STATEMENT OF ADDITIONAL INFORMATION
THE 59 WALL STREET TAX EXEMPT MONEY FUND
21 Milk Street, Boston, Massachusetts 02109
The 59 Wall Street Tax Exempt 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 tax exempt
money market fund. The Fund is designed to be a cost effective and convenient
means of making substantial investments in tax exempt money market instruments.
The Fund's investment objective is to achieve as high a level of current income
exempt from federal income taxes 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.
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 February
16, 1999, 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
Financial Intermediaries 9 10
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
The date of this Statement of Additional Information is
February 16, 1999.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The following supplements the information contained in the Prospectus
concerning the investment objective, policies and techniques of the Fund.
Municipal leases and participation interests therein may take the form of a
lease, an installment purchase, or a conditional sale contract and are issued by
state and local governments and authorities to acquire land or a wide variety of
equipment and facilities.
Generally, the Fund will not hold these obligations directly as a lessor of the
property, but will purchase a participation interest in a municipal obligation
from a bank or other third party. A participation interest gives the purchaser a
specified, undivided interest in the obligation in proportion to its purchased
interest in the total amount of the issue.
Municipal leases frequently have risks distinct from those associated with
general obligation or revenue bonds. State constitutions and statutes set forth
requirements that states or municipalities must meet to incur debt. These may
include voter referenda, interest rate limits, or public sale requirements.
Leases, installment purchases, or conditional sale contracts (which normally
provide for title to the leased asset to pass to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting their constitutional and statutory requirements for the issuance
of debt. Many leases and contracts include Anon-appropriation clauses@ providing
that the governmental issuer has no obligation to make future payments under the
lease or contract unless money is appropriated for such purposes by the
appropriate legislative body on a yearly or other periodic basis.
Non-appropriation clauses free the issuer from debt issuance limitations. If a
municipality stops making payments or transfers its obligations to a private
entity, the obligation could lose value or become taxable.
Municipal market disruption risk. The value of municipal securities may be
affected by uncertainties in the municipal market related to legislation or
litigation involving the taxation of municipal securities or the rights of
municipal securities holders in the event of a bankruptcy. Proposals to restrict
or eliminate the federal income tax exemption for interest on municipal
securities are introduced before Congress from time to time. Proposals also may
be introduced before state legislatures that would affect the state tax
treatment of a municipal fund=s distributions. If such proposals were enacted,
the availability of municipal securities and the value of a municipal fund=s
holdings would be affected and the Trustees would reevaluate the Fund=s
investment objectives and policies. Municipal bankruptcies are relatively rare,
and certain provisions of the U.S. Bankruptcy Code governing such bankruptcies
are unclear and remain untested. Further, the application of state law to
municipal issuers could produce varying results among the states or among
municipal securities issuers within a state. These legal uncertainties could
affect the municipal securities market generally, certain specific segments of
the market, or the relative credit quality of particular securities. Any of
these effects could have a significant impact on the prices of some or all of
the municipal securities held by the Fund, making it more difficult for the Fund
to maintain a stable net asset value per share.
Education. In general, there are two types of education-related bonds; those
issued to finance projects for public and private colleges and universities, and
those representing pooled interests in student loans. Bonds issued to supply
educational institutions with funds are subject to the risk of unanticipated
revenue decline, primarily the result of decreasing student enrollment or
decreasing state and federal funding. Among the factors that may lead to
declining or insufficient revenues are restrictions on students= ability to pay
tuition, availability of state and federal funding, and general economic
conditions. Student loan revenue bonds are generally offered by state (or
substate) authorities or commissions and are backed by pools of student loans.
Underlying student loans may be guaranteed by state guarantee agencies and may
be subject to reimbursement by the United States Department of Education through
its guaranteed student loan program. Others may be private, uninsured loans made
to parents or students which are supported by reserves or other forms of credit
enhancement. Recoveries of principal due to loan defaults may be applied to
redemption of bonds or may be used to re-lend, depending on program latitude and
demand for loans. Cash flows supporting student loan revenue bonds are impacted
by numerous factors, including the rate of student loan defaults, seasoning of
the loan portfolio, and student repayment deferral periods of forbearance. Other
risks associated with student loan revenue bonds include potential changes in
federal legislation regarding student loan revenue bonds, state guarantee agency
reimbursement and continued federal interest and other program subsidies
currently in effect.
