As filed with the Securities and Exchange Commission on June 30, 2000
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. 6
BBH INTERNATIONAL EQUITY PORTFOLIO
(Exact Name of Registrant as Specified in Charter)
63 Wall Street, New York, NY 10005
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (800) 625-5759
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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WS5313E
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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WS5313E
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 BBH 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 normal 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 seeks to add value in international markets
primarily through stock selection, with regional/country allocation and currency
selection playing smaller roles. The Investment Adviser's stock selection
process places emphasis on large capitalization and globally competitive
companies. The non-U.S. equity research universe is comprised of approximately
300 names that have a minimum market cap of $2 billion and that have strong
underlying fundamentals such as leading industry position, effective management,
competitive products and services, high or improving return on investment and a
sound financial structure.
A bottom-up analysis of companies in the universe identifies earnings
growth potential or, where appropriate, improved return on equity/assets.
Simultaneously, quantitative tools such as discounted cash flow models (DCF),
economic value-added analysis (EVA), and cash flow return on investment (CFROI),
are applied to assess current and future value, and to differentiate companies
within the universe. This process ultimately produces an Attractive Investment
Opportunities List with issues appropriate for inclusion in the Portfolio.
Portfolio construction in the Portfolio is the result of selecting
issues from the Attractive Opportunities List which, when combined with regional
allocation policies, benchmark considerations, and risk management, will produce
a well-diversified portfolio expected to outperform its benchmark over a 12-18
month time horizon.
In a process dirve primarily by stock selection, country or regional
allocation assumes a secondary role as a risk management tool. Allocation of
investments among various countries or regions is, in the first analysis, a
function of the availability of attractively priced investment opportunities.
Having identified the most attractive companies, the countries in which those
countries are listed are analyzed based on 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 may increase, decrease or eliminate a
particular country's representation. In applying these criteria, the Investment
Adviser allocates assets among countries in a manner that quantifies and manages
the Portfolio's risk relative to its benchmark.
The Investment Adviser may enter into foreign currency exchange
transactions from time to time. The Investment Adviser may convert the U.S.
dollar to and from different foreign currencies for the purchase and sale of
foreign securities that are denominated in foreign currencies. Additionally,
interest and dividends may be paid in foreign currencies. The Investment Adviser
may also enter into forward foreign exchange contracts to protect the dollar
value of securities that are denominated in foreign currencies. The Investment
Adviser may enter into futures contracts on stock indexes. Such transactions are
used solely as a hedge against changes in the market value of securities that
are held by the Portfolio or are being considered for purchase.
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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" for purposes of the
Investment Company Act of 1940, as amended, which means that it is not limited
by that Act with respect to the portion of its assets that may be invested in
securities of a single issuer. The Portfolio is however limited with respect to
such assets by 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.An investment in the Portfolio is subject to
investment risk, including possible loss of principal amount invested.
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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, 1999, it managed
total assets of approximately $35 billion.
The Portfolio is managed on a day to day basis by a team of individuals
including Mr. Young Chin, Mr. A. Edward Allinson, Mr. G. Scott Clemons, Mr. Paul
J. Fraker, Mr. Ben Kottler and Mr. Mohammad Rostom. Mr. Chin holds a B.A.and
M.B.A. from the University of Chicago. He joined Brown Brothers Harriman & Co.
in 1999. Prior to joining Brown Brothers Harriman & Co., he worked at Blackrock
Financial Management. 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. Mr. Rostom holds a B.S. from Rochester Institute of
Technoloy and a M.A. from Temple University. He joined Brown Brothers
Harriman & Co. in 1997. Prior to joining Brown Brothers Harriman & Co., he
worked for Kulicke & Soffa Industries.
The Portfolio pays the Investment Adviser an annual fee, computed daily
and payable monthly, equal to 0.65% of the average daily net assets of the
Portfolio. This fee compensates the Investment Adviser for its services and its
expenses (such as salaries of its personnel).
