STATEMENT OF ADDITIONAL INFORMATION
THE 59 WALL STREET U.S. TREASURY MONEY FUND
6 ST. JAMES AVENUE, BOSTON, MASSACHUSETTS 02116
The 59 Wall Street U.S. Treasury Money Fund (the "Fund") is a separate
portfolio of The 59 Wall Street Trust (the "Trust"), a management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"). The Fund is a type of mutual fund commonly known as a money market
fund. The Fund is designed to be a cost effective and convenient means of making
substantial investments in money market instruments. The Fund's investment
objective is to achieve as high a level of current income as is consistent with
the preservation of capital and the maintenance of liquidity. There can be no
assurance that the investment objective of the Fund will be achieved.
The Trust pursues the investment objective of the Fund by investing in
short-term obligations backed as to principal and interest payments by the full
faith and credit of the United States of America. Although investments held for
the Fund are issued by the U.S. Government, an investment in the Fund is not
insured or guaranteed by the U.S.
Government.
Brown Brothers Harriman & Co. is the investment adviser of the Fund
(the "Investment Adviser"). This Statement of Additional Information is not a
prospectus and should be read in conjunction with the Prospectus dated November
1, 1997, a copy of which may be obtained from the Trust at the address noted
above.
TABLE OF CONTENTS
CROSS-REFERENCE TO
PAGE PAGE IN PROSPECTUS
Investment Objective and Policies 2 4-5
Investment Restrictions 3 6
Trustees and Officers 5 8
Investment Adviser 8 8-9
Administrators 9 9-10
Distributor 9 11
Net Asset Value 10 11
Computation of Performance 11 15
Federal Taxes 11 12-13
Massachusetts Trust 12 14
Portfolio Transactions 14 5
Additional Information 14 15
Financial Statements 15 4
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS
NOVEMBER 1, 1997.
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INVESTMENT OBJECTIVE AND POLICIES
The following supplements the information contained in the Prospectus
concerning the investment objective, policies and techniques of the Fund.
TREASURY RECEIPTS. Assets of the Fund are not invested in stripped
securities issued by any entity other than the U.S. Treasury.
REPURCHASE AGREEMENTS. Repurchase agreements may be entered into only
with a "primary dealer" (as designated by the Federal Reserve Bank of New York)
in U.S. Government securities. This is an agreement in which the seller (the
"Lender") of a security agrees to repurchase from the Fund the security sold at
a mutually agreed upon time and price. As such, it is viewed as the lending of
money to the Lender. The resale price normally is in excess of the purchase
price, reflecting an agreed upon interest rate. The rate is effective for the
period of time assets of the Fund are invested in the agreement and is not
related to the coupon rate on the underlying security. The period of these
repurchase agreements is usually short, from overnight to one week, and at no
time will assets of the Fund be invested in a repurchase agreement with a
maturity of more than one year. The securities which are subject to repurchase
agreements, however, may have maturity dates in excess of one year from the
effective date of the repurchase agreement. The Fund always receives as
collateral securities which are issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. Collateral is marked to the market daily and have
a market value including accrued interest at least equal to 100% of the dollar
amount invested on behalf of the Fund in each agreement along with accrued
interest. Payment for such securities is made for the Fund only upon physical
delivery or evidence of book entry transfer to the account of State Street Bank
and Trust Company (the "Custodian"). If the Lender defaults, the Fund might
incur a loss if the value of the collateral securing the repurchase agreement
declines and might incur disposition costs in connection with liquidating the
collateral. In addition, if bankruptcy proceedings are commenced with respect to
the Lender, realization upon the collateral on behalf of the Fund may be delayed
or limited in certain circumstances. A repurchase agreement with more than seven
days to maturity may not be entered into for the Fund if, as a result, more than
10% of the market value of the Fund's total assets would be invested in such
repurchase agreements together with any other investment being held for the Fund
for which market quotations are not readily available.
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements may also
be entered into for the Fund, although the current intention is not to do so.
LOANS OF PORTFOLIO SECURITIES. Securities of the Fund may be loaned if
such loans would be secured continuously by cash or equivalent collateral or by
an irrevocable letter of credit in favor of the Fund at least equal at all times
to 100% of the market value of the securities loaned plus accrued income. While
such securities are on loan, the borrower pays the Fund any income accruing
thereon, and cash collateral may be invested for the Fund,
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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.
