As filed with the Securities and Exchange Commission on
April 18, 1997.
File Nos. 333-09341,811-7739
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. 1 X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. _3_ X
HARDING, LOEVNER FUNDS, INC.
(Exact name of registrant as specified in charter)
600 FIFTH AVENUE, 26th FLOOR
NEW YORK, NEW YORK 10020
(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
(Name and address of agent for service)
With a copy to:
William Goodwin, Esq.
Dechert Price & Rhoads
477 Madison Avenue
New York, NY 10022-5891
Approximate Date of Proposed Public Offering: As soon as practicable after
this Registration Statement becomes effective.
It is proposed that this filing will become effective:
/X/ immediately upon filing pursuant to paragraph (b)
/ / On _____________, pursuant to paragraph (b)
/ / 60 days after filing, pursuant to paragraph (a)(1)
/ / On _____________, pursuant to paragraph (a) (1)
/ / 75 days after filing, pursuant to paragraph (a) (2)
/ / On _____________, pursuant to paragraph (a) (2)
of Rule 485.
Registrant has registered an indefinite number of shares pursuant to Rule 24f-
2 under the Investment Company Act of 1940. The Registrant has not completed
its first fiscal year
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 Financial Highlights
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 of Not Applicable
Fund Performance
Item 6. Capital Stock and Other Shareholder Information; Tax
Considerations; Dividends
Item 7. Purchase of Securities Being Purchase and Redemption of
Offered Shares; 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 Financial Statements
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 - November 1, 1996
(Amended April 18, 1997)
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.
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
and debt securities of the United States and foreign governments and their
agencies and instrumentalities.
Emerging Markets Portfolio - to seek long-term capital appreciation
through investments in equity securities of companies based in developing
markets outside the United States. (This Portfolio has not commenced
operations.)
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 November 1, 1996
(Amended April 18, 1997), 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......................................................
Financial Highlights...............................................
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.
The Fund and its 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.
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 and debt securities of the
United States and foreign governments and
their agencies and instrumentalities.
Emerging Markets Portfolio To seek long-term capital appreciation through
investments in equity securities of companies
based in developing markets outside the
United States. (This Portfolio has not
commenced operations.)
Investment Adviser
Harding, Loevner Management, L.P. ("HLM"), which manages approximately $1.4
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
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
Portfolio 1.00% None 0.15% 0.10% (a) 0.25% (a) 1.25% (a)
Multi-Asset
Global
Portfolio 1.00% None 0.15% 0.10% (a) 0.25% (a) 1.25% (a)
Emerging 1.25% None 0.15% 0.35% (a) 0.50% (a) 1.75% (a)
Markets
Portfolio
(a) HLM has voluntarily agreed to cap the total operating expenses at 1.00%,
1.25%, 1.25%, and 1.75% (on an annualized basis) of the average daily net assets
of the International Equity Portfolio, Global Equity 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, Multi-Asset Global Portfolio and Emerging Market Portfolio are
estimated to be 1.10%, 1.50%, 2.25%, and 2.00%, respectively, of their average
daily net assets (of which 0.20%, 0.35%, 1.10% and 0.60% is "other expenses").
Other expenses for the Global Equity Portfolio, the Multi-Asset Portfolio and
the Emerging Markets Portfolio are based on estimated amounts for the current
fiscal year.
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 5 Years 10 Years
------ ------- ------- --------
International Equity Portfolio $10 $32 $55 $122
Global Equity Portfolio $13 $40 $69 $151
Multi-Asset Global Portfolio $13 $40
Emerging Markets Portfolio $18 $55
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, Multi-Asset Global and Emerging Markets
Portfolios will not exceed 1.00%, 1.25%, 1.25% and 1.75%, 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".
FINANCIAL HIGHLIGHTS
The International Equity Portfolio, previously the AMT Capital Fund, Inc.
- HLM International Equity Portfolio (the "AMT Capital Portfolio"). ,
commenced operations on May 11, 1994. Effective as of the close of business
on October 31, 1996, the AMT Capital Portfolio merged into the International
Equity Portfolio pursuant to shareholder approval of the reorganization on
October 30, 1996. The financial information for the period ended October 31,
1996, December 31, 1995 amd December 31, 1994 in the following table have been
audited in conjunction with the audit of the financial statements of the AMT
Capital Portfolio by Ernst & Young LLP, independent auditors. The unaudited
financial statements for the International Equity Portfolio for the five months
ended March 31, 1997 are incorporated by reference in the Statement of
Additional Information. The audited financial statements for the period ended
October 31, 1996 are incorporated by reference in the Statement of Additional
Information. The financial information should be read in conjunction with the
financial statements which can be obtained upon request without charge.
International Equity Portfolio
--------------------------------------------------
For the Five For the Ten For the Year For the Period
Months Ended Months Ended Ended Ended
Mar. 31, 1997 Oct. 31, 1996 Dec. 31, 1995 Dec. 31, 1994*
(unaudited)
Per Share Data
Net asset value,
beginning of
period $ 11.61 $ 10.77 $ 9.71 $ 10.00
Increase (Decrease)
in Net Assets From
Operations
Investment income,
net 0.00 (c) 0.08 0.10 0.04
Net realized and
unrealized gain
(loss) on investments
and foreign
currency-related
transactions 0.24 0.97 1.06 (0.29)
Net increase
(decrease) from
investment operations 0.24 1.05 1.16 (0.25)
Distributions to
Shareholders from
Investment income,
net 0.00 (c) 0.08 0.10 0.03
In excess of
investment income,
net - 0.03 - -
Net realized gain
from investments
and foreign
currency-related
transactions - 0.10 - -
Temporary over-
disbutrition of net
realized gain on
investments and
foreign currency-
related trasactions - - - 0.01
Total Distributions 0.00 (c) 0.21 0.10 0.04
Net asset value,
end of period $ 11.85 $ 11.61 $ 10.77 9.71
Total Return 2.09% (b) 9.81% (b) 11.99% (2.47%) (b)
Ratios/Supplemental
Data
Net assets, end of
period $ 338,667,485 $ 241,357,236 $ 67,726,552 $8,903,878
Ratio of expenses
to average net
assets 1.00% (a) 1.00% (a) 0.99% 0.95% (a)
Ratio of investment
income, net to
to average net assets 0.06% (a) 1.29% (a) 1.30% 1.13% (a)
Decrease reflected in
above ratios due to
waiver of investment
advisory and
administration fees
and reimbursement of
other expenses 0.09 (a) 0.14% (a) 0.54 1.33% (a)
Portfolio turnover 14% (b) 17% (b) 28% 27% (b)
Average Commission
Rate Paid $ 0.0367 ** $.0229** N/A N/A
(a) Annualized
(b) Not annualized
(c) Rounds to less than $0.01
* Commencement of Operations was May 11, 1994
** Represents total commissions paid on portfolio securities divided by the
total number of shares purchased or sold on which commissions were charged.
This disclosure is required by the SEC beginning in 1996.
The Global Equity Portfolio commenced operations on December 1, 1996
following a tax-free merger with HLM Global Equity LP ("GELP"). The financial
information for the period from December 1, 1996 and ending on March 31, 1997
in the following table has not been audited by the Fund's independent
auditors.
Global Equity Portfolio
For the Four
Months Ended
Mar. 31, 1997*
(Unaudited)
Per Share Data $ 17.58 (a)
Net asset value, beginning of period
Increase in Net Assets from Operations
Investment income, net 0.04
Net realized and unrealized gain on
investments and foreign currency-
related transactions 0.01
Net increase from investment operations 0.05
Distributions to Shareholders from
Investment income, net 0.01
Net asset value, end of period $ 17.62
Total Return 0.30% (b)
Ratios/Supplemental Data
Net assets, end of period $ 70,295,412
Ratio of expenses to average net assets 1.25% (c)
Ratio of investment income, net 0.60% (c)
to average net assets
Decrease reflected in above ratios
due to waiver of investment advisory
fees 0.19% (c)
Portfolio turnover 15% (b)
Average Commission Rate Paid $ 0.0274**
(a) The beginning Net Asset Value of the Portfolio was equal to the total
Net Asset Value of the outstanding Partnership Units of GELP as of
November 30, 1996 ($1,758) divided by 100.
(b) Not annualized
(c) Annualized
* Commencement of Operations was December 1, 1996
** Represents total commissions paid on portfolio securities divided by the
total number of shares purchased or sold on which commissions were charged.
The Multi-Asset Global Portfolio commenced operations on November 1, 1996. The
financial information for the period from November 1, 1996 and ending on March
31, 1997 in the following table has not been audited by the Fund's independent
auditors.
Multi-Asset Global Portfolio
For the Five
Months Ended
Mar. 31, 1997*
(Unaudited)
Per Share Data $ 10.00
Net asset value, beginning of period
Increase in Net Assets from Operations
Investment income, net 0.08
Net realized and unrealized gain on
investments and foreign currency-
related transactions 0.39
Net increase from investment operations 0.47
Distributions to Shareholders from
Investment income, net 0.03
Net asset value, end of period $ 10.44
Total Return 4.69% (b)
Ratios/Supplemental Data
Net assets, end of period $ 4,413,182
Ratio of expenses to average net assets 1.25% (a)
Ratio of investment income, net
to average net assets 2.10% (a)
Decrease reflected in above ratios
due to waiver of investment advisory
fees 1.00% (a)
Portfolio turnover 12% (b)
Average Commission Rate Paid $ 0.0575**
(a) Annualized
(b) Not annualized
* Commencement of Operations was November 1, 1996
** Represents total commissions paid on portfolio securities divided by the
total number of shares purchased or sold on which commissions were charged.
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.
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 and debt securities of the United
States and foreign governments and their
agencies and instrumentalities.
Emerging Markets Portfolio To seek long-term capital appreciation through
investments in equity securities of companies
based in developing markets outside the
United States. (This Portfolio has not
commenced operations.)
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 Corporation ("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 does not hedge
foreign currency exposure, except on rare occasions when it has a strong
view on the prospects for a particular currency or when hedging is desirable
to improve portfolio diversification. 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 does not
hedge foreign currency exposure, except on rare occasions when it has a strong
view on the prospects for a particular currency or when hedging is desirable
to improve portfolio diversification. 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.
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 and debt
securities of the United States and foreign governments and their agencies and
instrumentalities. 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 and debt securities of the United States and foreign
governments and their agencies and instrumentalities 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.
HLM does not hedge foreign currency exposures, except on rare occasions when
it has a strong view on the prospects for a particular currency or when hedging
is desirable to improve portfolio diversification. 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.
Emerging Markets Portfolio (This Portfolio has not commenced operations.)
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 foward 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 Portflio 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 does not
hedge foreign currency exposure, except on rare occasions when it has a strong
view on the prospects for a particular currency or when hedging is desirable
to improve portfolio diversification. 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.
DESCRIPTIONS 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 do not hedge foreign
currency exposure, except on rare occasions when HLM has a strong view on the
prospects for a particular currency or when hedging is desirable to improve
portolio diversification. 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 liquid,
unencumbered 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, unencumbered 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 movements 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.
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.
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.
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) 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
(e) 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
or security 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 October 14, 1996 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 October 14, 1996 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 (212) 332-5210 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 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
amountsof $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 James C.
Brady III, Jane A. Freeman, David R. Loevner and Carl W. Schafer. 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 Agreements, with each of the Portfolios, each dated October
14, 1996. Under the Investment Advisory Agreements, 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 $1.4 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,
Multi-Asset Global Portfolio and Emerging Markets Portfolio pay HLM a monthly
fee at an annual rate of 0.75%, 1.00%, 1.00% and 1.25%, 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.
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.
Ferrill D. Roll, (responsible for multi-asset global portfolio management),
portfolio manager, is a member of the investment committee and a principal of
the firm. He has fifteen years' experience across a wide range of international
markets. Prior to joining HLM 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's Securities (1989-1992), working primarily on European markets.
During 1990, he acted as head of Barings 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.
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, a trustee of Goucher College and
an advisory trustee of Outward Bound USA.
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 manager, 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.
Administrator
Pursuant to an Administration Agreement between the Fund and AMT Capital,
dated as of October 14, 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, 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 July 31, 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, 26th Floor New York, New York 10020-2302 or by
calling AMT Capital at (212) 332-5210.
STATEMENT OF ADDITIONAL INFORMATION
Harding, Loevner Funds, Inc.
Distributed By: AMT Capital Services, Inc.
600 Fifth Avenue
26th Floor
New York, NY 10020
(212) 332-5210
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 November 1, 1996
(Amended April 18, 1997) (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.
