U.S. SMALL COMPANY PORTFOLIO
PORTFOLIO OF INVESTMENTS
October 31, 1997
(expressed in U.S. dollars)
Shares Value
- ------ ----------
COMMON STOCKS (96.8%)
COMMERCIAL SERVICES (4.6%)
23,850 Bowne & Co., Inc. .................................. $ 831,769
7,000 Consolidated Graphics, Inc.* ...................... 363,125
11,500 Corestaff, Inc.* ................................... 283,187
13,300 Sylvan Learning
Systems, Inc.* ................................... 557,769
----------
2,035,850
----------
CONSUMER DURABLES (3.9%)
18,800 Carlisle Companies, Inc. ........................... 813,100
15,600 Centex Corp. ....................................... 912,600
----------
1,725,700
----------
CONSUMER NON-DURABLES (3.4%)
15,100 Coors Adolph Co. ................................... 533,219
17,900 Kellwood Co. ....................................... 618,669
9,900 Universal Corp. .................................... 380,531
----------
1,532,419
----------
CONSUMER SERVICES (5.9%)
7,600 CKE Restaurants, Inc. .............................. 303,525
30,300 Homestead Village, Inc.* ........................... 484,800
70,000 Host Marriott Services Corp.* ...................... 997,500
30,300 Ryan's Family Steak
Houses, Inc.* .................................... 259,444
18,700 Westwood One, Inc. ................................. 567,428
----------
2,612,697
----------
ELECTRONIC TECHNOLOGY (13.2%)
14,000 CHS Electronics, Inc.* ............................. 340,812
15,000 Comverse Technology, Inc.* ......................... 616,875
6,600 Hutchinson Technology, Inc.* ....................... 174,075
10,600 Innovex, Inc. ...................................... 271,956
5,300 Lattice Semiconductor Corp.* ....................... 264,503
14,200 Micrel, Inc.* ...................................... 509,425
11,500 Microchip Technology, Inc.* ........................ 456,406
5,000 Novellus Systems, Inc.* ............................ 222,188
9,500 Read-Rite Corp.* ................................... 189,109
13,160 Sanmina Corp.* ..................................... 983,710
13,100 SCI Systems, Inc.* ................................. 576,400
9,900 Security Dynamics
Technology, Inc.* ................................ 333,816
12,200 Stratus Computer, Inc.* ............................ 431,575
5,200 Vitesse Semiconductor Corp.* ....................... 225,875
8,500 VLSI Technology, Inc.* ............................. 252,875
----------
5,849,600
----------
ENERGY MINERALS (3.5%)
15,200 Devon Energy Corp. ................................. 680,200
14,620 Pogo Producing Co. ................................. 529,061
15,500 Vintage Petroleum, Inc. ............................ 354,562
----------
1,563,823
----------
FINANCE (16.8%)
20,695 Allied Group, Inc. ................................. 977,839
9,200 American Bankers Insurance
Group, Inc. ..................................... 343,850
2,700 CCB Financial Corp. ................................ 245,700
11,262 Charter One Financial, Inc. ........................ 654,621
8,780 Deposit Guaranty Corp. ............................. 323,763
6,674 First Commercial Corp. ............................. 329,529
14,000 FirstMerit Corp. ................................... 358,750
6,700 Keystone Financial, Inc. ........................... 229,056
21,210 Orion Capital Corp. ................................ 954,450
49,490 Presidential Life Corp. ............................ 977,428
6,600 Protective Life Corp. .............................. 348,975
9,325 Provident Financial, Inc. .......................... 426,036
26,700 Reliance Group Holdings, Inc. ...................... 337,087
7,900 TCF Financial Corp. ................................ 449,312
13,520 Zions Bancorporation ............................... 525,590
----------
7,481,986
----------
HEALTH SERVICES (4.9%)
7,600 Genesis Health
Ventures, Inc.* .................................. 186,200
6,210 Lincare Holdings, Inc.* ............................ 333,787
15,260 Omnicare, Inc. ..................................... 424,419
36,360 Orthodontic Centers of
America, Inc.* .................................. 629,483
12,250 PhyCor, Inc.* ...................................... 282,133
7,200 Universal Health
Services, Inc.* .................................. 317,250
----------
2,173,272
----------
HEALTH TECHNOLOGY (3.7%)
26,000 Rexall Sundown, Inc.* .............................. 563,875
9,800 Safeskin Corp.* .................................... 444,063
5,400 STERIS Corp.* ...................................... 213,638
10,680 Sybron International Corp.* ........................ 428,535
----------
1,650,111
----------
<PAGE>
U.S. SMALL COMPANY PORTFOLIO
PORTFOLIO OF INVESTMENTS
October 31, 1997 (continued)
(expressed in U.S. dollars)
