As filed with the Securities and Exchange Commission on
________, 1996.
File Nos. 33-______,811-_____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No.
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. ___
HARDING, LOEVNER FUNDS, INC.
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(Exact name of registrant as specified in charter)
600 FIFTH AVENUE, 26th FLOOR
NEW YORK, NEW YORK 10020
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(Address of principal executive offices)
Registrant's telephone number: 800-762-4848
WILLIAM E. VASTARDIS, Senior Vice President
AMT Capital Services, Inc.
600 Fifth Avenue, 26th Floor
New York, New York 10020
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(Name and address of agent for service)
With a copy to:
ALLAN S. MOSTOFF, Esq.
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005
Approximate Date of Proposed Public Offering: As soon as practicable after
this Registration Statement becomes effective.
It is proposed that this filing will become effective:
immediately upon filing pursuant to Rule 485(b)
on ___ pursuant to Rule 485(b)
60 days after filing pursuant to Rule 485(a)
75 days after filing pursuant to Rule 485(a)
on _____ pursuant to Rule 485(a)
The registrant hereby amends this Registration Statement under the Securities
Act of 1933 on such date or dates as may be necessary to delay its effective
date until the registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become effective in
accordance with the provision of Section 8(a) of the Securities Act of 1933 or
until the Registration Statement shall become effective on such date as the
Commission, acting pursuant to Section 8(a), may determine.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the
Registrant hereby elects to register an indefinite number of shares of Capital
Stock, $.001 par value per share, of all series of the Registrant, now
existing or hereafter created. The amount of the registration fee required by
Rule 24f-2 is $500.
HARDING, LOEVNER FUNDS, INC.
Registration Statement on Form N-1A
CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
Under the Securities Act of 1933
Form N-1A Item No. Location
Part A. Prospectus Caption
Item 1. Cover Page Cover Page
Item 2. Synopsis The Fund's Expenses
Item 3. Condensed Financial
Information Not Applicable
Item 4. General Description
of Registrant Description of the Fund;
Investment Policies; Investment
Restrictions; Risks Associated
with the Fund's Investment
Policies and Investment Techniques
Item 5. Management of the Fund Management of the Fund
Item 5A.Management's Discussion Not Applicable
of Fund Performance
Item 6. Capital Stock and Other Shareholder Information; Tax
Considerations; Dividends
Item 7. Purchase of Securities Purchase and Redemption of
Offered Shares; Offered Dividends;
Determination of Net Asset Value;
Distribution of Fund Shares
Item 8. Redemption or Repurchase Purchase and Redemption of Shares
Item 9. Pending Legal Proceedings Not Applicable
N-1A Item No. Statement of Additional
Information Caption
Part B
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History Organization of the Fund
Item 13. Investment Objectives and Policies Supplemental Descriptions of
Investments; Supplemental
Investment Techniques;
Supplemental Discussion of Risks
Associated With the Fund's
Investment Policies and
Investment Techniques; Investment
Restrictions
Item 14. Management of the Fund Management of the Fund
Item 15. Control Persons and Principal Not Applicable
Holders of Securities
Item 16. Investment Advisory and Other
Services Management of the Fund
Item 17. Brokerage Allocation Portfolio Transactions
Item 18. Capital Stock and Other Securities Shareholder Information; Tax
Considerations;
Organization of the Fund
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered Net Asset Value
Item 20. Tax Status Tax Considerations
Item 21. Underwriters Distribution of Fund Shares
Item 22. Calculation of Performance Data Calculation of Performance Data
Item 23. Financial Statements Not Applicable
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement
HARDING, LOEVNER FUNDS, INC.
Prospectus - _______, 1996
Harding, Loevner Funds, Inc. (the "Fund") is a no-load, open-end management
investment company (a "mutual fund") that currently has four separate
diversified portfolios (each a "Portfolio"), each of which has distinct
investment objectives and policies. There is no sales charge for purchase of
shares. Shares of each Portfolio may be purchased through AMT Capital Services,
Inc. ("AMT Capital"), the Fund's exclusive distributor. The minimum initial
investment in any Portfolio is $100,000. Additional investments or redemptions
may be of any amount. The Portfolios and their investment objectives are:
International Equity Portfolio - to seek long-term capital
appreciation through investments in equity securities of companies
based outside the United States.
Global Equity Portfolio - to seek long-term capital appreciation through
investments in equity securities of companies based both in and
outside the United States.
Emerging Markets Portfolio - to seek long-term capital appreciation
through investments in equity securities of companies based in
developing markets outside the United States.
Multi-Asset Global Portfolio - to seek long-term capital appreciation
and a growing stream of current income through investments in equity
and debt securities of companies based both inside and outside the
United States.
No assurance can be given that a Portfolio's investment objectives will be
attained
This Prospectus sets forth concisely the information that a prospective
investor should know before investing. It should be read and retained for
future reference. A Statement of Additional Information dated ________, 1996,
containing additional information about the Fund (the "Statement of Additional
Information"), has been filed with the Securities and Exchange Commission (the
"Commission") and is incorporated by reference into this Prospectus. It is
available without charge and can be obtained by calling or writing AMT Capital
at the telephone numbers or address listed on the cover of this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
Prospectus Highlights.............................................
Fund Expenses.....................................................
The Fund..........................................................
Investment Policies...............................................
Descriptions of Investments.......................................
Risks Associated with the Fund's
Investment Policies and Investment Techniques....................
Investment Restrictions...........................................
Brokerage Practices...............................................
Yields and Total Return...........................................
Distribution of Fund Shares.......................................
Determination of Net Asset Value..................................
Purchase and Redemption of Shares.................................
Dividends.........................................................
Management of the Fund............................................
Tax Considerations................................................
Shareholder Information...........................................
Other Parties.....................................................
Shareholder Inquiries.............................................
PROSPECTUS HIGHLIGHTS
Harding, Loevner Funds, Inc. is a no-load, open-end management investment
company that currently has four separate diversified Portfolios, each of which
has distinct investment objectives and policies. There is no assurance that a
Portfolio will achieve its investment objective. See "Investment Objectives"
below.
Investment Objectives
Name of Portfolio Investment Objective
- - - -----------------------------------------------------------------------------
International Equity Portfolio To seek long-term capital appreciation through
investments in equity securities of companies
based outside the United States.
Global Equity Portfolio To seek long-term capital appreciation
through investments in equity securities of
companies based both in and outside the
United States.
Emerging Markets Portfolio To seek long-term capital appreciation through
investments in equity securities of companies
based in developing markets outside the
United States.
Multi-Asset Global Portfolio To seek long-term capital appreciation and
a growing stream of current income through
investments in equity and debt securities
of companies based both inside and outside
the United States.
Investment Adviser
Harding, Loevner Management, L.P. ("HLM"), which manages approximately $1
billion in assets for private investors and institutions, serves as investment
adviser to the Fund. HLM provides the Fund with business and asset management
services, including investment research and advice and determining which
portfolio securities shall be purchased or sold on behalf of the Fund.
Administrator and Distributor
AMT Capital serves as Administrator to the Fund, supervising the general day-
to-day business activities and operations of the Fund other than investment
advisory activities. AMT Capital also serves as the exclusive distributor of
shares of the Fund's Portfolios. For more information, refer to "Management of
the Fund."
How to Invest
Shares of each Portfolio may be purchased without any sales charges at their
net asset value next determined after receipt of the order by submitting an
Account Application to AMT Capital and wiring federal funds to AMT Capital's
"Fund Purchase Account" at Investors Bank & Trust Company (the "Transfer
Agent"). The Portfolios are not available for sale in all states. For
information about the Fund's availability, contact an account representative at
AMT Capital.
The minimum initial investment per Portfolio is $100,000. There is no minimum
amount for subsequent investments. There are no sales commissions (loads) or
12b-1 fees. For more information, refer to "Purchase and Redemption of
Shares."
How to Redeem Shares
Shares of each Portfolio may be redeemed, without charge, at their next
determined net asset value after receipt by either the Transfer Agent or AMT
Capital of the redemption request. For more information, refer to "Purchase
and Redemption of Shares."
Risks
Prospective investors should consider certain risks associated with an
investment in any Portfolio. There is no assurance that a Portfolio will
achieve its investment objective. The Fund invests in securities of companies
based outside of the United States. Investments in foreign securities involve
risks not associated with investments in securities issued by United States
entities. For more information, refer to "Investment Policies", "Descriptions
of Investments", and "Risks Associated with the Fund's Investment Policies and
Investment Techniques".
FUND EXPENSES
The following table illustrates the expenses and fees that a shareholder of the
Fund can expect to incur. The purpose of this table is to assist the investor
in understanding the various expenses that an investor in the Fund will bear
directly or indirectly.
Shareholder Transaction Expenses
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Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
Annual Fund Operating Expenses (after expense reimbursements, shown as a
percentage of average net assets)
Other Expenses
-------------------------------------------
Total
Other Other
Expenses Expenses Total
(after (after Operating
Adminis- expense expense Expenses
Advisory 12b-1 tration reimbur- reimbur-
Fees Fees Fees sment) sment)
________ _____ ________ _________ ________ _________
International
Equity
Portfolio 0.75% None 0.15% 0.10% (a) 0.25%(a) 1.00% (a)
Global Equity
Portfolio 1.00% None 0.15% 0.10% (a) 0.25% (a) 1.25% (a)
Emerging
Markets
Portfolio 1.25% None 0.15% 0.35% (a) 0.50% (a) 1.75% (a)
Multi-Asset
Global
Portfolio 1.00% None 0.15% 0.10% (a) 0.25% (a) 1.25% (a)
(a) HLM has voluntarily agreed to cap the total operating expenses at 1.00%,
1.25%, 1.75% and 1.25% (on an annualized basis) of the average daily net
assets of the International Equity Portfolio, Global Equity Portfolio,
Emerging Markets Portfolio and Multi-Asset Global Portfolio, respectively.
Without such cap, the total operating expenses (on an annualized basis) for
International Equity Portfolio, Global Equity Portfolio, Emerging Market
Portfolio and Multi-Asset Global Portfolio are estimated to be 1.10%, 1.50%,
2.00% and ____%, respectively, (of their average daily net assets. which
0.20%, 0.35%, 0.60% and ____% is "other expenses")..
The following table illustrates the expenses that an investor would pay on each
$1,000 increment of its investment over various time periods, assuming a 5%
annual return. As noted in the table above, the Fund charges no redemption
fees of any kind.
Expenses Per $1,000 Investment (including expense waivers and reimbursements)
1 Year 3 Years
------ -------
International Equity Portfolio $10 $32
Global Equity Portfolio $13 $40
Emerging Markets Portfolio $18 $57
Multi-Asset Global Portfolio $13 $40
These examples should not be considered a representation of future expenses or
performance. Actual operating expenses and annual returns may be greater or
less than those shown.
At the discretion of and until further notice from HLM, expenses of the
International Equity, Global Equity, Emerging Markets and Multi-Asset Global
Portfolios will not exceed 1.00%, 1.25%, 1.75% and 1.25%, respectively, of each
such Portfolio's average daily net assets for any fiscal year. Certain
portions of the transaction expenses (i.e., brokerage commissions) are not
included in the expenses subject to the cap described above. See "Investment
Policies - Portfolio Turnover".
THE FUND
Harding, Loevner Funds, Inc. is a no-load, open-end management investment
company that currently has four separate diversified portfolios, each of which
has distinct investment objectives and policies. There is no assurance that a
Portfolio will achieve its investment objective.
The investment objective and policies of each Portfolio are described below.
Except as otherwise indicated, the investment policies may be changed at any
time by the Fund's Board of Directors to the extent that such changes are
consistent with the investment objective of the applicable Portfolio. However,
each Portfolio's investment objective is fundamental and may not be changed
without a majority vote of the Portfolio's outstanding shares, which is defined
as the lesser of (a) 67% of the shares of the applicable Portfolio present or
represented if the holders of more than 50% of the shares are present or
represented at the shareholders' meeting, or (b) more than 50% of the shares of
the applicable Portfolio (hereinafter, "majority vote"). The investment
objective of each of the Portfolios is:
Name of Portfolio Investment Objective
- - - ------------------------------------------------------------------------------
International Equity Portfolio To seek long-term capital appreciation
through investments in equity securities
of companies based outside the United
States.
Global Equity Portfolio To seek long-term capital appreciation
through investments in equity securities
of companies based both in and outside
the United States.
Emerging Markets Portfolio To seek long-term capital appreciation
through investments in equity securities
of companies based in developing markets
outside the United States.
Multi-Asset Global Portfolio To seek long-term capital appreciation and
a growing stream of current income through
investments in equity and debt securities
of companies based both inside and outside
the United States.
INVESTMENT POLICIES
International Equity Portfolio
The International Equity Portfolio invests at least 65% of its total assets in
common stocks, securities convertible into such common stocks [including
American Depository Receipts ("ADRs") and European Depository Receipts
("EDRs")], closed-end investment companies, and rights and warrants issued by
companies that are based outside the United States. The Portfolio may invest
in forward foreign currency exchange contracts, equity derivative securities
such as options on common stocks and options, futures and options on futures on
foreign common stock indices. The Portfolio may also invest in securities of
U.S. companies which derive, or are expected to derive, a significant portion
of their revenues from their foreign operations, although under normal
circumstances not more than 15% of the Portfolio's assets will be invested in
securities of U.S. companies. The Portfolio may also invest up to 35% of its
assets in the types of short-term securities and in other debt securities
described under the caption "Descriptions of Investments" below.
The Portfolio may invest up to 20% of its assets in convertible securities and
debt securities which are rated below investment-grade, that is, rated below
Baa by Moody's Investors Service, Inc. ("Moody's") or below BBB by Standard &
Poors ("Standard & Poors", or "S&P") ["junk bonds"] and in unrated securities
judged to be of equivalent quality as determined by HLM.
The Portfolio will invest broadly in the available universe of common stocks of
companies domiciled in one country in each of at least three of the following
groups: (1) Europe, including Austria, Belgium, Denmark, Finland, France,
Germany, Ireland, Italy, Luxembourg, the Netherlands, Norway, Spain, Sweden,
Switzerland, and the United Kingdom; (2) the Pacific Rim, including Australia,
Hong Kong, Japan, Malaysia, New Zealand, and Singapore; (3) Canada; and (4)
countries with "emerging markets" as defined by Morgan Stanley Capital
International ("MSCI"). At least 65% of these securities will be denominated
in one of at least three currencies other than the U.S. dollar.
HLM's international equity investment approach is "bottom up". The approach
seeks to identify companies with excellent long-term business prospects, and
then to select from among them those whose stocks appear to offer attractive
absolute returns. HLM's investment criteria include both growth and value
considerations. HLM seeks companies that it believes have strong balance
sheets, sustainable internal growth, superior financial returns and defensible
business franchises. Typically, HLM will only invest in companies that it has
analyzed for a number of years. Country allocation and sector weightings
reflect the results of stock selection, which itself is strongly influenced by
HLM's cyclical and secular outlook for various industries, sectors, and
national economies. Explicit country or sector allocation decisions are taken
only when necessary to ensure that portfolios are well-diversified. HLM hedges
foreign currency exposure infrequently, on those occasions when it has a strong
view on the prospects for a particular currency. Currency hedging is done
through the use of forward contracts or options.
Portfolio Turnover. Portfolio turnover will depend on factors such as
volatility in the markets that the Portfolio invests in, or the variability of
cash flows into and out of the Portfolio. Portfolio turnover is expected to be
low, generally below 50%, due to the emphasis on stock selection.
Global Equity Portfolio
The Global Equity Portfolio invests at least 65% of its total assets in common
stocks, securities convertible into such common stocks (including ADRs and
EDRs), closed-end investment companies, and rights and warrants issued by
companies that are based both in and outside the United States. The Portfolio
may invest in forward foreign currency exchange contracts, equity derivative
securities such as options on common stocks and options, futures and options on
futures on foreign common stock indices. The Portfolio may also invest up to
35% of its assets in the types of short-term securities and in other debt
securities described under the caption "Descriptions of Investments" below.
The Portfolio may invest up to 20% of its assets in convertible securities and
debt securities which are rated below investment-grade.
The Portfolio will invest broadly in the available universe of common stocks of
companies domiciled in one of at least three countries including the United
States and countries listed above in International Equity Portfolio's
investment policies.
HLM's "bottom up" approach is also utilized for this Portfolio. HLM hedges
foreign currency exposure infrequently, on those occasions when it has a strong
view on the prospects for a particular currency. Currency hedging is done
through the use of forward contracts or options.
Portfolio Turnover. Portfolio turnover will depend on factors such as
volatility in the markets that the Portfolio invests in, or the variability of
cash flows into and out of the Portfolio. Portfolio turnover is expected to be
low, generally below 50%, due to the emphasis on stock selection.
Emerging Markets Portfolio
The Emerging Markets Portfolio invests at least 65% of its total assets in
common stocks, securities convertible into such common stocks (including ADRs
and EDRs), closed-end investment companies, and rights and warrants issued by
companies that are based in developing markets outside the United States. The
Portfolio may invest in forward foreign currency exchange contracts, equity
derivative securities such as options on common stocks and options, futures and
options on futures on foreign common stock indices. The Portfolio may also
invest in securities of U.S. companies which derive, or are expected to derive,
a significant portion of their revenues from their foreign operations, although
under normal circumstances not more than 15% of the Portfolio's assets will be
invested in securities of U.S. companies. The Portfolio may also invest up to
35% of its assets in the types of short-term securities and in other debt
securities described under the caption "Descriptions of Investments" below.
The Portfolio may invest up to 20% of its assets in convertible securities and
debt securities which are rated below investment-grade.
The Portfolio will invest broadly in the available universe of common stocks of
companies domiciled in one of at least three countries listed below under the
caption "Description of Investments - Emerging Markets Securities".
HLM's "bottom up" approach is also utilized for this Portfolio. HLM hedges
foreign currency exposure infrequently, on those occasions when it has a strong
view on the prospects for a particular currency. Currency hedging is done
through the use of forward contracts or options.
Portfolio Turnover. Portfolio turnover will depend on factors such as
volatility in the markets that the Portfolio invests in, or the variability of
cash flows into and out of the Portfolio. Portfolio turnover is expected to be
below 100% due to the emphasis on stock selection.
Multi-Asset Global Portfolio
The Multi-Asset Global Portfolio invests assets in common stocks, securities
convertible into such common stocks (including ADRs and EDRs), closed-end
investment companies, debt securities and rights and warrants issued by
companies that are based both in and outside the United States. The Portfolio
may invest in forward foreign currency exchange contracts, equity and debt
derivative securities such as options, futures and options on futures. The
Portfolio may also invest its assets in the types of short-term securities
described under the caption "Descriptions of Investments" below.
The Portfolio will invest broadly in the available universe of equity and debt
securities of companies domiciled in at least three countries including the
United States. HLM's "bottom up" approach is utilized for the selection of
equity and fixed income investments for this Portfolio. While the Portfolio
will generally emphasize equity investments, the allocation of the Portfolio
among equity, fixed income and cash equivalent investments may range widely,
and will vary over time according to HLM's current assessment of the relative
risk and potential return of alternative investments.
From time to time, HLM may hedge a portion of the foreign currency exposure of
the Portfolio. Currency hedging is done through the use of forward contracts
or options.
Portfolio Turnover. Portfolio turnover will depend on factors such as
volatility in the markets that the Portfolio invests in, or the variability of
cash flows into and out of the Portfolio. Portfolio turnover is expected to be
low, generally below 50%, due to the emphasis on security selection.
DESCRIPTION OF INVESTMENTS
The following briefly describes some of the different types of securities in
which each Portfolio, unless otherwise specified, may invest and investment
techniques in which each Portfolio may engage, subject to each Portfolio's
investment objective and policies. For a more extensive description of certain
of these assets and the risks associated with them, see the Statement of
Additional Information.
Equity Securities. The Portfolios will invest in various types of equity
securities, including common stocks, preferred stocks, convertible securities,
ADRs, EDRs, rights and warrants. The stocks that the Portfolios will invest in
may be either growth-oriented or value-oriented. Growth-oriented stocks are the
stocks of companies that are believed to have internal strengths, such as good
financial resources, a satisfactory rate of return on capital, a favorable
industry position, and superior management. Value-oriented stocks have lower
price multiples (either price/earnings or price/book) than other stocks in
their industry and can sometimes also display weaker fundamentals such as
growth of earnings and dividends. Rights and warrants are instruments which
give the holder the right to purchase the issuer's securities at a stated price
during a stated term.
Foreign Securities. The Portfolios will invest in foreign securities. Foreign
securities include equity, foreign-fixed income, or derivative securities
denominated in currencies other than the U.S. dollar, including any single
currency or multi-currency units, plus sponsored and unsponsored ADRs and EDRs.
ADRs typically are issued by a U.S. bank or trust company and evidence
ownership of underlying securities issued by a foreign corporation. EDRs,
which are sometimes referred to as Continental Depositary Receipts, are
receipts issued in Europe, typically by foreign banks and trust companies, that
evidence ownership of either foreign or domestic underlying securities.
Unsponsored ADRs and EDRs differ from sponsored ADRs and EDRs in that the
establishment of unsponsored ADRs and EDRs is not approved by the issuer of the
underlying securities. Risks associated with investing in foreign securities
are described under the caption "Risks Associated with the Fund's Investment
Policies and Investment Techniques -Foreign Investments" below.
Emerging Markets Securities. For purposes of its investment policies, the Fund
defines an emerging market as any country, the economy and market of which is
generally considered to be emerging or developing by MSCI or, in the absence of
an MSCI classification, by the World Bank. Under this definition, the Fund
considers emerging markets to include all markets except Australia, Austria,
Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy,
Japan, the Netherlands, New Zealand, Norway, Singapore, Spain, Sweden,
Switzerland, the United Kingdom, and the United States.
Emerging Markets Debt Instruments. The Emerging Markets Portfolio and the
Multi-Asset Global Portfolio may invest in zero coupon securities and
convertible debt or other debt securities acquired at a discount. A portion of
the Portfolio's sovereign debt securities may be acquired at a discount. The
Portfolio will only purchase such securities to the extent consistent with the
Portfolio's investment objectives.
Foreign Governments and International and Supranational Agency Securities. The
Portfolios may purchase, for temporary purposes, debt obligations issued or
guaranteed by foreign governments or their subdivisions, agencies and
instrumentalities, and debt obligations issued or guaranteed by international
agencies and supranational entities.
