As filed with the Securities and Exchange Commission on February 29, 2000.
File No. 811-09661
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 1
EUROPEAN EQUITY 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: (345) 949-4719
Philip W. Coolidge, 21 Milk Street, Boston, Massachusetts 02109
(Name and Address of Agent for Service)
Copy to: John E. Baumgardner, Esq.
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
WS5809a
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WS5809a
EXPLANATORY NOTE
This 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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WS5809a
PART A
Responses to Items 1 through 3, 5 and 9 have been omitted pursuant to
Item 2(b) of Instruction B of the General Instructions to Form N-1A.
Item 4. Investment Objectives, Principal Investment Strategies, and
Related Risks
The investment objective of the Portfolio is to provide
investors with long-term maximization of total return, primarily through capital
appreciation.
Under normal circumstances the Investment Adviser fully invests the
assets of the Portfolio in equity securities of companies based in
the European Economic Community (Belgium, Denmark, France, Germany, Greece,
Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, United Kingdom), as
well as Austria, Czech Republic, Finland, Hungary, Norway, Poland, Romania,
Sweden, Switzerland, the Slovakia and Turkey.
Although the Investment Adviser expects to invest the assets of the
Portfolio primarily in common stocks, it may also purchase other securities with
equity characteristics, including securities convertible into common stock,
rights and warrants. The Investment Adviser may purchase these equity securities
directly or in the form of American Depositary Receipts, Global Depositary
Receipts or other similar securities representing securities of foreign-based
companies. Although the Investment Adviser invests primarily in equity
securities which are traded on foreign or domestic national securities
exchanges, the Investment Adviser may also purchase equity securities which are
traded in foreign or domestic over-the-counter markets. The Investment Adviser
may invest in securities of appropriate investment companies in order to obtain
participation in markets or market sectors which restrict foreign investment or
to obtain more favorable investment terms.
The Investment Adviser seeks to add value in international markets
primarily through stock selection, with regional/country allocation and currency
selection playing smaller roles. The Investment Adviser's stock selection
process places emphasis on large capitalization and globally competitive
companies. The non-U.S. equity research universe is comprised of approximately
300 names that have a minimum market cap of $2 billion and that have strong
underlying fundamentals such as leading industry position, effective management,
competitive products and services, high or improving return on investment and a
sound financial structure.
A bottom-up analysis of companies in the universe identifies earnings
growth potential or, where appropriate, improved return on equity/assets.
Simultaneously, quantitative tools such as discounted cash flow models (DCF),
economic value-added analysis (EVA), and cash flow return on investment (CFROI),
are applied to assess current and future value, and to differentiate companies
within the universe. This process ultimately produces an Attractive Investment
Opportunities List with issues appropriate for inclusion in the Portfolio.
Portfolio construction in the Portfolio is the result of selecting
issues from the Attractive Opportunities List which, when combined with regional
allocation policies, benchmark considerations, and risk management, will produce
a well-diversified portfolio expected to outperform its benchmark over a 12-18
month time horizon.
In a process dirve primarily by stock selection, country or regional
allocation assumes a secondary role as a risk management tool. Allocation of
investments among various countries or regions is, in the first analysis, a
function of the availability of attractively priced investment opportunities.
Having identified the most attractive companies, the countries in which those
countries are listed are analyzed based on the economic environment, liquidity
conditions, valuation levels, expected earnings growth, government policies
and political stability. In response to changes or anticipated changes in
these criteria, the Investment Adviser may increase, decrease or eliminate a
particular country's representation. In applying these criteria, the
Investment Adviser allocates assets among countries in a manner that
quantifies and manages the Portfolio's risk relative to its benchmark.
The Investment Adviser may enter into foreign currency exchange
transactions from time to time. The Investment Adviser may convert the U.S.
dollar to and from different foreign currencies for the purchase and sale of
foreign securities that are denominated in foreign currencies. Additionally,
interest and dividends may be paid in foreign currencies. The Investment Adviser
may also enter into forward foreign exchange contracts to protect the dollar
value of securities that are denominated in foreign currencies. The Investment
Adviser may enter into futures contracts on stock indexes. Such transactions are
used solely as a hedge against changes in the market value of securities that
are held by the Portfolio or are being considered for purchase.
A-2
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PRINCIPAL RISK FACTORS
The principal risks of investing in the Portfolio and the circumstances
reasonably likely to adversely affect an investment are described below. An
investor may lose money by investing in the Portfolio.
o Market Risk:
This is the risk that the price of a security will fall due to changing
economic, political or market conditions, or due to a company's individual
situation.
o Foreign Investment Risk:
Investing in equity securities of foreign-based companies involves
risks not typically associated with investing in equity securities of companies
organized and operated in the United States.
Changes in political or social conditions, diplomatic relations,
confiscatory taxation, expropriation, nationalization, limitation on the removal
of funds or assets, or imposition of (or change in) exchange control or tax
regulations may adversely affect the value of such investments. Changes in
government administrations or economic or monetary policies in the United States
or abroad could result in appreciation or depreciation of portfolio securities
and could favorably or unfavorably affect the operations of the Portfolio. The
economies of individual foreign nations differ from the U.S. economy, whether
favorably or unfavorably, in areas such as growth of gross domestic product,
rate of inflation, capital reinvestment, resource self-sufficiency and balance
of payments position. It may be more difficult to obtain and enforce a judgment
against a foreign company. Dividends and interest paid by foreign issuers may be
subject to withholding and other foreign taxes which may decrease the net return
on foreign investments as compared to dividends and interest paid to other funds
by domestic companies.
In general, less information is publicly available with respect to
foreign-based companies than is available with respect to U.S. companies. Most
foreign-based companies are also not subject to the uniform accounting and
financial reporting requirements applicable to companies based in the United
States.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of the New York Stock Exchange. Accordingly, foreign investments are
less liquid and their prices are more volatile than comparable investments in
securities of U.S. companies. Moreover, the settlement periods for foreign
securities, which are often longer than those for securities of U.S. companies,
may affect portfolio liquidity. In buying and selling securities on foreign
exchanges, fixed commissions are normally paid that are generally higher than
the negotiated commissions charged in the United States. In addition, there is
generally less government supervision and regulation of securities exchanges,
brokers and companies in foreign countries than in the United States. The
foreign investments made by the Investment Adviser are in compliance with the
currency regulations and tax laws of the United States and foreign governments.
There may also be foreign government regulations and laws which restrict the
amounts and types of foreign investments. Because foreign securities generally
are denominated and pay dividends or interest in foreign currencies, and the
Portfolio holds various foreign currencies from time to time, the value of their
respective net assets as measured in U.S. dollars is affected favorably or
unfavorably by changes in exchange rates. The Portfolio also incurs costs in
connection with conversion between various currencies.
A-3
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o Diversification Risk:
The Portfolio is classified as "non-diversified" for purposes of the
Investment Company Act of 1940, as amended, which means that it is not limited
by that Act with respect to the portion of its assets which may be invested in
securities of a single issuer. The Portfolio is however limited with respect to
such assets by certain requirements of federal tax law. The possible assumption
of large positions in the securities of a small number of issuers may cause
performance to fluctuate to a greater extent than that of a diversified
investment company as a result of changes in the financial condition or in the
market's assessment of the issuers.
o Developing Countries:
The Investment Adviser may invest the assets of the Portfolio in securities
of issuers based in developing countries. The Investment Adviser may invest a
substantial portion of the assets in the securities of issuers based in
developing countries. Investments in securities of issuers in developing
countries may involve a high degree of risk and many may be considered
speculative. These investments carry all of the risks of investing in securities
of foreign issuers outlined in this section to a heightened degree. These
heightened risks include (i) greater risks of expropriation, confiscatory
taxation, nationalization, and less social, political and economic stability;
(ii) the small current size of the markets for securities of issuers in
developing countries and the currently low or non-existent volume of trading,
resulting in lack of liquidity and in price volatility; (iii) certain national
policies which may restrict the Portfolio's investment opportunities including
restrictions on investing in issuers or industries deemed sensitive to relevant
national interests; and (iv) the absence of developed legal structures governing
private or foreign investment and private property.
