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Small Company Fund
PROSPECTUS
February 28, 1997
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PROSPECTUS
The 59 Wall Street Small Company Fund
6 St. James Avenue, Boston, Massachusetts 02116
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The 59 Wall Street Small Company Fund is an open-end investment company
which is a separate diversified portfolio of The 59 Wall Street Fund, Inc.
Shares of the Fund are offered by this Prospectus.
The Fund is designed to enable investors to participate in the
opportunities available in the smaller capitalization segment of the U.S. equity
market. The investment objective of the Fund is to provide investors with
long-term maximization of total return, primarily through capital appreciation.
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., and the shares are not insured by the Federal
Deposit Insurance Corporation or any other federal, state or other governmental
agency.
The Corporation seeks to achieve the investment objective of the Fund by
investing all of the Fund's assets in the U.S. Small Company Portfolio, a
diversified open-end investment company having the same investment objective as
the Fund.
Brown Brothers Harriman & Co. is the investment adviser to the Portfolio
and the administrator and shareholder servicing agent of the Fund. Shares of the
Fund are offered at net asset value without a sales charge.
This Prospectus, which investors are advised to read and retain for future
reference, sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Additional information
about the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated 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
----
Expense Table............................................................ 3
Financial Highlights..................................................... 4
Investment Objective and Policies........................................ 5
Investment Restrictions.................................................. 8
Purchase of Shares....................................................... 9
Redemption of Shares..................................................... 10
Management of the Corporation and
the Portfolio ........................................................ 11
Net Asset Value.......................................................... 16
Dividends and Distributions.............................................. 16
Taxes ................................................................... 17
Description of Shares ................................................... 18
Additional Information................................................... 19
Appendix................................................................. 21
TERMS USED IN THIS PROSPECTUS
Corporation ........................ The 59 Wall Street Fund, Inc.
Fund................................ The 59 Wall Street Small Company Fund
Portfolio .......................... U.S. Small Company Portfolio
Investment Adviser.................. Brown Brothers Harriman & Co.
Administrator of the
Corporation.................... Brown Brothers Harriman & Co.
Administrator of the
Portfolio...................... Brown Brothers Harriman Trust Company
(Cayman) Limited
Subadministrator of the
Corporation ................... 59 Wall Street Administrators, Inc.
("59 Wall Street Administrators")
Subadministrator of the
Portfolio...................... Signature Financial Group (Cayman)
Limited ("SFG-Cayman")
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 and the Portfolio, 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. The Directors of the Corporation
believe that the aggregate per share expenses of the Fund and the Portfolio will
be less than or approximately equal to the expenses which the Fund would incur
if the Corporation retained the services of an investment adviser on behalf of
the Fund and the assets of the Fund were invested directly in the type of
securities being held by the Portfolio.
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............................. 0.65%
12b-1 Fee........................................... None
Other Expenses
Administration Fee ............................... 0.16%
Shareholder Servicing/Eligible Institution Fee.... 0.25%
Other Expenses.................................... 0.24% 0.65
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Total Fund Operating Expenses....................... 1.30%
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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:.................... $ 13 $41 $72 $158
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.
For more information with respect to the expenses of the Fund and the
Portfolio, see "Management of the Corporation and the Portfolio" herein.
3
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FINANCIAL HIGHLIGHTS
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The following information has been audited by Deloitte & Touche LLP,
independent auditors. This information should be read in conjunction with the
financial statements and notes thereto, which 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.
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<CAPTION>
For the period
April 23, 1991
For the years ended October 31, (commencement
--------------------------------------------------- of operations) to
1996 1995 1994 1993 1992 October 31, 1991
------- ------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year............ $12.81 $11.54 $12.92 $10.70 $10.36 $10.00
Income from investment operations:
Net investment income....................... 0.01 0.03 0.05 0.01 0.02 0.01
Net realized and unrealized gain (loss) .... 2.05 1.31 (1.04) 2.84 0.34 0.35
Less dividends and distributions:
From net investment income.................. (0.02) (0.07) (0.01) (0.01) (0.02) --
From net realized gains..................... -- -- (0.38) (0.62) -- --
In excess of net realized gains............. -- -- (0.00)* -- -- --
------ ------ ------ ------ ------ ------
Net asset value, end of year................ $14.85 $12.81 $11.54 $12.92 $10.70 $10.36
====== ====== ====== ====== ====== ======
Total return**................................ 16.10% 11.69% (7.81)% 27.00% 3.46% 3.60%
Ratios/Supplemental Data:
Net assets, end of year
(000's omitted).......................... $35,102 $29,408 $39,401 $41,062 $20,504 $11,097
Ratio of expenses to average
net assets (includes allocated
Portfolio expenses)**.................... 1.10% 1.10% 1.10% 1.10% 1.10% 1.10%***
Ratio of net investment income
to average net assets
(includes allocated Portfolio
expenses) ............................... 0.08% 0.25% 0.40% 0.04% 0.16% 0.36%***
Portfolio turnover rate.................... N/A 16%(A) 140% 116% 67% 8%
Average commission rate paid per share.... N/A $0.08%(A) -- -- -- --
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* Less than $0.01 per share.
