FFTW FUNDS, INC.
Annual Report
December 31, 1997
200 PARK AVENUE
NEW YORK, NY 10166
TELEPHONE 212.681.3000
FACSIMILE 212.681.3250
FFTW Funds, Inc.
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President's Letter
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February 27, 1998
Dear Shareholder:
We are pleased to present the Annual Report for the year ended December 31,
1997. FFTW Funds, Inc. continues to enjoy strong growth in its Portfolios, each
reflecting a specific strategy to meet the objectives of our investors.
During the year, we introduced the Emerging Markets Portfolio for institutional
investors who wish to participate in a broader range of global markets. We also
added the Money Market Portfolio, to which we were previously a sub-adviser,
into the FFTW Funds, Inc. family through a tax-free reorganization. The growth
in our fund family reflects its increasing success as it enters its ninth year.
We greatly appreciate your participation in FFTW Funds. We welcome the
opportunity to discuss the objectives and results of our Portfolios in a
continuing effort to meet your investment needs. Please do not hesitate to
contact us with questions or comments regarding this report, or for assistance
in general.
Yours sincerely,
O. John Olcay
Chairman of the Board and President
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Table of Contents
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Overviews - U.S. Portfolios 1
Performance - U.S. Portfolios 3
Overviews - Global and International Portfolios 6
Performance - Global and International Portfolios 8
Schedules of Investments
Money Market Portfolio 13
U.S. Short-Term Portfolio 14
Stable Return Portfolio 17
Mortgage Total Return Portfolio 19
Worldwide Portfolio 22
Worldwide-Hedged Portfolio 24
International Portfolio 26
International-Hedged Portfolio 28
Emerging Markets Portfolio 30
Statements of Assets and Liabilities 34
Statements of Operations 39
Statements of Changes in Net Assets 44
Financial Highlights 49
Notes to Financial Statements 58
FFTW Funds, Inc.
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Overviews - U.S. Portfolios
December 31, 1997
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Money Market Portfolio1 Stable Return Portfolio
U.S. Short-Term Portfolio Mortgage Total Return Portfolio
Each of the U.S. Portfolios either matched or outperformed its
benchmark for the year ended December 31, 1997 (see pages 3-5 for the
performance of each Portfolio). An underweighting U. S. Treasuries during the
first half of the year along with successful duration management contributed
heavily to the positive performance. As the investment team managing the Money
Market, U.S. Short-Term, and Stable Return Portfolios employs similar strategies
for each, this report discusses the market conditions faced by, and the
corresponding positions taken, in the aggregate.
During the first quarter of 1997, money market yields were fairly
volatile, as interest rates increased and the yield curve flattened. Spreads on
non-Treasury securities widened slightly at the short end of the yield curve in
the first quarter. Non-Treasury sectors continued to outperform government
securities in the front end of the yield curve as their higher yields more than
compensated for the additional spread risk.
In anticipation of a rise in interest rates in the first quarter, the
manager reduced the Portfolios' duration to below neutral. Once the Fed
tightening occurred, the coupon curve flattened and the money market curve
steepened. By creating a bullet strategy, the Portfolios were able to pick up
yield and avoid the steepening in the front end of the market.
When interest rates peaked in late April, the market's anticipation of
another Fed tightening was evidenced by higher implied forward rates. This
provided an opportunity to extend duration, and the Portfolios maintained this
somewhat long bias for most of the second quarter. Consumption slowed
dramatically, and expectations for an acceleration in inflation never
materialized, leading to a rapid rise in bond prices.
As usual in bond market rallies, the intermediate (five to ten year)
part of the yield curve outperformed both the longer and shorter ends in the
second quarter. The money market curve flattened, and a tight supply of short
maturity Treasury bills led to technical dislocations and lower yields. The
Portfolios' yield curve position was barbelled at the beginning of the second
quarter, holding longer duration securities than the benchmark. The Portfolios
later moved to a bulleted position, increasing yield and capturing price
appreciation from the flattening curve.
The second half of the year was marked by subdued inflation and strong
economic growth. As interest rates fell, concerns about accelerated mortgage
prepayments continued. The asset-backed securities market experienced
significant new issuance, and demand for high-quality asset-backs remained
strong. Spreads widened by ten basis points or more and credit quality concerns
diminished as the performance of underlying collateral stopped eroding.
In the corporate sector, bond spreads widened leading to deterioration
in Thai, Indonesian and Korean issuers. BBB securities continued to have the
best performance, followed by A and AA/AAA sectors. Several Asian countries were
downgraded to below investment grade. Longer-dated issues underperformed those
with intermediate maturities, reflecting a supply/demand imbalance.
The Treasury market rallied during the fourth quarter. The yield curve
flattened as rates rose in the very short end and declined in the long end of
the yield curve. The balance between supply and demand remained positive as the
prospects of a shrinking budget deficit and the strong dollar made Treasuries
attractive to foreigners. The Portfolios maintained a long duration exposure
during most of the quarter, which added to performance as the year closed.
1 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.
("FFTW"). Shareholders of the AMT Capital Portfolio approved a tax-free
reorganization into the FFTW Portfolio on April 28, 1997.
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Overviews - U.S. Portfolios (continued)
December 31, 1997
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Mortgage Total Return Portfolio
The Portfolio outperformed its benchmark by 70 basis points during the
year ended December 31, 1997, with particularly strong performance in the second
quarter (see page 5 for the performance of the Portfolio). The other three
quarters were marked by active trading and shifting strategies with only minor
impact on relative performance as the Portfolio attempted to keep up with a
changing market environment that brought on prepayment concerns as the year
wound down.
The first quarter was marked by a decline in the volatility of interest
rates. This decline presented an opportunity to "buy" volatility and reduce the
negative convexity of the mortgage portfolio. As a result, the Portfolio had a
higher convexity than its benchmark at quarter end. The mortgage exposure
overall did not change in a material way during the first quarter but within the
sector, two shifts occurred. The first concentrated pass-through positions in
current coupon pass-throughs and the second reduced the exposure to prepayment
risk.
During the second quarter, all sectors of the mortgage market performed
well, outperforming Treasuries as current coupon pass-through spreads tightened.
This performance was the result of a low volatility environment, making the
incremental return from mortgage securities especially attractive. In addition,
the Portfolio was able to capitalize on the benign environment for the mortgage
sector by focusing on TBA pass-throughs, which enjoyed excellent financing in
the dollar roll market due to strong CMO bids. The Portfolio also took selective
positions in lower coupon IOs and GNMA ARMs.
As the second half of the year began, concerns rose about the
possibility of an increase in prepayments. In addition, with the mortgage market
especially vulnerable to a continued rally in the bond market, the Portfolio was
managed more defensively. Holdings of mortgage securities were reduced and
holdings in options increased, thereby significantly increasing the convexity of
the Portfolio. Through the use of mortgage and treasury options, the Portfolio
was positioned to benefit in a market rally by reducing the exposure to the
mortgage market.
Meanwhile, the asset-backed market saw a significant number of new
issues during the third quarter. Spreads widened by ten basis points or more and
credit quality concerns diminished, as the performance of underlying collateral
stopped eroding. Spreads continued to widen during the remainder of the year and
demand for high-quality asset-backeds remained strong.
Concerns about accelerating mortgage prepayments continued in the
fourth quarter. As interest rates fell, investors demanded a higher risk premium
as an incentive to invest in mortgages. Mortgages underperformed Treasuries as
yield spreads widened. The Portfolio was positioned defensively at year end in
anticipation of low interest rates and possible prepayments. In addition, it was
moved to a neutral sector allocation relative to the mortgage benchmark.
FFTW Funds, Inc.
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Performance - U.S. Portfolios
December 31,1997
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Money Market Portfolio seeks to attain current income, liquidity, and the
maintenance of a stable net asset value per share through investments in high
quality, short-term obligations.
Yield Information for the 7-day period ended December 31, 1997:
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Effective
Yield Yield
Money Market Portfolio 5.76% 5.93%
IBC's Money Fund Report
AveragesTM-All Taxable 5.12% 5.25%
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U.S. Short-Term Portfolio seeks to attain a high level of
total return as may be consistent with the preservation of
capital and to maintain liquidity by investing primarily in
high-quality fixed income securities with an average U.S.
dollar-weighted duration of less than one year. U.S.
Short-Term is not a money market fund and its shares are not
guaranteed by the U.S. Government.
Average Annual Total Return for the periods ended December 31, 1997:
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Since
One Year 5 Years Inception*
U.S. Short-Term Portfolio 5.09% 4.58% 5.17%
IBC's Money Fund Report AveragesTM
-All Taxable* 5.09% 4.39% 4.88%
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* U.S. Short Term Portfolio commenced operations on December 6,
1989. The Portfolio invests in longer term maturities than the
benchmark and, therefore, presents greater risks of NAV
fluctuation.
Stable Return Portfolio seeks to maintain a stable level of total return as may
be consistent with the preservation of capital by investing primarily in
high-quality debt securities with an average U.S. dollar-weighted duration of
less than three years and by using interest rate hedging as a stabilizing
technique.
Average Annual Total Return for the periods ended December 31, 1997:
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One Since
Year Inception*
Stable Return Portfolio 7.21% 5.76%
Merrill Lynch 1-2.99 Year Treasury Index 6.66% 5.59%
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* Stable Return Portfolio commenced operations on July 26,1993.
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Performance - U.S. Portfolios (continued)
December 31,1997
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Mortgage Total Return Portfolio seeks to attain a high level of total return as
may be consistent with the preservation of capital by investing primarily in
mortgage-related securities, maintaining an average U.S. dollar-weighted
duration in the range of two to six years.
Average Annual Total Return for the periods ended December 31, 1997:
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One Since
Year Inception*
Mortgage Total Return Portfolio 10.19% 10.06%
Lehman Mortgage-Backed Securities Index 9.49% 9.16%
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* Mortgage Total Return Portfolio commenced operations on April 29, 1996.
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Overviews - Global and International Portfolios
December 31,1997
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Worldwide Portfolio International Portfolio
Worldwide-Hedged Portfolio International-Hedged Portfolio2
Emerging Markets Portfolio3
Each of the Global and International Portfolios beat its
respective benchmark by a significant margin (see pages 8-12 for the performance
of each Portfolio). In general, much of this performance came against a backdrop
of turmoil in Asia and a crumbling financial sector in Japan. Factors
contributing to positive performance relative to the Portfolios' benchmarks
included duration and yield curve positioning in core European positions,
strategic positioning in foreign exchange, an overweight in U.S. Treasuries
versus the benchmarks for much of the year, and an underweighting in Asia. As
the investment team managing the Global and International Portfolios employs
similar strategies for each, this report discusses the market conditions faced
by, and the corresponding positions taken, in the aggregate.
1997 has been characterized by unusually divergent market performance,
despite positive economic growth and moderate inflation in almost every country.
The U. S. economy continues to lead the industrialized countries with strong
growth. Low inflation is prevalent everywhere, with even Brazil managing to
maintain a single digit inflation rate. The dampening of inflation provided very
positive signals for long-term interest rates, and resulted in rising prices of
long-dated government bonds. The turmoil in Asia, with ripple effects on the
rest of the world, meant that credit spreads began to widen for the first time
in years. Emerging markets debt, which performed well for the year overall,
declined 12% in October leading to a fourth quarter fall.
The U. S. Dollar rose against almost every currency
in the world, some by significant amounts. The rising
dollar and the flight to quality are two of the strongest
forces at work in the global fixed-income marketplace.
Indeed, U. S. Treasuries were the best performing sector in
the bond markets during the fourth quarter.
In Europe, the German bond market was buffeted by countervailing forces
in the first quarter. Inflation news was excellent and business activity picked
up helped by strong exports. However, unemployment continued to climb and doubts
about the timing of the European Monetary Union undermined previous assumptions
of perpetually tight fiscal policy. As the year wore on, concern over the EMU
was replaced by optimism. By the fourth quarter, European yield spreads were
trading in a narrow range as the EMU finally had been fully discounted.
The second quarter saw a fall of core European bond yields despite a
modest pick up in economic activity. The driving factors were expectations of
low and stable interest rates and the rally of U. S. Treasuries. In the fall,
manufacturing activity in core Europe accelerated, aided by low interest rates
and weaker currencies. By the fourth quarter, Europe was enjoying strong
economic growth and increased business confidence.
The same cannot be said for Japan, where the year began with Japanese
bond yields sustaining record low levels spurred by continued evidence of
problems with the banking system, concerns about the impact of prospective
fiscal tightening and the confinement of unequivocal economic recovery to the
export sector. During the second quarter, the bond market was volatile with
spreads narrowing and yields gyrating. The second half of the year proved no
better. Bond yields continued to reach new lows, the economy was very weak and
the market continued to view an increase in official rates by the Bank of Japan
as extremely unlikely.
2 International-Hedged Portfolio is used exclusively by FFTW for the portion
of its client base that seeks the incremental return that a limited
exposure to the international markets may bring. The investment strategy
employed by FFTW involves investing the Portfolio in a diversified
international portfolio but swapping the return of the JP Morgan Global
Government Bond Index, Non-U. S. Hedged ("Bond Index")in exchange for a
LIBOR-based payment to the Portfolio. The success of the strategy is
measured relative to the JP Morgan 3-Month Eurodeposit Index
("Index"). The Portfolio significantly outperformed the Index utilizing the
strategies noted above with respect to its international bond positions. In
addition, the Portfolio received payments on the swap due to a decline in the
Bond Index, as well as receiving the LIBOR-based payments. 3 The Emerging
Markets Portfolio began operations on August 12, 1997.
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Overviews - Global and International Portfolios (continued)
December 31,1997
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In the fourth quarter, domestic demand in Japan failed to pick up and
the East Asian crisis dampened the prospects for exports to other Asian
countries. Exacerbating the situation further, yields of Japanese bonds
continued their descent and the crumbling financial sector created a severe
credit allocation.
In the foreign exchange market, not unexpectedly, the Japanese yen
performed poorly. After an uptick in the second quarter, the remainder of the
year saw a steady decline. The Deutschemark fluctuated in a relatively narrow
band, with concerns over the impact of the EMU and changing expectations
regarding interest rates preventing any significant increase.
The emerging markets arena was dominated by the Asian crisis in 1997.
Some currencies fell by as much as 50% versus the U. S. Dollar. Thailand,
Malaysia, Indonesia and the Philippines devalued by 20%-30% in the third quarter
alone, as investors became concerned about the suitability of their current
account deficits and the fragility of their banking systems. IMF support
programs in Thailand, Indonesia and Korea failed to stabilize their markets or
significantly improve investor confidence. Credit spreads on Korean, Indonesian
and Thai bonds as their ratings fell to below investment grade. Credit spreads
on all emerging markets debt widened in sympathy with wider spreads in Asia.
Currencies in Latin America and Europe held up considerably well,
remaining relatively stable throughout the crisis. Brazil took decisive steps to
reduce its fiscal deficit in the fourth quarter.
The current strategy, as the Portfolios enter 1998, is an overweight
position in both the U. S. and European bond markets, while underweighting both
Japanese bonds and the yen. In emerging markets, a preference for hard currency
bonds will continue along with an underweighting in Asia and an overweighting in
Latin America.
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Performance - Global and International Portfolios
December 31,1997
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Worldwide Portfolio seeks to attain a high level of total return as may be
consistent with the preservation of capital by investing primarily in
high-quality fixed income securities from bond markets worldwide, denominated in
both U.S. dollars and foreign currencies, with an average U.S. dollar-weighted
duration of less than eight years.
Average Annual Total Return for the periods ended December 31, 1997:
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One Since
Year Five Years Inception*
Worldwide Portfolio 2.93% 6.78% 7.62%
JP Morgan Global Government Bond Index
(Unhedged) 1.41% 7.50% 7.79%
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* Worldwide Portfolio commenced operations on April 15, 1992.
Worldwide-Hedged Portfolio seeks to attain a high level of total return as may
be consistent with the preservation of capital by investing primarily in
high-quality fixed income securities from bond markets worldwide, denominated in
both U.S. dollars and foreign currencies, with an average U.S. dollar-weighted
duration of less than eight years and by actively utilizing currency hedging
techniques.
Average Annual Total Return for the periods ended December 31, 1997:
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One Since
Year Five Years Inception*
Worldwide-Hedged Portfolio 12.60% 10.85% 10.71%
Customized Benchmark* 10.87% 7.80% 7.87%
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*Customized Benchmark May 19, 1992 (commencement of operations of the
Portfolio) through July 31, 1994 - JP Morgan Global
Government Bond Index (Hedged); August 1, 1994 through
June 30, 1995 - IBC's Money Fund Report AveragesTM-All
Taxable; July 1,
1995 to present - JP Morgan Global Government Bond Index
(Hedged). For the period between August 1, 1994 and June 30,
1995, the
Wordwide-Hedged. Portfolio was invested in cash or short-
term instruments due to its small size. Consequently, the
Portfolio's performance
is compared to this Customized Benchmark.
International Portfolio seeks to attain a high level of total return as may be
consistent with the preservation of capital by investing primarily in
high-quality fixed income securities from bond markets worldwide, denominated in
foreign currencies, with an average U.S. dollar-weighted duration of less than
eight years.
Average Annual Total Return for the periods ended December 31, 1997:
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One Since
Year Inception*
International Portfolio (0.43%) 3.73%
JP Morgan Global Government Bond
Index (Non-U.S. Unhedged) (3.77%) 1.81%
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* International Portfolio commenced operations on May 9, 1996.
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Performance - Global and International Portfolios (continued)
December 31,1997
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International-Hedged Portfolio seeks to attain a high level of total return as
may be consistent with the preservation of capital by investing primarily in
high-quality fixed income securities from bond markets worldwide, denominated in
foreign currencies, with an average U.S. dollar-weighted duration of less than
eight years and by actively utilizing currency hedging techniques.
Average Annual Total Return for the periods ended December 31, 1997:
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Since
One Recommencement
Year of Operations*
International-Hedged Portfolio 8.77% 6.87%
JP Morgan 3-Month Eurodeposit Index 6.00% 5.93%
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* The Portfolio redeemed all of its assets on December 30, 1994, and began
selling shares again on September 14, 1995. The total return (on an
annualized basis) from its original inception of March 25, 1993 through
December 30, 1994, was 5.39%, versus the JP Morgan Global Government Bond
Index (Non-U.S. Hedged), which had an annualized return of 2.98% for the same
period, and the JP Morgan 3-Month Eurodeposit Index, which had an annualized
return of 4.05% for the same period. The return stated is for the period
commencing September 14, 1995.
Emerging Markets Portfolio seeks to attain a high level of total return as may
be consistent with the preservation of capital by investing primarily in fixed
income securities from bond markets in emerging markets countries, denominated
in local currencies or currencies of OECD countries, with an average U.S.
dollar-weighted duration of less than eight years.
Average Annual Total Return for the period ended December 31, 1997:
----------------------------------------------------------------------------
Since
Inception*
Emerging Markets Portfolio (1.20%)
JP Morgan Emerging Local Markets Index Plus (8.49%)
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* Emerging Markets Portfolio commenced operations on August 12,1997.
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Money Market Portfolio - Schedule of Investments
December 31, 1997
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<TABLE>
<S> <C> <C>
Face
Amount Value
Asset- and Mortgage-Backed Securities - 6.8%
CIT RV Trust, Ser. 1997-A, Class A1, 5.800% due 12/15/98 $ 782,048 $ 782,048
Triangle Funding Ltd, Ser. 1997-Class 1, 6.957% due 11/15/98 1,000,000 1,000,000
-------------------------
Total (Cost - $1,782,048) 1,782,048
-------------------------
Bank Obligations - 54.7%
Bank of Boston (Nassau) Time Deposit, 4.500% due 1/2/98 1,300,000 1,300,000
Bank of Montreal Time Deposit, 5.937% due 1/2/98 1,000,000 1,000,000
Barclays Bank Euro CD, 5.64% due 1/5/98 1,000,000 1,000,001
Bayerische Vereinsbank Euro CD, 5.731% due 2/27/98 1,000,000 1,000,010
Den Danske Bank Time Deposit, 6.000% due 1/2/98 1,000,000 1,000,000
Morgan Guaranty Trust Euro CD, 5.680% due 3/16/98 1,000,000 1,000,015
National Australia Bank Euro CD, 5.672% due 3/3/98 1,000,000 1,000,017
Oester Kontrolbank AG CD, 5.520% due 1/14/98 1,000,000 998,006
Rabo Bank Yankee CD, 5.649% due 1/30/98 1,000,000 1,000,024
Royal Bank of Canada Yankee CD, 5.673% due 3/4/98 1,000,000 999,742
Societe Generale Yankee CD, 5.700% due 4/30/98 1,000,000 999,633
Svenska Handelsbanken Euro CD, 5.678% due 3/12/98 1,000,000 1,000,045
Toronto Dominion Euro CD, 5.662% due 2/17/98 1,000,000 1,000,019
Westdeutsche Euro CD, 5.673% due 3/4/98 1,000,000 1,000,027
-------------------------
Total (Cost - $14,297,539) 14,297,539
-------------------------
Commercial Paper - 38.0%*
Caisse d'Amortissement de la Dette Sociale, 5.600% due 3/5/98 1,000,000 990,025
Caisse Des Depots et Consignations, 5.600% due 2/19/98 1,000,000 992,269
Clorox Co., 5.880% due 1/8/98 1,000,000 998,913
Daimler Benz NA, 5.655% due 3/23/98 1,000,000 987,175
Dakota Co., 5.600% due 2/13/98 1,000,000 993,192
Delaware Funding Corp., 5.920% due 1/7/98 1,000,000 999,067
General Electric Capital Corp., 5.600% due 1/20/98 1,000,000 997,055
Glaxo Wellcome plc, 5.600% due 1/27/98 1,000,000 995,977
Government of Canada, 5.612% due 4/7/98 1,000,000 984,960
Southern Co., 5.680% due 2/17/98 1,000,000 992,585
-------------------------
Total (Cost - $9,931,218) 9,931,218
-------------------------
Total Investments - 99.5% (Cost - $26,010,805) 26,010,805
-------------------------
Other Assets and Liabilities - 0.5% 141,413
-------------------------
Net Assets - 100.0% $ 26,152,218
=========================
</TABLE>
Summary of Abbreviations
CD Certificate of Deposit
* Interest rate shown represents yield to maturity at date of purchase.
See Notes to Financial Statements.
