As filed with the Securities and Exchange Commission on April 30, 1999.
Registration Nos. 33-27896/811-5796
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
- -------------------------------------------------------------------------------
X
Pre-Effective Amendment No. _____
- -------------------------------------------------------------------------------
Post-Effective Amendment No. 25
- -------------------------------------------------------------------------------
X
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
- -------------------------------------------------------------------------------
X
Amendment No. 28_
- -----------------------------------------------------------------------X
FFTW FUNDS, INC.
(Exact name of registrant as specified in charter) 200 PARK AVENUE,
NEW YORK, NEW YORK 10166
(Address of principal executive offices)
Registrant's telephone number: 212-681-3000
ONDER JOHN OLCAY, President
200 Park Avenue
New York, New York 10166
(Name and address of agent for service)
With a copy to:
Eric P. Nachimovsky, Esq.
Investors Capital Services, Inc.
600 Fifth Avenue, 26th Floor
New York, NY 10020
Approximate Date of Proposed Public Offering: As soon as practicable after
this Registration Statement becomes effective.
It is proposed that this filing will become effective: /x/ immediately upon
filing pursuant to paragraph (b) / / On _____________, pursuant to paragraph (b)
/ / 60 days after filing, pursuant to paragraph (a)(1) / / On May 1, 1999,
pursuant to paragraph (a) (1) / / 75 days after filing, pursuant to paragraph
(a) (2) / / On _______________, pursuant to paragraph (a) (2)
of Rule 485.
Registrant has registered an indefinite number of shares pursuant to Rule 24f-2
under the Investment Company Act of 1940.
The total number of pages is ______. The Exhibit
Index is on page ______.
<PAGE>
CROSS REFERENCE SHEET
Pursuant to Rule 481(a)
<TABLE>
<S> <C>
Form N-1A Location in Prospectus and
Item No. Statement of Additional
Information
- ----------------------------------------------------------------------------------------------------------------------
1. Front and Back Cover Pages Cover Page and Back Cover Page of Prospectus
- ----------------------------------------------------------------------------------------------------------------------
2. Risk/Return Summary: Investments, Risk/Return Summary: Investments,
Risks, and Performance Risks, and Performance (in Prospectus)
3. Risk/Return Summary: Fee Table Risk/Return Summary: Fee Table (in Prospectus)
4. Investment Objectives, Principal Investment Objectives, Principal
Investment Strategies, and Related Risks Investment Strategies, and Related Risks
(in Prospectus)
5. Management's Discussion of Fund Performance Management's Discussion of
Fund Performance (in Annual Report)
6. Management, Organization, and Capital Structure Management, Organization, and
Capital Structure (in Prospectus)
7. Shareholder Information Shareholder Information (in Prospectus)
8. Distribution Arrangements Distribution Arrangements (in Prospectus)
9. Financial Highlights Information Financial Highlights Information
(in Prospectus)
10. Cover Page and Table of Contents Cover Page and Table of Contents
(in Statement of Additional Information)
11. Fund History Fund History (in Statement
of Additional Information)
12. Description of the Fund and Its Investments and Risks Description of the Fund and
Its Investments and Risks (in Statement
of Additional Information)
13. Management of the Fund Management of the Fund (in
Statement of Additional Information)
14. Control Persons and Principal Holder of Securities Control Persons and Principal Holders
of Securities (in Statement of Additional Information)
15. Investment Advisory and Other Services Investment Advisory and
Other Services (in Statement of Additional Information)
16. Brokerage Allocation and Other Practices Brokerage Allocation and
Other Practices (in Statement of Additional Information)
17. Capital Stock and Other Securities Capital Stock and Other Securities
(in Statement of Additional Information)
18. Purchase, Redemption and Pricing of Shares Purchase, Redemption and Pricing
of Shares (in Prospectus)
19. Taxation of the Fund Taxation of the Fund (in Statement
of Additional Information)
20. Underwriters Distribution of Fund Shares (in Prospectus)
21. Calculation of Performance Data Performance Information (in Prospectus);
Calulation of Performance Data (in Statement of
Additional Information)
22. Financial Statements Financial Highlights (in Prospectus);
Financial Statements (in Statement of Additional Information)
</TABLE>
FFTW FUNDS, INC.
====================================================================
Prospectus
U.S. Portfolios
====================================================================
April 30, 1999
<TABLE>
<S> <C> <C> <C>
o Money Market o Mortgage-Backed o U.S. Treasury
o Mortgage LIBOR o Asset-Backed o U.S.
Corporate
o U.S. Short-Term o High Yield o Broad Market
o Limited Duration o Enhanced Equity Market
</TABLE>
Pursuant to an exemption from the Commodity Futures Trading Commission (the
"Commission") in connection with the Enhanced Equity Market Portfolio whose
participants are limited to Qualified Eligible Participants, this Prospectus is
not required to be, and has not been filed with the Commission. The Commission
does not pass upon the merits of participation in a Fund or Portfolio or upon
the adequacy or accuracy of a Prospectus. Consequently, the Commission has not
reviewed or approved this Prospectus for the Enhanced Equity Market Portfolio.
The Securities and Exchange Commission has not approved any Fund's shares as an
investment or determined whether this Prospectus is accurate or complete. Anyone
who tells you otherwise is committing a crime.
<PAGE>
CONTENTS
<TABLE>
<S> <C>
Page
Risk/Return Summary 3
Money Market Portfolio 3
Mortgage LIBOR Portfolio 4
U.S. Short Term Portfolio 5
Limited Duration Portfolio 6
Mortgage-Backed Portfolio 7
Asset-Backed Portfolio 8
High Yield Portfolio 9
Enhanced Equity Portfolio 10
U.S. Treasury Portfolio 11
U.S. Corporate Portfolio 12
Broad Market Portfolio 13
Principal Investment Risks 14
Potential Year 2000 Risk 15
Risk Return Bar Charts and Tables 15
Money Market Portfolio 15
U.S. Short Term Portfolio 16
Limited Duration Portfolio 17
Mortgage Total Return Portfolio 18
Average Annual Total Returns 18
Fee Table 19
Fee Table (Continued) 20
Expenses Table Example 21
Fund Management 23
Board of Directors 23
Investment Adviser 23
Portfolio's Payment of Fund Expenses 23
Portfolio Managers 23
Shareholder Information 24
Purchases 24
Purchasing Shares Table 25
Redemptions 26
Redeeming Shares Table 27
Pricing of Portfolio Shares 27
Dividends 28
Voting Rights 28
Tax Considerations 28
Distribution of Fund Shares 29
Investment Information 30
Allowable Investment Strategies and Associated Risks 30
Allowable Investments and Associated Risks 34
Supplemental Investment Policies 39
Portfolio Turnover 40
Financial Highlights Tables 40
Money Market Portfolio 40
U.S. Short Term Portfolio 41
Limited Duration Portfolio 41
Mortgage-Backed Portfolio 42
</TABLE>
<PAGE>
RISK/RETURN SUMMARY
The following is a summary of certain key information about the Portfolios,
including investment objectives, principal investment strategies and principal
investment risks. A more detailed description of the allowable investment
strategies, allowable investments and their associated risks will follow.
<TABLE>
<S> <C> <C>
=================================================================================================================================
MONEY MARKET PORTFOLIO
================================= ===============================================================================================
Investment Objective: To provide the maximum current income that is consistent with the preservation of capital.
================================= ===============================================================================================
Principal Investment Strategies: The Portfolio invests
primarily in high quality (rating of AA by
S&P, Aa by Moody's or a comparable rating, or
higher from a nationally recognized
statistical rating organization) money market
securities that meet the requirements of Rule
2a-7 of the 1940 Act. The performance
objective of the Portfolio is to outperform
IBC's Money Fund Report Averages (TM) All
Taxable.
================================= .......................................... ====================================================
Minimum Credit Quality: First Tier Securities: any instruments Second Tier Securities: any instruments rated by
receiving the highest short-term rating two nationally recognized statistical rating
by at least two nationally recognized organizations in the highest category and by
statistical organizations. another in the second highest category.
================================= ===============================================================================================
Investment Policies: The Portfolio invests only in U.S. dollar-denominated money market securities, eligible under
Rule 2a-7 of the 1940 Act.
================================= ===============================================================================================
Principal Investments: o Bank Obligations
(See pages 33-39 of o Corporate Debt Instruments
this Prospectus for a o U.S. Government and Agency Securities
more detailed
description of
allowable investments)
================================= ===============================================================================================
Average Weighted o Portfolio will have an average weighted maturity of not longer than 90 days.
Maturity: o Individual securities may not have effective maturities longer than 397 days.
o Obligations subject to repurchase
agreements and certain variable and
floating rate obligations may bear
longer final maturities.
================================= ===============================================================================================
Valuation: Money Market Portfolio investments are valued based on the amortized cost valuation technique
described under Rule 2a-7 of the 1940 Act.
================================= =================================================== ===========================================
Principal Risks: o Banking industry risk
(See page 15 of this Prospectus Liquidity Risk
for a more detailed description o Market Risk
of each risk) o Interest rate risk
================================= ===============================================================================================
Note: An investment in the Money Market Portfolio is
not insured or guaranteed by the Federal
Deposit Insurance Corporation, or any other
government agency. Although the Money Market
Portfolio seeks to preserve the value of your
investment at 1.00 per share, it is possible
to lose money by investing in the Money Market
Portfolio.
================================= ===============================================================================================
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
=================================================================================================================================
MORTGAGE LIBOR PORTFOLIO
============================== ==================================================================================================
Investment Objective: To obtain a high level of total return as may be consistent with the preservation of capital.
.............................. ==================================================================================================
Principal Investment Once it commences investment activity, the Portfolio will invest primarily in high quality
Strategies: (rating of AA by S&P, Aa by Moody's or a comparable rating, or higher from a nationally
recognized statistical rating organization)
mortgage-backed and mortgage related securities.
The Portfolio actively utilizes hedging
techniques to seek to outperform a cash
portfolio. At least 65% of the Portfolio's total
assets must be invested in mortgage-backed
securities of U.S. and foreign issuers with the
goal to outperform LIBOR (see note below). The
performance objective of the Portfolio is to
outperform the J.P. Morgan 3-Month Eurodeposit
Index.
.............................. ==================================================================================================
...............
Minimum Quality Rating: S&P Moody's Average
S&P: Moody's: (Short Term): (Short Term): Thompson: Portfolio Quality:
BBB- Baa3 A-2 P-2 B AA (Aa)
.............................. ........ ............ ............... ................ ............... ===========================
Duration: The Mortgage LIBOR Portfolio's average U.S. dollar-weighted duration will not exceed plus or
minus one year around the average duration of the J.P. Morgan 3-Month Eurodeposit Index.
================================= ===============================================================================================
Investment Policies: For temporary defensive purposes, 100% of the Portfolio's total assets may be invested in U.S.
Government securities, cash or cash equivalent securities. The Portfolio is non-diversified.
.............................. ==================================================================================================
============================== ==================================================================================================
Principal Investments: o Asset-Backed Securities
(See pages 33-39 of o Mortgage-Backed Securities
this Prospectus for a o Stripped Instruments
more detailed o U.S. Government and Agency Securities
description of
allowable investments)
============================== ==================================================================================================
Principal Risks: A loss of money could occur due to certain risks. These include:
(See page 15 of this o Correlation risk o Hedging risk o Liquidity risk
Prospectus for a more o Credit risk o Interest rate risk o Market risk
detailed description of each o Futures risk o Leverage risk o Prepayment risk
risk)
============================== ================================ ================================ ================================
</TABLE>
THIS PORTFOLIO HAS NOT YET COMMENCED INVESTMENT ACTIVITY
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
================================================================================================================================
U.S. SHORT-TERM PORTFOLIO
================================ ===============================================================================================
Investment Objective: To attain a high level of total return as may be consistent with the preservation of capital
and to maintain liquidity.
================================ ===============================================================================================
Principal Investment The Portfolio invests primarily in high quality (rating of AA by S&P, Aa by Moody's or a
Strategies: comparable rating, or higher from a nationally recognized statistical rating organization)
short-term debt securities. The performance
objective of the Portfolio is to outperform
IBC's Money Fund Report Averages(TM) - All
Taxable.
================================ ......... ............ ................. ................. .............. =====================
Minimum Quality Rating: S&P Moody's Average
S&P: Moody's: (Short Term): (Short Term): Thompson: Portfolio Quality:
BBB- Baa3 A-2 P-2 B AA (Aa)
============================== ===============================================================================================
Duration: The average U.S. dollar-weighted duration generally is shorter than one year. Except for
temporary defensive purposes the Portfolio will not have a U.S. dollar-weighted average
duration exceeding three years.
================================================================================================================================
Investment Policies: At least 65% of the Portfolio's total assets must be invested in U.S. dollar denominated
securities. For temporary defensive purposes, 100% of the Portfolio's total assets may be
invested in U.S. Government securities, cash or cash equivalent securities. The Portfolio is
"diversified" under the 1940 Act.
==================================================================================================================================
Principal Investments: o Asset-Backed Securities o Foreign Instruments
(See pages 24-30 of o Bank Obligations o Mortgage-Backed Securities
this Prospectus for a o Corporate Debt Instruments o U.S. Government and Agency Securities
more detailed o Zero Coupon Bonds
description of
allowable investments)
================================ ===============================================================================================
Principal Risks: A loss of money could occur due to certain risks. These include:
(See page 4 of this Prospectus o Banking industry risk o Futures risk o Liquidity risk
for a more detailed o Correlation risk o Hedging risk o Market risk
description of each risk) o Credit risk o Interest rate risk o Prepayment risk
o Currency risk o Leverage risk
================================ ================================ ============================= ================================
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
================================================================================================================================
LIMITED DURATION PORTFOLIO
================================ ===============================================================================================
Investment Objective: To maintain a level of total return as may be consistent with the preservation of capital.
================================ ===============================================================================================
Principal Investment The Portfolio invests primarily in high quality debt
securities (rating of AA by S&P, Aa by Strategies: Moody's or a comparable
rating, or higher from a nationally recognized statistical rating
organization ), using interest rate hedging
as a stabilizing technique. The performance
objective of the Portfolio is to outperform
the Merrill Lynch 1-2.99 Year Treasury Index.
================================ ........ ............. ................ ................ .............. =======================
Minimum Quality Rating: S&P Moody's Average
S&P: Moody's: (Short Term): (Short Term): Thompson: Portfolio Quality:
BBB- Baa3 A-2 P-2 B AA (Aa)
================================ ===============================================================================================
Duration: The average U.S. dollar-weighted duration generally is shorter than three years. The average
U.S. dollar-weighted duration will not exceed plus or minus one year around the average
duration of the Merrill Lynch 1-2.99 Treasury Index.
================================ ===============================================================================================
Investment Policies: At least 65% of the Portfolio's total assets must be invested in U.S. dollar-denominated
securities. For temporary defensive purposes, 100% of the Portfolio's total assets may be
invested in U.S. Government securities, cash or cash equivalent securities. The Portfolio is
non-diversified.
================================ ===============================================================================================
Principal Investments: o Asset-Backed Securities
(See pages 24-30 of this o Corporate Debt Instruments
Prospectus for a more o Mortgage-Backed Securities
detailed description of o Stripped Instruments
allowable investments) o U.S. Government and Agency Securities
================================ ===============================================================================================
Principal Risks: A loss of money could occur due to certain risks. These include:
(See page 4 of this Prospectus o Banking industry o Futures risk o Liquidity risk
for a more detailed risk o Hedging risk o Market risk
description of each risk) o Correlation risk o Interest rate risk o Non-diversification
o Credit risk o Leverage risk risk
o Currency risk o Prepayment risk
================================ ============================= ================================ ================================
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
===========================================================================================================================
MORTGAGE-BACKED PORTFOLIO
=============================== ===========================================================================================
Investment Objective: To attain a high level of total return as may be consistent with the preservation of
capital.
=============================== ===========================================================================================
Principal Investment The Portfolio invests primarily in high quality (rating of AA by S&P, Aa by Moody's or a
Strategies: comparable rating, or higher from a nationally recognized statistical rating
organization) mortgage-backed securities
using hedging techniques to manage interest
rate and prepayment risk. The performance
objective of the Portfolio is to outperform
the Lehman Brothers Mortgage-Backed
Securities Index.
=============================== ........ ............ ................ ............... .............. =====================
Minimum Quality S&P Moody's Average
Rating: S&P: Moody's: (Short Term): (Short Term): Thompson: Portfolio Quality:
BBB- Baa3 A-2 P-2 B AA (Aa)
=============================== ===========================================================================================
Duration: The average U.S. dollar-weighted duration will not exceed plus or minus one year around
the average duration of the Lehman Brother Mortgage-Backed Securities Index.
=============================== ===========================================================================================
Investment Policies: At least 65% of the Portfolio's
total assets must be invested in
mortgage-backed securities of U.S. and
foreign issuers. For the purpose of this
Portfolio, home equity loans are considered
mortgage-backed securities. For temporary
defensive purposes, the Portfolio may invest
up to 100% of its total assets in U.S.
Government securities, cash or cash
equivalent securities. The Portfolio is
non-diversified.
=============================== ===========================================================================================
Principal o Asset-Backed Securities
Investments: o Mortgage-Backed Securities
(See pages 24-30 of o Stripped Instruments
this Prospectus for o U.S. Government and Agency Securities
a more detailed
description of
allowable
investments)
=============================== ===========================================================================================
Principal Risks: A loss of money could occur due to certain risks. These include:
(See page 4 of this o Banking industry o Hedging risk o Market risk
Prospectus for a more risk o Interest rate o Non-diversification
detailed description of each o Correlation risk risk risk
risk) o Credit risk o Leverage risk o Prepayment risk
o Futures risk o Liquidity risk
=============================== ============================== =========================== ================================
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
=============================================================================================================================
ASSET-BACKED PORTFOLIO
=============================== =============================================================================================
Investment Objective: To attain a high level of total return as may be consistent with the preservation of
capital.
=============================== =============================================================================================
Principal Investment Once it commences investment activity, the Portfolio will invest primarily in high quality
Strategies: (rating of AA by S&P, Aa by Moody's or a comparable rating, or higher from a nationally
recognized statistical rating organization)
asset-backed securities, allowing exposure to
other sectors of the debt market
opportunistically. The performance objective
of the Portfolio is to outperform the Lehman
Brothers Asset-Backed Securities Index.
=============================== ........ ............ ................. ............... .............. ======================
Minimum Quality Rating: S&P Moody's Average
S&P: Moody's: (Short Term): (Short Term): Thompson: Portfolio Quality:
BBB- Baa3 A-2 P-2 B AA (Aa)
............................... =============================================================================================
............................... =============================================================================================
Duration: The average U.S. dollar-weighted duration generally will not exceed plus or minus one year
around the average duration of the Lehman Brothers Asset-Backed Securities Index.
............................... =============================================================================================
Investment At least 65% of the Portfolio's total assets must be invested in asset-backed securities of
Policies: the U.S. and foreign issuers. For temporary defensive purposes, the Portfolio may invest up
to 100% of its total assets in U.S. Government securities, cash or cash equivalent
securities. The Portfolio is non-diversified.
............................... =============================================================================================
Principal Investments: o Asset-Backed Securities
(See pages 24-30 of o Mortgage-Backed Securities
this Prospectus for a o U.S. Government and Agency Securities
more detailed
description of
allowable investments)
=============================== =============================================================================================
Principal Risks: A loss of money could occur due to certain risks. These include:
(See page 4 of this o Banking industry o Hedging risk o Liquidity risk
Prospectus for a more risk o Interest rate risk o Market risk
detailed description of each o Correlation risk o Leverage risk o Non-diversification
risk) o Credit risk risk
o Futures risk o Prepayment risk
=============================== ============================== ============================== ===============================
</TABLE>
THIS PORTFOLIO HAS NOT YET COMMENCED INVESTMENT ACTIVITY
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
=================================================================================================================================
HIGH YIELD PORTFOLIO
================================ ================================================================================================
Investment Objective: To attain a high level of total return as may be consistent with the preservation of capital.
================================ ================================================================================================
Principal Investment Once it commences investment activity, the Portfolio will invest primarily in high yield debt
Strategies: securities. The performance objective of the Portfolio is to outperform the Salomon Smith
Barney All BB and B Rated Issues Index.
================================ ......... ............ ................ ................ ............... =======================
Minimum Quality Rating: S&P Moody's Average
S&P: Moody's: (Short Term): (Short Term): Thompson: Portfolio Quality:
CCC- Caa3 C P-3 LC-3 B
================================ ================================================================================================
Duration: The average U.S. dollar-weighted duration generally will not exceed one year around the
average duration of the Salomon Smith Barney All BB and B Rated Issues Index.
================================ ================================================================================================
Investment Policies: At least 65% of High Yield Portfolio's total assets must be invested in high yield securities
of U.S. and foreign issuers. For temporary defensive purposes, the Portfolio may invest up to
100% of its total assets in U.S. Government securities, cash or cash equivalent securities.
The Portfolio is non-diversified.
================================ ================================================================================================
Principal Investments: o Brady Bonds
(See pages 24-30 of o Foreign Instruments
this Prospectus for a o Convertible Securities
more detailed o Corporate Debt Instruments Stripped Instruments
description of
allowable investments)
================================ ================================================================================================
Principal Risks: A loss of money could occur due to certain risks. These include:
(See page 4 of this Prospectus o Correlation risk o Futures risk o Market risk
for a more detailed o Credit risk o Hedging risk o Non-diversification
description of each risk) o Currency risk o Interest rate risk risk
o Liquidity risk o Prepayment risk
================================ ================================================================================================
Note: Special Risks Also known as junk bonds, high
yield bonds are issued by corporations who
either do not have long track records of sales
and earnings, or by those who possess
questionable credit strength. As a result, the
risk of default is higher on these instruments
than it would be on an investment grade bond.
High yield bonds have ratings of BB or lower
and pay higher yields to compensate for their
greater risk.
================================ ================================================================================================
</TABLE>
THIS PORTFOLIO HAS NOT YET COMMENCED INVESTMENT ACTIVITY
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
=================================================================================================================================
ENHANCED Equity MARKET PORTFOLIO
================================ ================================================================================================
Investment Objective: To attain a high level of total return that exceeds the S&P 500 Index(TM).
================================ ================================================================================================
Principal Investment Once it commences investment activity, the Portfolio will invest primarily in high quality
Strategies: (rating of AA by S&P, Aa by Moody's or a comparable rating, or higher from a nationally
recognized statistical rating organization)
short duration fixed income securities and S&P
500 Index(TM) futures contracts. Where
possible, these securities will provide
equity-like returns. The performance objective
of the Portfolio is to outperform the S&P 500
Index(TM).
================================ ......... ............ ................. ................ ............... ======================
Minimum Quality Rating: S&P Moody's Average
S&P: Moody's: (Short Term): (Short Term): Thompson: Portfolio Quality:
BBB- Baa3 A-2 P-2 B AA (Aa)
================================ ================================================================================================
Duration: The Portfolio's average U.S. dollar-weighted duration generally will not exceed plus or minus
2.5 years around the average duration of the S&P 500 Indextm.
================================ ================================================================================================
Investment Policies: The Portfolio may invest up to 100%
of its total assets in U.S. Government
securities, cash or cash equivalent securities,
and will maintain 100% exposure to the S&P 500
Index (TM). Up to 5% of the Portfolio's total
assets may be invested in margin at any given
time; the remaining 95% the Portfolio's assets
will be invested in short term instruments. For
temporary defensive purposes, 100% of the
Portfolio's total assets may be invested in
U.S. Government securities, cash or cash
equivalent securities. The Portfolio is
non-diversified.
================================ ================================================================================================
Principal Investments: o Bank Obligations
(See pages 24-30 of o Corporate Debt Instruments
this Prospectus for a o U.S. Government and Agency Securities
more detailed
description of
allowable investments)
================================ ================================================================================================
Principal Risks: A loss of money could occur due to certain risks. These include:
(See page 4 of this Prospectus o Banking Industry risk o Futures risk o Leverage risk
for a more detailed o Correlation risk o Hedging risk o Market risk
description of each risk) o Credit risk o Interest rate risk o Non-diversification
o Liquidity risk risk
o Prepayment risk
================================ =============================== ================================ ===============================
</TABLE>
THIS PORTFOLIO HAS NOT YET COMMENCED INVESTMENT ACTIVITY
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
=============================================================================================================================
U.S. TREASURY PORTFOLIO
================================== ==========================================================================================
Investment Objective: To attain a high level of total return as may be consistent with the preservation of
capital and to avoid credit quality risk.
================================== ==========================================================================================
Principal Investment Strategies: Once it commences investment activity, the Portfolio will invests primarily in U.S.
Treasuries. The performance objective of the Portfolio is to outperform the Lehman
Brothers Government Securities Index.
================================== ....... ............. ............... ................ ............. =====================
Minimum Quality Rating: S&P Moody's Average
S&P: Moody's: (Short Term): (Short Term): Thompson: Portfolio Quality:
AA- Aa3 A-1 P-1 A AAA (Aaa)
================================== ==========================================================================================
Duration: The average U.S. dollar-weighted duration generally will not exceed plus or minus one
year around the average duration of the Lehman Brothers Government Securities Index.
================================== ==========================================================================================
Investment Policies: At least 95% of the Portfolio's total assets must be invested in U.S. dollar-denominated
obligations issued by the U.S. Treasury and repurchase agreements collateralized by such
obligations. The Portfolio is non-diversified.
================================== ==========================================================================================
Principal Investments: o U.S. Government and Agency Securities
(See pages 24-30 of
this Prospectus for a
more detailed
description of
allowable investments)
================================== ==========================================================================================
Principal Risks: A loss of money could occur due to certain risks. These include:
(See page 4 of this Prospectus o Correlation risk o Interest rate risk
for a more detailed description o Futures risk o Leverage risk
of each risk) o Hedging risk o Market risk
================================== ==========================================================================================
</TABLE>
THIS PORTFOLIO HAS NOT YET COMMENCED INVESTMENT ACTIVITY
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
============================================================================================================================
U.S. Corporate PORTFOLIO
=============================== ============================================================================================
Investment Objective: To attain a high level of total return as may be consistent with the preservation of
capital.
=============================== ============================================================================================
Portfolio Description: Once it commences investment
activity, the Portfolio will invest primarily
in high quality (rating of AA by S&P, Aa by
Moody's or a comparable rating, or higher
from a nationally recognized statistical
rating organization) U.S. corporate
obligations, with limited exposure to other
debt securities. The perfromance objective of
the Portfolio is to outperform the Salomon
Smith Barney Corporate Bond Index.
=============================== ........ ............ ................. ............... .............. =====================
Minimum Quality Rating: S&P Moody's Average
S&P: Moody's: (Short Term): (Short Term): Thompson: Portfolio Quality:
BBB- Baa3 A-2 P-2 B AA (Aa)
=============================== ============================================================================================
Duration: The average U.S. dollar-weighted duration generally will not exceed plus or minus one year
around the average duration of the Salomon Smith Barney Corporate Bond Index.
=============================== ============================================================================================
Investment Policies: The Portfolio must invest at least 65% of its total assets in U.S. dollar-denominated
corporate debt obligations of U.S issuers. For temporary defensive purposes, the Portfolio
may invest up to 100% of its total assets in U.S. Government securities, cash or cash
equivalent securities. The Portfolio is non-diversified.
=============================== ============================================================================================
Principal Investments: o Bank Obligations
(See pages 24-30 of o U.S. Government and Agency Securities
this Prospectus for a o Corporate Debt Instruments
more detailed o Foreign Instruments
description of
allowable investments)
=============================== ============================================================================================
Principal Risks: A loss of money could occur due to certain risks. These include:
(See page 4 of this o Correlation risk o Futures risk o Liquidity risk
Prospectus for a more o Credit risk o Hedging risk o Market risk
detailed description of each o Currency risk o Interest rate risk o Non-diversification
risk) o Leverage risk risk
o Prepayment risk
=============================== ============================= ============================== ===============================
</TABLE>
THIS PORTFOLIO HAS NOT YET COMMENCED INVESTMENT ACTIVITY
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
===============================================================================================================================
BROAD-MARKET PORTFOLIO
================================ ==============================================================================================
Investment Objective: To attain a high level of total return as may be consistent with the preservation of capital.
================================ ==============================================================================================
Principal Investment Once it commences investment activity, the Portfolio will invest primarily in high quality
Strategies: (rating of AA by S&P, Aa by Moody's or a comparable rating, or higher from a nationally
recognized statistical rating organization) fixed income securities reflective of the broad
spectrum of the U.S. bond market. The performance objective of the Portfolio is to
outperform the Lehman Brothers Aggregate Bond Index.
================================ .......... ............ ................. ............... .............. =====================
Minimum Quality Rating: S&P Moody's Average
S&P: Moody's: (Short Term): (Short Term): Thompson: Portfolio Quality:
BBB- Baa3 A-2 P-2 B AA (Aa)
================================ ==============================================================================================
Duration: The average U.S. dollar-weighted duration generally will not exceed plus or minus one year
around the average duration of the Lehman Brothers Aggregate Bond Index.
================================ ==============================================================================================
Investment Policies: The Portfolio will invest at least 65% of its total assets in fixed income securities. The
allocation among markets will vary based upon the issuance of new securities and the
retirement of outstanding securities and instruments. For temporary defensive purposes, the
Portfolio may invest up to 100% of its assets in short-term U.S. Government securities, cash
or cash equivalent securities. The Investment Adviser will manage the Broad Market
Portfolio to approximate broad market allocations by purchasing and selling representative
securities in each market, but the Portfolio cannot guarantee that it will match such broad
market allocations. The current market allocation is comprised of approximately 20% in
corporate securities, 50% in U.S. Government securities and 30% in mortgage-backed and
asset-backed securities. The Portfolio is non-diversified.
================================ ==============================================================================================
Principal Investments: o Asset-Backed Securities
(See pages 24-30 of this o U.S. Government and Agency Securities
Prospectus for a more o Corporate Debt Instruments
detailed description of o Mortgage-Backed Securities
allowable investments)
================================ ==============================================================================================
Principal Risks: A loss of money could occur due to certain risks. These include:
(See page 4 of this Prospectus o Banking industry o Futures risk o Liquidity risk
for a more detailed risk o Hedging risk o Market risk
description of each risk) o Correlation risk o Interest rate risk o Non-diversification
o Credit risk o Leverage risk risk
o Currency risk o Prepayment risk
================================ ============================ ================================ ================================
</TABLE>
THIS PORTFOLIO HAS NOT YET COMMENCED INVESTMENT ACTIVITY
<PAGE>
PRINCIPAL INVESTMENT RISKS
"Risk" is the chance that you may lose on an investment or that it will not earn
as much as you expect. Thus, the greater the risk, the greater the possibility
of losing money.
All of the U.S. Portfolios described in this Prospectus are affected by changes
in the economy, or in securities and other markets.
The possibility also exists that investment decisions of portfolio managers will
not accomplish what they are designed to achieve. No assurance can be given that
a Portfolio's investment objective will be achieved.
Investments in the Money Market, U.S. Short-Term, U.S. Treasury, and U.S.
Corporate Portfolios are neither guaranteed nor insured by the United States
Government. There is also no assurance that the Money Market Portfolio will
maintain a stable net asset value of $1.00 per share. It is possible to lose
money by investing in the Money Market Portfolio.
Investments in the U.S. Portfolios are subject to certain of the following
risks. The risks associated with each Portfolio depend on its investment
strategy and the types of securities it holds. The specific risks affecting each
Portfolio will be indicated in the individual portfolio descriptions in this
prospectus.
<TABLE>
<S> <C>
Banking industry Investing in bank obligations will expose an investor to risks associated with the banking industry such
risk: as interest rate and credit risks.
Correlation risk: A Portfolio may experience changes in value as
between the securities held and the value of a particular
derivative instrument.
Credit risk: The risk that a security issuer or a counterparty to
a contract will default or not be able to honor a financial
obligation.
Currency risk: Fluctuations in exchange rates between the U.S.
dollar and foreign currencies may negatively affect an
investment. When synthetic and cross-hedges are used, the
net exposure of a Portfolio to any one currency may be
different from that of its total assets denominated in such
currency.
Futures risk: The primary risks inherent in the use of futures
depend on the Investment Adviser's ability to anticipate
correctly movements in the direction of interest rates,
securities prices, and currency markets and the imperfect
correlation between the price of futures contracts and
movements in the prices of the securities being hedged.
Hedging risk: Hedging is commonly used as a buffer against a
perceived investment risk. While it can reduce or eliminate
losses, it can also reduce or eliminate gains if the hedged
investment increases in value.
Interest rate A Portfolio may be influenced by interest rate changes that generally have an inverse relationship to
risk: corresponding market values. Thus, as interest rates increase, the value of bonds already issued,
decrease.
Leverage risk: Derivatives may include elements of leverage that can
cause greater fluctuations in a Portfolio's net asset
value.
Liquidity risk: Certain securities may be difficult or impossible to sell at favorable prices.
Market risk: The market value of a security may increase or
decrease over time. Such fluctuations can cause a security
to be worth less than the price originally paid for it or
less than it was worth at an earlier time. Market risk may
affect a single issuer, entire industry or the market as a
whole.
Non-diversification A Portfolio is diversified when it spreads investment risk by placing assets in several investment
risk: categories. A non-diversified Portfolio concentrates its assets in a less diverse spectrum of
securities. Non-diversification can intensify risk should a particular investment category suffer from
adverse market conditions.
Prepayment risk: A Portfolio may invest in mortgage-backed and other
asset-backed securities. Such securities carry risks of
faster or slower than expected prepayment of principal
which affect the duration and return of the security.
</TABLE>
POTENTIAL Year 2000 risk
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be affected adversely if the computer systems
used by the Investment Advisor, Administrator and/or other service providers do
not properly process and calculate date-related information and data from and
after January 1, 2000. This is commonly known as the "Year 2000 Problem"
("Y2K"). The advisor and administrator are taking steps that they believe are
reasonably designed to address the Year 2000 Problem with respect to their
computer systems and in obtaining reasonable assurances that comparable steps
are being taken by the Fund's other major service providers. At this time,
however, there can be no assurance that these steps will be sufficient to avoid
any adverse impact to the Fund, nor can there be any assurance that the Y2K
problem will not have an adverse effect on the companies whose securities are
held by the Fund or on global markets or economies, generally.
RISK/RETURN SUMMARY
RISK/RETURN BAR CHARTS AND TABLES
The charts and tables provided below give some indication of the risks of
investing in the funds by illustrating the changes in each Portfolio's yearly
performance and show how each Portfolio's average returns for 1, 5 and 10 years
compare with a selected index.
MONEY MARKET PORTFOLIO
During the 5 year period shown in the Money Market Portfolio's bar chart, the
highest quarterly return was 1.438% (quarter ending 6/30/95) and the lowest
quarterly return was 0.713% (quarter ending 3/31/94).
Past performance is not indicative of future performance.
U.S. SHORT-TERM PORTFOLIO
During the 9 year period shown in the U.S. Short Term Portfolio's bar chart,
the highest quarterly return was 2.215% (quarter ending 12/31/90) and the lowest
quarterly return was 0.553% (quarter ending 12/31/93).
Past performance is not indicative of future performance.
LIMITED DURATION PORTFOLIO
During the 5 year period shown in the Limited Duration Portfolio's bar chart,
the highest quarterly return was 3.533% (quarter ending 3/31/95) and the lowest
quarterly return was (0.473%) (quarter ending 3/31/94).
Past performance is not indicative of future performance.
MORTGAGE TOTAL RETURN PORTFOLIO
During the 2 year period shown in the Mortgage-Backed Portfolio's bar chart, the
highest quarterly return was 3.970% (quarter ending 6/30/97) and the lowest
quarterly return was 0.262% (quarter ending 12/31/98).
Past performance is not indicative of future performance.
<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------- ------------------- --------------------- ---------------------
Average Annual Total Returns (for the periods ending December Past 1 Year Past 5 Years Since Inception*
31, 1998)
- --------------------------------------------------------------- ------------------- --------------------- ---------------------
- --------------------------------------------------------------- ------------------- --------------------- ---------------------
Money Market Portfolio 5.51% 5.20% 5.12%
- --------------------------------------------------------------- ------------------- --------------------- ---------------------
- --------------------------------------------------------------- ------------------- --------------------- ---------------------
U.S. Short-Term Portfolio 5.59% 5.13% 5.21%
- --------------------------------------------------------------- ------------------- --------------------- ---------------------
- --------------------------------------------------------------- ------------------- --------------------- ---------------------
IBC Money Fund Report Averages(TM)-All Taxable 5.03% 4.86% 4.89%
- --------------------------------------------------------------- ------------------- --------------------- ---------------------
- --------------------------------------------------------------- ------------------- --------------------- ---------------------
Limited Duration Portfolio 6.79% 5.76% 5.94%
- --------------------------------------------------------------- ------------------- --------------------- ---------------------
- --------------------------------------------------------------- ------------------- --------------------- ---------------------
Merrill Lynch 1-2.99 Year Treasury Index 7.00% 5.59% 5.85%
- --------------------------------------------------------------- ------------------- --------------------- ---------------------
- --------------------------------------------------------------- ------------------- --------------------- ---------------------
Mortgage-Backed Portfolio 7.42% N/A 8.98%
- --------------------------------------------------------------- ------------------- --------------------- ---------------------
- --------------------------------------------------------------- ------------------- --------------------- ---------------------
Lehman Brothers Mortgage-Backed Securities Index 6.97% N/A 8.33%
- --------------------------------------------------------------- ------------------- --------------------- ---------------------
</TABLE>
Portfolio Inception Dates:
1. Money Market Portfolio: 11/1/93
2. U.S. Short Term Portfolio: 12/6/89
3. Limited Duration Portfolio: 7/26/93
4. Mortgage Backed Portfolio: 4/29/96
RISK/RETURN SUMMARY
Fees and Expenses of the Portfolios. This Table describes the fees and expenses
that you may pay if you buy and hold shares of the fund.
FEE TABLE
<TABLE>
<S> <C> <C> <C> <C> <C>
- ---------------------------------------- --------------- ----------------- ---------------- ---------------- ------------------
Shareholder Transaction Expenses Money Mortgage U.S. Short Limited Mortgage
(Fees Paid Directly By You) Market (1) LIBOR (2) Term (2) Duration (3) Backed (4)
- ---------------------------------------- --------------- ----------------- ---------------- ---------------- ------------------
- ---------------------------------------- --------------- ----------------- ---------------- ---------------- ------------------
Redemption Fees None None None None None
- ---------------------------------------- --------------- ----------------- ---------------- ---------------- ------------------
- ---------------------------------------- --------------- ----------------- ---------------- ---------------- ------------------
Exchange Fees None None None None None
- ---------------------------------------- --------------- ----------------- ---------------- ---------------- ------------------
- ---------------------------------------- --------------- ----------------- ---------------- ---------------- ------------------
Contongent Deferred Sales Load None None None None None
- ---------------------------------------- --------------- ----------------- ---------------- ---------------- ------------------
- ---------------------------------------- --------------- ----------------- ---------------- ---------------- ------------------
Sales Load on Reinvestment Dividends None None None None None
- ---------------------------------------- --------------- ----------------- ---------------- ---------------- ------------------
- ---------------------------------------- --------------- ----------------- ---------------- ---------------- ------------------
Sales Load on Purchases None None None None None
- ---------------------------------------- --------------- ----------------- ---------------- ---------------- ------------------
Annual Fund Operating Expenses
(Fees Paid From Fund Assets)
- ---------------------------------------- --------------- ----------------- ---------------- ---------------- ------------------
- ---------------------------------------- --------------- ----------------- ---------------- ---------------- ------------------
Management Fees 0.10% 0.30% 0.15% 0.10%
- ---------------------------------------- --------------- ----------------- ---------------- ---------------- ------------------
- ---------------------------------------- --------------- ----------------- ---------------- ---------------- ------------------
Distribution Fees (12b-1) None None None None
- ---------------------------------------- --------------- ----------------- ---------------- ---------------- ------------------
- ---------------------------------------- --------------- ----------------- ---------------- ---------------- ------------------
Shareholder Services Fees None None None None
- ---------------------------------------- --------------- ----------------- ---------------- ---------------- ------------------
- ---------------------------------------- --------------- ----------------- ---------------- ---------------- ------------------
Other Expenses 0.26% 0.15% 0.12% 0.37% 0.33%
- ---------------------------------------- --------------- ----------------- ---------------- ---------------- ------------------
- ---------------------------------------- --------------- ----------------- ---------------- ---------------- ------------------
- ---------------------------------------- --------------- ----------------- ---------------- ---------------- ------------------
- ---------------------------------------- --------------- ----------------- ---------------- ---------------- ------------------
Total Annual Fund Operating Expenses 0.36% 0.45% 0.42% 0.52% 0.43%
- ---------------------------------------- --------------- ----------------- ---------------- ---------------- ------------------
</TABLE>
Insert net expeses in the footnote, insert gross
expenses into the table
(1) The Investment Adviser and Investors Capital have voluntarily agreed to cap
the Net Operating Expenses at 0.25% (on an annualized basis) of the Portfolio's
average daily net assets. All operating expenses exceeding the voluntary waiver
of fees will be paid by the Investment Adviser. The Investment Adviser and the
Administrator will not attempt to recover prior period waivers or reimbursements
should expenses fall below the cap. Under an Administration Agreement effective
May 29, 1998 between the Fund and Investors Capital, Investors Capital provides
administrative services to the Fund, for an incentive fee in the event the
Portfolio operates below its expense ratio. This fee is capped at 0.02% of the
Portfolio's average daily net assets
(2) Pursuant to an Investment Advisory Agreement, total operating expenses are
capped at 0.25% (on an annualized basis) of the Portfolio's average daily net
assets. The Investment Adviser and Investors Capital have voluntarily agreed to
cap the Net Operating Expenses at 0.25% (on an annualized basis) of the
Portfolio's average daily net assets. All operating expenses exceeding caps and
voluntary waiver of fees will be paid by the Investment Adviser. The Investment
Adviser and the Administrator will not attempt to recover prior period waivers
or reimbursements should expenses fall below the cap. Under an Administration
Agreement effective May 29, 1998 between the Fund and Investors Capital,
Investors Capital provides administrative services to the Fund, for an incentive
fee in the event the Portfolio operates below its expense ratio.
This fee is capped at 0.02% of the Portfolio's average daily net assets. Under
an agreement between the Investment Adviser and Investors Capital, Investors
Capital is currently voluntarily waiving up to 0.02% on the first $350 million.
(3) The Investment Adviser and Investors Capital have voluntarily agreed to cap
the Net Operating Expenses at 0.40% (on an annualized basis) of the Portfolio's
average daily net assets. All operating expenses exceeding the voluntary waiver
of fees will be paid by the Investment Adviser. The Investment Adviser and the
Administrator will not attempt to recover prior period waivers or reimbursements
should expenses fall below the cap. Under an Administration Agreement effective
May 29, 1998 between the Fund and Investors Capital, Investors Capital provides
administrative services to the Fund, for an incentive fee in the event the
Portfolio operates below its expense ratio. This fee is capped at 0.02% of the
Portfolio's average daily net assets.
(4) The Investment Adviser and Investors Capital have voluntarily agreed to cap
the Net Operating Expenses at 0.30% (on an annualized basis) of the Portfolio's
average daily net assets. All operating expenses exceeding the voluntary waiver
of fees will be paid by the Investment Adviser. The Investment Adviser and the
Administrator will not attempt to recover prior period waivers or reimbursements
should expenses fall below the cap. Under an Administration Agreement effective
May 29, 1998 between the Fund and Investors Capital, Investors Capital provides
administrative services to the Fund, for an incentive fee in the event the
Portfolio operates below its expense ratio. This fee is capped at 0.02% of the
Portfolio's average daily net assets.
FEE TABLE CONTINUED
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------- -------------- ------------ --------------- ------------ ------------- --------------
Shareholder Transaction Expenses Asset High Enhanced U.S. U.S. Broad
(Fees Paid Directly By You) Backed (6) Yield Equity Treasury Corporate Market
(7) Market (8) (9) (10) (11)
- ---------------------------------------- -------------- ------------ --------------- ------------ ------------- --------------
- ---------------------------------------- -------------- ------------ --------------- ------------ ------------- --------------
Redemption Fees None None None None None
- ---------------------------------------- -------------- ------------ --------------- ------------ ------------- --------------
- ---------------------------------------- -------------- ------------ --------------- ------------ ------------- --------------
Exchange Fees None None None None None
- ---------------------------------------- -------------- ------------ --------------- ------------ ------------- --------------
- ---------------------------------------- -------------- ------------ --------------- ------------ ------------- --------------
Contongent Deferred Sales Load None None None None None
- ---------------------------------------- -------------- ------------ --------------- ------------ ------------- --------------
- ---------------------------------------- -------------- ------------ --------------- ------------ ------------- --------------
Sales Load on Reinvestment Dividends None None None None None
- ---------------------------------------- -------------- ------------ --------------- ------------ ------------- --------------
- ---------------------------------------- -------------- ------------ --------------- ------------ ------------- --------------
Sales Load on Purchases None None None None None
- ---------------------------------------- -------------- ------------ --------------- ------------ ------------- --------------
Annual Fund Operating Expenses
(Fees Paid From Fund Assets)
- ---------------------------------------- -------------- ------------ --------------- ------------ ------------- --------------
- ---------------------------------------- -------------- ------------ --------------- ------------ ------------- --------------
Management Fees 0.10% 0.40% 0.35% 0.30% 0.10% 0.30%
- ---------------------------------------- -------------- ------------ --------------- ------------ ------------- --------------
- ---------------------------------------- -------------- ------------ --------------- ------------ ------------- --------------
Distribution Fees (12b-1) None None None None
- ---------------------------------------- -------------- ------------ --------------- ------------ ------------- --------------
- ---------------------------------------- -------------- ------------ --------------- ------------ ------------- --------------
Shareholder Services Fees None None None None
- ---------------------------------------- -------------- ------------ --------------- ------------ ------------- --------------
- ---------------------------------------- -------------- ------------ --------------- ------------ ------------- --------------
Other Expenses
- ---------------------------------------- -------------- ------------ --------------- ------------ ------------- --------------
- ---------------------------------------- -------------- ------------ --------------- ------------ ------------- --------------
- ---------------------------------------- -------------- ------------ --------------- ------------ ------------- --------------
- ---------------------------------------- -------------- ------------ --------------- ------------ ------------- --------------
Total Annual Fund Operating Expenses
- ---------------------------------------- -------------- ------------ --------------- ------------ ------------- --------------
</TABLE>
(6) The Investment Adviser and Investors Capital have voluntarily agreed to cap
the Net Operating Expenses at 0.25% (on an annualized basis) of the Portfolio's
average daily net assets. All operating expenses exceeding the voluntary waiver
of fees will be paid by the Investment Adviser. The Investment Adviser and the
Administrator will not attempt to recover prior period waivers or reimbursements
should expenses fall below the cap. Under an Administration Agreement effective
May 29, 1998 between the Fund and Investors Capital, Investors Capital provides
administrative services to the Fund, for an incentive fee in the event the
Portfolio operates below its expense ratio. This fee is capped at 0.02% of the
Portfolio's average daily net assets.
(7) The Investment Adviser and Investors Capital have voluntarily agreed to cap
the Net Operating Expenses at 0.60% (on an annualized basis) of the Portfolio's
average daily net assets. All operating expenses exceeding the voluntary waiver
of fees will be paid by the Investment Adviser. The Investment Adviser and the
Administrator will not attempt to recover prior period waivers or reimbursements
should expenses fall below the cap. Under an Administration Agreement effective
May 29, 1998 between the Fund and Investors Capital, Investors Capital provides
administrative services to the Fund, for an incentive fee in the event the
Portfolio operates below its expense ratio. This fee is capped at 0.02% of the
Portfolio's average daily net assets.
