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STATEMENT OF ADDITIONAL INFORMATION
THE 59 WALL STREET INTERNATIONAL EQUITY FUND
THE 59 WALL STREET EMERGING MARKETS FUND
6 ST. JAMES AVENUE, BOSTON, MASSACHUSETTS 02116
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The 59 Wall Street International Equity Fund (the "International Equity
Fund") and The 59 Wall Street Emerging Markets Fund (the "Emerging Markets
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"). The International Equity Fund is designed to enable investors to
participate in the opportunities available in equity markets outside the United
States and Canada. The Emerging Markets Fund is designed to enable investors to
participate in the opportunities available in emerging markets. The investment
objective of each 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
International Equity Fund by investing all of that Fund's assets in the
International Equity Portfolio, an open-end investment company having the same
investment objective as that Fund. The Corporation seeks to achieve the
investment objective of the Emerging Markets Fund by investing all of that
Fund's assets in the Emerging Markets Portfolio, an open-end investment company
having the same investment objective as that Fund. There can be no assurance
that the investment objective of each Fund will be achieved.
Brown Brothers Harriman & Co. is the investment adviser (the
"Investment Adviser") for each Portfolio. This Statement of Additional
Information is not a prospectus and should be read in conjunction with the
Prospectus dated January 7, 1998, a copy of which may be obtained from the
Corporation at the address noted above.
TABLE OF CONTENTS
CROSS-REFERENCE TO
PAGE PAGE IN PROSPECTUS
Investment Objective and Policies . . . 2 5
Investment Restrictions . . . . . . 6 10
Directors, Trustees and Officers . . . 8 12
Investment Adviser . . . . . . . . 13 13
Administrators. . . . . . . . . . 14 14
Distributor . . . . . . . . . . 14 17
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Financial Intermediaries . . . 15 16
Net Asset Value; Redemption in Kind . . . 15 17
Computation of Performance . . . . . . 16 21
Federal Taxes . . . . . . . . . . . 17 18
Description of Shares . . . . . . . . 20 19
Portfolio Transactions . . . . . . . . 21 8
Additional Information . . . . . . . . 22 21
Financial Statements . . . . . . . . 23 5
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS
JANUARY 7, 1998.
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INVESTMENT OBJECTIVE AND POLICIES
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The following supplements the information contained in the Prospectus
concerning the investment objective, policies and techniques of each 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.
DOMESTIC INVESTMENTS
The assets of the Portfolios 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
OPTIONS ON STOCK. For the sole purpose of reducing risk, put and call
options on stocks may be purchased for a Portfolio, although the current
intention is not to do so in such a manner that more than 5% of a Portfolio's
net assets would be at risk. A call option on a stock gives the purchaser of the
option the right to buy the underlying stock at a fixed price at any time during
the option period. Similarly, a put option gives the purchaser of the option the
right to sell the underlying stock at a fixed price at any time during the
option period. To liquidate a put or call option position, a "closing sale
transaction" may be made at any time prior to the expiration of the option which
involves selling the option previously purchased.
Covered call options may also be sold (written) on stocks, although in
each case the current intention is not to do so. A call option is "covered" if
the writer owns the underlying security.
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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 being hedged correlate with price movements of the stock
index selected. The value of an index option depends upon future movements in
the level of the overall stock market measured by the underlying index before
the expiration of the option. Accordingly, the successful use of options on
stock indexes is subject to the Investment Adviser's ability both to select an
appropriate index and to predict future price movements over the short term in
the overall stock market. Brokerage costs are incurred in the purchase of stock
index options and the incorrect choice of an index or an incorrect assessment of
future price movements may result in poorer overall performance than if a stock
index option had not been purchased.