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U.S. Short-Term Portfolio - Schedule of Investments
December 31, 1997
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<TABLE>
<S> <C> <C>
Face
Amount Value
Asset- and Mortgage-Backed Securities - 53.4%
Aames Mortgage Trust (FRN), Ser. 1997-C, Class A1F, 6.120% due 5/15/12 $ 8,199,278 $ 8,195,434
Beneficial Mortgage Corp. (FRN), Ser. 1995-1, Class A1, 6.189% due 3/28/25 2,302,084 2,285,210
Block Mortgage Finance, Inc. (FRN), Ser. 1997-2, Class A6, 5.898% due 5/25/27 2,817,002 2,797,142
Champion Home Equity Loan Trust, Ser. 1997-2, Class A1, 6.590% due 11/25/10 9,873,124 9,869,076
Chase Manhattan Home Equity Loan Trust (FRN), Ser. 1995-1, Class A1, 6.221% due
10/15/25 6,262,213 6,265,282
Chase Manhattan RV Owner Trust, Ser. 1997-A, Class A2, 5.852% due 8/15/00 9,500,676 9,500,581
Contimortgage Home Equity Loan Trust (FRN), Ser. 1997-3, Class A10, 6.190% due
8/15/28 4,399,115 4,358,863
Contimortgage Home Equity Loan Trust, Ser. 1996-1, Class A8, 6.320% due 3/15/27 1,378,906 1,383,056
Contimortgage Home Equity Loan Trust, Ser. 1997-2, Class A1, 6.320% due 9/15/07 21,810 21,760
Contimortgage Home Equity Loan Trust, Ser. 1997-4, Class A3, 6.260% due 7/15/12 10,000,000 9,990,500
Discover Credit Card Trust, Ser. 1991-F, Class A, 7.850% due 11/21/00 5,000,000 5,054,200
Discover Credit Card Trust, Ser. 1993-A, Class A, 6.250% due 8/16/00 7,873,333 7,863,412
Discover Credit Card Trust I, Ser. 1997-1, Class A, 6.070% due 2/16/05 2,000,000 1,998,640
EQCC Home Equity Loan Trust (FRN), Ser. 1997-3, Class A10, 6.155% due 11/15/28 7,630,895 7,630,895
EQCC Home Equity Loan Trust, Ser. 1996-4, Class A3, 6.260% due 11/15/06 6,000,000 6,007,680
FHLMC, Ser. 1537, Class E, 5.450% due 3/15/04 2,876,772 2,869,839
First Chicago Master Trust II, Ser. 1992-E, Class A, 6.250% due 8/15/99 3,614,164 3,606,502
FNMA (FRN), Ser. 1993-54, Class FK, 6.725% due 4/25/21 3,688,576 3,718,638
FNMA, Ser. 1993-245, Class PC, 5.000% due 7/25/13 382,771 381,293
FNMA, Ser. 1994-93, Class PC, 7.000% due 5/25/13 3,245,394 3,244,193
Ford Credit Auto Owner Trust, Ser. 1997-B, Class A2, 5.950% due 1/15/00 6,000,000 5,997,360
GE Capital Mortgage Services, Inc., Ser. 1997-HE3, Class A1, 6.530% due 12/25/10 9,252,558 9,241,455
Headlands Mortgage Secs., Inc. (FRN), Ser. 1997-3, Class C1, 5.969% due 7/25/27 2,062,314 2,054,663
HFC Home Equity Loan (FRN), Ser. 1992-1, Class A1, 6.310% due 5/20/07 1,976,320 1,976,320
HFC Home Equity Loan (FRN), Ser. 1992-1, Class A2, 6.505% due 5/20/07 1,198,964 1,195,967
HFC Home Equity Loan (FRN), Ser. 1992-2, Class A2, 6.485% due 10/20/07 6,142,013 6,144,777
HFC Home Equity Loan (FRN), Ser. 1993-1, Class A1, 6.260% due 5/20/08 4,676,359 4,674,862
HFC Revolving Home Equity Loan Trust (FRN), Ser. 1996-2, Class A, 6.109% due
2/20/18 6,931,695 6,933,774
HFC Revolving Home Equity Loan Trust, Ser. 1995-1, Class A1, 6.189% due 9/20/15 6,737,808 6,738,010
HFC Revolving Home Equity Loan Trust (FRN), Ser. 1994-2, Class A1, 6.199% due
9/20/14 9,100,094 9,072,247
Independent National Mortgage Corp. (FRN), Ser. 1996-A, Class A7, 6.445% due
9/25/26 3,933,317 3,944,173
Matterhorn, Ser. 9651, Class A, 6.375% due 1/21/06 2,552,783 2,552,783
MBNA Master Credit Card Trust (FRN), Ser. 1992-3, Class A, 6.475% due 12/15/99 5,100,000 5,103,774
MBNA Master Credit Card Trust, Ser. 1993-3, Class A, 5.400% due 9/15/00 14,705,000 14,613,388
Merrill Lynch Home Equity Loan (FRN), Ser. 1993-1, Class A, 6.500% due 2/15/03 46,952 46,952
Merrill Lynch Mortgage Investors, Inc. (FRN), Ser. 1993-F, Class A2, 6.100% due
9/15/23 5,637,087 5,726,886
Merrill Lynch Mortgage Investors, Inc. (FRN), Ser. 1994-F, Class A1, 6.000% due
4/15/19 1,426,333 1,426,034
MLCC Mortgage Investors, Inc. (FRN), Ser. 1995-B, Class A, 6.150% due 10/15/20 8,907,630 8,949,674
Money Store Home Equity Trust, Ser. 1996-C, Class A1, 6.700% due 9/15/08 1,609,853 1,607,133
</TABLE>
===========================================================================
U.S. Short-Term Portfolio - Schedule of Investments (continued)
December 31, 1997
===========================================================================
<TABLE>
<S> <C> <C>
Face
Amount Value
Asset- and Mortgage-Backed Securities (continued)
Nationsbank Auto Owner Trust, Ser. 1996-A, Class A2, 6.125% due 7/15/99 $ 1,819,353 $ 1,820,117
Oakwood Mortgage Investors, Inc. (FRN), Ser. 1997-A,Class A1, 6.061% due 5/15/27 325,950 326,022
Premier Auto Trust, Ser. 1995-1, Class A6, 8.050% due 4/4/00 9,472,275 9,529,393
Premier Auto Trust, Ser. 1995-3, Class A5, 6.150% due 3/6/00 5,500,000 5,505,830
Premier Auto Trust, Ser. 1997-1, Class A2, 5.900% due 4/6/00 11,201,128 11,199,223
Residential Asset Sec. Trust, Ser. 1997-A4, Class A9, 6.119% due 6/25/27 10,318,620 10,291,275
Residential Funding Mortgage Sec. I, Ser. 1993-S41, Class A1, 6.844% due 9/25/23 651,117 651,026
Santa Barbara Funding II (FRN), Ser. A, Class 1, 6.588% due 3/20/18 356,141 361,024
Sears Credit Account Master Trust, Ser. 1994-2, Class A, 7.250% due 7/16/01 2,548,333 2,551,239
Signet Credit Card Master Trust, Ser. 1993-1, Class A, 5.200% due 2/15/02 5,350,000 5,317,472
Standard Credit Card Master Trust, Ser. 1991-3, Class B, 9.250% due 9/7/99 7,150,000 7,294,001
Standard Credit Card Master Trust, Ser. 1991-6, Class A, 7.875% due 11/7/98 3,000,000 3,043,890
Student Loan Marketing Association (FRN), Ser. 1996-2, Class A1, 5.676% due
10/25/04 6,991,438 6,983,748
-----------------------
Total (Cost - $260,138,261) 259,916,688
-----------------------
Bank Obligations - 27.2%
Bank of Boston (Nassau) Time Deposit, 4.500% due 1/2/98 20,670,000 20,670,000
Bank of Montreal Time Deposit, 5.938% due 1/2/98 23,500,000 23,500,000
Banque Nationale de Paris Euro CD, 5.000% due 1/2/98 23,500,000 23,500,000
Den Danske Bank Time Deposit, 6.000% due 1/2/98 23,500,000 23,500,000
Republic National Bank New York Time Deposit, 5.500% due 1/2/98 23,500,000 23,500,000
Societe Generale Time Deposit, 4.500% due 1/2/98 18,000,000 18,000,000
-----------------------
Total (Cost - $132,670,000) 132,670,000
-----------------------
Corporate Obligations - 4.1%
Ameritech Capital Funding (FRN), 5.831% due 5/12/98 5,000,000 5,001,655
DuPont (E.I.) de Nemours & Co., 8.500% due 6/25/98 2,750,000 2,782,656
Salomon, Inc. (FRN), 6.906% due 2/14/00 12,000,000 12,245,556
-----------------------
Total (Cost - $20,015,232) 20,029,867
-----------------------
Commercial Paper - 4.0%*
Daimler Benz NA, 5.700% due 3/23/98 10,000,000 9,871,750
Woolwich Building Society plc, 5.650% due 6/5/98 10,000,000 9,756,736
-----------------------
Total (Cost - $19,628,486) 19,628,486
-----------------------
Foreign Obligations - 4.6%
Arkaig Finance Co. BV (FRN), 3.760% due 3/19/99 4,500,000 4,468,500
Halifax Building Society (FRN), 5.938% due 9/10/99 10,000,000 10,002,500
Okobank (FRN), Ser. BR, 7.200% due 10/29/49 3,600,000 3,663,000
Vattenfall Treasury AB, 6.000% due 6/10/98 4,000,000 4,000,000
-----------------------
Total (Cost - $22,182,863) 22,134,000
-----------------------
</TABLE>
===============================================================================
U.S. Short-Term Portfolio - Schedule of Investments (continued)
December 31, 1997
===============================================================================
<TABLE>
<S> <C> <C>
Face
Amount Value
U.S. Government Obligations - 7.9%
U.S. Treasury Bill, 5.497% due 1/8/98*@ $ 3,000,000 $ 2,997,261
U.S. Treasury Note, 5.750% due 10/31/02 200,000 200,250
U.S. Treasury Note, 5.750% due 11/30/02 35,000,000 35,032,795
-----------------------
Total (Cost - $38,256,310) 38,230,306
-----------------------
Total Investments - 101.2% (Cost - $492,891,152) 492,609,347
-----------------------
Other Assets and Liabilities - (1.2%) (5,703,699)
-----------------------
Net Assets - 100.0% $ 486,905,648
=======================
</TABLE>
Summary of Abbreviations
CD Certificate of Deposit
FRN Floating Rate Note
* Interest rate shown represents yield to maturity at date of purchase.
@ Security, or a portion thereof, is held in a margin account to cover open
financial futures contracts.
See Notes to Financial Statements.
==============================================================================
Stable Return Portfolio - Schedule of Investments
December 31, 1997
==============================================================================
<TABLE>
<S> <C> <C>
Face
Amount Value
Long-Term Investments - 110.2%
Asset- and Mortgage-Backed Securities - 46.1%
Bear Stearns Mtg. Securities, Inc., Ser. 1996-4, Class AI4, 7.350% due 9/25/27 $ 400,000 $ 401,876
Bear Stearns Mtg. Securities, Inc., Ser. 1996-5, Class A3, 7.250% due 9/25/27 539,193 538,740
Bear Stearns Mtg. Securities, Inc., Ser. 1996-8, Class A4, 7.250% due 11/25/27 668,000 668,675
California Infrastructure SCE-1, Ser. 1997-1, Class A2, 6.140% due 3/25/02 1,000,000 1,002,360
California Infrastructure SDG&E-1, Ser. 1997-1, Class A2, 6.040% due 3/25/02 1,000,000 1,001,220
Centrex Auto Trust, Ser. 1996-B, Class CTFS, 6.600% due 9/15/04 500,000 499,531
CIT RV Trust, Ser. 1997-A, Class A4, 6.200% due 10/16/06 1,250,000 1,251,800
Citicorp Mortgage Securities, Inc., Ser. 1993-7, Class A2, 7.000% due 8/25/21 1,000,000 1,003,670
FHLMC, Ser. 1625, Class DA, 5.500% due 7/15/04 2,000,000 1,994,600
FHLMC, Ser. 1733, Class PD, 7.250% due 1/15/17 500,000 504,875
Green Tree Financial Corp., Ser. 1997-6, Class A3, 6.320% due 1/15/29 1,000,000 1,003,860
Merrill Lynch Mortgage Investors, Inc., Ser. 1994-M1,Class B, 8.098% due 6/25/22 1,000,000 1,031,180
Navistar Financial Corp. Owner Trust, Ser. 1997-A, Class A3, 6.750% due 3/15/02 1,000,000 1,012,860
Norwest Asset Sec. Corp., Ser. 1997-6, Class A11, 7.500% due 5/25/27 1,000,000 1,016,275
Rental Car Finance Corp., Ser. 1997-1, Class A1, 6.250% due 6/25/03 1,500,000 1,498,593
Residential Accredit Loans, Inc., Ser. 1996-QS2, Class A3, 7.050% due 3/25/19 1,000,000 1,002,470
Residential Asset Sec. Trust, Ser. 1996-A5, Class A3, 7.750% due 9/25/26 1,000,000 1,006,240
Residential Funding Mortgage Sec. I, Ser. 1996-S20, Class A1, 7.100% due 9/25/26 1,000,000 1,009,180
World Omni Auto Lease Sec. Trust, Ser. 1997-A, Class A3, 6.850% due 6/25/03 1,000,000 1,007,360
--------------------------
Total (Cost - $18,374,660) 18,455,365
--------------------------
Corporate Obligations - 16.3%
Associates Corp. (144A), 6.450% due 9/15/00 (a) 500,000 501,150
Chase Manhattan Corp., 6.450% due 3/29/01 1,000,000 1,008,886
FNMA (MTN), 5.820% due 10/18/99 5,000,000 5,000,145
--------------------------
Total (Cost - $6,511,146) 6,510,181
--------------------------
Foreign Obligations - 1.0%
Industrial Fin. Corp. (144A), 6.875% due 4/1/03 (a) 250,000 211,732
Okobank (FRN), Ser. BR, 7.200% due 10/29/49 200,000 203,500
--------------------------
Total (Cost - $445,298) 415,232
--------------------------
U.S. Government Obligations - 46.8%
U.S. Treasury Note, 5.875% due 4/30/98 430,000 430,671
U.S. Treasury Note, 5.625% due 11/30/99 625,000 624,414
U.S. Treasury Note, 6.000% due 8/15/00 8,500,000 8,561,089
U.S. Treasury Note, 5.750% due 10/31/00 950,000 951,188
U.S. Treasury Note, 5.750% due 11/15/00 4,150,000 4,157,781
U.S. Treasury Note, 5.750% due 11/30/02 4,000,000 4,003,748
--------------------------
Total (Cost - $18,685,540) 18,728,891
--------------------------
--------------------------
Total Long-Term Investments (Cost - $44,016,644) 44,109,669
--------------------------
</TABLE>
===============================================================================
Stable Return Portfolio - Schedule of Investments (continued)
December 31, 1997
===============================================================================
<TABLE>
<S> <C> <C>
Face
Amount Value
Short-Term Investments - 4.4%
Bank of Boston (Nassau) Time Deposit, 4.500% due 1/2/98 $ 1,256,000 $ 1,256,000
U.S. Treasury Bill, 5.497% due 1/8/98*@ 500,000 499,544
--------------------------
Total (Cost - $1,755,498) 1,755,544
--------------------------
Total Investments - 114.6% (Cost - $45,772,142) 45,865,213
--------------------------
Other Assets and Liabilities - (14.6%) (5,835,997)
--------------------------
Net Assets - 100.0% $ 40,029,216
==========================
</TABLE>
Summary of Abbreviations
FRN Floating Rate Note
MTN Medium-Term Note
* Interest rate shown represents yield to maturity at date of purchase.
@ Security, or a portion thereof, is held in a margin account to cover open
financial futures contracts.
(a) Security exempt from registration under Rule 144A of Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At December 31,
1997, these securities were valued at $712,882 or 1.8% of net assets.
See Notes to Financial Statements.
