As filed with the Securities and Exchange Commission on February 26, 1999
FILE NO. 811-8996
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 4
INTERNATIONAL EQUITY PORTFOLIO
(Exact Name of Registrant as Specified in Charter)
Butterfield House, 4th Floor, Fort Street, P.O. Box 2330, George Town, Grand
Cayman, Cayman Islands, BWI
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (345) 949-4719
Philip W. Coolidge, 21 Milk Street, Boston, Massachusetts 02109
(Name and Address of Agent for Service)
Copy to: John E. Baumgardner, Esq.
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
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WS5313D
EXPLANATORY NOTE
This Amendment to the Registration Statement on Form N1-A (the
"Registration Statement") has been filed by the Registrant pursuant to Section
8(b) of the Investment Company Act of 1940, as amended. However, beneficial
interests in the Registrant are not being registered under the Securities Act of
1933 (the "1933 Act") because such interests will be issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in the Registrant may only
be made by other investment companies, insurance company separate accounts,
common or commingled trust funds or similar organizations or entities that are
"accredited investors" within the meaning of Regulation D under the 1933 Act.
This Registration Statement does not constitute an offer to sell, or the
solicitation of an offer to buy, any beneficial interests in the Registrant.
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WS5313D
PART A
Responses to Items 1 through 3, 5 and 9 have been omitted pursuant to
Item 2(b)of Instruction B of the General Instructions to Form N-1A.
ITEM 4. Investment Objectives, Principal Investment Strategies and Related
Risks.
The investment objective of the International Equity Portfolio (the
"Portfolio") is described below, together with the policies employed to attempt
to achieve this objective.
The investment objective of the Portfolio is to provide investors with
long-term maximization of total return, primarily through capital appreciation.
Under noramal circumstances the Investment Adviser fully invests the assets
of the Portfolio in equity securities of companies based outside the United
States and Canada in the developed markets of the world. These markets include
Japan, United Kingdom, Germany, France, Hong Kong, Netherlands, Switzerland,
Malaysia, Australia, Singapore, Italy, Sweden, Spain, Belgium, Denmark, Finland,
Norway, Portugal, New Zealand, Austria and Ireland.
Although the Investment Adviser expects to invest the assets of the
Portfolio primarily in common stocks, it may purchase other securities with
equity characteristics, including securities convertible into common stock,
rights and warrants. The The Investmetn Adviser may purchase these equity
securities directly or in the form of American Depositary Receipts, Global
Depositary Receipts or other similar securities representing securities of
foreign-based companies. Although the Portfolio invests primarily in equity
securities which are traded on foreign or domestic national securities
exchanges, the Investment Adviser may purchase equity securities which are
traded in foreign or domestic over-the-counter markets for the Portfolio. The
Portfolio may invest in securities of appropriate investment companies in order
to obtain participation in markets or market sectors which restrict foreign
investment or to obtain more favorable investment terms.
The Investment Adviser allocates investment among various countries based
upon the economic environment, liquidity conditions, valuation levels, expected
earnings growth, government policies and political stability. In response to
changes or anticipated changes in these criteria, the Investment Adviser
increases, decreases or eliminates a particular country's representation in the
Portfolio. As a result of applying these criteria, the Investment Adviser
allocates the Portfolio's assets among countries in a manner which does not
always reflect the relative size or valuation of a country's capital market or a
country's relative gross domestic product or population.
In constructing the portfolio of securities of the Portfolio, the
Investment Adviser places emphasis on the equity securities of larger globally
competitive companies with strong longer term fundamentals such as leading
industry position, effective management, competitive products and services, high
or improving return on investment and a sound financial structure. The
Investment Adviser selects individual equities through a disciplined process
which systematically evaluates growth expectations relative to price levels.
Because the Investment Adviser buys and sells securities denominated in
currencies other than the the U.S. dollar, and interest, dividends and sale
proceeds are received in currencies other than the U.S. dollar, the Investment
Adviser enters into foreign currency exchange transactions from time to time to
convert to and from different foreign currencies and to convert foreign
currencies to and from the U.S. dollar.
Solely as a hedge against changes in the market value of portfolio
securities or securities intended to be purchased, futures contracts on stock
indexes may be entered into the Portfolio. In order to protect the dollar value
of securities denominated in foreign currencies that are held or intended to be
purchased, forward foreign exchange contracts may be enterered into on behalf of
the Portfolio.
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PRINCIPAL RISK FACTORS
The principal risks of investing in the Portfolio and the
circumstances reasonably likely to adversely affect an investment are
described below. An investor may lose money by investing in the Portfolio.
The principal risks of investing in the Portfolio are:
MARKET RISK:
This is the risk that the price of a security fall due to changing
economic, political or market conditions, or due to a company's individual
situation.
FOREIGN INVESTMENT RISK:
Investing in equity securities of foreign-based companies involves
risks not typically associated with investing in equity securities of companies
organized and operated in the United States.
Changes in political or social conditions, diplomatic relations,
confiscatory taxation, expropriation, nationalization, limitation on the removal
of funds or assets, or imposition of (or change in) exchange control or tax
regulations may adversely affect the value of such investments. Changes in
government administrations or economic or monetary policies in the United States
or abroad could result in appreciation or depreciation of portfolio securities
and could favorably or unfavorably affect the operations of the Portfolio. The
economies of individual foreign nations differ from the U.S. economy, whether
favorably or unfavorably, in areas such as growth of gross domestic prodcut,
rate of inflation, capital reinvestment, resource self-sufficiency and balance
of payments position. It may be more difficult to obtain and enforce a judgment
against a foreign company. Dividends and interest paid by foreign issuers may
be subject to withholding and other foreign taxes which may decrease the net
return on foreign investments as compared to dividends and interest paid by
domestic companies.
In general, less information is publicly available with respect to
foreign- based companies than is available with respect to U.S. companies. Most
foreign- based companies are also not subject to the uniform accounting and
financial reporting requirements applicable to companies based in the United
States.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of the New York Stock Exchange. Accordingly, foreign investments are
less liquid and their prices are more volatile than comparable investments in
securities of U.S. companies. Moreover, the settlement periods for foreign
securities, which are often longer than those for securities of U.S. companies,
may affect portfolio liquidity. In buying and selling securities on foreign
exchanges, fixed commissions are normally paid that are generally higher than
the negotiated commissions charged in the United States. In addition, there is
generally less government supervision and regulation of securities exchanges,
brokers and companies in foreign countries than in the United States.
The foreign investments made by the Portfolio are made in compliance
with the currency regulations and tax laws of the United States and foreign
governments. There may also be foreign government regulations and laws which
restrict the amounts and types of foreign investments.
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Because foreign securities generally are denominated and pay dividends
or interest in foreign currencies, and the Portfolio holds various foreign
currencies from time to time, the value of the net assets of the Portfolio as
measured in U.S. dollars is affected favorably or unfavorably by changes in
exchange rates. The Portfolio also incurs costs in connection with conversion
between various currencies.
DEVELOPING COUNTRIES:
The Portfolio may invest its assets in securities of issuers based in
developing countries. Investments in securities of issuers in developing
countries may involve a high degree of risk and many may be considered
speculative. These investments carry all of the risks of investing in securities
of foreign issuers outlined in this section to a heightened degree. These
heightened risks include: (i) greater risks of expropriation, confiscatory
taxation, nationalization, and less social, political and economic stability;
(ii) the small current size of the markets for securities of issuers in
developing countries and the currently low or non-existent volume of trading
resulting in lack of liquidity and in price volatility; (iii) certain national
policies which may restrict the Portfolio's investment opportunities including
restrictions on investing in issuers or industries deemed sensitive to relevant
national interests; and (iv) the absence of developed legal structures governing
private or foreign investment and private property.
DIVERSIFICATION RISK:
The Portfolio is classified as "non-diversified", which means that it
is limited with respect to the portion of its assets may be invested in
securities of a single issuer only be certain requirements of federal tax law.
The possible assumption of large positions in the securities of a small
number of issuers may cause performance to fluctuate to a greater extent than
than of a diversified investment company as a result of changes in the
financial condition or in the market's assessment of the issuers.
Investments in the Portfolio are neither insured nor guaranteed by
the U.S. Government. Shares of beneficial interest of the Portfolio are not
deposits of or obligations of, or guaranteed by, Brown Brothers Harriman & Co.
or any other bank, and the shares of beneficial interest are not insured by
the Federal Deposit Insurance Corporation, the Federal Reserve Board or
any other federal, state or other governmental agency.
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ITEM 6. MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE
The Investment Adviser is Brown Brothers Harriman & Co.("Investment
Adviser"), Private Bankers, a New York limited partnership established in 1818.
The firm is subject to examination and regulation by the Superintendent of Banks
of the State of New York and by the Department of Banking of the Commonwealth of
Pennsylvania. The firm is also subject to supervision and examination by the
Commissioner of Banks of the Commonwealth of Massachusetts.
Brown Brothers Harriman & Co. provides investment advice and portfolio
management services to the Portfolio. Subject to the general supervision of the
Portfolio's Trustees, Brown Brothers Harriman & Co. makes the day-to-day
investment decisions for the Portfolio, places the purchase and sale orders for
portfolio transactions, and generally manages the Portfolio's investments. Brown
Brothers Harriman & Co. provides a broad range of investment management services
for customers in the United States and abroad. At December 31, 1998, it managed
total assets of approximately $32 billion.
The Portfolio is managed on a day to day basis by a team of individuals
including Mr. John A. Nielsen, Mr. Jeffrey Schoenfeld, Ms. Camille M. Kelleher,
Mr. A. Edward Allinson, Mr. G. Scott Clemons, Mr. Paul J. Fraker and Mr. Ben
Kottler. Mr. Nielsen holds a B.A. from Bucknell University, a M.B.A. from
Columbia University and is a Chartered Financial Analyst. He joined Brown
Brothers Harriman & Co. in 1968. Mr. Schoenfeld holds a B.S. from the University
of California, Berkely and a M.B.A. from the University of Pennsylvania. He
joined Brown Brothers Harriman & Co. in 1984.Ms. Kelleher holds a B.A. from
Barnard College and a M.B.A. from Columbia University. She joined Brown Brothers
Harriman & Co. in 1984. Mr. Allinson holds a B.A. and a M.B.A from the
University of Pennsylvania. He joined Brown Brothers Harriman & Co. in 1991. Mr.
Clemons holds a B.A. from Princeton University. He joined Brown Brothers
Harriman & Co. in 1990. Mr. Fraker holds a B.A. from Carleton College and a M.A.
from John Hopkins University. He joined Brown Brothers Harriman & Co. in 1986.
Mr. Kottler holds a B.A. from Durham University. He joined Brown Brothers
Harriman & Co. in 1996. Prior to joining Brown Brothers Harriman & Co., he
worked for NatWest Investment Management Ltd.
As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by Brown Brothers Harriman & Co. under the
Investment Advisory Agreement, Brown Brothers Harriman & Co. receives from the
Portfolio an annual fee, computed daily and payable monthly, equal to 0.65% of
the average daily net assets of the Portfolio. An affiliate of Brown Brothers
Harriman & Co. receives annual administration fees from the Portfolio equal to
0.035% of the average daily net assets of the Portfolio.
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ITEM 7. INVESTOR INFORMATION
The net asset value of the Portfolio is determined each day the New
York Stock Exchange is open for regular trading. This determination is made once
each business day as of 4:00 p.m. New York time.
The Portfolio values its assets on the basis of their market quotations and
valuations provided by indepenent pricing services. If quotations are not
readily available, the assets are valued at fair value in accordance with the
procedures established by the Trustees of the Portfolio.
