As filed with the Securities and Exchange Commission on September 11, 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 X
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Pre-Effective Amendment No. _____
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Post-Effective Amendment No. 23
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X
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. 26
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X
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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immediately upon filing pursuant to paragraph (b) of Rule 485.
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X on _____ ___(date) pursuant to paragraph (b) of Rule 485.
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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 ______.
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CROSS REFERENCE SHEET
Pursuant to Rule 481(a)
Form N-1A Location in Prospectus and
Item No. Statement of Additional
Information
1. Cover Page Cover Page of Prospectus
2. Synopsis Prospectus Highlights; Fund Expenses (in
Prospectus)
3. Financial Highlights Financial Highlights (in Prospectus)
4. General Description of Investment Objectives and
Registrant Policies; Descriptions of Investments;
Investment Techniques; Investment Restrictions;
Risks Associated With the Fund's Investment
Policies and Investment Techniques; Shareholder
Information (in Prospectus)
5. Management of the Fund Fund Expenses; Management of the Fund (in
Prospectus)
6. Capital Stock and Other Shareholder Information;
Securities Purchases and Redemptions; Dividends; Tax
Considerations (in Prospectus)
7. Purchase of Securities Being Purchases and Redemptions;
Offered Dividends; Determination of Net Asset
Value; Distribution of Fund
Shares (in Prospectus)
8. Redemption or Repurchase Purchases and Redemptions; Dividends (in
Prospectus)
9. Pending Legal Proceedings Not applicable
10. Cover Page Cover Page of Statement of Additional
Information
11. Table of Contents Statement of Additional Information Table of
Contents
12. General Information and History History of the Fund; Organization of the Fund
(in Statement of Additional Information)
13. Investment Objectives and Policies Supplemental Descriptions of Investments;
Techniques to Hedge Interest Rate and Foreign
Currency Risks and Other Foreign Currency
Strategies; Supplemental Discussion of Risks
Associated With the Fund's Investment Policies
and Investment Techniques; Investment
Restrictions (in Statement of Additional
Information)
14. Management of the Fund Management of the Fund (in Statement of
Additional Information)
15. Control Persons and Principal Control Persons and Principal
Holders of Securities Holders of Securities (in Statement of
Additional Information)
16. Investment Advisory and Other Distribution of Fund Shares; Services
Management of the Fund; Custodian and
Accounting Agent; Transfer and Dividend
Disbursing Agent; Legal Counsel; Independent
Auditors (in Prospectus); Management of the
Fund (in Statement of Additional Information)
17. Brokerage Allocation and Other Portfolio Transactions (in
Practices Statement of Additional
Information)
18. Capital Stock and Other Securities Purchases and Redemptions; Dividends;
Shareholder Information (in Prospectus)
19. Purchase, Redemption and Pricing Purchases and Redemptions;
of Securities Being Offered Determination of Net Asset Value (in Prospectus)
20. Tax Status Tax Considerations (in Statement of Additional
Information)
21. Underwriters Distribution of Fund Shares (in Prospectus)
22. Calculation of Performance Data Performance Information (in Prospectus);
Calculation of Performance Data (in Statement
of Additional Information)
23. Financial Statements Financial Highlights (in Prospectus); Financial
Statements (in Statement of Additional
Information)
</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 10, 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, Mortgage LIBOR, Mortgage Total Return,
Asset-Backed, Enhanced Index and U.S. Corporate Portfolios, primarily invests in
high quality debt securities (rating of AA or better). 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 Equity Alpha Portfolio must be qualified eligible participants as defined in
Commodities Futures Trading Commission Rule 4.7.
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
Limited Duration Equity Alpha
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 10, 1998, has been filed with the Securities and Exchange and can be
obtained without charge by calling or writing AMT Capital Securities, L.L.C. at
the telephone numbers or address stated above. The Statement of Additional
Information is hereby incorporated by reference into this Prospectus.
PURSUANT TO AN EXEMPTION FROM THE COMMODITY FUTURES TRADING COMMISSION IN
CONNECTION WITH THE EQUITY ALPHA PORTFOLIO WHOSE PARTICIPANTS ARE LIMITED TO
QUALIFIED ELIGIBLE PARTICIPANTS, AN OFFERING MEMORANDUM FOR THIS PORTFOLIO IS
NOT REQUIRED TO BE, AND HAS NOT BEEN, FILED WITH THE COMMISSION. THE COMMODITY
FUTURES TRADING COMMISSION DOES NOT PASS UPON THE MERITS OF PARTICIPATING IN A
PORTFOLIO OR UPON THE ADEQUACY OR ACCURACY OF AN OFFERING MEMORANDUM.
CONSEQUENTLY, THE COMMODITY FUTURES TRADING COMMISSION HAS NOT REVIEWED OR
APPROVED THIS OFFERING OR ANY OFFERING MEMORANDUM FOR THE EQUITY ALPHA
PORTFOLIO.
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.
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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
Money Market Portfolio 5
Mortgage LIBOR Portfolio 7
U.S. Short-Term Portfolio 9
Limited Duration Portfolio 11
Mortgage Total Return Portfolio 13
Asset-Backed Portfolio 15
High Yield Portfolio 17
Equity Alpha 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.
SUMMARY OF INVESTMENT OBJECTIVES AND DESCRIPTIONS
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PORTFOLIO NAME FUNDAMENTAL INVESTMENT OBJECTIVE PORTFOLIO DESCRIPTION*
- ---------------------------- ---------------------------------------------------- ----------------------------------------------
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 may be consistent
with the preservation of capital opportunistically
hedged for shorter duration
- ---------------------------- ---------------------------------------------------- ----------------------------------------------
- ---------------------------- ---------------------------------------------------- ----------------------------------------------
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
- ---------------------------- ---------------------------------------------------- ----------------------------------------------
- ---------------------------- ---------------------------------------------------- ----------------------------------------------
Limited Duration 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
- ---------------------------- ---------------------------------------------------- ----------------------------------------------
- ---------------------------- ---------------------------------------------------- ----------------------------------------------
Equity Alpha Seeks to attain a high level of total return
as Short duration fixed-income securities and may
be consistent with the preservation of capital 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
- ---------------------------- ---------------------------------------------------- ----------------------------------------------
* See Portfolio Summaries for more complete information
</TABLE>
GENERAL RISKS ASSOCIATED WITH THE FUND'S INVESTMENT POLICIES
AND INVESTMENT TECHNIQUES
Banking industry risk: Investing in bank obligations will
expose an investor to risks associated with the
banking industry such as interest rate and credit
risks.
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.
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
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 SUMMARY AND FINANCIAL HIGHLIGHTS
The following section summarizes the most important information on each of the
Portfolios. Please review the remainder of the Prospectus and the Statement of
Additional Information for more
Portfolio information.
The financial information contained in the Financial Highlights section is
provided to assist investors in understanding the various costs and expenses
that an investor will incur, either directly or indirectly, as a shareholder in
the Fund. All costs and expenses are calculated as a percentage of average daily
net assets. These are the only fund related expenses that an investor will bear.
The financial information contained in the Portfolio Summaries has been audited
by Ernst & Young, LLP (unless otherwise indicated) 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 PORTFOLIO SUMMARY TERMS
1. Fundamental Investment Objective - Presents the Portfolio's fundamental 8. Minimum Quality Rating - Presents the minimum
purpose. A Portfolio's fundamental investment objective cannot be altered quality investment standards for individual
without a shareholder vote. investments as well as the Portfolio's
average quality.
9. Average Weighted Duration - Describes
the U.S. dollar-weighted average Portfolio
2. Portfolio Description - Presents the Portfolio's duration.
primary investment vehicles and strategies.
10.Supplemental Information - Some Portfolios
3. Performance Objective - Presents the Portfolio's possess unique characteristics
benchmark, a measurement standard of investment success. such as tax implications--this section
highlights such characteristics.
11. Hypothetical Shareholder Expenses - The
4. Investment Policies and Significant Restrictions - purpose of this table is to assist
Presents the Portfolio's primary investment the investor in understanding
policies and investment restrictions. the various expenses that an investor
in a Portfolio will bear, directly or
indirectly. These examples
should not be considered a representation
of future expenses or performance.
5. Risks - In general terms, presents the most common Actual operating expenses may be greater or
risks the Portfolio may encounter based on lesser than those shown.
the types of investments it may engage.
12. Financial Highlights - This table
6. Allowable Investment Techniques - In general terms, presents a breakdown of each Portfolio's
presents the most common investment strategies, which financial information.
the Portfolio may employ.
13. Valuation - Presents information on
how the Money Market Portfolio is valued.
7. Allowable Investments - In general terms, presents the investments in which
the Portfolio will engage.
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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 Description: The Money Market Portfolio invests
primarily in high-quality (AA, Aa or better)
money market securities that meet the
requirements of Rule 2a-7 of the Investment
Company Act of 1940.
- ------------------------------ --------------------------------------------------------------------------------------------------
Performance Objective: To outperform IBC's Money Fund Report Averages (TM) - All Taxable.
- ------------------------------ --------------------------------------------------------------------------------------------------
Investment Policies and The Money Market Portfolio invests only in U.S. dollar-denominated money market securities,
Significant Restrictions: eligible under Rule 2a-7 of the Investment Company Act of 1940. The Portfolio may not invest in
futures or options, nor may it engage in short sales transactions.
- ------------------------------ --------------------------------------------------------------------------------------------------
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Risks: Banking industry risk Liquidity risk Prepayment risk
Interest rate risk Market risk
- ------------------------------ --------------------------------------------------------------------------------------------------
Allowable Investment Duration management (see p.27)
Strategies:
- ------------------------------ ---------------------------------- ----------------------------- ---------------------------------
Allowable Investments: Asset-Backed Securities Mortgage-Backed Repurchase and Reverse
Bank Obligations Securities Repurchase Agreements
Corporate Debt Instruments Illiquid Securities U.S. Government and
Municipal Instruments Agency Securities
- ------------------------------ ---------------------------------- ----------------------------- ---------------------------------
- ------------------------------ --------------------------------------------------------------------------------------------------
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Average Weighted Maturity: Portfolio will have an average weighted maturity of not longer than 90 days.
Individual securities may not have effective maturities longer than 397 days.
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.
</TABLE>
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- ------------------------------ --------------------------------------------------------------------------------------------------
Hypothetical Expenses Per 1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$1,000 Investment, Assuming $ 3 $ 8 $ 14 $ 32
A 5% Annual Return:
</TABLE>
MONEY MARKET PORTFOLIO OPERATING EXPENSES:
Advisory fees: 0.0%
Total fund operating expenses: 0.25%
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 in the event the Portfolio operates below its
expense ratio. This fee is capped at 0.02% of the Portfolio's average daily
net assets for reducing the expense ratios of one or more Portfolios. 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 1/1/98 to Year Ended Year Ended Year Ended Year Ended 11/1/93* to
PERIOD 6/30/98 12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
(u)
- --------------------------------------------- ----------- -------------- ------------ ------------- ------------- =============
Net asset value at beginning of period 1.00 1.00 1.00 1.00 1.00 1.00
- --------------------------------------------- ----------- -------------- ------------ ------------- ------------- =============
Net investment income 0.03 0.05 0.05 0.06 0.04 0.00**
Net realized gains or (losses) on --- --- 0.00** 0.00** 0.00 ** ---
investments
============================================= ----------- -------------- ------------ ------------- ------------- =============
Total from investment operations 0.03 0.05 0.05 0.06 0.04 0.00**
============================================= ----------- -------------- ------------ ------------- ------------- =============
Distributions from net investment income 0.03 0.05 0.05 0.06 0.04 0.00**
Distributions from net realized gain on --- --- 0.00** --- --- ---
investments
Distributions in excess of net investment --- --- --- --- 0.00** ---
income
- --------------------------------------------- ----------- -------------- ------------ ------------- ------------- =============
Total distributions 0.03 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 1.00
- --------------------------------------------- ----------- -------------- ------------ ------------- ------------- =============
Total return on investment 2.71 (c) 5.46% 5.18% 5.74% 4.13% 0.44% (c)
- --------------------------------------------- ----------- -------------- ------------ ------------- ------------- =============
Net assets at end of period in 000's 26,032 26,152 25,047 25,870 22,006 2,336
Ratio of operating expenses to average net 0.25% (b) 0.30% 0.40% 0.40% 0.40% 0.40% (b)
assets (a)
Ratio of net investment income to average 5.39% (b) 5.33% 5.05% 5.58% 4.16% 2.67% (b)
net assets
Decrease in above expense ratios due to 0.15% (b) 0.16% 0.30% 0.37% 0.64% 25.54% (b)
waiver of investment advisory and
administration fees and reimbursement of
other expenses
============================================= =========== -------------- ============ ------------- ============= =============
(a) Net of wavers and reimbursements (b) Annualized (c) Not annualized (u)
Unaudited * Commencement of operations ** Rounds to less than $0.01
</TABLE>
MORTGAGE LIBOR PORTFOLIO
Investment Objective: To obtain a high level of total return,as may be
consistent with the preservation of capital.
------------------------- ------------------------------------------------
------------------------- ------------------------------------------------
Portfolio Description: The Mortgage LIBOR Portfolio invests
primarily in mortgage, mortgage-related and
asset-backed securities. The Portfolio actively
utilizes hedging and duration management
techniques opportunistically to, as consistently
as possible, outperform an actively managed cash
portfolio.
------------------------- ------------------------------------------------
------------------------- ------------------------------------------------
Performance Objective: To outperform the three month U.S. Dollar LIBOR
rate, per the British Bankers Association.
------------------------- ------------------------------------------------
------------------------- ------------------------------------------------
Investment Policies and As a fundamental policy, the Mortgage LIBOR
Significant Restrictions: Portfolio seeks to outperform the LIBOR rate (see
below). At least 65% of the Portfolio's
assets must be invested in mortgage-backed
U.S. Dollar-denominated securities. The
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, 100% of the
Portfolio's total assets may be invested in
short-term U.S. Government securities. The
Portfolio is non-diversified.
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------------------------- -------------------------------------------------------------------------------------------------
------------------------- ------------------------------- ------------------------------- ---------------------------------
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 Investment Dollar Roll Transactions Short Sale Transactions When Issued and Forward
Techniques: Duration Management TBA Transactions Commitment Securities
Hedging
------------------------- ------------------------------- ------------------------------- ---------------------------------
------------------------- ------------------------------- ------------------------------- ---------------------------------
Allowable Investments: Asset-Backed Securities Inflation-Indexed Stripped Instruments
Bank Obligations Securities Total Return Swaps
Corporate Debt Mortgage-Backed U.S. Government and
Instruments Securities Agency Securities
Illiquid Securities Repurchase and Reverse Zero Coupon Securities
Repurchase Agreements
</TABLE>
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------------------------- ------------------------------- ------------------------------- ---------------------------------
------------------------- -------- ------------ --------------- ---------------- -------------- ---------------------------
Minimum Quality Rating: S&P Moody's Thompson Average
S&P: Moody's: (Short-Term): (Short-Term): Bankwatch: Portfolio Quality:
BBB- Baa3 A-2 P-2 B AA (Aa)
------------------------- -------- ------------ --------------- ---------------- -------------- ---------------------------
------------------------- -------------------------------------------------------------------------------------------------
</TABLE>
Average Weighted The average U.S. Dollar-weighted duration
Duration: will not exceed plus or minus one year around the
duration of the three-month U.S. Dollar LIBOR
rate.
------------------------- -------------------------------------------------
------------------------- ------------------------------------------------
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.
------------------------- -------------------------------------------------
------------------------- --------------------- -------------------- ------
Hypothetical Expenses 1 Year 3 Years
Per $1,000 Investment, $ 5 $ 14
Assuming A 5% Annual
Return:
THIS PORTFOLIO HAS NOT YET COMMENCED INVESTMENT ACTIVITY
MORTGAGE LIBOR PORTFOLIO OPERATING EXPENSES
Advisory fees: 0.30%
Total fund operating expenses: 0.45%
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.
"Total fund operating expenses" is based on estimated expenses for the
current fiscal year.
U.S. SHORT-TERM PORTFOLIO
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Fundamental Investment To attain a high level of total return, as may be consistent with the preservation of capital
Objective: and to maintain liquidity.
--------------------------- --------------------------------------------------------------------------------------------------
--------------------------- --------------------------------------------------------------------------------------------------
Portfolio Description: The U.S. Short-Term Portfolio invests primarily in high-quality (AA, Aa or better) short-term
debt securities.
--------------------------- --------------------------------------------------------------------------------------------------
--------------------------- --------------------------------------------------------------------------------------------------
Performance Objective: To out perform IBC's Money Fund Report Averages(TM) - All Taxable.
--------------------------- --------------------------------------------------------------------------------------------------
--------------------------- --------------------------------------------------------------------------------------------------
Investment Policies and At least 65% of the U.S. Short-Term's
Investment Restrictions: Portfolio's total assets must be invested in
high-quality U.S. Dollar denominated
securities. Up to 35% of the Portfolio's total
assets may be invested
in non-U.S. Dollar denominated debt 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). The 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
may not enter into repurchase agreements or
reverse repurchase agreements if it would result
in more than 25% of the Portfolio's assets being
subject to repurchase agreements and/or reverse
repurchase agreements. Portfolio may not engage
in short sale transactions. The Portfolio is
"diversified" under the Investment Company Act
of 1940.
</TABLE>
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--------------------------- --------------------------------------------------------------------------------------------------
--------------------------- ------------------------------ ---------------------------------- --------------------------------
Risks: Banking industry risk Hedging risk Liquidity risk
Correlation risk Interest rate risk Market risk
Credit risk Leverage risk Prepayment risk
Currency risk
--------------------------- ------------------------------ ---------------------------------- --------------------------------
--------------------------- ------------------------------ ---------------------------------- --------------------------------
Allowable Investment Dollar Roll Hedging When Issued and Forward
Techniques: Transactions TBA Transactions Commitment Securities
Duration Management
--------------------------- ------------------------------ ---------------------------------- --------------------------------
--------------------------- ------------------------------ ---------------------------------- --------------------------------
Allowable Investments: Asset-Backed Securities Indexed Notes, Currency Municipal Instruments
Bank Obligations Exchange Related Securities Repurchase and Reverse
Brady Bonds and Similar Securities Repurchase Agreements
Convertibles Securities Inflation Indexed Stripped Instruments
Corporate Debt Securities U.S. Government and
Instruments Mortgage-Backed Securities Agency Securities
Foreign Instruments Multi-National Currency Warrants
Unit Securities or More Zero Coupon Bonds
Than One Currency
Denomination
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
--------------------------- ------------------------------ ---------------------------------- --------------------------------
--------------------------- -------- ------------- ----------------- ----------------- ---------------- ----------------------
Minimum Quality Rating: S&P Moody's Thompson Average Portfolio
S&P: Moody's: (Short-Term): (Short-Term): Bankwatch: Quality
BBB- Baa3 A-2 P-2 B AA (Aa)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
--------------------------- -------- ------------- ----------------- ----------------- ---------------- ----------------------
--------------------------- --------------------------------------------------------------------------------------------------
Average Weighted Duration: The average U.S. Dollar-weighted duration generally is shorter than one year.
Except for temporary defensive purposes the Portfolio will not have a U.S. Dollar-weighted
average 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.
--------------------------- --------------------------------------------------------------------------------------------------
--------------------------- ----------------------- ----------------------- ------------------------ -------------------------
Hypothetical Expenses Per 1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$1,000 Investment, $ 3 $ 8 $ 15 $ 33
Assuming A 5% Annual
Return:
</TABLE>
U.S. SHORT-TERM PORTFOLIO OPERATING EXPENSES
Advisory fees: 0.15%
Total fund operating expenses: 0.26%
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. 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 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> <C> <C> <C>
=================================================================================================================================
U.S. SHORT-TERM PORTFOLIO FINANCIAL HIGHLIGHTS
(IN U.S. DOLLARS EXCEPT WHERE OTHERWISE INDICATED)
=================================================================================================================================
FOR A SHARE OUTSTANDING 1/198 to Year Year Year Year Year Year Three Year 12/6/89*
THROUGHOUT THE PERIOD 6/30/98 Ended Ended Ended Ended Ended Ended Months Ended to
(u) 12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92 Ended 1991 9/30/91 9/30/90
- ---------------------------- ---------- --------- --------- -------- --------- --------- --------- ----------- -------- =========
Net asset value at 9.77 9.85 9.88 9.89 9.98 10.00 10.00 10.00 10.00 10.00
beginning of period
- ---------------------------- ---------- --------- --------- -------- --------- --------- --------- ----------- -------- =========
Net investment income 0.28 0.57 0.55 0.56 0.44 0.32 0.34 0.12 0.63 0.62
Net realized gains or (0.01) (0.08) (0.03) (0.01) (0.08) (0.03) 0.01 0.02 0.06 0.04
(losses) on investments
- ---------------------------- ---------- --------- --------- -------- --------- --------- --------- ----------- -------- =========
Total from investment 0.27 0.49 0.52 0.55 0.36 0.29 0.35 0.14 0.69 0.66
operations
- ---------------------------- ---------- --------- --------- -------- --------- --------- --------- ----------- -------- =========
Distributions from net 0.28 0.57 0.55 0.56 0.45 0.31 0.34 0.12 0.63 0.62
investment income
Distributions in excess of --- --- --- 0.00** 0.00** --- 0.01 0.02 0.06 0.04
net investment income
- ---------------------------- ---------- --------- --------- -------- --------- --------- --------- ----------- -------- =========
Total distributions 0.28 0.57 0.55 0.56 0.45 0.31 0.35 0.14 0.69 0.66
============================ ---------- --------- --------- -------- --------- --------- --------- ----------- -------- =========
Net asset value at end of $9.76 9.77 9.85 9.88 9.89 9.98 10.00 10.00 10.00 10.00
period
- ---------------------------- ---------- --------- --------- -------- --------- --------- --------- ----------- -------- =========
Total return on investment 2.77% (c) 5.09% 5.45% 5.71% 3.71% 2.88% 3.45% 5.67% (b) 7.11% 8.31%(b)
- ---------------------------- ---------- --------- --------- -------- --------- --------- --------- ----------- -------- =========
Net assets at end of 448,662 486,906 355,257 457,425 290,695 417,728 682,513 365,311 269,115 111,957
period in 000's
Ratio of operating 0.25% (b) 0.25% 0.27% 0.40% 0.40% 0.40% 0.40% 0.40% (b) 0.40% 0.50%(b)
expenses to average net
assets, exclusive of
interest expense
Ratio of operating 0.25% (b) 0.26% 0.40% 0.51% 0.43% 0.48% 0.43% 0.40% (b) 0.43% 0.50%(b)
expenses to average net
assets, inclusive of
interest expense
Ratio of net investment 5.70% (b) 5.78% 5.62% 5.64% 4.14% 3.28% 3.37% 4.67% (b) 5.99% 8.23%(b)
income to average net
assets (a)
Decrease in above expense 0.19% (b) 0.18% 0.05% 0.07% 0.08% 0.03% --- 0.03% (b) 0.11% 0.86% (b)
ratios due to waiver of
investment advisory fees
============================ ========== --------- --------- ======== ========= ========= ========= =========== ======== =========
</TABLE>
(a) Net of waivers and reimbursements (b) Annualized (u) Unaudited *
Commencement of operations ** Rounds to less than $0.01
<TABLE>
<S> <C>
LIMITED DURATION PORTFOLIO
Fundamental Investment To maintain a stable level of total return, as may be consistent with the preservation of
Objective: capital.
--------------------------- -------------------------------------------------------------------------------------------------
--------------------------- -------------------------------------------------------------------------------------------------
Portfolio Description: The Limited Duration Portfolio invests primarily in high-quality debt securities (AA or Aa or
better), using interest rate hedging as a stabilizing technique.
--------------------------- -------------------------------------------------------------------------------------------------
--------------------------- -------------------------------------------------------------------------------------------------
Performance Objective: To outperform the Merrill Lynch 1-2.99 Year Treasury Index.
--------------------------- -------------------------------------------------------------------------------------------------
--------------------------- -------------------------------------------------------------------------------------------------
Investment Policies and At least 65% of Limited Duration Portfolio's total assets must be invested in high-quality U.S.
Significant Restrictions: Dollar denominated securities. Up to 35% of the Portfolio's total assets may be invested in
non-U.S. Dollar denominated securities. The
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. The Portfolio may not engage
in short sale transactions. The 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
Currency risk Prepayment risk
--------------------------- ----------------------------- ---------------------------------- --------------------------------
--------------------------- ----------------------------- ---------------------------------- --------------------------------
Allowable Investment Dollar Roll Hedging When Issued and Forward
Techniques: Transactions TBA Transactions Commitment Securities
Duration Management
--------------------------- ----------------------------- ---------------------------------- --------------------------------
--------------------------- ----------------------------- ---------------------------------- --------------------------------
Allowable Investments: Asset-Backed Indexed Notes, Currency Municipal Instruments
Securities Exchange Related Securities Repurchase and Reverse
Bank Obligations and Similar Securities Repurchase Agreements
Brady Bonds Inflation Indexed Stripped Instruments
Convertible Securities Securities U.S. Government and
Corporate Debt Mortgage-Backed Securities Agency Securities
Instruments Multi-National Currency Warrants
Foreign Instruments Unit Securities or More Zero Coupon Bonds
Illiquid Securities Than One Currency
Denomination
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
--------------------------- ----------------------------- ---------------------------------- --------------------------------
--------------------------- --------- ------------ ---------------- ---------------- --------------- ------------------------
Minimum Quality Rating: S&P Moody's Thompson Average Portfolio
S&P: Moody's: (Short-Term): (Short-Term): Bankwatch: Quality:
BBB- Baa3 A-2 P-2 B AA (Aa)
</TABLE>
<TABLE>
<S> <C>
--------------------------- --------- ------------ ---------------- ---------------- --------------- ------------------------
--------------------------- -------------------------------------------------------------------------------------------------
Average Weighted Duration: The average U.S. Dollar-weighted duration is generally shorter than three years.
The average U.S. Dollar-weighted duration will not exceed plus or minus one year, around
the average duration of the Merrill Lynch 1-2.99 Year Treasury Index.
--------------------------- -------------------------------------------------------------------------------------------------
--------------------------- -------------------------------------------------------------------------------------------------
Note: Limited Duration is a suitable investment option for defined contribution and retirement
plans.
Limited Duration 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, Limited Duration is not
guaranteed by an insurer.
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
--------------------------- -------------------------------------------------------------------------------------------------
--------------------------- ---------------------- ----------------------- ----------------------- --------------------------
Hypothetical Past 1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Expenses Per $1,000 $ 6 $ 19 $ 33 $ 75
Investment, Assuming A 5%
Annual Return:
</TABLE>
LIMITED DURATION PORTFOLIO OPERATING EXPENSES
Advisory fees: 0.15%
Total fund operating expenses: 0.60%
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
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> <C>
===========================================================================================================================
LIMITED DURATION PORTFOLIO FINANCIAL HIGHLIGHTS
(IN U.S. DOLLARS UNLESS OTHERWISE INDICATED)
===========================================================================================================================
FOR A SHARE OUTSTANDING THROUGHOUT THE 1/198 to Year Ended Year Ended Year Ended Year Ended 7/26/93* to
PERIOD 6/30/98 (u) 12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
------------------------------------------ ------------ ------------ ------------- ------------- ------------ =============
Net asset value at beginning of period 9.93 9.93 10.00 9.55 9.95 10.00
------------------------------------------ ------------ ------------ ------------- ------------- ------------ =============
Net investment income 0.28 0.62 0.55 0.60 0.43 0.14
Net realized gains or (losses) on 0.02 0.08 (0.04) 0.45 (0.40) 0.05
investments
------------------------------------------ ------------ ------------ ------------- ------------- ------------ =============
Total investment income 0.30 0.70 0.51 1.05 0.03 0.19
------------------------------------------ ------------ ------------ ------------- ------------- ------------ =============
Distributions from net investment income 0.28 0.62 0.55 0.60 0.43 0.14
Distributions in excess of net --- --- 0.00** --- --- ---
investment income
Distributions from net realized gain on --- 0.08 0.03 --- --- 0.03
investments
Distributions in excess of net realized --- --- --- --- --- 0.07
gain on investments and financial
futures contracts
------------------------------------------ ------------ ------------ ------------- ------------- ------------ =============
Total distributions 0.28 0.70 0.58 0.60 0.43 0.24
------------------------------------------ ------------ ------------ ------------- ------------- ------------ =============
Net asset value at end of period 9.95 9.93 9.93 10.00 9.55 9.95
------------------------------------------ ------------ ------------ ------------- ------------- ------------ =============
Total return on investment 3.02% (c) 7.21% 5.29% 11.26% 0.29% 178% (b)
------------------------------------------ ------------ ------------ ------------- ------------- ------------ =============
Net assets at end of period in 000's 54,617 40,029 42,100 5,080 4,338 3,482
Ratio of operating expenses to average 0.30% (b) 0.30% 0.31% 0.50% 0.50% 0.50% (c)
net assets, exclusive of interest
expense (a)
Ratio of operating expenses to average 0.30% (b) 0.60% 0.49% 1.41% 1.74% 0.50% (b)
net assets, inclusive of interest
expense (a)
Ratio of net investment income to 5.60% (b) 6.10% 5.79% 6.09% 4.43% 3.68% (b)
average net assets
Decrease in above expense ratios due to 0.20% (b) 0.31% 0.15% 0.53% 0.57% 1.46% (b)
waiver of investment advisory fees and
reimbursements of other expenses
Portfolio turnover rate 548% 1,292% 1,387% 1,075% 343% 1,841%
========================================== ============ ============ ============= ============= ============ =============
</TABLE>
(a) Net of waivers and reimbursements
(b) Annualized
(c) Not annualized
(u) Unaudited
* Commencement of operations
** Rounds to less than $0.01
MORTGAGE TOTAL RETURN PORTFOLIO
Fundamental Investment To attain a high level of total return, as may
Objective: be consistent with the preservation of capital.
<TABLE>
<S> <C>
-------------------------- -------------------------------------------------------------------------------------------------
-------------------------- -------------------------------------------------------------------------------------------------
Portfolio Description: Primarily invests in mortgage-backed and mortgage-related securities using hedging techniques
to manage interest rate and prepayment risk.
-------------------------- -------------------------------------------------------------------------------------------------
-------------------------- -------------------------------------------------------------------------------------------------
Performance Objective: To outperform the Lehman Mortgage-Backed Securities Index.
-------------------------- -------------------------------------------------------------------------------------------------
-------------------------- -------------------------------------------------------------------------------------------------
Investment Policies and At least 65% of the Portfolio's total assets must be invested in mortgage-backed and
Significant Restrictions: asset-backed securities of U.S. and foreign issuers. The 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. The Portfolio is non-diversified.
</TABLE>
<TABLE>
<S> <C> <C> <C>
-------------------------- -------------------------------------------------------------------------------------------------
-------------------------- ----------------------------- --------------------------------- ---------------------------------
Risks: Banking industry risk Hedging risk Market risk
Correlation risk Interest rate risk Non-diversification risk
Credit risk Leverage risk Prepayment risk
Liquidity risk
-------------------------- ----------------------------- --------------------------------- ---------------------------------
-------------------------- ----------------------------- --------------------------------- ---------------------------------
Allowable Investment Dollar Roll Hedging TBA Transactions
Techniques: Transactions Short Sale Transactions When Issued and Forward
Duration Management Commitment Securities
-------------------------- ----------------------------- --------------------------------- ---------------------------------
-------------------------- ----------------------------- --------------------------------- ---------------------------------
Allowable Investments: Asset-Backed Indexed Notes Stripped Instruments
Securities Inflation Indexed Total Return Swaps
Bank Obligations Securities U.S. Government and
Corporate Debt Mortgage-Backed Securities Agency Securities
Instruments Repurchase and Reverse Zero Coupon Bonds
Illiquid Securities Repurchase Agreements
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
-------------------------- ----------------------------- --------------------------------- ---------------------------------
-------------------------- --------- ------------ ---------------- --------------- -------------- --------------------------
Minimum Quality Rating: S&P Moody's Thompson Average Portfolio
S&P: Moody's: (Short-Term): (Short-Term): Bankwatch: 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
Weighted Duration: average duration of the Lehman Mortgage-Backed Securities Index.
-------------------------- -------------------------------------------------------------------------------------------------
-------------------------- ----------------------- ---------------------- -------------------- -----------------------------
Hypothetical Expenses 1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Per $1,000 Investment, $ 3 $ 11 $ 19 $ 43
Assuming A 5% Annual
Return:
</TABLE>
MORTGAGE TOTAL RETURN PORTFOLIO OPERATING EXPENSES
Advisory fees: 0.10%
Total fund operating expenses: 0.34%
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 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.
<TABLE>
<S> <C> <C> <C>
===========================================================================================================================
MORTGAGE TOTAL RETURN PORTFOLIO FINANCIAL HIGHLIGHTS
(IN U.S. DOLLARS UNLESS OTHERWISE INDICATED)
===========================================================================================================================
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD 1/1/98 to Year Ended 4/29/96* to
6/30/98 (u) 12/31/97 12/31/96
------------------------------------------------------------------------ ---------------- -------------- ==================
Net asset value at beginning of period 10.30 10.06 10.00
------------------------------------------------------------------------ ---------------- -------------- ==================
Net investment income 0.36 0.68 0.41
Net realized gains or (losses) on investments 0.01 0.32 0.23
------------------------------------------------------------------------ ---------------- -------------- ==================
Total investment income 0.37 1.00 0.64
------------------------------------------------------------------------ ---------------- -------------- ==================
Distributions from net investment income 0.33 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 --- 0.18 0.01
financial futures and options contracts
======================================================================== ---------------- -------------- ==================
Total distributions 0.33 0.86 0.48
======================================================================== ---------------- -------------- ==================
Net asset value at end of period 10.34 10.30 10.16
------------------------------------------------------------------------ ---------------- -------------- ==================
Total return on investment 3.63% (c) 10.19% 6.54% (c)
------------------------------------------------------------------------ ---------------- -------------- ==================
Net assets at end of period in 000's 955,376 655,271 220,990
Ratio of operating expenses to average net assets, exclusive of 0.25% (b) 0.38% 0.45% (b)
interest expense (a)
Ratio of operating expenses to average net assets, inclusive of 0.25% (b) 0.47% 0.88% (b)
interest expense (a)
Ratio of net investment income to average net assets 6.35% (b) 6.07% 7.61% (b)
Decrease in above expense ratios due to waiver of investment advisory 0.20% (b) 0.07% 0.10% (b)
fees and reimbursement of other expenses
Portfolio turnover rate 463% 3,396% 590%
======================================================================== ================ ============== ==================
</TABLE>
(a) Net of waivers and reimbursements
(b) Annualized
(c) Not annualized
(u) Unaudited
* Commencement of operations
ASSET-BACKED PORTFOLIO
Fundamental Investment To attain a high level of total return, as may be
consistent with the preservation of capital.
Objective:
<TABLE>
<S> <C>
-------------------------- ------------------------------------------------------------------------------------------------
-------------------------- ------------------------------------------------------------------------------------------------
Portfolio Description: Primarily invests in asset-backed securities, allowing exposure to other sectors of the debt
market opportunistically.
-------------------------- ------------------------------------------------------------------------------------------------
-------------------------- ------------------------------------------------------------------------------------------------
Performance Objective: To outperform the Lehman Asset-Backed Securities Index.