Electric utilities. The electric utilities industry has been experiencing, and
will continue to experience, increased competitive pressures. Federal
legislation in the last two years will open transmission access to any
electricity supplier, although it is not presently known to what extent
competition will evolve. Other risks include: (a) the availability and cost of
fuel, (b) the availability and cost of capital, (c) the effects of conservation
on energy demand, (d) the effects of rapidly changing environmental, safety, and
licensing requirements, and other federal, state, and local regulations, (e)
timely and sufficient rate increase, and (f) opposition to nuclear power.
Health care. The health care industry is subject to regulatory action by a
number of private and governmental agencies, including federal, state, and local
governmental agencies. A major source of revenues for the health care industry
is payments from the Medicare and Medicaid programs. As a result, the industry
is sensitive to legislative changes and reductions in governmental spending for
such programs. Numerous other factors may affect the industry, such as general
and local economic conditions; demand for services; expenses (including
malpractice insurance premiums); and competition among health care providers. In
the future, the following elements may adversely affect health care facility
operations: adoption of legislation proposing a national health insurance
program; other state or local health care reform measures; medical and
technological advances which dramatically alter the need for health services or
the way in which such services are delivered; changes in medical coverage which
alter the traditional fee-for-service revenue stream; and efforts by employers,
insurers, and governmental agencies to reduce the costs of health insurance and
health care services.
Housing. Housing revenue bonds are generally issued by a state, county, city,
local housing authority, or other public agency. They generally are secured by
the revenues derived from mortgages purchased with the proceeds of the bond
issue. It is extremely difficult to predict the supply of available mortgages to
be purchased with the proceeds of an issue or the future cash flow from the
underlying mortgages. Consequently, there are risks that proceeds will exceed
supply, resulting in early retirement of bonds, or that homeowner repayments
will create an irregular cash flow. Many factors may affect the financing of
multi-family housing projects, including acceptable completion of construction,
proper management, occupancy and rent levels, economic conditions, and changes
to current laws and regulations.
Transportation. Transportation debt may be issued to finance the construction of
airports, toll roads, highways, or other transit facilities. Airport bonds are
dependent on the general stability of the airline industry and on the stability
of a specific carrier who uses the airport as a hub. Air traffic generally
follows broader economic trends and is also affected by the price and
availability of fuel. Toll road bonds are also affected by the cost and
availability of fuel as well as toll levels, the presence of competing roads and
the general economic health of an area. Fuel costs and availability also affect
other transportation-related securities, as do the presence of alternate forms
of transportation, such as public transportation.
Water and sewer. Water and sewer revenue bonds are often considered to have
relatively secure credit as a result of their issuer=s importance, monopoly
status, and generally unimpeded ability to raise rates. Despite this, lack of
water supply due to insufficient rain, run-off, or snow pack is a concern that
has led to past defaults. Further, public resistance to rate increases, costly
environmental litigation, and federal environmental mandates are challenges
faced by issuers of water and sewer bonds.
Put features entitle the holder to sell a security back to the issuer or a third
party at any time or at specified intervals. In exchange for this benefit, the
Fund may accept a lower interest rate. Securities with put features are subject
to the risk that the put provider is unable to honor the put feature (purchase
the security). Put providers often support their ability to buy securities on
demand by obtaining letters of credit or other guarantees from other entities.
Demand features, standby commitments, and tender options are types of put
features.
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;
(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 net assets (taken at market value), (b) through the use of repurchase
agreements or the purchase of short-term obligations and provided that not more
than 10% of its 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.
Non-Fundamental Restrictions. The Fund may not as a matter of operating
policy (except that the Fund may invest all of the Fund's assets in an open-end
investment company with substantially the same investment objective, policies
and restrictions as the Fund): (i) 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.
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
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.;
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.;
President, Lowy Industries (since August 1998); 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.; Retired, Vice President and Chief Financial Officer of Richard K.
Mellon and Sons (prior to August 1998); 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").
JAMES E. HOOLAHAN - Vice President; Senior Vice President of SFG.
