As filed with the Securities and Exchange Commission on April 12, 1995.
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. 5 X
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 8 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)
immediately upon filing pursuant to paragraph (b) of Rule 485.
on __________(date) pursuant to paragraph (b) of Rule 485.
X 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 - June 13, 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:
HLM 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 June 13, 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................................ 13
Risks Associated with the Fund's Investment
Policies and Investment Techniques............................ 17
Additional Investment Activities........................... 20
Investment Restrictions....................................... 20
Brokerage Practices........................................... 21
Yields and Total Return....................................... 22
Distribution of Fund Shares................................... 22
Determination of Net Asset Value.............................. 23
Purchases and Redemptions..................................... 24
Dividends..................................................... 26
Management of the Fund........................................ 26
Tax Considerations............................................ 32
Shareholder Information....................................... 33
Control Person................................................ 35
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
HLM International Equity To seek long-term capital appreciation
Portfolio 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 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 Advisers and Sub-Adviser
AMT Capital Advisers, Inc. (the "AMT Capital Advisers") serves as
investment adviser to the Money Market Portfolio. AMT Capital Advisers provides
the Money Market Portfolio with business and asset management services,
including selection, evaluation, and monitoring of the sub-adviser to the
Portfolio. Fischer Francis Trees & Watts, Inc. ("FFTW") serves as sub-adviser
to the Money Market Portfolio. FFTW is employed and supervised by AMT
Capital Advisers, subject to approval by the Board of Directors of the Fund
and shareholders.
Harding, Loevner Management, L.P. ("HLM") serves as investment adviser to
the HLM International Equity Portfolio. HLM provides the HLM International
Equity Portfolio with business and asset management services, including
investment research and advice and determining which portfolio securities
shall be purchased or sold on behalf of the Portfolio.
AMT Capital Advisers also provides performance reporting, portfolio
analytics, and other support to the Fund's Board of Directors relating to the
selection, evaluation, and monitoring of the investment advisers and sub-
advisers of the Fund. See "Management of the Fund."
Investment Advisers Portfolio
Harding, Loevner Management, L.P. HLM International Equity Portfolio
("HLM") Global equity specialist
managing $42 million for private
investors and institutions.
AMT Capital Advisers, Inc. Money Market Portfolio
("AMT Capital Advisers") Manager
selection, evaluation, and asset
allocation specialist for smaller
institutional and substantial private
investors.
Sub-Adviser
Fischer Francis Trees & Watts, Inc. Money Market Portfolio
("FFTW") Fixed income specialist with
approximately $18 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
advisers. 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 HLM 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, shownas a
percentage of average net assets)
Total
12b-1 Admin. Other Operating
Advisory Fees Fees Fees Expenses Expenses
HLM International 0.75% NONE 0.15% 0.10(a) 1.00%(a)
Equity Portfolio
Money Market 0.25% NONE 0.10% 0.05%(b) 0.40%(b)
Portfolio
(a) HLM has voluntarily agreed to cap the total annual operating expenses at
1.00% (on an annualized basis) of the HLM International Equity Portfolio's
average daily net assets. Without such cap, the total annual operating
expenses (on an annualized basis) for HLM 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.
(b) 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.
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
HLM International Equity Portfolio $10 $32 $55 $122
Money Market Portfolio $4 $13 $22 $51
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
HLM International Equity and Money Market Portfolios will not exceed 1.00% and
0.40%, 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 HLM
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 Period 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
investments and foreign currency-
related transactions 0.001(b) - (0.283)
0.041 0.004 (0.247)
Less Distributions
From investment income, net
From temporary overdistribution of net
realized gain on investments and
foreign currency-related
transactions 0.001 - 0.012
Total from investment operations 0.041 0.004 0.044
Net asset value, end of period $ 1.000 $ 1.000 $ 9.709
Total Return 4.13% 2.69%(a) (3.81%)(a)
Ratios/Supplemental Data
Net assets, end of period $22,006,14 $2,335,633 $8,903,87
Ratio of expenses to average net ass 0.40% 0.40%(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 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
HLM 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,
the maintenance of a stable $1.00 net
and 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
HLM International Equity Portfolio
The HLM 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 Investors Service, Inc.("Moody's") or below
BBB by Standard & Poors Corporation ("Standard & Poors", or "S&P")["junk
bonds"] and in unrated securities judged to be of equivalent quality as
determined by HLM.
The Portfolio will invest broadly in the available universe of common
stocks of companies domiciled in one 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.
