===============================================================================
STATEMENT OF ADDITIONAL INFORMATION
THE 59 WALL STREET SMALL COMPANY FUND
6 St. James Avenue, Boston, Massachusetts 02116
===============================================================================
The 59 Wall Street Small Company Fund (the "Fund") is a separate
portfolio of The 59 Wall Street Fund, Inc. (the "Corporation"), a management
investment company registered under the Investment Company Act of 1940, as
amended (the "1940 Act"). The Fund is designed to enable investors to
participate in the opportunities available in the smaller capitalization segment
of the U.S. equity market. The investment objective of the Fund is to provide
investors with long-term maximization of total return, primarily through capital
appreciation. The Corporation seeks to achieve the investment objective of the
Fund by investing all of the Fund's assets in the U.S. Small Company Portfolio
(the "Portfolio"), a diversified open-end investment company having the same
investment objective as the Fund. There can be no assurance that the Fund's
investment objective will be achieved.
Brown Brothers Harriman & Co. is the investment adviser (the
"Investment Adviser") of the Portfolio. This Statement of Additional Information
is not a prospectus and should be read in conjunction with the Prospectus dated
February 27, 1998, a copy of which may be obtained from the Corporation at the
address noted above.
Table of Contents
Cross-Reference
to
Page in
Page Prospectus
Investment Objective and Policies . . . . . 2 5-8
Investment Restrictions . . . . . . . . 4 8-9
Directors, Trustees and Officers . . . . . 6 10
Investment Adviser . . . . . . . . . . 10 11-12
Administrators. . . . . . . . . . . . 11 12-13
Distributor . . . . . . . . . . . . 12 14
Financial Intermediaries. . . . . . . . . 13 13
Net Asset Value; Redemption in Kind . . . . 13 15
Computation of Performance . . . . . . . 14 18-19
<PAGE>
Federal Taxes . . . . . . . . . . . . 15 16-17
Description of Shares . . . . . . . . . 16 17-18
Portfolio Transactions . . . . . . . . . 17 6-7
Additional Information . . . . . . . . . 19 18-19
Financial Statements . . . . . . . . . 20 4
The date of this Statement of Additional Information is February
27, 1998.
3
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
===============================================================================
The following supplements the information contained in the Prospectus
concerning the investment objective, policies and techniques of the Portfolio.
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.
Options on Stock. For the sole purpose of reducing risk, put and call
options on stocks may be purchased for the Portfolio, although the current
intention is not to do so in such a manner that more than 5% of the Portfolio's
net assets would be at risk. A call option on a stock gives the purchaser of the
option the right to buy the underlying stock at a fixed price at any time during
the option period. Similarly, a put option gives the purchaser of the option the
right to sell the underlying stock at a fixed price at any time during the
option period. To liquidate a put or call option position, a "closing sale
transaction" may be made at any time prior to the expiration of the option which
involves selling the option previously purchased. Over-the-counter options ("OTC
Options") purchased are treated as not readily marketable. (See "Investment
Restrictions").
Covered call options may also be sold (written) on stocks,
although in each case the current intention is not to do so. A
call option is "covered" if the writer owns the underlying
security.
Loans of Portfolio Securities
Securities of the Portfolio may be loaned if such loans are secured
continuously by cash or equivalent liquid securities as collateral or by an
irrevocable letter of credit in favor of the Portfolio at least equal at all
times to 100% of the market value
2
<PAGE>
of the securities loaned plus accrued income. While such securities are on loan,
the borrower pays the Portfolio any income accruing thereon, and cash collateral
may be invested for the Portfolio, thereby earning additional income. All or any
portion of interest earned on invested collateral may be paid to the borrower.
Loans are subject to termination by the Portfolio in the normal settlement time,
currently three business days after notice, or by the borrower on one day's
notice. Borrowed securities are returned when the loan is terminated. Any
appreciation or depreciation in the market price of the borrowed securities
which occurs during the term of the loan inures to the Portfolio and its
investors. Reasonable finders' and custodial fees may be paid in connection with
a loan. In addition, all facts and circumstances, including the creditworthiness
of the borrowing financial institution, are considered before a loan is made and
no loan is made in excess of one year. There is the risk that a borrowed
security may not be returned to the Portfolio. Securities are not loaned to
Brown Brothers Harriman & Co. or to any affiliate of the Corporation, 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, assets of the Portfolio may be invested in short-term instruments
to meet anticipated expenses or for day-to-day operating purposes and when, in
the Investment Adviser's opinion, it is advisable to adopt a temporary defensive
position because of unusual and adverse conditions affecting the equity markets.
In addition, when the Portfolio experiences large cash inflows through
additional investments by its investors or the sale of portfolio securities, and
desirable equity securities that are consistent with its investment objective
are unavailable in sufficient quantities, assets may be held in short-term
investments for a limited time pending availability of such equity securities.
Short-term instruments consist of U.S. dollar denominated: (i) securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities; (ii)
commercial paper; (iii) bank obligations, including negotiable certificates of
deposit, fixed time deposits and bankers' acceptances; and (iv) repurchase
agreements. Time deposits with a maturity of more than seven days are treated as
not readily marketable (see clause (vi) under the caption "State and Federal
Restrictions"). At the time the Portfolio's assets are invested in commercial
paper, bank obligations or repurchase agreements, the issuer must have
outstanding debt rated A or higher by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Corporation ("Standard & Poor's"); or the
issuer's parent corporation, if any, must have outstanding commercial paper
rated Prime-1 by Moody's or A-1 by Standard & Poor's.
3
<PAGE>
Repurchase Agreements. Repurchase agreements may be entered into for
the Portfolio only with a "primary dealer" (as designated by the Federal Reserve
Bank of New York) in U.S. Government securities. This is an agreement in which
the seller (the "Lender") of a security agrees to repurchase from the Portfolio
the security sold at a mutually agreed upon time and price. As such, it is
viewed as the lending of money to the Lender. The resale price normally is in
excess of the purchase price, reflecting an agreed upon interest rate. The rate
is effective for the period of time assets of the Portfolio are invested in the
agreement and is not related to the coupon rate on the underlying security. The
period of these repurchase agreements is usually short, from overnight to one
week. The securities which are subject to repurchase agreements, however, may
have maturity dates in excess of one week from the effective date of the
repurchase agreement. The Portfolio always receives as collateral securities
which are issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. Collateral is marked to the market daily and has a market
value including accrued interest at least equal to 100% of the dollar amount
invested on behalf of the Portfolio in each agreement along with accrued
interest. Payment for such securities is made for the Portfolio only upon
physical delivery or evidence of book entry transfer to the account of State
Street Bank and Trust Company (the "Custodian"). If the Lender defaults, the
Portfolio might incur a loss if the value of the collateral securing the
repurchase agreement declines and might incur disposition costs in connection
with liquidating the collateral. In addition, if bankruptcy proceedings are
commenced with respect to the Lender, realization upon the collateral on behalf
of the Portfolio may be delayed or limited in certain circumstances.
INVESTMENT RESTRICTIONS
===============================================================================
The Fund and the Portfolio are 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 1940 Act) of the Fund or the Portfolio, as the case may be
(see "Additional Information").
Except that the Corporation may invest all of the Fund's assets in an
open-end investment company with substantially the same investment objective,
policies and restrictions as the Fund, neither the Portfolio nor the
Corporation, with respect to the Fund, may:
4
<PAGE>
(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 redemption of
Fund shares or the withdrawal of part or all of an interest in the Portfolio, as
the case may be, while effecting an orderly liquidation of portfolio securities
or to maintain liquidity in the event of an unanticipated failure to complete a
portfolio security transaction or other similar situations), provided that
collateral arrangements with respect to options and futures, including deposits
of initial deposit and variation margin, are not considered a pledge of assets
for purposes of this restriction and except that assets may be pledged to secure
letters of credit solely for the purpose of participating in a captive insurance
company sponsored by the Investment Company Institute;
(2) purchase any security or evidence of interest therein on margin,
except that such short-term credit as may be necessary for the clearance of
purchases and sales of securities may be obtained and except that deposits of
initial deposit and variation margin may be made in connection with the
purchase, ownership, holding or sale of futures;
(3) write, purchase or sell any put or call option or any combination
thereof, provided that this shall not prevent (i) the purchase, ownership,
holding or sale of warrants where the grantor of the warrants is the issuer of
the underlying securities, or (ii) the purchase, ownership, holding or sale of
futures and options, other than the writing of put options;
(4) underwrite securities issued by other persons except insofar as it
may technically be deemed an underwriter under the Securities Act of 1933 as
amended 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
5
<PAGE>
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);
(9) concentrate its investments in any particular industry, but if it
is deemed appropriate for the achievement of its investment objective, up to 25%
of its assets, at market value at the time of each investment, may be invested
in any one industry, except that positions in futures or option contracts shall
not be subject to this restriction;
(10) issue any senior security (as that term is defined in the 1940
Act) if such issuance is specifically prohibited by the 1940 Act or the rules
and regulations promulgated thereunder, provided that collateral arrangements
with respect to options and futures, including deposits of initial deposit and
variation margin, are not considered to be the issuance of a senior security for
purposes of this restriction; or
(11) invest more than 5% of its total assets in the securities or
obligations of any one issuer (other than U.S. Government obligations) or more
than 10% of its total assets in the outstanding voting securities of any one
issuer; provided, however, that up to 25% of its total assets may be invested
without regard to this restriction.
6
<PAGE>
Non-Fundamental Restrictions. The Portfolio or the Corporation, on
behalf of the Fund, may not as a matter of operating policy (except that the
Corporation may invest all of the Fund's assets in an open-end investment
company with substantially the same investment objective, policies and
restrictions as the Fund): (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; or (ii) invest more than 10% of its net
assets (taken at the greater of cost or market value) in restricted securities
These policies are not fundamental and may be changed without shareholder or
investor approval.
Percentage and Rating Restrictions. If a percentage or rating
restriction on investment or utilization of assets set forth above or referred
to in the Prospectus 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 the Fund's and the
Portfolio's respective investment restrictions relating to any particular
investment practice or policy are not consistent, the Portfolio has agreed with
the Corporation, on behalf of the Fund, that the Portfolio will adhere to the
more restrictive limitation.
DIRECTORS, TRUSTEES AND OFFICERS
================================================================================
The Directors of the Corporation, Trustees of the Portfolio and
executive officers of the Corporation and the Portfolio, their principal
occupations during the past five years (although their titles may have varied
during the period) and business addresses are:
DIRECTORS OF THE CORPORATION
J.V. SHIELDS, JR.* -- Chairman of the Board and Director; Trustee of
The 59 Wall Street Trust; Managing Director, Chairman and Chief Executive
Officer of Shields & Company; Chairman and Chief Executive Officer of Capital
Management Associates, Inc.; Director of Flowers Industries, Inc.(1) His
business address is Shields & Company, 140 Broadway, New York, NY 10005.