(8) The Investment Adviser and Investors Capital have voluntarily agreed to cap
the Net Operating Expenses at 0.50% (on an annualized basis) of the Portfolio's
average daily net assets. All operating expenses exceeding the voluntary waiver
of fees will be paid by the Investment Adviser. The Investment Adviser and the
Administrator will not attempt to recover prior period waivers or reimbursements
should expenses fall below the cap. Under an Administration Agreement effective
May 29, 1998 between the Fund and Investors Capital, Investors Capital provides
administrative services to the Fund, for an incentive fee in the event the
Portfolio operates below its expense ratio. This fee is capped at 0.02% of the
Portfolio's average daily net assets.
(9) The Investment Adviser and Investors Capital have voluntarily agreed to cap
the Net Operating Expenses at 0.45% (on an annualized basis) of the Portfolio's
average daily net assets. All operating expenses exceeding the voluntary waiver
of fees will be paid by the Investment Adviser. The Investment Adviser and the
Administrator will not attempt to recover prior period waivers or reimbursements
should expenses fall below the cap. Under an Administration Agreement effective
May 29, 1998 between the Fund and Investors Capital, Investors Capital provides
administrative services to the Fund, for an incentive fee in the event the
Portfolio operates below its expense ratio. This fee is capped at 0.02% of the
Portfolio's average daily net assets.
(10) The Investment Adviser and Investors Capital have voluntarily agreed to cap
the Net Operating Expenses at 0.25% (on an annualized basis) of the Portfolio's
average daily net assets. All operating expenses exceeding the voluntary waiver
of fees will be paid by the Investment Adviser. The Investment Adviser and the
Administrator will not attempt to recover prior period waivers or reimbursements
should expenses fall below the cap. Under an Administration Agreement effective
May 29, 1998 between the Fund and Investors Capital, Investors Capital provides
administrative services to the Fund, for an incentive fee in the event the
Portfolio operates below its expense ratio. This fee is capped at 0.02% of the
Portfolio's average daily net assets.
(11) The Investment Adviser and Investors Capital have voluntarily agreed to cap
the Net Operating Expenses at 0.45% (on an annualized basis) of the Portfolio's
average daily net assets. All operating expenses exceeding the voluntary waiver
of fees will be paid by the Investment Adviser. The Investment Adviser and the
Administrator will not attempt to recover prior period waivers or reimbursements
should expenses fall below the cap. Under an Administration Agreement effective
May 29, 1998 between the Fund and Investors Capital, Investors Capital provides
administrative services to the Fund, for an incentive fee in the event the
Portfolio operates below its expense ratio. This fee is capped at 0.02% of the
Portfolio's average daily net assets.
<PAGE>
Example
Because this example is hypothetical and for comparison purposes only, your
actual costs will be different. This table is intended to help you compare the
cost of investing in the Fund with the cost of investing in other mutual funds
by presenting the fees and expenses that you may pay if you purchase and hold
shares of the Fund. The yearly numbers below are hypothetical expenses per
$10,000 investment assuming a 5% annual return. Because this example is
hypothetical and for comparison purposes only, your actual costs will be
different.
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------------------- --------------------- ------------------- --------------------- --------------------
Portfolio Name 1 Year 3 Years 5 years 10 Years
- ------------------------------------- --------------------- ------------------- --------------------- --------------------
- ------------------------------------- --------------------- ------------------- --------------------- --------------------
- ------------------------------------- --------------------- ------------------- --------------------- --------------------
- ------------------------------------- --------------------- ------------------- --------------------- --------------------
Money Market $37 $116 $202 $456
- ------------------------------------- --------------------- ------------------- --------------------- --------------------
- ------------------------------------- --------------------- ------------------- --------------------- --------------------
Mortgage LIBOR
- ------------------------------------- --------------------- ------------------- --------------------- --------------------
- ------------------------------------- --------------------- ------------------- --------------------- --------------------
U.S. Short Term $43 $135 $235 $530
- ------------------------------------- --------------------- ------------------- --------------------- --------------------
- ------------------------------------- --------------------- ------------------- --------------------- --------------------
Limited Duration $53 $167 $291 $653
- ------------------------------------- --------------------- ------------------- --------------------- --------------------
- ------------------------------------- --------------------- ------------------- --------------------- --------------------
Mortgage-Backed $58 $183 $318 $714
- ------------------------------------- --------------------- ------------------- --------------------- --------------------
- ------------------------------------- --------------------- ------------------- --------------------- --------------------
Asset-Backed
- ------------------------------------- --------------------- ------------------- --------------------- --------------------
- ------------------------------------- --------------------- ------------------- --------------------- --------------------
High Yield
- ------------------------------------- --------------------- ------------------- --------------------- --------------------
- ------------------------------------- --------------------- ------------------- --------------------- --------------------
Enhanced Equity Market
- ------------------------------------- --------------------- ------------------- --------------------- --------------------
- ------------------------------------- --------------------- ------------------- --------------------- --------------------
U.S. Treasury
- ------------------------------------- -------------------
--------------------- --------------------- --------------------
U.S. Corporate
--------------------- --------------------- --------------------
- ------------------------------------- -------------------
Broad Market
- ------------------------------------- --------------------- ------------------- --------------------- --------------------
</TABLE>
* Because these Portfolios have no redemption fees, expenses for all periods are
the same whether or not shares are redeemed.
FUND MANAGEMENT
BOARD OF DIRECTORS
The Fund's Board of Directors is responsible for the Fund's overall management
and supervision. The Fund's Directors are Stephen P. Casper, John C Head III,
Lawrence B. Krause and Onder John Olcay. Additional information about the
Directors and the Fund's executive officers may be found in the Statement of
Additional Information under the heading "Management of the Fund - Board of
Directors."
INVESTMENT ADVISER
Subject to the direction and authority of the Fund's Board of Directors, Fischer
Francis Trees & Watts, Inc. serves as Investment Adviser to the Fund. The
Investment Adviser continuously conducts investment research and is responsible
for the purchase, sale or exchange of the Portfolio's assets. Organized in 1972,
the Investment Adviser is registered with the Securities and Exchange Commission
and is a New York corporation currently managing over $30 billion in assets for
numerous fixed-income Portfolios. The Investment Adviser currently advises over
100 major institutional clients including banks, central banks, pension funds
and other institutional clients. The average size of a client relationship with
the Investment Adviser is in excess of $200 million. The Investment Adviser also
serves as a sub-adviser to three portfolios of two other open-end management
investment companies. The Investment Adviser's offices are located at 200 Park
Avenue, New York, New York 10166. The Investment Adviser is directly
wholly-owned by Charter Atlantic Corporation, a New York corporation.
Portfolio's Payment of Fund Expenses
Fund expenses directly attributable to a Portfolio are charged to that
Portfolio; other expenses are allocated proportionately among all the Portfolios
in relation to their net assets. As compensation (subject to expense caps as
described under "Portfolio Operating Expenses" in the Prospectus) for the
services rendered by the Investment Adviser under the Advisory Agreements, each
Portfolio pays the Investment Adviser a monthly advisory fee (except for U.S.
Short Term, which pays its fees quarterly). This advisory fee is calculated by
applying the following annual percentage rates to such Portfolio's average daily
net assets for the month (quarter):
<TABLE>
<S> <C> <C> <C>
- -------------------------------------- -------------------------- ------------------------------ ---------------------------
Portfolio Rate Portfolio Rate
- -------------------------------------- -------------------------- ------------------------------ ---------------------------
- -------------------------------------- -------------------------- ------------------------------ ---------------------------
Money Market 0.10% High Yield 0.40%
Mortgage LIBOR 0.30% Enhanced Equity Market 0.35%
U.S. Short Term* 0.15% U.S. Treasury 0.30%
Limited Duration 0.15% U.S. Corporate 0.10%
Mortgage-Backed** 0.10% Broad Market 0.30%
Asset-Backed 0.10%
- -------------------------------------- -------------------------- ------------------------------ ---------------------------
</TABLE>
* Effective March 1, 1996, the Investment Adviser has voluntarily lowered the
advisory fee from 0.30%. ** Effective October 1, 1997, the Investment Adviser
has voluntarily lowered the advisory fee from 0.30%.
PORTFOLIO MANAGERS
David J. Marmon, Managing Director. Mr. Marmon is
responsible for management of the Asset-Backed,
High-Yield, U.S. Corporate and Broad Market
Portfolios. He joined FFTW in 1990 from Yamaichi
International (America) where he headed futures
and options research. Mr. Marmon was previously a
financial analyst and strategist at the First
Boston Corporation, where he developed hedging
programs for financial institutions and industrial
firms. Mr. Marmon has a B.A. summa cum laude in
economics from Alma College and an M.A. in
economics from Duke University.
Stewart M. Russell, Managing Director. Mr.
Russell is responsible for management of the Money
Market, U.S. Short-Term, Limited Duration,
Enhanced Equity Market and U.S. Treasury
Portfolios. He joined FFTW in 1992 from the
short-term proprietary trading desk in the global
markets area of J.P. Morgan, where he was
responsible for proprietary positioning of U.S.
and non-U.S. government obligations, corporate
bonds, and asset-backed securities. Earlier at
the bank, Mr. Russell managed the short-term
interest rate risk group, coordinating a $10
billion book of assets and liabilities. Mr.
Russell holds a B.A. in government from Cornell
University and an M.B.A. in finance from New York
University.
Patricia L. Cook, Managing Director. Ms. Cook is
responsible for management of the Mortgage LIBOR
and Mortgage-Backed Portfolios. She joined FFTW
in 1991 after twelve years with Salomon Brothers,
where she most recently established and headed the
bond strategy team that analyzes relative values
among mortgages, treasuries, and other sectors of
the fixed-income markets and developed portfolio
strategies for Salomon Brothers' global
institutional clients. Ms. Cook worked initially
as an analyst in the firm's proprietary trading
unit before joining the firm's financing desk.
Ms. Cook has a B.A. from St. Mary's College and an
M.B.A. from New York University.
SHAREHOLDER INFORMATION
PURCHASES
Portfolio shares may be purchased directly from the Fund, or obtained by
employing the services of an outside broker or agent. Such broker or agent may
charge a fee for its services. The minimum initial investment in any Portfolio,
if shares are purchased directly from the Fund, is $100,000; such minimum may be
waived at the discretion of the Investment Adviser or AMT Capital. Subsequent
investments or redemptions may be of any amount. Initial investments, if
obtained through a broker or agent may be for amounts lower than $100,000. There
are no loads nor 12b-1 fees imposed by the Fund. Shares purchased will begin
accruing dividends on the day Federal funds are received.
Purchases may be made on any "Business Day," meaning, Monday through Friday,
with the exception of the holidays declared by the Federal Reserve Banks of New
York or Boston. At the present time, these holidays are: New Year's Day, Dr.
Martin Luther King's Birthday, Presidents' Day, Memorial Day, Fourth of July,
Labor Day, Columbus Day, Veterans Day, Thanksgiving, and Christmas.
WIRING INSTRUCTIONS:
To: Investors Bank & Trust
Company, Boston, Massachusetts.
ABA Number: 011-0010438
Account Name: AMT Capital Securities, L.L.C.
- - Purchase Account
Account Number: 933333333
Reference: (Indicate Portfolio name)
TO Purchase shares
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------ --------------- ---------------------- ------------------------------------ -------------------------
Portfolio Name When Net When & how shares Procedure for same day purchases Result of late
Asset Value may be purchased notification or delay
is determined in receipt of funds
- ------------------------ --------------- ---------------------- ------------------------------------ -------------------------
- ------------------------ --------------- ---------------------- ------------------------------------ -------------------------
- ------------------------ --------------- ---------------------- ------------------------------------ -------------------------
- ------------------------ --------------- ---------------------- ------------------------------------ -------------------------
Money Market All Business o Any o Purchasers must call If the Fund is notified
days Business Day Investors Capital at (800) after 12:00 pm Eastern
o Submitted 762-4848 [or (212) 332-5211 time and/or if funds
orders must if within the City of New are not received by the
include a York] prior to 12:00 pm Transfer Agent, such
completed Eastern time to inform the purchase order shall be
account Fund of the incoming wire executed as of the date
application transfer. that Federal funds are
o Federal o Purchasers must indicate received.
funds must be which Portfolio is to be
wired to AMT purchased.
Capital's "Fund o If Federal funds are
Purchase received by the Fund that
Account" at IBT day, the order will be
effective that day.
- ------------------------ --------------- ---------------------- ------------------------------------ -------------------------
- ------------------------ --------------- ---------------------- ------------------------------------ -------------------------
o U.S. Short All Business o Any o Purchasers must call If the Fund is notified
Term Days Business Day Investors Capital at (800) after 4:00 pm Eastern
o Limited o Submitted 762-4848 [or (212) 332-5211 time and/or if funds
Duration orders should if within the City of New are not received by the
o Enhanced include a York] prior to 4:00 pm Transfer Agent, such
Equity Market completed Eastern time to inform the purchase order shall be
o U.S Treasury account Fund of the incoming wire executed as of the date
o U.S. Corporate application transfer. that Federal funds are
o Broad Market o Federal o Purchasers must indicate received.
funds must be which Portfolio is to be
wired to AMT purchased.
Capital's "Fund o If Federal funds are
Purchase received by the Fund that
Account" at IBT day, the order will be
effective that day.
- ------------------------ --------------- ---------------------- ------------------------------------ -------------------------
- ------------------------ --------------- ---------------------- ------------------------------------ -------------------------
Mortgage LIBOR Last Business o Last o Purchasers must call If the Fund is notified
Day of each Business Day of Investors Capital at (800) after 4:00 pm Eastern
week or on each week or on 762-4848 [or (212) 332-5211 time and/or if funds
any other any other if within the City of New are not received by the
Business Days Business Days York] prior to 4:00 pm Transfer Agent, such
approved by approved by the Eastern time to inform the purchase order shall be
the Investment Fund of the incoming wire executed as of the date
Investment Adviser. transfer. that Federal funds are
Adviser. o By wire of o Purchasers must indicate received.
federal funds which Portfolio is to be
purchased.
o If Federal
funds are
received by
the Fund
that day,
the order
will be
effective
that day.
- ------------------------ --------------- ---------------------- ------------------------------------ -------------------------
- ------------------------ --------------- ---------------------- ------------------------------------ -------------------------
o Last Business o Last o Purchasers must call If the Fund is notified
Mortgage-Backed Day of each Business Day of Investors Capital at (800) after 4:00 pm Eastern
o Asset-Backed month or on each month or 762-4848 [or (212) 332-5211 time and/or if funds
o High Yield any other any other if within the City of New are not received by the
Business Days Business Days York] prior to 4:00 pm Transfer Agent, such
approved by approved by the Eastern time to inform the purchase order shall be
the Investment Fund of the incoming wire executed as of the date
Investment Adviser. transfer. that Federal funds are
Adviser. o By wire of o Purchasers must indicate received.
federal funds which Portfolio is to be
purchased.
o If Federal
funds are
received by
the Fund
that day,
the order
will be
effective
that day.
- ------------------------ --------------- ---------------------- ------------------------------------ -------------------------
</TABLE>
<PAGE>
REDEMPTIONS
All Fund shares (fractional and full) will be redeemed upon shareholder request.
The redemption price will be the net asset value per share, determined once the
Transfer Agent receives proper notice of redemption (see table below). Shares
redeemed receive dividends declared up to, and including the day preceding the
day of the redemption payment.
Shares may be redeemed by employing the services of an outside broker or agent
or may be redeemed directly from the Fund. Such broker or agent may charge a fee
for its services. There are no loads nor 12b-1 fees imposed by the Fund. No
charge is imposed by the Fund to redeem shares, however, a shareholder's bank
may impose its own wire transfer fee for receipt of the wire. The Fund may
execute redemptions in any amount requested by the shareholder up to the amount
the shareholder has invested in the Fund.
A telephone redemption option is made available to shareholders on the Fund's
Account Application. The Fund or the Transfer Agent may employ procedures
designed to confirm that instructions communicated by telephone are genuine. If
the Fund does not employ such procedures, it may be liable for losses due to
unauthorized or fraudulent instructions. The Fund or the Transfer Agent may
require personal identification codes and will only wire funds through
pre-existing bank account instructions. No bank instruction changes will be
accepted via telephone.
If a shareholder designates an authorized agent on the Account Application, he
may change his authorized agent or the account designated to receive redemption
proceeds at any time. Such changes must be made in writing and sent to the
Transfer Agent with an appropriate signature guarantee. Further documentation
may be required when deemed appropriate by the Transfer Agent.
In an attempt to reduce expenses, the Fund may redeem shares of any shareholder
whose Portfolio account has a net asset value lower than $100,000. A
shareholder's account may be involuntarily redeemed by the Fund should its
account value fall below minimum investment requirements. An involuntary
redemption will not occur when drops in investment value are the sole result of
adverse market conditions. The Fund will give 60 days prior written notice to
shareholders whose shares are being redeemed to allow them to purchase
sufficient additional shares of the applicable Portfolio to avoid such
redemption. The Fund also may redeem shares in a shareholder's account as
reimbursement for loss due to the failure of a check or wire to clear in payment
of shares purchased.
<PAGE>
To Redeem Shares
- -------------------------------------------------------------------------------
1. Shareholders must provide the following information:
a. The dollar or share amount to be redeemed;
b. The account to which the redemption proceeds should be wired (this
account will have been previously designated by the
shareholder on its Account Application Form);
c. The name of the shareholder; and
d. The shareholder's account number
2. Shareholders should call the Transfer Agent at (800) 247-0473 to
request a redemption.
- -------------------------------------------------------------------------------
<PAGE>
<TABLE>
<S> <C> <C>
- --------------------------- ---------------------------------------------------
Portfolio Name When redemption effective Result of late notification of redemption
- --------------------------- ---------------------------------------------------------- -------------------------------------------
- --------------------------- ---------------------------------------------------------- -------------------------------------------
- --------------------------- ---------------------------------------------------------- -------------------------------------------
- --------------------------- ---------------------------------------------------------- -------------------------------------------
o Money Market If notice is received by the Transfer
Agent by 12:00 If notice is received by the Transfer
p.m. Eastern time on any Business Day, the
redemption Agent on a non-business day or after will
be effective and payment will be made on such 12:00
p.m. Eastern time, the redemption Business day.
Price of shares is based on the next notice will be
deemed received as of the calculation of the NAV
after the order is placed. next Business Day.
- --------------------------- ---------------------------------------------------------- -------------------------------------------
- --------------------------- ---------------------------------------------------------- -------------------------------------------
o U.S Short Term If notice is received by the Transfer
Agent by 4:00 p.m. If notice is received by the
Transfer Eastern time on any Business Day, the
redemption will be Agent on a non-business day or
after 4:00 effective and payment will be made on
such Business p.m. Eastern time, the redemption
notice day. Price of shares is based on the next
calculation will be deemed received as of the next
of the NAV after the order is placed. Price of
shares Business Day.
is based on the next calculation of the NAV after the
order is placed.
- --------------------------- ---------------------------------------------------------- -------------------------------------------
- --------------------------- ---------------------------------------------------------- -------------------------------------------
o U.S. Short Term If notice is received by the Transfer Agent by 4:00 p.m. If
notice is received on a non-business o Limited Duration Eastern time on any
Business Day, the redemption will be day or after 4:00 p.m. Eastern time, the o
Enhanced Equity effective and payment will be made within seven calendar
redemption notice will be deemed received
Market days, but generally on the day following receipt of such as of the next Business Day.
o U.S Treasury notice. Price of shares is based on the next
o U.S. Corporate calculation of the NAV after the order is placed.
o Broad Market
- --------------------------- ---------------------------------------------------------- -------------------------------------------
- --------------------------- ---------------------------------------------------------- -------------------------------------------
o Mortgage LIBOR If notice is received by the Transfer
Agent by 4:00 p.m. If notice is received on a
non-business Eastern time on any Business Day, the
redemption will be day or after 4:00 p.m. Eastern
time, the effective and payment will be made within
seven calendar redemption notice will be deemed
received days, but generally on the day following
receipt of such as of the next Business Day.
notice. Price of shares is based on the next
calculation of the NAV after the order is placed.
- --------------------------- ---------------------------------------------------------- -------------------------------------------
- --------------------------- ---------------------------------------------------------- -------------------------------------------
o Mortgage-Backed If notice is received by the Transfer Agent by 4:00 p.m. If
notice is received on a non-business o Asset-Backed Eastern time on any Business
Day, the redemption will be day or after 4:00 p.m. Eastern time, the o High
Yield effective and payment will be made within seven calendar redemption notice
will be deemed received
days, but generally on the day following receipt of such as of the next Business Day.
notice. Price of shares is based on the next
calculation of the NAV after the order is placed.
- --------------------------- ---------------------------------------------------------- -------------------------------------------
</TABLE>
PRICING OF PORTFOLIO SHARES
Your price for Portfolio shares is the Portfolio's net asset value per share.
Portfolio net asset value is calculated by: (1) adding the market value of all
the Portfolio's assets, (2) subtracting all of the Portfolio's liabilities, and
then (3) dividing by the number of shares outstanding and adjusting to the
nearest cent.
1. For all Portfolios other than Mortgage LIBOR, Mortgage-Backed,
Asset-Backed, High Yield and Money Market, net asset value is calculated
by the Fund's Accounting Agent as of 4:00 p.m. ET on each Business Day.
2. Mortgage LIBOR Portfolio's net asset value is
calculated by the Fund's Accounting Agent as
of 4:00 p.m. ET on the
last Business day of each week, on any
other Business Days in which the
Investment Adviser approves a purchase,
and on each Business Day for which a
redemption order has been placed.
3. Mortgage-Backed, Asset-Backed and High Yield
Portfolios' net asset values are calculated by
the Fund's Accounting
Agent as of 4:00 p.m. ET on the last
Business Day of each week and each month, on
any other Business Days in which the
Investment Adviser approves a purchase, and
on each Business Day for which a redemption
order has been placed.
4. Money Market Portfolio's net asset value
is calculated as of 12:00 noon ET on Business
Days. The Money Market
Portfolio seeks to maintain a stable net
asset value per share of $1.00. For
purposes of calculating the Money Market
Portfolio's net asset value, securities are
valued using the "amortized cost" method of
valuation, which does not take into
consideration unrealized gains or losses.
The amortized cost method involves valuing
an instrument at its cost, and assumes a
constant amortization to maturity of any
discount or premium, regardless of the
impact of fluctuating interest rates on the
market value of the instrument. While this
method provides certainty in valuation, it
may result in periods during which value
based on amortized cost is higher or lower
than the price a Portfolio would receive if
it sold the instrument.
The use of amortized cost and the maintenance of the Portfolio's per share net
asset value at $1.00 is based on its election to operate under the provisions of
Rule 2a-7 (the "Rule") under the 1940 Act. As conditions of operating under the
Rule, the Money Market Portfolio must: 1. maintain a dollar-weighted average
Portfolio
maturity of 90 days or shorter;
2. generally purchase only instruments having remaining
maturities of 397 days or shorter;
3. invest only in U.S. dollar-denominated securities which have been determined
by the Board of Directors to present minimal credit risks and which are of
eligible quality as determined under the Rule; and
4. diversify its holdings.
DIVIDENDS
If desired, shareholders must request to receive dividends in cash (payable on
the first business day of the following month) on the Account Application Form.
Absent such notice, all dividends will be automatically reinvested in additional
shares on the last Business Day of each month at the share's net asset value. In
the unlikely event that a Portfolio realizes net short- or long-term capital
gains (i.e., with respect to assets held more than one year), the Portfolio will
distribute such gains by automatically reinvesting (unless a shareholder has
elected to receive cash) them in additional Portfolio shares.
Net investment income (including accrued but unpaid interest, amortization of
original issue and market discount or premium) of each Portfolio, other than
Mortgage-Backed, Mortgage LIBOR, Asset-Backed and High Yield will be declared as
dividends payable daily to the respective shareholders of record as of the close
of each Business Day. The net investment income of Mortgage LIBOR,
Mortgage-Backed, Asset-Backed and High Yield Portfolios will be declared as
dividends payable to the respective shareholders of record as of the last
Business Day of each month.
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Director elections and
other shareholder voting matters. Matters to be acted upon affecting a
particular Portfolio (such as approval of the investment advisory agreement with
the Investment Adviser or the submission of changes of fundamental Portfolio
investment policy) require the affirmative vote of the Portfolio shareholders.
The election of the Fund's Board of Directors and the approval of the Fund's
independent auditors are voted upon by shareholders on a Fund-wide basis. The
Fund is not required to hold annual shareholder meetings. Shareholder approval
will be sought only for certain changes in the Fund's or a Portfolio's operation
and for the election of Directors under certain circumstances. Directors may be
removed by shareholders at a special meeting. The directors shall call a special
meeting of the Fund upon written request of shareholders owning at least 10% of
the Fund's outstanding shares.
TAX CONSIDERATIONS
The following discussion is for general information only. An investor should
consult with his or her own tax adviser as to the tax consequences of an
investment in a Portfolio, including the status of distributions from each
Portfolio under applicable state or local law.
Federal Income Taxes
Each active Portfolio currently qualifies and intends to continue to qualify as
a regulated investment company (RIC) under the Internal Revenue Code of 1986, as
amended. To be a RIC, a Portfolio must meet certain income, distribution and
diversification requirements. In any year in which a Portfolio qualifies as a
RIC while distributing all of its taxable income, and substantially all of its
net tax-exempt interest income on a timely basis, the Portfolio generally will
not pay U.S. federal income or excise tax. In any year a Portfolio fails to
qualify as a RIC, the Portfolio will be subject to federal income tax in the
same manner as an ordinary corporation and distributions to shareholders will be
taxable as ordinary income to the extent of the earnings and profits of the
Portfolio. Distributions in excess of earnings and profits will be treated as a
tax-free return of capital, to the extent of a holder's basis in its shares, and
any excess, as a long or short-term capital gain.
Each Portfolio will distribute all of its taxable income by automatically
reinvesting such income in additional Portfolio shares and distributing those
shares to its shareholders, unless a shareholder elects on the Account
Application Form to receive cash payments for such distributions. Shareholders
receiving distributions from the Fund in the form of additional shares will be
treated for federal income tax purposes as receiving a distribution in an amount
equal to the fair market value of the additional shares on the date of such a
distribution.
Dividends a Portfolio pays from its investment company taxable income (including
interest and net short-term capital gains) will be taxable to U.S. shareholders
as ordinary income, whether received in cash or in additional Fund shares.
Distributions of net capital gains (the excess of net long-term capital gains
over net short-term capital losses) are generally taxable to shareholders at the
applicable long-term capital gains rates, regardless of how long they have held
their Portfolio shares. If a portion of a Portfolio's income consists of
dividends paid by U.S. corporations, a portion of the dividends paid by the
Portfolio may be eligible for the corporate dividends-received deduction.
A distribution will be treated as paid on December 31 of the current calendar
year if it is declared by a Portfolio in October, November or December with a
record date in any such month and paid by the Portfolio during January of the
following calendar year. Such distributions will be taxable to shareholders in
the calendar year in which the distributions are declared, rather than the
calendar year in which the distributions are received. Each Portfolio will
inform shareholders of the amount and tax status of all amounts treated as
distributed to them not later than 60 days after the close of each calendar
year.
The foregoing discussion is only a brief summary of the important federal tax
considerations generally affecting the Fund and its shareholders. As noted
above, IRAs receive special tax treatment. No attempt is made to present a
detailed explanation of the federal, state or local income tax treatment of the
Fund or its shareholders, and this discussion is not intended as a substitute
for careful tax planning. Accordingly, potential investors in the Fund should
consult their tax advisers with specific reference to their own tax situation.
State and Local Taxes
A Portfolio may be subject to state, local or foreign taxation in any
jurisdiction in which the Portfolio may be deemed to be doing business.
Portfolio distributions may be subject to state and local taxes. Portfolio
distributions derived from interest on obligations of the U.S. Government and
certain of its agencies, authorities and instrumentalities may be exempt from
state and local taxes in certain states. Shareholders should consult their own
tax advisers regarding possible state and local income tax exclusions for
dividend portions paid by a Portfolio, which are attributable to interest from
obligations of the U.S. Government, its agencies, authorities and
instrumentalities.
DISTRIBUTION OF FUND SHARES
Shares of the Fund are distributed by Investors Capital, Inc,. a branch office
of AMT Capital, pursuant to a Distribution Agreement dated as of May 29, 1998
between the Fund and AMT Capital. No fees are payable by the Fund pursuant to
the Distribution Agreement, and AMT Capital bears the expense of its
distribution activities.
INVESTMENT INFORMATION
ALLOWABLE INVESTMENT STRATEGIES AND ASSOCIATED
RISKS
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
Money Mortgage U.S. Limited Mortgage- Asset-BacHigh Enhanced U.S. U.S. Broad
Market LIBOR Short- Duration Backed Yield Equity Treasury Corporate Market
Term Market
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
Asset-Backed Securities . . . . . . . . . . .
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
Bank Obligations . . . . . . . . . . .
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
Brady Bonds . . . . . .
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
Convertibles Securities . . . . . .
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
Corporate Debt . . . . . . . . . . .
Instruments
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
Foreign Instruments . . . . . .
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
Illiquid Securities . . . . . . . . .
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
Indexed Notes, . . . . . . . .
Currency
Exchange-Related
Securities and Similar
Securities
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
Inflation-Indexed . . . . . . . . . .
Securities
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
Investment Companies . . . . . . . . . .
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
Mortgage-Backed . . . . . . . . . . .
Securities
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
Multi-National . . . . . .
Currency Unit
Securities or More
Than One Currency
Denomination
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
Municipal Instruments . . . . . . .
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
Repurchase and Reverse . . . . . . . . . . .
Repurchase Agreements
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
Stripped Instruments . . . . . . . . . . .
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
Total Return Swaps . . . . . . . . .
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
U.S. Government and . . . . . . . . . . .
Agency Securities
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
Warrants . . . . . .
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
Zero Coupon Securities . . . . . . . . . .
........................ ....... .......... ....... ......... .......... ........ ...... .......... ......... .......... ........
</TABLE>
Dollar Roll Transactions
Dollar roll transactions consist of the sale of mortgage-backed securities, with
a commitment to purchase similar, but not identical securities at a future date,
and at the same price. Portfolios will maintain a segregated custodial account
for dollar roll transactions. The segregated accounts may contain cash, U.S.
Government Securities or other liquid, unencumbered securities having an
aggregate value at least equal to the amount of such commitments to repurchase
the securities under the dollar roll transaction (including accrued interest).
Risks: Should the broker-dealer to whom a Portfolio sells an underlying
security of a dollar roll transaction become insolvent, the Portfolio's
right to purchase or repurchase the security may be restricted, or the
price of the security may change adversely over the term of the dollar
roll transaction.
Duration Management
Duration measures a bond's price volatility,
incorporating the following factors:
a. the bond's yield,
b. coupon interest payments,
c. final maturity,
d. call features, and
e. prepayment assumptions.
Duration measures the expected life of a debt security on a present value basis.
It incorporates the length of the time intervals between the present time and
the time that the interest and principal payments are scheduled (or in the case
of a callable bond, expected to be received) and weighs them by the present
values of the cash to be received at each future point in time. For any debt
security with interest payments occurring prior to the payment of principal,
duration is always less than maturity. In general, for the same maturity, the
lower the stated or coupon rate of interest of a debt security, the longer the
duration of the security; conversely, the higher the stated or coupon rate of
interest of a debt security, the shorter the duration of the security.
Futures, options and options on futures have durations closely related to the
duration of the securities underlying them. Holding long futures or call options
will lengthen a Portfolio's duration by approximately the same amount that
holding an equivalent amount of the underlying securities would. Short futures
or put option positions have durations roughly equal to the negative duration of
the securities that underlie those positions and have the effect of reducing
duration by approximately the same amount that selling an equivalent amount of
the underlying securities would. The market price of a bond with a duration of
two years would be expected to decline 2% if interest rates rose 1%. If a bond
has an effective duration of three years, a 1% increase in general interest
rates would be expected to cause the bond's value to decline by about 3%.
Risks: Changes in weighted average duration of a Portfolio's holdings
are not likely to be so large as to cause them to fall outside the
ranges specified above. There is no assurance that deliberate changes
in a Portfolio's weighted average duration will enhance its return
relative to more static duration policies or Portfolio structures. In
addition, it may detract from its relative return.
Hedging
Hedging techniques are used to offset certain investment risks. Such risks
include: changes in interest rates, changes in foreign currency exchange rates
and changes in securities and commodity prices. Hedging techniques are commonly
used to minimize a given instrument's risks of future gain or loss. Hedging
techniques include:
<TABLE>
<S> <C> <C> <C>
a. engaging in swaps; d. purchasing and selling futures contracts; and
b. purchasing and selling caps, floors and collars; e. purchasing and selling options.
c. purchasing or selling forward exchange contracts;
</TABLE>
All hedging instruments described below constitute commitments by a Portfolio
and therefore require the Fund to segregate cash (in any applicable currency),
U.S. Government securities or other liquid and unencumbered securities (in any
applicable currency) equal to the amount of the Portfolio's obligations in a
separate custody account.
When a Portfolio purchases a futures or forward currency contract for
non-hedging purposes, the sum of the segregated assets plus the amount of
initial and variation margin held in the broker's account, if applicable, must
equal the market value of the futures or forward currency contract.
When a Portfolio sells a futures or forward
currency contract for non-hedging purposes, the
Portfolio will have the contractual right to
acquire:
1. the securities,
2. the foreign currency subject to the futures,
3. the forward currency contract, or
4. will segregate assets, in an amount at
least equal to the market value of the securities or foreign currency
underlying the futures or forward currency contract.
Should the market value of the contract move adversely to the Portfolio, or if
the value of the securities in the segregated account declines, the Portfolio
will be required to deposit additional cash or securities in the segregated
account at a time when it may be disadvantageous to do so.
A Portfolio will not enter into any swaps, caps or floors unless the unsecured
commercial paper, senior debt or claims paying ability of the counterparty is
rated either A or A-1 or better by S&P or A or P-1 or better by Moody's. If
unrated, it must be determined to be of comparable quality by the Investment
Adviser.
Risks: Hedging involves risks of imperfect correlation in price
movements of the hedge and movements in the price of the hedged
security. If interest or currency exchange rates do not move in the
direction of the hedge, the Portfolio will be in a worse position than
if hedging had not been employed. As a result, the Portfolio will lose
all or part of the benefit of the favorable rate movement due to the
cost of the hedge or offsetting positions. Hedging transactions not
entered into on a U.S. or foreign exchange may subject a Portfolio to
exposure to the credit risk of its counterparty. Futures and Options
transactions entail special risks. In particular, the variable degree
of correlation between price movements of futures contracts and price
movements in the related Portfolio position could create the
possibility that losses will be greater than gains in the value of the
Portfolio's position. Other risks include the risk that a Portfolio
could not close out a futures or options position when it would be most
advantageous to do so.
a. Swaps
Swaps are commonly used for hedging purposes. Hedging involving mortgage and
interest rate swaps may enhance total return. Interest rate swaps involve a
Portfolio's exchange with another party of their respective commitments to pay
or receive interest, such as an exchange of fixed rate payments for floating
rate payments. Mortgage swaps are similar to interest rate swaps, both represent
commitments to pay and receive funds. Currency swaps involve the exchange of
their respective rights to make or receive payments in specified currencies.
b. Caps, Floors and Collars
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payment of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser, to the
extent that a specified index falls below a predetermined interest rate, to
receive payments of interest on a notional principal amount from the party
selling the interest rate floor. An interest rate collar incorporates a cap and
a floor in one transaction as described above.
c. Forward Foreign Exchange Contracts A forward foreign exchange contract is the
purchase or sale of a foreign currency, on a specified date, at an exchange rate
established before the currency's payment and delivery to hedge the currency
exchange risk associated with its assets or obligations denominated in foreign
currencies. Synthetic hedging is a technique utilizing forward foreign exchange
contracts that is frequently employed by many of the Portfolios. It entails
entering into a forward contract to sell a currency the changes in value of
which are generally considered to be linked to a currency or currencies in which
some or all of the Portfolio's securities are or are expected to be denominated,
and buying U.S. dollars. There is a risk that the perceived linkage between
various currencies may not be present during the particular time that a
Portfolio is engaging in synthetic hedging. A Portfolio may also cross-hedge
currencies by entering into forward contracts to sell one or more currencies
that are expected to decline in value relative to other currencies to which the
Portfolio has or expects to have exposure.
d. Futures Contracts
A futures contract is an agreement to buy or sell a specific amount of a
financial instrument at a particular price on a specified date. The futures
contract obligates the buyer to purchase the underlying commodity and the seller
to sell it. Losses from investing in futures transactions that are unhedged or
uncovered are potentially unlimited. Substantially all futures contracts are
closed out before settlement date or called for cash settlement. A futures
contract is closed out by buying or selling an identical offsetting futures
contract that cancels the original contract to make or take delivery. At times,
the ordinary spreads between values in the cash and futures markets, due to
differences in the character of these markets, are subject to distortions. The
possibility of such distortions means that a correct forecast of general market,
foreign exchange rate or interest rate trends may not produce the Portfolio's
intended results. Investors should note that the Enhanced Equity Market
Portfolio may, unlike the other Fund Portfolios, invest more than 5% of its
total net assets in futures contracts and will utilize futures contracts for
purposes other than bona fide hedging
e. Options Contracts
An option is a contractual right, but not an obligation, to buy (call) or sell
(put) property that is guaranteed in exchange for an agreed upon sum. If the
right is not exercised within a specified period of time, the option expires and
the option buyer forfeits the amount paid. An option may be a contract that
bases its value on the performance of an underlying bond. When a Portfolio
writes a call option, it gives up the potential for gain on the underlying
securities or currency in excess of the exercise price of the option during the
period that the option is open. A put option gives the purchaser, in return for
a premium, the right, for a specified period or time, to sell the securities or
currency subject to the option to the writer of the put at the specified
exercise price. The writer of the put option, in return for the premium, has the
obligation, upon exercise of the option, to acquire the securities or currency
underlying the option at the exercise price. A Portfolio might, therefore, be
obligated to purchase the underlying securities or currency for more than their
current market price.
Risks: Hedging involves risks of imperfect correlation in price
movements of the hedge and movements in the price of the hedged
security. If interest or currency exchange rates do not move in the
direction of the hedge, the Portfolio will be in a worse position than
if hedging had not been employed. As a result, it will lose all or part
of the benefit of the favorable rate movement due to the cost of the
hedge or offsetting positions. Hedging transactions not entered into on
a U.S. or foreign exchange may subject a Portfolio to exposure to the
credit risk of its counterparty. Futures and Options transactions
entail special risks. In particular, the variable degree of correlation
between price movements of futures contracts and price movements in the
related Portfolio position could create the possibility that losses
will be greater than gains in the value of the Portfolio's position.
Other risks include the risk that a Portfolio could not close out a
futures or options position when it would be most advantageous to do
so.
Short Sales
Short sales are transactions in which a Portfolio sells a security it does not
own in anticipation of a decline in the market value of that security. Short
selling provides the Investment Adviser with flexibility to reduce certain risks
of the Portfolio's holdings and increase the Portfolio's total return. To the
extent that the Portfolio has sold securities short, it will maintain a daily
segregated account, containing cash, U.S. Government securities or other liquid
and unencumbered securities, at such a level that (a) the amount deposited in
the account plus the amount deposited with the broker as collateral will equal
the current value of the security sold short and (b) the amount deposited in the
segregated account plus the amount deposited with the broker as collateral will
not be less than the market value of the security at the time it was sold short.
Risks: A short sale is generally used to take advantage of an
anticipated decline in price or to protect a profit. A Portfolio will
incur loss as a result of a short sale if the price of the security
increases between the date of the short sale and the date on which
Portfolio replaces the borrowed money. The amount of any loss will be
increased by the amount of any premium or amounts in lieu of interest
the Portfolio may be required to pay in connection with a short sale.
Without the purchase of an option, the potential loss from a short sale
is unlimited.
TBA (To Be Announced) Transactions In a TBA transaction, the type of
mortgage-backed securities to be delivered is specified at the time of trade,
but the actual pool numbers of the securities to be delivered are not known at
the time of the trade. For example, in a TBA transaction, an investor could
purchase $1 million 30 year FNMA 9's and receive up to three pools on the
settlement date. The pool numbers to be delivered at settlement will be
announced shortly before settlement takes place. Agency pass-through
mortgage-backed securities are usually issued on a TBA basis. For each
Portfolio, the Fund will maintain a segregated custodial account containing
cash, U.S. Government securities or other liquid and unencumbered securities
having a value at least equal to the aggregate amount of a Portfolio's TBA
transactions.
Risks: The value of the security on the
date of delivery may be less than its
purchase price, presenting a possible
loss of asset value.
When Issued and Forward Commitment Securities The purchase of a when issued or
forward commitment security will be recorded on the date the Portfolio enters
into the commitment. The value of the security will be reflected in the
calculation of the Portfolio's net asset value. The value of the security on
delivery date may be more or less than its purchase price. Generally, no
interest accrues to a Portfolio until settlement. For each Portfolio, the Fund
will maintain a segregated custodial account containing cash, U.S. Government
securities or other liquid and unencumbered securities having a value at least
equal to the aggregate amount of a Portfolio's when issued and forward
commitments transactions.
Risks: The value of the security on the
date of delivery may be less than its
purchase price, presenting a possible
loss of asset value.
ALLOWABLE INVESTMENTS AND ASSOCIATED RISKS
Asset-Backed Securities
Asset-backed securities are secured by or backed
by assets other than mortgage-related assets,
such as automobile and credit card receivables.
These securities are sponsored by such
institutions as finance companies, finance
subsidiaries of industrial companies and
investment banks. Asset-backed securities have
structural characteristics similar to
mortgage-backed securities, however, the
underlying assets are not first lien mortgage
loans or interests, but include assets such as:
a. motor vehicle installment sale contracts,
b. other installment sale contracts,
c. leases of various types of real and personal property, and
d. receivables from revolving credit (credit card) agreements.
Risks: Since the principal amount of asset-backed securities is
generally subject to partial or total prepayment risk. If an
asset-backed security is purchased at a premium or discount to par, a
prepayment rate that is faster than expected will reduce or increase
yield to maturity, while a prepayment rate that is slower than expected
will have the opposite effect on yield to maturity. These securities
may not have any security interest in the underlying assets, and
recoveries on the repossessed collateral may not, in some cases, be
available to support payments on these securities.
<TABLE>
<S> <C> <C> <C> <C>
Bank Obligations
Bank obligations are bank issued securities. These instruments include:
a. Time Deposits, e. Deposit Notes, h. Variable Rate Notes,
b. Certificates of Deposit, f. Eurodollar Time deposits, i. Loan Participations,
c. Bankers' Acceptances, g. Eurodollar Certificates of j. Variable Amount Master Demand Notes,
d. Bank Notes, Deposit, k. Yankee CDs, and
l. Custodial Receipts
</TABLE>
Risks: Investing in bank obligations
exposes a Portfolio to risks associated
with the banking industry such as
interest rate and credit risks.
Brady Bonds
Brady Bonds are debt securities, issued or guaranteed by foreign governments in
exchange for existing external commercial bank indebtedness. To date, over $154
billion (face amount) of Brady Bonds have been issued by the governments of
thirteen countries, the largest proportion having been issued by Argentina,
Brazil, Mexico and Venezuela. Brady Bonds are either collateralized or
uncollateralized, issued in various currencies (primarily the U.S. dollar), and
are actively traded in the over-the-counter secondary market.
A Portfolio may invest in either collateralized or uncollateralized Brady Bonds.
U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed rate par
bonds or floating rate discount bonds, are collateralized in full as to
principal by U.S. Treasury zero coupon bonds having the same maturity as the
bonds. Interest payments on such bonds generally are collateralized by cash or
securities in an amount that, in the case of fixed rate bonds, is equal to at
least one year of rolling interest payments or, in the case of floating rate
bonds, initially is equal to at least one year's rolling interest payments based
on the applicable interest rate at the time and is adjusted at regular intervals
thereafter.
Risks: Brady Bonds are generally issued to countries with developing
capital markets or unstable governments and as such, are considered to
be among the more risky international investments.
Convertible Securities
Convertible bonds or shares of convertible preferred stock are securities that
may be converted into, or exchanged for, underlying shares of common stock,
either at a stated price or stated rate. Convertible securities have general
characteristics similar to both fixed income and equity securities.
Risks: Typically, convertible securities are callable by the company,
which may, in effect, force conversion before the holder would
otherwise choose. If the issuer chooses to convert the security, this
action could have an adverse effect on a Portfolio's ability to achieve
its objectives.
Corporate Debt Instruments
Corporate bonds are debt instruments issued by private corporations. As
creditors, bondholders have a prior legal claim over common and preferred
stockholders of the corporation as to both income and assets for the principal
and interest due to the bondholder. A Portfolio purchases corporate bonds
subject to quality restraints. Commercial paper, notes and other obligations of
U.S. and foreign corporate issuers must meet the Portfolio's credit quality
standards (including medium-term and variable rate notes). A Portfolio may
retain a downgraded corporate debt security if the Investment Adviser determines
retention of such security to be in the Portfolio's best interests.
Risks: Investing in corporate debt
securities subjects a Portfolio to
interest rate changes and credit risks.
Foreign Instruments
a. Foreign Securities
Foreign securities are securities denominated in currencies other than the U.S.
dollar and may be denominated in any single currency or multi-currency units.
The Investment Adviser will adjust exposure of a Portfolios to different
currencies based on its perception of the most favorable markets and issuers. It
is further anticipated that such securities will be issued primarily by
governmental and private entities located in such countries and by supranational
entities. A Portfolio will only invest in countries considered to have stable
governments, based on the Investment Adviser's analysis of social, political,
and economic factors.
b. Foreign Government, International and Supranational Agency Securities These
securities include debt obligations issued or guaranteed by a foreign government
or its subdivisions, agencies and instrumentalities, international agencies and
supranational entities.
Risks: Generally, foreign financial
markets have substantially less volume
than the U.S. market. Securities of
many foreign companies are less liquid,
and their prices are more volatile than
securities of comparable domestic
companies. Certain Portfolios may
invest portions of their assets in
securities denominated in foreign
currencies. These investments carry
risks of fluctuations of exchange rates
relative to the U.S. dollar. Securities
issued by foreign entities (governments,
corporations etc.) may involve risks not
associated with U.S. investments,
including expropriation of assets,
taxation, political or social
instability and low financial reporting
standards--all of which may cause
declines in investment returns.
Illiquid Securities
Illiquid securities cannot be sold or disposed of
in the ordinary course of business within seven
days for approximately the value at which a
Portfolio has valued the securities. These
include:
1. securities with legal or contractual restrictions on resale, 2. time
deposits, repurchase agreements and dollar roll transactions having maturities
longer than seven days, and 3. securities not having readily available market
quotations. Although the Portfolios are allowed to invest up to 15% (10% in the
case of the Money Market Portfolio) of the value of their net assets in illiquid
assets, it is not expected that any Portfolio will invest a significant portion
of its assets in illiquid securities. The Investment Adviser monitors the
liquidity of such restricted securities under the supervision of the Board of
Directors.
A Portfolio may purchase securities not registered under the Securities Act of
1933 as amended (the "1933 Act"), but which can be sold to qualified
institutional buyers in accordance with Rule 144A under that Act. A Portfolio
may also invest in commercial paper issued in reliance on the so-called "private
placement" exemption from registration afforded by Section 4(2) of the 1933 Act
(Section 4(2) paper). Section 4(2) paper is restricted as to disposition under
the federal securities laws, and generally is sold to institutional investors.