-------------------------- ------------------------------------------------------------------------------------------------
-------------------------- ------------------------------------------------------------------------------------------------
Investment At least 65% of the Asset-Backed Portfolio's total assets must be invested in mortgage-backed
Policies and Significant and asset-backed securities of the U.S. and foreign issuers. The Portfolio may not invest
Restrictions: 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. The 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 Investment Dollar Roll Hedging TBA Transactions
Techniques: Transactions Short Sale Transactions When Issued and Forward
Duration Management Commitment Securities
-------------------------- ------------------------------ ------------------------------- ---------------------------------
-------------------------- ------------------------------ ------------------------------- ---------------------------------
Allowable Investments: Asset-Backed Securities Indexed Notes Stripped Instruments
Bank Obligations Inflation Indexed Total Return Swaps
Convertible Securities Securities U.S. Government and
Corporate Debt Mortgage-Backed Agency Securities
Instruments Securities Zero Coupon Securities
Illiquid Securities Repurchase and Reverse
Repurchase Agreements
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
-------------------------- ------------------------------ ------------------------------- ---------------------------------
-------------------------- --------- -------------- ----------------- ---------------- -------------- ---------------------
Minimum Quality Rating: S&P Moody's Thompson Average Portfolio
S&P: Moody's: (Short-Term): (Short-Term): Bankwatch: 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
Weighted Duration: average duration of the Lehman Asset-Backed Securities Index.
-------------------------- ------------------------------------------------------------------------------------------------
-------------------------- -------------------- ----------------------- ----------------------- ---------------------------
Hypothetical Expenses 1 Year 3 Years
------ -------
Per $1,000 Investment, $ 3 $ 8
Assuming A 5% Annual
Return:
</TABLE>
THIS PORTFOLIO HAS NOT YET COMMENCED INVESTMENT ACTIVITY
ASSET-BACKED PORTFOLIO OPERATING EXPENSES
Advisory fees: 0.10%
Total fund operating expenses: 0.25%
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
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.
"Total fund operating expenses" are based on estimated expenses for the
current fiscal year.
HIGH YIELD PORTFOLIO
Fundamental Investment To attain a high level of total return, as may be
consistent with the preservation of capital.
Objective:
<TABLE>
<S> <C>
- ---------------------------- ---------------------------------------------------------------------------------------------------
- ---------------------------- ---------------------------------------------------------------------------------------------------
Portfolio Description: Primarily invests in high yield debt securities.
- ---------------------------- ---------------------------------------------------------------------------------------------------
- ---------------------------- ---------------------------------------------------------------------------------------------------
Performance To outperform the Salomon Brothers BB+/B Rated Index.
Objective:
- ---------------------------- ---------------------------------------------------------------------------------------------------
- ---------------------------- ---------------------------------------------------------------------------------------------------
Investment Policies and At least 65% of High Yield Portfolio's total assets must be invested in high yield securities of
Significant Restrictions: U.S. and foreign issuers. The 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. The 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 Investment Dollar Roll Hedging When Issued and Forward
Techniques: Transactions Short Sales Transactions Commitment Securities
Duration Management TBA Transactions
- ---------------------------- ---------------------------- ------------------------------------ ---------------------------------
- ---------------------------- ---------------------------- ------------------------------------ ---------------------------------
Allowable Investments: Asset-Backed Indexed Notes, Currency Municipal Instruments
Securities Exchange-Related Securities Repurchase and Reverse
Bank Obligations and Similar Securities Repurchase Agreements
Brady Bonds Inflation-Indexed Securities Stripped Instruments
Corporate Debt Mortgage-Backed Securities U.S. Government and
Instruments Multi-National Currency Unit Agency Securities
Foreign Instruments Securities or More Than One Warrants
Illiquid Securities Denomination Zero Coupon Securities
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------- ---------------------------- ------------------------------------ ---------------------------------
- ---------------------------- --------- ------------ ---------------- ----------------- -------------- --------------------------
Minimum Quality Rating: S&P Moody's Thompson Average Portfolio
S&P: Moody's: (Short-Term): (Short-Term): Bankwatch: Quality:
- ---------------------------- --------- ------------ ---------------- ----------------- -------------- --------------------------
- ---------------------------- ---------------------------------------------------------------------------------------------------
Average The Portfolio's average U.S. Dollar-weighted duration generally will not exceed one year, plus or
Weighted Duration: minus the average duration of the Salomon Brothers BB+/B Rated Index.
- ---------------------------- ---------------------------------------------------------------------------------------------------
- ---------------------------- ------------------------- ----------------------- ----------------------- -------------------------
Hypothetical Expenses Per 1 Year 3 Years
------ -------
$1,000 Investment, $ 6 $ 18
Assuming A 5% Annual
Return:
</TABLE>
THIS PORTFOLIO HAS NOT YET COMMENCED INVESTMENT ACTIVITY
U.S. HIGH YIELD PORTFOLIO OPERATING EXPENSES
Advisory fees: 0.40%
Total fund operating expenses: 0.55%
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. "Total fund
operating expenses" are based on estimated expenses for the current fiscal
year.
<TABLE>
<S> <C>
EQUITY ALPHA PORTFOLIO
Fundamental Investment To attain a high level of total return, as may be
consistent with the preservation of capital.
Objective:
- ----------------------------- -------------------------------------------------
- ----------------------------- -------------------------------------------------
Portfolio Description: The Equity Alpha Portfolio invests
primarily in short duration fixed income
securities and S&P 500 Index futures contracts to
provide, where possible, hedged equity-like
returns.
- ----------------------------- --------------------------------------------------
- ----------------------------- --------------------------------------------------
Performance To outperform the S&P 500 Index.
Objective:
- ----------------------------- --------------------------------------------------
- ----------------------------- --------------------------------------------------
Investment Policies and For temporary defensive purposes, Equity Alpha Portfolio may invest up to 100% of its total
Significant Restrictions: assets in short-term U.S. Government securities and money market instruments. The Portfolio is
non-diversified.
</TABLE>
<TABLE>
<S> <C> <C> <C>
- ----------------------------- ---------------------------------------------------------------------------------------------------
- ----------------------------- ----------------------------- ---------------------------------- ----------------------------------
Risks: Correlation risk Futures Market risk
Credit risk Hedging risk Non-diversification risk
Currency risk Interest rate risk Prepayment risk
Liquidity risk
- ----------------------------- ----------------------------- ---------------------------------- ----------------------------------
- ----------------------------- ----------------------------- ---------------------------------- ----------------------------------
Allowable Investment Dollar Roll Financial Futures When Issued and Forward
Techniques: Transactions Hedging Commitment Securities
Duration Management Short Sales Transactions
TBA Transactions
- ----------------------------- ----------------------------- ---------------------------------- ----------------------------------
- ----------------------------- ----------------------------- ---------------------------------- ----------------------------------
Allowable Investments: Asset-Backed Indexed Notes, Currency Municipal Instruments
Securities Exchange-Related Securities Repurchase and Reverse
Bank Obligations and Similar Securities Repurchase Agreements
Brady Bonds Inflation-Indexed Stripped Instruments
Corporate Debt Securities U.S. Government and Agency
Instruments Mortgage-Backed Securities Securities
Financial Futures Multi-National Currency Warrants
Contracts Unit Securities or More Zero Coupon Securities
Foreign Instruments Than One Denomination
Illiquid Securities
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------- ----------------------------- ---------------------------------- ----------------------------------
- ----------------------------- -------- ----------- ---------------- ------------------ ----------------- ------------------------
Minimum Quality Rating: S&P Moody's Thompson Average Portfolio
S&P: Moody's: (Short-Term): (Short-Term): Bankwatch: 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
Weighted Duration: minus the average duration of the S&P 500 Index.
- ----------------------------- ---------------------------------------------------------------------------------------------------
- ----------------------------- -------------------------- ------------------------ ------------------- ---------------------------
Hypothetical Expenses Per 1 Year 3 Years
$1,000 Investment, Assuming $ 5 $ 16
A 5% Annual Return:
</TABLE>
THIS PORTFOLIO HAS NOT YET COMMENCED INVESTMENT ACTIVITY
S&P INDEX PLUS PORTFOLIO OPERATING EXPENSES
Advisory fees: 0.35%
Total fund operating expenses: 0.50%
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. "Total fund
operating 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 Investment Objective: to avoid
credit quality risk.
---------------------- ----------------------------------------------------------------------------------------------------
Portfolio The U.S. Treasury Portfolio invests primarily in securities issued by the U.S. Treasury Department.
Description:
---------------------- ----------------------------------------------------------------------------------------------------
Performance To outperform the Lehman Government Index.
Objective:
---------------------- ----------------------------------------------------------------------------------------------------
Investment Policies At least 95% of the U.S. Treasury Portfolio's total assets must be invested in U.S.
and Significant Dollar-denominated obligations issued by the U.S. Treasury and repurchase agreements
Restrictions: collateralized by such obligations. The Portfolio may invest up to 5% of its total assets in high
quality (AA, Aa or better) fixed income securities
and instruments of the same type as Short-Term
Portfolio. The 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. The Portfolio may not
engage in short sale transactions. The Portfolio is
non-diversified.
</TABLE>
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---------------------- ----------------------------------------------------------------------------------------------------
Risks: Hedging risk Interest rate risk Leverage risk
Market risk
---------------------- --------------------------- ------------------------------------ -----------------------------------
Allowable Investment Duration Management Hedging When Issued and Forward
Techniques: Commitment Securities
---------------------- --------------------------- ------------------------------------ -----------------------------------
Allowable Asset-Backed Indexed Notes, Currency Municipal Instruments
Investments: Securities Exchange Related Securities Repurchase and Reverse
Bank Obligations and Similar Securities Repurchase Agreements
Brady Bonds Inflation Indexed Securities Stripped Instruments
Convertible Mortgage Backed Securities U.S. Government and Agency
Securities Multi-National Currency Unit Securities
Corporate Debt Securities or More Than One Warrants
Instruments Currency Denomination Zero Coupon Securities
Foreign Instruments
</TABLE>
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---------------------- -------- ------------ --------------- ----------------- --------------- ----------------------------
Minimum Quality S&P Moody's Thompson Average Portfolio Quality:
Rating: S&P: Moody's: (Short-Term): (Short-Term): Bankwatch: AAA (Aaa)
BBB- Baa3 A-1 P-1 B
---------------------- -------- ------------ --------------- ----------------- --------------- ----------------------------
Average The average U.S. Dollar-weighted duration generally will not exceed plus or minus one year of the
Weighted Duration: average 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.
---------------------- ---------------------- -------------------- ------------------------- ------------------------------
Hypothetical 1 Year 3 Years
------ -------
Expenses Per $1,000 $ 5 $ 14
Investment, Assuming
A 5% Annual Return:
</TABLE>
THIS PORTFOLIO HAS NOT YET COMMENCED INVESTMENT ACTIVITY
U.S. TREASURY PORTFOLIO OPERATING EXPENSES
Advisory fees: 0.30%
Total fund operating expenses: 0.45%
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. "Total
fund operating expenses" are based on estimated expenses for the current
fiscal year. 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.
(Remainder of this page intentionally left blank)
U.S. CORPORATE PORTFOLIO
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Fundamental Investment To attain a high level of total return, as may be consistent with the preservation of capital.
Objective:
------------------------- ------------------------------------------------------------------------------------------------
Portfolio Description The U.S. Corporate Portfolio invests primarily in U.S. corporate obligations.
------------------------- ------------------------------------------------------------------------------------------------
Performance Objective: To outperform the Salomon Brothers Corporate Bond Index.
------------------------- ------------------------------------------------------------------------------------------------
Investment Policies and The U.S. Corporate Portfolio must invest at least 65% of its total assets in U.S.
Significant Dollar-denominated corporate debt obligations. The Portfolio may invest up to 35% of its
Restrictions: total assets in non-dollar-denominated corporate debt obligations or other U.S.
Dollar-denominated debt obligations. The
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. The
Portfolio is non-diversified.
</TABLE>
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------------------------- ------------------------------------------------------------------------------------------------
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 Investment Dollar Roll Hedging TBA Transactions
Techniques: Transactions Short Sale Transactions When Issued and Forward
Duration Management Commitment Securities
------------------------- ----------------------------- ---------------------------------- -------------------------------
Allowable Instruments: Asset-Backed Indexed Notes, Currency Municipal Instruments
Securities Exchange Related Securities Repurchase and Reverse
Bank Obligations and Similar Securities Repurchase Agreements
Brady Bonds Inflation Indexed Stripped Instruments
Convertible Securities Securities U.S. Government and
Corporate Debt Mortgage-Backed Securities Agency Securities
Instruments Multi-National Currency Warrants
Foreign Instruments Unit Securities or More Zero Coupon Bonds
Illiquid Securities Than One Currency
Denomination
</TABLE>
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------------------------- -------- ----------- --------------- ----------------- -------------- --------------------------
Minimum Quality Rating: S&P Moody's Thompson Minimum Average
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,
Weighted Duration: around the average duration of the Salomon Brothers Corporate Bond Index.
------------------------- --------------------- ----------------------- ----------------------- --------------------------
Hypothetical Expenses 1 Year 3 Years
------ -------
Per $1,000 Investment, $ 3 $ 8
Assuming A 5% Annual
Return:
</TABLE>
THIS PORTFOLIO HAS NOT YET COMMENCED INVESTMENT ACTIVITY
U.S. CORPORATE PORTFOLIO OPERATING EXPENSES
Advisory fees: 0.10%
Total fund operating expenses: 0.25%
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 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. "Total fund operating expenses" are
based on estimated expenses for the current fiscal year.
BROAD-MARKET PORTFOLIO
Fundamental Investment To attain a high level of total return, as may be
consistent with the preservation of capital.
Objective:
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- ----------------------------- -------------------------------------------------------------------------------------------------
Portfolio Description: The Broad-Market Portfolio invests primarily in high-quality (AA, Aa or better) fixed-income
securities, reflective of the broad spectrum of the U.S. bond market.
- ----------------------------- -------------------------------------------------------------------------------------------------
Performance Objective: To outperform the Lehman Aggregate Bond Index.
- ----------------------------- -------------------------------------------------------------------------------------------------
Investment Policies and The Broad Market Portfolio will invest at least 65% of its total assets in high-quality
Significant Restrictions: fixed-income securities reflective of the broad spectrum of the U.S. bond market. The
allocation among markets will vary based upon the
issuance of new securities and the retirement of
outstanding securities and instruments. The
Portfolio has limited exposure to non-U.S. Dollar
denominated securities. The 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. The Portfolio may not
engage in short sales. The Portfolio is
non-diversified.
</TABLE>
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- ----------------------------- ----------------------------- ---------------------------------- --------------------------------
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 Investment Dollar Roll Duration Management TBA Transactions
Techniques: Transactions Hedging When Issued and Forward
Commitment Securities
- ----------------------------- ----------------------------- ---------------------------------- --------------------------------
Allowable Investments: Asset-Backed Indexed Notes, Currency Municipal Instruments
Securities Exchange Related Securities Repurchase and Reverse
Bank Obligations and Similar Securities Repurchase Agreements
Brady Bonds Inflation Indexed Stripped Instruments
Convertible Securities Securities U.S. Government and
Corporate Debt Mortgage-Backed Securities Agency Securities
Instruments Multi-National Currency Warrants
Foreign Instruments Unit Securities or More Zero Coupon Bonds
Illiquid Securities Than One Currency
Denomination
</TABLE>
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- ----------------------------- -------- ------------- --------------- ---------------- --------------- -------------------------
Minimum Quality Rating: S&P Moody's Thompson Average Portfolio
S&P: Moody's: (Short-Term): (Short-Term): Bankwatch: Quality:
BBB- Baa3 A-2 P-2 B AA (Aa)
- ----------------------------- -------- ------------- --------------- ---------------- --------------- -------------------------
Average Weighted Duration: The average U.S. Dollar-weighted duration generally will not exceed plus or minus one year,
around the average duration of the Lehman Aggregate Bond Index.
- ----------------------------- -------------------- ---------------------- ------------------------- ---------------------------
Hypothetical Expenses Per 1 Year 3 Years
$1,000 Investment, Assuming $ 5 $ 14
A 5% Annual Return:
</TABLE>
THIS PORTFOLIO HAS NOT YET COMMENCED INVESTMENT ACTIVITY
BROAD MARKET PORTFOLIO OPERATING EXPENSES
Advisory fees: 0.30%
Total fund operating expenses: 0.45%
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
Investment Adviser has voluntarily agreed 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.
"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:
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a. engaging in swaps; d. purchasing and selling futures contracts;
b. purchasing and selling caps, floors e. purchasing and selling options;
and collars;
c. purchasing or selling forward exchange
contracts;
</TABLE>
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. Investors should note that the Equity Alpha Portfolio
will, unlike the other Fund Portfolios, invest more than 5% of its total net
assets in futures contracts and will utilize futures contracts for purposes
other than bona fide hedging.
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:
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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,
</TABLE>
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 Equity Alpha Portfolio must be
qualified eligible participants as defined in Commodities Futures Trading
Commission Rule 4.7. The requirements for "Qualified Eligible Participants"
status are set forth in the Fund's subscription documents. 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 its
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.
WIRING INSTRUCTIONS
To: Investors Bank & Trust Company, Boston, Massachusetts.
ABA Number: 011-0010438
Account Name: AMT Capital Securities, L.L.C. - Purchase Account
Account Number: 933333333
Reference: (Indicate Portfolio name)
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 Asset-Backed,
High-Yield, U.S. Corporate and Broad Market
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
is responsible for management of the Money Market,
U.S. Short-Term, Stable Return, Equity Alpha and
U.S. Treasury 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 Mortgage LIBOR
and Mortgage Total Return 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 10, 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, Global High Yield, Inflation- Indexed and
Inflation-Indexed Hedged 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> <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 10, 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.
CONTENTS
<TABLE>
<S> <C>
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
</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.
<TABLE>
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SUMMARY OF INVESTMENT OBJECTIVES AND DESCRIPTIONS
PORTFOLIO NAME FUNDAMENTAL INVESTMENT OBJECTIVE PORTFOLIO DESCRIPTION*
- ------------------------- ---------------------------------------------------- -------------------------------------------------
Worldwide Seeks to attain a high level of total return as High-quality fixed-income securities with
may 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 Global
fixed income securities with tactical may be
consistent with the preservation of capital active
management of currencies against a
and to actively utilize currency hedging strategic hedged position
techniques
- ------------------------- ---------------------------------------------------- -------------------------------------------------
- ------------------------- ---------------------------------------------------- -------------------------------------------------
International Seeks to attain a high level of total return as Non-US fixed-income securities with tactical
may 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 Global
fixed-income securities with tactical Exposure may be consistent with
the preservation of capital exposures to global fixed income and
currency
and to actively utilize currency one hedging markets
techniques
- ------------------------- ---------------------------------------------------- -------------------------------------------------
- ------------------------- ---------------------------------------------------- -------------------------------------------------
International Seeks to attain a high level of total return as Global
fixed-income securities with active Opportunities may 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 Primarily non-U.S. corporate obligations in the
may be consistent with the preservation of capital investment grade sector
- ------------------------- ---------------------------------------------------- -------------------------------------------------
- ------------------------- ---------------------------------------------------- -------------------------------------------------
Emerging Markets Seeks to attain a high level of total return
as Diversified portfolio of emerging market local may
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 High yielding non-securities in global
may be consistent with the preservation of capital markets
- ------------------------- ---------------------------------------------------- -------------------------------------------------
- ------------------------- ---------------------------------------------------- -------------------------------------------------
Inflation-Indexed Seeks to attain a high level of return in excess Inflation indexed securities issued worldwide
of 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 Inflation index securities issued worldwide
of 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
- ------------------------- ---------------------------------------------------- -------------------------------------------------
* See Portfolio Summaries for more complete information
</TABLE>
GENERAL RISKS ASSOCIATED WITH THE FUND'S INVESTMENT
POLICIES AND INVESTMENT TECHNIQUES
Banking industry risk: Investing in bank obligations will
expose an investor to risks associated with the
banking industry such as interest rate and credit
risks.
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
risk: investment risk by placing assets in several
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: 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.
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
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 SUMMARY AND FINANCIAL HIGHLIGHTS
The following section summarizes the most important information on each of the
Portfolios. Please review the remainder of the Prospectus and the Statement of
Additional Information for more
Portfolio information.
The financial information contained in the Financial Highlight information table
is provided to assist investors in understanding the various costs and expenses
that an investor will incur, either directly or indirectly, as a shareholder in
the Fund. All costs and expenses are calculated as a percentage of average daily
net assets. These are the only fund related expenses that an investor will bear.
The Financial Highlight information in the Portfolio Summaries has been audited
by Ernst & Young, LLP (unless otherwise indicated) 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 PORTFOLIO SUMMARY TERMS
1. Fundamental Investment Objective - Presents the 7. Allowable Investments -
Portfolio's fundamental purpose. A Portfolio's fundamental In general terms, presents the
investment objective cannot be altered without a shareholder vote. investments in which the Portfolio will engage.
8. Minimum Quality Rating - Presents the minimum
quality investment standards for individual
2. Portfolio Description - Presents the Portfolio's investments as well as the Portfolio's average
primary investment vehicles and strategies. quality.
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--thissection highlights such
4. Investment Policies and Significant Restrictions - 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
5. Risks - In general terms, presents the most common understanding the various expenses that an
risks the Portfolio may encounter based on the investor in a Portfolio will bear, directly
types of investments it may engage. or indirectly.
These examples should not
be considered a representation of future
expenses or performance. Actual operating
6. Allowable Investment Techniques - In general terms, expenses may be greater or lesser than those
presents the most common investment strategies, which shown.
the Portfolio may employ. 12. Financial Highlights - This table presents a
breakdown of each Portfolio's financial
information.
</TABLE>
<TABLE>
<S> <C>
WORLDWIDE PORTFOLIO
- -------------------------- ------------------------------------------------------------------------------------------------
Fundamental Investment To attain a high level of total return, as may be consistent with the preservation of capital.
Objective:
- -------------------------- ------------------------------------------------------------------------------------------------
Portfolio Description: The World-Wide Portfolio invests primarily invests in high-quality (AA, Aa or better) debt
securities from worldwide bond markets, denominated in both U.S. Dollars and foreign
currencies.
- -------------------------- ------------------------------------------------------------------------------------------------
- -------------------------- ------------------------------------------------------------------------------------------------
Performance Objective: To outperform the JP Morgan Global Government Bond Index (Unhedged).
- -------------------------- ------------------------------------------------------------------------------------------------
- -------------------------- ------------------------------------------------------------------------------------------------
Investment Policies and At least 65% of the World-Wide Portfolio's total assets must be invested in high-quality debt
Significant Restrictions: securities from worldwide bond markets, denominated in both U.S. Dollars and foreign
currencies. The Portfolio may not invest more than 5%
of its total 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. The 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 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. The Portfolio may not engage in short sale
transactions. The 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 Investment Dollar Roll Hedging When Issued and Forward
Strategies: Transactions TBA Transactions Commitment Securities
Duration Management
- -------------------------- ----------------------------- ---------------------------------- -------------------------------
Allowable Investments: Asset-Backed Indexed Notes, Currency Municipal Instruments
Securities Exchange-Related Securities Repurchase and Reverse
Bank Obligations and Similar Securities Repurchase Agreements
Brady Bonds Inflation-Indexed Stripped Instruments
Corporate Debt Securities U.S. Government and
Instruments Mortgage-Backed Securities Agency Securities
Foreign Instruments Multi-National Currency Warrants
Illiquid Securities Unit Securities or More Zero Coupon Securities
Than One Denomination
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- -------------------------- ------- ------------- --------------- ----------------- --------------- ------------------------
Minimum Quality Rating: S&P Moody's Thompson Average Portfolio
S&P: Moody's: (Short-Term): (Short-Term): Bankwatch: Quality:
BBB Baa A-2 P-2 B AA (Aa)
- -------------------------- ------------------------------------------------------------------------------------------------
Average Weighted The Portfolio's average U.S. dollar-weighted duration generally will not exceed one year, plus
Duration: or minus the average duration of the JP Morgan Global Government Bond Index (Unhedged).
- -------------------------- ------------------------------------------------------------------------------------------------
Hypothetical Expenses 1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Per $1,000 Investment, $ 6 $ 19 $ 33 $ 75
Assuming A 5% Annual
Return:
========================== ======================= ======================= ======================== =======================
</TABLE>
WORLDWIDE PORTFOLIO OPERATING EXPENSES
Advisory fees: 0.40%
Total fund operating expenses: 0.60%
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.
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.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
===========================================================================================================================
WORLDWIDE PORTFOLIO FINANCIAL HIGHLIGHTS
(IN U.S. DOLLARS UNLESS OTHERWISE INDICATED)
===========================================================================================================================
FOR A SHARE OUTSTANDING THROUGHOUT THE 1/1/98 Year Year Year Year Year 4/15/92*
PERIOD to Ended Ended Ended Ended Ended to
6/30/98 12/31/97 12/31/97 12/31/95 12/31/94 12/31/93 12/31/92
(u)
- --------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ===========
Net asset value at beginning of period 9.42 9.64 9.83 9.27 10.02 9.98 10.00
- --------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ===========
Net investment income 0.24 0.49 0.53 0.58 0.50 0.45 0.39
Net realized and unrealized gains or 0.07 (0.22) 0.01 0.56 (0.74) 1.04 0.53
(losses) on investments, financial futures
and options contracts and foreign
currency-related transactions
- --------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ===========
Total investment income 0.31 0.27 0.54 1.14 (0.24) 1.49 0.92
============================================= ---------- ---------- ---------- ---------- ---------- ---------- ===========
Distributions from net investment income 0.24 0.19 0.53 0.30 0.20 0.45 0.39
Distributions in excess of net investment --- 0.11 --- --- 0.01 - -
income
Distributions from net realized gain on --- --- 0.09 --- --- 0.87 0.55
investments, financial futures, and options
contracts and foreign currency-related
transactions
Distributions in excess of net realized --- --- --- --- --- 0.13 0.00**
gain on investments, financial futures and
options contracts, and foreign currency
related transactions
Distributions from capital stock in excess --- 0.19 0.11 0.28 0.30 --- ---
of par value
Total distributions 0.24 0.49 0.73 0.58 0.51 1.45 0.94
- --------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ===========
Net asset value at end of period 9.49 9.42 9.64 9.83 9.27 10.02 9.98
- --------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ===========
- --------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ===========
Total return on investment 3.29% (c) 2.93% 5.77% 12.60% (2.25%) 15.86% 13.46% (b)
- --------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ===========
Net assets at end of period in 000's 87,047 82,236 74,939 86,186 53,721 217,163 82,757
Ratio of operating expenses to average net 0.60% (b) 0.60% 0.60% 0.60% 0.60% 0.59% 0.60% (b)
income - exclusive of interest expense (a)
Ratio of operating expenses to average net 0.60% (b) 0.60% 0.60% 0.60% 0.63% 0.86% 0.79% (b)
income - inclusive of interest expense (a)
Ratio of net income to average net assets 5.03% (b) 5.21% 5.52% 6.13% 5.11% 4.48% 5.39% (b)
(a)
Decrease in above expense ratios due to --- 0.02% 0.05% 0.30% 0.02% --- 0.72% (b)
waiver of investment advisory fees and
reimbursement of other expenses
Portfolio turnover rate 372% 713% 1,126% 1,401% 1,479% 1,245% 850%
============================================= ========== ========== ========== ========== ========== ========== ===========
</TABLE>
(a) Net of waivers and reimbursements (b) Annualized (u) Unaudited *
Commencement of operations ** Rounds to less than $0.01
<TABLE>
<S> <C>
WORLDWIDE-HEDGED PORTFOLIO
=========================== ================================================================================================
Fundamental Investment To attain a high level of total return, as may be
consistent with the preservation of capital.
Objective:
- --------------------------- ------------------------------------------------------------------------------------------------
Portfolio Description: The Worldwide-Hedged Portfolio invests
primarily in high-quality (AA, Aa or higher) debt
securities from worldwide bond markets, denominated
in both U.S. Dollars and foreign securities and
actively utilizes currency hedging techniques.
- --------------------------- ------------------------------------------------------------------------------------------------
- --------------------------- ------------------------------------------------------------------------------------------------
Performance Objective: To outperform the JP Morgan Global Government Bond Index (Hedged).
- --------------------------- ------------------------------------------------------------------------------------------------
- --------------------------- ------------------------------------------------------------------------------------------------
Investment Policies and At least 65% of the Portfolio's total assets must be invested in high-quality debt securities
Significant Restrictions: from worldwide bond markets, denominated in both U.S. Dollars and foreign currencies. The
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. The 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, to the
extent feasible, the Portfolio will actively utilize
currency hedging techniques in an attempt to hedge
at least 65% of its total assets. 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
these agreements. The Portfolio is non-diversified.
The 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
Currency risk Liquidity risk risk
Prepayment risk
- --------------------------- ----------------------------- ----------------------------------- ------------------------------
Allowable Investment Dollar Roll Hedging When Issued and
Strategies: Transactions TBA Transactions Forward Commitment
Duration Management Securities
- --------------------------- ----------------------------- ----------------------------------- ------------------------------
Allowable Investments: Asset-Backed Indexed Notes, Currency Municipal Instruments
Securities Exchange-Related Securities Repurchase and Reverse
Bank Obligations and Similar Securities Repurchase Agreements
Brady Bonds Inflation-Indexed Securities Stripped Instruments
Corporate Debt Mortgage-Backed Securities U.S. Government and
Instruments Multi-National Currency Agency Securities
Foreign Instruments Unit Securities or More Than Warrants
Illiquid Securities One Denomination Zero Coupon Securities
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- --------------------------- -------- ------------ --------------- ------------------ --------------- -----------------------
Minimum Quality Rating: S&P Moody's Thompson Average Portfolio
S&P: Moody's: (Short-Term): (Short-Term): Bankwatch: Quality:
BBB Baa A-2 P-2 B AA (Aa)
- --------------------------- -------- ------------ --------------- ------------------ --------------- -----------------------
Average Weighted Duration: The Portfolio's average U.S.
Dollar-weighted duration generally will not exceed
one year, plus or minus the average duration of the
JP Morgan Global Government Bond Index (Hedged).
- --------------------------- ---------------------- ----------------------- ------------------------ ------------------------
Hypothetical Expenses Per 1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$1,000 Investment, $ 5 $ 14 $ 25 $ 57
Assuming A 5% Annual
Return:
- --------------------------- ---------------------- ----------------------- ------------------------ ------------------------
</TABLE>
WORLDWIDE-HEDGED PORTFOLIO'S OPERATING EXPENSES
Advisory fees: 0.25%
Total fund operating expenses: 0.45%
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. 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.
===============================================================================
WORLDWIDE-HEDGED PORTFOLIO'S FINANCIAL HIGHLIGHTS
(IN U.S. DOLLARS UNLESS OTHERWISE INDICATED)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
======================================= ----------- ----------- ----------- ----------- ----------- ------------ ==========
FOR A SHARE OUTSTANDING THROUOUT THE 1/1/98 to Year Year Year Year Year Ended 5/1/92*
PERIOD 6/30/98 Ended Ended Ended Ended 12/31/93 to
(u) 12/31/97 12/31/96 12/31/95 12/31/94 12/31/92
- --------------------------------------- ----------- ----------- ----------- ----------- ----------- ------------ ==========
Net asset value at beginning of period 11.23 10.91 10.85 10.41 10.08 9.85 10.00
- --------------------------------------- ----------- ----------- ----------- ----------- ----------- ------------ ==========
Net investment income 0.28 0.53 0.62 0.45 0.34 0.45 0.32
Net realized gains or (losses) on 0.24 0.80 0.43 0.66 0.43 0.76 0.25
investments, financial futures and
options contracts, and foreign
currency-related transactions
- --------------------------------------- ----------- ----------- ----------- ----------- ----------- ------------ ==========
Total investment income 0.52 1.33 1.05 1.11 0.77 1.21 0.57
- --------------------------------------- ----------- ----------- ----------- ----------- ----------- ------------ ==========
Distributions from net investment 0.28 0.59 0.62 0.67 0.44 0.45 0.32
income
Distributions in excess of net --- --- 0.37 --- 0.00** --- ---
investment income
Distributions from net realized gain --- 0.42 --- --- --- 0.53 0.40
on investments, financial futures and
options contracts and on foreign
currency-related transactions
======================================= ----------- ----------- ----------- ----------- ----------- ------------ ==========
Total distributions 0.28 1.01 0.99 0.67 0.44 0.98 0.72
- --------------------------------------- ----------- ----------- ----------- ----------- ----------- ------------ ==========
Net asset value at end of period 11.47 11.23 10.91 10.85 10.41 10.08 9.85
- --------------------------------------- ----------- ----------- ----------- ----------- ----------- ------------ ==========
Total return on investment 4.73% (c) 12.60% 10.03% 11.00% 7.84% 12.89% 9.45% (b)
Net assets at end of period in 000's 170,875 80,390 30,024 28,255 273 41,138 21,785
Ratio of operating expenses to 0.44% (b) 0.45% 0.45% 0.45% 0.60% 0.60% 0.60% (b)
average net assets - exclusive of
interest expense (a)
Ratio of operating expenses to 0.44% (b) 0.45% 0.45% 0.45% 0.65% 0.86% 0.83% (b)
average net assets - inclusive of
interest expense (a)
Ratio of net income to average net 5.06% (b) 5.29% 5.71% 5.84% 4.72% 4.49% 5.13% (b)
assets (a)
Decrease in above expense ratios due 0.15% (b) 0.20% 0.24% 0.54% 0.17% 0.09% 1.01% (b)
to waiver of investment advisory fees
and reimbursement of other expenses
Portfolio turnover rate 498% 704% 1,087% 500% 1,622% 1,254% 826%
======================================= =========== =========== =========== =========== =========== ============ ==========
(a) Net of waivers and reimbursements (b) Annualized (u) Unaudited *
Commencement of operations ** Rounds to less than $0.01
</TABLE>
INTERNATIONAL PORTFOLIO
<TABLE>
<S> <C>
========================== =================================================================================================
Fundamental Investment To attain a high level of return of total return, as may be consistent with the preservation of
Objective: capital.
- -------------------------- -------------------------------------------------------------------------------------------------
Portfolio Description: Primarily invests in high-quality (AA, Aa or better) debt securities from worldwide bond
markets, excluding the U.S. denominated in foreign currencies.
- -------------------------- -------------------------------------------------------------------------------------------------
- -------------------------- -------------------------------------------------------------------------------------------------
Performance Objective: To outperform the JP Morgan Global Government Bond Index (Non-U.S. Unhedged).
- -------------------------- -------------------------------------------------------------------------------------------------
- -------------------------- -------------------------------------------------------------------------------------------------
Investment Policies and At least 65% of the Portfolio's total assets must be invested in high-quality fixed-income
Significant Restrictions: securities from worldwide bond markets, denominated in foreign currencies. 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.
The 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. The Portfolio may not
engage in short sale transactions. The 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 Investment Dollar Roll Hedging When Issued and Forward
Strategies: Transactions TBA Transactions Commitment Securities
Duration Management
- -------------------------- ---------------------------- ---------------------------------- ---------------------------------
Allowable Investments: Asset-Backed Indexed Notes, Currency Municipal Instruments
Securities Exchange-Related Securities Repurchase and Reverse
Bank Obligations and Similar Securities Repurchase Agreements
Brady Bonds Inflation-Indexed Stripped Instruments
Corporate Debt Securities U.S. Government and
Instruments Mortgage-Backed Securities Agency Securities
Foreign Instruments Multi-National Currency Warrants
Illiquid Securities Unit Securities or More Zero Coupon Securities
Than One Denomination
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- -------------------------- ---------------------------- ---------------------------------- ---------------------------------
Minimum Quality Rating: S&P Moody's Thompson Average Portfolio
S&P: Moody's: (Short-Term): (Short-Term): Bankwatch: Quality:
BBB Baa A-2 P-2 B AA (Aa)
- -------------------------- -------------------------------------------------------------------------------------------------
Average Weighted The Portfolio's average U.S. dollar-weighted duration generally will not exceed one year, plus
Duration: or minus the average duration of the JP Morgan Global Government Bond Index (Non-U.S. Unhedged).
- -------------------------- -------------------------------------------------------------------------------------------------
Hypothetical Expenses 1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Per $1,000 Investment, $ 6 $ 19 $ 33 $ 75
Assuming A 5% Annual
Return:
- -------------------------- ----------------------- --------------------- --------------------- -----------------------------
</TABLE>
INTERNATIONAL PORTFOLIO OPERATING EXPENSES
Advisory fees: 40%
Total fund operating expenses: 0.60%
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
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.
