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STATEMENT OF ADDITIONAL INFORMATION
THE 59 WALL STREET U.S. TREASURY MONEY FUND
6 ST. JAMES AVENUE, BOSTON, MASSACHUSETTS 02116
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The 59 Wall Street U.S. Treasury Money 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 Fund's investment
objective is to achieve as high a level of current income as is consistent with
the preservation of capital and the maintenance of liquidity. There can be no
assurance that the investment objective of the Fund will be achieved.
The Trust pursues the investment objective of the Fund by investing in
short-term obligations backed as to principal and interest payments by the full
faith and credit of the United States of America. Although investments held for
the Fund are issued by the U.S. Government, an investment in the Fund is not
insured or guaranteed by the U.S. Government.
Brown Brothers Harriman & Co. is the Fund's investment adviser (the
"Investment Adviser"). This Statement of Additional Information is not a
prospectus and should be read in conjunction with the Prospectus dated 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 4-5
Investment Restrictions 3 5-6
Trustees and Officers 5 8
Investment Adviser 8 8-9
Administrator 9 9
Distributor 10 11
Net Asset Value 10 12
Computation of Performance 11 15
Federal Taxes 12 13-14
Massachusetts Trust 12 14-15
Portfolio Transactions 15 5
Additional Information 15 15
Financial Statements 17 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.
TREASURY RECEIPTS. Assets of the Fund are not invested in stripped
securities issued by any entity other than the U.S. Treasury.
REPURCHASE AGREEMENTS. Repurchase agreements may be entered into only
with a "primary dealer" (as designated by the Federal Reserve Bank of New York)
in U.S. Government securities. This is an agreement in which the seller (the
"Lender") of a security agrees to repurchase from the Fund the security sold at
a mutually agreed upon time and price. As such, it is viewed as the lending of
money to the Lender. The resale price normally is in excess of the purchase
price, reflecting an agreed upon interest rate. The rate is effective for the
period of time assets of the Fund are invested in the agreement and is not
related to the coupon rate on the underlying security. The period of these
repurchase agreements is usually short, from overnight to one week, and at no
time will assets of the Fund be invested in a repurchase agreement with a
maturity of more than one year. The securities which are subject to repurchase
agreements, however, may have maturity dates in excess of one year from the
effective date of the repurchase agreement. The Fund always receives as
collateral securities which are issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. Collateral is marked to the market daily and have
a market value including accrued interest at least equal to 100% of the dollar
amount invested on behalf of the Fund in each agreement along with accrued
interest. Payment for such securities is made for the Fund only upon physical
delivery or evidence of book entry transfer to the account of State Street Bank
and Trust Company (the "Custodian"). If the Lender defaults, the Fund might
incur a loss if the value of the collateral securing the repurchase agreement
declines and might incur disposition costs in connection with liquidating the
collateral. In addition, if bankruptcy proceedings are commenced with respect to
the Lender, realization upon the collateral on behalf of the Fund may be delayed
or limited in certain circumstances. A repurchase agreement with more than seven
days to maturity may not be entered into for the Fund if, as a result, more than
10% of the market value of the Fund's total assets would be invested in such
repurchase agreements together with any other investment being held for the Fund
for which market quotations are not readily available.
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements may also
be entered into for the Fund, although the current intention is not to do so.
LOANS OF PORTFOLIO SECURITIES. Securities of the Fund may be loaned if
such loans would be secured continuously by cash or equivalent collateral or by
an irrevocable letter of credit in favor of the Fund at least equal at all times
to 100% of the market value of the securities loaned plus accrued income. While
such securities are on loan, the borrower pays the Fund any income accruing
thereon, and cash collateral may be invested for the Fund, thereby earning
additional income. All or any portion of interest earned on invested collateral
may be paid to the borrower. Loans are subject to termination by the Trust in
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the normal settlement time, currently three business days after notice, or by
the borrower on one day's notice. Borrowed securities are returned when the loan
is terminated. Any appreciation or depreciation in the market price of the
borrowed securities which occurs during the term of the loan inures to the Fund
and its shareholders. Reasonable finders' and custodial fees may be paid in
connection with a loan. In addition, all facts and circumstances, including the
creditworthiness of the borrowing financial institution, are considered before a
loan is made and no loan is made in excess of one year. There is the risk that a
borrowed security may not be returned to the Fund. Securities of the Fund are
not loaned to Brown Brothers Harriman & Co. or to any affiliate of the Trust or
Brown Brothers Harriman & Co.
