FFTW FUNDS, INC.
====================================================================
Prospectus
U.S. Portfolios
====================================================================
May 1, 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 PARTICIPATING 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 OR
DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE
CONTENTS
<TABLE>
<S> <C>
Page
The Fund 3
Summary of Investment Objectives and Portfolio Investment Descriptions 3
General Risks Associated with the Fund's Investment Policies and Investment
Techniques 4
Portfolio Summaries and Financial Highlights 5
Key to Portfolio Summary Terms 5
Money Market Portfolio 6
Mortgage LIBOR Portfolio 8
U.S. Short-Term Portfolio 10
Limited Duration Portfolio 12
Mortgage-Backed Portfolio 14
Asset-Backed Portfolio 16
High Yield Portfolio 18
Enhanced Equity Market Portfolio 20
U.S. Treasury Portfolio 22
U.S. Corporate Portfolio 24
Broad Market Portfolio 26
Investment Information 28
General Investment Techniques/Strategies and Associated Risks 28
General Description of Investments and Associated Risks 31
Portfolio Turnover 36
Shareholder Information 36
Distribution of Fund Shares 36
Purchases 36
Wiring Instructions 37
Redemptions 37
Determination of Net Asset Value 38
Dividends 38
Voting Rights 39
Tax Considerations 39
Fund Management 40
Board of Directors 40
Investment Adviser 40
Portfolio Managers 40
Administrator 40
Potential Year 2000 Problem 41
The Euro 41
Control Person 41
Custodian and Accounting Agent 41
Transfer and Dividend Disbursing Agent 41
Legal Counsel 42
Independent Auditors 42
Shareholder Inquiries 42
</TABLE>
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>
PORTFOLIO NAME INVESTMENT OBJECTIVE PRINCIPAL INVESTMENT STRATEGIES
------------------------- ------------------------------------------------------ ----------------------------------------------
Money Market To provide the maximum current income that is Investment in high quality money market
consistent with the preservation of capital securities
------------------------- ------------------------------------------------------ ----------------------------------------------
------------------------- ------------------------------------------------------ ----------------------------------------------
Mortgage LIBOR To attain a high level of total return as may be Investment in high quality mortgage-backed
consistent with the preservation of capital securities and opportunistic hedging to
outperform a cash portfolio
------------------------- ------------------------------------------------------ ----------------------------------------------
------------------------- ------------------------------------------------------ ----------------------------------------------
U.S. Short-Term To attain a high level of total return as may be Investment in high quality short-term debt
consistent with the preservation of capital and to securities
maintain liquidity
------------------------- ------------------------------------------------------ ----------------------------------------------
------------------------- ------------------------------------------------------ ----------------------------------------------
Limited Duration To maintain a high level of total
return as may be Investment in high quality
debt securities consistent with the
preservation of capital using interest rate
hedging as a stabilizing
technique
------------------------- ------------------------------------------------------ ----------------------------------------------
------------------------- ------------------------------------------------------ ----------------------------------------------
Mortgage-Backed To attain a high level of total return as may be Investment in mortgage-backed securities
consistent with the preservation of capital using hedging techniques to manage interest
rate and prepayment risk
------------------------- ------------------------------------------------------ ----------------------------------------------
Asset-Backed To attain a high level of total return as may be Investment in high quality asset-backed
consistent with the preservation of capital securities allowing opportunistic exposure
to other sectors of the debt market
------------------------- ------------------------------------------------------ ----------------------------------------------
------------------------- ------------------------------------------------------ ----------------------------------------------
High Yield To attain a high level of total return as may be Investment in high yield debt securities
consistent with the preservation of capital
------------------------- ------------------------------------------------------ ----------------------------------------------
------------------------- ------------------------------------------------------ ----------------------------------------------
Enhanced Equity Market To attain a high
level of total return that exceeds
Investment in high quality short
duration the S&P 500 Index(TM)
fixed income securities and S&P
500 Index (TM)
futures contracts to provide equity-like
returns where possible
------------------------- ------------------------------------------------------ ----------------------------------------------
------------------------- ------------------------------------------------------ ----------------------------------------------
U.S. Treasury To attain a high level of total return as may be Investment in U.S. Treasuries
consistent with the preservation of capital and to
avoid credit quality risk
------------------------- ------------------------------------------------------ ----------------------------------------------
------------------------- ------------------------------------------------------ ----------------------------------------------
U.S. Corporate To attain a high level of total return as may be Investment in high quality U.S. corporate
consistent with the preservation of capital obligations with
limited exposure to other debt securities
------------------------- ------------------------------------------------------ ----------------------------------------------
Broad Market To attain a high level of total return
as may be Investment in high quality fixed
income consistent with the preservation of
capital securities reflective of the broad
spectrum
of the U.S. bond market
------------------------- ------------------------------------------------------ ----------------------------------------------
</TABLE>
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. In general, the greater the risk, the greater the earning
potential. Conversely, however, 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.
Banking industry Investing in bank obligations will expose an investor to
risk: risks associated with the banking industry such 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 Aadviser'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
risk: that generally have an inverse relationship to
corresponding market values.
Leverage risk: Derivatives may include elements of leverage that can
cause greater fluctuations in a Portfolio's net asset
value.
Liquidity risk: Certain securities may be difficult or impossible to sell
at 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: risk by placing assets in several investment
categories. A non-diversified Portfolio concentrates
its assets in a less diverse spectrum of
securities. Non-diversification can intensify risk should
a particular investment category suffer from
adverse market conditions.
Prepayment
risk: 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.
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.
Insert bar chart for Money Market Portfolio
During the ___year period shown in the Money Market Portfolio's bar chart, the
highest quarterly return was ____% (quarter ending ____ __, ____) and the lowest
quarterly return was _____% (quarter ending ____ __, ____).
Insert bar chart for U.S. Short-Term Portfolio
During the ___year period shown in the U.S. Short Term Portfolio's bar chart,
the highest quarterly return was ____% (quarter ending ____ __, ____) and the
lowest quarterly return was _____% (quarter ending ____ __, ____).
Insert bar chart forLimited Duration Portfolio
During the ___year period shown in the Limited Duration Portfolio's bar chart,
the highest quarterly return was ____% (quarter ending ____ __, ____) and the
lowest quarterly return was _____% (quarter ending ____ __, ____).
Insert bar chart for Mortgage-Backed Portfolio
During the ___year period shown in the Mortgage-Backed Portfolio's bar chart,
the highest quarterly return was ____% (quarter ending ____ __, ____) and the
lowest quarterly return was _____% (quarter ending ____ __, ____).
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
Average Annual Total Returns (for the periods Past 1 Year Past 5 Years Since Inception*
ending December 31, 1998)
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
Money Market Portfolio
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
MM Benchmark
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
U.S. Short-Term Portfolio
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
ST Benchmark
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
Limited Duration Portfolio
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
LD Benchmark
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
Mortgage-Backed Portfolio
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
MB Benchmark
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
* List all Portfolio inception dates
</TABLE>
**Information for the Portfolios that have not commenced
investment activity are not available.
RISK/RETURN SUMMARY: FEE TABLE
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
- ------------------------------------- --------------------- ------------------- --------------------- --------------------
- ------------------------------------- --------------------- ------------------- --------------------- --------------------
Mortgage LIBOR
- ------------------------------------- --------------------- ------------------- --------------------- --------------------
- ------------------------------------- --------------------- ------------------- --------------------- --------------------
U.S. Short Term
- ------------------------------------- --------------------- ------------------- --------------------- --------------------
- ------------------------------------- --------------------- ------------------- --------------------- --------------------
Limited Duration
- ------------------------------------- --------------------- ------------------- --------------------- --------------------
- ------------------------------------- --------------------- ------------------- --------------------- --------------------
Mortgage-Backed
- ------------------------------------- --------------------- ------------------- --------------------- --------------------
- ------------------------------------- --------------------- ------------------- --------------------- --------------------
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.
FEE TABLE
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------------------------ ------------------ ------------------- ------------------- --------------------
Shareholder Transaction Expenses Money Market U.S. Short Limited Mortgage Backed
(Fees Paid Directly By You) (1) Term (2) Duration (3) (4)
- ------------------------------------------ ------------------ ------------------- ------------------- --------------------
- ------------------------------------------ ------------------ ------------------- ------------------- --------------------
Redemption Fees None None None None
- ------------------------------------------ ------------------ ------------------- ------------------- --------------------
- ------------------------------------------ ------------------ ------------------- ------------------- --------------------
Exchange Fees None None None None
- ------------------------------------------ ------------------ ------------------- ------------------- --------------------
- ------------------------------------------ ------------------ ------------------- ------------------- --------------------
Contongent Deferred Sales Load None None None None
- ------------------------------------------ ------------------ ------------------- ------------------- --------------------
- ------------------------------------------ ------------------ ------------------- ------------------- --------------------
Sales Load on Reinvestment Dividends None None None None
- ------------------------------------------ ------------------ ------------------- ------------------- --------------------
- ------------------------------------------ ------------------ ------------------- ------------------- --------------------
Sales Load on Purchases None None None None
- ------------------------------------------ ------------------ ------------------- ------------------- --------------------
Annual Fund Operating Expenses
(Fees Paid From Fund Assets)
- ------------------------------------------ ------------------ ------------------- ------------------- --------------------
- ------------------------------------------ ------------------ ------------------- ------------------- --------------------
Management Fees
- ------------------------------------------ ------------------ ------------------- ------------------- --------------------
- ------------------------------------------ ------------------ ------------------- ------------------- --------------------
Distribution Fees (12b-1)
- ------------------------------------------ ------------------ ------------------- ------------------- --------------------
- ------------------------------------------ ------------------ ------------------- ------------------- --------------------
Shareholder Services Fees
- ------------------------------------------ ------------------ ------------------- ------------------- --------------------
- ------------------------------------------ ------------------ ------------------- ------------------- --------------------
Other Expenses
- ------------------------------------------ ------------------ ------------------- ------------------- --------------------
- ------------------------------------------ ------------------ ------------------- ------------------- --------------------
Total Annual Fund Operating Expenses
- ------------------------------------------ ------------------ ------------------- ------------------- --------------------
- ------------------------------------------ ------------------ ------------------- ------------------- --------------------
- ------------------------------------------ ------------------ ------------------- ------------------- --------------------
- ------------------------------------------ ------------------ ------------------- ------------------- --------------------
- ------------------------------------------ ------------------ ------------------- ------------------- --------------------
</TABLE>
Insert footnotes
(1)
(2)
(3)
(4)
================================================================================
MONEY MARKET PORTFOLIO
================================================================================
- --------------------------------- ==============================================
<TABLE>
<S> <C> <C> <C> <C> <C>
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.
- ---------------------------------
- --------------------------------- ===============================================================================================
Performance Objective: To outperform IBC's Money Fund Report Averages (TM) - All Taxable.
- --------------------------------- ===============================================================================================
- ---------------------------------
Investment Policies: The Portfolio invests only in U.S. dollar-denominated money market securities, eligible under
Rule 2a-7 of the 1940 Act.
- --------------------------------- ===============================================================================================
- ---------------------------------
Principal Risks: o Banking industry risk o Liquidity risk o Prepayment risk
(See page 4 of this Prospectus o Interest rate risk o Market risk
for a more detailed description
of each risk)
- ---------------------------------
- --------------------------------- ===============================================================================================
Allowable Investment Strategies: o Duration management (see General Investment Techniques)
(See pages 21-24 of this
Prospectus for a more detailed
description of investment
strategies
- ---------------------------------
- --------------------------------- ------------------------------- ------------------------------- ===============================
Allowable Investments: o Asset-Backed o Illiquid Securities o U.S. Government and
(See pages 24-30 of this Securities o Municipal Instruments Agency Securities
Prospectus for a more detailed o Bank Obligations o Repurchase and o Stripped Instruments
description of allowable o Corporate Debt Reverse Repurchase
investments) Instruments Agreements
o Mortgage-Backed
Securities
- ---------------------------------
================================= ===============================================================================================
Average Weighted Maturity: o Portfolio will have an average weighted maturity of not longer than 90 days.
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.
================================= ===============================================================================================
</TABLE>
<TABLE>
<S> <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 (rating Strategies: 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.
- ---------------------------- ====================================================================================================
- ---------------------------- ====================================================================================================
Performance Objective: To outperform the J.P. Morgan 3-Month Eurodeposit 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 with the
goal to outperform LIBOR (see note below). The
Portfolio 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. 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 Risks: o Banking industry risk o Hedging risk o Liquidity risk
(See page 4 of this o Correlation risk o Interest rate risk o Market risk
Prospectus for a more o Credit risk o Leverage risk o Non-diversification
detailed description of o Futures risk risk
each risk) o Prepayment risk
- ---------------------------- -------------------------------------- ----------------------------- ===============================
============================ -------------------------------------- ----------------------------- ===============================
Allowable Investment o Dollar Roll Transactions o Short Sale o When Issued and
Strategies: o Duration Management Transactions Forward Commitment
(See pages 21-24 of this o Hedging o TBA Transactions Securities
Prospectus for a more
detailed description of
investment strategies)
============================ ====================================== ============================= ===============================
Allowable Investments: o Asset-Backed Securities o Investment o Stripped Instruments
(See pages 24-30 of this o Bank Obligations Companies o Total Return Swaps
Prospectus for a more o Corporate Debt Instruments o Mortgage-Backed o U.S. Government and
detailed description of o Illiquid Securities Securities Agency Securities
allowable investments) o Inflation-Indexed Securities o Repurchase and o Zero Coupon
Reverse Repurchase Securities
Agreements
============================ ====================================== ============================= ===============================
</TABLE>
THIS PORTFOLIO HAS NOT YET COMMENCED INVESTMENT ACTIVITY
<TABLE>
<S> <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.
----------------------------- ==================================================================================================
----------------------------- ==================================================================================================
Performance Objective: To outperform IBC's Money Fund Report Averages(TM) - All Taxable.
----------------------------- ==================================================================================================
----------------------------- ==================================================================================================
Investment Policies: At least 65% of the Portfolio's total assets must be invested in U.S. dollar denominated
securities. Up to 35% of the Portfolio's total assets may be invested in non-U.S. dollar
denominated debt securities. No more than 5% of the Portfolio's total assets may be invested in
the securities of any one issuer (other than the U.S. Government and its agencies). The
Portfolio may 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. 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 Risks: o Banking industry risk o Futures risk o Liquidity risk
(See page 4 of this o Correlation risk o Hedging risk o Market risk
Prospectus for a more o Credit risk o Interest rate risk o Prepayment risk
detailed description of o Currency risk o Leverage risk
each risk)
----------------------------- ------------------------------------ -------------------------------- ============================
----------------------------- ------------------------------------ -------------------------------- ============================
Allowable Investment o Dollar Roll Transactions o Hedging o When Issued and
Strategies: o Duration Management o TBA Transactions Forward Commitment
(See pages 21-24 of this Securities
Prospectus for a more
detailed description of
investment strategies
----------------------------- ------------------------------------ -------------------------------- ============================
============================= ==================================== ================================ ============================
Allowable Investments: o Asset-Backed Securities o Indexed Notes, o Municipal
(See pages 24-30 of this o Bank Obligations Currency Exchange-Related Instruments
Prospectus for a more o Brady Bonds Securities and Similar o Repurchase and
detailed description of o Convertibles Securities Securities Reverse Repurchase
allowable investments) o Corporate Debt Instruments o Inflation-Indexed Agreements
o Foreign Instruments Securities o Stripped
o Investment Companies Instruments
o Mortgage-Backed o Total Return Swaps
Securities o U.S. Government
o Multi-National and Agency Securities
Currency Unit Securities o Warrants
or More Than One Currency o Zero Coupon Bonds
Denomination
============================= ==================================== ================================ ============================
</TABLE>
<TABLE>
<S> <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.
----------------------------- ==================================================================================================
----------------------------- ==================================================================================================
Performance Objective: To outperform the Merrill Lynch 1-2.99 Year Treasury Index.
----------------------------- ==================================================================================================
----------------------------- ==================================================================================================
Investment Policies: At least 65% of the Portfolio's total assets must be invested in U.S. dollar-denominated
securities. Up to 35% of the Portfolio's total assets may be invested in non-U.S. dollar
denominated securities. The Portfolio may 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. 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 Risks: o Banking industry risk o Futures risk o Liquidity risk
(See page 4 of this o Correlation risk o Hedging risk o Market risk
Prospectus for a more o Credit risk o Interest rate risk o Non-diversification
detailed description of o Currency risk o Leverage risk risk
each risk) o Prepayment risk
----------------------------- --------------------------------- --------------------------------- ==============================
============================= --------------------------------- --------------------------------- ==============================
Allowable Investment o Dollar Roll o Hedging o When Issued and
Strategies: Transactions o TBA Transactions Forward Commitment
(See pages 21-24 of this o Duration Management Securities
Prospectus for a more
detailed description of
investment strategies
============================= ================================= ================================= ==============================
Allowable Investments: o Asset-Backed Securities o Indexed Notes, o Municipal
(See pages 24-30 of this o Bank Obligations Currency Exchange-Related Instruments
Prospectus for a more o Brady Bonds Securities and Similar o Repurchase and
detailed description of o Convertible Securities Securities Reverse Repurchase
allowable investments) o Corporate Debt o Inflation-Indexed Agreements
Instruments Securities o Stripped Instruments
o Foreign Instruments o Investment Companies o Total Return Swaps
o Illiquid Securities o Mortgage-Backed o U.S. Government and
Securities Agency Securities
o Multi-National o Warrants
Currency Unit Securities o Zero Coupon Bonds
or More Than One Currency
Denomination
============================= ================================= ================================= ==============================
</TABLE>
<TABLE>
<S> <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.