A-6
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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 its market quotations and
valuations provided by independent 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.
ITEM 8. DISTRIBUTION ARRANGEMENTS.
Not applicable.
A-7
WS5313E
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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.
The BBH International Equity Portfolio is a trust organized under the
laws of the State of New York on August 23, 1994.
ITEM 12. DESCRIPTON OF PORTFOLIO AND ITS INVESTMENTS AND RISKS.
The investment objective of the 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
<PAGE>
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.
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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.
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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 Brown
Brothers Harriman & Co. (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) 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 of the Portfolio and the BBH
Portfolios(1); Trustee of Dow Jones Islamic Market Index Portfolio (since March
1999); Trustee of The 59 Wall Street Trust (since October 1999); Director of The
59 Wall Street Fund, Inc. (since October 1999); Retired; Director of Internal
Investments, Public School Employees' Retirement System; Managing Director of
Chase Investors Management Corp. (since December 1995). His business address is
12664 Lazy Acres Court, Nevada City, CA 95959.
CLIFFORD A. CLARK** -- Trustee of the Portfolio and the BBH Portfolios;
Trustee of Dow Jones Islamic Market Index Portfolio (since March 1999); Trustee
of The 59 Wall Street Trust (since October 1999); Director of The 59 Wall Street
Fund, Inc. (since October 1999); 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 of the Portfolio and the BBH Portfolios;
Trustee of The 59 Wall Street Trust (since October 1999); Director of The 59
Wall Street Fund, Inc. (since October 1999); 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 2021 K.
Street, N.W., Suite 408, Washington, DC 20006.
J.V. SHIELDS, JR.* - Trustee of the Portfolio and the BBH Portfolios
(since October 1999); Chairman of the Board and Trustee of The 59 Wall Street
Trust; Director of The 59 Wall Street Fund, Inc.; Managing Director, Chairman
and Chief Executive Officer of Shields & Company; Chairman of Capital Management
Associates, Inc.; Director of Flowers Industries, Inc.(2). Vice Chairman and
Trustee of New York Racing Association. His business address is Shields &
Company, 140 Broadway, New York, NY 10005.
EUGENE P. BEARD - Trustee of the Portfolio and the BBH Portfolios
(since October 1999); Director of The 59 Wall Street Fund, Inc.;Executive Vice
President - Finance and Operations of The Interpublic Group of Companies. His
business address is The Interpublic Group of Companies, Inc., 1271 Avenue of the
Americas, New York, NY 10020.
DAVID P. FELDMAN - Trustee of the Portfolio and the BBH Portfolios
(since October 1999); Director of The 59 Wall Street Fund, Inc.; Retired; Vice
President and Investment Manager of AT&T Investment Management Corporation
(prior to October 1997); Director of Dreyfus Mutual Funds, Jeffrey Co. and
Heitman Financial. His business address is 3 Tall Oaks Drive, Warren, NJ 07059.
ALAN G. LOWY - Trustee of the Portfolio and the BBH Portfolios (since
October 1999); Director of The 59 Wall Street Fund, Inc.; Private Investor;
Secretary of the Los Angeles County Board of Investments (prior to March 1995).
His business address is 4111 Clear Valley Drive, Encino, CA 91436.
ARTHUR D. MILTENBERGER - Trustee of the Portfolio and the BBH
Portfolios (since October 1999); Director of The 59 Wall Street Fund, Inc.;
Trustee of the Portfolios (since October 1999); Retired, Executive Vice
President and Chief Financial Officer of Richard K. Mellon and Sons (prior to
June 1998); Treasurer of Richard King Mellon Foundation (prior to June 1998);
Vice President of the Richard King Mellon Foundation; Trustee, R.K. Mellon
Family Trusts; General Partner, Mellon Family Investment Company IV, V and VI;
Director of Aerostructures Corporation (since 1996) (2). His business address is
Richard K. Mellon and Sons, P.O. Box RKM, Ligonier, PA 15658.