Beneficial interests in the Portfolio are issued solely in private
placement transactions. Investments in the Portfolio may only be made by other
investment companies, insurance company separate accounts, common or commingled
trust funds, or similar organizations or entities which are "accredited
investors." This Registration Statement does not constitute an offer to sell, or
the solicitation of an offer to buy, any "security" within the meaning of the
1933 Act.
An investment in the Portfolio may be made without a sales load. All
investments are made at net asset value next determined after an order is
received in "good order" by the Portfolio.
There is no minimum initial or subsequent investment in the Portfolio.
However, because the Portfolio intends to be as fully invested at all times as
is reasonably practicable in order to enhance the yield on its assets,
investments must be made in federal funds (i.e., monies credited to the account
of the Custodian by a Federal Reserve Bank).
The Portfolio reserves the right to cease accepting investments at any
time or to reject any investment order.
An investor in the Portfolio may reduce all or any portion of its
investment at the net asset value next determined after a request in "good
order" is furnished by the investor to the Portfolio. The proceeds of a
reduction will be paid by the Portfolio in federal funds normally on the next
Portfolio Business Day after the reduction is effected, but in any event within
seven days. Investments in the Portfolio may not be transferred.
The right of any investor to receive payment with respect to any
reduction may be suspended or the payment of the proceeds therefrom postponed
during any period in which the New York Stock Exchange is closed (other than
weekends or holidays) or trading on the New York Stock Exchange is restricted
or, if an emergency exists.
The Portfolio reserves the right under certain circumstances, such as
accommodating requests for substantial withdrawals or liquidations, to pay
distributions in kind to investors (i.e., to distribute portfolio securities as
opposed to cash). If securities are distributed, an investor could incur
brokerage, tax or other charges in converting the securities to cash. In
addition, distribution in kind may result in a less diversified portfolio of
investments or adversely affect the liquidity of the Portfolio.
Investments in the Portfolio are neither insured nor guaranteed by the
U.S. Government. Interests in the Portfolio are not deposits or obligations of,
or guaranteed by, Brown Brothers Harriman & Co. or any other bank, and the
interests are not insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board or any other federal, state or other governmental agency.
An investment in the Portfolio is subject to investment risk, including possible
loss of principal amount invested.
ITEM 8. DISTRIBUTION ARRANGEMENTS.
Not applicable.
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WS5313D
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PART B
ITEM 10. COVER PAGE.
Not applicable.
TABLE OF CONTENTS. PAGE
Portfolio History . . . . . . . . . . . . . . . . . . B-1
Description of Portfolio and Its Investments and Risks B-1
Management of the Portfolio . . . . . . . . . . . . . B-8
Control Persons and Principal Holders . . . . . . . . B-10
Investment Advisory and Other Services . . . . . . . B-11
Brokerage Allocation and Other Practices . . . . . . B-12
Capital Stock and Other Securities . . . . . . . . . B-13
Purchase, Redemption and Pricing of
Securities Being Offered . . . . . . . . . . . . . . B-14
Tax Status . . . . . . . . . . . . . . . . . . . . . B-15
Underwriters . . . . . . . . . . . . . . . . . . . . B-16
Calculations of Performance Data . . . . . . . . . . B-16
Financial Statements . . . . . . . . . . . . . . . . B-17
Appendix
ITEM 11. PORTFOLIO HISTORY.
Not applicable.
ITEM 12. DESCRIPTON OF PORTFOLIO AND ITS INVESTMENTS AND RISKS.
The investment objective of the International Equity Portfolio (the
"Portfolio") is to provide investors with long-term maximization of total
return, primarily through capital appreciation.
Brown Brothers Harriman & Co. is the Portfolio's investment adviser
(the "Investment Adviser").
The following discussion supplements the information regarding the
investment objective of the Portfolio and the policies to be employed to achieve
this objective as set forth above and in Part A.
EQUITY INVESTMENTS
Equity investments may or may not pay dividends and may or may not
carry voting rights. Common stock occupies the most junior position in a
company's capital structure. Convertible securities entitle the holder to
exchange the securities for a specified number of shares of common stock,
usually of the same company, at specified prices within a certain period of time
and to receive interest or dividends until the holder elects to convert. The
provisions of any convertible security determine its ranking in a company's
capital structure. In the case of subordinated convertible debentures, the
holder's claims on assets
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and earnings are subordinated to the claims of other creditors, and are senior
to the claims of preferred and common shareholders. In the case of convertible
preferred stock, the holder's claims on assets and earnings are subordinated to
the claims of all creditors and are senior to the claims of common shareholders.
DOMESTIC INVESTMENTS
The assets of the Portfolio are not invested in domestic securities
(other than short-term instruments), except temporarily when extraordinary
circumstances prevailing at the same time in a significant number of foreign
countries render investments in such countries inadvisable.
HEDGING STRATEGIES
Subject to applicable laws and regulations and solely as a hedge
against changes in the market value of portfolio securities or securities
intended to be purchased, put and call options on stocks, stock indexes and
currencies may be purchased and futures contracts on stock indexes may be
entered into for the Portfolio, although in each case the current intention is
not to do so in a manner that more than 5% of the Portfolio's net assets are at
risk.
OPTIONS ON STOCK. A call option on a stock gives the purchaser of the
option the right to buy the underlying stock at a fixed price at any time during
the option period. Similarly, a put option gives the purchaser of the option the
right to sell the underlying stock at a fixed price at any time during the
option period. To liquidate a put or call option position, a "closing sale
transaction" may be made at any time prior to the expiration of the option which
involves selling the option previously purchased.
Covered call options may also be sold (written) on stocks, although in
each case the current intention is not to do so. A call option is "covered" if
the writer owns the underlying security.
OPTIONS ON STOCK INDEXES. A stock index fluctuates with changes in the
market values of the stocks included in the index. Examples of stock indexes are
the Standard & Poor's 500 Stock Index (Chicago Board of Options Exchange), the
New York Stock Exchange Composite Index (New York Stock Exchange), The Financial
Times-Stock Exchange 100 (London Traded Options Market), the Nikkei 225 Stock
Average (Osaka Securities Exchange) and Tokyo Stock Price Index (Tokyo Stock
Exchange).
Options on stock indexes are generally similar to options on stock
except that the delivery requirements are different. Instead of giving the right
to take or make delivery of stock at a fixed price ("strike price"), an option
on a stock index gives the holder the right to receive a cash "exercise
settlement amount" equal to (a) the amount, if any, by which the strike price of
the option exceeds (in the case of a put) or is less than (in the case of a
call) the closing value of the underlying index on the date of exercise,
multiplied by (b) a fixed "index multiplier". Receipt of this cash amount
depends upon the closing level of the stock index upon which the option is based
being greater than, in the case of a call, or less than, in the case of a put,
the price of the option. The amount of cash received is equal to such difference
between the closing price of the index and the strike price of the option
expressed in U.S. dollars or a foreign currency, as the case may be, times a
specified multiple.
B-2
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The effectiveness of purchasing stock index options as a hedging
technique depends upon the extent to which price movements in the portion of the
securities portfolio being hedged correlate with price movements of the stock
index selected. The value of an index option depends upon future movements in
the level of the overall stock market measured by the underlying index before
the expiration of the option. Accordingly, the successful use of options on
stock indexes is subject to the Investment Adviser's ability both to select an
appropriate index and to predict future price movements over the short term in
the overall stock market. Brokerage costs are incurred in the purchase of stock
index options and the incorrect choice of an index or an incorrect assessment of
future price movements may result in poorer overall performance than if a stock
index option had not been purchased.
OPTIONS ON CURRENCIES. A call option on a currency gives the purchaser of the
option the right to buy the underlying currency at a fixed price, either at any
time during the option period (American style) or on the expiration date
(European style). Similarly, a put option gives the purchaser of the option the
right to sell the underlying currency at a fixed price, either at any time
during the option period or on the expiration date. To liquidate a put or call
option position, a "closing sale transaction" may be made for a Portfolio at any
time prior to the expiration of the option, such a transaction involves selling
the option previously purchased. Options on currencies are traded both on
recognized exchanges (such as the Philadelphia Options Exchange) and
over-the-counter.
The value of a currency option purchased depends upon future changes in
the value of that currency before the expiration of the option. Accordingly, the
successful use of options on currencies is subject to the Investment Adviser's
ability to predict future changes in the value of currencies over the short
term. Brokerage costs are incurred in the purchase of currency options and an
incorrect assessment of future changes in the value of currencies may result in
a poorer overall performance than if such a currency had not been purchased.
Futures Contracts on Stock Indexes. In order to assure that the
Portfolio is not deemed a "commodity pool" for purposes of the Commodity
Exchange Act, regulations of the Commodity Futures Trading Commission ("CFTC")
require that the Portfolio enter into transactions in Futures Contracts and
options on Futures Contracts only (i) for bona fide hedging purposes (as defined
in CFTC regulations), or (ii) for non-hedging purposes, provided that the
aggregate initial margin and premiums on such non-hedging positions does not
exceed 5% of the liquidation value of the Portfolio's assets.
Futures Contracts provide for the making and acceptance of a cash
settlement based upon changes in the value of an index of stocks and are used to
hedge against anticipated future changes in overall stock market prices which
otherwise might either adversely affect the value of securities held for the
Portfolio or adversely affect the prices of securities which are intended to be
purchased at a later date. A Futures Contract may also be entered into to close
out or offset an existing futures position.
In general, each transaction in Futures Contracts involves the
establishment of a position which is expected to move in a direction opposite to
that of the investment being hedged. If these hedging transactions are
successful, the futures positions taken would rise in value by an amount which
approximately offsets the decline in value of the portion of the Portfolio's
investments that is being hedged. Should general market prices move in an
unexpected manner, the full anticipated benefits of Futures Contracts may not be
achieved or a loss may be realized. There is also the risk of a potential lack
of liquidity in the secondary market.
The effectiveness of entering into Futures Contracts as a hedging technique
depends upon the extent to which price movements in the portion of the
securities portfolio being hedged correlate with price movements of the stock
index selected. The value of a Futures Contract depends upon future movements in
the level of the overall stock market measured by the underlying index before
the closing out of the Futures Contract. Accordingly, the successful use of
Futures Contracts is subject to the Investment Adviser's ability both to select
an appropriate index and to predict future price movements over the short term
in the overall stock market. The incorrect choice of an index or an incorrect
assessment of future price movements over the short term in the overall stock
market may result in poorer overall performance than if a Futures Contract had
not been purchased. Brokerage costs are incurred in entering into and
maintaining Futures Contracts.
B-3
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When the Portfolio enters into a Futures Contract, it is initially
required to deposit, in a segregated account in the name of the broker
performing the transaction, an "initial margin" of cash, U.S. Government
securities or other high grade short-term obligations equal to approximately 3%
of the contract amount. Initial margin requirements are established by the
exchanges on which Futures Contracts trade and may, from time to time, change.
In addition, brokers may establish margin deposit requirements in excess of
those required by the exchanges. Initial margin in futures transactions is
different from margin in securities transactions in that initial margin does not
involve the borrowing of funds by a broker's client but is, rather, a good faith
deposit on the Futures Contract which will be returned upon the proper
termination of the Futures Contract. The margin deposits made are marked to
market daily and the Portfolio may be required to make subsequent deposits of
cash or eligible securities called "variation margin", with its futures contract
clearing broker, which are reflective of price fluctuations in the Futures
Contract.
