HARDING, LOEVNER MANAGEMENT, L.P. 1998 Second Quarter Report INTERNATIONAL EQUITY PORTFOLIO

Geographic Distribution Japan 10%

Asia ex-Japan 10% EMU 32% South 2% Cash 2% North America 4%

Latin America 3%

non-EMU 37%

Sector Distribution

Credit Sensitive 18%

Diversified 10%

Consumer Non-Cyclical 23% Cash 2%

Basic Industry 15%

Natural Resources 8% Consumer Cyclical 14% Capital Goods & Technology 10%

Second Quarter 1998 Performance of Selected Stock Markets in US$

20

10

0

-10

-20

-30 Germany France Netherlands Switzerland United Japan Mexico Hong Kong Kingdom

-40

The charts above provide a ‘snapshot’ of the Portfolio at June 30, 1998. See inside for details of performance. Performance

The Portfolio fell in value during the quarter by 0.3%, less than the 1.8% fall in the MSCI All Country World ex-US Index. Once again, emerging markets and Japan were responsible for most of the damage. The Japanese market fell 5%, while the Pacific ex-Japan Index fell 24%, with the worst losses being in Thailand, and . Portfolio holdings in Southeast are now confined to three markets — Thailand, Singapore, and Hong Kong.

What has been widely referred to as the ‘Asian crisis’ began as one, but is now a more general loss of confidence in emerging markets. In Eastern Europe, where we have no holdings, markets fell an average of 35%, with attention focussed on a possible devaluation of the Russian Ruble. In Latin America, prices also fell. We have holdings in Mexico (where the market was down 18%) and Argentina (down 18%); Brazilian stocks also declined in value, by 29%. South Africa was also caught up in the turmoil, a run on the Rand and the higher interest rates that followed in its defense causing stock prices to fall by 28%.

The picture was much happier in Europe as the continent celebrated the membership of the first eleven European Union States into European Monetary Union from early 1999. Stocks in the two key states, France and Germany, soared by 11% and 14%, respectively. The Portfolio is well represented in these two countries, with 18% of its total assets.

The market in the did poorly, but Portfolio stocks did well, returning 16%, while the FT Index fell by 1%. The Portfolio is well represented in the UK with 15% of total assets. In absolute terms, this represents a substantial commitment, although relative to the UK market’s weighting in the MSCI All Country World ex-US Index — 18% — it is small. Five percent is invested in emerging markets. Emerging market exposure continues to hurt portfolio performance, but is where some of the most exciting and compelling investment opportunities are today.

Review

The devaluation of the Thai Baht a year ago was, with hindsight, a wake up call to those, like ourselves, who had already noted disinflationary pressures in the global economy. The danger now is that benign disinflation becomes harmful deflation. The subsequent devaluations elsewhere in the region were likewise caused by the pressures that built up as a result of the economies becoming uncompetitive. In a flexible, and dynamic economy, such as that in the United States, capital will flow to companies that offer the highest returns; companies that perform poorly shape up quickly, or are starved of capital. In contrast, in many emerging economies, there are often barriers to such an efficient allocation of capital — for example, a poorly regulated banking system, ‘crony capitalism’, or a tendency towards real estate speculation. In such economies, the result of devaluation has been severe financial distress for the corporate sector, and a massive depression of economic demand.

Lower demand, in turn, worsens overcapacity, putting still more downward pressure on prices for traded goods, and the currency, completing the vicious circle. Speculative attacks merely reflect anticipation of the events that almost inevitably flow from such imbalances.