November 1, 1996 (Amended April 18, 1997)
TABLE OF CONTENTS
Page
Organization of the Fund
Management of the Fund
Board of Directors and Officers
Investment Adviser
Administrator
Distribution of Fund Shares
Principal Holders of Securities
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.
Name and Address Position with Principal Occupation
the Company During Past Five Years
- -----------------------------------------------------------------------------
Carl W. Schafer
The Atlantic Foundation
P.O. Box 1164
Princeton, NJ 08542 Director The Atlantic Foundation,
President
1990-present.
Jane A. Freeman
Rockefeller & Co.
30 Rockefeller Plaza
Suite 5425
NY, NY 10112 Director Rockefeller & Co.,
Investment
Manager 1988- present.
James C. Brady III
Brady Realty Company
Box 351 Gladstone
NJ 07934 Director Brady Realty Company
1988-present.
*David R. Loevner
Harding Loevner Management, L.P.
50 Division Street Suite 401,
Somerville, NJ 08876 Director Harding Loevner
Management, L.P.
President and CEO
7/89 - present;
Rockefeller & Co.,
Investment Manager
1/81-7/89
William E. Vastardis
AMT Capital Services, Inc.
600 Fifth Avenue, 26th Floor
New York, NY 10020 Secretary and
Treasurer AMT Capital
Services, Inc.,
Senior Vice President
7/92 - present;
Vanguard Group Inc.,
Vice President,
1/87 - 4/92.
Richard Reiter
Harding Loevner
Management, L.P.
50 Division Street
Suite 401,
Somerville, NJ 08876 Assistant Secretary Harding, Loevner
Management, L.P.
Product Information
Manager
4/96-present;
Harris Trust,
Vice President
4/91-4/96.
Carla E. Dearing
AMT Capital Services, Inc.
600 Fifth Avenue, 26th Floor
New York, NY 10020 Assistant Treasurer
AMT Capital
Services, Inc.,
Managing Director,
Principal and Director,
1/92 - present;
AMT Capital
Advisers, Inc.,
Principal and Senior
Vice President,
1/92 - present;
Morgan Stanley & Co.,
Vice President,
11/88 - 1/92.
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 $1,000 for each meeting attended, and each of the
Directors receives an annual retainer of $10,000 which is paid in quarterly
installments at the end of each quarter.
Director's Compensation Table
Director Aggregate Pension or Estimated Total
Compensation Retirement Annual Compensation
From Benefits Accrued Benefits From Registrant
Registrant* As Part of Fund Upon and Fund
Expenses Retirement Complex Paid
to Directors*
David R. Loevner $0 $0 $0 $0
Jane A. Freeman $15, 000 $0 $0 $15, 000
Carl W. Schafer $15, 000 $0 $0 $15, 000
James C. Brady III $15, 000 $0 $0 $15, 000
*Estimated Director's Compensation for Fiscal Year Ended October 31, 1997
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%
Multi-Asset Global 1.00%
Emerging Markets 1.25%
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 unless terminated on notice.
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.
PRINCIPAL HOLDERS OF SECURITIES
As of March 31, 1997, no shareholder is deemed a "control persons" of the
Fund as such term is defined in the 1940 Act.
As of March 31, 1997, the following persons held 5 percent or more of the
outstanding shares of the International Equity Portfolio:
Name and Address of Amount and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership of Portfolio
Common Stock, The Bank of New York Direct Ownership 10.90%
$.001 per Share (nominee) Mutual Fund/
Reorg. Dept., P.O. Box
1066, Wall Street
Station, New York, NY
10268
Common Stock, The National Gallery of Direct Ownership 9.48%
Art, Sixth and Constitution
Avenue, Washington, DC
20565
Common Stock, Children's Hospital of Direct Ownership 7.85%
$.001 per Share Philadelphia, 34th and
Civic Center Blvd.,
Philadelphia, PA 19104
As of March 31, 1997, the following persons held 5 percent or more of the
outstanding shares of the Global Equity Portfolio:
Name and Address of Amount and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership of Portfolio
Common Stock James C. Brady, Jr. Direct Ownership 27.49%
$.001 per share (As Trustee and
Beneficial Owner)
c/o Mill House
Associates, Box 351
Gladstone, NJ 07934
Common Stock Maine Community Direct Ownership 6.52%
$.001 per share Foundation
P.O. Box 148
Ellsworth, ME 04605
Common Stock Bowes Family Direct Ownership 5.06%
$.001 per share Partnership
One Maritime Plaza
San Francisco, CA
94111
Common Stock Edward & Darlene Direct Ownership 5.02%
$.001 per share Charitable Remainder
Unitrust, P.O. Box
385, Cassopolis, MI
49031
As of March 31, 1997, the following persons held 5 percent or more of the
outstanding shares of the Multi-Asset Global Portfolio:
Name and Address of Amount and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership of Portfolio
Common Stock Edgmont Consultants Direct Ownership 58.59%
$.001 per share (Defined Benefit
Plan and Money
Purchase Plan)
308 French Road
Newton Square, PA
19073
Common Stock Harding, Loevner Direct Ownership 36.77%
$.001 per share Management, L.P.
(Profit Sharing
Thrift Plan and
Investment Adviser's
Account)
50 Division Street
Suite 401, Somerville
NJ 08876
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 Corporation ("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 liquid unencumbered 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
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"). In
addition, the International Equity Portfolio qualified as a RIC for the period
ended October 31, 1996. 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 equal to at least 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:
6
YIELD = 2 x { [ ((a - b) / (c x d)) + 1] - 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:
n
P(1 + T) = ERV
Where:
P = a hypothetical initial payment of $1,000,
T = the average annual total return,
n = the number of years, and
ERV = the ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the period.
All total return figures assume that all dividends are reinvested when paid.
The International Equity Portfolio previously the HLM International Equity
Portfolio of the AMT Capital Fund, Inc. (the "AMT Capital Portfolio"), commenced
investment operations on May 11, 1994. Effective as of the close of business
on October 31, 1996, the AMT Capital Portfolio merged into the International
Equity Portfolio pursuant to shareholder approval of the Reorganization on
October 30, 1996. For the 12 month period ended March 31, 1997, the total
return of the International Equity Portfolio was 5.63%. The total return of
the International Equity Portfolio, since its inception on May 11, 1994 through
March 31, 1997, was 7.23% on an annualized basis. The total return of the
Global Equity Portfolio, since its inception on December 1, 1996 through
March 31, 1997, was 0.30%. The total return of the Multi-Asset Global
Portfolio, since its inception on November 1, 1996 through March 31, 1997, was
4.69%.
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.
Thomson 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.
FINANCIAL STATEMENTS
The International Equity Portfolio, previously the AMT Capital Portfolio,
commenced operations on May 11, 1994. Effective as of the close of business on
October 31, 1996, the AMT Capital Portfolio merged into the International
Equity Portfolio pursuant to shareholder approval of the reorganization on
October 30, 1996. The AMT Capital Portfolio's audited Financial Statements,
including the Financial Highlights, for the period ended October 31, 1996
appearing in the Annual Report to Shareholders and the report thereon of
Ernst & Young LLP, independent auditors, appearing therein are hereby
incorporated by reference in this Statement of Additional Information. The
Annual Report to Shareholders is delivered with this Statement of Additional
Information to shareholders requesting this Statement.
Part C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements and Schedules:
The financial statements, notes to financial statements and reports set
forth below are filed herewith by the Registrant, and are specifically
incorporated by reference in Part B.
- Report of Independent Auditors dated December 6, 1996 for HLM
International Equity Portfolio of AMT Capital Fund, Inc. ("HLM
Portfolio")
- Statements of Net Assets as of October 31, 1996 for the HLM Portfolio
- Statements of Operations for the ten month period ended October 31,
1996, and year ended December 31, 1995 for the HLM Portfolio
- Statements of Changes in Net Assets for the ten month period ended
October 31, 1996, and year ended December 31, 1995 for the HLM
Portfolio
- Financial Highlights for the ten month period ended October 31, 1996,
year ended December 31, 1995, and December 31, 1994 for the HLM Portfolio
- (Unaudited) Statement of Net Assets as of March 31, 1997 for the
International Equity Portfolio, Multi-Asset Global Portfolio, Global
Equity Portfolio
- (Unaudited) Statement of Operations for the five months ended March
31, 1997 for the International Equity Portfolio, (Unaudited) Statement
of Operations for the four months ended March 31, 1997 for the Global
Equity Portfolio, (Unaudited) Statement of Operations for the five
months ended March 31, 1997 for the Multi-Asset Global Portfolio
- (Unaudited) Statement of Changes in Net Assets for the five months
ended March 31, 1997 for the International Equity Portfolio, (Unaudited)
Statement of Changes in Net Assets for the four months ended March 31,
1997 for the Global Equity Portfolio, (Unaudited) Statement of Changes
in Net Assets for the five months ended March 31, 1997 for the Multi-
Asset Global Portfolio
- (Unaudited) Financial Highlights for the five months ended March 31,
1997 for the International Equity Portfolio, (Unaudited) Financial
Highlights for the four months ended March 31, 1997 for the Global
Equity Portfolio, (Unaudited) Financial Highlights for the five months
ended March 31, 1997 for the Multi-Asset Global Portfolio
- (Unaudited) Financial statements for the five months ended March 31,
1997 for the International Equity Portfolio, (Unaudited) Financial
statements for the four months ended March 31, 1997 for the Global
Equity Portfolio, (Unaudited) Financial statements for the five months
ended March 31, 1997 for the Multi-Asset Global Portfolio
Notes to Financial Statements.
(b) Exhibits:
Exhibit Number Description
1(a) (1) Articles of Incorporation, dated July 31, 1996
(previously filed as Exhibit (1) to Registrant's
Registration Statement on Form N-1A, File Nos. 333-09341,
811-07739) and incorporated herein by reference.
2 (2) By-laws (previously filed as Exhibit (2) to
Registrant's Registration Statement on Form N-1A, File
Nos. 333-09341, 811-07739) and incorporated herein by
reference.
3 None
4(a) None
5(a) Advisory Agreement, dated October 14, 1996 between the
Registrant (International Equity Portfolio) and Harding,
Loevner Management, L.P. (previously filed as Exhibit
5(a) to Pre-Effective Amendment No.1 to Registrant's
Registration Statement on Form N-1A, File Nos. 333-09341,
811-07739) and incorporated herein by reference.
5(b) Advisory Agreement, dated October 14, 1996 between
the Registrant (Global Equity Portfolio) and Harding,
Loevner Management, L.P. (previously filed as Exhibit
5(b) to Pre-Effective Amendment No.1 to Registrant's
Registration Statement on Form N-1A, File Nos. 333-09341,
811-07739) and incorporated herein by reference.
5(c) Advisory Agreement, dated October 14, 1996 between the
Registrant (Multi-Asset Global Portfolio) and Harding,
Loevner Management, L.P. (previously filed as Exhibit
5(c) to Pre-Effective Amendment No.1 to Registrant's
Registration Statement on Form N-1A, File Nos. 333-09341,
811-07739) and incorporated herein by reference.
5(d) Advisory Agreement, dated October 14, 1996 between
the Registrant (Emerging Markets Portfolio) and Harding,
Loevner Management, L.P. (previously filed as Exhibit
5(d) to Pre-Effective Amendment No.1 to Registrant's
Registration Statement on Form N-1A, File Nos. 333-09341,
811-07739) and incorporated herein by reference.
6(a) Distribution Agreement, dated October 14, 1996 between
Registrant and AMT Capital Services, Inc. (previously
filed as Exhibit 6(a) to Pre-Effective Amendment No.1 to
Registrant's Registration Statement on Form N-1A, File
Nos. 333-09341, 811-07739) and incorporated herein by
reference.
7 None
8 Form of Custodian Agreement, dated October 28, 1996
between Registrant and Investors Bank & Trust Company
(previously filed as Exhibit 8 to Pre-Effective Amendment
No.1 to Registrant's Registration Statement on Form N-1A,
File Nos. 333-09341, 811-07739) and incorporated herein
by reference.
9(a) Administration Agreement, dated October 14, 1996 between
Registrant and AMT Capital Services, Inc. (previously
filed as Exhibit 9(a) to Pre-Effective Amendment No.1 to
Registrant's Registration Statement on Form N-1A, File
Nos. 333-09341, 811-07739) and incorporated herein by
reference.
9(b) Form of Transfer Agency Agreement, dated October 28, 1996
between Registrant and Investors Bank & Trust Company
(previously filed as Exhibit 9(b) to Pre-Effective
Amendment No.1 to Registrant's Registration Statement on
Form N-1A, File Nos. 333-09341, 811-07739) and
incorporated herein by reference.
