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STATEMENT OF ADDITIONAL INFORMATION
THE 59 WALL STREET MONEY MARKET FUND
6 ST. JAMES AVENUE, BOSTON, MASSACHUSETTS 02116
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The 59 Wall Street Money Market Fund (the "Fund") is a separate
portfolio of The 59 Wall Street Trust (the "Trust"), a management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"). The Fund is a type of mutual fund commonly known as a money market
fund. The Fund is designed to be a cost effective and convenient means of making
substantial investments in money market instruments. The investment objective of
the Fund is to achieve as high a level of current income as is consistent with
the preservation of capital and the maintenance of liquidity. The Trust seeks to
achieve the investment objective of the Fund by investing all of the Fund's
assets in the U.S. Money Market Portfolio (the "Portfolio"), a diversified
open-end investment company having the same investment objective as the Fund.
The Portfolio pursues its investment objective by investing in high quality,
short-term money market instruments. There can be no assurance that the Fund's
investment objective will be achieved.
Brown Brothers Harriman & Co. is the 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 November
1, 1995, a copy of which may be obtained from the Trust at the address noted
above.
TABLE OF CONTENTS
CROSS-REFERENCE TO
PAGE PAGE IN PROSPECTUS
Investment Objective and Policies 2 5, 6-7
Investment Restrictions 2 7-8
Trustees and Officers 5 10
Investment Adviser 8 10-11
Administrators 9 11-13
Distributor 10 14
Net Asset Value 11 15
Computation of Performance 12 19
Federal Taxes 13 16-17
Massachusetts Trust 13 17-18
Portfolio Transactions 15 6
Bond, Note and Commercial Paper Ratings 16 --
Additional Information 17 19
Financial Statements 18 4
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS NOVEMBER 1, 1995.
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INVESTMENT OBJECTIVE AND POLICIES
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The following supplements the information contained in the Prospectus
concerning the investment objective, policies and techniques of the Fund and the
Portfolio. Since the investment characteristics of the Fund correspond directly
to those of the Portfolio, the following is a discussion of the various
investments and investment policies of the Portfolio.
LOANS OF PORTFOLIO SECURITIES. Securities of the Portfolio may be
loaned if such loans are secured continuously by cash or equivalent collateral
or by an irrevocable letter of credit in favor of the Portfolio at least equal
at all times to 100% of the market value of the securities loaned plus accrued
income. While such securities are on loan, the borrower pays the Portfolio any
income accruing thereon, and cash collateral may be invested for the Portfolio,
thereby earning additional income. All or any portion of interest earned on
invested collateral may be paid to the borrower. Loans are subject to
termination by the Portfolio in the normal settlement time, currently three
business days after notice, or by the borrower on one day's notice. Borrowed
securities are returned when the loan is terminated. Any appreciation or
depreciation in the market price of the borrowed securities which occurs during
the term of the loan inures to the Portfolio and its investors. Reasonable
finders' and custodial fees may be paid in connection with a loan. In addition,
all facts and circumstances, including the creditworthiness of the borrowing
financial institution, are considered before a loan is made and no loan is made
in excess of one year. There is the risk that a borrowed security may not be
returned to the Portfolio. Securities of the Portfolio are not loaned to Brown
Brothers Harriman & Co. or to any affiliate of the Trust, the Portfolio or Brown
Brothers Harriman & Co.
INVESTMENT RESTRICTIONS
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The Fund and the Portfolio are operated under the following investment
restrictions which are deemed fundamental policies and may be changed only with
the approval of the holders of a "majority of the outstanding voting securities
as defined in the 1940 Act" of the Fund or the Portfolio, as the case may be
(see "Additional Information").
Except that the Trust may invest all of the Fund's assets in an
open-end investment company with substantially the same investment objective,
policies and restrictions as the Fund, neither the Portfolio nor the Trust, with
respect to the Fund, may:
(1) purchase securities which may not be resold to the public without
registration under the Securities Act of 1933;
(2) enter into repurchase agreements with more than seven days to
maturity if, as a result thereof, more than 10% of the market value of its net
assets would be invested in such repurchase agreements together with any other
investment for which market quotations are not readily available;
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(3) enter into reverse repurchase agreements which, including any
borrowings under Investment Restriction No. 4, exceed, in the aggregate,
one-third of the market value of its total assets, less liabilities other than
obligations created by reverse repurchase agreements. In the event that such
agreements exceed, in the aggregate, one-third of such market value, it will,
within three days thereafter (not including weekends and holidays) or such
longer period as the Securities and Exchange Commission may prescribe, reduce
the amount of the obligations created by reverse repurchase agreements to an
extent that such obligations will not exceed, in the aggregate, one-third of the
market value of its assets;
(4) borrow money, except from banks for extraordinary or emergency
purposes and then only in amounts not to exceed 10% of the value of its total
assets, taken at cost, at the time of such borrowing; mortgage, pledge or
hypothecate any assets except in connection with any such borrowing and in
amounts not to exceed 10% of the value of its net assets at the time of such
borrowing. Neither the Portfolio nor the Trust on behalf of the Fund, as the
case may be, will purchase securities while borrowings exceed 5% of its total
assets. This borrowing provision is included to facilitate the orderly sale of
portfolio securities, for example, in the event of abnormally heavy redemption
requests, and is not for investment purposes and does not apply to reverse
repurchase agreements (see "Other Investments - Reverse Repurchase Agreements");
(5) enter into when-issued commitments exceeding in the aggregate 15%
of the market value of its total assets, less liabilities other than obligations
created by when-issued commitments;
(6) purchase the securities or other obligations of issuers conducting
their principal business activity in the same industry if, immediately after
such purchase, the value of such investments in such industry would exceed 25%
of the value of its total assets. For purposes of industry concentration, there
is no percentage limitation with respect to investments in U.S. Government
securities and negotiable certificates of deposit, fixed time deposits and
bankers' acceptances of U.S. branches of U.S. banks and U.S. branches of
non-U.S. banks that are subject to the same regulation as U.S. banks;
(7) purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of its total assets
would be invested in securities or other obligations or any one such issuer.
