As filed with the Securities and Exchange Commission on December 30, 1998
Registration Nos. 33-48605 and 811-06139
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 19
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 40
THE 59 WALL STREET FUND, INC.
(Exact Name of Registrant as Specified in Charter)
21 Milk Street, Boston, Massachusetts 02109
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (617) 423-0800
Philip W. Coolidge
21 Milk Street, Boston, Massachusetts 02109
(Name and Address of Agent for Service)
Copy to:
John E. Baumgardner, Jr., Esq.
Sullivan & Cromwell
125 Broad Street, New York, New York 10004
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b)
[ ] on pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Shares of Beneficial Interest
(par value $.001)
===============================================================================
<PAGE>
PROSPECTUS
The 59 Wall Street International Equity Fund
The International Equity Fund is a separate portfolio of The 59 Wall
Street Fund, Inc. Shares of the Fund are offered by this Prospectus. The Fund is
designed to enable investors to participate in the opportunities available in
equity markets outside the United States and Canada.
The Fund invests all of its assets in the International Equity
Portfolio. Brown Brothers Harriman & Co. is the Investment Adviser for the
Portfolio. Shares of the Fund are offered at net asset value without a sales
charge.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is February 26, 1999.
<PAGE>
INVESTMENT OBJECTIVE AND STRATEGIES
The investment objective of the Fund and the Portfolio is to provide
investors with long-term maximization of total return, primarily through capital
appreciation.
Under normal circumstances the Investment Adviser fully invests the assets
of the Portfolio in equity securities of companies based outside the United
States and Canada in the developed markets of the world. These markets include
Japan, United Kingdom, Germany, France, Hong Kong, Netherlands, Switzerland,
Malaysia, Australia, Singapore, Italy, Sweden, Spain, Belgium, Denmark, Finland,
Norway, Portugal, New Zealand, Austria and Ireland.
Although the Investment Adviser expects to invest the assets of the
Portfolio primarily in common stocks, it may also purchase other securities with
equity characteristics, including securities convertible into common stock,
rights and warrants. The Investment Adviser may purchase these equity securities
directly or in the form of American Depository Receipts, Global Depository
Receipts or other similar securities representing securities of foreign-based
companies. Although the Investment Adviser invests the assets of the Portfolio
primarily in equity securities which are traded on foreign or domestic
securities exchanges, the Investment Adviser may also purchase equity securities
which are traded in foreign or domestic over-the-counter markets for the
Portfolio. The Investment Adviser may invest the assets of the Portfolio in
securities of appropriate investment companies in order to obtain participation
in markets or market sectors or to obtain more favorable investment terms for
the Portfolio.
The Investment Adviser allocates investments among various countries based
upon the economic environment, liquidity conditions, valuation levels, expected
earnings growth, government policies and political stability. In response to
changes or anticipated changes in these criteria, the Investment Adviser
increases, decreases or eliminates a particular country's representation in the
Portfolio. As a result of applying these criteria the Investment Adviser
allocates the Portfolio's assets among countries in a manner which does not
reflect the relative size or valuation of a country's capital market or a
country's relative gross domestic product or population.
In constructing the portfolio of securities of the Portfolio, the
Investment Adviser places emphasis on the equity securities of larger companies
with strong longer term fundamentals such as leading industry position,
effective management, competitive products and services, high or improving
return on investment and a sound financial structure. The Investment Adviser
selects individual equities through a disciplined process which systematically
evaluates growth expectations relative to price levels.
Because the Investment Adviser buys and sells securities denominated in
currencies other than the U.S. dollar, and interest, dividends and sale proceeds
are received by the Portfolio in currencies other than the U.S. dollar, the
Investment Adviser enters into foreign currency exchange transactions from time
to time for the Portfolio to convert to and from different foreign currencies
and to convert foreign currencies to and from the U.S. dollar.
The Investment Adviser may, on behalf of the Portfolio, enter into forward
foreign exchange contracts in order to protect the dollar value of securities
denominated in foreign currencies that are held or intended to be purchased.
In response to adverse market, economic, political or other conditions,
the Investment Adviser may make temporary investments for the Portfolio that are
not consistent with the investment objective and principal investment strategies
of the Portfolio.
Other mutual funds or institutional investors may invest in the Portfolio
on the same terms and conditions as the Fund. However, these other investors may
have different operating expenses which may generate different aggregate
performance results. The Corporation may withdraw the Fund's investment in the
Portfolio at any time as a result of changes in the Portfolio's investment
objective, policies or restrictions or if the Board of Directors determines that
it is otherwise in the best interests of the Fund to do so.
1
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PRINCIPAL RISK FACTORS
The principal risks of investing in the Fund and the Portfolio and the
circumstances reasonably likely to adversely affect an investment are described
below. As with any fund other than a money market mutual fund, the share price
of the Fund changes daily based on market conditions and other factors. A
shareholder may lose money by investing in the Fund.
The principal risks of investing in the Fund are:
o Market Risk:
This is the risk that the price of a security will rise or fall due to
changing economic, political or market conditions, or due to a company's
individual situation.
o Foreign Investments:
Investing in equity securities of foreign-based companies involves risks
not typically associated with investing in equity securities of companies
organized and operated in the United States.
Changes in political or social conditions, diplomatic relations,
confiscatory taxation, expropriation, nationalization, limitation on the removal
of funds or assets, or imposition of (or change in) exchange control or tax
regulations may adversely affect the value of the investments of the Portfolio.
Changes in government administrations or economic or monetary policies in the
United States or abroad could result in appreciation or depreciation of
portfolio securities and could favorably or unfavorably affect the Portfolio's
operations. The economies of individual foreign nations differ from the U.S.
economy, whether favorably or unfavorably, in areas such as growth of gross
domestic product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. It may be more difficult to
obtain and enforce a judgment against a foreign company. Dividends and interest
paid by foreign issuers may be subject to withholding and other foreign taxes
which may decrease the net return on foreign investments as compared to
dividends and interest paid to other funds by domestic companies.
In general, less information is publicly available with respect to
foreign-based companies than is available with respect to U.S. companies. Most
foreign-based companies are also not subject to the uniform accounting and
financial reporting requirements applicable to companies based in the United
States.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of the New York Stock Exchange. Accordingly, the investments of the
Portfolio are less liquid and their prices are more volatile than comparable
investments in securities of U.S. companies. Moreover, the settlement periods
for foreign securities, which are often longer than those for securities of U.S.
companies, may affect portfolio liquidity. In buying and selling securities on
foreign exchanges, fixed commissions are often paid that are generally higher
than the negotiated commissions charged in the United States. In addition, there
is generally less government supervision and regulation of securities exchanges,
brokers and companies in foreign countries than in the United States.
The foreign investments of the Portfolio are made in compliance with the
currency regulations and tax laws of the United States and foreign governments.
There may also be foreign government regulations and laws which restrict the
amounts and types of foreign investments.
Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, and the Portfolio holds various foreign
currencies from time to time, the value of the net assets of the Portfolio as
measured in U.S. dollars is affected favorably or unfavorably by changes in
exchange rates. The Portfolio also incurs costs in connection with conversion
between various currencies.
o Forward Exchange Contracts:
The precise matching of the forward contract amounts and the value of the
securities involved is not always possible because the future value of such
securities in foreign currencies changes as a consequence
2
<PAGE>
of market movements in the value of such securities between the date the forward
contract is entered into and the date it matures.
o Diversification Risk:
The Fund and the Portfolio are each classified as "non-diversified", which
means that the Portfolio is limited with respect to the portion of its assets
which may be invested in securities of a single issuer only by certain
requirements of federal tax law. The possible assumption of large positions in
the securities of a small number of issuers may cause the performance of the
Fund and the Portfolio to fluctuate to a greater extent than that of a
diversified investment company as a result of changes in the financial condition
or in the market's assessment of the issuers. o Investments in the Fund are
neither insured nor guaranteed by the U.S. Government. Shares of the Fund are
not deposits or obligations of, or guaranteed by, Brown Brothers Harriman & Co.
or any other bank, and the shares are not insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board or any other federal, state or
other governmental agency.
3
<PAGE>
FUND PERFORMANCE
The chart and table below give an indication of the Fund's risks and
performance. The chart shows changes in the Fund's performance from year to
year. The table shows how the Fund's average annual returns for the
periods indicated compare to those of a broad measure of market performance.
When you consider this information, please remember that the Fund's
performance in past years is not necessarily an indication of how the Fund will
do in the future.
[The following table was depicted as bar chart in the printed material]
Total Return (% per calendar year)
1996 8.05%
1997 1.05%
1998 []%
Highest and Lowest Return
(Quarterly 1996-1998)
Quarter Ending
Highest [ ]% [ ]
Lowest [ ]% [ ]
Average Annual Total Returns
(through December 31, 1998)
1 Year Life of Fund
(Since 4/1/95)
International Equity Fund [ ] [ ]*
MSCI-EAFE [ ] [ ]*
* (Since [ ])
Historical performance information for the fund for any period or portion
thereof prior to its commencement of operations, is that of the Portfolio as
adjusted to reflect all fees and expenses of the Fund.
4
<PAGE>
FEES AND EXPENSES OF THE FUND
The table below describes the fees and expenses that an investor may pay
if that investor buys and holds shares of the Fund.
SHAREHOLDER FEES
(Fees paid directly from an investor's account)
Maximum Sales Charge (Load) None
Imposed on Purchases
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) None
Imposed on Reinvested Dividends
Redemption Fee None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from Fund assets as a percentage of average
net assets)
Management Fees 0.65%
Distribution (12b-1) Fees None
Other Expenses
Administration Fee 0.16%
Shareholder Servicing/Eligible
Institution Fees 0.25
Other Expenses 0.57 0.98
------ -----
Total Annual Fund Operating Expenses 1.63%
=====
The Actual Total Annual Fund Operating Expenses are 1.50%. This is a
result of an expense payment arrangement under which 59 Wall Street
Administrators pays the Fund's expenses, other than administration fees and
expenses relating to the organization of the Fund. These arrangements will
continue until October 31, 2000.
5
<PAGE>
EXAMPLE
This example is intended to help an investor compare the cost of investing
in the Fund to the cost of investing in other mutual funds. The example assumes
that an investor invests $10,000 in the Fund for the time periods indicated and
then sells all of his shares at the end of those periods. The example also
assumes that an investment has a 5% return each year and that the Fund's
operating expenses remain the same as shown in the table above. Although actual
costs and the return on an investor's investment may be higher or lower, based
on these assumptions the investor's costs would be:
1 year [ ]
3 years [ ]
5 years [ ]
10 years [ ]
The table and example above reflect the expenses of both the Fund and the
Portfolio.
INVESTMENT ADVISER
The Investment Adviser to the Portfolio is Brown Brothers Harriman & Co.,
Private Bankers, a New York limited partnership established in 1818. The firm is
subject to examination and regulation by the Superintendent of Banks of the
State of New York and by the Department of Banking of the Commonwealth of
Pennsylvania. The firm is also subject to supervision and examination by the
Commissioner of Banks of the Commonwealth of Massachusetts. The Investment
Adviser is located at 59 Wall Street, New York, NY 10005.
The Investment Adviser provides investment advice and portfolio management
services to the Portfolio. Subject to the general supervision of the Trustees of
the Portfolio, the Investment Adviser makes the day-to-day investment decisions
for the Portfolio, places the purchase and sale orders for the portfolio
transactions of the Portfolio, and generally manages the Portfolio's
investments. The Investment Adviser provides a broad range of investment
management services for customers in the United States and abroad. At June 30,
1998, it managed total assets of approximately $[25] billion.
A team of individuals manages the Portfolio on a day-to-day basis. This
team includes Mr. John A. Nielsen, Ms. Camille M. Kelleher, Mr. A. Edward
Allinson, Mr. G. Scott Clemons, Mr. Paul J. Fraker and Mr. Ben Kottler. Mr.
Nielsen holds a B.A. from Bucknell University, a M.B.A. from Columbia University
and is a Chartered Financial Analyst. He joined Brown Brothers Harriman & Co. in
1968. Ms. Kelleher holds a B.A. from Barnard College and a M.B.A. from Columbia
University. She joined Brown Brothers Harriman & Co. in 1984. Mr. Allinson holds
a B.A. and a M.B.A. from the University of Pennsylvania and is a Chartered
Financial Analyst. He joined Brown Brothers Harriman & Co. in 1991. Mr. Clemons
holds a A.B. from Princeton University and is a Chartered Financial Analyst. He
joined Brown Brothers Harriman & Co. in 1990. Mr Fraker holds a B.A. from
Carleton College and a M.A. from Johns Hopkins University. He joined Brown
Brothers Harriman & Co. in 1996. Mr. Kottler holds a B.A. from Durham University
and is a Chartered Financial Analyst. He joined Brown Brothers Harriman & Co. in
1996. As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Investment Adviser under the
Investment Advisory Agreement, the Portfolio pays the Investment Adviser an
annual fee, computed daily and payable monthly, equal to 0.65% of the average
daily net assets of the Portfolio.
10
<PAGE>
SHAREHOLDER INFORMATION
NET ASSET VALUE
The Corporation determines the Fund's net asset value per share once daily
at 4:00 P.M., New York time on each day the New York Stock Exchange is open for
regular trading.
The Portfolio values its assets on the basis of their market or other fair
value.
PURCHASE OF SHARES
The Corporation offers shares of the Fund on a continuous basis at its net
asset value without a sales charge. The Corporation reserves the right to
determine the purchase orders for Fund shares that it will accept. Investors may
purchase shares on any day the net asset value is calculated if the Corporation
receives the purchase order and acceptable payment for such order prior to such
calculation. The Corporation then executes purchases of Fund shares at the net
asset value per share next determined on that same day. Shares are entitled to
dividends declared, if any, starting as of the first business day following the
day the Corporation executes the purchase order on the books of the Corporation.
An investor who has an account with an Eligible Institution or a Financial
Intermediary may place purchase orders for Fund shares through that Eligible
Institution or Financial Intermediary which holds such shares in its name on
behalf of that customer pursuant to arrangements made between that customer and
that Eligible Institution or Financial Intermediary. Each Eligible Institution
and each Financial Intermediary may establish and amend from time to time a
minimum initial and a minimum subsequent purchase requirement for its customers.
Currently, such minimum purchase requirements range from $500 to $5,000. Each
Eligible Institution or Financial Intermediary arranges payment for Fund shares
on behalf of its customers. An Eligible Institution or a Financial Intermediary
may charge a transaction fee on the purchase of Fund shares.
An investor who does not have an account with an Eligible Institution or a
Financial Intermediary must place purchase orders for Fund shares with the
Corporation through Brown Brothers Harriman & Co., the Fund's Shareholder
Servicing Agent. Such an investor has such shares held directly in the
investor's name on the books of the Corporation and is responsible for arranging
for the payment of the purchase price of Fund shares. The Corporation executes
all purchase orders for initial and subsequent purchases at the net asset value
per share next determined after the Corporation's custodian, State Street Bank
and Trust Company, has received payment in the form of a cashier's check drawn
on a U.S. bank, a check certified by a U.S. bank or a wire transfer. The
Shareholder Servicing Agent has established a minimum initial purchase
requirement for the Fund of $100,000 and a minimum subsequent purchase
requirement for the Fund of $25,000. The Shareholder Servicing Agent may amend
these minimum purchase requirements from time to time.
REDEMPTION OF SHARES
If the Corporation receives a redemption request prior to the net asset
value determination on that day, the Corporation will execute such a redemption
at the net asset value per share then determined. Shares continue to earn
dividends declared, if any, through the business day that the Corporation
executes the redemption request on the books of the Corporation.
Shareholders must redeem shares held by an Eligible Institution or a
Financial Intermediary on behalf of such shareholder pursuant to arrangements
made between that shareholder and that Eligible Institution or Financial
Intermediary. The Corporation pays proceeds of a redemption to that
shareholder's account at that Eligible Institution or Financial Intermediary on
a date established by the Eligible Institution or Financial Intermediary. An
Eligible Institution or a Financial Intermediary may charge a transaction fee on
the redemption of Fund shares.
10
<PAGE>
Shareholders may redeem shares held directly in the name of a shareholder
on the books of the Corporation by submitting a redemption request in good order
to the Corporation through the Shareholder Servicing Agent. The Corporation pays
proceeds resulting from such redemption directly to the shareholder generally on
the next business day after the redemption request is executed, and in any event
within seven days.
Redemptions by the Corporation
The Shareholder Servicing Agent has established a minimum account size of
$25,000, which may be amended from time to time. If the value of a shareholder's
holdings in the Fund falls below that amount because of a redemption of shares,
the Corporation may redeem the shareholder's remaining shares. If such remaining
shares are to be redeemed, the Corporation notifies the shareholder and allows
the shareholder 60 days to make an additional investment to meet the minimum
requirement before the redemption is processed. Each Eligible Institution and
each Financial Intermediary may establish and amend from time to time for their
respective customers a minimum account size, each of which is currently lower
than that established by the Shareholder Servicing Agent.
Further Redemption Information
Redemptions of shares are taxable events on which a shareholder may
realize a gain or a loss. The Corporation has reserved the right to pay the
amount of a redemption from the Fund, either totally or partially, by a
distribution in kind of securities (instead of cash) from the Fund. The
Corporation may suspend a shareholder's right to receive payment with respect to
any redemption or postpone the payment of the redemption proceeds for up to
seven days and for such other periods as applicable law may permit.
DIVIDENDS AND DISTRIBUTIONS
The Corporation declares and pays to shareholders substantially all of the
Fund's net income and realized net short-term capital gains annually as a
dividend, and substantially all of the Fund's realized net long-term capital
gains annually as a capital gains distribution. The Corporation may make an
additional dividend and/or capital gains distribution in a given year to the
extent necessary to avoid the imposition of federal excise tax on the Fund. The
Corporation pays dividends and capital gains distributions to shareholders of
record on the record date. The Shareholder Servicing Agent has established a
minimum account size of $25,000, which may be amended from time to time.
Unless a shareholder whose shares are held directly in the shareholder's
name on the books of the Corporation elects to have dividends and capital gains
distributions paid in cash, the Corporation automatically reinvests dividends
and capital gains distributions in additional Fund shares without reference to
the minimum subsequent purchase requirement.
Each Eligible Institution and each Financial Intermediary may establish
its own policy with respect to the reinvestment of dividends and capital gains
distributions in additional Fund shares.
TAXES
Dividends are taxable to shareholders of the Fund as ordinary income,
whether such dividends are paid in cash or reinvested in additional shares.
Capital gains may be taxable at different rates depending on the length of time
the Portfolio holds its assets. Capital gains distributions are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares and regardless of the length of time a particular shareholder
has held Fund shares.
10
<PAGE>
Foreign Investors
The Fund is designed for investors who are either citizens of the United
States or aliens subject to United States income tax. Prospective investors who
are not citizens of the United States and who are not aliens subject to United
States income tax are subject to United States withholding tax on the entire
amount of all dividends. Therefore, such investors should not invest in the Fund
since alternative investments are available which would not be subject to United
States withholding tax.
11
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help an investor understand
the Fund's financial performance for the past five years. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned on an investment in
the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, whose report, along with
the Fund's financial statements, are included in the annual report, which is
available upon request.
<TABLE>
<S> <C> <C>
For the year For the period from June 6, 1997
ended October 31, (commencement of operations) to
1998 October 31, 1997
Net asset value, beginning of year................. $9.42 $10.00
Income from investment operations:
Net investment income ................................ 0.001 0.001
Net gains or losses on securities
(both realized and unrealized)...................... 0.75 (0.58)
Total from investment operations 0.75 (0.58)
------------------- -----------------------------------------
Distributions:
Dividends (from net investment income) .... -- --
Distributions (from capital gains) ................ (0.05) --
Returns of capital ...................................(0.03) --
Total Distributions .....................................(0.08) --
------------------- -----------------------------------------
Net asset value, end of period ...................... $10.09 $9.42
=================== =========================================
Total return .............................. 8.06% (5.80)%(2)
Ratios/Supplemental Data:
Net assets, end of year (000's omitted) ....... $27,475 $7,040
Ratio of expenses to average net assets .... 1.50% 1.36%(3)(4)
Ratio of net income to average net assets .. (0.15)% (0.06)%(3)
<FN>
(1) Less than $0.01
(2) Not annualized
(3) Annualized
(4) Includes the Fund's share of the Portfolio's expenses
</FN>
</TABLE>
14
<PAGE>
The 59 Wall Street
International Equity Fund
SEC file number: 811-06139
More information on the Fund is available free upon request, including the
following:
Annual/Semiannual Report
Describes the Fund's performance, lists portfolio holdings and contains a
letter from the Fund's manager discussing recent market conditions, economic
trends and Fund strategies.
Statement of Additional Information (SAI)
Provides more details about each Fund and its policies. A current SAI is
on file with the Securities and Exchange Commission (SEC) and is incorporated by
reference (is legally considered part of this prospectus).
To obtain information:
By telephone
Call 1-800-625-5759
By mail write to the Fund's Shareholder Servicing Agent:
Brown Brothers Harriman & Co.
69 Wall Street
New York, New York 10005
By E-mail send your request to:
info@ [ ]
On the Internet:
Text-only versions of Fund documents can be viewed online or downloaded from:
SEC
http://www.sec.gov
The 59 Wall Street Fund, Inc.
http://www. [ ]
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC (phone 1-800-SEC-0330) or by sending your request and a
duplicating fee to the SEC's Public Reference Section, Washington, DC 20549-6009
<PAGE>
International Equity Fund
PROSPECTUS
February 26, 1999
<PAGE>
PROSPECTUS
The 59 Wall Street Inflation-Indexed
Securities Fund
The Inflation-Indexed Securities Fund is a separate portfolio of The 59
Wall Street Fund, Inc. Shares of the Fund are offered by this Prospectus. The
Fund seeks to provide investors with a high level of current income consistent
with minimizing price fluctuations in net asset value and maintaining liquidity.
Brown Brothers Harriman & Co. is the Investment Adviser for the Fund.
Shares of the Fund are offered at net asset value without a sales charge.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is February 26, 1999.
<PAGE>
INVESTMENT OBJECTIVE AND STRATEGIES
The investment objective of the Fund is to provide investors with a high
level of current income consistent with minimizing price fluctuations in net
asset value and maintaining liquidity.
Under normal circumstances the Investment Adviser invests at least 65% of
the assets of the Fund in securities that are structured to provide protection
against inflation. Such securities are commonly referred to as Inflation-Indexed
Securities or IIS. Unlike traditional notes and bonds, which pay a stated rate
of interest in dollars and are redeemed at their par amounts, IIS have regular
adjustments to their interest payments and redemption value to compensate for
the loss of purchasing power from inflation. The Investment Adviser may also
invest the assets of the Fund in U.S. Government securities or securities of its
agencies or instrumentalities which are not indexed to inflation, if at any time
the Investment Adviser believes that there is an inadequate supply of
appropriate IIS in which to invest or if the Investment Adviser believes that
these issues will provide superior returns or liquidity. The Fund may consist of
any combination of these securities consistent with investment strategies
employed by the Investment Adviser.
The U.S. Treasury has issued IIS' as ten-year and five-year notes. The
U.S. Treasury has announced its intention to issue additional securities with a
term to maturity as long as 30 years. U.S. Government agencies, foreign
governments and corporate issuers have also issued these types of securities.
The Investment Adviser buys from among the available issues those securities
that will provide the maximum relative value to the Fund.
U.S. Treasury IIS provide for semi-annual payments of interest and a
payment of principal at maturity. Each interest payment will be adjusted up or
down to take into account any inflation or deflation that occurs between the
issue date of the security and the interest payment date. The principal amount
of a U.S. Treasury IIS will be adjusted up at maturity to take into account the
inflation that occurred between the issue date of the security and its maturity
date. The repayment of principal will never be less than the original face or
par amount of the security at issuance. All inflation adjustments will be based
on changes in the non-seasonally adjusted U.S. City Average All Items Consumer
Price Index for All Urban Consumers, which is published monthly by the Bureau of
Labor Statistics of the U.S. Department of Labor. This adjustment will be based
on the value of this index as reported for the third preceding month. Each
semi-annual payment of interest will be determined by multiplying a single fixed
semi-annual payment of interest by the inflation-adjusted principal amount of
the security for the date of the interest payment. Thus, although the interest
rate will be fixed, the amount of each interest payment will vary with the
changes in the adjusted principal of the security. These securities trade for
purchases and sales with a daily inflation adjustment to their par amount.
In addition to investing in U.S. Treasury IIS, the Investment Adviser may
invest the assets of the Fund in IIS issued by U.S. Government agencies or
instrumentalities (including mortgage backed securities), sovereign foreign
governments and their agencies or instrumentalities and, U.S. and foreign
corporations and banks. IIS may be "stripped" of their interest and principal
components and purchased as separate instruments. All IIS purchased by the
Investment Adviser must be rated at least A by Moody's Investors Service, Inc.
or Standard & Poor's Corporation (or, if unrated, determined by the Investment
Adviser to be of comparable quality). The exchange rate risk on all non-U.S.
dollar denominated IIS will be hedged back into U.S. dollars.
The Fund's income will be comprised primarily of coupon interest payments
and inflation adjustments to IIS held. Both of the components will be accrued
daily and paid monthly to shareholders. The inflation adjustment and the coupon
interest on recently issued IIS result in a yield that approximates the nominal
yield available on similar maturity U.S. Treasury securities, however this may
or may not be true in the future depending on the market's projection of future
inflation rates versus current inflation rates.
The Investment Adviser currently believes that the market for IIS will be
sufficient to permit the Fund to pursue its investment objective. However,
should the market for IIS issued by the U.S. Treasury and other issuers prove
less active than anticipated by the Investment Adviser, the Investment Adviser
is authorized to
2
<PAGE>
treat such an environment as an abnormal market condition. This means that the
investment Adviser may purchase other types of securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities, in excess of 35% of
the Fund's total assets.
Because the Investment Adviser may buy and sell securities denominated
in currencies other than the U.S. dollar, and interest and sale proceeds would
be received by the Fund in currencies other than the U.S. dollar, the Investment
Adviser may enter into foreign currency exchange transactions from time to time
for the Fund to convert to and from different foreign currencies and to convert
foreign currencies to and from the U.S. dollar.
The Investment Adviser may, on behalf of the Fund, enter into forward
foreign exchange contracts in order to protect the dollar value of all
investments in securities denominated in foreign currencies.
In response to adverse market, economic, political or other conditions,
the Investment Adviser may make temporary investments for the Fund that are not
consistent with the investment objective and principal investment strategies of
the Fund.
3
<PAGE>
PRINCIPAL RISK FACTORS
The principal risks of investing in the Fund and the circumstances
reasonably likely to adversely affect an investment are described below. As with
any fund other than a money market mutual fund, the share price of the Fund
changes daily based on market conditions and other factors. A shareholder may
lose money by investing in the Fund.
The principal risks of investing in the Fund are:
o Market Risk:
This is the risk that the price of a security will rise or fall due to
changing economic, political or market conditions, or due to a company's
individual situation.
o Interest Rate Risk:
As interest rates rise, bond prices fall, and conversely, as interest
rates decline, bond prices rise. Generally, bonds with longer maturities are
more sensitive to interest rate movements than those with shorter maturities.
"Real" interest rates (the market rate of interest less the rate of
inflation) change over time either because of a change in what investors require
for lending their money or an anticipated change in the rate of inflation. IIS
prices will move up or down when real rates change, since these securities were
sold originally based upon a "real" interest rate that is no longer prevailing.
