SUPPLEMENT Dated December 27, 1995
TO THE PROSPECTUS OF
STANDISH INTERNATIONAL FIXED INCOME FUND
Dated May 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:
1
<PAGE>
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 $100,000. Additional
investments may be made in amounts of at least $5,000.
---------------------
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.
2
<PAGE>
Prospectus dated May 1, 1995
PROSPECTUS
STANDISH INTERNATIONAL FIXED INCOME FUND
One Financial Center
Boston, Massachusetts 02111
(800) 221-4795
Standish International Fixed Income Fund (the Fund") is one Fund in the
Standish, Ayer & Wood family of funds. The Fund is organized as a separate
non-diversified investment series of Standish, Ayer & Wood Investment Trust (the
Trust"), an open-end management investment company.
The Fund is designed primarily, but not exclusively, for tax-exempt
institutional investors, such as pension and profit-sharing plans, foundations
and endowments. The Fund's investment objective is to maximize total return
while realizing a market level of income, consistent with preserving principal
and liquidity. The Fund will seek to achieve its investment objective primarily
through investing in a portfolio of investment grade fixed-income securities
denominated in foreign and United States currencies. The Fund provides a vehicle
through which investors may participate in the international bond markets. See
Investment Policies." Standish International Management Company, L.P., Boston,
Massachusetts, is the Fund's investment adviser (the 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 $100,000. Additional investments may be made in amounts of at
least $5,000.
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 (the SEC") 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 referenced 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 ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
CONTENTS
Expense Information 2
Financial Highlights 3
Investment Objective and Policies 4
Risk Factors and Suitability 8
Calculation of Performance Data 9
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 13
Tax Certification Instructions 15
1
<PAGE>
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
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees 0.40%
12b-1 Fees None
Other Expenses 0.11%
Total Fund Operating Expenses 0.51%
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Example 1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------------------------------
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: $5 $16 $29 $64
You would pay the following expenses on the same investment,
assuming no redemption: $5 $16 $29 $64
</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 on
expenses for the Fund's fiscal year ended December 31, 1994.
THE INFORMATION IN THE TABLE AND HYPOTHETICAL EXAMPLE ABOVE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. MORE-OVER, 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%.
2
<PAGE>
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.
<TABLE>
<CAPTION>
Per share data (for a share outstanding throughout each period):
Year Ended December 31,
---------------------------------------------------------------
1994 1993 1992* 1991*,+
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value - beginning of period $24.22 $21.20 $22.05 $20.00
Income from investment operations:
Net investment income $1.71 $2.03 $2.01 $1.55
Net realized and unrealized gain (loss) on investments (3.93) 2.90 (0.25) 1.44
---------- ---------- -------- -------
Total from investment operations ($2.22) $4.93 $1.76 $2.99
---------- ---------- -------- -------
Less distributions declared to shareholders:
From net investment income ($0.20) ($1.53) ($2.03) ($0.04)
From realized gain - (0.26) (0.54) (0.90)
In excess of net realized gain on investments - - (0.04) -
In excess of net investment income - (0.12) - -
Tax Return of Capital (0.50) - - -
---------- ---------- -------- -------
Total distributions declared to shareholders ($0.70) ($1.91) ($2.61) ($0.94)
---------- ---------- -------- -------
Net asset value - end of period $21.30 $24.22 $21.20 $22.05
========== ========== ======== =======
Total return -9.22% 23.77% 8.07% 15.11%t
Ratios (to average net assets)/Supplemental Data:
Expenses 0.51% 0.51% 0.59% 0.80%t
Net investment income 7.69% 7.53% 8.37% 8.00%t
Portfolio turnover 158% 98% 175% 319%
Net assets at end of period (000 omitted) $1,069,416 $1,131,201 $384,660 $72,697
t Computed on an annualized basis.
* Audited by other auditors.
+ For the period from January 2, 1991 (start of business) to December 31, 1991.
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>
3
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to maximize total return while realizing
a market level of income, consistent with preserving principal and liquidity.