------------------------------- ===========================================================================================
------------------------------- ===========================================================================================
Performance Objective: To outperform the Lehman Brothers 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. 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. 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 Risks: o Banking industry risk o Hedging risk o Market risk
(See page 4 of this o Correlation risk o Interest rate risk o
Prospectus for a more o Credit risk o Leverage risk Non-diversification
detailed description of each o Futures risk o Liquidity risk risk
risk) o Prepayment risk
------------------------------- ------------------------------- ----------------------------- =============================
=============================== ------------------------------- ----------------------------- =============================
Allowable Investment o Dollar Roll o Hedging o TBA Transactions
Strategies: Transactions o Short Sale o When Issued and
(See pages 21-24 of this o Duration Management Transactions Forward Commitment
Prospectus for a more Securities
detailed description of
investment strategies
=============================== =============================== ============================= =============================
Allowable Investments: o Asset-Backed o Indexed Notes o Stripped
(See pages 24-30 of this Securities o Inflation-Indexed Instruments
Prospectus for a more o Bank Obligations Securities o Total Return Swaps
detailed description of o Corporate Debt o Investment o U.S. Government
allowable investments) Instruments Companies and Agency Securities
o Illiquid Securities o Mortgage-Backed o Zero Coupon Bonds
Securities
o Repurchase and
Reverse Repurchase
Agreements
=============================== =============================== ============================= =============================
</TABLE>
<TABLE>
<S> <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.
------------------------------ ==============================================================================================
------------------------------ ==============================================================================================
Performance Objective: To outperform 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. 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. 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 Risks: o Banking industry o Hedging risk o Liquidity risk
(See page 4 of this risk o Interest rate risk o Market risk
Prospectus for a more o Correlation risk o Leverage risk o Non-diversification
detailed description of each o Credit risk risk
risk) o Futures risk o Prepayment risk
------------------------------ ------------------------------ ------------------------------- ===============================
============================== ------------------------------ ------------------------------- ===============================
Allowable Investment o Dollar Roll o Hedging o TBA Transactions
Strategies: Transactions o Short Sale o When Issued and
(See pages 21-24 of this o Duration Management Transactions Forward Commitment
Prospectus for a more Securities
detailed description of
investment strategies
============================== ============================== =============================== ===============================
Allowable Investments: o Asset-Backed o Indexed Notes o Stripped Instruments
(See pages 24-30 of this Securities o Inflation-Indexed o Total Return Swaps
Prospectus for a more o Bank Obligations Securities o U.S. Government and
detailed description of o Convertible o Investment Companies Agency Securities
allowable investments) Securities o Mortgage-Backed o Zero Coupon
o Corporate Debt Securities Securities
Instruments o Repurchase and
o Illiquid Securities Reverse Repurchase
Agreements
============================== ============================== =============================== ===============================
</TABLE>
THIS PORTFOLIO HAS NOT YET COMMENCED INVESTMENT ACTIVITY
<TABLE>
<S> <C> <C> <C> <C> <C>
=================================================================================================================================
HIGH YIELD PORTFOLIO
=================================================================================================================================
- --------------------- ===========================================================================================================
Investment To attain a high level of total return as may be consistent with the preservation of capital.
Objective:
- --------------------- ===========================================================================================================
- --------------------- ===========================================================================================================
Principal Once it commences investment activity, the Portfolio will invest primarily in high yield debt securities.
Investment
Strategies:
- --------------------- ===========================================================================================================
- --------------------- ===========================================================================================================
Performance To outperform the Salomon Smith Barney All BB and B Rated Issues Index.
Objective:
- --------------------- ===========================================================================================================
- --------------------- ===========================================================================================================
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. 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. 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 Risks: o Correlation risk o Futures risk o Market risk
(See page 4 of this o Credit risk o Hedging risk o Non-diversification
Prospectus for a o Currency risk o Interest rate risk risk
more detailed o Liquidity risk o Prepayment risk
description of each
risk)
- --------------------- ------------------------------------- ----------------------------------- =================================
- --------------------- ===========================================================================================================
Note: Special Also known as junk bonds, high yield bonds are issued by corporations who either do not have long track
Risks 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.
- --------------------- ===========================================================================================================
- --------------------- ------------------------------------- ----------------------------------- =================================
Allowable o Dollar Roll Transactions o Hedging o When Issued and
Investment o Duration Management o Short Sales Transactions Forward Commitment
Strategies: o TBA Transactions Securities
(See pages 21-24 of
this Prospectus for
a more detailed
description of
investment
strategies
- --------------------- ------------------------------------- ----------------------------------- =================================
===================== ===================================== =================================== =================================
Allowable o Asset-Backed Securities o Inflation-Indexed o Municipal Instruments
Investments: o Bank Obligations Securities o Repurchase and Reverse
(See pages 24-30 of o Brady Bonds o Investment Companies Repurchase Agreements
this Prospectus for o Convertible Securities o Mortgage-Backed o Stripped Instruments
a more detailed o Corporate Debt Instruments Securities o Total Return Swaps
description of o Foreign Instruments o Multi-National Currency o U.S. Government and
allowable o Illiquid Securities Unit Securities or More Than Agency Securities
investments) o Indexed Notes, Currency One Denomination o Warrants
Exchange-Related Securities o Zero Coupon Securities
and Similar Securities
===================== ===================================== =================================== =================================
</TABLE>
THIS PORTFOLIO HAS NOT YET COMMENCED INVESTMENT ACTIVITY
<TABLE>
<S> <C> <C> <C> <C> <C>
=================================================================================================================================
ENHANCED Equity MARKET PORTFOLIO
=================================================================================================================================
- --------------------- ===========================================================================================================
Investment To attain a high level of total return that exceeds the S&P 500 Index(TM).
Objective:
- --------------------- ===========================================================================================================
Principal Once it commences investment activity, the Portfolio will invest primarily in high quality (rating of AA
Investment by S&P, Aa by Moody's or a comparable rating, or higher from a nationally recognized statistical rating
Strategies: organization) short duration fixed income securities and S&P 500 Index(TM) futures contracts. Where
possible, these securities will provide equity-like returns.
- --------------------- ===========================================================================================================
- --------------------- ===========================================================================================================
Performance To outperform the S&P 500 Index(TM).
Objective:
- --------------------- ===========================================================================================================
- --------------------- ===========================================================================================================
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 Risks: o Banking Industry risk o Futures risk o Leverage risk
(See page 4 of this o Correlation risk o Hedging risk o Market risk
Prospectus for a o Credit risk o Interest rate risk o Non-diversification risk
more detailed o Liquidity risk o Prepayment risk
description of each
risk)
- --------------------- ---------------------------------- ------------------------------------- ==================================
===================== ---------------------------------- ------------------------------------- ==================================
Allowable o Dollar Roll Transactions o Hedging o When Issued and Forward
Investment o Duration Management o Short Sales Transactions Commitment Securities
Strategies: o TBA Transactions
(See pages 21-24 of
this Prospectus for
a more detailed
description of
investment
strategies
===================== ================================== ===================================== ==================================
Allowable o Asset-Backed Securities o Indexed Notes, Currency o Municipal Instruments
Investments: o Bank Obligations Exchange-Related Securities o Repurchase and Reverse
(See pages 24-30 of o Brady Bonds and Similar Securities Repurchase Agreements
this Prospectus for o Corporate Debt o Inflation-Indexed o Stripped Instruments
a more detailed Instruments Securities o Total Return Swaps
description of o Foreign Instruments o Investment Companies o U.S. Government and
allowable o Illiquid Securities o Mortgage-Backed Securities Agency Securities
investments) o Multi-National Currency o Warrants
Unit Securities or More Than o Zero Coupon Securities
One Denomination
===================== ================================== ===================================== ==================================
</TABLE>
THIS PORTFOLIO HAS NOT YET COMMENCED INVESTMENT ACTIVITY
<TABLE>
<S> <C> <C> <C> <C> <C>
=============================================================================================================================
U.S. TREASURY PORTFOLIO
=============================================================================================================================
--------------------- =======================================================================================================
Investment To attain a high level of total return as may be consistent with the preservation of capital and to
Objective: avoid credit quality risk.
--------------------- =======================================================================================================
Principal Once it commences investment activity, the Portfolio will invests primarily in U.S. Treasuries.
Investment
Strategies:
--------------------- =======================================================================================================
Performance To outperform the Lehman Brothers Government Securities Index.
Objective:
--------------------- =======================================================================================================
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 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. 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 is
non-diversified.
--------------------- =======================================================================================================
Principal Risks: o Correlation risk o Hedging risk o Leverage risk
(See page 4 of this o Futures risk o Interest rate risk o Market risk
Prospectus for a
more detailed
description of each
risk)
===================== ----------------------------------- ---------------------------------- ================================
Allowable o Duration Management o Hedging o When Issued and
Investment Forward Commitment
Strategies: Securities
(See pages 21-24 of
this Prospectus for
a more detailed
description of
investment
strategies
===================== =================================== ================================== ================================
Allowable o Asset-Backed Securities o Inflation-Indexed o Stripped Instruments
Investments: o Bank Obligations Securities o U.S. Government and
(See pages 24-30 of o Corporate Debt o Investment Companies Agency Securities
this Prospectus for Instruments o Mortgage Backed o Zero Coupon Securities
a more detailed Securities
description of o Repurchase and Reverse
allowable Repurchase Agreements
investments)
===================== =================================== ================================== ================================
</TABLE>
THIS PORTFOLIO HAS NOT YET COMMENCED INVESTMENT ACTIVITY
<TABLE>
<S> <C> <C> <C> <C> <C>
============================================================================================================================
U.S. Corporate PORTFOLIO
============================================================================================================================
------------------- ========================================================================================================
Investment To attain a high level of total return as may be consistent with the preservation of capital.
Objective:
------------------- ========================================================================================================
Portfolio Once it commences investment activity, the Portfolio will invest
primarily in high quality (rating of Description: 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.
------------------- ========================================================================================================
Performance To outperform the Salomon Smith Barney Corporate Bond Index.
Objective:
------------------- ========================================================================================================
Investment The Portfolio must invest at least 65% of its total assets in U.S. dollar-denominated corporate debt
Policies: obligations of U.S issuers. 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. 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. 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 Risks: o Correlation risk o Futures risk o Liquidity risk
(See page 4 of o Credit risk o Hedging risk o Market risk
this Prospectus o Currency risk o Interest rate risk o Non-diversification risk
for a more o Leverage risk o Prepayment risk
detailed
description of
each risk)
=================== ------------------------------- ------------------------------------ ===================================
Allowable o Dollar Roll o Hedging o TBA Transactions
Investment Transactions o Short Sale Transactions o When Issued and Forward
Strategies: o Duration Management Commitment Securities
(See pages 21-24
of this
Prospectus for a
more detailed
description of
investment
strategies
=================== =============================== ==================================== ===================================
Allowable o Asset-Backed o Indexed Notes, Currency o Municipal Instruments
Investments: Securities Exchange-Related Securities o Repurchase and Reverse
(See pages 24-30 o Bank Obligations and Similar Securities Repurchase Agreements
of this o Brady Bonds o Inflation-Indexed o Stripped Instruments
Prospectus for a o Convertible Securities o Total Return Swaps
more detailed Securities o Investment Companies o U.S. Government and
description of o Corporate Debt o Mortgage-Backed Securities Agency Securities
allowable Instruments o Multi-National Currency o Warrants
investments) o Foreign Instruments Unit Securities or More Than o Zero Coupon Bonds
o Illiquid Securities One Currency Denomination
=================== =============================== ==================================== ===================================
</TABLE>
THIS PORTFOLIO HAS NOT YET COMMENCED INVESTMENT ACTIVITY
<TABLE>
<S> <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 (rating of Strategies: 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.
- ----------------------- =======================================================================================================
Performance Objective: To outperform 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. The Portfolio has limited exposure to non-U.S. dollar
denominated securities. 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. 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 Risks: o Banking industry o Futures risk o Liquidity risk
(See page 4 of this risk o Hedging risk o Market risk
Prospectus for a more o Correlation risk o Interest rate risk o Non-diversification
detailed description o Credit risk o Leverage risk risk
of each risk) o Currency risk o Prepayment risk
- ----------------------- ------------------------------ --------------------------------------- ================================
Allowable Investment o Dollar Roll o Duration Management o TBA Transactions
Strategies: Transactions o Hedging o When Issued and
(See pages 21-24 of Forward Commitment
this Prospectus for a Securities
more detailed
description of
investment strategies
- ----------------------- ------------------------------ --------------------------------------- ================================
Allowable Investments: o Asset-Backed o Indexed Notes, Currency o Municipal Instruments
(See pages 24-30 of Securities Exchange-Related Securities and o Repurchase and
this Prospectus for a o Bank Obligations Similar Securities Reverse Repurchase
more detailed o Brady Bonds o Inflation-Indexed Securities Agreements
description of o Convertible o Investment Companies o Stripped Instruments
allowable investments) Securities o Mortgage-Backed Securities o Total Return Swaps
o Corporate Debt o Multi-National Currency Unit o U.S. Government and
Instruments Securities or More Than One Agency Securities
o Foreign Instruments Currency Denomination o Warrants
o Illiquid Securities o Zero Coupon Bonds
======================= ============================== ======================================= ================================
</TABLE>
THIS PORTFOLIO HAS NOT YET COMMENCED INVESTMENT ACTIVITY
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 0.35% 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 0.35%.
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>
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.
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.
<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 Agent
p.m. Eastern time on any Business Day, the on a non-business day or after 12:00 p.m.
redemption will be effective and payment will be Eastern time, the redemption notice will be
made on such Business day. Price of shares is deemed received as of the next Business Day.
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 If notice is received by the Transfer
Agent by 4:00 p.m. Eastern time Agent on a non-business day or after 4:00
on any Business Day, the p.m. Eastern time, the redemption
redemption will be effective will be deemed received as of the next
and payment will be made on Business Day.
such Business day. Price of shares 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 redemption notice will be deemed received
Market calendar days, but generally on the day as of the next Business Day.
following receipt of such notice. Price of shares is
o U.S Treasury based on the next calculation of the NAV after the
o U.S. Corporate order is placed.
o Broad Market
- --------------------------- ---------------------------------------------------------- -------------------------------------------
- --------------------------- ---------------------------------------------------------- -------------------------------------------
o Mortgage LIBOR If notice is received by the Transfer If notice is received on a
Agent by 4:00 p.m. Eastern time on any Business non-business day or after 4:00 p.m.
Day, the redemption will be effective Eastern time, the redemption
and payment will be made within seven calendar notice will be deemed
days, but generally on the day following receipt received as of the next Business Day.
of such 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
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.
Bank Obligations
Bank obligations are bank issued securities. These instruments include:
<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 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.
Portfolio Turnover
Costs associated with Portfolio turnover have historically been and are expected
to remain low relative to equity fund turnover costs. These anticipated
Portfolio turnover rates are believed to be higher than the turnover experienced
by most fixed income funds, due to the Investment Adviser's active management of
duration and could, in turn, lead to higher turnover costs. High Portfolio
turnover may involve greater brokerage commissions and transactions costs which
will be paid by the Portfolio. In addition, high turnover rates may result in
increased short-term capital gains.
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.
