As filed with the Securities and Exchange Commission on June 26, 1998.
Registration Nos. 33-27896/811-5796
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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Pre-Effective Amendment No. _____
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Post-Effective Amendment No. 22
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X
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940
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Amendment No. 25_
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FFTW FUNDS, INC.
(Exact name of registrant as specified in charter)
200 PARK AVENUE, NEW YORK, NEW YORK
(Address of principal executive offices)
Registrant's telephone number: 212-681-3000
ONDER JOHN OLCAY, President
200 Park Avenue
New York, New York 10166
(Name and address of agent for service)
With a copy to:
William E. Vastardis
Investors Capital Services, Inc.
600 Fifth Avenue, 26th Floor
New York, NY 10020
It is proposed that this filing will become effective
(check appropriate box)
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6 immediately upon filing pursuant to paragraph (b) of Rule
485.
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7 on __________(date) pursuant to paragraph (b) of Rule 485.
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X
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8 75 days after filing pursuant to paragraph (a) of Rule
485.
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9 on ________ pursuant to paragraph (a) of Rule 485.
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______________________
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, 1997 on March 27, 1998.
The total number of pages is ______.
The Exhibit Index is on page ______.
CROSS REFERENCE SHEET
Pursuant to Rule 481(a)
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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)
</TABLE>
FFTW FUNDS, INC.
200 Park Avenue, 46th Floor, New York, New York 10166 (212) 681-3000
Distributed by:
AMT Capital Securities, L.L.C.
600 Fifth Avenue
New York, NY 10020
(212) 332-5211
U.S. PORTFOLIOS
September __ , 1998
FFTW Funds, Inc. is a no-load, open-end management
investment company managed by Fischer Francis Trees & Watts,
Inc. The Fund currently consists of twenty-one separate
Portfolios. This Prospectus pertains to the eleven
Portfolios labeled the U.S. Portfolios. Each Portfolio is
actively managed and, with the exception of the High Yield
Portfolio, primarily invests in high-quality debt
securities. The minimum initial investment in any Portfolio
is $100,000; subsequent investments or redemptions may be of
any amount. There is no sales charge for purchasing shares.
Investors in Enhanced Index must be qualified purchasers
under ________.
The eleven Portfolios comprising the U.S. Portfolios are:
Money Market Mortgage Total Return U.S. Treasury
Mortgage LIBOR Asset-Backed U.S. Corporate
U.S. Short Term High-Yield Broad Market
Stable Return Enhanced Index
No assurance can be given that a Portfolio's investment
objectives will be achieved. Investments in the Money
Market, U.S. Short-Term, U.S Treasury, and U.S. Corporate
Portfolios 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 September __, 1998, has been filed with the Securities
and Exchange and can be obtained without charge by calling
or writing AMT Capital Securities, LLC 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.
CONTENTS
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Page
The Fund 2
Summary of Investment Objectives and Descriptions 2
General Risks Associated with the Fund's Investment Policies and Investment
Techniques 3
Shareholder Transaction Expenses for Each Portfolio 3
Portfolio Profiles and Financial Highlights 4
Money Market Portfolio 5
Mortgage LIBOR Portfolio 7
U.S. Short-Term Portfolio 9
Stable Return Portfolio 11
Mortgage Total Return Portfolio 13
Asset-Backed Portfolio 15
High Yield Portfolio 17
Enhanced Index Portfolio 19
U.S. Treasury Portfolio 21
U.S. Corporate Portfolio 23
Broad Market Portfolio 25
Investment Information 27
General Investment Techniques/Strategies and Associated Risks 27
General Description of Investments and Associated Risks 30
Portfolio Turnover 35
Shareholder Information 35
Distribution of Fund Shares 35
Purchases 35
Redemptions 36
Determination of Net Asset Value 36
Dividends 37
Voting Rights 37
Tax Considerations 37
Fund Management 38
Board of Directors 38
Investment Adviser 38
Portfolio Managers 39
Administrator 39
Control Person 39
Custodian and Accounting Agent 39
Transfer and Dividend Disbursing Agent 40
Legal Counsel 40
Independent Auditors 40
Shareholder Inquiries 40
</TABLE>
THE FUND
FFTW Funds, Inc. is a no-load, open-end management
investment company organized as a Maryland corporation and
registered under the Investment Company Act of 1940. The
Fund has been in operation since December 6, 1989 and is
designed to provide the professional investment services of
the Fund's adviser, Fischer Francis Trees & Watts, Inc. to
pension plans, profit sharing plans, employee benefit
trusts, endowments, foundations and other high net worth
individuals. The Fund is comprised of twenty-one separate
Portfolios, each having its own investment objectives. This
prospectus contains information regarding the Fund's eleven
U.S. Portfolios.
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SUMMARY OF INVESTMENT OBJECTIVES AND DESCRIPTIONS
Portfolio Name Fundamental Investment Objective Portfolio Descriptions
- -------------------------- ---------------------------------------------------- ------------------------------------------
Money Market Seeks to attain maximum current income, liquidity High-quality money market securities
and maintain a stable net asset value
- -------------------------- ---------------------------------------------------- ------------------------------------------
- -------------------------- ---------------------------------------------------- ------------------------------------------
Mortgage LIBOR Seeks to attain a high level of total return as Mortgage-related securities hedged for
may be consistent with the preservation of capital shorter duration opportunistically to,
as consistently as possible, outperform
an actively managed cash portfolio
- -------------------------- ---------------------------------------------------- ------------------------------------------
- -------------------------- ---------------------------------------------------- ------------------------------------------
U.S. Short-Term Seeks to attain a high level of total return as High-quality short-term debt securities
may be consistent with the preservation of capital
and to maintain liquidity
- -------------------------- ---------------------------------------------------- ------------------------------------------
- -------------------------- ---------------------------------------------------- ------------------------------------------
Stable Return Seeks to attain a stable level of total return as High-quality debt securities
may be consistent with the preservation of capital Uses interest rate hedging as a
stabilizing technique
- -------------------------- ---------------------------------------------------- ------------------------------------------
- -------------------------- ---------------------------------------------------- ------------------------------------------
Mortgage Total Return Seeks to attain a high level of total return as Mortgage-related securities
may be consistent with the preservation of capital Uses hedging techniques to manage
interest rate and prepayment risk
- -------------------------- ---------------------------------------------------- ------------------------------------------
Asset-Backed Seeks to attain a high level of total return as Asset-backed securities
may be consistent with the preservation of capital Includes exposure to other sectors of
the debt market opportunistically
- -------------------------- ---------------------------------------------------- ------------------------------------------
- -------------------------- ---------------------------------------------------- ------------------------------------------
High Yield Seeks to attain a high level of total return as Primarily invests in high yield debt
may be consistent with the preservation of capital securities
- -------------------------- ---------------------------------------------------- ------------------------------------------
- -------------------------- ---------------------------------------------------- ------------------------------------------
Enhanced Index Seeks to attain a high level of total return as Short duration fixed-income securities
may be consistent with the preservation of capital and S&P 500 Index futures contracts for
hedged equity-like returns
- -------------------------- ---------------------------------------------------- ------------------------------------------
- -------------------------- ---------------------------------------------------- ------------------------------------------
U.S. Treasury Seeks to attain a high level of total return as Securities issued by the
may be consistent with the preservation of capital U.S. Treasury Department
and to avoid credit quality risks
- -------------------------- ---------------------------------------------------- ------------------------------------------
- -------------------------- ---------------------------------------------------- ------------------------------------------
U.S. Corporate Seeks to attain a high level of total return as Primarily U.S. corporate obligations
may be consistent with the preservation of capital Includes limited exposure to other debt
securities
- -------------------------- ---------------------------------------------------- ------------------------------------------
Broad Market Seeks to attain a high level of total return as High-quality fixed-income securities
may be consistent with the preservation of capital reflective of the broad spectrum of the
U.S. bond market
- -------------------------- ---------------------------------------------------- ------------------------------------------
</TABLE>
GENERAL RISKS ASSOCIATED WITH THE FUND'S INVESTMENT POLICIES
AND INVESTMENT TECHNIQUES
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Banking industry risk: Investing in bank obligations can expose a Portfolio to risks associated with the banking
industry.
Correlation risk: A Portfolio may experience changes in value between the securities held and the value of a
particular derivative instrument.
Credit risk: The risk that a security issuer or the counterparty to a contract will default or otherwise
become unable to honor a financial obligation.
Currency risk: Fluctuations in exchange rates between the U.S. dollar and foreign currencies may negatively
affect an investment. When synthetic and cross-hedges are used, the net exposure of a Portfolio
to any one currency may be different from that of its total assets denominated in such currency.
Hedging risk: Hedging is commonly used as a buffer against a perceived investment risk. While it can reduce
or eliminate losses, it can also reduce or eliminate gains should the hedged investment increase
in value.
Interest rate risk: Portfolio may be influenced by interest rate changes that generally have an inverse relationship
to corresponding market values.
Leverage risk: Derivatives may include elements of leverage that can cause greater fluctuations in a
Portfolio's net asset value.
Liquidity risk: Certain securities may be difficult or impossible to sell at the time and the price that the
seller would like.
Market risk: The market value of a security may increase or decrease over time. Such fluctuations can cause
a security to be worth less than the price originally paid for it or less than it was worth at
an earlier time. Market risk may affect a single issuer, entire industry or the market as a
whole.
Non-diversification A Portfolio is diversified when it spreads investment risk by placing assets in several
risk: investment categories. A non-diversified Portfolio concentrates its assets in a less diverse
spectrum of securities. Non-diversification can intensify risk should a particular investment
category suffer from adverse market conditions.
Prepayment risk: Investments in mortgage-backed and other asset-backed securities carry risks of faster or slower
than expected prepayment of principal, which affects the duration and return of the security.
</TABLE>
SHAREHOLDER TRANSACTION EXPENSES FOR EACH PORTFOLIO
The following illustrates shareholder in each Portfolio
transaction expenses that a shareholder can expect to incur.
Annual Fund Operating Expenses and Hypothetical Expenses per
$1,000 Investment for each Portfolio can be found in each
Portfolio's Profile.
No Sales Load Imposed on Reinvested Dividends
No Sales Load Imposed on Purchases
No Deferred Sales Load
No Redemption Fees
No Exchange Fees
PORTFOLIO PROFILES AND FINANCIAL HIGHLIGHTS
The following section presents a Profile of the most
important information on each of the Portfolios. Please
review the remainder of the Prospectus and the Statement of
Additional Information for more information.
The Financial Highlight information in the Portfolio
Profiles has been audited by Ernst & Young, LLP in
conjunction with the Fund's financial statements. The
audited financial statements for the year ended December 31,
1997 are incorporated by reference in the Statement of
Additional Information. The financial information should be
read in conjunction with the financial statements.
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KEY TO TERMS IN PORTFOLIO PROFILES
1. Fundamental Investment Objective - Presents the 7. Allowable Investments - In general terms, presents
Portfolio's fundamental purpose. A Portfolio's the investments in which the Portfolio will engage.
fundamental investment objective cannot be altered
without a shareholder vote. 8. Minimum Quality Rating - Presents the minimum quality
investment standards for individual investments as well
2. Portfolio Description - Presents the Portfolio's as the Portfolio's average quality.
primary investment vehicles and strategies.
9. Average Weighted Duration - Describes the U.S.
3. Performance Objective - Presents the Portfolio's dollar-weighted average Portfolio duration.
benchmark, a measurement standard of investment
success. 10. Supplemental Information - Some Portfolios possess
unique characteristics such as tax implications-this
4. Investment Policies and Significant Restrictions - section highlights such characteristics.
Presents the Portfolio's primary investment policies
and investment restrictions. 11. Hypothetical Shareholder Expenses - The purpose of
this table is to assist the investor in understanding
5. Risks - In general terms, presents the most common the various expenses that an investor in a Portfolio
risks the Portfolio may encounter based on the types will bear, directly or indirectly. These examples
of investments it may engage. should not be considered a representation of future
expenses or performance. Actual operating expenses may
6. Allowable Investment Techniques - In general terms, be greater or lesser than those shown.
presents the most common investment strategies, which
the Portfolio may employ. 12. Financial Highlights - This table presents a breakdown
of each Portfolio's financial information.
</TABLE>
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MONEY MARKET PORTFOLIO
=================== =============================================================================================================
Fundamental To provide the maximum current income that is consistent with the preservation of capital
Investment
Objective:
- ------------------- -------------------------------------------------------------------------------------------------------------
Portfolio Primarily invests in high-quality money market securities that meet the requirements of Rule 2a-7 of the
Description: Investment Company Act of 1940
- ------------------- -------------------------------------------------------------------------------------------------------------
Performance To outperform IBC's Money Fund Report Averages - All Taxable
Objective:
- ------------------- -------------------------------------------------------------------------------------------------------------
Investment Portfolio is limited to investing only in U.S. dollar-denominated money market securities
Policies and Portfolio securities must be eligible under Rule 2a-7 of the Investment Company Act of 1940
Significant Portfolio may not invest in futures or options
Restrictions: Portfolio may not engage in short sales transactions
- ------------------- -------------------------------------------------------------------------------------------------------------
Risks: Banking industry risk Liquidity risk Prepayment risk
Interest rate risk Market risk
- ------------------- --------------------------------------------------- ---------------------------------------------------------
Allowable Duration management
Investment
Strategies:
- ------------------- --------------------------------------------------- ---------------------------------------------------------
Allowable Asset-Backed Securities Mortgage-Backed Securities Repurchase and Reverse
Investments: Bank Obligations Illiquid Securities Repurchase Agreements
Corporate Debt Instruments Municipal Instruments U.S. Government and Agency
Securities
- ------------------- -------------------------------------------------------------------------------------------------------------
Minimum Credit "First Tier Securities": any instruments receiving the highest short-term rating by at least two nationally
Ratings For recognized statistical rating organizations ("NRSROs") such as "A-1" by Standard & Poor's and "P-1" by
Allowable Moody's, or are single rated and have received the highest short-term rating by the NRSRO. This includes
Investments: all instruments issued by the U.S. Government, its agencies or instrumentalities and any single rated and
unrated instruments that are determined to be of comparable quality by the Investment Adviser pursuant to
guidelines approved by the Board of Directors.
"Second Tier Securities": any instruments rated by two NRSROs in the second highest category, or rated by
one NRSRO in the highest category and by another NRSRO in the second highest category or by one NRSRO in
the second highest category. 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. This also includes any single rated and unrated instruments that are determined to be of
comparable quality by the Investment Adviser pursuant to guidelines approved by the Board of Directors.
- ------------------- -------------------------------------------------------------------------------------------------------------
Average Weighted Portfolio will have an average weighted maturity of not longer than 90 days
Maturity: Individual securities may not have effective maturities longer than 397 day.
Obligations subject to repurchase agreements and certain variable and floating rate obligations may
bear longer final maturities
- ------------------- -------------------------------------------------------------------------------------------------------------
Valuation: Money Market Portfolio investments are valued based on the amortized cost valuation technique described
under Rule 2a-7 of the Investment Company Act of 1940.
- ------------------- -------------------------------------------------------------------------------------------------------------
Note: The Money Market Portfolio began operations as a Portfolio of FFTW Funds, Inc. (the "FFTW Portfolio) on
April 29, 1997. Previously, the Portfolio operated as the Money Market Portfolio of AMT Capital Fund, Inc.
(the "AMT Capital Portfolio") which was sub-advised by Fischer Francis Trees & Watts, Inc. Shareholders of
this AMT Capital Portfolio approved a tax-free reorganization into the FFTW Portfolio on April 28, 1997.
- ------------------- -------------------------------------------------------------------------------------------------------------
------------------------- ------------------------------------------------------------------------------------------------
Hypothetical Hypothetical Expenses Per $1,000 Investment, Assuming A 5% Annual Return
Expenses: 1 Year 3 Years 5 Years 10 Years
$ 3 $ 8 $ 14 $ 32
------------------------- ------------------ ------------------------ ------------------------- --------------------------
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MONEY MARKET PORTFOLIO OPERATING EXPENSES
(after expense reimbursement, shown as a percentage of average net assets)
---------------------------------------------------------------------------------------------------------------------------
Advisory fees after waivers * 0.0%
...........................................................................................................................
12b-1 fees (1) ---
...........................................................................................................................
Administration fees (2) 0.05%
...........................................................................................................................
Other expenses 0.10%
...........................................................................................................................
Operating expenses after waivers and reimbursements ** 0.25%
...........................................................................................................................
Interest expense (3) ---
===========================================================================================================================
Total fund operating expenses (4) 0.25%
===========================================================================================================================
* Advisory fee before waivers N/A
...........................................................................................................................
** Total fund operating expenses, excluding interest, before waivers and
reimbursements 0.46%
...........................................................................................................................
</TABLE>
(1) Under a Distribution Agreement effective May 29,
1998, between the Fund and AMT Capital Securities,
LLC, AMT Capital Securities provides distribution
services at no cost to the Fund.
(2) Under an Administration Agreement effective May 29,
1998, between the Fund and Investors Capital,
Investors Capital provides administrative services to
the Fund for an incentive fee, capped at 0.02% of the
Portfolio's average daily net assets for reducing the
expense ratios of one or more Portfolios. The
incentive fee is not included in the figures above.
(3) The Portfolio may engage in reverse repurchase
agreements. The Portfolio incurs an interest expense
when engaging in these transactions, equaling the
coupon rate of interest the dealer earns while the
securities are in its possession. These transactions
serve to increase the Portfolio expense ratio. The
investment adviser will engage only in these
transactions if, it believes it can earn a higher
interest rate on the securities it purchases with the
cash received from the dealer, rather than the rate
of interest it must pay to the dealer. The
investment adviser may or may not succeed in
receiving a net interest income on these transactions.
(4) The Investment Adviser and the Administrator have
agreed voluntarily to cap the total operating
expenses (exclusive of interest expense) at 0.25% (on
an annualized basis) of the Portfolio's average daily
net assets. The Investment Adviser and the
Administrator will not attempt to recover prior
period reimbursements should expenses fall below the
cap.
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- -------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO FINANCIAL HIGHLIGHTS
(in U.S. dollars except where otherwise indicated)
- -------------------------------------------------------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD Year Ended Year Ended Year Ended Year Ended 11/1/93*
12/31/97 12/31/96 12/31/95 12/31/94 to
12/31/93
- ----------------------------------------------------------- ------------- ------------- ------------- ------------- -----------
Net asset value at beginning of period 1.00 1.00 1.00 1.00 1.00
- ----------------------------------------------------------- ------------- ------------- ------------- ------------- -----------
Net investment income 0.05 0.05 0.06 0.04 0.00**
........................................................... ------------- ............. ------------- ............. -----------
Net realized gains or (losses) on investments --- 0.00** 0.00** 0.00 ** ---
- ----------------------------------------------------------- ------------- ------------- ------------- ------------- -----------
Total from investment operations 0.05 0.05 0.06 0.04 0.00**
........................................................... ------------- ............. ------------- ............. ...........
Distributions from net investment income 0.05 0.05 0.06 0.04 0.00**
........................................................... ------------- ............. ------------- ............. ...........
Distributions from net realized gain on investments --- 0.00** --- --- ---
- ----------------------------------------------------------- ------------- ------------- ------------- ------------- -----------
Distributions in excess of net investment income --- --- --- 0.00** ---
- ----------------------------------------------------------- ------------- ------------- ------------- ------------- -----------
Total distributions 0.05 0.05 0.06 0.04 0.00 **
- ----------------------------------------------------------- ------------- ------------- ------------- ------------- -----------
Net asset value at end of period 1.00 1.00 1.00 1.00 1.00
- ----------------------------------------------------------- ------------- ------------- ------------- ------------- -----------
Total return on investment 5.46% 5.18% 5.74% 4.13% 0.44% (c)
- ----------------------------------------------------------- ------------- ------------- ------------- ------------- -----------
Net assets at end of period in 000's 26,152 25,047 25,870 22,006 2,336
........................................................... ------------- ............. ------------- ............. ...........
........................................................... ------------- ............. ------------- ............. ...........
Ratio of operating expenses to average net assets (a) 0.30% 0.40% 0.40% 0.40% 0.40% (b)
........................................................... ------------- ............. ------------- ............. ...........
........................................................... ------------- ............. ------------- ............. -----------
Ratio of net investment income to average net assets 5.33% 5.05% 5.58% 4.16% 2.67% (b)
........................................................... ------------- ............. ------------- ............. -----------
Decrease in above expense ratios due to waiver of 0.16% 0.30% 0.37% 0.64% 25.54% (b)
investment advisory and administration fees and
reimbursement of other expenses
........................................................... ------------- ............. ------------- ............. -----------
</TABLE>
(a) Net of wavers and reimbursements
(b) Annualized
(c) Not annualized
* Commencement of operations
** Rounds to less than $0.01
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MORTGAGE LIBOR PORTFOLIO
--------------- -----------------------------------------------------------------------------------------------------------
Investment To obtain a high level of total return, as may be consistent with the preservation of capital.
Objective:
--------------- -----------------------------------------------------------------------------------------------------------
Portfolio Primarily invests in mortgage- and asset-backed and mortgage-related securities, and actively utilizes
Description: hedging and duration management techniques opportunistically to, as consistently as possible, outperform
an actively managed cash portfolio
--------------- -----------------------------------------------------------------------------------------------------------
Performance To outperform the three month U.S. Dollar LIBOR rate, per the British Bankers Association
Objective:
--------------- -----------------------------------------------------------------------------------------------------------
Investment At least 65% of the Portfolio's total assets must be invested in mortgage-backed U.S.
Policies and Dollar-denominated securities
Significant Portfolio may not invest more than 5% of its net assets in futures margins and/or premiums on
Restrictions: options unless it is being used for bona fide hedging purposes
For temporary defensive purposes, 100% of the Portfolio's total assets may be invested in
short-term U.S. Government securities
Portfolio is non-diversified under the Investment Company Act of 1940
--------------- --------------------------------- ----------------------------------- -------------------------------------
Risks: Banking industry risk Hedging risk Liquidity risk
Correlation risk Interest rate risk Market risk
Credit risk Leverage risk Non-diversification risk
Prepayment risk
--------------- --------------------------------- ----------------------------------- -------------------------------------
Allowable Dollar Roll Transactions Short Sale Transactions When Issued and Forward
Investment Duration Management TBA Transactions Commitment Securities
Techniques: Hedging
--------------- --------------------------------- ----------------------------------- -------------------------------------
Allowable Asset-Backed Securities Inflation-Indexed Stripped Instruments
Investments: Bank Obligations Securities Total Return Swaps
Corporate Debt Instruments Mortgage-Backed Securities U.S. Government and Agency
Illiquid Securities Repurchase and Reverse Securities
Repurchase Agreements Zero Coupon Securities
--------------- --------------------------------- ----------------------------------- -------------------------------------
Minimum S&P Moody's Thompson Minimum Average
Quality S&P Moody's (Short Term) (Short-Term) Bankwatch Portfolio Quality
Rating: BBB- Baa3 A-2 P-2 B AA (Aa)
--------------- -----------------------------------------------------------------------------------------------------------
Average The average U.S. Dollar-weighted duration will not exceed plus or minus three months around the duration
Weighted of the three-month U.S. Dollar LIBOR rate
Duration:
--------------- -----------------------------------------------------------------------------------------------------------
Note: The term LIBOR is an acronym for London Inter Bank Offered Rate
The LIBOR rate is the rate that most creditworthy international banks dealing in Eurodollars charge
each other for large loans. The LIBOR rate also is used as the base for other large Eurodollar
loans to less creditworthy corporations and governments.
--------------- -----------------------------------------------------------------------------------------------------------
This Portfolio Has Not Yet Commenced Investment Operations
Hypothetical
------------------------ --------------------------------------------------------------------------------------------------
Hypothetical Expenses Per $1,000 Investment, Assuming A 5% Annual Return
Expenses: 1 Year 3 Years
$ 5 $ 14
------------------------ ---------------------- -------------------- ------------------------- ----------------------------
</TABLE>
-----------------------------------------------------------------
MORTGAGE LIBOR PORTFOLIO OPERATING EXPENSES
.....................................................................
Advisory fees 0.30%
.....................................................................
12b-1 fees (1) ----
.....................................................................
Administration fees (2) 0.05%
.....................................................................
Other expenses (4) 0.10%
.....................................................................
Operating expenses 0.45%
.....................................................................
Interest expense (3) ----
---------------------------------------------------------------------
Total fund operating expenses 0.45%
---------------------------------------------------------------------
(1) Under a Distribution Agreement effective May 29,
1998, between the Fund and AMT Capital Securities,
LLC, AMT Capital Securities provides distribution
services at no cost to the Fund.
(2) Under the Administration Agreement effective May 29,
1998, between the Fund and Investors Capital,
Investors Capital provides administrative services to
the Fund for an incentive fee, capped at 0.02% of the
Portfolio's average daily net assets for reducing the
expense ratios of one or more Portfolios. The
incentive fee is not included in the figures above.
(3) The Portfolio may engage in reverse repurchase
agreements. The Portfolio incurs an interest expense
when engaging in these transactions, equaling the
coupon rate of interest the dealer earns while the
securities are in its possession. These transactions
increase the Portfolio's expense ratio. The
investment adviser will engage in these transactions
only if, it believes that it can earn a higher rate
of interest on the securities it purchases with the
cash received from the dealer, rather than the rate
of interest it must pay to the dealer. The
Investment Adviser may or may not succeed in
receiving a net interest income on these transactions.
(4) "Other Expenses" are based on estimated expenses for
the current fiscal year.
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U.S. SHORT-TERM PORTFOLIO
----------------- ------------------------------------------------------------------------------------------------------------
Fundamental To attain a high level of total return, as may be consistent with the preservation of capital and to
Investment maintain liquidity
Objective:
----------------- ------------------------------------------------------------------------------------------------------------
Portfolio Primarily invests in high-quality short-term debt securities
Description:
----------------- ------------------------------------------------------------------------------------------------------------
Performance To out perform IBC's Money Fund Report Averages - All Taxable
Objective:
----------------- ------------------------------------------------------------------------------------------------------------
Investment At least 65% of the Portfolio's total assets must be invested in high-quality U.S. Dollar
Policies and denominated securities
Investment Up to 35% of the Portfolio's total assets may be invested in non-U.S. Dollar denominated debt
Restrictions: securities
No more than 5% of the Portfolio's total assets may be invested in the securities of any one issuer
(other than the U.S. Government and its agencies)
Portfolio may not invest more than 5% of its net assets in futures margins and/or premiums on
options unless it is being used for bona fide hedging purposes
Portfolio is "diversified" under the Investment Company Act of 1940
Portfolio may not enter into repurchase agreement or reverse repurchase agreement if, as a result
thereof, more than 25% of the Portfolio's assets would be subject to repurchase agreements and/or
reverse repurchase agreements
Portfolio may not engage in short sale transactions
----------------- ------------------------------------------------------------------------------------------------------------
Risks: Banking industry risk Hedging risk Liquidity risk
Correlation risk Interest rate risk Market risk
Credit risk Leverage risk Prepayment risk
Currency risk
----------------- --------------------------------- ------------------------------------ -------------------------------------
Allowable Dollar Roll Transactions Hedging When Issued and Forward
Investment Duration Management TBA Transactions Commitment Securities
Techniques:
----------------- --------------------------------- ------------------------------------ -------------------------------------
Allowable Asset-Backed Securities Indexed Notes, Currency Municipal Instruments
Investments: Bank Obligations Exchange Related Securities Repurchase and Reverse
Brady Bonds and Similar Securities Repurchase Agreements
Convertibles Securities Inflation Indexed Securities Stripped Instruments
Corporate Debt Instruments Mortgage-Backed Securities U.S. Government and Agency
Foreign Instruments Multi-National Currency Unit Securities
Securities or More Than One Warrants
Currency Denomination Zero Coupon Bonds
----------------- -------------- ----------- ---------------- ------------------ ----------------- ---------------------------
Minimum Quality S&P Moody's Thompson Minimum Average
Rating: S&P Moody's (Short Term) (Short-Term) Bankwatch Portfolio Quality
BBB- Baa3 A-2 P-2 B AA (Aa)
----------------- -------------- ----------- ---------------- ------------------ ----------------- ---------------------------
Average The average U.S. Dollar-weighted duration generally is shorter than one year
Weighted Except for defensive purposes the Portfolio will not have a U.S. Dollar-weighted average duration
Duration: exceeding three years
----------------- ------------------------------------------------------------------------------------------------------------
Note: U.S. Short-Term shares are not guaranteed by the U.S. Government
U.S. Short-Term is not a "money market fund" and may engage in investments not permitted by money
market funds under applicable regulations
----------------- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
------------------------------ ---------------------------------------------------------------------------------------------
Hypothetical Hypothetical Expenses Per $1,000 Investment, Assuming A 5% Annual Return
Expenses: 1 Year 3 Years 5 Years 10 Years
$ 3 $ 8 $ 15 $ 33
------------------------------ -------------------- ---------------------- -------------------- ----------------------------
</TABLE>
-----------------------------------------------------------------------------
U.S. SHORT TERM PORTFOLIO OPERATING EXPENSES
(after expense reimbursements, shown as a percentage of average net assets)
.............................................................................
Advisory fees after waivers * (4) 0.15%
.............................................................................
12b-1 fees (1) ---
.............................................................................
Administration fees (2) 0.05%
.............................................................................
Other expenses 0.05%
.............................................................................
Operating expenses, after waivers and reimbursements ** (4) 0.25%
.............................................................................
Interest expense (3) 0.01%
-----------------------------------------------------------------------------
Total fund operating expenses 0.26%
.............................................................................
* Advisory fee before waivers 0.30%
............................................................................
** Total fund operating expenses, excluding interest, before waivers and
reimbursements 0.40%
............................................................................
(1) Under a Distribution Agreement effective May 29,
1998, between the Fund and AMT Capital Securities,
LLC, AMT Capital Securities provides distribution
services at no cost to the Fund.
(2) Under an Administration Agreement dated May 29,
1998, between the Fund and Investors Capital,
Investors Capital provides administrative services to
the Fund for an incentive fee, capped at 0.02% of the
Portfolio's average daily net assets for reducing the
Portfolio's expense ratios. The incentive fee is not
included in the figures above.
(3) The Portfolio may engage in reverse repurchase
agreements. The Portfolio incurs an interest expense
engaging in these transactions, equaling the coupon
rate of interest the dealer earns while the securities
are in its possession. These transactions serve to
increase the Portfolio's expense ratio. The
investment adviser will only engage in these
transactions if, it believes that it can earn a higher
interest rate on the securities it purchases with the
cash received from the dealer, rather than the rate of
interest it must pay to the dealer. The Investment
Adviser may or may not succeed in receiving a net
interest income on these transactions.
(4) Under the Investment Advisory agreement, the
Portfolio's total operating expenses (exclusive of
interest expense) are capped at 0.40% (on an
annualized basis) of the average daily net assets.
All operating expenses in exceeding the cap will be
paid by the Investment Adviser. The Investment Adviser
has agreed voluntarily 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 should expenses fall below the
cap.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. SHORT-TERM PORTFOLIO FINANCIAL HIGHLIGHTS
(in u.s. dollars except where otherwise indicated)
- ---------------------------------------------------------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE Year Year Year Year Year Year Three Year 12/6/89*-
PERIOD Ended Ended Ended Ended Ended Ended Months Ended 9/30/90
12/31/97 12/31/96 12/31/95 12/31/94 12/31/9312/31/92 Ended 9/30/91
1991
- ------------------------------------------- --------- --------- --------- -------- ------- -------- ---------- -------- ---------
Net asset value at beginning of period 9.85 9.88 9.89 9.98 10.00 10.00 10.00 10.00 10.00
- ------------------------------------------- --------- --------- --------- -------- ------- -------- ---------- -------- ---------
Net investment income 0.57 0.55 0.56 0.44 0.32 0.34 0.12 0.63 0.62
........................................... --------- --------- ......... -------- ------- -------- ---------- -------- ---------
Net realized gains or (losses) on (0.08) (0.03) (0.01) (0.08) (0.03) 0.01 0.02 0.06 0.04
investments
- ------------------------------------------- --------- --------- --------- -------- ------- -------- ---------- -------- ---------
Total from investment operations 0.49 0.52 0.55 0.36 0.29 0.35 0.14 0.69 0.66
- ------------------------------------------- --------- --------- --------- -------- ------- -------- ---------- -------- ---------
Distributions from net investment income 0.57 0.55 0.56 0.45 0.31 0.34 0.12 0.63 0.62
........................................... --------- --------- ......... ........ ....... ........ .......... ........ .........
Distributions in excess of net investment --- --- 0.00** 0.00** --- 0.01 0.02 0.06 0.04
income
- ------------------------------------------- --------- --------- --------- -------- ------- -------- ---------- -------- ---------
Total distributions 0.57 0.55 0.56 0.45 0.31 0.35 0.14 0.69 0.66
- ------------------------------------------- --------- --------- --------- -------- ------- -------- ---------- -------- ---------
Net asset value at end of period 9.77 9.85 9.88 9.89 9.98 10.00 10.00 10.00 10.00
- ------------------------------------------- --------- --------- --------- -------- ------- -------- ---------- -------- ---------
Total return on investment 5.09% 5.45% 5.71% 3.71% 2.88% 3.45% 5.67% (b) 7.11% 8.31%
(b)
- ------------------------------------------- --------- --------- --------- -------- ------- -------- ---------- -------- ---------
Ratio of operating expenses to average 0.25% 0.27% 0.40% 0.40% 0.40% 0.40% 0.40% (b) 0.40% 0.50%
net assets, exclusive of interest expense (b)
........................................... --------- --------- ......... ........ ....... ........ .......... ........ .........
Net assets at end of period in 000's 486,906 355,257 457,425 290,695 417,728 682,513 365,311 269,115 111,957
........................................... --------- --------- ......... ........ ....... ........ .......... ........ .........
Ratio of operating expenses to average 0.26% 0.40% 0.51% 0.43% 0.48% 0.43% 0.40% (b) 0.43% 0.50%
net assets, inclusive of interest expense (b)
........................................... --------- --------- ......... ........ ....... ........ .......... ........ .........