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.
A-4
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Item 6. Management, Organization and Capital Structure.
The Investment Adviser to the Portfolio 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. The Investment
Adviser is located at 59 Wall Street, New York, NY 10005.
The Investment Adviser provides investment advice and portfolio
management services to the Portfolio. Subject to the general supervision of the
Trustees of the Portfolio, the Investment Adviser makes the day-to-day
investment decisions for the Portfolio, places the purchase and sale orders for
the portfolio transactions of the Portfolio, and generally manages the
Portfolio's investments. The Investment Adviser provides a broad range of
investment management services for customers in the United States and abroad. At
December 31, 1999, it managed total assets of approximately $35 billion.
A team of individuals manages the Portfolio on a day-to-day basis
including Mr. Young Chin, Mr. A. Edward Allinson, Mr. G. Scott Clemons, Mr. Paul
J. Fraker, Mr. Ben Kottler and Mr. Mohammad Rostom. Mr. Chin holds a B.A.and
M.B.A. from the University of Chicago. He joined Brown Brothers Harriman & Co.
in 1999. Prior to joining Brown Brothers Harriman & Co., he worked at Blackrock
Financial Management. Mr. Allinson holds a B.A. and a M.B.A from the University
of Pennsylvania. He joined Brown Brothers Harriman & Co. in 1991. Mr. Clemons
holds a B.A. from Princeton University. He joined Brown Brothers Harriman & Co.
in 1990. Mr. Fraker holds a B.A. from Carleton College and a M.A. from John
Hopkins University. He joined Brown Brothers Harriman & Co. in 1986. Mr. Kottler
holds a B.A. from Durham University. He joined Brown Brothers Harriman & Co. in
1996. Prior to joining Brown Brothers Harriman & Co., he worked for NatWest
Investment Management Ltd. Mr. Rostom holds a B.S. from Rochester Institute of
Technoloy and a M.A. from Temple University. He joined Brown Brothers Harriman &
Co. in 1997. Prior to joining Brown Brothers Harriman & Co., he worked for
Kulicke & Soffa Industries.
The Portfolio pays the Investment Adviser an annual fee, computed daily
and payable monthly, equal to 0.65% of the average daily net assets of the
Portfolio. This fee compensates the Investment Adviser for its services and
its expenses (such as salaries of its personnel).
A-5
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Item 7. Investor Information.
The net asset value of the Portfolio is determined once
daily at 4:00 P.M., New York time on each day the New York Stock Exchange is
open for regular trading.
The Portfolio values its assets on the basis of their market or other fair
value. If quotations are not readily available, the assets are valued at fair
value in accordance with procedures established by the Directors of the
Corporation or the Trustees of the Portfolio as the case may be.
Beneficial interests in the Portfolio are issued solely in private
placement transactions. Investments in the Portfolio may only be made by other
investment companies, insurance company separate accounts, common or commingled
trust funds, or similar organizations or entities which are "accredited
investors." This Registration Statement does not constitute an offer to sell, or
the solicitation of an offer to buy, any "security" within the meaning of the
1933 Act.
An investment in the Portfolio may be made without a sales load. All
investments are made at net asset value next determined after an order is
received in "good order" by the Portfolio.
There is no minimum initial or subsequent investment in the Portfolio.
However, because the Portfolio intends to be as fully invested at all times as
is reasonably practicable in order to enhance the yield on its assets,
investments must be made in federal funds (i.e., monies credited to the account
of the Custodian by a Federal Reserve Bank).
The Portfolio reserves the right to cease accepting investments at any time
or to reject any investment order.
An investor in the Portfolio may reduce all or any portion of its
investment at the net asset value next determined after a request in "good
order" is furnished by the investor to the Portfolio. The proceeds of a
reduction will be paid by the Portfolio in federal funds normally on the next
Portfolio Business Day after the reduction is effected, but in any event within
seven days. Investments in the Portfolio may not be transferred.
The right of any investor to receive payment with respect to any reduction
may be suspended or the payment of the proceeds therefrom postponed during any
period in which the New York Stock Exchange is closed (other than weekends or
holidays) or trading on the New York Stock Exchange is restricted or, if an
emergency exists.
The Portfolio reserves the right under certain circumstances, such as
accommodating requests for substantial withdrawals or liquidations, to pay
distributions in kind to investors (i.e., to distribute portfolio securities as
opposed to cash). If securities are distributed, an investor could incur
brokerage, tax or other charges in converting the securities to cash. In
addition, distribution in kind may result in a less diversified portfolio of
investments or adversely affect the liquidity of the Portfolio.
Item 8. Distribution Arrangments.
Not applicable.
A-6
WS5809a
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PART B
Item 10. Cover Page.
Not applicable.
Table of Contents. Page
Portfolio History . . . . . . . . . . . . B-1
Description of Portfolio and Its
Investments and Risks . . . . . . . . . . . . . . . . B-1
Management of the Portfolio . . . . . . . . . . . . . B-7
Control Persons and Principal Holders
of Securities . . . . . . . . . . . . . . . . . . . . . B-18
Investment Advisory and Other Services . . . . . . . . B-19
Brokerage Allocation and Other Practices . . . . . . . B-10
Capital Stock and Other Securities . . . . . . . . . . B-13
Purchase, Redemption and Pricing of
Securities . . . . . . . . . . . . . . . . . . . . . . B-14
Tax Status . . . . . . . . . . . . . . . . . . . . . . B-14
Underwriters . . . . . . . . . . . . . . . . . . . . . B-16
Calculations of Performance Data . . . . . . . . . . . B-16
Financial Statements . . . . . . . . . . . . . . . . . B-16
Item 11. Portfolio History.
The Portfolio was organized as a trust under the laws of the State of
New York on June 15, 1993.
Item 12. Description of Portfolio and Its Investments and Risks.
The investment objective of the European Equity Portfolio (the "Portfolio")
is to provide investors with long-term maximization of total return, primarily
through capital appreciation.
Brown Brothers Harriman & Co. is the Portfolio's investment adviser
(the "Investment Adviser").
The following discussion supplements the information regarding the
investment objective of the Portfolio and the policies to be employed to achieve
this objective as set forth above and in Part A.
B-2
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Equity Investments
Equity investments may or may not pay dividends and may or may not carry
voting rights. Common stock occupies the most junior position in a company's
capital structure. Convertible securities entitle the holder to exchange the
securities for a specified number of shares of common stock, usually of the same
company, at specified prices within a certain period of time and to receive
interest or dividends until the holder elects to convert. The provisions of any
convertible security determine its ranking in a company's capital structure. In
the case of subordinated convertible debentures, the holder's claims on assets
and earnings are subordinated to the claims of other creditors, and are senior
to the claims of preferred and common shareholders. In the case of convertible
preferred stock, the holder's claims on assets and earnings are subordinated to
the claims of all creditors and are senior to the claims of common shareholders.
Domestic Investments
The assets of the Portfolio are not invested in domestic securities (other
than short-term instruments), except temporarily when extraordinary
circumstances prevailing at the same time in a significant number of foreign
countries render investments in such countries inadvisable.
Options Contracts
Options on Stock. Subject to applicable laws and regulations and solely as
a hedge against changes in the market value of portfolio securities or
securities intended to be purchased, put and call options on stocks may be
purchased 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. 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 for the Portfolio at any time prior to the expiration of the option which
involves selling the option previously purchased.
B-3
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Covered call options may also be sold (written) on stocks for the
Portfolio, although in each case the current intention is not to do so. A call
option is "covered" if the writer owns the underlying security.
Over-the-counter options ("OTC Options") purchased are treated as not
readily marketable.