JOHN R. ELDER - Treasurer; Vice President of SFG; Treasurer of Phoenix
Family of Funds (prior to April 1995).
LINDA T. GIBSON - Secretary, Senior Vice President and Secretary of
SFG; Secretary of 59 Wall Street Distributors and 59 Wall Street Administrators.
MOLLY S. MUGLER - Assistant Secretary; Legal Counsel and Assistant
Secretary of SFG; Assistant Secretary of 59 Wall Street Distributors and 59 Wall
Street Administrators.
CHRISTINE A. DRAPEAU - Assistant Secretary; Vice President of SFG
(since January 1996); Paralegal and Compliance Officer, various financial
companies (July 1992 to January 1996); Graduate Student, Bentley College (prior
to December 1994).
- ----------------------
* Mr. Shields is an "interested person" of the 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 21 Milk Street,
Boston, Massachusetts 02109. 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.
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>
<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., $18,076 none none $30,750
Trustee
Eugene P. Beard, $14,307 none none 25,750
Trustee
David P. Feldman, $14,307 none none 25,750
Trustee
Alan G. Lowy, $14,307 none none 25,750
Trustee
Arthur D. Miltenberger, $14,307 none none 25,750
Trustee
<FN>
* The Fund Complex consists of the Trust and The 59 Wall Street Fund, Inc. which currently consists of eight 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.
As of January 31, 1999, the Trust's Trustees and officers as a group
owned less than 1% of the Fund's outstanding shares of the Trust.
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 February 9, 1999. 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.
<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 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 February 9, 1999. 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.
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 9, 1999. 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.
<PAGE>
FINANCIAL INTERMEDIARIES
One or more brokers which serve as Financial Intermediaries have been
authorized by the Corporation to accept purchase and redemption orders for Fund
shares on its behalf and are authorized to designate other intermediaries to
accept purchase and redemption orders for Fund shares on the Corporation's
behalf. The Corporation will be deemed to have received a purchase or redemption
order for Fund shares when an authorized broker or, if applicable, such broker's
authorized designee, accepts the order and such an order will be executed at the
net asset value per share next determined after such acceptance.
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.
<PAGE>
Such conditions also generally require that: (i) investments for the Fund
be limited to instruments which the Trustees determine present minimal credit
risks and which are of high quality as determined by any nationally recognized
statistical rating organization that is not an affiliated person of the issuer
of, or any issuer, guarantor or provider of credit support for, the instrument,
or, in the case of any instrument that is not so rated, is of comparable quality
as determined by the Investment Adviser under the general supervision of the
Trustees; (ii) a dollar-weighted average portfolio maturity of not more than 90
days be maintained appropriate to the Fund's objective of maintaining a stable
net asset value of $1.00 per share and no instrument is purchased with a
remaining maturity of more than 13 months; (iii) the Fund's available cash will
be invested in such a manner as to reduce such maturity to 90 days or less as
soon as is reasonably practicable, if the disposition of a portfolio security
results in a dollar-weighted average portfolio maturity of more than 90 days;
and (iv) no more than 5% of the Fund's total assets may be invested in the
securities of any one issuer (other than U.S. Government securities).
It is expected that the 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. 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.
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.
<PAGE>
FEDERAL TAXES
Each year, the Trust intends to continue to qualify the Fund and elect that the
Fund be treated as a separate "regulated investment company" under Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code"). Under Subchapter
M of the Code the Fund is not subject to federal income taxes on amounts
distributed to shareholders.
Qualification as a regulated investment company under the Code requires,
among other things, that (a) at least 90% of the Fund's annual gross income,
without offset for losses from the sale or other disposition of securities, be
derived from interest, payments with respect to securities loans, dividends and
gains from the sale or other disposition of securities or other income derived
with respect to its business of investing in such securities; (b) less than 30%
of the Fund's annual gross income be derived from gains (without offset for
losses) from the sale or other disposition of securities held for less than
three months; and (c) the holdings of the Fund be diversified so that, at the
end of each quarter of its fiscal year, (i) at least 50% of the market value of
the Fund's assets be represented by cash, U.S. Government securities and other
securities limited in respect of any one issuer to an amount not greater than 5%
of the Fund's assets and 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of the Fund's assets be invested
in the securities of any one issuer (other than U.S. Government securities). 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.