============================================================================
Mortgage Total Return Portfolio - Schedule of Investments
December 31, 1997
============================================================================
<TABLE>
<S> <C> <C>
Face
Amount Value
Long-Term Investments - 161.3%
To Be Announced Mortgage Pools (TBAs) - 56.6%
FNMA Dwarf (TBA), 7.000% due 1/1/13 $ 36,000,000 $ 36,540,000
FNMA (TBA), 7.000% due 1/1/28 8,000,000 8,060,000
GNMA (TBA), 7.500% due (4/1/98-1/1/28) 276,683,825 283,401,155
GNMA (TBA), 8.000% due 1/1/28 41,000,000 42,531,096
------------------------
Total (Cost - $368,530,777) 370,532,251
------------------------
Mortgage Pools - 1.8%
FNMA, 6.500% due 3/1/11 21,817
21,906
GNMA, 7.500% due (12/15/98-10/15/23) 11,876,962 12,052,605
GNMA, 8.000% due 8/15/00 10,114
10,656
------------------------
Total (Cost - $11,597,536) 12,085,167
------------------------
Interest Only Obligations (IOs) - 8.1% *(a)
FHLMC IO, Ser. 188, Class IO, (7.824%-11.109%) due 10/1/27 21,915,084 20,095,036
FHLMC IO, Ser. 1164, Class I, (8.749%-11.627%) due 11/15/06 845,315 746,099
FHLMC IO, Ser. 1464, Class L, (10.241%-10.478%) due 6/15/22 1,499,939 1,377,000
FHLMC IO, Ser. 191, Class IO, 4.561% due 1/20/28 6,062,500 5,921,875
FHLMC IO, Ser. 1687, Class IO, (6.255%-7.326%) due 3/15/07 62,320
62,033
FNMA IO, Ser. 1992-148, Class C, (2.163%-3.669%) due 4/25/19 711,965 667,169
FNMA IO, Ser. 284, Class 2, (8.759%-10.496%) due 7/1/27 10,311,428 9,570,459
Prudential Home Mortgage Sec. IO, Ser. 1994-30, Class A11, (12.044%-14.255%)
due 10/25/24 1,026,342 780,023
Structured Asset Sec. Corp. IO, Ser. 1996-CFL, Class X1, (10.896%-12.437%)
due 2/25/28 3,978,071 3,975,243
Structured Asset Sec. Corp. IO, Ser. 1996-CFL, Class X2, (8.455%-13.572%)
due 2/25/28 2,069,905 2,321,797
Vendee Mortgage Trust IO, Ser. 1992-2, Class IO, (3.908%-8.422%) due 9/15/22 1,653,121 1,857,579
Vendee Mortgage Trust IO, Ser. 1994-2, Class 3IO, (9.118%-12.327%) due 6/15/24 304,017 324,342
Vendee Mortgage Trust IO, Ser. 1994-3A, Class 1IO, (8.235%-11.555%) due 9/15/24 1,043,729 1,165,167
Vendee Mortgage Trust IO, Ser. 1994-3B, Class 2IO, (3.215%-6.915%) due 9/15/24 535,406 543,016
Vendee Mortgage Trust IO, Ser. 1996-1, Class 1IO, (6.809%-10.907%) due 2/15/26 2,930,411 3,210,097
Vendee Mortgage Trust IO, Ser. 1996-2, Class 1IO, (7.933%-9.841%) due 6/15/26 389,819 385,585
------------------------
Total (Cost - $55,339,372) 53,002,520
------------------------
Principal Only Obligations (POs) - 19.6%*(a)
FHLMC PO, Ser. 188, Class PO, 7.557% due 10/1/27 143,714 143,714
FHLMC PO, Ser. 191, Class PO, 7.327% due 1/20/28 19,844,727 19,980,470
FHLMC PO, Ser. 1597, Class E, 6.638% due 7/15/23 3,752,212 3,758,879
FHLMC PO, Ser. 1907, Class LP, 5.617% due 6/15/20 4,641,602 4,648,401
FHLMC PO, Ser. 1957, Class PO, (4.544%-5.107%) due 10/25/23 1,484,649 1,907,653
FHLMC PO, Ser. 1969, Class U, 5.694% due 11/15/07 2,104,388 2,316,646
FHLMC PO, Ser. 2003, Class PC, 6.530% due 2/17/27 14,164,319 14,187,870
FNMA PO, Ser. 1990-73, Class K, (7.114%-7.659%) due 7/25/20 9,185,819 9,306,607
FNMA PO, Ser. 1993-111, Class B, (6.548%-9.167%) due 12/25/20 6,101,315 6,686,155
FNMA PO, Ser. 1993-100, Class J, (7.192%-8.535%) due 6/25/23 2,139,296 2,313,024
FNMA PO, Ser. 1993-100, Class L, 7.459% due 6/25/23 1,712,881 1,827,899
FNMA PO, Ser. 1993-100, Class M, (7.945%-8.376%) due 6/25/23 1,830,505 1,983,271
============================================================================
Mortgage Total Return Portfolio - Schedule of Investments (continued)
December 31, 1997
============================================================================
Face
Amount Value
- --------------------------------------------------------------------------------------------------------------------------------
Principal Only Obligations (POs) (continued)
FNMA PO, Ser. 1993-100, Class N, (7.326%-8.517%) due 6/25/23 $ 1,627,200 $ 1,759,170
FNMA PO, Ser. 1993-159, Class PA, (6.576%-7.122%) due 1/25/21 786,638 793,796
FNMA PO, Ser. 1993-128, Class C, (7.032%-7.387%) due 7/25/23 11,197,259 11,541,300
FNMA PO, Ser. 1993-157, Class E, (6.938%-9.028%) due 5/25/22 4,963,245 5,488,000
FNMA PO, Ser. 193-213, Class E, (6.380%-6.588%) due 9/25/23 321,987 321,931
FNMA PO, Ser. 1996-54, Class H, (5.547%-7.369%) due 11/25/23 2,022,585 2,706,600
FNMA PO, Ser. 1996-38, Class B, (5.115%-5.547%) due 11/25/23 4,325,846 5,811,845
FNMA PO, Ser. 274, Class 1, 7.717% due 10/1/25 6,372,033 6,514,553
FNMA PO, Ser. 280, Class 1, (7.447%-7.547%) due 1/1/26 23,862,650 24,260,783
------------------------
Total (Cost - $122,584,870) 128,258,567
------------------------
Collateralized Mortgage Obligations (CMOs) - 27.7%
CMC Securities Corp., Ser. 1993-E, Class S3, 5.500% due 11/25/08 140,371 139,779
Countrywide Funding Corp., Ser. 1994-10, Class A1, 6.000% due 5/25/09 2,656,679 2,646,716
Countrywide MBS, Inc. (FRN), Ser. 1993-D, Class A15, 3.550% due 1/25/09 4,010,473 3,196,347
CS First Boston Mortgage Corp., Ser. 1997-C2, Class A3, 6.550% due 11/17/07 5,000,000 5,040,625
FHLMC (FRN), Ser. 1615, Class SB, 4.071% due 11/15/08 (b) 4,025,900 3,262,054
FHLMC, Ser. 1349, Class PG, 6.500% due 5/15/14 625,085 624,585
FHLMC, Ser. 1415, Class M, 6.750% due 2/15/06 14,200,000 14,346,438
FHLMC, Ser. 1458, Class D, 6.250% due 4/15/03 118,401 118,227
FHLMC, Ser. 1511, Class L, 6.000% due 5/15/08 10,175,073 9,809,788
FHLMC, Ser. 1614, Class K, 10.000% due 6/15/20 3,750,133 3,964,593
FHLMC, Ser. 1765-B, Class BA, 10.000% due 1/15/17 3,843,213 3,994,540
FNMA (FRN), Ser. 1993-156, Class FA, 6.525% due 5/25/16 15,867,697 15,927,201
FNMA (FRN), Ser. 1994-17, Class F, 6.725% due 2/25/09 35,377,929 35,665,375
FNMA, Ser. 1997-13, Class QA, 6.500% due 3/18/09 6,502,947 6,517,172
FNMA (FRN), Ser. 1997-17, Class FB, 6.630% due 2/18/25 6,540,000 6,574,008
FNMA (FRN), Ser. 1997-39, Class F, 6.630% due 9/18/26 22,138,356 22,276,720
FNMA, Ser. G93-10, Class H, 5.000% due 8/25/22 4,800,000 4,250,880
FNMA, Ser. X-89B (FRN), 6.575% due 3/25/09 13,851,666 13,933,390
GMAC Mtg. Securities, Inc., Ser. 1997-C2, Class A3, 6.566% due 11/15/07 7,000,000 7,055,782
Matterhorn 96s1 A Coupon, 6.375% due 1/21/06 2,370,442 2,370,812
Paine Webber MAC (FRN), Ser. 1994-6, Class A9, 2.925% due 4/25/09 (b) 1,900,000 1,423,037
Prudential Home Mortgage Sec. (FRN), Ser. 1993-13, Class A3, 6.775% due 4/25/08 17,151,457 17,280,092
Prudential Home Mortgage Securities, Ser. 1994-15, Class A3, 6.800% due 5/25/24 172,092 171,850
Resolution Trust Corp. (FRN), Ser. 1993-C3, Class A3, 6.875% due 12/25/24 1,290,678 1,291,485
------------------------
Total (Cost - $179,777,658) 181,881,496
------------------------
Asset-Backed Securities - 43.4%
Amresco Residential Mortgage (FRN), Ser. 1997-3, Class A10, 6.067% due 7/25/27 27,855,105 27,828,990
Beneficial Mortgage Corp. (FRN), Ser. 1995-1, Class A1, 6.189% due 3/28/25 7,673,713 7,680,108
Beneficial Mortgage Corp. (FRN), Ser. 1996-1, Class A, 6.149% due 4/28/26 2,678,506 2,679,063
Carco Auto Loan Master Trust (FRN), Ser. 1995-1, Class A, 5.785% due 6/15/00 15,000,000 15,004,688
Citibank Credit Card (FRN), Ser. 1997-10, Class B, 5.754% due 11/15/01 32,000,000 31,966,250
Corestates Home Equity Trust, Ser. 1994-2, Class A1, 7.000% due 11/15/02 161,916 162,118
CTS Adjustable Rate Mortgage Trust, Ser. 1995-1, Class A, 6.735% due 5/25/26 3,508,152 3,523,500
EQCC Home Equity Loan Trust, Ser. 1997-3, Class A7, 6.930% due 2/15/29 10,700,000 10,812,016
First Chicago Master Trust II, Ser. 1993-F, Class A, 5.925% due 2/15/00 13,600,000 13,612,750
First USA Credit Card Master Trust, Ser. 1994-6, Class A, 5.913% due 10/15/03 7,100,000 7,144,375
</TABLE>
===============================================================================
Mortgage Total Return Portfolio - Schedule of Investments (continued)
December 31, 1997
===============================================================================
<TABLE>
<S> <C> <C>
Face
Amount Value
- --------------------------------------------------------------------------------------------------------------------------------
Asset-Backed Securities (continued)
Homart A1, 6.625% due 12/29/98 $ 12,575,000 $ 12,575,000
Mellon Bank Home Equity Loan Trust, Ser. 1996-1, Class A1, 6.170% due 4/15/26 16,800,000 16,794,750
MLCC Mortgage Investors, Inc. (FRN), Ser. 1995-B, Class A, 6.525% due 10/15/20 15,588,352 15,663,847
Residential Accredit Loans, Inc., Ser. 1997-QS11, Class A1, 7.000% due 10/25/12 65,581,183 66,114,030
Residential Asset Sec. Corp., Ser. 1997-KS3, Class AI1, 6.064% due 8/25/27 6,210,199 6,206,318
Residential Funding Mtg. Sec. I, Ser. 1993-S36, Class A3, 5.065% due 10/25/08 706,996 700,589
Residential Funding Mtg. Securities (FRN), Ser. 1997-HS2, Class A, 6.124% due
9/20/22 25,729,055 25,672,773
Signet Home Equity Loan Corp. Tr. (FRN), Ser. 1995-A,Class A,5.895% due 6/20/04 6,219,278 6,225,108
Structured Asset Sec. Corp., Ser. 1996-CFL, Class A2A, 7.750% due 2/25/28 8,085,207 8,177,430
Vanderbilt Mortgage Finance, Ser. 1997-B, Class 2A1, 6.230% due 11/7/12 5,622,969 5,619,455
------------------------
Total (Cost - $284,437,859) 284,163,158
------------------------
U.S. Treasury Securities - 4.1%
U.S. Treasury Bond, 6.625% due 2/15/27 25,000,000 27,132,825
------------------------
(Cost - $26,943,041)
Total Long-Term Investments (Cost - $1,049,211,113) 1,057,055,984
------------------------
Short-Term Investments - 2.1%
Bank of Boston (Nassau) Time Deposit, 4.500% due 1/2/98 4,996,000 4,996,000
U.S. Treasury Bill, 5.300% due 1/8/98*@ 4,500,000 4,494,510
U.S. Treasury Bill, 5.260% due 5/28/98*@ 4,000,000 3,913,841
------------------------
Total (Cost - $13,405,284) 13,404,351
------------------------
Long Options - 0.3% Contracts
3-month LIBOR, 8.000% Strike, Expiring 11/14/01
22 50,479
3-month LIBOR, 8.500% Strike, Expiring 11/14/02 106,704
38
June 98 10 Yr. Note, $112 Strike, Expiring 5/16/98 1,371 2,099,344
------------------------
Total (Cost - $2,308,474) 2,256,527
------------------------
Total Investments - 163.7% (Cost - $1,064,924,871) 1,072,716,862
------------------------
Other Assets and Liabilities - (63.7%) (417,445,611)
------------------------
Net Assets - 100.0% $ 655,271,251
</TABLE>
Summary of Abbreviations
FRN Floating Rate Note
LIBOR London Interbank Offered Rate
* Interest rate shown represents yield to maturity at date of purchase.
(a) Face amount shown represents amortized cost.
(b) Inverse floater
@ Security, or a portion thereof, is held in a margin account to cover open
financial futures contracts.
See Notes to Financial Statements.
=============================================================================
Worldwide Portfolio - Schedule of Investments
December 31, 1997
=============================================================================
<TABLE>
<S> <C> <C> <C> <C>
Face
Amount (a) Value
Long-Term Investments - 79.0%
Denmark - 3.4%
Kingdom of Denmark, 7.000% due 11/10/24
(Cost - $2,639,514) DKK 17,400,000 US $2,834,982
--------------
Germany - 9.8%
Bundesschatzanweis, Ser. 97, 4.000% due 9/17/99 DEM 4,600,000 2,555,015
Bundesschatzanweis, Ser. 97, 4.250% due 12/17/99 DEM 4,900,000 2,731,733
Deutschland Republic, 6.500% due 7/4/27 DEM 4,550,000 2,741,894
--------------
Total (Cost - $8,037,015) 8,028,642
--------------
Japan - 2.7%
Government of Japan (157), 4.500% due 6/20/03 JPY 251,000,000 2,238,167
--------------
(Cost - $2,240,069)
Netherlands - 2.3%
Bank Nederlandse Gemeenten, 6.750% due 10/3/05
(Cost - $2,186,233)
New Zealand - 1.7%
New Zealand Government, 8.000% due 2/15/01 NZD 800,000 472,125
New Zealand Government, 8.000% due 11/15/06 NZD 1,500,000 925,878
--------------
Total (Cost - $1,630,726) 1,398,003
--------------
Sweden - 1.1%
Swedish Government, 8.000% due 8/15/07
(Cost - $910,621) SEK 6,100,000 882,164
--------------
United Kingdom - 8.6%
United Kingdom Treasury, 8.000% due 6/10/03 GBP 2,100,000 3,689,698
United Kingdom Treasury, 7.250% due 12/7/07 GBP 1,900,000 3,349,046
--------------
Total (Cost - $7,043,733) 7,038,744
--------------
United States - 49.4%
Capital Credit Card Corp., Ser. 96-A, 5.625% due 8/15/01 DEM 2,300,000 1,378,514
CIT RV Trust, Ser. 1997-A, Class A1, 5.800% due 12/15/98 2,346,145 2,346,825
Citibank Credit Card Master Trust I, Ser. A, 5.750% due 7/16/07 DEM 3,700,000 2,062,258
Discover Card Master Trust I (FRN), Ser. 1994-2, Class A, 6.330% due 3,000,000 3,025,740
10/16/04
FHLMC, Ser. 1985, Class PA, 6.250% due 11/17/04 2,648,346 2,644,027
Key Auto Finance Trust, Ser. 1997-2, Class A1, 5.835% due 1/5/99 4,000,000 3,998,750
U.S. Treasury Note, 5.875% due 9/30/02 3,110,000 3,128,464
U.S. Treasury Note, 5.750% due 10/31/02 4,010,000 4,015,013
</TABLE>
=============================================================================
Worldwide Portfolio - Schedule of Investments (continued)
December 31, 1997
=============================================================================
<TABLE>
<S> <C> <C>
Face
Amount (a) Value
United States (continued)
U.S. Treasury Note, 5.750% due 11/30/02 2,420,000 US $ 2,422,268
U.S. Treasury Note, 7.000% due 7/15/06 420,000 453,469
U.S. Treasury Note, 6.250% due 2/15/07 1,600,000 1,651,499
U.S. Treasury Note, 6.625% due 5/15/07 3,520,000 3,726,800
U.S. Treasury Note, 6.125% due 8/15/07 1,320,000 1,356,712
U.S. Treasury Bond, 7.625% due 2/15/25 5,120,000 6,212,797
U.S. Treasury Bond, 6.500% due 11/15/26 2,090,000 2,231,075
--------------
Total (Cost - $39,691,761) 40,654,211
--------------
Total Long-Term Investments (Cost - $64,379,672) 64,975,769
-------------
Short-Term Investments - 23.7%
Bank of Boston (Nassau) Time Deposit, 4.500% due 1/2/98 8,656,000 8,656,000
Bank of Montreal Yankee CD, 5.750% due 1/26/98 3,000,000 3,000,000
Morgan Guaranty Yankee CD, 5.850% due 3/16/98 2,000,000 1,999,921
Natwest Yankee CD, 5.800% due 1/7/98 2,000,000 2,000,199
National Australia Euro CD, 5.800% due 3/3/98 3,000,000 3,000,073
U.S. Treasury Bill, 3.869% due 1/15/98*@ 800,000 798,710
--------------
Total (Cost - $19,454,615) 19,454,903
--------------
Total Investments - 102.7% (Cost - $83,834,287) 84,430,672
--------------
Other Assets and Liabilities - (2.7%) (2,194,928)
--------------
Net Assets - 100.0% US $ 82,235,744
</TABLE>
Summary of Abbreviations
CD Certificate of Deposit
DEM German Deutschemark
DKK Danish Krone
FRN Floating Rate Note
GBP Great British Pound
JPY Japanese Yen
NLG Netherlands Guilder
NZD New Zealand Dollar
SEK Swedish Krona
* Interest rate shown represents yield to maturity at date of purchase.
@ Security, or a portion thereof, is held in a margin account to cover open
financial futures contracts.
(a) Face amount shown in U.S. dollars unless otherwise indicated.
See Notes to Financial Statements.
=============================================================================
Worldwide-Hedged Portfolio - Schedule of Investments
December 31, 1997
=============================================================================
<TABLE>
<S> <C> <C> <C> <C>
Face
Amount (a) Value
Long-Term Investments - 66.2%
Denmark - 2.5%
Kingdom of Denmark, 7.000% due 11/10/24
(Cost - $1,852,557) DKK 12,200,000 US $ 1,987,746
------------------
Germany - 6.8%
Bundesschatzanweis, Ser. 97, 4.000% due 9/17/99 DEM 3,600,000 1,999,577
Bundesschatzanweis, Ser. 97, 4.250% due 12/17/99 DEM 3,800,000 2,118,487
Deutschland Republic, 6.500% due 7/4/27 DEM 2,200,000 1,325,751
------------------
Total (Cost - $5,482,118) 5,443,815
------------------
Japan - 3.2%
Government of Japan (157), 4.500% due 6/20/03
(Cost - $2,570,278) JPY 288,000,000 2,568,096
------------------
New Zealand - 1.2%
New Zealand Government, 8.000% due 2/15/01 NZD 300,000 177,047
New Zealand Government, 8.000% due 11/15/06 NZD 1,290,000 796,255
------------------
Total (Cost - $1,129,447) 973,302
------------------
Sweden - 0.8%
Swedish Government, 8.000% due 8/15/07
(Cost - $701,626) SEK 4,700,000 679,700
------------------
United Kingdom - 7.9%
United Kingdom Treasury, 8.000% due 6/10/03 GBP 1,600,000 2,811,198
United Kingdom Treasury, 7.250% due 12/7/07 GBP 2,000,000 3,525,312
------------------
Total (Cost - $6,345,225) 6,336,510
------------------
United States - 43.8%
Capital Credit Card Corp., Ser. 96-A, 5.625% due 8/15/01 DEM 1,800,000 1,078,837
CIT RV Trust, Ser. 1997-A, Class A1, 5.800% due 12/15/98 2,346,144 2,346,825
Citibank Credit Card Master Trust I, Ser. A, 5.750% due 7/16/07 DEM 2,900,000 1,616,364
Discover Card Master Trust I (FRN), Ser. 1994-2, Class A, 6.330% due
10/16/04 3,000,000 3,025,740
Key Auto Finance Trust, Ser. 1997-2, Class A1, 5.835% due 1/5/99 2,000,000 1,999,375
U.S. Treasury Note, 5.875% due 9/30/02 5,150,000 5,180,576
U.S. Treasury Note, 5.750% due 10/31/02 3,150,000 3,153,938
U.S. Treasury Note, 5.750% due 11/30/02 2,140,000 2,142,005
U.S. Treasury Note, 7.000% due 7/15/06 370,000 399,484
U.S. Treasury Note, 6.250% due 2/15/07 920,000 949,612
U.S. Treasury Note, 6.625% due 5/15/07 2,730,000 2,890,388
U.S. Treasury Note, 6.125% due 8/15/07 3,670,000 3,772,070
</TABLE>
==============================================================================
Worldwide-Hedged Portfolio - Schedule of Investments (continued)
December 31, 1997
==============================================================================
<TABLE>
<S> <C> <C> <C>
Face
Amount (a) Value
United States (continued)
U.S. Treasury Bond, 7.625% due 2/15/25 3,560,000 US $ 4,319,836
U.S. Treasury Bond, 6.500% due 11/15/26 2,200,000 2,348,500
------------------
Total (Cost - $34,456,318) 35,223,550
------------------
Total Long-Term Investments (Cost - $52,537,569) 53,212,719
------------------
Short-Term Investments - 35.8%
ABN/Amro NA Finance, Inc. CP, 5.570% due 2/24/98* 2,000,000 1,983,290
Bank of Boston (Nassau) Time Deposit, 4.500% due 1/2/98 19,170,000 19,170,000
Bank of Montreal Yankee CD, 5.750% due 1/26/98 2,000,000 2,000,000
FHLB (FRN), 5.696% due 3/19/98 1,000,000 1,000,460
Morgan Guaranty Yankee CD, 5.850% due 3/16/98 2,000,000 1,999,921
Natwest Yankee CD, 5.800% due 1/7/98 2,000,000 2,000,199
U.S. Treasury Bill, 3.869% due 1/15/98*@ 600,000 599,033
------------------
Total (Cost - $28,752,069) 28,752,903
------------------
Total Investments - 102.0% (Cost - $81,289,638) 81,965,622
------------------
Other Assets and Liabilities - (2.0%) (1,576,025)
------------------
Net Assets - 100.0% US $80,389,597
==================
</TABLE>
Summary of Abbreviations
CD Certificate of Deposit
CP Commercial Paper
DEM German Deutschemark
DKK Danish Krone
FRN Floating Rate Note
GBP Great British Pound
JPY Japanese Yen
NZD New Zealand Dollar
SEK Swedish Krona
* Interest rate shown represents yield to maturity at date of purchase.
@ Security, or a portion thereof, is held in a margin account to cover open
financial futures contracts.
(a) Face amount shown in U.S. dollars unless otherwise indicated.
See Notes to Financial Statements.
===============================================================================
International Portfolio - Schedule of Investments
December 31, 1997
===============================================================================
<TABLE>
<S> <C> <C> <C> <C>
Face
Amount (a) Value
Long-Term Investments - 51.3%
Denmark - 5.0%
Kingdom of Denmark, 7.000% due 11/10/24
(Cost - $3,170,230) DKK 20,600,000 US $3,356,358
-----------------
Germany - 10.9%
Bundesschatzanweis, Ser. 97, 4.000% due 9/17/99 DEM 4,500,000 2,499,471
Bundesschatzanweis, Ser. 97, 4.250% due 12/17/99 DEM 4,800,000 2,675,983
Deutschland Republic, 6.500% due 7/4/27 DEM 3,600,000 2,169,410
-----------------
Total (Cost - $7,373,085) 7,344,864
-----------------
Japan - 3.8%
Government of Japan (157), 4.500% due 6/20/03 JPY 131,000,000 1,168,127
Government of Japan (184), 2.900% due 12/20/05 JPY 172,000,000 1,430,180
-----------------
Total (Cost - $2,632,832) 2,598,307
-----------------
New Zealand - 0.8%
New Zealand Government, 8.000% due 2/15/01 NZD 350,000 206,555
New Zealand Government, 8.000% due 11/15/06 NZD 520,000 320,971
-----------------
Total (Cost - $627,455) 527,526
-----------------
Sweden - 1.6%
Swedish Government, 8.000% due 8/15/07
(Cost - $1,115,390) SEK 7,500,000 1,084,628
-----------------
United Kingdom - 14.6%
United Kingdom Treasury, 8.000% due 6/10/03 GBP 2,000,000 3,513,998
United Kingdom Treasury, 7.250% due 12/7/07 GBP 3,600,000 6,345,562
-----------------
Total (Cost - $9,877,640) 9,859,560
-----------------
United States - 14.6%
U.S. Treasury Note, 5.750% due 10/31/02 3,940,000 3,944,925
U.S. Treasury Note, 6.250% due 2/15/07 180,000 185,794
U.S. Treasury Note, 6.625% due 5/15/07 3,250,000 3,440,938
U.S. Treasury Note, 6.125% due 8/15/07 2,250,000 2,312,577
-----------------
Total (Cost - $9,802,307) 9,884,234
-----------------
Total Long-Term Investments (Cost - $34,598,939) 34,655,477
-----------------
</TABLE>
============================================================================
International Portfolio - Schedule of Investments (continued)
December 31, 1997
============================================================================
<TABLE>
<S> <C> <C> <C>
Face
Amount (a) Value
Short-Term Investments - 54.7%
Abbey National plc Euro CD, 5.760% due 2/17/98 3,000,000 US $ 3,000,000
Bank of Boston (Nassau) Time Deposit, 4.500% due 1/2/98 11,490,000 11,490,000
Bayerische Landesbank Euro CD, 5.680% due 2/23/98 2,000,000 2,000,060
FHLMC (DN), 5.625% due 3/10/98* 5,000,000 4,946,875
FHLMC (FRN), 5.749% due 6/22/98 5,000,000 4,999,775
Morgan Guaranty Yankee CD, 5.850% due 3/16/98 1,000,000 999,961
Morgan Guaranty, 5.740% due 3/4/98 2,000,000 2,000,049
Natwest Yankee CD, 5.800% due 1/7/98 1,000,000 1,000,099
Toronto Dominion CD, 5.760% due 2/27/98 3,000,000 3,000,000
U.S. Treasury Bill, 3.869% due 1/15/98*@ 600,000 599,032
Westdeutsche Landesbank Yankee CD, 5.880% due 1/12/98 3,000,000 3,000,000
--------------------
Total (Cost - $37,033,994) 37,035,851
--------------------
Total Investments - 106.0% (Cost - $71,632,933) 71,691,328
--------------------
Other Assets and Liabilities - (6.0%) (4,038,690)
--------------------
Net Assets - 100.0% US $ 67,652,638
====================
</TABLE>
Summary of Abbreviations
CD Certificate of Deposit
DEM German Deutschemark
DKK Danish Krone
DN Discount Note
FRN Floating Rate Note
GBP Great British Pound
JPY Japanese Yen
NZD New Zealand Dollar
SEK Swedish Krona
* Interest rate shown represents yield to maturity at date of purchase.
@ Security, or a portion thereof, is held in a margin account to cover open
financial futures contracts.
(a) Face amount shown in U.S. dollars unless otherwise indicated.
See Notes to Financial Statements.