Ratio of net investment income to average 5.78% 5.62% 5.64% 4.14% 3.28% 3.37% 4.67% (b) 5.99% 8.23%
net assets (a) (b)
........................................... --------- --------- ......... -------- ------- -------- ---------- -------- ---------
Decrease in above expense ratios due to 0.14% 0.05% 0.07% 0.08% 0.03% --- 0.03% (b) 0.11% 0.86%
waiver of investment advisory fees (b)
........................................... --------- --------- ......... -------- ------- -------- ---------- -------- ---------
</TABLE>
(a) Net of waivers and reimbursements
(b) Annualized
* Commencement of operations
** Rounds to less than $0.01
<TABLE>
<S> <C> <C> <C>
STABLE RETURN PORTFOLIO
---------------- ------------------------------------------------------------------------------------------------------------
Fundamental To maintain a stable level of total return, as may be consistent with the preservation of capital
Investment
Objective:
---------------- ------------------------------------------------------------------------------------------------------------
Portfolio Primarily invests in high-quality debt securities, using interest rate hedging as a stabilizing technique
Description:
---------------- ------------------------------------------------------------------------------------------------------------
Performance To outperform the Merrill Lynch 1-2.99 Year Treasury Index
Objective:
---------------- ------------------------------------------------------------------------------------------------------------
Investment At least 65% of the Portfolio's total assets must be invested in high-quality U.S. Dollar
Policies and denominated securities
Significant Up to 35% of the Portfolio's total assets may be invested in non-U.S. Dollar denominated securities
Restrictions: Portfolio may not invest more than 5% of its net assets in futures margins and/or premiums on
options unless it is being used for bona fide hedging purposes
Portfolio is non-diversified
Portfolio may not engage in short sale transactions
---------------- ------------------------------------------------------------------------------------------------------------
Risks: Banking industry risk Hedging risk Liquidity risk
Correlation risk Interest rate risk Market risk
Credit risk Leverage risk Non-diversification risk
Currency risk Prepayment risk
---------------- --------------------------------- ----------------------------------- --------------------------------------
Allowable Dollar Roll Transactions Hedging When Issued and Forward
Investment Duration Management TBA Transactions Commitment Securities
Techniques:
---------------- --------------------------------- ----------------------------------- --------------------------------------
Allowable Asset-Backed Securities Indexed Notes, Currency Municipal Instruments
Investments: Bank Obligations Exchange Related Securities Repurchase and Reverse
Brady Bonds and Similar Securities Repurchase Agreements
Convertible Securities Inflation Indexed Securities Stripped Instruments
Corporate Debt Instruments Mortgage-Backed Securities U.S. Government and Agency
Foreign Instruments Multi-National Currency Securities
Illiquid Securities Unit Securities or More Than Warrants
One Currency Denomination Zero Coupon Bonds
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
---------------- ------------- ------------- ---------------- ----------------- --------------------- -----------------------
Minimum S&P Moody's Thompson Minimum Average
Quality Rating: S&P Moody's (Short Term) (Short-Term) Bankwatch Portfolio Quality
BBB- Baa3 A-2 P-2 B AA (Aa)
---------------- ------------- ------------- ---------------- ----------------- --------------------- -----------------------
---------------- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Average The average U.S. Dollar-weighted duration is generally shorter than three years
Weighted The average U.S. Dollar-weighted duration will not exceed plus or minus one year, around the average
Duration: duration of the Merrill Lynch 1-2.99 Year Treasury Index
---------------- ------------------------------------------------------------------------------------------------------------
---------------- ------------------------------------------------------------------------------------------------------------
Note: Stable Return is a suitable investment option for defined contribution and retirement plans
Stable Return is managed by the Investment Adviser in a manner designed to produce returns similar
to those of a guaranteed investment contract ("GIC"). Unlike a GIC, Stable Return is not guaranteed
by an insurer.
---------------- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
----------------------- ----------------------------------------------------------------------------------------------------
Hypothetical Hypothetical Past Expenses Per $1,000 Investment, Assuming A 5% Annual Return
Expenses: 1 Year 3 Years 5 Years 10 Years
$ 6 $ 19 $ 33 $ 75
----------------------- -------------------- ------------------------- ------------------------ ----------------------------
</TABLE>
----------------------------------------------------------------------------
STABLE RETURN PORTFOLIO OPERATING EXPENSES
(after expense reimbursements, shown as a percentage of net average net
assets)
........................................................................
Advisory fees after waivers * (4) 0.15%
........................................................................
12b-1 fees (1) ---
........................................................................
Administration fees (2) 0.05%
........................................................................
Other expenses 0.10%
........................................................................
Operating expenses, after waivers and reimbursements ** (4) 0.30%
........................................................................
Interest expense (3) 0.30%
--------------------------
============================================================================
Total fund operating expenses, excluding interest, after waivers and
reimbursements 0.60%
============================================================================
----------------------------------------------------------------------------
* Advisory fee before waivers 0.35%
............................................................................
** Total fund operating expenses, excluding interest, before waivers and
reimbursements 0.61%
............................................................................
(1) Under a Distribution Agreement dated May 29, 1998,
between the Fund and AMT Capital Securities, LLC, AMT
Capital Securities provides distribution services at
no cost to the Fund.
(2) Under an Administration Agreement dated May 29, 1998
between the Fund and Investors Capital, Investors
Capital provides administrative services to the Fund
for an incentive fee, capped at 0.02% of the
Portfolio's average daily net assets for reducing the
expense ratios or one or more Portfolios. The
incentive fee is not included in the figures above.
(3) The Portfolio may engage in reverse repurchase
agreements. The Portfolio incurs an interest expense
when engaging in these transactions, equaling the
coupon rate of interest the dealer earns while the
securities are in its possession. These transactions
serve to increase the Portfolio's expense ratio. The
investment adviser will engage in these transactions
only if, it believes that it can earn a higher rate of
interest on the securities it purchases with the cash
received from the dealer, rather than the rate of
interest it must pay to the dealer. The Investment
Adviser may or may not succeed in receiving a net
interest income on these transactions.
(4) 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 should
expenses fall below the cap.
<TABLE>
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------------------
STABLE RETURN PORTFOLIO FINANCIAL HIGHLIGHTS
(in u.s. dollars unless otherwise indicated)
----------------------------------------------------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD Year Ended Year Ended Year Ended Year Ended 7/26/93*
12/31/97 12/31/96 12/31/95 12/31/94 -
12/31/93
------------------------------------------------------------ ------------ ------------ ------------- ------------ ----------
Net asset value at beginning of period 9.93 10.00 9.55 9.95 10.00
------------------------------------------------------------ ------------ ------------ ------------- ------------ ----------
Net investment income 0.62 0.55 0.60 0.43 0.14
............................................................ ------------ ------------ ------------- ------------ ----------
Net realized gains or (losses) on investments 0.08 (0.04) 0.45 (0.40) 0.05
------------------------------------------------------------ ------------ ------------ ------------- ------------ ----------
Total investment income 0.70 0.51 1.05 0.03 0.19
------------------------------------------------------------ ------------ ------------ ------------- ------------ ----------
Distributions from net investment income 0.62 0.55 0.60 0.43 0.14
............................................................ ............ ............ ............. ............ ..........
Distributions in excess of net investment income --- 0.00** --- --- ---
............................................................ ............ ............ ............. ............ ..........
Distributions from net realized gain on investments 0.08 0.03 --- --- 0.03
------------------------------------------------------------ ------------ ------------ ------------- ------------ ----------
Distributions in excess of net realized gain on --- --- --- --- 0.07
investments and financial futures contracts
------------------------------------------------------------ ------------ ------------ ------------- ------------ ----------
Total distributions 0.70 0.58 0.60 0.43 0.24
------------------------------------------------------------ ------------ ------------ ------------- ------------ ----------
Net asset value at end of period 9.93 9.93 10.00 9.55 9.95
------------------------------------------------------------ ------------ ------------ ------------- ------------ ----------
Total return on investment 7.21% 5.29% 11.26% 0.29% 4.27% (b)
------------------------------------------------------------ ------------ ------------ ------------- ------------ ----------
Net assets at end of period in 000's 40,029 42,100 5,080 4,338 3,482
............................................................ ............ ............ ............. ............ ..........
Ratio of operating expenses to average net assets, 0.30% 0.31% 0.50% 0.50% 0.50% (b)
exclusive of interest expense (a)
............................................................ ............ ............ ............. ............ ..........
Ratio of operating expenses to average net assets, 0.60% 0.49% 1.41% 1.74% 0.50% (b)
inclusive of interest expense (a)
............................................................ ------------ ------------ ------------- ------------ ----------
Ratio of net investment income to average net assets 6.10% 5.79% 6.09% 4.43% 3.68% (b)
............................................................ ............ ............ ............. ............ ..........
Decrease in above expense ratios due to waiver of 0.31% 0.15% 0.53% 0.57% 1.46% (b)
investment advisory fees and reimbursements of other
expenses
............................................................ ............ ............ ............. ............ ..........
Portfolio turnover rate 1,292% 1,387% 1,075% 343% 1,841%
============================================================ ------------ ------------ ------------- ------------ ----------
</TABLE>
(a) Net of waivers and reimbursements
(b) Annualized
(c) Not annualized
* Commencement of operations
** Rounds to less than $0.01
<TABLE>
<S> <C> <C> <C>
MORTGAGE TOTAL RETURN PORTFOLIO
----------------- ----------------------------------------------------------------------------------------------------------
Fundamental To attain a high level of total return, as may be consistent with the preservation of capital
Investment
Objective:
----------------- ----------------------------------------------------------------------------------------------------------
Portfolio Primarily invests in mortgage-backed and mortgage-related securities using hedging techniques to manage
Description: interest rate and prepayment risk
----------------- ----------------------------------------------------------------------------------------------------------
Performance To outperform the Lehman Mortgage-Backed Securities Index
Objective
----------------- ----------------------------------------------------------------------------------------------------------
Investment At least 65% of the Portfolio's total assets must be invested in mortgage-backed, asset-backed and
Policies and other mortgage-related securities of U.S. and foreign issuers
Significant Portfolio may not invest more than 5% of its net assets in futures margins and/or premiums on
Restrictions: options unless it is being used for bona fide hedging purposes
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
For defensive purposes, the Portfolio may invest up to 100% of its total assets in short-term U.S.
Government securities and money market instruments
Portfolio is non-diversified
----------------- ----------------------------------------------------------------------------------------------------------
Risks: Banking industry risk Hedging risk Liquidity risk
Correlation risk Interest rate risk Market risk
Credit risk Leverage risk Non-diversification risk
Currency risk Prepayment risk
----------------- ------------------------------- ------------------------------------- ------------------------------------
Allowable Dollar Roll Transactions Hedging TBA Transactions
Investment Duration Management Short Sale Transactions When Issued and Forward
Techniques: Commitment Securities
----------------- ------------------------------- ------------------------------------- ------------------------------------
Allowable Asset-Backed Securities Indexed Notes Stripped Instruments
Investments: Bank Obligations Inflation Indexed Securities Total Return Swaps
Corporate Debt Mortgage-Backed Securities U.S. Government and Agency
Instruments Repurchase and Reverse Securities
Illiquid Securities Repurchase Agreements Zero Coupon Bonds
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
----------------- ------------------ ----------- ------------------ ----------------- -------------- -----------------------
Minimum Quality S&P Moody's Thompson Minimum Average
Rating: S&P Moody's (Short Term) (Short-Term) Bankwatch Portfolio Quality
BBB- Baa3 A-2 P-2 B AA (Aa)
----------------- ------------------ ----------- ------------------ ----------------- -------------- -----------------------
Average The average U.S. Dollar-weighted duration will not exceed plus or minus one year, around the average
Weighted duration of the Lehman Mortgage-Backed Securities Index
Duration:
----------------- ----------------------------------------------------------------------------------------------------------
Hypothetical
---------------------------- ----------------------------------------------------------------------------------------------
Hypothetical Expenses Per $1,000 Investment, Assuming A 5% Annual Return
Expenses: 1 Year 3 Years 5 Years 10 Years
$ 3 $ 11 $ 19 $ 43
---------------------------- --------------------- ---------------------- -------------------- ----------------------------
</TABLE>
----------------------------------------------------------------------------
MORTGAGE TOTAL RETURN PORTFOLIO OPERATING EXPENSES
(after expense reimbursements, shown as a percentage of average net assets)
...........................................................................
Advisory fees after waivers * 0.10%
...........................................................................
12b-1 fees (1) ---
...........................................................................
Administration fees (2) 0.05%
...........................................................................
Other expenses 0.10%
...........................................................................
Operating expenses, after waivers and reimbursements ** 0.25%
...........................................................................
Interest expense (3) 0.09%
===========================================================================
Total fund operating expenses, excluding interest, before waivers and
reimbursements 0.34%
===========================================================================
---------------------------------------------------------------------------
* Advisory fee before waivers 0.30%
...........................................................................
** Total fund operating expenses, excluding interest, before waivers and
reimbursements 0.45%
...........................................................................
(1) Under a Distribution Agreement dated as of May 29,
1998, between the Fund and AMT Capital Securities,
LLC, AMT Capital Securities provides distribution
services at no cost to the Fund.
(2) Under an Administration Agreement dated May 29, 1998
between the Fund and Investors Capital, Investors
Capital provides administrative services to the Fund,
including an incentive fee, capped at 0.02% of the
Portfolio's average daily net assets for reducing the
expense ratios of one or more Portfolios. The
incentive fee is not included in the figures above.
(3) The Portfolio may engage in reverse repurchase
agreements. The Portfolio incurs an interest expense
when engaging in these transactions, equaling the
coupon rate of interest the dealer earns while the
securities are in its possession. These transactions
increase the Portfolio's expense ratio. The
investment adviser will engage in these transactions
only if, it believes that it can earn a higher rate
of interest on the securities it purchases with the
cash received from the dealer, rather than the rate
of interest it must pay to the dealer. The
Investment Adviser may or may not succeed in
receiving a net interest income on these transactions.
(4) The Investment Adviser has agreed voluntarily to cap
the total operating expenses (exclusive of interest
expense at 0.25% (on an annualized basis) of the
Portfolio's average daily net assets. The Investment
Adviser will not attempt to recover prior period
reimbursements should expenses fall below the cap.
--------------------------------------------------------------------------
MORTGAGE TOTAL RETURN PORTFOLIO FINANCIAL HIGHLIGHTS
(in u.s. dollars unless otherwise indicated)
<TABLE>
<S> <C> <C>
--------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD Year Ended 4/29/96* -
12/31/97 12/31/96
-------------------------------------------------------------------------------------------- ------------- --------------
Net asset value at beginning of period 11.06 10.00
--------------------------------------------------------------------------------------------- ------------- --------------
Net investment income 0.68 0.41
............................................................................................. ------------- --------------
Net realized gains or (losses) on investments 0.32 0.23
--------------------------------------------------------------------------------------------- ------------- --------------
Total investment income 1.00 0.64
--------------------------------------------------------------------------------------------- ------------- --------------
Distributions from net investment income 0.63 0.41
............................................................................................. ............. ..............
Distributions in excess of net investment income 0.05 0.06
............................................................................................. ............. ..............
Distributions from net realized gain on investments, short sales, and financial futures and 0.18 0.01
options contracts
--------------------------------------------------------------------------------------------- ------------- --------------
Total distributions 0.86 0.48
--------------------------------------------------------------------------------------------- ------------- --------------
Net asset value at end of period 10.30 10.16
--------------------------------------------------------------------------------------------- ------------- --------------
Total return on investment 10.19% 6.54% (c)
--------------------------------------------------------------------------------------------- ------------- --------------
Net assets at end of period in 000's 655,271 220,990
............................................................................................. ............. ..............
Ratio of operating expenses to average net assets, exclusive of interest expense (a) 0.38% 0.45% (b)
............................................................................................. ............. ..............
Ratio of operating expenses to average net assets, inclusive of interest expense (a) 0.47% 0.88% (b)
............................................................................................. ............. ..............
Ratio of net investment income to average net assets 6.07% 7.61% (b)
............................................................................................. ............. ..............
Decrease in above expense ratios due to waiver of investment advisory fees and 0.07% 0.10% (b)
reimbursement of other expenses
............................................................................................. ------------- --------------
Portfolio turnover rate 3,396% 590%
............................................................................................. ------------- --------------
</TABLE>
(a) Net of waivers and reimbursements
(b) Annualized
(c) Not annualized
* Commencement of operations
<TABLE>
<S> <C>
ASSET-BACKED PORTFOLIO
---------------- ----------------------------------------------------------------------------------------------------------
Fundamental To attain a high level of total return, as may be consistent with the preservation of capital
Investment
Objective:
---------------- ----------------------------------------------------------------------------------------------------------
Portfolio Primarily invests in asset-backed securities, allowing exposure to other sectors of the debt market
Description: opportunistically
---------------- ----------------------------------------------------------------------------------------------------------
Performance To outperform the Lehman Asset-Backed Securities Index
Objective:
---------------- ----------------------------------------------------------------------------------------------------------
Investment At least 65% of the Portfolio's total assets must be invested in mortgage-backed, asset-backed and
Policies and other mortgage-related securities of U.S. and foreign issuers
Significant Portfolio may not invest more than 5% of its net assets in futures margins and/or premiums on
Restrictions: options unless it is being used for bona fide hedging purposes
For defensive purposes, the Portfolio may invest up to 100% of its total assets in short-term U.S.
Government securities and money market instruments
Portfolio is non-diversified
</TABLE>
<TABLE>
<S> <C> <C> <C>
---------------- ----------------------------------------------------------------------------------------------------------
Risks: Banking industry risk Hedging risk Liquidity risk
Correlation risk Interest rate risk Market risk
Credit risk Leverage risk Non-diversification risk
Prepayment risk
---------------- -------------------------------- ----------------------------------- -------------------------------------
Allowable Dollar Roll Transactions Hedging TBA Transactions
Investment Duration Management Short Sale Transactions When Issued and Forward
Techniques: Commitment Securities
---------------- -------------------------------- ----------------------------------- -------------------------------------
Allowable Asset-Backed Securities Indexed Notes Stripped Instruments
Investments: Bank Obligations Inflation Indexed Securities Total Return Swaps
Convertible Securities Mortgage-Backed Securities U.S. Government and Agency
Corporate Debt Repurchase and Reverse Securities
Instruments Repurchase Agreements Zero Coupon Securities
Illiquid Securities
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
---------------- -------------------------------- ----------------------------------- -------------------------------------
Minimum S&P Moody's Thompson Minimum Average
Quality Rating: S&P Moody's (Short Term) (Short-Term) Bankwatch Portfolio Quality
BBB- Baa3 A-2 P-2 B AA (Aa)
---------------- ------------ ------------- ---------------- ------------------ ----------------- -------------------------
Average The average U.S. Dollar-weighted duration will not exceed plus or minus one year, around the average
Weighted duration of the Lehman Asset-Backed Securities Index
Duration:
---------------- ----------------------------------------------------------------------------------------------------------
</TABLE>
This Portfolio Has Not Yet Commenced Investment Operations
Hypothetical
---------------------- ----------------------------------------------
Hypothetical Expenses Per $1,000 Investment, Assuming A 5% Annual
Return
Expenses: 1 Year 3 Years
$ 3 $ 8
---------------------- ------------------------ -----------------------
-----------------------------------------------------------------------------
ASSET-BACKED PORTFOLIO OPERATING EXPENSES
(after expense reimbursements, shown as a percentage of average net assets)
.........................................................................
Advisory fees after waivers * 0.10%
.........................................................................
12b-1 fees (1) ---
.........................................................................
Administration fees (2) 0.05%
.........................................................................
Other expenses (3) 0.10%
.........................................................................
Operating expenses, after waivers and reimbursements ** (4) 0.25%
.........................................................................
Interest expense (3) ---
=========================================================================
Total fund operating expenses, excluding interest, before waivers and
reimbursements 0.25%
=========================================================================
-------------------------------------------------------------------------
* Advisory fee before waivers 0.30%
.........................................................................
** Total fund operating expenses, excluding interest, before waivers and
reimbursements 0.45%
.........................................................................
(1) Under a Distribution Agreement dated as of May 29,
1998, between the Fund and AMT Capital Securities,
LLC, AMT Capital Securities provides distribution
services at no cost to the Fund.
(2) Under an Administration Agreement dated May 29,
1998, between the Fund and Investors Capital,
Investors Capital provides administrative services to
the Fund for an incentive fee, capped at 0.02% of the
Portfolio's average daily net assets for reducing the
expense rations of one or more Portfolios. The
incentive fee is not included in the figures set
forth above.
(3) The Portfolio may engage in reverse repurchase
agreements. The Portfolio incurs an interest expense
when engaging in these transactions, equaling the
coupon rate of interest the dealer earns while the
securities are in its possession. These transactions
serve to increase the Portfolio expense ratio. The
investment adviser will engage in these transactions
only if, it believes that it can earn a higher rate
of interest on the securities it purchases with the
cash received from the dealer, rather than the rate
of interest it must pay to the dealer. The
Investment Adviser may or may not succeed in
receiving a net interest income on these transactions.
(4) The Investment Adviser has agreed voluntarily to cap
the total operating expenses (exclusive of interest
expense) at 0.25% (on an annualized basis) of the
Portfolio's average daily net assets. The Investment
Adviser will not attempt to recover prior period
reimbursements should expenses fall below the cap.
(5) "Other Expenses" are based on estimated expenses for
the current fiscal year.
<TABLE>
<S> <C>
HIGH YIELD PORTFOLIO
................. .............................................................................................................
Fundamental To attain a high level of total return, as may be consistent with the preservation of capital
Investment
Objective:
- ----------------- -------------------------------------------------------------------------------------------------------------
Portfolio Primarily invests in high yield debt securities
Description
- ----------------- -------------------------------------------------------------------------------------------------------------
- ----------------- -------------------------------------------------------------------------------------------------------------
Performance To outperform the Salomon Brothers BB+/B Rated Index
Objective
- ----------------- -------------------------------------------------------------------------------------------------------------
- ----------------- -------------------------------------------------------------------------------------------------------------
Investment At least 65% of the Portfolio's total assets must be invested in high yield securities of U.S. and
Policies and foreign issuers
Significant Portfolio may not invest more than 5% of its net assets in futures margins and/or premiums on options
Restrictions: unless it is being used for bona fide hedging purposes
For defensive purposes, the Portfolio may invest up to 100% of its total assets in short-term U.S.
Government securities and money market instruments
Portfolio is non-diversified
</TABLE>
<TABLE>
<S> <C> <C> <C>
- ----------------- -------------------------------------------------------------------------------------------------------------
Risks: Correlation risk Hedging risk Market risk
Credit risk Interest rate risk Non-diversification risk
Currency risk Liquidity risk Prepayment risk
- ----------------- --------------------------------- ------------------------------------ --------------------------------------
Allowable Dollar Roll Transactions Hedging When Issued and Forward
Investment Duration Management Short Sales Transactions Commitment Securities
Techniques: TBA Transactions
- ----------------- --------------------------------- ------------------------------------ --------------------------------------
Allowable Asset-Backed Securities Indexed Notes, Currency Municipal Instruments
Investments: Bank Obligations Exchange-Related Securities Repurchase and Reverse
Brady Bonds and Similar Securities Repurchase Agreements
Corporate Debt Instruments Inflation-Indexed Securities Stripped Instruments
Foreign Instruments Mortgage-Backed Securities U.S. Government and Agency
Illiquid Securities Multi-National Currency Unit Securities
Securities or More Than One Warrants
Denomination Zero Coupon Securities
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ----------------- --------------------------------- ------------------------------------ --------------------------------------
Minimum Quality S&P Moody's Thompson Minimum Average
Rating: S&P Moody's (Short Term) (Short-Term) Bankwatch Portfolio Quality
- ----------------- ------------- ------------- ---------------- -------------------- ---------------- --------------------------
Average The Portfolio's average U.S. Dollar-weighted duration generally will not exceed one year, plus or minus the
Weighted average duration of the Salomon Brothers BB+/B Rated Index
Duration:
- ----------------- -------------------------------------------------------------------------------------------------------------
</TABLE>
This Portfolio Has Not Yet Commenced Investment Operations
Hypothetical
------------------------ ------------------------------------------
Hypothetical Expenses Per $1,000 Investment, Assuming A 5% Annual Return
Expenses: 1 Year 3 Years
$ 6 $ 18
------------------------ ----------------------- -------------------
----------------------------------------------------------------------------
U.S. HIGH YIELD PORTFOLIO OPERATING EXPENSES
...........................................................................
Advisory fees 0.40%
...........................................................................
12b-1 fees (1) ---
...........................................................................
Administration fees (2) 0.05%
...........................................................................
Other expenses (4) 0.10%
...........................................................................
Operating expenses 0.55%
...........................................................................
Interest expense (3) ---
---------------------------------------------------------------------------
Total fund operating expenses 0.55%
---------------------------------------------------------------------------
(1) Under a Distribution Agreement effective May 29,
1998, between the Fund and AMT Capital Securities,
LLC, AMT Capital Securities provides distribution
services at no cost to the Fund.
(2) Under an Administration Agreement dated May 29,
1998, between the Fund and Investors Capital,
Investors Capital provides administrative services to
the Fund, including an incentive fee, capped at 0.02%
of the Portfolio's average daily net assets for
reducing the Portfolio's expense ratios. The
incentive fee is not included in the above figures.
(3) The Portfolio may engage in reverse repurchase
agreements. The Portfolio incurs an interest expense
when engaging in these transactions, equaling the
coupon rate of interest the dealer earns while the
securities are in its possession. These transactions
serve to increase the Portfolio's expense ratio in
these investments. The investment adviser will only
engage in these transactions if, it believes that it
can earn a higher rate of interest on the securities
it purchases with the cash received from the dealer,
rather than the rate of interest it must pay to the
dealer. The Investment Adviser may or may not
succeed in receiving a net interest income on these
transactions.
(4) "Other Expenses" are based on estimated expenses for
the current fiscal year.
<TABLE>
<S> <C>
ENHANCED INDEX PORTFOLIO
- ----------------- -------------------------------------------------------------------------------------------------------------
Fundamental To attain a high level of total return, as may be consistent with the preservation of capital
Investment
Objective:
- ----------------- -------------------------------------------------------------------------------------------------------------
Portfolio Invests primarily in short duration fixed income securities and S&P 500 Index futures contracts to provide
Description where possible hedged equity-like returns
- ----------------- -------------------------------------------------------------------------------------------------------------
- ----------------- -------------------------------------------------------------------------------------------------------------
Performance To outperform the S&P 500 Index
Objective
- ----------------- -------------------------------------------------------------------------------------------------------------
- ----------------- -------------------------------------------------------------------------------------------------------------
Investment For defensive purposes, the Portfolio may invest up to 100% of its total assets in short-term U.S.
Policies and Government securities and money market instruments
Significant Portfolio is non-diversified
Restrictions:
</TABLE>
<TABLE>
<S> <C> <C> <C>
- ----------------- -------------------------------------------------------------------------------------------------------------
Risks: Correlation risk Hedging risk Market risk
Credit risk Interest rate risk Non-diversification risk
Currency risk Liquidity risk Prepayment risk
- ----------------- --------------------------------- ------------------------------------ --------------------------------------
Allowable Dollar Roll Transactions Hedging When Issued and Forward
Investment Duration Management Short Sales Transactions Commitment Securities
Techniques: TBA Transactions
- ----------------- --------------------------------- ------------------------------------ --------------------------------------
Allowable Asset-Backed Securities Indexed Notes, Currency Municipal Instruments
Investments: Bank Obligations Exchange-Related Securities Repurchase and Reverse
Brady Bonds and Similar Securities Repurchase Agreements
Corporate Debt Instruments Inflation-Indexed Securities Stripped Instruments
Foreign Instruments Mortgage-Backed Securities U.S. Government and Agency
Illiquid Securities Multi-National Currency Unit Securities
Securities or More Than One Warrants
Denomination Zero Coupon Securities
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ----------------- --------------------------------- ------------------------------------ --------------------------------------
Minimum Quality S&P Moody's Thompson Minimum Average
Rating: S&P Moody's (Short Term) (Short-Term) Bankwatch Portfolio Quality
BBB- Baa3 A-2 P-2 B AA (Aa)
- ----------------- ------------- ------------- ------------------ ---------------- ------------------ --------------------------
Average The Portfolio's average U.S. Dollar-weighted duration generally will not exceed one year, plus or minus the
Weighted average duration of the (benchmark).
Duration:
- ----------------- -------------------------------------------------------------------------------------------------------------
</TABLE>
This Portfolio Has Not Yet Commenced Investment Operations
Hypothetical
---------------------- ------------------------------------------------
Hypothetical Expenses Per $1,000 Investment, Assuming A 5% Annual Return
Expenses: 1 Year 3 Years
$ 5 $ 16
---------------------- ------------------------- ----------------------
-------------------------------------------------------------------------
S&P INDEX PLUS PORTFOLIO OPERATING EXPENSES
........................................................................
Advisory fees 0.35%
........................................................................
12b-1 fees (1) ---
........................................................................
Administration fees (2) 0.05%
........................................................................
Other expenses (4) 0.10%
........................................................................
Operating expenses 0.50%
........................................................................
Interest expense (3) ---
------------------------------------------------------------------------
Total fund operating expenses 0.50%
------------------------------------------------------------------------
(1) Under a Distribution Agreement effective May 29,
1998, between the Fund and AMT Capital Securities,
LLC, AMT Capital Securities provides distribution
services at no cost to the Fund.
(2) Under an Administration Agreement dated May 29,
1998, between the Fund and Investors Capital,
Investors Capital provides administrative services to
the Fund, including an incentive fee, capped at 0.02%
of the Portfolio's average daily net assets for
reducing the Portfolio's expense ratios. The
incentive fee is not included in the above figures.
(3) The Portfolio may engage in reverse repurchase
agreements. The Portfolio incurs an interest expense
when engaging in these transactions, equaling the
coupon rate of interest the dealer earns while the
securities are in its possession. These transactions
serve to increase the Portfolio's expense ratio in
these investments. The investment adviser will only
engage in these transactions if, it believes that it
can earn a higher rate of interest on the securities
it purchases with the cash received from the dealer,
rather than the rate of interest it must pay to the
dealer. The Investment Adviser may or may not
succeed in receiving a net interest income on these
transactions.
(4) "Other Expenses" are based on estimated expenses for
the current fiscal year.
<TABLE>
<S> <C>
U.S. TREASURY PORTFOLIO
- -------------------- ----------------------------------------------------------------------------------------------------------
Fundamental To attain a high level of total return, as may be consistent with the preservation of capital, and to
Investment avoid credit quality risk
Objective:
- -------------------- ----------------------------------------------------------------------------------------------------------
Portfolio Primarily invests in securities issued by the U.S. Treasury Department
Description:
- -------------------- ----------------------------------------------------------------------------------------------------------
- -------------------- ----------------------------------------------------------------------------------------------------------
Performance To outperform the Lehman Government Index
Objective:
- -------------------- ----------------------------------------------------------------------------------------------------------
- -------------------- ----------------------------------------------------------------------------------------------------------
Investment At least 95% of the Portfolio's total assets must be invested in U.S. Dollar-denominated
Policies and obligations issued by the U.S. Treasury and repurchase and reverse repurchase agreements
Significant collateralized by such obligations.
Restrictions: Portfolio may invest up to 5% of its total assets in high quality fixed income securities and
instruments of the same type as Short-Term Portfolio.
Portfolio may not invest more than 5% of its net assets in futures margins and/or premiums on
options unless it is being used for bona fide hedging purposes.
Portfolio is non-diversified.
Portfolio may not engage in short sale transactions.
</TABLE>
<TABLE>
<S> <C> <C> <C>
- -------------------- ----------------------------------------------------------------------------------------------------------
Risks: Hedging risk Interest rate risk Leverage risk
Market risk
- -------------------- --------------------------------- -------------------------------------- ---------------------------------
Allowable Duration Management Hedging When Issued and Forward
Investment Commitment Securities
Techniques:
- -------------------- --------------------------------- -------------------------------------- ---------------------------------
Allowable Asset-Backed Securities Indexed Notes, Currency Municipal Instruments
Investments: Bank Obligations Exchange Related Securities and Repurchase and Reverse
Brady Bonds Similar Securities Repurchase Agreements
Convertible Securities Inflation Indexed Securities Stripped Instruments
Corporate Debt Instruments Mortgage Backed Securities U.S. Government and
Foreign Instruments Multi-National Currency Unit Agency Securities
Securities or More Than One Warrants
Currency Denomination Zero Coupon Securities
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- -------------------- --------------------------------- -------------------------------------- ---------------------------------
Minimum Quality S&P Moody's Thompson Minimum Average
Rating: S&P Moody's (Short Term) (Short-Term) Bankwatch Portfolio Quality
BBB- Baa3 A-1 P-1 B AAA (Aaa)
- -------------------- ----------------------------------------------------------------------------------------------------------
Average The average U.S. dollar-weighted duration generally will not plus or minus one year of the average
Weighted Duration: duration of the Lehman Government Index
- -------------------- ----------------------------------------------------------------------------------------------------------
Tax Considerations: Investors in most jurisdictions will be provided with income exempt from state and local tax
Consult with a tax adviser to determine if your state and local tax laws exempt income derived
from U.S. Treasury mutual fund portfolios
- -------------------- ----------------------------------------------------------------------------------------------------------
</TABLE>
This Portfolio Has Not Yet Commenced Investment Operations
Hypothetical
------------------------- -------------------------------------------------
Hypothetical Expenses Per $1,000 Investment, Assuming A 5% Annual Return
Expenses: 1 Year 3 Years
$ 5 $ 14
------------------------- ---------------------- -------------------- -----
-----------------------------------------------------------------------------
U.S. TREASURY PORTFOLIO OPERATING EXPENSES
(after expense reimbursements, shown as a percentage of average net assets)
.............................................................................
Advisory fees after waivers * 0.30%
...........................................................................
12b-1 fees (1) ---
...........................................................................
Administration fees (2) 0.05%
...........................................................................
Other expenses (4) 0.10%
...........................................................................
Operating expenses, after waivers and reimbursements ** (5) 0.45%
...........................................................................
Interest expense (3) ---
---------------------------------------------------------------------------
Total fund operating expenses 0.45%
...........................................................................
* Advisory fee before waivers N/A
...........................................................................
** Total fund operating expenses, excluding interest, before waivers and
reimbursements 0.50%
...........................................................................
(1) Under a Distribution Agreement effective May 29,
1998, between the Fund and AMT Capital Securities,
LLC, AMT Capital Securities provides distribution
services at no cost to the Fund.
(2) Under an Administration Agreement dated May 29, 1998,
between the Fund and Investors Capital, Investors
Capital provides administrative services to the Fund
for an incentive fee, capped at 0.02% of the
Portfolio's average daily net assets for reducing the
expense ratios of one or more Portfolios. The
incentive fee is not included in the figures above.
(3) The Portfolio may engage in reverse repurchase
agreements. The Portfolio incurs an interest expense
when engaging these transactions, equaling the coupon
rate of interest the dealer earns while the securities
are in the its possession. These transactions serve
to increase the Portfolio's expense ratios. The
investment adviser will engage in these transactions
only if, it believes it can earn a higher rate of
interest on the securities it purchases with the cash
received from the dealer, rather than the rate of
interest it must pay to the dealer. The Investment
Adviser may or may not succeed in receiving a net
interest income on these transactions.
(4) "Other Expenses" are based on estimated expenses for
the current fiscal year.
(5) The Investment Adviser has agreed voluntarily to cap
the total operating expenses (exclusive of interest
expense) at 0.45% (on an annualized basis) of the
Portfolio's average daily net assets. The Investment
Adviser will not attempt to recover prior period
reimbursements, should expenses fall below the cap.
U.S. CORPORATE PORTFOLIO
............... ..........................................................