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
<PAGE>
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
four series.
Shareholders are entitled to one vote for each share held on matters on
which they are entitled to vote. Shareholders in the Trust do not have
cumulative voting rights, and shareholders owning more than 50% of the
outstanding shares of the Trust may elect all of the Trustees of the Trust if
they choose to do so and in such event the other shareholders in the Trust would
not be able to elect any Trustee. The Trust is not required and has no current
intention to hold meetings of shareholders annually but the Trust will hold
special meetings of shareholders when in the judgment of the Trust's Trustees it
is necessary or desirable to submit matters for a shareholder vote. Shareholders
have under certain circumstances (e.g., upon application and submission of
certain specified documents to the Trustees by a specified number of
shareholders) the right to communicate with other shareholders in connection
with requesting a meeting of shareholders for the purpose of removing one or
more Trustees. Shareholders also have the right to remove one or more Trustees
without a meeting by a declaration in writing by a specified number of
shareholders. No material amendment may be made to the Trust's Declaration of
Trust without the affirmative vote of the holders of a majority of its
outstanding shares. Shares have no preference, pre-emptive, conversion or
similar rights. Shares, when issued, are fully paid and non-assessable, except
as set forth below. The Trust may enter into a merger or consolidation, or sell
all or substantially all of its assets, if approved by the vote of the holders
of two-thirds of its outstanding shares, except that if the Trustees of the
Trust recommend such sale of assets, the approval by vote of the holders of a
majority of the Trust's outstanding shares will be sufficient. The Trust may
also be terminated upon liquidation and distribution of its assets, if approved
by the vote of the holders of two-thirds of its outstanding shares.
Stock certificates are not issued by the Trust.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations and liabilities. However, the Declaration of Trust contains an
express disclaimer of shareholder liability for acts or obligations of the Trust
and provides for indemnification and reimbursement of expenses out of Trust
property for any shareholder held personally liable for the obligations of the
Trust. The Declaration of Trust also provides that the Trust shall maintain
appropriate insurance (for example, fidelity bonding and errors and omissions
insurance) for the protection of the Trust, its shareholders, Trustees,
officers, employees and agents covering possible tort and other liabilities.
Thus, the 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.
<PAGE>
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. 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
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.
<PAGE>
On those occasions when Brown Brothers Harriman & Co. deems the purchase
or sale of a security to be in the best interests of the Fund as well as other
customers, Brown Brothers Harriman & Co., to the extent permitted by applicable
laws and regulations, may, but is not obligated to, aggregate the securities to
be sold or purchased for the Fund with those to be sold or purchased for other
customers in order to obtain best execution, including lower brokerage
commissions, if appropriate. In such event, allocation of the securities so
purchased or sold as well as any expenses incurred in the transaction are made
by Brown Brothers Harriman & Co. in the manner it considers to be most equitable
and consistent with its fiduciary obligations to its customers, including the
Fund. In some instances, this procedure might adversely affect the Fund.
ADDITIONAL INFORMATION
As used in this Statement of Additional Information and the Prospectus,
the term "majority of the Fund's outstanding voting securities" (as defined in
the 1940 Act) currently means the vote of (i) 67% or more of the Fund's shares
present at a meeting, if the holders of more than 50% of the outstanding voting
securities of the Fund are present in person or represented by proxy; or (ii)
more than 50% of the Fund's outstanding voting securities, whichever is less.
Fund shareholders receive semi-annual reports containing unaudited
financial statements and annual reports containing financial statements audited
by the independent auditors.
A shareholder's right to receive payment with respect to any redemption
may be suspended or the payment of the redemption proceeds postponed: (i) during
periods when the New York Stock Exchange is closed for other than weekends and
holidays or when regular trading on such Exchange is restricted as determined by
the Securities and Exchange Commission by rule or regulation, (ii) during
periods in which an emergency exists which causes disposal of, or evaluation of
the net asset value of, the Fund's portfolio securities to be unreasonable or
impracticable, or (iii) for such other periods as the Securities and Exchange
Commission may permit.
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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