As filed with the Securities and Exchange Commission on December 31, 1995.
Registration Nos. 33-8214
811-4813
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 69 /X/
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 72 /X/
(Check appropriate box or boxes.)
---------------
Standish, Ayer & Wood Investment Trust
(Exact Name of Registrant as Specified in Charter)
One Financial Center, Boston, Massachusetts 02111
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (617) 375-1760
ERNEST V. KLEIN, Esq.
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
/X/ Immediately upon filing pursuant to Rule 485(b)
/ / On (date) pursuant to Rule 485(b)
/ / 60 days after filing pursuant to Rule 485(a)(1)
/ / 0n (date) pursuant to Rule 485(a)(1)
/ / 75 days after filing pursuant to Rule 485(a)(2)
/ / 0n (date) pursuant to Rule 485(a)(2)
The Registrant has registered an indefinite number of shares under the
Securities Act of 1933, as amended, pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended. The Rule 24f-2 Notice for the fiscal year ended
December 31, 1994 was filed on or about February 21, 1995.
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST*
Standish Controlled Maturity Fund
Standish Fixed Income Fund II
Cross-Reference Sheet Pursuant to Rule 495(a)
Part A Prospectus
Form Item Cross-Reference
Item 1. Cover Page Cover Page
Item 2. Synopsis "Expense Information"
Item 3. Condensed Financial Financial Highlights
Information
Item 4. General Description Cover Page, "The Fund
of Registrant and Its Shares" and "Investment
Objective and Policies"
Item 5. Management of the Fund "Management" and "Custodian,
Transfer Agent and Dividend
Disbursing Agent"
Item 6. Capital Stock and "The Fund and Its Shares",
Other Securities "Purchase of Shares",
"Redemption of Shares",
"Dividends and Distributions"
and "Federal Income Taxes"
Item 7. Purchase of Securities Cover Page and "Purchase of
Being Offered Shares"
Item 8. Redemption or "Redemption of Shares"
Repurchase
Item 9. Pending Legal Not Applicable
Proceedings
- -------------
* This Post-Effective Amendment to the Registrant's Registration Statement
relates solely to the shares of Standish Controlled Maturity Fund and Standish
Fixed Income Fund II, series of the Registrant. The Prospectuses and Statements
of Additional Information for the other series of the Registrant are not
affected hereby and, therefore, are not included herewith.
<PAGE>
Statement of Additional
Part B Information Cross-
Form Item Reference
Item 10. Cover Page Cover Page
Item 11. Table of Contents "Contents"
Item 12. General Information
and History Not Applicable
Item 13. Investment Objectives "Investment Objective
and Policies and Policies" and "Investment
Restrictions"
Item 14. Management of the Fund "Management"
Item 15. Control Persons and "Management"
Principal Holders
of Securities
Item 16. Investment Advisory and "Management"
Other Services
Item 17. Brokerage Allocation "Portfolio Transactions"
Item 18. Capital Stock and "The Fund and Its Shares"
Other Securities
Item 19. Purchase, Redemption "Redemption of Shares" and
and Pricing of "Determination of Net Asset
Securities Being Value"
Offered
Item 20. Tax Status "Taxation"
Item 21. Underwriters Not Applicable
Item 22. Calculation of "Calculation of Performance
Performance Data Data"
Item 23. Financial Statements Financial Statements
<PAGE>
Prospectus dated June 1, 1995
As revised December 31, 1995
PROSPECTUS
STANDISH FIXED INCOME FUND II
One Financial Center
Boston, Massachusetts 02111
(800) 221-4795
Standish Fixed Income Fund II (the "Fund") is one fund in the Standish,
Ayer & Wood family of funds. The Fund is organized as a separate diversified
investment series of Standish, Ayer & Wood Investment Trust (the "Trust"), an
open-end management investment company. The Fund is designed 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, consistent
with preserving principal and liquidity. As a component of this objective, the
Fund will seek a relatively high level of current income. The Fund will seek to
achieve its investment objective primarily through investing in an actively
managed portfolio of investment grade fixed-income securities. Under normal
market conditions, the Fund will maintain an average dollar-weighted effective
portfolio maturity from five to thirteen years. Standish, Ayer & Wood, Inc.,
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 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 8
Calculation of Performance Data 8
Dividends and Distributions 9
Purchase of Shares 9
Exchange of Shares 10
Redemption of Shares 10
Management 11
Federal Income Taxes 12
The Fund and Its Shares 13
Custodian, Transfer Agent and Dividend-Disbursing Agent 13
Independent Accountants 13
Legal Counsel 13
Tax Certification Instructions 14
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 (after expense limitation) 0.13%*
12b-1 Fees None
Other Expenses 0.27%
Total Fund Operating Expenses (after expense limitation) 0.40%*
<TABLE>
<CAPTION>
<S> <C> <C>
Example: 1 year 3 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: $4 $13
You would pay the following expenses on the same investment,
assuming no redemption: $4 $13
</TABLE>
The purpose of the above table is to assist investors 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 figures 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, and in the
hypothetical example are based on estimates of the Fund's expenses for its first
fiscal year ending December 31, 1995.
* The Adviser has voluntarily agreed to limit Total Fund Operating Expenses
of the Fund (excluding litigation, indemnification and other extraordinary
expenses) to 0.40% of the Fund's average daily net assets for the Fund's fiscal
year ending December 31, 1995. In the absence of such agreement, Management Fees
and Total Fund Operating Expenses are estimated to be approximately 0.40% and
0.67%, respectively, of the Fund's average daily net assets. Although this
agreement is voluntary and temporary and may be discontinued or revised by the
Adviser at any time after December 31, 1995, the Adviser has further voluntarily
agreed to limit Total Fund Operating Expenses of the Fund (excluding litigation,
indemnification and other extraordinary expenses) to 0.50% of the Fund's average
daily net assets for an indefinite period of time after December 31, 1995.
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 GREATER OR LESS THAN 5%.
2
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
The financial highlights for the period ended October 31, 1995 are
unaudited and are included in the Fund's financial statements incorporated into
the Statement of Additional Information.
For the Period
July 3, 1995
(start of business)
to October 31, 1995
(Unaudited)
---------------------
<S> <C>
Per share data (for a share outstanding throughout each period)
Net asset value - beginning of period $20.00
---------------------
Income from investment operations
Net investment income $0.29
Net realized and unrealized gain (loss) 0.26
---------------------
Total from investment operations 0.55
---------------------
Less distributions declared to shareholders
From net investment income (0.10)
---------------------
Total distributions declared to shareholders (0.10)
---------------------
Net asset value - end of period $20.45
=====================
Total return 2.76%
Ratios (to average net assets)/Supplemental Data
Expenses * 0.40% t
Net investment income * 6.73% t
Portfolio turnover 182% y
Net assets at end of period (000 omitted) $27,844
* The investment adviser did not impose a portion of its advisory fee. If this
reduction had not been undertaken, the net investment income per share and
the ratios would have been:
Net investment income per share $0.24 Ratios (to average net assets):
Expenses 1.42% t
Net investment income 5.37% t
t Computed on an annualized basis.
y The turnover ratio for the period is not annualized.
</TABLE>
3
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to maximize total return, consistent
with preserving principal and liquidity. As a component of this objective, the
Fund will seek a relatively high level of current income. The Fund will seek to
achieve its investment objective primarily through investing in a diversified
portfolio of investment grade fixed-income securities. Under normal market
conditions, the Fund will maintain an average dollar-weighted effective
portfolio maturity from five to thirteen years. Because of the uncertainty
inherent in all investments, no assurance can be given that the Fund will
achieve its investment objective. The Fund's investment policies are described
further in the Statement of Additional Information.
The Fund may invest in a broad range of fixed-income securities, including
bonds, notes, mortgage-backed and asset-backed securities, preferred stock and
convertible debt securities issued by U.S. corporations or other entities or by
the U.S. Government or its agencies, authorities, instrumentalities or sponsored
enterprises. Under normal market conditions, at least 65% of the Fund's total
assets will be invested in such securities. The Fund may purchase securities
that pay interest on a fixed, variable, floating (including inverse floating),
contingent, in-kind or deferred basis.
Although the Fund is intended primarily for tax-exempt institutional
investors and will be managed without regard to potential tax considerations,
the Fund may invest up to 5% of its net assets in tax-exempt securities, such as
state and municipal bonds, if the Adviser believes they will provide competitive
returns. The Fund's distributions of the interest it earns from such securities
will not be tax-exempt. The Fund may adopt a temporary defensive position during
adverse market conditions by investing without limit in high quality money
market instruments, including short-term U.S. Government securities, negotiable
certificates of deposit, non-negotiable fixed time deposits, bankers'
acceptances, floating-rate notes and repurchase agreements.
The Fund will invest exclusively 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") or Fitch Investors Service, Inc.
("Fitch") (AAA, AA, A or BBB) or their respective equivalent ratings or, if not
rated, determined 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 or Fitch 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. 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 and Standard & Poor's, Duff or
Fitch ratings, respectively, or comparable credit quality as determined by the
Adviser. In the case of a security that is rated differently by two or more
rating services, the higher rating is used in computing the Fund's average
dollar-weighted credit quality. The Fund intends to emphasize investments in
fixed-income securities that have the potential to be upgraded by a rating
service. In the event, however, that the rating on a security held in the Fund's
portfolio is downgraded below investment grade 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.
4
<PAGE>
In order to achieve its investment objective, the Fund will seek to add
value by selecting undervalued investments, thus taking advantage of lower
prices and higher yields, rather than by varying the average maturity of its
portfolio to reflect interest rate forecasts. Under normal market conditions,
the average dollar-weighted effective maturity of the Fund's portfolio will be
in a range from five to thirteen years. There is no limit on the maturity of any
individual security purchased by the Fund.
Corporate Debt Obligations
The Fund may invest in corporate debt obligations, including obligations of
industrial, utility and financial issuers. In addition to obligations of
corporations, corporate debt obligations include bank obligations and zero
coupon securities, issued by financial institutions and corporations. The Fund's
investments in corporate debt securities will be rated, at the date of
investment, investment grade. Corporate debt obligations are subject to the risk
of an issuer's inability to meet principal and interest payments on the
obligations and may also be subject to price volatility due to such factors as
market interest rates, market perception of the creditworthiness of the issuer
and general market liquidity. See "Risk Factors and Suitability" for a further
discussion of the risks associated with investments in corporate debt
securities.
U.S. Government Securities
The Fund may invest in all types of U.S. Government securities, including
obligations issued or guaranteed by the U.S. Government or its agencies,
authorities, instrumentalities or sponsored enterprises. Some U.S. Government
securities, such as Treasury bills, notes and bonds, which differ only in their
interest rates, maturities and times of issuance, are supported by the full
faith and credit of the United States of America. Others, such as obligations
issued or guaranteed by U.S. Government agencies, authorities, instrumentalities
or sponsored enterprises are supported either by (a) the full faith and credit
of the U.S. Government (such as securities of the Small Business
Administration), (b) the right of the issuer to borrow from the U.S. Treasury
(such as securities of the Federal Home Loan Banks), (c) the discretionary
authority of the U.S. Government to purchase the agency's obligations (such as
securities of the Federal National Mortgage Association), or (d) only the credit
of the issuer.
The Fund may also invest in separately traded principal and interest
components of securities guaranteed or issued by the U.S. Government or its
agencies, instrumentalities or sponsored enterprises if such components are
traded independently under the Separate Trading of Registered Interest and
Principal of Securities program ("STRIPS") or any similar program sponsored by
the U.S. Government. The Fund may invest in U.S. Government securities which are
zero coupon or deferred interest securities.
5
<PAGE>
Asset-Backed Securities
The Fund may invest in asset-backed securities, which represent
participations in, or are secured by and payable from, assets such as motor
vehicle installment sale contracts, installment loan contracts, leases of
various types of real and personal property, receivables from revolving credit
(credit card) agreements and other categories of receivables. Asset-backed
securities may also be collateralized by a portfolio of U.S. Government
securities, but are not direct obligations of the U.S. Government, its agencies
or instrumentalities. Payments or distributions of principal and interest on
asset-backed securities may be guaranteed up to certain amounts and for a
certain time period by a letter of credit or a pool insurance policy issued by a
financial institution, or other credit enhancements may be present; however,
privately issued obligations collateralized by a portfolio of privately issued
asset-backed securities do not involve any government-related guaranty or
insurance.
Asset-backed securities can be structured in several ways, the most common
of which has been a "pass-through" model. A certificate representing a
fractional undivided beneficial interest in a trust or corporation created
solely for the purpose of holding the trust's assets is issued to the
asset-backed security holder. The certificate entitles the holder thereof the
right to receive a percentage of the interest and principal payments on the
terms and according to the schedule established by the trust instrument. A
servicing agent collects amounts due on the underlying assets for the account of
the trust, which distributes such amounts to the security holders.
As an alternative structure, the issuer of asset-backed securities
effectively transforms an asset-backed pool into obligations consisting of
several different maturities. Instead of holding an undivided interest in trust
assets, the purchaser of the asset-backed security holds a bond collateralized
by the underlying assets. The bonds are serviced by cash flows from the
underlying assets, a specified fraction of all cash received (less a fixed
servicing fee) being allocated first to pay interest and then to retire
principal.
Asset-backed securities present certain risks similar to (as discussed
below) and in addition to those presented by mortgage-backed securities.
Asset-backed securities generally do not have the benefit of a security interest
in collateral that is comparable to mortgage assets and there is the possibility
that, in some cases, recoveries on repossessed collateral may not be available
to support payments on these securities. Asset-backed securities, however, are
not generally subject to the risks associated with pre-payments of principal on
the underlying loans.
6
<PAGE>
Mortgage-Backed Securities
The Fund may invest in mortgage-backed securities. Mortgage-backed
securities represent direct or indirect participations in or obligations
collateralized by and payable from mortgage loans secured by real property. Each
mortgage pool underlying mortgage-backed securities will consist of mortgage
loans evidenced by promissory notes secured by first mortgages or first deeds of
trust or other similar security instruments creating a first lien on real
property. An investment in mortgage-backed securities involves certain risks.
Mortgage-backed securities are often subject to more rapid repayment than their
stated maturity dates would indicate as a result of the pass-through or
prepayments of principal on the underlying loans which may increase the
volatility of such investments relative to similarly rated debt securities.
During periods of declining interest rates, prepayment of loans underlying
mortgage-backed securities can be expected to accelerate and thus impair the
Fund's ability to reinvest the returns of principal at comparable yields. During
periods of rising interest rates, reduced prepayment rates may extend the
average life of mortgage-backed securities and increase the Fund's exposure to
rising interest rates. Accordingly, the market values of such securities will
vary with changes in market interest rates generally and in yield differentials
among various kinds of U.S. Government securities and other mortgage-backed
securities.
Mortgage Pass-Through Securities
The Fund may invest in mortgage pass-through securities, which are fixed or
adjustable rate mortgage-backed securities that provide for monthly payments
that are a "pass-through" of the monthly interest and principal payments
(including any prepayments) made by the individual borrowers on the pooled
mortgage loans, net of any fees or other amounts paid to any guarantor,
administrator and/or servicer of the underlying mortgage loans.
Multiple Class Mortgage-Backed Securities and Collateralized
Mortgage Obligations
The Fund may invest in collateralized mortgage obligations ("CMOs"), which
are multiple class mortgage-backed securities. CMOs provide an investor with a
specified interest in the cash flow from a pool of underlying mortgages or of
other mortgage-backed securities. CMOs are issued in multiple classes, each with
a specified fixed or adjustable interest rate and a final distribution date. In
most cases, payments of principal are applied to the CMO classes in the order of
their respective stated maturities, so that no principal payments will be made
on a CMO class until all other classes having an earlier stated maturity date
are paid in full. Sometimes, however, CMO classes are "parallel pay" (i.e.,
payments of principal are made to two or more classes concurrently).
Eurodollar and Yankee Dollar Investments
The Fund may invest in Eurodollar and Yankee Dollar instruments. Eurodollar
instruments are bonds that pay interest and principal in U.S. dollars held in
banks outside the United States, primarily in Europe. Eurodollar instruments are
usually issued on behalf of multinational companies and foreign governments by
large underwriting groups composed of banks and issuing houses from many
countries. Yankee dollar instruments are U.S. dollar denominated bonds typically
issued in the U.S. by, among others, foreign governments and their agencies and
foreign banks and corporations. These investments involve risks that are
different from investments in securities issued by U.S. issuers, including
potential unfavorable political and economic developments, different tax
provisions, seizure of foreign deposits, currency controls, interest limitations
or other governmental restrictions which might affect payment of principal or
interest.
7
<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, 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 (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 or interest 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 1% of the Fund's net assets at any one time and, to the extent
necessary, the Fund will close out transactions in order to comply with this
limitation. (Transactions such as writing covered call options are considered to
involve hedging for the purposes of this limitation.) In calculating the Fund's
net loss exposure from such Strategic Transactions, an unrealized gain from a
particular Strategic Transaction position would be netted against an unrealized
loss from a related Strategic Transaction position. For example, if the Adviser
believes that short-term interest rates as indicated in the forward yield curve
are too high, the Fund may take a short position in a near-term Eurodollar
futures contract and a long position in a longer-dated Eurodollar futures
contract. Under such circumstances, any unrealized loss in the near-term
Eurodollar futures position would be netted against any unrealized gain in the
longer-dated Eurodollar futures position (and vice versa) for purposes of
calculating the Fund's net loss exposure. The ability of the Fund to utilize
these Strategic Transactions successfully will depend on the Adviser's ability
to predict pertinent market and interest rate 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.
8
<PAGE>
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 or interest rate movements is incorrect,
the risk that the use of such Strategic Transactions could result in losses
greater than if they had not been used. The writing of put and call options may
result in losses to the Fund, force the purchase or sale, respectively, of
portfolio securities at inopportune times or for prices higher than (in the case
of purchases due to the exercise of put options) or lower than (in the case of
sales due to the exercise of call options) current market values, limit the
amount of appreciation the Fund can realize on its investments or cause the Fund
to hold a security it might otherwise sell. The use of options and futures
transactions entails certain other risks. In particular, the variable degree of
correlation between price movements of futures contracts and price movements in
the related portfolio position of the Fund creates the possibility that losses
on the hedging instrument may be greater than gains in the value of the Fund's
position. The writing of options could significantly increase the Fund's
portfolio turnover rate and, therefore, associated brokerage commissions or
spreads. In addition, futures and options markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets. As a
result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the use of
futures and options transactions for hedging should tend to minimize the risk of
loss due to a decline in the value of the hedged position, at the same time, in
certain circumstances, they tend to limit any potential gain which might result
from an increase in value of such position. The loss incurred by the Fund in
writing options on futures and entering into futures transactions is potentially
unlimited; however, as described above, the Fund will limit its net loss
exposure resulting from Strategic Transactions entered into for non-hedging
purposes to 1% of its net assets at any one time. Futures markets are highly
volatile and the use of futures may increase the volatility of the Fund's net
asset value. Finally, entering into futures contracts would create a greater
ongoing potential financial risk than would purchases of options where the
exposure is limited to the cost of the initial premium. Losses resulting from
the use of Strategic Transactions would reduce net asset value and the net
result may be less favorable than if the Strategic Transactions had not been
utilized. See the Statement of Additional Information for further information
regarding the Fund's use of Strategic Transactions.
When-Issued Securities and "Delayed Delivery" Securities
The Fund may commit up to 15% of its net assets to purchase securities on a
"when-issued" or "delayed delivery" basis. Although the Fund would generally
purchase securities on a when-issued or delayed delivery basis with the
intention of actually acquiring the securities, the Fund may dispose of a
when-issued or delayed delivery security prior to settlement if the Adviser
deems it appropriate to do so. The payment obligation and the interest rate on
9
<PAGE>
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 and maintained with the custodian for the Fund to
secure the Fund's obligation and in order to partially offset the leverage
inherent in these securities. The market value of the securities when they are
delivered may be less than the amount paid by the Fund.
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.
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
which is intended to exceed the yield on the securities sold. Forward roll
transactions involve the risk that the market value of the securities sold by
the Fund may decline below the repurchase price of those securities. At the time
the Fund enters into a forward roll transaction, it will place in a segregated
custodial account cash or liquid, high grade debt securities 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.
10
<PAGE>
Illiquid and Restricted Securities
The Fund may not invest more than 15% of its total assets in securities
that are subject to restrictions on resale ("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. In addition, the Fund
will not invest more than 15% of its net assets in illiquid investments, which
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 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
It is expected that the portfolio turnover rate of the Fund will not exceed
200% in the coming year. A rate of turnover of 100% would occur 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 (100% or
more) involves a correspondingly greater amount of brokerage commissions and
other 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.
Investment Restrictions
The foregoing investment policies, including the Fund's investment
objective, are non-fundamental policies which may be changed by the Trust's
Board of Trustees without the approval of shareholders. If there is a change in
the Fund's investment objective, shareholders should consider whether the Fund
remains an appropriate investment in light of their then current financial
positions and needs. The Fund has adopted certain fundamental policies which may
not be changed without the approval of the Fund's shareholders. See "Investment
Restrictions" in the Statement of Additional Information.
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.
11
<PAGE>
RISK FACTORS AND SUITABILITY
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, secondarily, seek a relatively high level of current
income, consistent with preserving principal and liquidity and whose
beneficiaries are in a position to benefit from the tax-deferred reinvestment of
the quarterly income dividends and any capital gains distributions paid by the
Fund. The Fund may also be suitable for other investors, depending upon their
investment goals and financial and tax positions. Although the price of the
Fund's shares may fluctuate more than short-term money market instruments, the
Fund will seek to keep such volatility below that of longer-term debt securities
by limiting its average portfolio maturity. The Fund is newly organized and has
no operating history. Because of the uncertainty inherent in all investments, no
assurance can be given that the Fund will achieve its investment objective.
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 in which the Fund invests,
and therefore the Fund's net asset value, usually vary depending upon available
yields, rising when interest rates decline and declining when interest rates
rise.
Because the Fund's investments are interest rate sensitive, the Fund's
performance will depend in large part upon the ability of the Fund to respond to
fluctuations in market prices and interest rates and to utilize appropriate
strategies to maximize returns to the Fund, while attempting to minimize the
risks associated with its invested capital. Operating results will also depend
upon the availability of opportunities for the investment of the Fund's assets,
including purchases and sales of suitable securities. The Fund's use of
Strategic Transactions (including options, futures, options on futures and
swaps) involves certain risks, including a possible lack of correlation between
changes in the value of hedging instruments and the portfolio assets being
hedged, the potential illiquidity of the markets for derivative instruments, the
risks arising from the margin requirements and related leverage factors
associated with such transactions. The use of these management techniques to
increase total return involves the risk of loss if the Adviser is incorrect in
its expectation of fluctuations in securities prices or interest rates. See
"Strategic Transactions."
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<PAGE>
CALCULATION OF PERFORMANCE DATA
From time to time the Fund may advertise its total return and yield. Both
total return and yield figures are based on historical earnings and are not
intended to indicate future performance. The "total return" of the Fund refers
to the average annual compounded rates of return over 1, 5 and 10 year periods
that would equate an initial amount invested at the beginning of a stated period
to the ending redeemable value of the investment. The calculation assumes the
reinvestment of all dividends and distributions, includes all recurring fees
that are charged to all shareholder accounts and deducts all nonrecurring
charges at the end of each period. As long as the Fund has been operating less
than 1, 5 or 10 years, the time period during which the Fund has been operating
will be substituted accordingly.
