LOGO
Inflation-Indexed
Securities Fund
PROSPECTUS
February 28, 1997
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PROSPECTUS
The 59 Wall Street Inflation-Indexed
Securities Fund
6 St. James Avenue, Boston, Massachusetts 02116
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The 59 Wall Street Inflation-Indexed Securities Fund is a separate
portfolio of The 59 Wall Street Fund, Inc. Shares of the Fund are offered by
this Prospectus.
The Fund's investment objective is to provide investors with a high level
of current income consistent with minimizing price fluctuations in net asset
value and maintaining liquidity. The Fund under normal circumstances is
primarily invested in securities that are structured to provide protection
against inflation. The Fund is an appropriate investment for investors who are
seeking to protect all or a part of their investment portfolio from the effects
of inflation. Although the Fund is designed to have lesser price fluctuations
than long term bond funds, investors should be able to accept fluctuations in
the net asset value of their investment. There can be no assurance that the
Fund's investment objective will be achieved.
Investments in the Fund are neither insured nor guaranteed by the U.S.
Government. Shares of the Fund are not deposits or obligations of, or guaranteed
by, Brown Brothers Harriman & Co. or any other bank, and the shares are not
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other federal, state or other governmental agency.
Brown Brothers Harriman & Co. is the investment adviser to, the
administrator of and the shareholder servicing agent for the Fund. Shares of the
Fund are offered at net asset value and without a sales charge.
This Prospectus, which investors are advised to read and retain for future
reference, sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Additional information
about the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated February 28, 1997. This information
is incorporated herein by reference and is available without charge upon request
from the Fund's distributor, 59 Wall Street Distributors, Inc., 6 St. James
Avenue, Boston, Massachusetts 02116.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this Prospectus is February 28, 1997.
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TABLE OF CONTENTS
Page
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Expense Table .......................................................... 3
Financial Highlights ................................................... 4
Investment Objective and Policies ...................................... 5
Investment Restrictions ................................................ 9
Purchase of Shares ..................................................... 9
Redemption of Shares ................................................... 10
Management of the Corporation .......................................... 11
Page
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Net Asset Value ........................................................ 15
Dividends and Distributions ............................................ 15
Taxes .................................................................. 16
Description of Shares .................................................. 17
Additional Information ................................................. 18
Appendix A ............................................................. 19
Appendix B ............................................................. 22
TERMS USED IN THIS PROSPECTUS
Corporation........................ The 59 Wall Street Fund, Inc.
Fund............................... The 59 Wall Street Inflation-Indexed
Securities Fund (the "Inflation-Indexed
Securities Fund")
Investment Adviser................. Brown Brothers Harriman & Co.
Administrator...................... Brown Brothers Harriman & Co.
Subadministrator................... 59 Wall Street Administrators, Inc.
("59 Wall Street Administrators")
Distributor........................ 59 Wall Street Distributors, Inc.
("59 Wall Street Distributors")
1940 Act........................... The Investment Company Act of 1940,
as amended
2
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EXPENSE TABLE
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The following table provides (i) a summary of estimated expenses relating
to purchases and sales of shares of the Fund, and the aggregate annual operating
expenses of the Fund, as a percentage of average net assets of the Fund, and
(ii) an example illustrating the dollar cost of such estimated expenses on a
$1,000 investment in the Fund.
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases .......................... None
Sales Load Imposed on Reinvested Dividends ............... None
Deferred Sales Load ...................................... None
Redemption Fee ........................................... None
ANNUAL FUND OPERATING EXPENSES*
(as a percentage of average net assets)
Investment Advisory Fee.............................. 0.25%
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12b-1 Fee............................................ None
Other Expenses
Administration Fee................................. 0.10%
Expense Payment Fee................................ 0.30 0.40
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Total Fund Operating Expenses*....................... 0.65%
====
* The annual fund operating expenses for the past fiscal year have been
restated for purposes of this table to reflect fees currently in
effect.
Example 1 year 3 years 5 years 10 years
------- ------ ------- ------- --------
A shareholder of the Fund would pay
the following expenses on a $1,000
investment, assuming (1) 5% annual
return, and (2) redemption at the
end of each time period:............... $7 $21 $36 $81
The Example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown. In connection
with the Example, please note that $1,000 is currently less than the Fund's
minimum purchase requirement. The purpose of this table is to assist investors
in understanding the various costs and expenses that shareholders of the Fund
bear directly or indirectly.
Under an expense payment agreement, 59 Wall Street Administrators pays the
Fund's expenses, other than fees paid to Brown Brothers Harriman & Co. under the
Corporation's Administration Agreement and other than expenses relating to the
organization of the Fund. If this expense payment agreement was not in place,
the total Fund operating expenses would be 1.00% of the average annual net
assets of the Fund, and the shareholder expenses reflected in the example above
would be $10, $32, $55 and $123 for the Fund. (See "Expense Payment Agreement".)
For more information with respect to the expenses of the Fund see
"Management of the Corporation" herein.
3
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FINANCIAL HIGHLIGHTS
The following information has been audited by Deloitte & Touche LLP,
independent auditors. This information should be read in conjunction with the
financial statements and notes thereto, which are incorporated by reference in
the Statement of Additional Information. The ratios of expenses and net
investment income to average net assets are not indicative of future ratios.
<TABLE>
<CAPTION>
For the period
July 23, 1992
For the years ended October 31, (commencement
------------------------------------------------------- of operations to
1996 1995 1994 1993 October 31, 1992
---------- ---------- ---------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........... $ 9.76 $ 9.37 $ 10.17 $ 9.93 $ 10.00
Income from investment operations:
Net investment income ....................... 0.55 0.54 0.52 0.50 0.14
Net realized and unrealized (loss) gain ..... (0.09) 0.39 (0.74) 0.26 (0.09)
Less dividends and distributions:
From net investment income .................. (0.55) (0.54) (0.52) (0.52) (0.12)
From net realized gains ..................... -- -- (0.05) -- --
In excess of net realized gains ............. -- -- (0.01) -- --
---------- ---------- ---------- ---------- ----------
Net asset value, end of period ................. $ 9.67 $ 9.76 $ 9.37 $ 10.17 $ 9.93
========== ========== ========== ========== ==========
Total return** ................................. 4.88% 10.26% (2.23)% 7.85% 0.49%
Ratios/Supplemental Data:
Net assets, end of period (000's omitted) ... $ 16,821 $ 10,830 $ 10,328 $ 9,729 $ 1,648
Ratio of expenses to average net assets ..... 0.85% 0.85% 0.85% 0.85% 0.85%*
Ratio of net investment income to average
net assets ................................. 5.73% 5.66% 5.29% 5.32% 6.23%*
Portfolio turnover rate ..................... 114% 228% 129% 149% 207%
</TABLE>
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* Annualized.
** Had an expense payment agreement not been in place, the ratio of expenses to
average net assets for the years ended October 31, 1996, 1995, 1994, 1993 and
for the period ended October 31, 1992 would have been 1.40%, 1.40%, 1.46%,
1.46% and 6.99%, respectively. For the same periods, the total return of the
Fund would have been 4.33%, 9.71%, (2.84)%, 7.24% and (5.65)%, respectively.
Furthermore, the ratio of expenses to average net assets for the years ended
October 31, 1996 and 1995 reflect fees reduced in connection with specific
agreements. Had these arrangements not been in place, these ratios would have
been 1.42% and 1.43%, respectively.
Further information about performance of the Fund is contained in the Fund's
annual report to shareholders which may be obtained without charge.
4
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INVESTMENT OBJECTIVES AND POLICIES
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The investment objective of the Fund is to provide investors with a high
level of current income consistent with minimizing price fluctuations in net
asset value and maintaining liquidity.
The investment objective of the Fund is a fundamental policy and may be
changed only with the approval of the holders of a "majority of the Fund's
outstanding voting securities" (as defined in the 1940 Act). (See "Additional
Information" in this Prospectus.) However, the investment policies of the Fund
as described below are not fundamental and may be changed without such approval.
The Corporation may, in the future, seek to achieve the Fund's investment
objective by investing all of the Fund's assets in a no-load, diversified,
open-end management investment company having substantially the same investment
objective as the Fund. Shareholders will receive 30 days prior written notice
with respect to any such investment.
