As filed with the Securities and Exchange Commission on February 28, 1996
FILE NO. 811-8954
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 1
U.S. SMALL COMPANY PORTFOLIO
(Exact Name of Registrant as Specified in Charter)
Butterfield House, Fort Street, P.O. Box 2330, George Town, Grand Cayman,
Cayman Islands, BWI
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (809) 949-4719
Philip W. Coolidge, 6 St. James Avenue, Boston, Massachusetts 02116
(Name and Address of Agent for Service)
Copy to: John E. Baumgardner, Esq.
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
WS5271B
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WS5271B
EXPLANATORY NOTE
This Amendment to the Registration Statement on Form N-1A
(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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WS5271B
PART A
Responses to Items 1 through 3 and 5A have been omitted pursuant to
paragraph 4 of Instruction F of the General Instructions to Form N-1A.
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT.
U.S. Small Company Portfolio (the "Portfolio") is a diversified
open-end investment company which was organized as a trust under the laws of the
State of New York on June 15, 1993. 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 Securities Act of 1933, as
amended (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 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 "security" within the meaning of the 1933 Act.
The Portfolio is advised by Brown Brothers Harriman & Co. (the "Investment
Adviser").
Investments in the Portfolio are neither insured nor guaranteed by the
U.S. Government. Interests in the Portfolio are not deposits or obligations of,
or guaranteed by, Brown Brothers Harriman & Co., and the interests are not
insured by the Federal Deposit Insurance Corporation 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.
Part B contains more detailed information about the Portfolio,
including information related to (i) the investment policies and restrictions of
the Portfolio, (ii) the Trustees, officers, Investment Adviser and administrator
of the Portfolio, (iii) portfolio transactions, (iv) rights and liabilities of
investors, and (v) the audited financial statements of the Portfolio at October
31, 1995.
The investment objective of the Portfolio is described below, together
with the policies employed to attempt to achieve this objective. Additional
information about the investment policies of the Portfolio appears in Part B
under Item 13.
The investment objective of the Portfolio is to provide investors with
long-term maximization of total return, primarily through capital appreciation.
The investment objective of the Portfolio is a fundamental policy 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 Registration
Statement, the term "majority of the outstanding voting securities as defined in
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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.
However, the investment policies as described below are not fundamental and may
be changed without such approval.
The assets of the Portfolio under normal circumstances are fully
invested in equity securities of small companies, consisting primarily of common
stocks listed on securities exchanges or traded in the over-the-counter market
in the United States. Although the assets of the Portfolio are invested
primarily in common stocks, other securities with equity characteristics may be
purchased, including securities convertible into common stock, trust or limited
partnership interests, rights and warrants.
The Portfolio currently focuses on approximately 2,800 companies which
have a stock market capitalization of less than $2 billion and more than $100
million (which approximates the Russell 2000 Index). The common stocks of these
companies represent approximately 21% of the market value of U.S. equities and
have a total market value of over $1.3 trillion as shown in the following chart.
Although much smaller in capitalization than the companies in the Standard &
Poor's 500 Index, the equity securities of these companies generally offer
sufficient liquidity for use in the Portfolio.
BREAKDOWN OF U.S. STOCKS
BY MARKET CAPITALIZATION
(AS OF DECEMBER 31, 1995)
TOTAL MARKET CAPITALIZATION
Market Approximate Dollars % of
CAPITALIZATION NO. OF STOCKS (BILLIONS) TOTAL
over $20 bil ................... 50 2,096 33.0
$4 bil - $20 bil ............... 253 2,082 32.7
$2 bil - $4 bil................. 261 722 11.4
$750 mil - $2 bil .............. 572 695 10.9
$100 mil - $750 mil ............. 2,214 640 10.1
$10 mil - $ 100 mil ............. 2,873 119 1.9
$ 2 mil - $ 10 mil ............. 1,008 5 0.0
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Totals ......................... 7,231 6,359 100.0
Dow Jones Ind. Avg ............. 30 1,082 17.0
S&P 500 Index .................. 500 4,537 71.4
Source: Brown Brothers Harriman & Co. Figures do not include American
depository receipts, limited partnerships or closed-end mutual funds.
The Investment Adviser screens this stock universe of approximately
2,800 companies on an ongoing basis and ranks the stocks in the universe on the
basis of proprietary quantitative models utilizing various fundamental and
valuation criteria. The ranking of securities according to these models is the
basis for constructing and changing the composition of the securities held by
the
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Portfolio. This computerized quantitative approach enables the Portfolio to have
a highly diversified portfolio, typically with securities of 100-125 companies.
This diversification serves to reduce specific company risk and permits many
sectors of the U.S. economy to be represented.
Historically, the common stocks of small companies have provided
investors with higher long-term returns than the common stocks of large
companies as represented by the Standard & Poor's 500 Index or the Dow Jones
Industrial Average. This superior long-term performance has been achieved in an
irregular fashion as the common stocks of small companies have experienced
relatively long periods of outperformance followed by periods of
underperformance. Over the past 40 years, the major periods of outperformance
were from 1963 to 1968 and from 1975 to 1983. From mid-1983 to October 1990, the
common stocks of small companies as a group substantially lagged the performance
of common stocks of large companies. Since October 1990, the common stocks of
small companies have performed relatively better. One widely used measure of the
performance of the common stocks of small companies is the Russell 2000 Index
which is comprised of those U.S. stocks ranked from the 1,001st largest to the
3,000th largest based on market capitalization. This index is capitalization
weighted and updated as necessary. The following table highlights the relative
performance of this index over most of the last market cycle.
<TABLE>
<CAPTION>
RELATIVE PERFORMANCE CYCLE
(TOTAL RETURN)
<S> <C> <C> <C> <C> <C> <C>
JAN. 1, 1951 JAN. 1, 1958 JAN. 1, 1969 JULY 1, 1973 AUG. 1, 1983 NOV. 1, 1990
TO TO TO TO TO TO
DEC. 31, 1957 DEC. 31, 1968 JUNE 30, 1973 JULY 31, 1983 OCT. 31, 1990 DEC. 31, 1995
------------- ------------- ------------- ------------- ------------- -------------
S&P 500 Index ............... +178% +272% +16% + 152% +146% +136%
Small Company Stock Index ... + 79% +985% -46% +1,101% + 9% +219%
(Ibbotson Associates)
Russell 2000 Index* ......... N.A. N.A. N.A. N.A. + 15% +190%
(Index started Dec. 1978)
</TABLE>
Note: Periods shown except for beginning and end points are based on peaks
and troughs of relative performance.
* Index comprised of those U.S. stocks ranked from the 1,001st largest to the
3,000th largest based on market capitalization.
ANNUALIZED TOTAL RETURN JAN. 1, 1951 - DEC. 31, 1995
(COMPOUND RATE)
S&P 500 Index .......................................... +12.2% per year
Small Company Stock Index (Ibbotson Associates) ........ +14.5% per year
RISK FACTORS
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Investing in equity securities of small companies involves risks not
typically associated with investing in comparable securities of large companies.
Assets of the Portfolio are invested in companies which may have narrow product
lines and limited financial and managerial resources. Since the market for the
equity securities of small companies is often characterized by less information
and liquidity than that for the equity securities of large companies, the
Portfolio's investments can experience unexpected sharp declines in their market
prices. Therefore, investments in the Portfolio may be subject to greater
declines in value than shares of equity funds investing in the equity securities
of large companies.
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 stock indices may be purchased
for the Portfolio. (See Appendix on page A-13 for more detail.)
For the same purpose, put and call options on stocks 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 such a manner
that more than 5% of the Portfolio's net assets would be at risk.
Put and call option contracts may be purchased for the Portfolio only
to the extent permitted by the policies of state securities authorities in
states in which investors' shares are qualified for offer and sale.
Over-the-counter options ("OTC Options") purchased are treated as not readily
marketable. (See "Investment Restrictions".)
PORTFOLIO BROKERAGE
Utilization of the Investment Adviser's proprietary quantitative models
for the selection of portfolio securities, and the resulting periodic
rebalancing of portfolio holdings, causes turnover in the Portfolio which is
relatively high compared to more traditionally managed portfolios. 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
period from January 17, 1995 (commencement of operations) to October 31, 1995
the portfolio turnover rate of the Portfolio was 115%. The amount of brokerage
commissions and taxes on realized capital gains to be borne by the investors
tends 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
investment information provided by the broker; and the commissions charged.
Accordingly, the
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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.
Brown Brothers Harriman & Co. acts as one of the principal brokers of
the Portfolio in the purchase and sale of portfolio securities when, in the
judgment of the Investment Adviser, that firm will be able to obtain a price and
execution at least as favorable as other qualified brokers. As one of the
principal brokers for the Portfolio, Brown Brothers Harriman & Co. receives
brokerage commissions from the Portfolio.
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.
OTHER INVESTMENT TECHNIQUES
SHORT-TERM INSTRUMENTS. The assets of the Portfolio may be invested in
U.S. dollar denominated short-term instruments, including repurchase agreements,
obligations of the U.S. Government, its agencies or instrumentalities,
commercial paper and bank obligations (such as certificates of deposit, fixed
time deposits, and bankers' acceptances). Cash is held for the Portfolio in
demand deposit accounts with the Portfolio's custodian bank.
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".)
LOANS OF PORTFOLIO SECURITIES. Loans of portfolio securities up to 30%
of the total value of the Portfolio are permitted. These loans must be secured
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continuously by cash or equivalent 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 increased by its continuing to receive
income on the loaned securities as well as by the opportunity to receive
interest on the collateral. 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.
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. 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.
INVESTMENT RESTRICTIONS
Part B of this Registration Statement includes a listing of the
specific investment restrictions which govern the investment policies of the
Portfolio. Certain of these investment restrictions 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 1940 Act" of the
Portfolio, including a restriction that not more than 10% of the net assets of
the Portfolio may be invested in securities that are subject to legal or
contractual restrictions on resale.
As a non-fundamental policy, money is not borrowed by the Portfolio in
an amount in excess of 10% of its assets. 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 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. Securities are not purchased for the Portfolio at any time
at which the amount of its borrowings exceed 5% of its assets.
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Also as a non-fundamental policy, at least 65% of the value of the
total assets of the Portfolio is invested in the equity securities of companies
with a market value of less than $2 billion and more than $100 million. For
these purposes, equity securities are defined as common stock, securities
convertible into common stock, trust or limited partnership interests, rights
and warrants.
In accordance with applicable regulations, the Portfolio does not
purchase any restricted security, OTC option, repurchase agreement maturing in
more than seven days, security of a company which, including predecessors, has a
record of less than three years of operations, or other security that is not
readily marketable, if after such purchase more than 10% of the Portfolio's net
assets would be represented by such investments.
The Portfolio is classified as "diversified" under the 1940 Act, which
means that at least 75% of its total assets is represented by cash; securities
issued by the U.S. Government, its agencies or instrumentalities; and other
securities limited in respect of any one company to an amount no greater than 5%
of the Portfolio's total assets and not more than 10% of the outstanding voting
securities of such company.
For a more detailed discussion of the above investment restrictions, as
well as a description of certain other investment restrictions, see Item 13 in
Part B
ITEM 5. MANAGEMENT OF THE FUND.
The Portfolio's Trustees, in addition to supervising the actions of the
Investment Adviser and the Portfolio's administrator, Brown Brothers Harriman
Trust Company (Cayman) Limited, (the "Administrator"), as set forth below,
decide upon matters of general policy with respect to the Portfolio.
TRUSTEES
The Trustees of the Portfolio are:
H.B. Alvord
RETIRED, FORMER TREASURER AND TAX COLLECTOR OF LOS ANGELES COUNTY
Richard L. Carpenter
DIRECTOR OF INTERNAL INVESTMENTS OF THE PUBLIC SCHOOL EMPLOYEES'
RETIREMENT SYSTEM
Clifford A. Clark
RETIRED, FORMER SENIOR MANAGER OF BROWN BROTHERS HARRIMAN & CO.
Edward H. Northrop
CHAIRMAN OF XICOM INC.
David M. Seitzman
PRACTICING PHYSICIAN WITH SEITZMAN, SHUMAN, KWART AND PHILLIPS
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OFFICERS
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.
(See "Management of the Fund" in Part B.)
INVESTMENT ADVISER
The Investment Adviser is Brown Brothers Harriman & Co., 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 June 30, 1995, it managed
total assets of approximately $20 billion.
Mr. Donald B. Murphy, Mr. William H. Moore III and Mr. John A. Nielsen
are the partners responsible for quantitative investment management at Brown
Brothers Harriman & Co. Mr. Murphy holds a B.A. from Yale University and a
M.B.A. from Columbia University. He joined Brown Brothers Harriman & Co. in
1966. Mr. Moore holds a B.A. from Yale University. He joined Brown Brothers
Harriman & Co. in 1964. Mr. Nielsen holds a B.A. from Bucknell University, a
M.B.A. from Columbia University and is a Chartered Financial Analyst. He joined
Brown Brothers Harriman & Co. in 1968. Mr. George H. Boyd and Ms. Catharine L.
Mellon are the portfolio managers for the Portfolio. Mr. Boyd holds a B.A. from
Colgate University, an M.B.A. from Columbia University and is a Chartered
Financial Analyst. He joined Brown Brothers Harriman & Co. in 1991. Ms. Mellon
is in charge of its management. Ms. Mellon holds a B.A. from Cornell University.
She joined Brown Brothers Harriman & Co. in 1991. Her experience in the
investment management business is limited to her tenure with Brown Brothers
Harriman & Co.
As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by Brown Brothers Harriman & Co. under the
Investment Advisory Agreement, Brown Brothers Harriman & Co. receives from the
Portfolio an annual fee, computed daily and payable monthly, equal to 0.65% of
the average daily net assets of the Portfolio. An affiliate of Brown Brothers
Harriman & Co. receives annual administration fees from the Portfolio equal to
0.035% of the average daily net assets of the Portfolio. (See "Administrator"
below.)
The investment advisory services of Brown Brothers Harriman & Co. to
the Portfolio are not exclusive under the terms of the Investment Advisory
Agreement.
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Brown Brothers Harriman & Co. is free to and does render investment advisory
services to others, including other registered investment companies.
ADMINISTRATOR
Brown Brothers Harriman Trust Company (Cayman) Limited acts as the
Administrator of the Portfolio. Brown Brothers Harriman Trust Company (Cayman)
Limited is a wholly-owned subsidiary of Brown Brothers Harriman Trust Company of
New York, which is a wholly-owned subsidiary of Brown Brothers Harriman & Co.