===============================================================================
MONEY MARKET PORTFOLIO FINANCIAL HIGHLIGHTS
(IN WHOLE DOLLARS EXCEPT WHERE OTHERWISE INDICATED)
===============================================================================
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
For a share outstanding throughout the period Year Year Ended Year Ended Year Ended Year Ended From
Ended 12/31/97 12/31/96 12/31/95 12/31/94 11/1/93*
12/31/98 to 12/31/93
- ------------------------------------------------- ----------- ------------ ------------- ------------ ------------- ============
Net asset value at beginning of period 1.00 1.00 1.00 1.00 1.00 1.00
- ------------------------------------------------- ----------- ------------ ------------- ------------ ------------- ============
Net investment income 0.05 0.05 0.06 0.04 0.00**
Net realized gains or (losses) on investments --- 0.00** 0.00** 0.00 ** ---
================================================= ----------- ------------ ------------- ------------ ------------- ============
Total from investment operations 0.05 0.05 0.06 0.04 0.00**
================================================= ----------- ------------ ------------- ------------ ------------- ============
Distributions from net investment income 0.05 0.05 0.06 0.04 0.00**
Distributions from net realized gain on --- 0.00** --- --- ---
investments
Distributions in excess of net investment income --- --- --- 0.00** ---
- ------------------------------------------------- ----------- ------------ ------------- ------------ ------------- ============
Total distributions 0.05 0.05 0.06 0.04 0.00 **
================================================= ----------- ------------ ------------- ------------ ------------- ============
Net asset value at end of period 1.00 1.00 1.00 1.00 1.00
================================================= ----------- ------------ ------------- ------------ ------------- ============
Total return on investment 5.46% 5.18% 5.74% 4.13% 0.44% (c)
Net assets at end of period in 000's 26,152 25,047 25,870 22,006 2,336
Ratio of operating expenses to average net 0.30% 0.40% 0.40% 0.40% 0.40% (b)
assets (a)
Ratio of net investment income to average net 5.33% 5.05% 5.58% 4.16% 2.67% (b)
assets
Decrease in above expense ratios due to waiver
of investment advisory and administration
fees and reimbursement of other expenses 0.16% 0.30% 0.37% 0.64% 25.54% (b)
================================================= =========== ------------ ============= ------------ ============= ============
</TABLE>
(a) Net of waivers and reimbursements (b) Annualized (c) Not annualized
*Commencement of operations **Rounds to less than $0.01
================================================================================
U.S. SHORT-TERM PORTFOLIO FINANCIAL HIGHLIGHTS
(IN WHOLE DOLLARS EXCEPT WHERE OTHERWISE INDICATED)
================================================================================
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR A SHARE OUTSTANDING Year Year Year Year Year Year Year Three Year From
THROUGHOUT THE PERIOD Ended Ended Ended Ended Ended Ended Ended Months Ended 12/6/89*
12/31/98 12/31/97 12/31/95 12/31/96 12/31/94 12/31/93 12/31/92 Ended 1991 9/30/91 to
- ---------------------------- ---------- --------- --------- -------- --------- --------- --------- ----------- -------- =========
Net asset value at
beginning of period 9.85 9.88 9.89 9.98 10.00 10.00 10.00 10.00 10.00
- ---------------------------- ---------- --------- --------- -------- --------- --------- --------- ----------- -------- =========
Net investment income 0.57 0.55 0.56 0.44 0.32 0.34 0.12 0.63 0.62
Net realized gains or
(losses) on investments (0.08) (0.03) (0.01) (0.08) (0.03) 0.01 0.02 0.06 0.04
- ---------------------------- ---------- --------- --------- -------- --------- --------- --------- ----------- -------- =========
Total from investment 0.49 0.52 0.55 0.36 0.29 0.35 0.14 0.69 0.66
operations
- ---------------------------- ---------- --------- --------- -------- --------- --------- --------- ----------- -------- =========
Distributions from net
investment income 0.57 0.55 0.56 0.45 0.31 0.34 0.12 0.63 0.62
Distributions in excess of
net investment income --- --- 0.00** 0.00** --- 0.01 0.02 0.06 0.04
- ---------------------------- ---------- --------- --------- -------- --------- --------- --------- ----------- -------- =========
Total distributions 0.57 0.55 0.56 0.45 0.31 0.35 0.14 0.69 0.66
============================ ---------- --------- --------- -------- --------- --------- --------- ----------- -------- =========
Net asset value at end of 9.77 9.85 9.88 9.89 9.98 10.00 10.00 10.00 10.00
period
============================ ---------- --------- --------- -------- --------- --------- --------- ----------- -------- =========
Total return on investment 5.09% 5.45% 5.71% 3.71% 2.88% 3.45% 5.67% (b) 7.11% 8.31% (b)
Net assets at end of
period in 000's 486,906 355,257 457,425 290,695 417,728 682,513 365,311 269,115 111,957
Ratio of operating
expenses to average net
assets, exclusive of 0.25% 0.27% 0.40% 0.40% 0.40% 0.40% 0.40% (b) 0.40% 0.50% (b)
interest expense (a)
Ratio of operating
expenses to average net
assets, inclusive of 0.26% 0.40% 0.51% 0.43% 0.48% 0.43% 0.40% (b) 0.43% 0.50% (b)
interest expense (a)
Ratio of net investment
income to average net 5.78% 5.62% 5.64% 4.14% 3.28% 3.37% 4.67% (b) 5.99% 8.23% (b)
assets (a)
Decrease in above expense
ratios due to waiver of
investment advisory fees
and administration fees 0.18% 0.05% 0.07% 0.08% 0.03% --- 0.03% (b) 0.11% 0.86% (b)
============================ ========== --------- --------- ======== ========= ========= ========= =========== ======== =========
</TABLE>
(a) Net of waivers and reimbursements (b) Annualized (c) Not annualized *
Commencement of operations ** Rounds to less than $0.01
==============================================================================
LIMITED DURATION PORTFOLIO FINANCIAL HIGHLIGHTS
(IN WHOLE DOLLARS UNLESS OTHERWISE INDICATED)
==============================================================================
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
FOR A SHARE OUTSTANDING THROUGHOUT Year Ended Year Ended Year Ended Year Ended Year Ended From
THE PERIOD 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94 7/26/93* to
12/31/93
--------------------------------------- ----------------- ------------ ------------- ------------- ------------ ==============
Net asset value at beginning of period 9.93 10.00 9.55 9.95 10.00
--------------------------------------- ----------------- ------------ ------------- ------------- ------------ ==============
Net investment income 0.62 0.55 0.60 0.43 0.14
Net realized gains or (losses) on 0.08 (0.04) 0.45 (0.40) 0.05
investments
--------------------------------------- ----------------- ------------ ------------- ------------- ------------ ==============
Total investment income 0.70 0.51 1.05 0.03 0.19
--------------------------------------- ----------------- ------------ ------------- ------------- ------------ ==============
Distributions from net investment 0.62 0.55 0.60 0.43 0.14
income
Distributions in excess of net
investment income --- 0.00** --- --- ---
Distributions from net realized gain
on investments 0.08 0.03 --- --- 0.03
Distributions in excess of net
realized gain on investments and
financial futures contracts --- --- --- --- 0.07
--------------------------------------- ----------------- ------------ ------------- ------------- ------------ ==============
Total distributions 0.70 0.58 0.60 0.43 0.24
--------------------------------------- ----------------- ------------ ------------- ------------- ------------ ==============
Net asset value at end of period 9.93 9.93 10.00 9.55 9.95
======================================= ----------------- ------------ ------------- ------------- ------------ ==============
Total return on investment 7.21% 5.29% 11.26% 0.29% 178% (c)
Net assets at end of period in 000's 40,029 42,100 5,080 4,338 3,482
Ratio of operating expenses to
average net assets, exclusive of 0.30% 0.31% 0.50% 0.50% 0.50% (b)
interest expense (a)
Ratio of operating expenses to
average net assets, inclusive of 0.60% 0.49% 1.41% 1.74% 0.50% (b)
interest expense (a)
Ratio of net investment income to
average net assets (a) 6.10% 5.79% 6.09% 4.43% 3.68% (b)
Decrease in above expense ratios due
to waiver of investment advisory
fees and reimbursements of other 0.31% 0.15% 0.53% 0.57% 1.46% (b)
expenses
Portfolio turnover rate 1,292% 1,387% 1,075% 343% 1,841%
======================================= ================= ============ ============= ============= ============ ==============
</TABLE>
(a) Net of waivers and reimbursements (b) Annualized (c) Not annualized (u)
Unaudited *Commencement of Operations **Rounds to less than $0.01
=============================================================================
MORTGAGE-BACKED PORTFOLIO FINANCIAL HIGHLIGHTS
(IN WHOLE DOLLARS UNLESS OTHERWISE INDICATED)
=============================================================================
<TABLE>
<S> <C> <C> <C>
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 10.16 10.00
------------------------------------------------------------------------ ------------------ -------------- ==================
Net investment income 0.68 0.41
Net realized gains on investments 0.32 0.23
------------------------------------------------------------------------ ------------------ -------------- ==================
Total investment income 1.00 0.64
------------------------------------------------------------------------ ------------------ -------------- ==================
Distributions from net investment income 0.63 0.41
Distributions in excess of net investment income 0.05 0.06
Distributions from net realized gain on investments, short sales, and
financial futures and options contracts 0.18 0.01
======================================================================== ------------------ -------------- ==================
Total distributions 0.86 0.48
======================================================================== ------------------ -------------- ==================
Net asset value at end of period 10.30 10.16
======================================================================== ------------------ -------------- ==================
Total return on investment 10.19% 6.54% (c)
Net assets at end of period in 000's 655,271 220,990
Ratio of operating expenses to average net assets, exclusive of 0.38% 0.45% (b)
interest expense (a)
Ratio of operating expenses to average net assets, inclusive of 0.47% 0.88% (b)
interest expense (a)
Ratio of net investment income to average net assets (a) 6.07% 7.61% (b)
Decrease in above expense ratios due to waiver of investment advisory
fees and reimbursement of other expenses 0.07% 0.10% (b)
Portfolio turnover rate 3,396% 590%
======================================================================== ================== ============== ==================
</TABLE>
(a) Net of waivers and reimbursements (b)
Annualized (c) Not annualized (u)
Unaudited * Commencement of operations
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.
File No. 811-5796
FFTW FUNDS, INC.
===============================================================================
Prospectus
GLOBAL AND INTERNATIONAL Portfolios
===============================================================================
May 1, 1999
<TABLE>
<S> <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 OR DISAPPROVED THESE SECURITIES OR PASSED
UPON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
CONTENTS
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
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>
PORTFOLIO NAME INVESTMENT OBJECTIVES PRINCIPAL INVESTMENT STRATEGIES
- -------------------------- ---------------------------------------------- --------------------------------------------------------
Global Tactical Exposure To attain a high level of total Investment in high quality debt securities
return as may be consistent with the preservation from worldwide bond markets
of capital
- -------------------------- ---------------------------------------------- --------------------------------------------------------
- -------------------------- ---------------------------------------------- --------------------------------------------------------
Worldwide To attain a high level of total return as Investment in high quality debt securities
may be consistent with the preservation of from worldwide and bond markets denominated
capital in both U.S. dollars and foreign securities
- -------------------------- ---------------------------------------------- --------------------------------------------------------
- -------------------------- ---------------------------------------------- --------------------------------------------------------
Worldwide-Hedged To attain a high level of total return as Investment in high quality debt securities
may be consistent with the preservation of from worldwide bond markets denominated in
capital both U.S. dollars and foreign securities
- -------------------------- ---------------------------------------------- --------------------------------------------------------
- -------------------------- ---------------------------------------------- --------------------------------------------------------
International To attain a high level of total return as may be Investment in high quality debt securities
consistent with the preservation of capital from worldwide bond markets (excluding the U.S.)
denominated in foreign currencies
- -------------------------- ---------------------------------------------- --------------------------------------------------------
- -------------------------- ---------------------------------------------- --------------------------------------------------------
International To attain a high level of total return as Investment in high quality debt securities from
Opportunities may be consistent with the worldwide bond markets (excluding the U.S.)
preservation of capital denominated in foreign currencies with active
management of the currency hedge ratio
- -------------------------- ---------------------------------------------- --------------------------------------------------------
- -------------------------- ---------------------------------------------- --------------------------------------------------------
International Corporate To attain a high level of total return as Investment in investment grade corporate debt
may be consistent with the preservation of from worldwide bond markets
capital
- -------------------------- ---------------------------------------------- --------------------------------------------------------
- -------------------------- ---------------------------------------------- --------------------------------------------------------
Emerging Markets To attain a high level of total return as Investment in debt securities from bond markets
may be consistent with the preservation of in emerging markets countries denominated in
capital local currencies or OCED currencies
- -------------------------- ---------------------------------------------- --------------------------------------------------------
- -------------------------- ---------------------------------------------- --------------------------------------------------------
Global High Yield To attain a high level of total return as Investment in high yield debt securities
may be consistent with the preservation of denominated in both U.S. dollars and foreign
capital currencies
- -------------------------- ---------------------------------------------- --------------------------------------------------------
- -------------------------- ---------------------------------------------- --------------------------------------------------------
Inflation-Indexed To attain a high level of return in excess Investment in securities with a coupon rate
of inflation as may be consistent with the and/or principal amount linked to the inflation
preservation of capital rate from worldwide bond markets denominated in
both U.S. dollars and foreign securities
- -------------------------- ---------------------------------------------- --------------------------------------------------------
- -------------------------- ---------------------------------------------- --------------------------------------------------------
Inflation-Indexed Hedged To attain a high level of return in excess Investment in actively hedged securities
of inflation as may be consistent with the with a coupon rate and/or principal amount
preservation of capital linked to the inflation rate
from worldwide bond markets denominated in both
U.S. dollars and foreign securities
- -------------------------- ---------------------------------------------- --------------------------------------------------------
</TABLE>
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. In general, the greater the risk, the greater the earning
potential. Conversely, however, 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.
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,
risk: which generally have an inverse relationship to
corresponding market values.
Leverage
risk: Derivatives may include elements of leverage which
can cause greater fluctuations in a Portfolio's net asset
value.
Liquidity risk: Certain securities may be difficult or impossible to sell
at 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: risk by placing assets in several investment
categories. A non-diversified Portfolio concentrates
its assets in a less diverse spectrum of
securities. Non-diversification can intensify risk should
a particular investment category suffer from
adverse market conditions.
Prepayment risk: 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.
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.
Insert bar chart for Global Tactical Exposure
Portfolio
During the ___year period shown in the Global Tactical Exposure Portfolio's bar
chart, the highest quarterly return was ____% (quarter ending ____ __, ____) and
the lowest quarterly return was _____% (quarter ending ____ __, ____).
Insert bar chart for Worldwide Portfolio
During the ___year period shown in the Worldwide Portfolio's bar chart, the
highest quarterly return was ____% (quarter ending ____ __, ____) and the lowest
quarterly return was _____% (quarter ending
- ---- --, ----).
Insert bar chart for Worldwide Hedged Portfolio
During the ___year period shown in the Worldwide Hedged Portfolio's bar chart,
the highest quarterly return was ____% (quarter ending ____ __, ____) and the
lowest quarterly return was _____% (quarter ending ____ __, ____).
Insert bar chart for International Portfolio
During the ___year period shown in the International Portfolio's bar chart, the
highest quarterly return was ____% (quarter ending ____ __, ____) and the lowest
quarterly return was _____% (quarter ending
- ---- --, ----).
Insert bar chart for Emerging Markets Portfolio
During the ___year period shown in the Emerging Markets Portfolio's bar chart,
the highest quarterly return was ____% (quarter ending ____ __, ____) and the
lowest quarterly return was _____% (quarter ending ____ __, ____).
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
Average Annual Total Returns (for the periods Past 1 Year Past 5 Years Since Inception*
ending December 31, 1998)
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
Global Tactical Exposure Portfolio
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
GTE Benchmark
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
Worldwide Portfolio
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
W Benchmark
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
Worldwide Hedged Portfolio
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
WH Benchmark
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
International Portfolio
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
IP Benchmark
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
Emerging Markets Portfolio
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
EM Benchmark
- ----------------------------------------------- ------------------------- ---------------------------- ------------------------
</TABLE>
* List all Portfolio inception dates
** Information for the Portfolios that have not
commenced investment activity are not available.
RISK/RETURN SUMMARY: FEE 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:
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
Worldwide:
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
Worldwide Hedged:
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
International
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
International Corporate:
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
Emerging Markets:
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
International Opportunities:
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
- ------------------------------------- --------------------- --------------------- ------------------- ----------------------
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.
FEE TABLE
<TABLE>
<S> <C> <C> <C> <C> <C>
- ----------------------------------------- ------------------- -------------- -------------- ----------------- -------------
Shareholder Transaction Expenses Global Worldwide Worldwide International Emerging
(Fees Paid Directly By You) Tactical (2) Hedged (3) (4) Markets
Exposure (1) (5)
- ----------------------------------------- ------------------- -------------- -------------- ----------------- -------------
- ----------------------------------------- ------------------- -------------- -------------- ----------------- -------------
Redemption Fees None None None None
- ----------------------------------------- ------------------- -------------- -------------- ----------------- -------------
- ----------------------------------------- ------------------- -------------- -------------- ----------------- -------------
Exchange Fees None None None None
- ----------------------------------------- ------------------- -------------- -------------- ----------------- -------------
- ----------------------------------------- ------------------- -------------- -------------- ----------------- -------------
Contongent Deferred Sales Load None None None None
- ----------------------------------------- ------------------- -------------- -------------- ----------------- -------------
- ----------------------------------------- ------------------- -------------- -------------- ----------------- -------------
Sales Load on Reinvestment Dividends None None None None
- ----------------------------------------- ------------------- -------------- -------------- ----------------- -------------
- ----------------------------------------- ------------------- -------------- -------------- ----------------- -------------
Sales Load on Purchases None None None None
- ----------------------------------------- ------------------- -------------- -------------- ----------------- -------------
Annual Fund Operating Expenses
(Fees Paid From Fund Assets)
- ----------------------------------------- ------------------- -------------- -------------- ----------------- -------------
- ----------------------------------------- ------------------- -------------- -------------- ----------------- -------------
Management Fees
- ----------------------------------------- ------------------- -------------- -------------- ----------------- -------------
- ----------------------------------------- ------------------- -------------- -------------- ----------------- -------------
Distribution Fees (12b-1)
- ----------------------------------------- ------------------- -------------- -------------- ----------------- -------------
- ----------------------------------------- ------------------- -------------- -------------- ----------------- -------------
Shareholder Services Fees
- ----------------------------------------- ------------------- -------------- -------------- ----------------- -------------
- ----------------------------------------- ------------------- -------------- -------------- ----------------- -------------
Other Expenses
- ----------------------------------------- ------------------- -------------- -------------- ----------------- -------------
- ----------------------------------------- ------------------- -------------- -------------- ----------------- -------------
Total Annual Fund Operating Expenses
- ----------------------------------------- ------------------- -------------- -------------- ----------------- -------------
- ----------------------------------------- ------------------- -------------- -------------- ----------------- -------------
- ----------------------------------------- ------------------- -------------- -------------- ----------------- -------------
- ----------------------------------------- ------------------- -------------- -------------- ----------------- -------------
- ----------------------------------------- ------------------- -------------- -------------- ----------------- -------------
</TABLE>
Insert footnotes
(1)
(2)
(3)
(4)
(5)
================================================================================
GLOBAL TACTICAL EXPOSURE PORTFOLIO
================================================================================
- ----------------------- ========================================================
<TABLE>
<S> <C> <C> <C> <C> <C>
Investment Objective: To attain a high level of total return as may be consistent with the preservation of capital.
- ----------------------- ===========================================================================================================
Principal Investment The Portfolio primarily invests in high quality (rating of
AA by S&P, Aa by Moody's or a comparable Strategies: 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.
- ----------------------- ===========================================================================================================
Performance Objective: To outperform the J.P. Morgan 3 Month Eurodeposit Index.
- -----------------------
===========================================================================================================
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 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 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 Risks: o Correlation risk o Hedging risk o Market risk
(See page 4 of this o Credit risk o Interest rate risk o Non-diversification
Prospectus for a more o Currency risk o Leverage risk risk
detailed description o Futures risk o Liquidity risk o Prepayment risk
of each risk)
- ----------------------- --------------------------------- ---------------------------------------- ================================
Allowable Investment o Dollar Roll o Hedging o When Issued and
Strategies: Transactions o TBA Transactions Forward Commitment
(See pages 21-24 of o Duration Management Securities
this Prospectus for a
more detailed
description of
investment strategies
======================= ================================= ======================================== ================================
Allowable Investments: o Asset-Backed Securities o Indexed Notes, Currency o Repurchase and
(See pages 24-30 of o Bank Obligations Exchange-Related Securities and Reverse Repurchase
this Prospectus for a o Brady Bonds Similar Securities Agreements
more detailed o Corporate Debt o Inflation-Indexed Securities o Stripped Instruments
description of Instruments o Investment Company o Total Return Swaps
allowable investments) o Foreign Instruments o Mortgage-Backed Securities o U.S. Government and
o Illiquid Securities o Multi-National Currency Unit Agency Securities
Securities or More Than One o Zero Coupon Securities
Denomination
======================= ================================= ======================================== ================================
</TABLE>
================================================================================
WORLDWIDE PORTFOLIO
<TABLE>
<S> <C> <C> <C> <C> <C>
=================================================================================================================================
- --------------------------- =====================================================================================================
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 comparable Strategies: 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.
- --------------------------- =====================================================================================================
- --------------------------- =====================================================================================================
Performance Objective: To outperform the J.P. Morgan Global Government Bond Index (Unhedged).
