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STATEMENT OF ADDITIONAL INFORMATION
THE 59 WALL STREET U.S. EQUITY FUND
6 ST. JAMES AVENUE, BOSTON, MASSACHUSETTS 02116
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The 59 Wall Street U.S. Equity Fund (the "U.S. Equity Fund" of the
"Fund") is a separate portfolio of The 59 Wall Street Fund, Inc. (the
"Corporation"), a management investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act"). The Fund is designed to enable
investors to be invested in a portfolio of equity securities of companies that
are well established and financially sound. The Fund's investment objective is
to provide investors with long-term capital growth while also generating current
income. There can be no assurance that the investment objective of the Fund will
be achieved.
Brown Brothers Harriman & Co. is the investment adviser (the
"Investment Adviser") to the Fund. This Statement of Additional Information is
not a prospectus and should be read in conjunction with the Prospectus dated
February 27, 1998, a copy of which may be obtained from the Corporation at the
address noted above.
TABLE OF CONTENTS
CROSS-REFERENCE
TO
PAGE PAGE IN
PROSPECTUS
Investment Objective and Policies . . . . . . . . . 2 5-8
Investment Restrictions . . . . . . . . . . . . . . 3 8
Directors and Officers . . . . . . . . . . . . . . . 5 10
Investment Adviser . . . . . . . . . . . . . . . . . 8 10
Administrator . . . . . . . . . . . . . . . . . . . 9 11
Distributor . . . . . . . . . . . . . . . . . . . . 9 13
Financial Intermediaries . . . . . . . . . . . . . . 9 12
Net Asset Value; Redemption in Kind . . . . . . . . 10 14
Computation of Performance . . . . . . . . . . . . . 11 16-17
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Federal Taxes . . . . . . . . . . . . . . . . . . . 12 14-15
Description of Shares . . . . . . . . . . . . . . . 13 15-16
Portfolio Transactions . . . . . . . . . . . . . . . 15 6-7
Additional Information . . . . . . . . . . . . . . . 17 16-17
Financial Statements . . . . . . . . . . . . . . . . 17 4
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS FEBRUARY
27, 1998.
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INVESTMENT OBJECTIVE AND POLICIES
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The following supplements the information contained in the Prospectus
concerning the investment objective, policies and techniques of the Fund.
EQUITY INVESTMENTS
Equity investments may or may not pay dividends and may or may not
carry voting rights. Common stock occupies the most junior position in a
company's capital structure. Convertible securities entitle the holder to
exchange the securities for a specified number of shares of common stock,
usually of the same company, at specified prices within a certain period of time
and to receive interest or dividends until the holder elects to convert. The
provisions of any convertible security determine its ranking in a company's
capital structure. In the case of subordinated convertible debentures, the
holder's claims on assets and earnings are subordinated to the claims of other
creditors, and are senior to the claims of preferred and common shareholders. In
the case of convertible preferred stock, the holder's claims on assets and
earnings are subordinated to the claims of all creditors and are senior to the
claims of common shareholders.
OPTIONS CONTRACTS
OPTIONS ON STOCK. For the sole purpose of reducing risk, put and call
options on stocks may be purchased 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. A call option on a stock gives the purchaser of the option the
right to buy the underlying stock 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 stock 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 for the Fund at any time prior to the expiration of the option which
involves selling the option previously purchased.
LOANS OF PORTFOLIO SECURITIES
Securities of the Fund may be loaned if such loans are secured
continuously by cash or equivalent collateral or by an irrevocable letter of
credit in favor of the Fund at least equal at all times to 100% of the market
value of the securities loaned plus accrued income. While such securities are on
loan, the borrower pays the Fund any income accruing thereon, and cash
collateral may be invested for the Fund, thereby earning additional income. All
or any portion of interest earned on invested collateral may be paid to the
borrower. Loans are subject to termination by the Corporation in the normal
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settlement time, currently three business days after notice, or by the borrower
on one day's notice. Borrowed securities are returned when the loan is
terminated. Any appreciation or depreciation in the market price of the borrowed
securities which occurs during the term of the loan inures to the Fund and its
shareholders. Reasonable finders' and custodial fees may be paid in connection
with a loan. In addition, all facts and circumstances, including the
creditworthiness of the borrowing financial institution, are considered before a
loan is made and no loan is made in excess of one year. There is the risk that a
borrowed security may not be returned to the Fund. Securities of the Fund are
not loaned to Brown Brothers Harriman & Co. or to any affiliate of the
Corporation or Brown Brothers Harriman & Co.
INVESTMENT RESTRICTIONS
===============================================================================
The Fund is operated under the following investment restrictions which
are deemed fundamental policies and may be changed only with the approval of the
holders of a "majority of the Fund's outstanding voting securities" (as defined
in the 1940 Act). (See "Additional Information".)
Except that the Corporation may invest all of the Fund's assets in an
open-end investment company with substantially the same investment objective,
policies and restrictions as the Fund, the Corporation, with respect to the
Fund, may not:
(1) borrow money or mortgage or hypothecate its assets, except that in
an amount not to exceed 1/3 of the current value of its net assets, it may
borrow money as a temporary measure for extraordinary or emergency purposes, and
except that it may pledge, mortgage or hypothecate not more than 1/3 of such
assets to secure such borrowings (it is intended that money will be borrowed
only from banks and only either to accommodate requests for the redemption of
Fund shares while effecting an orderly liquidation of portfolio securities or to
maintain liquidity in the event of an unanticipated failure to complete a
portfolio security transaction or other similar situations);
(2) purchase any security or evidence of interest therein on margin,
except that such short-term credit as may be necessary for the clearance of
purchases and sales of securities may be obtained and except that deposits of
initial deposit and variation margin may be made in connection with the
purchase, ownership, holding or sale of futures or the purchase, ownership,
holding, sale or writing of options;
(3) underwrite securities issued by other persons except insofar as it
may technically be deemed an underwriter under the Securities Act of 1933, as
amended, in selling a portfolio
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security;
(4) make loans to other persons except (a) through the lending of its
portfolio securities and provided that any such loans not exceed 30% of its net
assets (taken at market value), (b) through the use of repurchase agreements or
the purchase of short-term obligations and provided that not more than 10% of
its net assets is invested in repurchase agreements maturing in more than seven
days, or (c) by purchasing, subject to the limitation in paragraph (5) below, a
portion of an issue of debt securities of types commonly distributed privately
to financial institutions, for which purposes the purchase of short-term
commercial paper or a portion of an issue of debt securities which is part of an
issue to the public shall not be considered the making of a loan;
(5) knowingly invest in securities which are subject to legal or
contractual restrictions on resale (other than repurchase agreements maturing in
not more than seven days) if, as a result thereof, more than 10% of its net
assets (taken at market value) would be so invested (including repurchase
agreements maturing in more than seven days);
(6) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts
(except futures and option contracts) in the ordinary course of business (the
freedom of action to hold and to sell real estate acquired as a result of the
ownership of securities is reserved);
(7) make short sales of securities or maintain a short position, unless
at all times when a short position is open it owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless not more than 10% of its net
assets (taken at market value) is represented by such securities, or securities
convertible into or exchangeable for such securities, at any one time (it is the
present intention of management to make such sales only for the purpose of
deferring realization of gain or loss for federal income tax purposes; such
sales would not be made of securities subject to outstanding options);
(8) concentrate its investments in any particular industry, but if it
is deemed appropriate for the achievement of its investment objective, up to 25%
of its assets, at market value at the time of each investment, may be invested
in any one industry, except that positions in futures or option contracts shall
not be subject to this restriction;
(9) issue any senior security (as that term is defined in the 1940 Act)
if such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder,
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provided that collateral arrangements with respect to options and futures,
including deposits of initial deposit and variation margin, are not considered
to be the issuance of a senior security for purposes of this restriction;
(10) invest more than 5% of its total assets in the securities or
obligations of any one issuer (other than obligations issued by the U.S.
Government, its agencies or instrumentalities); provided, however, that up to
25% of its total assets may be invested without regard to this restriction; or
(11) purchase more than 10% of the outstanding voting
securities of any one issuer.
NON-FUNDAMENTAL RESTRICTIONS. The Fund may not as a matter of operating
policy (except that the Corporation may invest all of the Fund's assets in an
open-end investment company with substantially the same investment objective,
policies and restrictions as the Fund): (i) purchase securities of any
investment company if such purchase at the time thereof would cause more than
10% of its total assets (taken at the greater of cost or market value) to be
invested in the securities of such issuers or would cause more than 3% of the
outstanding voting securities of any such issuer to be held for it; or (ii)
invest more than 10% of its net assets (taken at the greater of cost or market
value) in restricted securities.
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These policies are not fundamental and may be changed without shareholder
approval in response to changes in the various state and federal requirements.
PERCENTAGE AND RATING RESTRICTIONS. If a percentage or rating
restriction on investment or utilization of assets set forth above or referred
to in the Prospectus is adhered to at the time an investment is made or assets
are so utilized, a later change in percentage resulting from changes in the
value of the portfolio securities or a later change in the rating of a portfolio
security is not considered a violation of policy.
DIRECTORS AND OFFICERS
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The Directors and executive officers of the Corporation, their
principal occupations during the past five years (although their titles may have
varied during the period) and business addresses are:
DIRECTORS OF THE CORPORATION
J.V. SHIELDS, JR.* -- Chairman of the Board and Director; Trustee of
The 59 Wall Street Trust; Managing Director, Chairman and Chief Executive
Officer of Shields & Company; Chairman and Chief Executive Officer of Capital
Management Associates, Inc.; Director of Flowers Industries, Inc.(1) His
business address is Shields & Company, 140 Broadway, New York, NY 10005.
EUGENE P. BEARD** -- Director; Trustee of The 59 Wall Street
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Trust (since April 1993); Vice Chairman - Finance and Operations of The
Interpublic Group of Companies. His business address is The Interpublic Group of
Companies, Inc., 1271 Avenue of the Americas, New York, NY 10020.
DAVID P. FELDMAN** -- Director; Trustee of The 59 Wall Street Trust;
Retired; Chairman and Chief Executive Officer - AT&T Investment Management
Corporation (prior to October 1997); Director of Dreyfus Mutual Funds, Equity
Fund of Latin America, New World Balanced Fund, India Magnum Fund, and U.S.
