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 8
Investment Policies 9
Descriptions of Investments 12
Risks Associated with the Fund's Investment
Policies and Investment Techniques 16
Additional Investment Activities 19
Investment Restrictions 19
Brokerage Practices 20
Yields and Total Return 21
Distribution of Fund Shares 21
Determination of Net Asset Value 22
Purchases and Redemptions 23
Dividends 25
Management of the Fund 26
Tax Considerations 30
Shareholder Information 32
Other Parties. 33
Shareholder Inquiries 33
Control Person 34
PROSPECTUS HIGHLIGHTS
AMT Capital Fund, Inc. is a no-load, open-end management investment
company that currently has two separate diversified portfolios, each of
which has distinct investment objectives and policies. There is no
assurance that a Portfolio will achieve its investment objectives.
Investment Objectives
Name of Portfolio Investment Objective
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.
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 and other, similar investment funds are 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
Global equity specialist managing $500
million for private investors and
institutions.
AMT Capital Advisers, Inc. Money Market Portfolio
Manager selection, evaluation,
and asset allocation specialist
for smaller institutional and
substantial private investors.
Sub-Adviser
Fischer Francis Trees & Watts, Inc. Money Market Portfolio
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,
shown as a percentage of average net assets)
<TABLE>
<C> <C> <C> <C> <C> <C>
Other Expenses
<S> Other Total Other Total
Advisory 12b-1 Administration Expenses Expenses Operating
Fees Fees Fees (after exp. (after exp. Expenses
reimbursements) reimbursements)
HLM Internationa 0.75 None 0.15% 0.10 (a) 0.25(a) 1.00% (a)
Equity Portfolio
Money Market 0.25 None 0.10% 0.05% (b) 0.15% (b) 0.40% (b)
Portfolio
</TABLE>
(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 1.38% 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 Portfol $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 without charge.
<TABLE>
Financial Highlights
<S> <C> <C> <C>
HLM International
Money Market Portfolio Equity Portfolio
For the Year For the Period For the Period
For a share outstanding Ended from Nov. 1, 1993* from May 11, 1994*
throughout the period Dec. 31, 1994 to Dec. 31, 1993 to Dec. 31, 1994
Per Share Data
Net asset value, beginning
of period $ $ $ 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 transaction 0.001 (b) - (0.283)
Total from investment
operations 0.041 0.004 (0.247)
Less Distributions
From investment income, net 0.040 0.004 0.032
From temporary overdistribution of net
realized gain on
investments 0.001 - 0.012
Total distributions 0.041 0.004 0.044
Net asset value, end of period $ 1.000 $ 1.000 $ 9.709
Total Return 4.13% 2.69%(a) (3.81%)(a)
Ratios/Supplemental Data
Net assets, end of period $ 22,006,141 $ 2,355,633 $ 8,903,878
Ratio of expenses to average
net assets 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%
<FN>
(a) Annualized
(b) Includes the effect of net realized gains prior to significant
increases in shares outstanding.
* Commencement of Operations
</FN>
</TABLE>
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, and other, similar investment funds are 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 PortfolTo seek long-term
capital appreciation
through investments in
equity securities of
companies based
outside the United
States.
Money Market Portfolio To seek current
income, liquidity, and
the maintenance of a
stable $1.00 net asset
value per share by
investing in high
quality, short-term
obligations which are
determined to present
minimal credit risks.
Portfolio investments in the Money Market Portfolio are valued based on
the amortized cost valuation technique pursuant to Rule 2a-7 under the
Investment Company Act of 1940 (the "1940 Act"). See the Statement
of Additional Information for an explanation of the amortized cost
valuation method. All obligations in which the Money Market Portfolio
invests generally have remaining maturities of 397 days or less, although
obligations subject to repurchase agreements and certain variable and
floating rate obligations may bear longer final maturities.
INVESTMENT POLICIES
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.
The HLM international equity investment approach is "bottom up". The
approach seeks to identify companies with excellent long-term business
prospects, and then to select from among them those whose stocks
appear to offer attractive absolute returns. HLM's investment criteria
include both growth and value considerations. HLM seeks companies
that it believes have strong balance sheets, sustainable internal growth,
superior financial returns and defensible business franchises. Typically,
the 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.
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.
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 and 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.
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. EDRs, which are sometimes referred to
as Continental Depositary Receipts, are receipts issued in Europe,
typically by foreign banks and trust companies, that evidence ownership
of either foreign or domestic underlying securities. Unsponsored ADRs
and EDRs differ from sponsored ADRs and EDRs in that the
establishment of unsponsored ADRs and EDRs is not approved by the
issuer of the underlying securities. Risks associated with investing in
foreign securities are described under the caption "Risks Associated with
the Fund's Investment Policies and Investment Techniques -Foreign
Investments" below.
Emerging Markets Securities For purposes of its investment policies,
the 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, Hong
Kong, 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.
