Tax Free Short/Intermediate
Fixed Income Fund
PROSPECTUS
November 1, 1996
[LOGO] PHOTO
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PROSPECTUS
The 59 Wall Street Tax Free
Short/Intermediate Fixed Income Fund
6 St. James Avenue, Boston, Massachusetts 02116
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The 59 Wall Street Tax Free Short/Intermediate Fixed Income Fund is an
open-end investment company which is a separate diversified portfolio of The 59
Wall Street Trust. Shares of the Fund are offered by this Prospectus.
The investment objective of the Fund is to provide investors with as high a
level of income exempt from federal income tax as is consistent with minimizing
price fluctuations in net asset value and maintaining liquidity. The Fund
invests primarily in high quality municipal securities and the dollar weighted
average maturity of the Fund's portfolio does not exceed three years. The Fund
is an appropriate investment for those investors seeking tax-free income returns
greater than those provided by tax-free money market funds and who are able to
accept fluctuations in the net asset value of their investment. The Fund is
designed to have lesser price fluctuations than long term bond funds. There can
be no assurance that the investment objective of the Fund will be achieved.
Investments in the Fund are neither insured nor guaranteed by the U.S.
Government. Shares of the Fund are not deposits or obligations of, or guaranteed
by, Brown Brothers Harriman & Co., and the shares are not insured by the Federal
Deposit Insurance Corporation or any other federal, state or other governmental
agency.
Brown Brothers Harriman & Co. is the investment adviser to, the
administrator of and the shareholder servicing agent of the Fund. Shares of the
Fund are offered at net asset value without a sales charge.
This Prospectus, which investors are advised to read and retain for future
reference, sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Additional information
about the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated November 1, 1996. This information is
incorporated herein by reference and is available without charge upon request
from the Fund's distributor, 59 Wall Street Distributors, Inc., 6 St. James
Avenue, Boston, Massachusetts 02116.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this Prospectus is November 1, 1996.
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TABLE OF CONTENTS
Page
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Expense Table ............................................................. 3
Financial Highlights ...................................................... 4
Investment Objective and Policies ......................................... 4
Investment Restrictions ................................................... 7
Purchase of Shares ........................................................ 8
Redemption of Shares ...................................................... 8
Management of the Trust ................................................... 9
Net Asset Value ........................................................... 13
Dividends and Distributions ............................................... 14
Taxes ..................................................................... 14
Description of Shares ..................................................... 16
Additional Information .................................................... 17
Appendix A ................................................................ 18
Appendix B ................................................................ 20
TERMS USED IN THIS PROSPECTUS
Trust ................................. The 59 Wall Street Trust
Fund .................................. The 59 Wall Street Tax Free
Short/Intermediate Fixed
Income Fund
Investment Adviser and Administrator... Brown Brothers Harriman & Co.
Subadministrator....................... 59 Wall Street Administrators, Inc.
("59 Wall Street Administrators")
Distributor............................ 59 Wall Street Distributors, Inc.
("59 Wall Street Distributors")
1940 Act............................... The Investment Company Act of 1940,
as amended.
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EXPENSE TABLE
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The following table provides (i) a summary of estimated expenses relating
to purchases and sales of shares of the Fund, and the aggregate annual operating
expenses of the Fund, as a percentage of average net assets of the Fund, and
(ii) an example illustrating the dollar cost of such estimated expenses on a
$1,000 investment in the Fund.
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases........................ None
Sales Load Imposed on Reinvested Dividends............. None
Deferred Sales Load.................................... None
Redemption Fee......................................... None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Investment Advisory Fee..................... 0.35%
12b-1 Fee................................... None
Other Expense
Administration Fee ....................... 0.15%
Expense Payment Fee....................... 0.20 0.35
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Total Fund Operating Expenses............... 0.70%
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Example 1 year 3 years 5 years 10 years
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A shareholder of the Fund would
pay the following expenses on a
$1,000 investment, assuming
(1) 5% annual return, and
(2) redemption at the end
of each time period:........... $ 7 $22 $39 $87
--- --- --- ---
The Example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown. In connection
with the Example, please note that $1,000 is currently less than the Fund's
minimum purchase requirement. The purpose of this table is to assist investors
in understanding the various costs and expenses that shareholders of the Fund
bear directly or indirectly.
Under an agreement dated February 22, 1995, 59 Wall Street Administrators
pays the Fund's expenses, other than fees paid to Brown Brothers Harriman & Co.
under the Trust's Administration Agreement and other than expenses relating to
the organization of the Fund. Had this expense payment agreement not been in
place, the total Fund operating expenses would have been 0.97% of the Fund's
average annual net assets and the shareholder expenses reflected in the example
above would have been $9, $29, $50, and $111, respectively. After this expense
payment agreement terminates on July 1, 1997, the Trustees of the Trust estimate
that, at the Fund's current asset level, the total Fund operating expenses may
exceed 0.97% of the Fund's average annual net assets. (See "Expense Payment
Agreement".)
For more information with respect to the expenses of the Fund, see
"Management of the Trust" herein.
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FINANCIAL HIGHLIGHTS
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The following information has been audited by Deloitte & Touche LLP,
independent auditors. This information should be read in conjunction with the
financial statements and notes thereto, which appear in the Statement of
Additional Information. The ratios of expenses and net investment income to
average net assets are not indicative of future ratios.
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<CAPTION>
For the period
July 23, 1992
For the years ended June 30, (commencement of
--------------------------------- operations to
1996 1995 1994 June 30, 1993
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<S> <C> <C> <C> <C>
Net asset value, beginning of period................ $ 10.28 $ 10.11 $ 10.29 $ 10.00
Income from investment operations:
Net investment income ............................ 0.37 0.37 0.34 0.32
Net realized and unrealized
gain (loss) on investments..................... (0.02) 0.17 (0.18) 0.29
Less dividends and distributions:
Dividends to shareholders from net
investment income.............................. (0.37) (0.37) (0.34) (0.32)
Distributions to shareholders from net
realized gains on investments.................. -- -- (0.00)* --
------- ------- -------- -------
Net asset value, end of period...................... $ 10.26 $ 10.28 $ 10.11 $ 10.29
======= ======= ======== =======
Total return*** .................................... 3.60% 5.42% 1.59% 6.16%
Ratios/supplemental data:
Net assets, end of period (000's omitted)......... $44,776 $51,828 $67,253 $33,202
Ratio of expenses to average net
assets***...................................... 0.70% 0.70% 0.70% 0.70%**
Ratio of net investment income to
average net assets ............................ 3.61% 3.67% 3.32% 3.42%**
Portfolio turnover rate .......................... 48% 39% 27% 13%
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* Distributions to shareholders form net realized gains was less than $0.01
per share.
** Annualized
*** Had the expense payment agreement not been in place, the ratio of expenses
to average net assets for the years ended June 30, 1996, 1995, and 1994,
and for the period ended June 30, 1993 would have been 0.97%, 0.97%, 1.01%
and 1.25%, respectively. For the same periods, the total return of the Fund
would have been 3.33%, 5.15%, 1.28% and 5.61%, respectively. The expense
payment agreement will terminate on July 1, 1997. At current asset levels,
management believes that the ratio of expenses to average net asset should
exceed 0.90%.
Further information about the performance of the Fund is contained in the
Fund's annual report to shareholders which may be obtained without charge.
INVESTMENT OBJECTIVE AND POLICIES
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The investment objective of the Fund is to provide investors with as high a
level of income exempt from federal income tax as is consistent with minimizing
price fluctuations in net asset value and maintaining liquidity.
The investment objective of the Fund is a fundamental policy 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" in this Prospectus.) However, the investment policies of the Fund
as described below are not fundamental and may be changed without such approval.
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The Fund is an appropriate investment for those investors seeking tax-free
income returns greater than those provided by tax-free money market funds and
who are able to accept fluctuations in the net asset value of their investments.
The Fund is designed to have lesser price fluctuations than long-term tax-free
bond funds.
The assets of the Fund under normal circumstances are fully invested in a
broad range of high quality municipal securities issued by or on behalf of
states, territories and possessions of the United States, the District of
Columbia and their subdivisions, agencies and instrumentalities. These
securities include municipal bonds, notes, commercial paper, variable and
floating rate instruments and when-issued and delayed delivery securities. (See
Appendix A for more detail.)
While the Fund intends to continue to be fully invested in tax-exempt
municipal obligations in order to provide investors with tax-free income, a
portion of the assets may temporarily be held in cash or invested in short-term
taxable securities if market conditions warrant. These would include obligations
issued by the U.S. Government, its agencies or instrumentalities, commercial
paper issued by corporations, bank obligations (such as certificates of deposit
and bankers' acceptances) and repurchase agreements. (See Appendix B for more
detail.)