10 Opinion and Consent of Dechert Price & Rhoads (previously
filed as Exhibit 10 to Pre-Effective Amendment No.1 to
Registrant's Registration Statement on Form N-1A, File
Nos. 333-09341, 811-07739) and incorporated herein by
reference.
11 Consent of Ernst & Young ( filed herewith).
12 None
13(a) Share Purchase Agreement, dated October 14, 1996 between
Registrant and David R. Loevner for the International
Equity Portfolio (previously filed as Exhibit 13(a) to
Pre-Effective Amendment No.1 to Registrant's Registration
Statement on Form N-1A, File Nos. 333-09341, 811-07739)
and incorporated herein by reference.
13(b) Share Purchase Agreement, dated October 14, 1996 between
Registrant and David R. Loevner for the Emerging Markets
Portfolio (previously filed as Exhibit 13(b) to Pre-
Effective Amendment No.1 to Registrant's Registration
Statement on Form N-1A, File Nos. 333-09341, 811-07739)
and incorporated herein by reference.
13(c) Share Purchase Agreement, dated October 14, 1996 between
Registrant and David R. Loevner for the Multi-Asset
Global Portfolio (previously filed as Exhibit 13(c) to
Pre-Effective Amendment No.1 to Registrant's Registration
Statement on Form N-1A, File Nos. 333-09341, 811-07739)
and incorporated herein by reference.
13(d) Share Purchase Agreement, dated October 14, 1996
between Registrant and David R. Loevner for the Global
Equity Portfolio (previously filed as Exhibit 13(d) to
Pre-Effective Amendment No.1 to Registrant's
Registration Statement on Form N-1A, File Nos. 333-09341,
811-07739) and incorporated herein by reference.
14 None
15 Not Applicable
16 Performance Information Schedule (previously filed as
Exhibit 16 to Pre-Effective Amendment No.1 to
Registrant's Registration Statement on Form N-1A, File
Nos. 333-09341, 811-07739) and incorporated herein by
reference.
Item 25. Persons Controlled by or Under Common Control with Registrant
Not Applicable.
Item 26. Number of Holders of Securities
As of March 31, 1997, there were the following number of record holders in
each Class of the Registrant:
Title of Class Number of Record Holders
International Equity Portfolio 196
Global Equity Portfolio 93
Multi-Asset Global Portfolio 6
Emerging Markets 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 Positions and Offices with Positions and Offices with
Business Address Underwriter 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
600 Fifth Avenue Treasurer
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) 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.
(c) Registrant hereby undertakes to provide an Annual
Report to Shareholders or prospective investors,
free of charge, upon request.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Somerville, State of New Jersey on the 17th day of
April, 1997.
HARDING, LOEVNER FUNDS, INC.
By: /s/ David R. Loevner
David R. Loevner, President
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to the Registration Statement had been signed below by the
following persons in the capacities indicated on the 17th day of April, 1997.
Signature Title
/s/ David R. Loevner Director and President
David R. Loevner
/s/ William E. Vastardis Secretary and President
William E. Vastardis
*/s/ Jane A. Freeman Director
Jane A. Freeman
*/s/ Carl W. Schafer Director
Carl W. Schafer
*/s/ James C. Brady III Director
James C. Brady III
* Attorney-in-Fact /s/ William E. Vastardis
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
11 Consent of Ernst & Young.
Harding, Loevner Funds, Inc.
International Equity Portfolio
Statement of Net Assets
As of March 31, 1997
(Unaudited)
Shares Value
Long-Term Investments - 91.6%
Equities
Argentina - 1.1%
Quilmes Industrial SA - ADR 75,600 $ 859,950
Quilmes Industrial SA 275,600 2,783,560
3,643,510
Bermuda - 1.1%
PartnerRe Ltd. 105,300 3,724,988
Canada - 2.0%
Imperial Oil Ltd. 146,000 6,807,250
France - 5.5%
Financiere et Industrielle Gaz et Eaux 16,050 7,210,330
Michelin (CGDE) - Class B 191,748 11,443,302
18,653,632
Germany - 9.4%
Bayer AG 270,000 11,250,675
Daimler-Benz AG 106,000 8,483,819
Deutsche Bank AG 186,000 10,486,581
Hornbach Baumarkt AG 33,500 1,126,388
Muenchener Rueckversicherung AG 215 560,252
31,907,715
Hong Kong - 8.0%
Hong Kong & China Gas Co., Ltd. 3,777,000 7,092,386
HSBC Holdings p.l.c. 146,000 3,391,624
Hutchison Whampoa Ltd. 1,429,000 10,742,628
Johnson Electric Holdings Ltd. 2,254,020 5,730,682
26,957,320
Japan - 12.6%
Atlantis Japan Growth Fund 606,000 3,896,580
Atlantis Japan Growth Fund Warrants
Expiring 4/30/10 53,000 45,050
Canon, Inc. 400,000 8,579,523
Hirose Electric 121,000 6,649,858
Honda Motor Co. Ltd. 218,000 6,510,886
Mitsubishi Heavy Industries Ltd. 1,380,000 8,991,502
Nippondenso Co. Ltd. 400,000 7,867,260
42,540,659
Malaysia - 3.8%
Nestle Berhad 557,000 4,407,429
Sime Darby Berhad 2,300,000 8,403,310
12,810,739
Netherlands - 10.7%
IHC Caland NV 120,000 6,424,450
ING Groep NV 167,500 6,613,726
Royal Dutch Petroleum Co. - NY Shares 86,500 15,137,500
Wolters Kluwer NV 66,000 7,966,125
36,141,801
Norway - 2.0%
Norsk Hydro AS - ADR 135,133 6,604,625
Singapore - 5.5%
Acer Computer International Ltd. 560,000 884,800
Acer Computer Int'l Ltd. Warrants
Expiring 7/31/01 112,000 32,576
Courts Ltd. 605,000 758,344
Development Bank of Singapore 807,000 9,388,920
Keppel Corp. Ltd. 1,189,000 7,493,006
18,557,646
South Africa - 1.8%
LibLife Strategic Investments Ltd. 1,806,995 6,256,398
Spain - 2.8%
Banco Intercontinental Espanol 71,000 9,648,382
Sweden - 3.2%
Astra AB - Series B 233,700 11,005,280
Switzerland - 11.1%
ABB AG 48,700 11,315,339
Nestle SA - ADR 178,000 10,409,743
Novartis AG 5,800 7,217,419
SGS Societe Generale de Surveillance
Holding SA - Class B 2,375 4,873,913
SGS Societe Generale de Surveillance
Holding SA - Class R 10,000 3,826,087
37,642,501
Thailand - 1.8%
The Siam Cement Co., Ltd. 236,000 6,152,565
United Kingdom - 6.3%
Rentokil Group plc 1,555,000 10,751,332
Rio Tinto p.l.c. 668,000 10,595,240
21,346,572
Total Equities (Cost - $286,210,867) 300,401,583
Convertible Bonds - 2.9% Face Amount
Far East Levingston Ship, 1.500% due
5/02/01 (Singapore) 3,090,000 2,468,138
Bangkok Bank Public Co., 3.25% due
3/3/04 (Thailand) 7,900,000 7,396,375
Total Convertible Bonds - (Cost-
$11,382,244) 9,864,513
Total Long-Term Investments - (Cost-
$297,593,111) 310,266,096
Short-Term Investments - 8.0%
Investors Bank & Trust Company
Repurchase Agreement, 5.85% due 4/1/97;
Issued 3/31/97 (Collateralized by
$15,200,000 par of GNMA ARM, 6.875%
due 10/20/22, value $9,870,902,
$10,100,000 par of GNMA ARM, 7.00% due
6/20/26, value $9,772,032, and
$10,495,000 par of GNMA ARM,
7.125% due 7/20/25, value $8,811,477)
(Cost - $27,099,349) 27,099,349 27,099,349
Total Investments - 99.6% (Cost - $324,692,460) 337,365,445
Other Assets Net of Liabilities - 0.4%
Foreign Currency Holdings (Cost - $289,586) 284,882
Receivable for Securities Sold 196,432
Receivable for Capital Stock Purchased 409,207
Other Assets 608,800
Payable to Investment Adviser (14,924)
Unrealized depreciation on forward contracts (3,149)
Payable for Capital Shares redeemed (611)
Other liabilities (178,597)
Other assets and liabilities, net 1,302,040
Net Assets - 100.0%
Applicable to 28,573,887outstanding $.001
par value shares (authorized 500,000,000 shares) $338,667,485
Net Asset Value, Offering and Redemption Price Per Share $ 11.85
Components of Net Assets as of March 31,
1997 were as follows:
Capital Stock at par value ($.001) $ 28,574
Capital Stock in excess of par value 326,285,863
Distribution in excess if investment income, net (443,411)
Accumulated net realized gain 138,212
Net unrealized appreciation on investments and on
assets and liabilities denominated in foreign currencies 12,658,247
$ 338,667,485
See Notes to Financial Statements
Harding, Loevner Funds, Inc.
Global Equity Portfolio
Statement of Net Assets
As of March 31, 1997
(Unaudited)
Shares/Face Value
Long-Term Investments - 92.5%
Equities - 84.6%
Argentina - 1.0%
Quilmes Industrial SA - ADR 20,000 227,500
Quilmes Industrial SA 50,000 505,000
732,500
Bermuda - 1.3%
PartnerRe Ltd. 25,000 884,375
France - 2.5%
Financiere et Industrielle Gaz et Eaux 3,977 1,786,634
Germany - 4.7%
Deutsche Bank AG 30,000 1,691,384
Daimler-Benz AG 20,000 1,600,720
3,292,104
Hong Kong - 7.0%
Hong Kong & China Gas Co., Ltd. 750,000 1,408,337
Hutchison Whampoa Ltd. 300,000 2,255,275
Johnson Electric Holdings Ltd. 500,000 1,271,214
4,934,826
Japan - 6.3%
Atlantis Japan Growth Fund Warrants
Expiring 4/30/10 16,000 13,600
Canon, Inc. 50,000 1,072,440
Canon Sales Co., Inc. 700 13,881
Honda Motor Co. Ltd. 46,000 1,373,857
Atlantis Japan Growth Fund 100,000 643,000
Mitsubishi Heavy Industries Ltd. 200,000 1,303,116
4,419,894
Malaysia - 2.4%
Nestle Berhad 100,000 791,280
Sime Darby Berhad 250,000 913,403
1,704,683
Netherlands - 5.5%
Royal Dutch Petroleum Co. - NY Shares 15,000 2,625,000
Wolters Kluwer NV 10,000 1,206,989
3,831,989
Singapore - 1.3%
Keppel Corp. Ltd. 150,000 945,291
South Africa - 1.0%
LibLife Strategic Investments Ltd. 196,957 681,929
Sweden - 2.4%
Investor AB - Class B 35,000 1,645,877
Scania AB Rights Expiring 6/4/99 30,000 26,701
1,672,578
Switzerland - 7.3%
Nestle SA - ADR 30,000 1,754,451
ABB AG - Registered Shares 7,000 1,626,435
SGS Societe Generale de Surveillance
Holding SA - Class R 4,500 1,721,739
5,102,625
Thailand - 1.1%
The Siam Cement Co., Ltd. 30,000 782,106
United Kingdom - 4.2%
Rio Tinto plc 100,000 1,586,114
Rentokil Group plc 200,000 1,382,808
2,968,922
United States - 36.6%
Abbott Laboratories 35,000 1,964,375
Airgas, Inc. 35,000 590,625
Allied Capital Corp. 39,285 608,917
Allied Signal, Inc. 10,000 712,500
Boeing Co. 15,000 1,479,375
Colgate-Palmolive Co. 15,000 1,494,375
Cummins Engine 25,000 1,281,250
Dover Corp. 40,000 2,100,000
Electronic Data Systems Corp. 30,000 1,211,250
Exxon Corp. 20,000 2,155,000
FNMA 40,000 1,445,000
Motorola, Inc. 20,000 1,207,500
Pennsylvania Mutual Fund Inc 150,000 1,074,000
Schlumberger, Ltd. 20,000 2,145,000
ServiceMaster 45,000 1,226,250
Thermo Electron Corp. 60,000 1,852,500
Union Pacific Corp. 25,000 1,418,750
Union Pacific Resources Group, Inc. 21,173 566,378
Wrigley (WM) Jr. Co. 20,000 1,167,500
25,700,545
Total Equities - (Cost - $45,838,544) 59,441,001
Fixed Income - 7.9%
Face Amount
Argentina - 1.8%
Republic of Argentina FRN, 6.625%
due 3/31/05 1,470,000 1,314,731
Thailand - 2.7%
Bangkok Bank Public Co., CVT 3.25% due
3/3/04 2,000,000 1,872,500
United States - 3.4%
JP Morgan Co. FRN, 4.00% due 2/15/12 1,000,000 972,614
Rockefeller Center Property CVT,
0.000% due 12/31/00 650,000 427,375
U.S. Treasury Note, 6.125% due 5/31/97 1,000,000 1,000,312
2,400,301
Total Fixed Income - (Cost - $5,062,450) 5,587,532
Total Long-Term Investments -
(Cost - $50,900,994) 65,028,533
Short-Term Investments - 7.4%
Investors Bank & Trust Company Repurchase
Agreement, 5.85% due 4/1/97; Issued
3/31/97 (Collateralized by $5,440,000 par
of FHLMC Libor Floater 96-40 FB, 6.76%
due 6/25/22, value $5,475,012) (Cost -
$5,211,735) 5,211,735 5,211,735
Total Investments - 99.9% (Cost - $56,112,729) 70,240,268
Other Assets Net of Liabilities - 0.1%
Other Assets 151,199
Other liabilities (96,055)
Other assets and liabilities, net 55,144
Net Assets - 100.0%
Applicable to 3,988,919 outstanding
$.001 par value shares
(authorized 500,000,000 shares) $ 70,295,412
Net Asset Value, Offering and Redemption
Price Per Share $ 17.62
Components of Net Assets as of March 31,
1997 were as follows:
Capital Stock at par value ($.001) $ 3,989
Capital Stock in excess of par value 53,837,787
Undistributed investment income, net 88,338
Accumulated net realized gain 2,236,604
Net unrealized appreciation on
investments and on assets and
liabilities denominated in
foreign currencies 14,128,694
$ 70,295,412
See Notes to Financial Statements
Harding, Loevner Funds, Inc.