Fundamental To attain a high level of total return, as may be
Investment consistent with the preservation of capital
Objective:
--------------- ----------------------------------------------------------
Portfolio Primarily invests in U.S. corporate obligations
Description
--------------- ----------------------------------------------------------
--------------- ----------------------------------------------------------
Performance To outperform the Salomon Brothers Corporate Bond Index
Objective:
<TABLE>
<S> <C> <C> <C>
--------------- ----------------------------------------------------------
--------------- ----------------------------------------------------------
Investment Portfolio must invest at least 65% of its total assets in U.S. Dollar-denominated corporate debt
Policies and obligations
Significant Portfolio may invest up to 35% of its total assets in non-dollar-denominated corporate debt
Restrictions: obligations or other U.S. Dollar-denominated debt obligations
Portfolio may not invest more than 5% of its net assets in futures margins and/or premiums on
options unless it is being used for bona fide hedging purposes
For temporary defensive purposes, the Portfolio may invest up to 100% of its total assets in
short-term U.S. Government securities and money market instruments
Portfolio is non-diversified
--------------- -----------------------------------------------------------------------------------------------------------
Risks: Banking industry risk Currency risk Liquidity risk
Correlation risk Hedging risk Market risk
Credit risk Interest rate risk Non-diversification risk
Leverage risk Prepayment risk
--------------- ---------------------------------- ------------------------------------- ----------------------------------
Allowable Dollar Roll Transactions Hedging TBA Transactions
Investment Duration Management Short Sale Transactions When Issued and Forward
Techniques: Commitment Securities
--------------- ---------------------------------- ------------------------------------- ----------------------------------
Allowable Asset-Backed Securities Indexed Notes, Currency Municipal Instruments
Instruments: Bank Obligations Exchange Related Securities Repurchase and Reverse
Brady Bonds and Similar Securities Repurchase Agreements
Convertible Securities Inflation Indexed Securities Stripped Instruments
Corporate Debt Instruments Mortgage-Backed Securities U.S. Government and
Foreign Instruments Multi-National Currency Unit Agency Securities
Illiquid Securities Securities or More Than One Warrants
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Currency Denomination Zero Coupon Bonds
--------------- ---------------------------------- ------------------------------------- ----------------------------------
Minimum S&P Moody's Thompson Minimum Average
Quality S&P Moody's (Short Term) (Short-Term) Bankwatch Portfolio Quality
Rating: BBB- Baa3 A-2 P-2 B AA (Aa)
--------------- ------------- ------------- ---------------- ------------------ ----------------- -------------------------
Average The average U.S. Dollar-weighted duration generally will not exceed plus or minus one year, around the
Weighted average duration of the Salomon Brothers Corporate Bond Index
Duration:
--------------- -----------------------------------------------------------------------------------------------------------
</TABLE>
This Portfolio Has Not Yet Commenced Investment Operations
Hypothetical
------------------------ ---------------------------------------------
Hypothetical Expenses Per $1,000 Investment, Assuming A 5% Annual Return
Expenses: 1 Year 3 Years
$ 3 $ 8
------------------------ ----------------------- -------------------------
----------------------------------------------------------------------------
U.S. CORPORATE PORTFOLIO OPERATING EXPENSES
(after expense reimbursements, shown as a percentage of average net assets)
..........................................................................
Advisory fees after waivers * 0.10%
..........................................................................
12b-1 fees (1) ---
..........................................................................
Administration fees (2) 0.05%
..........................................................................
Other expenses (5) 0.10%
..........................................................................
Operating expenses, after waivers and reimbursements ** (4) 0.25%
..........................................................................
Interest expense (3) ---
==========================================================================
Total fund operating expenses 0.25%
==========================================================================
--------------------------------------------------------------------------
* Advisory fee before waivers 0.30%
..........................................................................
** Total fund operating expenses, excluding interest, before waivers and
reimbursements 0.45%
..........................................................................
(1) Under a Distribution Agreement effective May 29,
1998, between the Fund and AMT Capital Securities,
LLC, AMT Capital Securities provides distribution
services at no cost to the Fund.
(2) Under an Administration Agreement effective May 29,
1998, between the Fund and Investors Capital,
Investors Capital provides administrative services to
the Fund, including an incentive fee, capped at 0.02%
of the Portfolio's average daily net assets, for
reducing the expense ratios of one or more
Portfolios. The incentive fee is not included in the
above figures.
(3) The Portfolio may engage in reverse repurchase
agreements. The Portfolio incurs an interest expense
when engaging in these transactions, equaling the
coupon rate of interest the dealer earns while the
securities are in its possession. These transactions
increase the Portfolio's expense ratio. The
investment adviser will engage in these transactions
only if, it believes it can earn a higher rate of
interest on the securities it purchases with the cash
received from the dealer, rather than the rate of
interest it must pay to the dealer. The Investment
Adviser may or may not succeed in receiving a net
interest income on these transactions.
(4) The Investment Adviser has agreed voluntarily to cap
the total operating expenses (exclusive of interest
expense) at 0.25% (on an annualized basis) of the
Portfolio's average daily net assets. The Investment
Adviser will not attempt to recover prior period
reimbursements should expenses fall below the cap.
(5) "Other Expenses" are based on estimated expenses for
the current fiscal year.
<TABLE>
<S> <C>
BROAD-MARKET PORTFOLIO
................. .............................................................................................................
Fundamental To attain a high level of total return, as may be consistent with the preservation of capital
Investment
Objective:
- ----------------- -------------------------------------------------------------------------------------------------------------
Portfolio Primarily invests in high-quality fixed-income securities, reflective of the broad spectrum of the U.S.
Description bond market
- ----------------- -------------------------------------------------------------------------------------------------------------
- ----------------- -------------------------------------------------------------------------------------------------------------
Performance To outperform the Lehman Aggregate Bond Index
Objective
- ----------------- -------------------------------------------------------------------------------------------------------------
- ----------------- -------------------------------------------------------------------------------------------------------------
Investment Portfolio must invest at least 65% of its total assets in high-quality fixed-income securities
Policies and reflective of the broad spectrum of the U.S. bond market
Significant The allocation among markets will vary based upon the issuance of new securities and the retirement
Restrictions: of outstanding securities and instruments. The Portfolio has limited exposure to non-U.S. Dollar
denominated securities.
Portfolio may not invest more than 5% of its net assets in futures margins and/or premiums on options
unless it is being used for bona fide hedging purposes
For temporary defensive purposes, the Portfolio may invest up to 100% of its assets in short-term
U.S. Government securities and money market instruments
The Investment Adviser will manage the Broad Market Portfolio to approximate broad market allocations
by purchasing and selling representative securities in each market, but the Portfolio cannot guarantee
that it will match such broad market allocations. The current market allocation is comprised of
approximately 20% in corporate securities, 50% in U.S. Government securities and 30% in
mortgage-backed and asset-backed securities.
Portfolio is non-diversified
Portfolio may not engage in short sales
</TABLE>
<TABLE>
<S> <C> <C> <C>
- ----------------- -------------------------------------------------------------------------------------------------------------
Risks: Banking industry risk Currency risk Liquidity risk
Correlation risk Hedging risk Market risk
Credit risk Interest rate risk Non-diversification risk
Leverage risk Prepayment risk
- ----------------- --------------------------------- ------------------------------------- -------------------------------------
Allowable Dollar Roll Transactions Hedging When Issued and Forward
Investment Duration Management TBA Transactions Commitment Securities
Techniques:
- ----------------- --------------------------------- ------------------------------------- -------------------------------------
Allowable Asset-Backed Securities Indexed Notes, Currency Municipal Instruments
Investments: Bank Obligations Exchange Related Securities Repurchase and Reverse
Brady Bonds and Similar Securities Repurchase Agreements
Convertible Securities Inflation Indexed Securities Stripped Instruments
Corporate Debt Instruments Mortgage-Backed Securities U.S. Government and Agency
Foreign Instruments Multi-National Currency Unit Securities
Illiquid Securities Securities or More Than One Warrants
Currency Denomination Zero Coupon Bonds
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ----------------- --------------------------------- ------------------------------------- -------------------------------------
Minimum Quality S&P Moody's Thompson Minimum Average
Rating: S&P Moody's (Short Term) (Short-Term) Bankwatch Portfolio Quality
BBB- Baa3 A-2 P-2 B AA (Aa)
- ----------------- ------------- ------------- ---------------- ---------------- -------------------- --------------------------
Average The average U.S. Dollar-weighted duration generally will not exceed plus or minus one year, around the
Weighted average duration of the Lehman Aggregate Bond Index
Duration:
- ----------------- -------------------------------------------------------------------------------------------------------------
</TABLE>
This Portfolio Has Not Yet Commenced Investment Operations
----------------------- ----------------------------------------------------
Hypothetical Hypothetical Expenses Per $1,000 Investment, Assuming A
Expenses: 5% Annual Return
1 Year 3 Years
$ 5 $ 14
----------------------- ---------------------- ---------------------- ------
----------------------------------------------------------------------------
BROAD MARKET PORTFOLIO OPERATING EXPENSES
(after expense reimbursments, shown as a percentage of average net assets)
............................................................................
Advisory fees after waivers * 0.30%
............................................................................
12b-1 fees (1) ---
............................................................................
Administration fees (2) 0.05%
............................................................................
Other expenses (5) 0.10%
............................................................................
Operating expenses, after waivers and reimbursements ** (4) 0.45%
............................................................................
Interest expense (3) ---
============================================================================
Total fund operating expenses 0.45%
============================================================================
* Advisory fee before waivers N/A
...........................................................................
** Total fund operating expenses, excluding interest, before waivers and
reimbursements 0.50%
...........................................................................
(1) Under a Distribution Agreement effective May 29, 1998
between the Fund and AMT Capital Securities, LLC, AMT
Capital Securities provides distribution services at
no cost to the Fund.
(2) Under an Administration Agreement effective May 29,
1998, between the Fund and Investors Capital,
Investors Capital provides administrative services to
the Fund for an incentive fee, capped at 0.02% of the
Portfolio's average daily net assets for reducing the
expense ratios of one or more Portfolios. The
incentive fee is not included in the above figures.
(3) The Portfolio may engage in reverse repurchase
agreements. The Portfolio incurs an interest expense
when engaging in these transactions, equaling the
coupon rate of interest the dealer earns while the
securities are in its possession. These transactions
increase the Portfolio's expense ratio. The
investment adviser will only engage in these
transactions if, it believes that it can earn a higher
rate of interest on the securities it purchases with
the cash received from the dealer, rather than the
rate of interest it must pay to the dealer. Please
note, however, that the Investment Adviser may or may
not succeed in receiving a net interest income on
these transactions.
(4) The Investment Adviser has agreed voluntarily to cap
the total operating expenses (exclusive of interest
expense) at 0.45% (on an annualized basis) of the
Portfolio's average daily net assets. The Investment
Adviser will not attempt to recover prior period
reimbursements should expenses fall below the cap.
(5) "Other Expenses" are based on estimated amounts for
the current fiscal year.
INVESTMENT INFORMATION
GENERAL INVESTMENT TECHNIQUES/STRATEGIES AND ASSOCIATED RISKS
Dollar Roll Transactions
Dollar roll transactions consist of the sale of
mortgage-backed securities, with a commitment to purchase
similar, but not identical securities at a future date, and
at the same price.
Risks: Should the broker-dealer to whom a Portfolio
sells an underlying security of a dollar roll
transaction become insolvent, the Portfolio's right
to purchase or repurchase the security may be
restricted, or the price of the security may change
adversely over the term of the dollar roll.
Duration Management
Duration measures a bond's price volatility, incorporating
the following factors:
a. the bond's yield,
b. coupon interest payments,
c. final maturity,
d. call features, and
e. prepayment assumptions.
Duration measures the expected life of a debt security on a
present value basis. It incorporates 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 weighs
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
closely related to the duration of the securities that
underlie them. Holding long futures or call options 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 duration by approximately the same amount that
selling an equivalent amount of the underlying securities
would.
Risks: Changes in weighted average duration of a
Portfolio's holdings are not likely to be so large
as to cause them to fall outside the ranges
specified above. There is no assurance that
deliberate changes in a Portfolio's weighted
average duration will enhance its return relative
to more static duration policies or Portfolio
structures. In addition, it may detract from its
relative return.
Hedging
Hedging techniques are used to offset certain investment
risks. Such risks include: changes in interest rates,
changes in foreign currency exchange rates and changes in
securities and commodities prices. Hedging techniques are
commonly used to minimize a given instrument's risks of
future gain or loss. Hedging techniques include:
a. engaging in swaps;
b. purchasing and selling caps, floors and collars;
c. purchasing or selling forward exchange contracts;
d. purchasing and selling futures contracts;
e. purchasing and selling options;
All hedging instruments described below constitute
commitments by a Portfolio and therefore require the Fund to
segregate cash (in any applicable currency), U.S. Government
securities or other liquid and unencumbered securities (in
any applicable currency) equal to the amount of the
Portfolio's obligations in a separate custody account.
When a Portfolio purchases a futures or forward currency
contract for non-hedging purposes, the sum of the segregated
assets plus the amount of initial and variation margin held
in broker's the account, if applicable, must equal the
market value of the futures or forward currency contract.
When a Portfolio sells a futures or forward currency
contract for non-hedging purposes, the Portfolio will have
the contractual right to acquire:
1. the securities,
2. the foreign currency subject to the futures,
3. the forward currency contract, or
4. will segregate assets, in an amount at least equal
to the market value of the securities or foreign
currency underlying the futures or forward currency
contract with the Fund's custodian.
Should the market value of the contract move 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.
a. Swaps
Swaps are commonly used for hedging purposes. Hedging
involving mortgage and interest rate swaps may enhance total
return. Interest rate swaps involve a Portfolio's exchange
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. Currency swaps
involve the exchange of their respective rights to make or
receive payments in specified currencies.
b. Caps, Floors and Collars
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. An interest rate collar
incorporates a cap and a floor in one transaction as
described above.
c. Forward Foreign Exchange Contracts
A forward foreign exchange contract is the purchase or sale
of a foreign currency, on a specified date, at an exchange
rate established before the currency's payment and delivery
to hedge the currency exchange risk associated with its
assets or obligations denominated in foreign currencies.
Synthetic hedging is a technique utilizing forward foreign
exchange contracts that is frequently employed by many of
the Portfolios. It entails entering into a forward contract
to sell a currency the changes in value of which 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 buying
U.S. dollars. There is a risk that the perceived linkage
between various currencies may not be present during the
particular time that a Portfolio is engaging in synthetic
hedging. A 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 expects to
have exposure.
d. Futures Transactions
A futures contract is an agreement to buy or sell a specific
amount of a financial instrument at a particular price on a
specified date. The futures contract obligates the buyer to
purchase the underlying commodity and the seller to sell
it. Losses from investing in futures transactions that are
unhedged or uncovered are potentially unlimited.
Substantially all futures contracts are closed out before
settlement date or called for cash settlement. A futures
contract is closed out by buying or selling an identical
offsetting futures contract that cancels the original
contract to make or take delivery. At times, the ordinary
spreads between values in the cash and futures markets, due
to differences in the character of these markets, are
subject to distortions. The possibility of such distortions
means that a correct forecast of general market, foreign
exchange rate or interest rate trends still may not produce
the intended results for the Portfolio.
e. Options
An option is a contractual right, but not an obligation, to
buy (call) or sell (put) property that is guaranteed in
exchange for an agreed upon sum. If the right is not
exercised within a specified period of time, the option
expires and the option buyer forfeits the amount paid. An
option may be a contract that bases its value on the
performance of an underlying stock. When a Portfolio writes
a call option, it gives up 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. A put option gives the purchaser, in return for a
premium, the right, for a specified period or 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 the put option, in return for the premium, has the
obligation, upon exercise of the option, to acquire the
securities or currency underlying the option at the exercise
price. A Portfolio might, therefore, be obligated to
purchase the underlying securities or currency for more than
their current market price.
A Portfolio will not enter into any:
1. currency swap,
2. interest rate swap,
3. mortgage swap,
4. cap,
5. or floor transactions,
unless the unsecured commercial paper, senior debt or claims
paying ability of the counter party is rated either A or A-1
or better by S&P or A or P-1 or better by Moody's. If
unrated by such rating organizations, it must be determined
to be of comparable quality by the Investment Adviser.
Risks: Hedging involves risks of imperfect
correlation in price movements of the hedge and
movements in the price of the hedged security. If
interest or currency exchange rates do not move in
the direction of the hedge, the Portfolio will be
in a worse position than if hedging had not been
employed. As a result, it will lose all or part of
the benefit of the favorable rate movement due to
the cost of the hedge or offsetting positions.
Hedging transactions not entered into on a U.S. or
foreign exchange may subject a Portfolio to
exposure to the credit risk of its counterparty.
Futures and Options transactions entail special
risks. In particular, the variable degree of
correlation between price movements of futures
contracts and price movements in the related
Portfolio position could create the possibility
that losses will be greater than gains in the value
of the Portfolio's position. Other risks include
the risk that a Portfolio could not close out a
futures or options position when it would be most
advantageous to do so.
Short Sales
Short sales 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 reduce certain risks
of the Portfolio's holdings and increase the Portfolio's
total return. To the extent that the Portfolio has sold
securities short, it will maintain a daily segregated
account, containing cash, U.S. Government securities or
other liquid and unencumbered 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.
Risks: A short sale is generally used to take
advantage of an anticipated decline in price or to
protect a profit. A Portfolio will incur 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 Portfolio replaces the borrowed
money. 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. Without the purchase
of an option, the potential loss from a short sale
is unlimited.
TBA (To Be Announced) Transactions
In a TBA transaction, the type of mortgage-related
securities to be delivered is specified at the time of
trade, but the actual pool numbers of the securities to 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 to be delivered at
settlement will be announced shortly before settlement takes
place. Agency pass-through mortgage-backed securities are
usually issued on a TBA basis. For each Portfolio, the Fund
will maintain a segregated custodial account containing
cash, U.S. Government securities or other liquid and
unencumbered securities having a value at least equal to the
aggregate amount of a Portfolio's TBA transactions.
Risks: The value of the security on the date of
delivery may be less than its purchase price,
presenting a possible loss of asset value
When Issued and Forward Commitment Securities
The purchase of a when issued or forward commitment security
will be recorded on the date the Portfolio enters into the
commitment. The value of the security will be reflected in
the calculation of the Portfolio's net asset value. The
value of the security on delivery date may be more or less
than its purchase price. Generally, no interest accrues to a
Portfolio until settlement. For each Portfolio, the Fund
will maintain a segregated custodial account containing
cash, U.S. Government securities or other liquid and
unencumbered securities having a value at least equal to the
aggregate amount of a Portfolio's when issued and forward
commitments transactions.
Risks: The value of the security on the date of
delivery may be less than its purchase price,
presenting a possible loss of asset value.
GENERAL DESCRIPTION OF INVESTMENTS AND ASSOCIATED RISKS
Asset-Backed Securities
Asset-backed securities are secured by or backed by assets
other than mortgage-related assets, such as automobile and
credit card receivables. These securities 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, but include
assets such as:
a. motor vehicle installment sale contracts,
b. other installment sale contracts,
c. home equity loans,
d. leases of various types of real and personal
property, and
e. receivables from revolving credit (credit card)
agreements.
Portfolios will only purchase asset-backed securities that
the Investment Adviser determines to be liquid.
Risks: Since the principal amount of asset-backed
securities is generally subject to partial or total
prepayment risk. If an asset-backed security is
purchased at a premium or discount to par, a
prepayment rate that is faster than expected will
reduce or increase yield to maturity, while a
prepayment rate that is slower than expected will
have the opposite effect on yield to maturity.
These securities may not have any security interest
in the underlying assets, and recoveries on the
repossessed collateral may not, in some cases, be
available to support payments on these securities.
Bank Obligations
Bank obligations are bank issued securities. These instruments include:
a. Time Deposits, e. Deposit Notes, h. Variable Rate Notes,
b. Certificates of f. Eurodollar Time i. Loan Participations,
Deposit, deposits, j. Variable Amount Master
Demand Notes,
c. Bankers' g. Eurodollar Certificates of k. Yankee CDs, and
Acceptances, Deposit, l. Custodial Receipts
d. Bank Notes,
Risks: Investing in bank obligations exposes a
Portfolio to risks associated with the banking
industry such as interest rate and credit risks.
Brady Bonds
Brady Bonds are debt securities, issued or guaranteed by
foreign governments in exchange for existing external
commercial bank indebtedness. 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 are either collateralized or
uncollateralized, issued in various currencies (primarily
the U.S. dollar), and are actively traded in the
over-the-counter secondary market.
A 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.
Risks: Brady Bonds are generally issued to
countries with developing capital markets or
unstable governments and as such, are considered to
be among the more risky international investments.
Convertible Securities
Convertible bonds or shares of convertible preferred stock
are securities that may be converted into, or exchanged for,
underlying shares of common stock, either at a stated price
or stated rate. Convertible securities have general
characteristics similar to both fixed income and equity
securities.
Risks: Typically, convertible securities are
callable by the company, which may, in effect,
force conversion before the holder would otherwise
choose. If the issuer chooses to convert the
security, this action could have an adverse effect
on a Portfolio's ability to achieve its objectives.
Corporate Debt Instruments
Corporate bonds are debt instruments issued by private
corporations. As creditors, bondholders have a prior legal
claim over common and preferred stockholders of the
corporation as to both income and assets for the principal
and interest due to the bondholder. A Portfolio purchases
corporate bonds subject to quality restraints. Commercial
paper, notes and other obligations of U.S. and foreign
corporate issuers must meet the Portfolio's credit quality
standards (including medium-term and variable rate notes).
A Portfolio may retain a downgraded corporate debt security
if the Investment Adviser determines retention of the
security to be in the Portfolio's best interests.
Risks: Investing in corporate debt securities
subjects a Portfolio to interest rate changes and
credit risks.
Foreign Instruments
a. Foreign Securities
Foreign securities are securities denominated in currencies
other than the U.S. dollar and may be denominated in any
single currency or multi-currency units. The Investment
Adviser will adjust exposure of the Portfolios to different
currencies based on its perception of the most favorable
markets and issuers. It is further anticipated that such
securities will be issued primarily by governmental and
private entities located in such countries and by
supranational entities. Portfolios only will invest in
countries considered to have stable governments, based on
the Investment Adviser's analysis of social, political, and
economic factors.
b. Foreign Government, International and Supranational
Agency Securities
These securities include 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.
Risks: Generally, foreign financial markets have
substantially less volume than the U.S. market.
Securities of many foreign companies are less
liquid, and their prices are more volatile than
securities of comparable domestic companies.
Certain Portfolios may invest portions of their
assets in securities denominated in foreign
currencies. These investments carry risks of
fluctuations of exchange rates relative to the U.S.
dollar. Securities issued by foreign entities
(governments, corporations etc.) may involve risks
not associated with U.S. Investments, including
expropriation of assets, taxation, political or
social instability and low financial reporting
standards--all of which may cause declines in
investment return.
Illiquid Securities
Illiquid securities are securities which cannot 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 securities. These include:
1. securities with legal or contractual restrictions on
resale,
2. time deposits, repurchase agreements and dollar roll
transactions having maturities longer than seven days,
and
3. securities not having readily available market
quotations.
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. The
Investment Adviser monitors the liquidity of such restricted
securities under the supervision of the Board of Directors.
A Portfolio may purchase securities not registered under the
1933 Securities Act, as amended, but which can be sold to
qualified institutional buyers in accordance with Rule-144A
under that Act. Rule-144A securities generally must be sold
to other qualified institutional buyers. A Portfolio may
also invest in commercial paper 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. Any resale by the purchaser must be
in an exempt transaction. Section 4(2) paper is normally
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 Investment Adviser
will monitor the liquidity of such restricted securities
under the supervision of the Board of Directors.
Risks: Investing in illiquid securities presents
the potential risks of tying up a Portfolio's
assets at a time when liquidating assets may be
necessary to meet debts and obligations.
Indexed Notes, Currency Exchange-Related Securities and
Similar Securities
These securities are notes, the principal amount of which
and/or the rate of interest payable is determined by
reference to an index. The index may be determined by the
rate of exchange between the specified currency for the note
and one or more other currencies or composite currencies.
Risks: Foreign currency markets can be highly
volatile and are subject to sharp price
fluctuations. A high degree of leverage is typical
for foreign currency instruments in which each
Portfolio may invest.
Inflation-Indexed Securities
Inflation-indexed securities are linked to the inflation
rate from worldwide bond markets such as the U.S. Treasury
Department's "inflation-protection" issues. The initial
issues are ten year notes which are issued quarterly. Other
maturities will be sold 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. These securities may be eligible for
coupon stripping under the U.S. Treasury program. In
addition to the U.S. Treasury's issues, inflation-indexed
securities include inflation-indexed securities from other
countries such as Australia, Canada, New Zealand, Sweden and
the United Kingdom.
Risks: If the periodic adjustment rate measuring
inflation falls, the principal value of
inflation-indexed bonds will be adjusted downward,
and consequently the interest payable on these
securities (calculated with respect to a smaller
principal amount) will be reduced. Repayment of
the original bond principal upon maturity (as
adjusted for inflation) is guaranteed in the case
of U.S. Treasury inflation-indexed bonds, even
during a period of deflation. However, the current
market value of the bonds is not guaranteed, and
will fluctuate. The Portfolios many also invest in
other inflation related bonds that may or may not
provide a similar guarantee. If a guarantee of
principal is not provided, the adjusted principal
value of the bond repaid at maturity may be less
than the original principal.
The U.S. Treasury has only recently begun issuing
inflation-indexed bonds. As such, there is no
trading history of these securities, and there can
be no assurance that a liquid market in these
instruments will develop, although one is expected
to continue to evolve. Lack of a liquid market may
impose the risk of higher transaction costs and the
possibility that a Portfolio may be forced to
liquidate positions when it would not be
advantageous to do so. Finally, there can be no
assurance that the Consumer Price Index for Urban
Consumers will accurately measure the real rate of
inflation in the price of goods and services.
Mortgage-Backed Securities
Mortgage-backed securities are securities representing
ownership interests in, or debt obligations secured entirely
or primarily by, "pools" of residential or commercial
mortgage loans or other mortgage-backed securities.
Mortgage-backed securities may take a variety of forms, the
two most common being:
1. Mortgage-pass through securities issued by
a. the Government National Mortgage Association
(Ginnie Mae),
b. the Federal National Mortgage Association (Fannie
Mae),
c. the Federal Home Loan Mortgage Corporation
(Freddie Mac),
d. commercial banks, savings and loan associations,
mortgage banks or by issuers that are affiliates of
or sponsored by such entities, and
2. Collateralized mortgage obligations (CMOs) which are
debt obligations collateralized by such assets.
The Investment Adviser expects that new types of
mortgage-backed securities may be created offering asset
pass-through and asset-collateralized investments in addition
to those described above by governmental, government-related
and private entities. As new types of mortgage-related
securities are developed and offered to investors, the
Investment Adviser will consider whether it would be
appropriate for such Portfolio to make investments in them.
CMOs are derivatives collateralized by mortgage pass-through
securities. Cash flows from mortgage pass-through
securities are allocated to various tranches in a
predetermined, specified order. Each tranche has a stated
maturity - the latest date by which the tranche can be
completely repaid, assuming no prepayments - and has an
average life - the average of the time to receipt of a
principal payment weighted by the size of the principal
payment. The average life is typically used as a proxy for
maturity because the debt is amortized, rather than being
paid off entirely at maturity.
Risks: Portfolios may invest in mortgage-backed and
other asset-backed securities carrying the risk of
a faster or slower than expected prepayment of
principal which may affect the duration and return
of the security. Portfolio returns will be
influenced by changes in interest rates. Changes in
market yields affect a Portfolio's asset value
since Portfolio debt will generally increase when
interest rates fall and decrease when interest
rates rise. Thus, interest rates have an inverse
relationship with corresponding market values.
Prices of shorter-term securities generally
fluctuate less in response to interest rate changes
than do longer-term securities.
Multi-National Currency Unit Securities or More Than One
Currency Denomination
Multi-national currency unit securities are tied to
currencies of more than one nation. This includes the
European Currency Unit--a "basket" consisting of specified
currencies of the member states of the European Community (a
Western European economic cooperative organization). Such
securities include securities denominated in the currency of
one nation, although it is issued by a governmental entity,
corporation or financial institution of another nation.
Risks: Investments involving multi-national
currency units are subject to changes in currency
exchange rates which may cause the value of such
invested securities to decrease relative to the
U.S. dollar.
Municipal Instruments
Municipal instruments are debt obligations issued by a state
or local government entity. The instruments may support
general governmental needs or special government projects.
It is not anticipated that such instruments will ever
represent a significant portion of any Portfolio's assets.
Risks: Investments in municipal instruments are
subject to the municipality's ability to make
timely payment. Municipal instruments may also be
subject to bankruptcy protection should the
municipality file for such protection.
Repurchase and Reverse Repurchase Agreements
Under a repurchase agreement, a bank or securities firm
(that is a dealer in U.S. Government Securities reporting to
the Federal Reserve Bank of New York) agrees to sell U.S.
Government Securities to a Portfolio and repurchase such
securities from the Portfolio for an agreed price at a later
date. Under a reverse repurchase agreement, 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 for an agreed
price at a later date.
The Fund will maintain a segregated custodial account for
each Portfolio's reverse repurchase agreements. Until
repayment is made, the segregated accounts may contain cash,
U.S. Government Securities or other liquid, unencumbered
securities having an aggregate value at least equal to the
amount of such commitments to repurchase (including accrued
interest). Repurchase and reverse repurchase agreements
will generally be restricted to those maturing within seven
days.
Risks: If the other party to a repurchase and/or
reverse repurchase agreement becomes subject to a
bankruptcy or other insolvency proceeding, or fails
to satisfy its obligations thereunder, delays may
result in recovering cash or the securities sold,
or losses may occur as to all or part of the
income, proceeds or rights in the security.
Stripped Instruments
Stripped instruments are bonds, reduced to its two
components: its rights to receive periodic interest payments
(IOs) and rights to receive principal repayments (POs).
Each component is then sold separately. Such instruments
include:
a. Municipal Bond Strips
b. Treasury Strips
c. Stripped Mortgage-Backed Securities
Risks: POs do not pay interest, its return is
solely based on payment of principal at maturity.
Both POs and IOs tend to be subject to greater
interim market value fluctuations in response to
changes in interest rates. Stripped
Mortgage-Backed Securities IOs run the risk of
unanticipated prepayment which will decrease the
instrument's overall return.
Total Return Swaps
A total return swap is an exchange of one security for
another. Unlike a hedge swap, a total return swap is solely
entered into as a derivative investment to enhance total
return.
Risks: A total return swap may result in a
Portfolio obtaining an instrument, which for some
reason, does not perform as well as the original
swap instrument.
U.S. Government and Agency Securities and
Government-Sponsored Enterprises/Federal Agencies
U.S. Government and agency securities are 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. The
Portfolios may also invest in other securities may be issued
by a U.S. Government-sponsored enterprise or federal agency,
and supported either by its ability to borrow from the U.S.
Treasury or by its own credit standing. Such securities do
not constitute direct obligations of the United States but
are issued, in general, under the authority of an Act of
Congress. The universe of eligible securities in these
categories include those sponsored by:
a. U.S. Treasury Department
b. Farmer's Home Administration
c. Federal Home Loan Mortgage Corporation
d. Federal National Mortgage Association
e. Student Loan Marketing Association
f. Government National Mortgage Association
Risks: Investing in securities backed by the full
faith and credit of the U.S. Government are
guaranteed only as to interest rate and face value
at maturity, not its current market price.
Warrants
A warrant is a corporate-issued option that entitles the
holder to buy a proportionate amount of common stock at a
specified price. Warrants are freely transferable and can
be traded on the major exchanges
Risks: Warrants retain their value only so long
as the stock retains its value. Typically, when
the value of the stock drops, the value of the
warrant drops.
Zero Coupon Securities
Zero coupon securities are sold at a deep discount from
their face value. Such securities make no periodic interest
payments, however, the buyer receives a rate of return by
the gradual appreciation of the security, until it is
redeemed at face value on a specified maturity date.
Risks: Zero coupon securities do not pay interest
until maturity and tend to be subject to greater
interim market value fluctuations in response to
interest rate changes rather than interest paying
securities of similar maturities.
PORTFOLIO TURNOVER
Costs associated with Portfolio turnover have historically
been and are expected to remain low relative to equity fund
turnover costs. These anticipated Portfolio turnover rates
are believed to be higher than the turnover experienced by
most fixed income funds, due to the Investment Adviser's
active management of duration and could, in turn, lead to
higher turnover costs. High Portfolio turnover may involve
greater brokerage commissions and transactions costs which
will be paid by the Portfolio. In addition, high turnover
rates may result in increased short-term capital gains.
SHAREHOLDER INFORMATION
DISTRIBUTION OF FUND SHARES
Shares of the Fund are distributed by AMT Capital
Securities, L.L.C. pursuant to a Distribution Agreement
dated as of May 29, 1998 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
Portfolio shares, other than Mortgage Total Return, Mortgage
LIBOR and Asset-Backed, may be purchased at the Portfolio's
net asset value next determined after receipt of the order.
Completed account applications must be submitted to AMT
Capital Securities and Investors Capital and federal funds
must be wired to AMT Capital's "Fund Purchase Account" at
Investors Bank & Trust Company (IBT) in Boston,
Massachusetts. IBT serves as the Fund's Transfer Agent.
With the exception of Mortgage Total Return, Mortgage LIBOR
and Asset-Backed Portfolios, the other eight Portfolios
continuously offer shares. Purchases 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, Dr. Martin Luther
King's Birthday, Presidents' Day, Memorial Day, Fourth of
July, Labor Day, Columbus Day, Veterans Day, Thanksgiving,
and Christmas. These eight Portfolios offer shares at a
public offering price equal to the net asset value next
determined after a purchase order becomes effective.
Shares of Mortgage Total Return, Mortgage LIBOR and
Asset-Backed Portfolios may be purchased only on the last
Business Day of each week and each month and on any other
Business Days approved by the Investment Adviser. Purchases
may be made at the net asset value determined on those days.
Mortgage Total Return, Mortgage LIBOR and Asset Backed
Portfolios offer shares at a public offering price equal to
the net asset value. The net asset value is determined on
the last Business Day of each week and each month and on any
other Business Days for which the Investment Adviser
approves a purchase.
There are no loads nor 12b-1 fees imposed by the Fund. The
minimum initial investment in these three Portfolios is also
$100,000; additional purchases or redemptions may be of any
amount. Investors in Enhanced Index must be qualified
purchasers under _____________. Share purchases must be
made by wire transfer of Federal funds. Subject to the
above offering dates, initial share purchase orders are
effective on the date AMT Capital Securities or Investors
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 Securities or Investors 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. Investors
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
All Fund shares (fractional and full) will be redeemed upon
shareholder request. The redemption price will be the net
asset value per share, determined once the Transfer Agent
receives 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: 1)
on such Business day in the case of Money Market and U.S.
Short-Term, or 2) within seven calendar days in the case of
all other Portfolios, but generally on the day following
receipt of such notice. If notice is received on a
non-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.
No charge is imposed by the Fund to redeem shares, 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 the
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:
1. the dollar or share amount to be redeemed;
2. the account to which the redemption proceeds should be
wired (this account will have been previously designated
by the shareholder on its Account Application Form);
3. the name of the shareholder; and
4. 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 a redemption by calling the
Transfer Agent at (800) 247-0473. Telephone redemptions are
made available to shareholders of the Fund on the Account
Application. The Fund or the Transfer Agent may employ
identification verification procedures. Such procedures are
designed to confirm that instructions communicated by
telephone are genuine. The Fund or 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 expenses, the Fund may redeem shares
of any shareholder whose Portfolio account has a net asset
value lower than $100,000. A shareholder's account may be
involuntarily redeemed should the account value fall below
minimum investment requirements. An involuntary redemption
will not occur when drops in investment value are the sole
result of adverse 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 also may redeem shares in a
shareholder's account as reimbursement for loss due to the
failure of a check or wire to clear in payment of shares
purchased.
DETERMINATION OF NET ASSET VALUE
Portfolio net asset value is determined by: (1) adding the
market value of all the Portfolio's assets, (2) subtracting
all of the Portfolio's liabilities, and then (3) dividing by
the number of shares outstanding and adjusting to the
nearest cent.
1. For all Portfolios other than Mortgage Total Return,
Mortgage LIBOR, Asset-Backed and Money Market, net
asset value is calculated by the Fund's Accounting
Agent as of 4:00 p.m. Eastern Time on each Business
Day.
2. Mortgage Total Return's, Mortgage LIBOR's and
Asset-Backed's net asset values are calculated by the
Fund's Accounting Agent as of 4:00 p.m. Eastern time
on the last Business Day of each week and 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.