Prime Properties Inc.; Trustee of Corporate Property Investors. His business
address is 3 Tall Oaks Drive, Warren, NJ 07059.
ALAN G. LOWY** -- Director; Trustee of The 59 Wall Street Trust (since
April 1993); Secretary of the Los Angeles County Board of Investments (prior to
March 1995). His business address is 4111 Clear Valley Drive, Encino, CA 91436.
ARTHUR D. MILTENBERGER** -- Director; Trustee of The 59 Wall Street
Trust; Vice President and Chief Financial Officer of Richard K. Mellon and Sons;
Treasurer of Richard King Mellon Foundation; Director of Vought Aircraft
Corporation (prior to September 1994), Caterair International (prior to April
1994); Member of Advisory Committee of Carlyle Group and Pittsburgh Seed Fund
and Valuation Committee of Morgenthaler Venture Funds(2). His business address
is Richard K. Mellon and Sons, P.O. Box RKM, Ligonier, PA 15658.
OFFICERS OF THE CORPORATION
PHILIP W. COOLIDGE -- President; Chief Executive Officer and
President of Signature Financial Group, Inc. ("SFG"), 59 Wall
Street Distributors, Inc. ("59 Wall Street Distributors") and 59
Wall Street Administrators, Inc. ("59 Wall Street
Administrators") (since June 1993).
JAMES E. HOOLAHAN -- Vice President; Senior Vice President
of SFG.
JOHN R. ELDER -- Treasurer; Vice President of SFG (since
April 1995); Treasurer of Phoenix Family of Mutual Funds (prior
to April 1995).
LINDA T. GIBSON -- Secretary; Vice President and Assistant Secretary of
SFG (since June, 1991); Assistant Secretary of 59 Wall Street Distributors and
59 Wall Street Administrators (since June 1993).
MOLLY S. MUGLER -- Assistant Secretary; Vice President and
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Assistant Secretary of SFG; Assistant Secretary of 59 Wall Street Distributors
and 59 Wall Street Administrators (since June 1993).
CHRISTINE A. DRAPEAU - Assistant Secretary; Assistant Vice President of
SFG (since January 1996); Paralegal and Compliance Officer, various financial
companies (July 1992 to January 1996); Graduate Student, Bentley College (prior
to December 1994).
- -------------------------
* Mr. Shields is an "interested person" of the Corporation
because of his affiliation with a registered broker-dealer.
** These Directors are members of the Audit Committee of the
Corporation.
(1) Shields & Company, Capital Management Associates, Inc. and
Flowers Industries, Inc., with which Mr. Shields is
associated, are a registered broker-dealer and a member of
the New York Stock Exchange, a registered investment
adviser, and a diversified food company, respectively.
(2) Richard K. Mellon and Sons, Richard King Mellon Foundation, Vought
Aircraft Corporation, Caterair International, The Carlyle Group and
Morgenthaler Venture Funds, with which Mr. Miltenberger is or has been
associated, are a private foundation, a private foundation, a business
development firm, an aircraft manufacturer, an airline food services
company, a merchant bank, and a venture capital partnership,
respectively.
Each Director and officer listed above holds the equivalent position
with The 59 Wall Street Trust. The address of each officer is 6 St. James
Avenue, Boston, Massachusetts 02116. Messrs. Coolidge, Hoolahan, and Elder and
Mss. Gibson , Mugler and Drapeau also hold similar positions with other
investment companies for which affiliates of 59 Wall Street Distributors serve
as the principal underwriter.
(2) Richard K. Mellon and Sons, Richard King Mellon Foundation, Vought
Aircraft Corporation, Caterair International, The Carlyle Group and
Morgenthaler Venture Funds, with which Mr. Miltenberger is or has been
associated, are a private foundation, a private foundation, a business
development firm, an aircraft manufacturer, an airline food services
company, a merchant bank, and a venture capital partnership,
respectively.
Each Director and officer listed above holds the equivalent position
with The 59 Wall Street Trust. The address of each officer is 6 St. James
Avenue, Boston, Massachusetts 02116. Messrs. Coolidge, Hoolahan, and Elder and
Mss. Gibson , Mugler and Drapeau also hold similar positions with other
investment companies for which affiliates of 59 Wall Street Distributors serve
as the principal underwriter.
Except for Mr. Shields, no Director is an "interested person" of the
Corporation as that term is defined in the 1940 Act.
DIRECTORS OF THE CORPORATION
The Directors of the Corporation receive a base annual fee of $15,000
(except the Chairman who receives a base annual fee of $20,000) which is paid
jointly by all series of the Corporation and The 59 Wall Street Trust and
allocated among the series based upon their respective net assets. In addition,
each series which has commenced operations pays an annual fee to each Director
of $1,000.
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Pension or Total
Retirement Compensation
Aggregate Benefits Accrued Estimated Annual from the Corporation
Name of Person, Compensation as Part of Benefits upon and Fund Complex*
POSITION FROM THE CORPORATION FUND EXPENSES RETIREMENT PAID TO DIRECTORS
J.V. Shields, Jr., $10,822 none none $28,500
Trustee
Eugene P. Beard, $ 9,492 none none 23,500
Trustee
David P. Feldman, $ 9,492 none none 23,500
Trustee
Alan G. Lowy, $ 9,492 none none 23,500
Trustee
Arthur D. Miltenberger, $ 9,492 none none 23,500
Trustee
</TABLE>
* The Fund Complex consists of the Corporation and The 59 Wall Street Trust
which currently consists of three series.
By virtue of the responsibilities assumed by Brown Brothers Harriman &
Co. under the Investment Advisory Agreement and the Administration Agreement
(see "Investment Adviser" and "Administrator"), the Corporation does not require
employees other than its officers, and none of its officers devote full time to
the affairs of the Corporation, or, other than the Chairman, receive any
compensation from the Fund.
As of January 31, 1998, the Corporation's Directors and officers as a
group beneficially owned less than 1% of the outstanding shares of the
Corporation. At the close of business on that date, no person, to the knowledge
of management, owned beneficially more than 5% of the outstanding shares of the
Fund except that the Baird Family Trust Account owned 115,501 (8.8%) shares of
the Fund. The address of each of the above named is c/o Brown Brothers Harriman
& Co., 59 Wall Street, New York, New York 10005. As of that date, partners of
Brown Brothers Harriman & Co. and their immediate families owned an
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additional 50,610 (3.9%) shares of the Fund. Also, Brown Brothers Harriman & Co.
Employee Pension Plan on that date held 333,285 (5.5%) shares of the Fund. Brown
Brothers Harriman and its affiliates separately are able to direct the
disposition of an additional 505,205 (38.6%) shares of the Fund, as to which
shares Brown Brothers Harriman & Co. disclaims beneficial ownership.
INVESTMENT ADVISER
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Under an Investment Advisory Agreement with the Corporation, subject to
the general supervision of the Corporation's Directors and in conformance with
the stated policies of the Fund, Brown Brothers Harriman & Co. provides
investment advice and portfolio management services to the Fund. In this regard,
it is the responsibility of Brown Brothers Harriman & Co. to make the day-to-day
investment decisions for the Fund, to place the purchase and sale orders for
portfolio transactions of the Fund, and to manage, generally, the investments of
the Fund.
The Investment Advisory Agreement between Brown Brothers Harriman & Co.
and the Corporation is dated June 9, 1992, as amended and restated November 1,
1993 and remains in effect for two years from such date and thereafter, but only
as long as the agreement is specifically approved at least annually (i) by a
vote of the holders of a "majority of the Fund's outstanding voting securities"
(as defined in the 1940 Act) or by the Corporation's Directors, and (ii) by a
vote of a majority of the Directors of the Corporation who are not parties to
the Investment Advisory Agreement or "interested persons" (as defined in the
1940 Act) of the Corporation ("Independent Directors") cast in person at a
meeting called for the purpose of voting on such approval. The Investment
Advisory Agreement was most recently approved by the Independent Directors on
December 17, 1997. The Investment Advisory Agreement terminates automatically if
assigned and is terminable at any time without penalty by a vote of a majority
of the Directors of the Corporation or by a vote of the holders of a "majority
of the Fund's outstanding voting securities" (as defined in the 1940 Act) on 60
days' written notice to Brown Brothers Harriman & Co. and by Brown Brothers
Harriman & Co. on 90 days' written notice to the Corporation. (See "Additional
Information".)
The investment advisory fee paid to the Investment Adviser is
calculated daily and paid monthly at an annual rate equal to 0.65% of the Fund's
average daily net assets. For the fiscal years ended October 31, 1995, 1996 and
1997, the Fund incurred $167,339, $277,632 and $154,392, respectively, for
advisory services.
The Glass-Steagall Act prohibits certain financial
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institutions from engaging in the business of underwriting, selling or
distributing securities and from sponsoring, organizing or controlling a
registered open-end investment company continuously engaged in the issuance of
its shares, such as the Fund. There is presently no controlling precedent
prohibiting financial institutions such as Brown Brothers Harriman & Co. from
performing investment advisory, administrative or shareholder servicing/eligible
institution functions. If Brown Brothers Harriman & Co. were to terminate its
Investment Advisory Agreement with the Corporation or were prohibited from
acting in such capacity, it is expected that the Directors would recommend the
shareholders that they approve a new investment advisory agreement for the Fund
with another qualified adviser. If Brown Brothers Harriman & Co. were to
terminate its Eligible Institution Agreement or Administration Agreement with
the Corporation or were prohibited from acting in any such capacity, its
customers would be permitted to remain shareholders of the Corporation and
alternative means for providing shareholder services or administrative services,
as the case may be, would be sought. In such event, although the operation of
the Corporation might change, it is not expected that any shareholders would
suffer any adverse financial consequences. However, an alternative means of
providing shareholder services might afford less convenience to shareholders.