Under normal circumstances, the Fund will invest at least 65% of the value
of its total assets in securities that are structured to provide protection
against inflation ("Inflation-Indexed Securities" or "IIS"). Unlike traditional
notes and bonds, which pay a stated rate of interest in dollars and are redeemed
at their par amounts, IIS have regular adjustments to their interest payments
and redemption value to compensate for the loss of purchasing power from
inflation. The Fund may also invest in U.S. Government securities or securities
of its agencies or instrumentalities which are not indexed to inflation, if at
any time the Investment Adviser believes that there is an inadequate supply of
appropriate IIS in which to invest or if the Investment Adviser believes that
these issues will provide superior returns or liquidity. The Fund may consist of
any combination of these securities consistent with investment strategies
employed by the Investment Adviser.
The first IIS was issued by the U.S. Treasury as a ten-year note. The U.S.
Treasury has announced its intention to issue additional securities with a term
to maturity as long as 30 years and as short as five years. The Investment
Adviser believes that U.S. Government agencies, foreign governments and
corporate issuers will also issue these types of securities in the future. When
these securities with different maturities and different issuers are issued, the
Investment Adviser will buy from among the available issues those securities
that will provide the maximum relative value to the Fund.
U.S. Treasury IIS provide for semi-annual payments of interest and a
payment of principal at maturity. Each interest payment will be adjusted up or
down to take into account any inflation or deflation that occurs between the
issue date of the security and the interest payment date. The principal amount
of a U.S. Treasury IIS will be adjusted up at maturity to take into account the
inflation that occurred between the issue date of the security and its maturity
date. The repayment of principal will never be less than the original face or
par amount of the security at issuance. All inflation adjustments will be based
on changes in the non-seasonally adjusted U.S. City Average All Items Consumer
Price Index for All Urban Consumers ("CPI-U"), which is published monthly by the
Bureau of Labor Statistics of the U.S. Department of Labor. This adjustment will
be based on the value of the CPI-U reported for the third preceding month. Each
semi-annual payment of interest will be determined by multiplying a single fixed
semi-annual payment of interest by the inflation-adjusted principal amount of
the security for the date of the interest payment. Thus, although the interest
rate will be fixed, the amount of each interest payment will vary with the
changes in the adjusted principal of the security. These securities trade for
purchases and sales with a daily inflation adjustment to their par amount.
In addition to investing in U.S. Treasury IIS, the Fund may invest in IIS
issued by U.S. Government agencies or instrumentalities (including mortgage
backed securities), sovereign foreign governments and their agencies or
instrumentalities and, U.S. and foreign corporations and banks. IIS may be
"stripped" of their interest and principal components and purchased by the Fund
as separate instruments. All IIS purchased by the Fund must be rated at least A
by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation
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("S&P") (or, if unrated, determined by the Adviser to be of comparable quality).
The exchange rate risk on all non-U.S. dollar denominated IIS will be hedged
back into U.S. dollars.
The Fund's income will be comprised primarily of coupon interest payments
and inflation adjustments to IIS held. Both of the components will be accrued
daily and paid monthly to shareholders. The inflation adjustment and the coupon
interest on recently issued IIS result in a yield that approximates the nominal
yield available on similar maturity U.S. Treasury securities, however this may
or may not be true in the future depending on the market's projection of future
inflation rates versus current inflation rates.
The Investment Adviser currently believes that the market for IIS will be
sufficient to permit the Fund to pursue its investment objective. However,
should the market for IIS issued by the U.S. Treasury and other issuers prove
less active than anticipated by the Investment Adviser, the Investment Adviser
is authorized to treat such an environment as an abnormal market condition. This
means that the Investment Adviser may purchase other types of U.S. Government
securities in excess of 35% of the Fund's total assets.
The Fund is actively managed by a team of investment professionals (see
"Investment Adviser"). The Investment Adviser analyzes and monitors economic
trends, monetary policy and bond credit ratings on a continuous basis. The
holdings of the Fund are regularly reviewed in an effort to enhance returns.
Risk Factors
You should read this section carefully to make sure you understand the
nature of the Fund before you invest in it.
Fund share price volatility. In contrast to money market funds, but similar
to bond funds, the Fund's shares are expected to have a net asset value that
fluctuates for two reasons: (1) changes in real interest rates and (2) changes
in demand and supply of the particular issues held by the Fund. As interest
rates rise, bond prices fall, and conversely, as interest rates decline, bond
prices rise. Generally, bonds with longer maturities are more sensitive to
interest rate movements than those with shorter maturities.
"Real" interest rates (the market rate of interest less the rate of
inflation) change over time either because of a change in what investors require
for lending their money or an anticipated change in the rate of inflation. IIS
prices will move up or down when real rates change, since these securities were
sold originally based upon a "real" interest rate that is no longer prevailing.
Should market expectations for real interest rates rise, the price of IIS and
the share price of the Fund will fall.
The IIS Market. IIS in which the Fund may invest are new securities subject
to possible illiquidity. It is not possible to predict with assurance how the
market for IIS will develop. While the U.S. Treasury expects that there will be
an active secondary market for IIS issued by it, that market initially may not
be as active or liquid as the secondary market for fixed-principal Treasury
securities. This is because, as a new product, IIS may not be as widely traded
or as well understood as fixed-principal Treasury securities. As a result, there
may be larger spreads between bid and asked prices for such IIS than the
bid-asked spreads for fixed-principal securities with the same remaining
maturity. Larger bid-asked spreads ordinarily result in higher transaction costs
and, thus, lower overall returns.
Indexing Methodology. The calculation of the inflation index ratio for
IIS issued by the U.S. Treasury incorporates an approximate three-month lag,
which may have an effect on the trading price of the securities, particularly
during periods of significant, rapid changes in the inflation index. To the
extent that inflation has increased the three months prior to an interest
payment, that interest payment will not be protected from the inflation
increase. Further, to the extent that inflation has increased during the final
three months of a security's maturity, the final value of the security will not
be protected against that increase, which will negatively impact the value of
the security. Additionally, there is disagreement among financial market
professionals as to whether the Consumer Price Index actually reflects the true
rate of inflation. If the market perceives that the adjustment mechanism of the
IIS does not accurately adjust for inflation, the value of the IIS could be
adversely affected. In the event of sustained deflation, the amount of the
6
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semi-annual interest payments, the inflation-adjusted principal of the security
and the value of any stripped components, will decrease.
Taxation. IIS will be subject to specific tax regulations under the
original issue discount rules of the Internal Revenue Code of 1986, as amended
(the "Code"). Generally, an inflation-adjusted increase in principal is required
to be included as income in the year the increase occurs even though the
investor will not receive payment of amounts equal to such increase until the
security matures. During periods of rising interest rates, the Fund will be
required to accrue an increasing amount of inflation-adjusted income. To
maintain its qualification as a regulated investment company and avoid liability
for federal income taxes, the Fund will be required to distribute dividends
equal to substantially all of its net investment income, including the daily
accretion of inflation adjustments accrued by the Fund with respect to IIS for
which the Fund receives no payments in cash prior to their maturity.
Consequently, the Fund may have to dispose of securities under disadvantageous
circumstances in order to generate cash to satisfy the Fund's distribution
requirements.
Credit. Credit risk is the likelihood that an issuer will default on
interest or principal payments. The Fund invests in high quality bonds with a
rating of A or better, which reduces the portfolio's exposure to credit risk.
Hedging Strategies
Subject to applicable laws and regulations and solely as a hedge against
changes in the market value of portfolio securities or securities intended to be
purchased, put and call options on fixed income securities may be purchased and
interest rate futures contracts may be entered into for the Fund. (See Appendix
B on page 22 for more detail.)
Also subject to applicable laws and regulations and as a hedge against
changes in the market value of portfolio securities or securities intended to be
purchased, but also to enhance the income of the Fund, options on fixed income
securities may be written for the Fund.
Over-the-counter (OTC) options purchased are treated as not readily
marketable. (See "Investment Restrictions".)
The Investment Adviser enters into forward foreign exchange contracts in
order to protect the dollar value of all investments in IIS denominated in
foreign currencies. The precise matching of the forward contract amounts and the
value of the securities involved is not always possible because the future value
of such securities in foreign currencies changes as a consequence of market
movements in the value of such securities between the date the forward contract
is entered into and the date it matures.