The Fund will seek to achieve its investment objective primarily through
investing in a non-diversified portfolio of investment grade fixed-income
securities denominated in foreign and United States currencies. Because some of
the Fund's investments will be denominated in foreign currencies, including
bonds denominated in the European Currency Unit ( ECU"), exchange rates may have
a significant impact on the performance of the Fund. 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 fundamental
investment policies of the Fund may not be changed by the Trustees of the Trust
without the approval of shareholders. The Fund's investment policies and
restrictions are described further in the Statement of Additional Information
and are not fundamental unless so designated.
Investment Policies
The Fund may invest in a broad range of fixed-income securities denominated
in foreign currencies and U.S. dollars, including bonds, notes, mortgage-backed
and asset-backed securities, preferred stock (including convertible preferred
stock), convertible debt securities, structured notes and debt securities issued
or guaranteed by national, provincial, state or other governments with taxing
authority or by their agencies or by supranational entities. The Fund may invest
in securities that pay interest on a fixed, variable, floating (including
inverse floating), contingent, in-kind or deferred basis. Under normal market
conditions, at least 65% of the total value of the Fund's assets will be
invested in such securities denominated in foreign currencies. Supranational
entities include international organizations designated or supported by
governmental entities to promote economic reconstruction or development, and
international banking institutions and related government agencies. Examples of
supranational entities are the International Bank for Reconstruction and
Development (the World Bank), the European Steel and Coal Community, the Asian
Development Bank and the Inter-American Development Bank. The Fund expects to
emphasize foreign government and agency securities, securities of U.S. companies
denominated in foreign currencies, U.S. Government and agency securities,
mortgage-backed and asset-backed securities and securities of companies
denominated in U.S. dollars. The Fund intends to spread investments broadly
among countries. The Fund will normally include securities of no fewer than five
different countries; however, while maintaining investments in five countries,
the Fund may invest a substantial portion of its assets in one or more of those
five countries. Investors should be aware that investing in mortgage-backed
securities involves risks of fluctuation in yields and market prices and of
early prepayments on the underlying mortgages. See Risk Factors and Suitability"
for a description of the risks associated with investments in foreign
securities.
4
<PAGE>
Ratings
The Fund will generally invest in investment grade fixed-income securities,
i.e., securities which, at the date of investment, are rated within the four
highest grades as determined by Moody's Investors Service, Inc. ( Moody's")
(Aaa, Aa, A or Baa) or by Standard & Poor's Ratings Group ( Standard & Poor's"),
Duff & Phelps, Inc. ( Duff & Phelps") or IBAC, Inc. ( IBAC") (AAA, AA, A or BBB)
or their respective equivalent ratings or, if not rated, judged by the Adviser
to be of equivalent credit quality to securities so rated. Securities rated Baa
by Moody's or BBB by Standard & Poor's, Duff & Phelps or IBAC and unrated
securities of equivalent credit quality are considered medium grade obligations
with speculative characteristics. Adverse changes in economic conditions or
other circumstances are more likely to weaken the issuer's capacity to pay
interest and repay principal on these securities than is the case for issuers of
higher rated securities.
The Fund may invest up to 5% of its net assets in securities rated, at the
date of investment, either Ba by Moody's or BB by Standard & Poor's, Duff &
Phelps or IBAC or, if not rated, judged by the Adviser to be of equivalent
credit quality to securities so rated ( BB Rated Securities"). Securities rated
Ba by Moody's or BB by Standard & Poor's, Duff & Phelps or IBAC are classified
in the highest category of non-investment grade securities. Such securities may
be considered to be high-yield securities, carry a high degree of risk and are
considered speculative by the major credit rating agencies. The Fund intends to
avoid what it perceives to be the most speculative areas of the BB Rated
Securities universe. See Risk Factors and Suitability" for a description of the
risks associated with investments in BB Rated Securities.