Options on Stock Indexes. 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 indexes may
be purchased for the Portfolio, although the current intention is not to do so
in a manner that more than 5% of the Portfolio's net assets would be at risk. A
stock index fluctuates with changes in the market values of the stocks included
in the index. Examples of stock indexes are the Standard & Poor's 500 Stock
Index (Chicago Board of Options Exchange), the New York Stock Exchange Composite
Index (New York Stock Exchange), The Financial Times-Stock Exchange 100 (London
Traded Options Market), the Nikkei 225 Stock Average (Osaka Securities Exchange)
and Tokyo Stock Price Index (Tokyo Stock Exchange).
Options on stock indexes are generally similar to options on stock except
that the delivery requirements are different. Instead of giving the right to
take or make delivery of stock at a fixed price ("strike price"), an option on a
stock index gives the holder the right to receive a cash "exercise settlement
amount" equal to (a) the amount, if any, by which the strike price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of exercise, multiplied by (b)
a fixed "index multiplier". Receipt of this cash amount depends upon the closing
level of the stock index upon which the option is based being greater than, in
the case of a call, or less than, in the case of a put, the price of the option.
The amount of cash received is equal to such difference between the closing
price of the index and the strike price of the option expressed in U.S. dollars
or a foreign currency, as the case may be, times a specified multiple. 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 of the 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 for the Portfolio 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.
B-4
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Options on Currencies. 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 currencies may be
purchased for the Portfolio, although the current intention is not to do so in a
manner that more than 5% of the Portfolio's net assets would be at risk. A call
option on a currency gives the purchaser of the option the right to buy the
underlying currency at a fixed price, either at any time during the option
period (American style) or on the expiration date (European style). Similarly, a
put option gives the purchaser of the option the right to sell the underlying
currency at a fixed price, either at any time during the option period or on the
expiration date. To liquidate a put or call option position, a "closing sale
transaction" may be made for the Portfolio at any time prior to the expiration
of the option, such a transaction involves selling the option previously
purchased. Options on currencies are traded both on recognized exchanges (such
as the Philadelphia Options Exchange) and over-the counter. The value of a
currency option purchased for the Portfolio depends upon future changes in the
value of that currency before the expiration of the option. Accordingly, the
successful use of options on currencies for the Portfolio is subject to the
Investments Adviser's ability to predict future changes in the value of
currencies over the short term. Brokerage costs are incurred in the purchase of
currency options and an incorrect assessment of future changes in the value of
currencies may result in a poorer overall performance than if such a currency
had not been purchased.
Futures Contracts
Futures Contracts on Stock Indexes. 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, futures contracts
on stock indexes ("Futures Contracts") may be entered into for the Portfolio.
Futures contracts on foreign currencies may also be entered into for the
Portfolio, although in each case the current intention is not to do so.
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 provided 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 for the Portfolio. 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 position taken for the Portfolio would rise in value by
an amount which approximately offsets the decline in value of the portion of the
Portfolio's investments that is being hedged. Should general market prices move
in an unexpected manner, the full anticipated benefits of Futures Contracts may
not be achieved or a loss may be realized. There is also the risk of a potential
lack of liquidity in the secondary market.
B-5
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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 of the 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 for the Portfolio 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 shore 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 may be initially
required to deposit with the Portfolio's custodian, in a segregated account in
the name of the broker performing the transaction, an "initial margin" of cash,
U.S. Government securities or other high grade short-term obligations equal to
approximately 3% of the contract amount. Initially 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 the
Portfolio's futures contract clearing broker, which are reflective of price
fluctuations in the Futures Contract.
Currently, investments in Futures Contracts on non-U.S. stock indexes by
U.S. investors, such as the Portfolio, can be purchased on such non-U.S. stock
indexes as the Osaka Stock Exchange (OSE), Tokyo Stock Exchange (TSE), Hong Kong
Futures Exchange (HKFE), Singapore International Monetary Exchange (SIMEX),
London International Financial Futures and Options Exchange (LIFFE), Marche a
Terme International de France (MATIF), Sydney Futures Exchange Ltd. (SFE), Meff
Sociedad Rectora de Productos Financieros Derivados de Renta Variable, S.A.
(MEFF RENTA VARIABLE), Deutsche Terminbsrse (DTB), Italian Stock Exchange (ISE),
The Amsterdam Exchange (AE), and London Securities and Derivatives Exchange,
Ltd. (OMLX).
Exchanges may limit the amount by which the price of a Futures Contract
may move on any day. If the price moves equal the daily limit on successive
days, then it may prove impossible to liquidate a futures position until the
daily limit moves have ceased.
Another risk which may arise in employing Futures Contracts to protect
against the price volatility of portfolio securities is that the prices of an
index subject to Futures Contracts (and thereby the Futures Contract prices) may
correlate imperfectly with the behavior of the cash prices of the Portfolio's
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-6
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Loans of Portfolio Securities
Loans up to 30% of the total value of the securities of the Portfolio are
permitted. Securities of the Portoflio may be loaned if such loans are secured
continuously by cash or equivalent liquid short term securities as collateral or
by an irrevocable letter of credit in favor of the Portfolio at least equal at
all times to 100% of the market value of the securities loaned plus accrued
income. By lending the securites of the Portfolio, the Portfolio's income can be
increased by the Portfolio's continuing to receive income on the loaned
securities as well as by the opportunity for the Portfolio to receive income on
the collateral. All or any portion of interest earned on invested collateral may
be paid to the borrower. Loans are subject to termination by the Portfolio in
the normal settlement time, currently three business days after notice, or by
the borrower on one day's notice. Borrowed securities are returned when the loan
is terminated. Any appreciation or depreciation in the market price of the
borrowed securities which occurs during the term of the loan inures to the
Portfolio and its shareholders. 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 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 the Prospectus to the extent practical in
light of the Portfolio's investment objective and long-term investment
perspective, the Portfolio's assets 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 issuance
of new shares or the sale of portfolio securities, and desirable equity
securities that are consistent with the Portfolio's investment objective are
unavailable in sufficient quantities, assets of the Portfolio may be held in
short-term investments for a limited time pending availability of such equity
securities. Short-term instruments consist of foreign and domestic: (i)
short-term obligations of sovereign governments, their agencies,
instrumentalities, authorities or political subdivisions; (ii) other short-term
debt securities rated A or higher by Moody's Investors Service, Inc. ("Moody's")
or Standard & Poor's Corporation ("Standard & Poor's"), or if unrated are of
comparable quality in the opinion of the Investment Adviser; (iii) commercial
paper; (iv) bank obligations, including negotiable certificates of deposit, time
deposits and bankers' acceptances; and (v) repurchase agreements. Time deposits
with a maturity of more than seven days are treated as not readily marketable.
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 or Standard & Poor's; the issuer's parent
corporation, if any, must have outstanding commercial paper rated Prime-1 by
Moody's or A-1 by Standard & Poor's; or, if no such ratings are available, the
instrument must be of comparable quality in the opinion of the Investment
Adviser. The assets may be invested in non-U.S. dollar denominated and U.S.
dollar denominated bank deposits and short-term instruments, including U.S.
dollar denominated repurchase agreements. Cash is held for the Portfolio in
demand deposit accounts with the Portfolio's custodian bank.
Government Securities
The assets of the Portfolio may be invested in securities issued by the
U.S. Government or sovereign foreign governments, their agencies or
instrumentalities. These securities include notes and bonds, zero coupon bonds
and stripped principal and interest securities.
B-7
<PAGE>
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 for
the Portfolio reflects any limitation on their liquidity.
Repurchase Agreements
Repurchase agreements may be entered into for the Portfolio only with a
"primary dealer" (as designated by the Federal Reserve Bank of New York) in U.S.