HLM's international equity investment approach is "bottom up". The
approach seeks to identify companies with excellent long-term business
prospects, and then to select from among them those whose stocks appear to
offer attractive absolute returns. HLM's investment criteria include both
growth and value considerations. HLM seeks companies that it believes have
strong balance sheets, sustainable internal growth, superior financial
returns and defensible business franchises. Typically, HLM will only invest
in companies that it has analyzed for a number of years. Country allocation
and sector weightings reflect the results of stock selection, which itself is
strongly influenced by HLM's cyclical and secular outlook for various
industries, sectors, and national economies. Explicit country or sector
allocation decisions are taken only when necessary to ensure that portfolios
are well-diversified. HLM hedges foreign currency exposure infrequently,
on those occasions when it has a strong view on the prospects for a
particular currency. Currency hedging is done through the use of forward
contracts or options.
Portfolio Turnover Portfolio turnover will depend on factors such as
volatility in the markets that the Portfolio invests in, or the variability of
cash flows into and out of the Portfolio. Portfolio turnover is expected to
be low, generally below 50%, due to the emphasis on stock selection. The
turnover rate for the period ended December 31, 1994 was 27%.
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 HLM 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.
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. HLM 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
HLM 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. HLM 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. HLM 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. HLM 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 HLM 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. HLM 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-adviser 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) with respect to the HLM International Equity Portfolio, 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
HLM and FFTW will place their own orders to execute the securities
transactions which are designed to implement the applicable investment
objective and policies of the HLM International Equity and Money Market
Portfolios, respectively. Each 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 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 HLM 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 June ___,
1995 between AMT Capital Advisers and HLM, HLM has agreed to pay
AMT Capital a monthly sales incentive fee at an annual rate of 0.25% of
the average daily value of shares of the HLM International Equity Portfolio
purchased as a result of the efforts of AMT Capital.
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 HLM 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 HLM 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
HLM determines in good faith, under procedures established by and under
the general supervision of the Fund's Board of Directors, that such value
does not approximate the fair value of such assets; (3) 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 HLM at fair value under
procedures established by and under the general supervision of the Fund's
Board of Directors. Quotations of foreign securities denominated in a
foreign currency are converted to a U.S. dollar-equivalent at exchange rates
obtained from 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 HLM 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 HLM 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 HLM 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
HLM International Equity Portfolio
HLM International Equity Portfolio will declare and pay a dividend from its
net investment income on a quarterly basis.
HLM 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.
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.
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 Advisers and Sub-Adviser
Subject to the direction and authority of the Fund's Board of Directors,
AMT Capital Advisers provides investment advisory services to the Money
Market Portfolio pursuant to the Investment Advisory Agreement dated
October 28, 1993. In addition to providing the office space, equipment and
personnel necessary to manage the Money Market Portfolio, AMT Capital
Advisers monitors the investment programs and results of the advisers and
sub-adviser, coordinates their investment activities to ensure compliance
with regulatory restrictions, and provides analytics and general investment
consulting services to the Board of Directors of 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.
AMT Capital Advisers is registered with the Securities and Exchange
Commission as an investment adviser. Its principals are former officers of
Morgan Stanley. Its business address is 430 Park Avenue, New York,
New York 10022.
The role of selecting, monitoring and evaluating any investment advisers or
sub-adviser of the Fund for its Board of Directors is carried out by Eleanor
T.M. Hoagland, Chief Portfolio Strategist and Senior Vice President of
AMT Capital Advisers. Ms. Hoagland is a former portfolio manager from
J.P. Morgan. As a Managing Director for J.P. Morgan's International
Mutual Funds group, Ms. Hoagland was responsible for strategic direction
of the firm's approximately $9 billion in non-U.S.-based mutual funds, as
well as overseeing the day-to-day operations of the group. During her 17
years with J.P. Morgan, she also served as a portfolio manager for
domestic and international fixed income portfolios, and as a trader in
municipal notes. Prior to joining J.P. Morgan, Ms. Hoagland was with the
Federal Reserve Bank of New York as a market analyst and assistant
economist.
AMT Capital Advisers bears the expense of providing the above services
and pays the fees of the Money Market Portfolio's sub-adviser. For its
services, Money Market Portfolio pays AMT Capital Advisers a monthly
fee at an annual rate of 0.25% of its average daily net assets.
Subject to the direction and authority of the Fund's Board of Directors,
HLM provides investment advisory services to the HLM International
Equity Portfolio pursuant to the Investment Advisory Agreement dated
June ___, 1995. Under the Investment Advisory Agreement, HLM is
responsible for providing investment research and advice, determining
which portfolio securities shall be purchased or sold by the Portfolio,
purchasing and selling securities on behalf of the Portfolio and determining
how voting and other rights with respect to the portfolio securities of the
Portfolio are exercised in accordance with the Portfolio's investment
objective, policies, and restrictions. HLM also provides office space,
equipment, and personnel necessary to manage the Portfolio.
HLM, established in 1989, is a registered investment adviser that
specializes in global investment management for private investors and
institutions. HLM Currently has $425 million under management.
HLM bears the expense of providing the above services to the Portfolio.