This limitation does not apply to issues of the U.S. Government, its agencies or
instrumentalities;
(8) make loans, except through the purchase or holding of debt
obligations, repurchase agreements or loans of portfolio securities in
accordance with its investment objective and policies (see "Investment Objective
and Policies");
(9) purchase or sell puts, calls, straddles, spreads, or any
combinations thereof; real estate; commodities; commodity contracts or interests
in oil, gas or mineral exploration or development programs. However, bonds or
commercial paper issued by companies which invest in real estate or interests
therein including real estate investment trusts may be purchased;
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(10) purchase securities on margin, make short sales of securities or
maintain a short position, provided that this restriction is not deemed to be
applicable to the purchase or sale of when-issued securities or of securities
for delivery at a future date;
(11) invest in fixed time deposits with a duration of over seven
calendar days, or in fixed time deposits with a duration of from two business
days to seven calendar days if more than 10% of its total assets would be
invested in such deposits;
(12) acquire securities of other investment companies;
(13) act as an underwriter of securities; or
(14) 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.
Except with respect to Investment Restriction No. 3, there will be no
violation of any investment restriction if that restriction is complied with at
the time the relevant action is taken notwithstanding a later change in market
value of an investment, in net or total assets, in the securities rating of the
investment, or any other later change.
STATE AND FEDERAL RESTRICTIONS. In order to comply with certain state
and federal statutes and policies neither the Portfolio nor the Trust, on behalf
of the Fund, may as a matter of operating policy (except that the Trust may
invest all of the Fund's assets in an open-end investment company with
substantially the same investment objective, policies and restrictions as the
Fund): (i) borrow money for any purpose in excess of 10% of its total assets
(taken at cost) (moreover, securities are not purchased at any time at which the
amount of its borrowings exceed 5% of its total assets (taken at market value)),
(ii) pledge, mortgage or hypothecate for any purpose in excess of 10% of its net
assets (taken at market value), (iii) sell any security which it does not own
unless by virtue of its ownership of other securities it has at the time of sale
a right to obtain securities, without payment of further consideration,
equivalent in kind and amount to the securities sold and provided that if such
right is conditional the sale would be made upon the same conditions, (iv)
invest for the purpose of exercising control or management, (v) purchase
securities issued by any investment company except by purchase in the open
market where no commission or profit to a sponsor or dealer results from such
purchase other than the customary broker's commission, or except when such
purchase, though not made in the open market, is part of a plan of merger or
consolidation; provided, however, that securities of any investment company are
not purchased 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, (vi) invest more than
10% of its net assets (taken at the greater of cost or market value) in
securities that are not readily marketable, (vii) purchase securities of any
issuer if such purchase at the time thereof would cause it to hold more than 10%
of any class of securities of such issuer,
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for which purposes all indebtedness of an issuer is deemed a single class,
(viii) invest more than 5% of its assets in companies which, including
predecessors, have a record of less than three years of continuous operation, or
(ix) purchase or retain in its portfolio any securities issued by an issuer any
of whose officers, directors, trustees or security holders is an officer or
Trustee of the Trust or the Portfolio, or is an officer or partner of the
Investment Adviser, if after the purchase of the securities of such issuer, one
or more of such persons owns beneficially more than 1/2 of 1% of the shares or
securities, or both, all taken at market value, of such issuer, and such persons
owning more than 1/2 of 1% of such shares or securities together own
beneficially more than 5% of such shares or securities, or both, all taken at
market value. These policies are not fundamental and may be changed without
shareholder or investor approval in response to changes in the various state and
federal requirements.
PERCENTAGE AND RATING RESTRICTIONS. If a percentage or rating
restriction on investment or utilization of assets set forth above or referred
to in the Prospectus is adhered to at the time an investment is made or assets
are so utilized, a later change in percentage resulting from changes in the
value of the portfolio securities or a later change in the rating of a portfolio
security is not considered a violation of policy. If the Fund's and the
Portfolio's respective investment restrictions relating to any particular
investment practice or policy are not consistent, the Portfolio has agreed with
the Trust, on behalf of the Fund, that the Portfolio will adhere to the more
restrictive limitation.
TRUSTEES AND OFFICERS
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The Trustees and executive officers of the Trust and the Portfolio,
their principal occupation during the past five years (although their titles may
have varied during the period) and business addresses are:
TRUSTEES OF THE TRUST
J.V. SHIELDS, JR.* -- Chairman of the Board and Trustee; Director of
The 59 Wall Street Fund, Inc. (since September 1990); Managing Director,
Chairman and Chief Executive Officer of Shields & Company; Chairman and Chief
Executive Officer of Capital Management Associates, Inc.; and Director of
Flowers Industries, Inc.(1) His business address is Shields & Company, 71
Broadway, New York, NY 10006.
EUGENE P. BEARD** -- Trustee; Director of The 59 Wall Street Fund, Inc.
(since April 1993); and Executive Vice President -- Finance and Operations of
The Interpublic Group of Companies. His business address is The Interpublic
Group of Companies, Inc., 1271 Avenue of the Americas, New York, NY 10020.