3. Money Market's net asset value 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 value,
securities are valued using the "amortized cost"
method of valuation, which does not take into
consideration unrealized gains or losses. The
amortized cost method involves valuing an instrument
at its cost, and assumes 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
(the "Rule") under the 1940 Act. As conditions of operating
under the Rule, the Money Market Portfolio must:
1. maintain a dollar-weighted average Portfolio maturity
of 90 days or shorter;
2. generally purchase only instruments having remaining
maturities of 397 days or shorter;
3. invest only in U.S. dollar-denominated securities
which have been determined by the Board of Directors
to present minimal credit risks and which are of
eligible quality as determined under the Rule; and
4. diversify its holdings.
DIVIDENDS
If desired, shareholders must specifically request to
receive dividends in cash (payable on the first business day
of the following month) on the Account Application Form.
Absent such notice, all dividends will be automatically
reinvested in additional shares on the last business last
day of each month at the share's net asset value. In the
event that a Portfolio realizes net short-, mid- or
long-term capital gains, the Fund will distribute such gains
by automatically reinvesting (unless a shareholder has
elected to receive cash) them in additional Portfolio
shares.
Net investment income (including accrued but unpaid
interest, amortization of original issue and market discount
or premium) of each Portfolio, other than Mortgage Total
Return, Mortgage LIBOR and Asset-Backed will be declared as
dividends payable daily to the respective shareholders of
record as of the close of each Business Day. The net
investment income of Mortgage Total Return, Mortgage LIBOR
and Asset-Backed will be declared as dividends payable to
the respective shareholders of record as of the last
Business Day of each month.
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in
Director elections and other shareholder voting matters.
Matters to be acted upon affecting a particular Portfolio
(such as approval of the investment advisory agreement with
the Investment Adviser or the submission of changes of
fundamental Portfolio investment policy) require the
affirmative vote of the Portfolio shareholders. The
election of the Fund's Board of Directors and the approval
of the Fund's independent auditors are voted upon by
shareholders on a Fund-wide basis. 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. The directors
shall call a special meeting of the Fund upon written
request of shareholders owning at least 10% of the Fund's
outstanding shares.
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 currently qualifies and intends to
continue to qualify as a regulated investment company (RIC)
under the Internal Revenue Code of 1986, as amended. To be
a RIC, a Portfolio must meet certain income, distribution
and diversification requirements. In any year in which a
Portfolio qualifies as a RIC while distributing all of its
taxable income, and substantially all of its net tax-exempt
interest income on a timely basis, the Portfolio generally
will not pay U.S. federal income or excise tax. In any year
a Portfolio fails to qualify as a RIC, the Portfolio will be
subject to federal income tax in the same manner as an
ordinary corporation and distributions to shareholders will
be taxable as ordinary income to the extent of the earnings
and profits of the Portfolio. Distributions in excess of
earnings and profits will be treated as a tax-free return of
capital, to the extent of a holder's basis in its shares,
and any excess, as a long or short-term capital gain.
Each Portfolio will distribute all of its taxable income by
automatically reinvesting such income in additional
Portfolio shares and distributing those shares to its
shareholders, unless a shareholder elects on the Account
Application Form to receive cash payments for such
distributions. Shareholders receiving distributions from the
Fund in the form of additional shares will be treated for
federal income tax purposes as receiving a distribution in
an amount equal to the fair market value of the additional
shares on the date of such a distribution.
Dividends a Portfolio pays from its investment company
taxable income (including interest and net short-term
capital gains) will be taxable to U.S. shareholders as
ordinary income, whether received in cash or in additional
Fund shares. Distributions of net capital gains (the excess
of net long-term capital gains over net short-term capital
losses) are generally taxable to shareholders at the
applicable mid-term or long-term capital gains rates,
regardless of how long they have held their Portfolio
shares. Under the Taxpayer Relief Act of 1997, different tax
rates apply to net capital gain depending on the taxpayers
holding period and marginal rate of federal income tax.
Generally, these are 28% for gain recognized on capital
assets held for more than one year but not more than 18
months and 20% (10% for taxpayers in the 15% marginal tax
bracket) for gain recognized on capital assets held for more
than 18 months. Each Portfolio will notify its shareholders
regarding the portions of any net capital gain distribution
taxed at the 28% and 20% tax rates.
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.
The foregoing discussion is only a brief summary of the
important federal tax considerations generally affecting the
Fund and its shareholders. As noted above, IRAs receive
special tax treatment. No attempt is made to present a
detailed explanation of the federal, state or local income
tax treatment of the Fund or its shareholders, and this
discussion is not intended as a substitute for careful tax
planning. Accordingly, potential investors in the Fund
should consult their tax advisers with specific reference to
their own tax situation.
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. Portfolio distributions
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 particular tax consequences of an
investment in a Portfolio.
FUND MANAGEMENT
BOARD OF DIRECTORS
The Fund's Board of Directors is responsible for the Fund's
overall management and supervision. The Fund's Directors
are Stephen P. Casper, John C Head III, Lawrence B. Krause
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. serves as
Investment Adviser to the Fund. The investment Adviser
continuously conducts investment research and is responsible
for the purchase, sale or exchange of the Portfolio's
assets. Organized in 1972, the Investment Adviser is
registered with the Securities and Exchange Commission and
is a New York corporation currently managing over $27
billion in assets for numerous fixed-income Portfolios. The
Adviser currently advises over 100 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 also serves as a
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. The Investment Adviser is directly wholly-owned by
Charter Atlantic Corporation, a New York corporation.
PORTFOLIO MANAGERS
David J. Marmon, Managing Director. Mr. Marmon is
responsible for management of the U.S. corporate
portfolios. He joined FFTW in 1990 from Yamaichi
International (America) where he headed 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 also is
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. mortgage 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.
ADMINISTRATOR
Pursuant to an Administration Agreement dated May 29, 1998,
Investors Capital serves as the Fund's Administrator.
Investors Capital 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 agent, dividend
disbursing, accounting, auditing, compliance and related
services.
The Fund pays Investors Capital an monthly fee at an annual
rate of 0.07% of the Fund's average daily net assets on the
first $350 million, 0.05% thereafter up to $2 billion, 0.04%
thereafter up to $5 billion, and 0.03% on assets over $5
billion. The Fund also reimburses Investors Capital for
certain costs. In addition, the Fund has agreed to pay
Investors Capital an incentive fee for reducing the
Portfolio expense ratio of one or more of the Fund's
Portfolios below the specified expense ratio. The maximum
incentive fee is 0.02% of the average daily net assets of a
Portfolio.
POTENTIAL YEAR 2000 PROBLEM
Like other mutual funds,
financial and business organizations and
individuals around the world, the Fund could be
adversely affected if the computer systems used
by the advisor/administrator and other service
providers do not properly process and calculate
date-related information and data from and after
January 1, 2000. This is commonly known as the
"Year 2000 Problem." The advisor/administrator
are taking steps that they believe are reasonably
designed to address the Year 2000 Problem with
respect to computer systems that they use and to
obtain reasonable assurances that comparable
steps are being taken by the Fund's other major
service providers. At this time, however, there
can be no assurance that these steps will be
sufficient to avoid any adverse impact to the
Fund nor can there be any assurance that the Year
2000 Problem will not have an adverse effect on
the companies whose securities are held by the
Fund or on global markets or economies,
generally.
CONTROL PERSON
As of August 31, 1998, Fischer Francis Trees & Watts, Inc.
had discretionary investment advisory agreements with
shareholders of the Fund, representing % of the Fund's
total net assets and therefore, may be deemed a control
person.
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.
SHAREHOLDER INQUIRIES
Fund inquiries may be made by writing to Investors Capital
Services, Inc., 600 Fifth Avenue, 26th Floor, New York, New
York 10020 or by calling Investors Capital at (800)
762-4848 [or (212) 332-5211, if within New York City].
FFTW FUNDS, INC.
200 Park Avenue, 46th Floor, New York, New York 10166 (212) 681-3000
Distributed by:
AMT Capital Securities, L.L.C.
600 Fifth Avenue
New York, NY 10020
(212) 332-5211
GLOBAL AND INTERNATIONAL PORTFOLIOS
September __, 1998
FFTW Funds, Inc. is a no-load, open-end management
investment company managed by Fischer Francis Trees & Watts,
Inc. The Fund currently consists of twenty-one separate
Portfolios. This Prospectus pertains to the ten Portfolios
labeled the "Global and International Portfolios." Each
Portfolio is actively managed, and other than Emerging
Markets and Global High Yield Portfolios, primarily invests
in high-quality debt securities. The minimum initial
investment in any Portfolio is $100,000; subsequent
investments or redemptions may be of any amount. There is
no sales charge for purchasing shares.
The ten Portfolios comprising the Global and International
Portfolios are:
<TABLE>
<S> <C> <C>
Worldwide Global Tactical Exposure Global High Yield
Worldwide-Hedged International Opportunities Inflation-Indexed
International International Corporate Inflation-Indexed Hedged
Emerging Markets
</TABLE>
No assurance can be given that a Portfolio's investment
objectives will be attained.
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 September __, 1998 has been filed with the Securities
and Exchange Commission and can be obtained without charge
by calling or writing AMT Capital Securities, LLC 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>
<S> <C>
CONTENTS
Page
The Fund 2
Summary of Investment Objectives and Descriptions 2
General Risks Associated with the Fund's Investment Policies and Investment
Techniques 3
Shareholder Transaction Expenses for Each Portfolio 3
Portfolio Profiles and Financial Highlights 4
Worldwide Portfolio 5
Worldwide-Hedged Portfolio 7
International Portfolio 9
Global Tactical Exposure Portfolio 11
International Opportunities Portfolio 13
International Corporate Portfolio 15
Emerging Markets Portfolio 17
Global High Yield Portfolio 19
Inflation-Indexed Portfolio 21
Inflation-Indexed Hedged Portfolio 23
Investment Information 25
General Investment Techniques/Strategies and Associated Risks 25
General Description of Investments and Associated Risks 28
Portfolio Turnover 33
Shareholder Information 34
Distribution of Fund Shares 34
Purchases 34
Redemptions 34
Determination of Net Asset Value 35
Dividends 35
Voting Rights 35
Tax Considerations 36
Fund Management 37
Board of Directors 37
Investment Adviser 37
Investment Sub-Adviser 37
Portfolio Managers 37
Administrator 37
Control Person 38
Custodian and Accounting Agent 38
Transfer and Dividend Disbursing Agent 38
Legal Counsel 38
Independent Auditors 38
Shareholder Inquiries 38
Page
</TABLE>
THE FUND
FFTW Funds, Inc. is a no-load, open-end management
investment company organized as a Maryland corporation and
registered under the Investment Company Act of 1940. The
Fund has been in operation since December 6, 1989 and is
designed to provide the professional investment services of
the Fund's adviser, Fischer Francis Trees & Watts, Inc. to
pension plans, profit sharing plans, employee benefit
trusts, endowments, foundations and other high net worth
individuals. The Fund is comprised of twenty-one separate
Portfolios, each having its own investment objectives. This
prospectus contains information regarding the Fund's ten
Global and International Portfolios.
SUMMARY OF INVESTMENT OBJECTIVES AND DESCRIPTIONS
<TABLE>
<S> <C> <C>
Portfolio Name Fundamental Investment Objective Portfolio Description
- ------------------------- ----------------------------------------------------- -------------------------------------------------
Worldwide Seeks to attain a high level of total return as may High-quality fixed-income securities with
be consistent with the preservation of capital tactical active management of currencies
against a strategic unhedged position
- ------------------------- ----------------------------------------------------- -------------------------------------------------
- ------------------------- ----------------------------------------------------- -------------------------------------------------
Worldwide-Hedged Seeks to attain a high level of total return as may Global fixed income securities with tactical
be consistent with the preservation of capital and active management of currencies against a
to actively utilize currency hedging techniques strategic hedged position
- ------------------------- ----------------------------------------------------- -------------------------------------------------
- ------------------------- ----------------------------------------------------- -------------------------------------------------
International Seeks to attain a high level of total return as may Non-US fixed-income securities with tactical
be consistent with the preservation of capital active management of currencies against a
strategic unhedged position.
- ------------------------- ----------------------------------------------------- -------------------------------------------------
- ------------------------- ----------------------------------------------------- -------------------------------------------------
Global Tactical Seeks to attain a high level of total return as may Global fixed-income securities with tactical
Exposure be consistent with the preservation of capital and exposures to global fixed income and currency
to actively utilize currency one hedging techniques markets
- ------------------------- ----------------------------------------------------- -------------------------------------------------
- ------------------------- ----------------------------------------------------- -------------------------------------------------
International Seeks to attain a high level of total return as may Global fixed-income securities with active
Opportunities be consistent with the preservation of capital management of the portfolio's strategic hedge
ratio
- ------------------------- ----------------------------------------------------- -------------------------------------------------
- ------------------------- ----------------------------------------------------- -------------------------------------------------
International Corporate Seeks to attain a high level of total return as may Primarily non-U.S. corporate obligations in the
be consistent with the preservation of capital investment grade sector
- ------------------------- ----------------------------------------------------- -------------------------------------------------
- ------------------------- ----------------------------------------------------- -------------------------------------------------
Emerging Markets Seeks to attain a high level of total return as may Diversified portfolio of emerging market local
be consistent with the preservation of capital currency and hard currency debt securities
- ------------------------- ----------------------------------------------------- -------------------------------------------------
- ------------------------- ----------------------------------------------------- -------------------------------------------------
Global High Yield Seeks to attain a high level of total return as may High yielding non-securities in global
be consistent with the preservation of capital markets
- ------------------------- ----------------------------------------------------- -------------------------------------------------
- ------------------------- ----------------------------------------------------- -------------------------------------------------
Inflation-Indexed Seeks to attain a high level of return in excess of Inflation indexed securities issued worldwide
inflation as may be consistent with the with tactical currency management against a
preservation of capital strategic unhedged position
- ------------------------- ----------------------------------------------------- -------------------------------------------------
- ------------------------- ----------------------------------------------------- -------------------------------------------------
Inflation-Indexed Hedged Seeks to attain a high level of return in excess of Inflation index securities issued worldwide
inflation as may be consistent with the with tactical currency management against a
preservation of capital and to actively utilize strategic hedged position
currency hedging techniques
- ------------------------- ----------------------------------------------------- -------------------------------------------------
</TABLE>
GENERAL RISKS ASSOCIATED WITH THE FUND'S INVESTMENT POLICIES
AND INVESTMENT TECHNIQUES
<TABLE>
<S> <C>
Banking industry Investing in bank obligations can expose a Portfolio to risks associated with the banking industry.
risk:
Correlation risk: A Portfolio may experience changes in value between the securities held and the value of a
particular derivative instrument
Credit risk: The risk that a security's issuer or the counterparty to a contract will default or otherwise
become unable to honor a financial obligation.
Currency risk: Fluctuations in exchange rates between the U.S. dollar and foreign currencies may negatively affect
an investment.
Hedging risk: Hedging is commonly used as a buffer against a perceived investment risk. While it can reduce or
eliminate losses, it can also reduce or eliminate gains should the hedged investment increase in
value.
Interest rate risk: Portfolio may be influenced by interest rate changes, which generally have an inverse relationship
to corresponding market values.
Leverage risk: Derivatives may include elements of leverage which can cause greater fluctuations in a Portfolio's
net asset value.
Liquidity risk: Certain securities may be difficult or impossible to sell at the time and the price that the seller
would like.
Market risk: The market value of a security may increase or decrease over time. Such fluctuations can cause a
security to be worth less than the price originally paid for it or less than it was worth at an
earlier time. Market risk may affect a single issuer, entire industry or the market as a whole.
Non-diversification A portfolio is diversified when it spreads investment risk by placing assets in several investment
risk: categories. A non-diversified portfolio concentrates its assets in a less diverse spectrum of
securities. Non-diversification can intensify risk should a particular investment category suffer
from adverse market conditions
Prepayment risk: Portfolio may invest in mortgage-backed and other asset-backed securities. Such securities carry
risks of faster or slower than expected prepayment of principal which affects the duration and return
of the security.
</TABLE>
SHAREHOLDER TRANSACTION EXPENSES FOR EACH PORTFOLIO
The following illustrates shareholder transaction expenses
that a shareholder in each Portfolio can expect to incur.
Annual Fund Operating Expenses and Hypothetical Expenses per
$1,000 Investment for each Portfolio can be found in that
Portfolio's Profile.
No Sales Load Imposed on Purchases
No Sales Load Imposed on Reinvested Dividends
No Deferred Sales Load
No Redemption Fees
No Exchange Fees
PORTFOLIO PROFILES AND FINANCIAL HIGHLIGHTS
The following section presents a Profile of the most
important information on each of the Portfolios. Please
review the remainder of the Prospectus and the Statement of
Additional Information for more information.
The Financial Highlight information in the Portfolio
Profiles has been audited by Ernst & Young, LLP in
conjunction with the Fund's financial statements. The
audited financial statements for the year ended December 31,
1997 are incorporated by reference in the Statement of
Additional Information. The financial information should be
read in conjunction with the financial statements.
<TABLE>
<S> <C>
KEY TO TERMS IN PORTFOLIO PROFILES
1. Fundamental Investment Objective - Presents the 7. Allowable Investments - In general terms, presents
Portfolio's fundamental purpose. A Portfolio's the investments in which the Portfolio will engage.
fundamental investment objective cannot be altered
without a shareholder vote. 8. Minimum Quality Rating - Presents the minimum quality
investment standards for individual investments as well
2. Portfolio Description - Presents the Portfolio's as the Portfolio's average quality.
primary investment vehicles and strategies.
9. Average Weighted Duration - Describes the U.S.
3. Performance Objective - Presents the Portfolio's dollar-weighted average Portfolio duration.
benchmark, a measurement standard of investment
success. 10. Supplemental Information - Some Portfolios possess
unique characteristics such as tax implications-this
4. Investment Policies and Significant Restrictions - section highlights such characteristics.
Presents the Portfolio's primary investment policies
and investment restrictions. 11. Hypothetical Shareholder Expenses - The purpose of
this table is to assist the investor in understanding
5. Risks - In general terms, presents the most common the various expenses that an investor in a Portfolio
risks the Portfolio may encounter based on the types will bear, directly or indirectly. These examples
of investments it may engage. should not be considered a representation of future
expenses or performance. Actual operating expenses may
6. Allowable Investment Techniques - In general terms, be greater or lesser than those shown.
presents the most common investment strategies, which
the Portfolio may employ. 12. Financial Highlights - This table presents a breakdown
of each Portfolio's financial information.
</TABLE>
WORLDWIDE PORTFOLIO
<TABLE>
<S> <C>
- ---------------- ----------------------------------------------------------------------------------------------------------
Fundamental To attain a high level of total return, as may be consistent with the preservation of capital
Investment
Objective:
- ---------------- ----------------------------------------------------------------------------------------------------------
Portfolio Primarily invests in high-quality debt securities from worldwide bond markets, denominated in both U.S.
Description: Dollars and foreign currencies
- ---------------- ----------------------------------------------------------------------------------------------------------
- ---------------- ----------------------------------------------------------------------------------------------------------
Performance To outperform the JP Morgan Global Government Bond Index (Unhedged)
Objective:
- ---------------- ----------------------------------------------------------------------------------------------------------
- ---------------- ----------------------------------------------------------------------------------------------------------
Investment At least 65% of the Portfolio's total assets must be invested in high-quality debt securities from
Policies and worldwide bond markets, denominated in both U.S. Dollars and foreign currencies
Significant Portfolio may not invest more than 5% of its net assets in futures margins and/or premiums on
Restrictions: options unless it is being used for bona fide hedging purposes
For defensive purposes, the Portfolio may invest up to 100% of its total assets in short-term U.S.
Government securities and money market instruments
Portfolio will maintain investments in debt securities of issuers from at least three different
countries including the U.S.
At least 35% of the Portfolio's total assets will be invested in debt securities from
jurisdictions outside the U.S.
Portfolio may not enter into a repurchase or reverse repurchase agreement if, as a result thereof,
more than 25% of the Portfolio's total assets would be subject to the agreement
Portfolio is non-diversified
Portfolio may not engage in short sale transactions
</TABLE>
<TABLE>
<S> <C> <C> <C>
- ---------------- ----------------------------------------------------------------------------------------------------------
Risks: Correlation risk Hedging risk Market risk
Credit risk Interest rate risk Non-diversification risk
Currency risk Liquidity risk Prepayment risk
- ---------------- -------------------------------- ----------------------------------- -------------------------------------
Allowable Dollar Roll Transactions Hedging When Issued and Forward
Investment Duration Management TBA Transactions Commitment Securities
Strategies:
- ---------------- -------------------------------- ----------------------------------- -------------------------------------
Allowable Asset-Backed Securities Indexed Notes, Currency Municipal Instruments
Investments: Bank Obligations Exchange-Related Securities Repurchase and Reverse
Brady Bonds and Similar Securities Repurchase Agreements
Corporate Debt Inflation-Indexed Securities Stripped Instruments
Instruments Mortgage-Backed Securities U.S. Government and Agency
Foreign Instruments Multi-National Currency Securities
Illiquid Securities Unit Securities or More Than Warrants
One Denomination Zero Coupon Securities
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ---------------- ------------ ------------- ------------------ --------------- ------------------- ------------------------
Minimum S&P Moody's Thompson Average Portfolio
Quality Rating: S&P Moody's (Short Term) (Short-Term) Bankwatch Quality
BBB Baa A-2 P-2 B AA (Aa)
- ---------------- ------------ ------------- ------------------ --------------- ------------------- ------------------------
Average The Portfolio's average U.S. dollar-weighted duration generally will not exceed one year, plus or minus
Weighted the average duration of the JP Morgan Global Government Bond Index (Unhedged)
Duration:
- ---------------- ----------------------------------------------------------------------------------------------------------
</TABLE>
========================== ====================================================
Hypothetical Hypothetical Expenses Per $1,000 Investment, Assuming A 5%
Expenses: Annual Return
1 Year 3 Years 5 Years 10 Years
$ 6 $ 19 $ 33 $ 75
=========================== ====================== ===========================
==============================================================================
WORLDWIDE PORTFOLIO OPERATING EXPENSES
............................................................................
Advisory fees 0.40%
............................................................................
12b-1 fees (1) ---
............................................................................
Administration fees (2) 0.05%
............................................................................
Other expenses 0.15%
- ----------------------------------------------------------------------------
Interest expense (4) ---
- ----------------------------------------------------------------------------
Total fund operating expenses (3) 0.60%
- ----------------------------------------------------------------------------
(1) Under a Distribution Agreement effective May 29, 1998
between the Fund and AMT Capital Securities, LLC, AMT
Capital Securities provides distribution services at no
cost to the Fund.
(2) Under an Administration Agreement effective May 29,
1998 between the Fund and Investors Capital Services,
Investors Capital provides administrative services to
the Fund, for an incentive fee, capped at 0.02% of the
Portfolio's average daily net assets, for reducing the
expense ratio for one or more Portfolios. The incentive
fee is not included in the figures above.
(3) Under the Investment Advisory Agreement, total
operating expenses (exclusive of interest expense) are
capped at 0.60% (on an annualized basis) of the
Portfolio's average daily net assets. All operating
expenses exceeding the cap will be paid by the
Investment Adviser. The Investment Adviser will not
attempt to recover prior period reimbursements should
expenses fall below the cap.
(4) The Portfolio may engage in reverse repurchase
agreements, and may incur an interest expense. Such
expense equals the coupon rate of interest the dealer
earns while the securities are in its possession.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
WORLDWIDE PORTFOLIO FINANCIAL HIGHLIGHTS
(in u.s. dollars unless otherwise indicated)
- ----------------------------------------------------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD Year Year Year Year Year 4/15/92*
Ended Ended Ended Ended Ended - 12/31/92
12/31/97 12/31/97 12/31/95 12/31/94 12/31/93
- ------------------------------------------------------------- ---------- --------- -------- --------- ---------- -----------
Net asset value at beginning of period 9.64 9.83 9.27 10.02 9.98 10.00
- ------------------------------------------------------------- ---------- --------- -------- --------- ---------- -----------
Net investment income 0.49 0.53 0.58 0.50 0.45 0.39
............................................................. .......... ......... ........ ......... .......... ...........
Net realized and unrealized gains or (losses) on (0.22) 0.01 0.56 (0.74) 1.04 0.53
investments, financial futures and options contracts and
foreign currency-related transactions
- ------------------------------------------------------------- ---------- --------- -------- --------- ---------- -----------
Total investment income 0.27 0.54 1.14 (0.24) 1.49 0.92
- ------------------------------------------------------------- ---------- --------- -------- --------- ---------- -----------
Distributions from net investment income 0.19 0.53 0.30 0.20 0.45 0.39
............................................................. .......... ......... ........ ......... .......... ...........
Distributions in excess of net investment income 0.11 --- --- 0.01 - -
............................................................. .......... ......... ........ ......... .......... ...........
Distributions from net realized gain on investments, --- 0.09 --- --- 0.87 0.55
financial futures, and options contracts and foreign
currency-related transactions
............................................................. .......... ......... ........ ......... .......... ...........
Distributions in excess of net realized gain on --- --- --- --- 0.13 0.00**
investments, financial futures and options contracts, and
foreign currency related transactions
............................................................. .......... ......... ........ ......... .......... ...........
Distributions from capital stock in excess of par value 0.19 0.11 0.28 0.30 --- ---
............................................................. ---------- --------- -------- --------- ---------- -----------
Total distributions 0.49 0.73 0.58 0.51 1.45 0.94
- ------------------------------------------------------------- ---------- --------- -------- --------- ---------- -----------
Total return on investment 2.93% 5.77% 12.60% (2.25%) 15.86% 13.46% (b)
- ------------------------------------------------------------- ---------- --------- -------- --------- ---------- -----------
Net asset value at end of period 9.42 9.64 9.83 9.27 10.02 9.98
............................................................. .......... ......... ........ ......... .......... ...........
Net assets at end of period in 000's 82,236 74,939 86,186 53,721 217,163 82,757
............................................................. .......... ......... ........ ......... .......... ...........
Ratio of operating expenses to average net income - 0.60% 0.60% 0.60% 0.60% 0.59% 0.60% (b)
exclusive of interest expense (a)
............................................................. .......... ......... ........ ......... .......... ...........
Ratio of operating expenses to average net income - 0.60% 0.60% 0.60% 0.63% 0.86% 0.79% (b)
inclusive of interest expense (a)
............................................................. .......... ......... ........ ......... .......... ...........
Ratio of net income to average net assets (a) 5.21% 5.52% 6.13% 5.11% 4.48% 5.39% (b)
............................................................. .......... ......... ........ ......... .......... ...........
Decrease in above expense ratios due to waiver of 0.02% 0.05% 0.30% 0.02% --- 0.72% (b)
investment advisory fees and reimbursement of other
expenses
............................................................. .......... ......... ........ ......... .......... ...........
Portfolio turnover rate 713% 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
<TABLE>
<S> <C>
WORLDWIDE-HEDGED PORTFOLIO
- ----------------- ---------------------------------------------------------------------------------------------------------
Fundamental To attain a high level of total return, as may be consistent with the preservation of capital
Investment
Objective:
- ----------------- ----------------------------------------------------------------------------------------------------------
Portfolio Primarily invests in high-quality debt securities from worldwide bond markets, denominated in both U.S.
Description: Dollars and foreign securities and actively utilizes currency hedging techniques
- ----------------- ----------------------------------------------------------------------------------------------------------
- ----------------- ----------------------------------------------------------------------------------------------------------
Performance To outperform the JP Morgan Global Government Bond Index (Hedged)
Objective:
- ----------------- ----------------------------------------------------------------------------------------------------------
- ----------------- ----------------------------------------------------------------------------------------------------------
Investment At least 65% of the Portfolio's total assets must be invested in high-quality debt securities from
Policies and worldwide bond markets, denominated in both U.S. Dollars and foreign currencies
Significant Portfolio may not invest more than 5% of its net assets in futures margins and/or premiums on
Restrictions: options unless it is being used for bona fide hedging purposes
For defensive purposes, the Portfolio may invest up to 100% of its total assets in short-term U.S.
Government securities and money market instruments
Portfolio will maintain investments in debt securities of issuers from at least three different
countries including the U.S.
At least 35% of the Portfolio's total assets must be invested in debt securities from
jurisdictions outside the U.S.
As a fundamental policy, the Portfolio will actively utilize currency hedging techniques in an
attempt to hedge at least 65% of its foreign currency risks to the extent feasible
Portfolio may not enter into repurchase or reverse repurchase agreements if, as a result thereof,
more than 25% of the Portfolio's total assets would be subject to the agreements
Portfolio is non-diversified
Portfolio may not engage in short sale transactions
</TABLE>
<TABLE>
<S> <C> <C> <C>
- ----------------- ----------------------------------------------------------------------------------------------------------
Risks: Correlation risk Hedging risk Market risk
Credit risk Interest rate risk Non-diversification risk
Currency risk Liquidity risk Prepayment risk
- ----------------- -------------------------------- ------------------------------------ ------------------------------------
Allowable Dollar Roll Transactions Hedging When Issued and Forward
Investment Duration Management TBA Transactions Commitment Securities
Strategies:
- ----------------- -------------------------------- ------------------------------------ ------------------------------------
Allowable Asset-Backed Securities Indexed Notes, Currency Municipal Instruments
Investments: Bank Obligations Exchange-Related Securities Repurchase and Reverse
Brady Bonds and Similar Securities Repurchase Agreements
Corporate Debt Inflation-Indexed Securities Stripped Instruments
Instruments Mortgage-Backed Securities U.S. Government and Agency
Foreign Instruments Multi-National Currency Unit Securities
Illiquid Securities Securities or More Than One Warrants
Denomination Zero Coupon Securities
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ----------------- ----------- ------------- ------------------ ------------------- ---------------- ------------------------
Minimum Quality S&P Moody's Thompson Average Portfolio
Rating: S&P Moody's (Short Term) (Short-Term) Bankwatch Quality
BBB Baa A-2 P-2 B AA (Aa)
- ----------------- ----------- ------------- ------------------ ------------------- ---------------- ------------------------
Average The Portfolio's average U.S. dollar-weighted duration generally will not exceed one year, plus or minus
Weighted the average duration of the JP Morgan Global Government Bond Index (Hedged).
Duration:
- ----------------- ----------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------------------- -------------------------------------------------
Hypothetical Hypothetical Expenses Per $1,000 Investment, Assuming A 5%
Expenses: Annual Return 1 Year 3 Years 5 Years 10 Years
$ 5 $ 14 $ 25 $ 57
- ----------------------------- -------------------- --------------------- ------
- --------------------------------------------------------------------------------
WORLDWIDE-HEDGED PORTFOLIO'S OPERATING EXPENSES
(after expense reimbursements, shown as a percentage of net average net assets)
..............................................................................
Advisory fees, after waivers * (3) 0.25%
..............................................................................
12b-1 fees (1) ---
..............................................................................
Administration fees (2) 0.05%
..............................................................................
Other Expenses 0.15%
- ------------------------------------------------------------------------------
Interest expense (4) ---
==============================================================================
Total fund operating expenses, after waivers and reimbursements ** (3) 0.45%
==============================================================================
*Advisory fee before waivers 0.40%
..............................................................................
**Total fund operating expenses , excluding interest, before waivers and
reimbursements 0.60%
..............................................................................
(1) Under a Distribution Agreement effective May 29, 1998,
between the Fund and AMT Capital Securities, LLC, AMT
Capital Securities provides distribution services at no
cost to the Fund.
(2) Under an Administration Agreement effective May 29,
1998 between the Fund and Investors Capital, Investors
Capital provides administrative services to the Fund,
for an incentive fee, capped at 0.02% of the Portfolio's
average daily net assets, for reducing the expense ratio
for one or more Portfolios. The incentive fee is not
included in the figures above.
(3) Under the Investment Advisory Agreement, total
operating expenses (exclusive of interest expense) are
capped at 0.60% (on an annualized basis) of the
Portfolio's average daily net assets. All operating
expenses exceeding 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 should
the expenses fall below the cap.
(4) The Portfolio may engage in reverse repurchase
agreements, and may incur an interest expense. Such
expense equals the coupon rate of interest that the
dealer earns while the securities are in its possession.
============================================================================
WORLDWIDE HEDGED PORTFOLIO'S FINANCIAL HIGHLIGHTS
(in u.s. dollars unless otherwise indicated)
- ------------------------------------------- ---------- -------- ------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
FOR A SHARE OUTSTANDING THROUOUT THE PERIOD Year Year Year Year Year 5/1/92* -
Ended Ended Ended Ended Ended 12/31/92
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- -------- ------------
Net asset value at beginning of period 10.91 10.85 10.41 10.08 9.85 10.00
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- -------- ------------
Net investment income 0.53 0.62 0.45 0.34 0.45 0.32
............................................................ .......... .......... .......... .......... ........ ............
Net realized gains or (losses) on investments, financial 0.80 0.43 0.66 0.43 0.76 0.25
futures and options contracts, and foreign
currency-related transactions
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- -------- ------------
Total investment income 1.33 1.05 1.11 0.77 1.21 0.57
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- -------- ------------
Distributions from net investment income 0.59 0.62 0.67 0.44 0.45 0.32
............................................................ .......... .......... .......... .......... ........ ............
Distributions in excess of net investment income --- 0.37 --- 0.00** --- ---
............................................................ .......... .......... .......... .......... ........ ............
Distributions from net realized gain on investments, 0.42 --- --- --- 0.53 0.40
financial futures and options contracts and on foreign
currency-related transactions
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- -------- ------------
Total distributions 1.01 0.99 0.67 0.44 0.98 0.72
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- -------- ------------
Total return on investment 12.60% 10.03% 11.00% 7.84% 12.89% 9.45% (b)
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- -------- ------------
Net asset value at end of period 11.23 10.91 10.85 10.41 10.08 9.85
............................................................ ---------- ---------- ---------- ---------- -------- ------------
Net assets at end of period in 000's 80,390 30,024 28,255 273,725 41,138 21,785
............................................................ .......... .......... .......... .......... ........ ............
Ratio of operating expenses to average net assets - 0.45% 0.45% 0.45% 0.60% 0.60% 0.60% (b)
exclusive of interest expense (a)
............................................................ .......... .......... .......... .......... ........ ............
Ratio of operating expenses to average net assets - 0.45% 0.45% 0.45% 0.65% 0.86% 0.83% (b)
inclusive of interest expense (a)
............................................................ .......... .......... .......... .......... ........ ............
Ratio of net income to average net assets (a) 5.29% 5.71% 5.84% 4.72% 4.49% 5.13% (b)
............................................................ .......... .......... .......... .......... ........ ............
Decrease in above expense ratios due to waiver of 0.20% 0.24% 0.54% 0.17% 0.09% 1.01% (b)
investment advisory fees and reimbursement of other
expenses
............................................................ ---------- ---------- ---------- ---------- -------- ------------
Portfolio turnover rate 704% 1,087% 500% 1,622% 1,254% 826%
............................................................ ---------- ---------- ---------- ---------- -------- ------------
(a) Net of waivers and reimbursements
(b) Annualized
* Commencement of operations
** Rounds to less than $0.01
</TABLE>
<TABLE>
<S> <C>
INTERNATIONAL PORTFOLIO
- ----------------- ----------------------------------------------------------------------------------------------------------
Fundamental To attain a high level of return of total return, as may be consistent with the preservation of capital
Investment
Objective:
- ----------------- ----------------------------------------------------------------------------------------------------------
Portfolio Primarily invests in high-quality debt securities from worldwide bond markets, excluding the U.S.