Should market expectations for real interest rates rise, the price of IIS and
the share price of the Fund will fall.
o The IIS Market:
IIS in which the Fund may invest are relatively new securities subject to
possible illiquidity. It is not possible to predict with assurance how the
market for IIS will mature. While the U.S. Treasury expects that there will be
an active secondary market for IIS issued by it, that market may not be as
active or liquid as the secondary market for fixed-principal Treasury
securities. As a result, there may be larger spreads between bid and asked
prices for such IIS than the bid-asked spreads for fixed-principal securities
with the same remaining maturity. Larger bid-asked spreads ordinarily result in
higher transaction costs and, thus, lower overall returns.
o Indexing Methodology:
The calculation of the inflation index ratio for IIS issued by the U.S.
Treasury incorporates an approximate three-month lag, which may have an effect
on the trading price of the securities, particularly during periods of
significant, rapid changes in the inflation index. To the extent that inflation
has increased the three months prior to an interest payment, that interest
payment will not be protected from the inflation increase. Further, to the
extent that inflation has increased during the final three months of a
security's maturity, the final value of the security will not be protected
against that increase, which will negatively impact the value of the security.
Additionally, there is disagreement among financial market professionals as to
whether the Consumer Price Index actually reflects the true rate of inflation.
If the market perceives that the adjustment mechanism of the IIS does not
accurately adjust for inflation, the value of the IIS could be adversely
affected. In the event of sustained deflation, the amount of the semi-annual
interest payments, the inflation-adjusted principal of the security and the
value of any stripped components, will decrease.
o Taxation:
IIS will be subject to specific tax regulations under the original issue
discount rules of the Internal Revenue Code of 1986, as amended. Generally, an
inflation-adjusted increase in principal is required to be included as income in
the year the increase occurs even though the investor will not receive payment
of amounts equal to such increase until the security matures. During periods of
rising interest rates, the Fund will be required to accrue an increasing amount
of inflation-adjusted income. To maintain its qualification as a regulated
investment company and avoid liability for federal income taxes, the Fund will
be required to distribute
4
<PAGE>
dividends equal to substantially all of its net investment income, including the
daily accretion of inflation adjustments accrued by the Fund with respect to IIS
for which the Fund receives no payments in cash prior to their maturity.
Consequently, the Investment Adviser may have to dispose of securities under
disadvantageous circumstances in order to generate cash to satisfy the Fund's
distribution requirements.
o Credit Risk:
Credit risk is the likelihood that an issuer will default on interest or
principal payments. The Investment Adviser invests in high quality bonds with a
rating of A or better, which reduces the Fund's exposure to credit risk.
o Foreign Investments:
Investing in securities of foreign issuers involves risks not typically
associated with investing in securities of domestic issuers.
Changes in political or social conditions, diplomatic relations, or
limitation on the removal of funds or assets may adversely affect the value of
the investments of the Fund. Changes in government administrations or economic
or monetary policies in the United States or abroad could result in appreciation
or depreciation of portfolio securities and could favorably or unfavorably
affect the Fund's operations. The economies of individual foreign nations differ
from the U.S. economy, whether favorably or unfavorably, in areas such as growth
of gross domestic product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. Interest paid by foreign
issuers may be subject to withholding and other foreign taxes which may decrease
the net return on foreign investments as compared to interest paid to the Fund
by domestic Issuers.
Because foreign securities generally are denominated and pay interest in
foreign currencies, and the Fund holds various foreign currencies from time to
time, the value of the net assets of the Fund as measured in U.S. dollars is
affected favorably or unfavorably by changes in exchange rates. The Fund also
incurs costs in connection with conversion between various currencies.
o Forward Exchange Contracts:
The precise matching of the forward contract amounts and the value of the
securities involved is not always possible because the future value of such
securities in foreign currencies changes as a consequence of market movements in
the value of such securities between the date the forward contract is entered
into and the date it matures. o Investments in the Fund are neither insured nor
guaranteed by the U.S. Government. Shares of the Fund are not deposits or
obligations of, or guaranteed by, Brown Brothers Harriman & Co. or any other
bank, and the shares are not insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other federal, state or other
governmental agency.
5
<PAGE>
FUND PERFORMANCE
The chart and table below give an indication of the Fund's risks and
performance. The chart shows changes in the Fund's performance from year to
year. The table shows how the Fund's average annual returns for the periods
indicated compare to those of a broad measure of market performance as well as
an index of funds with similar objectives.
When you consider this information, please remember that the Fund's
performance in past years is not necessarily an indication of how the Fund will
do in the future.
[The following table was depicted as bar chart in the printed material]
Total Return (% per calendar year)
1993 7.00%
1994 -2.36%
1995 12.78%
1996 3.47%
1997 2.29%
1998 []%
Highest and Lowest Return
(Quarterly 1993-1998)
Quarter Ending
Highest [ ]% [ ]
Lowest [ ]% [ ]
Average Annual Total Returns
(through December 31, 1998)
1 Year 5 Years Life of Fund
(Since 7/23/92)
Inflation-Indexed Securities Fund [ ] [ ] [ ]
3 Year Treasury [ ] [ ] [ ]*
Solomon Brothers Inflation
Link Securities Index [ ] [ ] [ ]*
* (Since [ ])
6
<PAGE>
FEES AND EXPENSES OF THE FUND
The table below describes the fees and expenses that an investor may
pay if that investor buys and holds shares of the Fund.
SHAREHOLDER FEES
(Fees paid directly from an investor's account)
Maximum Sales Charge (Load) None
Imposed on Purchases
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) None
Imposed on Reinvested Dividends
Redemption Fee None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from Fund assets as a percentage of average
net assets)
Management Fees 0.25%
Distribution (12b-1) Fees None
Other Expenses
Administration Fee 0.10%
Shareholder Servicing/Eligible
Institution Fees 0.25
Other Expenses 0.54 0.99
----- ------
Total Annual Fund Operating Expenses 1.24%
======
The Actual Total Annual Fund Operating Expenses are 0.65%. This is a result of
an expense payment arrangement under which 59 Wall Street Administrators pays
the Fund's expenses, other than administration fees and expenses relating to the
organization of the Fund. These arrangements will continue until July 1, 2000.
7
<PAGE>
EXAMPLE
This example is intended to help an investor compare the cost of investing
in the Fund to the cost of investing in other mutual funds. The example assumes
that an investor invests $10,000 in the Fund for the time periods indicated and
then sells all of his shares at the end of those periods. The example also
assumes that an investment has a 5% return each year and that the Fund's
operating expenses remain the same as shown in the table above. Although actual
costs and the return on an investor's investment may be higher or lower, based
on these assumptions the investor's costs would be:
1 year [ ]
3 years [ ]
5 years [ ]
10 years [ ]
INVESTMENT ADVISER
The Investment Adviser to the Fund is Brown Brothers Harriman & Co.,
Private Bankers, a New York limited partnership established in 1818. The firm is
subject to examination and regulation by the Superintendent of Banks of the
State of New York and by the Department of Banking of the Commonwealth of
Pennsylvania. The firm is also subject to supervision and examination by the
Commissioner of Banks of the Commonwealth of Massachusetts. The Investment
Adviser is located at 59 Wall Street, New York, NY 10005.
The Investment Adviser provides investment advice and portfolio management
services to the Fund. Subject to the general supervision of the Corporation's
Directors, the Investment Adviser makes the day-to-day investment decisions for
the Fund, places the purchase and sale orders for the portfolio transactions of
the Fund, and generally manages the Fund's investments. The Investment Adviser
also analyzes and monitors economic trends, monetary policy and bond credit
ratings on a continuous basis. The holdings of the Fund are regularly reviewed
in an effort to enhance returns. The Investment Adviser provides a broad
range of investment management services for customers in the United States and
abroad. At June 30, 1998, it managed total assets of approximately $[25]
billion.
A team of individuals manages the Fund's portfolio on a day-to-day
basis. This team includes Mr. Jeffrey A. Schoenfeld, Mr. Christopher F. Kinney,
Mr. Glenn E. Baker and Mr. James J. Evans. Mr. Schoenfeld holds a B.S. from the
University of California, Berkeley and a M.B.A. from the University of
Pennsylvania. He joined Brown Brothers Harriman & Co. In 1984. Mr. Kinney holds
a B.A. from Yale University, M.A. from John Hopkins University and a M.B.A. from
Columbia University. He joined Brown Brothers Harriman & Co. in 1984. Mr.Baker
holds both a B.A. and a M.B.A. from the University of Michigan and is a
Chartered Financial Analyst. He joined Brown Brothers Harriman & Co. in 1991.
Mr. Evans holds a B.S. from the University of Delaware and a M.B.A. from New
York University and is a Chartered Financial Analyst. He joined Brown Brothers
Harriman & Co. in 1996. As compensation for the services rendered and related
expenses such as salaries of advisory personnel borne by the Investment Adviser
under the Investment Advisory Agreement, the Fund pays the Investment Adviser an
annual fee, computed daily and payable monthly, equal to 0.25% of the average
daily net assets of the Fund.
7
<PAGE>
SHAREHOLDER INFORMATION
NET ASSET VALUE
The Corporation determines the Fund's net asset value per share once daily
at 4:00 P.M., New York time on each day the New York Stock Exchange is open for
regular trading.
The Corporation values the assets in the Fund's portfolio on the basis of
their market or other fair value.
PURCHASE OF SHARES
The Corporation offers shares of the Fund on a continuous basis at its net
asset value without a sales charge. The Corporation reserves the right to
determine the purchase orders for Fund shares that it will accept. Investors may
purchase shares on any day the net asset value is calculated if the Corporation
receives the purchase order and acceptable payment for such order prior to such
calculation. The Corporation then executes purchases of Fund shares at the net
asset value per share next determined on that same day. Shares are entitled to
dividends declared, if any, starting as of the first business day following the
day the Corporation executes the purchase order on the books of the Corporation.
An investor who has an account with an Eligible Institution or a Financial
Intermediary may place purchase orders for Fund shares through that Eligible
Institution or Financial Intermediary which holds such shares in its name on
behalf of that customer pursuant to arrangements made between that customer and
that Eligible Institution or Financial Intermediary. Each Eligible Institution
and each Financial Intermediary may establish and amend from time to time a
minimum initial and a minimum subsequent purchase requirement for its customers.
Currently, such minimum purchase requirements range from $500 to $5,000. Each
Eligible Institution or Financial Intermediary arranges payment for Fund shares
on behalf of its customers. An Eligible Institution or a Financial Intermediary
may charge a transaction fee on the purchase of Fund shares.
An investor who does not have an account with an Eligible Institution or a
Financial Intermediary must place purchase orders for Fund shares with the
Corporation through Brown Brothers Harriman & Co., the Fund's Shareholder
Servicing Agent. Such an investor has such shares held directly in the
investor's name on the books of the Corporation and is responsible for arranging
for the payment of the purchase price of Fund shares. The Corporation executes
all purchase orders for initial and subsequent purchases at the net asset value
per share next determined after the Corporation's custodian, State Street Bank
and Trust Company, has received payment in the form of a cashier's check drawn
on a U.S. bank, a check certified by a U.S. bank or a wire transfer. The
Shareholder Servicing Agent has established a minimum initial purchase
requirement for the Fund of $100,000 and a minimum subsequent purchase
requirement for the Fund of $25,000. The Shareholder Servicing Agent may amend
these minimum purchase requirements from time to time.
REDEMPTION OF SHARES
If the Corporation receives a redemption request prior to the net asset
value determination on that day, the Corporation will execute such a redemption
at the net asset value per share then determined. Shares continue to earn
dividends declared, if any, through the business day that the Corporation
executes the redemption request on the books of the Corporation.
Shareholders must redeem shares held by an Eligible Institution or a
Financial Intermediary on behalf of such shareholder pursuant to arrangements
made between that shareholder and that Eligible Institution or Financial
Intermediary. The Corporation pays proceeds of a redemption to that
shareholder's account at that Eligible Institution or Financial Intermediary on
a date established by the Eligible Institution or Financial Intermediary. An
Eligible Institution or a Financial Intermediary may charge a transaction fee on
the redemption of Fund shares.
10
<PAGE>
Shareholders may redeem shares held directly in the name of a shareholder
on the books of the Corporation by submitting a redemption request in good order
to the Corporation through the Shareholder Servicing Agent. The Corporation pays
proceeds resulting from such redemption directly to the shareholder generally on
the next business day after the redemption request is executed, and in any event
within seven days.
Redemptions by the Corporation
The Shareholder Servicing Agent has established a minimum account size of
$25,000, which may be amended from time to time. If the value of a shareholder's
holdings in the Fund falls below that amount because of a redemption of shares,
the Corporation may redeem the shareholder's remaining shares. If such remaining
shares are to be redeemed, the Corporation notifies the shareholder and allows
the shareholder 60 days to make an additional investment to meet the minimum
requirement before the redemption is processed. Each Eligible Institution and
each Financial Intermediary may establish and amend from time to time for their
respective customers a minimum account size, each of which is currently lower
than that established by the Shareholder Servicing Agent.
Further Redemption Information
Redemptions of shares are taxable events on which a shareholder may
realize a gain or a loss. The Corporation has reserved the right to pay the
amount of a redemption from the Fund, either totally or partially, by a
distribution in kind of securities (instead of cash) from the Fund. The
Corporation may suspend a shareholder's right to receive payment with respect to
any redemption or postpone the payment of the redemption proceeds for up to
seven days and for such other periods as applicable law may permit.
DIVIDENDS AND DISTRIBUTIONS
The Corporation declares and pays to shareholders substantially all of the
Fund's net income and realized net short-term capital gains as a dividend
monthly, and substantially all of the Fund's realized net long-term capital
gains, if any, annually as a capital gains distribution. The Corporation may
make an additional dividend and/or capital gains distribution in a given year to
the extent necessary to avoid the imposition of federal excise tax on the Fund.
The Corporation pays dividends and capital gains distributions to shareholders
of record on the record date. Unless a shareholder whose shares are held
directly in the shareholder's name on the books of the Corporation elects to
have dividends and capital gains distributions paid in cash, the Corporation
automatically reinvests dividends and capital gains distributions in additional
Fund shares without reference to the minimum subsequent purchase requirement.
Each Eligible Institution and each Financial Intermediary may establish its own
policy with respect to the reinvestment of dividends and capital gains
distributions in additional Fund shares.
TAXES
Dividends are taxable to shareholders of the Fund as ordinary income,
whether such dividends are paid in cash or reinvested in additional shares.
Capital gains may be taxable at different rates depending on the length of time
the Fund holds its assets. Capital gains distributions are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares and regardless of the length of time a particular shareholder
has held Fund shares.
10
<PAGE>
Foreign Investors
The Fund is designed for investors who are either citizens of the United
States or aliens subject to United States income tax. Prospective investors who
are not citizens of the United States and who are not aliens subject to United
States income tax are subject to United States withholding tax on the entire
amount of all dividends. Therefore, such investors should not invest in the Fund
since alternative investments are available which would not be subject to United
States withholding tax.
13
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help an investor understand
the Fund's financial performance for the past five years. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned on an investment in
the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, whose report, along with
the Fund's financial statements, are included in the annual report, which is
available upon request.
<TABLE>
<CAPTION>
For the years ended October 31
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
Net asset value, beginning of year...........$9.51 $9.67 $9.76 $9.37 $10.17
Income from investment operations:
Net investment income ......................0.45 0.48 0.55 0.54 0.52
Net gains or losses on securities (both
realized and unrealized)....................0.01 (0.16) (0.09) 0.39 (0.74)
Total from investment operations 0.46 0.32 0.46 0.93 (0.22)
----------- ------------- ------------- -------------- -------------
Distributions:
Dividends (from net investment income) ..(0.45) (0.48) (0.55) (0.54) (0.52)
Distributions (from capital gains) ..... -- -- -- -- (0.05)
Returns of capital ..................... -- -- -- -- (0.01)
Total Distributions ...................... (0.45) (0.48) (0.55) (0.54) (0.58)
----------- ------------- ------------- -------------- -------------
Net asset value, end of period ........... $9.52 $9.51 $9.67 $9.76 $9.37
=========== ============= ============= ============== =============
Total return(1)........................ 4.98% 3.40%(1) 4.88%(1) 10.26%(1) (2.23)%(1)
Ratios/Supplemental Data:
Net assets, end of year (000's omitted) $12,594 $13,744 $16,821 $10,830 $10,328
Ratio of expenses to average net assets 0.65% 0.73%(1) 0.85%(1) 0.85%(1) 0.85%(1)
Ratio of net income to average net assets 4.48% 4.99% 5.73% 5.66% 5.29%
Portfolio turnover rate ................ 305% 372% 114% 228% 129%
<FN>
(1) Had the expense payment agreement not been in place, the ratio of expenses to
average net assets and total return would have been as follows:
Ratio of expenses to average net assets 1.18% 1.24% 1.40% 1.40% 1.46%
Total Return ....................... 4.45% 2.89% 4.33% 9.71% (2.84%)
The expense payment agreement terminated on July 1, 1997.
Furthermore, the ratio of expenses to average net assets for the year ended
October 31, 1998, 1997, 1996 and 1995 reflet fees paid with brokerage
commissions and fees reduced in connection with specific agreements. Had these
arrangements not been in place, this ratio would have been 1.18%, 1.26%, 1.42%
and 1.43% respectively.
</FN>
</TABLE>
10
<PAGE>
The 59 Wall Street
Inflation-Indexed Securities Fund
SEC file number: 811-06139
More information on the Fund is available free upon request, including the
following:
Annual/Semiannual Report
Describes the Fund's performance, lists portfolio holdings and contains a
letter from the Fund's manager discussing recent market conditions, economic
trends and Fund strategies.
Statement of Additional Information (SAI)
Provides more details about the Fund and its policies. A current SAI is on
file with the Securities and Exchange Commission (SEC) and is incorporated by
reference (is legally considered part of this prospectus).
To obtain information:
By telephone
Call 1-800-625-5759
By mail write to the Fund's Shareholder Servicing Agent:
Brown Brothers Harriman & Co.
69 Wall Street
New York, New York 10005
By E-mail send your request to:
info@ [ ]
On the Internet:
Text-only versions of Fund documents can be viewed online or downloaded from:
SEC
http://www.sec.gov
The 59 Wall Street Fund, Inc.
http://www. [ ]
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC (phone 1-800-SEC-0330) or by sending your request and a
duplicating fee to the SEC's Public Reference Section, Washington, DC 20549-6009
<PAGE>
Inflation-Indexed Securities Fund
PROSPECTUS
February 26, 1999
<PAGE>
PROSPECTUS
The 59 Wall Street U.S. Equity Fund
The U.S. Equity Fund is a separate portfolio of The 59 Wall Street Fund,
Inc. Shares of the Fund are offered by this Prospectus. The Fund seeks to
provide investors with long-term capital growth while also generating current
income.
Brown Brothers Harriman & Co. is the Investment Adviser for the Fund.
Shares of the Fund are offered at net asset value without a sales charge.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is February 26, 1999.
<PAGE>
INVESTMENT OBJECTIVE AND STRATEGIES
The investment objective of the Fund is to provide investors with
long-term capital growth while also generating current income.
Under normal circumstances the Investment Adviser fully invests the assets
of the Fund in equity securities traded on the New York Stock Exchange, American
Stock Exchange or the National Association of Securities Dealers Automated
Quotations (NASDAQ) System. Although the Investment Adviser expects to invest
the assets of the Fund primarily in common stocks, it may also purchase other
securities with equity characteristics, including securities convertible into
common stock, trust or limited partnership interests, rights, warrants and
American Depositary Receipts. Investments generally consist of equities issued
by domestic firms; however, the Investment Adviser may also purchase equities of
foreign-based companies if they are registered under the Securities Act of 1933.
The Investment Adviser primarily invests in medium and large sized
companies with a sound financial structure, proven management, an established
industry position and competitive products and services. In selecting individual
securities, the focus is primarily on those companies that exhibit above average
revenue and earnings growth as well as high or improving returns on investment .
The Investment Adviser also makes investments in companies that pay out
reasonable cash dividends.
The Fund holds a broadly diversified portfolio representing many sectors
of the U.S. economy. This industry diversification and participation in both
growth and income oriented equities is designed to control the portfolio's
exposure to market risk and company specific risk.
Historically, common stocks have provided investors with higher long-term
returns than other investment vehicles. The following graph illustrates that
over time, common stocks have outperformed investments in long-term government
bonds and U.S. Treasury bills.
[The following table was depicted as a line graph in the printed material]
Growth of a $1 investment
made in 1925
Long Term U.S.
Common Stock Gov't Bonds Treasury Bills Inflation
------------ ----------- -------------- ---------
1925 ....... $1 $1 $1 $1
1935 ....... $2 $2 $1 $1
1945 ....... $4 $3 $1 $1
1955 ....... $19 $3 $1 $2
1965 ....... $53 $3 $2 $2
1975 ....... $73 $5 $3 $3
1985 ....... $279 $11 $8 $6
1995 ....... $1,114 $34 $13 $9
1997 ....... $1,830 $39 $14 $9
1998....... $[] $[] $[] $[]
This graph illustrates the total return of the major classes of financial
assets since 1925, including common stocks, long-term government bonds and money
market securities as measured by U.S. Treasury bills. The Consumer Price Index
is used as a measure of inflation. This graph is not a prediction of the future
performance of any of these assets or of inflation. Source: Brown Brothers
Harriman & Co.
In response to adverse market, economic, political or other conditions,
the Investment Adviser may make temporary investments for the Fund that are not
consistent with the investment objective and principal investment strategies of
the Fund.
2
<PAGE>
PRINCIPAL RISK FACTORS
The principal risks of investing in the Fund and the circumstances
reasonably likely to adversely affect an investment are described below. As with
any fund other than a money market mutual fund, the share price of the Fund
changes daily based on market conditions and other factors. A shareholder may
lose money by investing in the Fund.
The principal risks of investing in the Fund are:
o Market Risk:
This is the risk that the price of a security will rise or fall due to
changing economic, political or market conditions, or due to a company's
individual situation. o Investments in the Fund are neither insured nor
guaranteed by the U.S. Government. Shares of the Fund are not deposits or
obligations of, or guaranteed by, Brown Brothers Harriman & Co. or any other
bank, and the shares are not insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other federal, state or other
governmental agency.
3
<PAGE>
FUND PERFORMANCE
The chart and table below give an indication of the Fund's risks and
performance. The chart shows changes in the Fund's performance from year to
year. The table shows how the Fund's average annual returns for the periods
indicated compare to those of a broad measure of market performance.
When you consider this information, please remember that the Fund's
performance in past years is not necessarily an indication of how the Fund will
do in the future.
[The following table was depicted as bar chart in the printed material]
Total Return (% per calendar year)
1993 10.34%
1994 0.68%
1995 38.40%
1996 15.63%
1997 30.30%
1998 []%
Highest and Lowest Return
(Quarterly 1993-1998)
Quarter Ending
Highest [ ]% [ ]
Lowest [ ]% [ ]
Average Annual Total Returns
(through December 31, 1998)
1 Year 5 Years Life of Fund
(Since 7/23/92)
U.S. Equity Fund [ ] [ ] [ ]
S&P 500 [ ] [ ] [ ]*
* (Since [ ])
4
<PAGE>
FEES AND EXPENSES OF THE FUND
The table below describes the fees and expenses that an investor may pay
if that investor buys and holds shares of the Fund.
SHAREHOLDER FEES
(Fees paid directly from an investor's account)
Maximum Sales Charge (Load) None
Imposed on Purchases
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) None
Imposed on Reinvested Dividends
Redemption Fee None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES
(Expenses that are deducted from Fund assets as a percentage of average
net assets)
Management Fees 0.65%
Distribution (12b-1) Fees None
Other Expenses
Administration Fee 0.15%
Shareholder Servicing/Eligible
Institution Fees 0.25
Other Expenses 0.11 0.51
----- ------
Total Annual Fund Operating Expenses 1.16%
======
EXAMPLE
This example is intended to help an investor compare the cost of investing
in the Fund to the cost of investing in other mutual funds. The example assumes
that an investor invests $10,000 in the Fund for the time periods indicated and
then sells all of his shares at the end of those periods. The example also
assumes that an investment has a 5% return each year and that the Fund's
operating expenses remain the same as shown in the table above. Although actual
costs and the return on an investor's investment may be higher or lower, based
on these assumptions the investor's costs would be:
1 year [ ]
3 years [ ]
5 years [ ]
10 years [ ]
5
<PAGE>
INVESTMENT ADVISER
The Investment Adviser to the Fund is Brown Brothers Harriman & Co.,
Private Bankers, a New York limited partnership established in 1818. The firm is
subject to examination and regulation by the Superintendent of Banks of the
State of New York and by the Department of Banking of the Commonwealth of
Pennsylvania. The firm is also subject to supervision and examination by the
Commissioner of Banks of the Commonwealth of Massachusetts. The Investment
Adviser is located at 59 Wall Street, New York, NY 10005.
The Investment Adviser provides investment advice and portfolio management
services to the Fund. Subject to the general supervision of the Corporation's
Directors, the Investment Adviser makes the day-to-day investment decisions for
the Fund, places the purchase and sale orders for the portfolio transactions of
the Fund, and generally manages the Fund's investments. The Investment Adviser
provides a broad range of investment management services for customers in the
United States and abroad. At June 30, 1998, it managed total assets of
approximately $[25] billion.
A team of individuals manages the Fund's portfolio on a day-to-day
basis. This team includes Mr John A. Neilsen, Mr. Harry J. Martin, Mr. William
M. Buchanan and Mr. George H. Boyd. Mr. Nielsen holds a B.A. from Bucknell
University, a M.B.A. from Columbia University and is a chartered financial
Analyst. He joined Brown Brothers Harriman & Co. In 1968. Mr. Martin holds a
B.S. from the U.S. Merchant Marine Academy, and a M.B.A. from Harvard Business
School. He joined Brown Brothers Harriman & co. In 1973. Mr Buchanan holds a
B.A. from duke University, a M.B.A. from New York University, and is a Chartered
Financial Analyst. He joined Brown Brothers Harriman & Co. In 1991. Mr. Boyd
holds a B.A. from Colgate University, a M.B.A. from Columbia University and is a
Chartered Financial Analyst. He joined Brown Brothers Harriman & Co. In 1991. As
compensation for the services rendered and related expenses such as salaries of
advisory personnel borne by the Investment Adviser under the Investment Advisory
Agreement, the Fund pays the Investment Adviser an annual fee, computed daily
and payable monthly, equal to 0.65% of the average daily net assets of the Fund.
SHAREHOLDER INFORMATION
NET ASSET VALUE
The Corporation determines the Fund's net asset value per share once daily
at 4:00 P.M., New York time on each day the New York Stock Exchange is open for
regular trading.
The Corporation values the assets in the Fund's portfolio on the basis of
their market or other fair value.
PURCHASE OF SHARES
The Corporation offers shares of the Fund on a continuous basis at their
net asset value without a sales charge. The Corporation reserves the right to
determine the purchase orders for Fund shares that it will accept. Investors may
purchase shares on any day the net asset value is calculated if the Corporation
receives the purchase order and acceptable payment for such order prior to such
calculation. The Corporation then executes purchases of Fund shares at the net
asset value per share next determined on that same day. Shares are entitled to
dividends declared, if any, starting as of the first business day following the
day the Corporation executes the purchase order on the books of the Corporation.
