
AMT Capital Services, Inc. ("AMT Capital"), the exclusive distributor.
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the prospectus of the Fund, dated April 30,
1997 (the "Prospectus"), which has been filed with the Securities and Exchange
Commission (the "Commission") and can be obtained, without charge, by calling or
writing AMT Capital at the telephone number or address stated below. This
Statement of Additional Information incorporates by reference the Prospectus.
Distributed by: AMT Capital Services, Inc.
600 Fifth Avenue, 26th Floor
New York, New York 10020
(212) 332-5211
(800) 762-4848 (outside New York City)
The date of this Statement of Additional Information is April 30, 1997
TABLE OF CONTENTS
Page
History of the Fund...............................................
Organization of the Fund..........................................
Management of the Fund............................................
Board of Directors and Officers................................
Investment Adviser and Sub-Adviser.............................
Administrator
Control Persons and Principal Holders of Securities...............
Distribution of Fund Shares.......................................
Supplemental Descriptions of Investments..........................
Supplemental Investment Techniques................................
Supplemental Discussion of Risks Associated With the
Fund's Investment Policies and Investment Techniques...........
Supplemental Techniques to Hedge Interest Rate and Foreign
Currency Risks and Other Foreign Currency Strategies...........
Forward Foreign Currency Exchange Contracts
and Associated Risks..........................................
Options........................................................
Futures Contracts and Options on Futures Contracts.............
Other Hedging Techniques.......................................
Investment Restrictions...........................................
Portfolio Transactions............................................
Tax Considerations................................................
Shareholder Information...........................................
Calculation of Performance Data...................................
Financial Statements..............................................
Appendix..........................................................
Merrill Lynch 1-2.99 Year Treasury Index......................
Quality Rating Descriptions...................................
HISTORY OF THE FUND
From its inception on February 23, 1989 to September 27, 1989, the
name of the Fund was "FFTW Institutional Reserves Fund, Inc.". The Fund
commenced operations on December 6, 1989. From September 27, 1989 to July 22,
1991 the name of the Fund was "FFTW Reserves, Inc." On July 22, 1991 the name
of the Fund was changed to its present name, "FFTW Funds, Inc." The U.S. Short-
Term Portfolio which commenced operations on December 6, 1989, Worldwide
Portfolio which commenced operations on April 15, 1992, and Worldwide-Hedged
Portfolio which commenced operations on May 19, 1992, were known as Short-Term
Series (and prior to September 18, 1991 as FFTW Institutional Reserves Fund),
Worldwide Series and Worldwide Hedged Series, respectively. The Board of
Directors recently approved a name change for several Portfolios, eliminating
"Fixed Income" from their name.
ORGANIZATION OF THE FUND
The authorized capital stock of the Fund consists of 1,000,000,000
shares with $.001 par value, allocated as follows: (i) 200,000,000 shares each
to Money Market and U.S. Short-Term; (ii) 100,000,000 shares to Mortgage Total
Return; and (iii) 50,000,000 shares to each of the other Portfolios. Each share
of each Portfolio has equal voting rights as to each share of such Portfolio.
Shareholders have one vote for each share held. All shares issued and
outstanding are fully paid and non-assessable, transferable, and redeemable at
net asset value at the option of the shareholder. Shares have no preemptive or
conversion rights.
The shares of the Fund have non-cumulative voting rights, which
means that the holders of more than 50% of the shares voting for the election of
Directors can elect 100% of the Directors if they choose to do so, and, in such
event, the holders of the remaining less than 50% of the shares voting for the
election of Directors will not be able to elect any person or persons to the
Board of Directors.
No Portfolio of the Fund shall be liable for the obligations of any other
Portfolio.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS AND OFFICERS
The Fund is managed by its Board of Directors. The individuals
listed below are the officers and directors of the Fund. An asterisk (*) has
been placed next to the name of each director who is an "interested person" of
the Fund, as such term is defined in the Investment Company Act of 1940, as
amended (the "1940 Act"), by virtue of his affiliation with the Fund or the
Investment Adviser.
*Stephen J. Constantine, 200 Park Avenue, New York, NY. President
and Director of the Fund. Mr. Constantine has been a shareholder and Managing
Director of the Investment Adviser for the last five years.
John C Head III, 1330 Avenue of the Americas, New York, New York
10019-5402. Director of the Fund. Mr. Head has been a Managing Member of Head &
Company L.L.C. (or predecessor firm), a merchant banking firm providing advice
to corporations in the insurance industry, since 1987. He is Chairman of the
Board of Integon Corporation, Vice Chairman of PartnerRe Ltd. and a director of
other privately held corporations.
Lawrence B. Krause, University of California - San Diego ("UCSD"),
La Jolla, CA. Director of the Fund. Mr. Krause is a member of the Editorial
Advisory Board of the Political Science Quarterly, a member of the Council on
Foreign Relations, and Vice-Chairman of the U.S. National Committee for Pacific
Economic Cooperation. In December, 1990, he was selected as the first holder of
the Pacific Economic Cooperation Chair at UCSD. In 1989, Mr. Krause became the
Director, Korea-Pacific Program at UCSD. In 1988, he was named Coordinator of
the Pacific Economic Outlook Project for the Pacific Economic Cooperation
Conference. Mr. Krause was the first appointment to the new Graduate School of
International Relations and Pacific Studies at UCSD and joined the faculty as a
professor on January 1, 1987. From 1969 - 1986 Mr. Krause was a senior fellow
of the Brookings Institution. Mr. Krause is also an author of numerous
publications.
Paul Meek, 5837 Cove Landing Road, Burke, Va. Director of the Fund.
From 1985 to 1993, Mr. Meek was a financial and economic consultant to foreign
central banks under the auspices of each of the Harvard Institute for
International Development, the International Monetary Fund and the World Bank.
Mr. Meek is a principal in PM Consulting (financial and economic consulting) and
has been since 1985. PM Consulting was a consultant to the Investment Adviser
from 1985 - January, 1989; such consulting arrangement has been terminated.
From 1982-1985, Mr. Meek was Vice President and Monetary Adviser of the Federal
Reserve Bank of New York. Mr. Meek has been a trustee of the Weiss, Peck &
Greer group of mutual funds since 1988.
*Onder John Olcay, 200 Park Avenue, New York, NY. Chairman of the
Board of the Fund. Mr. Olcay has been a shareholder and Managing Director of
the Investment Adviser for the last five years.
Stephen P. Casper, 200 Park Avenue, New York, NY. Treasurer of the
Fund. Mr. Casper has been a shareholder and Managing Director of the Investment
Adviser since December 1991. In addition, Mr. Casper has been the Chief
Financial Officer of the Investment Adviser since February 1990. From March
1984 through January 1990, Mr. Casper was Treasurer of Rockefeller & Company, a
registered investment adviser.
Carla E. Dearing, 600 Fifth Avenue, New York, NY. Assistant
Treasurer of the Fund. Ms. Dearing serves as President, Principal, and Director
of AMT Capital Services since its inception in March 1992. Ms. Dearing is also
Senior Vice President and Principal of AMT Capital Advisers, Inc. since January
1992. Ms. Dearing was a former Vice President of Morgan Stanley & Co., where
she worked from June 1984 to August 1986 and from November 1988 to January
1992.
William E. Vastardis, 600 Fifth Avenue, New York, NY. Secretary of the
Fund. Mr. Vastardis serves as Senior Vice President and administrator of the
Fund on behalf of AMT Capital Services. Prior to April 1992, Mr. Vastardis
served as Vice President and head of the Vanguard Group Inc.'s private label
administration unit for seven years, after six years in Vanguard's fund
accounting operations.
No employee of the Investment Adviser nor AMT Capital Services
receives any compensation from the Fund for acting as an officer or director
of the Fund. The Fund pays each director who is not a director, officer or
employee of the Investment Adviser or AMT Capital Services or any of their
affiliates, a fee of $1,000 for each meeting attended, and each of the
Directors receive an annual retainer of $20,000 which is paid in quarterly
installments.
Director's Compensation Table
Fiscal Year Ended December 31, 1996
- --------------------------------------------------------------------------------
Director Aggregate Pension or Estimated Total
Compensation From Retirement Annual Compensation
Registrant Benefits benefits From
Registrant
Accrued Upon and Fund
As Part of Retirement Complex Paid
Fund to Directors
Expenses
- --------------------------------------------------------------------------------
Stephen J. Constantine $0 $0 $0 $0
John C Head III $20,000 $0 $0 $20,000
Lawrence B. Krause $20,000 $0 $0 $20,000
Paul Meek $20,000 $0 $0 $20,000
Onder John Olcay $0 $0 $0 $0
By virtue of the responsibilities assumed by the Investment Adviser and AMT
Capital Services and their affiliates under their respective agreements with
the Fund, the Fund itself requires no employees in addition to its officers.
Directors and officers of the Fund collectively owned less than 1%
of the Fund's outstanding shares as of March 31, 1996.
INVESTMENT ADVISER AND SUB-ADVISER
The Fund has two sets of advisory agreements, one for U.S. Short-
Term, Worldwide and Worldwide-Hedged (the "original" agreement), and one for
each of the other ten Portfolios (the "new" agreements). The Fund also has two
sets of sub-advisory agreements, one for Worldwide and Worldwide-Hedged, and one
for each of International, International-Hedged, Emerging Markets, Inflation-
Indexed and Inflation-Indexed Hedged.
Pursuant to their terms, the advisory agreements between the Fund
and the Investment Adviser (the "Advisory Agreements") and the sub-advisory
agreements (the "Sub-Advisory Agreements") between the Investment Adviser and
its affiliate Fischer Francis Trees & Watts (the "Sub-Adviser"), a corporate
partnership organized under the laws of the United Kingdom, remain in effect for
two years following their date of execution and thereafter will automatically
continue for successive annual periods, so long as such continuance is
specifically approved at least annually by (a) the Board of Directors or (b) the
vote of a "majority" (as defined in the 1940 Act) of a Portfolio's outstanding
shares voting as a single class; provided, that in either event the continuance
is also approved by at least a majority of the Board of Directors who are not
"interested persons" (as defined in the 1940 Act) of the Fund, the Investment
Adviser or the Sub-Adviser by vote cast in person at a meeting called for the
purpose of voting on such approval. The following table highlights the dates in
which the Advisory Agreements were last approved by the Board of Directors and
by a majority of shareholders:
Portfolio Last Board Approval Last Shareholder Approval
Money Market 11/6/96 1/21/97
U.S. Short-Term 2/12/97 4/3/91
Stable Return 2/12/97 2/18/93
U.S. Treasury 2/12/97 1/21/97
Mortgage Total Return 2/12/97 1/2/96
Broad Market 2/12/97 1/21/97
Worldwide 2/12/97 12/31/92
Worldwide-Hedged 2/12/97 12/31/92
International 2/12/97 2/18/93
International-Hedged 2/7/96 2/18/93
Emerging Markets 11/6/96 1/21/97
Inflation-Indexed 11/6/96 1/21/97
Inflation-Indexed Hedged 11/6/96 1/21/97
The following table highlights the dates in which the Sub-Advisory Agreements
were last approved by the Board of Directors and by a majority of shareholders:
Portfolio Last Board Approval Last Shareholder Approval
Worldwide 2/12/97 12/31/92
Worldwide-Hedged 2/12/97 12/31/92
International 2/12/97 2/18/93
International-Hedged 2/12/97 2/18/93
Emerging Markets 11/6/96 1/21/97
Inflation-Indexed 11/6/96 1/21/97
Inflation-Indexed Hedged 11/6/96 1/21/97
Each Advisory and Sub-Advisory Agreement is terminable without
penalty on not less than 60 days' notice by the Board of Directors or by a vote
of the holders of a majority of the relevant Portfolio's outstanding shares
voting as a single class, or upon not less than 60 days' notice by the
Investment Adviser or the Sub-Adviser. Each Advisory and Sub-Advisory Agreement
will terminate automatically in the event of its "assignment" (as defined in the
1940 Act).
The Investment Adviser pays all of its expenses arising from the
performance of its obligations under the Advisory Agreements, including all
executive salaries and expenses of the directors and officers of the Fund who
are employees of the Investment Adviser or its affiliates and office rent of the
Fund. The Investment Adviser also pays a monthly sales incentive fee to AMT
Capital Services, Inc., the Distributor for the Fund. See "Distribution of Fund
Shares" in the Prospectus. In addition, the Investment Adviser will pay all of
the fees payable to its affiliate as Sub-Adviser. The Sub-Adviser pays all of
its expenses arising from the performance of its obligations under the Sub-
Advisory Agreements. Subject to the expense reimbursement provisions described
in the Prospectus under "Fund Expenses", other expenses incurred in the
operation of the Fund are borne by the Fund, including, without limitation,
investment advisory fees, brokerage commissions, interest, fees and expenses of
independent attorneys, auditors, custodians, accounting agents, transfer agents,
taxes, cost of stock certificates and any other expenses (including clerical
expenses) of issue, sale, repurchase or redemption of shares, expenses of
registering and qualifying shares of the Fund under federal and state laws and
regulations, expenses of printing and distributing reports, notices and proxy
materials to existing shareholders, expenses of printing and filing reports and
other documents filed with governmental agencies, expenses of annual and special
shareholders' meetings, fees and expenses of directors of the Fund who are not
employees of the Investment Adviser or its affiliates, membership dues in the
Investment Company Institute, insurance premiums and extraordinary expenses such
as litigation expenses. Fund expenses directly attributable to a Portfolio are
charged to that Portfolio; other expenses are allocated proportionately among
all the Portfolios in relation to the net assets of each Portfolio.
Both the Investment Adviser and the Sub-Adviser are directly or
indirectly wholly-owned by Charter Atlantic Corporation, a New York
corporation.
As compensation (subject to expense caps as described under "Fund
Expenses" in the Prospectus) for the services rendered by the Investment Adviser
under the Advisory Agreements, each Portfolio pays the Investment Adviser a
monthly advisory fee (each of U.S. Short-Term, Worldwide and Worldwide-Hedged
pays its fees quarterly) calculated by applying the following annual percentage
rates to such Portfolio's average daily net assets for the month (quarter):
Rate
U.S. Fixed Income Portfolios
Money Market .10%
U.S. Short-Term .15%*
Stable Return .15%**
U.S. Treasury .30%
Mortgage Total Return .30%
Broad Market .30%
Global and International Fixed Income Portfolios
Worldwide .40%
Worldwide-Hedged .25%***
International .40%
International-Hedged .40%
Emerging Markets .75%
Inflation-Indexed .40%
Inflation-Indexed Hedged .40%
* Effective March 1, 1996, the Adviser has voluntarily lowered the advisory
fee from .30%.
** Effective March 1, 1996, the Adviser has voluntarily lowered the advisory
fee from .35%.
*** Effective July 1, 1995, the Adviser has voluntarily lowered the advisory
fee from .40%.
For the years ended December 31, 1996, December 31, 1995 and December 31,
1994, the amount of advisory fees (net of waivers and reimbursements) paid by
each Portfolio were as follows:
Portfolio Year Ended Year Ended Periods Ended
December 31, December 31, December 31,
1996 1995 1994
- --------------------------------------------------------------------------------
U.S. Short-Term Portfolio $607,871 $867,461 $625,321
Stable Return Portfolio 1,711 0 0
Mortgage Total Return Portfolio (1) 126,822 0 0
Worldwide Portfolio 334,929 46,819 517,489
Worldwide-Hedged Portfolio 1,647 0 35,809
International Portfolio (2) 12,322 0 0
International-Hedged Portfolio (3) 180,065 52,860 0
(1) Commencement of Operations was April 29, 1996.
(2) Commencement of Operations was May 9, 1996.
(3) The Portfolio was fully liquidated on December 30, 1994, and recommenced
operations on September 14, 1995.
ADMINISTRATOR
Pursuant to its terms, the Administration Agreement between the
Fund and AMT Capital Services, Inc., a Delaware corporation will automatically
continue for successive annual periods subject to the approval of the Fund's
Board of Directors. AMT Capital provides for, or assists in managing and
supervising all aspects of, the general day-to-day business activities and
operations of the Fund other than investment advisory activities, including
custodial, transfer agency, dividend disbursing, accounting, auditing,
compliance and related services.
PRINCIPAL HOLDERS OF SECURITIES
As of March 31, 1997, the following persons held 5 percent or more of the
outstanding shares of Money Market:
Name and Address of Nature of Percent
Title of Class Beneficial Owner Beneficial of Portfolio
Ownership
Common Stock, Cooper Industries, Inc., Direct 91.21%
$.001 per 1001 Fannin St., First Ownership
Share City Tower, Suite 3900,
Houston, TX 77210
Common Stock, ESI Securities Co., 1221 Direct 5.96%
$.001 per Avenue of the Americas, Ownership
Share 30th Floor, New York,
NY 10020
As of March 31, 1997, the following persons held 5 percent or more of the
outstanding shares of U.S. Short-Term:
Name and Address of Nature of Percent of
Title of Class Beneficial Owner Beneficial Portfolio
Ownership
Common Stock, Philip Morris Direct 13.58%
$.001 per Share Companies, Inc., 120 Ownership
Park Avenue, New York
10017-5523
Common Stock, Monsanto Reserve Cash, Direct 11.70%
$.001 per Share c/o Fischer Francis Ownership
Trees & Watts, Inc.,
200 Park Avenue,
New York, NY 10166
Common Stock, The Dow Chemical Direct 11.36%
$.001 per Share Company Employees Ownership
Retirement Plan,
Dorinco 100, Midland,
MI 48674-0000
Common Stock, Markey Charitable Direct 6.65%
$.001 per Share Trust, 3250 Mary Ownership
Street, #405, Miami,
FL 33133-5255
Common Stock, State Street Bank & Direct 6.29%
$.001 per Share Trust Co., Trustee for Ownership
Pacific Gas & Electric Co.
Post-Retirement Medical
Trust, One Enterprise
Drive W6A, North Quincy,
MA 02171
Common Stock, State Street Bank & Trust Direct 6.19%
$.001 per Share Co., Trustee for Bull HN Ownership
Information Systems Inc.,
One Enterprise Drive SW 5C,
North Quincy, MA 02171
Common Stock, Cascade Investments Direct 5.68%
$.001 per Share LLC, c/o Fischer Ownership
Francis Trees & Watts,
Inc., 200 Park Avenue,
46th Floor, New York,
NY 10166
Common Stock, Wachovia Bank of North Direct 5.27%
$.001 per Share Carolina, Trustee for Ownership
R.J.R. Nabisco Defined
Benefit Plan, P.O.
Box 3099, Winston-Salem,
NC 27150-3099
As of March 31, 1997, the following persons held 5 percent or more of the
outstanding shares of Stable Return:
Name and Address of Nature of Percent
Title of Class Beneficial Owner Beneficial of Portfolio
Ownership
Common Stock, The Dow Chemical Company Direct 44.89%
$.001 per Foundation, Dorinco 100, Ownership
Share Midland, MI 48674
Common Stock, Northern Trust Co., Direct 34.51%
$.001 per Trustee FBO Sandoz Ownership
Share Investment Plan, P.O. Box
92956, Chicago, IL 60675
Common Stock, Corporation for Supportive Direct 19.72%
$.001 per Housing, 342 Madison Ownership
Share Avenue, Suite 505, New
York, NY 10173
As of March 31, 1997, the following persons held 5 percent or more of the
outstanding shares of Mortgage Total Return:
Name and Address of Nature of Percent
Title of Class Beneficial Owner Beneficial of Portfolio
Ownership
Common Stock, State Street Bank & Trust Direct 25.49%
$.001 per Co., Trustee for Bull HN Ownership
Share Information Systems Inc.,
One Enterprise Drive SW
5C, North Quincy, MA
02171
Common Stock, Corning, Inc. Master Direct 19.99%
$.001 per Trust, c/o U.S. Trust Co., Ownership
Share 114 W. 47th St., 3rd Floor-
39, New York, NY 10036-
1632
Common Stock, International Business Direct 18.24%
$.001 per Machines Corp., c/o Ownership
Share Fischer Francis Trees &
Watts, Inc., 200 Park
Avenue, 46th Floor, New
York, NY 10166
Common Stock, International Bank for Direct 8.69%
$.001 per Reconstruction and Ownership
Share Development Staff Benefits
Plan, c/o Fischer Francis
Trees & Watts, Inc., 200
Park Avenue, 46th Floor,
New York, NY 10166
Common Stock, International Bank for Direct 7.91%
$.001 per Reconstruction and Ownership
Share Development Staff
Retirement Plan, c/o
Fischer Francis Trees &
Watts, Inc., 200 Park
Avenue, 46th Floor,
New York, NY 10166
Common Stock, Cornell University, Direct 6.79%
$.001 per Terrace Hill, Ithaca, NY Ownership
Share 14853-0001
As of March 31, 1997, the following persons held 5 percent or more of the
outstanding shares of Worldwide:
Name and Address of Nature of Percent
Title of Class Beneficial Owner Beneficial of Portfolio
Ownership
Common Stock, Northern Trust Co., Direct 21.78%
$.001 per Trustee for GATX Ownership
Share Master Retirement
Trust, 500 W. Monroe
St., 44th Floor,
Chicago, IL 60661
Common Stock, Bob & Co., c/o Bank Direct 16.86%
$.001 per of Boston, P.O. Box Ownership
Share 1809, Boston, MA 02105
Common Stock, Administrators of Direct 14.91%
$.001 per Tulane Educational Ownership
Share Fund, Treasurer's
Office, 6401 Freret
St., Suite 178, New
Orleans, LA 70118
Common Stock, Community Foundation Direct 11.50%
$.001 per For Southeastern Ownership
Share Michigan, 333 West
Fort St., Suite 2010,
Detroit, MI 48226
Common Stock, Bentley College, 175 Direct 7.73%
$.001 per Forest St., Waltham, Ownership
Share MA 02154
Common Stock, Geneva Regional Direct 7.10%
$.001 per Health System Inc., Ownership
Share 196 North St.,
Geneva, NY 14456
As of March 31, 1997, the following persons held 5 percent or more of the
outstanding shares of Worldwide-Hedged:
Name and Address of Nature of Percent
Title of Class Beneficial Owner Beneficial of Portfolio
Ownership
Common Stock, Northern Trust Co. Direct 32.34%
$.001 per Trustee for Mars Ownership
Share Benefit Trust, P.O.