J. ANGUS IVORY - Trustee of the Portfolio and the BBH Portfolios (since
October 1999); Trustee of The 59 Wall Street Trust (since October 1999);
Retired; Director of The 59 Wall Street Fund, Inc. (since October 1999); Trustee
of Dow Jones Islamic Market Index Portfolio (since March 1999); Director of
Brown Brothers Harriman Ltd., subsidiary of Brown Brothers Harriman & Co.;
Director of Old Daily Saddlery; Advisor, RAF Central Fund; Committee Member, St.
Thomas Hospital Pain Clinic (since 1999).
OFFICERS OF THE PORTFOLIO
PHILIP W. COOLIDGE -- President; President of the BBH Portfolios; 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.
LINWOOD C. DOWNS - Treasurer; Treasurer of the BBH Portfolios; Senior
Vice President and Treasurer of SFG; Treasurer of 59 Wall Street Administrators
and 59 Wall Street Distributors.
MOLLY S. MUGLER -- Secretary; Secretary of the BBH Portfolios; Vice
President and Secretary of SFG; Secretary of 59 Wall Street Distributors and 59
Wall Street Administrators.
SUSAN JAKUBOSKI -- Assistant Treasurer and Assistant Secretary of the
BBH Portfolios; Assistant Secretary, Assistant Treasurer and Vice President of
Signature Financial Group (Cayman) Limited; Assistant Treasurer of 59 Wall
Street Administrators and 59 Wall Street Distributors.
CHRISTINE D. DORSEY -- Assistant Secretary; Assistant Secretary of the
Portfolio and the BBH Portfolios; Vice President of SFG (since January 1996);
Paralegal and Compliance Officer, various financil companies (July 1992 to
January 1996).
-------------------------
*Mr. Shields is an "interested" person of the Portfolio because of his
affiliation with a registered broker-dealer.
**These Trustees are members of the Audit Committee of the Portfolio.
(1) The BBH Portfolios consist of the following active investment
companies: BBH U.S. Money Market Portfolio, BBH International Equity
Portfolio, BBH U.S. Equity Portfolio, BBH European Equity Portfolio,
BBH Pacific Basin Equity Portfolio, BBH High Yield Fixed Income
Portfolio, BBH Broad Market Fixed Income Portfolio and BBH Global
Equity Portfolio and the following inactive investment companies: BBH
U.S. Balanced Growth Portfolio and BBH U.S. Intermediate Tax-Exempt
Bond Portfolio.
(2) Shields & Company, Capital Management Associates, Inc. and Flowers
Industries, Inc., with which Mr. Shields is associated, are a
registered broker-dealer and a member of the New York Stock Exchange, a
registered investment adviser, and a diversified food company,
respectively.
(3) Richard K. Mellon and Sons, Richard King Mellon Foundation, R.K. Mellon
Family Trusts, Mellon Family Investment Company IV, V and VI and
Aerostructures Corporation, with which Mr. Miltenberger is or has been
associated, are a private foundation, a private foundation, a trust, an
investment company and an aircraft manufacturer, respectively.
The address of each officer of the Portfolio is 21 Milk Street, Boston,
Massachusetts 02109. Messrs. Coolidge, Hoolahan and Downs and Mss. Jakuboski,
Mugler and Dorsey also hold similar positions with other investment companies
for which affiliates of 59 Wall Street Distributors serves as the principal
underwriter.