ADMINISTRATOR
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The Administration Agreement between the Corporation and Brown Brothers
Harriman & Co. (dated November 1, 1993) will remain in effect for two years from
such date and thereafter, but only so long as such agreement is specifically
approved at least annually in the same manner as the Investment Advisory
Agreement (see "Investment Adviser"). The Independent Directors most recently
approved the Corporation's Administration Agreement on December 17, 1997. The
agreement will terminate automatically if assigned by either party thereto and
is terminable at any time without penalty by a vote of a majority of the
Directors of the Corporation, or by a vote of the holders of a "majority of the
Corporation's outstanding voting securities" (as defined in the 1940 Act). (See
"Additional Information"). The Administration Agreement is terminable by the
Directors of the Corporation or shareholders of the Corporation on 60 days'
written notice to Brown Brothers Harriman & Co. and by Brown Brothers Harriman &
Co. on 90 days' written notice to the Corporation. The administrative fee
payable to Brown Brothers Harriman & Co. from the Fund is calculated daily and
payable monthly at an annual rate equal to 0.15% of the Fund's average daily net
assets. For the fiscal years ended October 31, 1995 , 1996 and 1997, the Fund
incurred $38,617 , $64,069 and $91,737, respectively, for administrative
services.
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DISTRIBUTOR
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The Distribution Agreement (dated September 5, 1990, as amended and
restated February 12, 1991) between the Corporation and 59 Wall Street
Distributors remains in effect indefinitely, but only so long as such agreement
is specifically approved at least annually in the same manner as the Investment
Advisory Agreement. (See "Investment Adviser".) The Distribution Agreement was
most recently approved by the Independent Directors of the Corporation on
February 24, 1998. The agreement terminates automatically if assigned by either
party thereto and is terminable with respect to the Fund at any time without
penalty by a vote of a majority of the Directors of the Corporation or by a vote
of the holders of a "majority of the Fund's outstanding voting securities" (as
defined in the 1940 Act). (See "Additional Information".) The Distribution
Agreement is terminable with respect to the Fund by the Corporation's Directors
or shareholders of the Fund on 60 days' written notice to 59 Wall Street
Distributors. The agreement is terminable by 59 Wall Street Distributors on 90
days' written notice to the Corporation.
FINANCIAL INTERMEDIARIES
===============================================================================
One or more brokers which serve as Financial Intermediaries have been
authorized by the Corporation to accept purchase and redemption orders for Fund
shares on its behalf and are authorized to designate other intermediaries to
accept purchase and redemption orders for Fund shares on the Corporation's
behalf. The Corporation will be deemed to have received a purchase or redemption
order for Fund shares when an authorized broker or, if applicable, such broker's
authorized designee, accepts the order and such an order will be executed at the
net asset value per share next determined after such acceptance.
NET ASSET VALUE; REDEMPTION IN KIND
===============================================================================
The net asset value of each of the Fund's shares is determined each day
the New York Stock Exchange is open for regular trading. (As of the date of this
Statement of Additional Information, such Exchange is open every weekday except
for the following holidays: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas.) This determination of net asset value of each
share of the Fund is made once during each such day as of the close of regular
trading on such Exchange by subtracting from the value of the Fund's total
assets the amount of its liabilities, and dividing the difference by the number
of shares of the Fund outstanding at the time the determination is made.
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The value of investments listed on a securities exchange is based on
the last sale prices as of the close of regular trading of the New York Stock
Exchange (which is currently 4:00 P.M., New York time) or, in the absence of
recorded sales, at the average of readily available closing bid and asked prices
on such Exchange. Unlisted securities are valued at the average of the quoted
bid and asked prices in the over-the-counter market. The value of each security
for which readily available market quotations exist is based on a decision as to
the broadest and most representative market for such security.
Bonds and other fixed income securities (other than short-term
obligations but including listed issues) are valued on the basis of valuations
furnished by a pricing service, use of which has been approved by the Board of
Directors. In making such valuations, the pricing service utilizes both
dealer-supplied valuations and electronic data processing techniques which take
into account appropriate factors such as institutional-size trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics and other market data, without exclusive reliance upon
quoted prices or exchange or over-the-counter prices, since such valuations are
believed to reflect more accurately the fair value of such securities.
Securities or other assets for which market quotations are not readily
available are valued at fair value in accordance with procedures established by
and under the general supervision and responsibility of the Corporation's
Directors. Short-term investments which mature in 60 days or less are valued at
amortized cost if their original maturity was 60 days or less, or by amortizing
their value on the 61st day prior to maturity, if their original maturity when
acquired for the Fund was more than 60 days, unless this is determined not to
represent fair value by the Directors.
Subject to the Corporation's compliance with applicable regulations,
the Corporation has reserved the right to pay the redemption price of shares of
the Fund, either totally or partially, by a distribution in kind of portfolio
securities (instead of cash). The securities so distributed would be valued at
the same amount as that assigned to them in calculating the net asset value for
the shares being sold. If a shareholder received a distribution in kind, the
shareholder could incur brokerage or other charges in converting the securities
to cash. The Corporation has elected, however, to be governed by Rule 18f-1
under the 1940 Act, as a result of which the Corporation is obligated with
respect to any one investor during any 90 day period to redeem shares of the
Fund solely in cash up to the lesser of $250,000 or 1% of the Fund's net assets
at the beginning of such 90 day period.
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COMPUTATION OF PERFORMANCE
===============================================================================
The average annual total rate of return of the Fund is calculated for
any period by (a) dividing (i) the sum of the aggregate net asset value per
share on the last day of the period of shares purchased with a $1,000 payment on
the first day of the period and the aggregate net asset value per share on the
last day of the period of shares purchasable with dividends and capital gains
distributions declared during such period with respect to shares purchased on
the first day of such period and with respect to shares purchased with such
dividends and capital gains distributions, by (ii) $1,000, (b) raising the
quotient to a power equal to 1 divided by the number of years in the period, and
(c) subtracting 1 from the result.
The total rate of return of the Fund for any specified period is
calculated by (a) dividing (i) the sum of the aggregate net asset value per
share on the last day of the period of shares purchased with a $1,000 payment on
the first day of the period and the aggregate net asset value per share on the
last day of the period of shares purchasable with dividends and capital gains
distributions declared during such period with respect to shares purchased on
the first day of such period and with respect to shares purchased with such
dividends and capital gains distributions, by (ii) $1,000, and (b) subtracting 1
from the result.
The average annual total rate of return for the Fund for the period
July 23, 1992 (commencement of operations) to October 31, 1997 was 17.89%. The
average annual total rate of return for the Fund for the fiscal year ended
October 31, 1997 was 30.29%. The average annual total rate of return for the
Fund for the five-year period ended October 31, 1997 was 18.17%.
Performance calculations should not be considered a representation of
the average annual or total rate of return of the Fund in the future since the
rates of return are not fixed. Actual total rates of return and average annual
rates of return depend on changes in the market value of, and dividends and
interest received from, the investments held by the Fund and the Fund's expenses
during the period.
Total and average annual rate of return information may be useful for
reviewing the performance of the Fund and for providing a basis for comparison
with other investment alternatives. However, unlike bank deposits or other
investments which pay a fixed yield for a stated period of time, the Fund's
total rate of return fluctuates, and this should be considered when reviewing
performance or making comparisons.
FEDERAL TAXES
===============================================================================
14
<PAGE>
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 Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). Under Subchapter M of the Code the Fund is not subject to federal
income taxes on amounts distributed to shareholders.
Qualification as a regulated investment company under the Code
requires, among other things, that (a) at least 90% of the Fund's annual gross
income, without offset for losses from the sale or other disposition of
securities, be derived from interest, payments with respect to securities loans,
dividends and gains from the sale or other disposition of securities or other
income derived with respect to its business of investing in such securities; (b)
less than 30% of the Fund's annual gross income be derived from gains (without
offset for losses) from the sale or other disposition of securities held for
less than three months; and (c) the holdings of the Fund be diversified so that,
at the end of each quarter of its fiscal year, (i) at least 50% of the market
value of the Fund's assets be represented by cash, U.S. Government securities
and other securities limited in respect of any one issuer to an amount not
greater than 5% of the Fund's assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of the Fund's
assets be invested in the securities of any one issuer (other than U.S.
Government securities). In addition, in order not to be subject to federal
income tax, at least 90% of the Fund's net investment income and net short-term
capital gains earned in each year must be distributed to the Fund's
shareholders.
Gains or losses on sales of securities for the Fund are treated as
long-term capital gains or losses if the securities have been held by it for
more than one year except in certain cases where a put has been acquired or a
call has been written thereon for the Fund. Other gains or losses on the sale of
securities are treated as short-term capital gains or losses. Gains and losses
on the sale, lapse or other termination of options on securities are generally
treated as gains and losses from the sale of securities. If an option written
for the Fund lapses or is terminated through a closing transaction, such as a
repurchase for the Fund of the option from its holder, the Fund may realize a
short-term capital gain or loss, depending on whether the premium income is
greater or less than the amount paid in the closing transaction. If securities
are sold for the Fund pursuant to the exercise of a call option written for it,
the premium received is added to the sale price of the securities delivered in
determining the amount of gain or loss on the sale. The requirement that less
than 30% of the Fund's gross income be derived from gains from the sale of
securities held for less than three months may limit the ability to write
options and engage in transactions involving stock index futures.
15
<PAGE>
Certain options contracts held for the Fund at the end of each fiscal
year are required to be "marked to market" for federal income tax purposes; that
is, treated as having been sold at market value. Sixty percent of any gain or
loss recognized on these deemed sales and on actual dispositions are treated as
long-term capital gain or loss, and the remainder are treated as short-term
capital gain or loss regardless of how long such options were held. The Fund may
be required to defer the recognition of losses on stock or securities to the
extent of any unrecognized gain on offsetting positions held for it.
RETURN OF CAPITAL. If the net asset value of shares is reduced below a
shareholder's cost as a result of a dividend or capital gains distribution by
the Fund, such dividend or capital gains distribution would be taxable even
though it represents a return of invested capital.
REDEMPTION OF SHARES. Any gain or loss realized on the redemption of
Fund shares by a shareholder who is not a dealer in securities would be treated
as long-term capital gain or loss if the shares have been held for more than one
year, and otherwise as short-term capital gain or loss. However, any loss
realized by a shareholder upon the redemption of Fund shares held one year or
less is treated as a long-term capital loss to the extent of any long-term
capital gains distributions received by the shareholder with respect to such
shares. Additionally, any loss realized on a redemption or exchange of Fund
shares is disallowed to the extent the shares disposed of are replaced within a
period of 61 days beginning 30 days before such disposition, such as pursuant to
reinvestment of a dividend or capital gains distribution in Fund shares.
