SUPPLEMENT Dated December 22, 1995
TO THE PROSPECTUS OF
STANDISH SHORT-TERM ASSET RESERVE FUND
Dated May 1, 1995,
As revised August 1, 1995
EXCHANGE OF SHARES
Effective immediately, shares of the Fund may be exchanged for shares
of one or more other funds in the Standish, Ayer & Wood family of funds. Shares
of the Fund redeemed in an exchange transaction are valued at their net asset
value next determined after the exchange request is received by the Trust.
Shares of a fund purchased in an exchange transaction are sold at their net
asset value next determined after the exchange request is received by the Trust
and payment for the shares is received by the fund into which your shares are to
be exchanged. Until receipt of the purchase price by the fund into which your
shares are to be exchanged (which may take up to three business days), your
money will not be invested. To obtain a current prospectus for any of the other
funds in the Standish, Ayer & Wood family of funds, please call the Trust at
(800) 221-4795. Please consider the differences in investment objectives and
expenses of a fund as described in its prospectus before making an exchange.
Written Exchanges
Shares of a Fund may be exchanged by written order to: "Standish, Ayer &
Wood Investment Trust, One Financial Center, Boston, Massachusetts 02111". A
written exchange request must (a) state the name of the current Fund, (b) state
the name of the fund into which the current Fund shares will be exchanged, (c)
state the number of shares or the dollar amount to be exchanged, (d) identify
the shareholder's account numbers in both funds and (e) be signed by each
registered owner exactly as the shares are registered. Signature(s) must be
guaranteed as listed under "Written Redemption" below.
Telephonic Exchanges
Shareholders who complete the telephonic privileges portion of the
Fund's account application or who have previously elected telephonic redemption
privileges may exchange shares by calling (800) 221- 4795. The telephonic
privileges are not available to shareholders automatically; they must first
elect the privilege. Proper identification will be required for each telephonic
exchange. Please see "Telephonic Redemption" in the attached Prospectus for more
information regarding telephonic transactions.
General Exchange Information
All exchanges are subject to the following exchange restrictions: (i)
the fund into which shares are being exchanged must be registered for sale in
your state; (ii) exchanges may be made only between funds that are registered in
the same name, address and, if applicable, taxpayer identification number; and
(iii) unless waived by the Trust, the amount to be exchanged must satisfy the
minimum account size of the fund to be exchanged into. Exchange requests will
not be processed until payment for the shares of the current Fund have been
received. The exchange privilege may be changed or discontinued and may be
subject to additional limitations upon sixty (60) days' notice to shareholders,
including certain restrictions on purchases by market-timer accounts.
---------------------
The following revises and replaces the first paragraph under the
caption "Purchase of Shares" in the attached Prospectus:
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PURCHASE OF SHARES
Shares of the Fund may be purchased directly from the Trust, which
offers shares of the Fund to the public on a continuous basis. Shares are sold
at the net asset value per share next computed after the purchase order is
received by the Trust and payment for the shares is received by the Fund. Unless
waived by the Trust, the minimum initial investment is $1,000,000. Additional
investments may be made in amounts of at least $100,000.
---------------------
The following revises and replaces the information under the caption
"Written Redemption" in the attached Prospectus:
WRITTEN REDEMPTION
Shares of the Fund may be redeemed by written order to: "Standish, Ayer
& Wood Investment Trust, One Financial Center, Boston, Massachusetts 02111". A
written redemption request must (a) state the name of the Fund, (b) state the
number of shares or the dollar amount to be redeemed, (c) identify the
shareholder's account number and (d) be signed by each registered owner exactly
as the shares are registered. Signature(s) must be guaranteed by a member of
either the Securities Transfer Association's STAMP program or the New York Stock
Exchange's Medallion Signature Program, or by any one of the following
institutions, provided that such institution meets credit standards established
by Investors Bank & Trust Company, the Fund's transfer agent: (i) a bank; (ii) a
securities broker or dealer, including a government or municipal securities
broker or dealer, that is a member of a clearing corporation or has net capital
of at least $100,000; (iii) a credit union having authority to issue signature
guarantees; (iv) a savings and loan association, a building and loan
association, a cooperative bank, or a federal savings bank or association; or
(v) a national securities exchange, a registered securities exchange or a
clearing agency. Additional supporting documents may be required in the case of
estates, trusts, corporations, partnerships and other shareholders which are not
individuals. Redemption proceeds will normally be paid by check mailed within
seven days of receipt of a written redemption request in proper form. If shares
of the Fund to be redeemed were recently purchased by check, the Fund may delay
transmittal of redemption proceeds until such time as it has assured itself that
good funds have been collected for the purchase of such shares.
This may take up to fifteen (15) days.
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Prospectus dated May 1, 1995,
As revised August 1, 1995
PROSPECTUS
STANDISH SHORT-TERM ASSET RESERVE FUND
One Financial Center
Boston, Massachusetts 02111
(800) 221-4795
Standish Short-Term Asset Reserve Fund (the "Fund") is one fund in the
Standish, Ayer & Wood family of funds. The Fund is organized as a separate
diversified investment series of Standish, Ayer & Wood Investment Trust (the
"Trust"), an open-end management investment company. The Fund is designed for
corporate investors, pension and profit-sharing plans, state and local
governments, foundations, endowment funds and individuals.
The Fund's investment objective is to achieve a high level of current
interest income, consistent with preserving principal and liquidity. The Fund
will seek to achieve its investment objective primarily by investing in a
diversified portfolio of investment grade money market instruments and
short-term fixed income securities with a maximum average maturity of eighteen
months. The Fund also expects to engage, to a limited degree, in options and
futures transactions. See "Investment Policies." Standish, Ayer & Wood, Inc.
(the "Adviser"), Boston, Massachusetts is the Fund's investment adviser.
Investors may purchase shares from the Fund without a sales commission or
other transaction charges. Unless waived by the Fund, the minimum initial
investment is $1,000,000. Additional investments may be made in amounts of at
least $100,000. The Fund is not a money market fund, the net asset value of its
shares may fluctuate and the Fund may not be able to return dollar-for-dollar
the money invested.
This Prospectus is intended to set forth concisely the information about
the Fund and the Trust that a prospective investor should know before investing.
Investors are encouraged to read this Prospectus and retain it for future
reference. Additional information about the Fund and the Trust is contained in a
Statement of Additional Information which has been filed with the Securities and
Exchange Commission and is available upon request and without charge by calling
or writing the Trust at the telephone number or address listed above. The
Statement of Additional Information bears the same date as this Prospectus and
is incorporated by reference into this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANYSTATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Expense Information 2
Financial Highlights 3
Investment Objective and Policies 4
Risk Factors and Suitability 8
Calculation of Performance Data 8
Dividends and Distributions 9
Purchase of Shares 9
Redemption of Shares 9
Management 10
Federal Income Taxes 11
The Fund and Its Shares 12
Custodian, Transfer Agent and Dividend-Disbursing Agent 13
Independent Accountants 13
Legal Counsel 13
Appendix A 14
Tax Certification Instructions 15
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EXPENSE INFORMATION
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases None
Maximum Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fee None
Estimated Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees 0.25%
12b-1 Fees None
Other Expenses 0.08%
Total Fund Operating Expenses 0.33%
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Example 1 yr. 3 yrs. 5 yrs. 10 yrs.