<TABLE>
<S> <C> <C> <C>
============================================================================================================================
INTERNATIONAL PORTFOLIO FINANCIAL HIGHLIGHTS
(IN U.S. DOLLARS UNLESS OTHERWISE INDICATED)
============================================================================================================================
FOR A SHARE EXCEPT WHERE OTHERWISE INDICATED 1/1/98 to 6/30/98 (u) Year Ended 12/31/97 5/9/96* to 12/31/96
- ------------------------------------------------------- ---------------------- --------------------- =======================
Net asset value at beginning of period 9.50 10.20 10.00
- ------------------------------------------------------- ---------------------- --------------------- =======================
Net investment income 0.24 0.50 0.38
Net realized gains or (losses) on investments, (0.01) (0.56) 0.28
financial futures contracts, and foreign
currency-related transactions
- ------------------------------------------------------- ---------------------- --------------------- =======================
Total investment income 0.23 (0.06) 0.66
- ------------------------------------------------------- ---------------------- --------------------- =======================
Distributions from net investment income 0.24 0.14 0.38
Distributions from net realized gain on investments, --- 0.14 0.08
financial futures contracts, and foreign currency
related transactions
Distributions from capital stock in excess of par --- 0.36 ---
value
======================================================= ---------------------- --------------------- =======================
Total distributions 0.24 0.64 0.46
======================================================= ---------------------- --------------------- =======================
Net asset value at end of period 9.49 9.50 10.20
======================================================= ---------------------- --------------------- =======================
Total return on investment 2.42% (c) (0.43%) 6.66% (c)
Net assets at end of period in 000's 76,976 67,653 35,746
Ratio of operating expenses to average net assets (a) 0.60% (b) 0.60% 0.60% (b)
Ratio of net investment income to average net assets 5.02% (b) 5.19% 5.73% (b)
(a)
Decrease in above expense ratios due to waiver of --- 0.10% 0.32% (b)
investment advisory fees
Portfolio turnover rate 643% 809% 539%
======================================================= ====================== ===================== =======================
</TABLE>
(a) Net of waivers and reimbursements
(b) Annualized
(c) Not annualized
(u) Unaudited
* Commencement of operations
GLOBAL TACTICAL EXPOSURE 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 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 Policies At least 65% of the Portfolio's total assets must be
invested in high-quality (AA, Aa or better) and Significant debt securities from
worldwide bond markets, denominated in both U.S. Dollars and foreign
Restrictions: currencies. 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. The 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
Portfolio will actively utilize currency hedging
techniques in an attempt to hedge at least 65% of its
foreign currency risks to the extent feasible. The
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 Investment Dollar Roll Hedging When Issued and Forward
Strategies: Transactions Short Sales Transactions Commitment Securities
Duration Management TBA Transactions
- ---------------------- ----------------------------- ------------------------------------ ---------------------------------
Allowable Asset-Backed Indexed Notes, Currency Municipal Instruments
Investments: Securities Exchange-Related Securities Repurchase and Reverse
Bank Obligations and Similar Securities Repurchase Agreements
Brady Bonds Inflation-Indexed Securities Stripped Instruments
Corporate Debt Mortgage-Backed Securities U.S. Government and
Instruments Multi-National Currency Unit Agency Securities
Foreign Instruments Securities or More Than One Warrants
Illiquid Securities 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)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
- ---------------------- --------- ------------ ----------------- ----------------- ---------------- ------------------------
Average Weighted The Portfolio's average U.S. dollar-weighted duration generally will not exceed three months, plus
Duration: or minus the average duration of the JP Morgan 3-Month Eurodeposit Index.
- ---------------------- ----------------------------------------------------------------------------------------------------
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 September
9, 1998.
- ---------------------- ------------------------- ----------------------- --------------------- ----------------------------
Hypothetical 1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Expenses Per $1,000 $ 3 $ 10 $ 17 $ 38
Investment, Assuming
A 5% Annual Return:
- ---------------------- ------------------------- ----------------------- --------------------- ----------------------------
</TABLE>
GLOBAL TACTICAL EXPOSURE PORTFOLIO OPERATING EXPENSES
Advisory fees: 0.10%
Total fund operating expenses: 0.30%
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
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.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
===========================================================================================================================
GLOBAL TACTICAL EXPOSURE PORTFOLIO FINANCIAL HIGHLIGHTS
(IN U.S. DOLLARS UNLESS OTHERWISE INDICATED)
===========================================================================================================================
FOR A SHARE OUTSTANDING THROUGHOUT THE 1/1/98 to Year Ended Year Ended Year Ended Year Ended 3/25/93*
PERIOD 6/30/98 (u) 12/31/97 12/31/96 12/31/95 12/31/94 to
12/31/93
- ------------------------------------------ ------------ -------------- ------------- ------------- ------------ ===========
Net asset value at beginning of period $10.05 9.80 10.19 10.00*** 10.39 10.00
- ------------------------------------------ ------------ -------------- ------------- ------------- ------------ ===========
Net investment income 0.20 0.41 0.47 0.19 0.20 0.44
Net realized gains or (losses) on 0.12 0.43 (0.15) 0.19 (0.46) 0.78
investments, financial futures, and
options contracts, and foreign
currency-related transactions
- ------------------------------------------ ------------ -------------- ------------- ------------- ------------ ===========
Total investment income 0.32 0.84 0.32 0.38 (0.26) 1.22
========================================== ------------ -------------- ------------- ------------- ------------ ===========
Distributions from net investment income 0.27 0.36 0.47 0.19 0.20 0.44
Distributions in excess of net --- 0.17 --- 0.00 (c) --- ---
investment income
Distributions from net realized gain on --- 0.06 0.05 --- 0.50 0.39
investments, financial futures contracts
and foreign currency related transactions
Distributions in excess of net realized --- --- 0.09 --- --- ---
gain on investments, financial futures
contracts, and foreign currency related
transactions
Distributions from capital stock in --- --- 0.10 --- --- ---
excess of par value
- ------------------------------------------ ------------ -------------- ------------- ------------- ------------ ===========
Total distributions 0.27 0.59 0.71 0.19 0.70 0.83
- ------------------------------------------ ------------ -------------- ------------- ------------- ------------ ===========
========================================== ------------ -------------- ------------- ------------- ------------ ===========
Net asset value at end of period 10.10 10.05 9.80 10.19 9.43 ** 10.39
========================================== ------------ -------------- ------------- ------------- ------------ ===========
Total return on investment 3.14% (b) 8.77% 3.18% 13.45% (b) (2.53%) 16.37% (b)
Net assets at end of period in 000's 329,605 283,005 126,645 34,005 --- 17,867
Ratio of operating expenses to average 0.30 (b) 0.42% 0.60% 0.60% (b) 0.57% 0.60% (b)
net assets, exclusive of interest
expense (a)
Ratio of operating expenses to average 5.81% (b) --- --- --- --- ---
net assets, inclusive of interest
expense (a)
Ratio of net income to average net 5.44% (b) 3.67% 4.65% 6.12% (b) 2.87% 5.86% (b)
assets (a)
Decrease in above expense ratios due to 0.30% 0.16% 0.06% 0.17% (b) 0.49% 0.28% (b)
waiver of investment advisory fees and
reimbursement of other expenses
Portfolio turnover rate 411% 712% 784% 764% 1,282% 855%
========================================== ============ ============== ============= ============= ============ ===========
</TABLE>
(a) Net of waivers and reimbursements (b) Annualized (c) Rounds to less than
$0.01 (u) Unaudited * 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.
INTERNATIONAL OPPORTUNITIES PORTFOLIO
<TABLE>
<S> <C>
- --------------------------- -----------------------------------------------------------------------------------------------
Investment Objective: To attain a high level of total return, as may be consistent with the preservation of capital.
- --------------------------- -----------------------------------------------------------------------------------------------
Portfolio Description: Global fixed-income securities with active management of the portfolio's strategic hedge
ratio.
- --------------------------- -----------------------------------------------------------------------------------------------
Performance Objective: To outperform the JP Morgan Global Government Bond Indices (both Non-U.S. Hedged and Non-U.S.
Unhedged).
- --------------------------- -----------------------------------------------------------------------------------------------
Investment Policies and At least 65% of the Portfolio's total assets must be
invested in high-quality (AA, Aa or Significant Restrictions: better) debt
securities from worldwide bond markets denominated in foreign currencies.
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. The 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. The
Portfolio may engage in currency hedging techniques.
The 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 Investment Dollar Roll Hedging When Issued and Forward
Strategies: Transactions Short Sales Transactions Commitment Securities
Duration Management TBA Transactions
- --------------------------- -------------------------- ---------------------------------- ---------------------------------
Allowable Investments: Asset-Backed Indexed Notes, Currency Options
Securities Exchange-Related Securities Repurchase and Reverse
Bank Obligations and Similar Securities Repurchase Agreements
Brady Bonds Inflation-Indexed Securities Stripped Instruments
Corporate Debt Mortgage-Backed Securities Swaps
Instruments Multi-National Currency U.S. Government and
Foreign Instruments Unit Securities or More Agency Securities
Illiquid Securities Than One Denomination Warrants
Municipal Instruments Zero Coupon Securities
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- --------------------------- -------- -------------- --------------- ---------------- -------------- -----------------------
Minimum Quality Rating: S&P Moody's Thompson Average Portfolio
S&P: Moody's: (Short-Term): (Short-Term): Bankwatch: Quality:
BBB Baa A-2 P-2 B AA (Aa)
- --------------------------- -------- -------------- --------------- ---------------- -------------- -----------------------
Average Weighted Duration: The Portfolio's average U.S.
Dollar-weighted duration generally will not exceed
one year plus or minus the average duration of the
JP Morgan Global Government Bond Indices (both
Non-U.S.
Hedged and Non-U.S. Unhedged).
- --------------------------- -----------------------------------------------------------------------------------------------
Hypothetical Expenses Per 1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$1,000 Investment, $ 6 $ 19
Assuming A 5% Annual
Return:
- --------------------------- -------------------- ----------------------- --------------------- ----------------------------
</TABLE>
THIS PORTFOLIO HAS NOT YET COMMENCED INVESTMENT ACTIVITY
INTERNATIONAL OPPORTUNITIES PORTFOLIO OPERATING EXPENSES
Advisory fees: 0.40%
Total fund operating expenses: 0.60%
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. "Total fund operating expenses" are based on estimated expenses
for the current fiscal year.
INTERNATIONAL CORPORATE PORTFOLIO
<TABLE>
<S> <C>
- --------------------------- ------------------------------------------------------------------------------------------------
Investment Objective: To attain a high level of total return as may be consistent with the preservation of capital.
- --------------------------- ------------------------------------------------------------------------------------------------
Portfolio Description: Primarily invests in high quality (AA, Aa or better) corporate debt from worldwide bond
markets, denominated in foreign currencies.
- --------------------------- ------------------------------------------------------------------------------------------------
- --------------------------- ------------------------------------------------------------------------------------------------
Performance Objective: To outperform the JP Morgan Global Government Bond Index (Non-US Hedged).
- --------------------------- ------------------------------------------------------------------------------------------------
- --------------------------- ------------------------------------------------------------------------------------------------
Investment Policies and At least 65% of the Portfolio's total assets must be invested in high-quality corporate debt
Significant Restrictions: securities from worldwide bond markets denominated in foreign currencies. The 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. The 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. The Portfolio is non-diversified.
</TABLE>
<TABLE>
<S> <C> <C> <C>
- --------------------------- ------------------------------------------------------------------------------------------------
Risks: Correlation risk Hedging risk Market risk
Credit risk Interest rate risk Non-diversification
Currency risk Liquidity risk risk
Prepayment risk
- --------------------------- ----------------------------- ----------------------------------- ------------------------------
Allowable Investment Dollar Roll Hedging When Issued and
Strategies: Transactions Short Sales Transactions Forward Commitment
Duration Management TBA Transactions Securities
- --------------------------- ----------------------------- ----------------------------------- ------------------------------
Allowable Investments: Asset-Backed Indexed Notes, Currency Municipal Instruments
Securities Exchange-Related Securities Repurchase and Reverse
Bank Obligations and Similar Securities Repurchase Agreements
Brady Bonds Inflation-Indexed Securities Stripped Instruments
Convertibles Mortgage-Backed Securities U.S. Government and
Corporate Debt Multi-National Currency Agency Securities
Instruments Unit Securities or More Than Warrants
Foreign Instruments One Denomination Zero Coupon Securities
Illiquid Securities
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- --------------------------- -------- ------------ ---------------- ----------------- --------------- -----------------------
Minimum Quality Rating: S&P Moody's Thompson Average Portfolio
S&P: Moody's: (Short-Term): (Short-Term): Bankwatch: Quality:
BBB Baa A-2 P-2 B AA (Aa)
- --------------------------- -------- ------------ ---------------- ----------------- --------------- -----------------------
Average Weighted Duration: The Portfolio's average U.S.
Dollar-weighted duration generally will not exceed
one year plus or minus the average duration of the
JP Morgan Global Government Bond Index (Non-US
Hedged).
- --------------------------- ------------------------------------------------------------------------------------------------
Hypothetical Expenses Per 1 Year 3 Years
------ -------
$1,000 Investment, $ 3 $ 8
Assuming A 5% Annual
Return:
- --------------------------- ------------------------ ------------------- --------------------- -----------------------------
</TABLE>
THIS PORTFOLIO HAS NOT YET COMMENCED INVESTMENT ACTIVITY
INTERNATIONAL CORPORATE PORTFOLIO OPERATING EXPENSES
Advisory fees: 0.10%
Total fund operating expenses: 0.25%
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. 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. "Other Expenses" are based
on estimated expenses for the current fiscal year.
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:
<TABLE>
<S> <C> <C> <C>
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,
</TABLE>
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 Portfolio's net asset value
next determined after receipt of the order. Submitted orders should include a
completed Account Application to AMT Capital Securities L.L.C.or Investors
Capital, Inc. 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 Emerging Markets, Global High Yield and
Global Tactical Exposure Portfolios offer shares at a public offering price
equal to the net asset value determined on the last business day of each month
and on any other business days in which the investment adviser approves a
purchase at the net asset value determined on those days.
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 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.
WIRING INSTRUCTIONS
To: Investors Bank & Trust Company, Boston, Massachusetts.
ABA Number: 011-0010438
Account Name: AMT Capital Securities, L.L.C. - Purchase Account
Account Number: 933333333
Reference: (Indicate Portfolio name)
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
<TABLE>
<S> <C>
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
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
</TABLE>
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.
Director's Compensation Table
Fiscal Year Ended December 31, 1997
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------------- -------------------------------- -------------------------- ------------------- -------------------
Director Aggregate Compensation Pension or Retirement Estimated Annual Total Compensation From
From Registrant Benefits Accrued As Part benefits Upon Registrant and Fund Complex
of Fund Expenses Retirement Paid to Directors
- --------------------------------------- -------------------------- ------------------- -------------------------------
- --------------------------------------- -------------------------- ------------------- -------------------------------
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> <C> <C>
a. investment advisory fees, k. sale,
b. brokerage commissions, l. repurchase or redemption of shares,
c. insurance premiums and extraordinary expenses such as m. expenses of registering and qualifying shares of the
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 expenses t. fees and expenses of directors of the Fund who are not
(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):
<TABLE>
<S> <C> <C>
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 HighYield ..........................................................10%
Inflation-Indexed ........................................................0.40%
Inflation-Indexed Hedged.....................................................0.40%
</TABLE>
* 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> <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 Share Cooper Industries, Inc., 1001 Fannin St., Direct Ownership 91.21%
First City Tower, Suite 3900,
Houston, TX 77210
Common Stock, $.001 per Share ESI Securities Co., 1221 Avenue of the Direct Ownership 5.96%
Americas, 30th Floor, New York, NY 10020
</TABLE>
As of August 31, 1998, the following persons held 5 percent or more of the
outstanding shares of U.S. Short-Term:
<TABLE>
<S> <C> <C> <C>
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 Direct Ownership 13.58%
Avenue, New York, NY 10017-5523
Common Stock, $.001 per Share Monsanto Reserve Cash, c/o Fischer Francis Direct Ownership 11.70%
Trees & Watts, Inc., 200 Park Avenue,
New York, NY 10166
Common Stock, $.001 per Share The Dow Chemical Company Employees Direct Ownership 11.36%
Retirement Plan, Dorinco 100, Midland,
MI 48674-0000
Common Stock, $.001 per Share Markey Charitable Trust, 3250 Mary Street, Direct Ownership 6.65%
#405, Miami, FL 33133-5255
Common Stock, $.001 per Share State Street Bank & Trust Co., Trustee for Direct Ownership 6.29%
Pacific Gas & 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 Direct Ownership 6.19%
Bull HN Information Systems Inc.,
One Enterprise Drive SW 5C, North Quincy,
MA 02171
Common Stock, $.001 per Share Cascade Investments LLC, c/o Fischer Francis Direct Ownership 5.68%
Trees & Watts, Inc., 200 Park Avenue,
46th Floor, New York, NY 10166
Common Stock, $.001 per Share Wachovia Bank of North Carolina, Trustee for Direct Ownership 5.27%
R.J.R. Nabisco - Defined Benefit Plan,
P.O. Box 3099, Winston-Salem, NC 27150-3099
</TABLE>
<TABLE>
<S> <C> <C> <C>
As of August 31, 1998, the following persons held 5 percent or more of the
outstanding shares of Stable Return:
Title of Class Name and Address of Nature of Beneficial Percent of
Beneficial Owner Ownership Portfolio
- -------------- ----------------- ---------------------
Common Stock, $.001 per Share The Dow Chemical Company Foundation, Direct Ownership 44.89%
Dorinco 100, Midland, MI 48674
Common Stock, $.001 per Share Northern Trust Co., Trustee FBO Sandoz Direct Ownership 34.51%
Investment Plan, P.O. Box 92956,
Chicago, IL 60675
Common Stock, $.001 per Share Corporation for Supportive Housing, 342 Direct Ownership 19.72%
Madison Avenue, Suite 505, New York, NY 10173
</TABLE>
<TABLE>
<S> <C> <C> <C>
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 Beneficial Percent of
Title of Class Beneficial Owner Ownership Portfolio
- -------------- ----------------- ---------- ---------
Common Stock, $.001 per Share State Street Bank & Trust Co., Trustee for Bull Direct Ownership 25.49%
HN Information Systems Inc., One Enterprise
Drive SW 5C, North Quincy, MA 02171
Common Stock, $.001 per Share Corning, Inc. Master Trust, c/o U.S. Trust Co., Direct Ownership 19.99%
114 W. 47th St., 3rd Floor-39, New York, NY
10036-1632
Common Stock, $.001 per Share International Business Machines Corp., c/o Direct Ownership 18.24%
Fischer Francis Trees & Watts, Inc., 200 Park
Avenue, 46th Floor, New York, NY 10166
Common Stock, $.001 per Share International Bank for Reconstruction Direct Ownership 8.69%
and Development Staff Benefits Plan, c/o
Fischer Francis Trees & Watts, Inc., 200 Park
Avenue, 46th Floor, New York, NY 10166
Common Stock, $.001 per Share International Bank for Reconstruction and Direct Ownership 7.91%
Development Staff Retirement Plan, c/o Fischer
Francis Trees & Watts, Inc.,
200 Park Avenue, 46th Floor, New York, NY 10166
Common Stock, $.001 per Share Cornell University, Terrace Hill, Ithaca, Direct Ownership 6.79%
NY 14853-0001
</TABLE>
<TABLE>
<S> <C> <C> <C>
As of August 31, 1998, the following persons held 5 percent or more of the
outstanding shares of Worldwide:
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 Direct Ownership 21.78%
Retirement 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, Direct Ownership 16.86%
Boston, MA 02105
Common Stock, $.001 per Share Administrators of Tulane Educational Fund, Direct Ownership 14.91%
Treasurer's Office, 6401 Freret St., Suite 178,
New Orleans, LA 70118
Common Stock, $.001 per Share Community Foundation For Southeastern Michigan, Direct Ownership 11.50%
333 West Fort St., Suite 2010, Detroit,
MI 48226
Common Stock, $.001 per Share Bentley College, 175 Forest St., Waltham, MA Direct Ownership 7.73%
02154
Common Stock, $.001 per Share Geneva Regional Health System Inc., 196 North Direct Ownership 7.10%
St., Geneva, NY 14456
As of August 31, 1998, the following persons held 5 percent or more of the
outstanding shares of Worldwide-Hedged:
</TABLE>
<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 Direct Ownership 32.34%
Trust, P.O. Box 92956, Attn: Mutual Funds,
Chicago, IL 60675
Common Stock, $.001 per Share Law School Admission Council Inc., P.O. Box Direct Ownership 28.01%
40, Newtown, PA 18940-0040
Common Stock, $.001 per Share State Street Bank & Trust Co., Trustee for Direct Ownership 23.86%
Goldman Sachs Pension Plan, 200 Newport
Ave., North Quincy, MA 02171
Common Stock, $.001 per Share The McCallie School, 500 Dodds Ave., Direct Ownership 11.33%
Chattanooga, TN 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 Direct Ownership 33.46%
1776, Williamsburg, VA 23187-1776
Common Stock, $.001 per Share HF Investment LP, 1700 Old Deerfield Road, Direct Ownership 22.81%
Highland Park, IL 60035
Common Stock, $.001 per Share David & Company, P.O. Box 188, Direct Ownership 17.84%
Murfreesboro, TN 37133-0188
Common Stock, $.001 per Share Mac & Co., Mellon Trust, P.O. Box 3198, Direct Ownership 15.45%
Pittsburgh, PA 15230-3198
Common Stock, $.001 per Share State Street Bank & Trust, Trustee FBO Direct Ownership 10.43%
Retirement 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, Direct Ownership 20.06%
1840 Century Park West, Los Angeles, CA
90067-2101
Common Stock, $.001 per Share International Business Machines Corp. Direct Ownership 18.69%
Retirement Plan, 3001 Summer Street,
Stamford, CT 06905
Common Stock, $.001 per Share U.S. Trust Co., Trustee for Corning, Inc., Direct Ownership 17.66%
777 Broadway, 10th Floor, New York, NY
10003-9598
Common Stock, $.001 per Share Northern Trust Co. Trustee for Monsanto Direct Ownership 9.71%
Defined Contribution, P.O. Box 92956,
Attn: Mutual Funds, Chicago, IL 60675
Common Stock, $.001 per Share Chase Manhattan Bank NA, Trustee for Amoco Direct Ownership 9.19%
Corporation 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 Direct Ownership 7.60%
Bankers Trust Co., 34 Exchange Place,
2nd Floor, Jersey City, NJ 07302
Common Stock, $.001 per Share Bankers Trust Co. FBO Premark International Direct Ownership 6.77%
Defined Benefit Trust, 34 Exchange Place,
2nd Floor, Jersey City, NJ 07302
Common Stock, $.001 per Share Pension Fund of the Retirement Plan of Direct Ownership 5.76%
Northern 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.
MONEY MARKET MINIMUM CREDIT RATINGS FOR ALLOWABLE INVESTMENTS
First Tier Securities: any instruments receiving the highest short-term rating
by at least two nationally recognized statistical rating organizations
("NRSROs") such as "A-1" by Standard & Poor's and "P-1" by Moody's or are single
rated and have received the highest short-term rating by the NRSRO. This
includes 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 instrument 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 of 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.
SUPPLEMENTAL INVESTMENT 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 Yeld/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.
c. Money Market Minimum Credit Ratings for Allowable
Investments:
1. First Tier Securities: any instruments receiving
----------------------
the highest short-term rating by at least two
nationally recognized statistical rating organizations
("NRSROs") such as "A-1" by Standard & Poor's and "P-1"
by Moody's or are single rated and have received the
highest short-term rating by the NRSRO. This includes
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.
2. Second Tier Securities: any instrument 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 of 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.
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:
<TABLE>
<S> <C> <C> <C>
- ----------------------------------- ------------------------------ ------------------------------ ----------------------------
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 - b + 1 ) 6 - 1]
-------
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 June 30,
1998 (unaudited), and for
the year ended December
31, 1997.
- Statements of Operations for
the period ended June 30,
1998, and for the year
ended December 31, 1997.
- Statements of Changes in Net
Assets for the period ended
June 30, 1998, and 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, for the year
ended December 31,
1997, for the period
ended June 30, 1998;
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,
for the year ended
December 31, 1997,
and for the period
ended June 30, 1998;
of Mortgage Total
Return for the
period April 29, 996
(commencement of
operations) to
December 31, 1996,
for the year ended
December 31, 1997,
and for the period
ended June 30, 1998;
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,
for the year ended
December 31, 1996,
for the period ended
June 30, 1998; 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,
for the year ended
December 31, 1997,
and for the period
ended June 30, 1998;
of International for
the period May 9,
1996 (commencement
of operations) to
December 31, 1996,
for the year ended
December 31, 1997,
and for the period
ended June 30, 1998;
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,
for the year ended
December 31, 1997,
and for the period
ended June 30, 1998;
of Emerging Markets
for the period
August 12, 1997
(commencement of
operations) to
December 31, 1997,
and for the period
ended June 30, 1998,
and of Money Market
Portfolio for the
year ended December
31, 1997 for the
period ended June
30, 1998.
- 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.
(1f) Articles of Amendment,
dated July 8, 1998, filed
herewith.
(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.
5aa) Advisory Agreement
between the Registrant
(for the Global High
Yield Portfolio) and
Fischer Francis Trees &
Watts, Inc., dated July
7, 1998, filed herewith.
5bb) Advisory Agreement
between the Registrant
(for the International
Corporate Portfolio) and
Fischer Francis Trees &
Watts, Inc., dated July
7, 1998, filed herewith.
5cc) Advisory Agreement
between the Registrant
(for the International
Opportunities Portfolio)
and Fischer Francis Trees
& Watts, Inc., dated July
7, 1998, filed herewith.
5dd) Advisory Agreement
between the Registrant
(for the Global Tactical
Exposure Portfolio) and
Fischer Francis Trees &
Watts, Inc., dated July
7, 1998, filed herewith.
5ee) Advisory Agreement
between the Registrant
(for the U.S. Corporate
Portfolio) and Fischer
Francis Trees & Watts,
Inc., dated July 7, 1998,
filed herewith.
5ff) Advisory Agreement
between the Registrant
(for the Equity Alpha
Portfolio) and Fischer
Francis Trees & Watts,
Inc., dated July 7, 1998,
filed herewith.
5gg) Advisory Agreement
between the Registrant
(for the High Yield
Portfolio) and Fischer
Francis Trees & Watts,
Inc., dated July 7, 1998,
filed herewith.
5hh) Advisory Agreement
between the Registrant
(for the Asset-Backed
Portfolio) and Fischer
Francis Trees & Watts,
Inc., dated July 7, 1998,
filed herewith.
5ii) Advisory Agreement
between the Registrant
(for the Limited Duration
Portfolio) and Fischer
Francis Trees & Watts,
Inc., dated July 7, 1998,
filed herewith.
5jj) Advisory Agreement
between the Registrant
(for the Mortgage LIBOR
Portfolio) and Fischer
Francis Trees & Watts,
Inc., dated July 7, 1998,
filed herewith.
5kk) Sub-Advisory Agreement
(for the Global High
Yield Portfolio) between
Fischer Francis Trees &
Watts, Inc. and Fischer
Francis Trees & Watts,
dated July 7, 1998, filed
herewith.
5ll) Sub-Advisory Agreement
(for the International
Corporate Portfolio)
between Fischer Francis
Trees & Watts, Inc. and
Fischer Francis Trees &
Watts, dated July 7,
1998, filed herewith.
5mm) Sub-Advisory Agreement
(for the International
Opportunities Portfolio)
between Fischer Francis
Trees & Watts, Inc. and
Fischer Francis Trees &
Watts, dated July 7,
1998, filed herewith.
5nn) Sub-Advisory Agreement
(for the Global Tactical
Exposure Portfolio)
between Fischer Francis
Trees & Watts, Inc. and
Fischer Francis Trees &
Watts, dated July 7,
1998, filed herewith.
(6) Distribution Agreement
between the Registrant
and AMT Capital Services,
Inc., dated September 21,
1992, filed as Exhibit 6
to Post-Effective
Amendment No. 8 to
Registrant's Registration
Statement on Form N-1A.
(6a) Distribution Agreement
between the Registrant
and AMT Capital Services,
Inc., dated February 1,
1995 filed as Exhibit 6a
to Post-Effective
Amendment No. 16 to
Registrant's Registration
Statement on Form N-1A.
(7) Not Applicable.
(8) Custodian Agreement
between Registrant and
State Street Bank & Trust
Company, dated November
21, 1989, filed as
Exhibit 8 to
Pre-Effective Amendment
No. 1 to Registrant's
Registration Statement on
Form N-1A.
(8a) Custodian Agreement
between Registrant and
State Street Bank & Trust
Company, dated October
22, 1991, filed as
Exhibit 8 to
Post-Effective Amendment
No. 5 to Registrant's
Registration Statement on
Form N-1A.
(8b) Transfer Agency and
Service Agreement between
Registrant and State
Street Bank & Trust
Company, dated October
22, 1991, filed as
Exhibit 8(a) to
Post-Effective Amendment
No. 5 to Registrant's
Registration Statement on
Form N-1A.
(8c) Transfer Agency and
Service Agreement between
Registrant and Investors
Bank & Trust Company,
dated November 27, 1992,
filed as Exhibit 8(c) to
Post-Effective Amendment
No. 9 to Registrant's
Registration Statement on
Form N-1A.
(8d) Custodian Agreement
between Registrant and
Investors Bank & Trust
Company, dated January
10, 1994, filed as
Exhibit 8(d) to
Post-Effective Amendment
No. 13 to Registrant's
Registration Statement on
Form N-1A.
(9) Administration Agreement
between the Registrant
and AMT Capital Services,
Inc., dated September 21,
1992, filed as Exhibit 9
to Post-Effective
Amendment No. 8 to
Registrant's Registration
Statement on Form N-1A.
(9a) Sales Incentive Fee
Agreement between Fischer
Francis Trees & Watts,
Inc. and AMT Capital
Services, Inc., dated
September 21, 1992, filed
as Exhibit 9(a) to
Post-Effective Amendment
No. 8 to Registrant's
Registration Statement on
Form N-1A.
(9b) Administration Agreement
between the Registrant
and AMT Capital Services,
Inc., dated February 1,
1995, filed as Exhibit 9b
to Post-Effective
Amendment No. 16 to
Registrant's Registration
Statement on Form N-1A.
. (10) Opinion and Consent of
Counsel, dated June 28,
1989, filed as Exhibit 10
to Pre-Effective
Amendment No. 1 to
Registrant's Registration
Statement on Form N-1A.
(10a) Opinion and Consent of
Counsel, dated December
28, 1995, filed as
Exhibit 10a to
Post-Effective Amendment
No. 17 to Registrant's
Registration Statement on
Form N-1A.
(11) Consent of Independent
Auditors, filed herewith.
(12) Not Applicable.
(13a) Purchase Agreement for
Initial Capital between
Registrant and Fischer
Francis Trees & Watts,
Inc., dated November 17,
1989, filed as Exhibit 13
to Pre-Effective
Amendment No. 3 to
Registrant's Registration
Statement on Form N-1A.
(14) Not Applicable.
(15) Not Applicable.
(16) Performance Information
Schedules, filed herewith.
Item 24
Persons Controlled by or under Common Control with Registrant
As of August 31, 1998, Fischer Francis Trees & Watts, Inc.
had discretionary investment advisory agreements with
shareholders of the Fund, representing 78.4% of the Fund's
total net assets and therefore may be deemed to be a
"control person" of the Fund as such term is defined in the
1940 Act.
Item 25
Indemnification.
The Registrant shall indemnify directors, officers,
employees and agents of the Registrant against judgements,
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, as amended (the
"Securities Act"), may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, Registrant understands
that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by Registrant of expenses incurred or paid by a
director, officer or controlling person of 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 Securities Act and will be governed by the
final adjudication of such issue.
Item 26
Business and Other Connections of Investment Adviser.
Fischer Francis Trees & Watts, Inc. (the
"Investment Adviser") is a company organized under the laws
of New York State and it is an investment adviser registered
under the Investment Advisers Act of 1940 (the "Advisers
Act").
The list required by this Item 26 of officers and
directors of the Investment Adviser, together with
information as to any other business, profession, vocation
or employment of a substantial nature engaged in by such
officers and directors during the past two years, is
incorporated by reference to Schedules A and D of Form ADV
filed by the Investment Adviser pursuant to the Advisers Act
(SEC File No. 801-10577).
Item 27
Principal Underwriter.
In addition to the Registrant, AMT Capital Securities, LLC
currently acts as distributor to FFTW Fund, Inc., Harding
Loevner Fund, Inc., Holland Series Fund, Inc. and TIFF
Investment Program, Inc. AMT Capital Securities, LLC is
registered with the Securities and Exchange Commission as a
broker/dealer and is a member of the National Association of
Securities Dealers, Inc.
For each Director or officer of AMT Capital Securities, LLC
Name and Principal
Business Address Positions & Offices Positions & Offices
with Underwriter with Distributor with Registrant
Alan M. Trager Director, Chairman and None
600 Fifth Avenue Treasurer
26th Floor
New York, NY 10020
Arthur Goetchius President
600 Fifth Avenue
26th Floor
New York, NY 10020
Carla E. Dearing Vice President Assistant Treasurer
600 Fifth Avenue
26th Floor
New York, NY 10020
Not applicable.
Item 28
Location of Accounts and Records.
All accounts, books and other documents
required to be maintained by Section 31(a) of the Investment
Company Act of 1940, as amended (the "1940 Act"), and the
rules thereunder will be maintained at the offices of the
Investment Adviser, the Custodian and the Administrator.
FFTW Funds, Inc.
200 Park Avenue
New York, NY 10166
Investors Capital Services, Inc.
600 Fifth Avenue
New York, New York 10020
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02117-9130
Item 29
Management Services.
Not applicable.
Item 30
Undertakings.
Not applicable
Registrant hereby undertakes to call a meeting of
shareholders for the purpose of voting upon the question of
removal of one or more of the Registrant's directors when
requested in writing to do so by the holders of at least 10%
of the Registrant's outstanding shares of common stock and,
in connection with such meeting, to assist in communications
with other shareholders in this regard, as provided under
Section 16(c) of the 1940 Act.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant
certifies that it meets all of the requirements for
effectiveness of this Post-Effective Amendment No. 23 to its
Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933. Pursuant to the requirements of the
Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has duly caused this Post-Effective
Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York on the 11th day of
September, 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 September 11, 1998
Stephen P. Casper
/s/ Onder John Olcay Chairman of the Board, September 11, 1998
Onder John Olcay President
/s/ John C. Head III Director September 11, 1998
John C Head III
/s/ Lawrence B. Krause Director September 11, 1998
Lawrence B. Krause
/s/ William E. Vastardis Treasurer September 11, 1998
William E. Vastardis
EXHIBIT INDEX
Exhibit No.
(1f) Articles of Amendment, dated July 8, 1998
5aa) Advisory Agreement between the Registrant
(for the Global High Yield Portfolio) and Fischer
Francis Trees & Watts, Inc., dated July 7, 1998.
5bb) Advisory Agreement between the Registrant
(for the International Corporate Portfolio) and
Fischer Francis Trees & Watts, Inc., dated July 7,
1998.
5cc) Advisory Agreement between the Registrant
(for the International Opportunities Portfolio) and
Fischer Francis Trees & Watts, Inc., dated July 7,
1998.
5dd) Advisory Agreement between the Registrant
(for the Global Tactical Exposure Portfolio) and
Fischer Francis Trees & Watts, Inc., dated July 7,
1998.
5ee) Advisory Agreement between the Registrant
(for the U.S. Corporate Portfolio) and Fischer
Francis Trees & Watts, Inc., dated July 7, 1998.
5ff) Advisory Agreement between the Registrant
(for the Equity Alpha Portfolio) and Fischer
Francis Trees & Watts, Inc., dated July 7, 1998.
5gg) Advisory Agreement between the Registrant
(for the High Yield Portfolio) and Fischer Francis
Trees & Watts, Inc., dated July 7, 1998.