============================================================================
International-Hedged Portfolio - Schedule of Investments
December 31, 1997
============================================================================
<TABLE>
<S> <C> <C> <C> <C>
Face
Amount (a) Value
Long-Term Investments - 89.7%
Denmark - 7.2%
Kingdom of Denmark, 7.000% due 11/10/24
(Cost - $19,540,836) DKK 124,100,000 US $ 20,219,613
-------------------
Germany - 21.4%
Bundesobligation, Series 117, 5.125% due 11/21/00 DEM
1,000 567
Bundesschatzanweis, Ser. 97, 4.000% due 9/17/99 DEM 25,000,000 13,885,950
Bundesschatzanweis, Ser. 97, 4.250% due 12/17/99 DEM 47,100,000 26,258,086
Deutschland Republic, 6.500% due 7/4/27 DEM 33,700,000 20,308,092
-------------------
Total (Cost - $60,132,373) 60,452,695
-------------------
Italy - 3.6%
Buoni Poliennali del Tes, 8.750% due 7/1/06
(Cost - $9,260,864) ITL 15,000,000,000 10,290,000
-------------------
New Zealand - 1.1%
New Zealand Government, 8.000% due 2/15/01 NZD 2,000,000 1,180,312
New Zealand Government, 8.000% due 11/15/06 NZD 3,210,000 1,981,379
-------------------
Total (Cost - $3,688,003) 3,161,691
-------------------
Spain - 0.0%
Bonos y Obligaciones del Estado, 12.250% due 3/25/00
(Cost - $1,014) ESP 120,000 912
-------------------
Sweden - 2.0%
Swedish Government, 8.000% due 8/15/07
(Cost - $5,836,930) SEK 39,100,000 5,654,525
-------------------
United Kingdom - 14.0%
United Kingdom Treasury, 8.000% due 6/10/03 GBP 16,000,000 28,111,984
United Kingdom Treasury, 7.250% due 12/7/07 GBP 6,500,000 11,457,264
-------------------
Total (Cost - $39,534,591) 39,569,248
-------------------
United States - 40.4%
Beneficial Mortgage Corp. (FRN), Ser. 1996-1, Class A, 6.149% due 4/28/26 1,879,656 1,861,179
Beneficial Mortgage Corp. (FRN), Ser. 1997-1, Class A, 5.849% due 5/28/37 5,341,444 5,329,533
Beneficial Mortgage Corp. (FRN), Ser. 1997-2, Class A, 6.089% due 9/28/37 7,145,269 7,131,836
Bombardier Receivables Master Trust I (FRN), Ser. 1997-1, Class A, 6.100%
due 4/15/04 3,000,000 3,002,400
Capital Credit Card Corp., Ser. 96-A, 5.625% due 8/15/01 DEM 9,000,000 5,394,186
Capital One Master Trust (FRN), Ser. 1995-3, Class A, 6.130% due 12/15/03 8,000,000 8,013,200
Capital One Master Trust (FRN), Ser. 1996-2, Class A, 6.080% due 2/15/05 8,000,000 7,999,920
Carco Auto Loan Master Trust, Ser. 1993-1, Class A, 6.030% due 1/18/00 4,000,000 4,000,520
Case Equipment Loan Trust, Ser. 1997-A, Class A2, 6.000% due 3/15/04 4,808,938 4,810,381
CIT RV Trust, Ser. 1997-A, Class A1, 5.800% due 12/15/98 7,820,481 7,822,749
</TABLE>
==============================================================================
International-Hedged Portfolio - Schedule of Investments (continued)
December 31, 1997
==============================================================================
<TABLE>
<S> <C> <C> <C>
Face
Amount (a) Value
United States (continued)
Contimortgage Home Equity Loan Trust, Ser. 1997-3, Class A1, 6.420% due 4/15/07 2,048,917 US $ 2,044,902
Croatia Government (FRN), Ser. B, 6.625% due 7/31/06 1,604,999 1,422,430
Discover Card Master Trust I (FRN), Ser. 1994-2, Class A, 6.330% due 10/16/04 8,000,000 8,068,640
First Chicago Master Trust II, Ser. 1992-E, Class A, 6.250% due 8/15/99 766,668 765,042
Key Auto Finance Trust, Ser. 1997-2, Class A1, 5.835% due 1/5/99 5,000,000 4,998,437
KeyCorp Student Loan Trust (FRN), Ser. 1997-1, Class A1, 5.950% due 7/27/06 5,000,000 5,008,594
MBNA Master Credit Card Trust (FRN), Ser. 1993-1, Class A, 6.425% due 3/15/00 4,500,000 4,502,475
Premier Auto Trust, Ser. 1995-3, Class A4, 6.100% due 7/6/99 3,856,122 3,858,012
Sears Credit Account Master Trust, Ser. 1994-2, Class A, 7.250% due 7/16/01 1,575,000 1,576,796
Triangle Funding, Ltd. (FRN), Ser. 1997-1X, Class 1, 5.750% due 11/15/98 8,000,000 8,000,000
U.S. Treasury Note, 5.625% due 12/31/02 10,500,000 10,460,625
U.S. Treasury Note, 6.625% due 5/15/07 1,130,000 1,196,387
U.S. Treasury Note, 6.125% due 8/15/07 6,940,000 7,133,015
-------------------
Total (Cost - $114,387,682) 114,401,259
-------------------
Total Long-Term Investments (Cost - $252,382,293) 253,749,943
-------------------
Short-Term Investments - 13.4%
Abbey National plc Euro CD, 5.760% due 2/17/98 8,000,000 8,000,000
Bank of Boston (Nassau) Time Deposit, 4.500% due 1/2/98 5,685,000 5,685,000
FHLMC (FRN), 5.749% due 6/22/98 3,000,000 2,999,865
Glaxo Wellcome CP, 5.570% due 1/27/98* 8,000,000 7,967,818
Toronto Dominion CD, 5.760% due 2/27/98 10,000,000 10,000,000
U.S. Treasury Bill, 3.869% due 1/15/98*@ 3,400,000 3,394,519
-------------------
Total (Cost - $38,045,019) 38,047,202
-------------------
Total Investments - 103.1% (Cost - $290,427,312) 291,797,145
-------------------
Other Assets and Liabilities - (3.1%) (8,791,865)
-------------------
Net Assets - 100.0% US $283,005,280
</TABLE>
Summary of Abbreviations
CD Certificate of Deposit
CP Commercial Paper
DEM German Deutschemark
DKK Danish Krone
ESP Spanish Peseta
FRN Floating Rate Note
GBP Great British Pound
ITL Italian Lira
NZD New Zealand Dollar
SEK Swedish Krona
* Interest rate shown represents yield to maturity at date of purchase.
@ Security, or a portion thereof, is held in a margin account to cover open
financial futures contracts.
(a) Face amount shown in U.S. dollars unless otherwise indicated.
See Notes to Financial Statements.
==============================================================================
Emerging Markets Portfolio - Schedule of Investments
December 31, 1997
==============================================================================
<TABLE>
<S> <C> <C> <C> <C>
Face
Amount (a) Value
Long-Term Investments - 54.1%
Argentina - 5.9%
Republic of Argentina (FRN), 9.500% due 11/30/02 2,000,000 US $ 1,985,000
Republic of Argentina, 11.750% due 2/12/07 ARP 2,700,000 2,552,010
Republic of Argentina (144A), 11.750% due 2/12/07 (b) 1,000,000 945,000
Republic of Argentina, 5.500% due 3/31/23 1,500,000 1,100,625
-------------------
Total (Cost - $6,832,463) 6,582,635
-------------------
Brazil - 3.7%
Brazil Discount Bond (FRN), 6.688% due 4/15/24 1,250,000 995,125
Republic of Brazil (FRN), Ser. A, 6.813% due 1/1/01 2,355,000 2,246,670
Republic of Brazil, 8.000% due 4/15/14 1,145,690 899,367
-------------------
Total (Cost - $4,134,515) 4,141,162
-------------------
Bulgaria - 3.0%
Bulgaria Discount Bond (FRN), Ser. A, 6.688% due 7/28/24 3,250,000 2,486,250
Bulgaria Government, 2.250% due 7/28/12 1,500,000 888,000
-------------------
Total (Cost - $3,446,205) 3,374,250
-------------------
Colombia - 2.1%
Republic of Colombia, 8.375% due 2/15/27
(Cost - $2,299,073) 2,500,000 2,311,820
-------------------
Croatia - 1.6%
Croatia Government (FRN), Ser. B, 6.625% due 7/31/06 944,117 836,724
Croatia Government (FRN), Ser. A, 6.625% due 7/31/10 1,000,000 872,700
-------------------
Total (Cost - $1,773,513) 1,709,424
-------------------
Ecuador - 2.5%
Ecuador (FRN), 6.688% due 2/27/15 1,660,695 1,087,755
Ecuador Discount Bond (FRN), 6.688% due 2/28/25 2,250,000 1,695,937
-------------------
Total (Cost - $2,802,820) 2,783,692
-------------------
Greece - 1.9%
Hellenic Republic, 8.800% due 6/19/07
(Cost - $2,258,820) GRD 650,000,000 2,106,821
-------------------
</TABLE>
==============================================================================
Emerging Markets Portfolio - Schedule of Investments (continued)
December 31, 1997
==============================================================================
<TABLE>
<S> <C> <C> <C> <C>
Face
Amount (a) Value
Hungary - 1.5%
Hungary Government Bond, 21.500% due 10/3/98
(Cost - $1,745,195) HUF 340,000,000 US $ 1,694,139
-------------------
Indonesia - 0.8%
Indonesia Government, 21.000% due 8/29/00
(Cost - $1,801,811) IDR 5,000,000,000 934,579
-------------------
Mexico - 5.6%
Mexican Unibonds, 6.000% due 9/26/02 MXN 17,503,830 2,184,960
United Mexican States, 6.250% due 12/31/19 1,250,000 1,043,750
United Mexican States, 11.500% due 5/15/26 2,500,000 2,962,500
-------------------
Total (Cost - $6,135,511) 6,191,210
-------------------
Morocco - 1.9%
Morocco (FRN), Ser. A, 6.656% due 1/1/09
(Cost - $2,130,000) 2,500,000 2,150,000
-------------------
Nigeria - 2.2%
Nigeria (Central Bank), 6.250% due 11/15/20
(Cost - $2,458,345) 3,500,000 2,450,000
-------------------
Panama - 4.9%
Panama (Republic of), 8.875% due 9/30/27 4,500,000 4,234,500
Panama - IRB (FRN), Ser. 18 yr, 3.750% due 7/17/14 1,500,000 1,145,625
-------------------
Total (Cost - $5,192,137) 5,380,125
-------------------
Peru - 2.7%
Peru - Past Due Interest, 4.000% due 3/7/17
(Cost - $2,993,868) 4,500,000 2,947,500
-------------------
The Philippines - 0.7%
Bangko Sentral Pilipinas, 8.600% due 6/15/27
(Cost - $853,075) 1,000,000 810,000
-------------------
Poland - 0.9%
Poland - Global Step Bond (FRN), 3.750% due 10/27/24
(Cost - $978,925) 1,500,000 1,012,500
-------------------
</TABLE>
===============================================================================
Emerging Markets Portfolio - Schedule of Investments (continued)
December 31, 1997
===============================================================================
<TABLE>
<S> <C> <C> <C> <C>
Face
Amount (a) Value
Russia - 3.4%
City of Moscow, 9.500% due 5/31/00 1,000,000 US $ 960,900
Ministry Finance of Russia (144A), 10.000% due 6/26/07 (b) 3,000,000 2,775,000
-------------------
Total (Cost - $3,839,927) 3,735,900
-------------------
South Africa - 2.7%
Republic of South Africa, 8.375% due 10/17/06 1,000,000 1,005,000
Republic of South Africa, 12.500% due 12/12/06 ZAR 10,500,000 2,006,528
-------------------
Total (Cost - $3,129,320) 3,011,528
-------------------
Turkey - 1.2%
Pera Financial Services (144A), 9.375% due 10/15/02 (b)
(Cost - $1,502,898) 1,500,000 1,380,000
-------------------
Uruguay - 1.1%
Banco Central del Uruguay, Series B, 6.750% due 2/19/21
(Cost - $1,150,598) 1,250,000 1,215,000
-------------------
Venezuela - 3.8%
Republic of Venezuela (FRN), 6.813% due 12/18/07 952,381 853,571
Venezuela, 9.250% due 9/15/27 3,743,000 3,336,884
-------------------
Total (Cost - $4,119,364) 4,190,455
-------------------
Total Long-Term Investments (Cost - $61,578,383) 60,112,740
-------------------
Short-Term Investments - 23.1%
Mexico - 1.8%
Mexican Cetes due 6/4/98 (c)
(Cost - $2,075,977) MXN 17,500,000 2,001,861
-------------------
Poland - 2.0%
Polish Treasury Bill due 9/16/98 (c) PLZ 4,300,000 1,042,040
Polish Treasury Bill due 9/23/98 (c) PLZ 5,000,000 1,206,805
-------------------
Total (Cost - $2,323,228) 2,248,845
-------------------
United States - 19.3%
Abbey National plc Euro CD, 5.760% due 2/17/98 2,000,000 2,000,000
Bank of Boston (Nassau) Time Deposit, 4.500% due 1/2/98 10,010,000 10,010,000
</TABLE>
============================================================================
Emerging Markets Portfolio - Schedule of Investments (continued)
December 31, 1997
============================================================================
<TABLE>
<S> <C> <C> <C>
Face
Amount (a) Value
United States (continued)
Banque National de Paris Euro CD, 5.770% due 2/26/98 2,000,000 US $ 2,000,040
National Australia Euro CD, 5.800% due 3/3/98 2,000,000 2,000,049
Toronto Dominion CD, 5.760% due 2/27/98 2,000,000 2,000,000
U.S. Treasury Bill, 4.108% due 1/8/98*@ 880,000 879,197
U.S. Treasury Bill, 3.869% due 1/15/98*@ 500,000 499,194
Westdeutsche Landesbank Yankee CD, 5.880% due 1/12/98 2,000,000 2,000,000
-------------------
Total (Cost - $21,388,242) 21,388,480
-------------------
Total Short-Term Investments (Cost - $25,787,447) 25,639,186
-------------------
Total Investments - 77.2% (Cost - $87,365,830) 85,751,926
-------------------
Other Assets and Liabilities - 22.8% 25,291,523
-------------------
Net Assets - 100.0% US $111,043,449
===================
</TABLE>
Summary of Abbreviations
ARP Argentine Peso
CD Certificate of Deposit
FRN Floating Rate Note
GRD Greek Drachma
HUF Hungarian Forint
IRB Interest Reduction Bond
IDR Indonesian Rupiah
MXN Mexican Peso
PLZ Polish Zloty
ZAR South African Rand
* Interest rate shown represents yield to maturity at date of purchase.
@ Security, or a portion thereof, is held in a margin account to cover open
financial futures contracts.
(a) Face amount shown in U.S. dollars unless otherwise indicated.
(b) Security exempt from registration under Rule 144A of Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At December 31,
1997, these securities were valued at $5,100,000 or 4.6% of net assets.
(c) Zero coupon security.
See Notes to Financial Statements.
===============================================================================
Statements of Assets and Liabilities
December 31, 1997
U.S. Portfolios
=============================================================================
<TABLE>
<S> <C> <C>
Money Market U.S. Short-Term
Portfolio Portfolio
Assets
Investments in securities, at value (Cost - $26,010,805 and
$492,891,152, respectively) $ 26,010,805 $ 492,609,347 `
Cash
- 723
Interest receivable 134,215 1,907,135
Receivable for securities sold
- 171,115
Variation margin receivable -
57,400
Deferred organizational costs
14,763 -
Other assets 10,042 24,993
--------------------- ---------------------
--------------------- ---------------------
Total assets
26,169,825 494,770,713
--------------------- ---------------------
Liabilities
Payable for securities purchased
- 7,813,998
Accrued expenses and other liabilities 17,607 51,067
--------------------- ---------------------
--------------------- ---------------------
Total liabilities 17,607 7,865,065
--------------------- ---------------------
Net Assets $ 26,152,218 $ 486,905,648
===================== =====================
Shares Outstanding (par value $0.001) 26,130,865 49,833,948
===================== =====================
Net Asset Value Per Share
$ 1.00 $ 9.77
===================== =====================
Components of Net Assets as of December 31, 1997 were as follows:
Capital stock at par value ($0.001)
$ 26,131 $49,834
Capital stock in excess of par value
26,104,734 496,009,146
Undistributed investment income, net -
255,606
Accumulated net realized gain (loss) on investments, financial futures 21,353
and (9,235,380)
options contracts, and foreign currency-related transactions
Net unrealized (depreciation) on investments, financial futures contracts and
translation of other assets and liabilities denominated in foreign currency
- (173,558)
--------------------- ---------------------
===================== =====================
$ 26,152,218 $ 486,905,648
===================== =====================
</TABLE>
See Notes to Financial Statements.
===============================================================================
Statements of Assets and Liabilities (continued)
December 31, 1997
U.S. Portfolios
===============================================================================
<TABLE>
<S> <C> <C>
Stable Return Mortgage Total
Portfolio Return Portfolio
Assets
Investments in securities, at value (Cost - $45,772,142
and $1,064,924,871, respectively) $ 45,865,213 $ 1,072,716,862
Cash
621 452
,110
Receivable for securities sold 13,071,723
-
Receivable for securities sold short
- 54,375
Interest receivable 438,125 5,183,282
Receivable for fund shares sold
- 5,000,000
Other receivables 47,446
-
--------------------- ---------------------
Total assets 46,303,959 1,096,074,140
--------------------- ---------------------
Liabilities
Payable for securities purchased 6,247,931 426,657,714
Payable for fund shares redeemed
- 12,000,000
Unrealized depreciation on swap - 1,161,000
Interest payable on securities sold short
- 690,988
Payable for variation margin 2,109 205,725
Accrued expenses and other liabilities
24,703 87,462
--------------------- ---------------------
--------------------- ---------------------
Total liabilities
6,274,743 440,802,889
--------------------- ---------------------
Net Assets $ 40,029,216 655,271,251
$
===================== =====================
Shares Outstanding (par value $0.001) 4,029,563 63,597,535
===================== =====================
Net Asset Value Per Share
$ 9.93 $ 10.30
===================== =====================
Components of Net Assets as of December 31, 1997 were as follows:
Capital stock at par value ($0.001)
$ 4,030 $63,598
Capital stock in excess of par value 39,970,237
648,368,538
Undistributed investment income, net 9,921 -
Temporary overdistribution of investment income, net - (5,770,131)
Accumulated net realized gain (loss) on investments, short sales, financial
futures,
swap and option contracts, and foreign currency-related transactions 6,045,426
(42,790)
Netunrealized appreciation on investments, short sales, financial futures, swap
and options contracts, and translation of other assets and
liabilities denominated in foreign currency 6,563,820
87,818
--------------------- ---------------------
===================== =====================
$ 40,029,216 $ 655,271,251
===================== =====================
</TABLE>
See Notes to Financial Statements.
==============================================================================
Statements of Assets and Liabilities (continued)
December 31, 1997 Global & International
Portfolios
===============================================================================
<TABLE>
<S> <C> <C>
Worldwide Worldwide-Hedged
Portfolio Portfolio
Assets
Investments in securities, at value (Cost - $83,834,287 and
$81,289,638, respectively) $ 84,430,672 $ 81,965,622
Cash
666 221
Foreign cash (Cost - $1,773,719 and $685,739, respectively)
1,677,392 642,985
Interest receivable 933,026 783,768
Net unrealized appreciation of forward foreign exchange contracts -
498,150
Variation margin receivable 31,896 11,454
Other assets
2,307 4,346
-------------------- -------------------
-------------------- -------------------
Total assets 87,075,959 83,906,546
-------------------- -------------------
Liabilities
Payable for securities purchased
3,434,402 3,481,665
Net unrealized depreciation of forward foreign exchange contracts
1,284,075 -
Distribution payable
86,303 -
Accrued expenses and other liabilities
35,435 35,284
-------------------- -------------------
-------------------- -------------------
Total liabilities
4,840,215 3,516,949
-------------------- -------------------
Net Assets $ 82,235,744 $80,389,597
==================== ===================
Shares Outstanding (par value $0.001) 8,733,103 7,158,173
==================== ===================
Net Asset Value Per Share $ 9.42 $ 11.23
==================== ===================
Components of Net Assets as of December 31, 1997 were as follows:
Capital stock at par value ($0.001) $ 8,733 $ 7,158
Capital stock in excess of par value
91,694,831 79,926,768
Temporary overdistribution of investment income, net (18,120) (300,387)
Accumulated net realized (loss) on investments, financial futures contracts
and foreign currency-related transactions (8,691,068) (427,361)
Net unrealized appreciation (depreciation) on investments, financial
futures contracts
and translation of other assets and liabilities denominated in foreign
currency (758,632) 1,183,419
-------------------- -------------------
==================== ===================
$ 82,235,744 $ 80,389,597
==================== ===================
</TABLE>
See Notes to Financial Statements.
=============================================================================
Statements of Assets and Liabilities (continued)
December 31, 1997 Global & International
Portfolios
=============================================================================
<TABLE>
<S> <C> <C>
International International-Hedged
Portfolio Portfolio
Assets
Investments in securities, at value (Cost - $71,632,933 and
$290,427,312, respectively) $ 71,691,328 $ 291,797,145
Cash
199 -
Foreign cash (Cost - $347,339 and $1,137,198, respectively)
287,503 769,227
Swap contract receivable - 3,940,856
Interest receivable
511,834 2,503,294
Variation margin receivable
19,642 157,172
Receivable for securities sold
- 124,617
Other assets
3,594 5,285
-------------------- ---------------------
-------------------- ---------------------
Total assets
72,514,100 299,297,596
-------------------- ---------------------
Liabilities
Payable for securities purchased
3,472,309 5,877,202
Net unrealized depreciation of forward foreign exchange contracts 1,354,326 10,016,699
Due to custodian
- 351,602
Accrued expenses and other liabilities
34,827 46,813
-------------------- ---------------------
-------------------- ---------------------
Total liabilities 4,861,462 16,292,316
-------------------- ---------------------
Net Assets $ 67,652,638 $283,005,280
==================== =====================
Shares Outstanding (par value $0.001) 7,124,727 28,159,718
==================== =====================
Net Asset Value Per Share $ 9.50 $ 10.05
==================== =====================
Components of Net Assets as of December 31, 1997 were as follows:
Capital stock at par value ($0.001)
$ 7,125 $ 28,160
Capital stock in excess of par value 68,854,081 280,370,828
Undistributed investment income, net 232,458 13,349,601
Accumulated net realized (loss) on investments, financial futures
contracts and foreign currency-related transactions
(221,253) (1,750,956)
Net unrealized (depreciation) on investments, financial futures contracts and
translation of other assets and liabilities denominated
in foreign currency (1,219,773) (8,992,353)
-------------------- ---------------------
==================== =====================
$ 67,652,638 $ 283,005,280
==================== =====================
</TABLE>
See Notes to Financial Statements.