- --------------------------- =====================================================================================================
- --------------------------- =====================================================================================================
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 may
invest more than 5% of its total net assets in futures margins and/or premiums on options only if
it is being used for bona fide hedging purposes. The Portfolio will maintain investments in debt
securities of issuers from at least three different countries including the U.S. At least 35% of
the Portfolio's total assets will be invested in debt securities from jurisdictions outside the
U.S. The Portfolio may not enter into a repurchase or reverse repurchase agreement if, as a result
thereof, more than 25% of the Portfolio's total assets would be subject to the agreement. 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 Risks: o Correlation risk o Hedging risk o Market risk
(See page 4 of this o Credit risk o Interest rate risk o Non-diversification
Prospectus for a more o Currency risk o Leverage risk risk
detailed description of o Futures risk o Liquidity risk o Prepayment risk
each risk)
- --------------------------- ----------------------------- -------------------------------------- ================================
Allowable Investment o Dollar Roll o Hedging o When Issued and
Strategies: Transactions o TBA Transactions Forward Commitment
(See pages 21-24 of this o Duration Management Securities
Prospectus for a more
detailed description of
investment strategies
- --------------------------- ----------------------------- -------------------------------------- ================================
Allowable Investments: o Asset-Backed o Indexed Notes, Currency o Repurchase and
(See pages 24-30 of this Securities Exchange-Related Securities and Reverse Repurchase
Prospectus for a more o Bank Obligations Similar Securities Agreements
detailed description of o Brady Bonds o Inflation-Indexed Securities o Stripped Instruments
allowable investments) o Corporate Debt o Investment Companies o Total Return Swaps
Instruments o Mortgage-Backed Securities o U.S. Government and
o Foreign Instruments o Multi-National Currency Agency Securities
o Illiquid Securities Unit Securities or More Than o Zero Coupon Securities
One Denomination
=========================== ============================= ====================================== ================================
</TABLE>
================================================================================
WORLDWIDE-HEDGED PORTFOLIO
<TABLE>
<S> <C> <C> <C> <C> <C>
========================== =====================================================================================================
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 comparable Strategies: 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.
- -------------------------- =====================================================================================================
- -------------------------- =====================================================================================================
Performance Objective: To outperform the J.P. Morgan Global Government Bond Index (Hedged).
- -------------------------- =====================================================================================================
- -------------------------- =====================================================================================================
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 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 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. The Portfolio may not enter into
repurchase or reverse repurchase agreements if, as a result thereof, more than 25% of the
Portfolio's total assets would be subject to these agreements. 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 Risks: o Correlation risk o Hedging risk o Market risk
(See page 4 of this o Credit risk o Interest rate risk o Non-diversification
Prospectus for a more o Currency risk o Leverage risk risk
detailed description of o Futures risk o Liquidity risk o Prepayment risk
each risk)
- -------------------------- ------------------------------ ------------------------------------- ================================
Allowable Investment o Dollar Roll o Hedging o When Issued and
Strategies: Transactions o TBA Transactions Forward Commitment
(See pages 21-24 of this o Duration Management Securities
Prospectus for a more
detailed description of
investment strategies
- -------------------------- ------------------------------ ------------------------------------- ================================
Allowable Investments: o Asset-Backed o Indexed Notes, Currency o Repurchase and
(See pages 24-30 of this Securities Exchange-Related Securities Reverse Repurchase
Prospectus for a more o Bank Obligations and Similar Securities Agreements
detailed description of o Brady Bonds o Inflation-Indexed o Stripped Instruments
allowable investments) o Corporate Debt Securities o Total Return Swaps
Instruments o Investment Companies o U.S. Government and
o Foreign Instruments o Mortgage-Backed Securities Agency Securities
o Illiquid Securities o Multi-National Currency o Zero Coupon Securities
Unit Securities or More Than
One Denomination
========================== ============================== ===================================== ================================
</TABLE>
<TABLE>
<S> <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 The Portfolio primarily invests in high quality (rating of
AA by S&P, Aa by Moody's or a comparable Strategies: rating, or higher from a
nationally recognized statistical rating organization) debt securities from
worldwide bond markets, excluding the U.S. denominated in foreign currencies.
- --------------------------- =======================================================================================================
- --------------------------- =======================================================================================================
Performance Objective: To outperform the J.P. Morgan Global Government Bond Index (Non-U.S. Unhedged).
- --------------------------- =======================================================================================================
- --------------------------- =======================================================================================================
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 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 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 Risks: o Correlation risk o Hedging risk o Market risk
(See page 4 of this o Credit risk o Interest rate risk o Non-diversification
Prospectus for a more o Currency risk o Leverage risk risk
detailed description of o Futures risk o Liquidity risk o Prepayment risk
each risk)
- --------------------------- ---------------------------------- ---------------------------------- =================================
Allowable Investment o Dollar Roll Transactions o Hedging o When Issued and
Strategies: o Duration Management o TBA Transactions Forward Commitment
(See pages 21-24 of this Securities
Prospectus for a more
detailed description of
investment strategies
- --------------------------- ---------------------------------- ---------------------------------- =================================
Allowable Investments: o Asset-Backed Securities o Indexed Notes, Currency o Repurchase and Reverse
(See pages 24-30 of this o Bank Obligations Exchange-Related Securities Repurchase Agreements
Prospectus for a more o Brady Bonds and Similar Securities o Stripped Instruments
detailed description of o Corporate Debt o Inflation-Indexed o Total Return Swaps
allowable investments) Instruments Securities o U.S. Government and
o Foreign Instruments o Investment Companies Agency Securities
o Illiquid Securities o Mortgage-Backed o Zero Coupon Securities
Securities
o Multi-National Currency
Unit Securities or More
Than One Denomination
=========================== ================================== ================================== =================================
</TABLE>
<TABLE>
<S> <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 Once it commences investment activity, the Portfolio will
primarily invest in high quality (rating of Strategies: 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.
- ----------------------- =======================================================================================================
Performance Objective: To outperform the lower of the J.P. Morgan Global Government Bond Indices (Non-U.S. Hedged or
Non-U.S. Unhedged).
- ----------------------- =======================================================================================================
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 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 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 Risks: o Correlation risk o Hedging risk o Market risk
(See page 4 of this o Credit risk o Interest rate risk o Non-diversification
Prospectus for a more o Currency risk o Leverage risk risk
detailed description o Futures risk o Liquidity risk o Prepayment risk
of each risk)
- ----------------------- ----------------------------------- ------------------------------------ ==============================
Allowable Investment o Dollar Roll Transactions o Hedging o When Issued and
Strategies: o Duration Management o Short Sales Transactions Forward Commitment
(See pages 21-24 of o TBA Transactions Securities
this Prospectus for a
more detailed
description of
investment strategies
- ----------------------- ----------------------------------- ------------------------------------ ==============================
Allowable Investments: o Asset-Backed Securities o Indexed Notes, Currency o Repurchase and
(See pages 24-30 of o Bank Obligations Exchange-Related Securities Reverse Repurchase
this Prospectus for a o Brady Bonds and Similar Securities Agreements
more detailed o Corporate Debt o Inflation-Indexed o Stripped Instruments
description of Instruments Securities o Total Return Swaps
allowable investments) o Foreign Instruments o Investment Companies o U.S. Government and
o Illiquid Securities o Mortgage-Backed Securities Agency Securities
o Multi-National Currency o Zero Coupon
Unit Securities or More Than Securities
One Denomination
======================= =================================== ==================================== ==============================
</TABLE>
THIS PORTFOLIO HAS NOT YET COMMENCED INVESTMENT ACTIVITY
<TABLE>
<S> <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 Once it commences investment activity, the Portfolio will primarily invest in investment grade
Strategies: corporate debt from worldwide bond markets.
- ---------------------------- ===================================================================================================
- ---------------------------- ===================================================================================================
Performance Objective: To outperform the Lehman Brothers Euro Corporate Bond Index.
- ---------------------------- ===================================================================================================
- ---------------------------- ===================================================================================================
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 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 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 Risks: o Correlation risk o Hedging risk o Market risk
(See page 4 of this o Credit risk o Interest rate risk o Non-diversification
Prospectus for a more o Currency risk o Leverage risk risk
detailed description of o Futures risk o Liquidity risk o Prepayment risk
each risk)
- ---------------------------- ---------------------------- -------------------------------------- ===============================
Allowable Investment o Dollar Roll o Hedging o When Issued and
Strategies: Transactions o Short Sales Transactions Forward Commitment
(See pages 21-24 of this o Duration o TBA Transactions Securities
Prospectus for a more Management
detailed description of
investment strategies
- ---------------------------- ---------------------------- -------------------------------------- ===============================
Allowable Investments: o Asset-Backed o Indexed Notes, Currency o Repurchase and
(See pages 24-30 of this Securities Exchange-Related Securities and Reverse Repurchase
Prospectus for a more o Bank Obligations Similar Securities Agreements
detailed description of o Brady Bonds o Inflation-Indexed Securities o Stripped Instruments
allowable investments) o Convertibles o Investment Companies o Total Return Swaps
o Corporate Debt o Mortgage-Backed Securities o U.S. Government and
Instruments o Multi-National Currency Agency Securities
o Foreign Unit Securities or More Than o Zero Coupon
Instruments One Denomination Securities
o Illiquid
Securities
============================ ============================ ====================================== ===============================
</TABLE>
THIS PORTFOLIO HAS NOT YET COMMENCED INVESTMENT ACTIVITY
<TABLE>
<S> <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 The Portfolio primarily invests in debt securities from
bond markets in emerging markets countries, Strategies: denominated in local
currencies or OECD currencies denominated in local currencies or currencies of
OCED countries.
- --------------------------- ======================================================================================================
Performance Objective: 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.
- --------------------------- ======================================================================================================
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 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 will maintain investments in
debt securities of issuers from at least three different countries including the U.S. The
Adviser/Sub-Adviser intends to actively manage the Portfolio and will allocate the Portfolio's
investment assets among various emerging markets countries (and currencies). Such allocations are
not expected to be comparable to, nor as diverse as the allocations accorded to such markets (and
currencies) by the major bond market indices. Portfolio managers will screen out credit or default
risks and highlight potentially risky emerging market currencies by employing a fundamental economic
analysis and internally developed models. 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 Risks: o Correlation risk o Hedging risk o Market risk
(See page 4 of this o Credit risk o Interest rate risk o Non-diversification
Prospectus for a more o Currency risk o Leverage risk risk
detailed description of o Futures risk o Liquidity risk o Prepayment risk
each 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.
- --------------------------- ======================================================================================================
Allowable Investment o Dollar Roll o Hedging o When Issued and
Strategies: Transactions o TBA Transactions Forward Commitment
(See pages 21-24 of this o Duration Securities
Prospectus for a more Management
detailed description of
investment strategies
- --------------------------- --------------------------- ----------------------------------------- ================================
Allowable Investments: o Asset-Backed o Indexed Notes, Currency o Repurchase and
(See pages 24-30 of this Securities Exchange-Related Securities and Reverse Repurchase
Prospectus for a more o Bank Obligations Similar Securities Agreements
detailed description of o Brady Bonds o Inflation-Indexed Securities o Stripped Instruments
allowable investments) o Convertible o Investment Companies o Total Return Swaps
Securities o Mortgage-Backed Securities o U.S. Government and
o Corporate Debt o Multi-National Currency Unit Agency Securities
Instruments Securities or More Than One o Warrants
o Foreign Denomination o Zero Coupon Securities
Instruments
o Illiquid
Securities
=========================== =========================== ========================================= ================================
</TABLE>
<TABLE>
<S> <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 Once it commences investment activity, the Portfolio will primarily invest in high yield debt
Strategies: 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.
- -------------------------- ======================================================================================================
- -------------------------- ======================================================================================================
Performance Objective: To outperform the Salomon Smith Barney All BB and B Rated Issues Index.
- -------------------------- ======================================================================================================
- -------------------------- ======================================================================================================
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. 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. 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 Risks: o Correlation risk o Hedging risk o Market risk
(See page 4 of this o Credit risk o Interest rate risk o Non-diversification risk
Prospectus for a more o Currency risk o Leverage risk o Prepayment risk
detailed description of o Futures risk o Liquidity risk
each 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.
- -------------------------- ======================================================================================================
Allowable Investment o Dollar Roll Transactions o Hedging o When Issued and
Strategies: o Duration Management o Short Sales Forward Commitment
(See pages 21-24 of this Transactions Securities
Prospectus for a more o TBA Transactions
detailed description of
investment strategies
- -------------------------- ------------------------------------ -------------------------------- ================================
Allowable Investments: o Asset-Backed Securities o Inflation-Indexed o Repurchase and
(See pages 24-30 of this o Bank Obligations Securities Reverse Repurchase
Prospectus for a more o Brady Bonds o Investment Companies Agreements
detailed description of o Corporate Debt Instruments o Mortgage-Backed o Stripped Instruments
allowable investments) o Foreign Instruments Securities o Total Return Swaps
o Illiquid Securities o Multi-National o U.S. Government and
o Indexed Notes, Currency Currency Unit Securities Agency Securities
Exchange-Related Securities or More Than One o Warrants
and Similar Securities Denomination o Zero Coupon Securities
========================== ==================================== ================================ ================================
</TABLE>
THIS PORTFOLIO HAS NOT YET COMMENCED INVESTMENT ACTIVITY
<TABLE>
<S> <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 The Portfolio primarily invests in securities with a coupon
rate and/or principal amount, linked to the Strategies: inflation rate from
worldwide bond markets, denominated in both U.S. dollars and foreign securities.
- ----------------------- ==========================================================================================================
- ----------------------- ==========================================================================================================
Performance Objective: To outperform the Lehman Brothers Global Real Index.
- ----------------------- ==========================================================================================================
- ----------------------- ==========================================================================================================
Investment Policies: At least 65% of the Portfolio's total assets
must be invested in inflation indexed securities. 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
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 Risks: o Correlation risk o Hedging risk o Market risk
(See page 4 of this o Credit risk o Interest rate risk o Non-diversification
Prospectus for a more o Currency risk o Leverage risk risk
detailed description o Futures risk o Liquidity risk o Prepayment risk
of each risk)
- ----------------------- --------------------------------- ---------------------------------------- ===============================
Allowable Investment o Dollar Roll o Hedging o When Issued and
Strategies: Transactions o Short Sales Transactions Forward Commitment
(See pages 21-24 of o Duration Management o TBA Transactions Securities
this Prospectus for a
more detailed
description of
investment strategies
- ----------------------- --------------------------------- ---------------------------------------- ===============================
Allowable Investments: o Asset-Backed Securities o Indexed Notes, Currency o Repurchase and
(See pages 24-30 of o Bank Obligations Exchange-Related Securities and Reverse Repurchase
this Prospectus for a o Brady Bonds Similar Securities Agreements
more detailed o Corporate Debt o Inflation-Indexed Securities o Stripped Instruments
description of Instruments o Investment Companies o Total Return Swaps
allowable investments) o Foreign Instruments o Mortgage-Backed Securities o U.S. Government and
o Illiquid Securities o Multi-National Currency Unit Agency Securities
Securities or More Than One o Zero Coupon
Denomination Securities
======================= ================================= ======================================== ===============================
</TABLE>
PORTFOLIO HAS NOT YET COMMENCED INVESTMENT ACTIVITY
<TABLE>
<S> <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 Once it commences investment activity, the Portfolio will
primarily invest in securities with a Strategies: 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.
- ----------------------------- =====================================================================================================
Performance Objective: To outperform the Lehman Brothers Global Real Index.
- ----------------------------- =====================================================================================================
Investment Policies: At least 65% of the Portfolio's total assets must be invested in inflation indexed securities. 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. 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 Risks: o Correlation risk o Hedging risk o Market risk
(See page 4 of this o Credit risk o Interest rate risk o Non-diversification
Prospectus for a more o Currency risk o Leverage risk risk
detailed description of o Futures risk o Liquidity risk o Prepayment risk
each risk)
- ----------------------------- -------------------------------- ------------------------------------- ==============================
Allowable Investment o Dollar Roll o Hedging o When Issued and
Strategies: Transactions o Short Sales Transactions Forward Commitment
(See pages 21-24 of this o Duration Management o TBA Transactions Securities
Prospectus for a more
detailed description of
investment strategies
- ----------------------------- -------------------------------- ------------------------------------- ==============================
Allowable Investments: o Asset-Backed o Indexed Notes, Currency o Repurchase and
(See pages 24-30 of this Securities Exchange-Related Securities Reverse Repurchase
Prospectus for a more o Bank Obligations and Similar Securities Agreements
detailed description of o Brady Bonds o Inflation-Indexed o Stripped Instruments
allowable investments) o Corporate Debt Securities o Total Return Swaps
Instruments o Investment Companies o U.S. Government and
o Foreign Instruments o Mortgage-Backed Securities Agency Securities
o Illiquid Securities o Multi-National Currency o Zero Coupon
Unit Securities or More Than Securities
One Denomination
============================= ================================ ===================================== ==============================
THIS PORTFOLIO HAS NOT YET COMMENCED INVESTMENT ACTIVITY
</TABLE>
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 0.30% Global High Yield 0.50%
0.40% Inflation-Indexed 0.40%
0.40% Inflation-Indexed Hedged 0.40%
- -------------------------------------- -------------------------- ------------------------------ ---------------------------
</TABLE>
* 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%.
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)
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.
- -------------------------------------------------------------------------------
<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.
INVESTMENT INFORMATION
ALLOWABLE INVESTMENT TRATEGIES AND ASSOCIATED RISKS
Dollar Roll Transactions
Dollar roll transactions consist of the sale of mortgage-backed securities, with
a commitment to purchase similar, but not identical securities at a future date,
and at the same price. 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.
Portfolio Turnover
Costs associated with Portfolio turnover have historically been and are expected
to remain low relative to equity fund turnover costs. These anticipated
Portfolio turnover rates are believed to be higher than the turnover experienced
by most fixed income funds, due to the Investment Adviser's active management of
duration and could, in turn, lead to higher turnover costs. High Portfolio
turnover may involve greater brokerage commissions and transactions costs which
will be paid by the Portfolio. In addition, high turnover rates may result in
increased short-term capital gains.
