SUPPLEMENT Dated December 27, 1995
TO THE PROSPECTUS OF
STANDISH MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND 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:
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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 $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.
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Prospectus dated May 1, 1995
PROSPECTUS
STANDISH MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND
One Financial Center
Boston, Massachusetts 02111
(800) 221-4795
Standish Massachusetts Intermediate Tax Exempt Bond Fund (the Fund") is one
fund in the Standish, Ayer & Wood family of funds. The Fund is organized as a
separate investment series of Standish, Ayer & Wood Investment Trust (the
Trust"), an open-end management investment company.
The Fund is designed for Massachusetts investors in the upper income tax
brackets who are seeking a higher level of Massachusetts and federally tax-free
income than is normally provided by short-term investments, and more price
stability than investments in long-term municipal bonds. The Fund's investment
objective is to provide a high level of interest income exempt from
Massachusetts and federal income taxes, while seeking preservation of
shareholders' capital, through investing the Fund's assets in investment grade
intermediate-term municipal securities. Municipal bonds in which the Fund
invests will be rated, at the time of investment, within the four highest
ratings by Moody's Investors Service, Inc. ( Moody's"), Standard & Poor's
Ratings Group ( S&P") or Fitch Investors Service, Inc. ( Fitch") or, if unrated,
determined by Standish, Ayer & Wood, Inc. (the Adviser"), the Fund's investment
adviser, to be of comparable credit quality to the securities so rated. See
Investment Policies." There can, of course, be no guarantee that the Fund's
objective will be achieved.
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 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 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 7
Calculation of Performance Data 8
Dividends and Distributions 8
Purchase of Shares 8
Redemption of Shares 9
Management 10
Federal Income Taxes 11
Massachusetts Income Taxes 12
The Fund and Its Shares 12
Custodian, Transfer Agent and Dividend Disbursing Agent 13
Independent Accountants 13
Legal Counsel 13
Appendix 13
Tax Certification Instructions 14
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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
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees (after expense limitation) 0.27%
12b-1 Fees None
Other Expenses 0.38%
Total Fund Operating Expenses (after expense limitation) 0.65%
<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: $6 $21 $36 $81
You would pay the following expenses on the same investment,
assuming no redemption: $6 $21 $36 $81
</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
expenses for the fiscal year ended December 31, 1994, during which time the
Adviser did not impose a portion of its fee.
The Adviser has voluntarily agreed to limit Total Fund Operating Expenses
of the Fund (excluding brokerage commissions, taxes, litigation,
indemnification, and other extraordinary expenses) to 0.65% of the Fund's
average daily net assets. This agreement is voluntary and temporary and may be
discontinued or revised by the Adviser at any time. In the absence of such
agreement, the Management Fees and the Total Fund Operating Expenses would have
been 0.40% and 0.78%, respectively, for the 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. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5%
ANNUAL RETURN, THE FUND'S ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN
ACTUAL RETURN OF 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.
For the period
November 2, 1992
Year Ended December 31, 1992* (start of business) to
Per Share Data (for a share outstanding throughout each period): 1994 1993 December 31, 1992*
---- ---- ------------------
<S> <C> <C> <C>
Net asset value at beginning of period $21.31 $20.32 $20.00
------- ------- ------
Income from investment operations:
Net investment income $0.94 $0.92 $0.13
Net realized and unrealized gain (loss) on investments (1.75) 1.13 0.32
------- ------- ------
Total from investment operations (0.81) $2.05 $0.45
------- ------- ------
Less distributions declared to shareholders:
From net investment income (0.94) ($0.92) ($0.13)
From realized gain (0.01) ($0.14) --
------- ------- ------
Total distributions declared to shareholders (0.95) ($1.06) ($0.13)
------- ------- ------
Net asset value at end of period $19.95 $21.31 $20.32
======= ======= ======
Total return (3.84)% 10.24% 13.85%t
Ratios (to average net assets)/Supplemental Data:
Expenses** 0.65% 0.65% 0.65%
Net investment income** 4.67% 4.35% 4.05%
Portfolio turnover* 84% 94% 31%
Net assets at end of period (000 omitted) $27,776 $29,627 $6,537
**The investment advisor did not impose a portion of its advisory fee. If this
voluntary reduction had not been undertaken, the net investment income per share
and the ratios would have been:
Net investment income per share: $0.91 $0.86 $0.11 #
Ratios (to average net assets):
Expenses 0.78% 0.95% 1.37 t,#
Net investment income 4.54% 4.05% 3.33 t,#
t Computed on an annualized basis.
