- -------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
THE 59 WALL STREET EUROPEAN EQUITY FUND
THE 59 WALL STREET PACIFIC BASIN EQUITY FUND
21 Milk Street, Boston, Massachusetts 02109
- -------------------------------------------------------------------
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.
The Corporation seeks to achieve the investment objective of the
European Equity Fund and the Pacific Basin Equity Fund by investing all of the
Fund's assets in a corresponding open-end investment company having the same
investment objective as the Fund. The European Equity Fund invests in the
European Equity Portfolio and the Pacific Basin Equity Fund invests in the
Pacific Basin Equity Portfolio (each, a "Portfolio" and, collectively, the
"Portfolios")
Brown Brothers Harriman & Co. is each Portfolio'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 March 1,
1999, a copy of which may be obtained from the Corporation at the address noted
above.
<TABLE>
<CAPTION>
Table of Contents
<S> <C> <C>
Cross-Reference
Page to Page in Prospectus
Investments
Investment Objective and Policies . . . . . 3 3-5
Investment Restrictions . . . . . . . . 9
Management
Directors and Officers . . . . . . . . . 12
Investment Adviser . . . . . . . . . . 17 10
Administrator . . . . . . . . . . . . 18
Distributor . . . . . . . . . . . . 20
Shareholder Servicing Agent,
Financial Intermediaries and Eligible Institutions . . . 20-22
Custodian, Transfer and Dividend Disbursing Agent 22
</TABLE>
<PAGE>
Table of Contents
Cross-Reference
Page to Page in Prospectus
Independent Auditors 22
Net Asset Value; Redemption in Kind . . . . 22 10
Computation of Performance . . . . . . . 24
Purchases and Redemptions 25
Federal Taxes . . . . . . . . . . . . 26
Description of Shares . . . . . . . . . 29
Portfolio Brokerage Transactions . . . . . . 31
Financial Statements . . . . . . . . . 34
Appendix 34
The date of this Statement of Additional Information is November 1, 1999.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
- -----------------------------------------------------------------
The following supplements the information contained in the Prospectus
concerning the investment objective, policies and techniques of each Portfolio.
In response to adverse market, economic, political or other conditions, the
Investment Adviser may make temporary investments for the Portfolios that are
not consistent with its investment objective and principal investment
strategies. Such investments may prevent the Portfolios from achieving their
investment objective.
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 Contracts
Options on Stock. Subject to applicable laws and regulations and solely as a
hedge against changes in the market value of portfolio securities or securities
intended to be purchased, put and call options on stocks may be purchased for a
Portfolio, although in each case 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 for a Portfolio 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 Portfolio,
although in each case the current intention is not to do so. A call option is
"covered" if the writer owns the underlying security.
Options on Stock Indexes. Subject to applicable laws and regulations and solely
as a hedge against changes in the market value of portfolio securities or
securities intended to be purchased, put and call options on stock indexes may
be purchased for a Portfolio, although the current intention is not to do so in
a manner that more than 5% of a Portfolio=s net assets would be at risk. A stock
index fluctuates with changes in the market values of the stocks included in the
index. Examples of stock indexes are the Standard & Poor's 500 Stock Index
(Chicago Board of Options Exchange), the New York Stock Exchange Composite Index
(New York Stock Exchange), The Financial Times-Stock Exchange 100 (London Traded
Options Market), the Nikkei 225 Stock Average (Osaka Securities Exchange) and
Tokyo Stock Price Index (Tokyo Stock Exchange).
Options on stock indexes are generally similar to options on stock except that
the delivery requirements are different. Instead of giving the right to take or
make delivery of stock at a fixed price ("strike price"), an option on a stock
index gives the holder the right to receive a cash "exercise settlement amount"
equal to (a) the amount, if any, by which the strike price of the option exceeds
(in the case of a put) or is less than (in the case of a call) the closing value
of the underlying index on the date of exercise, multiplied by (b) a fixed
"index multiplier". Receipt of this cash amount depends upon the closing level
of the stock index upon which the option is based being greater than, in the
case of a call, or less than, in the case of a put, the price of the option. The
amount of cash received is equal to such difference between the closing price of
the index and the strike price of the option expressed in U.S. dollars or a
foreign currency, as the case may be, times a specified multiple.
The effectiveness of purchasing stock index options as a hedging technique
depends upon the extent to which price movements in the portion of the
securities portfolio 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 Portfolio is subject to the Investment Adviser's ability
both to select an appropriate index and to predict future price movements over
the short term in the overall stock market. Brokerage costs are incurred in the
purchase of stock index options and the incorrect choice of an index or an
incorrect assessment of future price movements may result in poorer overall
performance than if a stock index option had not been purchased.
Options on Currencies. Subject to applicable laws and regulations and solely
as a hedge against changes in the market value of portfolio securities or
securities intended to be purchased, put and call options on currencies may be
purchased for a Portfolio, although the current intention is not to do so in a
manner that more than 5% of a Portfolio=s net assets would be at risk. A call
option on a currency gives the purchaser of the option the right to buy the
underlying currency at a fixed price, either at any time during the option
period (American style) or on the expiration date (European style). Similarly, a
put option gives the purchaser of the option the right to sell the underlying
currency at a fixed price, either at any time during the option period or on the
expiration date. To liquidate a put or call option position, a "closing sale
transaction" may be made for 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 Exchange) and over-the counter.
The value of a currency option purchased for a Portfolio depends upon
future changes in the value of that currency before the expiration of the
option. Accordingly, the successful use of options on currencies for a Portfolio
is subject to the Investments Adviser's ability to predict future changes in the
value of currencies over the short term. Brokerage costs are incurred in the
purchase of currency options and an incorrect assessment of future changes in
the value of currencies may result in a poorer overall performance than if such
a currency had not been purchased.
Futures Contracts
Futures Contracts on Stock Indexes. Subject to applicable laws and
regulations and solely as a hedge against changes in the market value of
portfolio securities or securities intended to be purchased, futures contracts
on stock indexes ("Futures Contracts") may be entered into for a Portfolio.
Futures contracts on foreign currencies may also be entered into for each
Portfolio, although in each case the current intention is not to do so.
In order to assure that a Portfolio is not deemed a "commodity pool" for
purposes of the Commodity Exchange Act, regulations of the Commodity Futures
Trading Commission ("CFTC") require that each Portfolio enter into transactions
in futures contracts and options on futures contracts only (i) for bona fide
hedging purposes (as defined in CFTC regulations), or (ii) for non-hedging
purposes, provided that the aggregate initial margin and premiums on such
non-hedging positions does not exceed 5% of the liquidation value of a
Portfolio's assets.
Futures Contracts provided for the making and acceptance of a cash
settlement based upon changes in the value of an index of stocks and are used to
hedge against anticipated future changes in overall stock market prices which
otherwise might either adversely affect the value of securities held for a
Portfolio or adversely affect the prices of securities which are intended to be
purchased at a later date for a Portfolio. A Futures Contract may also be
entered into to close out or offset an existing futures position.