An investor who has an account with an Eligible Institution or a
Financial Intermediary may place purchase orders for Fund shares through that
Eligible Institution or Financial Intermediary which holds such shares in its
name on behalf of that customer pursuant to arrangements made between that
customer and that Eligible Institution or Financial Intermediary. Each Eligible
Institution and each Financial Intermediary may
5
<PAGE>
establish and amend from time to time a minimum initial and a minimum subsequent
purchase requirement for its customers. Currently, such minimum purchase
requirements range from $500 to $5,000. Each Eligible Institution or Financial
Intermediary arranges payment for Fund shares on behalf of its customers. An
Eligible Institution or a Financial Intermediary may charge a transaction fee on
the purchase of Fund shares.
An investor who does not have an account with an Eligible Institution
or a Financial Intermediary must place purchase orders for Fund shares with the
Corporation through Brown Brothers Harriman & Co., the Fund's Shareholder
Servicing Agent. Such an investor has such shares held directly in the
investor's name on the books of the Corporation and is responsible for arranging
for the payment of the purchase price of Fund shares. The Corporation executes
all purchase orders for initial and subsequent purchases at the net asset value
per share next determined after the Corporation's custodian, State Street Bank
and Trust Company, has received payment in the form of a cashier's check drawn
on a U.S. bank, a check certified by a U.S. bank or a wire transfer. The
Shareholder Servicing Agent has established a minimum initial purchase
requirement for the Fund of $100,000 and a minimum subsequent purchase
requirement for the Fund of $25,000. The Shareholder Servicing Agent may amend
these minimum purchase requirements from time to time.
REDEMPTION OF SHARES
If the Corporation receives a redemption request prior to the net asset
value determination on that day, the Corporation will execute such a redemption
at the net asset value per share then determined. Shares continue to earn
dividends declared, if any, through the business day that the Corporation
executes the redemption request on the books of the Corporation.
Shareholders must redeem shares held by an Eligible Institution or a
Financial Intermediary on behalf of such shareholder pursuant to arrangements
made between that shareholder and that Eligible Institution or Financial
Intermediary. The Corporation pays proceeds of a redemption to that
shareholder's account at that Eligible Institution or Financial Intermediary on
a date established by the Eligible Institution or Financial Intermediary. An
Eligible Institution or a Financial Intermediary may charge a transaction fee on
the redemption of Fund shares.
Shareholders may redeem shares held directly in the name of a shareholder
on the books of the Corporation by submitting a redemption request in good order
to the Corporation through the Shareholder Servicing Agent. The Corporation pays
proceeds resulting from such redemption directly to the shareholder generally on
the next business day after the redemption request is executed, and in any event
within seven days.
Redemptions by the Corporation
The Shareholder Servicing Agent has established a minimum account size of
$25,000, which may be amended from time to time. If the value of a shareholder's
holdings in the Fund falls below that amount because of a redemption of shares,
the Corporation may redeem the shareholder's remaining shares. If such remaining
shares are to be redeemed, the Corporation notifies the shareholder and allows
the shareholder 60 days to make an additional investment to meet the minimum
requirement before the redemption is processed. Each Eligible Institution and
each Financial Intermediary may establish and amend from time to time for their
respective customers a minimum account size, each of which is currently lower
than that established by the Shareholder Servicing Agent.
Further Redemption Information
Redemptions of shares are taxable events on which a shareholder may
realize a gain or a loss. The Corporation has reserved the right to pay the
amount of a redemption from the Fund, either totally or partially, by a
distribution in kind of securities (instead of cash) from the Fund.
10
<PAGE>
The Corporation may suspend a shareholder's right to receive payment with
respect to any redemption or postpone the payment of the redemption proceeds for
up to seven days and for such other periods as applicable law may permit.
DIVIDENDS AND DISTRIBUTIONS
The Corporation declares and pays to shareholders substantially all of the
Fund's net income and realized net short-term capital gains as a dividend
semi-annually, and substantially all of the Fund's realized net long-term
capital gains, if any, annually as a capital gains distribution. The Corporation
may make an additional dividend and/or capital gains distribution in a given
year to the extent necessary to avoid the imposition of federal excise tax on
the Fund. The Corporation pays dividends and capital gains distributions to
shareholders of record on the record date.
Unless a shareholder whose shares are held directly in the shareholder's
name on the books of the Corporation elects to have dividends and capital gains
distributions paid in cash, the Corporation automatically reinvests dividends
and capital gains distributions in additional Fund shares without reference to
the minimum subsequent purchase requirement.
Each Eligible Institution and each Financial Intermediary may establish
its own policy with respect to the reinvestment of dividends and capital gains
distributions in additional Fund shares.
TAXES
Dividends are taxable to shareholders of the Fund as ordinary income,
whether such dividends are paid in cash or reinvested in additional shares.
Capital gains may be taxable at different rates depending on the length of time
the Fund holds its assets. Capital gains distributions are taxable to
shareholders as long-term capital gains, whether paid in cash or reinvested in
additional shares and regardless of the length of time a particular shareholder
has held Fund shares.
Foreign Investors
The Fund is designed for investors who are either citizens of the United
States or aliens subject to United States income tax. Prospective investors who
are not citizens of the United States and who are not aliens subject to United
States income tax are subject to United States withholding tax on the entire
amount of all dividends. Therefore, such investors should not invest in the Fund
since alternative investments are available which would not be subject to United
States withholding tax.
13
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help an investor understand
the Fund's financial performance for the past five years. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned on an investment in
the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, whose report, along with
the Fund's financial statements, are included in the annual report, which is
available upon request.
<TABLE>
<CAPTION>
For the years ended October 31
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
Net asset value, beginning of year........ $52.73 $42.30 $36.46 $29.84 $28.80
Income from investment operations:
Net investment income .................. 0.03 0.21 0.16 0.26 0.26
Net gains or losses on securities (both
realized and unrealized)................. 1.24 12.22 6.75 7.15 1.05
Total from investment operations 1.27 12.43 6.91 7.41 1.31
----------- ------------ ------------- -------------- -------------
Distributions:
Dividends (from net investment income) . -- (0.14) (0.20) (0.28) (0.17)
Distributions (from capital gains) ... (3.12) (1.81) (0.87) (0.51) (0.10)
Returns of capital ..................... -- (0.05) -- -- --
Total Distributions ..................... (3.12) (2.00) (1.07) (0.79) (0.27)
----------- ------------ ------------- -------------- -------------
Net asset value, end of period .......... $50.88 $52.73 $42.30 $36.46 $29.84
=========== ============ ============= ============== =============
Total return1 ......................... 2.50% 30.29% 19.32% 25.50% 4.61%
Ratios/Supplemental Data:
Net assets, end of year (000's omitted) 62,055 $69,045 $50,773 $32,000 $22,124
Ratio of expenses to average net assets(1) 1.21% 1.22%(2) 1.20% 1.20% 1.20%
Ratio of net income to average net assets 0.04% 0.23% 0.40% 0.84% 1.06%
Portfolio turnover rate ................. 101% 37% 42% 69% 61%
Average commission rate paid per share . $0.0525 $0.0731 $0.0800 $0.0800 --
<FN>
(1) Had the expense payment agreement not been in place, the ratio of expenses to
average net assets and total return would have been as follows:
Ratio of expenses to average net assets ... n/a 1.16% 1.21% 1.28% 1.46%
Total Return ...............................n/a 30.33% 19.31% 25.42% 4.35%
The expense payment agreement terminated on July 1, 1997.
Furthermore, the ratio of expenses to average net assets for the year ended
October 31, 1997, 1996 and 1995 reflet fees paid with brokerage commissions and
fees reduced in connection with specific agreements. Had these arrangements not
been in place, this ratio would have been 1.18%, 1.30% and 1.38%, respectively.
(2) Expenses paid by the Fund as a percentage of average net assets reflect fees
reduced in connection with expense offset arrangements. Had these arrangements
not been in place, the ratio would have been 1.22%.
</FN>
</TABLE>
9
<PAGE>
The 59 Wall Street
U.S. Equity Fund
SEC file number: 811-06139
More information on the Fund is available free upon request, including the
following:
Annual/Semiannual Report
Describes the Fund's performance, lists portfolio holdings and contains a
letter from the Fund's manager discussing recent market conditions, economic
trends and Fund strategies.
Statement of Additional Information (SAI)
Provides more details about the Fund and its policies. A current SAI is on
file with the Securities and Exchange Commission (SEC) and is incorporated by
reference (is legally considered part of this prospectus).
To obtain information:
By telephone
Call 1-800-625-5759
By mail write to the Fund's Shareholder Servicing Agent:
Brown Brothers Harriman & Co.
69 Wall Street
New York, New York 10005
By E-mail send your request to:
info@ [ ]
On the Internet:
Text-only versions of Fund documents can be viewed online or downloaded from:
SEC
http://www.sec.gov
The 59 Wall Street Fund, Inc.
http://www. [ ]
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, DC (phone 1-800-SEC-0330) or by sending your request and a
duplicating fee to the SEC's Public Reference Section, Washington, DC 20549-6009
<PAGE>
U.S. Equity Fund
PROSPECTUS
February 26, 1999
<PAGE>
================================================================================
STATEMENT OF ADDITIONAL INFORMATION
THE 59 WALL STREET INTERNATIONAL EQUITY FUND
21 Milk Street, Boston, Massachusetts
02109
===============================================================================
The 59 Wall Street International Equity Fund (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
participate in the opportunities available in equity markets outside the United
States and Canada. The investment objective of the Fund is to provide investors
with long-term maximization of total return, primarily through capital
appreciation.
The Corporation seeks to achieve the investment objective of the Fund by
investing all of the Fund's assets in the International Equity Portfolio, an
open-end investment company having the same investment objective as the Fund.
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") for the Portfolio. This Statement of Additional Information is not a
prospectus and should be read in conjunction with the Prospectus dated February
26, 1999, 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
Investments
Investment Objective and Policies . 2 5-8
Investment Restrictions . . . . 4
Management
Directors, Trustees and Officers . 6
Investment Adviser . . . . . . 10 11-12
Administrators. . . . . . . . 11
Distributor . . . . . . . . 12
Shareholder Servicing Agent,
Financial Intermediaries and
Eligible Institutions . . . . . . . . 13
Custodian, Transfer and
Dividend Disbursing Agent . . . . . .[]
Independent Auditors . . . . . . . . .[]
Net Asset Value; Redemption in Kind . . . 13 15
Computation of Performance . . . . . . 14
Purchases and Redemptions . . . . . . . . []
Federal Taxes . . . . . . . . . . 15
Description of Shares . . . . . . . 16
Portfolio Brokerage Transactions . . . . 17
Additional Information . . . . . . . . . . []
Financial Statements . . . . . . . 20
Appendix . . . . . . . . . . . . . . . . . []
The date of this Statement of Additional Information is February 26, 1999.
2
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
================================================================================
The following supplements the information contained in the
Prospectus concerning the investment objective, policies and techniques of the
Portfolio.
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.
Domestic Investments
The assets of the Portfolio are not invested in domestic securities (other
than short-term instruments), except temporarily when extraordinary
circumstances prevailing at the same time in a significant number of foreign
countries render investments in such countries inadvisable.
Hedging Strategies
Options on Stock. Subject to applicable laws and regulations and solely as a
hedge against changes in the market value of portfolio securities or securities
intended to be purchased, put and call options on stocks may be purchased for
the Portfolio, although the current intention is not to do so in such a manner
that more than 5% of the Portfolio'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 at any time prior
to the expiration of the option which involves selling the option previously
purchased.
Covered call options may also be sold (written) on stocks, although in each
case the current intention is not to do so. A call option is "covered" if the
writer owns the underlying security.
Options on Stock Indexes.
Subject to applicable laws and regulations and solely
as a hedge against changes in the market value of portfolio securities or
securities intended to be purchased, put and call options on stock indexes may
be purchased for the Portfolio, although the current intention is not to do so
in
3
<PAGE>
such a manner that more than 5% of the Portfolio's net assets would be at risk.
A stock index fluctuates with changes in the market values of the stocks
included in the index. Examples of stock indexes are the Standard & Poor's 500
Stock Index (Chicago Board of Options Exchange), the New York Stock Exchange
Composite Index (New York Stock Exchange), The Financial Times-Stock Exchange
100 (London Traded Options Market), the Nikkei 225 Stock Average (Osaka
Securities Exchange) and Tokyo Stock Price Index (Tokyo Stock Exchange).
Options on stock indexes are generally similar to options on stock
except that the delivery requirements are different. Instead of giving the right
to take or make delivery of stock at a fixed price ("strike price"), an option
on a stock index gives the holder the right to receive a cash "exercise
settlement amount" equal to (a) the amount, if any, by which the strike price of
the option exceeds (in the case of a put) or is less than (in the case of a
call) the closing value of the underlying index on the date of exercise,
multiplied by (b) a fixed "index multiplier". Receipt of this cash amount
depends upon the closing level of the stock index upon which the option is based
being greater than, in the case of a call, or less than, in the case of a put,
the price of the option. The amount of cash received is equal to such difference
between the closing price of the index and the strike price of the option
expressed in U.S. dollars or a foreign currency, as the case may be, times a
specified multiple.
The effectiveness of purchasing stock index options as a hedging
technique depends upon the extent to which price movements in the portion of the
securities portfolio being hedged correlate with price movements of the stock
index selected. The value of an index option depends upon future movements in
the level of the overall stock market measured by the underlying index before
the expiration of the option. Accordingly, the successful use of options on
stock indexes is subject to the Investment Adviser's ability both to select an
appropriate index and to predict future price movements over the short term in
the overall stock market. Brokerage costs are incurred in the purchase of stock
index options and the incorrect choice of an index or an incorrect assessment of
future price movements may result in poorer overall performance than if a stock
index option had not been purchased.
Options on Currencies.
Subject to applicable laws and regulations and solely as a hedge
against changes in the market value of portfolio securities or securities
intended to be purchased, put and call options on currencies may be purchased
for the Portfolio, although the current intention is not to do so in such a
manner that more than 5% of the Portfolio's net assets would be at risk. A call
option on a currency gives the purchaser of the option the right to buy the
underlying currency at a fixed price, either at any time during the option
period (American style) or on the expiration date (European style). Similarly, a
put option gives the purchaser of the option the right to sell the underlying
currency at a fixed price, either at any time during the option period or on the
expiration date. To liquidate a put or call option position, a "closing sale
transaction" may be made for the Portfolio at any time prior to the expiration
of the option, such a transaction involves selling the option previously
purchased. Options on currencies are traded both on recognized exchanges (such
as the Philadelphia Options Exchange) and over-the-counter.
The value of a currency option purchased depends upon future changes in
the value of that currency before the expiration of the option. Accordingly, the
successful use of options on currencies is subject to the Investment Adviser's
ability to predict future changes in the value of currencies over the short
term.
4
<PAGE>
Brokerage costs are incurred in the purchase of currency options and an
incorrect assessment of future changes in the value of currencies may result in
a poorer overall performance than if such a currency had not been purchased.
Futures Contracts on Stock Indexes. Subject to applicable laws and regulations
and solely as a hedge against changes in the market value of portfolio
securities or securities intended to be purchased, futures contracts on stock
indexes may be entered into for the Portfolio.
In order to assure that a Portfolio is not deemed a "commodity pool" for
purposes of the Commodity Exchange Act, regulations of the Commodity Futures
Trading Commission ("CFTC") require that each Portfolio enter into transactions
in Futures Contracts and options on Futures Contracts only (i) for bona fide
hedging purposes (as defined in CFTC regulations), or (ii) for non-hedging
purposes, provided that the aggregate initial margin and premiums on such
non-hedging positions does not exceed 5% of the liquidation value of a
Portfolio's assets.
Futures Contracts provide for the making and acceptance of a cash
settlement based upon changes in the value of an index of stocks and are used to
hedge against anticipated future changes in overall stock market prices which
otherwise might either adversely affect the value of securities held for a
Portfolio or adversely affect the prices of securities which are intended to be
purchased at a later date. A Futures Contract may also be entered into to close
out or offset an existing futures position.
In general, each transaction in Futures Contracts involves the
establishment of a position which is expected to move in a direction opposite to
that of the investment being hedged. If these hedging transactions are
successful, the futures positions taken would rise in value by an amount which
approximately offsets the decline in value of the portion of a Portfolio's
investments that is being hedged. Should general market prices move in an
unexpected manner, the full anticipated benefits of Futures Contracts may not be
achieved or a loss may be realized. There is also the risk of a potential lack
of liquidity in the secondary market.
The effectiveness of entering into Futures Contracts as a hedging technique
depends upon the extent to which price movements in the portion of the
securities portfolio being hedged correlate with price movements of the stock
index selected. The value of a Futures Contract depends upon future movements in
the level of the overall stock market measured by the underlying index before
the closing out of the Futures Contract. Accordingly, the successful use of
Futures Contracts is subject to the Investment Adviser's ability both to select
an appropriate index and to predict future price movements over the short term
in the overall stock market. The incorrect choice of an index or an incorrect
assessment of future price movements over the short term in the overall stock
market may result in poorer overall performance than if a Futures Contract had
not been purchased. Brokerage costs are incurred in entering into and
maintaining Futures Contracts.
5
<PAGE>
When the Portfolio enters into a Futures Contract, it is initially
required to deposit, in a segregated account in the name of the broker
performing the transaction, an "initial margin" of cash, U.S. Government
securities or other high grade short-term obligations equal to approximately 3%
of the contract amount. Initial margin requirements are established by the
exchanges on which Futures Contracts trade and may, from time to time, change.
In addition, brokers may establish margin deposit requirements in excess of
those required by the exchanges. Initial margin in futures transactions is
different from margin in securities transactions in that initial margin does not
involve the borrowing of funds by a broker's client but is, rather, a good faith
deposit on the Futures Contract which will be returned upon the proper
termination of the Futures Contract. The margin deposits made are marked to
market daily and a Portfolio may be required to make subsequent deposits of cash
or eligible securities called "variation margin", with its futures contract
clearing broker, which are reflective of price fluctuations in the Futures
Contract.
Currently, investments in Futures Contracts on non-U.S. stock indexes by
U.S. investors, such as the Portfolios, can be purchased on such non-U.S. stock
indexes as the Osaka Stock Exchange (OSE), Tokyo Stock Exchange (TSE), Hong Kong
Futures Exchange (HKFE), Singapore International Monetary Exchange (SIMEX),
London International Financial Futures and Options Exchange (LIFFE), Marche
Terme International de France (MATIF), Sydney Futures Exchange Ltd. (SFE), Meff
Sociedad Rectora de Productos Financieros Derivados de Renta Variable, S.A.
(MEFF RENTA VARIABLE), Deutsche Terminborse (DTB), Italian Stock Exchange (ISE),
Financiele Termijnmarkt Amsterdam (FTA), and London Securities and Derivatives
Exchange, Ltd. (OMLX).
Exchanges may limit the amount by which the price of a Futures Contract may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased.
Another risk which may arise in employing Futures Contracts to protect
against the price volatility of portfolio securities is that the prices of an
index subject to Futures Contracts (and thereby the Futures Contract prices) may
correlate imperfectly with the behavior of the cash prices of portfolio
securities. Another such risk is that the price of the Futures Contract may not
move in tandem with the change in overall stock market prices against which a
Portfolio seeks a hedge.
Over-the-counter options ("OTC Options") purchased are treated as not readily
marketable. (See "Investment Restrictions".)
6
<PAGE>
Foreign Exchange Contracts
Foreign exchange contracts are made with currency dealers, usually large
commercial banks and financial institutions. Although foreign exchange rates are
volatile, foreign exchange markets are generally liquid with the equivalent of
approximately $500 billion traded worldwide on a typical day.
While the Portfolio may enter into foreign currency exchange transactions to
reduce the risk of loss due to a decline in the value of the hedged currency,
these transactions also tend to limit the potential for gain. Forward foreign
exchange contracts do not eliminate fluctuations in the prices of the
Portfolio's securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline. The precise matching of the forward
contract amounts and the value of the securities involved is not generally
possible because the future value of such securities in foreign currencies
changes as a consequence of market movements in the value of such securities
between the date the forward contract is entered into and the date it matures.
The projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly unlikely.
The Investment Adviser on behalf of the Portfolio may enter into
forward foreign exchange contracts in order to protect the dollar value of all
investments in securities denominated in foreign currencies. The precise
matching of the forward contract amounts and the value of the securities
involved is not always possible because the future value of such securities in
foreign currencies changes as a consequence of market movements in the value of
such securities between the date the forward contract is entered into and the
date it matures.
Loans of Portfolio Securities
Loans of portfolio securities up to 30% of the total value of the Portfolio
are permitted. Securities of the Portfolio 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 Portfolio at least equal at all times to 100%
of the market value of the securities loaned plus accrued income. By lending
securities, the Portfolio's income can be increased by its continuing to receive
income on the loaned securities as well as by the opportunity to receive
interest on the collateral. All or any portion of interest earned on invested
collateral may be paid to the borrower. Loans are subject to termination by the
Portfolio 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 Portfolio and its investors. 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 Portfolio.
Securities are not loaned to Brown Brothers Harriman & Co. or to any affiliate
of the Corporation, the Portfolio or Brown Brothers Harriman & Co.
7
<PAGE>
Short-Term Investments
Although it is intended that the assets of the Portfolio stay invested
in the securities described above and in the Prospectus to the extent practical
in light of the Portfolio's investment objective and long-term investment
perspective, the Portfolio's assets may be invested in short-term instruments to
meet anticipated expenses or for day-to-day operating purposes and when, in the
Investment Adviser's opinion, it is advisable to adopt a temporary defensive
position because of unusual and adverse conditions affecting the equity markets.
In addition, when the Portfolio experiences large cash inflows through
additional investments by its investors or the sale of portfolio securities, and
desirable equity securities that are consistent with its investment objective
are unavailable in sufficient quantities, assets may be held in short-term
investments for a limited time pending availability of such equity securities.
Short-term instruments consist of foreign and domestic: (i) short-term
obligations of sovereign governments, their agencies, instrumentalities,
authorities or political subdivisions; (ii) other short-term debt securities
rated A or higher by Moody's Investors Service, Inc. ("Moody's") or Standard &
Poor's Corporation ("Standard & Poor's"), or if unrated are of comparable
quality in the opinion of the Investment Adviser; (iii) commercial paper; (iv)
bank obligations, including negotiable certificates of deposit, fixed time
deposits and bankers' acceptances; and (v) repurchase agreements. Time deposits
with a maturity of more than seven days are treated as not readily
marketable. At the time the Portfolio's assets are invested in commercial paper,
bank obligations or repurchase agreements, the issuer must have outstanding debt
rated A or higher by Moody's or Standard & Poor's; the issuer's parent
corporation, if any, must have outstanding commercial paper rated Prime-1 by
Moody's or A-1 by Standard & Poor's; or, if no such ratings are available, the
instrument must be of comparable quality in the opinion of the Investment
Adviser. The assets of the Portfolio may be invested in non-U.S. dollar
denominated and U.S. dollar denominated short-term instruments, including U.S.
dollar denominated repurchase agreements.
Cash is held for the Portfolio in demand deposit accounts with the
Portfolio's custodian bank.
Government Securities
The assets of each Portfolio may be invested in securities issued by the U.S.
Government or sovereign foreign governments, their agencies or
instrumentalities. These securities include notes and bonds, zero coupon bonds
and stripped principal and interest securities.
Restricted Securities
Securities that have legal or contractual restrictions on their resale may be
acquired for a Portfolio. The price paid for these securities, or received upon
resale, may be lower than the price paid or received for similar securities with
a more liquid market. Accordingly, the valuation of these securities reflects
any limitation on their liquidity. (See "Investment Restrictions".)
When-Issued and Delayed Delivery Securities
Securities may be purchased for a Portfolio on a when-issued or delayed
delivery basis. For example, delivery and payment may take place a month or more
after the date of the transaction. The purchase price and the
8
<PAGE>
interest rate payable on the securities, if any, are fixed on the transaction
date. The securities so purchased are subject to market fluctuation and no
income accrues to a Portfolio until delivery and payment take place. At the time
the commitment to purchase securities on a when-issued or delayed delivery basis
is made, the transaction is recorded and thereafter the value of such securities
is reflected each day in determining that Portfolio's net asset value. Each
Portfolio maintains with the Custodian a separate account with a segregated
portfolio of securities in an amount at least equal to these commitments. At the
time of its acquisition, a when-issued or delayed delivery security may be
valued at less than the purchase price. Commitments for such when-issued or
delayed delivery securities are made only when there is an intention of actually
acquiring the securities. On delivery dates for such transactions, such
obligations are met from maturities or sales of securities and/or from cash
flow. If the right to acquire a when-issued or delayed delivery security is
disposed of prior to its acquisition, a Portfolio could, as with the disposition
of any other portfolio obligation, incur a gain or loss due to market
fluctuation. When-issued or delayed delivery commitments for a Portfolio may not
be entered into if such commitments exceed in the aggregate 15% of the market
value of its total assets, less liabilities other than the obligations created
by when-issued or delayed delivery commitments.
Investment Company Securities
Subject to applicable statutory and regulatory limitations, the assets of
each Portfolio may be invested in shares of other investment companies. Under
the 1940 Act, the assets of each Portfolio may be invested in shares of other
investment companies in connection with a merger, consolidation, acquisition or
reorganization or if immediately after such investment (i) 10% or less of the
market value of the Portfolio's total assets would be so invested, (ii) 5% or
less of the market value of the Portfolio's total assets would be invested in
the shares of any one such company, and (iii) 3% or less of the total
outstanding voting stock of any other investment company would be owned by the
Portfolio. As a shareholder of another investment company, the Portfolio would
bear, along with other shareholders, its pro rata portion of the other
investment company's expenses, including advisory fees. These expenses would be
in addition to the advisory and other expenses that a Portfolio bears directly
in connection with its own operations.
Repurchase Agreements
Repurchase agreements may be entered into for the Portfolio only with a
"primary dealer" (as designated by the Federal Reserve Bank of New York) in U.S.
Government securities. This is an agreement in which the seller (the "Lender")
of a security agrees to repurchase from a Portfolio the security sold at a
mutually agreed upon time and price. As such, it is viewed as the lending of
money to the Lender. The resale price normally is in excess of the purchase
price, reflecting an agreed upon interest rate. The rate is effective for the
period of time assets of the Portfolio are invested in the agreement and is not
related to the coupon rate on the underlying security. The period of these
repurchase agreements is usually short, from overnight to one week. The
securities which are subject to repurchase agreements, however, may have
maturity dates in excess of one week from the effective date of the repurchase
agreement. The Portfolio always receives as collateral securities which are
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
Collateral is marked to the market daily and has a market value including
accrued interest at least equal to 100% of the dollar amount invested by the
Portfolio in each agreement along with accrued
9
<PAGE>
interest. Payment for such securities is made for the Portfolio only upon
physical delivery or evidence of book entry transfer to the account of State
Street Bank and Trust Company (the "Custodian"). If the Lender defaults, the
Portfolio might incur a loss if the value of the collateral securing the
repurchase agreement declines and might incur disposition costs in connection
with liquidating the collateral. In addition, if bankruptcy proceedings are
commenced with respect to the Lender, realization upon the collateral of the
Portfolio may be delayed or limited in certain circumstances.