Box 92956, Attn:
Mutual Funds,
Chicago, IL 60675
Common Stock, Law School Admission Direct 28.01%
$.001 per Council Inc., P.O. Ownership
Share Box 40, Newtown, PA
18940-0040
Common Stock, State Street Bank & Direct 23.86%
$.001 per Trust Co., Trustee Ownership
Share for Goldman Sachs
Pension Plan, 200
Newport Ave., North
Quincy, MA 02171
Common Stock, The McCallie School, Direct 11.33%
$.001 per 500 Dodds Ave., Ownership
Share Chattanooga, TN 37404
As of March 31, 1997, the following persons held 5 percent or more of the
outstanding shares of International:
Name and Address of Nature of Percent
Title of Class Beneficial Owner Beneficial of Portfolio
Ownership
Common Stock, Colonial Williamsburg Direct 33.46%
$.001 per Foundation, P.O. Box 1776, Ownership
Share Williamsburg, VA 23187-
1776
Common Stock, HF Investment LP, Direct 22.81%
$.001 per 1700 Old Deerfield Ownership
Share Road, Highland Park,
IL 60035
Common Stock, David & Company, Direct 17.84%
$.001 per P.O. Box 188, Ownership
Share Murfreesboro, TN
37133-0188
Common Stock, Mac & Co., Mellon Direct 15.45%
$.001 per Trust, P.O. Box Ownership
Share 3198, Pittsburgh, PA
15230-3198
Common Stock, State Street Bank & Direct 10.43%
$.001 per Trust, Trustee FBO Ownership
Share Retirement Income
Plan For Employees
of Colonial
Williamsburg, P.O.
Box 1776,
Williamsburg, VA
23187-1776
As of March 31, 1997, the following persons held 5 percent or more of the
outstanding shares of International-Hedged:
Name and Address of Nature of Percent
Title of Class Beneficial Owner Beneficial of Portfolio
Ownership
Common Stock, Northrop Corporation Direct 20.06%
$.001 per Share Employee Benefit Plan, Ownership
1840 Century Park West,
Los Angeles, CA 90067-2101
Common Stock, International Business Direct 18.69%
$.001 per Share Machines Corp. Ownership
Retirement Plan, 3001
Summer Street,
Stamford, CT 06905
Common Stock, U.S. Trust Co., Direct 17.66%
$.001 per Share Trustee for Corning, Ownership
Inc., 777 Broadway, 10th
Floor, New York, NY
10003-9598
Common Stock, Northern Trust Co. Direct 9.71%
$.001 per Share Trustee for Monsanto Ownership
Defined Contribution,
P.O. Box 92956, Attn:
Mutual Funds, Chicago,
IL 60675
Common Stock, Chase Manhattan Bank Direct 9.19%
$.001 per Share NA, Trustee for Amoco Ownership
Corporation Master Trust
Employee Pension Plan,
3 Chase Metrotech Center,
7th Floor, Brooklyn,
NY 11245
Common Stock, Henry J. Kaiser Family Direct 7.60%
$.001 per Share Foundation, c/o Ownership
Bankers Trust Co.,
34 Exchange Place,
2nd Floor,
Jersey City, NJ 07302
Common Stock, Bankers Trust Co. FBO Direct 6.77%
$.001 per Share Premark International Ownership
Defined Benefit Trust,
34 Exchange Place,
2nd Floor,
Jersey City, NJ 07302
Common Stock, Pension Fund of the Direct 5.76%
$.001 per Share Retirement Plan of
Northern Southern
Corporation, 110
Franklin Rd., S.E.
Roanoke, VA 24042-0040
DISTRIBUTION OF FUND SHARES
Shares of the Fund are distributed by AMT Capital Services, Inc.
pursuant to a Distribution Agreement (the "Distribution Agreement") dated as of
February 1, 1995 between the Fund and AMT Capital. No fees are payable by the
Fund pursuant to the Distribution Agreement, and AMT Capital bears the expense
of its distribution activities. The Fund and AMT Capital have agreed to
indemnify one another against certain liabilities.
SUPPLEMENTAL DESCRIPTIONS OF INVESTMENTS
The different types of securities in which the Portfolios may
invest, subject to their respective investment objectives, policies and
restrictions, are described in the Prospectus under "Descriptions of
Investments". Additional information concerning the characteristics of certain
of the Portfolio's investments are set forth below.
U.S. Treasury and U.S. Government Agency Securities. U.S.
Government Securities include instruments issued by the U.S. Treasury, including
bills, notes and bonds. These instruments are direct obligations of the U.S.
Government and, as such, are backed by the full faith and credit of the United
States. They differ primarily in their interest rates, the lengths of their
maturities and the dates of their issuances. In addition, U.S. Government
Securities include securities issued by instrumentalities of the U.S.
Government, such as the Government National Mortgage Association ("GNMA"), which
are also backed by the full faith and credit of the United States. U.S.
Government Agency Securities include instruments issued by instrumentalities
established or sponsored by the U.S. Government, such as the Student Loan
Marketing Association ("SLMA"), the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). While
these securities are issued, in general, under the authority of an Act of
Congress, the U.S. Government is not obligated to provide financial support to
the issuing instrumentalities.
Foreign Government and International and Supranational Agency
Securities. Obligations of foreign governmental entities have various kinds of
government support and include obligations issued or guaranteed by foreign
governmental entities with taxing powers or issued or guaranteed by
international or supranational entities. These obligations may or may not be
supported by the full faith and credit of a foreign government or several
foreign governments. Examples of international and supranational entities
include the International Bank for Reconstruction, and Development ("World
Bank"), the European Steel and Coal Community, the Asian Development Bank, the
European Bank for Reconstruction and Development and the Inter-American
Development Bank. The governmental members, or "shareholders", usually make
initial capital contributions to the supranational entity and in many cases are
committed to make additional capital contributions if the supranational entity
is unable to repay its borrowings.
Bank Obligations. The Fund limits its investments in U.S. bank
obligations to obligations of U.S. banks that in the Investment Adviser's
opinion meet sufficient creditworthiness criteria.
The Fund limits its investments in foreign bank obligations to
obligations of foreign banks (including U.S. branches of foreign banks) that, in
the opinion of the Investment Adviser or the Sub-Adviser, are of an investment
quality comparable to obligations of U.S. banks in which each Portfolio may
invest.
Repurchase and Reverse Repurchase Agreements. When participating in
repurchase agreements, a Portfolio buys securities from a vendor (e.g., a bank
or securities firm) with the agreement that the vendor will repurchase the
securities at the same price plus interest at a later date. Repurchase
agreements may be characterized as loans secured by the underlying securities.
Such transactions afford an opportunity for the Portfolio to earn a return on
available cash at minimal market risk, although the Portfolio may be subject to
various delays and risks of loss if the vendor becomes subject to a proceeding
under the U.S. Bankruptcy Code or is otherwise unable to meet its obligation to
repurchase. The securities underlying a repurchase agreement will be marked to
market every business day so that the value of such securities is at least equal
to the value of the repurchase price thereof, including the accrued interest
thereon.
When participating in reverse repurchase agreements, a Portfolio
sells U.S. Government Securities and simultaneously agrees to repurchase them at
an agreed upon price and date. The difference between the amount the Portfolio
receives for the securities and the amount it pays on repurchase is deemed to be
a payment of interest. The Fund will maintain for each Portfolio a segregated
custodial account containing cash, U.S. Government Securities or other
appropriate high-grade debt securities having an aggregate value at least equal
to the amount of such commitments to repurchase, including accrued interest,
until payment is made. Reverse repurchase agreements create leverage, a
speculative factor, but will be not considered as borrowings for the purposes of
limitations on borrowings.
In addition, repurchase and reverse repurchase agreements may also
involve the securities of certain foreign governments in which there is an
active repurchase market. The Investment Adviser expects that such repurchase
and reverse repurchase agreements will primarily involve government securities
of countries belonging to the Organization for Economic Cooperation and
Development ("OECD"). Transactions in foreign repurchase and reverse repurchase
agreements may involve additional risks.
Dollar Roll Transactions. "Dollar roll" transactions consist of the
sale by a Portfolio to a bank or broker-dealer (the "counterparty") of GNMA
certificates or other mortgage-backed securities together with a commitment to
purchase from the counterparty similar, but not identical, securities at a
future date, at the same price. The counterparty receives all principal and
interest payments, including prepayments, made on the security while it is the
holder. The Portfolio receives a fee from the counterparty as consideration for
entering into the commitment to purchase. Dollar rolls may be renewed over a
period of several months with a new purchase and repurchase price fixed and a
cash settlement made at each renewal without physical delivery of securities.
Moreover, the transaction may be preceded by a firm commitment agreement
pursuant to which the Portfolio agrees to buy a security on a future date.
A Portfolio will not use such transactions for leverage purposes
and, accordingly, will segregate cash, U.S. Government securities or other high
grade debt obligations in an amount sufficient to meet its purchase obligations
under the transactions.
Dollar rolls are similar to reverse repurchase agreements because
they involve the sale of a security coupled with an agreement to repurchase.
Like all borrowings, a dollar roll involves costs to a Portfolio. For example,
while a Portfolio receives a fee as consideration for agreeing to repurchase the
security, the Portfolio may forgo the right to receive all principal and
interest payments while the counterparty holds the security. These payments to
the counterparty may exceed the fee received by the Portfolio, thereby
effectively charging the Portfolio interest on its borrowing. Further, although
the Portfolio can estimate the amount of expected principal prepayment over the
term of the dollar roll, a variation in the actual amount of prepayment could
increase or decrease the cost of the Portfolio's borrowing.
Mortgage-Backed Securities. Mortgage-backed securities are
securities which represent ownership interests in, or are debt obligations
secured entirely or primarily by, "pools" of residential or commercial mortgage
loans or other mortgage-backed securities (the "Underlying Assets"). In the
case of mortgage-backed securities representing ownership interests in the
Underlying Assets, the principal and interest payments on the underlying
mortgage loans are distributed monthly to the holders of the mortgage-backed
securities. In the case of mortgage-backed securities representing debt
obligations secured by the Underlying Assets, the principal and interest
payments on the underlying mortgage loans, and any reinvestment income thereon,
provide the funds to pay debt service on such mortgage-backed securities.
Certain mortgaged-backed securities are issued that represent an
undivided fractional interest in the entirety of the Underlying Assets (or in a
substantial portion of the Underlying Assets, with additional interests junior
to that of the mortgage-backed security), and thus have payment terms that
closely resemble the payment terms of the Underlying Assets.
In addition, many mortgage-backed securities are issued in multiple
classes. Each class of such multi-class mortgage-backed securities ("MBS"),
often referred to as a "traunche", is issued at a specific fixed or floating
coupon rate and has a stated maturity or final distribution date. Principal
prepayment on the Underlying Assets may cause the MBSs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrues on all or most classes of the MBSs on a periodic
basis, typically monthly or quarterly. The principal of and interest on the
Underlying Assets may be allocated among the several classes of a series of a
MBS in many different ways. In a relatively common structure, payments of
principal (including any principal prepayments) on the Underlying Assets are
applied to the classes of a series of a MBS in the order of their respective
stated maturities so that no payment of principal will be made on any class of
MBSs until all other classes having an earlier stated maturity have been paid in
full.
Other Asset-Backed Securities. The Investment Adviser expects that
other asset-backed securities (unrelated to mortgage loans) will be developed
and offered to investors in the future. Several types of such asset-backed
securities have already been offered to investors, including securities backed
by automobile loans and credit card receivables. Consistent with each
Portfolio's investment objectives and policies, a Portfolio may invest in other
types of asset-backed securities as they become available.
Zero Coupon Securities and Custodial Receipts. Zero coupon
securities include securities issued directly by the U.S. Treasury, and U.S.
Treasury bonds or notes and their unmatured interest coupons and receipts for
their underlying principal (the "coupons") which have been separated by their
holder, typically a custodian bank or investment brokerage firm. A holder will
separate the interest coupons from the underlying principal (the "corpus") of
the U.S. Treasury security. A number of securities firms and banks have
stripped the interest coupons and receipts and then resold them in custodial
receipt programs with a number of different names, including "Treasury Income
Growth Receipts" ("TIGRS") and "Certificate of Accrual on Treasuries" ("CATS").
The underlying U.S. Treasury bonds and notes themselves are held in book-entry
form at the Federal Reserve Bank or, in the case of bearer securities (i.e.,
unregistered securities which are owned ostensibly by the bearer or holder
thereof), in trust on behalf of the owners thereof. Counsel to the underwriters
of these certificates or other evidences of ownership of the U.S. Treasury
securities have stated that for Federal tax and securities law purposes, in
their opinion, purchasers of such certificates, such as a Portfolio, most likely
will be deemed the beneficial holders of the underlying U.S. Treasury
securities.
Recently, the Treasury has facilitated transfer of ownership of zero
coupon securities by accounting separately for the beneficial ownership of
particular interest coupon and corpus payments on Treasury securities through
the Federal Reserve book-entry record-keeping system. The Federal Reserve
program as established by the Treasury Department is known as "Separate Trading
of Registered Interest and Principal of Securities" ("STRIPS"). Under the
STRIPS program, a Portfolio can be able to have its beneficial ownership of zero
coupon securities recorded directly in the book-entry record-keeping system in
lieu of holding certificates or other evidences of ownership of the underlying
U.S. Treasury securities.
When U.S. Treasury obligations have been stripped of their unmatured
interest coupons by the holder, the principal or corpus is sold at a deep
discount because the buyer receives only the right to receive a future fixed
payment on the security and does not receive any rights to periodic interest
(cash) payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold in such bundled form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself.
Loan Participations. A loan participation is an interest in a loan
to a U.S. corporation (the "corporate borrower") which is administered and sold
by an intermediary bank. The borrower of the underlying loan will be deemed to
be the issuer of the participation interest except to the extent the Portfolio
derives its rights from the intermediary bank who sold the loan participation.
Such loans must be to issuers in whose obligations a Portfolio may invest. Any
participation purchased by a Portfolio must be issued by a bank in the United
States with assets exceeding $1 billion. See "Supplemental Discussion of Risks
Associated With the Fund's Investment Policies and Investment Techniques".
Variable Amount Master Demand Notes. Variable amount master demand
notes permit the investment of fluctuating amounts at varying rates of interest
pursuant to direct arrangements between a Portfolio (as lender) and the
borrower. These notes are direct lending arrangements between lenders and
borrowers, and are generally not transferable, nor are they ordinarily rated by
either Moody's or S&P.
Currency-Indexed Notes. In selecting the two currencies with
respect to which currency-indexed notes are adjusted, the Investment Adviser and
the Sub-Adviser will consider the correlation and relative yields of various
currencies. Each Portfolio may purchase a currency-indexed obligation using the
currency in which it is denominated and, at maturity, will receive interest and
principal payments thereon in that currency. The amount of principal payable by
the issuer at maturity, however, will vary (i.e., increase or decrease) in
response to the change (if any) in the exchange rate between the two specified
currencies during the period from the date the instrument is issued to its
maturity date. The potential for realizing gains as a result of changes in
foreign currency exchange rates may enable a Portfolio to hedge the currency in
which the obligation is denominated (or to effect cross-hedges against other
currencies) against a decline in the U.S. dollar value of investments
denominated in foreign currencies while providing an attractive market rate of
return. Each Portfolio will purchase such indexed obligations to generate
current income or for hedging purposes and will not speculate in such
obligations.
Principal Exchange Rate Linked Securities. Principal exchange rate
linked securities (or "PERLs") are debt obligations, the principal on which is
payable at maturity in an amount that may vary based on the exchange rate
between the U.S. dollar and a particular foreign currency at or about that time.
The return on "standard" principal exchange rate linked securities is enhanced
if the foreign currency to which the security is linked appreciates against the
U.S. dollar, and is adversely affected by increases in the foreign exchange
value of the U.S. dollar; "reverse" principal exchange rate linked securities
are like the "standard" securities, except that their return is enhanced by
increases in the value of the U.S. dollar and adversely impacted by increases in
the value of the foreign currency. Interest payments on the securities are
generally made in U.S. dollars at rates that reflect the degree of foreign
currency risk assumed or given up by the purchaser of the notes.
Performance Indexed Paper. Performance indexed paper (or "PIPs") is
U.S. dollar-denominated commercial paper, the yield of which is linked to
certain foreign exchange rate movements. The yield to the investor on
performance indexed paper is established at maturity as a function of spot
exchange rates between the U.S. dollar and a designated currency as of that
time. The yield to the investor will be within a range stipulated at the time
of purchase of the obligation, generally with a guaranteed minimum rate of
return that is below, and a potential maximum rate of return that is above,
market yields on U.S. dollar-denominated commercial paper, with both the minimum
and maximum rates of return on the investment corresponding to the minimum and
maximum values of the spot exchange rate two business days prior to maturity.
Other Foreign Currency Exchange-Related Securities. Securities may
be denominated in the currency of one nation although issued by a governmental
entity, corporation or financial institution of another nation. For example, a
Portfolio may invest in a British pound sterling-denominated obligation issued
by a United States corporation. Such investments involve credit risks
associated with the issuer and currency risks associated with the currency in
which the obligation is denominated.
The Investment Adviser or the Sub-Adviser bases its decision for a
Portfolio to invest in any foreign currency exchange-related securities that may
be offered in the future on the same general criteria applicable to the
Investment Adviser's or Sub-Adviser's decision for such Portfolio to invest in
any debt security, including the Portfolio's minimum ratings and investment
quality criteria, with the additional element of foreign currency exchange rate
exposure added to the Investment Adviser's or Sub-Adviser's analysis of interest
rates, issuer risk and other factors.
Securities Denominated in Multi-National Currency Units or More Than
One Currency. An illustration of a multi-national currency unit is the European
Currency Unit (the "ECU"), which is a "basket" consisting of specified amounts
of the currencies of the member states of the European Community, a Western
European economic cooperative organization. The specific amounts of currencies
comprising the ECU may be adjusted by the Council of Ministers of the European
Community to reflect changes in relative values of the underlying currencies.
The Investment Adviser does not believe that such adjustments will adversely
affect holders of ECU-denominated obligations or the marketability of such
securities. European supranational entities, in particular, issue
ECU-denominated obligations.
Foreign Currency Warrants. Foreign currency warrants such as
currency exchange warrants ("CEWs") are warrants that entitle the holder to
receive from their issuer an amount of cash (generally, for warrants issued in
the United States in U.S. dollars) which is calculated pursuant to a
predetermined formula and based on the exchange rate between a specified foreign
currency and the U.S. dollar as of the exercise date of the warrant. Foreign
currency warrants generally are exercisable upon their issuance and expire as of
a specified date and time. Foreign currency warrants have been issued in
connection with U.S. dollar-denominated debt offerings by major corporate
issuers in an attempt to reduce the foreign currency exchange risk which, from
the point of view of prospective purchasers of the securities, is inherent in
the international fixed income marketplace. The formula used to determine the
amount payable upon exercise of a foreign currency warrant may make the warrant
worthless unless the applicable foreign currency exchange rate moves in a
particular direction (e.g., unless the U.S. dollar appreciates or depreciates
against the particular foreign currency to which the warrant is linked or
indexed). In addition, foreign currency warrants are subject to other risks
associated with foreign securities, including risks arising from complex
political or economic factors.
Municipal Instruments. Municipal notes may include such instruments
as tax anticipation notes, revenue anticipation notes, and bond anticipation
notes. Municipal notes are issued by state and local governments and public
authorities as interim financing in anticipation of tax collections, revenue
receipts or bond sales. Municipal bonds, which may be issued to raise money for
various public purposes, include general obligation bonds and revenue bonds.
General obligation bonds are backed by the taxing power of the issuing
municipality and are considered the safest type of bonds. Revenue bonds are
backed by the revenues of a project or facility such as the tolls from a toll
bridge. Industrial development revenue bonds are a specific type of revenue
bond backed by the credit and security of a private user. Revenue bonds are
generally considered to have more potential risk than general obligation
bonds.
Municipal obligations can have floating, variable or fixed rates.
The value of floating and variable rate obligations generally is more stable
than that of fixed rate obligations in response to changes in interest rate
levels. Variable and floating rate obligations usually carry rights that permit
a Portfolio to sell them at par value plus accrued interest upon short notice.
The issuers or financial intermediaries providing rights to sell may support
their ability to purchase the obligations by obtaining credit with liquidity
supports. These may include lines of credit, which are conditional commitments
to lend, letters of credit, which will ordinarily be irrevocable, both issued by
domestic banks or foreign banks which have a branch, agency or subsidiary in the
United States. When considering whether an obligation meets a Portfolio's
quality standards, the Investment Adviser will look at the creditworthiness of
the party providing the right to sell as well as to the quality of the
obligation itself.
Municipal securities may be issued to finance private activities,
the interest from which is an item of tax preference for purposes of the federal
alternative minimum tax. Such "private activity" bonds might include industrial
development revenue bonds, and bonds issued to finance such projects as solid
waste disposal facilities, student loans or water and sewage projects.
SUPPLEMENTAL INVESTMENT TECHNIQUES
Borrowing. Each Portfolio may borrow money temporarily from banks
when (i) it is advantageous to do so in order to meet redemption requests, (ii)
a Portfolio fails to receive transmitted funds from a shareholder on a timely
basis, (iii) the custodian of the Fund fails to complete delivery of securities
sold or (iv) a Portfolio needs cash to facilitate the settlement of trades made
by the Portfolio. In addition, each Portfolio may, in effect, lend securities
by engaging in reverse repurchase agreements and/or dollar roll transactions and
may, in effect, borrow money by doing so. Securities may be borrowed by
engaging in repurchase agreements. See "Investment Restrictions" and
"Supplemental Descriptions of Investments".
Securities Lending. Each Portfolio, except U.S. Short-Term, is
authorized to lend securities from its investment portfolios, with a value not
exceeding 33 1/3% of its total assets, to banks, brokers and other financial
institutions if it receives collateral in cash, U.S. Government Securities or
irrevocable bank stand-by letters of credit which will be maintained at all
times in an amount equal to at least 100% of the current market value of the
loaned securities. The loans will be terminable at any time by the Fund and the
relevant Portfolio will then receive the loaned securities within five days.