For its services, the HLM International Equity Portfolio pays HLM a
monthly fee at an annual rate of 0.75% of its average daily net assets.
FFTW serves as sub-adviser for the Money Market Portfolio. The sub-
adviser is employed by AMT Capital Advisers, subject to approval by the
Board of Directors and the shareholders of the Portfolio. AMT Capital
Advisers 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.
FFTW has discretion to purchase and sell securities for the assets of the
Money Market Portfolio in accordance with the Portfolio's objective,
policies and restrictions and the more specific strategies provided by the
Investment Adviser. Although the sub-adviser is 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 AMT Capital Advisers out of the proceeds of the
investment advisory fee described in "Investment Adviser."
Founded in 1972, FFTW specializes in managing large portfolios of
marketable fixed income securities for large pension funds, central banks,
and other institutional investors. FFTW currently manages investment
portfolios of approximately $18 billion.
Portfolio Managers
Adviser/ Portfolio/
Address/ Background
Portfolio Manger(s)
Fischer Francis Trees Money Market Portfolio
& Watts, Inc. Organized in 1972, FFTW is a registered
717 Fifth Avenue investment adviser and a New York
New York, NY 10022 corporation that currently manages
approximately $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 HLM 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 HLM International Equity Portfolio
Management, L.P. HLM, established in 1989, is a
50 Division Street registered investment adviser that
Somerville, NJ 08876 specializes in global investment
management for private investors and
institutions. HLM currently has $425
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 HLM
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 between the Fund and AMT Capital
Services, Inc., dated as of October 28, 1993. AMT Capital
provides for administrative services to, and assists in managing and
supervising all aspects of, the general day-to-day business activities and
operations of the Fund other than investment advisory activities, including
custodial, transfer agency, dividend disbursing, accounting, auditing,
compliance and related services.
The Money Market and HLM International Equity Portfolios pay AMT Capital a
monthly fee at an annual rate of 0.10% and 0.15%, respectively, of their
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 HLM 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 HLM 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 consisting of two diversified portfolios: Money Market
Portfolio and HLM International Equity Portfolio (each a "Portfolio"). The
Money Market Portfolio is managed by AMT Capital Advisers, Inc. and the HLM
International Equity Portfolio is managed by Harding, Loevner Management, L.P.
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 June 13, 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.
June 13, 1995
TABLE OF CONTENTS
Page
Organization of the Fund.......................................... 3
Management of the Fund............................................ 3
Board of Directors and Officers.............................. 3
Investment Advisers and Sub-Adviser.......................... 4
Administrator................................................ 6
Distribution of Fund Shares....................................... 6
Principal 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 HLM 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 Stanley & 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 is Managing Director, Principal,
and Director of AMT Capital Services. Ms. Dearing is also Managing
Director and Principal of AMT Capital Advisers, Inc. Ms. Dearing
was a former Vice President of Morgan Stanley & Co., where she
worked from June 1984 to August 1986 and from November 1988 to
January 1992. Ms. Dearing's responsibilities included new product and
market development for Morgan Stanley Capital International
("MSCI"), while serving as an Associate in MSCI's London office, and
assisting 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 ADVISERS AND SUB-ADVISER
AMT Capital Advisers, Inc. ("AMT Capital Advisers") provides
investment advisory services to the Money Market Portfolio and
Harding, Loevner Management, L.P. ("HLM" and, with AMT Capital
Advisers, each an "Investment Adviser") provides investment advisory
services to the HLM International Equity Portfolio. The terms of the
investment advisory agreements between the Fund on behalf of a
Portfolio and each Investment Adviser (the "Advisory Agreements"
and each an "Advisory Agreement") obligate AMT Capital Advisers
and HLM to provide or oversee the provision of all investment
advisory and portfolio management services for the Money Market
Portfolio and the HLM International Equity Portfolio, respectively.
AMT Capital Advisers is a registered investment adviser founded in
November, 1991. Mr. Trager owns a controlling interest in AMT
Capital Advisers. AMT Capital Advisers selects and employs an
investment adviser to serve as the sub-adviser for the Money Market
Portfolio, monitors the sub-adviser's investment programs and results,
and coordinates the investment activities of the sub-adviser to ensure
compliance with regulatory restrictions. HLM is a registered
investment adviser organized in 1989. HLM provides investment
advisory services to private investors, foundations and endowments.
AMT Capital Advisers has entered into a contract with Fischer Francis
Trees & Watts, Inc. (the "Sub-Advisory Agreement") to provide sub-
investment advisory services to the Money Market Portfolio of the
Fund. AMT Capital Advisers selects the sub-adviser based upon its
continuing quantitative and qualitative evaluation of the sub-adviser's
skill in managing assets using specific investment styles and strategies.