DAVID P. FELDMAN** -- Trustee; Director of The 59 Wall Street Fund,
Inc. (since September 1990); Corporate Vice President--Investment Management of
American Telephone and Telegraph Co., Inc.; Director of Dreyfus Mutual Funds,
Equity Fund of Latin America (since prior to April 1990), New World Balanced
Fund (since prior to May 1990), India Magnum Fund (since prior to September
1990), and U.S. Prime Properties Inc. (since February 1990); and Trustee of
Corporate Property Investors. His business address is American Telephone and
Telegraph Co., Inc., One Oak Way, Room 2EA 176, Berkeley Heights, NJ 07922.
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ALAN G. LOWY** -- Trustee; Private investor; Director of The 59 Wall
Street Fund, Inc. (since April 1993); and Secretary of the Los Angeles County
Board of Investments (prior to March 1995). His business address is 4111 Clear
Valley Drive, Encino, CA 91436.
ARTHUR D. MILTENBERGER** -- Trustee; Director of The 59 Wall Street
Fund, Inc. (since February 1992); Vice President and Chief Financial Officer of
Richard K. Mellon and Sons; Treasurer of the Richard King Mellon Foundation;
Director of Enterprise Corporation (prior to 1992), Vought Aircraft Corporation
(prior to September 1994), Caterair International (prior to April 1994),
Computer Renaissance, Inc. (prior to March 1990), and I&M Orchards, Inc. (prior
to 1991); and Member of the Valuation Committee of T. Rowe Price Threshold Fund,
L.P. (prior to 1992), Advisory Committee of the Carlyle Group and the Pittsburgh
Seed Fund and the Valuation Committee of Morgenthaler Venture Funds(2). His
business address is Richard K. Mellon and Sons, P.O. Box RKM, Ligonier, PA
15658.
TRUSTEES OF THE PORTFOLIO
H.B. ALVORD** -- Chairman of the Board and Trustee; Retired; Trustee of
the Trust (from September 1990 to October 1994); Director of The 59 Wall Street
Fund, Inc. (from September 1990 to October 1994); and Trustee of Landmark Funds
III, Landmark Tax Free Reserves, Landmark Multi-State Tax Free Funds, Landmark
Tax Free Income Funds, Landmark Fixed Income Funds, Landmark Funds I, Landmark
Funds II, and Landmark International Equity Fund (since August 1990). His
business address is P.O. Box 1812, Pebble Beach, CA 93953.
RICHARD L. CARPENTER** -- Trustee; Director of Internal Investments,
Public School Employees' Retirement System (since June 1991); and Managing
Director of Chase Investors Management Corp. (prior to March 1990). His business
address is 208 N. President Avenue, Lancaster, PA 17603.
CLIFFORD A. CLARK** -- Trustee; Retired; Director of Schmid, Inc.
(prior to July 1993); and Managing Director of the Smith-Denison Foundation. His
business address is 42 Clowes Drive, Falmouth, MA 02540.
EDWARD H. NORTHROP** -- Trustee; Chairman of Xicom, Inc.. His business
address is P.O. Box 7, Innistree, Arden, NY 10910.
DAVID M. SEITZMAN** -- Trustee; Practicing Physician with Seitzman,
Shuman, Kwart and Phillips; and Director of the National Capital Underwriting
Company, Commonwealth Medical Liability Insurance Co. and National Capital
Insurance Brokerage, Limited (since 1991). His business address is 2021 K.
Street, N.W., Suite 408, Washington, DC 20006.
OFFICERS OF THE TRUST AND THE PORTFOLIO
PHILIP W. COOLIDGE -- President; Chief Executive Officer and President
of Signature Financial Group, Inc. ("SFG"), 59 Wall Street Distributors, Inc.
("59 Wall Street Distributors") (since June 1990) and 59 Wall Street
Administrators, Inc. ("59 Wall Street Administrators") (since June 1993).
JAMES E. HOOLAHAN -- Vice President; Senior Vice President of SFG
(since prior to December 1990).
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THOMAS M. LENZ -- Secretary; Vice President and Associate General
Counsel of SFG (since prior to November 1990); and Assistant Secretary of 59
Wall Street Distributors (since May 1991) and 59 Wall Street Administrators
(since June 1993).
SUSAN JAKUBOSKI*** -- Assistant Treasurer and Assistant Secretary of
the Portfolio; Assistant Secretary, Assistant Treasurer and Vice President of
Signature Financial Group (Cayman) Limited (since August 1994); Fund Compliance
Administrator of Concord Financial Group, Inc. (from November 1990 to August
1994); and Senior Fund Accountant of Neuberger & Berman Management Incorporated
(prior to November 1990). Her business address is Elizabethan Square, Shedden
Road, George Town, Grand Cayman, Cayman Islands, BWI.
MOLLY S. MUGLER -- Assistant Secretary; Legal Counsel and Assistant
Secretary of SFG; and Assistant Secretary of 59 Wall Street Distributors (since
June 1990) and 59 Wall Street Administrators (since June 1993).
BARBARA M. O'DETTE -- Assistant Treasurer; Assistant Treasurer of SFG,
59 Wall Street Distributors (since June 1990) and 59 Wall Street Administrators
(since June 1993).
DAVID G. DANIELSON -- Assistant Treasurer; Assistant Manager of SFG
(since May 1991); and Graduate Student, Northeastern University (prior to March
1991).
BRIAN J. HALL -- Assistant Treasurer; Fund Administrator of SFG (since
November 1991); and Senior State Regulation Administrator of The Boston Company
(prior to November 1991).