- ----------------------------------------------------------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period: $3 $11 $19 $42
You would pay the following expenses on the same investment,
assuming no redemption: $3 $11 $19 $42
</TABLE>
The purpose of the above table is to assist the investor in understanding
the various costs and expenses of the Fund that an investor in the Fund will
bear directly or indirectly. See "Management - Investment Adviser" and
"Management Expenses." The figure shown in the caption "Other Expenses," which
includes, among other things, custodian and transfer agent fees, registration
costs and payments for insurance and audit and legal services, is based upon the
Fund's expenses for the fiscal year ended December 31, 1994.
THE INFORMATION IN THE TABLE AND HYPOTHETICAL EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5%
ANNUAL RETURN, THE FUND'S ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN
ACTUAL RETURN GREATER OR LESS THAN 5%.
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<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
The financial highlights for the years ended December 31, 1993 and 1994
have been audited by Coopers & Lybrand L.L.P., independent accountants, whose
report, together with the financial statements of the Fund, is incorporated into
the Statement of Additional Information.
Per share data (for a share outstanding throughout each period):
Year Ended December 31,
---------------------------------------------------------------------------------
1994 1993 1992* 1991* 1990* 1989*+
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $19.79 $19.96 $20.46 $20.20 $20.14 $20.00
------------- ------------- ------------ ------------ ------------ ----------
Income from investment operations:
Net investment income $1.01 $1.31 $1.35 $1.47 $1.66 $1.69
Net realized and unrealized gain (loss)
on investments (0.57) (0.17) (0.48) 0.37 0.07 0.14
------------- ------------- ------------ ------------ ------------ ----------
Total from investment operations $0.44 $1.14 $0.87 $1.84 $1.73 $1.83
------------- ------------- ------------ ------------ ------------ ----------
Less distributions declared to shareholders:
From net investment income ($1.01) ($1.31) ($1.35) ($1.47) ($1.66) ($1.69)
From realized gain 0.00 0.00 (0.02) (0.11) (0.01) 0.00
------------- ------------- ------------ ------------ ------------ ----------
Total distributions declared to shareholders ($1.01) ($1.31) ($1.37) ($1.58) ($1.67) ($1.69)
------------- ------------- ------------ ------------ ------------ ----------
Net asset value - end of period $19.22 $19.79 $19.96 $20.46 $20.20 $20.14
------------- ------------- ------------ ------------ ------------ ----------
------------- ------------- ------------ ------------ ------------ ----------
Total return 2.27% 5.08% 4.33% 9.41% 8.96% 9.54% t
Ratios (to average net assets)/Supplemental Data:
Expenses 0.33% 0.33% 0.37% 0.38% 0.45% 0.50% t
Net investment income 5.24% 5.82% 6.60% 7.17% 8.17% 8.52% t
Portfolio turnover 154% 182% 167% 134% 128% 132%
Net assets at end of period (000 omitted) $277,017 $275,080 $289,969 $266,256 $105,303 $66,167
t Computed on an annualized basis.
* Audited by other auditors.
+ For the period from January 3, 1989 (start of business) to December 31, 1989.
Further information about the performance of the Fund is contained in the
Fund's Annual Report, which may be obtained from the Fund without charge.
</TABLE>
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INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to achieve a high level of current
income consistent with preserving principal and liquidity. The Fund will seek to
achieve its investment objective primarily through investing in a diversified
portfolio of investment grade money market instruments and short-term fixed
income securities whose average dollar-weighted maturity will normally be from
six to fifteen months and will not exceed eighteen months. Because of the
uncertainty inherent in all investments, no assurance can be given that the Fund
will achieve its investment objective. The investment objective and
non-fundamental policies of the Fund may be changed by the Trustees of the Trust
without the approval of shareholders. The Fund's investment policies are
described further in the Statement of Additional Information.
Investment Policies
The Fund may invest in a broad range of investment grade money market
instruments and short-term fixed-income securities. The Fund's investments will
consist of U.S. Government obligations and obligations issued or guaranteed by
any of its agencies or instrumentalities, instruments of U.S. and foreign banks
(including negotiable certificates of deposit, non-negotiable fixed time
deposits and bankers' acceptances), prime commercial paper of U.S. and foreign
companies, collateralized mortgage obligations, other mortgage-backed
securities, asset-backed securities, repurchase agreements, debt securities that
make regular interest payments at variable or floating rates, structured notes
and, from time to time, preferred stock. The Fund may purchase securities on a
when-issued or forward commitment basis and enter into reverse repurchase
agreements. In addition, the Fund expects to engage, to a limited degree, in
forward roll transactions, futures and options transactions and a variety of
interest rate transactions, including swaps, caps and floors.
The Fund will be managed without regard to potential tax considerations.
The Fund may invest up to 10% of its total assets in tax-exempt securities, such
as state and municipal bonds, if the Adviser believes these securities will
provide competitive returns.
Ratings
The Fund will invest at least 85% of its assets in securities which are
rated Aaa, Aa, A or P-1 by Moody's Investors Service, Inc. ("Moody's") or AAA,
AA, A or A-1 by Standard & Poor's Ratings Group ("Standard & Poor's") or, if not
rated, determined to be of comparable investment quality by the Adviser. Up to
15% of the Fund's assets may be invested in securities which are rated Baa or
P-2 by Moody's or BBB or A-2 by Standard & Poor's or, if not rated, determined
to be of comparable investment quality by the Adviser. The Fund may invest in a
security so rated by one rating agency although the security may not be rated by
the other rating agency. In the event the rating on a security held in the
Fund's portfolio is lowered by a rating service, such action will be considered
by the Adviser in its evaluation of the overall investment merits of that
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<PAGE>
security but will not necessarily result in the sale of the security. Securities
rated BBB by Standard & Poor's or Baa by Moody's may have some speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to weakened capacity to make principal and interest payments
than is the case for higher grade bonds. It is anticipated that the average
dollar-weighted quality of the securities in the Fund's portfolio will be at
least Aa or AA according to Moody's and Standard & Poor's ratings, or of
comparable quality as determined by the Adviser. In the case of a security that
is rated differently by the two rating services, the higher rating is used in
applying the 15% limit set forth above and in computing the Fund's average
dollar weighted credit quality. Appendix A sets forth excerpts from the
descriptions of ratings of debt securities.
Maturities
All securities held by the Fund will carry a maturity date, redemption
date, put date, coupon reset date or average life of 3.25 years or less from the
date of settlement, except that, with respect to no more than 10% of the Fund's
net assets, such time period may be between 3.25 and 5 years, and such time
period limitation shall not apply to certain U.S. Treasury notes or bonds. (U.S.
Treasury notes or bonds with maturities of longer than 3.25 years may be
purchased by the Fund in conjunction with the sale of note or bond futures
contracts or with certain equivalent options positions which are designed to
hedge the notes or bonds in such a way as to create a synthetic short-term
instrument.) The Fund will keep the average maturity relatively short (six
months) when the Adviser expects interest rates to rise and relatively long
(fifteen months) when the Adviser expects interest rates to decline. Under
normal conditions, the Fund expects the dollar weighted average maturity of the
portfolio to be six to fifteen months. The dollar weighted average maturity will
not exceed eighteen months.