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 (net asset value) 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.
The Fund may from time to time advertise one or more additional
measurements of performance, including but not limited to historical total
returns, distribution returns, non-standardized yield, results of actual or
hypothetical investments, changes in dividends, distributions or share values,
or any graphic illustration of such data. This data may cover any period of the
Fund's operations and may or may not include the impact of taxes or other
factors.
The following table sets forth the historical total return performance of
all fee paying, domestic investment grade bond portfolios under discretionary
management by the Adviser that have substantially similar investment objectives,
policies and strategies as the Fund (the "Investment Grade Bond Accounts") as
measured by the Standish, Ayer & Wood Active Domestic Bond Investment Grade
Composite (the "Composite"). As of December 31, 1994, the Composite consisted of
five Investment Grade Bond Accounts with approximately $1,044.5 million in
assets. The performance data of the Investment Grade Bond Accounts, as
represented by the Composite, has been computed in accordance with the SEC's
standardized formula. Because the gross performance data does not reflect the
deduction of investment advisory fees paid by the Investment Grade Bond
Accounts, the net performance data may be more relevant to potential investors
in the Fund in their analysis of the historical experience of the Adviser in
managing fixed-income portfolios with investment objectives, policies and
strategies substantially similar to those of the Fund.
13
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Active Domestic Bond Investment Grade Composite Performance
Average Annual Total
Return For The Periods
Ended December 31, 1994 5 Year Cumulative
3 Years 5 Years Total Return
------- ------- ------------
The Composite
<S> <C> <C> <C>
Equal Weighted Gross 5.25% 8.64% 151.36%
Equal Weighted Net 5.04% 8.48% 150.20%
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
The Composite
<S> <C> <C> <C> <C> <C>
Equal weighted gross total return 9.95% 18.09% 6.68% 14.02% (4.16)%
Equal weighted net total return 9.90% 17.94% 6.48% 13.79% (4.36)%
Size weighted gross total return 9.83% 18.12% 6.69% 13.45% (4.07)%
Size weighted net total return 9.78% 17.97% 6.49% 13.20% (4.26)%
</TABLE>
The performance of the Investment Grade Bond Accounts is not that of the
Fund and is not necessarily indicative of the Fund's future results. The Fund's
actual total return may vary significantly from the past and future performance
of these Accounts. While the Investment Grade Bond Accounts incur inflows and
outflows of cash from clients, there can be no assurance that the continuous
offering of the Fund's shares and the Fund's obligation to redeem its shares
will not impact the Fund's performance. In the opinion of the Adviser, so long
as the Fund has at least $20 million in net assets, the relative difference in
the size between the Fund and the Investment Grade Bond Accounts should not
affect the relevance of the performance of the Investment Grade Bond Accounts to
a potential investor in the Fund. Investment returns and the net asset value of
shares of Fund will fluctuate in response to market and economic conditions as
well as other factors and an investment in the Fund involves the risk of loss.
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 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 and payment for the
shares 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.
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<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 on the exchange
(currently 4:00 p.m., New York City time). The net asset value per share is
calculated by determining the value of all the Fund's assets, subtracting all
liabilities and dividing the result by the total number of shares outstanding.
Portfolio securities are valued at the last sale prices, on the valuation day,
on the exchange or national securities market on which they are primarily
traded. Securities not listed on an exchange or national securities market, or
securities for which there were no reported transactions, 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, which may
include the use of matrix pricing. Money market instruments with less than sixty
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 sixty
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 the value on such date unless the Trustees determine during such sixty-day
period that amortized cost does not represent fair value.
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 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. 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.
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
taxable gain or loss with respect to the securities transferred to the Fund.
15
<PAGE>
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.
EXCHANGE OF SHARES
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 the 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 Transactions" below for more information
regarding telephonic transactions.
16
<PAGE>
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.
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 Fixed
Income Fund II, 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. Signatures
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 and 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 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 privileges portion of the Fund's
account application may redeem shares by calling (800) 221-4795. The telephone
redemption 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. Redemption proceeds will normally be paid promptly after receipt of
telephonic instructions, but no later than three days thereafter, except as
described above for shares purchased by check. Wire charges, if any, will be
deducted from redemption proceeds. 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.
Proper identification will be required for each telephone redemption. Please see
"Telephone Transactions" below for more information regarding telephonic
transactions.
17
<PAGE>
Telephone Transactions
By maintaining a telephonic exchange and redemption privileges, the
shareholder authorizes the Adviser, the Trust and the Fund's custodian to act
upon instructions of any person to redeem and/or exchange shares from the
shareholder's account. Further, 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, 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 or
exchange, 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. All telephone transaction requests will be recorded.
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 promptly to the Fund prior to the close of the Fund's
business day (normally 4:00 p.m.). (The Fund currently determines its net asset
value as of 4:00 p.m. New York City time on each business day.) 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 $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.
18
<PAGE>
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, 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 Small Capitalization Equity Fund, Standish Equity
Fund, Standish Fixed Income Fund, Standish Intermediate Tax Exempt Bond Fund,
Standish Massachusetts Intermediate Tax Exempt Bond Fund and Standish
Securitized Fund, which had net assets of $121 million, $94 million, $1.8
billion, $28 million, $31 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 also provides investment advisory services to Standish Controlled
Maturity Fund, a newly created series of the Trust. 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 Caleb F. Aldrich and David C. Stuehr.
During the past five years, Mr. Aldrich has served as a Director of the Adviser.
Mr. Stuehr has served as a Director of the Adviser since January, 1995 and,
prior thereto, Mr. Stuehr served as a Vice President (since 1992) and an
Assistant 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 the Fund's average daily
net assets.
19
<PAGE>
Expenses
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. 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. The
Adviser has voluntarily agreed to limit Total Fund Operating Expenses of the
Fund (excluding litigation, indemnification and other extraordinary expenses) to
0.40% of the Fund's average daily net assets for the Fund's fiscal year ending
December 31, 1995. Although this agreement is voluntary and temporary and may be
discontinued or revised by the Adviser at any time after December 31, 1995, the
Adviser has further voluntarily agreed to limit Total Fund Operating Expenses of
the Fund (excluding litigation, indemnification and other extraordinary
expenses) to 0.50% of the Fund's average daily net assets for an indefinite
period of time after December 31, 1995.
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 intends to elect to be treated and to qualify for taxation as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (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.
20
<PAGE>
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 shareholders as if received on December 31 of
the year the distributions are declared, rather than the year in which the
distributions are received.
Shareholders which are taxable entities or persons will be subject to
federal income tax on dividends and capital gain distributions made by the Fund.
Dividends paid by the Fund from net investment income and 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. Only
the portion of such dividends, if any, attributable to certain dividends the
Fund receives with respect to its preferred stock investments is expected to
qualify, subject to satisfaction of applicable holding period and other
requirements, 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.
Redemptions and repurchases of shares are taxable events on which a
shareholder may recognize a gain or loss. Special rules recharacterize as
long-term any losses on the sale or exchange of Fund shares with a tax holding
period of six months or less, to the extent the shareholder received a capital
gain distribution with respect to such shares.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on dividends, capital gain
distributions, and the proceeds of redemptions or repurchases of shares, if they
fail to furnish the Fund with their correct taxpayer identification number and
certain certifications or if they are otherwise subject to backup withholding.
Individuals, corporations and other shareholders that are not U.S. persons under
the Code are subject to different tax rules and may be subject to nonresident
alien withholding at the rate of 30% (or a lower rate provided by an applicable
tax treaty) on amounts treated as ordinary dividends from the Fund and, unless a
current IRS Form W-8 or an acceptable substitute is furnished to the Fund, to
backup withholding on certain payments from the Fund.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent the Fund's distributions are
derived from interest on (or, in the case of intangibles taxes, the value of its
assets is attributable to) certain U.S. Government obligations, provided in some
states that certain thresholds for holdings of such obligations and/or reporting
requirements are satisfied.
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.
21
<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 Investment Company Act of 1940 and the Agreement and Declaration of
Trust. Shares of the Fund do not have cumulative voting rights. Fractional
shares have proportional voting rights and participate in any distributions and
dividends. When issued, each Fund share will be fully paid and nonassessable.
Shareholders of the Fund do not have preemptive or conversion rights.
Certificates representing shares of the Fund will not be issued.
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 a request for 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. Immediately prior to the effectiveness of this
Prospectus, the Adviser owned all of the outstanding shares of the Fund.
22
<PAGE>
Inquiries concerning the Fund should be made by contacting the Fund at the
Fund's address and telephone number listed on the cover of this Prospectus.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
Investors Bank & Trust Company, 24 Federal Street, Boston, Massachusetts
02110, serves as the Fund's transfer agent and dividend-disbursing agent and as
custodian of all cash and securities of the Fund.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., One Post Office Square, Boston, Massachusetts
02109, serves as independent accountants for the Trust and will audit the Fund's
financial statements annually.
LEGAL COUNSEL
Hale and Dorr, 60 State Street, Boston, Massachusetts 02109, is legal
counsel to the Trust and to the Adviser.
--------------------
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.
23
<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.
24
<PAGE>
Prospectus dated June 1, 1995
As revised December 31, 1995
PROSPECTUS
STANDISH CONTROLLED MATURITY FUND
One Financial Center
Boston, Massachusetts 02111
(800) 221-4795
Standish Controlled Maturity Fund (the "Fund") is one fund in the Standish,
Ayer & Wood family of funds. The Fund is organized as a separate diversified
investment series of Standish, Ayer & Wood Investment Trust (the "Trust"), an
open-end management investment company. The Fund is designed 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, consistent
with preserving principal and liquidity. As a component of this objective, the
Fund will seek a relatively high level of current income. The Fund will seek to
achieve its investment objective primarily through investing in an actively
managed portfolio of investment grade fixed-income securities. Under normal
market conditions, the Fund will maintain an average dollar-weighted effective
portfolio maturity not exceeding five years. Standish, Ayer & Wood, Inc.,
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 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.
1
<PAGE>
Expense Information 2
Financial Highlights 3
Investment Objective and Policies 4
Risk Factors and Suitability 8
Calculation of Performance Data 8
Dividends and Distributions 9
Purchase of Shares 9
Exchange of Shares 10
Redemption of Shares 10
Management 11
Federal Income Taxes 12
The Fund and Its Shares 13
Custodian, Transfer Agent and Dividend-Disbursing Agent 13
Independent Accountants 13
Legal Counsel 13
Tax Certification Instructions 14
2
<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 (after expense limitation) 0.13%*
12b-1 Fees None
Other Expenses 0.27%
Total Fund Operating Expenses (after expense limitation) 0.40%*
<TABLE>
<CAPTION>
Example: 1 year 3 years
- -------- ------ -------
<S> <C> <C>
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 $11
You would pay the following expenses on the same investment,
assuming no redemption: $5 $11
</TABLE>
The purpose of the above table is to assist investors 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 figures 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, and in the
hypothetical example are based on estimates of the Fund's expenses for its first
fiscal year ending December 31, 1995.
* The Adviser has voluntarily agreed to limit Total Fund Operating Expenses
of the Fund (excluding litigation, indemnification and other extraordinary
expenses) to 0.40% of the Fund's average daily net assets for the Fund's fiscal
year ending December 31, 1995. In the absence of such agreement, Management Fees
and Total Fund Operating Expenses are estimated to be approximately 0.35% and
0.62%, respectively, of the Fund's average daily net assets. Although this
agreement is voluntary and temporary and may be discontinued or revised by the
Adviser at any time after December 31, 1995, the Adviser has further voluntarily
agreed to limit Total Fund Operating Expenses of the Fund (excluding litigation,
indemnification and other extraordinary expenses) to 0.45% of the Fund's average
daily net assets for an indefinite period of time after December 31, 1995.
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 GREATER OR LESS THAN 5%.
3
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
The financial highlights for the period ended October 31, 1995 are
unaudited and are included in the Fund's financial statements incorporated into
the Statement of Additional Information.
For the Period
July 3, 1995 (start
of business) to
October 31, 1995
(unaudited)
---------------------
Per share data (for a share outstanding throughout each period)
<S> <C>
Net asset value - beginning of period $20.00
---------------------
Income from investment operations
Net investment income $0.40
Net realized and unrealized gain (loss) 0.08
---------------------
Total from investment operations 0.48
---------------------
Less distributions declared to shareholders
From net investment income (0.25)
---------------------
Total distributions declared to shareholders (0.25)
---------------------
Net asset value - end of period $20.23
=====================
Total return 2.41%
Ratios (to average net assets)/Supplemental Data
Expenses * 0.40% t
Net investment income * 6.22% t
Portfolio turnover 90% y
Net assets at end of period (000 omitted) $7,685
* The investment adviser did not impose a portion of its advisory fee. If this
reduction had not been undertaken, the net investment income per share and
the ratios would have been:
Net investment income per share $0.26 Ratios (to average net assets):
Expenses 2.58% t
Net investment income 4.09% t
t Computed on an annualized basis.
y The turnover ratio for the period is not annualized.
</TABLE>
4
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to maximize total return, consistent
with preserving principal and liquidity. As a component of this objective, the
Fund will seek a relatively high level of current income. The Fund will seek to
achieve its investment objective primarily through investing in an actively
managed portfolio of investment grade fixed-income securities. Under normal
market conditions, the Fund will maintain an average dollar-weighted effective
portfolio maturity not exceeding five years. Because of the uncertainty inherent
in all investments, no assurance can be given that the Fund will achieve its
investment objective. The Fund's investment policies are described further in
the Statement of Additional Information.
The Fund may invest in a broad range of fixed-income securities, including
bonds, notes, mortgage-backed and asset-backed securities, preferred stock and
convertible debt securities issued by U.S. corporations or other entities or by
the U.S. Government or its agencies, authorities, instrumentalities or sponsored
enterprises. Under normal market conditions, at least 65% of the Fund's total
assets will be invested in such securities. The Fund may purchase securities
that pay interest on a fixed, variable, floating (including inverse floating),
contingent, in-kind or deferred basis.
Although the Fund is intended primarily for tax-exempt institutional
investors and will be managed without regard to potential tax considerations,
the Fund may invest up to 5% of its net assets in tax-exempt securities, such as
state and municipal bonds, if the Adviser believes they will provide competitive
returns. The Fund's distributions of the interest it earns from such securities
will not be tax-exempt. The Fund may adopt a temporary defensive position during
adverse market conditions by investing without limit in high quality money
market instruments, including short-term U.S. Government securities, negotiable
certificates of deposit, non-negotiable fixed time deposits, bankers'
acceptances, floating-rate notes and repurchase agreements.
The Fund will invest exclusively 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") or Fitch Investors Service, Inc.
("Fitch") (AAA, AA, A or BBB) or their respective equivalent ratings or, if not
rated, determined 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 or Fitch 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. 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 and Standard & Poor's, Duff or
Fitch ratings, respectively, or comparable credit quality as determined by the
Adviser. In the case of a security that is rated differently by two or more
rating services, the higher rating is used in computing the Fund's average
dollar-weighted credit quality. In the event the rating on a security held in
the Fund's portfolio is downgraded below investment grade 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.
5
<PAGE>
In order to achieve its investment objective, the Fund will seek to add
value by selecting undervalued investments, thus taking advantage of lower
prices and higher yields, rather than by varying the average maturity of its
portfolio to reflect interest rate forecasts. Under normal market conditions,
the maximum average-dollar weighted effective maturity of the Fund's portfolio
will not exceed five years. Although there is no limit on the maturity of any
individual security purchased by the Fund, the Fund will normally invest in
securities with final maturities, average lives or interest rate reset
frequencies of ten years or less.
Corporate Debt Obligations
The Fund may invest in corporate debt obligations, including obligations of
industrial, utility and financial issuers. In addition to obligations of
corporations, corporate debt obligations include bank obligations and zero
coupon securities, issued by financial institutions and corporations. The Fund's
investments in corporate debt securities will be rated, at the date of
investment, investment grade. Corporate debt obligations are subject to the risk
of an issuer's inability to meet principal and interest payments on the
obligations and may also be subject to price volatility due to such factors as
market interest rates, market perception of the creditworthiness of the issuer
and general market liquidity. See "Risk Factors and Suitability" for a further
discussion of the risks associated with investments in corporate debt
securities.
U.S. Government Securities
The Fund may invest in all types of U.S. Government securities, including
obligations issued or guaranteed by the U.S. Government or its agencies,
authorities, instrumentalities or sponsored enterprises. Some U.S. Government
securities, such as Treasury bills, notes and bonds, which differ only in their
interest rates, maturities and times of issuance, are supported by the full
faith and credit of the United States of America. Others, such as obligations
issued or guaranteed by U.S. Government agencies, authorities, instrumentalities
or sponsored enterprises are supported either by (a) the full faith and credit
of the U.S. Government (such as securities of the Small Business
Administration), (b) the right of the issuer to borrow from the U.S. Treasury
(such as securities of the Federal Home Loan Banks), (c) the discretionary
authority of the U.S. Government to purchase the agency's obligations (such as
securities of the Federal National Mortgage Association), or (d) only the credit
of the issuer.
The Fund may also invest in separately traded principal and interest
components of securities guaranteed or issued by the U.S. Government or its
agencies, instrumentalities or sponsored enterprises if such components are
traded independently under the Separate Trading of Registered Interest and
Principal of Securities program ("STRIPS") or any similar program sponsored by
the U.S. Government. The Fund may invest in U.S. Government securities which are
zero coupon or deferred interest securities.
6
<PAGE>
Asset-Backed Securities
The Fund may invest in asset-backed securities, which represent
participations in, or are secured by and payable from, assets such as motor
vehicle installment sale contracts, installment loan contracts, leases of
various types of real and personal property, receivables from revolving credit
(credit card) agreements and other categories of receivables. Asset-backed
securities may also be collateralized by a portfolio of U.S. Government
securities, but are not direct obligations of the U.S. Government, its agencies
or instrumentalities. Payments or distributions of principal and interest on
asset-backed securities may be guaranteed up to certain amounts and for a
certain time period by a letter of credit or a pool insurance policy issued by a
financial institution, or other credit enhancements may be present; however,
privately issued obligations collateralized by a portfolio of privately issued
asset-backed securities do not involve any government-related guaranty or
insurance.
Asset-backed securities can be structured in several ways, the most common
of which has been a "pass-through" model. A certificate representing a
fractional undivided beneficial interest in a trust or corporation created
solely for the purpose of holding the trust's assets is issued to the
asset-backed security holder. The certificate entitles the holder thereof the
right to receive a percentage of the interest and principal payments on the
terms and according to the schedule established by the trust instrument. A
servicing agent collects amounts due on the underlying assets for the account of
the trust, which distributes such amounts to the security holders.
As an alternative structure, the issuer of asset-backed securities
effectively transforms an asset-backed pool into obligations consisting of
several different maturities. Instead of holding an undivided interest in trust
assets, the purchaser of the asset-backed security holds a bond collateralized
by the underlying assets. The bonds are serviced by cash flows from the
underlying assets, a specified fraction of all cash received (less a fixed
servicing fee) being allocated first to pay interest and then to retire
principal.
Asset-backed securities present certain risks similar to (as discussed
below) and in addition to those presented by mortgage-backed securities.
Asset-backed securities generally do not have the benefit of a security interest
in collateral that is comparable to mortgage assets and there is the possibility
that, in some cases, recoveries on repossessed collateral may not be available
to support payments on these securities. Asset-backed securities, however, are
not generally subject to the risks associated with pre-payments of principal on
the underlying loans.
7
<PAGE>
Mortgage-Backed Securities
The Fund may invest in mortgage-backed securities. Mortgage-backed
securities represent direct or indirect participations in or obligations
collateralized by and payable from mortgage loans secured by real property. Each
mortgage pool underlying mortgage-backed securities will consist of mortgage
loans evidenced by promissory notes secured by first mortgages or first deeds of
trust or other similar security instruments creating a first lien on real
property. An investment in mortgage-backed securities involves certain risks.
Mortgage-backed securities are often subject to more rapid repayment than their
stated maturity dates would indicate as a result of the pass-through or
prepayments of principal on the underlying loans which may increase the
volatility of such investments relative to similarly rated debt securities.
During periods of declining interest rates, prepayment of loans underlying
mortgage-backed securities can be expected to accelerate and thus impair the
Fund's ability to reinvest the returns of principal at comparable yields. During
periods of rising interest rates, reduced prepayment rates may extend the
average life of mortgage-backed securities and increase the Fund's exposure to
rising interest rates. Accordingly, the market values of such securities will
vary with changes in market interest rates generally and in yield differentials
among various kinds of U.S. Government securities and other mortgage-backed
securities.
Mortgage Pass-Through Securities
The Fund may invest in mortgage pass-through securities, which are fixed or
adjustable rate mortgage-backed securities that provide for monthly payments
that are a "pass-through" of the monthly interest and principal payments
(including any prepayments) made by the individual borrowers on the pooled
mortgage loans, net of any fees or other amounts paid to any guarantor,
administrator and/or servicer of the underlying mortgage loans.
Multiple Class Mortgage-Backed Securities and Collateralized
Mortgage Obligations
The Fund may invest in collateralized mortgage obligations ("CMOs"), which
are multiple class mortgage-backed securities. CMOs provide an investor with a
specified interest in the cash flow from a pool of underlying mortgages or of
other mortgage-backed securities. CMOs are issued in multiple classes, each with
a specified fixed or adjustable interest rate and a final distribution date. In
most cases, payments of principal are applied to the CMO classes in the order of
their respective stated maturities, so that no principal payments will be made
on a CMO class until all other classes having an earlier stated maturity date
are paid in full. Sometimes, however, CMO classes are "parallel pay" (i.e.,
payments of principal are made to two or more classes concurrently).
Eurodollar and Yankee Dollar Investments
The Fund may invest in Eurodollar and Yankee Dollar instruments. Eurodollar
instruments are bonds that pay interest and principal in U.S. dollars held in
banks outside the United States, primarily in Europe. Eurodollar instruments are
usually issued on behalf of multinational companies and foreign governments by
large underwriting groups composed of banks and issuing houses from many
countries. Yankee dollar instruments are U.S. dollar denominated bonds typically
issued in the U.S. by, among others, foreign governments and their agencies and
foreign banks and corporations. These investments involve risks that are
different from investments in securities issued by U.S. issuers, including
potential unfavorable political and economic developments, different tax
provisions, seizure of foreign deposits, currency controls, interest limitations
or other governmental restrictions which might affect payment of principal or
interest.
8
<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, 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 (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 or interest 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 1% of the Fund's net assets at any one time and, to the extent
necessary, the Fund will close out transactions in order to comply with this
limitation. (Transactions such as writing covered call options are considered to
involve hedging for the purposes of this limitation.) In calculating the Fund's
net loss exposure from such Strategic Transactions, an unrealized gain from a
particular Strategic Transaction position would be netted against an unrealized
loss from a related Strategic Transaction position. For example, if the Adviser
believes that short-term interest rates as indicated in the forward yield curve
are too high, the Fund may take a short position in a near-term Eurodollar
futures contract and a long position in a longer-dated Eurodollar futures
contract. Under such circumstances, any unrealized loss in the near-term
Eurodollar futures position would be netted against any unrealized gain in the
longer-dated Eurodollar futures position (and vice versa) for purposes of
calculating the Fund's net loss exposure. The ability of the Fund to utilize
these Strategic Transactions successfully will depend on the Adviser's ability
to predict pertinent market and interest rate 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.