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* Mr. Shields is an "interested person" of the Trust and the Portfolio
because of his affiliation with a registered broker-dealer.
** These Trustees are members of the Audit Committee of the Trust or the
Portfolio, as the case may be.
*** Ms. Jakuboski is an officer of the Portfolio but is not an officer of the
Trust.
(1) Shields & Company, Capital Management Associates, Inc. and Flowers
Industries, Inc., with which Mr. Shields is associated, are a registered
broker-dealer and a member of the New York Stock Exchange, a registered
investment adviser, and a diversified food company, respectively.
(2) Richard K. Mellon and Sons, Richard King Mellon Foundation, Enterprise
Corporation, Vought Aircraft Corporation, Caterair International, The
Carlyle Group and Morgenthaler Venture Funds, with which Mr. Miltenberger
is or has been associated, are a private foundation, a private foundation,
a business development firm, an aircraft manufacturer, an airline food
services company, a merchant bank, and a venture capital partnership,
respectively.
Each Trustee and officer of the Trust listed above holds the equivalent
position with The 59 Wall Street Fund, Inc. The address of each officer of the
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Trust is 6 St. James Avenue, Boston, Massachusetts 02116. Messrs.
Coolidge, Hoolahan, Lenz, Danielson and Hall and Mss. Jakuboski, Mugler and
O'Dette 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 Trustee is an "interested person" of the
Trust or the Portfolio as that term is defined in the 1940 Act.
The Trustees receive a base annual fee of $15,000 (except the Chairman
who receives a base annual fee of $20,000) which is paid jointly by all series
of the Trust and The 59 Wall Street Fund, Inc. and allocated among the series
based upon their respective net assets. In addition, each series which has
commenced operations pays an annual fee to each Trustee of $1,000. The aggregate
compensation to each Trustee from the Trust and the Fund Complex (the Fund
Complex consists of the Trust and The 59 Wall Street Fund, Inc. which currently
consists of six series) was less than $60,000.
By virtue of the responsibilities assumed by Brown Brothers Harriman &
Co. under the Investment Advisory Agreement with the Portfolio and the
Administration Agreement with the Fund, and by Brown Brothers Harriman Trust
Company (Cayman) Limited under the Administration Agreement with the Portfolio
(see "Investment Adviser" and "Administrators"), neither the Trust nor the
Portfolio requires employees other than its officers, and none of its officers
devote full time to the affairs of the Trust or the Portfolio, as the case may
be, or, other than the Chairmen, receive any compensation from the Fund or the
Portfolio.
As of September 30, 1995, the Trustees and officers of the Trust and
the Portfolio as a group owned less than 1% of the outstanding shares of the
Trust 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. Partners of
Brown Brothers Harriman & Co. and their immediate families owned 23,615,657
(3.79%) shares of the Fund. Brown Brothers Harriman & Co. and its affiliates
separately were able to direct the disposition of an additional 121,608,449
(19.50%) shares of the Fund, as to which shares Brown Brothers Harriman & Co.
disclaims beneficial ownership.
INVESTMENT ADVISER
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Under its Investment Advisory Agreement with the Portfolio, subject to
the general supervision of the Portfolio's Trustees and in conformance with the
stated policies of the Portfolio, Brown Brothers Harriman & Co. provides
investment advice and portfolio management services to the Portfolio. In this
regard, it is the responsibility of Brown Brothers Harriman & Co. to make the
day-to-day investment decisions for the Portfolio, to place the purchase and
sale orders for portfolio transactions and to manage, generally, the Portfolio's
investments.
The Investment Advisory Agreement between Brown Brothers Harriman & Co.
and the Portfolio is dated December 15, 1993 and remains in effect for two years
from such date and thereafter, but only as long as the agreement is specifically
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approved at least annually (i) by a vote of the holders of a "majority of the
outstanding voting securities as defined in the 1940 Act" of the Portfolio, or
by the Portfolio's Trustees, and (ii) by a vote of a majority of the Trustees of
the Portfolio who are not parties to the Investment Advisory Agreement or
"interested persons" (as defined in the 1940 Act) of the Portfolio ("Independent
Trustees"), cast in person at a meeting called for the purpose of voting on such
approval. The Investment Advisory Agreement was approved by the Independent
Trustees on December 15, 1993. The Investment Advisory Agreement terminates
automatically if assigned and is terminable at any time without penalty by a
vote of a majority of the Trustees of the Portfolio or by a vote of the holders
of a "majority of the outstanding voting securities as defined in the 1940 Act"
of the Portfolio on 60 days' written notice to Brown Brothers Harriman & Co. and
by Brown Brothers Harriman & Co. on 90 days' written notice to the Portfolio
(see "Additional Information").
With respect to the Portfolio, the investment advisory fee paid to the
Investment Adviser is calculated daily and paid monthly at an annual rate equal
to 0.15% of the Portfolio's average daily net assets. Prior to November 1, 1994,
Brown Brothers Harriman & Co. managed the assets of the Fund pursuant to an
Investment Advisory Agreement which was terminated by the Trust, on behalf of
the Fund, upon the Fund's investment of all of its assets in the Portfolio. For
the period October 31, 1994 through June 30, 1995, the Portfolio incurred
$614,606 for advisory services. For the period July 1, 1994 to October 31, 1994,
the Fund incurred $281,568 for advisory services. For the fiscal years ended
June 30, 1994 and 1993, the Fund paid $1,471,193 and $2,798,423, respectively,
for advisory services.