** 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 1992 would have been 1.32%, 1.27%, 1.21%, 1.38% and 1.46%,
respectively. For the same periods, the total return of the Fund would have
been 15.88%, 11.52%, (7.94)%, 26.72% and 3.10%, respectively. Furthermore,
the ratio of expenses to average net assets for the year ended October 31,
1995 reflect fees paid with brokerage commissions and fees reduced in
connection with specific agreements. Had these arrangements not been in
place, the ratio would have been 1.39%.
*** Annualized.
(A) Portfolio turnover and average commission paid represents the ratio of
portfolio activity and average commission rate for the period while the
Fund was making investments directly in securities. The portfolio turnover
rate and average commission rate paid for the period since the Fund
transferred all of its investable assets to the Portfolio is shown in the
Portfolio's Financial Highlights which is included elsewhere in this
report.
Further information about the 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 OBJECTIVE AND POLICIES
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The investment objective of the Fund and the Portfolio is to provide
investors with long-term maximization of total return, primarily through capital
appreciation.
The investment objective of the Fund and the Portfolio is a fundamental
policy and may be changed only with the approval of the holders of a "majority
of the outstanding voting securities" (as defined in the 1940 Act) of the Fund
or the Portfolio, as the case may be. (See "Additional Information" in this
Prospectus.) However, the investment policies as described below which are the
same for the Fund and the Portfolio are not fundamental and may be changed
without such approval.
The assets of the Portfolio under normal circumstances are fully invested
in equity securities of small companies, consisting primarily of common stocks
listed on securities exchanges or traded in the over-the-counter market in the
United States. Although the assets of the Portfolio are invested primarily in
common stocks, other securities with equity characteristics may be purchased,
including securities convertible into common stock, trust or limited partnership
interests, rights and warrants.
The Portfolio currently focuses on approximately 1,500 companies which
have a stock market capitalization of less than $2 billion and more than $350
million. The common stocks of these companies represent approximately 15% of the
market value of U.S. equities and have a total market value of over $1.2
trillion. Although much smaller in capitalization than the companies in the
Standard & Poor's 500 Index, the equity securities of these companies generally
offer sufficient liquidity for use in the Portfolio.
BREAKDOWN OF U.S. STOCKS
BY MARKET CAPITALIZATION
(as of December 31, 1996)
Total Market Capitalization
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Market Approximate Dollars % of
Capitalization No. of Stocks (Billions) Total
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over $2 bil.................. 646 6,251 78.7
$350 mil - $2 bil............ 1,485 1,228 15.5
$2 mil - $350 mil............ 5,553 463 5.8
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Totals....................... 7,684 7,942 100.0
Dow Jones Ind. Avg........... 30 1,326 16.7
S&P 500 Index................ 500 5,626 70.8
Source: Brown Brothers Harriman & Co figures do not include American depository
receipts, limited partnerships or closed-end mutual funds.
The Investment Adviser screens this stock universe of approximately 1,500
companies on an ongoing basis and ranks the stocks in the universe on the basis
of proprietary quantitative models utilizing various fundamental and valuation
criteria. The ranking of securities according to these models is the basis for
constructing and changing the composition of the securities held by the
Portfolio. This computerized quantitative approach enables the Portfolio to have
a highly diversified portfolio, typically with securities of 100-125 companies.
This diversification serves to reduce specific company risk and permits many
sectors of the U.S. economy to be represented.
5
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Historically, the common stocks of small companies have provided investors
with higher long-term returns than the common stocks of large companies as
represented by the Standard & Poor's 500 Index or the Dow Jones Industrial
Average. This superior long-term performance has been achieved in an irregular
fashion as the common stocks of small companies have experienced relatively long
periods of outperformance followed by periods of underperformance. Over the past
40 years, the major periods of outperformance were from 1963 to 1968 and from
1975 to 1983. From mid-1983 to October 1990, the common stocks of small
companies as a group substantially lagged the performance of common stocks of
large companies. Since October 1990, the common stocks of small companies have
performed relatively better, as shown in the following table.
RELATIVE PERFORMANCE CYCLE
(TOTAL RETURN)
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<CAPTION>
Jan. 1, 1951 Jan. 1, 1958 Jan. 1, 1969 July 1, 1973 Aug. 1, 1983 Nov. 1, 1990
to to to to to to
Dec. 31, 1957 Dec. 31, 1968 June 30, 1973 July 31, 1983 Oct. 31, 1990 Dec. 31, 1996
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
S&P 500 Index................. +178% +272% +16% + 152% +146% +189%
Small Company Stock Index..... + 79% +985% -46% +1,101% + 9% +275%
(Ibbotson Associates)
Russell 2000 Index*........... N.A. N.A. N.A. N.A. + 15% +238%
(Index started Dec. 1978)
S&P 600 Index................. N.A. N.A. N.A. N.A. N.A. +255%
(Index started Jan. 1984)
</TABLE>
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Note:Periods shown except for beginning and end points are based on peaks and
troughs of relative performance.