Convertible Securities. The Portfolios may invest in convertible preferred
and debt securities which are securities that may be converted into or
exchanged for, at either a stated price or stated rate, underlying shares of
common stock. Convertible securities have general characteristics similar to
both fixed-income and equity securities. Although to a lesser extent than
with fixed-income securities generally, the market value of convertible
fixed income securities tends to decline as interest rates increase and,
conversely, tends to increase as interest rates decline. In addition,
because of the conversion feature, the market value of convertible
securities tends to vary with fluctuations in the market value of the
underlying common stocks and therefore also will react to variations in the
general market for equity securities. A unique feature of convertible
securities is that as the market price of the underlying common stock
declines, convertible securities tend to trade increasingly on a yield
basis, and so may not experience market value declines to the same extent as
the underlying common stock. When the market price of the underlying common
stock increases, the prices of the convertible securities tend to rise as a
reflection of the value of the underlying common stock. While no securities
investments are without risk, investments in convertible securities
generally entail less risk than investments in common stock of the same
issuer.
Foreign Currency Transactions. The Portfolios hedge foreign currency exposure
infrequently, on those occasions when HLM has a strong view on the prospects
for a particular currency. Each Portfolio will conduct its currency
transactions either on a spot (cash) basis at the rate prevailing in the
currency exchange market, or through entering into forward contracts to
purchase or sell currency. A forward currency contract involves an obligation
to purchase or sell a specific currency at a future date, which may be any
fixed number of days from the date of the contract agreed upon by the parties,
at a price set at the time of the contract. The use of forward currency
contracts does not eliminate fluctuations in the underlying prices of the
securities, but it does establish a rate of exchange that can be achieved in
the future. In addition, although forward currency contracts limit the risk of
loss due to a decline in the value of the hedged currency, at the same time,
they also limit any potential gain that might result should the value of the
currency increase. Each Portfolio will segregate cash, U.S. Government
securities or other high-grade liquid debt obligations with the custodian in an
amount at all times equal to or exceeding their commitment with respect to
contracts that are not part of a designated hedge.
Warrants. The Portfolios may invest up to 10% of the value of their net
assets (valued at the lower of cost or market) in warrants for equity
securities, which are securities permitting, but not obligating, their
holder to subscribe for other equity securities. Warrants do not carry with
them the right to dividends or voting rights with respect to the securities
that they entitle their holder to purchase, and they do not represent any
rights in the assets of the issuer. As a result, an investment in warrants
may be considered more speculative than certain other types of investments.
In addition, the value of a warrant does not necessarily change with the
value of the underlying securities and a warrant ceases to have value if it
is not exercised prior to its expiration date.
U.S. Treasury and other U.S. Government and Government Agency Securities. Each
Portfolio may purchase securities 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 ("U.S. Government
Securities"). Each Portfolio may also purchase securities issued by a U.S.
Government-sponsored enterprise or federal agency that is supported either by
its ability to borrow from the U.S. Treasury (e.g., Student Loan Marketing
Association) or by its own credit standing (e.g., Federal National Mortgage
Association). Such securities do not constitute direct obligations of the
United States but are issued, in general, under the authority of an Act of
Congress.
Bank Obligations. Each Portfolio may invest in obligations of domestic and
foreign banks, including time deposits, certificates of deposit, bankers'
acceptances, letters of credit, bank notes, deposit notes, Eurodollar or
Yankeedollar time deposits, Eurodollar or Yankeedollar certificates of deposit,
variable rate notes, loan participations, variable amount master demand notes
and custodial receipts. Domestic bank obligations are defined as instruments:
issued by U.S. (domestic) banks; U.S. branches of foreign banks, if such
branches are subject to the same regulation as U.S. banks; and foreign branches
of U.S. banks, if HLM determines that the investment risk associated with
investing in instruments issued by such branches is the same as that of
investing in instruments issued by the U.S. parent bank, in that the U.S.
parent bank would be unconditionally liable in the event that the foreign
branch failed to pay on its instruments. Other than the allowable 20% of a
Portfolio's assets invested in below-investment grade convertible and other
debt securities, all investments in bank obligations will be rated at least "B"
by Thomson Bankwatch or similarly rated by IBCA Ltd., or of comparable quality
as determined by HLM.
Corporate Debt Instruments. Each Portfolio may purchase commercial paper,
short-term notes and other obligations of U.S. and foreign corporate issuers
meeting the Portfolio's credit quality standards (including variable rate
notes). Other than the allowable 20% of a Portfolio's assets invested in
below-investment grade convertible and other debt securities, all investments
in corporate debt instruments will be rated at least "BBB" or "A-1" (in the
case of commercial paper) by S&P, "Baa" or "P-1" (in the case of commercial
paper) by Moody's, or of comparable quality as determined by HLM.
Repurchase Agreements. Each Portfolio may enter into repurchase agreements
under which a bank or securities firm (that is a dealer in U.S. Government
Securities reporting to the Federal Reserve Bank of New York) agrees, upon
entering into the contract, to sell U.S. Government Securities to a Portfolio
and repurchase such securities from the Portfolio at a mutually agreed-upon
price and date. Repurchase agreements will generally be restricted to those
that mature within seven days. Securities subject to repurchase agreements
will be held by the Company's custodian, sub-custodian or in the Federal
Reserve/Treasury book-entry system. Repurchase agreements are considered to be
loans by the Portfolio under the Investment Company Act of 1940, as amended,
(the "1940 Act"). The Portfolios will engage in such transactions with parties
selected on the basis of such party's creditworthiness and will enter into
repurchase agreements only with financial institutions which are deemed by HLM
to be in good financial standing and which have been approved by the Board of
Directors.
Reverse Repurchase Agreements. Each Portfolio may enter into reverse
repurchase agreements under which a primary or reporting dealer in U.S.
Government Securities purchases U.S. Government Securities from a Portfolio and
the Portfolio agrees to repurchase the securities at an agreed-upon price and
date.
Commission rules require either that securities sold by a Portfolio under a
reverse repurchase agreement be segregated pending repurchase or that the
proceeds be segregated on that Portfolio's books and records pending
repurchase. The Fund will maintain for each Portfolio a segregated custodial
account containing cash, U.S. Government Securities or other appropriate high-
grade debt securities having an aggregate value at least equal to the amount of
such commitments to repurchase, including accrued interest, and will
subsequently monitor the account to ensure such equivalent value is maintained
until payment is made. Reverse repurchase agreements will generally be
restricted to those that mature within seven days. The Portfolios will engage
in such transactions with parties selected on the basis of such party's
creditworthiness.
When-Issued Securities. The Portfolios may purchase securities on a firm
commitment basis, including when-issued securities. Securities purchased on a
firm commitment basis are purchased for delivery beyond the normal settlement
date at a stated price and yield. Such securities are recorded as an asset and
are subject to changes in value based upon changes in the general level of
interest rates. The Portfolios will only make commitments to purchase
securities on a firm commitment basis with the intention of actually acquiring
the securities but may sell them before the settlement date if it is deemed
advisable.
When a Portfolio purchases securities on a when-issued or forward commitment
basis, the Portfolio's custodian will maintain in a segregated account cash and
liquid high-grade debt securities having a value (determined daily) at least
equal to the amount of the Portfolio's purchase commitments. In the case of a
forward commitment to sell portfolio securities, the custodian will hold the
portfolio securities themselves in a segregated account while the commitment is
outstanding. These procedures are designed to ensure that the Portfolio will
maintain sufficient assets at all times to cover its obligations under when-
issued purchases and forward commitments.
Derivatives. The Portfolios are authorized to use various hedging and
investment strategies described below to hedge broad or specific market
movements, or to seek to increase the Portfolios' income or gains. The
Portfolios may purchase and sell (or write) exchange-listed and
over-the-counter put and call options on securities, financial futures
contracts, equity indices and other financial instruments and enter into
financial futures contracts (collectively, these transactions are referred
to in this Prospectus as "Derivatives").
Derivatives may be used to attempt to protect against possible changes in
the market value of securities held or to be purchased by a Portfolio
resulting from securities market to protect the Portfolio's unrealized gains
in the value of its securities, to facilitate the sale of those securities
for investment purposes, to establish a position in the derivatives markets
as a temporary substitute for purchasing or selling particular securities or
to seek to enhance the Portfolio's income or gain. The Portfolios may use
any or all types of Derivatives at any time; no particular strategy will
dictate the use of one type of transaction rather than another, as use of
any Derivatives will be a function of numerous variables, including market
conditions. The ability of a Portfolio to utilize Derivatives successfully
will depend on, in addition to the factors described above, HLM's ability to
predict pertinent market movements, which cannot be assured. These skills
are different from those needed to select the Portfolio's securities. The
Portfolios are not "commodity pools" (i.e., pooled investment vehicles which
trade in commodity futures contracts and options thereon and the operator of
which is registered with the Commodity Futures Trading Commission (the
"CFTC")) and Derivatives involving futures contracts and options on futures
contracts will be purchased, sold or entered into only for bona fide hedging
purposes, provided that a Portfolio may enter into such transactions for
purposes other than bona fide hedging if, immediately thereafter, the sum of
the amount of its initial margin and premiums on open contracts and options
would not exceed 5% of the liquidation value of the Portfolio's portfolio,
provided, further, that, in the case of an option that is in-the-money, the
in-the-money amount may be excluded in calculating the 5% limitation. The
use of certain Derivatives will require that the Portfolio segregate cash,
liquid high grade debt obligations or other assets to the extent the
Portfolio's obligations are not otherwise "covered" through ownership of the
underlying security or financial instrument.
Futures Contracts. The Portfolios may use stock index futures contracts
("futures contracts") as a hedge against the effects of changes in the market
value of the stocks comprising the relevant index. In managing its cash flows,
a Portfolio may also use futures contracts as a substitute for holding the
designated securities underlying the futures contract. A futures contract is
an agreement to purchase or sell a specified amount of designated securities
for a set price at a specified future time. At the time the Portfolio enters
into a futures transaction, it is required to make a performance deposit
("initial margin") of cash or liquid securities in a segregated account in the
name of the futures broker. Subsequent payments of "variation margin" are then
made on a daily basis, depending on the value of the futures position which is
continually marked to market. The Portfolios will segregate cash, U.S.
Government securities or other high grade debt obligations in an amount
sufficient to meet its obligations under these transactions.
If the Portfolio enters into a short position in a futures contract as a hedge
against anticipated adverse market movements and the market then rises, the
increase in the value of the hedged securities will be offset in whole or in
part, by a loss on the futures contract. If instead the Portfolio purchases a
futures contract as a substitute for investing in the designated underlying
securities, the Portfolio will experience gains or losses that correspond
generally to gains or losses in the underlying securities. The latter type of
futures contract transactions permits the Portfolio to experience the results
of being fully invested in a particular asset class, while maintaining the
liquidity needed to manage cash flows into or out of the Portfolio (e.g.,
purchases and redemptions of Portfolio shares). Under normal market
conditions, futures contracts positions may be closed out on a daily basis.
Stock Index Options. The Portfolios may purchase or sell options on
stock indices on U.S. and foreign exchanges or in the over-the-counter markets.
An option on a stock index permits the purchaser of the option, in return for
the premium paid, the right to receive from the seller cash equal to the
difference between the closing price of the index and the exercise price of the
option. The Portfolios will segregate cash, U.S. Government securities or other
high grade debt obligations in an amount sufficient to meet its obligations
under these transactions.
Options on Futures Contracts. The Portfolios may purchase or sell
options on futures contracts as an alternative to buying or selling futures
contracts. Options on futures contracts are similar to options on the security
underlying the futures contracts except that options on stock index futures
contracts give the purchaser the right to assume a position at a specified
price in a stock index futures contract at any time during the life of the
option. The Portfolios will segregate cash, U.S. Government securities or
other high grade debt obligations in an amount sufficient to meet its
obligations under these transactions.
A detailed discussion of Derivatives, including applicable requirements of
the CFTC, and special risks associated with such strategies, appears in the
Statement of Additional Information.
Securities Lending. Although, the Fund has no current plans to do so, each
Portfolio may lend securities to banks, broker-dealers or other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by any combination of cash, securities of the U.S. government and its
agencies or other high quality liquid investments, that at all times equal at
least 102% of the market value of the loaned securities. Such loans will not
be made if, as a result, the aggregate amount of all outstanding securities
loans for any Portfolio exceeds 33 1/3% of its total assets. A Portfolio
continues to receive interest on the securities loaned and simultaneously earns
either interest on the investment of the cash collateral or fee income if the
loan is otherwise collateralized. However, a Portfolio normally pays lending
fees and related expenses from the interest earned on invested collateral.
Should the borrower of the securities fail financially, there is a risk of
delay in recovery of the securities or loss of rights in the collateral.
However, loans are made only to borrowers which are approved by the Board of
Directors and are deemed by HLM to be of good financial standing. A Portfolio
may invest cash collateral it receives in connection with a loan of securities
in securities of the U.S. Government and its agencies and other high quality
short-term debt instruments. For purposes of complying with each Portfolio's
investment policies and restrictions, collateral received in connection with
securities loans will not be deemed an asset of a Portfolio unless otherwise
required by law. See the Statement of Additional Information for further
information regarding loan transactions.
RISKS ASSOCIATED WITH THE FUND'S INVESTMENT POLICIES AND INVESTMENT TECHNIQUES
A more detailed discussion of the risks associated with the investment
policies and investment techniques of the Portfolios appears in the
Statement of Additional Information.
Foreign Investments. Securities issued by foreign governments, foreign
corporations, international agencies and obligations of foreign banks involve
risks not associated with securities issued by U.S. entities. With respect to
certain foreign countries, there is the possibility of expropriation of assets,
confiscatory taxation and political or social instability or diplomatic
developments that could affect investment in those countries. There may be less
publicly available information about a foreign financial instrument than about
a United States instrument and foreign entities may not be subject to
accounting, auditing and financial reporting standards and requirements
comparable to those of United States entities. A Portfolio could encounter
difficulties in obtaining or enforcing a judgment against the issuer in certain
foreign countries. In addition, certain foreign investments may be subject to
foreign withholding or other taxes, although the Portfolio will seek to
minimize such withholding taxes whenever practical. Investors may be able to
deduct such taxes in computing their taxable income or to use such amounts as
credits against their United States income taxes if more than 50% of the
Portfolio's total assets at the close of any taxable year consist of stock or
securities of foreign corporations. Ownership of unsponsored ADRs may not
entitle the Portfolio to financial or other reports from the issuer to which it
would be entitled as the owner of sponsored ADRs. See "Tax Considerations".
Emerging Markets Securities. The risks of investing in foreign securities may
be intensified in the case of investments in issuers domiciled or doing
substantial business in emerging markets or countries with limited or
developing capital markets. Security prices in emerging markets can be
significantly more volatile than in the more developed nations of the world,
reflecting the greater uncertainties of investing in less established markets
and economies. In particular, countries with emerging markets may have
relatively unstable governments, present the risk of sudden adverse government
action and even nationalization of businesses, restrictions on foreign
ownership, or prohibitions of repatriation of assets, and may have less
protection of property rights than more developed countries. 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 and dividend collection 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.
High Yield/High Risk Securities. Each Portfolio may invest up to 20% of its
assets in convertible securities and debt securities rated lower than Baa by
Moody's or BBB by S&P, or of equivalent quality as determined by HLM (commonly
referred to as "junk bonds"). The lower the ratings of such debt securities,
the greater their risks render them like equity securities. Each Portfolio
will invest no more than 10% of its assets in securities rated B or lower by
Moody's or S&P, or of equivalent quality, but may invest in securities rated C
by Moody's or D by S&P, or the equivalent, which may be in default with respect
to payment of principal or interest.
Derivatives and Hedging. The Portfolios may engage in hedging and other
strategic transactions and certain other investment practices which may
entail certain risks.
Derivatives involve special risks, including possible default by the other
party to the transaction, illiquidity and, to the extent HLM's view as to
certain market movements is incorrect, the risk that the use of Derivatives
could result in greater losses than if they had not been used. Use of put
and call options could result in losses to a Portfolio, force the purchase
or sale of portfolio securities at inopportune times or for prices higher or
lower than current market values or cause the Portfolio to hold a security
it might otherwise sell. The use of options and futures transactions
entails certain special risks. In particular, the variable degree of
correlation between price movements of futures contracts and price movements
in the related portfolio position of a Portfolio could create the
possibility that losses on the Derivative will be greater than gains in the
value of the Portfolio's position. The loss from investing in futures
transactions which are unhedged or uncovered, is potentially unlimited. In
addition, futures and options markets could be illiquid in some
circumstances and certain over-the-counter options could have no markets. A
Portfolio might not be able to close out certain positions without incurring
substantial losses. To the extent a Portfolio utilizes futures and options
transactions for hedging, such transactions should tend to minimize the risk
of loss due to a decline in the value of the hedged position and, at the
same time, limit any potential gain to the Portfolio that might result form
an increase in value of the position. Finally, the daily variation margin
requirements for futures contracts create a greater ongoing potential
financial risk than would purchases of options, in which case the exposure
is limited to the cost of the initial premium and transaction costs. Losses
resulting from the use of Derivatives will reduce the Portfolio's net asset
value, and possibly income, and the losses may be greater than if
Derivatives had not been used. Additional information regarding the risks
and special considerations associated with Derivatives appears in the
Statement of Additional Information.
Illiquid and Restricted Securities. Each Portfolio will not invest more than
15% of the value of its net assets in illiquid securities. Illiquid
securities are securities which may not be sold or disposed of in the
ordinary course of business within seven days at approximately the value at
which a Portfolio has valued the investments, and include securities with
legal or contractual restrictions on resale, time deposits, repurchase
agreements having maturities longer than seven days and securities that do
not have readily available market quotations. In addition, a Portfolio may
invest in securities that are sold in private placement transactions between
their issuers and their purchasers and that are neither listed on an
exchange nor traded over-the counter. These factors may have an adverse
effect on the Portfolio's ability to dispose of particular securities and
may limit a Portfolio's ability to obtain accurate market quotations for
purposes of valuing securities and calculating net asset value and to sell
securities at fair value. If any privately placed securities held by a
Portfolio are required to be registered under the securities laws of one or
more jurisdictions before being resold, the Portfolio may be required to
bear the expenses of registration. A Portfolio may also purchase securities
that are 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 ("Rule 144A securities"). Rule 144A
securities generally must be sold to other qualified institutional buyers.
A Portfolio may also invest in commercial obligations 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 such as the Portfolio who agree
that they are purchasing the paper for investment and not with a view to
public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) paper normally is resold to other institutional
investors like the Portfolio through or with the assistance of the issuer or
investment dealers who make a market in the Section 4(2) paper, thus
providing liquidity. If a particular investment in Rule 144A securities,
Section 4(2) paper or private placement securities is not determined to be
liquid, that investment will be included within the 15% limitation on
investment in illiquid securities. Not all Rule 144A securities can be
deemed liquid; HLM will monitor the liquidity of such restricted securities
under the supervision of the Board of Directors.
Repurchase and Reverse Repurchase Agreements. In the event the other party to
a repurchase agreement or a reverse repurchase agreement becomes subject to a
bankruptcy or other insolvency proceeding or such party fails to satisfy its
obligations thereunder, a Portfolio could (i) experience delays in recovering
cash or the securities sold (and during such delay the value of the underlying
securities may change in a manner adverse to the Portfolio) or (ii) lose all or
part of the income, proceeds or rights in the securities to which the Portfolio
would otherwise be entitled. Reverse repurchase agreements involve the risk
that the market value of the portfolio securities sold by a Portfolio may
decline below the price of the securities the Portfolio is obligated to
repurchase.
INVESTMENT RESTRICTIONS
The following investment restrictions apply to each Portfolio and may be
changed with respect to a particular Portfolio only by the majority vote of
that Portfolio's outstanding shares. Accordingly, no Portfolio may:
(a) invest more than 5% of its total assets in securities of any one
issuer, other than securities issued by the U.S. Government, its agencies
and instrumentalities, or purchase more than 10% of the voting securities
of any one issuer, with respect to 75% of a Portfolio's total assets;
(b) invest more than 25% of its total assets in the securities of
companies primarily engaged in any one industry other than the U.S.
Government, its agencies or instrumentalities. Finance companies as a
group are not considered a single industry for purposes of this policy;
(c) borrow money, except through reverse repurchase agreements or from a
bank for temporary or emergency purposes in an amount not exceeding one
third of the value of its total assets nor will the Portfolios borrow for
leveraging purposes. In addition, although not a fundamental policy, the
Portfolios will repay any money borrowed before any additional portfolio
securities are purchased. See the Statement of Additional Information
for a further description regarding reverse repurchase agreements;
(d) invest more than 10% of the value of its total assets in warrants in
accordance with Texas Rule 123.2(8);
(e) purchase or sell real estate (other than marketable securities
representing interests in, or backed by, real estate and securities of
companies that deal in real estate or mortgages) or real estate limited
partnerships, or purchase or sell physical commodities or contracts
relating to physical commodities; or
(f) purchase or retain the securities of any open-end investment companies.
The above percentage limits are based upon current asset values at the time of
the applicable transaction; accordingly, a subsequent change in asset values
will not affect a transaction which was in compliance with the investment
restrictions at the time such transaction was effected. See the Statement of
Additional Information for other investment limitations.
BROKERAGE PRACTICES
HLM will place its own orders to execute the securities transactions which are
designed to implement the applicable investment objective and policies of the
Portfolios. HLM will use its reasonable efforts to execute all purchases and
sales with brokers, dealers and banks on a best available price and most
favorable execution basis. The full range and quality of services offered by
the executing broker or dealer is considered when making these determinations.
Neither HLM nor any of its officers, affiliates, or employees will act as
principal or receive any compensation from the Portfolios in connection with
the purchase or sale of investments for the Portfolios.
YIELDS AND TOTAL RETURN
The Portfolios' yield for any 30-day (or one month) period is computed by
dividing the net investment income per share earned during such period by the
maximum public offering price per share on the last day of the period, and then
annualizing such 30-day (or one month) yield in accordance with a formula
prescribed by the Commission which provides for compounding on a semiannual
basis.
The Portfolios may from time to time advertise their total return. Any total
return quotations advertised will reflect the average annual compounded rate of
return during the designated time period based on a hypothetical initial
investment and the redeemable value of that investment at the end of the
period.
The Portfolios will at times compare their performance to applicable published
indices, and may also disclose their performance as ranked by certain
analytical services. See the Statement of Additional Information for more
information about the calculation of yields and total returns. Performance
figures are based upon historical earnings and are not intended to indicate
future performance.
DISTRIBUTION OF FUND SHARES
Shares of the Fund are distributed by AMT Capital pursuant to a Distribution
Agreement (the "Distribution Agreement") dated as of __________ between the
Fund and AMT Capital. No fees are payable by the Fund pursuant to the
Distribution Agreement.
