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STATEMENT OF ADDITIONAL INFORMATION
THE 59 WALL STREET U.S. EQUITY FUND
21 Milk Street, Boston, Massachusetts 02109
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The 59 Wall Street U.S. Equity Fund (the "U.S. Equity Fund" of the
"Fund") is a separate portfolio of The 59 Wall Street Fund, Inc. (the
"Corporation"), a management investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act"). The Fund is designed to enable
investors to be invested in a portfolio of equity securities of companies that
are well established and financially sound. The Fund's investment objective is
to provide investors with long-term capital growth while also generating current
income. There can be no assurance that the investment objective of the Fund will
be achieved.
The Corporation seeks to achieve the investment objective of the Fund
by investing all of the Fund's assets in the U.S. Equity Portfolio (the
"Portfolio"), a open-end investment company having the same investment objective
as the Fund. There can be no assurance that the Fund's investment objective will
be achieved.
Brown Brothers Harriman & Co. is the investment adviser (the
"Investment Adviser") of the Portfolio. This Statement of Additional Information
is not a prospectus and should be read in conjunction with the Prospectus dated
March 1, 1999 and supplemented November 1, 1999 a copy of which may be obtained
from the Corporation at the address noted above.
<TABLE>
<CAPTION>
Table of Contents
<S> <C> <C>
Cross-Reference
Page to Page in Prospectus
Investments
Investment Objective and Policies . . . . . . . . . 2 3
Investment Restrictions . . . . . . . . . . . . . . 7
Management
Directors and Officers . . . . . . . . . . . . . . . 9
Investment Adviser . . . . . . . . . . . . . . . . . 13 6
Administrator . . . . . . . . . . . . . . . . . . . 15
Distributor . . . . . . . . . . . . . . . . . . . . 16
Shareholder Servicing Agent, Financial Intermediaries
and Eligible Institutions . . . . . . . . . . . . . . 15-18
Custodian, Transfer and Dividend Disbursing Agent 18
Independent Auditors 18
Net Asset Value; Redemption in Kind . . . . . . . . 18 6
Computation of Performance . . . . . . . . . . . . . 19
Purchases and Redemptions 21
Federal Taxes . . . . . . . . . . . . . . . . . . . 21
Description of Shares . . . . . . . . . . . . . . . 24
Portfolio Brokerage Transactions . . . . . . . . . . . . . . . 26
Additional Information . . . . . . . . . . . . . . . 28
Financial Statements . . . . . . . . . . . . . . . . 29
</TABLE>
The date of this Statement of Additional Information is November 1, 1999.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
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The following supplements the information contained in the Prospectus
concerning the investment objective, policies and techniques of the Portfolio.
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. Such investments may prevent the Portfolio from achieving its
investment objective.
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
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.
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 purchased for the Portfolio. 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 on the date of exercise, multiplied by (b)
a fixed index multiplier. Receipt of this cash amount depends upon the closing
level of the stock index upon which the option is based being greater than, in
the case of a call, or less than, in the case of a put, the price of the option.
The amount of cash received will be equal to such difference between the closing
price of the index and the strike price of the option 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 index option had not been purchased.
The Corporation may terminate an option that it has written prior to
its expiration by entering into a closing purchase transaction in which it
purchases an option having the same terms as the option written. It is possible,
however, that 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 Portfolio.
In order to assure that the Portfolio is not deemed a "commodity pool"
for purposes of the Commodity Exchange Act, regulations of the Commodity Futures
Trading Commission ("CFTC") require that the Portfolio enter into transactions
in futures contracts and options on futures contracts only (i) for bona fide
hedging purposes (as defined in 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
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 the overall stock market prices
which otherwise might either adversely affect the value of securities held for
the Portfolio or adversely affect the prices of securities which are intended to
be purchased at a later date. A Futures Contract may also be entered into to
close out or offset an existing futures position.
In general, each transaction in Futures Contracts involves the
establishment of a position which is expected to move in a direction opposite to
that of the investment being hedged. If these hedging transactions are
successful, the futures positions taken would rise in value by an amount which
approximately offsets the decline in value of the portion of the Portfolio's
investments that is being hedged. Should general market prices move in an
unexpected manner, the full anticipated benefits of Futures Contracts may not be
achieved or a loss may be realized. There is also the risk of a potential lack
of liquidity in the secondary market.