OTHER TAXES. The Fund may be subject to state or local taxes in
jurisdictions in which it is deemed to be doing business. In addition, the
treatment of the Fund and its shareholders in those states which have income tax
laws might differ from treatment under the federal income tax laws. Shareholders
should consult their own tax advisors with respect to any state or local taxes.
DESCRIPTION OF SHARES
===============================================================================
The Corporation is an open-end management investment company organized
as a Maryland corporation on July 16, 1990. The Articles of Incorporation
currently permit the Corporation to issue 2,500,000,000 shares of common stock,
par value $0.001 per share, of which 25,000,000 shares have been classified as
shares of The 59 Wall Street U.S. Equity Fund. The Corporation currently
consists of eight portfolios.
Shareholders are entitled to one vote for each share held on
matters on which they are entitled to vote. Shareholders in the
16
<PAGE>
Corporation do not have cumulative voting rights, and shareholders owning more
than 50% of the outstanding shares of the Corporation may elect all of the
Directors of the Corporation if they choose to do so and in such event the other
shareholders in the Corporation would not be able to elect any Director. The
Corporation is not required and has no current intention to hold meetings of
shareholders annually but the Corporation will hold special meetings of
shareholders when in the judgment of the Corporation's Directors it is necessary
or desirable to submit matters for a shareholder vote. Shareholders have under
certain circumstances (E.G., upon application and submission of certain
specified documents to the 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.
Shares have no preference, pre-emptive, conversion or similar rights. Shares,
when issued, are fully paid and non-assessable.
Stock certificates are not issued by the Corporation.
The Articles of Incorporation of the Corporation contain a provision
permitted under Maryland Corporation Law which under certain circumstances
eliminates the personal liability of the Corporation's Directors to the
Corporation or its shareholders.
The Articles of Incorporation and the By-Laws of the Corporation
provide that the Corporation indemnify the Directors and officers of the
Corporation to the full extent permitted by the Maryland Corporation Law, which
permits indemnification of such persons against liabilities and expenses
incurred in connection with litigation in which they may be involved because of
their offices with the Corporation. However, nothing in the Articles of
Incorporation or the By-Laws of the Corporation protects or indemnifies a
Director or officer of the Corporation against any liability to the Corporation
or its shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
The Corporation may, in the future, seek to achieve the Fund's
investment objective by investing all of the Fund's investable assets in a
no-load, diversified, open-end management investment company having
substantially the same investment objective as those applicable to the Fund. In
such event, the Fund would no longer directly require investment advisory
services and therefore would pay no investment advisory fees. Further, the
administrative services fee paid from the Fund would be reduced. At a
shareholder's meeting held on September 23, 1993, the Fund's shareholders
approved changes to the investment restrictions of the Fund to authorize such an
investment. Such an investment would be made only if the
17
<PAGE>
Directors believe that the aggregate per share expenses of the Fund and such
other investment company would be less than or approximately equal to the
expenses which the Fund would incur if the Corporation were to continue to
retain the services of an investment adviser for the Fund and the assets of the
Fund were to continue to be invested directly in portfolio securities.
It is expected that the investment of the Fund in another investment
company will have no preference, preemptive, conversion or similar rights, and
will be fully paid and non-assessable. It is expected that the investment
company will not be required to hold annual meetings of investors, but will hold
special meetings of investors when, in the judgment of its trustees, it is
necessary or desirable to submit matters for an investor vote. It is expected
that each investor will be entitled to a vote in proportion to the share of its
investment in such investment company. Except as described below, whenever the
Corporation is requested to vote on matters pertaining to the investment
company, the Corporation would hold a meeting of the Fund's shareholders and
would cast its votes on each matter at a meeting of investors in the investment
company proportionately as instructed by the Fund's shareholders.
PORTFOLIO TRANSACTIONS
===============================================================================
In effecting securities transactions for the Fund, the Investment
Adviser seeks to obtain the best price and execution of orders. In selecting a
broker, the Investment Adviser considers a broker's ability to execute orders
without disturbing the market price, a broker's reliability for prompt, accurate
confirmations and on-time delivery of securities, and the quality and
reliability of brokerage services, including execution capability and
performance and financial responsibility, and may consider the research and
other investment information provided by such brokers. Accordingly, the
commissions charged by a 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 that broker.
For the fiscal years ended October 31, 1995, 1996 and 1997, the
aggregate commissions paid by the Fund were $66,007, $91,075, and $53,347
respectively.
Portfolio securities are not purchased from or sold to the
Administrator, Distributor or Investment Adviser or any "affiliated person" (as
defined in the 1940 Act) of the Administrator, Distributor or Investment Adviser
when such entities are acting as principals, except to the extent permitted by
law. The Corporation uses Brown Brothers Harriman & Co. as one of the Fund's
principal brokers where, in the judgment of the
18
<PAGE>
Investment Adviser, such firm is able to obtain a price and execution at least
as favorable as prices and executions provided by other qualified brokers. As
one of the Fund's principal brokers, Brown Brothers Harriman & Co. receives
brokerage commissions from the Fund.
The use of Brown Brothers Harriman & Co. as a broker for the Fund is
subject to the provisions of Rule 11a2-2(T) under the Securities Exchange Act of
1934 which permits the Corporation to use Brown Brothers Harriman & Co. as a
broker provided that certain conditions are met.
In addition, under the 1940 Act, commissions paid by the Fund to Brown
Brothers Harriman & Co. in connection with a purchase or sale of securities
offered on a securities exchange may not exceed the usual and customary broker's
commission.
A committee of non-interested Directors from time to time reviews,
among other things, information relating to the commissions charged by Brown
Brothers Harriman & Co. to the Fund and to its other customers and information
concerning the prevailing level of commissions charged by other qualified
brokers. In addition, the procedures pursuant to which Brown Brothers Harriman &
Co. effects brokerage transactions for the Fund are reviewed and approved no
less often than annually by a majority of the non-interested Directors.
For the fiscal years ended October 31, 1995, 1996 and 1997, total
transactions with a principal value of $38,139,053, $43,947,413 and $33,214,259,
were effected for the Fund of which transactions with a principal value of
$16,283,300, $20,646,719 and $13,199,626, were effected by Brown Brothers
Harriman & Co. which involved payments of commissions to Brown Brothers Harriman
& Co. of $35,145, $50,078, and $21,916, respectively.
A portion of the transactions for the Fund are executed through
qualified brokers other than Brown Brothers Harriman & Co. In selecting such
brokers, the Investment Adviser may consider the research and other investment
information provided by such brokers. Research services provided by brokers to
which Brown Brothers Harriman & Co. has allocated brokerage business in the past
include economic statistics and forecasting services, industry and company
analyses, portfolio strategy services, quantitative data, and consulting
services from economists and political analysts. Research services furnished by
brokers are used for the benefit of all the Investment Adviser's clients and not
solely or necessarily for the benefit of the Fund. The Investment Adviser
believes that the value of research services received is not determinable nor
does such research significantly reduce its expenses. The Corporation does not
reduce the fee paid by the Fund to the Investment Adviser by any amount that
might be attributable to the value of such services.
19
<PAGE>
A committee, comprised of officers and partners of Brown Brothers
Harriman & Co. who are portfolio managers of some of Brown Brothers Harriman &
Co.'s managed accounts (the "Managed Accounts"), evaluates semi-annually the
nature and quality of the brokerage and research services provided by brokers,
and, based on this evaluation, establishes a list and projected ranking of
preferred brokers for use in determining the relative amounts of commissions to
be allocated to such brokers. However, in any semi-annual period, brokers not on
the list may be used, and the relative amounts of brokerage commissions paid to
the brokers on the list may vary substantially from the projected rankings.
The Directors of the Corporation review regularly the reasonableness of
commissions and other transaction costs incurred for the Fund in light of facts
and circumstances deemed relevant from time to time and, in that connection,
receive reports from the Investment Adviser and published data concerning
transaction costs incurred by institutional investors generally.
MISCELLANEOUS
Over-the-counter purchases and sales are transacted directly with
principal market makers, except in those circumstances in which, in the judgment
of the Investment Adviser, better prices and execution of orders can otherwise
be obtained. If the Corporation effects a closing transaction with respect to a
futures or option contract, such transaction normally would be executed by the
same broker-dealer who executed the opening transaction. The writing of options
by the Corporation may be subject to limitations established by each of the
exchanges governing the maximum number of options in each class which may be
written by a single investor or group of investors acting in concert, regardless
of whether the options are written on the same or different exchanges or are
held or written in one or more accounts or through one or more brokers. The
number of options which the Corporation may write may be affected by options
written by the Investment Adviser for other investment advisory clients. An
exchange may order the liquidation of positions found to be in excess of these
limits, and it may impose certain other sanctions.
ADDITIONAL INFORMATION
===============================================================================
As used in this Statement of Additional Information and the Prospectus,
the term "majority of the Fund's outstanding voting securities" (as defined in
the 1940 Act) currently means the vote of (i) 67% or more of the Fund's shares
present at a meeting, if the holders of more than 50% of the Fund's outstanding
voting securities 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
20
<PAGE>
unaudited financial statements and annual reports containing financial
statements audited by independent auditors.
A shareholder's right to receive payment with respect to any redemption
may be suspended or the payment of the redemption proceeds postponed: (i) during
periods when the New York Stock Exchange is closed for other than weekends and
holidays or when regular trading on such Exchange is restricted as determined by
the Securities and Exchange Commission by rule or regulation, (ii) during
periods in which an emergency exists which causes disposal of, or evaluation of
the net asset value of, the Fund's portfolio securities to be unreasonable or
impracticable, or (iii) for such other periods as the Securities and Exchange
Commission may permit.
With respect to the securities offered by the Prospectus, this
Statement of Additional Information and the Prospectus do not contain all the
information included in the Registration Statement filed with the Securities and
Exchange Commission under the Securities Act of 1933. Pursuant to the rules and
regulations of the Securities and Exchange Commission, certain portions have
been omitted. The Registration Statement including the exhibits filed therewith
may be examined at the office of the Securities and Exchange Commission in
Washington, D.C.
Statements contained in this Statement of Additional Information and
the Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement.
Each such statement is qualified in all respects by such reference.