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> <C>
=================================================================================================================================
GLOBAL TACTICAL EXPOSURE PORTFOLIO FINANCIAL HIGHLIGHTS
(IN WHOLE DOLLARS UNLESS OTHERWISE INDICATED)
=================================================================================================================================
FOR A SHARE OUTSTANDING THROUGHOUT THE Year Ended Year Year Ended From Year Ended From
PERIOD 12./31/98 Ended 12/31/96 9/14/95 to 12/31/94 3/25/93* to
12/31/97 12/31/95 12/31/93
- --------------------------------------------- ----------------- ----------- ------------ ------------- ------------ =============
Net asset value at beginning of period 9.80 10.19 10.00*** 10.39 10.00
- --------------------------------------------- ----------------- ----------- ------------ ------------- ------------ =============
Net investment income 0.41 0.47 0.19 0.20 0.44
Net realized gains or (losses) on
investments, financial futures, and
options contracts, and foreign 0.43 (0.15) 0.19 (0.46) 0.78
currency-related transactions
- --------------------------------------------- ----------------- ----------- ------------ ------------- ------------ =============
Total investment income 0.84 0.32 0.38 (0.26) 1.22
============================================= ----------------- ----------- ------------ ------------- ------------ =============
Distributions from net investment income 0.36 0.47 0.19 0.20 0.44
Distributions in excess of net investment 0.17 --- 0.00 (d) --- ---
income
Distributions from net realized gain on
investments, financial futures contracts
and foreign currency related transactions 0.06 0.05 --- 0.50 0.39
Distributions in excess of net realized
gain on investments, financial futures
contracts, and foreign currency related --- 0.09 --- --- ---
transactions
Distributions from capital stock in excess
of par value --- 0.10 --- --- ---
- --------------------------------------------- ----------------- ----------- ------------ ------------- ------------ =============
Total distributions 0.59 0.71 0.19 0.70 0.83
- --------------------------------------------- ----------------- ----------- ------------ ------------- ------------ =============
============================================= ----------------- ----------- ------------ ------------- ------------ =============
Net asset value at end of period 10.05 9.80 10.19 9.43 ** 10.39
============================================= ----------------- ----------- ------------ ------------- ------------ =============
Total return on investment 8.77% 3.18% 13.45% (b) (2.53%) 16.37% (b)
Net assets at end of period in 000's 283,005 126,645 34,005 --- 17,867
Ratio of operating expenses to average net
assets, exclusive of interest expense (a) 0.42% 0.60% 0.60% (b) 0.57% 0.60% (b)
Ratio of operating expenses to average net
assets, inclusive of interest expense (a) --- --- --- --- ---
Ratio of net income to average net assets 3.67% 4.65% 6.12% (b) 2.87% 5.86% (b)
Decrease in above expense ratios due to
waiver of investment advisory fees and
reimbursement of other expenses 0.16% 0.06% 0.17% (b) 0.49% 0.28% (b)
Portfolio turnover rate 712% 784% 764% 1,282% 855%
============================================= ================= =========== ============ ============= ============ =============
</TABLE>
(a) Net of waivers and reimbursements (b) Annualized (c) Not annualized (d)
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.
<TABLE>
<S> <C> <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 Year Year Year Year From
12/31/98 Ended Ended Ended Ended Ended 4/15/92*
12/31/97 12/31/97 12/31/95 12/31/94 12/31/93 to
12/31/92
- ---------------------------------------------------- ------------- --------- ---------- ---------- --------- --------- ==========
Net asset value at beginning of period 9.64 9.83 9.27 10.02 9.98 10.00
- ---------------------------------------------------- ------------- --------- ---------- ---------- --------- --------- ==========
Net investment income 0.49 0.53 0.58 0.50 0.45 0.39
Net realized and unrealized gains or (losses) on
investments, financial futures and options
contracts and foreign currency-related (0.22) 0.01 0.56 (0.74) 1.04 0.53
transactions
- ---------------------------------------------------- ------------- --------- ---------- ---------- --------- --------- ==========
Total investment income 0.27 0.54 1.14 (0.24) 1.49 0.92
==================================================== ------------- --------- ---------- ---------- --------- --------- ==========
Distributions from net investment income 0.19 0.53 0.30 0.20 0.45 0.39
Distributions in excess of net investment income 0.11 --- --- 0.01 - -
Distributions from net realized gain on
investments, financial futures, and options
contracts and foreign currency-related --- 0.09 --- --- 0.87 0.55
transactions
Distributions in excess of net realized gain on
investments, financial futures and options
contracts, and foreign currency related --- --- --- --- 0.13 0.00**
transactions
Distributions from capital stock in excess of par 0.19 0.11 0.28 0.30 --- ---
value
- ---------------------------------------------------- ------------- --------- ---------- ---------- --------- --------- ==========
Total distributions 0.49 0.73 0.58 0.51 1.45 0.94
- ---------------------------------------------------- ------------- --------- ---------- ---------- --------- --------- ==========
Net asset value at end of period 9.42 9.64 9.83 9.27 10.02 9.98
==================================================== ------------- --------- ---------- ---------- --------- --------- ==========
13.46%
Total return on investment 2.93% 5.77% 12.60% (2.25%) 15.86% (b)
Net assets at end of period in 000's 82,236 74,939 86,186 53,721 217,163 82,757
Ratio of operating expenses to average net income
- exclusive of interest expense (a) 0.60% 0.60% 0.60% 0.60% 0.59% 0.60% (b)
Ratio of operating expenses to average net income
- inclusive of interest expense (a) 0.60% 0.60% 0.60% 0.63% 0.86% 0.79% (b)
Ratio of net income to average net assets (a) 5.21% 5.52% 6.13% 5.11% 4.48% 5.39% (b)
Decrease in above expense ratios due to waiver of
investment advisory fees and reimbursement of
other expenses 0.02% 0.05% 0.30% 0.02% --- 0.72% (b)
Portfolio turnover rate 713% 1,126% 1,401% 1,479% 1,245% 850%
==================================================== ============= ========= ========== ========== ========= ========= ==========
</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> <C>
==================================================================================================================================
WORLDWIDE-HEDGED PORTFOLIO'S FINANCIAL HIGHLIGHTS
(IN WHOLE DOLLARS UNLESS OTHERWISE INDICATED)
============================================= ---------------- ---------- ---------- ---------- ---------- ---------- ============
FOR A SHARE OUTSTANDING THROUOUT THE PERIOD Year Ended Year Year Year Year Year From
12/31/98 Ended Ended Ended Ended Ended 5/1/92* to
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
- --------------------------------------------- ---------------- ---------- ---------- ---------- ---------- ---------- ============
Net asset value at beginning of period 10.91 10.85 10.41 10.08 9.85 10.00
- --------------------------------------------- ---------------- ---------- ---------- ---------- ---------- ---------- ============
Net investment income 0.53 0.62 0.45 0.34 0.45 0.32
Net realized gains or (losses) on
investments, financial futures and
options contracts, and foreign 0.80 0.43 0.66 0.43 0.76 0.25
currency-related transactions
- --------------------------------------------- ---------------- ---------- ---------- ---------- ---------- ---------- ============
Total investment income 1.33 1.05 1.11 0.77 1.21 0.57
- --------------------------------------------- ---------------- ---------- ---------- ---------- ---------- ---------- ============
Distributions from net investment income 0.59 0.62 0.67 0.44 0.45 0.32
Distributions in excess of net investment
income --- 0.37 --- 0.00** --- ---
Distributions from net realized gain on
investments, financial futures and
options contracts and on foreign
currency-related transactions 0.42 --- --- --- 0.53 0.40
============================================= ---------------- ---------- ---------- ---------- ---------- ---------- ============
Total distributions 1.01 0.99 0.67 0.44 0.98 0.72
- --------------------------------------------- ---------------- ---------- ---------- ---------- ---------- ---------- ============
Net asset value at end of period 11.23 10.91 10.85 10.41 10.08 9.85
- --------------------------------------------- ---------------- ---------- ---------- ---------- ---------- ---------- ============
Total return on investment 12.60% 10.03% 11.00% 7.84% 12.89% 9.45% (b)
Net assets at end of period in 000's 80,390 30,024 28,255 273 41,138 21,785
Ratio of operating expenses to average net
assets - exclusive of interest expense (a) 0.45% 0.45% 0.45% 0.60% 0.60% 0.60% (b)
Ratio of operating expenses to average net
assets - inclusive of interest expense (a) 0.45% 0.45% 0.45% 0.65% 0.86% 0.83% (b)
Ratio of net income to average net assets 5.29% 5.71% 5.84% 4.72% 4.49% 5.13% (b)
(a)
Decrease in above expense ratios due to
waiver of investment advisory fees and
reimbursement of other expenses 0.20% 0.24% 0.54% 0.17% 0.09% 1.01% (b)
Portfolio turnover rate 704% 1,087% 500% 1,622% 1,254% 826%
============================================= ================ ========== ========== ========== ========== ========== ============
</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>
==============================================================================================================================
INTERNATIONAL PORTFOLIO FINANCIAL HIGHLIGHTS
(IN WHOLE DOLLARS UNLESS OTHERWISE INDICATED)
==============================================================================================================================
FOR A SHARE EXCEPT WHERE OTHERWISE INDICATED Year Ended Year Ended From 5/9/96*
12/31/98 12/31/97 to 12/31/96
- --------------------------------------------------------------------------------- ---------------- ------------ ==============
Net asset value at beginning of period 10.20 10.00
- --------------------------------------------------------------------------------- ---------------- ------------ ==============
Net investment income 0.50 0.38
Net realized gains or (losses) on investments, financial futures contracts, and
foreign currency-related transactions (0.56) 0.28
- --------------------------------------------------------------------------------- ---------------- ------------ ==============
Total investment income (0.06) 0.66
- --------------------------------------------------------------------------------- ---------------- ------------ ==============
Distributions from net investment income 0.14 0.38
Distributions from net realized gain on investments, financial futures
contracts, and foreign currency related transactions 0.14 0.08
Distributions from capital stock in excess of par value 0.36 ---
================================================================================= ---------------- ------------ ==============
Total distributions 0.64 0.46
================================================================================= ---------------- ------------ ==============
Net asset value at end of period 9.50 10.20
================================================================================= ---------------- ------------ ==============
Total return on investment (0.43%) 6.66% (c)
Net assets at end of period in 000's 67,653 35,746
Ratio of operating expenses to average net assets (a) 0.60% 0.60% (b)
Ratio of net investment income to average net assets (a) 5.19% 5.73% (b)
Decrease in above expense ratios due to waiver of investment advisory fees 0.10% 0.32% (b)
Portfolio turnover rate 809% 539%
================================================================================= ================ ============ ==============
</TABLE>
(a) Net of waivers and reimbursements (b) Annualized (c) Not annualized
*Commencement of operations
<TABLE>
<S> <C> <C>
==============================================================================================================================
EMERGING MARKET PORTFOLIO'S FINANCIAL HIGHLIGHTS
(IN WHOLE DOLLARS UNLESS OTHERWISE INDICATED)
==============================================================================================================================
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD Year Ended From 812/97*
12/31/98 to 12/31/97
- --------------------------------------------------------------------------------------------- ---------------- ===============
Net asset value at beginning of period 10.00
- --------------------------------------------------------------------------------------------- ---------------- ===============
Net investment income 0.29
Net realized gains or (losses) on investments, financial futures contacts and foreign (0.41)
currency-related transactions
- --------------------------------------------------------------------------------------------- ---------------- ===============
Total investment income (0.12)
- --------------------------------------------------------------------------------------------- ---------------- ===============
Net distributions from investment income 0.29
============================================================================================= ---------------- ===============
Net asset value at end of period 9.59
============================================================================================= ---------------- ===============
Total return on investment (1.20%) (b)
Net assets at end of period in 000's 111,043
Ratio of operating expenses to average net assets, exclusive of interest expense 1.03% (a)
Ratio of operating expenses to average net assets, inclusive of interest expense 1.03% (a)
Ratio of net income to average net assets 7.87% (a)
Portfolio turnover rate 16%
============================================================================================= ================ ===============
</TABLE>
(a) Annualized (b) Not Annualized * Commencement of operations
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.
File No. 811-5796
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 1, 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.
CONTENTS
Page
Overview of the Fund 3
History of the Fund 3
Organization of the Fund 3
Management of the Fund 3
Principal Securities Holders 8
Distribution of Fund Shares 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
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.
<TABLE>
<S> <C> <C> <C> <C>
Director's Compensation Table
Fiscal Year Ended December 31, 1998
- --------------------------- --------------------------- ---------------------- ---------------- --------------------------
Director Aggregate Compensation Pension or Estimated Total Compensation From
From Registrant Retirement Benefits Annual Registrant and Fund
Accrued As Part of benefits Upon Complex Paid to Directors
Fund Expenses Retirement
- --------------------------- --------------------------- ---------------------- ---------------- --------------------------
- --------------------------- --------------------------- ---------------------- ---------------- --------------------------
Stephen P. Casper $0 $0 $0 $0
- --------------------------- --------------------------- ---------------------- ---------------- --------------------------
- --------------------------- --------------------------- ---------------------- ---------------- --------------------------
John C Head III $20,000 $0 $0 $20,000
- --------------------------- --------------------------- ---------------------- ---------------- --------------------------
- --------------------------- --------------------------- ---------------------- ---------------- --------------------------
Lawrence B. Krause $20,000 $0 $0 $20,000
- --------------------------- --------------------------- ---------------------- ---------------- --------------------------
- --------------------------- --------------------------- ---------------------- ---------------- --------------------------
Paul Meek $20,000 $0 $0 $20,000
- --------------------------- --------------------------- ---------------------- ---------------- --------------------------
- --------------------------- --------------------------- ---------------------- ---------------- --------------------------
Onder John Olcay $0 $0 $0 $0
- --------------------------- --------------------------- ---------------------- ---------------- --------------------------
- --------------------------- --------------------------- ---------------------- ---------------- --------------------------
Stephen J. Constantine $0 $0 $0 $0
- --------------------------- --------------------------- ---------------------- ---------------- --------------------------
</TABLE>
By virtue of the responsibilities assumed by the Investment Adviser and
Investors Capital 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 ___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:
<TABLE>
<S> <C> <C> <C>
Last Advisory Agreement Approval Dates
U.S. Portfolios Last Board Approval Last Shareholder Approval
Money Market To be updated 1/21/97
Mortgage LIBOR To be updated 9/8/98
U.S. Short -Term To be updated 4/3/91
Limited Duration To be updated 2/18/93
Mortgage-Backed To be updated 1/2/96
Asset-Backed To be updated 9/8/98
High Yield To be updated 9/8/98
Enhanced Equity Market To be updated 9/8/98
U.S. Treasury To be updated 1/21/97
U.S. Corporate To be updated 9/8/98
Broad Market To be updated 1/21/97
Global and International Portfolios Last Board Approval Last Shareholder Approval
Global Tactical Exposure To be updated 2/18/93
Worldwide To be updated 12/31/92
Worldwide-Hedged To be updated 12/31/92
International To be updated 2/18/93
International Opportunities To be updated 9/8/98
International Corporate To be updated 9/8/98
Emerging Markets To be updated 1/21/97
Global High Yield To be updated 9/8/98
Inflation-Indexed To be updated 1/21/97
Inflation-Indexed Hedged To be updated 1/21/97
</TABLE>
The following table highlights the dates in which the Sub-Advisory Agreements
were last approved by the Board of Directors and by a majority of shareholders.
Last Sub-Advisory Agreement Approval Dates
<TABLE>
<S> <C> <C>
Global and International Portfolios Last Board Approval Last Shareholder Approval
Global Tactical Exposure To be updated 2/18/93
Worldwide To be updated 12/31/92
Worldwide-Hedged To be updated 12/31/92
International To be updated 2/18/93
International Opportunities To be updated 9/8/98
International Corporate To be updated 9/8/98
Emerging Markets To be updated 1/21/97
Global High Yield To be updated 9/8/98
Inflation-Indexed To be updated 1/21/97
Inflation-Indexed Hedged To be updated 1/21/97
</TABLE>
Each Advisory and Sub-Advisory Agreement is terminable without penalty:
a. on not less than 60 days' notice by the Board of Directors;
b. by a vote of the holders of a majority of the relevant Portfolio's
outstanding shares voting as a single class; or
c. upon not less than 60 days' notice by the Investment Adviser or
the Sub-Adviser.
Each Advisory and Sub-Advisory Agreement will
terminate automatically in the event of its
"assignment" (as defined in the 1940 Act).
Adviser's/Sub-Adviser's Payment of Fund Expenses
The Investment Adviser pays all of its expenses
arising from its performance obligations pursuant to
the Advisory Agreements, including:
a. all executive salaries and expenses of the Fund's directors,
b. officers employed by the Investment Adviser, or
c. its affiliates and office rent of the Fund.
The Investment Adviser will pay all of the fees payable to its affiliate as
Sub-Adviser. The Sub-Adviser pays all of its expenses arising from the
performance of its obligations under the Sub-Advisory Agreements.
Fund's Payment of Fund Expenses
Subject to the expense reimbursement provisions described in the Prospectus
under "Fund Expenses," other expenses incurred in the operation of the Fund are
borne by the Fund, including, without limitation:
<TABLE>
<S> <C>
a. investment advisory fees, 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):
<TABLE>
<S> <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 (to be provided), December 31, 1996 and
December 31, 1995, the amount of advisory fees (net of waivers and
reimbursements) paid by each Portfolio were as follows:
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------------------- ---------------------------- ----------------------------- -----------------------------
Portfolio Name Year Ended Dec. 31, 1997 Year Ended Dec. 31, 1996 Year Ended Dec. 31, 1995
- ------------------------------------- ---------------------------- ----------------------------- -----------------------------
U.S. Portfolios
- ------------------------------------- ---------------------------- ----------------------------- -----------------------------
Money Market $ 7,718 $ 0 $ 0
U.S. Short-Term 598,652 607,871 867,461
Limited Duration 10,639 1,711 0
Mortgage-Backed (1) 1,286,506 126,822 N/A
- ------------------------------------------------------------------------------------------------------------------------------
Global and International Portfolios
- ------------------------------------- ---------------------------- ----------------------------- -----------------------------
Global Tactical Exposure (3) 500,355 180,065 52,860
Worldwide 308,466 334,929 46,819
Worldwide-Hedged 112,750 1,647 0
International (2) 136,714 12,322 N/A
Emerging Markets (4) 191,177 N/A N/A
</TABLE>
(1) Commencement of operations was April 29, 1996.
(2) The Portfolio was fully liquidated on December 30, 1994, and
recommenced operations on September 14, 1995
(3) Commencement of operations was May 9, 1996.