(See "Administrator" in Part B.)
Brown Brothers Harriman Trust Company (Cayman) Limited, 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 (Cayman) Limited (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, and the preparation of tax returns for the Portfolio and reports to
investors and the Securities and Exchange Commission.
For the services rendered to the Portfolio and related expenses borne
by Brown Brothers Harriman Trust Company (Cayman) Limited as Administrator of
the Portfolio, Brown Brothers Harriman Trust Company (Cayman) Limited receives
from the Portfolio an annual fee, computed daily and payable monthly, equal to
0.035%
of the Portfolio's average daily net assets.
Pursuant to a Subadministrative Services Agreement with Brown Brothers
Harriman Trust Company (Cayman) Limited, Signature Financial Group (Cayman)
Limited performs such subadministrative duties for the Portfolio as are from
time to time agreed upon by the parties. The offices of Signature Financial
Group (Cayman) Limited are located at Elizabethan Square, George Town, Grand
Cayman, Cayman Islands, BWI. Signature Financial Group (Cayman) Limited is a
wholly-owned subsidiary of Signature Financial Group, Inc. Signature Financial
Group (Cayman) Limited'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, Signature Financial
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Group (Cayman) Limited 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.
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. Signature Financial Group (Cayman) Limited, acting as
agent for the Portfolio, serves as the placement agent of interests in the
Portfolio. Signature Financial Group (Cayman) Limited receives no compensation
for serving as placement agent.
CUSTODIAN
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, is the Custodian for the Portfolio.
As Custodian, State Street is responsible for maintaining books and
records of portfolio transactions and holding the Portfolio's securities and
cash pursuant to a custodian agreement with the Portfolio. Cash is held for the
Portfolio in demand deposit accounts at the Custodian. Subject to the
supervision of the Administrator, the Custodian maintains the accounting and
portfolio transaction records for the Portfolio and each day computes the net
asset value and net income of the Portfolio.
INDEPENDENT AUDITORS
Deloitte & Touche, Grand Cayman are the independent auditors of the
Portfolio.
ITEM 6. 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. Each investor is entitled to a vote in
proportion to the amount of its investment in the Portfolio. Investments in the
Portfolio may not be transferred, but an investor may withdraw all or any
portion of its investment at any time at net asset value. Investors in the
Portfolio (E.G., other investment companies, insurance company separate accounts
and common and commingled trust funds) are each liable for all obligations of
the Portfolio. However, the risk of an investor in the Portfolio incurring
financial loss on account of such liability is limited to circumstances in which
both inadequate insurance existed and the Portfolio itself was unable to meet
its obligations.
Investments in the Portfolio have no preemptive or conversion rights
and are fully paid and nonassessable, except as set forth below. The Portfolio
is not required and has no current intention of holding annual meetings of
investors, but the Portfolio will hold special meetings of investors when in the
judgment of the Trustees it is necessary or desirable to submit matters for an
investor vote. Changes in fundamental policies will be submitted to investors
for approval. Investors have under certain circumstances (e.g., upon application
and
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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 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 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 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 Signature Financial Group (Grand
Cayman) Limited, P.O. Box 2494, Elizabethan Square, 2nd Floor, George Town,
Grand Cayman, Cayman Islands, BWI ([809] 945-1824).
ITEM 7. PURCHASE OF SECURITIES BEING OFFERED.
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
A-11
<PAGE>
"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.
ITEM 8. REDEMPTION OR REPURCHASE.
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.
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<PAGE>
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 9. PENDING LEGAL PROCEEDINGS.
Not applicable.
A-13
<PAGE>
APPENDIX--HEDGING STRATEGIES
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) and the
Russell 2000 Index (Chicago Board of Options 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 times a specified multiple.
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.
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WS5271A
PART B
ITEM 10. COVER PAGE.
Not applicable.
ITEM 11. TABLE OF CONTENTS. PAGE
General Information and History . . . . . . . . . . . . B-1
Investment Objective and Policies . . . . . . . . . . . B-1
Management of the Fund . . . . . . . . . . . . . . . . B-8
Control Persons and Principal Holders
of Securities . . . . . . . . . . . . . . . . . . . . . B-11
Investment Advisory and Other Services . . . . . . . . B-11
Brokerage Allocation and Other Practices . . . . . . . B-13
Capital Stock and Other Securities . . . . . . . . . . B-15
Purchase, Redemption and Pricing of
Securities Being Offered . . . . . . . . . . . . . . . B-16
Tax Status . . . . . . . . . . . . . . . . . . . . . . B-17
Underwriters . . . . . . . . . . . . . . . . . . . . . B-18
Calculations of Performance Data . . . . . . . . . . . B-18
Financial Statements . . . . . . . . . . . . . . . . . B-18
ITEM 12. GENERAL INFORMATION AND HISTORY.
Not applicable.
ITEM 13. INVESTMENT OBJECTIVE AND POLICIES.
The investment objective of the U.S. Small Company 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
<PAGE>
the case of subordinated convertible debentures, the holder's claims on assets
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.
FUTURES AND OPTIONS CONTRACTS
OPTIONS ON STOCK. For the sole purpose of reducing risk, put and call
options on stocks may be purchased for the Portfolio, although the current
intention is not to do so in such a manner that more than 5% of the Portfolio's
net assets would be at risk. 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.
FUTURES CONTRACTS ON STOCK INDEXES. For the sole purpose of reducing
risk, futures contracts on stock indexes ("Futures Contracts") may be entered
into for the Portfolio, although the current intention is not to do so in such a
manner that more than 5% of the Portfolio's net assets would be at risk.
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
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<PAGE>
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.
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 liquid 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, Futures Contracts can be purchased on stock indexes such as
the Standard & Poor's 500 Stock Index (Chicago Board of Options Exchange), the
Russell 2000 Index (Chicago Board of Options Exchange) and the New York Stock
Exchange Composite Index (New York Stock Exchange).
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.
B-3
<PAGE>
LOANS OF PORTFOLIO SECURITIES
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.
While such securities are on loan, the borrower pays the Portfolio any income
accruing thereon, and cash collateral may be invested for the Portfolio, thereby
earning additional income. 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 of the Portfolio are not loaned to Brown Brothers Harriman & Co. or
to any affiliate of the Portfolio, its investors or Brown Brothers Harriman &
Co.
SHORT-TERM INVESTMENTS
Although it is intended that the assets of the Portfolio stay invested
in the securities described above and in Part A 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 U.S. dollar denominated: (i) securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities; (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 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"); or 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.
REPURCHASE AGREEMENTS. Repurchase agreements may be entered into for
the Portfolio only with a "primary dealer" (as designated by the Federal Reserve
Bank
B-4
<PAGE>
of New York) in U.S. Government securities. This is an agreement in which the
seller (the "Lender") of a security agrees to repurchase from the Portfolio the
security sold at a mutually agreed upon time and price. As such, it is viewed as
the lending of money to the Lender. The resale price normally is in excess of
the purchase price, reflecting an agreed upon interest rate. The rate is
effective for the period of time assets of the Portfolio are invested in the
agreement and is not related to the coupon rate on the underlying security. The
period of these repurchase agreements is usually short, from overnight to one
week. The securities which are subject to repurchase agreements, however, may
have maturity dates in excess of one week from the effective date of the
repurchase agreement. The Portfolio always receives as collateral securities
which are issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. Collateral is marked to the market daily and has a market
value including accrued interest at least equal to 100% of the dollar amount
invested on behalf of the Portfolio in each agreement along with accrued
interest. Payment for such securities is made for the Portfolio only upon
physical delivery or evidence of book entry transfer to the account of State
Street Bank and Trust Company (the "Custodian"). If the Lender defaults, the
Portfolio might incur a loss if the value of the collateral securing the
repurchase agreement declines and might incur disposition costs in connection
with liquidating the collateral. In addition, if bankruptcy proceedings are
commenced with respect to the Lender, realization upon the collateral on behalf
of the Portfolio may be delayed or limited in certain circumstances. A
repurchase agreement with more than seven days to maturity may not be entered
into for the Portfolio if, as a result, more than 10% of the Portfolio's net
assets would be invested in such repurchase agreement together with any other
instrument which is not readily marketable (see clause (vi) under the caption
"State and Federal Restrictions").
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" 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
B-5
<PAGE>
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; for additional related restrictions (see clause (i) under the caption
"State and Federal Restrictions");
(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
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
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<PAGE>
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;
(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; or
(11) invest more than 5% of its total assets in the securities or
obligations of any one issuer (other than U.S. Government obligations) or more
than 10% of its total assets in the outstanding voting securities of any one
issuer; provided, however, that up to 25% of its total assets may be invested
without regard to this restriction.
STATE AND FEDERAL RESTRICTIONS. In order to comply with certain state
and federal statutes and policies the Portfolio may not as a matter of operating
policy: (i) borrow money for any purpose in excess of 10% of its total assets
(taken at cost) (moreover, securities are not purchased at any time at which the
amount of its borrowings exceed 5% of its total assets (taken at market value)),
(ii) pledge, mortgage or hypothecate for any purpose in excess of 10% of its net
assets (taken at market value), 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, (iii) sell any security which it does not own unless by virtue of
its ownership of other securities it has at the time of sale a right to obtain
securities, without payment of further consideration, equivalent in kind and
amount to the securities sold and provided that if such right is conditional the
sale would be made upon the same conditions, (iv) invest for the purpose of
exercising control or management, (v) purchase securities issued by any
investment company except by purchase in the open market where no commission or
profit to a sponsor or dealer results from such purchase other than the
customary broker's commission, or except when such purchase, though not made in
the open market, is part of a plan of merger or consolidation; provided,
however, that securities of any investment company are not purchased if such
purchase at the time thereof would cause more than 10% of its total assets
(taken at the greater of cost or market value) to be invested in the securities
of such issuers or would cause more than 3% of the outstanding voting securities
of any such issuer to be held for it, (vi) invest more than 10% of its net
assets (taken at the greater of cost or market value) in restricted securities;
invest more than 15%
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of its net assets in over-the-counter options, time deposits with a maturity of
more than seven days, repurchase agreements maturing in more than seven days and
other securities that are illiquid or otherwise not readily marketable, (vii)
purchase securities of any issuer if such purchase at the time thereof would
cause it to hold more than 10% of any class of securities of such issuer, for
which purposes all indebtedness of an issuer is deemed a single class and all
preferred stock of an issuer is deemed a single class, except that futures and
option contracts are not subject to this restriction, (viii) invest more than 5%
of its assets in companies which, including predecessors, have a record of less
than three years of continuous operation, or (ix) purchase or retain in its
portfolio any securities issued by an issuer any of whose officers, directors,
trustees or security holders is an officer or Trustee of the Portfolio, or is an
officer or partner of the Investment Adviser, if after the purchase of the
securities of such issuer, one or more of such persons owns beneficially more
than 1/2 of 1% of the shares or securities, or both, all taken at market value,
of such issuer, and such persons owning more than 1/2 of 1% of such shares or
securities together own beneficially more than 5% of such shares or securities,
or both, all taken at market value. These policies are not fundamental and may
be changed without investor approval in response to changes in the various state
and federal requirements.
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 14. MANAGEMENT OF THE FUND.
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
H.B. ALVORD** -- Chairman of the Board and Trustee; Retired; Trustee of
the Trust (from September 1990 to October 1994); Director of The 59 Wall Street
Fund, Inc. (from September 1990 to October 1994); Trustee of Landmark Funds III,
Landmark Tax Free Reserves, Landmark Multi-State Tax Free Funds, Landmark Tax
Free Income Funds, Landmark Fixed Income Funds, Landmark Funds I, Landmark Funds
II, and Landmark International Equity Fund (since August 1990). His business
address is P.O. Box 1812, Pebble Beach, CA 93953.
RICHARD L. CARPENTER** -- Trustee; Director of Internal Investments,
Public School Employees' Retirement System (since June 1991); Managing Director
of Chase Investors Management Corp. (prior to March 1990). His business address
is 208 N. President Avenue, Lancaster, PA 17603.
B-8
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CLIFFORD A. CLARK** -- Trustee; Retired; Director of Schmid, Inc.
(prior to July 1993); Managing Director of the Smith-Denison Foundation. His
business address is 42 Clowes Drive, Falmouth, MA 02540.
EDWARD H. NORTHROP** -- Trustee; Chairman of Xicom, Inc.. His business
address is P.O. Box 7, Innistree, Arden, NY 10910.
DAVID M. SEITZMAN** -- Trustee; Practicing Physician with Seitzman,
Shuman, Kwart and Phillips; Director of the National Capital Underwriting
Company, Commonwealth Medical Liability Insurance Co. and National Capital
Insurance Brokerage, Limited (since 1991). His business address is 2021 K.
Street, N.W., Suite 408, Washington, DC 20006.
OFFICERS OF THE PORTFOLIO
PHILIP W. COOLIDGE -- President; Chief Executive Officer and President
of Signature Financial Group, Inc. ("SFG"), 59 Wall Street Distributors, Inc.
("59 Wall Street Distributors") (since June 1990) and 59 Wall Street
Administrators, Inc. ("59 Wall Street Administrators") (since June 1993).
JAMES E. HOOLAHAN -- Vice President; Senior Vice President of SFG
(since prior to December 1990).
JOHN R. ELDER -- Treasurer; Vice President of SFG (since April 1995);
Treasurer of Phoenix Family of Mutual Funds (prior to April 1995).
THOMAS M. LENZ -- Secretary; Senior Vice President and Associate
General Counsel of SFG (since prior to November 1990); Assistant Secretary of 59
Wall Street Distributors (since May 1991) and 59 Wall Street Administrators
(since June 1993).
SUSAN JAKUBOSKI -- Assistant Treasurer and Assistant Secretary of the
Portfolio; Assistant Secretary, Assistant Treasurer and Vice President of
Signature Financial Group (Cayman) Limited (since August 1994); Fund Compliance
Administrator of Concord Financial Group, Inc. (from November 1990 to August
1994); Senior Fund Accountant of Neuberger & Berman Management Incorporated
(prior to November 1990). Her business address is Elizabethan Square, Shedden
Road, George Town, Grand Cayman, Cayman Islands, BWI.
BARBARA M. O'DETTE -- Assistant Treasurer; Assistant Treasurer of SFG,
59 Wall Street Distributors (since June 1990) and 59 Wall Street Administrators
(since June 1993).
DAVID G. DANIELSON -- Assistant Treasurer; Assistant Manager of SFG
(since May 1991); Graduate Student, Northeastern University (prior to March
1991).
