File Nos. 33-66840, 811-7928
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. 4 X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 7 X
______________________________________________________________________________
AMT CAPITAL FUND, INC.
_____________________________________________________________________________
(Exact name of registrant as specified in charter)
430 PARK AVENUE, 17th FLOOR, NEW YORK, NEW YORK 10022
______________________________________________________________________________
(Address of principal executive offices)
Registrant's telephone number: 212-308-4848
WILLIAM E. VASTARDIS, Vice President
AMT Capital Services, Inc.
430 Park Avenue, 17th Floor
New York, New York 10022
______________________________________________________________________________
(Name and address of agent for service)
With a copy to:
LAWRENCE STOLLER, Esq.
Dechert Price & Rhoads
477 Madison Avenue
New York, NY 10022
It is proposed that this filing will become effective (check appropriate box)
X immediately upon filing pursuant to paragraph (b) of Rule 485.
on __________(date) pursuant to paragraph (b) of Rule 485.
60 days after filing pursuant to paragraph (a) of Rule 485.
on __________(date) pursuant to paragraph (a) 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 filed the
notice required thereunder for the fiscal year ended December 31, 1994 on
February 28, 1995.
The total number of pages is ______.
The Exhibit Index is on page ______.
CROSS REFERENCE SHEET
Pursuant to Rule 481(a)
Form N-1A Location in Prospectus and
Item No. Statement of Additional
Information
1. Cover Page Cover Page of Prospectus
2. Synopsis Prospectus Highlights; Fund Expenses
(in Prospectus)
3. Financial Highlights Financial Highlights (in Prospectus)
4. General Description of The Fund; Investment Objectives and
Registrant Policies; Descriptions of Investments;
Risks Associated with the Fund's
Investment Policies and Investment
Techniques; Additional Investment
Activities; Investment Restrictions;
Shareholder Information (in Prospectus)
5. Management of the Fund Fund Expenses; Management of the Fund;
Transfer and Dividend Disbursing Agent
(in Prospectus)
5A. Management's Discussion of Not applicable
Fund Performance
6. Capital Stock and Other Shareholder Information; Purchases and
Securities Redemptions; Dividends; Tax
Considerations (in Prospectus)
7. Purchase of Securities Being Purchases and Redemptions;
Offered Dividends; Determination of Net
Asset Value; Distribution of Fund
Shares; Shareholder Inquiries (in
Prospectus)
8. Redemption or Repurchase Purchases and Redemption's; Dividends
(in Prospectus)
9. Pending Legal Proceedings Not applicable
10. Cover Page Cover Page of Statement of
Additional Information
11. Table of Contents Statement of Additional
Information Table of Contents
12. General Information and Organization of the Fund (in
History Statement of Additional
Information)
13. Investment Objectives and Supplemental Descriptions of
Policies Investments; Supplemental
Investment Techniques;
Supplemental Discussion of Risks
Associated With the Fund's
Investment Policies and Investment
Techniques; Investment Restrictions
(in Statement of Additional
Information)
14. Management of the Fund Management of the Fund (in
Statement of Additional Information)
15. Control Persons and Principal Not applicable
Holders of Securities
16. Investment Advisory and Other Distribution of Fund Shares; Services
Management of the Fund; Custodian and Accounting
Agent; Transfer and Dividend
Disbursing Agent; Legal Counsel;
Independent Auditors (in Prospectus);
Management of the Fund (in Statement
of Additional Information)
17. Brokerage Allocation and Portfolio Transactions (in Statement of
Other Practices Additional Information)
18. Capital Stock and Other Purchases and Redemptions; Dividends;
Securities Shareholder Information (in
Prospectus); Organization of Fund
(in Statement of Additional
Information)
19. Purchase, Redemption and Purchases and Redemptions;
Pricingof Securities Being Determination of Net Asset Value (in
Offered Prospectus; Net Asset Value;
Shareholder Information (in Statement
of Additional Information)
20. Tax Status Tax Considerations (in Statement of
Additional Information)
21. Underwriters Distribution of Fund Shares (in
Prospectus); Distribution of Fund
Shares (in Statement of Additional
Information)
22. Calculation of Performance Yields and Total Return (in
Data Prospectus); Calculation of
Performance Data (in Statement of
Additional Information)
23. Financial Statements Financial Highlights (in Prospectus);
Financial Statements (in Statement of
Additional Information)
AMT CAPITAL FUND, INC.
430 Park Avenue
New York, NY 10022
Prospectus - April 7, 1995
AMT Capital Fund, Inc. (the "Fund") is a no-load, open-end management
investment company (a "mutual fund") that currently has two 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 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.
Money Market Portfolio - to seek current income,
liquidity, and the maintenance of a stable net asset value per share through
investments in high quality, short-term obligations.
No assurance can be given that a Portfolio's investment objectives will
be attained. Investments in the Money Market Portfolio are neither
guaranteed nor insured by the United States Government. There is also
no assurance that the Money Market Portfolio will maintain a stable
net asset value of $1.00 per share.
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 April 4,
1995, 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 Services, Inc. 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.................................................... 3
Fund Expenses.............................................................5
Financial Highlights......................................................6
The Fund..................................................................8
Investment Objectives and Policies........................................8
Descriptions of Investments............................................12
Risks Associated with the Fund's Investment
Policies and Investment Techniques................................... ....16
Additional Investment Activities.......................................19
Investment Restrictions...................................................20
Brokerage Practices.......................................................21
Yields and Total Return................................................21
Distribution of Fund Shares...............................................22
Determination of Net Asset Value..........................................22
Purchases and Redemptions.................................................23
Dividends..............................................................25
Management of the Fund....................................................26
Tax Considerations.....................................................31
Shareholder Information...................................................33
Control Person.........................................................34
PROSPECTUS HIGHLIGHTS
AMT Capital Fund, Inc. is a no-load, open-end management investment
company that currently has two separate diversified portfolios, each of
which has distinct investment objectives and policies. There is no
assurance that a Portfolio will achieve its investment objectives.
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.
Money Market Portfolio To seek current income,
liquidity, and the maintenance of a
stable net asset value per
share through investments in
high quality, short-term
obligations.
The AMT Capital Concept
AMT Capital offers smaller institutions and substantial private investors an
opportunity to gain access to the money management expertise of what
AMT Capital believes are some of the top investment advisers in the
country at fees which, until now, have been available only to larger
institutions. AMT Capital believes that our sub-advisers have strong track
records of competing successfully in domestic and global markets and have
created some of the most innovative products currently available.
AMT Capital Fund, Inc. provides two Portfolios managed by these
investment advisers, as do the other investment funds available through
AMT Capital. For more information on the fund products we offer, please
contact your AMT Capital account executive.
Investment Adviser and Sub-Advisers
AMT Capital Advisers, Inc. (the "Investment Adviser") serves as
investment adviser to the Fund. The Investment Adviser provides the Fund
with business and asset management services, including selection,
evaluation, and monitoring of the sub-advisers to the Fund. The sub-
advisers are employed and supervised by the Investment Adviser, subject
to approval by the Board of Directors of the Fund and shareholders. See
"Management of the Fund."
Sub-Adviser Portfolio
Harding, Loevner Management, L.P. International Equity Portfolio
("HLM") Global equity specialist managing
$350 million for private investors, foundations,
and endowments.
Fischer Francis Trees & Watts, Inc. Money Market Portfolio
("FFTW") Fixed income specialist with nearly
$20 billion in assets under management.
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.
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, although this
minimum may be waived from time to time at the discretion of the
Investment Adviser. 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.
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 returns that the Money Market
Portfolio provides to investors will be influenced by changes in prevailing
interest rates. The Money Market Portfolio may, at times, concentrate its
investments in bank obligations and may, therefore, have greater exposure
to certain risks associated with the banking industry. The International
Equity Portfolio invests primarily in equity 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. See "Investment Objectives and Policies", "Descriptions of
Investments", "Risks Associated with the Fund's Investment Policies and
Investment Techniques", and "Additional Investment Activities".
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)
Total
Advisory 12b-1 Admin. Other Operating
Fees Fees Fees Expenses Expenses
Money Market
Portfolio 0.25% None 0.10% 0.05%(a) 0.40%(a)
International
Equity Portfolio 0.74%(b) None 0.10% 0.11%(c) 0.95%(c)
(a) The Investment Adviser, Administrator and Sub-Adviser have voluntarily
agreed to cap the total annual operating expenses at 0.40% (on an annualized
basis) of the Portfolio's average daily net assets. Without such cap, the
total annual operating expenses (on an annualized basis) for the Money Market
Portfolio for the year ended December 31, 1994 was 1.04% (of which 0.69% was
"other expenses") of its average daily net assets.
(b) This denotes the average annualized investment advisory fee that will be
paid to the Investment Adviser. For the first two months after commencement
of the Portfolio, the Investment Adviser was paid at a rate of 0.70% (on an
annualized basis) of the Portfolio's average daily net assets; and for the
next twelve months, the Investment Adviser will be paid at a rate of 0.75%
(on an annualized basis) of the Portfolio's average daily net assets.
Subsequently, the Investment Adviser's base fee will be adjusted in month
fourteen for the Performance Adjustment Fee as described in "Management of the
Fund" and will vary from that point forward, between a minimum rate of .65% and
a maximum rate of .85%
(c) The Investment Adviser, Administrator and Sub-Adviser have voluntarily
agreed to cap the total annual operating expenses at 0.95% (on an annualized
basis) of the International Equity Portfolio's average daily net assets.
Without such cap, the total annual operating expenses (on an annualized basis)
for International Equity Portfolio for the period ended December 31, 1994 was
2.28% (of which 1.44% was "other expenses") of its average daily net assets.
The cap will be increased by the amount of any positive performance adjustment
to the investment advisory fee. The cap will not be decreased in the event of
any negative performance adjustment. Thus, the cap can range between 0.95%
and 1.05% of the Portfolio's average daily net assets.
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
1 Year 3 Years 5 Years 10 Years
Money Market Portfolio $4 $13 $22 $51
International Equity Portfolio $10 $30 $53 $117
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 the Fund, expenses of the
Money Market and International Equity Portfolios will not exceed 0.40%
and 0.95% (not including the performance fee adjustment, if any),
respectively, of each such Portfolio's average daily net assets for any fiscal
year. The Money Market Portfolio's active management approaches could
lead to higher portfolio transaction expenses as a result of a higher volume
of such transactions. Certain portions of the transaction expenses (i.e.,
brokerage commissions) are not included in the expenses subject to the cap
described above. See "Investment Techniques - Portfolio Turnover".
FINANCIAL HIGHLIGHTS
The financial information for the period ended December 31, 1994 in the
following table has been audited in conjunction with the audit of the
financial statements of the Fund by Ernst & Young LLP, independent
auditors. The audited financial statements for the period ended December
31, 1994 are incorporated by reference in the Statement of Additional
Information. Money Market Portfolio commenced operations on
November 1, 1993 and International Equity Portfolio commenced
operations on May 11, 1994. The financial information should be read in
conjunction with the financial statements which can be obtained upon
request.
Financial Highlights
International
Money Market Portfolio Equity Portfolio
For the Year For the Per. For the Period
For a share outstanding Ended from 11/1/93* from 5/11/94*
throughout the period 12/31/94 to 12/31/93 to 12/31/94
Per Share Data
Net asset value, beginning of period 1.000 1.000 10.000
Income From Investment Operations
Investment income, net 0.040 0.004 0.036
Net realized and unrealized gain (loss) on
realized gain on investments and
foreign currency-related 0.001(b) -0.283
transactions
Total from investment
Operations 0.041 0.004 -0.247
Less Distributions
From investment income, net 0.04 0.004 0.032
From temporary overdistribution of net
realized gain on investments and
foreign currency-related
transactions 0.001 0.012
Total distributions 0.041 0.004 0.044
Net asset value, end of period 1.000 1.000 9.709
Total Return 4.13% 2.69% -3.81%(a)
Ratios/Supplemental Data
Net assets, end of period $22,006,141 $2,335,633 $8,903,878
Ratio of expenses to average net assets 0.4% 0.4%(a) 0.95%(a)
Decrease in above ratio due to waiver
of investment advisory and administration
services fees and reimbursement of
other expenses 0.64% 25.54%(a) 1.33%(a)
Ratio of net investment income to
average net assets 4.16% 2.67%(a) 1.13(a)
Portfolio turnover n/a n/a 27.49%
(a) Annualized
(b) Includes the effect of net realized gains prior to significant increases
in shares outstanding.
* Commencement of Operations
AMT CAPITAL FUND, INC.
AMT Capital offers smaller institutions and substantial private investors an
opportunity to gain access to the money management expertise of some of
the top investment advisers in the country at fees which, until now, have
been available only to larger institutions.
Prior to founding AMT Capital in early 1992, its senior managers were
former officers of Morgan Stanley and The Vanguard Group. Having
worked with top investment advisers for many years, AMT Capital has
now been able to assemble those advisers' products in a format that is
accessible to and inexpensive for smaller institutions and substantial private
investors. AMT Capital believes its sub-advisers have strong track records
of competing successfully in domestic and global markets and have created
some of the most innovative products currently available.
AMT Capital Fund, Inc. provides two Portfolios managed by these
investment advisers, as do the other investment funds available through
AMT Capital. For more information on the fund products we offer, please
contact your AMT Capital account executive.