The Fund invests in high quality municipal securities. At the time of
purchase, municipal bond investments either are rated in one of the three
highest quality categories of the Standard & Poor's Corporation (meaning AAA, AA
or A), Moody's Investors Service, Inc. (meaning Aaa, Aa or A) or Fitch Investors
Service, Inc. (meaning AAA, AA or A) or, if unrated, are of comparable quality
as judged by the Investment Adviser. The Investment Adviser may at any time
purchase municipal bonds it believes to be defeased. Defeased municipal bonds
are either general obligation or revenue bonds that have been fully secured or
collateralized by an escrow account consisting of U.S. Government obligations
that can adequately meet interest and principal payments. As such, the original
issuer's credit obligation has been replaced by the escrowed securities. In
determining whether a municipal bond has been defeased, the Investment Adviser
relies upon brokers and dealers and upon various information reporting services
it believes to be reliable. At the time of purchase, tax-exempt note and
variable interest rate investments either are rated in one of the highest
quality categories of the Standard & Poor's Corporation (meaning SP-1 or SP-2),
Moody's Investors Service, Inc. (meaning MIG 1 or MIG 2), or Fitch Investors
Service, Inc. (meaning F-1+, F-1 or F-2) or, if unrated, are of comparable
quality as judged by the Investment Adviser. At the time of purchase, municipal
commercial paper investments either are rated in the highest quality category of
the Standard & Poor's Corporation (meaning A-1), Moody's Investors Service, Inc.
(meaning Prime-1) or Fitch Investors Service, Inc. (meaning F-1+ or F-1) or, if
unrated, are of comparable quality as judged by the Investment Adviser. Taxable
money market instruments purchased for the Fund are of high quality and meet the
credit standards established by the Trust's Board of Trustees.
The dollar-weighted average maturity of the Fund's portfolio is not to
exceed three years, and the maximum maturity of an issue at the time of purchase
is limited to five years. Since bonds with shorter maturities are less sensitive
to interest rate movements than those with longer maturities, the three-year
restriction on the Fund's dollar-weighted average maturity is designed to lessen
the price fluctuation of the Fund. For example, the following table illustrates
the effect a 2 percentage point change in interest rates would have on the price
of bonds of varying maturities. The 10- and 20-year bonds have more exposure to
interest rate movements and are subject to greater price volatility than the
shorter term bonds.
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Change in the Price of a Municipal Bond at Par
Yielding 5%
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2 Percentage Point 2 Percentage Point
Stated Increase In Decrease In
Maturity Interest Rates Interest Rates
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Eligible 1 Year -2% +2%
for 3 Years -5% +6%
Investment 5 Years -8% +9%
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Not Eligible 10 Years -14% +17%
for Investment 20 Years -21% +30%
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The Fund is actively managed by a team of investment professionals. (See
"Investment Adviser".) The Investment Adviser analyzes and monitors economic
trends, monetary policy, and bond credit ratings on a continuous basis. The
holdings in the portfolio are regularly reviewed in an effort to enhance
returns.
The Investment Adviser does not intend to invest the Fund's assets in
securities the interest on which would be taxable for investors subject to the
federal alternative minimum tax. Depending on the investor's tax bracket, the
Fund may provide higher after-tax income than is normally provided by comparable
taxable investments. The chart below illustrates the return a taxable investment
would have to yield in order to equal various tax-free returns for the taxable
year 1996.
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A TAXABLE INVESTMENT WOULD HAVE TO YIELD:
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TO EQUAL A TAX- 15% 28% 31% 36% 39.6%
FREE YIELD OF: Tax Bracket* Tax Bracket* Tax Bracket* Tax Bracket Tax Bracket
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<S> <C> <C> <C> <C> <C> <C>
2% 2.4% 2.8% 2.9% 3.1% 3.3%
3% 3.5% 4.2% 4.3% 4.7% 5.0%
4% 4.7% 5.6% 5.8% 6.3% 6.6%
5% 5.9% 6.9% 7.2% 7.8% 8.3%
6% 7.1% 8.3% 8.7% 9.4% 9.9%
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* Joint Return Up to $40,100 $40,101-$96,900 $96,901-$147,700 $147,701-$263,750 Above $263,750
* Single Return Up to $24,000 $24,001-$58,150 $58,151-$121,300 $121,301-$263,750 Above $263,750
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The Trust may, in the future, seek to achieve the Fund's investment
objective by investing all of the Fund's assets in a no-load, diversified,
open-end management investment company having substantially the same investment
objective as the Fund. Shareholders will receive 30 days prior written notice
with respect to any such investment.
Risk Factors
Although the assets of the Fund are invested in high quality municipal
securities, the portfolio is subject to interest rate risk and credit risk.
Interest rate risk refers to the price fluctuation of a bond in response to
changes in interest rates. In general, bonds with shorter maturities are less
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sensitive to interest rate movements than those with longer maturities. Given
that the average weighted maturity of the portfolio's holdings is limited to
three years, the Fund normally has less exposure to interest rate risk than
longer-term bond funds.
Credit risk refers to the likelihood that an issuer will default on
interest or principal payments. The Fund is investing in high quality bonds with
a rating of A or better, which limits the portfolio's exposure to credit risk.
Portfolio Brokerage
The securities in which the Fund invests are traded primarily in the
over-the-counter market on a net basis and do not normally involve either
brokerage commissions or transfer taxes. Where possible transactions on behalf
of the Fund are entered directly with the issuer or from an underwriter or
market maker for the securities involved. Purchases from underwriters of
securities may include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers serving as market makers may include a
spread between bid and asked price. The policy of the Fund regarding purchases
and sales of securities is that primary consideration is given to obtaining the
most favorable prices and efficient executions of transactions. In seeking to
implement the Fund's policies, the Investment Adviser effects transactions with
those brokers and dealers who the Investment Adviser believes provide the most
favorable prices and are capable of providing efficient executions. While
reasonably competitive spreads or commissions are sought for the Fund, it will
not necessarily be paying the lowest spread or commission available. If the
Investment Adviser believes such prices and executions are obtainable from more
than one broker or dealer, it may give consideration to placing portfolio
transactions with those brokers and dealers who also furnish research and other
services to the Fund or the Investment Adviser. Such services may include, but
are not limited to, any one or more of the following: information as to the
availability of securities for purchase or sale; statistical or factual
information or opinions pertaining to investment; and appraisals or evaluations
of portfolio securities. For the fiscal years ended June 30, 1995 and 1996, the
portfolio turnover rates for the Fund were 39% and 48%, respectively. (See
"Portfolio Transactions" in the Statement of Additional Information.)
INVESTMENT RESTRICTIONS
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The Statement of Additional Information for the Fund includes a listing of
the specific investment restrictions which govern the Fund's investment
policies. Certain of these investment restrictions 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" in this Prospectus.)
As a non-fundamental policy, money is not borrowed in an amount in excess
of 10% of the assets of the Fund. It is intended that money will be borrowed
only from banks and only either to accommodate requests for the redemption of
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. Securities are not
purchased for the Fund at any time at which the amount of its borrowings exceed
5% of its assets.
Also as a non-fundamental policy, at least 80% of the Fund's assets is
invested in securities the interest on which is exempt from federal income
taxation.
As a fundamental policy, the Fund does not purchase more than 10% of all
outstanding debt securities of any one issuer.
The Fund is classified as "diversified" under the 1940 Act, which means
that at least 75% of its total assets is represented by cash; obligations issued
by the U.S. Government, its agencies or instrumentalities; and other securities
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limited in respect of any one issuer to an amount no greater in value than 5% of
the Fund's total assets (for the purpose of this restriction, the Fund regards
each state and each political subdivision, agency or instrumentality of such
state and each multi-state agency of which such state is a member and each
public authority which issues industrial development bonds on behalf of a
private entity as a separate issuer).
PURCHASE OF SHARES
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Shares of the Fund are offered on a continuous basis at their net asset value
without a sales charge. The Trust reserves the right to determine the purchase
orders for Fund shares that it will accept. Shares of the Fund may be purchased
on any day the New York Stock Exchange is open for regular trading if the Trust
receives the purchase order and acceptable payment for such order prior to 4:00
P.M., New York time. Purchases of Fund shares are then executed at the net asset
value per share next determined on that same day. All purchases must be paid for
in immediately available funds on the next business day after the purchase order
has been executed. Shares are entitled to dividends declared, if any, starting
as of the next business day following the day a purchase order is executed.
An investor who has an account with an Eligible Institution (see page 12) or
a Financial Intermediary (see page 12) may place purchase orders for Fund shares
with the Trust through that Eligible Institution or Financial Intermediary,
which holds such shares in its name on behalf of that customer. Each Eligible
Institution and each Financial Intermediary may establish and amend from time to
time a minimum initial and a minimum subsequent purchase requirement for its
customers. A transaction fee may by charged by an Eligible Institution or a
Financial Intermediary on the purchase of Fund shares.
An investor who does not have an account with an Eligible Institution or a
Financial Intermediary must place purchase orders for Fund shares with the Trust
through the Fund's Shareholder Servicing Agent. Such an investor has such shares
held directly in the investor's name on the books of the Trust and is
responsible for arranging for the payment of the purchase price of Fund shares.
All purchase orders for initial and subsequent purchases are executed at the net
asset value per share next determined after the Trust's custodian, State Street
Bank and Trust Company, has received payment in the form of a cashier's check
drawn on a U.S. bank or a check certified by a U.S. bank, a wire transfer or a
duly authorized bank guarantee that immediately available funds will be
transferred to the Trust on the next business day after the purchase order has
been executed. Brown Brothers Harriman & Co., as the Fund's Shareholder
Servicing Agent, has established a minimum initial purchase requirement for the
Fund of $100,000 and a minimum subsequent purchase requirement for the Fund of
$25,000. These minimum purchase requirements may be amended from time to time.
Inquiries regarding the manner in which purchases of Fund shares may be
effected and other matters pertaining to the Fund should be directed to Brown
Brothers Harriman & Co., the Fund's Shareholder Servicing Agent. (See back cover
for address and phone number.)