Government securities. This is an agreement in which the seller (the "Lender")
of a security agrees to repurchase from thge Portfolio the security sold at a
mutually agreed upon time and price. As such, it is viewed as the lending of
money to the Lender. The resale price normally is in excess of the purchase
price, reflecting an agreed upon interest rate. The rate is effective for the
period of time assets of the Portfolio are invested in the agreement and is not
related to the coupon rate on the underlying security. The period of these
repurchase agreements is usually short, from overnight to one week. The
securities which are subject to repurchase agreements, however, may have
maturity dates in excess of one week from the effective date of the repurchase
agreement. The Portfolio always receives as collateral securities which are
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
Collateral is marked to the market daily and has a market value, including
accrued interest, at least equal to 100% of the dollar amount invested on behalf
of the Portfolio in each agreement along with accrued interest. Payment for such
securities is made for the Portfolio only upon physical delivery or evidence of
book entry transfer to the account of State Street Bank and Trust Company (the
"Custodian"). If the Lender defaults, the Portfolio might incur a loss if the
value of the collateral securing the repurchase agreement declines and might
incur disposition costs in connection with liquidating the collateral. In
addition, if bankruptcy proceedings are commenced with respect to the Lender,
realization upon the collateral on behalf of the Portfolio may be delayed or
limited in certain circumstances.
When-Issued and Delayed Delivery Securities
Securities may be purchased for the Portfolio on a when-issued or delayed
delivery basis. For example, delivery and payment may take place a month or more
after the date of the transaction. The purchase price and the interest rate
payable on the securities, if any, are fixed on the transaction date. The
securities so purchased are subject to market fluctuation and no income accrues
to the Portfolio until delivery and payment take place. At the time the
commitment to purchase securities for the Portfolio 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 the Portfolio's total assets, less liabilities other
than the obligations created by when-issued or delayed delivery commitments.
B-8
<PAGE>
Investment Company Securities
Subject to applicable statutory and regulatory limitations, the assets of
the Portfolio may be invested in shares of other investment companies. Under the
1940 Act, assets of the Portfolio may be invested in shares of other investment
companies in connection with a merger, consolidation, acquisition or
reorganization or if immediately after such investment (i) 10% or less of the
market value of the Portfolio's total assets would be so invested, (ii) 5% or
less of the market value of the Portfolio's total assets would be invested in
the shares of any one such company, and (iii) 3% or less of the total
outstanding voting stock of any other investment company would be owned by the
Portfolio. As a shareholder of another investment company, the Portfolio would
bear, along with other shareholders, its pro rata portion of the other
investment company's expenses, including advisory fees. These expenses would be
in addition to the advisory and other expenses that the Portfolio bears directly
in connection with its own operations.
Additional Investment Information
In response to adverse market, economic, political or other conditions, the
Investment Adviser may make temporary investments for the Portfolio's that are
not consistent with its investment objective and principal investment
strategies. Such investments may prevent the Portfolio from achieving its
investment objective.
Investment Restrictions
The Portfolio is operated under the following investment restrictions which
are deemed fundamental policies and may be changed only with the approval of the
holders of a "majority of the outstanding voting securities" as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"), of the Portfolio.
As used in this Part B, the term "majority of the outstanding voting securities"
(as defined in the 1940 Act) 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 Portoflio while effecting an orderly liquidation of
portfolio securities or to maintain liquidity in the event of an unanticipated
failure to complete a portfolio security transaction or other similar
situations), provided that collateral arrangements with respect to options and
futures, including deposits of initial deposit and variation margin, are not
considered a pledge of assets for purposes of this restriction and except that
assets may be pledged to secure letters of credit solely for the purpose of
participating in a captive insurance company sponsored by the Investment Company
Institute;
(2) purchase any security or evidence of interest therein on margin, except that
such short-term credit as may be necessary for the clearance of purchases and
sales of securities may be obtained and except that deposits of initial deposit
and variation margin may be made in connection with the purchase, ownership,
holding or sale of futures;
B-9
<PAGE>
(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, 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
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);
B-10
<PAGE>
(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
Non-Fundamental Restrictions. The Portfolio may not as a matter of
operating policy: (i) purchase securities of any investment company if such
purchase at the time thereof would cause more than 10% of its total assets
(taken at the greater of cost or market value) to be invested in the securities
of such issuers or would cause more than 3% of the outstanding voting securities
of any such issuer to be held for it; (ii) invest more than 10% of its net
assets (taken at the greater of cost or market value) in restricted securities;
or (iii) invest less than 65% of the value of the total assets of the Portfolio
in the equity securities. 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 13. Management of the Portfolio.
The Portfolio's Trustees in addition to supervising the actions of the
Investment Adviser and the Portfolio's administrator, Brown Brothers Harriman
Trust Company of New York ("Brown Brothers Harriman Trust Company"), the
("Administrator"), as set forth below, decide upon matters of general policy
with respect to the Portfolio.
The Trustees and executive officers of the Portfolio, their business
addresses, and principal occupation during the past five years (although their
titles may have varied during the period) are:
TRUSTEES OF THE PORTFOLIO
RICHARD L. CARPENTER** -- Trustee of the Portfolio and Portfolios(1);
Trustee of Dow Jones Islamic Market Index Portfolio (since March 1999); Trustee
of The 59 Wall Street Trust (since October 1999); Director of The 59 Wall Street
Fund, Inc. (since October 1999); Retired; Director of Internal Investments,
Public School Employees' Retirement System; Managing Director of Chase Investors
Management Corp. (since December 1995). His business address is 12664 Lazy Acres
Court, Nevada City, CA 95959.
B-11
<PAGE>
CLIFFORD A. CLARK** -- Trustee of the Portfolio and Portfolios; Trustee
of Dow Jones Islamic Market Index Portfolio (since March 1999); Trustee of The
59 Wall Street Trust (since October 1999); Director of The 59 Wall Street Fund,
Inc. (since October 1999); Retired; Director of Schmid, Inc. (prior to July
1993); Managing Director of the Smith-Denison Foundation. His business address
is 42 Clowes Drive, Falmouth, MA 02540.
DAVID M. SEITZMAN** -- Trustee of the Portfolio and Portfolios; Trustee
of The 59 Wall Street Trust (since October 1999); Director of The 59 Wall Street
Fund, Inc. (since October 1999); Retired; Physician with Seitzman, Shuman, Kwart
and Phillips (prior to October 1997); Director of the National Capital
Underwriting Company, Commonwealth Medical Liability Insurance Co. and National
Capital Insurance Brokerage, Limited. His business address is 2021 K. Street,
N.W., Suite 408, Washington, DC 20006.
J.V. SHIELDS, JR.* - Trustee of the Portfolio and the Portfolios (since
October 1999); Chairman of the Board and Trustee of The 59 Wall Street Trust;
Director of The 59 Wall Street Fund, Inc.; Managing Director, Chairman and Chief
Executive Officer of Shields & Company; Chairman of Capital Management
Associates, Inc.; Director of Flowers Industries, Inc.(2). Vice Chairman and
Trustee of New York Racing Association. His business address is Shields &
Company, 140 Broadway, New York, NY 10005.
EUGENE P. BEARD - Trustee of the Portfolio and the Portfolios (since
October 1999); Director of The 59 Wall Street Fund, Inc.;Executive Vice
President - Finance and Operations of The Interpublic Group of Companies. His
business address is The Interpublic Group of Companies, Inc., 1271 Avenue of the
Americas, New York, NY 10020.
DAVID P. FELDMAN - Trustee of the Portfolio and the Portfolios (since
October 1999); Director of The 59 Wall Street Fund, Inc.; Retired; Vice
President and Investment Manager of AT&T Investment Management Corporation
(prior to October 1997); Director of Dreyfus Mutual Funds, Jeffrey Co. and
Heitman Financial. His business address is 3 Tall Oaks Drive, Warren, NJ 07059.
ALAN G. LOWY - Trustee of the Portfolio and the Portfolios (since
October 1999); Director of The 59 Wall Street Fund, Inc.; Private Investor;
Secretary of the Los Angeles County Board of Investments (prior to March 1995).
His business address is 4111 Clear Valley Drive, Encino, CA 91436.