Multi-Asset Global Portfolio
Statement of Net Assets
As of March 31, 1997
(Unaudited)
Shares Value
Long-Term Investments - 93.5%
Equities - 64.9%
Argentina - 0.5%
Quilmes Industrial SA 1,500 $ 15,150
Quilmes Industrial SA - ADR 750 8,475
23,625
Bermuda - 1.1%
PartnerRe Ltd. 1,400 49,525
France - 3.1%
Financiere et Industrielle Gaz et Eaux 200 89,848
Michelin (CGDE) - Class B 800 47,743
137,591
Germany - 4.3%
Bayer AG 2,000 83,338
Deutsche Bank AG 1,900 107,121
190,459
Hong Kong - 3.4%
HSBC Holdings p.l.c. 2,000 46,461
Hutchison Whampoa Ltd. 14,000 105,246
151,707
Japan - 4.3%
Atlantis Japan Growth Fund 3,600 23,148
Atlantis Japan Growth Fund Expiring
4/30/10 400 340
Canon, Inc. 2,000 42,898
Honda Motor Co. Ltd. 2,000 59,733
Mitsubishi Heavy Industries Ltd. 10,000 65,155
191,274
Malaysia - 0.9%
Sime Darby Berhad 11,000 40,190
Netherlands - 3.6%
Royal Dutch Petroleum Co. - NY Shares 900 157,500
Singapore - 1.3%
Keppel Corp. Ltd. 9,000 56,717
Sweden - 2.7%
Investor AB - Class B 2,500 117,563
Scania AB Warrants Expiring 6/4/99 2,000 1,780
119,343
Switzerland - 6.5%
ABB AG 420 97,586
Nestle SA - ADR 1,600 93,571
SGS Societe Generale de Surveillance
Holding SA - Class R 250 95,652
286,809
Thailand - 0.7%
The Siam Cement Co., Ltd. 1,100 28,677
United Kingdom - 3.0%
Rentokil Group plc 8,100 56,004
Rio Tinto plc 4,800 76,133
132,137
United States - 25.5%
Abbott Laboratories 1,500 84,187
Allied Capital Corp. 3,013 46,701
Boeing Co. 600 59,175
Colgate-Palmolive Co. 900 89,663
Cummins Engine 1,700 87,125
Dover Corp. 2,200 115,500
Electronic Data Systems Corp. 900 36,337
Exxon Corp. 1,200 129,300
FNMA 2,500 90,313
Motorola, Inc. 600 36,225
Royce OTC Micro-Cap Trust, Inc. 5,000 38,125
Schlumberger, Ltd. 800 85,800
Thermo Electron Corp. 2,500 77,187
U.S. West, Inc. 1,300 44,200
Union Pacific Corp. 1,100 62,426
Wrigley (WM) Jr. Co. 700 40,863
1,123,127
Total Equities - (Cost - $2,591,413) 2,688,681
Fixed Income - 32.6% Face Amount
Argentina - 5.0%
Republic of Argentina FRN, 6.625%
due 3/31/05 $ 245,000 219,122
Germany - 2.9%
Bundesrepublic Deutschland, 6.7500%
due 4/22/03 200,000 129,166
Singapore - 0.7%
Far East Levingston Ship CVT., 1.500%
due 5/02/01 40,000 31,950
South Africa - 0.9%
Republic of South Africa, 12.000%
due 2/28/05 200,000 38,835
Thailand - 1.7%
Bangkok Bank Public Co. CVT, 3.250%
due 3/3/04 82,000 76,773
United States - 21.4%
Capital Cities/ABC, Inc., 8.750%
due 8/15/21 25,000 27,666
GNMA Pl #390577, 7.0 % due 6/15/09 116,047 114,452
GNMA, 8.000% due 8/15/07 17,046 17,126
GNMA, 8.500% due 5/15/18 22,436 23,011
GNMA, 9.500% due 9/20/20 14,764 15,714
GPA Delaware, Inc., 8.750% due 12/15/98 50,000 50,250
Rockefeller Center Property CVT, 0.000%
due 12/31/00 100,000 65,750
U.S. Treasury Note, 6.125% due 5/31/97 50,000 50,016
U.S. Treasury Note, 6.375% due 5/15/99 150,000 149,672
U.S. Treasury Note, 8.750% due 8/15/00 125,000 132,773
U.S. Treasury Note, 7.875% due 8/15/01 25,000 26,047
U.S. Treasury Note, 7.000% due 7/15/06 75,000 75,141
U.S. Treasury Inflation Index Note, 3.375%
due 1/15/07 200,208 196,642
944,260
Total Fixed Income - (Cost - $1,462,497) 1,440,106
Total Long-Term Investments - (Cost - $4,053,910) 4,128,787
Short-Term Investments - 5.4%
Investors Bank & Trust Company Repurchase
Agreement 5.85% due 4/1/97; Issued
3/31/97 (Collateralized by $400,000
par of FHLMC Libor Floater G 10 M, 7.04%
due 5/25/23, value $253,558) (Cost -
$ 236,608) 236,608 236,608
Total Investments - 98.9% (Cost - $4,290,518) 4,365,395
Other Assets Net of Liabilities - 1.1%
Receivable for Securities Sold 30,056
Other Assets 36,728
Unrealized depreciation on forward contracts (2,411)
Other liabilities (16,586)
Other assets and liabilities, net 47,787
Net Assets - 100.0%
Applicable to 422,675 outstanding $.001
par value shares (authorized 500,000,000
shares) $ 4,413,182
Net Asset Value, Offering and Redemption
Price Per Share $ 10.44
Components of Net Assets as of March 31,
1997 were as follows:
Capital Stock at par value ($.001) $ 423
Capital Stock in excess of par value 4,289,432
Undistributed investment income, net 21,837
Accumulated net realized gain 29,477
Net unrealized appreciation on investments
and on assets and liabilities denominated
in foreign currencies 72,013
$ 4,413,182
See Notes to Financial Statements
Harding, Loevner Funds, Inc.
Statements of Operations
(Unaudited)
Global Equity Multi-Asset Global
Portfolio Portfolio
International Equity For the Period From For the Period From
Portfolio December 1, 1996* November 1, 1996*
For the Five Months to March 31, 1997 to March 31, 1997
Ended March 31, 1997
Investment Income
Interest $ 508,837 $ 143,770 $ 38,379
Dividends (net of
withholding taxes of
$149,147, $13,116 and
$685, respectively) 783,854 285,681 15,798
Total investment
income 1,292,691 429,451 54,177
Expenses
Investment advisory
fees 909,756 230,655 16,185
Administration fees 181,951 34,598 2,428
Custodian fees 125,062 18,940 6,568
Shareholder recordkeeping
fees 15,764 9,822 705
Legal fees 3,125 2,500 250
Audit fees 10,331 7,831 7,500
Directors' fees and
expenses 15,000 2,917 83
Insurance expense 7,670 3,030 -
State registration
filing fees 4,333 783 583
SEC filing fees 28,099 16,567 1,436
Organizational Costs 11,333 2,000 -
Other fees and expenses 11,820 3,551 677
Total operating
expenses 1,324,244 333,194 36,415
Waiver of investment
advisory fee (113,652) (44,850) (16,185)
Net operating expenses 1,210,592 288,344 20,230
Investment Expense 5,721 3,459 -
Total expenses 1,216,313 291,803 20,230
Investment income,
net 76,378 137,648 33,947
Realized and unrealized
gain (loss) on
investments and foreign
currency-related
transactions
Net realized gain from
investments 304,295 2,220,574 22,127
Net realized gain (loss)
from foreign currency-
related transactions (166,083) 16,030 7,350
Net unrealized
appreciation
(depreciation) on
investments 3,971,059 14,127,539 74,877
Net unrealized
appreciation
(depreciation) on
translation of
assets and liabilities
denominated in foreign
currencies (9,697) 1,155 (2,864)
Realized and unrealized
gain (loss) on investments
and foreign currency-
related transactions 4,099,574 16,365,298 101,490
Net increase in net
assets resulting
from operations $ 4,175,952 $ 16,502,946 $ 135,437
* Commencement of operations
See Notes to Financial Statements
Harding, Loevner Funds, Inc
Statements of Changes in Net Assets
For the Periods Ended
Global Equity Multi-Asset Global
Portfolio Portfolio
International Equity For the Period From For the Period From
For the For the December 1, 1996* November 1, 1996*
Five Months Ten Months to March 31, 1997 to March 31, 1997
Ended Ended (Unaudited) (Unaudited)
March 31, 1997 October 31, 1996
(Unaudited)
Increase (Decrease)
in Net Assets from
Operations
Investment
income, net $ 76,378 $ 1,541,518 $ 137,648 $ 33,947
Net realized
gain from
investments
and foreign
currency-
related
transactions 138,212 2,679,097 2,236,604 29,477
Net unrealized
appreciation
(depreciation)
on investments
and on translation
of assets and
liabilities
denominated in
foreign
currencies 3,961,362 4,804,186 14,128,694 72,013
Net increase
in net assets
resulting
from
operations 4,175,952 9,024,801 14,496 135,437
Distributions
to Shareholders
from
Investment
income, net 59,386 1,541,518 49,310 12,110
In excess of
investment
income, net - 649,872 - -
Net realized
gain from
investments
and foreign
currency-
related
transactions - 2,144,787 - -
Total
distributions 59,386 4,336,177 49,310 12,110
Capital Share
Transactions,
Net 93,193,683 168,942,060 53,841,776 4,289,855
Total increase
in net
assets 97,310,249 173,630,684 70,295,412 4,413,182
Net Assets
Beginning
of period 241,357,236 67,726,552 - -
End of
period $ 338,667,485 $241,357,236 $ 70,295,412 $ 4,413,182
Undistributed
(Distributions
in excess of)
Investment
Income, Net $(443,411) $ (460,403) $ 88,338 $ 21,837
* Commencement of operations
See Notes to Financial Statements
Harding, Loevner Funds, Inc.