Stock Index Options HLM International Equity Portfolio may
purchase or sell options on stock indices on U.S. and foreign exchanges
or in the over-the-counter markets. An option on a stock index permits
the purchaser of the option, in return for the premium paid, the right to
receive from the seller cash equal to the difference between the closing
price of the index and the exercise price of the option. The 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.
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.
During an economic downturn or period of rising interest rates,
mortgagees may experience financial stress which would adversely
affect their ability to service their principal and interest payment
obligations. Such situations would result in a downward trend in the
prices of these securities, resulting in volatility that may adversely
affect the Portfolio's net asset value. 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. Finally, the loss from
investing in futures transactions is potentially unlimited.
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 partnerships, 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 June
13, 1995 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 Advisers and FFTW, AMT Capital Advisers 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 13, 1995 between AMT Capital Advisers and HLM, HLM
has agreed to pay AMT Capital Advisers a monthly sales incentive fee at
an annual rate of 0.25% of the average daily value of shares of the 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, IIIFormer 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 13, 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 $500 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.
The advisory fee paid by the HLM International Equity Portfolio is
higher than that charged by most funds which invest primarily in U.S.
securities, but not necessarily higher than the fees charged to funds with
investment objectives similar to those of the Portfolio.
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
717 Fifth Avenue registered investment adviser
New York, NY 10022 and a New York corporation
that currently manages
proximately $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 is 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
Somerville, NJ 08876 that specializes in
global investment management
for private investors and
institutions. HLM currently
has $500 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
Financial Services, Inc., 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 June 13, 1995, 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 June 3, 1995, the following shareholder is deemed a "control
person" of the Fund as such term is defined in the 1940 Act and held
47.97% 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-Advi 4
Administrator 6
Distribution of Fund Shares 6
Principal Holders of Securities 7
Supplemental Descriptions of Investments 8
Supplemental Investment Techniques 11
Supplemental Discussion of Risks Associated With the
Fund's Investment Policies and Investm 14
Investment Restrictions 20
Portfolio Transactions 22
Net Asset Value 23
Tax Considerations 24
Shareholder Information 29
Calculation of Performance Data 30
Financial Statements 31
Appendix: Rating Descriptions 32
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") 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 institutions.
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.
The following table shows the total compensation paid to the Directors by the
Fund for the fiscal year ended December 31, 1994:
Name of Director Aggregate Compensation
from the Fund
Alan M. Trager None
Patricia M. Gammon $4,000
Robert B. Allardice, III $4,000
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 June 13, 1996 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 June 3, 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 90.72%
$.001 per Share 1001 Fannin Street, First
City Tower, Suite 3900,
P.O. Box 446, Houston,
TX, 77210
Common Stock ESI Securities Company Direct Ownership 5.47%
$.001 per Share 1221 Avenue of the Americas
New York, NY 10020
As of June 3, 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 Percent
Type of Class Beneficial Owner of Beneficial Ownership of Portfolio
Common Stock, State Street Direct Ownership 39.12%
$.001 per Share Bank & Trust Company
FBO Turlock Irrigation
District, One Enterprise
Drive, North Quincy,
MA 02171
Common Stock ValleyBank Div. Direct Ownership 10.26%
$.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, and will be
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.
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.
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.
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. Also, 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.
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. Losses from
futures may be unlimited and there is an absence of a liquid secondary
market in some futures contracts. Additionally, the ordinary spreads
between values in the cash and futures markets, due to differences in the
character of these markets, are subject to distortions relating to: (1)
investors' obligations to meet additional variation margin requirements;
(2) decisions to make or take delivery, rather than entering into
offsetting transactions; and (3) the difference between margin
requirements in the securities markets and margin deposit requirements
in the futures market. The possibility of such distortion means that a
correct forecast of general market or foreign exchange rate trends may
still not result in a successful transaction.
Although the Fund believes that use of such contracts and options
thereon will benefit the 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.
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.
For the periods ending December 31, 1994, HLM International Equity
Portfolio and Money Market Portfolio paid brokerage commissions of
$39,000 and $0, respectively. For the period ending December 31, 1993,
Money Market Portfolio paid brokerage commissions of $0. The cost of
executing transactions for the Money Market Portfolio will consist
primarily of dealer spreads.
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.
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. The total return as defined above for the Fund's Portfolios for the 1
year ended December 31, 1994 and since the commencement of
operations of each Portfolio to December 31, 1994 are as follows:
One Year Life of Portfolio
HLM International Equity PortfolN/A (2.47%)
Money Market Portfolio 4.13% 3.92% *
* Annualized
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.
APPENDIX
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.
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 possesses an exceptionally strong balance sheet and
earnings record, translating into an excellent reputation and
unquestioned access to its natural money markets. If weakness or
vulnerability exists in any aspect of the company's business, it is entirely
mitigated by the strengths of the organization.
A/B. Company is financially very solid with a favorable track record and
no readily apparent weakness. Its overall risk profile, while low, is not
quite as favorable as companies in the highest rating category.