ARTHUR D. MILTENBERGER - Trustee of the Portfolio and the Portfolios
(since October 1999); Director of The 59 Wall Street Fund, Inc.; Trustee of the
Portfolios (since October 1999); Retired, Executive Vice President and Chief
Financial Officer of Richard K. Mellon and Sons (prior to June 1998); Treasurer
of Richard King Mellon Foundation (prior to June 1998); Vice President of the
Richard King Mellon Foundation; Trustee, R.K. Mellon Family Trusts; General
Partner, Mellon Family Investment Company IV, V and VI; Director of
Aerostructures Corporation (since 1996) (2). His business address is Richard K.
Mellon and Sons, P.O. Box RKM, Ligonier, PA 15658.
J. ANGUS IVORY - Trustee of the Portfolio and the Portfolios (since
October 1999); Trustee of The 59 Wall Street Trust (since October 1999);
Director of The 59 Wall Street Fund, Inc. (since October 1999); Trustee of Dow
Jones Islamic Market Index Portfolio (since March 1999); Director of Brown
Brothers Harriman Ltd., subsidiary of Brown Brothers Harriman & Co.; Director of
Old Daily Saddlery; Advisor, RAF Central Fund; Committee Member, St. Thomas
Hospital Pain Clinic (since 1999).
OFFICERS OF THE PORTFOLIO
PHILIP W. COOLIDGE -- President; Chief Executive Officer and President
of Signature Financial Group, Inc. ("SFG"), 59 Wall Street Distributors, Inc.
("59 Wall Street Distributors") and 59 Wall Street Administrators, Inc. ("59
Wall Street Administrators").
JAMES E. HOOLAHAN -- Vice President; Senior Vice President of SFG.
B-12
<PAGE>
LINDA T. GIBSON -- Secretary; Senior Vice President and Secretary of
SFG; Secretary of 59 Wall Street Distributors and 59 Wall Street
Administrators.
SUSAN JAKUBOSKI -- Assistant Treasurer and Assistant Secretary of the
Portfolio; Assistant Secretary, Assistant Treasurer and Vice President of
Signature Financial Group (Grand Cayman) Limited.
LINWOOD C. DOWNS - Assistant Treasurer; Senior Vice President and
Treasurer of SFG.
MOLLY S. MUGLER -- Assistant Secretary; Legal Counsel and Assistant
Secretary of SFG; Assistant Secretary of 59 Wall Street Distributors and 59 Wall
Street Administrators.
CHRISTINE D. DORSEY -- Assistant Secretary; Vice President of SFG
(since January 1996); Paralegal and Compliance Officer, various
financial companies (July 1992 to January 1996).
- -------------------------
*Mr. Shields is an "interested" person of the Portfolio because of
his affiliation with a registered broker-dealer.
**These Trustees are members of the Audit Committee of the Portfolio.
(1) The Portfolios consist of the following active investment companies:
U.S. Money Market Portfolio, International Equity Portfolio, U.S.
Equity Portfolio, European Equity Portfolio and Pacific Basin Equity
Portfolio and the following inactive investment companies:
Inflation-Indexed Securities Portfolio, U.S. Small Company Portfolio,
U.S. Mid-Cap Portfolio and Emerging Markets Portfolio.
(2) Shields & Company, Capital Management Associates, Inc. and Flowers
Industries, Inc., with which Mr. Shields is associated, are a
registered broker-dealer and a member of the New York Stock Exchange, a
registered investment adviser, and a diversified food company,
respectively.
(3) Richard K. Mellon and Sons, Richard King Mellon Foundation, R.K. Mellon
Family Trusts, Mellon Family Investment Company IV, V and VI and
Aerostructures Corporation, with which Mr. Miltenberger is or has been
associated, are a private foundation, a private foundation, a trust, an
investment company and an aircraft manufacturer, respectively.
The address of each officer of the Portfolio is 21 Milk Street, Boston,
Massachusetts 02109. Messrs. Coolidge, Hoolahan, and Downs and Mss. Gibson,
Jakuboski, Mugler and Dorsey also hold similar positions with other investment
companies for which affiliates of SFG serve as the principal underwriter.
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.
B-13
<PAGE>
Trustees of the Portfolio
The Trustees of the Portfolio receive a base annual fee of $15,000
(except the Chairman who receives a base annual fee of $20,000) and such base
annual fee is allocated among all series of The 59 Wall Street Trust, all series
of The 59 Wall Street Fund, Inc. and the Portfolio and any other active
Portfolios having the same Board of Trustees based upon their respective net
assets. In addition, each series of The 59 Wall Street Trust and The 59 Wall
Street Fund, Inc., the Portfolios and any other active Portfolios which has
commenced operations pays an annual fee to each Trustee of $1,000.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Pension or Total
Aggregate Retirement Compensation
Compensation Benefits Accrued Estimated Annual from Fund
Name of Person, from the Portfolio as Part of Benefits upon Complex* Paid
Position Portfolio Expenses Retirement to Trustees
J.V. Shields, Jr.***, $0 none none $31,000
Trustee
Eugene P. Beard***, $0 none none $26,000
Trustee
Richard L. Carpenter**, $0 none none $15,500
Trustee
Clifford A. Clark**, $0 none none $15,500
Trustee
David P. Feldman***, $0 none none $26,000
Trustee
J. Angus Ivory**, $0 none none $0
Trustee
Alan G. Lowy*** $0 none none $26,000
Trustee
Arthur D. Miltenberger***, $0 none none $26,000
Trustee
David M. Seitzman**, $0 none none $15,500
Trustee
<FN>
* The Fund Complex consists of the Portfolio, The 59 Wall Street Trust, (which
currently consists of four series) The 59 Wall Street Fund, Inc. (which
currently consists of six series) and the five active Portfolios.
**Prior to October 22, 1999, these Trustees received no compensation
from The 59 Wall Street Trust or The 59 Wall Street Fund, Inc.
***Prior to October 22, 1999, these Trustees received no compensation from
European Equity Portfolio.
</FN>
</TABLE>
B-14
<PAGE>
Except for Mr. Shields, no Trustee is an "interested person" of the
Portfolio as that term is defined in the 1940 Act.
By virtue of the responsibilities assumed by Brown Brothers Harriman &
Co. under the Investment Advisory Agreement with the Portfolio and by Brown
Brothers Harriman Trust Company under the Administration Agreement with the
Portfolio (see "Investment Adviser" and "Administrator"), the Portfolio requires
no employees other than its officers, and none of its officers devote full time
to the affairs of the Portfolio or, other than the Chairman, receive any
compensation from the Portfolio.
Item 14. Control Persons and Principal Holders of Securities.
As of January 31, 2000, The 59 Wall Street European Equity Fund (the
"Fund") owned 57% of the outstanding beneficial interests in the Portfolio. BBH
& Co. European Equity Fund (Cayman) owned 43% of the outstanding beneficial
interests in the Portfolio.
So long as the Fund controls the Portfolio, it 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 15. Investment Advisory and Other Services.
Investment Adviser. Under its Investment Advisory Agreement with the
Portfolio, subject to the general supervision of the Portfolio's Trustees and in
conformance with the stated policies of the Portfolio, Brown Brothers Harriman &
Co. provides investment advice and portfolio management services to the
Portfolio. In this regard, it is the responsibility of Brown Brothers Harriman &
Co. to make the day-to-day investment decisions for the Portfolio, to place the
purchase and sale orders for portfolio transactions and to manage, generally,
the Portfolio's investments.
The Investment Advisory 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 November 9, 1999. The Investment Advisory Agreement terminates
automatically if assigned and is terminable at any time without penalty by a
vote of a majority of the Trustees of the Portfolio or by a vote of the holders
of a "majority of the outstanding voting securities as defined in the 1940 Act"
of the Portfolio on 60 days' written notice to Brown Brothers Harriman & Co. and
by Brown Brothers Harriman & Co. on 90 days' written notice to the Portfolio.
The investment advisory fee paid to the Investment Adviser is calculated
daily and paid monthly at an annual rate equal to 0.65% of the Portfolio's
average daily net assets.