5hh) Advisory Agreement between the Registrant
(for the Asset-Backed Portfolio) and Fischer
Francis Trees & Watts, Inc., dated July 7, 1998.
5ii) Advisory Agreement between the Registrant
(for the Limited Duration Portfolio) and Fischer
Francis Trees & Watts, Inc., dated July 7, 1998.
5jj) Advisory Agreement between the Registrant
(for the Mortgage LIBOR Portfolio) and Fischer
Francis Trees & Watts, Inc., dated July 7, 1998.
5kk) Sub-Advisory Agreement (for the Global
High Yield Portfolio) between Fischer Francis Trees
& Watts, Inc. and Fischer Francis Trees & Watts,
dated July 7, 1998.
5ll) Sub-Advisory Agreement (for the
International Corporate Portfolio) between Fischer
Francis Trees & Watts, Inc. and Fischer Francis
Trees & Watts, dated July 7, 1998.
5mm) Sub-Advisory Agreement (for the
International Opportunities Portfolio) between
Fischer Francis Trees & Watts, Inc. and Fischer
Francis Trees & Watts, dated July 7, 1998.
5nn) Sub-Advisory Agreement (for the Global
Tactical Exposure Portfolio) between Fischer
Francis Trees & Watts, Inc. and Fischer Francis
Trees & Watts, dated July 7, 1998.
(11) Consent of Independent Auditors
(16) Performance Information Schedule
ARTICLES OF AMENDMENT
TO
THE ARTICLES OF INCORPORATION
OF
FFTW FUNDS, INC.
FFTW Funds, Inc., a Maryland Corporation (the
"Corporation") having a principal office in New
York, New York and having The Corporation Trust
Incorporated as its resident agent located at 300
East Lombard Street, Baltimore, Maryland 21202,
hereby certifies to the State Department of
Assessments and Taxation of Maryland as follows:
FIRST: Article FIFTH of the Articles of
Incorporation of the Corporation is hereby amended
to increase the aggregate number of authorized
shares of capital stock of the Corporation from One
Billion (1,000,000,000) to Five Billion shares
(5,000,000,000) par value $.001 per share;
FIRST: Article FIFTH of the Articles of
Incorporation of the Corporation is hereby amended
to reclassify 150,000,000 shares of the authorized
but unissued shares of the Corporation as Worldwide
Portfolio stock, par value $.001 per share, with
the same preferences, conversion and other rights,
voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions
of redemption as are afforded to all common stock
of the Corporation under Article Fifth of the
Charter;
SECOND: Article FIFTH of the Articles of
Incorporation of the Corporation is hereby amended
to reclassify 150,000,000 shares of the authorized
but unissued shares of the Corporation as
Worldwide-Hedged Portfolio stock, par value $.001
per share, with the same preferences, conversion
and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and
terms and conditions of redemption as are afforded
to all common stock of the Corporation under
Article Fifth of the Charter;
THIRD: Article FIFTH of the Articles of
Incorporation of the Corporation is hereby amended
to reclassify 150,000,000 shares of the authorized
but unissued shares of the Corporation stock as
Stable Return Portfolio stock, par value $.001 per
share, with the same preferences, conversion and
other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and
terms and conditions of redemption as are afforded
to all common stock of the Corporation under
Article Fifth of the Charter;
FOURTH: Article FIFTH of the Articles of
Incorporation of the Corporation is hereby amended
to reclassify 100,000,000 shares of the authorized
but unissued shares of the Corporation stock as
Mortgage Total Return Portfolio stock, par value
$.001 per share, with the same preferences,
conversion and other rights, voting powers,
restrictions, limitations as to dividends,
qualifications, and terms and conditions of
redemption as are afforded to all common stock of
the Corporation under Article Fifth of the Charter;
FIFTH: Article FIFTH of the Articles of
Incorporation of the Corporation is hereby amended
to reclassify 100,000,000 shares of the authorized
but unissued shares of the Corporation stock, as
Broad Market Portfolio stock, par value $.001 per
share, with the same preferences, conversion and
other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and
terms and conditions of redemption as are afforded
to all common stock of the Corporation under
Article Fifth of the Charter;
SIXTH: Article FIFTH of the Articles of
Incorporation of the Corporation is hereby amended
to reclassify 150,000,000 shares of the authorized
but unissued shares of the Corporation stock, par
value $.001 per share, as International-Hedged
Portfolio stock, par value $.001 per share, with
the same preferences, conversion and other rights,
voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions
of redemption as are afforded to all common stock
of the Corporation under Article Fifth of the
Charter;
SEVENTH: Article FIFTH of the Articles of
Incorporation of the Corporation is hereby amended
to reclassify 150,000,000 shares of the authorized
but unissued shares of the Corporation stock, as
Inflation-Indexed Portfolio stock, par value $.001
per share, with the same preferences, conversion
and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and
terms and conditions of redemption as are afforded
to all common stock of the Corporation under
Article Fifth of the Charter;
EIGHTH: Article FIFTH of the Articles of
Incorporation of the Corporation is hereby amended
to reclassify 150,000,000 shares of the authorized
but unissued shares of the Corporation stock, as
Inflation-Indexed Hedged Portfolio stock, par value
$.001 per share, with the same preferences,
conversion and other rights, voting powers,
restrictions, limitations as to dividends,
qualifications, and terms and conditions of
redemption as are afforded to all common stock of
the Corporation under Article Fifth of the Charter;
NINTH: Article FIFTH of the Articles of
Incorporation of the Corporation is hereby amended
to reclassify 150,000,000 shares of the authorized
but unissued shares of the Corporation stock, as
Emerging Markets Portfolio stock, par value $.001
per share, with the same preferences, conversion
and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and
terms and conditions of redemption as are afforded
to all common stock of the Corporation under
Article Fifth of the Charter;
TENTH: Article FIFTH of the Articles of
Incorporation of the Corporation is hereby amended
to reclassify 50,000,000 shares of the authorized
but unissued shares of the Corporation stock, as
Money Market Portfolio stock, par value $.001 per
share, with the same preferences, conversion and
other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and
terms and conditions of redemption as are afforded
to all common stock of the Corporation under
Article Fifth of the Charter;
ELEVENTH: Article FIFTH of the Articles of
Incorporation of the Corporation is hereby amended
to reclassify 150,000,000 shares of the authorized
but unissued shares of the Corporation stock, as
International Portfolio stock, par value $.001 per
share, with the same preferences, conversion and
other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and
terms and conditions of redemption as are afforded
to all common stock of the Corporation under
Article Fifth of the Charter;
TWELFTH: Article FIFTH of the Articles of
Incorporation of the Corporation is hereby amended
to reclassify 200,000,000 shares of the authorized
but unissued shares of the Corporation stock, as
Mortgage LIBOR Portfolio stock, par value $.001 per
share, with the same preferences, conversion and
other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and
terms and conditions of redemption as are afforded
to all common stock of the Corporation under
Article Fifth of the Charter;
THIRTEENTH: Article FIFTH of the Articles of
Incorporation of the Corporation is hereby amended
to reclassify 200,000,000 shares of the authorized
but unissued shares of the Corporation stock, as
Asset-Backed Portfolio stock, par value $.001 per
share, with the same preferences, conversion and
other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and
terms and conditions of redemption as are afforded
to all common stock of the Corporation under
Article Fifth of the Charter;
FOURTEENTH: Article FIFTH of the Articles of
Incorporation of the Corporation is hereby amended
to reclassify 200,000,000 shares of the authorized
but unissued shares of the Corporation stock, as
U.S. Corporate Portfolio stock, par value $.001 per
share, with the same preferences, conversion and
other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and
terms and conditions of redemption as are afforded
to all common stock of the Corporation under
Article Fifth of the Charter;
FIFTEENTH: Article FIFTH of the Articles of
Incorporation of the Corporation is hereby amended
to reclassify 200,000,000 shares of the authorized
but unissued shares of the Corporation stock, as
High Yield Portfolio stock, par value $.001 per
share, with the same preferences, conversion and
other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and
terms and conditions of redemption as are afforded
to all common stock of the Corporation under
Article Fifth of the Charter;
SIXTEENTH: Article FIFTH of the Articles of
Incorporation of the Corporation is hereby amended
to reclassify 200,000,000 shares of the authorized
but unissued shares of the Corporation stock, as
Enhanced Index Portfolio stock, par value $.001 per
share, with the same preferences, conversion and
other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and
terms and conditions of redemption as are afforded
to all common stock of the Corporation under
Article Fifth of the Charter;
SEVENTEENTH: Article FIFTH of the Articles of
Incorporation of the Corporation is hereby amended
to reclassify 200,000,000 shares of the authorized
but unissued shares of the Corporation stock, as
International Opportunities Portfolio stock, par
value $.001 per share, with the same preferences,
conversion and other rights, voting powers,
restrictions, limitations as to dividends,
qualifications, and terms and conditions of
redemption as are afforded to all common stock of
the Corporation under Article Fifth of the Charter;
EIGHTEENTH: Article FIFTH of the Articles of
Incorporation of the Corporation is hereby amended
to reclassify 200,000,000 shares of the authorized
but unissued shares of the Corporation stock, as
International Corporate Portfolio stock, par value
$.001 per share, with the same preferences,
conversion and other rights, voting powers,
restrictions, limitations as to dividends,
qualifications, and terms and conditions of
redemption as are afforded to all common stock of
the Corporation under Article Fifth of the Charter;
NINETEENTH: Article FIFTH of the Articles of
Incorporation of the Corporation is hereby amended
to reclassify 200,000,000 shares of the authorized
but unissued shares of the Corporation stock, as
Global High Yield Portfolio stock, par value $.001
per share, with the same preferences, conversion
and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and
terms and conditions of redemption as are afforded
to all common stock of the Corporation under
Article Fifth of the Charter;
TWENTIETH : This amendment was approved by at
least a majority of the entire Board of Directors
of the Corporation.
TWENTYFIRST: The amendment is limited to a change
expressly permitted by Section 2-605(4) of the
Maryland General Corporation Law and the
Corporation is registered as an open-end company
under the Investment Company Act of 1940.
IN WITNESS WHEREOF, the Corporation has caused
these Articles of Amendment to be signed in its
name and on its behalf on this 8th day of July,
1998 by its President who acknowledges that these
Articles of Amendment are the act of the
Corporation and that to the best of his knowledge,
information and belief and under penalties for
perjury, all matters and facts contained in these
Articles of Amendment are true in all material
respects.
FFTW FUNDS, INC.
Attest:______________________ By:
/s/William E. Vastardis
William E. Vastardis /s/Onder John Olcay
Onder John Olcay
Secretary
President
SEAL
ADVISORY AGREEMENT
ADVISORY AGREEMENT, dated July 7, 1998,
between FFTW Funds, Inc., a Maryland corporation
(the "Fund") and Fischer Francis Trees & Watts,
Inc., a New York corporation (the "Adviser").
In consideration of the mutual agreements
herein made, the parties hereto agree as follows:
1. Attorney-in-Fact. The Fund
appoints the Adviser as its attorney-in-fact to
invest and reinvest the assets of the Asset-Backed
Portfolio (the "Portfolio"), as fully as the Fund
itself could do. The Adviser hereby accepts this
appointment.
2. Duties of the Adviser. (a) The
Adviser shall be responsible for managing the
investment portfolio of the Portfolio, including,
without limitation, providing investment research,
advice and supervision, determining which portfolio
securities shall be purchased or sold by the
Portfolio, purchasing and selling securities on
behalf of the Portfolio and determining how voting
and other rights with respect to portfolio
securities of the Portfolio shall be exercised,
subject in each case to the control of the Board of
Directors of the Fund (the "Board") and in
accordance with the objectives, policies and
principles of the Portfolio set forth in the
Registration Statement, as amended, of the Fund,
the requirements of the Investment Company Act of
1940, as amended, (the "Act") and other applicable
law. In performing such duties, the Adviser shall
provide such office space, and such executive and
other personnel as shall be necessary for the
operations of the Portfolio. In managing the
Portfolio in accordance with the requirements set
forth in this paragraph 2, the Adviser shall be
entitled to act upon advice of counsel to the Fund
or counsel to the Adviser.
(b) Subject to Section 36 of the Act, the
Adviser shall not be liable to the Fund for any
error of judgment or mistake of law or for any loss
arising out of any investment or for any act or
omission in the management of the Portfolio and the
performance of its duties under this Agreement
except for losses arising out of the Adviser's bad
faith, willful misfeasance or gross negligence in
the performance of its duties or by reason of its
reckless disregard of its obligations and duties
under this Agreement. It is agreed that the
Adviser shall have no responsibility or liability
for the accuracy or completeness of the Fund's
Registration Statement under the Act and the
Securities Act of 1933 except for information
supplied by the Adviser for inclusion therein about
the Adviser. The Fund agrees to indemnify the
Adviser for any claims, losses, costs, damages, or
expenses (including fees and disbursements of
counsel, but excluding the ordinary expenses of the
Adviser arising from the performance of its duties
and obligations under this Agreement) whatsoever
arising out of the performance of this Agreement
except for those claims, losses, costs, damages and
expenses resulting from the Adviser's bad faith,
willful misfeasance or gross negligence in the
performance of its duties or by reason of its
reckless disregard of its obligations and duties
under this Agreement.
(c) The Adviser and its officers may act
and continue to act as investment advisers and
managers for others (including, without limitation,
other investment companies), and nothing in this
Agreement will in any way be deemed to restrict the
right of the Adviser to perform investment
management or other services for any other person
or entity, and the performance of such services for
others will not be deemed to violate or give rise
to any duty or obligation to the Fund.
(d) Except as provided in Paragraph 5,
nothing in this Agreement will limit or restrict
the Adviser or any of its officers, affiliates or
employees from buying, selling or trading in any
securities for its or their own account or
accounts. The Fund acknowledges that the Adviser
and its officers, affiliates or employees, and its
other clients may at any time have, acquire,
increase, decrease or dispose of positions in
investments which are at the same time being
acquired or disposed of for the account of the
Portfolio. The Adviser will have no obligation to
acquire for the Portfolio a position in any
investment which the Adviser, its officers,
affiliates or employees may acquire for its or
their own accounts or for the account of another
client, if in the sole discretion of the Adviser,
it is not feasible or desirable to acquire a
position in such investment for the account of the
Portfolio.
3. Expenses. The Adviser shall pay
all of its expenses arising from the performance of
its obligations under this Agreement and shall pay
any salaries, fees and expenses of the Directors
and officers of the Fund who are employees of the
Adviser or its affiliates. Except as provided
below, the Adviser shall not be required to pay any
other expenses of the Fund, including, without
limitation, organization expenses of the Fund
(including out-of-pocket expenses, but not
including the Adviser's overhead or employee
costs); brokerage commissions; maintenance of
books and records which are required to be
maintained by the Fund's custodian or other agents
of the Fund; telephone, telex, facsimile, postage
and other communications expenses; expenses
relating to investor and public relations; freight,
insurance and other charges in connection with the
shipment of the Fund's portfolio securities;
indemnification of Directors and officers of the
Fund; travel expenses (or an appropriate portion
thereof) of Directors and officers of the Fund who
are directors, officers or employees of the Adviser
to the extent that such expenses relate to
attendance at meetings of the Board of Directors of
the Fund or any committee thereof or advisors
thereto held outside of New York, New York;
interest, fees and expenses of independent
attorneys, auditors, custodians, accounting agents,
transfer agents, dividend disbursing agents and
registrars; payment for portfolio pricing or
valuation service to pricing agents, accountants,
bankers and other specialists, if any; taxes and
government fees; cost of stock certificates and any
other expenses (including clerical expenses) of
issue, sale, repurchase or redemption of shares;
expenses of registering and qualifying shares of
the Fund under Federal and state laws and
regulations; expenses of printing and distributing
reports, notices, dividends and proxy materials to
existing stockholders; expenses of printing and
filing reports and other documents filed with
governmental agencies, expenses of printing and
distributing prospectuses; expenses of annual and
special stockholders' meetings; costs of
stationery, fees and expenses (specifically
including travel expenses relating to Fund
business) of Directors of the Fund who are not
employees of the Adviser or its affiliates;
membership dues in the Investment Company
Institute; insurance premiums and extraordinary
expenses such as litigation expenses.
4. Compensation. (a) As
compensation for the services performed and the
facilities and personnel provided by the Adviser
pursuant to this Agreement, the Fund will pay to
the Adviser promptly at the end of each calendar
month, a fee, calculated on each day during such
month, at an annual rate of 0.30% of the
Portfolio's average daily net assets. The Adviser
shall be entitled to receive during any month such
interim payments of its fee hereunder as the
Adviser shall request, provided that no such
payment shall exceed 50% of the amount of such fee
then accrued on the books of the Portfolio and
unpaid.
(b) If the Adviser shall serve hereunder
for less than the whole of any month, the fee
payable hereunder shall be prorated.
(c) For purposes of this Section 4, the
"average daily net assets" of the Portfolio shall
mean the average of the values placed on the
Portfolio's net assets on each day pursuant to the
applicable provisions of the Fund's Registration
Statement, as amended.
5. Purchase and Sale of Securities.
The Adviser or an agent of the Adviser shall
purchase securities from or through and sell
securities to or through such persons, brokers or
dealers as the Adviser shall deem appropriate in
order to carry out the policy with respect to the
allocation of portfolio transactions as set forth
in the Registration Statement of the Fund, as
amended, or as the Board may direct from time to
time. The Adviser will use its reasonable best
efforts to execute all purchases and sales with
dealers and banks on a best net price basis.
Neither the Adviser nor any of its officers,
affiliates, or employees will act as principal or
receive any compensation from the Portfolio in
connection with the purchase or sale of investments
for the Portfolio other than the fee referred to in
Paragraph 4 hereof.
6. Term of Agreement. This Agreement
shall continue in full force and effect until two
years from the date hereof, and will continue in
effect from year to year thereafter if such
continuance is approved in the manner required by
the Act, provided that this Agreement is not
otherwise terminated. The Adviser may terminate
this Agreement at any time, without payment of
penalty, upon 60 days' written notice to the Fund.
The Fund may terminate this Agreement with respect
to the Portfolio at any time, without payment of
penalty, on 60 days' written notice to the Adviser
by vote of either the Board or a majority of the
outstanding stockholders of the Portfolio. This
Agreement will automatically terminate in the event
of its assignment (as defined by the Act).
7. Right of Adviser In Corporate
Name. The Adviser and the Fund each agree that the
phrase "FFTW", which comprises a component of the
Fund's corporate name, is a property right of the
Adviser. The Fund agrees and consents that: (i) it
will only use the phrase "FFTW" as a component of
its corporate name and for no other purpose; (ii)
it will not purport to grant to any third party the
right to use the phrase "FFTW" for any purpose;
(iii) the Adviser or any corporate affiliate of the
Adviser may use or grant to others the right to use
the phrase "FFTW" or any combination or
abbreviation thereof, as all or a portion of a
corporate or business name or for any commercial
purpose, including a grant of such right to any
other investment company, and at the request of the
Adviser, the Fund will take such action as may be
required to provide its consent to such use or
grant; and (iv) upon the termination of any
investment advisory agreement into which the
Adviser and the Fund may enter, the Fund shall,
upon request by the Adviser, promptly take such
action, at its own expense, as may be necessary to
change its corporate name to one not containing the
phrase "FFTW" and following such a change, shall
not use the phrase "FFTW" or any combination
thereof, as part of its corporate name or for any
other commercial purpose, and shall use its best
efforts to cause its officers, directors and
stockholders to take any and all actions which the
Adviser may request to effect the foregoing and
recovery to the Adviser any and all rights to such
phrase.
8. Miscellaneous. This Agreement
shall be governed by and construed in accordance
with the laws of the State of New York. Anything
herein to the contrary notwithstanding, this
Agreement shall not be construed to require or to
impose any duty upon either of the parties to do
anything in violation of any applicable laws or
regulations.
IN WITNESS WHEREOF, the Fund and the
Adviser have caused this Agreement to be executed
by their duly authorized officers as of the date
first written above.
ATTEST
FFTW FUNDS, INC.
By:_______________________
By:_______________________
Eric Nachimovsky
William E. Vastardis
Secretary
ATTEST
FISCHER FRANCIS TREES & WATTS, INC.
By:/s/Stephen Francis
Stephen Francis
By:/s/Stephen P. Casper
Stephen P. Casper
Managing Director
ADVISORY AGREEMENT
ADVISORY AGREEMENT, dated July 7, 1998,
between FFTW Funds, Inc., a Maryland corporation
(the "Fund") and Fischer Francis Trees & Watts,
Inc., a New York corporation (the "Adviser").
In consideration of the mutual agreements
herein made, the parties hereto agree as follows:
1. Attorney-in-Fact. The Fund
appoints the Adviser as its attorney-in-fact to
invest and reinvest the assets of the Global High
Yield Portfolio (the "Portfolio"), as fully as the
Fund itself could do. The Adviser hereby accepts
this appointment.
2. Duties of the Adviser. (a) The
Adviser shall be responsible for managing the
investment portfolio of the Portfolio, including,
without limitation, providing investment research,
advice and supervision, determining which portfolio
securities shall be purchased or sold by the
Portfolio, purchasing and selling securities on
behalf of the Portfolio and determining how voting
and other rights with respect to portfolio
securities of the Portfolio shall be exercised,
subject in each case to the control of the Board of
Directors of the Fund (the "Board") and in
accordance with the objectives, policies and
principles of the Portfolio set forth in the
Registration Statement, as amended, of the Fund,
the requirements of the Investment Company Act of
1940, as amended, (the "Act") and other applicable
law. In performing such duties, the Adviser shall
provide such office space, and such executive and
other personnel as shall be necessary for the
operations of the Portfolio. In managing the
Portfolio in accordance with the requirements set
forth in this paragraph 2, the Adviser shall be
entitled to act upon advice of counsel to the Fund
or counsel to the Adviser.
(b) Subject to Section 36 of the Act, the
Adviser shall not be liable to the Fund for any
error of judgment or mistake of law or for any loss
arising out of any investment or for any act or
omission in the management of the Portfolio and the
performance of its duties under this Agreement
except for losses arising out of the Adviser's bad
faith, willful misfeasance or gross negligence in
the performance of its duties or by reason of its
reckless disregard of its obligations and duties
under this Agreement. It is agreed that the
Adviser shall have no responsibility or liability
for the accuracy or completeness of the Fund's
Registration Statement under the Act and the
Securities Act of 1933 except for information
supplied by the Adviser for inclusion therein about
the Adviser. The Fund agrees to indemnify the
Adviser for any claims, losses, costs, damages, or
expenses (including fees and disbursements of
counsel, but excluding the ordinary expenses of the
Adviser arising from the performance of its duties
and obligations under this Agreement) whatsoever
arising out of the performance of this Agreement
except for those claims, losses, costs, damages and
expenses resulting from the Adviser's bad faith,
willful misfeasance or gross negligence in the
performance of its duties or by reason of its
reckless disregard of its obligations and duties
under this Agreement.
(c) The Adviser and its officers may act
and continue to act as investment advisers and
managers for others (including, without limitation,
other investment companies), and nothing in this
Agreement will in any way be deemed to restrict the
right of the Adviser to perform investment
management or other services for any other person
or entity, and the performance of such services for
others will not be deemed to violate or give rise
to any duty or obligation to the Fund.
(d) Except as provided in Paragraph 5,
nothing in this Agreement will limit or restrict
the Adviser or any of its officers, affiliates or
employees from buying, selling or trading in any
securities for its or their own account or
accounts. The Fund acknowledges that the Adviser
and its officers, affiliates or employees, and its
other clients may at any time have, acquire,
increase, decrease or dispose of positions in
investments which are at the same time being
acquired or disposed of for the account of the
Portfolio. The Adviser will have no obligation to
acquire for the Portfolio a position in any
investment which the Adviser, its officers,
affiliates or employees may acquire for its or
their own accounts or for the account of another
client, if in the sole discretion of the Adviser,
it is not feasible or desirable to acquire a
position in such investment for the account of the
Portfolio.
3. Expenses. The Adviser shall pay
all of its expenses arising from the performance of
its obligations under this Agreement and shall pay
any salaries, fees and expenses of the Directors
and officers of the Fund who are employees of the
Adviser or its affiliates. Except as provided
below, the Adviser shall not be required to pay any
other expenses of the Fund, including, without
limitation, organization expenses of the Fund
(including out-of-pocket expenses, but not
including the Adviser's overhead or employee
costs); brokerage commissions; maintenance of
books and records which are required to be
maintained by the Fund's custodian or other agents
of the Fund; telephone, telex, facsimile, postage
and other communications expenses; expenses
relating to investor and public relations; freight,
insurance and other charges in connection with the
shipment of the Fund's portfolio securities;
indemnification of Directors and officers of the
Fund; travel expenses (or an appropriate portion
thereof) of Directors and officers of the Fund who
are directors, officers or employees of the Adviser
to the extent that such expenses relate to
attendance at meetings of the Board of Directors of
the Fund or any committee thereof or advisors
thereto held outside of New York, New York;
interest, fees and expenses of independent
attorneys, auditors, custodians, accounting agents,
transfer agents, dividend disbursing agents and
registrars; payment for portfolio pricing or
valuation service to pricing agents, accountants,
bankers and other specialists, if any; taxes and
government fees; cost of stock certificates and any
other expenses (including clerical expenses) of
issue, sale, repurchase or redemption of shares;
expenses of registering and qualifying shares of
the Fund under Federal and state laws and
regulations; expenses of printing and distributing
reports, notices, dividends and proxy materials to
existing stockholders; expenses of printing and
filing reports and other documents filed with
governmental agencies, expenses of printing and
distributing prospectuses; expenses of annual and
special stockholders' meetings; costs of
stationery, fees and expenses (specifically
including travel expenses relating to Fund
business) of Directors of the Fund who are not
employees of the Adviser or its affiliates;
membership dues in the Investment Company
Institute; insurance premiums and extraordinary
expenses such as litigation expenses.
4. Compensation. (a) As
compensation for the services performed and the
facilities and personnel provided by the Adviser
pursuant to this Agreement, the Fund will pay to
the Adviser promptly at the end of each calendar
month, a fee, calculated on each day during such
month, at an annual rate of 0.50% of the
Portfolio's average daily net assets. The Adviser
shall be entitled to receive during any month such
interim payments of its fee hereunder as the
Adviser shall request, provided that no such
payment shall exceed 50% of the amount of such fee
then accrued on the books of the Portfolio and
unpaid.
(b) If the Adviser shall serve hereunder
for less than the whole of any month, the fee
payable hereunder shall be prorated.
(c) For purposes of this Section 4, the
"average daily net assets" of the Portfolio shall
mean the average of the values placed on the
Portfolio's net assets on each day pursuant to the
applicable provisions of the Fund's Registration
Statement, as amended.
5. Purchase and Sale of Securities.
The Adviser or an agent of the Adviser shall
purchase securities from or through and sell
securities to or through such persons, brokers or
dealers as the Adviser shall deem appropriate in
order to carry out the policy with respect to the
allocation of portfolio transactions as set forth
in the Registration Statement of the Fund, as
amended, or as the Board may direct from time to
time. The Adviser will use its reasonable best
efforts to execute all purchases and sales with
dealers and banks on a best net price basis.
Neither the Adviser nor any of its officers,
affiliates, or employees will act as principal or
receive any compensation from the Portfolio in
connection with the purchase or sale of investments
for the Portfolio other than the fee referred to in
Paragraph 4 hereof.
6. Term of Agreement. This Agreement
shall continue in full force and effect until two
years from the date hereof, and will continue in
effect from year to year thereafter if such
continuance is approved in the manner required by
the Act, provided that this Agreement is not
otherwise terminated. The Adviser may terminate
this Agreement at any time, without payment of
penalty, upon 60 days' written notice to the Fund.
The Fund may terminate this Agreement with respect
to the Portfolio at any time, without payment of
penalty, on 60 days' written notice to the Adviser
by vote of either the Board or a majority of the
outstanding stockholders of the Portfolio. This
Agreement will automatically terminate in the event
of its assignment (as defined by the Act).
7. Right of Adviser In Corporate
Name. The Adviser and the Fund each agree that the
phrase "FFTW", which comprises a component of the
Fund's corporate name, is a property right of the
Adviser. The Fund agrees and consents that: (i) it
will only use the phrase "FFTW" as a component of
its corporate name and for no other purpose; (ii)
it will not purport to grant to any third party the
right to use the phrase "FFTW" for any purpose;
(iii) the Adviser or any corporate affiliate of the
Adviser may use or grant to others the right to use
the phrase "FFTW" or any combination or
abbreviation thereof, as all or a portion of a
corporate or business name or for any commercial
purpose, including a grant of such right to any
other investment company, and at the request of the
Adviser, the Fund will take such action as may be
required to provide its consent to such use or
grant; and (iv) upon the termination of any
investment advisory agreement into which the
Adviser and the Fund may enter, the Fund shall,
upon request by the Adviser, promptly take such
action, at its own expense, as may be necessary to
change its corporate name to one not containing the
phrase "FFTW" and following such a change, shall
not use the phrase "FFTW" or any combination
thereof, as part of its corporate name or for any
other commercial purpose, and shall use its best
efforts to cause its officers, directors and
stockholders to take any and all actions which the
Adviser may request to effect the foregoing and
recovery to the Adviser any and all rights to such
phrase.
8. Miscellaneous. This Agreement
shall be governed by and construed in accordance
with the laws of the State of New York. Anything
herein to the contrary notwithstanding, this
Agreement shall not be construed to require or to
impose any duty upon either of the parties to do
anything in violation of any applicable laws or
regulations.
IN WITNESS WHEREOF, the Fund and the
Adviser have caused this Agreement to be executed
by their duly authorized officers as of the date
first written above.
ATTEST
FFTW FUNDS, INC.
By:/s/Eric Nachimovsky
Eric Nachimovsky
/s/William E. Vastardis
William E. Vastardis
Secretary
ATTEST
FISCHER FRANCIS TREES & WATTS, INC.
By:/s/Stephen Francis
Stephen Francis
By:/s/Stephen P. Casper
Stephen P. Casper
Managing Director
ADVISORY AGREEMENT
ADVISORY AGREEMENT, dated July 7, 1998,
between FFTW Funds, Inc., a Maryland corporation
(the "Fund") and Fischer Francis Trees & Watts,
Inc., a New York corporation (the "Adviser").
In consideration of the mutual agreements
herein made, the parties hereto agree as follows:
1. Attorney-in-Fact. The Fund
appoints the Adviser as its attorney-in-fact to
invest and reinvest the assets of the International
Corporate Portfolio (the "Portfolio"), as fully as
the Fund itself could do. The Adviser hereby
accepts this appointment.
2. Duties of the Adviser. (a) The
Adviser shall be responsible for managing the
investment portfolio of the Portfolio, including,
without limitation, providing investment research,
advice and supervision, determining which portfolio
securities shall be purchased or sold by the
Portfolio, purchasing and selling securities on
behalf of the Portfolio and determining how voting
and other rights with respect to portfolio
securities of the Portfolio shall be exercised,
subject in each case to the control of the Board of
Directors of the Fund (the "Board") and in
accordance with the objectives, policies and
principles of the Portfolio set forth in the
Registration Statement, as amended, of the Fund,
the requirements of the Investment Company Act of
1940, as amended, (the "Act") and other applicable
law. In performing such duties, the Adviser shall
provide such office space, and such executive and
other personnel as shall be necessary for the
operations of the Portfolio. In managing the
Portfolio in accordance with the requirements set
forth in this paragraph 2, the Adviser shall be
entitled to act upon advice of counsel to the Fund
or counsel to the Adviser.
(b) Subject to Section 36 of the Act, the
Adviser shall not be liable to the Fund for any
error of judgment or mistake of law or for any loss
arising out of any investment or for any act or
omission in the management of the Portfolio and the
performance of its duties under this Agreement
except for losses arising out of the Adviser's bad
faith, willful misfeasance or gross negligence in
the performance of its duties or by reason of its
reckless disregard of its obligations and duties
under this Agreement. It is agreed that the
Adviser shall have no responsibility or liability
for the accuracy or completeness of the Fund's
Registration Statement under the Act and the
Securities Act of 1933 except for information
supplied by the Adviser for inclusion therein about
the Adviser. The Fund agrees to indemnify the
Adviser for any claims, losses, costs, damages, or
expenses (including fees and disbursements of
counsel, but excluding the ordinary expenses of the
Adviser arising from the performance of its duties
and obligations under this Agreement) whatsoever
arising out of the performance of this Agreement
except for those claims, losses, costs, damages and
expenses resulting from the Adviser's bad faith,
willful misfeasance or gross negligence in the
performance of its duties or by reason of its
reckless disregard of its obligations and duties
under this Agreement.
(c) The Adviser and its officers may act
and continue to act as investment advisers and
managers for others (including, without limitation,
other investment companies), and nothing in this
Agreement will in any way be deemed to restrict the
right of the Adviser to perform investment
management or other services for any other person
or entity, and the performance of such services for
others will not be deemed to violate or give rise
to any duty or obligation to the Fund.
(d) Except as provided in Paragraph 5,
nothing in this Agreement will limit or restrict
the Adviser or any of its officers, affiliates or
employees from buying, selling or trading in any
securities for its or their own account or
accounts. The Fund acknowledges that the Adviser
and its officers, affiliates or employees, and its
other clients may at any time have, acquire,
increase, decrease or dispose of positions in
investments which are at the same time being
acquired or disposed of for the account of the
Portfolio. The Adviser will have no obligation to
acquire for the Portfolio a position in any
investment which the Adviser, its officers,
affiliates or employees may acquire for its or
their own accounts or for the account of another
client, if in the sole discretion of the Adviser,
it is not feasible or desirable to acquire a
position in such investment for the account of the
Portfolio.
3. Expenses. The Adviser shall pay
all of its expenses arising from the performance of
its obligations under this Agreement and shall pay
any salaries, fees and expenses of the Directors
and officers of the Fund who are employees of the
Adviser or its affiliates. Except as provided
below, the Adviser shall not be required to pay any
other expenses of the Fund, including, without
limitation, organization expenses of the Fund
(including out-of-pocket expenses, but not
including the Adviser's overhead or employee
costs); brokerage commissions; maintenance of
books and records which are required to be
maintained by the Fund's custodian or other agents
of the Fund; telephone, telex, facsimile, postage
and other communications expenses; expenses
relating to investor and public relations; freight,
insurance and other charges in connection with the
shipment of the Fund's portfolio securities;
indemnification of Directors and officers of the
Fund; travel expenses (or an appropriate portion
thereof) of Directors and officers of the Fund who
are directors, officers or employees of the Adviser
to the extent that such expenses relate to
attendance at meetings of the Board of Directors of
the Fund or any committee thereof or advisors
thereto held outside of New York, New York;
interest, fees and expenses of independent
attorneys, auditors, custodians, accounting agents,
transfer agents, dividend disbursing agents and
registrars; payment for portfolio pricing or
valuation service to pricing agents, accountants,
bankers and other specialists, if any; taxes and
government fees; cost of stock certificates and any
other expenses (including clerical expenses) of
issue, sale, repurchase or redemption of shares;
expenses of registering and qualifying shares of
the Fund under Federal and state laws and
regulations; expenses of printing and distributing
reports, notices, dividends and proxy materials to
existing stockholders; expenses of printing and
filing reports and other documents filed with
governmental agencies, expenses of printing and
distributing prospectuses; expenses of annual and
special stockholders' meetings; costs of
stationery, fees and expenses (specifically
including travel expenses relating to Fund
business) of Directors of the Fund who are not
employees of the Adviser or its affiliates;
membership dues in the Investment Company
Institute; insurance premiums and extraordinary
expenses such as litigation expenses.
4. Compensation. (a) As
compensation for the services performed and the
facilities and personnel provided by the Adviser
pursuant to this Agreement, the Fund will pay to
the Adviser promptly at the end of each calendar
month, a fee, calculated on each day during such
month, at an annual rate of 0.40% of the
Portfolio's average daily net assets. The Adviser
shall be entitled to receive during any month such
interim payments of its fee hereunder as the
Adviser shall request, provided that no such
payment shall exceed 50% of the amount of such fee
then accrued on the books of the Portfolio and
unpaid.