Under a sales incentive fee agreement dated ________ between AMT Capital
Advisers, an affiliate of AMT Capital and HLM, HLM has agreed to pay AMT
Capital Advisers a monthly sales incentive fee at an annual rate of 0.25% of
the average daily value of shares of the Fund purchased as a result of the
efforts of AMT Capital Advisers or its affiliates.
DETERMINATION OF NET ASSET VALUE
The "net asset value" per share of each Portfolio is calculated as of the close
of business on days when the New York Stock Exchange is open for business,
(hereinafter, "Business Day"). Each Portfolio determines its net asset value
per share by subtracting that Portfolio's liabilities (including accrued
expenses and dividends payable) from the total value of the Portfolio's
investments and other assets and dividing the result by the total outstanding
shares of the Portfolio.
For purposes of calculating each Portfolio's net asset value, securities are
valued as follows: (1) all portfolio securities for which over-the-counter
("OTC") market quotations are readily available are valued at their last sale
price, or if there are no trades, at the latest bid price; (2) deposits and
repurchase agreements are valued at their cost plus accrued interest unless HLM
determines in good faith, under procedures established by and under the general
supervision of the Fund's Board of Directors, that such value does not
approximate the fair value of such assets; (3) U.S. securities listed or traded
on an exchange are valued at their last sale price on that exchange, or if
there are no trades, at the mean between the latest bid and asked prices; (4)
Non-U.S. securities listed or traded on an exchange are valued at their last
sale price on that exchange, or if there are no trades, at the last closing
price on that exchange, (5) securities which are traded both in the OTC
market and on a stock exchange will be valued according to the broadest and
most representative market; (6) short-term obligations with maturities of 60
days or less are valued at amortized cost, which constitutes fair value as
determined by the Fund's Board of Directors. Amortized cost involves valuing
an instrument at its original cost to the Portfolio and thereafter assuming
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; and (7) the value of other assets for which market quotations are
not readily available will be determined in good faith by HLM at fair value
under procedures established by and under the general supervision of the Fund's
Board of Directors. Quotations of foreign securities denominated in a foreign
currency are converted to a U.S. dollar-equivalent at exchange rates obtained
from an automated pricing service at the bid price except for the Royal
Currencies (United Kingdom, Ireland, European Currency Unit, Australia and New
Zealand), which are valued at the ask price.
PURCHASE AND REDEMPTION OF SHARES
Purchases
There is no sales charge imposed by the Fund. The minimum initial investment
in any Portfolio of the Fund is $100,000; additional purchases or redemptions
may be of any amount. With respect to purchases of Fund shares through
brokers: 1) a broker may charge transaction fees, 2) duplicate mailings of
Fund material to shareholders who reside at the same address may be eliminated,
and 3) the minimum initial investment through a broker is less than a direct
purchase with the Fund.
The offering of shares of the Fund is continuous and purchases of shares of the
Fund may be made on any Business Day. The Fund offers shares at a public
offering price equal to the net asset value next determined after receipt of a
purchase order.
Purchases of shares must be made by wire transfer of Federal funds. Share
purchase orders are effective on the date when AMT Capital receives a completed
Account Application Form (and other required documents) and Federal funds
become available to the Fund in the Fund's account with the Transfer Agent as
set forth below. The shareholder's bank may impose a charge to execute the
wire transfer. The wiring instructions are:
Investors Bank & Trust Company, Boston, MA
ABA#: 011-001-438
Account Name: AMT Capital Services, Inc.
- Fund Purchase Account
Account #: 933333333
Reference: Harding, Loevner Funds, Inc. - (designate Portfolio)
In order to purchase shares on a particular Business Day, a purchaser must call
AMT Capital at (800) 762-4848 or (212) 332-5211 prior to the close of business
(normally 4:00 p.m. Eastern time) to inform the Fund of the incoming wire
transfer and must clearly indicate which Portfolio is to be purchased. If
Federal funds are received by the Fund that same day, the order will be
effective on that day. If the Fund receives notification after the above-
mentioned cut-off times, or if Federal funds are not received by the Transfer
Agent, such purchase order shall be executed as of the date that Federal funds
are received.
Redemptions
The Fund will redeem all full and fractional shares of the Fund upon request of
shareholders. The redemption price is the net asset value per share next
determined after receipt by the Transfer Agent of proper notice of redemption
as described below. If such notice is received by the Transfer Agent by the
close of business (normally 4:00 p.m. Eastern time) on any Business Day, the
redemption will be effective on the date of receipt. Payment will ordinarily
be made by wire on the next Business Day but within no more than seven business
days from the date of receipt. If the notice is received on a day that is not
a Business Day or after the above-mentioned cut-off times, the redemption
notice will be deemed received as of the next Business Day.
There is no charge imposed by the Fund to redeem shares of the Fund; however, a
shareholder's bank may impose its own wire transfer fee for receipt of the
wire. Redemptions may be executed in any amount requested by the shareholder
up to the amount such shareholder has invested in the Fund.
To redeem shares, a shareholder or any authorized agent (so designated on the
Account Application Form) must provide the Transfer Agent with the dollar or
share amount to be redeemed, the account to which the redemption proceeds
should be wired (which account shall have been previously designated by the
shareholder on its Account Application Form), the name of the shareholder and
the shareholder's account number. Shares redeemed receive dividends up to and
including the day preceding the day the redemption proceeds are wired.
A shareholder may change its authorized agent or the account designated to
receive redemption proceeds at any time by writing to the Transfer Agent with
an appropriate signature guarantee. Further documentation may be required when
deemed appropriate by the Transfer Agent.
A shareholder may request redemption by calling the Transfer Agent at (800)
247-0473. Telephone redemption is made available to shareholders of the Fund
on the Account Application Form. The Fund or the Transfer Agent employ
reasonable procedures designed to confirm that instructions communicated by
telephone are genuine. If either the Fund or the Transfer Agent 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.
Exchange Privilege
Shares of each Portfolio may be exchanged for shares of another Portfolio based
on the respective net asset values of the shares involved in the exchange,
assuming that shareholders wishing to exchange shares reside in states where
these mutual funds are qualified for sale. The Fund's Portfolio minimum
amounts of $100,000 would still apply. An exchange order is treated the same
as a redemption followed by a purchase. Investors who wish to make exchange
requests should telephone AMT Capital or the Transfer Agent.
DIVIDENDS
Each Portfolio will declare and pay a dividend from its net investment income
on an annual basis. Each Portfolio will distribute its realized net short-term
capital gains (i.e. with respect to assets held one year or less) and net long-
term capital gains (i.e. with respect to assets held more than one year) at
least annually by automatically reinvesting (unless a shareholder has elected
to receive cash) such short-term or long-term capital gains in additional
shares of the Portfolio at the net asset value on the ex-date of the
distribution..
MANAGEMENT OF THE FUND
Board of Directors
The Board of Directors of the Fund are responsible for the overall management
and supervision of the Fund. The Fund's Directors are:
Director Profile
- - - ------------------------------------------------------------------------------
Insert Directors
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, HLM
provides investment advisory services to each Portfolio pursuant to the
Investment Advisory Agreement dated _______, 1996. Under the Investment
Advisory Agreement, HLM is responsible for providing investment research and
advice, determining which portfolio securities shall be purchased or sold by
each Portfolio of the Fund, purchasing and selling securities on behalf of the
Portfolios and determining how voting and other rights with respect to the
portfolio securities of the Portfolios are exercised in accordance with each
Portfolio's investment objective, policies, and restrictions. HLM also
provides office space, equipment, and personnel necessary to manage the Fund.
HLM, established in 1989, is a registered investment adviser that specializes
in global investment management for private investors and institutions. HLM
currently has approximately $1 billion in assets under management. HLM is
located at 50 Division Street, Suite 401, Somerville, NJ 08876. HLM manages
assets for several other registered investment companies.
HLM bears the expense of providing the above services to the Fund. For its
services, each of the International Equity Portfolio, Global Equity Portfolio,
Emerging Markets Portfolio and Multi-Asset Global Portfolio pay HLM a monthly
fee at an annual rate of 0.75%, 1.00%, 1.25% and 1.00%, respectively, of its
average daily net assets. The advisory fee paid by each Portfolio is higher
than that charged by most funds which invest primarily in U.S. securities, but
not necessarily higher than the fees charged to funds with investment
objectives similar to those of the Portfolios.
Portfolio Managers
Daniel D. Harding (responsible for global portfolio management), co-founder
of HLM and a director of its general partner, is the firm's chief investment
officer, with overall responsibility for investment policy. Dan served for
twelve years as a senior investment manager with Rockefeller & Co.,
investment adviser to the Rockefeller family and related institutions. As
manager of the family's flagship equity, fixed income and balanced fund
portfolios, he set investment strategy and provided investment counseling to
family members, trusts and private businesses. In this capacity he also
spearheaded the diversification of the firm's investments into overseas
markets. Dan began his career as a trust investment officer at American
National Bank & Trust in Morristown, NJ. He is an honors graduate in
history and international relations from Colgate University, a Chartered
Financial Analyst, and a Chartered Investment Counselor. Dan is a trustee
and treasurer of the Peck School.
David R. Loevner, co-founder, is the chief executive officer of HLM and a
director of the firm's general partner. He serves on the investment
committee, and is responsible for operations, administration, compliance,
and client service. His prior experience includes nine years with
Rockefeller and Co., where he managed equity portfolios, counseled family
members, and developed new financial planning and asset allocation tools.
David also managed a number of professional service units with the
Rockefeller family office, including the Rockefeller Insurance Company,
which he established in 1985. In 1987, David established Rockefeller's
first Asian office, in Hong Kong, from which he directed a region-wide
investment program comprising small company and venture investments.
Before Rockefeller, David worked for the World Bank, as country economist
for Brazil. He graduated summa cum laude from Princeton University and, as
a Sachs Scholar, received graduate degrees in statistics and in economics
from Oxford University. David is a director of the Princeton University
Investment Company and an advisory trustee of Outward Bound USA.
Simon Hallett (responsible for international portfolio management), senior
portfolio manager and a director of the firm's general partner, serves as
the chair of the investment committee. Simon has managed global portfolios
for individuals and institutions since 1979, when he joined the investment
management department of London-based Buckmaster and Moore. In 1981 he
moved to Hong Kong, where he began to concentrate on Asian markets, and in
1984 joined Jardine Fleming Investment Management, one of Asia's largest and
most respected investment management companies. Simon's ultimate position
at Jardine Fleming was director in charge of a team of six portfolio
managers investing in the markets of South East and North Asia for a diverse
clientele comprising European pension plans, governments, and private
clients, Rockefeller & Co. among them. He joined HLM in 1991. A British
subject, Simon is an honors graduate of Oxford University in Politics,
Philosophy and Economics.
Alexander T. Walsh, portfolio manager, is a member of the investment
committee and a principal of the firm. From 1979 through 1982, he worked in
money market trading and operations for J. Henry Schroder Bank & Trust Co.,
New York. Alec joined Merrill Lynch, New York in 1982 as an account
executive. In 1987 he moved to Paine Webber, where he built an
institutional equity clientele comprising Fortune 100 accounts and
investment advisers. Promoted to 1st Vice President in 1992, he remained
with the firm until joining HLM in 1994. Alec is a 1978 graduate of McGill
University with a BA in North American Studies.
G. "Rusty" Johnson III, research analyst, is a member of the investment
committee and a principal of the firm. He began his career in Hong Kong in
1986, developing computer-based arbitrage programs for Chin Tung Futures,
subsequently a subsidiary of Standard Chartered Bank. The following year he
joined Jardine Fleming Research to concentrate on Asian equities. After
three years in Hong Kong and two years in Bangkok, Rusty moved to Jardine
Fleming's parent company, Robert Fleming, in New York as an institutional
broker of Asian equities. He spent a further year in institutional equity
sales in New York with Peregrine Securities before joining HLM in 1994.
Rusty is a magna cum laude graduate in economics of Washington and Lee
University, where his program included studies at Fu Jen University, Taiwan,
and the Chinese University of Hong Kong. Rusty is a Chartered Financial
Analyst.
Ferrill D. Roll, portfolio manager, has fifteen years' experience across a
wide range of international markets. Prior to joining Harding, Loevner in
1996, he was general partner of Cesar Montemayor Capital, L.P., a global
investment partnership investing in fixed income, currency, and equity
markets, since 1992. For six years before that, he worked in international
equity sales, first at First Boston (1985-1989) and later at Baring
Securities (1989-1992), working primarily on European markets. During 1990,
he acted as head of Baring's German equity research, in Frankfurt. Prior to
joining First Boston, Ferrill worked for five years at JP Morgan, where he
advised corporate clients on foreign exchange markets and set up the
currency options trading department. He graduated from Stanford University
in 1980 with a degree in economics.
Administrator
Pursuant to an Administration Agreement between the Fund and AMT Capital
Services, Inc., dated as of _________, 1996 AMT Capital provides for
administrative services to, and 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.
The Fund pays AMT Capital a monthly fee at an annual rate of 0.15% on the
first $500 million of the average daily net assets of the Fund, 0.10% on the
next $500 million of the average daily net assets of the Fund, and 0.05% on
the average daily net assets over $1 billion. Each Portfolio pays a
proportionate share of the fee based on its relative net assets.
Founded in early 1992, AMT Capital Services, a Delaware corporation, is a
registered broker-dealer whose senior managers are former officers of Morgan
Stanley and the Vanguard Group, where they were responsible for the
administration and distribution of The Pierpont Funds, a $5 billion fund
complex now owned by J.P. Morgan, and the private label administration group of
Vanguard, which administered nearly $10 billion in assets for 45 portfolios,
respectively.
Direct Expenses
Those fees and expenses paid directly by the Fund may include the fees of
independent auditors, transfer agent and dividend disbursing agent, and
custodian; the expense of obtaining quotations for calculating the value of
each Portfolio's net assets; taxes, if any, and the preparation of each
Portfolio's tax returns; brokerage fees and commissions; interest; costs of
Board of Director and shareholder meetings; the expense of printing and mailing
prospectuses and reports to existing shareholders; fees for filing reports with
regulatory bodies and the maintenance of the Fund's existence; legal fees; fees
to federal and state authorities for the registration of shares; fees and
expenses of members of the Board of Directors who are not directors, officers,
employees or stockholders of HLM or its affiliates; insurance and fidelity bond
premiums; and any extraordinary expenses of a nonrecurring nature.
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 Portfolio intends to qualify for and to elect to be treated as a regulated
investment company ("RIC") under the Internal Revenue Code of 1986, as amended.
To qualify, a Portfolio must meet certain income, distribution and
diversification requirements. In any year in which a Portfolio qualifies as a
RIC and distributes all of its taxable income and substantially all of its net
tax-exempt interest income on a timely basis, the Portfolio will not pay U.S.
federal income or excise tax. If in any year a Portfolio should fail to
qualify as a regulated investment company, the Portfolio would be subject to
federal income tax in the same manner as an ordinary corporation, and
distributions to shareholders would be taxable to such holders 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 intends to distribute all of its taxable income and net tax-
exempt interest income by automatically reinvesting such amount in additional
shares of the Portfolio 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 paid by a Portfolio from its investment company taxable income
(including interest and net short-term capital gains) will be taxable to a U.S.
shareholder 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 as long-term capital gain, 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.
Any gain or loss realized by a shareholder upon the sale or other disposal of
shares of a Portfolio, or upon receipt of a distribution in a complete
liquidation of the Portfolio, generally will be a capital gain or loss which
will be long-term or short-term, generally depending upon the shareholder's
holding period for the shares. A loss realized on a sale or exchange of
shares may be disallowed if other shares are acquired within a 61-day period
beginning 30 days before the ending 30 days after the date that the shares
are disposed of.
Each Portfolio may be required to withhold U.S. federal income tax at the rate
of 31% of all taxable distributions payable to shareholders who fail to provide
the Portfolio with their correct taxpayer identification number or to make
required certifications, or who have been notified by the IRS that they are
subject to backup withholding. Backup withholding is not an additional tax.
Any amounts withheld may be credited against the shareholder's U.S. federal
income tax liability. 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. In certain circumstances, a Portfolio may be
eligible and may elect to "pass through" to the Portfolio's shareholders the
amount of foreign income and similar taxes paid by the Portfolio. Each
shareholder will be notified within 60 days after the close of a Portfolio's
taxable year whether the foreign taxes paid by the Portfolio will "pass
through" for the year. Further information relating to tax consequences is
contained in the Statement of Additional Information.
Ordinary income dividends paid by the Fund to shareholders who are non-
resident aliens or foreign entities will be subject to a 30% withholding tax
unless a reduced rate of withholding or a withholding exemption is provided
under applicable treaty law or the income is "effectively connected" with a
U.S. trade or business. Generally, subject to certain exceptions, capital
gain dividends paid to non-resident shareholders or foreign entities will
not be subject to U.S. tax. Non-resident shareholders are urged to consult
their own tax advisers concerning the applicability of the U.S. withholding
tax.
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. Distributions
of a Portfolio which are derived from interest on obligations of the U.S.
Government and certain of its agencies, authorities and instrumentalities may
be exempt from state and local taxes in certain states. Shareholders should
consult their own tax advisers regarding the particular tax consequences of an
investment in a Portfolio.
SHAREHOLDER INFORMATION
Description of the Fund
The Fund was established under Maryland law by the filing of its Articles of
Incorporation on ________,1996. The Fund's Articles of Incorporation permit
the Directors to authorize the creation of additional Portfolios, each of which
may issue separate classes of shares. Currently, the Fund has four separate
Portfolios.
Voting Rights
Each share of common stock of a Portfolio or class is entitled to one vote for
each dollar of net asset value and a proportionate fraction of a vote for each
fraction of a dollar of net asset value. Generally, shares of each Portfolio
and class vote together on any matter submitted to shareholders, except when
otherwise required by the 1940 Act or when a matter affects the interests of
each Portfolio or class in a different way, in which case the shareholders of
each Portfolio or class vote separately. If the Directors determine that a
matter does not affect the interests of a Portfolio or class, then the
shareholders of that Portfolio or class will not be entitled to vote on that
matter. Approval of the investment advisory agreements are matters to be
determined separately by each Portfolio (but not by each class of a Portfolio).
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. As a
Maryland corporation, 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. A special
meeting of the Fund shall be called by the Directors upon written request of
shareholders owning at least 10% of the Fund's outstanding shares.
Shareholders will be assisted in communicating with other shareholders in
connection with removing a Director as if Section 16(c) of the 1940 Act were
applicable.
OTHER PARTIES
Custodian and Accounting Agent
Investors Bank & Trust Company, P.O. Box 1537, Boston, Massachusetts 02205-
1537, is Custodian for the securities and cash of the Fund and Accounting Agent
for the Fund.
Transfer and Dividend Disbursing Agent
Investors Bank & Trust Company, P.O. Box 1537, Boston, Massachusetts 02205-
1537, is Transfer Agent for the shares of the Fund, and Dividend Disbursing
Agent for the Fund.
Legal Counsel
Dechert Price & Rhoads, 1500 K Street, N.W., Washington, D.C. 20005-1208, are
legal counsel for the Fund.
Independent Auditors
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019 are the
independent auditors for the Fund.
SHAREHOLDER INQUIRIES
Inquiries concerning the Fund may be made by writing to AMT Capital Services,
Inc., 600 Fifth Avenue New York, New York 10020 or by calling AMT Capital at
(800) 762-4848 [or (212) 332-5211, if within New York City].
STATEMENT OF ADDITIONAL INFORMATION
Harding, Loevner Funds, Inc.
Distributed By: AMT Capital Services, Inc.
600 Fifth Avenue
26th Floor
New York, NY 10020
(212) 332-5211
(800) 762-4848
Harding, Loevner Funds, Inc. (the "Fund") is a no-load, open-end management
investment company consisting of four diversified portfolios: International
Equity Portfolio, Global Equity Portfolio, Emerging Markets Portfolio and
Multi-Asset Global Portfolio (each a "Portfolio"). There is no sales charge
for purchase of shares. Each Portfolio is managed by Harding, Loevner
Management, L.P. ("HLM"). Shares of each Portfolio may be purchased through AMT
Capital Services, Inc. ("AMT Capital").
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the prospectus of the Fund, dated _________, 1996 (the
"Prospectus"), which has been filed with the Securities and Exchange Commission
(the "Commission") and can be obtained, without charge, by calling or writing
AMT Capital at the telephone number or address stated above. This Statement of
Additional Information incorporates by reference the Prospectus.
__________, 1996
TABLE OF CONTENTS
Page
------
Organization of the Fund............................................
Management of the Fund..............................................
Board of Directors and Officers.................................
Investment Adviser..............................................
Administrator...................................................
Distribution of Fund Shares.........................................
Supplemental Descriptions of Investments............................
Supplemental Investment Techniques..................................
Supplemental Discussion of Risks Associated With the
Fund's Investment Policies and Investment Techniques................
Investment Restrictions.............................................
Portfolio Transactions..............................................
Net Asset Value.....................................................
Tax Considerations..................................................
Shareholder Information.............................................
Calculation of Performance Data.....................................
Ratings Descriptions................................................
ORGANIZATION OF THE FUND
The authorized capital stock of the Fund consists of 2,500,000,000 shares with
$.001 par value, allocated as follows: (i) 500,000,000 shares to the
International Equity Portfolio; (ii) 500,000,000 shares to the Global Equity
Portfolio; (iii) 500,000,000 shares to the Emerging Markets Portfolio; (iv)
500,000,000 shares to the Multi-Asset Global Portfolio and (v) 500,000,000
shares not yet allocated to any Portfolio. Holders of shares of a Portfolio
have one vote for each dollar, and a proportionate fraction of a vote for each
fraction of a dollar, of net asset value held by a shareholder. All shares
issued and outstanding are fully paid and non-assessable, transferable, and
redeemable at net asset value at the option of the shareholder. Shares have no
preemptive or conversion rights.
The shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares voting for the election of Directors can
elect 100% of the Directors if they choose to do so, and, in such event, the
holders of the remaining less than 50% of the shares voting for the election of
Directors will not be able to elect any person or persons to the Board of
Directors.
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 (*) has been placed
next to the name of each director who is an "interested person" of the Fund, as
such term is defined in the Investment Company Act of 1940, as amended (the
"1940 Act"), by virtue of his or her affiliation with the Fund or HLM.
[Insert Directors and other Officers]
Carla E. Dearing, 600 Fifth Avenue, New York, NY 10020, Assistant Treasurer of
the Fund. Ms. Dearing is President, Principal, and Director of AMT Capital
Services. Ms. Dearing is also Managing Director and Principal of AMT Capital
Advisers, Inc. 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. Ms. Dearing's responsibilities included new product and market
development for Morgan Stanley Capital International ("MSCI"), while serving as
an Associate in MSCI's London office, and assisting with the launch of several
Pierpont Funds, while serving as a member of Morgan Stanley's Financial
Planning and Analysis staff in New York.