The effectiveness of entering into Futures Contracts as a hedging
technique depends upon the extent of which price movements in the portion of the
securities portfolio being hedged correlate with price movements of the stock
index selected. The value of a Futures Contract depends upon future movements in
the level of the overall stock market measured by the underlying index before
the closing out of the Futures Contract. Accordingly, the successful use of
Futures Contracts is subject to the Investment Adviser's ability both to select
an appropriate index and to predict future price movements over the short term
in overall stock market. The incorrect choice of an index or an incorrect
assessment of the future price movements over the short term in the overall
stock market may result in a poorer overall performance than if a Futures
Contract had not been purchased. Brokerage costs are incurred in entering into
and maintaining Futures Contracts.
When the Portfolio enters into a Futures Contract, it may be initially
required to deposit, in a segregated account in the name of the broker
performing in the transaction, an "initial margin" of cash, U.S. Government
securities or other high grade liquid obligations equal to approximately 3% of
the contract amount. Initial margin requirements are established by the
exchanges on which Futures Contracts trade and may, from time to time, change.
In addition, brokers may establish margin deposit requirements in excess of
those required by the exchanges. Initial margin in futures transactions is
different from margin in securities transactions in that initial margin does not
involve the borrowing of funds by a broker's client but is, rather, a good faith
deposit on the Futures Contract which will be returned upon the proper
termination of the Futures Contract. The margin deposits made are marked to
market daily and the Portfolio may be required to make subsequent deposits of
cash or eligible securities called "variation margin", with its futures contract
clearing broker, which are reflective of price fluctuations in the Futures
Contract.
Currently, Futures Contracts can be purchased on stock indexes such as
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 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.
Short-Term Instruments
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.
U.S. Government Securities
The assets of the Portfolio may be invested in securities issued by the
U.S. Government, its agencies or instrumentalities. These securities include
notes and bonds issued by the U.S. Treasury, zero coupon bonds and stripped
principal and interest securities.
Restricted Securities
Securities that have legal or contractual restrictions on their resale
may be acquired for the Portfolio. The price paid for these securities, or
received upon resale, may be lower than the price paid 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 Portfolio are permitted.
Securities of the Portfolio may be loaned if such loans are secured continuously
by cash or equivalent liquid securities as 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 the
securities of the Portfolio, the Portfolio's income can be increased by the
Portfolio continuing to receive income on the loaned securities as well as by
the opportunity for the Portfolio 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 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.
When-Issued and Delayed Delivery Securities
Securities may be purchased for the Portfolio on a when-issued or
delayed delivery basis. For example, delivery and payment may take place a month
or more after the date of the transaction. The purchase price and the interest
rate payable on the securities, if any, are fixed on the transaction date. The
securities so purchased are subject to market fluctuation and no income accrues
to the Portfolio until delivery and payment take place. At the time the
commitment to purchase securities on a when-issued or delayed delivery basis is
made, the transaction is recorded and thereafter the value of such securities is
reflected each day in determining the Portfolio's net asset value. At the time
of its acquisition, a when-issued or delayed delivery security may be valued at
less than the purchase price. Commitments for such when-issued or delayed
delivery securities are made only when there is an intention of actually
acquiring the securities. On delivery dates for such transactions, such
obligations are met from maturities or sales of securities and/or from cash
flow. If the right to acquire a when-issued or delayed delivery security is
disposed of prior to its acquisition, the Portfolio could, as with the
disposition of any other portfolio obligation, incur a gain or loss due to
market fluctuation. When-issued or delayed delivery commitments for the
Portfolio may not be entered into if such commitments exceed in the aggregate
15% of the market value of its total assets, less liabilities other than the
obligations created by when-issued or delayed delivery commitments.
INVESTMENT RESTRICTIONS
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The Fund and the Portfolio 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) of the Fund or the Portfolio, as the
case may be.
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, neither the Portfolio nor the
Corporation, with respect to the Fund, may:
(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 an 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);
(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 are part of
an issue to the public shall not be considered the making of a loan;
(5) knowingly invest in securities which are subject to legal or
contractual restrictions on resale (other than repurchase agreements maturing in
not more than seven days) if, as a result thereof, more than 10% of its net
assets (taken at market value) would be so invested (including repurchase
agreements maturing in more than seven days);
(6) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts
(except futures and option contracts) in the ordinary course of business (the
freedom of action to hold and to sell real estate acquired as a result of the
ownership of securities is reserved);
(7) make short sales of securities or maintain a short position, unless
at all times when a short position is open it owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless not more than 10% of its net
assets (taken at market value) is represented by such securities, or securities
convertible into or exchangeable for such securities, at any one time (it is the
present intention of management to make such sales only for the purpose of
deferring realization of gain or loss for federal income tax purposes; such
sales would not be made of securities subject to outstanding options);
(8) concentrate its investments in any particular industry, but if it
is deemed appropriate for the achievement of its investment objective, up to 25%
of its assets, at market value at the time of each investment, may be invested
in any one industry, except that positions in futures or option contracts shall
not be subject to this restriction;
(9) issue any senior security (as that term is defined in the 1940 Act)
if such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, 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 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;
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 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, on behalf of the Fund, that the Portfolio will adhere to the
more restrictive limitation.