(b) If the Adviser shall serve hereunder
for less than the whole of any month, the fee
payable hereunder shall be prorated.
(c) For purposes of this Section 4, the
"average daily net assets" of the Portfolio shall
mean the average of the values placed on the
Portfolio's net assets on each day pursuant to the
applicable provisions of the Fund's Registration
Statement, as amended.
5. Purchase and Sale of Securities.
The Adviser or an agent of the Adviser shall
purchase securities from or through and sell
securities to or through such persons, brokers or
dealers as the Adviser shall deem appropriate in
order to carry out the policy with respect to the
allocation of portfolio transactions as set forth
in the Registration Statement of the Fund, as
amended, or as the Board may direct from time to
time. The Adviser will use its reasonable best
efforts to execute all purchases and sales with
dealers and banks on a best net price basis.
Neither the Adviser nor any of its officers,
affiliates, or employees will act as principal or
receive any compensation from the Portfolio in
connection with the purchase or sale of investments
for the Portfolio other than the fee referred to in
Paragraph 4 hereof.
6. Term of Agreement. This Agreement
shall continue in full force and effect until two
years from the date hereof, and will continue in
effect from year to year thereafter if such
continuance is approved in the manner required by
the Act, provided that this Agreement is not
otherwise terminated. The Adviser may terminate
this Agreement at any time, without payment of
penalty, upon 60 days' written notice to the Fund.
The Fund may terminate this Agreement with respect
to the Portfolio at any time, without payment of
penalty, on 60 days' written notice to the Adviser
by vote of either the Board or a majority of the
outstanding stockholders of the Portfolio. This
Agreement will automatically terminate in the event
of its assignment (as defined by the Act).
7. Right of Adviser In Corporate
Name. The Adviser and the Fund each agree that the
phrase "FFTW", which comprises a component of the
Fund's corporate name, is a property right of the
Adviser. The Fund agrees and consents that: (i) it
will only use the phrase "FFTW" as a component of
its corporate name and for no other purpose; (ii)
it will not purport to grant to any third party the
right to use the phrase "FFTW" for any purpose;
(iii) the Adviser or any corporate affiliate of the
Adviser may use or grant to others the right to use
the phrase "FFTW" or any combination or
abbreviation thereof, as all or a portion of a
corporate or business name or for any commercial
purpose, including a grant of such right to any
other investment company, and at the request of the
Adviser, the Fund will take such action as may be
required to provide its consent to such use or
grant; and (iv) upon the termination of any
investment advisory agreement into which the
Adviser and the Fund may enter, the Fund shall,
upon request by the Adviser, promptly take such
action, at its own expense, as may be necessary to
change its corporate name to one not containing the
phrase "FFTW" and following such a change, shall
not use the phrase "FFTW" or any combination
thereof, as part of its corporate name or for any
other commercial purpose, and shall use its best
efforts to cause its officers, directors and
stockholders to take any and all actions which the
Adviser may request to effect the foregoing and
recovery to the Adviser any and all rights to such
phrase.
8. Miscellaneous. This Agreement
shall be governed by and construed in accordance
with the laws of the State of New York. Anything
herein to the contrary notwithstanding, this
Agreement shall not be construed to require or to
impose any duty upon either of the parties to do
anything in violation of any applicable laws or
regulations.
IN WITNESS WHEREOF, the Fund and the
Adviser have caused this Agreement to be executed
by their duly authorized officers as of the date
first written above.
ATTEST
FFTW FUNDS, INC.
By:/s/Eric Nachimovsky
Eric Nachimovsky
By:/s/William E. Vastardis
William E. Vastardis
Secretary
ATTEST
FISCHER FRANCIS TREES & WATTS, INC.
By:/s/Stephen Francis
Stephen Francis
By:/s/Stephen P. Casper
Stephen P. Casper
Managing Director
ADVISORY AGREEMENT
ADVISORY AGREEMENT, dated July 7, 1998,
between FFTW Funds, Inc., a Maryland corporation
(the "Fund") and Fischer Francis Trees & Watts,
Inc., a New York corporation (the "Adviser").
In consideration of the mutual agreements
herein made, the parties hereto agree as follows:
1. Attorney-in-Fact. The Fund
appoints the Adviser as its attorney-in-fact to
invest and reinvest the assets of the International
Opportunities Portfolio (the "Portfolio"), as fully
as the Fund itself could do. The Adviser hereby
accepts this appointment.
2. Duties of the Adviser. (a) The
Adviser shall be responsible for managing the
investment portfolio of the Portfolio, including,
without limitation, providing investment research,
advice and supervision, determining which portfolio
securities shall be purchased or sold by the
Portfolio, purchasing and selling securities on
behalf of the Portfolio and determining how voting
and other rights with respect to portfolio
securities of the Portfolio shall be exercised,
subject in each case to the control of the Board of
Directors of the Fund (the "Board") and in
accordance with the objectives, policies and
principles of the Portfolio set forth in the
Registration Statement, as amended, of the Fund,
the requirements of the Investment Company Act of
1940, as amended, (the "Act") and other applicable
law. In performing such duties, the Adviser shall
provide such office space, and such executive and
other personnel as shall be necessary for the
operations of the Portfolio. In managing the
Portfolio in accordance with the requirements set
forth in this paragraph 2, the Adviser shall be
entitled to act upon advice of counsel to the Fund
or counsel to the Adviser.
(b) Subject to Section 36 of the Act, the
Adviser shall not be liable to the Fund for any
error of judgment or mistake of law or for any loss
arising out of any investment or for any act or
omission in the management of the Portfolio and the
performance of its duties under this Agreement
except for losses arising out of the Adviser's bad
faith, willful misfeasance or gross negligence in
the performance of its duties or by reason of its
reckless disregard of its obligations and duties
under this Agreement. It is agreed that the
Adviser shall have no responsibility or liability
for the accuracy or completeness of the Fund's
Registration Statement under the Act and the
Securities Act of 1933 except for information
supplied by the Adviser for inclusion therein about
the Adviser. The Fund agrees to indemnify the
Adviser for any claims, losses, costs, damages, or
expenses (including fees and disbursements of
counsel, but excluding the ordinary expenses of the
Adviser arising from the performance of its duties
and obligations under this Agreement) whatsoever
arising out of the performance of this Agreement
except for those claims, losses, costs, damages and
expenses resulting from the Adviser's bad faith,
willful misfeasance or gross negligence in the
performance of its duties or by reason of its
reckless disregard of its obligations and duties
under this Agreement.
(c) The Adviser and its officers may act
and continue to act as investment advisers and
managers for others (including, without limitation,
other investment companies), and nothing in this
Agreement will in any way be deemed to restrict the
right of the Adviser to perform investment
management or other services for any other person
or entity, and the performance of such services for
others will not be deemed to violate or give rise
to any duty or obligation to the Fund.
(d) Except as provided in Paragraph 5,
nothing in this Agreement will limit or restrict
the Adviser or any of its officers, affiliates or
employees from buying, selling or trading in any
securities for its or their own account or
accounts. The Fund acknowledges that the Adviser
and its officers, affiliates or employees, and its
other clients may at any time have, acquire,
increase, decrease or dispose of positions in
investments which are at the same time being
acquired or disposed of for the account of the
Portfolio. The Adviser will have no obligation to
acquire for the Portfolio a position in any
investment which the Adviser, its officers,
affiliates or employees may acquire for its or
their own accounts or for the account of another
client, if in the sole discretion of the Adviser,
it is not feasible or desirable to acquire a
position in such investment for the account of the
Portfolio.
3. Expenses. The Adviser shall pay
all of its expenses arising from the performance of
its obligations under this Agreement and shall pay
any salaries, fees and expenses of the Directors
and officers of the Fund who are employees of the
Adviser or its affiliates. Except as provided
below, the Adviser shall not be required to pay any
other expenses of the Fund, including, without
limitation, organization expenses of the Fund
(including out-of-pocket expenses, but not
including the Adviser's overhead or employee
costs); brokerage commissions; maintenance of
books and records which are required to be
maintained by the Fund's custodian or other agents
of the Fund; telephone, telex, facsimile, postage
and other communications expenses; expenses
relating to investor and public relations; freight,
insurance and other charges in connection with the
shipment of the Fund's portfolio securities;
indemnification of Directors and officers of the
Fund; travel expenses (or an appropriate portion
thereof) of Directors and officers of the Fund who
are directors, officers or employees of the Adviser
to the extent that such expenses relate to
attendance at meetings of the Board of Directors of
the Fund or any committee thereof or advisors
thereto held outside of New York, New York;
interest, fees and expenses of independent
attorneys, auditors, custodians, accounting agents,
transfer agents, dividend disbursing agents and
registrars; payment for portfolio pricing or
valuation service to pricing agents, accountants,
bankers and other specialists, if any; taxes and
government fees; cost of stock certificates and any
other expenses (including clerical expenses) of
issue, sale, repurchase or redemption of shares;
expenses of registering and qualifying shares of
the Fund under Federal and state laws and
regulations; expenses of printing and distributing
reports, notices, dividends and proxy materials to
existing stockholders; expenses of printing and
filing reports and other documents filed with
governmental agencies, expenses of printing and
distributing prospectuses; expenses of annual and
special stockholders' meetings; costs of
stationery, fees and expenses (specifically
including travel expenses relating to Fund
business) of Directors of the Fund who are not
employees of the Adviser or its affiliates;
membership dues in the Investment Company
Institute; insurance premiums and extraordinary
expenses such as litigation expenses.
4. Compensation. (a) As
compensation for the services performed and the
facilities and personnel provided by the Adviser
pursuant to this Agreement, the Fund will pay to
the Adviser promptly at the end of each calendar
month, a fee, calculated on each day during such
month, at an annual rate of 0.30% of the
Portfolio's average daily net assets. The Adviser
shall be entitled to receive during any month such
interim payments of its fee hereunder as the
Adviser shall request, provided that no such
payment shall exceed 50% of the amount of such fee
then accrued on the books of the Portfolio and
unpaid.
(b) If the Adviser shall serve hereunder
for less than the whole of any month, the fee
payable hereunder shall be prorated.
(c) For purposes of this Section 4, the
"average daily net assets" of the Portfolio shall
mean the average of the values placed on the
Portfolio's net assets on each day pursuant to the
applicable provisions of the Fund's Registration
Statement, as amended.
5. Purchase and Sale of Securities.
The Adviser or an agent of the Adviser shall
purchase securities from or through and sell
securities to or through such persons, brokers or
dealers as the Adviser shall deem appropriate in
order to carry out the policy with respect to the
allocation of portfolio transactions as set forth
in the Registration Statement of the Fund, as
amended, or as the Board may direct from time to
time. The Adviser will use its reasonable best
efforts to execute all purchases and sales with
dealers and banks on a best net price basis.
Neither the Adviser nor any of its officers,
affiliates, or employees will act as principal or
receive any compensation from the Portfolio in
connection with the purchase or sale of investments
for the Portfolio other than the fee referred to in
Paragraph 4 hereof.
6. Term of Agreement. This Agreement
shall continue in full force and effect until two
years from the date hereof, and will continue in
effect from year to year thereafter if such
continuance is approved in the manner required by
the Act, provided that this Agreement is not
otherwise terminated. The Adviser may terminate
this Agreement at any time, without payment of
penalty, upon 60 days' written notice to the Fund.
The Fund may terminate this Agreement with respect
to the Portfolio at any time, without payment of
penalty, on 60 days' written notice to the Adviser
by vote of either the Board or a majority of the
outstanding stockholders of the Portfolio. This
Agreement will automatically terminate in the event
of its assignment (as defined by the Act).
7. Right of Adviser In Corporate
Name. The Adviser and the Fund each agree that the
phrase "FFTW", which comprises a component of the
Fund's corporate name, is a property right of the
Adviser. The Fund agrees and consents that: (i) it
will only use the phrase "FFTW" as a component of
its corporate name and for no other purpose; (ii)
it will not purport to grant to any third party the
right to use the phrase "FFTW" for any purpose;
(iii) the Adviser or any corporate affiliate of the
Adviser may use or grant to others the right to use
the phrase "FFTW" or any combination or
abbreviation thereof, as all or a portion of a
corporate or business name or for any commercial
purpose, including a grant of such right to any
other investment company, and at the request of the
Adviser, the Fund will take such action as may be
required to provide its consent to such use or
grant; and (iv) upon the termination of any
investment advisory agreement into which the
Adviser and the Fund may enter, the Fund shall,
upon request by the Adviser, promptly take such
action, at its own expense, as may be necessary to
change its corporate name to one not containing the
phrase "FFTW" and following such a change, shall
not use the phrase "FFTW" or any combination
thereof, as part of its corporate name or for any
other commercial purpose, and shall use its best
efforts to cause its officers, directors and
stockholders to take any and all actions which the
Adviser may request to effect the foregoing and
recovery to the Adviser any and all rights to such
phrase.
8. Miscellaneous. This Agreement
shall be governed by and construed in accordance
with the laws of the State of New York. Anything
herein to the contrary notwithstanding, this
Agreement shall not be construed to require or to
impose any duty upon either of the parties to do
anything in violation of any applicable laws or
regulations.
IN WITNESS WHEREOF, the Fund and the
Adviser have caused this Agreement to be executed
by their duly authorized officers as of the date
first written above.
ATTEST
FFTW FUNDS, INC.
By:/s/Eric Nachimovsky
Eric Nachimovsky
By:/s/William E. Vastardis
William E. Vastardis
Secretary
ATTEST
FISCHER FRANCIS TREES & WATTS, INC.
By:/s/Stephen Francis
Stephen Francis
By:/s/Stephen P. Casper
Stephen P. Casper
Managing Director
ADVISORY AGREEMENT
ADVISORY AGREEMENT, dated July 7, 1998,
between FFTW Funds, Inc., a Maryland corporation
(the "Fund") and Fischer Francis Trees & Watts,
Inc., a New York corporation (the "Adviser").
In consideration of the mutual agreements
herein made, the parties hereto agree as follows:
1. Attorney-in-Fact. The Fund
appoints the Adviser as its attorney-in-fact to
invest and reinvest the assets of the Global
Tactical Exposure Portfolio (the "Portfolio"), as
fully as the Fund itself could do. The Adviser
hereby accepts this appointment.
2. Duties of the Adviser. (a) The
Adviser shall be responsible for managing the
investment portfolio of the Portfolio, including,
without limitation, providing investment research,
advice and supervision, determining which portfolio
securities shall be purchased or sold by the
Portfolio, purchasing and selling securities on
behalf of the Portfolio and determining how voting
and other rights with respect to portfolio
securities of the Portfolio shall be exercised,
subject in each case to the control of the Board of
Directors of the Fund (the "Board") and in
accordance with the objectives, policies and
principles of the Portfolio set forth in the
Registration Statement, as amended, of the Fund,
the requirements of the Investment Company Act of
1940, as amended, (the "Act") and other applicable
law. In performing such duties, the Adviser shall
provide such office space, and such executive and
other personnel as shall be necessary for the
operations of the Portfolio. In managing the
Portfolio in accordance with the requirements set
forth in this paragraph 2, the Adviser shall be
entitled to act upon advice of counsel to the Fund
or counsel to the Adviser.
(b) Subject to Section 36 of the Act, the
Adviser shall not be liable to the Fund for any
error of judgment or mistake of law or for any loss
arising out of any investment or for any act or
omission in the management of the Portfolio and the
performance of its duties under this Agreement
except for losses arising out of the Adviser's bad
faith, willful misfeasance or gross negligence in
the performance of its duties or by reason of its
reckless disregard of its obligations and duties
under this Agreement. It is agreed that the
Adviser shall have no responsibility or liability
for the accuracy or completeness of the Fund's
Registration Statement under the Act and the
Securities Act of 1933 except for information
supplied by the Adviser for inclusion therein about
the Adviser. The Fund agrees to indemnify the
Adviser for any claims, losses, costs, damages, or
expenses (including fees and disbursements of
counsel, but excluding the ordinary expenses of the
Adviser arising from the performance of its duties
and obligations under this Agreement) whatsoever
arising out of the performance of this Agreement
except for those claims, losses, costs, damages and
expenses resulting from the Adviser's bad faith,
willful misfeasance or gross negligence in the
performance of its duties or by reason of its
reckless disregard of its obligations and duties
under this Agreement.
(c) The Adviser and its officers may act
and continue to act as investment advisers and
managers for others (including, without limitation,
other investment companies), and nothing in this
Agreement will in any way be deemed to restrict the
right of the Adviser to perform investment
management or other services for any other person
or entity, and the performance of such services for
others will not be deemed to violate or give rise
to any duty or obligation to the Fund.
(d) Except as provided in Paragraph 5,
nothing in this Agreement will limit or restrict
the Adviser or any of its officers, affiliates or
employees from buying, selling or trading in any
securities for its or their own account or
accounts. The Fund acknowledges that the Adviser
and its officers, affiliates or employees, and its
other clients may at any time have, acquire,
increase, decrease or dispose of positions in
investments which are at the same time being
acquired or disposed of for the account of the
Portfolio. The Adviser will have no obligation to
acquire for the Portfolio a position in any
investment which the Adviser, its officers,
affiliates or employees may acquire for its or
their own accounts or for the account of another
client, if in the sole discretion of the Adviser,
it is not feasible or desirable to acquire a
position in such investment for the account of the
Portfolio.
3. Expenses. The Adviser shall pay
all of its expenses arising from the performance of
its obligations under this Agreement and shall pay
any salaries, fees and expenses of the Directors
and officers of the Fund who are employees of the
Adviser or its affiliates. Except as provided
below, the Adviser shall not be required to pay any
other expenses of the Fund, including, without
limitation, organization expenses of the Fund
(including out-of-pocket expenses, but not
including the Adviser's overhead or employee
costs); brokerage commissions; maintenance of
books and records which are required to be
maintained by the Fund's custodian or other agents
of the Fund; telephone, telex, facsimile, postage
and other communications expenses; expenses
relating to investor and public relations; freight,
insurance and other charges in connection with the
shipment of the Fund's portfolio securities;
indemnification of Directors and officers of the
Fund; travel expenses (or an appropriate portion
thereof) of Directors and officers of the Fund who
are directors, officers or employees of the Adviser
to the extent that such expenses relate to
attendance at meetings of the Board of Directors of
the Fund or any committee thereof or advisors
thereto held outside of New York, New York;
interest, fees and expenses of independent
attorneys, auditors, custodians, accounting agents,
transfer agents, dividend disbursing agents and
registrars; payment for portfolio pricing or
valuation service to pricing agents, accountants,
bankers and other specialists, if any; taxes and
government fees; cost of stock certificates and any
other expenses (including clerical expenses) of
issue, sale, repurchase or redemption of shares;
expenses of registering and qualifying shares of
the Fund under Federal and state laws and
regulations; expenses of printing and distributing
reports, notices, dividends and proxy materials to
existing stockholders; expenses of printing and
filing reports and other documents filed with
governmental agencies, expenses of printing and
distributing prospectuses; expenses of annual and
special stockholders' meetings; costs of
stationery, fees and expenses (specifically
including travel expenses relating to Fund
business) of Directors of the Fund who are not
employees of the Adviser or its affiliates;
membership dues in the Investment Company
Institute; insurance premiums and extraordinary
expenses such as litigation expenses.
4. Compensation. (a) As
compensation for the services performed and the
facilities and personnel provided by the Adviser
pursuant to this Agreement, the Fund will pay to
the Adviser promptly at the end of each calendar
month, a fee, calculated on each day during such
month, at an annual rate of 0.40% of the
Portfolio's average daily net assets. The Adviser
shall be entitled to receive during any month such
interim payments of its fee hereunder as the
Adviser shall request, provided that no such
payment shall exceed 50% of the amount of such fee
then accrued on the books of the Portfolio and
unpaid.
(b) If the Adviser shall serve hereunder
for less than the whole of any month, the fee
payable hereunder shall be prorated.
(c) For purposes of this Section 4, the
"average daily net assets" of the Portfolio shall
mean the average of the values placed on the
Portfolio's net assets on each day pursuant to the
applicable provisions of the Fund's Registration
Statement, as amended.
5. Purchase and Sale of Securities.
The Adviser or an agent of the Adviser shall
purchase securities from or through and sell
securities to or through such persons, brokers or
dealers as the Adviser shall deem appropriate in
order to carry out the policy with respect to the
allocation of portfolio transactions as set forth
in the Registration Statement of the Fund, as
amended, or as the Board may direct from time to
time. The Adviser will use its reasonable best
efforts to execute all purchases and sales with
dealers and banks on a best net price basis.
Neither the Adviser nor any of its officers,
affiliates, or employees will act as principal or
receive any compensation from the Portfolio in
connection with the purchase or sale of investments
for the Portfolio other than the fee referred to in
Paragraph 4 hereof.
6. Term of Agreement. This Agreement
shall continue in full force and effect until two
years from the date hereof, and will continue in
effect from year to year thereafter if such
continuance is approved in the manner required by
the Act, provided that this Agreement is not
otherwise terminated. The Adviser may terminate
this Agreement at any time, without payment of
penalty, upon 60 days' written notice to the Fund.
The Fund may terminate this Agreement with respect
to the Portfolio at any time, without payment of
penalty, on 60 days' written notice to the Adviser
by vote of either the Board or a majority of the
outstanding stockholders of the Portfolio. This
Agreement will automatically terminate in the event
of its assignment (as defined by the Act).
7. Right of Adviser In Corporate
Name. The Adviser and the Fund each agree that the
phrase "FFTW", which comprises a component of the
Fund's corporate name, is a property right of the
Adviser. The Fund agrees and consents that: (i) it
will only use the phrase "FFTW" as a component of
its corporate name and for no other purpose; (ii)
it will not purport to grant to any third party the
right to use the phrase "FFTW" for any purpose;
(iii) the Adviser or any corporate affiliate of the
Adviser may use or grant to others the right to use
the phrase "FFTW" or any combination or
abbreviation thereof, as all or a portion of a
corporate or business name or for any commercial
purpose, including a grant of such right to any
other investment company, and at the request of the
Adviser, the Fund will take such action as may be
required to provide its consent to such use or
grant; and (iv) upon the termination of any
investment advisory agreement into which the
Adviser and the Fund may enter, the Fund shall,
upon request by the Adviser, promptly take such
action, at its own expense, as may be necessary to
change its corporate name to one not containing the
phrase "FFTW" and following such a change, shall
not use the phrase "FFTW" or any combination
thereof, as part of its corporate name or for any
other commercial purpose, and shall use its best
efforts to cause its officers, directors and
stockholders to take any and all actions which the
Adviser may request to effect the foregoing and
recovery to the Adviser any and all rights to such
phrase.
8. Miscellaneous. This Agreement
shall be governed by and construed in accordance
with the laws of the State of New York. Anything
herein to the contrary notwithstanding, this
Agreement shall not be construed to require or to
impose any duty upon either of the parties to do
anything in violation of any applicable laws or
regulations.
IN WITNESS WHEREOF, the Fund and the
Adviser have caused this Agreement to be executed
by their duly authorized officers as of the date
first written above.
ATTEST
FFTW FUNDS, INC.
By:_______________________
By:_______________________
President
ATTEST
FISCHER FRANCIS TREES & WATTS, INC.
By:/s/Michael L. Wyne
Michael L. Wyne
By:/s/Stephen P. Casper
Stephen P. Casper
Secretary and Treasurer
ADVISORY AGREEMENT
ADVISORY AGREEMENT, dated July 7, 1998,
between FFTW Funds, Inc., a Maryland corporation
(the "Fund") and Fischer Francis Trees & Watts,
Inc., a New York corporation (the "Adviser").
In consideration of the mutual agreements
herein made, the parties hereto agree as follows:
1. Attorney-in-Fact. The Fund
appoints the Adviser as its attorney-in-fact to
invest and reinvest the assets of the U.S.
Corporate Portfolio (the "Portfolio"), as fully as
the Fund itself could do. The Adviser hereby
accepts this appointment.
2. Duties of the Adviser. (a) The
Adviser shall be responsible for managing the
investment portfolio of the Portfolio, including,
without limitation, providing investment research,
advice and supervision, determining which portfolio
securities shall be purchased or sold by the
Portfolio, purchasing and selling securities on
behalf of the Portfolio and determining how voting
and other rights with respect to portfolio
securities of the Portfolio shall be exercised,
subject in each case to the control of the Board of
Directors of the Fund (the "Board") and in
accordance with the objectives, policies and
principles of the Portfolio set forth in the
Registration Statement, as amended, of the Fund,
the requirements of the Investment Company Act of
1940, as amended, (the "Act") and other applicable
law. In performing such duties, the Adviser shall
provide such office space, and such executive and
other personnel as shall be necessary for the
operations of the Portfolio. In managing the
Portfolio in accordance with the requirements set
forth in this paragraph 2, the Adviser shall be
entitled to act upon advice of counsel to the Fund
or counsel to the Adviser.
(b) Subject to Section 36 of the Act, the
Adviser shall not be liable to the Fund for any
error of judgment or mistake of law or for any loss
arising out of any investment or for any act or
omission in the management of the Portfolio and the
performance of its duties under this Agreement
except for losses arising out of the Adviser's bad
faith, willful misfeasance or gross negligence in
the performance of its duties or by reason of its
reckless disregard of its obligations and duties
under this Agreement. It is agreed that the
Adviser shall have no responsibility or liability
for the accuracy or completeness of the Fund's
Registration Statement under the Act and the
Securities Act of 1933 except for information
supplied by the Adviser for inclusion therein about
the Adviser. The Fund agrees to indemnify the
Adviser for any claims, losses, costs, damages, or
expenses (including fees and disbursements of
counsel, but excluding the ordinary expenses of the
Adviser arising from the performance of its duties
and obligations under this Agreement) whatsoever
arising out of the performance of this Agreement
except for those claims, losses, costs, damages and
expenses resulting from the Adviser's bad faith,
willful misfeasance or gross negligence in the
performance of its duties or by reason of its
reckless disregard of its obligations and duties
under this Agreement.
(c) The Adviser and its officers may act
and continue to act as investment advisers and
managers for others (including, without limitation,
other investment companies), and nothing in this
Agreement will in any way be deemed to restrict the
right of the Adviser to perform investment
management or other services for any other person
or entity, and the performance of such services for
others will not be deemed to violate or give rise
to any duty or obligation to the Fund.
(d) Except as provided in Paragraph 5,
nothing in this Agreement will limit or restrict
the Adviser or any of its officers, affiliates or
employees from buying, selling or trading in any
securities for its or their own account or
accounts. The Fund acknowledges that the Adviser
and its officers, affiliates or employees, and its
other clients may at any time have, acquire,
increase, decrease or dispose of positions in
investments which are at the same time being
acquired or disposed of for the account of the
Portfolio. The Adviser will have no obligation to
acquire for the Portfolio a position in any
investment which the Adviser, its officers,
affiliates or employees may acquire for its or
their own accounts or for the account of another
client, if in the sole discretion of the Adviser,
it is not feasible or desirable to acquire a
position in such investment for the account of the
Portfolio.
3. Expenses. The Adviser shall pay
all of its expenses arising from the performance of
its obligations under this Agreement and shall pay
any salaries, fees and expenses of the Directors
and officers of the Fund who are employees of the
Adviser or its affiliates. Except as provided
below, the Adviser shall not be required to pay any
other expenses of the Fund, including, without
limitation, organization expenses of the Fund
(including out-of-pocket expenses, but not
including the Adviser's overhead or employee
costs); brokerage commissions; maintenance of
books and records which are required to be
maintained by the Fund's custodian or other agents
of the Fund; telephone, telex, facsimile, postage
and other communications expenses; expenses
relating to investor and public relations; freight,
insurance and other charges in connection with the
shipment of the Fund's portfolio securities;
indemnification of Directors and officers of the
Fund; travel expenses (or an appropriate portion
thereof) of Directors and officers of the Fund who
are directors, officers or employees of the Adviser
to the extent that such expenses relate to
attendance at meetings of the Board of Directors of
the Fund or any committee thereof or advisors
thereto held outside of New York, New York;
interest, fees and expenses of independent
attorneys, auditors, custodians, accounting agents,
transfer agents, dividend disbursing agents and
registrars; payment for portfolio pricing or
valuation service to pricing agents, accountants,
bankers and other specialists, if any; taxes and
government fees; cost of stock certificates and any
other expenses (including clerical expenses) of
issue, sale, repurchase or redemption of shares;
expenses of registering and qualifying shares of
the Fund under Federal and state laws and
regulations; expenses of printing and distributing
reports, notices, dividends and proxy materials to
existing stockholders; expenses of printing and
filing reports and other documents filed with
governmental agencies, expenses of printing and
distributing prospectuses; expenses of annual and
special stockholders' meetings; costs of
stationery, fees and expenses (specifically
including travel expenses relating to Fund
business) of Directors of the Fund who are not
employees of the Adviser or its affiliates;
membership dues in the Investment Company
Institute; insurance premiums and extraordinary
expenses such as litigation expenses.
4. Compensation. (a) As
compensation for the services performed and the
facilities and personnel provided by the Adviser
pursuant to this Agreement, the Fund will pay to
the Adviser promptly at the end of each calendar
month, a fee, calculated on each day during such
month, at an annual rate of 0.30% of the
Portfolio's average daily net assets. The Adviser
shall be entitled to receive during any month such
interim payments of its fee hereunder as the
Adviser shall request, provided that no such
payment shall exceed 50% of the amount of such fee
then accrued on the books of the Portfolio and
unpaid.
(b) If the Adviser shall serve hereunder
for less than the whole of any month, the fee
payable hereunder shall be prorated.
(c) For purposes of this Section 4, the
"average daily net assets" of the Portfolio shall
mean the average of the values placed on the
Portfolio's net assets on each day pursuant to the
applicable provisions of the Fund's Registration
Statement, as amended.
5. Purchase and Sale of Securities.
The Adviser or an agent of the Adviser shall
purchase securities from or through and sell
securities to or through such persons, brokers or
dealers as the Adviser shall deem appropriate in
order to carry out the policy with respect to the
allocation of portfolio transactions as set forth
in the Registration Statement of the Fund, as
amended, or as the Board may direct from time to
time. The Adviser will use its reasonable best
efforts to execute all purchases and sales with
dealers and banks on a best net price basis.
Neither the Adviser nor any of its officers,
affiliates, or employees will act as principal or
receive any compensation from the Portfolio in
connection with the purchase or sale of investments
for the Portfolio other than the fee referred to in
Paragraph 4 hereof.
6. Term of Agreement. This Agreement
shall continue in full force and effect until two
years from the date hereof, and will continue in
effect from year to year thereafter if such
continuance is approved in the manner required by
the Act, provided that this Agreement is not
otherwise terminated. The Adviser may terminate
this Agreement at any time, without payment of
penalty, upon 60 days' written notice to the Fund.
The Fund may terminate this Agreement with respect
to the Portfolio at any time, without payment of
penalty, on 60 days' written notice to the Adviser
by vote of either the Board or a majority of the
outstanding stockholders of the Portfolio. This
Agreement will automatically terminate in the event
of its assignment (as defined by the Act).
7. Right of Adviser In Corporate
Name. The Adviser and the Fund each agree that the
phrase "FFTW", which comprises a component of the
Fund's corporate name, is a property right of the
Adviser. The Fund agrees and consents that: (i) it
will only use the phrase "FFTW" as a component of
its corporate name and for no other purpose; (ii)
it will not purport to grant to any third party the
right to use the phrase "FFTW" for any purpose;
(iii) the Adviser or any corporate affiliate of the
Adviser may use or grant to others the right to use
the phrase "FFTW" or any combination or
abbreviation thereof, as all or a portion of a
corporate or business name or for any commercial
purpose, including a grant of such right to any
other investment company, and at the request of the
Adviser, the Fund will take such action as may be
required to provide its consent to such use or
grant; and (iv) upon the termination of any
investment advisory agreement into which the
Adviser and the Fund may enter, the Fund shall,
upon request by the Adviser, promptly take such
action, at its own expense, as may be necessary to
change its corporate name to one not containing the
phrase "FFTW" and following such a change, shall
not use the phrase "FFTW" or any combination
thereof, as part of its corporate name or for any
other commercial purpose, and shall use its best
efforts to cause its officers, directors and
stockholders to take any and all actions which the
Adviser may request to effect the foregoing and
recovery to the Adviser any and all rights to such
phrase.
8. Miscellaneous. This Agreement
shall be governed by and construed in accordance
with the laws of the State of New York. Anything
herein to the contrary notwithstanding, this
Agreement shall not be construed to require or to
impose any duty upon either of the parties to do
anything in violation of any applicable laws or
regulations.
IN WITNESS WHEREOF, the Fund and the
Adviser have caused this Agreement to be executed
by their duly authorized officers as of the date
first written above.
ATTEST
FFTW FUNDS, INC.
By:/s/Eric Nachimovsky
Eric Nachimovsky
By:/s/William E. Vastardis
William E. Vastardis
Secretary
ATTEST
FISCHER FRANCIS TREES & WATTS, INC.
By:/s/Stephen Francis
Stephen Francis
By:/s/Stephen P. Casper
Stephen P. Casper
Managing Director
ADVISORY AGREEMENT
ADVISORY AGREEMENT, dated July 7, 1998,
between FFTW Funds, Inc., a Maryland corporation
(the "Fund") and Fischer Francis Trees & Watts,
Inc., a New York corporation (the "Adviser").
In consideration of the mutual agreements
herein made, the parties hereto agree as follows:
1. Attorney-in-Fact. The Fund
appoints the Adviser as its attorney-in-fact to
invest and reinvest the assets of the Equity Alpha
Portfolio (the "Portfolio"), as fully as the Fund
itself could do. The Adviser hereby accepts this
appointment.
2. Duties of the Adviser. (a) The
Adviser shall be responsible for managing the
investment portfolio of the Portfolio, including,
without limitation, providing investment research,
advice and supervision, determining which portfolio
securities shall be purchased or sold by the
Portfolio, purchasing and selling securities on
behalf of the Portfolio and determining how voting
and other rights with respect to portfolio
securities of the Portfolio shall be exercised,
subject in each case to the control of the Board of
Directors of the Fund (the "Board") and in
accordance with the objectives, policies and
principles of the Portfolio set forth in the
Registration Statement, as amended, of the Fund,
the requirements of the Investment Company Act of
1940, as amended, (the "Act") and other applicable
law. In performing such duties, the Adviser shall
provide such office space, and such executive and
other personnel as shall be necessary for the
operations of the Portfolio. In managing the
Portfolio in accordance with the requirements set
forth in this paragraph 2, the Adviser shall be
entitled to act upon advice of counsel to the Fund
or counsel to the Adviser.
(b) Subject to Section 36 of the Act, the
Adviser shall not be liable to the Fund for any
error of judgment or mistake of law or for any loss
arising out of any investment or for any act or
omission in the management of the Portfolio and the
performance of its duties under this Agreement
except for losses arising out of the Adviser's bad
faith, willful misfeasance or gross negligence in
the performance of its duties or by reason of its
reckless disregard of its obligations and duties
under this Agreement. It is agreed that the
Adviser shall have no responsibility or liability
for the accuracy or completeness of the Fund's
Registration Statement under the Act and the
Securities Act of 1933 except for information
supplied by the Adviser for inclusion therein about
the Adviser. The Fund agrees to indemnify the
Adviser for any claims, losses, costs, damages, or
expenses (including fees and disbursements of
counsel, but excluding the ordinary expenses of the
Adviser arising from the performance of its duties
and obligations under this Agreement) whatsoever
arising out of the performance of this Agreement
except for those claims, losses, costs, damages and
expenses resulting from the Adviser's bad faith,
willful misfeasance or gross negligence in the
performance of its duties or by reason of its
reckless disregard of its obligations and duties
under this Agreement.