Portfolio Brokerage
The securities in which the Fund invests are traded primarily in the
over-the-counter market on a net basis and do not normally involve either
brokerage commissions or transfer taxes. Where possible transactions on behalf
of the Fund are entered directly with the issuer or from an underwriter or
market maker for the securities involved. Purchases from underwriters of
securities may include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers serving as market makers may include a
spread between the bid and asked price. The policy of the Fund regarding
purchases and sales of securities is that primary consideration is given to
obtaining the most favorable prices and efficient executions of transactions. In
seeking to implement the Fund's policies, the Investment Adviser effects
transactions with those brokers and dealers who the Investment Adviser believes
provide the most favorable prices and are capable of providing efficient
executions. While reasonably competitive spreads or commissions are sought for
the Fund, it will not necessarily be paying the lowest spread or commission
available. If the Investment Adviser believes such prices and executions are
obtainable from more than one broker or dealer, it may give consideration to
placing portfolio transactions with those brokers and dealers who also furnish
research and other services to the Fund or Investment Adviser. Such services may
include, but are not limited to, any one or more of the following: information
7
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as to the availability of securities for purchase or sale; statistical or
factual information or opinions pertaining to investment; wire services; and
appraisals or evaluations of portfolio securities. For the fiscal years ended
October 31, 1995 and 1996, the portfolio turnover rate for the Fund was 228% and
114%, respectively. (See "Portfolio Transactions" in the Statement of Additional
Information.)
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.
Other Investment Techniques
Loans of Portfolio Securities. Loans up to 30% of the total value of the
securities of the Fund are permitted. These loans must 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. By lending the securities of the Fund,
the Fund's income can be increased by the Fund continuing to receive income on
the loaned securities as well as by the opportunity for the Fund to receive
interest on the collateral. 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.
When-Issued and Delayed Delivery Securities. Securities may be purchased
for the Fund on a when-issued or delayed delivery basis. For example, delivery
and payment may take place a month or more after the date of the transaction.
The purchase price and the interest rate payable on the securities, if any, are
fixed on the transaction date. The securities so purchased are subject to market
fluctuation and no income accrues to the Fund until delivery and payment take
place. At the time the commitment to purchase securities for the Fund on a
when-issued or delayed delivery basis is made, the transaction is recorded and
thereafter the value of such securities are reflected each day in determining
the Fund's net asset value. At the time of its acquisition, a when-issued or
delayed delivery security may be valued at less than the purchase price. On
delivery dates for such transactions, such obligations are met from maturities
or sales of securities and/or from cash flow. If the right to acquire a
when-issued or delayed delivery security is disposed of prior to its
acquisition, the Fund could, as with the disposition of any other portfolio
obligation, incur a gain or loss due to market fluctuation. When-issued or
delayed delivery commitments for the Fund may not be entered into if such
commitments exceed in the aggregate 15% of the market value of the Fund's total
assets, less liabilities other than the obligations created by when-issued or
delayed delivery commitments.
8
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INVESTMENT RESTRICTIONS
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The Statement of Additional Information for the Fund includes a listing of
the specific investment restrictions which govern the Fund's investment
policies. Certain of these investment restrictions are deemed fundamental
policies and may be changed only with the approval of the holders of a "majority
of the Fund's outstanding voting securities" (as defined in the 1940 Act) (see
"Additional Information in this Prospectus"), including a restriction that
excluding the Fund's investment of all of its investable assets in an open-end
investment company with substantially the same investment objective as the Fund,
not more than 10% of the net assets of the Fund may be invested in securities
that are subject to legal or contractual restrictions on resale.
As a non-fundamental policy, money is not borrowed for the Fund in an
amount in excess of 10% of the assets of the Fund. Money is borrowed only from
banks and only either to accommodate requests for the redemption of shares while
effecting an orderly liquidation of portfolio securities or to maintain
liquidity in the event of an unanticipated failure to complete a portfolio
security transaction or other similar situations. Securities are not purchased
for the Fund at any time at which the amount of its borrowings exceed 5% of its
assets.
Also as a non-fundamental policy, at least 65% of the value of the total
assets of the Fund is invested in securities that are structured to provide
protection against inflation.
In accordance with applicable regulations, the Fund does not purchase any
OTC option, repurchase agreement maturing in more than seven days, security of a
company which, including predecessors, has a record of less than three years of
operations, or other security that is not readily marketable, if after such
purchase more than 10% of the market value of the Fund's net assets would be
represented by such investments.
The Fund is classified as diversified under the 1940 Act, which means that
at least 75% of its total assets is represented by cash; securities issued by
the U.S. Government, its agencies or instrumentalities; and other securities
limited in respect of any one company to an amount not greater in value than 5%
of the Fund's total assets. The Fund does not purchase more than 10% of all
outstanding debt obligations of any one issuer (other than obligations issued by
the U.S. Government, its agencies or instrumentalities).
PURCHASE OF SHARES
================================================================================
Shares of the Fund are offered on a continuous basis at their net asset
value without a sales charge. The Corporation reserves the right to determine
the purchase orders for Fund shares that it will accept. Shares of the Fund may
be purchased on any day the New York Stock Exchange is open for regular trading
if the Corporation receives the purchase order and acceptable payment for such
order prior to 4:00 P.M., New York time. Purchases of Fund shares are then
executed at the net asset value per share next determined on that same day.
Shares are entitled to dividends declared, if any, starting as of the first
business day following the day a purchase order is executed on the books of the
Corporation.
An investor who has an account with an Eligible Institution (see page 14)
or a Financial Intermediary (see page 13) may place purchase orders for Fund
shares with the Corporation through that Eligible Institution or Financial
Intermediary which holds such shares in its name on behalf of that customer
pursuant to arrangements made between that customer and that Eligible
Institution or Financial Intermediary. Each Eligible Institution and each
Financial Intermediary may establish and amend from time to time a minimum
initial and a minimum subsequent purchase requirement for its customers. Each
Eligible Institution or Financial Intermediary arranges payment for Fund shares
9
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on behalf of its customers. A transaction fee may be charged by an Eligible
Institution or a Financial Intermediary on the purchase of Fund shares.
An investor who does not have an account with an Eligible Institution or a
Financial Intermediary must place purchase orders for Fund shares with the
Corporation through the Fund's Shareholder Servicing Agent. Such an investor has
such shares held directly in the investor's name on the books of the Corporation
and is responsible for arranging for the payment of the purchase price of Fund
shares. All purchase orders for initial and subsequent purchases are executed at
the net asset value per share next determined after the Corporation's custodian,
State Street Bank and Trust Company, has received payment in the form of a
cashier's check drawn on a U.S. bank, a check certified by a U.S. bank or a wire
transfer. Brown Brothers Harriman & Co., as the Fund's Shareholder Servicing
Agent, has established a minimum initial purchase requirement for the Fund of
$100,000 and a minimum subsequent purchase requirement for the Fund of $25,000.
These minimum purchase requirements may be amended from time to time.
Inquiries regarding the manner in which purchases of Fund shares may be
effected and other matters pertaining to the Fund should be directed to Brown
Brothers Harriman & Co., the Fund's Shareholder Servicing Agent. (See back cover
for address and phone number.)
REDEMPTION OF SHARES
================================================================================
A redemption request must be received by the Corporation prior to 4:00
P.M., New York time on any day the New York Stock Exchange is open for regular
trading. Such a redemption is executed at the net asset value per share next
determined on that same day. Shares continue to earn dividends declared, if any,
through the business day a redemption request is executed on the books of the
Corporation.
Shares held by an Eligible Institution or a Financial Intermediary on
behalf of a shareholder must be redeemed through that Eligible Institution or
Financial Intermediary pursuant to arrangements made between that shareholder
and that Eligible Institution or Financial Intermediary. Proceeds of a
redemption are paid to that shareholder's account at that Eligible Institution
or Financial Intermediary. A transaction fee may be charged by an Eligible
Institution or a Financial Intermediary on the redemption of Fund shares.
Shares held directly in the name of a shareholder on the books of the
Corporation may be redeemed by submitting a redemption request in good order to
the Corporation through the Fund's Shareholder Servicing Agent. (See back cover
for address and phone number.) Proceeds resulting from such redemption are paid
by the Corporation directly to the shareholder in "available" funds generally on
the next business day after the redemption request is executed, and in any event
within seven days.