The Portfolio 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 Portfolio's total assets. The Portfolio does not purchase
more than 10% of the outstanding voting securities of any issuer.
DIRECTORS AND OFFICERS
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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.
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, ans
their respective officers, other than the Chairmen, receive no compensation from
the Fund or the Portfolio.
The Directors 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 AND THE PORTFOLIO
J.V. SHIELDS, JR.* - Chairman of the Board and Director; Trustee of The
59 Wall Street Trust; Trustee of the Portfolios(1) (since October 1999);
Managing Director, Chairman and Chief Executive Officer of Shields & Company;
Chairman of Capital Management Associates, Inc.; Director of Flowers Industries,
Inc.(2). Vice Chairman and Trustee of New York Racing Association. His business
address is Shields & Company, 140 Broadway, New York, NY 10005.
EUGENE P. BEARD** - Director; Trustee of The 59 Wall Street Trust;
Trustee of the Portfolios (since October 1999); Executive Vice President -
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;
Trustee of the Portfolios (since October 1999); Retired; Vice President and
Investment Manager of AT&T Investment Management Corporation (prior to October
1997); Director of Dreyfus Mutual Funds, Jeffrey Co. and Heitman Financial. His
business address is 3 Tall Oaks Drive, Warren, NJ 07059.
ALAN G. LOWY** - Director; Trustee of The 59 Wall Street Trust; Trustee
of the Portfolios (since October 1999); Private Investor; 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; Trustee of the Portfolios (since October 1999); Retired, Executive Vice
President and Chief Financial Officer of Richard K. Mellon and Sons (prior to
June 1998); Treasurer of Richard King Mellon Foundation (prior to June 1998);
Vice President of the Richard King Mellon Foundation; Trustee, R.K. Mellon
Family Trusts; General Partner, Mellon Family Investment Company IV, V and VI;
Director of Aerostructures Corporation (since 1996) (2). His business address is
Richard K. Mellon and Sons, P.O. Box RKM, Ligonier, PA 15658.
RICHARD L. CARPENTER** - Director and Trustee of The 59 Wall Street
Trust (since October 1999); Trustee of the Portfolios; Trustee of Dow Jones
Islamic Market Index Portfolio (since March 1999); Director of The 59 Wall
Street Fund, Inc. (since October 1999); Retired; Director of Investments,
Pennsylvania Public School Employees' Retirement System (prior to December
1997). His business address is 12664 Lazy Acres Court, Nevada City, CA 95959.
CLIFFORD A. CLARK** - Director and Trustee of The 59 Wall Street Trust
(since October 1999); Trustee of the Porfolios; Trustee of Dow Jones Islamic
Market Index Portfolio (since March 1999); Director of The 59 Wall Street Fund,
Inc. (since October 1999); Retired. His business address is 42 Clowes Drive,
Falmouth, MA 02540.
DAVID M. SEITZMAN** - Director and Trustee of The 59 Wall Street Trust
(since October 1999); Trustee of the Porfolios; Director of The 59 Wall Street
Fund, Inc. (since October 1999); Physician, Private Practice. His business
address is 7117 Nevis Road, Bethesda, MD 20817.
J. ANGUS IVORY - Director and Trustee of The 59 Wall Street Trust
(since October 1999); Trustee of the Portfolios (since October 1999); Director
of The 59 Wall Street Fund, Inc. (since October 1999); Trustee of Dow Jones
Islamic Market Index Portfolio (since March 1999); Director of Brown Brothers
Harriman Ltd., subsidiary of Brown Brothers Harriman & Co.; Director of Old
Daily Saddlery; Advisor, RAF Central Fund; Committee Member, St.
Thomas Hospital Pain Clinic (since 1999).
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 of
SFG; Secretary of 59 Wall Street Distributors and 59 Wall Street Administrators.
SUSAN JAKUBOSKI - Assistant Treasurer; Assistant Treasurer and
Assistant Secretary of the Portfolio; Assistant Secretary, Assistant Treasurer
and Vice President of Signature Financial Group (Cayman) Limited.