==============================================================================
Statements of Assets and Liabilities (continued)
December 31, 1997 Global & International
Portfolios
==============================================================================
<TABLE>
<S> <C>
Emerging Markets
Portfolio
Assets
Investments in securities, at value (Cost - $87,365,830) $ 85,751,926
Cash (Cost - $329,511) 320,675
Receivable for fund shares sold 44,900,000
Interest receivable
1,460,891
Net unrealized appreciation of forward foreign exchange contracts
601,606
Other assets
4,196
---------------------
---------------------
Total assets
133,039,294
---------------------
Liabilities
Payable for fund shares purchased
13,730,857
Payable for securities purchased
7,942,191
Payable for variation margin 149,453
Distribution payable
101,501
Accrued expenses and other liabilities
71,843
---------------------
---------------------
Total liabilities 21,995,845
---------------------
Net Assets $ 111,043,449
=====================
Shares Outstanding (par value $0.001)
11,577,402
=====================
Net Asset Value Per Share $ 9.59
=====================
Components of Net Assets as of December 31, 1997 were as follows:
Capital stock at par value ($0.001) $ 11,577
Capital stock in excess of par value
113,460,880
Undistributed investment income, net 63,424
Accumulated net realized (loss) on investments, financial futures
contracts and foreign currency-related transactions
(993,496)
Net unrealized (depreciation) on investments, financial futures contracts and
translation of other assets and liabilities denominated
in foreign currency (1,498,936)
---------------------
=====================
$ 111,043,449
=====================
</TABLE>
See Notes to Financial Statements.
===============================================================================
Statements of Operations
For the Year Ended December 31, 1997
U.S. Portfolios
===============================================================================
<TABLE>
<S> <C> <C>
Money Market U.S. Short-Term
Portfolio Portfolio
Investment Income
Interest $ 1,440,860 $29,520,346
--------------------- ---------------------
Expenses
Investment advisory fees 38,178 1,465,400
Administration fees
13,160 267,418
Custodian fees
17,365 197,017
Audit fees 16,000 31,619
Shareholder recordkeeping fees
4,159 33,329
Legal fees 628 11,271
Directors' fees
3,497 20,919
Amortization of organizational expenses 17,607 -
Other fees and expenses
6,059 60,917
--------------------- ---------------------
Total operating expenses 116,653 2,087,890
Waiver of investment advisory and administration fees
(40,059) (866,748)
--------------------- ---------------------
Operating expenses, net
76,594 1,221,142
Interest expense
- 48,774
--------------------- ---------------------
Total expenses
76,594 1,269,916
--------------------- ---------------------
Investment income, net 1,364,266 28,250,430
--------------------- ---------------------
Net Realized and Unrealized Gain (Loss) on Investments, Financial
Futures and Options Contracts, and Foreign Currency-Related Transactions
Net realized (loss) on investments
- (2,651,557)
Net realized (loss) on financial futures and options contracts
- (848,196)
Net realized gain on foreign currency-related transactions
- 815,928
Net unrealized (depreciation) on investments
- (580,696)
Net unrealized (depreciation) on financial futures and options contracts
- (54,669)
Net unrealized (depreciation) on other assets and liabilities
denominated in foreign currency
- (15,391)
--------------------- ---------------------
Net realized and unrealized (loss) on investments, financial futures
contracts and foreign currency-related transactions (3,334,581)
-
--------------------- ---------------------
Net Increase in Net Assets Resulting From Operations $ 1,364,266 $ 24,915,849
===================== =====================
</TABLE>
See Notes to Financial Statements.
==============================================================================
Statements of Operations (continued)
For the Year Ended December 31, 1997
U.S. Portfolios
===============================================================================
<TABLE>
<S> <C> <C>
Stable Return Mortgage Total
Portfolio Return Portfolio
Investment Income
Interest $ 2,022,269 $ 36,656,250
--------------------- ---------------------
Expenses
Investment advisory fees 105,714 1,683,408
Administration fees
16,528 327,923
Custodian fees
25,266 340,257
Audit fees
23,368 49,434
Shareholder recordkeeping fees
2,162 3,572
Legal fees
591 14,003
Directors' fees 1,464 28,336
Other fees and expenses
10,588 54,889
--------------------- ---------------------
Total operating expenses 185,681 2,501,822
Waiver of investment advisory fees (95,075) (396,902)
--------------------- ---------------------
Operating expenses, net 90,606 2,104,920
Interest expense
89,594 504,345
--------------------- ---------------------
Total expenses
180,200 2,609,265
--------------------- ---------------------
Investment income, net 1,842,069 34,046,985
--------------------- ---------------------
Net Realized and Unrealized Gain (Loss) on
Investments, Short Sales, Financial Futures and Options
Contracts, and Foreign Currency-Related Transactions
Net realized gain (loss) on investments
(27,410) 24,170,460
Net realized (loss) on short sales
- (1,848,595)
Net realized gain (loss) on financial futures and options contracts
21,996 (7,148,665)
Net realized gain on foreign currency-related transactions
235,708 -
Net unrealized appreciation (depreciation) on investments
(21,097) 6,611,054
Net unrealized (depreciation) on financial futures and options contracts
(5,253) (504,496)
Net unrealized (depreciation) on translation of other assets
and liabilities denominated in foreign currency
(3,941) -
--------------------- ---------------------
Net realized and unrealized gain on investments, short sales, financial
futures and options contracts, and foreign currency-related transactions 200,003 21,279,758
--------------------- ---------------------
Net Increase in Net Assets Resulting From Operations $ 2,042,072 $ 55,326,743
===================== =====================
</TABLE>
See Notes to Financial Statements.
================================================================================
Statements of Operations (continued)
For the Year Ended December 31, 1997 Global & International
Portfolios
================================================================================
<TABLE>
<S> <C> <C>
Worldwide Worldwide-Hedged
Portfolio Portfolio
Investment Income
Interest $ 4,715,933 $ 3,303,669
--------------------- ---------------------
Expenses
Investment advisory fees
324,786 230,026
Administration fees
40,802 31,338
Custodian fees
77,076 67,416
Audit fees
30,496 29,751
Shareholder recordkeeping fees
9,051 3,904
Legal fees
1,908 1,640
Directors' fees
4,284 2,774
Other fees and expenses
15,109 9,203
--------------------- ---------------------
Total operating expenses 503,512 376,052
Waiver of investment advisory fees (16,320) (117,276)
--------------------- ---------------------
Operating expenses, net 487,192 258,776
--------------------- ---------------------
Investment income, net 4,228,741 3,044,893
--------------------- ---------------------
Net Realized and Unrealized Gain (Loss) on Investments, Financial
Futures Contracts and Foreign Currency-Related Transactions
Net realized (loss) on investments
(2,441,074) (557,886)
Net realized gain on financial futures contracts 1,448,322 1,230,636
Net realized gain (loss) on foreign currency-related transactions
(38,795) 2,366,434
Net unrealized appreciation on investments
826,456 619,763
Net unrealized appreciation on financial futures contracts
58,693 87,196
Net unrealized appreciation (depreciation) on translation of other assets
and liabilities denominated in foreign currency (1,724,114) 320,050
--------------------- ---------------------
Netrealized and unrealized gain (loss) on investments, financial futures
contracts and foreign currency-related transactions
(1,870,512) 4,066,193
--------------------- ---------------------
Net Increase in Net Assets Resulting From Operations $ 2,358,229 $7,111,086
===================== =====================
</TABLE>
See Notes to Financial Statements.
===============================================================================
Statements of Operations (continued)
For the Year Ended December 31, 1997 Global & International
Portfolios
===============================================================================
<TABLE>
<S> <C> <C>
International International-Hedged
Portfolio Portfolio
Investment Income
Interest
$ 2,638,192 $ 8,391,776
--------------------- ---------------------
Expenses
Investment advisory fees
182,344 820,055
Administration fees
24,888 152,302
Custodian fees
70,294 143,550
Audit fees
29,528 31,501
Shareholder recordkeeping fees 1,202 5,264
Legal fees 1,889 3,068
Directors' fees
2,263 9,951
Other fees and expenses
6,742 21,947
--------------------- ---------------------
Total operating expenses 319,150 1,187,638
Waiver of investment advisory fees (45,630) (319,700)
--------------------- ---------------------
Operating expenses, net 273,520 867,938
--------------------- ---------------------
Investment income, net
2,364,672 7,523,838
--------------------- ---------------------
Net Realized and Unrealized Gain (Loss) on Investments, Financial
Futures and Swap Contracts, and Foreign Currency-Related Transactions
Net realized (loss) on investments
(1,341,995) (7,332,801)
Net realized gain on financial futures contracts
976,568 6,806,798
Net realized gain (loss) on foreign currency-related transactions
(585,156) 18,046,707
Net unrealized appreciation (depreciation) on investments
(138,195) 1,247,986
Net unrealized appreciation on financial futures contracts
230,858 458,204
Net unrealized (depreciation) on other assets and liabilities
denominated in foreign currency (1,426,302) (10,020,618)
--------------------- ---------------------
Netrealized and unrealized gain (loss) on investments, financial futures and
swap contracts, and foreign currency-related transactions
(2,284,222) 9,206,276
--------------------- ---------------------
Net Increase in Net Assets Resulting From Operations
$ 80,450 $ 16,730,114
===================== =====================
</TABLE>
See Notes to Financial Statements.
===============================================================================
Statements of Operations (continued)
For the Period from August 12, 1997* to December 31, 1997
Global & International
Portfolios
===============================================================================
<TABLE>
<S> <C>
Emerging Markets
Portfolio
Investment Income
Interest
$ 2,266,849
----------------------
Expenses
Investment advisory fees
191,177
Administration fees
18,709
Custodian fees
32,628
Audit fees 16,000
Shareholder recordkeeping fees
1,031
Legal fees 614
Directors' fees 508
Other fees and expenses
1,367
----------------------
Total operating expenses
262,034
----------------------
Investment income, net
2,004,815
----------------------
Net Realized and Unrealized Gain (Loss) on Investments, Financial
Futures Contracts and Foreign Currency-Related Transactions
Net realized (loss) on investments
(98,148)
Net realized (loss) on financial futures contracts
(888,203)
Net realized gain on foreign currency-related transactions
56,279
Net unrealized (depreciation) on investments (1,613,903)
Net unrealized (depreciation) on financial futures contracts
(409,159)
Net unrealized appreciation on other assets and liabilities
denominated in foreign currency
524,126
----------------------
Net realized and unrealized (loss) on investments, financial futures
contracts and foreign currency-related transactions
(2,429,008)
----------------------
Net (Decrease) in Net Assets Resulting From Operations $ (424,193)
======================
</TABLE>
* Commencement of Operations.
See Notes to Financial Statements.
===============================================================================
Statements of Changes In Net Assets
U.S. Portfolios
==============================================================================
<TABLE>
<S> <C> <C> <C> <C>
Money Market Portfolio U.S. Short-Term Portfolio
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1997 Dec. 31, 1996
Increase (Decrease) in Net
Assets From Operations
Investment income, net
$ 1,364,266 $ 1,295,319 $ 28,250,430 $ 27,489,851
Net realized gain (loss) on investments,
financial futures and options contracts, and
foreign currency-related transactions - 9,381 (2,683,825) (1,791,633)
Net unrealized appreciation (depreciation) on investments, financial futures and
options contracts, and translation of other assets and liabilities
denominated in foreign currency - - (650,756) 130,799
Net increase in net assets resulting
from operations
1,364,266 1,304,700 24,915,849 25,829,017
----------------- ------------------ ------------------ -----------------
Distributions to Shareholders
From investment income, net 1,364,266 1,295,319 28,250,430 27,489,851
From net realized gain on investments - 2,870 - -
----------------- ------------------ ------------------ -----------------
Total Distributions
1,364,266 1,298,189 28,250,430 27,489,851
----------------- ------------------ ------------------ -----------------
Capital Share Transactions, Net 1,105,195 (829,641) 134,983,515 (100,507,754)
----------------- ------------------ ------------------ -----------------
Total increase (decrease) in net assets
1,105,195 (823,130) 131,648,934 (102,168,588)
Net Assets
Beginning of year
25,047,023 25,870,153 355,256,714 457,425,302
----------------- ------------------ ------------------ -----------------
End of year
$ 26,152,218 $ 25,047,023 $ 486,905,648 $ 355,256,714
================= ================== ================== =================
Undistributed investment income, net $ - $ - $ 255,606 $ 19,640
</TABLE>
See Notes to Financial Statements.
===========================================================================
Statements of Changes In Net Assets (continued)
U.S. Portfolios
===========================================================================
<TABLE>
<S> <C> <C> <C> <C>
Stable Return Portfolio Mortgage Total Return Portfolio
------------------------------------- -------------------------------------
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1997 Dec. 31, 1996*
- ----------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net
Assets From Operations
Investment income, net $ 1,842,069 $ 1,304,748 $ 34,046,985 $ 4,606,608
Net realized gain on investments, short sales,
financial futures and options contracts, and
230,294 178,550 15,173,200 379,214
foreign currency-related transactions
Net unrealized appreciation (depreciation) on investments, short sales,
financial futures and options contracts, and translation of other assets and
liabilities denominated in foreign currency
(30,291) 88,861 6,106,558 457,263
----------------- ------------------ ----------------- ------------------
Net increase in net assets resulting
from operations
2,042,072 1,572,159 55,326,743 5,443,085
----------------- ------------------ ----------------- ------------------
Distributions to Shareholders
From investment income, net
1,842,069 1,304,748 34,046,985 4,606,608
In excess of investment income, net - 674 2,828,370 1,260,264
From net realized gain on investments, short
sales,
financial futures and options contracts,
and foreign currency-related transactions 306,625 138,326 11,071,301 117,184
----------------- ------------------ ----------------- ------------------
Total Distributions
2,148,694 1,443,748 47,946,656 5,984,056
----------------- ------------------ ----------------- ------------------
Capital Share Transactions, Net
(1,964,623) 36,891,983 426,901,375 221,530,760
----------------- ------------------ ----------------- ------------------
Total increase (decrease) in net assets
(2,071,245) 37,020,394 434,281,462 220,989,789
Net Assets
Beginning of year
42,100,461 5,080,067 220,989,789 -
----------------- ------------------ ----------------- ------------------
End of year
$ 40,029,216 $ 42,100,461 $ 655,271,251 $ 220,989,789
================= ================== ================= ==================
Undistributed (overdistributed)
investment income, net
$ 9,921 $ - (5,770,131) (1,260,264)
</TABLE>
* The Portfolio commenced operations on April 29, 1996.
See Notes to Financial Statements.
============================================================================
Statements of Changes In Net Assets (continued)
Global & International
Portfolios
============================================================================
<TABLE>
<S> <C> <C> <C> <C>
Worldwide Portfolio Worldwide-Hedged Portfolio
------------------------------------- -------------------------------------
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1997 Dec. 31, 1996
Increase (Decrease) in Net Assets
From Operations
Investment income, net
$ 4,228,741 $ 5,238,427 $ 3,044,893 $ 1,548,703
Net realized gain (loss) on investments,
financial futures contracts and
foreign currency-related transactions
(1,031,547) 613,278 3,039,184 1,460,511
Net unrealized appreciation (depreciation) on investments, financial futures
contracts, and translation of other assets and liabilities denominated in
foreign currency
(838,965) (1,097,710) 1,027,009 (304,218)
----------------- ------------------ ------------------ -----------------
Net increase in net assets resulting
from operations
2,358,229 4,753,995 7,111,086 2,704,996
----------------- ------------------ ------------------ -----------------
Distributions to Shareholders
From investment income, net
1,610,613 5,238,427 3,044,893 1,548,703
In excess of investment income, net 932,993 - - 977,659
From net realized gain on investments,
financial futures contracts and foreign
currency-related transactions - 738,137 2,913,718 -
From capital stock in excess of par value 1,685,135 794,254 - -
----------------- ------------------ ------------------ -----------------
Total Distributions
4,228,741 6,770,818 5,958,611 2,526,362
----------------- ------------------ ------------------ -----------------
Capital Share Transactions, Net
9,166,819 (9,229,917) 49,213,465 1,590,193
----------------- ------------------ ------------------ -----------------
Total increase (decrease) in net assets 7,296,307 (11,246,740) 50,365,940 1,768,827
Net Assets
Beginning of year
74,939,437 86,186,177 30,023,657 28,254,830
----------------- ------------------ ------------------ -----------------
End of year
$ 82,235,744 $ 74,939,437 $ 80,389,597 $ 30,023,657
================= ================== ================== =================
Undistributed (overdistributed)
investment income, net
$ (18,120) $ - $ (300,387) $ 268,063
</TABLE>
See Notes to Financial Statements.
===============================================================================
Statements of Changes In Net Assets (continued)
Global & International
Portfolios
===============================================================================
<TABLE>
<S> <C> <C> <C> <C>
International-Hedged
International Portfolio Portfolio
------------------------------------- -------------------------------------
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1997 Dec. 31, 1996* Dec. 31, 1997 Dec. 31, 1996
Increase (Decrease) in Net Assets
From Operations
Investment income, net
$ 2,364,672 $ 836,419 $ 7,523,838 $ 2,486,212
Net realized gain (loss) on investments, financial futures and swap contracts,
and foreign currency-related transactions
(950,583) 518,846 17,520,704 454,698
Net unrealized appreciation (depreciation) on investments, financial futures and
swap contracts, and translation of other assets and liabilities denominated in
foreign currency
(1,333,639) 113,867 (8,314,428) (1,599,754)
----------------- ------------------ ----------------- ------------------
Net increase in net assets resulting
from operations
80,450 1,469,132 16,730,114 1,341,156
----------------- ------------------ ----------------- ------------------
Distributions to Shareholders
From investment income, net
643,069 836,419 7,523,838 2,486,212
In excess of investment income, net - - 3,539,829 -
From net realized gain on investments,
financial futures and swap contracts, and
foreign currency-related transactions 1,002,367 276,295 1,697,755 454,698
In excess of net realized gain on investments,
financial futures and swap contracts, and
foreign currency-related transactions - - - 801,949
From capital stock in excess of par value 1,721,603 - - 1,305,588
----------------- ------------------ ----------------- ------------------
Total Distributions
3,367,039 1,112,714 12,761,422 5,048,447
----------------- ------------------ ----------------- ------------------
Capital Share Transactions, Net
35,193,290 35,389,519 152,391,477 96,347,515
----------------- ------------------ ----------------- ------------------
Total increase in net assets
31,906,701 35,745,937 156,360,169 92,640,224
Net Assets
Beginning of year
35,745,937 - 126,645,111 34,004,887
----------------- ------------------ ----------------- ------------------
End of year
$ 67,652,638 $ 35,745,937 $ 283,005,280 $ 126,645,111
================= ================== ================= ==================
Undistributed investment income, net
$ 232,458 $ - $ 13,349,601 $ -
</TABLE>
* The Portfolio commenced operations on May 9, 1996.
See Notes to Financial Statements.
=============================================================================
Statements of Changes In Net Assets (continued)
Global & International
Portfolios
=============================================================================
<TABLE>
<S> <C>
Emerging Markets
Portfolio
--------------------------
Period Ended
Dec. 31, 1997*
Increase (Decrease) in Net Assets
From Operations
Investment income, net $ 2,004,815
Net realized (loss) on investments,
financial futures contracts and
foreign currency-related transactions
(930,072)
Net unrealized (depreciation) on
investments, financial futures contracts
and translation of other assets and liabilities
denominated in foreign currency (1,498,936)
--------------------------
Net (decrease) in net assets resulting
from operations (424,193)
--------------------------
Distributions to Shareholders
From investment income, net 2,004,815
--------------------------
Capital Share Transactions, Net 113,472,457
--------------------------
Total increase in net assets 111,043,449
Net Assets
Beginning of period -
--------------------------
End of period $ 111,043,449
==========================
Undistributed investment income, net $ 63,424
</TABLE>
* The Portfolio commenced operations on August 12, 1997.
See Notes to Financial Statements.
==============================================================================
Financial Highlights
Money Market Portfolio
=============================================================================
<TABLE>
<S> <C> <C> <C> <C> <C>
Period From
Year Ended Nov. 1, 1993*
For a share outstanding Dec. 31, Dec. 31, Dec. 31, Dec. 31, to
throughout the period: 1997 1996 1995 1994 Dec. 31, 1993
Per Share Data
Net asset value, beginning of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Increase From
Investment Operations
Investment income, net **
0.05 0.05 0.06 0.04 0.00
Net realized gain on investments
- 0.00 ** 0.00** 0.00 -
---------------- -------------- -------------- -------------- ---------------
Total from investment operations
0.05 0.05 0.06 0.04 0.00
---------------- -------------- -------------- -------------- ---------------
Less Distributions
From investment income, net **
0.05 0.05 0.06 0.04 0.00
From net realized gain on
investments - 0.00 ** - - -
In excess of net realized gain on
investments - - - 0.00 ** -
---------------- -------------- -------------- -------------- ---------------
Total distributions
0.05 0.05 0.06 0.04 0.00
---------------- -------------- -------------- -------------- ---------------
Net asset value, end of period
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
================ ============== ============== ============== ===============
Total Return 5.46% 5.18% 5.74% 4.13% 0.44% (c)
Ratios/Supplemental Data
Net assets, end of period (000's)
$ 26,152 $ 25,047 $ 25,870 22,006 2,336
Ratio of operating expenses to
average
net assets (a) 0.30% 0.40% 0.40% 0.40% 0.40% (b)
Ratio of investment income,
net to average net assets (a) 5.33% 5.05% 5.58% 4.16% 2.67% (b)
Decrease in above expense ratios
due to waiver of investment
advisory and administration fees
and reimbursement
of other expenses 0.16% 0.30% 0.37% 0.64% 25.54% (b)
</TABLE>
(a) Net of waivers and reimbursements (b) Annualized (c) Not annualized *
Commencement of Operations ** Rounds to less than $.01
See Notes to Financial Statements.