IBCA Limited
A1. Short-term obligations rated A1 are supported by a very strong
capacity for timely repayment. A plus sign is added to those issues
determined to possess the highest capacity for timely payment
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.
February 27, 1995
February 27, 1995
Dear Shareholder:
We are pleased to present you with the annual report for the
AMT Capital Fund, Inc. for the fiscal year ending December 31,
1994. The portfolios in the fund, together with five other mutual
funds distributed by AMT Capital Services, offer an opportunity to
gain access to the money managment expertise of some of the
nation's top investment advisers at lower institutional fee levels.
1994 is likely to be remembered as one of the more difficult
years for markets and investors around the world. Ironicly, global
economic growth was positive and inflation moderate or moderating
but the resurgence of inflationary forces was an increasing concern.
Early in the year the Federal Reserve acted aggressively to raise
U.S. short-term rates, a move which ultimately affected long-term
domestic rates as well as global bond, currency and equity markets.
The reversal of a long trend of declining rates also prompted a
series of crises which contributed to market uncertainty. In the final
weeks of the year, the Mexican crisis erupted with the sudden
dramatic devaluation of the peso. Emerging markets, already under
pressure from rising U.S. rates and declining cashflows, were
severely affected.
The Money Market Portfolio outperformed its benchmark,
the Donghue's Money Market Fund Average, in eleven months and
in every quarter. For the year as a whole, the total return of 4.13%
for the year was an extremely strong 38 basis points above the
benchmark.
In May, the International Equity Portfolio was funded. Net
assets in this Portfolio are now approximately $12 million. The
sub-adviser is Harding, Loevner Management, L.P., an active
equity manager who focuses on investing in companies which offer
exceptional prospects for financial growth.
We greatly appreciate your interest and participation in the
AMT Capital Fund. We welcome the opportunity to discuss the
investment approach, performance and mertis of these or any fund
distributed by AMT Capital Services. Please do not hesitate to
contact us with questions or comments regarding this report or any
other matter in which we can be of assistance.
Sincerely,
by: \s\Alan M. Trager
Alan M. Trager
President
Table of Contents
Money Market Portfolio - Overview 1
Money Market Portfolio - Statement of Net Assets 2
International Equity Portfolio - Overview 4
International Equity Portfolio - Statement of 5
Statement of Operations 8
Statement of Changes in Net Assets 9
Financial Highlights 10
Notes to Financial Statements 11
Money Market Portfolio
Graph: Comparison of change in value of $10,000 investment in Money
Market Portfolio and the IBC/Donoghue's Money Market Fund where the Y-
axis extends from $10,000 to $10,500 and the X-axis extends from 11/1/93 to
12/31/94.
The Money Market Portfolio provided a total return of 4.13%, net of
expenses, for the year, well ahead of its benchmark, the Donoghue's Money
Market Fund Average, which was 3.75% for the year. The portfolio invests in
high quality short-term money market instruments. Its objective is to seek
current income, liquidity and the maintenance of a stable net asset value.
Developments in the First Quarter
While many investors anticipated the increases in interest rates by the
Federal Reserve during the first quarter, the uncertainty as to the extent of
the increases and as to the sufficiency of the increases when they were made
drove a dramatic sell-off of fixed income assets after only a brief rally.
Stories of "hedge funds" who had to sell to meet margin calls, together with
rumors of mortgage investors selling Treasuries to offset the lengthening of
the duration of their portfolios and fears of large liquidations of bond funds
by retail investors, added to the market downdraft.
Developments in the Second Quarter
Investors' apprehension about a bear market carried well into the
second quarter as bond markets around the world began to drop. Bond
market participants,trying to gauge the strength of the U.S. economy, looked
in vain for signs that the strong economic environment suggested by the first
quarter data would moderate. Interest rates across the yield curve rose by 50
to 100 basis points, and the Federal Reserve Bank increased short-term rates
two more times in the quarter.
The portfolio's duration was kept near or below that of the benchmark,
augmenting performance as yields rose over the period.
Developments in the Third Quarter
Yields continued to climb substantially and credit spreads narrowed,
reflecting a robust economy. The portfolio outperformed its benchmark
during the quarter largely due to keeping duration short of the benchmark
and to anticipating a flattening of the yield curve.
Developments in the Fourth Quarter
Short-term rates rose sharply in the fourth quarter as continued
strong economic growth prompted the Fed to raise rates and as the Orange
County and Mexican crises put pressure on the markets. The portfolio
outperformed the benchmark due to favorable duration exposures and
strategic yield curve positioning that anticipated a steepening yield curve for
under two-year maturities.
AMT Capital Fund, Inc.