Any resale by the purchaser must be in an exempt transaction. Section 4(2) paper
is normally resold to other institutional investors through or with the
assistance of the issuer or investment dealers who make a market in the Section
4(2) paper, thus providing liquidity. If a particular investment in Rule 144A
securities, Section 4(2) paper or private placement securities is not determined
to be liquid, that investment will be included within the 15% (or 10%)
limitation on investment in illiquid securities. The Investment Adviser will
monitor the liquidity of such restricted securities under the supervision of the
Board of Directors.
Risks: Investing in illiquid securities presents the potential risks of
tying up a Portfolio's assets at a time when liquidating assets may be
necessary to meet debts and obligations.
Indexed Notes, Currency Exchange-Related Securities and Similar Securities These
securities are notes, the principal amount of which and/or the rate of interest
payable is determined by reference to an index. This index may be determined by
the rate of exchange between the specified currency for the note and one or more
other currencies or composite currencies.
Risks: Foreign currency markets can be
highly volatile and are subject to sharp
price fluctuations. A high degree of
leverage is typical for foreign currency
instruments in which a Portfolio may
invest.
Inflation-Indexed Securities
Inflation-indexed securities are linked to the inflation rate from worldwide
bond markets such as the U.S. Treasury Department's "inflation-protection"
issues. The initial issues are ten year notes which are issued quarterly. Other
maturities will be sold at a later date. The principal is adjusted for inflation
(payable at maturity) and the semi-annual interest payments equal a fixed
percentage of the inflation adjusted principal amount. The inflation adjustments
are based upon the Consumer Price Index for Urban Consumers. These securities
may be eligible for coupon stripping under the U.S. Treasury program. In
addition to the U.S. Treasury's issues, inflation-indexed securities include
inflation-indexed securities from other countries such as Australia, Canada, New
Zealand, Sweden and the United Kingdom.
Risks: If the periodic adjustment rate measuring inflation falls, the
principal value of inflation-indexed bonds will be adjusted downward,
and consequently the interest payable on these securities (calculated
with respect to a smaller principal amount) will be reduced. Repayment
of the original bond principal upon maturity (as adjusted for
inflation) is guaranteed in the case of U.S. Treasury inflation-indexed
bonds, even during a period of deflation. However, the current market
value of the bonds is not guaranteed, and will fluctuate. The
Portfolios many also invest in other inflation related bonds that may
or may not provide a similar guarantee. If a guarantee of principal is
not provided, the adjusted principal value of the bond repaid at
maturity may be less than the original principal.
The U.S. Treasury has only recently begun issuing inflation-indexed
bonds. As such, there is no trading history of these securities, and
there can be no assurance that a liquid market in these instruments
will develop, although one is expected to continue to evolve. Lack of a
liquid market may impose the risk of higher transaction costs and the
possibility that a Portfolio may be forced to liquidate positions when
it would not be advantageous to do so. Finally, there can be no
assurance that the Consumer Price Index for Urban Consumers will
accurately measure the real rate of inflation in the price of goods and
services.
Investment Companies
An investment company is an investment vehicle,
which, for a management fee, invests the pooled
funds of investors in securities appropriate for
its investment objectives. Two basic types of
investment companies exist:
1. Open end funds: these funds have a floating
number of outstanding shares and will sell or
redeem shares at their current net asset
value,
2. Closed end funds: these funds have a fixed
number of outstanding shares that are traded on an
exchange.
The acquiring company may not purchase or otherwise acquire securities in the
acquired company (if a load fund) if, immediately after the acquisition: 1. the
acquiring company and any company controlled by it would own in the aggregate
more than 3% of the total outstanding voting stock of the acquired company 2.
securities issued by the acquired company would have an aggregate value
exceeding 5% of the value of the total assets of the acquiring company; or 3.
securities issued by the acquired company and all other investment companies
would have an aggregate value in excess of 10% of the value of the acquiring
company's total assets.
The acquiring company may not purchase or otherwise acquire securities in the
acquired company (if no-load) if, immediately after the acquisition the
acquiring company and any company controlled by it would own in the aggregate
more than 3% of the total outstanding voting stock of the acquired company.
A Portfolio may invest in another Portfolio within the FFTW Funds, Inc. family.
This is commonly referred to as cross-portfolio investing. Should such
cross-portfolio investing occur, investors will not be double-charged advisory
fees. The Portfolio in which it is directly invested will only charge investors
an advisory fee.
Risks: Generally, risks posed by a particular fund will mirror those
posed by the underlying securities. A money market fund has the highest
safety of principal, whereas bond funds are vulnerable to interest rate
movements.
Mortgage-Backed Securities
Mortgage-backed securities are securities
representing ownership interests in, or debt
obligations secured entirely or primarily by,
"pools" of residential or commercial mortgage
loans or other mortgage-backed securities.
Mortgage-backed securities may take a variety of
forms, the most common being:
1. Mortgage-pass through securities issued by
a. the Government National Mortgage Association (Ginnie Mae),
b. the Federal National Mortgage Association (Fannie Mae),
c. the Federal Home Loan Mortgage Corporation (Freddie Mac),
d. commercial banks, savings and loan associations, mortgage
banks or by issuers that are affiliates of or sponsored
by such entities,
2. Collateralized mortgage obligations (CMOs) which are debt obligations
collateralized by such assets, and
3. Commercial mortgage-backed securities.
The Investment Adviser expects that new types of mortgage-backed securities may
be created offering asset pass-through and asset-collateralized investments in
addition to those described above by governmental, government-related and
private entities. As new types of mortgage-related securities are developed and
offered to investors, the Investment Adviser will consider whether it would be
appropriate for such Portfolio to make investments in them.
CMOs are derivatives collateralized by mortgage pass-through securities. Cash
flows from mortgage pass-through securities are allocated to various tranches in
a predetermined, specified order. Each tranche has a stated maturity - the
latest date by which the tranche can be completely repaid, assuming no
prepayments - and has an average life - the average of the time to receipt of a
principal payment weighted by the size of the principal payment. The average
life is typically used as a proxy for maturity because the debt is amortized,
rather than being paid off entirely at maturity.
Risks: A Portfolio may invest in mortgage-backed and other asset-backed
securities carrying the risk of a faster or slower than expected
prepayment of principal which may affect the duration and return of the
security. Portfolio returns will be influenced by changes in interest
rates. Changes in market yields affect a Portfolio's asset value since
Portfolio debt will generally increase when interest rates fall and
decrease when interest rates rise. Thus, interest rates have an inverse
relationship with corresponding market values. Prices of shorter-term
securities generally fluctuate less in response to interest rate
changes than do longer-term securities.
Multi-National Currency Unit Securities or More Than One Currency Denomination
Multi-national currency unit securities are tied to currencies of more than one
nation. This includes the European Currency Unit--a "basket" consisting of
specified currencies of the member states of the European Community (a Western
European economic cooperative organization). These securities include securities
denominated in the currency of one nation, although it is issued by a
governmental entity, corporation or financial institution of another nation.
Risks: Investments involving
multi-national currency units are
subject to changes in currency exchange
rates which may cause the value of such
invested securities to decrease relative
to the U.S. dollar.
Municipal Instruments
Municipal instruments are debt obligations issued by a state or local government
entity. The instruments may support general governmental needs or special
governmental projects. It is not anticipated that such instruments will ever
represent a significant portion of any Portfolio's assets.
Risks: Investments in municipal
instruments are subject to the
municipality's ability to make timely
payment. Municipal instruments may also
be subject to bankruptcy protection
should the municipality file for such
protection.
Repurchase and Reverse Repurchase Agreements Under a repurchase agreement, a
bank or securities firm (a dealer in U.S. Government Securities reporting to the
Federal Reserve Bank of New York) or Investors Bank & Trust Co. agrees to sell
U.S. Government Securities to a Portfolio and repurchase such securities from
the Portfolio at a later date for an agreed upon price. Under a reverse
repurchase agreement, a primary or reporting dealer in U.S. Government
Securities purchases U.S. Government Securities from a Portfolio and the
Portfolio agrees to repurchase the securities for an agreed price at a later
date.
The Fund will maintain a segregated custodial account for each Portfolio's
reverse repurchase agreements. Until repayment is made, the segregated accounts
may contain cash, U.S. Government Securities or other liquid, unencumbered
securities having an aggregate value at least equal to the amount of such
commitments to repurchase (including accrued interest). Repurchase and reverse
repurchase agreements will generally be restricted to those maturing within
seven days.
Risks: If the other party to a repurchase and/or reverse repurchase
agreement becomes subject to a bankruptcy or other insolvency
proceeding, or fails to satisfy its obligations thereunder, delays may
result in recovering cash or the securities sold, or losses may occur
as to all or part of the income, proceeds or rights in the security.
Stripped Instruments
Stripped instruments are bonds, reduced to its
two components: its rights to receive periodic
interest payments (IOs) and rights to receive
principal repayments (POs). Each component is
then sold separately. Such instruments include:
a. Municipal Bond Strips
b. Treasury Strips
c. Stripped Mortgage-Backed Securities
Risks: POs do not pay interest, its return is solely based on payment
of principal at maturity. Both POs and IOs tend to be subject to
greater interim market value fluctuations in response to changes in
interest rates. Stripped Mortgage-Backed Securities IOs run the risk of
unanticipated prepayment which will decrease the instrument's overall
return.
Total Return Swaps
A total return swap is an exchange of one security for another. Unlike a hedge
swap, a total return swap is solely entered into as a derivative investment to
enhance total return.
Risks: A total return swap may result in a Portfolio obtaining an
instrument, which for some reason, does not perform as well as the
original swap instrument.
U.S. Government and Agency Securities and
Government-Sponsored Enterprises/Federal Agencies
U.S. Government and agency securities are issued
by or guaranteed as to principal and interest by
the U.S. Government, its agencies or
instrumentalities and supported by the full faith
and credit of the United States. A Portfolio
may also invest in other securities which may be
issued by a U.S. Government-sponsored enterprise
or federal agency, and supported either by its
ability to borrow from the U.S. Treasury or by
its own credit standing. Such securities do not
constitute direct obligations of the United
States but are issued, in general, under the
authority of an Act of Congress. The universe of
eligible securities in these categories include
those sponsored by:
a. U.S. Treasury Department,
b. Farmer's Home Administration,
c. Federal Home Loan Mortgage Corporation,
d. Federal National Mortgage Association,
e. Student Loan Marketing Association, and
f. Government National Mortgage Association.
Risks: Investing in securities backed
by the full faith and credit of the U.S.
Government are guaranteed only as to
interest rate and face value at
maturity, not its current market price.
Warrants
A warrant is a corporate-issued option that entitles the holder to buy a
proportionate amount of common stock at a specified price. Warrants are freely
transferable and can be traded on the major exchanges
Risks: Warrants retain their value
only so long as the stock retains its
value. Typically, when the value of the
stock drops, the value of the warrant
drops.
Zero Coupon Securities
Zero coupon securities are sold at a deep discount from their face value. Such
securities make no periodic interest payments, however, the buyer receives a
rate of return by the gradual appreciation of the security, until it is redeemed
at face value on a specified maturity date.
Risks: Zero coupon securities do not pay interest until maturity and tend to be
subject to greater interim market value fluctuations in response to interest
rate changes rather than interest paying securities of similar maturities.
Supplemental Investment Policies
Mortgage Libor Portfolio, Limited Duration Portfolio, Mortgage-Backed Portfolio,
Asset-Backed Portfolio, High Yield Portfolio, U.S. Treasury Portfolio, U.S.
Corporate Portfolio, Broad Market Portfolio These Portfolios may invest more
than 5% of its net assets in futures margins and/or premiums on options only if
those net assets are being used for bona fide hedging purposes.
U.S. Short-Term Portfolio
Up to 35% of the Portfolio's total assets may be invested in non-U.S. dollar
denominated debt securities. No more than 5% of the Portfolio's total assets may
be invested in the securities of any one issuer (other than the U.S. Government
and its agencies). The Portfolio may invest more than 5% of its net assets in
futures margins and/or premiums on options only if it is being used for bona
fide hedging purposes. The Portfolio may not enter into repurchase agreements or
reverse repurchase agreements if it would result in more than 25% of the
Portfolio's assets being subject to repurchase agreements and/or reverse
repurchase agreements.
Limited Duration Portfolio
Up to 35% of the Portfolio's total assets may be
invested in non-U.S. dollar denominated
securities.
U.S. Treasury Portfolio
The Portfolio may invest up to 5% of its total assets in high quality (rating of
AA by S&P, Aa by Moody's or a comparable rating, or higher from a nationally
recognized statistical rating organization) fixed income securities.
U.S. Corporate Portfolio
The Portfolio may invest up to 35% of its total
assets in non-dollar-denominated corporate debt
obligations of foreign issuers, or other U.S.
dollar-denominated non-corporate debt
obligations.
Broad Market Portfolio
The Portfolio has limited exposure to non-U.S.
dollar denominated securities.
Portfolio Turnover
Portfolio turnover rates are believed to be higher than the turnover experienced
by most fixed income funds, due to the Investment Adviser's active management of
duration. This could, in turn, lead to higher turnover costs. High Portfolio
turnover may involve greater brokerage commissions and transactions costs which
will be paid by the Portfolio. In addition, high turnover rates may result in
increased short-term capital gains.
FINANCIAL HIGHLIGHTS TABLES
The Financial Highlights Tables are intended to help you understand the
Portfolios' financial performance for the past five years. The "Total Return on
Investment" indicates how much an investment in each respective Portfolio would
have earned, assuming all dividends and distributions had been reinvested.
This information has been audited by Ernst & Young, LLP. You will find the
auditor's report and the FFTW Funds, Inc. financial statements in the annual
report, which is available upon request.
<TABLE>
<S> <C> <C> <C> <C> <C>
===============================================================================================================================
MONEY MARKET PORTFOLIO FINANCIAL HIGHLIGHTS
(in whole dollars except where otherwise indicated)
===============================================================================================================================
For a share outstanding throughout the period Year Ended Year Ended Year Ended Year Ended Year Ended
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
- -------------------------------------------------------- --------------- ------------- ------------- ------------ =============
Net asset value at beginning of period 1.00 1.00 1.00 1.00 1.00
- -------------------------------------------------------- --------------- ------------- ------------- ------------ =============
Net investment income 0.05 0.05 0.05 0.06 0.04
Net realized gains or (losses) on investments --- --- 0.00** 0.00** 0.00 **
======================================================== --------------- ------------- ------------- ------------ =============
Total from investment operations 0.05 0.05 0.05 0.06 0.04
======================================================== --------------- ------------- ------------- ------------ =============
Distributions from net investment income 0.05 0.05 0.05 0.06 0.04
Distributions from net realized gain on investments --- --- 0.00** --- ---
Distributions in excess of net investment income --- --- --- --- 0.00**
- -------------------------------------------------------- --------------- ------------- ------------- ------------ =============
Total distributions 0.05 0.05 0.05 0.06 0.04
======================================================== --------------- ------------- ------------- ------------ =============
Net asset value at end of period $1.00 1.00 1.00 1.00 1.00
======================================================== --------------- ------------- ------------- ------------ =============
Total return on investment 5.51% 5.46% 5.18% 5.74% 4.13%
Net assets at end of period in 000's 29,451 26,152 25,047 25,870 22,006
Ratio of operating expenses to average net assets (a) 0.25% 0.30% 0.40% 0.40% 0.40%
Ratio of net investment income to average net assets 5.29% 5.33% 5.05% 5.58% 4.16%
Decrease in above expense ratios due to waiver of
investment advisory and administration fees and
reimbursement of other expenses 0.11% 0.16% 0.30% 0.37% 0.64%
======================================================== =============== ------------- ============= ------------ =============
</TABLE>
(a) Net of waivers and reimbursements (b) Annualized (c) Not annualized
*Commencement of operations **Rounds to less than $0.01
<TABLE>
<S> <C> <C> <C> <C> <C>
=================================================================================================================================
U.S. SHORT-TERM PORTFOLIO FINANCIAL HIGHLIGHTS
(in whole dollars except where otherwise indicated)
=================================================================================================================================
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD Year Ended Year Ended Year Ended Year Ended Year Ended
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
- ------------------------------------------------ --------------- -------------- ---------------- --------------- ================
Net asset value at beginning of period 9.97 9.85 9.88 9.89 9.98
- ------------------------------------------------ --------------- -------------- ---------------- --------------- ================
Net investment income 0.54 0.57 0.55 0.56 0.44
Net realized and unrealized gains or (losses) (0.01) (0.08) (0.03) (0.01) (0.08)
on investments, financial futures and option
contracts and foreign currency-related
transactions
- ------------------------------------------------ --------------- -------------- ---------------- --------------- ================
Total from investment operations 0.53 0.49 0.52 0.55 0.36
- ------------------------------------------------ --------------- -------------- ---------------- --------------- ================
Distributions from net investment income 0.54 0.57 0.55 0.56 0.45
Distributions in excess of net investment --- --- --- 0.00** 0.00**
income
- ------------------------------------------------ --------------- -------------- ---------------- --------------- ================
Total distributions 0.54 0.57 0.55 0.56 0.45
================================================ --------------- -------------- ---------------- --------------- ================
Net asset value at end of period 9.76 9.77 9.85 9.88 9.89
================================================ --------------- -------------- ---------------- --------------- ================
Total return on investment 5.59% 5.09% 5.45% 5.71% 3.71%
Net assets at end of period in 000's 840,366 486,906 355,257 457,425 290,695
Ratio of operating expenses to average net
assets, exclusive of interest expense (a) 0.25% 0.25% 0.27% 0.40% 0.40%
Ratio of operating expenses to average net
assets, inclusive of interest expense (a) 0.25% 0.26% 0.40% 0.51% 0.43%
Ratio of net investment income to average net 5.48% 5.78% 5.62% 5.64% 4.14%
assets (a)
Decrease in above expense ratios due to waiver
of investment advisory fees and 0.17% 0.18% 0.05% 0.07% 0.08%
administration fees
================================================ =============== -------------- ---------------- =============== ================
</TABLE>
(a) Net of waivers and reimbursements
** Rounds to less than $0.01
<TABLE>
<S> <C> <C> <C> <C> <C>
==============================================================================================================================
LIMITED DURATION PORTFOLIO FINANCIAL HIGHLIGHTS
(in whole dollars unless otherwise indicated)
==============================================================================================================================
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD Year Ended Year Ended Year Ended Year Ended Year Ended
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
----------------------------------------------- --------------- ---------------- -------------- -------------- ===============
Net asset value at beginning of period 9.93 9.93 10.00 9.55 9.95
----------------------------------------------- --------------- ---------------- -------------- -------------- ===============
Net investment income 0.55 0.62 0.55 0.60 0.43
Net realized gains or (losses) on investments 0.11 0.08 (0.04) 0.45 (0.40)
----------------------------------------------- --------------- ---------------- -------------- -------------- ===============
Total investment income 0.66 0.70 0.51 1.05 0.03
----------------------------------------------- --------------- ---------------- -------------- -------------- ===============
Distributions from net investment income 0.55 0.62 0.55 0.60 0.43
Distributions in excess of net investment 0.00* --- 0.00** --- ---
income
Net realized and unrealized gains or (losses)
on investments, financial futures and
option contracts and foreign 0.11 0.08 0.03 --- ---
currency-related transactions
----------------------------------------------- --------------- ---------------- -------------- -------------- ===============
Total distributions 0.66 0.70 0.58 0.60 0.43
----------------------------------------------- --------------- ---------------- -------------- -------------- ===============
Net asset value at end of period 9.93 9.93 9.93 10.00 9.55
=============================================== --------------- ---------------- -------------- -------------- ===============
Total return on investment 6.79% 7.21% 5.29% 11.26% 0.29%
Net assets at end of period in 000's 89,521 40,029 42,100 5,080 4,338
Ratio of operating expenses to average net
assets, exclusive of interest expense (a) 0.30% 0.30% 0.31% 0.50% 0.50%
Ratio of operating expenses to average net
assets, inclusive of interest expense (a) 0.30% 0.60% 0.49% 1.41% 1.74%
Ratio of net investment income to average net 5.48% 6.10% 5.79% 6.09% 4.43%
assets (a)
Decrease in above expense ratios due to
waiver of investment advisory fees and 0.22% 0.31% 0.15% 0.53% 0.57%
reimbursements of other expenses
Portfolio turnover rate 1,059% 1,292% 1,387% 1,075% 343%
=============================================== =============== ================ ============== ============== ===============
</TABLE>
(a) Net of waivers and reimbursements
**Rounds to less than $0.01
<TABLE>
<S> <C> <C> <C>
=============================================================================================================================
MORTGAGE-BACKED PORTFOLIO FINANCIAL HIGHLIGHTS
(in whole dollars unless otherwise indicated)
=============================================================================================================================
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD Year Ended Year Ended From 4/29/96* to
12/31/98 12/31/97 12/31/96
------------------------------------------------------------------------ ------------------ -------------- ==================
Net asset value at beginning of period 10.30 10.16 10.00
------------------------------------------------------------------------ ------------------ -------------- ==================
Net investment income 0.68 0.68 0.41
Net realized gains on investments 0.07 0.32 0.23
------------------------------------------------------------------------ ------------------ -------------- ==================
Total investment income 0.75 1.00 0.64
------------------------------------------------------------------------ ------------------ -------------- ==================
Distributions from net investment income 0.65 0.63 0.41
Distributions in excess of net investment income --- 0.05 0.06
Distributions from net realized gain on investments, short sales, and
financial futures and options contracts 0.22 0.18 0.01
======================================================================== ------------------ -------------- ==================
Total distributions 0.87 0.86 0.48
======================================================================== ------------------ -------------- ==================
Net asset value at end of period $10.18 10.30 10.16
======================================================================== ------------------ -------------- ==================
Total return on investment 7.42% 10.19% 6.54% (c)
Net assets at end of period in 000's 813,367 655,271 220,990
Ratio of operating expenses to average net assets, exclusive of 0.23% 0.38% 0.45% (b)
interest expense (a)
Ratio of operating expenses to average net assets, inclusive of 0.37% 0.47% 0.88% (b)
interest expense (a)
Ratio of net investment income to average net assets (a) 6.33% 6.07% 7.61% (b)
Decrease in above expense ratios due to waiver of investment advisory
fees and reimbursement of other expenses 0.20% 0.07% 0.10% (b)
Portfolio turnover rate 843% 3,396% 590%
======================================================================== ================== ============== ==================
</TABLE>
(a) Net of waivers and reimbursements
(b) Annualized
(c) Not annualized
* Commencement of operations
<PAGE>
This Prospectus contains a concise statement of information investors should
know before they invest in the Fund. Please retain this Prospectus for future
reference. Additional information about the Fund's investments is available in
the Fund's annual and semi-annual reports to shareholders, as well as the
Statement of Additional Information (SAI). The SAI provides more detailed
information about the Portfolios, including their operations and investment
policies. A current SAI is on file with the Securities and Exchange Commission
and is incorporated by reference and is legally considered a part of this
Prospectus. In the Fund's annual report, you will find a discussion of the
market conditions and investment strategies that significantly affected the
Fund's performance during its last fiscal year.
The Fund's SAI, annual and semi-annual reports are available, without charge,
upon request by contacting Investors Capital Services, Inc., a branch office of
AMT Capital Securities, L.L.C., 600 Fifth Avenue, New York, NY 10020 at their
toll free telephone number (800) 762-4848 [or (212) 332-5211, if within New York
City].
Information about the Fund (including the SAI) can be reviewed and copied at the
Commission's Public Reference Room in Washington D.C. Information on the
operation of the public reference room may be obtained by calling the Commission
at 1-800-SEC-0330. Reports and other information about the Fund are available on
the Commission's Internet site at http://www.sec.gov. Copies of this information
may be obtained, upon payment of a duplicating fee, by writing the Public
Reference Section of the Commission, Washington D.C. 20549-6009.
33-27896/811-5796
FFTW FUNDS, INC.
===============================================================================
Prospectus
GLOBAL AND INTERNATIONAL Portfolios
===============================================================================
May 3, 1999
<TABLE>
<S> <C> <C> <C> <C> <C>
o Global Tactical Exposure o International o Global High Yield
o Worldwide o International Opportunities o Inflation-Indexed
o Worldwide-Hedged o International Corporate o Inflation-Indexed Hedged
o Emerging Markets
</TABLE>
The Securities and Exchange Commission has not approved any Fund's shares as an
investment or determined whether this Prospectus is accurate or complete. Anyone
who tells you otherwise is committing a crime.
<PAGE>
CONTENTS
<TABLE>
<S> <C>
Page
The Fund
Summary of Investment Objectives and Descriptions
General Risks Associated with the Fund's Investment Policies and Investment
Techniques
Shareholder Transaction Expenses for Each Portfolio
Portfolio Summaries and Financial Highlights
Key to Portfolio Summary Terms
Global Tactical Exposure Portfolio
Worldwide Portfolio
Worldwide-Hedged Portfolio
International Portfolio
International Opportunities Portfolio
International Corporate Portfolio
Emerging Markets Portfolio
Global High Yield Portfolio
Inflation-Indexed Portfolio
Inflation-Indexed Hedged Portfolio
Investment Information
General Investment Techniques/Strategies and Associated Risks
General Description of Investments and Associated Risks
Portfolio Turnover
Shareholder Information
Distribution of Fund Shares
Purchases
Wiring Instructions
Redemptions
Determination of Net Asset Value
Dividends
Voting Rights
Tax Considerations
Fund Management
Board of Directors
Investment Adviser
Investment Sub-Adviser
Portfolio Managers
Administrator
Potential Year 2000 Problem
The Euro
Control Person
Custodian and Accounting Agent
Transfer and Dividend Disbursing Agent
Legal Counsel
Independent Auditors
Shareholder Inquiries
</TABLE>
<PAGE>
RISK/RETURN SUMMARY
The following is a summary of certain key information about the Portfolios,
including investment objectives, principal investment strategies and principal
investment risks. A more detailed description of the allowable investment
strategies, allowable investments and their associated risks will follow.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
===================================================================================================================================
GLOBAL TACTICAL EXPOSURE PORTFOLIO
==================================== ==============================================================================================
Investment Objective: To attain a high level of total return as may be consistent with the preservation of capital.
==================================== ==============================================================================================
Principal Investment Strategies: The Portfolio primarily invests in high quality (rating of AA by S&P, Aa by Moody's or a
comparable rating, or higher from a nationally recognized statistical rating organization)
debt securities from worldwide and markets. The systemic risk of non-U.S. market currencies
are hedged via an index swap. The performance objective of the Portfolio is to outperform
the J.P. Morgan 3 Month Eurodeposit Index.
==================================== ....... ............ ................. ................. ............. =======================
Minimum Quality Rating: S&P Moody's Average
S&P: Moody's: (Short Term): (Short Term): Thompson: Portfolio Quality:
BBB- Baa3 A-2 P-2 B AA (Aa)
==================================== ==============================================================================================
Investment Policies: At least 65% of the Portfolio's total assets must be invested in debt securities from
worldwide bond markets, denominated in both U.S. dollars and foreign currencies. The
Portfolio will maintain investments in debt securities of issuers from at least three
different countries including the U.S. At least 35% of the Portfolio's total assets will be
invested in debt securities from jurisdictions outside the U.S. For temporary defensive
purposes, 100% of the Portfolio's total assets may be invested in U.S. Government
securities, cash or cash equivalent securities. The Portfolio will actively hedge risk
through the use of an index swap. The Portfolio is non-diversified.
==================================== .................... ........................................ ================================
Principal Investments: o o Foreign Instruments o Total Return Swaps
(See pages 24-30 of this Asset-Backed o Indexed Notes, Currency o U.S. Government and
Prospectus for a more Securities Exchange-Related Securities and Agency Securities
detailed description of o Bank Similar Securities
allowable investments) Obligations
o Corporate
Debt
Instruments
==================================== ==============================================================================================
Principal Risks: A loss of money could occur due to certain risks. These include:
(See page 4 of this Prospectus for o o Hedging risk o Market risk
a more detailed description of Correlation o Interest rate risk o Non-diversification
each risk) risk o Leverage risk risk
o Credit o Liquidity risk o Prepayment risk
risk
o Currency
risk
o Futures
risk
==================================== ==================== ======================================== ================================
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
===================================================================================================================================
WORLDWIDE PORTFOLIO
================================== ================================================================================================
Investment Objective: To attain a high level of total return as may be consistent with the preservation of capital.
================================== ================================================================================================
Principal Investment Strategies: The Portfolio invests
primarily in high quality (rating of AA by
S&P, Aa by Moody's or a comparable rating, or
higher from a nationally recognized
statistical rating organization) debt
securities from worldwide bond markets,
denominated in both U.S. dollars and foreign
currencies. The performance objective of the
Portfolio is to outperform the J.P. Morgan
Global Government Bond Index (Unhedged).
================================== ......... ............ ................. .................. ............. ======================
Minimum Quality Rating: S&P Moody's Average
S&P: Moody's: (Short Term): (Short Term): Thompson: Portfolio Quality:
BBB- Baa3 A-2 P-2 B AA (Aa)
.................................. ================================================================================================
Investment Policies: At least 65% of the Portfolio's
total assets must be invested in high quality
debt securities from worldwide bond markets,
denominated in both U.S. dollars and foreign
currencies. The Portfolio will maintain
investments in debt securities of issuers
from at least three different countries
including the U.S. At least 35% of the
Portfolio's total assets will be invested in
debt securities from jurisdictions outside
the U.S. For temporary defensive purposes,
100% of the Portfolio's total assets may be
invested in U.S. Government securities, cash
or cash equivalent securities. The Portfolio
is non-diversified.
.................................. ================================================================================================
Principal Investments: o Asset-Backed Securities
(See pages 24-30 of this o U.S. Government and Agency Securities
Prospectus for a more o Corporate Debt Instruments
detailed description of o Foreign Instruments
allowable investments)
================================== ================================================================================================
Principal Risks: A loss of money could occur due to certain risks. These include:
(See page 4 of this Prospectus o Correlation risk o Hedging risk o Market risk
for a more detailed description o Credit risk o Interest rate risk o Non-diversification risk
of each risk) o Currency risk o Leverage risk o Prepayment risk
o Futures risk o Liquidity risk
================================== =========================== ============================ =======================================
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
==================================================================================================================================
WORLDWIDE-HEDGED PORTFOLIO
===================================== ============================================================================================
Investment Objective: To attain a high level of total return as may be consistent with the preservation of
capital.
===================================== ============================================================================================
Principal Investment Strategies: The Portfolio
invests primarily in high quality (rating
of AA by S&P, Aa by Moody's or a
comparable rating, or higher from a
nationally recognized statistical rating
organization) debt securities from
worldwide bond markets, denominated in
both U.S. dollars and foreign securities
and actively utilizes currency hedging
techniques. The performance objective of
the Portfolio is to outperform the J.P.
Morgan Global Government Bond Index
(Hedged).
===================================== ....... ............. ................ ................. ............. =====================
Minimum Quality S&P Moody's Average
S&P: Moody's: (Short Term): (Short Term): Thompson: Portfolio Quality:
Rating: BBB- Baa3 A-2 P-2 B AA (Aa)
===================================== ============================================================================================
Investment Policies: At least 65% of the Portfolio's total assets must be invested in high quality debt
securities from worldwide bond markets, denominated in both U.S. dollars and foreign
currencies. The Portfolio will maintain investments in debt securities of issuers from at
least three different countries including the U.S. At least 35% of the Portfolio's total
assets must be invested in debt securities from jurisdictions outside the U.S. As a
fundamental policy, to the extent feasible, the Portfolio will actively utilize currency
hedging techniques to hedge at least 65% of its total assets. For temporary defensive
purposes, 100% of the Portfolio's total assets may be invested in U.S. Government
securities, cash or cash equivalent securities. The Portfolio is non-diversified.
===================================== ============================================================================================
Principal Investments: o Asset-Backed Securities
(See pages 24-30 of this o Corporate Debt Instruments
Prospectus for a more o Foreign Instruments
detailed description of o Indexed Notes, Currency Exchange-Related Securities and Similar Securities
allowable investments) o U.S. Government and Agency Securities
===================================== ============================================================================================
Principal Risks: A loss of money could occur due to certain risks. These include:
(See page 4 of this Prospectus for o o Hedging risk o Market risk
a more detailed description of each Correlation o Interest rate risk o Non-diversification risk
risk) risk o Leverage risk o Prepayment risk
o Credit o Liquidity risk
risk
o Currency
risk
o Futures
risk
===================================== ===================== =================================== ==================================
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
====================================================================================================================================
INTERNATIONAL PORTFOLIO
================================== =================================================================================================
Investment Objective: To attain a high level of return of total return as may be consistent with the preservation of
capital.
================================== =================================================================================================
Principal Investment Strategies: The Portfolio primarily invests in high quality (rating of AA by S&P, Aa by Moody's or a
comparable rating, or higher from a nationally recognized statistical rating organization) debt
securities from worldwide bond markets, excluding the U.S. denominated in foreign currencies.
The performance objective of the Portfolio is to outperform the J.P. Morgan Global Government
Bond Index (Non-U.S. Unhedged).
================================== ......... .............. ................ ................. .............. ======================
Minimum Quality Rating: S&P Moody's Average
S&P: Moody's: (Short Term): (Short Term): Thompson: Portfolio Quality:
BBB- Baa3 A-2 P-2 B AA (Aa)
.................................. =================================================================================================
Investment Policies: At least 65% of the Portfolio's
total assets must be invested in high quality
fixed income securities from worldwide bond
markets, denominated in foreign currencies.
The Portfolio will maintain investments in
debt securities of issuers from at least
three different countries. At least 65% of
the Portfolio's total assets will be invested
in debt securities from jurisdictions outside
the U.S. For temporary defensive purposes,
100% of the Portfolio's total assets may be
invested in U.S. Government securities, cash
or cash equivalent securities. The Portfolio
is non-diversified.
.................................. =================================================================================================
Principal Investments: o Corporate Debt Instruments
(See pages 24-30 of this o Foreign Instruments
Prospectus for a more
detailed description of
allowable investments)
================================== =================================================================================================
Principal Risks: A loss of money could occur due to certain risks. These include:
(See page 4 of this Prospectus o Correlation risk o Hedging risk o Market risk
for a more detailed description o Credit risk o Interest rate risk o Non-diversification risk
of each risk) o Currency risk o Leverage risk o Prepayment risk
o Futures risk o Liquidity risk
================================== ============================ ================================= ==================================
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
==================================================================================================================================
INTERNATIONAL OPPORTUNITIES PORTFOLIO
================================== ===============================================================================================
Investment Objective: To attain a high level of total return as may be consistent with the preservation of capital.
================================== ===============================================================================================
Principal Investment Strategies: Once it commences investment activity, the Portfolio will primarily invest in high quality
(rating of AA by S&P, Aa by Moody's or a comparable rating, or higher from a nationally
recognized statistical rating organization) debt securities from worldwide bond markets,
excluding the U.S., denominated in foreign currencies. The currency hedge ratio will be
actively managed. The performance objective of the Portfolio is to outperform the lower of
the J.P. Morgan Global Government Bond Indices (Non-U.S. Hedged or Non-U.S. Unhedged).
================================== ........ ............. ................. ................. ............. ======================
Minimum Quality Rating: S&P Moody's Average
S&P: Moody's: (Short Term): (Short Term): Thompson: Portfolio Quality:
BBB- Baa3 A-2 P-2 B AA (Aa)
================================== ===============================================================================================
Investment Policies: At least 65% of the Portfolio's
total assets must be invested in high quality
debt securities from worldwide bond markets
denominated in foreign currencies. The
Portfolio will maintain investments in debt
securities of issuers from at least three
different countries. At least 65% of the
Portfolio's total assets will be invested in
debt securities from jurisdictions outside
the U.S. The Portfolio may engage in currency
hedging techniques. For temporary defensive
purposes, 100% of the Portfolio's total
assets may be invested in U.S. Government
securities, cash or cash equivalent
securities. The Portfolio is non-diversified.
================================== ===============================================================================================
Principal Investments: o Foreign Instruments
(See pages 24-30 of this
Prospectus for a more
detailed description of
allowable investments)
================================== ===============================================================================================
Principal Risks: A loss of money could occur due to certain risks. These include:
(See page 4 of this Prospectus o Correlation risk o Hedging risk o Market risk
for a more detailed description o Credit risk o Interest rate risk o Non-diversification
of each risk) o Currency risk o Leverage risk risk
o Futures risk o Liquidity risk o Prepayment risk
================================== ========================== ================================== =================================
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
==================================================================================================================================
INTERNATIONAL CORPORATE PORTFOLIO
===================================== ============================================================================================
Investment Objective: To attain a high level of total return as may be consistent with the preservation of
capital.
===================================== ============================================================================================
Principal Investment Strategies: Once it commences
investment activity, the Portfolio will
primarily invest in investment grade
corporate debt from worldwide bond
markets. The performance objective of the
Portfolio is to outperform the Lehman
Brothers Euro Corporate Bond Index.
===================================== ....... ............. ............... ................. ............. ======================
Minimum Quality Rating: S&P Moody's Average
S&P: Moody's: (Short Term): (Short Term): Thompson: Portfolio Quality:
BBB- Baa3 A-2 P-2 B AA (Aa)
===================================== ============================================================================================
Investment Policies: At least 65% of the Portfolio's total assets must be invested in investment grade
corporate debt securities from worldwide bond markets denominated in foreign currencies.
The Portfolio will maintain investments in corporate debt securities of issuers from at
least three different countries. At least 65% of the Portfolio's total assets will be
invested in corporate debt securities from jurisdictions outside the U.S. For temporary
defensive purposes, 100% of the Portfolio's total assets may be invested in U.S.
Government securities, cash or cash equivalent securities. The Portfolio is
non-diversified.
===================================== ============================================================================================
Principal Investments: o Corporate Debt Instruments
(See pages 24-30 of this o Foreign Instruments
Prospectus for a more
detailed description of
allowable investments)
===================================== ============================================================================================
Principal Risks: A loss of money could occur due to certain risks. These include:
(See page 4 of this Prospectus for o Correlation risk o Hedging risk o Market risk
a more detailed description of each o Credit risk o Interest rate risk o Non-diversification
risk) o Currency risk o Leverage risk risk
o Futures risk o Liquidity risk o Prepayment risk
===================================== =========================== =============================== ================================
</TABLE>
THIS PORTFOLIO HAS NOT YET COMMENCED INVESTMENT ACTIVITY
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
===================================================================================================================================
EMERGING MARKETS PORTFOLIO
================================= =================================================================================================
Investment Objective: To attain a high level of total return as may be consistent with the preservation of capital.
================================= =================================================================================================
Principal Investment Strategies: The Portfolio primarily invests in debt securities from bond markets in emerging markets
countries, denominated in local currencies or OECD currencies denominated in local currencies
or currencies of OCED countries. The performance objective of the Portfolio is to outperform a
composite index, consisting of 60% J.P. Morgan Emerging Local Markets Index Plus and 40% J.P.
Morgan Emerging Markets Bond Index Plus. The Adviser/Sub-Adviser intends to actively manage the
Portfolio and will allocate the Portfolio's investment assets among various emerging markets
countries (and currencies). Such allocations are not expected to be comparable to, nor as
diverse as the allocations accorded to such markets (and currencies) by the major bond market
indices. Portfolio managers will screen out credit or default risks and highlight potentially
risky emerging market currencies by employing a fundamental economic analysis and internally
developed models.
================================= .......... ............ .................. ................ .............. ======================
Minimum Quality Rating: S&P Moody's Average
S&P: Moody's: (Short Term): (Short Term): Thompson: Portfolio Quality:
CCC- Caa3 C P-3 LC-3 B
================================= =================================================================================================
Investment Policies: At least 65% of the Portfolio's
total assets must be invested in debt
securities from bond markets in emerging
countries denominated in local currencies or
currencies of OECD countries. The Portfolio
will maintain investments in debt securities
of issuers from at least three different
countries including the U.S. For temporary
defensive purposes, 100% of the Portfolio's
total assets may be invested in U.S.
Government securities, cash or cash equivalent
securities. The Portfolio is non-diversified.
================================= =================================================================================================
Principal Investments: o Brady Bonds
(See pages 24-30 of this o Indexed Notes, Currency Exchange-Related Securities and Similar Securities
Prospectus for a more o Foreign Instruments
detailed description of o Illiquid Securities
allowable investments)
================================= =================================================================================================
Principal Risks: A loss of money could occur due to certain risks. These include:
(See page 4 of this Prospectus o Correlation risk o Futures risk o Liquidity risk
for a more detailed description o Credit risk o Hedging risk o Market risk
of each risk) o Currency risk o Interest rate risk o Non-diversification
o Leverage risk risk
o Prepayment risk
================================= =================================================================================================
Note: Special Risks Emerging markets bonds are
issued by countries which may have relatively
unstable governments, may be highly vulnerable
to changes in local or global trade
conditions, and/or may suffer from volatile
debt burdens or inflation rates. As a result,
the risk of default is higher on these
instruments than it would be on an investment
grade bond. Such bonds pay higher yields to
compensate for their greater risk.
================================= =================================================================================================
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
==================================================================================================================================
GLOBAL HIGH YIELD PORTFOLIO
================================= ================================================================================================
Investment Objective: To attain a high level of total return as may be consistent with the preservation of capital.
================================= ================================================================================================
Principal Investment Strategies: Once it commences
investment activity, the Portfolio will
primarily invest in high yield debt
securities. High yield bonds (also referred to
as "junk bonds") have a rating of BB or lower
and pay a higher yield to compensate for its
greater risk. The performance objective of the
Portfolio is to outperform the Salomon Smith
Barney All BB and B Rated Issues Index.
================================= ......... ............. ................. ................. ............. ======================
Minimum Quality Rating: S&P Moody's Average
S&P: Moody's: (Short Term): (Short Term): Thompson: Portfolio Quality:
CCC- Caa3 C P-3 LC-3 B
................................. ================================================================================================
Investment Policies: At least 65% of the Portfolio's
total assets must be invested in high yield
debt securities from worldwide bond markets
denominated in both U.S. dollars and foreign
currencies. Portfolio will maintain
investments in debt securities of issuers from
at least three different countries including
the U.S. At least 35% of the Portfolio's total
assets will be invested in debt securities
from jurisdictions outside the U.S. For
temporary defensive purposes, 100% of the
Portfolio's total assets may be invested in
U.S. Government securities, cash or cash
equivalent securities. The Portfolio is
non-diversified.
................................. ================================================================================================
Principal Investments: o Corporate Debt Instruments
(See pages 24-30 of this o Foreign Instruments
Prospectus for a more o Indexed Notes, Currency Exchange-Related Securities and Similar Securities
detailed description of
allowable investments)
================================= ================================================================================================
Principal Risks: A loss of money could occur due to certain risks. These include:
(See page 4 of this Prospectus o Correlation risk o Hedging risk o Market risk
for a more detailed description o Credit risk o Interest rate risk o Non-diversification
of each risk) o Currency risk o Leverage risk risk
o Futures risk o Liquidity risk o Prepayment risk
.................................
================================================================================================
Note: Special Risks Also known as junk bonds, high
yield bonds are issued by corporations who
either do not have long track records of sales
and earnings, or by those who possess
questionable credit strength. As a result, the
risk of default is higher on these instruments
than it would be on an investment grade bond.
High yield bonds have ratings of BB or lower
and pay higher yields to compensate for their
greater risk.
================================= ================================================================================================
</TABLE>
THIS PORTFOLIO HAS NOT YET COMMENCED INVESTMENT ACTIVITY
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
===================================================================================================================================
INFLATION-INDEXED PORTFOLIO
==================================== ==============================================================================================
Investment Objective: To attain a high level of return in excess of inflation as may be consistent with the
preservation of capital.
==================================== ==============================================================================================
Principal Investment Strategies: The Portfolio
primarily invests in securities with a
coupon rate and/or principal amount, linked
to the inflation rate from worldwide bond
markets, denominated in both U.S. dollars
and foreign securities. The performance
objective of the Portfolio is to outperform
the Lehman Brothers Global Real Index.
==================================== ....... .............. ................. ................. ............. =====================
Minimum Quality Rating: S&P Moody's Average
S&P: Moody's: (Short Term): (Short Term): Thompson: Portfolio Quality:
BBB- Baa3 A-2 P-2 B AA (Aa)
.................................... ==============================================================================================
Investment Policies: At least 65% of the Portfolio's
total assets must be invested in inflation
indexed securities. The Portfolio is not
required to invest any minimum percentage
of its assets in debt securities of issuers
located outside the U.S. nor in any minimum
number of countries or currencies. For
temporary defensive purposes, 100% of the
Portfolio's total assets may be invested in
U.S. Government securities, cash or cash
equivalent securities. The Portfolio is
non-diversified.
.................................... ==============================================================================================
Principal Investments: o Foreign Instruments
(See pages 24-30 of this o Inflation-Indexed Securities
Prospectus for a more
detailed description of
allowable investments)
==================================== ==============================================================================================
Principal Risks: A loss of money could occur due to certain risks. These include:
(See page 4 of this Prospectus for o Correlation o Hedging risk o Market risk
a more detailed description of risk o Interest rate risk o Non-diversification risk
each risk) o Credit risk o Leverage risk o Prepayment risk
o Currency o Liquidity risk
risk
o Futures risk
==================================== ====================== ============================== ========================================
</TABLE>
PORTFOLIO HAS NOT YET COMMENCED INVESTMENT ACTIVITY
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
===================================================================================================================================
INFLATION-INDEXED HEDGED PORTFOLIO
================================== ================================================================================================
Investment Objective: To attain a high level of return in excess of inflation as may be consistent with the
preservation of capital.
================================== ================================================================================================
Principal Investment Strategies: Once it commences
investment activity, the Portfolio will
primarily invest in securities with a coupon
rate and/or principal amount, linked to the
inflation rate from worldwide bond markets,
denominated in both U.S. dollars and foreign
securities. The Portfolio will also actively
utilize currency hedging techniques. The
performance objective of the Portfolio is to
outperform the Lehman Brothers Global Real
Index.
================================== ........... ............. ................ ................. ............. =====================
Minimum Quality Rating: S&P Moody's Average
S&P: Moody's: (Short Term): (Short Term): Thompson: Portfolio Quality:
BBB- Baa3 A-2 P-2 B AA (Aa)
================================== ================================================================================================
Investment Policies: At least 65% of the Portfolio's
total assets must be invested in inflation
indexed securities. As a fundamental policy,
the Portfolio will attempt to hedge at least
65% of its total assets. The Portfolio is not
required to invest any minimum percentage of
its assets in debt securities of issuers
located outside the U.S. nor in any minimum
number of countries or currencies. For
temporary defensive purposes, 100% of the
Portfolio's total assets may be invested in
U.S. Government securities, cash or cash
equivalent securities. The Portfolio is
non-diversified.
================================== ================================================================================================
Principal Investments: o Foreign Instruments
(See pages 24-30 of this o Inflation-Indexed Securities
Prospectus for a more o Illiquid Securities
detailed description of o Indexed Notes, Currency Exchange-Related Securities and Similar Securities
allowable investments)
================================== ================================================================================================
Principal Risks: A loss of money could occur due to certain risks. These include:
(See page 4 of this Prospectus o Correlation risk o Hedging risk o Market risk
for a more detailed description o Credit risk o Interest rate risk o Non-diversification
of each risk) o Currency risk o Leverage risk risk
o Futures risk o Liquidity risk o Prepayment risk
================================== ============================ ================================= =================================
</TABLE>
THIS PORTFOLIO HAS NOT YET COMMENCED INVESTMENT ACTIVITY
<PAGE>
PRINCIPAL INVESTMENT RISKS
"Risk" is the chance that you may lose on an investment or that it will not earn
as much as you expect. Thus, the greater the risk, the greater the possibility
of losing money.