William E. Vastardis, 600 Fifth Avenue, New York, NY 10020, Secretary and
Treasurer of the Fund. Mr. Vastardis is a Senior Vice President of AMT Capital
Services and has been with the firm since July 1992. Prior to April 1992, Mr.
Vastardis served as Vice President and head of the Vanguard Group Inc.'s
private label administration unit for seven years, after six years in
Vanguard's fund accounting operations.
No employee of HLM or AMT Capital receives any 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 HLM and AMT Capital
or any of their affiliates, a fee of $_____ for each meeting attended, and
each of the Directors receives an annual retainer of $____ which is paid in
quarterly installments at the end of each quarter.
By virtue of the responsibilities assumed by HLM and AMT Capital and their
affiliates under their respective agreements with the Fund, the Fund itself
requires no employees in addition to its officers.
INVESTMENT ADVISER
HLM provides investment advisory services to the Fund. The terms of the
investment advisory agreements (the "Advisory Agreements") between the Fund, on
behalf of each Portfolio, and HLM obligate HLM to provide investment advisory
and portfolio management services to the Portfolios. HLM is a registered
investment adviser organized in 1989. HLM provides investment advisory
services to private investors and institutions.
The Advisory Agreements will remain in effect for two years following their
date of execution and thereafter will automatically continue for successive
annual periods, so long as such continuance is specifically approved at least
annually by (a) the Board of Directors or (b) the vote of a "majority" (as
defined in the 1940 Act) of a Portfolio's outstanding shares voting as a single
class; provided, that in either event the continuance is also approved by at
least a majority of the Board of Directors who are not "interested persons" (as
defined in the 1940 Act) of the Fund by vote cast in person at a meeting called
for the purpose of voting on such approval.
The Advisory Agreements are terminable without penalty on not less than 60
days' notice by the Board of Directors or by a vote of the holders of a
majority of the relevant Portfolio's outstanding shares voting as a single
class, or upon not less than 60 days' notice by HLM. Each of the Advisory
Agreements will terminate automatically in the event of its "assignment" (as
defined in the 1940 Act).
HLM pays all of its own expenses arising from the performance of its
obligations under the Advisory Agreements. Under its Advisory Agreements, HLM
also pays all executive salaries and expenses of the Directors and Officers of
the Fund who are employees of HLM or its affiliates and office rent of the
Fund. 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, investment
advisory fees, brokerage commissions, interest, fees and expenses of
independent attorneys, auditors, custodians, accounting agents, transfer
agents, taxes, cost of stock certificates and any other expenses (including
clerical expenses) of issue, sale, repurchase or redemption of shares, expenses
of registering and qualifying shares of the Fund under federal and state laws
and regulations, expenses of printing and distributing reports, notices and
proxy materials to existing shareholders, expenses of printing and filing
reports and other documents filed with governmental agencies, expenses of
annual and special shareholders' meetings, expense of printing and distributing
prospectuses, fees and expenses of Directors of the Fund who are not employees
of HLM or its affiliates, membership dues in the Investment Company Institute,
insurance premiums and extraordinary expenses such as litigation 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 the net assets of each Portfolio.
As compensation (subject to expense caps as described under "Fund Expenses"
in the Prospectus) for the services rendered by HLM under the Advisory
Agreements, each Portfolio pays HLM a monthly advisory fee calculated by
applying the following annual percentage rates to such Portfolio's average
daily net assets for the month:
Rate
------
International Equity ........................... 0.75%
Global Equity .................................. 1.00%
Emerging Markets ............................... 1.25%
Multi-Asset Global ............................. 1.00%
ADMINISTRATOR
Pursuant to its terms, the administration agreement (the "Administration
Agreement") between the Fund and AMT Capital, as Administrator, obligates the
Administrator to manage and supervise 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. The Administration
Agreement will remain in effect for five years following the date of execution
and thereafter will automatically continue for successive annual periods.
DISTRIBUTION OF FUND SHARES
Shares of the Fund are distributed by AMT Capital pursuant to a Distribution
Agreement (the "Distribution Agreement") between the Fund and AMT Capital. The
Fund and AMT Capital have agreed to indemnify one another against certain
liabilities. The Distribution Agreement will remain in effect for two years
following the date of execution and thereafter will continue for successive
annual periods only if its continuance is approved annually by a majority of
the Board of Directors who are not parties to such agreements or "interested
persons" of any such party and either by votes of a majority of the Directors
or a majority of the outstanding voting securities of the Fund.
SUPPLEMENTAL DESCRIPTIONS OF INVESTMENTS
The different types of securities in which the Portfolios may invest, subject
to their respective investment objective, policies and restrictions, are
described in the Prospectus under "Descriptions of Investments". Additional
information concerning the characteristics of certain of the Portfolios'
investments are set forth below.
U.S. Treasury and U.S. Government Agency Securities. U.S. Government
Securities include instruments issued by the U.S. Treasury, including bills,
notes and bonds. These instruments are direct obligations of the U.S.
Government and, as such, are backed by the full faith and credit of the United
States. They differ primarily in their interest rates, the lengths of their
maturities and the dates of their issuances. In addition, U.S. Government
Securities include securities issued by instrumentalities of the U.S.
Government, such as the Government National Mortgage Association ("GNMA"),
which are also backed by the full faith and credit of the United States. U.S.
Government Agency Securities include instruments issued by instrumentalities
established or sponsored by the U.S. Government, such as the Student Loan
Marketing Association ("SLMA"), the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). While
these securities are issued, in general, under the authority of an Act of
Congress, the U.S. Government is not obligated to provide financial support to
the issuing instrumentalities.
Bank Obligations. The Fund limits its investments in U.S. bank obligations to
obligations of U.S. banks that in HLM's opinion meet sufficient
creditworthiness criteria. The Fund limits its investments in foreign bank
obligations to obligations of foreign banks (including U.S. branches of foreign
banks) that, in the opinion of HLM, are of an investment quality comparable to
obligations of U.S. banks in which each Portfolio may invest. Other than the
allowable 20% of a Portfolio's assets invested in below-investment grade
convertible and other debt securities, all investments in bank obligations will
be rated at least "B" by Thomson Bankwatch or similarly rated by IBCA Ltd., or
of comparable quality as determined by HLM.
Corporate Debt Instruments. Corporate debt securities of domestic and foreign
issuers include such instruments as corporate bonds, debentures, notes,
commercial paper, medium-term notes, variable rate notes and other similar
corporate debt instruments. Other than the allowable 20% of a Portfolio's
assets invested in below-investment grade convertible and other debt
securities, all investments in corporate debt instruments will be rated at
least "BBB" or "A-1" (in the case of commercial paper) by Standard & Poors'
("S&P"), "Baa" or "P-1" (in the case of commercial paper) by Moody's Investors
Service, Inc. ("Moody's"), or of comparable quality as determined by HLM.
Brady Bonds. Each Portfolio, subject to limitations, may invest in "Brady
Bonds", which are debt securities issued or guaranteed by foreign governments
in exchange for existing external commercial bank indebtedness under a plan
announced by former U.S. Treasury Secretary Nicholas F. Brady in 1989. 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 have been issued only
recently, and accordingly, they do not have a long payment history. Brady
Bonds may be collateralized or uncollateralized, are issued in various
currencies (primarily the U.S. dollar) and are actively traded in the over-the-
counter secondary market.
Each 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. Brady Bonds which have been issued to date are rated BB
or B by S&P or Ba or B by Moody's or, in cases in which a rating by S&P or
Moody's has not been assigned, are generally considered by the Adviser to be of
comparable quality.
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. Such transactions afford an
opportunity for the Portfolio to earn a return on available cash at minimal
market risk, although the Portfolio may be subject to various delays and risks
of loss if the vendor becomes subject to a proceeding under the U.S. Bankruptcy
Code or 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.
Reverse Repurchase Agreements. When participating in reverse repurchase
agreements, a Portfolio sells U.S. Government securities and simultaneously
agrees to repurchase them at an agreed upon price and date. The difference
between the amount the Portfolio receives for the securities and the amount it
pays on repurchase is deemed to be a payment of interest. The Fund will
maintain for each Portfolio a segregated custodial account containing cash,
U.S. Government securities or other appropriate high-grade debt securities
having an aggregate value at least equal to the amount of such commitments to
repurchase, including accrued interest, until payment is made. Reverse
repurchase agreements create leverage, a speculative factor, and will be
considered as borrowings for the purposes of limitations on borrowings.
SUPPLEMENTAL INVESTMENT TECHNIQUES
Borrowing. Each Portfolio may borrow money temporarily from banks when (i) it
is advantageous to do so in order to meet redemption requests, (ii) a Portfolio
fails to receive transmitted funds from a shareholder on a timely basis, (iii)
the custodian of the Fund fails to complete delivery of securities sold or (iv)
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 may, in effect, borrow money by
doing so. Securities may be borrowed by engaging in repurchase agreements. See
"Investment Restrictions" and "Supplemental Descriptions of Investments".
Securities Lending. Although, the Fund has no current plans to do so, each
Portfolio is authorized to lend securities from its investment portfolios, with
a value not exceeding 33 1/3% of its total assets, to banks, brokers and other
financial institutions if it receives collateral in cash, U.S. Government
Securities or other high grade liquid investments which will be maintained at
all times in an amount equal to at least 102% of the current market value of
the loaned securities. The loans will be terminable at any time by the Fund
and the relevant Portfolio will then receive the loaned securities within five
days. During the period of such a loan, the Portfolio receives the income on
the loaned securities and a loan fee and may thereby increase its total return.
Foreign Currency Hedging. 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 primarily 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. The Portfolios may at times hedge all or some portion of their
currency exchange risk. Conditions in the securities, futures, options, and
foreign currency markets will determine whether and under what circumstances a
Portfolio will employ any of the techniques or strategies described below and
in the section of the Prospectus entitled "Descriptions of Investments". A
Portfolio's ability to pursue certain of 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
"Tax Considerations").
Forward Contracts. Sale of currency for dollars under such a contract
establishes a price for the currency in dollars. Such a sale insulates returns
from securities denominated in that currency from exchange rate fluctuations to
the extent of the contract while the contract is in effect. A sale contract
will be advantageous if the currency falls in value against the dollar and
disadvantageous if it increases in value against the dollar. A purchase
contract will be advantageous if the currency increases in value against the
dollar and disadvantageous if it falls in value against the dollar.
The Portfolios may use forward contracts to insulate existing security
positions against exchange rate movement ("position hedges") or to insulate
proposed transactions against such movement ("transaction hedges"). For
example, to establish a position hedge, a forward contract on a foreign
currency might be sold to protect against the decline in the value of that
currency against the dollar. To establish a transaction hedge, a foreign
currency might be purchased on a forward basis to protect against an
anticipated increase in the value of that currency against the dollar.
Futures Contracts. The Portfolios may enter into contracts for the purchase or
sale for future delivery (a "futures contract") of contracts based on financial
indices including any index of common stocks. The Portfolios may also enter
into futures contracts based on foreign currencies. 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, that is a member of the relevant contract market.
Futures contracts trade on a number of exchange markets and, through their
clearing corporations, the exchanges guarantee performance of the contracts as
between the clearing members of the exchange. The Portfolios may also enter
into futures contracts that are based on securities that would be eligible
investments for the Portfolios. The Portfolios may enter into contracts that
are denominated in currencies other than the U.S. dollar.
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 made, offset, or
fulfilled 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, a 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, the Portfolio may be required by an exchange 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") generally will 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 from the preceding day.
Options on Foreign Currencies. The Portfolios may purchase and sell (or write)
put and call options on foreign currencies to protect against a decline in the
U.S. dollar-equivalent value of their portfolio securities or payments due
thereon or a rise in the U.S. dollar-equivalent cost of securities that they
intend to purchase. A foreign currency put option grants the holder the right,
but not the obligation, at a future date to sell a specified amount of a
foreign currency to its counterparty at a predetermined price. Conversely, a
foreign currency call option grants the holder the right, but not the
obligation, to purchase at a future date a specified amount of a foreign
currency at a predetermined price.
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, when a Portfolio is not
fully invested it 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.
The writing of a call option on a futures contract constitutes a partial hedge
against declining prices of the security or foreign currency which is
deliverable upon exercise of the futures contract. If the futures price at
expiration of the option is below the exercise price, the Portfolio will retain
the full amount of the option premium which provides a partial hedge against
any decline that may have occurred in the Portfolio's portfolio holdings. The
writing of a put option on a futures contract constitutes a partial hedge
against increasing prices of the security or foreign currency which 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 which provides a partial hedge
against any increase in the price of securities which the Portfolio intends to
purchase. If a put or call option the Portfolio has written is exercised, the
Portfolio 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 portfolio securities and changes in the value of its futures
positions, the Portfolio's losses from existing options on futures may to some
extent be reduced or increased by changes in the value of portfolio 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.
Restrictions on the Use of Futures Contracts and Options on Futures Contracts.
Regulations of the CFTC applicable to the Portfolios require that all of the
Portfolios' futures and options on futures transactions constitute bona fide
hedging transactions, except that a transaction may not constitute a bona fide
hedging transaction entered into for other purposes if, immediately thereafter,
the sum of the amount of initial margin deposits on a Portfolio's existing
futures positions and premiums paid for related options would not exceed 5% of
the value of the Portfolio's total assets.
Illiquid Securities. Although each of the Portfolios may invest up to 15% of
the value of its net assets in illiquid assets, it is not expected that any
Portfolio will invest a significant portion of its assets in illiquid
securities. All repurchase agreements and time deposits maturing in more than
seven days are treated as illiquid assets.
SUPPLEMENTAL DISCUSSION OF RISKS
ASSOCIATED WITH THE FUND'S INVESTMENT
POLICIES AND INVESTMENT TECHNIQUES
Additional information concerning risks associated with certain of the
Portfolios' investments is set forth below.
Creditworthiness. In general, certain obligations which the Portfolios may
invest in are subject to credit risks such as the loss of credit ratings or
possible default. After purchase by a Portfolio of the Fund, a security may
cease to be rated or its rating may be reduced below the minimum required for
purchase by the Fund. Neither event will require a sale of such security by
the Portfolio. However, HLM will consider such event in its determination of
whether a Portfolio should hold the security. To the extent that the ratings
given by S&P or Moody's may change as a result of changes in such organizations
or their rating systems, the Fund will attempt to use comparable ratings as
standards for investments in accordance with the investment policies contained
in the Prospectus and in this Statement of Additional Information.
Foreign Bank Obligations. Obligations of foreign banks involve somewhat
different investment risks than those affecting obligations of United States
banks, including the possibilities that their liquidity could be impaired
because of future political and economic developments, that their obligations
may be less marketable than comparable obligations of United States banks, that
a foreign jurisdiction might impose withholding taxes on interest income
payable on those obligations, that foreign deposits may be seized or
nationalized, that foreign governmental restrictions such as exchange controls
may be adopted that might adversely affect the payment of principal and
interest on those obligations and that the selection of those obligations may
be more difficult because there may be less publicly available information
concerning foreign banks or 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 several
foreign countries are subject to additional risks due to the combination in
such banks of commercial banking and diversified securities activities.
High Yield/High Risk Debt Securities. Each Portfolio may invest up to 20% of
its assets in convertible securities and debt securities which are rated below
investment-grade - that is, rated below Baa by Moody's or BBB by S&P and in
unrated securities judged to be of equivalent quality by HLM. Below investment
grade securities carry a high degree of risk (including the possibility of
default or bankruptcy of the issuers of such securities), generally involve
greater volatility of price and risk of principal and income, and may be less
liquid, than securities in the higher rating categories and are considered
speculative. The lower the ratings of such debt securities, the greater their
risks render them like equity securities. See "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 disrupted in the past, and could disrupt in the future,
the high yield market and impaired 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 stress which would 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 a 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 a
Portfolio to accurately value high yield securities in its portfolio 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 HLM 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 a Portfolio's
investment objective by investment in such securities may be more dependent on
HLM's credit analysis than is the case for higher quality bonds. Should the
rating of a portfolio security be downgraded, HLM 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.
Foreign Securities. Foreign financial markets, while growing in volume, have,
for the most part, substantially less volume than United States markets, and
securities of many foreign companies are less liquid and their prices more
volatile than securities of comparable domestic companies. The 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 the assets of a Portfolio is uninvested and no return
is earned thereon. 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 of portfolio
securities due to settlement problems could result either in losses to a
Portfolio due to subsequent declines in value of the portfolio security or, if
the Portfolio has entered into a contract to sell the security, could result in
possible liability to the purchaser.
As foreign companies are not generally subject to uniform accounting, auditing
and financial reporting standards and practices comparable to those applicable
to domestic companies, there may be less publicly available information about
certain foreign companies than about domestic companies. There is generally
less government supervision and regulation of exchanges, financial institutions
and issuers in foreign countries than there is in the United States. A foreign
government may impose exchange control regulations which may have an impact on
currency exchange rates, and there is the possibility of expropriation or
confiscatory taxation, political or social instability, or diplomatic
developments which could affect U.S. investments in those countries.
Although HLM will use reasonable efforts to obtain the best available price and
the most favorable execution with respect to all transactions, HLM will
consider the full range and quality of services offered by the executing broker
or dealer when making these determinations. Fixed commissions on many foreign
stock exchanges are generally higher than negotiated commissions on U.S.
exchanges. Certain foreign governments levy withholding taxes against dividend
and interest income. Although in some countries a portion of these taxes are
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income received by the Portfolios on these investments. However, these
foreign withholding taxes are not expected to have a significant impact on the
Portfolios, since each Portfolio's investment objective is to seek long-term
capital appreciation and any income should be considered incidental.
Foreign Currency Hedging. The success of currency hedging will depend on the
ability of HLM to predict exchange rate fluctuations. Predicting such
fluctuations is extremely difficult and thus the successful execution of a
hedging strategy is highly uncertain. An incorrect prediction will cause
poorer Portfolio performance than would otherwise be the case. Forward
contracts that protect against anticipated losses have the corresponding effect
of canceling possible gains if the currency movement prediction is incorrect.
Precise matching of forward contract amounts and the value of portfolio
securities is generally not possible because the market value of the protected
securities will fluctuate while forward contracts are in effect. Adjustment
transactions are theoretically possible but time consuming and expensive, so
contract positions are likely to be approximate hedges, not perfect.
The cost to a Portfolio of engaging in foreign currency forward contracts will
vary with factors such as the foreign currency involved, the length of the
contract period, and 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, HLM may not be able to
purchase forward contracts with respect to all of the foreign currencies in
which a Portfolio's securities may be denominated. In those circumstances the
correlation between the movements 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, as will usually be the case, the Portfolio generally will
be exposed to the credit risk of its counterparty. If the Portfolio enters
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, including the
imposition of limits on price moves. Such limits may significantly affect the
ability to trade such a 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 portfolio securities that are denominated
in currencies that in general yield high rates of return may thus tend to
reduce that rate of return toward the rate of return that would be earned on
assets denominated in U.S. dollars.
Futures Contracts. 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: (1) investors' obligations to meet additional
variation margin requirements; (2) decisions to make or take delivery, rather
than entering into offsetting transactions; and (3) 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 or foreign exchange rate trends may still not result
in a successful transaction.
Although the Fund believes that the use of such contracts and options thereon
will benefit the Portfolios, if predictions about the general direction of
securities market movements or foreign exchange 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.
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 the 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 to do so 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. In the case of a futures contract that the
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 in 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 and thereby prevent prompt liquidation
of positions and subject some traders to substantial losses.
Buyers and sellers of foreign currency futures contracts are subject to the
same risks that apply to the use of futures generally. In addition, there are
risks associated with foreign currency futures contracts and their use as
hedging devices similar to those associated with forward contracts on foreign
currencies. Further, settlement of a foreign currency futures contract must
occur within the country issuing the underlying currency. Thus, a Portfolio
must accept or make delivery of the underlying foreign currency in accordance
with any U.S. or foreign restrictions or regulations regarding the maintenance
of foreign banking arrangements by U.S. residents and may be required to pay
any fees, taxes or charges associated with such delivery that are assessed in
the country of the underlying currency.
Options on Foreign Currency. As in the case of other types of options, the
benefit to a Portfolio deriving 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 that would require them to forego a portion or all of
the benefits of advantageous changes in such rates.
A Portfolio may write options on foreign currencies for hedging purposes. For
example, where the 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 will most likely
not be exercised, and the decrease in value of portfolio securities will be
offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an anticipated
increase in the dollar costs of securities to be acquired, a Portfolio could
write a put option on the relevant currency which, if rates move in the manner
projected, will expire unexercised and allow 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, and only if
rates move in the expected direction. If this movement 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, the
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 Futures Contracts. The amount of risk a Portfolio assumes when it
purchases an option on a futures contract is the premium paid for the option
plus related transaction costs. In addition to the correlation risks discussed
above, the purchase of 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, in HLM's
opinion, the market for such options has developed sufficiently that the risks
in connection with such options are not greater than the risks in connection
with transactions in the underlying foreign currency futures contracts.
Compared to the purchase or sale of foreign currency futures contracts, the
purchase of call or put options thereon involves less potential risk to the
Portfolio because the maximum amount at risk is the premium paid for the option
(plus transaction costs). However, there may be circumstances when the
purchase of a call or put option on a foreign currency futures contract would
result in a loss, such as when there is no movement in the price of the
underlying currency or futures contract, when use of the underlying futures
contract would not result in a loss.
Lower-Rated Debt Securities ("Junk Bonds"). The market value of lower-rated
debt securities tend to reflect individual corporate developments to a greater
extent than do higher-rated securities, which react primarily to fluctuations
in the general level of interest rates. Lower-rated debt securities also tend
to be more sensitive to general economic conditions than are higher-rated debt
securities.
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). None
of the Portfolios may:
(1) invest more than 5% of its total assets (taken at market value) in
securities of any one issuer, other than securities issued by the U.S.
Government, its agencies and instrumentalities, or purchase more than 10% of
the voting securities of any issuer, with respect to 75% of a Portfolio's total
assets;
(2) invest more than 25% of its total assets in the securities of companies
primarily engaged in any one industry other than the U.S. Government, its
agencies and instrumentalities. Finance companies as a group are not
considered a single industry for purposes of this policy;
(3) borrow money, except through reverse repurchase agreements or from a bank
for temporary or emergency purposes in an amount not exceeding one third of the
value of its total assets nor will it borrow for leveraging purposes;
(4) issue senior securities (other than as specified in clause (3));
(5) make loans, except (a) through the purchase of all or a portion of an issue
of debt securities in accordance with its investment objective, policies and
limitations, or (b) by engaging in repurchase agreements with respect to
portfolio securities, or (c) by lending securities to other parties, provided
that no securities loan may be made, if, as a result, more than 33 1/3% of the
value of its total assets would be lent to other parties;
(6) underwrite securities of other issuers;
(7) invest in companies for the purpose of exercising control or management;
(8) purchase or sell real estate (other than marketable securities representing
interests in, or backed by, real estate or securities of companies which deal
in real estate or mortgages);
(9) purchase or sell physical commodities or related commodity contracts;
(10) invest directly in interests in oil, gas or other mineral exploration or
development programs or mineral leases;
(11) invest more than 10% of its total assets in warrants; or
(12) purchase or retain the securities of any open-end investment companies.