In general, each transaction in Futures Contracts involves the
establishment of a position which is expected to move in a direction opposite to
that of the investment being hedged. If these hedging transactions are
successful, the futures position taken for a Portfolio would rise in value by an
amount which approximately offsets the decline in value of the portion of that
Portfolio's investments that is being hedged. Should general market prices move
in an unexpected manner, the full anticipated benefits of Futures Contracts may
not be achieved or a loss may be realized. There is also the risk of a potential
lack of liquidity in the secondary market.
The effectiveness of entering into Futures Contracts as a hedging
technique depends upon the extent to which price movements in the portion of the
securities portfolio of a Portfolio being hedged correlate with price movements
of the stock index selected. The value of a Futures Contract depends upon future
movements in the level of the overall stock market measured by the underlying
index before the closing out of the Futures Contract. Accordingly, the
successful use of Futures Contracts for a Portfolio is subject to the Investment
Adviser's ability both to select an appropriate index and to predict future
price movements over the short term in the overall stock market. The incorrect
choice of an index or an incorrect assessment of future price movements over the
shore term in the overall stock market may result in poorer overall performance
than if a Futures Contract had not been purchased. Brokerage costs are incurred
in entering into and maintaining Futures Contracts.
When a Portfolio enters into a Futures Contract, it may be initially
required to deposit with that Portfolio's custodian, in a segregated account in
the name of the broker performing the transaction, an "initial margin" of cash,
U.S. Government securities or other high grade short-term obligations equal to
approximately 3% of the contract amount. Initially margin requirements are
established by the exchanges on which Futures Contracts trade and may, from time
to time, change. In addition, brokers may establish margin deposit requirements
in excess of those required by the exchanges. Initial margin in futures
transactions is different from margin in securities transactions in that initial
margin does not involve the borrowing of funds by a broker's client but is,
rather, a good faith deposit on the Futures Contract which will be returned upon
the proper termination of the Futures Contract. The margin deposits made are
marked to market daily and a Portfolio may be required to make subsequent
deposits of cash or eligible securities called "variation margin", with that
Portfolio's futures contract clearing broker, which are reflective of price
fluctuations in the Futures Contract.
Currently, investments in Futures Contracts on non-U.S. stock indexes by
U.S. investors, such as the Portfolios, can be purchased on such non-U.S. stock
indexes as the Osaka Stock Exchange (OSE), Tokyo Stock Exchange (TSE), Hong Kong
Futures Exchange (HKFE), Singapore International Monetary Exchange (SIMEX),
London International Financial Futures and Options Exchange (LIFFE), Marche a
Terme International de France (MATIF), Sydney Futures Exchange Ltd. (SFE), Meff
Sociedad Rectora de Productos Financieros Derivados de Renta Variable, S.A.
(MEFF RENTA VARIABLE), Deutsche Terminbsrse (DTB), Italian Stock Exchange (ISE),
The Amsterdam Exchange (AE), and London Securities and Derivatives Exchange,
Ltd. (OMLX).
Exchanges may limit the amount by which the price of a Futures Contract
may move on any day. If the price moves equal the daily limit on successive
days, then it may prove impossible to liquidate a futures position until the
daily limit moves have ceased.
Another risk which may arise in employing Futures Contracts to protect
against the price volatility of portfolio securities is that the prices of an
index subject to Futures Contracts (and thereby the Futures Contract prices) may
correlate imperfectly with the behavior of the cash prices of a Portfolio's
portfolio securities. Another such risk is that the price of the Futures
Contract may not move in tandem with the change in overall stock market prices
against which that Portfolio seeks a hedge.
Loans of Portfolio Securities
Loans up to 30% of the total value of the a Portfolio are permitted.
Securities of a Portfolio 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 a Portfolio at least equal at all times
to 100% of the market value of the securities loaned plus accrued income. By
lending the securites of a Portfolio, that Portfolio=s income can be increased
by that Portfolio=s continuing to receive income on the loaned securities as
well as by the opportunity for that Portfolio to receive income on the
collateral. All or any portion of interest earned on invested collateral may be
paid to the borrower. Loans are subject to termination by 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 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, a
Portfolio 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, a 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 issuance of
new shares or the sale of portfolio securities, and desirable equity securities
that are consistent with that Portfolio's investment objective are unavailable
in sufficient quantities, assets of that Portfolio may be held in short-term
investments for a limited time pending availability of such equity securities.
Short-term instruments consist of foreign and domestic: (i) short-term
obligations of sovereign governments, their agencies, instrumentalities,
authorities or political subdivisions; (ii) other short-term debt securities
rated A or higher by Moody's Investors Service, Inc. ("Moody's") or Standard &
Poor's Corporation ("Standard & Poor's"), or if unrated are of comparable
quality in the opinion of the Investment Adviser; (iii) commercial paper; (iv)
bank obligations, including negotiable certificates of deposit, time deposits
and bankers' acceptances; and (v) repurchase agreements. Time deposits with a
maturity of more than seven days are treated as not readily marketable. At the
time 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 may be
invested in non-U.S. dollar denominated and U.S. dollar denominated bank
deposits and short-term instruments, including U.S. dollar denominated
repurchase agreements. Cash is held for each Portfolio in demand deposit
accounts with the Portfolios= custodian bank.
Government Securities
The assets of each Portfolio may be invested in securities issued by
the U.S. Government or sovereign foreign governments, their agencies or
instrumentalities. These securities include notes and bonds, zero coupon bonds
and stripped principal and interest securities.
Restricted Securities
Securities that have legal or contractual restrictions on their resale
may be acquired for a Portfolio. The price paid for these securities, or
received upon resale, may be lower than the price paid or received for similar
securities with a more liquid market. Accordingly, the valuation of these
securities for a Portfolio reflects any limitation on their liquidity.
Repurchase Agreements
Repurchase agreements may be entered into for a 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 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 a 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 on behalf
of that Portfolio in each agreement along with accrued interest. Payment for
such securities is made for that 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 on behalf of a Portfolio may be delayed or
limited in certain circumstances.
When-Issued and Delayed Delivery Securities
Securities may be purchased for a Portfolio on a when-issued or delayed
delivery basis. For example, delivery and payment may take place a month or more
after the date of the transaction. The purchase price and the interest rate
payable on the securities, if any, are fixed on the transaction date. The
securities so purchased are subject to market fluctuation and no income accrues
to a Portfolio until delivery and payment take place. At the time the commitment
to purchase securities for a Portfolio on a when-issued or delayed delivery
basis is made, the transaction is recorded and thereafter the value of such
securities is reflected each day in determining that Portfolio's net asset
value. At the time of its acquisition, a when-issued or delayed delivery
security may be valued at less than the purchase price. Commitments for such
when-issued or delayed delivery securities are made only when there is an
intention of actually acquiring the securities. On delivery dates for such
transactions, such obligations are met from maturities or sales of securities
and/or from cash flow. If the right to acquire a when-issued or delayed delivery
security is disposed of prior to its acquisition, a Portfolio could, as with the
disposition of any other portfolio obligation, incur a gain or loss due to
market fluctuation. When-issued or delayed delivery commitments for a Portfolio
may not be entered into if such commitments exceed in the aggregate 15% of the
market value of that Portfolio's total assets, less liabilities other than the
obligations created by when-issued or delayed delivery commitments.