Shares Value
- ------ ----------
INDUSTRIAL SERVICES (5.2%)
3,800 Camco International, Inc. .......................... $ 274,550
27,500 Noble Drilling Corp.* .............................. 977,969
32,040 Pride International* ............................... 1,057,320
----------
2,309,839
----------
NON-ENERGY MINERALS (2.1%)
26,660 Chaparral Steel Co. ................................ 403,232
9,600 Southdown, Inc. .................................... 531,600
----------
934,832
----------
PROCESS INDUSTRIES (2.7%)
13,600 DEKALB Genetics Corp. .............................. 487,900
14,100 Guilford Mills, Inc. ............................... 336,637
13,900 Premark International, Inc. ........................ 376,169
----------
1,200,706
----------
PRODUCER MANUFACTURING (7.8%)
13,020 AGCO Corp. ......................................... 377,580
6,350 Borg-Warner Automotive, Inc. ....................... 346,075
9,500 Kennametal, Inc. ................................... 460,750
23,400 Manitowoc Co., Inc. (The) .......................... 709,312
20,800 Miller (Herman), Inc. .............................. 1,019,200
9,100 Technitrol, Inc. ................................... 280,963
11,650 TJ International, Inc. ............................. 265,766
----------
3,459,646
----------
RETAIL TRADE (8.7%)
26,700 Burlington Industries* ............................. 398,831
20,200 CompUSA, Inc.* ..................................... 661,550
31,000 Fred Meyer, Inc.* .................................. 885,438
49,650 Pier 1 Imports, Inc. ............................... 906,112
9,400 Proffitts, Inc.* ................................... 269,662
10,600 Ross Stores, Inc. .................................. 397,500
12,600 Russ Berrie & Co., Inc. ............................ 343,350
----------
3,862,443
----------
TECHNOLOGY SERVICES (3.5%)
15,000 Keane, Inc.* ....................................... 444,375
8,520 Sterling Software, Inc.* ........................... 290,745
9,800 Tech Data Corp.* ................................... 433,650
10,400 Wind River Systems, Inc.* .......................... 399,100
----------
1,567,870
----------
TRANSPORTATION (3.2%)
12,500 Airborne Freight Corp. ............................. 792,188
19,100 USFreightways Corp. ................................ 614,781
----------
1,406,969
----------
UTILITIES (3.7%)
6,810 KN Energy, Inc. .................................... 296,235
28,990 NUI Corp. .......................................... 654,087
35,800 Northwestern Public
Service Co. ...................................... 716,000
----------
1,666,322
----------
TOTAL INVESTMENTS (identified cost
$29,802,201) (a) ................................. 96.8% $43,034,085
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ...... 3.2 1,416,251
----- -----------
NET ASSETS .......................................... 100.0% $44,450,336
===== ===========
- ----------
* non-income producing security
(a) The aggregate cost for federal income tax purposes is $29,802,201, the
aggregate gross unrealized appreciation is $13,970,613, and the aggregate
gross unrealized depreciation is $738,729, resulting in net unrealized
appreciation of $13,231,884.
See Notes to Financial Statements
<PAGE>
U.S. SMALL COMPANY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1997
(expressed in U.S. dollars)
ASSETS:
Investments in securities, at value (identified
cost $29,802,201) (Note 1) .............................. $43,034,085
Cash ...................................................... 1,553,136
Receivables for:
Margin variation on futures ............................ 27,750
Dividends and interest receivable ...................... 3,766
Deferred organization expenses (Note 1) ................... 5,621
-----------
Total Assets ...................................... 44,624,358
-----------
LIABILITIES:
Payables for:
Withdrawals ............................................ 60,368
Investment advisory fee (Note 2) ....................... 49,437
Trustees' fee (Note 2) ................................. 1,031
Administrative fee (Note 2) ............................ 1,400
Foreign withholding taxes .............................. 9,552
Professional fees ...................................... 16,400
Accrued expenses and other liabilities ................. 35,834
-----------
Total Liabilities ................................. 174,022
-----------
NET ASSETS ................................................... $44,450,336
===========
Net Assets Consist of:
Paid-in capital ......................................... $31,268,162
Net unrealized appreciation on investments .............. 13,182,174
-----------
Net Assets ................................................... $44,450,336
===========
See Notes to Financial Statements.