The sub-adviser has discretion to purchase and sell securities for the
Money Market Portfolio in accordance with the Portfolio's objectives,
policies and restrictions. Although the sub-adviser is subject to general
supervision by AMT Capital Advisers, AMT Capital Advisers does not
evaluate the investment merits of specific securities transactions.
Fischer Francis Trees & Watts ("FFTW") 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. ("AMT
Capital"). 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.
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, or any Investment Adviser or
sub-adviser 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 any Investment Adviser or the 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 Advisers pay all of their expenses arising from the
performance of their obligations under the Advisory Agreements.
Under its Advisory Agreement, AMT Capital Advisers also pays all
fees payable to the sub-adviser, executive salaries and expenses of the
Directors and Officers of the Fund who are employees of AMT
Capital Advisers or its affiliates and office rent of the Fund. FFTW
pays all of its expenses arising from the performance of its obligations
under the Sub-Advisory Agreement. 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 AMT Capital Advisers 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.
AMT Capital Advisers, which previously served as investment adviser
to both Portfolios, waived its entire fee and reimbursed the Money
Market and HLM 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, a
Delaware corporation, and an affiliate of AMT Capital Advisers,
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 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 HLM International Equity Fund:
Name and Address of Amount and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership of Portfolio
Common Stock The Bank of New York Direct Ownership 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 Advisers'
or sub-adviser's opinion meet sufficient creditworthiness criteria. The
Fund limits its investments in foreign bank obligations to obligations of
foreign banks (including U.S. branches of foreign banks) that, in the
opinion of the Investment Advisers or the sub-adviser, 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 Advisers or sub-adviser. 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 Advisers 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 Advisers or sub-adviser 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 HLM 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 HLM 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 HLM 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 HLM 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 HLM 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 HLM 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 HLM 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 HLM 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 HLM
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. </R.>
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, HLM and FFTW
will consider such event in its determination of whether the HLM
International Equity Portfolio and the Money Market Portfolio,
respectively, 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 its 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. HLM 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 HLM 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 HLM International Equity Portfolio will use reasonable efforts
to obtain the best available price and the most favorable execution with respect
to all transactions and HLM will consider the full range and quality of services
offered by the executing broker or dealer when making these determinations,
fixed commissions on many foreign stock exchanges are generally higher than
negotiated commissions on U.S. exchanges. Certain foreign governments levy
withholding taxes against dividend and interest income. Although in some
countries a portion of these taxes are recoverable, the non-recovered portion of
foreign withholding taxes will reduce the income received by the 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 HLM to predict exchange rate fluctuations. Predicting such
fluctuations is extremely difficult and thus the successful execution of a
hedging strategy is highly uncertain. An incorrect prediction will cause poorer
Portfolio performance than would otherwise be the case. Forward contracts that
protect against anticipated losses have the corresponding effect of canceling
possible gains if the currency movement prediction is incorrect.
Precise matching of forward contract amounts and the value of portfolio
securities is generally not possible because the market value of the protected
securities will fluctuate while forward contracts are in effect. Adjustment
transactions are theoretically possible but time consuming and expensive, so
contract positions are likely to be approximate hedges, not perfect.
The cost to the HLM 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,
HLM 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) investor's 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 HLM 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 HLM 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 HLM 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, the HLM International
Equity Portfolio will not purchase or write options on foreign currency futures
contracts unless and until, in HLM's opinion, the market for such options has
developed sufficiently that the risks in connection with such options are not
greater than the risks in connection with transactions in the underlying foreign
currency futures contracts. Compared to the purchase or sale of foreign
currency futures contracts, the purchase of call or put options thereon involves
less potential risk to the Portfolio because the maximum amount at risk is the
premium paid for the option (plus transaction costs). However, there may be
circumstances when the purchase of a call or put option on a foreign currency
futures contract would result in a loss, such as when there is no movement in
the price of the underlying currency or futures contract, when use of the
underlying futures contract would not result in a loss.
Lower-Rated Debt Securities ("Junk Bonds"). The market value of lower-rated
debt securities tend to reflect individual corporate developments to a greater
extent than do higher-rated securities, which react primarily to fluctuations in
the general level of interest rates. Lower-rated debt securities also tend to
be more sensitive to general economic conditions than are higher-rated debt
securities.
INVESTMENT RESTRICTIONS
The Fund has adopted the investment restrictions listed below relating to
the investment of each Portfolio's assets and its activities. These are
fundamental policies that may not be changed without the approval of the holders
of a majority of the outstanding voting securities of a Portfolio (which for
this purpose and under the 1940 Act means the lesser of (i) 67% of the shares
represented at a meeting at which more than 50% of the outstanding shares are
represented or (ii) more than 50% of the outstanding shares). None of the
Portfolios may:
(1) invest more than 5% of its total assets (taken at market value) in
securities of any one issuer, other than securities issued by the U.S.