OPTIONS ON CURRENCIES. A call option on a currency gives the purchaser of the
option the right to buy the underlying currency at a fixed price, either at any
time during the option period (American style) or on the expiration date
(European style). Similarly, a put option gives the purchaser of the option the
right to sell the underlying currency at a fixed price, either at any time
during the option period or on the expiration date. To liquidate a put or call
option position, a "closing sale transaction" may be made for a Portfolio at any
time prior to the expiration of the option, such a transaction involves selling
the option previously purchased. Options on currencies are traded both on
recognized exchanges (such as the Philadelphia Options
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Exchange) and over-the-counter.
The value of a currency option purchased depends upon future changes in the
value of that currency before the expiration of the option. Accordingly, the
successful use of options on currencies is subject to the Investment Adviser's
ability to predict future changes in the value of currencies over the short
term. Brokerage costs are incurred in the purchase of currency options and an
incorrect assessment of future changes in the value of currencies may result in
a poorer overall performance than if such a currency had not been purchased.
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FOREIGN EXCHANGE CONTRACTS
Foreign exchange contracts are made with currency dealers, usually
large commercial banks and financial institutions. Although foreign exchange
rates are volatile, foreign exchange markets are generally liquid with the
equivalent of approximately $500 billion traded worldwide on a typical day.
While each Portfolio may enter into foreign currency exchange
transactions to reduce the risk of loss due to a decline in the value of the
hedged currency, these transactions also tend to limit the potential for gain.
Forward foreign exchange contracts do not eliminate fluctuations in the prices
of a Portfolio's securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline. The precise matching of the forward
contract amounts and the value of the securities involved is not generally
possible because the future value of such securities in foreign currencies
changes as a consequence of market movements in the value of such securities
between the date the forward contract is entered into and the date it matures.
The projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly unlikely.
LOANS OF PORTFOLIO SECURITIES
Securities of each Portfolio may be loaned if such loans are secured
continuously by cash or equivalent short-term liquid securities as collateral or
by an irrevocable letter of credit in favor of that Portfolio at least equal at
all times to 100% of the market value of the securities loaned plus accrued
income. While such securities are on loan, the borrower pays the Portfolio any
income accruing thereon, and cash collateral may be invested for that 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 a 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
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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 Portfolio. Securities are not loaned to Brown Brothers
Harriman & Co. or to any affiliate of the Corporation, the Portfolios or Brown
Brothers Harriman & Co.
SHORT-TERM INVESTMENTS
Although it is intended that the assets of each Portfolio stay invested
in the securities described above and in the Prospectus to the extent practical
in light of that Portfolio's investment objective and long-term investment
perspective, each Portfolio's assets may be invested in short-term instruments
to meet anticipated expenses or for day-to-day operating purposes and when, in
the Investment Adviser's opinion, it is advisable to adopt a temporary defensive
position because of unusual and adverse conditions affecting the equity markets.
In addition, when a Portfolio experiences large cash inflows through additional
investments by its investors or the sale of portfolio securities, and desirable
equity securities that are consistent with its investment objective are
unavailable in sufficient quantities, assets may be held in short-term
investments for a limited time pending availability of such equity securities.
Short-term instruments consist of foreign and domestic: (i) short-term
obligations of sovereign governments, their agencies, instrumentalities,
authorities or political subdivisions; (ii) 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, fixed 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 Portfolio's assets are invested in commercial paper, bank obligations or
repurchase agreements, the issuer must have outstanding debt rated A or higher
by Moody's or Standard & Poor's; the issuer's parent corporation, if any, must
have outstanding commercial paper rated Prime-1 by Moody's or A-1 by Standard &
Poor's; or, if no such ratings are available, the instrument must be of
comparable quality in the opinion of the Investment Adviser. The assets of each
Portfolio may be invested in non-U.S. dollar denominated and U.S. dollar
denominated short-term instruments, including U.S.
dollar denominated repurchase agreements.
REPURCHASE AGREEMENTS. Repurchase agreements may be entered into for
each 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 a
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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. A 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 by that Portfolio in each agreement along with accrued interest.
Payment for such securities is made for a 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, a 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 of a Portfolio may be delayed or limited in
certain circumstances.