Description: denominated in foreign currencies
- ----------------- ----------------------------------------------------------------------------------------------------------
- ----------------- ----------------------------------------------------------------------------------------------------------
Performance To outperform the JP Morgan Global Government Bond Index (Non-U.S. Unhedged)
Objective:
- ----------------- ----------------------------------------------------------------------------------------------------------
- ----------------- ----------------------------------------------------------------------------------------------------------
Investment At least 65% of the Portfolio's total assets must be invested in high-quality fixed-income
Policies and securities from worldwide bond markets, denominated in foreign currencies
Significant Portfolio may not invest more than 5% of its net assets in futures margins and/or premiums on
Restrictions: options unless it is being used for bona fide hedging purposes
For defensive purposes, the Portfolio may invest up to 100% of its total assets in short-term U.S.
Government securities and money market instruments
Portfolio will maintain investments in debt securities of issuers from at least three different
countries
At least 65% of the Portfolio's total assets will be invested in debt securities from
jurisdictions outside the U.S.
Portfolio is non-diversified
Portfolio may not engage in short sale transactions
</TABLE>
<TABLE>
<S> <C> <C> <C>
- ----------------- ----------------------------------------------------------------------------------------------------------
Risks: Correlation risk Hedging risk Market risk
Credit risk Interest rate risk Non-diversification risk
Currency risk Liquidity risk Prepayment risk
- ----------------- --------------------------------- ------------------------------------ -----------------------------------
Allowable Dollar Roll Transactions Hedging When Issued and Forward
Investment Duration Management TBA Transactions Commitment Securities
Strategies:
- ----------------- --------------------------------- ------------------------------------ -----------------------------------
Allowable Asset-Backed Securities Indexed Notes, Currency Municipal Instruments
Investments: Bank Obligations Exchange-Related Securities Repurchase and Reverse
Brady Bonds and Similar Securities Repurchase Agreements
Corporate Debt Instruments Inflation-Indexed Securities Stripped Instruments
Foreign Instruments Mortgage-Backed Securities U.S. Government and Agency
Illiquid Securities Multi-National Currency Unit Securities
Securities or More Than One Warrants
Denomination Zero Coupon Securities
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ----------------- --------------------------------- ------------------------------------ -----------------------------------
Minimum Quality S&P Moody's Thompson Average Portfolio
Rating: S&P Moody's (Short Term) (Short-Term) Bankwatch Quality
BBB Baa A-2 P-2 B AA (Aa)
- ----------------- ----------- ------------ ------------------- -------------------- ----------------- ----------------------
Average The Portfolio's average U.S. dollar-weighted duration generally will not exceed one year, plus or minus
Weighted the average duration of the JP Morgan Global Government Bond Index (Non-U.S. Unhedged)
Duration:
- ----------------- ----------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------- --------------------------------------------------
Hypothetical Hypothetical Expenses Per $1,000 Investment, Assuming A
Expenses: 5% Annual Return
1 Year 3 Years 5 Years 10 Years
$ 6 $ 19 $ 33 $ 75
- -------------------------- ----------------------- ----------------------------
- -------------------------------------------------------------------------------
INTERNATIONAL PORTFOLIO OPERATING EXPENSES
(after expense reimbursements, shown as a percentage of net average net assets)
...............................................................................
Advisory fees * 0.40%
...............................................................................
12b-1 fees (1) ---
...............................................................................
Administration fees (2) 0.05%
- -------------------------------------------------------------------------------
Other expenses 0.15%
- -------------------------------------------------------------------------------
Interest expense (4) ---
===============================================================================
Total fund operating expenses, after waivers and reimbursements (3) 0.60%
===============================================================================
*Advisory fee before waivers N/A
...............................................................................
**Total fund operating expenses , excluding interest, before waivers and
reimbursements...........................................................0.70%
(1) Under a Distribution Agreement effective May 29, 1998
between the Fund and AMT Capital Securities, LLC, AMT
Capital Securities provides distribution services at
no cost to the Fund.
(2) Under an Administration Agreement effective May 29,
1998, between the Fund and Investors Capital,
Investors Capital provides administrative services to
the Fund for an incentive fee, capped at 0.02% of the
Portfolio's average daily net assets, for reducing the
expense ratio for one or more Portfolios. The
incentive fee is not included in the figures above.
(3) The Investment Adviser has voluntarily agreed to cap
the total operating expenses (exclusive of interest
expense) at 0.60% (on an annualized basis) of the
Portfolio's average daily net assets. The Investment
Adviser will not attempt to recover prior period
reimbursements should expenses fall below the cap.
(4) The Portfolio may engage in reverse repurchase
agreements, and may incur an interest expense. Such
expense equals the coupon rate of interest the dealer
earns while the securities are in its possession.
- -------------------------------------------------------------------------------
INTERNATIONAL PORTFOLIO FINANCIAL HIGHLIGHTS
(in u.s. dollars unless otherwise indicated)
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------
FOR A SHARE EXCEPT WHERE OTHERWISE INDICATED Year Ended 5/9/96* -
12/31/97 12/31/96
- ------------------------------------------------------------------------------------------------ ------------ --------------
Net asset value at beginning of period 10.20 10.00
- ------------------------------------------------------------------------------------------------ ------------ --------------
Net investment income 0.50 0.38
................................................................................................ ............ ..............
Net realized gains or (losses) on investments, financial futures contracts, and foreign (0.56) 0.28
currency-related transactions
- ------------------------------------------------------------------------------------------------ ------------ --------------
Total investment income (0.06) 0.66
- ------------------------------------------------------------------------------------------------ ------------ --------------
Distributions from net investment income 0.14 0.38
................................................................................................ ............ ..............
Distributions from net realized gain on investments, financial futures contracts, and foreign 0.14 0.08
currency related transactions
................................................................................................ ............ ..............
Distributions from capital stock in excess of par value 0.36 ---
- ------------------------------------------------------------------------------------------------ ------------ --------------
Total distributions 0.64 0.46
- ------------------------------------------------------------------------------------------------ ------------ --------------
Total return on investment (0.43%) 6.66% (c)
................................................................................................ ............ ..............
Net asset value at end of period 9.50 10.20
................................................................................................ ............ ..............
Net assets at end of period in 000's 67,653 35,746
................................................................................................ ............ ..............
Ratio of operating expenses to average net assets (a) 0.60% 0.60% (b)
................................................................................................ ------------ --------------
Ratio of net investment income to average net assets (a) 5.19% 5.73% (b)
................................................................................................ ............ ..............
Decrease in above expense ratios due to waiver of investment advisory fees 0.10% 0.32% (b)
................................................................................................ ............ ..............
Portfolio turnover rate 809% 539%
================================================================================================ ------------ --------------
</TABLE>
(a) Net of waivers and reimbursements
(b) Annualized
(c) Not annualized
* Commencement of operations
<TABLE>
<S> <C>
GLOBAL TACTICAL EXPOSURE PORTFOLIO
- ----------------- --------------------------------------------------------------------------------------------------
Fundamental To attain a high level of total return, as may be consistent with the preservation of capital
Investment
Objective:
- ----------------- ---------------------------------------------------------------------------------------------------------
Portfolio Global fixed-income securities with tactical exposures to global fixed income and currency markets
Description:
- ----------------- ---------------------------------------------------------------------------------------------------------
Performance To outperform the JP Morgan 3-Month Eurodeposit Index
Objective:
- ----------------- ---------------------------------------------------------------------------------------------------------
Investment At least 65% of the Portfolio's total assets must be invested in high-quality debt securities
Policies and from worldwide bond markets, denominated in both U.S. Dollars and foreign currencies
Significant Portfolio may not invest more than 5% of its net assets in futures margins and/or premiums on
Restrictions: options unless it is being used for bona fide hedging purposes
For defensive purposes, the Portfolio may invest up to 100% of its total assets in short-term
U.S. Government securities and money market instruments
Portfolio will maintain investments in debt securities of issuers from at least three different
countries including the U.S.
At least 35% of the Portfolio's total assets will be invested in debt securities from
jurisdictions outside the U.S.
Portfolio will actively utilize currency hedging techniques in an attempt to hedge at least 65%
of its foreign currency risks to the extent feasible.
Portfolio is non-diversified
</TABLE>
<TABLE>
<S> <C> <C> <C>
- ----------------- ---------------------------------- ------------------------------------ ---------------------------------
Risks: Correlation risk Hedging risk Market risk
Credit risk Interest rate risk Non-diversification risk
Currency risk Liquidity risk Prepayment risk
- ----------------- ---------------------------------- ------------------------------------ ---------------------------------
Allowable Dollar Roll Transactions Hedging When Issued and Forward
Investment Duration Management Short Sales Transactions Commitment Securities
Strategies: TBA Transactions
- ----------------- ----------------------------------- ----------------------------------- ---------------------------------
Allowable Asset-Backed Securities Indexed Notes, Currency Municipal Instruments
Investments: Bank Obligations Exchange-Related Securities Repurchase and Reverse
Brady Bonds and Similar Securities Repurchase Agreements
Corporate Debt Instruments Inflation-Indexed Securities Stripped Instruments
Foreign Instruments Mortgage-Backed Securities U.S. Government and
Illiquid Securities Multi-National Currency Agency Securities
Unit Securities or More Than Warrants
One Denomination Zero Coupon Securities
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ----------------- ----------------------------------- ----------------------------------- ---------------------------------
Minimum Quality S&P Moody's Thompson Average Portfolio
Rating: S&P Moody's (Short Term) (Short-Term) Bankwatch Quality
BBB Baa A-2 P-2 B AA (Aa)
- ----------------- -------------- ---------------- ---------------- ------------------ ---------------- --------------------
Average The Portfolio's average U.S. dollar-weighted duration generally will not exceed three months, plus or
Weighted minus the average duration of the JP Morgan 3-Month Eurodeposit Index
Duration:
- ----------------- ---------------------------------------------------------------------------------------------------------
Note: The Global Tactical Exposure Portfolio commenced investment operations on 3/25/93 under the name
International-Hedged Portfolio. The Portfolio was renamed Global Tactical Exposure on August __,
1998.
- ----------------- ---------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------- -----------------------------------------------------
Hypothetical Hypothetical Expenses Per $1,000 Investment, Assuming A 5%
Expenses: Annual Return 1 Year 3 Years 5 Years 10 Years
$ 3 $ 10 $ 17 $ 38
- -------------------------- --------------------- ----------------------- ------
- -------------------------------------------------------------------------------
GLOBAL TACTIAL EXPOSURE PORTFOLIO OPERATING EXPENSES
(after expense reimbursements, shown as a percentage of net average net assets)
...............................................................................
Advisory fees * 0.10%
...............................................................................
12b-1 fees (1) ---
...............................................................................
Administration fees (2) 0.05%
...............................................................................
Other expenses 0.15%
...............................................................................
Operating expenses, after waivers and reimbursements ** (3) 0.30%
...............................................................................
Interest expense (4) ---
===============================================================================
Total fund operating expenses 0.30%
===============================================================================
* Advisory fee before waivers 0.40%
...............................................................................
** Total fund operating expenses , excluding interest, before waivers and
reimbursements 0.60%
...............................................................................
(1) Under a Distribution Agreement effective May 29,1998,
between the Fund and AMT Capital Securities, LLC, AMT
Capital Securities provides distribution services at no
cost to the Fund.
(2) Under an Administration Agreement effective May 29,
1998, between the Fund and Investors Capital, Investors
Capital provides administrative services to the Fund,
for an incentive fee, capped at 0.02% of the Portfolio's
average daily net assets, for reducing the expense ratio
for one or more Portfolios. The incentive fee is not
included in the figures set forth above.
(3) The Investment Adviser has voluntarily agreed to cap
the total operating expenses (exclusive of interest
expense) at 0.60% (on an annualized basis) of the
Portfolio's average daily net assets. Until further
notice, the Investment Adviser has voluntarily lowered
the advisory fee to 0.10% from 0.40%. The Investment
Adviser will not attempt to recover prior period
reimbursements should expenses fall below the cap.
(4) The Portfolio may engage in reverse repurchase
agreements and may incur an interest expense. Such
expense equals the coupon rate of interest the dealer
earns while the securities are in its possession.
- -------------------------------------------------------------------------------
GLOBAL TACTICAL EXPOSURE PORTFOLIO FINANCIAL HIGHLIGHTS
(in u.s. dollars unless otherwise indicated)
<TABLE>
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD Year Ended Year Ended Year Ended Year Ended 3/25/93* -
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
- ------------------------------------------------------------- ------------ ------------ ------------ ------------ ------------
Net asset value at beginning of period 9.80 10.19 10.00*** 10.39 10.00
- ------------------------------------------------------------- ------------ ------------ ------------ ------------ ------------
Net investment income 0.41 0.47 0.19 0.20 0.44
- ------------------------------------------------------------- ------------ ------------ ------------ ------------ ------------
Net realized gains or (losses) on investments, financial 0.43 (0.15) 0.19 (0.46) 0.78
futures, and options contracts, and foreign
currency-related transactions
- ------------------------------------------------------------- ------------ ------------ ------------ ------------ ------------
Total investment income 0.84 0.32 0.38 (0.26) 1.22
- ------------------------------------------------------------- ------------ ------------ ------------ ------------ ------------
Distributions from net investment income 0.36 0.47 0.19 0.20 0.44
............................................................. ............ ............ ............ ............ ............
Distributions in excess of net investment income 0.17 --- 0.00 (c) --- ---
............................................................. ............ ............ ............ ............ ............
Distributions from net realized gain on investments, 0.06 0.05 --- 0.50 0.39
financial futures contracts and foreign currency related
transactions
............................................................. ............ ............ ............ ............ ............
Distributions in excess of net realized gain on --- 0.09 --- --- ---
investments, financial futures contracts, and foreign
currency related transactions
............................................................. ............ ............ ............ ............ ............
Distributions from capital stock in excess of par value --- 0.10 --- --- ---
- ------------------------------------------------------------- ------------ ------------ ------------ ------------ ------------
Total distributions 0.59 0.71 0.19 0.70 0.83
- ------------------------------------------------------------- ------------ ------------ ------------ ------------ ------------
- ------------------------------------------------------------- ------------ ------------ ------------ ------------ ------------
Total return on investment 8.77% 3.18% 13.45% (b) (2.53%) 16.37% (b)
............................................................. ............ ............ ............ ............ ............
Net asset value at end of period 10.05 9.80 10.19 9.43 ** 10.39
............................................................. ............ ............ ............ ............ ............
Net assets at end of period in 000's 283,005 126,645 34,005 --- 17,867
............................................................. ............ ............ ............ ............ ............
Ratio of operating expenses to average net assets (a) 0.42% 0.60% 0.60% (b) 0.57% 0.60% (b)
............................................................. ............ ............ ............ ............ ............
Ratio of net income to average net assets (a) 3.67% 4.65% 6.12% (b) 2.87% 5.86% (b)
............................................................. ............ ............ ............ ............ ............
Decrease in above expense ratios due to waiver of 0.16% 0.06% 0.17% (b) 0.49% 0.28% (b)
investment advisory fees and reimbursement of other expenses
............................................................. ------------ ------------ ------------ ------------ ------------
Portfolio turnover rate 712% 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 12/30/94.
The Portfolio was fully liquidated on 12/30/94 based on this
net asset value.
*** The Portfolio recommenced operations on 10/14/95.
<TABLE>
<S> <C>
INTERNATIONAL OPPORTUNITIES PORTFOLIO
- ----------------- ---------------------------------------------------------------------------------------------------------
Investment To attain a high level of total return, as may be consistent with the preservation of capital
Objective:
- ----------------- ---------------------------------------------------------------------------------------------------------
Portfolio Global fixed-income securities with active management of the portfolio's strategic hedge ratio
Description:
- ----------------- ---------------------------------------------------------------------------------------------------------
Performance To outperform the JP Morgan Global Government Bond Indices (both Non-U.S. Hedged and Non-U.S. Unhedged)
Objective:
- ----------------- ---------------------------------------------------------------------------------------------------------
Investment At least 65% of the Portfolio's total assets must be invested in high-quality debt securities
Policies and from worldwide bond markets denominated in foreign currencies
Significant Portfolio may not invest more than 5% of its net assets in futures margins and/or premiums on
Restrictions: options unless it is being used for bona fide hedging purposes
For defensive purposes the Portfolio may invest up to 100% of its total assets in short-term U.S.
Government securities and money market instruments
Portfolio will maintain investments in debt securities of issuers from at least three different
countries
At least 65% of the Portfolio's total assets will be invested in debt securities from
jurisdictions outside the U.S.
Portfolio may engage in currency hedging techniques opportunistically
Portfolio is non-diversified
</TABLE>
<TABLE>
<S> <C> <C> <C>
- ----------------- -------------------------------- ------------------------------------- ----------------------------------
Risks: Correlation risk Hedging risk Market risk
Credit risk Interest rate risk Non-diversification risk
Currency risk Liquidity risk Prepayment risk
- ----------------- -------------------------------- ------------------------------------- ----------------------------------
Allowable Dollar Roll Transactions Hedging When Issued and Forward
Investment Duration Management Short Sales Transactions Commitment Securities
Strategies: TBA Transactions
- ----------------- -------------------------------- ------------------------------------- ----------------------------------
Allowable Asset-Backed Securities Indexed Notes, Currency Options
Investments: Bank Obligations Exchange-Related Securities Repurchase and Reverse
Brady Bonds and Similar Securities Repurchase Agreements
Corporate Debt Inflation-Indexed Securities Stripped Instruments
Instruments Mortgage-Backed Securities Swaps
Foreign Instruments Multi-National Currency Unit U.S. Government and Agency
Illiquid Securities Securities or More Than One Securities
Denomination Warrants
Municipal Instruments Zero Coupon Securities
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ----------------- -------------------------------- ------------------------------------- ----------------------------------
Minimum Quality S&P Moody's Thompson Average Portfolio
Rating: S&P Moody's (Short Term) (Short-Term) Bankwatch Quality
BBB Baa A-2 P-2 B AA (Aa)
- ----------------- --------------- ----------- ---------------- ---------------- --------------------- ---------------------
Average The Portfolio's average U.S. Dollar-weighted duration generally will not exceed one year plus or minus
Weighted the average duration of the JP Morgan Global Government Bond Indices (both Non-U.S. Hedged and Non-U.S.
Duration: Unhedged)
- ----------------- ---------------------------------------------------------------------------------------------------------
</TABLE>
This Portfolio Has Not Yet Commenced Investment Operations
------------------------ --------------------------------------------
Hypothetical Hypothetical Expenses Per $1,000 Investment, Assuming A 5%
Expenses: Annual Return 1 Year 3 Years 5 Years 10 Years
$ 6 $ 19
------------------------ ------------------ ----------------------- ------
---------------------------------------------------------------------------
INTERNATIONAL OPPORTUNITIES PORTFOLIO OPERATING EXPENSES
...........................................................................
Advisory fees 0.40%
...........................................................................
12b-1 fees (1) ---
...........................................................................
Administration fees (2) 0.05%
...........................................................................
Other expenses (4) 0.15%
---------------------------------------------------------------------------
Operating expenses 0.60%
---------------------------------------------------------------------------
Interest expense (3) ---
---------------------------------------------------------------------------
Total fund operating expenses 0.60%
---------------------------------------------------------------------------
(1) Under a Distribution Agreement effective May 29,
1998, between the Fund and AMT Capital Securities,
LLC, AMT Capital Securities provides distribution
services at no cost to the Fund.
(2) Under an Administration Agreement effective May 29,
1998, between the Fund and Investors Capital,
Investors Capital provides administrative services to
the Fund, including an incentive fee, capped at
0.02% of the Portfolio's average daily net assets for
reducing the expense ratios of one or more
Portfolios. The incentive fee is not included in the
figures above.
(3) The Portfolio may engage in reverse repurchase
agreements. The Portfolio incurs an interest expense
when engaging in these transactions, equaling the
coupon rate of interest the dealer earns while the
securities are in its possession. These transactions
serve to increase the expense ratio of the Portfolios
engaging in these investments. The Investment
Adviser will engage in these transactions, only if it
believes that it can earn a higher rate of interest
on the securities it purchases with the cash received
from the dealer, rather than the rate of interest it
must pay to the dealer. The Investment Adviser may
or may not succeed in receiving a net interest income
on these transactions.
(4) "Other Expenses" are based on estimated expenses for
the current fiscal year.
<TABLE>
<S> <C>
INTERNATIONAL CORPORATE PORTFOLIO
- ----------------- ----------------------------------------------------------------------------------------------------------
Investment To attain a high level of total return as may be consistent with the preservation of capital
Objective:
- ----------------- ----------------------------------------------------------------------------------------------------------
Portfolio Primarily invests in high quality corporate debt from worldwide bond markets, denominated in foreign
Description: currencies
- ----------------- ----------------------------------------------------------------------------------------------------------
- ----------------- ----------------------------------------------------------------------------------------------------------
Performance To outperform the JP Morgan Global Government Bond Index (Non-US Hedged)
Objective:
- ----------------- ----------------------------------------------------------------------------------------------------------
- ----------------- ----------------------------------------------------------------------------------------------------------
Investment At least 65% of the Portfolio's total assets must be invested in high-quality corporate debt
Policies and securities from worldwide bond markets denominated in foreign currencies
Significant Portfolio may not invest more than 5% of its net assets in futures margins and/or premiums on
Restrictions: options unless it is being used for bona fide hedging purposes
For defensive purposes the Portfolio may invest up to 100% of its total assets in short-term U.S.
Government securities and money market instruments
Portfolio will maintain investments in corporate debt securities of issuers from at least three
different countries
At least 65% of the Portfolio's total assets will be invested in corporate debt securities from
jurisdictions outside the U.S.
Portfolio is non-diversified
</TABLE>
<TABLE>
<S> <C> <C> <C>
- ----------------- ----------------------------------------------------------------------------------------------------------
Risks: Correlation risk Hedging risk Market risk
Credit risk Interest rate risk Non-diversification risk
Currency risk Liquidity risk Prepayment risk
- ----------------- ---------------------------------- ---------------------------------- ------------------------------------
Allowable Dollar Roll Transactions Hedging When Issued and Forward
Investment Duration Management Short Sales Transactions Commitment Securities
Strategies: TBA Transactions
- ----------------- ---------------------------------- ---------------------------------- ------------------------------------
Allowable Asset-Backed Securities Indexed Notes, Currency Municipal Instruments
Investments: Bank Obligations Exchange-Related Securities Repurchase and Reverse
Brady Bonds and Similar Securities Repurchase Agreements
Convertibles Inflation-Indexed Stripped Instruments
Corporate Debt Instruments Securities U.S. Government and Agency
Foreign Instruments Mortgage-Backed Securities Securities
Illiquid Securities Multi-National Currency Warrants
Unit Securities or More Zero Coupon Securities
Than One Denomination
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ----------------- ---------------------------------- ---------------------------------- ------------------------------------
Minimum Quality S&P Moody's Thompson Average Portfolio
Rating: S&P Moody's (Short Term) (Short-Term) Bankwatch Quality
BBB Baa A-2 P-2 B AA (Aa)
- ----------------- ------------- ----------- ---------------- -------------------- ------------------- ----------------------
Average The Portfolio's average U.S. Dollar-weighted duration generally will not exceed one year plus or minus
Weighted the average duration of the JP Morgan Global Government Bond Index (Non-US Hedged)
Duration:
- ----------------- ----------------------------------------------------------------------------------------------------------
</TABLE>
This Portfolio Has Not Yet Commenced Investment Operations
------------------------ --------------------------------------------------
Hypothetical Hypothetical Expenses Per $1,000 Investment, Assuming A 5%
Expenses: Annual Return 1 Year 3 Years
$ 3 $ 8
------------------------ ---------------------- ------------------- ------
<TABLE>
<S> <C>
----------------------------------------------------------------------------------------------------------------------------
INTERATIONAL CORPORATE PORTFOLIO OPERATING EXPENSES
(after expense reimbursements, shown as a percentage of average net assets)
============================================================================================================================
Advisory fees after waivers * 0.10%
............................................................................................................................
12b-1 fees (1) ---
............................................................................................................................
Administration fees (2) 0.05%
............................................................................................................................
Other expenses (5) 0.10%
----------------------------------------------------------------------------------------------------------------------------
Operating expenses, after waivers and reimbursements ** (4) 0.25%
----------------------------------------------------------------------------------------------------------------------------
Interest expense (3) ---
----------------------------------------------------------------------------------------------------------------------------
Total fund operating expenses 0.25%
============================================================================================================================
----------------------------------------------------------------------------------------------------------------------------
* Advisory fee before waivers 0.40%
............................................................................................................................
** Total fund operating expenses, excluding interest, before waivers and reimbursements 0.60%
............................................................................................................................
</TABLE>
(1) Under a Distribution Agreement effective May 29,
1998. between the Fund and AMT Capital Securities,
LLC, AMT Capital Securities provides distribution
services at no cost to the Fund.
(2) Under an Administration Agreement dated May 29,
1998, between the Fund and Investors Capital,
Investors Capital provides administrative services to
the Fund, for an incentive fee, capped at 0.02% of
the Portfolio's average daily net assets for reducing
expense ratios of one or more Portfolios. The
incentive fee is not included in the figures above.
(3) The Portfolio may engage in reverse repurchase
agreements and will incur an interest expense when
engaging in these transactions, equaling the coupon
rate of interest the dealer earns while the
securities are in its possession. These transactions
serve to increase the expense ratio of the Portfolios
engaging in these investments. The Investment
Adviser will only engage in these transactions, if it
believes that it can earn a higher rate of interest
on the securities it purchases with the cash received
from the dealer, rather than the rate of interest it
must pay to the dealer. The Investment Adviser may
or may not succeed in receiving a net interest income
on these transactions.
(4) The Investment Adviser has voluntarily agreed to cap
total operating expenses (exclusive of interest
expense) at 0.25% (on an annualized basis) of the
Portfolio's average net assets. The Investment
Adviser will not attempt to recover prior period
reimbursements should expenses fall below the cap.
(5) "Other Expenses" are based on estimated expenses for
the current fiscal year.
<TABLE>
<S> <C>
EMERGING MARKETS PORTFOLIO
- ----------------- ------------------------------------------------------------------------------------------------------------
Investment To attain a high level of total return, as may be consistent with the preservation of capital
Objective:
- ----------------- ------------------------------------------------------------------------------------------------------------
Portfolio Primarily invests in debt securities from bond markets in emerging markets countries, denominated in local
Description: currencies or OCED currencies
- ----------------- ------------------------------------------------------------------------------------------------------------
Performance To outperform the JP Morgan Emerging Local Markets Index Plus
Objective:
- ----------------- ------------------------------------------------------------------------------------------------------------
Investment At least 65% of the Portfolio's total assets must be invested in debt securities from bond markets
Policies and in emerging countries denominated in local currencies or currencies of OCED countries
Significant Portfolio may not invest more than 5% of its net assets in futures margins and/or premiums on
Restrictions: options unless it is being used for bona fide hedging purposes
For defensive purposes, the Portfolio may invest up to 100% of its total assets in short-term U.S.
Government securities and money market instruments
Portfolio will maintain investments in debt securities of issuers from at least three different
countries including the U.S.
At least 35% of the Portfolio's total assets will be invested in debt securities from jurisdictions
outside the U.S.
The Adviser/Sub-Adviser intends to actively manage the Portfolio and will allocate the Portfolio's
investment assets among various emerging markets countries (and currencies). Such allocations are
not expected to be comparable to, nor as diverse as, the allocations accorded to such markets (and
currencies) by the major bond market indices.
Portfolio managers will screen out credit or default risks and highlight potentially risky emerging
market currencies by employing a fundamental economic analysis and internally developed models
Portfolio is non-diversified
</TABLE>
<TABLE>
<S> <C> <C> <C>
- ----------------- ----------------------------------- ----------------------------------- -----------------------------------
Risks: Correlation risk Hedging risk Market risk
Credit risk Interest rate risk Non-diversification risk
Currency risk Liquidity risk Prepayment risk
- ----------------- ----------------------------------- ----------------------------------- -----------------------------------
Allowable Dollar Roll Transactions Hedging When Issued and Forward
Investment Duration Management TBA Transactions Commitment Securities
Strategies:
- ----------------- ----------------------------------- ----------------------------------- ------------------------------------
Allowable Asset-Backed Securities Indexed Notes, Currency Municipal Instruments
Investments: Bank Obligations Exchange-Related Securities Repurchase and Reverse
Brady Bonds and Similar Securities Repurchase Agreements
Convertible Securities Inflation-Indexed Securities Stripped Instruments
Corporate Debt Instruments Mortgage-Backed Securities U.S. Government and Agency
Foreign Instruments Multi-National Currency Unit Securities
Illiquid Securities Securities or More Than One Warrants
Denomination Zero Coupon Securities
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ----------------- ------------- -------------- ----------------- ---------------- ---------------- ---------------------------
Minimum Quality S&P Moody's Thompson Average Portfolio Quality
Rating: S&P Moody's (Short Term) (Short-Term) Bankwatch None
None None None None None
- ----------------- ------------- -------------- ----------------- ---------------- ---------------- ---------------------------
Average The Portfolio's average U.S. Dollar-weighted duration generally will not exceed one year, plus or minus
Weighted the average duration of the J.P Morgan Emerging Local Markets Index Plus
Duration:
- ----------------- ------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------- ----------------------------------------------------
Hypothetical Hypothetical Expenses Per $1,000 Investment, Assuming A 5%
Expenses: Annual Return 1 Year 3 Years 5 Years 10 Years
$ 11 $ 33
- --------------------------- ---------------------- ----------------------------
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
EMERGING MARKET PORTFOLIO'S OPERATING EXPENSES
(after expense reimbursements, shown as a percentage of net average net assets)
...........................................................................................................................
Advisory fees 0.75%
...........................................................................................................................
12b-1 fees (1) ---
...........................................................................................................................
Administration fees (2) 0.05%
...........................................................................................................................
Other expenses (4) 0.23%
...........................................................................................................................
Operating expenses, after waivers and reimbursements (3) 1.03%
...........................................................................................................................
Interest expense (5) ---
- ---------------------------------------------------------------------------------------------------------------------------
Total fund operating expenses 1.03%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Under a Distribution Agreement effective May 29, 1998,
between the Fund and AMT Capital Securities, LLC, AMT
Capital Securities provides distribution services at no
cost to the Fund.
(2) Under an Administration Agreement effective May 29,
1998, between the Fund and Investors Capital, Investors
Capital provides administrative services to the Fund,
including an incentive fee, capped at 0.02% of the
Portfolio's average daily net assets, for reducing the
expense ratio for one or more Portfolios. The incentive
fee is not included in the figures set forth above.
(3) The Investment Adviser has voluntarily agreed to cap
the total operating expenses (exclusive of interest
expense) at 1.50% (on an annualized basis) of the
Portfolio's average daily net assets. The Investment
Adviser will not attempt to recover prior period
reimbursements in the event expenses fall below the cap.
(4) "Other Expenses" are based on estimated expenses for
the current fiscal year.
(5) The Portfolio may engage in reverse repurchase
agreements, and may incur an interest expense. Such
expense equals the coupon rate of interest the dealer
earns while the securities are in its possession.
- ------------------------------------------------------------------------------
EMERGING MARKET PORTFOLO'S FINANCIAL HIGHLIGHTS
(in u.s. dollars unless otherwise indicated)
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD 812/97* to
12/31/97
- ---------------------------------------------------------------------------------------------------------- ----------------
Net asset value at beginning of period 10.00
- ---------------------------------------------------------------------------------------------------------- ----------------
Net investment income 0.29
.......................................................................................................... ................
Net realized gains or (losses) on investments, financial futures contacts and foreign currency-related (0.41)
transactions
.......................................................................................................... ................
Total investment income (0.12)
.......................................................................................................... ................
Net distributions from investment income 0.29
- ---------------------------------------------------------------------------------------------------------- ----------------
Net asset value at end of period 9.59
- ---------------------------------------------------------------------------------------------------------- ----------------
Total return on investment (1.20%) (b)
- ---------------------------------------------------------------------------------------------------------- ----------------
Net assets at end of period in 000's 111,043
.......................................................................................................... ................
Ratio of operating expenses to average net assets 1.03% (a)
.......................................................................................................... ................
Ratio of net income to average net assets 7.87% (a)
.......................................................................................................... ................
Portfolio turnover rate 16%
========================================================================================================== ----------------
</TABLE>
(a) Annualized
(b) Not Annualized
* Commencement of operations
GLOBAL HIGH YIELD PORTFOLIO
<TABLE>
<S> <C>
- ----------------- ----------------------------------------------------------------------------------------------------------
Investment To attain a high level of total return, as may be consistent with the preservation of capital
Objective:
- ----------------- ----------------------------------------------------------------------------------------------------------
Portfolio Primarily invests in high yield debt securities
Description:
- ----------------- ----------------------------------------------------------------------------------------------------------
- ----------------- ----------------------------------------------------------------------------------------------------------
Performance To outperform the Salomon Brothers BB+/B Rated Index
Objective:
- ----------------- ----------------------------------------------------------------------------------------------------------
- ----------------- ----------------------------------------------------------------------------------------------------------
Investment At least 65% of the Portfolio's total assets must be invested in high yield debt securities from
Policies and worldwide bond markets denominated in both U.S. Dollars and foreign currencies
Significant Portfolio will maintain investments in debt securities of issuers from at least three different
Restrictions: countries including the U.S.
At least 35% of the Portfolio's total assets will be invested in debt securities from
jurisdictions outside the U.S.
For defensive purposes, the Portfolio may invest up to 100% of its total assets in short-term U.S.
Government securities and money market instruments
Portfolio may not invest more than 5% of its net assets in futures margins and/or premiums on
options unless it is being used for bona fide hedging purposes
Portfolio is non-diversified
</TABLE>
<TABLE>
<S> <C> <C> <C>
- ----------------- ----------------------------------------------------------------------------------------------------------
Risks: Correlation risk Hedging risk Market risk
Credit risk Interest rate risk Non-diversification risk
Currency risk Liquidity risk Prepayment risk
- ----------------- ------------------------------- ------------------------------------ -------------------------------------
Allowable Dollar Roll Transactions Hedging When Issued and Forward
Investment Duration Management Short Sales Transactions Commitment Securities
Strategies: TBA Transactions
- ----------------- ------------------------------- ------------------------------------ -------------------------------------
Allowable Asset-Backed Securities Indexed Notes, Currency Municipal Instruments
Investments: Bank Obligations Exchange-Related Securities Repurchase and Reverse
Brady Bonds and Similar Securities Repurchase Agreements
Corporate Debt Inflation-Indexed Securities Stripped Instruments
Instruments Mortgage-Backed Securities U.S. Government and Agency
Foreign Instruments Multi-National Currency Unit Securities
Illiquid Securities Securities or More Than One Warrants
Denomination Zero Coupon Securities
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Minimum Quality S&P Moody's Thompson Average Portfolio
Rating: S&P Moody's (Short Term) (Short-Term) Bankwatch Quality
None None None None None None
Average The Portfolio's average U.S. Dollar-weighted duration generally will not exceed one year, plus or minus
Weighted the average duration of the Salomon Brothers BB+/B Rated Index
Duration:
- ----------------- ----------------------------------------------------------------------------------------------------------
</TABLE>
This Portfolio Has Not Yet Commenced Investment Operations
------------------------ ---------------------------------------------------
Hypothetical Hypothetical Expenses Per $1,000 Investment, Assuming A 5%
Expenses: Annual Return 1 Year 3 Years
$ 7 $ 22
------------------------ -------------------- --------------------- -------
<TABLE>
<S> <C>
----------------------------------------------------------------------------------------------------------------------------
GLOBAL HIGH YIELD PORTFOLIO OPERATING EXPENSES
............................................................................................................................