* Index comprised of those U.S. stocks ranked from the 1,001st largest to the
3,000th largest based on market capitalization.
ANNUALIZED TOTAL RETURN JAN. 1, 1951 - DEC. 31, 1996
(COMPOUND RATE)
S&P 500 Index............................................. +12.4% per year
Small Company Stock Index (Ibbotson Associates)........... +15.0% per year
Risk Factors
Investing in equity securities of small companies involves risks not
typically associated with investing in comparable securities of large companies.
Assets of the Portfolio are invested in companies which may have narrow product
lines and limited financial and managerial resources. Since the market for the
equity securities of small companies is often characterized by less information
and liquidity than that for the equity securities of large companies, the
Portfolio's investments can experience unexpected sharp declines in their market
prices. Therefore, shares of the Fund may be subject to greater declines in
value than shares of equity funds investing in the equity securities of large
companies.
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 stock indexes may be purchased and futures
contracts on stock indexes may be entered into for the Portfolio. (See Appendix
on page 21 for more detail.)
Portfolio Brokerage
Utilization of the Investment Adviser's proprietary quantitative models
for the selection of portfolio securities, and the resulting periodic
rebalancing of portfolio holdings, causes turnover in the Portfolio which is
relatively high compared to more traditionally managed portfolios. Securities
6
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are not traded for short-term profits but, when circumstances warrant,
securities are sold without regard to the length of time held. A 100% annual
turnover rate would occur, for example, if all portfolio securities (excluding
short-term obligations) were replaced once in a period of one year. For the
period from November 1, 1994 to January 17, 1995, during which the Fund was
making investments directly in securities, the portfolio turnover rate of the
Fund was 16%. On January 17, 1995, the Fund transferred all of its investable
assets to the Portfolio. For the period from January 17, 1995 (commencement of
operations) to October 31, 1995 the portfolio turnover rate of the Portfolio was
115%. For the fiscal year ended October 31, 1996, the portfolio turnover rate of
the Portfolio was 51%. The amount of brokerage commissions and taxes on realized
capital gains to be borne by the shareholders of the Fund tend to increase as
the level of portfolio activity increases.
In effecting securities transactions the Investment Adviser seeks to
obtain the best price and execution of orders. In selecting a broker, the
Investment Adviser considers a number of factors including: the broker's ability
to execute orders without disturbing the market price; the broker's reliability
for prompt, accurate confirmations and on-time delivery of securities; the
broker's financial condition and responsibility; the research and other
investment information provided by the broker; and the commissions charged.
Accordingly, the commissions charged by any such broker may be greater than the
amount another firm might charge if the Investment Adviser determines in good
faith that the amount of such commissions is reasonable in relation to the value
of the brokerage services and research information provided by such broker.
The Investment Adviser may direct a portion of the Portfolio's securities
transactions to certain unaffiliated brokers which in turn use a portion of the
commissions they receive from the Portfolio to pay other unaffiliated service
providers on behalf of the Portfolio for services provided for which the
Portfolio would otherwise be obligated to pay. Such commissions paid by the
Portfolio are at the same rate paid to other brokers for effecting similar
transactions in listed equity securities.
Brown Brothers Harriman & Co. acts as one of the principal brokers of the
Portfolio in the purchase and sale of portfolio securities when, in the judgment
of the Investment Adviser, that firm will be able to obtain a price and
execution at least as favorable as other qualified brokers. As one of the
principal brokers for the Portfolio, Brown Brothers Harriman & Co. receives
brokerage commissions from the Portfolio.
On those occasions when Brown Brothers Harriman & Co. deems the purchase
or sale of a security to be in the best interests of the Portfolio 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 Portfolio 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 Portfolio. In some instances, this procedure might
adversely affect the Portfolio.
Other Investment Techniques
Short-Term Instruments. The assets of the Portfolio may be invested in
U.S. dollar denominated short-term instruments, including repurchase agreements,
obligations of the U.S. Government, its agencies or instrumentalities,
commercial paper and bank obligations (such as certificates of deposit, fixed
time deposits, and bankers' acceptances). Cash is held for the Portfolio in
demand deposit accounts with the Portfolio's custodian bank.
U.S. Government Securities. The assets of the Portfolio may be invested in
securities issued by the U.S. Government, its agencies or instrumentalities.
These securities include notes and bonds issued by the U.S. Treasury, zero
coupon bonds and stripped principal and interest securities.
Restricted Securities. Securities that have legal or contractual
restrictions on their resale may be acquired for the Portfolio. The price paid
for these securities, or received upon resale, may be lower than the price paid
7
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or received for similar securities with a more liquid market. Accordingly, the
valuation of these securities reflects any limitation on their liquidity. (See
"Investment Restrictions".)