9
<PAGE>
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 or interest rate movements is incorrect,
the risk that the use of such Strategic Transactions could result in losses
greater than if they had not been used. The writing of put and call options may
result in losses to the Fund, force the purchase or sale, respectively, of
portfolio securities at inopportune times or for prices higher than (in the case
of purchases due to the exercise of put options) or lower than (in the case of
sales due to the exercise of call options) current market values, limit the
amount of appreciation the Fund can realize on its investments or cause the Fund
to hold a security it might otherwise sell. The use of options and futures
transactions entails certain other risks. In particular, the variable degree of
correlation between price movements of futures contracts and price movements in
the related portfolio position of the Fund creates the possibility that losses
on the hedging instrument may be greater than gains in the value of the Fund's
position. The writing of options could significantly increase the Fund's
portfolio turnover rate and, therefore, associated brokerage commissions or
spreads. In addition, futures and options markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets. As a
result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the use of
futures and options transactions for hedging should tend to minimize the risk of
loss due to a decline in the value of the hedged position, at the same time, in
certain circumstances, they tend to limit any potential gain which might result
from an increase in value of such position. The loss incurred by the Fund in
writing options on futures and entering into futures transactions is potentially
unlimited; however, as described above, the Fund will limit its net loss
exposure resulting from Strategic Transactions entered into for non-hedging
purposes to 1% of its net assets at any one time. Futures markets are highly
volatile and the use of futures may increase the volatility of the Fund's net
asset value. Finally, entering into futures contracts would create a greater
ongoing potential financial risk than would purchases of options where the
exposure is limited to the cost of the initial premium. Losses resulting from
the use of Strategic Transactions would reduce net asset value and the net
result may be less favorable than if the Strategic Transactions had not been
utilized. See the Statement of Additional Information for further information
regarding the Fund's use of Strategic Transactions.
When-Issued Securities and "Delayed Delivery" Securities
The Fund may commit up to 15% of its net assets to purchase securities on a
"when-issued" or "delayed delivery" basis. Although the Fund would generally
purchase securities on a when-issued or delayed delivery basis with the
intention of actually acquiring the securities, the Fund may dispose of a
10
<PAGE>
when-issued or delayed delivery security prior to settlement if the Adviser
deems it appropriate to do so. The payment obligation and the interest rate on
these securities will be fixed at the time the Fund enters into the commitment,
but no income will accrue to the Fund until they are delivered and paid for.
Unless the Fund has entered into an offsetting agreement to sell the securities,
cash or liquid, high grade debt securities equal to the amount of the Fund's
commitment will be segregated and maintained with the custodian for the Fund to
secure the Fund's obligation and in order to partially offset the leverage
inherent in these securities. The market value of the securities when they are
delivered may be less than the amount paid by the Fund.
Repurchase Agreements
The Fund may invest up to 25% of its net assets in repurchase agreements
under normal circumstances. Repurchase agreements acquired by the Fund will
always be fully collateralized as to principal and interest by money market
instruments and will be entered into only with commercial banks, brokers and
dealers considered creditworthy by the Adviser. Investing in repurchase
agreements involves the risk of default by or the insolvency of the other party
to the repurchase agreement.
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
which is intended to exceed the yield on the securities sold. Forward roll
transactions involve the risk that the market value of the securities sold by
the Fund may decline below the repurchase price of those securities. At the time
the Fund enters into a forward roll transaction, it will place in a segregated
custodial account cash or liquid, high grade debt securities 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.
Illiquid and Restricted Securities
The Fund may not invest more than 15% of its total assets in securities
that are subject to restrictions on resale ("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. In addition, the Fund
11
<PAGE>
will not invest more than 15% of its net assets in illiquid investments, which
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 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
It is expected that the portfolio turnover rate of the Fund will not exceed
200% in the coming year. A rate of turnover of 100% would occur 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 (100% or
more) involves a correspondingly greater amount of brokerage commissions and
other 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.
Investment Restrictions
The foregoing investment policies, including the Fund's investment
objective, are non-fundamental policies which may be changed by the Trust's
Board of Trustees without the approval of shareholders. If there is a change in
the Fund's investment objective, shareholders should consider whether the Fund
remains an appropriate investment in light of their then current financial
positions and needs. The Fund has adopted certain fundamental policies which may
not be changed without the approval of the Fund's shareholders. See "Investment
Restrictions" in the Statement of Additional Information.
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.
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<PAGE>
RISK FACTORS AND SUITABILITY
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, secondarily, seek a relatively high level of current
income, consistent with preserving principal and liquidity and whose
beneficiaries are in a position to benefit from the tax-deferred reinvestment of
the quarterly income dividends and any capital gains distributions paid by the
Fund. The Fund may also be suitable for other investors, depending upon their
investment goals and financial and tax positions. Although the price of the
Fund's shares may fluctuate more than short-term money market instruments, the
Fund will seek to keep such volatility below that of longer-term debt securities
by limiting its average portfolio maturity. The Fund is newly organized and has
no operating history. Because of the uncertainty inherent in all investments, no
assurance can be given that the Fund will achieve its investment objective.
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 in which the Fund invests,
and therefore the Fund's net asset value, usually vary depending upon available
yields, rising when interest rates decline and declining when interest rates
rise.
Because the Fund's investments are interest rate sensitive, the Fund's
performance will depend in large part upon the ability of the Fund to respond to
fluctuations in market prices and interest rates and to utilize appropriate
strategies to maximize returns to the Fund, while attempting to minimize the
risks associated with its invested capital. Operating results will also depend
upon the availability of opportunities for the investment of the Fund's assets,
including purchases and sales of suitable securities. The Fund's use of
Strategic Transactions (including options, futures, options on futures and
swaps) involves certain risks, including a possible lack of correlation between
changes in the value of hedging instruments and the portfolio assets being
hedged, the potential illiquidity of the markets for derivative instruments, the
risks arising from the margin requirements and related leverage factors
associated with such transactions. The use of these management techniques to
increase total return involves the risk of loss if the Adviser is incorrect in
its expectation of fluctuations in securities prices or interest rates. See
"Strategic Transactions."
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CALCULATION OF PERFORMANCE DATA
From time to time the Fund may advertise its total return and yield. Both
total return and yield figures are based on historical earnings and are not
intended to indicate future performance. The "total return" of the Fund refers
to the average annual compounded rates of return over 1, 5 and 10 year periods
that would equate an initial amount invested at the beginning of a stated period
to the ending redeemable value of the investment. The calculation assumes the
reinvestment of all dividends and distributions, includes all recurring fees
that are charged to all shareholder accounts and deducts all nonrecurring
charges at the end of each period. As long as the Fund has been operating less
than 1, 5 or 10 years, the time period during which the Fund has been operating
will be substituted accordingly.
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 (net asset value) 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.
The Fund may from time to time advertise one or more additional
measurements of performance, including but not limited to historical total
returns, distribution returns, non-standardized yield, results of actual or
hypothetical investments, changes in dividends, distributions or share values,
or any graphic illustration of such data. This data may cover any period of the
Fund's operations and may or may not include the impact of taxes or other
factors.
The following table sets forth the historical total return performance of
all fee paying, controlled maturity bond portfolios under discretionary
management by the Adviser that have substantially similar investment objectives,
policies and strategies as the Fund (the "Controlled Maturity Accounts") as
measured by the Standish, Ayer & Wood Controlled Maturity Bond Composite (the
"Composite"). As of December 31, 1994, the Composite consisted of 10 Controlled
Maturity Accounts with approximately $446.2 million in assets. The performance
data of the Controlled Maturity Accounts, as represented by the Composite, has
been computed in accordance with the SEC's standardized formula. Because the
gross performance data does not reflect the deduction of investment advisory
fees paid by the Controlled Maturity Accounts, the net performance data may be
more relevant to potential investors in the Fund in their analysis of the
historical experience of the Adviser in managing fixed-income portfolios with
investment objectives, policies and strategies substantially similar to those of
the Fund.
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<PAGE>
<TABLE>
<CAPTION>
The Standish, Ayer & Wood Controlled Maturity Bond Composite Performance
Average Annual Total
Return For The 10 Year
Periods Ended December 31, 1994 Cumulative Total
3 Years 5 Years 10 Years Return
------- ------- -------- ------
The Composite
<S> <C> <C> <C> <C>
Equal Weighted (gross) 5.2% 7.8% 9.0% 236.4%
Equal Weighted (net) 5.0% 7.5% 8.5% 227.0%
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
The Composite
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equal weighted gross total return 16.40% 10.60% 4.90% 7.60% 11.80% 9.08% 14.45% 6.80% 9.80% (0.61)%
Equal weighted net total return 16.13% 10.29% 4.05% 6.85% 11.10% 8.74% 14.10% 6.53% 9.52% (0.87)%
Size weighted gross total return 9.03% 14.18% 6.65% 9.23% (0.21)%
Size weighted net total return 8.89% 14.06% 6.54% 9.09% (0.46)%
</TABLE>
The performance of the Controlled Maturity Accounts is not that of the Fund
and is not necessarily indicative of the Fund's future results. The Fund's
actual total return may vary significantly from the past and future performance
of these Accounts. While the Controlled Maturity Accounts incur inflows and
outflows of cash from clients, there can be no assurance that the continuous
offering of the Fund's shares and the Fund's obligation to redeem its shares
will not impact the Fund's performance. In the opinion of the Adviser, so long
as the Fund has at least $5 million in net assets, the relative difference in
the size between the Fund and the Controlled Maturity Accounts should not affect
the relevance of the performance of the Controlled Maturity Accounts to a
potential investor in the Fund. Investment returns and the net asset value of
shares of Fund will fluctuate in response to market and economic conditions as
well as other factors and an investment in the Fund involves the risk of loss.
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 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 and payment for the
shares 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.
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<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 on the exchange
(currently 4:00 p.m., New York City time). The net asset value per share is
calculated by determining the value of all the Fund's assets, subtracting all
liabilities and dividing the result by the total number of shares outstanding.
Portfolio securities are valued at the last sale prices, on the valuation day,
on the exchange or national securities market on which they are primarily
traded. Securities not listed on an exchange or national securities market, or
securities for which there were no reported transactions, 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, which may
include the use of matrix pricing. Money market instruments with less than sixty
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 sixty
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 the value on such date unless the Trustees determine during such sixty-day
period that amortized cost does not represent fair value.
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 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. 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.
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<PAGE>
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
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.
EXCHANGE OF SHARES
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 the 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 Transactions" below for more information
regarding telephonic transactions.
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<PAGE>
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.
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 Fixed
Income Fund II, 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. Signatures
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 and 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 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 privileges portion of the Fund's
account application may redeem shares by calling (800) 221-4795. The telephone
redemption 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. Redemption proceeds will normally be paid promptly after receipt of
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<PAGE>
telephonic instructions, but no later than three days thereafter, except as
described above for shares purchased by check. Wire charges, if any, will be
deducted from redemption proceeds. 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.
Proper identification will be required for each telephone redemption. Please see
"Telephone Transactions" below for more information regarding telephonic
transactions.
Telephone Transactions
By maintaining a telephonic exchange and redemption privileges, the
shareholder authorizes the Adviser, the Trust and the Fund's custodian to act
upon instructions of any person to redeem and/or exchange shares from the
shareholder's account. Further, 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, 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 or
exchange, 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. All telephone transaction requests will be recorded.
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 promptly to the Fund prior to the close of the Fund's
business day (normally 4:00 p.m.). (The Fund currently determines its net asset
value as of 4:00 p.m. New York City time on each business day.) 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.
19
<PAGE>
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 $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, 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 Small Capitalization Equity Fund, Standish Equity
Fund, Standish Fixed Income Fund, Standish Intermediate Tax Exempt Bond Fund,
Standish Massachusetts Intermediate Tax Exempt Bond Fund and Standish
Securitized Fund, which had net assets of $121 million, $94 million, $1.8
billion, $28 million, $31 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 also provides investment advisory services to Standish Fixed Income Fund
II, a newly created series of the Trust. 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.
20
<PAGE>
The Fund's portfolio manager is Howard B. Rubin. During the past five
years, Mr. Rubin has served as a Director and 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 0.35% of the Fund's average daily
net assets.
Expenses
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. 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. The
Adviser has voluntarily agreed to limit Total Fund Operating Expenses of the
Fund (excluding litigation, indemnification and other extraordinary expenses) to
0.40% of the Fund's average daily net assets for the Fund's fiscal year ending
December 31, 1995. Although this agreement is voluntary and temporary and may be
discontinued or revised by the Adviser at any time after December 31, 1995, the
Adviser has further voluntarily agreed to limit Total Fund Operating Expenses of
the Fund (excluding litigation, indemnification and other extraordinary
expenses) to 0.45% of the Fund's average daily net assets for an indefinite
period of time after December 31, 1995.
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 intends to elect to be treated and to qualify for taxation as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (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.
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<PAGE>
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 shareholders as if received on December 31 of
the year the distributions are declared, rather than the year in which the
distributions are received.
Shareholders which are taxable entities or persons will be subject to
federal income tax on dividends and capital gain distributions made by the Fund.
Dividends paid by the Fund from net investment income and 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. Only
the portion of such dividends, if any, attributable to certain dividends the
Fund receives with respect to its preferred stock investments is expected to
qualify, subject to satisfaction of applicable holding period and other
requirements, 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.
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.
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<PAGE>
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent the Fund's distributions are
derived from interest on (or, in the case of intangibles taxes, the value of its
assets is attributable to) certain U.S. Government obligations, provided in some
states that certain thresholds for holdings of such obligations and/or reporting
requirements are satisfied.
After the close of each calendar year, the Fund will send a notice to
shareholders that provides information about the federal tax status of
distributions to shareholders for such calendar year.
THE FUND AND ITS SHARES
The Fund is a separate investment series of Standish, Ayer & Wood
Investment Trust, an unincorporated business trust organized under the laws of
The Commonwealth of Massachusetts pursuant to an Agreement and Declaration of
Trust dated August 13, 1986. Under the Agreement and Declaration of Trust, the
Trustees have authority to issue an unlimited number of shares of beneficial
interest, par value $.01 per share, of the Fund. Each share of the Fund is
entitled to one vote. All Fund shares have equal rights with regard to voting,
redemption, dividends, distributions and liquidation, and shareholders of the
Fund have the right to vote as a separate class with respect to certain matters
under the Investment Company Act of 1940 and the Agreement and Declaration of
Trust. Shares of the Fund do not have cumulative voting rights. Fractional
shares have proportional voting rights and participate in any distributions and
dividends. When issued, each Fund share will be fully paid and nonassessable.
Shareholders of the Fund do not have preemptive or conversion rights.
Certificates representing shares of the Fund will not be issued.
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
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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 a request for 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. Immediately prior to the effectiveness of this
Prospectus, the Adviser owned all of the outstanding shares of the Fund.
Inquiries concerning the Fund should be made by contacting the Fund at the
Fund's address and telephone number listed on the cover of this Prospectus.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
Investors Bank & Trust Company, 24 Federal Street, Boston, Massachusetts
02110, serves as the Fund's transfer agent and dividend-disbursing agent and as
custodian of all cash and securities of the Fund.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., One Post Office Square, Boston, Massachusetts
02109, serves as independent accountants for the Trust and will audit the Fund's
financial statements annually.
LEGAL COUNSEL
Hale and Dorr, 60 State Street, Boston, Massachusetts 02109, is legal
counsel to the Trust and to the Adviser.
- --------------------------------------------------------------------------------
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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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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June 1, 1995
As Revised December 31, 1995
STANDISH FIXED INCOME FUND II
One Financial Center
Boston, Massachusetts 02111
(617) 350-6100
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus, but
expands upon and supplements the information contained in the Prospectus dated
June 1, 1995, as amended and/or supplemented from time to time (the
"Prospectus"), of Standish Fixed Income Fund II (the "Fund"), a separate
investment series of Standish, Ayer & Wood Investment Trust (the "Trust"). This
Statement of Additional Information should be read in conjunction with the
Prospectus which may be obtained without charge from the Fund by calling the
telephone number or writing to the address listed above.
Contents
Investment Objectives and Policies 2
Investment Restrictions 9
Calculation of Performance Data 12
Management 14
Redemption of Shares 22
Portfolio Transactions 22
Federal Income Taxes 23
Determination of Net Asset Value 25
The Fund and Its Shares 26
Additional Information 26
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
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INVESTMENT OBJECTIVES AND POLICIES
The Fund's Prospectus describes the investment objectives of the Fund
and summarizes the investment policies it will follow. The following discussion
supplements the description of the Fund's investment policies in the Prospectus.
Maturity
The effective maturity of an individual portfolio security in which the
Fund invests is defined as the period remaining until the earliest date when the
Fund can recover the principal amount of such security through mandatory
redemption or prepayment by the issuer, the exercise by the Fund of a put
option, demand feature or tender option granted by the issuer or a third party
or the payment of the principal on the stated maturity date. (Duration of an
individual portfolio security is a measure of the security's price sensitivity
taking into account expected cash flow and prepayments under a wide range of
interest rate scenarios.) The effective maturity of variable rate securities is
calculated by reference to their coupon resent dates. Thus, the effective
maturity of a security may be substantially shorter than its final stated
maturity. Unscheduled prepayments of principal have the effect of shortening the
effective maturities of securities in general and mortgage-backed securities in
particular. Prepayment rates are influenced by changes in current interest rates
and a variety of economic, geographic, social and other factors and cannot be
predicted with certainty. In general, securities, such as mortgage-backed
securities, may be subject to greater prepayment rates in a declining interest
rate environment. Conversely, in an increasing interest rate environment, the
rate of prepayment may be expected to decrease. A higher than anticipated rate
of unscheduled principal prepayments on securities purchased at a premium or a
lower than anticipated rate of unscheduled payments on securities purchased at a
discount may result in a lower yield (and total return) to the Fund than was
anticipated at the time the securities were purchased. The Fund's reinvestment
of unscheduled prepayments may be made at rates higher or lower than the rate
payable on such security, thus affecting the return realized by the Fund.
Money Market Instruments and Repurchase Agreements
Money market instruments include short-term U.S. Government securities,
commercial paper (promissory notes issued by corporations to finance their
short-term credit needs), negotiable certificates of deposit, non-negotiable
fixed time deposits, bankers' acceptances and repurchase agreements
collateralized by such instruments.
U.S. Government securities include securities which are direct
obligations of the U.S. Government backed by the full faith and credit of the
United States, and securities issued by agencies and instrumentalities of the
U.S. Government, which may be guaranteed by the U.S. Treasury or supported by
the issuer's right to borrow from the Treasury or may be backed by the credit of
the federal agency or instrumentality itself. Agencies and instrumentalities of
the U.S. Government include, but are not limited to, Federal Land Banks, the
Federal Farm Credit Bank, the Central Bank for Cooperatives, Federal
Intermediate Credit Banks, Federal Home Loan Banks and the Federal National
Mortgage Association.
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Investments in commercial paper will be rated Prime-1 by Moody's
Investors Service, Inc. ("Moody's") or A-1 by Standard & Poor's Ratings Group
("Standard & Poor's") or Duff 1+ by Duff & Phelps, which are the highest ratings
assigned by these rating services (even if rated lower by one or more of the
other agencies), or which, if not rated or rated lower by one or more of the
agencies and not rated by the other agency or agencies, are judged by the
Adviser to be of equivalent credit quality to the securities so rated.
A repurchase agreement is an agreement under which the Fund acquires
money market instruments (generally U.S. Government securities, bankers'
acceptances or certificates of deposit) from a commercial bank, broker or
dealer, subject to resale to the seller at an agreed-upon price and date
(normally the next business day). The resale price reflects an agreed-upon
interest rate effective for the period the instruments are held by the Fund and
is unrelated to the interest rate on the instruments. The instruments acquired
by the Fund (including accrued interest) must have an aggregate market value in
excess of the resale price and will be held by the custodian bank for the Fund
until they are repurchased. In evaluating whether to enter a repurchase
agreement, the investment adviser, Standish, Ayer & Wood, Inc. (the "Adviser"),
will carefully consider the creditworthiness of the seller pursuant to
procedures reviewed and approved by the Trust's Board of Trustees.
The use of repurchase agreements involves certain risks. For example,
if the seller defaults on its obligation to repurchase the instruments acquired
by the Fund at a time when their market value has declined, the Fund may incur a
loss. If the seller becomes insolvent or subject to liquidation or
reorganization under bankruptcy or other laws, a court may determine that the
instruments acquired by the Fund are collateral for a loan by the Fund and
therefore are subject to sale by the trustee in bankruptcy. Finally, it is
possible that the Fund may not be able to substantiate its interest in the
instruments it acquires. While the Trustees acknowledge these risks, it is
expected that they can be controlled through careful documentation and
monitoring.
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 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 objectives, the Fund may
purchase and sell (write) exchange-listed and over-the-counter put and call
options on securities, indices and other financial instruments; purchase and
sell financial futures contracts and options thereon; enter into various
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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 or interest 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 1% of the Fund's net assets at any one time and,
to the extent necessary, the Fund will close out transactions in order to comply
with this limitation. (Transactions such as writing covered call options are
considered to involve hedging for the purposes of this limitation.) In
calculating the Fund's net loss exposure from such Strategic Transactions, an
unrealized gain from a particular Strategic Transaction position would be netted
against an unrealized loss from a related Strategic Transaction position. For
example, if the Adviser believes that short-term interest rates as indicated in
the forward yield curve are too high, the Fund may take a short position in a
near-term Eurodollar futures contract and a long position in a longer-dated
Eurodollar futures contract. Under such circumstances, any unrealized loss in
the near-term Eurodollar futures position would be netted against any unrealized
gain in the longer- dated Eurodollar futures position (and vice versa) for
purposes of calculating the Fund's net loss exposure. The ability of the Fund to
utilize these Strategic Transactions successfully will depend on the Adviser's
ability to predict pertinent market and interest rate 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 "Internal
Revenue Code"), for qualification as a regulated investment company.
Risks of Strategic Transactions
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 or interest rate movements is
incorrect, the risk that the use of such Strategic Transactions could result in
losses greater than if they had not been used. The writing of put and call
options may result in losses to the Fund, force the purchase or sale,
respectively, of portfolio securities at inopportune times or for prices higher
than (in the case of purchases due to the exercise of put options) or lower than
(in the case of sales due to the exercise of call options) current market
values, limit the amount of appreciation the Fund can realize on its investments
or cause the Fund to hold a security it might otherwise sell. The use of options
4
<PAGE>
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, they tend to limit any potential gain which
might result from an increase in value of such position. The loss incurred by
the Fund in writing options on futures and entering into futures transactions is
potentially unlimited; however, as described above, the Fund will limit its net
loss exposure resulting from Strategic Transactions entered into for non-hedging
purposes to 1% of its net assets at any one time. Futures markets are highly
volatile and the use of futures may increase the volatility of the Fund's net
asset value. Finally, entering into futures contracts would create a greater
ongoing potential financial risk than would purchases of options where the
exposure is limited to the cost of the initial premium. Losses resulting from
the use of Strategic Transactions would reduce net asset value and the net
result may be less favorable than if the Strategic Transactions had not been
utilized.