* Audited by other auditers
# Unaudited
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 investment objective of the Fund is to provide a high level of interest
income exempt from Massachusetts and federal income taxes, while seeking
preservation of shareholders' capital, through investing the Fund's assets in
investment grade intermediate-term municipal securities. The Fund will seek to
achieve its objective by investing in a non-diversified portfolio of municipal
securities of issuers located in Massachusetts and other qualifying issuers
(including Puerto Rico, the U.S. Virgin Islands and Guam), the interest on which
is, in the opinion of bond counsel to the issuer, excluded from gross income for
federal income tax purposes and is exempt from Massachusetts personal income tax
( Massachusetts Municipal Securities"). Because of the uncertainty inherent in
all investments, no assurance can be given that the Fund will achieve its
investment objective. The investment objective of the Fund is a fundamental
policy which may not be changed without shareholder approval.
Although the Fund may invest in investment grade Massachusetts Municipal
Securities, it intends to emphasize high quality intermediate-term Massachusetts
Municipal Securities. The dollar-weighted average effective maturity of the
Fund's portfolio will be in a range of three to ten years. However, the Fund may
purchase individual securities with effective maturities which are outside of
this range. A mutual fund with an average maturity longer than the Fund will
tend to have a higher yield, but will exhibit greater share price volatility; a
fund with a shorter maturity will have a lower yield but will offer more price
stability. The Fund's emphasis on high quality securities is expected to limit
its share price volatility. Because the Fund holds investment grade municipal
securities, the income earned on shares of the Fund will tend to be less than it
might be on a portfolio emphasizing lower quality securities.
The Fund may invest, without percentage limitations, in municipal bonds
rated at the time of purchase within one of the four highest municipal ratings
by Moody's (Aaa, Aa, A, Baa), S&P (AAA, AA, A, BBB) or Fitch (AAA, AA, A, BBB)
or, if not rated, determined by the Adviser to be of comparable credit quality
to the securities so rated. The Fund may invest in municipal notes rated MIG-1
or MIG-2 by Moody's or at least SP-1 or SP-2 by S&P or in municipal notes that
are not rated, provided that, in the opinion of the Adviser, such notes are of
comparable credit quality. In the case of a security that is rated differently
by two or more rating services, the higher rating is used; provided, however,
all securities purchased must also meet the credit standards of the Adviser.
Securities rated Baa by Moody's or BBB by S&P or Fitch may have some speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to weakened capacity to make interest payments and repay
principal than is the case with higher grade securities. Prior to acquiring
unrated securities, the Adviser considers the terms of the offering and various
other factors in order to initially determine whether the securities are
consistent with the Fund's investment objective and policies and thereafter to
determine the issuer's comparative credit rating. In the event 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 a sale of
the security. A description of the ratings is contained in the Appendix to this
Prospectus.
4
<PAGE>
The Fund is a non-diversified investment company so that, as a fundamental
investment policy, with respect to 50% of the Fund's total assets, the Fund may
not invest more than 5% of the value of its total assets in securities of any
one issuer or acquire more than 25% of the voting securities of an issuer. This
limitation does not apply to investments issued or guaranteed by the U.S.
Government or its agencies or instrumentalities and does not apply to the other
50% of the Fund's total assets. In order to qualify as a Regulated Investment
Company" under the Internal Revenue Code, the Fund must, among other
requirements, not invest more than 25% of its assets in the securities of a
single issuer as of the close of each quarter of its taxable year. See Federal
and Massachusetts Income Taxes."
Although it is authorized to do so, the Fund does not expect to invest more
than 25% of its assets in any one of the following sectors of the municipal
securities market: hospitals, ports, airports, colleges and universities,
turnpikes and toll roads, housing bonds, lease rental bonds, industrial revenue
bonds or pollution control bonds. For the purposes of this limitation,
securities whose credit is enhanced by bond insurance, letters of credit or
other means are not considered to belong to a particular sector.