Investment Company Securities
Subject to applicable statutory and regulatory limitations, the assets
of each Portfolio may be invested in shares of other investment companies. Under
the 1940 Act, assets of either Portfolio may be invested in shares of other
investment companies in connection with a merger, consolidation, acquisition or
reorganization or if immediately after such investment (i) 10% or less of the
market value of that Portfolio's total assets would be so invested, (ii) 5% or
less of the market value of that Portfolio's total assets would be invested in
the shares of any one such company, and (iii) 3% or less of the total
outstanding voting stock of any other investment company would be owned by that
Portfolio. As a shareholder of another investment company, the Portfolio would
bear, along with other shareholders, its pro rata portion of the other
investment company's expenses, including advisory fees. These expenses would be
in addition to the advisory and other expenses that the Portfolio bears directly
in connection with its own operations.
INVESTMENT RESTRICTIONS
- -------------------------------------------------------------------
Each Fund and Portfolio is operated under the following investment
restrictions which are deemed fundamental policies and may be changed only with
the approval of the holders of a "majority of the outstanding voting securities"
(as defined in the 1940 Act) of the Fund or the Portfolio, as the case may be.
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, neither Portfolio nor the Corporation,
with respect to the Funds, may:
(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 a 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);
(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, and provided further, that neither Fund shall be subject to
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 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; (ii) invest more than 10% of its net
assets (taken at the greater of cost or market value) in restricted securities;
or (iii) invest less than 65% of the value of the total assets of each Fund in
equity securities of companies based in countries in which that Fund may invest.
For these purposes, equity securities are defined as common stock, securities
convertible into common stock, rights and warrants, and include securities
purchased directly and in the form of American Depository Receipts, Global
Depository Receipts or other similar securities representing common stock of
foreign-based companies. These policies are not fundamental and may be changed
for a Fund without 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 a Fund's and its
corresponding Portfolio's respective investment restrictions relating to any
particular investment practice or policy are not consistent, each Portfolio has
agreed with the Corporation, on behalf of each Fund, that the Portfolio will
adhere to the more restrictive limitation.
DIRECTORS AND OFFICERS
- -------------------------------------------------------------------
The Corporation's Directors, in addition to supervising the actions of
the Administrator of the Corporation and Distributor, as set forth below, decide
upon matters of general policy with respect to the Corporation. The Portfolio's
Trustees, in addition to supervising the actions of the Portfolio's Investment
Adviser and Administrator, as set forth below, decide upon matters of general
policy with respect to the Portfolio.
Because of the services rendered to the Portfolio by the Investment
Adviser and to the Corporation and the Portfolio by their respective
Administrators, the Corporation and the Portfolio require no employees, ans
their respective officers, other than the Chairmen, receive no compensation from
the Fund or the Portfolio.
The Directors 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 AND THE PORTFOLIO
The Corporation's Directors, in addition to supervising the actions of
the Administrator of the Corporation and Distributor, as set forth below, decide
upon matters of general policy with respect to the Corporation. The Portfolios'
Trustees, in addition to supervising the actions of each Portfolio's Investment
Adviser and Administrator, as set forth below, decide upon matters of general
policy with respect to each Portfolio.
Because of the services rendered to each Portfolio by the Investment
Adviser and to the Corporation and each Portfolio by their respective
Administrators, the Corporation and each Portfolio require no employees, and
their respective officers, other than the Chairmen, receive no compensation from
the Funds or the Portfolios.
The Directors and executive officers of the Corporation and the
Portfolios, 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 AND THE PORTFOLIOS
J.V. SHIELDS, JR.* - Chairman of the Board and Director; Trustee of The
59 Wall Street Trust; Trustee of the Portfolio Complex(1) (since October 1999);
Managing Director, Chairman and Chief Executive Officer of Shields & Company;
Chairman of Capital Management Associates, Inc.; Director of Flowers Industries,
Inc.(2). Vice Chairman and Trustee of New York Racing Association. His business
address is Shields & Company, 140 Broadway, New York, NY 10005.
EUGENE P. BEARD** - Director; Trustee of The 59 Wall Street Trust;
Trustee of the Portfolio Complex (since October 1999); Executive Vice President
- - Finance and Operations of The Interpublic Group of Companies. His business
address is The Interpublic Group of Companies, Inc., 1271 Avenue of the
Americas, New York, NY 10020.
DAVID P. FELDMAN** - Director; Trustee of The 59 Wall Street Trust;
Trustee of the Portfolio Complex (since October 1999); Retired; Vice President
and Investment Manager of AT&T Investment Management Corporation (prior to
October 1997); Director of Dreyfus Mutual Funds, Jeffrey Co. and Heitman
Financial. His business address is 3 Tall Oaks Drive, Warren, NJ 07059.
ALAN G. LOWY - Director; Trustee of The 59 Wall Street Trust; Trustee
of the Portfolio Complex (since October 1999); Private Investor; Secretary of
the Los Angeles County Board of Investments (prior to March 1995).
His business address is 4111 Clear Valley Drive, Encino, CA 91436.
ARTHUR D. MILTENBERGER** - Director; Trustee of The 59 Wall Street
Trust; Trustee of the Portfolio Complex (since October 1999); Retired, Executive
Vice President and Chief Financial Officer of Richard K. Mellon and Sons (prior
to June 1998); Treasurer of Richard King Mellon Foundation (prior to June 1998);
Vice President of the Richard King Mellon Foundation; Trustee, R.K. Mellon
Family Trusts; General Partner, Mellon Family Investment Company IV, V and VI;
Director of Aerostructures Corporation (since 1996) (2). His business address is
Richard K. Mellon and Sons, P.O. Box RKM, Ligonier, PA 15658.
RICHARD L. CARPENTER** - Director and Trustee of The 59 Wall Street
Trust (since October 1999); Trustee of the Portfolio Complex; Trustee of Dow
Jones Islamic Market Index Portfolio (since March 1999); Director of The 59 Wall
Street Fund, Inc. (since October 1999); Retired; Director of Investments,
Pennsylvania Public School Employees' Retirement System (prior to December
1997). His business address is 12664 Lazy Acres Court, Nevada City, CA 95959.
CLIFFORD A. CLARK** - Director and Trustee of The 59 Wall Street Trust
(since October 1999); Trustee of the Porfolio Complex; Trustee of Dow Jones
Islamic Market Index Portfolio (since March 1999); Director of The 59 Wall
Street Fund, Inc. (since October 1999); Retired. His business address is 42
Clowes Drive, Falmouth, MA 02540.
DAVID M. SEITZMAN** - Director and Trustee of The 59 Wall Street Trust
(since October 1999); Trustee of the Porfolio Complex; Director of The 59 Wall
Street Fund, Inc. (since October 1999); Physician, Private Practice. His
business address is 7117 Nevis Road, Bethesda, MD 20817.
J. ANGUS IVORY - Director and Trustee of The 59 Wall Street Trust
(since October 1999); Trustee of the Portfolio Complex (since October 1999);
Director of The 59 Wall Street Fund, Inc. (since October 1999); Trustee of Dow
Jones Islamic Market Index Portfolio (since March 1999); Director of Brown
Brothers Harriman Ltd., subsidiary of Brown Brothers Harriman & Co.; Director of
Old Daily Saddlery; Advisor, RAF Central Fund; Committee Member, St. Thomas
Hospital Pain Clinic (since 1999).