Government, its agencies and instrumentalities, or purchase more than 10% of the
voting securities of any issuer, with respect to 75% of a Portfolio's total
assets;
(2) invest more than 25% of its total assets in the securities of companies
primarily engaged in any one industry other than the U.S. Government, its
agencies and instrumentalities 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) with respect to the HLM International Equity Portfolio, invest more than
10% of its total assets in warrants.
PORTFOLIO TRANSACTIONS
The Advisory and Sub-Advisory Agreements authorize the Investment Advisers
and sub-adviser 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 Advisers and sub-adviser to use reasonable efforts to obtain the
best available price and the most favorable execution with respect to all
transactions for the Portfolios. The Investment Adviser or 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 Advisers and the sub-adviser 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
Advisers or the sub-adviser. 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 Advisers or the sub-adviser 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 Advisers or the sub-adviser, as the case may be. Although there
is no specified formula for allocating such transactions, the various
allocation methods used by the Investment Advisers or sub-adviser, 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 HLM 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 Day.
TAX CONSIDERATIONS
The following summary of tax consequences, which does not purport to be complete
is based on U.S. federal tax laws and regulations in effect on the date of this
Statement of Additional Information, which are subject to change by legislative
or administrative action.
Qualification as a Regulated Investment Company. Each Portfolio intends to
qualify for and to elect to be treated as, and the Money Market and HLM
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 HLM 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 the
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.
The Portfolio may make one or more of the elections available under the Code
that are applicable to straddles. If the Portfolio makes any of the elections,
the amount, character, and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections
may accelerate the recognition of gains or losses from the affected straddle
positions.
Because the straddle rules may affect the amount, character, and timing of gains
or losses from the positions that are part of a straddle, the amount of
Portfolio income that is distributed to members and that is taxed to them as
ordinary income or long-term capital gain may be increased or decreased as
compared to a fund that did not engage in such hedging transactions.
Tax Treatment of Foreign Currency-Related Transactions. Gains or losses
attributable to fluctuations in exchange rates that occur between the time the
HLM International Equity Portfolio accrues receivables or liabilities
denominated in a foreign currency and the time the Portfolio actually collects
such receivables, or pays such liabilities, generally are treated as ordinary
income or ordinary loss. Similarly, on disposition of certain options, futures,
and forward contracts and on disposition of debt securities denominated in a
foreign currency, gains or losses attributable to fluctuations in the value of
foreign currency between the date of acquisition of the security or contract and
the date of disposition also are treated as ordinary gain or loss. These gains
or losses, referred to under the Code as "section 988" gains or losses, may
increase or decrease the amount of the Portfolio's investment company
taxable income to be distributed to members as ordinary income.
Tax Treatment of Passive Foreign Investment Companies. If the HLM
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 HLM 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 the Portfolio's total
assets at the close of its taxable year consists of securities of foreign
corporations, the Portfolio will be eligible and may elect to "pass through" to
the Portfolio's shareholders the amount of foreign taxes paid by the Portfolio.
Pursuant to this election, a shareholder will be required to include in gross
income (in addition to dividends actually received) its pro rata share of the
foreign taxes paid by the Portfolio, and may be entitled either to
deduct its pro rata share of the foreign taxes in computing its taxable income
or to use the amount as a foreign tax credit against its U.S. federal income tax
liability, subject to limitations. Each shareholder will be notified within 60
days after the close of the Portfolio's taxable year whether the foreign taxes
paid by the Portfolio will "pass through" for that year. With the possible
exception of the HLM 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 HLM 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;
= 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.
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)
(5g) Form of Investment Advisory Agreement, dated June __, 1995,
between the Registrant (International Equity Portfolio) Harding,
Loevner Management, L.P. (filed herewith).
(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).
(9e) Form of Sales Incentive Fee Agreement, dated June __, 1995 between
AMT Capital Advisers, Inc. and Harding, Loevner Management, L.P.
(filed herewith).
(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).
(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 March 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.
(an Investment Adviser), Fischer Francis Trees & Watts, Inc.
(a Sub-Adviser), and Harding, Loevner Management, L.P. (an Investment
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 with Positions and Offices with
Business Address Underwriter Registrant
Alan M. Trager Director, President and President
430 Park Avenue Treasurer
17th Floor
New York, NY 10022
Carla E. Dearing Director, Managing Director Vice President
430 Park Avenue
17th Floor
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, and Harding, Loevner Management, L.P., 50 Division
Street, Suite 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 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 11th day of April, 1995.
AMT CAPITAL FUND, INC.