Whenever an investment policy or limitation states a maximum percentage of a
Portfolio's assets that may be invested in any security or other asset or sets
forth a policy regarding quality standards, 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
limitations.
Each Portfolio's investment objectives and other investment policies not
designated as fundamental in this Statement of Additional Information are non-
fundamental and may be changed at any time by action of the Board of Directors.
Although a non-fundamental policy, each Portfolio may not purchase securities
on margin or make short sales, unless, by virtue of its ownership of other
securities, it has the right to obtain securities equivalent in kind and amount
to the securities sold and, if the right is conditional, the sale is made upon
the same conditions, except that the Fund may obtain such short-term credits as
may be necessary for the clearance of purchases and sales of securities.
PORTFOLIO TRANSACTIONS
The Advisory Agreements authorize HLM to select the brokers or dealers that
will execute the purchases and sales of investment securities for each of the
Fund's Portfolios and HLM to use reasonable efforts to obtain the best
available price and the most favorable execution with respect to all
transactions for the Portfolios. HLM will consider the full range and quality
of services offered by the executing broker or dealer when making these
determinations.
Some securities considered for investment by the Fund's Portfolios may also be
appropriate for other clients advised by HLM. If the purchase or sale of
securities consistent with the investment policies of a Portfolio and one or
more of these other clients advised by HLM is considered at or about the same
time, transactions in such securities will be allocated among the Portfolio and
clients in a manner deemed fair and reasonable by HLM, as the case may be.
Although there is no specified formula for allocating such transactions, the
various allocation methods used by HLM, and the results of such allocations,
are subject to periodic review by the Board of Directors.
Brokers are selected on a basis of their overall assistance in terms of
execution capabilities and research services, provided that their commission
schedules are competitive with other firms providing similar services.
No trades will be executed with HLM, its 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.
NET ASSET VALUE
As used in the Prospectus, "Business Day" refers to those days when the New
York Stock Exchange is open for business, which is Monday through Friday except
for holidays. As of the date of this Statement of Additional Information, such
holidays are: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas Day.
TAX CONSIDERATIONS
The following summary of tax consequences, which does not purport to be
complete, 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.
Qualification as a Regulated Investment Company. Each Portfolio intends to
qualify for and to elect 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 derived from its business of
investing in securities (the "Qualifying Income Requirement"); (b) derive less
than 30% of its gross income each taxable year from sales or other dispositions
of certain assets (namely, (i) securities; (ii) options, futures and forward
contracts [other than those on foreign currencies]; and (iii) foreign
currencies [including options, futures and forward contracts on such
currencies] not directly related to the Portfolio's principal business of
investing in stocks or securities [or options and futures with respect to
stocks or securities]) held less than three months (the "30% Limitation"); (c)
diversify its holdings so that, at the end of each quarter of the Portfolio's
taxable year, (i) at least 50% of the market value of the Portfolio's assets 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 (d) 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) and its net tax-exempt interest income
each taxable year.
If for any taxable year a Portfolio does not qualify as a RIC, all of its
taxable income will be taxed to the Portfolio at corporate rates. For each
taxable year that 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) that 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 98% of its ordinary income
(not taking into account any capital gains or losses) determined on a calendar
year basis, 98% of its capital gains in excess of capital losses determined in
general on an October 31 year-end basis, and any undistributed amounts from
previous years. The 30% Limitation may require that a Portfolio defer closing
out certain positions beyond the time when it otherwise would be advantageous
to do so, in order not to be disqualified as a RIC. Each Portfolio will
monitor its compliance with all of the rules set forth in the preceding
paragraph.
Distributions. Each Portfolio's automatic reinvestment of its taxable
investment income, net short-term capital gains and net long-term capital gains
in additional shares of the Portfolio and distribution of such shares to
shareholders will be taxable to the Portfolio's shareholders. In general, such
shareholders will be treated as if such income and gains had been distributed
to them by the Portfolio and then reinvested by them in shares of the
Portfolio, even though no cash distributions have been made to shareholders.
The automatic reinvestment of taxable investment income and net realized short-
term capital gains of the Portfolio will be taxable to the Portfolio's
shareholders as ordinary income. Each Portfolio's automatic reinvestment of
any net long-term capital gains designated by the Portfolio as capital gain
dividends will be taxable to the shareholders as long-term capital gain,
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
dividend-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 such a 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 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 shares of a Portfolio,
or upon receipt of a distribution in complete liquidation of a Portfolio, a
shareholder generally will realize a capital gain or loss which will be long-
term or short-term, generally depending upon the shareholder's holding period
for the shares. Any loss realized on the sale or exchange will be disallowed
to the extent the shares disposed of are replaced (including shares acquired
pursuant to a dividend reinvestment plan) within a period of 61 days beginning
30 days before and ending 30 days after disposition of the shares. In such a
case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by the shareholder on a disposition of
Portfolio shares held by the shareholder for six months or less will be treated
as a long-term capital loss to the extent of any distributions of net capital
gains deemed received by the shareholder with respect to such shares.
Under the Code, a shareholder may not deduct that portion of interest on
indebtedness incurred or continued to purchase or carry shares of an investment
company paying exempt-interest dividends which bears the same ratio to the
total of such interest as the exempt-interest dividends bear to the total
dividends (excluding net capital gain dividends) received by the shareholder.
In addition, under rules issued by the Internal Revenue Service for determining
when borrowed funds are considered to be used to purchase or carry particular
assets, the purchase of such shares may be considered to have been made with
borrowed funds even though the borrowed funds are not directly traceable to
such purchase.
Zero Coupon Securities. Investments by a Portfolio in zero coupon securities
(other than tax-exempt zero coupon securities) will result in income to the
Portfolio equal to a portion of the excess of the face value of the securities
over their issue price (the "original issue discount") each year that the
securities are held, even though the Portfolio receives no cash interest
payments. This income is included in determining the amount of income which
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. Similarly, investments in
tax-exempt zero coupon securities will result in a Portfolio accruing tax-
exempt income each year that the securities are held, even though the Portfolio
receives no cash payments of tax-exempt interest. This tax-exempt income is
included in determining the amount of net tax-exempt interest income which a
Portfolio must distribute to maintain its status as a regulated investment
company.
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 and, all redemption payments made to
shareholders who fail to provide the Portfolio with their correct taxpayer
identification number or to make required certifications, or who 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.
Tax Treatment of Hedging Transactions. The taxation of equity options and
over-the-counter options on debt securities is governed by the Code section
1234. Pursuant to Code section 1234, the premium received by a Portfolio for
selling a put or call option is not included in income at the time of receipt.
If the option expires, the premium is short-term capital gain to the
Portfolio. If the Portfolio enters into a closing transaction, the difference
between the amount paid to close out its position and the premium received is
short-term capital gain or loss. If a call option written by the Portfolio is
exercised, thereby requiring the Portfolio to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and
any resulting gain or loss will be a capital gain or loss, and will be long-
term or short-term depending upon the holding period of the security. With
respect to a put or call option that is purchased by a Portfolio, if the option
is sold, any resulting gain or loss will be a capital gain or loss, and will
be long-term or short-term, depending upon the holding period of the option.
If the option expires, the resulting loss is a capital loss and is long-term or
short-term, depending upon the holding period of the option. If the option is
exercised, the cost of the option, in the case of a call option, is added to
the basis of the purchased security and, in the case of a put option, reduces
the amount realized on the underlying security in determining gain or loss.
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% long-term and 40% short-term capital gains or losses
("60/40 treatment"), regardless of the Portfolio's actual holding period for
the contract. Also, a section 1256 contract held by the Portfolio at the end
of each taxable year (and generally, for the purposes of the 4% excise tax, on
October 31 of each year) must be treated as if the contract had been sold at
its fair market value on that day ("mark to market treatment"), and any deemed
gain or loss on the contract is subject to 60/40 treatment. Foreign currency
gain or loss (discussed below) arising from section 1256 contracts may,
however, be treated as ordinary income or loss.
The hedging transactions undertaken by a Portfolio may result in "straddles"
for federal income tax purposes. The straddle rules may affect the character
of gains or losses realized by the Portfolio. In addition, losses realized by
the 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, the Portfolio may be required to capitalize, rather than deduct
currently, any interest expense on indebtedness incurred or continued to
purchase or carry any positions that are part of a straddle. Because only a
few regulations implementing the straddle rules have been implemented, the tax
consequences to the Portfolio of engaging in hedging transactions are not
entirely clear. Hedging transactions may increase the amount of short-term
capital gain realized by a Portfolio which is taxed as ordinary income when
distributed to members.
The Portfolio may make one or more of the elections available under the Code
that are applicable to straddles. If the 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.
Because the 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 that is distributed to members and that is taxed to them as
ordinary income or long-term capital gain may be increased or decreased as
compared to a fund that did not engage in such hedging transactions.
Tax Treatment of Foreign Currency-Related Transactions. Gains or losses
attributable to fluctuations in exchange rates that occur between the time a
Portfolio accrues receivables or liabilities denominated in a foreign currency
and the time the Portfolio actually collects such receivables, or pays such
liabilities, generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of certain options, futures, and forward contracts
and on disposition of debt securities denominated in a foreign currency, gains
or losses attributable to fluctuations in the value of foreign currency between
the date of acquisition of the security or contract and the date of disposition
also are treated as ordinary gain or loss. These gains or losses, referred to
under the Code as "section 988" gains or losses, may increase or decrease the
amount of the Portfolio's investment company taxable income to be distributed
to members as ordinary income.
Tax Treatment of Passive Foreign Investment Companies. If a Portfolio invests
in stock of certain foreign investment companies, the Portfolio may be subject
to U.S. federal income taxation on a portion of any "excess distribution" with
respect to, or gain from the disposition of, such stock. The tax would be
determined by allocating on a pro rata basis such distribution or gain to each
day of the Portfolio's holding period for the stock. The distribution or gain
so allocated to any taxable year of the Portfolio, other than the taxable year
of the excess distribution or disposition, would be taxed to the Portfolio at
the highest ordinary income rate in effect for such year, and the tax would be
further increased by an interest charge to reflect the value of the tax
deferral deemed to have resulted from the ownership of the foreign company's
stock. Any amount of distribution or gain allocated to the taxable year of the
distribution or disposition would be included in the Portfolio's investment
company taxable income and, accordingly, would not be taxable to the Portfolio
to the extent distributed by the Portfolio as a dividend to its shareholders.
A Portfolio may be able to make an election, in lieu of being taxable in the
manner described above, to include annually in income its pro rata share of the
ordinary earnings and net capital gain of any foreign investment company in
which it invests, regardless of whether it actually received any distributions
from the foreign company. These amounts would be included in the Portfolio's
investment company taxable income and net capital gain which, to the extent
distributed by the Portfolio as ordinary or capital gain dividends, as the case
may be, would not be taxable to the Portfolio. In order to make this election,
the Portfolio would be required to obtain certain annual information from the
foreign investment companies in which it invests, which in many cases may be
difficult to obtain. Other elections may become available to the Portfolio
that would provide alternative tax treatment for investments in foreign
investment companies.
Foreign Shareholders. U.S. taxation of a shareholder who, as to the United
States, is a non-resident alien individual, a foreign trust or estate, foreign
corporation, or foreign partnership ("foreign shareholder") depends on whether
the income from the Portfolio is "effectively connected" with a U.S. trade or
business carried on by such shareholder.
If the income from a Portfolio is not "effectively connected" with a U.S. trade
or business carried on by the foreign shareholder, deemed distributions by the
Portfolio of investment company taxable income will be subject to a U.S. tax of
30% (or lower treaty rate), which tax is generally withheld from such
distributions. Deemed distributions of capital gain dividends and any gain
realized upon redemption, sale or exchange of shares will not be subject to
U.S. tax at the rate of 30% (or lower treaty rate) unless the foreign
shareholder is a nonresident alien individual who is physically present in the
U.S. for more than 182 days during the taxable year and meets certain other
requirements. However, this 30% tax on capital gains of non-resident alien
individuals who are physically present in the United States for more than the
182-day period only applies in exceptional cases because any individual present
in the United States for more 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 foreign shareholder who is a non-
resident alien individual, the Portfolio may be required to withhold U.S.
federal income tax at a rate of 31% of deemed distributions of net capital
gains and redemption payments 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 the income from a Portfolio is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then deemed distributions of
investment company taxable income and capital gain dividends and 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. Foreign corporate 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 be different from those described herein. Foreign
shareholders are advised to consult their own advisers with respect to the
particular tax consequences to them of an investment in a Portfolio.
Foreign Withholding Taxes. Income received by a Portfolio from sources within
foreign countries may be subject to withholding and other taxes imposed by such
countries. If more than 50% of the value of the Portfolio's total assets at
the close of its taxable year consists of securities of foreign corporations,
the Portfolio will be eligible and may elect to "pass through" to the
Portfolio's shareholders the amount of foreign taxes paid by the Portfolio.
Pursuant to this election, a shareholder will be required to include in gross
income (in addition to dividends actually received) its pro rata share of the
foreign taxes paid by the Portfolio, and may be entitled either to deduct its
pro rata share of the foreign taxes in computing its taxable income or to use
the amount as a foreign tax credit against its U.S. federal income tax
liability, subject to limitations. Each shareholder will be notified within 60
days after the close of the Portfolio's taxable year whether the foreign taxes
paid by the Portfolio will "pass through" for that year. If a Portfolio is not
eligible to make the election to "pass through" to its shareholders its foreign
taxes, the foreign taxes it pays will reduce its investment company taxable
income and distributions by the Portfolio will be treated as U.S. source
income.
Generally, a credit for foreign taxes is subject to the limitation that it may
not exceed the shareholder's U.S. tax attributable to its foreign source
taxable income. For this purpose, if the pass-through election is made, the
source of the Portfolio's income flows through to its shareholders. With
respect to the Portfolios, gains from the sale of securities will be treated as
derived from U.S. sources and certain currency fluctuation gains, including
fluctuation gains from foreign currency denominated debt securities,
receivables and payables, will be treated as ordinary income derived from U.S.
sources. The limitation on the foreign tax credit is applied separately to
foreign source passive income (as defined for purposes of the foreign tax
credit), including the foreign source passive income passed through by the
Portfolios. Shareholders who are not liable for federal income taxes will not
be affected by any such "pass through" of foreign tax credits.
Other Taxes A Portfolio may be subject to state, local or foreign taxes in any
jurisdiction in which the Portfolio may be deemed to be doing business. In
addition, shareholders of a Portfolio may be subject to state, local or foreign
taxes on distributions from the Portfolio. In many states, Portfolio
distributions which are derived from interest on certain U.S. Government
obligations may be exempt from taxation.
Shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in a Portfolio.
SHAREHOLDER INFORMATION
Certificates representing shares of a particular Portfolio will not be issued
to shareholders. Investors Bank & Trust Company, the Fund's Transfer Agent,
will maintain an account for each shareholder upon which the registration and
transfer of shares are recorded, and any transfers shall be reflected by
bookkeeping entry, without physical delivery. Detailed confirmations of each
purchase or redemption are sent to each shareholder. Monthly statements of
account are sent which include shares purchased as a result of a reinvestment
of Portfolio distributions.
The Transfer Agent will require that a shareholder 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.).
Fund management reserves the right to waive the minimum initial investment in
any Portfolio.
The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase order with
respect to shares of a Portfolio by making payment in whole or in part in
readily marketable securities chosen by the Fund 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, however, to be
governed by Rule 18f-1 under the 1940 Act as a result of which 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
The Portfolios may, from time to time, include the 30-day yield in
advertisements or reports to shareholders or prospective investors. Quotations
of yield for will be based on all investment income per share during a
particular 30-day (or one month) period (including dividends and interest),
less expenses accrued during the period ("net investment income"), and are
computed by dividing net investment income by the maximum offering price per
share on the last day of the period, according to the following formula which
is prescribed by the Commission:
YIELD = 2 x { [ ((a - b) / (c x d)) + 1]^6 - 1 }
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 the period that were entitled to receive
dividends; and
d = the maximum offering price per share on the last day of the
period.
Each of the Portfolios may, from time to time, include "total return" in
advertisements or reports to shareholders or prospective investors. Quotations
of average annual total return will be expressed in terms of the average annual
compounded rate of return of a hypothetical investment in a Portfolio of the
Fund over periods of 1, 5 and 10 years (up to the life of the Portfolio),
calculated pursuant to the following formula which is prescribed by the
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.
RATINGS DESCRIPTIONS
Standard & Poors Corporation
AAA. Bonds rated AAA are highest grade debt obligations. This rating indicates
an extremely strong capacity to pay principal and interest.
AA. Bonds rated AA also qualify as high-quality obligations. Capacity to pay
principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A. Bonds rated A have a strong capacity to pay principal and interest, although
they are more susceptible to the adverse effects of changes in circumstances
and economic conditions.
BBB. Bonds rated BBB are regarded as having adequate capacity to pay interest
or principal. Although these bonds normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and principal.
BB and Lower. Bonds rated BB, B, CCC, CC, C and D are regarded, on balance, as
predominately speculative with respect to the issuer's capacity to pay interest
and principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and D the highest degree of speculation. While
such bonds may have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse
conditions.
The ratings AA to D may be modified by the addition of a plus or minus sign to
show relative standing within the major rating categories.
A-1. Standard & Poors Commercial Paper ratings are current assessments of the
likelihood of timely payments of debts having original maturity of no more than
365 days. The A-1 designation indicates the degree of safety regarding timely
payment is very strong.
A-2. Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
Moody's Investors Service, Inc.
Aaa. Bonds are protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa. Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than the Aaa
securities.
A. Bonds which are rated A possess many favorable investment attributes and may
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa. Baa rated bonds are considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present, but certain protective elements may
be lacking or may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba. Bonds which are rated Ba are judged to have speculative elements because
their future cannot be considered as well assured. Uncertainty of position
characterizes bonds in this class, because the protection of interest and
principal payments may be very moderate and not well safeguarded.
B and Lower. Bonds which are rated B generally lack characteristics of a
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the security over any long period of time may be
small. Bonds which are rated Caa are of poor standing. Such securities may be
in default of there may be present elements of danger with respect to principal
or interest. Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings. Bonds which are rated C are the lowest rated class of
bonds and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Moody's applies the numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through C 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
risk. Factors affecting the liquidity of the borrower are uppermost in
importance in short-term borrowing, while various factors of the first
importance in long-term borrowing risk are of lesser importance in the short
run.
MIG-1. Notes bearing this designation are of the best quality enjoying strong
protection from established cash flows of funds for their servicing or from
established and broad-based access to the market for refinancing, or both.
MIG-2. Notes bearing this designation are of favorable quality, with all
security elements accounted for, but lacking the undeniable strength of the
previous grade. Market access for refinancing, in particular, is likely to be
less well established.
P-1. Moody's Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. The designation "Prime-1" or "P-1" indicates the
highest quality repayment capacity of the rated issue.
P-2. Issuers have a strong capacity for repayment of short-term promissory
obligations.
Thompson Bankwatch, Inc.
A. Company possess 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.
Fitch Investors Service, Inc.
F-1. The rating F-1 is the highest rating assigned by Fitch. Among the factors
considered by Fitch in assigning this rating are: (1) the issuer's liquidity;
(2) its standing in the industry; (3) the size of its debt; (4) its ability to
service its debt; (5) its profitability; (6) its return on equity; (7) its
alternative sources of financing; and (8) its ability to access the capital
markets. Analysis of the relative strength or weakness of these factors and
others determines whether an issuer's commercial paper is rated F-1.
Part C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements and Schedules:
Statement of Assets and Liabilities dated ______________, 1996*
Independent Auditors' Report dated ______________-----__, 1996*
(b) Exhibits:
Exhibit Number Description
- - - -------------- -----------
1(a) Registrant's Articles of Incorporation
2 By-Laws
3 None
4(a) Specimen Stock Certificates for Shares of Registrant*
5(a) Advisory Agreement between Registrant and
Harding, Loevner, Management, L.P.*
6(a) Distribution Agreement between Registrant and
AMT Capital Services, Inc.*
7 None
8 Custodian Agreement between Registrant and
Investors Bank & Trust Company*
9(a) Administration Agreement between Registrant and
AMT Capital Services, Inc.*
9(b) Form of Transfer Agency Agreement between Registrant
and Investors Bank & Trust Company*
10 Opinion and Consent of Dechert Price & Rhoads*
11 Consent of Ernst & Young*
12 None
13(a) Form of Share Purchase Agreement between
Registrant and Harding, Loevner Management, L.P.*
14 None
* To be filed by Amendment.
Item 25. Persons Controlled by or Under Common Control with Registrant
Not Applicable.
Item 26. Number of Holders of Securities
Title of Class Number of Record Holders
Global Equity Portfolio None
International Equity Portfolio None
Emerging Markets Portfolio None
Multi-Asset Global Portfolio None
Item 27. Indemnification
The Registrant shall indemnify directors, officers, employees
and agents of the Registrant against judgments, fines,
settlements and expenses to the fullest extent allowed, and in
the manner provided, by applicable federal and Maryland law,
including Section 17(h) and (i) of the Investment Company Act of
1940. In this regard, the Registrant undertakes to abide by the
provisions of Investment Company Act Releases No. 11330 and 7221
until amended or superseded by subsequent interpretation of
legislative or judicial action.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to
directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
Harding, Loevner Management, L.P. (the "Investment Adviser") is
a limited partnership organized under the laws of the State of
New Jersey and it is an investment adviser registered under the
Investment Advisers Act of 1940 (the "Advisers Act").
The list required by this Item 28 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. 801-36845).
Item 29. Principal Underwriter
(a) In addition to Registrant, AMT Capital Services, Inc.