INVESTMENT OBJECTIVES
AMT Capital Fund, Inc. is a no-load, open-end management investment
company that currently has two separate diversified portfolios, each of
which has distinct investment objectives and policies. There is no
assurance that a Portfolio will achieve its investment objectives.
The investment objectives 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 objectives of the applicable
Portfolio. However, each Portfolio's investment objectives are 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 are:
Portfolio Investment Objective
International Equity Portfolio To seek long-term capital
appreciation through
investments in equity
securities of companies based
outside the United States.
Money Market Portfolio To seek current income,
liquidity, and the maintenance
of a stable $1.00 net asset
value per share by investing
in high quality, short-term
obligations which are
determined to present minimal
credit risks.
Portfolio investments in the Money Market Portfolio are valued based on
the amortized cost valuation technique pursuant to Rule 2a-7 under the
Investment Company Act of 1940 (the "1940 Act"). See the Statement of
Additional Information for an explanation of the amortized cost valuation
method. All obligations in which the Money Market Portfolio invests
generally have remaining maturities of 397 days or less, although
obligations subject to repurchase agreements and certain variable and
floating rate obligations may bear longer final maturities.
INVESTMENT POLICIES
Money Market Portfolio
The Money Market Portfolio invests at least 80% of its assets in the
following high quality, short-term instruments:
(a) obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities;
(b) commercial paper, loan participation interests, medium term
notes, asset-backed securities and other promissory notes,
including floating or variable rate obligations;
(c) domestic, Yankeedollar (U.S. branches or subsidiaries of
foreign depository institutions) and Eurodollar (foreign branches or
subsidiaries of U.S. depository institutions) certificates of deposit,
time deposits, bankers' acceptances, commercial paper, bearer
deposit notes and other promissory notes including floating or
variable rate obligations issued by U.S. or foreign bank holding
companies and their bank subsidiaries, branches and agencies; and
(d) repurchase and reverse repurchase agreements; and
(e) municipal obligations of the type described in the Statement of
Additional Information in the Section entitled "Supplemental
Descriptions of Investments."
The Money Market Portfolio will invest only in issuers or instruments that
at the time of purchase:
(a) are issued or guaranteed by the U.S. Government, its agencies,
or instrumentalities;
(b) have received the highest short-term rating by at least two
nationally recognized statistical rating organizations ("NRSROs")
such as "A-1" by Standard & Poor's and "P-1" by Moody's, or are
single rated and have received the highest short-term rating by the
NRSRO ("First Tier Securities");
(c) are rated by two NRSROs in the second highest category, or
rated by one agency in the highest category and by another agency
in the second highest category or by one agency in the second
highest category ("Second Tier Securities"), provided that Second
Tier Securities are limited in total to 5% of a Portfolio's total assets
and on a per issuer basis, to no more than the greater of 1% of a
Portfolio's total assets or $1,000,000; or
(d) are unrated, but are determined to be of comparable quality by
the Investment Adviser and sub-adviser pursuant to guidelines
approved by the Board of Directors.
Single rated and unrated securities are subject to ratification by the Board
of Directors. See "Descriptions of Investments" and the Statement of
Additional Information for definitions of the foregoing instruments and
rating systems.
Investments in foreign obligations involve additional risks. Most notably,
there generally is less publicly available information about foreign
companies; there may be less governmental regulation and supervision;
there may be different accounting and financial standards, and the adoption
of foreign governmental restrictions may adversely affect the payment of
principal and interest on foreign investments. Further, the income
associated with such obligations may be subject to foreign taxes. To the
extent that the Money Market Portfolio purchases Eurodollar and
Yankeedollar obligations, consideration will be given to their marketability
and possible restrictions on international currency transactions. The Money
Market Portfolio's investments in foreign obligations will be limited to U.S.
dollar denominated obligations. In addition, not all foreign branches of
U.S. banks are supervised or examined by regulatory authorities as are
U.S. banks, and such branches may not be subject to reserve requirements.
Variable amount master demand notes in which the Money Market
Portfolio may invest are unsecured demand notes that permit the
indebtedness thereunder to vary, and provide for periodic adjustments in
the interest rate. Because master demand notes are direct lending
arrangements between the Money Market Portfolio and the issuer, they are
not normally traded. There is no secondary market for the notes; however,
the period of time remaining until payment of principal and accrued interest
can be recovered under a variable amount master demand note generally
shall not exceed seven days. To the extent this period is exceeded, the note
in question would be considered illiquid. Issuers of variable amount
master demand notes must satisfy the same criteria as set forth for other
promissory notes (e.g., commercial paper). The Money Market Portfolio
will invest in variable amount master demand notes only when such notes
are determined by the Investment Adviser and/or sub-adviser, pursuant to
guidelines established by the Board of Directors, to be of comparable
quality to rated issuers or instruments eligible for investment by the
Portfolio. In determining average weighted portfolio maturity, a variable
amount master demand note will be deemed to have a maturity equal to the
longer of the period of time remaining until the next readjustment of the
interest rate or the period of time remaining until the principal amount can
be recovered from the issuer on demand.
Repurchase and Reverse Repurchase Agreements. Repurchase agreements are
agreements under which securities are acquired by the Money Market Portfolio
from a securities dealer or bank subject to resale at an agreed upon price on
a later date. The Portfolio bears a risk of loss in the event that the other
party to a repurchase agreement defaults on its securities. However, the
sub-adviser will enter into repurchase agreements only with financial
institutions which are deemed by the Investment Adviser and sub-adviser to be
in good financial standing and which have been approved by the Board of
Directors. See the Statement of Additional Information for more information
regarding repurchase agreements.
The Money Market 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 the Portfolio and the Portfolio
agrees to repurchase the securities at an agreed-upon price and date.
Regulations of the Commission require either that securities sold by the
Portfolio under a reverse repurchase agreement be segregated pending
repurchase or that the proceeds be segregated on the Portfolio's books and
records pending repurchase. The Fund will maintain for the Money
Market Portfolio a segregated custodial account containing cash, U.S.
Government Securities or other appropriate high-grade debt securities
having an aggregate value at least equal to the amount of such
commitments to repurchase, including accrued interest, until payment is
made. Repurchase and reverse repurchase agreements will generally be
restricted to those that mature within seven days. The Money Market
Portfolio will engage in such transactions with parties selected on the basis
of such party's creditworthiness.
Active trading is employed by the Money Market Portfolio when
consistent with its investment objective. Active trading involves a number
of professional money management techniques in anticipation of or
response to changing economic and market conditions and shifts in fiscal
and monetary policy. These techniques include varying the composition of
the Money Market Portfolio's investments and the average maturity of the
Money Market Portfolio's portfolio based upon an assessment of the
relative values of various money market instruments and future interest rate
patterns. As a result of the implementation of these techniques, the Money
Market Portfolio may engage in more active portfolio trading and
experience more volatility in its distributions than many other money
market funds. Such techniques will be employed by the Money Market
Portfolio only to the extent that they are consistent with its investment
objective.
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 Depositary Receipts ("ADRs") and European Depositary
Receipts ("EDRs")], rights and warrants issued by companies that are
based outside the United States and securities of investment companies
(subject to Commission limits on such investments). 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
described under the caption "Investment Policies - Money Market
Portfolio" and in other debt securities described under the caption
"Description of Investments" below.
The Portfolio may invest up to 20% of its net assets in convertible
securities and debt securities which are rated below investment-grade, that
is, rated below Baa by Moody's or below BBB by 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 of at least three of the following: (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.
The sub-adviser'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, the sub-adviser will only invest in companies that it has analyzed
for a number of years. Country allocation and sector weightings reflect the
results of stock selection, which itself is strongly influenced by HLM's
cyclical and secular outlook for various industries, sectors, and national
economies. Explicit country or sector allocation decisions are taken only
when necessary to ensure that portfolios are well-diversified. HLM hedges
foreign currency exposure infrequently, on those occasions when it has a
strong view on the prospects for a particular currency. Currency hedging is
done through the use of forward contracts or options.
Portfolio Turnover Portfolio turnover will depend on factors such as
volatility in the markets that the Portfolio invests in, or the variability of
cash flows into and out of the Portfolio. Portfolio turnover is expected to
be low, generally below 50%, due to the emphasis on stock selection. The
turnover rate for the period ended December 31, 1994 was 27%.
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 objectives and policies. For a more extensive
description of these assets and the risks associated with them, see the
Statement of Additional Information.
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. The Money Market Portfolio may,
from time to time, concentrate more than 25% of its assets in Domestic
Bank Obligations. "Domestic Bank Obligations" are 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 the Investment Adviser or sub-adviser 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.
Corporate Debt Instruments Each Portfolio may purchase commercial
paper, notes and other obligations of U.S. and foreign corporate issuers
meeting the Portfolio's credit quality standards (including variable rate
notes).
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. The
Portfolios will engage in such transactions with parties selected on the basis
of such party's creditworthiness.
Reverse Repurchase Agreements Each Portfolio may enter into reverse
repurchase agreements under which a primary or reporting dealer in U.S.
Government Securities purchases U.S. Government Securities from a
Portfolio and the Portfolio agrees to repurchase the securities at an
agreed-upon price and date.
Commission rules require either that securities sold by a Portfolio under a
reverse repurchase agreement be segregated pending repurchase or that the
proceeds be segregated on that Portfolio's books and records pending
repurchase. The Fund will maintain for each Portfolio a segregated
custodial account containing cash, U.S. Government Securities or other
appropriate high-grade debt securities having an aggregate value at least
equal to the amount of such commitments to repurchase, including accrued
interest, 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.
Dollar Roll Transactions Each Portfolio may enter into dollar roll
transactions with selected banks and broker-dealers. Dollar roll
transactions consist of the sale by a Portfolio of mortgage-backed
securities, together with a commitment to purchase similar, but not
identical, securities at a future date. In addition, the Portfolio is paid a fee
as consideration for entering into the commitment to purchase. Dollar rolls
may be renewed after cash settlement and initially involve only a firm
commitment agreement by the Portfolio to buy a security. Each Portfolio
will record the dollar roll transactions it enters into as a purchase and sale
transaction and will segregate cash, U.S. Government securities or other
high grade debt obligations in an amount sufficient to meet its purchase
obligations under the transactions.
When-Issued Securities Each Portfolio may purchase securities on a firm
commitment basis, including when-issued securities. Securities purchased
on a firm commitment basis are purchased for delivery beyond the normal
settlement date at a stated price and yield. Such securities are recorded as
an asset and are subject to changes in value based upon changes in the
general level of interest rates. The Portfolios will only make commitments
to purchase securities on a firm commitment basis with the intention of
actually acquiring the securities but may sell them before the settlement
date if it is deemed advisable.
When a Portfolio purchases securities on a when-issued or forward
commitment basis, the Portfolio's custodian will maintain in a segregated
account cash and liquid high-grade debt securities having a value
(determined daily) at least equal to the amount of the Portfolio's purchase
commitments. In the case of a forward commitment to sell portfolio
securities, the custodian will hold the portfolio securities themselves in a
segregated account while the commitment is outstanding. These
procedures are designed to ensure that the Portfolio will maintain sufficient
assets at all times to cover its obligations under when-issued purchases and
forward commitments.
Standby Commitments Each Portfolio may enter into standby
commitments with respect to securities held in its portfolio. Such
transactions entitle the Fund to "put" its securities at an agreed upon price
within a specified period prior to their maturity date.
Mortgage-Backed Securities Each Portfolio may purchase securities that
are secured or backed by mortgages or other mortgage-related assets.
Such securities may be issued by such entities as the Government National
Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA"), the Federal Home Loan Mortgage Corporation
("FHLMC"), commercial banks, savings and loan associations, mortgage
banks or by issuers that are affiliates of or sponsored by such entities.
Other Asset-Backed Securities Each Portfolio may also purchase
securities that are secured or backed by assets other than mortgage-related
assets, such as automobile and credit card receivables, and that are
sponsored by such institutions as finance companies, finance subsidiaries of
industrial companies and investment banks. Each Portfolio will only
purchase asset-backed securities that the Investment Adviser or sub-
adviser determines to be liquid.
Loan Participations Each Portfolio may purchase loan participations.
Loan participations are interests in a loan to a U.S. corporation which is
administered and sold by an intermediary bank. Any participation
purchased by a Portfolio must be issued by a bank in the United States with
assets exceeding $1 billion.
Equity Securities International Equity Portfolio will invest in various types
of equity securities, including growth stocks, value stocks, rights and
warrants. 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 Foreign securities include equity 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. 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.
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. 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
International Equity Portfolio 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 Portfolio considers emerging
markets to include all markets except Australia, Austria, Belgium, Canada,
Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands,
New Zealand, Norway, Singapore, Spain, Sweden, Switzerland, the
United Kingdom, and the United States.
Futures Contracts International Equity Portfolio 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, the 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 it enters into a futures transaction, the Portfolio 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 Portfolio 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.
Options on Futures Contracts International Equity Portfolio 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 Portfolio will segregate cash, U.S. Government
securities or other high grade debt obligations in an amount sufficient to
meet its obligations under these transactions.