EUGENE P. BEARD** -- Director; Trustee of The 59 Wall Street Trust
(since April 1993); Vice Chairman - 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** -- Director; Trustee of The 59 Wall Street Trust;
Retired; Chairman and Chief Executive Officer - AT&T Investment Management
Corporation (prior to October 1997); Director of Dreyfus Mutual Funds, Equity
Fund of Latin America, New World Balanced Fund, India Magnum Fund, and U.S.
Prime Properties Inc.; Trustee of Corporate Property Investors. His business
address 3 Tall Oaks Drive, Warren, NJ 07059.
7
<PAGE>
ALAN G. LOWY** -- Director; Trustee of The 59 Wall Street Trust (since
April 1993); 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** -- Director; Trustee of The 59 Wall Street
Trust Vice President and Chief Financial Officer of Richard K. Mellon and Sons;
Treasurer of Richard King Mellon Foundation; Director of Vought Aircraft
Corporation (prior to September 1994), Caterair International (prior to April
1994); Member of Advisory Committee of Carlyle Group and Pittsburgh Seed Fund
and Valuation Committee of Morgenthaler Venture Funds(2). His business address
is Richard K. Mellon and Sons, P.O. Box RKM, Ligonier, PA 15658.
TRUSTEES OF THE PORTFOLIO
H.B. ALVORD** -- Chairman of the Board and Trustee; Retired; Trustee of
the Trust (from September 1990 to October 1994); Director of The 59 Wall Street
Fund, Inc. (from September 1990 to October 1994); Trustee of Landmark Funds III,
Landmark Tax Free Reserves, Landmark Multi-State Tax Free Funds, Landmark Tax
Free Income Funds, Landmark Fixed Income Funds, Landmark Funds I, Landmark Funds
II, and Landmark International Equity Fund (from September 1990 to May 1997).
His business address is P.O. Box 5203, Carmel, CA 93921.
RICHARD L. CARPENTER** -- Trustee; Retired; Director of
Internal Investments, Public School Employees' Retirement System
(prior to December 1995). His business address is 61 Cliff
Street, Burlington, VT 05401.
CLIFFORD A. CLARK** -- Trustee; Retired; Director of Schmid,
Inc. (prior to July 1993); Managing Director of the Smith-Denison
Foundation. His business address is 42 Clowes Drive, Falmouth,
MA 02540.
DAVID M. SEITZMAN** -- Trustee; Retired;
Physician with Seitzman, Shuman, Kwart and Phillips(prior to
October 1997); Director of the National Capital Underwriting
Company, Commonwealth Medical Liability Insurance Co. and
National Capital Insurance Brokerage, Limited. His business
address is 7117 Nevis Road, Bethesda, MD 20817.
OFFICERS OF THE CORPORATION AND 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") (since June 1993).
JAMES E. HOOLAHAN -- Vice President; Senior Vice President of SFG.
8
<PAGE>
JOHN R. ELDER -- Treasurer; Vice President of SFG (since April 1995);
Treasurer of Phoenix Family of Mutual Funds (prior to April 1995).
LINDA T. GIBSON -- Secretary, Vice President and Assistant Secretary of
SFG (since June 1991); Assistant Secretary of 59 Wall Street Distributors and 59
Wall Street Administrators (since June 1993) .
SUSAN JAKUBOSKI*** -- Assistant Treasurer and Assistant Secretary of
the Portfolio; Assistant Secretary, Assistant Treasurer and Vice President of
Signature Financial Group (Grand Cayman) Limited (since August 1994); Fund
Compliance Administrator of Concord Financial Group, Inc. (from November 1990 to
August 1994). Her business address is Signature Financial Group (Grand Cayman)
Limited, Elizabethan Square, George Town, Grand Cayman, Cayman Islands, B.W.I.
MOLLY S. MUGLER -- Assistant Secretary; Legal Counsel and Assistant
Secretary of SFG; Assistant Secretary of 59 Wall Street Distributors and 59 Wall
Street Administrators (since June 1993).
CHRISTINE A. DRAPEAU -- Assistant Secretary; Assistant Vice President
of SFG (since January 1996); Paralegal and Compliance Officer, various financial
companies (July 1992 to January 1996); Graduate Student, Bentley College (prior
to December 1994).
- -------------------------
* Mr. Shields is an "interested person" of the Corporation and
the Portfolio because of his affiliation with a registered
broker-dealer.
** These Directors and Trustees are members of the Audit
Committee of the Corporation or the Portfolio, as the case
may be.
*** Ms. Jakuboski is an officer of the Portfolio but is not an
officer of the Corporation.
(1) 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.
(2) Richard K. Mellon and Sons, Richard King Mellon Foundation, Vought
Aircraft Corporation, Caterair International, The Carlyle Group and
Morgenthaler Venture Funds, with which Mr. Miltenberger is or has been
associated, are a private foundation, a private foundation, a business
development firm, an aircraft manufacturer, an airline food services
company, a merchant bank, and a venture capital partnership,
respectively.
11
<PAGE>
Each Director and officer of the Corporation listed above holds the
equivalent position with The 59 Wall Street Trust. The address of each officer
of the Corporation is 6 St. James Avenue, Boston, Massachusetts 02116. Messrs.
Coolidge, Hoolahan and Elder and Mss. Gibson, Jakuboski , Mugler and Drapeau
also hold similar positions with other investment companies for which affiliates
of 59 Wall Street Distributors serves as the principal underwriter.
Except for Mr. Shields, no Director is an "interested person" of the
Corporation or the Portfolio as that term is defined in the 1940 Act.
Directors of the Corporation
The Directors of the Corporation receive a base annual fee of $15,000
(except the Chairman who receives a base annual fee of $20,000) which is paid
jointly by all series of the Corporation and The 59 Wall Street Trust and
allocated among the series based upon their respective net assets. In addition,
each series which has commenced operations pays an annual fee to each Director
of $1,000.
12
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Pension or Total
Retirement Compensation
Aggregate Benefits Accrued Estimated Annual from the Corporation
Name of Person, Compensation as Part of Benefits upon and Fund Complex*
POSITION FROM THE CORPORATION FUND EXPENSES RETIREMENT PAID TO DIRECTORS
J.V. Shields, Jr., $10,822 none none $28,500
Trustee
Eugene P. Beard, $ 9,492 none none 23,500
Trustee
David P. Feldman, $ 9,492 none none 23,500
Trustee
Alan G. Lowy, $ 9,492 none none 23,500
Trustee
Arthur D. Miltenberger, $ 9,492 none none 23,500
Trustee
</TABLE>
13
<PAGE>
* The Fund Complex consists of the Corporation and The 59 Wall Street Trust
which currently consists of three series.
Portfolio Trustees
The Trustees of the Portfolio receive a base annual fee of $12,000
(except the Chairman who receives a base annual fee of $17,000) which is paid
jointly by the U.S. Money Market Portfolio, International Equity Portfolio
Emerging Markets Portfolio and U.S Mid-Cap Portfolio together with the Portfolio
(the "Portfolios") and allocated among the Portfolios based upon their
respective net assets. In addition, each Portfolio which has commenced
operations pays an annual fee to each Trustee of $1,000.
14
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Pension or Total
Retirement Compensation
Aggregate Benefits Accrued Estimated Annual from the
Name of Person, Compensation as Part of Benefits upon Portfolio Complex*
POSITION FROM THE PORTFOLIO PORTFOLIO EXPENSES RETIREMENT PAID TO TRUSTEES
H.B. Alvord, $3,705 none none $19,950
Trustee
Richard L. Carpenter, 3,489 none none 15,250
Trustee
Clifford A. Clark, 3,489 none none 15,250
Trustee
David M. Seitzman, 3,489 none none 15,250
Trustee
</TABLE>
*The Portfolio Complex consists of the Portfolio, U.S. Money Market
Portfolio, International Equity Portfolio, Emerging Markets Portfolio and
U.S. Mid-Cap Portfolio.
By virtue of the responsibilities assumed by Brown Brothers Harriman &
Co. under the Investment Advisory Agreement with the Portfolio and the
Administration Agreement with the Corporation, and by Brown Brothers Harriman
Trust Company (Cayman) Limited under the Administration Agreement with the
Portfolio (see "Investment Adviser" and "Administrators"), neither the
Corporation nor the Portfolio requires employees other than its officers, and
none of its officers devote full time to the affairs of the Corporation or the
Portfolio, as the case may be, or, other than the
15
<PAGE>
Chairmen, receive any compensation from the Fund or the Portfolio.
As of January 31, 1998, the Directors of the Corporation, Trustees of
the Portfolio and officers of the Corporation and the Portfolio as a group
beneficially owned less than 1% of the outstanding shares of the Corporation and
less than 1% of the aggregate beneficial interests in the Portfolio. At the
close of business on that date, no person, to the knowledge of the management,
owned beneficially more than 5% of the outstanding shares of the Fund nor more
than 5% of the aggregate beneficial interests in the Portfolio except that The
Atlantic Energy Corp. owned 121,550 (5.6%) shares of the Fund. The address of
each of the above named is c/o Brown Brothers Harriman & Co., 59 Wall Street,
New York, New York 10005. As of that date the partners of Brown Brothers
Harriman & Co. and their immediate families owned 267,035 (12.3%) shares of the
Fund. Also, Brown Brothers Harriman & Co. Employees Pension Plan on that date
held 330,337 (15.2%) of the Fund. Brown Brothers Harriman & Co. and its
affiliates separately are able to direct the disposition of an additional
955,154 (43.9%) shares of the Fund, as to which shares Brown Brothers Harriman &
Co. disclaims beneficial ownership.
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 so long as the agreement is specifically
approved at least annually (i) by a vote of the holders of a "majority of the
outstanding voting securities" (as defined in the 1940 Act) of the Portfolio, or
by the Portfolio's Trustees, and (ii) by a vote of a majority of the Trustees of
the Portfolio who are not parties to the Investment Advisory Agreement or
"interested persons" (as defined in the 1940 Act) of the Portfolio ("Independent
Trustees"), cast in person at a meeting called for the purpose of voting on such
approval. The Investment Advisory Agreement was most recently approved by the
Independent Trustees on December 4, 1997. 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 (see "Additional Information").