===============================================================================
Financial Highlights (continued)
U.S. Short-Term Portfolio
===============================================================================
<TABLE>
<S> <C> <C> <C> <C> <C>
Year Ended
For a share outstanding Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
throughout the period: 1997 1996 1995 1994 1993
Per Share Data
Net asset value, beginning of period
$ 9.85 $ 9.88 $ 9.89 $ 9.98 $ 10.00
----------- ----------- ----------- ----------- -----------
Increase (Decrease) From
Investment Operations
Investment income, net
0.57 0.55 0.56 0.44 0.32
Net realized and unrealized (loss) on
investments, financial futures and
options
contracts, and foreign
currency-related transactions (0.08) (0.03) (0.01) (0.08) (0.03)
----------- ----------- ----------- ----------- -----------
Total from investment operations
0.49 0.52 0.55 0.36 0.29
----------- ----------- ----------- ----------- -----------
Less Distributions
From investment income, net 0.31
0.57 0.55 0.56 0.45
In excess of investment income, net - - 0.00 * 0.00 * -
----------- ----------- ----------- ----------- -----------
Total distributions 0.57 0.55 0.56 0.45 0.31
----------- ----------- ----------- ----------- -----------
Net asset value, end of period
$ 9.77 $ 9.85 $ 9.88 $ 9.89 $ 9.98
=========== =========== =========== =========== ===========
Total Return 5.09% 5.45% 5.71% 3.71% 2.88%
Ratios/Supplemental Data
Net assets, end of period (000's)
$ 486,906 $ 355,257 $ 457,425 $ 290,695 $ 417,728
Ratio of operating expenses to average
net assets, exclusive of interest 0.25% 0.27% 0.40% 0.40% 0.40%
expense (a)
Ratio of operating expenses to average
net assets, inclusive of interest 0.26% 0.40% 0.51% 0.43% 0.48%
expense (a)
Ratio of investment income,
net to average net assets (a) 5.78% 5.62% 5.64% 4.14% 3.28%
Decrease in above expense ratios due
to
waiver of investment advisory fees 0.18% 0.05% 0.07% 0.08% 0.03%
</TABLE>
(a) Net of waivers
* Rounds to less than $0.01
See Notes to Financial Statements.
==============================================================================
Financial Highlights (continued)
Stable Return Portfolio
==============================================================================
<TABLE>
<S> <C> <C> <C> <C> <C>
Period From
Year Ended July 26,
1993*
For a share outstanding Dec. 31, Dec. 31, Dec. 31, Dec. 31, to
throughout the period: 1997 1996 1995 1994 Dec. 31, 1993
Per Share Data
Net asset value, beginning of
period $ 9.93 $ 10.00 $ 9.55 $ 9.95 $ 10.00
Increase (Decrease) From
Investment Operations
Investment income, net
0.62 0.55 0.60 0.43 0.14
Net realized and unrealized gain (loss) on investments, financial futures
contracts and foreign currency-related transactions
0.08 (0.04) 0.45 (0.40) 0.05
-------------- -------------- -------------- -------------- --------------
Total from investment operations
0.70 0.51 1.05 0.03 0.19
-------------- -------------- -------------- -------------- --------------
Less Distributions
From investment income, net
0.62 0.55 0.60 0.43 0.14
In excess of investment income, net - 0.00 ** - - -
From net realized gain on
investments, financial futures
contracts and foreign 0.08 0.03 - - 0.03
currency-related transactions
In excess of net realized gain on
investments, financial futures
contracts and foreign
currency-related transactions - - - - 0.07
-------------- -------------- -------------- -------------- --------------
Total distributions
0.70 0.58 0.60 0.43 0.24
-------------- -------------- -------------- -------------- --------------
Net asset value, end of period
$ 9.93 $ 9.93 $ 10.00 $ 9.55 $ 9.95
============== ============== ============== ============== ==============
Total Return 7.21% 5.29% 11.26% 0.29% 1.78% (c)
Ratios/Supplemental Data
Net assets, end of period (000's)
$ 40,029 $ 42,100 $ 5,080 $ 4,338 $ 3,482
Ratio of operating expenses to average
net assets, exclusive of interest 0.30% 0.31% 0.50% 0.50% 0.50% (b)
expense (a)
Ratio of operating expenses to average
net assets, inclusive of interest 0.60% 0.49% 1.41% 1.74% 0.50% (b)
expense (a)
Ratio of investment income,
net to average net assets (a) 6.10% 5.79% 6.09% 4.43% 3.68% (b)
Decrease in above expense ratios
due to waiver of investment
advisory fees
and reimbursement of other expenses 0.31% 0.15% 0.53% 0.57% 1.46% (b)
Portfolio turnover 1,292% 1,387% 1,075% 343% 1,841%
</TABLE>
(a) Net of waivers and reimbursements (b) Annualized (c) Not annualized *
Commencement of Operations ** Rounds to less than $.01 See Notes to Financial
Statements.
=============================================================================
Financial Highlights (continued)
Mortgage Total Return Portfolio
=============================================================================
<TABLE>
<S> <C> <C>
Period From
For a share outstanding Year Ended April 29, 1996*
throughout the period: Dec. 31, 1997 to Dec. 31, 1996
Per Share Data
Net asset value, beginning of period
$ 10.16 $ 10.00
Increase From Investment Operations
Investment income, net 0.68 0.41
Net realized and unrealized gain on investments, short sales,
and financial futures and options contracts 0.32 0.23
------------------ ------------------
Total from investment operations 1.00 0.64
------------------ ------------------
Less Distributions
From investment income, net 0.63 0.41
In excess of investment income, net 0.05 0.06
From net realized gain on investments, short sales,
and financial futures and options contracts 0.18 0.01
------------------ ------------------
Total distributions 0.86 0.48
------------------ ------------------
Net asset value, end of period
$ 10.30 $ 10.16
================== ==================
Total Return 10.19% 6.54% (c)
Ratios/Supplemental Data
Net assets, end of period (000's)
$ 655,271 $ 220,990
Ratio of operating expenses to average net assets, exclusive of interest expense 0.38% 0.45% (b)
(a)
Ratio of operating expenses to average net assets, inclusive of interest expense 0.47% 0.88% (b)
(a)
Ratio of investment income, net to average net assets (a) 6.07% 7.61% (b)
Decrease in above expense ratios due to waiver of investment
advisory fees and reimbursement of other expenses 0.07% 0.10% (b)
Portfolio turnover 3,396% 590%
</TABLE>
(a) Net of waivers and reimbursements
(b) Annualized
(c) Not annualized
* Commencement of Operations
See Notes to Financial Statements.
===============================================================================
Financial Highlights (continued)
Worldwide Portfolio
===============================================================================
<TABLE>
<S> <C> <C> <C> <C> <C>
Year Ended
-------------------------------------------------------------------
For a share outstanding Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
throughout the period: 1997 1996 1995 1994 1993
Per Share Data
Net asset value, beginning of period
$ 9.64 $ 9.83 $ 9.27 $ 10.02 $ 9.98
----------- ----------- ----------- ----------- -----------
Increase (Decrease) From
Investment Operations
Investment income, net 0.45
0.49 0.53 0.58 0.50
Net realized and unrealized gain
(loss) on investments, financial
futures contracts (0.22) 0.01 0.56 (0.74) 1.04
and foreign currency-related
transactions
----------- ----------- ----------- ----------- -----------
Total from investment operations
0.27 0.54 1.14 (0.24) 1.49
----------- ----------- ----------- ----------- -----------
Less Distributions
From investment income, net
0.19 0.53 0.30 0.20 0.45
In excess of investment income, net 0.11 - - 0.01 -
From net realized gain on
investments, financial futures
contracts and foreign - 0.09 - - 0.87
currency-related transactions
In excess of net realized gain on
investments, financial futures
contracts - - - - 0.13
and foreign currency-related
transactions
From capital stock in excess of par 0.19 0.11 0.28 0.30 -
value
----------- ----------- ----------- ----------- -----------
Total distributions
0.49 0.73 0.58 0.51 1.45
----------- ----------- ----------- ----------- -----------
Net asset value, end of period
$ 9.42 $ 9.64 $ 9.83 $ 9.27 $ 10.02
=========== =========== =========== =========== ===========
Total Return 2.93% 5.77% 12.60% (2.25%) 15.86%
Ratios/Supplemental Data
Net assets, end of period (000's)
$ 82,236 $ 74,939 $ 86,186 $ 53,721 $ 217,163
Ratio of operating expenses to
average net assets, exclusive of 0.60% 0.60% 0.60% 0.60% 0.59%
interest expense (a)
Ratio of operating expenses to
average net assets, inclusive of 0.60% 0.60% 0.60% 0.63% 0.86%
interest expense (a)
Ratio of investment income,
net to average net assets (a) 5.21% 5.52% 6.13% 5.11% 4.48%
Decrease in above expense ratios due
to waiver of investment advisory
fees and reimbursement of other 0.02% 0.05% 0.30% 0.02% -
expenses
Portfolio turnover 713% 1,126% 1,401% 1,479% 1,245%
</TABLE>
(a) Net of waivers and reimbursements
See Notes to Financial Statements.
===============================================================================
Financial Highlights (continued)
Worldwide-Hedged Portfolio
===============================================================================
<TABLE>
<S> <C> <C> <C> <C> <C>
Year Ended
-------------------------------------------------------------------
For a share outstanding Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
throughout the period: 1997 1996 1995 1994 1993
- -------------------------------------- -------------------------------------------------------------------
Per Share Data
Net asset value, beginning of period
$ 10.91 $ 10.85 $ 10.41 $ 10.08 $ 9.85
----------- ----------- ----------- ----------- -----------
Increase From
Investment Operations
Investment income, net
0.53 0.62 0.45 0.34 0.45
Net realized and unrealized gain on
investments, financial futures
contracts 0.80 0.43 0.66 0.43 0.76
and foreign currency-related
transactions
----------- ----------- ----------- ----------- -----------
Total from investment operations
1.33 1.05 1.11 0.77 1.21
----------- ----------- ----------- ----------- -----------
Less Distributions
From investment income, net
0.59 0.62 0.67 0.44 0.45
In excess of investment income, net - 0.37 - 0.00 * -
From net realized gain on
investments, financial futures
contracts, and foreign 0.42 - - - 0.53
currency-related transactions
----------- ----------- ----------- ----------- -----------
Total distributions
1.01 0.99 0.67 0.44 0.98
----------- ----------- ----------- ----------- -----------
Net asset value, end of period
$ 11.23 $ 10.91 $ 10.85 $ 10.41 $ 10.08
=========== =========== =========== =========== ===========
Total Return 12.60% 10.03% 11.00% 7.84% 12.89%
Ratios/Supplemental Data
Net assets, end of period (000's)
$ 80,390 $ 30,024 $ 28,255 $ 273 41,138
Ratio of operating expenses to
average net assets, exclusive of
interest expense (a) 0.45% 0.45% 0.45% 0.60% 0.60%
Ratio of operating expenses to
average net assets, inclusive of
interest 0.45% 0.45% 0.45% 0.65% 0.86%
expense (a)
Ratio of investment income, net to
average net assets (a) 5.29% 5.71% 5.84% 4.72% 4.49%
Decrease in above expense ratios due
to waiver of investment advisory
fees and reimbursement of other 0.20% 0.24% 0.54% 0.17% 0.09%
expenses
Portfolio Turnover 704% 1,087% 500% 1,622% 1,254%
</TABLE>
(a) Net of waivers and reimbursements
* Rounds to less than $0.01
See Notes to Financial Statements.
===============================================================================
Financial Highlights (continued)
International Portfolio
===============================================================================
<TABLE>
<S> <C> <C>
Period from
Year Ended May 9, 1996* to
For a share outstanding December 31, December 31, 1996
throughout the period: 1997
Per Share Data
Net asset value, beginning of period
$ 10.20 $ 10.00
Increase (Decrease) From
Investment Operations
Investment income, net 0.50 0.38
Net realized and unrealized gain (loss) on investments, financial futures
contracts and foreign currency-related transactions (0.56) 0.28
------------------ ------------------
Total from investment operations (0.06) 0.66
------------------ ------------------
Less Distributions
From investment income, net 0.14 0.38
From net realized gain on investments, financial futures contracts
and foreign currency-related transactions 0.14 0.08
From capital stock in excess of par value 0.36 -
------------------ ------------------
Total distributions 0.64 0.46
------------------ ------------------
Net asset value, end of period
$ 9.50 $ 10.20
================== ==================
Total Return (0.43%) 6.66% (c)
Ratios/Supplemental Data
Net assets, end of period (000's)
$ 67,653 $ 35,746
Ratio of operating expenses to average net assets (a) 0.60% 0.60% (b)
Ratio of investment income, net to average net assets (a) 5.19% 5.73% (b)
Decrease in above expense ratios due to waiver of investment advisory fees 0.10% 0.32% (b)
Portfolio Turnover 809% 539%
</TABLE>
(a) Net of waivers
(b) Annualized
(c) Not annualized
* Commencement of Operations
See Notes to Financial Statements.
============================================================================
Financial Highlights (continued)
International-Hedged Portfolio
============================================================================
<TABLE>
<S> <C> <C> <C> <C> <C>
Period from
For a share outstanding Year ended Mar. 25, 1993*
throughout the period: Dec. 31, Dec. 31, Dec. 31, Dec. 31, to Dec. 31,
1997 1996 1995 1994 1993
Per Share Data
Net asset value, beginning of period $ 9.80 $ 10.19 10.00*** 10.39 10.00
Increase (Decrease) From
Investment Operations
Investment income, net 0.41 0.47 0.19 0.20 0.44
Net realized and unrealized gain (loss) on
invest-ments, financial futures, options
and swap con-tracts, and foreign 0.43 (0.15) 0.19 (0.46) 0.78
currency-related transactions
------------- ------------ ------------ ----------- --------------
Total from investment operations 0.84 0.32 0.38 (0.26) 1.22
------------- ------------ ------------ ----------- --------------
Less Distributions
From investment income, net 0.36 0.47 0.19 0.20 0.44
In excess of investment income, net 0.17 - 0.00 (c) - -
From net realized gain on investments,
financial futures, options and swap
contracts, and foreign currency-related 0.06 0.05 - 0.50 0.39
transactions
In excess of net realized gain on
investments,
financial futures, options and swap
contracts, and
foreign currency-related transactions - 0.09 - - -
From capital stock in excess of par value - 0.10 - - -
------------- ------------ ------------ ----------- --------------
Total distributions 0.59 0.71 0.19 0.70 0.83
------------- ------------ ------------ ----------- --------------
Net asset value, end of period $ 10.05 $ 9.80 $ 10.19 $ 9.43** $10.39
============= ============ ============ =========== ==============
Total Return 8.77% 3.18% 13.45% (b) (2.53%) 16.37% (b)
Ratios/Supplemental Data
Net assets, end of period (000's)
$ 283,005 $ 126,645 $ 34,005 $ - $ 17,867
Ratio of operating expenses
to average net assets (a) 0.42% 0.60% 0.60% (b) 0.57% 0.60% (b)
Ratio of investment income,
net to average net assets (a) 3.67% 4.65% 6.12% (b) 2.87% 5.86% (b)
Decrease in above expense ratios due to
waiver of investment advisory fees and
reimbursement of other expenses 0.16% 0.06% 0.17% (b) 0.49% 0.28% (b)
Portfolio Turnover 712% 784% 764% 1,282% 855%
</TABLE>
(a) Net of waivers and reimbursements (b) Annualized (c) Rounds to less than
$0.01 * Commencement of Operations
** Represents net asset value per share at December 30, 1994. The Portfolio
was fully liquidated on December 30, 1994
based on this net asset value.
*** The Portfolio recommenced operations on September 14, 1995.
See Notes to Financial Statements.
==============================================================================
Financial Highlights (continued)
Emerging Markets Portfolio
==============================================================================
<TABLE>
<S> <C>
Period from
August 12, 1997* to
For a share outstanding December 31, 1997 throughout the period:
Per Share Data
Net asset value, beginning of period
$ 10.00
Increase (Decrease) From
Investment Operations
Investment income, net 0.29
Net realized and unrealized (loss) on investments, financial futures
contracts and foreign currency-related transactions (0.41)
--------------------
Total from investment operations (0.12)
--------------------
Less Distributions
From investment income, net 0.29
--------------------
Net asset value, end of period $
9.59
====================
Total Return (1.20)% (b)
Ratios/Supplemental Data
Net assets, end of period (000's) $
111,043
Ratio of operating expenses to average net assets 1.03% (a)
Ratio of investment income, net to average net assets 7.87% (a)
Portfolio Turnover 16%
</TABLE>
(a) Annualized
(b) Not annualized
* Commencement of Operations
See Notes to Financial Statements.
========================================================================
Notes to Financial Statements
December 31, 1997
========================================================================
1. Organization
FFTW Funds, Inc. (the "Fund") was organized as a Maryland
corporation on February 23, 1989 and is registered under the
Investment Company Act of 1940, as amended, as an open-end,
management investment company. The Fund currently has
thirteen Portfolios, nine of which were active as of
December 31, 1997. The nine active Portfolios are: Money
Market Portfolio ("Money Market"); U.S. Short-Term Portfolio
("U.S. Short-Term"); Stable Return Portfolio ("Stable
Return"); Mortgage Total Return Portfolio ("Mortgage");
Worldwide Portfolio ("Worldwide"); Worldwide-Hedged
Portfolio ("Worldwide-Hedged"); International Portfolio
("International"); International-Hedged Portfolio
("International-Hedged"); and Emerging Markets Portfolio
("Emerging Markets"). Emerging Markets commenced operations
on August 12, 1997. The Fund is managed by Fischer Francis
Trees & Watts, Inc. (the "Investment Adviser").
2. Summary of Significant Accounting Policies
Net Asset Value
The net asset value per share ("NAV") of each Portfolio is determined by adding
the value of all of the assets of the Portfolio, subtracting all of the
Portfolio's liabilities, dividing by the number of shares outstanding and
adjusting to the nearest cent. The NAV is calculated by the Fund's Accounting
Agent as of 4:00 p.m. Eastern time on each Business Day (as that term is defined
in the Fund's registration statement) for each Portfolio, other than Money
Market, Mortgage, International-Hedged and Emerging Markets. The NAV of Money
Market is calculated by the Fund's Accounting Agent as of 12:00 p.m. Eastern
time on each Business Day. The NAV of Mortgage, International-Hedged and
Emerging Markets is calculated by the Fund's Accounting Agent as of 4:00 p.m.
Eastern time on the last Business Day of each month, on any other Business Days
in which the Investment Adviser approves a purchase, and on each Business Day
for which a redemption order has been placed.
Securities
All securities transactions are recorded on a trade date basis. Interest income
and expenses are recorded on the accrual basis. The Fund amortizes discount or
premium on a daily basis to interest income. The Fund uses the specific
identification method for determining gain or loss on sales of securities.
Valuation
Except for Money Market, all investments are valued daily at their market price,
which results in unrealized gains or losses. Readily marketable fixed-income
securities are valued on the basis of prices provided by a pricing service when
such prices are believed by the Investment Adviser to reflect the fair value of
such securities. Securities traded on an exchange are valued at their last sales
price on that exchange. Securities for which over-the-counter market quotations
are available are valued at the latest bid price (asked price for short sales).
Time deposits and repurchase agreements are generally valued at their cost plus
accrued interest. Securities for which market quotations are not readily
available will be valued in good faith by methods approved by the Board of
Directors. Securities with maturities less than 60 days are valued at amortized
cost, which approximates market value, unless this method does not represent
fair value.
All investments in Money Market are valued daily using the amortized cost
valuation method which approximates market value and is consistent with Rule
2a-7 of the Investment Company Act of 1940.
Expenses
Expenses directly attributed to each Portfolio in the Fund are charged to that
Portfolio's operations; expenses which are applicable to all Portfolios are
allocated among them.
Income Tax
There is no provision for Federal income or excise tax since each Portfolio
distributes all of its taxable income and qualifies or intends to qualify as a
regulated investment company ("RIC") by complying with the requirements of
Subchapter M of the Internal Revenue Code applicable to RICs.
=============================================================================
Notes to Financial Statements (continued)
December 31, 1997
=============================================================================
2. Summary of Significant Accounting Policies (continued)
At December 31,1997, the Portfolios had the following capital loss carryforwards
to offset future net capital gains, to the extent provided by regulations. Net
realized losses attributable to security transactions after October 31, 1997,
are treated for federal income tax purposes as arising on the first day of the
Portfolio's next fiscal year.
Portfolio Carryforward Amount Expiration Date
U.S. Short-Term $1,404,714 December 31, 2001
1,779,703 December 31, 2002
1,335,380 December 31, 2003
1,594,356 December 31, 2004
2,755,320 December 31, 2005
Worldwide 8,656,739 December 31, 2002
Worldwide-Hedged 408,761 December 31, 2002
Emerging Markets 745,597 December 31, 2005
Dividends to Shareholders
It is the policy of the Portfolios, other than Mortgage, to declare dividends
daily from net investment income. Mortgage declares dividends monthly from net
investment income on the last Business Day of each month. Dividends are paid in
cash or reinvested monthly for all Portfolios. Distributions from net capital
gains of each Portfolio, if any, are normally declared and paid annually, but
each Portfolio may make distributions on a more frequent basis to comply with
the distribution requirements of the Internal Revenue Code. To the extent that a
net realized capital gain can be reduced by a capital loss carryover, such gain
may not be distributed.
Dividends from net investment income and distributions from realized gains from
investment transactions have been determined in accordance with Federal income
tax regulations and may differ from net investment income and realized gains
recorded by a Portfolio for financial reporting purposes. Differences result
primarily from foreign currency transactions and timing differences related to
recognition of income, and gains and losses from investment transactions. To the
extent that those differences which are permanent in nature result in
overdistributions to shareholders, amounts are reclassified within the capital
accounts based on their federal tax basis treatment. Temporary differences do
not require reclassification. Dividends and distributions which exceed net
investment income and net realized capital gains for financial reporting
purposes but not for tax purposes are reported as distributions in excess of net
investment income and net realized capital gains, respectively. To the extent
that they exceed net investment income and net realized gains for tax purposes,
they are reported as distributions of capital stock in excess of par value.