("AMT Capital") currently acts as principal underwriter to
FFTW Funds, Inc., TIFF Investment Program, Inc., Holland
Series Fund, Inc. and AMT Capital Fund, Inc. AMT Capital
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 Services, Inc.:
Name and Principal
Business Address Positions and Offices Positions and Offices
with Underwriter with Registrant
- - - -------------------------------------------------------------------------------
Alan M. Trager Director, Chairman and None
600 Fifth Avenue Treasurer
26th Floor
New York, NY 10020
Carla E. Dearing Director, President Assistant Treasurer
600 Fifth Avenue
26th Floor
New York, NY 10020
Ruth L. Lansner Secretary None
Gilbert, Segall & Young
430 Park Avenue
11th Floor
New York, NY 10022
William E. Vastardis Senior Vice President Secretary Treasurer
600 Fifth Avenue
26th Floor
New York, NY 10020
(c) Not Applicable.
Item 30. Location of Accounts and Records
All accounts, book and other documents required to be maintained
by Section 31(a) of an Investment Company Act of 1940 and the
Rules (17 CFR 270.32a-l to 3la-3) promulgated thereunder will be
maintained by the following:
Accounting and Custodial Records - Investors Bank & Trust
Company, P.O. Box 1537, Boston, Massachusetts 02205-1537.
Dividend Disbursing Agent and Transfer Agent - Investors
Bank & Trust Company, P.O. Box 1537, Boston, Massachusetts
02205-1537.
Balance of Accounts and Records: AMT Capital Services,
Inc., 600 Fifth Avenue, 26th Floor, New York, New York
10020, and Harding, Loevner Management, L.P., 50 Division
Street, Suite 401, Somerville, N.J. 08876.
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
(a) Not Applicable
(b) Registrant hereby undertakes to file a post-effective
amendment, containing financial statements as of a reasonably
current date which need not be certified, within four to six
months from the date of commencement of investment operations of
the Fund
(c) The Registrant 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
Registrant's outstanding shares, 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
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 31st day of July, 1996.
HARDING, LOEVNER FUNDS, INC.
By: /s/ David R. Loevner
David R. Loevner, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement had been signed below by the following persons in the
capacities indicated on the 31st day of July 1996.
Signature Title
/s/ David R. Loevner Director and President (Principal Executive,
Financial and Accounting Officer)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________
EXHIBITS
TO
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND THE
INVESTMENT COMPANY ACT OF 1940
________________________________
HARDING, LOEVNER FUNDS, INC.
HARDING, LOEVNER FUNDS, INC.
EXHIBIT INDEX
Exhibit No. Description of Exhibit
(1a) Registrant's Articles of Incorporation
2 By-Laws
ARTICLES OF INCORPORATION
HARDING, LOEVNER FUNDS, INC.
FIRST: Formation.
The undersigned, Eric P. Nachimovsky - whose post office address is
600 Fifth Avenue, 26th Floor New York, NY 10020, being at least
twenty-one years of age, do under and by virtue of the Maryland
General Corporation Law, authorizing the formation of corporations,
associate myself as incorporator with the intention of forming a
corporation (hereinafter called the "Corporation").
SECOND: Name.
The name of the Corporation is Harding, Loevner Funds, Inc.
THIRD: Purpose.
The purpose for which the Corporation is formed is to act as an
open-end management investment company under the Investment
Company Act of 1940, as amended, as then in effect and the rules
and regulations from time to time promulgated and effective
thereunder (referred to herein collectively as the "Act") and to
exercise and enjoy all of the powers, rights and privileges
granted to, or conferred upon, corporations by the Maryland
General Corporation Law now or hereafter in force.
FOURTH: Address and Resident Agent.
The post office address of the principal office of the
Corporation in the State of Maryland is c/o The Corporation
Trust Incorporated, 32 South Street, Baltimore, MD 21202. The
name and address of the resident agent of the Corporation in the
State of Maryland is The Corporation Trust Incorporated, a
corporation of this State, 32 South Street, Baltimore, MD
21202.
FIFTH: Capital Stock.
(a) The total number of shares of capital stock of all
classes that the Corporation shall have authority to issue is
Two Billion Five Hundred Million (2,500,000,000) all of which
capital stock shall have a par value of one cent ($.01) per
share to be known and designated as Common Stock, such shares of
Common Stock having an aggregate par value of $25,000,000.00.
The Board of Directors shall be authorized to increase or
decrease the aggregate number of authorized shares of Common
Stock from time to time in accordance with the provisions of the
Maryland General Corporation Law.
(b) Subject to the provisions of these Articles of
Incorporation, the Board of Directors shall have the power to
issue shares of Common Stock of the Corporation from time to
time, at prices not less than the par value thereof, for such
consideration as may be fixed from time to time pursuant to the
direction of the Board of Directors. All stock shall be issued
on a fully paid and non-assessable basis.
(c) Pursuant to Section 2-105 of the Maryland General
Corporation Law, the Board of Directors of the Corporation shall
have the power to designate one or more classes of shares of
Common Stock, to fix the number of shares in any such class and
to classify or reclassify any unissued shares with respect to
such class. Any such class (subject to any applicable rule,
regulation or order of the Securities and Exchange Commission or
other applicable law or regulation) shall have such preferences,
conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, terms and
conditions of redemption and other characteristics as the Board
may determine in the absence of contrary determination set forth
herein. The aforesaid power shall include the power to create,
by classifying or reclassifying unissued shares in the aforesaid
manner, one or more classes in addition to those initially
designated as named below. Subject to such aforesaid power, the
Board of Directors has initially designated four classes of
shares of Common Stock of the corporation.
The name of such classes and the number of shares of Common
Stock initially classified and allocated to these classes are as
follows:
Number of Shares of Common Stock
Name of Class Initially Classified and Allocated
International Equity Portfolio 500,000,000
Global Equity Portfolio 500,000,000
Emerging Markets Portfolio 500,000,000
Multi-Asset Global Portfolio 500,000,000
Unallocated Shares 500,000,000
(d) At any time when there are no shares outstanding or
subscribed for a particular class previously established and
designated herein by the Board of Directors, the class may be
liquidated in accordance with applicable law or by similar
means. Each share of a class shall have equal rights with each
other share of that class with respect to the assets of the
Corporation pertaining to that class. The dividends payable to
the holders of any class (subject to any applicable rule,
regulation or order of the Securities and Exchange Commission or
any other applicable law or regulation) shall be determined by
the Board and need not be individually declared, but may be
declared and paid in accordance with a formula adopted by the
Board. Except as otherwise provided herein, all references in
these Articles of Incorporation to Common Stock or to a class of
stock shall apply without discrimination to the shares of each
class of stock.
(e) The holder of each share of Common Stock of the
Corporation shall be entitled to one vote for each dollar, and a
proportionate fraction of a vote for each fraction of a dollar,
of net asset value on the record date or the date the stock
transfer books of the Corporation are closed, as the case may
be, of each share of Common Stock of the Corporation, standing
in his or her name on the books of the Corporation on such date.
On any matter submitted to a vote of stockholders, all shares
of the Corporation then issued and outstanding and entitled to
vote, irrespective of the class, shall be voted in the aggregate
and not by class except (1) when otherwise expressly provided by
the Maryland General Corporation Law, or when required by the
Act, shares shall be voted by individual class; and (2) when the
matter does not affect any interest of a particular class, then
only stockholders of such other class or classes whose interests
may be affected shall be entitled to vote hereon. Holders of
shares of stock of the Corporation shall not be entitled to
cumulative voting in the election of Directors or on any other
matter.
(f) Each class of stock of the Corporation shall have the
following powers, preference and participating, voting, or other
special rights, and the qualifications, restrictions, and
limitations thereof shall be as follows:
1. All consideration received by the Corporation for the
issue or sale of stock of each class, together with
all income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange
or liquidation thereof, and any funds or payments
derived from any reinvestment of such proceeds in
whatever form the same may be, shall irrevocably
belong to the class of shares of stock with respect to
which such assets, payments or funds were received by
the Corporation for all purposes, subject only to the
rights of creditors, and shall be so recorded upon the
books of account of the Corporation. Such assets,
income, earnings, profits and proceeds thereof,
including any proceeds derived from the sale, exchange
or liquidation thereof and any assets derived from any
reinvestment of such proceeds, in whatever form the
same may be, are herein referred to as "assets
belonging to" such class.
2. The Board of Directors may from time to time declare
and pay dividends or distributions, in stock or in
cash, on any or all classes of stock; provided, such
dividends or distributions on shares of any class of
stock shall be paid only out of earnings, surplus, or
other lawfully available assets belonging to such
class. Subject to the foregoing proviso, the amount
of any dividends or distributions and the payment
thereof shall be wholly in the discretion of the
Board of Directors.
3. The Board of Directors shall have the power in its
discretion to distribute in any fiscal year as
dividends, including dividends designated in whole or
in part as capital gain distributions, amounts
sufficient, in the opinion of the Board of Directors,
to enable the Corporation to qualify as a "regulated
investment company" under the Internal Revenue Code of
1986, as amended, or any successor or comparable
statute thereof, and regulations promulgated
thereunder (collectively, the "IRC"), and to avoid
liability for the Corporation for Federal income tax
in respect of that year and to make other appropriate
adjustments in connection therewith. The Board of
Directors shall have the power, in its discretion, to
make such elections as to the tax status of the
Corporation or any class of the Corporation as may be
permitted or required by the IRC, without the vote of
stockholders of the Corporation or any class.
4. In the event of the liquidation or dissolution of the
Corporation, stockholders of each class shall be
entitled to receive, as a class, out of the assets of
the Corporation available for distribution to
stockholders, but other than general assets, the
assets belonging to such class, and the assets so
distributable to the stockholders of any class shall
be distributed among such stockholders in proportion
to the number of shares of such class held by them and
recorded on the books of the Corporation. In the
event that there are any general assets not belonging
to any particular class of stock and available for
distribution, such distribution shall be made to the
holders of stock of all classes in proportion to the
net asset value of the respective class determined as
hereinafter provided and distributed to the holders of
capital stock of each class in proportion to the
number of shares of that class held by the respective
holders.
5. The assets belonging to any class of stock shall be
charged with the liabilities in respect to such class,
and shall also be charged with its share of the
general liabilities of the Corporation. General
liabilities shall be charged to classes in proportion
to the net asset value of the respective class
determined as hereinafter provided. The determination
of the Board of Directors shall be conclusive as to
the amount of liabilities, including accrued expenses
and reserves, as to the allocation of the same as to a
given class, and as to whether the same or general
assets of the Corporation are allocable to one or more
classes.
(g) The Board of Directors may provide for a holder of any
class of stock of the Corporation, who surrenders his
certificate in good form for transfer to the Corporation or, if
the shares in question are not represented by certificates, who
delivers to the Corporation a written request in good order
signed by the shareholder, to convert the shares in question on
such bases as the Board may provide, into shares of stock of any
other class of the Corporation.
(h) No holder of any class of Common Stock of the
Corporation or of any other class of stock or securities which
may hereafter be created shall be entitled as such, as a matter
of right, to subscribe for or purchase any part of any new or
additional issue of capital stock of any class, or of rights or
options to purchase any capital stock, or of securities
convertible into, or carrying rights or options to purchase,
capital stock of any class, whether now or hereafter authorized
or whether issued for money, for consideration other than money
or by way of a dividend or otherwise, and all such rights are
hereby waived by each holder of Common Stock and of any other
class of stock or securities which may hereafter be created.
SIXTH: Board of Directors.
(a) Number and Election. The number of directors of the
Corporation, so long as there is no Common Stock outstanding,
or, if there is Common Stock outstanding, but there are less
than three stockholders, shall be one. Except as provided in
the preceding sentence, the number of directors of the
Corporation shall initially be one (1) provided, however, that
the number of directors may be increased or decreased in
accordance with the By-Laws so long as the number is never less
than three (3). Except as provided in the By-Laws, the election
of directors may be conducted in any way approved at the meeting
(whether stockholders or directors) at which the election is
held, provided that such election shall be by ballot whenever
requested by any person entitled to vote. The name of the
director who shall act until the first annual meeting or until
his successor is duly elected and qualified is:
David R. Loevner
(b) Removal of Directors. Subject to the limits of the
Act and unless otherwise provided by the By-Laws, a director may
be removed with or without cause, by the affirmative vote of a
majority of (a) the Board of Directors, (b) a committee of the
Board of Directors appointed for such purpose, or (c) the
stockholders by vote of a majority of the outstanding shares of
the Corporation.
(c) Responsibility and Liability. To the fullest extent
permitted by Maryland General Corporation Law, as it may be
amended from time to time, subject to the limitations imposed by
the Act, no director or officer of the Corporation shall be
personally liable to the Corporation or its stockholders for
damages. This limitation on liability applies to events
occurring at the time a person serves as a director or officer
of the Corporation, whether or not such person is a director or
officer at the time of any proceeding in which liability is
asserted. No amendment of the charter of the Corporation or
repeal of any of its provisions shall limit or eliminate any of
the benefits provided to directors and officers under this
Article SIXTH in respect of any act or omission that occurred
prior to such amendment or repeal.
(d) Reliance on Books and Reports. Each director or
officer or member of any committee designated by the Board of
Directors shall, in the performance of his or her duties, be
entitled to rely on any information, opinion, report, or
statement, including any financial statement or other financial
data, prepared or presented by (i) an officer or employee of the
Corporation whom they reasonably believe to be reliable and
competent in the matters presented; (ii) a lawyer, public
accountant, or other person, as to a matter which they believe
to be within the person's professional or expert competence;
and (iii) a committee of the Board on which they do not serve,
as to a matter within its designated authority, if they
reasonably believe the committee to merit confidence
(e) Indemnification. The Corporation, including its
successors and assigns, shall indemnify its directors and
officers to the fullest extent allowed, and in the manner
provided, by Maryland General Corporation Law as it may be
amended from time to time and the Act, including the advancing
of reasonable expenses incurred in connection therewith. Such
indemnification shall be in addition to any other right or claim
to which any director or officer may otherwise been entitled.
The Corporation may indemnify any other persons permitted but
not required to be indemnified by Maryland General Corporation
Law and the Act as they may be amended from time to time, if and
to the extent indemnification is authorized and determined to be
appropriate in each case in accordance with applicable law by
the Board of Directors, the stockholders, or special legal
counsel appointed by the Board of Directors. The Corporation
may purchase and maintain insurance on behalf of any person who
is or was a director, officer, employee, or agent of the
Corporation, or who, while a director, officer, employee or
agent of the Corporation, is or was serving at the request of
the Corporation as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust, other enterprise or employee
benefit plan, against any liability asserted against and
incurred by such person in any such capacity or arising out of
such person's position, whether or not the Corporation would
have had the power to indemnify such liability, but shall not be
required to purchase or maintain insurance on behalf of any such
person. No amendment of the Articles of Incorporation of the
Corporation or repeal of any of its provisions shall limit or
eliminate any of the benefits provided under this Article SIXTH
in respect of any act or omission that occurred prior to such
amendment or repeal. The rights provided to any person by this
Article shall be enforceable against the Corporation by such
person who shall be presumed to have relied upon such rights in
serving or continuing to serve in the capacities indicated
herein. No amendment of these Articles of Incorporation shall
impair the rights of any person arising at any time with respect
to events occurring prior to such amendment.
Nothing in these Articles of Incorporation shall be deemed
to (i) require a waiver of compliance with any provision of the
Securities Act of 1933, as amended, or the Act, or of any valid
rule, regulation or order of the Securities and Exchange
Commission under those Acts or (ii) protect any director or
officer of the Corporation against any liability to the
Corporation or its stockholders to which he or she would
otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence in the performance of his or her duties or
by reason of his or her reckless disregard of his or her
obligations and duties hereunder.
(f) Severability. Each section or portion thereof of this
Article SIXTH shall be deemed severable from the remainder, and
the invalidity of any such section or portion shall not affect
the validity of the remainder of this Article SIXTH.
SEVENTH: Management of the Affairs of the Corporation.
The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation:
(a) The Board shall have power to fix an initial offering
price for the shares of any class which shall yield to the
Corporation not less than the par value thereof, at which price
the shares of the Common Stock of the Corporation shall be
offered for sale, and to determine from time to time thereafter
the offering price which shall yield to the Corporation not less
than the par value thereof from sales of the shares of its
Common Stock.
The net asset value of the property and assets of any class
of the Corporation shall be determined at such times as the
Board of Directors may direct, by deducting from the total
appraised value of all of the property and assets of the
Corporation which constitute the assets belonging to the class,
determined in the manner hereinafter provided, all debts,
obligations and liabilities of the Corporation (including, but
without limitation of the generality of any of the foregoing,
any or all debts, obligations, liabilities or claims of any and
every kind and nature, whether fixed, accrued, or unmatured, and
any reserves or charges, determined in accordance with generally
accepted accounting principles, for any or all thereof, whether
for taxes, including estimated taxes or unrealized book profits,
expenses, contingencies or otherwise) allocable to such class.
In determining the total appraised value of all the
property and assets of the Corporation or belonging to any class
thereof:
1. Securities owned shall be valued at market value or,
in the absence of readily available market quotations,
at fair value as determined in good faith by or as
directed by the Board of Directors in accordance with
applicable statutes and regulations.
2. Dividends declared but not yet received, or rights, in
respect of securities which are quoted ex-dividend or
ex-rights, shall be included in the value of such
securities as determined by or pursuant to the
direction of the Board of Directors on the day the
particular securities are first quoted ex-dividend or
ex-rights, and on each succeeding day until the said
dividends or rights are received and become part of
the assets of the Corporation.
3. The value of any other assets of the Corporation (and
any of the assets mentioned in paragraphs (1) or (2),
in the discretion of the Board of Directors in the
event of national financial emergency, as hereinafter
defined) shall be determined in such manner as may be
approved from time to time by or pursuant to the discretion
of the Board of Directors.
The net asset value of each share of any class of the
Common Stock of the Corporation shall be determined by dividing
the net asset value of the property and assets of the relevant
class of the Corporation, as defined above, by the total number
of shares of its Common Stock then issued and outstanding for
such class, including any shares of such class sold by the
Corporation up to and including the date as of which such net
asset value is to be determined, whether or not certificates
therefor have actually been issued. In case the net asset value
of each share of any such class so determined shall include a
fraction of one cent, such net asset value of each share of that
class shall be adjusted to the nearer full cent.
For the purpose of these Articles of Incorporation, a
"national financial emergency" is defined as the whole or any
part of any period (i) during which the New York Stock Exchange
is closed other than customary weekend and holiday closing, (ii)
during which trading on the New York Stock Exchange is
restricted, (iii) during which an emergency exists as a result
of which disposal by the Corporation of securities owned by such
class is not reasonably practicable or it is not reasonably
practicable for the Corporation fairly to determine the value
for the net assets of such class, or (iv) during any other
period when the Securities and Exchange Commission (or any
succeeding governmental authority) may for the protection of
security holders of the Corporation by order permit suspension
of the right of redemption or postponement of the date of
payment on redemption; provided that applicable rules and
regulations of the Securities and Exchange Commission (or any
succeeding governmental authority) shall govern as to whether
the conditions prescribed in (ii), (iii), or (iv) exist.
Notwithstanding any other provisions of this Article, the
Board of Directors may suspend the right of stockholders of any
or all classes of shares to require the Corporation to redeem
shares held by them for such periods and to the extent permitted
by, or in accordance with, the Act. The Board of Directors may,
in the absence of a ruling by a responsible regulatory official,
terminate such suspension at such time as the Board of
Directors, in its discretion, shall deem reasonable, such
determination to be conclusive.
(b) To the extent permitted by law, except in the case of
a national financial emergency or as otherwise permitted or
required in this Article SEVENTH, the Corporation shall redeem
shares of its Common Stock from its stockholders upon request of
the holder thereof received by the Corporation or its designated
agent during business hours of any business day, provided that
such request must be accompanied by surrender of outstanding
certificate or certificates for such shares in form for transfer
and must be in writing or, subject to limitations established by
the Board of Directors, received by telephone and insofar as it
may relate to shares for which no certificate has been issued,
together with such proof of the authenticity of signatures as
may reasonably be required with respect to such certificated
shares (or, on such request in the event on certificate is
outstanding) by, or pursuant to the direction of the Board of
Directors of the Corporation, and accompanied by proper stock
transfer stamps. Shares redeemed upon written request shall be
redeemed by the Corporation at the net asset value of such
shares determined in the manner provided in Paragraph (1) of
this Article SEVENTH as of the close of business on the business
day during which such request was received in good order by the
Corporation.
Payments of shares of its Common Stock so redeemed by the
Corporation shall be made only from assets of the applicable
class lawfully available therefor and out of such assets.
Payment shall be in cash, except payment for such shares may, at
the option of the Board of Directors, or such officer or
officers as they may duly authorize for the purpose in their
complete discretion, be made from the assets of that class in
kind or partially in cash and partially in kind. In case of any
payment in kind the Board of Directors, or its delegate, shall
have absolute discretion as to what security or securities
constituting assets belonging to such class shall be distributed
in kind and the amount if the same; and the securities shall be
valued for purpose of distribution at the value at which they
were appraised in computing the current net asset value of the
class of the Corporation's shares, provided that any stockholder
who cannot legally acquire securities so distributed in kind by
reason of the prohibitions of the Act shall receive cash.
Payments for shares of its Common Stock so redeemed by the
Corporation shall be made by the Corporation as provided above
within seven days after the date which the request for
redemption of such shares has been received in good order by the
Corporation or its designated agent; provided, however, that if
payment shall be made by delivery of assets of the Corporation,
as provided above, any securities to be delivered as part of
such payment shall be delivered as promptly as any necessary
transfers of such securities on the books of the several issuers
whose securities are to be delivered may be made, but not
necessarily within such seven day period.
The right of any holder of shares of the Common Stock of
the Corporation to receive dividends thereon and all other
rights of such stockholder with respect to the shares so
redeemed by the Corporation shall cease and determine from and
after the time as of which the purchase price of such shares
shall be fixed, as provided above, except the right of such
stockholder to receive payment for such shares as provided for
herein.
(c) The Board of Directors, may from time to time, without
the vote or consent of stockholders, establish uniform standards
with respect to the minimum net asset value of a
stockholder account or minimum investment which may be made by a
stockholder. The Board of Directors may authorize the closing
of those stockholder accounts not meeting the specified minimum
standards of net asset value by redeeming all of the shares in
such accounts, provided there is mailed to each affected
stockholder account, at least sixty (60) days prior to the
planned redemption date, a notice setting forth the minimum
account size requirement and the date on which the account will
be closed if the minimum size requirement is not met prior to
said closing date.
EIGHTH: Determination Binding.