With respect to the Portfolio, the investment advisory fee paid to the
Investment Adviser is calculated daily and paid monthly at an annual rate
16
<PAGE>
equal to 0.65% of the Portfolio's average daily net assets. The advisory fee is
the same as the fee paid by the Fund from November 1, 1993 to January 16, 1995,
at which time the Corporation began to seek to achieve the Fund's investment
objective by investing all of the Fund's investable assets in the Portfolio. For
the period November 1, 1994 through January 16, 1995, the Fund incurred $49,267
for advisory services. For the period January 17, 1995 through October 31, 1995,
the Portfolio incurred $283,032 for advisory services. For the fiscal years
ended October 31, 1996 and 1997, the Portfolio incurred $360,578 and $319,096,
respectively for advisory services.
The Glass-Steagall Act prohibits certain financial institutions from
engaging in the business of underwriting, selling or distributing securities and
from sponsoring, organizing or controlling a registered open-end investment
company continuously engaged in the issuance of its shares, such as the Fund.
There is presently no controlling precedent prohibiting financial institutions
such as Brown Brothers Harriman & Co. from performing the investment advisory,
administrative or shareholder servicing/eligible institution functions described
above. 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. If Brown Brothers Harriman & Co. were
to terminate its Shareholder Servicing Agreement, Eligible Institution Agreement
or Administration Agreement with the Corporation or were prohibited from acting
in any such capacity, its customers would be permitted to remain shareholders of
the Fund and alternative means for providing shareholder services or
administrative services, as the case may be, would be sought. In such event,
although the operation of the Corporation might change, it is not expected that
any shareholders would suffer any adverse financial consequences. However, an
alternative means of providing shareholder services might afford less
convenience to shareholders.
ADMINISTRATORS
==============================================================================
The Administration Agreements between the Corporation and Brown
Brothers Harriman & Co. (dated November 1, 1993) and between the Portfolio and
Brown Brothers Harriman Trust Company (Cayman) Limited (dated December 15, 1993)
will remain in effect for two years from such respective date and thereafter,
but only so long as each such agreement is specifically approved at least
annually in the same manner as the Portfolio's Investment Advisory Agreement
(see "Investment Adviser"). The Independent Directors/Trustees most recently
approved the Corporation's Administration Agreement and the Portfolio's
Administration Agreement on December 17, 1997 and December 4, 1997,
respectively. Each agreement will terminate automatically if assigned by either
party thereto and is terminable by the Corporation or the Portfolio at any time
without penalty by a vote of a majority of the Directors of the Corporation or
the Trustees of the Portfolio, as the case may be, or by a vote of the holders
of a "majority of the outstanding voting securities" (as defined in the 1940
Act) of the Corporation or the Portfolio, as the case may be (see
17
<PAGE>
"Additional Information"). The Corporation's Administration Agreement is
terminable by the Directors of the Corporation or shareholders of the
Corporation on 60 days' written notice to Brown Brothers Harriman & Co. The
Portfolio's Administration Agreement is terminable by the Trustees of the
Portfolio or by the Fund and other investors in the Portfolio on 60 days'
written notice to Brown Brothers Harriman Trust Company (Cayman) Limited. Each
agreement is terminable by the respective Administrator on 90 days' written
notice to the Corporation or the Portfolio, as the case may be.
The administrative fee payable to Brown Brothers Harriman & Co. from
the Fund is calculated daily and payable monthly at an annual rate equal to
0.125% of the Fund's average daily net assets. From November, 1993 to January
16, 1995, Brown Brothers Harriman & Co. was paid at an annual rate equal to
0.15% of the Fund's average daily net assets. For the fiscal years ended October
31, 1995 , 1996 and 1997, the Fund incurred $41,328 , $41,210 and $46,488,
respectively, for administrative services.
The administrative fee paid to Brown Brothers Harriman Trust Company
(Cayman) Limited by the Portfolio is calculated and paid monthly at an annual
rate equal to 0.035% of the Portfolio's average daily net assets. Brown Brothers
Harriman Trust Company (Cayman) Limited is a wholly-owned subsidiary of Brown
Brothers Harriman Trust Company of New York, which is a wholly-owned subsidiary
of Brown Brothers Harriman & Co. For the period January 17, 1995 through October
31, 1995, the Portfolio incurred $15,240 for administrative services. For the
fiscal years ended October 31, 1996 and 1997, the Portfolio incurred $19,416 and
$17,182, respectively, for administrative services.
DISTRIBUTOR
==============================================================================
The Distribution Agreement (dated September 5, 1990, as amended and
restated February 12, 1991) between the Corporation and 59 Wall Street
Distributors remains in effect indefinitely, but only so long as such agreement
is specifically approved at least annually in the same manner as the Portfolio's
Investment Advisory Agreement (see "Investment Adviser"). The Distribution
Agreement was most recently approved by the Independent Directors of the
Corporation on February 24, 1998. The agreement terminates automatically if
assigned by either party thereto and is terminable with respect to the Fund at
any time without penalty by a vote of a majority of the Directors of the
Corporation or by a vote of the holders of a "majority of the outstanding voting
securities" (as defined in the 1940 Act) of the Fund (see "Additional
Information"). The Distribution Agreement is terminable with respect to the Fund
by the Corporation's Directors or shareholders of the Fund on 60 days' written
notice to 59 Wall Street Distributors. The agreement is terminable by 59 Wall
Street Distributors on 90 days' written notice to the Corporation.
18
<PAGE>
FINANCIAL INTERMEDIARIES
===============================================================================
One or more brokers which serve as Financial Intermediaries have been
authorized by the Corporation to accept purchase and redemption orders for Fund
shares on its behalf and are authorized to designate other intermediaries to
accept purchase and redemption orders for Fund shares on the Corporation's
behalf. The Corporation will be deemed to have received a purchase or redemption
order for Fund shares when an authorized broker or, if applicable, such broker's
authorized designee, accepts the order and such an order will be executed at the
net asset value per share next determined after such acceptance.
NET ASSET VALUE; REDEMPTION IN KIND
==============================================================================
The net asset value of each of the Fund's shares is determined each day
the New York Stock Exchange is open for regular trading. (As of the date of this
Statement of Additional Information, such Exchange is so open every weekday
except for the following holidays: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas.) This determination of net asset value of each
share of the Fund is made once during each such day as of the close of regular
trading on such Exchange by subtracting from the value of the Fund's total
assets (i.e., the value of its investment in the Portfolio and other assets) the
amount of its liabilities, including expenses payable or accrued, and dividing
the difference by the number of shares of the Fund outstanding at the time the
determination is made.
The value of the Portfolio's net assets (i.e., the value of its
securities and other assets less its liabilities, including expenses payable or
accrued) is determined at the same time and on the same days as the net asset
value per share of the Fund is determined. The value of the Fund's investment in
the Portfolio is determined by multiplying the value of the Portfolio's net
assets by the percentage, effective for that day, which represents the Fund's
share of the aggregate beneficial interests in the Portfolio.
The value of investments listed on a domestic securities exchange is
based on the last sale prices as of the regular close of the New York Stock
Exchange (which is currently 4:00 p.m., New York time) or, in the absence of
recorded sales, at the average of readily available closing bid and asked prices
on such Exchange.
Unlisted securities are valued at the average of the quoted bid and
asked prices in the over-the-counter market. The value of each security for
which readily available market quotations exist is based on a decision as to the
broadest and most representative market for such security.
Securities or other assets for which market quotations are not readily
available are valued at fair value in accordance with procedures established by
and under the general supervision and responsibility of the Portfolio's
Trustees. Such procedures include the use of independent pricing services, which
use prices based upon yields or prices of
19
<PAGE>
securities of comparable quality, coupon, maturity and type; indications as to
values from dealers; and general market conditions. Short-term investments which
mature in 60 days or less are valued at amortized cost if their original
maturity was 60 days or less, or by amortizing their value on the 61st day prior
to maturity, if their original maturity when acquired was more than 60 days,
unless this is determined not to represent fair value by the Trustees of the
Portfolio.
Subject to the Corporation's compliance with applicable regulations,
the Corporation has reserved the right to pay the redemption price of shares of
a Fund, either totally or partially, by a distribution in kind of portfolio
securities (instead of cash). The securities so distributed would be valued at
the same amount as that assigned to them in calculating the net asset value for
the shares being sold. If a shareholder received a distribution in kind, the
shareholder could incur brokerage or other charges in converting the securities
to cash. The Corporation has elected, however, to be governed by Rule 18f-1
under the 1940 Act, as a result of which the Corporation is obligated with
respect to any one investor during any 90 day period to redeem shares of a Fund
solely in cash up to the lesser of $250,000 or 1% of that Fund's net assets at
the beginning of such 90 day period.
COMPUTATION OF PERFORMANCE
==============================================================================
The average annual total return of the Fund is calculated for any
period by (a) dividing (i) the sum of the aggregate net asset value per share on
the last day of the period of shares purchased with a $1,000 payment on the
first day of the period and the aggregate net asset value per share on the last
day of the period of shares purchasable with dividends and capital gains
distributions declared during such period with respect to shares purchased on
the first day of such period and with respect to shares purchased with such
dividends and capital gains distributions, by (ii) $1,000, (b) raising the
quotient to a power equal to 1 divided by the number of years in the period, and
(c) subtracting 1 from the result.
The total rate of return of the Fund for any specified period is
calculated by (a) dividing (i) the sum of the aggregate net asset value per
share on the last day of the period of shares purchased with a $1,000 payment on
the first day of the period and the aggregate net asset value per share on the
last day of the period of shares purchasable with dividends and capital gains
distributions declared during such period with respect to shares purchased on
the first day of such period and with respect to shares purchased with such
dividends and capital gains distributions, by (ii) $1,000, and (b) subtracting 1
from the result.
The annualized average rate of return for the Fund for the period April
23, 1991 (commencement of operations) to October 31, 1997 was 11.42%. The
average annual rate of return for the Fund for the fiscal year ended October 31,
1997 was 24.65%. The average annual rate of return for the Fund for the
five-year period ended October 31, 1997 was 13.60%.
20
<PAGE>
Performance calculations should not be considered a representation of
the average annual or total rate of return of the Fund in the future since the
rates of return are not fixed. Actual total rates of return and average annual
rates of return depend on changes in the market value of, and dividends and
interest received from, the investments held by the Portfolio and the Fund's and
the Portfolio's expenses during the period.
Total and average annual rate of return information may be useful for
reviewing the performance of the Fund and for providing a basis for comparison
with other investment alternatives. However, unlike bank deposits or other
investments which pay a fixed yield for a stated period of time, the Fund's
total rate of return fluctuates, and this should be considered when reviewing
performance or making comparisons.
FEDERAL TAXES
==============================================================================
Each year, the Corporation intends to continue to qualify the Fund and
elect that the Fund be treated as a separate "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). Under Subchapter M of the Code the Fund is not subject to federal
income taxes on amounts distributed to shareholders.