U.S. Government Securities
U.S. Government securities are either (i) backed by the full faith and
credit of the U.S. Government (e.g., U.S. Treasury bills), (ii) guaranteed by
the U.S. Treasury (e.g., GNMA mortgaged-backed securities), (iii) supported by
the issuing agency's or instrumentality's right to borrow from the U.S. Treasury
(e.g., Federal National Mortgage Association Discount Notes), or (iv) supported
only by the issuing agency's or instrumentality's own credit (e.g., securities
of each of the Federal Home Loan Banks). Such guarantees of the securities in
the Fund, however, do not guarantee the market value of the shares of the Fund.
With respect to securities supported only by the credit of the issuing agency or
instrumentality or by an additional line of credit with the U.S. Treasury, there
is no guarantee that the U.S. Government will continue to provide support to
such agencies or instrumentalities.
Foreign Bank Instruments
Eurodollar Certificates of Deposit ("ECDs"), Eurodollor Time Deposits
("ETDs") and Yankee Certificates of Deposit ("Yankee CDs") are subject to risks
somewhat different than those associated with the obligations of domestic banks.
ECDs are dollar-denominated certificates of deposit issued by foreign branches
of domestic banks; ETDs are U.S. dollar denominated deposits in a foreign branch
of a U.S. bank or a foreign bank; and Yankee CDs are certificates of deposit
issued by a U.S. branch of a foreign bank denominated in U.S. dollars and held
in the U.S. Examples of these risks include international economic developments,
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<PAGE>
foreign governmental restrictions that may adversely affect the payment of
principal or interest, foreign withholding or other taxes on interest income,
difficulties in obtaining or enforcing a judgment against the issuing bank, and
the possible impact of interruptions in the flow of international currency
transactions. Different risks may also exist for ECDs, ETDs, and Yankee CDs
because the banks issuing these instruments, or their domestic or foreign
branches, are not necessarily subject to the same regulatory requirements that
apply to domestic banks, such as reserve requirements, loan limitations,
examinations, accounting, auditing, and recordkeeping, and the public
availability of information. These factors will be carefully considered by the
Adviser in selecting investments for the Fund.
Mortgage-Backed Securities
The Fund may invest in mortgage pass-through certificates and
multiple-class pass-through securities, such as collateralized mortgage
obligations. See "Risk Factors and Suitability" for a description of the risks
associated with mortgage-backed securities.
Mortgage-Backed Pass-Through Securities. Mortgage-backed "pass-through
securities" represent participation interests in pools of residential mortgage
loans and are issued by the U.S. Government or private lenders and guaranteed by
the U.S. Government or private lenders and guaranteed by the U.S. Government or
one of its agencies or instrumentalities.
Collateralized Mortgage Obligations (CMOs). The issuer of a CMO effectively
transforms a mortgage pool into obligations comprised of several different
maturities, thus creating mortgage securities that appeal to short and
intermediate term investors as well as the more traditional long-term mortgage
investor. CMOs are debt securities issued by Federal Home Loan Mortgage
Corporation, Federal National Mortgage Corporation and by non-governmental
financial institutions and other mortgage lenders and are generally fully
collateralized by a pool of mortgages held under an indenture. CMOs are issued
in a number of classes or series which have different maturities and generally
are retired in sequence. CMOs are designed to be retired as the underlying
mortgage loans in the mortgage pool are repaid. In making investments in CMOs,
the Adviser will usually select CMOs with a stable average life and will take
into account the following considerations: the total return on CMOs will vary
with interest rates, which cannot be predicted; the maturity of the CMOs is
variable and is not known at the time of purchase; and prepayments on the CMOs
will depend upon prevailing interest rates and the CMOs may have a shorter life
than expected.
Asset-Backed Securities
The Fund may invest in asset-backed securities, which represent
participations in, or are secured by and payable from, assets such as motor
vehicle installment sale contracts, installment loan contracts, leases of
various types of real and personal property, receivables from revolving credit
(credit card) agreements and other categories of receivables. Asset-backed
securities may also be collateralized by a portfolio of U.S. Government
6
<PAGE>
securities, but are not direct obligations of the U.S. Government, its agencies
or instrumentalities. Payments or distributions of principal and interest on
asset-backed securities may be guaranteed up to certain amounts and for a
certain time period by a letter of credit or a pool insurance policy issued by a
financial institution, or other credit enhancements may be present; however,
privately issued obligations collateralized by a portfolio of privately issued
asset-backed securities do not involve any government-related guaranty or
insurance. Such securities are like mortgage-related securities in that they
represent an interest in the cash flow from a pool of underlying receivables.
However, unlike mortgage-related securities, the asset underlying the security
consists of debt incurred to purchase personal property rather than real
property. In addition, the maturity of the debt involved is much shorter in
duration than that of conventional mortgages and involves less likelihood of
refinancing and unscheduled prepayments.
Such securities can be structured in several ways, the most common of which
has been a "pass-through" model. A certificate representing a fractional
undivided beneficial interest in a trust or corporation created solely for the
purpose of holding the trust assets is issued to the security holder. The
certificate entitles the holder thereof the right to receive a percentage of the
interest and principal payments on the terms and according to the schedule
established by the trust instrument. A servicing agent collects amounts due on
the sales contracts or credit card receivables for the account of the trust,
which distributes such amounts to the security holders.
An alternative structure for such securities is similar to that of the
collateralized mortgage obligations described above. Instead of holding an
undivided interest in trust assets, the purchaser of the security holds a bond
collateralized by the underlying assets . The bonds are serviced by cash flows
from the underlying assets, a specified fraction of all cash received (less a
servicing fee) being allocated first to pay interest and then to retire
principal. Unlike the "pass-through" certificate, payments of principal and
interest to security holders are not dependent on prepayments, although
prepayments alter the yield and average life of the bonds.
Forward Roll Transactions
In order to enhance current income, the Fund may enter into forward roll
transactions with respect to mortgage-backed securities to the extent of 10% of
its net assets. In a forward roll transaction, the Fund sells a mortgage-backed
security to a financial institution, such as a bank or broker-dealer, and
simultaneously agrees to repurchase a similar security from the institution at a
later date at an agreed-upon price. The mortgage-backed securities that are
repurchased will bear the same interest rate as those sold, but generally will
be collateralized by different pools of mortgages with different prepayment
histories than those sold. During the period between the sale and repurchase,
the Fund will not be entitled to receive interest and principal payments on the
securities sold. Proceeds of the sale will be invested in short-term
instruments, such as repurchase agreements or other short-term securities, and
the income from these investments, together with any additional fee income
received on the sale and the amount gained by repurchasing the securities in the
future at a lower price, will generate income and gain for the Fund which is
intended to exceed the yield on the securities sold. Forward roll transactions
involve the risk that the market value of the securities sold by the Fund may
decline below the repurchase price of those securities. At the time the Fund
enters into a forward roll transaction, it will place in a segregated custodial
account cash or liquid, high quality debt obligations having a value equal to
the repurchase price (including accrued interest) and will subsequently monitor
the account to insure that the equivalent value is maintained.