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 be borrowed only from banks and only either to accommodate
requests for the redemption of Fund shares while effecting an orderly
liquidation of portfolio securities or to maintain liquidity in the event of an
unanticipated failure to complete a portfolio security transaction or other
similar situations) or reverse repurchase agreements, and except that assets may
be pledged to secure letters of credit solely for the purpose of participating
in a captive insurance company sponsored by the Investment Company Institute;
(2) purchase any security or evidence of interest therein on margin,
except that such short-term credit as may be necessary for the clearance of
purchases and sales of securities may be obtained;
(3) write, purchase or sell any put or call option or any combination
thereof;
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(4) underwrite securities issued by other persons except insofar as it
may technically be deemed an underwriter under the Securities Act of 1933, as
amended in selling a portfolio security;
(5) make loans to other persons except (a) through the lending of its
portfolio securities and provided that any such loans not exceed 30% of its
total assets (taken at market value), (b) through the use of repurchase
agreements or the purchase of short-term obligations and provided that not more
than 10% of its total assets are invested in repurchase agreements maturing in
more than seven days, or (c) by purchasing, subject to the limitation in
paragraph 6 below, a portion of an issue of debt securities of types commonly
distributed privately to financial institutions, for which purposes the purchase
of a portion of an issue of debt securities which are part of an issue to the
public shall not be considered the making of a loan;
(6) knowingly invest in securities which are subject to legal or
contractual restrictions on resale (other than repurchase agreements maturing in
not more than seven days) if, as a result thereof, more than 10% of the its
total assets (taken at market value) would be so invested (including repurchase
agreements maturing in more than seven days);
(7) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts in
the ordinary course of business (the freedom of action to hold and to sell real
estate acquired as a result of the ownership of securities is reserved);
(8) make short sales of securities or maintain a short position, unless
at all times when a short position is open it owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue and equal in amount
to, the securities sold short, and unless not more than 10% of its net assets
(taken at market value) is represented by such securities, or securities
convertible into or exchangeable for such securities, at any one time (it is the
present intention of management to make such sales only for the purpose of
deferring realization of gain or loss for federal income tax purposes);
(9) concentrate its investments in any particular industry, but if it
is deemed appropriate for the achievement of its investment objective, up to 25%
of its assets, at market value at the time of each investment, may be invested
in any one industry; or
(10) issue any senior security (as that term is defined in the 1940
Act) if such issuance is specifically prohibited by the 1940 Act or the rules
and regulations promulgated thereunder.
STATE AND FEDERAL RESTRICTIONS. In order to comply with certain state
and federal statutes and policies the Fund may not as a matter of operating
policy (except that the Fund
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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) purchase securities of any investment company if such purchase at the
time thereof would cause more than 10% of its total assets (taken at the greater
of cost or market value) to be invested in the securities of such issuers or
would cause more than 3% of the outstanding voting securities of any such issuer
to be held; or (ii) invest more than 10% of its net assets (taken at the greater
of cost or market value) in restricted securities. 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.
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TRUSTEES AND OFFICERS
The Trustees and executive officers of the Trust, their principal
occupations 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, 140 Broadway, New York, NY 10005.
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.; Retired; Chairman and Chief Executive Officer - AT&T Investment Management
Corporation (prior to October 1997); Director of Dreyfus Mutual Funds, Equity
Fund of Latin America, New World Balanced Fund, India Magnum Fund, and U.S.
Prime Properties Inc.; Trustee of Corporate Property Investors. His business
address is 3 Tall Oaks Drive, Warren, NJ 07059.
ALAN G. LOWY** - Trustee; Director of The 59 Wall Street Fund, Inc.
(since April 1993); Secretary of the Los Angeles County Board of Investments
(prior to March 1995). His business address is 4111 Clear Valley Drive, Encino,
CA 91436.
ARTHUR D. MILTENBERGER** - Trustee; Director of The 59 Wall Street
Fund, Inc.; Vice President and Chief Financial Officer of Richard K. Mellon and
Sons; Treasurer of Richard King Mellon Foundation; Director of Vought Aircraft
Corporation (prior to September 1994), Caterair International (prior to April
1994); Member of 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).
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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 Funds (prior to April 1995).
LINDA T. GIBSON - Secretary, Vice President and Assistant Secretary of
SFG (since June 1991); Assistant Secretary of 59 Wall Street Distributors and 59
Wall Street Administrators (since June 1993).
MOLLY S. MUGLER - Assistant Secretary; Legal Counsel and Assistant
Secretary of SFG; Assistant Secretary of 59 Wall Street Distributors and 59 Wall
Street Administrators (since June 1993).