Redemptions By the Corporation
The Fund's Shareholder Servicing Agent (see page 13), each Eligible
Institution (see page 14) and each Financial Intermediary (see page 13) may
establish and amend from time to time for their respective customers a minimum
account size. If the value of a shareholder's holdings in the Fund falls below
that amount because of a redemption of shares, the shareholder's remaining
shares may be redeemed. If such remaining shares are to be redeemed, the
shareholder is so notified and is allowed 60 days to make an additional
investment to enable the shareholder to meet the minimum requirement before the
redemption is processed. Brown Brothers Harriman & Co., as the Fund's
Shareholder Servicing Agent, has established a minimum account size of $25,000.
Further Redemption Information
In the event a shareholder redeems all shares held in the Fund, future
purchases of shares of the Fund by such shareholder would be subject to the
Fund's minimum initial purchase requirements.
The value of shares redeemed may be more or less than the shareholder's
cost depending on Fund performance during the period the shareholder owned such
10
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shares. Redemptions of shares are taxable events on which a shareholder may
realize a gain or a loss.
An investor should be aware that redemptions from the Fund may not be
processed if a completed account application with a certified taxpayer
identification number has not been received.
The Corporation has reserved the right to pay the amount of a redemption
from the Fund, either totally or partially, by a distribution in kind of
securities (instead of cash) from the Fund. (See "Net Asset Value; Redemption in
Kind" in the Statement of Additional Information.)
A shareholder's right to receive payment with respect to any redemption may
be suspended or the payment of the redemption proceeds postponed for up to seven
days and for such other periods as the 1940 Act may permit. (See "Additional
Information" in the Statement of Additional Information.)
MANAGEMENT OF THE CORPORATION
================================================================================
Directors and Officers
The Directors, in addition to supervising the actions of the Administrator,
Investment Adviser and Distributor of the Fund, as set forth below, decide upon
matters of general policy. Because of the services rendered by the Investment
Adviser and the Administrator, the Corporation itself requires no employees
other than its officers, none of whom, other than the Chairman, receive
compensation from the Fund and all of whom, other than the Chairman, are
employed by 59 Wall Street Administrators. (See "Directors and Officers" in the
Statement of Additional Information.)
The Directors of the Corporation are:
J.V. Shields, Jr.
Chairman and Chief Executive Officer of
Shields & Company
Eugene P. Beard
Vice Chairman - Finance and Operations of
The Interpublic Group of Companies
David P. Feldman
Chairman and Chief Executive Officer - AT&T
Investment Management Corporation
Alan G. Lowy
Private Investor
Arthur D. Miltenberger
Vice President and Chief Financial Officer of
Richard K. Mellon and Sons
Investment Adviser
The Investment Adviser to the Fund is Brown Brothers Harriman & Co.,
Private Bankers, a New York limited partnership established in 1818. The firm is
subject to examination and regulation by the Superintendent of Banks of the
State of New York and by the Department of Banking of the Commonwealth of
Pennsylvania. The firm is also subject to supervision and examination by the
Commissioner of Banks of the Commonwealth of Massachusetts.
Brown Brothers Harriman & Co. provides investment advice and portfolio
management services to the Fund. Subject to the general supervision of the
Corporation's Directors, Brown Brothers Harriman & Co. makes the day-to-day
investment decisions for the Fund, places the purchase and sale orders for the
portfolio transactions of the Fund, and generally manages the Fund's
investments. Brown Brothers Harriman & Co. provides a broad range of investment
management services for customers in the United States and abroad. At June 30,
1996, it managed total assets of approximately $25 billion.
The Fund's portfolio is managed on a day-to-day basis by a team of
individuals, including Mr. Jeffrey A. Schoenfeld, Mr. Christopher F. Kinney, Mr.
Glenn E. Baker and Mr. James J. Evans. Mr. Schoenfeld holds a B.S. from the
University of California, Berkeley and a M.B.A. from the University of
Pennsylvania. He joined Brown Brothers Harriman & Co. in 1984.
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<PAGE>
Mr. Kinney holds a B.A. from Yale University, a M.A. from Johns Hopkins
University and a M.B.A. from Columbia University. He joined Brown Brothers
Harriman & Co. in 1984. Mr. Baker holds both a B.A. and a M.B.A. from the
University of Michigan. He joined Brown Brothers Harriman & Co. in 1991. Mr.
Evans holds a B.S. from the University of Delaware and a M.B.A. from New York
University. He joined Brown Brothers Harriman & Co. in 1996.
As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by Brown Brothers Harriman & Co. under the
Investment Advisory Agreement, Brown Brothers Harriman & Co. receives from the
Fund an annual fee, computed daily and payable monthly, equal to 0.25% of the
average daily net assets of the Fund. Prior to March 1, 1997, the Adviser
received from the Fund a fee accrued daily, and paid monthly at an annual rate
equal to 0.40% of the Fund's average daily net assets, on an annualized basis
for the Fund's then-current fiscal year. Brown Brothers Harriman & Co. also
receives an administration fee from the Fund equal to 0.10% of the Fund's
average daily net assets. Brown Brothers Harriman & Co. also receives a
shareholder servicing/eligible institution fee from the Fund equal to 0.25% of
the Fund's average daily net assets represented by shares during the period for
whom Brown Brothers Harriman & Co. is the holder or agent of record.
The investment advisory services of Brown Brothers Harriman & Co. to the
Fund are not exclusive under the terms of the Investment Advisory Agreement.
Brown Brothers Harriman & Co. is free to and does render investment advisory
services to others, including other registered investment companies.
Pursuant to a license agreement between the Corporation and Brown Brothers
Harriman & Co. dated September 5, 1990, as amended as of December 15, 1993, the
Corporation may continue to use in its name 59 Wall Street, the current and
historic address of Brown Brothers Harriman & Co. The agreement may be
terminated by Brown Brothers Harriman & Co. at any time upon written notice to
the Corporation upon the expiration or earlier termination of any investment
advisory agreement between the Fund or any investment company in which a series
of the Corporation invests all of its assets and Brown Brothers Harriman & Co.
Termination of the agreement would require the Corporation to change its name
and the name of the Fund to eliminate all reference to 59 Wall Street.
Pursuant to license agreements between Brown Brothers Harriman & Co. and
each of 59 Wall Street Administrators and 59 Wall Street Distributors (each a
Licensee), dated June 22, 1993 and June 8, 1990, respectively, each Licensee may
continue to use in its name 59 Wall Street, the current and historic address of
Brown Brothers Harriman & Co., only if Brown Brothers Harriman & Co. does not
terminate the respective license agreement, which would require the Licensee to
change its name to eliminate all reference to 59 Wall Street.
Administrator
Brown Brothers Harriman & Co. acts as Administrator for the Corporation.
(See "Administrator" in the Statement of Additional Information.)
In its capacity as Administrator, Brown Brothers Harriman & Co. administers
all aspects of the Corporation's operations subject to the supervision of the
Corporation's Directors except as set forth below under "Distributor". In
connection with its responsibilities as Administrator and at its own expense,
Brown Brothers Harriman & Co. (i) provides the Corporation with the services of
persons competent to perform such supervisory, administrative and clerical
functions as are necessary in order to provide effective administration of the
Corporation, including the maintenance of certain books and records; (ii)
oversees the performance of administrative and professional services to the
Corporation by others, including the Fund's Custodian, Transfer and Dividend
Disbursing Agent; (iii) provides the Corporation with adequate office space and
12
<PAGE>
communications and other facilities; and (iv) prepares and/or arranges for the
preparation, but does not pay for, the periodic updating of the Corporation's
registration statement and the Fund's prospectus, the printing of such documents
for the purpose of filings with the Securities and Exchange Commission and state
securities administrators, and the preparation of tax returns for the Fund and
reports to the Fund's shareholders and the Securities and Exchange Commission.
For the services rendered to the Corporation and related expenses borne
by Brown Brothers Harriman & Co., as Administrator of the Corporation, Brown
Brothers Harriman & Co. receives from the Fund an annual fee, computed daily and
payable monthly, equal to 0.10% of the Fund's average daily net assets. Prior to
March 1, 1997, the Administrator received from the Fund a fee accrued daily and
paid monthly at an annual rate equal to 0.15% of the Fund's average daily net
assets, on an annualized basis for the Fund's then-current fiscal year.
Pursuant to a Subadministrative Services Agreement with Brown Brothers
Harriman & Co., 59 Wall Street Administrators performs such subadministrative
duties for the Corporation as are from time to time agreed upon by the parties.