We seek to invest in companies that are able to grow earnings and improve returns to shareholders over long periods of time. Ideally, they will be able to do so even when the economic cycle is in reverse, but we accept

Harding, Loevner Management, L.P. Page 2 that such ideals are rarely met (and usually very highly priced!). So we, more modestly, seek companies that can grow earnings when the wind is at their backs, and not give up too much ground when it is in their faces. In the long run, companies cannot grow their earnings unless they can grow their sales — margins cannot be improved forever. In the shorter term, however, companies can improve returns to shareholders in a variety of ways: by growing volumes of sales; by raising prices; by improving margins; or by changing their financial structure. In an inflationary world, companies find it relatively easy to raise prices to compensate for increased costs. In a disinflationary world, raising prices leads to customers taking their business elsewhere; not raising prices implies lower profits. To satisfy shareholders, companies need to use their assets more productively, and pay more attention both to their costs and to their financial structure. Companies truly run for their shareholders will seek any and all of the above in an effort to optimize shareholder returns relative to the risks taken.

Many of the Portfolio’s companies did exactly that in the second quarter:

Nestlé , the largest holding in the Portfolio, is the world’s largest food company, yet still reported increased sales volumes in the first quarter. It was also able to raise prices by 3%. The company dismissed fears about the long-term future of Asia and is looking for investment opportunities at the prices that now prevail. The results were outstanding and reflect the fact that Nestlé has branded products that can compete on a global basis, enabling the company to take market share from its competitors and to take its products to new markets where demand growth is stronger than in the developed markets of Western Europe and North America. The shares rose by 12% in the quarter.

Pearson, added to the Portfolio in the first quarter, was once a sprawling conglomerate, with interests ranging from fine china to investment banking. Management has recognized that the company should focus on its core media businesses, all of high quality in growing print and TV markets. It has moved aggressively to sell lower returning assets. This does not mean they are merely breaking the company up. In April, Pearson announced the acquisition of Simon & Schuster, to make the company the largest player in the US educational publishing market. Just weeks later, they announced that their ‘leisure’ division was for sale. Returns have not been poor in this business, which includes some of the UK’s most famous tourist attractions, such as Madame Tussaud’s Wax Museum (second only to the Tower of in terms of annual visitor arrivals!), and Alton Towers Theme Park. CEO Marjorie Scardino, the Texan who is driving the company’s successful efforts to refocus, however, correctly believes that others can extract even greater value from these assets. The stock rose by 13% in the quarter, reflecting growing recognition that the company is executing its strategy well.

Railtrack was the best performing stock in the Portfolio, rising by 50% during the quarter. The company is the owner of the UK’s railway infrastructure, and declining prices for passenger tickets are a key component of the company’s regulatory regime. The company is able to grow earnings by cutting costs — a relatively easy matter after fifty years of Government ownership — and by increasing the use of its passenger network. Some of the train operators who pay Railtrack for access to the infrastructure have reported passenger use rising by up to 12%, in response to cleaner trains and a more punctual service. Rail transportation, and Railtrack specifically, figure as key components of the Government’s ambitious transport policy. This is reflected in the recent announcement that Railtrack will build the Channel Tunnel Rail Link, the high speed railway line from London to the Channel Tunnel, and that the financing for this private sector project will be backed by Government guarantees. In a regulated utility business, Government support is crucial. Railtrack has proven the model of a company that can simultaneously generate shareholder returns

Harding, Loevner Management, L.P. Page 3 and help to achieve public policy objectives. It is also an excellent example of a company that can grow its earnings and dividends over long periods of time, without being in a traditional growth industry.

In addition to Railtrack and Pearson, the Portfolio holds two, more traditional, UK growth companies: Glaxo, the pharmaceutical giant, and Rentokil, the business service company, whose shares rose by 11% and 19%, respectively. In the case of Glaxo, the rise was welcome relief after an aborted attempt to merge with SmithKline Beecham and subsequent criticism for its failure to overcome personality clashes — the stumbling block was whether Glaxo or SmithKline’s CEO should run the combined company — in the interests of dramatic cost cutting. Far more important is the fact that Glaxo has an outstanding pipeline of new products to replace its previous blockbuster, Zantac, the anti-ulcer drug. Growth is thus as assured as growth can be in the disinflationary world we are describing.