The investment advisory services of Brown Brothers Harriman & Co. to the
Portfolio are not exclusive under the terms of the Investment Advisory
Agreement. Brown Brothers Harriman & Co. is free to and does render investment
advisory services to others, including other investment companies.
The Glass-Steagall Act prohibits certain financial institutions from
engaging in the business of underwriting, selling or distributing securities and
from sponsoring, organizing or controlling a registered open-end investment
company continuously engaged in the issuance of its shares. There is presently
no controlling precedent prohibiting financial institutions such as Brown
Brothers Harriman & Co. from performing investment advisory or administrative
functions. If Brown Brothers Harriman & Co. were to terminate its Investment
Advisory Agreement with the Portfolio, or were prohibited from acting in such
capacity, it is expected that the Trustees of the Portfolio would recommend to
the investors that they approve a new investment advisory agreement for the
Portfolio with another qualified adviser.
B-15
<PAGE>
Administrator. Brown Brothers Harriman Trust Company acts as the
Administrator of the Portfolio. Brown Brothers Harriman Trust Company is a
wholly-owned subsidiary of Brown Brothers Harriman & Co.
Brown Brothers Harriman Trust Company, in its capacity as Administrator,
administers all aspects of the Portfolio's operations subject to the supervision
of the Trustees except as set forth above under "Investment Adviser". In
connection with its responsibilities as Administrator and at its own expense,
Brown Brothers Harriman Trust Company (i) provides the Portfolio with the
services of persons competent to perform such supervisory, administrative and
clerical functions as are necessary in order to provide effective administration
of the Portfolio, including the maintenance of certain books and records,
receiving and processing requests for increases and decreases in the beneficial
interests in the Portfolio, notification to the Investment Adviser of available
funds for investment, reconciliation of account information and balances between
the Custodian and the Investment Adviser, and processing, investigating and
responding to investor inquiries; (ii) oversees the performance of
administrative and professional services to the Portfolio by others, including
the Custodian; (iii) provides the Portfolio with adequate office space and
communications and other facilities; and (iv) prepares and/or arranges for the
preparation, but does not pay for, the periodic updating of the Portfolio's
registration statement for filing with the Securities and Exchange Commission,
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 as Administrator of the Portfolio, Brown
Brothers Harriman Trust Company receives from the Portfolio an annual fee,
computed daily and payable monthly, equal to 0.035% of the Portfolio's average
daily net assets.
The Administration Agreement between the Portfolio and Brown Brothers
Harriman Trust Company (dated March 1, 1999) will remain in effect for
successive annual periods, but only so 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 November 9, 1999. The agreement will
terminate automatically if assigned by either party thereto and is terminable by
the Portfolio at any time without penalty by a vote of a majority of the
Trustees of the Portfolio, or by a vote of the holders of a "majority of the
outstanding voting securities as defined in the 1940 Act" of the Portfolio. The
Portfolio's Administration Agreement is terminable by the Trustees of the
Portfolio or by investors in the Portfolio on 60 days' written notice to Brown
Brothers Harriman Trust Company. The agreement is terminable by the
Administrator on 90 days' written notice to the Portfolio.
Pursuant to a Subadministrative Services Agreement with Brown Brothers
Harriman Trust Company, 59 Wall Street Administrators, Inc. ("59 Wall Street
Adminstrators") performs such subadministrative duties for the Portfolio as are
from time to time agreed upon by the parties. The offices of 59 Wall Street
Administrators are located at 21 Milk Street, Boston, MA 02109. 59 Wall Street
Administrators is a wholly-owned subsidiary of Signature Financial Group, Inc.
59 Wall Street Administrator's subadministrative duties may include providing
equipment and clerical personnel necessary for maintaining the organization of
the Portfolio, participation in the preparation of documents required for
compliance by the Portfolio with applicable laws and regulations, preparation of
certain documents in connection with meetings of Trustees of and investors in
the Portfolio, and other functions that would otherwise be performed by the
Administrator as set forth above. For performing such subadministrative
services, 59 Wall Street Administrators receives such compensation as is from
time to time agreed upon, but not in excess of the amount paid to the
Administrator from the Portfolio.
B-16
<PAGE>
Placement Agent
The Portfolio has not retained the services of a principal underwriter or
distributor, since interests in the Portfolio are offered solely in private
placement transactions. 59 Wall Street Distributors, Inc., acting as agent for
the Portfolio, serves as the placement agent of interests in the Portfolio. 59
Wall Street Distributors, Inc. receives no compensation for serving as placement
agent.
Custodian
Brown Brothers Harriman & Co. ( the "Custodian"), 59 Wall Street, New York,
New York, 10005, is the Custodian for the Portfolio.
As Custodian, Brown Brothers Harriman & Co. is responsible for maintaining
books and records of portfolio transactions and holding the Portfolio's
securities and cash pursuant to a custodian agreement with the Portfolio. Cash
is held for the Portfolio in demand deposit accounts at the Custodian. Subject
to the supervision of the Administrator, the Custodian maintains the accounting
and portfolio transaction records for the Portfolio and each day computes the
net asset value and net income of the Portfolio.
Independent Auditors
Deloitte & Touche LLP, Boston, Massachusetts are the independent
auditors of the Portfolio.
Item 16. Brokerage Allocation, Transactions and Other Practices.
The Portfolio is managed actively in pursuit of its investment objective.
Securities are not traded for short-term profits but, when circumstances
warrant, securities are sold without regard to the length of time held. A 100%
annual turnover rate would occur, for example, if all securities in the
Portfolio (excluding short-term obligations) were replaced once in a period of
one year. The amount of brokerage commissions and taxes on realized capital
gains to be borne by the investors of the Portfolio tend to increase as the
level of portfolio activity increases.
In effecting securities transactions for the Portfolio, the Investment
Adviser seeks to obtain the best price and execution of orders. In selecting
brokers, 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 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.
B-17
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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 that Fund 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.
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
Funds. In some instances, this procedure might adversely affect the Portfolio.
Portfolio securities are not purchased from or sold to the Administrator,
Placement Agent or Investment Adviser or any "affiliated person" (as defined in
the 1940 Act) of the Administrator, Placement Agent or Investment Adviser when
such entities are acting as principals, except to the extent permitted by law.
All 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 by the Portfolio to the Investment Adviser by any amount that might be
attributable to the value of such services.
A committee, comprised of officers and partners of Brown Brothers
Harriman & Co. who are portfolio managers of some of Brown Brothers Harriman &
Co.'s managed accounts (the "Managed Accounts"), evaluates semi-annually the
nature and quality of the brokerage and research services provided by brokers,
and, based on this evaluation, establishes a list and projected ranking of
preferred brokers for use in determining the relative amounts of commissions to
be allocated to such brokers. However, in any semi-annual period, brokers not on
the list may be used, and the relative amounts of brokerage commissions paid to
the brokers on the list may vary substantially from the projected rankings.
The Trustees of the Portfolio review regularly the reasonableness of
commissions and other transaction costs incurred for the Portfolio in light of
facts and circumstances deemed relevant from time to time and, in that
connection, receive reports from the Investment Adviser and published data
concerning transaction costs incurred by institutional investors generally.
Over-the-counter purchases and sales are transacted directly with
principal market makers, except in those circumstances in which, in the judgment
of the Investment Adviser, better prices and execution of orders can otherwise
be obtained. If the Portfolio effects a closing transaction with respect to a
futures or option contract, such transaction normally would be executed by the
same broker-dealer who executed the opening transaction. The writing of options
by the Portfolio may be subject to limitations established by each of the
exchanges governing the maximum number of options in each class which may be
written by a single investor or group of investors acting in concert, regardless
of whether the options are written on the same or different exchanges or are
held or written in one or more accounts or through one or more brokers. The
number of options which the Portfolio may write may be affected by options
written by the Investment Adviser for other investment advisory clients. An
exchange may order the liquidation of positions found to be in excess of these
limits, and it may impose certain other sanctions.