Foreign Currency Transactions International Equity Portfolio hedges
foreign currency exposure infrequently, on those occasions when it has a
strong view on the prospects for a particular currency. The 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. The Portfolio will
segregate cash, U.S. Government securities or other high-grade liquid debt
obligations with its custodian in an amount at all times equal to or
exceeding its commitment with respect to contracts that are not part of a
designated hedge.
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.
Changes in Interest Rates The returns that the Money Market Portfolio
provides to investors will be influenced by changes in prevailing interest
rates.
Mortgage and Other Asset-Backed Securities The yield characteristics
of mortgage- and other asset-backed securities differ from traditional debt
securities. A major difference is that the principal amount of the obligation
generally may be prepaid at any time because the underlying assets (i.e.,
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is
slower than expected will have the opposite effect of increasing yield to
maturity. Conversely, if an asset-backed security is purchased at a
discount, faster than expected prepayments will increase, while slower than
expected prepayments will decrease, yield to maturity.
These securities may not have the benefit of any security interest in the
underlying assets and recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities. The Portfolios
will only invest in asset-backed securities that the Investment Adviser or
sub-adviser believes are liquid.
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 Fund
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 a 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.
Convertible Securities Convertible debt securities and convertible
preferred stocks, until converted, have general characteristics similar to
both debt and equity securities. Although to a lesser extent than with debt
securities generally, the market value of convertible securities tends to
decline as interest rates increase and, conversely, tends to increase as
interest rates decline. In addition, because of the conversion or exchange
feature, the market value of convertible securities typically changes as the
market value of the underlying common stocks changes, and, therefore,
also tends to follow movements 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, although typically not as much as the underlying
common stock. Convertible securities generally offer lower yields than
non-convertible securities of similar quality because of their conversion or
exchange features.
High Yield/High Risk Securities The International Equity Portfolio may
invest up to 20% of its net 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. The Portfolio will invest no more
than 10% of its net 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.
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.
Dollar Roll Transactions If the broker-dealer to whom a Portfolio sells
the security underlying a dollar roll transaction becomes insolvent, the
Portfolio's right to purchase or repurchase the security may be restricted,
the value of the security may change adversely over the term of the dollar
roll, the security which the Portfolio is required to repurchase may be worth
less than a security which the Portfolio originally held, and the return
earned by the Portfolio with the proceeds of a dollar roll may not exceed
transaction costs.
Zero Coupon Securities Because they do not pay interest until maturity,
zero coupon securities tend to be subject to greater interim fluctuation of
market value in response to changes in interest rates than interest-paying
securities of similar maturities. Additionally, for tax purposes, zero coupon
securities accrue income daily even though no cash payments are received
which may require a Portfolio to sell securities that would not ordinarily be
sold to provide cash for the Portfolio's required distributions.
Concentration in Bank Obligations The Money Market Portfolio may, at
times, invest in excess of 25% of its assets in Domestic Bank Obligations,
as defined above. By concentrating investments in the banking industry,
the Portfolio may have a greater exposure to certain risks associated with
the banking industry. In particular, economic or regulatory developments
in or related to the banking industry will affect the value of and investment
return on the Portfolio's shares. As discussed above, the Portfolio will seek
to minimize its exposure to such risks by investing only in debt securities
that are determined by the Investment Adviser or sub-adviser to be of high
quality.
Futures Contracts International Equity Portfolio may use stock index
futures contracts as a hedge against the effects of changes in the market
value of the stocks comprising the relevant index. One risk in employing
futures contracts as a hedge against cash market price volatility is the
possibility that futures prices will correlate imperfectly with the behavior of
the prices of the securities in the portfolio. Similarly, in employing futures
contracts as a substitute for purchasing the designated underlying
securities, there is a risk that the performance of the futures contract may
correlate imperfectly with the performance of the direct investments for
which the futures contract is a substitute. In addition, commodity
exchanges generally limit the amount of fluctuation permitted in futures
contract prices during a single trading day, and the existence of such limits
may prevent the prompt liquidation of futures positions in certain cases.
Limits on price fluctuations are designed to stabilize prices for the benefit
of market participants; however, there could be cases where the Portfolio
could incur a larger loss due to the delay in trading than it would have if no
limit rules have been in effect. Further, the use of futures contracts involve
the risk of 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 such contracts could result in losses greater than if they had
not been used. As a result of market illiquidity, the Portfolio may not be
able to close out a position without incurring substantial losses.
ADDITIONAL INVESTMENT ACTIVITIES
In addition to the investment policies described previously, each Portfolio
may also lend its securities to the extent permitted by the Act in order to
generate additional income and not for leverage purposes. The collateral
securing such loans will consist only of cash, cash equivalents, or U.S.
Government securities. In the case of the Money Market Portfolio, such
U.S. Government securities will satisfy the quality and maturity standards
applicable to the Money Market Portfolio's investments allowable under
Rule 2a-7.
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, other high quality liquid investments, and
approved bank letters of credit that at all times equal at least 100% 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 deemed by the Investment
Adviser and/or sub-advisers 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.
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 and instrumentalities or, with
respect to the Money Market Portfolio, domestic bank obligations.
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 dollar roll transactions 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.
In addition, although not a fundamental policy, the Portfolios will
repay any money borrowed before any additional portfolio
securities are purchased. See the Statement of Additional
Information for a further description regarding reverse repurchase
agreements.
(d) invest more than 10% of the value of its total assets in
warrants, in accordance with Texas Rule 123.2(8).
(e) purchase or sell real estate (other than marketable securities
representing interests in, or backed by, real estate and securities of
companies that deal in real estate or mortgages) or real estate
limited parnterships, or purchase or sell physical commodities or
contracts relating to physical commodities.
The following non-fundamental investment restriction applies to each
Portfolio and may be changed with respect to a particular Portfolio only by
a vote of the Board of Directors. No Portfolio may invest more than 10%
of its net assets in illiquid securities including time deposits, dollar roll
transactions and repurchase agreements which mature in more than seven
days.
The above percentage limits are based upon current asset values at the time
of the applicable transaction; accordingly, a subsequent change in asset
values will not affect a transaction which was in compliance with the
investment restrictions at the time such transaction was effected. See the
Statement of Additional Information for other investment limitations.
BROKERAGE PRACTICES
Each sub-adviser will place its own orders to execute the securities
transactions which are designed to implement the applicable investment
objectives and policies. The sub-adviser 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 the sub-adviser nor any of its
officers, affiliates, or employees will act as principal or receive any
compensation from the Portfolio in connection with the purchase or sale of
investments for the Portfolio.
The Money Market Portfolio normally will not incur any brokerage
commissions on its transactions because money market and debt
instruments are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission. The price of
the security, however, usually includes a profit to the dealer. Securities
purchased in underwritten offerings include a fixed amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. No commissions or discounts are paid when
securities are purchased directly from an issuer.
YIELDS AND TOTAL RETURN
From time to time the Money Market Portfolio may advertise its "current
yield" and "effective yield." Both yield figures are based on historical
earnings and are not intended to indicate future performance. The "current
yield" refers to the income generated by an investment in a Portfolio over a
seven calendar-day period (which period will be stated in the
advertisement). This income is then "annualized." That is, the amount of
income generated by the investment during that week is assumed to be
generated each week over a one-year period and is shown as a percentage
of the investment. The "effective yield" is calculated similarly but, when
annualized, the income earned by an investment in the Portfolio is assumed
to be reinvested. The "effective yield" will be slightly higher than the
"current yield" because of the compounding effect of this assumed
reinvestment.
The International Equity Portfolio's 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.
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 29, 1993 between the Fund and AMT Capital. The Distribution
Agreement requires AMT Capital to use its best efforts on a continuing
basis to solicit purchases of shares of the Fund. No fees are payable by the
Fund pursuant to the Distribution Agreement.
Under a sales incentive fee agreement dated October 29, 1993 between
AMT Capital and FFTW, AMT Capital has agreed to pay FFTW a
monthly sales incentive fee at an annual rate of 0.05% of the average daily
value of shares of the Money Market Portfolio purchased as a result of the
efforts of FFTW. Under a sales incentive fee agreement dated April 29,
1994 between AMT Capital and HLM, AMT Capital has agreed to pay
HLM a monthly sales incentive fee at an annual rate of 0.05% of the
average daily value of shares of the International Equity Portfolio
purchased as a result of the efforts of HLM.
Charter Atlantic Corporation, an affiliate of FFTW, has a 10% equity
interest in AMT Capital.
DETERMINATION OF NET ASSET VALUE
The "net asset value" per share of the Money Market Portfolio is calculated
as of 12:00 noon (Eastern Time) on days when the Federal Reserve Bank
of New York is open for business, which is Monday through Friday,
except for holidays (hereinafter, "Business Day"). The "net asset value" per
share of the International Equity Portfolio is calculated as of 4:00 p.m.
(Eastern Time) on days when the New York Stock Exchange is open for
business, also a 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. The Money Market Portfolio seeks to maintain a
stable net asset value per share of $1.00.
For purposes of calculating the Money Market Portfolio's net asset values,
securities are valued by the "amortized cost" method of valuation, which
does not take into account unrealized gains or losses. This involves valuing
an instrument at its cost 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. While this
method provides certainty in valuation, it may result in periods during
which value based on amortized cost is higher or lower than the price a
Portfolio would receive if it sold the instrument.
The use of amortized cost and the maintenance of the Portfolio's per share
net asset value at $1.00 is based on its election to operate under the
provisions of Rule 2a-7 under the 1940 Act. As conditions of operating
under Rule 2a-7, the Money Market Portfolio must maintain a dollar-
weighted average portfolio maturity of 90 days of less, purchase only
instruments having remaining maturities of thirteen months or less and
invest only in U.S. dollar-denominated securities which are determined by
the Board of Directors to present minimal credit risks and which are of
eligible quality as determined under the Rule.
For purposes of calculating International Equity Portfolio's net asset value,
securities are valued as follows: (1) all portfolio securities for which over-
the-counter market quotations are readily available (including asset-backed
securities) are valued at the latest bid price; (2) deposits and repurchase
agreements are valued at their cost plus accrued interest unless the
Investment Adviser or sub-adviser 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) securities listed or traded on an exchange are valued at
their last sale price on that exchange; and (4) the value of other assets for
which market quotations are not readily available will be determined in
good faith by the Investment Adviser or sub-adviser 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 a major bank. Prices may be obtained from automated
pricing services.
PURCHASES AND REDEMPTIONS
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. The Fund reserves the right to
waive the minimum initial investment amount.
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: AMT Capital Fund - (designate Portfolio)
In order to purchase shares on a particular Business Day, a purchaser must
call AMT Capital at (800) 762-4848 or (212) 308-4848 prior to 12:00
noon Eastern time for the Money Market Portfolio and prior to 4:00 p.m.
Eastern time for the International Equity Portfolio 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. Shares purchased in the Money Market
Portfolio will begin accruing dividends on the day 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 12:00 noon Eastern time for the Money Market Portfolio
and 4:00 p.m. Eastern time for the International Equity Portfolio on any
Business Day, the redemption will be effective on the date of receipt.
Payment will ordinarily be made by wire the same day for the Money
Market Portfolio and on the next Business Day for the International Equity
Portfolio but within no more than seven business days from the date of
receipt. If the notice is received on a day that is not a Business Day or after
the above-mentioned cut-off times, the redemption notice will be deemed
received as of the next Business Day.
There is no charge imposed by the Fund to redeem shares of the Fund;
however, a shareholder's bank may impose its own wire transfer fee for
receipt of the wire. Redemptions may be executed in any amount
requested by the shareholder up to the amount such shareholder has
invested in the Fund.
To redeem shares, a shareholder or any authorized agent (so designated on
the Account Application Form) must provide the Transfer Agent with the
dollar or share amount to be redeemed, the account to which the
redemption proceeds should be wired (which account shall have been
previously designated by the shareholder on its Account Application
Form), the name of the shareholder and the shareholder's account number.
Shares redeemed receive dividends up to and including the day preceding
the day the redemption proceeds are wired.
A shareholder may change its authorized agent or the account designated to
receive redemption proceeds at any time by writing to the Transfer Agent
with an appropriate signature guarantee. Further documentation may be
required when deemed appropriate by the Transfer Agent.
A shareholder may request redemption by calling the Transfer Agent at
(800) 247-0473. Telephone redemption is made available to shareholders
of the Fund on the Account Application Form. The Fund or the Transfer
Agent employ reasonable procedures designed to confirm that instructions
communicated by telephone are genuine. If either the Fund or the Transfer
Agent does not employ such procedures, it may be liable for losses due to
unauthorized or fraudulent instructions. The Fund or the Transfer Agent
may require personal identification codes and will only wire funds through
pre-existing bank account instructions. No bank instruction changes will
be accepted via telephone.
Exchange Privilege
Shares of each Portfolio may be exchanged for shares of the other Portfolio
or for other funds distributed by AMT Capital based on the respective net
asset values of the shares involved in the exchange, assuming that
shareholders wishing to exchange shares reside in states where these
mutual funds are qualified for sale. The Fund's Portfolio minimum
amounts of $100,000 would still apply. An exchange order is treated the
same as a redemption followed by a purchase. Investors who wish to make
exchange requests should telephone AMT Capital or the Transfer Agent.
DIVIDENDS
Money Market Portfolio
Money Market Portfolio will declare a dividend of its net investment
income (which is composed of dividends, if applicable, and interest, less
expenses) daily and distribute such dividends monthly.