The Glass-Steagall Act prohibits certain financial institutions from
engaging in the business of underwriting, selling or distributing securities and
from sponsoring, organizing or controlling a registered open-end investment
company continuously engaged in the issuance of its shares, such as the Fund.
There is presently no controlling precedent prohibiting financial institutions
such as Brown Brothers Harriman & Co. from performing investment advisory,
administrative or shareholder servicing/eligible institution functions. If Brown
Brothers Harriman & Co. were to terminate its Investment Advisory Agreement with
the Portfolio, or were prohibited from acting in such capacity, it is expected
that the Trustees of the Portfolio would recommend to the investors that they
approve a new investment advisory agreement for the Portfolio with another
qualified adviser. If Brown Brothers Harriman & Co. were to terminate its
Shareholder Servicing Agreement, Eligible Institution Agreement or
Administration Agreement with the Trust or were prohibited from acting in any
such capacity, its customers would be permitted to remain shareholders of the
Fund and alternative means for providing shareholder services or administrative
services, as the case may be, would be sought. In such event, although the
operation of the Trust 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
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The Administration Agreements between the Trust and Brown Brothers
Harriman & Co. (dated November 1, 1993) and between the Portfolio and Brown
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Brothers Harriman Trust Company (Cayman) Limited (dated December 15, 1993) will
remain in effect for two years from such respective date and thereafter, but
only so long as each such agreement is specifically approved at least annually
in the same manner as the Investment Advisory Agreement (see "Investment
Adviser"). The Independent Trustees last approved the Trust's Administration
Agreement and the Portfolio's Administration Agreement on August 22, 1995 and
December 15, 1993, respectively. Each agreement will terminate automatically if
assigned by either party thereto and is terminable with respect to the Trust or
the Portfolio at any time without penalty by a vote of a majority of the
Trustees of the Trust or the Trustees of the Portfolio, as the case may be, or
by a vote of the holders of a "majority of the outstanding voting securities as
defined in the 1940 Act" of the Trust or the Portfolio, as the case may be (see
"Additional Information"). The Trust's Administration Agreement is terminable by
the Trustees of the Trust or shareholders of the Trust on 60 days' written
notice to Brown Brothers Harriman & Co. The Portfolio's Administration Agreement
is terminable by the Trustees of the Portfolio or by the Fund and other
investors in the Portfolio on 60 days' written notice to Brown Brothers Harriman
Trust Company (Cayman) Limited. Each agreement is terminable by the respective
Administrator on 90 days' written notice to the Trust 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
0.075% of the Fund's average daily net assets. From November 1, 1993 to October
31, 1994, Brown Brothers Harriman & Co. was paid at an annual rate equal to
0.10% of the Fund's average daily net assets. Prior to November 1, 1993, 59 Wall
Street Distributors served as administrator of the Trust and was paid at an
annual rate equal to 0.05% of the Fund's average daily net assets. During the
fiscal years ended June 30, 1995, 1994 and 1993, the Fund paid $494,282,
$515,818 and $349,803, respectively, for administrative services.
The administrative fee paid to Brown Brothers Harriman Trust Company
(Cayman) Limited by the Portfolio is calculated and paid monthly at an annual
rate equal to 0.035% of the Portfolio's average daily net assets. Brown Brothers
Harriman Trust Company (Cayman) Limited is a wholly-owned subsidiary of Brown
Brothers Harriman Trust Company of New York, which is a wholly-owned subsidiary
of Brown Brothers Harriman & Co. For the period October 31, 1994 through June
30, 1995, the Portfolio incurred $143,408 for administrative services.
DISTRIBUTOR
=============================================================================
The Distribution Agreement (dated August 31, 1990) between the Trust
and 59 Wall Street Distributors remains in effect indefinitely, but only so long
as such agreement is specifically approved at least annually in the same manner
as the Investment Advisory Agreement (see "Investment Adviser"). The
Distribution Agreement was most recently approved by the Independent Trustees of
the Trust on February 22, 1995. The agreement terminates automatically if
assigned by either party thereto and is terminable with respect to the Fund at
any time without penalty by a vote of a majority of the Trustees of the Trust or
by a vote of the holders of a "majority of the outstanding voting securities as
defined in the 1940 Act" of the Fund (see "Additional Information"). The
Distribution Agreement is terminable with respect to the Fund by the Trust's
Trustees or shareholders of the Fund on 60 days' written notice to 59 Wall
Street Distributors. The
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agreement is terminable by 59 Wall Street Distributors on 90 days' written
notice to the Trust.
NET ASSET VALUE
=============================================================================
The net asset value of each of the Fund's shares is determined each day
the New York Stock Exchange is open for regular trading and New York banks are
open for business. (As of the date of this Statement of Additional Information,
such Exchange and banks are so open every weekday except for the following
holidays: New Year's Day, Martin Luther King Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day,
Thanksgiving Day and Christmas.) This determination of net asset value of each
share of the Fund is made once during each such day as of the close of regular
trading on such Exchange by subtracting from the value of the Fund's total
assets (I.E., the value of its investment in the Portfolio and other assets) the
amount of its liabilities, including expenses payable or accrued, and dividing
the difference by the number of shares of the Fund outstanding at the time the
determination is made. It is anticipated that the net asset value of each share
of the Fund will remain constant at $1.00 and, although no assurance can be
given that it will be able to do so on a continuing basis, the Trust and the
Portfolio employ specific investment policies and procedures to accomplish this
result.