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Structured or Hybrid Notes
The Fund may invest in "structured" or "hybrid" notes. The distinguishing
feature of a structured or hybrid note is that the amount of interest and/or
principal payable on the note is based on the performance of a benchmark asset
or market other than fixed-income securities or interest rates. Examples of
these benchmarks include stock prices, currency exchange rates and physical
commodity prices. Investing in a structured note allows the Fund to gain
exposure to the benchmark market while fixing the maximum loss that the Fund may
experience in the event that market does not perform as expected. Depending on
the terms of the note, the Fund may forego all or part of the interest and
principal that would be payable on a comparable conventional note; the Fund's
loss cannot exceed this foregone interest and/or principal. An investment in
structured or hybrid notes involves risks similar to those associated with a
direct investment in the benchmark asset.
Preferred Stock
The Fund may, from time to time, invest up to 10% of its total assets in
preferred stock, such as auction rate or fixed rate preferred stock, if the
Adviser believes that such investments would be appropriate substitutes for
money market instruments or other short-term fixed income securities. Any
investment in preferred stock will comply with the Fund's requirements with
regard to ratings and maturities described above.
Strategic Transactions
Consistent with maintaining stability of principal, the Fund may, but is
not required to, utilize various other investment strategies as described below
to hedge various market risks (such as interest rates and broad or specific
fixed-income market movements), to manage the effective maturity or duration of
fixed-income securities, or to enhance potential gain. Such strategies are
generally accepted as part of modern portfolio management and are regularly
utilized by many mutual funds and other institutional investors. Techniques and
instruments used by the Fund may change over time as new instruments and
strategies are developed or regulatory changes occur.
8
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In the course of pursuing its investment objective, the Fund may purchase
and sell (write) exchange-listed and over-the-counter put and call options on
securities, fixed income indices and other financial instruments; purchase and
sell financial futures contracts and options thereon; and enter into various
interest rate transactions such as swaps, caps, floors or collars (collectively,
all the above are called "Strategic Transactions"). Strategic Transactions may
be used in an attempt to protect against possible changes in the market value of
securities held in or to be purchased for the Fund's portfolio resulting from
securities markets fluctuations, to protect the Fund's unrealized gains in the
value of its portfolio securities, to facilitate the sale of such securities for
investment purposes, to manage the effective maturity or duration of the Fund's
portfolio, or to establish a position in the derivatives markets as a temporary
substitute for purchasing or selling particular securities. In addition to the
hedging transactions referred to in the preceding sentence, Strategic
Transactions may also be used to enhance potential gain in circumstances where
hedging is not involved although the Fund's net loss exposure resulting from
Strategic Transactions entered into for such purposes will not exceed 1% of the
Fund's net assets at any one time and, to the extent necessary, the Fund will
close out transactions in order to comply with this limitation. (Transactions
such as writing covered call options are considered to involve hedging for the
purposes of this limitation.) In calculating the Fund's net loss exposure from
such Strategic Transactions, an unrealized gain from a particular Strategic
Transaction position would be netted against an unrealized loss from a related
Strategic Transaction position. For example, if the Adviser believes that
short-term interest rates as indicated in the forward yield curve are too high,
the Fund may take a short position in a near-term Eurodollar futures contract
and a long position in a longer-dated Eurodollar futures contract. Under such
circumstances, any unrealized loss in the near-term Eurodollar futures position
would be netted against any unrealized gain in the longer-dated Eurodollar
futures position (and vice versa) for purposes of calculating the Fund's net
loss exposure. The ability of the Fund to utilize these Strategic Transactions
successfully will depend on the Adviser's ability to predict pertinent market
movements, which cannot be assured. The Fund will comply with applicable
regulatory requirements when implementing these strategies, techniques and
instruments. The Fund's activities involving Strategic Transactions may be
limited by the requirements of Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), for qualification as a regulated investment
company.
Strategic Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
the Adviser's view as to certain market movements is incorrect, the risk that
the use of such Strategic Transactions could result in losses greater than if
they had not been used. The writing of put and call options may result in losses
to the Fund, force the purchase or sale, respectively, of portfolio securities
at inopportune times or for prices higher than (in the case of purchases due to
the exercise of put options) or lower than (in the case of sales due to the
exercise of call options) current market values, limit the amount of
appreciation the Fund can realize on its investments or cause the Fund to hold a
security it might otherwise sell. The use of options and futures transactions
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entails certain other risks. In particular, the variable degree of correlation
between price movements of futures contracts and price movements in the related
portfolio position of the Fund creates the possibility that losses on the
hedging instrument may be greater than gains in the value of the Fund's
position. The writing of options could significantly increase the Fund's
portfolio turnover rate and, therefore, associated brokerage commissions or
spreads. In addition, futures and options markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets. As a
result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the use of
futures and options transactions for hedging should tend to minimize the risk of
loss due to a decline in the value of the hedged position, at the same time, in
certain circumstances, they tend to limit any potential gain which might result
from an increase in value of such position. The loss incurred by the Fund in
writing options on futures and entering into futures transactions is potentially
unlimited; however, as described above, the Fund will limit its net loss
exposure resulting from Strategic Transactions entered into for non-hedging
purposes to 1% of its net assets at any one time. Futures markets are highly
volatile and the use of futures may increase the volatility of the Fund's net
asset value. Finally, entering into futures contracts would create a greater
ongoing potential financial risk than would purchases of options where the
exposure is limited to the cost of the initial premium. Losses resulting from
the use of Strategic Transactions would reduce net asset value and the net
result may be less favorable than if the Strategic Transactions had not been
utilized.
Further information concerning the Fund's Strategic Trans-actions is set
forth in the Statement of Additional Information.
When-Issued Securities and Forward Commitments
The Fund may commit up to 10% of its net assets to purchase securities on a
"when-issued" basis. Although the Fund would generally purchase securities on a
when-issued basis with the intention of actually acquiring the securities, the
Fund may dispose of a when-issued security prior to settlement if the Advisers
deem it appropriate to do so. The payment obligation and the interest rate on
these securities will be fixed at the time the Fund enters into the commitment,
but no income will accrue to the Fund until they are delivered and paid for.
Unless the Fund has entered into an offsetting agreement to sell the securities,
cash or high quality liquid assets equal to the amount of the Fund's commitment
will be segregated with the Fund's custodian, to secure the Fund's obligation
and to ensure that it is not leveraged. The market value of the securities when
they are delivered may be less than the amount paid by the Fund.
With respect to up to 25% of its net assets, the Fund may also enter into
contracts to purchase securities for a fixed price at a future date beyond the
customary settlement time if the Fund holds and maintains until the settlement
date in a segregated account cash or high-grade debt obligations in an amount
sufficient to meet the purchase price, or if the Fund enters into offsetting
contracts for the forward sale of other securities it owns. Such contracts are
customarily referred to as "forward commitments" and involve a risk of loss if
the value of the security to be purchased declines prior to the settlement date.
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Repurchase Agreements
The Fund may invest up to 25% of its net assets in repurchase agreements
under normal circumstances. Repurchase agreements acquired by the Fund will
always be fully collateralized as to principal and interest by money market
instruments and will be entered into only with commercial banks, brokers and
dealers considered creditworthy by the Fund. Investing in repurchase agreements
involves the risk of default by or the insolvency of the other party to the
repurchase agreement.