Advisory fees 0.50%
............................................................................................................................
12b-1 fees (1) ---
............................................................................................................................
Administration fees (2) 0.05%
............................................................................................................................
Other expenses (4) 0.15%
----------------------------------------------------------------------------------------------------------------------------
Operating expenses 0.70%
----------------------------------------------------------------------------------------------------------------------------
Interest expense (3) ---
----------------------------------------------------------------------------------------------------------------------------
Total fund operating expenses 0.70%
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Under a Distribution Agreement effective May 29,
1998, between the Fund and AMT Capital Securities,
LLC, AMT Capital Securities provides distribution
services at no cost to the Fund.
(2) Under an Administration Agreement dated May 29,
1998, between the Fund and Investors Capital,
Investors Capital provides administrative services to
the Fund, for an incentive fee, capped at 0.02% of
the Portfolio's average daily net assets for reducing
the expense ratios of one or more Portfolios. The
incentive fee is not included in the figures above.
(3) The Portfolio may engage in reverse repurchase
agreements. The Portfolio incurs an interest expense
when engaging in these transactions, equaling the
coupon rate of interest the dealer earns while the
securities are in its possession. These transactions
increase the Portfolio's expense ratio. The
Investment Adviser will only engage in these
transactions if, it believes it can earn a higher
rate of interest on the securities it purchases with
the cash received from the dealer, rather than the
rate of interest it must pay to the dealer. The
Investment Adviser may or may not succeed in
receiving a net interest income on these transactions.
(4) "Other Expenses" are based on estimated expenses for
the current fiscal year.
<TABLE>
<S> <C>
INFLATION-INDEXED PORTFOLIO
- ----------------- ----------------------------------------------------------------------------------------------------------
Investment To attain a high level of return, in excess of inflation as may be consistent with the preservation of
Objective: capital
- ----------------- ----------------------------------------------------------------------------------------------------------
Portfolio Primarily invests in securities with a coupon rate and/or principal amount linked to the inflation rate
Description: from worldwide bond markets denominated in both U.S. Dollars and foreign securities
- ----------------- ----------------------------------------------------------------------------------------------------------
- ----------------- ----------------------------------------------------------------------------------------------------------
Performance To outperform the (benchmark).
Objective:
- ----------------- ----------------------------------------------------------------------------------------------------------
- ----------------- ----------------------------------------------------------------------------------------------------------
Investment At least 65% of the Portfolio's allowable investments must be linked to the inflation rate in the
Policies and applicable market of the issuer
Significant Portfolio may not invest more than 5% of its net assets in futures margins and/or premiums on
Restrictions: options unless it is being used for bona fide hedging purposes
For defensive purposes, the Portfolio may invest up to 100% of its total assets in short-term U.S.
Government securities and money market instruments
Portfolio is not required to invest any minimum percentage of its assets in debt securities of
issuers located outside the U.S. nor in any minimum number of countries or currencies
Portfolio is non-diversified
</TABLE>
<TABLE>
<S> <C> <C> <C>
- ----------------- ----------------------------------------------------------------------------------------------------------
Risks: Close out risk Hedging risk Market risk
Correlation risk Interest rate risk Non-diversification risk
Credit risk Liquidity risk Prepayment risk
Currency risk
- ----------------- --------------------------------- ----------------------------------- ------------------------------------
Allowable Dollar Roll Transactions Hedging When Issued and Forward
Investment Duration Management Short Sales Transactions Commitment Securities
Strategies: TBA Transactions
- ----------------- --------------------------------- ----------------------------------- ------------------------------------
Allowable Asset-Backed Securities Indexed Notes, Currency Municipal Instruments
Investments: Bank Obligations Exchange-Related Securities Repurchase and Reverse
Brady Bonds and Similar Securities Repurchase Agreements
Corporate Debt Instruments Inflation-Indexed Securities Stripped Instruments
Foreign Instruments Mortgage-Backed Securities U.S. Government and Agency
Illiquid Securities Multi-National Currency Securities
Unit Securities or More Than Warrants
One Denomination Zero Coupon Securities
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ----------------- --------------------------------- ----------------------------------- ------------------------------------
Minimum Quality S&P Moody's Thompson Average Portfolio
Rating: S&P Moody's (Short Term) (Short-Term) Bankwatch Quality
BBB Baa A-2 P-2 B AA (Aa)
- ----------------- ----------- ------------- ---------------- ------------------ ------------------- ------------------------
Average The Portfolio's average U.S. dollar-weighted duration generally will not exceed one year, plus or minus
Weighted the average duration of the (benchmark)
Duration:
- ----------------- ----------------------------------------------------------------------------------------------------------
</TABLE>
This Portfolio Has Not Yet Commenced Investment Operations
------------------------- --------------------------------------------------
Hypothetical Hypothetical Expenses Per $1,000 Investment, Assuming A 5%
Expenses: Annual Return 1 Year 3 Years
$ 6 $ 19
------------------------- ---------------------- --------------------------
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------
INFLATION-INDEXED PORTFOLIO OPERATING EXPENSES
(after expense reimbursements, shown as a percentage of average net assets)
.............................................................................................................................
Advisory fees 0.40%
.............................................................................................................................
12b-1 fees (1) ---
.............................................................................................................................
Administration fees (2) 0.05%
.............................................................................................................................
Other expenses (4) 0.15%
-----------------------------------------------------------------------------------------------------------------------------
Operating expenses 0.60%
-----------------------------------------------------------------------------------------------------------------------------
Interest expense (3) ---
-----------------------------------------------------------------------------------------------------------------------------
Total fund operating expenses 0.60%
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Under a Distribution Agreement effective May 29, 1998,
between the Fund and AMT Capital Securities, LLC, AMT
Capital Securities provides distribution services at no
cost to the Fund.
(2) Under an Administration Agreement dated May 29, 1998,
between the Fund and Investors Capital, Investors
Capital provides administrative services to the Fund,
including an incentive fee, capped at 0.02% of the
Portfolio's average daily net assets for reducing the
expense ratios of one or more Portfolios. The incentive
fee is not included in the figures above.
(3) The Portfolio may engage in reverse repurchase
agreements. The Portfolio incurs an interest expense
when engaging in these transactions, equaling the coupon
rate of interest the dealer earns while the securities
are in its possession. These transactions serve to
increase the Portfolio' expense ratio when engaging in
these investments. The Investment Adviser will only
engage in these transactions if, it believes it can earn
a higher rate of interest on the securities it purchases
with the cash received from the dealer, rather than the
rate of interest it must pay to the dealer. The
Investment Adviser may or may not succeed in receiving a
net interest income on these transactions.
(4) "Other Expenses" are based on estimated expenses for
the current fiscal year.
<TABLE>
<S> <C>
INFLATION-INDEXED HEDGED PORTFOLIO
- ----------------- ----------------------------------------------------------------------------------------------------------
Investment To attain a high level of return, in excess of inflation, as may be consistent with the preservation of
Objective: capital
- ----------------- ----------------------------------------------------------------------------------------------------------
Portfolio Primarily invests in securities with a coupon rate and/or principal amount, linked to the inflation rate
Description: from worldwide bond markets, denominated in both U.S. Dollars and foreign securities and actively
utilizes currency hedging techniques
- ----------------- ----------------------------------------------------------------------------------------------------------
Performance To outperform the (benchmark).
Objective:
- ----------------- ----------------------------------------------------------------------------------------------------------
Investment At least 65% of the Portfolio's allowable investments must be linked to the interest rate in the
Policies and applicable market of the issuer
Significant Portfolio may not invest more than 5% of its net assets in futures margins and/or premiums on
Restrictions: options unless it is being used for bona fide hedging purposes
As a fundamental policy, the Portfolio will attempt to hedge at least 65% of its foreign currency
denominated assets against foreign currency risks to the extent feasible
For defensive purposes, the Portfolio may invest up to 100% of its total assets in short-term U.S.
Government securities and money market instruments
Portfolio is not required to invest any minimum percentage of its assets in debt securities of
issuers located outside the U.S. nor in any minimum number of countries or currencies
Portfolio is non-diversified
</TABLE>
<TABLE>
<S> <C> <C> <C>
- ----------------- ---------------------------------- ----------------------------------- -----------------------------------
Risks: Close out risk Hedging risk Market risk
Correlation risk Interest rate risk Non-diversification risk
Credit risk Liquidity risk Prepayment risk
Currency risk
- ----------------- ---------------------------------- ----------------------------------- -----------------------------------
Allowable Dollar Roll Transactions Hedging When Issued and Forward
Investment Duration Management Short Sales Transactions Commitment Securities
Strategies: TBA Transactions
- ----------------- ---------------------------------- ----------------------------------- -----------------------------------
Allowable Asset-Backed Securities Indexed Notes, Currency Municipal Instruments
Investments: Bank Obligations Exchange-Related Securities Repurchase and Reverse
Brady Bonds and Similar Securities Repurchase Agreements
Corporate Debt Instruments Inflation-Indexed Securities Stripped Instruments
Foreign Instruments Mortgage-Backed Securities U.S. Government and Agency
Illiquid Securities Multi-National Currency Securities
Unit Securities or More Than Warrants
One Denomination Zero Coupon Securities
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ----------------- ---------------------------------- ----------------------------------- -----------------------------------
Minimum Quality S&P Moody's Thompson Average Portfolio
Rating: S&P Moody's (Short Term) (Short-Term) Bankwatch Quality
BBB Baa A-2 P-2 B AA (Aa)
- ----------------- ----------- ---------------- ----------------- ---------------- ------------------- ----------------------
Average The Portfolio's average U.S. Dollar-weighted duration generally will not exceed one year, plus or minus
Weighted the average duration of the (benchmark)
Maturity:
- ----------------- ----------------------------------------------------------------------------------------------------------
</TABLE>
This Portfolio Has Not Yet Commenced Investment Operations
--------------------------------------------------------------------------
Hypothetical Hypothetical Expenses Per $1,000 Investment, Assuming A 5%
Expenses: Annual Return 1 Year 3 Years
$ 6 $ 19
-------------------------------------- ---------------------------------
<TABLE>
<S> <C> <C>
----------------------------------------------------------------------------------------------------------------------------
INFLATION-INDEXED HEDGED PORTFOLIO OPERATING EXPENSES
............................................................................................................................
Advisory fees 0.40%
............................................................................................................................
12b-1 fees (1) ---
............................................................................................................................
Administration fees (2) 0.05%
............................................................................................................................
Other expenses (4) 0.15%
............................................................................................................................
Operating expenses 0.60%
............................................................................................................................
Interest expense (3) ---
----------------------------------------------------------------------------------------------------------------------------
Total fund operating expenses 0.60%
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Under a Distribution Agreement, effective May 29,
1998, between the Fund and AMT Capital Securities,
LLC, AMT Capital Securities provides distribution
services at no cost to the Fund.
(2) Under an Administration Agreement dated May 29,
1998, between the Fund and Investors Capital,
Investors Capital provides administrative services to
the Fund, including an incentive fee, capped at 0.02%
of the Portfolio's average daily net assets for
reducing the expense ratios for one or more
Portfolios. The incentive fee is not included in the
figures above.
(3) The Portfolio may engage in reverse repurchase
agreements. A Portfolio incurs an interest expense
when it engages in these transactions, equaling the
coupon rate of interest the dealer earns while the
securities are in its possession. These transactions
serve to increase the Portfolio's expense ratio. The
Investment Adviser will only engage in these
transactions if it believes it can earn a higher rate
of interest on the securities it purchases, with the
cash received from the dealer, rather than the rate
of interest it must pay to the dealer. The
Investment Adviser may or may not succeed in
receiving a net interest income on these transactions.
(4) "Other Expenses" are based on estimated expenses for
the current fiscal year.
INVESTMENT INFORMATION
GENERAL INVESTMENT TECHNIQUES/STRATEGIES AND ASSOCIATED RISKS
Dollar Roll Transactions
Dollar roll transactions consist of the sale of
mortgage-backed securities, with a commitment to purchase
similar, but not identical securities at a future date, and
at the same price.
Risks: Should the broker-dealer to whom a Portfolio
sells an underlying security of a dollar roll
transaction become insolvent, the Portfolio's right
to purchase or repurchase the security may be
restricted, or the price of the security may change
adversely over the term of the dollar roll.
Duration Management
Duration measures a bond's price volatility, incorporating
the following factors:
a. the bond's yield,
b. coupon interest payments,
c. final maturity,
d. call features, and
e. prepayment assumptions.
Duration measures the expected life of a debt security on a
present value basis. It incorporates 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 weighs
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
closely related to the duration of the securities that
underlie them. Holding long futures or call options 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 duration by approximately the same amount that
selling an equivalent amount of the underlying securities
would.
Risks: Changes in weighted average duration of a
Portfolio's holdings are not likely to be so large
as to cause them to fall outside the ranges
specified above. There is no assurance that
deliberate changes in a Portfolio's weighted
average duration will enhance its return relative
to more static duration policies or Portfolio
structures. In addition, it may detract from its
relative return.
Hedging
Hedging techniques are used to offset certain investment
risks. Such risks include: changes in interest rates,
changes in foreign currency exchange rates and changes in
securities and commodities prices. Hedging techniques are
commonly used to minimize a given instrument's risks of
future gain or loss. Hedging techniques include:
a. engaging in swaps; d. purchasing and selling futures contracts;
b. purchasing and selling caps, e. purchasing and selling options;
floors and collars;
c. purchasing or selling forward exchange contracts;
All hedging instruments described below constitute
commitments by a Portfolio and therefore require the Fund to
segregate cash (in any applicable currency), U.S. Government
securities or other liquid and unencumbered securities (in
any applicable currency) equal to the amount of the
Portfolio's obligations in a separate custody account.
When a Portfolio purchases a futures or forward currency
contract for non-hedging purposes, the sum of the segregated
assets plus the amount of initial and variation margin held
in broker's the account, if applicable, must equal the
market value of the futures or forward currency contract.
When a Portfolio sells a futures or forward currency
contract for non-hedging purposes, the Portfolio will have
the contractual right to acquire:
1. the securities,
2. the foreign currency subject to the futures,
3. the forward currency contract, or
4. will segregate assets, in an amount at least equal
to the market value of the securities or foreign
currency underlying the futures or forward currency
contract with the Fund's custodian.
Should the market value of the contract move 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.
a. Swaps
Swaps are commonly used for hedging purposes. Hedging
involving mortgage and interest rate swaps may enhance total
return. Interest rate swaps involve a Portfolio's exchange
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. Currency swaps
involve the exchange of their respective rights to make or
receive payments in specified currencies.
b. Caps, Floors and Collars
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. An interest rate collar
incorporates a cap and a floor in one transaction as
described above.
c. Forward Foreign Exchange Contracts
A forward foreign exchange contract is the purchase or sale
of a foreign currency, on a specified date, at an exchange
rate established before the currency's payment and delivery
to hedge the currency exchange risk associated with its
assets or obligations denominated in foreign currencies.
Synthetic hedging is a technique utilizing forward foreign
exchange contracts that is frequently employed by many of
the Portfolios. It entails entering into a forward contract
to sell a currency the changes in value of which 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 buying
U.S. dollars. There is a risk that the perceived linkage
between various currencies may not be present during the
particular time that a Portfolio is engaging in synthetic
hedging. A 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 expects to
have exposure.
d. Futures Transactions
A futures contract is an agreement to buy or sell a specific
amount of a financial instrument at a particular price on a
specified date. The futures contract obligates the buyer to
purchase the underlying commodity and the seller to sell
it. Losses from investing in futures transactions that are
unhedged or uncovered are potentially unlimited.
Substantially all futures contracts are closed out before
settlement date or called for cash settlement. A futures
contract is closed out by buying or selling an identical
offsetting futures contract that cancels the original
contract to make or take delivery. At times, the ordinary
spreads between values in the cash and futures markets, due
to differences in the character of these markets, are
subject to distortions. The possibility of such distortions
means that a correct forecast of general market, foreign
exchange rate or interest rate trends still may not produce
the intended results for the Portfolio.
e. Options
An option is a contractual right, but not an obligation, to
buy (call) or sell (put) property that is guaranteed in
exchange for an agreed upon sum. If the right is not
exercised within a specified period of time, the option
expires and the option buyer forfeits the amount paid. An
option may be a contract that bases its value on the
performance of an underlying stock. When a Portfolio writes
a call option, it gives up 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. A put option gives the purchaser, in return for a
premium, the right, for a specified period or 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 the put option, in return for the premium, has the
obligation, upon exercise of the option, to acquire the
securities or currency underlying the option at the exercise
price. A Portfolio might, therefore, be obligated to
purchase the underlying securities or currency for more than
their current market price.
A Portfolio will not enter into any:
1. currency swap,
2. interest rate swap,
3. mortgage swap,
4. cap,
5. or floor transactions,
unless the unsecured commercial paper, senior debt or claims
paying ability of the counter party is rated either A or A-1
or better by S&P or A or P-1 or better by Moody's. If
unrated by such rating organizations, it must be determined
to be of comparable quality by the Investment Adviser.
Risks: Hedging involves risks of imperfect
correlation in price movements of the hedge and
movements in the price of the hedged security. If
interest or currency exchange rates do not move in
the direction of the hedge, the Portfolio will be
in a worse position than if hedging had not been
employed. As a result, it will lose all or part of
the benefit of the favorable rate movement due to
the cost of the hedge or offsetting positions.
Hedging transactions not entered into on a U.S. or
foreign exchange may subject a Portfolio to
exposure to the credit risk of its counterparty.
Futures and Options transactions entail special
risks. In particular, the variable degree of
correlation between price movements of futures
contracts and price movements in the related
Portfolio position could create the possibility
that losses will be greater than gains in the value
of the Portfolio's position. Other risks include
the risk that a Portfolio could not close out a
futures or options position when it would be most
advantageous to do so.
Short Sales
Short sales 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 reduce certain risks
of the Portfolio's holdings and increase the Portfolio's
total return. To the extent that the Portfolio has sold
securities short, it will maintain a daily segregated
account, containing cash, U.S. Government securities or
other liquid and unencumbered 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.
Risks: A short sale is generally used to take
advantage of an anticipated decline in price or to
protect a profit. A Portfolio will incur 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 Portfolio replaces the borrowed
money. 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. Without the purchase
of an option, the potential loss from a short sale
is unlimited.
TBA (To Be Announced) Transactions
In a TBA transaction, the type of mortgage-related
securities to be delivered is specified at the time of
trade, but the actual pool numbers of the securities to 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 to be delivered at
settlement will be announced shortly before settlement takes
place. Agency pass-through mortgage-backed securities are
usually issued on a TBA basis. For each Portfolio, the Fund
will maintain a segregated custodial account containing
cash, U.S. Government securities or other liquid and
unencumbered securities having a value at least equal to the
aggregate amount of a Portfolio's TBA transactions.
Risks: The value of the security on the date of
delivery may be less than its purchase price,
presenting a possible loss of asset value
When Issued and Forward Commitment Securities
The purchase of a when issued or forward commitment security
will be recorded on the date the Portfolio enters into the
commitment. The value of the security will be reflected in
the calculation of the Portfolio's net asset value. The
value of the security on delivery date may be more or less
than its purchase price. Generally, no interest accrues to a
Portfolio until settlement. For each Portfolio, the Fund
will maintain a segregated custodial account containing
cash, U.S. Government securities or other liquid and
unencumbered securities having a value at least equal to the
aggregate amount of a Portfolio's when issued and forward
commitments transactions.
Risks: The value of the security on the date of
delivery may be less than its purchase price,
presenting a possible loss of asset value.
GENERAL DESCRIPTION OF INVESTMENTS AND ASSOCIATED RISKS
Asset-Backed Securities
Asset-backed securities are secured by or backed by assets
other than mortgage-related assets, such as automobile and
credit card receivables. These securities 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, but include
assets such as:
a. motor vehicle installment sale contracts,
b. other installment sale contracts,
c. home equity loans,
d. leases of various types of real and personal
property, and
e. receivables from revolving credit (credit card)
agreements.
Portfolios will only purchase asset-backed securities that
the Investment Adviser determines to be liquid.
Risks: Since the principal amount of asset-backed
securities is generally subject to partial or total
prepayment risk. If an asset-backed security is
purchased at a premium or discount to par, a
prepayment rate that is faster than expected will
reduce or increase yield to maturity, while a
prepayment rate that is slower than expected will
have the opposite effect on yield to maturity.
These securities may not have any security interest
in the underlying assets, and recoveries on the
repossessed collateral may not, in some cases, be
available to support payments on these securities.
Bank Obligations
Bank obligations are bank issued securities. These instruments include:
a. Time Deposits, e. Deposit Notes, h. Variable Rate Notes,
b. Certificates of f. Eurodollar Time i. Loan Participations,
Deposit, deposits, j. Variable Amount Master Demand
Notes,
c. Bankers' g. Eurodollar k. Yankee CDs, and
Acceptances, Certificates of l. Custodial Receipts
d. Bank Notes, Deposit,
Risks: Investing in bank obligations exposes a
Portfolio to risks associated with the banking
industry such as interest rate and credit risks.
Brady Bonds
Brady Bonds are debt securities, issued or guaranteed by
foreign governments in exchange for existing external
commercial bank indebtedness. 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 are either collateralized or
uncollateralized, issued in various currencies (primarily
the U.S. dollar), and are actively traded in the
over-the-counter secondary market.
A 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.
Risks: Brady Bonds are generally issued to
countries with developing capital markets or
unstable governments and as such, are considered to
be among the more risky international investments.
Convertible Securities
Convertible bonds or shares of convertible preferred stock
are securities that may be converted into, or exchanged for,
underlying shares of common stock, either at a stated price
or stated rate. Convertible securities have general
characteristics similar to both fixed income and equity
securities.
Risks: Typically, convertible securities are
callable by the company, which may, in effect,
force conversion before the holder would otherwise
choose. If the issuer chooses to convert the
security, this action could have an adverse effect
on a Portfolio's ability to achieve its objectives.
Corporate Debt Instruments
Corporate bonds are debt instruments issued by private
corporations. As creditors, bondholders have a prior legal
claim over common and preferred stockholders of the
corporation as to both income and assets for the principal
and interest due to the bondholder. A Portfolio purchases
corporate bonds subject to quality restraints. Commercial
paper, notes and other obligations of U.S. and foreign
corporate issuers must meet the Portfolio's credit quality
standards (including medium-term and variable rate notes).
A Portfolio may retain a downgraded corporate debt security
if the Investment Adviser determines retention of the
security to be in the Portfolio's best interests.
Risks: Investing in corporate debt securities
subjects a Portfolio to interest rate changes and
credit risks.
Foreign Instruments
a. Foreign Securities
Foreign securities are securities denominated in currencies
other than the U.S. dollar and may be denominated in any
single currency or multi-currency units. The Investment
Adviser and the Sub-Adviser will adjust exposure of the
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, 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.
Portfolios will only invest in countries considered to have
stable governments, based on the Investment Adviser's
analysis of social, political and economic factors.
b. Foreign Government, International and Supranational
Agency Securities
These securities include 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.
Risks: Generally, foreign financial markets have
substantially less volume than the U.S. market.
Securities of many foreign companies are less
liquid, and their prices are more volatile than
securities of comparable domestic companies.
Certain Portfolios may invest portions of their
assets in securities denominated in foreign
currencies. These investments carry risks of
fluctuations of exchange rates relative to the U.S.
dollar. Securities issued by foreign entities
(governments, corporations etc.) may involve risks
not associated with U.S. Investments, including
expropriation of assets, taxation, political or
social instability and low financial reporting
standards--all of these could cause declines in
investment return.
c. Emerging Markets Securities
Emerging markets securities are foreign securities issued
from countries which are considered to be "emerging" or
"developing" by the Morgan Stanley Composite Index (MSCI) or
by the World Bank. Such emerging markets include all
markets other than Australia, Austria, Belgium, Canada,
Denmark, Finland, France, Germany, Ireland, Italy, Hong
Kong, Ireland, Italy, Japan, the Netherlands, New Zealand,
Norway, Singapore, Spain, Sweden, Switzerland, the United
Kingdom and the United States.
Risks: The risks of investing in foreign
securities may be intensified when the issuers are
domiciled or doing substantial business in emerging
market countries or countries with developing
capital markets. Security prices in emerging
markets can be significantly more volatile than
those in more developed nations of the world,
reflecting the greater uncertainties of investing
in less established markets and economies.
Emerging market countries may have:
<TABLE>
<S> <C>
a. relatively unstable governments; d. restrictions on foreign ownership;
b. present the risk of sudden adverse government e. prohibitions of repatriation of assets; or
action; f. less protection of property rights than
c. nationalization of businesses; more developed countries
</TABLE>
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.
Illiquid Securities
Illiquid securities are securities which cannot 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. These include:
1. securities with legal or contractual restrictions on
resale,
2. time deposits, repurchase agreements and dollar roll
transactions having maturities longer than seven days,
and
3. securities not having readily available market
quotations.
Although mutual fund Portfolios are allowed to invest up to
15% of the value of their net assets in illiquid assets, it
is not expected that any Portfolio will invest a significant
portion of its assets in illiquid securities. The
Investment Adviser monitors the liquidity of such restricted
securities under the supervision of the Board of Directors.
A Portfolio may purchase securities not registered under the
1933 Securities Act, as amended, but which can be sold to
qualified institutional buyers in accordance with Rule-144A
under that Act. Rule-144A securities generally must be sold
to other qualified institutional buyers. A Portfolio may
also invest in commercial paper 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. Any resale by the purchaser must be
in an exempt transaction. Section 4(2) paper is normally
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 Investment Adviser
will monitor the liquidity of such restricted securities
under the supervision of the Board of Directors.
Risks: Investing in illiquid securities presents
the potential risks of tying up a Portfolio's
assets at a time when liquidating assets may be
necessary to meet debts and obligations.
Indexed Notes, Currency Exchange-Related Securities and
Similar Securities
These securities are notes, the principal amount of which
and/or the rate of interest payable is determined by
reference to an index. This index may be determined by the
rate of exchange between the specified currency for the note
and one or more other currencies or composite currencies.
Risks: Foreign currency markets can be highly
volatile and are subject to sharp price
fluctuations. A high degree of leverage is typical
for foreign currency instruments in which each
Portfolio may invest.
Inflation-Indexed Securities
Inflation-Indexed securities are linked to the inflation
rate from worldwide bond markets such as the U.S. Treasury
Department's "inflation-protection" issues. The initial
issues are ten year notes which are issued quarterly. Other
maturities will be sold 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. These securities may be eligible for
coupon stripping under the U.S. Treasury program. In
addition to the U.S. Treasury's issues, inflation-indexed
securities include inflation-indexed securities from other
countries such as Australia, Canada, New Zealand, Sweden and
the United Kingdom.
Risks: If the periodic adjustment rate measuring
inflation falls, the principal value of
inflation-indexed bonds will be adjusted downward,
and consequently the interest payable on these
securities (calculated with respect to a smaller
principal amount) will be reduced. Repayment of
the original bond principal upon maturity (as
adjusted for inflation) is guaranteed in the case
of U.S. Treasury inflation-indexed bonds, even
during a period of deflation. However, the current
market value of the bonds is not guaranteed, and
will fluctuate. The Portfolios many also invest in
other inflation related bonds that may or may not
provide a similar guarantee. If a guarantee of
principal is not provided, the adjusted principal
value of the bond repaid at maturity may be less
than the original principal.
The U.S. Treasury has only recently begun issuing
inflation-indexed bonds. As such, there is no
trading history of these securities, and there can
be no assurance that a liquid market in these
instruments will develop, although one is expected
to continue to evolve. Lack of a liquid market may
impose the risk of higher transaction costs and the
possibility that a Portfolio may be forced to
liquidate positions when it would not be
advantageous to do so. Finally, there can be no
assurance that the Consumer Price Index for Urban
Consumers will accurately measure the real rate of
inflation in the price of goods and services.
Mortgage-Backed Instruments
Mortgage-backed securities are securities representing
ownership interests in, or debt obligations secured entirely
or primarily by, "pools" of residential or commercial
mortgage loans or other mortgage-backed securities.
Mortgage-backed securities may take a variety of forms, but
the two most common being:
1. Mortgage-pass through securities issued by
a. the Government National Mortgage Association
(Ginnie Mae),
b. the Federal National Mortgage Association (Fannie
Mae),
c. the Federal Home Loan Mortgage Corporation
(Freddie Mac),
d. commercial banks, savings and loan associations,
mortgage banks or by issuers that are affiliates of
or sponsored by such entities, and
2. Collateralized mortgage obligations (CMOs) which are
debt obligations collateralized by such assets
The Investment Adviser expects that new types of
mortgage-backed securities may be created offering asset
pass-through and asset-collateralized investments in addition
to those described above by governmental, government-related
and private entities. As new types of mortgage-related
securities are developed and offered to investors, the
Investment Adviser will consider whether it would be
appropriate for such Portfolio to make investments in them.
CMOs are derivatives collateralized by mortgage pass-through
securities. Cash flows from mortgage pass-through
securities are allocated to various tranches in a
predetermined, specified order. Each tranche has a stated
maturity - the latest date by which the tranche can be
completely repaid, assuming no prepayments - and has an
average life - the average of the time to receipt of a
principal payment weighted by the size of the principal
payment. The average life is typically used as a proxy for
maturity because the debt is amortized, rather than being
paid off entirely at maturity.
Risks: Portfolios may invest in mortgage-backed and
other asset-backed securities carrying the risk of
a faster or slower than expected prepayment of
principal which may affect the duration and return
of the security. Portfolio returns will be
influenced by changes in interest rates. Changes in
market yields affect a Portfolio's asset value
since Portfolio debt will generally increase when
interest rates fall and decrease when interest
rates rise. Thus, interest rates have an inverse
relationship with corresponding market values.
Prices of shorter-term securities generally
fluctuate less in response to interest rate changes
than do longer-term securities.
Multi-National Currency Unit Securities or More Than One
Currency Denomination
Multi-national currency unit securities are tied to
currencies of more than one nation. This includes the
European Currency Unit--a "basket" consisting of specified
currencies of the member states of the European Community (a
Western European economic cooperative organization). Each
Portfolio may invest in securities denominated in the
currency of one nation, although it is issued by a
governmental entity, corporation or financial institution of
another nation.
Risks: Investments involving multi-national
currency units are subject to changes in currency
exchange rates which may cause the value of such
invested securities to decrease relative to the
U.S. dollar.
Municipal Instruments
Municipal instruments are debt obligations issued by a state
or local government entity. The instruments may support
general governmental needs or special governmental projects.
It is not anticipated that such instruments will ever
represent a significant portion of any Portfolio's assets.
Risks: Investments in municipal instruments are
subject to the municipality's ability to make
timely payment. Municipal instruments may also be
subject to bankruptcy protection should the
municipality file for such protection.
Repurchase and Reverse Repurchase Agreements
Under a repurchase agreement, a bank or securities firm
(that is a dealer in U.S. Government Securities reporting to
the Federal Reserve Bank of New York) agrees to sell U.S.
Government Securities to a Portfolio and repurchase such
securities from the Portfolio for an agreed price at a later
date. Under a reverse repurchase agreement, 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 for an agreed
price at a later date.
The Fund will maintain a segregated custodial account for
each Portfolio's reverse repurchase agreements. Until
repayment is made, the segregated accounts may contain cash,
U.S. Government Securities or other liquid, unencumbered
securities having an aggregate value at least equal to the
amount of such commitments to repurchase (including accrued
interest). Repurchase and reverse repurchase agreements
will generally be restricted to those maturing within seven
days.
Risks: If the other party to a repurchase and/or
reverse repurchase agreement becomes subject to a
bankruptcy or other insolvency proceeding, or fails
to satisfy its obligations thereunder, delays may
result in recovering cash or the securities sold,
or losses may occur to all or part of the income,
proceeds or rights in the security.
Stripped Instruments
Stripped instruments are bonds, reduced to its two
components: its rights to receive periodic interest payments
(IOs) and rights to receive principal repayments (POs).
Each component is then sold separately. Such instruments
include:
a. Municipal Bond Strips
b. Treasury Strips
c. Stripped Mortgage-Backed Securities
Risks: POs do not pay interest, its return is
solely based on payment of principal at maturity.
Both POs and IOs tend to be subject to greater
interim market value fluctuations in response to
changes in interest rates. Stripped
Mortgage-Backed Securities IOs run the risk of
unanticipated prepayment which will decrease the
instrument's overall return.
Total Return Swaps
A total return swap is an exchange of one security for
another. Unlike a hedge swap, a total return swap is solely
entered into as a derivative investment to enhance total
return.
Risks: A total return swap may result in a
Portfolio obtaining an instrument, which for some
reason, does not perform as well as the original
swap instrument.
U.S. Government and Agency Securities and
Government-Sponsored Enterprises/Federal Agencies
U.S. Government and agency securities are 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. The
Portfolios may also invest in other securities may be issued
by a U.S. Government-sponsored enterprise or federal agency,
and supported either by its ability to borrow from the U.S.
Treasury or by its own credit standing. Such securities do
not constitute direct obligations of the United States but
are issued, in general, under the authority of an Act of
Congress. The universe of eligible securities in these
categories include those sponsored by:
a. U.S. Treasury Department
b. Farmer's Home Administration
c. Federal Home Loan Mortgage Corporation
d. Federal National Mortgage Association
e. Student Loan Marketing Association
f. Government National Mortgage Association
Risks: Investing in securities backed by the full
faith and credit of the U.S. Government are
guaranteed only as to interest rate and face value
at maturity, not its current market price.
Warrants
A warrant is a corporate-issued option that entitles the
holder to buy a proportionate amount of common stock at a
specified price. Warrants are freely transferable and can
be traded on the major exchanges.
Risks: Warrants retain their value only so long
as the stock retains its value. Typically, when
the value of the stock drops, the value of the
warrant drops.
Zero Coupon Securities
Zero coupon securities are sold at a deep discount from
their face value. Such securities make no periodic interest
payments, however, the buyer receives a rate of return by
the gradual appreciation of the security, until it is
redeemed at face value on a specified maturity date.
Risks: Zero coupon securities do not pay interest
until maturity and tend to be subject to greater
interim market value fluctuations in response to
interest rate changes rather than interest paying
securities of similar maturities.
PORTFOLIO TURNOVER
Costs associated with Portfolio turnover have historically
been and are expected to remain low relative to equity fund
turnover costs. These anticipated Portfolio turnover rates
are believed to be higher than the turnover experienced by
most fixed income funds, due to the Investment Adviser's
active management of duration and could, in turn, lead to
higher turnover costs. High Portfolio turnover may involve
greater brokerage commissions and transactions costs which
will be paid by the Portfolio. In addition, high turnover
rates may result in increased short-term capital gains.
SHAREHOLDER INFORMATION
DISTRIBUTION OF FUND SHARES
Shares of the Fund are distributed by AMT Capital
Securities, L.L.C. pursuant to a Distribution Agreement
dated as of May 29, 1998 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
Shares of each Portfolio, other than Emerging Markets,
Global High Yield and Global Tactical Exposure may be
purchased at each Portoflio's net asset value next
determined after receipt of the order. Submitted orders
should include a completed Account Application to AMT
Capital Securities or Investors Capital and a wiring of
federal funds to AMT Capital's "Fund Purchase Account" at
Investors Bank & Trust Company (IBT) in Boston,
Massachusetts. IBT serves as the Fund's transfer agent.