<PAGE>
U.S. SMALL COMPANY PORTFOLIO
STATEMENT OF OPERATIONS
For the year ended October 31, 1997
(expressed in U.S. dollars)
INVESTMENT INCOME:
Income:
Dividends ............................................... $ 383,887
Interest ................................................ 44,305
------------
Total Income ........................................ 428,192
------------
Expenses:
Investment advisory fee (Note 2) ........................ 319,096
Custody fee (Note 3) .................................... 45,793
Administrative fee (Note 2) ............................. 17,182
Professional fees ....................................... 8,697
Trustees' fees and expenses (Note 2) .................... 6,262
Amortization of organization expense .................... 2,540
Miscellaneous ........................................... 22,833
------------
Total Expenses .......................................... 422,403
------------
Fees paid indirectly (Note 3) ....................... (43,393)
------------
Net Expenses ........................................ 379,010
------------
Net Investment Income ............................... 49,182
------------
NET REALIZED AND UNREALIZED GAIN (Notes 1 and 3):
Net realized gain on investments ........................... 8,634,544
Net change in unrealized appreciation on investments ....... 1,336,403
------------
Net Realized and Unrealized Gain ...................... 9,970,947
------------
Net Increase in Net Assets Resulting from Operations ....... $ 10,020,129
============
See Notes to Financial Statements
<PAGE>
U.S. SMALL COMPANY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
(expressed in U.S. dollars)
For the years ended October 31,
-------------------------------
1997 1996
---- ----
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income ..................... $ 49,182 $ 144,668
Net realized gain on investments .......... 8,634,544 3,463,297
Net change in unrealized appreciation
on investments ......................... 1,336,403 4,465,593
------------ ------------
Net increase in net assets resulting
from operations ....................... 10,020,129 8,073,558
------------ ------------
Capital transactions:
Proceeds from contributions ............... 7,097,111 4,802,410
Value of withdrawals ...................... (30,601,261) (6,168,030)
------------ ------------
Net decrease in net assets resulting
from capital transactions ............. (23,504,150) (1,365,620)
------------ ------------
Total increase (decrease) in net assets (13,484,021) 6,707,938
NET ASSETS:
Beginning of year ............................. 57,934,357 51,226,419
------------ ------------
End of year ................................... $ 44,450,336 $ 57,934,357
============ ============
See Notes to Financial Statements.
<PAGE>
U.S. SMALL COMPANY PORTFOLIO
FINANCIAL HIGHLIGHTS
Selected ratios and supplemental data throughout each period
(expressed in U.S. dollars)
For the period
For the years January 17, 1995
ended October 31, (commencement of
----------------- operations) to
1997 1996 October 31, 1995
---- ---- ----------------
Ratios/Supplemental Data:
Net assets, end of period
(000's omitted) ....................... $44,450 $57,934 $51,226
Expenses as a percentage of average
net assets:
Expenses paid by Portfolio ............ 0.77% 0.77% 0.77%*
Expenses paid by commissions** ........ -- 0.05% 0.05%*
Expense offset arrangements ........... 0.09% 0.08% 0.05%*
---- ------ ----
Total expenses .................... 0.86% 0.90% 0.87%*
Ratio of net investment income
to average net assets ................. 0.10% 0.26% 0.25%*
Portfolio turnover rate ................. 63% 51% 115%
Average commission rate paid per share .. $ 0.077 $ 0.080 $0.0800
- ----------
* Annualized.
** A portion of the Portfolio's securities transactions are directed 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.
See Notes to Financial Statements.
<PAGE>
U.S. SMALL COMPANY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(expressed in U.S. dollars)
1. Organization and Significant Accounting Policies. U.S. Small Company
Portfolio (the "Portfolio") is registered under the Investment Company Act of
1940, as amended, as a diversified open-end management investment company which
was organized as a trust under the laws of the State of New York on June 15,
1993. The Portfolio commenced operations on January 17, 1995 and received a
contribution of certain assets and liabilities, including securities, with a
value of $33,464,236 (including $1,223,663 of unrealized appreciation) on that
date from the 59 Wall Street Company Fund in exchange for a beneficial interest
in the Portfolio. The Declaration of Trust permits the Trustees to create an
unlimited number of beneficial interests in the Portfolio.
The Portfolio's financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America, which
require management to make certain estimates and assumptions at the date of the
financial statements and are based, in part, on the following accounting
policies. Actual results could differ from those estimates.
A. Valuation of Investments. (1) The value of investments listed on
a securities exchange is based on the last price on that exchange prior to
the time when assets are valued, or in the absence of recorded sales, at
the average of readily available closing bid and asked prices on such
exchange; (2) unlisted securities are valued at the average of the quoted
bid and asked prices in the over-the-counter market; (3) 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 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 the value from dealers; and
general market conditions; (4) 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 by the Portfolio was
more than 60 days, unless this is determined not to represent fair value
by the Trustees.