INVESTMENT RESTRICTIONS
=============================================================================
The Fund and the Portfolio are 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 outstanding voting securities"
(as defined in the 1940 Act) of the Fund or the Portfolio, as the case may be
(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 Portfolio and 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 or the withdrawal of part or all of the Fund's interest in the
Portfolio, as the case may be, 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), 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;
10
<PAGE>
(3) write, purchase or sell any put or call option or any combination
thereof, provided that this shall not prevent (i) the purchase, ownership,
holding or sale of warrants where the grantor of the warrants is the issuer of
the underlying securities, or (ii) the purchase, ownership, holding or sale of
futures and options, other than the writing of put options;
(4) underwrite securities issued by other persons except insofar as it
may technically be deemed an underwriter under the Securities Act of 1933, as
amended in selling a portfolio security;
(5) make loans to other persons except (a) through the lending of its
portfolio securities and provided that any such loans not exceed 30% of its 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 (6) 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 are part of
an issue to the public shall not be considered the making of a loan;
(6) knowingly invest in securities which are subject to legal or
contractual restrictions on resale (other than repurchase agreements maturing in
not more than seven days) if, as a result thereof, more than 10% of its net
assets (taken at market value) would be so invested (including repurchase
agreements maturing in more than seven days);
(7) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts
(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 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;
11
<PAGE>
(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.
Non-Fundamental Restrictions. The Portfolio or the Corporation, on
behalf of 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; (ii) invest more than 10% of its net
assets (taken at the greater of cost or market value) in restricted securities;
(iii) invest less than 65% of the value of the total assets of the Portfolio in
equity securities of companies based in countries in which it invests (For these
purposes, equity securities are defined as common stock, securities convertible
into common stock, rights and warrants, and include securities purchased
directly and in the form of American Depository Receipts, Global Depository
Receipts or other similar securities representing common stock of foreign-based
companies); (iv) invest more than 10% of the Portfolio's assets in less
developed markets; or (v) invest more than 5% of the Portfolio's assets in any
one less developed market. The Appendix provides a comparison of Market
Capitalization, Gross Domestic Product (GDP) and Population of the developed
countries in which the Portfolio invests. These policies are not fundamental and
may be changed without shareholder or investor 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. If the Fund's and the
Portfolio's respective investment restrictions relating to any particular
investment practice or policy are not consistent, the Portfolio has agreed with
the Corporation that it will adhere to the more restrictive limitation.
12
<PAGE>
DIRECTORS, TRUSTEES AND OFFICERS
=============================================================================
The Corporation's Directors, in addition to supervising the actions of the
Administrator of the Corporation and Distributor, as set forth below, decide
upon matters of general policy with respect to the Corporation. The Portfolio's
Trustees, in addition to supervising the actions of the Portfolio's Investment
Adviser and Administrator, as set forth below, decide upon matters of general
policy with respect to the Portfolio. The Corporation's Directors are not the
same individuals as the Portfolio's Trustees.
Because of the services rendered to the Portfolio by the Investment Adviser
and to the Corporation and the Portfolio by their respective Administrators, the
Corporation and the Portfolio require no employees, and their respective
officers, other than the Chairmen, receive no compensation from the Fund or
Portfolio.
The Directors of the Corporation, Trustees of the Portfolio and
executive officers of the Corporation and the Portfolio, 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 Trust ;
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;
President of Lowy Industries (since August 1998); Secretary of the Los Angeles
County Board of Investments (prior to March 1995). His business address is 4111
Clear Valley Drive, Encino, CA 91436.
ARTHUR D. MILTENBERGER** -- 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; Vought Aircraft Corporation (prior
to September 1994), Caterair International (prior to April 1994); Advisory
Committee of Carlyle Group and Pittsburgh Seed Fund and Valuation Committee of
Morgenthaler
13
<PAGE>
Venture Funds(2). His business address is Richard K. Mellon and Sons,
P.O. Box RKM, Ligonier, PA 15658.
TRUSTEES OF THE PORTFOLIO
H.B. ALVORD** -- Chairman of the Board and Trustee; Retired; Trustee of
the Trust (from September 1990 to October 1994); Director of The 59 Wall Street
Fund, Inc. (from September 1990 to October 1994); Trustee of Landmark Funds III,
Landmark Tax Free Reserves, Landmark Multi-State Tax Free Funds, Landmark Tax
Free Income Funds, Landmark Fixed Income Funds, Landmark Funds I, Landmark Funds
II, and Landmark International Equity Fund (from September 1990 to May 1997).
His business address is P.O.
Box 5203, Carmel, CA 93921.
RICHARD L. CARPENTER** -- Trustee; Retired; Director of Internal
Investments, Public School Employees' Retirement System (prior to December
1995). His business address is 12664 Lazy Acres Court, Nevada City, CA 95959.
CLIFFORD A. CLARK** -- Trustee; Retired; Director of Schmid, Inc.
(prior to July 1993); Managing Director of the Smith-Denison Foundation. His
business address is 42 Clowes Drive, Falmouth, MA 02540.
DAVID M. SEITZMAN** -- Trustee; Retired; Physician with Seitzman,
Shuman, Kwart and Phillips (prior to October 1997); Director of the National
Capital Underwriting Company, Commonwealth Medical Liability Insurance Co. and
National Capital Insurance Brokerage, Limited. His business address is 7117
Nevis Road, Bethesda, MD 20817.
OFFICERS OF THE CORPORATION AND THE PORTFOLIO
PHILIP W. COOLIDGE -- President; Chief Executive Officer and President
of Signature Financial Group, Inc. ("SFG"), 59 Wall Street Distributors, Inc.
("59 Wall Street Distributors") and 59 Wall Street Administrators, Inc. ("59
Wall Street Administrators").
JAMES E. HOOLAHAN -- Vice President; Senior Vice President of SFG.
JOHN R. ELDER -- Treasurer; Vice President of SFG (since April 1995);
Treasurer of Phoenix Family of Mutual Funds (prior to April 1995).
LINDA T. GIBSON -- Secretary; Senior Vice President and Secretary, SFG;
Secretary of 59 Wall Street Distributors and 59 Wall Street Administrators.
14
<PAGE>
SUSAN JAKUBOSKI*** -- Assistant Treasurer and Assistant Secretary of the
Portfolio; Assistant Secretary, Assistant Treasurer and Vice President of
Signature Financial Group (Grand Cayman) Limited (since August 1994); Fund
Compliance Administrator of Concord Financial Group, Inc. (from November 1990 to
August 1994). Her business address is Signature Financial Group (Grand Cayman)
Limited, Elizabethan Square, George Town, Grand Cayman, Cayman Islands, B.W.I.
MOLLY S. MUGLER -- Assistant Secretary; Vice President and Assistant
Secretary of SFG; Assistant Secretary of 59 Wall Street Distributors and 59 Wall
Street Administrators.
CHRISTINE A. DRAPEAU - Assistant Secretary; Vice President of SFG (since
January 1996); Paralegal and Compliance Officer, various financial companies
(July 1992 to January 1996); Graduate Student, Bentley College (prior to
December 1994).
-------------------------
*Mr. Shields is an "interested person" of the Corporation and the
Portfolio because of his affiliation with a registered broker-dealer.
**These Directors and Trustees are members of the Audit Committee of
the Corporation or the Portfolio, as the case may be.
***Ms. Jakuboski is an officer of the Portfolio but is not an officer
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, an aircraft manufacturer, an airline
food services company, a merchant bank, and a venture capital partnership,
respectively.
Each Director and officer of the Corporation listed above holds the
equivalent position with The 59 Wall Street Trust. The address of each officer
of the Corporation and the Portfolio is 21 Milk Street, Boston, Massachusetts
02109. Messrs. Coolidge, Hoolahan and Elder and Mss. Gibson, Jakuboski, Mugler
and Drapeau also hold similar positions with other investment companies for
which affiliates of 59 Wall Street Distributors serves as the principal
underwriter.
15
<PAGE>
Except for Mr. Shields, no Director or Trustee is an "interested
person" of the Corporation or the Portfolio, respectively, 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Compensation
Pension or from the
Retirement Corporation
Aggregate Benefits Accrued Estimated Annual and Fund
Name of Person, Compensation as Part of Benefits upon Complex*Paid
Position from the Corp. Fund Expenses Retirement to Directors
J.V. Shields, Jr., $[] none none $[]
Director
Eugene P. Beard, $[] none none $[]
Director
David P. Feldman, $[] none none $[]
Director
Alan G. Lowy, $[] none none $[]
Director
Arthur D.
Miltenberger, $[] none none $[]
Director
<FN>
* The Fund Complex consists of the Corporation and The 59 Wall Street Trust
which currently consists of three series.
</FN>
</TABLE>
Portfolio Trustees
The Trustees of the Portfolio receive a base annual fee of $12,000 (except
the Chairman who receives a base annual fee of $17,000) which is paid jointly by
the U.S. Money Market Portfolio, International Equity Portfolio and U.S Mid-Cap
Portfolio together with the Portfolio (the "Portfolios") and allocated among the
Portfolios based upon their respective net assets. In addition, each Portfolio
which has commenced operations pays an annual fee to each Trustee of $1,000.
15
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Compensation
Pension or from the
Retirement the Portfolio
Aggregate Benefits Accrued Estimated Annual Complex*
Name of Person, Compensation as Part of Benefits upon Paid
Position from the Port. Portfolio Expenses Retirement to Trustees
H.B. Alvord, $[] none none $[]
Trustee
Richard L. Carpenter$[] none none $[]
Trustee
Clifford A. Clark $[] none none $[]
Trustee
David M. Seitzman $[] none none $[]
Trustee
<FN>
*The Portfolio Complex consists of the Portfolio, U.S. Money Market
Portfolio, International Equity Portfolio and U.S. Mid-Cap Portfolio.
</FN>
</TABLE>
By virtue of the responsibilities assumed by Brown Brothers Harriman & Co.
under the Investment Advisory Agreement with the Portfolio and the
Administration Agreement with the Corporation, and by Brown Brothers Harriman
Trust Company (Cayman) Limited under the Administration Agreement with the
Portfolio (see "Investment Adviser" and "Administrators"), none of the
Corporation and the Portfolio requires employees other than its officers, and
none of its officers devote full time to the affairs of the Corporation or the
Portfolio, as the case may be, or, other than the Chairmen, receive any
compensation from the Corporation or the Portfolio.
As of January 31, 1999, the Directors of the Corporation, Trustees of the
Portfolio and officers of the Corporation and the Portfolio as a group
beneficially owned less than 1% of the outstanding shares of the Corporation and
less than 1% of the aggregate beneficial interests in the Portfolio.
17
<PAGE>
At the close of business on that date, no person, to the knowledge of
the management, owned beneficially more than 5% of the outstanding shares of the
Fund except that : Fleckenstein Family Foundation owned [ ] ([ ]%) and BBH Trust
(f/b/o descendants of Edward Roland Harriman ) owned [ ] ([ ]%) of the
outstanding shares of the Fund. As of that date, the partners of Brown Brothers
Harriman & Co. and their immediate families owned [ ]
18
<PAGE>
([ ]%) shares of the Fund. Brown Brothers Harriman & Co. and its
affiliates separately are able to direct the disposition of an additional [ ]
([ ]%) shares of the Fund, as to which shares Brown Brothers Harriman & Co.
disclaims beneficial ownership.
INVESTMENT ADVISER
================================================================================
Under its Investment Advisory Agreement with the Portfolio, subject to the
general supervision of the Portfolio's Trustees and in conformance with the
stated policies of the Portfolio, Brown Brothers Harriman & Co. provides
investment advice and portfolio management services to the Portfolio. In this
regard, it is the responsibility of Brown Brothers Harriman & Co. to make the
day-to-day investment decisions for the Portfolio, to place the purchase and
sale orders for portfolio transactions and to manage, generally, the Portfolio's
investments.
The Investment Advisory Agreement between Brown Brothers Harriman & Co. and
the Portfolio is dated August 23, 1994 and remains in effect for two years from
such date and thereafter, but only so long as the agreement is specifically
approved at least annually (i) by a vote of the holders of a "majority of the
outstanding voting securities" (as defined in the 1940 Act) of the Portfolio, or
by the Portfolio's Trustees, and (ii) by a vote of a majority of the Trustees of
the Portfolio who are not parties to the Investment Advisory Agreement or
"interested persons" (as defined in the 1940 Act) of the Portfolio ("Independent
Trustees"), cast in person at a meeting called for the purpose of voting on such
approval. The Investment Advisory Agreement was most recently approved by the
Independent Trustees of the Portfolio on November 10, 1998. The Investment
Advisory Agreement terminates automatically if assigned and is terminable at any
time without penalty by a vote of a majority of the Trustees of the Portfolio or
by a vote of the holders of a "majority of the outstanding voting securities"
(as defined in the 1940 Act) of the Portfolio on 60 days' written notice to
Brown Brothers Harriman & Co. and by Brown Brothers Harriman & Co. on 90 days'
written notice to the Portfolio (see "Additional Information").
The investment advisory fee paid to the Investment Adviser from the
Portfolio is calculated daily and paid monthly at an annual rate equal to 0.65%
of the average daily net assets of the Portfolio. For the fiscal years ended
October 31, 1998, October 31, 1997 and October 31, 1996, the Portfolio incurred
$ [], $293,880 and $226,127, respectively, for advisory fees.
The investment advisory services of Brown Brothers Harriman & Co. to
the Portfolio are not exclusive under the terms of the Investment Advisory
Agreement. Brown Brothers Harriman & Co. is free to and does render investment
advisory services to others, including other registered investment companies.
Pursuant to a license agreement between the Corporation and Brown Brothers
Harriman & Co. dated September 5, 1990, as amended as of December 15, 1993, the
Corporation may continue to use in its name "59 Wall Street", the current and
historic address of Brown Brothers Harriman & Co. The agreement may be
terminated by Brown Brothers Harriman & Co. at any time upon written notice to
the Corporation upon the
19
<PAGE>
expiration or earlier termination of any investment advisory agreement between a
Fund or any investment company in which a series of the Corporation invests all
of its assets and Brown Brothers Harriman & Co. Termination of the agreement
would require the Corporation to change its name and the name of each Fund to
eliminate all reference to "59 Wall Street".
Pursuant to license agreements between Brown Brothers Harriman & Co. and each
of 59 Wall Street Administrators and 59 Wall Street Distributors (each a
"Licensee"), dated June 22, 1993 and June 8, 1990, respectively, each Licensee
may continue to use in its name "59 Wall Street", the current and historic
address of Brown Brothers Harriman & Co., only if Brown Brothers Harriman & Co.
does not terminate the respective license agreement, which would require the
Licensee to change its name to eliminate all references to "59 Wall Street".,
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
Corporation. There is presently no controlling precedent prohibiting financial
institutions such as Brown Brothers Harriman & Co. from performing the
investment advisory, administrative or shareholder servicing/eligible
institution functions described above. If Brown Brothers Harriman & Co. were to
terminate its Investment Advisory Agreements with the Portfolio, or were
prohibited from acting in such capacity, it is expected that the Trustees of the
Portfolio would recommend to the investors that they approve a new investment
advisory agreement for the Portfolio with another qualified adviser. If Brown
Brothers Harriman & Co. were to terminate its Shareholder Servicing Agreement,
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 each Fund 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.
ADMINISTRATORS
================================================================================
Brown Brothers Harriman & Co. acts as Administrator of the Corporation
and Brown Brothers Harriman Trust Company (Cayman) Limited acts as Administrator
of each Portfolio. Brown Brothers Harriman Trust Company (Cayman) Limited is a
wholly-owned subsidiary of Brown Brothers Harriman Trust Company of New York,
which is a wholly-owned subsidiary of Brown Brothers Harriman & Co.
In its capacity as Administrator of the Corporation, Brown Brothers
Harriman & Co. administers all aspects of the Corporation's operations subject
to the supervision of the Corporation's Directors except as set forth below
under "Distributor". In connection with its responsibilities as Administrator
and at its own expense, Brown Brothers Harriman & Co. (i) provides the
Corporation with the services of persons competent to perform such supervisory,
administrative and clerical functions as are necessary in order to provide
effective administration of the Corporation, including the maintenance of
certain books and records; (ii) oversees the performance of administrative and
professional services to the Corporation by others, including the Funds'
Custodian, Transfer
20
<PAGE>
and Dividend Disbursing Agent; (iii) provides the Corporation with adequate
office space and communications and other facilities; and (iv) prepares and/or
arranges for the preparation, but does not pay for, the periodic updating of the
Corporation's registration statement and each Fund's prospectus, the printing of
such documents for the purpose of filings with the Securities and Exchange
Commission and state securities administrators, and the preparation of tax
returns for each Fund and reports to each Fund's shareholders and the Securities
and Exchange Commission.
Brown Brothers Harriman Trust Company (Cayman) Limited, in its capacity
as Administrator of each Portfolio, administers all aspects of the Portfolio's
operations subject to the supervision of the Portfolio's Trustees except as set
forth above under "Investment Adviser". In connection with its responsibilities
as Administrator for each Portfolio and at its own expense, Brown Brothers
Harriman Trust Company (Cayman) Limited (i) provides each Portfolio with the
services of persons competent to perform such supervisory, administrative and
clerical functions as are necessary in order to provide effective administration
of the Portfolio, including the maintenance of certain books and records,
receiving and processing requests for increases and decreases in the beneficial
interests in the Portfolio, notification to the Investment Adviser of available
funds for investment, reconciliation of account information and balances between
the Custodian and the Investment Adviser, and processing, investigating and
responding to investor inquiries; (ii) oversees the performance of
administrative and professional services to each Portfolio by others, including
the Custodian; (iii) provides each Portfolio with adequate office space and
communications and other facilities; and (iv) prepares and/or arranges for the
preparation, but does not pay for, the periodic updating of each Portfolio's
registration statement for filing with the Securities and Exchange Commission,
and the preparation of tax returns for each Portfolio and reports to investors
and the Securities and Exchange Commission.
The Administration Agreements between the Corporation and Brown
Brothers Harriman & Co. (dated November 1, 1993) and between the Portfolio and
Brown Brothers Harriman Trust Company (Cayman) Limited (dated August 23, 1994)
will remain in effect for two years from such respective date and thereafter,
but only so long as each such agreement is specifically approved at least
annually in the same manner as the Portfolio's Investment Advisory Agreement
(see "Investment Adviser"). The Independent Directors most recently approved the
Corporation's Administration Agreement on November 10, 1998. The Portfolio's
Administration Agreement was most recently approved by the Independent Trustees
of the Portfolio on November 10, 1998. Each agreement will terminate
automatically if assigned by either party thereto and is terminable by the
Corporation or the Portfolio at any time without penalty by a vote of a majority
of the Directors of the Corporation or the Trustees of the Portfolio, as the
case may be, or by a vote of the holders of a "majority of the outstanding
voting securities" (as defined in the 1940 Act) of the Corporation or the
Portfolio, as the case may be (see "Additional Information"). The Corporation's
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. The Portfolio's Administration Agreement is terminable
21
<PAGE>
by the Trustees of the Portfolio or by the Portfolio's corresponding Fund and
other investors in the Portfolio on 60 days' written notice to Brown Brothers
Harriman Trust Company (Cayman) Limited. Each agreement is terminable by the
contracting Administrator on 90 days' written notice to the Corporation or the
Portfolio, as the case may be.
The administrative fee payable to Brown Brothers Harriman & Co. from
the Fund is calculated daily and payable monthly at an annual rate equal to
0.125% of the Fund's average daily net assets. For the period June 6, 1997
through October 31, 1997, the Fund incurred $2,739 for administrative services.
For the fiscal year ended October 31, 1998, the Fund incurred [] for
administrative services.
The administrative fee paid to Brown Brothers Harriman Trust Company
(Cayman) Limited by the Portfolio is calculated and paid monthly at an annual
rate equal to 0.035% of the Portfolio's average daily net assets. Brown Brothers
Harriman Trust Company (Cayman) Limited is a wholly-owned subsidiary of Brown
Brothers Harriman Trust Company of New York, which is a wholly-owned subsidiary
of Brown Brothers Harriman & Co. For the fiscal years ended October 31, 1998,
October 31, 1997 and October 31, 1996, the Portfolio incurred $[] , $15,824 and
$12,176, respectively, for administrative services.
Pursuant to a Subadministrative Services Agreement with Brown Brothers
Harriman & Co., 59 Wall Street Administrators performs such subadministrative
duties for the Corporation as are from time to time agreed upon by the parties.
The offices of 59 Wall Street Administrators are located at 21 Milk Street,
Boston, Massachusetts 02109. 59 Wall Street Administrators is a wholly-owned
subsidiary of Signature Financial Group, Inc. ("SFG"). SFG is not affiliated
with Brown Brothers Harriman & Co. 59 Wall Street Administrators'
subadministrative duties may include providing equipment and clerical personnel
necessary for maintaining the organization of the Corporation, participation in
the preparation of documents required for compliance by the Corporation with
applicable laws and regulations, preparation of certain documents in connection
with meetings of Directors and shareholders of the Corporation, and other
functions that would otherwise be performed by the Administrator as set forth
above. For performing such subadministrative services, 59 Wall Street
Administrators receives such compensation as is from time to time agreed upon,
but not in excess of the amount paid to the Administrator from the Fund.
Pursuant to a Subadministrative Services Agreement with Brown Brothers
Harriman Trust Company (Cayman) Limited, SFG-Cayman performs such
subadministrative duties for the Portfolio as are from time to time agreed upon
by the parties. The offices of SFG-Cayman are located at Elizabethan Square,
George Town, Grand Cayman BWI. SFG-Cayman is a wholly-owned subsidiary of
Signature Financial Group, Inc. ("SFG"). SFG is not affiliated with Brown
Brothers Harriman & Co. SFG-Caymans' subadministrative duties may include
providing equipment and clerical personnel necessary for maintaining the
organization of the Portfolio, participation in the preparation of documents
required for compliance by the Portfolio with applicable laws and regulations,
preparation of certain documents in connection with meetings of Trustees of and
investors in the Portfolio, and other functions that would otherwise be
performed by the Administrator of the Portfolio as set forth above. For
performing such subadministrative services, SFG-Cayman receives such
compensation as is from time to time agreed upon, but not in excess of the
amount paid to the Administrator from the Portfolio.
22
<PAGE>
DISTRIBUTOR
=============================================================================
59 Wall Street Distributors acts as exclusive Distributor of shares of
the Fund. Its office is located at 21 Milk Street, Boston, Massachusetts 02109.
59 Wall Street Distributors is a wholly-owned subsidiary of SFG.
23
<PAGE>
SFG and its affiliates currently provide administration and
distribution services for other registered investment companies. The Corporation
pays for the preparation, printing and filing of copies of the Corporation's
registration statements and the Fund's prospectus as required under federal and
state securities laws.
59 Wall Street Distributors holds itself available to receive purchase orders
for Fund shares.
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 Portfolio's
Investment Advisory Agreement (see "Investment Adviser"). The Distribution
Agreement was 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.
SHAREHOLDER SERVICING AGENT
================================================================================
The Corporation has entered into a shareholder servicing agreement with
Brown Brothers Harriman & Co. pursuant to which Brown Brothers Harriman & Co.,
as agent for the Corporation with respect to the Fund, among other things:
answers inquiries from shareholders of and prospective investors in the Fund
regarding account status and history, the manner in which purchases and
redemptions of Fund shares may be effected and certain other matters pertaining
to the Fund; assists shareholders of and prospective investors in the Fund in
designating and changing dividend options, account designations and addresses;
and provides such other related services as the Corporation or a shareholder of
or prospective investor in the Fund may reasonably request. For these services,
Brown Brothers Harriman & Co. receives from the Fund an annual fee, computed
daily and payable monthly, equal to 0.25% of the Fund's average daily net assets
represented by shares owned during the period for which payment was being made
by shareholders who did not hold their account with an Eligible Institution.
FINANCIAL INTERMEDIARIES
================================================================================
From time to time, the Fund's Shareholder Servicing Agent enters into
contracts with banks, brokers and other financial intermediaries ("Financial
Intermediaries") pursuant to which a customer of the Financial Intermediary may
place purchase orders for Fund shares through that Financial Intermediary which
holds such shares in its name
24
<PAGE>
on behalf of that customer. Pursuant to such contract, each Financial
Intermediary as agent with respect to shareholders of and prospective investors
in the Fund who are customers of that Financial Intermediary, among other
things: provides necessary personnel and facilities to establish and maintain
certain shareholder accounts and records enabling it to hold, as agent, its
customers' shares in its name or its nominee name on the shareholder records of
the Corporation; assists in processing purchase and redemption transactions;
arranges for the wiring of funds; transmits and receives funds in connection
with customer orders to purchase or redeem shares of the Funds; provides
periodic statements showing a customer's account balance and, to the extent
practicable, integrates such information with information concerning other
customer transactions otherwise effected with or through it; furnishes, either
separately or on an integrated basis with other reports sent to a customer,
monthly and annual statements and confirmations of all purchases and redemptions
of Fund shares in a customer's account; transmits proxy statements, annual
reports, updated prospectuses and other communications from the Corporation to
its customers; and receives, tabulates and transmits to the Corporation proxies
executed by its customers with respect to meetings of shareholders of the Fund.
For these services, the Financial Intermediary receives such fees from the
Shareholder Servicing Agent as may be agreed upon from time to time between the
Shareholder Servicing Agent and such Financial Intermediary.
ELIGIBLE INSTITUTIONS
================================================================================
The Corporation enters into eligible institution agreements with banks,
brokers and other financial institutions pursuant to which each financial
institution, as agent for the Corporation with respect to shareholders of and
prospective investors in the Fund who are customers with that financial
institution, among other things: provides necessary personnel and facilities to
establish and maintain certain shareholder accounts and records enabling it to
hold, as agent, its customer's shares in its name or its nominee name on the
shareholder records of the Corporation; assists in processing purchase and
redemption transactions; arranges for the wiring of funds; transmits and
receives funds in connection with customer orders to purchase or redeem shares
of the Fund; provides periodic statements showing a customer's account balance
and, to the extent practicable, integrates such information with information
concerning other customer transactions otherwise effected with or through it;
furnishes, either separately or on an integrated basis with other reports sent
to a customer, monthly and annual statements and confirmations of all purchases
and redemptions of Fund shares in a customer's account; transmits proxy
statements, annual reports, updated prospectuses and other communications from
the Corporation to its customers; and receives, tabulates and transmits to the
Corporation proxies executed by its customers with respect to meetings of
shareholders of the Fund. For these services, each financial institution
receives from the Fund an annual fee, computed daily and payable monthly, equal
to 0.25% of the Fund's average daily net assets represented by shares owned
during the period for which payment was being made by customers for whom the
financial institution was the holder or agent of record.
EXPENSE PAYMENT AGREEMENT
================================================================================
Under an agreement dated August 23, 1994, Brown Brothers Harriman Trust
Company (Cayman) Limited pays the expenses of the Portfolio, other than fees
paid to Brown Brothers Harriman & Co. under the Portfolio's Administration
Agreement and other than expenses relating to the organization of the Portfolio.
In return, Brown Brothers Harriman Trust Company (Cayman) Limited receives a fee
from the Portfolio such that after such payment
25
<PAGE>
the aggregate expenses of the Portfolio do not exceed an agreed upon annual
rate, currently 0.90% of the average daily net assets of the Portfolio. Such
fees are computed daily and paid monthly.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
================================================================================
State Street Bank and Trust Company ("State Street" or the "Custodian"), 225
Franklin Street, P.O. Box 351, Boston, Massachusetts 02110, is Custodian for the
Funds and the Portfolios and Transfer and Dividend Disbursing Agent for the
Funds.