The value of the Portfolio's net assets (I.E., the value of its
securities and other assets less its liabilities, including expenses payable or
accrued) is determined at the same time and on the same days as the net asset
value per share of the Fund is determined. The value of the Fund's investment in
the Portfolio is determined by multiplying the value of the Portfolio's net
assets by the percentage, effective for that day, which represents the Fund's
share of the aggregate beneficial interests in the Portfolio.
The securities held by the Portfolio are valued at their amortized
cost. Pursuant to a rule of the Securities and Exchange Commission, an
investment company may use the amortized cost method of valuation subject to
certain conditions and the determination that such method is in the best
interests of the Fund's shareholders and the Portfolio's other investors. The
use of amortized cost valuations is subject to the following conditions: (i) as
a particular responsibility within the overall duty of care owed to the
Portfolio's investors, the Trustees of the Portfolio have established procedures
reasonably designed, taking into account current market conditions and the
investment objective of its investors, to stabilize the net asset value as
computed; (ii) the procedures include periodic review by the Trustees of the
Portfolio, as they deem appropriate and at such intervals as are reasonable in
light of current market conditions, of the relationship between the value of the
Portfolio's net assets using amortized cost and the value of the Portfolio's net
assets based upon available indications of market value with respect to such
portfolio securities; (iii) the Trustees of the Portfolio will consider what
steps, if any, should be taken if a difference of more than 1/2 of 1% occurs
between the two methods of valuation; and (iv) the Trustees of the Portfolio
will take such steps as they consider appropriate, such as shortening the
average portfolio maturity, realizing gains or losses, establishing the value of
the Portfolio's net assets by using available market quotations, or reducing the
value of interests in the Portfolio, to minimize any
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material dilution or other unfair results which might arise from differences
between the two methods of valuation.
Such conditions also generally require that: (i) investments for the
Portfolio be limited to instruments which the Trustees of the Portfolio
determine present minimal credit risks and which are of high quality as
determined by any nationally recognized statistical rating organization that is
not an affiliated person of the issuer of, or any issuer, guarantor or provider
of credit support for, the instrument, or, in the case of any instrument that is
not so rated, is of comparable quality as determined by the Investment Adviser
under the general supervision of the Trustees of the Portfolio; (ii) a
dollar-weighted average portfolio maturity of not more than 90 days be
maintained and no instrument is purchased with a remaining maturity of more than
397 days; (iii) the Portfolio's available cash will be invested in such a manner
as to reduce such maturity to 90 days or less as soon as is reasonably
practicable, if the disposition of a portfolio security results in a
dollar-weighted average portfolio maturity of more than 90 days; and (iv) no
more than 5% of the Portfolio's total assets may be invested in the securities
of any one issuer (other than U.S. Government securities).
It is expected that the Funds will have a positive net income at the
time of each determination. If for any reason the Fund's net income is s
negative amount, which could occur, for instance, upon default by an issuer of a
portfolio security, the Fund would first offset the negative amount with respect
to each shareholder account from the dividends declared during the month with
respect to those accounts. If and to the extent that negative net income exceeds
declared dividends at the end of the month, the Fund would reduce the number of
outstanding Fund shares by treating each shareholder as having contributed to
the capital of the Fund that number of full and fractional shares in his or her
account which represents his or her share of the amount of such excess. Each
shareholder would be deemed to have agreed to such contribution in these
circumstances by his or her investment in the Fund.
COMPUTATION OF PERFORMANCE
=============================================================================
The current and effective yields of the Fund may be used from time to
time in shareholder reports or other communications to shareholders or
prospective investors. Seven-day current yield is computed by dividing the net
change in account value (exclusive of capital changes) of a hypothetical
pre-existing account having a balance of one share at the beginning of a
seven-day calendar period by the value of that account at the beginning of that
period, and multiplying the return over the seven-day period by 365/7. For
purposes of the calculation, net change in account value reflects the value of
additional shares purchased with dividends from the original share and dividends
declared on both the original share and any such additional shares, but does not
reflect realized gains or losses or unrealized appreciation or depreciation. The
Fund's current yield for the seven-day calendar period ended June 30, 1995 was
5.52%. In addition, the Trust may use an effective annualized yield quotation
for the Fund computed on a compounded basis by adding 1 to the base period
return (calculated as described above), raising the sum to a power equal to
365/7, and subtracting 1 from the result. Based upon this latter method, the
Fund's effective annualized yield for the seven-day calendar period ended June
30, 1995 was 5.68%.
The yield should not be considered a representation of the yield of the
Fund in the future since the yield is not fixed. Actual yields will depend on
the type, quality and maturities of the investments held for the Portfolio,
changes in interest rates on investments, and the Fund's expenses during the
period.
Yield information may be useful for reviewing the performance of the
Fund and for providing a basis for comparison with other investment
alternatives. However, unlike bank deposits or other investments which pay a
fixed yield for a stated period of time, the Fund's yield does fluctuate, and
this should be considered when reviewing performance or making comparisons.
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<PAGE>
FEDERAL TAXES
=============================================================================
Each year, the Trust intends to continue to qualify the Fund and elect
that the Fund be treated as a separate "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
Under Subchapter M of the Code the Fund is not subject to federal income taxes
on amounts distributed to shareholders.
Qualification as a regulated investment company under the Code
requires, among other things, that (a) at least 90% of the Fund's annual gross
income, without offset for losses from the sale or other disposition of
securities, be derived from interest, payments with respect to securities loans,
dividends and gains from the sale or other disposition of securities or other
income derived with respect to its business of investing in such securities; (b)
less than 30% of the Fund's annual gross income be derived from gains (without
offset for losses) from the sale or other disposition of securities held for
less than three months; and (c) the holdings of the Fund be diversified so that,
at the end of each quarter of its fiscal year, (i) at least 50% of the market
value of the Fund's assets be represented by cash, U.S. Government securities
and other securities limited in respect of any one issuer to an amount not
greater than 5% of the Fund's assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of the Fund's
assets be invested in the securities of any one issuer (other than U.S.