Qualification as a regulated investment company under the Code
requires, among other things, that (a) at least 90% of the Fund's annual gross
income, without offset for losses from the sale or other disposition of
securities, be derived from interest, payments with respect to securities loans,
dividends and gains from the sale or other disposition of securities, foreign
currencies or other income derived with respect to its business of investing in
such securities; (b) less than 30% of the Fund's annual gross income be derived
from gains (without offset for losses) from the sale or other disposition of
securities held for less than three months; and (c) the holdings of the Fund be
diversified so that, at the end of each quarter of its fiscal year, (i) at least
50% of the market value of the Fund's assets be represented by cash, U.S.
Government securities and other securities limited in respect of any one issuer
to an amount not greater than 5% of the Fund's assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of the
Fund's assets be invested in the securities of any one issuer (other than U.S.
Government securities and securities of other investment companies). In
addition, in order not to be subject to federal income tax, at least 90% of the
Fund's net investment income and net short-term capital gains earned in each
year must be distributed to the Fund's shareholders.
Gains or losses on sales of securities are treated as long-term capital
gains or losses if the securities have been held for more than one year except
in certain cases where a put has been acquired or a call has been written
thereon. 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
21
<PAGE>
transaction, such as a repurchase 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 pursuant to the exercise of a call option written for them,
the premium received would be added to the sale price of the securities
delivered in determining the amount of gain or loss on the sale. The requirement
that less than 30% of the Fund's gross income be derived from gains from the
sale of securities held for less than three months may limit the Portfolio's
ability to write options and engage in transactions involving stock index
futures.
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 the Portfolio has held
such options. 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.
Return of Capital. If the net asset value of shares is reduced below a
shareholder's cost as a result of a dividend or capital gains distribution from
the Fund, such dividend or capital gains distribution would be taxable even
though it represents a return of invested capital.
Redemption of Shares. Any gain or loss realized on the redemption of
Fund shares by a shareholder who is not a dealer in securities is treated as
long-term capital gain or loss if the shares have been held for more than one
year, and otherwise as short-term capital gain or loss. However, any loss
realized by a shareholder upon the redemption of Fund shares held one year or
less is treated as a long-term capital loss to the extent of any long-term
capital gains distributions received by the shareholder with respect to such
shares. Additionally, any loss realized on a redemption or exchange of Fund
shares is disallowed to the extent the shares disposed of are replaced within a
period of 61 days beginning 30 days before such disposition, such as pursuant to
reinvestment of a dividend or capital gains distribution in Fund shares.
DESCRIPTION OF SHARES
==============================================================================
The Corporation is an open-end management investment company organized
as a Maryland corporation on July 16, 1990. The Articles of Incorporation
currently permit the Corporation to issue 2,500,000,000 shares of common stock,
par value $0.001 per share, of which 25,000,000 shares have been classified as
shares of The 59 Wall Street Small Company Fund. The Corporation currently
consists of eight portfolios.
Shareholders are entitled to one vote for each share held on matters on
which they are entitled to vote. Shareholders in the Corporation do not have
cumulative voting rights, and shareholders owning more than 50% of the
outstanding shares of the Corporation may elect all of the Directors of the
22
<PAGE>
Corporation if they choose to do so and in such event the other shareholders in
the Corporation would not be able to elect any Director. The Corporation is not
required and has no current intention to hold meetings of shareholders annually
but the Corporation will hold special meetings of shareholders when in the
judgment of the Corporation's Directors it is necessary or desirable to submit
matters for a shareholder vote. Shareholders have under certain circumstances
(e.g., upon application and submission of certain specified documents to the
Directors by a specified number of shareholders) the right to communicate with
other shareholders in connection with requesting a meeting of shareholders for
the purpose of removing one or more Directors. Shareholders also have the right
to remove one or more Directors without a meeting by a declaration in writing by
a specified number of shareholders. Shares have no preference, pre-emptive,
conversion or similar rights. Shares, when issued, are fully paid and
non-assessable.
Stock certificates are not issued by the Corporation.
The Articles of Incorporation of the Corporation contain a provision
permitted under Maryland Corporation Law which under certain circumstances
eliminates the personal liability of the Corporation's Directors to the
Corporation or its shareholders.
The Articles of Incorporation and the By-Laws of the Corporation
provide that the Corporation indemnify the Directors and officers of the
Corporation to the full extent permitted by the Maryland Corporation Law, which
permits indemnification of such persons against liabilities and expenses
incurred in connection with litigation in which they may be involved because of
their offices with the Corporation. However, nothing in the Articles of
Incorporation or the By-Laws of the Corporation protects or indemnifies a
Director or officer of the Corporation against any liability to the Corporation
or its shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
Interests in the Portfolio have no preference, preemptive, conversion
or similar rights, and are fully paid and non-assessable. The Portfolio is not
required to hold annual meetings of investors, but will hold special meetings of
investors when, in the judgment of its Trustees, it is necessary or desirable to
submit matters for an investor vote. Each investor is entitled to a vote in
proportion to the share of its investment in the Portfolio.
PORTFOLIO TRANSACTIONS
==============================================================================
In effecting securities transactions for the Portfolio, the Investment
Adviser seeks to obtain the best price and execution of orders. In selecting a
broker, the Investment Adviser considers a 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 research and other investment
23
<PAGE>
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.
For the period January 17, 1995 through October 31, 1995, the aggregate
commissions paid from the Portfolio was $149,500. For the fiscal years ended
October 31, 1996 and 1997, the aggregate commissions paid from the Portfolio
were $79,546 and $123,358, respectively.
Portfolio securities are not purchased from or sold to the
Administrator, Distributor or Investment Adviser or any "affiliated person" (as
defined in the 1940 Act) of the Administrator, Distributor or Investment Adviser
when such entities are acting as principals, except to the extent permitted by
law. The Portfolio uses Brown Brothers Harriman & Co. as one of its principal
brokers when, in the judgment of the Investment Adviser, that firm will be able
to obtain a price and execution at least as favorable as other qualified
brokers. As one of the Portfolio's principal brokers, Brown Brothers Harriman &
Co. receives brokerage commissions from the Portfolio.
The use of Brown Brothers Harriman & Co. as a broker for the Portfolio
is subject to the provisions of Rule 11a2-2(T) under the Securities Exchange Act
of 1934 which permits the Portfolio to use Brown Brothers Harriman & Co. as a
broker provided that certain conditions are met.
In addition, under the 1940 Act, commissions paid by the Portfolio to
Brown Brothers Harriman & Co. in connection with a purchase or sale of
securities offered on a securities exchange may not exceed the usual and
customary broker's commission.
The Trustees of the Portfolio from time to time review, among other
things, information relating to the commissions charged by Brown Brothers
Harriman & Co. to the Portfolio and to its other customers and information
concerning the prevailing level of commissions charged by other qualified
brokers. In addition, the procedures pursuant to which Brown Brothers Harriman &
Co. effects brokerage transactions for the Portfolio are reviewed and approved
no less often than annually by a majority of the non-interested Trustees of the
Portfolio.
For the fiscal year ended October 31, 1994, total transactions with a
principal value of $103,904,986 were effected for the Fund of which transactions
with a principal value of $29,101,223 were effected by Brown Brothers Harriman &
Co. which involved payments of commissions to Brown Brothers Harriman & Co. of
$94,500 from the Fund.
For the period November 1, 1994 through January 16, 1995, total
transactions with a principal value of $10,830,197 were effected for the
24
<PAGE>
Fund of which transactions with a principal value of $3,683,925 were effected by
Brown Brothers Harriman & Co. which involved payments of commissions to Brown
Brothers Harriman & Co. of $12,132 from the Fund.
For the period January 17, 1995 through October 31, 1995, total
transactions with a principal value of $87,637,894 were effected for the
Portfolio of which transactions with a principal value of $20,656,501 were
effected by Brown Brothers Harriman & Co. which involved payments of commissions
to Brown Brothers Harriman & Co. of $75,463 from the Portfolio.
For the fiscal year ended October 31, 1996, total transactions with a
principal value of $49,619,514 were effected for the Portfolio of which
transactions with a principal value of $13,569,026 were effected by Brown
Brothers Harriman & Co. which involved payments of commissions to Brown Brothers
Harriman & Co. of $43,787.
For the fiscal year ended October 31, 1997, total transactions with a
principal value of $44,404,234 were effected for the Portfolio of which
transactions with a principal value of $18,399,202were effected by Brown
Brothers Harriman & Co. which involved payments of commissions to Brown Brothers
Harriman & Co. of $55,627.
A portion of the transactions for the Portfolio are executed through
qualified brokers other than Brown Brothers Harriman & Co. In selecting such
brokers, the Investment Adviser may consider the research and other investment
information provided by such brokers. Research services provided by brokers to
which Brown Brothers Harriman & Co. has allocated brokerage business in the past
include economic statistics and forecasting services, industry and company
analyses, portfolio strategy services, quantitative data, and consulting
services from economists and political analysts. Research services furnished by
brokers are used for the benefit of all the Investment Adviser's clients and not
solely or necessarily for the benefit of the Portfolio. The Investment Adviser
believes that the value of research services received is not determinable nor
does such research significantly reduce its expenses. The Portfolio does not
reduce the fee paid to the Investment Adviser by any amount that might be
attributable to the value of such services.
The Investment Adviser may direct a portion of the Portfolio's
securities transactions to certain unaffiliated brokers which in turn use a
portion of the commissions they receive from the Portfolio to pay other
unaffiliated service providers on behalf of the Portfolio for services provided
for which the Portfolio would otherwise be obligated to pay. Such commissions
paid by the Portfolio are at the same rate paid to other brokers for effecting
similar transactions in listed equity securities.
A committee, comprised of officers and partners of Brown Brothers
Harriman & Co. who are portfolio managers of some of Brown Brothers Harriman &
Co.'s managed accounts (the "Managed Accounts"), evaluates semi-annually the
nature and quality of the brokerage and research services provided by brokers,
and, based on this evaluation, establishes a list and projected ranking of
preferred brokers for use in determining the relative amounts of commissions to
be allocated to such brokers. However, in any semi-annual period, brokers not on
the list may be used, and the relative
25
<PAGE>
amounts of brokerage commissions paid to the brokers on the list may vary
substantially from the projected rankings.
The Trustees of the Portfolio review regularly the reasonableness of
commissions and other transaction costs incurred for the Portfolio in light of
facts and circumstances deemed relevant from time to time and, in that
connection, receive reports from the Investment Adviser and published data
concerning transaction costs incurred by institutional investors generally.