All of the Global and International Portfolios are affected by changes in the
economy, or in securities and other markets.
The possibility also exists that investment decisions of portfolio managers will
not accomplish what they are designed to achieve. No assurance can be given that
a Portfolio's investment objective will be achieved.
Investments in the Global and International Portfolios are subject to certain of
the following risks. The risks associated with each Portfolio depend on its
investment strategy and the types of securities it holds. The specific risks
affecting each Portfolio will be indicated in the individual portfolio
descriptions in this prospectus.
<TABLE>
<S> <C>
Correlation risk: A Portfolio may experience changes in value as
between the securities held and the value of a particular
derivative instrument.
Credit risk: The risk that a security's issuer or a counterparty
to a contract will default or not be able to honor a
financial obligation.
Currency risk: Fluctuations in exchange rates between the U.S.
dollar and foreign currencies may negatively affect an
investment. When synthetic and cross-hedges are used, the
net exposure of a Portfolio to any one currency may be
different from that of its total assets denominated in such
currency.
Futures risk: The primary risks inherent in the use of futures
depend on the Investment Adviser's ability to anticipate
correctly movements in the direction of interest rates,
securities prices, and currency markets and the imperfect
correlation between the price of futures contracts and
movements in the prices of the securities being hedged.
Hedging risk: Hedging is commonly used as a buffer against a
perceived investment risk. While it can reduce or eliminate
losses, it can also reduce or eliminate gains if the hedged
investment increases in value.
Interest rate A Portfolio may be influenced by interest rate changes that generally have an inverse relationship to
risk: corresponding market values. Thus, as interest rates increase, the value of bonds already issued,
decrease.
Leverage risk: Derivatives may include elements of leverage which
can cause greater fluctuations in a Portfolio's net asset
value.
Liquidity risk: Certain securities may be difficult or impossible to sell at favorable prices.
Market risk: The market value of a security may increase or
decrease over time. Such fluctuations can cause a security
to be worth less than the price originally paid for it or
less than it was worth at an earlier time. Market risk may
affect a single issuer, entire industry or the market as a
whole.
Non-diversification A Portfolio is diversified when it spreads investment risk by placing assets in several investment
risk: categories. A non-diversified Portfolio concentrates its assets in a less diverse spectrum of
securities. Non-diversification can intensify risk should a particular investment category suffer from
adverse market conditions.
Prepayment risk: A Portfolio may invest in mortgage-backed and other
asset-backed securities. Such securities carry risks of
faster or slower than expected prepayment of principal
which affect the duration and return of the security.
</TABLE>
POTENTIAL Year 2000 risk
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be affected adversely if the computer systems
used by the Investment Advisor, Administrator and/or other service providers do
not properly process and calculate date-related information and data from and
after January 1, 2000. This is commonly known as the "Year 2000 Problem"
("Y2K"). The advisor and administrator are taking steps that they believe are
reasonably designed to address the Year 2000 Problem with respect to their
computer systems and in obtaining reasonable assurances that comparable steps
are being taken by the Fund's other major service providers. At this time,
however, there can be no assurance that these steps will be sufficient to avoid
any adverse impact to the Fund nor can there be any assurance that the Y2K
problem will not have an adverse effect on the companies whose securities are
held by the Fund or on global markets or economies, generally.
RISK/RETURN BAR CHARTS AND TABLES
The charts and tables provided below give some indication of past performance of
those Portfolios that have commenced investment activity. These charts and
tables illustrate the changes in each Portfolio's yearly performance and show
how each Portfolio's average returns for 1, 5 and 10 years compare with a
selected index. Please be aware past performance is not necessarily an
indication of how the Fund will perform in the future.
GLOBAL TACTICAL EXPOSURE PORTFOLIO
During the ___year period shown in the Global Tactical Exposure Portfolio's bar
chart, the highest quarterly return was 4.260% (quarter ending 12/31/95) and the
lowest quarterly return was -0.408% (quarter ending 3/31/96).
Past performance is not indicative of future
WORLDWIDE PORTFOLIO
During the 7 year period shown in the Worldwide Portfolio's bar chart, the
highest quarterly return was 8.854% (quarter ending 9/30/98) and the lowest
quarterly return was -3.749% (quarter ending 3/31/94).
Past performance is not indicative of future performance.
WORLDWIDE-HEDGED PORTFOLIO
During the 7 year period shown in the Worldwide Hedged Portfolio's bar chart,
the highest quarterly return was 10.461% (quarter ending 9/30/94) and the lowest
quarterly return was -3.982% (quarter ending 3/31/94).
Past performance is not indicative of future performance.
INTERNATIONAL PORTFOLIO
During the 3 year period shown in the International Portfolio's bar chart, the
highest quarterly return was 10.424% (quarter ending 9/30/98) and the lowest
quarterly return was -5.281% (quarter ending 3/31/97).
Past performance is not indicative of future performance.
INTERNATIONAL OPPORTUNITIES PORTFOLIO
During the 3 month period shown in the International Opportunities Portfolio's
bar chart, the highest quarterly return was -4.954% (quarter ending 3/31/99) and
the lowest quarterly return was -4.954% (quarter ending 3/31/99).
Past performance is not indicative of future performance.
EMERGING MARKETS PORTFOLIO
During the ___year period shown in the Emerging Markets Portfolio's bar chart,
the highest quarterly return was 18.471% (quarter ending 12/31/98) and the
lowest quarterly return was -23.471% (quarter ending 9/30/98).
Past performance is not indicative of future performance.
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------- ----------------------- --------------------- ------------------
Average Annual Total Returns (for the periods ending Past 1 Year Past 5 Years Since Inception*
December 31, 1998)
- -------------------------------------------------------------- ----------------------- --------------------- ------------------
- -------------------------------------------------------------- ----------------------- --------------------- ------------------
- -------------------------------------------------------------- ----------------------- --------------------- ------------------
- -------------------------------------------------------------- ----------------------- --------------------- ------------------
Global Tactical Exposure Portfolio 8.20% N/A 7.27%
- -------------------------------------------------------------- ----------------------- --------------------- ------------------
- -------------------------------------------------------------- ----------------------- --------------------- ------------------
JP Morgan 3 Month Eurodeposit Index 5.82% N/A 5.90%
- -------------------------------------------------------------- ----------------------- --------------------- ------------------
- -------------------------------------------------------------- ----------------------- --------------------- ------------------
Worldwide Portfolio 15.58% 6.72% 8.77%
- -------------------------------------------------------------- ----------------------- --------------------- ------------------
- -------------------------------------------------------------- ----------------------- --------------------- ------------------
JP Morgan Global Government Bond Index (Unhedged) 15.30% 8.07% 8.87%
- -------------------------------------------------------------- ----------------------- --------------------- ------------------
- -------------------------------------------------------------- ----------------------- --------------------- ------------------
Worldwide Hedged Portfolio 11.53% 10.58% 10.83%
- -------------------------------------------------------------- ----------------------- --------------------- ------------------
- -------------------------------------------------------------- ----------------------- --------------------- ------------------
JP Morgan Global Government Bond Index (Hedged) 11.42% 7.65% 8.40%
- -------------------------------------------------------------- ----------------------- --------------------- ------------------
- -------------------------------------------------------------- ----------------------- --------------------- ------------------
International Portfolio 18.35% N/A 9.03%
- -------------------------------------------------------------- ----------------------- --------------------- ------------------
- -------------------------------------------------------------- ----------------------- --------------------- ------------------
JP Morgan Global Government Bond Index (Non-US Unhedged) 18.30% N/A 7.75%
- -------------------------------------------------------------- ----------------------- --------------------- ------------------
- -------------------------------------------------------------- ----------------------- --------------------- ------------------
International Opportunities Portfolio N/A N/A 0.89%
- -------------------------------------------------------------- ----------------------- --------------------- ------------------
- -------------------------------------------------------------- ----------------------- --------------------- ------------------
JP Morgan Global Government Bond Index (Non-US Unhedged) N/A N/A 0.84%
- -------------------------------------------------------------- ----------------------- --------------------- ------------------
- -------------------------------------------------------------- ----------------------- --------------------- ------------------
JP Morgan Global Government Bond Index (Non-US Hedged) N/A N/A -0.53%
- -------------------------------------------------------------- ----------------------- --------------------- ------------------
- -------------------------------------------------------------- ----------------------- --------------------- ------------------
Emerging Markets Portfolio -10.50% N/A -8.49%
- -------------------------------------------------------------- ----------------------- --------------------- ------------------
- -------------------------------------------------------------- ----------------------- --------------------- ------------------
Constructed Benchmark (Consisting of 60% JP Morgan 8.97% N/A 2.20%
Emerging Local Markets Index Plus and 40% JP Morgan Emerging
Markets Bond Index Plus)
- -------------------------------------------------------------- ----------------------- --------------------- ------------------
</TABLE>
Portfolio Inception Dates:
1. Global Tactical Exposure Portfolio: 3/25/93
2. Worldwide Portfolio: 4/15/92
3. Worldwide Hedged Portfolio: 5/19/92
4. International Portfolio: 5/9/96
5. International Opportunities Portfolio: 10/8/98
6. Emerging Markets Portfolio: 8/12/97
** Information for the Portfolios that have not
commenced investment activity are not available.
<PAGE>
RISK/RETURN SUMMARY
Fees and Expenses of the Portfolios. This Table describes the fees and expenses
that you may pay if you buy and hold shares of the fund.
FEE TABLE
<TABLE>
<S> <C> <C> <C> <C> <C>
- -------------------------------- ---------------- ----------------- --------------- ------------------ --------------------
Shareholder Transaction Global Worldwide Worldwide International International
Expenses (Fees Paid Tactical (2) Hedged (3) (4) Opportunities
Directly By You) Exposure (1) (5)
- -------------------------------- ---------------- ----------------- --------------- ------------------ --------------------
- -------------------------------- ---------------- ----------------- --------------- ------------------ --------------------
Redemption Fees None None None None None
- -------------------------------- ---------------- ----------------- --------------- ------------------ --------------------
- -------------------------------- ---------------- ----------------- --------------- ------------------ --------------------
Exchange Fees None None None None None
- -------------------------------- ---------------- ----------------- --------------- ------------------ --------------------
- -------------------------------- ---------------- ----------------- --------------- ------------------ --------------------
Contingent Deferred Sales None None None None None
Load
- -------------------------------- ---------------- ----------------- --------------- ------------------ --------------------
- -------------------------------- ---------------- ----------------- --------------- ------------------ --------------------
Sales Load on Reinvestment None None None None None
Dividends
- -------------------------------- ---------------- ----------------- --------------- ------------------ --------------------
- -------------------------------- ---------------- ----------------- --------------- ------------------ --------------------
Sales Load on Purchases None None None None None
- -------------------------------- ---------------- ----------------- --------------- ------------------ --------------------
Annual Fund Operating
Expenses (Fees Paid From
Fund Assets)
- -------------------------------- ---------------- ----------------- --------------- ------------------ --------------------
- -------------------------------- ---------------- ----------------- --------------- ------------------ --------------------
Management Fees 0.40% 0.40% 0.40% 0.40% 0.40%
- -------------------------------- ---------------- ----------------- --------------- ------------------ --------------------
- -------------------------------- ---------------- ----------------- --------------- ------------------ --------------------
Distribution Fees (12b-1) None None None None None
- -------------------------------- ---------------- ----------------- --------------- ------------------ --------------------
- -------------------------------- ---------------- ----------------- --------------- ------------------ --------------------
Shareholder Services Fees None None None None None
- -------------------------------- ---------------- ----------------- --------------- ------------------ --------------------
- -------------------------------- ---------------- ----------------- --------------- ------------------ --------------------
Other Expenses 0.20% 0.20% 0.19% 0.20% 0.20%
- -------------------------------- ---------------- ----------------- --------------- ------------------ --------------------
- -------------------------------- ---------------- ----------------- --------------- ------------------ --------------------
Total Annual Fund Operating 0.60% 0.60% 0.59% 0.60% 0.60%
Expenses
- -------------------------------- ---------------- ----------------- --------------- ------------------ --------------------
</TABLE>
(1) The Investment Adviser and Investors Capital have voluntarily agreed to cap
the Net Operating Expenses at 0.30% (on an annualized basis) of the Portfolio's
average daily net assets. All operating expenses exceeding the voluntary waiver
of fees will be paid by the Investment Adviser. The Investment Adviser and the
Administrator will not attempt to recover prior period waivers or reimbursements
should expenses fall below the cap. Under an Administration Agreement effective
May 29, 1998 between the Fund and Investors Capital, Investors Capital provides
administrative services to the Fund, for an incentive fee in the event the
Portfolio operates below its expense ratio. This fee is capped at 0.02% of the
Portfolio's average daily net assets.
(2) Pursuant to an Investment Advisory Agreement, total operating expenses are
capped at 0.60% (on an annualized basis) of the Portfolio's average daily net
assets. The Investment Adviser and Investors Capital have voluntarily agreed to
cap the Net Operating Expenses at 0.25% (on an annualized basis) of the
Portfolio's average daily net assets. The Investment Adviser and Investors
Capital have voluntarily agreed to cap the Net Operating Expenses at 0.60% (on
an annualized basis) of the Portfolio's average daily net assets. All operating
expenses exceeding caps and voluntary waiver of fees will be paid by the
Investment Adviser. The Investment Adviser and the Administrator will not
attempt to recover prior period waivers or reimbursements should expenses fall
below the cap. Under an Administration Agreement effective May 29, 1998 between
the Fund and Investors Capital, Investors Capital provides administrative
services to the Fund, for an incentive fee in the event the Portfolio operates
below its expense ratio. This fee is capped at 0.02% of the Portfolio's average
daily net assets.
(3) Pursuant to an Investment Advisory Agreement, total operating expenses are
capped at 0.45% on an annualized basis of the Portfolio's average daily net
assets. The Investment Adviser and Investors Capital have voluntarily agreed to
cap the Net Operating Expenses at 0.25% (on an annualized basis) of the
Portfolio's average daily net assets. The Investment Adviser and Investors
Capital have voluntarily agreed to cap the Net Operating Expenses at 0.44% (on
an annualized basis) of the Portfolio's average daily net assets. All operating
expenses exceeding caps and voluntary waiver of fees will be paid by the
Investment Adviser. The Investment Adviser and the Administrator will not
attempt to recover prior period waivers or reimbursements should expenses fall
below the cap. Under an Administration Agreement effective May 29, 1998 between
the Fund and Investors Capital, Investors Capital provides administrative
services to the Fund, for an incentive fee in the event the Portfolio operates
below its expense ratio. This fee is capped at 0.02% of the Portfolio's average
daily net assets.
(4) The Investment Adviser and Investors Capital have voluntarily agreed to cap
the Net Operating Expenses at 0.60% (on an annualized basis) of the Portfolio's
average daily net assets. All operating expenses exceeding the voluntary waiver
of fees will be paid by the Investment Adviser. The Investment Adviser and the
Administrator will not attempt to recover prior period waivers or reimbursements
should expenses fall below the cap. Under an Administration Agreement effective
May 29, 1998 between the Fund and Investors Capital, Investors Capital provides
administrative services to the Fund, for an incentive fee in the event the
Portfolio operates below its expense ratio. This fee is capped at 0.02% of the
Portfolio's average daily net assets.
(5) The Investment Adviser and Investors Capital have voluntarily agreed to cap
the Net Operating Expenses at 0.60% (on an annualized basis) of the Portfolio's
average daily net assets. All operating expenses exceeding the voluntary waiver
of fees will be paid by the Investment Adviser. The Investment Adviser and the
Administrator will not attempt to recover prior period waivers or reimbursements
should expenses fall below the cap. Under an Administration Agreement effective
May 29, 1998 between the Fund and Investors Capital, Investors Capital provides
administrative services to the Fund, for an incentive fee in the event the
Portfolio operates below its expense ratio. This fee is capped at 0.02% of the
Portfolio's average daily net assets.
<PAGE>
(FEE TABLE CONTINUED)
<TABLE>
<S> <C> <C> <C> <C> <C>
- ------------------------------------ ------------------ --------------- --------------- -------------- --------------------
Shareholder Transaction International Emerging Global Inflation-IndexInflation-Indexed
Expenses (Fees Paid Directly By Corporate (6) Markets (7) High Yield (9) Hedged (10)
You) (8)
- ------------------------------------ ------------------ --------------- --------------- -------------- --------------------
- ------------------------------------ ------------------ --------------- --------------- -------------- --------------------
Redemption Fees None None None None None
- ------------------------------------ ------------------ --------------- --------------- -------------- --------------------
- ------------------------------------ ------------------ --------------- --------------- -------------- --------------------
Exchange Fees None None None None None
- ------------------------------------ ------------------ --------------- --------------- -------------- --------------------
- ------------------------------------ ------------------ --------------- --------------- -------------- --------------------
Contingent Deferred Sales Load None None None None None
- ------------------------------------ ------------------ --------------- --------------- -------------- --------------------
- ------------------------------------ ------------------ --------------- --------------- -------------- --------------------
Sales Load on Reinvestment None None None None None
Dividends
- ------------------------------------ ------------------ --------------- --------------- -------------- --------------------
- ------------------------------------ ------------------ --------------- --------------- -------------- --------------------
Sales Load on Purchases None None None None None
- ------------------------------------ ------------------ --------------- --------------- -------------- --------------------
Annual Fund Operating Expenses
(Fees Paid From Fund Assets)
- ------------------------------------ ------------------ --------------- --------------- -------------- --------------------
- ------------------------------------ ------------------ --------------- --------------- -------------- --------------------
Management Fees 0.10% 0.75% 0.50% 0.40% 0.40%
- ------------------------------------ ------------------ --------------- --------------- -------------- --------------------
- ------------------------------------ ------------------ --------------- --------------- -------------- --------------------
Distribution Fees (12b-1) None None None None None
- ------------------------------------ ------------------ --------------- --------------- -------------- --------------------
- ------------------------------------ ------------------ --------------- --------------- -------------- --------------------
Shareholder Services Fees None None None None None
- ------------------------------------ ------------------ --------------- --------------- -------------- --------------------
- ------------------------------------ ------------------ --------------- --------------- -------------- --------------------
Other Expenses 0.15% 0.29% 0.20% 0.20% 0.20%
- ------------------------------------ ------------------ --------------- --------------- -------------- --------------------
- ------------------------------------ ------------------ --------------- --------------- -------------- --------------------
Total Annual Fund Operating 0.25% 1.04% 0.70% 0.60% 0.60%
Expenses
- ------------------------------------ ------------------ --------------- --------------- -------------- --------------------
</TABLE>
(1) The Investment Adviser and Investors Capital have voluntarily agreed to cap
the Net Operating Expenses at 0.25% (on an annualized basis) of the Portfolio's
average daily net assets. All operating expenses exceeding the voluntary waiver
of fees will be paid by the Investment Adviser. The Investment Adviser and the
Administrator will not attempt to recover prior period waivers or reimbursements
should expenses fall below the cap. Under an Administration Agreement effective
May 29, 1998 between the Fund and Investors Capital, Investors Capital provides
administrative services to the Fund, for an incentive fee in the event the
Portfolio operates below its expense ratio. This fee is capped at 0.02% of the
Portfolio's average daily net assets.
(2) The Investment Adviser and Investors Capital have voluntarily agreed to cap
the Net Operating Expenses at 1.04% (on an annualized basis) of the Portfolio's
average daily net assets. All operating expenses exceeding the voluntary waiver
of fees will be paid by the Investment Adviser. The Investment Adviser and the
Administrator will not attempt to recover prior period waivers or reimbursements
should expenses fall below the cap. Under an Administration Agreement effective
May 29, 1998 between the Fund and Investors Capital, Investors Capital provides
administrative services to the Fund, for an incentive fee in the event the
Portfolio operates below its expense ratio. This fee is capped at 0.02% of the
Portfolio's average daily net assets.
(3) The Investment Adviser and Investors Capital have voluntarily agreed to cap
the Net Operating Expenses at 0.70% (on an annualized basis) of the Portfolio's
average daily net assets. All operating expenses exceeding the voluntary waiver
of fees will be paid by the Investment Adviser. The Investment Adviser and the
Administrator will not attempt to recover prior period waivers or reimbursements
should expenses fall below the cap. Under an Administration Agreement effective
May 29, 1998 between the Fund and Investors Capital, Investors Capital provides
administrative services to the Fund, for an incentive fee in the event the
Portfolio operates below its expense ratio. This fee is capped at 0.02% of the
Portfolio's average daily net assets.
(4) The Investment Adviser and Investors Capital have voluntarily agreed to cap
the Net Operating Expenses at 0.60% (on an annualized basis) of the Portfolio's
average daily net assets. All operating expenses exceeding the voluntary waiver
of fees will be paid by the Investment Adviser. The Investment Adviser and the
Administrator will not attempt to recover prior period waivers or reimbursements
should expenses fall below the cap. Under an Administration Agreement effective
May 29, 1998 between the Fund and Investors Capital, Investors Capital provides
administrative services to the Fund, for an incentive fee in the event the
Portfolio operates below its expense ratio. This fee is capped at 0.02% of the
Portfolio's average daily net assets.
(5) The Investment Adviser and Investors Capital have voluntarily agreed to cap
the Net Operating Expenses at 0.60% (on an annualized basis) of the Portfolio's
average daily net assets. All operating expenses exceeding the voluntary waiver
of fees will be paid by the Investment Adviser. The Investment Adviser and the
Administrator will not attempt to recover prior period waivers or reimbursements
should expenses fall below the cap. Under an Administration Agreement effective
May 29, 1998 between the Fund and Investors Capital, Investors Capital provides
administrative services to the Fund, for an incentive fee in the event the
Portfolio operates below its expense ratio. This fee is capped at 0.02% of the
Portfolio's average daily net assets.
<PAGE>
EXPENSES TABLE
As an investor, you pay certain fees and expenses in connection with the
Portfolios, as described in the table below. This table is intended to help you
compare the cost of investing in the Fund with the cost of investing in other
mutual funds by presenting the fees and expenses that you may pay if you
purchase and hold shares of the Fund. The yearly numbers below are hypothetical
expenses per $10,000 investment assuming a 5% annual return. Because this
example is hypothetical and for comparison purposes only, your actual costs will
be different.
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
Portfolio Name 1 Year 3 Years 5 Years 10 Years
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
Global Tactical Exposure: $31 $97 $169 $381
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
Worldwide: $61 $192 $335 $750
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
Worldwide Hedged: $46 $144 $252 $567
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
International $61 $192
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
International Opportunities: $61 $192 $335 $750
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
International Corporate:
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
Emerging Markets: $102 $318
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
Global High Yield:
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
Inflation Indexed:
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
Inflation Indexed Hedged:
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
</TABLE>
* Because these Portfolios have no redemption fees, expenses for all periods are
the same whether or not shares are redeemed.
FUND MANAGEMENT
BOARD OF DIRECTORS
The Fund's Board of Directors is responsible for the Fund's overall management
and supervision. The Fund's Directors are Stephen P. Casper, John C Head III,
Lawrence B. Krause, and Onder John Olcay. Additional information about the
Directors and the Fund's executive officers may be found in the Statement of
Additional Information under the heading "Management of the Fund - Board of
Directors."
INVESTMENT ADVISER
Subject to the direction and authority of the Fund's Board of Directors, Fischer
Francis Trees & Watts, Inc. serves as Investment Adviser to the Fund. The
Investment Adviser continuously conducts investment research and is responsible
for the purchase, sale or exchange of the Portfolio's assets. Organized in 1972,
the Investment Adviser is registered with the Securities and Exchange Commission
and is a New York corporation currently managing over $30 billion in assets for
numerous fixed-income Portfolios. The Investment Adviser currently advises over
100 major institutional clients including banks, central banks, pension funds
and other institutional clients. The average size of a client relationship with
the Investment Adviser is in excess of $200 million. The Investment Adviser also
serves as the sub-adviser to three portfolios of two other open-end management
investment companies. The Investment Adviser's offices are located at 200 Park
Avenue, New York, New York 10166. The Investment Adviser is directly
wholly-owned by Charter Atlantic Corporation, a New York corporation.
INVESTMENT SUB-ADVISER
Fischer Francis Trees & Watts, a corporate partnership organized under the laws
of the United Kingdom and an affiliate of the Investment Adviser, is the foreign
sub-adviser to the Global and International Portfolios. Organized in 1989, the
Sub-Adviser is a U.S.-registered investment adviser and currently manages
approximately $6 billion in multi-currency fixed-income portfolios for
institutional clients. The Investment Adviser pays the Sub-Adviser monthly from
its advisory fee. The Sub-Adviser's annual fee is equal to the advisory fee for
each of the Global and International Portfolios. The Sub-Adviser's offices are
located at 3 Royal Court, The Royal Exchange, London, EC 3V 3RA. The Investment
Sub-adviser is directly or indirectly wholly-owned by Charter Atlantic
Corporation, a New York corporation.
Portfolio's Payment of Fund Expenses
Fund expenses directly attributable to a Portfolio are charged to that
Portfolio; other expenses are allocated proportionately among all the Portfolios
in relation to their net assets. As compensation (subject to expense caps as
described under "Portfolio Operating Expenses" in the Prospectus) for the
services rendered by the Investment Adviser under the Advisory Agreements, each
Portfolio pays the Investment Adviser a monthly advisory fee (Worldwide and
Worldwide-Hedged Portfolios pay their fees quarterly). This Investment Advisory
Fee is calculated by applying the following annual percentage rates to such
Portfolio's average daily net assets for the month (quarter):
<TABLE>
<S> <C> <C> <C>
- -------------------------------------- -------------------------- ------------------------------ ---------------------------
Portfolio Rate Portfolio Rate
- -------------------------------------- -------------------------- ------------------------------ ---------------------------
- -------------------------------------- -------------------------- ------------------------------ ---------------------------
Global Tactical Exposure* Worldwide 0.10% International Corporate 0.10%
Worldwide-Hedged ** International 0.40% Emerging Markets 0.75%
International Opportunities 0.26% Global High Yield 0.50%
0.40% Inflation-Indexed 0.40%
0.40% Inflation-Indexed Hedged 0.40%
- -------------------------------------- -------------------------- ------------------------------ ---------------------------
</TABLE>
PORTFOLIO MANAGERS
Liaquat Ahamed, Managing Director of the Global and
International Portfolios. Mr. Ahamed joined FFTW
in 1988 after nine years with the World Bank, where
he was in charge of all investments in non-U.S.
dollar government bond markets. Mr. Ahamed also
served as an economist with senior government
officials in the Philippines, Korea, and
Bangladesh. He has a B.A. in economics from Trinity
College, Cambridge University and an A.M. in
economics from Harvard University.
Simon G. Hard, General Manager of the Sub-Adviser
of the Global and International Portfolios. Mr.
Hard joined FFTW in 1989 from Mercury Asset
Management, the investment affiliate of S.G.
Warburg & Co., Ltd. His responsibilities there
included the formulation of global bond and
currency investment policies, and the management of
interest rate and currency exposures of the firm's
specialist non-dollar portfolios. Mr. Hard was
previously first vice president and London branch
manager of Julius Baer Investment Management, Inc.
Mr. Hard has an MA in modern history from Lincoln
College, Oxford University and an Mphil in the
history and philosophy of science from Wolfson
College, Cambridge University.
SHAREHOLDER INFORMATION
PURCHASES
Portfolio shares may be purchased directly from the Fund, or obtained by
employing the services of an outside broker or agent. Such broker or agent may
charge a fee for its services. The minimum initial investment in any Portfolio,
if shares are purchased directly from the Fund, is $100,000; such minimum may be
waived at the discretion of the Investment Adviser or AMT Capital. Subsequent
investments or redemptions may be of any amount. Initial investments, if
obtained through a broker or agent may be for amounts lower than $100,000. There
are no loads nor 12b-1 fees imposed by the Fund. Shares purchased will begin
accruing dividends on the day Federal funds are received.
Purchases of shares may be made on any "Business Day," meaning, Monday through
Friday, with the exception of the holidays declared by the Federal Reserve Banks
of New York or Boston. At the present time, these holidays are: New Year's Day,
Dr. Martin Luther King's Birthday, Presidents' Day, Memorial Day, Fourth of
July, Labor Day, Columbus Day, Veterans Day, Thanksgiving, and Christmas.
WIRING INSTRUCTIONS
To: Investors Bank & Trust Company,
Boston, Massachusetts.
ABA Number: 011-0010438
Account Name: AMT Capital Securities, L.L.C.- Purchase Account
Account Number: 933333333
Reference: (Indicate Portfolio name)
<PAGE>
TO Purchase shares
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------ --------------- ---------------------- ------------------------------------ -------------------------
Portfolio Name When Net When & how shares Procedure for same day purchases Result of late
Asset Value may be purchased notification or delay
is determined in receipt of funds
- ------------------------ --------------- ---------------------- ------------------------------------ -------------------------
- ------------------------ --------------- ---------------------- ------------------------------------ -------------------------
- ------------------------ --------------- ---------------------- ------------------------------------ -------------------------
- ------------------------ --------------- ---------------------- ------------------------------------ -------------------------
o Emerging Last Business o Last o Purchasers must call If the Fund is notified
Markets Day of each Business Day of Investors Capital at (800) after 4:00 pm Eastern
o Global High month or on each month or 762-4848 [or (212) 332-5211 time and/or if funds
Yield any other any other if within the City of New are not received by the
o Global Business Days Business Days York] prior to 4:00 pm Transfer Agent, such
Tactical Exposure approved by approved by the Eastern time to inform the purchase order shall be
the Investment Fund of the incoming wire executed as of the date
Investment Adviser. transfer. that Federal funds are
Adviser. o By wire of o Purchasers must indicate received.
federal funds which Portfolio is to be
purchased.
o If Federal
funds are
received by
the Fund
that day,
the order
will be
effective
that day.
- ------------------------ --------------- ---------------------- ------------------------------------ -------------------------
- ------------------------ --------------- ---------------------- ------------------------------------ -------------------------
o Worldwide All Business o Any o Purchasers must call If the Fund is notified
o Worldwide days Business Day Investors Capital at (800) after 4:00 pm Eastern
Hedged o Submitted 762-4848 [or (212) 332-5211 time and/or if funds
o International orders must if within the City of New are not received by the
o International include a York] prior to 4:00 pm Transfer Agent, such
Opportunities completed Eastern time to inform the purchase order shall be
o International account Fund of the incoming wire executed as of the date
Corporate application transfer. that Federal funds are
o Inflation o Federal o Purchasers must indicate received.
Indexed funds must be which Portfolio is to be
o Inflation wired to AMT purchased.
Indexed Hedged Capital's "Fund o If Federal funds are
Purchase received by the Fund that
Account" at IBT day, the order will be
effective that day.
- ------------------------ --------------- ---------------------- ------------------------------------ -------------------------
</TABLE>
REDEMPTIONS
All Fund shares (fractional and full) will be redeemed upon shareholder request.
The redemption price will be the net asset value per share, determined once the
Transfer Agent receives proper notice of redemption (see table below). Shares
redeemed receive dividends declared up to, and including the day preceding the
day of the redemption payment.
Shares may be redeemed by employing the services of an outside broker or agent
or may be redeemed directly from the Fund. Such broker or agent may charge a fee
for its services. There are no loads nor 12b-1 fees imposed by the Fund. No
charge is imposed by the Fund to redeem shares, however, a shareholder's bank
may impose its own wire transfer fee for receipt of the wire. The Fund may
execute redemptions in any amount requested by the shareholder up to the amount
the shareholder has invested in the Fund.
A shareholder may change its authorized agent or the account designated to
receive redemption proceeds at any time by writing to the Transfer Agent with an
appropriate signature guarantee. Further documentation may be required when
deemed appropriate by the Transfer Agent.
A telephone redemption option is made available to shareholders on the Fund's
Account Application. The Fund or the Transfer Agent may employ procedures
designed to confirm that instructions communicated by telephone are genuine. If
the Fund does not employ such procedures, it may be liable for losses due to
unauthorized or fraudulent instructions. The Fund or the Transfer Agent may
require personal identification codes and will only wire funds through
pre-existing bank account instructions. No bank instruction changes will be
accepted via telephone.
If a shareholder designates an authorized agent on the Account Application, he
may change his authorized agent or the account designated to receive redemption
proceeds at any time. Such changes must be made in writing and sent to the
Transfer Agent with an appropriate signature guarantee. Further documentation
may be required when deemed appropriate by the Transfer Agent.
In an attempt to reduce expenses, the Fund may redeem shares of any shareholder
whose Portfolio account has a net asset value lower than $100,000. A
shareholder's account may be involuntarily redeemed should the account value
fall below minimum investment requirements. An involuntary redemption will not
occur when drops in investment value are the sole result of adverse market
conditions. The Fund will give 60 days prior written notice to shareholders
whose shares are being redeemed to allow them to purchase sufficient additional
shares of the applicable Portfolio to avoid such redemption. The Fund also may
redeem shares in a shareholder's account as reimbursement for loss due to the
failure of a check or wire to clear in payment of shares purchased.
To Redeem Shares
- -------------------------------------------------------------------------------
1. Shareholders must provide the following information:
a. The dollar or share amount to be redeemed;
b. The account to which the redemption proceeds should be wired (this
account will have been previously designated by the
shareholder on its Account Application Form);
c. The name of the shareholder; and
d. The shareholder's account number
2. Shareholders should call the Transfer Agent at (800) 247-0473 to
request a redemption.
3. In the case of foreign exchanges, a Portfolio's NAV may change when
shareholders cannot buy or sell shares.
- -------------------------------------------------------------------------------
<PAGE>
<TABLE>
<S> <C> <C>
- --------------------------------- ----------------------------------------------------- ------------------------------------------
Portfolio Name When redemption effective Result of late notification of redemption
- --------------------------------- ----------------------------------------------------- ------------------------------------------
- --------------------------------- ----------------------------------------------------- ------------------------------------------
- --------------------------------- ----------------------------------------------------- ------------------------------------------
- --------------------------------- ----------------------------------------------------- ------------------------------------------
o Global Tactical If notice is received by the Transfer Agent by 4:00 If notice is received by the Transfer
Exposure p.m. Eastern time on any Business Day, the Agent on a non-business day or after
o Worldwide redemption will be effective and payment will be 4:00 p.m. Eastern time, the redemption
o Worldwide-Hedged made within seven calendar days, but generally two notice will be deemed received as of the
o International business days following receipt of such notice. next Business Day.
o International Price of shares is based on the next calculation of
Opportunities the NAV after the order is placed.
o International Corporate
o Emerging Markets
o Global High Yield
o Inflation-Indexed
o Inflation-Indexed
Hedged
</TABLE>
- --------------------------------- ---------------------------------------------
PRICING OF PORTFOLIO SHARES
Your price for Portfolio shares is the Portfolio's
net asset value per share. Portfolio net asset
value is calculated by: (1) adding the market value
of all the Portfolio's assets, (2) subtracting all
of the Portfolio's liabilities, and then (3)
dividing by the number of shares outstanding and
adjusting to the nearest cent. The net asset value
is calculated by the Fund's Accounting Agent as of
4:00 p.m. ET on each Business Day for each
Portfolio.
1. For all Portfolios other than Emerging Markets,
Global High Yield and Global Tactical Exposure, net asset value is
calculated by the Fund's Accounting Agent as of 4:00 p.m. ET on each
Business Day.
2. Emerging Markets, Global High Yield and Global
Tactical Exposure Portfolios' net asset values
are calculated by
the Fund's Accounting Agent as of 4:00 p.m. ET
on the last Business Day of each week and each
month, on any other Business Days in which the
Investment Adviser approves a purchase, and on
each Business Day for which a redemption order
has been placed.
DIVIDENDS
If desired, shareholders must request to receive dividends in cash (payable on
the first business day of the following month) on the Account Application Form.
Absent such notice, all dividends will be automatically reinvested in additional
shares on the last business day of each month at the share's net asset value. In
the unlikely event that a Portfolio realizes net short-or long-term capital
gains (i.e., with respect to assets held more than one year), the Portfolio will
distribute such gains by automatically reinvesting (unless a shareholder has
elected to receive cash) them in additional Portfolio shares.
Net investment income (including accrued but unpaid interest, amortization of
original issue and market discount or premium) of each Portfolio, other than
Emerging Markets, Global High Yield and Global Tactical Exposure Portfolios will
be declared as a dividend payable daily to the respective shareholders of record
as of the close of each Business Day. The net investment income of Emerging
Markets, Global High Yield and Global Tactical Exposure Portfolios will be
declared payable to the respective shareholders of record as of the last
Business Day of each month.
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Director elections and
other shareholder voting matters. Matters to be acted upon affecting a
particular Portfolio (such as approval of the investment advisory agreement with
the Investment Adviser or the submission of changes of fundamental Portfolio
investment policy) require the affirmative vote of the Portfolio shareholders.
The election of the Fund's Board of Directors and the approval of the Fund's
independent auditors are voted upon by shareholders on a Fund-wide basis. The
Fund is not required to hold annual shareholder meetings. Shareholder approval
will be sought only for certain changes in the Fund's or a Portfolio's operation
and for the election of Directors under certain circumstances. Directors may be
removed by shareholders at a special meeting. The directors shall call a special
meeting of the Fund upon written request of shareholders owning at least 10% of
the Fund's outstanding shares.
TAX CONSIDERATIONS
The following discussion is for general information only. An investor should
consult with his or her own tax adviser as to the tax consequences of an
investment in a Portfolio, including the status of distributions from each
Portfolio under applicable state or local law.
Federal Income Taxes
Each active Portfolio currently qualifies and intends to continue to qualify as
a regulated investment company (RIC) under the Internal Revenue Code of 1986, as
amended. To be a RIC, a Portfolio must meet certain income, distribution and
diversification requirements. In any year in which a Portfolio qualifies as a
RIC while distributing all of its taxable income, and substantially all of its
net tax-exempt interest income on a timely basis, the Portfolio generally will
not pay U.S. federal income or excise tax. In any year a Portfolio fails to
qualify as a RIC, the Portfolio will be subject to federal income tax in the
same manner as an ordinary corporation and distributions to shareholders will be
taxable as ordinary income to the extent of the earnings and profits of the
Portfolio. Distributions in excess of earnings and profits will be treated as a
tax-free return of capital, to the extent of a holder's basis in its shares, and
any excess, as a long or short-term capital gain.
Each Portfolio will distribute all of its taxable income by automatically
reinvesting such income in additional Portfolio shares and distributing those
shares to its shareholders, unless a shareholder elects on the Account
Application Form to receive cash payments for such distributions. Shareholders
receiving distributions from the Fund in the form of additional shares will be
treated for federal income tax purposes as receiving a distribution in an amount
equal to the fair market value of the additional shares on the date of such a
distribution.
Dividends a Portfolio pays from its investment company taxable income (including
interest and net short-term capital gains) will be taxable to U.S. shareholders
as ordinary income, whether received in cash or in additional Fund shares.
Distributions of net capital gains (the excess of net long-term capital gains
over net short-term capital losses) are generally taxable to shareholders at the
applicable long-term capital gains rates, regardless of how long they have held
their Portfolio shares. If a portion of a Portfolio's income consists of
dividends paid by U.S. corporations, a portion of the dividends paid by the
Portfolio may be eligible for the corporate dividends-received deduction.
A distribution will be treated as paid on December 31 of the current calendar
year if it is declared by a Portfolio in October, November or December with a
record date in any such month and paid by the Portfolio during January of the
following calendar year. Such distributions will be taxable to shareholders in
the calendar year in which the distributions are declared, rather than the
calendar year in which the distributions are received. Each Portfolio will
inform shareholders of the amount and tax status of all amounts treated as
distributed to them not later than 60 days after the close of each calendar
year.
The foregoing discussion is only a brief summary of the important federal tax
considerations generally affecting the Fund and its shareholders. As noted
above, IRAs receive special tax treatment. No attempt is made to present a
detailed explanation of the federal, state or local income tax treatment of the
Fund or its shareholders, and this discussion is not intended as a substitute
for careful tax planning. Accordingly, potential investors in the Fund should
consult their tax advisers with specific reference to their own tax situation.
State and Local Taxes
A Portfolio may be subject to state, local or foreign taxation in any
jurisdiction in which the Portfolio may be deemed to be doing business.
Portfolio distributions may be subject to state and local taxes. Portfolio
distributions derived from interest on obligations of the U.S. Government and
certain of its agencies, authorities and instrumentalities may be exempt from
state and local taxes in certain states. Shareholders should consult their own
tax advisers regarding possible state and local income tax exclusions for
dividend portions paid by a Portfolio, which are attributable to interest from
obligations of the U.S. Government, its agencies, authorities and
instrumentalities.
DISTRIBUTION OF FUND SHARES
Shares of the Fund are distributed by Investors Capital, Inc,. a branch office
of AMT Capital, pursuant to a Distribution Agreement dated as of May 29, 1998
between the Fund and AMT Capital. No fees are payable by the Fund pursuant to
the Distribution Agreement, and AMT Capital bears the expense of its
distribution activities.
<PAGE>
INVESTMENT INFORMATION
ALLOWABLE INVESTMENT TRATEGIES AND ASSOCIATED RISKS
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
Global Worldwide Worldwide InternationaInternationalInternationaEmerging Global Inflation Inflation
Tactical Hedged OpportunitiesCorporate Markets High Indexed Indexed
Exposure Yield Hedged
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
Asset-Backed . . . . . . . . ? ?
Securities
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
Bank Obligations . . . . . . . . . .
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
Brady Bonds . . . . . . . . . .
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
Convertibles ? ?
Securities
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
Corporate Debt . . . . . . . . . .
Instruments
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
Foreign . . . . . . . . . .
Instruments
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
Illiquid . . . . . . . . . .
Securities
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
Indexed Notes, . . . . . . . . . .
Currency
Exchange-Related
Securities and
Similar Securities
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
Inflation-Indexed . . . . . . . . . .
Securities
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
Investment . . . . . . . . . .
Companies
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
Mortgage-Backed . . . . . . . . . .
Securities
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
Multi-National . . . . . . . . . .
Currency Unit
Securities or
More Than One
Currency
Denomination
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
Municipal
Instruments
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
Repurchase and . . . . . . . . . .
Reverse
Repurchase
Agreements
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
Stripped . . . . . . . . . .
Instruments
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
Total Return Swaps . . . . . . . . . .
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
U.S. Government . . . . . . . . . .
and Agency
Securities
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
Warrants . .
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
`Zero Coupon . . . . . . . . . .
Securities
................... ......... .......... .......... ........... ............ ........... ......... .......... ......... .........
</TABLE>
Dollar Roll Transactions
Dollar roll transactions consist of the sale of mortgage-backed securities, with
a commitment to purchase similar, but not identical securities at a future date,
and at the same price. Portfolios will maintain a segregated custodial account
for dollar roll transactions. The segregated accounts may contain cash, U.S.
Government Securities or other liquid, unencumbered securities having an
aggregate value at least equal to the amount of such commitments to repurchase
the securities under the dollar roll transaction (including accrued interest).
Risks: Should the broker-dealer to whom a Portfolio sells an underlying
security of a dollar roll transaction become insolvent, the Portfolio's
right to purchase or repurchase the security may be restricted, or the
price of the security may change adversely over the term of the dollar
roll transaction.
Duration Management
Duration measures a bond's price volatility,
incorporating the following factors:
a. the bond's yield,
b. coupon interest payments,
c. final maturity,
d. call features, and
e. prepayment assumptions.
Duration measures the expected life of a debt security on a present value basis.
It incorporates the length of the time intervals between the present time and
the time that the interest and principal payments are scheduled (or in the case
of a callable bond, expected to be received) and weighs them by the present
values of the cash to be received at each future point in time. For any debt
security with interest payments occurring prior to the payment of principal,
duration is always less than maturity. In general, for the same maturity, the
lower the stated or coupon rate of interest of a debt security, the longer the
duration of the security; conversely, the higher the stated or coupon rate of
interest of a debt security, the shorter the duration of the security.
Futures, options and options on futures have durations closely related to the
duration of the securities that underlying them. Holding long futures or call
options will lengthen a Portfolio's duration by approximately the same amount
that holding an equivalent amount of the underlying securities would. Short
futures or put option positions have durations roughly equal to the negative
duration of the securities that underlie those positions and have the effect of
reducing duration by approximately the same amount that selling an equivalent
amount of the underlying securities would. The market price of a bond with a
duration of two years would be expected to decline 2% if interest rates rose 1%.
If a bond has an effective duration of three years, a 1% increase in general
interest rates would be expected to cause the bond's value to decline by about
3%.
Risks: Changes in weighted average duration of a Portfolio's holdings
are not likely to be so large as to cause them to fall outside the
ranges specified above. There is no assurance that deliberate changes
in a Portfolio's weighted average duration will enhance its return
relative to more static duration policies or Portfolio structures. In
addition, it may detract from its relative return.
Hedging
Hedging techniques are used to offset certain investment risks. Such risks
include: changes in interest rates, changes in foreign currency exchange rates
and changes in securities and commodity prices. Hedging techniques are commonly
used to minimize a given instrument's risks of future gain or loss. Hedging
techniques include:
<TABLE>
<S> <C> <C> <C>
a. engaging in swaps; d. purchasing and selling futures contracts; and
b. purchasing and selling caps, floors and collars; e. purchasing and selling options.
c. purchasing or selling forward exchange contracts;
</TABLE>
All hedging instruments described below constitute commitments by a Portfolio
and therefore require the Fund to segregate cash (in any applicable currency),
U.S. Government securities or other liquid and unencumbered securities (in any
applicable currency) equal to the amount of the Portfolio's obligations in a
separate custody account.
When a Portfolio purchases a futures or forward currency contract for
non-hedging purposes, the sum of the segregated assets plus the amount of
initial and variation margin held in the broker's account, if applicable, must
equal the market value of the futures or forward currency contract.
When a Portfolio sells a futures or forward
currency contract for non-hedging purposes, the
Portfolio will have the contractual right to
acquire:
1. the securities,
2. the foreign currency subject to the futures,
3. the forward currency contract, or
4. will segregate assets, in an amount at least
equal to the market value of the securities or foreign currency
underlying the futures or forward currency contract.
Should the market value of the contract move adversely to the Portfolio, or if
the value of the securities in the segregated account declines, the Portfolio
will be required to deposit additional cash or securities in the segregated
account at a time when it may be disadvantageous to do so.
A Portfolio will not enter into any swaps caps or floors unless the unsecured
commercial paper, senior debt or claims paying ability of the counter party is
rated either A or A-1 or better by S&P or A or P-1 or better by Moody's. If
unrated, it must be determined to be of comparable quality by the Investment
Adviser.