Reverse Repurchase Agreements
Under a reverse repurchase agreement, the Fund would sell securities and
agree to repurchase them at a mutually agreed upon date and price. The Fund
intends to enter into reverse repurchase agreements to provide cash to satisfy
redemption requests and thereby avoid otherwise having to sell securities during
unfavorable market conditions in order to meet such redemptions. At the time the
Fund enters into a reverse repurchase agreement, it will establish a segregated
account with the Fund's custodian containing liquid assets having a value not
less than the repurchase price (including accrued interest) and will
subsequently monitor the account to maintain such value. Reverse repurchase
agreements involve the risk that the market value of the securities which the
Fund is obligated to repurchase may decline below the repurchase price. In the
event the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Fund's
obligation to repurchase the securities and the Fund's use of the proceeds of
the reverse repurchase agreement may effectively be restricted pending such
determination. The staff of the Securities and Exchange Commission has taken the
position that reverse repurchase agreements are borrowings by the Fund under the
Investment Company Act of 1940. See "Investment Restrictions."
Portfolio Turnover
Portfolio turnover is not expected to exceed 200% on an annual basis. A
rate of turnover of 100% would occur, for example, if the value of the lesser of
purchases or sales of portfolio securities for a particular year equaled the
average monthly value of portfolio securities owned during the year (excluding
securities with a maturity date of one year or less at the date of acquisition).
A high rate of portfolio turnover involves a correspondingly higher transaction
cost which must be borne directly by the Fund and thus indirectly by its
shareholders. It may also result in the realization of larger amounts of
short-term capital gains which are taxable to shareholders as ordinary income
and may, under certain circumstances, make it more difficult for the Fund to
qualify as a regulated investment company under the Code.
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Investment Restrictions
The Fund has adopted certain fundamental policies which may not be changed
without the approval of the Fund's shareholders. These policies provide, among
other things, that the Fund may not: (i) invest, with respect to at least 75% of
its total assets, more than 5% in the securities of any one issuer (other than
the U.S. Government, its agencies or instrumentalities) or acquire more than 10%
of the outstanding voting securities of any issuer; (ii) issue senior
securities, borrow money or securities, enter into reverse repurchase agreements
or pledge or mortgage its assets, except that the Fund may (a) borrow money from
banks as a temporary measure for extraordinary or emergency purposes (but not
for investment purposes) in an amount up to 15% of the current value of its
total assets, (b) enter into forward roll transactions, (c) enter into reverse
repurchase agreements in an amount up to 15% of the current value of its total
assets, and (d) pledge its assets to an extent not greater than 15% of the
current value of its total assets to secure such borrowings; however, the Fund
may not make any additional investments while its outstanding bank borrowings
exceed 5% of the current value of its total assets; (iii) make loans of
portfolio securities, except that the Fund may enter into repurchase agreements
with respect to 25% of the value of its net assets; or (iv) invest more than 25%
of its total assets in a single industry except that this restriction shall not
apply to government securities. (For the purposes of the foregoing restriction,
the industry classification of an asset-backed security is determined by its
underlying assets. For example, certificates for automobile receivables and
certificates for amortizing revolving debts constitute two different
industries). If any percentage restriction described above is adhered to at the
time of investment, a subsequent increase or decrease in the percentage
resulting from a change in the value of the Fund's assets will not constitute a
violation of the restriction. Additional fundamental policies adopted by the
Fund are described in the Statement of Additional Information.
RISK FACTORS AND SUITABILITY
The Fund is not a money market fund and is not an appropriate investment
for investors seeking complete stability of principal. The Fund is designed for
corporate investors, pension and profit-sharing plans, state and local
governments, foundations, endowment funds and individuals. The Fund will attempt
to achieve a higher than money market return for its shareholders. Although the
price of its shares may fluctuate more than money market instruments in response
to changes in interest rates, the Fund will seek to keep such volatility below
that of longer term debt securities by limiting the maturity of the securities
in its portfolio but may not be able to return dollar-for-dollar the money
invested. See "Investment Objectives and Policies" above for a further
description of the risks.
Yields on debt securities depend on a variety of factors, such as general
conditions in the money and bond markets, and the size, maturity and rating of a
particular issue. Debt securities with longer maturities tend to produce higher
yields and are generally subject to greater potential capital appreciation and
depreciation. The market prices of debt securities usually vary depending upon
available yields, rising when interest rates decline and declining when interest
rates rise.
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Mortgage-Backed Securities
Mortgage-backed securities are subject to both regular and early
prepayments of principal, which will affect the value of the securities in the
Fund's portfolio and, therefore, the Fund's current and total returns. While it
is not possible to predict accurately the life of a particular issue of
mortgage-backed securities held by the Fund, the actual life of a
mortgage-backed security is likely to be substantially less than the original
final maturity of the mortgage pool underlying the security because unscheduled
early prepayments of principal on the security owned by the Fund will result
from the prepayment, refinancing or foreclosure of the underlying mortgage loans
in the mortgage pool. For example, mortgagors may speed up the rate at which
they prepay their mortgages when interest rates decline sufficiently to
encourage refinancing. When the monthly payments (which may include unscheduled
prepayments) on a security are paid to the Fund, the Fund may be able to
reinvest them only at a lower rate of interest. Because of the regular scheduled
payments of principal and the early unscheduled prepayments of principal,
mortgage-backed securities, and adjustable rate mortgage-backed securities in
particular, may be less effective than other types of obligations as a means of
locking in attractive long-term interest rates. As a result, this type of
security may have less potential for capital appreciation during periods of
declining interest rates than other U.S. Government securities of comparable
maturities, although many issues of mortgage-backed securities may have a
comparable risk of decline in market value during periods of rising interest
rates. Although a security purchased at a premium above its par value may carry
a higher stated rate of return, both a scheduled payment of principal, which
will be made at par, and an unscheduled prepayment of principal generally will
decrease current and total returns and will accelerate the recognition of
income, distributions from which will be taxable to shareholders as ordinary
income.
Leverage
The use of forward roll transactions and reverse repurchase agreements
involves leverage. Leverage allows any investment gains made with the additional
monies received (in excess of the costs of the forward roll transaction or
reverse repurchase agreement) to increase the net asset value of the Fund's
shares faster than would otherwise be the case. On the other hand, if the
additional monies received are invested in ways that do not fully recover the
costs of such transactions to the Fund, the net asset value of the Fund would
fall faster than would otherwise be the case.
CALCULATION OF PERFORMANCE DATA
From time to time the Fund may advertise its total return and yield. Both
total return and yield figures are based on historical earnings and are not
intended to indicate future performance.
The "total return" of the Fund refers to the average annual compounded
rates of return over 1, 5 and 10 year periods that would equate an initial
amount invested at the beginning of a stated period to the ending redeemable
value of the investment. The calculation assumes the reinvestment of all
dividends and distributions, includes all recurring fees that are charged to all
shareholder accounts and deducts all nonrecurring charges at the end of each
period. If the Fund has been operating less than 1, 5 or 10 years, the time
period during which the Fund has been operating is substituted.
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The "yield" of the Fund is computed by dividing the net investment income
per share earned during the most recent practicable period stated in the
advertisement by the maximum offering price per share on the last day of the
period (using the average number of shares entitled to receive dividends). For
the purpose of determining net investment income, the calculation includes among
expenses of the Fund all recurring fees that are charged to all shareholder
accounts and any nonrecurring charges for the period stated.