LINWOOD C. DOWNS - Assistant Treasurer; Senior Vice President and
Treasurer of SFG.
MOLLY S. MUGLER -- Assistant Secretary; Legal Counsel and Assistant
Secretary of SFG; and Assistant Secretary of 59 Wall Street Distributors and 59
Wall Street Administrators.
CHRISTINE D. DORSEY - 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).
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* Mr. Shields is an "interested person" of the Corporation and the
Portfolio because of his affiliation with a registered broker-dealer.
** These Trustees are members of the Audit Committee of the Corporation
or the Portfolio, as the case may be.
(1) The Portfolios consist of the following active investment companies:
U.S. Money Market Portfolio, U.S. Small Company Portfolio, U.S.
Equity Portfolio, European Equity Portfolio, Pacific Basin Equity
Portfolio and International Equity Portfolio and the
following inactive investment company: Inflation-Indexed
Securities Portfolio.
(2) 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.
(3) Richard K. Mellon and Sons, Richard King Mellon Foundation, R.K. Mellon
Family Trusts, Mellon Family Investment Company IV, V and VI and
Aerostructures Corporation, with which Mr. Miltenberger is or has been
associated, are a private foundation, a private foundation, a trust, an
investment company and an aircraft manufacturer, 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 is 21 Milk Street, Boston, Massachusetts 02109. Messrs.
Coolidge, Hoolahan, Elder and Downs, and Mss. Gibson, Jakuboski, 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/Trustee is an "interested person"
of the Corporation or the Portfolio as that term is defined in the 1940 Act.
Directors of the Corporation and the Portfolio
<TABLE>
<CAPTION>
The Directors of the Corporation and the Trustees of the Portfolio
receive a base annual fee of $15,000 (except the Chairmen who receive a base
annual fee of $20,000) and such base annual fee is allocated among all series of
the Corporation, all series of The 59 Wall Street Trust and the Portfolio and
any other active Portfolios having the same Board of Trustees based upon their
respective net assets. In addition, each series of the Corporation and The 59
Wall Street Trust, the Portfolio and any other active Portfolios which has
commenced operations pays an annual fee to each Directors/Trustee of $1,000.
<S> <C> <C> <C> <C>
Pension or Total
Aggregate Retirement Compensation
Compensation Benefits Accrued Estimated Annual from Fund
Name of Person, from the Fund as Part of Benefits upon Complex* Paid
Position Complex* Fund Expenses Retirement to Directors/Trustees
J.V. Shields, Jr., $19,584 none none $31,000
Director/Trustee
Eugene P. Beard, $15,828 none none $26,000
Director/Trustee
Richard L. Carpenter**, $11,970 none none $15,000
Director/Trustee
Clifford A. Clark**, $11,970 none none $15,000
Director/Trustee
David P. Feldman, $15,828 none none $26,000
Director/Trustee
J. Angus Ivory**, $0 none none $0
Director/Trustee
Alan G. Lowy, $15,828 none none $26,000
Director/Trustee
Arthur D. Miltenberger, $15,828 none none $26,000
Director/Trustee
David M. Seitzman**, $11,970 none none $15,000
Director/Trustee
<FN>
* The Fund Complex consists of the Corporation, The 59 Wall Street Trust (which
currently consists of three series) and the seven Portfolios.
**Prior to October 22, 1999, these Trustees received no compensation from the
Corporation or The 59 Wall Street Trust.
</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 Fund, and by Brown Brothers Harriman Trust
Company under the Administration Agreement with the Portfolio (see "Investment
Adviser" and "Administrators"), neither the Corporation nor 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 Fund or the
Portfolio.
As of September 30, 1999, the Directors/Trustees and officers of the
Corporation and the Portfolio as a group owned less than 1% of the outstanding
shares of the Corporation and less than 1% of the aggregate beneficial interests
in the Portfolio. 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 nor more than 5% of the aggregate beneficial interests in the
Portfolio. Partners of Brown Brothers Harriman & Co. and their immediate
families owned 119,145 (8.0%) shares of the Fund. Brown Brothers Harriman and
its affiliates separately are able to direct the disposition of an additional
468,974 (31.5%) shares of the Fund, as to which shares Brown Brothers Harriman &
Co. disclaims beneficial ownership.
INVESTMENT ADVISER
- ---------------------------------------------------------------
Prior to November 1, 1999, Brown Brothers Harriman & Co. managed the
assets of the Fund pursuant to an Investment Advisory Agreement. This Agreement
was terminated by the Corporation, on behalf of the Fund, effective as of
October 31, 1999 pursuant to previous approval by the Fund's shareholders on
September 23, 1993 of certain changes in the Fund's investment restrictions
which enabled all of the Fund's investable assets to be invested in the
Portfolio.