B-18
<PAGE>
Item 17. Capital Stock and Other Securities.
The Portfolio is organized as a trust under the laws of the State of
New York. Under the Declaration of Trust, the Trustees are authorized to issue
beneficial interests in the Portfolio. Investors are entitled to participate pro
rata in distributions of taxable income, loss, gain and credit of the Portfolio.
Upon liquidation or dissolution of the Portfolio, investors are entitled to
share pro rata in the Portfolio's net assets available for distribution to its
investors. Investments in the Portfolio have no preference, preemptive,
conversion or similar rights and are fully paid and nonassessable, except as set
forth below. Investments in the Portfolio may not be transferred but an investor
may withdraw all or any portion of its investment at any time at net asset
value. Certificates representing an investor's beneficial interest in the
Portfolio are issued only upon the written request of an investor.
Each investor is entitled to a vote in proportion to the amount of its
investment in the Portfolio. Investors in the Portfolio do not have cumulative
voting rights, and investors holding more than 50% of the aggregate beneficial
interest in the Portfolio may elect all of the Trustees if they choose to do so
and in such event the other investors in the Portfolio would not be able to
elect any Trustee. The Portfolio is not required and has no current intention to
hold annual meetings of investors but the Portfolio will hold special meetings
of investors when in the judgment of the Portfolio's Trustees it is necessary or
desirable to submit matters for an investor vote. Changes in fundamental
policies will be submitted to investors for approval. No material amendment may
be made to the Portfolio's Declaration of Trust without the affirmative majority
vote of investors (with the vote of each being in proportion to the amount of
its investment). Investors have under certain circumstances (e.g., upon
application and submission of certain specified documents to the Trustees by a
specified percentage of the outstanding interests in the Portfolio) the right to
communicate with other investors in connection with requesting a meeting of
investors for the purpose of removing one or more Trustees. Investors also have
the right to remove one or more Trustees without a meeting by a declaration in
writing by a specified percentage of the outstanding interests in the Portfolio.
Upon liquidation of the Portfolio, investors would be entitled to share pro rata
in the net assets of the Portfolio available for distribution to investors.
The end of the Portfolio's fiscal year is October 31.
Under the anticipated method of operation of the Portfolio, the
Portfolio will not be subject to any income tax. However, each investor in the
Portfolio will be taxable on its share (as determined in accordance with the
governing instruments of the Portfolio) of the Portfolio's ordinary income and
capital gain in determining its income tax liability. The determination of such
share will be made in accordance with the Internal Revenue Code of 1986, as
amended (the "Code"), and regulations promulgated thereunder.
It is intended that the Portfolio's assets, income and distributions
will be managed in such a way that an investor in the Portfolio will be able to
satisfy the requirements of Subchapter M of the Code, assuming that the investor
invested all of its assets in the Portfolio.
Investor inquiries may be directed to 59 Wall Street Administrators,
Inc., 21 Milk Street, Boston, MA 02109, (617) 423-0800.
The Portfolio may enter into a merger or consolidation, or sell all or
substantially all of its assets, if approved by the vote of two thirds of its
investors (with the vote of each being in proportion to its percentage of the
beneficial interests in the Portfolio), except that if the Trustees recommend
such sale of assets, the approval by vote of a majority of the investors (with
the vote of each being in proportion to its percentage of the beneficial
interests of the Portfolio) will be sufficient. The Portfolio may also be
terminated (i) upon liquidation and distribution of its assets if approved by
the vote of two thirds of its investors (with the vote of each being in
proportion to the amount of its investment) or (ii) by the Trustees by written
notice to its investors.
Investors in the Portfolio (e.g., other investment companies, insurance
company separate accounts and common and commingled trust funds) 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.
B-19
<PAGE>
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 18. Purchase, Redemption and Pricing of Securities.
Beneficial interests in the Portfolio are issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in the Portfolio may only
be made by other investment companies, insurance company separate accounts,
common or commingled trust funds, or similar organizations or entities which are
"accredited investors" as defined in Rule 501 under the 1933 Act. This
Registration Statement does not constitute an offer to sell, or the solicitation
of an offer to buy, any "security" within the meaning of the 1933 Act.
An investment in the Portfolio may be made without a sales load. All
investments are made at net asset value next determined after an order is
received in "good order" by the Portfolio. The net asset value of the Portfolio
is determined once on each business day.
There is no minimum initial or subsequent investment in the Portfolio.
However, because the Portfolio intends to be as fully invested at all times as
is reasonably practicable in order to enhance the yield on its assets,
investments must be made in federal funds (i.e., monies credited to the account
of the Custodian by a Federal Reserve Bank).
The Portfolio reserves the right to cease accepting investments at any
time or to reject any investment order.
Each investor in the Portfolio may add to or reduce its investment in
the Portfolio on each day the New York Stock Exchange is open for regular
trading. At 4:00 p.m., New York time on each such business day, the value of
each investor's beneficial interest in the Portfolio is determined by
multiplying the net asset value of the Portfolio by the percentage, effective
for that day, which represents that investor's share of the aggregate beneficial
interests in the Portfolio. Any additions or withdrawals, which are to be
effected on that day, are then effected. The investor's percentage of the
aggregate beneficial interests in the Portfolio is then recomputed as the
percentage equal to the fraction (i) the numerator of which is the value of such
investor's investment in the Portfolio as of 4:00 p.m., New York time on such
day plus or minus, as the case may be, the amount of any additions to or
withdrawals from the investor's investment in the Portfolio effected on such
day, and (ii) the denominator of which is the aggregate net asset value of the
Portfolio as of 4:00 p.m., New York time, on such day plus or minus, as the case
may be, the amount of the net additions to or withdrawals from the aggregate
investments in the Portfolio by all investors in the Portfolio. The percentage
so determined is then applied to determine the value of the investor's interest
in the Portfolio as of 4:00 p.m., New York time on the following business day of
the Portfolio.
The net income and capital gains and losses, if any, of the Portfolio
are determined at 4:00 p.m., New York time on each business day. Net income for
days other than business days is determined as of 4:00 p.m., New York time on
the immediately preceding business day. All the net income, as defined below,
and capital gains and losses, if any, so determined are allocated pro rata among
the investors in the Portfolio at the time of such determination.
For this purpose the "net income" of the Portfolio (from the time of the
immediately preceding determination thereof) consists of (i) accrued interest,
accretion of discount and amortization of premium less (ii) all actual and
accrued expenses of the Portfolio (including the fees payable to the Investment
Adviser and Administrator of the Portfolio).
B-20
<PAGE>
The value of investments listed on a securities exchange is based on
the last sale prices as of the close of regular trading 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. Securities listed on a foreign exchange are valued at the last
quoted sale price available at the time of valuation. Unlisted securities are
valued at the average of the quoted bid and asked prices in the over-the-counter
market. The value of each security for which readily available market quotations
exist is based on a decision as to the broadest and most representative market
for such security. For purposes of calculating net asset value per share, all
assets and liabilities initially expressed in foreign currencies are converted
into U.S. dollars at the prevailing market rates available at the time of
valuation.
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 value 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 for the Fund was more than 60 days, unless this is
determined not to represent fair value by the Trustees.
B-21
<PAGE>
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of the New York Stock Exchange
and may also take place on days the New York Stock Exchange is closed. If events
materially affecting the value of foreign securities occur between the time when
the exchange on which they are traded closes and the time when the Portfolio's
net asset value is calculated, such securities would be valued at fair value in
accordance with procedures established by and under the general supervision of
the Portfolio's Trustees.
If the Portfolio determines that it would be detrimental to the best
interest of the remaining investors in the Portfolio to make payment wholly or
partly in cash, payment of the redemption price may be made in whole or in part
by a distribution in kind of securities from the Portfolio, in lieu of cash, in
conformity with the applicable rules of the Securities and Exchange Commission
(the "SEC"). If interests are redeemed in kind, the redeeming investor might
incur transaction costs in converting the assets into cash. The method of
valuing portfolio securities is described above and such valuation will be made
as of the same time the redemption price is determined.