Risks: Hedging involves risks of imperfect correlation in price
movements of the hedge and movements in the price of the hedged
security. If interest or currency exchange rates do not move in the
direction of the hedge, the Portfolio will be in a worse position than
if hedging had not been employed. As a result, the Portfolio will lose
all or part of the benefit of the favorable rate movement due to the
cost of the hedge or offsetting positions. Hedging transactions not
entered into on a U.S. or foreign exchange may subject a Portfolio to
exposure to the credit risk of its counterparty. Futures and Options
transactions entail special risks. In particular, the variable degree
of correlation between price movements of futures contracts and price
movements in the related Portfolio position could create the
possibility that losses will be greater than gains in the value of the
Portfolio's position. Other risks include the risk that a Portfolio
could not close out a futures or options position when it would be most
advantageous to do so.
a. Swaps
Swaps are commonly used for hedging purposes. Hedging involving mortgage and
interest rate swaps may enhance total return. Interest rate swaps involve a
Portfolio's exchange with another party of their respective commitments to pay
or receive interest, such as an exchange of fixed rate payments for floating
rate payments. Mortgage swaps are similar to interest rate swaps, both represent
commitments to pay and receive funds. Currency swaps involve the exchange of
their respective rights to make or receive payments in specified currencies.
b. Caps, Floors and Collars
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payment of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser, to the
extent that a specified index falls below a predetermined interest rate, to
receive payments of interest on a notional principal amount from the party
selling the interest rate floor. An interest rate collar incorporates a cap and
a floor in one transaction as described above.
c. Forward Foreign Exchange Contracts A forward foreign exchange contract is the
purchase or sale of a foreign currency, on a specified date, at an exchange rate
established before the currency's payment and delivery to hedge the currency
exchange risk associated with its assets or obligations denominated in foreign
currencies. Synthetic hedging is a technique utilizing forward foreign exchange
contracts that is frequently employed by many of the Portfolios. It entails
entering into a forward contract to sell a currency the changes in value of
which are generally considered to be linked to a currency or currencies in which
some or all of the Portfolio's securities are or are expected to be denominated,
and buying U.S. dollars. There is a risk that the perceived linkage between
various currencies may not be present during the particular time that a
Portfolio is engaging in synthetic hedging. A Portfolio may also cross-hedge
currencies by entering into forward contracts to sell one or more currencies
that are expected to decline in value relative to other currencies to which the
Portfolio has or expects to have exposure.
d. Futures Contracts
A futures contract is an agreement to buy or sell a specific amount of a
financial instrument at a particular price on a specified date. The futures
contract obligates the buyer to purchase the underlying commodity and the seller
to sell it. Losses from investing in futures transactions that are unhedged or
uncovered are potentially unlimited. Substantially all futures contracts are
closed out before settlement date or called for cash settlement. A futures
contract is closed out by buying or selling an identical offsetting futures
contract that cancels the original contract to make or take delivery. At times,
the ordinary spreads between values in the cash and futures markets, due to
differences in the character of these markets, are subject to distortions. The
possibility of such distortions means that a correct forecast of general market,
foreign exchange rate or interest rate trends may not produce the Portfolio's
intended results.
e. Options Contracts
An option is a contractual right, but not an obligation, to buy (call) or sell
(put) property that is guaranteed in exchange for an agreed upon sum. If the
right is not exercised within a specified period of time, the option expires and
the option buyer forfeits the amount paid. An option may be a contract that
bases its value on the performance of an underlying bond. When a Portfolio
writes a call option, it gives up the potential for gain on the underlying
securities or currency in excess of the exercise price of the option during the
period that the option is open. A put option gives the purchaser, in return for
a premium, the right, for a specified period or time, to sell the securities or
currency subject to the option to the writer of the put at the specified
exercise price. The writer of the put option, in return for the premium, has the
obligation, upon exercise of the option, to acquire the securities or currency
underlying the option at the exercise price. A Portfolio might, therefore, be
obligated to purchase the underlying securities or currency for more than their
current market price.
Risks: Hedging involves risks of imperfect correlation in price
movements of the hedge and movements in the price of the hedged
security. If interest or currency exchange rates do not move in the
direction of the hedge, the Portfolio will be in a worse position than
if hedging had not been employed. As a result, it will lose all or part
of the benefit of the favorable rate movement due to the cost of the
hedge or offsetting positions. Hedging transactions not entered into on
a U.S. or foreign exchange may subject a Portfolio to exposure to the
credit risk of its counterparty. Futures and Options transactions
entail special risks. In particular, the variable degree of correlation
between price movements of futures contracts and price movements in the
related Portfolio position could create the possibility that losses
will be greater than gains in the value of the Portfolio's position.
Other risks include the risk that a Portfolio could not close out a
futures or options position when it would be most advantageous to do
so.
Short Sales
Short sales are transactions in which a Portfolio sells a security it does not
own in anticipation of a decline in the market value of that security. Short
selling provides the Investment Adviser with flexibility to reduce certain risks
of the Portfolio's holdings and increase the Portfolio's total return. To the
extent that the Portfolio has sold securities short, it will maintain a daily
segregated account, containing cash, U.S. Government securities or other liquid
and unencumbered securities, at such a level that (a) the amount deposited in
the account plus the amount deposited with the broker as collateral will equal
the current value of the security sold short and (b) the amount deposited in the
segregated account plus the amount deposited with the broker as collateral will
not be less than the market value of the security at the time it was sold short.
Risks: A short sale is generally used to take advantage of an
anticipated decline in price or to protect a profit. A Portfolio will
incur loss as a result of a short sale if the price of the security
increases between the date of the short sale and the date on which
Portfolio replaces the borrowed money. The amount of any loss will be
increased by the amount of any premium or amounts in lieu of interest
the Portfolio may be required to pay in connection with a short sale.
Without the purchase of an option, the potential loss from a short sale
is unlimited.
TBA (To Be Announced) Transactions In a TBA transaction, the type of
mortgage-backed securities to be delivered is specified at the time of trade,
but the actual pool numbers of the securities to be delivered are not known at
the time of the trade. For example, in a TBA transaction, an investor could
purchase $1 million 30 year FNMA 9's and receive up to three pools on the
settlement date. The pool numbers to be delivered at settlement will be
announced shortly before settlement takes place. Agency pass-through
mortgage-backed securities are usually issued on a TBA basis. For each
Portfolio, the Fund will maintain a segregated custodial account containing
cash, U.S. Government securities or other liquid and unencumbered securities
having a value at least equal to the aggregate amount of a Portfolio's TBA
transactions.
Risks: The value of the security on the
date of delivery may be less than its
purchase price, presenting a possible loss
of asset value
When Issued and Forward Commitment Securities The purchase of a when issued or
forward commitment security will be recorded on the date the Portfolio enters
into the commitment. The value of the security will be reflected in the
calculation of the Portfolio's net asset value. The value of the security on
delivery date may be more or less than its purchase price. Generally, no
interest accrues to a Portfolio until settlement. For each Portfolio, the Fund
will maintain a segregated custodial account containing cash, U.S. Government
securities or other liquid and unencumbered securities having a value at least
equal to the aggregate amount of a Portfolio's when issued and forward
commitments transactions.
Risks: The value of the security on the
date of delivery may be less than its
purchase price, presenting a possible loss
of asset value.
ALLOWABLE INVESTMENTS AND ASSOCIATED RISKS
Asset-Backed Securities
Asset-backed securities are secured by or backed by
assets other than mortgage-related assets, such as
automobile and credit card receivables. These
securities are sponsored by such institutions as
finance companies, finance subsidiaries of
industrial companies and investment banks.
Asset-backed securities have structural
characteristics similar to mortgage-backed
securities, however, the underlying assets are not
first lien mortgage loans or interests, but include
assets such as:
a. motor vehicle installment sale contracts,
b. other installment sale contracts,
c. leases of various types of real and personal property, and
d. receivables from revolving credit (credit card) agreements.
Risks: Since the principal amount of asset-backed securities is
generally subject to partial or total prepayment risk. If an
asset-backed security is purchased at a premium or discount to par, a
prepayment rate that is faster than expected will reduce or increase
yield to maturity, while a prepayment rate that is slower than expected
will have the opposite effect on yield to maturity. These securities
may not have any security interest in the underlying assets, and
recoveries on the repossessed collateral may not, in some cases, be
available to support payments on these securities.
Bank Obligations
Bank obligations are bank-issued securities. These instruments include, but are
not limited to:
<TABLE>
<S> <C> <C> <C> <C> <C>
a. Time Deposits, e. Deposit Notes, h. Variable Rate Notes,
b. Certificates of Deposit, f. Eurodollar Time deposits, i. Loan Participations,
c. Bankers' Acceptances, g. Eurodollar Certificates of j. Variable Amount Master Demand Notes,
d. Bank Notes, Deposit, k. Yankee CDs, and
l. Custodial Receipts
</TABLE>
Risks: Investing in bank obligations
exposes a Portfolio to risks associated
with the banking industry such as interest
rate and credit risks.
Brady Bonds
Brady Bonds are debt securities, issued or guaranteed by foreign governments in
exchange for existing external commercial bank indebtedness. To date, over $154
billion (face amount) of Brady Bonds have been issued by the governments of
thirteen countries, the largest proportion having been issued by Argentina,
Brazil, Mexico and Venezuela. Brady Bonds are either collateralized or
uncollateralized, issued in various currencies (primarily the U.S. dollar), and
are actively traded in the over-the-counter secondary market.
A Portfolio may invest in either collateralized or uncollateralized Brady Bonds.
U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed rate par
bonds or floating rate discount bonds, are collateralized in full as to
principal by U.S. Treasury zero coupon bonds having the same maturity as the
bonds. Interest payments on such bonds generally are collateralized by cash or
securities in an amount that, in the case of fixed rate bonds, is equal to at
least one year of rolling interest payments or, in the case of floating rate
bonds, initially is equal to at least one year's rolling interest payments based
on the applicable interest rate at the time and is adjusted at regular intervals
thereafter.
Risks: Brady Bonds are generally issued to countries with developing
capital markets or unstable governments and as such, are considered to
be among the more risky international investments.
Convertible Securities
Convertible bonds or shares of convertible preferred stock are securities that
may be converted into, or exchanged for, underlying shares of common stock,
either at a stated price or stated rate. Convertible securities have general
characteristics similar to both fixed income and equity securities.
Risks: Typically, convertible securities are callable by the company,
which may, in effect, force conversion before the holder would
otherwise choose. If the issuer chooses to convert the security, this
action could have an adverse effect on a Portfolio's ability to achieve
its objectives.
Corporate Debt Instruments
Corporate bonds are debt instruments issued by private corporations. As
creditors, bondholders have a prior legal claim over common and preferred
stockholders of the corporation as to both income and assets for the principal
and interest due to the bondholder. A Portfolio purchases corporate bonds
subject to quality restraints. Commercial paper, notes and other obligations of
U.S. and foreign corporate issuers must meet the Portfolio's credit quality
standards (including medium-term and variable rate notes). A Portfolio may
retain a downgraded corporate debt security if the Investment Adviser determines
retention of such security to be in the Portfolio's best interests.
Risks: Investing in corporate debt
securities subjects a Portfolio to
interest rate changes and credit risks.
Foreign Instruments
a. Foreign Securities
Foreign securities are securities denominated in currencies other than the U.S.
dollar and may be denominated in any single currency or multi-currency units.
The Investment Adviser and the Sub-Adviser will adjust exposure of a Portfolio
to different currencies based on their perception of the most favorable markets
and issuers. In allocating assets among multiple markets, the Investment Adviser
and the Sub-Adviser will assess the relative yield and anticipated direction of
interest rates in particular markets, general market and economic conditions and
the relationship of currencies of various countries to each other. In their
evaluations, the Investment Adviser and the Sub-Adviser will use internal
financial, economic and credit analysis resources as well as information
obtained from external sources.
The Global and International Portfolios, other than Emerging Markets, will
invest primarily in securities denominated in the currencies of the United
States, Japan, Canada, Western European nations, New Zealand and Australia, as
well as securities denominated in the European Currency Unit. Further, it is
anticipated that such securities will be issued primarily by governmental and
private entities located in such countries and by supranational entities.
Portfolios will only invest in countries considered to have stable governments,
based on the Investment Adviser's analysis of social, political and economic
factors.
b. Foreign Government, International and
Supranational Agency Securities
These securities include debt obligations issued or guaranteed by a foreign
government or it's subdivisions, agencies and instrumentalities, international
agencies and supranational entities.
Risks: Generally, foreign financial
markets have substantially less volume
than the U.S. market. Securities of many
foreign companies are less liquid, and
their prices are more volatile than
securities of comparable domestic
companies. Certain Portfolios may invest
portions of their assets in securities
denominated in foreign currencies. These
investments carry risks of fluctuations of
exchange rates relative to the U.S.
dollar. Securities issued by foreign
entities (governments, corporations etc.)
may involve risks not associated with U.S.
investments, including expropriation of
assets, taxation, political or social
instability and low financial reporting
standards--all of which may cause declines
in investment returns.
c. Emerging Markets Securities
Emerging markets securities are foreign securities issued from countries which
are considered to be "emerging" or "developing" by the Morgan Stanley Composite
Index (MSCI) or by the World Bank. Such emerging markets include all markets
other than Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Ireland, Italy, Hong Kong, Ireland, Italy, Japan, the Netherlands, New
Zealand, Norway, Singapore, Spain, Sweden, Switzerland, the United Kingdom and
the United States.
Risks: The risks of investing in foreign securities may be intensified
when the issuers are domiciled or doing substantial business in
emerging market countries or countries with developing capital markets.
Security prices in emerging markets can be significantly more volatile
than those in more developed nations of the world, reflecting the
greater uncertainties of investing in less established markets and
economies. Emerging market countries may have:
<TABLE>
<S> <C> <C> <C>
a. relatively unstable governments; d. restrictions on foreign ownership;
b. present the risk of sudden adverse government action; e. prohibitions of repatriation of assets; or
c. nationalization of businesses; f. less protection of property rights than more
developed countries
</TABLE>
The economies of countries with emerging markets may be predominantly
based on only a few industries, may be highly vulnerable to changes in
local or global trade conditions, and may suffer from extreme and
volatile debt burdens or inflation rates. Local securities markets may
trade a small number of securities and may be unable to respond
effectively to increases in trading volume, potentially making prompt
liquidation of substantial holdings difficult or impossible at times.
Transaction settlement procedures may be less reliable in emerging
markets than in developed markets. Securities of issuers located in
countries with emerging markets may have limited marketability and may
be subject to more abrupt or erratic price movements.
Illiquid Securities
Illiquid securities cannot be sold or disposed of in the ordinary course of
business within seven days for approximately the value at which a Portfolio has
valued the securities. These include: 1. securities with legal or contractual
restrictions on resale, 2. time deposits, repurchase agreements and dollar roll
transactions having maturities longer than seven days, and 3. securities not
having readily available market quotations. Although the Portfolios are allowed
to invest up to 15% of the value of their net assets in illiquid assets (10% in
the case of Money Market Pottfolios), it is not expected that any Portfolio will
invest a significant portion of its assets in illiquid securities. The
Investment Adviser monitors the liquidity of such restricted securities under
the supervision of the Board of Directors.
A Portfolio may purchase securities not registered under the Securities Act of
1933 as amended, (the "1933 Act"), but which can be sold to qualified
institutional buyers in accordance with Rule 144A under that Act. A Portfolio
may also invest in commercial paper issued in reliance on the so-called "private
placement" exemption from registration afforded by Section 4(2) of the 1933 Act
(Section 4(2) paper). Section 4(2) paper is restricted as to disposition under
the federal securities laws, and generally is sold to institutional investors.
Any resale by the purchaser must be in an exempt transaction. Section 4(2) paper
is normally resold to other institutional investors through or with the
assistance of the issuer or investment dealers who make a market in the Section
4(2) paper, thus providing liquidity. If a particular investment in Rule 144A
securities, Section 4(2) paper or private placement securities is not determined
to be liquid, that investment will be included within the 15% (or 10%)
limitation on investment in illiquid securities. The Investment Adviser will
monitor the liquidity of such restricted securities under the supervision of the
Board of Directors.
Risks: Investing in illiquid securities presents the potential risks of
tying up a Portfolio's assets at a time when liquidating assets may be
necessary to meet debts and obligations.
Indexed Notes, Currency Exchange-Related Securities and Similar Securities These
securities are notes, the principal amount of which and/or the rate of interest
payable is determined by reference to an index. This index may be determined by
the rate of exchange between the specified currency for the note and one or more
other currencies or composite currencies.
Risks: Foreign currency markets can be
highly volatile and are subject to sharp
price fluctuations. A high degree of
leverage is typical for foreign currency
instruments in which a Portfolio may
invest.
Inflation-Indexed Securities
Inflation-indexed securities are linked to the inflation rate from worldwide
bond markets such as the U.S. Treasury Department's "inflation-protection"
issues. The initial issues are ten year notes which are issued quarterly. Other
maturities will be sold at a later date. The principal is adjusted for inflation
(payable at maturity) and the semi-annual interest payments equal a fixed
percentage of the inflation adjusted principal amount. The inflation adjustments
are based upon the Consumer Price Index for Urban Consumers. These securities
may be eligible for coupon stripping under the U.S. Treasury program. In
addition to the U.S. Treasury's issues, inflation-indexed securities include
inflation-indexed securities from other countries such as Australia, Canada, New
Zealand, Sweden and the United Kingdom.
Risks: If the periodic adjustment rate measuring inflation falls, the
principal value of inflation-indexed bonds will be adjusted downward,
and consequently the interest payable on these securities (calculated
with respect to a smaller principal amount) will be reduced. Repayment
of the original bond principal upon maturity (as adjusted for
inflation) is guaranteed in the case of U.S. Treasury inflation-indexed
bonds, even during a period of deflation. However, the current market
value of the bonds is not guaranteed, and will fluctuate. The
Portfolios many also invest in other inflation related bonds that may
or may not provide a similar guarantee. If a guarantee of principal is
not provided, the adjusted principal value of the bond repaid at
maturity may be less than the original principal.
The U.S. Treasury has only recently begun issuing inflation-indexed
bonds. As such, there is no trading history of these securities, and
there can be no assurance that a liquid market in these instruments
will develop, although one is expected to continue to evolve. Lack of a
liquid market may impose the risk of higher transaction costs and the
possibility that a Portfolio may be forced to liquidate positions when
it would not be advantageous to do so. Finally, there can be no
assurance that the Consumer Price Index for Urban Consumers will
accurately measure the real rate of inflation in the price of goods and
services.
Investment Companies
An investment company is an investment vehicle,
which, for a management fee, invests the pooled
funds of investors in securities appropriate for
its investment objectives. Two basic types of
investment companies exist:
1. Open end funds: these funds have a floating
number of outstanding shares and will sell or
redeem shares at their current net asset value,
2. Closed end funds: these funds have a fixed number of outstanding shares
that are traded on an exchange.
The acquiring company may not purchase or otherwise
acquire securities in the acquired company (if a
load fund) if, immediately after the acquisition:
1. the acquiring company and any company
controlled by it would own in the aggregate more
than 3% of the total
outstanding voting stock of the acquired company
2. securities issued by the acquired company would have an aggregate value
exceeding 5% of the value of the total assets of the acquiring company; or
3. securities issued by the acquired company and all other investment
companies would have an aggregate value in excess of 10% of the value of
the acquiring company's total assets.
The acquiring company may not purchase or otherwise acquire securities in the
acquired company (if no-load) if, immediately after the acquisition the
acquiring company and any company controlled by it would own in the aggregate
more than 3% of the total outstanding voting stock of the acquired company.
A Portfolio may invest in another Portfolio within the FFTW Funds, Inc. family.
This is commonly referred to as cross-portfolio investing. Should such
cross-portfolio investing occur, investors will not be double-charged advisory
fees. The Portfolio in which it is directly invested will only charge investors
an advisory fee.
Risks: Generally, risks posed by a particular fund will mirror those
posed by the underlying securities. A money market fund has the highest
safety of principal, whereas bond funds are vulnerable to interest rate
movements.
Mortgage-Backed Securities
Mortgage-backed securities are securities
representing ownership interests in, or debt
obligations secured entirely or primarily by,
"pools" of residential or commercial mortgage loans
or other mortgage-backed securities.
Mortgage-backed securities may take a variety of
forms, the most common being:
1. Mortgage-pass through securities issued by
a. the Government National Mortgage Association (Ginnie Mae),
b. the Federal National Mortgage Association (Fannie Mae),
c. the Federal Home Loan Mortgage Corporation (Freddie Mac),
d. commercial banks, savings and loan associations, mortgage
banks or by issuers that are affiliates of or
sponsored by such entities,
2. Collateralized mortgage obligations (CMOs) which are debt obligations
collateralized by such assets, and
3. Commercial mortgage-backed securities.
The Investment Adviser expects that new types of mortgage-backed securities may
be created offering asset pass-through and asset-collateralized investments in
addition to those described above by governmental, government-related and
private entities. As new types of mortgage-related securities are developed and
offered to investors, the Investment Adviser will consider whether it would be
appropriate for such Portfolio to make investments in them.
CMOs are derivatives collateralized by mortgage pass-through securities. Cash
flows from mortgage pass-through securities are allocated to various tranches in
a predetermined, specified order. Each tranche has a stated maturity - the
latest date by which the tranche can be completely repaid, assuming no
prepayments - and has an average life the average of the time to receipt of a
principal payment weighted by the size of the principal payment. The average
life is typically used as a proxy for maturity because the debt is amortized,
rather than being paid off entirely at maturity.
Risks: A Portfolio may invest in mortgage-backed and other asset-backed
securities carrying the risk of a faster or slower than expected
prepayment of principal which may affect the duration and return of the
security. Portfolio returns will be influenced by changes in interest
rates. Changes in market yields affect a Portfolio's asset value since
Portfolio debt will generally increase when interest rates fall and
decrease when interest rates rise. Thus, interest rates have an inverse
relationship with corresponding market values. Prices of shorter-term
securities generally fluctuate less in response to interest rate
changes than do longer-term securities.
Multi-National Currency Unit Securities or More Than One Currency Denomination
Multi-national currency unit securities are tied to currencies of more than one
nation. This includes the European Currency Unit--a "basket" consisting of
specified currencies of the member states of the European Community (a Western
European economic cooperative organization). These securities include securities
denominated in the currency of one nation, although it is issued by a
governmental entity, corporation or financial institution of another nation.
Risks: Investments involving
multi-national currency units are subject
to changes in currency exchange rates
which may cause the value of such invested
securities to decrease relative to the
U.S. dollar.
Municipal Instruments
Municipal instruments are debt obligations issued by a state or local government
entity. The instruments may support general governmental needs or special
governmental projects. It is not anticipated that such instruments will ever
represent a significant portion of any Portfolio's assets.
Risks: Investments in municipal
instruments are subject to the
municipality's ability to make timely
payment. Municipal instruments may also
be subject to bankruptcy protection should
the municipality file for such protection.
Repurchase and Reverse Repurchase Agreements Under a repurchase agreement, a
bank or securities firm (that is a dealer in U.S. Government Securities
reporting to the Federal Reserve Bank of New York) or the Fund's Custodian
agrees to sell U.S. Government Securities to a Portfolio and repurchase such
securities from the Portfolio for an agreed price at a later date. Under a
reverse repurchase agreement, a primary or reporting dealer in U.S. Government
Securities purchases U.S. Government Securities from a Portfolio and the
Portfolio agrees to repurchase the securities for an agreed price at a later
date.
Each Portfolio will maintain a segregated custodial account for its reverse
repurchase agreements. Until repayment is made, the segregated accounts may
contain cash, U.S. Government Securities or other liquid, unencumbered
securities having an aggregate value at least equal to the amount of such
commitments to repurchase (including accrued interest). Repurchase and reverse
repurchase agreements will generally be restricted to those maturing within
seven days.
Risks: If the other party to a repurchase and/or reverse repurchase
agreement becomes subject to a bankruptcy or other insolvency
proceeding, or fails to satisfy its obligations thereunder, delays may
result in recovering cash or the securities sold, or losses may occur
as to all or part of the income, proceeds or rights in the security.
Stripped Instruments
Stripped instruments are bonds, reduced to its two
components: its rights to receive periodic interest
payments (IOs) and rights to receive principal
repayments (POs). Each component is then sold
separately. Such instruments include:
a. Municipal Bond Strips
b. Treasury Strips
c. Stripped Mortgage-Backed Securities
Risks: POs do not pay interest, its return is solely based on payment
of principal at maturity. Both POs and IOs tend to be subject to
greater interim market value fluctuations in response to changes in
interest rates. Stripped Mortgage-Backed Securities IOs run the risk of
unanticipated prepayment which will decrease the instrument's overall
return.
Total Return Swaps
A total return swap is an exchange of one security for another. Unlike a hedge
swap, a total return swap is solely entered into as a derivative investment to
enhance total return.
Risks: A total return swap may result in a Portfolio obtaining an
instrument, which for some reason, does not perform as well as the
original swap instrument. Additionally, potential risks of default also
exist on the part of the counterparty.
U.S. Government and Agency Securities and
Government-Sponsored Enterprises/Federal Agencies
U.S. Government and agency securities are issued by
or guaranteed as to principal and interest by the
U.S. Government, its agencies or instrumentalities
and supported by the full faith and credit of the
United States. A Portfolio may also invest in
other securities which may be issued by a U.S.
Government-sponsored enterprise or federal agency,
and supported either by its ability to borrow from
the U.S. Treasury or by its own credit standing.
Such securities do not constitute direct
obligations of the United States but are issued, in
general, under the authority of an Act of
Congress. The universe of eligible securities in
these categories include those sponsored by:
a. U.S. Treasury Department,
b. Farmer's Home Administration,
c. Federal Home Loan Mortgage Corporation,
d. Federal National Mortgage Association,
e. Student Loan Marketing Association, and
f. Government National Mortgage Association.
Risks: Investing in securities backed by
the full faith and credit of the U.S.
Government are guaranteed only as to
interest rate and face value at maturity,
not its current market price.
Warrants
A warrant is a corporate-issued option that entitles the holder to buy a
proportionate amount of common stock at a specified price. Warrants are freely
transferable and can be traded on the major exchanges.
Risks: Warrants retain their value only
so long as the stock retains its value.
Typically, when the value of the stock
drops, the value of the warrant drops.
Zero Coupon Securities
Zero coupon securities are sold at a deep discount from their face value. Such
securities make no periodic interest payments, however, the buyer receives a
rate of return by the gradual appreciation of the security, until it is redeemed
at face value on a specified maturity date.
Risks: Zero coupon securities do not pay interest until maturity and
tend to be subject to greater interim market value fluctuations in
response to interest rate changes rather than interest paying
securities of similar maturities.
Supplemental Investment Policies
Global Tactical Exposure, Worldwide, Worldwide-Hedged, International,
International Opportunities, International Corporate, Emerging Markets, Global
High Yield, Inflation-Indexed, and Inflation-Indexed Hedged Portfolios These
Portfolios may invest more than 5% of its net assets in futures margins and/or
premiums on options only if it is being used for bona fide hedging purposes.
Worldwide and Worldwide-Hedged Portfolios These Portfolios may not enter into a
repurchase or reverse repurchase agreement if, as a result thereof, more than
25% of the Portfolio's total assets would be subject to the agreement.
Portfolio Turnover
Portfolio turnover rates are believed to be higher than the turnover experienced
by most fixed income funds, due to the Investment Adviser's active management of
duration. This could, in turn, lead to higher turnover costs. High Portfolio
turnover may involve greater brokerage commissions and transactions costs which
will be paid by the Portfolio. In addition, high turnover rates may result in
increased short-term capital gains.
FINANCIAL HIGHLIGHTS TABLES
The Financial Highlights Tables are intended to help you understand the
Portfolios' financial performance for the past five years. The "Total Return on
Investment" indicates how much an investment in each respective Portfolio would
have earned, assuming all dividends and distributions had been reinvested.
This information has been audited by Ernst & Young, LLP. You will find the
auditor's report and the FFTW Funds, Inc. financial statements in the annual
report, which is available upon request.
<TABLE>
<S> <C> <C> <C> <C> <C>
=================================================================================================================================
GLOBAL TACTICAL EXPOSURE PORTFOLIO FINANCIAL HIGHLIGHTS
(in whole dollars unless otherwise indicated)
=================================================================================================================================
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD Year Ended Year Ended Year Ended Year Ended Year Ended
12./31/98 12/31/97 12/31/96 12/31/95 12/31/94
- ------------------------------------------------------- -------------- -------------- ------------- ------------- ===============
Net asset value at beginning of period 10.05 9.80 10.19 10.00*** 10.39
- ------------------------------------------------------- -------------- -------------- ------------- ------------- ===============
Net investment income 0.52**** 0.41 0.47 0.19 0.20
Net realized and unrealized gains or (losses) on
investments, swaps, financial futures, and options
contracts, and foreign currency-related transactions 0.28 0.43 (0.15) 0.19 (0.46)
- ------------------------------------------------------- -------------- -------------- ------------- ------------- ===============
Total investment income 0.80 0.84 0.32 0.38 (0.26)
======================================================= -------------- -------------- ------------- ------------- ===============
Distributions from net investment income 0.53 0.36 0.47 0.19 0.20
Distributions in excess of net investment income 0.00 (c) 0.17 --- 0.00 (c) ---
Distributions from net realized gain on investments,
financial futures contracts and foreign currency --- 0.06 0.05 --- 0.50
related transactions
Distributions in excess of net realized gain on
investments, financial futures contracts, and
foreign currency related transactions 0.07 --- 0.09 --- ---
Distributions from capital stock in excess of par --- --- 0.10 --- ---
value
- ------------------------------------------------------- -------------- -------------- ------------- ------------- ===============
Total distributions 0.60 0.59 0.71 0.19 0.70
- ------------------------------------------------------- -------------- -------------- ------------- ------------- ===============
======================================================= -------------- -------------- ------------- ------------- ===============
Net asset value at end of period 10.25 10.05 9.80 10.19 9.43**
======================================================= -------------- -------------- ------------- ------------- ===============
Total return on investment 8.20% 8.77% 3.18% 13.45% (b) (2.53%)
Net assets at end of period in 000's 423,966 283,005 126,645 34,005 ---
Ratio of operating expenses to average net assets,
exclusive of interest expense (a) 0.27% 0.42% 0.60% 0.60% (b) 0.57%
Ratio of operating expenses to average net assets,
inclusive of interest expense (a) 5.54% --- --- --- ---
Ratio of net income to average net assets 5.14% 3.67% 4.65% 6.12% (b) 2.87%
Decrease in above expense ratios due to waiver of
investment advisory fees and reimbursement of other 0.30% 0.16% 0.06% 0.17% (b) 0.49%
expenses
Portfolio turnover rate 766% 712% 784% 764% 1,282%
======================================================= ============== ============== ============= ============= ===============
</TABLE>
(a) Net of waivers and reimbursements (b) Annualized (c) Rounds to less than
$0.01 * Commencement of operations ** Represents net asset value per share at
12/30/94. The Portfolio was fully liquidated on 12/30/94 based on this net asset
value. *** The Portfolio recommenced operations on 9/14/95. **** Calculations
based on average shares outstanding.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
=================================================================================================================================
WORLDWIDE PORTFOLIO FINANCIAL HIGHLIGHTS
(in whole dollars unless otherwise indicated)
=================================================================================================================================
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD Year Ended Year Ended Year Ended Year Ended Year Ended
12/31/98 12/31/97 12/31/97 12/31/95 12/31/94
- ------------------------------------------------------------- ------------- ------------ ------------- ------------- ============
Net asset value at beginning of period 9.42 9.64 9.83 9.27 10.02
- ------------------------------------------------------------- ------------- ------------ ------------- ------------- ============
Net investment income 0.46 0.49 0.53 0.58 0.50
Net realized and unrealized gains or (losses) on
investments, financial futures and options contracts and
foreign currency-related transactions 0.96 (0.22) 0.01 0.56 (0.74)
- ------------------------------------------------------------- ------------- ------------ ------------- ------------- ============
Total investment income 1.42 0.27 0.54 1.14 (0.24)
============================================================= ------------- ------------ ------------- ------------- ============
Distributions from net investment income 0.46 0.19 0.53 0.30 0.20
Distributions in excess of net investment income --- 0.11 --- --- 0.01
Distributions from net realized gain on investments,
financial futures, and options contracts and foreign 0.10 --- 0.09 --- ---
currency-related transactions
Distributions in excess of net realized gain on
investments, financial futures and options contracts, and --- --- --- --- ---
foreign currency related transactions
Distributions from capital stock in excess of par value --- 0.19 0.11 0.28 0.30
- ------------------------------------------------------------- ------------- ------------ ------------- ------------- ============
Total distributions 0.56 0.49 0.73 0.58 0.51
- ------------------------------------------------------------- ------------- ------------ ------------- ------------- ============
Net asset value at end of period 10.28 9.42 9.64 9.83 9.27
============================================================= ------------- ------------ ------------- ------------- ============
Total return on investment 15.58% 2.93% 5.77% 12.60% (2.25%)
Net assets at end of period in 000's $69,653 82,236 74,939 86,186 53,721
Ratio of operating expenses to average net income -
exclusive of interest expense (a) 0.60% 0.60% 0.60% 0.60% 0.60%
Ratio of operating expenses to average net income -
inclusive of interest expense (a) 0.60% 0.60% 0.60% 0.60% 0.63%
Ratio of net investment income to average net assets (a) 4.76% 5.21% 5.52% 6.13% 5.11%
Decrease in above expense ratios due to waiver of
investment advisory fees and reimbursement of other 0.01% 0.02% 0.05% 0.30% 0.02%
expenses
Portfolio turnover rate 668% 713% 1,126% 1,401% 1,479%
============================================================= ============= ============ ============= ============= ============
</TABLE>
(a) Net of waivers and reimbursements
<TABLE>
<S> <C> <C> <C> <C> <C>
==================================================================================================================================
WORLDWIDE-HEDGED PORTFOLIO'S FINANCIAL HIGHLIGHTS
(in whole dollars unless otherwise indicated)
============================================================ ------------- ------------ ------------- -------------- =============
FOR A SHARE OUTSTANDING THROUOUT THE PERIOD Year Ended Year Ended Year Ended Year Ended Year Ended
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
- ------------------------------------------------------------ ------------- ------------ ------------- -------------- =============
Net asset value at beginning of period 11.23 10.91 10.85 10.41 10.08
- ------------------------------------------------------------ ------------- ------------ ------------- -------------- =============
Net investment income 0.59 0.53 0.62 0.45 0.34
Net realized and unrealized gains or (losses) on
investments, financial futures and options contracts, 0.68 0.80 0.43 0.66 0.43
and foreign currency-related transactions
- ------------------------------------------------------------ ------------- ------------ ------------- -------------- =============
Total investment income 1.27 1.33 1.05 1.11 0.77
- ------------------------------------------------------------ ------------- ------------ ------------- -------------- =============
Distributions from net investment income 0.70 0.59 0.62 0.67 0.44
Distributions in excess of net investment income --- --- 0.37 --- 0.00**
Distributions from net realized gain on investments,
financial futures and options contracts and on foreign 0.61 0.42 --- --- ---
currency-related transactions
============================================================ ------------- ------------ ------------- -------------- =============
Total distributions 1.31 1.01 0.99 0.67 0.44
- ------------------------------------------------------------ ------------- ------------ ------------- -------------- =============
Net asset value at end of period 11.19 11.23 10.91 10.85 10.41
- ------------------------------------------------------------ ------------- ------------ ------------- -------------- =============
Total return on investment 11.53% 12.60% 10.03% 11.00% 7.84%
Net assets at end of period in 000's 174,805 80,390 30,024 28,255 273
Ratio of operating expenses to average net assets -
exclusive of interest expense (a) 0.45% 0.45% 0.45% 0.45% 0.60%
Ratio of operating expenses to average net assets -
inclusive of interest expense (a) 0.45% 0.45% 0.45% 0.45% 0.65%
Ratio of net income to average net assets (a) 4.85% 5.29% 5.71% 5.84% 4.72%
Decrease in above expense ratios due to waiver of
investment advisory fees and reimbursement of other 0.13% 0.20% 0.24% 0.54% 0.17%
expenses
Portfolio turnover rate 745% 704% 1,087% 500% 1,622%
============================================================ ============= ============ ============= ============== =============
</TABLE>
(a) Net of waivers and reimbursements ** Rounds to less than $0.01
<TABLE>
<S> <C> <C>
==================================================================================================================================
INTERNATIONAL PORTFOLIO FINANCIAL HIGHLIGHTS
(in whole dollars unless otherwise indicated)
==================================================================================================================================
FOR A SHARE EXCEPT WHERE OTHERWISE INDICATED Year Ended Year Ended
12/31/98 12/31/97
- ------------------------------------------------------------------------------------------------- --------------- ================
Net asset value at beginning of period 9.50 10.20
- ------------------------------------------------------------------------------------------------- --------------- ================
Net investment income 0.48 0.50
Net realized and unrealized gains or (losses) on investments, financial futures contracts, and 1.21 (0.56)
foreign currency-related transactions
- ------------------------------------------------------------------------------------------------- --------------- ================
Total investment income 1.69 (0.06)
- ------------------------------------------------------------------------------------------------- --------------- ================
Distributions from net investment income 0.45 0.14
Distributions in excess of net investment income 0.40 ---
Distributions from net realized gain on investments, financial futures contracts, and foreign
currency related transactions 0.66 0.14
Distributions from capital stock in excess of par value --- 0.36
================================================================================================= --------------- ================
Total distributions 1.51 0.64
================================================================================================= --------------- ================
Net asset value at end of period 9.68 9.50
================================================================================================= --------------- ================
Total return on investment 18.35% (0.43%)
Net assets at end of period in 000's 81,705 67,653
Ratio of operating expenses to average net assets (a) 0.60% 0.60%
Ratio of net investment income to average net assets (a) 4.56% 5.19%
Decrease in above expense ratios due to waiver of investment advisory fees 0.03% 0.10%
Portfolio turnover rate 1,049% 809%
================================================================================================= --------------- ================
</TABLE>
(a) Net of waivers and reimbursements (b)
Annualized (c) Not annualized *Commencement of
operations
<TABLE>
<S> <C>
==============================================================================================================================
INTERNATIONAL Opportunities PORTFOLIO FINANCIAL HIGHLIGHTS
(in whole dollars unless otherwise indicated)
==============================================================================================================================
FOR A SHARE EXCEPT WHERE OTHERWISE INDICATED Period from
10/8/98* to
12/31/98
- ---------------------------------------------------------------------------------------------------------- ===================
Net asset value at beginning of period 10.00
- ---------------------------------------------------------------------------------------------------------- ===================
Net investment income 0.09
Net realized and unrealized gains or (losses) on investments, financial futures contracts, and foreign --
currency-related transactions
- ---------------------------------------------------------------------------------------------------------- ===================
Total investment income 0.09
- ---------------------------------------------------------------------------------------------------------- ===================
Distributions from net investment income 0.09
Distributions in excess of net realized gain on investments, financial futures contracts, and foreign 0.06
currency related transactions
========================================================================================================== ===================
Total distributions 0.15
========================================================================================================== ===================
Net asset value at end of period 9.94
========================================================================================================== ===================
Total return on investment 0.89% (c)
Net assets at end of period in 000's $25,576
Ratio of operating expenses to average net assets (a) 0.60% (b)
Ratio of net investment income to average net assets (a) 3.78% (b)
Decrease in above expense ratios due to waiver of investment advisory fees 0.29% (b)
Portfolio turnover rate 238%
========================================================================================================== ===================
</TABLE>
(a) Net of waivers and reimbursements (b)
Annualized (c) Not annualized *Commencement of
operations
<TABLE>
<S> <C> <C>
==============================================================================================================================
EMERGING MARKET PORTFOLIO'S FINANCIAL HIGHLIGHTS
(in whole dollars unless otherwise indicated)
==============================================================================================================================
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD Year Ended From 8/12/97*
12/31/98 to 12/31/97
- --------------------------------------------------------------------------------------------- ---------------- ===============
Net asset value at beginning of period 9.59 10.00
- --------------------------------------------------------------------------------------------- ---------------- ===============
Net investment income 0.88 0.29
Net realized gains or (losses) on investments, financial futures contacts and foreign (1.86) (0.41)
currency-related transactions
- --------------------------------------------------------------------------------------------- ---------------- ===============
Total investment income (0.98) (0.12)
- --------------------------------------------------------------------------------------------- ---------------- ===============
Distributions from net investment income 0.76 0.29
============================================================================================= ---------------- ===============
Distributions from net realized and realized (losses) on investments, financial futures --- ---
contracts and foreign currency-related transactions
============================================================================================= ---------------- ===============
Distributions from capital stock in excess of par value 0.13 ---
============================================================================================= ---------------- ===============
Total distributions 0.89 0.29
============================================================================================= ---------------- ===============
Net asset value at end of period --- 9.59
============================================================================================= ---------------- ===============
Total return on investment (10.50%) (1.20%) (b)
Net assets at end of period in 000's 164,709 111,043
Ratio of operating expenses to average net assets, exclusive of interest expense 1.00% 1.03% (a)
Ratio of operating expenses to average net assets, inclusive of interest expense 1.15% 1.03% (a)
Ratio of net income to average net assets 10.52 7.87% (a)
Portfolio turnover rate 157% 16%
============================================================================================= ================ ===============
</TABLE>
(a) Annualized (b) Not Annualized * Commencement of operations
SHAREHOLDER INQUIRIES
This Prospectus contains a concise statement of information investors should
know before they invest in the Fund. Please retain this Prospectus for future
reference. Additional information about the Fund's investments is available in
the Fund's annual and semi-annual reports to shareholders, as well as the
Statement of Additional Information (SAI). The SAI provides more detailed
information about the Portfolios, including their operations and investment
policies. A current SAI is on file with the Securities and Exchange Commission
and is incorporated by reference and is legally considered a part of this
Prospectus. In the Fund's annual report, you will find a discussion of the
market conditions and investment strategies that significantly affected the
Fund's performance during its last fiscal year.
The Fund's SAI, annual and semi-annual reports are available, without charge,
upon request by contacting Investors Capital Services, Inc., a branch office of
AMT Capital Securities, L.L.C., 600 Fifth Avenue, New York, NY 10020 at their
toll free telephone number (800) 762-4848 [or (212) 332-5211, if within New York
City].
Information about the Fund (including the SAI) can be reviewed and copied at the
Commission's Public Reference Room in Washington D.C. Information on the
operation of the public reference room may be obtained by calling the Commission
at 1-800-SEC-0330. Reports and other information about the Fund are available on
the Commission's Internet site at http://www.sec.gov. Copies of this information
may be obtained, upon payment of a duplicating fee, by writing the Public
Reference Section of the Commission, Washington D.C.
20549-6009.
Insert the Fund's Investment Company Act filing number here in 8 pt. type.
72
FFTW FUNDS, INC.
200 Park Avenue, 46th Floor, New York, New York 10166 (212) 681-3000
Distributed by:
Investors Capital Services, Inc., ("Investors Capital")
a branch office of
AMT Capital Securities, L.L.C. ("AMT Capital")
600 Fifth Avenue
New York, NY 10020
(212) 332-5211
===============================================================================
STATEMENT OF ADDITIONAL INFORMATION
===============================================================================
May 3, 1999
FFTW Funds, Inc. (the "Fund") is a no-load, open-end
management investment company managed by Fischer
Francis Trees & Watts, Inc. (the "Investment
Adviser"). The Fund currently consists of twenty-one
portfolios (each a "Portfolio") grouped in two
Prospectuses as described below:
<TABLE>
<S> <C>
U.S. Portfolios Prospectus Global and International Portfolios Prospectus
- ------------------------------------------------- ---------------------------------------------------------------
Money Market Global Tactical Exposure
Mortgage LIBOR Worldwide
U.S. Short-Term Worldwide-Hedged
Limited Duration International
Mortgage-Backed International Opportunities
Asset-Backed International Corporate
High Yield Emerging Markets
Enhanced Equity Market Global High Yield
U.S. Treasury Inflation-Indexed
U.S. Corporate Inflation-Indexed Hedged
Broad Market
</TABLE>
This Statement of Additional Information is not a prospectus and should be read
in conjunction with each Portfolio's Prospectus dated May 1, 1999. The two
Prospectuses have been filed with the Securities and Exchange Commission and can
be obtained, without charge, by calling or writing Investor's Capital. This
Statement of Additional Information incorporates by reference the Prospectus.
<PAGE>
CONTENTS
<TABLE>
<S> <C>
Page
Overview of the Fund 3
History of the Fund 3
Organization of the Fund 3
Management of the Fund 3
Principal Securities Holders 8
Distribution of Fund Shares 12
Money Market Minimum Credit ratings for Allowable Investments 12
Supplemental Investment Information 12
Supplemental Descriptions of Investments 12
Supplemental Descriptions of Investment Techniques 16
Supplemental Discussion of Risks Associated with the fund's
Investment Policies and 17
Investment Techniques
Supplemental Hedging Techniques 19
Investment Restrictions 26
Portfolio Transactions 28
Supplemental Tax Considerations 29
Shareholder Information 33
Calculation of Performance Data 33
Financial Statements 36
Appendix 36
Merrill Lynch 1-2.99 Year Treasury Index 36
Quality Rating Descriptions 36
</TABLE>
OVERVIEW OF THE FUND
HISTORY OF THE FUND
From its inception on February 23, 1989 to September 27, 1989, Fund's name was
"FFTW Institutional Reserves Fund, Inc." The Fund commenced operations on
December 6, 1989. From September 27, 1989 to July 22, 1991 the Fund's name was
"FFTW Reserves, Inc." On July 22, 1991 the Fund's name was changed to its
present name, "FFTW Funds, Inc." The U.S. Short-Term Portfolio commenced
operations on December 6, 1989, Worldwide Portfolio commenced operations on
April 15, 1992 and Worldwide-Hedged Portfolio commenced operations on May 19,
1992. These Portfolios were called the Short-Term Series (and prior to September
18, 1991 as FFTW Institutional Reserves Fund), Worldwide Series and Worldwide
Hedged Series, respectively. The Board of Directors recently approved a name
change for several Portfolios, eliminating "Fixed Income" from their name.
Effective September 11,1998, the name of the International-Hedged Portfolio was
changed to the Global Tactical Exposure Portfolio, the name of the Stable Return
Portfolio was changed to Limited Duration Portfolio and the name of the Mortgage
Total Return Portfolio was changed to Mortgage-Backed Portfolio.
ORGANIZATION OF THE FUND
Stock Issuance
The Fund's authorized capital stock consists of 5,000,000,000 shares, each with
$.001 par value. Each Portfolio has been allocated 200,000,000 shares, with
800,000,000 shares unallocated.
Shareholder Voting
Each Portfolio's shares have equal voting rights--all shareholders have one vote
for each share held. All issued and outstanding shares are fully paid and
non-assessable, transferable, and redeemable at net asset value at the
shareholder's option. Shares have no preemptive or conversion rights.
The Fund's shares have non-cumulative voting rights. Thus, in a Board of
Directors election, shareholders holding more than 50% of the voting shares can
elect 100% of the Directors if they choose to do so. In such event, the holders
of the remaining voting shares (less than 50%) will be unable to elect any
person or persons to the Board of Directors.
Cross Portfolio Liability
No Portfolio of the Fund shall be liable for the obligations of any other
Portfolio.
MANAGEMENT OF THE FUND
Board of Directors and Officers
The Fund is managed by its Board of Directors. The individuals listed below are
the officers and directors of the Fund. An asterisk (*) placed next to the name
of each director means the director is an "interested person" of the Fund. Such
term is defined in the Investment Company Act of 1940, as amended (the "1940
Act"), by virtue of his affiliation with the Fund or the Investment Adviser.
John C Head III, Fund Director
1330 Avenue of the Americas, New York, New York Mr. Head has been a Managing
Member of Head & Company L.L.C. since 1987. He is Chairman of the Board of ESG
Re Limited and a Director of PartnerRe Ltd. and other private companies.
Lawrence B. Krause, Fund Director
University of California - San Diego ("UCSD"), La
Jolla, CA. Mr. Krause is a member of the Editorial
Advisory Board of the Political Science Quarterly, a
member of the Council on Foreign Relations, and
Vice-Chairman of the U.S. National Committee for
Pacific Economic Cooperation. In December, 1990, he
was selected as the first holder of the Pacific
Economic Cooperation Chair at UCSD. In 1989, Mr.
Krause became the Director, Korea-Pacific Program at
UCSD. In 1988, he was named Coordinator of the
Pacific Economic Outlook Project for the Pacific
Economic Cooperation Conference. Mr. Krause was the
first appointment to the new Graduate School of
International Relations and Pacific Studies at UCSD
and joined the faculty as a professor on January 1,
1987. From 1969 - 1986 Mr. Krause was a senior fellow
of the Brookings Institution. Mr. Krause is also an
author of numerous publications.