By: s\Alan M. Trager\
Alan M. Trager, President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement had been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title Date
s\Robert B. Allardice\ Director April 11, 1995
Robert B. Allardice, III
s\Patricia M. Gammon\ Director April 11, 1995
Patricia M. Gammon
s\Alan M. Trager\ President and April 11, 1995
Alan M. Trager Director
s\Carla E. Dearing\ Vice President April 11, 1995
Carla E. Dearing
s\William E. Vastardis\ Secretary and April 11, 1995
William E. Vastardis Treasurer
EXHIBIT INDEX
Exhibit No. Exhibit
(5g) Form of Investment Advisory Agreement
(9e) Form of Sales Incentive Agreement
(11) Consent of Independent Auditors
ADVISORY AGREEMENT
ADVISORY AGREEMENT, dated June _____, 1995, between
AMT Capital Fund, Inc., a Maryland corporation (the "Fund") and
Harding, Loevner Management, L.P., a New Jersey limited partnership
(the "Adviser").
In consideration of the mutual agreements herein made, the
parties hereto agree as follows:
1. Attorney-in-Fact. The Fund appoints the Adviser as
its attorney-in-fact to invest and reinvest the assets of the HLM
International Equity Portfolio (the "Portfolio"), as fully as the Fund
itself could do. The Adviser hereby accepts this appointment.
2. Duties of the Adviser. (a) The Adviser shall be
responsible for managing the investment portfolio of the Portfolio,
including, without limitation, providing investment research, advice and
supervision, determining which portfolio securities shall be purchased
or sold by the Portfolio, purchasing and selling securities on behalf of
the Portfolio and determining how voting and other rights with respect
to portfolio securities of the Portfolio shall be exercised, subject in each
case to the control of the Board of Directors of the Fund (the "Board")
and in accordance with the objective, policies and principles of the
Portfolio set forth in the Registration Statement, as amended, of the
Fund, the requirements of the Investment Company Act of 1940, as
amended, (the "Act") and other applicable law. In performing such
duties, the Adviser shall provide such office space, and such executive
and other personnel as shall be necessary for the investment operations
of the Portfolio. In managing the Portfolio in accordance with the
requirements set forth in this paragraph 2, the Adviser shall be entitled
to act upon advice of counsel to the Fund or counsel to the Adviser.
(b) Subject to Section 36 of the Act, the Adviser shall not be
liable to the Fund for any error of judgment or mistake of law or for
any loss arising out of any investment or for any act or omission in the
management of the Portfolio and the performance of its duties under
this Agreement except for losses arising out of the Adviser's fraud,
willful misfeasance or gross negligence in the performance of its duties
or by reason of its reckless disregard of its obligations and duties under
this Agreement. It is agreed that the Adviser shall have no
responsibility or liability for the accuracy or completeness of the Fund's
Registration Statement under the Act and the Securities Act of 1933
except for information supplied by the Adviser for inclusion therein
about the Adviser. The Fund agrees to indemnify the Adviser for any
claims, losses, costs, damages, or expenses (including fees and
disbursements of counsel, but excluding the ordinary expenses of the
Adviser arising from the performance of its duties and obligations
under this Agreement) whatsoever arising out of the performance of
this Agreement except for those claims, losses, costs, damages and
expenses resulting from the Adviser's fraud, willful misfeasance or
gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations and duties under this Agreement.
(c) The Adviser and its officers may act and continue to act as
investment advisers and managers for others (including, without
limitation, other investment companies), and nothing in this Agreement
will in any way be deemed to restrict the right of the Adviser to
perform investment management or other services for any other person
or entity, and the performance of such services for others will not be
deemed to violate or give rise to any duty or obligation to the Fund.
(d) Except as provided in Paragraph 5, nothing in this
Agreement will limit or restrict the Adviser or any of its officers,
affiliates or employees from buying, selling or trading in any securities
for its or their own account or accounts. The Fund acknowledges that
the Adviser and its officers, affiliates or employees, and its other clients
may at any time have, acquire, increase, decrease or dispose of
positions in investments which are at the same time being acquired or
disposed of for the account of the Portfolio. The Adviser will have no
obligation to acquire for the Portfolio a position in any investment
which the Adviser, its officers, affiliates or employees may acquire for
its or their own accounts or for the account of another client, if in the
sole discretion of the Adviser, it is not feasible or desirable to acquire a
position in such investment for the account of the Portfolio.
(e) If the purchase or sale of securities consistent with the
investment policies of the Portfolio and one or more other clients
serviced by the Adviser 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 Adviser.
Although there is no specified formula for allocating such transactions,
the various allocation methods used by the Adviser, and the results of
such allocations, are subject to periodic review by the Board.
3. Expenses. The Adviser shall pay all of its expenses
arising from the performance of its obligations under this Agreement.