Rentokil has no such dramatic and visible product development — it is in service businesses such as pest control, plant hire and providing unarmed guards. Yet it still grows earnings consistently, through making acquisitions in these very fragmented industries, and paying ruthless attention to profitability. The result has been sixteen years of 20% per annum growth in both earnings and dividends.

The Portfolio’s final UK holding, , could not, at first glance, be in a worse position in a disinflationary world. As a mining company it takes the declining prices that the world’s commodity markets offer. Rio Tinto, however, is distinguished by being the world’s largest mining company, with the lowest costs, and the strongest balance sheet. It is thus able to continue profitable production when prices are low, and to acquire the assets that can suddenly be pried away from its weakened competitors. Its strong cash flows also enable it to take more imaginative financing decisions; indeed, in the past quarter, shareholders approved management’s proposal to embark on a significant stock buy-back program. Nevertheless, the share price fell by 16%. We own Rio Tinto because it provides a very valuable hedge against the present trends, which now seem so clear, not continuing. When, as it must, the cycle eventually turns, Rio Tinto’s strengthened position as the world’s leading mining company will be recognized.

Some of the Portfolio’s Asian companies are directly confronted by the forces of deflation ¾ collapsing demand, excess capacity and falling prices. Nowhere is this being more keenly felt than in Thailand, where the Asian crisis began.

Siam Cement was badly caught out by currency devaluation, having significant amounts of US Dollar- denominated debts, but a revenue base almost entirely in Thai Baht. In the quarter alone, the share price fell by 63%. Clearly, remedial action is needed; and there is now evidence that it is taking place. The company has been able to raise prices, and has cut back its capital expenditure plans. Combining these strategies with better working capital management and a planned program of asset sales, Siam Cement will be a survivor.

Not all is bad news in Asia and, in particular, a number of Portfolio companies continue to show good operating results. In particular, Johnson Electric’s shares fell by 13% in the quarter, but are up 52% in the last twelve months in an appalling market environment in Hong Kong. Results just released show that the company has exceeded even our optimistic forecasts, lifting earnings per share by nearly 40% in its financial year to March 31st. This excellent result reflects the fact that Asia is once again an outstandingly competitive place for manufacturing products for sale to the West: Johnson makes its micro-motors in China and Thailand and sells them to the auto and consumer products manufacturers in Europe and North America. Its strong financial condition (net cash on the balance sheet) means that it can continue business uninterrupted and

Harding, Loevner Management, L.P. Page 4 without the difficulties posed to many Asian companies who are struggling to obtain even the working capital they need to carry on operations.

Japanese companies, like those in Southeast Asia, have been criticized for failing to adopt best global practices of corporate governance, and failing to generate even the modest returns that domestic shareholders are beginning to demand. This criticism is not usually applied to globally-competitive companies like Canon, the office automation and imaging company, or Denso, the auto parts manufacturer, but it has been leveled at companies like Kurita, which makes water purification equipment. Kurita is a company with very high levels of return historically, but whose earnings have fallen victim to the Japanese domestic recession and to a decline in capital expenditure in the semiconductor industry. It is now addressing the issue of corporate governance, and of aligning the interests of shareholders and employees. In May, it announced that it would seek shareholders’ approval to buy back stock to fund an employee stock option plan. This is revolutionary by Japanese standards and goes a long way towards sustaining our confidence in this company in what has been a difficult time, both in terms of operating results, and in terms of share price performance. In the quarter, the share price rose by 17%.

Other Japanese companies are also showing signs of transforming their corporate culture to one that is more oriented towards shareholders. For example, Mitsubishi Corporation, a ‘trading’ company whose tentacles extend throughout the Japanese economy, has initiated a performance-based incentive system for executives, setting return targets for its constituent businesses, with the explicit aim of raising returns on shareholders’ funds to more competitive levels.

In general, the pace of this necessary cultural change has been disappointing — the Japanese companies in the Portfolio are not representative of the stock market as a whole. In European financial markets, however, shareholder orientation has taken a firm hold. The companies in which we have invested are doing more than merely talking about the issue.