FINANCIAL STATEMENTS
===============================================================================
The Annual Report of the Fund dated October 31, 1997 has been filed
with the Securities and Exchange Commission pursuant to Section 30(b) of the
1940 Act and Rule 30b2-1 thereunder and is hereby incorporated herein by
reference. A copy of the Annual Report will be provided, without charge, to each
person receiving this Statement of Additional Information.
WS5462A
21
<PAGE>
===============================================================================
STATEMENT OF ADDITIONAL INFORMATION
THE 59 WALL STREET INFLATION-INDEXED SECURITIES FUND
6 ST. JAMES AVENUE, BOSTON, MASSACHUSETTS 02116
===============================================================================
The 59 Wall Street Inflation-Indexed Securities Fund (the
"Inflation-Indexed Securities Fund" or the "Fund") is a separate portfolio of
The 59 Wall Street Fund, Inc. (the "Corporation"), a management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"). The Inflation-Indexed Securities Fund is designed to enable
investors to be invested in a portfolio of securities that are structured to
provide protection against inflation. The Inflation-Indexed Securities 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. There can be no assurance that the investment objective of the Fund
will be achieved.
Brown Brothers Harriman & Co. is the investment adviser (the
"Investment Adviser") to the Fund. This Statement of Additional Information is
not a prospectus and should be read in conjunction with the Prospectus dated
February 27, 1998, a copy of which may be obtained from the Corporation at the
address noted above.
TABLE OF CONTENTS
CROSS-REFERENCE
TO
PAGE PAGE IN
PROSPECTUS
Investment Objective and Policies . . . . . . . . . 2 5-9
Investment Restrictions . . . . . . . . . . . . . . 2 9
Directors and Officers . . . . . . . . . . . . . . . 5 11
Investment Adviser . . . . . . . . . . . . . . . . . 8 11-12
Administrator . . . . . . . . . . . . . . . . . . . 9 12-13
Distributor . . . . . . . . . . . . . . . . . . . . 9 15
Financial Intermediaries . . . . . . . . . . . . . . 10 13
Net Asset Value; Redemption in Kind . . . . . . . . 10 15
<PAGE>
Computation of Performance . . . . . . . . . . . . . 11 18
Federal Taxes . . . . . . . . . . . . . . . . . . . 12 16-17
Description of Shares . . . . . . . . . . . . . . . 14 17
Portfolio Transactions . . . . . . . . . . . . . . . 15 7-8
Note Ratings . . . . . . . . . . . . . . . . . . . . 15 19-20
Additional Information . . . . . . . . . . . . . . . 16 18
Financial Statements . . . . . . . . . . . . . . . . 17 4
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS FEBRUARY
27, 1998.
3
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
===============================================================================
The following supplements the information contained in the Prospectus
concerning the investment objective, policies and techniques of the Fund.
EQUITY INVESTMENTS
Equity investments may or may not pay dividends and may or may not
carry voting rights. Common stock occupies the most junior position in a
company's capital structure. Convertible securities entitle the holder to
exchange the securities for a specified number of shares of common stock,
usually of the same company, at specified prices within a certain period of time
and to receive interest or dividends until the holder elects to convert. The
provisions of any convertible security determine its ranking in a company's
capital structure. In the case of subordinated convertible debentures, the
holder's claims on assets and earnings are subordinated to the claims of other
creditors, and are senior to the claims of preferred and common shareholders. In
the case of convertible preferred stock, the holder's claims on assets and
earnings are subordinated to the claims of all creditors and are senior to the
claims of common shareholders.
LOANS OF PORTFOLIO SECURITIES
Securities of the Fund may be loaned if such loans are secured
continuously by cash or equivalent collateral or by an irrevocable letter of
credit in favor of the Fund at least equal at all times to 100% of the market
value of the securities loaned plus accrued income. While such securities are on
loan, the borrower pays the Fund any income accruing thereon, and cash
collateral may be invested for the Fund, thereby earning additional income. All
or any portion of interest earned on invested collateral may be paid to the
borrower. Loans are subject to termination by the Corporation in the normal
settlement time, currently three business days after notice, or by the borrower
on one day's notice. Borrowed securities are returned when the loan is
terminated. Any appreciation or depreciation in the market price of the borrowed
securities which occurs during the term of the loan inures to the Fund and its
shareholders. Reasonable finders' and custodial fees may be paid in connection
with a loan. In addition, all facts and circumstances, including the
creditworthiness of the borrowing financial institution, are considered before a
loan is made and no loan is made in excess of one year. There is the risk that a
borrowed security may not be returned to the Fund. Securities of the Fund are
not loaned to Brown Brothers Harriman & Co. or to any affiliate of the
Corporation or Brown Brothers Harriman & Co.
2
<PAGE>
INVESTMENT RESTRICTIONS
===============================================================================
The Fund is operated under the following investment restrictions which
are deemed fundamental policies and may be changed only with the approval of the
holders of a "majority of the Fund's outstanding voting securities" (as defined
in the 1940 Act). (See "Additional Information".)
Except that the Corporation may invest all of the Fund's assets in an
open-end investment company with substantially the same investment objective,
policies and restrictions as the Fund, the Corporation, with respect to the
Fund, may not:
(1) borrow money or mortgage or hypothecate its assets, except that in
an amount not to exceed 1/3 of the current value of its net assets, it may
borrow money as a temporary measure for extraordinary or emergency purposes, and
except that it may pledge, mortgage or hypothecate not more than 1/3 of such
assets to secure such borrowings (it is intended that money will be borrowed
only from banks and only either to accommodate requests for the redemption of
Fund shares while effecting an orderly liquidation of portfolio securities or to
maintain liquidity in the event of an unanticipated failure to complete a
portfolio security transaction or other similar situations) or, reverse
repurchase agreements, provided that collateral arrangements with respect to
options and futures, including deposits of initial deposit and variation margin,
are not considered a pledge of assets for purposes of this restriction and
except that assets may be pledged to secure letters of credit solely for the
purpose of participating in a captive insurance company sponsored by the
Investment Company Institute;
(2) purchase any security or evidence of interest therein on margin,
except that such short-term credit as may be necessary for the clearance of
purchases and sales of securities may be obtained and except that deposits of
initial deposit and variation margin may be made in connection with the
purchase, ownership, holding or sale of futures or the purchase, ownership,
holding, sale or writing of options;
(3) underwrite securities issued by other persons except insofar as it
may technically be deemed an underwriter under the Securities Act of 1933, as
amended in selling a portfolio security;
(4) make loans to other persons except (a) through the lending of its
portfolio securities and provided that any such loans not exceed 30% of its net
assets (taken at market value), (b) through the use of repurchase agreements or
the purchase of short-term obligations and provided that not more than 10% of
its
3
<PAGE>
net assets is invested in repurchase agreements maturing in more than seven
days, or (c) by purchasing, subject to the limitation in paragraph (5) below, a
portion of an issue of debt securities of types commonly distributed privately
to financial institutions, for which purposes the purchase of short-term
commercial paper or a portion of an issue of debt securities which is part of an
issue to the public shall not be considered the making of a loan;
(5) knowingly invest in securities which are subject to legal or
contractual restrictions on resale (other than repurchase agreements maturing in
not more than seven days) if, as a result thereof, more than 10% of its net
assets (taken at market value) would be so invested (including repurchase
agreements maturing in more than seven days);
(6) enter into reverse repurchase agreements which, including any
borrowings described in paragraph (1), exceed, in the aggregate, one-third of
the market value of the Fund's total assets, less liabilities other than
obligations created by reverse repurchase agreements. In the event that such
agreements exceed, in the aggregate, one-third of such market value, it will,
within three days thereafter (not including weekends and holidays) or such
longer period as the Securities and Exchange Commission may prescribe, reduce
the amount of the obligations created by reverse repurchase agreements to an
extent that such obligations will not exceed, in the aggregate, one-third of the
market value of its assets;
(7) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts
(except futures and option contracts) in the ordinary course of business (the
freedom of action to hold and to sell real estate acquired as a result of the
ownership of securities is reserved);
(8) make short sales of securities or maintain a short position, unless
at all times when a short position is open it owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless not more than 10% of its net
assets (taken at market value) is represented by such securities, or securities
convertible into or exchangeable for such securities, at any one time (it is the
present intention of management to make such sales only for the purpose of
deferring realization of gain or loss for federal income tax purposes; such
sales would not be made of securities subject to outstanding options);
(9) concentrate its investments in any particular industry,
but if it is deemed appropriate for the achievement of its
investment objective, up to 25% of its assets, at market value at
4
<PAGE>
the time of each investment, may be invested in any one industry, except that
positions in futures or option contracts shall not be subject to this
restriction;
(10) issue any senior security (as that term is defined in the 1940
Act) if such issuance is specifically prohibited by the 1940 Act or the rules
and regulations promulgated thereunder, provided that collateral arrangements
with respect to options and futures, including deposits of initial deposit and
variation margin, are not considered to be the issuance of a senior security for
purposes of this restriction;
(11) invest more than 5% of its total assets in the securities or
obligations of any one issuer (other than obligations issued by the U.S.
Government, its agencies or instrumentalities); provided, however, that up to
25% of its total assets may be invested without regard to this restriction;
(12) 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).
NON-FUNDAMENTAL RESTRICTIONS. The Fund may not as a matter of operating
policy (except that the Corporation may invest all of the Fund's assets in an
open-end investment company with substantially the same investment objective,
policies and restrictions as the Fund): (i) purchase securities of any
investment company if such purchase at the time thereof would cause more than
10% of its total assets (taken at the greater of cost or market value) to be
invested in the securities of such issuers or would cause more than 3% of the
outstanding voting securities of any such issuer to be held for it; or (ii)
invest more than 10% of its net assets (taken at
5
<PAGE>
the greater of cost or market value) in restricted securities. These policies
are not fundamental and may be changed without shareholder approval.
PERCENTAGE AND RATING RESTRICTIONS. If a percentage or rating
restriction on investment or utilization of assets set forth above or referred
to in the Prospectus is adhered to at the time an investment is made or assets
are so utilized, a later change in percentage resulting from changes in the
value of the portfolio securities or a later change in the rating of a portfolio
security is not considered a violation of policy.