Money Market Portfolio - Statement Of Net Assets
December 31, 1994
Face
Amount Value
Bank Obligations - 38.8%
Bank of Nova Scotia Yankee CD, 5.61% due 1/9/ $ 1,00 $ 1,000,000
Chemical Bank BA, 5.47% due 1/27/95* 1,000 995,897
Commerzbank Yankee CD, 5.56% due 1/5/95 1,000 1,000,002
FCC National Bank FRN, 5.13% due 2/22/95** 1,000 999,896
Harris Trust & Savings Bank CD, 6.00% due 1/3 55 554,000
Mellon Bank Corp BA, 6.12% due 2/13/95* 1,000 992,520
National Bank of Detroit CD, 6.05% due 1/5/95 1,000 1,000,000
Nations Bank TD, 6.25% due 1/3/95 1,000 1,000,000
Swiss Bank Corp Yankee CD, 5.42% due 1/4/95 1,000 1,000,000
Total (Cost - $8,542,315) 8,542,315
*Commercial Paper - 49.0%
Ciesco Corp, 5.45% due 1/5/95 1,0 999,243
Dover Corp, 6.05% due 1/5/95 1,000 999,160
European Investment Bank, 5.42% due 1/12/95 80 798,554
Ford Motor Corp, 5.42% due 1/17/95 1,000 997,441
General Electric Capital Corp, 5.40% due 1/9/ 1,000 998,650
Hanson Finance PLC, 5.45% due 1/9/95 1,000 998,638
Koch Industries Inc, 5.95% due 1/3/95 1,000 999,504
McKenna Triangle Corp, 5.45% due 1/17/95 1,000 997,426
New South Wales Treasury Corp, 5.42% due 1/9/ 1,000 998,645
Pitney Bowes Corp, 5.83% due 1/18/95 1,000 997,086
US Borax & Chemical Corp, 6.13% due 2/9/95 1,000 993,189
Total (Cost - $10,777,536) 10,777,536
*U.S. Government Agency Obligations - 6.8%
FHLMC Discount Note, 5.33% due 1/5/95
(Cost - $1,498,889) 1,500 1,498,889
Repurchase Agreements - 4.5%
Eastbridge Capital U.S. Gov't Repurchase Agreement, 5.38% due 1/3/95
Issued 12/30/94 (Collateralized by $1,065,000 U.S. Treasury
Note, 3.875% due 10/31/95)
(Cost - $1,000,000) 1,000 1,000,000
Total Investments - 99.1% (Cost - $21,818,740) 21,818,740
* Interest rate shown represents yield to maturity at date of purchase
** Variable or floating rate security. Coupon rate shown reflects current rate.
Value
Other Assets and Liabilities - 0.9%
Receivable from investment adviser 91,927
Other assets 137,242
Other liabilities (41,768)
Other Assets and Liabilities, net 187,401
Net Assets - 100.0% $22,006,141
Applicab(authorized 1,250,000,000 shares)
$ 1.00
Net Asset Value Per Share
Components of Net Assets as of December 31, 1994 were as follows:
Capital Stock 22,017
Capital Stock in excess of par value 21,994,575
Temporary overdistributions of net realized gain on investmen $ (6,728)
Accumulated net realized (loss) on investments -3723
22006141
See Notes To Financial Statements
International Equity
Graph: Comparison of change in value of $10,000 investment in
International Equity Portfolio and the MSCI World EX U.S.A. Index (Net)
where the Y-axis extends from $9,500 to $10,700 and the X-axis extends
from 5/11/94 to 12/31/94.
The AMT Capital Fund - International Equity Portfolio provided a
total return of (2.47)% since its inception on May 11, 1994. Its benchmark,
the MSCI World - ex U.S.A. Index returned 1.39% over the same period.
The portfolio's objectives are to seek long-term capital appreciation through
investments in companies based outside the United States.
Developments in the Second Quarter
The portfolio commenced halfway through a quarter which
experienced continued global market turmoil. The portfolio manager, whose
approach focuses on companies with strong business prospects, rather than
timing currencies or markets, invested in those companies which met its
investment criteria, focusing on the capital goods and energy sectors, and
with geographic concentrations in Asia, and, within Europe, in Germany and
Switzerland. Japanese companies, viewed as expensive, were underweighted,
which accounted for the portfolio's underperformance vis-_-vis the index as
Japan and the yen were especially strong during the quarter.
Developments in the Third Quarter
Currency and equity markets stabilized somewhat in the third
quarter. The portfolio's purchases reflected confidence in the "emerging
consumer" (developing markets with strong demand for Western branded
goods and comfortable profit margins) and global capital goods producers
(providing infrastructure in emerging markets and operating globally in both
developed and less developed markets).
The portfolio avoided mature consumer markets, recovery plays,
property stocks, regulated utilities and Japanese financial companies.
Developments in the Fourth Quarter
Company purchases included Ito Yokado, a Japanese retailer, and
British Sky Broadcasting, the leading UK pay-TV provider, both companies
with strong franchises. Sales during the quarter reflected largely company
specific events, such as a change of focus away from core businesses or
profit-taking in the face of a deteriorating business picture. The exception
was the sale of YPF, the Argentine oil company, where the manager believed
that the market underestimated the effects of the Mexican crisis on the rest of
Latin America's markets.