Currently, 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 December 15, 1993 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 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 Portfolioon 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".)
With respect to the Portfolio, investment advisory fee paid to the
Investment Adviser is calculated daily and paid monthly at an annual rate equal
to 0.65% of the Portfolio's average daily net assets. The advisory fee is the
same as the fee paid by the Fund prior to November 1, 1999. For the fiscal years
ended October 31, 1996, 1997 and 1998, the Fund incurred $277,632, $154,392 and
$476,908, respectively, for advisory services.
The investment advisory services of Brown Brothers Harriman & Co. to
the Portfolio 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. 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 described
above. If Brown Brothers Harriman & Co. were to terminate its Investment
Advisory Agreement 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
the 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.
<PAGE>
ADMINISTRATORS
- ---------------------------------------------------------------
Brown Brothers Harriman & Co. acts as Administrator of the Corporation
and Brown Brothers Harriman Trust Company acts as Administrator of the
Portfolio. Brown Brothers Harriman Trust Company is a wholly-owned subsidiary of
Brown Brothers Harriman & Co.
In its capacity as Administrator of the Corporation, Brown Brothers
Harriman & Co. administers all aspects of the Corporation's operations subject
to the supervision of the Corporation's Directors except as set forth below
under "Distributor". In connection with its responsibilities as Administrator
and at its own expense, Brown Brothers Harriman & Co. (i) provides the
Corporation with the services of persons competent to perform such supervisory,
administrative and clerical functions as are necessary in order to provide
effective administration of the Corporation, including the maintenance of
certain books and records; (ii) oversees the performance of administrative and
professional services to the Corporation by others, including the Fund's
Transfer and Dividend Disbursing Agent; (iii) provides the Corporation with
adequate office space and communications and other facilities; and (iv) prepares
and/or arranges for the preparation, but does not pay for, the periodic updating
of the Corporation's registration statement and the Fund's prospectus, the
printing of such documents for the purpose of filings with the Securities and
Exchange Commission and state securities administrators, and the preparation of
tax returns for the Fund and reports to shareholders and the Securities and
Exchange Commission.
Brown Brothers Harriman Trust Company, in its capacity as Administrator of
the Portfolio, administers all aspects of the Portfolio's operations subject to
the supervision of the Portfolio's Trustees except as set forth above under
"Investment Adviser". In connection with its responsibilities as Administrator
for the Portfolio and at its own expense, Brown Brothers Harriman Trust Company
(i) provides the Portfolio with the services of persons competent to perform
such supervisory, administrative and clerical functions as are necessary in
order to provide effective administration of the Portfolio, including the
maintenance of certain books and records, receiving and processing requests for
increases and decreases in the beneficial interests in the Portfolio,
notification to the Investment Adviser of available funds for investment,
reconciliation of account information and balances between the Custodian and the
Investment Adviser, and processing, investigating and responding to investor
inquiries; (ii) oversees the performance of administrative and professional
services to the Portfolio by others, including the Custodian; (iii) provides the
Portfolio with adequate office space and communications and other facilities;
and (iv) prepares and/or arranges for the preparation, but does not pay for, the
periodic updating of the Portfolio's registration statement for filing with the
Securities and Exchange Commission, and the preparation of tax returns for the
Portfolio and reports to investors and the Securities and Exchange Commission.
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 Portfolio's Investment
Advisory Agreement (see "Investment Adviser"). The Administration Agreement
between the Portfolio and Brown Brothers Harriman Trust Company (dated December
15, 1993) shall remain in effect for successive annual periods, 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
Independent Directors/Trustees most recently approved the Corporation's
Administration Agreement on November 10, 1998 and the Portfolio's Administration
Agreement on February 9, 1999. 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 by the Trustees of the
Portfolio or by the Fund and other investors in the Portfolio on 60 days'
written notice to Brown Brothers Harriman Trust Company. Each agreement is
terminable by the respective 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 services rendered to the
Portfolio and related expenses borne by Brown Brothers Harriman Trust Company as
Administrator of the Portfolio, Brown Brothers Harriman Trust Company receives
from the Portfolio an annual fee, computed daily and payable monthly, equal to
0.035% of the Portfolio's average daily net assets.Prior to November 1, 1999,
Brown Brothers Harriman & Co. was paid 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 $110,056,
respectively, for administrative services.