Investor is the holding company for Sweden’s leading industrial group, controlled by the Wallenberg family. We have long admired the family for the returns they have generated over long time periods. We became convinced that Investor would be a good investment when Mr. Percy Barnevik, formerly CEO of group company ABB, was appointed Chairman with a mandate to close the discount to the value of its underlying investments at which Investor shares trade. He has been quick to act — and has bought a considerable number of shares himself! — but the pace of his actions is now accelerating. In the quarter alone, one associated company, Astra, announced it would buy its partner Merck’s stake in a joint venture that controls its US business — opening the way for a merger with any other drug company; another associate, Saab Aerospace, was listed on the stock exchange, Investor’s shares spun out to shareholders or sold to strategic partner, British Aerospace; yet another, Stora, announced a merger with Enso, of Finland, to form Europe’s biggest forest products and paper company. Finally, Incentive, now a medical technology group centered around Gambro, the world’s largest dialysis company, announced it would divest its remaining stake in ABB, by spinning the shares out to shareholders. Investor shares rose by 14%.

Outlook

Overall, it was a very volatile quarter, in both stock and currency markets. Dominating attention has been Asia , and the inability of the Japanese Government to act decisively to stimulate domestic demand and help the rest of Asia to grow its way out of the deep recession that has now followed financial crisis. We

Harding, Loevner Management, L.P. Page 5 emphasize the lack of demand in the Japanese economy, because we see this, not the currency weakness that has attracted so much attention, as the main problem for the rest of the region. That said, it is the weakness of the Yen that has finally galvanized the US Treasury to intervene in its defense. The direct involvement of the United States may at last be sufficient for the Japanese authorities to gather the political resources to address the root causes of the decade-long weakening in economic demand — high taxes, and a shortage of credit caused by an insolvent banking system that is thus unable to create demand, even in an environment when nominal long-term interest rates are only a little above 1%.

In Europe, there is no such need to seek the clues that will lead to a more positive outlook. They are obvious everywhere. Economic recovery is in full swing, companies are still at the early stages of restructuring — ‘like the US ten years ago’ is a familiar refrain — and stock prices are soaring. Possible last minute doubts about European Monetary Union were swept aside. The problem now is that stocks are expensive and the easy part of the earnings recovery is over. The same forces of deflation and lack of pricing power face European companies as face those in the US or, to a far greater extent, those in Asia . Our job will be to identify those European companies whose earnings can grow when the cycle is not so strong, and those companies in emerging markets whose share prices reflect continuous decline, not eventual recovery. We used to invest in Europe for cheap stocks — for ‘value’ — and in Asia and emerging markets for growth. The reverse is now true. European banks, for example, trade at multiples of book value, reflecting the belief, to which we subscribe, that demographic growth will underlie demand for financial services in an era of a growing equity culture. The certainty of demographic growth is worth a lot more than the unpredictability of the economic cycle! In Asia, by way of contrast, and for example, DBS Bank is the leading bank in Singapore, a country with an impeccable balance sheet, and is itself AA-rated. Its shares trade at a discount to book value — a book value that a recent meeting with the company has convinced us may be dented but will not be significantly damaged. This valuation difference is understandable, given the uncertainties in Singapore’s neighboring countries, and DBS’s lower historical profitability, but the share price does not reflect the company’s financial strength, its opportunity to deploy its cash in the rubble of the regional collapse, or the commitment to higher returns. The company has recognized its failure to deliver attractive and competitive returns to shareholders and is fixing that failing. Evidence of change was offered in the quarter with the appointment of a senior JP Morgan executive, John Olds, to be the new CEO, with a clear mandate to shake up, and grow, this very conservative organization.

The Portfolio will continue to emphasize Europe, where the tailwinds of cyclical recovery, demographic demands, and an improving corporate culture provide support for stock prices. We will also seek opportunities in well-managed and financially-strong companies in emerging markets — the companies that will emerge as the leaders of the next cycle.