The Portfolio will distribute its realized net short-term capital gains (i.e.
with respect to assets held one year or less) at least annually by
automatically reinvesting (unless a shareholder has elected to receive cash)
such short-term capital gains in additional shares of the Portfolio at the net
asset value on the date the distribution is declared.
In the unlikely event that the Portfolio realizes net long-term capital gains
(i.e. with respect to assets held more than one year), it will distribute them
at least annually by automatically reinvesting (unless a shareholder has
elected to receive cash) such long-term capital gains in additional shares of
the Portfolio at the net asset value on the date the distribution is declared.
International Equity Portfolio
International Equity Portfolio will declare and pay a dividend of its net
investment income on a quarterly basis.
International Equity 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 date the distribution is
declared.
MANAGEMENT OF THE FUND
Board of Directors
The Board of Directors of the Fund is responsible for the overall
management and supervision of the Fund. The Fund's Directors are:
Director Profile
Robert B. Allardice, III Former Managing Director,
Morgan Stanley & Co.,
Incorporated (retired)
Patricia M. Gammon Director of Investments, Yale
University.
Alan M. Trager President of the Fund; President
and Director of AMT Capital
Advisers, Inc. and AMT Capital
Services, Inc.; former Managing
Director, Morgan Stanley & Co.,
Incorporated.
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,
AMT Capital Advisers, Inc. provides investment advisory services to the
Fund. Founded in late 1991 and organized as a Delaware corporation,
AMT Capital Advisers, Inc., is a private investment and financial services
firm, providing financial advisory and transaction execution services. The
firm's clients are exclusively in the financial services industry and primarily
include asset management firms, mutual funds, banks and brokerage firms.
The business address of the Investment Adviser is 430 Park Avenue, New
York, New York 10022. AMT Capital Advisers is registered with the
Securities and Exchange Commission as an investment adviser. Its
principals are former officers of Morgan Stanley.
Pursuant to the Investment Advisory Agreements dated October 28, 1993,
for the Money Market Portfolio and dated April 29, 1994 for the
International Equity Portfolio, AMT Capital Advisers, Inc. will provide
investment advisory services to each Portfolio of the Fund. In addition to
providing the office space, equipment and personnel necessary to manage
the Fund, the Investment Adviser monitors the sub-advisers' investment
programs and results, and coordinates the investment activities of the sub-
advisers to ensure compliance with regulatory restrictions.
In its role as Investment Adviser, AMT Capital Advisers also works with
the Board of Directors of the Fund to select and monitor the sub-advisers
serving the Fund through analysis of investment techniques and results.
The Investment Adviser bears the expense of providing the above services,
and pays the fees of each Portfolio's sub-advisers. For its services, Money
Market Portfolio pays the Investment Adviser a monthly fee at an annual
rate of 0.25% of its respective average daily net assets, and the
International Equity Portfolio pays a monthly base fee at an annual rate of
0.75% of its average daily net assets (adjusted for any performance fees
payable to or deducted from HLM's fee described below). The fee paid by
the International Equity 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
Portfolio.
Sub-Advisers
All sub-advisers are employed by the Investment Adviser, subject to
approval by the Board of Directors and the shareholders of the applicable
Portfolio. The Investment Adviser recommends sub-advisers to the Fund's
Board of Directors based upon its continuing quantitative and qualitative
evaluation of the sub-adviser's skill in managing assets using specific
investment styles and strategies.
Each sub-adviser has discretion to purchase and sell securities for the
assets of its respective Portfolio in accordance with that Portfolio's
objectives, policies and restrictions and the more specific strategies
provided by the Investment Adviser. Although the sub-advisers are subject
to general supervision by the Fund's Board, officers and Investment
Adviser, these parties do not evaluate the investment merits of specific
securities transactions. As compensation for its services, FFTW is paid a
monthly fee at an annual rate of 0.10% of the average daily net assets of the
Money Market Portfolio by the Investment Adviser out of the proceeds of
the investment advisory fee described in "Investment Adviser." As
compensation for its services, HLM is paid a monthly base fee at an annual
rate of 0.50% (adjusted according to the performance schedule described
below) of the average daily net assets of the International Equity Portfolio.
HLM's fee is paid by the Investment Adviser out of the proceeds of the
investment advisory fee described in "Investment Adviser."
International Equity Portfolio Performance Fee Adjustment
Performance adjustments are added or deducted from the Base Fee paid to
the Investment Adviser and HLM (an annual fee of 0.75% and 0.50%,
respectively, of the Portfolio's average daily net assets) based on a
comparison of the Portfolio's actual gross total returns vis-a-vis the actual
gross total return of the Portfolio's benchmark, the Morgan Stanley Capital
International World ex USA Index (with income reinvested) according to
the schedule below. Actual gross total return shall mean the change in the
market value of the Portfolio over the measurement period, adjusted on a
time-weighted basis for any assets added to or withdrawn from the
Portfolio.
Return Parameter Performance Adjustment
Benchmark return plus450 +10 basis points*
basis points or more
Benchmark return plus 300 to +5 basis points
449.99 basis points
Benchmark return plus 150 to No adjustment
299.99 basis points
Benchmark return plus 0 to -5 basis points
149.99 basis points
Less than the benchmark return -10 basis points
* A "basis point" is one-hundredth of one percent (i.e., one basis point
equals 0.01%).
Except as otherwise provided below, the monthly fee payable to the sub-
adviser shall be equal to 1/12 of the performance adjusted fee for the
applicable month. The performance adjusted fee shall equal 0.50% of the
average daily net assets of the Portfolio during the performance
measurement period, adjusted upwards or downwards in accordance with
the schedule above to reflect the performance of the Portfolio during the
performance measurement period. The performance adjusted fee shall not
be adjusted above 0.60% on an annualized basis (the "Maximum Fee") nor
below 0.40% on an annualized basis (the "Minimum Fee").
The performance measurement period shall be a rolling 12-month period
which, by definition, ends two months prior to the current month. For
example, a calculation as of March 31st of any year, the rolling 12-month
period would commence as of February 1st of the prior year and end as of
January 31st of that year. The appropriate fee for any month shall be
payable on the tenth (10th) day of the month following the following the
month in which the fee was earned.
With respect to the first two (2) full calendar months that services are
provided hereunder, as well as any portion of a prior month, the Investment
Adviser paid the sub-adviser a fee equal to 1/12 of 0.45% of the Portfolio's
average daily net assets for the applicable month, prorated for a portion of a
month.
The next twelve (12) months are referred to as the "Transition Period."
With respect to the first eleven (11) months of the Transition Period, the
Investment Adviser shall pay to the sub-adviser 1/12 of the Minimum Fee
applied to the Portfolio's average daily net assets over such month. During
the Transition Period, the fee rate that will be accrued as payable to the
sub-adviser shall be 0.50% (the Fulcrum Fee) as adjusted according to the
schedule above based on the 12-month period, the first of which begins the
first day of the first full calendar month that services are provided. On the
fourteenth (14th) month (on the tenth business day of the fifteenth month),
the Investment Adviser shall pay the sub-adviser an amount equal to the
difference between the aggregate amount of the Minimum Fee paid in the
first eleven months of the Transition Period and the accrued rate payable to
the sub-adviser during the entire twelve months of the Transition Period.
Portfolio Managers
Sub-Adviser/ Portfolio/
Address/ Background
Portfolio Manger(s)
Fischer Francis Trees Money Market Portfolio
& Watts, Inc. Organized in 1972, FFTW is a
717 Fifth Avenue registered investment adviser
New York, NY 10022 and a New York corporation that
currently manages nearly
$18 billion in assets entirely in
fixed-income portfolios for 65
major institutional clients
including banks, central banks,
pension funds and other
institutional clients.
Portfolio Managers: (a) David J. Marmon, Portfolio
Manager. Mr. Marmon is
responsible for management of
the U.S. short-term portfolios.
He joined FFTW in 1990 from
Yamaichi International
(America) where he was head
of futures and options research.
Mr. Marmon was previously a
financial analyst and strategist
at the First Boston Corporation,
where he developed hedging
programs for financial
institutions and industrial firms.
Mr. Marmon has a B.A.
summa cum laude in
economics from Alma College
and an M.A. in economics from
Duke University.
(b) Stewart M. Russell,
Portfolio Manager. Mr.
Russell s also responsible for
management of the U.S short-term
portfolios. He joined FFTW in 1992
from the short-term proprietary
trading desk in the global markets
area of J.P. Morgan, where he was
responsible for proprietary positioning
of U.S. and non-U.S. government
obligations, corporate bonds, and
asset-backed securities.
Earlier at the bank, Mr. Russell
managed the short-term interest
rate risk group, coordinating a
$10 billion book of assets and
liabilities. Mr. Russell holds a
B.A. in government from
Cornell University and an
M.B.A. in finance from New
York University.
Harding, Loevner International Equity Portfolio
Management, L.P. HLM, established in 1989, is a
50 Division Street registered investment adviser
Somerville, NJ 08876 that specializes in global
investment management for
private investors, foundations
and endowments. HLM
currently has $350 million
under management.
Portfolio Managers: (a) Daniel D. Harding, Chief
Investment Officer of Harding,
Loevner Management, L.P.
Prior to founding the firm, Mr.
Harding served for ten years as
a senior investment manager
with Rockefeller & Co., the
private investment firm that
advises the Rockefeller family
and related charities. At
Rockefeller, he set equity and
fixed income investment
strategy and spearheaded the
international diversification of
the firm's investments. Mr.
Harding graduated with honors
from Colgate University and is
a Chartered Financial Analyst.
(b) Simon Hallett, Senior
Portfolio Manager and
Principal of Harding, Loevner
Management, L.P. Prior to
joining the firm in 1991, Mr.
Hallett served seven years with
Jardine Fleming Investment
Management where he was
director in charge of a team of
six portfolio managers
investing in the markets of
Southeast and North Asia. Mr.
Hallett graduated with honors
from Oxford University.
(c) David R. Loevner, Chief
Executive Officer of Harding,
Loevner Management, L.P.
Mr. Loevner's prior experience
includes nine years with the
Rockefeller family office,
where he managed equity
portfolios and developed new
financial planning and asset
allocation techniques. In 1987,
he relocated to Hong Kong to
open Rockefeller's first Asian
office and manage a regional
investment program
comprising both quoted and
private venture investments.
Before joining Rockefeller,
Mr. Loevner was an economist
with the World Bank. He
graduated summa cum laude
from Princeton University and,
as a Sachs scholar, received
graduate degrees from Oxford
University.
/
Administrator
Pursuant to an Administration Agreement dated as of October 28, 1993
between the Fund and AMT Capital Services, Inc., 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.
Each Portfolio of the Fund pays AMT Capital a monthly fee at an annual
rate of 0.10% of their respective average daily net assets.
Founded in early 1992, AMT Capital Services 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.
AMT Capital acts as an independent, third-party administrator responsible
for managing all aspects of the Fund's operations. It focuses on selecting,
managing, and replacing, if necessary, the other service providers to the
Fund to secure the best service at the best prices available on the market.
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 the Investment Adviser 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. 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.
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 International Equity 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. None of the amounts treated as distributed by the
Money Market Portfolio are expected to 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.
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 International Equity 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, the 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.
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 August 3, 1993. The Fund's Articles of Incorporation
permit the Directors to authorize the creation of additional Portfolios, each
of which will issue a separate class of shares. Currently, the Fund has two
separate Portfolios.
Voting Rights
A shareholder has one vote in Director elections and on other matters
submitted to shareholders for their vote for each dollar of net asset value
held by the shareholder. Matters to be acted upon that affect a particular
Portfolio, including approval of the investment advisory agreement with the
Investment Adviser and the submission of changes of fundamental
investment policy of a Portfolio, will require the affirmative vote of the
shareholders of such 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., 430 Park Avenue, 17th Floor, New York, New York
10022 or by calling AMT Capital at (800) 762-4848 [or (212) 308-4848,
if within New York City].
CONTROL PERSON
As of March 17, 1995, the following shareholder is deemed a "control
person" of the Fund as such term is defined in the 1940 Act and held
62.76% of the outstanding shares of Common Stock ($.001 par value):
Cooper Industries, Inc.
1001 Fannin Street
First City Tower, Suite 3900
Houston, TX 77210
STATEMENT OF ADDITIONAL INFORMATION
AMT Capital Fund, Inc.
Distributed By: AMT Capital Services, Inc.
430 Park Avenue
17th Floor
New York, NY 10022
(212) 308-4848
(800) 762-4848
AMT Capital Fund, Inc. (the "Fund") is a no-load, open-end
management investment company managed by AMT Capital Advisers,
Inc. (the "Investment Adviser"). The Fund currently consists of two
diversified portfolios: Money Market Portfolio and International
Equity Portfolio (each a "Portfolio"). 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
April 7, 1995 (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.
April 7, 1995
TABLE OF CONTENTS Page
Organization of the Fund..........................3
Management of the Fund ...........................3
Board of Directors and Officers..............3
Investment Adviser and Sub-Advisers..........4
Administrator................................6
Distribution of Fund Shares.......................6
Pincipal Holders of Securities...................6
Supplemental Descriptions of Investments..........7
Supplemental Investment Techniques................12
Supplemental Discussion of Risks
Associated With the Fund's
Investment Policies and
Investment Techniques...........................15
Investment Restrictions...........................22
Portfolio Transactions............................23
Net Asset Value...................................24
Tax Considerations................................25
Shareholder Information...........................31
Calculation of Performance Data...................32
Rating Descriptions...............................33
Financial Statements..............................35
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) 1,000,000,000
shares to the Money Market Portfolio; (ii) 250,000,000 shares to the
International Equity Portfolio; and (iii) 1,250,000,000 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
affiliation with the Fund or the Investment Adviser.