OFFICERS OF THE 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").
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, Senior Vice President and Secretary of
SFG; Secretary of 59 Wall Street Distributors and 59 Wall Street Administrators.
SUSAN JAKUBOSKI - Assistant Treasurer; Assistant Treasurer and
Assistant Secretary of the Portfolio; Assistant Secretary, Assistant Treasurer
and Vice President of Signature Financial Group (Cayman) Limited.
LINWOOD C. DOWNS - Assistant Treasurer; Senior Vice President and
Treasurer of SFG.
MOLLY S. MUGLER -- Assistant Secretary; Legal Counsel and Assistant
Secretary of SFG; and Assistant Secretary of 59 Wall Street Distributors and 59
Wall Street Administrators.
CHRISTINE D. DORSEY - Assistant Secretary; Vice President of SFG (since
January 1996); Paralegal and Compliance Officer, various financial companies
(July 1992 to January 1996); Graduate Student, Bentley College (prior to
December 1994).
- -------------------------
* Mr. Shields is an "interested person" of the Corporation and the
Portfolios because of his affiliation with a registered broker-dealer.
** These Trustees are members of the Audit Committee of the Corporation
or the Portfolios, as the case may be.
(1) The Portfolio Complex consist of the following active investment
companies: U.S. Money Market Portfolio, U.S. Small Company Portfolio,
U.S. Equity Portfolio, European Equity Portfolio, Pacific Basin
Equity Portfolio and International Equity Portfolio and the
following inactive investment company: Inflation-Indexed
Securities Portfolio.
(2) Shields & Company, Capital Management Associates, Inc. and Flowers
Industries, Inc., with which Mr. Shields is associated, are a
registered broker-dealer and a member of the New York Stock Exchange, a
registered investment adviser, and a diversified food company,
respectively.
(3) Richard K. Mellon and Sons, Richard King Mellon Foundation, R.K. Mellon
Family Trusts, Mellon Family Investment Company IV, V and VI and
Aerostructures Corporation, with which Mr. Miltenberger is or has been
associated, are a private foundation, a private foundation, a trust, an
investment company and an aircraft manufacturer, respectively.
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 21 Milk Street, Boston, Massachusetts 02109. Messrs.
Coolidge, Hoolahan, Elder and Downs, and Mss. Gibson, Jakuboski, 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/Trustee is an "interested person"
of the Corporation or the Portfolios as that term is defined in the 1940 Act.
Directors of the Corporation and the Portfolios
<TABLE>
<CAPTION>
The Directors of the Corporation and the Trustees of the Portfolios
receive a base annual fee of $15,000 (except the Chairmen who receive a base
annual fee of $20,000) and such base annual fee is allocated among all series of
the Corporation, all series of The 59 Wall Street Trust and the Portfolios and
any other active Portfolios having the same Board of Trustees based upon their
respective net assets. In addition, each series of the Corporation and The 59
Wall Street Trust, the Portfolios and any other active Portfolios which has
commenced operations pays an annual fee to each Directors/Trustee of $1,000.
<S> <C> <C> <C> <C> <C> <C>
Pension or Total
Aggregate Retirement Compensation
Compensation Benefits Accrued Estimated Annual from Fund
Name of Person, from the Fund as Part of Benefits upon Complex* Paid
Position Complex* Fund Expenses Retirement to Directors/Trustees
J.V. Shields, Jr., $19,584 none none $31,000
Director/Trustee
Eugene P. Beard, $15,828 none none $26,000
Director/Trustee
Richard L. Carpenter**, $11,970 none none $15,000
Director/Trustee
Clifford A. Clark**, $11,970 none none $15,000
Director/Trustee
David P. Feldman, $15,828 none none $26,000
Director/Trustee
J. Angus Ivory**, $0 none none $0
Director/Trustee
Alan G. Lowy, $15,828 none none $26,000
Director/Trustee
Arthur D. Miltenberger, $15,828 none none $26,000
Director/Trustee
David M. Seitzman**, $11,970 none none $15,000
Director/Trustee
<FN>
* The Fund Complex consists of the Corporation, The 59 Wall Street Trust (which
currently consists of three series) and the seven Portfolios.
**Prior to October 22, 1999, these Trustees received no compensation from the Corporation or The 59 Wall Street
Trust.
</FN>
</TABLE>
By virtue of the responsibilities assumed by Brown Brothers Harriman &
Co. under the Investment Advisory Agreement with each Portfolio and the
Administration Agreement with each Fund, and by Brown Brothers Harriman Trust
Company under the Administration Agreement with each Portfolio (see "Investment
Adviser" and "Administrators"), neither the Corporation nor the Portfolios
requires employees other than its officers, and none of its officers devote full
time to the affairs of the Corporation or the Portfolios, as the case may be,
or, other than the Chairmen, receive any compensation from the Fund or the
Portfolios.
As of September 30, 1999, the Directors/Trustees and officers of the
Corporation and the Portfolio as a group 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 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 Moose International owned 102,734 (6.28%) shares of the
Pacific Basin Equity Fund. However, as of that date, partners of Brown Brothers
Harriman & Co. and their immediate families owned 85,872 (2.2%) and 42,855
(2.3%)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 30,297 (0.8%) shares of the European Equity Fund. Brown Brothers
Harriman & Co. and its affiliates separately are able to direct the disposition
of an additional 2,199,279 (55.3%) and 1,032,064 (54.2%) shares, respectively,
of the European Equity Fund and the Pacific Basin Equity Fund, as to which
shares Brown Brothers Harriman & Co.
disclaims beneficial ownership.
<PAGE>
INVESTMENT ADVISER
- -------------------------------------------------------------------
Prior to November 1, 1999, Brown Brothers Harriman & Co. managed the
assets of the Fund pursuant to an Investment Advisory Agreement. This
Agreement was terminated by the Corporation, on behalf of the Fund, effective
as of October 31, 2999 pursuant to previous approval by the Fund's
shareholders on September 23, 1993 of certain changes in the Fund's investment
restrictions which enabled all of the Fund's investable assets to be invested
in the Portfolio.
Currently, under its Investment Advisory Agreements with each
Portfolio, subject to the general supervision of each Portfolio's Trustees and
in conformance with the stated policies of each Portfolio, Brown Brothers
Harriman & Co. provides investment advice and portfolio management services to
each 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 the portfolio transactions of each
Portfolio and to manage, generally, each Portfolio's investments.