Financial Highlights
International Equity Portfolio
For the
Five Months Ended For the Ten For the Year For the Period
March 31, 1997 Months Ended Ended Ended
(unaudited) October 31, 1996 December 31, 1995 December 31, 1994*
Per Share
Data
Net asset
value,
beginning
of period $ 11.61 $ 10.77 $ 9.71 $ 10.00
Increase
(Decrease)
in Net
Assets
from
Operations
Investment
income, net 0.00 (c) 0.08 0.10 0.04
Net realized
and
unrealized
gain (loss)
on investments
and foreign
currency-
related
transactions 0.24 0.97 1.06 (0.29)
Net increase
(decrease)
from
investment
operations 0.24 1.05 1.16 (0.25)
Distributions
to Shareholders
from Investment
income, net 0.00 (c) 0.08 0.10 0.03
In excess of
investment
income, net - 0.03 - -
Net realized
gain from
investments
and foreign
currency-
related
transactions - 0.10 - -
Temporary
overdistribution
of net realized
gain on
investments and
foreign
currency-related
transactions - - - 0.01
Total
distributions 0.00 (c) 0.21 0.10 0.04
Net asset value,
end of
period $ 11.85 $ 11.61 $ 10.77 $ 9.71
Total Return 2.09% (b) 9.81% (b) 11.99% (2.47%) (b)
Ratios/
Supplemental
Data
Net assets,
end of period $ 338,667,485 $ 241,357,236 $ 67,726,552 $ 8,903,878
Ratio of
expenses to
average net
assets 1.00% (a) 1.00% (a) 0.99% 0.95% (a)
Ratio of
investment
income, net
to average
net assets 0.06% (a) 1.29% (a) 1.30% 1.13% (a)
Decrease in
above ratios
due to waiver
of investment
advisory and
administration
fees and
reimbursement
of other
expenses 0.09% (a) 0.14% (a) 0.54% 1.33% (a)
Portfolio
turnover 14% (b) 17% (b) 28% 27% (b)
Average
Commission
Rate Paid $ 0.0367 ** $ 0.0229 ** N/A N/A
(a) Annualized
(b) Not Annualized
(c) Rounds to less than $0.01
* Commencement of Operations was May 11, 1994
** Represents total commissions paid on portfolio equity securities divided by
the total number of shares purchased or sold on which commissions were
charged. This disclosure is required by the SEC beginning in 1996.
See Notes To Financial Statements
Harding, Loevner Funds, Inc.
Financial Highlights
Global Equity Portfolio Multi-Asset Global Portfolio
For the Period For the Period
December 1, 1996* to November 1, 1996*
March 31, 1997 to March 31, 1997
(Unaudited) (Unaudited)
Per Share Data
Net asset value,
beginning of period $ 17.58 (a) $ 10.00
Increase in Net
Assets from Operations
Investment income, net 0.04 0.08
Net realized and
unrealized gain
on investments
and foreign currency-
related transactions 0.01 0.39
Net increase from
investment operations 0.05 0.47
Distributions to
Shareholders from
Investment income, net 0.01 0.03
Net asset value,
end of period $ 17.62 $ 10.44
Total Return 0.30% (b) 4.69% (b)
Ratios/Supplemental
Data
Net assets, end of
period $ 70,295,412 $ 4,413,182
Ratio of expenses
to average net
assets 1.25% (c) 1.25% (c)
Ratio of investment
income, net to
average net assets 0.60% (c) 2.10% (c)
Decrease in above
ratios due to waiver
of investment advisory
and administration fees 0.19% (c) 1.00% (c)
Portfolio turnover 15% (b) 12% (b)
Average Commission
Rate Paid $ 0.0274 ** $ 0.0575 **
(a) The beginning Net Asset Value of the Portfolio was equal to the total Net
Asset Value of the outstanding Partnership Units of GELP as of November 30,
1996 ($1,758) divided by 100.
(b) Not Annualized
(c) Annualized
* Commencement of Operations
** Represents total commissions paid on portfolio equity securities divided by
the total number of shares purchased or sold on which commissions were
charged. This disclosure is required by the SEC beginning in 1996.
See Notes To Financial Statements
Notes to Financial Statements
March 31, 1997 (Unaudited)
1. Organization
Harding, Loevner Funds, Inc. (the "Fund") was organized as a Maryland
corporation on July 31, 1996 and is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The
Fund currently has four portfolios, three of which were active as of March 31,
1997. The three active portfolios are: International Equity Portfolio
("International Equity"); Global Equity Portfolio ("Global Equity"); and
Multi-Asset Global Portfolio ("Multi-Asset Global"). International Equity,
previously the HLM International Equity Portfolio of the AMT capital Fund, Inc.
(the "AMT Capital Portfolio"), commenced investment operations on May 11, 1994.
Effective as of the close of business on October 31, 1996, the AMT Capital
Portfolio merged into International Equity pursuant to shareholder approval of
the tax-free reorganization on October 30, 1996. Global Equity commenced
operations on December 1, 1996 following a tax-free merger with HLM Global
Equity LP ("GELP"). Multi-Asset Global commenced operations on November 1,
1996. The Fund is managed by Harding, Loevner Management, L.P. (the
"Investment Adviser"). The costs incurred by the Fund in connection with the
organization and initial registration are being amortized in the International
Equity and Global Equity. The unamortized balance of organizational expenses
at March 31, 1997 was $139,141.
2. Summary of Significant Accounting Policies
Securities
All securities transactions are recorded on a trade date basis. Interest
income and expenses are recorded on an accrual basis. Dividend income is
recorded on the ex-dividend date. The Fund amortizes discount or premium on
a daily basis to interest income. The Fund uses the specific identification
method for determining gain or loss on sales of securities.
Income Tax
It is the policy of the Fund to qualify as a regulated investment company, if
such qualification is in the best interest of its shareholders, by complying
with the applicable provisions of the Internal Revenue Code, and to make
distributions of taxable income sufficient to relieve it from substantially
all Federal income and excise taxes.
Valuation
All investments in the Fund are valued daily at their market price, which
results in unrealized gains or losses. Securities traded on an exchange are
valued at their last sales price on that exchange. Securities for which no
sales are reported are valued at the latest bid price obtained from a
quotation reporting system or from established market makers. Repurchase
agreements are generally valued at their cost plus accrued interest.
Securities for which market quotations are not readily available and illiquid
securities will be valued in good faith by the Board of Directors.
Expenses
Expenses directly attributed to each Portfolio in the Fund are charged to
that Portfolio's operations; expenses which are applicable to all Portfolios
are allocated among them based on average daily net assets.
Dividends to Shareholders
It is the policy of the Fund to declare dividends from net investment income
annually. Net short-term and long-term capital gains distributions for both
Portfolios, if any, are normally distributed on an annual basis.
Dividends from net investment income and distributions from realized gains
from investment transactions have been determined in accordance with the
income tax regulations and may differ from net investment income and realized
gains recorded by the Portfolio for financial reporting purposes.
Differences result primarily from foreign currency transactions and timing
differences related to recognition of income, and gains and losses from
investment transactions. To the extent that those differences which are
permanent in nature result in overdistributions to shareholders, amounts are
reclassified with the capital accounts based on their
2. Summary of Significant Accounting Policies (continued)
federal tax basis treatment. Temporary differences do not require
reclassification. Dividends and distributions which exceed net investment
income and net realized capital gains for financial reporting purposes but
not for tax purposes are reported as distributions in excess of net
investment income and net realized capital gains, respectively. To the
extent that they exceed net investment income and net realized gains for tax
purposes, they are reported as distributions of capital stock in excess of par.
During the ten months ended October 31, 1996, the AMT Capital Portfolio
reclassified $184,775 between distributions in excess of investment income to
accumulated net realized gain on investments and foreign currency-related
transactions. This reclassification had no effect on net investment income,
net realized gains and losses, and net assets.
Currency Translation
Assets and liabilities denominated in foreign currencies and commitments
under forward exchange currency contracts are translated into U.S. dollars
at the mean of the quoted bid and asked prices of such currencies against the
U.S. dollar. Purchases and sales of portfolio securities are translated at
the rates of exchange prevailing when such securities were acquired or sold.
Income and expenses are translated at exchange rates prevailing when accrued.
The Fund does not isolate that portion of the results foreign exchange rates
on investments from the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
Net realized gains and losses from foreign currency-related transactions
arise from sales of foreign currency, currency gains or losses realized
between the trade and settlement dates on securities transactions, and the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Portfolio's books, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized
appreciation or depreciation on translation of assets and liabilities
denominated inecurities at the period end, resulting from changes in the
exchange rate. At March 31, 1997, International Equity, Global Equity and
Multi-Asset Global had balances of ($6,885), $1,155 and ($453), respectively
of net unrealized depreciation and appreciation related to the changes in the
exchange rate in the value of other assets and liabilities excluding foreign
currency and forward foreign currency contracts and investments.
Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates.
3. Investment Advisory Agreement and Affiliated Transactions
The Fund's Board of Directors has approved investment advisory agreements
(the "Agreements") with the Investment Adviser. In addition, the Fund has
an administration agreement with AMT Capital Services, Inc., which assists in
managing and supervising all aspects of the Portfolio other than investment
advisory activities. The advisory fee and administration fees are computed
daily at an annual rate of .75% and .15%, respectively, of the average daily
net assets of International Equity, and 1.00% and .15%, respectively, for each
of Global Equity and Multi-Asset Global. The Investment Adviser has voluntarily
agreed to reduce their fee to the extent that aggregate expenses (exclusive
of brokerage commissions, other investment expenses, interest on borrowings,
taxes and extraordinary expenses) exceed an annual rate of 1.00%, 1.25%, and
1.25%, respectively, of the average daily net assets of International Equity,
Global Equity and Multi-Asset Global.
Directors' fees and expenses of $10,500 were paid for the five months ended
March 31, 1997 to directors who are not employees of the Investment Adviser.
Notes to Financial Statements (continued)
March 31, 1997 (Unaudited)
4. Investment Transactions
Purchase cost and proceeds from sales of investment securities, other than
short-term investments, for the five months ended March 31, 1997 were as
follows for each of the Portfolios:
Purchase Cost of Proceeds from Sales of
Portfolio Investment Securities Investment Securities
International Equity $ 111,702,240 $ 36,151,157
Global Equity 8,016,154 9,559,814
Multi-Asset Global 4,403,960 374,916
The components of net unrealized appreciation on investments at March 31,
1997 for each of the Portfolios were as follows:
Unrealized Unrealized
Portfolio Appreciation Depreciation Net
International Equity $ 24,528,066 $11,855,081 $ 12,672,985
Global Equity 16,250,757 2,123,218 14,127,539
Multi-Asset Global 192,725 117,848 74,877
The cost of securities owned by the Portfolio at March 31, 1997 for Federal tax
purposes was substantially the same as for the financial statement purposes.
5. Forward Foreign Exchange Contracts
The Portfolio, on occassion, enters into forward foreign exchange contracts in
order to hedge its exposure to changes in foreign currency exchange rates on
its foreign portfolio holdings. A forward foreign exchange contract is a
commitment to purchase or sell a foreign currency at a future date at a
negotiated forward rate. The gain or loss arising from the difference between
the cost of the original contracts and the closing of such contracts is
included in net realized gains or losses on foreign currency-related
transactions. Fluctuations in the value of forward foreign exchange contracts
are recorded for book purposes as unrealized appreciation or depreciation on
assets and liabilities denominated in foreign currencies by the Portfolio.
At March 31, 1997 International Equity had the following outstanding forward
foreign exchange contracts:
Contract Unrealized
Amount Cost Value (Depreciation)
Forward Foreign
Exchange Sell
Contracts
332,147 German
Deutschemark $ 196,293 $ 199,442 $ (3,149)
Notes to Financial Statements (continued)
March 31, 1997 (Unaudited)
At March 31, 1997 Multi-Asset Global had the following outstanding
forward foreign exchange contracts:
Contract Unrealized
Amount Cost Value (Depreciation)
Forward Foward Exchange
Sell Contracts
332,147 German
Deutschemark $118,343 $120,754 $ (2,411)
The Portfolios enter into foreign currency transactions on the spot markets in
order to pay for foreign investment purchases or to convert to dollars the
proceeds from foreign investment sales or coupon interest receipts. There
were no open foreign exchange contracts to buy or sell currency on the spot
markets as of March 31, 1997.