As a fundamental policy, at least 80% of the Fund's net assets will
normally be invested in Massachusetts Municipal Securities; during normal market
conditions, at least 65% of the Fund's net assets will be invested in municipal
bonds. There may be certain occasions, however, during which more than 20% of
the Fund's assets may be invested in other instruments. In unusual
circumstances, as a temporary defensive measure, the Fund may invest in taxable,
fixed income obligations and/or municipal securities other than Massachusetts
Municipal Securities, when the Adviser believes that market conditions, such as
rising interest rates or other adverse factors, would cause serious erosion of
portfolio value. In addition, the Fund may also invest up to 20% of its net
assets in taxable, fixed income obligations and/or municipal securities other
than Massachusetts Municipal Securities when there is a yield disparity between
these other instruments and Massachusetts Municipal Securities on an after tax
basis. These other investments will generally be of comparable credit quality
and maturity to the Massachusetts Municipal Securities in which the Fund invests
and will be limited primarily to obligations issued or guaranteed by the U.S.
Government, its agencies, instrumentalities or authorities; investment grade
corporate debt securities; municipal securities other than Massachusetts
Municipal Securities; prime commercial paper; certain certificates of deposit of
domestic banks; and repurchase agreements, secured by U.S. Government
securities, with maturities not in excess of seven days. To the extent that
income dividends include income from taxable sources, a portion of a
shareholder's dividend income will be subject to federal and/or Massachusetts
tax. See Federal and Massachusetts Income Taxes."
5
<PAGE>
Municipal securities include debt obligations issued to obtain funds for
various public purposes, including the construction of a variety of public
facilities such as bridges, highways, housing, hospitals, mass transportation,
schools, streets and water and sewer works. Other public purposes for which
municipal securities or bonds may be issued include the refunding of outstanding
obligations, obtaining funds for general operating expenses and the obtaining of
funds to loan to other public institutions and facilities. In addition, certain
types of industrial revenue bonds are, or have been under prior law, issued by
or on behalf of public authorities to obtain funds to provide privately operated
housing facilities, sports facilities, convention or trade show facilities,
airport, mass transit, port or parking facilities, air or water pollution
control facilities and certain local facilities for water supply, gas,
electricity, or sewage or solid waste disposal. Some of these bonds may be
private activity bonds," the interest on which is treated as a tax preference
item for purposes of the federal alternative minimum tax. Such bonds are
sometimes referred to as AMT Bonds" and are treated as taxable obligations for
the purposes of the Fund's policies. See Federal and Massachusetts Income
Taxes."
Municipal bonds are issued in order to meet long-term capital needs and
generally have maturities of more than one year when issued. The two principal
classifications of municipal bonds are general obligation" and revenue" bonds.
General obligation bonds are secured by the pledge of the municipality's faith,
credit and taxing power for the payment of principal and interest, and are
considered the safest type of municipal bond. Revenue bonds are payable only
from the revenues derived from a particular project or facility and are
generally dependent solely on a specific revenue source. Industrial revenue
bonds are a specific type of revenue bond backed by the credit and security of a
private user. Assessment bonds, which are issued by a specially created district
or project area which levies a tax (generally on its taxable property) to pay
for an improvement or project, may be considered to belong to either category.
There are, of course, other variations in the safety of municipal bonds, both
within a particular classification and between classifications, depending on
numerous factors. The Fund is not limited with respect to the categories of
municipal securities it may acquire.
Municipal securities also include municipal notes, which are generally
issued to satisfy short-term capital needs and have maturities of one year or
less. Municipal notes include tax anticipation notes, revenue anticipation
notes, bond anticipation notes and construction loan notes. The Fund may also
invest in variable rate demand instruments, which are securities with long
stated maturities, but demand features that allow the holder to demand 100% of
the principal plus interest within one to seven days. The coupon varies daily,
weekly or monthly with the market. The price remains at par, which provides
stability to the portfolio while earning market yields. For federal income tax
purposes, the income earned from municipal securities may be entirely tax free,
taxable or subject only to the federal alternative minimum tax.
6
<PAGE>
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 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.
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 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 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
7
<PAGE>
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
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
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.
When-Issued Securities and Delayed Delivery" Securities
The Fund may commit up to 40% 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 assets 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. The Fund may sell portfolio securities on a delayed
delivery basis. The market value of the securities when they are delivered may
be more than the amount to be received by the Fund.
8
<PAGE>
Repurchase Agreements
The Fund may invest up to 15% 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 Adviser. Investing in repurchase
agreements involves the risk of default by or the insolvency of the other party
to the repurchase agreement. Distributions by the Fund of any income from
repurchase agreements will be taxable to investors.