Loans of Portfolio Securities. Loans of portfolio securities up to 30% of
the total value of the Portfolio are permitted. These loans must be secured
continuously by cash or equivalent collateral or by an irrevocable letter of
credit in favor of the Portfolio at least equal at all times to 100% of the
market value of the securities loaned plus accrued income. By lending
securities, the Portfolio's income can be increased by its continuing to receive
income on the loaned securities as well as by the opportunity 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 Portfolio and its investors.
When-Issued and Delayed Delivery Securities. Securities may be purchased
for the Portfolio 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 Portfolio until
delivery and payment take place. At the time the commitment to purchase
securities on a when-issued or delayed delivery basis is made, the transaction
is recorded and thereafter the value of such securities is reflected each day in
determining the Portfolio'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. Commitments for such when-issued or delayed delivery securities are made
only when there is an intention of actually acquiring the securities. 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 Portfolio 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 Portfolio may not be entered into if such
commitments exceed in the aggregate 15% of the market value of its total assets,
less liabilities other than the obligations created by when-issued or delayed
delivery commitments.
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 investment policies of the
Fund and the Portfolio. 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 outstanding voting securities" (as defined in the 1940 Act)
of the Fund or the Portfolio, as the case may be (see "Additional Information"
in this Prospectus), including a restriction that, excluding the investment of
all of the Fund's assets in an open-end investment company with substantially
the same investment objective, policies and restrictions as the Fund, not more
than 10% of the net assets of the Fund or the Portfolio, as the case may be, may
be invested in securities that are subject to legal or contractual restrictions
on resale.
Since the investment restrictions of the Fund correspond directly to those
of the Portfolio, the following is a discussion of the various investment
restrictions of the Portfolio.
As a non-fundamental policy, money is not borrowed by the Portfolio in an
amount in excess of 10% of its assets. It is intended that money will be
borrowed only from banks and only either to accommodate requests for the
withdrawal of part or all of an interest 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 Portfolio 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 Portfolio is invested in the equity securities of companies with a
market capitalization of less than $2 billion and more than $100 million. For
these purposes, equity securities are defined as common stock, securities
8
<PAGE>
convertible into common stock, trust or limited partnership interests, rights
and warrants.
In accordance with applicable regulations, the Portfolio does not purchase
any restricted security, 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 Portfolio'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 no greater than 5% of the
Fund's total assets and not more than 10% of the outstanding voting securities
of such company.
PURCHASE OF SHARES
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Shares of the Fund are offered on a continuous basis at their net asset
value without a sales charge. The 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 14) 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
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.)
9
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REDEMPTION OF SHARES
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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 14), each Eligible
Institution and each Financial Intermediary (see page 14) 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
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.)
10
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MANAGEMENT OF THE CORPORATION AND THE PORTFOLIO
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Directors, Trustees and Officers
The Corporation's Directors, in addition to supervising the actions of the
Administrator of the Corporation and Distributor, as set forth below, decide
upon matters of general policy with respect to the Corporation. The Portfolio's
Trustees, in addition to supervising the actions of the Portfolio's Investment
Adviser and Administrator, as set forth below, decide upon matters of general
policy with respect to the Portfolio. The Corporation's Directors are not the
same individuals as the Portfolio's Trustees.
Because of the services rendered to the Portfolio by the Investment
Adviser and to the Corporation and the Portfolio by their respective
Administrators, the Corporation and the Portfolio require no employees, and
their respective officers, other than the Chairman, receive no compensation from
the Fund or the Portfolio. (See "Directors, Trustees 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
The Trustees of the Portfolio are:
H.B. Alvord
Retired, Former Treasurer and Tax Collector
of Los Angeles County
Richard L. Carpenter
Retired, Director of Internal Investments of
the Public School Employees' Retirement
System
Clifford A. Clark
Retired, Former Senior Manager of Brown
Brothers Harriman & Co.
David M. Seitzman
Practicing Physician with Seitzman, Shuman,
Kwart and Phillips
Investment Adviser
The Investment Adviser to the Portfolio 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 Portfolio. Subject to the general supervision of the
Portfolio's Trustees, Brown Brothers Harriman & Co. makes the day-to-day
investment decisions, places the purchase and sale orders for portfolio
transactions, and generally manages the Portfolio'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 Portfolio is managed on a day-to-day basis by a team of individuals,
including Mr. Donald B. Murphy, Mr. John A. Nielsen, Mr. George H. Boyd and Mr.