General Characteristics of Options
Put options and call options typically have similar structural
characteristics and operational mechanics regardless of the underlying
instrument on which they are purchased or sold. Thus, the following general
discussion relates to each of the particular types of options discussed in
greater detail below. In addition, many Strategic Transactions involving options
require segregation of the Fund's assets in special accounts, as described below
under "Use of Segregated Accounts."
A put option gives the purchaser of the option, in consideration for
the payment of a premium, the right to sell, and the writer the obligation to
buy (if the option is exercised), the underlying security, commodity, index or
other instrument at the exercise price. For instance, the Fund's purchase of a
put option on a security might be designed to protect its holdings in the
underlying instrument (or, in some cases, a similar instrument) against a
substantial decline in the market value by giving the Fund the right to sell
such instrument at the option exercise price. A call option, in consideration
for the payment of a premium, gives the purchaser of the option the right to
buy, and the seller the obligation to sell (if the option is exercised), the
underlying instrument at the exercise price. The Fund may purchase a call option
on a security, futures contract, index or other instrument to seek to protect
the Fund against an increase in the price of the underlying instrument that it
intends to purchase in the future by fixing the price at which it may purchase
5
<PAGE>
such instrument. An American style put or call option may be exercised at any
time during the option period while a European style put or call option may be
exercised only upon expiration or during a fixed period prior thereto. The Fund
is authorized to purchase and sell exchange listed options and over-the-counter
options ("OTC" options). Exchange listed options are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"), which guarantees
the performance of the obligations of the parties to such options. The
discussion below uses the OCC as an example but is also applicable to other
financial intermediaries.
With certain exceptions, exchange listed options generally settle by
physical delivery of the underlying security, although in the future cash
settlement may become available. Index options and Eurodollar instruments are
cash settled for the net amount, if any, by which the option is in-the-money
(i.e., where the value of the underlying instrument exceeds, in the case of a
call option, or is less than, in the case of a put option, the exercise price of
the option) at the time the option is exercised. Frequently, rather than taking
or making delivery of the underlying instrument through the process of
exercising the option, listed options are closed by entering into offsetting
purchase or sale transactions that do not result in ownership of the new option.
The Fund's ability to close out its position as a purchaser or seller
of an exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. There is no assurance that a liquid option
market on an exchange will exist. In the event that the relevant market for an
option on an exchange ceases to exist, outstanding options on that exchange
would generally continue to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct agreement with
the Counterparty. In contrast to exchange listed options, which generally have
standardized terms and performance mechanics, all the terms of an OTC option,
including such terms as method of settlement, term, exercise price, premium,
guarantees and security, are set by negotiation of the parties. The Fund will
generally sell (write) OTC options that are subject to a buy-back provision
permitting the Fund to require the Counterparty to sell the option back to the
Fund at a formula price within seven days. (To the extent that the Fund does not
do so, the OTC options are subject to the Fund's restriction on investments in
illiquid securities.) The Fund expects generally to enter into OTC options that
have cash settlement provisions, although it is not required to do so.
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<PAGE>
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make delivery of the security or other instrument underlying an OTC option it
has entered into with the Fund or fails to make a cash settlement payment due in
accordance with the terms of that option, the Fund will lose any premium it paid
for the option as well as any anticipated benefit of the transaction.
Accordingly, the Adviser must assess the creditworthiness of each such
Counterparty or any guarantor or credit enhancement of the Counterparty's credit
to determine the likelihood that the terms of the OTC option will be satisfied.
The Fund will engage in OTC option transactions only with U.S. Government
securities dealers recognized by the Federal Reserve Bank of New York as
"Primary dealers," or broker dealers, domestic banks or other financial
institutions which have received, combined with any credit enhancements, a
long-term debt rating of A from Standard & Poor's or Moody's or an equivalent
rating from any other nationally recognized statistical rating organization
("NRSRO") or which issue debt that is determined to be of equivalent credit
quality by the Adviser. The staff of the Securities and Exchange Commission
("SEC") currently takes the position that, absent the buy-back provisions
discussed above, OTC options purchased by the Fund, and portfolio securities
"covering" the amount of the Fund's obligation pursuant to an OTC option sold by
it (the cost of the sell-back plus the in-the-money amount, if any) are
illiquid, and are subject to the Fund's limitation on investing no more than 15%
of its assets in illiquid securities. However, for options written with "primary
dealers" pursuant to an agreement requiring a closing purchase transaction at a
formula price, the amount which is considered to be illiquid may be calculated
by reference to a formula price.
If the Fund sells (writes) a call option, the premium that it receives
may serve as a partial hedge, to the extent of the option premium, against a
decrease in the value of the underlying securities or instruments in its
portfolio or will increase the Fund's income. The sale (writing) of put options
can also provide income.
The Fund may purchase and sell (write) call options on securities
including U.S. Treasury and agency securities, mortgage-backed and asset-backed
securities, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments that are traded on U.S. and foreign
securities exchanges and in the over-the-counter markets, and on securities
indices and futures contracts. All calls sold by the Fund must be "covered"
(i.e., the Fund must own the securities or the futures contract subject to the
call) or must meet the asset segregation requirements described below as long as
the call is outstanding. In addition, the Fund may cover a written call option
or put option by entering into an offsetting forward contract and/or by
purchasing an offsetting option or any other option which, by virtue of its
exercise price or otherwise, reduces the Fund's net exposure on its written
option position.
Even though the Fund will receive the option premium to help offset any
loss, the Fund may incur a loss if the exercise price is below the market price
for the security subject to the call at the time of exercise. A call sold by the
Fund also exposes the Fund during the term of the option to possible loss of
opportunity to realize appreciation in the market price of the underlying
security or instrument and may require the Fund to hold a security or instrument
which it might otherwise have sold.
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<PAGE>
The Fund may purchase and sell (write) put options on securities
including U.S. Treasury and agency securities, mortgage-backed and asset-backed
securities, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments (whether or not it holds the above
securities in its portfolio), and on securities indices and futures contracts.
The Fund will not sell put options if, as a result, more than 50% of the Fund's
assets would be required to be segregated to cover its potential obligations
under such put options other than those with respect to futures and options
thereon. In selling put options, there is a risk that the Fund may be required
to buy the underlying security at a price above the market price.
Options on Securities Indices and Other Financial Indices
The Fund may also purchase and sell (write) call and put options on
securities indices and other financial indices. Options on securities indices
and other financial indices are similar to options on a security or other
instrument except that, rather than settling by physical delivery of the
underlying instrument, they settle by cash settlement. For example, an option on
an index gives the holder the right to receive, upon exercise of the option, an
amount of cash if the closing level of the index upon which the option is based
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option (except if, in the case of an OTC option, physical
delivery is specified). This amount of cash is equal to the differential between
the closing price of the index and the exercise price of the option, which also
may be multiplied by a formula value. The seller of the option is obligated, in
return for the premium received, to make delivery of this amount. In addition to
the methods described above, the Fund may cover call options on a securities
index by owning securities whose price changes are expected to be similar to
those of the underlying index, or by having an absolute and immediate right to
acquire such securities without additional cash consideration (or for additional
cash consideration held in a segregated account by its custodian) upon
conversion or exchange of other securities in its portfolio.
General Characteristics of Futures
The Fund may enter into financial futures contracts or purchase or sell
put and call options on such futures. Futures are generally bought and sold on
the commodities exchanges where they are listed and involve payment of initial
and variation margin as described below. All futures contracts entered into by
the Fund are traded on U.S. exchanges or boards of trade that are licensed and
regulated by the Commodity Futures Trading Commission ("CFTC") or on certain
foreign exchanges.
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The sale of futures contracts creates a firm obligation by the Fund, as
seller, to deliver to the buyer the specific type of financial instrument called
for in the contract at a specific future time for a specified price (or, with
respect to index futures and Eurodollar instruments, the net cash amount). The
purchase of futures contracts creates a corresponding obligation by the Fund, as
purchaser to purchase a financial instrument at a specified time and price.
Options on futures contracts are similar to options on securities except that an
option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract and obligates the
seller to deliver such position, if the option is exercised.
The Fund's use of financial futures and options thereon will in all
cases be consistent with applicable regulatory requirements and in particular
the regulations of the CFTC relating to exclusions from regulation as a
commodity pool operator. Those regulations currently provide that the Fund may
use commodity futures and option positions (i) for bona fide hedging purposes
without regard to the percentage of assets committed to margin and option
premiums, or (ii) for other purposes permitted by the SEC to the extent that the
aggregate initial margin and option premiums required to establish such
non-hedging positions (net of the amount that the positions were "in the money"
at the time of purchase) do not exceed 5% of the liquidation value (i.e., the
net asset value) of the Fund's portfolio, after taking into account unrealized
profits and losses on such positions. Typically, maintaining a futures contract
or selling an option thereon requires the Fund to deposit, with a financial
intermediary for the benefit of a futures commission merchant, as security for
its obligations an amount of cash or other specified assets (initial margin)
which initially is typically 1% to 10% of the face amount of the contract (but
may be higher in some circumstances). Additional cash or assets (variation
margin) may be required to be deposited directly with the futures commission
merchant thereafter on a daily basis as the value of the contract fluctuates.
The purchase of an option on financial futures involves payment of a premium for
the option without any further obligation on the part of the Fund. If the Fund
exercises an option on a futures contract it will be obligated to post initial
margin (and potential subsequent variation margin) for the resulting futures
position just it would for any position. Futures contracts and options thereon
are generally settled by entering into an offsetting transaction but there can
be no assurance that the position can be offset prior to settlement at an
advantageous price, nor that delivery will occur. The segregation requirements
with respect to futures contracts and options thereon are described below.
Combined Transactions
The Fund may enter into multiple transactions, including multiple
options transactions, multiple futures transactions, and multiple interest rate
transactions, structured notes and any combination of futures, options, and
interest rate transactions (component transactions), instead of a single
Strategic Transaction, as part of a single or combined strategy when, in the
opinion of the Adviser it is in the best interests of the Fund to do so. A
combined transaction will usually contain elements of risk that are present in
each of its component transactions. Although combined transactions are normally
entered into based on the Adviser's judgment that the combined strategies will
reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the portfolio management objective.
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Swaps, Caps, Floors and Collars
Among the Strategic Transactions into which the Fund may enter are
interest rate and index swaps and the purchase or sale of related caps, floors
and collars. The Fund expects to enter into these transactions primarily for
hedging purposes, including, but not limited to, preserving a return or spread
on a particular investment or portion of its portfolio, as a duration management
technique or protecting against an increase in the price of securities the Fund
anticipates purchasing at a later date. Swaps, caps, floors and collars may also
be used to enhance potential gain in circumstances where hedging is not involved
although, as described above, the Fund's net loss exposure resulting from swaps,
caps, floors and collars and other Strategic Transactions entered into for such
purposes will not exceed 1% of the Fund's net assets at any one time. The Fund
will not sell interest rate caps or floors where it does not own securities or
other instruments providing the income stream the Fund may be obligated to pay.
Interest rate swaps involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest (e.g., an exchange of floating
rate payments for fixed rate payments with respect to a notional amount of
principal). An index swap is an agreement to swap cash flows on a notional
amount based on changes in the values of the reference indices. The purchase of
a cap entitles the purchaser to receive payments on a notional principal amount
from the party selling such cap to the extent that a specified index exceeds a
predetermined interest rate or amount. The purchase of a floor entitles the
purchaser to receive payments on a notional principal amount from the party
selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain rate of return within a predetermined range of
interest rates or values.
The Fund will usually enter into swaps on a net basis (i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments). The Fund will not enter into any
swap, cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the Counterparty, combined with any
credit enhancements, is rated at least A by Standard & Poor's or Moody's or has
an equivalent rating from an NRSRO or which issue debt that is determined to be
of equivalent credit quality by the Adviser. If there is a default by the
Counterparty, the Fund may have contractual remedies pursuant to the agreements
related to the transaction. The swap market has grown substantially in recent
years with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
the swap market has become relatively liquid. Caps, floors and collars are more
recent innovations for which standardized documentation has not yet been fully
10
<PAGE>
developed. Swaps, caps, floors and collars are considered illiquid for purposes
of the Fund's policy regarding illiquid securities, unless it is determined,
based upon continuing review of the trading markets for the specific security,
that such security is liquid. The Board of Trustees has adopted guidelines and
delegated to the Adviser the daily function of determining and monitoring the
liquidity of swaps, caps, floors and collars. 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. The staff of the SEC currently takes the position that swaps,
caps, floors and collars are illiquid, and are subject to the Fund's limitation
on investing in illiquid securities.
Eurodollar Contracts
The Fund may make investments in Eurodollar contracts. Eurodollar
contracts are U.S. dollar-denominated futures contracts or options thereon which
are linked to the London Interbank Offered Rate ("LIBOR"), although foreign
currency-denominated instruments are available from time to time. Eurodollar
futures contracts enable purchasers to obtain a fixed rate for the lending of
funds and sellers to obtain a fixed rate for borrowings. The Fund might use
Eurodollar futures contracts and options thereon to hedge against changes in
LIBOR, to which many interest rate swaps and fixed income instruments are
linked.
Use of Segregated Accounts
The Fund will not use leverage in Strategic Transactions. The Fund will
hold securities or other instruments whose values are expected to offset its
obligations under the Strategic Transactions. The Fund will not enter into
Strategic Transactions that expose the Fund to an obligation to another party
unless it owns either (i) an offsetting position in securities or other options,
futures contracts or other instruments or (ii) cash, receivables or liquid, high
grade debt securities with a value sufficient to cover its potential
obligations. The Fund may have to comply with any applicable regulatory
requirements designed to make sure that mutual funds do not use leverage in
Strategic Transactions, and if required, will set aside cash and other assets in
a segregated account with its custodian bank in the amount prescribed. In that
case, the Fund's custodian would maintain the value of such segregated account
equal to the prescribed amount by adding or removing additional cash or other
assets to account for fluctuations in the value of the account. Assets held in a
segregated account would not be sold while the Strategic Transaction is
outstanding, unless they are replaced with similar assets. As a result, there is
a possibility that segregation of a large percentage of the Fund's assets could
impede portfolio management or the Fund's ability to meet redemption requests or
other current obligations.
"When-Issued" and "Delayed Delivery" Securities
The Fund may commit up to 15% of its net assets to purchase securities
on a "when-issued" and "delayed delivery" basis, which means that delivery and
payment for the securities will normally take place 15 to 45 days after the date
of the transaction. The payment obligation and interest rate on the securities
are fixed at the time the Fund enters into the commitment, but interest will not
accrue to the Fund until delivery of and payment for the securities. Although
the Fund will only make commitments to purchase "when-issued" and "delayed
delivery" securities with the intention of actually acquiring the securities,
the Fund may sell the securities before the settlement date if deemed advisable
11
<PAGE>
by the Adviser. Unless the Fund has entered into an offsetting agreement to sell
the securities, cash or liquid, high-grade debt obligations with a market value
equal to the amount of the Fund's commitment will be segregated with the
custodian bank for the Fund. If the market value of these securities declines,
additional cash or securities will be segregated daily so that the aggregate
market value of the segregated securities equals the amount of the Fund's
commitment.
Securities purchased on a "when-issued" and "delayed delivery" 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.
Portfolio Turnover
It is not the policy of the Fund to purchase or sell securities for
trading purposes. However, the Fund places no restrictions on portfolio turnover
and it may sell any portfolio security without regard to the period of time it
has been held, except as may be necessary to maintain its status as a regulated
investment company under the Internal Revenue Code. The Fund may therefore
generally change its portfolio investments at any time in accordance with the
Adviser's appraisal of factors affecting any particular issuer or market, or the
economy in general. Portfolio turnover is not expected to exceed 200% on an
annual basis.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental policies in addition to
those described under "Investment Objectives and Policies ff Investment
Restrictions" in the Prospectus. The Fund's fundamental policies cannot be
changed unless the change is approved by the lesser of (i) 67% or more of the
voting securities present at a meeting, if the holders of more than 50% of the
outstanding voting securities of the Fund are present or represented by proxy,
or (ii) more than 50% of the outstanding voting securities of the Fund. The Fund
may not:
1. Invest more than 25% of the current value of its total assets in any
single industry, provided that this restriction shall not apply to U.S.
Government securities or mortgage-backed securities issued or
guaranteed as to principal or interest by the U.S. Government, its
agencies or instrumentalities.
2. Issue senior securities, except as permitted by paragraphs 3, 7 and 8
below. For purposes of this restriction, the issuance of shares of
beneficial interest in multiple classes or series, the deferral of
trustees' fees, the purchase or sale of options, futures contracts,
forward commitments and repurchase agreements entered into in
accordance with the Fund's investment policies or within the meaning of
paragraph 6 below, are not deemed to be senior securities.
12
<PAGE>
3. Borrow money, except (i) from banks for temporary or short-term
purposes or for the clearance of transactions in amounts not to exceed
33 1/3% of the value of the Fund's total assets (including the amount
borrowed) taken at market value, (ii) in connection with the redemption
of Fund shares or to finance failed settlements of portfolio trades
without immediately liquidating portfolio securities or other assets;
(iii) in order to fulfill commitments or plans to purchase additional
securities pending the anticipated sale of other portfolio securities
or assets and (iv) the Fund may enter into reverse repurchase
agreements and forward roll transactions. For purposes of this
investment restriction, investments in short sales, futures contracts,
options on futures contracts, securities or indices and forward
commitments shall not constitute borrowing.
4. Underwrite the securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, the Fund
may be deemed to be an underwriter under the Securities Act of 1933.
5. Purchase or sell real estate except that the Fund may (i) acquire or
lease office space for its own use, (ii) invest in securities of
issuers that invest in real estate or interests therein, (iii) invest
in securities that are secured by real estate or interests therein,
(iv) purchase and sell mortgage-related securities and (v) hold and
sell real estate acquired by the Fund as a result of the ownership of
securities.
6. Purchase securities on margin (except that the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases
and sales of securities).
7. Purchase or sell commodities or commodity contracts, except the Fund
may purchase and sell options on securities, securities indices and
currency, futures contracts on securities, securities indices and
currency and options on such futures, forward foreign currency exchange
contracts, forward commitments, securities index put or call warrants
and repurchase agreements entered into in accordance with the Fund's
investment policies.
8. Make loans, except that the Fund (1) may lend portfolio securities in
accordance with the Fund's investment policies up to 33 1/3% of the
Fund's total assets taken at market value, (2) enter into repurchase
agreements, and (3) purchase all or a portion of an issue of debt
securities, bank loan participation interests, bank certificates of
deposit, bankers' acceptances, debentures or other securities, whether
or not the purchase is made upon the original issuance of the
securities.
13
<PAGE>
For purposes of the fundamental investment restriction (1) regarding
industry concentration, the Adviser generally classifies issuers by industry in
accordance with classifications set forth in the Directory of Companies Filing
Annual Reports With The Securities and Exchange Commission. In the absence of
such classification or if the Adviser determines in good faith based on its own
information that the economic characteristics affecting a particular issuer make
it more appropriately considered to be engaged in a different industry, the
Adviser may classify an issuer according to its own sources. For instance,
personal credit finance companies and business credit finance companies are
deemed to be separate industries and wholly-owned finance companies are
considered to be in the industry of their parents if their activities are
primarily related to financing the activities of their parents.
The following restrictions are not fundamental policies and may be
changed by the Trustees without shareholder approval, in accordance with
applicable laws, regulations or regulatory policy. The Fund may not:
A. Make short sales of securities unless (a) after effect is given to any
such short sale, the total market value of all securities sold short
would not exceed 5% of the value of the Fund's net assets or (b) at all
times during which a short position is open it owns an equal amount of
such securities, or by virtue of ownership of convertible or
exchangeable securities it has the right to obtain through the
conversion or exchange of such other securities an amount equal to the
securities sold short.
B. Invest in companies for the purpose of exercising control or
management.
C. Purchase securities of any other investment company if, as a result,
(i) more than 10% of the Fund's assets would be invested in securities
of other investment companies, (ii) such purchase would result in more
than 3% of the total outstanding voting securities of any one such
investment company being held by the Fund or (iii) more than 5% of the
Fund's assets would be invested in any one such investment company. The
Fund will not purchase the securities of any open-end investment
company except when such purchase is part of a plan of merger,
consolidation, reorganization or purchase of substantially all of the
assets of any other investment company, or purchase the securities of
any closed-end investment company except in the open market where no
commission or profit to a sponsor or dealer results from the purchase,
other than customary brokerage fees. The Fund has no current intention
of investing in other investment companies.
D. Invest in interests in oil, gas or other exploration or development
programs; however, this policy will not prohibit the acquisition of
securities of companies engaged in the production or transmission of
oil, gas, or other minerals.
E. Invest more than 5% of the assets of the Fund in the securities of any
issuers which, together with their corporate parents, have records of
less than three years' continuous operation, including the operation of
any predecessor, excluding obligations issued or guaranteed by the U.S.
Government or its agencies and securities fully collateralized by such
securities and excluding securities which have been rated investment
grade by at least one nationally recognized statistical rating
organization.
14
<PAGE>
F. Invest in securities of any company if any officer or director
(Trustee) of the Trust or of the Adviser owns more than .5% of the
outstanding securities of such company and such officers and directors
(Trustees) own in the aggregate more than 5% of the securities of such
company.
G. Invest in securities which are illiquid if, as a result, more than 15%
of its net assets would consist of such securities, including
repurchase agreements maturing in more than seven days, securities that
are not readily marketable, restricted securities not eligible for
resale pursuant to Rule 144A under the 1933 Act, purchased OTC options,
certain assets used to cover written OTC options, and privately issued
stripped mortgage-backed securities.
H. Invest more than 15% of its total assets in restricted securities,
including those eligible for resale under Rule 144A under the 1933 Act.
I. Purchase securities while outstanding borrowings exceed 5% of the
Fund's net assets.
J. Invest in real estate limited partnership interests, other than real
estate investment trusts organized as limited partnerships.
K. Purchase or sell (write) options, except pursuant to the limitations
described above.
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, except with respect to restriction (F) above.
In order to permit the sale of shares of the Fund in certain states,
the Board may, in its sole discretion, adopt restrictions on investment policy
more restrictive than those described above. Should the Board determine that any
such more restrictive policy is no longer in the best interest of the Fund and
its shareholders, the Fund may cease offering shares in the state involved and
the Board may revoke such restrictive policy. Moreover, if the states involved
shall no longer require any such restrictive policy, the Board may, in its sole
discretion, revoke such policy.
CALCULATION OF PERFORMANCE DATA
As indicated in the Prospectus, the Fund may, from time to time,
advertise certain total return and yield information. The average annual total
return of the Fund for a period is computed by subtracting the net asset value
per share at the beginning of the period from the net asset value per share at
the end of the period (after adjusting for the reinvestment of any income
dividends and capital gain distributions), and dividing the result by the net
15
<PAGE>
asset value per share at the beginning of the period. In particular, the average
annual total return of the Fund ("T") is computed by using the redeemable value
at the end of a specified period of time ("ERV") of a hypothetical initial
investment of $1,000 ("P") over a period of time ("n") according to the formula
P(1+T)n=ERV.