Stand-By Commitments and Other Puts
To facilitate liquidity, the Fund may enter into stand-by commitments"
permitting it to resell municipal securities to the original seller at a
specified price. Stand-by commitments generally involve no cost. Any such costs
may, however, reduce yields.
Third Party Puts
The Fund may also purchase long-term fixed rate bonds which have been
coupled with an option granted by a third party financial institution allowing
the Fund at specified intervals to tender or put its bonds to the institution
and receive the face value thereof. These third party puts are available in
several different forms, may be represented by custodial receipts or trust
certificates and may be combined with other features. The financial institution
granting the put option does not provide credit enhancement, and typically, if
there is a default on or significant downgrading of the bond, or a loss of its
tax-exempt status, the put option will terminate automatically and the risk to
the Fund will be that of holding a long-term bond. These third party puts will
not be considered to shorten the Fund's maturity.
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 25%
of the outstanding voting securities of any issuer (in determining the issuer of
a tax-exempt security, identification of the issuer will be based upon a
determination of the source of assets and revenues committed to meeting interest
and principal payments of each security); (ii) issue senior securities, borrow
money or pledge or mortgage its assets, except that the Fund may borrow from
banks as a temporary measure for extraordinary or emergency purposes (but not
investment purposes) in an amount up to 15% of the current value of its total
assets, and 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 borrowings exceed 5% of
the current value of its total assets; (iii) lend portfolio securities, except
that the Fund may enter into repurchase agreements which are terminable within
seven days; or (iv) invest more than an aggregate of 15% of the net assets of
the Fund in securities subject to legal or contractual restrictions on resale or
for which there are no readily available market quotations or in other illiquid
securities.
9
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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 designed for investors in the upper income tax brackets who are
seeking a higher level of Massachusetts and federally tax-free income than is
normally provided by tax-free money market or other short-term investments and
more price stability than investments in long-term municipal bonds. The Fund may
also be suitable for other investors, depending upon their investment goals and
financial and tax positions. A mutual fund with an average maturity longer than
the Fund will tend to have a higher yield, but will exhibit greater share price
volatility; a fund with a shorter maturity will have a lower yield but will
offer more price stability. The Fund's emphasis on high quality securities is
expected to limit its share price volatility.
The classification of the Fund under the Investment Company Act of 1940 as
a non-diversified" investment company allows it to invest more than 5% of its
assets in the securities of any issuer, subject to certain limitations under the
Code. Because of the relatively small number of issues of Massachusetts
obligations, the Fund is likely to invest a greater percentage of its assets in
the securities of a single issuer than is an investment company which invests in
a broad range of municipal obligations. Therefore, the Fund would be more
susceptible than a diversified fund to any single adverse economic or political
occurrence or development affecting Massachusetts issuers. The Fund will also be
subject to an increased risk of loss if the issuer is unable to make interest or
principal payments or if the market value of such securities declines. It is
also possible that there will not be sufficient availability of suitable
Massachusetts Municipal Securities for the Fund to achieve its objective of
providing income exempt from Massachusetts taxes.
The market value of the Fund's investments will change in response to
changes in interest rates and other factors. During periods of falling interest
rates, the values of long-term fixed-income securities generally rise.
Conversely, during periods of rising interest rates, the values of such
securities generally decline. Changes by recognized rating services in their
ratings of tax-exempt securities and in the ability of an issuer to make
payments of interest and repayments of principal will also affect the value of
these investments. Changes in the value of portfolio securities will not affect
cash income derived from those securities but will affect the Fund's net asset
value.
Certain Risk Considerations Relating to Massachusetts
The Fund is non-diversified and invests primarily in securities issued by
The Commonwealth of Massachusetts, its political subdivisions, including cities
and towns, and its public authorities. Therefore, the economic and financial
condition of the Commonwealth and its authorities and municipalities will have a
significant impact on the Fund's net asset value, yield and investment
performance. The availability of federal funds may affect the economic and
financial condition of the Commonwealth.
10
<PAGE>
In the late 1980s, The Commonwealth of Massachusetts began to suffer a
period of economic decline. Key sections of the economy, such as real estate,
construction, banking and financial services, high technology and defense
related industries either contracted or grew at very slow rates. Consequently,
personal income growth slowed and employment declined. By 1990, the
Commonwealth's unemployment rate significantly exceeded the national average. In
turn, these economic factors contributed to considerable financial problems for
the Commonwealth. Over the period 1987-1990, tax revenues failed to meet
budgeted forecasts and spending in several major expenditure categories grew at
relatively high rates. Sizeable operating deficits occurred in each of these
years, and the Commonwealth at times covered the deficits by borrowing funds in
the capital markets. During 1989-1990, Moody's and S&P downgraded their credit
ratings on Massachusetts' bonds from Aa and AA+ to Baa and BBB, respectively.