Over-the-counter purchases and sales are transacted directly with
principal market makers, except in those circumstances in which, in the judgment
of the Investment Adviser, better prices and execution of orders can otherwise
be obtained. If the Portfolio effects a closing transaction with respect to a
futures or option contract, such transaction normally would be executed by the
same broker-dealer who executed the opening transaction. The writing of options
by the Portfolio may be subject to limitations established by each of the
exchanges governing the maximum number of options in each class which may be
written by a single investor or group of investors acting in concert, regardless
of whether the options are written on the same or different exchanges or are
held or written in one or more accounts or through one or more brokers. The
number of options which the Portfolio may write may be affected by options
written by the Investment Adviser for other investment advisory clients. An
exchange may order the liquidation of positions found to be in excess of these
limits, and it may impose certain other sanctions.
On those occasions when Brown Brothers Harriman & Co. deems the
purchase or sale of a security to be in the best interests of the Portfolio as
well as other customers, Brown Brothers Harriman & Co., to the extent permitted
by applicable laws and regulations, may, but is not obligated to, aggregate the
securities to be sold or purchased for the Portfolio with those to be sold or
purchased for other customers in order to obtain best execution, including lower
brokerage commissions, if appropriate. In such event, allocation of the
securities so purchased or sold as well as any expenses incurred in the
transaction are made by Brown Brothers Harriman & Co. in the manner it considers
to be most equitable and consistent with its fiduciary obligations to its
customers, including the Portfolio. In some instances, this procedure might
adversely affect the Portfolio.
ADDITIONAL INFORMATION
==============================================================================
As used in this Statement of Additional Information and the Prospectus,
the term "majority of the outstanding voting securities" (as defined in the 1940
Act) currently means the vote of (i) 67% or more of the outstanding 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.
Fund shareholders receive semi-annual reports containing unaudited
financial statements and annual reports containing financial statements audited
by independent auditors.
A shareholder's right to receive payment with respect to any
26
<PAGE>
redemption may be suspended or the payment of the redemption proceeds postponed:
(i) during periods when the New York Stock Exchange is closed for other than
weekends and holidays or when regular trading on such Exchange is restricted as
determined by the Securities and Exchange Commission by rule or regulation, (ii)
during periods in which an emergency exists which causes disposal of, or
evaluation of the net asset value of, portfolio securities to be unreasonable or
impracticable, or (iii) for such other periods as the Securities and Exchange
Commission may permit.
With respect to the securities offered by the Prospectus, this
Statement of Additional Information and the Prospectus do not contain all the
information included in the Registration Statement filed with the Securities and
Exchange Commission under the Securities Act of 1933. Pursuant to the rules and
regulations of the Securities and Exchange Commission, certain portions have
been omitted. The Registration Statement including the exhibits filed therewith
may be examined at the office of the Securities and Exchange Commission in
Washington, D.C.
Statements contained in this Statement of Additional Information and
the Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement. Each such statement is qualified in all respects by such reference.
FINANCIAL STATEMENTS
=============================================================================
The Annual Report of the Fund dated October 31, 1997 has been filed
with the Securities and Exchange Commission pursuant to Section 30(b) of the
1940 Act and Rule 30b2-1 thereunder and is hereby incorporated herein by
reference. A copy of the Annual Report will be provided without charge to each
person receiving this Statement of Additional Information.
WS5128K
27
<PAGE>
===============================================================================
STATEMENT OF ADDITIONAL INFORMATION
THE 59 WALL STREET EUROPEAN EQUITY FUND
THE 59 WALL STREET PACIFIC BASIN EQUITY FUND
6 St. James Avenue, Boston, Massachusetts 02116
===============================================================================
The 59 Wall Street European Equity Fund (the "European Equity Fund")
and The 59 Wall Street Pacific Basin Equity Fund (the "Pacific Basin Equity
Fund") (each a "Fund" and collectively the "Funds") are separate portfolios of
The 59 Wall Street Fund, Inc. (the "Corporation"), a management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"). Each Fund is designed to enable investors to participate in the
opportunities available in foreign equity markets. The investment objective of
each Fund is to provide investors with long-term maximization of total return,
primarily through capital appreciation. There can be no assurance that a Fund's
investment objective will be achieved.
Brown Brothers Harriman & Co. is each Fund's investment adviser (the
"Investment Adviser"). This Statement of Additional Information is not a
prospectus and should be read in conjunction with the Prospectus dated February
27, 1998, a copy of which may be obtained from the Corporation at the address
noted above.
Table of Contents
Cross-Reference to
Page in
Page Prospectus
Investment Objective and Policies . . . . . 2 6-11
Investment Restrictions . . . . . . . . 5 11
Directors and Officers . . . . . . . . . 8 13
Investment Adviser . . . . . . . . . . 10 13-14
Administrator . . . . . . . . . . . . 12 15
Distributor . . . . . . . . . . . . 12 16
Financial Intermediaries . . . . . . . . 13 15-16
Net Asset Value; Redemption in Kind . . . . 13 17
Computation of Performance . . . . . . . 14 20
Federal Taxes . . . . . . . . . . . . 15 18-19
Description of Shares . . . . . . . . . 18 19-20
Portfolio Transactions . . . . . . . . . 19 9-10
<PAGE>
Additional Information . . . . . . . . . 21 20
Financial Statements . . . . . . . . . 21 4-5
The date of this Statement of Additional Information is February
27, 1998.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
===============================================================================
The following supplements the information contained in the Prospectus
concerning the investment objective, policies and techniques of each Fund.
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 Funds 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. For the sole purpose of reducing risk, put and call
options on stocks may be purchased for a Fund, although in each case the current
intention is not to do so in such a manner that more than 5% of a Fund'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 a Fund at any time prior to the expiration of the
option which involves selling the option previously purchased.
Covered call options may also be sold (written) on stocks for a Fund,
although in each case the current intention is not to
4
<PAGE>
do so. A call option is "covered" if the writer owns the underlying security.
Options on Stock Indexes. A stock index fluctuates with changes in the
market values of the stocks included in the index. Examples of stock indexes are
the Standard & Poor's 500 Stock Index (Chicago Board of Options Exchange), the
New York Stock Exchange Composite Index (New York Stock Exchange), The Financial
Times-Stock Exchange 100 (London Traded Options Market), the Nikkei 225 Stock
Average (Osaka Securities Exchange) and Tokyo Stock Price Index (Tokyo Stock
Exchange).
Options on stock indexes are generally similar to options on stock
except that the delivery requirements are different. Instead of giving the right
to take or make delivery of stock at a fixed price ("strike price"), an option
on a stock index gives the holder the right to receive a cash "exercise
settlement amount" equal to (a) the amount, if any, by which the strike price of
the option exceeds (in the case of a put) or is less than (in the case of a
call) the closing value of the underlying index on the date of exercise,
multiplied by (b) a fixed "index multiplier". Receipt of this cash amount
depends upon the closing level of the stock index upon which the option is based
being greater than, in the case of a call, or less than, in the case of a put,
the price of the option. The amount of cash received is equal to such difference
between the closing price of the index and the strike price of the option
expressed in U.S. dollars or a foreign currency, as the case may be, times a
specified multiple.
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 a Fund 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 a Fund is subject to the Investment Adviser's
ability both to select an appropriate index and to predict future price
movements over the short term in the overall stock market. Brokerage costs are
incurred in the purchase of stock index options and the incorrect choice of an
index or an incorrect assessment of future price movements may result in poorer
overall performance than if a stock index option had not been purchased.
Options on Currencies. A call option on a currency gives the purchaser
of the option the right to buy the underlying currency at a fixed price, either
at any time during the option period (American style) or on the expiration date
(European style). Similarly, a put option gives the purchaser of the option the
right to sell the underlying currency at a fixed price, either at any time
during the option period or on the expiration date. To liquidate a put or call
option position, a "closing sale transaction" may be made for a Fund at any time
prior to the expiration of the option, such a transaction
5
<PAGE>
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 a Fund 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 a Fund 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.
Loans of Portfolio Securities
Securities of a Fund 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 that Fund at least equal at all
times to 100% of the market value of the securities loaned plus accrued income.
While such securities are on loan, the borrower pays a Fund any income accruing
thereon, and cash collateral may be invested for that Fund, thereby earning
additional income. All or any portion of interest earned on invested collateral
may be paid to the borrower. Loans are subject to termination by the Corporation
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 Fund
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 a Fund. Securities of a Fund are not
loaned to Brown Brothers Harriman & Co. or to any affiliate of the Corporation
or Brown Brothers Harriman & Co.
Short-Term Investments
Although it is intended that the assets of each Fund stay invested in
the securities described above and in the Prospectus to the extent practical in
light of that Fund's investment objective and long-term investment perspective,
a Fund's assets may be invested in short-term instruments to meet anticipated
expenses or for day-to-day operating purposes and when, in the
6
<PAGE>
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 a Fund experiences large cash inflows through issuance of new
shares or the sale of portfolio securities, and desirable equity securities that
are consistent with that Fund's investment objective are unavailable in
sufficient quantities, assets of that Fund 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. (See clause (vi) under the caption "State
and Federal Restrictions".) At the time a Fund'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 short-term instruments, including U.S. dollar
denominated repurchase agreements.
Repurchase Agreements. Repurchase agreements may be entered into for a
Fund 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 a Fund 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 a Fund 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. A Fund 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 that
Fund in each agreement along with accrued interest. Payment for such
7
<PAGE>
securities is made for that Fund 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, a Fund 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 a Fund may be delayed or limited in certain
circumstances.
INVESTMENT RESTRICTIONS
===============================================================================
Each Fund 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 that Fund's outstanding voting securities" (as defined
in the 1940 Act). (See "Additional Information".)
Except that the Corporation may invest all of each Fund's assets in an
open-end investment company with substantially the same investment objective,
policies and restrictions as the Fund, the Corporation, with respect to the
Funds, 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 redemption of
Fund shares 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,
8
<PAGE>
ownership, holding or sale of futures;
(3) write, purchase or sell any put or call option or any combination
thereof, provided that this shall not prevent (i) the purchase, ownership,
holding or sale of warrants where the grantor of the warrants is the issuer of
the underlying securities, or (ii) the purchase, ownership, holding or sale of
futures and options, other than the writing of put options;
(4) underwrite securities issued by other persons except insofar as it
may technically be deemed an underwriter under the Securities Act of 1933, as
amended, 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
9
<PAGE>
purposes; such sales would not be made of securities subject to
outstanding options);
(9) concentrate its investments in any particular industry, but if it
is deemed appropriate for the achievement of its investment objective, up to 25%
of its assets, at market value at the time of each investment, may be invested
in any one industry, except that positions in futures or option contracts shall
not be subject to this restriction;
(10) issue any senior security (as that term is defined in the 1940
Act) if such issuance is specifically prohibited by the 1940 Act or the rules
and regulations promulgated thereunder, provided that collateral arrangements
with respect to options and futures, including deposits of initial deposit and
variation margin, are not considered to be the issuance of a senior security for
purposes of this restriction; or
(11) invest more than 5% of its total assets in the securities or
obligations of any one issuer (other than U.S. Government obligations) or more
than 10% of its total assets in the outstanding voting securities of any one
issuer; provided, however, that up to 25% of its total assets may be invested
without regard to this restriction, and provided further, that neither Fund
shall be subject to this restriction.