The offices of 59 Wall Street Administrators are located at 6 St. James Avenue,
Boston, Massachusetts 02116. 59 Wall Street Administrators is a wholly-owned
subsidiary of Signature Financial Group, Inc. ("SFG"). SFG is not affiliated
with Brown Brothers Harriman & Co. 59 Wall Street Administrators'
subadministrative duties may include providing equipment and clerical personnel
necessary for maintaining the organization of the Corporation, participation in
the preparation of documents required for compliance by the Corporation with
applicable laws and regulations, preparation of certain documents in connection
with meetings of Directors and shareholders of the Corporation, and other
functions that would otherwise be performed by the Administrator as set forth
above. For performing such subadministrative services, 59 Wall Street
Administrators receives such compensation as is from time to time agreed upon,
but not in excess of the amount paid to the Administrator from the Fund.
Shareholder Servicing Agent
The Corporation has entered into a shareholder servicing agreement with
Brown Brothers Harriman & Co. pursuant to which Brown Brothers Harriman & Co.,
as agent for the Corporation with respect to the Fund, among other things:
answers inquiries from shareholders of and prospective investors in the Fund
regarding account status and history, the manner in which purchases and
redemptions of Fund shares may be effected and certain other matters pertaining
to the Fund; assists shareholders of and prospective investors in the Fund in
designating and changing dividend options, account designations and addresses;
and provides such other related services as the Corporation or a shareholder of
or prospective investor in the Fund may reasonably request. For these services,
Brown Brothers Harriman & Co. receives from the Fund an annual fee, computed
daily and payable monthly, equal to 0.25% of the Fund's average daily net assets
represented by shares owned during the period for which payment was being made
by shareholders who did not hold their account with an eligible institution.
Financial Intermediaries
From time to time, the Fund's Shareholder Servicing Agent enters into
contracts with banks, brokers and other financial intermediaries ("Financial
Intermediaries") pursuant to which a customer of the Financial Intermediary may
place purchase orders for Fund shares through that Financial Intermediary which
holds such shares in its name on behalf of that customer. Pursuant to such
contract, each Financial Intermediary as agent with respect to shareholders of
and prospective investors in the Fund who are customers of that Financial
Intermediary, among other things: provides necessary personnel and facilities to
establish and maintain certain shareholder accounts and records enabling it to
hold, as agent, its customers' shares in its name or its nominee name on the
shareholder records of the Corporation; assists in processing purchase and
redemption transactions; arranges for the wiring of funds; transmits and
receives funds in connection with customer orders to purchase or redeem shares
of the Fund; provides periodic statements showing a customer's account balance
13
<PAGE>
and, to the extent practicable, integrates such information with information
concerning other customer transactions otherwise effected with or through it;
furnishes, either separately or on an integrated basis with other reports sent
to a customer, monthly and annual statements and confirmations of all purchases
and redemptions of Fund shares in a customer's account; transmits proxy
statements, annual reports, updated prospectuses and other communications from
the Corporation to its customers; and receives, tabulates and transmits to the
Corporation proxies executed by its customers with respect to meetings of
shareholders of the Fund. For these services, the Financial Intermediary
receives such fees from the Shareholder Servicing Agent as may be agreed upon
from time to time between the Shareholder Servicing Agent and such Financial
Intermediary.
Eligible Institutions
The Corporation enters into eligible institution agreements with banks,
brokers and other financial institutions pursuant to which each financial
institution, as agent for the Corporation with respect to shareholders of and
prospective investors in the Fund who are customers with that financial
institution, among other things: provides necessary personnel and facilities to
establish and maintain certain shareholder accounts and records enabling it to
hold, as agent, its customer's shares in its name or its nominee name on the
shareholder records of the Corporation; assists in processing purchase and
redemption transactions; arranges for the wiring of funds; transmits and
receives funds in connection with customer orders to purchase or redeem shares
of the Fund; provides periodic statements showing a customer's account balance
and, to the extent practicable, integrates such information with information
concerning other customer transactions otherwise effected with or through it;
furnishes, either separately or on an integrated basis with other reports sent
to a customer, monthly and annual statements and confirmations of all purchases
and redemptions of Fund shares in a customer's account; transmits proxy
statements, annual reports, updated prospectuses and other communications from
the Corporation to its customers; and receives, tabulates and transmits to the
Corporation proxies executed by its customers with respect to meetings of
shareholders of the Fund. For these services, each financial institution
receives from the Fund an annual fee, computed daily and payable monthly, equal
to 0.25% of the Fund's average daily net assets represented by shares owned
during the period for which payment was being made by customers for whom each
financial institution was the holder or agent of record.
Expense Payment Agreement
Under an expense payment agreement, 59 Wall Street Administrators pays
the Fund's expenses (see "Expense Table"), other than fees paid to Brown
Brothers Harriman & Co. under the Corporation's Administration Agreement and
other than expenses relating to the organization of the Fund. In return, 59 Wall
Street Administrators receives a fee from the Fund such that after such payment
the aggregate expenses of the Fund do not exceed an agreed upon annual rate,
currently 0.65% of the average daily net assets of the Fund. Prior to March 1,
1997, under an agreement dated February 22, 1995, 59 Wall Street Administrators
received a fee from the Fund such that after such payment the aggregate expenses
of the Fund did not exceed an agreed upon annual rate of 0.85% of the average
daily net assets of the Fund. Such fees are computed daily and paid monthly.
During the fiscal year ended October 31, 1996, 59 Wall Street Administrators
incurred $140,502 in expenses, including investment advisory fees of $46,266 and
shareholder servicing/eligible institution fees of $28,917, on behalf of the
Fund and received fees of $76,498 from the Fund.
The expense payment agreement will terminate on July 1, 2000. If there had
been no expense payment agreement, the Directors of the Corporation estimate
that, at the Fund's current level, the total operating expenses of the Fund may
increase to approximately 1.00% of the average annual net assets of the Fund.
The expenses of the Fund paid by 59 Wall Street Administrators under the
agreement include the shareholder servicing/eligible institution fees, the
compensation of the Directors of the Corporation; governmental fees; interest
14
<PAGE>
charges; taxes; membership dues in the Investment Company Institute allocable to
the Fund; fees and expenses of independent auditors, of legal counsel and of any
transfer agent, custodian, registrar or dividend disbursing agent of the Fund;
insurance premiums; expenses of calculating the net asset value of shares of the
Fund; expenses of preparing, printing and mailing prospectuses, reports,
notices, proxy statements and reports to shareholders and to governmental
officers and commissions; expenses of shareholder meetings; expenses relating to
the issuance, registration and qualification of shares of the Fund; and expenses
connected with the execution, recording and settlement of portfolio security
transactions; and the expenses associated with the investment advisory
agreement.
Distributor
59 Wall Street Distributors acts as exclusive Distributor of shares of the
Fund. Its office is located at 6 St. James Avenue, Boston, Massachusetts 02116.
59 Wall Street Distributors is a wholly-owned subsidiary of SFG. SFG and its
affiliates currently provide administration and distribution services for other
registered investment companies. The Corporation pays for the preparation,
printing and filing of copies of the Corporation's registration statements and
the Fund's prospectus as required under federal and state securities laws. (See
"Distributor" in the Statement of Additional Information.) 59 Wall Street
Distributors holds itself available to receive purchase orders for Fund shares.
Custodian, Transfer and Dividend
Disbursing Agent
State Street Bank and Trust Company (State Street or the Custodian), 225
Franklin Street, P.O. Box 351, Boston, Massachusetts 02110, is Custodian,
Transfer and Dividend Disbursing Agent for the Fund.
As Custodian, it is responsible for maintaining books and records of the
Fund's portfolio transactions and holding the Fund's portfolio securities and
cash pursuant to a custodian agreement with the Corporation. Cash is held for
the Fund in demand deposit accounts at the Custodian. Subject to the supervision
of the Administrator, the Custodian maintains the Fund's accounting and
portfolio transaction records and for each day computes the Fund's net asset
value. As Transfer and Dividend Disbursing Agent it is responsible for
maintaining the books and records detailing the ownership of the Fund's shares.
Independent Auditors
Deloitte & Touche LLP are the independent auditors for the Fund.
NET ASSET VALUE
================================================================================
The Fund's net asset value per share is determined once daily at 4:00 P.M.,
New York time on each day the New York Stock Exchange is open for regular
trading.