INVESTMENT RESTRICTIONS
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The Fund is operated under the following investment restrictions which
are deemed fundamental policies and may be changed only with the approval of the
holders of a "majority of the Fund's outstanding voting securities as defined in
the 1940 Act" (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, the Trust, with respect to the Fund, may
not:
(1) borrow money or mortgage or hypothecate its assets, except that in
an amount not to exceed 1/3 of the current value of its net assets, it may
borrow money as a temporary measure for extraordinary or emergency purposes and
enter into repurchase agreements, 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 be borrowed only from banks and only either to accommodate
requests for the redemption of Fund shares while effecting an orderly
liquidation of portfolio securities or to maintain liquidity in the event of an
unanticipated failure to complete a portfolio security transaction or other
similar situations) or reverse repurchase agreements, 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;
for additional related restrictions, see clause (i) under the caption "State and
Federal Restrictions" hereafter;
(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;
(3) write, purchase or sell any put or call option or any combination
thereof;
(4) underwrite securities issued by other persons except insofar as it
may technically be deemed an underwriter under the Securities Act of 1933 in
selling a portfolio security;
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(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
total 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 total assets are 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 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 the its
total 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 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 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);
(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; or
(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.
STATE AND FEDERAL RESTRICTIONS. In order to comply with certain state
and federal statutes and policies the Fund may not as a matter of operating
policy (except that the Fund 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 for
the Fund's portfolio at any time at which the amount of its borrowings exceed 5%
of the Fund's 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
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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 would be
conditional the sale is 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, (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, for which purposes all indebtedness of an issuer shall be 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 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 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.
TRUSTEES AND OFFICERS
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The Trustees and executive officers of the Trust, 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
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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.
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 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.
OFFICERS OF THE TRUST
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).
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).
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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 because of his
affiliation with a registered broker-dealer.
** These Trustees are members of the Audit Committee.
(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 listed above holds the equivalent position with
The 59 Wall Street Fund, Inc. The address of each officer is 6 St. James Avenue,
Boston, Massachusetts 02116. Messrs. Coolidge, Hoolahan, Lenz, Danielson and
Hall and Mss. 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 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
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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 and the Administration Agreement (see
"Investment Adviser" and "Administrator"), the Trust itself requires no
employees other than its officers, and none of its officers devote full time to
the affairs of the Trust or, other than the Chairman, receive any compensation
from the Fund.
As of September 30, 1995, the Trust's Trustees and officers as a group
owned less than 1% of the Fund's outstanding shares of the Trust. 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 except American
Saw and Manufacturing, Co. owned 32,058,993 (20.48%) shares of the Fund and Mr.
Joseph C. McNay owned 10,477,924 (6.69%) shares of the Fund, each c/o Brown
Brothers Harriman & Co., 59 Wall Street, New York, New York 10005. As of that
date, the Partners of Brown Brothers Harriman & Co. and their immediate families
owned 1,005,829 (0.64%) shares of the Fund. Brown Brothers Harriman & Co. and
its affiliates separately were able to direct the disposition of an additional
28,007,734 (17.89%) shares of the Fund, as to which Brown Brothers Harriman &
Co. disclaims beneficial ownership.