Pursuant to a Subadministrative Services Agreement with Brown Brothers
Harriman Trust Company, 59 Wall Street Administrators performs such
subadministrative duties for the Portfolio 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, MA 02109. 59 Wall Street Administrators is a wholly-owned
subsidiary of SFG. 59 Wall Street Administrators' 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, 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 Portfolio. Prior to
March 1, 1999, Signature Financial Group (Cayman) Limited acted as
subadministrator under the same terms and conditions as set forth herein.
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 statement 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 most recently approved by the Independent Directors of the
Corporation on February 9, 1999. The agreement terminates automatically if
assigned by either party thereto and is terminable with respect to the Fund at
any time without penalty by a vote of a majority of the Directors of the
Corporation or by a vote of the holders of a "majority of the outstanding voting
securities" (as defined in the 1940 Act) of the Fund (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 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 average daily net assets of the Fund represented
by shares owned during the period for which payment was being made by
shareholders who did not hold their shares with an Eligible Institution.
FINANCIAL INTERMEDIARIES
- ---------------------------------------------------------------
From time to time, the Fund's Shareholder Servicing Agent enters into
contracts with banks, brokers and other financial intermediaries ("Financial
Intermediaries") pursuant to which a customer of the Financial Intermediary may
place purchase orders for Fund shares through that Financial Intermediary which
holds such shares in its name on behalf of that customer. Pursuant to such
contract, each Financial Intermediary as agent with respect to shareholders of
and prospective investors in the Fund who are customers of that Financial
Intermediary, among other things: provides necessary personnel and facilities to
establish and maintain certain shareholder accounts and records enabling it to
hold, as agent, its customers' shares in its name or its nominee name on the
shareholder records of the Corporation; assists in processing purchase and
redemption transactions; arranges for the wiring of funds; transmits and
receives funds in connection with customer orders to purchase or redeem shares
of the Fund; provides periodic statements showing a customer's account balance
and, to the extent practicable, integrates such information with information
concerning other customer transactions otherwise effected with or through it;
furnishes, either separately or on an integrated basis with other reports sent
to a customer, monthly and annual statements and confirmations of all purchases
and redemptions of Fund shares in a customer's account; transmits proxy
statements, annual reports, updated prospectuses and other communications from
the Corporation to its customers; and receives, tabulates and transmits to the
Corporation proxies executed by its customers with respect to meetings of
shareholders of the Fund. For these services, the Financial Intermediary
receives such fees from the Shareholder Servicing Agent as may be agreed upon
from time to time between the Shareholder Servicing Agent and such Financial
Intermediary.
ELIGIBLE INSTITUTIONS
- ---------------------------------------------------------------
The Corporation enters into eligible institution agreements with banks,
brokers and other financial institutions pursuant to which each financial
institution, as agent for the Corporation with respect to shareholders of and
prospective investors in the Fund who are customers with that financial
institution, among other things: provides necessary personnel and facilities to
establish and maintain certain shareholder accounts and records enabling it to
hold, as agent, its customers' shares in its name or its nominee name on the
shareholder records of the Corporation; assists in processing purchase and
redemption transactions; arranges for the wiring of funds; transmits and
receives funds in connection with customer orders to purchase or redeem shares
of the Fund; provides periodic statements showing a customer's account balance
and, to the extent practicable, integrates such information with information
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
- ---------------------------------------------------------------
Brown Brothers Harriman & Co. ( the "Custodian"), 50 Milk Street,
Boston, Massachusetts 02109, is Custodian for the Fund and the Portfolio and
Transfer and Dividend Disbursing Agent for the Fund.
As Custodian for the Fund, it is responsible for holding the Fund's assets
(i.e., cash and the Fund's interest in the Portfolio) pursuant to a custodian
agreement with the Corporation. Cash is held for the Fund in demand deposit
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 and the Portfolio.
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 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.) 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 (i.e., the value of its investment in the Portfolio and other assets) the
amount of its liabilities, 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 the
Fund's investment in the Portfolio is determined once daily at 4:00 P.M., New
York time on each day the New York Stock Exchange is open for regular trading.
The 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.
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.
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.
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.
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 annualized average rate of return for the Fund for the period July
23, 1992 (commencement of operations) to October 31, 1998 was 15.29%. The
average annual total rate of return for the Fund for the fiscal year ended
October 31, 1998 was 2.50%. The average annual total rate of return for the Fund
for the five-year period ended October 31, 1998 was 15.89%.
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 Portfolio and the Fund's and
the 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.
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.
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
- ---------------------------------------------------------------
A confirmation of each purchase and redemption transaction is issued on
execution of that transaction.
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 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.
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.
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.