Yield quotations shares are computed by dividing the net investment
income per share during a base period of 30 days, or one month, by the maximum
offering price (net asset value) per share of the Fund on the last day of such
base period in accordance with the following formula:
YIELD = ( 2 [(A - B + 1)^6 - 1]) / CD
Where:
a= interest earned during the period
b= net expenses accrued for the period
c= the average daily number of shares outstanding during
the period that were entitled to receive dividends
d= the maximum offering price per share (net asset
value) on the last day of the period
For purposes of calculating interest earned on debt obligations as
provided in item "a" above:
(i) The yield to maturity of each obligation held by the Fund is computed
based on the market value of the obligation (including actual accrued
interest, if any) at the close of business each day during the 30-day
base period, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest, if any) on
settlement date, and with respect to obligations sold during the month
the sale price (plus actual accrued interest, if any) between the trade
and settlement dates.
(ii) The yield to maturity of each obligation is then divided by 360 and the
resulting quotient is multiplied by the market value of the obligation
(including actual accrued interest, if any) to determine the interest
income on the obligation for each day. The yield to maturity
calculation has been made on each obligation during the 30 day base
period.
(iii) Interest earned on all debt obligations during the 30-day or one month
period is then totaled.
(iv) The maturity of an obligation with a call provision(s) is the next call
date on which the obligation reasonably may be expected to be called
or, if none, the maturity date.
16
<PAGE>
With respect to the treatment of discount and premium on mortgage or
other receivables-backed obligations which are expected to be subject to monthly
payments of principal and interest ("pay downs"), the Fund accounts for gain or
loss attributable to actual monthly pay downs as an increase or decrease to
interest income during the period. In addition, the Fund may elect (i) to
amortize the discount or premium remaining on a security, based on the cost of
the security, to the weighted average maturity date, if such information is
available, or to the remaining term of the security, if the weighted average
maturity date is not available, or (ii) not to amortize the discount or premium
remaining on a security.
The Fund may also quote non-standardized yield, such as
yield-to-maturity ("YTM"). YTM represents the rate of return an investor will
receive if a long-term, interest bearing investment, such as a bond, is held to
its maturity date. YTM does not take into account purchase price, redemption
value, time to maturity, coupon yield, and the time between interest payments.
In addition to average annual return and yield quotations, the Fund may
quote quarterly and annual performance on a net (with management and
administration fees deducted) and gross basis. Performance quotations should not
be considered as representative of the Fund's performance for any specified
period in the future.
The Fund's performance may be compared in sales literature to the
performance of other mutual funds having similar objectives or to standardized
indices or other measures of investment performance. In particular, the Fund may
compare its performance to the Lehman Government/Corporate Index, which is
generally considered to be representative of the performance of all domestic,
dollar denominated, fixed rate, investment grade bonds, and the Lehman Brothers
Aggregate Index which is composed of securities from the Lehman Brothers
Government/Corporate Bond Index, Mortgage Backed Securities Index and Yankee
Bond Index, and is generally considered to be representative of all unmanaged,
domestic, dollar denominated, fixed rate investment grade bonds. Comparative
performance may also be expressed by reference to a ranking prepared by a mutual
fund monitoring service or by one or more newspapers, newsletters or financial
periodicals. Performance comparisons may be useful to investors who wish to
compare the Fund's past performance to that of other mutual funds and investment
products. Of course, past performance is not a guarantee of future results.
MANAGEMENT
Trustees and Officers
The Trustees and executive officers of the Trust are listed below. All
executive officers of the Trust except Mr. Copley are affiliates of Standish,
Ayer & Wood, Inc., the Fund's investment adviser.
<TABLE>
<CAPTION>
<S> <C> <C>
Position Held Principal Occupation
Name and Address With Trust During Past 5 Years
- ---------------- ------------ -------------------
*D. Barr Clayson Vice President Vice President and
c/o Standish, Ayer & and Trustee Managing Director,
Wood, Inc. Standish, Ayer &
One Financial Center Wood, Inc.; President,
Boston, MA 02111 Standish International
Management Company,
L.P.
*Richard C. Doll Vice President Vice President and
c/o Standish, Ayer & and Trustee Director, Standish,
Wood, Inc. Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Samuel C. Fleming Trustee Chairman of the Board
c/o Decision and Chief Executive
Resources, Inc. Officer, Decision
1100 Winter Street Resources, Inc.
Waltham, MA 02154 through 1989, Senior
V.P. Arthur D. Little
17
<PAGE>
Benjamin M. Friedman Trustee William Joseph Maier
c/o Harvard University Professor of Political
Cambridge, MA 02138 Economy, Harvard
University
John H. Hewitt Trustee Trustee, The Peabody
P. O. Box 307 Foundation; Trustee,
So. Woodstock, VT 05071 Visiting Nurse
Alliance of Vermont
New Hampshire
*Edward H. Ladd Trustee and Chairman of the Board
c/o Standish, Ayer Vice President and Managing Director,
& Wood, Inc. Standish, Ayer & Wood,
One Financial Center Inc. since 1990;
Boston, MA 02111 formerly President of
Standish, Ayer & Wood,
Inc.
Caleb Loring III Trustee Trustee, Essex Street
c/o Essex Street Associates (family
Associates investment trust
P.O. Box 5600 office); Director,
Beverly Farms, MA 01915 Holyoke Mutual Insurance
Company
*Richard S. Wood President Vice President,
c/o Standish, Ayer & and Trustee Secretary and Director,
Wood, Inc. Standish, Ayer & Wood,
One Financial Center Inc.; Executive Vice
Boston, MA 02111 President, Standish
International
Management Company,
L.P.
James E. Hollis III Executive Vice Vice President and
c/o Standish, Ayer & President Director,
Wood, Inc. Standish, Ayer & Wood,
One Financial Center Inc.
Boston, MA 02111
David W. Murray Treasurer and Vice President, Treasurer
c/o Standish, Ayer & Secretary and Director, Standish,
Wood, Inc. Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
18
<PAGE>
Caleb F. Aldrich Vice President Vice President and
c/o Standish, Ayer & Director,
Wood, Inc. Standish, Ayer & Wood,
One Financial Center Inc.
Boston, MA 02111
Beverly E. Banfield Vice President Vice President and
c/o Standish, Ayer & Compliance Officer,
Wood, Inc. Standish, Ayer & Wood,
One Financial Center Inc.; and
Boston, MA 02111 Assistant Vice President
Compliance Officer,
Freedom Capital
Management Corp.
(1989-1992)
Nicholas S. Battelle Vice President Vice President and
c/o Standish, Ayer & Director,
Wood, Inc. Standish, Ayer & Wood,
One Financial Center Inc.
Boston, MA 02111
Walter M. Cabot Vice President Senior Advisor and
c/o Standish, Ayer & Director,
Wood, Inc. Standish, Ayer & Wood,
One Financial Center Inc.;
Boston, MA 02111 prior to 1991, President,
Harvard Management
Company
David H. Cameron Vice President Vice President and
c/o Standish, Ayer & Director,
Wood, Inc. Standish, Ayer & Wood,
One Financial Center Inc.
Boston, MA 02111
Karen K. Chandor Vice President Vice President and
c/o Standish, Ayer & Director,
Wood, Inc. Standish, Ayer & Wood,
One Financial Center Inc.
Boston, MA 02111
Lavinia B. Chase Vice President Vice President, Standish,
c/o Standish, Ayer & Ayer & Wood, Inc.
Wood, Inc.
One Financial Center
Boston, MA 02111
19
<PAGE>
Susan B. Coan Vice President Vice President, Standish,
c/o Standish, Ayer & Ayer & Wood, Inc.
Wood, Inc.
One Financial Center
Boston, MA 02111
W. Charles Cook II Vice President Vice President, Standish,
c/o Standish, Ayer & Ayer & Wood, Inc.
Wood, Inc.
One Financial Center
Boston, MA 02111
James W. Copley, Jr. Vice President Senior Portfolio
c/o Standish, Ayer & Manager, Standish, Ayer &
Wood, Inc. Wood, Inc. (since June 30,
One Financial Center 1995); President and Director,
Boston, MA 02111 Consolidated Investment
Corporation; Vice-President-
Funds Management,
Consolidated Healthcare,
Inc.
Joseph M. Corrado Vice President Vice President, Standish,
c/o Standish, Ayer & Ayer & Wood, Inc.
Wood, Inc.
One Financial Center
Boston, MA 02111
Dolores S. Driscoll Vice President Vice President and
c/o Standish, Ayer & Managing
Wood, Inc. Director, Standish, Ayer &
One Financial Center Wood, Inc.
Boston, MA 02111
Anne P. Herrmann Vice President Mutual Fund
c/o Standish, Ayer & Administrator;
Wood, Inc. formerly Portfolio
One Financial Center Accountant, Standish,
Boston, MA 02111 Ayer & Wood, Inc.
Ann S. Higgins Vice President Vice President, Standish,
c/o Standish, Ayer & Ayer & Wood, Inc.
Wood, Inc.
One Financial Center
Boston, MA 02111
20
<PAGE>
Raymond J. Kubiak Vice President Vice President and
c/o Standish, Ayer & Director, Standish,
Wood, Inc. Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Maria D. Furman Vice President Vice President and
c/o Standish, Ayer & Director,
Wood, Inc. Standish, Ayer & Wood,
One Financial Center Inc.
Boston, MA 02111
Phillip D. Leonardi Vice President Vice President, Standish,
c/o Standish, Ayer & Ayer & Wood, Inc. since
Wood, Inc. November 1993; formerly,
One Financial Center Investment Sales, Cigna
Boston, MA 02111 Corporation (1993) and
Travelers Corporation
(1984-1993)
Laurence A. Manchester Vice President Vice President and
c/o Standish, Ayer & Director,
Wood, Inc. Standish, Ayer & Wood,
One Financial Center Inc.
Boston, MA 02111
George W. Noyes Vice President President and Managing
c/o Standish, Ayer & Director, Standish, Ayer &
Wood, Inc. Wood, Inc.
One Financial Center
Boston, MA 02111
Arthur H. Parker Vice President Vice President and
c/o Standish, Ayer & Director,
Wood, Inc. Standish, Ayer & Wood,
One Financial Center Inc.
Boston, MA 02111
Jennifer A. Pline Vice President Vice President, Standish,
c/o Standish, Ayer & Ayer & Wood, Inc.
Wood, Inc.
One Financial Center
Boston, MA 02111
Howard B. Rubin Vice President Vice President and
c/o Standish, Ayer & Director,
Wood, Inc. Standish, Ayer & Wood,
One Financial Center Inc.
Boston, MA 02111
21
<PAGE>
Michael C. Schoeck Vice President Vice President, Standish,
c/o Standish, Ayer & Ayer & Wood, Inc. since
Wood, Inc. August, 1993; formerly,
One Financial Center Vice President,
Boston, MA 02111 Commerzbank, Frankfurt,
Germany
Austin C. Smith Vice President Vice President and
c/o Standish, Ayer & Director,
Wood, Inc. Standish, Ayer & Wood,
One Financial Center Inc.
Boston, MA 02111
Stephen A. Smith Vice President Vice President, Standish,
c/o Standish, Ayer & Ayer & Wood, Inc. since
Wood, Inc. November, 1993; formerly,
One Financial Center Consultant, Cambridge
Boston, MA 02111 Associates
James W. Sweeney Vice President Vice President and
c/o Standish, Ayer & Director,
Wood, Inc. Standish, Ayer & Wood,
One Financial Center Inc.
Boston, MA 02111
Ralph S. Tate Vice President Vice President and
c/o Standish, Ayer & Director,
Wood, Inc. Standish, Ayer & Wood,
One Financial Center Inc. since April, 1990;
Boston, MA 02111 formerly Vice President, Aetna Life & Casualty
Michael W. Thompson Vice President Vice President, Standish,
c/o Standish, Ayer & Ayer & Wood, Inc.
Wood, Inc.
One Financial Center
Boston, MA 02111
- ------------
* Indicates that Trustee is an interested person of the Trust for purposes of
the Investment Company Act of 1940, as amended (the "1940 Act").
</TABLE>
22
<PAGE>
Compensation of Trustees and Officers
The Fund pays no compensation to the Trust's Trustees affiliated with
the Adviser or the Trust's officers. None of the Trust's Trustees or officers
have engaged in any financial transactions with the Trust or the Adviser.
The following table sets forth all compensation paid to the Trust's
Trustees as of the fiscal year ended December 31, 1994 and estimates the amount
of such fees to be paid by the Fund during its current fiscal year:
<TABLE>
<CAPTION>
Pension or
Retirement Total
Aggregate Benefits Compensation
Compensation Accrued as from Fund and
from the Part of Other Funds in
Name of Trustee Tax Exempt Fund Fund's Expenses Complex**
- --------------- --------------- --------------- ------------
<S> <C> <C> <C>
D. Barr Clayson $0 $0 $0
Phyllis L. Cothran*** 0 0 0
Richard C. Doll 0 0 0
Samuel C. Fleming 405 0 22,500
Benjamin M. Friedman 360 0 20,000
John H. Hewitt 360 0 20,000
Edward H. Ladd 0 0 0
Caleb Loring, III 360 0 20,000
Richard S. Wood 0 0 0
- -------------
* Estimated. The Fund is newly organized
and has not paid any Trustees' fees.
** As of the date of this Statement of Additional Information,
there were 10 mutual funds in the fund complex, all of which
are series of the Trust.
*** Ms. Cothran resigned as a Trustee effective January 31, 1995.
</TABLE>
Certain Shareholders
At June 1, 1995, the Trustees and officers of the Trust as a group
beneficially owned (i.e., had voting and/or investment power) less than 1% of
the then outstanding shares of the Fund.
As of the date of this Statement of Additional Information, the Adviser
owned 100% of the outstanding shares of the Fund.
Investment Adviser
Standish, Ayer & Wood, Inc. serves as investment adviser to the Fund
pursuant to a written investment advisory agreement. The Adviser is a
Massachusetts corporation organized in 1933 and is registered under the
Investment Advisers Act of 1940.
The following, constituting all of the Directors and all of the
shareholders of the Adviser, are the controlling persons of the Adviser: Caleb
F. Aldrich, Nicholas S. Battelle, Walter M. Cabot, Sr., David H. Cameron, Karen
K. Chandor, D. Barr Clayson, Richard C. Doll, Dolores S. Driscoll, Mark A.
Flaherty, Maria D. Furman, James E. Hollis III, Raymond J. Kubiak, Edward H.
Ladd, Laurence A. Manchester, David W. Murray, George W. Noyes, Arthur H.
Parker, Howard B. Rubin, David C. Stuehr, Austin C. Smith, Ralph S. Tate, James
J. Sweeney and Richard S. Wood.
Certain services provided by the Adviser under the advisory agreement
are described in the Prospectus. In addition to those services, the Adviser
provides the Fund with office space for managing its affairs, with the services
of required executive personnel, and with certain clerical services and
facilities. These services are provided without reimbursement by the Fund for
any costs incurred. Under the investment advisory agreement, the Fund pays to
the Adviser a fee at the annual rate of 0.40% of the Fund's average daily net
assets. This fee is paid monthly.
23
<PAGE>
The Adviser has voluntarily agreed to limit certain "Total Fund
Operating Expenses" (excluding litigation, indemnification and other
extraordinary expenses) to 0.40% per annum of the Fund's average daily net
assets for the Fund's fiscal year ending December 31, 1995. This agreement is
voluntary and temporary and may be discontinued or revised by the Adviser at any
time after December 31, 1995.
Pursuant to the investment advisory agreement, the Fund bears expenses
of its operations other than those incurred by the Adviser pursuant to the
investment advisory agreement. Among other expenses, the Fund will pay share
pricing and shareholder servicing fees and expenses; custodian fees and
expenses; legal and auditing fees and expenses; expenses of prospectuses,
statements of additional information and shareholder reports; registration and
reporting fees and expenses; and Trustees' fees and expenses. The advisory
agreement provides that if the total expenses of the Fund in any fiscal year
exceed the most restrictive expense limitation applicable to the Fund in any
state in which shares of the Fund are then qualified for sale, the compensation
due the Adviser shall be reduced by the amount of the excess, by a reduction or
refund thereof at the time such compensation is payable after the end of each
calendar month during the fiscal year, subject to readjustment during the year.
Currently, the most restrictive state expense limitation provision limits the
Fund's expenses to 2 1/2% the first $30 million of average net assets, 2% of the
next $70 million of such net assets and 1 1/2% of such net assets in excess of
$100 million.
Unless terminated as provided below, the Investment Advisory Agreement
continues in full force and effect until June 1, 1997 and for successive periods
of one year thereafter, but only as long as each such continuance after June 1,
1997 is approved annually (i) by either the Trustees of the Trust or by vote of
a majority of the outstanding voting securities (as defined in the 1940 Act) of
the Fund, and, in either event (ii) by vote of a majority of the Trustees of the
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Trust who are not parties to the Investment Advisory Agreement or "interested
persons" (as defined in the 1940 Act) of any such party, cast in person at a
meeting called for the purpose of voting on such approval. The Investment
Advisory Agreement may be terminated at any time without the payment of any
penalty by vote of the Trustees of the Trust or by vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of the Fund or by the
Investment Adviser, on sixty days' written notice to the other parties. The
Investment Advisory Agreement terminates in the event of its assignment as
defined in the 1940 Act.
In an attempt to avoid any potential conflict with portfolio
transactions for the Fund, the Adviser and the Trust have adopted extensive
restrictions on personal securities trading by personnel of the Adviser and its
affiliates. These restrictions include: pre-clearance of all personal securities
transactions and a prohibition of purchasing initial public offerings of
securities. These restrictions are a continuation of the basic principle that
the interests of the Fund and its shareholders come before those of the Adviser
and its employees.
REDEMPTION OF SHARES
Detailed information on redemption of shares is included in the
Prospectus.
The Fund may suspend the right to redeem shares or postpone the date of
payment upon redemption for more than seven days (i) for any period during which
the New York Stock Exchange is closed (other than customary weekend or holiday
closings) or trading on the exchange is restricted; (ii) for any period during
which an emergency exists as a result of which disposal by the Fund of
securities owned by it or determination by the Fund of the value of its net
assets is not reasonably practicable; or (iii) for such other periods as the
Securities and Exchange Commission may permit for the protection of shareholders
of the Fund.
The Fund intends to pay redemption proceeds in cash for all shares
redeemed, but under certain conditions, the Fund may make payment wholly or
partly in portfolio securities. Portfolio securities paid upon redemption of
Fund shares will be valued at their then current market value. The Fund has
elected to be governed by the provisions of Rule 18f-1 under the 1940 Act which
contains a formula for determining the minimum amount of cash which may be paid
as part of any redemption, limiting cash payments to any shareholder during any
90-day period to the lesser of $250,000 or 1% of the Fund's net asset value at
the beginning of such period. An investor may incur brokerage costs in
converting portfolio securities received upon redemption to cash.
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PORTFOLIO TRANSACTIONS
The Adviser is responsible for placing the Fund's portfolio
transactions and will do so in a manner deemed fair and reasonable to the Fund
and not according to any formula. The primary consideration in all portfolio
transactions will be prompt execution of orders in an efficient manner at the
most favorable price. In selecting broker-dealers and in negotiating
commissions, the Adviser will consider the firm's reliability, the quality of
its execution services on a continuing basis and its financial condition. When
more than one firm is believed to meet these criteria, preference may be given
to firms which also provide research services. These services may include (i)
furnishing advice as to the value of securities, the advisability of investing
in, purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities, (ii) furnishing analyses and reports
concerning issuers, industries, securities, economic factors and trends,
portfolio strategy, and the performance of accounts, and (iii) effecting
securities transactions and performing functions incidental thereto (such as
clearance, settlement and custody). Research services furnished by firms through
which the Fund effects its securities transactions may be used by the Adviser in
servicing its other accounts; not all of these services may be used by the
Adviser in connection with the Fund. The investment advisory fee paid by the
Fund under the advisory agreement will not be reduced as a result of the
Adviser's receipt of research services.
The Adviser also places portfolio transactions for other advisory
accounts. The Adviser will seek to allocate portfolio transactions equitably
whenever concurrent decisions are made to purchase or sell securities for the
Fund and another advisory account. In some cases, this procedure could have an
adverse effect on the price or the amount of securities available to the Fund.
In making such allocations, the main factors considered by the Adviser will be
the respective investment objectives, the relative size of portfolio holdings of
the same or comparable securities, the availability of cash for investment, the
size of investment commitments generally held, and opinions of the persons
responsible for recommending the investment.
FEDERAL INCOME TAXES
Each series of the Trust, including the Fund, is treated as a separate
entity for accounting and tax purposes. The Fund intends to elect and to qualify
to be treated as a "regulated investment company" under Subchapter M of the
Internal Revenue Code, and intends to continue to so qualify in the future. As
such and by complying with the applicable provisions of the Internal Revenue
Code regarding the sources of its income, the timing of its distributions, and
the diversification of its assets, the Fund will not be subject to Federal
income tax on its investment company taxable income (i.e., all taxable income,
after reduction by deductible expenses, other than its "net capital gain," which
is the excess, if any, of its net long-term capital gain over its net short-term
capital loss) and net capital gain which are distributed to shareholders at
least annually in accordance with the timing requirements of the Internal
Revenue Code.
The Fund will be subject to a 4% non-deductible federal excise tax on
certain amounts not distributed (and not treated as having been distributed) on
a timely basis in accordance with annual minimum distribution requirements. The
Fund intends under normal circumstances to avoid liability for such tax by
satisfying such distribution requirements.
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The Fund is not subject to Massachusetts corporate excise or franchise
taxes. Provided that the Fund qualifies as a regulated investment company under
the Internal Revenue Code, it will also not be required to pay any Massachusetts
income tax.
The Fund will not distribute net capital gains realized in any year to
the extent that a capital loss is carried forward from prior years against such
gain. For federal income tax purposes, the Fund is permitted to carry forward a
net capital loss in any year to offset its own net capital gains, if any, during
the eight years following the year of the loss. To the extent subsequent net
capital gains are offset by such losses, they would not result in federal income
tax liability to the Fund and, as noted above, would not be distributed as such
to shareholders.
If the Fund invests in certain zero coupon securities, increasing rate
securities or, in general, other securities with original issue discount (or
with market discount if the Fund elects to include market discount in income
currently), the Fund must accrue income on such investments prior to the receipt
of the corresponding cash payments. However, the Fund must distribute, at least
annually, all or substantially all of its net income, including such accrued
income, to shareholders to qualify as a regulated investment company under the
Internal Revenue Code and avoid federal income and excise taxes. Therefore, the
Fund may have to dispose of its portfolio securities under disadvantageous
circumstances to generate cash, or may have to leverage itself by borrowing the
cash, to satisfy distribution requirements.
Limitations imposed by the Internal Revenue Code on regulated
investment companies like the Fund may restrict the Fund's ability to enter into
futures and options transactions.
Certain options and futures transactions undertaken by the Fund may
cause the Fund to recognize gains or losses from marking to market even though
its positions have not been sold or terminated and affect the character as
long-term or short-term (or, in the case of certain options and futures, as
ordinary income or loss) and timing of some capital gains and losses realized by
the Fund. Any net mark to market gains may also have to be distributed to
satisfy the distribution requirements referred to above even though no
corresponding cash amounts may concurrently be received, possibly requiring the
disposition of portfolio securities or borrowing to obtain the necessary cash.
Also, certain of the Fund's losses on its transactions involving options or
futures contracts and/or offsetting portfolio positions may be deferred rather
than being taken into account currently in calculating the Fund's taxable income
or gain. Certain of the applicable tax rules may be modified if the Fund is
eligible and chooses to make one or more of certain tax elections that may be
available. These transactions may therefore affect the amount, timing and
character of the Fund's distributions to shareholders. The Fund will take into
account the special tax rules (including consideration of available elections)
applicable to options or futures contracts in order to minimize any potential
adverse tax consequences.