During the period of such a loan, the Portfolio receives the income on the
loaned securities and a loan fee and may thereby increase its total return.
SUPPLEMENTAL DISCUSSION OF RISKS ASSOCIATED WITH THE FUND'S INVESTMENT
POLICIES AND INVESTMENT TECHNIQUES
The risks associated with the different types of securities in which
the Portfolios may invest are described in the Prospectus under "Risks
Associated With the Fund's Investment Policies and Investment Techniques".
Additional information concerning risks associated with certain of the
Portfolio's investments is set forth below.
Foreign Investments. Foreign financial markets, while growing in
volume, have, for the most part, substantially less volume than United States
markets, and securities of many foreign companies are less liquid and their
prices more volatile than securities of comparable domestic companies. The
foreign markets also have different clearance and settlement procedures, and in
certain markets there have been times when settlements have been unable to keep
pace with the volume of securities transactions, making it difficult to conduct
such transactions. Delivery of securities may not occur at the same time as
payment in some foreign markets. Delays in settlement could result in temporary
periods when a portion of the assets of a Portfolio is uninvested and no
return is earned thereon. The inability of a Portfolio to make intended
security purchases due to settlement problems could cause the Portfolio to miss
attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to a
Portfolio due to subsequent declines in value of the portfolio security or, if
the Portfolio has entered into a contract to sell the security, could result in
possible liability to the purchaser. There is generally less government
supervision and regulation of exchanges, financial institutions and issuers in
foreign countries than there is in the United States. In addition, a foreign
government may impose exchange control regulations which may have an impact on
currency exchange rates.
Foreign Bank Obligations. Obligations of foreign banks involve
somewhat different investment risks than those affecting obligations of United
States banks, including the possibilities that their liquidity could be impaired
because of future political and economic developments, that their obligations
may be less marketable than comparable obligations of United States banks, that
a foreign jurisdiction might impose withholding taxes on interest income payable
on those obligations, that foreign deposits may be seized or nationalized, that
foreign governmental restrictions such as exchange controls may be adopted that
might adversely affect the payment of principal and interest on those
obligations and that the selection of those obligations may be more difficult
because there may be less publicly available information concerning foreign
banks or the accounting, auditing and financial reporting standards, practices
and requirements applicable to foreign banks may differ from those applicable to
United States banks. Foreign banks are not generally subject to examination by
any United States government agency or instrumentality. Also, investments in
commercial banks located in several foreign countries are subject to additional
risks due to the combination in such banks of commercial banking and diversified
securities activities.
Dollar Roll Transactions. The entry into dollar rolls involves
potential risks of loss which are different from those related to the securities
underlying the transactions. For example, if the counterparty becomes
insolvent, a Portfolio's right to purchase from the counterparty might be
restricted. Additionally, the value of such securities may change adversely
before the Portfolio is able to purchase them. Similarly, a Portfolio may be
required to purchase securities in connection with a dollar roll at a higher
price than may otherwise be available on the open market. Since, as noted above
under "Supplemental Descriptions of Investments", the counterparty is required
to deliver a similar, but not identical, security to a Portfolio, the security
which the Portfolio is required to buy under the dollar roll may be worth less
than an identical security. Finally, there can be no assurance that a
Portfolio's use of cash that it receives from a dollar roll will provide a
return that exceeds borrowing costs.
Mortgage and Other Asset-Backed Securities. Prepayments on
securitized assets such as mortgages, automobile loans and credit card
receivables ("Securitized Assets") generally increase with falling interest
rates and decrease with rising interest rates; furthermore, prepayment rates
are influenced by a variety of economic and social factors. In general, the
collateral supporting non-mortgage asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. In addition to prepayment risk, borrowers on the underlying
Securitized Assets may default in their payments creating delays or loss of
principal.
Non-mortgage asset-backed securities involve certain risks that are
not presented by mortgage-backed securities. Primarily, these securities do
not have the benefit of a security interest in assets underlying the related
mortgage collateral. Credit card receivables are generally unsecured and the
debtors are entitled to the protection of a number of state and federal consumer
credit laws, many of which give such debtors the right to set off certain
amounts owed on the credit cards, thereby reducing the balance due. Most
issuers of automobile receivables permit the servicers to retain possession of
the underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related automobile receivables. In
addition, because of the large number of vehicles involved in a typical issuance
and technical requirements under state laws, the trustee for the holders of the
automobile receivables may not have an effective security interest in all of the
obligations backing such receivables. Therefore, there is a possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on these securities.
Some forms of asset-backed securities are relatively new forms of
investments. Although each Portfolio will only invest in asset-backed
securities that the Investment Adviser believes are liquid, because the market
experience in certain of these securities is limited, the market's ability to
sustain liquidity through all phases of a market cycle may not have been
tested.
Forward Commitments. Each Portfolio may purchase securities on a
when-issued or forward commitment basis, which involves a risk of loss if the
value of the securities to be purchased increases prior to the settlement date
and the counterparty to the trade fails to execute the transaction. If this
were to occur, the net asset value of a Portfolio, which includes any
appreciation or depreciation of a security purchased on a forward basis, would
decline by the amount of such unrealized appreciation.
Loan Participations. Because the issuing bank of a loan
participation does not guarantee the participation in any way, it is subject to
the credit risks generally associated with the underlying corporate borrower.
In addition, because it may be necessary under the terms of the loan
participation for a Portfolio to assert through the issuing bank such rights as
may exist against the underlying corporate borrower, in the event that the
underlying corporate borrower should fail to pay principal and interest when
due, the Portfolio could be subject to delays, expenses and risks which are
greater than those which would have been involved if the Portfolio had purchased
a direct obligation (such as commercial paper) of the borrower. Moreover, under
the terms of the loan participation, the purchasing Portfolio may be regarded as
a creditor of the issuing bank (rather than of the underlying corporate
borrower), so that the Portfolio also may be subject to the risk that the
issuing bank may become insolvent. Further, in the event of the bankruptcy or
insolvency of the corporate borrower, the loan participation might be subject to
certain defenses that can be asserted by a borrower as a result of improper
conduct by the issuing bank. The secondary market, if any, for these loan
participation interests is limited, and any such participation purchased by a
Portfolio will be treated as illiquid, until the Board of Directors determines
that a liquid market exists for such participations. Loan participations will
be valued at their fair market value, as determined by procedures approved by
the Board of Directors.
High Yield/High Risk Debt Securities. Emerging Markets will invest
its net assets in debt securities which are rated below investment-grade - that
is, rated below Baa by Moody's or BBB by S&P and in unrated securities judged to
be of equivalent quality by the Investment Adviser or Sub-Adviser. Below
investment grade securities carry a high degree of risk (including the
possibility of default or bankruptcy of the issuers of such securities),
generally involve greater volatility of price and risk of principal and income,
and may be less liquid, than securities in the higher rating categories and are
considered speculative. The lower the ratings of such debt securities, the
greater their risks render them like equity securities. See "Quality Ratings
Descriptions" in this Statement of Additional Information for a more complete
description of the ratings assigned by ratings organizations and their
respective characteristics.
Economic downturns have in the past, and could in the future,
disrupted the high yield market and impaired the ability of issuers to repay
principal and interest. Also, an increase in interest rates would have a
greater adverse impact on the value of such obligations than on comparable
higher quality debt securities. During an economic downturn or period of rising
interest rates, highly leveraged issues may experience financial stress which
would adversely affect their ability to service their principal and interest
payment obligations. Prices and yields of high yield securities will fluctuate
over time and, during periods of economic uncertainty, volatility of high yield
securities may adversely affect the Portfolio's net asset value. In addition,
investments in high yield zero coupon or pay-in-kind bonds, rather than income-
bearing high yield securities, may be more speculative and may be subject to
greater fluctuations in value due to changes in interest rates.
The trading market for high yield securities may be thin to the
extent that there is no established retail secondary market or because of a
decline in the value of such securities. A thin trading market may limit the
ability of the Portfolio to accurately value high yield securities in the
Portfolio's portfolio and to dispose of those securities. Adverse publicity
and investor perceptions may decrease the values and liquidity of high yield
securities. These securities may also involve special registration
responsibilities, liabilities and costs.
Credit quality in the high yield securities market can change
suddenly and unexpectedly, and even recently issued credit ratings may not fully
reflect the actual risks posed by a particular high-yield security. For these
reasons, it is the policy of the Investment Adviser and Sub-Adviser not to rely
exclusively on ratings issued by established credit rating agencies, but to
supplement such ratings with its own independent and on-going review of credit
quality. The achievement of the Portfolio's investment objective by investment
in such securities may be more dependent on the Investment Adviser's or Sub-
Adviser's credit analysis than is the case for higher quality bonds. Should the
rating of a portfolio security be downgraded, the Investment Adviser or Sub-
Adviser will determine whether it is in the best interest of the Portfolio to
retain or dispose of such security.
Prices for below investment-grade securities may be affected by legislative
and regulatory developments.
SUPPLEMENTAL TECHNIQUES TO HEDGE INTEREST RATE AND FOREIGN
CURRENCY RISKS AND OTHER FOREIGN CURRENCY STRATEGIES
Each of the Portfolios may enter into forward foreign currency
contracts (a "forward contract") and may purchase and write (on a covered basis)
exchange-traded or over-the-counter ("OTC") options on currencies, foreign
currency futures contracts and options on foreign currency futures contracts
primarily to protect against a decrease in the U.S. Dollar equivalent value of
its foreign currency portfolio securities or the payments thereon that may
result from an adverse change in foreign currency exchange rates. Under normal
circumstances, each of Worldwide-Hedged, International-Hedged and Inflation-
Indexed Hedged intends to hedge its currency exchange risk to the extent
feasible, but there can be no assurance that all of the assets of each Portfolio
denominated in foreign currencies will be hedged at any time, or that any such
hedge will be effective. Each of the other Portfolios may at times, at the
discretion of the Investment Adviser and the Sub-Adviser, hedge all or some
portion of its currency exchange risk.
Conditions in the securities, futures, options and foreign currency
markets will determine whether and under what circumstances the Fund will employ
any of the techniques or strategies described below. The Fund's ability to
pursue certain of these strategies may be limited by applicable regulations of
the Commodity Futures Trading Commission ("CFTC") and the federal tax
requirements applicable to regulated investment companies. See "Restrictions
on the Use of Futures Transactions" under "Investment Techniques - Hedging
Strategies" in the Prospectus, and "Tax Considerations" below.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS AND ASSOCIATED RISKS
Each Portfolio may, and generally the Global and International
Portfolios will, purchase forward contracts. A forward contract obligates one
party to purchase and the other party to sell a definite amount of a given
foreign currency at some specified future date.
In some circumstances the purchase or sale of appropriate forward
contracts may help offset declines in the U.S. dollar-equivalent value of a
Portfolio's foreign currency denominated assets and income available for
distribution to such Portfolio's shareholders that result from adverse changes
in the exchange rate between the U.S. dollar and the various foreign currencies
in which a Portfolio's assets or income may be denominated. The U.S. dollar-
equivalent value of the principal of and rate of return on foreign currency
denominated securities will decline if the exchange rate of the U.S. dollar
rises in relation to that currency. Such declines could be partially or
completely offset by an increase in the value of a forward contract on that
foreign currency.
In addition to entering into forward contracts with respect to
assets that a Portfolio holds (a "position hedge"), the Investment Adviser or
the Sub-Adviser may purchase or sell forward contracts or foreign currency
options in a particular currency with respect to specific anticipated
transactions (a "transaction hedge"). By purchasing forward contracts, the
Investment Adviser or Sub-Adviser can establish the rate at which a Portfolio
will be contractually entitled to exchange U.S. dollars for a foreign currency
or a foreign currency for U.S. dollars at some point in the future and thereby
lock in the U.S. dollar cost of purchasing foreign currency denominated
portfolio securities or set the U.S. dollar value of the income from securities
it owns or the proceeds from securities it intends to sell.
While the use of foreign currency forward contracts may protect a
Portfolio against declines in the U.S. dollar-equivalent value of the
Portfolio's assets, such use will reduce the possible gain from advantageous
changes in the value of the U.S. dollar against particular currencies in which
their assets are denominated. Moreover, the use of foreign currency forward
contracts will not eliminate fluctuations in the underlying U.S. dollar-
equivalent value of the prices of or rates of return on the assets held in the
portfolio and the use of such techniques will subject the Portfolio to certain
risks.
The foreign exchange markets can be highly volatile, subject to
sharp price fluctuations. In addition, trading forward contracts can involve a
degree of leverage. As a result, relatively small movements in the rates of
exchange between the currencies underlying a contract could result in immediate
and substantial losses to the investor. Trading losses that are not offset by
corresponding gains in assets being hedged could reduce the value of assets held
by a Portfolio.
Moreover, the precise matching of the forward contract amounts and
the value of the hedged portfolio securities involved will not generally be
possible because the future value of such foreign currency denominated portfolio
securities will change as a consequence of market movements in the value of
those securities unrelated to changes in exchange rates and the U.S. dollar-
equivalent value of such assets between the date the forward contract is entered
into and the date that it is sold. Accordingly, it may be necessary for a
Portfolio to purchase additional foreign currency in the cash market (and to
bear the expense of such purchase) if the market value of the security is less
than the amount of the foreign currency it may be obligated to deliver pursuant
to the forward contract.
The success of any currency hedging technique will depend on the
ability of the Investment Adviser or Sub-Adviser correctly to predict movements
in foreign currency exchange rates. If the Investment Adviser or Sub-Adviser
incorrectly predicts the direction of such movements or if unanticipated changes
in foreign currency exchange rates occur, a Portfolio's performance will be
poorer than if they had not entered into such contracts. The accurate
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
The cost to a Portfolio of engaging in foreign currency forward
contracts will vary with factors such as the foreign currency involved, the
length of the contract period and the market conditions then prevailing,
including general market expectations as to the direction of the movement of
various foreign currencies against the U.S. dollar. Furthermore, the Investment
Adviser or Sub-Adviser may not be able to purchase forward contracts with
respect to all of the foreign currencies in which the Portfolio's portfolio
securities may be denominated. In those circumstances the correlation between
the movements in the exchange rates of the subject currency and the currency in
which the portfolio security is denominated may not be precise. Moreover, if
the forward contract is entered into in an over-the-counter transaction, the
Portfolio generally will be exposed to the credit risk of its counterparty. If
a Portfolio enters into such contracts on a foreign exchange, the contract will
be subject to the rules of that foreign exchange. Foreign exchanges may impose
significant restrictions on the purchase, sale or trading of such contracts,
including the imposition of limits on price moves. Such limits may
significantly affect the ability to trade such a contract or otherwise to close
out the position and could create potentially significant discrepancies between
the cash and market value of the position in the forward contract. Finally, the
cost of purchasing forward contracts in a particular currency will reflect, in
part, the rate of return available on instruments denominated in that currency.
The cost of purchasing forward contracts to hedge portfolio securities that are
denominated in currencies that in general yield high rates of return may thus
tend to reduce that rate of return toward the rate of return that would be
earned on assets denominated in U.S. dollars.
Other Strategies of the Global and International Portfolios. The
Global and International Portfolios may use forward contracts to hedge the value
of portfolio securities against changes in exchange rates. Each of the
Portfolios may also attempt to enhance the return on its portfolio by entering
into forward contracts and currency options, as discussed below, in a particular
currency in an amount in excess of the value of its assets denominated in that
currency or when it does not own assets denominated in that currency. If the
Investment Adviser or Sub-Adviser is not able correctly to predict the direction
and extent of movements in foreign currency exchange rates, entering into such
forward or option contracts may decrease rather than enhance the return on such
Portfolio. In addition, if such a Portfolio enters into forward contracts when
it does not own assets denominated in that currency, the Portfolio's volatility
may increase and losses on such contracts will not be offset by increases in the
value of Portfolio assets.
OPTIONS
Options on Foreign Currencies. Each Portfolio may purchase and sell
(or write) put and call options on foreign currencies to protect against a
decline in the U.S. dollar-equivalent value of its portfolio securities or
payments due thereon or a rise in the U.S. dollar-equivalent cost of securities
that it intends to purchase. A foreign currency put option grants the holder
the right, but not the obligation, at a future date to sell a specified amount
of a foreign currency to its counterparty at a predetermined price. Conversely,
a foreign currency call option grants the holder the right, but not the
obligation, to purchase at a future date a specified amount of a foreign
currency at a predetermined price.
As in the case of other types of options, the benefit to a Portfolio
deriving from the purchase of foreign currency options will be reduced by the
amount of the premium and related transaction costs. In addition, where
currency exchange rates do not move in the direction or to the extent
anticipated, the Portfolio could sustain losses on transactions in foreign
currency options which would require them to forego a portion or all of the
benefits of advantageous changes in such rates.
Each Portfolio may write options on foreign currencies for hedging
purposes. For example, where a Portfolio anticipates a decline in the dollar
value of foreign currency denominated securities due to adverse fluctuations in
exchange rates it could, instead of purchasing a put option, write a call option
on the relevant currency. If the expected decline occurs, the option will most
likely not be exercised, and the decrease in value of portfolio securities will
be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar costs of securities to be acquired, a
Portfolio could write a put option on the relevant currency which, if rates move
in the manner projected, will expire unexercised and allow the Portfolio to
hedge such increased costs up to the amount of the premium. As in the case of
other types of options, however, the writing of a foreign currency option will
constitute only a partial hedge up to the amount of the premium, and only if
rates move in the expected direction. If this movement does not occur, the
option may be exercised and the Portfolio would be required to purchase or sell
the underlying currency at a loss which may not be fully offset by the amount of
the premium. Through the writing of options on foreign currencies, a Portfolio
also may be required to forego all or a portion of the benefits that might
otherwise have been obtained from favorable movements in exchange rates.
Options on Securities. Each Portfolio may also enter into closing
sale transactions with respect to options it has purchased. A put option on a
security grants the holder the right, but not the obligation, at a future date
to sell the security to its counterparty at a predetermined price. Conversely,
a call option on a security grants the holder the right, but not the obligation,
to purchase at a future date the security underlying the option at a
predetermined price.
A Portfolio would normally purchase put options in anticipation of a
decline in the market value of securities in its portfolio or securities it
intends to purchase. If such Portfolio purchased a put option and the value of
the security in fact declined below the strike price of the option, such
Portfolio would have the right to sell that security to its counterparty for the
strike price (or realize the value of the option by entering into a closing
transaction), and consequently would protect itself against any further decrease
in the value of the security during the term of the option.
Conversely, if the Investment Adviser or Sub-Adviser anticipates
that a security that it intends to acquire will increase in value, it might
cause a Portfolio to purchase a call option on that security or securities
similar to that security. If the value of the security does rise, the call
option may wholly or partially offset the increased price of the security. As
in the case of other types of options, however, the benefit to the Portfolio
will be reduced by the amount of the premium paid to purchase the option and any
related transaction costs. If, however, the value of the security fell instead
of rose, the Portfolio would have foregone a portion of the benefit of the
decreased price of the security in the amount of the option premium and the
related transaction costs.
A Portfolio would purchase put and call options on securities
indices for the same purposes as it would purchase options on securities.
Options on securities indices are similar to options on securities except that
the options reflect the change in price of a group of securities rather than an
individual security and the exercise of options on securities indices are
settled in cash rather than by delivery of the securities comprising the index
underlying the option.
Transactions by a Portfolio in options on securities and securities
indices will be governed by the rules and regulations of the respective
exchanges, boards of trade or other trading facilities on which the options are
traded.
Considerations Concerning Options. The writer of an option receives
a premium which it retains regardless of whether the option is exercised. The
purchaser of a call option has the right, for a specified period of time, to
purchase the securities or currency subject to the option at a specified price
(the "exercise price"). By writing a call option, the writer becomes obligated
during the term of the option, upon exercise of the option, to sell the
underlying securities or currency to the purchaser against receipt of the
exercise price. The writer of a call option also loses the potential for gain
on the underlying securities or currency in excess of the exercise price of the
option during the period that the option is open.
Conversely, the purchaser of a put option has the right, for a
specified period of time, to sell the securities or currency subject to the
option to the writer of the put at the specified exercise price. The writer of
a put option is obligated during the term of the option, upon exercise of the
option, to purchase securities or currency underlying the option at the exercise
price. A writer might, therefore, be obligated to purchase the underlying
securities or currency for more than their current market price or U.S. dollar
value, respectively.
Each Portfolio may purchase and sell both exchange-traded and OTC
options. Currently, although many options on equity securities and options on
currencies are exchange-traded, options on debt securities are primarily traded
in the over-the-counter market. The writer of an exchange-traded option that
wishes to terminate its obligation may effect a "closing purchase transaction".
This is accomplished by buying an option of the same series as the option
previously written. Options of the same series are options with respect to the
same underlying security or currency, having the same expiration date and the
same exercise price. Likewise, an investor who is the holder of an option may
liquidate a position by effecting a "closing sale transaction". This is
accomplished by selling an option of the same series as the option previously
purchased. There is no guarantee that either a closing purchase or a closing
sale transaction can be effected.
An exchange-traded option position may be closed out only where
there exists a secondary market for an option of the same series. For a number
of reasons, a secondary market may not exist for options held by a Portfolio, or
trading in such options might be limited or halted by the exchange on which the
option is trading, in which case it might not be possible to effect closing
transactions in particular options the Portfolio has purchased with the result
that the Portfolio would have to exercise the options in order to realize any
profit. If the Portfolio is unable to effect a closing purchase transaction in
a secondary market in an option the Portfolio has written, it will not be able
to sell the underlying security or currency until the option expires or deliver
the underlying security or currency upon exercise or otherwise cover its
position.
Exchange-traded options in the United States are issued by a
clearing organization affiliated with the exchange on which the option is listed
which, in effect, guarantees every exchange-traded option transaction. In
contrast, OTC options are contracts between a Portfolio and its counterparty
with no clearing organization guarantee. Thus, when the Portfolio purchases OTC
options, it relies on the dealer from which it purchased the OTC option to make
or take delivery of the securities underlying the option. Failure by the dealer
to do so would result in the loss of the premium paid by the Portfolio as well
as the loss of the expected benefit of the transaction. The Investment Adviser
or Sub-Adviser will only purchase options from dealers determined by the
Investment Adviser to be creditworthy.