Transactions

We sold three holdings in Asia, although, in aggregate, they amounted to just 2% of the Portfolio:

Sime Darby, the Malaysian conglomerate, whose purchase of a bank had led them into difficulties that appeared to have been solved by the subsequent sale of the bank to another local financial institution. This is now in some doubt, the sale having become mired in typically unattractive and dangerous Malaysian politics.

Nestlé Malaysia, whose share price has barely been affected by the collapse in the overall market, has seen its earnings power sharply eroded by both the rise in costs of imported raw materials that will follow

Harding, Loevner Management, L.P. Page 6 devaluation, and by its inability to pass on those costs in a recession. The shares consequently have become very expensive, and were sold early in the quarter.

Keppel FELS convertible bonds, which, denominated in US Dollars, had also avoided the worst of the regional bloodbath.

We added to two Asian holdings:

DBS Bank, for the reasons cited above, partly through purchases in the market and partly through taking up a pre-emptive rights issue of stock at a discount.

Swire Pacific, the Hong Kong conglomerate, whose interests encompass property, airlines, Coca Cola bottling and distribution, and marine services. The shares trade at a discount to asset value that is not warranted in light of this company’s long history of good management and financial conservatism.

Elsewhere in emerging markets, we bought a new holding in Mexico:

DESC is a diversified conglomerate and the largest independent autoparts manufacturer in Mexico. The company is also a leading producer of industrial and consumer-based chemicals, involved in food processing, and develops premium property from a low-cost landbank in Mexico City. Management is focused on building leading market positions in its core areas and takes a global approach to business development. DESC’s largest and fastest-growing division — auto parts — is being driven by a number of strong themes: the NAFTA-driven shift of auto parts production from the US to Mexico, the related establishment of auto production plants in Mexico by global automakers, and the global trend towards greater outsourcing of components by the automakers themselves. The company’s strong competitive advantages underpin long-term growth and provide stability in the face of the impact of the Asian crisis.

We switched the holding in Bangkok Bank convertible bonds to common stock issued as part of the bank’s recapitalization. So far, the move from the more defensive instrument has been a mistake, but we believe that this is the leading financial institution in a country which has done much to convince investors that it is prepared to endure the short-term consequences to its economy of restructuring its financial system, but which has yet to see that policy reflected in higher valuations for its companies. This is in stark contrast with the authorities in South Korea, Indonesia and Malaysia. The Portfolio has had no holdings in either of the first two, and, as a result of the small sales made in this quarter, has no holdings in Malaysia.

In Europe, we took a profit by reducing the large holding in Spanish domestic bank, Bank Inter, to buy a stake in the multi-national Swiss Bank Corporation, now merged with the Union Bank of Switzerland to form UBS, the largest bank in Europe, and the largest asset manager in the world. There are enormous cost savings to be found in this in-market merger, particularly within the branch and corporate banking divisions within Switzerland, which have been a large drag on the profitability of both banks for years. The unmatched strength of the balance sheet will provide an ideal platform for the new entity’s global derivatives, banking, and securities businesses. The Bank’s established position in asset management puts it squarely in the midst of the most dynamic trend within financial services in Europe — the structural changes in private savings as individuals adjust to demographic aging and Monetary Union.

Harding, Loevner Management, L.P. Page 7 Finally, we took a profit in one German company, Daimler Benz, and invested in SGL Carbon. At Daimler’s core is a cyclical business — making cars and trucks — with some additional kick from the Mercedes brand, and a very successful emphasis by the company CEO on value creation and profitability. The result has been a very strong share price, aided by the stunning news of the merger with Chrysler, to the extent that the CEO’s best hopes for profits are fully reflected in the stock price.