(4) Commencement of operations was August 12, 1997.
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 August 31, 1998(to be updated 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:
Cooper Industries, Inc. 1001 Fannin Street,
First City Tower Suite 3900, PO Box 4446,
Houston, TX 77210 65.64%
Rockdale Health Systems, c/o Fischer Francis
Trees & Watts, Inc. 200 Park Avenue New York,
NY 10166 32.18%
U.S. Short-Term Portfolio
As of August 31, 1998 (to be updated 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:
Pacific Gas & Electric Co. Short-Term
Liquidity Portfolio, 3720 Pgec/O State
Street Bank & Trust,
One Enterprise Drive, N Quincy, MA 021710000 21.48%
RJR Nabisco- Defined Benefit Benefit Plan,
Wachovia Bank Na Ttee, PO Box 3099, Winston-Salem, NC 27150 12.11%
General Motors Employees Global Group Pension Trust,
c/o Fischer Francis Trees & Watts, Inc. 200
Park Avenue 46th Floor, New York, NY 10166 11.88%
Monsanto Co. Master Trust, c/o Fischer Francis Trees
& Watts, Inc. 200 Park Avenue 46th Floor, New
York, NY 10166 8.17%
The Dow Chemical Company Employees Retirement Plan,
DORINCO 100 Midland, MI 48674 5.83%
Limited Duration Return Portfolio
As of August 31, 1998 (to be updated 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
Sprint Short Intermediate 2330 Shawnee
Mission Parkway, Westwood, KS 662052005 45.34%
Rockdale Health Systems, c/o Fischer Francis
Trees & Watts, Inc. 200 Park Avenue, New York, NY 10166 23.16%
Mars Deferred Compensation Plan, Barclays
Global Investors Tr, Fbo Mars Deferred Compensation Plan
Stable Value Master Fund, 800 Scudders Mill Road Section 2B,
Plainsboro, NJ 08536 17.03%
Corporation For Supportive Housing 342 Madison Avenue
Suite 505, New York, NY 10173 9.70%
Mortgage-Backed Portfolio
As of August 31, 1998 (to be updated 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., Dingle & Co., Fbo Ford Motor Co.
c/o Comercia Bank PO Box 75000, Detroit, MI 48275 35.25%
International Bank For Reconstruction And Development
Retirement Staff, Benefits Plan c/o Fischer
Francis Trees & Watts, Inc. 200 Park Avenue
46th Floor, New York , NY 10166 9.34%
Harbor Capital Group Trust For Defined Benefit Plans,
c/o Fischer Francis Trees & Watts, Inc. 200 8.08%
Park Avenue 46th Floor, New York, NY 10166
Corning Master Trust Aggregate Portfolio
c/o Fischer Francis Trees & Watts, Inc. 200 Park Avenue 7.47%
46th Floor, New York, NY 10166
International Bank For Reconstruction and Development
Staff Retirement Plan, c/o Fischer Francis 7.38%
Trees & Watts, Inc. 200 Park Avenue 46th Floor, New York, NY 10166
Bull HN Information Systems, Inc - Retirement Aggregate,
State Street Bank & Trust Co. Tr , Fbo Bull 6.64%
Hn Information Systems, Inc. Retirement/Aggregate,
1 Enterprise Drive SW 5C, North Quincy, MA 02171
Monsanto-Defined Contribution & Employees Stock Plan,
The Northern Trust Co. Tr, U/A Dtd 4/1/93 Fbo 5.37%
Monsanto Defined Contribution and Employee Stock
Ownership Trust, PO Box 92956 (22-33706) Chicago, IL 60675
Global Tactical Exposure Portfolio
As of August 31, 1998 (to be updated 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. Dingle & Co. c/o Comercia Bank,
PO Box 75000, Detroit, MI 482753446 45.62%
Harbor Capital Group Trust For Defined Benefit Plans,
c/o Fischer Francis Trees & Watts, Inc. 200 9.49%
Park Avenue 46th Floor, New York, NY 10166
Northrop Corporation, Employee Benefit Plan 1840
Century Park West Los Angeles, CA 900672101 8.30%
Corning Master Trust Aggregate Portfolio, c/o
Fischer Francis Trees & Watts, Inc. 200 Park Avenue 6.40%
46th Floor, New York, NY 10166
Worldwide Portfolio
As of August 31, 1998 (to be updated 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:
GATX Master Retirement Trust Corporation,
The Northern Trust, 500 West Monroe Street 44th Floor, 21.83%
Chicago, IL 60661
Bob & Co. c/o Bank Of Boston, PO Box 1809, Boston, MA 02105 16.99%
Administrators of Tulane Educational Fund, Office of the
Treasurer, New Orleans, LA 70118 14.94%
Community Foundation for Southeastern Michigan,
333 West Fort Street Suite 2010, Detroit, MI 48226 12.45%
Geneva Regional Health System, Inc. 196 North Street,
Geneva, NY 14456 7.13%
Massachusetts Eye & Ear Infirmary -Pension, VP For Finance,
243 Charles Street, Boston, MA 02114 5.37%
Worldwide-Hedged Portfolio
As of August 31, 1998 (to be updated 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:
Sisters of Charity Levenworth Health Services,
Mac & Co A/C Clsf5049662, Mutual Funds Operations 38.59%
PO Box 3198, Pittsburgh, PA 15230
Strategic Investment Management, The Northern
Trust Tr ,U/A Dtd 10/4/94 Sim Global Fixed Income 10.45%
Trust Agreement And Trust Instrument, c/o
Strategic Investment Management, 1001 19th Street North
16th Floor, Arlington, VA 22209
Law School Admission Council, Inc. Box 40,
Newtown, PA 89400 10.42%
Mars Benefit Trust, The Northern Trust Company Tr
U/A Dtd 06/30/95 PO Box 92956 Chicago, IL 60675 10.09%
IES Industries, Mitra & Co. 1000 N Water St.
14th Floor, Milwaukee, WI 53202 9.87%
Lakeland Medical Center, c/o Wendel & Co.
A/C 706020, The Bank Of New York, Mutual Fund/Reorg 8.88%
Dept. PO Box 1066 Wall Street Station, New York, NY 10268
Goldman Sachs Pension Plan, State Street
Bank & Trust Tr , U/A Dtd 2/95, State
Street Bank And 6.85%
Trust As Trustee For The Goldman Sachs Pension Plan, 200
Newport Avenue North Quincy, MA 02171
International Portfolio
As of August 31, 1998 (to be updated 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:
HEB Investment Plan, c/o Fischer Francis
Trees & Watts, Inc. 200 Park Avenue 46th Floor New York, 30.20%
NY 10020
Evelyn And Walter Haas Jr. Fund One Lombard Street
Suite 305, San Francisco, CA 94111 29.56%
Colonial Williamsburg Foundation, PO Box 1776,
Williamsburg, VA, 23187 18.44%
Promedica, Mac & Co. A/C Prhf5011252, Mutual Funds
Operations, PO Box 3198, Pittsburgh, PA 15230 8.21%
HF Investment L.P. 1700 Old Deerfield Road,
Highland Park, IL 60035 6.79%
State Street Bank & Trust Tr, U/A Dtd 10/1/85 Retirement
Income Plan For Employees Of Colonial 5.96%
Williamsburg, P.O. Box 1776 Williamsburg, VA 23187
Emerging Markets Portfolio
As of August 31, 1998 (to be updated 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:
Utah Retirement Systems, c/o Fischer Francis
Trees & Watts, Inc. 200 Park Avenue 46th Floor, New 30.40%
York, NY 10166
Ford Motor Co., Dingle & Co. c/o Comercia Bank,
PO Box 75000, Detroit, MI 48275 29.27%
Ameritech Pension Trust, c/o Fischer Francis
Trees & Watts, Inc. 200 Park Avenue 46th Floor, New 8.23%
York, NY 10166
The 1199 Health Care Employees Pension Plan,
c/o Fischer Francis Trees & Watts, Inc. 200 Park 8.07%
Avenue 46th Floor, New York, NY 10166
Harbor Capital Group Trust For Defined Benefit Plans,
c/o Fischer Francis Trees & Watts, Inc. 200 5.86%
Park Avenue 46th Floor, New York, NY 10166
Monsanto Company Master Trust, c/o Fischer Francis
Trees & Watts, Inc. 200 Park Avenue 46th Floor, 5.16%
New York, NY 10166
(Other newly added portfolios)
As of August 31, 1998(to be updated 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:
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
Money Market Minimum Credit Ratings for Allowable Investments First Tier
Securities: any instruments receiving the highest short-term rating by at least
two nationally recognized statistical rating organizations ("NRSROs") such as
"A-1" by Standard & Poor's and "P-1" by Moody's or are single rated and have
received the highest short-term rating by the NRSRO. This includes all
instruments issued by the U.S. Government, its agencies or instrumentalities and
any single rated and unrated instruments that are determined to be of comparable
quality by the Investment Adviser pursuant to guidelines approved by the Board
of Directors.
Second Tier Securities: any instrument rated by two NRSROs in the second highest
category, or rated by one NRSRO in the highest category and by another NRSRO in
the second highest category or by one NRSRO in the second highest category.
Second Tier Securities are limited in total of 5% of the Portfolio's total
assets and on a per issuer basis, to no more than the greater of 1% of the
Portfolio's total assets or $1,000,000. This also includes any single rated and
unrated instruments that are determined to be of comparable quality by the
Investment Adviser pursuant to guidelines approved by the Board of Directors.
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 Minimum Quality Ratings:
<TABLE>
<S> <C> <C> <C> <C> <C>
- ------------------ -------------- ------------------- -------------------- ------------------ --------------------------
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)
- ------------------ -------------- ------------------- -------------------- ------------------ --------------------------
</TABLE>
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.
U.S. Short Term Portfolio Minimum Quality Ratings:
<TABLE>
<S> <C> <C> <C> <C> <C>
- --------------------- ------------------- ------------------- -------------------- ----------------- --------------------
S&P Moody's Average Portfolio
S&P: Moody's: (Short-Term): (Short-Term): Thompson: Quality
BBB- Baa3 A-2 P-2 B AA (Aa)
- --------------------- ------------------- ------------------- -------------------- ----------------- --------------------
</TABLE>
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.
Limited Duration Portfolio Minimum Quality Ratings:
<TABLE>
<S> <C> <C> <C> <C> <C>
- --------------------- ------------------- ------------------- -------------------- ----------------- --------------------
S&P Moody's Average Portfolio
S&P: Moody's: (Short-Term): (Short-Term): Thompson: Quality
BBB- Baa3 A-2 P-2 B AA (Aa)
- --------------------- ------------------- ------------------- -------------------- ----------------- --------------------
</TABLE>
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.
Mortgage-Backed Portfolio Minimum Quality Ratings:
<TABLE>
<S> <C> <C> <C> <C> <C>
- --------------------- ------------------- ------------------- -------------------- ----------------- --------------------
S&P Moody's Average Portfolio
S&P: Moody's: (Short-Term): (Short-Term): Thompson: Quality
BBB- Baa3 A-2 P-2 B AA (Aa)
- --------------------- ------------------- ------------------- -------------------- ----------------- --------------------
</TABLE>
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
Asset-Backed Portfolio Minimum Quality Ratings:
<TABLE>
<S> <C> <C> <C> <C> <C>
- --------------------- ------------------- ------------------- -------------------- ----------------- --------------------
S&P Moody's Average Portfolio
S&P: Moody's: (Short-Term): (Short-Term): Thompson: Quality:
BBB- Baa3 A-2 P-2 B AA(Aa)
- --------------------- ------------------- ------------------- -------------------- ----------------- --------------------
</TABLE>
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
U.S. Short Term Portfolio Minimum Quality Ratings:
<TABLE>
<S> <C> <C> <C> <C> <C>
- --------------------- ------------------- ------------------- -------------------- ----------------- --------------------
S&P Moody's Average Portfolio
S&P: Moody's: (Short-Term): (Short-Term): Thompson: Quality
CCC- Caa3 C P-3 LC-3 B
- --------------------- ------------------- ------------------- -------------------- ----------------- --------------------
</TABLE>
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
U.S. Short Term Portfolio Minimum Quality Ratings:
<TABLE>
<S> <C> <C> <C> <C> <C>
- --------------------- ------------------- ------------------- -------------------- ----------------- --------------------
S&P Moody's Average Portfolio
S&P: Moody's: (Short-Term): (Short-Term): Thompson: Quality
BBB- Baa3 A-2 P-2 B AA (Aa)
- --------------------- ------------------- ------------------- -------------------- ----------------- --------------------
</TABLE>
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.
U.S. Treasury Portfolio Minimum Quality Ratings:
<TABLE>
<S> <C> <C> <C> <C>
- --------------------- ------------------- ------------------- -------------------- ----------------- --------------------
S&P Moody's Average Portfolio
S&P: Moody's: (Short-Term): (Short-Term): Thompson: Quality
AA- Aa3 A-1 P-1 A AAA (Aaa)
- --------------------- ------------------- ------------------- -------------------- ----------------- --------------------
</TABLE>
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
U.S. Short Term Portfolio Minimum Quality Ratings:
<TABLE>
<S> <C> <C> <C> <C> <C>
- --------------------- ------------------- ------------------- -------------------- ----------------- --------------------
S&P Moody's Average Portfolio
S&P: Moody's: (Short-Term): (Short-Term): Thompson: Quality
BBB- Baa3 A-2 P-2 B AA (Aa)
- --------------------- ------------------- ------------------- -------------------- ----------------- --------------------
</TABLE>
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
Broad Market Portfolio Minimum Quality Ratings:
<TABLE>
<S> <C> <C> <C> <C> <C>
- --------------------- ------------------- ------------------- -------------------- ----------------- --------------------
S&P Moody's Average Portfolio
S&P: Moody's: (Short-Term): (Short-Term): Thompson: Quality
BBB- Baa3 A-2 P-2 B AA (Aa)
- --------------------- ------------------- ------------------- -------------------- ----------------- --------------------
</TABLE>
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
Global Tactical Exposure Portfolio Minimum Quality Ratings:
<TABLE>
<S> <C> <C> <C> <C> <C>
- --------------------- ------------------- ------------------- -------------------- ----------------- --------------------
S&P Moody's Average Portfolio
S&P: Moody's: (Short-Term): (Short-Term): Thompson: Quality
BBB- Baa3 A-2 P-2 B AA (Aa)
- --------------------- ------------------- ------------------- -------------------- ----------------- --------------------
</TABLE>
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
Worldwide Portfolio Minimum Quality Ratings:
<TABLE>
<S> <C> <C> <C> <C> <C>
- --------------------- ------------------- ------------------- -------------------- ----------------- --------------------
S&P Moody's Average Portfolio
S&P: Moody's: (Short-Term): (Short-Term): Thompson: Quality
BBB- Baa3 A-2 P-2 B AA (Aa)
- --------------------- ------------------- ------------------- -------------------- ----------------- --------------------
</TABLE>
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
Worldwide-Hedged Portfolio Minimum Quality Ratings:
<TABLE>
<S> <C> <C> <C> <C> <C>
- --------------------- ------------------- ------------------- -------------------- ----------------- --------------------
S&P Moody's Average Portfolio
S&P: Moody's: (Short-Term): (Short-Term): Thompson: Quality
BBB- Baa3 A-2 P-2 B AA (Aa)
- --------------------- ------------------- ------------------- -------------------- ----------------- --------------------
</TABLE>
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
International Portfolio Minimum Quality Ratings:
<TABLE>
<S> <C> <C> <C> <C> <C>
- --------------------- ------------------- ------------------- -------------------- ----------------- --------------------
S&P Moody's Average Portfolio
S&P: Moody's: (Short-Term): (Short-Term): Thompson: Quality
BBB- Baa3 A-2 P-2 B AA (Aa)
- --------------------- ------------------- ------------------- -------------------- ----------------- --------------------
</TABLE>
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
Broad Market Portfolio Minimum Quality Ratings:
<TABLE>
<S> <C> <C> <C> <C> <C>
- --------------------- ------------------- ------------------- -------------------- ----------------- --------------------
S&P Moody's Average Portfolio
S&P: Moody's: (Short-Term): (Short-Term): Thompson: Quality
BBB- Baa3 A-2 P-2 B AA (Aa)
- --------------------- ------------------- ------------------- -------------------- ----------------- --------------------
</TABLE>
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
International Corporate Portfolio Minimum Quality Ratings:
<TABLE>
<S> <C> <C> <C> <C> <C>
- --------------------- ------------------- ------------------- -------------------- ----------------- --------------------
S&P Moody's Average Portfolio
S&P: Moody's: (Short-Term): (Short-Term): Thompson: Quality
BBB- Baa3 A-2 P-2 B AA (Aa)
- --------------------- ------------------- ------------------- -------------------- ----------------- --------------------
</TABLE>
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
Broad Market Portfolio Minimum Quality Ratings:
<TABLE>
<S> <C> <C> <C> <C> <C>
- --------------------- ------------------- ------------------- -------------------- ----------------- --------------------
S&P Moody's Average Portfolio
S&P: Moody's: (Short-Term): (Short-Term): Thompson: Quality:
CCC- Caa3 C P-3 LC-3 B
- --------------------- ------------------- ------------------- -------------------- ----------------- --------------------
</TABLE>
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
Broad Market Portfolio Minimum Quality Ratings:
<TABLE>
<S> <C> <C> <C> <C> <C>
- --------------------- ------------------- ------------------- -------------------- ----------------- --------------------
S&P Moody's Average Portfolio
S&P: Moody's: (Short-Term): (Short-Term): Thompson: Quality:
CCC- Caa3 C P-3 LC-3 B
- --------------------- ------------------- ------------------- -------------------- ----------------- --------------------
</TABLE>
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
Broad Market Portfolio Minimum Quality Ratings:
<TABLE>
<S> <C> <C> <C> <C> <C>
- --------------------- ------------------- ------------------- -------------------- --------------- ----------------------
S&P Moody's Average Portfolio
S&P: Moody's: (Short-Term): (Short-Term): Thompson: Quality:
BBB- Baa A-2 P-2 B AA (Aa)
- --------------------- ------------------- ------------------- -------------------- --------------- ----------------------
</TABLE>
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
Broad Market Portfolio Minimum Quality Ratings:
<TABLE>
<S> <C> <C> <C> <C> <C>
- --------------------- ------------------- ------------------- -------------------- ---------------- ---------------------
S&P Moody's Average Portfolio
S&P: Moody's: (Short-Term): (Short-Term): Thompson: Quality:
BBB- Baa A-2 P-2 B AA (Aa)
- --------------------- ------------------- ------------------- -------------------- ---------------- ---------------------
</TABLE>
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
Broad Market Portfolio Minimum Quality Ratings:
<TABLE>
<S> <C> <C> <C> <C> <C>
- --------------------- ------------------- ------------------- -------------------- ----------------- --------------------
S&P Moody's Average Portfolio
S&P: Moody's: (Short-Term): (Short-Term): Thompson: Quality
BBB- Baa3 A-2 P-2 B AA (Aa)
- --------------------- ------------------- ------------------- -------------------- ----------------- --------------------
</TABLE>
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, 1998 (to be provided), December 31, 1997,
December 31, 1996 and December 31, 1995, the amount of brokerage commissions
(associated with financial futures and options contracts) paid by each
Portfolio were as follows:
<TABLE>
<S> <C> <C> <C>
- ----------------------------------- ------------------------- -------------------------- -----------------------
Year Ended Year Ended Year Ended
Portfolio December 31, 1997 December 31, 1996 December 31, 1995
- ----------------------------------- ------------------------- -------------------------- -----------------------
U.S. Portfolios
----------------------------------------------------------------------------------------------------------------
U.S. Short -Term $ 126,108 $ 110,133 $ 187,185
Limited Duration 3,649 0 27,616
Mortgage-Backed (1) 463,651 30,152 N/A
----------------------------------------------------------------------------------------------------------------
Global and International Portfolios
- ----------------------------------- ------------------------- -------------------------- -----------------------
Global Tactical Exposure (2) $127,213 $12,342 $15,643
Worldwide 21,065 $10,254 15,268
Worldwide-Hedged 11,724 2,719 3,083
International (3) 13,040 2,707 N/A
Emerging Markets (4) 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 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 December 31, 1997 is as follows:
U.S. Portfolios
U.S. Short-Term ....................................5.61%
Limited Duration ....................................5.91%
Global and International Portfolios
Global Tactical Exposure .............................4.72%
Worldwide ..........................................5.51%
Worldwide-Hedged ....................................5.23%
International.........................................5.32%
Emerging Markets 9.00%
The Money Market Portfolio may, from time to time, include the "yield" and
"effective yield" in advertisements or reports to shareholders or prospective
investors.