Currently, investments in Futures Contracts on non-U.S. stock indexes
by U.S. investors, such as the Portfolio, can be purchased on such non-U.S.
stock indexes as the Osaka Stock Exchange (OSE), Tokyo Stock Exchange (TSE),
Hong Kong Futures Exchange (HKFE), Singapore International Monetary Exchange
(SIMEX), London International Financial Futures and Options Exchange (LIFFE),
Marche Terme International de France (MATIF), Sydney Futures Exchange Ltd.
(SFE), Meff Sociedad Rectora de Productos Financieros Derivados de Renta
Variable, S.A. (MEFF RENTA VARIABLE), Deutsche Terminborse (DTB), Italian Stock
Exchange (ISE), Financiele Termijnmarkt Amsterdam (FTA), and London Securities
and Derivatives Exchange, Ltd. (OMLX).
Exchanges may limit the amount by which the price of a Futures Contract
may move on any day. If the price moves equal the daily limit on successive
days, then it may prove impossible to liquidate a futures position until the
daily limit moves have ceased.
Another risk which may arise in employing Futures Contracts to protect
against the price volatility of portfolio securities is that the prices of an
index subject to Futures Contracts (and thereby the Futures Contract prices) may
correlate imperfectly with the behavior of the cash prices of portfolio
securities. Another such risk is that the price of the Futures Contract may not
move in tandem with the change in overall stock market prices against which
the Portfolio seeks a hedge.
Over-the-counter options ("OTC Options") purchased are treated as not
readily marketable. (See "Investment Restrictions".)
The Investment Adviser on behalf of the Portfolio may enter into
forward foreign exchange contracts in order to protect the dollar value of all
investments in securities denominated in foreign currencies. The precise
matching of the forward contract amounts and the value of the securities
involved is not always possible because the future value of such securities in
foreign currencies changes as a consequence of market movements in the value of
such securities between the date the forward contract is entered into and the
date it matures.
B-4
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FOREIGN EXCHANGE CONTRACTS
Foreign exchange contracts are made with currency dealers, usually
large commercial banks and financial institutions. Although foreign exchange
rates are volatile, foreign exchange markets are generally liquid with the
equivalent of approximately $500 billion traded worldwide on a typical day.
While the Portfolio may enter into foreign currency exchange
transactions to reduce the risk of loss due to a decline in the value of the
hedged currency, these transactions also tend to limit the potential for gain.
Forward foreign exchange contracts do not eliminate fluctuations in the prices
of a Portfolio's securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline. The precise matching of the forward
contract amounts and the value of the securities involved is not generally
possible because the future value of such securities in foreign currencies
changes as a consequence of market movements in the value of such securities
between the date the forward contract is entered into and the date it matures.
The projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly unlikely.
LOANS OF PORTFOLIO SECURITIES
Loans up to 30% of the total value of the Portfolio are permitted.
Securities of the Portfolio may be loaned if such loans are secured continuously
by cash or equivalent liquid securities as collateral or by an irrevocable
letter of credit in favor of the Portfolio at least equal at all times to 100%
of the market value of the securities loaned plus accrued income. By lending
securities, the Portfolio's income can be increase by its continuing to receive
income on the loaned securities as well as by the opportunity to receive
interest on the collateral. All or any portion of interest earned on invested
collateral may be paid to the borrower. Loans are subject to termination by the
Portfolio in the normal settlement time, currently three business days after
notice, or by the borrower on one day's notice. Borrowed securities are returned
when the loan is terminated. Any appreciation or depreciation in the market
price of the borrowed securities which occurs during the term of the loan inures
to the Portfolio and its investors. Reasonable finders' and custodial fees may
be paid in connection with a loan. In addition, all facts and circumstances,
including the creditworthiness of the borrowing financial institution, are
considered before a loan is made and no loan is made in excess of one year.
There is the risk that a borrowed security may not be returned to the Portfolio.
Securities are not loaned to Brown Brothers Harriman & Co. or to any affiliate
of the Portfolio or Brown Brothers Harriman & Co.
SHORT-TERM INVESTMENTS
The assets of the Portfolio may be invested in non-U.S. dollar
denominated and U.S. dollar denominated short-term instruments, including U.S.
dollar denominated repurchase agreements. Cash is held for the Portfolio in
demand deposit accounts with the Portfolio's custodian bank.Although it is
intended that the assets of the Portfolio stay invested in the securities
described above and in the Prospectus to the extent practical in light of the
Portfolio's investment objective and long-term investment perspective, assets of
the Portfolio may be invested in short-term instruments to meet anticipated
expenses or for day-to-day operating purposes and when, in the Investment
Adviser's opinion, it is advisable to adopt a temporary defensive position
because of unusual and adverse conditions affecting the equity markets. In
addition, when the Portfolio experiences large cash inflows through additional
investments by its investors or the sale of portfolio securities, and desirable
equity securities that are consistent with its investment objective are
unavailable in sufficient quantities, assets may be held in short-term
investments for a limited time pending availability of such equity securities.
Short-term instruments consist of foreign and domestic: (i) short-term
obligations of sovereign governments, their agencies, instrumentalities,
authorities or political subdivisions; (ii) commercial paper; (iii) bank
obligations, including negotiable certificates of deposit, fixed time deposits
and bankers' acceptances; and (iv) repurchase agreements. Time deposits with a
B-5
<PAGE>
maturity of more than seven days are treated as not readily marketable (see
clause (vi) under the caption "State and Federal Restrictions"). At the time the
Portfolio's assets are invested in commercial paper, bank obligations or
repurchase agreements, the issuer must have outstanding debt rated A or higher
by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation
("Standard & Poor's"); the issuer's parent corporation, if any, must have
outstanding commercial paper rated Prime-1 by Moody's or A-1 by Standard &
Poor's; or, if no such ratings are available, the instrument must be of
comparable quality in the opinion of the Investment Adviser. The assets of the
Portfolio may be invested in non-U.S. dollar denominated and U.S. dollar
denominated short-term instruments, including U.S. dollar denominated repurchase
agreements.
GOVERNMENT SECURITIES. The assets of the Portfolio may be invested in
securities issued by the U.S. Government or sovereign foreign governments, their
agencies or instrumentalities. These securities include notes and bonds, zero
coupon bonds and stripped principal and interest securities.
RESTRICTED SECURITIES. Securities that have legal or contractual
restrictions on their resale may be acquired for the Portfolio. The price paid
for these securities, or received upon resale, may be lower than the price paid
or received for similar securities with a more liquid market. Accordingly, the
valuation of these securities reflects any limitation on their liquidity. (See
"Investment Restrictions".)
REPURCHASE AGREEMENTS. Repurchase agreements may be entered into for
the Portfolio only with a "primary dealer" (as designated by the Federal Reserve
Bank of New York) in U.S. Government securities. This is an agreement in which
the seller (the "Lender") of a security agrees to repurchase from the Portfolio
the security sold at a mutually agreed upon time and price. As such, it is
viewed as the lending of money to the Lender. The resale price normally is in
excess of the purchase price, reflecting an agreed upon interest rate. The rate
is effective for the period of time assets of the Portfolio are invested in the
agreement and is not related to the coupon rate on the underlying security. The
period of these repurchase agreements is usually short, from overnight to one
week. The securities which are subject to repurchase agreements, however, may
have maturity dates in excess of one week from the effective date of the
repurchase agreement. The Portfolio always receives as collateral securities
which are issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. Collateral is marked to the market daily and has a market
value including accrued interest at least equal to 100% of the dollar amount
invested on behalf of the Portfolio in each agreement along with accrued
interest. Payment for such securities is made for the Portfolio only upon
physical delivery or evidence of book entry transfer to the account of State
Street Bank and Trust Company (the "Custodian"). If the Lender defaults, the
Portfolio might incur a loss if the value of the collateral securing the
repurchase agreement declines and might incur disposition costs in connection
with liquidating the collateral. In addition, if bankruptcy proceedings are
commenced with respect to the Lender, realization upon the collateral on behalf
of the Portfolio may be delayed or limited in certain circumstances.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Securities may be
purchased for the Portfolio on a when-issued or delayed delivery basis. For
example, delivery and payment may take place a month or more after the date of
the transaction. The purchase price and the interest rate payable on the
securities, if any, are fixed on the transaction date. The securities so
purchased are subject to market fluctuation and no income accrues to the
Portfolio until delivery and payment take place. At the time the commitment to
purchase securities on a when-issued or delayed delivery basis is made, the
transaction is recorded and thereafter the value of such securities is reflected
each day in determining the Portfolio's net asset value. The Portfolio maintains
with the Custodian a separate account with a segregated portfolio of securities
in an amount at least equal to these commitments. At the time of its
acquisition, a when-issued or delayed delivery security may be valued at less
than the purchase price. Commitments for such when-issued or delayed delivery
securities are made only when there is an intention of actually acquiring the
securities. On delivery dates for such transactions, such obligations are met
from maturities or sales of securities and/or from cash flow. If the right to
acquire a when- issued or delayed delivery security is disposed of prior to its
acquisition, the Portfolio could, as with the disposition of any other portfolio
obligation, incur a gain or loss due to market fluctuation. When-issued or
delayed delivery commitments for the Portfolio may not be entered into if such
commitments exceed in the aggregate 15% of the market value of its total assets,
less liabilities other than the obligations created by when-issued or delayed
delivery commitments.
B-6
<PAGE>
INVESTMENT COMPANY SECURITIES. Subject to applicable statutory and
regulatory limitations, the assets of the Portfolio may be invested in shares of
other investment companies. Under the 1940 Act, assets of the Portfolio may be
invested in shares of other investment companies in connection with a merger,
consolidation, acquisition or reorganization or if immediately after such
investment (i) 10% or less of the market value of the Portfolio's total assets
would be so invested, (ii) 5% or less of the market value of the Portfolio's
total assets would be invested in the shares of any one such company, and (iii)
3% or less of the total outstanding voting stock of any other investment company
would be owned by the Portfolio. As a shareholder of another investment company,
the Portfolio would bear, along with other shareholders, its pro rata portion of
the other investment company's expenses, including advisory fees. These expenses
would be in addition to the advisory and other expenses that the Portfolio bears
directly in connection with its own operations.
ADDITIONAL INVESTMENT INFORMATION
In response to adverse market, economic, political or other conditions,
the Portfolio may make temporary investments that are not consistent with its
investment objective and principal investment strategies. Such investments may
prevent the Portfolio from achieving its investment objective.
INVESTMENT RESTRICTIONS
The Portfolio is operated under the following investment restrictions
which are deemed fundamental policies and may be changed only with the approval
of the holders of a "majority of the outstanding voting securities" as defined
in the Investment Company Act of 1940, as amended (the "1940 Act"), of the
Portfolio. As used in this Part B, the term "majority of the outstanding voting
securities" as defined in the 1940 Act currently means the vote of (i) 67% or
more of the voting securities present at a meeting, if the holders of more than
50% of the outstanding voting securities are present in person or represented by
proxy; or (ii) more than 50% of the outstanding voting securities, whichever is
less.