Except as provided below, the Adviser shall not be required to pay any
other expenses of the Fund, (including out-of-pocket expenses, but not
including the Adviser's overhead or employee costs), including without
limitation, organization expenses of the Fund; brokerage commissions;
maintenance of books and records which are required to be maintained
by the Fund's custodian or other agents of the Fund; telephone, telex,
facsimile, postage and other communications expenses; expenses
relating to investor and public relations; freight, insurance and other
charges in connection with the shipment of the Fund's portfolio
securities; indemnification of Directors and officers of the Fund; travel
expenses (or an appropriate portion thereof) of Directors and officers
of the Fund to the extent that such expenses relate to attendance at
meetings of the Board of Directors of the Fund or any committee
thereof or advisors thereto held outside of New York, New York;
interest, fees and expenses of independent attorneys, auditors,
custodians, accounting agents, transfer agents, dividend disbursing
agents and registrars; payment for portfolio pricing or valuation service
to pricing agents, accountants, bankers and other specialists, if any;
taxes and government fees; 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, dividends and proxy materials
to existing stockholders; expenses of printing and filing reports and
other documents filed with governmental agencies, expenses of printing
and distributing prospectuses; expenses of annual and special
stockholders' meetings; costs of stationery, fees and expenses
(specifically including travel expenses relating to Fund business) of
Directors of the Fund who are not employees of the Adviser or its
affiliates; membership dues in the Investment Company Institute;
insurance premiums and extraordinary expenses such as litigation
expenses.
4. Compensation. (a) As compensation for the services
performed and the facilities and personnel provided by the Adviser
pursuant to this Agreement, the Fund will pay to the Adviser promptly
at the end of each calendar month, a fee, calculated on each day during
such month, at an annual rate of 0.75% of the Portfolio's average daily
net assets. The Adviser shall be entitled to receive during any month
such interim payments of its fee hereunder as the Adviser shall request,
provided that no such payment shall exceed 50% of the amount of such
fee then accrued on the books of the Portfolio and unpaid.
(b) If the Adviser shall serve hereunder for less than the whole
of any month, the fee payable hereunder shall be prorated.
(c) For purposes of this Section 4, the "average daily net
assets" of the Portfolio shall mean the average of the values placed on
the Portfolio's net assets on each day pursuant to the applicable
provisions of the Fund's Registration Statement, as amended.
5. Purchase and Sale of Securities. The Adviser shall
purchase securities from or through and sell securities to or through
such persons, brokers or dealers as the Adviser shall deem appropriate
in order to carry out the policy with respect to the allocation of
portfolio transactions as set forth in the Registration Statement of the
Fund, as amended, or as the Board may direct from time to time. The
Adviser will use its reasonable best efforts to execute all purchases and
sales with dealers and banks on a best net price basis. The Adviser will
consider the full range and quality of services offered by the executing
broker or dealer when making these determinations. Neither the
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 other than the
fee referred to in Paragraph 4 hereof.
6. Term of Agreement. This Agreement shall continue
in full force and effect until two years from the date hereof, and will
continue in effect from year to year thereafter if such continuance is
approved in the manner required by the Act, provided that this
Agreement is not otherwise terminated. The Adviser may terminate
this Agreement at any time, without payment of penalty, upon 60 days'
written notice to the Fund. The Fund may terminate this Agreement
with respect to the Portfolio at any time, without payment of penalty,
on 60 days' written notice to the Adviser by vote of either the majority
of the non-interested members of the Board or a majority of the
outstanding stockholders of the Portfolio. This Agreement will
automatically terminate in the event of its assignment (as defined by the
Act).
7. Changes in Membership. The Adviser is a limited
partnership and, pursuant to the New Jersey Uniform Securities Law
and the Investment Advisers Act of 1940, shall notify the Fund of any
change in the membership of such partnership within a reasonable time
after the change.
8. Right of Adviser In Corporate Name. The Adviser
and the Fund each agree that the phrase "HLM," which comprises a
component of the Portfolio's corporate name, is a property right of the
Adviser. The Fund agrees and consents that (i) it will only use the
phrase "HLM" as a component of its corporate name and for no other
purpose; (ii) it will not purport to grant to any third party the right to
use the phrase "HLM" for any purpose; (iii) the Adviser or any
corporate affiliate of the Adviser may use or grant to others the right to
use the phrase "HLM" or any combination or abbreviation thereof, as
all or a portion of a corporate or business name or for any commercial
purpose, including a grant of such right to any other investment
company, and at the request of the Adviser, the Fund will take such
action as may be required to provide its consent to such use or grant;
and (iv) upon the termination of any investment advisory agreement
into which the Adviser and the Fund may enter, the Fund shall, upon
request by the Adviser, promptly take such action, at its own expense,
as may be necessary to change the Portfolio's corporate name to one
not containing the phrase "HLM" and following such a change, shall
not use the phrase "HLM" or any combination thereof, as part of the
Portfolio's corporate name or for any other commercial purpose, and
shall use its best efforts to cause its officers, directors and stockholders
to take any and all actions which the Adviser may request to effect the
foregoing and recovery to the Adviser any and all rights to such phrase.
9. Miscellaneous. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York.
Anything herein to the contrary notwithstanding, this Agreement shall
not be construed to require or to impose any duty upon either of the
parties to do anything in violation of any applicable laws or regulations.