Paul R. Lenz. Mr. Murphy and Mr. Nielsen are the partners responsible for
quantitative investment management at Brown Brothers Harriman & Co. Mr. Murphy
holds a B.A. from Yale University and a M.B.A. from Columbia University. He
joined Brown Brothers Harriman & Co. in 1966. Mr. Nielsen holds a B.A. from
11
<PAGE>
Bucknell University, a M.B.A. from Columbia University and is a Chartered
Financial Analyst. He joined Brown Brothers Harriman & Co. in 1968. Mr. Boyd and
Mr. Lenz are the portfolio managers for the Portfolio. Mr. Boyd holds a B.A.
from Colgate University, a M.B.A. from Columbia University and is a Chartered
Financial Analyst. He joined Brown Brothers Harriman & Co. in 1991. Mr. Lenz
holds a B.S. from The State University of New York, Stony Brook, M.S. from
University of Oregon and a Ph.D. from the University of Wisconsin, Madison. 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
Portfolio an annual fee, computed daily and payable monthly, equal to 0.65% of
the average daily net assets of the Portfolio. Brown Brothers Harriman & Co. and
its affiliates also receive annual administration fees from the Fund and the
Portfolio equal to 0.16% of the average daily net assets of the Fund or the
Portfolio, as the case may be. Brown Brothers Hariman & Co. and its affiliates
also receive an annual shareholder servicing/eligible institution fee from the
Fund equal to 0.25% of the average daily net assets of the Fund represented by
shares owned by customers 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
Portfolio 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".
Administrators
Brown Brothers Harriman & Co. acts as Administrator of the Corporation and
Brown Brothers Harriman Trust Company (Cayman) Limited acts as Administrator of
the Portfolio. (See "Administrators" in the Statement of Additional
Information.) Brown Brothers Harriman Trust Company (Cayman) Limited is a
wholly-owned subsidiary of Brown Brothers Harriman Trust Company of New York,
which is a wholly-owned subsidiary of Brown Brothers Harriman & Co.
In its capacity as Administrator of the Corporation, 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
Transfer and Dividend Disbursing Agent; (iii) provides the Corporation with
12
<PAGE>
adequate office space and communications and other facilities; and (iv) prepares
and/or arranges for the preparation, but does not pay for, the periodic updating
of the 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 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 0.125% of the Fund's average daily net assets.
Brown Brothers Harriman Trust Company (Cayman) Limited, in its capacity as
Administrator of the Portfolio, administers all aspects of the Portfolio's
operations subject to the supervision of the Portfolio's Trustees except as set
forth above under "Investment Adviser". In connection with its responsibilities
as Administrator for the Portfolio and at its own expense, Brown Brothers
Harriman Trust Company (Cayman) Limited (i) provides the Portfolio 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 Portfolio, including the maintenance of certain books and records,
receiving and processing requests for increases and decreases in the beneficial
interests in the Portfolio, notification to the Investment Adviser of available
funds for investment, reconciliation of account information and balances between
the Custodian and the Investment Adviser, and processing, investigating and
responding to investor inquiries; (ii) oversees the performance of
administrative and professional services to the Portfolio by others, including
the Custodian; (iii) provides the Portfolio with adequate office space and
communications and other facilities; and (iv) prepares and/or arranges for the
preparation, but does not pay for, the periodic updating of the Portfolio's
registration statement for filing with the Securities and Exchange Commission,
and the preparation of tax returns for the Portfolio and reports to investors
and the Securities and Exchange Commission.
For the services rendered to the Portfolio and related expenses borne by
Brown Brothers Harriman Trust Company (Cayman) Limited as Administrator of the
Portfolio, Brown Brothers Harriman Trust Company (Cayman) Limited receives from
the Portfolio an annual fee, computed daily and payable monthly, equal to 0.035%
of the Portfolio's average daily net assets.
Pursuant to a Subadministrative Services Agreement with Brown Brothers
Harriman & Co., 59 Wall Street Administrators performs such subadministrative
duties for the 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.
Pursuant to a Subadministrative Services Agreement with Brown Brothers
Harriman Trust Company (Cayman) Limited, SFG-Cayman performs such
subadministrative duties for the Portfolio as are from time to time agreed upon
by the parties. The offices of SFG-Cayman are located at Elizabethan Square,
George Town, Grand Cayman BWI. SFG-Cayman is a wholly-owned subsidiary of SFG.
SFG-Cayman's subadministrative duties may include providing equipment and
clerical personnel necessary for maintaining the organization of the Portfolio,
13
<PAGE>
participation in the preparation of documents required for compliance by the
Portfolio with applicable laws and regulations, preparation of certain documents
in connection with meetings of Trustees of and investors in the Portfolio, and
other functions that would otherwise be performed by the Administrator of the
Portfolio as set forth above. For performing such subadministrative services,
SFG-Cayman receives such compensation as is from time to time agreed upon, but
not in excess of the amount paid to the Administrator from the Portfolio.
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 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 average daily net assets of the Fund represented by shares owned during
the period for which payment was being made by shareholders who did not hold
their shares with an Eligible Institution.