The Investment Advisory Agreements between Brown Brothers Harriman &
Co. and each Portfolio is dated December 15, 1993. Each 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 the Portfolio at least
annually (i) by a vote of the holders of a "majority of outstanding voting
securities" (as defined in the 1940 Act) of that Portfolio or by that
Portfolio's Trustees, and (ii) by a vote of a majority of that Portfolio's
Trustees who are not parties to that 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. Each Investment Advisory Agreement was most recently approved by the
Independent Trustees on November 10, 1998. Each Investment Advisory Agreement
terminates automatically if assigned and is terminable with respect to each
Portfolio at any time without penalty by a vote of a majority of the Trustees of
the Portfolio or by a vote of the holders of a "majority of the outstanding
voting securities" (as defined in the 1940 Act) of the Portfolio 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 European Equity Portfolio, the investment advisory
fee paid to the Investment Adviser is calculated daily and paid monthly at an
annual rate equal to 0.65% of that Portfolio's average daily net assets. The
advisory fee is the same as the fee paid by the European Equity Fund prior to
November 1, 1999. For the fiscal years ended October 31, 1996, 1997 and 1998,
the European Equity Fund incurred $847,451, $1,012,388 and $1,045,922,
respectively, for advisory services.
With respect to the Pacific Basin Equity Portfolio, the investment
advisory fee paid to the Investment Adviser is calculated daily and paid monthly
at an annual rate equal to 0.65% of that Portfolio's average daily net assets.
The advisory fee is the same as the fee paid by the Pacific Basin Equity Fund
prior to November 1, 1999. For the fiscal years ended October 31, 1996, 1997 and
1998, the Pacific Basin Equity Fund incurred $924,243, $931,879 and $281,852,
respectively, for advisory services.
The investment advisory services of Brown Brothers Harriman & Co. to
each Portfolio are not exclusive under the terms of the Investment Advisory
Agreements. Brown Brothers Harriman & Co. is free to and does render investment
advisory services to others, including other registered investment companies.
Pursuant to a license agreement between the Corporation and Brown Brothers
Harriman & Co. dated September 5, 1990, as amended as of December 15, 1993, the
Corporation may continue to use in its name "59 Wall Street", the current and
historic address of Brown Brothers Harriman & Co. The agreement may be
terminated by Brown Brothers Harriman & Co. at any time upon written notice to
the Corporation upon the expiration or earlier termination of any investment
advisory agreement between the Corporation or any investment company in which a
series of the Corporation invests all of its assets and Brown Brothers Harriman
& Co. Termination of the agreement would require the Corporation to change its
name and the name of each Portfolio to eliminate all reference to "59 Wall
Street".
Pursuant to license agreements between Brown Brothers Harriman & Co. and
each of 59 Wall Street Administrators and 59 Wall Street Distributors (each a
"Licensee"), dated June 22, 1993 and June 8, 1990, respectively, each Licensee
may continue to use in its name "59 Wall Street", the current and historic
address of Brown Brothers Harriman & Co., only if Brown Brothers Harriman & Co.
does not terminate the respective license agreement, which would require the
Licensee to change its name to eliminate all reference to "59 Wall Street".
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
a Portfolio or were prohibited from acting in such capacity, it is expected that
the Trustees would recommend to the investors that they approve a new investment
advisory agreement for such 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 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.
ADMINISTRATORS
- ---------------------------------------------------------------
Brown Brothers Harriman & Co. acts as Administrator of the Corporation
and Brown Brothers Harriman Trust Company acts as Administrator of each
Portfolio. Brown Brothers Harriman Trust Company is a wholly-owned subsidiary of
Brown Brothers Harriman & Co.
In its capacity as Administrator of the Corporation, Brown Brothers
Harriman & Co. administers all aspects of the Corporation's operations subject
to the supervision of the Corporation's Directors except as set forth below
under "Distributor". In connection with its responsibilities as Administrator
and at its own expense, Brown Brothers Harriman & Co. (i) provides the
Corporation with the services of persons competent to perform such supervisory,
administrative and clerical functions as are necessary in order to provide
effective administration of the Corporation, including the maintenance of
certain books and records; (ii) oversees the performance of administrative and
professional services to the Corporation by others, including the Funds'
Transfer and Dividend Disbursing Agent; (iii) provides the Corporation with
adequate office space and communications and other facilities; and (iv) prepares
and/or arranges for the preparation, but does not pay for, the periodic updating
of the Corporation's registration statement and the Funds' prospectus, the
printing of such documents for the purpose of filings with the Securities and
Exchange Commission and state securities administrators, and the preparation of
tax returns for the Funds and reports to shareholders and the Securities and
Exchange Commission.
Brown Brothers Harriman Trust Company, in its capacity as Administrator of
each Portfolio, administers all aspects of the Portfolios' operations subject to
the supervision of the Portfolios' Trustees except as set forth above under
"Investment Adviser". In connection with its responsibilities as Administrator
for each Portfolio and at its own expense, Brown Brothers Harriman Trust Company
(i) provides the Portfolios with the services of persons competent to perform
such supervisory, administrative and clerical functions as are necessary in
order to provide effective administration of the Portfolios, including the
maintenance of certain books and records, receiving and processing requests for
increases and decreases in the beneficial interests in the Portfolios,
notification to the Investment Adviser of available funds for investment,
reconciliation of account information and balances between the Custodian and the
Investment Adviser, and processing, investigating and responding to investor
inquiries; (ii) oversees the performance of administrative and professional
services to the Portfolios by others, including the Custodian; (iii) provides
the Portfolios with adequate office space and communications and other
facilities; and (iv) prepares and/or arranges for the preparation, but does not
pay for, the periodic updating of the Portfolios' registration statement for
filing with the Securities and Exchange Commission, and the preparation of tax
returns for the Portfolios and reports to investors and the Securities and
Exchange Commission.
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 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 Administration Agreement
between each Portfolio and Brown Brothers Harriman Trust Company (dated December
15, 1993) shall remain in effect for successive annual periods, 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 Independent Directors/Trustees most recently approved the Corporation's
Administration Agreement on November 10, 1998 and each Portfolio's
Administration Agreement on February 9, 1999. 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 such 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 "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 the Portfolio or by the corresponding Fund and other investors in
such Portfolio on 60 days' written notice to Brown Brothers Harriman Trust
Company. 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. For the services rendered to the
Portfolio and related expenses borne by Brown Brothers Harriman Trust Company as
Administrator of the Portfolio, Brown Brothers Harriman Trust Company receives
from the Portfolio an annual fee, computed daily and payable monthly, equal to
0.035% of the Portfolio's average daily net assets. Prior to November 1, 1999,
Brown Brothers Harriman & Co. was paid monthly at an annual rate equal to 0.15%
of each Fund's average daily net assets. For the fiscal years ended October 31,
1996, 1997 and 1998 the European Equity Fund incurred $195,566, $233,628 and
$241,367, respectively, for administrative services. For the fiscal years ended
October 31, 1996, 1997 and 1998, the Pacific Basin Equity Fund incurred
$213,287, $215,035 and $65,043, respectively, for administrative services.
Pursuant to a Subadministrative Services Agreement with Brown Brothers
Harriman Trust Company, 59 Wall Street Administrators performs such
subadministrative duties for each Portfolio as are from time to time agreed upon
by the parties. The offices of 59 Wall Street Administrators are located at 21
Milk Street, Boston, MA 02109. 59 Wall Street Administrators is a wholly-owned
subsidiary of SFG. 59 Wall Street Administrators' subadministrative duties may
include providing equipment and clerical personnel necessary for maintaining the
organization of each Portfolio, participation in the preparation of documents
required for compliance by the Portfolio with applicable laws and regulations,
preparation of certain documents in connection with meetings of Trustees of and
investors in the Portfolio, and other functions that would otherwise be
performed by the Administrator of the Portfolio as set forth above. For
performing such subadministrative services, 59 Wall Street Administrators
receives such compensation as is from time to time agreed upon, but not in
excess of the amount paid to the Administrator from the Portfolio. Prior to
March 1, 1999, Signature Financial Group (Cayman) Limited acted as
subadministrator under the same terms and conditions as set forth herein.