Yield is calculated by first determining the net change over a 7-calendar day
period, exclusive of capital changes, in the value of a hypothetical preexisting
account having a balance of one share at the beginning of the period. This
number is then divided by the value of the account at the beginning of the base
period, to obtain the base period return. The yield is annualized by multiplying
the base period return by 365/7. The yield is stated to the nearest hundredth of
one percent. The effective yield is calculated by the same method as yield
except that the base period return is compounded by adding 1, raising the sum to
a power equal to 365/7, and subtracting 1 from the result, according to the
following formula:
Effective Yield = [(Base Period Return + 1)365/7] - 1
Money Market Portfolio's yield and effective yield for the seven-day period
ended December 31, 1997 are 5.76% and 5.93%, respectively.
Average annual total return quotes will be expressed as the average annual
compounded rate of return of a hypothetical investment in a Fund Portfolio over
1, 5 and 10 years (up to the life of the Portfolio). This will be calculated
pursuant to the following formula, prescribed by the Securities and Exchange
Commission:
P(1 + T)n = ERV
Where P = a hypothetical initial payment of $1,000,
T = the average annual total return,
n = the number of years, and
ERV = the ending redeemable value of a
hypothetical $1,000 payment made at the
beginning of the period.
All total return figures assume that all dividends are
reinvested when paid.
From the time of Fund commencement (to be updated for 12/31/98 numbers), 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, 1997
are as follows:
<TABLE>
<S> <C> <C> <C> <C>
One Year Five Years* Life of Portfolio Inception
U.S. Portfolios
Money Market 5.46% N/A 5.02%* 11/1/93
U.S. Short-Term 5.09% 4.58% 5.17%* 12/6/89
Limited Duration 7.21% N/A 5.76%* 7/26/93
Mortgage-Backed 10.19 N/A 10.06%* 4/29/96
Global and International Portfolios
Global Tactical Exposure** 8.77% N/A 6.87%* 9/14/95
Worldwide 2.93% 6.78% 7.62%* 4/15/92
Worldwide-Hedged 12.60% 10.85% 10.71%* 5/19/92
International (0.43%) N/A 3.73%* 5/9/96
Emerging Markets N/A N/A (1.20%) 8/12/97
</TABLE>
* Annualized
** The Portfolio redeemed all of its assets on December 30, 1994, and began
selling shares again on September 14, 1995. The total return (on an annualized
basis) from its original inception of March 25, 1993 through December 30, 1994,
was 5.39%.
FINANCIAL STATEMENTS
The audited financial statements for the year ended December 31, 1997 are
incorporated 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 - June 1998
(To be updated through March 1999)
<TABLE>
<S> <C> <C> <C>
- --------------------------- ----------------------------- --------------------------- ---------------------------
Quarter End Return % Quarter End Return %
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
3/88 2.64 6/93 1.08
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
6/88 1.04 9/93 1.43
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
9/88 1.45 12/93 0.59
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
12/88 0.96 3/94 (0.50)
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
3/89 1.24 6/94 0.08
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
6/89 4.98 9/94 0.99
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
9/89 1.46 12/94 0.01
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
12/89 2.82 3/95 3.36
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
3/90 0.89 6/95 3.21
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
6/90 2.80 9/95 1.51
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
9/90 2.38 12/95 2.51
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
12/90 3.32 3/96 0.34
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
3/91 2.20 6/96 1.01
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
6/91 1.97 9/96 1.65
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
9/91 3.36 12/96 1.91
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
12/91 3.68 3/97 0.66
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
3/92 0.16 6/97 2.20
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
6/92 2.88 9/97 1.96
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
9/92 2.98 12/97 1.68
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
12/92 0.18 3/98 1.47
- --------------------------- ----------------------------- --------------------------- ---------------------------
- --------------------------- ----------------------------- --------------------------- ---------------------------
3/93 2.21 6/98 1.53
- --------------------------- ----------------------------- --------------------------- ---------------------------
</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 herewith.
(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
herewith.
(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
herewith.
(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 herewith.
. (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) Not Applicable.
(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.
(m) Not Applicable.
(n) Financial Data
Schedules - to be
filed in a
subsequent post
effective
amendment on or
prior to the
effective date of
this post
effective
amendment.
(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
____ % 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 has duly caused this Post-Effective
Amendment to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New
York on the 1st day of March, 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.
Signature Title Date
/s/ Stephen P. Casper Director March 1,
1999
Stephen P. Casper
/s/ Onder John Olcay Chairman of the Board, March 1, 1999
Onder John Olcay President
/s/ John C. Head III Director March 1, 1999
John C Head III
/s/ Lawrence B. Krause Director March 1, 1999
Lawrence B. Krause
/s/ William E. Vastardis Treasurer March 1, 1999
William E. Vastardis
EXHIBIT INDEX
Exhibit No.
(a)(8) Articles of Amendment, dated December 10, 1998.
(c)(3) Distribution Agreement between the
Registrant and AMT Capital Securities,
L.L.C., dated May 29,1998.
(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.
(h)(6) Amendment Agreement dated May 29, 1998 to
between the Registrant and AMT Capital
Services, Inc., dated February 1, 1995.
ARTICLES OF AMENDMENT
TO
THE ARTICLES OF INCORPORATION
OF
FFTW FUNDS, INC.
FFTW Funds, Inc., a Maryland Corporation (the
"Corporation") having a principal office in New York, New
York and having The Corporation Trust Incorporated as its
resident agent located at 300 East Lombard Street,
Baltimore, Maryland 21202, hereby certifies to the State
Department of Assessments and Taxation of Maryland as
follows:
FIRST: Article FIFTH of the Articles of Incorporation of
the Corporation is hereby amended to reclassify
200,000,000 shares of the authorized shares of the Stable
Return Portfolio stock, par value $.001 per share, as
Limited Duration Portfolio stock, par value $.001 per
share, with the same preferences, conversion and other
rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of
redemption as were afforded to the Stable Return Portfolio
as set forth in Article FIFTH of the Articles of
Incorporation of the Corporation;
SECOND: Article FIFTH of the Articles of Incorporation of
the Corporation is hereby amended to reclassify
200,000,000 shares of the authorized shares of the
International Hedged Portfolio stock, par value $.001 per
share, as the Global Tactical Exposure Portfolio stock,
par value $.001 per share, with the same preferences,
conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and
conditions of redemption as were afforded to the
International Hedged Portfolio stock as set forth in
Article FIFTH of the Articles of Incorporation of the
Corporation;
THIRD: Article FIFTH of the Articles of Incorporation of
the Corporation is hereby amended to reclassify
200,000,000 shares of the authorized shares of the
Enhanced Index Portfolio stock, par value $.001 per share,
as Enhanced Equity Market Portfolio stock, par value $.001
per share, with the same preferences, conversion and other
rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of
redemption as were afforded to the Enhanced Index
Portfolio stock as set forth in Article FIFTH of the
Articles of Incorporation of the Corporation;
FOURTH: Article FIFTH of the Articles of Incorporation of
the Corporation is hereby amended to reclassify
200,000,000 shares of the authorized shares of the
Mortgage Total Return Portfolio stock, par value $.001 per
share, as Mortgage-Backed Portfolio stock, par value $.001
per share, with the same preferences, conversion and other
rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of
redemption as were afforded to the Mortgage Total Return
Portfolio stock as set forth in Article FIFTH of the
Articles of Incorporation of the Corporation;
FIFTH: This amendment was approved by at least a majority
of the entire Board of Directors of the Corporation; and
SIXTH: The amendment is limited to a change expressly
permitted by Section 2-605(4) of the Maryland General
Corporation Law and the Corporation is registered as an
open-end company under the Investment Company Act of 1940.
IN WITNESS WHEREOF, the Corporation has caused these
Articles of Amendment to be signed in its name and on its
behalf on this 10th day of December, 1998 by its President
who acknowledges that these Articles of Amendment are the
act of the Corporation and that to the best of his
knowledge, information and belief and under penalties for
perjury, all matters and facts contained in these Articles
of Amendment are true in all material respects.
FFTW FUNDS, INC.
Attest:______________________ By: _________________________
William E. Vastardis Onder John Olcay
Secretary President
SEAL
DISTRIBUTION AGREEMENT
AGREEMENT dated as of May 29, 1998 by and between FFTW FUNDS, Inc., a
Maryland corporation ("Fund"), and AMT Capital Securities, L.L.C., a Delaware
corporation ("AMT Capital").
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and offers several investment portfolios (individually, a "Series," and
collectively, the "Series"), which have been registered under the Securities Act
of 1933, as amended (the "1933 Act");
WHEREAS, AMT Capital is registered as a broker-dealer under the
Securities Act of 1934, as amended (the "1934 Act"), and is a member of the
National Association of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, the Fund desires to appoint AMT Capital as the distributor of
the Shares, and AMT Capital wishes to become the distributor of such Shares.
NOW, THEREFORE, in consideration of the above premises and of other
good and valuable consideration, the parties hereto, intending to be legally
bound, agree as follows:
1. Appointment of Distributor
The Fund hereby appoints AMT Capital as the distributor of the Fund's
Shares for the period and on the terms set forth in this Agreement. This
appointment applies to each existing Series of Shares, as well as any future
series provided (i) the Fund does not object to AMT Capital in writing or (ii)
AMT Capital does not object to the Fund in writing on the basis of the
capabilities of AMT Capital. AMT Capital accepts such appointment and agrees to
render the services and provide, at its own expense, the office space,
furnishings and equipment, and the personnel required by it to perform the
services on the terms herein provided.
2. Duties of the Fund
The Fund shall use its best efforts in maintaining registration of
itself and its securities under the 1940 Act and the 1933 Act, and shall bear
all expenses in connection therewith.
The Fund shall cooperate in the qualification by the investment adviser
or other service provider of the Fund of each Series of Shares under the laws of
such states and other jurisdictions of the United States as the Fund shall
determine and shall execute and deliver such documents as may reasonably be
required for such purpose, but the Fund shall not be required to qualify as a
foreign business entity in any jurisdiction, nor effect any modification of its
policies or practices without prior approval of the Fund's Directors. The Fund's
officers, subject to the direction of the Board of Directors of the Fund and
with the advice of AMT Capital, shall determine whether it is desirable to
qualify or continue to offer Shares of any Series in any jurisdiction. AMT
Capital shall have no obligation hereunder to assist in the qualification of
Shares of any Series in any jurisdiction or in the maintenance of any
qualification, other than its obligation to serve as registered agent to the
Fund and execute required filings.
The Fund will deliver to AMT Capital copies of each of the following
documents and will deliver to AMT Capital all future amendments and supplements,
if any:
A. a certified copy of the Articles of
Incorporation of the Fund as amended and currently in effect
("Charter");
B. a certified copy of the Fund's By-laws as
amended and currently in effect ("By-laws");
C. the Fund's prospectus and statement of additional information
(including supplements thereto) which relate to the Shares (the "Prospectus" and
"SAI"); and
D. the Fund's current Registration Statement on Form N-1A as filed
under the 1940 and 1933 Acts, as such shall be amended from time to time (the
"Registration Statement").
The Fund shall also furnish AMT Capital , with respect to a Series or
the Fund, as applicable:
E. annual audit reports of the Fund's books
and accounts made by independent public accountants
regularly retained by the Fund;
F. such additional copies of the Prospectus and SAI and annual,
semi-annual and other reports and communications to shareholders which relate to
the Shares as AMT Capital may reasonably require for sales purposes;
G. a monthly itemized list of the securities
held by each Series;
H. monthly balance sheets as soon as
practicable after the end of each month;
I. a survey indicating the states and jurisdictions in which each
Series is qualified for sale or exempt from the requirements of the securities
laws of such state or jurisdiction and the amounts of Shares of such Series that
may be sold in such states and jurisdictions, as such may be amended from time
to time ("Blue Sky Report"); and
J. from time to time such additional information regarding the Fund's
financial condition or the financial condition of a Series of Shares as AMT
Capital may reasonably request.
3. Duties of AMT Capital
AMT Capital agrees that all solicitations for subscriptions to Shares
of each Series shall be made in accordance with the Charter, By-Laws, and the
Registration Statement, to the extent such documents have been provided to AMT
Capital, and in accordance with the Prospectus and the SAI, and shall not at any
time or in any manner violate any provisions of the laws of the United States or
of any state or other jurisdiction in which solicitations are then being made,
or of any rules and regulations made or adopted by duly authorized agencies
thereunder, including without limitation those promulgated by the U.S.
Securities and Exchange Commission (the "SEC") and the NASD; provided that AMT
Capital shall not be deemed to have violated any state securities laws if it has
acted in good faith and in accordance with the Blue Sky Report.
AMT Capital acknowledges that the only information provided to it by
the Fund is that contained in the Registration Statement, the Prospectus, the
SAI, and reports and financial information referred to in Section 2 herein.
Neither AMT Capital nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in such
documents and any sales literature or advertisements approved by appropriate
representatives of the Fund.
AMT Capital may undertake or arrange for such advertising and promotion
as it believes reasonable in connection with the solicitation of orders to
purchase Shares; provided, however, that it shall provide the Fund with and
obtain the Fund's approval of copies of any advertising and promotional
materials approved, produced or used by AMT Capital prior to their use. AMT
Capital shall file such materials with the SEC and the NASD to the extent
required by the 1934 Act and the 1940 Act and the rules and regulations
thereunder, and by the rules of the NASD.
In carrying out its obligations hereunder, AMT Capital shall take, on
behalf of the Fund, all actions which appear to the Fund necessary to carry into
effect the distribution of the Shares of each Series.
4. Distribution of Shares of each Series
The price at which Shares of each Series may be sold shall be the net
asset value per Share of such Series computed in the manner set forth in the
Fund's Prospectus and SAI in effect at the time of sale of the Shares of such
Series.
It is mutually understood and agreed that AMT Capital does not
undertake to sell all or any specific portion of the Shares of any Series. The
Fund shall not sell Shares of any Series except through AMT Capital , except
that the Fund may issue Shares of any Series at their net asset value to any
shareholder of the Fund purchasing Shares with dividends or other distributions
received from the Fund pursuant to an offer made to all shareholders. In
addition, the Fund may issue Shares in connection with the merger or
consolidation of any other investment company or series thereof with the Fund or
one of its Series, or in connection with its acquisition, by purchase or
otherwise, of all or substantially all of the assets of any investment company
or series thereof or substantially all of the outstanding shares of any such
company or series thereof.
AMT Capital may, and when requested by the Fund shall, suspend its
efforts to effectuate sales of Shares of any Series at any time when in the
opinion of AMT Capital or of the Fund no sales should be made because of market
or other economic considerations or abnormal circumstances of any kind. The Fund
may withdraw the offering of Shares of any Series (i) at any time with the
consent of AMT Capital , or (ii) without such consent when so required by the
provisions of any statute or of any order, rule or regulation of any
governmental body having jurisdiction.
Whenever in the judgment of the Fund's officers such action is
warranted by unusual market, economic or political conditions, or by abnormal
circumstances of any kind, the Fund's officers may, after notice is received by
AMT Capital , decline to accept any orders for, or make any sales of the Shares
of any Series until such time as those officers deem it advisable to accept such
orders and to make such sales. In the event of such suspension of sales and
until AMT Capital receives written notification from the Fund that AMT Capital
may resume accepting orders for and making sales of the Shares of such Series,
AMT Capital 's duty to distribute Shares of such Series shall be suspended.
5. Effectiveness of Registration
None of the Shares of any Series shall be offered by either AMT Capital
or the Fund under any of the provisions of this Agreement and no orders for the
purchase or sale of the Shares of any Series shall be accepted by the Fund if
and so long as the effectiveness of the Registration Statement then in effect or
any necessary amendments thereto shall be suspended under any of the provisions
of the 1933 Act or if and so long as a current Prospectus as required by Section
5(b)(2) of the 1933 Act is not on file with the SEC; provided, however, that
nothing contained in this paragraph 5 shall in any way restrict or have
application to or bearing upon the Fund's obligation to repurchase Shares of any
Series from any shareholder in accordance with the provisions of the Prospectus,
SAI, or Charter.