INVESTMENT ADVISER
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Under its Investment Advisory Agreement with the Trust, subject to the
general supervision of the Trust's Trustees and in conformance with the stated
policies of the Fund, Brown Brothers Harriman & Co. provides investment advice
and portfolio management services to the Fund. In this regard, it is the
responsibility of Brown Brothers Harriman & Co. to make the day-to-day
investment decisions for the Fund, to place the purchase and sale orders for
portfolio transactions of the Fund and to manage, generally, the Fund's
investments.
The Investment Advisory Agreement between Brown Brothers Harriman & Co.
and the Trust is dated February 12, 1991, as amended and restated November 1,
1993 and remains in effect for two years from such date and thereafter, but only
as long as the agreement is specifically approved annually (i) by a vote of the
holders of a "majority of the Fund's outstanding voting securities as defined in
the 1940 Act" or by the Trust's Trustees, and (ii) by a vote of a majority of
the Trustees of the Trust who are not parties to the Investment Advisory
Agreement or "interested persons" (as defined in the 1940 Act) of the Trust
("Independent Trustees"), cast in person at a meeting called for the purpose of
voting on such approval. The Investment Advisory Agreement was last approved by
the Independent Trustees on August 22, 1995. 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 Trust or by a vote of the
holders of a "majority of the Fund's outstanding voting securities as defined in
the 1940 Act" on 60 days' written notice to Brown Brothers Harriman & Co. and by
Brown Brothers Harriman & Co. on 90 days' written notice to the Trust (see
"Additional Information").
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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 Fund's average
daily net assets. Prior to November 1, 1993, the investment advisory fee was an
annual rate equal to 0.40% of the Fund's average daily net assets. For the
fiscal years ended June 30, 1995, 1994 and 1993, the Fund incurred fees for
advisory services totalling $177,219, $296,035 and $591,677, respectively.
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 Fund or were prohibited from acting in such capacity, it is expected that
the Trustees would recommend to the shareholders that they approve a new
investment advisory agreement for the Fund 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 Trust 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.
ADMINISTRATOR
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The Administration Agreement between the Trust 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 the Investment Advisory Agreement (see
"Investment Adviser"). The Independent Trustees of the Trust approved the
Trust's Administration Agreement on August 22, 1995. The agreement will
terminate automatically if assigned by either party thereto and is terminable 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 Trust (see "Additional Information"). The
Administration Agreement is terminable by the Trust's Trustees or shareholders
of the Trust on 60 days' written notice to Brown Brothers Harriman & Co. and by
Brown Brothers Harriman & Co. on 90 days' written notice to the Trust.
The administrative fee paid to Brown Brothers Harriman & Co. is calculated
daily and payable monthly 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 for the Trust and was paid an annual rate equal to 0.05% of the
Fund's average daily net assets. During the fiscal years ended June 30, 1995,
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1994 and 1993, the Fund paid administrative fees totalling $118,146, $107,165
and $73,960, respectively.
DISTRIBUTOR
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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 Fund's outstanding voting securities as defined in
the 1940 Act" (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
agreement is terminable by 59 Wall Street Distributors on 90 days' written
notice to the Trust.
NET ASSET VALUE
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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 the amount of its liabilities 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 employs specific investment policies
and procedures to accomplish this result.
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 its shareholders. The use of amortized cost valuations for the Fund
is subject to the following conditions: (i) as a particular responsibility
within the overall duty of care owed to the Fund's shareholders, the Trustees
have established procedures reasonably designed, taking into account current
market conditions and the Fund's investment objective, to stabilize the net
asset value per share as computed for the purpose of distribution and redemption
at $1.00 per share; (ii) the procedures include periodic review by the Trustees,
as they deem appropriate and at such intervals as are reasonable in light of
current market
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conditions, of the relationship between the net asset value per share using
amortized cost and the net asset value per share based upon available
indications of market value with respect to such portfolio securities; (iii) the
Trustees 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 will take such steps as they consider appropriate, such as changing the
dividend policy, shortening the average portfolio maturity, realizing gains or
losses, establishing a net asset value per share by using available market
quotations, or reducing the value of the Fund's outstanding shares, to minimize
any 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 Fund
be limited to instruments which the Trustees 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; (ii) a dollar-weighted average portfolio maturity of not more than 90
days be maintained appropriate to the Fund's objective of maintaining a stable
net asset value of $1.00 per share and no instrument is purchased with a
remaining maturity of more than 13 months; (iii) the Fund'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 Fund'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
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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 5.10%. 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
5.23%.