B-9
<PAGE>
Trustees of the Portfolio
The Trustees of the Portfolio receive a base annual fee of $15,000
(except the Chairman who receives a base annual fee of $20,000) and such base
annual fee is allocated among all series of The 59 Wall Street Trust, all series
of The 59 Wall Street Fund, Inc. and the Portfolio and any other active
Portfolios having the same Board of Trustees based upon their respective net
assets. In addition, each series of The 59 Wall Street Trust and The 59 Wall
Street Fund, Inc., the Portfolios and any other active Portfolios which has
commenced operations pays an annual fee to each Trustee of $1,000.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Pension or Total
Aggregate Retirement Compensation
Compensation Benefits Accrued Estimated Annual from Fund
Name of Person, from the Portfolio as Part of Benefits upon Complex* Paid
Position Portfolio Expenses Retirement to Trustees
J.V. Shields, Jr.***, $0 none none $31,000
Trustee
Eugene P. Beard***, $0 none none $26,000
Trustee
Richard L. Carpenter**, $1,699.93 none none $15,500
Trustee
Clifford A. Clark**, $1,699.93 none none $15,500
Trustee
David P. Feldman***, $0 none none $26,000
Trustee
J. Angus Ivory**, $0 none none $0
Trustee
Alan G. Lowy*** $0 none none $26,000
Trustee
Arthur D. Miltenberger***, $0 none none $26,000
Trustee
David M. Seitzman**, $1,699.93 none none $15,500
Trustee
<FN>
* The Fund Complex consists of the Portfolio, The 59 Wall Street Trust (which
currently consists of four series), The 59 Wall Street Fund, Inc. (which
currently consists of six series) and the five active Portfolios.
**Prior to October 22, 1999, these Trustees received no compensation
from The 59 Wall Street Trust or The 59 Wall Street Fund, Inc.
***Prior to October 22, 1999, these Trustees received no compensation from
International Equity Portfolio.
</FN>
</TABLE>
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<PAGE>
Except for Mr. Shields, no Trustee 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, 2000, The 59 Wall Street International Equity Fund (the
"Fund") owned 86% and Brown Brothers Harriman Employees' Pension Plan owned 14%
of the outstanding beneficial interests in the Portfolio.
The Fund 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
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<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 9, 1999. 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, 1999, 1998, and
1997, the Portfolio incurred $429,256, $448,851 and $293,880, respectively for
advisory fees.
Pursuant to a license agreement between the Portfolio and Brown
Brothers Harriman & Co. dated May 9, 2000, the Portfolio may continue to use
in its name BBH. The agreement may be terminated by Brown Brothers Harriman &
Co. at any time upon written notice to the Portfolio upon the expiration or
earlier termination of any investment advisory agreement between the Portfolio
and Brown Brothers Harriman & Co. Termination of the agreement would require
the Portfolio to change its name to eliminate all reference to BBH.
B-12
<PAGE>
ADMINISTRATOR. Brown Brothers Harriman Trust Company acts as the
Administrator of the Portfolio. Brown Brothers Harriman Trust Company, LLC is a
wholly-owned subsidiary of Brown Brothers Harriman & Co.
Brown Brothers Harriman Trust Company, LLC 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, LLC (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.
For the services rendered to the Portfolio and related expenses borne
by Brown Brothers Harriman Trust Company, LLC as Administrator of the Portfolio,
Brown Brothers Harriman Trust Company, LLC 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, 1999, 1998 and
1997, the Portfolio incurred $23,114, $23,282 and $15,824, respectively, for
administrative services.
The Administration Agreement between the Portfolio and Brown Brothers
Harriman Trust Company, LLC (dated March 1, 1999) will remain in effect for
successive annual periods, but only so
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<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 November 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,
LLC. The agreement is terminable by the Administrator on 90 days' written notice
to the Portfolio.
Pursuant to a Subadministrative Services Agreement with Brown Brothers
Harriman Trust Company, LLC 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.
EXPENSE PAYMENT AGREEMENT
Under an agreement dated March 1, 1999, Brown Brothers Harriman Trust
Company, LLC 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, LLC 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.
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
Brown Brothers Harriman & Co., 40 Water Street, Boston, MA 02109, is
the Custodian for the Portfolio.
As Custodian, it 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 LLP are the independent auditors of the Portfolio.