DIVIDENDS AND DISTRIBUTIONS
Dividends on shares of the Fund will be declared daily from net investment
income and distributed monthly. Dividends from short-term and long-term capital
gains, if any, after reduction by capital losses, will be declared and
distributed at least annually. Dividends from net investment income and
distributions from capital gains, if any, are automatically reinvested in
additional shares of the Fund unless the shareholder elects to receive them in
cash.
PURCHASE OF SHARES
Shares of the Fund may be purchased directly from the Fund, which offers
its shares to the public on a continuous basis. Shares are sold at the net asset
value per share next computed after the purchase order is received by the Fund.
Unless waived by the Fund, the minimum initial investment is $1,000,000.
Additional investments may be made in amounts of at least $100,000.
Orders for the purchase of Fund shares received by dealers by the close of
regular trading on the New York Stock Exchange on any business day and
transmitted to the Fund by the close of its business day (normally 4:00 p.m.,
New York City time) will be effected as of the close of regular trading on the
New York Stock Exchange on that day. Otherwise, orders will be effected at the
net asset value per share determined on the next business day. It is the
responsibility of dealers to transmit orders so that they will be received by
the Fund before the close of its business day. Shares of the Fund purchased
through dealers may be subject to transaction fees, no part of which will be
received by the Fund or the Advisers.
The Fund's net asset value per share is computed each day on which the New
York Stock Exchange is open as of the close of regular trading (currently 4:00
p.m., New York City time). The net asset value per share is calculated by
determining the value of all the Fund's assets, subtracting all liabilities and
dividing the result by the total number of shares outstanding. Portfolio
securities for which market quotations are readily available are valued at
current market value. Securities are valued at the last sales prices on the
exchange or national securities market on which they are primarily traded.
Securities not listed on an exchange or national securities market, or
securities for which there were no reported transactions, and CMOs and
asset-backed securities are valued at the last quoted bid prices. Securities for
which quotations are not readily available, and all other assets are valued at
fair value as determined in good faith by the Adviser in accordance with
procedures approved by the Trustees.
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The Board of Trustees has approved determining the current market value of
securities with one year or less remaining to maturity on a spread basis. To the
extent this method is employed, it would be used in conjunction with the
periodic use of market quotations. Under the spread process, the Adviser would
determine in good faith the current market value of these portfolio securities
by comparing their quality, maturity and liquidity characteristics to those of
U.S. Treasury bills. Money market instruments with less than sixty days
remaining to maturity when acquired by the Fund may be valued on an amortized
cost basis. If the Fund acquires a money market instrument with more than sixty
days remaining to its maturity, it may be valued at current market value until
the sixtieth day prior to maturity and may then be valued at amortized cost
based upon the value on such date unless the Trustees determine during such
sixty-day period that amortized cost does not represent fair value.
In the sole discretion of the Adviser, the Fund may accept securities
instead of cash for the purchase of shares of the Fund. The Adviser will
determine that any securities acquired in this manner are consistent with the
investment objective, policies and restrictions of the Fund. The securities will
be valued in the manner stated above. The purchase of shares of the Fund for
securities instead of cash may cause an investor who contributes them to realize
a taxable gain or loss with respect to the securities transferred to the Fund.
The Trust reserves the right in its sole discretion (i) to suspend the
offering of the Fund's shares, (ii) to reject purchase orders when in the best
interest of the Fund and (iii) to modify or eliminate the minimum initial
investment in Fund shares.
REDEMPTION OF SHARES
Shares of the Fund may be redeemed by any of the methods described below at
the net asset value per share next determined after receipt of a redemption
request in proper form. Redemptions will not be processed until a completed
Share Purchase Application and payment for the shares to be redeemed have been
received.
Written Redemption
Shares of the Fund may be redeemed by written order to Standish Short-Term
Asset Reserve Fund, One Financial Center, 26th Floor, Boston, Massachusetts
02111. A written redemption request must (a) state the number of shares or the
dollar amount to be redeemed, (b) identify the shareholder's account number and
(c) be signed by each registered owner exactly as the shares are registered.
Signature guarantees, when required, must be obtained from any one of the
following institutions, provided that such institution meets credit standards
established by the Fund's Transfer Agent: (i) a bank; (ii) a securities broker
or dealer, including a government or municipal securities broker or dealer, that
is a member of a clearing corporation or has net capital of at least $100,000;
(iii) a credit union having authority to issue signature guarantees; (iv) a
savings and loan association, a building and loan association, a cooperative
bank, or a federal savings bank or association; or (v) a national securities
exchange, a registered securities exchange or a clearing agency. Additional
supporting documents may be required in the case of estates, trusts,
corporations, partnerships and other shareholders which are not individuals.
Redemption proceeds will normally be paid by check mailed within seven days of
receipt of a written redemption request in proper form. If shares to be redeemed
were recently purchased by check, the Fund may delay transmittal of redemption
proceeds until such time as it has assured itself that good funds have been
collected for the purchase of such shares. This may take up to fifteen (15)
days.
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Telephonic Redemption
Shareholders who complete the telephonic redemption portion of the Fund's
account application may redeem shares by calling (800) 221-4795. The telephonic
redemption privilege is not available to shareholders automatically; they must
first elect the privilege. Redemption proceeds will be mailed or wired in
accordance with the shareholder's instruction on the account application to a
pre-designated account. Wire charges, if any, will be deducted from redemption
proceeds. By maintaining an account that is eligible for redemption by
telephone, the shareholder authorizes the Adviser, the Trust and the Fund's
custodian to act upon instructions of any person to redeem shares from the
shareholder's account. Redemption proceeds will be sent only by check payable to
the shareholder of record at the address of record, unless the shareholder has
indicated, in the initial application for the purchase of shares, a commercial
bank to which redemption proceeds may be sent by wire. These instructions may be
changed subsequently only in writing, accompanied by a signature guarantee, and
additional documentation in the case of shares held by a corporation or other
entity or by a fiduciary such as a trustee or executor.
By maintaining a telephonic redemption account, the shareholder
acknowledges that, as long as the Fund employs reasonable procedures to confirm
that telephonic instructions are genuine, and follows telephonic instructions
that it reasonably believes to be genuine, neither the Adviser, nor the Trust,
nor the Fund's custodian, nor their respective officers or employees, will be
liable for any loss, expense or cost arising out of any request for a telephonic
redemption, even if such transaction results from any fraudulent or unauthorized
instructions. Depending upon the circumstances, the Fund intends to employ
personal identification or written confirmation of transactions procedures, and
if it does not, the Fund may be liable for any losses due to unauthorized or
fraudulent instructions. Redemption proceeds will normally be paid promptly
after receipt of telephonic instructions, but no later than seven days
thereafter, except as described above. Shareholders may experience delays in
exercising telephone redemption privileges during periods of abnormal market
activity. Accordingly, during periods of volatile economic and market
conditions, shareholders may wish to consider transmitting redemption requests
in writing.
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<PAGE>
Repurchase Order
In addition to written redemption of Fund shares, the Fund may accept wire
or telephone orders from brokers or dealers for the repurchase of Fund shares,
or from the Adviser with respect to accounts over which it has investment
discretion. The repurchase price is the net asset value per share next
determined after receipt of an order by a broker or dealer, which is obligated
to transmit the order to the Fund prior to the Fund's close of business
(normally 4:00 p.m.). Brokers or dealers may charge for their services in
connection with a repurchase of Fund shares, but the Fund imposes no charge for
share repurchases.