Any determination made in good faith, so far as accounting
matters are involved, in accordance with accepted accounting
practice by or pursuant to the authority or the direction of the
Board of Directors, as to the amount of assets, obligations or
liabilities of the Corporation from dividends and interest for
any period or amounts at any time legally available for the
payment of dividends, as to the amount of any reserves or
charges set up and the propriety thereof, as to the time of or
purpose for creating reserves or as to the use, alteration or
cancellation of any reserves or charges (whether or not any
obligation or liability for which such reserves or charges shall
have been created, shall have been paid or discharged or shall
be then or thereafter required to be paid or discharged), as to
the price of any security owned by the Corporation or as to any
other matters relating to the issuance, sale, redemption or
other acquisition or disposition of securities or shares of
capital stock of the Corporation, and any reasonable
determination made in good faith by the Board of Directors shall
be final and conclusive, and shall be binding upon the
Corporation and all holders of its capital stock, past, present,
and future, and shares of the capital stock of the Corporation
are issued and sold on the condition and understanding,
evidenced by the purchase of shares of capital stock or
acceptance of share certificates, that any and all such
determinations shall be binding as aforesaid. No provision of
these Articles of Incorporation shall be effective to require a
waiver of compliance with any provision of the Act or the
Securities Act of 1933, or of any valid rule, regulation or
order of the Securities and Exchange Commission thereunder.
NINTH: Contracts and Agreements.
The Corporation is expressly empowered as follows:
(a) The Corporation may enter into a written contract or
contracts with any person or organization, including any firm,
corporation, trust or association in which any officer, other
employee, director or stockholder of the Corporation may be
interested, providing for a delegation of the management of all
of the Corporation's securities portfolios and also for the
delegation of the performance of administrative corporate
functions subject always to the direction of the Board of
Directors. The compensation payable by the Corporation under
such contracts shall be such as is deemed fair and equitable to
both parties and by the Board of Directors. Each such contract
shall in all respects be consistent with and subject to the
requirements of the Act as then in effect and regulation of the
Securities and Exchange Commission (or any succeeding
governmental authority) promulgated thereunder.
(b) The Corporation may appoint one or more distributors
or agents or both for the sale of the shares of the Corporation,
may directly or indirectly compensate such person or persons for
the sale of such shares and may enter into such contract or
contracts with such person or persons as the Board of Directors
of the Corporation in its discretion may deem reasonable and
proper.
(c) The Corporation may employ such custodian or
custodians for the safekeeping of the property of the
Corporation and its shares, such dividend disbursing agent or
agents, and such transfer agent or agents and registrar or
registrars for its shares, and may make and perform such
contracts for the aforesaid purposes as in the opinion of the
Board of Directors of the Corporation may be reasonable,
necessary, or proper for the conduct of the affairs of the
Corporation, and may pay the fees and disbursements of such
custodians, dividend disbursing agents, transfer agents, and
registrars out of the income and/or any other property of the
Corporation.
Notwithstanding any other provision of these Articles of
Incorporation or the By-Laws of the Corporation, the Board of
Directors may cause any or all of the property of the
Corporation to be transferred to or to be acquired and held in
the name of the Corporation or nominee or nominees of such
custodian satisfactory to the Board of Directors.
(d) All contracts entered into pursuant to subsections
(a), (b), and (c), of this Article NINTH shall in all respect be
consistent with and subject to the requirements of the Act as
then in effect and regulations of the Securities and Exchange
Commission promulgated thereunder.
(e) The same person, partnership (general or limited),
association, trust or corporation may be employed in any
multiple capacity under subsection (a), (b) and (c) of this
Article NINTH and may receive compensation from the Corporation
in as many capacities as such person, partnership (general or
limited), association, trust or corporation shall serve the
Corporation. The same person may be financially interested in
or otherwise affiliated (as defined in the Act) with persons who
are parties to any or all of the contracts entered into by the
Corporation pursuant to this Article NINTH. Any contract
entered into pursuant to this Article NINTH may be made with any
person even though an officer, other employee, director or
stockholder of the Corporation may be such other person or may
have an interest in such other person. No contract entered into
by the Corporation with any other party pursuant to this Article
NINTH shall be invalidated or rendered voidable because any
officer, other employee, director or stockholder of the
Corporation may be such other person or may have an interest in
such other person. No contract entered into by the Corporation
with any other party pursuant to this Article NINTH shall be
invalidated or rendered voidable because any officer, other
employee, director or stockholder of the Corporation is such
other party or has an interest in such other party. No person
having an interest in such other party shall be liable merely by
reason of such interest for any loss or expense to the
Corporation under or by reason of said contract or accountable
for any profit realized directly therefrom, provided that all
provisions of applicable laws were complied with when the
Corporation entered into the contract.
TENTH: Other Powers.
In furtherance, and not in limitation, of the powers conferred
by the laws of the State of Maryland, the Board of Directors is
expressly authorized:
(a) To make, alter or repeal the By-Laws of the
Corporation, except where such power is reserved by the By-Laws
to the stockholders, and except as otherwise required by the
Act.
(b) From time to time to determine whether and to what
extent and at what times and places and under what conditions
and regulations the books and accounts of the Corporation or any
of them other than the stock ledger, shall be open to the
inspection of the stockholders, and no stockholder shall have
any right to inspect any account or book or document of the
Corporation, except as conferred by law or authorized by
resolution of the Board of Directors or of the stockholders.
(c) Without the assent or vote of the stockholders, to
authorize and issue obligations of the Corporation, secured and
unsecured, as the Board of Directors may determine, and to
authorize and cause to be executed mortgages and liens upon the
property of the Corporation, real or personal but only to the
extent permitted by the fundamental policies of the Corporation
recited in its registration statement filed pursuant to the Act.
(d) In addition to the powers and authorities granted
herein and by statute expressly conferred upon it, the Board of
Directors is authorized to exercise all such powers and do all
acts and things as may be exercised or done by the Corporation,
subject, nevertheless, to the provisions of Maryland General
Corporation Law, of these Articles of Incorporation, and of the
By-Laws of the Corporation.
(e) To authorize from time to time the payment of
compensation and expenses to the Directors for services to the
Corporation, including fees for attendance at meetings of the
Board of Directors and committees thereof.
(f) Subject to the requirements of applicable law, to
establish, in its absolute discretion, the basis or method,
timing and frequency for determining the value of assets
belonging to each class or series and for determining the net
asset value of each share of each class or series for purposes
of sales, redemptions, repurchases or otherwise.
Without limiting the foregoing, the Board of Directors may
determine that the net asset value per share of any class or
series should be maintained at a designated constant value and
may adopt procedures, not inconsistent with applicable law, to
accomplish that result. Such procedures may include a
requirement, in the event of a net loss with respect to the
particular class or series from time to time, for automatic pro
rata capital contributions from each stockholder of that class
or series in amounts sufficient to maintain the designated
constant share value.
(g) To make such elections, in its discretion, as to the
tax status of the Corporation or any class of the Corporation's
capital stock as may be permitted or required by the IRC.
ELEVENTH: Location of Books and Records.
The books of the Corporation may be kept (subject to any
provisions contained in applicable statutes) outside the State
of Maryland at such place or places as may be designated from
time to time by the Board of Directors or in the By-Laws of the
Corporation. Election of directors need not be by ballot unless
the By-Laws of the Corporation shall so provide.
TWELFTH: Reservation of Right to Amend.
The Corporation reserves the right to amend, alter, change or
repeal any provision contained in these Articles of
Incorporation in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are
granted subject to this reservation.
THIRTEENTH: Shareholder Voting.
(a) Quorum. The presence in person or by proxy of the
holders of Common Stock of the Corporation entitled to cast one-
third of the votes entitled to be cast thereat, without regard
to class, shall constitute a quorum at any meeting of the
stockholders, except with respect to any matter which, under
applicable statutes or regulatory requirements, requires
approval by a separate vote of one or more classes of stock, in
which case the presence in person or by proxy of the holders of
Common Stock entitled to cast one-third of the votes of each
class required to vote as a class on the matter shall constitute
a quorum. If at any meeting of the stockholders there shall be
less than a quorum present, the stockholders present at such
meeting may, without further notice, adjourn the same from time
to time until a quorum shall be present.
(b) Shareholder Majority. Notwithstanding any provision
of Maryland General Corporation Law requiring more than a
majority vote of the Common Stock, or any class thereof, in
connection with any corporation action (including, but not
limited to, the amendment of these Articles of Incorporation),
unless otherwise provided in these Articles of Incorporation the
Corporation may take or authorize such action upon the favorable
vote of the holders of Common Stock entitled to cast a majority
of the votes thereon.
FOURTEENTH: Duration.
The duration of the Corporation shall be perpetual.
FIFTEENTH: No Liability.
The stockholders of the Corporation shall not be liable for, and
their private property shall not be subject to, claim levy or
other encumbrance on account of the debts or liabilities of the
Corporation, to any extent whatsoever.
SIXTEENTH: Owner of Record.
The Corporation shall be entitled to treat the person in whose
name any share of the capital stock of the Corporation is
registered as the owner thereof for purposes of dividends and
other distributions in the course of business or in the course
of recapitalization, sale of the property and assets of the
Corporation, or otherwise, and for the purpose of votes,
approvals and consents by stockholders and for the purpose of
notices to stockholders, and for all other purposes whatsoever;
and the Corporation shall not be bound to recognize any
equitable or other claim to or interest in such share, on the
part of any other person, whether or not the Corporation shall
have notice thereof, save as expressly required by law.
I acknowledge these Articles of Incorporation to be my act and
further acknowledge that, to the best of my knowledge the
matters and facts set forth therein are true in all material
respects under the penalties of perjury, this __ day of July,
1996.
_______________________________
Eric P. Nachimovsky
BY-LAWS OF
HARDING, LOEVNER FUNDS, INC.
ARTICLE I
Fiscal Year and Offices
Section 1
FISCAL YEAR. Unless otherwise provided by resolution of the
Board of Directors the fiscal year of the Corporation shall
begin on the first day of January and end on the last day of
December.
Section 2
REGISTERED OFFICE. The registered office of the Corporation
in Maryland shall be located at c/o The Corporation Trust
Incorporated, 32 South Street, Baltimore, MD 21202 and the
name and address of its Resident Agent is The Corporation
Trust Incorporated, 32 South Street, Baltimore, MD 21202.
Section 3
OTHER OFFICES. The Corporation shall also have a place of
business in New York and the Corporation shall have the power
to open additional offices for the conduct of its business,
either within or outside the States of New York and Maryland
as such places as the Board of Directors may from time to
time designate.
ARTICLE II
Meetings of Stockholders
Section 1
PLACE OF MEETINGS. All meetings of the stockholders of the
Corporation (the "Stockholders") shall be held at the office
of the Corporation in the City of New York or at
such other place within the United States as may from time to
time be designated by the Board and stated in the notice of
such meeting.
Section 2
ANNUAL MEETINGS. The First Annual Meeting of Stockholders
shall be held at such time and on such date during the first
six months of the first fiscal year of the Corporation as may
be fixed by the Board of Directors by resolution. At the
Annual Meeting, the Stockholders shall elect a Board of
Directors and transact any other business which may properly
be brought before the meeting. Thereafter, annual meetings
of Stockholders will not be held in any years in which the
election of directors is not required to be acted upon under
the Investment Company Act of 1940 (the "Act").
Section 3
SPECIAL MEETINGS. Special Meetings of the Stockholders may
be called at any time by the Chairman of the Board or the
President, or by a majority of the Board of Directors, and
shall be called by the Chairman of the Board, President or
Secretary upon written request of the holders of shares
entitled to cast not less than ten percent of all the votes
entitled to be cast at such meeting provided that (a) such
request shall state the purposes of such meeting and the
matters proposed to be acted on, and (b) the Stockholders
requesting such meeting shall have paid to the Corporation
the reasonably estimated cost of preparing and mailing the
notice thereof, which the Secretary shall determine and
specify to such Stockholders. Unless requested by
Stockholders entitled to cast a majority of all the votes
entitled to be cast at the meeting, no Special Meeting needs
be called to consider any matter which is substantially the
same as a matter voted on at any meeting of the Stockholders
held during the preceding twelve months.
Section 4
NOTICE. Not less than ten nor more than ninety days before
the date of every Annual or Special Stockholders' Meeting,
the Secretary shall cause to be personally delivered, left at
his (her) residence or usual place of business, or mailed to
each Stockholder entitled to vote at such meeting at his
(her) address (as it appears on the records of the
Corporation at the time of mailing) written notice stating
the time and place of the meeting and, in the case of a
Special Meeting of Stockholders shall be limited to the
purposes stated in the notice. Notice of any Stockholders'
meeting need not be given to any Stockholder who shall sign a
written waiver of such notice whether before or after the
time of such meeting, provided that such waiver of notice
shall be filed with the record of such meeting or to any
Stockholder who shall attend such meeting in person or by
proxy. Notice of adjournment of a Stockholders' meeting to
another time or place need not be given, if such time and
place are announced at the meeting. Irregularities in the
notice or in the giving thereof as well as the accidental
omission to give notice of any meeting to, or the non-receipt
of any such notice by, any of the Stockholders shall not
invalidate any action taken by or at any such meeting.
Section 5
RECORD DATE FOR MEETINGS. The Board of Directors may fix in
advance a date not more than ninety days, nor less than ten
days, prior to the date of any Annual or Special Meeting of
the Stockholders as a record date for the determination of
the Stockholders entitled to receive notice of, and to vote
at any meeting and any adjournment thereof; and in such case
such Stockholders and only such Stockholders as shall be
Stockholders of record on the date so fixed shall be entitled
to receive notice of and to vote at such meeting and any
adjournment thereof as the case may be, notwithstanding any
transfer of any stock on the books of the Corporation after
any such record date fixed as aforesaid.
Section 6
VOTING. Each Stockholder shall have one vote for each
dollar, and a proportionate fraction of a vote for each
fraction of a dollar, of the net asset value per share of
each share of Common Stock of the Corporation held by such
stockholder on the record date set pursuant to Section 5 on
each matter submitted to a vote at a meeting of Stockholders.
Such vote may be made in person or by proxy. If no record
date has been fixed for the determination of stockholders,
the record date for the determination of Stockholders
entitled to notice of or to vote at a meeting of Stockholders
shall be at the close of business (i) on the day on which
notice of the meeting is mailed or (ii) on the day 30 days
before the meeting, whichever is the closer date to the
meeting. At all meetings of the Stockholders, a quorum being
present, all matters shall be decided by a majority of the
votes cast in person or by proxy, unless the question is one
which by express provision of the laws of the State of
Maryland, the Act, as from time to time amended, or the
Articles of Incorporation, a different vote is required, in
which case such express provision shall control the decision
of such question. At all meetings of Stockholders, unless
the voting is conducted by inspectors, all questions relating
to the qualification of voters and the validity of proxies
and the acceptance or rejection of votes shall be decided by
the Chairman of the meeting.
Section 7
VOTING - PROXIES. The right to vote by proxy shall exist
only if the instrument authorizing such proxy to act shall
have been executed in writing by the Stockholder himself
(herself) or by his (her) attorney thereunto duly authorized
in writing. No proxy shall be voted on after eleven months
from its date unless it provides for a longer period. Each
proxy shall be in writing subscribed by the Stockholder or
his (her) duly authorized attorney and shall be dated, but
need not be sealed, witnessed or acknowledged. Proxies shall
be delivered to the Secretary of the Corporation or person
acting as Secretary of the meeting before being voted. A
proxy with respect to stock held in the name of two or more
persons shall be valid if executed by one of them unless at
or prior to exercise of such proxy the Corporation receives a
specific written notice to the contrary from any one of them.
A proxy purporting to be executed by or on behalf of a
Stockholder shall be deemed valid unless challenged at or
prior to its exercise.
Section 8
CONDUCT AT STOCKHOLDERS MEETINGS. The Chairman of the
Stockholders' meeting shall be the President of the
Corporation, or if he (she) is not present, a director or
officer of the Corporation to be elected at the meeting. The
Chairman of a Stockholders' meeting shall preside over such
meeting. The Secretary of the Corporation, if present, shall
act as a Secretary of such meeting, or if he (she) is not
present, an Assistant Secretary shall so act; if neither the
Secretary nor any Assistant Secretary is present, then the
presiding officer at the meeting shall act as the Secretary
of such meeting.
Section 9
INSPECTORS. At any election of directors, the Board of
Directors prior thereto may, or, if they have not so acted,
the Chairman of the meeting may appoint one or more
inspectors of election who shall first subscribe an oath of
affirmation to execute faithfully the duties of inspectors at
such election with strict impartiality and according to the
best of their ability, and shall after the election make a
certificate of the result of the vote taken. No candidate
for the office of director shall be appointed such inspector.
Section 10
STOCK LEDGER AND LIST OF STOCKHOLDERS. It shall be the duty
of the Secretary or Assistant Secretary of the Corporation to
cause an original or duplicate stock ledger to be maintained
at the office of the Corporation's transfer agent. Such
stock ledger may be in written form or any other form capable
of being converted into written form within a reasonable time
for visual inspection. Any one or more persons, each of whom
has been a Stockholder of record of the Corporation for more
than six months next preceding such request, who owns or own
in the aggregate 5% or more of the outstanding Common Stock
of any class of the Corporation, may submit a written request
to any officer of the Corporation or its resident agent in
Maryland for a list of the Stockholders of the Corporation.
Within 20 days after such a request, there shall be prepared
and filed at the Corporation's principal office a list
containing the names and address of all Stockholders of the
Corporation and the number of shares of each class held by
each Stockholder, certified as correct under oath by an
officer of the Corporation, by its stock transfer agent, or
by its registrar.
Section 11
ACTION WITHOUT MEETING. Any action to be taken by
Stockholders may be taken without a meeting if all
Stockholders entitled to vote on the matter consent to the
action in writing and if all Stockholders entitled to notice
of the meeting but not entitled to vote at it waive any right
to dissent in writing and the written consents and waivers
are filed with the records of the meetings of Stockholders.
Such consent shall be treated for all purposes as a vote at a
meeting.
ARTICLE III
Directors
Section 1
GENERAL POWERS. The business of the Corporation shall be
under the direction of its Board of Directors, which may
exercise all powers of the Corporation, except such as are by
statute, or the Articles of Incorporation, or by these By-
Laws conferred upon or reserved to the Stockholders. All
acts done by any meeting of the Board of Directors or by any
person acting as a director, so long as his (her) successor
shall not have been duly elected or appointed, shall,
notwithstanding that it be afterwards discovered that there
was some defect in the election of the directors or of such
person acting as aforesaid or that they or any of them were
disqualified, be as valid as if the directors or such other
person, as the case may be, had been duly elected and were or
was qualified to be directors or a director of the
Corporation.
Section 2
NUMBER AND TERM OF OFFICE. The number of directors which
shall constitute the whole Board shall be determined from
time to time by the Board of Directors, but shall not be
fewer than three, nor more than fifteen. Each director
elected shall hold office until his successor is elected and
qualified. Directors need not be Stockholders.
Section 3
INCREASE OR DECREASE IN NUMBER OF DIRECTORS. The directors,
by the vote of a majority of all the directors then in
office, may increase the number of directors and may elect
directors to fill the vacancies created by such increase in
the number of directors. The Board of Directors, by the vote
of a majority of all the directors then in office, may
likewise decrease the number of directors to a number not
less than three (3), provided that the tenure of office of a
director may not be changed by any such decrease. Any
director elected to fill a vacancy created by an increase in
the number of directors shall hold office until his (her)
successor is elected and qualifies.
Section 4
ELECTION. Initially the directors shall be those persons
named as such in the Articles of Incorporation. Each
director shall hold office for a tenure to be set by
resolution of the Board of Directors and until his (her)
successor has been duly elected and qualifies, until his
(her) death, or until he (she) has resigned or has been
removed pursuant to the applicable provisions of these By-
Laws. To the extent that election of the members of the
Board of Directors is required by the Act and except as
herein provided, the members of the Board of Directors shall
be elected by the vote of the holders of record of a majority
of the shares of stock present in person or by proxy and
entitled to vote at the applicable meeting of Stockholders.
In the case of any vacancy or vacancies in the office of
director through death, resignation or otherwise, other than
an increase in the number of directors, a majority of the
remaining directors, although a majority is less than a
quorum, by an affirmative vote, or the sole remaining
director, may elect a successor or successors, as the case
may be, to hold office until the next meeting of Stockholders
and until his (her) successor is chosen and qualifies. In
the case of a vacancy which results from an increase in the
number of directors, a majority of the entire Board of
Directors may fill such a vacancy.
Section 5
REMOVAL OF DIRECTORS. At any Stockholders Meeting, provided
a quorum is present, any director may be removed (either with
or without cause) by the vote of the holders of a majority of
the shares present or represented at the meeting, and at the
same meeting a duly qualified person may be elected in his
(her) stead by a majority of the votes validly cast.
Section 6
PLACE OF MEETING. Meetings of the Board of Directors, regular
or special, may be held at any place in or out of the States
of Maryland or New York as the Board may from time to time
determine.
Section 7
QUORUM. One-third of the entire Board of Directors then in
office shall constitute a quorum for the transaction of
business, provided that a quorum for the transaction of
business shall be no less than one-third of the total number
of directors fixed pursuant to Section 2 and in no case shall
be less than two directors. If at any meeting of directors
there shall be less than a quorum present, a majority of
those present may adjourn the meeting from time to time until
a quorum shall have been obtained. The act of the majority
of the directors present at any meeting at which there is a
quorum shall be the act of the directors, except as otherwise
specifically provided by law, by the Corporation's Articles
of Incorporation or by these By-Laws.
Section 8
REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held without notice at such time and place as shall
from time to time be determined by the Board of Directors
provided that notice of any change in the time or place of
such meeting shall be sent promptly to each director not
present at the meeting at which such change was made in the
manner provided for notice of special meetings. Members of
the Board of Directors or any committee designated thereby
may participate in a meeting of such Board or committee by
means of a conference telephone or similar communications
equipment by means of which all persons participating in the
meeting can hear each other at the same time, and
participation by such means shall constitute presence in
person at a meeting.
Section 9
SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the Chairman of the Board or the President
on one day's oral, telegraphic or written notice to each
director; Special Meetings shall be called by the Chairman of
the Board, President or Secretary in like manner and on like
notice on the written request of two directors.
Section 10
INFORMAL ACTIONS. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if a
written consent to such action is signed in one or more
counterparts by all members of the Board or of such
committee, as the case may be and such written consent is
filed within the minutes of proceedings of the Board or
committee.
Section 11
COMMITTEES. The Board of Directors, by the affirmative vote
of a majority of the directors then in office, may establish
committees which shall in each case consist of such number of
directors (but not less than two) and shall have and may
exercise such powers, subject to any limitations in law or in
the Corporation's Articles of Incorporation, as the directors
may determine in the resolution appointing them. A majority
of all the members of any such committee may determine its
action and fix the time and place of its meetings, unless the
directors shall otherwise provide. The directors shall have
power at any time to change the members and powers of any
such committee, to fill vacancies and to discharge any such
committee.