CHRISTINE A. DRAPEAU - Assistant Secretary; Assistant Vice President of
SFG (since January 1996); Paralegal and Compliance Officer, various financial
companies (July 1992 to January 1996); Graduate Student, Bentley College (prior
to December 1994).
- ----------------------
* 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, 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
Mss. Gibson, Mugler and Drapeau also hold similar positions with other
investment companies for which affiliates of 59 Wall Street Distributors serve
as the principal underwriter.
Except for Mr. Shields, no Trustee is an "interested person" of the
Trust as that term is defined in the 1940 Act.
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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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Pension or Total
Retirement Compensation
Aggregate Benefits Accrued Estimated Annual from the Trust
Name of Person, Compensation as Part of Benefits upon and Fund Complex*
POSITION FROM THE TRUST FUND EXPENSES RETIREMENT PAID TO TRUSTEES
- -------------- -------------- ---------------- ---------------- ----------------
J.V. Shields, Jr., $17,646 none none $30,000
Trust
Eugene P. Beard, $13,985 none none 25,000
Trustee
David P. Feldman, $13,985 none none 25,000
Trustee
Alan G. Lowy, $13,985 none none 25,000
Trustee
Arthur D. Miltenberger, $13,985 none none 25,000
Trustee
<FN>
* The Fund Complex consists of the Trust and The 59 Wall Street Fund, Inc.
which currently consists of seven series.
</FN>
</TABLE>
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.
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As of September 30, 1997, the Trust's Trustees and officers as a group
owned less than 1% of the Fund's outstanding shares of the Trust. At the close
of business on that date, no person, to the knowledge of management, owned
beneficially more than 5% of the outstanding shares of the Fund except American
Saw and Manufacturing Co. owned 8,681,244 (5.62%) c/o Brown Brothers Harriman &
Co., 59 Wall Street, New York, New York 10005 and BBH Trust Company of Texas
Penelope S. More and Christopher J. Straus Co. - Trustees and Thomas H. Clynes
Jr. California Ancillary Trustee of the Robert K. Straus Trust owned 11,466,178
(7.42%) shares of the Fund c/o Brown Brothers Harriman Trust Company of Texas,
2001 Ross Avenue, Dallas, Texas 75201. As of that date, the Partners of Brown
Brothers Harriman & Co. and their immediate families owned 908,558 (0.58%)
shares of the Fund. Brown Brothers Harriman & Co. and its affiliates separately
were able to direct the disposition of an additional 31,702,602 (20.51%) shares
of the Fund, as to which 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 February 12, 1991, as amended and restated November 1,
1993 and remains in effect for two years from such date and thereafter, but only
as long as the agreement is specifically approved annually (i) by a vote of the
holders of a "majority of the Fund's outstanding voting securities" (as defined
in the 1940 Act) or by the Trust's Trustees, and (ii) by a vote of a majority of
the Trustees of the Trust who are not parties to the Investment Advisory
Agreement or "interested persons" (as defined in the 1940 Act) of the Trust
("Independent Trustees"), cast in person at a meeting called for the purpose of
voting on such approval. The Investment Advisory Agreement was most recently
approved by the Independent Trustees on December 18 , 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 0.15% of the Fund's average
daily net assets. Prior to November 1, 1993, the investment advisory fee was an
annual rate equal to 0.40% of the Fund's average daily net assets. For the
fiscal years ended June 30, 1997, 1996 and 1995 , the Fund incurred $286,522,
$239,680 and $177,219 , respectively, for advisory services.
The Glass-Steagall Act prohibits certain financial institutions from
engaging in the business of underwriting, selling or distributing securities and
from sponsoring, organizing or controlling a registered open-end investment
company continuously engaged in the issuance of its shares, such as the Fund.
There is presently no controlling precedent prohibiting
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financial institutions such as Brown Brothers Harriman & Co. from performing
investment advisory, administrative or shareholder servicing/eligible
institution functions. If Brown Brothers Harriman & Co. were to terminate its
Investment Advisory Agreement with the Fund or were prohibited from acting in
such capacity, it is expected that the Trustees would recommend to the
shareholders that they approve a new investment advisory agreement for the Fund
with another qualified adviser. If Brown Brothers Harriman & Co. were to
terminate its Shareholder Servicing Agreement, Eligible Institution Agreement or
Administration Agreement with the Trust or were prohibited from acting in any
such capacity, its customers would be permitted to remain shareholders of the
Trust and alternative means for providing shareholder services or administrative
services, as the case may be, would be sought. In such event, although the
operation of the Trust might change, it is not expected that any shareholders
would suffer any adverse financial consequences. However, an alternative means
of providing shareholder services might afford less convenience to shareholders.