REDEMPTION OF SHARES
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A redemption request must be received by the Trust prior to 4:00 P.M., New
York time on any day the New York Stock Exchange is open for regular trading.
Such a redemption is executed at the net asset value per share next determined
on that same day. Proceeds of a redemption are paid in "available" funds
generally on the next business day after the redemption request is executed, and
in any event within seven days. Shares will continue to earn dividends declared,
if any, through the business day a redemption request is executed.
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Shares held by an Eligible Institution or a Financial Intermediary on behalf
of a shareholder must be redeemed through that Eligible Institution or Financial
Intermediary. A transaction fee may be charged by an Eligible institution or a
Financial Intermediary on the redemption of Fund shares.
Shares held directly in the name of shareholder on the books of the Trust may
be redeemed by submitting a redemption request in good order to the Trust
through the Fund's Shareholder Servicing Agent. (See back cover for address and
phone number.) Proceeds resulting from such redemption are paid by the Trust
directly to the shareholder.
Redemptions By the Trust
The Fund's Shareholder Servicing Agent, each Eligible Institution and each
Financial Intermediary may establish and amend from time to time for their
respective customers a minimum account size. If the value of a shareholder's
holdings in the Fund falls below that amount because of a redemption of shares,
the shareholder's remaining shares may be redeemed. If such remaining shares are
to be redeemed, the shareholder is so notified and is allowed 60 days to make an
additional investment to enable the shareholder to meet the minimum requirement
before the redemption is processed. Brown Brothers Harriman & Co., as the Fund's
Shareholder Servicing Agent, has established a minimum account size of $10,000.
Further Redemption Information
In the event a shareholder redeems all shares held in the Fund at any time
during the month, all accrued but unpaid dividends are included in the proceeds
of the redemption and future purchases of shares of the Fund by such shareholder
would be subject to the Fund's minimum initial purchase requirements.
The value of shares redeemed may be more or less than the shareholder's cost
depending on Fund performance during the period the shareholder owned such
shares. Redemptions of shares are taxable events on which a shareholder may
realize a gain or a loss.
An investor should be aware that redemptions from the Fund may not be
processed if a completed account application with a certified taxpayer
identification number has not been received.
A shareholder's right to receive payment with respect to any redemption may
be suspended or the payment of the redemption proceeds postponed for up to seven
days and for such other periods as the 1940 Act may permit. (See "Additional
Information" in the Statement of Additional Information.)
MANAGEMENT OF THE TRUST
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Trustees and Officers
The Trustees, in addition to supervising the actions of the Administrator,
Investment Adviser and Distributor of the Fund, as set forth below, decide upon
matters of general policy. Because of the services rendered the Trust by the
Investment Adviser and the Administrator, the Trust itself requires no employees
other than its officers, none of whom, other than the Chairman, receive
compensation from the Fund and all of whom, other than the Chairman, are
employed by 59 Wall Street Administrators. (See "Trustees and Officers" in the
Statement of Additional Information.)
The Trustees of the Trust are:
J.V. Shields, Jr.
Chairman and Chief Executive Officer of Shields & Company
Eugene P. Beard
Vice Chairman - Finance and Operations of The Interpublic
Group of Companies
David P. Feldman
Chairman and Chief Executive Officer- AT&T Investment Management
Corporation
Alan G. Lowy
Private Investor
Arthur D. Miltenberger
Vice President and Chief Financial Officer of
Richard K. Mellon and Sons
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Investment Adviser
The Investment Adviser to the Fund is Brown Brothers Harriman & Co.,
Private Bankers, a New York limited partnership established in 1818. The firm is
subject to examination and regulation by the Superintendent of Banks of the
State of New York and by the Department of Banking of the Commonwealth of
Pennsylvania. The firm is also subject to supervision and examination by the
Commissioner of Banks of the Commonwealth of Massachusetts.
Brown Brothers Harriman & Co. provides investment advice and portfolio
management services to the Fund. Subject to the general supervision of the
Trust's Trustees, Brown Brothers Harriman & Co. makes the day-to-day investment
decisions for the Fund, places the purchase and sale orders for the portfolio
transactions of the Fund, and generally manages the Fund's investments. Brown
Brothers Harriman & Co. provides a broad range of investment management services
for customers in the United States and abroad. At June 30, 1996, it managed
total assets of approximately $25 billion.
The Fund's portfolio is managed on a day-to-day basis by a team of
individuals, including Mr. Jeffrey A. Schoenfeld, Ms. Barbara A. Brinkley and
Ms. Sabrina T. Huffman of Brown Brothers Harriman & Co. Mr. Schoenfeld is the
Partner in charge of fixed income management. He joined Brown Brothers Harriman
& Co. in 1984 and his entire career has been in fixed income markets. Mr.
Schoenfeld holds a B.A. from the University of California, Berkeley and a M.B.A.
from the Wharton School of the University of Pennsylvania. Ms. Brinkley, Senior
Portfolio Manager of the Fund since inception, joined Brown Brothers Harriman &
Co. in 1967. Throughout her career with Brown Brothers Harriman & Co. Ms.
Brinkley has specialized as a municipal bond credit analyst, trader and
portfolio manager. She is a member of Brown Brothers Harriman & Co.'s Fixed
Income Credit Committee, a member and former chairman of the Municipal Analysts
Group of New York and a member of the Fixed Income Analysts Society, Inc. Ms.
Brinkley holds a B.A. from Smith College. Ms. Huffman, Assistant Portfolio
Manager of the Fund, joined Brown Brothers Harriman & Co. in 1995, following two
years experience at Merrill Lynch & Co. Ms. Huffman holds a B.S. from the
Massachusetts Institute of Technology and a M.B.A. from the Columbia University
Graduate School of Business.
As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by Brown Brothers Harriman & Co. under the
Investment Advisory Agreement, Brown Brothers Harriman & Co. receives from the
Fund an annual fee, computed daily and payable monthly, equal to 0.35% of the
Fund's average daily net assets. Brown Brothers Harriman & Co. also receives an
annual administration fee and eligible institution fee from the Fund equal to
0.15% and 0.25%, respectively, of the average daily net assets of the Fund.
The investment advisory services of Brown Brothers Harriman & Co. to the
Fund are not exclusive under the terms of the Investment Advisory Agreement.
Brown Brothers Harriman & Co. is free to and does render investment advisory
services to others, including other registered investment companies.
Pursuant to a license agreement between the Trust and Brown Brothers
Harriman & Co. dated August 24, 1989, as amended as of December 15, 1993, the
Trust may continue to use in its name "59 Wall Street", the current and historic
address of Brown Brothers Harriman & Co. The agreement may be terminated by
Brown Brothers Harriman & Co. at any time upon written notice to the Trust upon
the expiration or earlier termination of any investment advisory agreement
between the Fund or any investment company in which a series of the Trust
invests all of its assets and Brown Brothers Harriman & Co. Termination of the
agreement would require the Trust to change its name and the name of the Fund to
eliminate all reference to "59 Wall Street".
Pursuant to license agreements between Brown Brothers Harriman & Co. and each
of 59 Wall Street Administrators and 59 Wall Street Distributors (each a
"Licensee"), dated June 22, 1993 and June 8, 1990, respectively, each Licensee
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may continue to use in its name "59 Wall Street", the current and historic
address of Brown Brothers Harriman & Co., only if Brown Brothers Harriman & Co.
does not terminate the respective license agreement, which would require the
Licensee to change its name to eliminate all reference to "59 Wall Street".
Administrator
Brown Brothers Harriman & Co. acts as Administrator of the Trust. (See
"Administrator" in the Statement of Additional Information.)
In its capacity as Administrator, Brown Brothers Harriman & Co. administers
all aspects of the Trust's operations subject to the supervision of the Trust's
Trustees except as set forth below under "Distributor". In connection with its
responsibilities as Administrator and at its own expense, Brown Brothers
Harriman & Co. (i) provides the Trust with the services of persons competent to
perform such supervisory, administrative and clerical functions as are necessary
in order to provide effective administration of the Trust; (ii) oversees the
performance of administrative and professional services to the Trust by others,
including the Fund's Custodian, Transfer and Dividend Disbursing Agent; (iii)
provides the Trust with adequate office space and communications and other
facilities; and (iv) prepares and/or arranges for the preparation, but does not
pay for, the periodic updating of the Trust's registration statement and the
Fund's prospectus, the printing of such documents for the purpose of filings
with the Securities and Exchange Commission and state securities administrators,
and the preparation of tax returns for the Trust and for the Fund and reports to
the Fund's shareholders and the Securities and Exchange Commission.
For the services rendered to the Trust and related expenses borne by Brown
Brothers Harriman & Co. as Administrator, Brown Brothers Harriman & Co. receives
from the Fund an annual fee, computed daily and payable monthly, equal to 0.15%
of the Fund's average daily net assets.