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
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 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
and, to the extent practicable, integrates such information with information
14
<PAGE>
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 average daily net assets of the Fund 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 agreement dated February 22, 1995, 59 Wall Street Administrators
pays the Fund's expenses (see "Expense Table") other than fees paid to Brown
Brothers Harriman & Co. under the Corporation's Administration Agreement. In
return, 59 Wall Street Administrators receives a fee from the Fund such that
after such payment the aggregate expenses of the Fund, including the allocation
of aggregate expenses of the Portfolio, do not exceed an agreed upon annual
rate, currently 1.10% 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 approximately $138,000 in expenses on
behalf of the Fund, including shareholder servicing/eligible institution fees of
$82,420, and received expense reimbursement fees of $62,415 from the Fund.
The expense payment agreement will terminate on July 1, 1997. After this
expense payment agreement terminates, the Directors of the Corporation estimate
that, at the Fund's current level, the total operating expenses of the Fund may
increase to at least 1.30% of the Fund's average annual net assets.
The expenses of the Fund paid by 59 Wall Street Administrators under the
expense reimbursement agreement include the shareholder servicing/eligible
institution fees; the compensation of the Directors of the Corporation;
governmental fees; interest 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; and expenses relating to the issuance, registration and
qualification of shares of the Fund.
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 statement and
the Fund's prospectus as required under federal and state securities laws. (See
"Distributor" in the Statement of Additional Information.)
59 Wall Street Distributors holds itself available to receive purchase
orders for Fund shares.
Custodian, Transfer and
Dividend Disbursing Agent
State Street Bank and Trust Company ("State Street" or the "Custodian"),
225 Franklin Street, P.O. Box 351, Boston, Massachusetts 02110, is Custodian for
the Fund and the Portfolio and Transfer and Dividend Disbursing Agent for the
Fund.
As Custodian for the Fund, it is responsible for holding the Fund's assets
(i.e., cash and the Fund's interest in the Portfolio) pursuant to a custodian
agreement with the Corporation. Cash is held for the Fund in demand deposit
15
<PAGE>
accounts at the Custodian. Subject to the supervision of the Administrator of
the Corporation, the Custodian maintains the accounting records for the Fund and
each day computes the net asset value per share of the Fund. As Transfer and
Dividend Disbursing Agent it is responsible for maintaining the books and
records detailing the ownership of the Fund's shares.
As Custodian for the Portfolio, it is responsible for maintaining books
and records of portfolio transactions and holding the Portfolio's securities and
cash pursuant to a custodian agreement with the Portfolio. Cash is held for the
Portfolio in demand deposit accounts at the Custodian. Subject to the
supervision of the Administrator of the Portfolio, the Custodian maintains the
accounting and portfolio transaction records for the Portfolio and each day
computes the net asset value and net income of the Portfolio.
Independent Auditors
Deloitte & Touche LLP, Boston, Massachusetts are the independent auditors
for the Fund. Deloitte & Touche, Grand Cayman are the independent auditors for
the Portfolio.
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 (i.e., the value of
its investment in the Portfolio and other 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.
The value of the Fund's investment in the Portfolio is also 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 value of the Fund's investment in the Portfolio
is made by subtracting from the value of the total assets of the Portfolio the
amount of the Portfolio's liabilities and multiplying the difference by the
percentage, effective for that day, which represents the Fund's share of the
aggregate beneficial interests in the Portfolio.
Values of assets held by the Portfolio are determined on the basis of
their market or other fair value. (See "Determination of Net Asset Value;
Redemption in Kind" in the Statement of Additional Information.)
DIVIDENDS AND DISTRIBUTIONS
================================================================================
Substantially all of the Fund's net investment income ("Net Income"),
including its pro rata share of the Portfolio's net income and realized net
short-term capital gains in excess of net long-term capital losses is declared
and paid to Fund shareholders at least annually as a dividend, and substantially
all of the Fund's pro rata share of the Portfolio's realized net long-term
capital gains in excess of net short-term capital losses is declared and paid to
Fund shareholders on an annual basis as a capital gains distribution. An
additional dividend and/or capital gains distribution may be made in a given
year 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 Fund shareholders of record on the record date.
Unless a shareholder whose shares are held directly in the shareholder's
name on the books of the 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.
16
<PAGE>
TAXES
================================================================================
Each year, the Corporation intends to continue to qualify the Fund and
elect that the Fund be treated as a separate "regulated investment company"
under the Internal Revenue Code of 1986, as amended. Accordingly, the Fund is
not subject to federal income taxes on its Net Income and realized net long-term
capital gains in excess of net short-term capital losses 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 continue to meet such requirements.
The Portfolio is also not required to pay any federal income or excise taxes.
Dividends are taxable to shareholders of the Fund as ordinary income,
whether such dividends are paid in cash or reinvested in additional shares.
Dividends paid from the Fund may be eligible for the dividends-received
deduction allowed to corporate shareholders because all or a portion of the
Portfolio's net income may consist of dividends paid by domestic corporations.