DISTRIBUTOR
- -------------------------------------------------------------------
59 Wall Street Distributors acts as exclusive Distributor of shares of each
Fund. Its office is located at 21 Milk Street, Boston, Massachusetts 02109. 59
Wall Street Distributors is a wholly-owned subsidiary of SFG. SFG and its
affiliates currently provide administration and distribution services for other
registered investment companies. The Corporation pays for the preparation,
printing and filing of copies of the Corporation's registration statements and
each Fund's prospectus as required under federal and state securities laws.
59 Wall Street Distributors holds itself available to receive purchase
orders for Fund shares.
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. The Distribution Agreement was most recently approved by the
Independent Directors of the Corporation on February 9, 1999. 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 terminable
by 59 Wall Street Distributors on 90 days' written notice to the Corporation.
SHAREHOLDER SERVICING AGENT
- -------------------------------------------------------------------
The Corporation has entered into a shareholder servicing agreement with
Brown Brothers Harriman & Co. pursuant to which Brown Brothers Harriman & Co.,
as agent for the Funds, among other things: answers inquiries from shareholders
of and prospective investors in the Funds regarding account status and history,
the manner in which purchases and redemptions of Fund shares may be effected and
certain other matters pertaining to the Funds; assists shareholders of and
prospective investors in the Funds in designating and changing dividend options,
account designations and addresses; and provides such other related services as
the Corporation or a shareholder of or prospective investor in a Fund may
reasonably request. For these services, Brown Brothers Harriman & Co. receives
from each Fund an annual fee, computed daily and payable monthly, equal to 0.25%
of that Fund's average daily net assets represented by shares owned during the
period for which payment was being made by shareholders who did not hold their
shares with an Eligible Institution.
FINANCIAL INTERMEDIARIES
- -------------------------------------------------------------------
From time to time, the Funds' Shareholder Servicing Agent enters into
contracts with banks, brokers and other financial intermediaries ("Financial
Intermediaries") pursuant to which a customer of the Financial Intermediary may
place purchase orders for Fund shares through that Financial Intermediary which
holds such shares in its name on behalf of that customer. Pursuant to such
contract, each Financial Intermediary as agent with respect to shareholders of
and prospective investors in the Funds who are customers of that Financial
Intermediary, among other things: provides necessary personnel and facilities to
establish and maintain certain shareholder accounts and records enabling it to
hold, as agent, its customers' shares in its name or its nominee name on the
shareholder records of the Corporation; assists in processing purchase and
redemption transactions; arranges for the wiring of funds; transmits and
receives funds in connection with customer orders to purchase or redeem shares
of the Funds; provides periodic statements showing a customer's account balance
and, to the extent practicable, integrates such information with information
concerning other customer transactions otherwise effected with or through it;
furnishes, either separately or on an integrated basis with other reports sent
to a customer, monthly and annual statements and confirmations of all purchases
and redemptions of Fund shares in a customer's account; transmits proxy
statements, annual reports, updated prospectuses and other communications from
the Corporation to its customers; and receives, tabulates and transmits to the
Corporation proxies executed by its customers with respect to meetings of
shareholders of the Funds. For these services, the Financial Intermediary
receives such fees from the Shareholder Servicing Agent as may be agreed upon
from time to time between the Shareholder Servicing Agent and such Financial
Intermediary.
ELIGIBLE INSTITUTIONS
- -------------------------------------------------------------------
The Corporation enters into eligible institution agreements with banks,
brokers and other financial institutions pursuant to which each financial
institution, as agent for the Corporation with respect to shareholders of and
prospective investors in the Funds who are customers with that financial
institution, among other things: provides necessary personnel and facilities to
establish and maintain certain shareholder accounts and records enabling it to
hold, as agent, its customers' shares in its name or its nominee name on the
shareholder records of the Corporation; assists in processing purchase and
redemption transactions; arranges for the wiring of funds; transmits and
receives funds in connection with customer orders to purchase or redeem shares
of the Funds; provides periodic statements showing a customer's account balance
and, to the extent practicable, integrates such information with information
concerning other customer transactions otherwise effected with or through it;
furnishes, either separately or on an integrated basis with other reports sent
to a customer, monthly and annual statements and confirmations of all purchases
and redemptions of Fund shares in a customer's account; transmits proxy
statements, annual reports, updated prospectuses and other communications from
the Corporation to its customers; and receives, tabulates and transmits to the
Corporation proxies executed by its customers with respect to meetings of
shareholders of the Funds. For these services, each financial institution
receives from each Fund an annual fee, computed daily and payable monthly, equal
to 0.25% of that Funds average daily net assets represented by shares owned
during the period for which payment was being made by customers for whom the
financial institution was the holder or agent of record.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
- -------------------------------------------------------------------
Brown Brothers Harriman & Co. (the "Custodian"), 50 Milk Street,
Boston, Massachusetts 02109, is Custodian for each Fund and each Portfolio and
Transfer and Dividend Disbursing Agent for each Fund.
As Custodian for each Fund, it is responsible for holding the Fund's assets
(i.e., cash and the Fund's interest in its corresponding Portfolio) pursuant to
a custodian agreement with the Corporation. Cash is held for each Fund in demand
deposit accounts at the Custodian. Subject to the supervision of the
Administrator of the Corporation, the Custodian maintains the accounting records
for each Fund and each day computes the net asset value per share of the Fund.
As Transfer and Dividend Disbursing Agent it is responsible for maintaining the
books and records detailing the ownership of each Fund's shares.
As Custodian for each Portfolio, it is responsible for maintaining
books and records of portfolio transactions and holding the Portfolio's
securities and cash pursuant to a custodian agreement with the Portfolio. Cash
is held for each Portfolio in demand deposit accounts at the Custodian. Subject
to the supervision of the Administrator of each Portfolio, the Custodian
maintains the accounting and portfolio transaction records for the Portfolio and
each day computes the net asset value and net income of the Portfolio.
INDEPENDENT AUDITORS
- -------------------------------------------------------------------
Deloitte & Touche LLP, Boston, Massachusetts are the independent
auditors for the Funds and the Portfolios.
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. (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 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 (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 the Fund
outstanding at the time the determination is made.
The value of a 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 corresponding Fund is determined. The value of a Fund's
investment in its corresponding 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 a Fund's investment in its corresponding Portfolio is
determined once daily at 4:00 P.M., New York time on each day the New York Stock
Exchange is open for regular trading.
The 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 sales 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 the Portfolios'
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 Portfolios.
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 Portfolios' 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 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 the 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 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 annualized average 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, 1998 was 12.57% and 2.68%, 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, 1998 was 19.34% and -10.78%,
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, 1998
was 13.50% and -6.04%, 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 Portfolio and that Portfolio's
and its corresponding 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.