During the year ended December 31, 1997, the Portfolios reclassified the
following book to tax differences [increases (decreases)]:
<TABLE>
<S> <C> <C> <C>
Undistributed Investment Accumulated Net Realized Capital Stock in Excess
Portfolio Income, Net Gain/Loss of Par Value
U. S. Short-Term $ 235,966 $ (235,966) $ -
Stable Return 9,921 (9,921) -
Mortgage (1,681,497) 1,681,497 -
Worldwide (18,120) 2,508,257 (2,490,137)
Worldwide-Hedged (568,450) 577,636 (9,186)
International 232,458 1,489,145 (1,721,603)
International-Hedged 16,889,430 (16,873,180) (16,250)
Emerging Markets 63,424 (63,424) -
</TABLE>
=============================================================================
Notes to Financial Statements (continued)
December 31, 1997
=============================================================================
2. Summary of Significant Accounting Policies (continued)
Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under
forward foreign exchange contracts are translated into U.S. dollars at the mean
of the quoted bid and asked prices of such currencies against the U.S. dollar.
Purchases and sales of portfolio securities are translated at the rates of
exchange prevailing when such securities were acquired or sold. Income and
expenses are translated at exchange rates prevailing when accrued. The
Portfolios do not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized gains or losses on foreign currency-related transactions
arise from sales of foreign currency, currency gains or losses realized between
the trade and settlement dates on securities transactions, and the difference
between the amounts of dividends, interest, and foreign withholding taxes
recorded on the Portfolios' books and the U.S. dollar equivalent of the amounts
actually received. Net unrealized appreciation or depreciation on other assets
and liabilities denominated in foreign currency arise from changes in the value
of assets and liabilities other than investments in securities at fiscal year
end, resulting from changes in the exchange rates.
Estimates
The preparation of financial statements in accordance with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
3. Investment Advisory Agreements and Affiliated Transactions
The Fund's Board of Directors has approved investment advisory agreements (the
"Agreements") with the Investment Adviser. The investment advisory fees to be
paid to the Investment Adviser are computed daily at annual rates set forth
below. The fees are payable quarterly for U.S. Short-Term, Worldwide, and
Worldwide-Hedged, and monthly for Money Market, Stable Return, Mortgage,
International, International-Hedged and Emerging Markets.
From time to time, the Investment Adviser has agreed to waive its investment
advisory fee and reimburse the Portfolios for any expenses (exclusive of
interest, taxes, brokerage commissions and other extraordinary expenses) in
excess of certain specified amounts. The table below summarizes the current
investment advisory fee arrangement (reflecting certain waivers), the investment
advisory fee per the Agreements and the current expense cap as percentages of
average daily net assets. All waiver and expense cap agreements are in effect
until further notice.
<TABLE>
<S> <C> <C> <C> <C>
Current Investment Current
Investment Advisory Expense
Portfolio Advisory Fee Fee per Agreement Cap
----------------------------------------------------------------------------------------------
Money Market 0.10%* 0.10% 0.25%
U.S. Short-Term 0.15% 0.30% 0.25%
Stable Return 0.15% 0 35% 0.30%
Mortgage 0.10%** 0.30% 0.25%
Worldwide 0.40% 0.40% 0.60%
Worldwide-Hedged 0.25% 0.40% 0.45%
International 0.40% 0.40% 0.60%
International-Hedged 0.10%*** 0.40% 0.30%
Emerging Markets 0.75% 0.75% 1.50%
* Reduced from 0.25% on May 1, 1997. *** Reduced from 0.40% on
** Reduced from 0.30% on October 1, 1997. September 1, 1997.
</TABLE>
===============================================================================
Notes to Financial Statements (continued)
December 31, 1997
===============================================================================
3. Investment Advisory Agreements and Affiliated
Transactions (continued)
Directors' fees of $73,996 were allocated among the Portfolios and paid for the
year ended December 31, 1997 to Directors who are not employees of the
Investment Adviser. Effective February 12, 1997, Directors who are not employees
of the Investment Adviser receive an annual retainer of $20,000, payable
quarterly and $1,000 per meeting attended.
As of December 31, 1997, the Investment Adviser had discretionary investment
advisory agreements with shareholders of the Fund that represent 74.7% of the
Fund's total net assets and therefore, may be deemed a control person.
4. Investment Transactions
Purchase cost and proceeds from sales of investment securities (including U.S.
Government securities), other than short-term investments, for the year ended
December 31, 1997 for each of the Portfolios were as follows:
<TABLE>
<S> <C> <C> <C>
Purchase Cost of Proceeds from Sales of
Portfolio Investment Securities Investment Securities
Money Market $ - $ -
U.S. Short-Term 3,197,865,140 3,046,546,871
Stable Return 444,356,398 431,422,762
Mortgage 32,069,821,192 31,555,553,433
Worldwide 381,316,624 362,575,990
Worldwide-Hedged 252,177,357 218,770,875
International 215,615,135 200,554,935
International-Hedged 1,251,771,857 1,052,611,158
Emerging Markets 66,749,930 5,998,245
</TABLE>
The components of net unrealized appreciation (depreciation) of investments for
federal income tax purposes at December 31, 1997 for each of the Portfolios were
as follows:
<TABLE>
<S> <C> <C> <C>
Unrealized Unrealized
Portfolio Appreciation Depreciation Net
U.S. Short-Term $ 251,254 $ 533,059 $ (281,805)
Stable Return 144,252 51,181 93,071
Mortgage 13,048,972 5,256,981 7,791,991
Worldwide 1,286,242 689,857 596,385
Worldwide-Hedged 969,677 293,693 675,984
International 323,700 265,305 58,395
International-Hedged 2,950,353 1,580,520 1,369,833
Emerging Markets 781,531 2,395,435 (1,613,904)
</TABLE>
The cost of securities owned by each Portfolio at December 31, 1997 for Federal
tax purposes was substantially the same as for financial statement purposes.
5. Forward Foreign Exchange Contracts
Each Portfolio, except Money Market, may enter into forward foreign exchange
contracts in order to hedge its exposure to changes in foreign currency exchange
rates on its foreign currency denominated portfolio holdings. A forward foreign
exchange contract is a commitment to purchase or sell a foreign currency at a
future date at a negotiated forward rate. The
==========================================================================
Notes to Financial Statements (continued)
December 31, 1997
==========================================================================
5. Forward Foreign Exchange Contracts (continued)
gain or loss arising from the difference between the original contracts and the
closing of such contracts is included in net realized gains or losses on foreign
currency-related transactions. Fluctuations in the value of forward foreign
exchange contracts are recorded for book purposes as unrealized gains or losses
by the Portfolio. The Portfolio's custodian will place and maintain cash not
available for investment, U.S. Government securities, or other appropriate
liquid, unencumbered securities in a separate account of the Portfolio having a
value equal to the aggregate amount of the Portfolio's commitments under certain
open forward foreign exchange contracts. Risks may arise from the potential
inability of a counterparty to meet the terms of a contract and from
unanticipated movements in the value of a foreign currency relative to the U.S.
dollar.
At December 31, 1997, Worldwide had outstanding forward foreign exchange
contracts, both to purchase and sell foreign currencies as follows:
<TABLE>
<S> <C> <C> <C>
Unrealized
Contract Cost/ Appreciation
Amount Proceeds Value (Depreciation)
- ---------------------------------------------------------------------------------------------------------------------------------
Forward Foreign Exchange Buy Contracts
1,300,000 Australian Dollar closing 2/25/98 $ 912,054 $ 848,441 $ (63,613)
3,332,898 Canadian Dollar closing 2/25/98 2,384,047 2,336,575 (47,473)
33,021,454 French Franc closing 2/25/98 5,803,521 5,504,187 (299,334)
43,155,957 German Deutschemark closing 2/25/98 24,933,908 24,086,894 (847,014)
3,210,265 Great British Pound closing 2/25/98 5,354,315 5,269,706 (84,609)
7,381,001,074 Italian Lira closing 2/25/98 4,352,750 4,174,098 (178,652)
2,561,106,721 Japanese Yen closing 2/25/98 20,582,081 19,801,708 (780,373)
789,918,531 Spanish Peseta closing 2/25/98 5,370,605 5,194,827 (175,777)
2,983,088 Swedish Krona closing 2/25/98 399,878 376,637 (23,241)
Forward Foreign Exchange Sell Contracts
9,327,851 Danish Krone closing 2/25/98 1,438,318 1,366,326 71,993
48,508,144 German Deutschemark closing 2/25/98 27,841,832 27,074,142 767,690
3,702,731 Great British Pound closing 2/25/98 6,129,792 6,078,097 51,695
1,048,782,614 Japanese Yen closing 2/25/98 8,321,970 8,108,872 213,098
2,564,629 New Zealand Dollar closing 2/25/98 1,595,199 1,483,663 111,536
===================
$ (1,284,075)
===================
</TABLE>
===============================================================================
Notes to Financial Statements (continued)
December 31, 1997
===============================================================================
5. Forward Foreign Exchange Contracts (continued)
At December 31, 1997, Worldwide-Hedged had outstanding forward foreign exchange
contracts, both to purchase and sell foreign currencies as follows:
<TABLE>
<S> <C> <C> <C>
Unrealized
Contract Cost/ Appreciation
Amount Proceeds Value (Depreciation)
Forward Foreign Exchange Buy Contracts
19,929,158 German Deutschemark closing 2/25/98 $ 11,512,677 $ 11,123,181 $ (389,497)
1,345,410 Great British Pound closing 2/25/98 2,260,161 2,208,514 (51,647)
1,051,979,139 Japanese Yen closing 2/25/98 8,389,921 8,133,587 (256,334)
300,000,000 Spanish Peseta closing 2/25/98 2,006,354 1,972,923 (33,431)
Forward Foreign Exchange Sell Contracts
13,310,663 Danish Krone closing 2/25/98 2,052,452 1,949,720 102,732
38,367,655 German Deutschemark closing 2/25/98 22,014,518 21,414,370 600,148
5,137,532 Great British Pound closing 2/25/98 8,549,934 8,433,348 116,586
1,099,999,991 Italian Lira closing 2/25/98 648,696 622,071 26,625
1,084,600,251 Japanese Yen closing 2/25/98 8,658,629 8,385,803 272,826
1,140,431 New Zealand Dollar closing 2/25/98 895,948 833,304 62,644
6,096,712 Swedish Krona closing 2/25/98 817,253 769,755 47,498
=====================
$498,150
=====================
</TABLE>
At December 31, 1997, International had outstanding forward foreign exchange
contracts, both to purchase and sell foreign currencies as follows:
<TABLE>
<S> <C> <C> <C>
Unrealized
Contract Cost/ Appreciation
Amount Proceeds Value (Depreciation)
Forward Foreign Exchange Buy Contracts
1,229,910 Australian Dollar closing 2/25/98 $ 862,881 $ 802,697 $ (60,184)
3,490,981 Canadian Dollar closing 2/25/98 2,497,125 2,447,401 (49,724)
36,912,587 French Franc closing 2/25/98 6,487,386 6,152,780 (334,606)
45,533,775 German Deutschemark closing 2/25/98 26,291,736 25,414,039 (877,697)
3,077,882 Great British Pound closing 2/25/98 5,169,475 5,052,396 (117,079)
7,257,916,302 Italian Lira closing 2/25/98 4,280,164 4,104,491 (175,673)
2,346,801,532 Japanese Yen closing 2/25/98 18,865,956 18,144,765 (721,191)
726,244,480 Spanish Peseta closing 2/25/98 4,937,374 4,776,081 (161,293)
2,482,180 Swedish Krona closing 2/25/98 332,732 313,394 (19,338)
</TABLE>
==============================================================================
Notes to Financial Statements (continued)
December 31, 1997
==============================================================================
5. Forward Foreign Exchange Contracts (continued)
<TABLE>
<S> <C> <C> <C>
Unrealized
Contract Cost/ Appreciation
Amount Proceeds Value (Depreciation)
Forward Foreign Exchange Sell Contracts
12,801,389 Danish Krone closing 2/25/98 $ 1,973,924 $ 1,875,123 $ 98,801
43,410,352 German Deutschemark closing 2/25/98 24,947,465 24,228,880 718,585
5,700,816 Great British Pound closing 2/25/98 9,462,197 9,357,989 104,208
963,221,270 Japanese Yen closing 2/25/98 7,643,654 7,447,338 196,316
1,024,358 New Zealand Dollar closing 2/25/98 637,150 592,601 44,549
=====================
$ (1,354,326)
=====================
</TABLE>
At December 31, 1997, International-Hedged had outstanding forward foreign
exchange contracts, both to purchase and sell foreign currencies as follows:
<TABLE>
<S> <C> <C> <C>
Unrealized
Contract Cost/ Appreciation
Amount Proceeds Value (Depreciation)
Forward Foreign Exchange Buy Contracts
8,865,528 Australian Dollar closing 2/25/98 $ 6,219,878 $ 5,786,057 $ (433,821)
320,112,300 Belgian Franc closing 2/25/98 9,017,248 8,673,704 (343,544)
24,716,896 Canadian Dollar closing 2/25/98 17,680,183 17,328,124 (352,059)
39,188,333 Danish Krone closing 2/25/98 5,831,597 5,740,232 (91,365)
247,943,854 French Franc closing 2/25/98 43,576,135 41,328,567 (2,247,568)
272,781,668 German Deutschemark closing 2/25/98 157,485,286 152,249,270 (5,236,016)
28,193,996 Great British Pound closing 2/25/98 47,141,696 46,280,935 (860,761)
33,550,417,091 Italian Lira closing 2/25/98 19,785,469 18,973,404 (812,065)
491,238,000 Japanese Yen closing 2/5/98 3,953,180 3,787,465 (165,715)
17,938,784,538 Japanese Yen closing 2/25/98 143,937,163 138,697,295 (5,239,868)
69,373,150 Netherlands Guilder closing 2/25/98 36,189,337 34,356,580 (1,832,757)
6,015,544,735 Spanish Peseta closing 2/25/98 40,831,277 39,560,683 (1,270,594)
36,247,572 Swedish Krona closing 2/25/98 4,858,924 4,576,525 (282,399)
</TABLE>
============================================================================
Notes to Financial Statements (continued)
December 31, 1997
============================================================================
5. Forward Foreign Exchange Contracts (continued)
<TABLE>
<S> <C> <C> <C>
Unrealized
Contract Cost/ Appreciation
Amount Proceeds Value (Depreciation)
Forward Foreign Exchange Sell Contracts
1,369,030 Australian Dollar closing 2/25/98 $ 900,000 $ 893,492 $ 6,508
80,658,600 Belgian Franc closing 2/25/98 2,200,000 2,185,511 14,489
3,398,088 Canadian Dollar closing 2/25/98 2,400,000 2,382,277 17,723
107,441,712 Danish Krone closing 2/25/98 16,516,542 15,737,856 778,686
39,548,090 French Franc closing 2/25/98 6,700,000 6,592,081 107,919
384,424,348 German Deutschemark closing 2/25/98 220,491,440 214,561,070 5,930,370
30,398,559 Great British Pound closing 2/25/98 50,206,464 49,899,765 306,699
8,333,688,000 Italian Lira closing 2/25/98 4,800,000 4,712,860 87,140
9,828,659,196 Japanese Yen closing 2/25/98 77,773,703 75,992,242 1,781,461
5,164,302 Netherlands Guilder closing 2/25/98 2,600,000 2,557,585 42,415
388,928,800 Spanish Peseta closing 2/25/98 2,600,000 2,557,755 42,245
11,593,950 Swedish Krona closing 2/25/98 1,500,000 1,463,822 36,178
=====================
$ (10,016,699)
=====================
</TABLE>
At December 31, 1997, Emerging Markets had outstanding forward foreign exchange
contracts, both to purchase and sell foreign currencies as follows:
<TABLE>
<S> <C> <C> <C>
Unrealized
Contract Cost/ Appreciation
Amount Proceeds Value (Depreciation)
Forward Foreign Exchange Buy Contracts
4,896,000 Brazilian Real closing 6/2/98 $ 4,000,000 $ 4,056,337 $ 56,337
1,937,618 European Currency Unit closing 3/3/98 2,168,273 2,135,882 (32,391)
942,500,000 Greek Drachma closing 3/3/98 3,317,055 3,320,122 3,067
15,817,000 Hong Kong Dollar closing 4/23/98 2,000,000 2,017,946 17,946
488,250,000 Turkish Lira closing 10/8/98 1,500,000 1,817,491 317,491
Forward Foreign Exchange Sell Contracts
2,963,865 European Currency Unit closing 3/3/98 3,317,055 3,267,137 49,918
8,546,585 German Deutschemark closing 2/25/98 4,938,488 4,768,482 170,006
1,155,248 German Deutschemark closing 10/8/98 670,001 652,596 17,405
615,000,000 Greek Drachma closing 3/3/98 2,168,272 2,166,445 1,827
=====================
$ 601,606
=====================
</TABLE>
Each Portfolio, other than Money Market, may enter into foreign currency
transactions in the spot markets in order to pay for foreign investment
purchases or to convert to U.S. dollars the proceeds from foreign investment
sales or coupon interest receipts. At Decemebr 31, 1997, no Portfolio had an
outstanding purchase or sale of foreign currency in the spot markets.
==============================================================================
Notes to Financial Statements (continued)
December 31, 1997
==============================================================================
6. Financial Futures Contracts
Each Portfolio, other than Money Market, may enter into financial futures
contracts to hedge its interest rate and foreign currency risk. A Portfolio is
exposed to market risk as a result of changes in the value of the underlying
financial instruments.
Investments in financial futures contracts require the Portfolio to "mark to
market" open financial futures contracts on a daily basis, which reflects the
change in the market value of the contract at the close of each day's trading.
Accordingly, variation margin is paid or received to reflect daily unrealized
gains or losses. When the contracts are closed, the Portfolio recognizes a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the time it was closed. These investments require
initial margin deposits which consist of cash or eligible securities. At
December 31, 1997, the Portfolios placed U.S. Treasury Bills or other liquid
securities or cash in segregated accounts for the benefit of the broker at the
Portfolio's custodian with respect to their financial futures contracts as
follows:
----------------------------- -----------------------------
December 31, 1997
Portfolio Collateral Value
----------------------------- -----------------------------
U.S. Short-Term $ 644,411
Stable Return 19,982
Mortgage 3,336,951
Worldwide 798,710
Worldwide-Hedged 598,884
International 599,032
International-Hedged 3,194,841
As of December 31, 1997, U.S. Short-Term had the following open financial
futures contracts:
Value Unrealized
Covered by Appreciation
Contracts Contracts
Long Futures Contracts
40 March '98 Euro Dollars $ 9,404,548 $ 17,952
274 June '98 Euro Dollars 64,447,488 86,361
118 September '98 Euro Dollars 27,773,432 3,768
=================
$ 108,081
=================
As of December 31, 1997, Stable Return had the following open financial futures
contracts:
Value
Covered by Unrealized
Contracts Contracts (Depreciation)
Short Futures Contracts
9 March '98 5 Year U. S. Treasury Notes $ 972,372 $ (5,253)
============
=============================================================================
Notes to Financial Statements (continued)
December 31, 1997
=============================================================================
6. Financial Futures Contracts (continued)
As of December 31, 1997, Mortgage had the following open financial futures
contracts:
<TABLE>
<S> <C> <C>
Value Unrealized
Covered by Appreciation
Contracts Contracts (Depreciation)
Long Futures Contracts
19 March '98 2 Year U. S. Treasury Notes $ 3,946,168 $ 785
697 December '98 Euro Dollars 163,925,182 505
Short Futures Contracts
11 March '98 10 Year U. S. Treasury Notes 1,229,876 (3,843)
99 March '98 5 Year U. S. Treasury Notes 10,756,417 2,542
99 March '98 U. S. Treasury Bonds 11,898,011 (28,395)
704 June '98 10 Year U. S. Treasury Notes 78,897,235 (38,765)
====================
$ (67,171)
====================
</TABLE>
As of December 31, 1997, Worldwide had the following open financial futures
contracts:
<TABLE>
<S> <C> <C> <C>
Value
Covered by Unrealized
Contracts Currency Contracts Appreciation
Long Futures Contracts
29 March '98 LIFFE Deutsche Bundes DEM $ 4,173,255 $ 29,123
46 March '98 5 Year Deutsche Bundes DEM 6,660,138 686
18 March '98 LIFFE Long Gilt GBP 1,757,316 37,385
2 March '98 TSE Japanese Gov't. 10 Year Bond JPY 1,981,748 9,049
35 March '98 CBT 5 Year Treasury Notes USD 3,780,664 21,211
37 March '98 10 Year U. S. Treasury Notes USD 4,139,581 10,200
---------------------
$ 107,654
=====================
</TABLE>
As of December 31, 1997, Worldwide-Hedged had the following open financial
futures contracts:
<TABLE>
<S> <C> <C> <C>
Value
Covered by Unrealized
Contracts Currency Contracts Appreciation
Long Futures Contracts
45 March '98 LIFFE Deutsche Bundes DEM $ 6,440,476 $ 80,455
36 March '98 5 Year Deutsche Bundes DEM 5,212,214 526
1 March '98 TSE Japanese Gov't. 10 Year Bond JPY 990,874 4,525
---------------------
$ 85,506
=====================
</TABLE>
==============================================================================
Notes to Financial Statements (continued)
December 31, 1997
==============================================================================
6. Financial Futures Contracts (continued)
As of December 31, 1997, International had the following open financial futures
contracts:
<TABLE>
<S> <C> <C> <C>
Value
Covered by Unrealized
Contracts Currency Contracts Appreciation
Long Futures Contracts
78 March '98 LIFFE 10 Year Deutsche Bundes DEM $ 11,176,024 $ 126,925
45 March '98 5 Year Deutsche Bundes DEM 6,515,261 664
4 March '98 TSE Japanese Gov't. 10 Year Bond JPY 3,963,497 18,098
---------------------
$ 145,687
=====================
</TABLE>
As of December 31, 1997, International-Hedged had the following open financial
futures contracts:
<TABLE>
<S> <C> <C> <C>
Value Unrealized
Covered by Appreciation
Contracts Currency Contracts (Depreciation)
Long Futures Contracts
111 March '98 LIFFE 10 Year Deutsche Bundes DEM $ 15,886,508 $ 198,457
356 March '98 5 Year Deutsche Bundes DEM 51,543,021 5,185
13 March '98 TSE Japanese Gov't. 10 Year Bond JPY 12,947,163 (6,979)
235 March '98 10 Year U. S. Treasury Notes USD 26,328,166 28,553
236 March '98 CBT 5 Year Treasury Notes USD 25,597,692 37,808
---------------------
$ 263,024
=====================
</TABLE>
As of December 31, 1997, Emerging Markets had the following open financial
futures contracts:
<TABLE>
<S> <C> <C> <C>
Value
Covered by Unrealized
Contracts Currency Contracts (Depreciation)
Long Futures Contracts
195 March '98 U. S. Treasury Bonds USD $ 23,189,883 $ (301,524)
25 March '98 CBT 5 Year Treasury Notes USD 2,694,017 (21,608)
89 March '98 10 Year U. S. Treasury Notes USD 9,895,879 (86,027)
---------------------
$ (409,159)
=====================
</TABLE>
=============================================================================
Notes to Financial Statements (continued)
December 31, 1997
=============================================================================
7. Capital Stock Transactions
As of December 31, 1997, there were 1,000,000,000 shares of $0.001 par value
capital stock authorized.