BRIAN J. HALL -- Assistant Treasurer; Senior Fund Administrator of SFG
(since November 1991); Senior State Regulation Administrator of The Boston
Company (prior to November 1991).
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MOLLY S. MUGLER -- Assistant Secretary; Legal Counsel and Assistant
Secretary of SFG; Assistant Secretary of 59 Wall Street Distributors (since June
1990) and 59 Wall Street Administrators (since June 1993).
- -------------------------
**These Trustees are members of the Audit Committee of the Portfolio.
The address of each officer of the Portfolio, unless otherwise noted,
is 6 St. James Avenue, Boston, Massachusetts 02116. Messrs. Coolidge, Elder,
Danielson, Hall, Hoolahan and Lenz and Mss. Jakuboski, Mugler and O'Dette also
hold similar positions with other investment companies for which affiliates of
SFG serve as the principal underwriter.
The Trustees of the Portfolio receive a base annual fee of $12,000
(except the Chairman who receives a base annual fee of $17,000) which is paid
jointly by the U.S. Money Market Portfolio, International Equity Portfolio
together with the Portfolio (the "Portfolios") and allocated among the
Portfolios based upon their respective net assets. In addition, each Portfolio
which has commenced operations pays an annual fee to each Trustee of $1,000. The
aggregate compensation to each Trustee from the Portfolios was less than
$60,000.
No Trustee of the Portfolio is an "interested person" of the Portfolio
as that term is defined in the 1940 Act.
By virtue of the responsibilities assumed by Brown Brothers Harriman &
Co. under the Investment Advisory Agreement with the Portfolio and by Brown
Brothers Harriman Trust Company (Cayman) Limited 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 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
As of February 26, 1996, The 59 Wall Street Small Company Fund (the
"Fund"), a series of The 59 Wall Street Fund, Inc. owned 58.0%, BBH & Co. U.S.
Small Company Fund (Cayman) owned 26.0% and Systematic Small Company Fund owned
16.0% of the outstanding beneficial interests in the Portfolio. A holder who
controls more than 25% of the outstanding beneficial interests in the Portfolio
may take actions without the approval of any other holder of beneficial interest
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 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 16. 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 &
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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 Agreement between Brown Brothers Harriman & Co.
and the Portfolio is dated December 15, 1993 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 last approved by the Independent
Trustees on December 13, 1995. 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 period January 17, 1995 through
October 31, 1995, the Portfolio incurred $283,032 for advisory services.
The Glass-Steagall Act prohibits certain financial institutions from
engaging in the business of underwriting, selling or distributing securities and
from sponsoring, organizing or controlling a registered open-end investment
company continuously engaged in the issuance of its shares. There is presently
no controlling precedent prohibiting financial institutions such as Brown
Brothers Harriman & Co. from performing investment advisory or administrative
functions. If Brown Brothers Harriman & Co. were to terminate its Investment
Advisory Agreement with the Portfolio, or were prohibited from acting in such
capacity, it is expected that the Trustees of the Portfolio would recommend to
the investors that they approve a new investment advisory agreement for the
Portfolio with another qualified adviser.
ADMINISTRATOR. The Administration Agreement between the Portfolio and
Brown Brothers Harriman Trust Company (Cayman) Limited (dated December 15, 1993)
will remain in effect for two years from such date and thereafter, but only so
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 last approved the Portfolio's Administration Agreement on
December 13, 1995. 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
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Trustees of the Portfolio or by investors in the Portfolio on 60 days' written
notice to Brown Brothers Harriman Trust Company (Cayman) Limited. The agreement
is terminable by the Administrator on 90 days' written notice to the Portfolio.
The administrative fee paid to Brown Brothers Harriman Trust Company
(Cayman) Limited by the Portfolio is calculated and paid monthly at an annual
rate equal to 0.035% of the Portfolio's average daily net assets. Brown Brothers
Harriman Trust Company (Cayman) Limited is a wholly-owned subsidiary of Brown
Brothers Harriman Trust Company of New York, which is a wholly-owned subsidiary
of Brown Brothers Harriman & Co. For the period January 17, 1995 through October
31, 1995, the Portfolio incurred $15,240 for administrative services.
ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES.
In effecting securities transactions for the Portfolio, the Investment
Adviser seeks to obtain the best price and execution of orders. In selecting a
broker, the Investment Adviser considers a broker's ability to execute orders
without disturbing the market price, a broker's reliability for prompt, accurate
confirmations and on-time delivery of securities, and the quality and
reliability of brokerage services, including execution capability and
performance and financial responsibility, and may consider the research and
other investment information provided by such brokers. Accordingly, the
commissions charged by a 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 that broker.
For the period January 17, 1995 through October 31, 1995, the aggregate
commissions paid by the Portfolio was $149,500.
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. The Portfolio uses
Brown Brothers Harriman & Co. as one of its principal brokers where, in the
judgment of the Investment Adviser, such firm is able to obtain a price and
execution at least as favorable as prices and executions provided by other
qualified brokers. As one of the Portfolio's principal brokers, Brown Brothers
Harriman & Co. receives brokerage commissions from the Portfolio.
The use of Brown Brothers Harriman & Co. as a broker for the Portfolio
is subject to the provisions of Rule 11a2-2(T) under the Securities Exchange Act
of 1934 which permits the Portfolio to use Brown Brothers Harriman & Co. as a
broker provided that certain conditions are met.
In addition, under the 1940 Act, commissions paid by the Portfolio to
Brown Brothers Harriman & Co. in connection with a purchase or sale of
securities offered on a securities exchange may not exceed the usual and
customary broker's commission.
The Trustees of the Portfolio from time to time review, among other
things, information relating to the commissions charged by Brown Brothers
Harriman & Co.
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to the Portfolio and to its other customers and information concerning the
prevailing level of commissions charged by other qualified brokers. In addition,
the procedures pursuant to which Brown Brothers Harriman & Co. effects brokerage
transactions for the Portfolio are reviewed and approved no less often than
annually by a majority of the non-interested Trustees of the Portfolio.
For the period January 17, 1995 through October 31, 1995, total
transactions with a principal value of $87,637,894 were effected for the
Portfolio of which transactions with a principal value of $20,656,501 were
effected by Brown Brothers Harriman & Co. which involved payments of commissions
to Brown Brothers Harriman & Co. of $75,463 from the Portfolio.
A portion of the transactions for the Portfolio, are executed through
qualified brokers other than Brown Brothers Harriman & Co. In selecting such
brokers, the Investment Adviser may consider the research and other investment
information provided by such brokers. 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.
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 effecting
similar transactions in listed equity securities.
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 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.
ITEM 18. CAPITAL STOCK AND OTHER SECURITIES.
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. No material amendment may be
made to the Portfolio's Declaration of Trust without the affirmative majority
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vote of investors (with the vote of each being in proportion to the amount of
its investment).
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.
The Portfolio is organized as a trust under the laws of the State of
New York. 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.
ITEM 19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED.
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.
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 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
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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.
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
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
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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 INVESTORS. Allocations of U.S. source dividend income to an
investor who, as to the United States, is a foreign trust, foreign corporation
or other foreign investor will be subject to U.S. withholding tax at the rate of
30% (or lower treaty rate). Allocations of Portfolio interest or short term or
net long term capital gains to foreign investors will not be subject to U.S.
tax.
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 Signature (Cayman), 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.
ITEM 22. CALCULATIONS OF PERFORMANCE DATA.
Not applicable.
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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.
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WS5271B
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS
The financial statements included in Part B, Item 23 of this
Registration Statement are as follows:
Portfolio of Investments at October 31, 1995
Statement of Assets and Liabilities at October 31, 1995
Statement of Operations for the period January 17, 1995 (commencement of
operations) to October 31, 1995
Statement of Changes in Net Assets for the period January 17, 1995
(commencement of operations) to October 31, 1995
Financial Highlights for the period January 17, 1995 (commencement of
operations) to October 31, 1995
Notes to Financial Statements
Independent Auditors' Reports
(B) EXHIBITS
1 Declaration of Trust of the Registrant as amended (2)
2 By-Laws of the Registrant (2)
5 Investment Advisory Agreement between the Registrant and Brown
Brothers Harriman & Co (2)
8 Custodian Contract between the Registrant and State Street Bank and
Trust Company (1)
9(a) Administration Agreement between the Registrant and Brown Brother
Harriman Trust Company (Cayman) Limited (1)
9(b) Sub-administration Agreement between the Registrant and Signature
Financial Group (Cayman) Limited (1)
13 Investment representation letters of initial investors (1)
17 Financial Data Schedule(2)
<PAGE>
(1) Incorporated herein by reference from this registration statement as
initially filed with the Securities and Exchange Commission on January
17, 1995.
(2) Filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Beneficial Interests 3 (as of February 27, 1996)
ITEM 27. 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 28. 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 29. PRINCIPAL UNDERWRITERS.
Not applicable.
ITEM 30. 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 and the Rules thereunder are
maintained at the offices of:
The U.S. Small Company Portfolio
Butterfield House
Fort Street, P.O. Box 2330
George Town, Grand Cayman
Cayman Islands, BWI
Brown Brothers Harriman & Co.
59 Wall Street
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New York, NY 10005
(investment adviser)
Brown Brothers Harriman Trust Company (Cayman) Limited
Butterfield House
Fort Street, P.O. Box 705
George Town, Grand Cayman,
Cayman Islands, BWI
(administrator)
Signature Financial Group (Cayman) Limited
P.O. Box 2494
Elizabethan Square, 2nd Floor
George Town, Grand Cayman
Cayman Islands, BWI
(placement agent and subadministrator)
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
(custodian)
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
ITEM 32. UNDERTAKINGS.
Not applicable.
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SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, as
amended, the Registrant has duly caused this amendment to the Registration
Statement on Form N-1A to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of George Town, Grand Cayman, Cayman Islands,
B.W.I., on the 27th day of February, 1996.
U.S. Small Company Portfolio
By /S/SUSAN JAKUBOSKI
Susan Jakuboski
Assistant Secretary
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INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT
1 Declaration of Trust of the Registrant.
2 By-Laws of the Registrant.
5 Investment Advisory Agreement between the Registrant
and Brown Brothers Harriman & Co.
17 Financial Data Schedule.
WS5271A
U.S. SMALL COMPANY PORTFOLIO
DECLARATION OF TRUST
Dated as of June 15, 1993
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I--The Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Name . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Definitions . . . . . . . . . . . . . . . . . . . 1
ARTICLE II--Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.1 Number and Qualification . . . . . . . . . . . . . 3
Section 2.2 Term and Election . . . . . . . . . . . . . . . . 3
Section 2.3 Resignation, Removal and Retirement . . . . . . . 3
Section 2.4 Vacancies . . . . . . . . . . . . . . . . . . . . 4
Section 2.5 Meetings . . . . . . . . . . . . . . . . . . . . . 4
Section 2.6 Officers; Chairman of the Board . . . . . . . . . 5
Section 2.7 By-Laws . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE III--Powers of Trustees . . . . . . . . . . . . . . . . . . . . . 5
Section 3.1 General . . . . . . . . . . . . . . . . . . . . . 5
Section 3.2 Investments . . . . . . . . . . . . . . . . . . . 6
Section 3.3 Legal Title . . . . . . . . . . . . . . . . . . . 6
Section 3.4 Sale and Increases of Interests . . . . . . . . . 7
Section 3.5 Decreases and Redemptions of Interests . . . . . . 7
Section 3.6 Borrow Money . . . . . . . . . . . . . . . . . . 7
Section 3.7 Delegation; Committees . . . . . . . . . . . . . . 7
Section 3.8 Collection and Payment . . . . . . . . . . . . . . 7
Section 3.9 Expenses . . . . . . . . . . . . . . . . . . . . . 7
Section 3.10 Miscellaneous Powers . . . . . . . . . . . . . . . 7
Section 3.11 Further Powers . . . . . . . . . . . . . . . . . . 8
ARTICLE IV--Investment Management and Administration and Placement
Agent Arrangements . . . . . . . . . . . . . . . . . . . . . 8
Section 4.1 Investment Management and Other Arrangements . . . 8
Section 4.2 Parties to Contract . . . . . . . . . . . . . . . 9
ARTICLE V--Liability of Holders; Limitations of Liability of Trustees,
Officers, etc. . . . . . . . . . . . . . . . . . . . . . . . 9
Section 5.1 Liability of Holders; Indemnification 9
Section 5.2 Limitations of Liability of Trustees, Officers,
Employees, Agents, Independent Contractors
to Third Parties . . . . . . . . . . . . . . . . 10
Section 5.3 Limitations of Liability of Trustees, Officers,
Employees, Agents, Independent Contractors
to Trust, Holders, etc. . . . . . . . . . . . . 10
Section 5.4 Mandatory Indemnification . . . . . . . . . . . . 10
Section 5.5 No Bond Required of Trustees . . . . . . . . . . . 11
Section 5.6 No Duty of Investigation; Notice in Trust
Instruments, etc. . . . . . . . . . . . . . . . 11
<PAGE>
Section 5.7 Reliance on Experts, etc. . . . . . . . . . . . . 11
ARTICLE VI--Interests . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 6.1 Interests . . . . . . . . . . . . . . . . . . . . 12
Section 6.2 Non-Transferability . . . . . . . . . . . . . . . 12
Section 6.3 Register of Interests . . . . . . . . . . . . . . 12
ARTICLE VII--Increases, Decreases And Redemptions of Interests . . . . . . 12
ARTICLE VIII--Determination of Book Capital Account Balances,
and Distributions . . . . . . . . . . . . . . . . . . . . 13
Section 8.1 Book Capital Account Balances . . . . . . . . . . 13
Section 8.2 Allocations and Distributions to Holders . . . . . 13
Section 8.3 Power to Modify Foregoing Procedures . . . . . . . 13
ARTICLE IX--Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 9.1 Rights of Holders . . . . . . . . . . . . . . . . 13
Section 9.2 Meetings of Holders . . . . . . . . . . . . . . . 13
Section 9.3 Notice of Meetings . . . . . . . . . . . . . . . . 14
Section 9.4 Record Date for Meetings, Distributions, etc. . . 14
Section 9.5 Proxies, etc. . . . . . . . . . . . . . . . . . . 14
Section 9.6 Reports . . . . . . . . . . . . . . . . . . . . . 15
Section 9.7 Inspection of Records . . . . . . . . . . . . . . 15
Section 9.8 Holder Action by Written Consent . . . . . . . . . 15
Section 9.9 Notices . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE X--Duration; Termination; Amendment; Mergers; Etc. . . . . . . . . 15
Section 10.1 Duration . . . . . . . . . . . . . . . . . . . . . 15
Section 10.2 Termination . . . . . . . . . . . . . . . . . . . 16
Section 10.3 Dissolution . . . . . . . . . . . . . . . . . . . 17
Section 10.4 Amendment Procedure . . . . . . . . . . . . . . . 17
Section 10.5 Merger, Consolidation and Sale of Assets . . . . . 18
Section 10.6 Incorporation . . . . . . . . . . . . . . . . . . 18
ARTICLE XI--Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 11.1 Certificate of Designation; Agent for
Service of Process . . . . . . . . . . . . . . . 19
Section 11.2 Governing Law . . . . . . . . . . . . . . . . . . 19
Section 11.3 Counterparts . . . . . . . . . . . . . . . . . . . 19
Section 11.4 Reliance by Third Parties . . . . . . . . . . . . 19
Section 11.5 Provisions in Conflict With Law or Regulations . . 19
<PAGE>
DECLARATION OF TRUST
OF
U.S. SMALL COMPANY PORTFOLIO
This DECLARATION OF TRUST of the U.S. Small Company Portfolio
is made as of the 15th day of June, 1993 by the parties signatory hereto, as
Trustees (as defined in Section 1.2 hereof).