In fiscal year 1991, a combination of tax rate increases and tightened
expenditure controls helped to stabilize the Commonwealth's financial condition.
State government closed the year with a modest operating loss. Fiscal year 1992
financial reports showed a small surplus. In response to the improvement in
financial operations, Moody's and S&P upgraded the Commonwealth's general
obligation bonds to A and A, respectively. During the two most recent fiscal
years, 1993 and 1994, economic conditions have generally stabilized, although
some sectors remain weak. Financial operations also appear to have stabilized.
Currently, the rating assigned to the Commonwealth's general obligation bonds by
Moody's is A1 and the comparable rating assigned by S&P is A+. Fitch's current
rating for the Commonwealth's general obligation bonds is A+. However, the
Commonwealth's debt ratios are high relative to other states, and state
government has amassed a large unfunded pension liability. Over the course of
time, downturns in economic and financial conditions are likely to recur.
The financial position of the Commonwealth may have an impact on other
issuers of tax-exempt obligations who receive support from the Commonwealth
including municipalities and various public agencies. The Commonwealth may also
choose to implement regulations which could affect the financial condition of
issuers of tax-exempt securities. For example, changes to laws which regulate
rate setting procedures for health care providers in Massachusetts which were
enacted in 1992 may prove detrimental to some hospitals.
Proposition 2 1/2 is a property tax limitation initiative passed by
Massachusetts voters in 1980. In general, Proposition 2 1/2 constrains the
ability of cities and town to raise property tax revenues, virtually the only
local-source revenue available, and this may lead to adverse consequences on the
financial condition of some municipalities. Under Proposition 2 1/2, many cities
and towns were required to reduce their property tax levies to a stated
percentage of the full and fair cash value of their taxable real estate and
personal property. It limited the amount by which the total property taxes
assessed by all cities and towns may increase from year to year.
11
<PAGE>
Limitations on Commonwealth tax revenues have been established both by
legislation enacted in 1986 and by public approval of an initiative petition in
1986. The two measures are inconsistent in several respects, including the
methods of calculating the limits and the exclusions from the limits. The
initiative petition, which took effect on December 4, 1986, contains no
exclusion for debt service on municipal obligations of the Commonwealth.
Commonwealth tax revenues in fiscal years subsequent to passage of the
initiative were lower than the limit set by either the initiative petition or
the legislative enactment. The Executive Office for Administration and Finance
of the Commonwealth has estimated that Commonwealth tax revenues will not reach
the limit imposed by either the initiative petition or the legislative enactment
in fiscal year 1995.
Massachusetts Municipal Securities also include obligations of the
governments of Puerto Rico, the Virgin Islands and Guam to the extent that
interest on these obligations is exempt from Massachusetts state personal income
tax. The Fund will not invest more than 10% of its net assets in the obligations
of each of the Virgin Islands and Guam, but may invest without limitation in the
obligations of Puerto Rico. Accordingly, the Fund may be adversely affected by
local political and economic conditions and developments within Puerto Rico
affecting the issuers of such obligations. The economy of Puerto Rico is
dominated by the manufacturing and service sectors. Although the economy of
Puerto Rico expanded significantly from 1984 thorough 1989, the rate of this
expansion slowed in 1990 and remains weak. Although the Puerto Rico unemployment
rate has declined substantially since 1985, the seasonally adjusted rate of
unemployment for February 1995 was approximately 12.3%.
CALCULATION OF PERFORMANCE DATA
From time to time the Fund may advertise its yield, tax equivalent yield
and total return, all of which 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.
12
<PAGE>
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.
Tax equivalent yield demonstrates the yield from a taxable investment
necessary to produce an after-tax yield equivalent to that of a fund which
invests primarily in tax-exempt obligations. It is computed by dividing the
tax-exempt portion of the Fund's yield (calculated as indicated above) by one,
minus a stated income tax rate that reflects combined federal and Massachusetts
income tax rates (assuming full deductibility of Massachusetts income taxes on
the investor's Federal income tax return and adding the product to the taxable
portion (if any) of the Fund's yield.