We invested in a company whose share price has performed badly: SGL Carbon is the world's largest producer of carbon and graphite products. SGL is one half of an effective global duopoly in the manufacture and supply of graphite electrodes — the essential heating source that allows mini-mills to melt scrap and to produce increasingly high quality steel. Strong cash flows from this mature business finance an array of carbon and graphite products that SGL has developed to address the needs of a number of new growth markets requiring high performance, lightweight and heat resistant products — such as in the advanced aerospace, automotive and consumer goods industries. SGL management is recognized for being one of the most shareholder-oriented managements in Germany.

Harding, Loevner Management, L.P. Page 8 INTERNATIONAL EQUITY PORTFOLIO as of June 30, 1998

Company Country Weight Description

Nestlé SWITZ 5.4% World’s largest food company Investor SWE 4.6% Holding company for Wallenberg family interests in Swedish industrial concerns Deutsche Bank GER 4.5% One of Europe’s premier universal banks Rentokil Initial UK 4.2% Provider of wide range of services to commercial sector ABB SWITZ 4.2% Leading worldwide capital goods company Royal Dutch NETH 4.1% Premier oil company operating worldwide Railtrack UK 4.0% Owner of UK’s railway infrastructure Bayer GER 3.9% German chemical company with important life sciences & consumer businesses ING NETH 3.2% Global financial service group with strong emerging market exposure Michelin FRA 3.1% World’s largest & most innovative tire manufacturer Gaz et Eaux FRA 2.7% Investment company in Lazard Group, holding strategic stakes in major listed companies Novartis SWITZ 2.7% Swiss multinational pharmaceutical company Glaxo Wellcome UK 2.7% Global manufacturer & purveyor of pharmaceuticals Hutchison Whampoa HK 2.6% Conglomerate involved in container terminals, housing, energy, telecoms, & retailing Surveillance SWITZ 2.6% Worldwide provider of trade certification, testing & loss adjustment services Canon JAP 2.6% World’s leading producer of wide range of visual image & information equipment Pearson UK 2.4% UK print & broadcast media company Wolters Kluwer NETH 2.3% Dutch publisher of legal, tax, medical, & business information Union Bank of SWITZ 2.2% Europe’s largest bank, & world’s largest asset management firm Switzerland Imperial Oil CAN 2.1% Canada’s largest integrated petroleum company Rio Tinto UK 2.1% One of world’s largest & most diversified mining companies DBS Bank SING 2.1% Singapore’s largest & most diversified bank Bankinter SPA 2.0% High quality Spanish bank concentrating on services to individuals & small businesses IHC Caland NETH 1.9% World’s premier manufacturer of dredging vessels & marine mooring equipment Denso JAP 1.8% Global manufacturer of auto parts for Toyota & other leading car makers Johnson Electric HK 1.7% Manufacturer of small precision motors used in cars & consumer products Hirose Electric JAP 1.6% Japanese manufacturer of electrical connectors & components Partner Re BERM 1.6% Bermuda’s most strongly capitalized property reinsurer Libsil S AFR 1.5% Holding company with investments in South African Breweries & Standard Bank Kimberly-Clark Mex. MEX 1.5% Mexican subsidiary of US-based Kimberly-Clark Corporation Allianz GER 1.4% One of world’s largest general insurance companies Mitsubishi Corp JAP 1.3% One of Japan’s leading trading companies Kurita Water JAP 1.2% Large manufacturer of water treatment equipment & specialty chemicals in Japan Luxottica ITA 1.2% World’s largest & lowest cost producer of high-quality eyeglass & sunglass frames Dassault Systémes FRA 1.2% Leader in global CAD/CAM design software Swire Pacific HK 1.1% Diversified Hong Kong conglomerate SGL Carbon GER 1.1% Leading global producer of value added carbon & graphite products Li & Fung HK 1.1% Hong Kong-based trading & logistics company Quilmes ARG 0.9% Leading producer of beer & soft drinks in Latin America Tokio Marine & Fire JAP 0.8% Largest & best capitalized non-life insurer in Japan Atlantis Japan JAP 0.6% Closed-end fund invested in smaller Japanese companies Bangkok Bank THAI 0.5% Thailand’s largest & strongest bank DESC MEX 0.5% Leading Mexican auto parts exporter Siam Cement THAI 0.3% Thailand’s largest industrial group Rio Tinto (Aus) AUS 0.1% One of world’s largest & most diversified mining companies Acer Computer SING 0.1% Distribution arm of Taiwan’s Acer Inc., for sales, marketing & technical service of PCs Courts SING 0.1% Retailer of household furniture & electrical goods