It is anticipated that the average dollar-weighted rated credit quality of
the securities in the Fund's portfolio will be Aa or AA according to Moody's,
Standard & Poor's, Duff & Phelps or IBAC ratings, respectively, or comparable
credit quality as determined by the Adviser. In the case of a security that is
rated differently by the rating services, the higher rating is used in computing
the Fund's average dollar-weighted credit quality and in connection with the
Fund's policy regarding BB Rated Securities. In the event that the rating on a
security held in the Fund's portfolio is downgraded by a rating service, such
action will be considered by the Adviser in its evaluation of the overall
investment merits of that security, but will not necessarily result in the sale
of the security. In determining whether securities are of equivalent credit
quality, the Adviser may take into account, but will not rely entirely on,
ratings assigned by foreign rating agencies. In the case of unrated sovereign,
subnational and sovereign related debt of foreign countries, the Adviser may
take into account, but will not rely entirely on, the ratings assigned to the
issuers of such securities. Appendix A sets forth excerpts from the descriptions
of ratings of corporate debt securities and sovereign, subnational and sovereign
related debt of foreign countries.
The Fund may establish and maintain cash balances for liquidity purposes.
The Fund may also establish and maintain cash balances for temporary defensive
purposes without limitation in the event of, or in anticipation of, a general
decline in the market prices of the securities in which it invests. The Fund's
cash balances may be invested in U.S. as well as high quality foreign short-term
money-market instruments, including, but not limited to, government obligations,
certificates of deposit, bankers' acceptances, commercial paper, short-term
corporate debt securities and repurchase agreements.
5
<PAGE>
In pursuing the Fund's investment objective, the Adviser intends to
emphasize intermediate-term economic fundamentals relating to various countries
in the international economy, rather than evaluate day-to-day fluctuations in
particular currency and bond markets. Credit analysis of the issuers of the
particular securities will also be less important than macroeconomic
considerations. The Adviser will review the economic conditions and prospects
relating to various countries in the international economy and evaluate the
available yield differentials with a view toward maximizing total return.
Strategic Transactions
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, currency exchange rates, and broad or specific equity or 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.
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, equity and fixed-income indices and other financial instruments;
purchase and sell financial futures contracts and options thereon; enter into
various interest rate transactions such as swaps, caps, floors or collars; and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currencies or currency
futures (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 market or currency exchange rate
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 3% 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 anticipates that the
6
<PAGE>
Belgian franc will appreciate relative to the French franc, the Fund may take a
long forward currency position in the Belgian franc and a short foreign currency
position in the French franc. Under such circumstances, any unrealized loss in
the Belgian franc position would be netted against any unrealized gain in the
French franc 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 currency transactions can result in
the Fund incurring losses as a result of a number of factors including the
imposition of exchange controls, suspension of settlements, or the inability to
deliver or receive a specified currency. The use of options and futures
transactions 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, these transactions 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
7
<PAGE>
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 3% 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 Transactions is
set forth in the Statement of Additional Information.
Non-Diversified Company
The Fund is a non-diversified" investment company so that with respect to
50% of its assets it will be able to invest more than 5% of its assets in
obligations of one or more governmental entities or supranational issuers, while
being limited with respect to the other half of its assets to investments not
exceeding 5% of the Fund's total assets. (A diversified" investment company
would be required under the Investment Company Act of 1940, as amended (the 1940
Act"), to maintain at least 75% of its assets in cash (including foreign
currency), cash items, U.S. Government securities, and other securities limited
per issuer to not more than 5% of the investment company's total assets.) In
order to qualify as a regulated investment company under the Code, the Fund,
among other things, may not invest more than 25% of its assets in obligations of
any one issuer (other than U.S. Government securities). In any event, the Fund
does not intend to invest more than 5% of its assets in the securities of any
one issuer unless such securities are issued or guaranteed by a national
government or are deemed by the Adviser to be of comparable credit quality. The
Fund does not believe that the credit risk inherent in the obligations of stable
foreign governments is significantly greater than that of U.S. Government
obligations. As a non-diversified" investment company, the Fund may invest a
greater proportion of its assets in the securities of a smaller number of
issuers and therefore may be subject to greater market and credit risk than a
more broadly diversified fund.
The Fund will not have more than 25% of the current value of its total
assets invested in any single industry, provided that this restriction shall not
apply to debt securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities.