Government securities and securities of other investment companies). In
addition, in order not to be subject to federal income tax, at least 90% of the
Fund's net investment income and net short-term capital gains earned in each
year must be distributed to the Fund's shareholders.
To maintain a constant $1.00 per share net asset value, the Trustees
may direct that the number of outstanding shares be reduced pro rata. If this
adjustment is made, it will reflect the lower market value of portfolio
securities and not realized losses.
MASSACHUSETTS TRUST
=============================================================================
The Trust's Declaration of Trust permits the Trust's Board of Trustees
to issue an unlimited number of full and fractional shares of beneficial
interest and to divide or combine the shares into a greater or lesser number of
shares without thereby changing the proportionate beneficial interests in the
Trust. Each Fund share represents an equal proportionate interest in the Fund
with each other share. Upon liquidation or dissolution of the Fund, the Fund's
shareholders are entitled to share pro rata in the Fund's net assets available
for distribution to its shareholders. Shares of each series participate equally
in the earnings, dividends and assets of the particular series. Shares of each
series are entitled to vote separately to approve advisory agreements or changes
in investment policy, but shares of all series vote together in the election or
selection of the Trust's Trustees, principal underwriters and auditors for the
Trust. Upon liquidation or dissolution of the Trust, the shareholders of each
series are entitled to share pro rata in the net assets of their respective
series available for distribution to shareholders. The Trust reserves the right
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<PAGE>
to create and issue additional series of shares. The Trust currently
consists of three series.
Shareholders are entitled to one vote for each share held on matters on
which they are entitled to vote. Shareholders in the Trust do not have
cumulative voting rights, and shareholders owning more than 50% of the
outstanding shares of the Trust may elect all of the Trustees of the Trust if
they choose to do so and in such event the other shareholders in the Trust would
not be able to elect any Trustee of the Trust. The Trust is not required and has
no current intention to hold meetings of shareholders annually but the Trust
will hold special meetings of shareholders when in the judgment of the Trust's
Trustees it is necessary or desirable to submit matters for a shareholder vote.
Shareholders have under certain circumstances (E.G., upon application and
submission of certain specified documents to the Trustees of the Trust 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 Trustees of the Trust. Shareholders also have
the right to remove one or more Trustees of the Trust without a meeting by a
declaration in writing by a specified number of shareholders. No material
amendment may be made to the Trust's Declaration of Trust without the
affirmative vote of the holders of a majority of its outstanding shares. Shares
have no preference, pre-emptive, conversion or similar rights. Shares, when
issued, are fully paid and non-assessable, except as set forth below. The Trust
may enter into a merger or consolidation, or sell all or substantially all of
its assets, if approved by the vote of the holders of two-thirds of its
outstanding shares, except that if the Trustees of the Trust recommend such sale
of assets, the approval by vote of the holders of a majority of the Trust's
outstanding shares will be sufficient. The Trust may also be terminated upon
liquidation and distribution of its assets, if approved by the vote of the
holders of two-thirds of its outstanding shares.
Stock certificates are not issued by the Trust.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations and liabilities. However, the Declaration of Trust contains an
express disclaimer of shareholder liability for acts or obligations of the Trust
and provides for indemnification and reimbursement of expenses out of Trust
property for any shareholder held personally liable for the obligations of the
Trust. The Declaration of Trust also provides that the Trust shall maintain
appropriate insurance (for example, fidelity bonding and errors and omissions
insurance) for the protection of the Trust, its shareholders, Trustees,
officers, employees and agents covering possible tort and other liabilities.
Thus, the risk of a shareholder's incurring financial loss because of
shareholder liability is limited to circumstances in which both inadequate
insurance existed and the Trust itself was unable to meet its obligations.
The Declaration of Trust further provides that obligations of the Trust
are not binding upon the Trust's Trustees individually but only upon the
property of the Trust and that the Trust's Trustees are not liable for any
action or failure to act, but nothing in the Declaration of Trust protects a
Trust's Trustee against any liability to which he would otherwise be subject by
reason of wilful
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<PAGE>
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office.
Interests in the Portfolio have no preference, preemptive, conversion
or similar rights, and are fully paid and non-assessable. The Portfolio is not
required to hold annual meetings of investors, but will hold special meetings of
investors when, in the judgment of its trustees, it is necessary or desirable to
submit matters for an investor vote. Each investor is entitled to a vote in
proportion to the share of its investment in the Portfolio.
PORTFOLIO TRANSACTIONS
=============================================================================
Brown Brothers Harriman & Co., as Investment Adviser for the Portfolio,
places orders for all purchases and sales of portfolio securities, enters into
repurchase and reverse repurchase agreements and executes loans of portfolio
securities. Fixed-income securities are generally traded at a net price with
dealers acting as principal for their own account without a stated commission.
The price of the security usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price which includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. On occasion, certain money market
instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid. From time to time certificates of deposit may
be purchased through intermediaries who may charge a commission for their
services.
Brown Brothers Harriman & Co. does not seek profits through short-term
trading. However, Brown Brothers Harriman & Co. may on behalf of the Portfolio
dispose of any portfolio security prior to its maturity if it believes such
disposition is advisable even if this action realizes profits.