W I T N E S S E T H:
WHEREAS, the Trustees desire to form a trust fund under the
law of the State of New York for the investment and reinvestment of its assets;
and
WHEREAS, it is proposed that the trust assets be composed of
money and property contributed thereto by the holders of interests in the trust
entitled to ownership rights in the trust;
NOW, THEREFORE, the Trustees hereby declare that they will
hold in trust all money and property contributed to the trust fund and will
manage and dispose of the same for the benefit of the holders of interests in
the Trust and subject to the provisions hereof, to wit:
ARTICLE I
The Trust
1.1. Name. The name of the trust created hereby (the "Trust")
shall be the U.S. Money Market Portfolio and so far as may be practicable the
Trustees shall conduct the Trust's activities, execute all documents and sue or
be sued under that name, which name (and the word "Trust" wherever hereinafter
used) shall refer to the Trustees as Trustees, and not individually, and shall
not refer to the officers, employees, agents or independent contractors of the
Trust or holders of interests in the Trust.
1.2. Definitions. As used in this Declaration, the following
terms shall have the following meanings:
The term "Interested Person" shall have the meaning given it
in the 1940 Act.
"Book Capital Account" shall mean, for any Holder at any time,
the Book Capital Account of the Holder for such day, determined in accordance
with Section 8.1 hereof.
"Code" shall mean the United States Internal Revenue Code of
1986, as amended from time to time, as well as any non-superseded provisions of
the Internal Revenue Code of 1954, as amended (or any corresponding provision or
provisions of succeeding law).
"Commission" shall mean the United States Securities and
Exchange Commission.
"Declaration" shall mean this Declaration of Trust as amended
from time to time. References in this Declaration to "Declaration", "hereof",
"herein" and "hereunder" shall be deemed to refer to this Declaration rather
than the article or section in which any such word appears.
"Fiscal Year" shall mean an annual period determined by the
Trustees which ends on December 31 of each year or on such other day as is
permitted or required by the Code.
"Holders" shall mean as of any particular time all holders of
record of Interests in the Trust.
"Institutional Investor(s)" shall mean any regulated
investment company, segregated asset account, foreign investment company, common
trust fund, group trust or other investment arrangement, whether organized
within or without the United States of America, other than an individual, S
corporation, partnership or grantor trust beneficially owned by any individual,
S corporation or partnership.
"Interest(s)" shall mean the interest of a Holder in the
Trust, including all rights, powers and privileges accorded to Holders by this
Declaration, which interest may be expressed as a percentage, determined by
calculating, at such times and on such basis as the Trustees shall from time to
time determine, the ratio of each Holder's Book Capital Account balance to the
total of all Holders' Book Capital Account balances. Reference herein to a
specified percentage of, or fraction of, Interests, means Holders whose combined
Book Capital Account balances represent such specified percentage or fraction of
the combined Book Capital Account balances of all, or a specified group of,
Holders.
"Investment Manager and Administrator" shall mean any party
furnishing services to the Trust pursuant to any investment management or
administration contract described in Section 4.1 hereof.
"Majority Interests Vote" shall mean the vote, at a meeting of
Holders, of (A) 67% or more of the Interests present or represented at such
meeting, if Holders of more than 50% of all Interests are present or represented
by proxy, or (B) more than 50% of all Interests, whichever is less.
"Person" shall mean and include individuals, corporations,
partnerships, trusts, associations, joint ventures and other entities, whether
or not legal entities, and governments and agencies and political subdivisions
thereof.
"Redemption" shall mean the complete withdrawal of an Interest
of a Holder the result of which is to reduce the Book Capital Account balance of
that Holder to zero, and the term "redeem" shall mean to effect a Redemption.
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"Trustees" shall mean each signatory to this Declaration, so
long as such signatory shall continue in office in accordance with the terms
hereof, and all other individuals who at the time in question have been duly
elected or appointed and have qualified as Trustees in accordance with the
provisions hereof and are then in office, and reference in this Declaration to a
Trustee or Trustees shall refer to such individual or individuals in their
capacity as Trustees hereunder.
"Trust Property" shall mean as of any particular time any and
all property, real or personal, tangible or intangible, which at such time is
owned or held by or for the account of the Trust or the Trustees.
The "1940 Act" shall mean the United States Investment Company
Act of 1940, as amended from time to time, and the rules and regulations
thereunder.
ARTICLE II
Trustees
2.1. Number and Qualification. The number of Trustees shall be
fixed from time to time by action of the Trustees taken as provided in Section
2.5 hereof; provided, however, that the number of Trustees so fixed shall in no
event be less than three or more than 15. Any vacancy created by an increase in
the number of Trustees may be filled by the appointment of an individual having
the qualifications described in this Section 2.1 made by action of the Trustees
taken as provided in Section 2.5 hereof. Any such appointment shall not become
effective, however, until the individual named in the written instrument of
appointment shall have accepted in writing such appointment and agreed in
writing to be bound by the terms of this Declaration. No reduction in the number
of Trustees shall have the effect of removing any Trustee from office. Whenever
a vacancy occurs, until such vacancy is filled as provided in Section 2.4
hereof, the Trustees continuing in office, regardless of their number, shall
have all the powers granted to the Trustees and shall discharge all the duties
imposed upon the Trustees by this Declaration. A Trustee shall be an individual
at least 21 years of age who is not under legal disability.
2.2. Term and Election. Each Trustee named herein, or elected
or appointed prior to the first meeting of Holders, shall (except in the event
of resignations, retirements, removals or vacancies pursuant to Section 2.3 or
Section 2.4 hereof) hold office until a successor to such Trustee has been
elected at such meeting and has qualified to serve as Trustee, as required under
the 1940 Act. Subject to the provisions of Section 16(a) of the 1940 Act and
except as provided in Section 2.3 hereof, each Trustee shall hold office during
the lifetime of the Trust and until its termination as hereinafter provided.
2.3. Resignation, Removal and Retirement. Any Trustee may
resign his or her trust (without need for prior or subsequent accounting) by an
instrument in writing executed by such Trustee and delivered or mailed to the
Chairman, if any, the President or the Secretary of the Trust and such
resignation shall be effective upon such delivery, or at a later date according
to the terms of the instrument. Any Trustee may be removed by the affirmative
vote of Holders of two-thirds of the Interests or (provided the aggregate number
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<PAGE>
of Trustees, after such removal and after giving effect to any appointment made
to fill the vacancy created by such removal, shall not be less than the number
required by Section 2.1 hereof) with cause, by the action of two-thirds of the
remaining Trustees. Removal with cause includes, but is not limited to, the
removal of a Trustee due to physical or mental incapacity or failure to comply
with such written policies as from time to time may be adopted by at least
two-thirds of the Trustees with respect to the conduct of the Trustees and
attendance at meetings. Any Trustee who has attained a mandatory retirement age,
if any, established pursuant to any written policy adopted from time to time by
at least two-thirds of the Trustees shall, automatically and without action by
such Trustee or the remaining Trustees, be deemed to have retired in accordance
with the terms of such policy, effective as of the date determined in accordance
with such policy. Any Trustee who has become incapacitated by illness or injury
as determined by a majority of the other Trustees, may be retired by written
instrument executed by a majority of the other Trustees, specifying the date of
such Trustee's retirement. Upon the resignation, retirement or removal of a
Trustee, or a Trustee otherwise ceasing to be a Trustee, such resigning,
retired, removed or former Trustee shall execute and deliver such documents as
the remaining Trustees shall require for the purpose of conveying to the Trust
or the remaining Trustees any Trust Property held in the name of such resigning,
retired, removed or former Trustee. Upon the death of any Trustee or upon
removal, retirement or resignation due to any Trustee's incapacity to serve as
Trustee, the legal representative of such deceased, removed, retired or
resigning Trustee shall execute and deliver on behalf of such deceased, removed,
retired or resigning Trustee such documents as the remaining Trustees shall
require for the purpose set forth in the preceding sentence.
2.4. Vacancies. The term of office of a Trustee shall
terminate and a vacancy shall occur in the event of the death, resignation,
retirement, adjudicated incompetence or other incapacity to perform the duties
of the office, or removal, of a Trustee. No such vacancy shall operate to annul
this Declaration or to revoke any existing agency created pursuant to the terms
of this Declaration. In the case of a vacancy, Holders of at least a majority of
the Interests entitled to vote, acting at any meeting of Holders held in
accordance with Section 9.2 hereof, or, to the extent permitted by the 1940 Act,
a majority vote of the Trustees continuing in office acting by written
instrument or instruments, may fill such vacancy, and any Trustee so elected by
the Trustees or the Holders shall hold office as provided in this Declaration.
2.5. Meetings. Meetings of the Trustees shall be held from
time to time upon the call of the Chairman, if any, the President, the
Secretary, an Assistant Secretary or any two Trustees. Regular meetings of the
Trustees may be held without call or notice at a time and place fixed by the
By-Laws or by resolution of the Trustees. Notice of any other meeting shall be
mailed or otherwise given not less than 24 hours before the meeting but may be
waived in writing by any Trustee either before or after such meeting. The
attendance of a Trustee at a meeting shall constitute a waiver of notice of such
meeting except in the situation in which a Trustee attends a meeting for the
express purpose of objecting to the transaction of any business on the ground
that the meeting was not lawfully called or convened. The Trustees may act with
or without a meeting. A quorum for all meetings of the Trustees shall be a
majority of the Trustees. Unless provided otherwise in this Declaration, any
action of the Trustees may be
4
<PAGE>
taken at a meeting by vote of a majority of the Trustees present (a quorum being
present) or without a meeting by written consent of a majority of the Trustees.
Any committee of the Trustees, including an executive
committee, if any, may act with or without a meeting. A quorum for all meetings
of any such committee shall be a majority of the members thereof. Unless
provided otherwise in this Declaration, any action of any such committee may be
taken at a meeting by vote of a majority of the members present (a quorum being
present) or without a meeting by written consent of a majority of the members.
With respect to actions of the Trustees and any committee of
the Trustees, Trustees who are Interested Persons of the Trust or otherwise
interested in any action to be taken may be counted for quorum purposes under
this Section 2.5 and shall be entitled to vote to the extent permitted by the
1940 Act.
All or any one or more Trustees may participate in a meeting
of the Trustees or any committee thereof by means of a conference telephone or
similar communications equipment by means of which all individuals participating
in the meeting can hear each other and participation in a meeting by means of
such communications equipment shall constitute presence in person at such
meeting.
2.6. Officers; Chairman of the Board. The Trustees shall, from
time to time, elect a President, a Secretary and a Treasurer. The Trustees may
elect or appoint, from time to time, a Chairman of the Board who shall preside
at all meetings of the Trustees and carry out such other duties as the Trustees
may designate. The Trustees may elect or appoint or authorize the President to
appoint such other officers, agents or independent contractors with such powers
as the Trustees may deem to be advisable. The Chairman, if any, shall be and
each other officer may, but need not, be a Trustee.
2.7. By-Laws. The Trustees may adopt and, from time to time,
amend or repeal By-Laws for the conduct of the business of the Trust.
ARTICLE III
Powers of Trustees
3.1. General. The Trustees shall have exclusive and absolute
control over the Trust Property and over the business of the Trust to the same
extent as if the Trustees were the sole owners of the Trust Property and such
business in their own right, but with such powers of delegation as may be
permitted by this Declaration. The Trustees may perform such acts as in their
sole discretion they deem proper for conducting the business of the Trust. The
enumeration of or failure to mention any specific power herein shall not be
construed as limiting such exclusive and absolute control. The powers of the
Trustees may be exercised without order of or resort to any court.
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<PAGE>
3.2. Investments. The Trustees shall have power to:
(a) conduct, operate and carry on the business of an
investment company;
(b) subscribe for, invest in, reinvest in, purchase or
otherwise acquire, hold, pledge, sell, assign, transfer, exchange, distribute or
otherwise deal in or dispose of United States and foreign currencies and related
instruments including forward contracts, and securities, including common and
preferred stock, warrants, bonds, debentures, time notes and all other evidences
of indebtedness, negotiable or non-negotiable instruments, obligations,
certificates of deposit or indebtedness, commercial paper, repurchase
agreements, reverse repurchase agreements, convertible securities, forward
contracts, options, futures contracts, and other securities, including, without
limitation, those issued, guaranteed or sponsored by any state, territory or
possession of the United States and the District of Columbia and their political
subdivisions, agencies and instrumentalities, or by the United States
Government, any foreign government, or any agency, instrumentality or political
subdivision of the United States Government or any foreign government, or any
international instrumentality, or by any bank, savings institution, corporation
or other business entity organized under the laws of the United States or under
any foreign laws; and to exercise any and all rights, powers and privileges of
ownership or interest in respect of any and all such investments of any kind and
description, including, without limitation, the right to consent and otherwise
act with respect thereto, with power to designate one or more Persons to
exercise any of such rights, powers and privileges in respect of any of such
investments; and the Trustees shall be deemed to have the foregoing powers with
respect to any additional instruments in which the Trustees may determine to
invest.
The Trustees shall not be limited to investing in obligations
maturing before the possible termination of the Trust, nor shall the Trustees be
limited by any law limiting the investments which may be made by fiduciaries.
3.3. Legal Title. Legal title to all Trust Property shall be
vested in the Trustees as joint tenants except that the Trustees shall have the
power to cause legal title to any Trust Property to be held by or in the name of
one or more of the Trustees, or in the name of the Trust, or in the name or
nominee name of any other Person on behalf of the Trust, on such terms as the
Trustees may determine.