The offering of shares of each Portfolio is continuous and
purchases of shares 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, Dr. 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.
The minimum initial investment in any Portfolio of the Fund
is $100,000, which may be waived at the discretion of the
Investment Adviser or Distributor. Additional purchases or
redemptions may be of any amount. There are no sales
commissions (loads) or 12b-1 fees. Share purchases must be
made by wire transfer of Federal funds. Subject to the
above offering dates, initial share purchase orders are
effective on the date AMT Capital/Investors 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 Investors Capital at (800) 762-4848 [or within the
City of New York, (212) 332-5211] prior to 4:00 p.m. Eastern
time to inform the Fund of the incoming wire transfer.
Investors must clearly indicate which Portfolio is to be
purchased. If Federal funds are received by the Fund that
same day, the order will be effective on that day. If the
Fund receives notification after 4:00 p.m. Eastern time or
if Federal funds are not received by the Transfer Agent,
such purchase order shall be executed as of the date that
Federal funds are received. Shares purchased will begin
accruing dividends on the day Federal funds are received.
REDEMPTIONS
All Fund shares (fractional and full) will be redeemed upon
shareholder request. The redemption price will be the net
asset value per share, determined once the Transfer Agent
receives proper notice of redemption (as described below).
In the case of the Global and International Portfolios, if
notice of redemption is received by the Transfer Agent by
4:00 p.m. Eastern Time on any Business Day, the redemption
will be effective. Payment will be made 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 the
redemption notice will be deemed received as of the next
Business Day.
No charge is imposed by the Fund to redeem shares, 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 the
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:
1. the dollar or share amount to be redeemed;
2. the account to which the redemption proceeds should be
wired (this account will have been previously designated
by the shareholder on its Account Application Form);
3. the name of the shareholder; and
4. 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 expenses, the Fund may redeem shares
of any shareholder whose Portfolio account has a net asset
value lower than $100,000. A shareholder's account may be
involuntarily redeemed should the account value fall below
minimum investment requirements. An involuntary redemption
will not occur when drops in investment value are the sole
result of adverse 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.
DETERMINATION OF NET ASSET VALUE
Portfolio net asset value is determined by: (1) adding the
market value of all the Portfolio's assets, (2) subtracting
all of the Portfolio's liabilities, and then (3) 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.
DIVIDENDS
If desired, shareholders must request to receive dividends
in cash (payable on the first business day of the following
month) on the Account Application Form. Absent such notice,
all dividends will be automatically reinvested in additional
shares on the last business day of each month at the share's
net asset value. In the unlikely event that a Portfolio
realizes net short-, mid- or long-term capital gains (i.e.,
with respect to assets held more than one year), the Fund
will distribute such gains by automatically reinvesting
(unless a shareholder has elected to receive cash) them in
additional Portfolio shares.
Net investment income (including accrued but unpaid
interest, amortization of original issue and market discount
or premium) of each Portfolio, will be declared as a
dividend payable daily to the respective shareholders of
record as of the close of each Business Day.
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in
Director elections and other shareholder voting matters.
Matters to be acted upon affecting a particular Portfolio
(such as approval of the investment advisory agreement with
the Investment Adviser or the submission of changes of
fundamental Portfolio investment policy) require the
affirmative vote of the Portfolio shareholders. The
election of the Fund's Board of Directors and the approval
of the Fund's independent auditors are voted upon by
shareholders on a Fund-wide basis. 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. The directors shall call
a special meeting of the Fund upon written request of
shareholders owning at least 10% of the Fund's outstanding
shares.
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 currently qualifies and intends to
continue to qualify as a regulated investment company (RIC)
under the Internal Revenue Code of 1986, as amended. To be
a RIC, a Portfolio must meet certain income, distribution
and diversification requirements. In any year in which a
Portfolio qualifies as a RIC while distributing all of its
taxable income, and substantially all of its net tax-exempt
interest income on a timely basis, the Portfolio generally
will not pay U.S. federal income or excise tax. In any year
a Portfolio fails to qualify as a RIC, the Portfolio will be
subject to federal income tax in the same manner as an
ordinary corporation and distributions to shareholders will
be taxable as ordinary income to the extent of the earnings
and profits of the Portfolio. Distributions in excess of
earnings and profits will be treated as a tax-free return of
capital, to the extent of a holder's basis in its shares,
and any excess, as a long or short-term capital gain.
Each Portfolio will distribute all of its taxable income by
automatically reinvesting such income in additional
Portfolio shares and distributing those shares to its
shareholders, unless a shareholder elects on the Account
Application Form to receive cash payments for such
distributions. Shareholders receiving distributions from the
Fund in the form of additional shares will be treated for
federal income tax purposes as receiving a distribution in
an amount equal to the fair market value of the additional
shares on the date of such a distribution.
Dividends a Portfolio pays from its investment company
taxable income (including interest and net short-term
capital gains) will be taxable to U.S. shareholders as
ordinary income, whether received in cash or in additional
Fund shares. Distributions of net capital gains (the excess
of net long-term capital gains over net short-term capital
losses) are generally taxable to shareholders at the
applicable mid-term or long-term capital gains rates,
regardless of how long they have held their Portfolio
shares. If a portion of a Portfolio's income consists of
dividends paid by U.S. corporations, a portion of the
dividends paid by the Portfolio may be eligible for the
corporate dividends-received deduction. Under the Taxpayer
Relief Act of 1997, different tax rates apply to net capital
gain depending on the taxpayers holding period and marginal
rate of federal income tax. Generally, these are 28% for
gain recognized on capital assets held for more than one
year but not more than 18 months and 20% (10% for taxpayers
in the 15% marginal tax bracket) for gain recognized on
capital assets held for more than 18 months. Each Portfolio
will notify its shareholders regarding the portions of any
net capital gain distribution taxed at the 28% and 20% tax
rates.
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.
The foregoing discussion is only a brief summary of the
important federal tax considerations generally affecting the
Fund and its shareholders. As noted above, IRAs receive
special tax treatment. No attempt is made to present a
detailed explanation of the federal, state or local income
tax treatment of the Fund or its shareholders, and this
discussion is not intended as a substitute for careful tax
planning. Accordingly, potential investors in the Fund
should consult their tax advisers with specific reference to
their own tax situation.
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. Portfolio distributions
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 tax
advisers regarding possible state and local income tax
exclusions for dividend portions paid by a Portfolio, which
are attributable to interest from obligations of the U.S.
Government, its agencies, authorities and instrumentalities.
FUND MANAGEMENT
BOARD OF DIRECTORS
The Fund's Board of Directors is responsible for the Fund's
overall management and supervision. The Fund's Directors
are Stephen P. Casper, John C Head III, Lawrence B. Krause,
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. serves as
Investment Adviser to the Fund. The investment Adviser
continuously conducts investment research and is responsible
for the purchase, sale or exchange of the Portfolio's
assets. Organized in 1972, the Investment Adviser is
registered with the Securities and Exchange Commission and
is a New York corporation currently managing over $29
billion in assets for numerous fixed-income Portfolios. The
Adviser currently advises over 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. The Investment Adviser is directly wholly-owned by
Charter Atlantic Corporation, a New York corporation.
INVESTMENT 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. The
Sub-Adviser's offices are located at 3 Royal Court, The
Royal Exchange, London, EC 3V 3RA. The Investment
Sub-adviser is directly or indirectly wholly-owned by
Charter Atlantic Corporation, a New York corporation.
PORTFOLIO MANAGERS
Liaquat Ahamed, Managing Director. Mr. Ahamed 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 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 May 29, 1998,
Investors Capital serves as the Fund's Administrator.
Investors Capital 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 agent, dividend
disbursing, accounting, auditing, compliance and related
services.
The Fund pays Investors 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 $2 billion,
0.04% thereafter up to $5 billion, and 0.03% on assets over
$5 billion. The Fund also reimburses Investors Capital for
certain costs. In addition, the Fund has agreed to pay
Investors Capital an incentive fee for reducing the
Portfolio expense ratio of one or more of the Fund's
Portfolios below the specified expense ratio. The maximum
incentive fee is 0.02% of the average daily net assets of a
Portfolio.
POTENTIAL YEAR 2000 PROBLEM
Like other mutual funds,
financial and business organizations and
individuals around the world, the Fund could be
adversely affected if the computer systems used
by the advisor/administrator and other service
providers do not properly process and calculate
date-related information and data from and after
January 1, 2000. This is commonly known as the
"Year 2000 Problem." The advisor/administrator
are taking steps that they believe are reasonably
designed to address the Year 2000 Problem with
respect to computer systems that they use and to
obtain reasonable assurances that comparable
steps are being taken by the Fund's other major
service providers. At this time, however, there
can be no assurance that these steps will be
sufficient to avoid any adverse impact to the
Fund nor can there be any assurance that the Year
2000 Problem will not have an adverse effect on
the companies whose securities are held by the
Fund or on global markets or economies,
generally.
CONTROL PERSON
As of August 31, 1998, Fischer Francis Trees & Watts, Inc.
had discretionary investment advisory agreements with
shareholders of the Fund that represent _____% of the Fund's
total net assets and therefore, may be deemed a control
person.
CUSTODIAN AND ACCOUNTING AGENT
Investors Bank & Trust Company, P.O. Box 1537, Boston,
Massachusetts 02205-1537, is Custodian and Auditing 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.
SHAREHOLDER INQUIRIES
Fund inquiries may be made by writing to AMT Capital
Securities, LLC., 399 Park Avenue, New York, New York 10022
or by calling Investors Capital at (800) 762-4848 [or (212)
332-5211, if within New York City].
FFTW FUNDS, INC.
200 Park Avenue, 46th Floor, New York, New York 10166 (212) 681-3000
Distributed by:
AMT CAPITAL SECURITIES, LLC
600 Fifth Avenue
New York, NY 10020
(212) 332-5211
STATEMENT OF ADDITIONAL INFORMATION
September __, 1998
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 twenty-one portfolios (each a
"Portfolio") grouped in two Prospectuses as described below:
U.S. Portfolios Prospectus Global and International Portfolios
Prospectus
--------------------------------------- -------------------------------
Money Market Worldwide
Mortgage LIBOR Worldwide-Hedged
U.S. Short-Term International
Stable Return Global Tactical Exposure
Mortgage Total Return International Opportunities
Asset-Backed International Corporate
High Yield Emerging Markets
Enhanced Index Global High Yield
U.S. Treasury Inflation-Indexed
U.S. Corporate Inflation-Indexed Hedged
Broad Market
This Statement of Additional Information is not a prospectus
and should be read in conjunction with each Portfolio's
Prospectus dated September __, 1998. The two Prospectuses
have been filed with the Securities and Exchange Commission
and can be obtained, without charge, by calling or writing
AMT Capital Securities at the telephone number or address
stated above. This Statement of Additional Information
incorporates by reference the Prospectus.
CONTENTS
Page
Overview of the Fund 3
History of the Fund 3
Organization of the Fund 3
Management of the Fund 3
Principal Securities Holders 8
Distribution of Fund Shares 11
Supplemental Investment Information 12
Supplemental Descriptions of Investments 12
Supplemental Descriptions of Investment Techniques 16
Supplemental Discussion of Risks Associated with the fund's
Investment Policies and Investment Techniques 16
Supplemental Hedging Techniques 19
Investment Restrictions 26
Portfolio Transactions 28
Supplemental Tax Considerations 29
Shareholder Information 33
Calculation of Performance Data 34
Financial Statements 36
Appendix 37
Merrill Lynch 1-2.99 Year Treasury Index 37
Quality Rating Descriptions 37
OVERVIEW OF THE FUND
HISTORY OF THE FUND
From its inception on February 23, 1989 to September 27,
1989, Fund's name was "FFTW Institutional Reserves Fund,
Inc.". The Fund commenced operations on December 6, 1989.
From September 27, 1989 to July 22, 1991 the Fund's name was
"FFTW Reserves, Inc." On July 22, 1991 the Fund's name was
changed to its present name, "FFTW Funds, Inc." The U.S.
Short-Term Portfolio commenced operations on December 6,
1989, Worldwide Portfolio commenced operations on April 15,
1992 and Worldwide-Hedged Portfolio commenced operations on
May 19, 1992. These Portfolios were called the 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. In August of
1998, the name of the International-Hedged Portfolio was
changed to the Global Tactical Exposure Portfolio.
ORGANIZATION OF THE FUND
Stock Issuance
The Fund's authorized capital stock consists of
4,200,000,000 shares, each with $.001 par value. Each
Portfolio has been allocated 200,000,000 shares.
Shareholder Voting
Each Portfolio's shares have equal voting rights--all
shareholders have one vote for each share held. All issued
and outstanding shares are fully paid and non-assessable,
transferable, and redeemable at net asset value at the
shareholder's option. Shares have no preemptive or
conversion rights.
The Fund's shares have non-cumulative voting rights. Thus,
in a Board of Directors election, shareholders holding more
than 50% of the voting shares can elect 100% of the
Directors if they choose to do so. In such event, the
holders of the remaining voting shares (less than 50%) will
be unable to elect any person or persons to the Board of
Directors.
Cross Portfolio Liability
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 (*) placed next to the name of each
director means the director is an "interested person" of the
Fund. 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.
John C Head III, Fund Director
1330 Avenue of the Americas, New York, New York Mr. Head
has been a Managing Member of Head & Company L.L.C. since
1987. He is Chairman of the Board of ESG Re Limited and a
Director of PartnerRe Ltd., Kiln Capital plc and other
private companies.
Lawrence B. Krause, Fund Director
University of California - San Diego ("UCSD"), La Jolla,
CA. 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.
*Onder John Olcay, Fund Chairman of the Board
200 Park Avenue, New York, NY. Mr. Olcay has been a
shareholder and Managing Director of the Investment Adviser
for the last six years.
Stephen P. Casper, Fund Treasurer & Managing Director
200 Park Avenue, New York, NY 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, Fund Assistant Treasurer
600 Fifth Avenue, New York, NY. Ms. Dearing serves as
President and Director of Investors Capital Services and was
a co-founder of the firm in March, 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, Fund Secretary and Treasurer
600 Fifth Avenue, New York, NY. Mr. Vastardis serves as
Managing Director and Head of Fund Administration for
Investors 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 working six years in Vanguard's fund accounting
operations.
No employee of the Investment Adviser nor Investors Capital
Services receives 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 Investors 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.
<TABLE>
<S> <C> <C> <C> <C>
Director's Compensation Table
Fiscal Year Ended December 31, 1997
- --------------------------- --------------------------- ---------------------- ---------------- --------------------------
Director Aggregate Compensation Pension or Estimated Total Compensation From
From Registrant Retirement Benefits Annual Registrant and Fund
Accrued As Part of benefits Upon Complex Paid to Directors
Fund Expenses Retirement
- --------------------------- --------------------------- ---------------------- ---------------- --------------------------
- --------------------------- --------------------------- ---------------------- ---------------- --------------------------
Stephen P. Casper $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
- --------------------------- --------------------------- ---------------------- ---------------- --------------------------
- --------------------------- --------------------------- ---------------------- ---------------- --------------------------
Stephen J. Constantine $0 $0 $0 $0
- --------------------------- --------------------------- ---------------------- ---------------- --------------------------
</TABLE>
By virtue of the responsibilities assumed by the Investment
Adviser and Investors 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,
1997.
Investment Adviser and Sub-Adviser Agreements
The Fund has two sets of advisory agreements, one for U.S.
Short-Term, Worldwide and Worldwide-Hedged, and one for each
of the other eighteen Portfolios. The Fund also has two
sets of sub-advisory agreements, one for Worldwide and
Worldwide-Hedged, and one for each of other Global and
International Portfolios.
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"), remain in
effect for two years following their date of execution.
Thereafter, such agreements will automatically continue for
successive annual periods. Continuance thereafter, is
specifically approved at least annually. Continuance is
voted on by the Board of Directors or the vote of a
Portfolio's "majority" (as defined in the 1940 Act) of
outstanding voting shares as a single class, provided, that
in either event, the continuance is also approved by:
a. at least a majority of the Board of Directors who are
not "interested persons" (as defined in the 1940 Act) of
the Fund,
b. the Investment Adviser, or
c. 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
Last Advisory Agreement Approval Dates
<TABLE>
<S> <C> <C>
U.S. Portfolios Last Board Approval Last Shareholder Approval
Money Market 2/11/98 1/21/97
Mortgage LIBOR 7/7/98
U.S. Short -Term 2/11/98 4/3/91
Stable Return 2/11/98 2/18/93
Mortgage Total Return 2/11/98 1/2/96
Asset-Backed 7/7/98
High-Yield 7/7/98
Enhanced Index 7/7/98
U.S. Treasury 2/11/98 1/21/97
U.S. Corporate 7/7/98
Broad Market 2/11/98 1/21/97
International Portfolios Last Board Approval Last Shareholder Approval
Worldwide 2/11/98 12/31/92
Worldwide-Hedged 2/11/98 12/31/92
International 2/11/98 2/18/93
Global Tactical Exposure 2/11/98 2/18/93
International Opportunities 7/7/98
International Corporate 7/7/98
Emerging Markets 2/11/98 1/21/97
Global High-Yield 7/7/98
Inflation-Indexed 2/11/98 1/21/97
Inflation-Indexed Hedged 2/11/98 1/21/97
</TABLE>
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.
Last Sub-Advisory Agreement Approval Dates
<TABLE>
<S> <C> <C>
International Portfolios Last Board Approval Last Shareholder Approval
Worldwide 2/11/98 12/31/92
Worldwide-Hedged 2/11/98 12/31/92
International 2/11/98 2/18/93
Global Tactical Exposure 2/11/98 2/18/93
International Opportunities 7/7/98
International Corporate 7/7/98
Emerging Markets 2/11/98 1/21/97
Global High-Yield 7/7/98
Inflation-Indexed 2/11/98 1/21/97
Inflation-Indexed Hedged 2/11/98 1/21/97
</TABLE>
Each Advisory and Sub-Advisory Agreement is terminable
without penalty:
a. on not less than 60 days' notice by the Board of
Directors;
b. by a vote of the holders of a majority of the relevant
Portfolio's outstanding shares voting as a single class;
or
c. 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).
Adviser's/Sub-Adviser's Payment of Fund Expenses
The Investment Adviser pays all of its expenses arising from
its performance obligations pursuant to the Advisory
Agreements, including:
a. all executive salaries and expenses of the Fund's
directors,
b. officers employed by the Investment Adviser, or
c. its affiliates and office rent of the Fund.
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.
Fund's Payment of Fund Expenses
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:
<TABLE>
<S> <C>
a. investment advisory fees, k. sale,
b. brokerage commissions, l. repurchase or redemption of shares,
c. insurance premiums and extraordinary expenses m. expenses of registering and qualifying shares of the
such as litigation expenses, Fund under federal and state laws and regulations,
d. fees and expenses of independent attorneys, n. expenses of printing and distributing reports,
e. auditors, o. notices and proxy materials to existing shareholders,
f. custodians, p. expenses of printing and filing reports and other
documents filed with governmental agencies,
g. accounting agents, q. expenses of annual and special shareholders' meetings,
h. transfer agents, r. membership dues in the Investment Company Institute,
i. taxes, s. interest,
j. cost of stock certificates and any other t. fees and expenses of directors of the Fund who are not
expenses (including clerical expenses) of issue, employees of the Investment Adviser or its affiliates.
</TABLE>
Portfolio's Payment of Fund 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
their net assets. 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):
U.S. Portfolios Rates
Money Market ............................0.10%
Mortgage LIBOR ............................0.30%
U.S. Short -Term* 0.15%
Stable Return** ............................0.15%
Mortgage Total Return***......................0.30%
Asset-Backed ............................0.10%
U.S. High-Yield ............................0.10%
Enhanced Index ............................0.35%
U.S. Treasury ............................0.30%
U.S. Corporate ............................0.10%
Broad Market ............................0.30%
Global and International Portfolios Rates
Worldwide ............................0.40%
Worldwide-Hedged****..........................0.25%
International ............................0.40%
Global Tactical Exposure*****.................0.10%
International Opportunities...................0.40%
International Corporate.......................0.10%
Emerging Markets 0.75%............................
Global High-Yield 0.10%
Inflation-Indexed ............................0.40%
Inflation-Indexed Hedged......................0.40%
* Effective March 1, 1996, the Adviser has voluntarily
lowered the advisory fee from 0.30%.
** Effective March 1, 1996, the Adviser has voluntarily
lowered the advisory fee from 0.35%.
*** Effective October 1, 1997, the Adviser has voluntarily
lowered the advisory fee from 0.35%.
**** Effective July 1, 1995, the Adviser has voluntarily
lowered the advisory fee from 0.40%.
***** Effective September 1, 1997 the Adviser has
voluntarily lowered the advisory fee from 0.40%.
For the years ended December 31, 1997, December 31, 1996 and
December 31, 1995, the amount of advisory fees (net of
waivers and reimbursements) paid by each Portfolio were as
follows:
<TABLE>
<S> <C> <C> <C>
- ------------------------------------ ---------------------------- ----------------------------- -----------------------------
Portfolio Name Year Ended Dec. 31, 1997 Year Ended Dec. 31, 1996 Year Ended Dec. 31, 1995
- ------------------------------------ ---------------------------- ----------------------------- -----------------------------
U.S. Portfolios
- ------------------------------------ ---------------------------- ----------------------------- -----------------------------
Money Market $ 7,718 $ 0 $ 0
U.S. Short-Term 598,652 607,871 867,461
Stable Return 10,639 1,711 0
Mortgage Total Return (1) 1,286,506 126,822 N/A
- -----------------------------------------------------------------------------------------------------------------------------
Global and International Portfolios
- ------------------------------------ ---------------------------- ----------------------------- -----------------------------
Worldwide 308,466 334,929 46,819
Worldwide-Hedged 112,750 1,647 0
International (2) 136,714 12,322 N/A
Global Tactical Exposure (3) 500,355 180,065 52,860
Emerging Markets (4) 191,177 N/A N/A
</TABLE>
(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.
(4) Commencement of operations was August 12, 1997.
Administration Agreement
Pursuant to its terms, the Administration Agreement between
the Fund and Investors Capital Services, Inc., a Delaware
corporation, will automatically continue for successive
annual periods subject to the approval of the Fund's Board
of Directors. Investors 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 SECURITIES HOLDERS
As of August 31, 1998, the following persons held 5 percent
or more of the outstanding shares of Money Market:
<TABLE>
<S> <C> <C> <C>
Title of Class Name and Address of Beneficial Owner Nature of Beneficial Percent of
Ownership Portfolio
Common Stock, $.001 per Cooper Industries, Inc., 1001 Fannin St., First City Direct Ownership 91.21%
Share Tower, Suite 3900, Houston, TX 77210
Common Stock, $.001 per ESI Securities Co., 1221 Avenue of the Americas, 30th Direct Ownership 5.96%
Share Floor, New York, NY 10020
As of August 31, 1998, the following persons held 5 percent or more of the outstanding shares of U.S. Short-Term:
Title of Class Name and Address of Beneficial Owner Percent of
Nature of Beneficial Portfolio
Ownership
Common Stock, $.001 per Share Philip Morris Companies, Inc., 120 Park Avenue, New Direct Ownership 13.58%
York 10017-5523
Common Stock, $.001 per Share Monsanto Reserve Cash, c/o Fischer Francis Trees & Direct Ownership 11.70%
Watts, Inc., 200 Park Avenue, New York, NY 10166
Common Stock, $.001 per Share The Dow Chemical Company Employees Retirement Plan, Direct Ownership 11.36%
Dorinco 100, Midland, MI 48674-0000
Common Stock, $.001 per Share Markey Charitable Trust, 3250 Mary Street, #405, Miami, Direct Ownership 6.65%
FL 33133-5255
Common Stock, $.001 per Share State Street Bank & Trust Co., Trustee for Pacific Gas Direct Ownership 6.29%
& Electric Co. Post-Retirement Medical Trust, One
Enterprise Drive W6A, North Quincy, MA 02171
Common Stock, $.001 per Share State Street Bank & Trust Co., Trustee for Bull HN Direct Ownership 6.19%
Information Systems Inc., One Enterprise Drive SW 5C,
North Quincy, MA 02171
Common Stock, $.001 per Share Cascade Investments LLC, c/o Fischer Francis Trees & Direct Ownership 5.68%
Watts, Inc., 200 Park Avenue, 46th Floor, New York, NY
10166
Common Stock, $.001 per Share Wachovia Bank of North Carolina, Trustee for R.J.R. Direct Ownership 5.27%
Nabisco - Defined Benefit Plan, P.O. Box 3099,
Winston-Salem, NC 27150-3099
</TABLE>
As of August 31, 1998, the following persons held 5 percent
or more of the outstanding shares of Stable Return:
<TABLE>
<S> <C> <C> <C>
Title of Class Name and Address of Beneficial Owner Nature of Beneficial Percent of
Ownership Portfolio
Common Stock, $.001 per The Dow Chemical Company Foundation, Dorinco 100, Direct Ownership 44.89%
Share Midland, MI 48674
Common Stock, $.001 per Northern Trust Co., Trustee FBO Sandoz Investment Plan, Direct Ownership 34.51%
Share P.O. Box 92956, Chicago, IL 60675
Common Stock, $.001 per Corporation for Supportive Housing, 342 Madison Avenue, Direct Ownership 19.72%
Share Suite 505, New York, NY 10173
As of August 31, 1998, the following persons held 5 percent
or more of the outstanding shares of Mortgage Total Return:
Name and Address of Nature of Percent of
Title of Class Beneficial Owner Beneficial Portfolio
Ownership
Common Stock, $.001 per State Street Bank & Trust Co., Trustee for Bull HN Direct Ownership 25.49%
Share Information Systems Inc., One Enterprise Drive SW 5C,
North Quincy, MA 02171
Common Stock, $.001 per Corning, Inc. Master Trust, c/o U.S. Trust Co., 114 W. Direct Ownership 19.99%
Share 47th St., 3rd Floor-39, New York, NY 10036-1632
Common Stock, $.001 per International Business Machines Corp., c/o Fischer Direct Ownership 18.24%
Share Francis Trees & Watts, Inc., 200 Park Avenue, 46th
Floor, New York, NY 10166
Common Stock, $.001 per International Bank for Reconstruction and Development Direct Ownership 8.69%
Share Staff Benefits Plan, c/o Fischer Francis Trees & Watts,
Inc., 200 Park Avenue, 46th Floor, New York, NY 10166
Common Stock, $.001 per International Bank for Reconstruction and Development Direct Ownership 7.91%
Share Staff Retirement Plan, c/o Fischer Francis Trees &
Watts, Inc., 200 Park Avenue, 46th Floor, New York, NY
10166
Common Stock, $.001 per Cornell University, Terrace Hill, Ithaca, NY 14853-0001 Direct Ownership 6.79%
Share
</TABLE>
As of August 31, 1998, the following persons held 5 percent or more of the
outstanding shares of Worldwide:
<TABLE>
<S> <C> <C> <C>
Title of Class Name and Address of Nature of Beneficial Percent
Beneficial Owner Ownership of Portfolio
Common Stock, $.001 per Share Northern Trust Co., Trustee for GATX Master Retirement Direct Ownership 21.78%
Trust, 500 W. Monroe St., 44th Floor, Chicago, IL 60661
Common Stock, $.001 per Share Bob & Co., c/o Bank of Boston, P.O. Box 1809, Boston, Direct Ownership 16.86%
MA 02105
Common Stock, $.001 per Share Administrators of Tulane Educational Fund, Treasurer's Direct Ownership 14.91%
Office, 6401 Freret St., Suite 178, New Orleans, LA
70118
Common Stock, $.001 per Share Community Foundation For Southeastern Michigan, 333 Direct Ownership 11.50%
West Fort St., Suite 2010, Detroit, MI 48226
Common Stock, $.001 per Share Bentley College, 175 Forest St., Waltham, MA 02154 Direct Ownership 7.73%
Common Stock, $.001 per Share Geneva Regional Health System Inc., 196 North St., Direct Ownership 7.10%
Geneva, NY 14456
</TABLE>
As of August 31, 1998, the following persons held 5 percent or more of the
outstanding shares of Worldwide-Hedged:
<TABLE>
<S> <C> <C> <C>
Name and Address of Nature of Beneficial Percent
Title of Class Beneficial Owner Ownership of Portfolio
Common Stock, $.001 per Share Northern Trust Co. Trustee for Mars Benefit Trust, P.O. Direct Ownership 32.34%
Box 92956, Attn: Mutual Funds, Chicago, IL 60675
Common Stock, $.001 per Share Law School Admission Council Inc., P.O. Box 40, Direct Ownership 28.01%
Newtown, PA 18940-0040
Common Stock, $.001 per Share State Street Bank & Trust Co., Trustee for Goldman Direct Ownership 23.86%
Sachs Pension Plan, 200 Newport Ave., North Quincy, MA
02171
Common Stock, $.001 per Share The McCallie School, 500 Dodds Ave., Chattanooga, TN Direct Ownership 11.33%
37404
</TABLE>
As of August 31, 1998, the following persons held 5 percent
or more of the outstanding shares of International:
<TABLE>
<S> <C> <C> <C>
Name and Address of Nature of Beneficial Percent
Title of Class Beneficial Owner Ownership of Portfolio
Common Stock, $.001 per Share Colonial Williamsburg Foundation, P.O. Box 1776, Direct Ownership 33.46%
Williamsburg, VA 23187-1776
Common Stock, $.001 per Share HF Investment LP, 1700 Old Deerfield Road, Highland Direct Ownership 22.81%
Park, IL 60035
Common Stock, $.001 per Share David & Company, P.O. Box 188, Murfreesboro, TN Direct Ownership 17.84%
37133-0188
Common Stock, $.001 per Share Mac & Co., Mellon Trust, P.O. Box 3198, Pittsburgh, PA Direct Ownership 15.45%
15230-3198
Common Stock, $.001 per Share State Street Bank & Trust, Trustee FBO Retirement Direct Ownership 10.43%
Income Plan For Employees of Colonial Williamsburg,
P.O. Box 1776, Williamsburg, VA 23187-1776
</TABLE>
As of August 31, 1998, the following persons held 5 percent
or more of the outstanding shares of Global Tactical
Exposure:
<TABLE>
<S> <C> <C> <C>
Name and Address of Nature of Beneficial Percent
Title of Class Beneficial Owner Ownership of Portfolio
Common Stock, $.001 per Share Northrop Corporation Employee Benefit Plan, 1840 Direct Ownership 20.06%
Century Park West, Los Angeles, CA 90067-2101
Common Stock, $.001 per Share International Business Machines Corp. Retirement Plan, Direct Ownership 18.69%
3001 Summer Street, Stamford, CT 06905
Common Stock, $.001 per Share U.S. Trust Co., Trustee for Corning, Inc., 777 Direct Ownership 17.66%
Broadway, 10th Floor, New York, NY 10003-9598
Common Stock, $.001 per Share Northern Trust Co. Trustee for Monsanto Defined Direct Ownership 9.71%
Contribution, P.O. Box 92956, Attn: Mutual Funds,
Chicago, IL 60675
Common Stock, $.001 per Share Chase Manhattan Bank NA, Trustee for Amoco Corporation Direct Ownership 9.19%
Master Trust Employee Pension Plan, 3 Chase Metrotech
Center, 7th Floor, Brooklyn, NY 11245
Common Stock, $.001 per Share Henry J. Kaiser Family Foundation, c/o Bankers Trust Direct Ownership 7.60%
Co., 34 Exchange Place, 2nd Floor, Jersey City, NJ
07302
Common Stock, $.001 per Share Bankers Trust Co. FBO Premark International Defined Direct Ownership 6.77%
Benefit Trust, 34 Exchange Place, 2nd Floor, Jersey
City, NJ 07302
Common Stock, $.001 per Share Pension Fund of the Retirement Plan of Northern Direct Ownership 5.76%
Southern Corporation, 110 Franklin Rd., S.E. Roanoke,
VA 24042-0040
</TABLE>
DISTRIBUTION OF FUND SHARES
Shares of the Fund are distributed by AMT Capital
Securities, LLC pursuant to a Distribution Agreement dated
as of May 29, 1998 between the Fund and AMT Capital
Securities. No fees are payable by the Fund pursuant to the
Distribution Agreement, and AMT Capital Securities bears the
expense of its distribution activities. The Fund and AMT
Capital Securities have agreed to indemnify one another
against certain liabilities.
SUPPLEMENTAL INESTMENT INFORMATION
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 AND THE RISKS
INVOLVED." 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, such as bills, notes and bonds. These
instruments are direct obligations of the U.S. Government
and 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. 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 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 issued by foreign governmental entities have
various kinds of government support and include obligations
issued or guaranteed by foreign governmental entities with
taxing powers 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
following entities:
a. International Bank for Reconstruction, and Development
("World Bank");
b. European Steel and Coal Community;
c. Asian Development Bank, the European Bank for
Reconstruction; and
d. 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 U.S. bank obligations investments to
U.S. banks meeting the Investment Adviser's creditworthiness
criteria. The Fund limits its investments in foreign bank
obligations to foreign banks (including U.S. branches of
foreign banks) meeting the Investment Adviser's or the
Sub-Adviser's investment quality standards. Generally, such
foreign banks must be 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. Repurchase transactions allow
the Portfolio to earn a return on available cash at minimal
market risk. The Portfolio may be subject to various delays
and risks of loss should the vendor become subject to a
bankruptcy proceeding or if it 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 while
simultaneously agreeing 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 an interest payment. For each
Portfolio, the Fund will maintain 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 repurchase commitments, including
accrued interest. These accounts are kept until payment is
made. Reverse repurchase agreements create leverage, a
speculative factor, but are not considered borrowings for
the purposes of Portfolio borrowing limitations.
Repurchase and reverse repurchase agreements may also
involve foreign government securities with 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 occur when a Portfolio sells GNMA
certificates or other mortgage-backed securities to a bank
or broker-dealer (the "counterparty") along 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. The transaction
may be preceded by a firm commitment agreement, pursuant to
which, the Portfolio agrees to buy a security on a future
date. Portfolios will not use such transactions for
leverage purposes and will segregate cash, U.S. Government
securities or other appropriate securities in an amount
sufficient to meet its purchase obligations under the
transactions.
Dollar roll transactions are similar to reverse repurchase
agreements in that 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
Portfolio fee received, 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 representing
ownership interests in, or 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 representing
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). Thus, these securities
have payment terms closely resembling the payment terms of
the Underlying Assets.
Mortgage-backed securities can be issued in multiple
classes. Such securities are called multi-class
mortgage-backed securities ("MBS") and the classes are often
referred to as "traunches." MBS securities are issued at a
specific fixed or floating coupon rate and have 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 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. 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. Certain
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 or receipts for their
underlying principal (the "coupons") which have been
separated by their holder. Holders are typically custodian
banks or investment brokerage firms. 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 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, purchasers of such certificates,
such as a Portfolio, will most likely 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 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 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 are investments of
fluctuating amounts and varying interest rates made pursuant
to direct arrangements between a Portfolio (as lender) and a
borrower. These notes are direct lending arrangements
between lenders and borrowers, and are generally
non-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 fluctuate in response to any changes in the
exchange rates 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. 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. PERLs are adversely affected by increases in the
foreign exchange value of the U.S. dollar. Reverse principal
exchange rate linked securities differ from "standard" PERL
securities in 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. Security
interest payments are generally made in U.S. dollars at
rates reflecting the degree of foreign currency risk assumed
or given up by the note's purchaser.