*Onder John Olcay, Fund Chairman of the Board
200 Park Avenue, New York, NY. Mr. Olcay has been a
shareholder and Managing Director of the Investment
Adviser for the last six years.
*Stephen P. Casper, Fund Director
200 Park Avenue, New York, NY Mr. Casper has been a shareholder and Managing
Director of the Investment Adviser since December 1991. In addition, Mr. Casper
has been the Chief Financial Officer of the Investment Adviser since February
1990. From March 1984 through January 1990, Mr. Casper was Treasurer of
Rockefeller & Company, a registered investment adviser.
Carla E. Dearing, Fund Assistant Treasurer
600 Fifth Avenue, New York, NY. Ms. Dearing serves as
President and Director of Investors Capital. Ms.
Dearing was a former Vice President of Morgan Stanley
& Co., where she worked from June 1984 to August 1986
and from November 1988 to January 1992.
William E. Vastardis, Fund Secretary and Treasurer 600 Fifth Avenue, New York,
NY. Mr. Vastardis serves as Managing Director and Head of Fund Administration
for Investors Capital. Prior to his employment at Investors Capital, Mr.
Vastardis served as Vice President and head of the Vanguard Group Inc.'s private
label administration unit for seven years, after working six years in Vanguard's
fund accounting operations.
No employee of the Investment Adviser nor Investors Capital receives
compensation from the Fund for acting as an officer or director of the Fund. The
Fund pays each director who is not a director, officer or employee of the
Investment Adviser or Investors Capital or any of their affiliates, a fee of
$1,000 for each meeting attended, and each of the Directors receive an annual
retainer of $20,000 which is paid in quarterly installments.
Director's Compensation Table
Fiscal Year Ended December 31, 1998
<TABLE>
<S> <C> <C> <C> <C>
- --------------------------- --------------------------- ---------------------- ---------------- --------------------------
Director Aggregate Compensation Pension or Estimated Total Compensation From
From Registrant Retirement Benefits Annual Registrant and Fund
Accrued As Part of benefits Upon Complex Paid to Directors
Fund Expenses Retirement
- --------------------------- --------------------------- ---------------------- ---------------- --------------------------
- --------------------------- --------------------------- ---------------------- ---------------- --------------------------
Stephen P. Casper $0 $0 $0 $0
- --------------------------- --------------------------- ---------------------- ---------------- --------------------------
- --------------------------- --------------------------- ---------------------- ---------------- --------------------------
John C Head III $20,000 $0 $0 $20,000
- --------------------------- --------------------------- ---------------------- ---------------- --------------------------
- --------------------------- --------------------------- ---------------------- ---------------- --------------------------
Lawrence B. Krause $20,000 $0 $0 $20,000
- --------------------------- --------------------------- ---------------------- ---------------- --------------------------
- --------------------------- --------------------------- ---------------------- ---------------- --------------------------
Onder John Olcay $0 $0 $0 $0
- --------------------------- --------------------------- ---------------------- ---------------- --------------------------
- --------------------------- --------------------------- ---------------------- ---------------- --------------------------
Stephen J. Constantine $0 $0 $0 $0
- --------------------------- --------------------------- ---------------------- ---------------- --------------------------
</TABLE>
By virtue of the responsibilities assumed by the Investment Adviser and
Investors Capital and their affiliates under their respective agreements with
the Fund, the Fund itself requires no employees in
addition to its officers.
Directors and officers of the Fund collectively owned less than 1% of the Fund's
outstanding shares as of December 31, 1998.
Investment Adviser and Sub-Adviser Agreements The Fund has two sets of advisory
agreements, one agreement covering the three Portfolios: U.S. Short-Term,
Worldwide and Worldwide-Hedged, and eighteen others, one for each of the
remaining Portfolios. The Fund also has two sets of sub-advisory agreements, one
covering Worldwide and Worldwide-Hedged Portfolios, and eight others, one for
each of the remaining Global and International Portfolios.
Pursuant to their terms, the advisory agreements between the Fund and the
Investment Adviser (the "Advisory Agreements") and the sub-advisory agreements
(the "Sub-Advisory Agreements") between the Investment Adviser and its affiliate
Fischer Francis Trees & Watts (the "Sub-Adviser"), remain in effect for two
years following their date of execution. Thereafter, such agreements will
automatically continue for successive annual periods. Continuance thereafter, is
specifically approved at least annually. Continuance is voted on by the Board of
Directors or the vote of a Portfolio's "majority" (as defined in the 1940 Act)
of outstanding voting shares as a single class, provided, that in either event,
the continuance is also approved by: a. at least a majority of the Board of
Directors who are not "interested persons" (as defined in the 1940 Act) of the
Fund, b. the Investment Adviser, or c. the Sub-Adviser by vote cast in person at
a meeting called for the purpose of voting on such approval. The following table
highlights the dates in which the Advisory Agreements were last approved by the
Board of Directors and by the Portfolio's public shareholders:
Last Advisory Agreement Approval Dates
<TABLE>
<S> <C> <C> <C>
U.S. Portfolios Last Board Approval Last Shareholder Approval
Money Market 2/19/99 1/21/97
Mortgage LIBOR 7/7/98 9/8/98
U.S. Short -Term 2/19/99 4/3/91
Limited Duration 2/1/98 2/18/93
Mortgage-Backed 2/19/99 1/2/96
Asset-Backed 7/7/98 9/8/98
High Yield 7/7/98 9/8/98
Enhanced Equity Market 7/7/98 9/8/98
U.S. Treasury 2/1/98 1/21/97
U.S. Corporate 7/7/98 9/8/98
Broad Market 2/1/98 1/21/97
Global and International Portfolios Last Board Approval Last Shareholder Approval
Global Tactical Exposure 2/1/98 2/18/93
Worldwide 2/19/99 12/31/92
Worldwide-Hedged 2/19/99 12/31/92
International 2/1/98 2/18/93
International Opportunities 7/7/98 9/8/98
International Corporate 7/7/98 9/8/98
Emerging Markets 2/19/99 1/21/97
Global High Yield 7/7/98 9/8/98
Inflation-Indexed 2/19/99 1/21/97
Inflation-Indexed Hedged 2/19/99 1/21/97
The following table highlights the dates in which the Sub-Advisory Agreements
were last approved by the Board of Directors and by a majority of shareholders.
Last Sub-Advisory Agreement Approval Dates
Global and International Portfolios Last Board Approval Last Shareholder Approval
Global Tactical Exposure 2/11/98 2/18/93
Worldwide 2/19/99 12/31/92
Worldwide-Hedged 2/19/99 12/31/92
International 2/19/99 2/18/93
International Opportunities 7/7/98 9/8/98
International Corporate 7/7/98 9/8/98
Emerging Markets 2/19/99 1/21/97
Global High Yield 7/7/98 9/8/98
Inflation-Indexed 2/19/99 1/21/97
Inflation-Indexed Hedged 2/19/99 1/21/97
</TABLE>
Each Advisory and Sub-Advisory Agreement is terminable
without penalty:
a. on not less than 60 days' notice by the Board of Directors;
b. by a vote of the holders of a majority of the relevant Portfolio's
outstanding shares voting as a single class; or
c. upon not less than 60 days' notice by the Investment Adviser or the
Sub-Adviser.
Each Advisory and Sub-Advisory Agreement will terminate automatically in the
event of its "assignment" (as defined in the 1940 Act).
Adviser's/Sub-Adviser's Payment of Fund Expenses
The Investment Adviser pays all of its expenses
arising from its performance obligations pursuant to
the Advisory Agreements, including:
a. all executive salaries and expenses of the Fund's directors,
b. officers employed by the Investment Adviser, or
c. its affiliates and office rent of the Fund.
The Investment Adviser will pay all of the fees payable to its affiliate as
Sub-Adviser. The Sub-Adviser pays all of its expenses arising from the
performance of its obligations under the Sub-Advisory Agreements.
Fund's Payment of Fund Expenses
Subject to the expense reimbursement provisions described in the Prospectus
under "Fund Expenses," other expenses incurred in the operation of the Fund are
borne by the Fund, including, without limitation:
<TABLE>
<S> <C> <C>
a. investment advisory fees, j. expenses of printing and distributing reports to
shareholders,
b. brokerage commissions, k. notices and proxy materials to existing shareholders,
c. insurance premiums and extraordinary expenses l. expenses of printing and filing reports and other
such as litigation expenses, documents filed with governmental agencies,
d. fees and expenses of independent attorneys, m. expenses of annual and special shareholders' meetings,
e. auditors, n. membership dues in the Investment Company Institute,
f. custodians, o. interest,
h. administrators, p. fees and expenses of directors of the Fund who are not
i. expenses of registering and qualifying shares employees of the Investment Adviser or its affiliates.
of the Fund under federal and state laws and
regulations,
</TABLE>
Portfolio's Payment of Fund Expenses Fund expenses directly attributable to a
Portfolio are charged to that Portfolio; other expenses are allocated
proportionately among all the Portfolios in relation to their net assets. As
compensation (subject to expense caps as described under "Portfolio Operating
Expenses" in the Prospectus) for the services rendered by the Investment Adviser
under the Advisory Agreements, each Portfolio pays the Investment Adviser a
monthly advisory fee (U.S. Short Term, Worldwide and Worldwide-Hedged Portfolios
pay their fees quarterly) which is calculated by applying the following annual
percentage rates to such Portfolio's average daily net assets for the month
(quarter):
<PAGE>
<TABLE>
<S> <C> <C> <C>
----------------------------------------------------- -------------------------------------------------------
U.S. Portfolios Global and International Portfolios
Rates Rates
----------------------------------------------------- -------------------------------------------------------
----------------------------------------------------- -------------------------------------------------------
Money Market 0.10% Global Tactical Exposure*** 0.10%
Mortgage LIBOR 0.30% Worldwide 0.40%
U.S. Short Term* 0.15% Worldwide-Hedged **** 0.30%
Limited Duration 0.35% International 0.40%
Mortgage-Backed** 0.10% International Opportunities 0.40%
Asset-Backed 0.10% International Corporate 0.10%
High Yield 0.40% Emerging Markets 0.75%
Enhanced Equity Market 0.35% Global High Yield 0.50%
U.S. Treasury 0.30% Inflation-Indexed 0.40%
U.S. Corporate 0.10% Inflation-Indexed Hedged 0.40%
Broad Market 0.30%
----------------------------------------------------- -------------------------------------------------------
</TABLE>
* Effective March 1, 1996, the Investment Adviser has voluntarily lowered the
advisory fee from 0.30%. ** Effective October 1, 1997, the Investment Adviser
has voluntarily lowered the advisory fee from 0.35%. *** Effective September 1,
1997 the Investment Adviser has voluntarily lowered the advisory fee from 0.40%.
**** Effective July 1, 1995, the Investment Adviser has voluntarily lowered the
advisory fee from 0.40%.
For the years ended December 31, 1998, December 31, 1997, December 31, 1996 and
December 31, 1995, the amount of advisory fees (net of waivers and
reimbursements) paid by each Portfolio were as follows:
<TABLE>
<S> <C> <C> <C> <C>
- --------------------------------- ----------------------- -------------------- -------------------- ----------------------
Year Ended Dec. 31, Year Ended Dec. Year Ended Dec. Year Ended Dec. 31,
Portfolio Name 1998 31, 1997 31, 1996 1995
- --------------------------------- ----------------------- -------------------- -------------------- ----------------------
U.S. Portfolios
- --------------------------------- ----------------------- -------------------- -------------------- ----------------------
Money Market
$7,832 $7,718 $0 $0
U.S. Short-Term
$856,044 $598,652 $607,871 $867,461
Limited Duration
$109,507 $10,639 $1,711 $0
Mortgage-Backed (1)
$843,247 $1,286,506 $126,822 N/A
- --------------------------------------------------------------------------------------------------------------------------
Global and International Portfolios
- --------------------------------- ----------------------- -------------------- -------------------- ----------------------
Global Tactical Exposure (2)
$334,646 $500,355 $180,065 $52,860
Worldwide
$323,633 $308,466 $334,929 $46,819
Worldwide-Hedged
$415,539 $112,750 $1,647 $0
International (3)
$269,258 $136,714 $12,322 N/A
International Opportunities (4)
$6,257 N/A N/A N/A
Emerging Markets (5)
$1,191,914 $191,177 N/A N/A
(1) Commencement of operations was April 29, 1996.
(2) Commencement of operations was May 9, 1996.
(3) The Portfolio was fully liquidated on December 30, 1994, and
recommenced operations on September 14, 1995
(4) Commencement of operations was on October 8, 1998.
(5) Commencement of operations was August 12, 1997.
</TABLE>
<PAGE>
Administration Agreement
Pursuant to its terms, the Administration Agreement between the Fund and
Investors Capital, a Delaware corporation, will automatically continue for
successive annual periods subject to the approval of the Fund's Board of
Directors. Investors Capital provides for, or assists in, managing and
supervising all aspects of, the general day-to-day business activities and
operations of the Fund other than investment advisory activities, including
custodial, transfer agency, dividend disbursing, accounting, auditing,
compliance and related services.
PRINCIPAL SECURITIES HOLDERS
Money Market Portfolio
As of March 31, 1999 the following persons held 5% or more of the outstanding
shares, Common Stock, $.001 per share, as beneficial owners:
<TABLE>
<S> <C>
Name and Address of Beneficial Owner: Percent of Portfolio:
COOPER INDUSTRIES INC., 1001 FANNIN ST., FIRST CITY TOWER, STE. 3900 99.33%
P.O. BOX 4446, HOUSTON, TX 77210
U.S. Short-Term Portfolio
As of March 31, 1999 the following persons held 5% or more of the outstanding
shares, Common Stock, $.001 per share, as beneficial owners:
Name and Address of Beneficial Owner: Percent of Portfolio:
General Motors Employees Global Group Pension Trust, c/o Fischer Francis Trees & Watts, Inc., 200 40.93%
Park Ave., 46th Fl., New York, NY 10166
Bank Of America Fund c/o Fischer Francis Trees & Watts, Inc., 200 PARK AVE. 46TH FL., NEW YORK, NY 10.78%
10166
PACIFIC GAS AND ELECTRIC CO. SHORT TERM LIQUIDITY PORTFOLIO C/O STATE STREET BANK AND TRUST, ONE 7.69%
ENTERPRISE DR., N. QUINCY, MA 02171
SOLUTIA INC. DEFINED BENEFIT PLAN, C/O FISCHER FRANCIS TREES & WATTS INC., 200 PARK AVE., 46TH 6.36%
FLOOR, NEW YORK, NY 10166
</TABLE>
Limited Duration Portfolio
As of March 31, 1999 the following persons held 5% or more of the outstanding
shares, Common Stock, $.001 per share, as beneficial owners:
<TABLE>
<S> <C>
Name and Address of Beneficial Owner Percent of Portfolio
Rockdale Health Systems, c/o Fischer Francis Trees & Watts, Inc., 200 Park Ave., New York, NY 10166 36.83%
BARCLAYS GLOBAL INVESTORS TR. FBO MARS DEFERRED COMPENSATION PLAN STABLE VALUE MASTER FUND, 800 25.27%
SCUDDERS MILL RD., PLAINSBORO, NJ 08536
CORP. FOR SUPPORTIVE HOUSING, 342 MADISON AVE., STE. 505, NEW YORK, NY 10173 14.40%
THE DOW CHEMICAL CO. FOUNDATION, DORINCO 100, MIDLAND, MI 48674 12.27%
SPRINT SHORT INTERMEDIATE, 2330 SHAWNEE MISSION PKWY. WAESTWOOD, KS 66205-2005 7.28%
</TABLE>
Mortgage-Backed Portfolio
As of March 31, 1999 the following persons held 5% or more of the outstanding
shares, Common Stock, $.001 per share, as beneficial owners:
<TABLE>
<S> <C>
Name and Address of Beneficial Owner Percent of Portfolio
Ford Motor Co., Dingle & Co., Fbo Ford Motor Co. c/o Comercia Bank P.O. Box 75000, Detroit, MI 48275 30.66%
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT RETIREMENT STAFF BENEFITS PLAN, C/O 10.89%
FISCHER FRANCIS TREES & WATTS INC., 200 PARK AVE., 46TH FL., NEW YORK, NY 10166
HARBOR CAPITAL GROUP TRUST FOR DEFINED BENEFIT PLANS C/O FISCHER FRANCIS TREES & WATTS, INC., 200 9.42%
PARK AVE. 46TH FL., NEW YORK, NY 10166
THE NORTHERN TRUST CO FBO MONSANTO DEFINED CONTRIBUTION AND EMPLOYEE STOCK OWNERSHIP TRUST, P.O. BOX 9.33%
92956, CHICAGO, IL 60675
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT STAFF RETIREMENT PLAN, C/O FISCHER FRANCIS 8.60%
TREES & WATTS, INC. 200 PARK AVE. 46TH FL., NEW YORK, NY 10166
STATE STREET BANK & TRUST CO. FBO BULL HN INFORMATION SYSTEMS INC. RETIREMENT/AGGREGATE, 1 7.74%
ENTERPRISE DRIVE SW 5C, N. QUINCY, MA02171
</TABLE>
Global Tactical Exposure Portfolio
As of March 31, 1999 the following persons held 5% or more of the outstanding
shares, Common Stock, $.001 per share, as beneficial owners:
<TABLE>
<S> <C>
Name and Address of Beneficial Owner: Percent of Portfolio:
COMERICA BANK TR. U/A DTD 5/1/86 FORD MOTOR CO., MASTER TRUST MUTUAL FUNDS, P.O. BOX 75000, 64.63%
DETROIT, MI 48275
Harbor Capital Group Trust For Defined Benefit Plans, c/o Fischer Francis Trees & Watts, Inc. 200 8.04%
Park Ave., 46th Fl., New York, NY 10166
Northrop Corporation, Employee Benefit Plan 1840 Century Park W., Los Angeles, CA 9006 5.84%
</TABLE>
Worldwide Portfolio
As of March 31, 1999 the following persons held 5% or more of the outstanding
shares, Common Stock, $.001 per share, as beneficial owners:
<TABLE>
<S> <C>
Name and Address of Beneficial Owner: Percent of Portfolio:
BOB & CO. C/O BANK OF BOSTON, P.O. BOX 1809, BOSTON, MA 02105 25.83%
COMMUNITY FOUNDATION FOR SOUTHEASTERN MICHIGAN, 333 W. FORT ST., STE. 2010, DETROIT, MI 48226 18.96%
LIVA & CO., P.O. BOX 1412, ROCHESTER, NY 14603 14.67%
GENEVA REGIONAL HEALTH SYSTEM INC. 196 NORTH ST., GENEVA, NY 14456 9.87%
MASSACHUSETTS EYE & EAR INFIRMARY - PENSION, 243 CHARLES STREET, BOSTON, MA 02114 7.43%
ROCHESTER GENERAL HOSPITAL, 1425 PORTLAND AVE., ROCHESTER, NY 14621 5.47%
FOUNDATION OF THE MASSACHUSETTS EYE AND EAR INFIRMARY - UNRESTRICTED 243 CHARLES STREET, BOSTON, 5.40%
MA 02114
</TABLE>
Worldwide-Hedged Portfolio
As of March 31, 1999 the following persons held 5% or more of the outstanding
shares, Common Stock, $.001 per share, as beneficial owners:
<TABLE>
<S> <C>
Name and Address of Beneficial Owner: Percent of Portfolio:
MAC & CO. MUTUAL FUNDS OPERATIONS, P.O. BOX 3198, PITTSBURGH, PA 15230 39.82%
THE NORTHERN TRUST COMPANY MARS BENEFIT TRUST, P.O. BOX 92956, CHICAGO, IL 60675 10.27%
MITRA & CO., 1000 N. WATER ST, 14TH FL., MILWAUKEE, WI 53202 10.05%
LAW SCHOOL ADMISSION COUNCIL, INC., BOX 40 NEWTOWN, PA18940-40 9.48%
WENDEL & CO., THE BANK OF NEW YORK, P.O. BOX 1066 WALL STREET STATION, NEW YORK, NY 10268 9.21%
STATE STREET BANK & TRUST AS TRUSTEE FOR THE GOLDMAN SACHS PENSION PLAN, 200 NEWPORT AVE., N. 6.68%
QUINCY, MA 02171
The McCallie School, 500 Dodds Ave., Chattanooga, TN 37404 5.01%
</TABLE>
International Portfolio
As of March 31, 1999 the following persons held 5% or more of the outstanding
shares, Common Stock, $.001 per share, as beneficial owners:
<TABLE>
<S> <C>
Name and Address of Beneficial Owner: Percent of Portfolio:
EVELYN AND WALTER HAAS JR FUND. ONE LOMBARD STREET, SUITE 305, SAN FRANCISCO, CA94111 30.08%
COLONIAL WILLIAMSBURG FOUNDATION, P.O. BOX 1776, WILLIAMSBURG, VA 231871776 18.76%
NORTHERN TRUST CO., P.O. BOX 92956, 801 S CANAL STREET C1S, CHICAGO, IL 60675 18.14%
MAC & CO., P.O. BOX 3198, PITTSBURGH, PA 15230-3198 8.92%
THE DOW CHEMICAL COMPANY SALARIED SAVINGS PLAN C/O BANKERS TRUST CO. 100 PLAZA ONE, MAIL STOP # 7.06%
3048, JERSEY CITY, NJ 07311
HF INVESTMENT LP, 1700 OLD DEERFIELD RD., HIGHLAND PARK, IL 60035 6.90%
RETIREMENT INCOME PLAN FOR EMPLOYEES OF COLONIAL WILLIAMSBURG, P.O. BOX 1776 WILLIAMSBURG, VA 6.07%
231871776
</TABLE>
International Opportunities Portfolio
As of March 31, 1999 the following persons held 5% or more of the outstanding
shares, Common Stock, $.001 per share, as beneficial owners:
<TABLE>
<S> <C>
Name and Address of Beneficial Owner: Percent of Portfolio:
HEB INVESTMENT PLANS C/O FISCHER FRANCIS TREES & WATTS INC., 200 PARK AVE., NEW YORK, NY 10166 100%
Emerging Markets Portfolio
As of March 31, 1999 the following persons held 5% or more of the outstanding
shares, Common Stock, $.001 per share, as beneficial owners:
Name and Address of Beneficial Owner: Percent of Portfolio:
FORD MOTOR CO MASTER TRUST, P.O. BOX 75000, DETROIT, MI 48275 35.17%
UTAH RETIREMENT SYSTEMS C/O FISHER FRANCIS TREES & WATTS, INC. 200 PARK AVE. 46TH FL., NEW YORK, 24.81%
NY10166
AMERITECH PENSION TRUST C/O FISCHER FRANCIS TREES & WATTS, INC., 200 PARK AVE. 46TH FL, NEW YORK, 9.88%
NY 10166
THE 1199 HEALTH CARE EMPLOYEES PENSION PLAN C/O FISCHER FRANCIS TREES & WATTS, INC. 200 PARK AVE., 7.20
46TH FL., NEW YORK, NY10166
HARBOR CAPITAL GROUP TRUST FOR DEFINED BENEFIT PLANS C/O FISCHER FRANCIS TREES & WATTS, INC. 200 7.05%
PARK AVE., 46TH FL., NEW YORK, NY 10166
</TABLE>
DISTRIBUTION OF FUND SHARES
Shares of the Fund are distributed by Investors Capital pursuant to a
Distribution Agreement dated as of May 29, 1998 between the Fund and Investors
Capital. No fees are payable by the Fund pursuant to the Distribution Agreement,
and Investors Capital bears the expense of its distribution activities. The Fund
and Investors Capital have agreed to indemnify one another against certain
liabilities.
Supplemental Portfolio Information
Money Market Portfolio
The Money Market Portfolio began operations as a Portfolio of FFTW Funds, Inc.
(the "FFTW Portfolio) on April 29, 1997. Previously, the Portfolio operated as
the Money Market Portfolio of AMT Capital Fund, Inc. (the "AMT Capital
Portfolio") which was sub-advised by Fischer Francis Trees & Watts, Inc.
Shareholders of this AMT Capital Portfolio approved a tax-free reorganization
into the FFTW Portfolio on April 28, 1997
The Portfolio's expected turnover ranges between 500% and 1,000% per year, but
may be higher depending on market conditions.
MORTGAGE LIBOR PORTFOLIO
The term "LIBOR" is an acronym for London InterBank Offered Rate. LIBOR is the
rate that most creditworthy international banks dealing in Eurodollars charge
each other for large loans. LIBOR is used as the base for other large Eurodollar
loans to less creditworthy corporations and governments. For purposes of this
Portfolio, home equity loans are considered mortgage-backed securities.
The Mortgage LIBOR Portfolio's average U.S. dollar-weighted duration will not
exceed plus or minus one year around the average duration of the J.P. Morgan
3-Month Eurodeposit Index. The Portfolio's expected turnover ranges between 500%
and 1,000% per year, but may be higher depending on market conditions.
U.S. Short Term Portfolio
U.S. Short-Term's shares are not guaranteed by the
U.S. Government. U.S. Short-Term is not a "money
market fund" and may engage in investments not
permitted by money market funds under applicable
regulations.
The average U.S. dollar-weighted duration generally is shorter than one year.
Except for temporary defensive purposes the Portfolio will not have a U.S.
dollar-weighted average duration exceeding three years. The Portfolio's expected
turnover ranges between 2,000% and 6,000% per year, but may be higher depending
on market conditions.
LIMITED DURATION PORTFOLIO
Limited Duration is a suitable investment option for defined contribution and
retirement plans. The Limited Duration Portfolio's name was formally changed
from Stable Return Portfolio on September 11, 1998.
The average U.S. dollar-weighted duration generally is shorter than three years.
The average U.S. dollar-weighted duration will not exceed plus or minus one year
around the average duration of the Merrill Lynch 1-2.99 Treasury Index. The
Portfolio's expected turnover ranges between 500% and 1,000% per year, but may
be higher depending on market conditions.
Mortgage-Backed portfolio
The Mortgage-Backed Portfolio's name was formally changed from Mortgage Total
Return Portfolio on September 11, 1998. For the purpose of this Portfolio, home
equity loans are considered mortgage-backed securities.
The average U.S. dollar-weighted duration will not exceed plus or minus one year
around the average duration of the Lehman Brother Mortgage-Backed Securities
Index. The Portfolio's expected turnover ranges between 500% and 1,000% per
year, but may be
higher depending on market conditions.
ASSET-Backed Portfolio
The average U.S. dollar-weighted duration generally will not exceed plus or
minus one year around the average duration of the Lehman Brothers Asset-Backed
Securities Index. The Portfolio's expected turnover ranges between 500% and
1,000% per year, but may be higher depending on market conditions.
High Yield Portfolio
The average U.S. dollar-weighted duration generally will not exceed one year
around the average duration of the Salomon Smith Barney All BB and B Rated
Issues Index. The Portfolio's expected turnover ranges between 500% and 1,000%
per year, but may be higher depending on market conditions.
Enhanced equity market Portfolio
The Portfolio's average U.S. dollar-weighted duration generally will not exceed
plus or minus 2.5 years around the average duration of the S&P 500 Index(TM).
The Portfolio's expected turnover ranges between 500% and 1,000% per year, but
may be higher depending on market conditions.
U.S Treasury Portfolio
Investors in most jurisdictions will be provided with income exempt from state
and local tax. Consult with a tax adviser to determine if your state and local
tax laws exempt income derived from U.S. Treasury mutual fund portfolios.
The average U.S. dollar-weighted duration generally will not exceed plus or
minus one year around the average duration of the Lehman Brothers Government
Securities Index. The Portfolio's expected turnover ranges between 500% and
1,000% per year, but may be higher depending on market conditions.
U.S. Corporate Portfolio
The average U.S. dollar-weighted duration generally will not exceed plus or
minus one year around the average duration of the Salomon Smith Barney Corporate
Bond Index. The Portfolio's expected turnover ranges between 500% and 1,000% per
year, but may be higher depending on market conditions.
Broad market Portfolio
The average U.S. dollar-weighted duration generally will not exceed plus or
minus one year around the average duration of the Lehman Brothers Aggregate Bond
Index.. The Portfolio's expected turnover ranges between 500% and 1,000% per
year, but may be higher depending on market conditions.
Global Tactical Exposure Portfolio
The Global Tactical Exposure Portfolio's name was formally changed from
International Hedged Portfolio on September 11, 1998. The Portfolio's average
U.S. dollar-weighted duration generally will not exceed three months, plus or
minus the average duration of the J.P. Morgan 3-Month Eurodeposit Index. The
Portfolio's expected turnover ranges between 500% and 1,000% per year, but may
be higher depending on market conditions.
Worldwide Portfolio
The Portfolio's average U.S. dollar-weighted duration generally will not exceed
one year, plus or minus the average duration of the J.P. Morgan Global
Government Bond Index (Unhedged). The Portfolio's expected turnover ranges
between 500% and 1,000% per year, but may be higher depending on market
conditions.
Worldwide-Hedged Portfolio
The Portfolio's average U.S. dollar-weighted duration generally will not exceed
one year, plus or minus the average duration of the J.P. Morgan Global
Government Bond Index (Hedged). The Portfolio's expected turnover ranges between
500% and 1,000% per year, but may be higher depending on market conditions.
International Portfolio
The Portfolio's average U.S. dollar-weighted duration
generally will not exceed one year, plus or minus the
average duration of the J.P. Morgan Global Government
Bond Index (Non-U.S. Unhedged. The Portfolio's
expected turnover ranges between 500% and 1,000% per
year, but may be higher depending on market conditions.
International opportunities Portfolio
The Portfolio's average U.S. dollar-weighted duration
generally will not exceed one year plus or minus the
average duration of the J.P. Morgan Global Government
Bond Indices (either the Non-U.S. Hedged or Non-U.S.
Unhedged, whichever is lower). The Portfolio's
expected turnover ranges between 500% and 1,000% per
year, but may be higher depending on market conditions.
International corporate Portfolio
The Portfolio's average U.S. dollar-weighted duration generally will not exceed
one year plus or minus the average duration of the Lehman Brothers Euro
Corporate Bond Index. The Portfolio's expected turnover ranges between 500% and
1,000% per year, but may be higher depending on market conditions.
emerging markets Portfolio
The Portfolio's average U.S. dollar-weighted duration generally will not exceed
one year, plus or minus the average duration of the composite index of 60% J.P.
Morgan Emerging Local Markets Index Plus and 40% J.P. Morgan Emerging Markets
Bond Index Plus. The Portfolio's expected turnover ranges between 500% and
1,000% per year, but may be higher depending on market conditions.
Global high yield Portfolio
The Portfolio's average U.S. dollar-weighted duration generally will not exceed
one year, plus or minus the average duration of the Salomon Smith Barney All BB
& B Rated Issues Index. The Portfolio's expected turnover ranges between 500%
and 1,000% per year, but may be higher depending on market conditions.
inflation-indexed Portfolio
The Portfolio's average U.S. dollar-weighted duration generally will not exceed
one year, plus or minus the average duration of the Lehman Brothers Global Real
Index. The Portfolio's expected turnover ranges between 500% and 1,000% per
year, but may be higher depending on market conditions.
Inflation-Indexed Hedged Portfolio
The Portfolio's average U.S. dollar-weighted duration generally will not exceed
one year, plus or minus the average duration of the Lehman Brothers Global Real
Index. The Portfolio's expected turnover ranges between 500% and 1,000% per
year, but may be higher depending on market conditions.
Broad market Portfolio
The average U.S. dollar-weighted duration generally will not exceed plus or
minus one year around the average duration of the Lehman Brothers Aggregate Bond
Index.. The Portfolio's expected turnover ranges between 500% and 1,000% per
year, but may be higher depending on market conditions.
.supplemental inVestment information
SUPPLEMENTAL DESCRIPTIONS OF INVESTMENTS
The different types of securities in which the Portfolios may invest, subject to
their respective investment objectives, policies and restrictions, are described
in the Prospectus under "Descriptions of Investments and the Risks Involved."
Additional information concerning the characteristics of certain of the
Portfolio's investments are set forth below.
U.S. Treasury and U.S. Government Agency Securities
U.S. Treasury and U.S. Government Agency Securities
differ primarily in their interest rates, the lengths
of their maturities and the dates of their
issuances. While these securities are issued under
the authority of an Act of Congress, the U.S.
Government is not obligated to provide financial
support to the issuing instrumentalities.
Foreign Government and International and Supranational Agency Securities
Obligations issued by foreign governmental entities have various kinds of
government support and include obligations issued or guaranteed by foreign
governmental entities with taxing powers issued or guaranteed by international
or supranational entities. These obligations may or may not be supported by the
full faith and credit of a foreign government, or several foreign governments.
Examples of international and supranational entities include the following
entities: a. International Bank for Reconstruction, and Development ("World
Bank"); b. European Steel and Coal Community; c. Asian Development Bank, the
European Bank for Reconstruction; and d. Development and the Inter-American
Development Bank. The governmental members, or "shareholders", usually make
initial capital contributions to the supranational entity and in many cases are
committed to make additional capital contributions if the supranational entity
is unable to repay its borrowings.
Bank Obligations
The Fund limits its U.S. bank obligations investments
to U.S. banks meeting the Investment Adviser's
creditworthiness criteria. The Fund limits its
investments in foreign bank obligations to foreign
banks (including U.S. branches of foreign banks)
meeting the Investment Adviser's or the Sub-Adviser's
investment quality standards. Generally, such foreign
banks must be comparable to obligations of U.S. banks
in which each Portfolio may invest.
Repurchase and Reverse Repurchase Agreements When participating in repurchase
agreements, a Portfolio buys securities from a vendor (e.g., a bank or
securities firm) with the agreement that the vendor will repurchase the
securities at the same price plus interest at a later date. Repurchase
agreements may be characterized as loans secured by the underlying securities.
Repurchase transactions allow the Portfolio to earn a return on available cash
at minimal market risk. The Portfolio may be subject to various delays and risks
of loss should the vendor become subject to a bankruptcy proceeding or if it is
otherwise unable to meet its obligation to repurchase. The securities underlying
a repurchase agreement will be marked to market every business day so that the
value of such securities is at least equal to the value of the repurchase price
thereof, including the accrued interest thereon.
Repurchase and reverse repurchase agreements may also involve foreign government
securities with which there is an active repurchase market. The Investment
Adviser expects that such repurchase and reverse repurchase agreements will
primarily involve government securities of countries belonging to the
Organization for Economic Cooperation and Development ("OECD"). Transactions in
foreign repurchase and reverse repurchase agreements may involve additional
risks.
Dollar Roll Transactions
"Dollar roll" transactions occur when a Portfolio sells GNMA certificates or
other mortgage-backed securities to a bank or broker-dealer (the "counterparty")
along with a commitment to purchase from the counterparty similar, but not
identical, securities at a future date, at the same price. The counterparty
receives all principal and interest payments, including prepayments, made on the
security while it is the holder. The Portfolio receives a fee from the
counterparty as consideration for entering into the commitment to purchase.
Dollar rolls may be renewed over a period of several months with a new purchase
and repurchase price fixed and a cash settlement made at each renewal without
physical delivery of securities. The transaction may be preceded by a firm
commitment agreement, pursuant to which, the Portfolio agrees to buy a security
on a future date. Portfolios will not use such transactions for leverage
purposes and will segregate cash, U.S. Government securities or other
appropriate securities in an amount sufficient to meet its purchase obligations
under the transactions.
Dollar roll transactions are similar to reverse repurchase agreements in that
they involve the sale of a security coupled with an agreement to repurchase.
Like all borrowings, a dollar roll involves costs to a Portfolio. For example,
while a Portfolio receives a fee as consideration for agreeing to repurchase the
security, the Portfolio may forgo the right to receive all principal and
interest payments while the counterparty holds the security. These payments to
the counterparty may exceed the Portfolio fee received, thereby effectively
charging the Portfolio interest on its borrowing. Further, although the
Portfolio can estimate the amount of expected principal prepayment over the term
of the dollar roll, a variation in the actual amount of prepayment could
increase or decrease the cost of the Portfolio's borrowing.
Mortgage-Backed Securities
Mortgage-backed securities can be issued in multiple classes. Such securities
are called multi-class mortgage-backed securities ("MBS") and the classes are
often referred to as "traunches." MBS securities are issued at a specific fixed
or floating coupon rate and have a stated maturity or final distribution date.
Principal prepayment on the Underlying Assets may cause the MBSs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrues on all or most classes of the MBSs on a periodic
basis, typically monthly or quarterly. The principal and interest on the
Underlying Assets may be allocated among the several classes of a series of a
MBS in many different ways. In a relatively common structure, payments of
principal (including any principal prepayments) on the Underlying Assets are
applied to the classes of a series of a MBS in the order of their respective
stated maturities. No payment of principal will be made on any class of MBSs
until all other classes having an earlier stated maturity have been paid in
full.
Other Asset-Backed Securities
The Investment Adviser expects that other asset-backed securities (unrelated to
mortgage loans) will be developed and offered to investors in the future.
Certain asset-backed securities have already been offered to investors including
securities backed by automobile loans and credit card receivables. Consistent
with each Portfolio's investment objectives and policies, a Portfolio may invest
in other types of asset-backed securities as they become available.
Zero Coupon Securities and Custodial Receipts Zero coupon securities include
securities issued directly by the U.S. Treasury, and U.S. Treasury bonds or
notes and their unmatured interest coupons or receipts for their underlying
principal (the "coupons") which have been separated by their holder. Holders are
typically custodian banks or investment brokerage firms. A holder will separate
the interest coupons from the underlying principal (the "corpus") of the U.S.
Treasury security. A number of securities firms and banks have stripped the
interest coupons and resold them in custodial receipt programs with a number of
different names, including "Treasury Income Growth Receipts" ("TIGRS") and
"Certificate of Accrual on Treasuries" ("CATS"). The underlying U.S. Treasury
bonds and notes themselves are held in book-entry form at the Federal Reserve
Bank or, in the case of bearer securities (i.e., unregistered securities which
are owned ostensibly by the bearer or holder thereof), in trust on behalf of the
owners thereof. Counsel to the underwriters of these certificates or other
evidences of ownership of the U.S. Treasury securities have stated that for
Federal tax and securities law purposes, purchasers of such certificates, such
as a Portfolio, will most likely be deemed the beneficial holders of the
underlying U.S. Treasury securities.
Recently, the Treasury has facilitated transfer of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record-keeping system. The Federal Reserve program as
established by the Treasury Department is known as "Separate Trading of
Registered Interest and Principal of Securities" ("STRIPS"). Under the STRIPS
program, a Portfolio can have its beneficial ownership of zero coupon securities
recorded directly in the book-entry record-keeping system in lieu of holding
certificates or other evidences of ownership of the underlying U.S.
Treasury securities.
When U.S. Treasury obligations have been stripped of their unmatured interest
coupons by the holder, the principal or corpus is sold at a deep discount
because the buyer receives only the right to receive a future fixed payment on
the security and does not receive any rights to periodic interest (cash)
payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold in such bundled form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself.
Loan Participations
A loan participation is an interest in a loan to a U.S. corporation (the
"corporate borrower") which is administered and sold by an intermediary bank.
The borrower of the underlying loan will be deemed to be the issuer of the
participation interest except to the extent the Portfolio derives its rights
from the intermediary bank who sold the loan participation. Such loans must be
to issuers whose obligations a Portfolio may invest. Any participation purchased
by a Portfolio must be issued by a bank in the United States with assets
exceeding $1 billion. (See: "Supplemental Discussion of Risks Associated With
the Fund's Investment Policies and Investment Techniques")
Variable Amount Master Demand Notes
Variable amount master demand notes are investments of fluctuating amounts and
varying interest rates made pursuant to direct arrangements between a Portfolio
(as lender) and a borrower. These notes are direct lending arrangements between
lenders and borrowers, and are generally non-transferable, nor are they
ordinarily rated by either Moody's or Standard & Poors.
Currency-Indexed Notes
In selecting the two currencies with respect to which currency-indexed notes are
adjusted, the Investment Adviser and the Sub-Adviser will consider the
correlation and relative yields of various currencies. Each Portfolio may
purchase a currency-indexed obligation using the currency in which it is
denominated and, at maturity, will receive interest and principal payments
thereon in that currency. The amount of principal payable by the issuer at
maturity, however, will fluctuate in response to any changes in the exchange
rates between the two specified currencies during the period from the date the
instrument is issued to its maturity date. The potential for realizing gains as
a result of changes in foreign currency exchange rates may enable a Portfolio to
hedge the currency in which the obligation is denominated (or to effect
cross-hedges against other currencies) against a decline in the U.S. dollar
value of investments denominated in foreign currencies while providing an
attractive market rate of return. Each Portfolio will purchase such indexed
obligations to generate current income or for hedging purposes and will not
speculate in such obligations.
Principal Exchange Rate Linked Securities Principal exchange rate linked
securities (or "PERLs") are debt obligations, the principal on which is payable
at maturity in an amount that may vary based on the exchange rate between the
U.S. dollar and a particular foreign currency. The return on "standard"
principal exchange rate linked securities is enhanced if the foreign currency to
which the security is linked appreciates against the U.S. dollar. PERLs are
adversely affected by increases in the foreign exchange value of the U.S.
dollar. Reverse principal exchange rate linked securities differ from "standard"
PERL securities in that their return is enhanced by increases in the value of
the U.S. dollar and adversely impacted by increases in the value of the foreign
currency. Security interest payments are generally made in U.S. dollars at rates
reflecting the degree of foreign currency risk assumed or given up by the note's
purchaser.
Performance Indexed Paper
Performance indexed paper (or "PIPs") is U.S. dollar-denominated commercial
paper, whose yield is linked to certain foreign exchange rate movements. The
investor's yield on performance indexed paper is established at maturity as a
function of spot exchange rates between the U.S. dollar and a designated
currency. This yield is within a stipulated range of return at the time the
obligation was purchased, lying within a guaranteed minimum rate below and a
potential maximum rate of return above market yields on U.S. dollar-denominated
commercial paper. Both the minimum and maximum rates of investment return
correspond to the minimum and maximum values of the spot exchange rate two
business days prior to maturity.
Other Foreign Currency Exchange-Related Securities Securities may be denominated
in the currency of one nation although issued by a governmental entity,
corporation or financial institution of another nation. For example, a Portfolio
may invest in a British pound sterling-denominated obligation issued by a United
States corporation. Such investments involve credit risks associated with the
issuer and currency risks associated with the currency in which the obligation
is denominated. The Portfolio's investment Adviser or the Sub-Adviser bases its
decision to invest in any future foreign currency exchange-related securities on
the same general criteria applicable to the Investment Adviser's or
Sub-Adviser's decision for such Portfolio to invest in any debt security. This
includes the Portfolio's minimum ratings and investment quality criteria, with
the additional element of foreign currency exchange rate exposure added to the
Investment Adviser's or Sub-Adviser's analysis of interest rates, issuer risk
and other factors.
Securities Denominated in Multi-National Currency Units or More Than One
Currency An illustration of a multi-national currency unit is the European
Currency Unit (the "ECU"). The ECU is a "basket" consisting of specified
currency amounts of the member states of the European Community, a Western
European economic cooperative organization. The specific currency amounts
comprising the ECU may be adjusted by the Council of Ministers of the European
Community to reflect changes in relative values of the underlying currencies.
The Investment Adviser does not believe that such adjustments will adversely
affect holders of ECU-denominated obligations or the marketability of such
securities. European supranational entities, commonly issue ECU-denominated
obligations.
Foreign Currency Warrants
Foreign currency warrants such as currency exchange warrants ("CEWs") are
warrants entitling the holder to receive a cash amount from their issuer
(generally, for warrants issued in the United States in U.S. Dollars). This cash
amount is calculated pursuant to a predetermined formula, based on the exchange
rate between a specified foreign currency and the U.S. Dollar as of the exercise
date of the warrant. Foreign currency warrants are generally exercisable when
issued and expire at a specified date and time. Foreign currency warrants have
been issued in connection with U.S. Dollar-denominated debt offerings by major
corporate issuers in an attempt to reduce the foreign currency exchange risk
which, from the point of view of prospective purchasers of the securities, is
inherent in the international fixed income marketplace. The formula used to
determine the amount payable upon exercise of a foreign currency warrant may
make the warrant worthless unless the applicable foreign currency exchange rate
moves in a particular direction (e.g., unless the U.S. Dollar appreciates or
depreciates against the particular foreign currency to which the warrant is
linked or indexed). Foreign currency warrants are subject to other risks
associated with foreign securities, including risks arising from complex
political or economic factors.
Municipal Instruments
Municipal notes include such instruments as tax anticipation notes, revenue
anticipation notes, and bond anticipation notes. Municipal notes are issued by
state and local governments and public authorities as interim financing in
anticipation of tax collections, revenue receipts or bond sales. Municipal bonds
may be issued to raise money for various public purposes, and include general
obligation bonds and revenue bonds. General obligation bonds are backed by the
taxing power of the issuing municipality and considered the safest type of
bonds. Revenue bonds are backed by the revenues of a project or facility such as
the tolls from a toll bridge. Industrial development revenue bonds are a
specific type of revenue bond backed by the credit and security of a private
user. Revenue bonds are generally considered to have more potential risk than
general obligation bonds.
Municipal obligations rates can be floating, variable or fixed. The values of
floating and variable rate obligations are generally more stable than those of
fixed rate obligations in response to changes in interest rate levels. Variable
and floating rate obligations usually carry rights permitting a Portfolio to
sell them upon short notice at par value plus accrued interest. The issuers or
financial intermediaries providing rights to sell may support their ability to
purchase the obligations by obtaining credit with liquidity supports. These may
include lines of credit (conditional commitments to lend) or letters of credit,
(which are ordinarily irrevocable) issued by domestic banks or foreign banks
having a United States branch, agency or subsidiary. When considering whether an
obligation meets a Portfolio's quality standards, the Investment Adviser will
look at the creditworthiness of the party providing the right to sell as well as
to the quality of the obligation itself.
Municipal securities may be issued to finance private activities, the interest
from which is an item of tax preference for purposes of the federal alternative
minimum tax. Such "private activity" bonds might include industrial development
revenue bonds, and bonds issued to finance such projects as solid waste disposal
facilities, student loans or water and sewage projects.
SUPPLEMENTAL DESCRIPTION OF INVESTMENT TECHNIQUES
Borrowing
Each Portfolio may borrow money temporarily from banks
when:
a. it is advantageous to do so in order to meet
redemption requests,
b. a Portfolio fails to receive transmitted funds
from a shareholder on a timely basis,
c. the custodian of the Fund fails to complete
delivery of securities sold, or
d. a Portfolio needs cash to facilitate the settlement
of trades made by the Portfolio.
In addition, each Portfolio may, in effect, lend securities by engaging in
reverse repurchase agreements and/or dollar roll transactions and may, in
effect, borrow money by doing so. Securities may be borrowed by engaging in
repurchase agreements.
Securities Lending
With the exception of U.S. Short-Term, each Portfolio may lend out its
investment securities. The value of these securities may not exceed 33 1/3% of
the Portfolio's total assets. Such securities may be lent to banks, brokers and
other financial institutions if it receives in return, collateral in cash, U.S.
Government Securities or irrevocable bank stand-by letters of credit. Such
collateral will be maintained at all times in an amount equal to at least 100%
of the current market value of the loaned securities. The Fund may terminate the
loans at any time and the relevant Portfolio will then receive the loaned
securities within five days. During the loan period, the Portfolio receives the
income on the loaned securities and a loan fee thereby potentially increasing
its total return.
SUPPLEMENTAL DISCUSSION OF RISKS ASSOCIATED WITH THE
FUND'S INVESTMENT POLICIES AND INVESTMENT TECHNIQUES
The risks associated with the different types of securities in which the
Portfolios may invest are described in the Prospectus under "INVESTMENT
TECHNIQUES / STRATEGIES & ASSOCIATED RISKS." Additional information concerning
risks associated with certain of the Portfolio's investments is set forth below.