<TABLE>
AMT Capital Fund, Inc.
International Equity Portfolio - Statement Of Net Assets
December 31, 1994
Shares Value
<S>
Long-Term Investments - 79.8%
Equities - 77.3%
Argentina - 1.3%
Quilmes Industries SA (Consumer Non-Cyclical) <C> <C>
(Cost - $124,740) 5,000 $ 120,000
France - 6.5%
Coflexip ADR (Natural Resources) 6,900 160,425
Cie Generale des Eaux (Financial) 2,900 282,039
IDIA (Consumer Non-Cyclical) 4,780 139,374
Total (Cost - $611,762) 581,838
Germany - 7.1%
Deutsche Bank Optionsschein Warrants expiring
9/1/95 (Financial)* 1,130 122,588
Hochtief (Basic Industry) 346 209,284
Krones AG Preferred (Capital Goods & Technology) 220 123,596
Linde AG Ord (Basic Industry) 310 181,164
Total (Cost - $677,232) 636,632
Hong Kong - 6.1%
Hutchison Whampoa (Consumer Cyclical) 55,000 222,530
Jardine Strategic Holdings (Consumer Cyclical)* 58,000 190,438
Johnson Electric Holdings (Capital Goods & Technology) 57,000 130,786
Total (Cost - $593,939) 543,754
Indonesia - 1.2%
PT Wicaksana Overseas (Consumer Non-Cyclical)*
(Cost - $79,516) 36,000 103,230
Japan - 13.5%
Canon Sales Co., Inc. (Capital Goods & Technology) 7,000 212,356
Ito Yokado Co. (Consumer Cyclical)* 3,000 160,622
Makita Corp ADR (Capital Goods & Technology) 14,000 248,500
Mr. Max Warrants expiring 7/11/95 (Consumer Cyclical)* 170 40,068
Mitsubishi Heavy Industries (Capital Goods & Technology)34,000 259,570
Nippon Denso (Basic Industry) 13,000 274,234
Senshukai Co. Warrants expiring 7/18/95
(Consumer Cyclical)* 10 6,750
Total (Cost - $1,236,632) 1,202,100
Malaysia - 5.8%
Nestle Malaysia (Consumer Non-Cyclical) 41,000 273,065
<FN>
* Non-income producing securities
See Notes To Financial Statements
</FN>
</TABLE>
Shares Value
Nylex (Malaysia) Berhad (Basic Industry) 111,000 $ 239,182
Total (Cost - $503,798) 512,247
Mexico - 1.8%
Panamerican Beverages Inc. (Consumer Non-Cyclical)
(Cost - $159,422) 5,100 161,287
Netherlands - 5.0%
Randstad Holdings NV (Consumer Cyclical) 2,600 140,772
Royal Dutch Petroleum ADR (Natural Resources) 2,800 301,000
Total (Cost - $423,699) 441,772
Norway - 4.4%
Norsk Hydro ADR (Natural Resources) 5,933 232,128
Unitor Ships ADR (Basic Industries) 9,400 158,425
Total (Cost - $380,614) 390,553
Singapore- 3.2%
Keppel Corp. Ltd. (Basic Industry)
(Cost - $250,502) 34,000 289,360
South Africa - 2.1%
Liblife Strategic Investments Ltd. (Financial)
(Cost - $168,904) 60,000 188,424
Spain - 2.7%
Banco Intercontinental ESPA (Financial)
(Cost - $256,245) 2,900 239,537
Switzerland - 10.7%
BBC Brown Boveri (Capital Goods & Technology) 1,540 254,370
Nestle-Sponsored ADR (Consumer Non-Cyclical) 5,600 266,807
Societe Generale de Surveillance, Bearer Shares
(Consumer Cyclical) 20 27,683
Societe Generale de Surveillance, Reg. Shares
(Consumer Cyclical) 980 255,548
Sika Finanz AG (Basic Industry) 510 146,639
Total (Cost - $922,059) 951,047
United Kingdom - 5.9%
Blenheim Group (Consumer Cyclical) 44,000 162,030
British Sky Broadcasting ADR (Consumer Cyclical)* 4,500 108,000
Hanson PLC ADR (Consumer Cyclical) 14,000 252,000
Total (Cost - $546,989) 522,030
Total Equities (Cost - $6,936,053) 6,883,811
* Non-income producing securities
See Notes To Financial Statements
Face
Amount Value
Bonds - 2.5%
Bangkok Bank Public Co. Convertible Bond (Thailand),
3.25% due 3/3/04 (Finance)
(Cost - $236,005) $ 250,000 $ 222,812
Total Long-Term Investments (Cost - $7,172,058) 7,106,623
Short-Term Investments - 18.8%
Bank of New York TD, 4.74% due 1/3/95 540,000 540,000
Prudential Bache Securities Repurchase
Agreement, 5.65% due 1/3/95 Issued 12/30/94
(Collateralized by $1,154,762 of FNMA
and FHLMC mortgage-backed securities, 0.0% to 10.5%
due 12/1/00 to 1/15/24) 1,132,104 1,132,104
Total Short-Term Investments (Cost - $1,672,104) 1,672,104
Total Investments 98.6% (Cost - $8,844,162) 8,778,727
Other Assets and Liabilities - 1.4%
Receivable from investment adviser 15,770
Foreign currency holdings (Cost - $418,650) 422,554
Other assets 328,453
Payable for Securities Purchased (616,467)
Other liabilities (25,159)
Other Assets and Liabilities, net 125,151
Net Assets - 100.0%
Applicable to 917,075 outstanding $.001 par value shares
(authorized 250,000,000 shares) $ 8,903,878
Net Asset Value Per Share $9.71
Components of Net Assets as of December 31, 1994 were as follows:
Capital Stock at par value ($.001) $ 917
Capital Stock in excess of par value 9,016,439
Undistributed investment income, net 3,677
Accumulated net realized (loss) on investments and
foreign currency-related transactions (43,014)
Temporary overdistribution of net realized gain on investments (10,017)
Net unrealized (depreciation) on investments and on
assets and liabilities denominated in foreign currencies (64,124)
$ 8,903,878
See Notes To Financial Statements
* Non-income producing securities
AMT Capital Fund, Inc.