(c) The Adviser and its officers may act
and continue to act as investment advisers and
managers for others (including, without limitation,
other investment companies), and nothing in this
Agreement will in any way be deemed to restrict the
right of the Adviser to perform investment
management or other services for any other person
or entity, and the performance of such services for
others will not be deemed to violate or give rise
to any duty or obligation to the Fund.
(d) Except as provided in Paragraph 5,
nothing in this Agreement will limit or restrict
the Adviser or any of its officers, affiliates or
employees from buying, selling or trading in any
securities for its or their own account or
accounts. The Fund acknowledges that the Adviser
and its officers, affiliates or employees, and its
other clients may at any time have, acquire,
increase, decrease or dispose of positions in
investments which are at the same time being
acquired or disposed of for the account of the
Portfolio. The Adviser will have no obligation to
acquire for the Portfolio a position in any
investment which the Adviser, its officers,
affiliates or employees may acquire for its or
their own accounts or for the account of another
client, if in the sole discretion of the Adviser,
it is not feasible or desirable to acquire a
position in such investment for the account of the
Portfolio.
3. Expenses. The Adviser shall pay
all of its expenses arising from the performance of
its obligations under this Agreement and shall pay
any salaries, fees and expenses of the Directors
and officers of the Fund who are employees of the
Adviser or its affiliates. Except as provided
below, the Adviser shall not be required to pay any
other expenses of the Fund, including, without
limitation, organization expenses of the Fund
(including out-of-pocket expenses, but not
including the Adviser's overhead or employee
costs); brokerage commissions; maintenance of
books and records which are required to be
maintained by the Fund's custodian or other agents
of the Fund; telephone, telex, facsimile, postage
and other communications expenses; expenses
relating to investor and public relations; freight,
insurance and other charges in connection with the
shipment of the Fund's portfolio securities;
indemnification of Directors and officers of the
Fund; travel expenses (or an appropriate portion
thereof) of Directors and officers of the Fund who
are directors, officers or employees of the Adviser
to the extent that such expenses relate to
attendance at meetings of the Board of Directors of
the Fund or any committee thereof or advisors
thereto held outside of New York, New York;
interest, fees and expenses of independent
attorneys, auditors, custodians, accounting agents,
transfer agents, dividend disbursing agents and
registrars; payment for portfolio pricing or
valuation service to pricing agents, accountants,
bankers and other specialists, if any; taxes and
government fees; cost of stock certificates and any
other expenses (including clerical expenses) of
issue, sale, repurchase or redemption of shares;
expenses of registering and qualifying shares of
the Fund under Federal and state laws and
regulations; expenses of printing and distributing
reports, notices, dividends and proxy materials to
existing stockholders; expenses of printing and
filing reports and other documents filed with
governmental agencies, expenses of printing and
distributing prospectuses; expenses of annual and
special stockholders' meetings; costs of
stationery, fees and expenses (specifically
including travel expenses relating to Fund
business) of Directors of the Fund who are not
employees of the Adviser or its affiliates;
membership dues in the Investment Company
Institute; insurance premiums and extraordinary
expenses such as litigation expenses.
4. Compensation. (a) As
compensation for the services performed and the
facilities and personnel provided by the Adviser
pursuant to this Agreement, the Fund will pay to
the Adviser promptly at the end of each calendar
month, a fee, calculated on each day during such
month, at an annual rate of 0.30% of the
Portfolio's average daily net assets. The Adviser
shall be entitled to receive during any month such
interim payments of its fee hereunder as the
Adviser shall request, provided that no such
payment shall exceed 50% of the amount of such fee
then accrued on the books of the Portfolio and
unpaid.
(b) If the Adviser shall serve hereunder
for less than the whole of any month, the fee
payable hereunder shall be prorated.
(c) For purposes of this Section 4, the
"average daily net assets" of the Portfolio shall
mean the average of the values placed on the
Portfolio's net assets on each day pursuant to the
applicable provisions of the Fund's Registration
Statement, as amended.
5. Purchase and Sale of Securities.
The Adviser or an agent of the Adviser shall
purchase securities from or through and sell
securities to or through such persons, brokers or
dealers as the Adviser shall deem appropriate in
order to carry out the policy with respect to the
allocation of portfolio transactions as set forth
in the Registration Statement of the Fund, as
amended, or as the Board may direct from time to
time. The Adviser will use its reasonable best
efforts to execute all purchases and sales with
dealers and banks on a best net price basis.
Neither the Adviser nor any of its officers,
affiliates, or employees will act as principal or
receive any compensation from the Portfolio in
connection with the purchase or sale of investments
for the Portfolio other than the fee referred to in
Paragraph 4 hereof.
6. Term of Agreement. This Agreement
shall continue in full force and effect until two
years from the date hereof, and will continue in
effect from year to year thereafter if such
continuance is approved in the manner required by
the Act, provided that this Agreement is not
otherwise terminated. The Adviser may terminate
this Agreement at any time, without payment of
penalty, upon 60 days' written notice to the Fund.
The Fund may terminate this Agreement with respect
to the Portfolio at any time, without payment of
penalty, on 60 days' written notice to the Adviser
by vote of either the Board or a majority of the
outstanding stockholders of the Portfolio. This
Agreement will automatically terminate in the event
of its assignment (as defined by the Act).
7. Right of Adviser In Corporate
Name. The Adviser and the Fund each agree that the
phrase "FFTW", which comprises a component of the
Fund's corporate name, is a property right of the
Adviser. The Fund agrees and consents that: (i) it
will only use the phrase "FFTW" as a component of
its corporate name and for no other purpose; (ii)
it will not purport to grant to any third party the
right to use the phrase "FFTW" for any purpose;
(iii) the Adviser or any corporate affiliate of the
Adviser may use or grant to others the right to use
the phrase "FFTW" or any combination or
abbreviation thereof, as all or a portion of a
corporate or business name or for any commercial
purpose, including a grant of such right to any
other investment company, and at the request of the
Adviser, the Fund will take such action as may be
required to provide its consent to such use or
grant; and (iv) upon the termination of any
investment advisory agreement into which the
Adviser and the Fund may enter, the Fund shall,
upon request by the Adviser, promptly take such
action, at its own expense, as may be necessary to
change its corporate name to one not containing the
phrase "FFTW" and following such a change, shall
not use the phrase "FFTW" or any combination
thereof, as part of its corporate name or for any
other commercial purpose, and shall use its best
efforts to cause its officers, directors and
stockholders to take any and all actions which the
Adviser may request to effect the foregoing and
recovery to the Adviser any and all rights to such
phrase.
8. Miscellaneous. This Agreement
shall be governed by and construed in accordance
with the laws of the State of New York. Anything
herein to the contrary notwithstanding, this
Agreement shall not be construed to require or to
impose any duty upon either of the parties to do
anything in violation of any applicable laws or
regulations.
IN WITNESS WHEREOF, the Fund and the
Adviser have caused this Agreement to be executed
by their duly authorized officers as of the date
first written above.
ATTEST
FFTW FUNDS, INC.
By:/s/Eric Nachimovsky
Eric Nachimovsky
By:/s/William E. Vastardis
William E. Vastardis
Secretary
ATTEST
FISCHER FRANCIS TREES & WATTS, INC.
By:/s/Stephen P. Casper
Stephen P. Casper
By:/s/Stephen Francis
Stephen Francis
Managing Director
ADVISORY AGREEMENT
ADVISORY AGREEMENT, dated July 7, 1998,
between FFTW Funds, Inc., a Maryland corporation
(the "Fund") and Fischer Francis Trees & Watts,
Inc., a New York corporation (the "Adviser").
In consideration of the mutual agreements
herein made, the parties hereto agree as follows:
1. Attorney-in-Fact. The Fund
appoints the Adviser as its attorney-in-fact to
invest and reinvest the assets of the High Yield
Portfolio (the "Portfolio"), as fully as the Fund
itself could do. The Adviser hereby accepts this
appointment.
2. Duties of the Adviser. (a) The
Adviser shall be responsible for managing the
investment portfolio of the Portfolio, including,
without limitation, providing investment research,
advice and supervision, determining which portfolio
securities shall be purchased or sold by the
Portfolio, purchasing and selling securities on
behalf of the Portfolio and determining how voting
and other rights with respect to portfolio
securities of the Portfolio shall be exercised,
subject in each case to the control of the Board of
Directors of the Fund (the "Board") and in
accordance with the objectives, policies and
principles of the Portfolio set forth in the
Registration Statement, as amended, of the Fund,
the requirements of the Investment Company Act of
1940, as amended, (the "Act") and other applicable
law. In performing such duties, the Adviser shall
provide such office space, and such executive and
other personnel as shall be necessary for the
operations of the Portfolio. In managing the
Portfolio in accordance with the requirements set
forth in this paragraph 2, the Adviser shall be
entitled to act upon advice of counsel to the Fund
or counsel to the Adviser.
(b) Subject to Section 36 of the Act, the
Adviser shall not be liable to the Fund for any
error of judgment or mistake of law or for any loss
arising out of any investment or for any act or
omission in the management of the Portfolio and the
performance of its duties under this Agreement
except for losses arising out of the Adviser's bad
faith, willful misfeasance or gross negligence in
the performance of its duties or by reason of its
reckless disregard of its obligations and duties
under this Agreement. It is agreed that the
Adviser shall have no responsibility or liability
for the accuracy or completeness of the Fund's
Registration Statement under the Act and the
Securities Act of 1933 except for information
supplied by the Adviser for inclusion therein about
the Adviser. The Fund agrees to indemnify the
Adviser for any claims, losses, costs, damages, or
expenses (including fees and disbursements of
counsel, but excluding the ordinary expenses of the
Adviser arising from the performance of its duties
and obligations under this Agreement) whatsoever
arising out of the performance of this Agreement
except for those claims, losses, costs, damages and
expenses resulting from the Adviser's bad faith,
willful misfeasance or gross negligence in the
performance of its duties or by reason of its
reckless disregard of its obligations and duties
under this Agreement.
(c) The Adviser and its officers may act
and continue to act as investment advisers and
managers for others (including, without limitation,
other investment companies), and nothing in this
Agreement will in any way be deemed to restrict the
right of the Adviser to perform investment
management or other services for any other person
or entity, and the performance of such services for
others will not be deemed to violate or give rise
to any duty or obligation to the Fund.
(d) Except as provided in Paragraph 5,
nothing in this Agreement will limit or restrict
the Adviser or any of its officers, affiliates or
employees from buying, selling or trading in any
securities for its or their own account or
accounts. The Fund acknowledges that the Adviser
and its officers, affiliates or employees, and its
other clients may at any time have, acquire,
increase, decrease or dispose of positions in
investments which are at the same time being
acquired or disposed of for the account of the
Portfolio. The Adviser will have no obligation to
acquire for the Portfolio a position in any
investment which the Adviser, its officers,
affiliates or employees may acquire for its or
their own accounts or for the account of another
client, if in the sole discretion of the Adviser,
it is not feasible or desirable to acquire a
position in such investment for the account of the
Portfolio.
3. Expenses. The Adviser shall pay
all of its expenses arising from the performance of
its obligations under this Agreement and shall pay
any salaries, fees and expenses of the Directors
and officers of the Fund who are employees of the
Adviser or its affiliates. Except as provided
below, the Adviser shall not be required to pay any
other expenses of the Fund, including, without
limitation, organization expenses of the Fund
(including out-of-pocket expenses, but not
including the Adviser's overhead or employee
costs); brokerage commissions; maintenance of
books and records which are required to be
maintained by the Fund's custodian or other agents
of the Fund; telephone, telex, facsimile, postage
and other communications expenses; expenses
relating to investor and public relations; freight,
insurance and other charges in connection with the
shipment of the Fund's portfolio securities;
indemnification of Directors and officers of the
Fund; travel expenses (or an appropriate portion
thereof) of Directors and officers of the Fund who
are directors, officers or employees of the Adviser
to the extent that such expenses relate to
attendance at meetings of the Board of Directors of
the Fund or any committee thereof or advisors
thereto held outside of New York, New York;
interest, fees and expenses of independent
attorneys, auditors, custodians, accounting agents,
transfer agents, dividend disbursing agents and
registrars; payment for portfolio pricing or
valuation service to pricing agents, accountants,
bankers and other specialists, if any; taxes and
government fees; cost of stock certificates and any
other expenses (including clerical expenses) of
issue, sale, repurchase or redemption of shares;
expenses of registering and qualifying shares of
the Fund under Federal and state laws and
regulations; expenses of printing and distributing
reports, notices, dividends and proxy materials to
existing stockholders; expenses of printing and
filing reports and other documents filed with
governmental agencies, expenses of printing and
distributing prospectuses; expenses of annual and
special stockholders' meetings; costs of
stationery, fees and expenses (specifically
including travel expenses relating to Fund
business) of Directors of the Fund who are not
employees of the Adviser or its affiliates;
membership dues in the Investment Company
Institute; insurance premiums and extraordinary
expenses such as litigation expenses.
4. Compensation. (a) As
compensation for the services performed and the
facilities and personnel provided by the Adviser
pursuant to this Agreement, the Fund will pay to
the Adviser promptly at the end of each calendar
month, a fee, calculated on each day during such
month, at an annual rate of 0.40% of the
Portfolio's average daily net assets. The Adviser
shall be entitled to receive during any month such
interim payments of its fee hereunder as the
Adviser shall request, provided that no such
payment shall exceed 50% of the amount of such fee
then accrued on the books of the Portfolio and
unpaid.
(b) If the Adviser shall serve hereunder
for less than the whole of any month, the fee
payable hereunder shall be prorated.
(c) For purposes of this Section 4, the
"average daily net assets" of the Portfolio shall
mean the average of the values placed on the
Portfolio's net assets on each day pursuant to the
applicable provisions of the Fund's Registration
Statement, as amended.
5. Purchase and Sale of Securities.
The Adviser or an agent of the Adviser shall
purchase securities from or through and sell
securities to or through such persons, brokers or
dealers as the Adviser shall deem appropriate in
order to carry out the policy with respect to the
allocation of portfolio transactions as set forth
in the Registration Statement of the Fund, as
amended, or as the Board may direct from time to
time. The Adviser will use its reasonable best
efforts to execute all purchases and sales with
dealers and banks on a best net price basis.
Neither the Adviser nor any of its officers,
affiliates, or employees will act as principal or
receive any compensation from the Portfolio in
connection with the purchase or sale of investments
for the Portfolio other than the fee referred to in
Paragraph 4 hereof.
6. Term of Agreement. This Agreement
shall continue in full force and effect until two
years from the date hereof, and will continue in
effect from year to year thereafter if such
continuance is approved in the manner required by
the Act, provided that this Agreement is not
otherwise terminated. The Adviser may terminate
this Agreement at any time, without payment of
penalty, upon 60 days' written notice to the Fund.
The Fund may terminate this Agreement with respect
to the Portfolio at any time, without payment of
penalty, on 60 days' written notice to the Adviser
by vote of either the Board or a majority of the
outstanding stockholders of the Portfolio. This
Agreement will automatically terminate in the event
of its assignment (as defined by the Act).
7. Right of Adviser In Corporate
Name. The Adviser and the Fund each agree that the
phrase "FFTW", which comprises a component of the
Fund's corporate name, is a property right of the
Adviser. The Fund agrees and consents that: (i) it
will only use the phrase "FFTW" as a component of
its corporate name and for no other purpose; (ii)
it will not purport to grant to any third party the
right to use the phrase "FFTW" for any purpose;
(iii) the Adviser or any corporate affiliate of the
Adviser may use or grant to others the right to use
the phrase "FFTW" or any combination or
abbreviation thereof, as all or a portion of a
corporate or business name or for any commercial
purpose, including a grant of such right to any
other investment company, and at the request of the
Adviser, the Fund will take such action as may be
required to provide its consent to such use or
grant; and (iv) upon the termination of any
investment advisory agreement into which the
Adviser and the Fund may enter, the Fund shall,
upon request by the Adviser, promptly take such
action, at its own expense, as may be necessary to
change its corporate name to one not containing the
phrase "FFTW" and following such a change, shall
not use the phrase "FFTW" or any combination
thereof, as part of its corporate name or for any
other commercial purpose, and shall use its best
efforts to cause its officers, directors and
stockholders to take any and all actions which the
Adviser may request to effect the foregoing and
recovery to the Adviser any and all rights to such
phrase.
8. Miscellaneous. This Agreement
shall be governed by and construed in accordance
with the laws of the State of New York. Anything
herein to the contrary notwithstanding, this
Agreement shall not be construed to require or to
impose any duty upon either of the parties to do
anything in violation of any applicable laws or
regulations.
IN WITNESS WHEREOF, the Fund and the
Adviser have caused this Agreement to be executed
by their duly authorized officers as of the date
first written above.
ATTEST
FFTW FUNDS, INC.
By:/s/William E. Vastardis
William E. Vastardis
By:/s/Eric Nachimovsky
Eric Nachimovsky
Secretary
ATTEST
FISCHER FRANCIS TREES & WATTS, INC.
By:/s/Stephen Francis
Stephen Francis
By:/s/Stephen P. Casper
Stephen P. Casper
Managing Director
ADVISORY AGREEMENT
ADVISORY AGREEMENT, dated July 7, 1998,
between FFTW Funds, Inc., a Maryland corporation
(the "Fund") and Fischer Francis Trees & Watts,
Inc., a New York corporation (the "Adviser").
In consideration of the mutual agreements
herein made, the parties hereto agree as follows:
1. Attorney-in-Fact. The Fund
appoints the Adviser as its attorney-in-fact to
invest and reinvest the assets of the Limited
Duration Portfolio (the "Portfolio"), as fully as
the Fund itself could do. The Adviser hereby
accepts this appointment.
2. Duties of the Adviser. (a) The
Adviser shall be responsible for managing the
investment portfolio of the Portfolio, including,
without limitation, providing investment research,
advice and supervision, determining which portfolio
securities shall be purchased or sold by the
Portfolio, purchasing and selling securities on
behalf of the Portfolio and determining how voting
and other rights with respect to portfolio
securities of the Portfolio shall be exercised,
subject in each case to the control of the Board of
Directors of the Fund (the "Board") and in
accordance with the objectives, policies and
principles of the Portfolio set forth in the
Registration Statement, as amended, of the Fund,
the requirements of the Investment Company Act of
1940, as amended, (the "Act") and other applicable
law. In performing such duties, the Adviser shall
provide such office space, and such executive and
other personnel as shall be necessary for the
operations of the Portfolio. In managing the
Portfolio in accordance with the requirements set
forth in this paragraph 2, the Adviser shall be
entitled to act upon advice of counsel to the Fund
or counsel to the Adviser.
(b) Subject to Section 36 of the Act, the
Adviser shall not be liable to the Fund for any
error of judgment or mistake of law or for any loss
arising out of any investment or for any act or
omission in the management of the Portfolio and the
performance of its duties under this Agreement
except for losses arising out of the Adviser's bad
faith, willful misfeasance or gross negligence in
the performance of its duties or by reason of its
reckless disregard of its obligations and duties
under this Agreement. It is agreed that the
Adviser shall have no responsibility or liability
for the accuracy or completeness of the Fund's
Registration Statement under the Act and the
Securities Act of 1933 except for information
supplied by the Adviser for inclusion therein about
the Adviser. The Fund agrees to indemnify the
Adviser for any claims, losses, costs, damages, or
expenses (including fees and disbursements of
counsel, but excluding the ordinary expenses of the
Adviser arising from the performance of its duties
and obligations under this Agreement) whatsoever
arising out of the performance of this Agreement
except for those claims, losses, costs, damages and
expenses resulting from the Adviser's bad faith,
willful misfeasance or gross negligence in the
performance of its duties or by reason of its
reckless disregard of its obligations and duties
under this Agreement.
(c) The Adviser and its officers may act
and continue to act as investment advisers and
managers for others (including, without limitation,
other investment companies), and nothing in this
Agreement will in any way be deemed to restrict the
right of the Adviser to perform investment
management or other services for any other person
or entity, and the performance of such services for
others will not be deemed to violate or give rise
to any duty or obligation to the Fund.
(d) Except as provided in Paragraph 5,
nothing in this Agreement will limit or restrict
the Adviser or any of its officers, affiliates or
employees from buying, selling or trading in any
securities for its or their own account or
accounts. The Fund acknowledges that the Adviser
and its officers, affiliates or employees, and its
other clients may at any time have, acquire,
increase, decrease or dispose of positions in
investments which are at the same time being
acquired or disposed of for the account of the
Portfolio. The Adviser will have no obligation to
acquire for the Portfolio a position in any
investment which the Adviser, its officers,
affiliates or employees may acquire for its or
their own accounts or for the account of another
client, if in the sole discretion of the Adviser,
it is not feasible or desirable to acquire a
position in such investment for the account of the
Portfolio.
3. Expenses. The Adviser shall pay
all of its expenses arising from the performance of
its obligations under this Agreement and shall pay
any salaries, fees and expenses of the Directors
and officers of the Fund who are employees of the
Adviser or its affiliates. Except as provided
below, the Adviser shall not be required to pay any
other expenses of the Fund, including, without
limitation, organization expenses of the Fund
(including out-of-pocket expenses, but not
including the Adviser's overhead or employee
costs); brokerage commissions; maintenance of
books and records which are required to be
maintained by the Fund's custodian or other agents
of the Fund; telephone, telex, facsimile, postage
and other communications expenses; expenses
relating to investor and public relations; freight,
insurance and other charges in connection with the
shipment of the Fund's portfolio securities;
indemnification of Directors and officers of the
Fund; travel expenses (or an appropriate portion
thereof) of Directors and officers of the Fund who
are directors, officers or employees of the Adviser
to the extent that such expenses relate to
attendance at meetings of the Board of Directors of
the Fund or any committee thereof or advisors
thereto held outside of New York, New York;
interest, fees and expenses of independent
attorneys, auditors, custodians, accounting agents,
transfer agents, dividend disbursing agents and
registrars; payment for portfolio pricing or
valuation service to pricing agents, accountants,
bankers and other specialists, if any; taxes and
government fees; cost of stock certificates and any
other expenses (including clerical expenses) of
issue, sale, repurchase or redemption of shares;
expenses of registering and qualifying shares of
the Fund under Federal and state laws and
regulations; expenses of printing and distributing
reports, notices, dividends and proxy materials to
existing stockholders; expenses of printing and
filing reports and other documents filed with
governmental agencies, expenses of printing and
distributing prospectuses; expenses of annual and
special stockholders' meetings; costs of
stationery, fees and expenses (specifically
including travel expenses relating to Fund
business) of Directors of the Fund who are not
employees of the Adviser or its affiliates;
membership dues in the Investment Company
Institute; insurance premiums and extraordinary
expenses such as litigation expenses.
4. Compensation. (a) As
compensation for the services performed and the
facilities and personnel provided by the Adviser
pursuant to this Agreement, the Fund will pay to
the Adviser promptly at the end of each calendar
month, a fee, calculated on each day during such
month, at an annual rate of 0.30% of the
Portfolio's average daily net assets. The Adviser
shall be entitled to receive during any month such
interim payments of its fee hereunder as the
Adviser shall request, provided that no such
payment shall exceed 50% of the amount of such fee
then accrued on the books of the Portfolio and
unpaid.
(b) If the Adviser shall serve hereunder
for less than the whole of any month, the fee
payable hereunder shall be prorated.
(c) For purposes of this Section 4, the
"average daily net assets" of the Portfolio shall
mean the average of the values placed on the
Portfolio's net assets on each day pursuant to the
applicable provisions of the Fund's Registration
Statement, as amended.
5. Purchase and Sale of Securities.
The Adviser or an agent of the Adviser shall
purchase securities from or through and sell
securities to or through such persons, brokers or
dealers as the Adviser shall deem appropriate in
order to carry out the policy with respect to the
allocation of portfolio transactions as set forth
in the Registration Statement of the Fund, as
amended, or as the Board may direct from time to
time. The Adviser will use its reasonable best
efforts to execute all purchases and sales with
dealers and banks on a best net price basis.
Neither the Adviser nor any of its officers,
affiliates, or employees will act as principal or
receive any compensation from the Portfolio in
connection with the purchase or sale of investments
for the Portfolio other than the fee referred to in
Paragraph 4 hereof.
6. Term of Agreement. This Agreement
shall continue in full force and effect until two
years from the date hereof, and will continue in
effect from year to year thereafter if such
continuance is approved in the manner required by
the Act, provided that this Agreement is not
otherwise terminated. The Adviser may terminate
this Agreement at any time, without payment of
penalty, upon 60 days' written notice to the Fund.
The Fund may terminate this Agreement with respect
to the Portfolio at any time, without payment of
penalty, on 60 days' written notice to the Adviser
by vote of either the Board or a majority of the
outstanding stockholders of the Portfolio. This
Agreement will automatically terminate in the event
of its assignment (as defined by the Act).
7. Right of Adviser In Corporate
Name. The Adviser and the Fund each agree that the
phrase "FFTW", which comprises a component of the
Fund's corporate name, is a property right of the
Adviser. The Fund agrees and consents that: (i) it
will only use the phrase "FFTW" as a component of
its corporate name and for no other purpose; (ii)
it will not purport to grant to any third party the
right to use the phrase "FFTW" for any purpose;
(iii) the Adviser or any corporate affiliate of the
Adviser may use or grant to others the right to use
the phrase "FFTW" or any combination or
abbreviation thereof, as all or a portion of a
corporate or business name or for any commercial
purpose, including a grant of such right to any
other investment company, and at the request of the
Adviser, the Fund will take such action as may be
required to provide its consent to such use or
grant; and (iv) upon the termination of any
investment advisory agreement into which the
Adviser and the Fund may enter, the Fund shall,
upon request by the Adviser, promptly take such
action, at its own expense, as may be necessary to
change its corporate name to one not containing the
phrase "FFTW" and following such a change, shall
not use the phrase "FFTW" or any combination
thereof, as part of its corporate name or for any
other commercial purpose, and shall use its best
efforts to cause its officers, directors and
stockholders to take any and all actions which the
Adviser may request to effect the foregoing and
recovery to the Adviser any and all rights to such
phrase.
8. Miscellaneous. This Agreement
shall be governed by and construed in accordance
with the laws of the State of New York. Anything
herein to the contrary notwithstanding, this
Agreement shall not be construed to require or to
impose any duty upon either of the parties to do
anything in violation of any applicable laws or
regulations.
IN WITNESS WHEREOF, the Fund and the
Adviser have caused this Agreement to be executed
by their duly authorized officers as of the date
first written above.
ATTEST
FFTW FUNDS, INC.
By:/s/Eric Nachimovsky
Eric Nachimovsky
By:/s/William E. Vastardis
William E. Vastardis
Secretary
ATTEST
FISCHER FRANCIS TREES & WATTS, INC.
By:/s/Stephen Francis
Stephen Francis
By:/s/Stephen P. Casper
Stephen P. Casper
Managing Director
ADVISORY AGREEMENT
ADVISORY AGREEMENT, dated July 7, 1998,
between FFTW Funds, Inc., a Maryland corporation
(the "Fund") and Fischer Francis Trees & Watts,
Inc., a New York corporation (the "Adviser").
In consideration of the mutual agreements
herein made, the parties hereto agree as follows:
1. Attorney-in-Fact. The Fund
appoints the Adviser as its attorney-in-fact to
invest and reinvest the assets of the Mortgage
LIBOR Portfolio (the "Portfolio"), as fully as the
Fund itself could do. The Adviser hereby accepts
this appointment.
2. Duties of the Adviser. (a) The
Adviser shall be responsible for managing the
investment portfolio of the Portfolio, including,
without limitation, providing investment research,
advice and supervision, determining which portfolio
securities shall be purchased or sold by the
Portfolio, purchasing and selling securities on
behalf of the Portfolio and determining how voting
and other rights with respect to portfolio
securities of the Portfolio shall be exercised,
subject in each case to the control of the Board of
Directors of the Fund (the "Board") and in
accordance with the objectives, policies and
principles of the Portfolio set forth in the
Registration Statement, as amended, of the Fund,
the requirements of the Investment Company Act of
1940, as amended, (the "Act") and other applicable
law. In performing such duties, the Adviser shall
provide such office space, and such executive and
other personnel as shall be necessary for the
operations of the Portfolio. In managing the
Portfolio in accordance with the requirements set
forth in this paragraph 2, the Adviser shall be
entitled to act upon advice of counsel to the Fund
or counsel to the Adviser.
(b) Subject to Section 36 of the Act, the
Adviser shall not be liable to the Fund for any
error of judgment or mistake of law or for any loss
arising out of any investment or for any act or
omission in the management of the Portfolio and the
performance of its duties under this Agreement
except for losses arising out of the Adviser's bad
faith, willful misfeasance or gross negligence in
the performance of its duties or by reason of its
reckless disregard of its obligations and duties
under this Agreement. It is agreed that the
Adviser shall have no responsibility or liability
for the accuracy or completeness of the Fund's
Registration Statement under the Act and the
Securities Act of 1933 except for information
supplied by the Adviser for inclusion therein about
the Adviser. The Fund agrees to indemnify the
Adviser for any claims, losses, costs, damages, or
expenses (including fees and disbursements of
counsel, but excluding the ordinary expenses of the
Adviser arising from the performance of its duties
and obligations under this Agreement) whatsoever
arising out of the performance of this Agreement
except for those claims, losses, costs, damages and
expenses resulting from the Adviser's bad faith,
willful misfeasance or gross negligence in the
performance of its duties or by reason of its
reckless disregard of its obligations and duties
under this Agreement.
(c) The Adviser and its officers may act
and continue to act as investment advisers and
managers for others (including, without limitation,
other investment companies), and nothing in this
Agreement will in any way be deemed to restrict the
right of the Adviser to perform investment
management or other services for any other person
or entity, and the performance of such services for
others will not be deemed to violate or give rise
to any duty or obligation to the Fund.
(d) Except as provided in Paragraph 5,
nothing in this Agreement will limit or restrict
the Adviser or any of its officers, affiliates or
employees from buying, selling or trading in any
securities for its or their own account or
accounts. The Fund acknowledges that the Adviser
and its officers, affiliates or employees, and its
other clients may at any time have, acquire,
increase, decrease or dispose of positions in
investments which are at the same time being
acquired or disposed of for the account of the
Portfolio. The Adviser will have no obligation to
acquire for the Portfolio a position in any
investment which the Adviser, its officers,
affiliates or employees may acquire for its or
their own accounts or for the account of another
client, if in the sole discretion of the Adviser,
it is not feasible or desirable to acquire a
position in such investment for the account of the
Portfolio.
3. Expenses. The Adviser shall pay
all of its expenses arising from the performance of
its obligations under this Agreement and shall pay
any salaries, fees and expenses of the Directors
and officers of the Fund who are employees of the
Adviser or its affiliates. Except as provided
below, the Adviser shall not be required to pay any
other expenses of the Fund, including, without
limitation, organization expenses of the Fund
(including out-of-pocket expenses, but not
including the Adviser's overhead or employee
costs); brokerage commissions; maintenance of
books and records which are required to be
maintained by the Fund's custodian or other agents
of the Fund; telephone, telex, facsimile, postage
and other communications expenses; expenses
relating to investor and public relations; freight,
insurance and other charges in connection with the
shipment of the Fund's portfolio securities;
indemnification of Directors and officers of the
Fund; travel expenses (or an appropriate portion
thereof) of Directors and officers of the Fund who
are directors, officers or employees of the Adviser
to the extent that such expenses relate to
attendance at meetings of the Board of Directors of
the Fund or any committee thereof or advisors
thereto held outside of New York, New York;
interest, fees and expenses of independent
attorneys, auditors, custodians, accounting agents,
transfer agents, dividend disbursing agents and
registrars; payment for portfolio pricing or
valuation service to pricing agents, accountants,
bankers and other specialists, if any; taxes and
government fees; cost of stock certificates and any
other expenses (including clerical expenses) of
issue, sale, repurchase or redemption of shares;
expenses of registering and qualifying shares of
the Fund under Federal and state laws and
regulations; expenses of printing and distributing
reports, notices, dividends and proxy materials to
existing stockholders; expenses of printing and
filing reports and other documents filed with
governmental agencies, expenses of printing and
distributing prospectuses; expenses of annual and
special stockholders' meetings; costs of
stationery, fees and expenses (specifically
including travel expenses relating to Fund
business) of Directors of the Fund who are not
employees of the Adviser or its affiliates;
membership dues in the Investment Company
Institute; insurance premiums and extraordinary
expenses such as litigation expenses.
4. Compensation. (a) As
compensation for the services performed and the
facilities and personnel provided by the Adviser
pursuant to this Agreement, the Fund will pay to
the Adviser promptly at the end of each calendar
month, a fee, calculated on each day during such
month, at an annual rate of 0.30% of the
Portfolio's average daily net assets. The Adviser
shall be entitled to receive during any month such
interim payments of its fee hereunder as the
Adviser shall request, provided that no such
payment shall exceed 50% of the amount of such fee
then accrued on the books of the Portfolio and
unpaid.
(b) If the Adviser shall serve hereunder
for less than the whole of any month, the fee
payable hereunder shall be prorated.
(c) For purposes of this Section 4, the
"average daily net assets" of the Portfolio shall
mean the average of the values placed on the
Portfolio's net assets on each day pursuant to the
applicable provisions of the Fund's Registration
Statement, as amended.
5. Purchase and Sale of Securities.
The Adviser or an agent of the Adviser shall
purchase securities from or through and sell
securities to or through such persons, brokers or
dealers as the Adviser shall deem appropriate in
order to carry out the policy with respect to the
allocation of portfolio transactions as set forth
in the Registration Statement of the Fund, as
amended, or as the Board may direct from time to
time. The Adviser will use its reasonable best
efforts to execute all purchases and sales with
dealers and banks on a best net price basis.
Neither the Adviser nor any of its officers,
affiliates, or employees will act as principal or
receive any compensation from the Portfolio in
connection with the purchase or sale of investments
for the Portfolio other than the fee referred to in
Paragraph 4 hereof.
6. Term of Agreement. This Agreement
shall continue in full force and effect until two
years from the date hereof, and will continue in
effect from year to year thereafter if such
continuance is approved in the manner required by
the Act, provided that this Agreement is not
otherwise terminated. The Adviser may terminate
this Agreement at any time, without payment of
penalty, upon 60 days' written notice to the Fund.
The Fund may terminate this Agreement with respect
to the Portfolio at any time, without payment of
penalty, on 60 days' written notice to the Adviser
by vote of either the Board or a majority of the
outstanding stockholders of the Portfolio. This
Agreement will automatically terminate in the event
of its assignment (as defined by the Act).
7. Right of Adviser In Corporate
Name. The Adviser and the Fund each agree that the
phrase "FFTW", which comprises a component of the
Fund's corporate name, is a property right of the
Adviser. The Fund agrees and consents that: (i) it
will only use the phrase "FFTW" as a component of
its corporate name and for no other purpose; (ii)
it will not purport to grant to any third party the
right to use the phrase "FFTW" for any purpose;
(iii) the Adviser or any corporate affiliate of the
Adviser may use or grant to others the right to use
the phrase "FFTW" or any combination or
abbreviation thereof, as all or a portion of a
corporate or business name or for any commercial
purpose, including a grant of such right to any
other investment company, and at the request of the
Adviser, the Fund will take such action as may be
required to provide its consent to such use or
grant; and (iv) upon the termination of any
investment advisory agreement into which the
Adviser and the Fund may enter, the Fund shall,
upon request by the Adviser, promptly take such
action, at its own expense, as may be necessary to
change its corporate name to one not containing the
phrase "FFTW" and following such a change, shall
not use the phrase "FFTW" or any combination
thereof, as part of its corporate name or for any
other commercial purpose, and shall use its best
efforts to cause its officers, directors and
stockholders to take any and all actions which the
Adviser may request to effect the foregoing and
recovery to the Adviser any and all rights to such
phrase.
8. Miscellaneous. This Agreement
shall be governed by and construed in accordance
with the laws of the State of New York. Anything
herein to the contrary notwithstanding, this
Agreement shall not be construed to require or to
impose any duty upon either of the parties to do
anything in violation of any applicable laws or
regulations.
IN WITNESS WHEREOF, the Fund and the
Adviser have caused this Agreement to be executed
by their duly authorized officers as of the date
first written above.