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Code of Ethics
The Portfolio, the Adviser and the Placement Agent each have adopted a code of
ethics pursuant to Rule 17j-1 under the 1940 Act. Each code of ethics permits
personnel subject to such code of ethics to invest in securities, including
securities that may be purchased or held by the Portfolio. However, the codes of
ethics contain provisions and requirements designed to identify and address
certain conflicts of interest between personal investment activities and the
interests of the Portfolio. Of course, there can be no assurance that the codes
of ethics will be effective in identifying and addressing all conflicts of
interest relating to personal securities transactions. The code of ethics of the
Portfolio, the Adviser and the Placement Agent are on file with and are
available from the SEC by calling 1-202-942-8090. Additionally, this information
is available on the EDGAR database at the SEC's internet site at
http://www.sec.gov. A copy may be obtained, after paying a duplicating fee, by
electronic request at the following e-mail address: [email protected].
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, 1998 and 1999, the portfolio turnover
rate of the Portfolio was 89% and 86%, 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.
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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.
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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
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<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
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<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.
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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
WS5313E
<PAGE>
PART C
ITEM 23. EXHIBITS.
(a) Declaration of Trust of the Registrant as amended(2)
(b) By-Laws of the Registrant(2)
(d) Investment Advisory Agreement between the Registrant and Brown
Brothers Harriman & Co.(2)
(g) Custodian Contract between the Registrant and State Street Bank
and Trust Company(1)
(g)(i) Amendment to Custodian Contract between the Registrant and
State Street Bank and Trust Company (4)
(g)(ii) Form of Custodian Agreement between the Registrant and
Brown Brothers Harriman & Co. (5)
(h)(i)Administration Agreement between the Registrant and Brown
Brothers Harriman Trust Company (Cayman) Limited(1)
(h)(ii) Administration Agreement between the Registrant and Brown
Brothers Harriman Trust Company(3)
(h)(iii)Subadministrative Services Agreement between the Registrant
and Brown Brothers Harriman Trust Company (Cayman) Limited(1)
(h)(iv) Subadministrative Services Agreement between the Registrant
and Brown Brothers Harriman Trust Company (3)
(h)(v)Expense Payment Agreement between the Registrant and
Brown Brothers Harriman Trust Company (3)
(h)(vi) License Agreement between the Registrant and
Brown Brothers Harriman & Co. (5)
(l) Investment representation letters of initial investors(1)
(p)(i) Code of Ethics of the Portfolio (5)
(p)(ii) Code of Ethics of the Investment Adviser (5)
(p)(ii) Code of Ethics of the Placement Agent (5)
27 Financial Data Schedule(4)
----------------
(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) Incorporated herein by reference from Amendment No. 4 to the
registration statement as filed with the Securities and Exchange
Commission on February 28, 1999.
(4) Incorporated herein by reference from Amendment No. 5 to the
registration statement as filed with the Securities and Exchange
Commission on February 29, 2000.
(5) Filed herewith.
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.
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<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:
BBH International Equity Portfolio
63 Wall Street
New York, NY 10005
Brown Brothers Harriman & Co.
59 Wall Street
New York, NY 10005
(investment adviser)
Brown Brothers Harriman Trust Company, LLC
63 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)
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
(custodian)
ITEM 29. MANAGEMENT SERVICES.
Not applicable.
ITEM 30. UNDERTAKINGS.
Not applicable.
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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 London, England on the 30th day of June, 2000.
BBH INTERNATIONAL EQUITY PORTFOLIO
By: /s/Philip W. Coolidge
Philip W. Coolidge
President
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT
EX-99.(g)(ii) Custodian Agreement
EX-99.(h)(vi) License Agreement
EX-99.(p)(i) Code of Ethics of the Portfolio
EX-99.(p)(ii) Code of Ethics of the Adviser
EX-99.(p)(iii) Code of Ethics of the Placement Agent