The Portfolio may not:
(1) borrow money or mortgage or hypothecate its assets, except that in
an amount not to exceed 1/3 of the current value of its net assets, it may
borrow money as a temporary measure for extraordinary or emergency purposes, and
except that it may pledge, mortgage or hypothecate not more than 1/3 of such
assets to secure such borrowings (it is intended that money will be borrowed
only from banks and only either to accommodate requests for the withdrawal of
part or all of an interest in the Portfolio while effecting an orderly
liquidation of portfolio securities or to maintain liquidity in the event of an
unanticipated failure to complete a portfolio security transaction or other
similar situations), provided that collateral arrangements with respect to
options and futures, including deposits of initial deposit and variation margin,
are not considered a pledge of assets for purposes of this restriction and
except that assets may be pledged to secure letters of credit solely for the
purpose of participating in a captive insurance company sponsored by the
Investment Company Institute;
(2) purchase any security or evidence of interest therein on margin,
except that such short-term credit as may be necessary for the clearance of
purchases and sales of securities may be obtained and except that deposits of
initial deposit and variation margin may be made in connection with the
purchase, ownership, holding or sale of futures;
(3) write, purchase or sell any put or call option or any combination
thereof, provided that this shall not prevent (i) the purchase, ownership,
holding or sale of warrants where the grantor of the warrants is the issuer of
the underlying securities, or (ii) the purchase, ownership, holding or sale of
futures and options, other than the writing of put options;
(4) underwrite securities issued by other persons except insofar as it
may technically be deemed an underwriter under the Securities Act of 1933, as
amended (the "1933 Act") in selling a portfolio security;
(5) make loans to other persons except (a) through the lending of its
portfolio securities and provided that any such loans not exceed 30% of its net
assets (taken at market value), (b) through the use of repurchase agreements or
the purchase of short-term obligations and provided that not more than 10% of
its net assets is invested in repurchase agreements maturing in more than seven
days, or (c) by purchasing, subject to the limitation in paragraph (6) below, a
portion of an issue of debt securities of types commonly distributed privately
to financial institutions, for which purposes the purchase of short-term
commercial paper or a portion of an issue of debt securities which are part of
an issue to the public shall not be considered the making of a loan;
(6) knowingly invest in securities which are subject to legal or
contractual restrictions on resale (other than repurchase agreements maturing in
B-7
<PAGE>
not more than seven days) if, as a result thereof, more than 10% of its net
assets (taken at market value) would be so invested (including repurchase
agreements maturing in more than seven days);
(7) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts
(except futures and option contracts) in the ordinary course of business (the
freedom of action to hold and to sell real estate acquired as a result of the
ownership of securities is reserved);
(8) make short sales of securities or maintain a short position, unless
at all times when a short position is open it owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless not more than 10% of its net
assets (taken at market value) is represented by such securities, or securities
convertible into or exchangeable for such securities, at any one time (it is the
present intention of management to make such sales only for the purpose of
deferring realization of gain or loss for federal income tax purposes; such
sales would not be made of securities subject to outstanding options);
(9) concentrate its investments in any particular industry, but if it
is deemed appropriate for the achievement of its investment objective, up to 25%
of its assets, at market value at the time of each investment, may be invested
in any one industry, except that positions in futures or option contracts shall
not be subject to this restriction; or
(10) issue any senior security (as that term is defined in the 1940
Act) if such issuance is specifically prohibited by the 1940 Act or the rules
and regulations promulgated thereunder, provided that collateral arrangements
with respect to options and futures, including deposits of initial deposit and
variation margin, are not considered to be the issuance of a senior security for
purposes of this restriction.
NON-FUNDAMENTAL RESTRICTIONS. The Portfolio may not as a matter of
operating policy: (i) purchase securities of any investment company if such
purchase at the time thereof would cause more than 10% of its total assets
(taken at the greater of cost or market value) to be invested in the securities
of such issuers or would cause more than 3% of the outstanding voting securities
of any such issuer to be held for it; (ii) invest more than 10% of its net
assets (taken at the greater of cost or market value) in restricted securities
or (iii) invest less than 65% of the value of the total assets of the Portfolio
is invested in equity securities of companies based in countries in which it may
invest. For these purposes, equity securities are defined as common stock,
securities convertible into common stock, rights and warrants, and include
securities purchased directly and in the form of American Depositary Receipts,
Global Depositary Receipts or other similar securities representing common stock
of foreign-based companies.
B-8
<PAGE>
These policies are not fundamental and may be changed without investor approval.
The Portfolio is classified as "non-diversified" under the 1940 Act,
which means that it is not limited by the 1940 Act with respect to the
proportion of its assets which may be invested in securities of a single issuer
(although certain diversification requirements are imposed by the Internal
Revenue Code of 1986, as amended).
The possible assumption of large positions in the securities of a small
number of issuers may cause the performance of each of the Portfolio to
fluctuate to a greater extent than that of a diversified investment company as a
result of changes in the financial condition or in the market's assessment of
the issuers.
PERCENTAGE AND RATING RESTRICTIONS. If a percentage or rating
restriction on investment or utilization of assets set forth above or referred
to in Part A is adhered to at the time an investment is made or assets are so
utilized, a later change in percentage resulting from changes in the value of
the portfolio securities or a later change in the rating of a portfolio security
is not considered a violation of policy. If investment restrictions relating to
any particular investment practice or policy are inconsistent between the
Portfolio and an investor, the Portfolio will adhere to the more restrictive
limitation.
ITEM 13. MANAGEMENT OF THE PORTFOLIO.
The Portfolio's Trustees, in addition to supervising the actions of the
Investment Adviser and the Portfolio's administrator (the "Administrator"), as
set forth below, decide upon matters of general policy with respect to the
Portfolio.
Because of the services rendered to the Portfolio by the Investment
Adviser and the Administrator, the Portfolio requires no employees, and its
officers, other than the Chairman, receive no compensation from the Portfolio.
The Trustees and executive officers of the Portfolio, their business
addresses, and principal occupation during the past five years (although their
titles may have varied during the period) are:
TRUSTEES OF THE PORTFOLIO
RICHARD L. CARPENTER* -- Trustee; Retired; Director of Internal
Investments, Public School Employees' Retirement System (prior to December
1995). His business address is 12664 Lazy Acres Court, Nevada City, CA
95959.
CLIFFORD A. CLARK* -- Trustee; Retired; Director of Schmid, Inc.
(prior to July 1993); Managing Director of the Smith-Denison Foundation . His
business address is 42 Clowes Drive, Falmouth, MA 02540.
DAVID M. SEITZMAN* -- Trustee; Retired; Physician with Seitzman,
Shuman, Kwart and Phillips (prior to October 1997); Director of the National
Capital Underwriting Company, Commonwealth Medical Liability Insurance Co. and
National Capital Insurance Brokerage, Limited. His business address is 7117
Nevis Road, Bethesda, MD 20817.
OFFICERS OF THE PORTFOLIO
PHILIP W. COOLIDGE -- President; Chief Executive Officer and President
of Signature Financial Group, Inc. ("SFG"), 59 Wall Street Distributors, Inc.
("59 Wall Street Distributors") and 59 Wall Street Administrators, Inc. ("59
Wall Street Administrators").
JAMES E. HOOLAHAN -- Vice President; Senior Vice President of SFG .
B-9
<PAGE>
JOHN R. ELDER -- Treasurer; Vice President of SFG (since April 1995);
Treasurer of Phoenix Family of Mutual Funds (prior to April 1995).
LINDA T. GIBSON -- Secretary; Senior Vice President and Secretary,
SFG ; Secretary of 59 Wall Street Distributors and 59 Wall Street
Administrators.
SUSAN JAKUBOSKI -- Assistant Treasurer and Assistant Secretary of the
Portfolio; Assistant Secretary, Assistant Treasurer and Vice President of
Signature Financial Group (Cayman) Limited (since August 1994); Fund Compliance
Administrator of Concord Financial Group, Inc. (from November 1990 to August
1994).
MOLLY S. MUGLER -- Assistant Secretary; Vice President and Assistant
Secretary of SFG; Assistant Secretary of 59 Wall Street Distributors and 59 Wall
Street Administrators (since June 1993).
CHRISTINE A. DRAPEAU -- Assistant Secretary; Vice President of SFG
(since January 1996); Paralegal and Compliance Officer, various
financil companies (July 1992 to January 1996); Graduate Student, Bentley
College (prior to December 1994).
- -------------------------
* These Trustees are members of the Audit Committee of the Portfolio.
The address of each officer of the Portfolio is 21 Milk Street, Boston,
Massachusetts 02109. Messrs. Coolidge, Hoolahan and Elder and Mss. Gibson,
Jakuboski, Mugler and Drapeau also hold similar positions with other investment
companies for which affiliates of 59 Wall Street Distributors serves as the
principal underwriter. B-10
<PAGE>
The Trustees of the Portfolio receive a base annual fee of $12,000
(except the Chairman who receives a base annual fee of $17,000) which is paid
jointly by the U.S. Money Market Portfolio and U.S. Small Company Portfolio
together with the Portfolio (the "Portfolios") and allocated among the
Portfolios based upon their respective net assets. In addition, each Portfolio
which has commenced operations pays an annual fee to each Trustee of $1,000.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Pension or Total
Retirement Compensation
Aggregate Benefits Accrued Estimated Annual from the
Name of Person, Compensation as Part of Benefits upon Portfolio Complex*
POSITION FROM THE PORTFOLIO PORTFOLIO EXPENSES RETIREMENT PAID TO TRUSTEES
- --------------- ------------------ --------------------- ---------------- ----------------
Richard L. Carpenter, 5,534 none none 17,000
Trustee
Clifford A. Clark, 5,534 none none 17,000
Trustee
David M. Seitzman, 5,534 none none 17,000
Trustee
<FN>
*The Portfolio Complex consists of the Portfolio and U.S. Money Market
Portfolio and U.S. Small Company Portfolio.
</FN>
</TABLE>
No Trustee of the Portfolio is an "interested person" of the Portfolio
as that term is defined in the 1940 Act.
By virtue of the responsibilities assumed by Brown Brothers Harriman &
Co. under the Investment Advisory Agreement with the Portfolio and by Brown
Brothers Harriman Trust Company of New York ("Brown Brothers Harriman Trust
Company") under the Administration Agreement with the Portfolio (see "Investment
Adviser" and "Administrator"), the Portfolio requires no employees other than
its officers, and none of its officers devote full time to the affairs of the
Portfolio or, other than the Chairman, receive any compensation from the
Portfolio.
ITEM 14. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
As of January 31, 1999, United Food & Commercial Workers' Pension Plan
owned 48.9%, The 59 Wall Street International Equity Fund owned 41.3% and Brown
Brothers Harriman Employees' Pension Plan owned 9.6% of the outstanding
beneficial interests in the Portfolio. Brown Brothers Harriman Trust Company
(Cayman) Limited owned less than 1% of the outstanding beneficial interests in
the Portfolio.
Brown Brothers Harriman Trust Company has informed the Portfolio that
whenever it is requested to vote on matters pertaining to the Portfolio (other
than a vote by the Portfolio to continue the operation of the
B-11
<PAGE>
Portfolio upon the withdrawal of another investor in the Portfolio), it will
hold a meeting of its shareholders and will cast its vote as instructed by those
shareholders.
ITEM 15. INVESTMENT ADVISORY AND OTHER SERVICES.
INVESTMENT ADVISER. Under its Investment Advisory Agreement with the
Portfolio, subject to the general supervision of the Portfolio's Trustees and in
conformance with the stated policies of the Portfolio, Brown Brothers Harriman &
Co. provides investment advice and portfolio management services to the
Portfolio. In this regard, it is the responsibility of Brown Brothers Harriman &
Co. to make the day-to-day investment decisions for the Portfolio, to place the
purchase and sale orders for portfolio transactions and to manage, generally,
the Portfolio's investments.
The investment advisory services of Brown Brothers Harriman & Co. to
the Portfolio are not exclusive under the terms of the Investment Advisory
Agreement. Brown Brothers Harriman & Co. is free to and does render investment
advisory services to others, including other registered investment companies.