Foreign Investments
Foreign financial markets, while growing in volume, have, for the most part,
substantially less volume than United States markets. Thus, many foreign company
securities are less liquid and their prices are more volatile than securities of
comparable domestic companies. Foreign markets also have different clearance and
settlement procedures, and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delivery of
securities may not occur at the same time as payment in some foreign markets.
Delays in settlement could result in temporary periods when a portion of
portfolio assets remain uninvested, earning no return. The inability of a
Portfolio to make intended security purchases due to settlement problems could
cause the Portfolio to miss attractive investment opportunities. Inability to
dispose portfolio securities due to settlement problems could result either in
portfolio losses due to subsequent declines in portfolio security value or, if
the Portfolio has entered into a contract to sell the security, could result in
possible liability to the purchaser. Comparatively speaking, there is less
government supervision and regulation of exchanges, financial institutions and
issuers in foreign countries than there is in the United States. In addition, a
foreign government may impose exchange control regulations which may impact
currency exchange rates.
Foreign Bank Obligations
Foreign bank obligations involve somewhat different
investment risks than those affecting obligations of
United States banks. Included in these risks are
possibilities that:
a. investment liquidity may be impaired due to future
political and economic developments;
b. their obligations may be less marketable than comparable
obligations of United States banks;
c. a foreign jurisdiction might impose withholding taxes on
interest income payable on those obligations;
d. foreign deposits may be seized or nationalized;
e. foreign governmental restrictions such as exchange
controls may be adopted that might adversely affect the
payment of principal and interest on those
obligations;
f. the selection of those obligations may be more difficult
because there may be less publicly available information
concerning foreign banks; or
g. the accounting, auditing and financial reporting standards,
practices and requirements applicable to foreign
banks may differ from those applicable to United
States banks.
Foreign banks are not generally subject to examination by any United States
government agency or instrumentality. Also, investments in commercial banks
located in some foreign countries are subject to additional risks because they
engage in commercial banking and diversified securities activities.
Dollar Roll Transactions
Dollar roll transactions involve potential risks of loss which differ from those
relating to the securities underlying the transactions. For example, should the
counterparty become insolvent, a Portfolio's right to purchase from the
counterparty might be restricted. Additionally, the value of such securities may
change adversely before the Portfolio is able to purchase them. Similarly, a
Portfolio may be required to purchase securities in connection with a dollar
roll at a higher price than may otherwise be available on the open market.
Since, as noted above, the counterparty is required to deliver a similar, but
not identical, security to a Portfolio, the security which the Portfolio is
required to buy under the dollar roll may be worth less than an identical
security. There can be no assurance that a Portfolio's use of the cash it
receives from a dollar roll will provide a return exceeding borrowing costs.
Mortgage and Asset-Backed Securities Prepayments on securitized assets such as
mortgages, automobile loans and credit card receivables ("Securitized Assets")
generally increase with falling interest rates and decrease with rising interest
rates. Repayment rates are often influenced by a variety of economic and social
factors. In general, the collateral supporting non-mortgage asset-backed
securities is of shorter maturity than mortgage loans and is less likely to
experience substantial prepayments. In addition to prepayment risk, borrowers on
the underlying Securitized Assets may default in their payments creating delays
or loss of principal.
Non-mortgage asset-backed securities involve certain risks not presented by
mortgage-backed securities. Primarily, these securities do not have the benefit
of a security interest in assets underlying the related mortgage collateral.
Credit card receivables are generally unsecured and the debtors are entitled to
the protection of a number of state and federal consumer credit laws, many of
which give such debtors the right to set off certain amounts owed on the credit
cards, thereby reducing the balance due. Most issuers of automobile receivables
permit the servicer to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
related automobile receivables. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of the automobile receivables may not have an
effective security interest in all of the obligations backing such receivables.
Therefore, there is a possibility that recoveries on repossessed collateral may
not, in some cases, be available to support payments on these securities.
New forms of asset-backed securities are continuously being created. While
Portfolios only invest in asset-backed securities the Investment Adviser
believes are liquid, market experience in some of these securities is limited
and liquidity may not have been tested in market cycles.
Forward Commitments
Portfolios may purchase securities on a when-issued or forward commitment basis.
These transactions present a risk of loss should the value of the securities to
be purchased increase prior to the settlement date and the counterparty to the
trade fail to execute the transaction. If this were to occur, the Portfolio's
net asset value, including a security's appreciation or depreciation purchased
on a forward basis, would decline by the amount of such unrealized appreciation.
Loan Participations
Because the bank issuing a loan participation does not guarantee the
participation in any way, it is subject to the credit risks generally associated
with the underlying corporate borrower. It may be necessary under the terms of
the loan participation for a Portfolio to assert, through the issuing bank, such
rights as may exist against the underlying corporate borrower should the
underlying corporate borrower fail to pay principal and interest when due. Thus,
the Portfolio could be subject to delays, expenses and risks which are greater
than those which would have been involved if the Portfolio had purchased a
direct obligation (such as commercial paper) of the borrower. Moreover, under
the terms of the loan participation, the purchasing Portfolio may be regarded as
a creditor of the issuing bank (rather than of the underlying corporate
borrower), so that the Portfolio also may be subject to the risk that the
issuing bank may become insolvent. Further, in the event of the bankruptcy or
insolvency of the corporate borrower, the loan participation might be subject to
certain defenses that can be asserted by a borrower as a result of improper
conduct by the issuing bank. The secondary market, if any, for these loan
participation interests is limited, and any such participation purchased by a
Portfolio will be treated as illiquid, until the Board of Directors determines
that a liquid market exists for such participations. Loan participations will be
valued at their fair market value, as determined by procedures approved by the
Board of Directors.
High Yield/High Risk Debt Securities High Yield, Emerging Markets and Global
High Yield will invest its assets in debt securities which are rated below
investment-grade--that is, rated below Baa by Moody's or BBB by Standard &
Poors, and in unrated securities judged to be of equivalent quality by the
Investment Adviser or Sub-Adviser. Securities below investment grade carry a
high degree of risk (including the possibility of default or bankruptcy of the
issuers of such securities), and generally involve greater price volatility and
risk of principal and income. These securities may be less liquid than
securities in the higher rating categories and are considered to be speculative.
The lower the ratings of such debt securities, the greater their risks render
them like equity securities. See "Quality Ratings Descriptions" in this
Statement of Additional Information for a more complete description of the
ratings assigned by ratings organizations and their respective characteristics.
Economic downturns have in the past, and could in the future, disrupt the high
yield market and impair the ability of issuers to repay principal and interest.
Also, an increase in interest rates would have a greater adverse impact on the
value of such obligations than on comparable higher quality debt securities.
During an economic downturn or period of rising interest rates, highly leveraged
issues may experience financial stresses which could adversely affect their
ability to service their principal and interest payment obligations. Prices and
yields of high yield securities will fluctuate over time and, during periods of
economic uncertainty, volatility of high yield securities may adversely affect
the Portfolio's net asset value. In addition, investments in high yield zero
coupon or pay-in-kind bonds, rather than income-bearing high yield securities,
may be more speculative and may be subject to greater fluctuations in value due
to changes in interest rates.
The trading market for high yield securities may be thin to the extent that
there is no established retail secondary market or because of a decline in the
value of such securities. A thin trading market may limit the ability of the
Portfolio to accurately value high yield securities it holds and to dispose of
those securities. Adverse publicity and investor perceptions may decrease the
values and liquidity of high yield securities. These securities may also involve
special registration responsibilities, liabilities and costs.
Credit quality in the high yield securities market can change suddenly and
unexpectedly, and even recently issued credit ratings may not fully reflect the
actual risks posed by a particular high yield security. For these reasons, it is
the policy of the Investment Adviser and Sub-Adviser not to rely exclusively on
ratings issued by established credit rating agencies, but to supplement such
ratings with its own independent and on-going review of credit quality. The
achievement of the Portfolio's investment objective by investment in such
securities may be more dependent on the Investment Adviser's or Sub-Adviser's
credit analysis than is the case for higher quality bonds. Should the rating of
a portfolio security be downgraded, the Investment Adviser or Sub-Adviser will
determine whether it is in the best interest of the Portfolio to retain or
dispose of such security.
Prices for below investment-grade securities may be affected by legislative and
regulatory developments.
Supplemental Hedging Techniques
Each of the Portfolios may enter into forward foreign currency contracts (a
"forward contract") and may purchase and write (on a covered basis)
exchange-traded or over-the-counter ("OTC") options on currencies, foreign
currency futures contracts and options on foreign currency futures contracts.
These contracts are primarily entered into to protect against a decrease in the
U.S. dollar equivalent value of its foreign currency portfolio securities or the
payments thereon that may result from an adverse change in foreign currency
exchange rates. Under normal circumstances, Worldwide-Hedged and
Inflation-Indexed Hedged intends to hedge its currency exchange risk to the
extent feasible, but there can be no assurance that all of the assets of each
Portfolio denominated in foreign currencies will be hedged at any time, or that
any such hedge will be effective. Each of the other Portfolios may at times, at
the discretion of the Investment Adviser and the Sub-Adviser, hedge all or some
portion of its currency exchange risk.
Conditions in the securities, futures, options and foreign currency markets will
determine whether and under what circumstances the Fund will employ any of the
techniques or strategies described below. The Fund's ability to pursue these
strategies may be limited by applicable regulations of the Commodity Futures
Trading Commission ("CFTC") and the federal tax requirements applicable to
regulated investment companies. (See: "Investment Techniques / Strategies &
Associated Risks" in the Prospectus and "Tax Considerations" below for more
information on hedging.)
Forward Foreign Currency Exchange Contracts & Associated Risks Each Portfolio
may, and generally the Global and International Portfolios will, purchase and
sell forward contracts. A forward contract obligates one party to purchase and
the other party to sell a definite foreign currency amount at some specified
future date. Purchasing or selling forward contracts may help offset declines in
the U.S. dollar-equivalent value of a Portfolio's foreign currency denominated
assets and the income available for distribution to Portfolio shareholders.
These declines in the U.S. dollar-equivalent value may be the result of adverse
exchange rate changes between the U.S. dollar and the various foreign currencies
in which a Portfolio's assets or income may be denominated. The U.S.
dollar-equivalent value of the principal amount of and rate of return on foreign
currency denominated securities will decline should the U.S. dollar exchange
rate rise in relation to that currency. Such declines could be partially or
completely offset by an increase in the value of a forward contract on that
foreign currency.
In addition to entering into forward contracts with respect to assets that a
Portfolio holds (a "position hedge"), the Investment Adviser or the Sub-Adviser
may purchase or sell forward contracts or foreign currency options in a
particular currency with respect to specific anticipated transactions (a
"transaction hedge"). By purchasing forward contracts, the Investment Adviser or
Sub-Adviser can establish the exchange rate at which a Portfolio will be
entitled to exchange U.S. dollars for a foreign currency or a foreign currency
for U.S. dollars at some point in the future. Thus, such contracts may lock in
the U.S. dollar cost of purchasing foreign currency denominated securities, or
set the U.S. dollar value of the income from securities it owns or the proceeds
from securities it intends to sell.
While the use of foreign currency forward contracts may protect a Portfolio
against declines in the U.S. dollar-equivalent value of the Portfolio's assets,
such use will also reduce the possible gain from advantageous changes in the
value of the U.S. dollar against particular currencies in which their assets are
denominated. Moreover, the use of foreign currency forward contracts will not
eliminate fluctuations in the underlying U.S. dollar-equivalent value of the
prices of or rates of return on the assets held in the Portfolio.
The use of such techniques will subject the Portfolio
to certain risks:
a. the foreign exchange markets can be highly volatile
and are subject to sharp price fluctuations;
b. trading forward contracts can involve a degree of
leverage, and relatively small movements in the rates of exchange between
the currencies underlying a contract could result in immediate and
substantial losses to the investor;
c. trading losses that are not offset by corresponding
gains in assets being hedged could reduce the value
of assets held by a Portfolio;
d. the precise matching of the forward contract
amounts and the value of the hedged portfolio
securities involved
will not generally be possible. The future value
of such foreign currency denominated portfolio
securities will change as a consequence of market
movements in the value of those securities. This
change is unrelated to fluctuations in exchange
rates and the U.S. dollar-equivalent value of such
assets between the date the forward contract is
entered into and the date that it is sold. Thus,
it may be necessary for a Portfolio to purchase
additional foreign currency in the cash market
(and bear the expense of such purchase), if the
market value of the security is less than the
amount of the foreign currency it may deliver,
pursuant to the forward contract.
The success of any currency hedging technique depends on the ability of the
Investment Adviser or Sub-Adviser to predict correctly, movements in foreign
currency exchange rates. If the Investment Adviser or Sub-Adviser incorrectly
predicts the direction of such movements, or if unanticipated changes in foreign
currency exchange rates occur, a Portfolio's performance may decline because of
the use of such contracts. The accurate projection of currency market movements
is extremely difficult, and the successful execution of a hedging strategy is
highly uncertain.
Portfolio costs of engaging in foreign currency forward contracts will vary with
factors such as:
a. the foreign currency involved;
b. the length of the contract period; and
c. the market conditions then prevailing, including
general market expectations as to the direction
of the movement of various foreign currencies
against the U.S. dollar.
Furthermore, the Investment Adviser or Sub-Adviser may not be able to purchase
forward contracts with respect to all of the foreign currencies in which the
Portfolio's portfolio securities may be denominated. In those circumstances, the
correlation between movement in the exchange rates of the subject currency and
the currency in which the portfolio security is denominated may not be precise.
Moreover, if the forward contract is entered into in an over-the-counter
transaction, the Portfolio generally will be exposed to the credit risk of its
counterparty. Should a Portfolio enter into such contracts on a foreign
exchange, the contract will be subject to the rules of that foreign exchange.
Foreign exchanges may impose significant restrictions on the purchase, sale or
trading of such contracts, and may impose limits on price moves. Such limits may
affect significantly, the ability to trade the contract or otherwise, to close
out the position and could create potentially significant discrepancies between
the cash and market value of the position in the forward contract. Finally, the
cost of purchasing forward contracts in a particular currency will reflect, in
part, the rate of return available on instruments denominated in that currency.
The cost of purchasing forward contracts to hedge foreign currency portfolio
securities may reduce that rate of return toward the rate of return that would
be earned on assets denominated in U.S. dollars.
Other Strategies of the Global and International Portfolios The Global and
International Portfolios may use forward contracts to hedge the value of
portfolio securities against changes in exchange rates. These Portfolios may
attempt to enhance its portfolio return by entering into forward contracts and
currency options, as discussed below, in a particular currency in an amount in
excess of the value of its assets denominated in that currency or when it does
not own assets denominated in that currency. If the Investment Adviser or
Sub-Adviser is not able to predict correctly the direction and extent of
movements in foreign currency exchange rates, entering into such forward or
option contracts may decrease rather than enhance the Portfolio's return. In
addition, if the Portfolio enters into forward contracts when it does not own
assets denominated in that currency, the Portfolio's volatility may increase and
losses on such contracts will not be offset by increases in the value of
portfolio assets.
Options on Foreign Currencies
Each Portfolio may purchase and sell (or write) put
and call options on foreign currencies protecting
against:
a. a decline in the U.S. dollar-equivalent value of
its portfolio securities or payments due thereon, or
b. a rise in the U.S. dollar-equivalent cost of
securities that it intends to purchase.
A foreign currency put option grants the holder the right, but not the
obligation to sell a specified amount of a foreign currency to its counterparty
at a predetermined price on a later date. Conversely, a foreign currency call
option grants the holder the right, but not the obligation, to purchase a
specified amount of a foreign currency at a predetermined price at a later date.
As in the case of other types of options, a Portfolio's benefits from the
purchase of foreign currency options will be reduced by the amount of the
premium and related transaction costs. In addition, where currency exchange
rates do not move in the direction, or to the extent anticipated, the Portfolio
could sustain losses on transactions in foreign currency options, requiring them
to forego a portion or all of the benefits of advantageous changes in such
rates.
Each Portfolio may write options on foreign currencies for hedging purposes. For
example, where a Portfolio anticipates a decline in the dollar value of foreign
currency denominated securities due to adverse fluctuations in exchange rates it
could, instead of purchasing a put option, write a call option on the relevant
currency. If the expected decline occurs, the option most likely will not be
exercised, and the decrease in value of portfolio securities will be offset by
the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an anticipated
increase in the dollar costs of securities to be acquired, a Portfolio could
write a put option on the relevant currency. If rates move in the manner
projected, the put option will expire unexercised, allowing the Portfolio to
hedge such increased costs up to the amount of the premium. As in the case of
other types of options, however, the writing of a foreign currency option will
constitute only a partial hedge up to the amount of the premium. If movement in
the expected direction does not occur, the option may be exercised and the
Portfolio would be required to purchase or sell the underlying currency at a
loss which may not be fully offset by the amount of the premium. Through the
writing of options on foreign currencies, a Portfolio also may be required to
forego all or a portion of the benefits that might otherwise have been obtained
from favorable movements in exchange rates.
Options on Securities
Each Portfolio may also enter into closing sale transactions with respect to
options it has purchased. A put option on a security grants the holder the
right, but not the obligation, to sell the security to its counterparty at a
predetermined price at a later date. Conversely, a call option on a security
grants the holder the right, but not the obligation, to purchase the security
underlying the option at a predetermined price at a later date.
Normally, a Portfolio would purchase put options in anticipation of a decline in
the market value of securities it holds or securities it intends to purchase. If
a Portfolios purchases a put option and the value of the security decreases
below the strike price of the option, the Portfolio has the right to sell that
security to its counterparty for the strike price (or realize the value of the
option by entering into a closing transaction). Thus, the Portfolio would
protect itself against any further decrease in the value of the security during
the term of the option.
Conversely, if the Investment Adviser or Sub-Adviser anticipates that a security
that it intends to acquire will increase in value, it might cause a Portfolio to
purchase a call option on that security or securities similar to that security.
If the value of the security does rise, the call option may wholly or partially
offset the increased price of the security. As in the case of other types of
options, however, the benefit to the Portfolio will be reduced by the amount of
the premium paid to purchase the option and any related transaction costs. If,
however, the value of the security falls instead of rises, the Portfolio will
have foregone a portion of the benefit of the decreased price of the security in
the amount of the option premium and the related transaction costs.
A Portfolio would purchase put and call options on securities indices for the
same purposes as it would purchase options on securities. Options on securities
indices are similar to options on securities except that the options on
securities reflect the change in price of a group of securities rather than an
individual security. The exercise of options on securities indices are settled
in cash rather than by delivery of the securities comprising the index
underlying the option.
A Portfolio's transactions in options on securities and securities indices will
be governed by the rules and regulations of the respective exchanges, boards of
trade or other trading facilities on which the options are traded.
Considerations Concerning Options
The writer of an option receives a premium which it retains regardless of
whether the option is exercised. The purchaser of a call option has the right to
purchase the securities or currency subject to the option at a specified price
(the "exercise price") for a specified length of time. By writing a call option,
the writer becomes obligated during the term of the option, and upon exercise of
the option, to sell the underlying securities or currency to the purchaser
against receipt of the exercise price. The writer of a call option also loses
the potential for gain on the underlying securities or currency in excess of the
exercise price of the option during the period that the option is open.
Conversely, the purchaser of a put option has the right to sell the securities
or currency subject to the option, to the writer of the put option at the
specified exercise price for a specified length of time. Upon exercising a put
option, the writer of the put option is obligated to purchase securities or
currency underlying the option at the exercise price during the term of the
option. A writer might, therefore, be obligated to purchase the underlying
securities or currency for more than their current market price or U.S. dollar
value, respectively.
Each Portfolio may purchase and sell both exchange-traded and OTC options.
Although many options on equity securities and options on currencies are
currently exchange-traded, options on debt securities are primarily traded in
the over-the-counter market. The writer of an exchange-traded option wishing to
terminate its obligation may effect a "closing purchase transaction." This is
accomplished by buying an option of the same series as the option previously
written. Options of the same series are options with respect to the same
underlying security or currency, having the same expiration date and the same
exercise price. Likewise, an investor who is the holder of an option may
liquidate a position by effecting a "closing sale transaction." This is
accomplished by selling an option of the same series as the option previously
purchased. There is no guarantee that either a closing purchase or a closing
sale transaction can be effected.
An exchange-traded option position may be closed out only where a secondary
market exists for an option of the same series. For a number of reasons, a
secondary market may not exist for options held by a Portfolio, or trading in
such options might be limited or halted by the exchange on which the option is
trading. In such cases, it might not be possible to effect closing transactions.
(e.g. options the Portfolio has purchased with the result that the Portfolio
would have to exercise the options in order to realize any profit). If the
Portfolio is unable to effect a closing purchase transaction in a secondary
market in an option it has written, it will not be able to sell the underlying
security or currency until either: 1) the option expires, or 2) the Portfolio
delivers the underlying security or currency upon exercise or otherwise cover
its position.
Exchange Traded & OTC Options U.S. exchange-traded options are issued by a
clearing organization affiliated with the exchange on which the option is
listed. Thus, in effect, every exchange-traded option transaction is
guaranteed. In contrast, over the counter ("OTC") options are contracts
between a Portfolio and its counterparty with no clearing organization
guarantee. Thus, when the Portfolio purchases OTC options, it relies on
the dealer from which it purchased the option to make or take delivery of
the securities underlying the option. The dealer's failure to do so would
result in the loss of the premium paid by the Portfolio as well as the
loss of the expected benefit of the transaction. The Investment Adviser or
Sub-Adviser will purchase options only from dealers determined by the
Investment Adviser to be creditworthy.
Exchange-traded options generally have a continuous liquid market whereas
OTC options may not. Consequently, a Portfolio will generally be able to
realize the value of an OTC option it has purchased only by exercising it
or reselling it to the dealer who issued it. Similarly, when the Portfolio
writes an OTC option, it generally will be able only to close out the OTC
option prior to its expiration by entering into a closing purchase
transaction with the original issuing dealer of the OTC option. A
Portfolio will only enter into OTC options with dealers who agree to enter
into them, and those who are capable of entering into closing transactions
with the Portfolio. There can be no assurance that the Portfolio will be
able to liquidate an OTC option at a favorable price at any time prior to
expiration. Until the Portfolio is able to effect a closing purchase
transaction in a covered OTC call option the Portfolio has written, it
will not be able to liquidate securities used as cover until the option
expires, it is exercised or different cover is substituted. In the event
of insolvency of the counterparty, the Portfolio may be unable to
liquidate an OTC option. In the case of options written by a Portfolio,
the inability to enter into a closing purchase transaction may result in
material losses to the Portfolio. For example, since the Portfolio must
maintain a covered position with respect to any call option on a security
it writes, the Portfolio may be limited in its ability to sell the
underlying security while the option is outstanding. This may impair the
Portfolio's ability to sell a portfolio security at a time when such a
sale might be advantageous.
Foreign Currencies
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis.
Quotation information available is generally representative of very large
transactions in the interbank market and thus may not reflect relatively
smaller transactions (i.e., less than $1 million) where rates may be less
favorable. The interbank market in foreign currencies is a global,
around-the-clock market. To the extent that the U.S. options markets are
closed while the markets for the underlying currencies remain open,
significant price and rate movements may take place in the underlying
markets that cannot be reflected in the options market until they reopen.
Foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options. Thus, investors may be disadvantaged by having to
deal in an odd lot market (generally consisting of transactions of less
than $1 million) for the underlying foreign currencies at prices that are
less favorable than for round lots.
The use of options to hedge a Portfolio's foreign currency-denominated
portfolio, or to enhance return raises additional considerations. As
described above, a Portfolio may, among other things, purchase call options
on securities it intends to acquire in order to hedge against anticipated
market appreciation in the price of the underlying security or currency. If
the market price does increase as anticipated, the Portfolio will benefit
from that increase but only to the extent that the increase exceeds the
premium paid and related transaction costs. If the anticipated rise does
not occur, or if it does not exceed the amount of the premium and related
transaction costs, the Portfolio will bear the expense of the options
without gaining an offsetting benefit. If the market price of the
underlying currency or securities should fall instead of rise, the benefit
the Portfolio obtains from purchasing the currency or securities at a lower
price will be reduced by the amount of the premium paid for the call
options and by transaction costs.
A Portfolio also may purchase put options on currencies or portfolio
securities when it believes a defensive posture is warranted. Protection is
provided during the life of a put option because the put gives the
Portfolio the right to sell the underlying currency or security at the put
exercise price, regardless of a decline in the underlying currency's or
security's market price below the exercise price. This right limits the
Portfolio's losses from the currency's or security's possible decline in
value below the exercise price of the option to the premium paid for the
option and related transaction costs. If the market price of the currency
or the Portfolio's securities should increase, however, the profit that the
Portfolio might otherwise have realized will be reduced by the amount of
the premium paid for the put option and by transaction costs.
The value of an option position will reflect, among other things:
a. the current market price of the underlying currency or security;
b. the time remaining until expiration;
c. the relationship of the exercise price to the market price;
d. the historical price volatility of the underlying currency; and
e. security and general market conditions.
For this reason, the successful use of options as a hedging strategy
depends upon the ability of the Investment Adviser or the Sub-Adviser to
forecast the direction of price fluctuations in the underlying currency or
securities market.
Options normally have expiration dates of up to nine months. The exercise
price of the options may be below, equal to or above the current market
values of the underlying securities or currency at the time the options are
written. Options purchased by a Portfolio expiring unexercised have no
value, and therefore a loss will be realized in the amount of the premium
paid (and related transaction costs). If an option purchased by any
Portfolio is in-the-money prior to its expiration date, unless the
Portfolio exercises the option or enters into a closing transaction with
respect to that position, the Portfolio will not realize any gain on its
option position.
A Portfolio's activities in the options market may result in a higher
turnover rates and additional brokerage costs. Nevertheless, the Portfolio
may also save on commissions and transaction costs by hedging through such
activities, rather than buying or selling securities or foreign currencies
in anticipation of market moves, or foreign exchange rate fluctuations.
Futures Contracts
Each Portfolio may enter into contracts for the
purchase or sale for future delivery (a "futures
contract") of:
a. fixed-income securities or foreign currencies;
b. contracts based on financial indices including
any index of U.S. Government Securities; c. foreign government
securities; or d. corporate debt securities. U.S. futures contracts have been
designed by exchanges which have been designated as "contracts markets" by the
CFTC, and must be executed through a futures commission merchant, or brokerage
firm, which is a member of the relevant contract market. Futures contracts trade
on a number of exchanges and, through their clearing corporations, the exchanges
guarantee performance of the contracts as between the clearing members of the
exchange. A Portfolio will enter into futures contracts, based on debt
securities that are backed by the full faith and credit of the U.S. Government,
such as long-term U.S. Treasury Bonds, Treasury Notes, GNMA-modified
pass-through mortgage-backed securities and three-month U.S. Treasury Bills.
Portfolios may also enter into futures contracts based on securities that would
be eligible investments for such Portfolio and that are denominated in
currencies other than the U.S. dollar. This includes, without limitation,
futures contracts based on government bonds issued in the United Kingdom, Japan,
the Federal Republic of Germany, France and Australia and futures contracts
based on three-month Euro-deposit contracts in the major currencies.
A Portfolio would purchase or sell futures contracts to attempt to protect the
U.S. dollar-equivalent value of its securities from fluctuations in interest or
foreign exchange rates without actually buying or selling securities or foreign
currency. For example, if a Portfolio expected the value of a foreign currency
to increase against the U.S. dollar, the Portfolio might enter into futures
contracts for the sale of that currency. Such a sale would have much the same
effect as selling an equivalent value of foreign currency. If the currency did
increase, the value of the securities held by the Portfolio would decline, but
the value of the futures contracts would increase at approximately the same
rate. Thus, the Portfolio's net asset value would not decline as much as it
otherwise would have.
Although futures contracts, by their terms, call for the actual delivery or
acquisition of securities or currency, in most cases the contractual obligation
is fulfilled before the date of the contract without having to make or take
delivery of the securities or currency. The offsetting of a contractual
obligation is accomplished by buying (or selling, as the case may be) on a
commodities exchange an identical futures contract calling for delivery in the
same month. Such a transaction, which is effected through a member of an
exchange, cancels the obligation to make or take delivery of the securities or
currency. Since all transactions in the futures market are performed through a
clearinghouse associated with the exchange on which the contracts are traded, a
Portfolio will incur brokerage fees when it purchases or sells futures
contracts.
At the time a futures contract is purchased or sold, the Portfolio must allocate
cash or securities as a deposit payment ("initial margin"). It is expected that
the initial margin on U.S. exchanges may range from approximately 3% to
approximately 15% of the value of the securities or commodities underlying the
contract. Under certain circumstances, however, such as periods of high
volatility, an exchange may require the Portfolio to increase the level of its
initial margin payment. Additionally, initial margin requirements may be
increased generally in the future by regulatory action. An outstanding futures
contract is valued daily and the payment in cash of "variation margin" may be
required, a process known as "marking to the market." Each day, the Portfolio
will be required to provide (or will be entitled to receive) variation margin in
an amount equal to any decline (in the case of a long futures position) or
increase (in the case of a short futures position) in the contract's value since
the preceding day.
Futures contracts entail special risks. Among other
things, the ordinary spreads between values in the
cash and futures markets, due to differences in the
character of these markets, are subject to distortions
relating to:
a. investors' obligations to meet additional
variation margin requirements;
b. decisions to make or take delivery, rather than
entering into offsetting transactions; and
c. the difference between margin requirements
in the securities markets and margin deposit
requirements in the futures market.
The possibility of such distortion means that a correct forecast of general
market, foreign exchange rate or interest rate trends by the Investment Adviser
or Sub-Adviser may not result in a successful transaction.
The Investment Adviser believes that use of such contracts and options thereon
will benefit the Portfolios. However, if the Investment Adviser's judgment about
the general direction of securities market movements, foreign exchange rates or
interest rates is incorrect, a Portfolio's overall performance would be poorer
than if it had not entered into any such contracts or purchased or written
options thereon. For example, if a Portfolio hedges against an interest rate
increase, (which would adversely affect the price of debt securities held) and
interest rates decrease, the Portfolio would lose part or all of the benefit of
the increased value of its assets which it had hedged. This would result in
offsetting losses in its futures positions. In such situations, if the Portfolio
has insufficient cash, it may have to sell some of its assets to meet daily
variation margin requirements. Any such sale of assets may, but will not
necessarily, be at increased prices which reflect the rising market. Thus, the
Portfolio may have to sell assets at a time when it may be disadvantageous to do
so.
A Portfolio's ability to establish and close out positions in futures contracts
and options on futures contracts will be subject to the development and
maintenance of a liquid market. Although a Portfolio generally will purchase or
sell only those futures contracts and options thereon for which there appears to
be a liquid market, there is no assurance that a liquid market on an exchange
will exist for any particular futures contract or option thereon at any
particular time. Where it is not possible to effect a closing transaction in a
contract at a satisfactory price, the Portfolio would have to make or take
delivery under the futures contract or, in the case of a purchased option,
exercise the option or let it expire. In the case of a futures contract that a
Portfolio has sold and is unable to close out, the Portfolio would be required
to maintain margin deposits on the futures contract and to make variation margin
payments until the contract is closed.
Under certain circumstances, exchanges may establish daily limits of the amount
that the price of a futures contract or related option contract may vary either
up or down from the previous day's settlement price. Once the daily limit has
been reached in a particular contract, no trades may be made that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may prevent the liquidation of unfavorable positions. Futures or options
contract prices could move to the daily limit for several consecutive trading
days with little or no trading, thereby preventing prompt liquidation of
positions and subjecting some traders to substantial losses.
Buyers and sellers of foreign currency futures contracts are generally subject
to the same risks that apply to the use of futures. In addition, there are risks
associated with foreign currency futures contracts and their use as hedging
devices similar to those associated with options on foreign currencies described
above. Further, settlement of a foreign currency futures contract must occur
within the country issuing the underlying currency. Thus, a Portfolio must
accept delivery of the underlying foreign currency in accordance with any U.S.
or foreign restrictions or regulations regarding the maintenance of foreign
banking arrangements by U.S. residents. It may also be required to pay any fees,
taxes or charges associated with such delivery that are assessed in the country
of the underlying currency.
Options on Futures Contracts
The purchase of a call option on a futures contract is similar in some respects
to the purchase of a call option on an individual security or currency.
Depending on the pricing of the option compared to either the price of the
futures contract upon which it is based, or the price of the underlying
securities or currency, it may or may not be less risky than ownership of the
futures contract or the underlying securities or currency. As with the purchase
of futures contracts, a Portfolio that is not fully invested may purchase a call
option on a futures contract to hedge against a market advance due to declining
interest rates or a change in foreign exchange rates.
Writing a call option on a futures contract constitutes a partial hedge against
decreasing prices of the security or foreign currency. The hedge is deliverable
upon exercise of the futures contract. If the futures price of the option at
expiration is below the exercise price, a Portfolio will retain the full amount
of the option premium, providing a partial hedge against any decline that may
have occurred in the Portfolio's holdings. Writing a put option on a futures
contract constitutes a partial hedge against increasing prices of the security
or foreign currency. The hedge is deliverable upon exercise of the futures
contract. If the futures price at expiration of the option is higher than the
exercise price, the Portfolio will retain the full amount of the option premium
providing a partial hedge against any increase in the price of securities which
a Portfolio intends to purchase. If a Portfolio's put or call option is
exercised, it will incur a loss that will be reduced by the amount of the
premium it receives. Depending on the degree of correlation between changes in
the value of its securities and changes in the value of its futures positions, a
Portfolio's losses from existing options on futures may be reduced or increased
by changes in the value of its securities.
The purchase of a put option on a futures contract is similar in some respects
to the purchase of protective put options on Portfolio securities. Thus, a
Portfolio may purchase a put option on a futures contract to hedge against the
risk of rising interest rates.
The amount of risk a Portfolio assumes when it purchases an option on a futures
contract is:
Risk = The Premium Paid For The Option + Related
Transaction Costs
In addition to the correlation risks discussed above, purchasing an option also
entails the risk that changes in the value of the underlying futures contract
will not be fully reflected in the value of the option purchased.
Options on foreign currency futures contracts may involve certain additional
risks. Trading options on foreign currency futures contracts is relatively new.
The ability to establish and close out positions in such options is subject to
the maintenance of a liquid secondary market. To mitigate this problem, a
Portfolio will not purchase or write options on foreign currency futures
contracts, unless and until the market for such options has developed
sufficiently. This would make clearer the risks connected with such options, and
would allow the are not greater than the risks in connection with transactions
in the underlying foreign currency futures contracts. This is subject to the
investment Advisor's or Sub-Advisor's discretion. Compared to the purchase or
sale of foreign currency futures contracts, the purchase of call or put options
thereon involves less potential risk to the Portfolio because the maximum amount
at risk is the premium paid for the option (plus transaction costs). However,
there may be circumstances when the purchase of a call or put option on a
foreign currency futures contract would result in a loss. This would occur when
there is no movement in the price of the underlying currency or futures
contract, when use of the underlying futures contract would not.
INVESTMENT RESTRICTIONS
The Fund has adopted the investment restrictions listed below relating to the
investment of each Portfolio's assets and its activities. These are fundamental
policies that may not be changed without the approval of the holders of a
majority of the outstanding voting securities of a Portfolio (which for this
purpose and under the 1940 Act means the lesser of (i) 67% of the shares
represented at a meeting at which more than 50% of the outstanding shares are
represented or (ii) more than 50% of the outstanding shares). Portfolios may
not: a. borrow money, except by engaging in reverse
repurchase agreements (reverse repurchase agreements and dollar roll
transactions that are covered pursuant to SEC regulations or staff
positions, will not be considered borrowing) or dollar roll transactions
or from a bank as a temporary measure for the reasons enumerated in
"INVESTMENT RESTRICTIONS" provided that a Portfolio will not borrow, more
than an amount equal to one-third of the value of its assets, nor will it
borrow for leveraging purposes (i.e., a Portfolio will not purchase
securities while temporary bank borrowings in excess of 5% of its total
assets are outstanding);
b. issue senior securities (other than as specified
in clause a);
c. purchase securities on margin (although deposits referred to as "margin"
will be made in connection with investments in futures contracts, as
explained above, and a Portfolio may obtain such short-term credits as may
be necessary for the clearance of purchases and sales of securities);
d. make short sales of securities (does not
include options, futures, options on futures or
forward currency
contracts) except for Mortgage LIBOR,
Mortgage-Backed, Asset-Backed, High Yield,
Enhanced Equity market, U.S. Corporate,
International Opportunities, International
Corporate, Global High Yield, Inflation-Indexed
and Inflation-Indexed Hedged;
e. underwrite securities of other issuers;
f. invest in companies for the purpose of exercising
control or management;
g. purchase or sell real estate (other than marketable
securities representing interests in, or backed by,
real estate); or
h. purchase or sell physical commodities or related commodity contracts.
In addition, each Portfolio is prohibited from:
a. purchasing or retaining securities of any issuer
if the officers, directors or trustees of the Fund, or its advisors, or
managers own beneficially more than one half of one percent of the
securities of an issuer, or together own beneficially more than five
percent of the securities of that issuer; and
b. the investment of more than fifteen percent (15%) of the Fund's total
assets in the securities of issuers which together with any predecessors
have a record of less than three years continuous operation or securities
of issuers which are restricted as to disposition.
From time to time, a Portfolio's investment policy may restrict or limit the
maximum percentage of the Portfolio's assets that may be invested in any
security or other asset, or set forth a policy regarding quality standards. If
so, such standard or percentage limitation shall be determined immediately
after, and as a result of, the Portfolio's acquisition of such security or other
asset. Accordingly, any later increase or decrease in a percentage resulting
from a change in values, net assets or other circumstances will not be
considered when determining whether that investment complies with the
Portfolio's investment policies and restrictions.
Additional investment restrictions specific to a particular portfolio are as
follows:
Money Market Portfolio
Money Market may not (although not a fundamental
policy):
a. invest more than 5% of its total assets in the
securities of any one issuer or in premiums related to puts from any one
issuer, except U.S. Government securities, provided that the Portfolio may
invest more than 5% of its total assets in first tier securities of any one
issuer for a period of up to three business days or, in unrated securities
that have been determined to be of comparable quality by the Investment
Adviser; or
b. invest more than 5% of its total assets in second tier securities, or in
unrated securities determined by the Investment Adviser to be of comparable
quality.
c. Money Market Minimum Credit Ratings for Allowable
Investments:
1. First Tier Securities: any instruments
receiving the highest short-term rating by at
least two nationally recognized statistical rating
organizations ("NRSROs") such as "A-1" by Standard
& Poor's and "P-1" by Moody's or are single rated
and have received the highest short-term rating by
the NRSRO. This includes all instruments issued
by the U.S. Government, its agencies or
instrumentalities and any single rated and unrated
instruments that are determined to be of
comparable quality by the Investment Adviser
pursuant to guidelines approved by the Board of
Directors.
2. Second Tier Securities: any instrument rated
by two NRSROs in the second highest category, or
rated by one NRSRO in the highest category and by
another NRSRO in the second highest category or by
one NRSRO in the second highest category. Second
Tier Securities are limited in total of 5% of the
Portfolio's total assets and on a per issuer
basis, to no more than the greater of 1% of the
Portfolio's total assets or $1,000,000. This also
includes any single rated and unrated instruments
that are determined to be of comparable quality by
the Investment Adviser pursuant to guidelines
approved by the Board of Directors.
U.S. Short-Term Portfolio
U.S. Short-Term has adopted five additional
fundamental policies that may not be changed without
the approval of the holders of a majority of the
shares of the Portfolio. The Portfolio may not:
a. invest more than 5% of its total assets in the
securities of any issuer (other than U.S.
Government Securities and repurchase agreements);
b. invest more than 25% of its total assets in the
securities of issuers in any industry (other than
U.S. Government Securities and the banking industry);
c. enter into repurchase or reverse repurchase agreements
if, as a result thereof, more than 25% of its total assets
would be subject to repurchase agreements;
d. make loans to other persons, except by:
i. the purchase of a portion of an issue of debt
obligations in which a Portfolio is authorized
to invest in
accordance with its investment objectives,
ii. engaging in repurchase agreements, or
iii. purchasing or selling commodities or commidity
contracts, except that the Portfolio may utilize up to 5% of its total
assets as margin and premiums to purchase and sell futures and options
contracts on CFTC-regulated exchanges.
Worldwide and Worldwide-Hedged Portfolios
Worldwide and Worldwide-Hedged each have adopted two
additional fundamental policies that may not be
changed without the approval of the holders of a
majority of the shares of either Portfolio. Each
Portfolio may not:
a. enter into repurchase or reverse repurchase agreements if, as a result
thereof, more than 25% of its total assets would be subject to repurchase
agreements; or
b. purchase or sell commodities or commodity contracts, except that each
Portfolio may utilize up to 5% of its total assets as margin and premiums
to purchase and sell futures and options contracts on CFTC-regulated
exchanges.
Illiquid Securities
The Commission's staff has taken the position that purchased OTC options and the
assets used as cover for written OTC options are illiquid securities. Therefore,
each Portfolio has adopted an investment policy regarding the purchase or sale
of OTC options. The purchase or sale of an OTC option will be restricted if: a.
the total market value of the Portfolio's
outstanding OTC options exceed 15% (10% for Money Market) of the
Portfolio's net assets, taken at market value, together with all other
assets of the Portfolio that are illiquid or are not otherwise readily
marketable;
b. the market value of the underlying securities
covered by OTC call options currently outstanding
that were sold by
such Portfolio exceed 15% (10% for Money Market)
of the net assets of such Portfolio, taken at
market value, together with all other assets of
the Portfolio that are illiquid or are not
otherwise readily marketable; and
c. margin deposits on such Portfolio's existing OTC options on futures
contracts exceed 15% (10% for Money Market) of the net assets of such
Portfolio, taken at market value, together with all other assets of the
Portfolio that are illiquid or are not otherwise readily marketable.
This policy is not fundamental to Portfolio operations and the Fund's Directors
may amended it without the approval of the Fund's or a Portfolio's shareholders.
However, the Fund will not change or modify this policy prior to a change or
modification by the Commission staff of its position.
PORTFOLIO TRANSACTIONS
The Fund's debt securities are primarily traded in the over-the-counter market
by dealers who are usually acting as principal for their own account. On
occasion, securities may be purchased directly from the issuer. Such securities
are generally traded on a net basis and do not normally involve brokerage
commissions or transfer taxes. The Fund enters into financial futures and
options contracts normally involving brokerage commissions.
For the years ended December 31, 1997, December 31, 1996 and December 31, 1995,
the amount of brokerage commissions (associated with financial futures and
options contracts) paid by each Portfolio were as follows:
<TABLE>
<S> <C> <C> <C> <C>
- ---------------------------------- --------------------- ------------------- ------------------ ----------------
Year Ended December Year Ended Year Ended Year Ended
Portfolio 31, 1998 December 31, 1997 December 31, 1996 December 31,
1995
- ---------------------------------- --------------------- ------------------- ------------------ ----------------
U.S. Portfolios
----------------------------------------------------------------------------------------------------------------
U.S. Short -Term
$139,225 $ 126,108 $ 110,133 $ 187,185
Limited Duration
$3,587 3,649 0 27,616
Mortgage-Backed (1)
$221,300 463,651 30,152 N/A
----------------------------------------------------------------------------------------------------------------
Global and International Portfolios
- ---------------------------------- -------------------- -------------------- ------------------ ----------------
Global Tactical Exposure (2) $239,523 $127,213 $12,342 $15,643
Worldwide 28,336 21,065 $10,254 15,268
Worldwide-Hedged 54,965 11,724 2,719 3,083
International (3) 34,107 13,040 2,707 N/A
International Opportunities (4) 305 N/A N/A N/A
Emerging Markets (5) 32,923 7,697 N/A N/A
- ---------------------------------- -------------------- -------------------- ------------------ ----------------
</TABLE>
(1) Commenced operations April 29, 1996.
(2) The Portfolio was fully liquidated on December 30, 1994, and
recommenced operations on September 14, 1995.
(3) Commenced operations May 9, 1996.
(4) Commenced operations on October 8, 1998
(5) Commenced operations on August 12, 1997.
The cost of executing transactions will consist primarily of dealer spreads.
These spreads are not included in Portfolio expenses and therefore, are not
subject to the expense cap. Nevertheless, incurring this spread, ignoring the
other intended positive effects of each such transaction, will decrease the
total return of the Portfolio. A Portfolio will buy one asset and sell another
only if the Investment Adviser and/or the Sub-Adviser believes it is
advantageous to do so after considering the effect of the additional custodial
charges and the spread on the Portfolio's total return.
All purchases and sales will be executed with major dealers and banks on a best
net price basis. No trades will be executed with the Investment Adviser, the
Sub-Adviser, their affiliates, officers or employees acting as principal or
agent for others, although such entities and persons may be trading
contemporaneously in the same or similar securities. The Investment Adviser
and/or Sub-Adviser may decide that a particular investment, which is appropriate
for one Portfolio, is considered for purchase for the account of another
Portfolio, client or fund. If this occurs, the investment opportunity, as well
as the expenses incurred in the transaction, will be allocated in a manner
deemed equitable by the Investment Adviser.
The Global and International Portfolios are expected to invest substantial
portions of their assets in foreign securities. Since costs associated with
transactions in foreign securities are generally higher than costs associated
with transactions in domestic securities, the operating expense ratios of these
Portfolios can be expected to be higher than that of an investment company
investing exclusively in domestic securities.
SUPPLEMENTAL TAX CONSIDERATIONS
The following summary of tax consequences, does not purport to be complete. It
is based on U.S. federal tax laws and regulations in effect on the date of this
Statement of Additional Information, which are subject to change by legislative
or administrative action. Each investor is advised to consult their own tax
advisor for more complete information on specific tax consequences.
Qualification as a Regulated Investment Company Each active Portfolio has
qualified, and intends to continue to qualify, to be treated as a regulated
investment company ("RIC") under the Internal Revenue Code of 1986, as amended
(the "Code"). To qualify as a RIC, a Portfolio must, among other things: a.
derive at least 90% of its gross income each taxable
year, from dividends, interest, payments (with respect to securities loans
and gains from the sale or other disposition of securities or foreign
currencies) or other income (including gains from options, futures or
forward contracts) derived from its business of investing in securities or
foreign currencies (the "Qualifying Income Requirement");
b. diversify its holdings so that, at the end of
each quarter of the Portfolio's taxable year:
a. at least 50% of the Portfolio's asset market value
is represented by cash and cash items (including
receivables),
U.S. Government Securities, securities of other RICs and other
securities, with such other securities of any one issuer limited to
an amount not greater than 5% of the value of the Portfolio's total
assets and not greater than 10% of the outstanding voting securities
of such issuer and
ii) not more than 25% of the value of the Portfolio's total assets is
invested in the securities of any one issuer (other than U.S.
Government Securities or the securities of other RICs); and
c. distribute at least 90% of its investment company taxable income (which
includes, among other items, interest and net short-term capital gains in
excess of net long-term capital losses).
The U.S. Treasury Department has the authority to promulgate regulations,
pursuant to which, gains from foreign currency (and options, futures and forward
contracts on foreign currency) not directly related to a RIC's principal
business of investing in stocks and securities would not be treated as
qualifying income. To date, such regulations have not been promulgated.