IN WITNESS WHEREOF, the Fund and the Adviser have
caused this Agreement to be executed by their duly authorized officers
as of the date first written above.
ATTEST AMT CAPITAL FUND, INC.
By:_______________________________ By:_____________________________
William E. Vastardis, Secretary Carla E. Dearing, Vice President
ATTEST HARDING, LOEVNER MANAGEMENT, L.P.
BY: HLM HOLDINGS, INC., GENERAL PARTNER
By:_______________________ By:___________________________
David R. Loevner, President
June _____, 1995
AMT Capital Advisers, Inc.
430 Park Avenue
17th Floor
New York, New York 10022
Re: Sales Incentive Fee Arrangement
This letter will confirm our agreement that Harding,
Loevner Management, L.P. ("Harding, Loevner") will pay AMT
Capital Advisers, Inc. ("AMT Capital") a sales incentive fee
calculated and payable as set forth below:
1. Harding, Loevner shall pay to AMT Capital
a monthly fee equal to an annual rate of 0.25% of "New Assets" (as
described below) of the HLM International Equity Portfolio (the
"Portfolio") of AMT Capital Fund, Inc. (the "Fund"). Such fee
shall be payable to AMT Capital on a monthly basis by the tenth
(10th) day of each calendar month while this arrangement is in
effect, based on the "New Assets" during the calendar month
immediately preceding the date each payment is due. The fee shall
be calculated by dividing a month's "New Assets" by 365 and
multiplying the result by the number of days in the relevant calendar
month and the applicable percentage set forth above; provided that
if the fee begins to accrue before the end of the initial calendar
month of this Agreement or if the obligation to make payments
hereunder terminates before the end of any month, the fee from the
date of this Agreement to the end of such month or from the
beginning of such month to the date of termination, as the case may
be, shall be prorated according to the proportion which such period
bears to the full month in which such effectiveness or termination
occurs.
2. For purposes of this Agreement, the term "New Assets" means the
average daily value (as determined on the days and at the times set
forth in the prospectus from time to time in effect for the Portfolio
for determining net asset value per share) of the Portfolio's net assets
attributable to shares purchased and invested in the Portfolio that is
attributable to the efforts of AMT Capital including shares representing
additional investment and/or reinvestment of dividends of investors for
which AMT Capital has received a fee hereunder.
3. (a) This Agreement shall become
effective at the close of business on the date hereof and shall
continue in full force and effect for two years, unless sooner
terminated by written mutual consent. Thereafter, this Agreement
can be terminated on no less than 120 days written notice to the
other party. In the event of any such termination, Harding,
Loevner's obligation to pay fees due hereunder shall continue for a
period of five years from the date of termination, but shall be
limited to New Assets (including shares representing additional
investment and/or reinvestment of dividends) as of the date of
termination of this Agreement which remain in the Portfolio during
all or part of such period.
(b) Notwithstanding (a) above, this Agreement shall
terminate automatically with respect to the Portfolio upon the
termination by the Fund of Harding, Loevner's investment advisory
agreement with the Fund on behalf of the Portfolio (other than in
connection with entering into a new investment advisory agreement
with Harding, Loevner). In such event, Harding, Loevner's
obligation to pay fees hereunder shall cease upon the date of
termination. In the event that Harding, Loevner terminates its
investment advisory agreement with the Fund on behalf of the
Portfolio (other than in connection with entering into a new
investment advisory agreement with the Fund on behalf of the
Portfolio) or in the event of an "assignment" (as defined in the
Investment Company Act of 1940) of the investment advisory
agreement by Harding, Loevner, Harding, Loevner's obligation to
pay fees due hereunder shall continue for a period of two years
from the date of termination, but shall be limited to New Assets
(including shares representing additional investment and/or
reinvestment of dividends) as of the date of termination of this
Agreement which remain in the Portfolio during all or part of such
period.
(c) AMT Capital hereby agrees to provide or
cause to be provided to Harding, Loevner such documentation as
Harding, Loevner shall reasonably request from time to time setting
forth in reasonable detail information to support fees due from
Harding, Loevner to AMT Capital hereunder.
In the event that the foregoing correctly describes
your understanding of the sales incentive fee arrangement between
us, please sign the enclosed copy of this letter where provided and
return it to us as soon as possible.
Very truly yours,
Agreed and Accepted this HARDING, LOEVNER ___ day of June, 1995
MANAGEMENT, L.P.
AMT CAPITAL ADVISERS, INC. By: HLM HOLDINGS, INC.,
GENERAL PARTNER
By:_________________________ By:______________________________
Carla E. Dearing, Managing David R. Loevner, President
Director
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.
s\Ernst & Young LLP\
ERNST & YOUNG LLP
New York, New York
April 10, 1995