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 in excess o fshort-term capital losses that are
distributed to its shareholders. A 4% non-deductible excise tax is imposed on
the Fund to the extent that certain distribution requirements for the Fund for
each calendar year are not met. The Corporation intends to continue to meet such
requirements. The Portfolio is also not required to pay any federal income or
excise taxes. 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 and securities of other investment companies). 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
Portfolio's net income may consist of dividends paid by domestic corporations.
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.
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 from the Fund, such dividend or capital gains
distribution would be taxable even though it represents a return of invested
capital.
Redemption of Shares. Any gain or loss realized on the redemption of Fund
shares by a shareholder who is not a dealer in securities is treated as
long-term capital gain or loss if the shares have been held for more than one
year, and otherwise as short-term capital gain or loss. However, any loss
realized by a shareholder upon the redemption of Fund shares held one year or
less is treated as a long-term capital loss to the extent of any long-term
capital gains distributions received by the shareholder with respect to such
shares. Additionally, any loss realized on a redemption or exchange of Fund
shares is disallowed to the extent the shares disposed of are replaced within a
period of 61 days beginning 30 days before such disposition, such as pursuant to
reinvestment of a dividend or capital gains distribution in Fund shares.
Other Taxes. The Fund may be subject to state or local taxes in
jurisdictions in which it is deemed to be doing business. In addition, the
treatment of the Fund and its shareholders in those states which have income tax
laws might differ from treatment under 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
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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
six such series in addition to the Fund.
Each share of the Fund represents an equal proportional interest in the
Fund with each other share. Upon liquidation of the Fund, shareholders are
entitled to share pro rata in the net assets of the Fund available for
distribution to shareholders.
Shareholders of the Fund are entitled to 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 the meeting in person or by proxy as to which that
Eligible Institution is the agent of record. Any shares so voted by an Eligible
Institution are deemed represented at the meeting for purposes of quorum
requirements.
The Portfolio, in which all of the assets of the Fund are invested, is
organized as a trust under the law of the State of New York. The Portfolio's
Declaration of Trust provides that the Fund and other entities investing in the
Portfolio (e.g., other investment companies, insurance company separate accounts
and common and commingled trust funds) are each liable for all obligations of
the Portfolio. However, the risk of the Fund incurring financial loss on account
of such liability is limited to circumstances in which both inadequate insurance
existed and the Portfolio itself was unable to meet its obligations.
Accordingly, the Directors of the Corporation believe that neither the Fund nor
its shareholders will be adversely affected by reason of the investment of all
of the assets of the Fund in the Portfolio.
Each investor in the Portfolio, including the Fund, may add to or reduce
its investment in the Portfolio on each day the New York Stock Exchange is open
for regular trading. At 4:00 P.M., New York time on each such business day, the
value of each investor's beneficial interest in the Portfolio is determined by
multiplying the net asset value of the Portfolio by the percentage, effective
for that day, which represents that investor's share of the aggregate beneficial
interests in the Portfolio. Any additions or withdrawals, which are to be
effected on that day, are then effected. The investor's percentage of the
aggregate beneficial interests in the Portfolio is then recomputed as the
percentage equal to the fraction (i) the numerator of which is the value of such
investor's investment in the Portfolio as of 4:00 P.M., New York time on such
day plus or minus, as the case may be, the amount of any additions to or
withdrawals from the investor's investment in the Portfolio effected on such
day, and (ii) the denominator of which is the aggregate net asset value of the
Portfolio as of 4:00 P.M., New York time on such day plus or minus, as the case
may be, the amount of the net additions to or withdrawals from the aggregate
investments in the Portfolio by all investors in the Portfolio. The percentage
so determined is then applied to determine the value of the investor's interest
in the Portfolio as of 4:00 P.M., New York time on the following business day of
the Portfolio.
Whenever the Corporation is requested to vote on a matter pertaining to the
Portfolio, the Corporation will vote its shares without a meeting of
shareholders of the Fund if the proposal is one, if which made with respect to
the Fund, would not require the vote of shareholders of the Fund, as long as
such action is permissible under applicable statutory and regulatory
requirements. For all other matters requiring a vote, the Corporation will hold
a meeting of shareholders of the Fund and, at the meeting of investors in the
Portfolio, the Corporation will cast all of its votes in the same proportion as
the votes of the Fund's shareholders even if all Fund shareholders did not vote.
Even if the Corporation votes all its shares at the Portfolio meeting, other
investors with a greater pro rata ownership in the Portfolio could have
effective voting control of the operations of the Portfolio.
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. The Portfolio is not
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.