If a Portfolio does not qualify as a RIC for any taxable year, all of its
taxable income will be taxed to the Portfolio at corporate rates. For each
taxable year the Portfolio qualifies as a RIC, it will not be subject to federal
income tax on that part of its investment company taxable income and net capital
gains (the excess of net long-term capital gain over net short-term capital
loss) it distributes to its shareholders. In addition, to avoid a nondeductible
4% federal excise tax, the Portfolio must distribute during each calendar year
an amount at least equal to the sum of : a. 98% of its ordinary income (not
taking into
account any capital gains or losses), determined
on a calendar year basis;
b. 98% of its capital gains in excess of capital losses,
determined in general on an October 31 year-end basis; and
c. any undistributed amounts from previous years.
Each Portfolio intends to distribute all of its net income and gains by
automatically reinvesting such income and gains in additional Portfolio shares.
Each Portfolio will monitor its compliance with all of the rules set forth in
the preceding paragraph.
Distributions
The following qualifies as taxable income to Portfolio
shareholders:
a. Portfolio's automatic reinvestment of its
ordinary income,
b. net short-term capital gains and net long-term
capital gains in additional Portfolio shares, and
c. distribution of such shares to shareholders. Generally, shareholders will be
treated as if the Portfolio had distributed income and gains to them and then
reinvested by them in Portfolio shares--even though no cash distributions have
been made to shareholders. The automatic reinvestment of ordinary income and net
realized short-term Portfolio capital gains will be taxable to shareholders as
ordinary income. Each Portfolio's automatic reinvestment of any net long-term
capital gains designated as capital gain dividends by the Portfolio will be
taxable to the shareholders as long-term capital gain. This is the case
regardless of how long they have held their shares. None of the amounts treated
as distributed to a Portfolio's shareholders will be eligible for the corporate
dividends received deduction. A distribution will be treated as paid on December
31 of the current calendar year, if the Portfolio: a. declares it during
October, November or December,
and
b. the distribution has a record date in such a month,
and
c. it is paid by the Portfolio during January of the following calendar year.
Such distributions will be taxable to shareholders in the calendar year in which
the distributions are declared, rather than in the calendar year in which the
distributions are received. Each Portfolio will inform shareholders of the
amount and tax status of all amounts treated as distributed to them not later
than 60 days after the close of each calendar year.
Sale of Shares
Upon the sale or other disposition of Portfolio shares, or upon receipt of a
distribution in complete Portfolio liquidation, a shareholder usually will
realize a capital gain or loss. This loss may be long-term or short-term,
generally depending upon the shareholder's holding period for the shares. For
tax purposes, a loss will be disallowed on the sale or exchange of shares if the
disposed of shares are replaced (including shares acquired pursuant to a
dividend reinvestment plan) within a period of 61 days. The 61 day time window
begins 30 days before and ends 30 days after the sale or exchange of such
shares. Should a disposition fall within this 61 day window, the basis of the
acquired shares will be adjusted to reflect the disallowed loss. A shareholder
holding Portfolio shares for six months or longer will realize a long term
capital loss on share disposition. Should such loss occur, to the extent of any
net capital gains distributions deemed received by the shareholder.
Zero Coupon Securities
A Portfolio's investment in zero coupon securities will result in Portfolio
income, equal to a portion of the excess of the amortized face value of the
securities over their issue price (the "original issue discount"), prior
amortized value or purchased cost for each year that the securities are held.
This is so, even though the Portfolio receives no cash interest payments during
the holding period. This income is included when determining the amount of
income the Portfolio must distribute to maintain its status as a RIC and to
avoid the payment of Federal income tax and the 4% excise tax.
Hedging Transactions
Certain options, futures and forward contracts in which a Portfolio may invest
are "section 1256 contracts." Gains and losses on section 1256 contracts are
generally treated as 60 percent long-term and 40 percent short-term capital
gains or losses ("60/40 treatment"). This is so, regardless of the length of the
Portfolio's actual holding period for the contract. Also, a Portfolio holding a
section 1256 contract at the end of each taxable year (and generally, for the
purposes of the 4% excise tax, on October 31 of each year) must be treated as if
the contract had been sold at its fair market value on that day ("mark to market
treatment"). As such, any deemed gain or loss on the contract is subject to
60/40 treatment. Foreign currency gain or loss (discussed below) arising from
section 1256 contracts may, however, be treated as ordinary income or loss.
Straddles
The hedging transactions undertaken by a Portfolio may result in
"straddles" for federal income tax purposes, affecting the character of
gains or losses realized by the Portfolio. Losses realized by a Portfolio
on positions that are part of a straddle may be deferred under the straddle
rules rather than being taken into account in calculating the taxable
income for the taxable year in which such losses are realized. Further, a
Portfolio may be required to capitalize, instead of currently deducting any
interest expense on indebtedness incurred or continued to purchase or carry
any positions that are part of a straddle. To date, only a few regulations
implementing the straddle rules have been executed, thus, the Portfolio tax
consequences of engaging in straddles transactions are unclear. Hedging
transactions may increase the amount of short-term capital gain realized by
the Portfolios. Such gain is taxed as ordinary income when distributed to
shareholders.
A Portfolio may make one or more of the elections available under the Code
that are applicable to straddles. If a Portfolio makes any of the
elections, the amount, character and timing of the recognition of gains or
losses from the affected straddle positions will be determined under rules
that vary according to the election(s) made. The rules applicable under
certain of the elections may accelerate the recognition of gains or losses
from the affected straddle positions.
Straddle rules may affect the amount, character and timing of gains or
losses from the positions that are part of a straddle. The amount of
Portfolio income distributed and taxed as ordinary income or long-term
capital gain to shareholders may be increased or decreased compared to a
fund not engaging in such hedging transactions.
Foreign Currency-Related Transactions
Gains or losses attributable to exchange rate
fluctuations are generally treated as ordinary income
or ordinary loss when they occur between the time a
Portfolio accrues interest or other receivables,
accrues expenses or other liabilities, denominated in
a foreign currency and the time the Portfolio actually
collects such receivables, or pays such liabilities.
In addition, gains or losses may be the result of:
a. certain option dispositions
b. futures and forward contracts
c. debt security dispositions denominated in a
foreign currency
d. fluctuations in foreign currency value between
the date of acquisition of the security or contract
and the date of disposition.
These gains or losses, referred to under the Code as "section 988" gains or
losses, may increase or decrease the amount of a Portfolio's investment company
taxable income to be distributed to shareholders as ordinary income.
Backup Withholding
A Portfolio may be required to withhold U.S. federal income tax at the rate of
31% of all amounts deemed to be distributed as a result of the automatic
reinvestment by the Portfolio of its income and gains in additional shares of
the Portfolio. The 31% rate applies to shareholders receiving redemption
payments who: a. fail to provide the Portfolio with their correct
taxpayer identification number;
b. fail to make required certifications,
c. have been notified by the Internal Revenue Service
that they are subject to backup withholding.
Backup withholding is not an additional tax. Any amounts withheld will be
credited against a shareholder's U.S. federal income tax liability. Corporate
shareholders and certain other shareholders are exempt from such backup
withholding.
Foreign Shareholders
A foreign shareholder, qualifying as a non-resident alien, a foreign trust or
estate, foreign corporation, or foreign partnership ("foreign shareholder") may
have to pay U.S. tax depending on whether the Portfolio income is "effectively
connected" with a U.S. trade or business.
If a foreign shareholder's Portfolio income is found
to be "effectively connected" with a U.S. trade or
business, the distributions of investment company
taxable income will be subject to a U.S. tax of 30%
(or lower treaty rate). Such tax is generally
withheld from distributions and any gains upon
redemption. Capital gain distributions and any gains
upon redemption, sale or exchange of shares are
subject to U.S. tax at the rate of 30% (or lower
treaty rate). The 30% rate also applies to a
nonresident alien who is physically present in the U.S.
for longer than 182 days during the taxable year and
fails to meet certain other requirements. The 30%
capital gains tax on non-resident alien individuals,
physically present in the U.S. longer than 182 days,
only applies in exceptional cases because any
individual present in the U.S. longer than 182 days
during the taxable year is generally treated as a
resident for U.S. federal income tax purposes. In
that case, he or she would be subject to U.S. federal
income tax on his or her worldwide income at the
graduated rates applicable to U.S. citizens, rather
than the 30% U.S. tax. In the case of a non-resident
alien shareholder, the Portfolio may be required to
withhold U.S. federal income tax at a rate of 31% of
deemed distributions of net capital gains unless the
foreign shareholder certifies his or her non-U.S.
status under penalties of perjury or otherwise
establishes an exemption. See "Backup Withholding"
above.
If a foreign shareholder's Portfolio income is
effectively connected with a U.S. trade or business,
then:
a. deemed distributions of investment company taxable
income,
b. capital gain dividends, and
c. any gain realized upon the redemption, sale or exchange of shares of the
Portfolio will be subject to U.S. Federal income tax at the graduated rates
applicable to U.S. citizens or domestic corporations. Such shareholders may also
be subject to the branch profits tax at a 30% rate.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may differ from those described herein. Foreign
shareholders are advised to consult their own tax advisers regarding investment
tax consequences in a Portfolio.
Short Sales
Each of the following Portfolios: Mortgage LIBOR, Mortgage-Backed, Asset-Backed,
High Yield, Enhanced Equity Market, U.S. Corporate, International Opportunities,
International Corporate, Global High Yield, Inflation-Indexed and
Inflation-Indexed Hedged will not realize gain or loss on the short sale of a
security until it closes the transaction by delivering the borrowed security to
the lender. Pursuant to Code Section 1233, all or a portion of any gain arising
from a short sale may be treated as short-term capital gain, regardless of the
period of time the Portfolio held the security used to close the short sale. In
addition, the Portfolio's holding period for any security which is substantially
identical to that which is sold short may be reduced or eliminated as a result
of the short sale. The distribution requirements applicable to the Portfolio's
assets may limit the extent to which each Portfolio will be able to engage in
short sales and transactions in options, futures and forward contracts.
U.S. Short-Term Portfolio
As a result of its expected high portfolio turnover rate, U.S. Short-Term
Portfolio may recognize higher short-term capital gains than mutual funds with
lower turnover rates. Such gains must be distributed to shareholders.
Global and International Portfolios
Income received by a Portfolio from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. The amount of foreign tax cannot be predicted in advance
because the amount of a Portfolio's assets that may be invested in a particular
country is subject to change.
If more than 50% of a Portfolio's total asset value at the end of its taxable
year consists of securities of foreign corporations as will be expected with
respect to the International Portfolios, the Portfolio will be eligible, and may
elect to "pass through" to shareholders the Portfolio's foreign income and
similar taxes it has paid. Pursuant to this election, a shareholder will be
required to include in gross income (in addition to taxable dividends actually
received) a pro rata share of the foreign taxes paid by the Portfolio in gross
income. The Portfolio will be entitled either to deduct (as an itemized
deduction) that amount in computing taxable income or use that amount as a
foreign tax credit against U.S. federal income tax liability. The amount of
foreign taxes for which a shareholder can claim a credit in any year will be
subject to limitations set forth in the Code, including a separate limitation
for "passive income," which includes, among other items, dividends, interest and
certain foreign currency gains. Shareholders not subject to U.S. federal income
tax on portfolio income may not claim this deduction or credit. International
Portfolio shareholders will be notified within 60 days after the close of the
Portfolio's taxable year whether the foreign taxes paid by such Portfolio will
"pass through" for the year.
Other Taxes
A Portfolio may be subject to state, local or foreign taxes in any jurisdiction
where the Portfolio is deemed to be doing business. In addition, Portfolio
shareholders may be subject to state, local or foreign taxes on Portfolio
distributions. In many states, Portfolio distributions derived from interest on
certain U.S. Government obligations may be exempt from taxation. Shareholders
should consult their own tax advisers concerning these matters.
SHAREHOLDER INFORMATION
Certificates representing a particular Portfolio's shares will not be issued to
shareholders. Investors Bank & Trust Company, the Fund's Transfer Agent,
maintains accounts for each shareholder. The registration and transfer of shares
are recorded in these accounts shall be reflected by bookkeeping entry, without
physical delivery. Detailed confirmations of purchase or redemption are sent to
each shareholder. Monthly account statements are sent detailing which shares
were purchased as a result of a reinvestment of Portfolio distributions.
The Transfer Agent will require a shareholder to provide requests in writing,
accompanied by a valid signature guarantee form, when changing certain
information in an account (i.e., wiring instructions, telephone privileges,
etc.). None of the Fund, Investors Capital, AMT Capital and the Transfer Agent
will be responsible for the validity of written or telephonic requests.
Should conditions exist making cash payments undesirable, the Fund reserves the
right to honor any Portfolio redemption request by making whole or part payment
in readily marketable securities and valued as they are for purposes of
computing the Portfolio's net asset value (redemption-in-kind). If payment is
made in securities, a shareholder may incur transaction expenses in converting
theses securities to cash. The Fund has elected to be governed by Rule 18f-1
under the Investment Company Act of 1940. Thus, the Fund is obligated to redeem
shares, with respect to any one shareholder during any 90-day period, solely in
cash up to the lesser of $250,000 or 1% of the net asset value of a Portfolio at
the beginning of the period.
CALCULATION OF PERFORMANCE DATA
From time to time, Portfolios may include their yield and total return in
reports to shareholders or prospective investors. Quotations of a Portfolio's
yield are based on all investment income per share during a particular 30-day
(or one month) period, (including dividends and interest), less expenses accrued
during the period ("net investment income"). Such quotations are computed by
dividing net investment income by the maximum offering price per share on the
last day of the period, according to the following formula which is prescribed
by the Commission:
Yield = 2 [ ( a - + 1 ) 6 - 1]
b
c d
Where:
a = dividends and interest earned during the period, b = expenses accrued
for the period (net of reimbursements), c = the average daily number of
Shares of a Portfolio outstanding
during he period that were entitled to receive dividends d = the
maximum offering price per share on the last day of the period.
The yield as defined above for each relevant Fund Portfolio for the 30-day
period ended March 31, 1999 is as follows:
U.S. Portfolios
U.S. Short-Term ......................................4.97%
Limited Duration .............. .......................5.50%
Mortgage Backed 5.77%
Global and International Portfolios
Global Tactical Exposure ...............................4.63%
Worldwide ............................................3.78%
Worldwide-Hedged ......................................4.10%
International...........................................4.06%
International Opportunities.............................3.48%
Emerging Markets 12.99%
The Money Market Portfolio may, from time to time, include the "yield" and
"effective yield" in advertisements or reports to shareholders or prospective
investors.
Yield is calculated by first determining the net change over a 7-calendar day
period, exclusive of capital changes, in the value of a hypothetical preexisting
account having a balance of one share at the beginning of the period. This
number is then divided by the value of the account at the beginning of the base
period, to obtain the base period return. The yield is annualized by multiplying
the base period return by 365/7. The yield is stated to the nearest hundredth of
one percent. The effective yield is calculated by the same method as yield
except that the base period return is compounded by adding 1, raising the sum to
a power equal to 365/7, and subtracting 1 from the result, according to the
following formula:
Effective Yield = [(Base Period Return + 1)365/7] - 1
Money Market Portfolio's yield and effective yield for the seven-day period
ended December 31, 1997 are 5.76% and 5.93%, respectively.
Average annual total return quotes will be expressed as the average annual
compounded rate of return of a hypothetical investment in a Fund Portfolio over
1, 5 and 10 years (up to the life of the Portfolio). This will be calculated
pursuant to the following formula, prescribed by the Securities and Exchange
Commission:
P(1 + T)n = ERV
Where P = a hypothetical initial payment of $1,000,
T = the average annual total return,
n = the number of years, and
ERV = the ending redeemable value of a hypothetical
$1,000 payment made at the beginning of
the period.
All total return figures assume that all dividends are
reinvested when paid.
From the time of Fund commencement, the total return as defined above, for each
Portfolio (annualized) for the one and five year periods, and life of the
Portfolio, ended December 31, 1998 are as follows:
<TABLE>
<S> <C> <C> <C> <C>
One Year Five Years* Life of Portfolio Inception
U.S. Portfolios
Money Market 5.51% 5.20% 5.12% 11/1/93
U.S. Short-Term 5.59% 5.13% 5.21% 12/6/89
Limited Duration 6.79% 5.76% 5.94% 7/26/93
Mortgage-Backed 7.42% N/A 8.98% 4/29/96
Global and International Portfolios
Global Tactical Exposure** 8.20% N/A 7.27% 9/14/95
Worldwide 15.58% 6.72% 8.77% 4/15/92
Worldwide-Hedged 11.53% 10.58% 10.83% 5/19/92
International 18.35% N/A 9.03% 5/9/96
International Opportunities N/A N/A 0.89%* 10/8/98
Emerging Markets (10.50) N/A (8.49%) 8/12/97
</TABLE>
* Annualized
** The Portfolio redeemed all of its assets on December 30, 1994, and began
selling shares again on September 14, 1995. The total return (on an annualized
basis) from its original inception of March 25, 1993 through December 30, 1994,
was 5.39%.
ADMINISTRATOR
Pursuant to an Administration Agreement dated May 29, 1998, Investors Capital
serves as the Fund's Administrator. Investors Capital assists in managing and
supervising all aspects of the general day-to-day business activities and
operations of the Fund other than investment advisory activities, including:
custodial, transfer agent, dividend disbursing, accounting, auditing, compliance
and related services.
The Fund pays Investors Capital a monthly fee at an annual rate of 0.07% of the
Fund's average daily net assets on the first $350 million, 0.05% thereafter up
to $2 billion, 0.04% thereafter up to $5 billion, and 0.03% on assets over $5
billion. The Fund also reimburses Investors Capital for certain costs. In
addition, the Fund has agreed to pay Investors Capital an incentive fee for
reducing a Portfolio expense ratio of one or more of the Fund's Portfolios below
a specified expense ratio. The maximum incentive fee is 0.02% of the average
daily net assets of a Portfolio.
CONTROL PERSON
As of March 31, 1999, Fischer Francis Trees & Watts, Inc. had discretionary
investment advisory agreements with shareholders of the Fund, representing 78.4%
of the Fund's total net assets and therefore, may be deemed a control person.
CUSTODIAN AND ACCOUNTING AGENT
Investors Bank & Trust Company, P.O. Box 1537, Boston,
Massachusetts 02205-1537, is Custodian and Accounting
Agent for the Fund.
TRANSFER AND DIVIDEND DISBURSING AGENT
Investors Bank & Trust Company, P.O. Box 1537, Boston, Massachusetts 02205-1537
is Transfer Agent for the shares of the Fund, and Dividend Disbursing Agent for
the Fund.
LEGAL COUNSEL
Dechert Price & Rhoads, 1775 Eye Street, N.W.,
Washington, D.C. 20006-2401, is legal counsel for the
Fund.
INDEPENDENT AUDITORS
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019, is the
independent auditor for the Fund. Ernst & Young LLP also renders accounting
services to the Investment Adviser.
<PAGE>
FINANCIAL STATEMENTS
The audited financial statements for the year ended December 31, 1997 are
incorporated herein by reference to the Annual Report to shareholders covering
this period. A copy has been delivered with this Statement of Additional
Information.
APPENDIX
MERRILL LYNCH 1-2.99 YEAR TREASURY INDEX1
Quarterly Returns: March 1988 - March 1999
<TABLE>
<S> <C> <C> <C>
- --------------------------- ----------------------------- --------------------------- ---------------------------
Quarter End Return % Quarter End Return %
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
3/88 2.64 12/93 0.59
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
6/88 1.04 3/94 (0.50)
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
9/88 1.45 6/94 0.08
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
12/88 0.96 9/94 0.99
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
3/89 1.24 12/94 0.01
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
6/89 4.98 3/95 3.36
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
9/89 1.46 6/95 3.21
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
12/89 2.82 9/95 1.51
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
3/90 0.89 12/95 2.51
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
6/90 2.80 3/96 0.34
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
9/90 2.38 6/96 1.01
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
12/90 3.32 9/96 1.65
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
3/91 2.20 12/96 1.91
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
6/91 1.97 3/97 0.66
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
9/91 3.36 6/97 2.20
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
12/91 3.68 9/97 1.96
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
3/92 0.16 12/97 1.68
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
6/92 2.88 3/98 1.47
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
9/92 2.98 6/98
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
12/92 0.18 9/98
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
3/93 2.21 12/98
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
6/93 1.08 3/99
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
9/93 1.43
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
</TABLE>
1Time-weighted rates of return, unannualized.
QUALITY RATING DESCRIPTIONS
Standard & Poors Corporation
AAA. Bonds rated AAA are the highest grade debt
obligations. This rating indicates an extremely
strong capacity to pay principal and interest.
AA. Bonds rated AA also qualify as high-quality obligations. Capacity to pay
principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in a small degree.
A. Bonds rated A have a strong capacity to pay principal and interest, although
they are more susceptible to the adverse effects of changes in circumstances and
economic conditions.
BBB. Bonds rated BBB are regarded as having adequate capacity to pay interest or
principal. Although these bonds normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and principal.
BB. Bonds rated BB are less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
B. Bonds rated B is more vulnerable to nonpayment than obligations rated BB, but
the obligor currently has the capacity to meet its financial commitment on the
obligation. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation.
CCC. Bonds rated CCC are currently vulnerable to nonpayment, and is dependant
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. It the event of adverse
business, financial or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.
CC. Bonds rated CC are currently highly vulnerable to
nonpayment.
C. Bonds rated C may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued.
The ratings may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
Municipal notes issued since July 29, 1984 are designated "SP-1," "SP-2," and
"SP-3." The designation SP-1 indicates a very strong capacity to pay principal
and interest. A "+" is added to those issues determined to possess overwhelming
safety characteristics.
A-1. Standard & Poor's Commercial Paper ratings are current assessments of the
likelihood of timely payments of debts having original maturity of no more than
365 days. The A-1 designation indicates the degree of safety regarding timely
payment is very strong.
A-2. Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
A-3. Adverse economic conditions or changing circumstances are more likely to
lead to a weakened capacity of the obligor to meet its financial commitment on
the obligation.
Moody's Investors Service, Inc.
Aaa. Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa. These bonds are judged to be of high quality by all standards. Together with
the Aaa group they comprise what are generally known as high grade bonds. They
are rated lower than the best bonds because margins of protection may not be as
large as in Aaa securities, fluctuations of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than the Aaa securities.
A. These bonds possess many favorable investment attributes and may be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa. These bonds are considered medium-grade obligations. They are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present, but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba. These bonds possess speculative elements because their future cannot be
considered as well assured. Uncertainty of position characterizes bonds in this
class, because the protection of interest and principal payments may be very
moderate and not well safeguarded.
B. These bonds lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small.
Caa. This rating represents bonds which may be in
default or, there may be present elements of danger
with respect to principal or interest.
Ca. This rating represents highly speculative
bonds. Such instruments are often in default or have
other marked shorcomings.
C. The lowest class of bonds, the prospects of attaining any real investment
standing are poor.
Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
Moody's ratings for state and municipal and other short-term obligations will be
designated Moody's Investment Grade ("MIG"). This distinction is in recognition
of the differences between short-term credit risk and long-term credit risk.
Factors affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing, while various factors of high importance in long-term
borrowing risk are of lesser importance in the short run.
MIG-1. Notes bearing this rating are of the best quality enjoying strong
protection from established cash flows of funds for their servicing or from
established and broad-based access to the market for refinancing, or both.
MIG-2. Notes bearing this rating are of favorable quality, with all security
elements accounted for, but lacking the undeniable strength of the previous
grade. Market access for refinancing, in particular, is likely to be less well
established.
MIG-3. Notes bearing this rating are of favorable quality, although liquidity
and cash flow protection may be narrow, and market access for refinancing is
likely to be well established.
P-1. Moody's Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. The designation "Prime-1" or "P-1" indicates the highest
quality repayment capacity of the rated issue.
P-2. Issuers have a strong capacity for repayment of short-term promissory
obligations.
Thomson Bankwatch, Inc.
A. Company possesses an exceptionally strong balance sheet and earnings record,
translating into an excellent reputation and unquestioned access to its natural
money markets. If weakness or vulnerability exists in any aspect of the
company's business, it is entirely mitigated by the strengths of the
organization.
A/B. Company is financially very solid with a favorable track record and no
readily apparent weakness. Its overall risk profile, while low, is not quite as
favorable as companies in the highest rating category.
IBCA Limited
A1. Short-term obligations rated A1 are supported by a very strong capacity for
timely repayment. A plus sign is added to those issues determined to possess the
highest capacity for timely payment.
Part C OTHER INFORMATION
Item 23. Exhibits
The following exhibits are incorporated herein by reference,
are not required to be filed or are
filed herewith (as indicated):
(a)(1) Articles of Incorporation,
dated February 23, 1989,
filed as Exhibit 1 to
Registrant's Registration
Statement on Form N-1A.
(a)(2) Articles of Amendment,
dated July 1, 1991, filed
as Exhibit 1(a) to
Post-Effective Amendment
No. 4 to Registrant's
Registration Statement on
Form N-1A.
(a)(3) Articles of Amendment,
dated July 26, 1991, filed
as Exhibit 1(a) to
Post-Effective Amendment
No. 5 to Registrant's
Registration Statement on
Form N-1A.
(a)(4) Articles Supplementary,
dated February 16, 1993,
filed as Exhibit 1(c) to
Post-Effective Amendment
No. 10 to Registrant's
Registration Statement on
Form N-1A.
(a)(5) Articles of Amendment,
dated August 17, 1995,
filed as Exhibit 1(d) to
Post-Effective Amendment
No. 20 to Registrant's
Registration Statement on
Form N-1A.
(a)(6) Articles of Amendment,
dated December 11, 1996,
filed as Exhibit 1(e) to
Post-Effective Amendment
No. 20 to Registrant's
Registration Statement on
Form N-1A.
(a)(7) Articles of Amendment,
dated July 8, 1998 filed as
Exhibit (1f) to
Post-Effective Amendment
No. 23 to Registrant's
Registration Statement on
Form N-1A.
.
(a)(8) Articles of Amendment,
dated December 10, 1998,
filed as Exhibit (a)(8) to
Post-Effective Amendment
No. 24 to Registrant's
Registration Statement on
Form N-1A.
(b)(1) By-laws, filed as Exhibit 2
to Registrant's
Registration Statement on
Form N-1A.
(b)(2) Amended By-laws, filed as
Exhibit 2 to Post-Effective
Amendment No. 2 to
Registrant's Registration
Statement on Form N-1A.
(b)(3) Amendment to By-laws, filed
as Exhibit 2(a) to
Post-Effective Amendment
No. 5 to Registrant's
Registration Statement on
Form N-1A.
(c) Not Applicable.
(d)(1) Management Agreement
between the Registrant and
Fischer Francis Trees &
Watts, Inc., dated November
30, 1989, filed as Exhibit
5 to Pre-Effective
Amendment No. 3 to
Registrant's Registration
Statement on Form N-1A.
(d)(2) Amendment to Management
Agreement between the
Registrant and Fischer
Francis Trees & Watts,
Inc., dated September 25,
1990, filed as Exhibit 5 to
Post-Effective Amendment
No. 2 to Registrant's
Registration Statement on
Form N-1A.
(d)(3) Amended and Restated
Management Agreement
between the Registrant and
Fischer Francis Trees &
Watts, Inc., dated August
31, 1991, filed as Exhibit
5 to Post-Effective
Amendment No. 5 to
Registrant's Registration
Statement on Form N-1A.
(d)(4) Sub-Advisory Agreement
between Fischer Francis
Trees & Watts, Inc. and
Fischer Francis Trees and
Watts, dated August 31,
1991, filed as Exhibit 5(a)
to Post-Effective Amendment
No. 5 to Registrant's
Registration Statement on
Form N-1A.
(d)(5) Advisory Agreement between
the Registrant (for the
Stable Return Portfolio)
and Fischer Francis Trees &
Watts, Inc., dated February
18, 1993, filed as Exhibit
5(d) to Post-Effective
Amendment No. 10 to
Registrant's Registration
Statement on Form N-1A.
(d)(6) Advisory Agreement between
the Registrant (for the
U.S. Treasury Portfolio)
and Fischer Francis Trees &
Watts, Inc., dated February
18, 1993, filed as Exhibit
5(e) to Post-Effective
Amendment No. 10 to
Registrant's Registration
Statement on Form N-1A.
(d)(7) Advisory Agreement between
the Registrant (for the
Broad Market Fixed Income
Portfolio) and Fischer
Francis Trees & Watts,
Inc., dated February 18,
1993, filed as Exhibit 5(g)
to Post-Effective Amendment
No. 10 to Registrant's
Registration Statement on
Form N-1A.
(d)(8) Advisory Agreement between
the Registrant (for the
International Fixed Income
Portfolio) and Fischer
Francis Trees & Watts,
Inc., dated February 18,
1993 filed, as Exhibit 5(i)
to Post-Effective Amendment
No. 10 to Registrant's
Registration Statement on
Form N-1A.
(d)(9) Advisory Agreement between
the Registrant (for the
International Fixed
Income-Hedged Portfolio)
and Fischer Francis Trees &
Watts, Inc., dated February
18, 1993, filed as Exhibit
5(j) to Post-Effective
Amendment No. 10 to
Registrant's Registration
Statement on Form N-1A.
(d)(10) Sub-Advisory Agreement (for
the International Fixed
Income Portfolio) between
Fischer Francis Trees &
Watts, Inc. and Fischer
Francis Trees & Watts,
dated February 18, 1993,
filed as Exhibit 5(l) to
Post-Effective Amendment
No. 10 to Registrant's
Registration Statement on
Form N-1A.
(d)(11) Sub-Advisory Agreement (for
the International Fixed
Income-Hedged Portfolio)
between Fischer Francis
Trees & Watts, Inc. and
Fischer Francis Trees &
Watts, dated February 18,
1993, filed as Exhibit 5(m)
to Post-Effective Amendment
No. 10 to Registrant's
Registration Statement on
Form N-1A.
(d)(12) Advisory Agreement between
the Registrant (for the
Mortgage Total Return
Portfolio) and Fischer
Francis Trees & Watts,
Inc., dated January 2,
1996, filed as Exhibit 5(n)
to Post-Effective Amendment
No. 19 to Registrant's
Registration Statement on
Form N-1A.
(d)(13) Advisory Agreement between
the Registrant (for the
Emerging Markets Portfolio)
and Fischer Francis Trees &
Watts, Inc., dated October
30, 1996, filed as Exhibit
5(o) to Post-Effective
Amendment No. 20 to
Registrant's Registration
Statement on Form N-1A.
(d)(14) Advisory Agreement between
the Registrant (for the
Inflation-Indexed
Portfolio) and Fischer
Francis Trees & Watts,
Inc., dated October 30,
1996, filed as Exhibit 5(p)
to Post-Effective Amendment
No. 20 to Registrant's
Registration Statement on
Form N-1A.
(d)(15) Advisory Agreement between
the Registrant (for the
Inflation-Indexed Hedged
Portfolio) and Fischer
Francis Trees & Watts,
Inc., dated October 30,
1996, filed as Exhibit 5(q)
to Post-Effective Amendment
No. 20 to Registrant's
Registration Statement on
Form N-1A.
(d)(16) Advisory Agreement between
the Registrant (for the
Money Market Portfolio) and
Fischer Francis Trees &
Watts, Inc., dated October
30, 1996, filed as Exhibit
5(r) to Post-Effective
Amendment No. 20 to
Registrant's Registration
Statement on Form N-1A.
(d)(17) Sub-Advisory Agreement (for
the Emerging Markets
Portfolio) between Fischer
Francis Trees & Watts, Inc.
and Fischer Francis Trees &
Watts, dated October 30,
1996, filed as Exhibit 5(s)
to Post-Effective Amendment
No. 20 to Registrant's
Registration Statement on
Form N-1A.
(d)(18) Sub-Advisory Agreement (for
the Inflation-Indexed
Portfolio) between Fischer
Francis Trees & Watts, Inc.
and Fischer Francis Trees &
Watts, dated October 30,
1996, filed as Exhibit 5(t)
to Post-Effective Amendment
No. 20 to Registrant's
Registration Statement on
Form N-1A.
(d)(19) Sub-Advisory Agreement (for
the Inflation
Indexed-Hedged Portfolio)
between Fischer Francis
Trees & Watts, Inc. and
Fischer Francis Trees &
Watts, dated October 30,
1996, filed as Exhibit 5(u)
to Post-Effective Amendment
No. 20 to Registrant's
Registration Statement on
Form N-1A.
(d)(20) Amendment to Management
Agreement (for the Broad
Market Portfolio) between
the Registrant and Fischer
Francis Trees & Watts,
Inc., dated October 30,
1996, filed as Exhibit 5(v)
to Post-Effective Amendment
No. 20 to Registrant's
Registration Statement on
Form N-1A.
(d)(21) Amendment to Management
Agreement (for the U.S.
Treasury Portfolio) between
the Registrant and Fischer
Francis Trees & Watts,
Inc., dated October 30,
1996, filed as Exhibit 5(w)
to Post-Effective Amendment
No. 20 to Registrant's
Registration Statement on
Form N-1A.
(d)(22) Advisory Agreement between
the Registrant (for the
Global High Yield
Portfolio) and Fischer
Francis Trees & Watts,
Inc., dated July 7, 1998,
filed as Exhibit 5aa) to
Post-Effective Amendment
No. 23 to Registrant's
Registration Statement on
Form N-1A.
(d)(23) Advisory Agreement between
the Registrant (for the
International Corporate
Portfolio) and Fischer
Francis Trees & Watts,
Inc., dated July 7, 1998,
filed as Exhibit 5bb) to
Post-Effective Amendment
No. 23 to Registrant's
Registration Statement on
Form N-1A.
(d)(24) Advisory Agreement between
the Registrant (for the
International Opportunities
Portfolio) and Fischer
Francis Trees & Watts,
Inc., dated July 7, 1998,
filed as Exhibit 5cc) to
Post-Effective Amendment
No. 23 to Registrant's
Registration Statement on
Form N-1A.
(d)(25) Advisory Agreement between
the Registrant (for the
Global Tactical Exposure
Portfolio) and Fischer
Francis Trees & Watts,
Inc., dated July 7, 1998,
filed as Exhibit 5dd) to
Post-Effective Amendment
No. 23 to Registrant's
Registration Statement on
Form N-1A.
(d)(26) Advisory Agreement between
the Registrant (for the
U.S. Corporate Portfolio)
and Fischer Francis Trees &
Watts, Inc., dated July 7,
1998, filed as Exhibit 5ee)
to Post-Effective Amendment
No. 23 to Registrant's
Registration Statement on
Form N-1A.
(d)(27) Advisory Agreement between
the Registrant (for the
Equity Alpha Portfolio) and
Fischer Francis Trees &
Watts, Inc., dated July 7,
1998, filed as Exhibit 5ff)
to Post-Effective Amendment
No. 23 to Registrant's
Registration Statement on
Form N-1A.
(d)(28) Advisory Agreement between
the Registrant (for the
High Yield Portfolio) and
Fischer Francis Trees &
Watts, Inc., dated July 7,
1998, filed as Exhibit 5gg)
to Post-Effective Amendment
No. 23 to Registrant's
Registration Statement on
Form N-1A.
(d)(29) Advisory Agreement between
the Registrant (for the
Asset-Backed Portfolio) and
Fischer Francis Trees &
Watts, Inc., dated July 7,
1998, filed as Exhibit 5hh)
to Post-Effective Amendment
No. 23 to Registrant's
Registration Statement on
Form N-1A.
(d)(30) Advisory Agreement between
the Registrant (for the
Limited Duration Portfolio)
and Fischer Francis Trees &
Watts, Inc., dated July 7,
1998, filed as Exhibit 5ii)
to Post-Effective Amendment
No. 23 to Registrant's
Registration Statement on
Form N-1A.
(d)(31) Advisory Agreement between
the Registrant (for the
Mortgage LIBOR Portfolio)
and Fischer Francis Trees &
Watts, Inc., dated July 7,
1998, filed as Exhibit 5jj)
to Post-Effective Amendment
No. 23 to Registrant's
Registration Statement on
Form N-1A.
(d)(32) Sub-Advisory Agreement (for
the Global High Yield
Portfolio) between Fischer
Francis Trees & Watts, Inc.
and Fischer Francis Trees &
Watts, dated July 7, 1998,
filed as Exhibit 5kk) to
Post-Effective Amendment
No. 23 to Registrant's
Registration Statement on
Form N-1A.
(d)(33) Sub-Advisory Agreement (for
the International Corporate
Portfolio) between Fischer
Francis Trees & Watts, Inc.
and Fischer Francis Trees &
Watts, dated July 7, 1998,
filed as Exhibit 5ll) to
Post-Effective Amendment
No. 23 to Registrant's
Registration Statement on
Form N-1A.
(d)(34) Sub-Advisory Agreement (for
the International
Opportunities Portfolio)
between Fischer Francis
Trees & Watts, Inc. and
Fischer Francis Trees &
Watts, dated July 7, 1998,
filed as Exhibit 5mm) to
Post-Effective Amendment
No. 23 to Registrant's
Registration Statement on
Form N-1A.
(d)(35) Sub-Advisory Agreement (for
the Global Tactical
Exposure Portfolio) between
Fischer Francis Trees &
Watts, Inc. and Fischer
Francis Trees & Watts,
dated July 7, 1998, filed
as Exhibit 5nn) to
Post-Effective Amendment
No. 23 to Registrant's
Registration Statement on
Form N-1A.
(e)(1) Distribution Agreement
between the Registrant and
AMT Capital Services, Inc.,
dated September 21, 1992,
filed as Exhibit 6 to
Post-Effective Amendment
No. 8 to Registrant's
Registration Statement on
Form N-1A.
(e)(2) Distribution Agreement
between the Registrant and
AMT Capital Services, Inc.,
dated February 1, 1995
filed as Exhibit 6a to
Post-Effective Amendment
No. 16 to Registrant's
Registration Statement on
Form N-1A.
(e)(3) Distribution Agreement
between the Registrant and
AMT Capital Securities,
L.L.C., dated May 29, 1998,
filed as Exhibit (e)(3) to
Post-Effective Amendment
No. 24 to Registrant's
Registration Statement on
Form N-1A.
(f) Not Applicable.
(g)(1) Custodian Agreement between
Registrant and State Street
Bank & Trust Company, dated
November 21, 1989, filed as
Exhibit 8 to Pre-Effective
Amendment No. 1 to
Registrant's Registration
Statement on Form N-1A.
(g)(2) Custodian Agreement between
Registrant and State Street
Bank & Trust Company, dated
October 22, 1991, filed as
Exhibit 8 to Post-Effective
Amendment No. 5 to
Registrant's Registration
Statement on Form N-1A.
(g)(3) Custodian Agreement between
Registrant and Investors
Bank & Trust Company, dated
January 10, 1994, filed as
Exhibit 8(d) to
Post-Effective Amendment
No. 13 to Registrant's
Registration Statement on
Form N-1A.
(g)(4) Amendment Agreement dated
May 29, 1998 to the
Custodian Agreement between
Registrant and Investors
Bank & Trust Company, dated
January 10, 1994, and
Transfer Agency and Service
Agreement between
Registrant and Investors
Bank & Trust Company, dated
November 27, 1992, filed as
Exhibit (g)(4) to
Post-Effective Amendment
No. 24 to Registrant's
Registration Statement on
Form N-1A.
(h)(1) Transfer Agency and Service
Agreement between
Registrant and State Street
Bank & Trust Company, dated
October 22, 1991, filed as
Exhibit 8(a) to
Post-Effective Amendment
No. 5 to Registrant's
Registration Statement on
Form N-1A.
(h)(2) Transfer Agency and Service
Agreement between
Registrant and Investors
Bank & Trust Company, dated
November 27, 1992, filed as
Exhibit 8(c) to
Post-Effective Amendment
No. 9 to Registrant's
Registration Statement on
Form N-1A.
(h)(3) Administration Agreement
between the Registrant and
AMT Capital Services, Inc.,
dated September 21, 1992,
filed as Exhibit 9 to
Post-Effective Amendment
No. 8 to Registrant's
Registration Statement on
Form N-1A.
(h)(4) Sales Incentive Fee
Agreement between Fischer
Francis Trees & Watts, Inc.
and AMT Capital Services,
Inc., dated September 21,
1992, filed as Exhibit 9(a)
to Post-Effective Amendment
No. 8 to Registrant's
Registration Statement on
Form N-1A.
(h)(5) Administration Agreement
between the Registrant and
AMT Capital Services, Inc.,
dated February 1, 1995,
filed as Exhibit 9b to
Post-Effective Amendment
No. 16 to Registrant's
Registration Statement on
Form N-1A.
(h)(6) Amendment Agreement dated
May 29, 1998 to
Administration
Agreement between
the Registrant and AMT
Capital Services, Inc.,
dated February 1, 1995,
filed as Exhibit (h)(6) to
Post-Effective Amendment
No. 24 to Registrant's
Registration Statement on
Form N-1A.
. (i)(1) Opinion and Consent of
Counsel, dated June 28,
1989, filed as Exhibit 10
to Pre-Effective Amendment
No. 1 to Registrant's
Registration Statement on
Form N-1A.
(i)(2) Opinion and Consent of
Counsel, dated December 28,
1995, filed as Exhibit 10a
to Post-Effective Amendment
No. 17 to Registrant's
Registration Statement on
Form N-1A.
(j) Consent of Ernst & Young LLP dated April 30,
1999 (filed herewith)
(k) Not Applicable.
(l) Purchase Agreement for Initial
Capital between Registrant and
Fischer Francis Trees & Watts,
Inc., dated
November 17, 1989, filed as
Exhibit 13 to Pre-Effective
Amendment No. 3 to
Registrant's Registration
Statement on Form N-1A.
(l)(1) Purchase Agreement for
Initial Capital between
Registrant and William E.
Vastardis, dated July 8,
1998, filed herewith.
(m) Not Applicable.
(n) Not Applicable.
(o) Not applicable.
Item 24
Persons Controlled by or under Common Control with the
Registrant
As of March 31, 1999, Fischer Francis Trees & Watts, Inc. had
discretionary investment advisory agreements with shareholders
of the Registrant, representing 78.4% of the Registrant's
total net assets and therefore may be deemed to be a "control
person" of the Registrant as such term is defined in the 1940
Act.
Item 25
Indemnification.
The Registrant shall indemnify directors, officers,
employees and agents of the Registrant against judgements,
fines, settlements and expenses to the fullest extent allowed,
and in the manner provided, by applicable federal and Maryland
law, including Section 17(h) and (i) of the Investment Company
Act of 1940. In this regard, the Registrant undertakes to
abide by the provisions of Investment Company Act Releases No.
11330 and 7221 until amended or superseded by subsequent
interpretation of legislative or judicial action.
Insofar as indemnification for liabilities arising
under the Securities Act of 1933, as amended (the "Securities
Act"), may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing
provisions, or otherwise, Registrant understands that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities
(other than the payment by Registrant of expenses incurred or
paid by a director, officer or controlling person of
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the
final adjudication of such issue.
Item 26
Business and Other Connections of Investment Adviser.
Fischer Francis Trees & Watts, Inc. (the "Investment
Adviser") is a company organized under the laws of New York
State and it is an investment adviser registered under the
Investment Advisers Act of 1940 (the "Advisers Act").
The list required by this Item 26 of officers and
directors of the Investment Adviser, together with information
as to any other business, profession, vocation or employment
of a substantial nature engaged in by such officers and
directors during the past two years, is incorporated by
reference to Schedules A and D of Form ADV filed by the
Investment Adviser pursuant to the Advisers Act (SEC File No.
801-10577).
Item 27
Principal Underwriters.
(a) In addition to the Registrant, AMT Capital
Securities, L.L.C. currently acts as distributor to
Harding Loevner Funds, Inc., Holland Series Fund,
Inc., SAMCO Fund, Inc., and TIFF Investment Program,
Inc. AMT Capital Securities, L.L.C. is registered
with the Securities and Exchange Commission as a
broker/dealer and is a member of the National
Association of Securities Dealers, Inc.
(b) For each Director or officer of AMT Capital Securities, L.L.C.
Name and Principal
Business Address Positions & Offices Positions & Offices
with Underwriter with Distributor with Registrant
Alan M. Trager Director, Chairman and None
600 Fifth Avenue Treasurer
26th Floor
New York, NY 10020
Arthur Goetchius President
600 Fifth Avenue
26th Floor
New York, NY 10020
Carla E. Dearing Vice President Assistant Treasurer
600 Fifth Avenue
26th Floor
New York, NY 10020
(c) Not applicable.
Item 28
Location of Accounts and Records.
All accounts, books and other documents
required to be maintained by Section 31(a) of the Investment
Company Act of 1940, as amended (the "1940 Act"), and the
rules thereunder will be maintained at the offices of the
Investment Adviser, the Custodian and the Administrator.
FFTW Funds, Inc.
200 Park Avenue
New York, NY 10166
Investors Capital Services, Inc.
600 Fifth Avenue, 26th Floor
New York, New York 10020
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02117-9130
Item 29
Management Services.
Not applicable.
Item 30
Undertakings.
Not applicable
Registrant hereby undertakes to call a meeting of shareholders
for the purpose of voting upon the question of removal of one
or more of the Registrant's directors when requested in
writing to do so by the holders of at least 10% of the
Registrant's outstanding shares of common stock and, in
connection with such meeting, to assist in communications with
other shareholders in this regard, as provided under Section
16(c) of the 1940 Act.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant certifies
that it meets all of the requirement for effectiveness of this
registration statement under rule 485(b) under the Securities
Act of 1933 and has duly caused this registration statement to
be signed on its behalf by the undersigned, duly authorized,
in the City of New York, State of New York on the 30th day of
April, 1999.
FFTW FUNDS, INC.
By \s\ Onder John Olcay
Onder John Olcay
President
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment to the Registration Statement
has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Signature Title Date
/s/ Stephen P. Casper Director April 30,
1999
Stephen P. Casper
/s/ Onder John Olcay Chairman of the Board, April 30, 1999
Onder John Olcay President
/s/ John C Head III Director April 30, 1999
John C Head III
/s/ Lawrence B. Krause Director April 30, 1999
Lawrence B. Krause
/s/ William E. Vastardis Treasurer April 30, 1999
William E. Vastardis
</TABLE>
EXHIBIT INDEX
Exhibit No.
(j) Consent of Ernst & Young LLP
(l)(1) Purchase Agreement for
Initial Capital between
Registrant and William E.
Vastardis, dated July 8,
1998.
PURCHASE AGREEMENT
BETWEEN
FFTW FUNDS, INC.
AND
William E. Vastardis
FFTW Funds, Inc. (the "Fund"), an open-end management investment
company, and William E. Vastardis (the "Purchaser"), intending to be legally
bound, hereby agree as follows:
1. In order to provide the Fund on behalf of its Mortgage LIBOR,
Asset-Backed, U.S. Corporate, High Yield, Enhanced Index, International
Opportunities, International Corporate, and Global High Yield (the
"Portfolios") with its initial capital, the Fund hereby sells to Purchaser
and Purchaser purchases 1 share of each of the eight Portfolios, par value
$0.001 per share, at a price of $10.00 per share. The Fund hereby
acknowledges receipt from Purchaser of funds in the amount of $80.00 in full
payment for 1 Share of each of the eight Portfolios.
2. Purchaser represents and warrants to the Fund that the shares are being
acquired for investment and not with a
view to distribution thereof.
3. The Purchaser's rights under the Purchase Agreement to purchase
shares in each of the Portfolios are not assignable.
IN WITNESS WHEREOF, the parties have executed this agreement as of
the 7th day of July, 1998.
FFTW FUNDS, INC.
By:____________________________
Stephen P. Casper
Director
PURCHASER
_____________________________
By: William E. Vastardis
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "Independent Auditors" and to the incorporation by
reference of our report on dated February 22, 1999 in this
Registration Statement ( Form N-1A No. 33-27896) of FFTW Funds, Inc.
/s/ Ernst & Young LLP
Ernst & Young LLP
New York, NY
April 30, 1999