The right, title and interest of the Trustees in the Trust
Property shall vest automatically in each individual who may hereafter become a
Trustee upon his due election and qualification. Upon the resignation, removal
or death of a Trustee, such resigning, removed or deceased Trustee shall
automatically cease to have any right, title or interest in any Trust Property,
and the right, title and interest of such resigning, removed or deceased Trustee
in the Trust Property shall vest automatically in the remaining Trustees. Such
vesting and cessation of title shall be effective whether or not conveyancing
documents have been executed and delivered.
3.4. Sale and Increases of Interests. The Trustees, in their
discretion, may, from time to time, without a vote of the Holders, permit any
6
<PAGE>
Institutional Investor to purchase an Interest, or increase its Interest, for
such type of consideration, including cash or property, at such time or times
(including, without limitation, each business day), and on such terms as the
Trustees may deem best, and may in such manner acquire other assets (including
the acquisition of assets subject to, and in connection with the assumption of,
liabilities) and businesses. Individuals, S corporations, partnerships and
grantor trusts that are beneficially owned by any individual, S corporation or
partnership may not purchase Interests. A Holder which has redeemed its Interest
may not be permitted to purchase an Interest until the later of 60 calendar days
after the date of such Redemption or the first day of the Fiscal Year next
succeeding the Fiscal Year during which such Redemption occurred.
3.5 Decreases and Redemptions of Interests. Subject to Article
VII hereof, the Trustees, in their discretion, may, from time to time, without a
vote of the Holders, permit a Holder to redeem its Interest, or decrease its
Interest, for either cash or property, at such time or times (including, without
limitation, each business day), and on such terms as the Trustees may deem best.
3.6. Borrow Money. The Trustees shall have power to borrow
money or otherwise obtain credit and to secure the same by mortgaging, pledging
or otherwise subjecting as security the assets of the Trust, including the
lending of portfolio securities, and to endorse, guarantee, or undertake the
performance of any obligation, contract or engagement of any other Person.
3.7. Delegation; Committees. The Trustees shall have power,
consistent with their continuing exclusive and absolute control over the Trust
Property and over the business of the Trust, to delegate from time to time to
such of their number or to officers, employees, agents or independent
contractors of the Trust the doing of such things and the execution of such
instruments in either the name of the Trust or the names of the Trustees or
otherwise as the Trustees may deem expedient.
3.8. Collection and Payment. The Trustees shall have power to
collect all property due to the Trust; and to pay all claims, including taxes,
against the Trust Property; to prosecute, defend, compromise or abandon any
claims relating to the Trust or the Trust Property; to foreclose any security
interest securing any obligation, by virtue of which any property is owed to the
Trust; and to enter into releases, agreements and other instruments.
3.9. Expenses. The Trustees shall have power to incur and pay
any expenses which in the opinion of the Trustees are necessary or incidental to
carry out any of the purposes of this Declaration, and to pay reasonable
compensation from the Trust Property to themselves as Trustees. The Trustees
shall fix the compensation of all officers, employees and Trustees. The Trustees
may pay themselves such compensation for special services, including legal and
brokerage services, as they in good faith may deem reasonable, and reimbursement
for expenses reasonably incurred by themselves on behalf of the Trust.
3.10. Miscellaneous Powers. The Trustees shall have power to:
(a) employ or contract with such Persons as the Trustees may deem appropriate
for the transaction of the business of the Trust and terminate such employees or
contractual relationships as they consider appropriate; (b) enter into joint
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ventures, partnerships and any other combinations or associations; (c) purchase,
and pay for out of Trust Property, insurance policies insuring the Investment
Manager and Administrator, placement agent, Holders, Trustees, officers,
employees, agents or independent contractors of the Trust against all claims
arising by reason of holding any such position or by reason of any action taken
or omitted by any such Person in such capacity, whether or not the Trust would
have the power to indemnify such Person against such liability; (d) establish
pension, profit-sharing and other retirement, incentive and benefit plans for
the Trustees, officers, employees or agents of the Trust; (e) make donations,
irrespective of benefit to the Trust, for charitable, religious, educational,
scientific, civic or similar purposes; (f) to the extent permitted by law,
indemnify any Person with whom the Trust has dealings, including the Investment
Manager and Administrator, placement agent, Holders, Trustees, officers,
employees, agents or independent contractors of the Trust, to such extent as the
Trustees shall determine; (g) guarantee indebtedness or contractual obligations
of others; (h) determine and change the Fiscal Year of the Trust and the method
by which its accounts shall be kept; and (i) adopt a seal for the Trust, but the
absence of such a seal shall not impair the validity of any instrument executed
on behalf of the Trust.
3.11. Further Powers. The Trustees shall have power to conduct
the business of the Trust and carry on its operations in any and all of its
branches and maintain offices, whether within or without the State of New York,
in any and all states of the United States of America, in the District of
Columbia, and in any and all commonwealths, territories, dependencies, colonies,
possessions, agencies or instrumentalities of the United States of America and
of foreign governments, and to do all such other things and execute all such
instruments as they deem necessary, proper, appropriate or desirable in order to
promote the interests of the Trust although such things are not herein
specifically mentioned. Any determination as to what is in the interests of the
Trust which is made by the Trustees in good faith shall be conclusive. In
construing the provisions of this Declaration, the presumption shall be in favor
of a grant of power to the Trustees. The Trustees shall not be required to
obtain any court order in order to deal with Trust Property.
ARTICLE IV
Investment Management and Administration
and Placement Agent Arrangements
4.1. Investment Management and Other Arrangements. The
Trustees may in their discretion, from time to time, enter into investment
management and administration contracts or placement agent agreements whereby
the other party to such contract or agreement shall undertake to furnish the
Trustees such investment management and administration, placement agent and/or
other services as the Trustees shall, from time to time, consider appropriate or
desirable and all upon such terms and conditions as the Trustees may in their
sole discretion determine. Notwithstanding any provision of this Declaration,
the Trustees may authorize any Investment Manager and Administrator (subject to
such general or specific instructions as the Trustees may, from time to time,
adopt) to effect purchases, sales, loans or exchanges of Trust Property on
behalf of the Trustees
8
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or may authorize any officer, employee or Trustee to effect such purchases,
sales, loans or exchanges pursuant to recommendations of any such Investment
Manager and Administrator (all without any further action by the Trustees). Any
such purchase, sale, loan or exchange shall be deemed to have been authorized by
the Trustees.
4.2. Parties to Contract. Any contract of the character
described in Section 4.1 hereof or in the By-Laws of the Trust may be entered
into with any corporation, firm, trust or association, although one or more of
the Trustees or officers of the Trust may be an officer, director, Trustee,
shareholder or member of such other party to the contract, and no such contract
shall be invalidated or rendered voidable by reason of the existence of any such
relationship, nor shall any individual holding such relationship be liable
merely by reason of such relationship for any loss or expense to the Trust under
or by reason of any such contract or accountable for any profit realized
directly or indirectly therefrom, provided that the contract when entered into
was reasonable and fair and not inconsistent with the provisions of this Article
IV or the By-Laws of the Trust. The same Person may be the other party to one or
more contracts entered into pursuant to Section 4.1 hereof or the By-Laws of the
Trust, and any individual may be financially interested or otherwise affiliated
with Persons who are parties to any or all of the contracts mentioned in this
Section 4.2 or in the By-Laws of the Trust.
ARTICLE V
Liability of Holders; Limitations of
Liability of Trustees, Officers, etc.
5.1. Liability of Holders; Indemnification. Each Holder shall
be jointly and severally liable (with rights of contribution inter se in
proportion to their respective Interests in the Trust) for the liabilities and
obligations of the Trust in the event that the Trust fails to satisfy such
liabilities and obligations; provided, however, that, to the extent assets are
available in the Trust, the Trust shall indemnify and hold each Holder harmless
from and against any claim or liability to which such Holder may become subject
by reason of being or having been a Holder to the extent that such claim or
liability imposes on the Holder an obligation or liability which, when compared
to the obligations and liabilities imposed on other Holders, is greater than
such Holder's Interest (proportionate share), and shall reimburse such Holder
for all legal and other expenses reasonably incurred by such Holder in
connection with any such claim or liability. The rights accruing to a Holder
under this Section 5.1 shall not exclude any other right to which such Holder
may be lawfully entitled, nor shall anything contained herein restrict the right
of the Trust to indemnify or reimburse a Holder in any appropriate situation
even though not specifically provided herein. Notwithstanding the
indemnification procedure described above, it is intended that each Holder shall
remain jointly and severally liable to the Trust's creditors as a legal matter.
5.2. Limitations of Liability of Trustees, Officers,
Employees, Agents, Independent Contractors to Third Parties. No Trustee,
officer, employee, agent or independent contractor (except in the case of an
agent or independent
9
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contractor to the extent expressly provided by written contract) of the Trust
shall be subject to any personal liability whatsoever to any Person, other than
the Trust or the Holders, in connection with Trust Property or the affairs of
the Trust; and all such Persons shall look solely to the Trust Property for
satisfaction of claims of any nature against a Trustee, officer, employee, agent
or independent contractor (except in the case of an agent or independent
contractor to the extent expressly provided by written contract) of the Trust
arising in connection with the affairs of the Trust.
5.3. Limitations of Liability of Trustees, Officers,
Employees, Agents, Independent Contractors to Trust, Holders, etc. No Trustee,
officer, employee, agent or independent contractor (except in the case of an
agent or independent contractor to the extent expressly provided by written
contract) of the Trust shall be liable to the Trust or the Holders for any
action or failure to act (including, without limitation, the failure to compel
in any way any former or acting Trustee to redress any breach of trust) except
for such Person's own bad faith, willful misfeasance, gross negligence or
reckless disregard of such Person's duties.
5.4. Mandatory Indemnification. The Trust shall indemnify, to
the fullest extent permitted by law (including the 1940 Act), each Trustee,
officer, employee, agent or independent contractor (except in the case of an
agent or independent contractor to the extent expressly provided by written
contract) of the Trust (including any Person who serves at the Trust's request
as a director, officer or trustee of another organization in which the Trust has
any interest as a shareholder, creditor or otherwise) against all liabilities
and expenses (including amounts paid in satisfaction of judgments, in
compromise, as fines and penalties, and as counsel fees) reasonably incurred by
such Person in connection with the defense or disposition of any action, suit or
other proceeding, whether civil or criminal, in which such Person may be
involved or with which such Person may be threatened, while in office or
thereafter, by reason of such Person being or having been such a Trustee,
officer, employee, agent or independent contractor, except with respect to any
matter as to which such Person shall have been adjudicated to have acted in bad
faith, willful misfeasance, gross negligence or reckless disregard of such
Person's duties; provided, however, that as to any matter disposed of by a
compromise payment by such Person, pursuant to a consent decree or otherwise, no
indemnification either for such payment or for any other expenses shall be
provided unless there has been a determination that such Person did not engage
in willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Person's office by the court or other
body approving the settlement or other disposition or by a reasonable
determination, based upon a review of readily available facts (as opposed to a
full trial-type inquiry), that such Person did not engage in such conduct by
written opinion from independent legal counsel approved by the Trustees. The
rights accruing to any Person under these provisions shall not exclude any other
right to which such Person may be lawfully entitled; provided that no Person may
satisfy any right of indemnity or reimbursement granted in this Section 5.4 or
in Section 5.2 hereof or to which such Person may be otherwise entitled except
out of the Trust Property. The Trustees may make advance payments in connection
with indemnification under this Section 5.4, provided that the indemnified
Person shall have given a written undertaking to
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reimburse the Trust in the event it is subsequently determined that such Person
is not entitled to such indemnification.
5.5. No Bond Required of Trustees. No Trustee shall, as such,
be obligated to give any bond or surety or other security for the performance of
any of such Trustee's duties hereunder.
5.6. No Duty of Investigation; Notice in Trust Instruments,
etc. No purchaser, lender or other Person dealing with any Trustee, officer,
employee, agent or independent contractor of the Trust shall be bound to make
any inquiry concerning the validity of any transaction purporting to be made by
such Trustee, officer, employee, agent or independent contractor or be liable
for the application of money or property paid, loaned or delivered to or on the
order of such Trustee, officer, employee, agent or independent contractor. Every
obligation, contract, instrument, certificate or other interest or undertaking
of the Trust, and every other act or thing whatsoever executed in connection
with the Trust shall be conclusively taken to have been executed or done by the
executors thereof only in their capacity as Trustees, officers, employees,
agents or independent contractors of the Trust. Every written obligation,
contract, instrument, certificate or other interest or undertaking of the Trust
made or sold by any Trustee, officer, employee, agent or independent contractor
of the Trust, in such capacity, shall contain an appropriate recital to the
effect that the Trustee, officer, employee, agent or independent contractor of
the Trust shall not personally be bound by or liable thereunder, nor shall
resort be had to their private property for the satisfaction of any obligation
or claim thereunder, and appropriate references shall be made therein to the
Declaration, and may contain any further recital which they may deem
appropriate, but the omission of such recital shall not operate to impose
personal liability on any Trustee, officer, employee, agent or independent
contractor of the Trust. Subject to the provisions of the 1940 Act, the Trust
may maintain insurance for the protection of the Trust Property, the Holders,
and the Trustees, officers, employees, agents and independent contractors of the
Trust in such amount as the Trustees shall deem adequate to cover possible tort
liability, and such other insurance as the Trustees in their sole judgment shall
deem advisable.
5.7. Reliance on Experts, etc. Each Trustee, officer,
employee, agent or independent contractor of the Trust shall, in the performance
of such Person's duties, be fully and completely justified and protected with
regard to any act or any failure to act resulting from reliance in good faith
upon the books of account or other records of the Trust (whether or not the
Trust would have the power to indemnify such Persons against such liability),
upon an opinion of counsel, or upon reports made to the Trust by any of its
officers or employees or by any Investment Manager and Administrator,
accountant, appraiser or other experts or consultants selected with reasonable
care by the Trustees, officers or employees of the Trust, regardless of whether
such counsel or expert may also be a Trustee.
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ARTICLE VI
Interests
6.1. Interests. The beneficial interest in the Trust Property
shall consist of non-transferable Interests. The Interests shall be personal
property giving only the rights in this Declaration specifically set forth. The
value of an Interest shall be equal to the Book Capital Account balance of the
Holder of the Interest.
6.2. Non-Transferability. A Holder may not transfer, sell or
exchange its Interest.