Exchange-traded options generally have a continuous liquid market
whereas OTC options may not. Consequently, a Portfolio will generally be able
to realize the value of an OTC option it has purchased only by exercising it or
reselling it to the dealer who issued it. Similarly, when the Portfolio writes
an OTC option, it generally will be able to close out the OTC option prior to
its expiration only by entering into a closing purchase transaction with the
dealer to which the Portfolio originally wrote the OTC option. Although a
Portfolio will enter into OTC options only with dealers that agree to enter
into, and that are expected to be capable of entering into, closing transactions
with the Portfolio, there can be no assurance that the Portfolio will be able to
liquidate an OTC option at a favorable price at any time prior to expiration.
Until the Portfolio is able to effect a closing purchase transaction in a
covered OTC call option the Portfolio has written, it will not be able to
liquidate securities used as cover until the option expires or is exercised or
different cover is substituted. In the event of insolvency of the counterparty,
the Portfolio may be unable to liquidate an OTC option. In the case of options
written by a Portfolio, the inability to enter into a closing purchase
transaction may result in material losses to the Portfolio. For example, since
the Portfolio must maintain a covered position with respect to any call option
on a security it writes, the Portfolio may be limited in its ability to sell the
underlying security while the option is outstanding. This may impair the
Portfolio's ability to sell a portfolio security at a time when such a sale
might be advantageous.
There is no systematic reporting of last sale information for
foreign currencies or any regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Quotation information available is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (i.e., less than $1 million) where rates may be less favorable.
The interbank market in foreign currencies is a global, around-the-clock market.
To the extent that the U.S. options markets are closed while the markets for
the underlying currencies remain open, significant price and rate movements may
take place in the underlying markets that cannot be reflected in the options
market until they reopen. Because foreign currency transactions occurring in
the interbank market involve substantially larger amounts than those that may be
involved in the use of foreign currency options, investors may be disadvantaged
by having to deal in an odd lot market (generally consisting of transactions of
less than $1 million) for the underlying foreign currencies at prices that are
less favorable than for round lots.
The use of options to hedge a Portfolio's foreign currency-
denominated portfolio, or to enhance return raises additional considerations.
As described above, a Portfolio may, among other things, purchase call options
on securities it intends to acquire in order to hedge against anticipated market
appreciation in the price of the underlying security or currency. If the market
price does increase as anticipated, the Portfolio will benefit from that
increase but only to the extent that the increase exceeds the premium paid and
related transaction costs. If the anticipated rise does not occur or if it does
not exceed the amount of the premium and related transaction costs, the
Portfolio will bear the expense of the options without gaining an offsetting
benefit. If the market price of the underlying currency or securities should
fall instead of rise, the benefit the Portfolio obtains from purchasing the
currency or securities at a lower price will be reduced by the amount of the
premium paid for the call options and by transaction costs.
Each Portfolio also may purchase put options on currencies or
portfolio securities when it believes a defensive posture is warranted.
Protection is provided during the life of a put option because the put gives
the Portfolio the right to sell the underlying currency or security at the put
exercise price, regardless of a decline in the underlying currency's or
security's market price below the exercise price. This right limits the
Portfolio's losses from the currency's or security's possible decline in value
below the exercise price of the option to the premium paid for the option and
related transaction costs. If the market price of the currency or the
Portfolio's securities should increase, however, the profit that the Portfolio
might otherwise have realized will be reduced by the amount of the premium paid
for the put option and by transaction costs.
The value of an option position will reflect, among other things,
the current market price of the underlying currency or security, the time
remaining until expiration, the relationship of the exercise price to the market
price, the historical price volatility of the underlying currency or security
and general market conditions. For this reason, the successful use of options
as a hedging strategy depends upon the ability of the Investment Adviser or the
Sub-Adviser to forecast the direction of price fluctuations in the underlying
currency or securities market.
Options normally have expiration dates of up to nine months. The
exercise price of the options may be below, equal to or above the current market
values of the underlying securities or currency at the time the options are
written. Options purchased by a Portfolio that expire unexercised have no
value, and therefore a loss will be realized in the amount of the premium paid
(and related transaction costs). If an option purchased by any Portfolio is in-
the-money prior to its expiration date, unless the Portfolio exercises the
option or enters into a closing transaction with respect to that position, the
Portfolio will not realize any gain on its option position.
A Portfolio's activities in the options market may result in a
higher portfolio turnover rates and additional brokerage costs. Nevertheless,
the Portfolio may also save on commissions and transaction costs by hedging
through such activities rather than buying or selling securities or foreign
currencies in anticipation of market moves or foreign exchange rate
fluctuations.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Futures Contracts. Each Portfolio may enter into contracts for the
purchase or sale for future delivery (a "futures contract") of fixed-income
securities or foreign currencies, or contracts based on financial indices
including any index of U.S. Government Securities, foreign government securities
or corporate debt securities. U.S. futures contracts have been designed by
exchanges which have been designated as "contracts markets" by the CFTC, and
must be executed through a futures commission merchant, or brokerage firm, which
is a member of the relevant contract market. Futures contracts trade on a
number of exchange markets and, through their clearing corporations, the
exchanges guarantee performance of the contracts as between the clearing members
of the exchange. A Portfolio will enter into futures contracts that are based
on debt securities that are backed by the full faith and credit of the U.S.
Government, such as long-term U.S. Treasury Bonds, Treasury Notes, GNMA-modified
pass-through mortgage-backed securities and three-month U.S. Treasury Bills.
Each Portfolio may also enter into futures contracts that are based on
securities that would be eligible investments for such Portfolio and that are
denominated in currencies other than the U.S. dollar, including, without
limitation, futures contracts based on government bonds issued in the United
Kingdom, Japan, the Federal Republic of Germany, France and Australia and
futures contracts based on three-month Euro-deposit contracts in the major
currencies.
A Portfolio would purchase or sell futures contracts to attempt to
protect the U.S. dollar-equivalent value of its securities from fluctuations in
interest or foreign exchange rates without actually buying or selling securities
or foreign currency. For example, if a Portfolio expected the value of a
foreign currency to increase against the U.S. dollar, the Portfolio might enter
into futures contracts for the sale of that currency. Such a sale would have
much the same effect as selling an equivalent value of foreign currency. If the
currency did increase, the value of the securities in the portfolio would
decline, but the value of the futures contracts to the Portfolio would increase
at approximately the same rate, thereby keeping the net asset value of the
Portfolio from declining as much as it otherwise would have.
Although futures contracts by their terms call for the actual
delivery or acquisition of securities or currency, in most cases the contractual
obligation is fulfilled before the date of the contract without having to make
or take delivery of the securities or currency. The offsetting of a contractual
obligation is accomplished by buying (or selling, as the case may be) on a
commodities exchange an identical futures contract calling for delivery in the
same month. Such a transaction, which is effected through a member of an
exchange, cancels the obligation to make or take delivery of the securities or
currency. Since all transactions in the futures market are made, offset or
fulfilled through a clearinghouse associated with the exchange on which the
contracts are traded, a Portfolio will incur brokerage fees when it purchases or
sells futures contracts.
At the time a futures contract is purchased or sold, the Portfolio
must allocate cash or securities as a deposit payment ("initial margin"). It is
expected that the initial margin on U.S. exchanges may range from approximately
3% to approximately 15% of the value of the securities or commodities underlying
the contract. Under certain circumstances, however, such as periods of high
volatility, the Portfolio may be required by an exchange to increase the level
of its initial margin payment. Additionally, initial margin requirements may be
increased generally in the future by regulatory action. An outstanding futures
contract is valued daily and the payment in cash of "variation margin" may be
required, a process known as "marking to the market". Each day the Portfolio
will be required to provide (or will be entitled to receive) variation margin in
an amount equal to any decline (in the case of a long futures position) or
increase (in the case of a short futures position) in the contract's value since
the preceding day.
Futures contracts entail special risks. Among other things, the
ordinary spreads between values in the cash and futures markets, due to
differences in the character of these markets, are subject to distortions
relating to (1) investors' obligations to meet additional variation margin
requirements, (2) decisions to make or take delivery, rather than entering into
offsetting transactions and (3) the difference between margin requirements in
the securities markets and margin deposit requirements in the futures market.
The possibility of such distortion means that a correct forecast of general
market, foreign exchange rate or interest rate trends by the Investment Adviser
or Sub-Adviser may still not result in a successful transaction.
Although the Investment Adviser believes that use of such contracts
and options thereon will benefit the Portfolios, if the Investment Adviser's
judgment about the general direction of securities market movements, foreign
exchange rates or interest rates is incorrect, a Portfolio's overall performance
would be poorer than if it had not entered into any such contracts or purchased
or written options thereon. For example, if a Portfolio had hedged against the
possibility of an increase in interest rates which would adversely affect the
price of debt securities held in its portfolio and interest rates decreased
instead, the Portfolio would lose part or all of the benefit of the increased
value of its assets which it had hedged because it would have offsetting losses
in its futures positions. In addition, particularly in such situations, if the
Portfolio has insufficient cash, it may have to sell assets from its portfolio
to meet daily variation margin requirements. Any such sale of assets may, but
will not necessarily, be at increased prices which reflect the rising market.
Consequently, the Portfolio may have to sell assets at a time when it may be
disadvantageous to do so.
A Portfolio's ability to establish and close out positions in
futures contracts and options on futures contracts will be subject to the
development and maintenance of a liquid market. Although a Portfolio generally
will purchase or sell only those futures contracts and options thereon for which
there appears to be a liquid market, there is no assurance that a liquid market
on an exchange will exist for any particular futures contract or option thereon
at any particular time. Where it is not possible to effect a closing
transaction in a contract to do so at a satisfactory price, the Portfolio would
have to make or take delivery under the futures contract or, in the case of a
purchased option, exercise the option. In the case of a futures contract that a
Portfolio has sold and is unable to close out, the Portfolio would be required
to maintain margin deposits on the futures contract and to make variation margin
payments until the contract is closed.
Under certain circumstances, exchanges may establish daily limits in
the amount that the price of a futures contract or related option contract may
vary either up or down from the previous day's settlement price. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit. The daily limit governs only price movements
during a particular trading day and therefore does not limit potential losses
because the limit may prevent the liquidation of unfavorable positions. Futures
or options contract prices could move to the daily limit for several consecutive
trading days with little or no trading and thereby prevent prompt liquidation of
positions and subject some traders to substantial losses.
Buyers and sellers of foreign currency futures contracts are subject
to the same risks that apply to the use of futures generally. In addition,
there are risks associated with foreign currency futures contracts and their
use as hedging devices similar to those associated with options on foreign
currencies described above. Further, settlement of a foreign currency futures
contract must occur within the country issuing the underlying currency. Thus, a
Portfolio must accept or make delivery of the underlying foreign currency in
accordance with any U.S. or foreign restrictions or regulations regarding the
maintenance of foreign banking arrangements by U.S. residents and may be
required to pay any fees, taxes or charges associated with such delivery that
are assessed in the country of the underlying currency.
Options on Futures Contracts. The purchase of a call option on a
futures contract is similar in some respects to the purchase of a call option
on an individual security or currency. Depending on the pricing of the option
compared to either the price of the futures contract upon which it is based or
the price of the underlying securities or currency, it may or may not be less
risky than ownership of the futures contract or the underlying securities or
currency. As with the purchase of futures contracts, when a Portfolio is not
fully invested it may purchase a call option on a futures contract to hedge
against a market advance due to declining interest rates or a change in foreign
exchange rates.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the security or foreign currency which
is deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is below the exercise price, a Portfolio will retain
the full amount of the option premium which provides a partial hedge against any
decline that may have occurred in the Portfolio's portfolio holdings. The
writing of a put option on a futures contract constitutes a partial hedge
against increasing prices of the security or foreign currency which is
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is higher than the exercise price, the Portfolio will
retain the full amount of the option premium which provides a partial hedge
against any increase in the price of securities which a Portfolio intends to
purchase. If a put or call option a Portfolio has written is exercised, the
Portfolio will incur a loss that will be reduced by the amount of the premium it
receives. Depending on the degree of correlation between changes in the value
of its portfolio securities and changes in the value of its futures positions, a
Portfolio's losses from existing options on futures may to some extent be
reduced or increased by changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar in
some respects to the purchase of protective put options on portfolio securities.
For example, a Portfolio may purchase a put option on a futures contract to
hedge its portfolio against the risk of rising interest rates.
The amount of risk a Portfolio assumes when it purchases an option
on a futures contract is the premium paid for the option plus related
transaction costs. In addition to the correlation risks discussed above, the
purchase of an option also entails the risk that changes in the value of the
underlying futures contract will not be fully reflected in the value of the
option purchased.
Options on foreign currency futures contracts may involve certain
additional risks. Trading options on foreign currency futures contracts is
relatively new. The ability to establish and close out positions in such
options is subject to the maintenance of a liquid secondary market. To mitigate
this problem, a Portfolio will not purchase or write options on foreign currency
futures contracts unless and until, in the Investment Adviser's or Sub-Adviser's
opinion, the market for such options has developed sufficiently that the risks
in connection with such options are not greater than the risks in connection
with transactions in the underlying foreign currency futures contracts.
Compared to the purchase or sale of foreign currency futures contracts, the
purchase of call or put options thereon involves less potential risk to the
Portfolio because the maximum amount at risk is the premium paid for the option
(plus transaction costs). However, there may be circumstances when the purchase
of a call or put option on a foreign currency futures contract would result in a
loss, such as when there is no movement in the price of the underlying currency
or futures contract, when use of the underlying futures contract would not.
INVESTMENT RESTRICTIONS
The Fund has adopted the investment restrictions listed below
relating to the investment of each Portfolio's assets and its activities. These
are fundamental policies that may not be changed without the approval of the
holders of a majority of the outstanding voting securities of a Portfolio (which
for this purpose and under the 1940 Act means the lesser of (i) 67% of the
shares represented at a meeting at which more than 50% of the outstanding shares
are represented or (ii) more than 50% of the outstanding shares). None of the
Portfolios may: (1) borrow money except by engaging in reverse repurchase
agreements or dollar roll transactions or from a bank as a temporary measure for
the reasons enumerated in "Supplemental Investment Techniques - Borrowing",
provided that a Portfolio will not borrow, more than an amount equal to
one-third of the value of its assets, nor will it borrow for leveraging purposes
(i.e., a Portfolio will not purchase securities while temporary bank borrowings
in excess of 5% of its total assets are outstanding); (2) issue senior
securities (other than as specified in clause (1)); (3) purchase securities on
margin (although deposits referred to as "margin" will be made in connection
with investments in futures contracts, as explained above, and a Portfolio may
obtain such short-term credits as may be necessary for the clearance of
purchases and sales of securities); (4) make short sales of securities, except
for Mortgage Total Return, Inflation-Indexed and Inflation-Indexed Hedged; (5)
underwrite securities of other issuers; (6) invest in companies for the purpose
of exercising control or management; (7) purchase or sell real estate (other
than marketable securities representing interests in, or backed by, real
estate); or (8) purchase or sell physical commodities or related commodity
contracts.
For the purposes of restriction (1), reverse repurchase agreements
and dollar roll transactions that are covered pursuant to SEC regulations or
staff positions, will not be considered borrowing. For the purposes of
restriction (4), the word "securities" does not include options, futures,
options on futures or forward currency contracts.
In addition, each Portfolio is prohibited from: 1) the purchase or
retention of the securities of any issuer if the officers, directors or trustees
of the Fund, its advisors, or managers owning beneficially more than one half of
one percent of the securities of an issuer together own beneficially more than
five percent of the securities of that issuer; 2) the purchase of securities of
any issuer if, as to seventy-five percent (75%) of the assets of the company at
the time of the purchase, more than ten percent of the voting securities of any
issuer would be held by the company; 3) the investment in the securities of
other investment companies, except by purchase in the open market where no
commission or profit to a sponsor or dealer results from the purchase other than
the customary broker's commission, or except when the purchase is part of a plan
of merger, consolidation, reorganization or acquisition; and 4) the investment
of more than fifteen percent (15%) of the Fund's total assets in the securities
of issuers which together with any predecessors have a record of less than three
years continuous operation or securities of issuers which are restricted as to
disposition.
Whenever an investment policy or limitation states a maximum
percentage of a Portfolio's assets that may be invested in any security or other
asset or sets forth a policy regarding quality standards, such standard or
percentage limitation shall be determined immediately after and as a result of
the Portfolio's acquisition of such security or other asset. Accordingly, any
later increase or decrease in a percentage resulting from a change in values,
net assets or other circumstances will not be considered when determining
whether that investment complies with the Portfolio's investment policies and
limitations.
Each Portfolio's investment objectives and other investment policies
not designated as fundamental in this Statement of Additional Information are
non-fundamental and may be changed at any time by action of the Board of
Directors.
Money Market Portfolio
Money Market may not (although, not as a fundamental policy): (1)
invest more than 5% of its total assets in the securities of any one issuer or
subject to puts from any one issuer, except U.S. Government securities, provided
that the Portfolio may invest more than 5% of its total assets in first tier
securities of any one issuer for a period of up to three business days or, in
unrated securities that have been determined to be of comparable quality by the
Investment Adviser; or (2) invest more than 5% of its total assets in second
tier securities, or in unrated securities determined by the Investment Adviser
to be of comparable quality.
U.S. Short-Term Portfolio
U.S. Short-Term has adopted five additional fundamental policies
that may not be changed without the approval of the holders of a majority of the
shares of the Portfolio. The Portfolio may not: (1) invest more than 5% of its
total assets in the securities of any issuer (other than U.S. Government
Securities and repurchase agreements); (2) invest more than 25% of its total
assets in the securities of issuers in any industry (other than U.S. Government
Securities and the banking industry); (3) enter into repurchase agreements if,
as a result thereof, more than 25% of its total assets would be subject to
repurchase agreements; (4) make loans to other persons, except by (i) the
purchase of a portion of an issue of debt obligations in which a Portfolio is
authorized to invest in accordance with its investment objectives and (ii)
engaging in repurchase agreements; or (5) purchase or sell commodities or
commodity contracts, except that the Portfolio may utilize up to 5% of its total
assets as margin and premiums to purchase and sell futures and options contracts
on CFTC-regulated exchanges.
Worldwide and Worldwide-Hedged Portfolios
Worldwide and Worldwide-Hedged each have adopted two additional
fundamental policies that may not be changed without the approval of the holders
of a majority of the shares of either Portfolio. Each Portfolio may not: (1)
enter into repurchase agreements if, as a result thereof, more than 25% of its
total assets would be subject to repurchase agreements; or (2) purchase or sell
commodities or commodity contracts, except that each Portfolio may utilize up to
5% of its total assets as margin and premiums to purchase and sell futures and
options contracts on CFTC-regulated exchanges.
Illiquid Securities
The staff of the Commission has taken the position that purchased
OTC options and the assets used as cover for written OTC options are illiquid
securities. Therefore, each Portfolio has adopted an investment policy pursuant
to which it generally will not purchase or sell OTC options if, as a result of
such transaction, the sum of the market value of OTC options currently
outstanding that are held by such Portfolio, the market value of the underlying
securities covered by OTC call options currently outstanding that were sold by
such Portfolio and margin deposits on such Portfolio's existing OTC options on
futures contracts exceed 15% (10% for Money Market) of the net assets of such
Portfolio, taken at market value, together with all other assets of the
Portfolio that are illiquid or are not otherwise readily marketable. This
policy as to OTC options is not a fundamental policy of the Portfolios and may
be amended by the Directors of the Fund without the approval of the Fund's or a
Portfolio's shareholders. However, the Fund will not change or modify this
policy prior to a change or modification by the Commission staff of its
position.
PORTFOLIO TRANSACTIONS
The debt securities in which the Fund invests are traded primarily
in the over-the-counter market by dealers who are usually acting as principal
for their own account. On occasion, securities may be purchased directly from
the issuer. Such securities are generally traded on a net basis and do not
normally involve either brokerage commissions or transfer taxes. The Fund enters
into financial futures and options contracts which normally involve brokerage
commissions.
For the years ended December 31, 1996, December 31, 1995 and December 31,
1994, the amount of brokerage commissions (associated with financial futures
and options contracts) paid by each Portfolio were as follows:
Portfolio Year Ended Year Ended Periods
Ended
December 31, 1996 December 31, 1995 December 31,
1994
U.S. Short-Term
Portfolio 110,133 $187,185 $35,790
Stable Return
Portfolio 27,616 0
Mortgage Total
Return Portfolio (1) 30,152 0 0
Worldwide Portfolio 10,254 15,268 47,983
Worldwide-Hedged
Portfolio 2,719 3,083 13,547
International
Portfolio (2) 2,707 0 0
International-Hedged
Portfolio (3) 12,342 15,643 1,581
(1) Commencement of Operations was April 29, 1996.
(2) Commencement of Operations was May 9, 1996.
(3) The Portfolio was fully liquidated on December 30, 1994, and recommenced
operations on September 14, 1995.
The cost of executing transactions will consist primarily of dealer
spreads. The spread is not included in the expenses of a Portfolio and therefore
is not subject to the expenses cap; nevertheless, the incurrence of this spread,
ignoring the other intended positive effects of each such transaction, will
decrease the total return of the Portfolio. However, a Portfolio will buy one
asset and sell another only if the Investment Adviser and/or the Sub-Adviser
believes it is advantageous to do so after considering the effect of the
additional custodial charges and the spread on the Portfolio's total return.
All purchases and sales will be executed with major dealers and
banks on a best net price basis. No trades will be executed with the Investment
Adviser, the Sub-Adviser, their affiliates, officers or employees acting as
principal or agent for others, although such entities and persons may be trading
contemporaneously in the same or similar securities. To the extent an
investment that may be appropriate for one of the Portfolios is considered for
purchase by the Investment Adviser and/or Sub-Adviser for the account of another
Portfolio, client or fund, the investment opportunity, as well as the expenses
incurred in the transaction, will be allocated in a manner deemed equitable by
the Investment Adviser.
The Global and International Portfolios are expected to invest
substantial portions of their assets in foreign securities. Since costs
associated with transactions in foreign securities are generally higher than
costs associated with transactions in domestic securities, the operating expense
ratios of these Portfolios can be expected to be higher than that of an
investment company investing exclusively in domestic securities.