The determination of the Fund's net asset value per share is made by
subtracting from the value of the total assets of the Fund the amount of its
liabilities and dividing the difference by the number of shares of the Fund
outstanding at the time the determination is made.
Values of assets in the Fund's portfolio are determined on the basis of
their market or other fair value. (See "Net Asset Value; Redemption in Kind" in
the Statement of Additional Information.)
DIVIDENDS AND DISTRIBUTIONS
================================================================================
Substantially all of the Fund's net investment income is declared daily and
paid to shareholders as a dividend monthly. Substantially all of the Fund's
realized capital gains, if any, are declared and paid to shareholders on an
annual basis as a capital gains distribution. An additional dividend and/or
capital gains distribution may be made to the extent necessary to avoid the
imposition of federal excise tax on the Fund. (See "Taxes" below.) Dividends and
capital gains distributions are payable to shareholders of record on the record
date.
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<PAGE>
Unless a shareholder whose shares are held directly in the shareholder's
name on the books of the Corporation elects to have dividends and capital gains
distributions paid in cash, dividends and capital gains distributions are
automatically reinvested in additional Fund shares without reference to the
minimum subsequent purchase requirement. The Corporation reserves the right to
discontinue, alter or limit the automatic reinvestment privilege at any time,
but will provide shareholders prior written notice of any such discontinuance,
alteration or limitation.
Each Eligible Institution and each Financial Intermediary may establish its
own policy with respect to the reinvestment of dividends and capital gains
distributions in additional Fund shares.
TAXES
================================================================================
Each year, the Corporation intends to qualify the Fund and elect that the
Fund be treated as a separate regulated investment company under the Internal
Revenue Code of 1986, as amended. Accordingly, the Fund is not subject to
federal income taxes on its net income and realized net long-term capital gains
that are distributed to its shareholders. A 4% non-deductible excise tax is
imposed on the Fund to the extent that certain distribution requirements for the
Fund for each calendar year are not met. The Corporation intends to meet such
requirements.
Dividends are taxable to shareholders of the Fund as ordinary income,
whether such dividends are paid in cash or reinvested in additional shares.
Capital gains distributions are taxable to shareholders as long-term capital
gains, whether paid in cash or reinvested in additional shares and regardless of
the length of time a particular shareholder has held Fund shares.
Any dividend or capital gains distribution has the effect of reducing the
net asset value of Fund shares held by a shareholder by the same amount as the
dividend or capital gains distribution. If the net asset value of the shares
should be reduced below a shareholder's cost as a result of such a dividend or
capital gains distribution, the dividend or capital gains distribution, although
constituting a return of invested capital, would be taxable as described above.
Any gain or loss realized on the redemption of Fund shares by a shareholder who
is not a dealer in securities is treated as long-term capital gain or loss if
the shares have been held for more than one year, and otherwise as short-term
capital gain or loss. However, any loss realized by a shareholder upon the
redemption of shares in the Fund held one year or less is treated as a long-term
capital loss to the extent of any long-term capital gains distributions received
by the shareholder with respect to such shares.
Under U.S. Treasury regulations, the Corporation and each Eligible
Institution are required to withhold and remit to the U.S. Treasury a portion
(31%) of dividends and capital gains distributions on the accounts of those
shareholders who fail to provide a correct taxpayer identification number
(Social Security Number for individuals) or to make required certifications, or
who have been notified by the Internal Revenue Service that they are subject to
such withholdings. Prospective investors should submit an IRS Form W-9 to avoid
such withholding.
State and Local Taxes
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.
Distributions to shareholders may be subject to additional state and local
taxes. Shareholders are urged to consult their tax advisors regarding any state
or local taxes.
Foreign Investors
The Fund is designed for investors who are either citizens of the United
States or aliens subject to United States income tax. Prospective investors who
are not citizens of the United States and who are not aliens subject to United
States income tax are subject to United States withholding tax on the entire
16
<PAGE>
amount of all dividends. Therefore, such investors should not invest in the Fund
since alternative investments are available which would not be subject to United
States withholding tax.
Other Information
Annual notification as to the tax status of capital gains distributions, if
any, is provided to shareholders shortly after October 31, the end of the Fund's
fiscal year. Additional tax information is mailed to shareholders in January.
This tax discussion is based on the tax laws and regulations in effect on
the date of this Prospectus, however such laws and regulations are subject to
change. Shareholders and prospective investors are urged to consult their tax
advisors regarding specific questions relevant to their particular
circumstances.
DESCRIPTION OF SHARES
================================================================================
The Corporation is an open-end management investment company organized on
July 16, 1990 as a corporation under the laws of the State of Maryland. Its
offices are located at 6 St. James Avenue, Boston, Massachusetts 02116; its
telephone number is (617)423-0800.
The Articles of Incorporation currently permit the Corporation to issue
2,500,000,000 shares of common stock, par value $.001 per share, of which
25,000,000 shares have been classified as shares of the Fund. The Board of
Directors may increase the number of shares the Corporation is authorized to
issue without the approval of shareholders. The Board of Directors also has the
power to designate one or more series of shares of common stock and to classify
and reclassify any unissued shares with respect to such series. Currently there
are five such series in addition to the Fund.
Each share of the Fund represents an equal proportional interest in the
Fund with each other share. Upon liquidation of the Fund, shareholders are
entitled to share pro rata in the net assets of the Fund available for
distribution to shareholders.
Shareholders of the Fund are entitled to a full vote for each full share
held and to a fractional vote for fractional shares. The voting rights of
shareholders are not cumulative. Shares have no preemptive or conversion rights.
The rights of redemption are described elsewhere herein. Shares are fully paid
and nonassessable by the Corporation. It is the intention of the Corporation not
to hold meetings of shareholders annually. The Directors may call meetings of
shareholders for action by shareholder vote as may be required by the 1940 Act
or as may be permitted by the Articles of Incorporation or By-laws. Shareholders
have under certain circumstances (e.g., upon application and submission of
certain specified documents to the Directors 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 Directors. Shareholders also have the right to remove one or more Directors
without a meeting by a declaration in writing by a specified number of
shareholders.
The By-laws of the Corporation provide that the presence in person or by
proxy of the holders of record of one third of the shares of the Fund
outstanding and entitled to vote thereat shall constitute a quorum at all
meetings of shareholders of the Fund, except as otherwise required by applicable
law. The By-laws further provide that all questions shall be decided by a
majority of the votes cast at any such meeting at which a quorum is present,
except as otherwise required by applicable law.
The Corporation's Articles of Incorporation provide that, at any meeting of
shareholders of the Fund, each Eligible Institution, may vote any shares as to
which that Eligible Institution is the agent of record and which are otherwise
not represented in person or by proxy at the meeting, proportionately in
accordance with the votes cast by holders of all shares otherwise represented at
the meeting in person or by proxy as to which that Eligible Institution is the
agent of record. Any shares so voted by an Eligible Institution are deemed
represented at the meeting for purposes of quorum requirements.
17
<PAGE>
ADDITIONAL INFORMATION
================================================================================
As used in this Prospectus, the term majority of the Fund's outstanding
voting securities as defined in the 1940 Act currently means the vote of (i) 67%
or more of the Fund's shares present at a meeting, if the holders of more than
50% of the outstanding voting securities of the Fund are present in person or
represented by proxy; or (ii) more than 50% of the Fund's outstanding voting
securities, whichever is less.
Fund shareholders receive semi-annual reports containing unaudited
financial statements and annual reports containing financial statements audited
by independent auditors. The annual report also contains performance information
and is made available to investors upon request and without charge.
A confirmation of each purchase and redemption transaction is issued on
execution of that transaction.
The Fund's performance may be used from time to time in shareholder reports
or other communications to shareholders or prospective investors. Performance
figures are based on historical earnings and are not intended to indicate future
performance. Performance information may include the Fund's investment results
and/or comparisons of its investment results to various unmanaged indexes (such
as Donoghue's Money Fund Index and Shearson Lehman Intermediate Bond Index) and
to investments for which reliable performance data is available. Performance
information may also include comparisons to averages, performance rankings or
other information prepared by recognized mutual fund statistical services. To
the extent that unmanaged indexes are so included, the same indexes are used on
a consistent basis. The Fund's investment results as used in such communications
are calculated on a total rate of return basis in the manner set forth below.