INVESTMENT RESTRICTIONS
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Each Fund and each 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 each Fund or each Portfolio, as the
case may be (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 that Fund, each of the Portfolios and the
Corporation, with respect to each Fund, 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 or the withdrawal of part or
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all of each Fund's interest in its respective 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 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);
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(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.
NON-FUNDAMENTAL RESTRICTIONS. Each Portfolio or the Corporation, on
behalf of each Fund, may not as a matter of operating policy (except that the
Corporation may invest all of a Fund's assets in an open-end investment company
with substantially the same investment objective, policies and restrictions as
that 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
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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
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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 a Fund's and its
corresponding Portfolio's respective investment restrictions relating to any
particular investment practice or policy are not consistent, that Portfolio has
agreed with the Corporation that it will adhere to the more restrictive
limitation.
DIRECTORS, TRUSTEES AND OFFICERS
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The Directors of the Corporation, Trustees of each Portfolio and
executive officers of the Corporation and each 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 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; Vought Aircraft Corporation (prior to September
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1994), Caterair International (prior to April 1994); 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 PORTFOLIOS
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).
LINDA T. GIBSON -- Secretary; Vice President and Assistant Secretary,
SFG; Assistant Secretary of 59 Wall Street Distributors and 59 Wall Street
Administrators (since June, 1993) .
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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; Vice President 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).
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* Mr. Shields is an "interested person" of the Corporation and
each Portfolio because of his affiliation with a registered
broker-dealer.
** These Directors and Trustees are members of the Audit
Committee of the Corporation or each Portfolio, as the case
may be.
*** Ms. Jakuboski is an officer of each 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, an aircraft
manufacturer, an airline food services company, a merchant bank, and a
venture capital partnership, respectively.
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 and the Portfolios is 6 St. James Avenue, Boston,
Massachusetts 02116. Messrs. Coolidge, Hoolahan and Elder and Mss. Gibson,
Jakuboski ,
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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 or Trustee is an
"interested person" of the Corporation or the Portfolios,
respectively, 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.
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<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., $17,646 none none $30,000
Trustee
Eugene P. Beard, $13,985 none none 25,000
Trustee
David P. Feldman, $13,985 none none 25,000
Trustee
Alan G. Lowy, $13,985 none none 25,000
Trustee
Arthur D. Miltenberger, $13,985 none none 25,000
Trustee
</TABLE>
* The Fund Complex consists of the Corporation and The 59 Wall Street Trust
which currently consists of three series.
PORTFOLIO TRUSTEES
The Trustees of each 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, U.S. Small Company Portfolio, and
U.S Mid-Cap Portfolio together with each 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.
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<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, $16,196 none none $21,000
Trustee
Richard L. Carpenter, 11,726 none none 16,000
Trustee
Clifford A. Clark, 11,726 none none 16,000
Trustee
David M. Seitzman, 11,726 none none 16,000
Trustee
</TABLE>
*The Portfolio Complex consists of the Portfolio and U.S. Money Market
Portfolio, U.S. Small Company Portfolio, International Equity Portfolio and
Emerging Markets Portfolio.
By virtue of the responsibilities assumed by Brown Brothers Harriman &
Co. under the Investment Advisory Agreement with each Portfolio and the
Administration Agreement with the Corporation, and by Brown Brothers Harriman
Trust Company (Cayman) Limited under the Administration Agreement with each
Portfolio (see "Investment Adviser" and "Administrators"), none of the
Corporation and each Portfolio requires employees other than its officers, and
none of its officers devote full time to the affairs of the Corporation or a
Portfolio, as the case may be, or, other than the Chairmen, receive any
compensation from the Corporation or a Portfolio.