As Custodian for the Fund, it is responsible for holding the Fund's assets
(i.e., cash and the Fund's interest in the Portfolio) pursuant to a custodian
agreement with the Corporation. Cash is held for the Fund in demand deposit
accounts at the Custodian. Subject to the supervision of the Administrator of
the Corporation, the Custodian maintains the accounting records for the Fund and
each day computes the net asset value per share of the Fund. As Transfer and
Dividend Disbursing Agent it is responsible for maintaining the books and
records detailing the ownership of the Fund's shares.
As Custodian for the Portfolio, it is responsible for maintaining books and
records of portfolio transactions and holding the Portfolio's securities and
cash pursuant to a custodian agreement with the Portfolio. Cash is held for the
Portfolio in demand deposit accounts at the Custodian. Subject to the
supervision of the Administrator of the Portfolio, the Custodian maintains the
accounting and portfolio transaction records for the Portfolio and each day
computes the net asset value and net income of the Portfolio.
INDEPENDENT AUDITORS
================================================================================
Deloitte & Touche LLP, Boston, Massachusetts are the independent auditors for
the Fund. Deloitte & Touche, Grand Cayman are the independent auditors for the
Portfolio.
NET ASSET VALUE; REDEMPTION IN KIND
================================================================================
The Fund's net asset value per share is determined once daily at 4:00 p.m.,
New York time on each day the New York Stock Exchange is open for regular
trading. (As of the date of this Statement of Additional Information, such
Exchange is so open every weekday except for the following holidays: New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas.) The determination
of the Fund's net asset value of per share is made by subtracting from the value
of the Fund's total assets (i.e., the value of its investment in the Portfolio
and other assets) the amount of its liabilities,
26
<PAGE>
including expenses payable or accrued, and dividing the difference by the number
of shares of the Fund outstanding at the time the determination is made.
The value of the Portfolio's net assets (i.e., the value of its securities
and other assets less its liabilities, including expenses payable or accrued) is
determined at the same time and on the same days as the net asset value per
share of the Fund is determined. The value of the Fund's investment in the
Portfolio is determined by multiplying the value of the Portfolio's net assets
by the percentage, effective for that day, which represents the Fund's share of
the aggregate beneficial interests in the Portfolio.
The value of investments listed on a domestic securities exchange is based on
the last sale prices as of the regular close 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. Securities listed on a foreign exchange are valued at the last quoted
sale price available before the time at which net assets are valued.
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. For purposes of
calculating net asset value per share, all assets and liabilities initially
expressed in foreign currencies are converted into U.S. dollars at the
prevailing market rates available at the time of valuation.
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 Portfolio's
Trustees. Such procedures include the use of independent pricing services, which
use prices based upon yields or prices of securities of comparable quality,
coupon, maturity and type; indications as to values from dealers; and general
market conditions. 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 was more than 60 days, unless this is determined not to
represent fair value by the Trustees of the Portfolio.
Trading in securities on most foreign exchanges and over-the-counter markets
is normally completed before the close of the New York Stock Exchange and may
also take place on days the New York Stock Exchange is closed. If events
materially affecting the value of foreign securities occur between the time when
the exchange on which they are traded closes and the time when the Portfolio's
net asset value is calculated, such securities would be valued at fair value in
accordance with procedures established by and under the general supervision of
the Portfolio's Trustees.
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
27
<PAGE>
(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 that Fund's net assets
at the beginning of such 90 day period.
COMPUTATION OF PERFORMANCE
================================================================================
The average annual total 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.
Historical total return information for any period or portion thereof
prior to the establishment of the Fund will be that of the Portfolio, adjusted
to assume that all charges, expenses and fees of the Fund and the Portfolio
which are presently in effect were deducted during such periods, as permitted by
applicable SEC staff interpretations. The
table that follows sets forth average annual total return information for the
periods indicated:
28
<PAGE>
Since inception 10/31/98
1 Year: []% []%
Commencement of
Operations* to
date: []% []%
* The Portfolio commenced operations on April 1, 1995.
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's Portfolio and the
Fund's and Portfolio'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.
29
<PAGE>
The Fund's performance may be used from time to time in shareholder
reports or other communications to shareholders or prospective investors.
Performance figures are based on historical earnings and are not intended to
indicate future performance. Performance information may include the Fund's
investment results and/or comparisons of its investment results to various
unmanaged indexes (such as the MSCI-EAFE Index) and to investments for which
reliable performance data is available. Performance information may also include
comparisons to averages, performance rankings or other information prepared by
recognized mutual fund statistical services. To the extent that unmanaged
indexes are so included, the same indexes are used on a consistent basis. The
Fund's investment results as used in such communications are calculated on a
total rate of return basis in the manner set forth below.
Period and average annualized "total rates of return" may be provided in such
communications. The "total rate of return" refers to the change in the value of
an investment in the Fund over a stated period based on any change in net asset
value per share and including the value of any shares purchasable with any
dividends or capital gains distributions during such period. Period total rates
of return may be annualized. An annualized total rate of return is a compounded
total rate of return which assumes that the period total rate of return is
generated over a one year period, and that all dividends and capital gains
distributions are reinvested. An annualized total rate of return is slightly
higher than a period total rate of return if the period is shorter than one
year, because of the assumed reinvestment.
30
<PAGE>
Historical performance information for any period or portion thereof prior to
the establishment of the Fund will be that of the Portfolio, adjusted to assume
that all charges, expenses and fees of the Fund and the Portfolio which are
presently in effect were deducted during such periods, as permitted by
applicable SEC staff interpretations.
PURCHASES AND REDEMPTIONS
================================================================================
In the event a shareholder redeems all shares held in the Fund, future
purchases of shares of the Fund by such shareholder would be subject to the
Fund's minimum initial purchase requirements.
A confirmation of each purchase and redemption transaction is issued as
on execution of that transaction.
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 registered 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, portfolio securities to be unreasonable or
impracticable, or (iii) for such other periods as the Securities and Exchange
Commission may permit. An investor should be aware that redemptions from the
Fund may not be processed if a completed account application with a certified
taxpayer identification number has not been received. The Corporation reserves
the right to discontinue, alter or limit the automatic reinvestment privilege at
any time, but will provide shareholders prior written notice of any such
discontinuance, alteration or limitation.
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" of the
Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, the Fund is
not subject to federal income taxes on its Net Income and realized net long-term
capital gains in excess of net short-term capital losses that are distributed to
their shareholders. A 4% non-deductible excise tax is imposed on the Fund to the
extent that certain distribution requirements for the Fund for each calendar
year are not met. The Corporation intends to continue to meet such requirements.
The Portfolio are also not required to pay any federal income or excise taxes.
Under Subchapter M of the Code, the Fund is not subject to federal income taxes
on amounts distributed to shareholders.
Dividends paid from the Fund are not eligible for the dividends-received
deduction allowed to corporate shareholders because the Net income of the
Portfolio does not consist of dividends paid by domestic corporations.
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, foreign currencies or
other income derived with respect to its business of investing in such
31
<PAGE>
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 represented by investments in the securities of any one issuer
(other than U.S. Government securities and securities of other investment
companies). Foreign currency gains that are not directly related to the
Portfolio's business of investing in stock or securities is included in the
income that counts toward the 30% gross income requirement described above but
may be excluded by Treasury Regulations from income that counts toward the 90%
of gross income requirement described above. 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.
Under the Code, gains or losses attributable to foreign currency contracts,
or to fluctuations in exchange rates between the time the Portfolio accrues
income or receivables or expenses or other liabilities denominated in a foreign
currency and the time it actually collects such income or pays such liabilities,
are treated as ordinary income or ordinary loss. Similarly, the Fund's share of
gains or losses on the disposition of debt securities held by the Portfolio, if
any, denominated in foreign currency, to the extent attributable to fluctuations
in exchange rates between the acquisition and disposition dates are also treated
as ordinary income or loss.
Gains or losses on sales of securities are treated as long-term capital gains
or losses if the securities have been held for more than one year except in
certain cases where a put has been acquired or a call has been written thereon.
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 Portfolio lapses or is
terminated through a closing transaction, such as a repurchase of the option
from its holder, the Portfolio 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 pursuant to the exercise of a
call option written for them, the premium received would be 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 Portfolio's ability to write options and engage in transactions
involving stock index futures.
Certain options contracts held for the Portfolio 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 the Portfolio has held such options.
The Portfolio 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.
If shares are purchased by the Portfolio in certain foreign investment
entities, referred to as "passive foreign investment companies", the Fund may be
subject to U.S. federal income tax, and an additional charge in the nature of
interest, on the Fund's portion of any "excess distribution" from such company
or gain from the disposition of
32
<PAGE>
such shares, even if the distribution or gain is paid by the Fund as a dividend
to its shareholders. If the Fund were able and elected to treat a passive
foreign investment company as a "qualified electing fund", in lieu of the
treatment described above, the Fund would be required each year to include in
income, and distribute to shareholders, in accordance with the distribution
requirements set forth above, the Fund's pro rata share of the ordinary earnings
and net capital gains of the company, whether or not distributed to the Fund.
Return of Capital. Any dividend or capital gains distribution has the effect
of reducing the net asset value of Fund shares held by a shareholder by the same
amount as the dividend or capital gains distributions. 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 is treated as
long-term capital gain or loss if the shares have been held for more than one
year, and otherwise as short-term capital gain or loss. However, any loss
realized by a shareholder upon the redemption of Fund shares held one year or
less is treated as a long-term capital loss to the extent of any long-term
capital gains distributions received by the shareholder with respect to such
shares. Additionally, any loss realized on a redemption or exchange of Fund
shares is disallowed to the extent the shares disposed of are replaced within a
period of 61 days beginning 30 days before such disposition, such as pursuant to
reinvestment of a dividend or capital gains distribution in Fund shares.
Foreign Taxes. The Fund may be subject to foreign withholding taxes and if
more than 50% of the value of the Fund's share of the Portfolio's total assets
at the close of any fiscal year consists of stock or securities of foreign
corporations, at the election of the Corporation any such foreign income taxes
paid by the Fund may be treated as paid directly by its shareholders. The
Corporation makes such an election only if it deems it to be in the best
interest of the Fund's shareholders and notifies shareholders in writing each
year if it makes the election and of the amount of foreign income taxes, if any,
to be treated as paid by the shareholders. If the Corporation elects to treat
foreign income taxes paid from the Fund as paid directly by the Fund's
shareholders, the Fund's shareholders would be required to include in income
such shareholder's proportionate share of the amount of foreign income taxes
paid by the Fund and would be entitled to claim either a credit or deduction in
such amount. (No deduction is permitted in computing alternative minimum tax
liability). Shareholders who choose to utilize a credit (rather than a
deduction) for foreign taxes are subject to the limitation that the credit may
not exceed the shareholder's U.S. tax (determined without regard to the
availability of the credit) attributable to that shareholder's total foreign
source taxable income. For this purpose, the portion of dividends and capital
gains distributions paid from the Fund from its foreign source income is treated
as foreign source income. The Fund's gains and losses from the sale of
securities are generally treated as derived from U.S. sources, however, and
certain foreign currency gains and losses likewise are treated as derived from
U.S. sources. The limitation of the foreign tax credit is applied separately to
foreign source "passive income", such as the portion of dividends received from
the Fund which qualifies as foreign source income. In addition, the foreign tax
credit is allowed to offset only 90% of the alternative minimum tax imposed on
corporations and individuals. Because of these limitations, a shareholder may be
unable to claim a credit for the full amount of such shareholder's proportionate
share of the foreign income taxes paid from the Fund.
33
<PAGE>
Certain entities, including corporations formed as part of corporate pension
or profit-sharing plans and certain charitable and other organizations described
in Section 501 (c) of the Internal Revenue Code, as amended, that are generally
exempt from federal income taxes may not receive any benefit from the election
by the Corporation to "pass through" foreign income taxes to the Fund's
shareholders.
In certain circumstances foreign taxes imposed with respect to the Fund's
income may not be treated as income taxes imposed on the Fund. Any such taxes
would not be included in the Fund's income, would not be eligible to be "passed
through" to Fund shareholders, and would not be eligible to be claimed as a
foreign tax credit or deduction by Fund shareholders. In particular, in certain
circumstances it may not be clear whether certain amounts of taxes deducted from
gross dividends paid to the Fund would, for U.S. federal income tax purposes, be
treated as imposed on the issuing corporation rather than the Fund.
Other Taxes. The Fund is 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. Distributions to shareholders
may be subject to additional state and local taxes. Shareholders should consult
their own tax advisors with respect to any state or local taxes.
Other Information. Annual notification as to the tax status of capital gains
distributions, if any, is provided to shareholders shortly after October 31, the
end of the Fund's fiscal year. Additional tax information is mailed to
shareholders in January.
Under U.S. Treasury regulations, the Corporation and each Eligible
Institution are required to withhold and remit to the U.S. Treasury a portion
(31%) of dividends and capital gains distributions on the accounts of those
shareholders who fail to provide a correct taxpayer identification number
(Social Security Number for individuals) or to make required certifications, or
who have been notified by the Internal Revenue Service that they are subject to
such withholdings. Prospective investors should submit an IRS Form W-9 to avoid
such withholding.
This tax discussion is based on the tax laws and regulations in effect on the
date of this Prospectus, however such laws and regulations are subject to
change. Shareholders and prospective investors are urged to consult their tax
advisors regarding specific questions relevant to their particular
circumstances.
DESCRIPTION OF SHARES
================================================================================
The Corporation is an open-end management investment company organized
as a Maryland corporation on July 16, 1990. Its offices are located at 21 Milk
Street, Boston, Massachusetts 02109; its telephone number is (617) 423- 0800.
The 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 International Equity Fund. The
Board of Directors of the Corporation also has the power to designate one or
more series of shares of common stock and to classify and reclassify any
unissued shares with respect to such series. Currently there are seven such
series in addition to the Fund.
34
<PAGE>
Each share of the Fund represents an equal proportional interest in the Fund
with each other share. Upon liquidation of the Fund, shareholders are entitled
to share pro rata in the net assets of the Fund available for distribution to
shareholders.
Shareholders are entitled to a full vote for each full share held and to a
fractional vote for fractional shares. 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 as may be required by the 1940 Act or as may be
permitted by the Articles of Incorporation or By-laws. Shareholders have under
certain circumstances (e.g., upon application and submission of certain
specified documents to the Directors by a specified number of shareholders) the
right to communicate with other shareholders in connection with requesting a
meeting of shareholders for the purpose of removing one or more Directors.
Shareholders also have the right to remove one or more Directors without a
meeting by a declaration in writing by a specified number of shareholders.
Shares have no preemptive or conversion rights. The rights of redemption are
described in the Prospectus.
Shares are fully paid and non-assessable by the Corporation.
The By-laws of the Corporation provide that the presence in person or
by proxy of the holders of record of one third of the shares of a Fund
outstanding and entitled to vote thereat shall constitute a quorum at all
meetings of shareholders of the Fund, except as otherwise required by applicable
law. The By-laws further provide that all questions shall be decided by a
majority of the votes cast at any such meeting at which a quorum is present,
except as otherwise required by applicable law.
The Corporation's Articles of Incorporation provide that, at any
meeting of shareholders of the Fund, each Eligible Institution may vote any
shares as to which that Eligible Institution is the agent of record and which
are otherwise not represented in person or by proxy at the meeting,
proportionately in accordance with the votes cast by holders of all shares
otherwise represented at the meeting in person or by proxy as to which that
Eligible Institution is the agent of record. Any shares so voted by an Eligible
Institution are deemed represented at the meeting for purposes of quorum
requirements.
The Portfolio is organized as a trust under the law of the State of New
York. The Portfolio's Declaration of Trust provides that the Fund and other
entities investing in the Portfolio (e.g., other investment companies, insurance
company separate accounts and common and commingled trust funds) are liable for
all obligations of the Portfolio. However, the risk of the Fund incurring
financial loss on account of such liability is limited to circumstances in which
both inadequate insurance existed and the Portfolio itself was unable to meet
its obligations. Accordingly, the Directors of the Corporation believe that
neither the Fund nor its shareholders will be adversely affected by reason of
the investment of all of the Fund's assets in the Portfolio.
Each investor in the Portfolio, including the Fund, may add to or
reduce its investment in the Portfolio on each day the New York Stock Exchange
is open for regular trading. At 4:00 P.M., New York time on each such business
35
<PAGE>
day, the value of each investor's beneficial interest in a Portfolio is
determined by multiplying the net asset value of the Portfolio by the
percentage, effective for that day, which represents that investor's share of
the aggregate beneficial interests in the Portfolio. Any additions or
withdrawals, which are to be effected on that day, are then effected. The
investor's percentage of the aggregate beneficial interests in the Portfolio is
then recomputed as the percentage equal to the fraction (i) the numerator of
which is the value of such investor's investment in the Portfolio as of 4:00
P.M., New York time on such day plus or minus, as the case may be, the amount of
any additions to or withdrawals from the investor's investment in the Portfolio
effected on such day, and (ii) the denominator of which is the aggregate net
asset value of the Portfolio as of 4:00 P.M., New York time on such day plus or
minus, as the case may be, the amount of the net additions to or withdrawals
from the aggregate investments in the Portfolio by all investors in the
Portfolio. The percentage so determined is then applied to determine the value
of the investor's interest in the Portfolio as of 4:00 P.M., New York time on
the following business day of the Portfolio.
Whenever the Corporation is requested to vote on a matter pertaining to the
Portfolio, the Corporation will vote its shares without a meeting of
shareholders of the Fund if the proposal is one, if which made with respect to
the Fund, would not require the vote of shareholders of the Fund, as long as
such action is permissible under applicable statutory and regulatory
requirements. For all other matters requiring a vote, the Corporation will hold
a meeting of shareholders of the Fund and, at the meeting of investors in the
Portfolio, the Corporation will cast all of its votes in the same proportion as
the votes of the Fund's shareholders even if all Fund shareholders did not vote.
Even if the Corporation votes all its shares at the Portfolio meeting, other
investors with a greater pro rata ownership in the Portfolio could have
effective voting control of the operations of the Portfolio.
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.
Interests in the Portfolio have no preference, preemptive, conversion or
similar rights, and are fully paid and non-assessable. Neither Portfolio is
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. Each investor is entitled to a vote in
proportion to the share of its investment in the Portfolio.
36
<PAGE>
PORTFOLIO BROKERAGE TRANSACTIONS
================================================================================
The Portfolio is managed actively in pursuit of its investment
objective. Securities are not traded for short-term profits but, when
circumstances warrant, securities are sold without regard to the length of time
held. A 100% turnover would occur, for example, if all portfolio securities
(excluding short-term obligations) were replaced once in a period of one year.
For the fiscal years ended October 31, 1997 and 1998, the portfolio turnover
rate of the Portfolio was 85% and [ %], respectively. The amount of brokerage
commissions and taxes on realized capital gains to be borne by the shareholders
of the Fund tends to increase as the level of portfolio activity increases.
In effecting securities transactions the Investment Adviser seeks to obtain
the best price and execution of orders. All of the transactions for the
Portfolio are executed through qualified brokers other than Brown Brothers
Harriman & Co. In selecting such brokers, the Investment Adviser considers a
number of factors including: the broker's ability to execute orders without
disturbing the market price; the broker's reliability for prompt, accurate
confirmations and on-time delivery of securities; the broker's financial
condition and responsibility; the research and other information provided by the
broker; and the commissions charged. Accordingly, the commissions charged by any
such broker may be greater than the amount another firm might charge if the
Investment Adviser determines in good faith that the amount of such commissions
is reasonable in relation to the value of the brokerage services and research
information provided by such broker.
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 Portfolio. The Investment Adviser believes that the value
of research services received is not determinable nor does such research
significantly reduce its expenses. The Portfolio does not reduce the fee paid to
the Investment Adviser by any amount that might be attributable to the value of
such services.
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.
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.
37
<PAGE>
The Trustees of the Portfolio review regularly the reasonableness of
commissions and other transaction costs incurred for the Portfolio 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.
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 Portfolio 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 Portfolio 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 Portfolio 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.
The Investment Adviser may direct a portion of the Portfolio's securities
transactions to certain unaffiliated brokers which in turn use a portion of the
commissions they receive from the Portfolio to pay other unaffiliated service
providers on behalf of the Portfolio for services provided for which the
Portfolio would otherwise be obligated to pay. Such commissions paid by the
Portfolio are at the same rate paid to other brokers for effecting similar
transactions in listed equity securities.
On those occasions when Brown Brothers Harriman & Co. deems the purchase or
sale of a security to be in the best interests of the Portfolio as well as other
customers, Brown Brothers Harriman & Co., to the extent permitted by applicable
laws and regulations, may, but is not obligated to, aggregate the securities to
be sold or purchased for the Portfolio with those to be sold or purchased for
other customers in order to obtain best execution, including lower brokerage
commissions, if appropriate. In such event, allocation of the securities so
purchased or sold as well as any expenses incurred in the transaction are made
by Brown Brothers Harriman & Co. in the manner it considers to be most equitable
and consistent with its fiduciary obligations to its customers, including the
Portfolio. In some instances, this procedure might adversely affect the
Portfolio.
ADDITIONAL INFORMATION
================================================================================
As used in this Statement of Additional Information and the Prospectus, the
term "majority of the outstanding voting securities" (as defined in the 1940
Act) currently means the vote of (i) 67% or more of the outstanding voting
securities present at a meeting, if the holders of more than 50% of the
outstanding voting securities are present in person or represented by proxy; or
(ii) more than 50% of the outstanding voting securities, whichever is less.
38
<PAGE>
Fund shareholders receive semi-annual reports containing unaudited
financial statements and annual reports containing financial statements audited
by independent auditors.
Other mutual funds or institutional investors may invest in the
Portfolio on the same terms and conditions as the Fund.
39
<PAGE>
However, these other investors may have different sales commissions and other
operating expenses which may generate different aggregate performance results.
Information concerning other investors in the Portfolio is available from Brown
Brothers Harriman & Co.
The Corporation may withdraw the Fund's investment in the Portfolio as a
result of certain changes in the Portfolio's investment objective, policies or
restrictions or if the Board of Directors of the Corporation determines that it
is otherwise in the best interests of the Fund to do so. Upon any such
withdrawal, the Board of Directors of the Corporation would consider what action
might be taken, including the investment of all of the assets of the Fund in
another pooled investment entity or the retaining of an investment adviser to
manage the Fund's assets in accordance with the Fund's investment policies. In
the event the Directors of the Corporation were unable to accomplish either, the
Directors will determine the best course of action.
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, 1998 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 which also contains performance information of the Fund will
be provided without charge to each person receiving this Statement of Additional
Information.
WS5486F
40
<PAGE>
APPENDIX - INTERNATIONAL STATISTICS
<TABLE>
<CAPTION>
Market Gross Domestic
MARKETS - DEVELOPED Capitalization Product Population
-------------- -------------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Dollars % of Dollars % of Dollars % of
(Billions) Total* (Billions) Total* Millions) Total*
Japan 2,217 21.9 4,149 22.6 125.2 2.9
United Kingdom 1,936 19.2 1,200 6.5 58.3 1.3
Germany 770 7.6 2,241 12.2 81.6 1.9
France 623 6.2 1,473 8.0 58.0 1.3
Switzerland 555 5.5 268 1.5 7.0 0.2
Netherlands 506 5.0 365 2.0 15.4 0.4
Hong Kong 326 3.2 143 0.8 6.3 0.1
Italy 317 3.1 1,072 5.8 57.2 1.3
Australia 246 2.4 374 2.0 18.1 0.4
Sweden 226 2.2 237 1.3 8.8 0.2
Spain 226 2.2 538 2.9 39.2 0.9
Belgium 140 1.4 247 1.3 10.1 0.2
Singapore 92 0.9 86 0.5 3.0 0.1
Denmark 83 0.8 164 0.9 5.2 0.1
Finland 67 0.7 118 0.6 5.1 0.1
Malaysia 61 0.6 84 0.5 20.1 0.5
Norway 54 0.5 144 0.8 4.4 0.1
Portugal 51 0.5 89 0.5 9.9 0.2
Ireland 43 0.4 64 0.3 3.6 0.1
Austria 31 0.3 216 1.2 8.5 0.2
New Zealand 29 0.3 64 0.3 3.5 0.1
----- ----- ------ ---- ---------
SUBTOTAL - DEVELOPED
EX US/CANADA 8,599 85.1 13,336 72.6 548.5 12.5
----- ----- ------ ---- ---------
</TABLE>
41
<PAGE>
===============================================================================
STATEMENT OF ADDITIONAL INFORMATION
THE 59 WALL STREET INFLATION-INDEXED SECURITIES FUND
21 Milk Street, Boston, Massachusetts 02109
===============================================================================
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 26, 1999, 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
Investments
Investment Objective and Policies . 2 5-8
Investment Restrictions . . . . 4
Management
Directors, Trustees and Officers . 6
Investment Adviser . . . . . . 10 11-12
Administrators. . . . . . . . 11
Distributor . . . . . . . . 12
Shareholder Servicing Agent,
Financial Intermediaries and
Eligible Institutions . . . . . . . . 13
Custodian, Transfer and
Dividend Disbursing Agent . . . . . .[]
Independent Auditors . . . . . . . . .[]
Net Asset Value; Redemption in Kind . . . 13 15
Computation of Performance . . . . . . 14
Purchases and Redemptions . . . . . . . . []
Federal Taxes . . . . . . . . . . 15
Description of Shares . . . . . . . 16
Portfolio Brokerage Transactions . . . . 17
Additional Information . . . . . . . . . . []
Financial Statements . . . . . . . 20
Appendix . . . . . . . . . . . . . . . . . []
The date of this Statement of Additional Information is February 26, 1999.
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.
Hedging Strategies
Options on Fixed Income Securities. Subject to applicable laws and regulations
and solely as a hedge against changes in the market value of portfolio
securities or securities intended to be purchased, put and call options on fixed
income securities may be purchased for the Fund. Also subject to applicable laws
and regulations and as a hedge against changes in the market value of portfolio
securities or securities intended to be purchased, but also to enhance the
income of the Fund, options on fixed income securities may be written for the
Fund. A call option on fixed income securities gives the purchaser of the option
the right to buy the underlying securities at a fixed price at any time during
the option period. Similarly, a put option gives the purchaser of the option the
right to sell the underlying securities at a fixed price at any time during the
option period. To liquidate a put or call option position, a closing sale
transaction may be made at any time prior to the expiration of the option which
involves selling the option previously purchased.
The effectiveness of purchasing options on fixed income securities as a
hedging technique depends upon the extent to which price movements in the
portion of the securities portfolio of the Fund being hedged correlate with
price movements of the fixed income securities selected. The value of these
options depends upon future movements in the level of interest rates as
reflected in the price of the underlying fixed income securities before the
expiration of the option. Accordingly, the successful use of options on fixed
income securities for the Fund is subject to the Investment Adviser's ability to
select appropriate underlying fixed income securities and to predict future
4
<PAGE>
interest rate movements over the short term in the overall market. Brokerage
costs are incurred in the purchase of options on fixed income securities and the
incorrect choice of underlying fixed income securities or an incorrect
assessment of future interest rate movements may result in poorer overall
performance than if such an option had not been purchased.