Robert B. Allardice, III, 66 South Drive, Plandome, NY 11030,
Director of the Fund. Private Investor. Prior to February 1993, Mr.
Allardice served as a Managing Director of Morgan Stanley & Co.,
Incorporated, and as chief operating officer of the Worldwide Equity
Division with overall responsibility for risk management.
Patricia M. Gammon, 230 Prospect Street, New Haven, CT 06511,
Director of the Fund. Ms. Gammon is the Director of Investments for
Yale University, where she has served for over five years. She also
serves as an Advisory Director for the Farm and Home Savings and
Loan located in Nevada, Missouri.
*Alan M. Trager, 430 Park Avenue, New York, NY 10022, Director
and President of the Fund. Mr. Trager has been President and Director
of AMT Capital Services, Inc., a mutual fund distribution and
administration company, since its March 1992 inception, and AMT
Capital Advisers, Inc., a registered investment advisory firm that serves
as adviser and investor for its clients in the financial services industry,
since November 1991. Prior to founding these two businesses, Mr.
Trager served as a Managing Director of Morgan StanleyE& Co., Inc.
where he created and/or managed a number of businesses such as The
Pierpont Funds, Execution Services, Inc. (institutional broker), and
Morgan Stanley Global Securities Services.
Carla E. Dearing, 430 Park Avenue, New York, NY 10022, Vice
President of the Fund. Ms. Dearing has served as a Senior Vice
President, Principal, and Director of AMT Capital Services since its
inception in March 1992 and was recently promoted to Managing
Director. Ms. Dearing is also Managing Director and Principal of
AMT Capital Advisers, Inc. Ms. Dearing was a former Vice President
of Morgan Stanley & Co., where she worked from June 1984 to
August 1986 and from November 1988 to January 1992. Ms.
Dearing's responsibilities included new product and market
development for Morgan Stanley Capital International ("MSCI"), while
serving as an Associate in MSCI's London office, and assisting Mr.
Trager with the launch of several Pierpont Funds, while serving as a
member of Morgan Stanley's Financial Planning and Analysis staff in
New York.
William E. Vastardis, 430 Park Avenue, New York, NY 10022,
Secretary and Treasurer of the Fund. Mr. Vastardis is a Senior Vice
President of AMT Capital Services and has been with the firm since
July 1992. Prior to April 1992, Mr. Vastardis served as Vice President
and head of the Vanguard Group Inc.'s private label administration unit
for seven years, after six years in Vanguard's fund accounting
operations.
INVESTMENT ADVISER AND SUB-ADVISERS
AMT Capital Advisers, Inc. (the "Investment Adviser") provides
investment advisory services to the Fund. The terms of the investment
advisory agreements between the Fund on behalf of a Portfolio and the
Investment Adviser (the "Advisory Agreements" and each an
"Advisory Agreement") obligate the Investment Adviser to provide or
oversee the provision of all investment advisory and portfolio
management services for the Portfolios of the Fund. AMT Capital
Advisers, Inc. is a registered investment adviser founded in November,
1991. Mr. Trager owns a controlling interest in AMT Capital
Advisers, Inc. The Investment Adviser selects and employs investment
advisers to serve as sub-advisers for each of the Portfolios, monitors
the sub-advisers' investment programs and results, and coordinates the
investment activities of the sub-advisers to ensure compliance with
regulatory restrictions.
Each sub-adviser has entered into a contract with the Investment
Adviser (the "Sub-Advisory Agreements" and each a "Sub-Advisory
Agreement") to provide investment advisory services to the Portfolios
of the Fund. The Investment Adviser selects sub-advisers based upon
its continuing quantitative and qualitative evaluation of the sub-
advisers' skill in managing assets using specific investment styles and
strategies. Each sub-adviser has discretion to purchase and sell
securities for its Portfolio in accordance with that Portfolio's objectives,
policies and restrictions. Although the sub-advisers are subject to
general supervision by the Investment Adviser, the Investment Adviser
does not evaluate the investment merits of specific securities
transactions.
Fischer Francis Trees & Watts ("FFTW") provides sub-advisory
services to the Money Market Portfolio. Fischer Francis Trees &
Watts, Inc. was organized in 1972 and is a registered investment
adviser and a New York corporation that specializes in managing fixed
income portfolios for major institutional clients. Fischer Francis Trees
& Watts, Inc. is wholly-owned by Charter Atlantic Corporation, a New
York corporation, which also holds a 10% equity interest in AMT
Capital Services, Inc. In addition to the portfolio managers mentioned
in the Prospectus, the following manager is also responsible for
management of the Money Market Portfolio: Adnan Akant,
Managing Director. Mr. Akant is responsible for management of the
Money Market Portfolio. He joined FFTW in 1984 after serving as
senior investment officer of the World Bank, where he was responsible
for the investment and trading of the Bank's actively-managed liquidity
portfolio and a member of the investment strategy committee. At the
Massachusetts Institute of Technology, Mr Akant earned a Ph.D. in
systems science, and M.S. degrees in finance and international
management and engineering.
Harding, Loevner Management, L.P. ("HLM") provides sub-advisory
services to the International Equity Portfolio. HLM is a registered
investment adviser organized in 1989. HLM provides investment
advisory services to private investors, foundations and endowments.
The Advisory and Sub-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, the Investment Adviser or the
sub-advisers by vote cast in person at a meeting called for the purpose
of voting on such approval.
The Advisory and Sub-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 the Investment Adviser or any sub-adviser. Each of the
Advisory and Sub-Advisory Agreements will terminate automatically in
the event of its "assignment" (as defined in the 1940 Act).
The Investment Adviser pays all of its expenses arising from the
performance of its obligations under the Advisory Agreements,
including all fees payable to the sub-advisers, executive salaries and
expenses of the Directors and Officers of the Fund who are employees
of the Investment Adviser or its affiliates and office rent of the Fund.
The sub-advisers pay all of their expenses arising from the performance
of their obligations under the Sub-Advisory Agreements. 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 the Investment Adviser 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.
The Investment Adviser waived its entire fee and reimbursed the
Money Market and International Equity Portfolios for other expenses
exceeding the voluntary expense cap (on an annualized basis) of 0.40%
and 0.95%, respectively, for the period ended December 31, 1994.
ADMINISTRATOR
Pursuant to its terms, the administration agreement (the
"Administration Agreement") between the Fund and AMT Capital
Services, Inc., a Delaware corporation, and an affiliate of AMT Capital
Advisers, Inc., 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 three years following the date of execution and thereafter will
automatically continue for successive annual periods.
DISTRIBUTION OF FUND SHARES
Shares of the Fund are distributed by AMT Capital Services, Inc.
pursuant to a Distribution Agreement (the "Distribution Agreement")
between the Fund and AMT Capital. The Distribution Agreement
requires AMT Capital to use its best efforts on a continuing basis to
solicit purchases of shares of the Fund. No fees are payable by the
Fund pursuant to the Distribution Agreement. The Fund and AMT
Capital have agreed to indemnify one another against certain liabilities.
The Distribution Agreement will remain in effect until October 29,
1995 and from year to year 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 17, 1995, the following person(s) held 5
percent or more of the outstanding shares of the Money Market
Portfolio:
Name and Address of Amount and Nature Percent
Type of Class Beneficial Owner of Beneficial Ownership
of Portfolio
Common Stock Cooper Industries Inc. Direct Ownership 96.06%
$.001 per Share 1001 Fannin Street, First
City Tower, Suite 3900,
P.O. Box 446, Houston,
TX, 77210
As of March 17, 1995, the following person(s) held
5 percent or more of the outstanding shares of the International
Equity Fund:
Name and Address of Amount and Nature Percent
Type of Class Beneficial Owner of Beneficial Ownership
of Portfolio
Common Stock, The Bank of New York Direct Ownership 41.81%
$.001 per Share (nominee) Mutual Fund/
Reorg. Dept., P.O. Box
1066, Wall Street Station,
New York, New York, 10268
Common Stock (Various) Hillman Foundation Direct Ownership 27.82%
$.001 per Share 2000 Grant Building,
Pittsburgh, PA, 15219
Common Stock ValleyBank Div. Direct Ownership 18.43%
$.001 per Share Dauphin Deposit Bank &
Trust Co. , Cust., The
Mercersburg Academy,
P.O. Box 459, Chambersburg,
PA, 17201
SUPPLEMENTAL DESCRIPTIONS OF INVESTMENTS
The different types of securities in which the Portfolios may invest,
subject to their respective investment objectives, policies and
restrictions, are described in the Prospectus under "Descriptions of
Investments". 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 the Investment Adviser's
or sub-advisers' 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 the Investment Adviser or the sub-advisers, are of an
investment quality comparable to obligations of U.S. banks in which
each Portfolio may invest. The Money Market Portfolio may invest
more than 25% of its total assets in Domestic Bank Obligations, as
described in the Fund's Prospectus.
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. As described in the
Fund's Prospectus, each Portfolio will only invest in securities rated in
the two highest rating categories or of comparable creditworthiness in
the opinion of the Investment Adviser or sub-advisers. See "Ratings
Information." Bonds rated in these categories are generally described
as high-grade debt obligations with a very strong capacity to pay
principal and interest on a timely basis.
Repurchase Agreements. When participating in repurchase
agreements, a Portfolio buys securities from a vendor (e.g., a bank or
securities firm) with the agreement that the vendor will repurchase the
securities at the same price plus interest at a later date. Repurchase
agreements may be characterized as loans secured by the underlying
securities. Such transactions afford an opportunity for the Portfolio to
earn a return on available cash at minimal market risk, although the
Portfolio may be subject to various delays and risks of loss if the
vendor becomes subject to a proceeding under the U.S. Bankruptcy
Code or is otherwise unable to meet its obligation to repurchase. The
securities underlying a repurchase agreement will be marked to market
every business day so that the value of such securities is at least equal
to the value of the repurchase price thereof, including the accrued
interest thereon.
Reverse Repurchase Agreements. When participating in reverse
repurchase agreements, a Portfolio sells U.S. Government securities
and simultaneously agrees to repurchase them at an agreed upon price
and date. The difference between the amount the Portfolio receives for
the securities and the amount it pays on repurchase is deemed to be a
payment of interest. The Fund will maintain for each Portfolio a
segregated custodial account containing cash, U.S. Government
securities or other appropriate high-grade debt securities having an
aggregate value at least equal to the amount of such commitments to
repurchase, including accrued interest, until payment is made. Reverse
repurchase agreements create leverage, a speculative factor, but will be
not considered as borrowings for the purposes of limitations on
borrowings.
Dollar Roll Transactions. "Dollar roll" transactions consist of the sale
by a Portfolio to a bank or broker-dealer (the "counterparty") of
GNMA certificates or other mortgage-backed securities together with
a commitment to purchase from the counterparty similar, but not
identical, securities at a future date. The counterparty receives all
principal and interest payments, including prepayments, made on the
security while it is the holder. The Portfolio receives a fee from the
counterparty as consideration for entering into the commitment to
purchase. Dollar rolls may be renewed over a period of several months
with a new purchase and repurchase price fixed and a cash settlement
made at each renewal without physical delivery of securities.
Moreover, the transaction may be preceded by a firm commitment
agreement pursuant to which the Portfolio agrees to buy a security on a
future date.
A Portfolio will not use such transactions for leverage purposes and,
accordingly, will segregate cash, U.S. Government securities or other
high grade debt obligations in an amount sufficient to meet its purchase
obligations under the transactions.
Dollar rolls are similar to reverse repurchase agreements because they
involve the sale of a security coupled with an agreement to repurchase.
Like all borrowings, a dollar roll involves costs to a Portfolio. For
example, while a Portfolio receives a fee as consideration for agreeing
to repurchase the security, the Portfolio may forgo the right to receive
all principal and interest payments while the counterparty holds the
security. These payments to the counterparty may exceed the fee
received by the Portfolio, thereby effectively charging the Portfolio
interest on its borrowing. Further, although the Portfolio can estimate
the amount of expected principal prepayment over the term of the
dollar roll, a variation in the actual amount of prepayment could
increase or decrease the cost of the Portfolio's borrowing.
Mortgage-Backed Securities. Mortgage-backed securities are
securities which represent ownership interests in, or are debt
obligations secured entirely or primarily by, "pools" of residential or
commercial mortgage loans or other mortgage-backed securities (the
"Underlying Assets"). In the case of mortgage-backed securities
representing ownership interests in the Underlying Assets, the principal
and interest payments on the underlying mortgage loans are distributed
monthly to the holders of the mortgage-backed securities. In the case
of mortgage-backed securities representing debt obligations secured by
the Underlying Assets, the principal and interest payments on the
underlying mortgage loans, and any reinvestment income thereon,
provide the funds to pay debt service on such mortgage-backed
securities. Mortgage-backed securities may take a variety of forms, but
the two most common are mortgage pass-through securities, which
represent ownership interests in the Underlying Assets, and
collateralized mortgage obligations ("CMOs"), which are debt
obligations collateralized by the Underlying Assets.