Pursuant to a Subadministrative Services Agreement with Brown Brothers
Harriman & Co., 59 Wall Street Administrators performs such subadministrative
duties for the Trust as are from time to time agreed upon by the parties. The
offices of 59 Wall Street Administrators are located at 6 St. James Avenue,
Boston, Massachusetts 02116. 59 Wall Street Administrators is a wholly-owned
subsidiary of Signature Financial Group, Inc. ("SFG"). SFG is not affiliated
with Brown Brothers Harriman & Co. 59 Wall Street Administrators'
subadministrative duties may include providing equipment and clerical personnel
necessary for maintaining the organization of the Trust, participation in the
preparation of documents required for compliance by the Trust with applicable
laws and regulations, preparation of certain documents in connection with
meetings of Trustees and shareholders of the Trust, and other functions that
would otherwise be performed by the Administrator as set forth above. For
performing such subadministrative services, 59 Wall Street Administrators
receives such compensation as is from time to time agreed upon but not in excess
of the amount paid to the Administrator from the Fund.
Shareholder Servicing Agent
The Trust has entered into a shareholder servicing agreement with Brown
Brothers Harriman & Co. pursuant to which Brown Brothers Harriman & Co., as
agent for the Fund, among other things: answers inquiries from shareholders of
and prospective investors in the Fund regarding account status and history, the
manner in which purchases and redemptions of Fund shares may be effected and
certain other matters pertaining to the Fund; assists shareholders of and
prospective investors in the Fund in designating and changing dividend options,
account designations and addresses; and provides such other related services as
the Trust or a shareholder of or prospective investor in the Fund may reasonably
request. For these services, Brown Brothers Harriman & Co. receives from the
Fund an annual fee, computed daily and payable monthly, equal to 0.25% of the
average daily net assets of the Fund represented by shares owned during the
period for which payment was being made by shareholders who did not hold their
shares with an Eligible Institution.
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<PAGE>
Financial Intermediaries
From time to time, the Fund's Shareholder Servicing Agent enters into
contracts with banks, brokers and other financial intermediaries ("Financial
Intermediaries") pursuant to which a customer of the Financial Intermediary may
place purchase orders for Fund shares through that Financial Intermediary which
holds such shares in its name on behalf of that customer. Pursuant to such
contract, each Financial Intermediary as agent with respect to shareholders of
and prospective investors in the Fund who are customers of that Financial
Intermediary, among other things: provides necessary personnel and facilities to
establish and maintain certain shareholder accounts and records enabling it to
hold, as agent, its customers' shares in its name or its nominee name on the
shareholder records of the Trust; assists in processing purchase and redemption
transactions; arranges for the wiring of funds; transmits and receives funds in
connection with customer orders to purchase or redeem shares of the Fund;
provides periodic statements showing a customer's account balance and, to the
extent practicable, integrates such information with information concerning
other customer transactions otherwise effected with or through it; furnishes,
either separately or on an integrated basis with other reports sent to a
customer, monthly and annual statements and confirmations of all purchases and
redemptions of Fund shares in a customer's account; transmits proxy statements,
annual reports, updated prospectuses and other communications from the Trust to
its customers; and receives, tabulates and transmits to the Trust proxies
executed by its customers with respect to meetings of shareholders of the Fund.
For these services, the Financial Intermediary receives such fees from the
Shareholder Servicing Agent as may be agreed upon from time to time between the
Shareholder Servicing Agent and such Financial Intermediary.
Eligible Institutions
The Trust enters into eligible institution agreements with banks, brokers and
other financial institutions pursuant to which that financial institution, as
agent for the Trust with respect to shareholders of and prospective investors in
the Fund who are customers of that financial institution, among other things:
provides necessary personnel and facilities to establish and maintain certain
shareholder accounts and records enabling it to hold, as agent, its customers'
shares in its name or its nominee name on the shareholder records of the Trust;
assists in processing purchase and redemption transactions; arranges for the
wiring of funds; transmits and receives funds in connection with customer orders
to purchase or redeem shares of the Fund; provides periodic statements showing a
customer's account balance and, to the extent practicable, integrates such
information with information concerning other customer transactions otherwise
effected with or through it; furnishes, either separately or on an integrated
basis with other reports sent to a customer, monthly and annual statements and
confirmations of all purchases and redemptions of Fund shares in a customer's
account; transmits proxy statements, annual reports, updated prospectuses and
other communications from the Trust to its customers; and receives, tabulates
and transmits to the Trust proxies executed by its customers with respect to
meetings of shareholders of the Fund. For these services, that financial
institution receives from the Fund an annual fee, computed daily and payable
monthly, equal to 0.25% of the average daily net assets of the Fund represented
by shares owned during the period for which payment was being made by customers
for whom that financial institution was the holder or agent of record.
Expense Payment Agreement
Under an agreement dated February 22, 1995, 59 Wall Street Administrators
pays the Fund's expenses (see "Expense Table") other than fees paid to Brown
Brothers Harriman & Co. under the Trust's Administration Agreement and other
than expenses relating to the organization of the Fund. In return, 59 Wall
Street Administrators receives a fee from the Fund such that after such payment
the aggregate expenses of the Fund do not exceed an agreed upon annual rate,
currently 0.70% of the average daily net assets of the Fund. Such fees are
12
<PAGE>
computed daily and paid monthly. During the fiscal year ended June 30, 1996, 59
Wall Street Administrators incurred $351,536 in expenses on behalf of the Fund,
including investment advisory fees of $168,222 and eligible
institution/shareholder servicing fees of $120,159 and received fees of
$256,480.
This expense payment agreement will terminate on July 1, 1997. After this
expense payment agreement terminates, the Trustees of the Trust estimate that,
at the Fund's current level, the total operating expenses of the Fund may
increase to approximately 1.00% of the Fund's average annual net assets.
The expenses of the Fund paid by 59 Wall Street Administrators under the
agreement include investment advisory fees, eligible institution fees, the
compensation of the Trustees of the Trust; governmental fees; interest charges;
taxes; membership dues in the Investment Company Institute; fees and expenses of
independent auditors, of legal counsel and of any transfer agent, custodian,
registrar or dividend disbursing agent of the Fund; insurance premiums; expenses
of calculating the net asset value of shares of the Fund; expenses of preparing,
printing and mailing prospectuses, reports, notices, proxy statements and
reports to shareholders and to governmental officers and commissions; expenses
of shareholder meetings; expenses relating to the issuance, registration and
qualification of shares of the Fund; and expenses connected with the execution,
recording and settlement of portfolio security transactions.
Distributor
59 Wall Street Distributors acts as exclusive Distributor of shares of the
Fund. Its office is located at 6 St. James Avenue, Boston, Massachusetts 02116.
59 Wall Street Distributors is a wholly-owned subsidiary of SFG. SFG and its
affiliates currently provide administration and distribution services for other
registered investment companies. The Trust pays for the preparation, printing
and filing of copies of the Trust's registration statement and the Fund's
prospectus as required under federal and state securities laws. (See
"Distributor" in the Statement of Additional Information.)
59 Wall Street Distributors holds itself available to receive purchase
orders for Fund shares.
Custodian, Transfer and
Dividend Disbursing Agent
State Street Bank and Trust Company, 225 Franklin Street, P.O. Box 351,
Boston, Massachusetts 02110, is the Fund's Custodian and Transfer and Dividend
Disbursing Agent. As Custodian, it is responsible for maintaining books and
records of the Fund's portfolio transactions and holding the Fund's portfolio
securities and cash pursuant to a custodian agreement with the Trust. Cash is
held for the Fund in demand deposit accounts at the Custodian. Subject to the
supervision of the Administrator, the Custodian maintains the Fund's accounting
and portfolio transaction records and for each day computes the Fund's net asset
value, net investment income and dividend payable. As Transfer and Dividend
Disbursing Agent it is responsible for maintaining the books and records
detailing the ownership of the Fund's shares.
Independent Auditors
Deloitte & Touche LLP are the independent auditors for the Fund.
NET ASSET VALUE
================================================================================
The Fund's net asset value per share is determined once daily at 4:00 P.M.,
New York time on each day the New York Stock Exchange is open for regular
trading and New York banks are open for business.
The determination of the Fund's net asset value per share is made by
subtracting from the value of the total assets of the Fund 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.
Values of assets in the Fund's portfolio are determined on the basis of
their market or other fair value. (See "Net Asset Value" in the Statement of
Additional Information.)
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<PAGE>
DIVIDENDS AND DISTRIBUTIONS
================================================================================
Substantially all of the Fund's net investment income, together with a
discretionary portion of any net short-term capital gains, is declared as a
dividend daily and paid monthly. Dividends with respect to shares which were
redeemed during the month are paid at the end of the month. Dividends declared
with respect to a Saturday, Sunday or holiday are credited to shareholders of
record as of the close of business on the previous business day. Substantially
all of the Fund's realized net long-term capital gains, if any, are declared and
paid to shareholders on an annual basis as a capital gains distribution. An
additional dividend and/or capital gains distribution may be made to the extent
necessary to avoid the imposition of federal excise tax on the Fund. (See
"Taxes" below.) Dividends and capital gains distributions are payable to
shareholders of record on the record date.
Unless a shareholder whose shares are held directly in the shareholder's
name on the books of the Trust elects to have dividends and capital gains
distributions paid in cash, dividends and capital gains distributions are
automatically reinvested in additional Fund shares without reference to the
minimum subsequent purchase requirement. In the event a shareholder redeems all
shares held at any time during the month, all accrued but unpaid dividends are
included in the proceeds of the redemption and future purchases of shares by
such shareholder will be subject to the minimum initial purchase requirements.
The Trust reserves the right to discontinue, alter or limit the automatic
reinvestment privilege at any time, but will provide shareholders prior written
notice of any such discontinuance, alteration or limitation.