The Investment Advisory Agreement between Brown Brothers Harriman & Co.
and the Portfolio is dated August 23, 1994 and remains in effect for two years
from such date and thereafter, but only as long as the agreement is specifically
approved at least annually (i) by a vote of the holders of a "majority of the
outstanding voting securities as defined in the 1940 Act" of the Portfolio, or
by the Portfolio's Trustees, and (ii) by a vote of a majority of the Trustees of
the Portfolio who are not parties to the Investment Advisory Agreement or
"interested persons" (as defined in the 1940 Act) of the Portfolio ("Independent
Trustees"), cast in person at a meeting called for the purpose of voting on such
approval. The Investment Advisory Agreement was most recently approved by the
Independent Trustees on November 10, 1998. The Investment Advisory Agreement
terminates automatically if assigned and is terminable at any time without
penalty by a vote of a majority of the Trustees of the Portfolio or by a vote of
the holders of a "majority of the outstanding voting securities as defined in
the 1940 Act" of the Portfolio on 60 days' written notice to Brown Brothers
Harriman & Co. and by Brown Brothers Harriman & Co. on 90 days' written notice
to the Portfolio.
The investment advisory fee paid to the Investment Adviser is
calculated daily and paid monthly at an annual rate equal to 0.65% of the
Portfolio's average daily net assets. For the fiscal years ended October 31,
1998, 1997 and 1996, the Portfolio incurred $448,851, $293,880 and $226,127,
respectively for advisory fees.
The Glass-Steagall Act prohibits certain financial institutions from
engaging in the business of underwriting, selling or distributing securities and
from sponsoring, organizing or controlling a registered open-end investment
company continuously engaged in the issuance of its shares. There is presently
no controlling precedent prohibiting financial institutions such as Brown
Brothers Harriman & Co. from performing investment advisory or administrative
functions. If Brown Brothers Harriman & Co. were to terminate its Investment
Advisory Agreement with the Portfolio, or were prohibited from acting in such
capacity, it is expected that the Trustees of the Portfolio would recommend to
the investors that they approve a new investment advisory agreement for the
Portfolio with another qualified adviser.
B-12
<PAGE>
ADMINISTRATOR. Brown Brothers Harriman Trust Company acts as the
Administrator of the Portfolio. Brown Brothers Harriman Trust Company is a
wholly-owned subsidiary of Brown Brothers Harriman & Co.
Brown Brothers Harriman Trust Company, in its capacity as
Administrator, administers all aspects of the Portfolio's operations subject to
the supervision of the Trustees except as set forth above under "Investment
Adviser". In connection with its responsibilities as Administrator and at its
own expense, Brown Brothers Harriman Trust Company (i) provides the Portfolio
with the services of persons competent to perform such supervisory,
administrative and clerical functions as are necessary in order to provide
effective administration of the Portfolio, including the maintenance of certain
books and records, receiving and processing requests for increases and decreases
in the beneficial interests in the Portfolio, notification to the Investment
Adviser of available funds for investment, reconciliation of account information
and balances between the Custodian and the Investment Adviser, and processing,
investigating and responding to investor inquiries; (ii) oversees the
performance of administrative and professional services to the Portfolio by
others, including the Custodian; (iii) provides the Portfolio with adequate
office space and communications and other facilities; and (iv) prepares and/or
arranges for the preparation, but does not pay for, the periodic updating of the
Portfolio's registration statement for filing with the Securities and Exchange
Commission (the "SEC"), and the preparation of tax returns for the Portfolio and
reports to investors and the SEC.
Prior to March 1, 1999, Brown Brothers Harriman Trust Company
(Cayman) Limited acted as administrator to the Portfolio under the same terms
and conditions as set forth herein.
For the services rendered to the Portfolio and related expenses borne
by Brown Brothers Harriman Trust Company as Administrator of the Portfolio,
Brown Brothers Harriman Trust Company receives from the Portfolio an annual fee,
computed daily and payable monthly, equal to 0.035% of the Portfolio's average
daily net assets. For the fiscal years ended October 31, 1998, 1997 and 1996,
the Portfolio incurred $23,282, $15,824 and $12,176, respectively, for
administrative services.
The Administration Agreement between the Portfolio and Brown Brothers
Harriman Trust Company (dated March 1, 1999) will remain in effect for
successive annual periods, but only so
B-13
<PAGE>
long as the agreement is specifically approved at least annually in the
same manner as the Investment Advisory Agreement (see "Investment Adviser"). The
Independent Trustees most recently approved the Portfolio's Administration
Agreement on February 9, 1999. The agreement will terminate automatically if
assigned by either party thereto and is terminable by the Portfolio at any time
without penalty by a vote of a majority of the Trustees of the Portfolio, or by
a vote of the holders of a "majority of the outstanding voting securities as
defined in the 1940 Act" of the Portfolio. The Portfolio's Administration
Agreement is terminable by the Trustees of the Portfolio or by investors in the
Portfolio on 60 days' written notice to Brown Brothers Harriman Trust Company.
The agreement is terminable by the Administrator on 90 days' written notice to
the Portfolio.
Prior to March 1, 1999, Brown Brothers Harriman Trust Company
(Cayman) Limited acted as administrator to the Portfolio under the same terms
and conditions as set forth herein.
Pursuant to a Subadministrative Services Agreement with Brown Brothers
Harriman Trust Company, 59 Wall Street Administrators, Inc. ("59 Wall Street
Administrators") performs such subadministrative duties for the Portfolio as are
from time to time agreed upon by the parties. The offices of 59 Wall Street
Administrators are located at 21 Milk Street, Boston, MA 02109. 59 Wall Street
Administrators is a wholly-owned subsidiary of Signature Financial Group, Inc.
59 Wall Street Administrators's subadministrative duties may include providing
equipment and clerical personnel necessary for maintaining the organization of
the Portfolio, participation in the preparation of documents required for
compliance by the Portfolio with applicable laws and regulations, preparation of
certain documents in connection with meetings of Trustees of and investors in
the Portfolio, and other functions that would otherwise be performed by the
Administrator as set forth above. For performing such subadministrative
services, 59 Wall Street Administrators receives such compensation as is from
time to time agreed upon, but not in excess of the amount paid to the
Administrator from the Portfolio.
Prior to March 1, 1999, Signature Financial Group (Cayman) Limited acted as
subadministrator to the Portfolio under the same terms and conditions as set
forth herein.
EXPENSE PAYMENT AGREEMENT
Under an agreement dated March 1, 1999, Brown Brothers Harriman Trust
Company pays the expenses of the Portfolio, other than fees paid to Brown
Brothers Harriman & Co. under the Portfolio's Administration Agreement and other
than expenses relating to the organization of the Portfolio. In return, Brown
Brothers Harriman Trust Company receives a fee from the Portfolio such that
after such payment the aggregate expenses of the Portfolio do not exceed an
agreed upon annual rate, currently 0.90% of the average daily net assets of the
Portfolio. Such fees are computed daily and paid monthly. Prior to March 1,
1999, Brown Brothers Harriman Trust Company (Cayman) Limited paid the expenses
of the Portfolio under the same terms and conditions as set forth herein.
PLACEMENT AGENT
The Portfolio has not retained the services of a principal underwriter or
distributor, since interests in the Portfolio are offered solely in private
placement transactions. 59 Wall Street Distributors, Inc. ("59 Wall Street
Distributors"), acting as agent for the Portfolio, serves as the placement agent
of interests in the Portfolio. 59 Wall Street Distributors receives no
compensation for serving as placement agent. Prior to March 1, 1999, Signature
Financial Group (Cayman) Limited acted as placement agent for the Portfolio
under the same terms and conditions as set forth herein.
CUSTODIAN
State Street Bank and Trust Company ("State Street" or the
"Custodian"), 225 Franklin Street, Boston, Massachusetts 02110, is the Custodian
for the Portfolio.
As Custodian, State Street is responsible for maintaining books and
records of portfolio transactions and holding the Portfolio's securities and
cash pursuant to a custodian agreement with the Portfolio. Cash is held for the
Portfolio in demand deposit accounts at the Custodian. Subject to the
supervision of the Administrator, the Custodian maintains the accounting and
portfolio transaction records for the Portfolio and each day computes the net
asset value and net income of the Portfolio.
INDEPENDENT AUDITORS
Deloitte & Touche are the independent auditors of the Portfolio.
B-14
<PAGE>
ITEM 16. BROKERAGE ALLOCATION AND OTHER PRACTICES.
The Portfolio is managed actively in pursuit of its investment
objective. Securities are not traded for short-term profits but, when
circumstances warrant, securities are sold without regard to the length of time
held. A 100% annual turnover rate would occur, for example, if all portfolio
securities (excluding short-term obligations) were replaced once in a period of
one year. For the fiscal years ended October 31, 1997 and 1998, the portfolio
turnover rate of the Portfolio was 85% and 89%, respectively. The amount of
brokerage commissions and taxes on realized capital gains to be borne by the
investors tend to increase as the level of portfolio activity increases.
In effecting securities transactions the Investment Adviser seeks to
obtain the best price and execution of orders. In selecting a broker, the
Investment Adviser considers a number of factors, including: the broker's
ability to execute orders without disturbing the market price; the broker's
reliability for prompt, accurate confirmations and on-time delivery of
securities; the broker's financial condition and responsibility; the research
and other information provided by the broker; and the commissions charged.
Accordingly, the commissions charged by any such broker may be greater than the
amount another firm might charge if the Investment Adviser determines in good
faith that the amount of such commissions is reasonable in relation to the value
of the brokerage services and research information provided by such broker.
The Investment Adviser may direct a portion of the Portfolio's
securities transactions to certain unaffiliated brokers which in turn use a
portion of the commissions they receive from the Portfolio to pay other
unaffiliated service providers on behalf of the Portfolio for services provided
for which the Portfolio would otherwise be obligated to pay. Such commissions
paid by the Portfolio are at the same rate paid to other brokers for effecting
similar transactions in listed equity securities.
Research services provided by brokers to which Brown Brothers Harriman
& Co. has allocated brokerage business in the past include economic statistics
and forecasting services, industry and company analyses, portfolio strategy
services, quantitative data, and consulting services from economists and
political analysts. Research services furnished by brokers are used for the
benefit of all the Investment Adviser's clients and not solely or necessarily
for the benefit of the Portfolio. The Investment Adviser believes that the value
of research services received is not determinable nor does such research
significantly reduce its expenses. The Portfolio does not reduce the fee paid to
the Investment Adviser by any amount that might be attributable to the value of
such services.
Portfolio securities are not purchased from or sold to the
Administrator or Investment Adviser or any "affiliated person" (as defined in
the 1940 Act) of the Administrator or Investment Adviser when such entities are
acting as principals, except to the extent permitted by law.
A committee, comprised of officers and partners of Brown Brothers
Harriman & Co. who are portfolio managers of some of Brown Brothers Harriman &
Co.'s managed accounts (the "Managed Accounts"), evaluates semi-annually the
nature and quality of the brokerage and research services provided by brokers,
and, based on this evaluation, establishes a list and projected ranking of
preferred brokers for use in determining the relative amounts of commissions to
be allocated to such brokers. However, in any semi-annual period, brokers not on
the list may be used, and the relative amounts of brokerage commissions paid to
the brokers on the list may vary substantially from the projected rankings.
The Trustees of the Portfolio review regularly the reasonableness of
commissions and other transaction costs incurred for the Portfolio in light of
facts and circumstances deemed relevant from time to time and, in that
connection, receive reports from the Investment Adviser and published data
concerning transaction costs incurred by institutional investors generally.