* * * *
The proceeds paid upon redemption or repurchase may be more or less than
the cost of the shares, depending upon the market value of the Fund's portfolio
investments at the time of redemption or repurchase. The Fund intends to pay
cash for all shares redeemed, but under certain conditions, the Fund may make
payments wholly or partially in portfolio securities.
Because of the cost of maintaining shareholder accounts, the Fund may
redeem, at net asset value, the shares in any account which has a value of less
than $250,000 as a result of redemptions or transfers. Before doing so, the Fund
will notify the shareholder that the value of the shares in the account is less
than the specified minimum and will allow the shareholder 30 days to make an
additional investment in an amount which will increase the value of the account
to at least $250,000.
MANAGEMENT
Trustees
The Fund is a separate investment series of Standish, Ayer & Wood
Investment Trust, a Massachusetts business trust organized on August 13, 1986.
Under the terms of the Agreement and Declaration of Trust establishing the
Trust, which is governed by the laws of The Commonwealth of Massachusetts, the
Trustees of the Trust are ultimately responsible for the management of its
business and affairs.
Investment Adviser
Standish, Ayer & Wood, Inc. (the "Adviser"), One Financial Center, Boston,
Massachusetts 02111, serves as investment adviser to the Fund pursuant to an
investment advisory agreement and manages the Fund's investments and affairs
subject to the supervision of the Trustees of the Trust. The Adviser will, from
time to time, determine jointly the appropriate maturity of the Fund's
portfolio. This determination will be made after a review of economic, interest
rate and yield curve analysis. The Board of Trustees will periodically review
and approve the maturity decisions made by the Adviser.
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<PAGE>
The Adviser is a Massachusetts corporation incorporated in 1933 and is a
registered investment adviser under the Investment Advisers Act of 1940. The
Adviser provides fully discretionary management services and counseling and
advisory services to a broad range of clients throughout the United States. The
Adviser acts as the sole investment adviser to certain other funds of the Trust
which include Standish Small Capitalization Equity Fund, Standish Equity Fund,
Standish Fixed Income Fund, Standish Intermediate Tax Exempt Bond Fund, Standish
Massachusetts Intermediate Tax Exempt Bond Fund and Standish Securitized Fund,
which had net assets of $120 million, $94 million, $1.9 billion, $27 million,
$32 million and $55 million, respectively, at March 31, 1995. The Adviser also
acts as the sole investment adviser to Standish Controlled Maturity Fund and
Standish Fixed Income Fund II, which commenced operations on July 3, 1995. The
Adviser is the managing general partner of Standish International Management
Company, L.P., which is the investment adviser to Standish International Equity
Fund, Standish International Fixed Income Fund, and Standish Global Fixed Income
Fund which had net assets of $90 million, $1.1 billion and $137 million,
respectively, at March 31, 1995. Corporate pension funds are the largest asset
under active management by the Adviser. The Adviser's clients also include
charitable and educational endowment funds, financial institutions, trusts and
individual investors. As of March 31, 1995, The Adviser managed approximately
$24 billion of assets.
The Fund's portfolio managers are Jennifer A. Pline and James W. Copley,
Jr., who have been primarily responsible for the day-to-day management of the
Fund's portfolio since its inception in January, 1989, in the case of Mr.
Copley, and since January 1, 1991, in the case of Ms. Pline. Mr. Copley has
served as President of Consolidated Investment Corporation during the past five
years and as Senior Portfolio Manager of the Adviser since June 30, 1995. During
the past five years, Ms. Pline has served as a Vice President of the Adviser. It
is presently contemplated that Ms. Pline will have primary responsibility for
investments with a remaining maturity of one year or longer and Mr. Copley will
have primary responsibility for investments with a remaining maturity of less
than one year.
Subject to the supervision and direction of the Trustees of the Trust, the
Adviser manages the Fund's portfolio in accordance with its stated investment
objective and policies, recommends investment decisions for the Fund, places
orders to purchase and sell securities on behalf of the Fund, and permits the
Fund to use the name "Standish." The Adviser provides all necessary office space
and services of executive personnel for administering the affairs of the Fund.
For these services, the Fund pays a fee monthly at the annual rate of 0.25% of
average daily net asset value. In addition, the Adviser has agreed to limit the
Fund's aggregate annual operating expenses (excluding brokerage commissions,
taxes and extraordinary expenses) to the lower of (a) 0.50% of the Fund's
average daily net assets, or (b) the permissible limit applicable in any state
in which shares of the Fund are then qualified for sale. If the expense limit is
exceeded, the compensation due the Adviser for such fiscal year shall be
proportionately reduced by the amount of such excess by a reduction or refund
thereof at the time such compensation is payable after the end of each calendar
month, subject to readjustment during the fiscal year. For the fiscal year ended
December 31, 1994, advisory fees amounted to 0.25% of the Fund's average net
assets.
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<PAGE>
Expenses
The Fund bears all expenses of its operations other than those incurred by
the Adviser under the investment advisory agreement. Among other expenses, the
Fund will pay investment advisory fees; bookkeeping, share pricing and
shareholder servicing fees and expenses; custodian fees and expenses; legal and
auditing fees; expenses of prospectuses, statements of additional information
and shareholder reports which are furnished to existing shareholders;
registration and reporting fees and expenses; and Trustees' fees and expenses.
The Adviser bears, without subsequent reimbursement, the distribution expenses
attributable to the offering and sale of Fund shares. Expenses of the Trust that
relate to more than one series are allocated among such series by the Adviser in
an equitable manner, primarily on the basis of the net asset values. For the
fiscal year ended December 31, 1994, expenses borne by the Fund amounted to
$941,104, which represented 0.33% of the Fund's average net assets.
Portfolio Transactions
Subject to the supervision of the Trustees of the Trust, the Adviser
selects the brokers and dealers that execute orders to purchase and sell
portfolio securities for the Fund. The Adviser will seek to obtain the best
available price and most favorable execution with respect to all transactions
for the Fund.
Subject to the consideration of best price and execution and to applicable
regulations, the receipt of research and sales of Fund shares may also be
considered a factor in the selection of brokers and dealers that execute orders
to purchase and sell portfolio securities for the Fund.
FEDERAL INCOME TAXES
The Fund presently qualifies and intends to continue to qualify for
taxation as a "regulated investment company" under the Code . If it qualifies
for treatment as a regulated investment company, the Fund will not be subject to
federal income tax on income (including capital gains) distributed to
shareholders in the form of dividends or capital gain distributions in
accordance with certain timing requirements of the Code.
The Fund will be subject to a nondeductible 4% excise tax under the Code to
the extent that it fails to meet certain distribution requirements with respect
to each calendar year. Certain distributions made in order to satisfy the Code's
distribution requirements may be declared by the Fund during October, November
or December of the year but paid during the following January. Such
distributions will be taxable to taxable shareholders as if received on December
31 of the year the distributions are declared, rather than the year in which the
distributions are received.
Shareholders which are taxable entities or persons will be subject to
federal income tax on dividends and capital gain distributions made by the Fund.
Dividends paid by the Fund from net investment income and from any excess of net
short-term capital gain over net long-term capital loss will be taxable to
shareholders as ordinary income, whether received in cash or Fund shares.