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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 depend on the
type, quality and maturities of the investments held for the Fund, 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.
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). 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.
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<PAGE>
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 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 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. 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 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. Shareholders also have the right to remove one or more Trustees
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
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<PAGE>
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 Trustees individually but only upon the property of the
Trust and that the Trustees are not liable for any action or failure to act, but
nothing in the Declaration of Trust protects a Trustee against any liability to
which he would otherwise be subject by reason of wilful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his office.
The Trust may, in the future, seek to achieve the Fund's investment
objective by investing all of the Fund's investable assets in a no-load,
diversified, open-end management investment company having substantially the
same investment objective as those applicable to the Fund. In such event, the
Fund would no longer directly require investment advisory services and therefore
would pay no investment advisory fees. Further, the administrative services fee
paid from the Fund would be reduced. At a shareholder's meeting held on
September 23, 1993, the Fund's shareholders approved changes to the investment
restrictions of the Fund to authorize such an investment. Such an investment
would be made only if the Trustees believe that the aggregate per share expenses
of the Fund and such other investment company would be less than or
approximately equal to the expenses which the Fund would incur if the Trust were
to continue to retain the services of an investment adviser for the Fund and the
assets of the Fund were to continue to be invested directly in portfolio
securities.
It is expected that the investment in another investment company will have
no preference, preemptive, conversion or similar rights, and will be fully paid
and non-assessable. It is expected that the investment company will not be
required to hold annual meetings of investors, but will hold special meetings of
investors when, in the judgment of its trustees, it is necessary or desirable to
submit matters for an investor vote. It is expected that each investor will be
entitled to a vote in proportion to the share of its investment in such
investment company. Except as described below, whenever the Trust is requested
to vote on matters pertaining to the investment company, the Trust would hold a
meeting of the Fund's shareholders and would cast its votes on each matter at a
meeting of investors in the investment company proportionately as instructed by
the Fund's shareholders.
However, subject to applicable statutory and regulatory requirements, the
Trust would not request a vote of the Fund's shareholders with respect to (a)
any proposal relating to the investment company in which the Fund's assets were
invested, which proposal, if made with respect to the Fund, would not require
the vote of the shareholders of the Fund, or (b) any proposal with respect to
the investment company that is identical, in all material respects, to a
proposal that has previously been approved by shareholders of the Fund.
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<PAGE>
PORTFOLIO TRANSACTIONS
================================================================================
Brown Brothers Harriman & Co., as Investment Adviser, 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.
On those occasions when Brown Brothers Harriman & Co. deems the purchase
or sale of a security to be in the best interests of the Fund as well as other
customers, Brown Brothers Harriman & Co., to the extent permitted by applicable
laws and regulations, may, but is not obligated to, aggregate the securities to
be sold or purchased for the Fund 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
Fund. In some instances, this procedure might adversely affect the Fund.
ADDITIONAL INFORMATION
================================================================================
As used in this Statement of Additional Information and the Prospectus,
the term "majority of the Fund's outstanding voting securities as defined in the
1940 Act" currently means the vote of (i) 67% or more of the Fund's shares
present at a meeting, if the holders of more than 50% of the outstanding voting
securities of the Fund are present in person or represented by proxy; or (ii)
more than 50% of the Fund's outstanding voting securities, whichever is less.
Fund shareholders receive semi-annual reports containing unaudited
financial statements and annual reports containing financial statements audited
by the 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, the Fund's portfolio securities to be unreasonable or
impracticable, or (iii) for such other periods as the Securities and Exchange
Commission may permit.
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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.
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.
WS5039G
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