TAX CONSIDERATIONS
The following summary of tax consequences, which does not purport to
be complete, is based on U.S. federal tax laws and regulations in effect on the
date of this Statement of Additional Information, which are subject to change by
legislative or administrative action.
Qualification as a Regulated Investment Company. Each active
Portfolio has qualified and intends to continue to qualify to be treated as a
regulated investment company ("RIC") under the Internal Revenue Code of 1986, as
amended (the "Code"). To qualify as a RIC, a Portfolio must, among other
things, (a) derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of securities or foreign currencies, or other
income (including gains from options, futures or forward contracts) derived from
its business of investing in securities or foreign currencies (the "Qualifying
Income Requirement"); (b) derive less than 30% of its gross income each taxable
year from sales or other dispositions of certain assets (namely, (i) securities;
(ii) options, futures and forward contracts (other than those on foreign
currencies); and (iii) foreign currencies (including options, futures and
forward contracts on such currencies) not directly related to the Portfolio's
principal business of investing in stocks or securities (or options and futures
with respect to stocks or securities) held less than three months (the "30%
Limitation"); (c) diversify its holdings so that, at the end of each quarter of
the Portfolio's taxable year, (i) at least 50% of the market value of the
Portfolio's assets is represented by cash and cash items (including
receivables), U.S. Government Securities, securities of other RICs and other
securities, with such other securities of any one issuer limited to an amount
not greater than 5% of the value of the Portfolio's total assets and not greater
than 10% of the outstanding voting securities of such issuer and (ii) not more
than 25% of the value of the Portfolio's total assets is invested in the
securities of any one issuer (other than U.S. Government Securities or the
securities of other RICs); and (d) distribute at least 90% of its investment
company taxable income (which includes, among other items, interest and net
short-term capital gains in excess of net long-term capital losses). The U.S.
Treasury Department has authority to promulgate regulations pursuant to which
gains from foreign currency (and options, futures and forward contracts on
foreign currency) not directly related to a RIC's principal business of
investing in stocks and securities would not be treated as qualifying income for
purposes of the Qualifying Income Requirement. To date, such regulations have
not been promulgated.
If for any taxable year a Portfolio does not qualify as a RIC, all
of its taxable income will be taxed to the Portfolio at corporate rates. For
each taxable year that the Portfolio qualifies as a RIC, it will not be subject
to federal income tax on that part of its investment company taxable income and
net capital gains (the excess of net long-term capital gain over net short-term
capital loss) that it distributes to its shareholders. In addition, to avoid a
nondeductible 4% federal excise tax, the Portfolio must distribute during each
calendar year an amount at least equal to the sum of 98% of its ordinary income
(not taking into account any capital gains or losses), determined on a calendar
year basis, 98% of its capital gains in excess of capital losses, determined in
general on an October 31 year-end basis, and any undistributed amounts from
previous years. Each Portfolio intends to distribute all of its net income and
gains by automatically reinvesting such income and gains in additional shares of
the Portfolio. The 30% Limitation may require that a Portfolio defer closing
out certain positions beyond the time when it otherwise would be advantageous
to do so, in order not to be disqualified as a RIC. Each Portfolio will monitor
its compliance with all of the rules set forth in the preceding paragraph.
Distributions. Each Portfolio's automatic reinvestment of its
ordinary income, net short-term capital gains and net long-term capital gains in
additional shares of the Portfolio and distribution of such shares to
shareholders will be taxable to the Portfolio's shareholders. In general, such
shareholders will be treated as if such income and gains had been distributed to
them by the Portfolio and then reinvested by them in shares of the Portfolio,
even though no cash distributions have been made to shareholders. The automatic
reinvestment of ordinary income and net realized short-term capital gains of the
Portfolio will be taxable to the Portfolio's shareholders as ordinary income.
Each Portfolio's automatic reinvestment of any net long-term capital gains
designated by the Portfolio as capital gain dividends will be taxable to the
shareholders as long-term capital gain, regardless of how long they have held
their Portfolio shares. None of the amounts treated as distributed to a
Portfolio's shareholders will be eligible for the corporate dividends received
deduction. A distribution will be treated as paid on December 31 of the current
calendar year if it is declared by a Portfolio in October, November or December
with a record date in such a month and paid by the Portfolio during January of
the following calendar year. Such distributions will be taxable to shareholders
in the calendar year in which the distributions are declared, rather than in the
calendar year in which the distributions are received. Each Portfolio will
inform shareholders of the amount and tax status of all amounts treated as
distributed to them not later than 60 days after the close of each calendar
year.
Sale of Shares. Upon the sale or other disposition of shares of a
Portfolio, or upon receipt of a distribution in complete liquidation of a
Portfolio, a shareholder generally will realize a capital gain or loss which
will be long-term or short-term, generally depending upon the shareholder's
holding period for the shares. Any loss realized on the sale or exchange will
be disallowed to the extent the shares disposed of are replaced (including
shares acquired pursuant to a dividend reinvestment plan) within a period of
61 days beginning 30 days before and ending 30 days after disposition of the
shares. In such a case, the basis of the shares acquired will be adjusted to
reflect the disallowed loss. Any loss realized by the shareholder on a
disposition of Portfolio shares held by the shareholder for six months or less
will be treated as a long-term capital loss to the extent of any distributions
of net capital gains deemed received by the shareholder with respect to such
shares.
Zero Coupon Securities. Investments by a Portfolio in zero coupon
securities will result in income to the Portfolio equal to a portion of the
excess of the face value of the securities over their issue price (the "original
issue discount") each year that the securities are held, even though the
Portfolio receives no cash interest payments. This income is included in
determining the amount of income which the Portfolio must distribute to maintain
its status as a RIC and to avoid the payment of Federal income tax and the 4%
excise tax.
Hedging Transactions. Certain options, futures and forward
contracts in which a Portfolio may invest are "section 1256 contracts." Gains
and losses on section 1256 contracts are generally treated as 60 percent long-
term and 40 percent short-term capital gains or losses ("60/40 treatment"),
regardless of the Portfolio's actual holding period for the contract. Also, a
section 1256 contract held by a Portfolio at the end of each taxable year (and
generally, for the purposes of the 4% excise tax, on October 31 of each year)
must be treated as if the contract had been sold at its fair market value on
that day ("mark to market treatment"), and any deemed gain or loss on the
contract is subject to 60/40 treatment. Foreign currency gain or loss
(discussed below) arising from section 1256 contracts may, however, be treated
as ordinary income or loss.
The hedging transactions undertaken by a Portfolio may result in
"straddles" for federal income tax purposes. The straddle rules may affect the
character of gains or losses realized by the Portfolio. In addition, losses
realized by a Portfolio on positions that are part of a straddle may be deferred
under the straddle rules rather than being taken into account in calculating the
taxable income for the taxable year in which such losses are realized. Further,
a Portfolio may be required to capitalize, rather than deduct currently, any
interest expense on indebtedness incurred or continued to purchase or carry
any positions that are part of a straddle. Because only a few regulations
implementing the straddle rules have been implemented, the tax consequences to
the Portfolios of engaging in hedging transactions are not entirely clear.
Hedging transactions may increase the amount of short-term capital gain realized
by the Portfolios which is taxed as ordinary income when distributed to
shareholders.
A Portfolio may make one or more of the elections available under
the Code that are applicable to straddles. If a Portfolio makes any of the
elections, the amount, character and timing of the recognition of gains or
losses from the affected straddle positions will be determined under rules that
vary according to the election(s) made. The rules applicable under certain of
the elections may accelerate the recognition of gains or losses from the
affected straddle positions.
Because the straddle rules may affect the amount, character and
timing of gains or losses from the positions that are part of a straddle, the
amount of Portfolio income that is distributed to shareholders and that is taxed
to them as ordinary income or long-term capital gain may be increased or
decreased as compared to a fund that did not engage in such hedging
transactions.
The 30% limitation and the distribution requirements applicable to
each Portfolio's assets may limit the extent to which each Portfolio will be
able to engage in transactions in options, futures and forward contracts.
Foreign Currency-Related Transactions. Gains or losses attributable
to fluctuations in exchange rates that occur between the time a Portfolio
accrues interest or other receivables, or accrues expenses or other liabilities,
denominated in a foreign currency and the time the Portfolio actually collects
such receivables, or pays such liabilities, generally are treated as ordinary
income or ordinary loss. Similarly, gains or losses on disposition of certain
options, futures and forward contracts and, on disposition of debt securities
denominated in a foreign currency, gains or losses attributable to fluctuations
in the value of foreign currency between the date of acquisition of the security
or contract and the date of disposition also are treated as ordinary gain or
loss. These gains or losses, referred to under the Code as "section 988" gains
or losses, may increase or decrease the amount of a Portfolio's investment
company taxable income to be distributed to shareholders as ordinary income.
Backup Withholding. A Portfolio may be required to withhold U.S.
federal income tax at the rate of 31% of all amounts deemed to be distributed as
a result of the automatic reinvestment by the Portfolio of its income and gains
in additional shares of the Portfolio and all redemption payments made to
shareholders who fail to provide the Portfolio with their correct taxpayer
identification number or to make required certifications, or who have been
notified by the Internal Revenue Service that they are subject to backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
will be credited against a shareholder's U.S. federal income tax liability.
Corporate shareholders and certain other shareholders are exempt from such
backup withholding.
Foreign Shareholders. U.S. taxation of a shareholder who, as to the
United States, is a non-resident alien individual, a foreign trust or estate,
foreign corporation, or foreign partnership ("foreign shareholder") depends on
whether the income from the Portfolio is "effectively connected" with a U.S.
trade or business carried on by such shareholder.
If the income from a Portfolio is not "effectively connected" with a
U.S. trade or business carried on by the foreign shareholder, deemed
distributions by the Portfolio of investment company taxable income will be
subject to a U.S. tax of 30% (or lower treaty rate), which tax is generally
withheld from such distributions. Deemed distributions of capital gain
dividends and any gain realized upon redemption, sale or exchange of shares will
not be subject to U.S. tax at the rate of 30% (or lower treaty rate) unless the
foreign shareholder is a nonresident alien individual who is physically present
in the U.S. for more than 182 days during the taxable year and meets certain
other requirements. However, this 30% tax on capital gains of non-resident
alien individuals who are physically present in the United States for more than
the 182-day period only applies in exceptional cases because any individual
present in the United States for more than 182 days during the taxable year is
generally treated as a resident for U.S. federal income tax purposes. In that
case, he or she would be subject to U.S. federal income tax on his or her
worldwide income at the graduated rates applicable to U.S. citizens, rather than
the 30% U.S. tax. In the case of a foreign shareholder who is a non-resident
alien individual, the Portfolio may be required to withhold U.S. federal income
tax at a rate of 31% of deemed distributions of net capital gains unless the
foreign shareholder certifies his or her non-U.S. status under penalties of
perjury or otherwise establishes an exemption. See "Backup Withholding" above.
If the income from a Portfolio is effectively connected with a U.S.
trade or business carried on by a foreign shareholder, then deemed distributions
of investment company taxable income and capital gain dividends and any gain
realized upon the redemption, sale or exchange of shares of the Portfolio will
be subject to U.S. Federal income tax at the graduated rates applicable to U.S.
citizens or domestic corporations. Such shareholders may also be subject to the
branch profits tax at a 30% rate.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are advised to consult their own advisers with
respect to the particular tax consequences to them of an investment in a
Portfolio.
Short Sales. Each of Mortgage Total Return, Inflation-Indexed and
Inflation-Indexed Hedged will not realize gain or loss on the short sale of a
security until it closes the transaction by delivering the borrowed security
to the lender. Pursuant to Code section 1233, all or a portion of any gain
arising from a short sale may be treated as short-term capital gain,
regardless of the period for which the Portfolio held the security used to
close the short sale. In addition, the Portfolio's holding period for any
security which is substantially identical to that which is sold short may be
reduced or eliminated as a result of the short sale. The 30% limitation and
the distribution requirements applicable to the Portfolio's assets may limit
the extent to which each Portfolio will be able to engage in short sales and
transactions in options, futures and forward contracts.
U.S. Short-Term Portfolio
As a result of its expected high portfolio turnover rate, U.S.
Short-Term may recognize more short-term capital gains which must be distributed
to shareholders than mutual funds with turnover rates that are lower than that
of U.S. Short-Term. In addition, U.S. Short-Term may realize a greater amount
of gains subject to the 30% Limitation described above than it would realize if
its portfolio turnover rate were lower.
Global and International Portfolios
Income received by a Portfolio from sources within foreign countries
may be subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. The amount of foreign tax cannot be predicted in advance
because the amount of a Portfolio's assets that may be invested in a particular
country is subject to change.
If more than 50% of the value of the total assets of a Portfolio at
the end of its taxable year consists of securities of foreign corporations, as
the Global and International Portfolios more than likely may be, such Portfolio
will be eligible and may elect to "pass through" to such Portfolio's
shareholders the amount of foreign income and similar taxes paid by such
Portfolio. Pursuant to this election, a shareholder will be required to include
in gross income (in addition to taxable dividends actually received) a pro rata
share of the foreign taxes paid by such Portfolio, and will be entitled either
to deduct (as an itemized deduction) that amount in computing taxable income or
to use that amount as a foreign tax credit against U.S. federal income tax
liability. The amount of foreign taxes for which a shareholder can claim a
credit in any year will be subject to limitations set forth in the Code,
including a separate limitation for "passive income," which includes, among
other items, dividends, interest and certain foreign currency gains.
Shareholders not subject to U.S. federal income tax on income from a Portfolio
may not claim such a deduction or credit. Each shareholder of the Global and
International Portfolios will be notified within 60 days after the close of such
Portfolio's taxable year whether the foreign taxes paid by such Portfolio will
"pass through" for the year.
Other Taxes
A Portfolio may be subject to state, local or foreign taxes in any
jurisdiction in which the Portfolio may be deemed to be doing business. In
addition, shareholders of a Portfolio may be subject to state, local or foreign
taxes on distributions from the Portfolio. In many states, Portfolio
distributions which are derived from interest on certain U.S. Government
obligations may be exempt from taxation. Shareholders should consult their own
tax advisers concerning these matters.
SHAREHOLDER INFORMATION
Certificates representing shares of a particular Portfolio will not
be issued to shareholders. Investors Bank & Trust Company, the Fund's Transfer
Agent, will maintain an account for each shareholder upon which the registration
and transfer of shares are recorded, and any transfers shall be reflected by
bookkeeping entry, without physical delivery. Detailed confirmations of each
purchase or redemption are sent to each shareholder. Monthly statements of
account are sent which include shares purchased as a result of a reinvestment of
Portfolio distributions.
The Transfer Agent will require that a shareholder provide requests
in writing, accompanied by a valid signature guarantee form, when changing
certain information in an account (i.e., wiring instructions, telephone
privileges, etc.). None of the Fund, AMT Capital or the Transfer Agent will be
responsible for the validity of written or telephonic requests.
The Fund reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption of a Portfolio by
making payment in whole or in part in readily marketable securities chosen by
the Fund and valued as they are for purposes of computing the Portfolio's net
asset value (redemption-in-kind). If payment is made in securities, a
shareholder may incur transaction expenses in converting theses securities to
cash. The Fund has elected, however, to be governed by Rule 18f-1 under the
Investment Company Act of 1940 as a result of which the Fund is obligated to
redeem shares, with respect to any one shareholder during any 90-day period,
solely in cash up to the lesser of $250,000 or 1% of the net asset value of a
Portfolio at the beginning of the period.
CALCULATION OF PERFORMANCE DATA
The Fund may, from time to time, include the yield and total return
of a Portfolio in reports to shareholders or prospective investors. Quotations
of yield for a Portfolio of the Fund will be based on all investment income per
share during a particular 30-day (or one month) period (including dividends and
interest), less expenses accrued during the period ("net investment income"),
and are computed by dividing net investment income by the maximum, offering
price per share on the last day of the period, according to the following
formula which is prescribed by the Commission:
6
YIELD = 2[( a - b + 1) - 1]
------
cd
Where a = dividends and interest earned during the period,
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of Shares of a Portfolio
outstanding during he period that were entitled to
receive dividends, and
d = the maximum offering price per share on the last day of the period.
The yield as defined above for the Fund's Portfolios for the 30-day
period ended June 30, 1996 for U.S. Short-Term, Stable Return, Worldwide,
Worldwide-Hedged and International-Hedged; and October 31, 1996 for
International are as follows:
U.S. Portfolios
U.S. Short-Term ....................................... 5.33%
Stable Return ......................................... 5.75%
Global and International Portfolios
Worldwide............................................. 5.66%
Worldwide-Hedged....................................... 6.03%
International ......................................... 5.10%
International-Hedged ................................... 5.20%
The Money Market Portfolio may, from time to time, include the
"yield" and "effective yield" in advertisements or reports to shareholders or
prospective investors.
The yield is calculated by determining the net change over a 7-calendar day
period, exclusive of capital changes, in the value of a hypothetical preexisting
account having a balance of one share at the beginning of the period, divided by
the value of the account at the beginning of the base period to obtain the base
period return. The yield is annualized by multiplying the base period return by
365/7. The yield is stated to the nearest hundredth of one percent. The
effective yield is calculated by the same method as yield except that the base
period return is compounded by adding 1, raising the sum to a power equal to
365/7, and subtracting 1 from the result, according to the following formula:
365/7
Effective Yield = [(Base Period Return + 1) ] - 1
Money Market Portfolio's yield and effective yield for the seven-day
period ended December 31, 1996 are 5.04% and 5.17%, respectively.
Quotations of average annual total return will be expressed in terms
of the average annual compounded rate of return of a hypothetical investment in
a Portfolio of the Fund over periods of 1, 5 and 10 years (up to the life of the
Portfolio), calculated pursuant to the following formula which is prescribed by
the SEC:
n
P(1 + T) = ERV
Where P = a hypothetical initial payment of $1,000,
T = the average annual total return,
n = the number of years, and
ERV = the ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period.
All total return figures assume that all dividends are reinvested when paid.
The total return as defined above for the Fund's Portfolios for the
1 year and 5 year periods ended December 31, 1996, for Money Market, U.S. Short-
Term, Stable Return, Worldwide, Worldwide-Hedged, International and
International-Hedged and since the commencement of operations of each
Portfolio (annualized) to December 31, 1997 are as follows:
One Year Five Years Life of Inception
Portfolio
U.S. Portfolios
Money Market 5.18 n/a 4.89%* 11/1/93
U.S. Short-Term 5.45% 4.25%* 5.18%* 12/6/89
Stable Return 5.29% n/a 5.36%* 7/26/93
Mortgage Total Return n/a n/a 6.54% 4/29/96
Global and International Portfolios
Worldwide 5.77% n/a 8.64%* 4/15/92
Worldwide-Hedged 10.03% n/a 10.31%* 5/19/92
International n/a n/a 6.66% 5/9/96
International-Hedged** 3.18% n/a 5.42% 9/14/95
* Annualized
** 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%.
FINANCIAL STATEMENTS
The audited financial statements for the year ended December 31,1996 are
incorporated by reference in the Statement of Additional Information. The Money
Market Portfolio, previously the AMT Capital Fund, Inc. - Money Market Portfolio
(the "AMT Capital Portfolio"), commenced operations on November 1, 1993.
Effective as of the close of usiness on April 29, 1997, the AMT Capital
Portfolio merged into the International Equity Portfolio pursuant to shareholder
approval of the reorganization on April 28, 1997. The financial information for
the periods ended December 31, 1996, December 31, 1995, December 31, 1994 and
December 31, 1993 in the following table have been audited in conjunction with
the audit of the financial statements of the AMT Capital Portfolio by Ernst &
Young LLP, independent auditors. The financial information should be read in
conjunction with the financial statements which can be obtained upon request.
APPENDIX
1
MERRILL LYNCH 1-2.99 YEAR TREASURY INDEX
Quarterly Returns: June 1984 - December 1996
Quarter-End Return Quarter-End Return
9/84 4.86% 9/90 2.38%
12/84 5.92 12/90 3.32
3/85 2.17 3/91 2.20
6/85 5.41 6/91 1.97
9/85 2.09 9/91 3.36
12/85 3.65 12/91 3.68
3/86 3.62 3/92 0.16
6/86 1.99 6/92 2.88
9/86 2.60 9/92 2.98
12/86 1.77 12/92 0.18
3/87 1.25 3/93 2.21
6/87 0.65 6/93 1.08
9/87 0.18 9/93 1.43
12/87 3.48 12/93 0.59
3/88 2.64 3/94 (0.50)
6/88 1.04 6/94 0.08
9/88 1.45 9/94 0.99
12/88 0.96 12/94 0.01
3/89 1.24 3/95 3.36
6/89 4.98 6/95 3.21
9/89 1.46 9/95 1.51
12/89 2.82 12/95 2.51
3/90 0.89 3/96 0.34
6/90 2.80 6/96 1.01
9/96 1.65
12/96 1.91
1 Time-weighted rates of return, unannualized.
QUALITY RATING DESCRIPTIONS
Standard & Poors Corporation
AAA. Bonds rated AAA are highest grade debt obligations. This rating
indicates an extremely strong capacity to pay principal and interest.
AA. Bonds rated AA also qualify as high-quality obligations. Capacity to
pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A. Bonds rated A have a strong capacity to pay principal and interest,
although they are more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB. Bonds rated BBB are regarded as having adequate capacity to pay
interest or principal. Although these bonds normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and principal.
BB and Lower. Bonds rated BB, B, CCC, CC, C and D are regarded, on
balance, as predominately speculative with respect to the issuer's
capacity to pay interest and principal in accordance with the terms of
the obligation. BB indicates the lowest degree of speculation and D the
highest degree of speculation. While such bonds may have some quality
and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
The ratings AA to D may be modified by the addition of a plus or minus
sign to show relative standing within the major rating categories.
Municipal notes issued since July 29, 1984 are designated "SP-1", "SP-2",
and "SP-3". The designation SP-1 indicates a very strong capacity to pay
principal and interest. A "+" is added to those issues determined to
possess overwhelming safety characteristics.
A-1. Standard & Poor's Commercial Paper ratings are current assessments of
the likelihood of timely payments of debts having original maturity of no more
than 365 days. The A-1 designation indicates the degree of safety regarding
timely payment is very strong.