As of December 31, 1997, the Directors of the Corporation,
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Trustees of each Portfolio and officers of the Corporation and each
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
each 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 International Equity Fund except that Fleckenstein Family
Foundation owned 113,990 (6.7%) and BBH Trust (f/b/o descendants of Edward
Roland Harriman) owned 104,770 (6.1%) of the outstanding shares of the
International Equity Fund. 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 Emerging Markets Fund except that Boys Club of New
York owned 100,000 (15.5%), BBH Trust (f/b/o descendants of Edward Roland
Harriman) owned 55,000 (8.5%), Harry Brener owned 50,150 (7.7%) and BanCaracas
International Banking Corporation owned 49,950 (7.7%) of the outstanding shares
of the Emerging Markets 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 310,300 (18.2%) shares and 126,550 (18.6%) shares, respectively,
of each of the International Equity Fund and the Emerging Markets Fund. Brown
Brothers Harriman & Co. and its affiliates separately are able to direct the
disposition of an additional 917,520 (53.7%) shares and 297,221 (43.7%) shares,
respectively, of each of the International Equity Fund and the Emerging Markets
Fund, as to which shares Brown Brothers Harriman & Co. disclaims beneficial
ownership .
19
<PAGE>
INVESTMENT ADVISER
===============================================================================
Under its Investment Advisory Agreement with each of the Portfolios,
subject to the general supervision of that Portfolio's Trustees and in
conformance with the stated policies of that Portfolio, Brown Brothers Harriman
& Co. provides investment advice and portfolio management services to that
Portfolio. In this regard, it is the responsibility of Brown Brothers Harriman &
Co. to make the day-to-day investment decisions for each Portfolio, to place the
purchase and sale orders for portfolio
20
<PAGE>
transactions and to manage, generally, each Portfolio's investments.
The Investment Advisory Agreements between Brown Brothers Harriman &
Co. and the International Equity Portfolio and the Emerging Markets Portfolio
are dated August 23, 1994 and April 10, 1997, respectively, and remain in effect
for two years from each such date and thereafter, but only so long as each
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 each Portfolio, or by that Portfolio's Trustees, and (ii) by a vote
of a majority of the Trustees of each Portfolio who are not parties to each
Investment Advisory Agreement or "interested persons" (as defined in the 1940
Act) of each Portfolio ("Independent Trustees"), cast in person at a meeting
called for the purpose of voting on such approval. Each Investment Advisory
Agreement was most recently approved by the Independent Trustees of the
International Equity Portfolio and the Emerging Markets Portfolio on December 4,
1997. Each 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 relevant Portfolio or by a vote of the holders of a "majority of
the outstanding voting securities" (as defined in the 1940 Act) of each
Portfolio on 60 days' written notice to Brown Brothers Harriman & Co. and by
Brown Brothers Harriman & Co. on 90 days' written notice to that Portfolio (see
"Additional Information").
The investment advisory fee paid to the Investment Adviser from each
Portfolio is calculated daily and paid monthly at an annual rate equal to 0.65%
and 0.90% of the average daily net assets of the International Equity Portfolio
and Emerging Markets Portfolio, respectively. For the fiscal years ended October
31, 1997 and October 31, 1996, International Equity Portfolio incurred $293,880
and $226,127, respectively, for advisory fees. For the period June 6, 1997
through October 31, 1997, Emerging Markets Portfolio incurred $28,028 for
advisory fees.
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
Corporation. 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 Agreements with the Portfolios, or were
prohibited from acting in such capacity, it is expected that the Trustees of
each Portfolio would recommend to the investors that they approve a new
investment advisory agreement for that 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 each 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
21
<PAGE>
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 International
Equity Portfolio and Brown Brothers Harriman Trust Company (Cayman) Limited
(dated August 23, 1994) and between Emerging Markets Portfolio and Brown
Brothers Harriman Trust Company (Cayman) Limited (dated April 10, 1997) 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 each Portfolio's Investment Advisory Agreement (see
"Investment Adviser"). The Independent Directors most recently approved the
Corporation's Administration Agreement on December 17, 1997. The Portfolios'
Administration Agreements were most recently approved by the Independent
Trustees of the International Equity Portfolio and the Emerging Markets
Portfolio on December 4, 1997. Each agreement will terminate automatically if
assigned by either party thereto and is terminable by the Corporation or a
Portfolio at any time without penalty by a vote of a majority of the Directors
of the Corporation or the Trustees of each 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 a Portfolio, as the case may be
(see "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. Each
Portfolio's Administration Agreement is terminable by the Trustees of that
Portfolio or by that Portfolio's corresponding Fund and other investors in that
Portfolio on 60 days' written notice to Brown Brothers Harriman Trust Company
(Cayman) Limited. Each agreement is terminable by the contracting Administrator
on 90 days' written notice to the Corporation or a Portfolio, as the case may
be.