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The federal income tax rules applicable to mortgage dollar rolls and
interest rate swaps, caps, floors and collars are unclear in certain respects,
and the Fund may be required to account for these instruments under tax rules in
a manner that, under certain circumstances, may limit its transactions in these
instruments.
Due to possible unfavorable consequences under present tax law, the
Fund does not currently intend to acquire "residual" interests in real estate
mortgage investment conduits ("REMICs"), although the Fund may acquire "regular"
interests in REMICs.
Distributions from the Fund's current or accumulated earnings and
profits ("E&P"), as computed for Federal income tax purposes, will be taxable as
described in the Fund's Prospectus whether taken in shares or in cash.
Distributions, if any, in excess of E&P will constitute a return of capital,
which will first reduce an investor's tax basis in Fund shares and thereafter
(after such basis is reduced to zero) will generally give rise to capital gains.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for federal income tax purposes in each share so received
equal to the amount of cash they would have received had they elected to receive
the distributions in cash, divided by the number of shares received.
The Fund's distributions to its corporate shareholders would
potentially qualify in their hands for the corporate dividends received
deduction, subject to certain holding period requirements and limitations on
debt financing under the Code, only to the extent the Fund earned dividend
income from stock investments in U.S. domestic corporations. Although the Fund
is not expected to concentrate its investments in such stock, the Fund is
permitted to acquire preferred stocks, and it is therefore possible that a
portion of its distributions, attributable to the dividends it receives with
respect to such preferred stocks, may qualify for the dividends received
deduction. Such qualifying portion, if any, may affect a corporate shareholder's
liability for alternative minimum tax and/or result in basis reductions in
certain circumstances.
At the time of an investor's purchase of Fund shares, a portion of the
purchase price is often attributable to undistributed net investment income
and/or realized or unrealized appreciation in the Fund's portfolio.
Consequently, subsequent distributions from such income and/or appreciation may
be taxable to such investor even if the net asset value of the investor's shares
is, as a result of the distributions, reduced below the investor's cost for such
shares, and the distributions in reality represent a return of a portion of the
purchase price.
Upon a redemption (including a repurchase) of shares of the Fund, a
shareholder may realize a taxable gain or loss, depending upon the difference
between the redemption proceeds and the shareholder's tax basis in his shares.
Such gain or loss will be treated as capital gain or loss if the shares are
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capital assets in the shareholder's hands and will be long-term or short-term,
depending upon the shareholder's tax holding period for the shares. Any loss
realized on a redemption may be disallowed to the extent the shares disposed of
are replaced within a period of 61 days beginning 30 days before and ending 30
days after the shares are disposed of, such as pursuant to automatic dividend
reinvestments. In such a case, the basis of the shares acquired will be adjusted
to reflect the disallowed loss. Any loss realized upon the redemption of shares
with a tax holding period of six months or less will be treated as a long-term
capital loss to the extent of any amounts treated as distributions of long-term
capital gain with respect to such shares.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions and certain prohibited transactions, is accorded to accounts
maintained as qualified retirement plans. Shareholders should consult their tax
advisers for more information.
The foregoing discussion relates solely to U.S. Federal income tax law
as applicable to U.S. persons (i.e., U.S. citizens or residents and U.S.
domestic corporations, partnerships, trusts or estates) subject to tax under
such law. The discussion does not address special tax rules applicable to
certain classes of investors, such as tax-exempt entities, insurance companies,
and financial institutions. Dividends, capital gain distributions, and ownership
of or gains realized on the redemption (including an exchange) of Fund shares
may also be subject to state and local taxes. Shareholders should consult their
own tax advisers as to the Federal, state or local tax consequences of ownership
of shares of, and receipt of distributions from, the Fund in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which
their investment in the Fund is effectively connected will be subject to U.S.
Federal income tax treatment that is different from that described above. These
investors may be subject to nonresident alien withholding tax at the rate of 30%
(or a lower rate under an applicable tax treaty) on amounts treated as ordinary
dividends from the Fund and, unless an effective IRS Form W-8 or authorized
substitute is on file, to 31% backup withholding on certain other payments from
the Fund. Non-U.S. investors should consult their tax advisers regarding such
treatment and the application of foreign taxes to an investment in the Fund.
DETERMINATION OF NET ASSET VALUE
The Fund's net asset value is calculated each day on which the New York
Stock Exchange is open. Currently the New York Stock Exchange is not open on
weekends, New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas. The net asset value
of the Fund's shares is determined as of the close of regular trading on the New
York Stock Exchange (currently 4:00 p.m., New York City time) and is computed by
dividing the value of all securities and other assets of the Fund less all
liabilities by the number of shares outstanding, and adjusting to the nearest
cent per share. Expenses and fees, including the investment advisory fee, are
accrued daily and taken into account for the purpose of determining net asset
value.
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Portfolio 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. 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 by the
Adviser in accordance with procedures approved by the Trustees.
Money market instruments with less than sixty days remaining to
maturity when acquired by the Fund are valued on an amortized cost basis. If the
Fund acquires a money market instrument with more than sixty 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 the value on
such date unless the Trustees determine during such sixty-day period that
amortized cost does not represent fair value.
THE FUND AND ITS SHARES
The Fund is an 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 represents an equal
proportionate interest in the Fund with each other share and is entitled to such
dividends and distributions as are declared by the Trustees. Upon any
liquidation of the Fund, shareholders are entitled to share pro rata in the net
assets available for distribution.
All Fund shares have equal rights with regard to voting, and
shareholders of the Fund have the right to vote as a separate class with respect
to matters as to which their interests are not identical to those of
shareholders of other classes of the Trust, including the approval of an
investment advisory contract and any change of investment policy requiring the
approval of shareholders.
Under Massachusetts law, shareholders of the Trust could, under certain
circumstances, be held liable for the obligations of the Trust. However, the
Agreement and Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of this disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or a Trustee. The Declaration also provides for indemnification from the assets
of the Trust for all losses and expenses of any Trust shareholder held liable
for the obligations of the Trust. Thus, the risk of a shareholder incurring a
financial loss on account of its liability as a shareholder of the Trust is
limited to circumstances in which the Trust would be unable to meet its
obligations. The possibility that these circumstances would occur is remote.
Upon payment of any liability incurred by the Trust, the shareholder paying the
liability will be entitled to reimbursement from the general assets of the
Trust. The Trustees intend to conduct the operations of the Trust to avoid, to
the extent possible, ultimate liability of shareholders for liabilities of the
Trust.
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ADDITIONAL INFORMATION
The Fund's Prospectus and this Statement of Additional Information omit
certain information contained in the registration statement filed with the
Securities and Exchange Commission, which may be obtained from the Commission's
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment
of the fee prescribed by the rules and regulations promulgated by the
Commission.
FINANCIAL STATEMENTS
The Fund's financial statements for the period ended October 31, 1995
attached to and incorporated into this Statement of Additional Information are
unaudited.
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June 1, 1995
As Revised December 31, 1995
STANDISH CONTROLLED MATURITY FUND
One Financial Center
Boston, Massachusetts 02111
(617) 350-6100
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus, but
expands upon and supplements the information contained in the Prospectus dated
June 1, 1995, as amended and/or supplemented from time to time (the
"Prospectus"), of Standish Controlled Maturity Fund (the "Fund"), a separate
investment series of Standish, Ayer & Wood Investment Trust (the "Trust"). This
Statement of Additional Information should be read in conjunction with the
Prospectus which may be obtained without charge from the Fund by calling the
telephone number or writing to the address listed above.
Contents
Investment Objectives and Policies 2
Investment Restrictions 9
Calculation of Performance Data 12
Management 14
Redemption of Shares 22
Portfolio Transactions 22
Federal Income Taxes 23
Determination of Net Asset Value 25
The Fund and Its Shares 26
Additional Information 26
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
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INVESTMENT OBJECTIVES AND POLICIES
The Fund's Prospectus describes the investment objectives of the Fund
and summarizes the investment policies it will follow. The following discussion
supplements the description of the Fund's investment policies in the Prospectus.
Maturity
The effective maturity of an individual portfolio security in which the
Fund invests is defined as the period remaining until the earliest date when the
Fund can recover the principal amount of such security through mandatory
redemption or prepayment by the issuer, the exercise by the Fund of a put
option, demand feature or tender option granted by the issuer or a third party
or the payment of the principal on the stated maturity date. (Duration of an
individual portfolio security is a measure of the security's price sensitivity
taking into account expected cash flow and prepayments under a wide range of
interest rate scenarios.) The effective maturity of variable rate securities is
calculated by reference to their coupon resent dates. Thus, the effective
maturity of a security may be substantially shorter than its final stated
maturity. Unscheduled prepayments of principal have the effect of shortening the
effective maturities of securities in general and mortgage-backed securities in
particular. Prepayment rates are influenced by changes in current interest rates
and a variety of economic, geographic, social and other factors and cannot be
predicted with certainty. In general, securities, such as mortgage-backed
securities, may be subject to greater prepayment rates in a declining interest
rate environment. Conversely, in an increasing interest rate environment, the
rate of prepayment may be expected to decrease. A higher than anticipated rate
of unscheduled principal prepayments on securities purchased at a premium or a
lower than anticipated rate of unscheduled payments on securities purchased at a
discount may result in a lower yield (and total return) to the Fund than was
anticipated at the time the securities were purchased. The Fund's reinvestment
of unscheduled prepayments may be made at rates higher or lower than the rate
payable on such security, thus affecting the return realized by the Fund.
Money Market Instruments and Repurchase Agreements
Money market instruments include short-term U.S. Government securities,
commercial paper (promissory notes issued by corporations to finance their
short-term credit needs), negotiable certificates of deposit, non-negotiable
fixed time deposits, bankers' acceptances and repurchase agreements
collateralized by such instruments.
U.S. Government securities include securities which are direct
obligations of the U.S. Government backed by the full faith and credit of the
United States, and securities issued by agencies and instrumentalities of the
U.S. Government, which may be guaranteed by the U.S. Treasury or supported by
the issuer's right to borrow from the Treasury or may be backed by the credit of
the federal agency or instrumentality itself. Agencies and instrumentalities of
the U.S. Government include, but are not limited to, Federal Land Banks, the
Federal Farm Credit Bank, the Central Bank for Cooperatives, Federal
Intermediate Credit Banks, Federal Home Loan Banks and the Federal National
Mortgage Association.
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Investments in commercial paper will be rated Prime-1 by Moody's
Investors Service, Inc. ("Moody's") or A-1 by Standard & Poor's Ratings Group
("Standard & Poor's") or Duff 1+ by Duff & Phelps, which are the highest ratings
assigned by these rating services (even if rated lower by one or more of the
other agencies), or which, if not rated or rated lower by one or more of the
agencies and not rated by the other agency or agencies, are judged by the
Adviser to be of equivalent credit quality to the securities so rated.
A repurchase agreement is an agreement under which the Fund acquires
money market instruments (generally U.S. Government securities, bankers'
acceptances or certificates of deposit) from a commercial bank, broker or
dealer, subject to resale to the seller at an agreed-upon price and date
(normally the next business day). The resale price reflects an agreed-upon
interest rate effective for the period the instruments are held by the Fund and
is unrelated to the interest rate on the instruments. The instruments acquired
by the Fund (including accrued interest) must have an aggregate market value in
excess of the resale price and will be held by the custodian bank for the Fund
until they are repurchased. In evaluating whether to enter a repurchase
agreement, the investment adviser, Standish, Ayer & Wood, Inc. (the "Adviser"),
will carefully consider the creditworthiness of the seller pursuant to
procedures reviewed and approved by the Trust's Board of Trustees.
The use of repurchase agreements involves certain risks. For example,
if the seller defaults on its obligation to repurchase the instruments acquired
by the Fund at a time when their market value has declined, the Fund may incur a
loss. If the seller becomes insolvent or subject to liquidation or
reorganization under bankruptcy or other laws, a court may determine that the
instruments acquired by the Fund are collateral for a loan by the Fund and
therefore are subject to sale by the trustee in bankruptcy. Finally, it is
possible that the Fund may not be able to substantiate its interest in the
instruments it acquires. While the Trustees acknowledge these risks, it is
expected that they can be controlled through careful documentation and
monitoring.
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 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 objectives, the Fund may
purchase and sell (write) exchange-listed and over-the-counter put and call
options on securities, 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
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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 or interest 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 1% of the Fund's net
assets at any one time and, to the extent necessary, the Fund will close out
transactions in order to comply with this limitation. (Transactions such as
writing covered call options are considered to involve hedging for the purposes
of this limitation.) In calculating the Fund's net loss exposure from such
Strategic Transactions, an unrealized gain from a particular Strategic
Transaction position would be netted against an unrealized loss from a related
Strategic Transaction position. For example, if the Adviser believes that
short-term interest rates as indicated in the forward yield curve are too high,
the Fund may take a short position in a near-term Eurodollar futures contract
and a long position in a longer-dated Eurodollar futures contract. Under such
circumstances, any unrealized loss in the near-term Eurodollar futures position
would be netted against any unrealized gain in the longer- dated Eurodollar
futures position (and vice versa) for purposes of calculating the Fund's net
loss exposure. The ability of the Fund to utilize these Strategic Transactions
successfully will depend on the Adviser's ability to predict pertinent market
and interest rate 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 "Internal Revenue Code"), for
qualification as a regulated investment company.
Risks of Strategic Transactions
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 or interest rate movements is
incorrect, the risk that the use of such Strategic Transactions could result in
losses greater than if they had not been used. The writing of put and call
options may result in losses to the Fund, force the purchase or sale,
respectively, of portfolio securities at inopportune times or for prices higher
than (in the case of purchases due to the exercise of put options) or lower than
(in the case of sales due to the exercise of call options) current market
values, limit the amount of appreciation the Fund can realize on its investments
or cause the Fund to hold a security it might otherwise sell. The use of options
and futures transactions entails certain other risks. In particular, the
variable degree of correlation between price movements of futures contracts and
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<PAGE>
price movements in the related portfolio position of the Fund creates the
possibility that losses on the hedging instrument may be greater than gains in
the value of the Fund's position. The writing of options could significantly
increase the Fund's portfolio turnover rate and, therefore, associated brokerage
commissions or spreads. In addition, futures and options markets may not be
liquid in all circumstances and certain over-the-counter options may have no
markets. As a result, in certain markets, the Fund might not be able to close
out a transaction without incurring substantial losses, if at all. Although the
use of futures and options transactions for hedging should tend to minimize the
risk of loss due to a decline in the value of the hedged position, at the same
time, in certain circumstances, they tend to limit any potential gain which
might result from an increase in value of such position. The loss incurred by
the Fund in writing options on futures and entering into futures transactions is
potentially unlimited; however, as described above, the Fund will limit its net
loss exposure resulting from Strategic Transactions entered into for non-hedging
purposes to 1% of its net assets at any one time. Futures markets are highly
volatile and the use of futures may increase the volatility of the Fund's net
asset value. Finally, entering into futures contracts would create a greater
ongoing potential financial risk than would purchases of options where the
exposure is limited to the cost of the initial premium. Losses resulting from
the use of Strategic Transactions would reduce net asset value and the net
result may be less favorable than if the Strategic Transactions had not been
utilized.
General Characteristics of Options
Put options and call options typically have similar structural
characteristics and operational mechanics regardless of the underlying
instrument on which they are purchased or sold. Thus, the following general
discussion relates to each of the particular types of options discussed in
greater detail below. In addition, many Strategic Transactions involving options
require segregation of the Fund's assets in special accounts, as described below
under "Use of Segregated Accounts."
A put option gives the purchaser of the option, in consideration for
the payment of a premium, the right to sell, and the writer the obligation to
buy (if the option is exercised), the underlying security, commodity, index or
other instrument at the exercise price. For instance, the Fund's purchase of a
put option on a security might be designed to protect its holdings in the
underlying instrument (or, in some cases, a similar instrument) against a
substantial decline in the market value by giving the Fund the right to sell
such instrument at the option exercise price. A call option, in consideration
for the payment of a premium, gives the purchaser of the option the right to
buy, and the seller the obligation to sell (if the option is exercised), the
underlying instrument at the exercise price. The Fund may purchase a call option
on a security, futures contract, index or other instrument to seek to protect
the Fund against an increase in the price of the underlying instrument that it
intends to purchase in the future by fixing the price at which it may purchase
such instrument. An American style put or call option may be exercised at any
time during the option period while a European style put or call option may be
5
<PAGE>
exercised only upon expiration or during a fixed period prior thereto. The Fund
is authorized to purchase and sell exchange listed options and over-the-counter
options ("OTC" options). Exchange listed options are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"), which guarantees
the performance of the obligations of the parties to such options. The
discussion below uses the OCC as an example but is also applicable to other
financial intermediaries.
With certain exceptions, exchange listed options generally settle by
physical delivery of the underlying security, although in the future cash
settlement may become available. Index options and Eurodollar instruments are
cash settled for the net amount, if any, by which the option is in-the-money
(i.e., where the value of the underlying instrument exceeds, in the case of a
call option, or is less than, in the case of a put option, the exercise price of
the option) at the time the option is exercised. Frequently, rather than taking
or making delivery of the underlying instrument through the process of
exercising the option, listed options are closed by entering into offsetting
purchase or sale transactions that do not result in ownership of the new option.
The Fund's ability to close out its position as a purchaser or seller
of an exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. There is no assurance that a liquid option
market on an exchange will exist. In the event that the relevant market for an
option on an exchange ceases to exist, outstanding options on that exchange
would generally continue to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct agreement with
the Counterparty. In contrast to exchange listed options, which generally have
standardized terms and performance mechanics, all the terms of an OTC option,
including such terms as method of settlement, term, exercise price, premium,
guarantees and security, are set by negotiation of the parties. The Fund will
generally sell (write) OTC options that are subject to a buy-back provision
permitting the Fund to require the Counterparty to sell the option back to the
Fund at a formula price within seven days. (To the extent that the Fund does not
do so, the OTC options are subject to the Fund's restriction on investments in
illiquid securities.) The Fund expects generally to enter into OTC options that
have cash settlement provisions, although it is not required to do so.
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Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make delivery of the security or other instrument underlying an OTC option it
has entered into with the Fund or fails to make a cash settlement payment due in
accordance with the terms of that option, the Fund will lose any premium it paid
for the option as well as any anticipated benefit of the transaction.
Accordingly, the Adviser must assess the creditworthiness of each such
Counterparty or any guarantor or credit enhancement of the Counterparty's credit
to determine the likelihood that the terms of the OTC option will be satisfied.
The Fund will engage in OTC option transactions only with U.S. Government
securities dealers recognized by the Federal Reserve Bank of New York as
"Primary dealers," or broker dealers, domestic banks or other financial
institutions which have received, combined with any credit enhancements, a
long-term debt rating of A from Standard & Poor's or Moody's or an equivalent
rating from any other nationally recognized statistical rating organization
("NRSRO") or which issue debt that is determined to be of equivalent credit
quality by the Adviser. The staff of the Securities and Exchange Commission
("SEC") currently takes the position that, absent the buy-back provisions
discussed above, OTC options purchased by the Fund, and portfolio securities
"covering" the amount of the Fund's obligation pursuant to an OTC option sold by
it (the cost of the sell-back plus the in-the-money amount, if any) are
illiquid, and are subject to the Fund's limitation on investing no more than 15%
of its assets in illiquid securities. However, for options written with "primary
dealers" pursuant to an agreement requiring a closing purchase transaction at a
formula price, the amount which is considered to be illiquid may be calculated
by reference to a formula price.
If the Fund sells (writes) a call option, the premium that it receives
may serve as a partial hedge, to the extent of the option premium, against a
decrease in the value of the underlying securities or instruments in its
portfolio or will increase the Fund's income. The sale (writing) of put options
can also provide income.
The Fund may purchase and sell (write) call options on securities
including U.S. Treasury and agency securities, mortgage-backed and asset-backed
securities, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments that are traded on U.S. and foreign
securities exchanges and in the over-the-counter markets, and on securities
indices and futures contracts. All calls sold by the Fund must be "covered"
(i.e., the Fund must own the securities or the futures contract subject to the
call) or must meet the asset segregation requirements described below as long as
the call is outstanding. In addition, the Fund may cover a written call option
or put option by entering into an offsetting forward contract and/or by
purchasing an offsetting option or any other option which, by virtue of its
exercise price or otherwise, reduces the Fund's net exposure on its written
option position.
Even though the Fund will receive the option premium to help offset any
loss, the Fund may incur a loss if the exercise price is below the market price
for the security subject to the call at the time of exercise. A call sold by the
Fund also exposes the Fund during the term of the option to possible loss of
opportunity to realize appreciation in the market price of the underlying
security or instrument and may require the Fund to hold a security or instrument
which it might otherwise have sold.
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The Fund may purchase and sell (write) put options on securities
including U.S. Treasury and agency securities, mortgage-backed and asset-backed
securities, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments (whether or not it holds the above
securities in its portfolio), and on securities indices and futures contracts.
The Fund will not sell put options if, as a result, more than 50% of the Fund's
assets would be required to be segregated to cover its potential obligations
under such put options other than those with respect to futures and options
thereon. In selling put options, there is a risk that the Fund may be required
to buy the underlying security at a price above the market price.
Options on Securities Indices and Other Financial Indices
The Fund may also purchase and sell (write) call and put options on
securities indices and other financial indices. Options on securities indices
and other financial indices are similar to options on a security or other
instrument except that, rather than settling by physical delivery of the
underlying instrument, they settle by cash settlement. For example, an option on
an index gives the holder the right to receive, upon exercise of the option, an
amount of cash if the closing level of the index upon which the option is based
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option (except if, in the case of an OTC option, physical
delivery is specified). This amount of cash is equal to the differential between
the closing price of the index and the exercise price of the option, which also
may be multiplied by a formula value. The seller of the option is obligated, in
return for the premium received, to make delivery of this amount. In addition to
the methods described above, the Fund may cover call options on a securities
index by owning securities whose price changes are expected to be similar to
those of the underlying index, or by having an absolute and immediate right to
acquire such securities without additional cash consideration (or for additional
cash consideration held in a segregated account by its custodian) upon
conversion or exchange of other securities in its portfolio.
General Characteristics of Futures
The Fund may enter into financial futures contracts or purchase or sell
put and call options on such futures. Futures are generally bought and sold on
the commodities exchanges where they are listed and involve payment of initial
and variation margin as described below. All futures contracts entered into by
the Fund are traded on U.S. exchanges or boards of trade that are licensed and
regulated by the Commodity Futures Trading Commission ("CFTC") or on certain
foreign exchanges.
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The sale of futures contracts creates a firm obligation by the Fund, as
seller, to deliver to the buyer the specific type of financial instrument called
for in the contract at a specific future time for a specified price (or, with
respect to index futures and Eurodollar instruments, the net cash amount). The
purchase of futures contracts creates a corresponding obligation by the Fund, as
purchaser to purchase a financial instrument at a specified time and price.
Options on futures contracts are similar to options on securities except that an
option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract and obligates the
seller to deliver such position, if the option is exercised.