A-2. Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1.
Moody's Investors Service, Inc.
Aaa. Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa. Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than the Aaa
securities.
A. Bonds which are rated A possess many favorable investment attributes
and may be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa. Baa rated bonds are considered medium-grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba. Bonds which are rated Ba are judged to have speculative elements
because their future cannot be considered as well assured. Uncertainty of
position characterizes bonds in this class, because the protection of interest
and principal payments may be very moderate and not well safeguarded.
B and Lower. Bonds which are rated B generally lack characteristics of a
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the security over any long period of time may be
small. Bonds which are rated Caa are of poor standing. Such securities may be
in default of there may be present elements of danger with respect to principal
or interest. Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings. Bonds which are rated C are the lowest rated class of
bonds and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
Moody's ratings for state and municipal and other short-term obligations
will be designated Moody's Investment Grade ("MIG"). This distinction is in
recognition of the differences between short-term credit risk and long-term
risk. Factors affecting the liquidity of the borrower are uppermost in
importance in short-term borrowing, while various factors of the first
importance in long-term borrowing risk are of lesser importance in the short
run.
MIG-1. Notes bearing this designation are of the best quality enjoying
strong protection from established cash flows of funds for their servicing or
from established and broad-based access to the market for refinancing, or
both.
MIG-2. Notes bearing this designation are of favorable quality, with all
security elements accounted for, but lacking the undeniable strength of the
previous grade. Market access for refinancing, in particular, is likely to be
less well established.
P-1. Moody's Commercial Paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of nine months. The designation "Prime-1" or "P-1"
indicates the highest quality repayment capacity of the rated issue.
P-2. Issuers have a strong capacity for repayment of short-term promissory
obligations.
Thomson Bankwatch, Inc.
A. Company possess an exceptionally strong balance sheet and earnings
record, translating into an excellent reputation and unquestioned access to its
natural money markets. If weakness or vulnerability exists in any aspect of the
company's business, it isis entirely mitigated by the strengths of the
organization.
A/B. Company is financially very solid with a favorable track record and
no readily apparent weakness. Its overall risk profile, while low, is not quite
as favorable as companies in the highest rating category.
IBCA Limited
A1. Short-term obligations rated A1 are supported by a very strong
capacity for timely repayment. A plus sign is added to those issues determined
to possess the highest capacity for timely payment.
Part C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements and Schedules:
Part A - Financial Highlights.
Part B: The financial statements, notes to
financial statements and reports set forth below
are filed herewith by the Registrant, and are
specifically incorporated by reference in Part B.
- Report of Independent Auditors dated March 3,1997.
- Report of Independent Auditors dated February
28, 1997 for AMT Capital Fund, Inc. - Money Market
Portfolio.
- Statements of Assets and Liabilities dated
December 31, 1996.
- Statement of Net Assets dated December 31, 1996
for AMT Capital Fund, Inc. - Money Market Portfolio.
- Statements of Operations for the year ended
December 31, 1996.
- Statement of Operations for the year ended
December 31, 1996 for AMT Capital Fund, Inc.
- Money Market Portfolio.
- Statements of Changes in Net Assets for the
years ended December 31, 1995 and December 31, 1996.
- Statement of Changes in Net
Assets for the years ended December 31, 1995 and
December 31, 1996 for AMT Capital Fund, Inc. -
Money Market Portfolio.
- Notes to Financial Statements.
- Notes to Financial Statements for
AMT Capital Fund, Inc. - Money Market Portfolio.
- Financial Highlights of U.S. Short-Term for
the period December 6, 1989 (commencement of
operations) to September 30, 1990, for the
year ended September 30, 1991, for the three
months ended December 31, 1991, for the year ended
December 31, 1992, for the year ended December 31,
1993, for the year ended December 31, 1994, for the
year ended December 31, 1995, and for the year ended
December 31,1996; of Stable Return for the period
July 26, 1993 (commencement of operations) to December
31, 1993, for the year ended December 31,1994, for
the year ended December 31, 1995, and for the year ended
December 31, 1996; of Mortgage Total Return for the
period April 29, 1996 (commencement of operations) to
December 31, 1996; of Worldwide for the period
April 15, 1992 (commencement of operations) to
December 31, 1992, for the year ended December 31,
1993, for the year ended December 31, 1994, for year
ended December 31, 1995, and for the year ended
December 31, 1996; of Worldwide-Hedged for the period
May 19, 1992 (commencement of operations) to December
31, 1992, for the year ended December 31, 1993, for
the year ended December 31, 1994, for the year ended
December 31, 1995, and for the year ended December
31, 1996; of International for the period May 9, 1996
(commencement of operations) to December 31, 1996; and
of International-Hedged for the period March 25, 1993
(commencement of operations) to December 31, 1993, for
the year ended December 31, 1994, for year
ended December 31, 1995, and for the year ended
December 31, 1996.
- Financial Highlights for AMT Capital Fund, Inc. -
Money Market Portfolio for the period November 1,
1993 (commencement of operations) to December 31,
1993, for the year ended December 31, 1994, for the
year ended December 31, 1995, and for the year ended
December 31, 1996.
(b) Exhibits
The following exhibits are incorporated herein by reference, are
not required to be filed or are filed herewith (as indicated):
(1) Articles of Incorporation, dated February 23, 1989,
filed as Exhibit 1 to Registrant's Registration
Statement on Form N-1A.
(1a) Articles of Amendment, dated July 1, 1991, filed as
Exhibit 1(a) to Post-Effective Amendment No. 4 to
Registrant's Registration Statement on Form N-1A.
(1b) Articles of Amendment, dated July 26, 1991, filed as
Exhibit 1(a) to Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form N-1A.
(1c) Articles Supplementary, dated February 16, 1993, filed
as Exhibit 1(c) to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A.
(1d) Articles of Amendment, dated August 17, 1995, filed
as Exhibit 1(d) to Post-Effective Amendment No. 20 to
Registrant's Registration Statement on Form N-1A.
(1e) Articles of Amendment, dated December 11, 1996, filed
as Exhibit 1(e) to Post-Effective Amendment No. 20 to
Registrant's Registration Statement on Form N-1A.
(2) By-laws, filed as Exhibit 2 to Registrant's Registration
Statement on Form N-1A.
(2a) Amended By-laws, filed as Exhibit 2 to Post-Effective
Amendment No. 2 to Registrant's Registration Statement
on Form N-1A.
(2b) Amendment to By-laws, filed as Exhibit 2(a) to Post-
Effective Amendment No. 5 to Registrant's Registration
Statement on Form N-1A.
(3) Not Applicable.
(4) Specimen of Stock Certificate, filed as Exhibit 4 to
Registrant's Registration Statement on Form N-1A.
(5) Management Agreement between the Registrant and Fischer
Francis Trees & Watts, Inc., dated November 30, 1989,
filed as Exhibit 5 to Pre-Effective Amendment No. 3 to
Registrant's Registration Statement on Form N-1A.
(5a) Amendment to Management Agreement between the Registrant
and Fischer Francis Trees & Watts, Inc., dated September
25, 1990, filed as Exhibit 5 to Post-Effective Amendment
No. 2 to Registrant's Registration Statement on Form N-1A.
(5b) Amended and Restated Management Agreement between the
Registrant and Fischer Francis Trees & Watts, Inc.,
dated August 31, 1991, filed as Exhibit 5 to Post-
Effective Amendment No. 5 to Registrant's Registration
Statement on Form N-1A.
(5c) Sub-Advisory Agreement between Fischer Francis Trees &
Watts, Inc. and Fischer Francis Trees and Watts, dated
August 31, 1991, filed as Exhibit 5(a) to Post-Effective
Amendment No. 5 to Registrant's Registration Statement
on Form N-1A.
(5d) Advisory Agreement between the Registrant (for the
Stable Return Portfolio) and Fischer Francis Trees &
Watts, Inc., dated February 18, 1993, filed as Exhibit
5(d) to Post-Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A.
(5e) Advisory Agreement between the Registrant (for the U.S.
Treasury Portfolio) and Fischer Francis Trees & Watts,
Inc., dated February 18, 1993, filed as Exhibit 5(e) to
Post-Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A.
(5g) Advisory Agreement between the Registrant (for the Broad
Market Fixed Income Portfolio) and Fischer Francis Trees
& Watts, Inc., dated February 18, 1993, filed as Exhibit
5(g) to Post-Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A.
(5i) Advisory Agreement between the Registrant (for the
International Fixed Income Portfolio) and Fischer
Francis Trees & Watts, Inc., dated February 18, 1993
filed, as Exhibit 5(i) to Post-Effective Amendment No.
10 to Registrant's Registration Statement on Form N-1A.
(5j) Advisory Agreement between the Registrant (for the
International Fixed Income-Hedged Portfolio) and Fischer
Francis Trees & Watts, Inc., dated February 18, 1993,
filed as Exhibit 5(j) to Post-Effective Amendment No. 10
to Registrant's Registration Statement on Form N-1A.
(5l) Sub-Advisory Agreement (for the International Fixed
Income Portfolio) between Fischer Francis Trees & Watts,
Inc. and Fischer Francis Trees & Watts, dated February
18, 1993, filed as Exhibit 5(l) to Post-Effective
Amendment No. 10 to Registrant's Registration Statement
on Form N-1A.
(5m) Sub-Advisory Agreement (for the International Fixed
Income-Hedged Portfolio) between Fischer Francis Trees &
Watts, Inc. and Fischer Francis Trees & Watts, dated
February 18, 1993, filed as Exhibit 5(m) to Post-
Effective Amendment No. 10 to Registrant's Registration
Statement on Form N-1A.
(5n) Advisory Agreement between the Registrant (for the
Mortgage Total Return Portfolio) and Fischer Francis
Trees & Watts, Inc., dated January 2, 1996, filed as
Exhibit 5(n) to Post-Effective Amendment No. 19 to
Registrant's Registration Statement on Form N-1A.
(5o) Advisory Agreement between the Registrant (for the
Emerging Markets Portfolio) and Fischer Francis Trees &
Watts, Inc., dated October 30, 1996, filed as Exhibit 5(o)
to Post-Effective Amendment No. 20 to Registrant's
Registration Statement on Form N-1A.
(5p) Advisory Agreement between the Registrant (for the
Inflation-Indexed Portfolio) and Fischer Francis Trees &
Watts, Inc., dated October 30, 1996, filed as Exhibit 5(p)
to Post-Effective Amendment No. 20 to Registrant's
Registration Statement on Form N-1A.
(5q) Advisory Agreement between the Registrant (for the
Inflation-Indexed Hedged Portfolio) and Fischer Francis
Trees & Watts, Inc., dated October 30, 1996, filed as Exhibit
5(q) to Post-Effective Amendment No. 20 to Registrant's
Registration Statement on Form N-1A.
(5r) Advisory Agreement between the Registrant (for the Money
Market Portfolio) and Fischer Francis Trees & Watts,
Inc., dated October 30, 1996, filed as Exhibit 5(r) to
Post-Effective Amendment No. 20 to Registrant's Registration
Statement on Form N-1A.
(5s) Sub-Advisory Agreement (for the Emerging Markets
Portfolio) between Fischer Francis Trees & Watts, Inc.
and Fischer Francis Trees & Watts, dated October 30,
1996 filed as Exhibit 5(s) to Post-Effective Amendment
No. 20 to Registrant's Registration Statement on Form N-1A.
(5t) Sub-Advisory Agreement (for the Inflation-Indexed
Portfolio) between Fischer Francis Trees & Watts, Inc.
and Fischer Francis Trees & Watts, dated October 30,
1996 filed as Exhibit 5(t) to Post-Effective Amendment
No. 20 to Registrant's Registration Statement on Form N-1A.
(5u) Sub-Advisory Agreement (for the Inflation Indexed-Hedged
Portfolio) between Fischer Francis Trees & Watts, Inc.
and Fischer Francis Trees & Watts, dated October 30,
1996 filed as Exhibit 5(u) to Post-Effective Amendment
No. 20 to Registrant's Registration Statement on Form N-1A.
(5v) Amendment to Management Agreement (for the Broad Market
Portfolio) between the Registrant and Fischer Francis
Trees & Watts, Inc., dated October 30, 1996, filed Exhibit
5(v) to Post-Effective Amendment No. 20 to Registrant's
Registration Statement on Form N-1A.
(5w) Amendment to Management Agreement (for the U.S. Treasury
Portfolio) between the Registrant and Fischer Francis
Trees & Watts, Inc., dated October 30, 1996, filed Exhibit
5(w) to Post-Effective Amendment No. 20 to Registrant's
Registration Statement on Form N-1A.
(6) Distribution Agreement between the Registrant and AMT
Capital Services, Inc., dated September 21, 1992, filed
as Exhibit 6 to Post-Effective Amendment No. 8 to
Registrant's Registration Statement on Form N-1A.
(6a) Distribution Agreement between the Registrant and AMT
Capital Services, Inc., dated February 1, 1995 filed as
Exhibit 6a to Post-Effective Amendment No. 16 to
Registrant's Registration Statement on Form N-1A.
(7) Not Applicable.
(8) Custodian Agreement between Registrant and State Street
Bank & Trust Company, dated November 21, 1989, filed as
Exhibit 8 to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A.
(8a) Custodian Agreement between Registrant and State Street
Bank & Trust Company, dated October 22, 1991, filed as
Exhibit 8 to Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form N-1A.
(8b) Transfer Agency and Service Agreement between Registrant
and State Street Bank & Trust Company, dated October 22,
1991, filed as Exhibit 8(a) to Post-Effective Amendment
No. 5 to Registrant's Registration Statement on Form N-1A.
(8c) Transfer Agency and Service Agreement between Registrant
and Investors Bank & Trust Company, dated November 27,
1992, filed as Exhibit 8(c) to Post-Effective Amendment
No. 9 to Registrant's Registration Statement on Form N-1A.
(8d) Custodian Agreement between Registrant and Investors
Bank & Trust Company, dated January 10, 1994, filed as
Exhibit 8(d) to Post-Effective Amendment No. 13 to
Registrant's Registration Statement on Form N-1A.
(9) Administration Agreement between the Registrant and AMT
Capital Services, Inc., dated September 21, 1992, filed
as Exhibit 9 to Post-Effective Amendment No. 8 to
Registrant's Registration Statement on Form N-1A.
(9a) Sales Incentive Fee Agreement between Fischer Francis
Trees & Watts, Inc. and AMT Capital Services, Inc.,
dated September 21, 1992, filed as Exhibit 9(a) to Post-
Effective Amendment No. 8 to Registrant's Registration
Statement on Form N-1A.
(9b) Administration Agreement between the Registrant and AMT
Capital Services, Inc., dated February 1, 1995, filed as
Exhibit 9b to Post-Effective Amendment No. 16 to
Registrant's Registration Statement on Form N-1A.
(10) Opinion and Consent of Counsel, dated June 28, 1989,
filed as Exhibit 10 to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A.
(10a) Opinion and Consent of Counsel, dated December 28, 1995,
filed as Exhibit 10a to Post-Effective Amendment No. 17
to Registrant's Registration Statement on Form N-1A.
(11) Consent of Independent Auditors, filed herewith.
(12) Not Applicable.
(13a) Purchase Agreement for Initial Capital between
Registrant and Fischer Francis Trees & Watts, Inc.,
dated November 17, 1989, filed as Exhibit 13 to Pre-
Effective Amendment No. 3 to Registrant's Registration
Statement on Form N-1A.
(14) Not Applicable.
(15) Not Applicable.
(16) Performance Information Schedule, filed herewith.
Item 25. Persons Controlled by or Under Common Control with Registrant
None.
Item 26. Number of Holders of Securities
As of March 31, 1997, there were 11 record holders of Capital Stock
of Money Market. there were 32 record holders of Capital
Stock of U.S. Short-Term, 6 record holders of Stable Return, 10
record holders of Mortgage Total Return, 21 record holders of
Worldwide, 5 record holders of Worldwide-Hedged, 9 record holders of
International and 9 record holders of International-Hedged.
Item 27. Indemnification
The Registrant shall indemnify directors, officers, employees and
agents of the Registrant against judgments, fines, settlements and
expenses to the fullest extent allowed, and in the manner provided,
by applicable federal and Maryland law, including Section 17(h) and
(i) of the Investment Company Act of 1940. In this regard, the
Registrant undertakes to abide by the provisions of Investment
Company Act Releases No. 11330 and 7221 until amended or superseded
by subsequent interpretation of legislative or judicial action.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
The business and other connections of Fischer Francis Trees & Watts,
Inc. (the Investment Adviser) and Fischer Francis Trees & Watts (the
Sub-Adviser) are on the Uniform Application for Investment Adviser
Registration ("Form ADV") of each as currently on file with the
Commission (File Nos. 801-10577 and 801-37205, respectively) the
text of which are hereby incorporated by reference.
Item 29. Principal Underwriters
(a) AMT Capital Services, Inc. does not act as principal
underwriter, depositor or investment adviser for any
investment company (other than the Fund).
(b) For each director or officer of AMT Capital Services, Inc.:
Name and Positions and Positions and
principal business offices with offices with
address underwriter registrant
Alan M. Trager Director None
600 Fifth Avenue and Treasurer
26th floor
New York, NY 10020
Carla E. Dearing Director and President Assistant
600 Fifth Avenue Treasurer
26th floor
New York, NY 10020
William E. Vastardis Senior Vice
600 Fifth Avenue President Secretary
26th floor
New York, NY 10020
Ruth L. Lansner Secretary None
Gilbert, Segall & Young
430 Park Avenue
11th floor
New York, NY 10022
(c) No commissions or other compensation was paid to the principal
underwriter during the registrant's last fiscal year.
Item 30. Location of Accounts and Records
All accounts, book and other documents required to be maintained by
Section 31(a) of an Investment Company Act of 1940 and the Rules (17
CFR 270.32a-l to 3la-3) promulgated thereunder will be maintained by
the following:
Accounting and Custodial Records - Investors Bank & Trust
Company, P.O. Box 1537, Boston, Massachusetts 02205-1537.
Dividend Disbursing Agent and Transfer Agent - Investors Bank
& Trust Company, P.O. Box 1537, Boston, Massachusetts 02205-
1537.
Balance of Accounts and Records: AMT Capital Services, Inc.,
600 Fifth Avenue, 26th Floor, New York, New York 10020 and
Fischer Francis Trees & Watts, Inc., 200 Park Avenue, 46th
Floor, New York, New York 10166.
Item 31. Management Services
None.
Item 32. Undertakings
The Registrant undertakes to file a post-effective amendment with
financial statements for the Emerging Markets Portfolio, Inflation-
Indexed Portfolio, and Inflation-Indexed Hedged Portfolio within
four to six months of their respective commencement dates of
operation.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment No. 21
to its Registration Statement pursuant to Rule 485(b) under the Securities
Act of 1933. Pursuant to the requirements of the Securities Act of 1933
and the Investment Company act of 1940, the Registrant has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York on the 30th day of April, 1997.
FFTW FUNDS, INC.
By /s/ Onder John Olcay
Onder John Olcay
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title Date
/s/ Stephen E. Constantine President and Director April 30, 1997
Stephen J. Constantine
/s/ Onder John Olcay Chairman of the Board, April 30, 1997
Onder John Olcay Chief Executive Officer
/s/ John C Head III Director April 30, 1997
John C Head III
/s/ Lawrence B. Krause Director April 30, 1997
Lawrence B. Krause
/s/ Paul Meek Director April 30, 1997
Paul Meek
/s/ Stephen P. Casper Treasurer April 30, 1997
Stephen P. Casper
EXHIBIT INDEX
Exhibit No.
(11) Consent of Independent Auditors
(16) Performance Information Schedule
Performance Information Schedule
30 Day Yield Calculation
YIELD = 2[( a - b + 1)6 - 1]
----------------
cd
WHERE: a = dividends and interest earned during the period.
b = expenses accrued for the period.
c = average daily number of shares outstanding during the period.
d = maximum offering price per share on the last day of the period.