Certain mortgaged-backed securities are issues that represent an
undivided fractional interest in the entirety of the Underlying Assets (or
in a substantial portion of the Underlying Assets, with additional
interests junior to that of the mortgage-backed security), and thus have
payment terms that closely resemble the payment terms of the
Underlying Assets.
In addition, many mortgage-backed securities are issued in multiple
classes. Each class of such multi-class mortgage-backed securities
("MBS"), often referred to as a "tranche", is issued at a specific fixed or
floating coupon rate and has a stated maturity or final distribution date.
Principal prepayment on the Underlying Assets may cause the MBSs
to be retired substantially earlier than their stated maturities or final
distribution dates. Interest is paid or accrues on all or most classes of
the MBSs on a periodic basis, typically monthly or quarterly. The
principal of and interest on the Underlying Assets may be allocated
among the several classes of a series of a MBS in many different ways.
In a relatively common structure, payments of principal (including any
principal prepayments) on the Underlying Assets are applied to the
classes of a series of a MBS in the order of their respective stated
maturities so that no payment of principal will be made on any class of
MBSs until all other classes having an earlier stated maturity have been
paid in full.
Mortgage-backed securities are often backed by a pool of Underlying
Assets representing the obligations of a number of different parties. To
lessen the effect of failures by obligors on Underlying Assets to make
payments, such securities may contain elements of credit support.
Such credit support falls into two categories: (i) liquidity protection;
and (ii) protection against losses resulting from ultimate default by an
obligor on the Underlying Assets. Liquidity protection refers to the
provision of advances, generally by the entity administering the pool of
assets, to ensure that the receipt of payments on the underlying pool
occurs in a timely fashion. Protection against losses resulting from
ultimate default ensures ultimate payment of obligations on at least a
portion of the assets in the pool. Such protection may be provided
through guarantees, insurance policies or letters of credit obtained by
the issuer or sponsor from third parties, through various means of
structuring the transaction or through a combination of such
approaches. A Portfolio will not pay any additional fees for such credit
support, although the existence of credit support may increase the price
of a security.
Other Asset-Backed Securities. The Investment Adviser or sub-
adviser expect that other asset-backed securities (unrelated to
mortgage loans) will be developed and offered to investors in the
future. Several types of such asset-backed securities have already been
offered to investors, including securities backed by automobile loans
and credit card receivables.
Loan Participations. A loan participation is an interest in a loan to a
U.S. corporation (the "corporate borrower") which is administered and
sold by an intermediary bank. The borrower of the underlying loan will
be deemed to be the issuer of the participation interest except to the
extent the Portfolio derives its rights from the intermediary bank who
sold the loan participation. Such loans must be to issuers in whose
obligations a Portfolio may invest. Any participation purchased by a
Portfolio must be issued by a bank in the United States with assets
exceeding $1 billion. See "Supplemental Discussion of Risks
Associated With the Fund's Investment Policies and Investment
Techniques".
Variable Amount Master Demand Notes. Variable amount master
demand notes permit the investment of fluctuating amounts at varying
rates of interest pursuant to direct arrangements between a Portfolio
(as lender) and the borrower. These notes are direct lending
arrangements between lenders and borrowers, and are generally not
transferable, nor are they ordinarily rated by either Moody's or S&P.
MUNICIPAL OBLIGATIONS
Municipal obligations are issued to raise money for various public
purposes, including general purpose financing for specific projects or
public facilities. Municipal obligations may be backed by the full taxing
power of a municipality (by or on behalf of states, cities, municipalities
and other public authorities). The two principal classifications of
municipal obligations that may be purchased on behalf of a Portfolio
are "general obligation" securities and "revenue" securities. General
obligation securities are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific revenue source such
as the user of a facility being financed.
Municipal Commercial Paper that is rated "P-1" or "P-2" by Moody's
Investors Service, Inc. ("Moody's") or "A-1" or "A-2" or better by
Standard & Poor's Corporation ("S&P") or, if not rated, is, in the
opinion of the sub-adviser based on guidelines established by the Fund's
Board of Directors, of investment quality comparable to rated
municipal commercial paper in which a Portfolio may invest.
Municipal commercial paper is a debt obligation with a stated maturity
of 270 days or less that is issued by a municipality to finance seasonal
working capital needs or as short-term financing in anticipation of
longer-term debt.
Municipal Notes that are rated "MIG 1," "MIG 2" (or VMIG 1" or
"VMIG 2" in the case of variable rate demand notes), "P-1", "P-2" or
"Aa" or better by Moody's or "SP-1," "SP-2", "A-1", "A-2" or "AA" or
better by S&P or, if not rated, are, in the opinion of the sub-adviser
based on the guidelines established by the Fund's Board of Directors, of
investment quality comparable to rated municipal notes in which a
Portfolio may invest
(a) Tax Anticipation Notes. Tax anticipation notes ("TANs")
are sold as interim financing in anticipation of collection of
taxes. An uncertainty in a municipal issuer's capacity to raise
taxes as a result of such things as a decline in its tax base or a
rise in delinquencies could adversely affect the issuer's ability to
meet its obligations on outstanding TANs.
(b) Bond Anticipation Notes. Bond anticipation notes
("BANs") are sold as interim financing in anticipation of a bond
sale. The ability of a municipal issuer to meet its obligations on
its BANs is primarily dependent on the issuer's adequate access
to the longer term municipal market.
(c) Revenue Anticipation Notes. Revenue anticipation notes
("RANs") are sold as interim financing in anticipation of
receipt of other revenues. A decline in the receipt of certain
revenues, such as anticipated revenues from another level of
government, could adversely affect an issuer's ability to meet its
obligations on outstanding RANs.
Municipal notes also include construction loan notes and project notes.
TANs, BANs, and RANs are usually general obligations of the issuer.
Project notes are issued by local housing authorities to finance urban
renewal and public housing projects and are secured by the full faith
and credit of the U.S. Government.
Private Activity Bonds which include obligations that finance student
loans, residential rental projects, and solid waste disposal facilities. To
the extent a Portfolio invests in private activity obligations,
shareholders are required to report a portion of that Portfolio's
distributions attributable to these obligations as a "tax preference item"
for purposes of determining their liability for the federal alternative
minimum tax and, as a result, may become subject to (or increase their
liability for) the alternative minimum tax. Shareholders should consult
with their own tax advisors to determine whether they may be subject
to the alternative minimum tax. Interest on private activity bonds is
exempt from regular federal income tax.
"Moral Obligation" Securities which are normally issued by special
purpose public authorities. If the issuer of moral obligation securities is
unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral
commitment but not a legal obligation of the state or municipality that
created the issuer.
Floating or Variable Rate Obligations which bear interest at rates that
are not fixed, but vary with changes in specified market rates or indices,
such as the prime rate, and at specified intervals. Certain of the floating
or variable rate obligations that may be purchased by a Portfolio may
carry a demand feature that would permit the holder to tender them
back to the issuer of the underlying instrument or to a third party at par
value prior to maturity. Such obligations include variable rate demand
notes, which are instruments issued pursuant to an agreement between
the issuer and the holder that permit the indebtedness thereunder to
vary and provide for periodic adjustments in the interest rate. The
Investment Adviser or sub-advisers will monitor on an ongoing basis
the ability of an issuer of a demand instrument or of the entity
providing credit support for the demand feature to pay principal and
interest on demand. Obligations coupled with a demand feature
present tax issues. Each Portfolio intends to take the position that it is
the owner of any obligations acquired with a demand feature, and that
tax-exempt interest earned with respect to the obligation will be tax-
exempt in its hands. There is no assurance that the Internal Revenue
Service will agree with this position in any particular case. Also, the
federal income tax treatment of certain other features of these
investments is unclear. Each Portfolio will manage its assets to
minimize any adverse impact from these investments.
Participation Certificates which are issued by a bank, insurance
company or other financial institution. A participation certificate gives
the Portfolio an undivided interest in the underlying obligations in the
proportion that the Portfolios's interest bears to the total principal
amount of such obligations. Certain of such participation certificates
may carry a demand feature that would permit the holder to tender
them back to the issuer or to a third party prior to maturity.
Lease Obligations are participation certificates in a lease, an installment
purchase contract or a conditional sales contract (hereinafter
collectively called "lease obligations") entered into by a State or a
political subdivision to finance the acquisition or construction of
equipment, land or facilities. Although lease obligations do not
constitute general obligations of the issuer for which the lessee's
unlimited taxing power is pledged, a lease obligation is frequently
backed by the lessee's covenant to budget for, appropriate and make
the payments due under the lease obligation. However, certain lease
obligations contain "nonappropriation" clauses which provide that the
lessee has no obligation to make lease or installment purchase
payments in future years unless money is appropriated for such purpose
on a yearly basis. Although "nonappropriation" lease obligations are
secured by the leased property, disposition of the property in the event
of foreclosure might prove difficult. These securities represent a
relatively new type of financing that has not yet developed the depth of
marketability associated with more conventional securities.
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/or dollar roll transactions 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. 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, other high
grade liquid investments or irrevocable bank stand-by letters of credit
which will be maintained at all times in an amount equal to at least
100% 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 International Equity Portfolio 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 International Equity Portfolio may at times hedge
all or some portion of its currency exchange risk. Conditions in the
securities, futures, options, and foreign currency markets will determine
whether and under what circumstances the Portfolio will employ any of
the techniques or strategies described below and in the section of the
Prospectus entitled "Descriptions of Investments". The 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 International Equity Portfolio 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 International Equity Portfolio 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 International Equity Portfolio 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 Portfolio may also enter into
futures contracts that are based on securities that would be eligible
investments for the Portfolio. The International Equity Portfolio 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, the Portfolio will incur brokerage fees when it purchases or
sells futures contracts.
At the time a futures contract is purchased or sold, the Portfolio must
allocate cash or securities as a deposit payment ("initial margin"). It is
expected that the initial margin on U.S. exchanges may range from
approximately 3% to approximately 15% of the value of the securities
or commodities underlying the contract. Under certain circumstances,
however, such as periods of high volatility, 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 since the preceding day.
Options on Foreign Currencies. The International Equity Portfolio
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 its portfolio securities or payments due thereon or a rise in the
U.S. dollar-equivalent cost of securities that it intends to purchase. A
foreign currency put option grants the holder the right, but not the
obligation, 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 the International Equity 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
International Equity Portfolio require that all of the Portfolio's 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 the
Portfolio's existing futures positions and premiums paid for related
options would not exceed 5% of the value of the Portfolio's total
assets.
Portfolio Turnover When consistent with its investment objective, the
Money Market Portfolio may employ a number of professional money
management techniques in anticipation of or response to changing
economic and market conditions and shifts in fiscal and monetary
policy. These techniques include varying the composition of the
Money Market Portfolio's investments and the average maturity of the
Money Market Portfolio's portfolio based upon an assessment of the
relative values of various money market instruments and future interest
rate patterns. As a result of the implementation of these techniques, the
Money Market Portfolio may engage in more active portfolio trading
and experience more volatility in its distributions than many other
money market funds.
Illiquid Securities Although each Portfolio may invest up to 10% 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, time deposits and dollar roll
transactions maturing in more than seven days are treated as illiquid
assets. Further, loan participations will be treated as illiquid assets until
the Board of Directors determines that a liquid market exists for such
participations.
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, the Portfolio's sub-
adviser will consider such event in its determination of whether the
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.
Dollar Roll Transactions. The entry into dollar rolls involves potential
risks of loss which are different from those related to the securities
underlying the transactions. For example, if the counterparty becomes
insolvent, a Portfolio's right to purchase from the counterparty might
be restricted. Additionally, the value of such securities may change
adversely before the Portfolio is able to purchase them. Similarly, a
Portfolio may be required to purchase securities in connection with a
dollar roll at a higher price than may otherwise be available on the open
market. Since, as noted above under "Supplemental Descriptions of
Investments", the counterparty is required to deliver a similar, but not
identical, security to a Portfolio, the security which the Portfolio is
required to buy under the dollar roll may be worth less than an identical
security. Finally, there can be no assurance that a Portfolio's use of
cash that it receives from a dollar roll will provide a return that exceeds
borrowing costs.
Mortgage and Other Asset-Backed Securities. Prepayments on
securitized assets such as mortgages, automobile loans and credit card
receivables ("Securitized Assets") generally increase with falling
interest rates and decrease with rising interest rates; furthermore,
prepayment rates are influenced by a variety of economic and social
factors. In general, the collateral supporting non-mortgage asset-
backed securities is of shorter maturity than mortgage loans and is less
likely to experience substantial prepayments. In addition to
prepayment risk, borrowers on the underlying Securitized Assets may
default in their payments creating delays or loss of principal.
Non-mortgage asset-backed securities involve certain risks that are not
presented by mortgage-backed securities. Primarily, these securities do
not have the benefit of a security interest in assets underlying the
related mortgage collateral. Credit card receivables are generally
unsecured and the debtors are entitled to the protection of a number of
state and federal consumer credit laws, many of which give such
debtors the right to set off certain amounts owed on the credit cards,
thereby reducing the balance due. Most issuers of automobile
receivables permit the servicers to retain possession of the underlying
obligations. If the servicer were to sell these obligations to another
party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related automobile receivables. In
addition, because of the large number of vehicles involved in a typical
issuance and technical requirements under state laws, the trustee for the
holders of the automobile receivables may not have an effective
security interest in all of the obligations backing such receivables.