6. Capital Share Transactions
Transactions in capital stock for International Equity were as follows for
the periods indicated:
Five Months Ended Ten Months Ended
March 31, 1997 October 31, 1996
Shares Amount Shares Amount
Shares sold 8,079,787 $ 104,870,412 14,950,392 $ 174,317,309
Shares issued
related to
reinvestment
of dividends 3,525 43,005 301,338 3,510,073
8,083,312 104,913,417 15,251,730 177,827,382
Shares redeemed 294,556 11,719,734 755,840 8,885,322
Net increase 7,788,756 $ 93,193,683 14,495,890 $168,942,060
Transactions in capital stock for Global Equity were as follows for the
period indicated:
For the Period December 1, 1996*
to March 31, 1997
Shares Amount
Shares transferred 3,866,979 $ 51,493,041
Shares sold 212,052 3,881,677
Shares issued related to
reinvestment
of dividends 2,220 38,964
4,081,251 55,413,682
Shares redeemed 92,332 1,571,906
Net increase 3,988,919 $ 53,841,776
* Commencement of operations
Notes To Financial Statements (continued)
March 31, 1997 (Unaudited)
6. Capital Share Transactions (continued)
Transactions in capital stock for Multi-Asset Global were as follows for the
period indicated:
Five Months Ended
March 31, 1997
Shares Amount
Shares sold 421,505 $ 4,277,745
Shares issued related
to reinvestment
of dividends 1,170 12,110
422,675 4,289,855
Shares redeemed - -
Net increase 422,675 $ 4,289,855
7. Repurchase and Reverse Repurchase Agreements Each Portfolio may enter
into repurchase agreements under which a bank or securities firm that is a
primary or reporting dealer in U.S. Government securities agrees, upon
entering into a contract, to sell U.S. Government Securities to a Portfolio and
repurchase such securities from such Portfolio at a mutually agreed upon price
and date.
Each Portfolio is also permitted to enter into reverse repurchase agreements
under which a primary or reporting dealer in U.S. Government securities
purchases U.S. Government securities from a Portfolio and such Portfolio
agrees to repurchase the securities at an agreed upon price and date.
Each Portfolio may engage in repurchase and reverse repurchase transactions
with parties selected on the basis of such party's creditworthiness.
Securities purchased subject to repurchase agreements must have an aggregate
market value greater than or equal to the repurchase price plus accrued
interest at all times. If the value of the underlying securities falls below
the value of the repurchase price plus accrued interest, the Portfolio will
require the seller to deposit additional collateral by the next business day.
If the request for additional collateral is not met, or the seller defaults on
its repurchase obligation, the Portfolio maintains the right to sell the
underlying securities at market value and may claim any resulting loss against
the seller. When a Portfolio engages in reverse repurchase transactions, such
Portfolio will maintain, in a segregated account with its custodian, securities
equal in value to those subject to the agreement.
<TABLE> <S> <C>
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<ACCUMULATED-NII-PRIOR> (460)
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<TABLE> <S> <C>
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<NAME> GLOBAL EQUITY PORTFOLIO
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<PER-SHARE-NII> .04
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<PER-SHARE-DIVIDEND> .01
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
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<MULTIPLIER> 1,000
<C> <C>
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</TABLE>
AMT Capital Fund, Inc.
HLM International Equity Portfolio
----------------------------------
Annual Report
October 31, 1996
AMT Capital Services, Inc.
600 Fifth Avenue, New York, New York 10020
Telephone (212) 332-5211 Long Distance (800) 762-4848
Facsimile (212) 332-5190
<PAGE>
AMT Capital Fund, Inc.
- --------------------------------------------------------------------------------
HLM International Equity Portfolio - President's Letter
- --------------------------------------------------------------------------------
December 6, 1996
Dear Shareholder:
We are pleased to present the Annual Report for the AMT Capital Fund, Inc. -
HLM International Equity Portfolio for the period ended October 31, 1996. As of
the close of business on October 31, 1996, the HLM International Equity
Portfolio merged into the International Equity Portfolio of the Harding, Loevner
Funds, Inc. on a tax-free basis. The Harding, Loevner Funds is a new family of
funds advised by the Portfolio's investment adviser, Harding, Loevner
Management, L.P. AMT Capital continues to serve as distributor and
administrator of the Portfolio and the Funds and can be reached at the Funds'
direct number, 212-332-5210, for any questions you may have regarding the
recently completed merger.
Sincerely,
/s/ Alan M. Trager
Alan M. Trager
President
<PAGE>
AMT Capital Fund, Inc.
- --------------------------------------------------------------------------------
HLM International Equity Portfolio - Table of Contents
- --------------------------------------------------------------------------------
Overview.................................................................. 1
Statement of Net Assets................................................... 3
Statement of Operations................................................... 7
Statement of Changes in Net Assets........................................ 8
Financial Highlights...................................................... 9
Notes to Financial Statements............................................ 10
<PAGE>
AMT Capital Fund, Inc.
- --------------------------------------------------------------------------------
HLM International Equity Portfolio - Overview
October 31, 1996
- --------------------------------------------------------------------------------
GRAPH: This graph is a comparison of change in value of $10,000 investment in
HLM International Equity Portfolio, The MSCI World ex USA Index (net
dividends reinvested) and the Lipper International Equity Fund Index.
The comparison is from the 5/11/94 to 10/31/96. As of 10/31/96 the value
of the $10,000 investment in HLM International Equity Portfolio was
$11,994; the value of the same investment in MSCI World ex USA Index
was $11,858; and the value of the same investment in Lipper International
Equity Fund Index was $11,652.
Investment Performance (For The Periods Ended October 31, 1996)
Cumulative Total Average Annual
Return Total Return
-----------------------------------------------
1996 Since Since
Y-T-D Last 12 months Inception* Inception*
HLM International Equity
Portfolio 9.81% 15.39% 19.94% 7.62%
MSCI World Ex-USA Index (net) 4.08% 11.20% 18.58% 7.12%
Lipper International Equity
Fund Index 8.34% 12.65% 16.52% 6.37%
* The HLM International Equity Portfolio commenced operations on May 11, 1994
<PAGE>
AMT Capital Fund, Inc.
- --------------------------------------------------------------------------------
HLM International Equity Portfolio - Overview (continued)
October 31, 1996
- --------------------------------------------------------------------------------
The HLM International Equity Portfolio provided a total return for the ten
month period ended October 31, 1996 of 9.81% and an annualized return of 7.62%
since its inception on May 11, 1994. The Portfolio's benchmark, the MSCI World
ex USA Index (with net dividends reinvested), returned 4.08% and 7.12% for the
same periods, respectively. The Lipper International Equity Fund Index returned
8.34% and 6.37%, respectively. The Portfolio's fiscal year end was changed from
December 31 to October 31 in conjunction with the merger of the Portfolio into
the Harding, Loevner Funds, Inc. as of the close of business on October 31, 1996
(See "Special Meeting of Shareholders"). As of the publishing of this report,
the net assets in the new portfolio have reached $268 million.
Developments in the First Half of 1996
Even a sharp increase in long-term interest rates did not cool the ardour of
mutual fund investors in early 1996, who poured money into equity and fixed
income funds at record rates. Among the beneficiaries of this trend were
international funds, whose inflows contributed to the worldwide rise in markets
in the first part of the year. Currency markets were stable, and, as usual, the
Portfolio benefited from that stability. A number of well-performing stocks
contributed to the Portfolio's performance, including Bayer, Societe Generale de
Surveillance, IHC Caland, and Nestle Malaysia.
There were a number of individual stocks that contributed to the Portfolio's
strong performance in the second quarter despite the fact that there were very
small gains in the period for the two largest non-U.S. stock markets, the U.K.
and Japan. Several companies in the Portfolio were beneficiaries of the rising
U.S. dollar: Honda Motor, Nippondenso, Surveillance, and Unitor. Additionally,
other stocks contributed to performance on the basis of stock selection as
distinct from country allocation: Blenheim and Rentokil, for example each rose
more than 15% whereas the U.K. market overall rose by just 3%.
Developments Since Mid-Year
Whereas the second quarter was marked by very small movements in the U.K. and
Japan, this quarter they were the biggest movers -- in opposite directions. The
Japanese market declined approximately 5.6% in dollar terms, as the yen stopped
weakening relative to the dollar and investors began to question their bullish
assumptions of the pace of economic recovery. Meanwhile, the U.K. market rose
7.9% from the resurgence of the British consumer and property market. Since the
Portfolio has less exposure to these countries than their respective weightings
in the market indexes, the Portfolio was less strongly affected by these moves
than its benchmark. In October, the adviser reduced holdings in two South East
Asian companies, Sime Darby, and Hutchison Whampoa, where strong price
appreciation had led to the size of the holdings becoming uncomfortably large.
Proceeds were reinvested in the region in Hong Kong and China Gas, a utility
company, and by increasing the Portfolio's holding in RTZ, one of the world's
largest mining companies. Individual company performance continued to drive the
Portfolio's results during the period.
Outlook
The economic and financial landscape around the world remains favorable.
Competition will continue to be fierce as companies continue to compete
globally, inflation will remain quite modest, and therefore interest rates will
remain relatively low. In such an environment, demonstrable ability to generate
earnings and dividend growth will remain scarce and valuable.
<PAGE>
AMT Capital Fund, Inc.
- --------------------------------------------------------------------------------
HLM International Equity Portfolio - Statement of Net Assets
October 31, 1996
- --------------------------------------------------------------------------------
Shares Value
Long-Term Investments - 95.5%
Equities - 90.7%
Argentina - 1.1%
Quilmes Industrial SA - ADR (Foods/Beverages) 75,600 $ 793,800
Quilmes Industrial SA - (Foods/Beverages) 178,200 1,826,550
---------
2,620,350
---------
Bermuda - 1.0%
PartnerRe Holdings Ltd. (Insurance) 85,800 2,466,750
---------
Canada - 1.9%
Imperial Oil Ltd. (Oil/Gas) 106,000 4,664,000
---------
France - 3.0%
Financiere et Industrielle Gaz et Eaux
(Diversified Holdings) 11,875 5,008,076
Michelin (CGDE) - Class B (Manufacturing) 46,800 2,258,679
---------
7,266,755
---------
Germany - 10.0%
Bayer AG (Chemicals) 197,600 7,474,003
Deutsche Bank AG (Financial) 141,000 6,537,374
Hochtief AG (Engineering) 105,000 4,310,219
Hornbach Baumarkt AG (Retail) 33,500 1,085,074
Muenchener Rueckversicherung (Insurance) 1,934 4,627,896
----------
24,034,566
----------
Hong Kong - 6.1%
Hong Kong & China Gas Co., Ltd.
(Distribution-Oil/Gas) 1,767,000 3,108,099
Hutchison Whampoa Ltd. (Diversified Holdings) 1,220,000 8,520,655
Johnson Electric Holdings Ltd.
(Electrical Equipment) 1,461,000 3,193,422
----------
14,822,176
----------
Indonesia - 0.4%
PT Wicaksana Overseas International
(Distribution/Wholesale) 742,000 860,567
<PAGE>
Japan - 15.8%
Atlantis Japan Growth Fund (Investment Company)* 440,000 3,907,200
Atlantis Japan Growth Fund Warrants Expiring
4/30/10 (Investment Company)* 53,000 105,640
Canon, Inc. (Office Equipment) 302,000 5,787,780
Canon Sales Co., Inc. (Distribution/Wholesale) 173,500 4,408,044
Honda Motor Co., Ltd. (Automotive) 239,000 5,714,989
Ito-Yokado Co., Ltd. (Retail) 118,000 5,892,220
Mitsubishi Heavy Industries Ltd. (Aerospace) 810,000 6,230,769
Nippondenso Co., Ltd. (Electrical Equipment) 298,000 6,182,681
----------
38,229,323
----------
Malaysia - 4.4%
Nestle Berhad (Foods/Beverages) 415,000 3,252,583
Nylex Berhad (Chemicals) 667,500 1,466,423
Sime Darby Berhad (Diversified Holdings) 1,658,000 5,873,847
----------
10,592,853
----------
Netherlands - 10.2%
IHC Caland NV (Transportation) 86,500 4,832,773
Randstad Holdings NV (Commercial Services) 31,600 2,557,829
Royal Dutch Petroleum Co. - ADR (Oil/Gas) 66,000 10,914,750
Wolters Kluwer NV (Publishing)* 49,000 6,304,956
----------
24,610,308
----------
Norway - 1.9%
Norsk Hydro AS - ADR (Oil/Gas) 98,033 4,497,264
Singapore - 8.1%
Acer Computer International Ltd. (Computers) 560,000 991,200
Acer Computer Int'l Ltd. Warrants
Expiring 7/31/01 (Computers)* 112,000 38,166
Courts Ltd. (Retail) 605,000 803,173
Development Bank of Singapore - Foreign
Registered Shares (Financial) 585,000 7,018,671
Keppel Corp. Ltd. (Transportation) 892,000 6,649,155
Singapore Press Holdings Ltd. (Publishing) 247,000 4,103,223
----------
19,603,588
----------
South Africa - 1.7%
LibLife Strategic Investments, Ltd.