The administrative fee payable to Brown Brothers Harriman & Co. from
each Fund is calculated daily and payable monthly at an annual rate equal to
0.125% of that Fund's average daily net assets. For the period June 6, 1997
through October 31, 1997, each of International Equity Fund and Emerging Markets
Fund incurred $2,739 and $2,750, respectively, for administrative services.
The administrative fee paid to Brown Brothers Harriman Trust Company
(Cayman) Limited by each Portfolio is calculated and paid monthly at an annual
rate equal to 0.035% of that 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 fiscal years ended October
31, 1997 and October 31, 1996, International Equity Portfolio incurred $15,824
and $12,176, respectively, for administrative services. For the period June 6,
1997 through October 31,
22
<PAGE>
1997, Emerging Markets Portfolio incurred $1,090 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 each
Portfolio's Investment Advisory Agreement (see "Investment Adviser"). The
Distribution Agreement was approved by the Independent Directors of the
Corporation on February 18, 1997. 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 that 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 that 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.
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
===============================================================================
Each Fund's net asset value per share is determined once daily at 4:00
p.m., New York time on each day the New York Stock Exchange is open for regular
trading. (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.) The determination
of each Fund's net asset value of per share is made by subtracting from the
value of a Fund's total assets (I.E., the value of its investment in its
corresponding Portfolio and other assets) the amount of its liabilities,
including expenses payable or accrued, and dividing the difference by the number
of shares of that Fund outstanding at the time the determination is made.
23
<PAGE>
The value of each 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 its corresponding Fund is determined. The value of each
Fund's investment in its corresponding Portfolio is determined by multiplying
the value of that Portfolio's net assets by the percentage, effective for that
day, which represents that Fund's share of the aggregate beneficial interests in
that 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. 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.
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 each Portfolio's
Trustees. Such procedures include the use of independent pricing services, which
use prices based upon yields or prices of securities of comparable quality,
coupon, maturity and type; indications as to values from dealers; and general
market conditions. Short-term investments which mature in 60 days or less are
valued at amortized cost if their original maturity was 60 days or less, or by
amortizing their value on the 61st day prior to maturity, if their original
maturity when acquired was more than 60 days, unless this is determined not to
represent fair value by the Trustees of the relevant Portfolio.
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 Portfolio's net
asset value is calculated, such securities would be valued at fair value in
accordance with procedures established by and under the general supervision of
that Portfolio's Trustees.
Subject to the Corporation's compliance with applicable regulations,
the Corporation has reserved the right to pay the redemption price of shares of
each Fund, either totally or partially, by a distribution in kind of portfolio
securities (instead of cash). The securities so distributed
24
<PAGE>
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 each 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 each 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.
Historical total return information for any period or portion thereof
prior to the establishment of the International Equity Fund will be that of the
International Equity Portfolio, adjusted to assume that all charges, expenses
and fees of the International Equity Fund and the International Equity Portfolio
which are presently in effect were deducted during such periods, as permitted by
applicable SEC staff interpretations. The table that follows sets forth average
annual total return information for the periods indicated:
10/31/97
1 Year: 1.7%
Commencement of
Operations* to
date: 5.6%
* International Equity Portfolio commenced operations on April 1, 1995.
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<PAGE>
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's corresponding Portfolio
and a Fund's and its corresponding Portfolio's expenses during the period.