DIRECTORS AND OFFICERS
===============================================================================
The Directors and executive officers of the Corporation, their principal
occupations during the past five years (although their titles may have varied
during the period) and business addresses are:
DIRECTORS OF THE CORPORATION
J.V. SHIELDS, JR.* -- Chairman of the Board and Director; Trustee of
The 59 Wall Street Trust; Managing Director, Chairman
6
<PAGE>
and Chief Executive Officer of Shields & Company; Chairman and Chief Executive
Officer of Capital Management Associates, Inc.; Director of Flowers Industries,
Inc.(1) His business address is Shields & Company, 140 Broadway, New York, NY
10005.
EUGENE P. BEARD** -- Director; Trustee of The 59 Wall Street Trust
(since April 1993); Vice Chairman - Finance and Operations of The Interpublic
Group of Companies. His business address is The Interpublic Group of Companies,
Inc., 1271 Avenue of the Americas, New York, NY 10020.
DAVID P. FELDMAN** -- Director; Trustee of The 59 Wall Street Trust;
Retired; Chairman and Chief Executive Officer - AT&T Investment Management
Corporation (prior to October 1997); Director of Dreyfus Mutual Funds, Equity
Fund of Latin America, New World Balanced Fund, India Magnum Fund, and U.S.
Prime Properties Inc.; Trustee of Corporate Property Investors. His business
address is 3 Tall Oaks Drive, Warren, NJ 07059.
ALAN G. LOWY** -- Director; Trustee of The 59 Wall Street Trust (since
April 1993); Secretary of the Los Angeles County Board of Investments (prior to
March 1995). His business address is 4111 Clear Valley Drive, Encino, CA 91436.
ARTHUR D. MILTENBERGER** -- Director; Trustee of The 59 Wall Street
Trust; Vice President and Chief Financial Officer of Richard K. Mellon and Sons;
Treasurer of Richard King Mellon Foundation; Director of Vought Aircraft
Corporation (prior to September 1994), Caterair International (prior to April
1994); Member of Advisory Committee of Carlyle Group and Pittsburgh Seed Fund
and Valuation Committee of Morgenthaler Venture Funds(2). His business address
is Richard K. Mellon and Sons, P.O. Box RKM, Ligonier, PA 15658.
OFFICERS OF THE CORPORATION
PHILIP W. COOLIDGE -- President; Chief Executive Officer and President
of Signature Financial Group, Inc. ("SFG"), 59 Wall Street Distributors, Inc.
("59 Wall Street Distributors") and 59 Wall Street Administrators, Inc. ("59
Wall Street Administrators") (since June 1993).
JAMES E. HOOLAHAN -- Vice President; Senior Vice President of SFG.
JOHN R. ELDER -- Treasurer; Vice President of SFG (since April 1995);
Treasurer of Phoenix Family of Mutual Funds (prior to April 1995).
7
<PAGE>
LINDA T. GIBSON -- Secretary; Vice President and Assistant Secretary of
SFG (since June, 1991); Assistant Secretary of 59 Wall Street Distributors and
59 Wall Street Administrators (since June 1993).
MOLLY S. MUGLER -- Assistant Secretary; Vice President and
Assistant Secretary of SFG; Assistant Secretary of 59 Wall Street
Distributors and 59 Wall Street Administrators (since June 1993).
CHRISTINE A. DRAPEAU -- Assistant Secretary; Assistant Vice President
of SFG (since January 1996); Paralegal and Compliance Officer, various financial
companies (July 1992 to January 1996); Graduate Student, Bentley College (prior
to December 1994).
- -------------------------
* Mr. Shields is an "interested person" of the Corporation
because of his affiliation with a registered broker-dealer.
** These Directors are members of the Audit Committee of the
Corporation.
(1) Shields & Company, Capital Management Associates, Inc. and
Flowers Industries, Inc., with which Mr. Shields is
associated, are a registered broker-dealer and a member of
the New York Stock Exchange, a registered investment
adviser, and a diversified food company, respectively.
(2) Richard K. Mellon and Sons, Richard King Mellon Foundation, Vought
Aircraft Corporation, Caterair International, The Carlyle Group and
Morgenthaler Venture Funds, with which Mr. Miltenberger is or has been
associated, are a private foundation, a private foundation, a business
development firm, an aircraft manufacturer, an airline food services
company, a merchant bank, and a venture capital partnership,
respectively.
Each Director and officer listed above holds the equivalent position
with The 59 Wall Street Trust. The address of each officer is 6 St. James
Avenue, Boston, Massachusetts 02116. Messrs. Coolidge, Hoolahan, and Elder and
Mss. Gibson , Mugler and Drapeau also hold similar positions with other
investment companies for which affiliates of 59 Wall Street Distributors serve
as the principal underwriter.
Except for Mr. Shields, no Director is an "interested
person" of the Corporation as that term is defined in the
1940 Act.
DIRECTORS OF THE CORPORATION
The Directors of the Corporation receive a base annual fee of $15,000
(except the Chairman who receives a base annual fee of $20,000) which is paid
jointly by all series of the Corporation and The 59 Wall Street Trust and
allocated among the series based
8
<PAGE>
upon their respective net assets. In addition, each series which has commenced
operations pays an annual fee to each Director of $1,000.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Pension or Total
Retirement Compensation
Aggregate Benefits Accrued Estimated Annual from the Corporation
Name of Person, Compensation as Part of Benefits upon and Fund Complex*
POSITION FROM THE CORPORATION FUND EXPENSES RETIREMENT PAID TO DIRECTORS
J.V. Shields, Jr., $10,822 none none $28,500
Trustee
Eugene P. Beard, $ 9,492 none none 23,500
Trustee
David P. Feldman, $ 9,492 none none 23,500
Trustee
Alan G. Lowy, $ 9,492 none none 23,500
Trustee
Arthur D. Miltenberger, $ 9,492 none none 23,500
Trustee
</TABLE>
* The Fund Complex consists of the Corporation and The 59 Wall Street Trust
which currently consists of three series.
By virtue of the responsibilities assumed by Brown Brothers Harriman &
Co. under the Investment Advisory Agreement and the Administration Agreement
(see "Investment Adviser" and "Administrator"), the Corporation does not require
employees other than its officers, and none of its officers devote full time to
the affairs of the Corporation, or, other than the Chairman, receive any
compensation from the Fund.
As of January 31, 1998, the Corporation's Directors and officers as a
group beneficially owned less than 1% of the outstanding shares of the
Corporation. At the close of business on that date, no person, to the knowledge
of management, owned beneficially more than 5% of the outstanding shares of the
Fund
9
<PAGE>
except that the Catholic Charities Gift owned 85,435 (5.9%) shares of the Fund
and Mr. Richard Goeltz owned 292,262 (20.2%) shares of the Fund and BBH Trust
O'Hollaren IRA owned 56,621 (3.9%) shares of the Fund. The address of each of
the above named is c/o Brown Brothers Harriman & Co., 59 Wall Street, New York,
New York 10005. As of that date, partners of Brown Brothers Harriman & Co. and
their immediate families owned an additional 3,776 (0.3%) shares of the Fund.
Also, Brown Brothers Harriman & Co. Employee Pension Plan on that date held
186,111 (11.1%) shares of the Fund. Brown Brothers Harriman & Co. and its
affiliates separately are able to direct the disposition of an additional
383,810 (22.9%) shares of the Fund, as to which shares Brown Brothers Harriman &
Co. disclaims beneficial ownership.
INVESTMENT ADVISER
===============================================================================
Under an Investment Advisory Agreement with the Corporation, subject to
the general supervision of the Corporation's Directors and in conformance with
the stated policies of the Fund, Brown Brothers Harriman & Co. provides
investment advice and portfolio management services to the Fund. In this regard,
it is the responsibility of Brown Brothers Harriman & Co. to make the day-to-day
investment decisions for the Fund, to place the purchase and sale orders for
portfolio transactions of the Fund , and to manage, generally, the investments
of the Fund.
The Investment Advisory Agreement between Brown Brothers Harriman & Co.
and the Corporation is dated December 15, 1993 and remains in effect for two
years from such date and thereafter, but only as long as the agreement is
specifically approved at least annually (i) by a vote of the holders of a
"majority of the Fund's outstanding voting securities" (as defined in the 1940
Act) or by the Corporation's Directors, and (ii) by a vote of a majority of the
Directors of the Corporation who are not parties to the Investment Advisory
Agreement or "interested persons" (as defined in the 1940 Act) of the
Corporation ("Independent Directors") cast in person at a meeting called for the
purpose of voting on such approval. The Investment Advisory Agreement was most
recently approved by the Independent Directors on December 17, 1997. The
Investment Advisory Agreement terminates automatically if assigned and is
terminable at any time without penalty by a vote of a majority of the Directors
of the Corporation, or by a vote of the holders of a "majority of the Fund's
outstanding voting securities" (as defined in the 1940 Act) on 60 days' written
notice to Brown Brothers Harriman & Co. and by Brown Brothers Harriman & Co. on
90 days' written notice to the Corporation. (See "Additional Information".)
The investment advisory fee paid to the Investment Adviser
10
<PAGE>
is calculated daily and paid monthly at an annual rate equal to 0.25% of the
Fund's average daily net assets. Prior to February 28, 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. For the fiscal years ended October 31,
1995 , 1996, and 1997, the Fund incurred $40,190, $46,266, and $44,539,
respectively, for advisory services.
The Glass-Steagall Act prohibits certain financial institutions from
engaging in the business of underwriting, selling or distributing securities and
from sponsoring, organizing or controlling a registered open-end investment
company continuously engaged in the issuance of its shares, such as the Fund.
There is presently no controlling precedent prohibiting financial institutions
such as Brown Brothers Harriman & Co. from performing investment advisory,
administrative or shareholder servicing/eligible institution functions. If Brown
Brothers Harriman & Co. were to terminate its Investment Advisory Agreement with
the Corporation or were prohibited from acting in such capacity, it is expected
that the Directors would recommend the shareholders that they approve a new
investment advisory agreement for the Fund with another qualified adviser. If
Brown Brothers Harriman & Co. were to terminate its Eligible Institution
Agreement or Administration Agreement with the Corporation or were prohibited
from acting in any such capacity, its customers would be permitted to remain
shareholders of the Corporation and alternative means for providing shareholder
services or administrative services, as the case may be, would be sought. In
such event, although the operation of the Corporation might change, it is not
expected that any shareholders would suffer any adverse financial consequences.