(Diversified Holdings) 1,337,690 3,993,104
Spain - 3.4%
Banco Intercontinental Espanol (Financial) 68,000 8,162,349
Sweden - 3.2%
Astra AB - Bearer Shares (Pharmaceuticals) 170,000 7,770,836
<PAGE>
Switzerland- 11.8%
ABB AG - Registered Shares (Engineering) 37,000 9,051,629
Nestle SA - ADR (Foods/Beverages) 133,000 7,253,754
Sandoz AG (Pharmaceuticals) 4,300 4,989,912
SGS Societe Generale de Surveillance
Holding SA - Bearer Shares
(Commercial Services) 2,375 5,414,019
SGS Societe Generale de Surveillance
Holding SA - Registered Shares
(Commercial Services) 4,400 1,876,728
----------
28,586,042
----------
Thailand - 1.8%
The Siam Cement Co., Ltd.
(Manufacturing/Distribution) 128,000 4,379,502
United Kingdom - 4.9%
Rentokil Group p.l.c. (Commercial Services) 1,003,400 6,742,472
RTZ Corp. (Mining) 311,000 4,977,532
----------
11,720,004
----------
Total Equities - (Cost - $209,467,462) 218,880,337
Convertible Bonds - 4.8% Face
Amount
----------------
Michelin, 6.000% due 1/2/98 (France) FRF 12,000,000 2,631,424
Johnson Electric Holdings Ltd., 4.500%
due 11/5/00 (Hong Kong) $ 500,000 466,875
Far East Levingston Ship, 1.500%
due 5/02/01 (Singapore) 2,370,000 2,150,775
Bangkok Bank Public Co., 3.250%
due 3/3/04 (Thailand) 6,220,000 6,344,400
----------
Total Convertible Bonds - (Cost - $ 12,304,423) 11,593,474
----------
Total Long-Term Investments - (Cost - $221,771,885) 230,473,811
Face
Amount Value
Short-Term Investments - 5.2%
Investors Bank & Trust Company Repurchase
Agreement, 5.18% due 11/1/96; Issued
10/31/96 (Collateralized by $6,416,000
par of Federal National Mortgage
Association ARM, 5.15% due 2/1/24, value
$3,896,019, and $8,996,000 par of Federal
National Mortgage Association ARM, 5.15%
due 10/1/26, value $9,229,356
(Cost - $12,500,000) $12,500,000 $12,500,000
Total Investments - 100.7% (Cost - $234,271,885) 242,973,811
Other Assets Net of Liabilities - (0.7%)
Foreign currency holdings (Cost - $4,932,289) 4,958,660
Other assets 524,285
Receivable from Investment Adviser 4,134
Payable for securities purchased (6,834,531)
Unrealized depreciation on forward contracts (2,259)
Other liabilities (266,864)
Other assets and liabilities, net (1,616,575)
Net Assets - 100.0%
Applicable to 20,785,131 outstanding $.001 par
value shares (authorized 250,000,000 shares) $ 241,357,236
Net Asset Value, Offering and Redemption Price Per Share $ 11.61
Components of Net Assets as of October 31, 1996 were as follows:
Capital stock at par value ($.001) $ 20,785
Capital stock in excess of par value 233,099,969
Distribution in excess of investment income, net (460,403)
Net unrealized appreciation on investments and on
assets and liabilities denominated in foreign currencies 8,696,885
-------------
$ 241,357,236
-------------
*Non-income producing securities
FRF-French Francs See Notes to Financial Statements
<PAGE>
AMT Capital Fund, Inc.
- --------------------------------------------------------------------------------
HLM International Equity Portfolio - Statement of Operations
For the Ten Months Ended October 31, 1996
- --------------------------------------------------------------------------------
Investment Income
Interest $ 584,951
Dividends (net of withholding taxes of $295,878) 2,166,599
-----------
Total investment income 2,751,550
-----------
Expenses
Investment advisory fees 893,427
Administration fees 178,685
Custodian fees 139,675
Shareholder recordkeeping fees 27,877
Legal fees 6,250
Audit fees 20,833
Directors' fees and expenses 7,269
Insurance expense 13,296
State registration filing fees 10,100
SEC filing fees 51,195
Other fees and expenses 12,014
----------
Total operating expenses 1,360,621
Waiver of investment advisory fee (169,385)
----------
Net operating expenses 1,191,236
Investment expense 18,796
----------
Total expenses 1,210,032
----------
Investment income, net 1,541,518
Realized and unrealized gain (loss) on
investments and foreign currency-related
transactions
Net realized gain from investments 2,846,551
Net realized loss from foreign currency-related
transactions (167,454)
Net unrealized appreciation on investments 4,802,235
Net unrealized appreciation on translation of assets
and liabilities denominated in foreign currencies 1,951
----------
Net realized and unrealized gain on investments
and foreign currency-related transactions 7,483,283
----------
Net increase in net assets
resulting from operations $ 9,024,801
----------
See Notes to Financial Statements
<PAGE>
AMT Capital Fund, Inc.
- --------------------------------------------------------------------------------
HLM International Equity Portfolio - Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
For the Ten Months For the Year
Ended Ended
October 31, 1996 December 31, 1995
Increase (Decrease) in Net Assets
from Operations
Investment income, net $ 1,541,518 $ 436,280
Net realized gain (loss) from
investments and foreign
currency-related transactions 2,679,097 (324,304)
Net unrealized appreciation on
investments and on translation
of assets and liabilities
denominated in foreign currencies 4,804,186 3,956,823
Net increase in net assets resulting
from operations 9,024,801 4,068,799
Distributions to Shareholders from
Investment income, net 1,541,518 407,463
In excess of investment income, net 649,872 -
Net realized gain from investments and
foreign currency-related transactions 2,144,787 -
Total distributions 4,336,177 407,463
Capital Share Transactions, Net 168,942,060 55,161,338
Total increase in net assets 173,630,684 58,822,674
Net Assets
Beginning of period 67,726,552 8,903,878
End of period $ 241,357,236 $ 67,726,552
Undistributed (Distributions in
excess of) Investment
Income, Net $ (460,403) $ 4,694
See Notes to Financial Statements
<PAGE>
AMT Capital Fund, Inc.
- --------------------------------------------------------------------------------
HLM International Equity Portfolio - Financial Highlights
- --------------------------------------------------------------------------------
For the Ten For the Year For the Period
Months Ended Ended Ended
October 31, 1996 December 31, 1995 December 31,1994*
---------------- ----------------- -----------------
Per Share Data
Net asset value,
beginning of period $ 10.77 $ 9.71 $ 10.00
Increase (Decrease)
in Net Assets from
Operations
Investment income, net 0.08 0.10 0.04
Net realized and
unrealized gain (loss)
on investments and
foreign currency-
related transactions 0.97 1.06 (0.29)
Net increase (decrease)
from investment
operations 1.05 1.16 (0.25)
Distributions to
Shareholders from
Investment income, net 0.08 0.10 0.03
In excess of investment
income, net 0.03 - -
Net realized gain from
investments and foreign
currency-related
transactions 0.10 - -
Temporary overdistribution
of net realized gain on
investments and foreign
currency-related transactions - - 0.01
Total distributions 0.21 0.10 0.04
Net asset value, end of
period $ 11.61 $ 10.77 $ 9.71
Total Return 9.81% (b) 11.99% (2.47%) (b)
Ratios/Supplemental
Data
Net assets, end
of period $241,357,236 $ 67,726,552 $ 8,903,878
Ratio of expenses to
average net assets 1.00% (a) 0.99% 0.95% (a)
Ratio of investment
income, net to average
net assets 1.29% (a) 1.30% 1.13% (a)
Decrease in above
ratios due to waiver
of investment advisory
and administration fees
and reimbursement
of other expenses 0.14% (a) 0.54% 1.33% (a)
Portfolio turnover 17% (b) 28% 27% (b)
Average commission
rate paid $ .0229 ** N/A N/A
(a) Annualized
(b) Not Annualized
* Commencement of operations was May 11, 1994
** Represents total commissions paid on portfolio equity securities divided by
the total number of shares purchased or sold on which commissions were
charged. This disclosure is required by the SEC beginning in 1996.
See Notes to Financial Statements
<PAGE>
AMT Capital Fund, Inc.
- --------------------------------------------------------------------------------
HLM International Equity Portfolio - Notes To Financial Statements
October 31, 1996
- --------------------------------------------------------------------------------
1. Organization
AMT Capital Fund, Inc. (the "Fund") was organized as a Maryland corporation on
August 3, 1993 and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. The Fund currently has
two Portfolios. This report pertains to the HLM International Equity Portfolio.
The HLM International Equity Portfolio (the "Portfolio") commenced operations on
May 11, 1994.
2. Summary of Significant Accounting Policies
Securities
All securities transactions are recorded on a trade date basis. Interest income
and expenses are recorded on an accrual basis. Dividend income is recorded on
the ex-dividend date. The Portfolio amortizes discount or premium on a daily
basis to interest income. The Portfolio uses the specific identification method
for determining gain or loss on sales of securities.
Income Tax
It is the policy of the Portfolio to continue to qualify as a regulated
investment company, if such qualification is in the best interest of its
shareholders, by complying with the applicable provisions of the Internal
Revenue Code, and to make distributions of taxable income sufficient to relieve
it from substantially all Federal income and excise taxes.
Valuation
All investments in the Portfolio are valued daily at their market price, which
results in unrealized gains or losses. Securities traded on an exchange are
valued at their last sales price on that exchange. Securities for which no sales
are reported are valued at the latest bid price obtained from a quotation
reporting system or from established market makers. Repurchase agreements are
generally valued at their cost plus accrued interest. Securities for which
market quotations are not readily available and illiquid securities will be
valued in good faith by the Board of Directors.
Expenses
Expenses directly attributed to each Portfolio in the Fund are charged to that
Portfolio's operations; expenses which are applicable to all Portfolios are
allocated among them based on average daily net assets.
Dividends to Shareholders
Effective January 1, 1996, it is the policy of the Portfolio to declare
dividends from net investment income annually. Net short-term and long-term
capital gains distributions for both Portfolios, if any, are normally
distributed on an annual basis.
Dividends from net investment income and distributions from realized gains from
investment transactions have been determined in accordance with the income tax
regulations and may differ from net investment income and realized gains
recorded by the Portfolio for financial reporting purposes. Differences result
primarily from foreign currency transactions and timing differences related to
recognition of income, and gains and losses from investment transactions. To
the extent that those differences which are permanent in nature result in
overdistributions to shareholders, amounts are reclassified within the capital
accounts based on their federal tax basis treatment. Temporary differences do
not require reclassification. Dividends and distributions which exceed net
investment income and net realized capital gains for financial reporting
purposes but not for tax purposes are reported as distributions in excess of net
investment income and net realized capital gains, respectively. To the extent
that they exceed net investment income and net realized gains for tax purposes,
they are reported as distributions of capital stock in excess of par.
During the ten months ended October 31, 1996, the Portfolio reclassified
$184,775 between distributions in excess of investment income to accumulated net
realized gain on investments and foreign currency-related transactions. This
reclassification had no effect on net investment income, net realized gains and
losses, and net assets.
<PAGE>
2. Summary of Significant Accounting Policies (continued)
Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under
forward exchange currency contracts are translated into U.S. dollars at the
mean of the quoted bid and asked prices of such currencies against the U.S.
dollar. Purchases and sales of portfolio securities are translated at the
rates of exchange prevailing when such securities were acquired or sold.
Income and expenses are translated at exchange rates prevailing when accrued.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Net realized gains and losses from foreign currency-related transactions arise
from sales of foreign currency, currency gains or losses realized between the
trade and settlement dates on securities transactions, and the difference
between the amounts of dividends, interest, and foreign withholding taxes
recorded on the Portfolio's books, and the U.S. dollar equivalent of the
amounts actually received or paid. Net unrealized appreciation or depreciation
on translation of assets and liabilities denominated in foreign currencies
arise from changes in the value of assets and liabilities other than
investments in securities at the period end, resulting from changes in the
exchange rate. At October 31,1996, the Portfolio had a balance of ($29,153) of
net unrealized depreciation related to the changes in the exchange rate in the
value of other assets and liabilities excluding foreign currency and forward
foreign currency contracts and investments.
Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates.
3. Investment Advisory Agreement and Affiliated Transactions
Harding, Loevner Management, L.P. ("HLM") is the investment adviser for the
Portfolio. In addition, the Portfolio has an administration agreement with AMT
Capital Services, Inc., which assists in managing and supervising all aspects
of the Portfolio other than investment advisory activities. The advisory fee
and administration fees are computed daily at an annual rate of .75% and .15%,
respectively, of the average daily net assets of the Portfolio. HLM has
voluntarily agreed to reduce their fee to the extent that aggregate expenses
(exclusive of brokerage commissions, other investment expenses, interest on
borrowings, taxes and extraordinary expenses) exceed an annual rate of 1.00% of
the average daily net assets.