ADMINISTRATOR
The Administration Agreement between the Trust and Brown Brothers Harriman
& Co. (dated November 1, 1993) will remain in effect for two years from such
date and thereafter, but only so long as such agreement is specifically approved
at least annually in the same manner as the Investment Advisory Agreement (see
"Investment Adviser"). The Independent Trustees of the Trust most recently
approved the Trust's Administration Agreement on December 18, 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
outstanding voting securities" (as defined in the 1940 Act) of the Trust (see
"Additional Information"). The Administration Agreement is terminable by the
Trust's Trustees or shareholders of the Trust on 60 days' written notice to
Brown Brothers Harriman & Co. and by Brown Brothers Harriman & Co. on 90 days'
written notice to the Trust.
The administrative fee paid to Brown Brothers Harriman & Co. is calculated
daily and payable monthly at an annual rate equal to 0.10% of the Fund's average
daily net assets. Prior to November 1, 1993, 59 Wall Street Distributors served
as administrator for the Trust and was paid an annual rate equal to 0.05% of the
Fund's average daily net assets. For the fiscal years ended June 30, 1997, 1996
and 1995 , the Fund incurred $191,014, $159,787 and $118,146 , 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 18, 1997. 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.
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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, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day,
Thanksgiving Day and Christmas.) This determination of net asset value of each
share of the Fund is made once during each such day as of the close of regular
trading on such Exchange by subtracting from the value of the Fund's total
assets the amount of its liabilities and dividing the difference by the number
of shares of the Fund outstanding at the time the determination is made. It is
anticipated that the net asset value of each share of the Fund will remain
constant at $1.00 and, although no assurance can be given that it will be able
to do so on a continuing basis, the Trust employs specific investment policies
and procedures to accomplish this result.
Pursuant to a rule of the Securities and Exchange Commission, an
investment company may use the amortized cost method of valuation subject to
certain conditions and the determination that such method is in the best
interests of its shareholders. The use of amortized cost valuations for the Fund
is subject to the following conditions: (i) as a particular responsibility
within the overall duty of care owed to the Fund's shareholders, the Trustees
have established procedures reasonably designed, taking into account current
market conditions and the Fund's investment objective, to stabilize the net
asset value per share as computed for the purpose of distribution and redemption
at $1.00 per share; (ii) the procedures include periodic review by the Trustees,
as they deem appropriate and at such intervals as are reasonable in light of
current market conditions, of the relationship between the net asset value per
share using amortized cost and the net asset value per share based upon
available indications of market value with respect to such portfolio securities;
(iii) the Trustees will consider what steps, if any, should be taken if a
difference of more than 1/2 of 1% occurs between the two methods of valuation;
and (iv) the Trustees will take such steps as they consider appropriate, such as
changing the dividend policy, shortening the average portfolio maturity,
realizing gains or losses, establishing a net asset value per share by using
available market quotations, or reducing the value of the Fund's outstanding
shares, to minimize any material dilution or other unfair results which might
arise from differences between the two methods of valuation.
Such conditions also generally require that: (i) investments for the Fund
be limited to instruments which the Trustees determine present minimal credit
risks and which are of high quality as determined by any nationally recognized
statistical rating organization that is not an affiliated person of the issuer
of, or any issuer, guarantor or provider of credit support for, the instrument,
or, in the case of any instrument that is not so rated, is of comparable quality
as determined by the Investment Adviser under the general supervision of the
Trustees; (ii) a dollar-weighted average portfolio maturity of not more than 90
days be maintained appropriate to the Fund's objective of maintaining a stable
net asset value of $1.00 per share and no instrument is purchased with a
remaining maturity of more than 13 months; (iii) the Fund's available cash will
be invested in such a manner as to reduce such maturity to 90 days or less as
soon as is reasonably practicable, if the disposition of a portfolio security
results in a dollar-weighted average portfolio maturity of more than 90 days;
and (iv) no more than 5% of the Fund's total assets may be invested in the
securities of any one issuer (other than U.S. Government securities).