Harding, Loevner Management, L.P. Page 9 INTERNATIONAL EQUITY COMPOSITE PERFORMANCE SUMMARY as of June 30, 1998

Annualized Returns for Trailing Periods (%) Volatility Annual Standard Deviation (%)

Since Since 1 Year 3 Years 5 Years 8 Years Inception* Inception* HLM International Equity Composite 2.4 10.3 13.5 11.4 11.8 13.2

Financial Times World ex-US Index 2.8 9.8 9.4 6.7 5.0 18.1 Morgan Stanley Capital Int’l All Country World ex-US 0.6 9.0 9.3 6.8 5.1 16.8 Index Morgan Stanley Capital Int’l EAFE Index 6.4 11.0 10.3 7.2 5.6 18.0 Lipper International Fund Index 9.0 15.1 13.5 9.0 9.2 13.4

*Inception Date: 9/30/89

Calendar Year Returns (%)

YTD 1998 1997 1996 1995 1994 1993 1992 1991 1990

HLM International Equity Composite 12.6 -3.8 17.0 13.2 2.5 46.3 9.9 21.9 -12.9

Financial Times World ex-US Index 13.6 0.8 6.5 10.4 8.4 32.1 -13.1 13.3 -23.1 Morgan Stanley Capital Int’l All Country World ex-US 11.7 1.7 6.6 8.5 7.1 35.6 -10.9 13.6 -23.4 Index Morgan Stanley Capital Int’l EAFE Index 16.1 2.0 6.4 11.6 8.1 32.9 -11.9 12.5 -23.2

Lipper International Fund Index 15.8 7.3 14.4 9.3 -0.9 39.2 - 4.3 13.2 -12.4

Composite Information YTD 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989

Number of accounts included in the composite 75 71 54 26 14 = = = = = Total market value of accounts included in composite ($M) $1175.1 $1073.3 $882.2 $347.1 $110.4 $23.0 $12.1 $6.7 $10.6 $10.9

% of total firm assets represented by composite 71.4% 70.2% 70.3% 55.3% 30.1% 9.4% 6.2% 3.7% 15.9% 37.8%

Internal dispersion: standard deviation of calendar year returns NA 0.7% 1.2% 1.9% 1.7% ======Five or fewer accounts

Annualized Returns for Trailing Periods (%) NOTES: 1. Composite includes all fee-paying international (non-US) equity accounts under discretionary HLM International Equity Composite management, including accounts no longer in existence. Accounts are included from the first 15% Financial Times World ex-US Index full month following the date on which the account is deemed to be fully invested. MSCI All Country World ex-US Index 2. Returns shown are time-weighted total returns in US$, and reflect reinvestment of dividends 10% and interest. Returns are weighted by account size in the composite. 3. All cash equivalents, bonds and/or convertible securities used in place of equities are included in return calculations. 5% 4. Composite returns are presented after brokerage commissions but before management and custodial fees and foreign withholding taxes. Management fees are described in our Form ADV Part II. Inclusion of standard management fees would reduce composite returns by 0% 1 Year 3 Years 5 Years 8 Years Since Inception approximately 1.0% per annum. 5. Returns of all indices (except Lipper) are presented before foreign withholding taxes, and do not reflect commissions or fees that would be incurred by an investor in the index portfolios. Lipper Index returns are reported after all fees and expenses. 6. Annual standard deviations of returns (volatility) is estimated from monthly returns using a continuous return model to derive annual periodic standard deviation.

7. A complete list and description of the firm’s composites is available upon request.

July 1998