6.3. Register of Interests. A register shall be kept at the
Trust under the direction of the Trustees which shall contain the name, address
and Book Capital Account balance of each Holder. Such register shall be
conclusive as to the identity of the Holders. No Holder shall be entitled to
receive payment of any distribution, nor to have notice given to it as herein
provided, until it has given its address to such officer or agent of the Trust
as is keeping such register for entry thereon.
ARTICLE VII
Increases, Decreases And Redemptions of Interests
Subject to applicable law, to the provisions of this
Declaration and to such restrictions as may from time to time be adopted by the
Trustees, each Holder shall have the right to vary its investment in the Trust
at any time without limitation by increasing (through a capital contribution) or
decreasing (through a capital withdrawal) or by a Redemption of its Interest. An
increase in the investment of a Holder in the Trust shall be reflected as an
increase in the Book Capital Account balance of that Holder and a decrease in
the investment of a Holder in the Trust or the Redemption of the Interest of a
Holder shall be reflected as a decrease in the Book Capital Account balance of
that Holder. The Trust shall, upon appropriate and adequate notice from any
Holder increase, decrease or redeem such Holder's Interest for an amount
determined by the application of a formula adopted for such purpose by
resolution of the Trustees; provided that (a) the amount received by the Holder
upon any such decrease or Redemption shall not exceed the decrease in the
Holder's Book Capital Account balance effected by such decrease or Redemption of
its Interest, and (b) if so authorized by the Trustees, the Trust may, at any
time and from time to time, charge fees for effecting any such decrease or
Redemption, at such rates as the Trustees may establish, and may, at any time
and from time to time, suspend such right of decrease or Redemption. The
procedures for effecting decreases or Redemptions shall be as determined by the
Trustees from time to time.
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ARTICLE VIII
Determination of Book Capital Account
Balances and Distributions
8.1. Book Capital Account Balances. The Book Capital Account
balance of each Holder shall be determined on such days and at such time or
times as the Trustees may determine. The Trustees shall adopt resolutions
setting forth the method of determining the Book Capital Account balance of each
Holder. The power and duty to make calculations pursuant to such resolutions may
be delegated by the Trustees to the Investment Manager and Administrator,
custodian, or such other Person as the Trustees may determine. Upon the
Redemption of an Interest, the Holder of that Interest shall be entitled to
receive the balance of its Book Capital Account. A Holder may not transfer, sell
or exchange its Book Capital Account balance.
8.2. Allocations and Distributions to Holders. The Trustees
shall, in compliance with the Code, the 1940 Act and generally accepted
accounting principles, establish the procedures by which the Trust shall make
(i) the allocation of unrealized gains and losses, taxable income and tax loss,
and profit and loss, or any item or items thereof, to each Holder, (ii) the
payment of distributions, if any, to Holders, and (iii) upon liquidation, the
final distribution of items of taxable income and expense. Such procedures shall
be set forth in writing and be furnished to the Trust's accountants. The
Trustees may amend the procedures adopted pursuant to this Section 8.2 from time
to time. The Trustees may retain from the net profits such amount as they may
deem necessary to pay the liabilities and expenses of the Trust, to meet
obligations of the Trust, and as they may deem desirable to use in the conduct
of the affairs of the Trust or to retain for future requirements or extensions
of the business.
8.3. Power to Modify Foregoing Procedures. Notwithstanding any
of the foregoing provisions of this Article VIII, the Trustees may prescribe, in
their absolute discretion, such other bases and times for determining the net
income of the Trust, the allocation of income of the Trust, the Book Capital
Account balance of each Holder, or the payment of distributions to the Holders
as they may deem necessary or desirable to enable the Trust to comply with any
provision of the 1940 Act or any order of exemption issued by the Commission or
with the Code.
ARTICLE IX
Holders
9.1. Rights of Holders. The ownership of the Trust Property
and the right to conduct any business described herein are vested exclusively in
the Trustees, and the Holders shall have no right or title therein other than
the beneficial interest conferred by their Interests and they shall have no
power or right to call for any partition or division of any Trust Property.
9.2. Meetings of Holders. Meetings of Holders may be called at
any time by a majority of the Trustees and shall be called by any Trustee upon
written request of Holders holding, in the aggregate, not less than 10% of the
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Interests, such request specifying the purpose or purposes for which such
meeting is to be called. Any such meeting shall be held within or without the
State of New York and within or without the United States of America on such day
and at such time as the Trustees shall designate. Holders of one-third of the
Interests, present in person or by proxy, shall constitute a quorum for the
transaction of any business, except as may otherwise be required by the 1940
Act, other applicable law, this Declaration or the By-Laws of the Trust. If a
quorum is present at a meeting, an affirmative vote of the Holders present, in
person or by proxy, holding more than 50% of the total Interests of the Holders
present, either in person or by proxy, at such meeting constitutes the action of
the Holders, unless a greater number of affirmative votes is required by the
1940 Act, other applicable law, this Declaration or the By-Laws of the Trust.
All or any one of more Holders may participate in a meeting of Holders by means
of a conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other and participation
in a meeting by means of such communications equipment shall constitute presence
in person at such meeting.
9.3. Notice of Meetings. Notice of each meeting of Holders,
stating the time, place and purposes of the meeting, shall be given by the
Trustees by mail to each Holder, at its registered address, mailed at least 10
days and not more than 60 days before the meeting. Notice of any meeting may be
waived in writing by any Holder either before or after such meeting. The
attendance of a Holder at a meeting shall constitute a waiver of notice of such
meeting except in the situation in which a Holder attends a meeting for the
express purpose of objecting to the transaction of any business on the ground
that the meeting was not lawfully called or convened. At any meeting, any
business properly before the meeting may be considered whether or not stated in
the notice of the meeting. Any adjourned meeting may be held as adjourned
without further notice.
9.4. Record Date for Meetings, Distributions, etc. For the
purpose of determining the Holders who are entitled to notice of and to vote at
any meeting, or to participate in any distribution, or for the purpose of any
other action, the Trustees may from time to time fix a date, not more than 90
days prior to the date of any meeting of Holders or the payment of any
distribution or the taking of any other action, as the case may be, as a record
date for the determination of the Persons to be treated as Holders for such
purpose.
9.5. Proxies, etc. At any meeting of Holders, any Holder
entitled to vote thereat may vote by proxy, provided that no proxy shall be
voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which such vote is to be taken. A
proxy may be revoked by a Holder at any time before it has been exercised by
placing on file with the Secretary, or with such other officer or agent of the
Trust as the Secretary may direct, a later dated proxy or written revocation.
Pursuant to a resolution of a majority of the Trustees, proxies may be solicited
in the name of the Trust or of one or more Trustees or of one or more officers
of the Trust. Only Holders on the record date shall be entitled to vote. Each
such Holder shall be entitled to a vote proportionate to its Interest. When an
Interest is held jointly by several Persons, any one of them may vote at any
meeting in person or by proxy in respect of such Interest, but if more than one
of them is present at such
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meeting in person or by proxy, and such joint owners or their proxies so present
disagree as to any vote to be cast, such vote shall not be received in respect
of such Interest. A proxy purporting to be executed by or on behalf of a Holder
shall be deemed valid unless challenged at or prior to its exercise, and the
burden of proving invalidity shall rest on the challenger.
9.6. Reports. The Trustees shall cause to be prepared and
furnished to each Holder, at least annually as of the end of each Fiscal Year, a
report of operations containing a balance sheet and a statement of income of the
Trust prepared in conformity with generally accepted accounting principles and
an opinion of an independent public accountant on such financial statements. The
Trustees shall, in addition, furnish to each Holder at least semi-annually
interim reports of operations containing an unaudited balance sheet as of the
end of such period and an unaudited statement of income for the period from the
beginning of the then-current Fiscal Year to the end of such period.
9.7. Inspection of Records. The records of the Trust shall be
open to inspection by Holders during normal business hours for any purpose not
harmful to the Trust.
9.8. Holder Action by Written Consent. Any action which may be
taken by Holders may be taken without a meeting if Holders holding more than 50%
of all Interests entitled to vote (or such larger proportion thereof as shall be
required by any express provision of this Declaration) consent to the action in
writing and the written consents are filed with the records of the meetings of
Holders. Such consents shall be treated for all purposes as a vote taken at a
meeting of Holders. Each such written consent shall be executed by or on behalf
of the Holder delivering such consent and shall bear the date of such execution.
No such written consent shall be effective to take the action referred to
therein unless, within one year of the earliest dated consent, written consents
executed by a sufficient number of Holders to take such action are filed with
the records of the meetings of Holders.
9.9. Notices. Any and all communications, including any and
all notices to which any Holder may be entitled, shall be deemed duly served or
given if mailed, postage prepaid, addressed to a Holder at its last known
address as recorded on the register of the Trust.
ARTICLE X
Duration; Termination;
Amendment; Mergers; Etc.
10.1. Duration. Subject to possible termination or dissolution
in accordance with the provisions of Section 10.2 and Section 10.3 hereof,
respectively, the Trust created hereby shall continue until the expiration of 20
years after the death of the last survivor of the initial Trustees named herein
and the following named persons:
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Date of
Name Address Birth
Nicole Catherine Rumery 18 Rio Vista Street 12/21/91
North Billerica, MA 01862
Nelson Stewart Ruble 65 Duck Pond Road 04/10/91
Glen Cove, NY 11542
Shelby Sara Wyetzner 8 Oak Brook Lane 10/18/90
Merrick, NY 11566
Amanda Jehan Sher Coolidge 483 Pleasant Street, No. 9 08/16/89
Belmont, MA 02178
Emilie Blair Ruble 65 Duck Pond Road 02/24/89
Glen Cove, NY 11542
Brian Patrick Lyons 152-48 Jewel Avenue 01/20/89
Flushing, NY 11367
Caroline Bolger Cima 11 Beechwood Lane 12/23/88
Scarsdale, NY 10583
Katherine Driscoll Cima 11 Beechwood Lane 04/05/92
Scarsdale, NY 10583
10.2. Termination.
(a) The Trust may be terminated (i) by the affirmative
vote of Holders of not less than two-thirds of all Interests at any meeting of
Holders or by an instrument in writing without a meeting, executed by a majority
of the Trustees and consented to by Holders of not less than two-thirds of all
Interests, or (ii) by the Trustees by written notice to the Holders. Upon any
such termination,
(i) the Trust shall carry on no business except for
the purpose of winding up its affairs;
(ii) the Trustees shall proceed to wind up the
affairs of the Trust and all of the powers of the Trustees under this
Declaration shall continue until the affairs of the Trust have been wound up,
including the power to fulfill or discharge the contracts of the Trust, collect
the assets of the Trust, sell, convey, assign, exchange or otherwise dispose of
all or any part of the Trust Property to one or more Persons at public or
private sale for consideration which may consist in whole or in part of cash,
securities or other property of any kind, discharge or pay the liabilities of
the Trust, and do all other acts appropriate to liquidate the business of the
Trust; provided that any sale, conveyance, assignment, exchange or other
disposition of all or
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substantially all the Trust Property shall require approval of the
principal terms of the transaction and the nature and amount of the
consideration by the vote of Holders holding more than 50% of all
Interests; and
(iii) after paying or adequately providing for the
payment of all liabilities, and upon receipt of such releases,
indemnities and refunding agreements as they deem necessary for their
protection, the Trustees shall distribute the remaining Trust Property,
in cash or in kind or partly each, among the Holders according to their
respective rights as set forth in the procedures established pursuant
to Section 8.2 hereof.
(b) Upon termination of the Trust and distribution to
the Holders as herein provided, a majority of the Trustees shall execute and
file with the records of the Trust an instrument in writing setting forth the
fact of such termination and distribution. Upon termination of the Trust, the
Trustees shall thereupon be discharged from all further liabilities and duties
hereunder, and the rights and interests of all Holders shall thereupon cease.
10.3. Dissolution. Upon the bankruptcy of any Holder, or upon
the Redemption of any Interest, the Trust shall be dissolved effective 120 days
after the event. However, the Holders (other than such bankrupt or redeeming
Holder) may, by a unanimous affirmative vote at any meeting of such Holders or
by an instrument in writing without a meeting executed by a majority of the
Trustees and consented to by all such Holders, agree to continue the business of
the Trust even if there has been such a dissolution.
10.4. Amendment Procedure.
(a) This Declaration may be amended by the vote of
Holders of more than 50% of all Interests at any meeting of Holders or by an
instrument in writing without a meeting, executed by a majority of the Trustees
and consented to by the Holders of more than 50% of all Interests.
Notwithstanding any other provision hereof, this Declaration may be amended by
an instrument in writing executed by a majority of the Trustees, and without the
vote or consent of Holders, for any one or more of the following purposes: (i)
to change the name of the Trust, (ii) to supply any omission, or to cure,
correct or supplement any ambiguous, defective or inconsistent provision hereof,
(iii) to conform this Declaration to the requirements of applicable federal law
or regulations or the requirements of the applicable provisions of the Code,
(iv) to change the state or other jurisdiction designated herein as the state or
other jurisdiction whose law shall be the governing law hereof, (v) to effect
such changes herein as the Trustees find to be necessary or appropriate (A) to
permit the filing of this Declaration under the law of such state or other
jurisdiction applicable to trusts or voluntary associations, (B) to permit the
Trust to elect to be treated as a "regulated investment company" under the
applicable provisions of the Code, or (C) to permit the transfer of Interests
(or to permit the transfer of any other beneficial interest in or share of the
Trust, however denominated), and (vi) in conjunction with any amendment
contemplated by the foregoing clause (iv) or the foregoing clause (v) to make
any and all such further changes or
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modifications to this Declaration as the Trustees find to be necessary or
appropriate, any finding of the Trustees referred to in the foregoing clause (v)
or the foregoing clause (vi) to be conclusively evidenced by the execution of
any such amendment by a majority of the Trustees; provided, however, that unless
effected in compliance with the provisions of Section 10.4(b) hereof, no
amendment otherwise authorized by this sentence may be made which would reduce
the amount payable with respect to any Interest upon liquidation of the Trust
and; provided, further, that the Trustees shall not be liable for failing to
make any amendment permitted by this Section 10.4(a).
(b) No amendment may be made under Section 10.4(a)
hereof which would change any rights with respect to any Interest by reducing
the amount payable thereon upon liquidation of the Trust or by diminishing or
eliminating any voting rights pertaining thereto, except with the vote or
consent of Holders of two-thirds of all Interests.