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 is
reduced below a shareholder's cost as a result of such a dividend or capital
gains distribution, the dividend or capital gains distribution, although
constituting a return of invested capital, would be taxable as described above.
Any gain or loss realized on the redemption of Fund shares by a shareholder who
is not a dealer in securities is treated as long-term capital gain or loss if
the shares have been held for more than one year, and otherwise as short-term
capital gain or loss. However, any loss realized by a shareholder upon the
redemption of shares in the Fund held one year or less is treated as a long-term
capital loss to the extent of any long-term capital gains distributions received
by the shareholder with respect to such shares.
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 each 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
amount of all dividends.
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.
17
<PAGE>
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 of the Corporation may increase the number of shares the Corporation
is authorized to issue without the approval of shareholders. The Board of
Directors of the Corporation 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 six 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 of the Corporation 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 of the
Corporation 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 of the Corporation. Shareholders
also have the right to remove one or more Directors of the Corporation 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 Fund shareholders, except as otherwise required by applicable law.
The By-Laws further provide that all questions shall be decided by a majority of
the votes cast at any such meeting at which a quorum is present, except as
otherwise required by applicable law.
The 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.
The Portfolio, in which all of the assets of the Fund are invested, is
organized as a trust under the law of the State of New York. The Portfolio's
Declaration of Trust provides that the Fund and other entities investing in the
Portfolio (e.g., other investment companies, insurance company separate accounts
and common and commingled trust funds) are each liable for all obligations of
the Portfolio. However, the risk of the Fund incurring financial loss on account
of such liability is limited to circumstances in which both inadequate insurance
existed and the Portfolio itself was unable to meet its obligations.
Accordingly, the Directors of the Corporation believe that neither the Fund nor
its shareholders will be adversely affected by reason of the investment of all
of the assets of the Fund in the Portfolio.
18
<PAGE>
Each investor in the Portfolio, including the Fund, may add to or reduce
its investment in the Portfolio on each day the New York Stock Exchange is open
for regular trading. At 4:00 P.M., New York time on each such business day, the
value of each investor's beneficial interest in the Portfolio is determined by
multiplying the net asset value of the Portfolio by the percentage, effective
for that day, which represents that investor's share of the aggregate beneficial
interests in the Portfolio. Any additions or withdrawals, which are to be
effected on that day, are then effected. The investor's percentage of the
aggregate beneficial interests in the Portfolio is then recomputed as the
percentage equal to the fraction (i) the numerator of which is the value of such
investor's investment in the Portfolio as of 4:00 P.M., New York time on such
day plus or minus, as the case may be, the amount of any additions to or
withdrawals from the investor's investment in the Portfolio effected on such
day, and (ii) the denominator of which is the aggregate net asset value of the
Portfolio as of 4:00 P.M., New York time on such day plus or minus, as the case
may be, the amount of the net additions to or withdrawals from the aggregate
investments in the Portfolio by all investors in the Portfolio. The percentage
so determined is then applied to determine the value of the investor's interest
in the Portfolio as of 4:00 P.M., New York time on the following business day of
the Portfolio.
Whenever the Corporation is requested to vote on a matter pertaining to
the Portfolio, the Corporation will vote its shares without a meeting of
shareholders of the Fund if the proposal is one, if which made with respect to
the Fund, would not require the vote of shareholders of the Fund, as long as
such action is permissible under applicable statutory and regulatory
requirements. For all other matters requiring a vote, the Corporation will hold
a meeting of shareholders of the Fund and, at the meeting of investors in the
Portfolio, the Corporation will cast all of its votes in the same proportion as
the votes of the Fund's shareholders even if all Fund shareholders did not vote.
Even if the Corporation votes all its shares at the Portfolio meeting, other
investors with a greater pro rata ownership in the Portfolio could have
effective voting control of the operations of the Portfolio.
ADDITIONAL INFORMATION
================================================================================
As used in this Prospectus, the term "majority of the outstanding voting
securities" (as defined in the 1940 Act) currently means the vote of (i) 67% or
more of the outstanding voting securities present at a meeting, if the holders
of more than 50% of the outstanding voting securities are present in person or
represented by proxy; or (ii) more than 50% of the 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.
Other mutual funds or institutional investors may invest in the Portfolio
on the same terms and conditions as the Fund. However, these other investors may
have different sales commissions and other operating expenses which may generate
different aggregate performance results. Information concerning other investors
in the Portfolio is available from Brown Brothers Harriman & Co. (See the back
cover for the address and phone number.)
The Corporation may withdraw the Fund's investment in the Portfolio as a
result of certain changes in the Portfolio's investment objective, policies or
restrictions or if the Board of Directors of the Corporation determines that it
is otherwise in the best interests of the Fund to do so. Upon any such
withdrawal, the Board of Directors of the Corporation would consider what action
might be taken, including the investment of all of the assets of the Fund in
another pooled investment entity or the retaining of an investment adviser to
manage the Fund's assets in accordance with the investment policies of the
Portfolio (See "Investment Objective and Policies" on page 5). In the event the
Directors of the Corporation were unable to accomplish either, the Directors
will determine the best course of action.