Dividends paid by the Fund from net capital gain (the excess of net long-term
capital gain over net short-term capital loss), called "capital gain
distributions," will be taxable to shareholders as long-term capital gains,
whether received in cash or Fund shares and without regard to how long the
shareholder has held shares of the Fund. Capital gain distributions do not
qualify for the corporate dividends received deduction. Dividends and capital
gain distributions may also be subject to state and local or foreign taxes.
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Redemptions and repurchases of shares are taxable events on which a
shareholder may recognize a gain or loss. Special rules recharacterize as
long-term any losses on the sale or exchange of Fund shares with a tax holding
period of six months or less, to the extent the shareholder received a capital
gain distribution with respect to such shares.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on dividends, capital gain
distributions, and the proceeds of redemptions or repurchases of shares, if they
fail to furnish the Fund with their correct taxpayer identification number and
certain certifications or if they are otherwise subject to backup withholding.
Individuals, corporations and other shareholders that are not U.S. persons under
the Code are subject to different tax rules and may be subject to nonresident
alien withholding at the rate of 30% (or a lower rate provided by an applicable
tax treaty) on amounts treated as ordinary dividends from the Fund and, unless a
current IRS Form W-8 or an acceptable substitute is furnished to the Fund, to
backup withholding on certain payments from the Fund.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent the Fund's distributions are
derived from interest on (or, in the case of intangibles taxes, the value of its
assets is attributable to) certain U.S. Government obligations, provided in some
states that certain thresholds for holdings of such obligations and/or reporting
requirements are satisfied.
No portion of the Fund's distributions will be eligible for the 70%
deduction for dividends received by corporations. After the close of each
calendar year, the Fund will send a notice to shareholders that provides
information about the federal tax status of distributions to shareholders for
such calendar year.
THE FUND AND ITS SHARES
The Fund is a separate investment series of Standish, Ayer & Wood
Investment Trust, an unincorporated business trust organized under the laws of
The Commonwealth of Massachusetts pursuant to an Agreement and Declaration of
Trust dated August 13, 1986. Under the Agreement and Declaration of Trust, the
Trustees have authority to issue an unlimited number of shares of beneficial
interest, par value $.01 per share, of the Fund. Each share of the Fund is
entitled to one vote. All Fund shares have equal rights with regard to voting,
redemption, dividends, distributions and liquidation, and shareholders of the
Fund have the right to vote as a separate class with respect to certain matters
under the Investment Company Act of 1940 and the Agreement and Declaration of
Trust. Shares of the Fund do not have cumulative voting rights. Fractional
shares have proportional voting rights and participate in any distributions and
dividends. When issued, each Fund share will be fully paid and nonassessable.
Shareholders of the Fund do not have preemptive or conversion rights.
Certificates representing shares of the Fund will not be issued.
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<PAGE>
The Trust has established thirteen series and may establish additional
series at any time. Each series is a separate taxpayer, eligible to qualify as a
separate regulated investment company for federal income tax purposes. The
calculation of the net asset value of a series and the determination of the tax
consequences of investing in a series will be determined separately for each
series.
The Trust is not required to hold annual meetings of shareholders. Special
meetings of shareholders may be called from time to time for purposes such as
electing or removing Trustees, changing a fundamental policy, or approving an
investment advisory agreement.
If less than two-thirds of the Trustees holding office have been elected by
shareholders, a special meeting of shareholders of the Trust will be called to
elect Trustees. Under the Agreement and Declaration of Trust and the Investment
Company Act of 1940, the record holders of not less than two-thirds of the
outstanding shares of each investment series of the Trust may remove a Trustee
by votes cast in person or by proxy at a meeting called for the purpose or by a
written declaration filed with each of the Trust's custodian banks. Except as
described above, the Trustees will continue to hold office and may appoint
successor Trustees. Whenever ten or more shareholders of the Trust who have been
such for at least six months, and who hold in the aggregate shares having a net
asset value of at least $25,000 or at least 1% of the outstanding shares,
whichever is less, apply to the Trustees in writing stating that they wish to
communicate with other shareholders with a view to obtaining signatures to
request a meeting, and such application is accompanied by a form of
communication and request which they wish to transmit, the Trustees shall within
five (5) business days after receipt of such application either (1) afford to
such applicants access to a list of the names and addresses of all shareholders
as recorded on the books of the Trust; or (2) inform such applicants as to the
approximate number of shareholders of record and the approximate cost of mailing
to them the proposed communication or form of request.
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Inquiries concerning the Fund should be made by contacting the Fund at the
Fund's address and telephone number listed on the cover of this Prospectus.
CUSTODIAN, TRANSFER AGENT AND
DIVIDEND-DISBURSING AGENT
Investors Bank & Trust Company, 24 Federal Street, Boston, Massachusetts
02110, serves as the Fund's transfer agent and dividend-disbursing agent and as
custodian of all cash and securities of the Fund.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., One Post Office Square, Boston, Massachusetts
02109, serves as independent accountants for the Trust and will audit the Fund's
financial statements annually.
LEGAL COUNSEL
Hale and Dorr, 60 State Street, Boston, Massachusetts 02109, is legal
counsel to the Trust and to the Adviser.
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No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus or in the Statement of Additional Information, and, if given or made,
such other information or representations must not be relied upon as having been
authorized by the Trust. This Prospectus does not constitute an offering in any
jurisdiction in which such offering may not be lawfully made.
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APPENDIX A
MOODY'S MONEY MARKET INSTRUMENT RATINGS
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following
characteristics:
-Leading market positions in well-established industries.
-High rates of return on funds employed.
-Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
-Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
MOODY'S CORPORATE BOND RATINGS
Aaa -Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long term risks appear somewhat
larger than in Aaa securities.
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A -Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa -Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
STANDARD & POOR'S MONEY MARKET INSTRUMENT RATINGS
A-1 -This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong.
A-2 -Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated "A-1."
STANDARD & POOR'S BOND RATINGS
AAA -Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA -Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A -Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB -Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
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TAX CERTIFICATION INSTRUCTIONS
Federal law requires that taxable distributions and proceeds of redemptions
and exchanges be reported to the IRS and that 31% be withheld if you fail to
provide your correct Taxpayer Identification Number (TIN) and the certifications
contained in the Account Purchase Application (Application) or you are otherwise
subject to backup withholding. Amounts withheld and forwarded to the IRS can be
credited as a payment of tax when completing your Federal income tax return.
For most individual taxpayers, the TIN is the social security number.
Special rules apply for certain accounts. For example, for an account
established under the Uniform Gift to Minors Act, the TIN of the minor should be
furnished. If you do not have a TIN, you may apply for one using forms available
at local offices of the Social Security Administration or the IRS, and you
should write "Applied For" in the space for a TIN on the Application.
Recipients exempt from backup withholding, including corporations and
certain other entities, should provide their TIN and underline "exempt" in
sectiony2(a) of the TIN section of the Application to avoid possible erroneous
withholding. Non-resident aliens and foreign entities may be subject to
withholding of up to 30% on certain distributions received from the Fund and
must provide certain certifications on IRS Form W-8 to avoid backup withholding
with respect to other payments. For further information, see Code Sections 1441,
1442 and 3406 and/or consult your tax adviser.
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