Since brokerage commissions are not normally paid on investments which
are made for the Portfolio, turnover resulting from such investments should not
adversely affect the net asset value of the Portfolio. In connection with
portfolio transactions for the Portfolio, Brown Brothers Harriman & Co. intends
to seek best price and execution on a competitive basis for both purchases and
sales of securities. Prior to the Fund's termination of its Investment Advisory
Agreement with Brown Brothers Harriman & Co. no brokerage commissions were paid
from the Fund during the fiscal years ended June 30, 1995, 1994 and 1993.
On those occasions when Brown Brothers Harriman & Co. deems the
purchase or sale of a security to be in the best interests of the Portfolio as
well as other customers, Brown Brothers Harriman & Co., to the extent permitted
by applicable laws and regulations, may, but is not obligated to, aggregate the
securities to be sold or purchased with those to be sold or purchased for other
customers in order to obtain best execution, including lower brokerage
commissions, if appropriate. In such event, allocation of the securities so
purchased or sold as well as any expenses incurred in the transaction are made
by Brown Brothers Harriman & Co. in the manner it considers to be most equitable
and consistent with its fiduciary obligations to its customers, including the
Portfolio. In some instances, this procedure might adversely affect the
Portfolio.
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<PAGE>
BOND, NOTE AND COMMERCIAL PAPER RATINGS
===============================================================================
Bond Ratings
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Aaa - Bonds rated Aaa are judged to be of the "best quality". Issues
rated Aaa may be further modified by the numbers 1, 2 or 3 (3 being the highest)
to show relative strength within the rating category.
STANDARD & POOR'S CORPORATION ("S&P")
AAA - The AAA rating is the highest rating assigned to debt obligations
and indicates an extremely strong capacity to pay principal and interest.
Note and Variable Rate Investment Ratings
Moody's - MIG-1. Notes rated MIG-1 are judged to be of the best
quality, enjoying strong protection from established cash flow of funds for
their services or from established and broad-based access to the market for
refinancing or both.
S&P - SP-1. SP-1 denotes a very strong or strong capacity to pay
principal and interest. Issues determined to possess overwhelming safety
characteristics are given a plus (+) designation (SP-1+).
Corporate Commercial Paper Ratings
Moody's - Commercial Paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of nine months. Prime-1 indicates highest quality repayment
capacity of rated issue.
S&P - Commercial Paper ratings are a current assessment of the
likelihood of timely payment of debts having an original maturity of no more
than 365 days. Issues rated A-1 have the greatest capacity for timely payment.
Issues rated "A-1+" are those with an "overwhelming degree of credit
protection."
Other Considerations
Among the factors considered by Moody's in assigning bond, note and
commercial paper ratings are the following: (i) evaluation of the management of
the issuer; (ii) economic evaluation of the issuer's industry or industries and
an appraisal of speculative-type risks which may be inherent in certain areas;
(iii) evaluation of the issuer's products in relation to competition and
customer acceptance; (iv) liquidity; (v) amount and quality of long-term debt;
(vi) trend of earnings over a period of 10 years; (vii) financial strength of a
parent company and the relationships which exist with the issuer; and (viii)
recognition by management of obligations which may be present or may arise as a
result of public interest questions and preparations to meet such obligations.
Among the factors considered by S&P in assigning bond, note and
commercial paper ratings are the following: (i) trend of earnings and cash flow
with
16
<PAGE>
allowances made for unusual circumstances, (ii) stability of the issuer's
industry, (iii) the issuer's relative strength and position within the industry
and (iv) the reliability and quality of management.
ADDITIONAL INFORMATION
=============================================================================
As used in this Statement of Additional Information and the Prospectus,
the term "majority of the outstanding voting securities as defined in the 1940
Act" currently means the vote of (i) 67% or more of the outstanding voting
securities present at a meeting, if the holders of more than 50% of the
outstanding voting securities are present in person or represented by proxy; or
(ii) more than 50% of the outstanding voting securities, whichever is less.
Fund shareholders receive semi-annual reports containing unaudited
financial statements and annual reports containing financial statements audited
by independent auditors.
A shareholder's right to receive payment with respect to any redemption
may be suspended or the payment of the redemption proceeds postponed: (i) during
periods when the New York Stock Exchange is closed for other than weekends and
holidays or when regular trading on such Exchange is restricted as determined by
the Securities and Exchange Commission by rule or regulation, (ii) during
periods in which an emergency exists which causes disposal of, or evaluation of
the net asset value of, portfolio securities to be unreasonable or
impracticable, or (iii) for such other periods as the Securities and Exchange
Commission may permit.
With respect to the securities offered by the Prospectus, this
Statement of Additional Information and the Prospectus do not contain all the
information included in the Registration Statement filed with the Securities and
Exchange Commission under the Securities Act of 1933. Pursuant to the rules and
regulations of the Securities and Exchange Commission, certain portions have
been omitted. The Registration Statement including the exhibits filed therewith
may be examined at the office of the Securities and Exchange Commission in
Washington, D.C.
Statements contained in this Statement of Additional Information and
the Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement. Each such statement is qualified in all respects by such reference.
A copy of the Declaration of Trust establishing the Trust is on file in
the office of the Secretary of the Commonwealth of Massachusetts.
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<PAGE>
FINANCIAL STATEMENTS
=============================================================================
The Fund's current annual report to shareholders as filed with the
Securities and Exchange Commission pursuant to Section 30(b) of the 1940 Act and
Rule 30b2-1 thereunder is hereby incorporated herein by reference. A copy of
such report will be provided without charge to each person receiving this
Statement of Additional Information.
59WS018K
18