Transactions in capital stock for Money Market were as follows for the years
indicated:
<TABLE>
<S> <C> <C> <C> <C>
Year Ended Year Ended
December 31, 1997 December 31, 1996
-----------------------------------------------------------------------
Shares Amount Shares Amount
Shares sold 809,659 $ 809,659 1,049,604 $ 1,049,604
Shares issued related to
reinvestment of dividends 1,363,118 1,363,118 1,244,304 1,244,304
-----------------------------------------------------------------------
2,172,777 2,172,777 2,293,908 2,293,908
Shares redeemed 1,067,582 1,067,582 3,123,549 3,123,549
-----------------------------------------------------------------------
Net increase (decrease) 1,105,195 $ 1,105,195 (829,641) $ (829,641)
=======================================================================
</TABLE>
Transactions in capital stock for U.S. Short-Term were as follows for the years
indicated:
<TABLE>
<S> <C> <C> <C> <C>
Year Ended Year Ended
December 31, 1997 December 31, 1996
Shares Amount Shares Amount
Shares sold 635,311,236 $6,237,574,780 698,753,332 $ 6,885,689,388
Shares issued related to
reinvestment of dividends 2,789,536 27,377,336 2,773,655 27,323,767
638,100,772 6,264,952,116 701,526,987 6,913,013,155
Shares redeemed 624,333,180 6,129,968,601 711,752,445 7,013,520,909
Net increase (decrease) 13,767,592 $ 134,983,515 (10,225,458) $ (100,507,754)
</TABLE>
Transactions in capital stock for Stable Return were as follows for the years
indicated:
<TABLE>
<S> <C> <C> <C> <C>
Year Ended Year Ended
December 31, 1997 December 31, 1996
Shares Amount Shares Amount
Shares sold 3,788,291 $ 37,880,900 3,600,391 $ 35,567,661
Shares issued related to
reinvestment of dividends 215,997 2,148,047 145,519 1,445,423
-----------------------------------------------------------------------
4,004,288 40,028,947 3,745,910 37,013,084
Shares redeemed 4,216,188 41,993,570 12,241 121,101
-----------------------------------------------------------------------
Net increase (decrease) (211,900) $ (1,964,623) 3,733,669 $ 36,891,983
=======================================================================
</TABLE>
==============================================================================
Notes to Financial Statements (continued)
December 31, 1997
==============================================================================
7. Capital Stock Transactions (continued)
Transactions in capital stock for Mortgage were as follows for the periods
indicated:
<TABLE>
<S> <C> <C> <C> <C>
Year Ended Period From April 29, 1996* to
December 31, 1997 December 31, 1996
Shares Amount Shares Amount
Shares sold 73,900,117 $ 762,614,676 24,698,121 $ 251,360,141
Shares issued related to
reinvestment of dividends 4,663,202 47,946,656 588,076 5,984,056
78,563,319 810,561,332 25,286,197 257,344,197
Shares redeemed 36,721,484 383,659,957 3,530,497 35,813,437
Net increase 41,841,835 $ 426,901,375 21,755,700 $ 221,530,760
</TABLE>
*Commencement of Operations
Transactions in capital stock for Worldwide were as follows for the years
indicated:
<TABLE>
<S> <C> <C> <C> <C>
Year Ended Year Ended
December 31, 1997 December 31, 1996
-----------------------------------------------------------------------
Shares Amount Shares Amount
Shares sold 1,920,788 $ 18,112,235 4,903,256 $ 47,314,387
Shares issued related to
reinvestment of dividends 343,250 3,210,931 565,816 5,450,078
-----------------------------------------------------------------------
2,264,038 21,323,166 5,469,072 52,764,465
Shares redeemed 1,304,053 12,156,347 6,462,067 61,994,382
-----------------------------------------------------------------------
Net increase (decrease) 959,985 $ 9,166,819 (992,995) $ (9,229,917)
=======================================================================
</TABLE>
Transactions in capital stock for Worldwide-Hedged were as follows for the years
indicated:
<TABLE>
<S> <C> <C> <C> <C>
Year Ended Year Ended
December 31, 1997 December 31, 1996
-----------------------------------------------------------------------
Shares Amount Shares Amount
Shares sold 3,982,279 $ 44,433,183 170,880 $ 1,849,300
Shares issued related to
reinvestment of dividends 530,286 5,958,627 231,838 2,529,368
-----------------------------------------------------------------------
4,512,565 50,391,810 402,718 4,378,668
Shares redeemed 105,402 1,178,345 256,253 2,788,475
-----------------------------------------------------------------------
Net increase 4,407,163 $ 49,213,465 146,465 $ 1,590,193
=======================================================================
</TABLE>
===============================================================================
Notes to Financial Statements (continued)
December 31, 1997
===============================================================================
7. Capital Stock Transactions (continued)
Transactions in capital stock for International were as follows for the periods
indicated:
<TABLE>
<S> <C> <C> <C> <C>
Year Ended Period From May 9, 1996* to
December 31, 1997 December 31, 1996
Shares Amount Shares Amount
Shares sold 3,289,389 $ 32,040,188 3,397,413 $ 34,283,766
Shares issued related to
reinvestment of dividends 351,087 3,365,604 109,492 1,114,153
3,640,476 35,405,792 3,506,905 35,397,919
Shares redeemed 21,837 212,502 817 8,400
Net increase 3,618,639 $ 35,193,290 3,506,088 $ 35,389,519
</TABLE>
*Commencement of Operations
Transactions in capital stock for International-Hedged were as follows for the
years indicated:
<TABLE>
<S> <C> <C> <C> <C>
Year Ended Year Ended
December 31, 1997 December 31, 1996
-----------------------------------------------------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------
Shares sold 21,516,017 $ 216,244,172 17,293,642 $ 174,000,000
Shares issued related to
reinvestment of dividends 1,252,355 12,577,383 509,355 5,046,775
-----------------------------------------------------------------------
22,768,372 228,821,555 17,802,997 179,046,775
Shares redeemed 7,532,876 76,430,078 8,214,673 82,699,260
-----------------------------------------------------------------------
Net increase 15,235,496 $ 152,391,477 9,588,324 $ 96,347,515
=======================================================================
Transactions in capital stock for Emerging Markets were as follows for the
period indicated:
- ------------------------------------------------------------------------
Period From August 12, 1997* to
December 31, 1997
------------------------------------
Shares Amount
- ------------------------------------------------------------------------
Shares sold 12,811,892 $ 125,300,000
Shares issued related to
reinvestment of dividends 197,299 1,903,314
------------------------------------
13,009,191 127,203,314
Shares redeemed 1,431,789 13,730,857
------------------------------------
Net increase 11,577,402 $ 113,472,457
====================================
</TABLE>
* Commencement of Operations
=============================================================================
Notes to Financial Statements (continued)
December 31, 1997
=============================================================================
8. Repurchase and Reverse Repurchase Agreements
Each Portfolio may enter into repurchase agreements under which a bank or
securities firm that is a primary or reporting dealer in U.S. Government
securities agrees, upon entering into the contract, to sell U.S. Government
securities to a Portfolio and repurchase such securities from such Portfolio at
a mutually agreed upon price and date. U.S. Short-Term, Worldwide, and
Worldwide-Hedged may invest only up to 25% of their total assets in repurchase
agreements. Securities purchased subject to repurchase agreements must have an
aggregate market value greater than or equal to the repurchase price plus
accrued interest at all times. If the value of the underlying securities falls
below the value of the repurchase price plus accrued interest, the Portfolio
will require the seller to deposit additional collateral by the next business
day. If the request for additional collateral is not met, or the seller defaults
on its repurchase obligation, such Portfolio maintains the right to sell the
underlying securities at market value and may claim any resulting loss against
the seller.
Each Portfolio also is permitted to enter into reverse repurchase agreements
under which a primary or reporting dealer in U.S. Government securities
purchases U.S. Government securities from a Portfolio and such Portfolio agrees
to repurchase the securities at an agreed upon price and date. Reverse
repurchase agreements for U.S. Short-Term, Worldwide, and Worldwide-Hedged may
not exceed 25% of the Portfolio's total assets. When a Portfolio engages in
reverse repurchase transactions, the Portfolio will maintain, in a segregated
account with its custodian, cash or securities equal in value to those
securities subject to the reverse repurchase agreement.
For the year ended December 31, 1997, the following
Portfolios had a maximum amount of reverse repurchase
agreements outstanding, average amount of reverse repurchase
agreements outstanding, and daily weighted average interest
rate as shown:
<TABLE>
<S> <C> <C> <C>
Maximum Average Average
Portfolio Balance Balance Rate
------------------------ --------------------- ------------------------- ----------------------
U. S. Short-Term $ 34,607,750 $ 890,641 5.41%
Stable Return 11,155,000 1,683,052 5.29%
Mortgage 80,293,750 9,137,515 5.45%
</TABLE>
Each Portfolio will engage in repurchase and reverse repurchase transactions
with parties selected on the basis of such party's creditworthiness.
9. Options Transactions
For hedging purposes, each Portfolio other than Money Market, may purchase and
write (sell) put and call options on U.S. and foreign government securities and
foreign currencies that are traded on U.S. and foreign securities exchanges and
over-the-counter markets.
The risk with purchasing an option is that the Portfolio pays a premium whether
or not the option is exercised. Additionally, the Portfolio bears the risk of
loss of premium and change in market value should the counterparty not perform
under the contract.
Put and call options purchased are accounted for in the same manner as portfolio
securities. The cost of securities acquired through the exercise of call options
is increased by the premiums paid. The proceeds from securities sold through the
exercise of put options are decreased by the premiums paid.
When the Portfolio writes an option, the premium received by the Portfolio is
recorded as a liability and is subsequently adjusted to the current market value
of the option written. Premiums received from writing options which expire
unexercised are recorded by the Portfolio on the expiration date as realized
gains from option transactions. The difference between the premium and the
amount paid on effecting a closing purchase transaction, including brokerage
commissions, also is treated as a realized gain, or if the premium is less than
the amount paid for the closing purchase transaction, as a realized loss.
==============================================================================
Notes to Financial Statements (continued)
December 31, 1997
==============================================================================
9. Options Transactions (continued)
If a call option is exercised, the premium is added to the proceeds from the
sale of the underlying security or currency in determining whether the Portfolio
has a realized gain or loss. If a put option is exercised, the premium reduces
the cost basis of the security or currency purchased by the Portfolio. In
writing an option, the Portfolio bears the market risk of an unfavorable change
in the price of the security or currency underlying the written option. Exercise
of an option written by the Portfolio could result in the Portfolio selling or
buying a security or currency at a price different from the current market
value.
A summary of put and call options written by U. S. Short-Term for the year ended
December 31, 1997 is as follows:
<TABLE>
<S> <C> <C> <C> <C>
Calls Puts
------------------------------- ----------------------------
# of # of
Premiums Contracts Premiums
Contracts
Outstanding, beginning of period - $ - $ - $ -
Options written
Euro Dollars 300 223,329 300 103,329
U. S. Treasury 86 16,739 386 75,194
Options closed
Euro Dollars 300 223,329 300 103,329
U. S. Treasury 86 16,739 386 75,194
===============================================================
Outstanding, end of period $ - $ - $ - $ -
===============================================================
</TABLE>
Net realized loss on written options transactions for the year ended December
31, 1997 was $49,317.
A summary of call options written by Mortgage for the year ended December 31,
1997 is as follows:
- -------------------------------------------------------------------------
Calls
-------------------------------
# of
Premiums
Contracts
- -----------------------------------------------------------------------------
Outstanding, beginning of period - $
-
Options written
FNMA 478 1,183,281
FHLMC 102 268,281
U. S. Treasury 1,351 2,958,522
Options closed
FNMA 303 759,453
U. S. Treasury 1,351 2,958,522
Options expired
FNMA 175 423,828
FHLMC 102 268,281
===============================
Outstanding, end of period -
$
-
===============================
Net realized gain on written options transactions for the year ended December
31, 1997 was $1,213,247.
=============================================================================
Notes to Financial Statements (continued)
December 31, 1997
============================================================================
10. Swap Transactions
A swap is an agreement that obligates two parties to exchange a series of cash
flows at specified intervals based upon or calculated by reference to changes in
specified prices or rates for a specified amount of an underlying asset. The
payment flows usually are netted against each other, with the difference being
paid by one party to the other. Risks may arise as a result of the failure of
another party to the swap contract to comply with the terms of the swap
contract. The loss incurred by the failure of a counterparty generally is
limited to the net payment to be received by a Portfolio, and/or the termination
value at the end of the contract. Therefore, the Portfolio considers the
creditworthiness of each counterparty to a swap contract in evaluating potential
credit risk. Additionally, risks may arise from unanticipated movements in
interest rates or in the value of the underlying securities or indices.
Mortgage entered into an interest rate swap contract pursuant to which the
Portfolio receives payments based on changes in the London Interbank Offered
Rate (LIBOR) applied to a notional amount and makes fixed rate payments based on
the same notional amount. The swap contract is designed to enhance the total
return of the Portfolio.
The Portfolio records a net receivable or payable and interest for the amount
expected to be received or paid in the period. Fluctuations in the value of
interest rate swap contracts are recorded for financial statement purposes as
unrealized appreciation (depreciation) on investments.
As of December 31, 1997, Mortgage had entered into the following interest rate
swap contract:
<TABLE>
<S> <C> <C> <C> <C> <C>
Payments
Swap Notional Termination Payments Made Received by the Unrealized
Counterparty Amount Date by the Portfolio Portfolio (Depreciation)
- ---------------------- ------------------ -------------------- -------------------- -------------------- -------------------
Morgan Guaranty $25,000,000 August 3, 1999 6.678% 3 month LIBOR $(1,161,000)
Trust Company
</TABLE>
International-Hedged entered into a swap agreement pursuant to which the
Portfolio agrees to pay the return of a specified global index in exchange for
an interest payment based on LIBOR. The effect of such is to hedge the market
exposure imbedded in the Portfolio for a current market interest return, plus
(or minus) any incremental return achieved in excess of the index return. This
type of transaction also serves to hedge currency exposure. The index used
pursuant to this hedging technique is the JP Morgan Non-U.S. Traded Total Return
Government Bond Index (Unhedged) ("JP Morgan Index").
The Portfolio records a net receivable or payable on a daily basis for the
amount expected to be received or paid in the period. Income paid or received on
the JP Morgan Index is broken down into an interest component (recorded as
interest income or an offset to interest income) and a capital component
(recorded as net realized gain or loss on investment). Income received based on
LIBOR is recorded as interest income.
At December 31, 1997, International-Hedged had one outstanding swap contract
with Morgan Guaranty Trust Company of New York broken down into four lots with
the following terms: <TABLE> <S> <C> <C> <C>
Notional Termination Payments Made Payments Received by the
Amount Date by the Portfolio Portfolio
$108,000,000 11/4/98 % change in JP Morgan Index LIBOR minus .26%
103,000,000 8/4/99 % change in JP Morgan Index LIBOR minus .26%
51,000,000 8/4/99 % change in JP Morgan Index LIBOR minus .27%
29,000,000 8/4/99 % change in JP Morgan Index LIBOR minus .29%
</TABLE>
==============================================================================
Notes to Financial Statements (continued)
December 31, 1997
==============================================================================
11. Segregation of Assets
It is the policy of each of the Fund's Portfolios to have its custodian
segregate certain assets to cover portfolio transactions which are deemed to
create leverage under Section 18(f) of the Investment Company Act of 1940.
Except for Money Market, the Portfolios turn over assets on a frequent basis
which would make it impractical to specify individual securities to be used for
segregation purposes. Therefore, the Portfolio's custodian has been instructed
to segregate all assets on a settled basis. The Portfolios will not enter into
transactions deemed to create leverage in excess of each Portfolio's ability to
segregate up to 100% of its settled assets.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Directors
FFTW Funds, Inc.
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of FFTW Funds, Inc. (comprising, respectively, the
Money Market, U.S. Short-Term, Stable Return, Mortgage Total Return, Worldwide,
Worldwide-Hedged, International, International-Hedged and Emerging Markets
Portfolios) as of December 31, 1997, and the related statements of operations
for the year then ended, the statements of changes in net assets for each of the
two years in the period then ended and the financial highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1997 by correspondence with the custodian
and others. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective Portfolios constituting FFTW Funds, Inc. at December 31, 1997,
the results of their operations for the year then ended, the changes in their
net assets for each of the two years in the period then ended and the financial
highlights for each of the indicated periods, in conformity with generally
accepted accounting principles.
New York, New York
February 27, 1998
<TABLE>
<S> <C>
OFFICERS & DIRECTORS AND OTHER PERTINENT INFORMATION
OFFICERS AND DIRECTORS Investment Adviser
Fischer Francis Trees & Watts, Inc.
Stephen P. Casper 200 Park Avenue
Director of the Fund New York, NY 10166
John C Head III Sub-Adviser
Director of the Fund Fischer Francis Trees & Watts
3 Royal Court
Lawrence B. Krause The Royal Exchange
Director of the Fund London, EC3V 3RA
Onder John Olcay Administrator and Distributor
Chairman of the Board and AMT Capital Services, Inc.
President of the Fund 600 Fifth Avenue
New York, NY 10020
Paul A. Brook
Treasurer of the Fund Custodian and Fund Accounting Agent
Investors Bank & Trust Company
William E. Vastardis 200 Clarendon St.
Secretary of the Fund Boston, MA 02116
Carla E. Dearing Transfer and Dividend Disbursing Agent
Assistant Treasurer of the Fund Investors Bank & Trust Company
200 Clarendon St.
Boston, MA 02116
Legal Counsel
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005-1208
Independent Auditors
Ernst & Young LLP
787 Seventh Avenue
New York, NY 10019
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> MONEY MARKET PORTFOLIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 26011
<INVESTMENTS-AT-VALUE> 26011
<RECEIVABLES> 134
<ASSETS-OTHER> 25
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 26170
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 18
<TOTAL-LIABILITIES> 18
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 26131
<SHARES-COMMON-STOCK> 26131
<SHARES-COMMON-PRIOR> 25224
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 21
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 26152
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1441
<OTHER-INCOME> 0
<EXPENSES-NET> 77
<NET-INVESTMENT-INCOME> 1364
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1364
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1364
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 810
<NUMBER-OF-SHARES-REDEEMED> 1068
<SHARES-REINVESTED> 1363
<NET-CHANGE-IN-ASSETS> 1105
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 22
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 38
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 117
<AVERAGE-NET-ASSETS> 17117
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> .00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<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
<INVESTMENTS-AT-COST> 492891
<INVESTMENTS-AT-VALUE> 492609
<RECEIVABLES> 2136
<ASSETS-OTHER> 26
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 494771
<PAYABLE-FOR-SECURITIES> 7814
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 51
<TOTAL-LIABILITIES> 7865
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 496059
<SHARES-COMMON-STOCK> 49834
<SHARES-COMMON-PRIOR> 36066
<ACCUMULATED-NII-CURRENT> 251
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (9235)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (174)
<NET-ASSETS> 486906
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 29520
<OTHER-INCOME> 0
<EXPENSES-NET> 1270
<NET-INVESTMENT-INCOME> 28250
<REALIZED-GAINS-CURRENT> (2684)
<APPREC-INCREASE-CURRENT> (651)
<NET-CHANGE-FROM-OPS> 24915
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 28250
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 635311
<NUMBER-OF-SHARES-REDEEMED> 624333
<SHARES-REINVESTED> 2790
<NET-CHANGE-IN-ASSETS> 131649
<ACCUMULATED-NII-PRIOR> 20
<ACCUMULATED-GAINS-PRIOR> (6315)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1465
<INTEREST-EXPENSE> 49
<GROSS-EXPENSE> 1270
<AVERAGE-NET-ASSETS> 487916
<PER-SHARE-NAV-BEGIN> 9.85
<PER-SHARE-NII> 0.57
<PER-SHARE-GAIN-APPREC> (0.08)
<PER-SHARE-DIVIDEND> (0.57)
<PER-SHARE-DISTRIBUTIONS> .00
<RETURNS-OF-CAPITAL> .00
<PER-SHARE-NAV-END> 9.77
<EXPENSE-RATIO> .25
<AVG-DEBT-OUTSTANDING> 891
<AVG-DEBT-PER-SHARE> 0.02
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> STABLE RETURN PORTFOLIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 45772
<INVESTMENTS-AT-VALUE> 45865
<RECEIVABLES> 438
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 46304
<PAYABLE-FOR-SECURITIES> 6248
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 27
<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
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3788
<NUMBER-OF-SHARES-REDEEMED> 4216
<SHARES-REINVESTED> 216
<NET-CHANGE-IN-ASSETS> (2071)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 43
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 121
<INTEREST-EXPENSE> 90
<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
<PER-SHARE-NAV-END> 9.93
<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
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1064925
<INVESTMENTS-AT-VALUE> 1072717
<RECEIVABLES> 23309
<ASSETS-OTHER> 48
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1096074
<PAYABLE-FOR-SECURITIES> 426654
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 14149
<TOTAL-LIABILITIES> 440803
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 648432
<SHARES-COMMON-STOCK> 63598
<SHARES-COMMON-PRIOR> 21756
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (4089)
<ACCUMULATED-NET-GAINS> 4364
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6564
<NET-ASSETS> 655271
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 36656
<OTHER-INCOME> 0
<EXPENSES-NET> 2609
<NET-INVESTMENT-INCOME> 34047
<REALIZED-GAINS-CURRENT> 15173
<APPREC-INCREASE-CURRENT> 6107
<NET-CHANGE-FROM-OPS> 55327
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 36876
<DISTRIBUTIONS-OF-GAINS> 11071
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 73900
<NUMBER-OF-SHARES-REDEEMED> 36721
<SHARES-REINVESTED> 4663
<NET-CHANGE-IN-ASSETS> 434281
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (1260)
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