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It is expected that the Fund will have a positive net income at the time
of each determination thereof. If for any reason the Fund's net income is a
negative amount, which could occur, for instance, upon default by an issuer of a
portfolio security, the Fund would first offset the negative amount with respect
to each shareholder account from the dividends declared during the month with
respect to those accounts. If and to the extent that negative net income exceeds
declared dividends at the end of the month, the Fund would reduce the number of
outstanding Fund shares by treating each shareholder as having contributed to
the capital of the Fund that number of full and fractional shares in his or her
account which represents his or her share of the amount of such excess. Each
shareholder would be deemed to have agreed to such contribution in these
circumstances by his or her investment in the Fund.
COMPUTATION OF PERFORMANCE
The current and effective yields of the Fund may be used from time to time
in shareholder reports or other communications to shareholders or prospective
investors. Seven-day current yield is computed by dividing the net change in
account value (exclusive of capital changes) of a hypothetical pre-existing
account having a balance of one share at the beginning of a seven-day calendar
period by the value of that account at the beginning of that period, and
multiplying the return over the seven-day period by 365/7. For purposes of the
calculation, net change in account value reflects the value of additional shares
purchased with dividends from the original share and dividends declared on both
the original share and any such additional shares, but does not reflect realized
gains or losses or unrealized appreciation or depreciation. The Fund's current
yield for the seven-day calendar period ended June 30, 1997 was 4.65%. In
addition, the Trust may use an effective annualized yield quotation for the Fund
computed on a compounded basis by adding 1 to the base period return (calculated
as described above), raising the sum to a power equal to 365/7, and subtracting
1 from the result. Based upon this latter method, the Fund's effective
annualized yield for the seven-day calendar period ended June 30, 1997 was
4.76%.
The yield should not be considered a representation of the yield of the
Fund in the future since the yield is not fixed. Actual yields depend on the
type, quality and maturities of the investments held for the Fund, changes in
interest rates on investments, and the Fund's expenses during the period.
Yield information may be useful for reviewing the performance of the Fund
and for providing a basis for comparison with other investment alternatives.
However, unlike bank deposits or other investments which pay a fixed yield for a
stated period of time, the Fund's yield does fluctuate, and this should be
considered when reviewing performance or making comparisons.
FEDERAL TAXES
Each year, the Trust intends to continue to qualify the Fund and elect
that the Fund be treated as a separate "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
Under Subchapter M of the Code the Fund is not subject to federal income taxes
on amounts distributed to shareholders.
Qualification as a regulated investment company under the Code requires,
among other things, that (a) at least 90% of the Fund's annual gross income,
without offset for losses from the sale or other disposition of securities, be
derived from interest, payments with
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respect to securities loans, dividends and gains from the sale or other
disposition of securities or other income derived with respect to its business
of investing in such securities; (b) less than 30% of the Fund's annual gross
income be derived from gains (without offset for losses) from the sale or other
disposition of securities held for less than three months; and (c) the holdings
of the Fund be diversified so that, at the end of each quarter of its fiscal
year, (i) at least 50% of the market value of the Fund's assets be represented
by cash, U.S. Government securities and other securities limited in respect of
any one issuer to an amount not greater than 5% of the Fund's assets and 10% of
the outstanding voting securities of such issuer, and (ii) not more than 25% of
the value of the Fund's assets be invested in the securities of any one issuer
(other than U.S. Government securities). In addition, in order not to be subject
to federal income tax, at least 90% of the Fund's net investment income and net
short-term capital gains earned in each year must be distributed to the Fund's
shareholders.
To maintain a constant $1.00 per share net asset value, the Trustees may
direct that the number of outstanding shares be reduced pro rata. If this
adjustment is made, it will reflect the lower market value of portfolio
securities and not realized losses.
MASSACHUSETTS TRUST
The Trust's Declaration of Trust permits the Trust's Board of Trustees to
issue an unlimited number of full and fractional shares of beneficial interest
and to divide or combine the shares into a greater or lesser number of shares
without thereby changing the proportionate beneficial interests in the Trust.
Each Fund share represents an equal proportionate interest in the Fund with each
other share. Upon liquidation or dissolution of the Fund, the Fund's
shareholders are entitled to share pro rata in the Fund's net assets available
for distribution to its shareholders. Shares of each series participate equally
in the earnings, dividends and assets of the particular series. Shares of each
series are entitled to vote separately to approve advisory agreements or changes
in investment policy, but shares of all series vote together in the election or
selection of Trustees, principal underwriters and auditors for the Trust. Upon
liquidation or dissolution of the Trust, the shareholders of each series are
entitled to share pro rata in the net assets of their respective series
available for distribution to shareholders. The Trust reserves the right to
create and issue additional series of shares. The Trust currently consists of
three series.