Period and average annualized total rates of return may be provided in such
communications. The total rate of return refers to the change in the value of an
investment in the Fund over a stated period based on any change in net asset
value per share and including the value of any shares purchasable with any
dividends or capital gains distributions during such period. Period total rates
of return may be annualized. An annualized total rate of return is a compounded
total rate of return which assumes that the period total rate of return is
generated over a one year period, and that all dividends and capital gains
distributions are reinvested. An annualized total rate of return is slightly
higher than a period total rate of return if the period is shorter than one
year, because of the assumed reinvestment.
The Fund's yield and effective yield may be used from time to time in
shareholder reports or other communications to shareholders or prospective
investors. Both yield figures are based on historical earnings and are not
intended to indicate future performance. The yield of the Fund refers to the
projected income generated by an investment in the Fund over a 30-day or
one-month period (which period is stated). This income is then annualized. The
effective yield is calculated similarly but, when annualized, the income earned
by an investment in the Fund is assumed to be reinvested. The effective yield
will be slightly higher than the yield because of the compounding effect of this
assumed reinvestment.
This Prospectus omits certain of the information contained in the Statement
of Additional Information and the Registration Statement filed with the
Securities and Exchange Commission. The Statement of Additional Information may
be obtained from 59 Wall Street Distributors without charge and the Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Securities and
Exchange Commission.
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APPENDIX A
================================================================================
This Appendix is intended to provide descriptions of the other securities
the Fund may purchase. However, the Fund may purchase additional securities not
mentioned below if they meet the quality and maturity guidelines set forth in
the Fund's Investment Policies.
- --------------------------------------------------------------------------------
U.S. Government Securities
Assets of the Fund may be invested in securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities. These securities,
including those which are guaranteed by federal agencies or instrumentalities,
may or may not be backed by the full faith and credit of the United States. In
the case of securities not backed by the full faith and credit of the United
States, it may not be possible to assert a claim against the United States
itself in the event the agency or instrumentality issuing or guaranteeing the
security for ultimate repayment does not meet its commitments. Securities which
are not backed by the full faith and credit of the United States include, but
are not limited to, securities of the Tennessee Valley Authority, the Federal
National Mortgage Association (FNMA) and the U.S. Postal Service, each of which
has a limited right to borrow from the U.S. Treasury to meet its obligations,
and securities of the Federal Farm Credit System, the Federal Home Loan Banks,
the Federal Home Loan Mortgage Corporation (FHLMC) and the Student Loan
Marketing Association, the obligations of each of which may be satisfied only by
the individual credit of the issuing agency. Securities which are backed by the
full faith and credit of the United States include Treasury bills, Treasury
notes, Treasury bonds and pass through securities of the Government National
Mortgage Association (GNMA), the Farmers Home Administration and the
Export-Import Bank. There is no percentage limitation with respect to
investments in U.S. Government securities.
Mortgage-Backed Securities
Assets of the Fund also include mortgage-backed securities (MBS) which are
issued by, or are collateralized by securities guaranteed by, the U.S.
Government, its agencies or instrumentalities. These securities represent an
undivided interest in a pool of residential mortgages. These securities,
including those issued by GNMA, FNMA and FHLMC, provide investors with payments
consisting of both interest and principal as the mortgages in the underlying
pools are repaid. Unlike conventional bonds, MBS pay back principal over the
life of the MBS rather than at maturity. Thus, a holder of the MBS, such as the
Fund, would receive monthly scheduled payments of principal and interest and may
receive unscheduled principal prepayments representing payments on the
underlying mortgages. At the time the Fund reinvests the scheduled principal
payments and any unscheduled prepayment of principal that it receives, the Fund
may receive a rate of interest which is higher or lower than the rate of
interest paid on the existing MBS, thus affecting the yield of the Fund.
Asset-Backed Securities
Asset-backed securities represent interests in pools of loans (generally
unrelated to mortgage loans). Interest and principal payments ultimately depend
on payment of the underlying loans by individuals, although the securities may
be supported by letters of credit or other credit enhancements. The value of
asset-backed securities may also be affected by the creditworthiness of the
servicing agent for the loan pool, the originator of the loans or the financial
institution providing the credit enhancement.
Bank Obligations
Assets of the Fund may be invested in U.S. dollar-denominated negotiable
certificates of deposit, fixed time deposits and bankers acceptances of banks,
savings and loan associations and savings banks organized under the laws of the
United States or any state thereof, including obligations of non-U.S. branches
19
<PAGE>
of such banks, or of non-U.S. banks or their U.S. or non-U.S. branches, provided
that in each case, such bank has more than $500 million in total assets, and has
an outstanding short-term debt issue rated within the highest rating category
for short-term debt obligations by at least two (unless only rated by one)
nationally recognized statistical rating organizations (e.g., Moody's and S&P)
or, if unrated, are of comparable quality as determined by or under the
direction of the Board of Directors. See "Corporate Bond and Commercial Paper
Ratings" in the Statement of Additional Information. There is no percentage
limitation with respect to investments in negotiable certificates of deposit,
fixed time deposits and bankers acceptances of U.S. branches of U.S. banks and
U.S. branches of non-U.S. banks that are subject to the same regulation as U.S.
banks. While early withdrawals are not contemplated, fixed time deposits are not
readily marketable and may be subject to early withdrawal penalties, which may
vary. Assets of the Fund are not invested in obligations of Brown Brothers
Harriman & Co., the Administrator, the Distributor, or in the obligations of the
affiliates of any such organization or in fixed time deposits with a maturity of
over seven calendar days, or in fixed time deposits with a maturity of from two
business days to seven calendar days if more than 10% of the Fund's total assets
would be invested in such deposits.
Repurchase Agreements
Repurchase agreements may be entered into only with a primary dealer (as
designated by the Federal Reserve Bank of New York) in U.S. Government
obligations. This is an agreement in which the seller (the Lender) of a security
agrees to repurchase from the Fund the security sold at a mutually agreed upon
time and price. As such, it is viewed as the lending of money to the Lender. The
resale price normally is in excess of the purchase price, reflecting an agreed
upon interest rate. The rate is effective for the period of time assets of the
Fund are invested in the agreement and is not related to the coupon rate on the
underlying security. The period of these repurchase agreements is usually short,
from overnight to one week, and at no time are assets of the Fund invested in a
repurchase agreement with a maturity of more than one year. The securities which
are subject to repurchase agreements, however, may have maturity dates in excess
of one year from the effective date of the repurchase agreement. The Fund always
receives as collateral securities which are issued or guaranteed by the
U.S.Government, its agencies or instrumentalities. Collateral is marked to the
market daily and has a market value including accrued interest at least equal to
100% of the dollar amount invested on behalf of the Fund in each agreement along
with accrued interest. Payment for such securities is made for the Fund only
upon physical delivery or evidence of book entry transfer to the account of
State Street Bank and Trust Company, the Fund's Custodian. If the Lender
defaults, the Fund might incur a loss if the value of the collateral securing
the repurchase agreement declines and might incur disposition costs in
connection with liquidating the collateral. In addition, if bankruptcy
proceedings are commenced with respect to the Lender, realization upon the
collateral on behalf of the Fund may be delayed or limited in certain
circumstances. A repurchase agreement with more than seven days to maturity may
not be entered into for the Fund if, as a result, more than 10% of the market
value of the Fund's total assets would be invested in such repurchase agreements
together with any other investment being held for the Fund for which market
quotations are not readily available.
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Reverse Repurchase Agreements
Reverse 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
obligations. This is an agreement in which the Corporation agrees for the Fund
to repurchase securities sold by it at a mutually agreed upon time and price. As
such, it is viewed as the borrowing of money for the Fund. Proceeds of
borrowings under reverse repurchase agreements is invested for the Fund. This is
the speculative factor known as leverage. If interest rates rise during the term
of a reverse repurchase agreement utilized for leverage, the value of the
securities to be repurchased for the Fund as well as the value of securities
purchased with the proceeds will decline. Proceeds of a reverse repurchase
transaction are not invested for a period which exceeds the duration of the
reverse repurchase agreement. A reverse repurchase agreement may not be entered
into for the Fund if, as a result, more than one-third of the market value of
the Fund's total assets, less liabilities other than the obligations created by
reverse repurchase agreements, would be engaged in reverse repurchase
agreements. In the event that such agreements exceed, in the aggregate,
one-third of such market value, the amount of the Fund's obligations created by
reverse repurchase agreements will be reduced within three days thereafter (not
including weekends and holidays) or such longer period as the Securities and
Exchange Commission may prescribe, to an extent that such obligations will not
exceed, in the aggregate, one-third of the market value of the Fund's assets, as
defined above. A segregated account with the Custodian is established and
maintained for the Fund with liquid assets in an amount at least equal to the
Fund's purchase obligations under its reverse repurchase agreements. Such
segregated account consists of liquid assets marked to the market daily, with
additional liquid assets added when necessary to insure that at all times the
value of such account is equal to the purchase obligations.