Each Eligible Institution and each Financial Intermediary may establish its
own policy with respect to the reinvestment of dividends and capital gains
distributions in additional Fund shares.
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 the
Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, the Fund is
not subject to federal income taxes on its net income and realized net capital
gains that are distributed to its shareholders. A 4% non-deductible excise tax
is imposed on the Fund to the extent that certain distribution requirements for
the Fund for each calendar year are not met. The Trust intends to continue to
meet such requirements.
In accordance with the investment objective of the Fund, it is expected
that the Fund's net income is attributable to interest from municipal bonds and,
as a result, dividends to shareholders are designated by the Trust as "exempt
interest dividends" under Section 852(b)(5) of the Code, which may be treated as
items of interest excludible from a shareholder's gross income. Although it is
not intended, it is possible that the Fund may realize short-term or long-term
capital gains or losses from securities transactions as well as taxable interest
income depending on market conditions.
In accordance with Section 852(b)(5) of the Code, in order for the Fund to
be entitled to pay exempt interest dividends to shareholders, at the close of
each quarter of its taxable year, at least 50% of the value of its total assets
must consist of obligations whose interest is exempt from federal income tax.
The non-exempt portion of dividends is taxable to shareholders of the Fund
as ordinary income, whether such dividends are paid in cash or reinvested in
additional shares. These dividends are not eligible for the dividends-received
deduction allowed to corporate shareholders. Capital gains distributions are
taxable to shareholders as long-term capital gains, whether paid in cash or
reinvested in additional shares and regardless of the length of time a
particular shareholder has held Fund shares.
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<PAGE>
Any dividend or capital gains distribution has the effect of reducing the
net asset value of Fund shares held by a shareholder by the same amount as the
dividend or capital gains distribution. If the net asset value of the shares is
reduced below a shareholder's cost as a result of such a dividend or capital
gains distribution, the dividend or capital gains distribution, although
constituting a return of invested capital, would be taxable as described above.
Any gain or loss realized on the redemption of Fund shares by a shareholder who
is not a dealer in securities is treated as long-term capital gain or loss if
the shares have been held for more than one year, and otherwise as short-term
capital gain or loss. However, any loss realized by a shareholder upon the
redemption of shares in the Fund held one year or less is treated as a long-term
capital loss to the extent of any long-term capital gains distributions received
by the shareholder with respect to such shares.
Any short-term capital loss realized upon the redemption of shares within
six months from the date of their purchase is disallowed to the extent of any
tax-exempt dividends received during such period.
The Code provides that interest on indebtedness incurred, or continued, to
purchase or carry shares of the Fund is not deductible. Further, entities or
persons who may be "substantial users" (or persons related to "substantial
users") of facilities financed by industrial development bonds should consult
with their own tax advisors before purchasing shares of the Fund.
State and Local Taxes
The exemption for federal income tax purposes of dividends derived from
interest on municipal bonds does not necessarily result in an exemption under
the income or other tax laws of any state or local taxing authority.
Shareholders of the Fund may be exempt from state and local taxes on
distributions of tax-exempt interest income derived from obligations of the
state and/or municipalities of the state in which they may reside but may be
subject to tax on income derived from obligations of other jurisdictions.
Shareholders are advised to consult with their own tax advisors about the status
of distributions from the Fund in their own states and localities.
Under U.S. Treasury regulations, the Trust and each Eligible Institution
are required to withhold and remit to the U.S. Treasury a portion (31%) of
dividends and capital gains distributions on the accounts of those shareholders
who fail to provide a correct taxpayer identification number (Social Security
Number for individuals) or to make required certifications, or who have been
notified by the Internal Revenue Service that they are subject to such
withholdings. Prospective investors should submit an IRS Form W-9 to avoid such
withholding.
Foreign Investors
The Fund is designed for investors who are either citizens of the United
States or aliens subject to United States income tax. Prospective investors who
are not citizens of the United States and who are not aliens subject to United
States income tax are subject to United States withholding tax on the entire
amount of all dividends. Therefore, such investors should not invest in the Fund
since alternative investments are available which would not be subject to United
States withholding tax.
Other Information
Annual notification as to the tax status of capital gains distributions, if
any, is provided to shareholders shortly after June 30, the end of the Fund's
fiscal year. Additional tax information is mailed to shareholders in January.
This tax discussion is based on the tax laws and regulations in effect on
the date of this Prospectus, however such laws and regulations are subject to
change. Shareholders and prospective investors are urged to consult their tax
advisors regarding specific questions relevant to their particular
circumstances.
15
<PAGE>
DESCRIPTION OF SHARES
================================================================================
The Trust is an open-end management investment company organized on June 7,
1983, as an unincorporated business trust under the laws of the Commonwealth of
Massachusetts. Its offices are located at 6 St. James Avenue, Boston,
Massachusetts 02116; its telephone number is (617) 423-0800.
Pursuant to the Trust's Declaration of Trust, the Trustees have authorized
the issuance of an unlimited number of full and fractional shares of each series
of the Trust, one of which is the Fund. The Trustees may divide or combine the
shares into a greater or lesser number of shares without thereby changing the
proportionate beneficial interest in the Trust and may authorize the creation of
additional series of shares, the proceeds of which would be invested in
separate, independently managed portfolios. Currently, there are two series in
addition to the Fund.
The Trustees themselves have the power to alter the number and the terms of
office of the Trustees, to lengthen their own terms, or to make their terms of
unlimited duration subject to certain removal procedures, and to appoint their
own successors; provided that at least two-thirds of the Trustees have been
elected by the shareholders.
Each share of the Fund represents an equal proportional interest in the
Fund with each other share. Upon liquidation of the Fund, shareholders are
entitled to share pro rata in the net assets of the Fund available for
distribution to shareholders.
Shareholders of the Fund are entitled to a full vote for each full share
held and to a fractional vote for fractional shares. The voting rights of
shareholders are not cumulative. Shares have no preemptive or conversion rights.
The rights of redemption are described elsewhere herein. Shares when issued are
fully paid and nonassessable by the Trust, except as set forth below. It is the
intention of the Trust not to hold meetings of shareholders annually. The
Trustees may call meetings of shareholders for action by shareholder vote as may
be required by the 1940 Act or as may be permitted by the Declaration of Trust
or By-Laws. 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.
The By-Laws of the Trust provide that the presence in person or by proxy of
the holders of record of one half of the shares of the Fund outstanding and
entitled to vote thereat shall constitute a quorum at all meetings of Fund
shareholders, except as otherwise required by applicable law. The By-Laws
further provide that all questions shall be decided by a majority of the votes
cast at any such meeting at which a quorum is present, except as otherwise
required by applicable law.
The Declaration of Trust provides that, at any meeting of shareholders of
the Fund, each eligible institution may vote any shares as to which that
eligible institution is the agent of record and which are otherwise not
represented in person or by proxy at the meeting, proportionately in accordance
with the votes cast by holders of all shares otherwise represented at the
meeting in person or by proxy as to which that eligible institution is the agent
of record. Any shares so voted by an eligible institution are deemed represented
at the meeting for purposes of quorum requirements.
The 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. However, the risk of a shareholder 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.
16
<PAGE>
ADDITIONAL INFORMATION
================================================================================
As used in this 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 independent auditors. The annual report also contains performance information
and is made available to investors upon request and without charge.
A confirmation of each purchase and redemption transaction is issued on
execution of that transaction.
The Fund's performance may be used from time to time in shareholder reports
or other communications to shareholders or prospective investors. Performance
figures are based on historical earnings and are not intended to indicate future
performance. Performance information may include the Fund's investment results
and/or comparisons of its investment results to various unmanaged indexes (such
as the Lehman 3-Year General Obligation Municipal Bond Index or the Merrill
Lynch 0-3 Year General Obligation Municipal Bond Index) and to investments for
which reliable performance data is available. Performance information may also
include comparisons to averages, performance rankings or other information
prepared by recognized mutual fund statistical services. To the extent that
unmanaged indexes are so included, the same indexes are used on a consistent
basis. The Fund's investment results as used in such communications are
calculated on a total rate of return basis in the manner set forth below.
Period and average annualized "total rates of return" may be provided in
such communications. The "total rate of return" refers to the change in the
value of an investment in the Fund over a stated period based on any change in
net asset value per share and including the value of any shares purchasable with
any dividends or capital gains distributions during such period. Period total
rates of return may be annualized. An annualized total rate of return is a
compounded total rate of return which assumes that the period total rate of
return is generated over a one year period, and that all dividends and capital
gains distributions are reinvested. An annualized total rate of return is
slightly higher than a period total rate of return if the period is shorter than
one year, because of the assumed reinvestment.
The Fund's "yield", "effective yield" and "tax equivalent yield" may be
used from time to time in shareholder reports or other communications to
shareholders or prospective investors. Such yield figures are based on
historical earnings and are not intended to indicate future performance. The
"yield" of the Fund refers to the income generated by an investment in the Fund
over a 30-day or one-month period (which period is stated). This income is then
annualized. The "effective yield" is calculated similarly but, when annualized,
the income earned by an investment in the Fund is assumed to be reinvested. The
"effective yield" is slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment. The "tax equivalent yield" is the yield a
fully taxable investment would have to return to an investor subject to the
highest marginal federal tax rate to provide a comparable return.