Each Fund's performance may be used from time to time in shareholder
reports or other communications to shareholders or prospective investors.
Performance figures are based on historical earnings and are not intended to
indicate future performance. Performance information may include a Fund's
investment results and/or comparisons of its investment results to various
unmanaged indexes (such as the MSCI-Europe and MSCI-Pacific) and to investments
for which reliable performance data is available. Performance information may
also include comparisons to averages, performance rankings or other information
prepared by recognized mutual fund statistical services. To the extent that
unmanaged indexes are so included, the same indexes are used on a consistent
basis. A Fund's investment results as used in such communications are calculated
on a total rate of return basis in the manner set forth below. From time to
time, fund rankings from various sources, such as Micropal, may be quoted.
Period and average annualized "total rates of return" may be provided
in such communications. The "total rate of return" refers to the change in the
value of an investment in a Fund over a stated period based on any change in net
asset value per share and including the value of any shares purchasable with any
dividends or capital gains distributions during such period. Period total rates
of return may be annualized. An annualized total rate of return is a compounded
total rate of return which assumes that the period total rate of return is
generated over a one year period, and that all dividends and capital gains
distributions are reinvested. An annualized total rate of return is slightly
higher than a period total rate of return if the period is shorter than one
year, because of the assumed reinvestment.
PURCHASES AND REDEMPTIONS
- -------------------------------------------------------------------
A confirmation of each purchase and redemption transaction is issued on
execution of that transaction.
The Corporation reserves the right to discontinue, alter or limit the
automatic reinvestment privilege at any time.
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.
In the event a shareholder redeems all shares held in the Fund, future
purchases of shares of the Fund by such shareholder would be subject to the
Fund's minimum initial purchase requirements.
An investor should be aware that redemptions from the Fund may not be
processed if a completed account application with a certified taxpayer
identification number has not been received.
The value of shares redeemed may be more or less than the shareholder's
cost depending on Fund performance during the period the shareholder owned such
shares.
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"of
the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, the
Funds are not subject to federal income taxes on its net income and realized net
long-term capital gains in excess of net short-term capital losses that are
distributed to its shareholders. A 4% non-deductible excise tax is imposed on a
Fund to the extent that certain distribution requirements for that Fund for each
calendar year are not met. The Corporation intends to continue to meet such
requirements. Each Portfolio is also not required to pay any federal income or
excise taxes. 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 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 and securities of other investment companies).
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 Portfolio
accrues income or receivables or expenses or other liabilities denominated in a
foreign currency and the time that Portfolio actually collects such income or
pays such liabilities, are treated as ordinary income or ordinary loss.
Similarly, gains or losses on the disposition of debt securities held by a
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.
Dividends paid from the Funds are not eligible for the
dividends-received deduction allowed to corporate shareholders because the
income of the Portfolios does not consist of dividends paid by domestic
corporations.
Gains or losses on sales of securities 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. 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
the 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", the
corresponding Fund may be subject to U.S. federal income tax, and an additional
charge in the nature of interest, on the 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 the 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, the Fund would be required each year to include in income, and
distribute to shareholders, in accordance with the distribution requirements set
forth above, the Fund's pro rata share of the ordinary earnings and net capital
gains of the company, whether or not distributed to the Fund.
Return of Capital. Any dividend or capital gains distribution has the
effect of reducing the net asset value of Fund shares held by a shareholder by
the same amount as the dividend or capital gains distribution. 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 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. Foreign Taxes. Each Fund may be subject to foreign withholding
taxes and if more than 50% of the value of the Fund's share of the corresponding
Portfolio's total assets at the close of any fiscal year consists of stock or
securities of foreign corporations, at the election of the Corporation any such
foreign income taxes paid by the Fund may be treated as paid directly by its
shareholders. The Corporation makes such an election only if it deems it to be
in the best interest of the Fund's shareholders and notifies shareholders in
writing each year if it makes the election and of the amount of foreign income
taxes, if any, to be treated as paid by the shareholders. If the Corporation
elects to treat foreign income taxes paid from the Fund as paid directly by the
Fund's shareholders, the Fund's shareholders would be required to include in
income such shareholder's proportionate share of the amount of foreign income
taxes paid by the Fund and would be entitled to claim either a credit or
deduction in such amount. (No deduction is permitted in computing alternative
minimum tax liability). 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. The 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
the 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.
Certain entities, including corporations formed as part of corporate
pension or profit-sharing plans and certain charitable and other organizations
described in Section 501 (c) of the Internal Revenue Code, as amended, that are
generally exempt from federal income taxes may not receive any benefit from the
election by the Corporation to "pass through" foreign income taxes to a Fund's
shareholders.
In certain circumstances foreign taxes imposed with respect to a Fund's
income may not be treated as income taxes imposed on the Fund. Any such taxes
would not be included in the 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 the Fund would, for U.S. federal income tax purposes, be
treated as imposed on the issuing corporation rather than the 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.
Distributions to shareholders may be subject to additional state and local
taxes. Shareholders should consult their own tax advisors with respect to any
state or local taxes.
Other Information. Annual notification as to the tax status of capital
gains distributions, if any, is provided to shareholders shortly after October
31, the end of each Funds fiscal year. Additional tax information is mailed to
shareholders in January.
Under U.S. Treasury regulations, the Corporation and each Eligible
Institution are required to withhold and remit to the U.S. Treasury a portion
(31%) of dividends and capital gains distributions on the accounts of those
shareholders who fail to provide a correct taxpayer identification number
(Social Security Number for individuals) or to make required certifications, or
who have been notified by the Internal Revenue Service that they are subject to
such withholdings. Prospective investors should submit an IRS Form W-9 to avoid
such withholding.
This tax discussion is based on the tax laws and regulations in effect
on the date of the Prospectus, however such laws and regulations are subject to
change. Shareholders and prospective investors are urged to consult their tax
advisors regarding specific questions relevant to their particular
circumstances.
DESCRIPTION OF SHARES
- ------------------------------------------------------------------------------
The Corporation is an open-end management investment company organized
as a Maryland corporation on July 16, 1990. Its offices are located at 21 Milk
Street, Boston, Massachusetts 02109; its telephone number is (617) 423-0800. 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 European Equity Fund and
25,000,000 as shares of Pacific Basin Equity Fund. The Board of Directors may
increase the number of shares the Corporation is authorized to issue without the
approval of shareholders. The Board of Directors also has the power to designate
one or more series of shares of common stock and to classify and reclassify any
unissued shares with respect to such series. Currently there are four such
series in addition to the Funds.
Each share of the Fund represents an equal proportional interest in the
Fund with each other share. Upon liquidation of the Fund, shareholders are
entitled to share pro rata in the net assets of the Fund available for
distribution to shareholders.
Shareholders of each Fund are entitled to a full vote for each full
share held and to a fractional vote for fractional shares. 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 as may be required by the
1940 Act or as may be permitted by the Articles of Incorporation or By-laws.
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 preemptive or conversion rights. The rights of
redemption are described in the Prospectus. Shares, when issued, are fully paid
and non-assessable by the Corporation. Stock certificates are not issued by the
Corporation.