Non-Fundamental Restrictions. The Corporation, on behalf of each Fund,
may not as a matter of operating policy (except that the Corporation may invest
all of each Fund's assets in an open-end investment company with substantially
the same investment objective, policies and restrictions as the Fund): (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; or (ii) invest more than 10% of its net assets (taken at
10
<PAGE>
the greater of cost or market value) in restricted securities . These policies
are not fundamental and may be changed for a Fund without shareholder 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 the Prospectus 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.
DIRECTORS AND OFFICERS
===============================================================================
The Directors and executive officers of the Corporation, their
principal occupations during the past five years (although
11
<PAGE>
their titles may have varied during the period) and business
addresses are:
DIRECTORS OF THE CORPORATION
J.V. SHIELDS, JR.* -- Chairman of the Board and Director; Trustee of
The 59 Wall Street Trust; Managing Director, Chairman and Chief Executive
Officer of Shields & Company; Chairman and Chief Executive Officer of Capital
Management Associates, Inc.; Director of Flowers Industries, Inc.(1) His
business address is Shields & Company, 140 Broadway, New York, NY 10005.
EUGENE P. BEARD** -- Director; Trustee of The 59 Wall Street Trust
(since April 1993); Vice Chairman - 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** -- Director; Trustee of The 59 Wall Street Trust;
Retired; Chairman and Chief Executive Officer - AT&T Investment Management
Corporation (prior to October 1997); Director of Dreyfus Mutual Funds, Equity
Fund of Latin America, New World Balanced Fund, India Magnum Fund, and U.S.
Prime Properties Inc.; Trustee of Corporate Property Investors. His business
address is 3 Tall Oaks Drive, Warren, NJ 07059.
ALAN G. LOWY** -- Director; Trustee of The 59 Wall Street Trust (since
April 1993); 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** -- Director; Trustee of The 59 Wall Street
Trust; Vice President and Chief Financial Officer of Richard K. Mellon and Sons;
Treasurer of Richard King Mellon Foundation; Director of Vought Aircraft
Corporation (prior to September 1994), Caterair International (prior to April
1994); Member of Advisory Committee of Carlyle Group and Pittsburgh Seed Fund
and Valuation Committee of Morgenthaler Venture Funds(2). His business address
is Richard K. Mellon and Sons, P.O. Box RKM, Ligonier, PA 15658.
OFFICERS OF THE CORPORATION
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") (since June 1993).
JAMES E. HOOLAHAN -- Vice President; Senior Vice President of SFG.
JOHN R. ELDER -- Treasurer; Vice President of SFG (since April 1995);
Treasurer of Phoenix Family of Mutual Funds (prior to April 1995).
12
<PAGE>
LINDA T. GIBSON -- Secretary, Vice President and Assistant Secretary of
SFG (since June 1991); Assistant Secretary of 59 Wall Street Distributors and 59
Wall Street Administrators (since June 1993) .
MOLLY S. MUGLER -- Assistant Secretary; Legal Counsel and Assistant
Secretary of SFG; Assistant Secretary of 59 Wall Street Distributors and 59 Wall
Street Administrators (since June 1993).
CHRISTINE A. DRAPEAU - Assistant Secretary; Assistant Vice President of
SFG (since January 1996); Paralegal and Compliance Officer, various financial
companies (July 1992 to January 1996); Graduate Student, Bentley College (prior
to December 1994).
- -------------------------
* Mr. Shields is an "interested person" of the Corporation
because of his affiliation with a registered broker-dealer.
** These Directors are members of the Audit Committee of the
Corporation.
(1) 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.
(2) Richard K. Mellon and Sons, Richard King Mellon Foundation, Vought
Aircraft Corporation, Caterair International, The Carlyle Group and
Morgenthaler Venture Funds, with which Mr. Miltenberger is or has been
associated, are a private foundation, a private foundation, a business
development firm, an aircraft manufacturer, an airline food services
company, a merchant bank, and a venture capital partnership,
respectively.
Each Director and officer listed above holds the equivalent position
with The 59 Wall Street Trust. The address of each officer is 6 St. James
Avenue, Boston, Massachusetts 02116. Messrs. Coolidge, Hoolahan and Elder and
Mss. Gibson , Mugler and Drapeau also hold similar positions with other
investment companies for which affiliates of 59 Wall Street Distributors serve
as the principal underwriter.
Except for Mr. Shields, no Director is an "interested person" of the
Corporation as that term is defined in the 1940 Act.
Directors of the Corporation
The Directors of the Corporation receive a base annual fee of $15,000
(except the Chairman who receives a base annual fee of $20,000) which is paid
jointly by all series of the Corporation
13
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Pension or Total
Retirement Compensation
Aggregate Benefits Accrued Estimated Annual from the Corporation
Name of Person, Compensation as Part of Benefits upon and Fund Complex*
POSITION FROM THE CORPORATION FUND EXPENSES RETIREMENT PAID TO DIRECTORS
J.V. Shields, Jr., $10,822 none none $28,500
Trustee
Eugene P. Beard, $ 9,492 none none 23,500
Trustee
David P. Feldman, $ 9,492 none none 23,500
Trustee
Alan G. Lowy, $ 9,492 none none 23,500
Trustee
Arthur D. Miltenberger, $ 9,492 none none 23,500
Trustee
</TABLE>
* The Fund Complex consists of the Corporation and The 59 Wall Street Trust
which currently consists of three series .
14
<PAGE>
By virtue of the responsibilities assumed by Brown Brothers Harriman &
Co. under the Investment Advisory Agreement and the Administration Agreement
(see "Investment Adviser" and "Administrator"), the Corporation itself requires
no employees other than its officers, and none of its officers devote full time
to the affairs of the Corporation or, other than the Chairman, receive any
compensation from a Fund.
As of January 31, 1998, the Corporation's Directors and officers as a
group beneficially owned less than 1% of the outstanding shares of the
Corporation. At the close of business on that date, no person, to the knowledge
of the management, owned beneficially more than 5% of the outstanding shares of
a Fund except that Moose International owned 102,735 (2.5%) shares of the
Pacific Basin Equity Fund. However, as of that date, partners of Brown Brothers
Harriman & Co. and their immediate families owned 80,894 (2.0%) and 50,856
(1.2%) shares, respectively, of the European Equity Fund and the Pacific Basin
Equity Fund. Also, Brown Brothers Harriman & Co. Employee Pension Plan on that
date held 362,611 (8.9%) and 214,047 (5.1%) shares, respectively, of the
European Equity Fund and the Pacific Basin Equity Fund. Brown Brothers Harriman
& Co. and its affiliates separately are able to direct the disposition of an
additional 2,175,696 (53.6%) and 1,190,499 (28.5%) shares, respectively, of the
European Equity Fund and the Pacific Basin Equity Fund, as to which shares Brown
Brothers Harriman & Co. disclaims beneficial ownership.
INVESTMENT ADVISER
================================================================================
Under its Investment Advisory Agreement with the Corporation, subject
to the general supervision of the Corporation's Directors and in conformance
with the stated policies of each Fund, Brown Brothers Harriman & Co. provides
investment advice and portfolio management services to each Fund.
In this regard, it is the responsibility of Brown Brothers Harriman & Co. to
make the day-to-day investment decisions for each Fund, to place the purchase
and sale orders for the portfolio transactions of each Fund and to manage,
generally, each Fund's investments.
The Investment Advisory Agreement between Brown Brothers Harriman & Co.
and the Corporation is dated September 5, 1990 as amended and restated November
1, 1993. The agreement remains in effect for two years from its date and
thereafter, but only so long as such agreement is specifically approved with
respect to each Fund at least annually (i) by a vote of the holders of a
"majority of that Fund's outstanding voting securities" (as defined in the 1940
Act) or by the Corporation's Directors, and (ii) by a vote of a majority of the
Directors of the Corporation who are not parties to that Investment Advisory
Agreement or "interested persons" (as defined in the 1940 Act) of the
Corporation ("Independent Directors"), cast in person at a meeting called for
the purpose of voting on such approval. The Investment Advisory Agreement was
most recently approved by the Independent Directors on December 17, 1997. The
Investment Advisory Agreement terminates automatically if assigned and is
terminable with respect to each Fund at any time without penalty by a vote of a
majority of the Directors of the Corporation or by a vote of the holders of a
"majority of that Fund's outstanding voting securities" (as defined in the 1940
Act) on 60 days' written notice to Brown Brothers Harriman &
15
<PAGE>
Co. and by Brown Brothers Harriman & Co. on 90 days' written notice to the
Corporation. (See "Additional Information".)
With respect to the European Equity Fund, the investment advisory fee
paid to the Investment Adviser is calculated daily and paid monthly at an annual
rate equal to 0.65% of that Fund's average daily net assets. For the fiscal
years ended October 31, 1995, 1996 and 1997, the Fund incurred $715,205 ,
$847,451 and $1,012,388, respectively, for advisory services.
With respect to the Pacific Basin Equity Fund, the investment advisory
fee paid to the Investment Adviser is calculated daily and paid monthly at an
annual rate equal to 0.65% of that Fund's average daily net assets. For the
fiscal years ended October 31, 1995, 1996 and 1997, the Fund incurred $695,032 ,
$924,243 and $931,879, respectively, for advisory services.
The Glass-Steagall Act prohibits certain financial institutions from
engaging in the business of underwriting, selling or distributing securities and
from sponsoring, organizing or controlling a registered open-end investment
company continuously engaged in the issuance of its shares, such as the Funds.
There is presently no controlling precedent prohibiting financial institutions
such as Brown Brothers Harriman & Co. from performing investment advisory,
administrative or shareholder servicing/eligible institution functions. If Brown
Brothers Harriman & Co. were to terminate its Investment Advisory Agreement with
the Corporation or were prohibited from acting in such capacity, it is expected
that the Directors would recommend to the shareholders that they approve a new
investment advisory agreement for each Fund with another qualified adviser. If
Brown Brothers Harriman & Co. were to terminate its Eligible Institution
Agreement or Administration Agreement with the Corporation or were prohibited
from acting in any such capacity, its customers would be permitted to remain
shareholders of the Corporation and alternative means for providing shareholder
services or administrative services, as the case may be, would be sought. In
such event, although the operation of the Corporation might change, it is not
expected that any shareholders would suffer any adverse financial consequences.