This Prospectus omits certain of the information contained in the Statement
of Additional Information and the Registration Statement filed with the
Securities and Exchange Commission. The Statement of Additional Information may
be obtained from 59 Wall Street Distributors without charge and the Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the Rules and Regulations of the Commission.
17
<PAGE>
APPENDIX A
================================================================================
This Appendix is intended to provide descriptions of the securities the
Fund may purchase, the interest on which is exempt from federal income tax other
than the alternative minimum tax. However, other such securities not mentioned
below may be purchased for the Fund if they meet the quality and maturity
guidelines set forth in the Fund's investment policies.
================================================================================
Municipal Bonds--debt obligations issued by states, local governments and
regional authorities which provide interest income that is exempt from regular
federal income tax, other than the alternative minimum tax. They generally meet
the longer-term capital needs of their issuers and have maturities of one year
or more. These securities include:
o General Obligation Bonds--bonds backed by the municipality's pledge of
full faith, credit and taxing power.
o Revenue Bonds--bonds backed by the revenue of a specific project,
facility or tax. These include municipal water, sewer and power
utilities; transportation projects; education or housing facilities;
industrial development and resource recovery bonds.
o Refunded Bonds--general obligation or revenue bonds that have been
fully secured or collateralized by an "escrow fund" consisting of U.S.
Government obligations that can adequately meet interest and principal
payments.
o Lease Obligation Bonds--bonds backed by lease obligations of a state or
local authority for the use of land, equipment and facilities. These
securities are not backed by the full faith and credit of the
municipality and may be riskier than general obligation bonds or
revenue bonds. Leases and installment purchase or conditional sale
contracts have been developed to allow for government issuers to
acquire property without meeting the statutory and constitutional
requirements generally required for the issuance of debt.
o Asset-Backed Bonds--bonds secured by interests in pools of municipal
purchase contracts, financing leases and sales agreements. These
obligations are collateralized by the assets purchased or leased by the
municipality.
o Zero Coupon Bonds--securities issued at a discount from their face
value that pay all interest and principal upon maturity. The difference
between the purchase price and par is a specific compounded interest
rate for the investor. In calculating the daily income of the Fund, a
portion of the difference between a zero coupon bond's purchase price
and its face value is taken into account as income.
Municipal Notes--debt obligations issued by states, local governments and
regional authorities which provide interest income that is exempt from regular
federal income taxes, other than the alternative minimum tax. They generally
meet the shorter-term capital needs of their issuers and have maturities of less
than one year. These securities include:
o Tax and Revenue Anticipation Notes--notes issued in expectation of future
taxes or revenues.
o Bond Anticipation Notes--notes issued in anticipation of the sale of
long-term bonds.
Municipal Commercial Paper--obligations issued to meet short-term working
capital or operating needs.
18
<PAGE>
Variable and Floating Rate Instruments--securities whose interest
rates are reset daily, weekly or at another periodic date so that the
security remains close to par, minimizing changes in its market value.
These securities often have a demand feature which entitles the investor to
repayment of principal plus accrued interest on short notice. In
calculating the maturity of a variable rate or floating rate instrument for
the Fund, the date of the next interest rate reset is used.
When-issued and Delayed Delivery Securities--municipal securities may
be purchased for the Fund on a when-issued or delayed delivery basis. For
example, delivery and payment may take place a month or more after the date
of the transaction. The purchase price and the interest rate payable on the
securities are fixed on the transaction date. The securities so purchased
are subject to market fluctuation and no interest accrues to the Fund until
delivery and payment take place. At the time the commitment to purchase
securities for the Fund on a when-issued or delayed delivery basis is made,
the transaction is recorded and thereafter the value of such securities is
reflected each day in determining the Fund's net asset value. At the time
of its acquisition, a when-issued security may be valued at less than the
purchase price. Commitments for such when-issued securities are made only
when there is an intention of actually acquiring the securities. To
facilitate such acquisitions, a segregated account with the Custodian is
maintained for the Fund with liquid assets in an amount at least equal to
such commitments. Such segregated account consists of liquid assets marked
to the market daily, with additional liquid assets added when necessary to
insure that at all times the value of such account is equal to the
commitments. On delivery dates for such transactions, such obligations are
met from maturities or sales of the securities held in the segregated
account and/or from cash flow. If the right to acquire a when-issued
security is disposed of prior to its acquisition, the Fund could, as with
the disposition of any other portfolio obligation, incur a gain or loss due
to market fluctuation. When-issued commitments for the Fund may not be
entered into if such commitments exceed in the aggregate 15% of the market
value of the Fund's total assets, less liabilities other than the
obligations created by when-issued commitments.
19
<PAGE>
APPENDIX B
================================================================================
This Appendix is intended to provide descriptions of the short-term
securities the Fund may purchase, the interest on which is subject to federal
income tax. However, other such securities not mentioned below may be purchased
for the Fund if they meet the quality and maturity guidelines set forth in the
Fund's investment policies.
================================================================================
U.S. Government Obligations--Assets of the Fund may be invested in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. These securities, including those which are guaranteed by
federal agencies or instrumentalities, may or may not be backed by the "full
faith and credit" of the United States. In the case of securities not backed by
the full faith and credit of the United States, it may not be possible to assert
a claim against the United States itself in the event the agency or
instrumentality issuing or guaranteeing the security for ultimate repayment does
not meet its commitments. Securities which are not backed by the full faith and
credit of the United States include, but are not limited to, securities of the
Tennessee Valley Authority, the Federal National Mortgage Association (FNMA) and
the U.S. Postal Service, each of which has a limited right to borrow from the
U.S. Treasury to meet its obligations, and securities of the Federal Farm Credit
System, the Federal Home Loan Banks, the Federal Home Loan Mortgage Corporation
("FHLMC") and the Student Loan Marketing Association, the obligations of each of
which may be satisfied only by the individual credit of the issuing agency.
Securities which are backed by the full faith and credit of the United States
include Treasury bills, Treasury notes, Treasury bonds and pass through
obligations of the Government National Mortgage Association ("GNMA"), the
Farmers Home Administration and the Export-Import Bank. There is no percentage
limitation with respect to investments in U.S. Government securities.
Commercial Paper--Assets of the Fund may be invested in commercial paper
including variable rate demand master notes issued by U.S. corporations or by
non-U.S. corporations which are direct parents or subsidiaries of U.S.
corporations.
Master notes are demand obligations that permit the investment of
fluctuating amounts at varying market rates of interest pursuant to arrangements
between the issuer and a U.S. commercial bank acting as agent for the payees of
such notes. Master notes are callable on demand, but are not marketable to third
parties. Consequently, the right to redeem such notes depends on the borrower's
ability to pay on demand.
At the date of investment, commercial paper must be rated within the
highest rating category for short-term debt obligations by at least two (unless
only rated by one) nationally recognized statistical rating organizations (e.g.,
Moody's and S&P) or, if unrated, are of comparable quality as determined by or
under the direction of the Board of Trustees. Any commercial paper issued by a
non-U.S. corporation must be U.S. dollar-denominated and not subject to non-U.S.
withholding tax at the time of purchase. Aggregate investments in non-U.S.
commercial paper of non-U.S. issuers cannot exceed 10% of the Fund's net assets.
Bank Obligations--Assets of the Fund may be invested in U.S.
dollar-denominated negotiable certificates of deposit, fixed time deposits and
bankers' acceptances of banks, savings and loan associations and savings banks
organized under the laws of the United States or any state thereof, including
obligations of non-U.S. branches of such banks, or of non-U.S. banks or their
U.S. or non-U.S. branches, provided that in each case, such bank has more than
$500 million in total assets and has an outstanding short-term debt issue rated
within the highest rating category for short-term debt obligations by at least
two (unless only rated by one) nationally recognized statistical rating
organizations (e.g., Moody's and S&P) or, if unrated, are of comparable quality
as determined by or under the direction of the Board of Trustees. (See "Bond,
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Note and Commercial Paper Ratings" in the Statement of Additional Information.)
There is no percentage limitation with respect to investments in 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. While early withdrawals are not contemplated,
fixed time deposits are not readily marketable and may be subject to early
withdrawal penalties, which may vary. Assets of the Fund will not be invested in
obligations of Brown Brothers Harriman & Co. or the Distributor, or in the
obligations of the affiliates of any such organization or in fixed time deposits
with a maturity of over seven calendar days, or in fixed time deposits with a
maturity of from two business days to seven calendar days if more than 10% of
the Fund's total assets would be invested in such deposits.
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 are assets of the Fund 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 has
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 Fund's 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.
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The 59 Wall Street Trust
Investment Adviser and
Administrator
Brown Brothers Harriman & Co.
59 Wall Street
New York, New York 10005
Distributor
59 Wall Street Distributors, Inc.
6 St. James Avenue
Boston, Massachusetts 02116
Shareholder Servicing Agent
Brown Brothers Harriman & Co.