Illiquid and Restricted Securities
The Fund may not invest more than 15% of its net assets in illiquid
investments and securities that are subject to restrictions on resale (i.e.,
private placements or restricted securities") under the Securities Act of 1933,
as amended ( 1933 Act"), including securities eligible for resale in reliance on
Rule 144A under the 1933 Act. Illiquid investments include securities that are
not readily marketable, repurchase agreements maturing in more than seven days,
time deposits with a notice or demand period of more than seven days, certain
over-the-counter options, and restricted securities, unless it is determined,
based upon continuing review of the trading markets for the specific restricted
security, that such restricted security is eligible for resale under Rule 144A
and is liquid. The Board of Trustees has adopted guidelines and delegated to the
Adviser the daily function of determining and monitoring the liquidity of
8
<PAGE>
restricted securities. The Board of Trustees, however, retains oversight
focusing on factors such as valuation, liquidity and availability of information
and is ultimately responsible for such determinations. Investing in restricted
securities eligible for resale pursuant to Rule 144A could have the effect of
increasing the level of illiquidity in the Fund to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
restricted securities. The purchase price and subsequent valuation of restricted
and illiquid securities normally reflect a discount, which may be significant,
from the market price of comparable securities for which a liquid market exists.
Portfolio Turnover
Portfolio turnover is not expected to exceed 250% on an annual basis. A
rate of turnover of 100% would occur, for example, if the value of the lesser of
purchases and sales of portfolio securities for a particular year equaled the
average monthly value of portfolio securities owned during the year (excluding
short-term securities). A high rate of portfolio turnover involves a
correspondingly greater amount of transaction costs 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 net short-term capital gains, distributions
from 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. The Fund's portfolio turnover rates are
listed in the section captioned Financial Highlights."
Short-Selling
The Fund may make short sales, which are transactions in which the Fund
sells a security it does not own in anticipation of a decline in the market
value of that security. To complete such a transaction, the Fund must borrow the
security to make delivery to the buyer. The Fund then is obligated to replace
the security borrowed by purchasing it at the market price at the time of
replacement. The price at such time may be more or less than the price at which
the security was sold by the Fund. Until the security is replaced, the Fund is
required to pay to the lender amounts equal to any dividends or interest which
accrue during the period of the loan. To borrow the security, the Fund also may
be required to pay a premium, which would increase the cost of the security
sold. The proceeds of the short sale will be retained by the broker, to the
extent necessary to meet margin requirements, until the short position is closed
out.
Until the Fund replaces a borrowed security in connection with a short
sale, the Fund will: (a) maintain daily a segregated account not with the
broker, containing cash or U.S. Government securities, at such a level that (i)
the amount deposited in the account plus the amount deposited with the broker as
collateral will equal the current value of the security sold short and (ii) the
amount deposited in the segregated account plus the amount deposited with the
broker as collateral will not be less than the market value of the security at
the time it was sold short; or (b) otherwise cover its short position.
9
<PAGE>
The Fund will incur a loss as a result of the short sale if the price of
the security increases between the date of the short sale and the date on which
the Fund replaces the borrowed security. The Fund will realize a gain if the
security declines in price between those dates by an amount greater than premium
and transaction costs. This result is the opposite of what one would expect from
a cash purchase of a long position in a security. The amount of any gain will be
decreased, and the amount of any loss increased, by the amount of any premium or
amounts in lieu of dividends or interest the Fund may be required to pay in
connection with a short sale.
The Fund's loss on a short sale as a result of an increase in the price of
a security sold short is potentially unlimited. The Fund may purchase call
options to provide a hedge against an increase in the price of a security sold
short by the Fund. When the Fund purchases a call option it has to pay a premium
to the person writing the option and a commission to the broker selling the
option. If the option is exercised by the Fund, the premium and the commission
paid may be more than the amount of the brokerage commission charged if the
security were to be purchased directly. See Strategic Transactions" above.
The Fund anticipates that the frequency of short sales will vary
substantially in different periods, and it does not intend that any specified
portion of its assets, as a matter of practice, will be in short sales. However,
no securities will be sold short if, giving effect to any such short sale, the
total market value of all securities sold short would exceed 5% of the value of
the Fund's net assets.