The Corporation intends to write (sell) covered put and call options on
optionable fixed income securities on behalf of the Fund. Call options written
by the Corporation give the holder the right to buy the underlying securities
during the term of the option at a stated exercise price; put options give the
holder the right to sell the underlying security to the Fund during the term of
the option at a stated exercise price. Call options are covered, for example,
when the Fund owns the underlying securities, and put options are covered, for
example, when the Fund has established a segregated account of cash and U.S.
Government securities which can be liquidated promptly to satisfy any obligation
to purchase the underlying securities. The Corporation may also write straddles
(combinations of puts and calls on the same underlying security) on behalf of
the Fund.
The Fund receives a premium from writing a put or call option, which
increases the Fund's gross income in the event the option expires unexercised or
is closed out at a profit. The amount of the premium reflects, among other
things, the relationship of the market price of the underlying security to the
exercise price of the option and the remaining term of the option. By writing a
call option, the Corporation limits the opportunity of the Fund to profit from
any increase in the market value of the underlying security above the exercise
price of the option. By writing a put option, the Corporation assumes the risk
that it may be required to purchase the underlying security for an exercise
price higher than its then current market value, resulting in a potential
capital loss unless the security subsequently appreciates in value.
The Corporation may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction in which it purchases
an option having the same terms as the option written. It is possible, however,
that illiquidity in the options markets may make it difficult from time to time
for the Corporation to close out its written option positions. Also, the
securities exchanges have established limitations on the number of options which
may be written by an investor or group of investors acting in concert. It is not
contemplated that these position limits will have any adverse impact on the
Corporation's portfolio strategies.
Futures Contracts on Fixed Income Securities. Subject to applicable laws
and regulations and solely as a hedge against changes in the market value of
portfolio securities or securities intended to be purchased, futures contracts
on fixed income securities ("Futures Contracts") may be entered into for the
Fund, although the current intention is not to do so in such a manner that more
than 5% of the Fund's net assets would be at risk. For the same purpose, put and
call options on interest rate futures contracts may be entered into for the
Fund.
In order to assure that the Fund is not deemed a "commodity pool" for
purposes of the Commodity Exchange Act, regulations of the Commodity Futures
Trading Commission ("CFTC") require that the Fund enters into transactions in
futures contracts and options on futures contracts only (i) for bona fide
hedging purposes (as defined in CFTC regulations), or (ii) for non-hedging
5
<PAGE>
purposes, provided that the aggregate initial margin and premiums on such
non-hedging positions does not exceed 5% of the liquidation value of the Fund's
assets.
Futures Contracts are used to hedge against anticipated future changes in
interest rates which otherwise might either adversely affect the value of
securities held for the Fund or adversely affect the prices of securities which
are intended to be purchased at a later date for the Fund. A Futures Contract
may also be entered into to close out or offset an existing futures position.
In general, each transaction in Futures Contracts involves the
establishment of a position which is expected to move in a direction opposite to
that of the investment being hedged. If these hedging transactions are
successful, the futures positions taken for the Fund would rise in value by an
amount which approximately offsets the decline in value of the portion of the
investment that is being hedged. Should general market prices move in an
unexpected manner, the full anticipated benefits of Futures Contracts may not be
achieved or a loss may be realized. There is also the risk of a potential lack
of liquidity in the secondary market.
The effectiveness of entering into Futures Contracts as a hedging
technique depends upon the extent to which price movements in the portion of the
securities portfolio being hedged correlate with price movements of the fixed
income securities selected. The value of a Futures Contract depends upon future
movements in the price of the fixed income securities before the closing out of
the Futures Contract. Accordingly, the successful use of Futures Contracts for
the Fund is subject to the Investment Adviser's ability both to select
appropriate fixed income securities and to predict future price movements over
the short term in those securities. The incorrect choice of fixed income
securities or an incorrect assessment of future price movements over the short
term in those securities may result in poorer overall performance than if a
Futures Contract had not been purchased. Brokerage costs are incurred in
entering into and maintaining Futures Contracts.
When the Fund enters into a Futures Contract, it may be initially required
to deposit with the custodian, in a segregated account in the name of the broker
performing the transaction, an "initial margin" of cash, U.S. Government
securities or other high grade short-term obligations equal to approximately 3%
of the contract amount. Initial margin requirements are established by the
exchanges on which Futures Contracts trade and may, from time to time, change.
In addition, brokers may establish margin deposit requirements in excess of
those required by the exchanges. Initial margin in futures transactions is
different from margin in securities transactions in that initial margin does not
involve the borrowing of funds by a broker's client but is, rather, a good faith
deposit on the Futures Contract which will be returned upon the proper
termination of the Futures Contract. The margin deposits made are marked to
market daily and the Fund may be required to make subsequent deposits of cash or
eligible securities called "variation margin", with its futures contract
clearing broker, which are reflective of price fluctuations in the Futures
Contract.
Currently, interest rate Futures Contracts can be purchased on debt
securities such as U.S. Treasury bills and bonds, U.S. Treasury notes with
maturities between 61/2 to 10 years, GNMA certificates and bank certificates of
deposit. As a purchaser of an interest rate Futures Contract, the Fund incurs an
obligation to take delivery of a specified amount of the obligation underlying
the contract at a specified time in the future for a specified price. As a
seller of an interest rate Futures
6
<PAGE>
Contract, the Fund incurs an obligation to deliver the specified amount of the
underlying obligation at a specified time in return for an agreed upon price.
Exchanges may limit the amount by which the price of a Futures Contract
may move on any day. If the price moves equal the daily limit on successive
days, then it may prove impossible to liquidate a futures position until the
daily limit moves have ceased.
Another risk which may arise in employing Futures Contracts to protect
against the price volatility of portfolio securities is that the prices of
securities subject to Futures Contracts (and thereby the Futures Contract
prices) may correlate imperfectly with the behavior of the cash prices of the
Fund's portfolio securities. Another such risk is that the price of the Futures
Contract may not move in tandem with the change in prevailing interest rates
against which the Fund seeks a hedge. An interest rate correlation may be
distorted by the fact that the futures market is dominated by short-term traders
seeking to profit from the difference between a contract or security price
objective and their cost of borrowed funds. Such distortions are generally minor
and would diminish as the contract approached maturity.
Over-the-counter (OTC) options purchased are treated as not readily
marketable.
The Investment Adviser, on behalf of the Fund, enters into forward foreign
exchange contracts in order to protect the dollar value of all investments in
IIS denominated in foreign currencies. The precise matching of the forward
contract amounts and the value of the securities involved is not always possible
because the future value of such securities in foreign currencies changes as a
consequence of market movements in the value of such securities between the date
the forward contract is entered into and the date it matures.
Short-Term Instruments
The assets of the Fund may be invested in U.S. dollar denominated short-term
instruments, including repurchase agreements, obligations of the U.S.
Government, its agencies or instrumentalities, commercial paper and bank
obligations (such as certificates of deposit, fixed time deposits, and bankers'
acceptances). Cash is held for the Fund in demand deposit accounts with the
Fund's custodian bank.
Loans of Portfolio Securities
Loans up to 30% of the total value of the securities of the Fund are
permitted. 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. By lending
securities, the Fund's income can be increased by its continuing to receive
income on the loaned securities as well
7
<PAGE>
as by the opportunity to receive income on the collateral. 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.
When-Issued and Delayed Delivery Securities
Securities may be purchased for the Fund on a when-issued or delayed delivery
basis. For example, delivery and payment may take place a month or more after
the date of the transaction. The purchase price and the interest rate payable on
the securities, if any, are fixed on the transaction date. The securities so
purchased are subject to market fluctuation and no income accrues to the Fund
until delivery and payment take place. At the time the commitment to purchase
securities for the Fund on a when-issued or delayed delivery basis is made, the
transaction is recorded and thereafter the value of such securities are
reflected each day in determining the Fund's net asset value. At the time of its
acquisition, a when-issued or delayed delivery security may be valued at less
than the purchase price. On delivery dates for such transactions, such
obligations are met from maturities or sales of securities and/or from cash
flow. If the right to acquire a when-issued or delayed delivery security is
disposed of prior to its acquisition, the Fund could, as with the disposition of
any other portfolio obligation, incur a gain or loss due to market fluctuation.
When-issued or delayed delivery commitments for the Fund may not be entered into
if such commitments exceed in the aggregate 15% of the market value of the
Fund's total assets, less liabilities other than the obligations created by
when-issued or delayed delivery commitments.
U.S. Government Securities
Assets of the Fund may be invested in securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities. These securities,
including those which are guaranteed by federal agencies or instrumentalities,
may or may not be backed by the full faith and credit of the United States. In
the case of securities not backed by the full faith and credit of the United
States, it may not be possible to assert a claim against the United States
itself in the event the agency or instrumentality issuing or guaranteeing the
security for ultimate repayment does not meet its commitments. Securities which
are not backed by the full faith and credit of the United States include, but
are not limited to, securities of the Tennessee Valley Authority, the Federal
National Mortgage Association (FNMA) and the U.S. Postal Service, each of which
has a limited right to borrow from the U.S. Treasury to meet its obligations,
and securities of the Federal Farm Credit System, the Federal Home Loan Banks,
the Federal Home Loan Mortgage Corporation (FHLMC) and the Student Loan
Marketing Association, the obligations of each of
8
<PAGE>
which may be satisfied only by the individual credit of the issuing agency.
Securities which are backed by the full faith and credit of the United States
include Treasury bills, Treasury notes, Treasury bonds and pass through
securities of the Government National Mortgage Association (GNMA), the Farmers
Home Administration and the Export-Import Bank. There is no percentage
limitation with respect to investments in U.S. Government securities.
Mortgage-Backed Securities
Assets of the Fund also include mortgage-backed securities (MBS) which are
issued by, or are collateralized by securities guaranteed by, the U.S.
Government, its agencies or instrumentalities. These securities represent an
undivided interest in a pool of residential mortgages. These securities,
including those issued by GNMA, FNMA and FHLMC, provide investors with payments
consisting of both interest and principal as the mortgages in the underlying
pools are repaid. Unlike conventional bonds, MBS pay back principal over the
life of the MBS rather than at maturity. Thus, a holder of the MBS, such as the
Fund, would receive monthly scheduled payments of principal and interest and may
receive unscheduled principal prepayments representing payments on the
underlying mortgages. At the time the Fund reinvests the scheduled principal
payments and any unscheduled prepayment of principal that it receives, the Fund
may receive a rate of interest which is higher or lower than the rate of
interest paid on the existing MBS, thus affecting the yield of the Fund.
Asset-Backed Securities
Asset-backed securities represent interests in pools of loans (generally
unrelated to mortgage loans). Interest and principal payments ultimately depend
on payment of the underlying loans by individuals, although the securities may
be supported by letters of credit or other credit enhancements. The value of
asset-backed securities may also be affected by the creditworthiness of the
servicing agent for the loan pool, the originator of the loans or the financial
institution providing the credit enhancement.
Bank Obligations
Assets of the Fund may be invested in U.S. dollar-denominated negotiable
certificates of deposit, fixed time deposits and bankers acceptances of banks,
savings and loan associations and savings banks organized under the laws of the
United States or any state thereof, including obligations of non-U.S. branches
of such banks, or of non-U.S. banks or their U.S. or non-U.S. branches, provided
that in each case, such bank has more than $500 million in total assets, and has
an outstanding short-term debt issue rated within the highest rating category
for short-term debt obligations by at least two (unless only rated by one)
nationally recognized statistical rating organizations (e.g., Moody's and S&P)
or, if unrated, are of comparable quality as determined by or under the
direction of the Board of Directors. See "Corporate Bond and Commercial Paper
Ratings" in the Statement of Additional Information. There is no percentage
limitation with respect to investments in negotiable certificates of deposit,
fixed time deposits and bankers acceptances of U.S. branches of U.S. banks and
U.S. branches of non-U.S. banks that are subject to the same regulation as U.S.
banks. While early withdrawals are not contemplated, fixed time deposits are not
readily marketable and may be subject to early withdrawal penalties, which may
9
<PAGE>
vary. Assets of the Fund are not invested in obligations of Brown Brothers
Harriman & Co., the Administrator, the Distributor, or in the obligations of the
affiliates of any such organization or in fixed time deposits with a maturity of
over seven calendar days, or in fixed time deposits with a maturity of from two
business days to seven calendar days if more than 10% of the Fund's total assets
would be invested in such deposits.
Repurchase Agreements
Repurchase agreements may be entered into only with a primary dealer (as
designated by the Federal Reserve Bank of New York) in U.S. Government
obligations. This is an agreement in which the seller (the Lender) of a security
agrees to repurchase from the Fund the security sold at a mutually agreed upon
time and price. As such, it is viewed as the lending of money to the Lender. The
resale price normally is in excess of the purchase price, reflecting an agreed
upon interest rate. The rate is effective for the period of time assets of the
Fund are invested in the agreement and is not related to the coupon rate on the
underlying security. The period of these repurchase agreements is usually short,
from overnight to one week, and at no time are assets of the Fund invested in a
repurchase agreement with a maturity of more than one year. The securities which
are subject to repurchase agreements, however, may have maturity dates in excess
of one year from the effective date of the repurchase agreement. The Fund always
receives as collateral securities which are issued or guaranteed by the
U.S.Government, its agencies or instrumentalities. Collateral is marked to the
market daily and has a market value including accrued interest at least equal to
100% of the dollar amount invested on behalf of the Fund in each agreement along
with accrued interest. Payment for such securities is made for the Fund only
upon physical delivery or evidence of book entry transfer to the account of
State Street Bank and Trust Company, the Fund's Custodian. If the Lender
defaults, the Fund might incur a loss if the value of the collateral securing
the repurchase agreement declines and might incur disposition costs in
connection with liquidating the collateral. In addition, if bankruptcy
proceedings are commenced with respect to the Lender, realization upon the
collateral on behalf of the Fund may be delayed or limited in certain
circumstances. A repurchase agreement with more than seven days to maturity may
not be entered into for the Fund if, as a result, more than 10% of the market
value of the Fund's total assets would be invested in such repurchase agreements
together with any other investment being held for the Fund for which market
quotations are not readily available.
Reverse Repurchase Agreements
Reverse repurchase agreements may be entered into only with a primary
dealer (as designated by the Federal Reserve Bank of New York) in U.S.Government
obligations. This is an agreement in which the Corporation agrees for the Fund
to repurchase securities sold by it at a mutually agreed upon time and price. As
such, it is viewed as the borrowing of money for the Fund. Proceeds of
borrowings under reverse repurchase agreements is invested for the Fund. This is
the speculative factor known as leverage. If interest rates rise during the term
of a reverse repurchase agreement utilized for leverage, the value of the
securities to be repurchased for the Fund as well as the value of securities
purchased with the proceeds will decline. Proceeds of a reverse repurchase
transaction are not invested for a period which exceeds the duration of the
10
<PAGE>
reverse repurchase agreement. A reverse repurchase agreement may not be entered
into for the Fund if, as a result, more than one-third of the market value of
the Fund's total assets, less liabilities other than the obligations created by
reverse repurchase agreements, would be engaged in reverse repurchase
agreements. In the event that such agreements exceed, in the aggregate,
one-third of such market value, the amount of the Fund's obligations created by
reverse repurchase agreements will be reduced within three days thereafter (not
including weekends and holidays) or such longer period as the Securities and
Exchange Commission may prescribe, to an extent that such obligations will not
exceed, in the aggregate, one-third of the market value of the Fund's assets, as
defined above. A segregated account with the Custodian is established and
maintained for the Fund with liquid assets in an amount at least equal to the
Fund's purchase obligations under its reverse repurchase agreements. Such
segregated account consists of liquid assets marked to the market daily, with
additional liquid assets added when necessary to insure that at all times the
value of such account is equal to the purchase obligations.
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;
11
<PAGE>
(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 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);
12
<PAGE>
(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 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; (ii) invest
more than 10% of its net assets (taken at the greater of cost or market value)
in restricted securities; or (iii) invest less than 65% of the value of the
total assets of the Fund in securities that are structured to provide protection
against inflation. These policies are not fundamental and may be changed without
shareholder approval.
13
<PAGE>
The Fund is classified as diversified under the 1940 Act, which means that at
least 75% of the total assets is represented by cash; securities issued by the
U.S. Government, its agencies or instrumentalities; and other securities limited
in respect to any one issuer to an amount not greater in value than 5% of the
Fund's total assets. The Fund does not purchase more than 10% of all outstanding
debt obligations of any one issuer (other than obligations issued by the U.S.
Government, its agencies or instrumentalities).
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, in addition to supervising the actions of the Administrator,
Investment Adviser and Distributor of the Fund, as set forth below, decide upon
matters of general policy. Because of the services rendered by the Investment
Adviser and the Administrator, the Corporation itself requires no employees
other than its officers, none of whom, other than the Chairman, receive
compensation from the Fund and all of whom, other than the Chairman, are
employed by 59 Wall Street Administrators.
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
JV 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 Trust ; 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.
14
<PAGE>
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; President of
Lowy Industries (since August 1998); Secretary of the Los Angeles County Board
of Investments (prior to March 1995). His business address is 4111 Clear Valley
Drive, Encino, CA 91436.
ARTHUR D. MILTENBERGER** -- 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").
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; Senior Vice President and Secretary of SFG ;
Secretary of 59 Wall Street Distributors and 59 Wall Street Administrators.
15
<PAGE>
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; 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 21 Milk Street, Boston,
Massachusetts 02109. Messrs. Coolidge, Hoolahan, and Elder and Mss. Gibson,
Mugler and Drapeau also hold similar positions with other investment companies
for which affiliates of 59 Wall Street Distributors serve as the principal
underwriter.
Except for Mr. Shields, no Director is an "interested person" of the
Corporation as that term is defined in the 1940 Act.
16
<PAGE>
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Compensation
Pension or from the
Retirement Corporation
Aggregate Benefits Accrued Estimated Annual and Fund
Name of Person, Compensation as Part of Benefits upon Complex*Paid
Position from the Corp. Fund Expenses Retirement to Directors
J.V. Shields, Jr., $[] none none $[]
Director
Eugene P. Beard, $[] none none $[]
Director
David P. Feldman, $[] none none $[]
Director
Alan G. Lowy, $[] none none $[]
Director
Arthur D.
Miltenberger, $[] none none $[]
Director
<FN>
* The Fund Complex consists of the Corporation and The 59 Wall Street Trust
which currently consists of three series.
</FN>
</TABLE>
By virtue of the responsibilities assumed by Brown Brothers Harriman & Co.
under the Investment Advisory Agreement and the Administration Agreement (see
"Investment Adviser" and "Administrator"), the 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, 1999, 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 Catholic Charities Gift owned [ ] ([ ]%) shares of the Fund and Mr.
Richard Goeltz owned [ ([ ]%) shares of the Fund and BBH Trust O'Hollaren IRA
owned [ ] ([ ]%) 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 [ ] ([ ]%) shares of the Fund. Also, Brown Brothers
Harriman & Co. Employee Pension Plan on that date held [ ] ([ ]%) shares of the
Fund. Brown Brothers Harriman & Co. and its affiliates separately are able to
direct the disposition of an additional [ ] ([ ]%) 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.
17
<PAGE>
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 November 10, 1998. 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 0.25% 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, 1996, 1997, and
1998, the Fund incurred $46,266, $44,539 and $[ ], respectively, for advisory
services.
The investment advisory services of Brown Brothers Harriman & Co. to the
Fund are not exclusive under the terms of the Investment Advisory Agreement.
Brown Brothers Harriman & Co. is free to and does render investment advisory
services to others, including other registered investment companies.
Pursuant to a license agreement between the Corporation and Brown Brothers
Harriman & Co. dated September 5, 1990, as amended as of December 15, 1993, the
Corporation may continue to use in its name 59 Wall Street, the current and
historic address of Brown Brothers Harriman & Co. The agreement may be
terminated by Brown Brothers Harriman & Co. at any time upon written notice to
the Corporation upon the expiration or earlier termination of any investment
advisory agreement between the Corporation or any investment company in which a
series of the Corporation invests all of its assets and Brown Brothers Harriman
& Co. Termination of the agreement would require the Corporation to change its
name and the name of the Fund to eliminate all reference to 59 Wall Street.
Pursuant to license agreements between Brown Brothers Harriman & Co. and each
of 59 Wall Street Administrators and 59 Wall Street Distributors (each a
Licensee), dated June 22, 1993 and
18
<PAGE>
June 8, 1990, respectively, each Licensee may continue to use in its name 59
Wall Street, the current and historic address of Brown Brothers Harriman & Co.,
only if Brown Brothers Harriman & Co. does not terminate the respective license
agreement, which would require the Licensee to change its name to eliminate all
reference to 59 Wall Street.
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
================================================================================
Brown Brothers Harriman & Co. acts as Administrator for the Corporation. In
its capacity as Administrator, Brown Brothers Harriman & Co. administers all
aspects of the Corporation's operations subject to the supervision of the
Corporation's Directors except as set forth below under "Distributor". In
connection with its responsibilities as Administrator and at its own expense,
Brown Brothers Harriman & Co. (i) provides the Corporation with the services of
persons competent to perform such supervisory, administrative and clerical
functions as are necessary in order to provide effective administration of the
Corporation, including the maintenance of certain books and records; (ii)
oversees the performance of administrative and professional services to the
Corporation by others, including the Fund's Custodian, Transfer and Dividend
Disbursing Agent; (iii) provides the Corporation with adequate office space and
communications and other facilities; and (iv) prepares and/or arranges for the
preparation, but does not pay for, the periodic updating of the Corporation's
registration statement and the Fund's prospectus, the printing of such documents
for the purpose of filings with the Securities and Exchange Commission and state
securities
19
<PAGE>
administrators, and the preparation of tax returns for the Fund and reports to
the Fund's shareholders and the Securities and Exchange Commission.
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 November 10, 1998. 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, 1996, 1997, and 1998 the Fund
incurred $17,350, $17,260 and $[ ], respectively, for administrative services.
Pursuant to a Subadministrative Services Agreement with Brown Brothers
Harriman & Co., 59 Wall Street Administrators performs such subadministrative
duties for the Corporation as are from time to time agreed upon by the parties.
The offices of 59 Wall Street Administrators are located at 21 Milk Street,
Boston, Massachusetts 02109. 59 Wall Street Administrators is a wholly-owned
subsidiary of Signature Financial Group, Inc. ("SFG"). SFG is not affiliated
with Brown Brothers Harriman & Co. 59 Wall Street Administrators'
subadministrative duties may include providing equipment and clerical personnel
necessary for maintaining the organization of the Corporation, participation in
the preparation of documents required for compliance by the Corporation with
applicable laws and regulations, preparation of certain documents in connection
with meetings of Directors and shareholders of the Corporation, and other
functions that would otherwise be performed by the Administrator as set forth
above. For performing such subadministrative services, 59 Wall Street
Administrators receives such compensation as is from time to time agreed upon,
but not in excess of the amount paid to the Administrator from the Fund.
DISTRIBUTOR
================================================================================
59 Wall Street Distributors acts as exclusive Distributor of shares of the
Fund. Its office is located at 21 Milk Street, Boston, Massachusetts 02109. 59
Wall Street Distributors is a wholly-owned subsidiary of SFG. SFG and its
affiliates currently provide administration and distribution services for other
registered investment companies. The Corporation pays for the
20
<PAGE>
preparation, printing and filing of copies of the Corporation's registration
statements and the Fund's prospectus as required under federal and state
securities laws.
59 Wall Street Distributors holds itself available to receive purchase
orders for Fund shares. 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 [ ], 1999. The agreement terminates automatically if
assigned by either party thereto and is terminable with respect to the Fund at
any time without penalty by a vote of a majority of the 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.
21
<PAGE>
SHAREHOLDER SERVICING AGENT
================================================================================
The Corporation has entered into a shareholder servicing agreement with Brown
Brothers Harriman & Co. pursuant to which Brown Brothers Harriman & Co., as
agent for the Corporation with respect to the Fund, among other things: answers
inquiries from shareholders of and prospective investors in the Fund regarding
account status and history, the manner in which purchases and redemptions of
Fund shares may be effected and certain other matters pertaining to the Fund;
assists shareholders of and prospective investors in the Fund in designating and
changing dividend options, account designations and addresses; and provides such
other related services as the Corporation or a shareholder of or prospective
investor in the Fund may reasonably request. For these services, Brown Brothers
Harriman & Co. receives from the Fund an annual fee, computed daily and payable
monthly, equal to 0.25% of the Fund's average daily net assets represented by
shares owned during the period for which payment was being made by shareholders
who did not hold their account with an eligible institution.
FINANCIAL INTERMEDIARIES
================================================================================
From time to time, the Fund's Shareholder Servicing Agent enters into
contracts with banks, brokers and other financial intermediaries ("Financial
Intermediaries") pursuant to which a customer of the Financial Intermediary may
place purchase orders for Fund shares through that Financial Intermediary which
holds such shares in its name on behalf of that customer. Pursuant to such
contract, each Financial Intermediary as agent with respect to shareholders of
and prospective investors in the Fund who are customers of that Financial
Intermediary, among other
22
<PAGE>
things: provides necessary personnel and facilities to establish and maintain
certain shareholder accounts and records enabling it to hold, as agent, its
customers' shares in its name or its nominee name on the shareholder records of
the Corporation; assists in processing purchase and redemption transactions;
arranges for the wiring of funds; transmits and receives funds in connection
with customer orders to purchase or redeem shares of the Fund; provides periodic
statements showing a customer's account balance and, to the extent practicable,
integrates such information with information concerning other customer
transactions otherwise effected with or through it; furnishes, either separately
or on an integrated basis with other reports sent to a customer, monthly and
annual statements and confirmations of all purchases and redemptions of Fund
shares in a customer's account; transmits proxy statements, annual reports,
updated prospectuses and other communications from the Corporation to its
customers; and receives, tabulates and transmits to the Corporation proxies
executed by its customers with respect to meetings of shareholders of the Fund.
For these services, the Financial Intermediary receives such fees from the
Shareholder Servicing Agent as may be agreed upon from time to time between the
Shareholder Servicing Agent and such Financial Intermediary.
ELIGIBLE INSTITUTIONS
================================================================================
The Corporation enters into eligible institution agreements with banks,
brokers and other financial institutions pursuant to which each financial
institution, as agent for the Corporation with respect to shareholders of and
prospective investors in the Fund who are customers with that financial
institution, among other things: provides necessary personnel and facilities to
establish and maintain certain shareholder accounts and records enabling it to
hold, as agent, its customer's shares in its name or its nominee name on the
shareholder records of the Corporation; assists in processing purchase and
redemption transactions; arranges for the wiring of funds; transmits and
receives funds in connection with customer orders to purchase or redeem shares
of the Fund; provides periodic statements showing a customer's account balance
and, to the extent practicable, integrates such information with information
concerning other customer transactions otherwise effected with or through it;
furnishes, either separately or on an integrated basis with other reports sent
to a customer, monthly and annual statements and confirmations of all purchases
and redemptions of Fund shares in a customer's account; transmits proxy
statements, annual reports, updated prospectuses and other communications from
the Corporation to its customers; and receives, tabulates and transmits to the
Corporation proxies executed by its customers with respect to meetings of
shareholders of the Fund. For these services, each financial institution
receives from the Fund an annual fee, computed daily and payable monthly, equal
to 0.25% of the Fund's average daily net assets represented by shares owned
during the period for which payment was being made by customers for whom the
financial institution was the holder or agent of record.