Over-the-counter purchases and sales are transacted directly with
principal market makers, except in those circumstances in which, in the judgment
of the Investment Adviser, better prices and execution of orders can otherwise
be obtained. If the Portfolio effects a closing transaction with respect to a
futures or option contract, such transaction normally would be executed by the
same broker-dealer who executed the opening transaction. The writing of options
by the Portfolio may be subject to limitations established by each of the
exchanges governing the maximum number of options in each class which may be
written by a single investor or group of investors acting in concert, regardless
of whether the options are written on the same or different exchanges or are
held or written in one or more accounts or through one or more brokers. The
number of options which the Portfolio may write may be affected by options
written by the Investment Adviser for other investment advisory clients. An
exchange may order the liquidation of positions found to be in excess of these
limits, and it may impose certain other sanctions.
On those occasions when Brown Brothers Harriman & Co. deems the
purchase or sale of a security to be in the best interests of the Portfolio as
well as other customers, Brown Brothers Harriman & Co., to the extent permitted
by applicable laws and regulations, may, but is not obligated to, aggregate the
securities to be sold or purchased for the Portfolio with those to be sold or
purchased for other customers in order to obtain best execution, including lower
brokerage commissions, if appropriate. In such event, allocation of the
securities so purchased or sold as well as any expenses incurred in the
transaction are made by Brown Brothers Harriman & Co. in the manner it considers
to be most equitable and consistent with its fiduciary obligations to its
customers, including the Portfolio. In some instances, this procedure might
adversely affect the Portfolio.
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ITEM 18. CAPITAL STOCK AND OTHER SECURITIES.
The Portfolio is organized as a trust under the laws of the State of
New York. Under the Declaration of Trust, the Trustees are authorized to issue
beneficial interests in the Portfolio. Investors are entitled to participate pro
rata in distributions of taxable income, loss, gain and credit of the Portfolio.
Upon liquidation or dissolution of the Portfolio, investors are entitled to
share pro rata in the Portfolio's net assets available for distribution to its
investors. Investments in the Portfolio have no preference, preemptive,
conversion or similar rights and are fully paid and nonassessable, except as set
forth below. Investments in the Portfolio may not be transferred. Certificates
representing an investor's beneficial interest in the Portfolio are issued only
upon the written request of an investor.
Each investor is entitled to a vote in proportion to the amount of its
investment in the Portfolio. Investors in the Portfolio do not have cumulative
voting rights, and investors holding more than 50% of the aggregate beneficial
interest in the Portfolio may elect all of the Trustees if they choose to do so
and in such event the other investors in the Portfolio would not be able to
elect any Trustee. The Portfolio is not required and has no current intention to
hold annual meetings of investors but the Portfolio will hold special meetings
of investors when in the judgment of the Portfolio's Trustees it is necessary or
desirable to submit matters for an investor vote. Changes in fundamental
policies will be submitted to investors for approval. No material amendment may
be made to the Portfolio's Declaration of Trust without the affirmative majority
vote of investors (with the vote of each being in proportion to the amount of
its investment). Investors have under certain circumstances (e.g., upon
application and submission of certain specified documents to the Trustees by a
specified percentage of the outstanding interests in the Portfolio) the right to
communicate with other investors in connection with requesting a meeting of
investors for the purpose of removing one or more Trustees. Investors also have
the right to remove one or more Trustees without a meeting by a declaration in
writing by a specified percentage of the outstanding interests in the Portfolio.
Upon liquidation of the Portfolio, investors would be entitled to share pro rata
in the net assets of the Portfolio available for distribution to investors.
The end of the Portfolio's fiscal year is October 31.
Under the anticipated method of operation of the Portfolio, the
Portfolio will not be subject to any income tax. However, each investor in the
Portfolio will be taxable on its share (as determined in accordance with the
governing instruments of the Portfolio) of the Portfolio's ordinary income and
capital gain in determining its income tax liability. The determination of such
share will be made in accordance with the Internal Revenue Code of 1986, as
amended (the "Code"), and regulations promulgated thereunder.
It is intended that the Portfolio's assets, income and distributions
will be managed in such a way that an investor in the Portfolio will be able to
satisfy the requirements of Subchapter M of the Code, assuming that the investor
invested all of its assets in the Portfolio.
Investor inquiries may be directed to 59 Wall Street Administrators,
Inc., 21 Milk Street, Boston, MA 02109, (617) 423-0800.
The Portfolio may enter into a merger or consolidation, or sell all or
substantially all of its assets, if approved by the vote of two thirds of its
investors (with the vote of each being in proportion to its percentage of the
beneficial interests in the Portfolio), except that if the Trustees recommend
such sale of assets, the approval by vote of a majority of the investors (with
the vote of each being in proportion to its percentage of the beneficial
interests of the Portfolio) will be sufficient. The Portfolio may also be
terminated (i) upon liquidation and distribution of its assets if approved by
the vote of two thirds of its investors (with the vote of each being in
proportion to the amount of its investment) or (ii) by the Trustees by written
notice to its investors.
Investors in the Portfolio will be held personally liable for its
obligations and liabilities, subject, however, to indemnification by the
Portfolio in the event that there is imposed upon an investor a greater portion
of the liabilities and obligations of the Portfolio than its proportionate
beneficial interest in the Portfolio. The Declaration of Trust also provides
that the Portfolio shall maintain appropriate insurance (for example, fidelity
bonding and errors and omissions insurance) for the protection of the Portfolio,
its investors, Trustees, officers, employees and agents covering possible tort
and other liabilities. Thus, the risk of an investor incurring financial loss on
account of investor liability is limited to circumstances in which both
inadequate insurance existed and the Portfolio itself was unable to meet its
obligations.
The Portfolio's Declaration of Trust further provides that obligations
of the Portfolio are not binding upon the Trustees individually but only upon
the property of the Portfolio and that the Trustees will not be liable for any
action or failure to act, but nothing in the Declaration of Trust protects a
Trustee against any liability to which he would otherwise be subject by reason
of wilful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office.
B-17
<PAGE>
ITEM 18. PURCHASE, REDEMPTION AND PRICING OF SECURITIES.
Beneficial interests in the Portfolio are issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in the Portfolio may only
be made by other investment companies, insurance company separate accounts,
common or commingled trust funds, or similar organizations or entities which are
"accredited investors" as defined in Rule 501 under the 1933 Act. This
Registration Statement does not constitute an offer to sell, or the solicitation
of an offer to buy, any "security" within the meaning of the 1933 Act.
An investment in the Portfolio may be made without a sales load. All
investments are made at net asset value next determined after an order is
received in "good order" by the Portfolio. The net asset value of the Portfolio
is determined once on each business day.
There is no minimum initial or subsequent investment in the Portfolio.
However, because the Portfolio intends to be as fully invested at all times as
is reasonably practicable in order to enhance the yield on its assets,
investments must be made in federal funds (i.e., monies credited to the account
of the Custodian by a Federal Reserve Bank).
The Portfolio reserves the right to cease accepting investments at any
time or to reject any investment order.
Each investor in the Portfolio may add to or reduce its investment in
the Portfolio on each day the New York Stock Exchange is open for regular
trading. At 4:00 P.M., New York time on each such business day, the value of
each investor's beneficial interest in the Portfolio is determined by
multiplying the net asset value of the Portfolio by the percentage, effective
for that day, which represents that investor's share of the aggregate beneficial
interests in the Portfolio. Any additions or withdrawals, which are to be
effected on that day, are then effected. The investor's percentage of the
aggregate beneficial interests in the Portfolio is then recomputed as the
percentage equal to the fraction (i) the numerator of which is the value of such
investor's investment in the Portfolio as of 4:00 P.M New York time on such
day plus or minus, as the case may be, the amount of any additions to or
withdrawals from the investor's investment in the Portfolio effected on such
day, and (ii) the denominator of which is the aggregate net asset value of the
Portfolio as of 4:00 P.M. New York time, on such day plus or minus, as the case
may be, the amount of the net additions to or withdrawals from the aggregate
investments in the Portfolio by all investors in the Portfolio. The percentage
so determined is then applied to determine the value of the investor's interest
in the Portfolio as of 4:00 P.M., New York time on the following business day of
the Portfolio.
The net income and capital gains and losses, if any, of the Portfolio
are determined at 4:00 p.m., New York time on each business day. Net income for
days other than business days is determined as of 4:00 p.m., New York time on
the immediately preceding business day. All the net income, as defined below,
and capital gains and losses, if any, so determined are allocated pro rata among
the investors in the Portfolio at the time of such determination.
For this purpose the "net income" of the Portfolio (from the time of
the immediately preceding determination thereof) consists of (i) accrued
interest, accretion of discount and amortization of premium less (ii) all actual
and accrued expenses of the Portfolio (including the fees payable to the
Investment Adviser and Administrator of the Portfolio).
The value of investments listed on a domestic securities exchange is
based on the last sale prices as of the regular close of the New York Stock
Exchange (which is currently 4:00 P.M New York time) or, in the absence of
recorded
B-18
<PAGE>
sales, at the average of readily available closing bid and asked prices on such
Exchange.
Unlisted securities are valued at the average of the quoted bid and
asked prices in the over-the-counter market. The value of each security for
which readily available market quotations exist is based on a decision as to the
broadest and most representative market for such security.
Securities or other assets for which market quotations are not readily
available are valued at fair value in accordance with procedures established by
and under the general supervision and responsibility of the Portfolio's
Trustees. Such procedures include the use of independent pricing services, which
use prices based upon yields or prices of securities of comparable quality,
coupon, maturity and type; indications as to values from dealers; and general
market conditions. Short-term investments which mature in 60 days or less are
valued at amortized cost if their original maturity was 60 days or less, or by
amortizing their value on the 61st day prior to maturity, if their original
maturity when acquired was more than 60 days, unless this is determined not to
represent fair value by the Trustees of the Portfolio.
If the Portfolio determines that it would be detrimental to the best
interest of the remaining investors in the Portfolio to make payment wholly or
partly in cash, payment of the redemption price may be made in whole or in part
by a distribution in kind of securities from the Portfolio, in lieu of cash, in
conformity with the applicable rules of the Securities and Exchange Commission
(the "SEC"). If interests are redeemed in kind, the redeeming investor might
incur transaction costs in converting the assets into cash. The method of
valuing portfolio securities is described above and such valuation will be made
as of the same time the redemption price is determined.
An investor in the Portfolio may reduce all or any portion of its
investment at the net asset value next determined after a request in "good
order" is furnished by the investor to the Portfolio. The proceeds of a
reduction will be paid by the Portfolio in federal funds normally on the next
Portfolio Business Day after the reduction is effected, but in any event within
seven days. Investments in the Portfolio may not be transferred.
The right of any investor to receive payment with respect to any
reduction may be suspended or the payment of the proceeds therefrom postponed
during any period in which the New York Stock Exchange is closed (other than
weekends or holidays) or trading on the New York Stock Exchange is restricted
or, to the extent otherwise permitted by the 1940 Act if an emergency exists.
The Portfolio reserves the right under certain circumstances, such as
accommodating requests for substantial withdrawals or liquidations, to pay
distributions in kind to investors (i.e., to distribute portfolio securities as
opposed to cash). If securities are distributed, an investor could incur
brokerage, tax or other charges in converting the securities to cash. In
addition, distribution in kind may result in a less diversified portfolio of
investments or adversely affect the liquidity of the Portfolio.
ITEM 20. TAX STATUS.