An investor in the Portfolio may reduce all or any portion of its
investment at the net asset value next determined after a request in "good
order" is furnished by the investor to the Portfolio. The proceeds of a
reduction will be paid by the Portfolio in federal funds normally on the next
Portfolio Business Day after the reduction is effected, but in any event within
seven days. Investments in the Portfolio may not be transferred.
The right of any investor to receive payment with respect to any
reduction may be suspended or the payment of the proceeds therefrom postponed
during any period in which the New York Stock Exchange is closed (other than
weekends or holidays)or trading on the New York Stock Exchange is restricted or,
to the extent otherwise permitted by the 1940 Act if an emergency exists.
The Portfolio reserves the right under certain circumstances, such as
accommodating requests for substantial withdrawals or liquidations, to pay
distributions in kind to investors (i.e., to distribute portfolio securities as
opposed to cash). If securities are distributed, an investor could incur
brokerage, tax or other charges in converting the securities to cash. In
addition, distribution in kind may result in a less diversified portfolio of
investments or adversely affect the liquidity of the Portfolio.
Item 19. 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
B-22
<PAGE>
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.
Under the Code, gains or losses attributable to foreign currency
contracts, or to fluctuations in exchange rates between the time the Portfolio
accrues income or receivables or expenses or other liabilities denominated in a
foreign currency and the time the Portfolio actually collects such income or
pays such liabilities, are treated as ordinary income or ordinary loss.
Similarly, gains or losses on the disposition of debt securities held by the
Portfolio, if any, denominated in foreign currency, to the extent attributable
to fluctuations in exchange rates between the acquisition and disposition dates
are also treated as ordinary income or loss.
Gains or losses on sales of securities for the Portfolio are 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 a put has been acquired or a
call has been written thereon for the Portfolio. Other gains or losses on the
sale of securities are treated as short-term capital gains or losses. Gains and
losses on the sale, lapse or other termination of options on securities are
generally treated as gains and losses from the sale of securities. If an option
written for the Portfolio lapses or is terminated through a closing transaction,
such as a repurchase for the Portfolio of the option from its holder, the
Portfolio may realize a short-term capital gain or loss, depending on whether
the premium income is greater or less than the amount paid in the closing
transaction. If securities are sold for the Portfolio pursuant to the exercise
of a call option written for it, the premium received is added to the sale price
of the securities delivered in determining the amount of gain or loss on the
sale.
Certain options contracts held for the Portfolio at the end of each fiscal
year are required to be "marked to market" for federal income tax purposes; that
is, treated as having been sold at market value. Sixty percent of any gain or
loss recognized on these deemed sales and on actual dispositions are treated as
long-term capital gain or loss, and the remainder are treated as short-term
capital gain or loss regardless of how long such options were held. The
Portfolio may be required to defer the recognition of losses on stock or
securities to the extent of any unrecognized gain on offsetting positions held
for it.
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
B-23
<PAGE>
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.
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 20. Underwriters.
The placement agent for the Portfolio is 59 Wall Street Distributors,
Inc., which receives no compensation for serving in this capacity. Other
investment companies, insurance company separate accounts, common and commingled
trust funds and similar organizations and entities may continuously invest in
the Portfolio. Prior to March 1, 1999, Signature Financial Group (Cayman)
Limited acted as placement agent for the Portfolio under the same terms and
conditions as set forth herein.
Item 21. Calculations of Performance Data.
Not applicable.
Item 22. Financial Statements.
The Portfolio's statement of assets and liabilities dated October 29,
1999 included herein has been included in reliance upon the report of
Deloitte & Touche LLP, independent auditors, as experts in accounting and
auditing.
EUROPEAN EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
October 29, 1999
ASSETS:
Cash ........................................ $100,100
LIABILITIES:
Accrued Expenses ............................ 0
---------
$100,000
---------
<PAGE>
INDEPENDENT AUDITORS REPORT
Trustees and Investors
European Equity Portfolio:
We have audited the accompanying statement of assets and liabilities as of
the European Equity Portfolio (the "Fund") as of October 29, 1999. This
financial statement is the responsibility of the Portfolio's management. Our
responsibility is to express an opinion on this financial statement based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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
29, 1999 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, the financial statement presents fairly, in all material
respects, the financial position of European Equity Portfolio as of October 29,
1999, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Boston,Massachusetts
October 29, 1999
<PAGE>
EUROPEAN EQUITY PORTFOLIO
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
1. Organization. European Equity Portfolio (the "Portfolio") is
registered under the Investment Company Act of 1940, as amended, as an
open-ended management investment company which was organized as a trust under
the laws of the State of New York on June 15, 1993. The Declaration of the Trust
permits the Trustees to create an unlimited number of beneficial interests in
the Portfolio.
B-19
<PAGE>
PART C
Item 23. Exhibits.
(a) Declaration of Trust of the Registrant (1)
(a)(i) Amendment to Declaration of Trust(1)
(a)(ii) Certificate of Amendment to Declaration of Trust
of Registrant(1)
(b) By-Laws of the Registrant (1)
(d) Investment Advisory Agreement between the Registrant and Brown
Brothers Harriman & Co (1)
(g) Custodian Contract between the Registrant and Brown Brothers
Harriman & Co. (1)
(h)(i)Administration Agreement between the Registrant and Brown
Brothers Harriman Trust Company (1)
(h)(ii) Subadministrative Services Agreement between the Registrant
and 59 Wall Street Administrators, Inc.(1)
(l) Investment representation letters of initial investors (1)
(p) Code of Ethics (2)
- ------------------------
(1) Incorporated herein by reference from the registration statement as
initially filed with the Securities and Exchange Commission on October
29, 1999.
(2) To be filed by amendment.
<PAGE>
Item 24. Persons Controlled by or Under Common Control with Registrant.
Not applicable.
Item 25. Indemnification.
Reference is hereby made to Article V of the Registrant's Declaration of
Trust, filed as an Exhibit herewith.
The Trustees and officers of the Registrant are insured under an errors
and omissions liability insurance policy. The Registrant and its officers are
also insured under the fidelity bond required by Rule 17g-1 under the Investment
Company Act of 1940, as amended.
Item 26. Business and Other Connections of Investment Adviser.
The Registrant's investment adviser, Brown Brothers Harriman & Co., is a
New York limited partnership. Brown Brothers Harriman & Co. conducts a general
banking business and is a member of the New York Stock Exchange.
To the knowledge of the Registrant, none of the general partners or
officers of Brown Brothers Harriman & Co. is engaged in any other business,
profession, vocation or employment of a substantial nature.
Item 27. Principal Underwriters.
Not applicable.
Item 28. Location of Accounts and Records.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder are
maintained at the offices of:
The European Equity Portfolio
Butterfield House
Fort Street, P.O. Box 2330
George Town, Grand Cayman
Cayman Islands, BWI
C-2
<PAGE>
Brown Brothers Harriman & Co.
59 Wall Street
New York, NY 10005
(investment adviser)
Brown Brothers Harriman Trust Company
59 Wall Street
New York, NY 10005
(administrator)
59 Wall Street Administrators, Inc.
21 Milk Street
Boston, MA 02109
(subadministrator)
59 Wall Street Distributors, Inc.
21 Milk Street
Boston, MA 02109
(placement agent)
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
(custodian)
Item 29. Management Services.
Not applicable.
Item 30. Undertakings.
Not applicable.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, U.S.
Equity Portfolio has duly caused this registration statement on Form
N-1A to be signed on its behalf by the undersigned, thereto duly authorized,
in the City of Boston, Massachusetts on the 29th day of February, 2000.
EUROPEAN EQUITY PORTFOLIO
By: /s/PHILIP W. COOLIDGE
Philip W. Coolidge
President
<PAGE>