Statement Of Operations
For the Periods Ended December 31, 1994
Money International
Market Portfolio Equity Portfolio
For the Year For the Period
Ended from 5/11/94*
12/31/94 to 12/31/94
Investment Income
Interest $ 919,965 $ 24,613
Dividends (net of withholding taxes of $3,996) - 32,134
Total investment income 919,965 56,747
Expenses
Investment advisory fees 50,430 17,868
Administration fees 20,172 2,733
Custodian fees 23,051 16,048
Shareholder recordkeeping fees 4,633 5,236
Legal fees 20,000 5,000
Audit fees 29,250 4,000
Directors' fees and expenses 7,298 770
Insurance expense 17,735 723
Amortization of organization costs 17,656 -
State registration filing fees 10,449 6,567
Other fees and expenses 8,422 3,386
Total operating expenses 209,096 62,331
Waiver of investment advisory and administration
fees and reimbursement of other expenses (128,409) (36,371)
Total operating expenses, net 80,687 25,960
Investment income, net 839,278 30,787
Realized and unrealized gain (loss) on investments
and foreign currency-related transactions
Net realized (loss) from investments (3,723) (35,399)
Net realized (loss) from foreign currency-related
transactions - (7,615)
Net unrealized (depreciation) on investments - (65,435)
Net unrealized appreciation on translation of assets
and liabilities denominated in foreign currencies - 1,311
Realized and unrealized (loss) on investments
and foreign currency-related transactions (3,723) (107,138)
Net increase (decrease) in net assets
resulting from operations $ 835,555 $ (76,351)
* Commencement of Operations
See Notes To Financial Statements
AMT Capital Fund, Inc.
Statement Of Changes in Net Assets
International
Money Market Portfolio Equity Portfolio
For the Year For the Period For the Period
Ended from 11/1/94 from 5/11/94*
12/31/94 to 12/31/93 to 12/31/94
Increase (Decrease) in Net Assets From Operations
Investment income, net $ 839,278 $ 3,504 $ 30,787
Net realized gain (loss) from
investments and foreign
currency-related transactions (3,723) 10 (43,014)
Net unrealized (depreciation) on investments and
on translation of assets and liabilities
denominated in foreign currencies (64,124)
Net increase (decrease) in net assets resulting
from operations 835,555 3,514 (76,351)
Distributions to Shareholders From
Investment income, net 839,278 3,504 27,110
Net realized gain on investments - 10 -
Temporary overdistribution of net realized gain
on investments 6,728 - 10,017
Total distributions 846,006 3,514 37,127
Capital Share Transactions, Net 19,680,959 2,235,633 9,017,356
Total increase in net assets 19,670,508 2,235,633 8,903,878
Net Assets
Beginning of period 2,335,633 100,000 -
End of period $ 22,006,141 $ 2,335,633 $ 8,903,878
Undistributed Investment Income, Net $ - $ - $ 3,677
* Commencement of Operations
See Notes To Financial Statements
AMT Capital Fund, Inc.
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)
Total from investment operations 0.041 0.004 (0.247)
Less Distributions
From investment income, net 0.040 0.004 0.032
From temporary overdistribution of net
realized gain on investments 0.001 - 0.012
Total distributions 0.041 0.004 0.044
Net asset value, end of period $ 1.000 $ 1.000 $ 9.709
Total Return 4.13% 2.69%(a) (3.81%)(a)
Ratios/Supplemental Data
Net assets, end of period $ 22,006,141 $ 2,335,633 $ 8,903,878
Ratio of expenses to average net 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
See Notes To Financial Statements
Notes to Financial Statements
1. Organization
AMT Capital Fund, Inc. (the "Fund") was organized as a Maryland
corporation on August 3, 1993 and is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment
company. The Money Market Portfolio commenced operations on November
1, 1993 and the 1993International Equity Portfolio commenced operations on
May 11, 1994. The Fund currently has twowo active Portfolios. The costs
incurred by the Fund in connection with the organization and initial
registration are being amortized in the Money Market Portfolio on a straight-
line basis over a sixty-month period. The unamortized balance of
organizational expenses at December 31, 1993 was $85,337December 31,
1994 was $67,681.