ATTEST
FFTW FUNDS, INC.
By:/s/Eric Nachimovsky
Eric Nachimovsky
By:/s/William E. Vastardis
William E. Vastardis
Secretary
ATTEST
FISCHER FRANCIS TREES & WATTS, INC.
By:/s/Stephen Francis
Stephen Francis
By:/s/Stephen P. Casper
Stephen P. Casper
Managing Director
SUB-ADVISORY AGREEMENT
SUB-ADVISORY AGREEMENT, dated July 7,
1998, between Fischer Francis Trees & Watts, Inc.,
a New York Corporation (the "Adviser") and Fischer
Francis Trees & Watts a corporation organized under
the laws of the United Kingdom (the "Sub-Adviser").
In consideration of the mutual agreements
herein made, the parties hereto agree as follows:
1. Attorney-in-Fact. The Adviser
appoints the Sub-Adviser as its attorney-in-fact to
invest and reinvest the assets of the Global High
Yield Portfolio (the "Portfolio") of FFTW Funds,
Inc. (the "Fund"), as fully as the Adviser could
do. The Sub-Adviser hereby accepts this
appointment.
2. Duties of the Sub-Adviser. (a)
The Sub-Adviser shall be responsible for
coordinating with the Adviser in managing the
investment portfolio of the Portfolio, including,
without limitation, providing investment research,
advice and supervision, determining with the
Adviser which portfolio securities shall be
purchased or sold by the Portfolio, purchasing and
selling securities on behalf of the Portfolio and
determining with the Adviser how voting and other
rights with respect to portfolio securities of the
Portfolio shall be exercised, subject in each case
to the control of the Board of Directors of the
Fund (the "Board") and in accordance with the
objectives, policies and principles of the
Portfolio set forth in the Registration Statement,
as amended, of the Fund, the requirements of the
Investment Company Act of 1940, as amended, (the
"Act") and other applicable law. In performing
such duties, the Sub-Adviser shall provide such
office space, and such executive and other
personnel as shall be necessary for the operations
of the Portfolio. In managing the Portfolio in
accordance with the requirements set forth in this
paragraph 2, the Sub-Adviser shall be entitled to
act upon advice of counsel to the Fund, counsel to
the Adviser or counsel to the Sub-Adviser.
(b) Subject to Section 36 of the Act, the
Sub-Adviser shall not be liable to the Adviser or
the Fund for any error of judgment or mistake of
law or for any loss arising out of any investment
or for any act or omission in the management of the
Portfolio and the performance of its duties under
this Agreement except for losses arising out of the
Sub-Adviser's bad faith, willful misfeasance or
gross negligence in the performance of its duties
or by reason of its reckless disregard of its
obligations and duties under this Agreement. It is
agreed that the Sub-Adviser shall have no
responsibility or liability for the accuracy or
completeness of the Fund's Registration Statement
under the Act and the Securities Act of 1933 except
for information supplied by the Sub-Adviser for
inclusion therein about the Sub-Adviser. The
Adviser agrees to indemnify the Sub-Adviser for any
claims, losses, costs, damages, or expenses
(including fees and disbursements of counsel, but
excluding the ordinary expenses of the Sub-Adviser
arising from the performance of its duties and
obligations under this Agreement) whatsoever
arising out of the performance of this Agreement
except for those claims, losses, costs, damages and
expenses resulting from the Sub-Adviser's bad
faith, willful misfeasance or gross negligence in
the performance of its duties or by reason of its
reckless disregard of its obligations and duties
under this Agreement.
(c) The Sub-Adviser and its officers may
act and continue to act as investment advisers and
managers for others (including, without limitation,
other investment companies), and nothing in this
Agreement will in any way be deemed to restrict the
right of the Sub-Adviser to perform investment
management or other services for any other person
or entity, and the performance of such services for
others will not be deemed to violate or give rise
to any duty or obligation to the Fund.
(d) Except as provided in Paragraph 5,
nothing in this Agreement will limit or restrict
the Sub-Adviser or any of its officers, affiliates
or employees from buying, selling or trading in any
securities for its or their own account or
accounts. The Adviser acknowledges that the
Sub-Adviser and its officers, affiliates or
employees, and its other clients may at any time
have, acquire, increase, decrease or dispose of
positions in investments which are at the same
time being acquired or disposed of for the account
of the Portfolio. The Sub-Adviser will have no
obligation to acquire for the Portfolio a position
in any investment which the Sub-Adviser, its
officers, affiliates or employees may acquire for
its or their own accounts or for the account of
another client, if in the sole discretion of the
Sub-Adviser, it is not feasible or desirable to
acquire a position in such investment for the
account of the Portfolio.
3. Expenses. The Sub-Adviser shall
pay all of its expenses arising from the
performance of its obligations under this Agreement
except as provided in Section 2(b) of this
Agreement.
4. Compensation. (a) As
compensation for the services performed and the
facilities and personnel provided by the
Sub-Adviser pursuant to this Agreement, the Adviser
will pay to the Sub-Adviser promptly at the end of
each calendar month, a fee, calculated on each day
during such month, at an annual rate of 0.50% of
the Portfolio's average daily net assets. The
Sub-Adviser shall be entitled to receive during any
month such interim payments of its fee hereunder as
the Sub-Adviser shall request, provided that no
such payment shall exceed 50% of the amount of such
fee then accrued on the books of the Adviser and
unpaid.
(b) If the Sub-Adviser shall serve
hereunder for less than the whole of any month, the
fee payable hereunder shall be prorated.
(c) For purposes of this Section 4, the
"average daily net assets" of the Portfolio shall
mean the average of the values placed on the
Portfolio's net assets on each day pursuant to the
applicable provisions of the Fund's Registration
Statement, as amended.
5. Purchase and Sale of Securities.
The Sub-Adviser shall purchase securities from or
through and sell securities to or through such
persons, brokers or dealers as the Sub-Adviser
shall deem appropriate in order to carry out the
policy with respect to the allocation of portfolio
transactions as set forth in the Registration
Statement of the Fund, as amended, or as the Board
may direct from time to time. The Sub-Adviser will
use its reasonable best efforts to execute all
purchases and sales with dealers and banks on a
best net price basis. Neither the Sub-Adviser nor
any of its officers, affiliates, or employees will
act as principal or receive any compensation from
the Portfolio in connection with the purchase or
sale of investments for the Portfolio other than
the fee referred to in Paragraph 4 hereof.
6. Term of Agreement. This Agreement
shall continue in full force and effect until two
years from the date hereof, and will continue in
effect from year to year thereafter if such
continuance is approved in the manner required by
the Act, provided that this Agreement is not
otherwise terminated. The Sub-Adviser and the
Adviser may terminate this Agreement at any time,
without payment of penalty, upon 60 days' written
notice to any other party hereto. The Fund may
terminate this Agreement with respect to the
Portfolio at any time, without payment of penalty,
on 60 days' written notice to the Sub-Adviser by
vote of either the Board or a majority of the
outstanding stockholders of the Portfolio. This
Agreement will automatically terminate in the event
of its assignment (as defined by the Act).
7. Fee Waivers. The Sub-Adviser
agrees to waive all or a portion of its fee to the
extent necessary to meet the expense cap stated in
the Fund's Registration Statement, as amended,
based on a formula whereby the Adviser, Sub-Adviser
and Administrator share in the waiving of fees on a
prorata basis (based on their relative fee
schedules) so long as the Adviser and Administrator
continues to voluntarily waive its fees.
8. Miscellaneous. This Agreement
shall be governed by and construed in accordance
with the laws of the State of New York. Anything
herein to the contrary notwithstanding, this
Agreement shall not be construed to require or to
impose any duty upon either of the parties to do
anything in violation of any applicable laws or
regulations.
IN WITNESS WHEREOF, the Adviser and the
Sub-Adviser have caused this Agreement to be
executed by their duly authorized officers as of
the date first written above.
ATTEST
FISCHER FRANCIS TREES & WATTS
By:_______________________
By:_______________________
Simon G. Hard
General Manager
ATTEST
FISCHER FRANCIS TREES & WATTS, INC.
By:/s/Stephen Francis
Stephen Francis
By:/s/Stephen P. Casper
Stephen P. Casper
Managing Director
SUB-ADVISORY AGREEMENT
SUB-ADVISORY AGREEMENT, dated July 7,
1998, between Fischer Francis Trees & Watts, Inc.,
a New York Corporation (the "Adviser") and Fischer
Francis Trees & Watts a corporation organized under
the laws of the United Kingdom (the "Sub-Adviser").
In consideration of the mutual agreements
herein made, the parties hereto agree as follows:
1. Attorney-in-Fact. The Adviser
appoints the Sub-Adviser as its attorney-in-fact to
invest and reinvest the assets of the Global
Tactical Exposure Portfolio (the "Portfolio") of
FFTW Funds, Inc. (the "Fund"), as fully as the
Adviser could do. The Sub-Adviser hereby accepts
this appointment.
2. Duties of the Sub-Adviser. (a)
The Sub-Adviser shall be responsible for
coordinating with the Adviser in managing the
investment portfolio of the Portfolio, including,
without limitation, providing investment research,
advice and supervision, determining with the
Adviser which portfolio securities shall be
purchased or sold by the Portfolio, purchasing and
selling securities on behalf of the Portfolio and
determining with the Adviser how voting and other
rights with respect to portfolio securities of the
Portfolio shall be exercised, subject in each case
to the control of the Board of Directors of the
Fund (the "Board") and in accordance with the
objectives, policies and principles of the
Portfolio set forth in the Registration Statement,
as amended, of the Fund, the requirements of the
Investment Company Act of 1940, as amended, (the
"Act") and other applicable law. In performing
such duties, the Sub-Adviser shall provide such
office space, and such executive and other
personnel as shall be necessary for the operations
of the Portfolio. In managing the Portfolio in
accordance with the requirements set forth in this
paragraph 2, the Sub-Adviser shall be entitled to
act upon advice of counsel to the Fund, counsel to
the Adviser or counsel to the Sub-Adviser.
(b) Subject to Section 36 of the Act, the
Sub-Adviser shall not be liable to the Adviser or
the Fund for any error of judgment or mistake of
law or for any loss arising out of any investment
or for any act or omission in the management of the
Portfolio and the performance of its duties under
this Agreement except for losses arising out of the
Sub-Adviser's bad faith, willful misfeasance or
gross negligence in the performance of its duties
or by reason of its reckless disregard of its
obligations and duties under this Agreement. It is
agreed that the Sub-Adviser shall have no
responsibility or liability for the accuracy or
completeness of the Fund's Registration Statement
under the Act and the Securities Act of 1933 except
for information supplied by the Sub-Adviser for
inclusion therein about the Sub-Adviser. The
Adviser agrees to indemnify the Sub-Adviser for any
claims, losses, costs, damages, or expenses
(including fees and disbursements of counsel, but
excluding the ordinary expenses of the Sub-Adviser
arising from the performance of its duties and
obligations under this Agreement) whatsoever
arising out of the performance of this Agreement
except for those claims, losses, costs, damages and
expenses resulting from the Sub-Adviser's bad
faith, willful misfeasance or gross negligence in
the performance of its duties or by reason of its
reckless disregard of its obligations and duties
under this Agreement.
(c) The Sub-Adviser and its officers may
act and continue to act as investment advisers and
managers for others (including, without limitation,
other investment companies), and nothing in this
Agreement will in any way be deemed to restrict the
right of the Sub-Adviser to perform investment
management or other services for any other person
or entity, and the performance of such services for
others will not be deemed to violate or give rise
to any duty or obligation to the Fund.
(d) Except as provided in Paragraph 5,
nothing in this Agreement will limit or restrict
the Sub-Adviser or any of its officers, affiliates
or employees from buying, selling or trading in any
securities for its or their own account or
accounts. The Adviser acknowledges that the
Sub-Adviser and its officers, affiliates or
employees, and its other clients may at any time
have, acquire, increase, decrease or dispose of
positions in investments which are at the same
time being acquired or disposed of for the account
of the Portfolio. The Sub-Adviser will have no
obligation to acquire for the Portfolio a position
in any investment which the Sub-Adviser, its
officers, affiliates or employees may acquire for
its or their own accounts or for the account of
another client, if in the sole discretion of the
Sub-Adviser, it is not feasible or desirable to
acquire a position in such investment for the
account of the Portfolio.
3. Expenses. The Sub-Adviser shall
pay all of its expenses arising from the
performance of its obligations under this Agreement
except as provided in Section 2(b) of this
Agreement.
4. Compensation. (a) As
compensation for the services performed and the
facilities and personnel provided by the
Sub-Adviser pursuant to this Agreement, the Adviser
will pay to the Sub-Adviser promptly at the end of
each calendar month, a fee, calculated on each day
during such month, at an annual rate of 0.40% of
the Portfolio's average daily net assets. The
Sub-Adviser shall be entitled to receive during any
month such interim payments of its fee hereunder as
the Sub-Adviser shall request, provided that no
such payment shall exceed 50% of the amount of such
fee then accrued on the books of the Adviser and
unpaid.
(b) If the Sub-Adviser shall serve
hereunder for less than the whole of any month, the
fee payable hereunder shall be prorated.
(c) For purposes of this Section 4, the
"average daily net assets" of the Portfolio shall
mean the average of the values placed on the
Portfolio's net assets on each day pursuant to the
applicable provisions of the Fund's Registration
Statement, as amended.
5. Purchase and Sale of Securities.
The Sub-Adviser shall purchase securities from or
through and sell securities to or through such
persons, brokers or dealers as the Sub-Adviser
shall deem appropriate in order to carry out the
policy with respect to the allocation of portfolio
transactions as set forth in the Registration
Statement of the Fund, as amended, or as the Board
may direct from time to time. The Sub-Adviser will
use its reasonable best efforts to execute all
purchases and sales with dealers and banks on a
best net price basis. Neither the Sub-Adviser nor
any of its officers, affiliates, or employees will
act as principal or receive any compensation from
the Portfolio in connection with the purchase or
sale of investments for the Portfolio other than
the fee referred to in Paragraph 4 hereof.
6. Term of Agreement. This Agreement
shall continue in full force and effect until two
years from the date hereof, and will continue in
effect from year to year thereafter if such
continuance is approved in the manner required by
the Act, provided that this Agreement is not
otherwise terminated. The Sub-Adviser and the
Adviser may terminate this Agreement at any time,
without payment of penalty, upon 60 days' written
notice to any other party hereto. The Fund may
terminate this Agreement with respect to the
Portfolio at any time, without payment of penalty,
on 60 days' written notice to the Sub-Adviser by
vote of either the Board or a majority of the
outstanding stockholders of the Portfolio. This
Agreement will automatically terminate in the event
of its assignment (as defined by the Act).
7. Fee Waivers. The Sub-Adviser
agrees to waive all or a portion of its fee to the
extent necessary to meet the expense cap stated in
the Fund's Registration Statement, as amended,
based on a formula whereby the Adviser, Sub-Adviser
and Administrator share in the waiving of fees on a
prorata basis (based on their relative fee
schedules) so long as the Adviser and Administrator
continues to voluntarily waive its fees.
8. Miscellaneous. This Agreement
shall be governed by and construed in accordance
with the laws of the State of New York. Anything
herein to the contrary notwithstanding, this
Agreement shall not be construed to require or to
impose any duty upon either of the parties to do
anything in violation of any applicable laws or
regulations.
IN WITNESS WHEREOF, the Adviser and the
Sub-Adviser have caused this Agreement to be
executed by their duly authorized officers as of
the date first written above.
ATTEST
FISCHER FRANCIS TREES & WATTS
By:_______________________
By:_______________________
Simon G. Hard
General Manager
ATTEST
FISCHER FRANCIS TREES & WATTS, INC.
By:/s/Stephen Francis
Stephen Francis
By:/s/Stephen P. Casper
Stephen P. Casper
Managing Director
SUB-ADVISORY AGREEMENT
SUB-ADVISORY AGREEMENT, dated July 7,
1998, between Fischer Francis Trees & Watts, Inc.,
a New York Corporation (the "Adviser") and Fischer
Francis Trees & Watts a corporation organized under
the laws of the United Kingdom (the "Sub-Adviser").
In consideration of the mutual agreements
herein made, the parties hereto agree as follows:
1. Attorney-in-Fact. The Adviser
appoints the Sub-Adviser as its attorney-in-fact to
invest and reinvest the assets of the International
Corporate Portfolio (the "Portfolio") of FFTW
Funds, Inc. (the "Fund"), as fully as the Adviser
could do. The Sub-Adviser hereby accepts this
appointment.
2. Duties of the Sub-Adviser. (a)
The Sub-Adviser shall be responsible for
coordinating with the Adviser in managing the
investment portfolio of the Portfolio, including,
without limitation, providing investment research,
advice and supervision, determining with the
Adviser which portfolio securities shall be
purchased or sold by the Portfolio, purchasing and
selling securities on behalf of the Portfolio and
determining with the Adviser how voting and other
rights with respect to portfolio securities of the
Portfolio shall be exercised, subject in each case
to the control of the Board of Directors of the
Fund (the "Board") and in accordance with the
objectives, policies and principles of the
Portfolio set forth in the Registration Statement,
as amended, of the Fund, the requirements of the
Investment Company Act of 1940, as amended, (the
"Act") and other applicable law. In performing
such duties, the Sub-Adviser shall provide such
office space, and such executive and other
personnel as shall be necessary for the operations
of the Portfolio. In managing the Portfolio in
accordance with the requirements set forth in this
paragraph 2, the Sub-Adviser shall be entitled to
act upon advice of counsel to the Fund, counsel to
the Adviser or counsel to the Sub-Adviser.
(b) Subject to Section 36 of the Act, the
Sub-Adviser shall not be liable to the Adviser or
the Fund for any error of judgment or mistake of
law or for any loss arising out of any investment
or for any act or omission in the management of the
Portfolio and the performance of its duties under
this Agreement except for losses arising out of the
Sub-Adviser's bad faith, willful misfeasance or
gross negligence in the performance of its duties
or by reason of its reckless disregard of its
obligations and duties under this Agreement. It is
agreed that the Sub-Adviser shall have no
responsibility or liability for the accuracy or
completeness of the Fund's Registration Statement
under the Act and the Securities Act of 1933 except
for information supplied by the Sub-Adviser for
inclusion therein about the Sub-Adviser. The
Adviser agrees to indemnify the Sub-Adviser for any
claims, losses, costs, damages, or expenses
(including fees and disbursements of counsel, but
excluding the ordinary expenses of the Sub-Adviser
arising from the performance of its duties and
obligations under this Agreement) whatsoever
arising out of the performance of this Agreement
except for those claims, losses, costs, damages and
expenses resulting from the Sub-Adviser's bad
faith, willful misfeasance or gross negligence in
the performance of its duties or by reason of its
reckless disregard of its obligations and duties
under this Agreement.
(c) The Sub-Adviser and its officers may
act and continue to act as investment advisers and
managers for others (including, without limitation,
other investment companies), and nothing in this
Agreement will in any way be deemed to restrict the
right of the Sub-Adviser to perform investment
management or other services for any other person
or entity, and the performance of such services for
others will not be deemed to violate or give rise
to any duty or obligation to the Fund.
(d) Except as provided in Paragraph 5,
nothing in this Agreement will limit or restrict
the Sub-Adviser or any of its officers, affiliates
or employees from buying, selling or trading in any
securities for its or their own account or
accounts. The Adviser acknowledges that the
Sub-Adviser and its officers, affiliates or
employees, and its other clients may at any time
have, acquire, increase, decrease or dispose of
positions in investments which are at the same
time being acquired or disposed of for the account
of the Portfolio. The Sub-Adviser will have no
obligation to acquire for the Portfolio a position
in any investment which the Sub-Adviser, its
officers, affiliates or employees may acquire for
its or their own accounts or for the account of
another client, if in the sole discretion of the
Sub-Adviser, it is not feasible or desirable to
acquire a position in such investment for the
account of the Portfolio.
3. Expenses. The Sub-Adviser shall
pay all of its expenses arising from the
performance of its obligations under this Agreement
except as provided in Section 2(b) of this
Agreement.
4. Compensation. (a) As
compensation for the services performed and the
facilities and personnel provided by the
Sub-Adviser pursuant to this Agreement, the Adviser
will pay to the Sub-Adviser promptly at the end of
each calendar month, a fee, calculated on each day
during such month, at an annual rate of 0.40% of
the Portfolio's average daily net assets. The
Sub-Adviser shall be entitled to receive during any
month such interim payments of its fee hereunder as
the Sub-Adviser shall request, provided that no
such payment shall exceed 50% of the amount of such
fee then accrued on the books of the Adviser and
unpaid.
(b) If the Sub-Adviser shall serve
hereunder for less than the whole of any month, the
fee payable hereunder shall be prorated.
(c) For purposes of this Section 4, the
"average daily net assets" of the Portfolio shall
mean the average of the values placed on the
Portfolio's net assets on each day pursuant to the
applicable provisions of the Fund's Registration
Statement, as amended.
5. Purchase and Sale of Securities.
The Sub-Adviser shall purchase securities from or
through and sell securities to or through such
persons, brokers or dealers as the Sub-Adviser
shall deem appropriate in order to carry out the
policy with respect to the allocation of portfolio
transactions as set forth in the Registration
Statement of the Fund, as amended, or as the Board
may direct from time to time. The Sub-Adviser will
use its reasonable best efforts to execute all
purchases and sales with dealers and banks on a
best net price basis. Neither the Sub-Adviser nor
any of its officers, affiliates, or employees will
act as principal or receive any compensation from
the Portfolio in connection with the purchase or
sale of investments for the Portfolio other than
the fee referred to in Paragraph 4 hereof.
6. Term of Agreement. This Agreement
shall continue in full force and effect until two
years from the date hereof, and will continue in
effect from year to year thereafter if such
continuance is approved in the manner required by
the Act, provided that this Agreement is not
otherwise terminated. The Sub-Adviser and the
Adviser may terminate this Agreement at any time,
without payment of penalty, upon 60 days' written
notice to any other party hereto. The Fund may
terminate this Agreement with respect to the
Portfolio at any time, without payment of penalty,
on 60 days' written notice to the Sub-Adviser by
vote of either the Board or a majority of the
outstanding stockholders of the Portfolio. This
Agreement will automatically terminate in the event
of its assignment (as defined by the Act).
7. Fee Waivers. The Sub-Adviser
agrees to waive all or a portion of its fee to the
extent necessary to meet the expense cap stated in
the Fund's Registration Statement, as amended,
based on a formula whereby the Adviser, Sub-Adviser
and Administrator share in the waiving of fees on a
prorata basis (based on their relative fee
schedules) so long as the Adviser and Administrator
continues to voluntarily waive its fees.
8. Miscellaneous. This Agreement
shall be governed by and construed in accordance
with the laws of the State of New York. Anything
herein to the contrary notwithstanding, this
Agreement shall not be construed to require or to
impose any duty upon either of the parties to do
anything in violation of any applicable laws or
regulations.
IN WITNESS WHEREOF, the Adviser and the
Sub-Adviser have caused this Agreement to be
executed by their duly authorized officers as of
the date first written above.
ATTEST
FISCHER FRANCIS TREES & WATTS
By:_______________________
By:_______________________
Simon G. Hard
General Manager
ATTEST
FISCHER FRANCIS TREES & WATTS, INC.
By:/s/Stephen Francis
Stephen Francis
By:/s/Stephen P. Casper
Stephen P. Casper
Managing Director
SUB-ADVISORY AGREEMENT
SUB-ADVISORY AGREEMENT, dated July 7,
1998, between Fischer Francis Trees & Watts, Inc.,
a New York Corporation (the "Adviser") and Fischer
Francis Trees & Watts a corporation organized under
the laws of the United Kingdom (the "Sub-Adviser").
In consideration of the mutual agreements
herein made, the parties hereto agree as follows:
1. Attorney-in-Fact. The Adviser
appoints the Sub-Adviser as its attorney-in-fact to
invest and reinvest the assets of the International
Opportunities Portfolio (the "Portfolio") of FFTW
Funds, Inc. (the "Fund"), as fully as the Adviser
could do. The Sub-Adviser hereby accepts this
appointment.
2. Duties of the Sub-Adviser. (a)
The Sub-Adviser shall be responsible for
coordinating with the Adviser in managing the
investment portfolio of the Portfolio, including,
without limitation, providing investment research,
advice and supervision, determining with the
Adviser which portfolio securities shall be
purchased or sold by the Portfolio, purchasing and
selling securities on behalf of the Portfolio and
determining with the Adviser how voting and other
rights with respect to portfolio securities of the
Portfolio shall be exercised, subject in each case
to the control of the Board of Directors of the
Fund (the "Board") and in accordance with the
objectives, policies and principles of the
Portfolio set forth in the Registration Statement,
as amended, of the Fund, the requirements of the
Investment Company Act of 1940, as amended, (the
"Act") and other applicable law. In performing
such duties, the Sub-Adviser shall provide such
office space, and such executive and other
personnel as shall be necessary for the operations
of the Portfolio. In managing the Portfolio in
accordance with the requirements set forth in this
paragraph 2, the Sub-Adviser shall be entitled to
act upon advice of counsel to the Fund, counsel to
the Adviser or counsel to the Sub-Adviser.
(b) Subject to Section 36 of the Act, the
Sub-Adviser shall not be liable to the Adviser or
the Fund for any error of judgment or mistake of
law or for any loss arising out of any investment
or for any act or omission in the management of the
Portfolio and the performance of its duties under
this Agreement except for losses arising out of the
Sub-Adviser's bad faith, willful misfeasance or
gross negligence in the performance of its duties
or by reason of its reckless disregard of its
obligations and duties under this Agreement. It is
agreed that the Sub-Adviser shall have no
responsibility or liability for the accuracy or
completeness of the Fund's Registration Statement
under the Act and the Securities Act of 1933 except
for information supplied by the Sub-Adviser for
inclusion therein about the Sub-Adviser. The
Adviser agrees to indemnify the Sub-Adviser for any
claims, losses, costs, damages, or expenses
(including fees and disbursements of counsel, but
excluding the ordinary expenses of the Sub-Adviser
arising from the performance of its duties and
obligations under this Agreement) whatsoever
arising out of the performance of this Agreement
except for those claims, losses, costs, damages and
expenses resulting from the Sub-Adviser's bad
faith, willful misfeasance or gross negligence in
the performance of its duties or by reason of its
reckless disregard of its obligations and duties
under this Agreement.
(c) The Sub-Adviser and its officers may
act and continue to act as investment advisers and
managers for others (including, without limitation,
other investment companies), and nothing in this
Agreement will in any way be deemed to restrict the
right of the Sub-Adviser to perform investment
management or other services for any other person
or entity, and the performance of such services for
others will not be deemed to violate or give rise
to any duty or obligation to the Fund.
(d) Except as provided in Paragraph 5,
nothing in this Agreement will limit or restrict
the Sub-Adviser or any of its officers, affiliates
or employees from buying, selling or trading in any
securities for its or their own account or
accounts. The Adviser acknowledges that the
Sub-Adviser and its officers, affiliates or
employees, and its other clients may at any time
have, acquire, increase, decrease or dispose of
positions in investments which are at the same
time being acquired or disposed of for the account
of the Portfolio. The Sub-Adviser will have no
obligation to acquire for the Portfolio a position
in any investment which the Sub-Adviser, its
officers, affiliates or employees may acquire for
its or their own accounts or for the account of
another client, if in the sole discretion of the
Sub-Adviser, it is not feasible or desirable to
acquire a position in such investment for the
account of the Portfolio.
3. Expenses. The Sub-Adviser shall
pay all of its expenses arising from the
performance of its obligations under this Agreement
except as provided in Section 2(b) of this
Agreement.
4. Compensation. (a) As
compensation for the services performed and the
facilities and personnel provided by the
Sub-Adviser pursuant to this Agreement, the Adviser
will pay to the Sub-Adviser promptly at the end of
each calendar month, a fee, calculated on each day
during such month, at an annual rate of 0.40% of
the Portfolio's average daily net assets. The
Sub-Adviser shall be entitled to receive during any
month such interim payments of its fee hereunder as
the Sub-Adviser shall request, provided that no
such payment shall exceed 50% of the amount of such
fee then accrued on the books of the Adviser and
unpaid.
(b) If the Sub-Adviser shall serve
hereunder for less than the whole of any month, the
fee payable hereunder shall be prorated.
(c) For purposes of this Section 4, the
"average daily net assets" of the Portfolio shall
mean the average of the values placed on the
Portfolio's net assets on each day pursuant to the
applicable provisions of the Fund's Registration
Statement, as amended.
5. Purchase and Sale of Securities.
The Sub-Adviser shall purchase securities from or
through and sell securities to or through such
persons, brokers or dealers as the Sub-Adviser
shall deem appropriate in order to carry out the
policy with respect to the allocation of portfolio
transactions as set forth in the Registration
Statement of the Fund, as amended, or as the Board
may direct from time to time. The Sub-Adviser will
use its reasonable best efforts to execute all
purchases and sales with dealers and banks on a
best net price basis. Neither the Sub-Adviser nor
any of its officers, affiliates, or employees will
act as principal or receive any compensation from
the Portfolio in connection with the purchase or
sale of investments for the Portfolio other than
the fee referred to in Paragraph 4 hereof.
6. Term of Agreement. This Agreement
shall continue in full force and effect until two
years from the date hereof, and will continue in
effect from year to year thereafter if such
continuance is approved in the manner required by
the Act, provided that this Agreement is not
otherwise terminated. The Sub-Adviser and the
Adviser may terminate this Agreement at any time,
without payment of penalty, upon 60 days' written
notice to any other party hereto. The Fund may
terminate this Agreement with respect to the
Portfolio at any time, without payment of penalty,
on 60 days' written notice to the Sub-Adviser by
vote of either the Board or a majority of the
outstanding stockholders of the Portfolio. This
Agreement will automatically terminate in the event
of its assignment (as defined by the Act).
7. Fee Waivers. The Sub-Adviser
agrees to waive all or a portion of its fee to the
extent necessary to meet the expense cap stated in
the Fund's Registration Statement, as amended,
based on a formula whereby the Adviser, Sub-Adviser
and Administrator share in the waiving of fees on a
prorata basis (based on their relative fee
schedules) so long as the Adviser and Administrator
continues to voluntarily waive its fees.
8. Miscellaneous. This Agreement
shall be governed by and construed in accordance
with the laws of the State of New York. Anything
herein to the contrary notwithstanding, this
Agreement shall not be construed to require or to
impose any duty upon either of the parties to do
anything in violation of any applicable laws or
regulations.
IN WITNESS WHEREOF, the Adviser and the
Sub-Adviser have caused this Agreement to be
executed by their duly authorized officers as of
the date first written above.
ATTEST
FISCHER FRANCIS TREES & WATTS
By:_______________________
By:_______________________
Simon G. Hard
General Manager
ATTEST
FISCHER FRANCIS TREES & WATTS, INC.