However, an alternative means of providing shareholder services might afford
less convenience to shareholders.
ADMINISTRATOR
===============================================================================
The Administration Agreement between the Corporation and Brown Brothers
Harriman & Co. (dated November 1, 1993) will remain in effect for two years from
such date and thereafter, but only so long as such agreement is specifically
approved at least annually in the same manner as the Investment Advisory
Agreement (see "Investment Adviser"). The Independent Directors most recently
approved the Corporation's Administration Agreement on December 17, 1997. The
agreement will terminate automatically if assigned by either party thereto and
is terminable at any time without penalty by a vote of a majority of the
Directors of the Corporation or by a vote of the holders of a "majority of the
Corporation's outstanding voting securities" (as defined in the 1940 Act). (See
"Additional Information"). The
11
<PAGE>
Administration Agreement is terminable by the Directors of the Corporation or
shareholders of the Corporation on 60 days' written notice to Brown Brothers
Harriman & Co. and by Brown Brothers Harriman & Co. on 90 days' written notice
to the Corporation. The administrative fee payable to Brown Brothers Harriman &
Co. from the Fund is calculated daily and payable monthly at an annual rate
equal to 0.15% of the Fund's average daily net assets. For the fiscal years
ended October 31, 1995 , 1996, and 1997 the Fund incurred $15,071, $17,350, and
$17,260, respectively, for administrative services.
DISTRIBUTOR
===============================================================================
The Distribution Agreement (dated September 5, 1990, as amended and
restated February 12, 1991) between the Corporation and 59 Wall Street
Distributors remains in effect indefinitely, but only so long as such agreement
is specifically approved at least annually in the same manner as the Investment
Advisory Agreement. (See "Investment Adviser".) The Distribution Agreement was
most recently approved by the Independent Directors of the Corporation on
February 24, 1998. The agreement terminates automatically if assigned by either
party thereto and is terminable with respect to the Fund at any time without
penalty by a vote of a majority of the Directors of the Corporation or by a vote
of the holders of a "majority of the Fund's outstanding voting securities" (as
defined in the 1940 Act). (See "Additional Information".) The Distribution
Agreement is terminable with respect to the Fund by the Corporation's Directors
or shareholders of the Fund on 60 days' written notice to 59 Wall Street
Distributors. The agreement is terminable by 59 Wall Street Distributors on 90
days' written notice to the Corporation.
FINANCIAL INTERMEDIARIES
===============================================================================
One or more brokers which serve as Financial Intermediaries have been
authorized by the Corporation to accept purchase and redemption orders for Fund
shares on its behalf and are authorized to designate other intermediaries to
accept purchase and redemption orders for Fund shares on the Corporation's
behalf. The Corporation will be deemed to have received a purchase or redemption
order for Fund shares when an authorized broker or, if applicable, such broker's
authorized designee, accepts the order and such an order will be executed at the
net asset value per share next determined after such acceptance.
12
<PAGE>
NET ASSET VALUE; REDEMPTION IN KIND
===============================================================================
The net asset value of each of the Fund's shares is determined each day
the New York Stock Exchange is open for regular trading. (As of the date of this
Statement of Additional Information, such Exchange is open every weekday except
for the following holidays: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas.) This determination of net asset value of each
share of the Fund is made once during each such day as of the close of regular
trading on such Exchange by subtracting from the value of the Fund's total
assets the amount of its liabilities, and dividing the difference by the number
of shares of the Fund outstanding at the time the determination is made.
The value of investments listed on a securities exchange is based on
the last sale prices as of the close of regular trading of the New York Stock
Exchange (which is currently 4:00 P.M., New York time) or, in the absence of
recorded sales, at the average of readily available closing bid and asked prices
on such Exchange. Unlisted securities are valued at the average of the quoted
bid and asked prices in the over-the-counter market. The value of each security
for which readily available market quotations exist is based on a decision as to
the broadest and most representative market for such security.
Bonds and other fixed income securities (other than short-term
obligations but including listed issues) are valued on the basis of valuations
furnished by a pricing service, use of which has been approved by the Board of
Directors. In making such valuations, the pricing service utilizes both
dealer-supplied valuations and electronic data processing techniques which take
into account appropriate factors such as institutional-size trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics and other market data, without exclusive reliance upon
quoted prices or exchange or over-the-counter prices, since such valuations are
believed to reflect more accurately the fair value of such securities.
Securities or other assets for which market quotations are not readily
available are valued at fair value in accordance with procedures established by
and under the general supervision and responsibility of the Corporation's
Directors. Short-term investments which mature in 60 days or less are valued at
amortized cost if their original maturity was 60 days or less, or by amortizing
their value on the 61st day prior to maturity, if their original maturity when
acquired for the Fund was more than 60 days, unless this is determined not to
represent fair value by the Directors.
Subject to the Corporation's compliance with applicable regulations,
the Corporation has reserved the right to pay the
13
<PAGE>
redemption price of shares of the Fund, either totally or partially, by a
distribution in kind of portfolio securities (instead of cash). The securities
so distributed would be valued at the same amount as that assigned to them in
calculating the net asset value for the shares being sold. If a shareholder
received a distribution in kind, the shareholder could incur brokerage or other
charges in converting the securities to cash. The Corporation has elected,
however, to be governed by Rule 18f-1 under the 1940 Act, as a result of which
the Corporation is obligated with respect to any one investor during any 90 day
period to redeem shares of the Fund solely in cash up to the lesser of $250,000
or 1% of the Fund's net assets at the beginning of such 90 day period.
COMPUTATION OF PERFORMANCE
===============================================================================
The average annual total rate of return of the Fund is calculated for
any period by (a) dividing (i) the sum of the aggregate net asset value per
share on the last day of the period of shares purchased with a $1,000 payment on
the first day of the period and the aggregate net asset value per share on the
last day of the period of shares purchasable with dividends and capital gains
distributions declared during such period with respect to shares purchased on
the first day of such period and with respect to shares purchased with such
dividends and capital gains distributions, by (ii) $1,000, (b) raising the
quotient to a power equal to 1 divided by the number of years in the period, and
(c) subtracting 1 from the result.
The total rate of return of the Fund for any specified period is
calculated by (a) dividing (i) the sum of the aggregate net asset value per
share on the last day of the period of shares purchased with a $1,000 payment on
the first day of the period and the aggregate net asset value per share on the
last day of the period of shares purchasable with dividends and capital gains
distributions declared during such period with respect to shares purchased on
the first day of such period and with respect to shares purchased with such
dividends and capital gains distributions, by (ii) $1,000, and (b) subtracting 1
from the result.
The average annual total rate of return for the Fund for the period
July 23, 1992 (commencement of operations) to October 31, 1997 was 4.50%. The
average annual total rate of return for the Fund for the fiscal year ended
October 31, 1997 was 3.40%. The average annual total rate of return for the Fund
for the five-year period ended October 31, 1997 was 4.74%.
Performance calculations should not be considered a representation of
the average annual or total rate of return of the Fund in the future since the
rates of return are not fixed.
14
<PAGE>
Actual total rates of return and average annual rates of return depend on
changes in the market value of, and dividends and interest received from, the
investments held by the Fund and the Fund's expenses during the period.
Total and average annual rate of return information may be useful for
reviewing the performance of the Fund and for providing a basis for comparison
with other investment alternatives. However, unlike bank deposits or other
investments which pay a fixed yield for a stated period of time, the Fund's
total rate of return fluctuates, and this should be considered when reviewing
performance or making comparisons.
Any "yield" quotation of the Fund consists of an annualized historical
yield, carried at least to the nearest hundredth of one percent, based on a
30-day or one-month period and is calculated by (a) raising to the sixth power
the sum of 1 plus the quotient obtained by dividing the Fund's net investment
income earned during the period by the product of the average daily number of
shares outstanding during the period that were entitled to receive dividends and
the maximum offering price per share on the last day of the period, (b)
subtracting 1 from the result, and (c) multiplying the result by 2.
The yield should not be considered a representation of the yield of the Fund
in the future since the yield is not fixed. Actual yields depend on the type,
quality and maturities of the investments held by the Fund, changes in interest
rates on investments, and the Fund's expenses during the period.
Yield information may be useful for reviewing the performance of the
Fund and for providing a basis for comparison with other investment
alternatives. However, unlike bank deposits or other investments which pay a
fixed yield for a stated period of time, the Fund's yield does fluctuate, and
this should be considered when reviewing performance or making comparisons.
FEDERAL TAXES
===============================================================================
Each year, the Corporation intends to continue to qualify the Fund and
elect that the Fund be treated as a separate "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). Under Subchapter M of the Code the Fund is not subject to federal
income taxes on amounts distributed to shareholders.
Qualification as a regulated investment company under the Code
requires, among other things, that (a) at least 90% of the Fund's annual gross
income, without offset for losses from the sale or other disposition of
securities, be derived from interest, payments with respect to securities loans,
dividends
15
<PAGE>
and gains from the sale or other disposition of securities or other income
derived with respect to its business of investing in such securities; (b) less
than 30% of the Fund's annual gross income be derived from gains (without offset
for losses) from the sale or other disposition of securities held for less than
three months; and (c) the holdings of the Fund be diversified so that, at the
end of each quarter of its fiscal year, (i) at least 50% of the market value of
the Fund's assets be represented by cash, U.S. Government securities and other
securities limited in respect of any one issuer to an amount not greater than 5%
of the Fund's assets and 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of the Fund's assets be invested
in the securities of any one issuer (other than U.S. Government securities). In
addition, in order not to be subject to federal income tax, at least 90% of the
Fund's net investment income and net short-term capital gains earned in each
year must be distributed to the Fund's shareholders.