2. Summary of Significant Accounting Policies
Securities
All securities transactions are recorded on a trade date basis. Interest
income and expense are recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date. The Fund amortizes discount or premium
on a daily basis to interest income. The Fund uses the specific identification
method for determining gain or loss on sales of securities.
Income Tax
There is no provision for Federal income or excise tax since the Money
Market Portfolio (the "Portfolio")each Portfolio has elected or will elect to
be taxed as a regulated investment company ("RIC") and therefore has
compliedcomplies with the requirements of Subchapter M of the Internal
Revenue Code applicable to RICs and has distributed all of its taxable
income.
Valuation
All investments in the Money Market Portfolio are valued daily on an
amortized cost basis, which approximates fair value and is consistent with
Rule 2a-7 of the Investment Company Act of 1940. All investments in the
International Equity Portfolio are valued daily at their market price, which
results in unrealized gains or losses. Securities traded on an exchange are
valued at their last sales price on that exchange. Securities for which over-
the-counter market quotations are available are valued at the latest bid price.
Deposits and repurchase agreements and reverse repurchase agreements are
generally valued at their cost plus accrued interest. The value of other
investments is determined under procedures established by the Fund's Board
of Directors.
Expenses
Expenses directly attributed to each Portfolio in the Fund are charged to that
Portfolio's operations; expenses which are applicable to all Portfolios are
allocated among them based on average daily net assets.
Dividends to Shareholders
It is the policy of the Money Market Portfolio to declare dividends daily on
all of its net investment income. Net investment income dividends are
payable and
reinvested monthly. It is the policy of the International Equity Portfolio to
declare dividends on all of its net investment income on a quarterly basis.
Net investment income dividends are payable and reinvested quarterly. Net
short-term and long-term capital gains distributions, if any, are normally
distributed on an annual basis.
Dividends from net investment income and distributions from realized gains
from investment transactions have been determined in accordance with
income tax regulations and may differ from net investment income and
realized gains
2. Summary of Significant Accounting Policies (cont'd)
recorded by the Fund. These differences are due primarily to differing
treatments for foreign currency transactions and losses deferred due to tax
regulations and are recorded as temporary overdistributions of net realized
gain on investments in the statement of changes in net assets.
Currency Translation
Assets and liabilities denominated in foreign currencies and commitments
under forward exchange currency contracts are translated into U.S. dollars at
the mean of the quoted bid and asked prices of such currencies against the
U.S. dollar. Purchases and sales of portfolio securities are translated at the
rates of exchange prevailing when such securities were acquired or sold.
Income and expenses are translated at exchange rates prevailing when
accrued. The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Net realized gains and losses from foreign currency transactions arise from
sales and maturities of short-term securities, sales of foreign currency,
currency gains or losses realized between the trade and settlement dates on
securities transactions, the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books, and the
U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized appreciation on translation of assets and liabilities denominated in
foreign currencies arise from changes in the value of assets and liabilities
other than investments in securities at fiscal year end, resulting from changes
in the exchange rate.
3. Investment Advisory Agreement and Affiliated Transactions
The Fund's Board of Directors has approved investment advisory agreements
(the "Agreements") with the Investment Adviser. The investment advisory
fees to be paid the Investment Adviser are computed daily at an annual rate
of 0.25% of average daily net assets of the Money Market Portfolio and
0.75% of the average daily net assets of the International Equity Portfolio.
The International Equity Portfolio's fees are adjusted on a rolling 12 month
basis for over or under performance versus the Portfolio's benchmark. The
accrual has been adjusted by (0.10% ) of average daily net assets for the
period from May, 11, 1994 to October 31, 1994. The fees for both Portfolios
are payable monthly. The Investment Adviser, AMT Capital Advisers, Inc.,
and the Fund's Administrator, AMT Capital Services, Inc., have voluntarily
agreed to waive the investment advisory fees and the administration fees, and
in the case of the Investment Adviser, reimburse, if necessary, the Portfolios
for any excess expenses over 0.40% and 0.95% (on an annualized basis) of
the Money Market Portfolio's and International Equity Portfolio's,
respectively, average daily net assets,. The Portfolios' sub-advisers are paid
sub-advisory fees from the Investment Adviser, not the Portfolio.
Directors' fees and expenses of $8,068 were paid for the periods ended
December 31, 1994 to directors who are not employees of the Investment
Adviser.
4. Investment Transactions
Purchase cost and proceeds from sales of investment securities, other than
short-term investments, for the period ended December 31, 1994 totaled
$8,327,491 and $1,120,238, respectively, for the International Equity
Portfolio.