B. Futures Contracts. To hedge against anticipated future changes in
interest rates or securities prices, the Portfolio may enter into
financial futures contracts for the delayed delivery of contracts based on
financial indices at a fixed price on a future date. The Portfolio is
required to deposit either in cash or securities an amount equal to a
certain percentage of the contract amount. Subsequent payments are made or
received by the Portfolio each day, dependent on the daily fluctuations in
the value of the underlying securities or index, and are recorded for
financial statement purposes as unrealized gains or losses by the
Portfolio. The Portfolio recognizes a realized gain or loss when the
contract is closed or expires. Should interest rates or securities prices
move unexpectedly, the Portfolio may not achieve the anticipated benefits
of the financial futures contracts and may realize a loss. If forecasts of
interest rates and other market factors are incorrect, investment
performance will diminish compared to what performance would have been if
these investment techniques were not used. Even if the forecasts are
correct, there is risk that the positions may correlate imperfectly with
the asset or liability being hedged. Other risks of entering into these
transactions are that a liquid secondary market may not always exist, or
that another party to a transaction may not perform.
C. Accounting for Investments. Security transactions are accounted
for on the trade date. Realized gains and losses on security transactions
are determined on the identified cost method. Dividend income and other
distributions from portfolio securities are recorded on the ex-dividend
date. Dividend income is recorded net of foreign taxes withheld where
recovery of such taxes is not assured. Interest income is accrued daily.
<PAGE>
U.S. SMALL COMPANY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (continued)
(expressed in U.S. dollars)
D. Federal Income Taxes. The Portfolio will be treated as a
partnership for federal income tax purposes. As such, each investor in the
Portfolio will be subject to taxation on its share of the Portfolio's
ordinary income and capital gains. 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 comply with the provisions of the Internal Revenue Code
applicable to regulated investment companies. Accordingly, no provision
for federal income taxes is necessary.
E. Deferred Organization Expenses. Expenses incurred by the
Portfolio in connection with its organization are being amortized on a
straight-line basis over a five-year period.
2. Transactions with Affiliates.
Investment Advisory Fee. The Portfolio has an investment advisory
agreement with Brown Brothers Harriman & Co. (the "Adviser") for which it pays
the Adviser a fee calculated daily and paid monthly at an annual rate equivalent
to 0.65% of the Portfolio's average daily net assets. For the year ended October
31, 1997, the Portfolio incurred $319,096 for advisory services.
Administrative Fee. The Portfolio has an administrative agreement with
Brown Brothers Harriman Trust Company (Cayman) Limited (the "Administrator") for
which it pays the Administrator a fee calculated daily and paid monthly at an
annual rate equivalent to 0.035% of the Portfolio's average daily net assets.
The Administrator has a subadministration agreement with Signature Financial
Group (Cayman) Ltd. for which Signature Financial Group (Cayman) Ltd. receives
such compensation as is from time to time agreed upon, but not in excess of the
amount paid to the Administrator. For the year ended October 31, 1997, the
Portfolio incurred $17,182 for administrative services.
Trustees Fee. Each Trustee of the Portfolio receives an annual retainer
paid by the Portfolio. Each Trustee is also reimbursed for out-of-pocket
expenses incurred in connection with board meetings. For the year ended October
31, 1997, the Portfolio incurred $6,262 for Trustee fees.
3. Investment Transactions. For the year ended October 31, 1997, the cost
of purchases and the proceeds of sales of investment securities other than
short-term investments were $29,502,768 and $52,865,496, respectively. For that
same period, the portfolio paid brokerage commissions of $55,627 to Brown
Brothers Harriman & Co. for transactions executed on its behalf. Custody fees
for the Portfolio were reduced by $43,393 as a result of an expense offset
arrangement with the Portfolio's custodian.
4. Financial Futures Contracts. As of October 31, 1997, U.S. Small Company
Portfolio held open futures contracts. The contractual amount of a futures
contract represents the investment the Portfolio has in a particular contract
and does not necessarily represent the amounts potentially subject to risk. The
measurements of futures contracts is meaningful only when all related and
offsetting transactions are considered. A summary of obligations under open
futures contracts at October 31,1997 is as follows:
Unrealized
Position Contracts Index Depreciation
-------- ---------- ----- ------------
Long 6 Russell 2000 $49,710
As of October 31, 1997, the Portfolio had segregated sufficient cash
and/or securities to cover margin requirements on open futures contracts.
<PAGE>
INDEPENDENT AUDITORS' REPORT
Trustees and Investors
U.S. Small Company Portfolio:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of U.S. Small Company Portfolio as of
October 31, 1997, the related statement of operations for the year ended, the
statement of changes in net assets for the years ended October 31, 1997 and 1996
and the financial highlights each of the years in the three-year period ended
October 31, 1997 (all expressed in U.S. dollars). These financial statements and
financial highlights are the responsibility of the Portfolio's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned at October 31, 1997 by correspondence with the custodian. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of U.S. Small Company
Portfolio at October 31, 1997, the results of its operations, the changes in its
net assets, and its financial highlights for the respective stated periods in
conformity with accounting principles generally accepted in the United States of
America.
DELOITTE & TOUCHE
Grand Cayman, Cayman Islands
December 12, 1997
<PAGE>