The By-laws of the Corporation provide that the presence in person or
by proxy of the holders of record of one third of the shares of a Fund
outstanding and entitled to vote thereat shall constitute a quorum at all
meetings of shareholders of that Fund, except as otherwise required by
applicable law. The By-laws further provide that all questions shall be decided
by a majority of the votes cast at any such meeting at which a quorum is
present, except as otherwise required by applicable law. The Corporation's
Articles of Incorporation provide that, at any meeting of shareholders of a
Fund, each Eligible Institution may vote any shares as to which that Eligible
Institution is the agent of record and which are otherwise not represented in
person or by proxy at the meeting, proportionately in accordance with the votes
cast by holders of all shares otherwise represented at the meeting in person or
by proxy as to which that Eligible Institution is the agent of record. Any
shares so voted by an Eligible Institution are deemed represented at the meeting
for purposes of quorum requirements.
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.
Each Portfolio, in which all of the assets of the Fund are invested, is
organized as a trust under the law of the State of New York. The Portfolio's
Declaration of Trust provides that the corresponding Fund and other entities
investing in the Portfolio (e.g., other investment companies, insurance company
separate accounts and common and commingled trust funds) are each liable for all
obligations of the Portfolio. However, the risk of the corresponding Fund
incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance existed and the Portfolio
itself was unable to meet its obligations. Accordingly, the Directors of the
Corporation believe that neither the corresponding Fund nor its shareholders
will be adversely affected by reason of the investment of all of the assets of
the Fund in the Portfolio. Each investor in each Portfolio, including the
corresponding Fund, may add to or reduce its investment in the Portfolio on each
day the New York Stock Exchange is open for regular trading. At 4:00 P.M., New
York time on each such business day, the value of each investor's beneficial
interest in each Portfolio is determined by multiplying the net asset value of
the Portfolio by the percentage, effective for that day, which represents that
investor's share of the aggregate beneficial interests in the Portfolio. Any
additions or withdrawals, which are to be effected on that day, are then
effected. The investor's percentage of the aggregate beneficial interests in the
Portfolio is then recomputed as the percentage equal to the fraction (i) the
numerator of which is the value of such investor's investment in the Portfolio
as of 4:00 P.M., New York time on such day plus or minus, as the case may be,
the amount of any additions to or withdrawals from the investor's investment in
the Portfolio effected on such day, and (ii) the denominator of which is the
aggregate net asset value of the Portfolio as of 4:00 P.M., New York time on
such day plus or minus, as the case may be, the amount of the net additions to
or withdrawals from the aggregate investments in the Portfolio by all investors
in the Portfolio. The percentage so determined is then applied to determine the
value of the investor's interest in the Portfolio as of 4:00 P.M., New York time
on the following business day of the Portfolio.
Whenever the Corporation is requested to vote on a matter pertaining to
a Portfolio, the Corporation will vote its shares without a meeting of
shareholders of the corresponding Fund if the proposal is one, if which made
with respect to the Fund, would not require the vote of shareholders of the
Fund, as long as such action is permissible under applicable statutory and
regulatory requirements. For all other matters requiring a vote, the Corporation
will hold a meeting of shareholders of the Fund and, at the meeting of investors
in the Portfolio, the Corporation will cast all of its votes in the same
proportion as the votes of the Fund's shareholders even if all Fund shareholders
did not vote. Even if the Corporation votes all its shares at the Portfolio
meeting, other investors with a greater pro rata ownership in the Portfolio
could have effective voting control of the operations of the Portfolio.
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 each Portfolio will have no preference, preemptive,
conversion or similar rights, and are fully paid and non-assessable. Each
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 BROKERAGE TRANSACTIONS
- ---------------------------------------------------------------------
Each Portfolio is managed actively in pursuit of its investment
objective. Securities are not traded for short-term profits but, when
circumstances warrant, securities are sold without regard to the length of time
held. A 100% annual turnover rate would occur, for example, if all securities in
a Portfolio (excluding short-term obligations) were replaced once in a period of
one year. The portfolio turnover rate for the European Equity Fund was 82% and
56% for the fiscal years ended October 31, 1997 and 1998, respectively. For the
same time periods, the portfolio turnover rate for the Pacific Basin Equity Fund
was 63% and 91%, respectively. The amount of brokerage commissions and taxes on
realized capital gains to be borne by the shareholders of a Fund tend to
increase as the level of portfolio activity increases.
In effecting securities transactions for a 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 broker=s financial condition and responsibility; the research
and other investment information provided by the broker; and the commissions
charge. 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.
The Investment Adviser may direct a portion of a Portfolio's securities
transactions to certain unaffiliated brokers which in turn use a portion of the
commissions they receive from that Portfolio to pay other unaffiliated service
providers on behalf of that Portfolio for services provided for which that
Portfolio would otherwise be obligated to pay. Such commissions paid by a
Portfolio are at the same rate paid to other brokers for effecting similar
transactions in listed equity securities.
On those occasions when Brown Brothers Harriman & Co. deems the
purchase or sale of a security to be in the best interests of 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 the Portfolios. In some instances, this procedure might
adversely affect a Portfolio.
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. For the fiscal year ended
October 31, 1998, the aggregate commissions paid by the European Equity Fund and
the Pacific Basin Equity Fund were $460,433 and $362,267, 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 Portfolios 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 Portfolios. 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 Portfolio to the Investment Adviser by any amount that
might be attributable to the value of such services. A committee, comprised of
officers and partners of Brown Brothers Harriman & Co. who are portfolio
managers of some of Brown Brothers Harriman & Co.'s managed accounts (the
"Managed Accounts"), evaluates semi-annually the nature and quality of the
brokerage and research services provided by brokers, and, based on this
evaluation, establishes a list and projected ranking of preferred brokers for
use in determining the relative amounts of commissions to be allocated to such
brokers. However, in any semi-annual period, brokers not on the list may be
used, and the relative amounts of brokerage commissions paid to the brokers on
the list may vary substantially from the projected rankings. The Directors of
the Corporation review regularly the reasonableness of commissions and other
transaction costs incurred for the Portfolios 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 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 the outstanding voting securities" (as defined in the 1940
Act) currently means the vote of (i) 67% or more of the shares 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.
Other mutual funds or institutional investors may invest in the Portfolio
on the same terms and conditions as the Fund. However, these other investors may
have different sales commissions and other operating expenses which may generate
different aggregate performance results. Information concerning other investors
in the Portfolio is available from Brown Brothers Harriman & Co.
The Corporation may withdraw the Fund's investment in the Portfolio as a
result of certain changes in the Portfolio's investment objective, policies or
restrictions or if the Board of Directors of the Corporation determines that it
is otherwise in the best interests of the Fund to do so. Upon any such
withdrawal, the Board of Directors of the Corporation would consider what action
might be taken, including the investment of all of the assets of the Fund in
another pooled investment entity or the retaining of an investment adviser to
manage the Fund's assets in accordance with the investment policies of the
Portfolio In the event the Directors of the Corporation were unable to
accomplish either, the Directors will determine the best course of action.
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, 1998 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 which also contains performance
information will be provided, without charge, to each person receiving this
Statement of Additional Information.
WS5306G