By:/s/Stephen Francis
Stephen Francis
By:_______________________
Stephen P. Casper
Managing Director
<TABLE> <S> <C>
<ARTICLE> 6
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<NUMBER> 10
<NAME> MONEY MARKET PORTFOLIO
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<PERIOD-END> DEC-31-1997
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<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> U.S. SHORT-TERM PORTFOLIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
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<TOTAL-LIABILITIES> 7865
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<SHARES-COMMON-PRIOR> 36066
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<ACCUM-APPREC-OR-DEPREC> (174)
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<NET-INVESTMENT-INCOME> 28250
<REALIZED-GAINS-CURRENT> (2684)
<APPREC-INCREASE-CURRENT> (651)
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<GROSS-EXPENSE> 1270
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<PER-SHARE-NAV-BEGIN> 9.85
<PER-SHARE-NII> 0.57
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<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> STABLE RETURN PORTFOLIO
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<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 45772
<INVESTMENTS-AT-VALUE> 45865
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<OTHER-ITEMS-ASSETS> 0
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<PAYABLE-FOR-SECURITIES> 6248
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<TOTAL-LIABILITIES> 6275
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 39974
<SHARES-COMMON-STOCK> 4030
<SHARES-COMMON-PRIOR> 4241
<ACCUMULATED-NII-CURRENT> 10
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (43)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 88
<NET-ASSETS> 40029
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2022
<OTHER-INCOME> 0
<EXPENSES-NET> 180
<NET-INVESTMENT-INCOME> 1842
<REALIZED-GAINS-CURRENT> 230
<APPREC-INCREASE-CURRENT> (30)
<NET-CHANGE-FROM-OPS> 2042
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1842
<DISTRIBUTIONS-OF-GAINS> 307
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<SHARES-REINVESTED> 216
<NET-CHANGE-IN-ASSETS> (2071)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 43
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<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 121
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<GROSS-EXPENSE> 201
<AVERAGE-NET-ASSETS> 30193
<PER-SHARE-NAV-BEGIN> 9.93
<PER-SHARE-NII> .62
<PER-SHARE-GAIN-APPREC> .08
<PER-SHARE-DIVIDEND> (0.31)
<PER-SHARE-DISTRIBUTIONS> (0.08)
<RETURNS-OF-CAPITAL> .00
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<EXPENSE-RATIO> .30
<AVG-DEBT-OUTSTANDING> 1683
<AVG-DEBT-PER-SHARE> 0.41
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> MORTGAGE TOTAL RETURN PORTFOLIO
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<PERIOD-TYPE> 12-MOS
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<PERIOD-END> DEC-31-1997
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<NAME> INTERNATIONAL-HEDGED PORTFOLIO
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<TABLE> <S> <C>
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<NAME> EMERGING MARKETS PORTFOLIO
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<TABLE> <S> <C>
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<NAME> MONEY MARKET PORTFOLIO
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<TABLE> <S> <C>
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<NAME> U.S. SHORT-TERM PORTFOLIO
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<TABLE> <S> <C>
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<NAME> STABLE RETURN PORTFOLIO
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<TABLE> <S> <C>
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<NAME> MORTGAGE TOTAL RETURN PORTFOLIO
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<PER-SHARE-GAIN-APPREC> .01
<PER-SHARE-DIVIDEND> (0.33)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.34
<EXPENSE-RATIO> 0.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> WORLDWIDE PORTFOLIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 91663
<INVESTMENTS-AT-VALUE> 92166
<RECEIVABLES> 6663
<ASSETS-OTHER> 14
<OTHER-ITEMS-ASSETS> 1926
<TOTAL-ASSETS> 100769
<PAYABLE-FOR-SECURITIES> 13075
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 647
<TOTAL-LIABILITIES> 13722
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 95815
<SHARES-COMMON-STOCK> 9
<SHARES-COMMON-PRIOR> 8733
<ACCUMULATED-NII-CURRENT> (18)
<OVERDISTRIBUTION-NII> (18)
<ACCUMULATED-NET-GAINS> (8519)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (240)
<NET-ASSETS> 87047
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2383
<OTHER-INCOME> 0
<EXPENSES-NET> (254)
<NET-INVESTMENT-INCOME> 2129
<REALIZED-GAINS-CURRENT> 172
<APPREC-INCREASE-CURRENT> 518
<NET-CHANGE-FROM-OPS> 2819
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2129)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 491
<NUMBER-OF-SHARES-REDEEMED> (227)
<SHARES-REINVESTED> 171
<NET-CHANGE-IN-ASSETS> 4811
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (8691)
<OVERDISTRIB-NII-PRIOR> (18)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 165
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 254
<AVERAGE-NET-ASSETS> 85278
<PER-SHARE-NAV-BEGIN> 9.42
<PER-SHARE-NII> 0.24
<PER-SHARE-GAIN-APPREC> 0.07
<PER-SHARE-DIVIDEND> 0.24
<PER-SHARE-DISTRIBUTIONS> .00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.49
<EXPENSE-RATIO> 0.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> WORLDWIDE-HEDGED PORTFOLIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 181733
<INVESTMENTS-AT-VALUE> 182405
<RECEIVABLES> 14967
<ASSETS-OTHER> 1485
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 198857
<PAYABLE-FOR-SECURITIES> 27945
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 37
<TOTAL-LIABILITIES> 27982
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 167391
<SHARES-COMMON-STOCK> 15
<SHARES-COMMON-PRIOR> 7158
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (300)
<ACCUMULATED-NET-GAINS> 2555
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1214
<NET-ASSETS> 170875
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3579
<OTHER-INCOME> 0
<EXPENSES-NET> 285
<NET-INVESTMENT-INCOME> 3294
<REALIZED-GAINS-CURRENT> 2982
<APPREC-INCREASE-CURRENT> 31
<NET-CHANGE-FROM-OPS> 6307
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3294
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7969
<NUMBER-OF-SHARES-REDEEMED> (516)
<SHARES-REINVESTED> 289
<NET-CHANGE-IN-ASSETS> 90485
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (427)
<OVERDISTRIB-NII-PRIOR> (300)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 264
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 382
<AVERAGE-NET-ASSETS> 131193
<PER-SHARE-NAV-BEGIN> 11.23
<PER-SHARE-NII> 0.28
<PER-SHARE-GAIN-APPREC> 0.24
<PER-SHARE-DIVIDEND> (0.28)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.47
<EXPENSE-RATIO> 0.44
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> INTERNATIONAL PORTFOLIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 89458
<INVESTMENTS-AT-VALUE> 89796
<RECEIVABLES> 4479
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 442
<TOTAL-ASSETS> 94718
<PAYABLE-FOR-SECURITIES> 16605
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1137
<TOTAL-LIABILITIES> 17742
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 78282
<SHARES-COMMON-STOCK> 8
<SHARES-COMMON-PRIOR> 7125
<ACCUMULATED-NII-CURRENT> 232
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (844)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (702)
<NET-ASSETS> 76976
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1890
<OTHER-INCOME> 0
<EXPENSES-NET> 202
<NET-INVESTMENT-INCOME> 1688
<REALIZED-GAINS-CURRENT> (623)
<APPREC-INCREASE-CURRENT> 518
<NET-CHANGE-FROM-OPS> 1583
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1688
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2420
<NUMBER-OF-SHARES-REDEEMED> (1607)
<SHARES-REINVESTED> 175
<NET-CHANGE-IN-ASSETS> 9323
<ACCUMULATED-NII-PRIOR> 232
<ACCUMULATED-GAINS-PRIOR> (221)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 202
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 127
<AVERAGE-NET-ASSETS> 67858
<PER-SHARE-NAV-BEGIN> 9.50
<PER-SHARE-NII> 0.24
<PER-SHARE-GAIN-APPREC> (0.01)
<PER-SHARE-DIVIDEND> (0.24)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> .00
<PER-SHARE-NAV-END> 9.49
<EXPENSE-RATIO> .60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> INTERNATIONAL-HEDGED PORTFOLIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 324764
<INVESTMENTS-AT-VALUE> 326755
<RECEIVABLES> 17120
<ASSETS-OTHER> 1705
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 345580
<PAYABLE-FOR-SECURITIES> 6424
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9551
<TOTAL-LIABILITIES> 15975
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 325225
<SHARES-COMMON-STOCK> 32650
<SHARES-COMMON-PRIOR> 28160
<ACCUMULATED-NII-CURRENT> 13313
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (6934)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1999)
<NET-ASSETS> 329605
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 17339
<OTHER-INCOME> 0
<EXPENSES-NET> 8949
<NET-INVESTMENT-INCOME> 8390
<REALIZED-GAINS-CURRENT> (5183)
<APPREC-INCREASE-CURRENT> 6993
<NET-CHANGE-FROM-OPS> 10200
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8427
<DISTRIBUTIONS-OF-GAINS> 1698
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 44000
<NUMBER-OF-SHARES-REDEEMED> 7600
<SHARES-REINVESTED> 8427
<NET-CHANGE-IN-ASSETS> 46600
<ACCUMULATED-NII-PRIOR> 13350
<ACCUMULATED-GAINS-PRIOR> (1751)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 620
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9411
<AVERAGE-NET-ASSETS> 310780
<PER-SHARE-NAV-BEGIN> 10.05
<PER-SHARE-NII> 0.20
<PER-SHARE-GAIN-APPREC> 0.12
<PER-SHARE-DIVIDEND> (0.27)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> .00
<PER-SHARE-NAV-END> 10.10
<EXPENSE-RATIO> .30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> EMERGING MARKETS PORTFOLIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 212353
<INVESTMENTS-AT-VALUE> 201550
<RECEIVABLES> 8511
<ASSETS-OTHER> 2467
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 212528
<PAYABLE-FOR-SECURITIES> 7761
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 17934
<TOTAL-LIABILITIES> 25695
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 201834
<SHARES-COMMON-STOCK> 22
<SHARES-COMMON-PRIOR> 11577
<ACCUMULATED-NII-CURRENT> 63
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (3885)
<ACCUM-APPREC-OR-DEPREC> (11200)
<NET-ASSETS> 186834
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8263
<OTHER-INCOME> 0
<EXPENSES-NET> 881
<NET-INVESTMENT-INCOME> 7382
<REALIZED-GAINS-CURRENT> (2891)
<APPREC-INCREASE-CURRENT> (9701)
<NET-CHANGE-FROM-OPS> (5210)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7382
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8316
<NUMBER-OF-SHARES-REDEEMED> (9096)
<SHARES-REINVESTED> 779
<NET-CHANGE-IN-ASSETS> 75790
<ACCUMULATED-NII-PRIOR> 63
<ACCUMULATED-GAINS-PRIOR> (993)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 592
<INTEREST-EXPENSE> 67
<GROSS-EXPENSE> 814
<AVERAGE-NET-ASSETS> 157381
<PER-SHARE-NAV-BEGIN> 9.59
<PER-SHARE-NII> 0.44
<PER-SHARE-GAIN-APPREC> (0.55)
<PER-SHARE-DIVIDEND> (0.44)
<PER-SHARE-DISTRIBUTIONS> .00
<RETURNS-OF-CAPITAL> .00
<PER-SHARE-NAV-END> 9.04
<EXPENSE-RATIO> 1.13
<AVG-DEBT-OUTSTANDING> 3326
<AVG-DEBT-PER-SHARE> .02
</TABLE>
Performance Information Schedule
30 Day Yield Calculation
- --------------------------------------------------------------------------------
YIELD = 2[( a - b + 1)6 - 1]
-------------------------------
cd
WHERE: a = dividends and interest earned during the period.
b = expenses accrued for the period.
c = average daily number of shares outstanding during the
period.
d = maximum offering price per share on the last day of the
period.
U.S. Short-Term:
a= 2,053,630
b= 90,075
c= 45,371,597
d= 9.85
Yield= 5.33%
Stable Return:
a= 209,602
b= 10,746
c= 4,205,211
d= 9.98
Yield= 5.75%
Worldwide:
a= 392,979
b= 36,729
c= 7,776,381
d= 9.82
Yield= 5.66%
Worldwide-Hedged:
a= 159,360
b= 10,667
c= 2,648,263
d= 11.31
Yield= 6.03%
International
a= 147,439
b= 15,151
c= 3,078,203
d= 10.21
Yield= 5.10%
International-Hedged:
a= 593,845
b= 60,299
c= 12,614,466
d= 9.87
Yield= 5.20%
Performance Information Schedule
Calculation of Current Yield and Effective Yield for the Money Market Portfolio
for the Seven Days Ended December 31, 1996
Base Period Return December 31, 1996: 0.0009674363
Current Yield
(Base Period Return/7)x365x100 = 5.%4
Effective Yield
[(Base Period Return + 1)365/7]-1 = 5.%7
Performance Information Schedule
Total Return
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
Date of Net Cap. Shares Returns
Distribution Income Gains. Reinvested NAV Inception 5 Years 1 Year
Money Market:
11/1/93 1.00 1,000.00
11/30/93 0.00211 0.00000 2.106 1.00 1,002.11
12/31/93 0.00227 0.00000 2.274 1.00 1,004.38
1/31/94 0.00222 0.00000 2.234 1.00 1,006.61
2/28/94 0.00221 0.00000 2.221 1.00 1,008.84
3/31/94 0.00268 0.00000 2.701 1.00 1,011.54
4/30/94 0.00281 0.00000 2.845 1.00 1,014.38
5/31/94 0.00311 0.00000 3.159 1.00 1,017.54
6/30/94 0.00341 0.00000 3.467 1.00 1,021.01
7/31/94 0.00336 0.00000 3.435 1.00 1,024.44
8/31/94 0.00361 0.00000 3.699 1.00 1,028.14
9/30/94 0.00376 0.00000 3.862 1.00 1,032.00
10/31/94 0.00409 0.00000 4.222 1.00 1,036.23
11/30/94 0.00420 0.00000 4.351 1.00 1,040.58
12/31/94 0.00506 0.00000 5.267 1.00 1,045.84
1/31/95 0.00471 0.00000 4.924 1.00 1,050.77
2/28/95 0.00447 0.00000 4.693 1.00 1,055.46
3/31/95 0.00489 0.00000 5.166 1.00 1,060.63
4/30/95 0.00475 0.00000 5.035 1.00 1,065.66
5/31/95 0.00488 0.00000 5.203 1.00 1,070.86
6/30/95 0.00468 0.00000 5.008 1.00 1,075.87
7/31/95 0.00476 0.00000 5.126 1.00 1,081.00
8/31/95 0.00469 0.00000 5.068 1.00 1,086.07
9/30/95 0.00452 0.00000 4.911 1.00 1,090.98
10/31/95 0.00465 0.00000 5.068 1.00 1,096.05
11/30/95 0.00437 0.00000 4.786 1.00 1,100.83
12/31/95 0.00454 0.00000 4.994 1.00 1,105.83 1,000.00
1/31/96 0.00442 0.00000 4.884 1.00 1,110.71 1,004.42
2/29/96 0.00399 0.00000 4.430 1.00 1,115.14 1,008.43
3/31/96 0.00423 0.00000 4.715 1.00 1,119.85 1,012.69
4/30/96 0.00405 0.00000 4.536 1.00 1,124.39 1,016.79
5/31/96 0.00419 0.00000 4.713 1.00 1,129.10 1,021.06
6/30/96 0.00402 0.00000 4.543 1.00 1,133.65 1,025.16
7/31/96 0.00419 0.00000 4.745 1.00 1,138.39 1,029.46
8/31/96 0.00431 0.00000 4.908 1.00 1,143.30 1,033.89
9/30/96 0.00429 0.00000 4.907 1.00 1,148.21 1,038.33
10/31/96 0.00433 0.00000 4.976 1.00 1,153.18 1,042.82
11/30/96 0.00430 0.00000 4.958 1.00 1,158.14 1,047.31
12/31/96 0.00432 0.00000 5.005 1.00 1,163.15 1,051.83
Performance Information Schedule
</TABLE>
Total Return
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
Date of Net Cap. Shares Returns
Distribution Income Gains. Reinvested NAV Inception 5 Years 1 Year
U.S. Short-Term:
12/6/89 10.00 1,000.00
12/31/89 0.03969 0.00926 0.489 10.00 1,004.89
1/31/90 0.06594 (0.00170) 0.645 10.01 1,012.35
2/28/90 0.05951 0.00653 0.668 10.00 1,018.02
3/31/90 0.06579 0.00144 0.684 10.00 1,024.86
4/30/90 0.06475 (0.00189) 0.644 10.00 1,031.30
5/31/90 0.06697 0.00743 0.767 10.00 1,038.97
6/30/90 0.06299 0.00666 0.724 9.99 1,045.16
7/31/90 0.06494 0.00258 0.707 9.99 1,052.23
8/31/90 0.06404 0.00501 0.728 9.99 1,059.50
9/30/90 0.06638 0.00194 0.725 10.00 1,067.81
10/31/90 0.06585 0.00172 0.721 10.00 1,075.02
11/30/90 0.06068 0.01240 0.786 9.99 1,081.80
12/31/90 0.06027 0.00879 0.748 10.00 1,090.36
1/31/91 0.05959 0.00288 0.681 10.00 1,097.17
2/28/91 0.04927 0.01201 0.672 10.00 1,103.89
3/31/91 0.04653 (0.00186) 0.493 10.00 1,108.82
4/30/91 0.05344 0.00685 0.669 10.00 1,115.51
5/31/91 0.04858 (0.00339) 0.504 10.00 1,120.55
6/30/91 0.04423 (0.00435) 0.447 10.00 1,125.02
7/31/91 0.05138 0.00457 0.629 10.00 1,131.31
8/31/91 0.04537 0.01106 0.638 10.00 1,137.69
9/30/91 0.04483 0.00840 0.606 10.00 1,143.75
10/31/91 0.04269 0.00604 0.557 10.00 1,149.32
11/30/91 0.03754 0.00867 0.531 10.00 1,154.63
12/31/91 0.03869 0.00853 0.545 10.00 1,160.08 1,000.00
1/31/92 0.03483 (0.00148) 0.387 10.00 1,163.95 1,003.34
2/29/92 0.02969 (0.00769) 0.256 10.00 1,166.51 1,005.54
3/31/92 0.03323 (0.00614) 0.316 10.00 1,169.67 1,008.27
4/30/92 0.03216 (0.00433) 0.315 10.00 1,172.82 1,011.07
5/31/92 0.02898 (0.00074) 0.331 10.00 1,176.13 1,013.93
6/30/92 0.03173 0.00618 0.446 10.00 1,180.59 1,017.77
7/31/92 0.02800 0.01046 0.454 10.00 1,185.13 1,021.69
8/31/92 0.02573 (0.00112) 0.292 10.00 1,188.05 1,024.20
9/30/92 0.02483 0.00906 0.405 10.00 1,192.10 1,027.67
10/31/92 0.02440 (0.00679) 0.210 10.00 1,194.20 1,029.48
11/30/92 0.02454 (0.00443) 0.240 10.00 1,196.60 1,031.55
12/31/92 0.02589 0.00366 0.354 10.00 1,200.14 1,034.60
1/31/93 0.02819 (0.00130) 0.323 10.00 1,203.37 1,037.38
2/28/93 0.02825 (0.00193) 0.317 10.00 1,206.54 1,040.11
3/31/93 0.03136 (0.00657) 0.299 10.00 1,209.53 1,042.69
4/30/93 0.02801 (0.00674) 0.257 10.00 1,212.10 1,044.91
5/31/93 0.03011 (0.00972) 0.247 10.00 1,214.57 1,047.04
6/30/93 0.02520 (0.00214) 0.280 10.00 1,217.37 1,049.45
7/31/93 0.02872 (0.00284) 0.315 10.00 1,220.52 1,052.17
8/31/93 0.02697 0.00403 0.378 10.00 1,224.30 1,055.43
9/30/93 0.02476 0.00518 0.367 10.00 1,227.97 1,058.59
10/31/93 0.02463 (0.01027) 0.176 10.00 1,229.73 1,060.11
11/30/93 0.03018 (0.02384) 0.078 10.00 1,230.51 1,060.78
12/31/93 0.05461 0.00991 0.796 9.97 1,234.75 1,064.45
1/31/94 0.02869 0.00000 0.356 9.98 1,239.55 1,068.58
2/28/94 0.02493 0.00000 0.311 9.96 1,240.16 1,069.10
3/31/94 0.02784 0.00000 0.348 9.96 1,243.63 1,072.09
4/30/94 0.03006 0.00000 0.377 9.95 1,246.13 1,074.25
5/31/94 0.03494 0.00000 0.440 9.95 1,250.51 1,078.02
6/30/94 0.03299 0.00000 0.418 9.93 1,252.14 1,079.43
7/31/94 0.04086 0.00000 0.519 9.93 1,257.30 1,083.87
8/31/94 0.04517 0.00000 0.576 9.93 1,263.02 1,088.80
9/30/94 0.04119 0.00000 0.529 9.91 1,265.72 1,091.13
10/31/94 0.04901 0.00000 0.632 9.91 1,271.98 1,096.52
11/30/94 0.04805 0.00000 0.624 9.89 1,275.58 1,099.63
12/31/94 0.04837 0.00000 0.631 9.89 1,281.82 1,105.00
1/31/95 0.04948 0.00000 0.648 9.89 1,288.23 1,110.53
2/28/95 0.04593 0.00000 0.604 9.90 1,295.51 1,116.81
3/31/95 0.04912 0.00000 0.649 9.90 1,301.94 1,122.35
4/30/95 0.04824 0.00000 0.641 9.89 1,306.96 1,126.69
5/31/95 0.04845 0.00000 0.647 9.89 1,313.36 1,132.21
6/30/95 0.04735 0.00000 0.636 9.89 1,319.65 1,137.63
7/31/95 0.04752 0.00000 0.642 9.88 1,324.66 1,141.95
8/31/95 0.04692 0.00000 0.637 9.88 1,330.95 1,147.37
9/30/95 0.04633 0.00000 0.632 9.88 1,337.19 1,152.75
10/31/95 0.04614 0.00000 0.632 9.88 1,343.44 1,158.13
11/30/95 0.04522 0.00000 0.622 9.88 1,349.59 1,163.43
12/31/95 0.03933 0.00000 0.544 9.88 1,354.96 1,168.07 1,000.00
1/31/96 0.04594 0.00000 0.637 9.89 1,362.63 1,174.68 1,005.66
2/29/96 0.04527 0.00000 0.632 9.87 1,366.11 1,177.68 1,008.23
3/31/96 0.04869 0.00000 0.684 9.86 1,371.47 1,182.30 1,012.18
4/30/96 0.04581 0.00000 0.646 9.86 1,377.84 1,187.79 1,016.89
5/31/96 0.04703 0.00000 0.667 9.85 1,383.01 1,192.25 1,020.71
6/30/96 0.04375 0.00000 0.624 9.84 1,387.75 1,196.34 1,024.20
7/31/96 0.04691 0.00000 0.672 9.84 1,394.37 1,202.04 1,029.08
8/31/96 0.04694 0.00000 0.676 9.84 1,401.02 1,207.77 1,033.99
9/30/96 0.04631 0.00000 0.670 9.84 1,407.61 1,213.46 1,038.86
10/31/96 0.04739 0.00000 0.689 9.84 1,414.39 1,219.30 1,043.86
11/30/96 0.04590 0.00000 0.670 9.85 1,422.43 1,226.23 1,049.79
12/31/96 0.04579 0.00000 0.671 9.85 1,429.04 1,231.93 1,054.67
</TABLE>
Performance Information Schedule
Total Return
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
Date of Net Cap. Shares Returns
Distribution Income Gains. Reinvested NAV Inception 5 Years 1 Year
Stable Return:
7/26/93 10.00 1,000.00
7/31/93 0.00436 0.00000 0.044 10.00 1,000.44
8/31/93 0.02811 0.00000 0.280 10.05 1,008.26
9/30/93 0.02783 0.00000 0.276 10.10 1,016.06
10/31/93 0.02823 0.00000 0.282 10.07 1,015.88
11/30/93 0.02401 0.00000 0.242 10.02 1,013.26
12/31/93 0.02593 0.09583 1.238 9.95 1,018.50
1/31/94 0.03149 0.00000 0.323 9.97 1,023.77
2/28/94 0.02869 0.00000 0.298 9.88 1,017.47
3/31/94 0.03312 0.00000 0.348 9.81 1,013.68
4/30/94 0.03211 0.00000 0.341 9.73 1,008.73
5/31/94 0.03248 0.00000 0.347 9.71 1,010.02
6/30/94 0.03024 0.00000 0.324 9.70 1,012.13
7/31/94 0.03040 0.00000 0.325 9.76 1,021.56
8/31/94 0.04100 0.00000 0.441 9.74 1,023.76
9/30/94 0.04062 0.00000 0.441 9.69 1,022.78
10/31/94 0.04358 0.00000 0.476 9.67 1,025.27
11/30/94 0.04229 0.00000 0.469 9.57 1,019.16
12/31/94 0.04188 0.00000 0.467 9.55 1,021.49
1/31/95 0.05899 0.00000 0.656 9.62 1,035.29
2/28/95 0.05089 0.00000 0.563 9.72 1,051.52
3/31/95 0.05599 0.00000 0.623 9.72 1,057.57
4/30/95 0.04959 0.00000 0.554 9.74 1,065.15
5/31/95 0.05036 0.00000 0.559 9.86 1,083.78
6/30/95 0.04651 0.00000 0.516 9.90 1,093.29
7/31/95 0.05155 0.00000 0.576 9.88 1,096.77
8/31/95 0.04949 0.00000 0.556 9.88 1,102.27
9/30/95 0.04703 0.00000 0.531 9.88 1,107.51
10/31/95 0.04829 0.00000 0.546 9.92 1,117.41
11/30/95 0.04364 0.00000 0.494 9.96 1,126.83
12/31/95 0.04545 0.00000 0.514 10.00 1,136.50 1,000.00
1/31/96 0.04269 0.00000 0.483 10.04 1,145.90 1,008.27
2/29/96 0.03900 0.00000 0.446 9.99 1,144.64 1,007.16
3/31/96 0.04150 0.00000 0.479 9.93 1,142.52 1,005.30
4/30/96 0.04357 0.00000 0.506 9.91 1,145.23 1,007.69
5/31/96 0.04643 0.00000 0.543 9.88 1,147.13 1,009.36
6/30/96 0.04499 0.00000 0.528 9.90 1,154.68 1,016.00
7/31/96 0.04703 0.00000 0.555 9.89 1,159.00 1,019.80
8/31/96 0.04941 0.00000 0.587 9.87 1,162.44 1,022.83
9/30/96 0.04633 0.00000 0.551 9.90 1,171.43 1,030.74
10/31/96 0.05078 0.00000 0.603 9.97 1,185.72 1,043.31
11/30/96 0.04999 0.00000 0.594 10.01 1,196.42 1,052.73
12/31/96 0.04877 0.03288 0.983 9.93 1,196.62 1,052.90
Performance Information Schedule
Total Return
- -----------------------------------------------------------------------------------------------------------------
Date of Net Cap. Shares Returns
Distribution Income Gains. Reinvested NAV Inception 5 Years 1 Year
Mortgage Total Return:
4/29/96 10.00 1,000.00
4/30/96 0.00170 0.00000 0.017 9.98 998.17
5/31/96 0.07400 0.00000 0.748 9.90 997.57
6/30/96 0.03594 0.00000 0.362 10.00 1,011.27
7/31/96 0.06579 0.00000 0.667 9.97 1,014.88
8/31/96 0.06182 0.00000 0.634 9.93 1,017.10
9/30/96 0.02642 0.00000 0.268 10.09 1,036.20
10/31/96 0.42040 0.00000 0.437 10.22 1,054.01
11/30/96 0.08732 0.00000 0.874 10.30 1,071.27
12/31/96 0.07986 0.00509 0.870 10.16 1,065.54
</TABLE>
Performance Information Schedule
Total Return
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------
Date of Net Cap. Shares Returns
Distribution Income Gains. Reinvested NAV Inception 5 Years 1 Year
Worldwide:
4/15/92 10.00 1,000.00
4/30/92 0.01649 0.00792 0.247 9.89 991.44
5/31/92 0.05095 0.00329 0.543 10.01 1,008.91
6/30/92 0.05265 0.03995 0.930 10.03 1,020.25
7/31/92 0.05272 0.04293 0.962 10.11 1,038.12
8/31/92 0.04900 0.17572 2.319 9.95 1,044.76
9/30/92 0.03726 0.00510 0.440 10.11 1,066.01
10/31/92 0.04467 0.24244 3.055 9.91 1,075.20
11/30/92 0.04119 0.03683 0.858 9.87 1,079.32
12/31/92 0.04169 0.00000 0.457 9.98 1,095.91
1/31/93 0.03875 0.19631 2.594 9.95 1,118.43
2/28/93 0.04722 0.01478 0.685 10.17 1,150.13
3/31/93 0.03748 0.16387 2.275 10.01 1,154.80
4/30/93 0.03960 0.18482 2.610 9.92 1,170.31
5/31/93 0.04207 0.00000 0.498 9.97 1,181.18
6/30/93 0.02911 0.04194 0.834 10.09 1,203.81
7/31/93 0.03977 0.21454 3.022 10.04 1,228.18
8/31/93 0.04433 0.00000 0.533 10.17 1,249.51
9/30/93 0.03798 0.00344 0.498 10.21 1,259.51
10/31/93 0.02788 0.00000 0.332 10.36 1,281.45
11/30/93 0.03121 0.00000 0.380 10.15 1,259.33
12/31/93 0.03774 0.17598 2.647 10.02 1,269.72
1/31/94 0.03247 0.00000 0.409 10.06 1,278.91
2/28/94 0.02993 0.00000 0.386 9.85 1,256.01
3/31/94 0.04422 0.00000 0.591 9.54 1,222.12
4/30/94 0.04358 0.00000 0.591 9.44 1,214.89
5/31/94 0.04435 0.00000 0.607 9.41 1,216.74
6/30/94 0.03837 0.00000 0.531 9.35 1,213.95
7/31/94 0.04220 0.00000 0.581 9.43 1,229.81
8/31/94 0.04480 0.00000 0.618 9.45 1,238.26
9/30/94 0.04130 0.00000 0.575 9.41 1,238.43
10/31/94 0.04731 0.00000 0.663 9.39 1,242.02
11/30/94 0.04839 0.00000 0.683 9.37 1,245.78
12/31/94 0.06529 0.00000 0.937 9.27 1,241.17
1/31/95 0.04856 0.00000 0.701 9.28 1,249.01
2/28/95 0.04728 0.00000 0.681 9.35 1,264.80
3/31/95 0.04788 0.00000 0.685 9.45 1,284.80
4/30/95 0.04799 0.00000 0.685 9.52 1,300.84
5/31/95 0.04627 0.00000 0.649 9.74 1,337.22
6/30/95 0.05049 0.00000 0.715 9.69 1,337.29
7/31/95 0.05070 0.00000 0.723 9.68 1,342.90
8/31/95 0.04797 0.00000 0.707 9.41 1,312.10
9/30/95 0.04861 0.00000 0.710 9.55 1,338.40
10/31/95 0.04610 0.00000 0.672 9.62 1,354.67
11/30/95 0.04672 0.00000 0.680 9.68 1,369.70
12/31/95 0.04647 0.00000 0.669 9.83 1,397.50 1,000.00
1/31/96 0.04089 0.00000 0.596 9.75 1,391.94 996.02
2/29/96 0.03421 0.00000 0.505 9.67 1,385.40 991.34
3/31/96 0.04947 0.00000 0.742 9.55 1,375.30 984.11
4/30/96 0.04590 0.00000 0.690 9.58 1,386.23 991.93
5/31/96 0.04686 0.00000 0.713 9.51 1,382.88 989.54
6/30/96 0.04335 0.00000 0.664 9.49 1,386.27 991.97
7/31/96 0.04400 0.00000 0.669 9.61 1,410.23 1,009.11
8/31/96 0.04478 0.00000 0.686 9.58 1,412.40 1,010.66
9/30/96 0.04642 0.00000 0.711 9.63 1,426.61 1,020.83
10/31/96 0.04739 0.00000 0.713 9.84 1,464.74 1,048.12
11/30/96 0.04682 0.00000 0.697 10.00 1,495.53 1,070.15
12/31/96 0.04167 0.20158 3.773 9.64 1,478.06 1,057.65
</TABLE>
Performance Information Schedule
Total Return
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Date of Net Cap. Shares Returns
Distribution Income Gains. Reinvested NAV Inception 5 Years 1 Year
Worldwide-Hedged:
5/19/92 10.00 1,000.00
5/31/92 0.01267 0.00000 0.127 9.96 997.26
6/30/92 0.05169 0.07064 1.229 9.97 1,010.52
7/31/92 0.05175 0.06503 1.180 10.03 1,028.44
8/31/92 0.04636 0.23481 2.927 9.85 1,038.81
9/30/92 0.03593 0.00000 0.379 9.99 1,057.36
10/31/92 0.04425 0.01188 0.601 9.89 1,052.72
11/30/92 0.04097 0.01684 0.630 9.76 1,045.03
12/31/92 0.03544 0.00000 0.385 9.85 1,058.46
1/31/93 0.03685 0.14546 1.977 9.91 1,084.50
2/28/93 0.04793 0.01271 0.660 10.05 1,106.45
3/31/93 0.03914 0.15801 2.195 9.89 1,110.55
4/30/93 0.03874 0.07067 1.251 9.82 1,114.97
5/31/93 0.04193 0.00000 0.484 9.83 1,120.87
6/30/93 0.02911 0.00000 0.334 9.95 1,137.87
7/31/93 0.03919 0.10073 1.613 9.92 1,150.44
8/31/93 0.04978 0.00000 0.570 10.12 1,179.41
9/30/93 0.03787 0.00423 0.483 10.15 1,187.80
10/31/93 0.02845 0.00000 0.326 10.22 1,199.33
11/30/93 0.02549 0.00000 0.298 10.04 1,181.20
12/31/93 0.03311 0.03319 0.773 10.09 1,194.88
1/31/94 0.03152 0.00000 0.369 10.11 1,200.98
2/28/94 0.02883 0.00000 0.346 9.90 1,179.46
3/31/94 0.05006 0.00000 0.623 9.58 1,147.30
4/30/94 0.04930 0.00000 0.625 9.45 1,137.64
5/31/94 0.04303 0.00000 0.541 9.58 1,158.47
6/30/94 0.03668 0.00000 0.464 9.56 1,160.49
7/31/94 0.03704 0.00000 0.481 9.35 1,139.49
8/31/94 0.02532 0.00000 0.295 10.45 1,276.63
9/30/94 0.03293 0.00000 0.385 10.46 1,281.88
10/31/94 0.03204 0.00000 0.375 10.46 1,285.81
11/30/94 0.03674 0.00000 0.432 10.46 1,290.32
12/31/94 0.03543 0.00000 0.418 10.41 1,288.51
1/31/95 0.05739 0.00000 0.680 10.44 1,299.32
2/28/95 0.01627 0.00000 0.194 10.46 1,303.84
3/31/95 0.04164 0.00000 0.496 10.46 1,309.03
4/30/95 0.03902 0.00000 0.467 10.46 1,313.91
5/31/95 0.03993 0.00000 0.480 10.46 1,318.93
6/30/95 0.02685 0.00000 0.322 10.51 1,328.62
7/31/95 0.04201 0.00000 0.509 10.44 1,325.08
8/31/95 0.05310 0.00000 0.641 10.51 1,340.71
9/14/95 0.14292 0.00000 1.733 10.52 1,360.21
9/30/95 0.05013 0.00000 0.622 10.42 1,353.77
10/31/95 0.04622 0.00000 0.570 10.53 1,374.06
11/30/95 0.05364 0.00000 0.653 10.72 1,405.86
12/31/95 0.05610 0.00000 0.678 10.85 1,430.26 1,000.00
1/31/96 0.05002 0.00000 0.601 10.98 1,453.99 1,016.59
2/29/96 0.03524 0.00000 0.433 10.79 1,433.50 1,002.26
3/31/96 0.05683 0.00000 0.706 10.70 1,429.09 999.18
4/30/96 0.05285 0.00000 0.653 10.81 1,450.84 1,014.39
5/31/96 0.05385 0.00000 0.671 10.77 1,452.70 1,015.69
6/30/96 0.04955 0.00000 0.621 10.76 1,458.04 1,019.42
7/31/96 0.05227 0.00000 0.658 10.76 1,465.12 1,024.37
8/31/96 0.05191 0.00000 0.656 10.78 1,474.91 1,031.22
9/30/96 0.05469 0.00000 0.682 10.97 1,508.39 1,054.62
10/31/96 0.05537 0.00000 0.680 11.20 1,547.63 1,082.06
11/30/96 0.05509 0.00000 0.668 11.39 1,581.49 1,105.74
12/31/96 0.05522 0.36921 5.401 10.91 1,573.77 1,100.34
</TABLE>
Performance Information Schedule
Total Return
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Date of Net Cap. Shares Returns
Distribution Income Gains. Reinvested NAV Inception 5 Years 1 Year
International:
5/9/96 10.00 1,000.00
5/31/96 0.03431 0.00000 0.345 9.95 998.43
6/30/96 0.04786 0.00000 0.485 9.90 998.22
7/31/96 0.04752 0.00000 0.474 10.10 1,023.17
8/31/96 0.04900 0.00000 0.492 10.09 1,027.13
9/30/96 0.05059 0.00000 0.511 10.08 1,031.26
10/31/96 0.05335 0.00000 0.530 10.30 1,059.22
11/30/96 0.05186 0.00000 0.513 10.39 1,073.81
12/31/96 0.04058 0.00000 1.219 10.20 1,066.61
Performance Information Schedule
Total Return
- -----------------------------------------------------------------------------------------------------------------
Date of Net Cap. Shares Returns
Distribution Income Gains. Reinvested NAV Inception 5 Years 1 Year
International-Hedged
3/25/93 10.00 1,000.00
3/31/93 0.01078 0.00000 0.108 9.96 997.08
4/30/93 0.06981 0.04682 1.171 9.97 1,009.75
5/31/93 0.05528 0.00000 0.560 9.99 1,017.37
6/30/93 0.04139 0.00000 0.419 10.06 1,028.72
7/31/93 0.03667 0.11964 1.587 10.07 1,045.72
8/31/93 0.06509 0.00000 0.656 10.31 1,077.41
9/30/93 0.05389 0.00000 0.544 10.36 1,088.27
10/31/93 0.03102 0.00000 0.311 10.48 1,104.13
11/30/93 0.03413 0.00000 0.344 10.45 1,104.57
12/31/93 0.04031 0.22206 2.669 10.39 1,125.95
1/31/94 0.02842 0.00000 0.301 10.23 1,111.69
2/28/94 (0.02135) 0.19156 1.889 9.79 1,082.37
3/31/94 0.12969 0.00000 1.421 10.09 1,129.88
4/30/94 0.00000 0.00000 0.000 10.13 1,134.36
5/31/94 0.00448 0.00000 0.050 9.99 1,119.18
6/30/94 0.01891 0.00000 0.211 10.04 1,126.90
7/31/94 0.01870 0.00000 0.210 10.01 1,125.63
8/31/94 0.01358 0.00000 0.157 9.74 1,096.80
9/30/94 0.00566 0.00000 0.065 9.74 1,097.44
10/31/94 0.00000 0.00000 0.000 9.74 1,097.44
11/30/94 0.00000 0.00000 0.000 9.74 1,097.44
12/31/94 0.00000 0.00000 0.000 9.74 1,097.44
9/14/95 10.00 1,000.00
9/30/95 0.02628 0.00000 0.265 9.93 995.63
10/31/95 0.05065 0.00000 0.512 9.93 1,000.71
11/30/95 0.05098 0.00000 0.513 10.02 1,014.92
12/31/95 0.05832 0.00000 0.580 10.19 1,038.04 1,000.00
1/31/96 0.04133 0.00000 0.415 10.15 1,038.18 1,000.13
2/29/96 0.03917 0.00000 0.398 10.07 1,034.00 996.11
3/31/96 0.05809 0.00000 0.596 10.01 1,033.80 995.92
4/30/96 0.04579 0.00000 0.466 10.14 1,051.96 1,013.41
5/31/96 0.03990 0.00000 0.412 10.05 1,046.76 1,008.40
6/30/96 0.04281 0.00000 0.445 10.01 1,047.06 1,008.68
7/31/96 0.04067 0.00000 0.425 10.01 1,051.31 1,012.78
8/31/96 0.04044 0.00000 0.427 9.95 1,049.25 1,010.80
9/30/96 0.03994 0.00000 0.422 9.99 1,057.68 1,018.92
10/31/96 0.04860 0.00000 0.513 10.04 1,068.12 1,028.98
11/30/96 0.04982 0.00000 0.529 10.02 1,071.30 1,032.03
12/31/96 0.03866 0.17902 2.375 9.80 1,071.05 1,031.80
</TABLE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions
"Financial Highlights" and "Independent Auditors" and to the
incorporation by reference of our report on dated February 27, 1998
in this Registration Statement ( Form N-1A No. 33-27896) of FFTW
Funds, Inc.
/s/ Ernst & Young LLP
Ernst & Young LLP
New York, NY
September 26, 1998