The Fund agrees to advise AMT Capital immediately in writing:
(a) of any request by the SEC for amendments to the Registration
Statement, Prospectus or SAI then in effect or for additional information;
(b) in the event of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement, Prospectus or SAI
then in effect or the initiation of any proceeding for that purpose; and
(c) of the happening of any event that makes untrue any statement of a
material fact made in the Registration Statement, Prospectus or SAI then in
effect or that requires the making of a change in such Registration Statement,
Prospectus or SAI in order to make the statement therein not misleading in any
material respect.
For the purpose of this paragraph 5, informal requests by the staff of the SEC
shall to be deemed requests by the SEC.
6. Expenses
The expenses connected with the Fund shall be allocable between the
Fund and AMT Capital as follows:
(a) AMT Capital shall furnish, at its expense and without cost to the
Fund, the services of personnel to the extent that such services are required to
carry out its obligations under this Agreement.
(b) The Fund assumes and shall pay or cause to be paid all other
expenses of the Fund, including, with limitation: the fees of the Fund's
investment adviser; the charges and expenses of any registrar, any custodian or
depository appointed by the Fund for the safekeeping of its cash, portfolio
securities and other property, and any stock transfer, dividend or accounting
agent or agents appointed by the Fund; any administrator; brokers' commissions
chargeable to the Fund in connection with portfolio securities transactions to
which the Fund is a party; any fee paid pursuant to any distribution plan, if
and when adopted by the Fund pursuant to Rule 12b-1 under the 1940 Act; all
taxes, including securities issuance and initial transfer taxes, and corporate
fees payable by the Fund to federal, state or other governmental agencies; all
costs and expenses in connection with the organization of the Fund and the
Series and the registration of the Shares with the SEC and under state
securities laws and in connection with maintenance of registration of the Fund,
Series and the Shares with the SEC and various states and other jurisdictions
(including filing fees and legal fees and disbursements of counsel); the
expenses of printing, including printing setup charges, and distributing
Prospectuses and SAIs of the Fund and supplements thereto the Fund's
shareholders; all expenses of shareholders' and Directors' meetings and of
preparing, printing and mailing of proxy statements and reports to shareholders;
fees and travel expenses of Directors who are not interested persons (as such
term is defined in the 1940 Act) of the Fund ("Non-Interested Directors") or
members of any advisory board or committee established by the Non-Interested
Directors; all expenses incident to the payment of any dividend, distribution,
withdrawal or redemption, whether in Shares or in cash; charges and expenses of
any outside service used for pricing of the Fund's Shares; charges and expenses
of legal counsel to the Fund and to the Non-Interested Directors, and of
independent accountants to the Fund, in connection with any matter relating to
the Fund; membership dues of industry associations; interest payable on Fund
borrowings; postage; insurance premiums on property or personnel (including
officers and directors) of the Fund which inure to its benefit; extraordinary
expenses of the Fund (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification related thereto); and
all other charges and costs of the Fund's operation unless otherwise explicitly
provided herein.
7. Indemnity by Fund
The Fund agrees to indemnify and hold AMT Capital , its officers and
directors and each person (if any) who controls AMT Capital within the meaning
of Section 15 of the 1933 Act harmless from and against any losses, claims,
damages or liabilities to which any of such persons may become subject, under
the 1933 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement, the Prospectus, or the SAI or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse such persons for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such action
or claim; provided, however, that the Fund shall not be liable in any case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission made in
the Registration Statement, the Prospectus or the SAI in reliance upon and in
conformity with written information furnished to the Fund by AMT Capital
expressly for use therein. AMT Capital , its officers, directors and control
persons shall be entitled to advances from the Fund for payment of the
reasonable expenses incurred by it or them in connection with the matter as to
which it or they are seeking indemnification in the manner and to the fullest
extent permissible under the Maryland General Corporation law.
AMT Capital agrees that, promptly upon its receipt of notice of the
commencement of any action against AMT Capital, its officers and/or directors or
against any person so controlling AMT Capital, in respect of which indemnity or
reimbursement may be sought from the Fund on account of its agreement in the
preceding paragraph, notice in writing will be given to the Fund within 10 days
after the summons or other first legal process shall have been service. The
failure to notify the Fund of any such action shall not relieve the Fund from
any liability which the Fund may have to the person against whom such action is
brought other than by reason of the indemnity agreement contained in this
Section 7. Thereupon, the Fund shall be entitled to participate, to the extent
that it shall wish (including the selection of counsel with AMT Capital 's
reasonable approval), in defense thereof. In the event the Fund elects to assume
the defense of any such suit and retain counsel of good standing reasonably
approved by AMT Capital , the defendant or defendants in such suit shall bear
the expense of any additional counsel retained by any of them; but in the case
the Fund does not elect to assume the defense of any such suit or in the case
AMT Capital does not reasonably approve of counsel chosen by the Fund, the Fund
will reimburse AMT Capital , its officers and directors or the controlling
person or persons named as defendant or defendants in such suit for the fees and
expenses of any one counsel or firm which may be retained on behalf of AMT
Capital , its officers and directors and such control persons.
In the event that any such claim for indemnification is made by any
director or person in control of AMT Capital who is also an officer or director
of the Fund, the Fund, at its expense to the extent permitted by law, will
submit to a court of appropriate jurisdiction the question of whether or not
indemnification by it is against public policy as expressed in the 1933 Act, the
1934 Act, and the 1940 Act, and the Fund and AMT Capital will be governed by the
final adjudication of such question.
The Fund's indemnification agreement contained in this paragraph and
the Fund's representations and warranties in this agreement shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of AMT Capital , its officers and directors or any control person
and shall survive the sale of any of the Shares made pursuant to this Agreement.
This agreement of indemnity will inure exclusively to the benefit of AMT Capital
, its officers, directors and control persons, and the extent permitted by the
1940 Act to the benefit of any of their successors and assigns. The Fund agrees
promptly to notify AMT Capital of the commencement of any litigation or
proceeding against the Fund in connection with the issue and sale of any Shares.
8. Indemnity by AMT Capital
AMT Capital agrees to indemnify and hold harmless the Fund, its
officers and directors and persons who control the Fund with the meaning of
Section 15 of the 1933 Act, against any losses, claims, damages or liabilities
to which any of such persons may become subject, under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof), arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement, the
Prospectus, or the SAI or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, the Prospectus or the SAI in reliance upon and in conformity with
written information furnished to the Fund by AMT Capital expressly for use
therein; and will reimburse the Fund for any legal or other expenses reasonably
incurred by the Fund in connection with investigating or defending any such
action or claim. AMT Capital also agrees to indemnify and hold harmless the
Fund, its officers and directors and control persons from and against any and
all losses, claims, damages and liabilities arising by reason of any person
acquiring any Shares, which may be based upon the 1933 Act or any other statute
or at common law, on account of any wrongful sales activities of AMT Capital or
any of its registered representatives, as defined under the By-Laws of the NASD,
including any failure to conform with any requirement of any state and federal
law relating to the sale of such Shares. Notwithstanding anything contained
herein to the contrary, AMT Capital shall not be responsible to the Fund for and
shall not indemnify and hold harmless the Fund, its officers and director as and
control persons from and against any such losses, claims, damages or liabilities
arising solely as a result of actions taken or omitted by AMT Capital in good
faith reliance on, and in conformity with, the Blue Sky Report.
AMT Capital shall also indemnify and hold harmless the Fund, its
officers and directors and control persons for any liability to the Fund or to
the holders of Shares by reason of AMT Capital 's willful misfeasance, bad faith
or gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligation and duties under this Agreement.
The Fund, its officers, directors and control persons shall be entitled
to advances from AMT Capital for payment of the reasonable expenses incurred by
it or them in connection with the matters as to which it or they are seeking
indemnification in the manner and to the fullest extent permissible under
Delaware Corporation law.
In case any action shall be brought against the Fund, its officers and
directors and control persons in respect of which it may seek indemnity or
reimbursement from AMT Capital on account of the agreement of AMT Capital
contained in this Section 8, AMT Capital shall have the rights and duties given
to the Fund, and the Fund, its officers and directors and control persons shall
have the rights and duties given to AMT Capital in the second and third
paragraphs of Section 7.
9. Services Not Exclusive
Nothing herein shall be deemed to limit or restrict AMT Capital 's
right or that of any of its affiliates or employees, to engage in any other
business or to devote time and attention to the distribution or other related
aspects of any other registered investment company or to render services of any
kind to any other corporation, firm, individual or association.
10. Term
This agreement shall become effective at the close of business on the
date hereof and shall continue in full force and effect, subject to paragraph 13
hereof for one year.
11. Renewal
This Agreement shall continue in full force and effect from year to
year with respect to a Series, provided that such continuance is specifically
approved at least annually;
(a) (i) by the Fund's Board of Directors or (ii) by the vote of a
majority of the outstanding voting securities (as defined) in Section 2(a)(42)
of the 1940 Act) that constitute Shares of such Series; and
(b) by the affirmative vote of a majority of the Non-Interested
Directors of the Fund by votes cast in person at a meeting specifically called
for the purpose of voting on such approval.
12. Amendment
This Agreement may be amended by the parties hereto with respect to a
Series only if such amendment is specifically approved (i) by the Board of
Directors of the Fund or by the vote of a majority of outstanding Shares, and
(ii) by a majority of the Non-Interested Directors of the Fund, which vote must
be cast in person at a meeting called for the purpose of voting on such
approval.
13. Termination
This Agreement may be terminated at any time, without the payment of
any penalty, by vote of the Fund's Board of Directors, by vote of a majority of
outstanding Shares (as defined in Section 2(a)(42) of the 1940 Act), or by AMT
Capital , on sixty (60) days' written notice to the other party. The notice
provided for herein may be waived by either party. This Agreement shall
automatically terminate in the event of its assignment, the term "assignment"
for this purpose having the meaning defined in Section 2(a)(4) of the 1940 Act.
14. Miscellaneous
(a) AMT Capital agrees on behalf of itself and its employees to treat
confidentially and as proprietary information of the Fund all records and other
information relative to the Fund and its prior, present or potential
shareholders, and not to use such record and information for any purpose other
than performance of its responsibilities and hereunder, except after prior
notification to and approval in writing by the Fund, which approval shall not be
unreasonably withheld and may not be withheld where AMT Capital may be exposed
to civil or criminal contempt proceedings for failure to comply, when requested
to divulge such information by duly constituted authorities, or when so
requested by the Fund.
(b) Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the 1940 Act shall be resolved by reference to such term or provision of the
1940 Act and to interpretations thereof, if any, by the United States courts or,
in the absence of any controlling decision of any such court, by rules,
regulations or orders of the SEC issued pursuant to the 1940 Act. In addition,
where the effect of a requirement of the 1940 Act reflected in any provision of
this Agreement is revised by rule, regulation or order of the SEC, such
provision shall be deemed to incorporate the effect of such rule, regulation or
order. Otherwise, the provisions of this Agreement shall be governed by the laws
of the State of New York.
(c) Any notice or other communication authorized or required hereunder
shall be in writing or by confirming telegram, cable, telex or facsimile sending
device. Notice shall be addressed (a) if to the Fund, 200 Park Avenue, 46th
Floor, New York, NY, Attention: Treasurer, and (b) if to AMT Capital , 600 Fifth
Avenue, 26th Floor, New York, NY, Attention: Art Goetchius. Either party may
designate a different address by notice to the other party. Any such notice or
other communication shall be deemed given when actually received.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year above
written.
FFTW FUNDS, INC.
BY:_______________________
Stephen P. Casper
Director
AMT CAPITAL SECURITIES, L.L.C.
BY:_______________________
Arthur Goetchius
President
AMENDMENT AGREEMENT
AGREEMENT, effective as of May 29, 1998, by and between FFTW Funds,
Inc., a Maryland corporation (the "Fund") and Investors Bank & Trust Company, a
Massachusetts trust company (the "Bank").
WHEREAS, the Fund and the Bank entered into a Custodian Agreement dated
January 10, 1994 (the "Custodian Agreement"); and
WHEREAS, the Fund and the Bank entered into a Transfer Agency and
Service Agreement dated November 2, 1992 (the "Transfer Agency Agreement"); and
WHEREAS, the Fund and the Bank desire to amend the Custodian Agreement
and the Transfer Agency Agreement as set forth below.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein set forth, the parties hereto agree as follows:
1. Amendment.
(a) The first sentence of Section 14.1 of the Custodian Agreement is
hereby amended to read as follows:
14.1 The initial term of this Agreement shall continue through
June 1, 2001 (the "Initial Term"), unless earlier terminated as provided herein.
(b) Section 14 of the Custodian Agreement shall be amended to include
the following section:
14.4 In the event a majority of non-interested directors of
the Fund determines that the performance of the Bank under this Agreement has
been unsatisfactory or adverse to the interests of the Fund's shareholders when
considered in light of industry standards, the Bank shall have 90 days after
receipt of written notice to such effect to correct its performance. If such
corrective action is not reasonably satisfactory to such directors, the
Agreement may be terminated on 30 days prior notice.
(c) Article 16 of the Transfer Agency Agreement is hereby amended to
read as follow:
16.01 The initial term of this Agreement shall continue
through June 1, 2001 (the "Initial Term") and from year to year thereafter,
provided that this Agreement may terminated by either party at any time without
payment of any penalty upon ninety (90) days written notice to the other.
16.02 In the event a majority of non-interested directors of
the Company determines that the performance of the Bank under this Agreement has
been unsatisfactory or adverse to the interests of the Company's shareholders
when considered in light of industry standards, the Bank shall have 90 days
after receipt of written notice to such effect to correct its performance. If
such corrective action is not reasonably satisfactory to such directors, the
Agreement may be terminated on 30 days prior notice.
16.03 Should the Company exercise its right to terminate, all
out-of-pocket expenses associated with the movement of records and material will
be borne by the Company. Nevertheless, the Bank will consult with the Company
regarding the movements of records and material. Additionally, the Bank reserves
the right to charge for any other reasonable expenses associated with such
termination.
16.04 Should the Company give a termination notice, it shall
be accompanied by a resolution of the Board of Directors, certified by the
Secretary, electing to terminate this Agreement and designating a successor
transfer agent.
2. Miscellaneous.
(a) Except as amended hereby, the Custodian Agreement and Transfer
Agency Agreement shall remain in full force and effect.
(b) This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
executed by its duly authorized officer, as the case may be, as of the date and
year first above written.
INVESTORS BANK & TRUST COMPANY
By: ________________________________
Robert D. Mancuso, Managing Director
FFTW FUNDS, INC.
By: ________________________________
Name: _____________________________
Title: ______________________________
AMENDMENT AGREEMENT
AGREEMENT, effective as of May 29, 1998, by and between FFTW Funds,
Inc., a Maryland corporation (the "Fund") and INVESTORS CAPITAL SERVICES, INC.,
a Delaware corporation ("Investors Capital") (formerly known as AMT CAPITAL
SERVICES, INC., ("AMT Capital")).
WHEREAS, the Fund and AMT Capital entered into an Administration
Agreement dated February 1, 1995 (the "Administration Agreement"); and
WHEREAS, the Fund and Investors Capital desire to amend the
Administration Agreement as set forth below.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein set forth, the parties hereto agree as follows:
1. Amendment.
(a) The first sentence of the Administration Agreement is hereby
amended to read as follows:
AGREEMENT dated as of February 1, 1995 by and between FFTW
Funds, a Maryland corporation (the "Fund"), and INVESTORS CAPITAL SERVICES, a
Delaware corporation ("Investors Capital").
(b) Section 11 of the Administration Agreement is hereby amended to
read in its entirety as follows:
11. The initial term of this Agreement shall continue through
June 1, 2001 (the "Initial Term"), unless earlier terminated as provided herein.
After the expiration of the Initial Term, the term of this Agreement shall
automatically renew for successive one-year terms (each a "Renewal Term") unless
notice of non-renewal is delivered by the non-renewing party to the other party
no later than 120 days prior to the expiration of the Initial Term or any
Renewal Term, as the case may be.
(a) Either party hereto may terminate this Agreement prior to
the expiration of the Initial Term in the event the other party violates any
material provision of this Agreement, provided that the non-violating party
gives written notice of such violation to the violating party and the violating
party does not cure such violation within 30 days of receipt of such notice.
(b) Either party may terminate this Agreement during any
Renewal Term upon 120 days written notice to the other party. Any termination
pursuant to this paragraph 11 shall be effective upon expiration of such 120
days, provided, however, that the effective date of such termination may be
postponed to a date not more than 150 days after delivery of the written notice:
(i) at the request of Investors Capital, in order to prepare for the transfer by
Investors Capital of all records and other necessary materials; or (ii) at the
request of the Fund, in order to give the Fund an opportunity to make suitable
arrangements for a successor service company.
(c) In the event a majority of non-interested directors of the
Fund determines that the performance of Investors Capital under this Agreement
has been unsatisfactory or adverse to the interests of the Fund's shareholders
when considered in light of industry standards, Investors Capital shall have 90
days after the receipt of written notice to such effect to correct is
performance. If such corrective action is not reasonably satisfactory to such
directors, this Agreement may be terminated on 30 days prior notice.
(d) In the event notice of termination is given to Investors
Capital by the Fund under this paragraph, such notice shall be accompanied by a
resolution of the Board of Trustees, certified by the Secretary, electing to
terminate this Agreement and designating a successor service company.
(c) All occurrences and uses of the term "AMT Capital" in the
Administration Agreement shall be changed to the term "Investors Capital."
2. Fiduciary Duty. The parties acknowledge that the fiduciary responsibilities
of Investors Capital as administrator to the Fund shall be in no way altered or
affected by any affiliate relationship between Investors Capital and any other
service provider to the Fund.
3. Miscellaneous.
(a) Except as amended hereby, the Administration Agreement shall remain
in full force and effect.
(b) This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
executed by its duly authorized officer, as the case may be, as of the date and
year first above written.
INVESTORS CAPITAL SERVICES, INC.
By: ________________________________
FFTW FUNDS, INC.
By: ________________________________
Name: _____________________________
Title: ______________________________