However, an alternative means of providing shareholder services might afford
less convenience to shareholders.
ADMINISTRATOR
================================================================================
The Administration Agreement between the Corporation and
Brown Brothers Harriman & Co. (dated November 1, 1993) will
remain in effect for two years from such date and thereafter, but
16
<PAGE>
only so long as such agreement is specifically approved at least annually in the
same manner as the Investment Advisory Agreement. (See "Investment Adviser".)
The Independent Directors most recently approved the Corporation's
Administration Agreement on December 17, 1997. The agreement will terminate
automatically if assigned by either party thereto and is terminable with respect
to each Fund at any time without penalty by a vote of a majority of the
Directors of the Corporation or by a vote of the holders of a "majority of the
Corporation's outstanding voting securities" (as defined in the 1940 Act). (See
"Additional Information".) The Administration Agreement is terminable by the
Corporation's Directors or shareholders of the Corporation on 60 days' written
notice to Brown Brothers Harriman & Co. and by Brown Brothers Harriman & Co. on
90 days' written notice to the Corporation.
The administrative fee payable to Brown Brothers Harriman & Co. from
each Fund is calculated daily and payable monthly at an annual rate equal to
0.15% of each Fund's average daily net assets. Prior to November 1, 1993, 59
Wall Street Distributors served as administrator for the Corporation and was
paid monthly at an annual rate equal to 0.05% of each Fund's average daily net
assets. For the fiscal years ended October 31, 1995, 1996 and 1997, the European
Equity Fund incurred $165,044, $195,566 and $233,628, respectively, for
administrative services. For the fiscal years ended October 31, 1995 , 1996 and
1997, the Pacific Basin Equity Fund incurred $160,392, $213,287 and $215,035,
respectively, for administrative services.
DISTRIBUTOR
================================================================================
The Distribution Agreement (dated September 5, 1990, as amended and
restated February 12, 1991) between the Corporation and 59 Wall Street
Distributors remains in effect indefinitely, but only so long as such agreement
is specifically approved at least annually in the same manner as the Investment
Advisory Agreement. (See "Investment Adviser".) The Distribution Agreement was
most recently approved by the Independent Directors of the Corporation on
February 24, 1998. The agreement terminates automatically if assigned by either
party thereto and is terminable with respect to each Fund at any time without
penalty by a vote of a majority of the Directors of the Corporation or by a vote
of the holders of a "majority of each Fund's outstanding voting securities" (as
defined in the 1940 Act). (See "Additional Information".) The Distribution
Agreement is terminable with respect to each Fund by the Corporation's Directors
or shareholders of the Fund on 60 days' written notice to 59 Wall Street
Distributors. The agreement is
17
<PAGE>
terminable by 59 Wall Street Distributors on 90 days' written notice to the
Corporation.
FINANCIAL INTERMEDIARIES
================================================================================
One or more brokers which serve as Financial Intermediaries have been
authorized by the Corporation to accept purchase and redemption orders for Fund
shares on its behalf and are authorized to designate other intermediaries to
accept purchase and redemption orders for Fund shares on the Corporation's
behalf. The Corporation will be deemed to have received a purchase or redemption
order for Fund shares when an authorized broker or, if applicable, such broker's
authorized designee, accepts the order and such an order will be executed at the
net asset value per share next determined after such acceptance.
NET ASSET VALUE; REDEMPTION IN KIND
================================================================================
The net asset value of each of a Fund's shares is determined each day
the New York Stock Exchange is open for regular trading and New York banks are
open for business. (As of the date of this Statement of Additional Information,
such Exchange and banks are so open every weekday except for the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas.) This determination of net asset value of each share of a Fund is
made once during each such day as of the close of regular trading on such
Exchange by subtracting from the value of the Fund's total assets the amount of
its liabilities, and dividing the difference by the number of shares of that
Fund outstanding at the time the determination is made.
The value of investments listed on a domestic securities exchange is
based on the last sale prices as of the regular close of the New York Stock
Exchange (which is currently 4:00 P.M., New York time) or, in the absence of
recorded sales, at the average of readily available closing bid and asked prices
on such Exchange. Securities listed on a foreign exchange are valued at the last
quoted sale price available before the time at which net assets are valued.
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.
18
<PAGE>
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 Corporation's
Directors. Such procedures include the use of independent pricing services,
which use prices based upon yields or prices of securities of comparable
quality, coupon, maturity and type; indications as to values from dealers; and
general market conditions. Short-term investments which mature in 60 days or
less are valued at amortized cost if their original maturity was 60 days or
less, or by amortizing their value on the 61st day prior to maturity, if their
original maturity when acquired for a Fund was more than 60 days, unless this is
determined not to represent fair value by the Directors.
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 a Fund'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 Corporation's Directors.
Subject to the Corporation's compliance with applicable regulations,
the Corporation has reserved the right to pay the redemption price of shares of
a Fund, either totally or partially, by a distribution in kind of portfolio
securities (instead of cash). The securities so distributed would be valued at
the same amount as that assigned to them in calculating the net asset value for
the shares being sold. If a shareholder received a distribution in kind, the
shareholder could incur brokerage or other charges in converting the securities
to cash. The Corporation has elected, however, to be governed by Rule 18f-1
under the 1940 Act, as a result of which the Corporation is obligated with
respect to any one investor during any 90 day period to redeem shares of a Fund
solely in cash up to the lesser of $250,000 or 1% of that Fund's net assets at
the beginning of such 90 day period.
COMPUTATION OF PERFORMANCE
================================================================================
The average annual total return of a Fund is calculated for any period
by (a) dividing (i) the sum of the aggregate net asset value per share on the
last day of the period of shares purchased with a $1,000 payment on the first
day of the period and the aggregate net asset value per share on the last day of
the period of shares purchasable with dividends and capital gains distributions
declared during such period with respect to shares purchased on the first day of
such period and with respect to
19
<PAGE>
shares purchased with such dividends and capital gains distributions, by (ii)
$1,000, (b) raising the quotient to a power equal to 1 divided by the number of
years in the period, and (c) subtracting 1 from the result.
The total rate of return of a Fund for any specified period is
calculated by (a) dividing (i) the sum of the aggregate net asset value per
share on the last day of the period of shares purchased with a $1,000 payment on
the first day of the period and the aggregate net asset value per share on the
last day of the period of shares purchasable with dividends and capital gains
distributions declared during such period with respect to shares purchased on
the first day of such period and with respect to shares purchased with such
dividends and capital gains distributions, by (ii) $1,000, and (b) subtracting 1
from the result.
The annualized average rate of return for the European Equity Fund
and the Pacific Basin Equity Fund for the period November 1, 1990 (commencement
of operations) to October 31, 1997 was 11.63% and 4.77%, respectively. The
average annual rate of return for the European Equity Fund and the Pacific Basin
Equity Fund for the fiscal year ended October 31, 1997 was 17.28% and -16.03%,
respectively. The average annual rate of return for the European Equity Fund and
the Pacific Basin Equity Fund for the five-year period ended October 31, 1997
was 14.54% and 4.24%, respectively.
Performance calculations should not be considered a representation of
the average annual or total rate of return of a Fund in the future since the
rates of return are not fixed. Actual total rates of return and average annual
rates of return depend on changes in the market value of, and dividends and
interest received from, the investments held by a Fund and that Fund's expenses
during the period.
Total and average annual rate of return information may be useful for
reviewing the performance of a Fund and for providing a basis for comparison
with other investment alternatives. However, unlike bank deposits or other
investments which pay a fixed yield for a stated period of time, a Fund's total
rate of return fluctuates, and this should be considered when reviewing
performance or making comparisons.
FEDERAL TAXES
===============================================================================
Each year, the Corporation intends to continue to qualify each Fund and
elect that each Fund be treated as a separate "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). Under Subchapter M of the Code a Fund is not subject to federal income
20
<PAGE>
taxes on amounts distributed to shareholders.
Qualification as a regulated investment company under the Code
requires, among other things, that (a) at least 90% of a Fund's annual gross
income, without offset for losses from the sale or other disposition of
securities, be derived from interest, payments with respect to securities loans,
dividends and gains from the sale or other disposition of securities, foreign
currencies or other income derived with respect to its business of investing in
such securities; (b) less than 30% of a Fund's annual gross income be derived
from gains (without offset for losses) from the sale or other disposition of
securities held for less than three months; and (c) the holdings of a Fund be
diversified so that, at the end of each quarter of its fiscal year, (i) at least
50% of the market value of a Fund's assets be represented by cash, U.S.
Government securities and other securities limited in respect of any one issuer
to an amount not greater than 5% of that Fund's assets and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of a Fund's assets be invested in the securities of any one issuer (other
than U.S. Government securities). Foreign currency gains that are not directly
related to a Fund's business of investing in stock or securities is included in
the income that counts toward the 30% gross income requirement described above
but may be excluded by Treasury Regulations from income that counts toward the
90% of gross income requirement described above. In addition, in order not to be
subject to federal income tax, at least 90% of a Fund's net investment income
and net short-term capital gains earned in each year must be distributed to that
Fund's shareholders.
Under the Code, gains or losses attributable to foreign currency
contracts, or to fluctuations in exchange rates between the time a Fund accrues
income or receivables or expenses or other liabilities denominated in a foreign
currency and the time that Fund 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 a Fund, 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 a Fund 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 that Fund. 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 a Fund lapses or is terminated through a closing transaction, such
as a repurchase for that Fund of the option from its holder, that Fund
21
<PAGE>
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 a Fund pursuant to the exercise of a call option written
for it, the premium received would be added to the sale price of the securities
delivered in determining the amount of gain or loss on the sale. The requirement
that less than 30% of a Fund's gross income be derived from gains from the sale
of securities held for less than three months may limit the ability to write
options and engage in transactions involving stock index futures for a Fund.
Certain options contracts held for a Fund 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 that Fund has held such options. A
Fund 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.
If shares are purchased for a Fund in certain foreign investment
entities, referred to as "passive foreign investment companies", that Fund
itself may be subject to U.S. federal income tax, and an additional charge in
the nature of interest, on a portion of any "excess distribution" from such
company or gain from the disposition of such shares, even if the distribution or
gain is paid by that Fund as a dividend to its shareholders. If a Fund were able
and elected to treat a passive foreign investment company as a "qualified
electing fund", in lieu of the treatment described above, that Fund would be
required each year to include in income, and distribute to shareholders in
accordance with the distribution requirements set forth above, that Fund's pro
rata share of the ordinary earnings and net capital gains of the company,
whether or not distributed to that Fund.