Performance Indexed Paper
Performance indexed paper (or "PIPs") is U.S.
dollar-denominated commercial paper, whose yield is linked
to certain foreign exchange rate movements. The investor's
yield on performance indexed paper is established at
maturity as a function of spot exchange rates between the
U.S. dollar and a designated currency. This yield is within
a stipulated range of return at the time the obligation was
purchased, lying within a guaranteed minimum rate below and
a potential maximum rate of return above market yields on
U.S. dollar-denominated commercial paper. Both the minimum
and maximum rates of investment return correspond 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 Portfolio's investment
Adviser or the Sub-Adviser bases its decision to invest in
any future foreign currency exchange-related securities 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. This includes 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"). The ECU is a "basket"
consisting of specified currency amounts of the member
states of the European Community, a Western European
economic cooperative organization. The specific currency
amounts 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, commonly issue ECU-denominated
obligations.
Foreign Currency Warrants
Foreign currency warrants such as currency exchange warrants
("CEWs") are warrants entitling the holder to receive a cash
amount from their issuer (generally, for warrants issued in
the United States in U.S. Dollars). This cash amount is
calculated pursuant to a predetermined formula, 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 are generally exercisable when issued and
expire at 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). 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 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 may be issued to raise money for
various public purposes, and include general obligation
bonds and revenue bonds. General obligation bonds are
backed by the taxing power of the issuing municipality and
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 rates can be floating, variable or
fixed. The values of floating and variable rate obligations
are generally more stable than those of fixed rate
obligations in response to changes in interest rate levels.
Variable and floating rate obligations usually carry rights
permitting a Portfolio to sell them upon short notice at par
value plus accrued interest. 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
(conditional commitments to lend) or letters of credit,
(which are ordinarily irrevocable) issued by domestic banks
or foreign banks having a United States branch, agency or
subsidiary. 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 DESCRIPTION OF INVESTMENT TECHNIQUES
Borrowing
Each Portfolio may borrow money temporarily from banks when:
a. it is advantageous to do so in order to meet redemption
requests,
b. a Portfolio fails to receive transmitted funds from a
shareholder on a timely basis,
c. the custodian of the Fund fails to complete delivery of
securities sold, or
d. 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.
Securities Lending
With the exception of U.S. Short-Term, each Portfolio may
lend out its investment securities. The value of these
securities may not exceed 33 1/3% of the Portfolio's total
assets. Such securities may be lent to banks, brokers and
other financial institutions if it receives in return,
collateral in cash, U.S. Government Securities or
irrevocable bank stand-by letters of credit. Such
collateral will be maintained at all times in an amount
equal to at least 100% of the current market value of the
loaned securities. The Fund may terminate the loans at any
time and the relevant Portfolio will then receive the loaned
securities within five days. During the loan period, the
Portfolio receives the income on the loaned securities and a
loan fee thereby potentially increasing 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 "INVESTMENT TECHNIQUES / STRATEGIES &
ASSOCIATED RISKS." 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. Thus, many foreign company securities are
less liquid and their prices are more volatile than
securities of comparable domestic companies. 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 portfolio assets remain uninvested and earn no
return. 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 portfolio securities due to settlement
problems could result either in portfolio losses due to
subsequent declines in portfolio security value or, if the
Portfolio has entered into a contract to sell the security,
could result in possible liability to the purchaser.
Comparatively speaking, there is 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 also have an impact
on currency exchange rates.
Foreign Bank Obligations
Foreign bank obligations involve somewhat different
investment risks than those affecting obligations of United
States banks. Included in these risks are possibilities
that:
a. investment liquidity may be impaired due to future
political and economic developments;
b. their obligations may be less marketable than
comparable obligations of United States banks;
c. a foreign jurisdiction might impose withholding taxes
on interest income payable on those obligations;
d. foreign deposits may be seized or nationalized;
e. foreign governmental restrictions such as exchange
controls may be adopted that might adversely affect
the payment of principal and interest on those
obligations;
f. the selection of those obligations may be more
difficult because there may be less publicly available
information concerning foreign banks; or
g. 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 some
foreign countries are subject to additional risks because
they engage in commercial banking and diversified securities
activities.
Dollar Roll Transactions
Dollar roll transactions involve potential risks of loss
which differ from those relating to the securities
underlying the transactions. For example, should the
counterparty become 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, 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. There can be no assurance that a
Portfolio's use of the cash it receives from a dollar roll
will provide a return exceeding borrowing costs.
Mortgage and 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. Repayment rates are
often 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
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 servicer 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.
New forms of asset-backed securities are continuously being
created. While Portfolios only invest in asset-backed
securities the Investment Adviser believes are liquid,
market experience in some of these securities is limited and
liquidity may not have been tested in market cycles.
Forward Commitments
Portfolios may purchase securities on a when-issued or
forward commitment basis. These transactions present a risk
of loss should the value of the securities to be purchased
increase prior to the settlement date and the counterparty
to the trade fail to execute the transaction. Were this to
occur, the Portfolio's net asset value, including a
security's appreciation or depreciation purchased on a
forward basis, would decline by the amount of such
unrealized appreciation.
Loan Participations
Because the bank issuing 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
High Yield, Emerging Markets and Global High Yield will
invest its 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, disrupt the high yield market and impair 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 stresses which could 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 it
holds 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 HEDGING TECHNIQUES
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. These contracts are primarily entered
into to protect against a decrease in the U.S. dollar
equivalent value of its foreign currency portfolio
securities or the payments thereon that may result from an
adverse change in foreign currency exchange rates. Under
normal circumstances, each of Worldwide-Hedged and
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
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: "Investment Techniques / Strategies &
Associated Risks" in the Prospectus and "Tax Considerations"
below for more information on hedging.)
Forward Foreign Currency Exchange Contracts & 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 foreign currency amount at
some specified future date. Purchasing or selling forward
contracts may help offset declines in the U.S.
dollar-equivalent value of a Portfolio's foreign currency
denominated assets and the income available for distribution
to Portfolio shareholders. These declines in the U.S.
dollar-equivalent value may be the result of adverse
exchange rate changes 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 amount of and rate of return on foreign
currency denominated securities will decline should the U.S.
dollar exchange rate rise 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 exchange rate at which a Portfolio will be
entitled to exchange U.S. dollars for a foreign currency or
a foreign currency for U.S. dollars at some point in the
future. Thus, such contracts may lock in the U.S. dollar
cost of purchasing foreign currency denominated 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 also 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.
The use of such techniques will subject the Portfolio to
certain risks:
a. the foreign exchange markets can be highly volatile and
are subject to sharp price fluctuations;
b. trading forward contracts can involve a degree of
leverage, and relatively small movements in the rates of
exchange between the currencies underlying a contract
could result in immediate and substantial losses to the
investor;
c. trading losses that are not offset by corresponding
gains in assets being hedged could reduce the value of
assets held by a Portfolio;
d. the precise matching of the forward contract amounts
and the value of the hedged portfolio securities
involved will not generally be possible. The future
value of such foreign currency denominated portfolio
securities will change as a consequence of market
movements in the value of those securities. This change
is unrelated to fluctuations 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 depends on the
ability of the Investment Adviser or Sub-Adviser to predict
correctly, 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 may decline because of the use of such
contracts. The accurate projection of currency market
movements is extremely difficult, and the successful
execution of a hedging strategy is highly uncertain.
Portfolio costs of engaging in foreign currency forward
contracts will vary with factors such as:
a. the foreign currency involved;
b. the length of the contract period; and
c. 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 movement 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. Should a Portfolio enter
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, and may impose
limits on price moves. Such limits may affect
significantly, the ability to trade the 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
foreign currency portfolio securities may 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 these Portfolios may
attempt to enhance its portfolio return 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
Portfolio's return. In addition, if the 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 on Foreign Currencies
Each Portfolio may purchase and sell (or write) put and call
options on foreign currencies protecting against:
a. a decline in the U.S. dollar-equivalent value of its
portfolio securities or payments due thereon, or
b. 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 to sell a specified amount of a
foreign currency to its counterparty at a predetermined
price on a later date. Conversely, a foreign currency call
option grants the holder the right, but not the obligation,
to purchase a specified amount of a foreign currency at a
predetermined price at a later date.
As in the case of other types of options, a Portfolio's
benefits 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, requiring 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 most likely will 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 allowing 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. rates move in the expected direction. If movement
in the expected direction 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, to sell the security to its counterparty at a
predetermined price at a later date. Conversely, a call
option on a security grants the holder the right, but not
the obligation, to purchase the security underlying the
option at a predetermined price at a later date.
Normally, a Portfolio would purchase put options in
anticipation of a decline in the market value of securities
it holds 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). Thus, the Portfolio 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 falls instead of rises, the Portfolio will 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.
A Portfolio's transactions 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 to purchase the
securities or currency subject to the option at a specified
price (the "exercise price") for a specified length of
time. By writing a call option, the writer becomes
obligated during the term of the option, and 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 to
sell the securities or currency subject to the option, to
the writer of the put option at the specified exercise price
for a specified length of time. Upon exercising a put
option, the writer of the put option is obligated to
purchase securities or currency underlying the option at the
exercise price during the term of the option. 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. Although many options on equity securities
and options on currencies are currently exchange-traded,
options on debt securities are primarily traded in the
over-the-counter market. The writer of an exchange-traded
option wishing 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 a secondary market exists 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 such cases, it might not be
possible to effect closing transactions. (e.g. 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 it
has written, it will not be able to sell the underlying
security or currency until either the option expires, or the
Portfolio delivers the underlying security or currency upon
exercise or otherwise cover its position.
Exchange Traded & OTC Options
U.S. exchange-traded options are issued by a clearing
organization affiliated with the exchange on which the
option is listed. Thus, in effect, every
exchange-traded option transaction is guaranteed. In
contrast, over the counter ("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 option to make or
take delivery of the securities underlying the option.
The dealer's failure 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 purchase
options only 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 only to close
out the OTC option prior to its expiration by entering
into a closing purchase transaction with the original
issuing dealer of the OTC option. Although a
Portfolio will enter into OTC options only with
dealers who 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, it 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.
Foreign Currencies
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.
A 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:
a. the current market price of the underlying
currency or security;
b. the time remaining until expiration;
c. the relationship of the exercise price to the
market price;
d. the historical price volatility of the underlying
currency; and
e. 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
expiring 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 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
Each Portfolio may enter into contracts for the purchase or
sale for future delivery (a "futures contract") of:
a. fixed-income securities or foreign currencies;
b. contracts based on financial indices including any
index of U.S. Government Securities;
c. foreign government securities; or
d. 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 exchanges
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, 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. Portfolios may also enter
into futures contracts 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 held by the Portfolio would decline, but the
value of the futures contracts would increase at
approximately the same rate. Thus, the Portfolio's net
asset value would not decline 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 performed 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,
an exchange may require the Portfolio 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:
a. investors' obligations to meet additional variation
margin requirements;
b. decisions to make or take delivery, rather than
entering into offsetting transactions; and
c. 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 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 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 such situations, if the
Portfolio has insufficient cash, it may have to sell some of
its assets 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. Thus, 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 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 or let it expire. 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 of 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, thereby preventing prompt liquidation of positions
and subjecting some traders to substantial losses.
Buyers and sellers of foreign currency futures contracts are
generally subject to the same risks that apply to the use of
futures. 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 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, a Portfolio that is not fully invested
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.
Writing a call option on a futures contract constitutes a
partial hedge against decreasing prices of the security or
foreign currency. The hedge is deliverable upon exercise of
the futures contract. If the futures price of the option at
expiration is below the exercise price, a Portfolio will
retain the full amount of the option premium, providing a
partial hedge against any decline that may have occurred in
the Portfolio's holdings. Writing a put option on a futures
contract constitutes a partial hedge against increasing
prices of the security or foreign currency. The hedge 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 providing a partial hedge against any
increase in the price of securities which a Portfolio
intends to purchase. If a Portfolio's put or call option is
exercised, it 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
securities and changes in the value of its futures
positions, a Portfolio's losses from existing options on
futures may be reduced or increased by changes in the value
of its 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. Thus, a Portfolio may
purchase a put option on a futures contract to hedge against
the risk of rising interest rates.
The amount of risk a Portfolio assumes when it purchases an
option on a futures contract is:
Risk = The Premium Paid For The Option + Related Transaction
Costs
In addition to the correlation risks discussed above,
purchasing 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 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. This is subject to the investment Advisor's or
Sub-Advisor's discretion. 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). Portfolios may not:
a. borrow money, except by engaging in reverse
repurchase agreements (reverse repurchase agreements
and dollar roll transactions that are covered pursuant
to SEC regulations or staff positions, will not be
considered borrowing) or dollar roll transactions or
from a bank as a temporary measure for the reasons
enumerated in "INVESTMENT RESTRICTIONS" 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);
b. issue senior securities (other than as specified in
clause a);
c. 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);
d. make short sales of securities (does not include
options, futures, options on futures or forward
currency contracts) except for Mortgage LIBOR,
Mortgage Total Return, Asset-Backed, High Yield,
Enhanced Index, U.S. Corporate, International
Opportunities, International Corporate, Global High
Yield, Inflation-Indexed and Inflation-Indexed Hedged;
e. underwrite securities of other issuers;
f. invest in companies for the purpose of exercising
control or management;
g. purchase or sell real estate (other than marketable
securities representing interests in, or backed by,
real estate); or
h. purchase or sell physical commodities or related
commodity contracts.
In addition, each Portfolio is prohibited from:
a. purchasing or retaining securities of any issuer if
the officers, directors or trustees of the Fund, or
its advisors, or managers own beneficially more than
one half of one percent of the securities of an
issuer, or together own beneficially more than five
percent of the securities of that issuer;
b. purchasing the securities of any issuer if, as to
seventy-five percent (75%) of the company's assets at
the time of the purchase, more than ten percent of the
voting securities of any issuer would be held by the
company;
c. 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
d. 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.
From time to time, a Portfolio's investment policy may
restrict or limit the maximum percentage of the Portfolio's
assets that may be invested in any security or other asset,
or set forth a policy regarding quality standards. If so,
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 restrictions.
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.
Additional investment restrictions specific to a particular
portfolio are as follows:
Money Market Portfolio
Money Market may not (although not a fundamental policy):
a. invest more than 5% of its total assets in the
securities of any one issuer or in premiums related 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
b. 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:
a. invest more than 5% of its total assets in the
securities of any issuer (other than U.S. Government
Securities and repurchase agreements);
b. 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);
c. enter into repurchase agreements if, as a result
thereof, more than 25% of its total assets would be
subject to repurchase agreements;
d. 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,
ii. engaging in repurchase agreements, or
iii. purchasing or selling commodities
or commidity 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:
a. enter into repurchase agreements if, as a result
thereof, more than 25% of its total assets would be
subject to repurchase agreements; or
b. 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 Commission's staff 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 regarding the purchase or
sale of OTC options. The purchase or sale of an OTC option
will be restricted if:
a. the total market value of the Portfolio's outstanding
OTC options exceed 15% (10% for Money Market) of the
Portfolio's net assets, taken at market value, together
with all other assets of the Portfolio that are illiquid
or are not otherwise readily marketable;
b. the market value of the underlying securities covered
by OTC call options currently outstanding that were sold
by such Portfolio 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; and
c. 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 is not fundamental to Portfolio operations and
the Fund's Directors may amended it 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 Fund's debt securities are primarily traded 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 brokerage commissions or transfer taxes. The Fund
enters into financial futures and options contracts normally
involving brokerage commissions.
For the years ended December 31, 1997, December 31, 1996 and
December 31, 1995, the amount of brokerage commissions
(associated with financial futures and options contracts)
paid by each Portfolio were as follows:
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<S> <C> <C> <C>
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Year Ended Year Ended Year Ended
Portfolio December 31, 1997 December 31, 1996 December 31, 1995
- ------------------------------ -------------------------- ------------------------- ------------------------
U.S. Portfolios
----------------------------------------------------------------------------------------
U.S. Short -Term $ 126,108 $ 110,133 $ 187,185
Stable Return 3,649 0 27,616
Mortgage Total Return (1) 463,651 30,152 N/A
--------------------------------------------------------------------------------------------------------------
Global and International Portfolios
- ------------------------------ -------------------------- ------------------------- ------------------------
Worldwide 21,065 $10,254 15,268
Worldwide-Hedged 11,724 2,719 3,083
International (2) 13,040 2,707 N/A
Global Tactical Exposure (3) 127,213 12,342 15,643
Emerging Markets (4) 7,697 N/A N/A
- ------------------------------ -------------------------- ------------------------- ------------------------
</TABLE>
(1) Commenced operations April 29, 1996.
(2) Commenced operations May 9, 1996.
(3) The Portfolio was fully liquidated on December 30,
1994, and recommenced operations on September 14, 1995.
(4) Commenced operations on August 12, 1997.
The cost of executing transactions will consist primarily of
dealer spreads. These spreads are not included in Portfolio
expenses and therefore, are not subject to the expense 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. 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.
SUPPLEMENTAL TAX CONSIDERATIONS
The following summary of tax consequences, does not purport
to be complete. It 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. Each investor is
advised to consult their own tax advisor for more complete
information on specific tax consequences.
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. diversify its holdings so that, at the end of each
quarter of the Portfolio's taxable year:
a. at least 50% of the Portfolio's asset market
value 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
c. 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 the 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 a Portfolio does not qualify as a RIC for any taxable
year, all of its taxable income will be taxed to the
Portfolio at corporate rates. For each taxable year 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) 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 :
a. 98% of its ordinary income (not taking into account any
capital gains or losses), determined on a calendar year
basis;
b. 98% of its capital gains in excess of capital losses,
determined in general on an October 31 year-end basis;
and
c. 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 Portfolio shares. Each Portfolio will monitor
its compliance with all of the rules set forth in the
preceding paragraph.
Distributions
The following qualifies as taxable income to Portfolio
shareholders:
a. Portfolio's automatic reinvestment of its ordinary
income,
b. net short-term capital gains and net long-term capital
gains in additional Portfolio shares, and
c. distribution of such shares to shareholders.
Generally, shareholders will be treated as if the Portfolio
had distributed income and gains to them and then reinvested
by them in Portfolio shares--even though no cash
distributions have been made to shareholders. The automatic
reinvestment of ordinary income and net realized short-term
Portfolio capital gains will be taxable to shareholders as
ordinary income. Each Portfolio's automatic reinvestment of
any net long-term capital gains designated as capital gain
dividends by the Portfolio will be taxable to the
shareholders as long-term capital gain. This is the case
regardless of how long they have held their 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 the
Portfolio:
a. declares it during October, November or December, and
b. the distribution has a record date in such a month, and
c. it is 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 Portfolio shares, or
upon receipt of a distribution in complete Portfolio
liquidation, a shareholder usually will realize a capital
gain or loss. This loss may be long-term or short-term,
generally depending upon the shareholder's holding period
for the shares. For tax purposes, a loss will be disallowed
on the sale or exchange of shares if the disposed of shares
are replaced (including shares acquired pursuant to a
dividend reinvestment plan) within a period of 61 days.
The 61 day time window begins 30 days before and ends 30
days after the sale or exchange of such shares. Should a
disposition fall within this 61 day window, the basis of the
acquired shares will be adjusted to reflect the disallowed
loss. A shareholder holding Portfolio shares for six
months or longer will realize a long term capital loss on
share disposition. Should such loss occur, to the extent of
any net capital gains distributions deemed received by the
shareholder.
Zero Coupon Securities
A Portfolio's investment in zero coupon securities will
result in Portfolio income, equal to a portion of the excess
of the amortized face value of the securities over their
issue price (the "original issue discount"), prior amortized
value or purchased cost for each year that the securities
are held. This is so, even though the Portfolio receives no
cash interest payments during the holding period. This
income is included when determining the amount of income 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"). This is so, regardless
of the length of the Portfolio's actual holding period for
the contract. Also, a Portfolio holding a section 1256
contract 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.
Straddles
The hedging transactions undertaken by a Portfolio may
result in "straddles" for federal income tax purposes,
affecting the character of gains or losses realized by
the Portfolio. 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,
instead of currently deducting any interest expense on
indebtedness incurred or continued to purchase or carry
any positions that are part of a straddle. To date,
only a few regulations implementing the straddle rules
have been executed, thus, the Portfolio tax consequences
of engaging in straddles transactions are unclear.
Hedging transactions may increase the amount of
short-term capital gain realized by the Portfolios.
Such gain 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.
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
distributed and taxed as ordinary income or long-term
capital gain to shareholders may be increased or
decreased compared to a fund not engaging in such
hedging transactions.
Foreign Currency-Related Transactions
Gains or losses attributable to exchange rate fluctuations
are generally treated as ordinary income or ordinary loss
when they occur between the time a Portfolio accrues
interest or other receivables, accrues expenses or other
liabilities, denominated in a foreign currency and the time
the Portfolio actually collects such receivables, or pays
such liabilities. In addition, gains or losses may be the
result of:
a. certain option dispositions
b. futures and forward contracts
c. debt security dispositions denominated in a foreign
currency
d. fluctuations in foreign currency value between the date
of acquisition of the security or contract and the date
of disposition.
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. The 31% rate applies to shareholders
receiving redemption payments who:
a. fail to provide the Portfolio with their correct
taxpayer identification number;
b. fail to make required certifications,
c. 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
A foreign shareholder, qualifying as a non-resident alien, a
foreign trust or estate, foreign corporation, or foreign
partnership ("foreign shareholder") may have to pay U.S. tax
depending on whether the Portfolio income is "effectively
connected" with a U.S. trade or business.
If a foreign shareholder's Portfolio income is found to be
"effectively connected" with a U.S. trade or business, the
distributions of investment company taxable income will be
subject to a U.S. tax of 30% (or lower treaty rate). Such
tax is generally withheld from distributions and any gains
upon redemption. Capital gain distributions and any gains
upon redemption, sale or exchange of shares are subject to
U.S. tax at the rate of 30% (or lower treaty rate). The 30%
rate also applies to a nonresident alien who is physically
present in the U.S. for longer than 182 days during the
taxable year and fails to meet certain other requirements.
The 30% capital gains tax on non-resident alien individuals,
physically present in the U.S. longer than 182 days, only
applies in exceptional cases because any individual present
in the U.S. longer 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 non-resident alien
shareholder, 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 a foreign shareholder's Portfolio income is effectively
connected with a U.S. trade or business, then:
a. deemed distributions of investment company taxable
income,
b. capital gain dividends, and
c. 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 differ
from those described herein. Foreign shareholders are
advised to consult their own tax advisers regarding
investment tax consequences in a Portfolio.
Short Sales
Each of Mortgage LIBOR, Mortgage Total Return, Asset-Backed,
High Yield, Enhanced Index, U.S. Corporate, International
Opportunities, International Corporate, Global High Yield,
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
of time 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 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 Portfolio may recognize higher short-term
capital gains than mutual funds with lower turnover rates.
Such gains must be distributed to shareholders.
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 a Portfolio's total asset value at the
end of its taxable year consists of securities of foreign
corporations as will be expected with respect to the
International Portfolios, the Portfolio will be eligible,
and may elect to "pass through" to shareholders the
Portfolio's foreign income and similar taxes it has paid.
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 the Portfolio in gross income. The Portfolio will
be entitled either to deduct (as an itemized deduction) that
amount in computing taxable income or 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 portfolio income may not claim this deduction or credit.
International Portfolio shareholders will be notified within
60 days after the close of the 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 where the Portfolio is deemed to be
doing business. In addition, Portfolio shareholders may be
subject to state, local or foreign taxes on Portfolio
distributions. In many states, Portfolio distributions
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 a particular Portfolio's shares
will not be issued to shareholders. Investors Bank & Trust
Company, the Fund's Transfer Agent, maintains accounts for
each shareholder. The registration and transfer of shares
are recorded in these accounts shall be reflected by
bookkeeping entry, without physical delivery. Detailed
confirmations of purchase or redemption are sent to each
shareholder. Monthly account statements are sent detailing
which shares were purchased as a result of a reinvestment of
Portfolio distributions.
The Transfer Agent will require a shareholder to 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 Securities, Investors
Capital, and the Transfer Agent will be responsible for the
validity of written or telephonic requests.
Should conditions exist making cash payments undesirable,
the Fund reserves the right to honor any Portfolio
redemption request by making whole or part payment in
readily marketable securities 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 to be
governed by Rule 18f-1 under the Investment Company Act of
1940. Thus, 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
From time to time, Portfolios may include their yield and
total return in reports to shareholders or prospective
investors. Quotations of yield for a Portfolio will be based
on all investment income per share during a particular
30-day (or one month) period,(including dividends and
interest), less expenses accrued during the period ("net
investment income"), and are computed by dividing net
investment income by the maximum, offering price per share
on the last day of the period, according to the following
formula which is prescribed by the Commission:
Yield = 2 [ ( a - + 1 ) 6 - 1]
b
c d
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
d = the maximum offering price per share on the last
day of the period.
The yield as defined above for the relevant Portfolios of
the Fund for the 30-day period ended December 31, 1997 are
as follows:
U.S. Portfolios
U.S. Short-Term ....................................5.61%
Stable Return ....................................5.91%
Global and International Portfolios
Worldwide ....................................5.51%
Worldwide-Hedged ....................................5.23%
International ....................................5.32%
Global Tactical Exposure..............................4.72%
Emerging Markets 9.00%
The Money Market Portfolio may, from time to time, include
the "yield" and "effective yield" in advertisements or
reports to shareholders or prospective investors.
Yield is calculated by first 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. This
number is then 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:
Effective Yield = [(Base Period Return + 1)365/7] - 1
Money Market Portfolio's yield and effective yield for the
seven-day period ended December 31, 1997 are 5.76% and
5.93%, respectively.
Average annual total return quotes will be expressed as the
average annual compounded rate of return of a hypothetical
investment in a Fund Portfolio over 1, 5 and 10 years (up to
the life of the Portfolio). This will be calculated
pursuant to the following formula, prescribed by the
Securities and Exchange Commission:
P(1 + T)n = ERV
Where P = a hypothetical initial payment of $1,000,
T = the average annual total return,
n = the number of years, and
ERV = the ending redeemable value of a
hypothetical $1,000 payment made at the
beginning of the period.
All total return figures assume that all
dividends are reinvested when paid.
The total return as defined above for the relevant
Portfolios of the Fund for the one year and five year
periods and life of the Portfolio ended December 31, 1997,
since the commencement of operations of each Portfolio
(annualized) are as follows:
<TABLE>
<S> <C> <C> <C> <C>
One Year Five Years* Life of Portfolio Inception
U.S. Portfolios
Money Market 5.46% N/A 5.02%* 11/1/93
U.S. Short-Term 5.09% 4.58% 5.17%* 12/6/89
Stable Return 7.21% N/A 5.76%* 7/26/93
Mortgage Total Return 10.19 N/A 10.06%* 4/29/96
Global and International Portfolios
Worldwide 2.93% 6.78% 7.62%* 4/15/92
Worldwide-Hedged 12.60% 10.85% 10.71%* 5/19/92
International (0.43%) N/A 3.73%* 5/9/96
Global Tactical Exposure** 8.77% N/A 6.87%* 9/14/95
Emerging Markets N/A N/A (1.20%) 8/12/97
</TABLE>
* 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
31,1997 are incorporated by reference in the Statement of
Additional Information.
APPENDIX
MERRILL LYNCH 1-2.99 YEAR TREASURY INDEX1
Quarterly Returns: June 1984 - December 1997
<TABLE>
<S> <C> <C> <C>
- -------------------- --------------------- ----------------------- --------------------
Quarter End Return % Quarter End Return %
- -------------------- --------------------- ----------------------- --------------------
- -------------------- --------------------- ----------------------- --------------------
- -------------------- --------------------- ----------------------- --------------------
- -------------------- --------------------- ----------------------- --------------------
3/88 2.64 3/93 2.21
- -------------------- --------------------- ----------------------- --------------------
- -------------------- --------------------- ----------------------- --------------------
6/88 1.04 6/93 1.08
- -------------------- --------------------- ----------------------- --------------------
- -------------------- --------------------- ----------------------- --------------------
9/88 1.45 9/93 1.43
- -------------------- --------------------- ----------------------- --------------------
- -------------------- --------------------- ----------------------- --------------------
12/88 0.96 12/93 0.59
- -------------------- --------------------- ----------------------- --------------------
- -------------------- --------------------- ----------------------- --------------------
3/89 1.24 3/94 (0.50)
- -------------------- --------------------- ----------------------- --------------------
- -------------------- --------------------- ----------------------- --------------------
6/89 4.98 6/94 0.08
- -------------------- --------------------- ----------------------- --------------------
- -------------------- --------------------- ----------------------- --------------------
9/89 1.46 9/94 0.99
- -------------------- --------------------- ----------------------- --------------------
- -------------------- --------------------- ----------------------- --------------------
12/89 2.82 12/94 0.01
- -------------------- --------------------- ----------------------- --------------------
- -------------------- --------------------- ----------------------- --------------------
3/90 0.89 3/95 3.36
- -------------------- --------------------- ----------------------- --------------------
- -------------------- --------------------- ----------------------- --------------------
6/90 2.80 6/95 3.21
- -------------------- --------------------- ----------------------- --------------------
- -------------------- --------------------- ----------------------- --------------------
9/90 2.38 9/95 1.51
- -------------------- --------------------- ----------------------- --------------------
- -------------------- --------------------- ----------------------- --------------------
12/90 3.32 12/95 2.51
- -------------------- --------------------- ----------------------- --------------------
- -------------------- --------------------- ----------------------- --------------------
3/91 2.20 3/96 0.34
- -------------------- --------------------- ----------------------- --------------------
- -------------------- --------------------- ----------------------- --------------------
6/91 1.97 6/96 1.01
- -------------------- --------------------- ----------------------- --------------------
- -------------------- --------------------- ----------------------- --------------------
9/91 3.36 9/96 1.65
- -------------------- --------------------- ----------------------- --------------------
- -------------------- --------------------- ----------------------- --------------------
12/91 3.68 12/96 1.91
- -------------------- --------------------- ----------------------- --------------------
- -------------------- --------------------- ----------------------- --------------------
3/92 0.16 3/97 0.66
- -------------------- --------------------- ----------------------- --------------------
- -------------------- --------------------- ----------------------- --------------------
6/92 2.88 6/97 2.20
- -------------------- --------------------- ----------------------- --------------------
- -------------------- --------------------- ----------------------- --------------------
9/92 2.98 9/97 1.96
- -------------------- --------------------- ----------------------- --------------------
- -------------------- --------------------- ----------------------- --------------------
12/92 0.18 12/97 1.68
- -------------------- --------------------- ----------------------- --------------------
</TABLE>
1Time-weighted rates of return, unannualized.
QUALITY RATING DESCRIPTIONS
Standard & Poors Corporation
AAA. Bonds rated AAA are highest grade debt obligations.
This rating indicates an extremely strong capacity to pay
principal and interest.
AA. Bonds rated AA also qualify as high-quality
obligations. Capacity to pay principal and interest is very
strong, and in the majority of instances they differ from
AAA issues only in a 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,
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
credit risk. Factors affecting the liquidity of the
borrower are uppermost in importance in short-term
borrowing, while various factors of high 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 possesses 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 is entirely mitigated by the
strengths of the organization.
A/B. Company is financially very solid with a favorable
track record and no readily apparent weakness. Its overall
risk profile, while low, is not quite as favorable as
companies in the highest rating category.
IBCA Limited
A1. Short-term obligations rated A1 are supported by a very
strong capacity for timely repayment. A plus sign is added
to those issues determined to possess the highest capacity
for timely payment.
Part C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements and Schedules:
Part A - Financial Highlights.
Part B: The financial statements, notes to financial
statements and reports set forth below are filed
herewith by the Registrant, and are specifically
incorporated by reference in Part B.
- Report of Independent Auditors dated February 27,
1998.
- Statements of Assets and Liabilities dated December
31, 1997.
- Statements of Operations for the year ended
December 31, 1997.
- Statements of Changes in Net Assets for the years
ended December 31, 1996, and December 31, 1997.
- Notes to Financial Statements.
- Financial Highlights of U.S. Short-Term for the
period December 6, 1989 (commencement of
operations) to September 30, 1990, for the year
ended September 30, 1991, for the three months
ended December 31, 1991, for the year ended
December 31, 1992, for the year ended
December 31, 1993, for the year ended December 31,
1994, for the year ended December 31, 1995, for
the year ended December 31, 1996, and for the year
ended December 31, 1997; 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, for
the year ended December 31, 1996, and for the
year ended December 31, 1997; of Mortgage Total
Return for the period April 29, 996 (commencement
of operations) to December 31, 1996, and for the
year ended December 31, 1997; 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, for the year ended December 31, 1996, and for
the year ended December 31, 1997; 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, for the year ended December 31, 1996,
and for the year ended December 31, 1997;
of Emerging Markets for the period August 12, 1997
(commencement of operations) to December 31,1997
and of Money Market Portfolio for the year ended
December 31, 1997.
- 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, 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 as 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 as 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 (to be
filed by amendment).
(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 Schedules (to be
filed by amendment).
Item 25. Persons Controlled by or Under Common Control with Registrant
None.
Item 26. Number of Holders of Securities
As of August __, 1998, there were __ record holders of Capital
Stock of Money Market, there were__ record holders of Capital Stock of U.S.
Short-Term, __ record holders of Stable Return, __ record holders of Mortgage
Total Return, __ record holders of Worldwide, __ record holders of
Worldwide-Hedged, __ record holders of International, __ record holders of
International-Hedged, and __ record holders of Emerging Markets .
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) In addition to Registrant, AMT Capital Securities, L.L.C. currently acts as
distributor to TIFF Investment Program, Inc., Holland Series Fund, Inc., SAMCO
Fund, Inc. and Harding, Loevner Funds, Inc. AMT Capital Securities, L.L.C. is
registered with the Securities and Exchange Commission as a broker/dealer and is
a member of the National Association of Securities Dealers, Inc.
(b) The information required by this Item 29(b) with respect to each director,
officer or partner of AMT Capital Securities, L.L.C. is incorporated herein by
reference to Schedule A of Form BD filed by AMT Capital Securities, L.L.C.
pursuant to the Securities Act of 1934 (SEC File No.8-______).
(c) Not applicable.
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: Investors 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 Mortgage LIBOR, Asset-Backed, High Yield,
Enhanced Index, U.S. Corporate, Broad Market, U.S. Treasury, International
Opportunities, International Corporate, Global High Yield, 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 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 26th day of June, 1998.
FFTW FUNDS, INC.
By \s\ Onder John Olcay
Onder John Olcay
President
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 P. Casper Director June 26, 1998
Stephen P. Casper
\s\ Onder John Olcay Chairman of the Board, June 26, 1998
Onder John Olcay President
\s\ John C Head III Director June 26, 1998
John C Head III
\s\ Lawrence B. Krause Director June 26, 1998
Lawrence B. Krause
\s\ William E. Vastardis Treasurer June 26, 1998
William E. Vastardis
EXHIBIT INDEX
Exhibit No.
None
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<TABLE> <S> <C>
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<NAME> MORTGAGE TOTAL RETURN PORTFOLIO
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<S> <C>
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<PERIOD-END> DEC-31-1997
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</TABLE>
<TABLE> <S> <C>
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<NAME> WORLDWIDE PORTFOLIO
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<S> <C>
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<PERIOD-END> DEC-31-1997
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<TABLE> <S> <C>
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<NAME> WORLDWIDE-HEDGED PORTFOLIO
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<S> <C>
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<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> INTERNATIONAL PORTFOLIO
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<S> <C>
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<ACCUM-APPREC-OR-DEPREC> (1220)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
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<NAME> INTERNATIONAL-HEDGED PORTFOLIO
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<S> <C>
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<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> EMERGING MARKETS PORTFOLIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 5-MOS
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