In addition to the short sales discussed above, the Fund may make short
sales against the box," a transaction in which the Fund enters into a short sale
of a security which the Fund owns. The proceeds of the short sale are held by a
broker until the settlement date at which time the Fund delivers the security to
close the short position. The Fund receives the net proceeds from the short
sale.
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 purchase price, will generate income and gain for the Fund
10
<PAGE>
exceeding 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-grade 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.
When-Issued and Delayed Delivery" Securities
The Fund may commit up to 25% of its net assets to purchase securities on a
when-issued" or delayed delivery" basis, but will only do so with the intention
of actually acquiring the securities. 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 liquid, high-grade debt securities equal to the amount of
the Fund's commitment will be segregated with the custodian for the Fund, 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.
Securities purchased on a when-issued" basis may have a market value on
delivery which is less than the amount paid by the Fund. Changes in market value
may be based upon the public's perception of the creditworthiness of the issuer
or changes in the level of interest rates. Generally, the value of when-issued"
securities will fluctuate inversely to changes in interest rates, i.e., they
will appreciate in value when interest rates fall and will depreciate in value
when interest rates rise.
Repurchase Agreements
The Fund may invest up to 25% of its net assets in repurchase agreements
under normal circumstances. In no event will the Fund invest more than an
aggregate of 15% of its assets in repurchase agreements that are not terminable
within seven days. 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 Adviser. Investing in repurchase agreements
involves the risk of default by or the insolvency of the other party to the
repurchase agreement.
Securities Loans
In order to realize additional income, the Fund may lend a portion of the
securities in its portfolio to broker-dealers and financial institutions, who
from time to time may wish to borrow securities, generally to carry out
transactions for which they have contracted. The market value of securities
loaned by the Fund may not exceed 20% of the value of the Fund's total assets,
with a 10% limit for any single borrower.
In order to secure their obligations to return securities borrowed from the
Fund, borrowers will deposit collateral equal to at least 100% of the market
value of the borrowed securities, and the collateral will be marked to market"
daily. As is the case with any extension of credit, portfolio securities loans
involve certain risks in the event a borrower should fail financially, including
delays or inability to recover the loaned securities or foreclose against the
collateral. The Adviser, under the supervision of the Fund's Board of Trustees,
monitors the creditworthiness of the parties to whom the Fund makes securities
loans.
11
<PAGE>
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 50% 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 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, and (c) 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; or (iii)
lend portfolio securities, except that the Fund may lend its portfolio
securities with a value up to 20% of its total assets (with a 10% limit for any
borrower) and may enter into repurchase agreements with respect to 25% of the
value of its net assets.
As a nonfundamental policy, which may be changed without a shareholder
vote, the Fund has undertaken to a state securities authority that, so long as
the state authority requires and shares of the Fund are registered for sale in
that state, the Fund will not invest in oil, gas and other mineral leases or
real estate limited partnerships.
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 an appropriate investment for investors seeking complete
stability of principal. The Fund is designed primarily for tax-exempt
institutional investors such as pension or profit-sharing plans, foundations and
endowments which seek to maximize total return and whose beneficiaries are in a
position to benefit from the reinvestment of the quarterly income dividends and
any capital gains distributions paid by the Fund on a tax-deferred basis. The
Fund may also be suitable for other investors, depending upon their investment
goals and financial and tax positions. Investing in foreign securities may
involve a higher degree of risk than investing in domestic securities. Shares of
the Fund should not be regarded as a complete investment program.
12
<PAGE>
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.
Foreign Securities
Investing in securities of foreign companies and securities denominated in
foreign currencies or utilizing foreign currency transactions involves certain
risks of political, economic and legal conditions and developments not typically
associated with investing in securities of U.S. companies. Such conditions or
developments might include unfavorable changes in currency exchange rates,
exchange control regulations (including currency blockage), expropriation of
assets of companies in which the Fund invests, nationalization of such
companies, imposition of withholding taxes on dividend or interest payments, and
possible difficulty in obtaining and enforcing judgments against a foreign
issuer. Also, foreign securities may not be as liquid and may be more volatile
than comparable domestic securities. Furthermore, issuers of foreign securities
are subject to different, often less comprehensive, accounting, reporting and
disclosure requirements than domestic issuers. The Fund, in connection with its
purchases and sales of foreign securities, other than securities denominated in
United States dollars, will incur transaction costs in converting currencies.