The Fund's use of financial futures and options thereon will in all
cases be consistent with applicable regulatory requirements and in particular
the regulations of the CFTC relating to exclusions from regulation as a
commodity pool operator. Those regulations currently provide that the Fund may
use commodity futures and option positions (i) for bona fide hedging purposes
without regard to the percentage of assets committed to margin and option
premiums, or (ii) for other purposes permitted by the SEC to the extent that the
aggregate initial margin and option premiums required to establish such
non-hedging positions (net of the amount that the positions were "in the money"
at the time of purchase) do not exceed 5% of the liquidation value (i.e., the
net asset value) of the Fund's portfolio, after taking into account unrealized
profits and losses on such positions. Typically, maintaining a futures contract
or selling an option thereon requires the Fund to deposit, with a financial
intermediary for the benefit of a futures commission merchant, as security for
its obligations an amount of cash or other specified assets (initial margin)
which initially is typically 1% to 10% of the face amount of the contract (but
may be higher in some circumstances). Additional cash or assets (variation
margin) may be required to be deposited directly with the futures commission
merchant thereafter on a daily basis as the value of the contract fluctuates.
The purchase of an option on financial futures involves payment of a premium for
the option without any further obligation on the part of the Fund. If the Fund
exercises an option on a futures contract it will be obligated to post initial
margin (and potential subsequent variation margin) for the resulting futures
position just it would for any position. Futures contracts and options thereon
are generally settled by entering into an offsetting transaction but there can
be no assurance that the position can be offset prior to settlement at an
advantageous price, nor that delivery will occur. The segregation requirements
with respect to futures contracts and options thereon are described below.
Combined Transactions
The Fund may enter into multiple transactions, including multiple
options transactions, multiple futures transactions, and multiple interest rate
transactions, structured notes and any combination of futures, options, and
interest rate transactions (component transactions), instead of a single
Strategic Transaction, as part of a single or combined strategy when, in the
opinion of the Adviser it is in the best interests of the Fund to do so. A
combined transaction will usually contain elements of risk that are present in
each of its component transactions. Although combined transactions are normally
entered into based on the Adviser's judgment that the combined strategies will
reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the portfolio management objective.
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Swaps, Caps, Floors and Collars
Among the Strategic Transactions into which the Fund may enter are
interest rate and index swaps and the purchase or sale of related caps, floors
and collars. The Fund expects to enter into these transactions primarily for
hedging purposes, including, but not limited to, preserving a return or spread
on a particular investment or portion of its portfolio, as a duration management
technique or protecting against an increase in the price of securities the Fund
anticipates purchasing at a later date. Swaps, caps, floors and collars may also
be used to enhance potential gain in circumstances where hedging is not involved
although, as described above, the Fund's net loss exposure resulting from swaps,
caps, floors and collars and other Strategic Transactions entered into for such
purposes will not exceed 1% of the Fund's net assets at any one time. The Fund
will not sell interest rate caps or floors where it does not own securities or
other instruments providing the income stream the Fund may be obligated to pay.
Interest rate swaps involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest (e.g., an exchange of floating
rate payments for fixed rate payments with respect to a notional amount of
principal). An index swap is an agreement to swap cash flows on a notional
amount based on changes in the values of the reference indices. The purchase of
a cap entitles the purchaser to receive payments on a notional principal amount
from the party selling such cap to the extent that a specified index exceeds a
predetermined interest rate or amount. The purchase of a floor entitles the
purchaser to receive payments on a notional principal amount from the party
selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain rate of return within a predetermined range of
interest rates or values.
The Fund will usually enter into swaps on a net basis (i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments). The Fund will not enter into any
swap, cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the Counterparty, combined with any
credit enhancements, is rated at least A by Standard & Poor's or Moody's or has
an equivalent rating from an NRSRO or which issue debt that is determined to be
of equivalent credit quality by the Adviser. If there is a default by the
Counterparty, the Fund may have contractual remedies pursuant to the agreements
related to the transaction. The swap market has grown substantially in recent
years with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
the swap market has become relatively liquid. Caps, floors and collars are more
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recent innovations for which standardized documentation has not yet been fully
developed. Swaps, caps, floors and collars are considered illiquid for purposes
of the Fund's policy regarding illiquid securities, unless it is determined,
based upon continuing review of the trading markets for the specific security,
that such security is liquid. The Board of Trustees has adopted guidelines and
delegated to the Adviser the daily function of determining and monitoring the
liquidity of swaps, caps, floors and collars. 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. The staff of the SEC currently takes the position that swaps,
caps, floors and collars are illiquid, and are subject to the Fund's limitation
on investing in illiquid securities.
Eurodollar Contracts
The Fund may make investments in Eurodollar contracts. Eurodollar
contracts are U.S. dollar-denominated futures contracts or options thereon which
are linked to the London Interbank Offered Rate ("LIBOR"), although foreign
currency-denominated instruments are available from time to time. Eurodollar
futures contracts enable purchasers to obtain a fixed rate for the lending of
funds and sellers to obtain a fixed rate for borrowings. The Fund might use
Eurodollar futures contracts and options thereon to hedge against changes in
LIBOR, to which many interest rate swaps and fixed income instruments are
linked.
Use of Segregated Accounts
The Fund will not use leverage in Strategic Transactions. The Fund will
hold securities or other instruments whose values are expected to offset its
obligations under the Strategic Transactions. The Fund will not enter into
Strategic Transactions that expose the Fund to an obligation to another party
unless it owns either (i) an offsetting position in securities or other options,
futures contracts or other instruments or (ii) cash, receivables or liquid, high
grade debt securities with a value sufficient to cover its potential
obligations. The Fund may have to comply with any applicable regulatory
requirements designed to make sure that mutual funds do not use leverage in
Strategic Transactions, and if required, will set aside cash and other assets in
a segregated account with its custodian bank in the amount prescribed. In that
case, the Fund's custodian would maintain the value of such segregated account
equal to the prescribed amount by adding or removing additional cash or other
assets to account for fluctuations in the value of the account. Assets held in a
segregated account would not be sold while the Strategic Transaction is
outstanding, unless they are replaced with similar assets. As a result, there is
a possibility that segregation of a large percentage of the Fund's assets could
impede portfolio management or the Fund's ability to meet redemption requests or
other current obligations.
"When-Issued" and "Delayed Delivery" Securities
The Fund may commit up to 15% of its net assets to purchase securities
on a "when-issued" and "delayed delivery" basis, which means that delivery and
payment for the securities will normally take place 15 to 45 days after the date
of the transaction. The payment obligation and interest rate on the securities
are fixed at the time the Fund enters into the commitment, but interest will not
accrue to the Fund until delivery of and payment for the securities. Although
the Fund will only make commitments to purchase "when-issued" and "delayed
delivery" securities with the intention of actually acquiring the securities,
the Fund may sell the securities before the settlement date if deemed advisable
by the Adviser. Unless the Fund has entered into an offsetting agreement to sell
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the securities, cash or liquid, high-grade debt obligations with a market value
equal to the amount of the Fund's commitment will be segregated with the
custodian bank for the Fund. If the market value of these securities declines,
additional cash or securities will be segregated daily so that the aggregate
market value of the segregated securities equals the amount of the Fund's
commitment.
Securities purchased on a "when-issued" and "delayed delivery" 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.
Portfolio Turnover
It is not the policy of the Fund to purchase or sell securities for
trading purposes. However, the Fund places no restrictions on portfolio turnover
and it may sell any portfolio security without regard to the period of time it
has been held, except as may be necessary to maintain its status as a regulated
investment company under the Internal Revenue Code. The Fund may therefore
generally change its portfolio investments at any time in accordance with the
Adviser's appraisal of factors affecting any particular issuer or market, or the
economy in general. Portfolio turnover is not expected to exceed 200% on an
annual basis.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental policies in addition to
those described under "Investment Objectives and Policies ff Investment
Restrictions" in the Prospectus. The Fund's fundamental policies cannot be
changed unless the change is approved by the lesser of (i) 67% or more of the
voting securities present at a meeting, if the holders of more than 50% of the
outstanding voting securities of the Fund are present or represented by proxy,
or (ii) more than 50% of the outstanding voting securities of the Fund. The Fund
may not:
1. Invest more than 25% of the current value of its total assets in any
single industry, provided that this restriction shall not apply to U.S.
Government securities or mortgage-backed securities issued or
guaranteed as to principal or interest by the U.S. Government, its
agencies or instrumentalities.
2. Issue senior securities, except as permitted by paragraphs 3, 7 and 8
below. For purposes of this restriction, the issuance of shares of
beneficial interest in multiple classes or series, the deferral of
trustees' fees, the purchase or sale of options, futures contracts,
forward commitments and repurchase agreements entered into in
accordance with the Fund's investment policies or within the meaning of
paragraph 6 below, are not deemed to be senior securities.
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3. Borrow money, except (i) from banks for temporary or short-term
purposes or for the clearance of transactions in amounts not to exceed
33 1/3% of the value of the Fund's total assets (including the amount
borrowed) taken at market value, (ii) in connection with the redemption
of Fund shares or to finance failed settlements of portfolio trades
without immediately liquidating portfolio securities or other assets;
(iii) in order to fulfill commitments or plans to purchase additional
securities pending the anticipated sale of other portfolio securities
or assets and (iv) the Fund may enter into reverse repurchase
agreements and forward roll transactions. For purposes of this
investment restriction, investments in short sales, futures contracts,
options on futures contracts, securities or indices and forward
commitments shall not constitute borrowing.
4. Underwrite the securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, the Fund
may be deemed to be an underwriter under the Securities Act of 1933.
5. Purchase or sell real estate except that the Fund may (i) acquire or
lease office space for its own use, (ii) invest in securities of
issuers that invest in real estate or interests therein, (iii) invest
in securities that are secured by real estate or interests therein,
(iv) purchase and sell mortgage-related securities and (v) hold and
sell real estate acquired by the Fund as a result of the ownership of
securities.
6. Purchase securities on margin (except that the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases
and sales of securities).
7. Purchase or sell commodities or commodity contracts, except the Fund
may purchase and sell options on securities, securities indices and
currency, futures contracts on securities, securities indices and
currency and options on such futures, forward foreign currency exchange
contracts, forward commitments, securities index put or call warrants
and repurchase agreements entered into in accordance with the Fund's
investment policies.
8. Make loans, except that the Fund (1) may lend portfolio securities in
accordance with the Fund's investment policies up to 33 1/3% of the
Fund's total assets taken at market value, (2) enter into repurchase
agreements, and (3) purchase all or a portion of an issue of debt
securities, bank loan participation interests, bank certificates of
deposit, bankers' acceptances, debentures or other securities, whether
or not the purchase is made upon the original issuance of the
securities.
For purposes of the fundamental investment restriction (1) regarding
industry concentration, the Adviser generally classifies issuers by industry in
accordance with classifications set forth in the Directory of Companies Filing
Annual Reports With The Securities and Exchange Commission. In the absence of
such classification or if the Adviser determines in good faith based on its own
information that the economic characteristics affecting a particular issuer make
it more appropriately considered to be engaged in a different industry, the
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Adviser may classify an issuer according to its own sources. For instance,
personal credit finance companies and business credit finance companies are
deemed to be separate industries and wholly-owned finance companies are
considered to be in the industry of their parents if their activities are
primarily related to financing the activities of their parents.
The following restrictions are not fundamental policies and may be
changed by the Trustees without shareholder approval, in accordance with
applicable laws, regulations or regulatory policy. The Fund may not:
A. Make short sales of securities unless (a) after effect is given to any
such short sale, the total market value of all securities sold short
would not exceed 5% of the value of the Fund's net assets or (b) at all
times during which a short position is open it owns an equal amount of
such securities, or by virtue of ownership of convertible or
exchangeable securities it has the right to obtain through the
conversion or exchange of such other securities an amount equal to the
securities sold short.
B. Invest in companies for the purpose of exercising control or
management.
C. Purchase securities of any other investment company if, as a result,
(i) more than 10% of the Fund's assets would be invested in securities
of other investment companies, (ii) such purchase would result in more
than 3% of the total outstanding voting securities of any one such
investment company being held by the Fund or (iii) more than 5% of the
Fund's assets would be invested in any one such investment company. The
Fund will not purchase the securities of any open-end investment
company except when such purchase is part of a plan of merger,
consolidation, reorganization or purchase of substantially all of the
assets of any other investment company, or purchase the securities of
any closed-end investment company except in the open market where no
commission or profit to a sponsor or dealer results from the purchase,
other than customary brokerage fees. The Fund has no current intention
of investing in other investment companies.
D. Invest in interests in oil, gas or other exploration or development
programs; however, this policy will not prohibit the acquisition of
securities of companies engaged in the production or transmission of
oil, gas, or other minerals.
E. Invest more than 5% of the assets of the Fund in the securities of any
issuers which, together with their corporate parents, have records of
less than three years' continuous operation, including the operation of
any predecessor, excluding obligations issued or guaranteed by the U.S.
Government or its agencies and securities fully collateralized by such
securities and excluding securities which have been rated investment
grade by at least one nationally recognized statistical rating
organization.
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F. Invest in securities of any company if any officer or director
(Trustee) of the Trust or of the Adviser owns more than .5% of the
outstanding securities of such company and such officers and directors
(Trustees) own in the aggregate more than 5% of the securities of such
company.
G. Invest in securities which are illiquid if, as a result, more than 15%
of its net assets would consist of such securities, including
repurchase agreements maturing in more than seven days, securities that
are not readily marketable, restricted securities not eligible for
resale pursuant to Rule 144A under the 1933 Act, purchased OTC options,
certain assets used to cover written OTC options, and privately issued
stripped mortgage-backed securities.
H. Invest more than 15% of its total assets in restricted securities,
including those eligible for resale under Rule 144A under the 1933 Act.
I. Purchase securities while outstanding borrowings exceed 5% of the
Fund's net assets.
J. Invest in real estate limited partnership interests, other than real
estate investment trusts organized as limited partnerships.
K. Purchase or sell (write) options, except pursuant to the limitations
described above.
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, except with respect to restriction (F) above.
In order to permit the sale of shares of the Fund in certain states,
the Board may, in its sole discretion, adopt restrictions on investment policy
more restrictive than those described above. Should the Board determine that any
such more restrictive policy is no longer in the best interest of the Fund and
its shareholders, the Fund may cease offering shares in the state involved and
the Board may revoke such restrictive policy. Moreover, if the states involved
shall no longer require any such restrictive policy, the Board may, in its sole
discretion, revoke such policy.
CALCULATION OF PERFORMANCE DATA
As indicated in the Prospectus, the Fund may, from time to time,
advertise certain total return and yield information. The average annual total
return of the Fund for a period is computed by subtracting the net asset value
per share at the beginning of the period from the net asset value per share at
the end of the period (after adjusting for the reinvestment of any income
dividends and capital gain distributions), and dividing the result by the net
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asset value per share at the beginning of the period. In particular, the average
annual total return of the Fund ("T") is computed by using the redeemable value
at the end of a specified period of time ("ERV") of a hypothetical initial
investment of $1,000 ("P") over a period of time ("n") according to the formula
P(1+T)n=ERV.
Yield quotations shares are computed by dividing the net investment
income per share during a base period of 30 days, or one month, by the maximum
offering price (net asset value) per share of the Fund on the last day of such
base period in accordance with the following formula:
YIELD = ( 2 [(A - B + 1)^6 - 1]) / CD
Where:
a= interest earned during the period
b= net expenses accrued for the period
c= the average daily number of shares outstanding during
the period that were entitled to receive dividends
d= the maximum offering price per share (net asset
value) on the last day of the period
For purposes of calculating interest earned on debt obligations as
provided in item "a" above:
(i) The yield to maturity of each obligation held by the Fund is
computed based on the market value of the obligation (including actual accrued
interest, if any) at the close of business each day during the 30-day base
period, or, with respect to obligations purchased during the month, the purchase
price (plus actual accrued interest, if any) on settlement date, and with
respect to obligations sold during the month the sale price (plus actual accrued
interest, if any) between the trade and settlement dates.
(ii) The yield to maturity of each obligation is then divided by 360
and the resulting quotient is multiplied by the market value of the obligation
(including actual accrued interest, if any) to determine the interest income on
the obligation for each day. The yield to maturity calculation has been made on
each obligation during the 30 day base period.
(iii) Interest earned on all debt obligations during the 30-day or one
month period is then totaled.
(iv) The maturity of an obligation with a call provision(s) is the next
call date on which the obligation reasonably may be expected to be called or, if
none, the maturity date.
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With respect to the treatment of discount and premium on mortgage or
other receivables-backed obligations which are expected to be subject to monthly
payments of principal and interest ("pay downs"), the Fund accounts for gain or
loss attributable to actual monthly pay downs as an increase or decrease to
interest income during the period. In addition, the Fund may elect (i) to
amortize the discount or premium remaining on a security, based on the cost of
the security, to the weighted average maturity date, if such information is
available, or to the remaining term of the security, if the weighted average
maturity date is not available, or (ii) not to amortize the discount or premium
remaining on a security.
The Fund may also quote non-standardized yield, such as
yield-to-maturity ("YTM"). YTM represents the rate of return an investor will
receive if a long-term, interest bearing investment, such as a bond, is held to
its maturity date. YTM does not take into account purchase price, redemption
value, time to maturity, coupon yield, and the time between interest payments.
In addition to average annual return and yield quotations, the Fund may
quote quarterly and annual performance on a net (with management and
administration fees deducted) and gross basis. Performance quotations should not
be considered as representative of the Fund's performance for any specified
period in the future.
The Fund's performance may be compared in sales literature to the
performance of other mutual funds having similar objectives or to standardized
indices or other measures of investment performance. In particular, the Fund may
compare its performance to the Merrill Lynch 1-3 Year U.S. Treasury Index, the
Merrill Lynch 1-5 Year U.S. Treasury Index and the Merrill Lynch 1 Year Treasury
Bill Index. Comparative performance may also be expressed by reference to a
ranking prepared by a mutual fund monitoring service or by one or more
newspapers, newsletters or financial periodicals. Performance comparisons may be
useful to investors who wish to compare the Fund's past performance to that of
other mutual funds and investment products. Of course, past performance is not a
guarantee of future results.
17
<PAGE>
MANAGEMENT
Trustees and Officers
The Trustees and executive officers of the Trust are listed below. All
executive officers of the Trust except Mr. Copley are affiliates of Standish,
Ayer & Wood, Inc., the Fund's investment adviser.
<TABLE>
<CAPTION>
<S> <C> <C>
Position Held Principal Occupation
Name and Address With Trust During Past 5 Years
- ---------------- ------------ -------------------
*D. Barr Clayson Vice President Vice President and
c/o Standish, Ayer & and Trustee Managing Director,
Wood, Inc. Standish, Ayer &
One Financial Center Wood, Inc.; President,
Boston, MA 02111 Standish International
Management Company,
L.P.
*Richard C. Doll Vice President Vice President and
c/o Standish, Ayer & and Trustee Director, Standish,
Wood, Inc. Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Samuel C. Fleming Trustee Chairman of the Board
c/o Decision and Chief Executive
Resources, Inc. Officer, Decision
1100 Winter Street Resources, Inc.
Waltham, MA 02154 through 1989, Senior
V.P. Arthur D. Little
18
<PAGE>
Benjamin M. Friedman Trustee William Joseph Maier
c/o Harvard University Professor of Political
Cambridge, MA 02138 Economy, Harvard
University
John H. Hewitt Trustee Trustee, The Peabody
P. O. Box 307 Foundation; Trustee,
So. Woodstock, VT 05071 Visiting Nurse
Alliance of Vermont
New Hampshire
*Edward H. Ladd Trustee and Chairman of the Board
c/o Standish, Ayer Vice President and Managing Director,
& Wood, Inc. Standish, Ayer & Wood,
One Financial Center Inc. since 1990;
Boston, MA 02111 formerly President of
Standish, Ayer & Wood,
Inc.
Caleb Loring III Trustee Trustee, Essex Street
c/o Essex Street Associates (family
Associates investment trust
P.O. Box 5600 office); Director,
Beverly Farms, MA 01915 Holyoke Mutual Insurance
Company
*Richard S. Wood President Vice President,
c/o Standish, Ayer & and Trustee Secretary and Director,
Wood, Inc. Standish, Ayer & Wood,
One Financial Center Inc.; Executive Vice
Boston, MA 02111 President, Standish
International
Management Company,
L.P.
James E. Hollis III Executive Vice Vice President and
c/o Standish, Ayer & President Director,
Wood, Inc. Standish, Ayer & Wood,
One Financial Center Inc.
Boston, MA 02111
David W. Murray Treasurer and Vice President, Treasurer
c/o Standish, Ayer & Secretary and Director, Standish,
Wood, Inc. Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
19
<PAGE>
Caleb F. Aldrich Vice President Vice President and
c/o Standish, Ayer & Director,
Wood, Inc. Standish, Ayer & Wood,
One Financial Center Inc.
Boston, MA 02111
Beverly E. Banfield Vice President Vice President and
c/o Standish, Ayer & Compliance Officer,
Wood, Inc. Standish, Ayer & Wood,
One Financial Center Inc.; and
Boston, MA 02111 Assistant Vice President
Compliance Officer,
Freedom Capital
Management Corp.
(1989-1992)
Nicholas S. Battelle Vice President Vice President and
c/o Standish, Ayer & Director,
Wood, Inc. Standish, Ayer & Wood,
One Financial Center Inc.
Boston, MA 02111
Walter M. Cabot Vice President Senior Advisor and
c/o Standish, Ayer & Director,
Wood, Inc. Standish, Ayer & Wood,
One Financial Center Inc.;
Boston, MA 02111 prior to 1991, President,
Harvard Management
Company
David H. Cameron Vice President Vice President and
c/o Standish, Ayer & Director,
Wood, Inc. Standish, Ayer & Wood,
One Financial Center Inc.
Boston, MA 02111
Karen K. Chandor Vice President Vice President and
c/o Standish, Ayer & Director,
Wood, Inc. Standish, Ayer & Wood,
One Financial Center Inc.
Boston, MA 02111
Lavinia B. Chase Vice President Vice President, Standish,
c/o Standish, Ayer & Ayer & Wood, Inc.
Wood, Inc.
One Financial Center
Boston, MA 02111
20
<PAGE>
Susan B. Coan Vice President Vice President, Standish,
c/o Standish, Ayer & Ayer & Wood, Inc.
Wood, Inc.
One Financial Center
Boston, MA 02111
W. Charles Cook II Vice President Vice President, Standish,
c/o Standish, Ayer & Ayer & Wood, Inc.
Wood, Inc.
One Financial Center
Boston, MA 02111
James W. Copley, Jr. Vice President Senior Portfolio
c/o Standish, Ayer & Manager, Standish, Ayer &
Wood, Inc. Wood, Inc. (since June 30,
One Financial Center 1995); President and Director,
Boston, MA 02111 Consolidated Investment
Corporation; Vice-President-
Funds Management,
Consolidated Healthcare,
Inc.
Joseph M. Corrado Vice President Vice President, Standish,
c/o Standish, Ayer & Ayer & Wood, Inc.
Wood, Inc.
One Financial Center
Boston, MA 02111
Dolores S. Driscoll Vice President Vice President and
c/o Standish, Ayer & Managing
Wood, Inc. Director, Standish, Ayer &
One Financial Center Wood, Inc.
Boston, MA 02111
Anne P. Herrmann Vice President Mutual Fund
c/o Standish, Ayer & Administrator;
Wood, Inc. formerly Portfolio
One Financial Center Accountant, Standish,
Boston, MA 02111 Ayer & Wood, Inc.