(c) A certification in recordable form executed by a
majority of the Trustees setting forth an amendment and reciting that it was
duly adopted by the Holders or by the Trustees as aforesaid or a copy of the
Declaration, as amended, in recordable form, and executed by a majority of the
Trustees, shall be conclusive evidence of such amendment when filed with the
records of the Trust.
Notwithstanding any other provision hereof, until such time as
Interests are first sold, this Declaration may be terminated or amended in any
respect by the affirmative vote of a majority of the Trustees at any meeting of
Trustees or by an instrument executed by a majority of the Trustees.
10.5. Merger, Consolidation and Sale of Assets. The Trust may
merge or consolidate with any other corporation, association, trust or other
organization or may sell, lease or exchange all or substantially all of the
Trust Property, including good will, upon such terms and conditions and for such
consideration when and as authorized at any meeting of Holders called for such
purpose by the affirmative vote of Holders of not less than two-thirds of all
Interests, or by an instrument in writing without a meeting, consented to by
Holders of not less than two-thirds of all Interests, and any such merger,
consolidation, sale, lease or exchange shall be deemed for all purposes to have
been accomplished under and pursuant to the statutes of the State of New York.
10.6. Incorporation. Upon a Majority Interests Vote, the
Trustees may cause to be organized or assist in organizing a corporation or
corporations under the law of any jurisdiction or a trust, partnership,
association or other organization to take over the Trust Property or to carry on
any business in which the Trust directly or indirectly has any interest, and to
sell, convey and transfer the Trust Property to any such corporation, trust,
partnership, association or other organization in exchange for the equity
interests thereof or otherwise, and to lend money to, subscribe for the equity
interests of, and enter into any contract with any such corporation, trust,
partnership, association or other organization, or any corporation, trust,
partnership, association or other organization in which the Trust holds or is
about to acquire equity interests. The Trustees may also cause a merger
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or consolidation between the Trust or any successor thereto and any such
corporation, trust, partnership, association or other organization if and to the
extent permitted by law. Nothing contained herein shall be construed as
requiring approval of the Holders for the Trustees to organize or assist in
organizing one or more corporations, trusts, partnerships, associations or other
organizations and selling, conveying or transferring a portion of the Trust
Property to one or more of such organizations or entities.
ARTICLE XI
Miscellaneous
11.1. Certificate of Designation; Agent for Service of
Process. The Trust shall file, with the Department of State of the State of New
York, a certificate, in the name of the Trust and executed by an officer of the
Trust, designating the Secretary of State of the State of New York as an agent
upon whom process in any action or proceeding against the Trust may be served.
11.2. Governing Law. This Declaration is executed by the
Trustees and delivered in the State of New York and with reference to the law
thereof, and the rights of all parties and the validity and construction of
every provision hereof shall be subject to and construed in accordance with the
law of the State of New York and reference shall be specifically made to the
trust law of the State of New York as to the construction of matters not
specifically covered herein or as to which an ambiguity exists.
11.3. Counterparts. This Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any one such original
counterpart.
11.4. Reliance by Third Parties. Any certificate executed by
an individual who, according to the records of the Trust or of any recording
office in which this Declaration may be recorded, appears to be a Trustee
hereunder, certifying to: (a) the number or identity of Trustees or Holders, (b)
the due authorization of the execution of any instrument or writing, (c) the
form of any vote passed at a meeting of Trustees or Holders, (d) the fact that
the number of Trustees or Holders present at any meeting or executing any
written instrument satisfies the requirements of this Declaration, (e) the form
of any By-Laws adopted by or the identity of any officer elected by the
Trustees, or (f) the existence of any fact or facts which in any manner relate
to the affairs of the Trust, shall be conclusive evidence as to the matters so
certified in favor of any Person dealing with the Trustees.
11.5. Provisions in Conflict With Law or Regulations.
(a) The provisions of this Declaration are severable,
and if the Trustees shall determine, with the advice of counsel, that any of
such provisions is in conflict with the 1940 Act, or with other applicable law
and regulations, the conflicting provision shall be deemed never to have
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constituted a part of this Declaration; provided, however, that such
determination shall not affect any of the remaining provisions of this
Declaration or render invalid or improper any action taken or omitted prior to
such determination.
(b) If any provision of this Declaration shall be held
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such jurisdiction and
shall not in any manner affect such provision in any other jurisdiction or any
other provision of this Declaration in any jurisdiction.
IN WITNESS WHEREOF, the undersigned have executed this
instrument as of the day and year first above written.
/S/ PHILIP W. COOLIDGE
Philip W. Coolidge
As Trustee and not individually
/S/ JAMES B. CRAVER
James B. Craver
As Trustee and not individually
/S/ THOMAS M. LENZ
Thomas M. Lenz
As Trustee and not individually
20
WS5227
U.S. SMALL COMPANY PORTFOLIO
BY-LAWS
As Adopted June 15, 1993
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I -- Meetings of Holders . . . . . . . . . . . . . 1
-------------------
Section 1.1 Fixing Record Dates . . . . . . . 1
Section 1.2 Records at Holder Meetings . . . . . 1
Section 1.3 Inspectors of Election . . . . . . 1
Section 1.4 Proxies; Voting . . . . . . . . . 2
ARTICLE II -- Trustees . . . . . . . . . . . . . . . . 2
--------
Section 2.1 Regular Meetings . . . . . . . . 2
Section 2.2 Special Meetings . . . . . . . . 2
Section 2.3 Notice . . . . . . . . . . . . 2
Section 2.4 Chairman; Records . . . . . . . . 2
ARTICLE III -- Officers . . . . . . . . . . . . . . . . 3
--------
Section 3.1 Officers of the Trust . . . . . . . 3
Section 3.2 Election and Tenure . . . . . . . 3
Section 3.3 Removal of Officers . . . . . . . 3
Section 3.4 Bonds and Surety . . . . . . . . 3
Section 3.5 Chairman, President and Vice Presidents . 3
Section 3.6 Secretary . . . . . . . . . . . 4
Section 3.7 Treasurer . . . . . . . . . . . 4
Section 3.8 Other Officers and Duties . . . . . 4
ARTICLE IV -- Miscellaneous . . . . . . . . . . . . . . . 5
-------------
Section 4.1 Depositories . . . . . . . . . . 5
Section 4.2 Execution of Papers . . . . . . . 5
Section 4.3 Seal . . . . . . . . . . . . 5
Section 4.4 Indemnification . . . . . . . . . 5
Section 4.5 Distribution Disbursing Agents and the
Like . . . . . . . . . . . . 5
ARTICLE V -- Regulations; Amendment of By-Laws . . . . . . . . 6
---------------------------------
Section 5.1 Regulations . . . . . . . . . . 6
Section 5.2 Amendment and Repeal of By-Laws . . . 6
i
<PAGE>
WS5227
BY-LAWS
OF
U.S. SMALL COMPANY PORTFOLIO
These By-Laws are made and adopted pursuant to Section 2.7 of
the Declaration of Trust establishing U.S. SMALL COMPANY PORTFOLIO (the
"Trust"), dated as of June 15, 1993, as from time to time amended (the
"Declaration"). All words and terms capitalized in these By-Laws shall have the
meaning or meanings set forth for such words or terms in the Declaration.
ARTICLE I
Meetings of Holders
Section 1.1. Fixing Record Dates. If the Trustees do not,
prior to any meeting of the Holders, fix a record date, then the date of mailing
notice of the meeting shall be the record date.
Section 1.2. Records at Holder Meetings. At each meeting of
the Holders there shall be open for inspection, by the Holders, Trustees and
officers, the minutes of the last previous meeting of Holders of the Trust and a
list of the Holders of the Trust, certified to be true and correct by the
Secretary or other proper agent of the Trust, as of the record date of the
meeting. Such list of Holders shall contain the name of each Holder in
alphabetical order and the address and Interest owned by such Holder on such
record date.
Section 1.3. Inspectors of Election. In advance of any meeting
of the Holders, the Trustees may appoint Inspectors of Election to act at the
meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the chairman, if any, of any meeting of the Holders may, and on the
request of any Holder or his proxy shall, appoint Inspectors of Election. The
number of Inspectors of Election shall be either one or three. If appointed at
the meeting on the request of one or more Holders or proxies, a Majority
Interests Vote shall determine whether one or three Inspectors of Election are
to be appointed, but failure to allow such determination by the Holders shall
not affect the validity of the appointment of Inspectors of Election. In case
any individual appointed as an Inspector of Election fails to appear or fails or
refuses to so act, the vacancy may be filled by appointment made by the Trustees
in advance of the convening of the meeting or at the meeting by the individual
acting as chairman of the meeting. The Inspectors of Election, if any, shall
determine the Interest owned by each Holder, the Interests represented at the
meeting, the existence of a quorum, the authenticity, validity and effect of
proxies, shall receive votes, ballots or consents, shall hear and determine all
challenges and questions in any way arising in connection with the right to
vote, shall count and tabulate all votes or consents, shall determine the
results, and
<PAGE>
shall do such other acts as may be proper to conduct the election or vote with
fairness to all Holders. If there are three Inspectors of Election, the
decision, act or certificate of a majority is effective in all respects as the
decision, act or certificate of all. On request of the chairman, if any, of the
meeting, or of any Holder or his proxy, the Inspectors of Election shall make a
report in writing of any challenge or question or matter determined by them and
shall execute a certificate of any facts found by them.
Section 1.4. Proxies; Voting. No proxy shall be valid after
one year from the date of its execution, unless a longer period is expressly
stated in such proxy.
ARTICLE II
Trustees
Section 2.1. Regular Meetings. The Trustees shall hold an
annual and more frequent regular meetings for the transaction of any business
which may come before such meeting. Regular meetings of the Trustees may be held
without call or notice at such place or places and times as the Trustees may
provide from time to time.
Section 2.2. Special Meetings. Special Meetings of the
Trustees shall be held upon the call of the Chairman, if any, the President, the
Secretary or any two Trustees, at such time, on such day and at such place, as
shall be designated in the notice of the meeting.
Section 2.3. Notice. Notice of a meeting shall be given by
mail or by telegram (which term shall include a cablegram) or delivered
personally. If notice is given by mail, it shall be mailed not later than 48
hours preceding the meeting and if given by telegram, telecopier or personally,
such notice shall be sent or delivery made not later than 24 hours preceding the
meeting. Notice by telephone shall constitute personal delivery for these
purposes. Notice of a meeting of Trustees may be waived before or after any
meeting by signed written waiver. Neither the business to be transacted at, nor
the purpose of, any meeting of the Board of Trustees need be stated in the
notice or waiver of notice of such meeting, and no notice need be given of
action proposed to be taken by written consent. The attendance of a Trustee at a
meeting shall constitute a waiver of notice of such meeting except where a
Trustee attends a meeting for the express purpose of objecting, at the
commencement of such meeting, to the transaction of any business on the ground
that the meeting has not been lawfully called or convened.
Section 2.4. Chairman; Records. The Chairman, if any, shall
act as Chairman at all meetings of the Trustees; in his absence the President
shall act as chairman; and, in the absence of the Chairman of the Board and the
President, the Trustees present shall elect one of their number to act as
temporary chairman. The results of all actions taken at a meeting of the
Trustees, or by written consent of the Trustees, shall be recorded by the
Secretary.
2
<PAGE>
ARTICLE III
Officers
Section 3.1. Officers of the Trust. The officers of the Trust
shall consist of a Chairman, if any, a President, a Secretary, a Treasurer and
such other officers or assistant officers, including Vice Presidents, as may be
elected by the Trustees. Any two or more of the offices may be held by the same
person. The Trustees may designate a Vice President as an Executive Vice
President and may designate the order in which the other Vice Presidents may
act. The Chairman shall be a Trustee, but no other officer of the Trust,
including the President, need be a Trustee.
Section 3.2. Election and Tenure. At the initial organization
meeting of the Trustees, the Trustees shall elect the Chairman, if any, the
President, the Secretary, the Treasurer and such other officers as the Trustees
shall deem necessary or appropriate in order to carry out the business of the
Trust. The officers shall hold office until their successors have been duly
elected and qualified. The Trustees may fill any vacancy in office or add any
additional officer at any time.
Section 3.3. Removal of Officers. Any officer may be removed
at any time, with or without cause, by action of a majority of the Trustees.
This provision shall not prevent the making of a contract of employment for a
definite term with any officer and shall have no effect upon any cause of action
which any officer may have as a result of removal in breach of a contract of
employment. Any officer may resign at any time by notice in writing signed by
such officer and delivered or mailed to the Chairman, if any, the President or
the Secretary, and such resignation shall take effect immediately, or at a later
date according to the terms of such notice in writing.
Section 3.4. Bonds and Surety. Any officer may be required by
the Trustees to be bonded for the faithful performance of his duties in such
amount and with such sureties as the Trustees may determine.
Section 3.5. Chairman, President and Vice Presidents. The
Chairman, if any, shall, if present, preside at all meetings of the Holders and
of the Trustees and shall exercise and perform such other powers and duties as
may be from time to time assigned to him by the Trustees. Subject to such
supervisory powers, if any, as may be given by the Trustees to the Chairman, if
any, the President shall be the chief executive officer of the Trust and,
subject to the control of the Trustees, shall have general supervision,
direction and control of the business of the Trust and of its employees and
shall exercise such general powers of management as are usually vested in the
office of President of a corporation. In the absence of the Chairman, if any,
the President shall preside at all meetings of the Holders and, in the absence
of the Chairman, the President shall preside at all meetings of the Trustees.
Subject to the direction of the Trustees, the President shall have the power, in
the name and on behalf of the Trust, to execute any and all loan documents,
contracts, agreements, deeds, mortgages and other instruments in writing, and to
employ and discharge employees and agents of the Trust. Unless otherwise
directed by the Trustees, the President shall have full authority and power to
attend, to act and to vote, on
3
<PAGE>
behalf of the Trust, at any meeting of any business organization in which the
Trust holds an interest, or to confer such powers upon any other person, by
executing any proxies duly authorizing such person. The President shall have
such further authorities and duties as the Trustees shall from time to time
determine. In the absence or disability of the President, the Vice Presidents in
order of their rank or the Vice President designated by the Trustees, shall
perform all of the duties of the President, and when so acting shall have all
the powers of and be subject to all of the restrictions upon the President.
Subject to the direction of the President, each Vice President shall have the
power in the name and on behalf of the Trust to execute any and all loan
documents, contracts, agreements, deeds, mortgages and other instruments in
writing, and, in addition, shall have such other duties and powers as shall be
designated from time to time by the Trustees or by the President.