The Portfolio is organized as a New York trust. The Portfolio is not
subject to any income or franchise tax in the State of New York or the
Commonwealth of Massachusetts. However each investor in the Portfolio will be
taxable on its share (as determined in accordance with the governing instruments
of the Portfolio) of the Portfolio's ordinary income and capital gain in
determining its income tax liability. The determination of such share will be
made in accordance with the Internal Revenue Code of 1986, as amended (the
"Code"), and regulations promulgated thereunder.
Although, as described above, the Portfolio will not be subject to
federal income tax, it will file appropriate income tax returns.
It is intended that the Portfolio's assets will be managed in such a
way that an investor in the Portfolio will be able to satisfy the requirements
of Subchapter M of the Code.
Gains or losses on sales of securities by the Portfolio will be treated
as long-term capital gains or losses if the securities have been held by it for
more than one year except in certain cases where, if applicable, the Portfolio
acquires a put or writes a call thereon. Other gains or losses on the sale of
B-19
<PAGE>
securities will be short-term capital gains or losses. Gains and losses on the
sale, lapse or other termination of options on securities will be treated as
gains and losses from the sale of securities. If an option written by the
Portfolio lapses or is terminated through a closing transaction, such as a
repurchase by the Portfolio of the option from its holder, the Portfolio will
realize a short-term capital gain or loss, depending on whether the premium
income is greater or less than the amount paid by the Portfolio in the closing
transaction. If securities are purchased by the Portfolio pursuant to the
exercise of a put option written by it, the Portfolio will subtract the premium
received from its cost basis in the securities purchased.
Forward currency contracts, options and futures contracts entered into
by the Portfolio may create "straddles" for U.S. federal income tax purposes and
this may affect the character and timing of gains or losses realized by the
Portfolio on forward currency contracts, options and futures contracts or on the
underlying securities. Straddles may also result in the loss of the holding
period of underlying securities for purposes of the 30% of gross income test
described above, and therefore, the Portfolio's ability to enter into forward
currency contracts, options and futures contracts may be limited.
Certain options, futures and foreign currency contracts held by the
Portfolio at the end of each fiscal year will be required to be "marked to
market" for federal income tax purposes--i.e., treated as having been sold at
market value. For options and futures contracts, 60% of any gain or loss
recognized on these deemed sales and on actual dispositions will be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss regardless of how long the Portfolio has held such options
or futures. Any gain or loss recognized on foreign currency contracts will be
treated as ordinary income.
FOREIGN TAXES. The Portfolio may be subject to foreign withholding
taxes with respect to income received from sources within foreign countries.
OTHER TAXATION. The investment by an investor in the Portfolio does not
cause the investor to be liable for any income or franchise tax in the State of
New York. Investors are advised to consult their own tax advisers with respect
to the particular tax consequences to them of an investment in the Portfolio.
ITEM 21. UNDERWRITERS.
The placement agent for the Portfolio is 59 Wall Street Distributors, Inc.,
which receives no compensation for serving in this capacity. Other investment
companies, insurance company separate accounts, common and commingled trust
funds and similar organizations and entities may continuously invest in the
Portfolio. Prior to March 1, 1999, Signature Financial Group (Cayman) Limited
acted as placement agent for the Portfolio under the same terms and conditions
as set forth herein.
B-20
<PAGE>
ITEM 22. CALCULATIONS OF PERFORMANCE DATA.
Not applicable.
ITEM 23. FINANCIAL STATEMENTS.
The Portfolio's current annual report to shareholders as filed with the
SEC pursuant to Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder is
hereby incorporated herein by reference.
B-21
WS5313D
<PAGE>
PART C
ITEM 23. EXHIBITS.
1 Declaration of Trust of the Registrant as amended(2)
2 By-Laws of the Registrant(2)
5 Investment Advisory Agreement between the Registrant and Brown
Brothers Harriman & Co(2)
8 Custodian Contract between the Registrant and State Street Bank and
Trust Company(1)
8(i) Amendment to Custodian Contract between the Registrant and
State Street Bank and Trust Company (4)
9(a)Administration Agreement between the Registrant and Brown Brothers
Harriman Trust Company (Cayman) Limited(1)
9(a)(i) Administration Agreement between the Registrant and Brown
Brothers Harriman Trust Company(3)
9(b)Subadministrative Services Agreement between the Registrant and
Brown Brothers Harriman Trust Company (Cayman) Limited(1)
9(b)(i) Subadministrative Services Agreement between the Registrant
and Brown Brothers Harriman Trust Company (3)
9(c)Expense Payment Agreement between the Registrant and
Brown Brothers Harriman Trust Company (3)
13 Investment representation letters of initial investors(1)
17 Financial Data Schedule(3)
- ----------------
(1) Incorporated herein by reference from the registration statement as
initially filed with the Securities and Exchange Commission on March 8,
1995.
(2) Incorporated herein by reference from Amendment No. 1 to the
registration statement as filed with the Securities and Exchange
Commission on February 28, 1996.
(3) Filed herewith.
(4) To be filed by amendment.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not applicable.
<PAGE>
ITEM 25. INDEMNIFICATION.
Reference is hereby made to Article V of the Registrant's Declaration
of Trust, filed as an Exhibit herewith.
The Trustees and officers of the Registrant are insured under an errors
and omissions liability insurance policy. The Registrant and its officers are
also insured under the fidelity bond required by Rule 17g-1 under the Investment
Company Act of 1940, as amended.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
The Registrant's investment adviser, Brown Brothers Harriman & Co., is
a New York limited partnership. Brown Brothers Harriman & Co. conducts a general
banking business and is a member of the New York Stock Exchange.
To the knowledge of the Registrant, none of the general partners or
officers of Brown Brothers Harriman & Co. is engaged in any other business,
profession, vocation or employment of a substantial nature.
ITEM 27. PRINCIPAL UNDERWRITERS.
Not applicable.
C-2
<PAGE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended, and the Rules
thereunder are maintained at the offices of:
International Equity Portfolio
Butterfield House, 4th Floor
Fort Street, P.O. Box 2330
George Town, Grand Cayman
Cayman Islands, BWI
Brown Brothers Harriman & Co.
59 Wall Street
New York, NY 10005
(investment adviser)
Brown Brothers Harriman Trust Company
59 Wall Street
New York, NY 10005
(administrator)
59 Wall Street Administrators, Inc.
21 Milk Street
Boston, MA 02109
(subadministrator)
59 Wall Street Distributors, Inc.
21 Milk Street
Boston, MA 02109
(placement agent)
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
(custodian)
ITEM 29. MANAGEMENT SERVICES.
Not applicable.
ITEM 30. UNDERTAKINGS.
Not applicable.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940,
International Equity Portfolio has duly caused this registration statement on
Form N-1A to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Boston, Massachusetts on the 26th day of
February, 1999.
INTERNATIONAL EQUITY PORTFOLIO
By: /s/Philip W. Coolidge
Philip W. Coolidge
President
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT
EX99.B9(a)(i) Administration Agreement
EX99.B9(b)(i) Subadministrative Services Agreement
EX99.B9(c) Expense Payment Agreement
EX-99.B27 Financial Data Schedule.
INTERNATIONAL EQUITY PORTFOLIO
ADMINISTRATION AGREEMENT
ADMINISTRATION AGREEMENT, dated March 1, 1999, between International
Equity Portfolio, a New York trust (the "Trust"), and Brown Brothers Harriman
Trust Company, a company organized under the laws of the State of New York (the
"Administrator").
W I T N E S S E T H:
WHEREAS, the Trust is a diversified open-end management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Trust has been organized for the purpose of investing its
funds in securities and has retained an investment adviser for this purpose and
desires to avail itself of the facilities available to the Administrator with
respect to the administration of the day to day affairs of the Trust, and the
Administrator is willing to furnish such administrative services on the terms
and conditions hereinafter set forth;
NOW, THEREFORE, the parties agree as follows:
Section 1. The Trust hereby appoints the Administrator to administer
all aspects of the operations of the Trust (except those subject to the
supervision of the investment adviser), subject to the overall supervision of
the Trustees of the Trust for the period and on the terms set forth in this
Agreement. The Administrator hereby accepts such appointment and agrees during
such period to render the services herein described and to assume the
obligations set forth herein, for the compensation herein provided.
Section 2. Subject to the supervision of the Trustees of the Trust, the
Administrator shall administer all aspects of the operations of the Trust
(except those subject to the supervision of the investment adviser) and, in
connection therewith, shall (i) furnish the Trust with adequate office
facilities, utilities, office equipment and related services; (ii) be
responsible for the financial and accounting records required to be maintained
(including those being maintained by the custodian) other than those being
maintained by the investment adviser; (iii) furnish the Trust with ordinary
clerical, bookkeeping and recordkeeping services at such office facilities; (iv)
arrange, but not pay for, the preparation of all required tax returns and
reports to its investors and the Securities and Exchange Commission and the
periodic updating of its registration statement; and (v) oversee the performance
of administrative and professional services to the Trust by others, including
the custodian.
In connection with the services rendered by the Administrator under
this Agreement, the Administrator assumes and will pay all expenses incurred by
the Administrator or by the Trust in connection with administering the ordinary
course of business of the Trust, other than those assumed by the Trust herein.
The Trust assumes and will pay the expenses described below:
(a) the fees and expenses of the investment adviser or expenses
otherwise incurred in connection with the management of the investment and
reinvestment of its assets,
(b) the fees and expenses of Trustees of the Trust who are not
affiliated persons of the Administrator, or of any entity with whom the
Administrator has subcontracted its performance under this Agreement (the
"Subadministrator") or any investment adviser,
(c) the fees and expenses of the custodian which relate to (i) the
custodial function and the recordkeeping connected therewith, (ii) the
maintenance of the required accounting records not being maintained by the
Administrator or the Subadministrator, (iii) the valuation of interests,
including the cost of any pricing service or services which may be retained
pursuant to the authorization of the Trustees of the Trust, and (iv) the
cashiering function in connection with the purchase and withdrawal of interests,
(d) the fees and expenses of any transfer agent, which relate to the
maintenance of each investor account,
(e) the charges and expenses of legal counsel and independent
accountants for the Trust,
(f) brokers' commissions and any issue or transfer taxes chargeable to
the Trust in connection with its securities transactions,
(g) all taxes and corporate fees payable by the Trust to federal, state
or other governmental agencies,
(h) the fees of any trade association of which the Trust may be a
member,
(i) the fees and expenses involved in registering and maintaining
registration of the Trust with the Securities and Exchange Commission, including
the preparation and printing of the Trust's registration statements for filing
under federal securities laws for such purposes,
(j) the cost of any liability insurance or fidelity bonds,
(k) allocable communications expenses with respect to investor services
and all expenses of investors' and Trustees' meetings and of preparing, printing
and mailing reports to investors in the amount necessary for distribution to
investors, and
(l) litigation and indemnification expenses and other extraordinary
expenses not incurred in the ordinary course of business of the Trust.
Section 3. As full compensation for the services performed and the
facilities furnished by the Administrator, the Administrator shall receive a fee
from the Trust, computed daily and paid monthly, at an annual rate equal to
0.035% of the average daily net assets of the Trust.
Section 4. The Administrator assumes no responsibility under this
Agreement other than to render the services called for hereunder, and
specifically assumes no responsibilities for investment advice or the investment
or reinvestment of Trust assets.
Section 5. The Administrator shall not be liable for any error of
judgment or for any loss suffered by the Trust in connection with the matters to
which this Agreement relates, except a loss resulting from wilful misfeasance,
bad faith or gross negligence on its part in the performance of its duties or
from reckless disregard by it of its obligations and duties under this
Agreement.