22
<PAGE>
Return of Capital. If the net asset value of shares is reduced below a
shareholder's cost as a result of a dividend or capital gains distribution by a
Fund, such dividend or capital gains distribution would be taxable even though
it represents a return of invested capital.
Redemption of Shares. Any gain or loss realized on the redemption of
Fund shares by a shareholder who is not a dealer in securities would be treated
as long-term capital gain or loss if the shares have been held for more than one
year, and otherwise as short-term capital gain or loss. However, any loss
realized by a shareholder upon the redemption of Fund shares held one year or
less is treated as a long-term capital loss to the extent of any long-term
capital gains distributions received by the shareholder with respect to such
shares. Additionally, any loss realized on a redemption or exchange of Fund
shares is disallowed to the extent the shares disposed of are replaced within a
period
23
<PAGE>
of 61 days beginning 30 days before such disposition, such as pursuant to
reinvestment of a dividend or capital gains distribution in Fund shares.
Foreign Taxes. If the Corporation elects to treat foreign income taxes
paid from a Fund as paid directly by that Fund's shareholders, each Fund
shareholder would be required to include in income such shareholder's
proportionate share of the amount of foreign income taxes paid by that Fund and
would be entitled to claim either a credit or a deduction in such amount.
Shareholders who choose to utilize a credit (rather than a deduction) for
foreign taxes are subject to the limitation that the credit may not exceed the
shareholder's U.S. tax (determined without regard to the availability of the
credit) attributable to that shareholder's total foreign source taxable income.
For this purpose, the portion of dividends and capital gains distributions paid
from a Fund from its foreign source income is treated as foreign source income.
A Fund's gains and losses from the sale of securities are generally treated as
derived from U.S. sources, however, and certain foreign currency gains and
losses likewise are treated as derived from U.S. sources. The limitation on the
foreign tax credit is applied separately to foreign source "passive income",
such as the portion of dividends received from a Fund which qualifies as foreign
source income. In addition, the foreign tax credit is allowed to offset only 90%
of the alternative minimum tax imposed on corporations and individuals. Because
of these limitations, a shareholder may be unable to claim a credit for the full
amount of such shareholder's proportionate share of the foreign income taxes
paid from a Fund.
In certain circumstances foreign taxes imposed with respect to a Fund's
income may not be treated as income taxes imposed on that Fund. Any such taxes
would not be included in that Fund's income, would not be eligible to be "passed
through" to Fund shareholders, and would not be eligible to be claimed as a
foreign tax credit or deduction by Fund shareholders. In particular, in certain
circumstances it may not be clear whether certain amounts of taxes deducted from
gross dividends paid to a Fund would, for U.S. federal income tax purposes, be
treated as imposed on the issuing corporation rather than that Fund.
Other Taxes. A Fund may be subject to state or local taxes in
jurisdictions in which it is deemed to be doing business. In addition, the
treatment of a Fund and its shareholders in those states which have income tax
laws might differ from treatment under the federal income tax laws. Shareholders
should consult their own tax advisors with respect to any state or local taxes.
DESCRIPTION OF SHARES
================================================================================
The Corporation is an open-end management investment company
organized as a Maryland corporation on July 16, 1990. The
24
<PAGE>
Articles of Incorporation currently permit the Corporation to issue
2,500,000,000 shares of common stock, par value $0.001 per share, of which
25,000,000 shares have been classified as shares of the European Equity Fund and
25,000,000 as shares of Pacific Basin Equity Fund. The Corporation currently
consists of eight portfolios.
Shareholders are entitled to one vote for each share held on matters on
which they are entitled to vote. Shareholders in the Corporation do not have
cumulative voting rights, and shareholders owning more than 50% of the
outstanding shares of the Corporation may elect all of the Directors of the
Corporation if they choose to do so and in such event the other shareholders in
the Corporation would not be able to elect any Director. The Corporation is not
required and has no current intention to hold meetings of shareholders annually
but the Corporation will hold special meetings of shareholders when in the
judgment of the Corporation's Directors it is necessary or desirable to submit
matters for a shareholder vote. Shareholders have under certain circumstances
(e.g., upon application and submission of certain specified documents to the
Directors by a specified number of shareholders) the right to communicate with
other shareholders in connection with requesting a meeting of shareholders for
the purpose of removing one or more Directors. Shareholders also have the right
to remove one or more Directors without a meeting by a declaration in writing by
a specified number of shareholders. Shares have no preference, pre-emptive,
conversion or similar rights. Shares, when issued, are fully paid and
non-assessable.
Stock certificates are not issued by the Corporation.
The Articles of Incorporation of the Corporation contain a provision
permitted under Maryland Corporation Law which under certain circumstances
eliminates the personal liability of the Corporation's Directors to the
Corporation or its shareholders.
The Articles of Incorporation and the By-Laws of the Corporation
provide that the Corporation indemnify the Directors and officers of the
Corporation to the full extent permitted by the Maryland Corporation Law, which
permits indemnification of such persons against liabilities and expenses
incurred in connection with litigation in which they may be involved because of
their offices with the Corporation. However, nothing in the Articles of
Incorporation or the By-Laws of the Corporation protects or indemnifies a
Director or officer of the Corporation against any liability to the Corporation
or its shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
The Corporation may, in the future, seek to achieve each Fund's
investment objective by investing all of the Fund's investable assets in a
no-load, open-end management investment
25
<PAGE>
company having substantially the same investment objective as those applicable
to the Fund. In such event, the Fund would no longer directly require investment
advisory services and therefore would pay no investment advisory fees. Further,
the administrative services fee paid from the Fund would be reduced. At a
shareholder's meeting held on September 23, 1993, each Fund's shareholders
approved changes to the investment restrictions to authorize such an investment.
Such an investment would be made only if the Directors believe that the
aggregate per share expenses of each Fund and such other investment company
would be less than or approximately equal to the expenses which the Fund would
incur if the Corporation were to continue to retain the services of an
investment adviser for the Fund and the assets of the Fund were to continue to
be invested directly in portfolio securities.
It is expected that the investment in another investment company will
have no preference, preemptive, conversion or similar rights, and will be fully
paid and non-assessable. It is expected that the investment company will not be
required to hold annual meetings of investors, but will hold special meetings of
investors when, in the judgment of its trustees, it is necessary or desirable to
submit matters for an investor vote. It is expected that each investor will be
entitled to a vote in proportion to the share of its investment in such
investment company. Except as described below, whenever the Corporation is
requested to vote on matters pertaining to the investment company, the
Corporation would hold a meeting of each Fund's shareholders and would cast its
votes on each matter at a meeting of investors in the investment company
proportionately as instructed by the Fund's shareholders.
PORTFOLIO TRANSACTIONS
================================================================================
In effecting securities transactions for a Fund, the Investment Adviser
seeks to obtain the best price and execution of orders. In selecting a broker,
the Investment Adviser considers a broker's ability to execute orders without
disturbing the market price, a broker's reliability for prompt, accurate
confirmations and on-time delivery of securities, and the quality and
reliability of brokerage services, including execution capability and
performance and financial responsibility, and may consider the research and
other investment information provided by such brokers. Accordingly, the
commissions charged by a broker may be greater than the amount another firm
might charge if the Investment Adviser determines in good faith that the amount
of such commissions is reasonable in relation to the value of the brokerage
services and research information provided by that broker.
26
<PAGE>
For the fiscal year ended October 31, 1995, the aggregate commissions
paid by the European Equity Fund and the Pacific Basin Equity Fund were $315,790
and $533,000, respectively. For the fiscal year ended October 31, 1996, the
aggregate commissions paid by the European Equity Fund and the Pacific Basin
Equity Fund were $262,804 and $542,629, respectively. For the fiscal year ended
October 31, 1997, the aggregate commissions paid by the European Equity Fund and
the Pacific Basin Equity Fund were $625,439 and $669,481, respectively.
Portfolio securities are not purchased from or sold to the
Administrator, Distributor or Investment Adviser or any "affiliated person" (as
defined in the 1940 Act) of the Administrator, Distributor or Investment Adviser
when such entities are acting as principals, except to the extent permitted by
law.
All of the transactions for the Funds 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 Funds. The Investment Adviser believes that
the value of research services received is not determinable nor does such
research significantly reduce its expenses. The Corporation does not reduce the
fee paid by a Fund 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 Directors of the Corporation review regularly the reasonableness of
commissions and other transaction costs incurred for the Funds 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.
27
<PAGE>
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 Corporation 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 Corporation 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 Corporation 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.
ADDITIONAL INFORMATION
================================================================================
As used in this Statement of Additional Information and the Prospectus,
the term "majority of a Fund's outstanding voting securities" (as defined in the
1940 Act) currently means the vote of (i) 67% or more of that Fund's shares
present at a meeting, if the holders of more than 50% of the outstanding voting
securities of that Fund are present in person or represented by proxy; or (ii)
more than 50% of that Fund's outstanding voting securities, whichever is less.
Fund shareholders receive semi-annual reports containing unaudited
financial statements and annual reports containing financial statements audited
by independent auditors.
A shareholder's right to receive payment with respect to any redemption
may be suspended or the payment of the redemption proceeds postponed: (i) during
periods when the New York Stock Exchange is closed for other than weekends and
holidays or when regular trading on such Exchange is restricted as determined by
the Securities and Exchange Commission by rule or regulation, (ii) during
periods in which an emergency exists which causes disposal of, or evaluation of
the net asset value of, a Fund's portfolio securities to be unreasonable or
impracticable, or (iii) for such other periods as the Securities and Exchange
Commission may permit.
With respect to the securities offered by the Prospectus, this
Statement of Additional Information and the Prospectus do not contain all the
information included in the Registration Statement filed with the Securities and
Exchange Commission under
28
<PAGE>
the Securities Act of 1933. Pursuant to the rules and regulations of
the Securities and Exchange Commission, certain portions have been omitted. The
Registration Statement including the exhibits filed therewith may be examined at
the office of the Securities and Exchange Commission in Washington, D.C.
Statements contained in this Statement of Additional Information and
the Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement.
Each such statement is qualified in all respects by such reference.
FINANCIAL STATEMENTS
================================================================================
The Annual Report of the Funds dated October 31, 1997 has been filed
with the Securities and Exchange Commission pursuant to Section 30(b) of the
1940 Act and Rule 30b2-1 thereunder and is hereby incorporated herein by
reference. A copy of the Annual Report will be provided, without charge, to each
person receiving this Statement of Additional Information.
WS5306D
29