Therefore, there is a possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on these
securities.
Some forms of asset-backed securities are relatively new forms of
investments. Although each Portfolio will only invest in asset-backed
securities that the Investment Adviser or sub-adviser believes are liquid,
because the market experience in certain of these securities is limited,
the market's ability to sustain liquidity through all phases of a market
cycle may not have been tested.
Loan Participations. Because the issuing bank of a loan participation
does not guarantee the participation in any way, it is subject to the
credit risks generally associated with the underlying corporate
borrower. In addition, because it may be necessary under the terms of
the loan participation for a Portfolio to assert through the issuing bank
such rights as may exist against the underlying corporate borrower, in
the event that the underlying corporate borrower should fail to pay
principal and interest when due, the Portfolio could be subject to
delays, expenses and risks which are greater than those which would
have been involved if the Portfolio had purchased a direct obligation
(such as commercial paper) of the borrower. Moreover, under the
terms of the loan participation, the purchasing Portfolio may be
regarded as a creditor of the issuing bank (rather than of the underlying
corporate borrower), so that the Portfolio also may be subject to the
risk that the issuing bank may become insolvent. Further, in the event
of the bankruptcy or insolvency of the corporate borrower, the loan
participation might be subject to certain defenses that can be asserted
by a borrower as a result of improper conduct by the issuing bank. The
secondary market, if any, for these loan participation interests is
limited, and any such participation purchased by a Portfolio will be
treated as illiquid, until the Board of Directors determines that a liquid
market exists for such participations. Loan participations will be
valued at their fair market value, as determined by procedures
approved by the Board of Directors.
Illiquidity of the Municipal Market. The taxable market is a broader
and more liquid market with a greater number of investors, issuers and
market makers than the market for municipal obligations. The more
limited marketability of tax-exempt municipal obligations may make it
difficult in certain circumstances to dispose of large investments
advantageously.
Regulatory Changes. Interest on certain tax-exempt municipal
obligations might lose its tax-exempt status in the event of a change in
the tax laws.
Lease Obligations. Lease Obligations containing "nonappropriation"
clauses provide that the lessee has no obligation to make lease or
installment purchase payments in future years unless money is
appropriated for such purpose on a yearly basis. Although
"nonappropriation" lease obligations are secured by the leased
property, disposition of the property in the event of foreclosure might
prove difficult. These securities represent a relatively new type of
financing that has not yet developed the depth of marketability
associated with more conventional securities. Each Portfolio may not
invest in illiquid or unrated lease obligations.
High Yield/High Risk Debt Securities. International Equity Portfolio
may invest up to 20% of its net 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 the Appendix to this
Statement of Additional Information for a more complete
description of the ratings assigned by ratings organizations and their
respective characteristics.
Economic downturns have in the past, and could in the future,
disrupted 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 the Portfolio's net asset value. In addition, investments
in high yield zero coupon or pay-in-kind bonds, rather than income-
bearing high yield securities, may be more speculative and may be
subject to greater fluctuations in value due to changes in interest rates.
The trading market for high yield securities may be thin to the
extent that there is no established retail secondary market or because of
a decline in the value of such securities. A thin trading market may
limit the ability of the Portfolio to accurately value high yield securities
in the Portfolio's 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 the 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 the International Equity
Portfolio is uninvested and no return is earned thereon. The inability of
the 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 the 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 the International Equity Portfolio will use reasonable efforts
to obtain the best available price and the most favorable execution with
respect to all transactions and the Sub-adviser 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
Portfolio on these investments. However, these foreign withholding
taxes are not expected to have a significant impact on the Portfolio,
since the 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 the sub-adviser 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 the International Equity 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, the sub-adviser may not be able to purchase
forward contracts with respect to all of the foreign currencies in which
the Portfolio's portfolio securities may be denominated. In those
circumstances the correlation between 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 use of such contracts and options
thereon will benefit the International Equity Portfolio, if predictions
about the general direction of securities market movements or foreign
exchange rates is incorrect, the Portfolio's overall performance would
be poorer than if it had not entered into any such contracts or
purchased or written options thereon.
The 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, the 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 the International Equity 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.
The 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, the
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 the International
Equity 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 the Investment Adviser's or the sub-adviser'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 or, with respect to the
Money Market Portfolio, Domestic Bank Obligations as defined in the
Prospectus. 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
dollar roll transactions 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; or
(10) invest directly in interests in oil, gas or other mineral exploration
or development programs or mineral leases.
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.
The Money Market Portfolio (although not as a fundamental policy)
may not:
(1) invest more than 5% of its total assets in the securities of any one
issuer or subject to puts from any one issuer, except U.S. Government
securities, provided that the Portfolio may invest more than 5% of its
total assets in first tier securities of any one issuer for a period of up to
three business days or, in unrated securities that have been determined
to be of comparable quality by the Investment Adviser or sub-adviser;
(2) invest more than 5% of its total assets in second tier securities, or in
unrated securities determined by the Investment Adviser or sub-adviser
to be of comparable quality; or
(3) invest more than 10% of its total assets in warrants.
PORTFOLIO TRANSACTIONS
The Advisory Agreements and the Sub-Advisory Agreements
authorize the Investment Adviser and sub-advisers, respectively, to
select the brokers or dealers that will execute the purchases and sales of
investment securities for each of the Fund's Portfolios and directs the
Investment Adviser and sub-advisers to use reasonable efforts to obtain
the best available price and the most favorable execution with respect
to all transactions for the Portfolios. The Sub-adviser will consider the
full range and quality of services offered by the executing broker or
dealer when making these determinations.
Since shares of the Fund's Portfolios are not marketed through
intermediary brokers or dealers, it is not the Fund's practice to allocate
brokerage or principal business on the basis of sales of shares which
may be made through such firms. However, the Investment Adviser
and the sub-advisers may place portfolio orders with qualified broker-
dealers who recommend the Fund's Portfolios or who act as agents in
the purchase of shares of the Portfolios for their clients.
Some securities considered for investment by each of the Fund's
Portfolios may also be appropriate for other clients served by either the
Investment Adviser or the sub-advisers. If the purchase or sale of
securities consistent with the investment policies of a Portfolio and one
or more of these other clients serviced by the Investment Adviser or the
sub-advisers 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 the Investment Adviser or the
sub-advisers, as the case may be. Although there is no specified
formula for allocating such transactions, the various allocation methods
used by the Investment Adviser or sub-advisers, and the results of such
allocations, are subject to periodic review by the Board of Directors.
NET ASSET VALUE
As stated in the Prospectus, the Money Market Portfolio seeks to
maintain a net asset value of $1.00 per share and, in this connection,
instruments are valued on the basis of amortized cost pursuant to Rule
2a-7 under the 1940 Act. While this method provides certainty in
valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price the Portfolio would
receive if it sold the instrument. During such periods the yield to
investors in the Portfolio may differ somewhat from that obtained in a
similar fund which uses market values for all its portfolio securities.
For example, if the use of amortized cost resulted in a lower (higher)
aggregate portfolio value on a particular day, a prospective investor in
the Portfolio would be able to obtain a somewhat higher (lower) yield
than would result from investment in such a similar fund, and existing
investors would receive less (more) investment income. The purpose
of using the amortized cost method of calculation is to attempt to
maintain a stable net asset value per share of $1.00.
The Board of Directors has established procedures reasonably
designed, taking into account current market conditions and the Money
Market Portfolio's investment objectives, to stabilize the net asset value
per share as computed for the purposes of sales and redemptions at
$1.00. These procedures include periodic review, as the Board of
Directors deems appropriate and at such intervals as are reasonable in
light of current market conditions, of the relationship between the
amortized cost value per share and net asset value per share based
upon available indications of market value.
In the event of a deviation of 1/2 of 1% between the Money Market
Portfolio's net asset value based upon available market quotations or
market equivalents and $1.00 per share based on amortized cost, the
Board of Directors will promptly consider what action, if any, should
be taken. The Board of Directors will also take such action as it deems
appropriate to eliminate or to reduce to the extent reasonably
practicable any material dilution or other unfair result which might arise
from differences between the two. Such action may include
redemption in kind, selling instruments prior to maturity to realize
capital gains or losses or to shorten the average maturity, withholding
dividends, or utilizing a net asset value per share as determined by
using available market quotations.
As used in the Prospectus, with respect to the Money Market,
"Business Day" refers to those days when the Federal Reserve Bank of
New York 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, Martin Luther King
Day, Presidents' Day, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veterans Day, Thanksgiving and Christmas. As used
in the Prospectus, with respect to the International Equity Portfolio,
"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
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, and the Money
Market and International Equity Portfolios did qualify in 1994 as, a
regulated investment company ("RIC") under the Internal Revenue
Code of 1986, as amended (the "Code"). To qualify as a RIC, a
Portfolio must, among other things, (a) derive at least 90% of its gross
income each taxable year from dividends, interest, payments with
respect to securities loans and gains from the sale or other disposition
of securities or foreign currencies, or other income derived from its
business of investing in securities (the "Qualifying Income
Requirement"); (b) derive less than 30% of its gross income each
taxable year from sales or other dispositions of certain assets (namely,
(i) securities; (ii) options, futures and forward contracts (other than
those on foreign currencies); and (iii) foreign currencies (including
options, futures and forward contracts on such currencies) not directly
related to the Portfolio's principal business of investing in stocks or
securities (or options and futures with respect to stocks or securities))
held less than three months (the "30% Limitation"); (c) diversify its
holdings so that, at the end of each quarter of the Portfolio's taxable
year, (i) at least 50% of the market value of the Portfolio's assets is
represented by cash and cash items (including receivables), U.S.
Government securities, securities of other RICs and other securities,
with such other securities of any one issuer limited to an amount not
greater than 5% of the value of the Portfolio's total assets and not
greater than 10% of the outstanding voting securities of such issuer and
(ii) not more than 25% of the value of the Portfolio's total assets is
invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other RICs); and (d)
distribute at least 90% of its investment company taxable income
(which includes, among other items, interest and net short-term capital
gains in excess of net long-term capital losses) and its net tax-exempt
interest income each taxable year.
If for any taxable year a Portfolio does not qualify as a RIC, all of its
taxable income will be taxed to the Portfolio at corporate rates. For
each taxable year that the Portfolio qualifies as a RIC, it will not be
subject to federal income tax on that part of its investment company
taxable income and net capital gains (the excess of net long-term
capital gain over net short-term capital loss) that it distributes to its
shareholders. In addition, to avoid a nondeductible 4% federal excise
tax, the Portfolio must distribute during each calendar year an amount
at least equal to the sum of 98% of its ordinary income (not taking into
account any capital gains or losses), determined on a calendar year
basis, 98% of its capital gains in excess of capital losses, determined in
general on an October 31 year-end basis, and any undistributed
amounts from previous years. Each Portfolio intends to distribute all of
its net income and gains by automatically reinvesting such income and
gains in additional shares of the Portfolio. 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. None of the amounts treated as distributed to shareholders
of the Money Market Portfolio are expected to 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
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, except in
the case of the Money Market Portfolio, provided that they maintain a
constant net asset value per share, 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 the International Equity 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 the 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 the 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 the Portfolio which is taxed as
ordinary income when distributed to members.
A 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 a Portfolio's investment company taxable
income to be distributed to members as ordinary income.
Tax Treatment of Passive Foreign Investment Companies. If the
International Equity 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.
The International Equity 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 a 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.
With the possible exception of the International Equity Portfolio, it is
not anticipated that the Portfolios will be eligible to make this "pass-
through" election. 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
normally 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.).
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 Money Market Portfolio may, from time to time, include the
"yield" and "effective yield" in advertisements or reports to
shareholders or prospective investors.
The yield is calculated by determining the net change over a 7-calendar
day period, exclusive of capital changes, in the value of a hypothetical
preexisting account having a balance of one share at the beginning of
the period, divided by the value of the account at the beginning of the
base period to obtain the base period return. The yield is annualized by
multiplying the base period return by 365/7. The yield is stated to the
nearest hundredth of one percent. The effective yield is calculated by
the same method as yield except that the base period return is
compounded by adding 1, raising the sum to a power equal to 365/7,
and subtracting 1 from the result, according to the following formula:
Effective Yield = [(Base Period Return + 1)^(365/7)] - 1
For the seven-day period ended December 31, 1994, the Money
Market Portfolio's yield and effective yield were 5.73% and 5.89%,
respectively.
The International Equity Portfolio may, from time to time, include the
30-day yield in advertisements or reports to shareholders or
prospective investors. Quotations of yield for will be based on all
investment income per share during a particular 30-day (or one month)
period (including dividends and interest), less expenses accrued during
the period ("net investment income"), and are computed by dividing net
investment income by the maximum offering price per share on the last
day of the period, according to the following formula which is
prescribed by the Commission:
YIELD = 2 x { [ ((a - b) / (c x d)) + 1]^(6) - 1 }
Where: a = dividends and interest earned during the
period;
b = expenses accrued for the period (net of
reimbursements);
c = the average daily number of shares of a
Portfolio outstanding during the period that
were entitled to receive dividends; and
d = the maximum offering price per share on the
last day of the period.