PORTFOLIO BROKERAGE TRANSACTIONS
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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 104%, 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 Portfolio, the Investment
Adviser seeks to obtain the best price and execution of orders. In selecting a
broker, the Investment Adviser considers a number of factors including: the
broker's ability to execute orders without disturbing the market price; the
broker's reliability for prompt, accurate confirmations and on-time delivery of
securities; the broker's financial condition and responsibility; the research
and other investment information provided by the broker; and the commissions
charged. Accordingly, the commissions charged by any such broker may be greater
than the amount another firm might charge if the Investment Adviser determines
in good faith that the amount of such commissions is reasonable in relation to
the value of the brokerage services and research information provided by such
broker.
For the fiscal years ended October 31, 1996, 1997 and 1998, the
aggregate commissions paid by the Fund were $91,075, $53,347 and $134,991,
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. acts as one of the
Portfolio's principal brokers in the purchase and sale of securities when, in
the judgment of the Investment Adviser, that firm will be able to obtain a price
and execution at least as favorable as other qualified brokers. As one of the
Portfolio's principal brokers, Brown Brothers Harriman & Co. receives brokerage
commissions from the Portfolio.
The use of Brown Brothers Harriman & Co. as a broker for the Portfolio
is subject to the provisions of Rule 11a2-2(T) under the Securities Exchange Act
of 1934 which permits the Portfolio 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 Portfolio 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 Portfolio's securities
transactions to certain unaffiliated brokers which in turn use a portion of the
commissions they receive from the Portfolio to pay other unaffiliated service
providers on behalf of the Portfolio for services provided for which the
Portfolio would otherwise be obligated to pay. Such commissions paid by the
Portfolio are at the same rate paid to other brokers for effecting similar
transactions in listed equity securities. Brown Brothers Harriman & Co. acts as
one of the principal brokers of the Portfolio in the purchase and sale of
portfolio securities when, in the judgment of the Investment Adviser, that firm
is able to obtain a price and execution at least as favorable as other qualified
brokers. As one of the principal brokers of the Portfolio, Brown Brothers
Harriman & Co. receives brokerage commissions from the Portfolio. On those
occasions when Brown Brothers Harriman & Co. deems the purchase or sale of a
security to be in the best interests of the Portfolio as well as other
customers, Brown Brothers Harriman & Co., to the extent permitted by applicable
laws and regulations, may, but is not obligated to, aggregate the securities to
be sold or purchased for the Portfolio with those to be sold or purchased for
other customers in order to obtain best execution, including lower brokerage
commissions, if appropriate. In such event, allocation of the securities so
purchased or sold as well as any expenses incurred in the transaction are made
by Brown Brothers Harriman & Co. in the manner it considers to be most equitable
and consistent with its fiduciary obligations to its customers, including the
Portfolio. In some instances, this procedure might adversely affect the
Portfolio 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 Portfolio 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 Portfolio are reviewed and
approved no less often than annually by a majority of the non-interested
Trustees. 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 $41,655,899,
were effected for the Fund of which transactions with a principal value of
$20,646,719, $13,199,626 and $13,199,801, were effected by Brown Brothers
Harriman & Co. which involved payments of commissions to Brown Brothers Harriman
& Co. of $50,078, $21,916 and $61,145, respectively. A portion of the
transactions for the Portfolio 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 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 by
the Portfolio to the Investment Adviser by any amount that might be attributable
to the value of such services. 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 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.
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 Fund's
outstanding voting securities are present in person or represented by proxy; or
(ii) more than 50% of the outstanding voting securities, whichever is less.
Fund shareholders receive semi-annual reports containing unaudited
financial statements and annual reports containing financial statements audited
by independent auditors.
Other mutual funds or institutional investors may invest in the Portfolio
on the same terms and conditions as the Fund. However, these other investors may
have different sales commissions and other operating expenses which may generate
different aggregate performance results. Information concerning other investors
in the Portfolio is available from Brown Brothers Harriman & Co.
The Corporation may withdraw the Fund's investment in the Portfolio as a
result of certain changes in the Portfolio's investment objective, policies or
restrictions or if the Board of Directors of the Corporation determines that it
is otherwise in the best interests of the Fund to do so. Upon any such
withdrawal, the Board of Directors of the Corporation would consider what action
might be taken, including the investment of all of the assets of the Fund in
another pooled investment entity or the retaining of an investment adviser to
manage the Fund's assets in accordance with the investment policies of the
Portfolio 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 contains performance information
will be provided, without charge, to each person receiving this Statement of
Additional Information.
WS5462E