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APPENDIX B--HEDGING STRATEGIES
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Options on Fixed Income Securities. A call option on fixed income
securities gives the purchaser of the option the right to buy the underlying
securities at a fixed price at any time during the option period. Similarly, a
put option gives the purchaser of the option the right to sell the underlying
securities at a fixed price at any time during the option period. To liquidate a
put or call option position, a closing sale transaction may be made at any time
prior to the expiration of the option which involves selling the option
previously purchased.
The effectiveness of purchasing options on fixed income securities as a
hedging technique depends upon the extent to which price movements in the
portion of the securities portfolio of the Fund being hedged correlate with
price movements of the fixed income securities selected. The value of these
options depends upon future movements in the level of interest rates as
reflected in the price of the underlying fixed income securities before the
expiration of the option. Accordingly, the successful use of options on fixed
income securities for the Fund is subject to the Investment Adviser's ability to
select appropriate underlying fixed income securities and to predict future
interest rate movements over the short term in the overall market. Brokerage
costs are incurred in the purchase of options on fixed income securities and the
incorrect choice of underlying fixed income securities or an incorrect
assessment of future interest rate movements may result in poorer overall
performance than if such an option had not been purchased.
The Corporation intends to write (sell) covered put and call options on
optionable fixed income securities on behalf of the Fund. Call options written
by the Corporation give the holder the right to buy the underlying securities
during the term of the option at a stated exercise price; put options give the
holder the right to sell the underlying security to the Fund during the term of
the option at a stated exercise price. Call options are covered, for example,
when the Fund owns the underlying securities, and put options are covered, for
example, when the Fund has established a segregated account of cash and U.S.
Government securities which can be liquidated promptly to satisfy any obligation
to purchase the underlying securities. The Corporation may also write straddles
(combinations of puts and calls on the same underlying security) on behalf of
the Fund.
The Fund receives a premium from writing a put or call option, which
increases the Fund's gross income in the event the option expires unexercised or
is closed out at a profit. The amount of the premium reflects, among other
things, the relationship of the market price of the underlying security to the
exercise price of the option and the remaining term of the option. By writing a
call option, the Corporation limits the opportunity of the Fund to profit from
any increase in the market value of the underlying security above the exercise
price of the option. By writing a put option, the Corporation assumes the risk
that it may be required to purchase the underlying security for an exercise
price higher than its then current market value, resulting in a potential
capital loss unless the security subsequently appreciates in value.
The Corporation may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction in which it purchases
an option having the same terms as the option written. It is possible, however,
that illiquidity in the options markets may make it difficult from time to time
for the Corporation to close out its written option positions. Also, the
securities exchanges have established limitations on the number of options which
may be written by an investor or group of investors acting in concert. It is not
contemplated that these position limits will have any adverse impact on the
Corporation's portfolio strategies.
Futures Contracts on Fixed Income Securities. Subject to applicable laws
and regulations and solely as a hedge against changes in the market value of
portfolio securities or securities intended to be purchased, futures contracts
on fixed income securities ("Futures Contracts") may be entered into for the
Fund, although the current intention is not to do so in such a manner that more
than 5% of the Fund's net assets would be at risk.
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In order to assure that the Fund is not deemed a "commodity pool" for
purposes of the Commodity Exchange Act, regulations of the Commodity Futures
Trading Commission ("CFTC") require that the Fund enters into transactions in
futures contracts and options on futures contracts only (i) for bona fide
hedging purposes (as defined in CFTC regulations), or (ii) for non-hedging
purposes, provided that the aggregate initial margin and premiums on such
non-hedging positions does not exceed 5% of the liquidation value of the Fund's
assets.
Futures Contracts are used to hedge against anticipated future changes in
interest rates which otherwise might either adversely affect the value of
securities held for the Fund or adversely affect the prices of securities which
are intended to be purchased at a later date for the Fund. A Futures Contract
may also be entered into to close out or offset an existing futures position.
In general, each transaction in Futures Contracts involves the
establishment of a position which is expected to move in a direction opposite to
that of the investment being hedged. If these hedging transactions are
successful, the futures positions taken for the Fund would rise in value by an
amount which approximately offsets the decline in value of the portion of the
investment that is being hedged. Should general market prices move in an
unexpected manner, the full anticipated benefits of Futures Contracts may not be
achieved or a loss may be realized. There is also the risk of a potential lack
of liquidity in the secondary market.
The effectiveness of entering into Futures Contracts as a hedging technique
depends upon the extent to which price movements in the portion of the
securities portfolio being hedged correlate with price movements of the fixed
income securities selected. The value of a Futures Contract depends upon future
movements in the price of the fixed income securities before the closing out of
the Futures Contract. Accordingly, the successful use of Futures Contracts for
the Fund is subject to the Investment Adviser's ability both to select
appropriate fixed income securities and to predict future price movements over
the short term in those securities. The incorrect choice of fixed income
securities or an incorrect assessment of future price movements over the short
term in those securities may result in poorer overall performance than if a
Futures Contract had not been purchased. Brokerage costs are incurred in
entering into and maintaining Futures Contracts.
When the Fund enters into a Futures Contract, it is initially required to
deposit with the custodian, in a segregated account in the name of the broker
performing the transaction, an "initial margin" of cash, U.S. Government
securities or other high grade short-term obligations equal to approximately 3%
of the contract amount. Initial margin requirements are established by the
exchanges on which Futures Contracts trade and may, from time to time, change.
In addition, brokers may establish margin deposit requirements in excess of
those required by the exchanges. Initial margin in futures transactions is
different from margin in securities transactions in that initial margin does not
involve the borrowing of funds by a broker's client but is, rather, a good faith
deposit on the Futures Contract which will be returned upon the proper
termination of the Futures Contract. The margin deposits made are marked to
market daily and the Fund may be required to make subsequent deposits of cash or
eligible securities called "variation margin", with its futures contract
clearing broker, which are reflective of price fluctuations in the Futures
Contract.
Currently, interest rate Futures Contracts can be purchased on debt
securities such as U.S. Treasury bills and bonds, U.S. Treasury notes with
maturities between 61/2 to 10 years, GNMA certificates and bank certificates of
deposit. As a purchaser of an interest rate Futures Contract, the Fund incurs an
obligation to take delivery of a specified amount of the obligation underlying
the contract at a specified time in the future for a specified price. As a
seller of an interest rate Futures Contract, the Fund incurs an obligation to
deliver the specified amount of the underlying obligation at a specified time in
return for an agreed upon price.
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Exchanges my limit the amount by which the price of a Futures Contract may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased.
Another risk which may arise in employing Futures Contracts to protect
against the price volatility of portfolio securities is that the prices of
securities subject to Futures Contracts (and thereby the Futures Contract
prices) may correlate imperfectly with the behavior of the cash prices of the
Fund's portfolio securities. Another such risk is that the price of the Futures
Contract may not move in tandem with the change in prevailing interest rates
against which the Fund seeks a hedge. An interest rate correlation may be
distorted by the fact that the futures market is dominated by short-term traders
seeking to profit from the difference between a contract or security price
objective and their cost of borrowed funds. Such distortions are generally minor
and would diminish as the contract approached maturity.
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The 59 Wall Street Fund, Inc.
Investment Adviser and
Administrator
Brown Brothers Harriman & Co.
59 Wall Street
New York, New York 10005
Distributor
59 Wall Street Distributors, Inc.
6 St. James Avenue
Boston, Massachusetts 02116
Shareholder Servicing Agent
Brown Brothers Harriman & Co.
59 Wall Street
New York, New York 10005
(800) 625-5759
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus and the Statement of Additional Information, in connection with the
offer contained in this Prospectus, and if given or made, such other
informa-tion or representations must not be relied upon as having been
authorized by the Corporation or the Distributor. This Prospectus does not
constitute an offer by the Corporation or by the Distributor to sell or the
solicitation of any offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful for the Corporation or the
Distributor to make such offer in such jurisdiction.