Gains or losses on sales of securities for the Fund are treated as
long-term capital gains or losses if the securities have been held by it for
more than one year except in certain cases where a put has been acquired or a
call has been written thereon for the Fund. Other gains or losses on the sale of
securities are treated as short-term capital gains or losses. Gains and losses
on the sale, lapse or other termination of options on securities are generally
treated as gains and losses from the sale of securities. If an option written
for the Fund lapses or is terminated through a closing transaction, such as a
repurchase for the Fund of the option from its holder, the Fund may realize a
short-term capital gain or loss, depending on whether the premium income is
greater or less than the amount paid in the closing transaction. If securities
are sold for the Fund pursuant to the exercise of a call option written for it,
the premium received is added to the sale price of the securities delivered in
determining the amount of gain or loss on the sale. The requirement that less
than 30% of the Fund's gross income be derived from gains from the sale of
securities held for less than three months may limit the ability to write
options and engage in transactions involving stock index futures.
Certain options contracts held for the Fund at the end of each fiscal
year are required to be "marked to market" for federal income tax purposes; that
is, treated as having been sold at market value. Sixty percent of any gain or
loss recognized on these deemed sales and on actual dispositions are treated as
long-term capital gain or loss, and the remainder are treated as short-term
capital gain or loss regardless of how long such options were held. The Fund may
be required to defer the recognition of losses on stock or securities to the
extent of any unrecognized gain on offsetting positions held for it.
RETURN OF CAPITAL. If the net asset value of shares is reduced below a
shareholder's cost as a result of a dividend or
16
<PAGE>
capital gains distribution by the Fund, such dividend or capital gains
distribution would be taxable even though it represents a return of invested
capital.
REDEMPTION OF SHARES. Any gain or loss realized on the redemption of
Fund shares by a shareholder who is not a dealer in securities would be treated
as long-term capital gain or loss if the shares have been held for more than one
year, and otherwise as short-term capital gain or loss. However, any loss
realized by a shareholder upon the redemption of Fund shares held one year or
less is treated as a long-term capital loss to the extent of any long-term
capital gains distributions received by the shareholder with respect to such
shares. Additionally, any loss realized on a redemption or exchange of Fund
shares is disallowed to the extent the shares disposed of are replaced within a
period of 61 days beginning 30 days before such disposition, such as pursuant to
reinvestment of a dividend or capital gains distribution in Fund shares.
OTHER TAXES. The Fund may be subject to state or local taxes in
jurisdictions in which it is deemed to be doing business. In addition, the
treatment of the Fund and its shareholders in those states which have income tax
laws might differ from treatment under the federal income tax laws. Shareholders
should consult their own tax advisors with respect to any state or local taxes.
DESCRIPTION OF SHARES
===============================================================================
The Corporation is an open-end management investment company organized
as a Maryland corporation on July 16, 1990. The Articles of Incorporation
currently permit the Corporation to issue 2,500,000,000 shares of common stock,
par value $0.001 per share, of which 25,000,000 shares have been classified as
shares of The 59 Wall Street Inflation-Indexed Securities Fund. The Corporation
currently consists of eight portfolios.
Shareholders are entitled to one vote for each share held on matters on
which they are entitled to vote. Shareholders in the Corporation do not have
cumulative voting rights, and shareholders owning more than 50% of the
outstanding shares of the Corporation may elect all of the Directors of the
Corporation if they choose to do so and in such event the other shareholders in
the Corporation would not be able to elect any Director. The Corporation is not
required and has no current intention to hold meetings of shareholders annually
but the Corporation will hold special meetings of shareholders when in the
judgment of the Corporation's Directors it is necessary or desirable to submit
matters for a shareholder vote. Shareholders have under certain circumstances
(E.G., upon application and submission of certain specified documents to the
Directors by a specified number of shareholders) the right to communicate with
other shareholders in
17
<PAGE>
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. Shares have no preference, pre-emptive, conversion or similar
rights. Shares, when issued, are fully paid and non-assessable.
Stock certificates are not issued by the Corporation.
The Articles of Incorporation of the Corporation contain a provision
permitted under Maryland Corporation Law which under certain circumstances
eliminates the personal liability of the Corporation's Directors to the
Corporation or its shareholders.
The Articles of Incorporation and the By-Laws of the Corporation
provide that the Corporation indemnify the Directors and officers of the
Corporation to the full extent permitted by the Maryland Corporation Law, which
permits indemnification of such persons against liabilities and expenses
incurred in connection with litigation in which they may be involved because of
their offices with the Corporation. However, nothing in the Articles of
Incorporation or the By-Laws of the Corporation protects or indemnifies a
Director or officer of the Corporation against any liability to the Corporation
or its shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
The Corporation may, in the future, seek to achieve the Fund's
investment objective by investing all of the Fund's investable assets in a
no-load, diversified, open-end management investment company having
substantially the same investment objective as those applicable to the Fund. In
such event, the Fund would no longer directly require investment advisory
services and therefore would pay no investment advisory fees. Further, the
administrative services fee paid from the Fund would be reduced. At a
shareholder's meeting held on September 23, 1993, the Fund's shareholders
approved changes to the investment restrictions of the Fund to authorize such an
investment. Such an investment would be made only if the Directors believe that
the aggregate per share expenses of the Fund and such other investment company
would be less than or approximately equal to the expenses which the Fund would
incur if the Corporation were to continue to retain the services of an
investment adviser for the Fund and the assets of the Fund were to continue to
be invested directly in portfolio securities.
It is expected that the investment of the Fund in another investment
company will have no preference, preemptive, conversion or similar rights, and
will be fully paid and non-assessable. It is expected that the investment
company will not be required to hold annual meetings of investors, but will hold
special meetings of investors when, in the judgment of its
18
<PAGE>
trustees, it is necessary or desirable to submit matters for an investor vote.
It is expected that each investor will be entitled to a vote in proportion to
the share of its investment in such investment company. Except as described
below, whenever the Corporation is requested to vote on matters pertaining to
the investment company, the Corporation would hold a meeting of the Fund's
shareholders and would cast its votes on each matter at a meeting of investors
in the investment company proportionately as instructed by the Fund's
shareholders.
PORTFOLIO TRANSACTIONS
===============================================================================
Over-the-counter purchases and sales are transacted directly with
principal market makers, except in those circumstances in which, in the judgment
of the Investment Adviser, better prices and execution of orders can otherwise
be obtained. If the Corporation effects a closing transaction with respect to a
futures or option contract, such transaction normally would be executed by the
same broker-dealer who executed the opening transaction. The writing of options
by the Corporation may be subject to limitations established by each of the
exchanges governing the maximum number of options in each class which may be
written by a single investor or group of investors acting in concert, regardless
of whether the options are written on the same or different exchanges or are
held or written in one or more accounts or through one or more brokers. The
number of options which the Corporation may write may be affected by options
written by the Investment Adviser for other investment advisory clients. An
exchange may order the liquidation of positions found to be in excess of these
limits, and it may impose certain other sanctions.
NOTE RATINGS
===============================================================================
Notes rated MIG-1 by Moody's are judged to be of the best quality,
enjoying strong protection from established cash flow of funds for their
services or from established and broad-based access to the market for
refinancing or both. Notes rated MIG-2 are judged to be of high quality with
ample margins of protection, though not as large as MIG-1. The commercial paper
rating Prime-1 is the highest commercial paper rating assigned by Moody's and
denotes that the issuer has superior capacity for repayment. Among the factors
considered by Moody's in assigning note and commercial paper ratings are the
following: (i) evaluation of the management of the issuer; (ii) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (iii) evaluation
of the issuer's products in
19
<PAGE>
relation to competition and customer acceptance; (iv) liquidity; (v) amount and
quality of long-term debt; (vi) trend of earnings over a period of 10 years;
(vii) financial strength of a parent company and the relationships which exist
with the issuer; and (viii) recognition by management of obligations which may
be present or may arise as a result of public interest questions and
preparations to meet such obligations.
With respect to notes, an SP-1 rating indicates a very strong or strong
capacity to pay principal and interest. Issues determined to possess
overwhelming safety characteristics are given a plus (+) designation. SP-2
denotes a satisfactory capacity to pay principal and interest. The commercial
paper rating A-1 is the highest paper rating assigned by Standard & Poor's and
indicates a strong degree of safety regarding timely payments. Issues determined
to possess overwhelming safety characteristics are given a plus (+) designation.
Among the factors considered by Standard & Poor's in assigning bond, note and
commercial paper ratings are the following: (i) trend of earnings and cash flow
with allowances made for unusual circumstances, (ii) stability of the issuer's
industry, (iii) the issuer's relative strength and position within the industry
and (iv) the reliability and quality of management.
ADDITIONAL INFORMATION
===============================================================================
As used in this Statement of Additional Information and the Prospectus,
the term "majority of the Fund's outstanding voting securities" (as defined in
the 1940 Act) currently means the vote of (i) 67% or more of the Fund's shares
present at a meeting, if the holders of more than 50% of the Fund's outstanding
voting securities are present in person or represented by proxy; or (ii) more
than 50% of the Fund's outstanding voting securities, whichever is less.
Fund shareholders receive semi-annual reports containing unaudited
financial statements and annual reports containing financial statements audited
by independent auditors.
A shareholder's right to receive payment with respect to any redemption
may be suspended or the payment of the redemption proceeds postponed: (i) during
periods when the New York Stock Exchange is closed for other than weekends and
holidays or when regular trading on such Exchange is restricted as determined by
the Securities and Exchange Commission by rule or regulation, (ii) during
periods in which an emergency exists which causes disposal of, or evaluation of
the net asset value of, the Fund's portfolio securities to be unreasonable or
impracticable, or (iii) for such other periods as the Securities and Exchange
Commission may permit.
With respect to the securities offered by the Prospectus,
20
<PAGE>
this Statement of Additional Information and the Prospectus do not contain all
the information included in the Registration Statement filed with the Securities
and Exchange Commission under the Securities Act of 1933. Pursuant to the rules
and regulations of the Securities and Exchange Commission, certain portions have
been omitted. The Registration Statement including the exhibits filed therewith
may be examined at the office of the Securities and Exchange Commission in
Washington, D.C.
Statements contained in this Statement of Additional Information and
the Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement.
Each such statement is qualified in all respects by such reference.
FINANCIAL STATEMENTS
===============================================================================
The Annual Report of the Fund dated October 31, 1997 has been filed
with the Securities and Exchange Commission pursuant to Section 30(b) of the
1940 Act and Rule 30b2-1 thereunder and is hereby incorporated herein by
reference. A copy of the Annual Report will be provided, without charge, to each
person receiving this Statement of Additional Information.
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WS5463A