Section 12
ACTION OF COMMITTEES. In the absence of an appropriate
resolution of the Board of Directors each committee may adopt
such rules and regulations governing its proceedings, quorum
and manner of acting as it shall deem proper and desirable,
provided that the quorum shall not be less than two
directors. The committees shall keep minutes of their
proceedings and shall report the same to the Board of
Directors at the meeting next succeeding, and any action by
the committee shall be subject to revisions and alteration by
the Board of Directors, provided that no rights of these
persons shall be affected by any such revision or alteration.
In the absence of any member of such committee the members
thereof present at any meeting, whether or not they
constitute a quorum, may appoint a member of the Board of
Directors to act in the place of such absent member.
Section 13
PRESUMPTION OF ASSENT. A director who is present at a
meeting of the Board of Directors at which action on any
corporate matter is taken shall be presumed to have assented
to the action taken unless he (she) announces his (her)
dissent at the meeting and his (her) dissent is entered in
the minutes of the meeting, or he (she) files his (her)
written dissent to the action before the meeting adjourns
with the person acting as the Secretary of the meeting, or he
(she) forwards his (her) written dissent within 24 hours
after the meeting is adjourned to the Secretary of the
Corporation. The right to dissent does not apply to a
director who voted in favor of the action or who failed to
make his (her) dissent known at the meeting. A director may
abstain from voting on any matter coming before the meeting
by stating that he (she) is so abstaining at the time the
vote is taken and by causing his (her) abstention to be
recorded or stated in writing in the same manner as provided
above for a dissent.
Section 14
COMPENSATION. Any director who is not an employee of
Harding, Loevner Management, L.P., AMT Capital Services,
Inc., or any other entity providing services to the
Corporation, may be compensated for his (her) services as
director or as a member of a committee of directors, or as
Chairman of the Board or chairman of a committee by fixed
periodic payments or by fees for attendance at meetings or
by both. All officers and directors of the Corporation may
be reimbursed for transportation and other expenses, all in
such manner and amounts as the Board of Directors may from
time to time determine.
ARTICLE IV
Notices
Section 1
FORM. Notices to Stockholders shall be in writing and
delivered personally or mailed to the Stockholders at their
addresses appearing on the books of the Corporation. Notices
to directors shall be oral or by telephone or telegram or in
writing delivered personally or mailed to the directors at
their addresses appearing on the books of the Corporation.
Notice by mail shall be deemed to be given at the time when
the same shall be mailed. Notice to directors need not state
the purpose of a Regular or Special Meeting.
Section 2
WAIVER. Whenever any notice of the time, place or purpose of
any meeting of Stockholders, directors or a committee is
required to be given under the provisions of Maryland General
Corporation Law or under the provisions of Articles of
Incorporation or the By-Laws, a waiver thereof in writing,
signed by the person or persons entitled to such notice and
filed with the records of the meeting, whether before or
after the holding thereof, or actual attendance at the
meeting of Stockholders in person or by proxy, or at the
meeting of directors of committee in person, shall be deemed
equivalent to the giving of such notice to such persons.
ARTICLE V
Officers
Section 1
EXECUTIVE OFFICERS. The officers of the Corporation shall be
chosen by the Board of Directors and shall include a
President who shall be a director, a Vice President, a
Secretary and a Treasurer. The Board of Directors, at its
discretion, may also appoint a director as Chairman of the
Board who shall perform and execute such executive and
administrative duties and powers as the Board of Directors
shall from time to time prescribe. The same person may hold
two or more offices, except that no person shall be both
President and Vice President and no officer shall execute,
acknowledge or verify any instrument in more than one
capacity, if such instrument is require by law, the Articles
of Incorporation or these By-Laws to be executed,
acknowledged or verified by two or more officers.
Section 2
ELECTION. The Board of Directors shall choose a President, a
Secretary and a Treasurer at its first meeting and thereafter
at the next meeting following a Stockholders' Meeting at
which directors were elected.
Section 3
OTHER OFFICERS. The Board of Directors from time to time may
appoint such other officers and agents as its shall deem
advisable, who shall hold their offices for such terms and
shall exercise powers and perform such duties as shall be
determined from time to time by the Board. The Board of
Directors from time to time may delegate to one or more
officers or agents the power to appoint any such subordinate
officers or agents and to prescribe their respective rights,
terms of office, authorities and duties.
Section 4
COMPENSATION. The salaries and other compensation of all
officers and agents of the Corporation shall be fixed by the
Board of Directors, except that the Board of Directors may
delegate to any person or group of persons the power to fix
the salary or their compensation of any subordinate officers
or agents appointed pursuant to Section 3 of this Article V.
Section 5
TENURE. The officers of the corporation shall serve for one
year and until their successors are chosen and qualify. Any
officer or agent may be removed at any time, with or without
cause, by the affirmative vote of a majority of the Board of
Directors. In addition, any officer or agent appointed
pursuant to Section 3 may be removed, either with or without
cause, by any officer upon whom such power of removal shall
have been conferred by the Board of Directors. Any officer
may resign his (her) office at any time by delivering a
written resignation to the Board of Directors, the President,
the Secretary, or any Assistant Secretary, and, unless
otherwise specified therein, such resignation shall take
effect upon delivery. Any vacancy occurring in any office of
the Corporation by death, resignation, removal or otherwise
shall be filled by the Board of Directors, unless pursuant to
Section 3 the power of appointment has been conferred by the
Board of Directors on any other officer.
Section 6
PRESIDENT. The President shall be the Chief Executive
Officer of the Corporation; and unless the Chairman has been
so designated, he (she) shall preside at all meetings of the
Stockholders and directors, and shall see that all orders and
resolutions of the Board are carried into effect. The
President, unless the Chairman has been so designated, shall
also be the chief administrative officer of the Corporation
and shall perform such other duties and have such other
powers as the Board of Directors may from time to time
prescribe.
Section 7
CHAIRMAN OF THE BOARD. The Chairman of the Board, if one
shall be chosen, shall preside at all meetings of the Board
of Directors and Stockholders, and shall perform and execute
such executive duties and administrative powers as the Board
of Directors shall from time to time prescribe.
Section 8
VICE PRESIDENT. The Vice President shall see that all orders
and resolutions of the Board are carried into effect. The
Vice President shall also have primary supervisory
responsibility for the Fund's marketing and distribution
efforts as the Board of Directors shall from time to time
prescribe.
Section 9
SECRETARY. The Secretary shall attend all meetings of the
Board of Directors and all meetings of the Stockholders and
record all the proceedings thereof and shall perform like
duties for any committee when required. He (she) shall give
or cause to begin, notice of meetings of the Stockholders and
of the Board of Directors, shall have charge of the records
of the Corporation, including the stock books, and shall
perform such other duties as may be prescribed by the Board
of Directors or Chief Executive Officer, under whose
supervision he (she) shall be. He (she) shall keep in safe
custody the seal of the Corporation and, when authorized by
the Board of Directors, shall affix and attest the same to
any instrument requiring it. The Board of Directors may give
general authority to any other officer to affix the seal of
the Corporation and to attest the affixing by his (her)
signature.
Section 10
ASSISTANT SECRETARY. The Assistant Secretaries in order of
their seniority, shall, in the absence or disability of the
Secretary, perform the duties and exercise the powers of the
Secretary and shall perform such other duties as the Board of
Directors shall prescribe.
Section 11
TREASURER. The Treasurer, unless another officer has been so
designated, shall be the principal financial and accounting
officer of the Corporation. Except as otherwise provided by
the Board of Directors, he (she) shall have general
supervision of the funds and property of the Corporation and
of the performance by the custodian of its duties with
respect thereto. He (she) shall render to the Board of
Directors, whenever directed by the Board, an account of the
financial condition of the Corporation and of all his (her)
transactions as Treasurer; and as soon as possible after the
close of each financial year he (she) shall make and submit
to the Board of Directors a like report for such financial
year. He (she) shall cause to be prepared annually a full
and correct statement of the affairs of the Corporation,
including a balance sheet and a financial statement of
operations for the preceding fiscal year, which shall be
submitted to the Annual Meeting of Stockholders and filed
within twenty days thereafter at the principal office of the
Corporation in the State of New York. He (she) shall perform
all the acts incidental to the office of Treasurer, subject
to the control of the Board of Directors.
Section 12
ASSISTANT TREASURER. The Assistant Treasurers, in the order
of the seniority, shall in the absence or disability of the
Treasurer, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties as the Board of
Directors may from time to time prescribe.
Section 13
SURETY BOND. The Board of Directors may require any officer
or agent of the Corporation to execute a bond (including,
without limitation, any bond required by the Investment
Company Act of 1940, as amended, and the rules and
regulations of the Securities and Exchange Commission ) to
the Corporation in such sum and with such surety or sureties
as the Board of Directors may determine, conditioned upon the
faithful performance of his (her) duties of the Corporation,
including responsibility for negligence and for the
accounting of any Corporation's property, funds or securities
that may come into his (her) hands.
ARTICLE VI
Stock
Section 1
CERTIFICATES. To the extent permitted by Maryland General
Corporation Law and if approved by resolution of the Board of
Directors, Stockholders shall not be entitled to a
certificate or certificates. Any certificates issued shall
be in the form approved by the Board of Directors which shall
certify the class and the number of shares owned by him (her)
in the Corporation. Each certificate shall be signed by the
President and counter-signed by the Secretary or an
Assistant Secretary or the Treasurer or an Assistant
Treasurer.
Section 2
SIGNATURE. Where a certificate is signed (1) by a transfer
agent or an assistant transfer agent or (2) by a transfer
clerk acting on behalf of the Corporation and a registrar,
the signature of any such President, Treasurer, Assistant
Treasurer, Secretary or Assistant Secretary may be a
facsimile. In case any officer who has signed any
certificate ceases to be an officer of the Corporation before
the certificate is issued, the certificate may nevertheless
be issued by the Corporation with the same effect as if the
officer had not ceased to be such officer as of the date of
its issue.
Section 3
TRANSFER OF SHARES. Shares of Common Stock of the
Corporation shall be transferable on the register of the
Corporation by the holder thereof in person or by his (her)
agent duly authorized in writing, upon delivery to the
directors or the Transfer Agent of a duly executed instrument
of transfer, together with such evidence of the genuineness
of each such execution and authorization of such other
matters as the Corporation or its agents may reasonably
require.
Section 4
RECORDING AND TRANSFER WITHOUT CERTIFICATES. Notwithstanding
the foregoing provisions of this Article VI, the Corporation
shall have full power to participate in any program approved
by the Board of Directors providing for the recording and
transfer of ownership of shares of the Corporation's stock by
electronic or other means without the issuance of
certificates.
Section 5
LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the
Corporation alleged to have been stolen, lost or destroyed,
upon the making of an affidavit of that fact by the person
claiming the certificate of stock to have been stolen, lost
or destroyed, or upon other satisfactory evidence of such
theft, loss or destruction. When authorizing such issuance
of a new certificate or certificates, the Board of Directors
may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such stolen, lost or
destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it
shall require and to give a bond with sufficient surety to
the Corporation to indemnify it against any loss or claim
that may be made by reason of the issuance of a new
certificate.
Section 6
TRANSFER OF COMMON STOCK. Transfer of shares of the stock of
the Corporation shall be made on the books of the Corporation
by the holder or record thereof (in person or by his (her)
attorney thereunto duly authorized by a power of attorney
duly executed in writing and filed with the Secretary of the
Corporation) (i) if a certificate or certificates have been
issued, upon the surrender of the certificate or
certificates, properly endorsed or accompanied by proper
instruments of transfer, representing such shares, or (ii) as
otherwise prescribed by the Board of Directors. Every
certificate exchanged, surrendered for redemption or
otherwise returned to the Corporation shall be marked
"Canceled" with the date of cancellation.
Section 7
REGISTERED STOCKHOLDERS. The Corporation shall be entitled
to recognize the exclusive right of a person registered on
its books as the owner of shares to receive dividends, and to
vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or
other claim to or interest in such shares or shares on the
part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided
by the Maryland General Corporation Law.
Section 8
TRANSFER AGENT AND REGISTRAR. The Board of Directors may,
from time to time, appoint or remove transfer agents and or
registrars of transfers of shares of stock of the
Corporation, and it may appoint the same person as both
transfer agent and registrar. Upon any such appointment
being made all certificates representing shares of stock
thereafter issued shall be countersigned by one of such
transfer agents or by one of such registrars of transfers or
by both and shall not be valid unless so countersigned. If
the same person shall be both transfer agent and registrar,
only one countersignature by such person shall be required.
Section 9
STOCK LEDGER. The Corporation shall maintain, or cause to
maintain, an original stock ledger containing the names and
address of all Stockholders and the number and class of
shares held by each Stockholder. Such stock ledger may be in
written form or any other form capable of being converted
into written form within a reasonable time for visual
inspection.
Section 10
RECORD DATES. The Board of Directors may fix, in advance, a
date as the record date for the purpose of determining those
Stockholders who shall be entitled to notice of, or to vote
at, any meeting of Stockholders, or for the purpose of
determining those Stockholders or the allotment of any
rights, or for the purpose of making any other proper
determination with respect to Stockholders. Such date, in
any case, shall be not more than 90 days to the date on which
the particular action, requiring such determination of
Stockholders, is to be taken. In lieu of fixing a record
date, the Board of Directors may provide that the stock
transfer books shall be closed for a stated period, not to
exceed in any case 20 days.
ARTICLE VII
General Provisions
Section 1
RIGHTS IN SECURITIES. The Board of Directors, on behalf of
the Corporation, shall have the authority to exercise all of
the rights of the Corporation as owner of any securities
which might be exercised by any individual owning such
securities in his (her) own right; including, but not limited
to, the rights to vote by proxy for any and all purposes, to
consent to the reorganization, merger or consolidation of any
issuer or to consent to the sale, lease or mortgage of all or
substantially all of the property and assets of any issuer;
and to exchange any of the shares of stock of any issuer for
the shares of stock issued therefore upon any such
reorganization, merger, consolidation, sale, lease or
mortgage. The Board of Directors shall have the right to
authorize any officer of the Corporation adviser to execute
proxies and the right to delegate the authority granted by
this Section 1 to any officer of the Corporation.
Section 2
CUSTODIANSHIP. (a) The Corporation shall place and at all
times maintain in the custody of a custodian (including any
sub-custodian for the custodian) all funds, securities and
similar investment owned by the Corporation. Subject to the
approval of the Board of Directors the custodian may enter
into arrangements with securities depositories, as long as
such arrangements comply with the provisions of the
Investment Company Act of 1940 and the rules and regulations
promulgated thereunder.
(b) Upon termination of a custodian agreement or inability of
the custodian to continue to serve, the Board of Directors
shall promptly appoint a successor custodian. But in the
event that no successor custodian can be found who has the
required qualifications and is willing to serve, the Board of
Directors shall call as promptly as possible a Special
Meeting of the Stockholders to determine whether the
Corporation shall function without a custodian or shall be
liquidated. If so directed by vote of the holders of a
majority of the outstanding shares of stock of the
Corporation, the custodian shall deliver and pay over all
property of the Corporation held by it as specified in such
vote.
(c) The following provisions shall apply to the employment of
a custodian and to any contract entered into with the
custodian so employed:
The Board of Directors shall cause to be delivered to
the custodian all securities owned by the Corporation or
to which it may become entitled, and shall order the
same to be delivered by the custodian only in completion
of a sale, exchange, transfer, pledge, or other
disposition thereof, all as the Board of Directors may
generally or from time to time require or approve or to
a successor custodian; and the Board of Directors shall
cause all funds owned by the Corporation or to which it
may become entitled to be paid to the custodian, and
shall order the same disbursed only for investment
against delivery of the securities acquired, or in
payment of expenses, including management compensation,
and liabilities of the Corporation, including
distributions to shareholders or proper payments to
borrowers of securities representing partial return of
collateral, or to a successor custodian.
Section 3
REPORTS. Not less often than semi-annually, the Corporation
shall transmit to the Stockholders a report of the operations
of the Corporation based at least annually upon an audit by
independent public accounts, which report shall clearly set
forth, in addition to the information customarily furnished
in a balance sheet and profit and loss statement, a statement
of all amounts paid to security dealers, legal counsel,
transfer agent, disbursing agent, registrar or custodian or
trustee, where such payments are made to a firm, corporation,
bank or trust company, having a partner, officer or director
who is also an officer or director of the Corporation. A
copy, or copies, of all reports submitted to the Stockholders
of the Corporations shall also be sent, as required, to the
regulatory agencies of the United States and of the states in
which the securities of the Corporation are registered and
sold.
Section 4
SEAL. The corporate seal shall have inscribed thereon the
name of the Corporation, the year or its organization and the
words "Corporate Seal, Maryland". The seal may be used by
causing or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
Section 5
EXECUTION OF INSTRUMENTS. All deeds, documents, transfers,
contracts, agreements and other instruments requiring
execution by the corporation shall be signed by the Chairman
or the President or by the Treasurer or Secretary or an
Assistant Treasurer or an Assistant Secretary, or as the
Board of Directors may otherwise, from time to time,
authorize. Any such authorization may be general or confined
to specific instance. Except as otherwise authorized by the
Board of Directors, all requisitions or orders for the
assignment of securities standing in the name of the
custodian or its nominee, or for the execution of powers to
transfer the same, shall be signed in the name of the
Corporation by the Chairman or the President or by the
Secretary, Treasurer or an Assistant Treasurer.
Section 6
ACCOUNTANT. The Corporation shall employ an independent
public accountant or a firm of independent public accountants
as its Accountants to examine the accounts of the Corporation
and to sign and certify financial statements filed by the
Corporation. The employment of the Accountant shall be
conditioned upon the right of the Corporation to terminate
the employment forthwith without any penalty by vote of a
majority of the outstanding voting securities at any
Stockholders' meeting called for that purpose. The
Accountant's certificates and reports should be addressed
both to the Board of Directors and to the Stockholders.
ARTICLE VIII
Indemnification
To the extent allowed and permitted under Maryland
General Corporation Law, a representative of the Corporation
shall be indemnified by the Corporation with respect to each
proceeding against such representative for all expenses
(including attorneys' fees and disbursements), judgments,
fines and amounts paid in settlement actually and reasonably
incurred by such representative in connection with such
proceeding, provided that such representative acted in good
faith and in a manner he (she) reasonably believed to be in
or not opposed to the best interest of the Corporation and,
with respect to any criminal proceeding, had not reasonable
cause to believe his (her) conduct was unlawful; except that
no indemnification shall be made in respect of any claim,
issue or matter as to which such representative has been
adjudged to be liable by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard in the
performance of his (her) duty to the Corporation ("disabling
conduct"), unless and only to the extent that the court in
which the proceeding was brought, or a court of equity in the
county in which the Corporation has its principal office,
determines upon application that, despite the adjudication of
liability but in view of all circumstances of the case, such
corporate representative is fairly and reasonably entitled to
indemnity for the expenses which the court considers proper.
The termination of any proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption
had the person did not act in good faith and in a manner
which he (she) reasonably believed to be in or not opposed to
the best interest of the Corporation and, with respect to any
criminal proceeding, had reasonable cause to believe that his
(her) conduct was unlawful.
To the extent that the representative of the Corporation
has been successful on the merits or otherwise in defense of
any proceeding referred to in the preceding paragraph, or in
defense of any claim, issue or matter therein, it shall be
presumed that the representative did not engage in disabling
conduct, whereupon the Corporation shall indemnify him (her)
against all expenses (including attorneys' fees and
disbursements) actually and reasonably incurred by him (her)
in connection therewith.
In the absence of a final decision by a court or other
body before which the proceeding was brought that the
representative was not liable by reason of disabling conduct,
indemnification may still be granted provided that a
reasonable determination, based upon review of the facts,
that the representative was not liable by reason of disabling
conduct, by (i) the vote of a majority of a quorum of
directors who are neither "interested persons" (as defined in
Section 2(a) (19) of the Act) of the Corporation, nor parties
to the proceeding; or (ii) an independent legal counsel in a
written opinion.
Expenses (including attorneys' fees and disbursements)
incurred in defending a proceeding may be paid by the
Corporation in advance of the final disposition thereof if
the Corporation receives a written affirmation by the
representative of the Corporation of such representative's
good faith belief that the standard of conduct necessary for
indemnification has been met; and an undertaking by or on
behalf of the representative of the Corporation to repay the
advance if it is ultimately determined that he (she) is not
entitled to be indemnified by the Corporation as authorized
in this Article, and (x) the representative shall provide a
security for his (her) undertaking; or (y) the Corporation
shall be insured against losses arising by reason of any
lawful advances; or (z) a majority of a quorum of the
disinterested, non-party directors of the Corporation, or an
independent legal counsel, in a written opinion, shall
determine, based on a review of readily available facts, that
there is reason to believe that the representative ultimately
will be found entitled to indemnification.
The indemnification provided by this Article shall not
be deemed exclusive of any other rights to which a
representative of the Corporation or other person may be
entitled under any agreement, vote of Stockholders or
disinterested directors or otherwise, both as to action in
his (her) official capacity and as to action in another
capacity while holding the office, and shall continue as to a
person who has ceased to be a director, officer, employee or
agent and inure to the benefit of his (her) heirs and
personal representatives.
The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a trustee, director,
officer, employee or agent of another trust, corporation,
partnership, joint venture or other enterprise against any
liability asserted against him (her) and incurred by him
(her) in any such capacity or arising out of his (her) status
as such, regardless of whether the Corporation would have the
power to indemnify him (her) against the liability under the
provisions of this Article.
Nothing contained in this Article shall be construed to
indemnify any representative of the Corporation against any
liability to the Corporation or to its security holders to
which he (she) would otherwise be subject by reason of
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his (her)
office.
As used in this Article "representative of the
Corporation" means an individual: (1) who is a present or
former director, officer, agent or employee of the
Corporation or who serves or has served another corporation,
trust, partnership, joint venture or other enterprise in one
of such capacities at the request of the Corporation, and (2)
who by reason of his (her) position is, has been or is
threatened to be made a party to a proceeding; and
"proceeding" includes any threatened, pending or completed
action, suit or proceeding, whether civil, criminal,
administrative or investigative.
ARTICLE IX
Amendments
The By-Laws of the Corporation may be altered, amended
or repealed either by the affirmative vote of a majority of
the stock issued and outstanding and entitled to vote in
respect thereof and represented in person or by proxy at any
annual or special meeting of the stockholders, or by the
Board of Directors at any regular or special meeting of the
Board of Directors; provided, that the Board of Directors may
not amend or repeal this Article IX and that the vote of
Stockholders required for alteration, amendment or repeal of
any of such provisions shall be subject to all applicable
requirements of federal or state laws or of the Articles of
Incorporation.