23
<PAGE>
EXPENSE PAYMENT AGREEMENT
================================================================================
Under an expense payment agreement, 59 Wall Street Administrators pays the
Fund's expenses (see "Expense Table" in the Prospectus), other than fees paid to
Brown Brothers Harriman & Co. under the Corporation's Administration Agreement
and other than expenses relating to the organization of the Fund. In return, 59
Wall Street Administrators receives a fee from the Fund such that after such
payment the aggregate expenses of the Fund do not exceed an agreed upon annual
rate, currently 0.65% of the average daily net assets of the Fund. Prior to
March 1, 1997, under an agreement dated February 22, 1995, 59 Wall Street
Administrators received a fee from the Fund such that after such payment the
aggregate expenses of the Fund did not exceed an agreed upon annual rate of
0.85% of the average daily net assets of the Fund. Such fees are computed daily
and paid monthly. During the fiscal year ended October 31, 1998, 59 Wall Street
Administrators incurred $[ ] in expenses, including investment advisory fees of
$[ ] and shareholder servicing/eligible institution fees of $[ ], on behalf of
the Fund and received fees of $[ ] from the Fund.
The expense payment agreement will terminate on July 1, 2000. If there had
been no expense payment agreement, the Directors of the Corporation estimate
that, at the Fund's current level, the total operating expenses of the Fund may
increase to approximately 1.24% of the average annual net assets of the Fund.
The expenses of the Fund paid by 59 Wall Street Administrators under the
agreement include the shareholder servicing/eligible institution fees, the
compensation of the Directors of the Corporation; governmental fees; interest
charges; taxes; membership dues in the Investment Company Institute allocable to
the Fund; fees and expenses of independent auditors, of legal counsel and of any
transfer agent, custodian, registrar or dividend disbursing agent of the Fund;
insurance premiums; expenses of calculating the net asset value of shares of the
Fund; expenses of preparing, printing and mailing prospectuses, reports,
notices, proxy statements and reports to shareholders and to governmental
officers and commissions; expenses of shareholder meetings; expenses relating to
the issuance, registration and qualification of shares of the Fund; and expenses
connected with the execution, recording and settlement of portfolio security
transactions; and the expenses associated with the investment advisory
agreement.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
================================================================================
State Street Bank and Trust Company ("State Street" or the "Custodian"), 225
Franklin Street, P.O. Box 351, Boston, Massachusetts 02110, is Custodian,
Transfer and Dividend Disbursing Agent for the Fund.
24
<PAGE>
As Custodian, it is responsible for maintaining books and records of the
Fund's portfolio transactions and holding the Fund's portfolio securities and
cash pursuant to a custodian agreement with the Corporation. Cash is held for
the Fund in demand deposit accounts at the Custodian. Subject to the supervision
of the Administrator, the Custodian maintains the Fund's accounting and
portfolio transaction records and for each day computes the Fund's net asset
value. As Transfer and Dividend Disbursing Agent it is responsible for
maintaining the books and records detailing the ownership of the Fund's shares.
INDEPENDENT AUDITORS
================================================================================
Deloitte & Touche LLP are the independent auditors for the Fund.
NET ASSET VALUE; 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.) The determination of net asset value per share
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.
25
<PAGE>
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.
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.
26
<PAGE>
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, 1998 was [ ]%. The average
annual total rate of return for the Fund for the fiscal year ended October 31,
1998 was [ ]%. The average annual total rate of return for the Fund for the
five-year period ended October 31, 1998 was []%.
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.
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.
27
<PAGE>
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.
The Fund's performance may be used from time to time in shareholder reports
or other communications to shareholders or prospective investors. Performance
figures are based on historical earnings and are not intended to indicate future
performance. Performance information may include the Fund's investment results
and/or comparisons of its investment results to various unmanaged indexes (such
as Salomon Brothers Inflation-Linked Securities Index, Donoghue's Money Fund
Index and Shearson Lehman Intermediate Bond Index) and to investments for which
reliable performance data is available. Performance information may also include
comparisons to averages, performance rankings or other information prepared by
recognized mutual fund statistical services. To the extent that unmanaged
indexes are so included, the same indexes are used on a consistent basis. The
Fund's investment results as used in such communications are calculated on a
total rate of return basis in the manner set forth below.
Period and average annualized total rates of return may be provided in such
communications. The total rate of return refers to the change in the value of an
investment in the Fund over a stated period based on any change in net asset
value per share and including the value of any shares purchasable with any
dividends or capital gains distributions during such period. Period total rates
of return may be annualized. An annualized total rate of return is a compounded
total rate of return which assumes that the period total rate of return is
generated over a one year period, and that all dividends and capital gains
distributions are reinvested. An annualized total rate of return is slightly
higher than a period total rate of return if the period is shorter than one
year, because of the assumed reinvestment.
The Fund's yield and effective yield may be used from time to time in
shareholder reports or other communications to shareholders or prospective
investors. Both yield figures are based on historical earnings and are not
intended to indicate future performance. The yield of the Fund refers to the
projected income generated by an investment in the Fund over a 30-day or
one-month period (which period is stated). This income is then annualized. The
effective yield is calculated similarly but, when annualized, the income earned
by an investment in the Fund is assumed to be reinvested. The effective yield
will be slightly higher than the yield because of the compounding effect of this
assumed reinvestment.
PURCHASES AND REDEMPTIONS
====================================================================
In the event a shareholder redeems all shares held in the Fund, future
purchases of shares of the Fund by such shareholder would be subject to the
Fund's minimum initial purchase requirements.
A confirmation of each purchase and redemption transaction is issued on
execution of that transaction.
28
<PAGE>
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 or
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.
An investor should be aware that redemptions from the Fund may not be
processed if a completed account application with a certified taxpayer
identification number has not been received.
The Corporation reserves the right to discontinue, alter or limit the
automatic reinvestment privilege at any time, but will provide shareholders
prior written notice of any such discontinuance, alteration or limitation.
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 the
Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, the Fund is
not subject to federal income taxes on its net income and realized net long-term
capital gains that are distributed to its shareholders. A 4% non-deductible
excise tax is imposed on the Fund to the extent that certain distribution
requirements for the Fund for each calendar year are not met. The Corporation
intends to meet such requirements. 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
29
<PAGE>
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. Any dividend or capital gains distribution has the effect
of reducing the net asset value of Fund shares held by a shareholder by the same
amount as the dividend or capital gains distribution. If the net asset value of
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
30
<PAGE>
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.
Other Information. Annual notification as to the tax status of capital gains
distributions, if any, is provided to shareholders shortly after October 31, the
end of the Fund's fiscal year. Additional tax information is mailed to
shareholders in January.
Under U.S. Treasury regulations, the Corporation and each Eligible
Institution are required to withhold and remit to the U.S. Treasury a portion
(31%) of dividends and capital gains distributions on the accounts of those
shareholders who fail to provide a correct taxpayer identification number
(Social Security Number for individuals) or to make required certifications, or
who have been notified by the Internal Revenue Service that they are subject to
such withholdings. Prospective investors should submit an IRS Form W-9 to avoid
such withholding.
This tax discussion is based on the tax laws and regulations in effect on the
date of this Prospectus, however such laws and regulations are subject to
change. Shareholders and prospective investors are urged to consult their tax
advisors regarding specific questions relevant to their particular
circumstances.
DESCRIPTION OF SHARES
============================================================================
The Corporation is an open-end management investment company organized as a
Maryland corporation on July 16, 1990. Its offices are located at 21 Milk
Street, Boston, Massachusetts 02109; its telephone number is (617) 423-0800. The
Articles of Incorporation currently permit the Corporation to issue
2,500,000,000 shares of common stock, par value $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 Board of
Directors also has the power to designate one or more series of shares of
common stock and to classify and reclassify any unissued shares with respect to
such series. Currently there are seven such series in addition to the Fund.
Each share of the Fund represents an equal proportional interest in the Fund
with each other share. Upon liquidation of the Fund, shareholders are entitled
to share pro rata in the net assets of the Fund available for distribution to
shareholders.
31
<PAGE>
Shareholders are entitled to a full vote for each full share held and to a
fractional vote for fractional shares. 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 or as may be required by the 1940 Act or as my be
permitted by the Articles of Incorporation or By-laws. Shareholders have under
certain circumstances (e.g., upon application and submission of certain
specified documents to the Directors by a specified number of shareholders) the
right to communicate with other shareholders in connection with requesting a
meeting of shareholders for the purpose of removing one or more Directors.
Shareholders also have the right to remove one or more Directors without a
meeting by a declaration in writing by a specified number of shareholders.
Shares have no preemptive or conversion rights. The rights of redemption are
described in the Prospectus. Shares are fully paid and non-assessable by the
Corporation.
Stock certificates are not issued by the Corporation.
The By-laws of the Corporation provide that the presence in person or
by proxy of the holders of record of one third of the shares of the Fund
outstanding and entitled to vote thereat shall constitute a quorum at all
meetings of shareholders of the Fund, except as otherwise required by applicable
law. The By-laws further provide that all questions shall be decided by a
majority of the votes cast at any such meeting at which a quorum is present,
except as otherwise required by applicable law.
The Corporation's Articles of Incorporation provide that, at any meeting of
shareholders of the Fund, each Eligible Institution, may vote any shares as to
which that Eligible Institution is the agent of record and which are otherwise
not represented in person or by proxy at the meeting, proportionately in
accordance with the votes cast by holders of all shares otherwise represented at
the meeting in person or by proxy as to which that Eligible Institution is the
agent of record. Any shares so voted by an Eligible Institution are deemed
represented at the meeting for purposes of quorum requirements.
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
32
<PAGE>
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 the Fund. Shareholders will receive 30 days prior
written notice with respect to any such investment. 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 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 BROKERAGE TRANSACTIONS
===========================================================================
The securities in which the Fund invests are traded primarily in the
over-the-counter markets on a net basis and do not normally involve either
brokerage commissions or transfer taxes. Where possible transactions on behalf
of the Fund are entered directly with the issuer or from an underwriter or
market maker for the securities involved. Purchases from underwriters of
securities may include a commission or concession paid by the issuer to the
underwriter, and purchases from
33
<PAGE>
dealers serving as market makers may include a spread between the bid and asked
price. The policy of the Fund regarding purchases and sales of securities is
that primary consideration is given to obtaining the most favorable prices and
efficient executions of transactions. In seeking to implement the Fund's
policies, the Investment Adviser effects transactions with those brokers and
dealers who the Investment Adviser believes provide the most favorable prices
and are capable of providing efficient executions. While reasonably competitive
spreads or commissions are sought for the Fund, it will not necessarily be
paying the lowest spread or commission available. If the Investment Adviser
believes such prices and executions are obtainable from more than one broker or
dealer, it may give consideration to placing portfolio transactions with those
brokers and dealers who also furnish research and other services to the Fund or
Investment Adviser. Such services may include, but are not limited to, any one
or more of the following: information as to the availability of securities for
purchase or sale; statistical or factual information or opinions pertaining to
investment; wire services; and appraisals or evaluations of portfolio
securities. For the fiscal year ended October 31, 1997 and 1998, the portfolio
turnover rate for the Fund was 372% and [ ]%, respectively. The amount of
brokerage commissions and taxes on realized capital gains to be borne by the
shareholders of the Fund tend to increase as the level of portfolio activity
increases.
On those occasions when Brown Brothers Harriman & Co. deems the purchase or
sale of a security to be in the best interests of the Fund as well as other
customers, Brown Brothers Harriman & Co. to the extent permitted by applicable
laws and regulations, may, but is not obligated to, aggregate the securities to
be sold or purchased for the Fund with those to be sold or purchased for other
customers in order to obtain best execution, including lower brokerage
commissions, if appropriate. In such event, allocation of the securities so
purchased or sold as well as any expenses incurred in the transaction are made
by Brown Brothers Harriman & Co. in the manner it considers to be most equitable
and consistent with its fiduciary obligations to its customers, including the
Fund. In some instances, this procedure might adversely affect the Fund.
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.
34
<PAGE>
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 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.
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<PAGE>
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, 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, 1998 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 which also contains performance information will be provided,
without charge, to each person receiving this Statement of Additional
Information.
WS5463B
36
<PAGE>
================================================================================
STATEMENT OF ADDITIONAL INFORMATION
THE 59 WALL STREET U.S. EQUITY FUND
21 Milk Street, Boston, Massachusetts 02109
==============================================================================
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 26, 1999, a copy of which may be obtained from the Corporation at the
address noted above.
Investments
Investment Objective and Policies . 2 5-8
Investment Restrictions . . . . 4
Management
Directors, Trustees and Officers . 6
Investment Adviser . . . . . . 10 11-12
Administrators. . . . . . . . 11
Distributor . . . . . . . . 12
Shareholder Servicing Agent,
Financial Intermediaries and
Eligible Institutions . . . . . . . . 13
Custodian, Transfer and
Dividend Disbursing Agent . . . . . .[]
Independent Auditors . . . . . . . . .[]
Net Asset Value; Redemption in Kind . . . 13 15
Computation of Performance . . . . . . 14
Purchases and Redemptions . . . . . . . . []
Federal Taxes . . . . . . . . . . 15
Description of Shares . . . . . . . 16
Portfolio Brokerage Transactions . . . . 17
Additional Information . . . . . . . . . . []
Financial Statements . . . . . . . 20
The date of this Statement of Additional Information is February 26, 1999.
2
<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.
Hedging Stategies
Options on Stock. Subject to applicable laws and regulations and solely
as a hedge against changes in the market value of portfolio securities intended
to be purchased, 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.
Options on Stock Indexes. Subject to applicable laws and regulations
and solely as a hedge against changes in the market value of portfolio
securities intended to be purchased, put and call options on stock indexes may
be entered into for the Fund. A stock index fluctuates with changes in the
market values of the stocks included in the index. Examples of stock indexes are
the Standard & Poor's 500 Stock Index (Chicago Board of Options Exchange) and
the New York Stock Exchange Composite Index (New York Stock Exchange).
Options on stock indexes are generally similar to options on stock
except that the delivery requirements are different. Instead of giving the right
to take or make delivery of stock at a fixed price (strike price), an option on
a stock index gives the holder the right to receive a cash exercise settlement
amount equal to (a) the amount, if any, by which the strike price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index
3
<PAGE>
on the date of exercise, multiplied by (b) a fixed index multiplier. Receipt of
this cash amount will depend upon the closing level of the stock index upon
which the option is based being greater than, in the case of a call, or less
than, in the case of a put, the price of the option. The amount of cash received
will be equal to such difference between the closing price of the index and the
strike price of the option times a specified multiple.
The effectiveness of purchasing stock index options as a hedging
technique depends upon the extent to which price movements in the portion of the
securities portfolio of the Fund being hedged correlate with price movements of
the stock index selected. The value of an index option depends upon future
movements in the level of the overall stock market measured by the underlying
index before the expiration of the option. Accordingly, the successful use of
options on stock indexes for the Fund is subject to the Investment Adviser's
ability both to select an appropriate index and to predict future price
movements over the short term in the overall stock market. Brokerage costs are
incurred in the purchase of stock index options and the incorrect choice of an
index or an incorrect assessment of future price movements may result in poorer
overall performance than if a stock nidex option had not been purchased.
The Corporation may terminate an option that it has written prior to
its expiration by entering into a closing purchase transaction in which it
purchases an option having the same terms as the option written. It is possible,
however, that liquidity in the options markets may make it difficult from time
to time for the Corporation to close out its written options positions. Also,
the securities exchanges have established limitations on the number of options
which may be written by an investor or group of investors acting in concert. It
is not contemplated that these position limits will have any adverse impact on
the Corporation's portfolio strategies.
Futures Contracts on Stock Indexes. Subject to applicable laws and
regulations and solely as a hedge against changes in the market value of
portfolio securities or securities intended to be purchased, futures contracts
on stock indexes ("Futures Contracts") may be entered into for the Fund.
In order to assure that the Fund is not deemed a "commodity pool" for
purposes of the Commodity Exchange Act, regulations of the Commodity Futures
Trading Commission ("CFTC") require that the Fund enter into transactions in
futures contracts and options on futures contracts only (i) for bona fide
hedging purposes (as defined in CTFC regulations), or (ii) for non-hedging
purposes, provided that the aggregate initial margin and premiums on such
non-hedging positions does not exceed 5% of the liquidation value of the Fund's
assets.
Futures Contracts provide for the making and acceptance of a cash
settlement based upon changes in the value of an index of stocks and are used to
hedge against anticipated future changes in the overall stock market prices
which otherwise might either adversely affect the value of securities held for
the Fund or adversely affect the prices which are intended to be purchased at a
later date. A Futures Contract may also be entered into to close out or offset
an existing futures position.
4
<PAGE>
In general, each transaction in Futures Contracts involves the
establishment of a position which is expected to move in a direction opposite to
that of the investment being hedged. If these hedging transactions are
successful, the futures positions taken would rise in value by an amount which
approximately offsets the decline in value of the portion of the Fund's
investments that is being hedged. Should general market prices move in an
unexpected manner, the full anticipated benefits of Futures Contracts may not be
achieved or a loss may be realized. There is also the risk of a potential lack
of liquidity in the secondary market.
The effectiveness of entering into Futures Contracts as a hedging
technique depends upon the extent of which price movements in the portion of the
securities being hedged correlate with price movements of the stock index
selected. The value of a Futures Contract depends upon future movements in the
level of the overall stock market measured by the underlying index before the
closing out of the Futures Contract. Accordingly, the successful use of Futures
Contracts is subject to the Investment Adviser's ability both to select an
appropriate index and to predict future price movements over the short term in
overall stock market. The incorrect choice of an index or an incorrect
assessment of the future price movements over the short term in the overall
stock market may result in a poorer overall performance than if a Futures
Contract had not been purchase Brokerage costs are incurred in entering into and
maintaining Futures Contracts.
When the Fund enters into a Futures Contract, it may be initially
required to deposit, in a segregated account in the name of the broker
performing the transaction, an "initial margin" of chase, U.S. Government
securities or other high grade liquid obligations equal to approximately 3% of
the contract amount. Initial margin requirements are established by the
exchanges on which Futures Contracts trade and may, from time to time, change.
In addition, brokers may establish margin deposit requirements in excess of
those required by the exchanges. Initial margin in futures transactions is
different from margin in securities transactions in that initial margin does not
involve the borrowing of funds by a broker's client but is, rather, a good faith
deposit on the Futures Contract which will be returned upon the proper
termination of the Futures Contract. The margin deposits made are marked to
market daily and the Fund may be required to make subsequent deposits of chase
or eligible securities called "variation margin", with its futures contract
clearing broker, which are reflective of price fluctuations in the Futures
Contract.
Currently, Futures Contracts can be purchased on stock indexes such as
Standard & Poor's 500 Stock Index (Chicago Board of Options Exchange) and the
New York Stock Exchange Composite Index (New York Stock Exchange).
Exchanges may limit the amount by which the price of Futures Contract
may move on any day. If the price moves equal the daily limit on successive
days, then it may prove impossible to liquidate a futures position until the
daily limit moves have ceased.
Over-the-counter (OTC) options purchased are treated as not readily
marketable.
5
<PAGE>
Short-Term Instruments
The assets of the Fund may be invested in U.S. dollar denominated
short-term instruments, including repurchase agreements, obligations of the U.S.
Government, its agencies or instrumentalities, commercial paper and bank
obligations (such as certificates of deposit, fixed time deposits, and bankers'
acceptances). Cash is held for the Fund in demand deposit accounts with the
Fund's custodian bank.
U.S. Government Securities
The assets of the Fund may be invested in securities issued by the U.S.
Government, its agencies or instrumentalities. These securities include notes
and bonds issued by the U.S. Treasury, zero coupon bonds and stripped principal
and interest securities.
Restricted Securities
Securities that have legal or contractual restrictions on their resale
may be acquired for the Fund. The price paid for these securities, or received
upon resale, may be lower than the price paid or received for similar securities
with a more liquid market. Accordingly, the valuation of these securities
reflects the limitation on their liquidity.
Loans of Portfolio Securities
Loans up to 30% of the total value of the securities of the Fund are
permitted. 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. By lending the
securities of the Fund, the Fund's income can be increased by the Fund
continuing to receive income on the loaned securities as well as by the
opportunity for the Fund to receive interest on the collateral. 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.
6
<PAGE>
When-Issued and Delayed Delivery Securities
Securities may be purchased for the Fund on a when-issued or delayed
delivery basis. For example, delivery and payment may take place a month or more
after the date of the transaction. The purchase price and the interest rate
payable on the securities, if any, are fixed on the transaction date. The
securities so purchased are subject to market fluctuation and no income accrues
to the Fund until delivery and payment take place. At the time the commitment to
purchase securities on a when-issued or delayed delivery basis is made, the
transaction is recorded and thereafter the value of such securities is reflected
each day in determining the Fund's net asset value. At the time of its
acquisition, a when-issued or delayed delivery security may be valued at less
than the purchase price. Commitments for such when-issued or delayed delivery
securities are made only when there is an intention of actually acquiring the
securities. On delivery dates for such transactions, such obligations are met
from maturities or sales of securities and/or from cash flow. If the right to
acquire a when-issued or delayed delivery security is disposed of prior to
acquisition, the Fund could, as with the disposition of any other portfolio
obligation, incur a gain or loss due to market fluctuation. When-issued or
delayed delivery commitments for the Fund may not be entered into if such
commitments exceed in the aggregate 15% of the market value of its total assets,
less liabilities other than the obligations created by when-issued or delayed
delivery commitments.
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
7
<PAGE>
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 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;
8
<PAGE>
(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, 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; (ii) invest
more than 10% of its net assets (taken at the greater of cost or market value)
in restricted securities; or (iii) invest less than 65% of the value of the
total assets of the Fund in equity securities. These policies are not
fundamental and may be changed without shareholder approval in response to
changes in the various state and federal requirements.
Percentage and Rating Restrictions. If a percentage or rating
restriction on investment or utilization of assets set forth above or referred
to in the Prospectus is adhered to at the time an investment is made or assets
are so utilized, a later change in percentage resulting from changes in the
value of the portfolio securities or a later change in the rating of a portfolio
security is not considered a violation of policy.
The Fund is classified as diversified under the 1940 Act, which means
that at least 75% of its total assets is represented by cash; securities issued
by the U.S. Government, its agencies or instrumentalities; and other securities
limited in respect of any one issuer to an amount not greater in value than 5%
of the Fund's total assets. The Fund does not purchase more than 10% of the
outstanding voting securities of any issuer.
DIRECTORS AND OFFICERS
================================================================================
The Corporation's Directors, in addition to supervising the actions of
the Administrator of the Corporation and Distributor, as set forth below, decide
upon matters of general policy with respect to the Corporation. The Directors
and executive officers of the Corporation, their
9
<PAGE>
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 Trust ; 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;
President of Lowy Industries (since August 1998); Secretary of the Los Angeles
County Board of Investments (prior to March 1995). His business address is 4111
Clear Valley Drive, Encino, CA 91436.
ARTHUR D. MILTENBERGER** -- 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.
10
<PAGE>
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").
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; Senior Vice President and Secretary of
SFG ; Secretary of 59 Wall Street Distributors and 59 Wall Street
Administrators.
MOLLY S. MUGLER -- Assistant Secretary; Vice President and Assistant
Secretary of SFG; Assistant Secretary of 59 Wall Street Distributors and 59 Wall
Street Administrators.
CHRISTINE A. DRAPEAU - Assistant Secretary; Vice President of SFG (since
January 1996); Paralegal and Compliance Officer, various financial companies
(July 1992 to January 1996); Graduate Student, Bentley College (prior to
December 1994).
- -------------------------
* Mr. Shields is an "interested person" of the 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 21 Milk Street,
Boston, Massachusetts 02109. Messrs. Coolidge, Hoolahan, and Elder and Mss.
Gibson, Mugler and Drapeau also hold similar positions with other investment
companies for which affiliates of 59 Wall Street Distributors serve as the
principal underwriter.
11
<PAGE>
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Compensation
Pension or from the
Retirement Corporation
Aggregate Benefits Accrued Estimated Annual and Fund
Name of Person, Compensation as Part of Benefits upon Complex*Paid
Position from the Corp. Fund Expenses Retirement to Directors
J.V. Shields, Jr., $[] none none $[]
Director
Eugene P. Beard, $[] none none $[]
Director
David P. Feldman, $[] none none $[]
Director
Alan G. Lowy, $[] none none $[]
Director
Arthur D.
Miltenberger, $[] none none $[]
Director
<FN>
* The Fund Complex consists of the Corporation and The 59 Wall Street Trust
which currently consists of three series.
</FN>
</TABLE>
As of January 31, 1999, 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 [ ] ([ ]%) 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 [
] ([ ]%) shares of the
12
<PAGE>
Fund. Also, Brown Brothers Harriman & Co. Employee Pension Plan on that
date held [ ] ([ ]%) shares of the Fund. Brown Brothers Harriman and its
affiliates separately are able to direct the disposition of an additional [ ]
([]%) 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 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
November 10, 1998. 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, 1996, 1997 and 1998,
the Fund incurred $277,632, $154,392 and $[], respectively, for advisory
services.
The investment advisory services of Brown Brothers Harriman & Co. to the
Fund are not exclusive under the terms of the Investment Advisory Agreements.
Brown Brothers Harriman & Co. is free to and does render investment advisory
services to others, including other registered investment companies.
Pursuant to a license agreement between the Corporation and Brown Brothers
Harriman & Co.
13
<PAGE>
dated September 5, 1990, as amended as of December 15, 1993, the Corporation may
continue to use in its name "59 Wall Street", the current and historic address
of Brown Brothers Harriman & Co. The agreement may be terminated by Brown
Brothers Harriman & Co. at any time upon written notice to the Corporation upon
the expiration or earlier termination of any investment advisory agreement
between the Corporation or any investment company in which a series of the
Corporation invests all of its assets and Brown Brothers Harriman & Co.
Termination of the agreement would require the Corporation to change its name
and the name of each Fund to eliminate all reference to "59 Wall Street".
Pursuant to license agreements between Brown Brothers Harriman & Co. and each
of 59 Wall Street Administrators and 59 Wall Street Distributors (each a
"Licensee"), dated June 22, 1993 and June 8, 1990, respectively, each Licensee
may continue to use in its name "59 Wall Street", the current and historic
address of Brown Brothers Harriman & Co., only if Brown Brothers Harriman & Co.
does not terminate the respective license agreement, which would require the
Licensee to change its name to eliminate all reference to "59 Wall Street".
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
================================================================================
Brown Brothers Harriman & Co. acts as Administrator for the Corporation.
14
<PAGE>
In its capacity as Administrator, Brown Brothers Harriman & Co. administers
all aspects of the Corporation's operations subject to the supervision of the
Corporation's Directors except as set forth below under "Distributor". In
connection with its responsibilities as Administrator and at its own expense,
Brown Brothers Harriman & Co. (i) provides the Corporation with the services of
persons competent to perform such supervisory, administrative and clerical
functions as are necessary in order to provide effective administration of the
Corporation, including the maintenance of certain books and records; (ii)
oversees the performance of administrative and professional services to the
Corporation by others, including the Fund's Custodian, Transfer and Dividend
Disbursing Agent; (iii) provides the Corporation with adequate office space and
communications and other facilities; and (iv) prepares and/or arranges for the
preparation, but does not pay for, the periodic updating of the Corporation's
registration statement and the Fund's prospectus, the printing of such documents
for the purpose of filings with the Securities and Exchange Commission and state
securities administrators, and the preparation of tax returns for the Fund and
reports to the Fund's shareholders and the Securities and Exchange Commission.