4. Investment Transactions
Purchase cost and proceeds from sales of investment securities, other than
short-term investments, for the ten months ended October 31, 1996 totaled
$181,974,664 and $22,586,908 respectively, for the Portfolio.
The components of net unrealized appreciation on investments at October 31,
1996 for the Portfolio were as follows:
Gross Unrealized Appreciation $ 15,777,691
Gross Unrealized Depreciation (7,075,765)
Net Unrealized Appreciation $ 8,701,926
The cost of securities owned by the Portfolio at October 31, 1996 for Federal
tax purposes was substantially the same as for financial statement purposes.
<PAGE>
5. Forward Foreign Exchange Contracts
The Portfolio, on occasion, enters into forward foreign exchange contracts in
order to hedge its exposure to changes in foreign currency exchange rates on
its foreign portfolio holdings. A forward foreign exchange contract is a
commitment to purchase or sell a foreign currency at a future date at a
negotiated forward rate. The gain or loss arising from the difference between
the cost of the original contracts and the closing of such contracts is
included in net realized gains or losses on foreign currency-related
transactions. Fluctuations in the value of forward foreign exchange contracts
are recorded for book purposes as unrealized appreciation or depreciation on
assets and liabilities denominated in foreign currencies by the Portfolio.
At October 31, 1996, the Portfolio had the following outstanding forward
foreign exchange contracts:
Contract Unrealized
Amount Cost Value (Depreciation)
Forward Foreign Exchange Buy Contracts
815,006 French Franc closing 11/29/96 $160,355 $159,831 $ (524)
40,138 Malaysian Ringgit closing
11/1/96 16,030 15,887 (143)
1,021,585 Singapore Dollar closing
11/5/96 727,003 725,411 (1,592)
$ (2,259)
The Portfolio enters into foreign currency transactions on the spot markets in
order to pay for foreign investment purchases or to convert to dollars the
proceeds from foreign investment sales or coupon interest receipts. There were
no open foreign exchange contracts to buy or sell currency on the spot markets
as of October 31, 1996.
6. Capital Share Transactions
Transactions in capital stock for the Portfolio were as follows for the periods
indicated:
Ten Months Ended Year Ended
October 31, 1996 December 31, 1995
Shares Amount Shares Amount
Shares sold 14,950,392 $ 174,317,309 5,622,926 $ 57,519,473
Shares issued
related to
reinvestment
of dividends 301,338 3,510,073 33,936 355,396
15,251,730 177,827,382 5,656,862 57,874,869
Shares redeemed 755,840 8,885,322 284,696 2,713,531
Net increase 14,495,890 $ 168,942,060 5,372,166 $ 55,161,338
7. Repurchase and Reverse Repurchase Agreements
The Portfolio may enter into repurchase agreements under which a bank or
securities firm that is a primary or reporting dealer in U.S. Government
securities agrees, upon entering into a contract, to sell U.S. Government
Securities to the Portfolio and repurchase such securities from the Portfolio
at a mutually agreed upon price and date.
<PAGE>
7. Repurchase and Reverse Repurchase Agreements (continued)
The Portfolio is also permitted to enter into reverse repurchase agreements
under which a primary or reporting dealer in U.S. Government securities
purchases U.S. Government securities from the Portfolio and the Portfolio
agrees to repurchase the securities at an agreed upon price and date.
The Portfolio may engage in repurchase and reverse repurchase transactions with
parties selected on the basis of such party's creditworthiness. Securities
purchased subject to repurchase agreements must have an aggregate market value
greater than or equal to the repurchase price plus accrued interest at all
times. If the value of the underlying securities falls below the value of the
repurchase price plus accrued interest, the Portfolio will require the seller
to deposit additional collateral by the next business day. If the request for
additional collateral is not met, or the seller defaults on its repurchase
obligation, the Portfolio maintains the right to sell the underlying securities
at market value and may claim any resulting loss against the seller. When the
Portfolio engages in reverse repurchase transactions, the Portfolio will
maintain, in a segregated account with its custodian, securities equal in value
to those subject to the agreement.
8. Subsequent Events
Effective as of the close of business on October 31, 1996, the Portfolio
merged into the Harding, Loevner Funds, Inc. - International Equity Portfolio.
Pursuant to shareholder approval, this merger was structured as a tax-free
reorganization. All assets and liabilities of the Portfolio were transferred to
the Harding, Loevner Funds, Inc. - International Equity Portfolio. This merger
had no impact on operations or net assets, and operations have continued
without disruption.
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
AMT Capital Fund, Inc. - HLM International Equity Portfolio
We have audited the accompanying statement of net assets of AMT Capital Fund,
Inc. - HLM International Equity Portfolio as of October 31, 1996, and the
related statement of operations for the ten months then ended, the statement
of changes in net assets for the ten months ended October 31, 1996 and for the
year ended December 31, 1995 and the financial highlights for each of the
periods indicated therein. These financial statements and financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of October 31, 1996, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
HLM International Equity Portfolio of the AMT Capital Fund, Inc. at October
31, 1996, the results of its operations for the ten months then ended, the
changes in its net assets for the ten months ended October 31, 1996 and for
the year ended December 31, 1995 and the financial highlights for each of the
indicated periods, in conformity with generally accepted accounting
principles.
New York, New York
December 6, 1996
<PAGE>
AMT Capital Fund, Inc.
- --------------------------------------------------------------------------------
Special Meeting of Shareholders
October 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
In accordance with Rule 30d-1 under the Investment Company Act of 1940, the
Portfolio is required to furnish certain information regarding any matters
submitted to a vote of the Fund's shareholders. Shareholders of record on
October 14, 1996, were notified that a Special Meeting of Shareholders (the
"Meeting") would be held at the offices of the Portfolio on October 30, 1996.
Shareholders of the Portfolio voted on approval of the reorganization of the
Portfolio as the shares of the newly-formed International Equity Portfolio of
the Harding, Loevner Funds, Inc. A summary of the shareholder votes cast is
set forth below:
Vote Number of Votes Percent of Total
Shares Outstanding
---------------------------------------------------
For 11,032,275 63.09%
Against - -
Abstained - -
<PAGE>
AMT Capital Fund, Inc.
- --------------------------------------------------------------------------------
HLM International Equity Portfolio - Special 1996 Tax Information
(Unaudited)
- --------------------------------------------------------------------------------
The Portfolio has elected to pass through the credit for taxes paid in foreign
countries during its fiscal year ended October 31, 1996. In accordance with
current tax laws, the Foreign Income and Foreign Tax per share (for a share
outstanding on 10/31/96) is as follows:
Gross
Foreign Foreign
Country Tax Dividends
Argentina 0.0000 0.0016
Bermuda 0.0000 0.0011
Canada 0.0000 0.0029
France 0.0009 0.0064
Germany 0.0014 0.0139
Hong Kong 0.0000 0.0109
Indonesia 0.0001 0.0005
Japan 0.0011 0.0071
Malaysia 0.0019 0.0065
Netherlands 0.0020 0.0171
Norway 0.0007 0.0048
Philippines 0.0001 0.0003
Singapore 0.0012 0.0050
South Africa 0.0000 0.0022
Spain 0.0013 0.0103
Sweden 0.0003 0.0017
Switzerland 0.0026 0.0176
Thailand 0.0002 0.0018
United Kingdom 0.0006 0.0070
Shareholders will receive more detailed information along with their Form
1099-DIV in January, 1997.
<PAGE>
OFFICERS AND DIRECTORS CUSTODIAN AND FUND
ACCOUNTING AGENT
Patricia A. Gammon Investors Bank & Trust Company
Director of the Fund P.O. Box 1537
Boston, MA 02205-1537
Marc P. Powell TRANSFER AND DIVIDEND
Director of the Fund DISBURSING AGENT
Alan M. Trager Investors Bank & Trust Company
President and Director P.O. Box 1537
of the Fund Boston, MA 02205-1537
LEGAL COUNSEL
William E. Vastardis
Secretary and Treasurer Dechert Price & Rhoads
of the Fund 1500 K Street, N.W.
Washington, D.C. 20005-1208
Carla E. Dearing
Vice President and Assistant INDEPENDENT AUDITORS
Treasurer of the Fund
Ernst & Young LLP
787 Seventh Avenue
New York, NY 10019
INVESTMENT ADVISER
Harding, Loevner Management, L.P.
50 Division Street
Somerville, NJ 08876
ADMINISTRATOR AND
DISTRIBUTOR
AMT Capital Services, Inc.
600 Fifth Avenue, 26th Floor
New York, NY 10020
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> HLM INTERNATIONAL EQUITY PORTFOLIO
<MULTIPLIER> 1,000
<C> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 234272
<INVESTMENTS-AT-VALUE> 242974
<RECEIVABLES> 518
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 4970
<TOTAL-ASSETS> 248461
<PAYABLE-FOR-SECURITIES> 6835
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 269
<TOTAL-LIABILITIES> 7104
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 233121
<SHARES-COMMON-STOCK> 20785
<SHARES-COMMON-PRIOR> 6289
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 461
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8697
<NET-ASSETS> 241357
<DIVIDEND-INCOME> 2167
<INTEREST-INCOME> 585
<OTHER-INCOME> 0
<EXPENSES-NET> 1210
<NET-INVESTMENT-INCOME> 1542
<REALIZED-GAINS-CURRENT> 2680
<APPREC-INCREASE-CURRENT> 4804
<NET-CHANGE-FROM-OPS> 9026
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14950
<NUMBER-OF-SHARES-REDEEMED> 756
<SHARES-REINVESTED> 301
<NET-CHANGE-IN-ASSETS> 173630
<ACCUMULATED-NII-PRIOR> 5
<ACCUMULATED-GAINS-PRIOR> (350)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 893
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1379
<AVERAGE-NET-ASSETS> 119573
<PER-SHARE-NAV-BEGIN> 10.77
<PER-SHARE-NII> .08
<PER-SHARE-GAIN-APPREC> .97
<PER-SHARE-DIVIDEND> .11
<PER-SHARE-DISTRIBUTIONS> .10
<RETURNS-OF-CAPITAL> .00
<PER-SHARE-NAV-END> 11.61
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
Performance Information Schedule
Total Return
Date of Net Cap. Shares Returns
Distribution Income Gains. Reinveste NAV Inception 1 Year
Harding, Loevner Funds, Inc.
International Equity Portfolio
5/11/94 10.00 1,000.00
12/31/94 0.03158 0.01167 0.445 9.71 975.32
4/25/95 0.01500 0.00000 0.152 10.32 1,038.16
6/30/95 0.00000 0.00000 0.000 10.32 1,038.16
7/25/95 0.05500 0.00000 0.529 10.46 1,057.78
10/23/95 0.01880 0.00000 0.183 10.41 1,054.63
12/29/95 0.01166 0.00000 0.110 10.77 1,092.28
3/31/96 0.00000 0.00000 0.000 11.43 1,159.22 1,000.00
8/16/96 0.02189 0.00000 0.191 11.63 1,181.72 1,019.42
10/31/96 0.08949 0.10499 1.696 11.65 1,203.51 1,038.21
12/31/96 0.00254 0.00000 0.022 12.20 1,260.60 1,087.46
3/31/97 0.00000 0.00000 0 11.85 1,224.44 1,056.26
Performance Information Schedule
Total Return
Date of Net Cap. Shares Returns
Distribution Income Gains. Reinvested NAV Inception 1 Year
Harding Loevner Funds
Global Equity Portfolio
12/1/96 17.58 1,000.00
12/31/96 0.01273 0.00000 0.078 17.55 999.66
3/31/97 0.00000 0.00000 0.000 17.62 1,003.65
Performance Information Schedule
Total Return
Date of Net Cap. Shares Returns
Distribution Income Gains. Reinvested NAV Inception 1 Year
Harding Loevner Funds
Multi Asset Global Portfolio
11/1/96 10.00 1,000.00
12/31/96 0.02900 0.00000 0.280 10.35 1,037.90
3/31/97 0.00000 0.00000 0.000 10.44 1,046.93
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights", "Independent Auditors" and "Financial Statements" and to the
incorporation by reference of our report on AMT Capital Fund, Inc. - HLM
International Equity Portfolio dated December 6, 1996 in this Registration
Statement (Form N-1A No. 333-09341) of Harding, Loevner Funds,
Inc.
ERNST & YOUNG LLP
New York, New York
April 11, 1997