59 Wall Street
New York, New York 10005
(800) 625-5759
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus and the Statement of Additional Information, in connection with the
offer contained in this Prospectus, and if given or made, such other information
or representations must not be relied upon as having been authorized by the
Trust or the Distributor. This Prospectus does not constitute an offer by the
Trust or by the Distributor to sell or the solicitation of any offer to buy any
of the securities offered hereby in any jurisdiction to any person to whom it is
unlawful for the Trust or the Distributor to make such offer in such
jurisdiction.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
THE 59 WALL STREET TAX FREE SHORT/INTERMEDIATE
FIXED INCOME FUND
6 ST. JAMES AVENUE, BOSTON, MASSACHUSETTS 02116
The 59 Wall Street Tax Free Short/Intermediate Fixed Income 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 investment objective of the Fund is to
provide investors with as high a level of income exempt from federal income tax
as is consistent with minimizing price fluctuations in net asset value and
maintaining liquidity. The Fund invests primarily in high quality municipal
securities and the dollar-weighted average maturity of the Fund's portfolio does
not exceed three years. The Fund is an appropriate investment for investors
seeking tax free income returns greater than those provided by tax free money
market funds and who are able to accept fluctuations in the net asset value of
their investment. The Fund is designed to have lesser price fluctuations than
long term bond funds. There can be no assurance that the investment objective of
the Fund will be achieved.
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, 1996, 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 4-7
Investment Restrictions 2 7-8
Trustees and Officers 5 9-10
Investment Adviser 7 10-11
Administrator 9 11
Distributor 9 13
Net Asset Value 9 13
Computation of Performance 10 16-17
Federal Taxes 11 14-15
Massachusetts Trust 12 16
Portfolio Transactions 14 7
Bond, Note and Commercial Paper Ratings 15 5
Additional Information 17 17
Financial Statements 18 4
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS NOVEMBER 1, 1996.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The following supplements the information contained in the Prospectus
concerning the investment objective, policies and techniques of the Fund.
LOANS OF PORTFOLIO SECURITIES. Securities of the Fund 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 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
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.
2
<PAGE>
INVESTMENT RESTRICTIONS
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 will be borrowed only from banks and only either to
accommodate requests for the redemption of Fund shares while effecting an
orderly liquidation of portfolio securities or to maintain liquidity in the
event of an unanticipated failure to complete a portfolio security transaction
or other similar situations), provided that collateral arrangements with respect
to options and futures, including deposits of initial deposit and variation
margin, are not considered a pledge of assets for purposes of this restriction
and except that assets may be pledged to secure letters of credit solely for the
purpose of participating in a captive insurance company sponsored by the
Investment Company Institute; 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 and except that deposits of
initial deposit and variation margin may be made in connection with the
purchase, ownership, holding or sale of futures or the purchase, ownership,
holding, sale or writing of options;
(3) 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;
(4) 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
3
<PAGE>
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;
(5) knowingly invest in securities which are subject to legal or
contractual restrictions on resale (other than repurchase agreements maturing in
not more than seven days) if, as a result thereof, more than 10% of its total
assets (taken at market value) would be so invested (including repurchase
agreements maturing in more than seven days);
(6) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts
(except futures and options 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);
(7) 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; such
sales would not be made of securities subject to outstanding options);
(8) concentrate its investments in securities of issuers 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 securities of issuers in any one industry,
except that positions in futures or option contracts shall not be subject to
this restriction (industrial development and pollution control bonds are grouped
into industries based upon the business in which the issuer of such obligations
is engaged);
(9) issue any senior security (as that term is defined in the 1940 Act)
if such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, provided that collateral arrangements with
respect to options and futures, including deposits of initial deposit and
variation margin, are not considered to be the issuance of a senior security for
purposes of this restriction;
(10) invest more than 5% of its total assets in the securities or
obligations of any one issuer (other than obligations issued by the U.S.
Government, its agencies or instrumentalities); provided, however, that up to
25% of its total assets may be invested without regard to this restriction (for
the purpose of this restriction, it will regard each state
4
<PAGE>
and each political subdivision, agency or instrumentality of such state and each
multi-state agency of which such state is a member and each public authority
which issues industrial development bonds on behalf of a private entity as a
separate issuer); or
(11) purchase more than 10% of all outstanding debt obligations of any
one issuer (other than obligations issued by the U.S. Government, its agencies
or instrumentalities).
As an operating policy, the Fund has no current intention to engage in
options or futures transactions or to lend portfolio securities.
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 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 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
value), provided that collateral arrangements with respect to options and
futures, including deposits of initial deposit and variation margin, are not
considered a pledge of assets for purposes of this restriction, (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 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, except that futures and option
contracts are not subject to this restriction, (viii) invest more than 5% of its
assets in taxable securities of issuers which, including predecessors, have a
record of less than three years of continuous operation (this restriction shall
not apply to any obligations of the U.S.
5
<PAGE>
Government, its agencies or instrumentalities), 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
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.; Managing Director, Chairman and Chief Executive
Officer of Shields & Company; Chairman and Chief Executive Officer of Capital
Management Associates, Inc.; Director of Flowers Industries, Inc.(1) His
business address is Shields & Company, 71 Broadway, New York, NY 10006.
EUGENE P. BEARD** - Trustee; Director of The 59 Wall Street Fund, Inc.
(since April 1993); and Vice Chairman - Finance and Operations of The
Interpublic Group of Companies. His business address is The Interpublic Group of
Companies, Inc., 1271 Avenue of the Americas, New York, NY 10020.
DAVID P. FELDMAN** - Trustee; Director of The 59 Wall Street Fund,
Inc.; Chairman and Chief Executive Officer - AT&T Investment Management
Corporation; Director of Dreyfus Mutual Funds, Equity Fund of Latin America, New
World Balanced Fund, India Magnum Fund , and U.S. Prime Properties Inc.; Trustee
of Corporate Property Investors. His business address is American Telephone and
Telegraph Co., Inc., One Oak Way, Room 2EA 176, Berkeley Heights, NJ 07922.
6
<PAGE>
ALAN G. LOWY** - Trustee; Director of The 59 Wall Street Fund, Inc.
(since April 1993); Private investor; Secretary of the Los Angeles County Board
of Investments (prior to March 1995). His business address is 4111 Clear Valley
Drive, Encino, CA 91436.
ARTHUR D. MILTENBERGER** - 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 Richard King Mellon Foundation;
Director of Enterprise Corporation (prior to 1992), Vought Aircraft Corporation
(prior to September 1994), Caterair International (prior to April 1994); Member
of Valuation Committee of T. Rowe Price Threshold Fund, L.P. (prior to 1992),
Advisory Committee of Carlyle Group and Pittsburgh Seed Fund and Valuation
Committee of Morgenthaler Venture Funds(2). His business address is Richard K.
Mellon and Sons, P.O. Box RKM, Ligonier, PA 15658.
OFFICERS OF THE 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") and 59 Wall Street Administrators, Inc. ("59
Wall Street Administrators") (since June 1993).
JAMES E. HOOLAHAN - Vice President; Senior Vice President of SFG.
JOHN R. ELDER - Treasurer; Vice President of SFG (since April 1995);
Treasurer of Phoenix Family of Mutual Funds (prior to April 1995).
MOLLY S. MUGLER - Assistant Secretary; Legal Counsel and Assistant
Secretary of SFG; and Assistant Secretary of 59 Wall Street Distributors and 59
Wall Street Administrators (since June 1993).
7
<PAGE>
* 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 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 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 and Elder, and
Ms. Mugler 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 of the Trust 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 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.
8
<PAGE>
As of October 31, 1996, the Trust's Trustees and officers as a group
beneficially owned less than 1% of the 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 Zymark
Corporation - Berwind Escrow A/C owned 489,586 (9.22%) shares of the Fund and
A.J. Flecenstein-Summit owned 300,097 (5.65%) shares of the Fund 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 609,416 (11.48%) shares of the Fund. Brown Brothers Harriman & Co. and its
affiliates separately were able to direct the disposition of an additional
679,472 (12.79%) shares of the Fund, as to which shares Brown Brothers Harriman
& Co. disclaims beneficial ownership.
INVESTMENT ADVISER
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 June 9, 1992, 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 at least 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 most
recently approved by the Independent Trustees on August 20, 1996. 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").
The investment advisory fee paid to the Investment Adviser is
calculated daily and paid monthly at an annual rate equal to 0.35% of the Fund's
average daily net assets. Prior to November 1, 1993, the investment advisory fee
was an annual rate equal to 0.50% of the Fund's average daily net assets. For
the fiscal years ended June 30, 1996, 1995 and 1994 , the Fund incurred
$168,222, $207,074 and $239,217 , respectively for advisory services.
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<PAGE>
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 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
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 most recently
approved the Trust's Administration Agreement on August 20, 1996. 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 Trust's
outstanding voting securities as defined in the 1940 Act" (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.
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<PAGE>
The administrative fee payable to Brown Brothers Harriman & Co. from
the Fund is calculated daily and payable monthly at an annual rate equal to
0.15% 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. For the
fiscal years ended June 30, 1996, 1995 and 1994 , the Fund incurred $72,095,
$88,746, and $77,691 , respectively, 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 21, 1996. 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
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, 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.
Bonds and other fixed income securities (other than short-term
obligations but including listed issues) are valued on the basis
11
<PAGE>
of valuations furnished by a pricing service, use of which has been approved by
the Board of Trustees. In making such valuations, the pricing service utilizes
both dealer-supplied valuations and electronic data processing techniques which
take into account appropriate factors such as institutional-size trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics and other market data, without exclusive reliance
upon quoted prices or exchange or over-the-counter prices, since such valuations
are believed to reflect more accurately the fair value of such securities.
Securities or other assets for which market quotations are not readily
available are valued at fair value in accordance with procedures established by
and under the general supervision and responsibility of the Trust's Trustees.