Section 3.6. Secretary. The Secretary shall keep the minutes
of all meetings of, and record all votes of, Holders, Trustees and the Executive
Committee, if any. The results of all actions taken at a meeting of the
Trustees, or by written consent of the Trustees, shall be recorded by the
Secretary. The Secretary shall be custodian of the seal of the Trust, if any,
and (and any other person so authorized by the Trustees) shall affix the seal
or, if permitted, a facsimile thereof, to any instrument executed by the Trust
which would be sealed by a New York corporation executing the same or a similar
instrument and shall attest the seal and the signature or signatures of the
officer or officers executing such instrument on behalf of the Trust. The
Secretary shall also perform any other duties commonly incident to such office
in a New York corporation, and shall have such other authorities and duties as
the Trustees shall from time to time determine.
Section 3.7. Treasurer. Except as otherwise directed by the
Trustees, the Treasurer shall be responsible for the general supervision of the
Trust's funds and property and for the general supervision of the Trust's
custodian, and shall have and exercise, under the supervision of the Trustees
and of the President, all powers and duties normally incident to his office. The
Treasurer may endorse for deposit or collection all notes, checks and other
instruments payable to the Trust or to its order and shall deposit all funds of
the Trust as may be ordered by the Trustees or the President. The Treasurer
shall keep accurate account of the books of the Trust's transactions which shall
be the property of the Trust, and which together with all other property of the
Trust in his possession, shall be subject at all times to the inspection and
control of the Trustees or by any one or more Trustees. Unless the Trustees
shall otherwise determine, the Treasurer shall be the principal accounting
officer of the Trust and shall also be the principal financial officer of the
Trust. The Treasurer shall have such other duties and authorities as the
Trustees shall from time to time determine. Notwithstanding anything to the
contrary herein contained, the Trustees may authorize the Investment Manager and
Administrator to maintain bank accounts and deposit and disburse funds on behalf
of the Trust.
Section 3.8. Other Officers and Duties. The Trustees may elect
such other officers and assistant officers as they shall from time to time
determine to be necessary or desirable in order to conduct the business of the
Trust. Assistant officers shall act generally in the absence of the officer whom
they
4
<PAGE>
assist and shall assist that officer in the duties of his office. Each officer,
employee and agent of the Trust shall have such other duties and authorities as
may be conferred upon him by the Trustees or delegated to him by the President.
ARTICLE IV
Miscellaneous
Section 4.1. Depositories. The funds of the Trust shall be
deposited in such depositories as the Trustees shall designate and shall be
drawn out on checks, drafts or other orders signed by such officer, officers,
agent or agents (including the Investment Manager and Administrator) as the
Trustees may from time to time authorize.
Section 4.2. Execution of Papers. Except as the Trustees may
generally or in particular cases authorize, all deeds, leases, transfers,
contracts, bonds, notes, checks, drafts, and other obligations made, accepted or
endorsed by the Trust shall be executed by the President, any Vice President, or
the Treasurer, or by whomever else shall be designated for that purpose by the
Trustees, and need not bear the seal of the Trust.
Section 4.3. Seal. The seal of the Trust, if any, may be
affixed to any document, and the seal and its attestation may be lithographed,
engraved or otherwise printed on any document with the same force and effect as
if it had been imprinted and attested manually in the same manner and with the
same effect as if done by a New York corporation.
Section 4.4. Indemnification. Insofar as the conditional
advancing of indemnification monies under Section 5.4 of the Declaration for
actions based upon the 1940 Act may be concerned, such payments will be made
only on the following conditions: (i) the advances must be limited to amounts
used, or to be used, for the preparation or presentation of a defense to the
action, including costs connected with the preparation of a settlement; (ii)
advances may be made only upon receipt of a written promise by, or on behalf of,
the recipient to repay the amount of the advance which exceeds the amount to
which it is ultimately determined that he is entitled to receive from the Trust
by reason of indemnification; and (iii) (a) such promise must be secured by a
surety bond, other suitable insurance or an equivalent form of security which
assures that any repayment may be obtained by the Trust without delay or
litigation, which bond, insurance or other form of security must be provided by
the recipient of the advance, or (b) a majority of a quorum of the Trust's
disinterested, non-party Trustees, or an independent legal counsel in a written
opinion, shall determine, based upon a review of readily available facts, that
the recipient of the advance ultimately will be found entitled to
indemnification.
Section 4.5. Distribution Disbursing Agents and the Like. The
Trustees shall have the power to employ and compensate such distribution
disbursing agents, warrant agents and agents for the reinvestment of
distributions as they shall deem necessary or desirable. Any of such agents
shall have such power and authority as is delegated to any of them by the
Trustees.
5
<PAGE>
ARTICLE V
Regulations; Amendment of By-Laws
Section 5.1. Regulations. The Trustees may make such
additional rules and regulations, not inconsistent with these By-Laws, as they
may deem expedient concerning the sale and purchase of Interests of the Trust.
Section 5.2. Amendment and Repeal of By-Laws. In accordance
with Section 2.7 of the Declaration, the Trustees shall have the power to alter,
amend or repeal the By-Laws or adopt new By-Laws at any time. Action by the
Trustees with respect to the By-Laws shall be taken by an affirmative vote of a
majority of the Trustees. The Trustees shall in no event adopt By-Laws which are
in conflict with the Declaration.
The Declaration refers to the Trustees as Trustees, but not as
individuals or personally; and no Trustee, officer, employee or agent of the
Trust shall be held to any personal liability, nor shall resort be had to their
private property for the satisfaction of any obligation or claim or otherwise in
connection with the affairs of the Trust.
WS5227
6
WS5266
U.S. SMALL COMPANY PORTFOLIO
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made this day of December 15, 1993 between U.S. SMALL
COMPANY PORTFOLIO, a New York trust, (the "Portfolio"), and BROWN BROTHERS
HARRIMAN & CO., a New York limited partnership (the "Adviser"),
WHEREAS, the Portfolio is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, the Portfolio desires to retain the Adviser to render
investment advisory services, and the Adviser is willing to render such
services;
NOW, THEREFORE, this Agreement
WITNESSETH:
that in consideration of the premises and mutual promises hereinafter set forth,
the parties hereto agree as follows:
1. The Portfolio hereby appoints the Adviser to act as investment
adviser to the Portfolio for the period and on the terms set forth in this
Agreement. The Adviser accepts such appointment and agrees to render the
services herein set forth, for the compensation herein provided.
2. Subject to the general supervision of the Board of Trustees of the
Portfolio, the Adviser shall manage the investment operations of the Portfolio
and the composition of the Portfolio's portfolio of securities and investments,
including cash, the purchase, retention and disposition thereof and agreements
relating thereto, in accordance with the Portfolio's investment objective and
policies as stated in the Registration Statement on Form N-1A (as defined in
paragraph 3 of this Agreement) and subject to the following understandings:
(a) the Adviser shall furnish a continuous investment program for the
Portfolio and determine from time to time what investments or securities will be
purchased, retained, sold or lent by the Portfolio, and what portion of the
assets will be invested or held uninvested as cash;
(b) the Adviser shall use the same skill and care in the management of
the Portfolio as it uses in the administration of other accounts for which it
has investment responsibility as agent;
(c) the Adviser, in the performance of its duties and obligations under
this Agreement, shall act in conformity with the Portfolio's Declaration of
Trust and By-Laws and the Registration Statement on Form N-1A of the Portfolio
and with the instructions and directions of the Trustees of the Portfolio and
will conform to and comply with the requirements of the 1940 Act and all other
applicable federal and state laws and regulations including, without limitation,
the regulations and rulings of the New York State Banking Department;
<PAGE>
(d) the Adviser shall determine the securities to be purchased, sold or
lent by the Portfolio and as agent for the Portfolio will effect portfolio
transactions pursuant to its determinations either directly with the issuer or
with any broker and/or dealer in such securities; in placing orders with brokers
and or dealers the Adviser intends to seek best price and execution for
purchases and sales and may effect transactions through itself on a securities
exchange provided that the commissions paid by the Portfolio are "reasonable and
fair" compared to commissions received by other broker-dealers having comparable
execution capability in connection with comparable transactions involving
similar securities and provided that the transactions in connection with which
such commissions are paid are effected pursuant to procedures established by the
Trustees of the Portfolio; the Adviser shall also make recommendations regarding
whether or not the Portfolio shall enter into repurchase or reverse repurchase
agreements, contracts providing for the making or acceptance of a cash
settlement based upon changes in the value of an index of securities, or put or
call option contracts, with respect to the Portfolio's portfolio.
On occasions when the Adviser deems the purchase or sale of a security
to be in the best interest of the Portfolio as well as other customers, the
Adviser, may, to the extent permitted by applicable laws and regulations, but
shall not be obligated to, aggregate the securities to be so sold or purchased
in order to obtain the best execution and lower brokerage commissions, if any.
In such event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Adviser in the manner
it considers to be the most equitable and consistent with its fiduciary
obligations to the Fund and to such other customers;
(e) the Adviser shall maintain books and records with respect to the
Portfolio's securities transactions and shall render to the Portfolio's Trustees
such periodic and special reports as the Trustees may reasonably request; and
(f) the investment management services of the Adviser to the Portfolio
under this Agreement are not to be deemed exclusive, and the Adviser shall be
free to render similar services to others.
3. The Portfolio has delivered copies of each of the following
documents to the Adviser and will promptly notify and deliver to it all future
amendments and supplements, it any:
(a) Declaration of Trust of the Portfolio, dated June 15, 1993 (such
Declaration of Trust, as presently in effect and as amended from time to time,
is herein called the "Declaration of Trust");
(b) By-Laws of the Portfolio (such By-Laws, as presently in effect and
as amended from time to time, are herein called the "By-Laws");
(c) Certified resolutions of the Trustees of the Portfolio authorizing
the appointment of the Adviser and approving the form of this Agreement;
(d) Registration Statement under the 194O Act, as amended, on Form N-1A
(the "Registration Statement") as filed with the Securities and Exchange
Commission (the "Commission"); and
<PAGE>
(e) Notification of Registration of the Portfolio under the 1940 Act on
Form N-8A as filed with the Commission.
4. The Adviser shall keep the Portfolio's books and records required to
be maintained by it pursuant to paragraph 2(e). In compliance with the
requirements of Rule 31a-3 under the 1940 Act, the Adviser hereby agrees that
all records which it maintains for the Portfolio are property of the Portfolio
and further agrees to surrender promptly to the Portfolio any such records upon
the Portfolio's request. The Adviser further agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act any such records required to be
maintained by Rule 31a-1 under the 1940 Act.
5. During the term of this Agreement the Adviser will pay all expenses
incurred by it in connection with its activities under this Agreement other than
the cost of securities and investments purchased for the Portfolio (including
taxes and brokerage commissions, if any).
6. For the services provided and the expenses borne pursuant to this
Agreement, the Adviser will receive from the Portfolio as full compensation
therefor a fee at an annual rate equal to 0.65% of the portfolio's average daily
net assets. This fee will be computed based on net assets at 4:00 P.M. New York
time on each day the New York Stock Exchange is open for trading and will be
paid to the Adviser monthly during the succeeding calendar month.
7. The Adviser shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Portfolio in connection with the matters
to which this Agreement relates, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services (in
which case any award of damages shall be limited to the period and the amount
set forth in Section 36(b)(3) of the 1940 Act) or a loss resulting from wilful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Agreement.
8. This Agreement shall continue in effect for two years from the date
of its execution and thereafter, but only so long as its continuance is
specifically approved at least annually in conformity with the requirements of
the 1940 Act; provided, however, that this Agreement may be terminated by the
Portfolio at any time, without the payment of any penalty, by vote of a majority
of all the Trustees of the Portfolio or by ,"vote of a majority of the
outstanding voting securities" of the Portfolio on 60 days' written notice to
the Adviser, or by the Adviser at any time, without the payment of any penalty,
on 90 days' written notice to the Portfolio. This Agreement will automatically
and immediately terminate in the event of its "assignment".
9. The Adviser shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise expressly provided herein or
authorized by the Trustees of the Portfolio from time to time, have no authority
to act for or represent the Portfolio in any way or otherwise be deemed an agent
of the Portfolio.
10. This Agreement may be amended by mutual consent, but the consent of
the Portfolio must be approved (a) by vote of a majority of those Trustees of
the Portfolio who are not parties to this Agreement or "interested persons" of
any such party, cast in person at a meeting called for the purpose of voting on
such
<PAGE>
amendment, and (b) by "vote of a majority of the outstanding voting securities"
of the Portfolio.
11. As used in this Agreement, the terms "assignment", "interested
persons" and "vote of a majority of the outstanding voting securities" shall
have the meanings assigned to them respectively in the 1940 Act.
12. Notices of any kind to be given to the Adviser by the Portfolio
shall be in writing and shall be duly given if mailed or delivered to the
Adviser at 59 Wall Street, New York, New York 10005, Attention: Treasurer, or at
such other address or to such other individual as shall be specified by the
Adviser to the Portfolio. Notices of any kind to be given to the Portfolio by
the Adviser shall be in writing and shall be duly given if mailed or delivered
to the Portfolio at U.S. Small Company Portfolio, Butterfield House, Fort
Street, P.O. Box 705, George Town, Grand Cayman BWI, or at such other address or
to such other individual as shall be specified by the Portfolio to the Adviser.
13. This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original.
14. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers or Partners designated below on the day and year
first above written.
U.S. SMALL COMPANY PORTFOLIO
ATTEST: By /S/ PHILIP W. COOLIDGE
BROWN BROTHERS HARRIMAN & CO.
ATTEST: By /s/ DONALD B. MURPHY
WS5266
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the U.S.
Small Company Portfolio Annual Report, dated 10/31/95 and is qualified in its
entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0001003016
<NAME> U.S. SMALL COMPANY PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> JAN-17-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 43,697,525
<INVESTMENTS-AT-VALUE> 51,077,703
<RECEIVABLES> 27,743
<ASSETS-OTHER> 10,708
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 51,297,164
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 70,745
<TOTAL-LIABILITIES> 70,745
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 43,846,241
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,380,178
<NET-ASSETS> 51,226,419
<DIVIDEND-INCOME> 365,511
<INTEREST-INCOME> 80,894
<OTHER-INCOME> 0
<EXPENSES-NET> 336,447
<NET-INVESTMENT-INCOME> 110,048
<REALIZED-GAINS-CURRENT> 2,365,906
<APPREC-INCREASE-CURRENT> 6,156,515
<NET-CHANGE-FROM-OPS> 8,632,469
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 51,126,319
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 283,032
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 377,830
<AVERAGE-NET-ASSETS> 25,119,057
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0.77
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