Brokerage commissions in foreign countries are generally fixed, and other
transaction costs related to securities exchanges are generally higher than in
the United States. Most foreign securities of the Fund are held by foreign
subcustodians that satisfy certain eligibility requirements. However, foreign
subcustodian arrangements are significantly more expensive than domestic
custody. In addition, foreign settlement of securities transactions is subject
to local law and custom that is not, generally, as well established or as
reliable as U.S. regulation and custom applicable to settlements of securities
transactions and, accordingly, there is generally perceived to be a greater risk
of loss in connection with securities transactions in many foreign countries.
Emerging Markets
The Fund may invest in countries with emerging economies or securities
markets ( Emerging Markets"). Investments in Emerging Markets involves risks in
addition to those generally associated with investments in foreign securities.
Political and economic structures in many Emerging Markets may be undergoing
significant evolution and rapid development, and such countries may lack the
social, political and economic stability characteristics of more developed
countries. As a result, the risks described above relating to investments in
foreign securities, including the risks of nationalization or expropriation of
assets, may be heightened. In addition, unanticipated political or social
developments may affect the values of the Fund's investments and the
availability to the Fund of additional investments in such Emerging Markets. The
small size and inexperience of the securities markets in certain Emerging
Markets and the limited volume of trading in securities in those markets may
make the Fund's investments in such countries less liquid and more volatile than
investments in countries with more developed securities markets (such as the
U.S., Japan or most Western European countries).
13
<PAGE>
CALCULATION OF PERFORMANCE DATA
From time to time the Fund may advertise its yield and total return. Both
yield and total return 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.
The yield" of the Fund is computed by dividing the net investment income
per share earned during the 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 from net investment income will be declared
and distributed quarterly. 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 from
short-term and long-term 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.
The minimum initial investment is $100,000 unless waived by the Fund. Additional
investments may be made in amounts of at least $5,000.
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 Adviser.
14
<PAGE>
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. The Fund values
short-term obligations with maturities of 60 days or less at original cost plus
either accrued interest or amortized discount unless the Trustees determine that
such methods do not approximate fair value. All other investments are valued at
market value or, where market quotations are not readily available, at fair
value as determined in good faith by the Adviser in accordance with procedures
approved by the Trustees of the Trust. Additional information concerning the
Fund's valuation policies is contained in the Statement of Additional
Information.
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 contributed 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 the Standish
International Fixed Income 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
15
<PAGE>
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.
Telephonic Redemption
Shareholders who complete the telephonic redemption portion of the Fund's
account application may redeem shares by calling (800) 221-4795. Such 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 if the Fund 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.
16
<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 close of the Fund's business day
(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 if the value of such
shares has decreased to less than $50,000 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 $50,000.
MANAGEMENT
Trustees
The Fund is a separate investment series of Standish, Ayer & Wood
Investment Trust, a Massachusetts business trust. 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 International Management Company, L.P. (the Adviser"), One
Financial Center, Boston, MA 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
is a Delaware limited partnership which was organized in 1991 and is a
registered investment adviser under the Investment Advisers Act of 1940. The
general partner of the Adviser is Standish, Ayer & Wood, Inc. ( Standish"), One
Financial Center, Boston, MA 02111, which holds a 99.98% partnership interest.
The limited partners, who each hold a 0.01% interest in the Adviser, are Walter
M. Cabot, Sr., Chairman of the Board of the Adviser and a Senior Adviser to
Standish, and D. Barr Clayson, the President of the Adviser and a Managing
Director of Standish. Richard S. Wood, a Vice President and Director of Standish
and the President of the Trust, is the Executive Vice President of the Adviser.
Standish assigned the investment advisory agreement to the Adviser as of October
1, 1991.