Each of the Portfolios may, from time to time, include "total return" in
advertisements or reports to shareholders or prospective investors.
Quotations of average annual total return will be expressed in terms of
the average annual compounded rate of return of a hypothetical
investment in a Portfolio of the Fund over periods of 1, 5 and 10 years
(up to the life of the Portfolio), calculated pursuant to the following
formula which is prescribed by the SEC:
P(1 + T)^n = ERV
Where:
P = a hypothetical initial payment of $1,000,
T = the average annual total return,
n = the number of years, and
ERV = the ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period.
All total return figures assume that all dividends are reinvested when paid.
RATING 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.
The ratings AA and A may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
Municipal notes issued since July 29, 1984 are designated "SP-1", "SP-
2", and "SP-3". The designation SP-1 indicates a very strong capacity
to pay principal and interest. A "+" is added to those issues determined
to possess overwhelming safety characteristics.
A-1. Standard & Poor's Commercial Paper ratings are current
assessments of the likelihood of timely payments of debts having
original maturity of no more than 365 days. The A-1 designation
indicates the degree of safety regarding timely payment is very strong.
A-2. Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for
issues designated A-1.
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.
Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking;
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
Moody's ratings for state and municipal and other short-term
obligations will be designated Moody's Investment Grade ("MIG").
This distinction is in recognition of the differences between short-term
credit risk and long-term 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 Fund's audited Financial Statements, including the Financial
Highlights, for the period ended December 31, 1994 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. The
semi-annual report is also available upon request.
Part C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements and Schedules:
Part A: Financial Highlights.
Part B: 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 February 27, 1995.
- Statement of Net Assets dated December 31, 1994.
- Statement of Operations for the periods ended December 31,
1994.
- Statement of Changes in Net Assets for the periods ended
December 31, 1994.
- Financial Highlights for the period ended December 31, 1994.
(b) Exhibits
(1a) Articles of Incorporation, dated August 3, 1993
(previously filed as Exhibit (1) to Pre-Effective
Amendment No. 1 to Registrant's Registration
Statement on Form N-1A, File Nos. 33-66840,
811-7928).
(1b) Articles of Amendment to Articles of
Incorporation, dated October 28, 1993 (previously
filed as Exhibit (1b) to Pre-Effective Amendment
No. 3 to Registrant's Registration Statement on
Form N-1A, File Nos. 33-66840, 811-7928).
(2) By-laws (previously filed as Exhibit (2) to
Pre-Effective Amendment No. 2 to Registrant's
Registration Statement on Form N-1A, File Nos.
33-66840, 811-7928).
(3) Not Applicable.
(4) Specimen of Stock Certificates (previously filed
as Exhibit (4) to Pre-Effective Amendment No. 3
to Registrant's Registration Statement on Form
N-1A, File Nos. 33-66840, 811-7928).
(5a) Investment Advisory Agreement, dated October 28,
1993 between the Registrant (Money Market
Portfolio) and AMT Capital Advisers, Inc.
(previously filed as Exhibit (5a) to
Pre-Effective Amendment No. 3 to Registrant's
Registration Statement on Form N-1A, File
Nos. 33-66840, 811-7928).
(5c) Sub-Advisory Agreement, dated October 29, 1993
between AMT Capital Advisers, Inc. and Fischer
Francis Trees and Watts, Inc. (previously filed
as Exhibit (5c) to Pre-Effective Amendment No. 3
to Registrant's Registration Statement on Form
N-1A, File Nos. 33-66840, 811-7928)
(5e) Investment Advisory Agreement, dated April 29,
1994, between the Registrant (International
Equity Portfolio) and AMT Capital Advisers, Inc.
(previously filed as Exhibit (5e) to Post-
Effective Amendment No. 2 to Registrant's
Registration Statement on Form N-1A File
Nos. 33-66840, 811-7928).
(5f) Sub-Advisory Agreement, dated April 29, 1994
between AMT Capital Advisers, Inc. and Harding,
Loevner Management, L.P. (previously filed
as Exhibit (5f) to Post-Effective Amendment No.
2 to Registrant's Registration Statement on Form
N-1A File Nos. 33-66840, 811-7928).
(6) Distribution Agreement, dated October 29, 1993
between the Registrant and AMT Capital Services,
Inc. (previously filed as Exhibit (6) to Pre-
Effective Amendment No. 3 to Registrant's
Registration Statement on Form N-1A, File
Nos. 33-66840, 811-7928).
(7) Not Applicable.
(8) Custodian Agreement, dated October 29, 1993
between the Registrant and Investors Bank & Trust
Company (previously filed as Exhibit (8) to Post-
Effective Amendment No. 2 to Registrant's
Registration Statement on Form N-1A File
Nos. 33- 66840, 811-7928).
(9a) Transfer Agency and Service Agreement, dated
October 29, 1993 between the Registrant and
Investors Bank & Trust Company (previously filed
as Exhibit (9a) to Pre-Effective Amendment No. 3
to Registrant's Registration Statement on Form N-
1A, File Nos. 33-66840, 811-7928).
(9b) Administration Agreement, dated October 28, 1993
between the Registrant and AMT Capital Services,
Inc. (previously filed as Exhibit (9b) to Pre-
Effective Amendment No. 3 to Registrant's
Registration Statement on Form N-1A, File
Nos. 33-66840, 811-7928).
(9c) Sales Incentive Fee Agreement, dated October 29,
1993 between AMT Capital Advisers, Inc. and
Fischer Francis Trees & Watts, Inc. (previously
filed as Exhibit (9c) to Pre-Effective Amendment
No. 3 to Registrant's Registration Statement on
Form N-1A, File Nos. 33-66840, 811-7928).
(9d) Sales Incentive Fee Agreement, dated April 29,
1994 between AMT Capital Advisers, Inc. and
Harding, Loevner Management, L.P. (previously
filed as Exhibit (9d) to Post-Effective Amendment
No. 2 to Registrant's Registration Statement on
Form N-1A, File Nos. 33-66840, 811-7928).
(10) Opinion and Consent of Counsel, dated October 29,
1993 (previously filed as Exhibit (10) to Pre-
Effective Amendment No. 3 to Registrant's
Registration Statement on Form N-1A, File
Nos. 33-66840, 811-7928).
(11) Consent of Independent Auditors (filed herewith).
(12) Not Applicable.
(13a) Purchase Agreement for Initial Capital, dated
October 29, 1993 between the Registrant and
Fischer Francis Trees & Watts, Inc. (previously
filed as Exhibit (13a) to Pre-Effective Amendment
No. 3 to Registrant's Registration Statement on
Form N-1A, File Nos. 33-66840, 811-7928).
(13b) Purchase Agreement for Initial Capital, dated
October 29, 1993 between the Registrant and AMT
Capital Advisers, Inc. (previously filed as
Exhibit (13b) to Pre-Effective Amendment No. 3 to
Registrant's Registration Statement on Form N-1A,
File Nos. 33-66840, 811-7928).
(13c) Purchase Agreement for Initial Capital, dated May
2, 1994 between the Registrant and AMT Capital
Advisers, Inc. (previously filed as Exhibit (13c)
to Post-Effective Amendment No. 2 to Registrant's
Registration Statement on Form N-1A, File Nos.
33-66840, 811-7928).
(14) Not Applicable.
(15) Not Applicable.
(16) Performance Information Schedule.
Item 25. Persons Controlled by or Under Common Control with Registrant
None.
Item 26. Number of Holders of Securities
As of September 23March 17, 1995, there were eight record
holders of the Capital Stock of the Money Market Portfolio
and forty-nine record holders of the Capital Stock of the
International Equity Portfolio.
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 Advisor
The business and other connections of AMT Capital
Advisers, Inc. (the Investment Adviser), Fischer Francis Trees
& Watts, Inc. (a Sub-Adviser), and Harding, Loevner Management,
L.P. (a Sub-Adviser), are on the Uniform Application for
Investment Adviser Registration ("Form ADV") of each as
currently on file with the Commission (File Nos. 801-42426,
801-10577, and 801-36845, respectively) the texts of which
are hereby incorporated by reference.
Item 29. Principal Underwriters
(a) AMT Capital Services, Inc. acts as principal
underwriter for FFTW Funds, Inc., TIFF Investment
Program, Inc. and AMT Capital Fund, Inc.
(b) For each director or officer of AMT Capital Services,
Inc.:
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
Alan M. Trager Director, President and President
430 Park Avenue Treasurer
17th Floor
New York, NY 10022
Carla E. Dearing Director Vice President
430 Park Avenue Senior Vice President
17th Floor Managing Director
New York, NY 10022
Richard Fischer Director None
Charter Atlantic Corp.
717 Fifth Avenue
14th Floor
New York, NY 10022
Ruth L. Lansner Secretary None
Gilbert, Segall & Young
430 Park Avenue
11th Floor
New York, NY 10022
William E. Vastardis Senior Vice President Secretary
430 Park Avenue Treasurer
17th Floor
New York, NY 10022
Jaclin G. Singer Vice President None
430 Park Avenue
17th Floor
New York, NY 10022
(c) No commissions or other compensation was paid to the principal
underwriter during the registrant's last fiscal year.
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 Advisers,
Inc. and AMT Capital Services, Inc., 430 Park Avenue,
17th Floor, New York, New York 10022, Fischer Francis
Trees & Watts, Inc., 717 Fifth Avenue, New York, New
York 10022, Stevens, Inc., 111 Center Street, Little
Rock, Arkansas and Harding, Loevner Management, L.P.,
50 Division Street, 72201Suite 401, Somerville,
N.J. 08876.
Item 31. Management Services
None.
Item 32. Undertakings
(a) The Registrant undertakes to file a post-effective
amendment with financial statements within four to six
months of the effective date of this Registration
Statement under the Securities Act of 1933.
(b) The Registrant undertakes to call a meeting of
shareholders for the purpose of voting upon the
question of removal of a director or directors when
requested in writing to do so by the holders of at
least 10% of the Registrant's outstanding shares and
in connection with such meeting to comply with the
provisions of Section 16(c) of the Investment Company
Act of 1940 relating to shareholder communications.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment to its
Registration Statement pursuant to Rule 485 (b) under the Securities Act of
1933. Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Post-
Effective Amendment to the Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of New York, State
of New York on the of31st day of March, 1995.
AMT CAPITAL FUND,
By: s\Alan M. Trager\ __________________________
Alan M. Trager, President<?R>
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 and on
the dates indicated.
Signature Title Date
s\Robert B. Allardice\ Director March 31, 1995
Robert B. Allardice, III
Robert B. Allardice, III
s\Patricia M. Gammon\ Director March 31, 1995
Patricia M. Gammon
s\Alan M. Trager\ President and March 31, 1995
Alan M. Trager Director
s\Carla E. Dearing\ Vice President March 31, 1995
Carla E. Dearing
s\William E. Vastardis\ Secretary and March 31, 1995
William E. Vastardis Treasurer
EXHIBIT INDEX
Exhibit No. Exhibit
(11) Consent of Independent Auditors
(16) Performance Information Schedule
Schedule - Performance Information
Calculation of Current Yield and Effective Yield for the Money Market Portfolio
for the Seven Days Ended December 31, 1994
Base Period Return December 31, 1994: .0010980830
Current Yield
(Base Period Return/7) x 365 x 100
(.0010980830/7) x 365 x 100 = 5.73%
Effective Yield
[(Base Period Return + 1)^(365/7)] -1
[(.0010980830 + 1)^(365/7)] -1 = 5.89%
Performance Information Schedule
Total Return
Date of Net Cap. Shares Returns
Distribution Income Gains. Reinvested NAV Inception 1 Year
International Equity Portfolio
5/11/94 10.00 1,000.00
12/31/94 0.03158 0.01167 0.445 9.71 975.32
Money Market Portfolio
11/1/93 1.00 1,000.00
11/30/93 0.00211 0.00000 2.106 1.00 1,002.11
12/31/93 0.00227 0.00000 2.274 1.00 1,004.38 1,000.00
1/31/94 0.00222 0.00000 2.234 1.00 1,006.61 1,002.23
2/28/94 0.00221 0.00000 2.221 1.00 1,008.84 1,004.46
3/31/94 0.00268 0.00000 2.701 1.00 1,011.54 1,007.16
4/30/94 0.00281 0.00000 2.845 1.00 1,014.38 1,010.00
5/31/94 0.00311 0.00000 3.159 1.00 1,017.54 1,013.16
6/30/94 0.00341 0.00000 3.467 1.00 1,021.01 1,016.63
7/31/94 0.00336 0.00000 3.435 1.00 1,024.44 1,020.06
8/31/94 0.00361 0.00000 3.699 1.00 1,028.14 1,023.76
9/30/94 0.00376 0.00000 3.862 1.00 1,032.00 1,027.62
10/31/94 0.00409 0.00000 4.222 1.00 1,036.23 1,031.85
11/30/94 0.00420 0.00000 4.351 1.00 1,040.58 1,036.20
12/31/94 0.00506 0.00000 5.267 1.00 1,045.84 1,041.28
Attachments
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 dated February 27, 1995 in this
Registration Statement (Form N-1A No. 33-66840) of AMT Capital Fund, Inc.
ERNST & YOUNG LLP
New York, New York
March 31, 1995