Shareholders are entitled to one vote for each share held on matters on
which they are entitled to vote. Shareholders in the Trust do not have
cumulative voting rights, and shareholders owning more than 50% of the
outstanding shares of the Trust may elect all of the Trustees of the Trust if
they choose to do so and in such event the other shareholders in the Trust would
not be able to elect any Trustee. The Trust is not required and has no current
intention to hold meetings of shareholders annually but the Trust will hold
special meetings of shareholders when in the judgment of the Trust's Trustees it
is necessary or desirable to submit matters for a shareholder vote. Shareholders
have under certain circumstances (E.G., upon application and submission of
certain specified documents to the Trustees by a specified number of
shareholders) the right to communicate with other shareholders in connection
with requesting a meeting of shareholders for the purpose of removing one or
more Trustees. Shareholders also have the right to remove one or more Trustees
without a meeting by a declaration in writing by a specified number of
shareholders. No material amendment may be made to the Trust's Declaration of
Trust without the affirmative vote of the holders of a majority of its
outstanding shares. Shares have no preference, pre-emptive, conversion or
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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 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
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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
Brown Brothers Harriman & Co., as Investment Adviser, places orders for
all purchases and sales of portfolio securities, enters into repurchase and
reverse repurchase agreements and executes loans of portfolio securities.
Fixed-income securities are generally traded at a net price with dealers acting
as principal for their own account without a stated commission. The price of the
security usually includes a profit to the dealer. In underwritten offerings,
securities are purchased at a fixed price which includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. On occasion, certain money market instruments may be
purchased directly from an issuer, in which case no commissions or discounts are
paid.
On those occasions when Brown Brothers Harriman & Co. deems the purchase
or sale of a security to be in the best interests of the Fund as well as other
customers, Brown Brothers Harriman & Co., to the extent permitted by applicable
laws and regulations, may, but is not obligated to, aggregate the securities to
be sold or purchased for the Fund with those to be sold or purchased for other
customers in order to obtain best execution, including lower brokerage
commissions, if appropriate. In such event, allocation of the securities so
purchased or sold as well as any expenses incurred in the transaction are made
by Brown Brothers Harriman & Co. in
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the manner it considers to be most equitable and consistent with its fiduciary
obligations to its customers, including the Fund. In some instances, this
procedure might adversely affect the Fund.
ADDITIONAL INFORMATION
As used in this Statement of Additional Information and the Prospectus,
the term "majority of the Fund's outstanding voting securities" (as defined in
the 1940 Act) currently means the vote of (i) 67% or more of the Fund's shares
present at a meeting, if the holders of more than 50% of the outstanding voting
securities of the Fund are present in person or represented by proxy; or (ii)
more than 50% of the Fund's outstanding voting securities, whichever is less.
Fund shareholders receive semi-annual reports containing unaudited
financial statements and annual reports containing financial statements audited
by the independent auditors.
A shareholder's right to receive payment with respect to any redemption
may be suspended or the payment of the redemption proceeds postponed: (i) during
periods when the New York Stock Exchange is closed for other than weekends and
holidays or when regular trading on such Exchange is restricted as determined by
the Securities and Exchange Commission by rule or regulation, (ii) during
periods in which an emergency exists which causes disposal of, or evaluation of
the net asset value of, the Fund's portfolio securities to be unreasonable or
impracticable, or (iii) for such other periods as the Securities and Exchange
Commission may permit.
With respect to the securities offered by the Prospectus, this Statement
of Additional Information and the Prospectus do not contain all the information
included in the Registration Statement filed with the Securities and Exchange
Commission under the Securities Act of 1933. Pursuant to the rules and
regulations of the Securities and Exchange Commission, certain portions have
been omitted. The Registration Statement including the exhibits filed therewith
may be examined at the office of the Securities and Exchange Commission in
Washington, D.C.
Statements contained in this Statement of Additional Information and the
Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement. Each such statement is qualified in all respects by such reference.
A copy of the Declaration of Trust establishing the Trust is on file in
the office of the Secretary of the Commonwealth of Massachusetts.
FINANCIAL STATEMENTS
The Annual Report of the Fund dated June 30, 1997 has been filed with the
Securities and Exchange Commission pursuant to Section 30(b) of the 1940 Act and
Rule 30b2-1 thereunder and is hereby incorporated herein by reference. A copy of
the Annual Report will be provided, without
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charge, to each person receiving this Statement of Additional Information.
WS5039J