Section 6. The Administrator may subcontract for the performance of its
obligations hereunder with any one or more persons; provided, however, that the
Administrator shall not enter into any such subcontract unless the Trustees of
the Trust shall have found the subcontracting party to be qualified to perform
the obligations sought to be subcontracted; and provided, further, that unless
the Trust otherwise expressly agrees in writing, the Administrator shall be as
fully responsible to the Trust for the acts and omissions of any subcontractor
as it would be for its own acts or omissions. If permitted by the
subadministration agreement between the Administrator and the Subadministrator,
the Subadministrator may authorize and permit any of its trustees, officers and
employees who may be elected as officers of the Trust to serve in the capacities
in which they are elected and the Subadministrator will pay the salaries of all
personnel of the Trust who are affiliated with the Subadministrator.
Section 7. This Agreement shall become effective on the date determined
by mutual agreement of the parties. This Agreement shall continue in effect for
successive annual periods, but only so long as its continuance is specifically
approved at least annually in the same manner as an investment advisory contract
under the 1940 Act; provided, however, that this Agreement may be terminated by
the Trust at any time, without the payment of any penalty, by the Trustees of
the Trust or by a vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Trust, upon not less than 60 days' written
notice to the Administrator, or by the Administrator at any time, without the
payment of any penalty, upon not less than 90 days' written notice to the Trust.
This Agreement shall terminate automatically in the event of its assignment (as
defined in the 1940 Act).
Section 8. Nothing in this Agreement shall limit or restrict the right
of any trustee, officer or employee of the Administrator who may also be an
officer or employee of the Trust to engage in any other business or to devote
his time and attention in part to the management or other aspects of any
business, whether of a similar or a dissimilar nature, nor limit or restrict the
right of the Administrator to engage in any other business or to render services
of any kind to any other corporation, firm, individual or association.
Section 9. During the term of this Agreement, the Trust agrees to
furnish the Administrator at its principal office all registration statements,
reports to investors, or other material prepared for distribution to investors,
which refer in any way to the Administrator, prior to use thereof and not to use
such material if the Administrator reasonably objects in writing within five
business days (or such other time as may be mutually agreed) after receipt
thereof. In the event of termination of this Agreement, the Trust will continue
to furnish to the Administrator copies of any of the above-mentioned materials
which refer in any way to the Administrator. The Trust shall furnish or
otherwise make available to the Administrator such other information relating to
the business affairs of the Trust as the Administrator at any time, or from time
to time, reasonably requests in order to discharge its obligations hereunder.
Section 10. This Agreement may be amended only by mutual written
consent.
Section 11. The Trustees have authorized the execution of this
Agreement in their capacity as Trustees and not individually and the
Administrator agrees that neither investors nor the Trustees nor any officer,
employee, representative or agent of the Trust shall be personally liable upon,
nor shall resort be had to their private property for the satisfaction of,
obligations given, executed or delivered on behalf of or by the Trust, that
neither investors nor the Trustees, officers, employees, representatives or
agents of the Trust shall be personally liable hereunder, and that the
Administrator shall look solely to the property of the Trust for the
satisfaction of any claim hereunder.
Section 12. Any notice or other communication required to be given
pursuant to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, (1) to the Administrator at 59 Wall Street,
New York, NY 10005, Attention: Managing Director; or (2) to the Portfolio at
International Equity Portfolio, Butterfield House, Fort Street, P.O. Box 2330,
George Town, Grand Cayman, BWI.
Section 13. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first above
written.
INTERNATIONAL EQUITY PORTFOLIO
BROWN BROTHERS HARRIMAN TRUST COMPANY
By
WS5221A
ws5280A
SUBADMINISTRATIVE SERVICES AGREEMENT
SUBADMINISTRATIVE SERVICES AGREEMENT, dated as of March 1, 1999, by and
between BROWN BROTHERS HARRIMAN TRUST COMPANY (the "Administrator") and 59 WALL
STREET ADMINISTRATORS, INC., a Delaware corporation (the "Subadministrator").
W I T N E S S E T H:
WHEREAS, the Administrator has entered into an Administrative Services
Agreement (the "Administrative Agreement") with each of U.S. Money Market
Portfolio, Inflation-Indexed Securities Portfolio (formerly, U.S.
Short/Intermediate Bond Portfolio), U.S. Equity Portfolio, U.S. Small Company
Portfolio, European Equity Portfolio, Pacific Basin Equity Portfolio,
International Equity Portfolio, Emerging Markets Portfolio (formerly, Short Term
Portfolio), and U.S. Mid-Cap Portfolio (each a "Portfolio" and collectively the
"Portfolios") dated as of March 1, 1999; and
WHEREAS, as permitted by Section 6 of the Administrative Agreement, the
Administrator desires to subcontract some or all of the performance of its
obligations thereunder to the Subadministrator, and the Subadministrator desires
to accept such obligations; and
WHEREAS, the Administrator wishes to engage the Subadministrator to
provide certain administrative services on the terms and conditions hereinafter
set forth, so long as the Trustees of each Portfolio shall have found the
Subadministrator to be qualified to perform the obligations sought to be
subcontracted.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Duties of the Subadministrator. The Subadministrator shall perform
such administrative and management services as may from time to time be agreed
to between the Administrator and the Subadministrator. The administrator shall
perform administrative and management services including the following: (i)
furnish each Portfolio with adequate office facilities, utilities, office
equipment and related services; (ii) be responsible for the financial and
accounting records required to be maintained for each Portfolio (including those
being maintained by each Portfolio's custodian) other than those being
maintained by each Portfolio's investment adviser; (iii) furnish each Portfolio
with ordinary clerical, bookkeeping and recordkeeping services at such office
facilities; (iv) arrange, but not pay for, the preparation for each Portfolio of
all required tax returns and reports to its investors and the Securities and
Exchange Commission and the periodic updating of each Portfolio's registration
statement; (v) oversee the performance of administrative and professional
services to each Portfolio by others, including each Portfolio's custodian; and
(vi) authorize and permit any of its Directors, officers and employees who may
be elected as Trustees or officers of a Portfolio to serve in the capacities in
which they are elected. Notwithstanding the foregoing, the Subadministrator
under this Agreement shall not be deemed to have assumed any duties with respect
to, and shall not be responsible for, the management of the assets of any
Portfolio or the rendering of investment advice and supervision with respect
thereto, nor shall the Subadministrator under this agreement be deemed to have
assumed or have any responsibility with respect to functions specifically
assumed by any transfer agent, shareholder servicing agent or custodian of a
Portfolio.
2. Compensation of Subadministrator. For the services to be rendered
and the facilities to be provided by the Subadministrator hereunder, the
Administrator shall pay an administrative fee to the Subadministrator as may
from time to time be agreed to between the Administrator and the
Subadministrator. The Subadministrator assumes and will pay the salaries and
expenses of all personnel of the Portfolios who are affiliated with the
Subadministrator.
3. Limitation of Liability of the Subadministrator. The
Subadministrator shall not be liable for any error of judgment or mistake of law
or for any act or omission in the administration or management of the Portfolios
or the performance of its duties hereunder, except for willful misfeasance, bad
faith or gross negligence in the performance of its duties, or by reason of the
reckless disregard of its obligations and duties hereunder. As used in this
Section 4, the term "Subadministrator" shall include the Subadministrator and/or
any of its affiliates and the Directors, officers and employees of the
Subadministrator and/or any of its affiliates.
4. Activities of the Subadministrator. The services of the
Subadministrator are not to be deemed to be exclusive, the Subadministrator
being free to render administrative and/or other services to other parties. It
is understood that Trustees, officers, and investors in a Portfolio are or may
become interested in the Subadministrator and/or any of its affiliates, as
Directors, officers, employees, or otherwise, and that Directors, officers and
employees of the Subadministrator and/or any of its affiliates are or may become
similarly interested in a Portfolio and that the Subadministrator and/or any of
its affiliates may be or become interested in a Portfolio as an investor or
otherwise.
5. Termination. This Agreement may be terminated by a Portfolio at any
time, without the payment of any penalty, by the Trustees of the Portfolio or by
a vote of a majority of the outstanding voting securities (as defined in the
1940 Act) of the Portfolio, upon not less than 60 days' written notice to the
Administrator, or by the Administrator at any time, without the payment of any
penalty, upon not less than 90 days' written notice to the Portfolio. This
Agreement shall terminate automatically in the event of its assignment (as
defined in the 1940 Act).
6. Amendment. The parties may amend this Agreement and include such
other terms and conditions as may from time to time be agreed to between the
Administrator and the Subadministrator, so long as the Trustees of the
Portfolios shall have found the subcontracting party to be qualified to perform
the obligations sought to be subcontracted.
7. Notice. Any notice or other communication required to be given
pursuant to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, (1) to the Administrator at 59 Wall Street,
New York, NY 10005, Attention: Senior Vice President; or (2) to the
Subadministrator at 21 Milk Street, Boston, MA 02109, Attention: Secretary.
8. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
BROWN BROTHERS HARRIMAN TRUST COMPANY
By:
59 WALL STREET ADMINISTRATORS, INC.
By
March 1, 1999
International Equity Portfolio
Butterfield House
Fort Street
P.O. Box 2330
George Town, Grand Cayman BWI
Dear Sirs:
This letter agreement (the "Agreement") confirms the agreement of the
undersigned, Brown Brothers Harriman Trust Company ("BBH"), to pay all of the
operating expenses of International Equity Portfolio (the "Portfolio"), as
described in the Registration Statement of the Portfolio on Form N-1A as filed
with the Securities and Exchange Commission, as amended, other than fees paid
under the Portfolio's Administration Agreement. All of the operating expenses
paid by BBH pursuant to this Agreement shall be subject to reimbursement by the
Portfolio. To accomplish such reimbursement, the Portfolio hereby agrees to pay
to BBH an expense reimbursement fee from the Portfolio estimated and accrued
daily and paid monthly in an amount such that immediately after any such payment
the aggregate expenses of the Portfolio would not on a per annum basis exceed
0.90% of the Portfolio's average daily net assets.
This Agreement shall be effective as of March 1, 1999 and may be
terminated by either party upon written notice to the other party.
If the foregoing correctly sets forth our agreement, kindly so confirm
by signing the enclosed counterpart of this letter in the space indicated for
signature on behalf of the Portfolio below.
Very truly yours,
BROWN BROTHERS HARRIMAN TRUST COMPANY
By
Agreed:
INTERNATIONAL EQUITY PORTFOLIO
By
Philip W. Coolidge, President
WS5173B
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
U. S. International Equity Portfolio Annual Report dated October 31, 1998, and
is qualified in its entirety by reference to such report.
</LEGEND>
<CIK> 0001003015
<NAME> INTERNATIONAL EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 63,513,355
<INVESTMENTS-AT-VALUE> 69,631,820
<RECEIVABLES> 326,997
<ASSETS-OTHER> 1,259
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 69,966,108
<PAYABLE-FOR-SECURITIES> 1,690,918
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<NET-ASSETS> 66,632,581
<DIVIDEND-INCOME> 850,915
<INTEREST-INCOME> 65,651
<OTHER-INCOME> 0
<EXPENSES-NET> 531,963
<NET-INVESTMENT-INCOME> 384,603
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<APPREC-INCREASE-CURRENT> 4,125,305
<NET-CHANGE-FROM-OPS> 5,443,056
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
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<ACCUMULATED-NII-PRIOR> 0
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<PER-SHARE-NAV-BEGIN> 0
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<EXPENSE-RATIO> 0.76
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