<TABLE>
<CAPTION>
Taxable Equivalent Yield Table
Combined Federal Taxable Equivalent Rates on Tax-Exempt Yield of:
and MA Marginal -----------------------------------------------------------------
Tax Rate* 4% 5% 6% 7% 8% 9% 10%
--------- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
39.28% 6.59% 8.23% 9.88% 11.53% 13.18% 14.82% 16.47%
43.68% 7.10% 8.88% 10.65% 12.43% 14.20% 15.98% 17.76%
46.85% 7.53% 9.41% 11.29% 13.17% 15.05% 16.93% 18.81%
</TABLE>
DIVIDENDS AND DISTRIBUTIONS
Dividends on shares of the Fund from net investment income will be declared
daily 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 capital
gains distributions, 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 $100,000.
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.,
13
<PAGE>
New York City time) will be effected as of the close of 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.
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. Municipal
securities are valued by the Adviser or by an independent pricing service
approved by the Trustees, which uses information with respect to transactions in
bonds, quotations from bond dealers, market transactions in comparable
securities and various relationships between securities in determining value.
The Fund believes that reliable market quotations for municipal securities are
generally not readily available for purposes of valuing its portfolio
securities. As a result, it is likely that most of the valuations made by the
Adviser or provided by such pricing service will be based upon fair value
determined on the basis of the factors listed above. Taxable securities are
valued at the last sale prices, on the valuation day, on the exchange or
national securities market on which they are primarily traded; taxable
securities not listed on an exchange or national securities market, or
securities for which there were no reported transactions, 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. Money market
instruments with less than 60 days remaining to maturity when acquired by the
Fund are valued on an amortized cost basis unless the Trustees determine that
amortized cost does not represent fair value. If the Fund acquires a money
market instrument with more than 60 days remaining to its maturity, it is valued
at current market value until the sixtieth day prior to maturity and will then
be valued at amortized cost based upon its value on such date unless the
Trustees determine during such 60-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 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.
14
<PAGE>
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
Massachusetts Intermediate Tax Exempt Bond 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.
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.
15
<PAGE>
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.
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 which has a value of less
than $10,000 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 $10,000.
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.
16
<PAGE>
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 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 also provides investment advisory services to certain other funds of
the Trust, acting as sole investment adviser to Standish Fixed Income Fund,
Standish Small Capitalization Equity Fund, Standish Equity Fund, Standish
Intermediate Tax Exempt Bond Fund and Standish Securitized Fund, which had net
assets of $1.8 billion, $121 million, $94 million, $28 million and $54 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. The Adviser is the managing general partner of Standish
International Management Company, L.P. ( SIMCO"), 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 $89
million, $1.1 billion and $135 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 Maria D. Furman and Raymond J. Kubiak,
who have been primarily responsible for the day-to-day management of the Fund's
portfolio since its inception in November, 1992. During the past five years, Ms.
Furman has served as a Director and Vice President of the Adviser and Mr. Kubiak
has been a Vice President of the Adviser.
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 0.40% of average daily net assets.
In addition, the Adviser has voluntarily agreed for the Fund's fiscal year ended
December 31, 1995 to limit the Fund's aggregate annual operating expenses
(excluding brokerage commissions, taxes and extraordinary expenses) to the lower
of (a) 0.65% 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, the Adviser did not impose $39,874 of
its fee of $118,562.
17
<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 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 SIMCO in an
equitable manner, primarily on the basis of relative net asset values. For the
year ended December 31, 1994, expenses borne by the Fund amounted to $192,664
which represented 0.65% of average net assets after an expense reduction of
$39,874.
Portfolio Transactions
It is not anticipated that the Fund will incur a significant amount of
brokerage expenses because municipal securities are generally traded on a net"
basis in principal transactions without the addition or deduction of brokerage
commissions or transfer taxes. 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 treated by 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.
18
<PAGE>
The Fund intends to satisfy applicable requirements of the Code so that its
distributions to shareholders of the tax-exempt interest it earns will qualify
as exempt-interest dividends," which shareholders are entitled to treat as
tax-exempt interest. Any portion of an exempt-interest dividend that is
attributable to the interest the Fund receives on certain tax-exempt obligations
that are private activity bonds" and, for corporate shareholders, the entire
exempt-interest dividend, may increase a shareholder's liability, if any, for
alternative minimum tax.