17
<PAGE>
Standish and the Adviser provide fully discretionary management services
and counseling and advisory services to a broad range of clients throughout the
United States. The Adviser also provides investment advisory services to two
other funds of the Trust, Standish International Equity Fund and Standish Global
Fixed Income Fund, which had net assets of $89 million and $135 million,
respectively, at March 31, 1995. Standish also provides investment advisory
services to other funds of the Trust, acting as sole investment adviser to
Standish Fixed Income Fund, Standish Securitized Fund, Standish Equity Fund,
Standish Intermediate Tax Exempt Bond Fund, Standish Massachusetts Intermediate
Tax Exempt Bond Fund and Standish Small Capitalization Equity Fund, which had
net assets of $1.8 billion, $54 million, $94 million, $28 million, $31 million
and $121 million, respectively, at March 31, 1995, and as co-investment adviser
to Consolidated Standish Short-Term Asset Reserve Fund, which had net assets of
$258 million at March 31, 1995. Corporate pension funds are the largest asset
under active management by Standish. Standish's clients also include charitable
and educational endowment funds, financial institutions, trusts and individual
investors. As of March 31, 1995, Standish managed approximately $24 billion in
assets.
The Fund's portfolio manager is Richard S. Wood, who has been primarily
responsible for the day-to-day management of the Fund's portfolio since its
inception in January, 1991. During the past five years, Mr. Wood has served as a
Director and Vice President of Standish.
Subject to the supervision and direction of the Trustees, 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, administers the affairs of
the Fund and permits the Fund to use the name Standish." For these services, the
Fund pays a fee monthly at the annual rate of .40% of the Fund's average daily
net asset value. In addition, the Adviser has agreed to limit the Fund's total
annual operating expenses (excluding brokerage commissions, taxes and
extraordinary expenses) to the lower of (a) 0.80% 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 year ended December 31, 1994,
the Fund paid advisory fees to the Adviser at the annual rate of .40% of average
net assets.
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
18
<PAGE>
and shareholder reports which are furnished to 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 which relate to more
than one series are allocated among such series by the Adviser and Standish in
an equitable manner. For the fiscal year ended December 31, 1994, expenses borne
by the Fund amounted to $5,680,724, which represented 0.51% of 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 factors 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 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, certain net foreign
currency gains, and 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. No portion of such dividends is expected to
qualify for the 70% corporate dividends received deduction under the Code.
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.
19
<PAGE>
The Fund anticipates that it will be subject to foreign withholding taxes
or other foreign taxes on income (possibly including capital gains) on certain
of its foreign investments, which will reduce the yield or return from those
investments. Such taxes may be reduced or eliminated pursuant to an income tax
treaty in some cases.
The Fund may qualify to make an election to pass the qualifying foreign
taxes it pays through to its shareholders, who would then include their share of
such taxes in their gross incomes (in addition to the actual dividends and
capital gain distributions received from the Fund) and might be entitled,
subject to certain conditions and limitations under the Code, to a federal
income tax credit or deduction for their share of such taxes. Tax-exempt
shareholders generally will not benefit from this election. If the Fund makes
this election, it will provide necessary information to its shareholders
regarding any foreign taxes passed through to them. If the Fund does not make
this election, it may deduct the foreign taxes it pays in computing the net
income it must distribute to shareholders to satisfy the Code's distribution
requirements.
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, if any, 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.
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.
20
<PAGE>
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 1940 Act 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.
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 1940 Act,
the record holders of not less than two-thirds of the outstanding shares 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
which represent 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.
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,
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.
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.
21
<PAGE>
KEY TO MOODY'S RATINGS FOR CORPORATE BONDS AND SOVEREIGN, SUBNATIONAL
AND SOVEREIGN RELATED ISSUERS
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.
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.
Ba -Bonds which are rated Ba are judged to have speculative elements. Their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
STANDARD & POOR'S RATINGS FOR
CORPORATE BONDS
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.