A confirmation of each purchase and redemption transaction is issued on
execution of that transaction.
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The Fund's performance may be used from time to time in shareholder
reports or other communications to shareholders or prospective investors.
Performance figures are based on historical earnings and are not intended to
indicate future performance. Performance information may include the Fund's
investment results and/or comparisons of its investment results to various
unmanaged indexes (such as the Standard & Poor's 600 Index and the Russell 2000
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.
This Prospectus omits certain of the information contained in the
Statement of Additional Information and the Registration Statement filed with
the Securities and Exchange Commission. The Statement of Additional Information
may be obtained from 59 Wall Street Distributors without charge and the
Registration Statement may be obtained from the Securities and Exchange
Commission upon payment of the fee prescribed by the Rules and Regulations of
the Commission.
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APPENDIX--HEDGING STRATEGIES
================================================================================
Options on Stock Indexes. A stock index fluctuates with changes in the
market values of the stocks included in the index. Examples of stock indexes are
the Standard & Poor's 500 Stock Index (Chicago Board of Options Exchange) and
the New York Stock Exchange Composite Index (New York Stock Exchange) and the
Russell 2000 Index (Chicago Board of Options Exchange).
Options on stock indexes are generally similar to options on stock except
that the delivery requirements are different. Instead of giving the right to
take or make delivery of stock at a fixed price (strike price), an option on a
stock index gives the holder the right to receive a cash exercise settlement
amount equal to (a) the amount, if any, by which the strike price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of exercise, multiplied by (b)
a fixed index multiplier. Receipt of this cash amount depends upon the closing
level of the stock index upon which the option is based being greater than, in
the case of a call, or less than, in the case of a put, the price of the option.
The amount of cash received will be equal to such difference between the closing
price of the index and the strike price of the option expressed in U.S. dollars
times a specified multiple.
The effectiveness of purchasing stock index options 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 stock
index selected. The value of an index option depends upon future movements in
the level of the overall stock market measured by the underlying index before
the expiration of the option. Accordingly, the successful use of options on
stock indexes is subject to the Investment Adviser's ability both to select an
appropriate index and to predict future price movements over the short term in
the overall stock market. Brokerage costs are incurred in the purchase of stock
index options and the incorrect choice of an index or an incorrect assessment of
future price movements may result in poorer overall performance than if a stock
index option had not been purchased.
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 Stock Indexes. 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 stock indexes ("Futures Contracts") may be entered into for the Portfolio.
In order to assure that the Portfolio is not deemed a "commodity pool" for
purposes of the Commodity Exchange Act, regulations of the Commodity Futures
Trading Commission ("CFTC") require that the Portfolio enter 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
Portfolio's assets.
Futures Contracts provide for the making and acceptance of a cash
settlement based upon changes in the value of an index of stocks and are used to
hedge against anticipated future changes in overall stock market prices which
otherwise might either adversely affect the value of securities held for the
Portfolio or adversely affect the prices of securities which are intended to be
purchased at a later date. A Futures Contract may also be entered into to close
out or offset an existing futures position.
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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 would rise in value by an amount which
approximately offsets the decline in value of the portion of the Portfolio's
investments 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 of which price movements in the portion of the
securities portfolio being hedged correlate with price movements of the stock
index selected. The value of a Futures Contract depends upon future movements in
the level of the overall stock market measured by the underlying index before
the closing out of the Futures Contract. Accordingly, the successful use of
Futures Contracts is subject to the Investment Adviser's ability both to select
an appropriate index and to predict future price movements over the short term
in the overall stock market. The incorrect choice of an index or an incorrect
assessment of the future price movements over the short term in the overall
stock market may result in a 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 Portfolio enters into a Futures Contract, it is initially
required to deposit, in a segregated account in the name of the broker
performing in the transaction, an "initial margin" of cash, U.S. Government
securities or other high grade liquid 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 Portfolio 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, Futures Contracts can be purchased on stock indexes such as the
Standard & Poor's 500 Stock Index (Chicago Board of Options Exchange), the
Russell 2000 Index (Chicago Board of Options Exchange) and the New York Stock
Exchange Composite Index (New York Stock Exchange).
Exchanges may 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.
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The 59 Wall Street Fund, Inc.
Investment Adviser and Administrator
of the Corporation
Brown Brothers Harriman & Co.
59 Wall Street
New York, New York 10005
Distributor
59 Wall Street Distributors, Inc.
6 St. James Avenue
Boston, Massachusetts 02116
Shareholder Servicing Agent
Brown Brothers Harriman & Co.
59 Wall Street
New York, New York 10005
(800) 625-5759
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus and the Statement of Additional Information, in connection with the
offer contained in this Prospectus, and if given or made, such other information
or representations must not be relied upon as having been authorized by the
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.