Total and average annual rate of return information may be useful for
reviewing the performance of each 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, each 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, each 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 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 each 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 each Fund be
diversified so that, at the end of each quarter of its fiscal year, (i) at least
50% of the market value of each 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 each Fund's assets be represented by investments in the securities of
any one issuer (other than U.S. Government securities and securities of other
investment companies). Foreign currency gains that are not directly related to a
Portfolio'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
26
<PAGE>
addition, in order not to be subject to federal income tax, at least 90% of each
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 Portfolio
accrues income or receivables or expenses or other liabilities denominated in a
foreign currency and the time it actually collects such income or pays such
liabilities, are treated as ordinary income or ordinary loss. Similarly, a
Fund's share of gains or losses on the disposition of debt securities held by
its corresponding Portfolio, if any, denominated in foreign currency, to the
extent attributable to fluctuations in exchange rates between the acquisition
and disposition dates are also treated as ordinary income or loss.
Gains or losses on sales of securities 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 a Portfolio lapses or is
terminated through a closing transaction, such as a repurchase of the option
from its holder, that 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 a Fund's gross income be derived
from gains from the sale of securities held for less than three months may limit
a Portfolio's ability to write options and engage in transactions involving
stock index futures.
Certain options contracts held for a 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 that Portfolio has held
such options. A 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.
If shares are purchased by a Portfolio in certain foreign investment
entities, referred to as "passive foreign investment companies", its
corresponding Fund may be subject to U.S. federal income tax, and an additional
charge in the nature of interest, on that Fund's 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 the 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
27
<PAGE>
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.
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 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.
FOREIGN TAXES. If the Corporation elects to treat foreign income taxes
paid from each Fund as paid directly by that Fund's shareholders, each Fund's
shareholders 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 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 of 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 a 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.
28
<PAGE>
OTHER TAXES. Each Fund is subject to state or local taxes in
jurisdictions in which it is deemed to be doing business. In addition, the
treatment of each 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 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 International Equity Fund and 25,000,000 shares
have been classified as shares of The 59 Wall Street Emerging Markets 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
29
<PAGE>
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 each Portfolio have no preference, preemptive, conversion
or similar rights, and are fully paid and non-assessable. Neither Portfolio is
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 that Portfolio.
PORTFOLIO TRANSACTIONS
===============================================================================
In effecting securities transactions the Investment Adviser seeks to
obtain the best price and execution of orders. All of the transactions for the
Portfolios are executed through qualified brokers other than Brown Brothers
Harriman & Co. In selecting such brokers, the Investment Adviser considers a
number of factors including: the broker's ability to execute orders without
disturbing the market price; the broker's reliability for prompt, accurate
confirmations and on-time delivery of securities; the broker's financial
condition and responsibility; the research and other 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.
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 each Portfolio. The Investment Adviser believes that the
value of research services received is not determinable nor does such research
significantly reduce its expenses. Each Portfolio does not reduce the fee paid
to the Investment Adviser by any amount that might be attributable to the value
of such services.
Portfolio securities are not purchased from or sold to the
Administrator, 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.
A committee, comprised of officers and partners of Brown Brothers
30
<PAGE>
Harriman & Co. who are portfolio managers of some of Brown Brothers Harriman &
Co.'s managed accounts (the "Managed Accounts"), evaluates semi-annually the
nature and quality of the brokerage and research services provided by brokers,
and, based on this evaluation, establishes a list and projected ranking of
preferred brokers for use in determining the relative amounts of commissions to
be allocated to such brokers. However, in any semi-annual period, brokers not on
the list may be used, and the relative amounts of brokerage commissions paid to
the brokers on the list may vary substantially from the projected rankings.
The Trustees of each Portfolio review regularly the reasonableness of
commissions and other transaction costs incurred for each 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 a 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 each 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 a 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 a 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 that 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 that Portfolio. In some instances, this procedure might
adversely affect a 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
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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 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 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 of the Funds will be provided without
charge to each person receiving this Statement of Additional Information.
WS5486E
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