4. Investment Transactions (cont'd)
The components of net unrealized appreciation (depreciation) of investments
at December 31, 1994 for each Portfolio were as follows:
Money International
Market Equity
Portfolio Portfolio
Gross Unrealized Appreciation $ - $206,250
Gross Unrealized Depreciation $ - -271,685
$ - -$65,435
The cost of securities owned by the Portfolios at December 31, 1994 for
Federal tax purposes were substantially the same as for financial statement
purposes.
The International Equity Portfolio enters into forward foreign exchange
currency contracts in order to hedge its exposure to changes in foreign
currency exchange rates on its foreign portfolio holdings. A forward
exchange contract is a commitment to purchase or sell a foreign currency at a
future date at a negotiated forward rate. The gain or loss arising from the
difference between the cost of the original contracts and the closing of such
contracts is included in net realized gains or losses on foreign currency-
related transactions. Fluctuations in the value of forward foreign currency
contracts are recorded for book purposes as unrealized appreciation or
depreciation on translation of assets and liabilities denominated in foreign
currencies. Risks may arise from the potential inability of a counterparty to
meet the terms of a contract and from unanticipated movements in the value
of a foreign currency relative to the U.S. dollar. At December 31, 1994, the
International Equity Portfolio had no outstanding forward foreign exchange
currency contracts to purchase or sell foreign currencies.
The Fund enters into foreign currency transactions on the spot markets in
order to pay for foreign investment purchases or to convert to dollars the
proceeds from foreign investment sales or coupon interest receipts. At
December 31, 1994, the International Equity Portfolio had no outstanding
purchases or sales of foreign currencies on the spot markets.
5. Capital Share Transactions
As of December 31, 1994, there were 2,500,000,000 shares of $0.001 par
value capital stock authorized. Transactions in capital stock for the Money
Market Portfolio were as follows for the periods indicated:
<TABLE>
Year Ended Period From November 1, 1993*
December 31, 1994 December 31, 1993
Shares Amount Shares Amount
Shares sold 20,414,473 $20,414,473 2,334,468 $2,334,468
<S> <C> <C> <C>
Shares issued related to
reinvestment of dividends 796,922 796,922 1,165 1,165
21,211,395 21,211,395 2,335,633 2,335,633
Shares redeemed 1,530,436 1,530,436 100,000 100,000
Net increase 19,680,959 19,680,959 2,235,633 2,235,633
<FN>
*Commencement of Operations
</FN>
</TABLE>
Transactions in capital stock for the International Equity Portfolio were as
follows for the period from May 11, 1994* to December 31, 1994:
Shares Amount
Shares sold 924,387 $ 9,088,508
Shares issued related to reinvestment
of dividends 2,97 28,848
Shares redeemed 10,283 100,000
Net increase 917,075 $ 9,017,356
*Commencement of Operations
6. Repurchase and Reverse Repurchase Agreements
Each Portfolio may enter into repurchase agreements under which a bank or
securities firm that is a primary or reporting dealer in U.S. Government
securities agrees, upon entering into a contract, to sell U.S. Government
Securities to a Portfolio and repurchase such securities from the Portfolio at
a mutually agreed upon price and date.
Each Portfolio is also permitted to enter into reverse repurchase agreements
under which a primary or reporting dealer in U.S. Government securities
purchases U.S. Government securities from a Portfolio and the Portfolio
agrees to repurchase the securities at an agreed upon price and date.
Each Portfolio will engage in repurchase and reverse repurchase transactions
with parties selected on the basis of such party's creditworthiness.
Securities purchased subject to repurchase agreements must have an aggregate
market value greater than or equal to the repurchase price plus accrued
interest at all times. If the value of the underlying securities falls 6.
Repurchase and Reverse Repurchase Agreements
below the value of the repurchase price plus accrued interest, the Portfolio
will require the seller to deposit additional collateral by the next business
day. If the request for additional collateral is not met, or the seller
defaults on its repurchase obligation, the Portfolio maintains the right to
sell the underlying securities at market value and may claim any resulting loss
against the seller. When a Portfolio engages in reverse repurchase
transactions, the Portfolio will maintain, in a segregated account with its
custodian, securities equal in value to those subject to the agreement.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Directors
AMT Capital Fund, Inc.
We have audited the accompanying statements of net assets of AMT Capital
Fund, Inc. (comprising, respectively, the Money Market and International
Equity Portfolios) as of December 31, 1994, and the related statement of
operations for the year then ended, and the statement of changes in net assets
and financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1994, by correspondence with the
custodian and others. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective Portfolios constituting AMT Capital Fund, Inc. at December
31, 1994, the results of their operations for the year then ended, and the
changes in their net assets and the financial highlights for each of the
indicated periods, in conformity with generally accepted accounting
principles.
New York, New York
February 27, 1995
by: \s\Ernst & Young LLP