U.S. Short-Term:
a= 2053630
b= 90075
c= 45371597
d= 9.85
Yield= 5.33%
Stable Return:
a= 209602
b= 10746
c= 4205210
d= 9.98
Yield= 5.75%
Worldwide:
a= 392978
b= 36729
c= 7776380
d= 9.82
Yield= 5.66%
Worldwide-Hedged:
a= 159360
b= 10666
c= 2648262
d= 11.31
Yield= 6.03%
International
a= 147438
b= 15151
c= 3078202
d= 10.21
Yield= 5.10
International-Hedged:
a= 593844
b= 60299
c= 12614466
d= 9.87
Yield= 5.20
Performance Information Schedule
Calculation of Current Yield and Effective Yield for the Money Market Portfolio
for the Seven Days Ended December 31, 1996
Base Period Return December 31, 1996: 0.00
Current Yield
(Base Period Return/7)x365x100 = 5.04%
Effective Yield
[(Base Period Return + 1)365/7]-1 = 5.17%
Performance Information Schedule
Total Return
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Date of Net Cap. Shares Returns
Distribution Income Gains. Reinvested NAV Inception 5 Years 1 Year
Money Market:
11/1/93 1.00 1000.00
11/30/93 0.00211 0.00 2.1061 1.00 1002.11
12/31/93 0.00227 0.00 2.2739 1.00 1004.38
1/31/94 0.00222 0.00 2.2336 1.00 1006.61
2/28/94 0.00221 0.00 2.2210 1.00 1008.84
3/31/94 0.00268 0.00 2.7007 1.00 1011.54
4/30/94 0.00281 0.00 2.8451 1.00 1014.38
5/31/94 0.00311 0.00 3.1589 1.00 1017.54
6/30/94 0.00341 0.00 3.4673 1.00 1021.01
7/31/94 0.00336 0.00 3.4346 1.00 1024.44
8/31/94 0.00361 0.00 3.6993 1.00 1028.14
9/30/94 0.00376 0.00 3.8619 1.00 1032.00
10/31/94 0.00409 0.00 4.2215 1.00 1036.23
11/30/94 0.00420 0.00 4.3507 1.00 1040.58
12/31/94 0.00506 0.00 5.2665 1.00 1045.84
1/31/95 0.00471 0.00 4.9242 1.00 1050.77
2/28/95 0.00447 0.00 4.6925 1.00 1055.46
3/31/95 0.00489 0.00 5.1661 1.00 1060.63
4/30/95 0.00475 0.00 5.0354 1.00 1065.66
5/31/95 0.00488 0.00 5.2027 1.00 1070.86
6/30/95 0.00468 0.00 5.0081 1.00 1075.87
7/31/95 0.00476 0.00 5.1257 1.00 1081.00
8/31/95 0.00469 0.00 5.0679 1.00 1086.07
9/30/95 0.00452 0.00 4.9107 1.00 1090.98
10/31/95 0.00465 0.00 5.0683 1.00 1096.05
11/30/95 0.00437 0.00 4.7863 1.00 1100.83
12/31/95 0.00454 0.00 4.9936 1.00 1105.83 1000.00
1/31/96 0.00442 0.00 4.8838 1.00 1110.71 1004.42
2/29/96 0.00399 0.00 4.4300 1.00 1115.14 1008.43
3/31/96 0.00423 0.00 4.7149 1.00 1119.85 1012.69
4/30/96 0.00405 0.00 4.5362 1.00 1124.39 1016.79
5/31/96 0.00419 0.00 4.7129 1.00 1129.10 1021.06
6/30/96 0.00402 0.00 4.5432 1.00 1133.65 1025.16
7/31/96 0.00419 0.00 4.7450 1.00 1138.39 1029.46
8/31/96 0.00431 0.00 4.9082 1.00 1143.30 1033.89
9/30/96 0.00429 0.00 4.9066 1.00 1148.21 1038.33
10/31/96 0.00433 0.00 4.9755 1.00 1153.18 1042.82
11/30/96 0.00430 0.00 4.9578 1.00 1158.14 1047.31
12/31/96 0.00432 0.00 5.0053 1.00 1163.15 1051.83
Performance Information Schedule
Total Return
Date of Net Cap. Shares Returns
Distribution Income Gains. Reinvested NAV Inception 5 Years 1 Year
U.S. Short-Term:
12/6/89 10.00 1000.00
12/31/89 0.03969 0.01 0.4890 10.00 1004.89
1/31/90 0.06594 0.00 0.6450 10.01 1012.35
2/28/90 0.05951 0.01 0.6680 10.00 1018.02
3/31/90 0.06579 0.00 0.6840 10.00 1024.86
4/30/90 0.06475 0.00 0.6440 10.00 1031.30
5/31/90 0.06697 0.01 0.7670 10.00 1038.97
6/30/90 0.06299 0.01 0.7240 9.99 1045.16
7/31/90 0.06494 0.00 0.7070 9.99 1052.23
8/31/90 0.06404 0.01 0.7280 9.99 1059.50
9/30/90 0.06638 0.00 0.7250 10.00 1067.81
10/31/90 0.06585 0.00 0.7210 10.00 1075.02
11/30/90 0.06068 0.01 0.7860 9.99 1081.80
12/31/90 0.06027 0.01 0.7480 10.00 1090.36
1/31/91 0.05959 0.00 0.6810 10.00 1097.17
2/28/91 0.04927 0.01 0.6720 10.00 1103.89
3/31/91 0.04653 0.00 0.4930 10.00 1108.82
4/30/91 0.05344 0.01 0.6690 10.00 1115.51
5/31/91 0.04858 0.00 0.5040 10.00 1120.55
6/30/91 0.04423 0.00 0.4470 10.00 1125.02
7/31/91 0.05138 0.00 0.6290 10.00 1131.31
8/31/91 0.04537 0.01 0.6380 10.00 1137.69
9/30/91 0.04483 0.01 0.6060 10.00 1143.75
10/31/91 0.04269 0.01 0.5570 10.00 1149.32
11/30/91 0.03754 0.01 0.5310 10.00 1154.63
12/31/91 0.03869 0.01 0.5450 10.00 1160.08 1000.00
1/31/92 0.03483 0.00 0.3870 10.00 1163.95 1003.34
2/29/92 0.02969 -0.01 0.2560 10.00 1166.51 1005.54
3/31/92 0.03323 -0.01 0.3160 10.00 1169.67 1008.27
4/30/92 0.03216 0.00 0.3150 10.00 1172.82 1011.07
5/31/92 0.02898 0.00 0.3310 10.00 1176.13 1013.93
6/30/92 0.03173 0.01 0.4460 10.00 1180.59 1017.77
7/31/92 0.02800 0.01 0.4540 10.00 1185.13 1021.69
8/31/92 0.02573 0.00 0.2920 10.00 1188.05 1024.20
9/30/92 0.02483 0.01 0.4050 10.00 1192.10 1027.67
10/31/92 0.02440 -0.01 0.2100 10.00 1194.20 1029.48
11/30/92 0.02454 0.00 0.2400 10.00 1196.60 1031.55
12/31/92 0.02589 0.00 0.3540 10.00 1200.14 1034.60
1/31/93 0.02819 0.00 0.3230 10.00 1203.37 1037.38
2/28/93 0.02825 0.00 0.3170 10.00 1206.54 1040.11
3/31/93 0.03136 -0.01 0.2990 10.00 1209.53 1042.69
4/30/93 0.02801 -0.01 0.2570 10.00 1212.10 1044.91
5/31/93 0.03011 -0.01 0.2470 10.00 1214.57 1047.04
6/30/93 0.02520 0.00 0.2800 10.00 1217.37 1049.45
7/31/93 0.02872 0.00 0.3150 10.00 1220.52 1052.17
8/31/93 0.02697 0.00 0.3780 10.00 1224.30 1055.43
9/30/93 0.02476 0.01 0.3670 10.00 1227.97 1058.59
10/31/93 0.02463 -0.01 0.1760 10.00 1229.73 1060.11
11/30/93 0.03018 -0.02 0.0780 10.00 1230.51 1060.78
12/31/93 0.05461 0.01 0.7960 9.97 1234.75 1064.45
1/31/94 0.02869 0.00 0.3560 9.98 1239.55 1068.58
2/28/94 0.02493 0.00 0.3110 9.96 1240.16 1069.10
3/31/94 0.02784 0.00 0.3480 9.96 1243.63 1072.09
4/30/94 0.03006 0.00 0.3770 9.95 1246.13 1074.25
5/31/94 0.03494 0.00 0.4400 9.95 1250.51 1078.02
6/30/94 0.03299 0.00 0.4180 9.93 1252.14 1079.43
7/31/94 0.04086 0.00 0.5190 9.93 1257.30 1083.87
8/31/94 0.04517 0.00 0.5760 9.93 1263.02 1088.80
9/30/94 0.04119 0.00 0.5290 9.91 1265.72 1091.13
10/31/94 0.04901 0.00 0.6320 9.91 1271.98 1096.52
11/30/94 0.04805 0.00 0.6240 9.89 1275.58 1099.63
12/31/94 0.04837 0.00 0.6310 9.89 1281.82 1105.00
1/31/95 0.04948 0.00 0.6480 9.89 1288.23 1110.53
2/28/95 0.04593 0.00 0.6040 9.90 1295.51 1116.81
3/31/95 0.04912 0.00 0.6490 9.90 1301.94 1122.35
4/30/95 0.04824 0.00 0.6410 9.89 1306.96 1126.69
5/31/95 0.04845 0.00 0.6470 9.89 1313.36 1132.21
6/30/95 0.04735 0.00 0.6360 9.89 1319.65 1137.63
7/31/95 0.04752 0.00 0.6418 9.88 1324.66 1141.95
8/31/95 0.04692 0.00 0.6367 9.88 1330.95 1147.37
9/30/95 0.04633 0.00 0.6317 9.88 1337.19 1152.75
10/31/95 0.04614 0.00 0.6321 9.88 1343.44 1158.13
11/30/95 0.04522 0.00 0.6224 9.88 1349.59 1163.43
12/31/95 0.03933 0.00 0.5437 9.88 1354.96 1168.07 1000.00
1/31/96 0.04594 0.00 0.6371 9.89 1362.63 1174.68 1005.66
2/29/96 0.04527 0.00 0.6320 9.87 1366.11 1177.68 1008.23
3/31/96 0.04869 0.00 0.6835 9.86 1371.47 1182.30 1012.18
4/30/96 0.04581 0.00 0.6463 9.86 1377.84 1187.79 1016.89
5/31/96 0.04703 0.00 0.6673 9.85 1383.01 1192.25 1020.71
6/30/96 0.04375 0.00 0.6243 9.84 1387.75 1196.34 1024.20
7/31/96 0.04691 0.00 0.6723 9.84 1394.37 1202.04 1029.08
8/31/96 0.04694 0.00 0.6759 9.84 1401.02 1207.77 1033.99
9/30/96 0.04631 0.00 0.6700 9.84 1407.61 1213.46 1038.86
10/31/96 0.04739 0.00 0.6889 9.84 1414.39 1219.30 1043.86
11/30/96 0.04590 0.00 0.6698 9.85 1422.43 1226.23 1049.79
12/31/96 0.04579 0.00 0.6712 9.85 1429.04 1231.93 1054.67
Performance Information Schedule
Total Return
Date of Net Cap. Shares Returns
Distribution Income Gains. Reinvested NAV Inception 5 Years 1 Year
Stable Return:
7/26/93 10.00 1000.00
7/31/93 0.00436 0.00 0.0440 10.00 1000.44
8/31/93 0.02811 0.00 0.2800 10.05 1008.26
9/30/93 0.02783 0.00 0.2760 10.10 1016.06
10/31/93 0.02823 0.00 0.2820 10.07 1015.88
11/30/93 0.02401 0.00 0.2420 10.02 1013.26
12/31/93 0.02593 0.10 1.2380 9.95 1018.50
1/31/94 0.03149 0.00 0.3230 9.97 1023.77
2/28/94 0.02869 0.00 0.2980 9.88 1017.47
3/31/94 0.03312 0.00 0.3480 9.81 1013.68
4/30/94 0.03211 0.00 0.3410 9.73 1008.73
5/31/94 0.03248 0.00 0.3470 9.71 1010.02
6/30/94 0.03024 0.00 0.3240 9.70 1012.13
7/31/94 0.03040 0.00 0.3250 9.76 1021.56
8/31/94 0.04100 0.00 0.4410 9.74 1023.76
9/30/94 0.04062 0.00 0.4410 9.69 1022.78
10/31/94 0.04358 0.00 0.4760 9.67 1025.27
11/30/94 0.04229 0.00 0.4690 9.57 1019.16
12/31/94 0.04188 0.00 0.4670 9.55 1021.49
1/31/95 0.05899 0.00 0.6560 9.62 1035.29
2/28/95 0.05089 0.00 0.5630 9.72 1051.52
3/31/95 0.05599 0.00 0.6230 9.72 1057.57
4/30/95 0.04959 0.00 0.5540 9.74 1065.15
5/31/95 0.05036 0.00 0.5590 9.86 1083.78
6/30/95 0.04651 0.00 0.5160 9.90 1093.29
7/31/95 0.05155 0.00 0.5762 9.88 1096.77
8/31/95 0.04949 0.00 0.5561 9.88 1102.27
9/30/95 0.04703 0.00 0.5311 9.88 1107.51
10/31/95 0.04829 0.00 0.5457 9.92 1117.41
11/30/95 0.04364 0.00 0.4935 9.96 1126.83
12/31/95 0.04545 0.00 0.5142 10.00 1136.50 1000.00
1/31/96 0.04269 0.00 0.4833 10.04 1145.90 1008.27
2/29/96 0.03900 0.00 0.4455 9.99 1144.64 1007.16
3/31/96 0.04150 0.00 0.4788 9.93 1142.52 1005.30
4/30/96 0.04357 0.00 0.5059 9.91 1145.23 1007.69
5/31/96 0.04643 0.00 0.5430 9.88 1147.13 1009.36
6/30/96 0.04499 0.00 0.5277 9.90 1154.68 1016.00
7/31/96 0.04703 0.00 0.5546 9.89 1159.00 1019.80
8/31/96 0.04941 0.00 0.5866 9.87 1162.44 1022.83
9/30/96 0.04633 0.00 0.5511 9.90 1171.43 1030.74
10/31/96 0.05078 0.00 0.6026 9.97 1185.72 1043.31
11/30/96 0.04999 0.00 0.5939 10.01 1196.42 1052.73
12/31/96 0.04877 0.03 0.9827 9.93 1196.62 1052.90
Performance Information Schedule
Total Return
Date of Net Cap. Shares Returns
Distribution Income Gains. Reinvested NAV Inception 5 Years 1 Year
Mortgage Total Return:
4/29/96 10.00 1000.00
4/30/96 0.00170 0.00 0.0171 9.98 998.17
5/31/96 0.07400 0.00 0.7476 9.90 997.57
6/30/96 0.03594 0.00 0.3622 10.00 1011.27
7/31/96 0.06579 0.00 0.6666 9.97 1014.88
8/31/96 0.06182 0.00 0.6337 9.93 1017.10
9/30/96 0.02642 0.00 0.2682 10.09 1036.20
10/31/96 0.42040 0.00 0.4369 10.22 1054.01
11/30/96 0.08732 0.00 0.8742 10.30 1071.27
12/31/96 0.07986 0.01 0.8695 10.16 1065.54
Performance Information Schedule
Total Return
Date of Net Cap. Shares Returns
Distribution Income Gains. Reinvested NAV Inception 5 Years 1 Year
Worldwide:
4/15/92 10.00 1000.00
4/30/92 0.01649 0.01 0.2470 9.89 991.44
5/31/92 0.05095 0.00 0.5430 10.01 1008.91
6/30/92 0.05265 0.04 0.9300 10.03 1020.25
7/31/92 0.05272 0.04 0.9620 10.11 1038.12
8/31/92 0.04900 0.18 2.3190 9.95 1044.76
9/30/92 0.03726 0.01 0.4400 10.11 1066.01
10/31/92 0.04467 0.24 3.0550 9.91 1075.20
11/30/92 0.04119 0.04 0.8580 9.87 1079.32
12/31/92 0.04169 0.00 0.4570 9.98 1095.91
1/31/93 0.03875 0.20 2.5940 9.95 1118.43
2/28/93 0.04722 0.01 0.6850 10.17 1150.13
3/31/93 0.03748 0.16 2.2750 10.01 1154.80
4/30/93 0.03960 0.18 2.6100 9.92 1170.31
5/31/93 0.04207 0.00 0.4980 9.97 1181.18
6/30/93 0.02911 0.04 0.8340 10.09 1203.81
7/31/93 0.03977 0.21 3.0220 10.04 1228.18
8/31/93 0.04433 0.00 0.5330 10.17 1249.51
9/30/93 0.03798 0.00 0.4980 10.21 1259.51
10/31/93 0.02788 0.00 0.3320 10.36 1281.45
11/30/93 0.03121 0.00 0.3800 10.15 1259.33
12/31/93 0.03774 0.18 2.6470 10.02 1269.72
1/31/94 0.03247 0.00 0.4090 10.06 1278.91
2/28/94 0.02993 0.00 0.3860 9.85 1256.01
3/31/94 0.04422 0.00 0.5910 9.54 1222.12
4/30/94 0.04358 0.00 0.5910 9.44 1214.89
5/31/94 0.04435 0.00 0.6070 9.41 1216.74
6/30/94 0.03837 0.00 0.5310 9.35 1213.95
7/31/94 0.04220 0.00 0.5810 9.43 1229.81
8/31/94 0.04480 0.00 0.6180 9.45 1238.26
9/30/94 0.04130 0.00 0.5750 9.41 1238.43
10/31/94 0.04731 0.00 0.6630 9.39 1242.02
11/30/94 0.04839 0.00 0.6830 9.37 1245.78
12/31/94 0.06529 0.00 0.9370 9.27 1241.17
1/31/95 0.04856 0.00 0.7010 9.28 1249.01
2/28/95 0.04728 0.00 0.6810 9.35 1264.80
3/31/95 0.04788 0.00 0.6850 9.45 1284.80
4/30/95 0.04799 0.00 0.6850 9.52 1300.84
5/31/95 0.04627 0.00 0.6490 9.74 1337.22
6/30/95 0.05049 0.00 0.7150 9.69 1337.29
7/31/95 0.05070 0.00 0.7228 9.68 1342.90
8/31/95 0.04797 0.00 0.7072 9.41 1312.10
9/30/95 0.04861 0.00 0.7097 9.55 1338.40
10/31/95 0.04610 0.00 0.6715 9.62 1354.67
11/30/95 0.04672 0.00 0.6797 9.68 1369.70
12/31/95 0.04647 0.00 0.6689 9.83 1397.50 1000.00
1/31/96 0.04089 0.00 0.5962 9.75 1391.94 996.02
2/29/96 0.03421 0.00 0.5050 9.67 1385.40 991.34
3/31/96 0.04947 0.00 0.7421 9.55 1375.30 984.11
4/30/96 0.04590 0.00 0.6900 9.58 1386.23 991.93
5/31/96 0.04686 0.00 0.7129 9.51 1382.88 989.54
6/30/96 0.04335 0.00 0.6643 9.49 1386.27 991.97
7/31/96 0.04400 0.00 0.6687 9.61 1410.23 1009.11
8/31/96 0.04478 0.00 0.6859 9.58 1412.40 1010.66
9/30/96 0.04642 0.00 0.7107 9.63 1426.61 1020.83
10/31/96 0.04739 0.00 0.7133 9.84 1464.74 1048.12
11/30/96 0.04682 0.00 0.6968 10.00 1495.53 1070.15
12/31/96 0.04167 0.20 3.7734 9.64 1478.06 1057.65
Performance Information Schedule
Total Return
Date of Net Cap. Shares Returns
Distribution Income Gains. Reinvested NAV Inception 5 Years 1 Year
Worldwide-Hedged:
5/19/92 10.00 1000.00
5/31/92 0.01267 0.00 0.1270 9.96 997.26
6/30/92 0.05169 0.07 1.2290 9.97 1010.52
7/31/92 0.05175 0.07 1.1800 10.03 1028.44
8/31/92 0.04636 0.23 2.9270 9.85 1038.81
9/30/92 0.03593 0.00 0.3790 9.99 1057.36
10/31/92 0.04425 0.01 0.6010 9.89 1052.72
11/30/92 0.04097 0.02 0.6300 9.76 1045.03
12/31/92 0.03544 0.00 0.3850 9.85 1058.46
1/31/93 0.03685 0.15 1.9770 9.91 1084.50
2/28/93 0.04793 0.01 0.6600 10.05 1106.45
3/31/93 0.03914 0.16 2.1950 9.89 1110.55
4/30/93 0.03874 0.07 1.2510 9.82 1114.97
5/31/93 0.04193 0.00 0.4840 9.83 1120.87
6/30/93 0.02911 0.00 0.3340 9.95 1137.87
7/31/93 0.03919 0.10 1.6130 9.92 1150.44
8/31/93 0.04978 0.00 0.5700 10.12 1179.41
9/30/93 0.03787 0.00 0.4830 10.15 1187.80
10/31/93 0.02845 0.00 0.3260 10.22 1199.33
11/30/93 0.02549 0.00 0.2980 10.04 1181.20
12/31/93 0.03311 0.03 0.7730 10.09 1194.88
1/31/94 0.03152 0.00 0.3690 10.11 1200.98
2/28/94 0.02883 0.00 0.3460 9.90 1179.46
3/31/94 0.05006 0.00 0.6230 9.58 1147.30
4/30/94 0.04930 0.00 0.6250 9.45 1137.64
5/31/94 0.04303 0.00 0.5410 9.58 1158.47
6/30/94 0.03668 0.00 0.4640 9.56 1160.49
7/31/94 0.03704 0.00 0.4810 9.35 1139.49
8/31/94 0.02532 0.00 0.2950 10.45 1276.63
9/30/94 0.03293 0.00 0.3850 10.46 1281.88
10/31/94 0.03204 0.00 0.3750 10.46 1285.81
11/30/94 0.03674 0.00 0.4320 10.46 1290.32
12/31/94 0.03543 0.00 0.4180 10.41 1288.51
1/31/95 0.05739 0.00 0.6800 10.44 1299.32
2/28/95 0.01627 0.00 0.1940 10.46 1303.84
3/31/95 0.04164 0.00 0.4960 10.46 1309.03
4/30/95 0.03902 0.00 0.4670 10.46 1313.91
5/31/95 0.03993 0.00 0.4800 10.46 1318.93
6/30/95 0.02685 0.00 0.3220 10.51 1328.62
7/31/95 0.04201 0.00 0.5087 10.44 1325.08
8/31/95 0.05310 0.00 0.6413 10.51 1340.71
9/14/95 0.14292 0.00 1.7330 10.52 1360.21
9/30/95 0.05013 0.00 0.6220 10.42 1353.77
10/31/95 0.04622 0.00 0.5703 10.53 1374.06
11/30/95 0.05364 0.00 0.6530 10.72 1405.86
12/31/95 0.05610 0.00 0.6780 10.85 1430.26 1000.00
1/31/96 0.05002 0.00 0.6006 10.98 1453.99 1016.59
2/29/96 0.03524 0.00 0.4325 10.79 1433.50 1002.26
3/31/96 0.05683 0.00 0.7056 10.70 1429.09 999.18
4/30/96 0.05285 0.00 0.6530 10.81 1450.84 1014.39
5/31/96 0.05385 0.00 0.6711 10.77 1452.70 1015.69
6/30/96 0.04955 0.00 0.6211 10.76 1458.04 1019.42
7/31/96 0.05227 0.00 0.6582 10.76 1465.12 1024.37
8/31/96 0.05191 0.00 0.6557 10.78 1474.91 1031.22
9/30/96 0.05469 0.00 0.6821 10.97 1508.39 1054.62
10/31/96 0.05537 0.00 0.6798 11.20 1547.63 1082.06
11/30/96 0.05509 0.00 0.6683 11.39 1581.49 1105.74
12/31/96 0.05522 0.37 5.4012 10.91 1573.77 1100.34
Performance Information Schedule
Total Return
Date of Net Cap. Shares Returns
Distribution Income Gains. Reinvested NAV Inception 5 Years 1 Year
International:
5/9/96 10.00 1000.00
5/31/96 0.03431 0.00 0.3449 9.95 998.43
6/30/96 0.04786 0.00 0.4851 9.90 998.22
7/31/96 0.04752 0.00 0.4744 10.10 1023.17
8/31/96 0.04900 0.00 0.4920 10.09 1027.13
9/30/96 0.05059 0.00 0.5109 10.08 1031.26
10/31/96 0.05335 0.00 0.5300 10.30 1059.22
11/30/96 0.05186 0.00 0.5133 10.39 1073.81
12/31/96 0.04058 0.00 1.2186 10.20 1066.61
Performance Information Schedule
Total Return
Date of Net Cap. Shares Returns
Distribution Income Gains. Reinvested NAV Inception 5 Years 1 Year
International-Hedged
3/25/93 10.00 1000.00
3/31/93 0.01078 0.00 0.1080 9.96 997.08
4/30/93 0.06981 0.05 1.1710 9.97 1009.75
5/31/93 0.05528 0.00 0.5600 9.99 1017.37
6/30/93 0.04139 0.00 0.4190 10.06 1028.72
7/31/93 0.03667 0.12 1.5870 10.07 1045.72
8/31/93 0.06509 0.00 0.6560 10.31 1077.41
9/30/93 0.05389 0.00 0.5440 10.36 1088.27
10/31/93 0.03102 0.00 0.3110 10.48 1104.13
11/30/93 0.03413 0.00 0.3440 10.45 1104.57
12/31/93 0.04031 0.22 2.6690 10.39 1125.95
1/31/94 0.02842 0.00 0.3010 10.23 1111.69
2/28/94 -0.02135 0.19 1.8890 9.79 1082.37
3/31/94 0.12969 0.00 1.4210 10.09 1129.88
4/30/94 0.00000 0.00 0.0000 10.13 1134.36
5/31/94 0.00448 0.00 0.0500 9.99 1119.18
6/30/94 0.01891 0.00 0.2110 10.04 1126.90
7/31/94 0.01870 0.00 0.2100 10.01 1125.63
8/31/94 0.01358 0.00 0.1570 9.74 1096.80
9/30/94 0.00566 0.00 0.0650 9.74 1097.44
10/31/94 0.00000 0.00 0.0000 9.74 1097.44
11/30/94 0.00000 0.00 0.0000 9.74 1097.44
12/31/94 0.00000 0.00 0.0000 9.74 1097.44
9/14/95 10.00 1000.00
9/30/95 0.02628 0.00 0.2647 9.93 995.63
10/31/95 0.05065 0.00 0.5115 9.93 1000.71
11/30/95 0.05098 0.00 0.5128 10.02 1014.92
12/31/95 0.05832 0.00 0.5797 10.19 1038.04 1000.00
1/31/96 0.04133 0.00 0.4148 10.15 1038.18 1000.13
2/29/96 0.03917 0.00 0.3978 10.07 1034.00 996.11
3/31/96 0.05809 0.00 0.5959 10.01 1033.80 995.92
4/30/96 0.04579 0.00 0.4664 10.14 1051.96 1013.41
5/31/96 0.03990 0.00 0.4119 10.05 1046.76 1008.40
6/30/96 0.04281 0.00 0.4454 10.01 1047.06 1008.68
7/31/96 0.04067 0.00 0.4250 10.01 1051.31 1012.78
8/31/96 0.04044 0.00 0.4268 9.95 1049.25 1010.80
9/30/96 0.03994 0.00 0.4216 9.99 1057.68 1018.92
10/31/96 0.04860 0.00 0.5125 10.04 1068.12 1028.98
11/30/96 0.04982 0.00 0.5290 10.02 1071.30 1032.03
12/31/96 0.03866 0.18 2.3748 9.80 1071.05 1031.80
</TABLE>
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.