BB -Debt rated BB is regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with
the terms of the obligation. While such debt will likely have some quality
and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
22
<PAGE>
STANDARD & POOR'S CHARACTERISTICS OF SOVEREIGN DEBT OF FOREIGN COUNTRIES
AAA -Stable, predictable governments with demonstrated track record of
responding flexibly to changing economic and political circumstances
Key players in the global trade and financial system
-Prosperous and resilient economies, high per capita incomes
-Low fiscal deficits and government debt, low inflation
-Low external debt
AA -Stable, predictable governments with demonstrated track record of
responding to changing economic and political circumstances
-Tightly integrated into global trade and financial system
-Differ from AAAs only to a small degree because:
-Economies are smaller, less prosperous and generally more vulnerable to
adverse external influences (e.g., protection and terms of trade shocks)
-More variable fiscal deficits, government debt and inflation
-Moderate to high external debt.
A -Politics evolving toward more open, predictable forms of governance in
environment of rapid economic and social change
-Established trend of integration into global trade and financial system
-Economies are smaller, less prosperous and generally more vulnerable to
adverse external influences (e.g., protection and terms of trade shocks),
but
-Usually rapid growth in output and per capita incomes
-Manageable through variable fiscal deficits, government debt and
inflation
-Usually low but variable debt.
23
<PAGE>
BB -Political factors a source of major uncertainty, either because system is
in transition or due to external threats, or both, often in environment of
rapid economic and social change
-Integration into global trade and financial system growing but untested
-Low to moderate income developing economies but variable performance and
quite vulnerable to adverse external influences
-Variable to high fiscal deficits, government debt and inflation
-Very high and variable debt, often graduates of Brady plan but track
record not well established.
BBB -Political factors a source of significant uncertainty, either because
system is in transition or due to external threats, or both, often in
environment of rapid economic and social change
-Integration into global trade and financial system growing but untested
-Economies less prosperous and often more vulnerable to adverse external
influences
-Variable to high fiscal deficits, government debt and inflation
-High and variable external debt
BB -Political factors a source of major uncertainty, either because system is
in transition or due to external threats, or both, often in environment of
rapid economic and social change
-Integration into global trade and financial system growing but untested
-Low to moderate income developing economies, but variable performance and
quite vulnerable to adverse external influences
-Variable to high fiscal deficits, government debt and inflation
-Very high and variable debt, often graduates of Brady Plan but track
record not well established.
DESCRIPTION OF DUFF & PHELPS RATINGS FOR CORPORATE BONDS AND FOR
SOVEREIGN, SUBNATIONAL AND SOVEREIGN RELATED ISSUERS
AAA -Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA -High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.
24
<PAGE>
A -Protection factors are average but adequate. However, risk factors are
more variable and greater in periods of economic stress.
BBB -Below average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic
cycles.
BB -Below investment grade but deemed likely to meet obligations when due.
Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or
down frequently within this category.
IBAC LONG-TERM RATINGS FOR CORPORATE BONDS AND FOR SOVEREIGN, SUBNATIONAL
AND SOVEREIGN RELATED ISSUES
AAA -Obligations for which there is the lowest expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial,
such that adverse changes in business, economic or financial conditions
are unlikely to increase investment risk substantially.
AA -Obligations for which there is a very low expectation of investment risk,
Capacity for timely repayment of principal and interest is substantial.
Adverse changes in business, economic or financial conditions may increase
investment risk, albeit not very significantly.
A -Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions may
lead to increased investment risk.
BBB -Obligations for which there is currently a low expectation of investment
risk. Capacity for timely repayment of principal and interest is adequate,
although adverse changes in business, economic or financial conditions are
more likely to lead to increased investment risk than for obligations in
other categories.
BB -Obligations for which there is a possibility of investment risk
developing. Capacity for timely repayment of principal and interest
exists, but is susceptible over time to adverse changes in business,
economic or financial conditions.
* * *
In the case of sovereign, subnational and sovereign related issuers, the
Fund uses the rating service's foreign currency or domestic (local) currency
rating depending upon how a security in the Fund's portfolio is denominated. In
the case where the Fund holds a security denominated in a domestic (local)
currency and the rating service does not provide a domestic (local) currency
rating for the issuer, the Fund will use the foreign currency rating for the
issuer; in the case where the Fund holds a security denominated in a foreign
currency and the rating service does not provide a foreign currency rating for
the issuer, the Fund will treat the security as being unrated.
25
<PAGE>
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
section 2(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.
26