Shareholders receiving social security benefits and certain railroad
retirement benefits may be subject to Federal income tax on a portion of such
benefits as a result of receiving investment income, including tax-exempt income
(such as exempt-interest dividends) and other dividends paid by the Fund. Shares
of the Fund may not be an appropriate investment for persons who are substantial
users" of facilities financed by industrial development or private activity
bonds, or persons related to substantial users." Consult your tax advisor if you
think this may apply to you.
Shareholders which are taxable entities or persons will be subject to
federal income tax on capital gain distributions from the Fund and on any other
dividends they receive from the Fund that are not exempt-interest dividends.
Dividends paid by the Fund from any taxable net investment income, such as
interest income from taxable debt obligations, accrued market discount
recognized by the Fund, or repurchase agreements, 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.
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. None of the Fund's exempt-interest
dividends, taxable income dividends or capital gain distributions will qualify
for the corporate dividends received deduction. Except as described below under
Massachusetts Income Taxes," dividends and capital gain distributions may also
be subject to state and local or foreign taxes.
Redemptions and repurchases of shares are taxable events on which a
shareholder may recognize a gain or loss. Special rules disallow 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 exempt-interest dividends with
respect to such shares, and recharacterize as long-term any such losses that are
not disallowed to the extent of any capital gain distributions received with
respect to such shares.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on taxable 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 taxable 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.
19
<PAGE>
MASSACHUSETTS INCOME TAXES
To the extent that the Fund's exempt-interest dividends are derived from
interest on tax-exempt obligations of the Commonwealth of Massachusetts and its
political subdivisions or Puerto Rico, the U.S. Virgin Islands or Guam and are
properly designated as such, these distributions will also be exempt from
Massachusetts personal income tax. For Massachusetts personal income tax
purposes, dividends from the Fund's taxable net investment income (if any),
federally tax-exempt income from obligations not described in the preceding
sentence, and net short-term capital gains, if any, will generally be taxable as
ordinary income, whether received in cash or additional shares. However, any
dividends that are properly designated as attributable to interest the Fund
receives on direct U.S. Government obligations will not be subject to
Massachusetts personal income tax. Capital gain distributions are generally
taxable as long-term capital gains, regardless of how long shareholders have
held their Fund shares. However, a portion of such a capital gain distribution
will be exempt from Massachusetts personal income tax if it is properly
designated as attributable to gains realized on the sale of certain tax-exempt
bonds issued pursuant to Massachusetts statutes that specifically exempt such
gains from Massachusetts taxation. These bonds are relatively few in number.
Dividends from net investment income (including exempt-interest dividends) and
from net long-term and short-term capital gains will be subject to, and shares
of the Fund will be included in the net worth of intangible property
corporations for purposes of, the Massachusetts corporation excise tax if
received by a corporation subject to such tax.
After the close of each calendar year, the Fund will send a notice to
shareholders that provides information about the federal and Massachusetts 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 by
the Trust. Shareholders of the Fund do not have preemptive or conversion rights.
Certificates representing shares of the Fund will not be issued.
20
<PAGE>
At March 31, 1995, more than 25% of the then outstanding shares of the Fund
were held by BDG & Co., c/o Bingham, Dana & Gould Trust Department, 150 Federal
Street, Boston, MA, which was deemed to control the Fund.
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 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.
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.
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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.
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 MUNICIPAL 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.
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.
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MOODY'S MUNICIPAL NOTE RATINGS
MIG-1 -Notes which are rated MIG-1 are of the best quality, enjoying strong
protection from established cash flows of funds for their servicing or
by established and broad based access to the market for refinancing, or
both.
MIG-2 -Bonds which are rated MIG-2 are of high quality, with margins of
protection ample, although not as large as in the MIG-1 group.
S & P'S MUNICIPAL 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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S & P'S MUNICIPAL NOTE RATINGS
SP-1 -Notes rated SP-1 indicate a very strong capacity to pay principal and
interest. A plus" is added for those issues determined to possess
overwhelming safety characteristics.
SP-2 -Notes rated SP-2 indicate a satisfactory capacity to pay principal and
interest.
FITCH'S MUNICIPAL BOND RATINGS
AAA -Bonds rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability
to pay interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA -Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds rated
AAA."
A -Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes
in economic conditions and circumstances than bonds with higher ratings.
BBB -Bonds rated BBB are considered to be investment grade and satisfactory
credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have adverse
effects on these bonds and, therefore, impair timely payment. The
likelihood that the ratings of these bonds will fall below investment
grade is higher than for bonds with higher ratings.
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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
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.
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