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 November 10, 1998. 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, 1996, 1997 and 1998, the Fund
incurred $64,069, $91,737 and $ , respectively, for administrative services.
Pursuant to a Subadministrative Services Agreement with Brown Brothers
Harriman & Co., 59 Wall Street Administrators performs such subadministrative
duties for the Corporation as are from time to time agreed upon by the parties.
The offices of 59 Wall Street Administrators are located at 21 Milk Street,
Boston, Massachusetts 02109. 59 Wall Street Administrators is a wholly-owned
subsidiary of Signature Financial Group, Inc. ("SFG"). SFG is not affiliated
with Brown Brothers Harriman & Co. 59 Wall Street Administrators'
subadministrative duties may include providing equipment and clerical personnel
necessary for maintaining the organization of the Corporation, participation in
the preparation of documents required for compliance by the Corporation with
applicable laws and regulations, preparation of certain documents in connection
with meetings of Directors and shareholders of the Corporation, and other
functions that would otherwise be performed by the Administrator as set forth
above. For performing such
15
<PAGE>
subadministrative services, 59 Wall Street Administrators receives such
compensation as is from time to time agreed upon but not in excess of the amount
paid to the Administrator from the Fund.
DISTRIBUTOR
================================================================================
59 Wall Street Distributors acts as exclusive Distributor of shares of the
Fund. Its office is located at 21 Milk Street, Boston, Massachusetts 02109. 59
Wall Street Distributors is a wholly-owned subsidiary of SFG. SFG and its
affiliates currently provide administration and distribution services for other
registered investment companies. The Corporation pays for the preparation,
printing and filing of copies of the Corporation's registration statements and
the Fund's prospectus as required under federal and state securities laws.
59 Wall Street Distributors holds itself available to receive purchase orders
for Fund shares.
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 , 1999. The agreement terminates automatically if assigned by either
party thereto and is terminable with respect to the Fund at any time without
penalty by a vote of a majority of the 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.
SHAREHOLDER SERVICING AGENT
================================================================================
The Corporation has entered into a shareholder servicing agreement with
Brown Brothers Harriman & Co. pursuant to which Brown Brothers Harriman & Co.,
as agent for the Fund, among other things: answers inquiries from shareholders
of and prospective investors in the Fund regarding account status and history,
the manner in which purchases and redemptions of Fund shares may be effected and
certain other matters pertaining to the Fund; assists shareholders of and
prospective investors in the Fund in designating and changing dividend options,
account designations and addresses; and provides such other related services as
the Corporation or a shareholder of or prospective investor in the Fund may
reasonably request. For these services, Brown Brothers Harriman & Co. receives
from the Fund an annual fee, computed daily and payable monthly, equal
16
<PAGE>
to 0.25% of the Fund's average daily net assets represented by shares owned
during the period for which payment was being made by shareholders who did not
hold their shares with an Eligible Institution.
FINANCIAL INTERMEDIARIES
================================================================================
From time to time, the Fund's Shareholder Servicing Agent enters into
contracts with banks, brokers and other financial intermediaries ("Financial
Intermediaries") pursuant to which a customer of the Financial Intermediary may
place purchase orders for Fund shares through that Financial Intermediary which
holds such shares in its name on behalf of that customer. Pursuant to such
contract, each Financial Intermediary as agent with respect to shareholders of
and prospective investors in the Fund who are customers of that Financial
Intermediary, among other things: provides necessary personnel and facilities to
establish and maintain certain shareholder accounts and records enabling it to
hold, as agent, its customers' shares in its name or its nominee name on the
shareholder records of the Corporation; assists in processing purchase and
redemption transactions; arranges for the wiring of funds; transmits and
receives funds in connection with customer orders to purchase or redeem shares
of the Fund; provides periodic statements showing a customer's account balance
and, to the extent practicable, integrates such information with information
concerning other customer transactions otherwise effected with or through it;
furnishes, either separately or on an integrated basis with other reports sent
to a customer, monthly and annual statements and confirmations of all purchases
and redemptions of Fund shares in a customer's account; transmits proxy
statements, annual reports, updated prospectuses and other communications from
the Corporation to its customers; and receives, tabulates and transmits to the
Corporation proxies executed by its customers with respect to meetings of
shareholders of the Fund. For these services, the Financial Intermediary
receives such fees from the Shareholder Servicing Agent as may be agreed upon
from time to time between the Shareholder Servicing Agent and such Financial
Intermediary.
ELIGIBLE INSTITUTIONS
================================================================================
The Corporation enters into eligible institution agreements with banks,
brokers and other financial institutions pursuant to which each financial
institution, as agent for the Corporation with respect to shareholders of and
prospective investors in the Fund who are customers with that financial
institution, among other things: provides necessary personnel and facilities to
establish and maintain certain shareholder accounts and records enabling it to
hold, as agent, its customers' shares in its name or its nominee name on the
shareholder records of the Corporation; assists in processing purchase and
redemption transactions; arranges for the wiring of funds; transmits and
receives funds in connection with customer orders to purchase or redeem shares
of the Fund; provides periodic statements showing a customer's account balance
and, to the extent practicable, integrates such
17
<PAGE>
information with information concerning other customer transactions otherwise
effected with or through it; furnishes, either separately or on an integrated
basis with other reports sent to a customer, monthly and annual statements and
confirmations of all purchases and redemptions of Fund shares in a customer's
account; transmits proxy statements, annual reports, updated prospectuses and
other communications from the Corporation to its customers; and receives,
tabulates and transmits to the Corporation proxies executed by its customers
with respect to meetings of shareholders of the Fund. For these services, each
financial institution receives from the Fund an annual fee, computed daily and
payable monthly, equal to 0.25% of that Fund's average daily net assets
represented by shares owned during the period for which payment was being made
by customers for whom the financial institution was the holder or agent of
record.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
================================================================================
State Street Bank and Trust Company ("State Street" or the "Custodian"), 225
Franklin Street, P.O. Box 351, Boston, Massachusetts 02110, is Custodian,
Transfer and Dividend Disbursing Agent for the Fund.
As Custodian, it is responsible for maintaining books and records of the
Fund's portfolio transactions and holding the Fund's portfolio securities and
cash pursuant to a custodian agreement with the Corporation. Cash is held for
the Fund in demand deposit accounts at the Custodian.
INDEPENDENT AUDITORS
================================================================================
Deloitte & Touche LLP are the independent auditors for the Fund.
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.
18
<PAGE>
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.
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
19
<PAGE>
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, 1998 was [ ]%. The average
annual total rate of return for the Fund for the fiscal year ended October 31,
1998 was [ ]%. The average annual total rate of return for the Fund for the
five-year period ended October 31, 1998 was [ ]%.
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.
The Fund's performance may be used from time to time in shareholder reports
or other communications to shareholders or prospective investors. Performance
figures are based on historical earnings and are not intended to indicate future
performance. Performance information may include the Fund's investment results
and/or comparisons of its investment results to various unmanaged indexes (such
as the Standard & Poor's 500 Index) and to investments for which reliable
performance data is available. Performance information may also include
comparisons to averages, performance rankings or other information prepared by
recognized mutual fund statistical services. To the extent that unmanaged
indexes are so included, the same indexes are used on a consistent basis. The
Fund's investment results as used in such communications are calculated on a
total rate of return basis in the manner set forth below.
20
<PAGE>
Period and average annualized total rates of return may be provided in such
communications. The total rate of return refers to the change in the value of an
investment in The Fund over a stated period based on any change in net asset
value per share and including the value of any shares purchasable with any
dividends or capital gains distributions during such period. Period total rates
of return may be annualized. An annualized total rate of return is a compounded
total rate of return which assumes that the period total rate of return is
generated over a one year period, and that all dividends and capital gains
distributions are reinvested. An annualized total rate of return is slightly
higher than a period total rate of return if the period is shorter than one
year, because of the assumed investment.
PURCHASES AND REDEMPTIONS
================================================================================
The Corporation reserves the rights to discontinue, alter or limit the
automatic reinvestment privilege at any time, but will provide shareholders
prior written notice of any such discontinuance, alteration or limitation.
A confirmation of each purchase and redemption transaction is issued on
execution of that transaction.
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.
In the event a shareholder redeems all shares held in the Fund, future
purchases of shares of the Fund by such shareholder would be subject to the
Fund's minimum initial purchase requirements.
The value of shares redeemed may be more or less than the shareholder's cost
depending on Fund performance during the period the shareholder owned such
shares.
An investor should be aware that redemptions from the Fund may not be
processed if a completed account application with a certified taxpayer
identification number has not been received.
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 the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly,
the Fund is not subject to federal income taxes on its net income and realized
net long-term capital gains that are distributed to its shareholders. A 4%
non-deductible excise tax is imposed on the Fund to the extent that certain
distribution requirements for the Fund for each calendar year are not met. The
Corporation intends to meet such requirements. Under Subchapter M of the Code
the Fund is not subject to federal income taxes on amounts distributed to
shareholders.
21
<PAGE>
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.
Dividends paid from the Fund may be eligible for the dividends-received
deduction allowed to corporate shareholders because all or a portion of the
Fund's net income may consist of dividends paid by domestic corporations.
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.
22
<PAGE>
Return of Capital. Any dividend or capital gains distribution has the effect
of reducing the net asset value of Fund shares held by a shareholder by the same
amount as the dividend or capital gains distribution. If the net asset value of
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.
Other Information. Annual notification as to the tax status of capital
gains distributions, if any, is provided to shareholders shortly after October
31, the end of the Fund's fiscal year. Additional tax information is mailed to
shareholders in January. Under U.S. Treasury regulations, the Corporation and
each Eligible Institution are required to withhold and remit to the U.S.
Treasury a portion (31%) of dividends and capital gains distributions on the
accounts of those shareholders who fail to provide a correct taxpayer
identification number (Social Security Number for individuals) or to make
required certifications, or who have been notified by the Internal Revenue
Service that they are subject to such withholdings. Prospective investors should
submit an IRS Form W-9 to avoid such withholding. This tax discussion is based
on the tax laws and regulations in effect on the date of this Prospectus,
however such laws and regulations are subject to change. Shareholders and
prospective investors are urged to consult their tax advisors regarding specific
questions relevant to their particular circumstances.
23
<PAGE>
DESCRIPTION OF SHARES
================================================================================
The Corporation is an open-end management investment company organized as a
Maryland corporation on July 16, 1990. Its offices are located at 21 Milk
Street, Boston, Massachusetts 02109; its telephone number is (617) 423-0800. The
Articles of Incorporation currently permit the Corporation to issue
2,500,000,000 shares of common stock, par value $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 Board of
Directors of the Corporation may increase the number of shares the Corporation
is authorized to issue without the approval of shareholders. The Board of
Directors of the Corporation also has the power to designate one or more series
of shares of common stock and to classify and reclassify any unissued shares
with respect to such series. Currently there are seven such series in addition
to the Fund.
Each share of the Fund represents an equal proportional interest in the Fund
with each other share. Upon liquidation of the Fund, shareholders are entitled
to share pro rata in the net assets of the Fund available for distribution to
shareholders.
Shareholders of the Fund are entitled to one full vote for each full share
held and to a fractional vote for fractional shares. 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 as may be required by the
1940 Act or as may be permitted by the Articles of Incorporation or By-laws.
Shareholders have under certain circumstances (e.g., upon application and
submission of certain specified documents to the Directors by a specified number
of shareholders) the right to communicate with other shareholders in connection
with requesting a meeting of shareholders for the purpose of removing one or
more Directors. Shareholders also have the right to remove one or more Directors
without a meeting by a declaration in writing by a specified number of
shareholders. Shares have no preemptive or conversion rights. The rights of
redemption are described in the Prospectus. Shares are fully paid and
non-assessable by the Corporation.
Stock certificates are not issued by the Corporation.
The By-laws of the Corporation provide that the presence in person or by
proxy of the holders of record of one third of the shares of the Fund
outstanding and entitled to vote thereat shall constitute a quorum at all
meeting of Fund shareholders, except as otherwise required by applicable law.
The Bylaws further provide that all questions shall be decided by a majority of
the votes cast at any such meeting at which a quorum is present, except as
otherwise required by applicable law.
The Corporation's Articles of Incorporation provide that, at any meeting of
shareholders of the Fund, each Eligible Institution may vote any shares as to
which that Eligible Institution is the agent of record and which are otherwise
not represented in person or by proxy at the meeting, proportionately in
accordance with the votes cast by holders of all shares otherwise represented at
24
<PAGE>
the meeting in person or by proxy as to which that Eligible Institution is the
agent of record. Any shares so voted by an Eligible Institution are deemed
represented at the meeting for purposes of quorum requirements.
The 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 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.
25
<PAGE>
PORTFOLIO BROKERAGE TRANSACTIONS
================================================================================
The portfolio of the Fund is managed actively in pursuit of its investment
objective. Securities are not traded for short-term profits but, when
circumstances warrant, securities are sold, without regard to the length of time
held. A 50% annual turnover rate would occur, for example, if half of the
securities in the Fund's portfolio (excluding short-term obligations) were
replaced once in a period of one year. For the fiscal years ended October 31,
1997 and 1998, the portfolio turnover rate was 37% and [ ]%, respectively. The
amount of brokerage commissions and taxes on realized capital gains to be borne
by the shareholders of the Fund tend to increase as the turnover rate increases.
In effecting securities transactions for the Fund, the Investment Adviser
seeks to obtain the best price and execution of orders. In selecting brokers,
the Investment Adviser considers a number of factors including: the broker's
ability to execute orders without disturbing the market price; the broker's
reliability for prompt, accurate confirmations and on-time delivery of
securities; the broker's financial condition and responsibility; the research
and other investment information provided by the broker; and the commissions
charged. Accordingly, the commissions charged by any such broker may be greater
than the amount another firm might charge if the Investment Adviser determines
in good faith that the amount of such commissions is reasonable in relation to
the value of the brokerage services and research information provided by such
broker.
For the fiscal years ended October 31, 1996, 1997 and 1998, the aggregate
commissions paid by the Fund were $91,075, $53,347 and $[ ], 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 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.
The Investment Adviser may direct a portion of the Fund's securities
transactions to certain unaffiliated brokers which in turn use a portion of the
commissions they receive from the Fund to pay other unaffiliated service
providers on behalf of the Fund for services provided for which the
26
<PAGE>
Fund would otherwise be obligated to pay. Such commissions paid by the Fund are
at the same rate paid to other brokers for effecting similar transactions in
listed equity securities.
Brown Brothers Harriman & Co. acts as one of the principal brokers of the
Fund in the purchase and sale of portfolio securities when, in the judgment of
the Investment Adviser, that firm is able to obtain a price and execution at
least as favorable as other qualified brokers. As one of the principal brokers
of the Fund, Brown Brothers Harriman & Co. receives brokerage commissions from
the Fund.
On those occasions when Brown Brothers Harriman & Co. deems the purchase or
sale of a security to be in the best interests of the Fund as well as other
customers, Brown Brothers Harriman & Co., to the extent permitted by applicable
laws and regulations, may, but is not obligated to, aggregate the securities to
be sold or purchased for the Fund with those to be sold or purchased for other
customers in order to obtain best execution, including lower brokerage
commissions, if appropriate. In such event, allocation of the securities so
purchased or sold as well as any expenses incurred in the transaction are made
by Brown Brothers Harriman & Co. in the manner it considers to be most equitable
and consistent with its fiduciary obligations to its customers, including the
Fund. In some instances, this procedure might adversely affect the Fund
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, 1996, 1997 and 1998, total
transactions with a principal value of $43,947,413, $33,214,259,and []% were
effected for the Fund of which transactions with a principal value of
$20,646,719, $13,199,626 and [$] were effected by Brown Brothers Harriman & Co.
which involved payments of commissions to Brown Brothers Harriman & Co. of
$50,078, $21,916, and []%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.
27
<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 unaudited
financial statements and annual reports containing financial statements audited
by independent auditors.
28
<PAGE>
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, 1998 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 which contains performance information will be provided,
without charge, to each person receiving this Statement of Additional
Information.
WS5462B
29
<PAGE>
PART C
ITEM 23. EXHIBITS.
(a) (i) Restated Articles of Incorporation of the Registrant.(7)
(ii) Establishment and Designation of Series of The 59 Wall
Street U.S. Equity Fund and The 59 Wall Street Short/
Intermediate Fixed Fund.(7)
(iii) Establishment and Designation of Series of The 59 Wall
Street Small Company Fund.(7)
(iv) Establishment and Designation of Series of The 59 Wall
Street International Equity Fund.(7)
(v) Establishment and Designation of Series of The 59 Wall
Street Short Term Fund. (7)
(vi) Redesignation of series of the The 59 Wall Street Short/
Intermediate Fixed Income Fund as The 59 Wall Street
Inflation-Indexed Securities Fund. (8)
(vi) Establishment and Designation of Series of The 59 Wall
Street Tax-Efficient U.S. Equity Fund. (9)
(b) Amended and Restated By-Laws of the Registrant.(7)
(c) Not Applicable.
(d) (i) Advisory Agreement with respect to The 59 Wall Street
U.S. Equity Fund.(7)
(ii) Advisory Agreement with respect to The 59 Wall Street
Short/Intermediate Fixed Income Fund.(7)
(iii) Form of Advisory Agreement with respect to The 59 Wall
Street Inflation-Indexed Securities Fund.(8)
(iv) Form of Advisory Agreement with respect to The 59 Wall
Street Tax-Efficient U.S. Equity Fund. (9)
(e) Form of Amended and Restated Distribution Agreement.(3)
(f) Not Applicable.
(g) (a) Form of Custody Agreement.(2)
(b) Form of Transfer Agency Agreement.(2)
(h) (i) Amended and Restated Administration Agreement.(6)
(ii) Subadministrative Services Agreement.(6)
(iii) Form of License Agreement.(1)
(iv) Amended and Restated Shareholder Servicing Agreement.(6)
(i) Appendix A to Amended and Restated Shareholder
Servicing Agreement.(9)
(v) Amended and Restated Eligible Institution Agreement.(6)
(ii) Appendix A to Amended and Restated Eligible
Institution Agreement.(9)
(vi) Form of Expense Reimbursement Agreement with respect to
The 59 Wall Street U.S. Equity Fund.(6)
(vii) Form of Expense Reimbursement Agreement with respect to
The 59 Wall Street Short/Intermediate Fixed
Fund.(6)
(viii) Form of Expense Payment Agreement with respect to
The 59 Wall Street Inflation-Indexed Securities Fund.(8)
(ix) Form of Expense Payment Agreement with respect to The
59 Wall Street Tax-Efficient U.S. Equity Fund. (9)
(x) Form of Expense Payment Agreement with respect to The
59 Wall Street International Equity Fund.
(i) Opinion of Counsel (including consent).(2)
(j) Independent auditors' consent.(9)
(k) Not Applicable.
(l) Copies of investment representation letters from initial
shareholders.(2)
(m) Not Applicable.
(n) Financial Data Schedule.(10)
(o) Not Applicable.
<PAGE>
(1)Filed with the initial Registration Statement on July 16, 1990.
(2)Filed with Amendment No. 1 to this Registration Statement on October 9, 1990.
(3)Filed with Amendment No.2 to this Registration Statement on February 14,
1991.
(4)Filed with Amendment No. 5 to this Registration Statement on June 15, 1992.
(5)Filed with Amendment No. 7 to this Registration Statement on March 1, 1993.
(6)Filed with Amendment No.9 to this Registration Statement on
December 30, 1993.
(7)Filed with Amendment No. 24 to this Registration Statement on
February 28, 1996.
(8)Filed with Amendment No. 27 to this Registration Statement on
February 28, 1997.
(9)Filed with Amendment No. 38 to this Registration Statement on
September 21, 1998.
(10)To be filed by amendment.
Item 24. Persons Controlled by or Under Common Control with Registrant.
See "Directors and Officers" in the Statement of Additional Information
filed as part of this Registration Statement.
Item 25. Indemnification
Reference is made to Article VII of Registrant's By-Laws and to Section
5 of the Distribution Agreement between the Registrant and 59 Wall Street
Distributors, Inc.
Registrant, its Directors and officers, and persons affiliated with
them are insured against certain expenses in connection with the defense of
actions, suits or proceedings, and certain liabilities that might be imposed as
a result of such actions, suits or proceedings.
Insofar as indemnification for liability arising under the Securities
Act of 1933, as amended (the "Act"), may be permitted to Directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Director, officer of controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
Item 26. Business and Other Connections of Investment Adviser.
The Registrant's investment adviser, Brown Brothers Harriman & Co.
("BBH & Co."), is a New York limited partnership. BBH & Co. conducts a general
banking business and is a member of the New York Stock Exchange, Inc.
To the knowledge of the Registrant, none of the general partners or
officers of BBH & Co. is engaged in any other business, profession, vocation or
employment of a substantial nature.
Item 27. Principal Underwriters.
1. (a) 59 Wall Street Distributors, Inc. ("59 Wall Street
Distributors") and its affiliates, also serves as
administrator and/or distributor to other
registered investment companies.
(b) Set forth below are the names, principal business
addresses and positions of each Director and
officer of 59 Wall Street Distributors. The
principal business address of these individuals is
c/o 59 Wall Street Distributors, Inc., 21 Milk
Street, Boston, MA 02109. Unless otherwise
specified, no officer or Director of 59 Wall
Street Distributors serves as an officer or
Director of the Registrant.
<PAGE>
Position and Offices with Position and Offices
Name 59 Wall Street Distributors with the Registrant
- ------------- --------------------------- --------------------
Philip W. Coolidge Chief Executive President
Officer, President
and Director
John R. Elder Assistant Treasurer Treasurer
Linda T. Gibson Secretary Secretary
Molly S. Mugler Assistant Secretary Assistant Secretary
Christine A. Drapeau -- Assistant Secretary
Linwood C. Downs Treasurer --
Robert Davidoff Director --
CMNY Capital, L.P.
135 East 57th Street
New York, NY 10022
Donald Chadwick Director --
Scarborough & Company
110 East 42nd Street
New York, NY 10017
Leeds Hackett Director --
National Credit
Management Corporation
10155 York Road
Cockeysville, MD 21030
Laurence E. Levine Director --
First International
Capital Ltd.
130 Sunrise Avenue
Palm Beach, FL 33480
(c) Not Applicable.
Item 28. Location of Accounts and Records.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder are
maintained at the offices of:
The 59 Wall Street Fund, Inc.
21 Milk Street
Boston, MA 02109
Brown Brothers Harriman & Co.
59 Wall Street
New York, NY 10005
(investment adviser, eligible institution
and shareholder servicing agent)
59 Wall Street Distributors, Inc.
21 Milk Street
Boston, MA 02109
(distributor)
59 Wall Street Administrators, Inc.
21 Milk Street
Boston, MA 02109
(subadministrator)
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
(custodian and transfer agent)
<PAGE>
Item 29. Management Services.
Other than as set forth under the caption "Management of the
Corporation" in the Prospectus constituting Part A of the Registration
Statement, Registrant is not a party to any management-related service contract.
Item 30. Undertakings.
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this registration
statement to be signed on its behalf by the undersigned, thereto duly authorized
in the City of Boston, and Commonwealth of Massachusetts on the 30th day of
December 1998.
THE 59 WALL STREET FUND, INC.
By /s/ PHILIP W. COOLIDGE
(Philip W. Coolidge, President)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated above.
Signature Title
/s/ J.V. SHIELDS, JR. Director and Chairman of
(J.V. Shields, Jr.) the Board
/s/ PHILIP W. COOLIDGE President (Principal
(Philip W. Coolidge) Executive Officer)
/s/ EUGENE P. BEARD Director
(Eugene P. Beard)
/s/ DAVID P. FELDMAN Director
(David P. Feldman)
/s/ ARTHUR D. MILTENBERGER Director
(Arthur D. Miltenberger)
/s/ ALAN D. LOWY Director
(Alan D. Lowy)
/S/ JOHN R. ELDER Treasurer
(John R. Elder)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this registration
statement to be signed on its behalf by the undersigned, thereto duly authorized
in Boston, Massachusetts on the 30th day of December, 1998.
INTERNATIONAL EQUITY PORTFOLIO
By /s/PHILIP W. COOLIDGE
(Philip W. Coolidge, President)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated above.
Signature Title
PHILIP W. COOLIDGE* President of the Portfolio
(Philip W. Coolidge)
H.B. ALVORD* Trustee and Chairman of the Board
(H.B. Alvord)
RICHARD L. CARPENTER* Trustee
(Richard L. Carpenter)
CLIFFORD A. CLARK* Trustee
(Clifford A. Clark)
DAVID M. SEITZMAN* Trustee
(David M. Seitzman)
JOHN R. ELDER* Treasurer of the Portfolio
(John R. Elder)
*By: /s/SUSAN JAKUBOSKI
Susan Jakuboski as Attorney-in-Fact pursuant to
Powers of Attorney filed previously.
INDEX TO EXHIBITS
EX-99.B9 Expense Payment Agreement with respect to The 59 Wall Street Tax-
Efficient. Equity Fund
May 4, 1998
The 59 Wall Street Fund, Inc.
21 Milk Street
Boston, Massachusetts 02109
Re: The 59 Wall Street International Equity Fund
Dear Sirs: This letter agreement (the "Agreement") confirms the agreement
of the undersigned 59 Wall Street Administrators, Inc. ("Administrators") and
The 59 Wall Street Fund, Inc. (the "Corporation") (collectively, the "Parties").
Administrators agrees to pay all of the operating expenses of The 59 Wall Street
International Equity Fund (the "Fund"), as described in the Prospectus or
Statement of Additional Information with respect to the Fund included as part of
the Registration Statement on Form N-1A of the Corporation filed with the
Securities and Exchange Commission as amended (the "Prospectus" and "SAI",
respectively) other than fees paid under the Administration Agreement referred
to in the Prospectus and SAI, and other than expenses relating to the
organization of the Fund.
The Corporation hereby agrees to pay to Administrators a fee from the
Fund, in addition to the administration fees payable pursuant to such
Administration Agreement, estimated and accrued daily and paid monthly in an
amount to be determined from time to time by the Corporation and Administrators
provided, however, that such amount shall not exceed the amount such that
immediately after any such payment the aggregate expenses of the Fund would not
on a per annum basis exceed 1.50% of such average daily net assets or such other
percentage as may from time to time be agreed upon among the Parties.
This Agreement shall be effective as of November 1, 1997 and shall
terminate on October 31, 2000, unless sooner terminated by mutual agreement of
the Parties or pursuant to the following sentence. In the event that the
Administration Agreement between the Corporation and Administrators shall cease
to be in full force and effect, Administrators may, at its option, upon not less
than 30 days nor more than 60 days written notice to the Corporation, terminate
this Agreement.
If the foregoing correctly sets forth our agreement, kindly so confirm
by signing the enclosed counterpart of this letter in the space indicated for
signature on behalf of the Corporation below.
Very truly yours,
59 WALL STREET ADMINISTRATORS, INC.
By/S/PHILIP W. COOLIDGE
Philip W. Coolidge, President
Agreed:
THE 59 WALL STREET FUND, INC.
By:/S/JOSEPH V. SHIELDS, JR.
Joseph V. Shields, Jr., Chairman
WS5080C