Such procedures include the use of indications as to values from dealers; and
general market conditions. Short-term investments which mature in 60 days or
less are valued at amortized cost if their original maturity was 60 days or
less, or by amortizing their value on the 61st day prior to maturity, if their
original maturity when acquired for the Fund was more than 60 days, unless this
is determined not to represent fair value by the Trustees.
COMPUTATION OF PERFORMANCE
The average annual total rate of return of the Fund is calculated for
any period by (a) dividing (i) the sum of the aggregate net asset value per
share on the last day of the period of shares purchased with a $1,000 payment on
the first day of the period and the aggregate net asset value per share on the
last day of the period of shares purchasable with dividends and capital gains
distributions declared during such period with respect to shares purchased on
the first day of such period and with respect to shares purchased with such
dividends and capital gains distributions, by (ii) $1,000, (b) raising the
quotient to a power equal to 1 divided by the number of years in the period,
and (c) subtracting 1 from the result.
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The total rate of return of the Fund for any specified period is
calculated by (a) dividing (i) the sum of the aggregate net asset value per
share on the last day of the period of shares purchased with a $1,000 payment on
the first day of the period and the aggregate net asset value per share on the
last day of the period of shares purchasable with dividends and capital gains
distributions declared during such period with respect to shares purchased on
the first day of such period and with respect to shares purchased with such
dividends and capital gains distributions, by (ii) $1,000, and (b) subtracting 1
from the result.
The annualized total rate of return for the Fund for the fiscal year
ended June 30, 1996 and the period July 23, 1992 (commencement of operations) to
June 30, 1996 were 3.60% and 4.24%, respectively. The total rate of return
should not be considered a representation of the total rate of return of the
Fund in the future since the total rate of return is not fixed. Actual total
rates of return depend on changes in the market value of, and dividends and
interest received from, the investments held by the Fund and the Fund's expenses
during the period.
Total rate of return information may be useful for reviewing the
performance of the Fund and for providing a basis for comparison with other
investment alternatives. However, unlike bank deposits or other investments
which pay a fixed yield for a stated period of time, the Fund's total rate of
return fluctuates, and this should be considered when reviewing performance or
making comparisons.
Any "yield" quotation of the Fund consists of an annualized historical
yield, carried at least to the nearest hundredth of one percent, based on a
30-day or one-month period and is calculated by (a) raising to the sixth power
the sum of 1 plus the quotient obtained by dividing the Fund's net investment
income earned during the period by the product of the average daily number of
shares outstanding during the period that were entitled to receive dividends and
the maximum offering price per share on the last day of the period, (b)
subtracting 1 from the result, and (c) multiplying the result by 2.
Any tax equivalent yield quotation of the Fund is calculated as
follows: If the entire current yield quotation for such period is tax-exempt,
the tax equivalent yield is the current yield quotation divided by 1 minus a
stated income tax rate or rates. If a portion of the current yield quotation is
not tax-exempt, the tax equivalent yield is the sum of (a) that portion of the
yield which is tax-exempt divided by 1 minus a stated income tax rate or rates,
and (b) the portion of the yield which is not tax-exempt.
The 30-day yield and tax equivalent yield assuming a tax rate of 36%
for the period ended June 30, 1996 were 4.50% and 7.03%, respectively. The yield
should not be
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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.
RETURN OF CAPITAL. If the net asset value of shares is reduced below a
shareholder's cost as a result of a dividend or capital gains distribution from
the Fund, such dividend or capital gains distribution would be taxable even
though it represents a return of invested capital.
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REDEMPTION OF SHARES. Any gain or loss realized on the redemption of
Fund shares by a shareholder who is not a dealer in securities is treated as
long-term capital gain or loss if the shares have been held for more than one
year, and otherwise as short-term capital gain or loss. However, any loss
realized by a shareholder upon the redemption of Fund shares held one year or
less is treated as a long-term capital loss to the extent of any long-term
capital gains distributions received by the shareholder with respect to such
shares. Additionally, any loss realized on a redemption or exchange of Fund
shares is disallowed to the extent the shares disposed of are replaced within a
period of 61 days beginning 30 days before such disposition, such as pursuant to
reinvestment of a dividend or capital gains distribution in Fund shares.
OTHER TAXES. The Fund may be subject to state or local taxes in
jurisdictions in which it is deemed to be doing business. In addition, the
treatment of the Fund and its shareholders in those states which have income tax
laws might differ from treatment under the federal income tax laws. Shareholders
should consult their own tax advisors with respect to any state or local taxes.
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 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
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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 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
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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.
PORTFOLIO TRANSACTIONS
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
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which case no commissions or discounts are paid. Purchases and sales of
securities on a stock exchange, while infrequent, are effected through brokers
who charge a commission for their services. From time to time certificates of
deposit may be purchased through intermediaries who may charge a commission for
their services.
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.
BOND, NOTE AND COMMERCIAL PAPER RATINGS
Bond Ratings
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Aaa, Aa and A - Tax-exempt bonds rated Aaa are judged to be of the "best
quality". The rating of Aa is assigned to bonds that are of "high quality by all
standards", but long-term risks appear somewhat larger than Aaa rated bonds. The
Aaa and Aa rated bonds are generally known as "high grade bonds". The foregoing
ratings for tax-exempt bonds are sometimes presented in parentheses preceded
with a "con" indicating that the bonds are rated conditionally. Issues rated Aaa
or Aa may be further modified by the numbers 1, 2 or 3 (3 being the highest) to
show relative strength within the rating category. Bonds for which the security
depends upon the completion of some act or upon the fulfillment of some
condition are rated conditionally. These are bonds secured by (a) earnings of
projects under construction, (b) earnings of projects unseasoned in operation
experience, (c) rentals that begin when facilities are completed, or (d)
payments to which some other limiting condition attaches. Such parenthetical
rating denotes the probable credit stature upon completion of construction or
elimination of the basis of the condition. Bonds rated A are considered as upper
medium grade obligations. Principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment sometime in
the future.
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STANDARD & POOR'S CORPORATION ("S&P")
AAA, AA and A - The AAA rating is the highest rating assigned to debt
obligations and indicates an extremely strong capacity to pay principal and
interest. Bonds rated AA are considered "high grade", are only slightly less
marked than those of AAA ratings and have the second strongest capacity for
payment of debt service. Bonds rated A have a strong capacity to pay principal
and interest, although they are somewhat susceptible to adverse effects or
changes in circumstances and economic conditions. Bonds rated AA or A may be
modified with a plus (+) or a minus (-) sign to show relative strength within
the rating category. The foregoing ratings are sometimes followed by a "p"
indicating that the rating is provisional. A provisional rating assumes the
successful completion of the project financed by the bonds being rated and
indicates that payment of debt service requirements is largely or entirely
dependent upon the successful and timely completion of the project. Although a
provisional rating addresses credit quality subsequent to completion of the
project, it makes no comment on the likelihood of, or the risk of default upon
failure of, such completion.
FITCH INVESTORS SERVICE ("FITCH")
AAA, AA and A - Bonds rated AAA are considered to be investment grade
and of the highest quality. The obligor has an extraordinary ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. Bonds rated AA are considered to be investment grade and of
high quality. The obligor's ability to pay interest and repay principal, while
very strong, is somewhat less than for AAA rated securities or more subject to
possible change over the term of the issue. Bonds rated A are considered to be
investment grade and of good quality. The obligor's ability to pay interest and
repay principal is considered to be strong, but may be more vulnerable to
adverse changes in economic conditions and circumstances than bonds with higher
ratings.
Tax-Exempt Note and Variable Rate Investment Ratings
Moody's - MIG-1 and MIG-2. 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. Notes rated MIG-2 are judged to be of high quality with
ample margins of protection, through not as large as MIG-1.
S&P - SP-1 and SP-2. 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+). SP-2 denotes a
satisfactory capacity to pay principal and interest.
Fitch - F-1+, F-1 and F-2. Notes assigned F-1+ are regarded as having
the strongest degree of assurance for timely payment. An F-1 rating reflects an
assurance of timely payment only slightly less in degree than an F-1+ rating.
Notes assigned F-2 have a satisfactory degree of assurance for timely payment,
but margins of protection are not as great as for issues rated F-1+
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and F-1. The symbol LOC may follow a note rating which indicates that a letter
of credit issued by a commercial bank is attached to the note.
Tax-Exempt and 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."
Fitch - Commercial Paper ratings reflect current appraisal of the
degree of assurance of timely payment. F-1+ issues are regarded as having the
strongest degree of assurance for timely payment. An F-1 rating reflects an
assurance of timely payment only slightly less in degree than an F-1+ rating.
The symbol LOC may follow either category and indicates that a letter of credit
issued by a commercial bank is attached to the commercial paper.
Other Considerations
The ratings of S&P, Moody's and Fitch represent their respective opinions
of the quality of the municipal securities they undertake to rate. It should be
emphasized, however, that ratings are general and are not absolute standards of
quality. Consequently, municipal securities with the same maturity, coupon and
rating may have different yields and municipal securities of the same maturity
and coupon with different ratings may have the same yield.
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
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.
WS5089H
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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 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.
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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FINANCIAL STATEMENTS
The Annual Report of the Fund dated June 30, 1996 has been filed with the
Securities and Exchange Commission pursuant to Section 30(b) of the 1940 Act and
Rule 30b2-1 thereunder and is hereby incorporated herein by reference. A copy
the Annual Report will be provided, without charge, to each person receiving
this Statement of Additional Information.
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