- -------------------------------------------------------------------------------
Table Of Contents
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
U.S. Short-Term Portfolio
December 31, 1996
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
U.S. Short-Term Portfolio - Schedule of Investments
December 31, 1996
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
Stable Return Portfolio - Schedule of Investments
December 31, 1996
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
Mortgage Total Return Portfolio
December 31, 1996
- -------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------
Mortgage Total Return Portfolio - Schedule of Investments
December 31, 1996
- ------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
Schedule of Securities Sold Short Face
December 31, 1996 Amount Value
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
Worldwide Portfolio
December 31, 1996
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
Worldwide Portfolio - Schedule of Investments
December 31, 1996
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
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
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<GROSS-EXPENSE> 615
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<TABLE> <S> <C>
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<NAME> INTERNATIONAL PORTFOLIO
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<EXPENSES-NET> 88
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (678)
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<APPREC-INCREASE-CURRENT> (1600)
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<ACCUMULATED-NII-PRIOR> 105
<ACCUMULATED-GAINS-PRIOR> (4)
<OVERDISTRIB-NII-PRIOR> 0
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<PER-SHARE-NII> 0.47
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</TABLE>
AMT Capital Fund, Inc.
Money Market Portfolio
Annual Report
December 31, 1996
AMT Capital Services, Inc.
600 Fifth Avenue, New York, New York 10020
Telephone (212) 332-5211 Long Distance (800) 762-4848
Facsimile (212) 332-5190
AMT Capital Fund, Inc.
- --------------------------------------------------------------------------------
President's Letter
- --------------------------------------------------------------------------------
February 28, 1997
Dear Shareholder:
We are pleased to present the Annual Report for the AMT Capital Fund,
Inc. for the fiscal year ended December 31, 1996. The Money Market Portfolio
ended its third year of operations with continued strong performance. It
outperformed its benchmark, the IBC/Donoghue's Money Market Fund Average, by 8
basis points for the year and by 28 basis points since inception (annualized).
We greatly appreciate your continued investment in the Portfolio and welcome
the opportunity to answer your questions regarding the report or any other
matter in which we can be of assistance.
Sincerely,
/s/ Alan M. Trager
Alan M. Trager
President
AMT Capital Fund, Inc.
- --------------------------------------------------------------------------------
Money Market Portfolio - Table of Contents
- --------------------------------------------------------------------------------
Overview ............................................................... 1
Statement of Net Assets................................................. 2
Statement of Operations................................................. 4
Statement of Changes in Net Assets...................................... 5
Financial Highlights.................................................... 6
Notes to Financial Statements........................................... 7
The Money Market Portfolio provided a total return of 5.18% for the one-
year period ending December 31, 1996, continuing its record of outperforming
its benchmark, the IBC/Donoghue's Money Market Fund Average, in every month
since inception, and by 8 basis points for this twelve-month period. The
seven-day yield as of December 31, 1996 was 5.06% versus the seven-day yield
of the IBC/Donoghue's Money Market Fund Average of 4.90%. The Portfolio
invests in high-quality, short-term money market instruments. Its objective
is to seek current income, liquidity and the maintenance of a stable net asset
value. Net assets were $25 million as of December 31, 1996.
Review of the Fixed Income Markets in 1996
The year began with high investor expectations after the phenomenal
returns realized in 1995. Many investors anticipated that the Federal Reserve
would decrease the Federal funds rate at least three times and they also
looked forward to Congress passing a balanced budget amendment. Instead, the
balanced budget amendment failed and the Federal Reserve made only one rate
cut of 25 basis points on January 31, 1996. Overall, compared to 1995 (one of
the best bond markets in history), 1996 was a disappointing year for fixed
income investors. The first and second quarters produced negative returns
across virtually all market sectors. While the market rebounded in the third
and fourth quarters, the overall gains for the year were modest. The mortgage
sector led the U.S. market in total return, followed closely by corporates and
Treasuries. Global investors fared better, as non-U.S. securities
outperformed domestic securities. Italy, Spain, Sweden, and Canada posted the
largest gains in local currency terms.
The most significant trend in the fixed income markets during 1996 was
the spread compression that occurred in virtually all areas of the capital
markets, including investment grade corporates, high yield corporates,
emerging market obligations, asset-backed and mortgage-backed securities.
Significantly higher equity valuations, improving credit quality fundamentals,
and strong investor demand all contributed to tightening spreads during the
year.
Interest rates were volatile but remained within a range for most of the
year as the market waited for economic data to either confirm or refute
expectations of economic growth and inflation. Market participants reacted
quickly and strongly to continually surprising economic statistics, which was
reflected in the volatility of Treasury yields.
Portfolio Positioning
Throughout the first half of the year short duration positions or
positions held near the duration of the benchmark assisted the Portfolio in
outperforming its benchmark. During the fourth quarter, declining interest
rates and conflicting economic data made for a volatile market, and presented
numerous opportunities for both duration and yield curve changes. Taking
advantage of the declining rate environment, the Portfolio's duration was
predominantly longer than that of the benchmark.
Outlook
Economic growth during the fourth quarter was very solid, with minimal
inflationary pressures. Strength in several sectors of the economy, including
trade, construction, and manufacturing, more than offset slowing personal
consumption. 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 began the new year neutral
in duration but poised to move shorter if signs of a stronger economy emerge.
AMT Capital Fund, Inc. - Money Market Portfolio
- --------------------------------------------------------------------------------
Statement of Net Assets
December 31, 1996
- --------------------------------------------------------------------------------
Face Amount Value
----------- -----------
Asset- Backed Securities - 4.7%
NationsBank Auto Owner Trust, Series 1996-A,
Class A1, 5.776% due 8/15/97 $ 336,137 $ 336,296
Norwest Automobile Trust, Series 1996-A,
Class A1, 5.465% due 12/5/97 854,088 854,088
Total (Cost - $1,190,384) 1,190,384
Bank Obligations - 32.8%
Bank of Boston (Nassau) Time Deposit,
5.250% due 1/2/97 1,207,000 1,207,000
Bank of Montreal Yankee CD, 5.500% due 1/3/97 1,000,000 1,000,000
Bankers Trust Company CD, 5.420% due 5/23/97 1,000,000 1,000,000
Bayerische Landesbank Eurodollar CD,
5.500% due 4/18/97 1,000,000 1,000,012
Bayerische Vereinsbank Yankee CD,
5.410% due 2/21/97 1,000,000 1,000,014
Mellon Bank N.A. CD, 5.550% due 1/28/97 1,000,000 1,000,000
Morgan Guaranty Trust Eurodollar CD,
5.400% due 1/8/97 1,000,000 1,000,000
Republic National Bank of New York CD,
5.510% due 4/1/97 1,000,000 1,000,010
Total (Cost - $8,207,036) 8,207,036
Commercial Paper - 43.6%*
Abbey National N.A., 5.440% due 3/26/97 1,000,000 987,307
American Brands, Inc., 5.320% due 1/14/97 1,000,000 998,079
Banc One Corp., 5.310% due 1/6/97 1,000,000 999,263
Bayer Corp., 5.350% due 3/17/97 1,000,000 988,854
Canadian Government, 5.255% due 5/7/97 1,000,000 981,607
Ciesco L.P., 5.320% due 1/15/97 1,000,000 997,784
Daimler Benz N.A. Corp., 5.390% due 1/15/97 1,000,000 997,904
Falcon Asset Securitization, 5.390% due 1/21/97 1,000,000 997,004
General Electric Capital Corp., 5.620% due 3/5/97 1,000,000 990,165
Glaxo Wellcome plc, 5.300% due 2/6/97 1,000,000 994,700
McKenna Triangle Corp., 5.280% due 2/6/97 1,000,000 994,720
Total (Cost - $10,927,387) 10,927,387
U.S. Government Agency - 18.4%*
Federal National Mortgage Association DN,
6.500% due 1/2/97
(Cost - $4,599,169) 4,600,000 4,599,169
Total Investments (Cost - $24,923,976) - 99.5% 24,923,976
Other Assets and Liablilties, Net - 0.5%
Other assets net of liabilities 125,526
Payable to Fund Administrator (1,495)
Payable to Investment Adviser (984)
Other Assets and Liabilities, net 123,047
Net Assets - 100.0%
Applicable to 25,025,670 outstanding $.001
par value shares
(authorized 1,000,000,000 shares) $ 25,047,023
Net Asset Value Per Share $ 1.00
Components of Net Assets as of
December 31, 1996 were as follows:
Capital Stock at par value ($.001) $ 25,026
Capital Stock in excess of par value 25,000,644
Accumulated net realized gain on investments 21,353
$ 25,047,023
See Notes to Financial Statements
AMT Capital Fund, Inc. - Money Market Portfolio
- --------------------------------------------------------------------------------
Statement of Operations
For the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
Investment Income
Interest $ 1,397,922
Expenses
Investment advisory fees 64,127
Administration fees 25,651
Custodian fees 23,338
Shareholder recordkeeping fees 4,177
Legal fees 5,615
Audit fees 16,000
Directors' fees and expenses 7,269
Insurance expense 6,375
Amortization of organization costs 17,656
State registration filing fees 4,446
Other fees and expenses 4,820
Total operating expenses 179,474
Waiver of investment advisory and
administration fees (76,871)
Total expenses 102,603
Investment income, net 1,295,319
Realized gain on investments
Net realized gain from investments 9,381
Net increase in net assets
resulting from operations $ 1,304,700
See Notes to Financial Statements
AMT Capital Fund, Inc. - Money Market Portfolio
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
For the Year For the Year
Ended Ended
December 31, 1996 December 31, 1995
----------------- -----------------
Increase in Net Assets From Operations
Investment income, net $ 1,295,319 $ 1,321,433
Net realized gain from investments 9,381 25,293
Net increase in net assets resulting
from operations 1,304,700 1,346,726
Distributions to Shareholders From
Investment income, net 1,295,319 1,321,433
Net realized gain from investments 2,870 -
Total distributions 1,298,189 1,321,433
Capital Share Transactions, Net (829,641) 3,838,719
Total increase (decrease) in net assets (823,130) 3,864,012
Net Assets
Beginning of period 25,870,153 22,006,141
End of period $ 25,047,023 $ 25,870,153
See Notes to Financial Statements
AMT Capital Fund, Inc. - Money Market Portfolio
- --------------------------------------------------------------------------------
Financial Highlights
For the Periods Ended
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
December 31, 1996 December 31, 1995 December 31, 1994 December 31, 1993*
Per Share Data
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Investment income, net 0.05 0.06 0.04 0.00 **
Net realized gain on investments 0.00 ** 0.00 ** 0.00 (b) -
Net increase from investment
operations 0.05 0.06 0.04 0.00
Less Distributions from
Investment income, net 0.05 0.06 0.04 0.00 **
Net realized gain from investments 0.00 ** - - -
Temporary overdistribution of
net realized gain on investments - - 0.00 ** -
Total distributions 0.05 0.06 0.04 0.00
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return 5.18% 5.74% 4.13% 2.69% (a)
Ratios/Supplemental Data
Net assets, end of period $ 25,047,023 $ 25,870,153 $ 22,006,141 $ 2,335,633
Ratio of expenses to average
net assets 0.40% 0.40% 0.40% 0.40% (a)
Ratio of net investment income to
average net assets 5.05% 5.58% 4.16% 2.67% (a)
Decrease in above ratio due to
waiver of investment advisory
and administration fees, and
reimbursement of other expenses 0.30% 0.37% 0.64% 25.54% (a)
</TABLE>
(a) Annualized
(b) Includes the effect of net realized gains prior to significant increases
in shares outstanding.
* Commencement of Operations was November 1, 1993
** Rounds to less than $0.01
See Notes to Financial Statements
AMT Capital Fund, Inc. - Money Market Portfolio
- --------------------------------------------------------------------------------
Notes to Financial Statements
December 31, 1996
- --------------------------------------------------------------------------------
1. Organization
AMT Capital Fund, Inc. (the "Fund") is organized as a Maryland corporation
and is registered under the Investment Company Act of 1940, as amended, as
an open-end management investment company. The Money Market Portfolio
(the "Portfolio") commenced operations on November 1, 1993 and is the only
active portfolio of the fund. The costs incurred by the Fund in
connection with the organization and initial registration are being
amortized in the Portfolio on a straight-line basis over a sixty-month
period. The unamortized balance of organizational expenses at December 31,
1996 was $32,369.
2. Summary of Significant Accounting Policies
Securities
All securities transactions are recorded on a trade date basis. Interest
income and expenses are recorded on the 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.
Income Tax
It is the policy of the Portfolio to continue to qualify as a regulated
investment company, if such qualification is in the best interest of its
shareholders, by complying with the applicable provisions of the Internal
Revenue Code, and to make distributions of taxable income sufficient to
relieve it from substantially all Federal income and excise taxes.
Valuation
All investments in the Portfolio are valued daily on an amortized cost
basis, which approximates fair value and is consistent with Rule 2a-7 of
the Investment Company Act of 1940.
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.
Dividends to Shareholders
It is the policy of the Portfolio to declare dividends daily on all of its
net investment income. Net investment income dividends are payable
monthly. Net short-term and long-term capital gains distributions for
both Portfolios, if any, are normally distributed on an annual basis.
Dividends from net investment income and distributions from realized gains
from investment transactions are determined in accordance with Federal
income tax regulations, which may differ from investment income and
realized gains determined under generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent
in nature. To the extent these differences are permanent in nature, such
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 dividends in excess of net
investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized
capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
2. Summary of Significant Accounting Policies (continued)
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 Agreement and Affiliated Transactions
The advisory fee and administration fees are computed daily at an annual
rate of .25% and .10%, respectively, of the average net assets of the
Portfolio. The Investment Adviser and Administrator of the Portfolio have
voluntarily agreed to reduce their fees and reimburse other expenses to
the extent that aggregate expenses (exclusive of interest on borrowings,
taxes and extraordinary expenses) exceed an annual rate of .40% of the
average daily assets.
Directors' fees are $1,000 per meeting attended plus an annual retainer of
$5,000.
4. Investment Transactions
The cost of securities owned by the Portfolio at December 31, 1996 for
Federal tax purposes was substantially the same as for financial statement
purposes.
5. Capital Share Transactions
Transactions in capital stock for the Portfolio were as follows for the
periods indicated:
Year Ended Year Ended
December 31, 1996 December 31,1995
<TABLE>
<S> <C> <C> <C> <C>
Shares Amount Shares Amount
Shares sold 1,049,604 $ 1,049,604 9,334,905 $ 9,334,905
Shares issued related to
reinvestment of dividends 1,244,304 1,244,304 1,311,602 1,311,602
----------------------------- ------------------------------
2,293,908 2,293,908 10,646,507 10,646,507
Shares redeemed 3,123,549 3,123,549 6,807,788 6,807,788
----------------------------- ------------------------------
Net increase (decrease) (829,641) $ (829,641) 3,838,719 $ 3,838,719
</TABLE>
6. Repurchase and Reverse Repurchase Agreements
The 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 a contract, to sell U.S. Government
Securities to the Portfolio and repurchase such securities from the
Portfolio at a mutually agreed upon price and date.
The 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 the
Portfolio agrees to repurchase the securities at an agreed upon price and
date.
6. Repurchase and Reverse Repurchase Agreements (continued)
The Portfolio may engage in repurchase and reverse repurchase transactions
with parties selected on the basis of such party's creditworthiness. Securities
purchased subject to repurchase agreements must have an aggregate market value
greater than or equal to the repurchase price plus accrued interest at all
times. If the value of the underlying securities falls below the value of the
repurchase price plus accrued interest, the Portfolio will require the seller
to deposit additional collateral by the next business day. If the request for
additional collateral is not met, or the seller defaults on its repurchase
obligation, the Portfolio maintains the right to sell the underlying securities
at market value and may claim any resulting loss against the seller. When the
Portfolio engages in reverse repurchase transactions, the Portfolio will
maintain, in a segregated account with its custodian, securities equal in
value to those subject to the agreement.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
AMT Capital Fund, Inc. - Money Market Portfolio
We have audited the accompanying statement of net assets of AMT Capital Fund,
Inc. - Money Market Portfolio as of December 31, 1996, and the related
statement of operations for the year then ended, the statement of changes in
net assets for each of the two years in the period then ended and the financial
highlights for each of the periods indicated therein. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1996, by correspondence with the custodian.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Money Market Portfolio of the AMT Capital Fund, Inc. at December 31, 1996, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended and the financial highlights
for each of the indicated periods, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
New York, New York
February 28, 1997
OFFICERS & DIRECTORS AND OTHER PERTINENT INFORMATION
OFFICERS AND DIRECTORS
Patricia A. Gammon
Director of the Fund
Marc P. Powell
Director of the Fund
Alan M. Trager
President and
Director of the Fund
William E. Vastardis
Secretary and Treasurerof the Fund
Carla E. Dearing
Vice President and Assistant Treasurer of the Fund
INVESTMENT ADVISER
AMT Capital Advisers, Inc.
600 Fifth Avenue
New York, NY 10020
SUB-ADVISER
Fischer Francis Trees & Watts, Inc.
200 Park Avenue
New York, NY 10166
ADMINISTRATOR AND DISTRIBUTOR
AMT Capital Services, Inc.
600 Fifth Avenue,
26th Floor
New York, NY 10020
CUSTODIAN AND FUND ACCOUNTING AGENT
Investors Bank & Trust Company
P.O. Box 1537
Boston, MA 02205-1537
TRANSFER AND DIVIDEND DISBURSING AGENT
Investors Bank & Trust Company
P.O. Box 1537
Boston, MA 02205-1537
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
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> MONEY MARKET PORTFOLIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 24924
<INVESTMENTS-AT-VALUE> 24924
<RECEIVABLES> 93
<ASSETS-OTHER> 54
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 25074
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 27
<TOTAL-LIABILITIES> 27
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 25026
<SHARES-COMMON-STOCK> 25026
<SHARES-COMMON-PRIOR> 25855
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 21
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 25047
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1398
<OTHER-INCOME> 0
<EXPENSES-NET> 103
<NET-INVESTMENT-INCOME> 1295
<REALIZED-GAINS-CURRENT> 9
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1304
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1298
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1050
<NUMBER-OF-SHARES-REDEEMED> 3124
<SHARES-REINVESTED> 1244
<NET-CHANGE-IN-ASSETS> (823)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 15
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 64
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 180
<AVERAGE-NET-ASSETS> 25651
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.05
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "Independent Auditors" and to the incorporation by reference of
our report on FFTW Funds, Inc. dated March 3, 1997 and our report on AMT Capital
Fund, Inc.- Money Market Portfolio dated February 28, 1997 in this Registration
Statement ( Form N-1A Bo. 33-27896) of FFTW Funds, Inc.
/s/ Ernst & Young LLP
Ernst & Young LLP
New York, NY
April 29, 1997