Ann S. Higgins Vice President Vice President, Standish,
c/o Standish, Ayer & Ayer & Wood, Inc.
Wood, Inc.
One Financial Center
Boston, MA 02111
21
<PAGE>
Raymond J. Kubiak Vice President Vice President and
c/o Standish, Ayer & Director, Standish,
Wood, Inc. Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Maria D. Furman Vice President Vice President and
c/o Standish, Ayer & Director,
Wood, Inc. Standish, Ayer & Wood,
One Financial Center Inc.
Boston, MA 02111
Phillip D. Leonardi Vice President Vice President, Standish,
c/o Standish, Ayer & Ayer & Wood, Inc. since
Wood, Inc. November 1993; formerly,
One Financial Center Investment Sales, Cigna
Boston, MA 02111 Corporation (1993) and
Travelers Corporation
(1984-1993)
Laurence A. Manchester Vice President Vice President and
c/o Standish, Ayer & Director,
Wood, Inc. Standish, Ayer & Wood,
One Financial Center Inc.
Boston, MA 02111
George W. Noyes Vice President President and Managing
c/o Standish, Ayer & Director, Standish, Ayer &
Wood, Inc. Wood, Inc.
One Financial Center
Boston, MA 02111
Arthur H. Parker Vice President Vice President and
c/o Standish, Ayer & Director,
Wood, Inc. Standish, Ayer & Wood,
One Financial Center Inc.
Boston, MA 02111
Jennifer A. Pline Vice President Vice President, Standish,
c/o Standish, Ayer & Ayer & Wood, Inc.
Wood, Inc.
One Financial Center
Boston, MA 02111
Howard B. Rubin Vice President Vice President and
c/o Standish, Ayer & Director,
Wood, Inc. Standish, Ayer & Wood,
One Financial Center Inc.
Boston, MA 02111
22
<PAGE>
Michael C. Schoeck Vice President Vice President, Standish,
c/o Standish, Ayer & Ayer & Wood, Inc. since
Wood, Inc. August, 1993; formerly,
One Financial Center Vice President,
Boston, MA 02111 Commerzbank, Frankfurt,
Germany
Austin C. Smith Vice President Vice President and
c/o Standish, Ayer & Director,
Wood, Inc. Standish, Ayer & Wood,
One Financial Center Inc.
Boston, MA 02111
Stephen A. Smith Vice President Vice President, Standish,
c/o Standish, Ayer & Ayer & Wood, Inc. since
Wood, Inc. November, 1993; formerly,
One Financial Center Consultant, Cambridge
Boston, MA 02111 Associates
James W. Sweeney Vice President Vice President and
c/o Standish, Ayer & Director,
Wood, Inc. Standish, Ayer & Wood,
One Financial Center Inc.
Boston, MA 02111
Ralph S. Tate Vice President Vice President and
c/o Standish, Ayer & Director,
Wood, Inc. Standish, Ayer & Wood,
One Financial Center Inc. since April, 1990;
Boston, MA 02111 formerly Vice President, Aetna Life & Casualty
Michael W. Thompson Vice President Vice President, Standish,
c/o Standish, Ayer & Ayer & Wood, Inc.
Wood, Inc.
One Financial Center
Boston, MA 02111
- ------------
* Indicates that Trustee is an interested person of the Trust for purposes of
the Investment Company Act of 1940, as amended (the "1940 Act").
</TABLE>
Compensation of Trustees and Officers
The Fund pays no compensation to the Trust's Trustees affiliated with
the Adviser or the Trust's officers. None of the Trust's Trustees or officers
have engaged in any financial transactions with the Trust or the Adviser.
The following table sets forth all compensation paid to the Trust's
Trustees as of the fiscal year ended December 31, 1994 and estimates the amount
of such fees to be paid by the Fund during its current fiscal year:
<TABLE>
<CAPTION>
Pension or
Retirement Total
Aggregate Benefits Compensation
Compensation Accrued as from Fund and
from the Part of Other Funds in
Name of Trustee Tax Exempt Fund Fund's Expenses Complex**
- --------------- --------------- --------------- ------------
<S> <C> <C> <C>
D. Barr Clayson $0 $0 $0
Phyllis L. Cothran*** 0 0 0
Richard C. Doll 0 0 0
Samuel C. Fleming 270 0 22,500
Benjamin M. Friedman 240 0 20,000
John H. Hewitt 240 0 20,000
Edward H. Ladd 0 0 0
Caleb Loring, III 240 0 20,000
Richard S. Wood 0 0 0
- -------------
* Estimated. The Fund is newly organized
and has not paid any Trustees' fees.
** As of the date of this Statement of Additional Information,
there were 10 mutual funds in the fund complex, all of which
are series of the Trust.
*** Ms. Cothran resigned as a Trustee effective January 31, 1995.
</TABLE>
23
<PAGE>
Certain Shareholders
At June 1, 1995, the Trustees and officers of the Trust as a group
beneficially owned (i.e., had voting and/or investment power) less than 1% of
the then outstanding shares of the Fund.
As of the date of this Statement of Additional Information, the Adviser
owned 100% of the outstanding shares of the Fund.
Investment Adviser
Standish, Ayer & Wood, Inc. serves as investment adviser to the Fund
pursuant to a written investment advisory agreement. The Adviser is a
Massachusetts corporation organized in 1933 and is registered under the
Investment Advisers Act of 1940.
The following, constituting all of the Directors and all of the
shareholders of the Adviser, are the controlling persons of the Adviser: Caleb
F. Aldrich, Nicholas S. Battelle, Walter M. Cabot, Sr., David H. Cameron, Karen
K. Chandor, D. Barr Clayson, Richard C. Doll, Dolores S. Driscoll, Mark A.
Flaherty, Maria D. Furman, James E. Hollis III, Raymond J. Kubiak, Edward H.
Ladd, Laurence A. Manchester, David W. Murray, George W. Noyes, Arthur H.
Parker, Howard B. Rubin, David C. Stuehr, Austin C. Smith, Ralph S. Tate, James
J. Sweeney and Richard S. Wood.
Certain services provided by the Adviser under the advisory agreement
are described in the Prospectus. In addition to those services, the Adviser
provides the Fund with office space for managing its affairs, with the services
of required executive personnel, and with certain clerical services and
facilities. These services are provided without reimbursement by the Fund for
any costs incurred. Under the investment advisory agreement, the Fund pays to
the Adviser a fee at the rate of 0.35% of the Fund's average daily net assets.
This fee is paid monthly.
The Adviser has voluntarily agreed to limit certain "Total Fund
Operating Expenses" (excluding litigation, indemnification and other
extraordinary expenses) to 0.40% per annum of the Fund's average daily net
assets for the Fund's fiscal year ending December 31, 1995. This agreement is
voluntary and temporary and may be discontinued or revised by the Adviser at any
time after December 31, 1995.
Pursuant to the investment advisory agreement, the Fund bears expenses
of its operations other than those incurred by the Adviser pursuant to the
investment advisory agreement. Among other expenses, the Fund will pay share
pricing and shareholder servicing fees and expenses; custodian fees and
expenses; legal and auditing fees and expenses; expenses of prospectuses,
statements of additional information and shareholder reports; registration and
reporting fees and expenses; and Trustees' fees and expenses. The advisory
agreement provides that if the total expenses of the Fund in any fiscal year
exceed the most restrictive expense limitation applicable to the Fund in any
state in which shares of the Fund are then qualified for sale, the compensation
due the Adviser shall be reduced by the amount of the excess, by a reduction or
refund thereof at the time such compensation is payable after the end of each
calendar month during the fiscal year, subject to readjustment during the year.
Currently, the most restrictive state expense limitation provision limits the
Fund's expenses to 2 1/2% the first $30 million of average net assets, 2% of the
next $70 million of such net assets and 1 1/2% of such net assets in excess of
$100 million.
24
<PAGE>
Unless terminated as provided below, the Investment Advisory Agreement
continues in full force and effect until June 1, 1997 and for successive periods
of one year thereafter, but only as long as each such continuance after June 1,
1997 is approved annually (i) by either the Trustees of the Trust or by vote of
a majority of the outstanding voting securities (as defined in the 1940 Act) of
the Fund, and, in either event (ii) by vote of a majority of the Trustees of the
Trust who are not parties to the Investment Advisory Agreement or "interested
persons" (as defined in the 1940 Act) of any such party, cast in person at a
meeting called for the purpose of voting on such approval. The Investment
Advisory Agreement may be terminated at any time without the payment of any
penalty by vote of the Trustees of the Trust or by vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of the Fund or by the
Investment Adviser, on sixty days' written notice to the other parties. The
Investment Advisory Agreement terminates in the event of its assignment as
defined in the 1940 Act.
In an attempt to avoid any potential conflict with portfolio
transactions for the Fund, the Adviser and the Trust have adopted extensive
restrictions on personal securities trading by personnel of the Adviser and its
affiliates. These restrictions include: pre-clearance of all personal securities
transactions and a prohibition of purchasing initial public offerings of
securities. These restrictions are a continuation of the basic principle that
the interests of the Fund and its shareholders come before those of the Adviser
and its employees.
REDEMPTION OF SHARES
Detailed information on redemption of shares is included in the
Prospectus.
The Fund may suspend the right to redeem shares or postpone the date of
payment upon redemption for more than seven days (i) for any period during which
the New York Stock Exchange is closed (other than customary weekend or holiday
closings) or trading on the exchange is restricted; (ii) for any period during
which an emergency exists as a result of which disposal by the Fund of
securities owned by it or determination by the Fund of the value of its net
assets is not reasonably practicable; or (iii) for such other periods as the
Securities and Exchange Commission may permit for the protection of shareholders
of the Fund.
The Fund intends to pay redemption proceeds in cash for all shares
redeemed, but under certain conditions, the Fund may make payment wholly or
partly in portfolio securities. Portfolio securities paid upon redemption of
Fund shares will be valued at their then current market value. The Fund has
elected to be governed by the provisions of Rule 18f-1 under the 1940 Act which
contains a formula for determining the minimum amount of cash which may be paid
as part of any redemption, limiting cash payments to any shareholder during any
90-day period to the lesser of $250,000 or 1% of the Fund's net asset value at
the beginning of such period. An investor may incur brokerage costs in
converting portfolio securities received upon redemption to cash.
25
<PAGE>
PORTFOLIO TRANSACTIONS
The Adviser is responsible for placing the Fund's portfolio
transactions and will do so in a manner deemed fair and reasonable to the Fund
and not according to any formula. The primary consideration in all portfolio
transactions will be prompt execution of orders in an efficient manner at the
most favorable price. In selecting broker-dealers and in negotiating
commissions, the Adviser will consider the firm's reliability, the quality of
its execution services on a continuing basis and its financial condition. When
more than one firm is believed to meet these criteria, preference may be given
to firms which also provide research services. These services may include (i)
furnishing advice as to the value of securities, the advisability of investing
in, purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities, (ii) furnishing analyses and reports
concerning issuers, industries, securities, economic factors and trends,
portfolio strategy, and the performance of accounts, and (iii) effecting
securities transactions and performing functions incidental thereto (such as
clearance, settlement and custody). Research services furnished by firms through
which the Fund effects its securities transactions may be used by the Adviser in
servicing its other accounts; not all of these services may be used by the
Adviser in connection with the Fund. The investment advisory fee paid by the
Fund under the advisory agreement will not be reduced as a result of the
Adviser's receipt of research services.
The Adviser also places portfolio transactions for other advisory
accounts. The Adviser will seek to allocate portfolio transactions equitably
whenever concurrent decisions are made to purchase or sell securities for the
Fund and another advisory account. In some cases, this procedure could have an
adverse effect on the price or the amount of securities available to the Fund.
In making such allocations, the main factors considered by the Adviser will be
the respective investment objectives, the relative size of portfolio holdings of
the same or comparable securities, the availability of cash for investment, the
size of investment commitments generally held, and opinions of the persons
responsible for recommending the investment.
FEDERAL INCOME TAXES
Each series of the Trust, including the Fund, is treated as a separate
entity for accounting and tax purposes. The Fund intends to elect and to qualify
to be treated as a "regulated investment company" under Subchapter M of the
Internal Revenue Code, and intends to continue to so qualify in the future. As
such and by complying with the applicable provisions of the Internal Revenue
Code regarding the sources of its income, the timing of its distributions, and
the diversification of its assets, the Fund will not be subject to Federal
26
<PAGE>
income tax on its investment company taxable income (i.e., all taxable income,
after reduction by deductible expenses, other than its "net capital gain," which
is the excess, if any, of its net long-term capital gain over its net short-term
capital loss) and net capital gain which are distributed to shareholders at
least annually in accordance with the timing requirements of the Internal
Revenue Code.
The Fund will be subject to a 4% non-deductible federal excise tax on
certain amounts not distributed (and not treated as having been distributed) on
a timely basis in accordance with annual minimum distribution requirements. The
Fund intends under normal circumstances to avoid liability for such tax by
satisfying such distribution requirements.
The Fund is not subject to Massachusetts corporate excise or franchise
taxes. Provided that the Fund qualifies as a regulated investment company under
the Internal Revenue Code, it will also not be required to pay any Massachusetts
income tax.
The Fund will not distribute net capital gains realized in any year to
the extent that a capital loss is carried forward from prior years against such
gain. For federal income tax purposes, the Fund is permitted to carry forward a
net capital loss in any year to offset its own net capital gains, if any, during
the eight years following the year of the loss. To the extent subsequent net
capital gains are offset by such losses, they would not result in federal income
tax liability to the Fund and, as noted above, would not be distributed as such
to shareholders.
If the Fund invests in certain zero coupon securities, increasing rate
securities or, in general, other securities with original issue discount (or
with market discount if the Fund elects to include market discount in income
currently), the Fund must accrue income on such investments prior to the receipt
of the corresponding cash payments. However, the Fund must distribute, at least
annually, all or substantially all of its net income, including such accrued
income, to shareholders to qualify as a regulated investment company under the
Internal Revenue Code and avoid federal income and excise taxes. Therefore, the
Fund may have to dispose of its portfolio securities under disadvantageous
circumstances to generate cash, or may have to leverage itself by borrowing the
cash, to satisfy distribution requirements.
Limitations imposed by the Internal Revenue Code on regulated
investment companies like the Fund may restrict the Fund's ability to enter into
futures and options transactions.
Certain options and futures transactions undertaken by the Fund may
cause the Fund to recognize gains or losses from marking to market even though
its positions have not been sold or terminated and affect the character as
long-term or short-term (or, in the case of certain options and futures, as
ordinary income or loss) and timing of some capital gains and losses realized by
the Fund. Any net mark to market gains may also have to be distributed to
satisfy the distribution requirements referred to above even though no
corresponding cash amounts may concurrently be received, possibly requiring the
disposition of portfolio securities or borrowing to obtain the necessary cash.
Also, certain of the Fund's losses on its transactions involving options or
27
<PAGE>
futures contracts and/or offsetting portfolio positions may be deferred rather
than being taken into account currently in calculating the Fund's taxable income
or gain. Certain of the applicable tax rules may be modified if the Fund is
eligible and chooses to make one or more of certain tax elections that may be
available. These transactions may therefore affect the amount, timing and
character of the Fund's distributions to shareholders. The Fund will take into
account the special tax rules (including consideration of available elections)
applicable to options or futures contracts in order to minimize any potential
adverse tax consequences.
The federal income tax rules applicable to mortgage dollar rolls and
interest rate swaps, caps, floors and collars are unclear in certain respects,
and the Fund may be required to account for these instruments under tax rules in
a manner that, under certain circumstances, may limit its transactions in these
instruments.
Due to possible unfavorable consequences under present tax law, the
Fund does not currently intend to acquire "residual" interests in real estate
mortgage investment conduits ("REMICs"), although the Fund may acquire "regular"
interests in REMICs.
Distributions from the Fund's current or accumulated earnings and
profits ("E&P"), as computed for Federal income tax purposes, will be taxable as
described in the Fund's Prospectus whether taken in shares or in cash.
Distributions, if any, in excess of E&P will constitute a return of capital,
which will first reduce an investor's tax basis in Fund shares and thereafter
(after such basis is reduced to zero) will generally give rise to capital gains.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for federal income tax purposes in each share so received
equal to the amount of cash they would have received had they elected to receive
the distributions in cash, divided by the number of shares received.
The Fund's distributions to its corporate shareholders would
potentially qualify in their hands for the corporate dividends received
deduction, subject to certain holding period requirements and limitations on
debt financing under the Code, only to the extent the Fund earned dividend
income from stock investments in U.S. domestic corporations. Although the Fund
is not expected to concentrate its investments in such stock, the Fund is
permitted to acquire preferred stocks, and it is therefore possible that a
portion of its distributions, attributable to the dividends it receives with
respect to such preferred stocks, may qualify for the dividends received
deduction. Such qualifying portion, if any, may affect a corporate shareholder's
liability for alternative minimum tax and/or result in basis reductions in
certain circumstances.
At the time of an investor's purchase of Fund shares, a portion of the
purchase price is often attributable to undistributed net investment income
and/or realized or unrealized appreciation in the Fund's portfolio.
Consequently, subsequent distributions from such income and/or appreciation may
be taxable to such investor even if the net asset value of the investor's shares
is, as a result of the distributions, reduced below the investor's cost for such
shares, and the distributions in reality represent a return of a portion of the
purchase price.
28
<PAGE>
Upon a redemption (including a repurchase) of shares of the Fund, a
shareholder may realize a taxable gain or loss, depending upon the difference
between the redemption proceeds and the shareholder's tax basis in his shares.
Such gain or loss will be treated as capital gain or loss if the shares are
capital assets in the shareholder's hands and will be long-term or short-term,
depending upon the shareholder's tax holding period for the shares. Any loss
realized on a redemption may be disallowed to the extent the shares disposed of
are replaced within a period of 61 days beginning 30 days before and ending 30
days after the shares are disposed of, such as pursuant to automatic dividend
reinvestments. In such a case, the basis of the shares acquired will be adjusted
to reflect the disallowed loss. Any loss realized upon the redemption of shares
with a tax holding period of six months or less will be treated as a long-term
capital loss to the extent of any amounts treated as distributions of long-term
capital gain with respect to such shares.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions and certain prohibited transactions, is accorded to accounts
maintained as qualified retirement plans. Shareholders should consult their tax
advisers for more information.
The foregoing discussion relates solely to U.S. Federal income tax law
as applicable to U.S. persons (i.e., U.S. citizens or residents and U.S.
domestic corporations, partnerships, trusts or estates) subject to tax under
such law. The discussion does not address special tax rules applicable to
certain classes of investors, such as tax-exempt entities, insurance companies,
and financial institutions. Dividends, capital gain distributions, and ownership
of or gains realized on the redemption (including an exchange) of Fund shares
may also be subject to state and local taxes. Shareholders should consult their
own tax advisers as to the Federal, state or local tax consequences of ownership
of shares of, and receipt of distributions from, the Fund in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which
their investment in the Fund is effectively connected will be subject to U.S.
Federal income tax treatment that is different from that described above. These
investors may be subject to nonresident alien withholding tax at the rate of 30%
(or a lower rate under an applicable tax treaty) on amounts treated as ordinary
dividends from the Fund and, unless an effective IRS Form W-8 or authorized
substitute is on file, to 31% backup withholding on certain other payments from
the Fund. Non-U.S. investors should consult their tax advisers regarding such
treatment and the application of foreign taxes to an investment in the Fund.
29
<PAGE>
DETERMINATION OF NET ASSET VALUE
The Fund's net asset value is calculated each day on which the New York
Stock Exchange is open. Currently the New York Stock Exchange is not open on
weekends, New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas. The net asset value
of the Fund's shares is determined as of the close of regular trading on the New
York Stock Exchange (currently 4:00 p.m., New York City time) and is computed by
dividing the value of all securities and other assets of the Fund less all
liabilities by the number of shares outstanding, and adjusting to the nearest
cent per share. Expenses and fees, including the investment advisory fee, are
accrued daily and taken into account for the purpose of determining net asset
value.
Portfolio 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. 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 by the
Adviser in accordance with procedures approved by the Trustees.
Money market instruments with less than sixty days remaining to
maturity when acquired by the Fund are valued on an amortized cost basis. If the
Fund acquires a money market instrument with more than sixty 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 the value on
such date unless the Trustees determine during such sixty-day period that
amortized cost does not represent fair value.
THE FUND AND ITS SHARES
The Fund is an 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 represents an equal
proportionate interest in the Fund with each other share and is entitled to such
dividends and distributions as are declared by the Trustees. Upon any
liquidation of the Fund, shareholders are entitled to share pro rata in the net
assets available for distribution.
30
<PAGE>
All Fund shares have equal rights with regard to voting, and
shareholders of the Fund have the right to vote as a separate class with respect
to matters as to which their interests are not identical to those of
shareholders of other classes of the Trust, including the approval of an
investment advisory contract and any change of investment policy requiring the
approval of shareholders.
Under Massachusetts law, shareholders of the Trust could, under certain
circumstances, be held liable for the obligations of the Trust. However, the
Agreement and Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of this disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or a Trustee. The Declaration also provides for indemnification from the assets
of the Trust for all losses and expenses of any Trust shareholder held liable
for the obligations of the Trust. Thus, the risk of a shareholder incurring a
financial loss on account of its liability as a shareholder of the Trust is
limited to circumstances in which the Trust would be unable to meet its
obligations. The possibility that these circumstances would occur is remote.
Upon payment of any liability incurred by the Trust, the shareholder paying the
liability will be entitled to reimbursement from the general assets of the
Trust. The Trustees intend to conduct the operations of the Trust to avoid, to
the extent possible, ultimate liability of shareholders for liabilities of the
Trust.
ADDITIONAL INFORMATION
The Fund's Prospectus and this Statement of Additional Information omit
certain information contained in the registration statement filed with the
Securities and Exchange Commission, which may be obtained from the Commission's
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment
of the fee prescribed by the rules and regulations promulgated by the
Commission.
FINANCIAL STATEMENTS
The Fund's financial statements for the period ended October 31, 1995
attached to and incorporated into this Statement of Additional Information are
unaudited.
31
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund II Series
Financial Statements for the Period Ended
October 31, 1995
(unaudited)
1
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund II Series
Portfolio of Investments
October 31, 1995
(unaudited)
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (Note 1A)
- ---------------------------------------------------- ------- ----------------------- ------------- ---------------
Bonds - 95.8%
- ----------------------------------------------------
Asset Backed Securites - 2.7%
- ----------------------------------------------------
<S> <C> <C> <C> <C>
AFC Home Equity Loan Trust 93-2 6.00 1/20/13 172,934 $169,204
Greentree Securities Trust 95-A 7.25 7/15/05 92,704 93,197
OSCC Home Equity 92-3 A2 6.30 9/25/07 63,585 63,029
OSCC Home Equity 92-4 Cl A 6.55 11/25/07 177,744 177,605
TMS Home Equity 92-B 6.90 7/15/07 144,809 145,262
UCFC Home Equity Loan Trust 94 DA-4 8.78 2/10/16 100,000 106,219
---------------
$754,516
---------------
Bank Bonds - 6.0%
- ----------------------------------------------------
Bank Of Boston Notes 8.38 12/15/02 225,000 $247,497
Bank Of Boston Notes 9.50 8/15/97 35,000 36,867
Capital One Bank Notes 6.39 6/29/98 250,000 250,303
First Security Bank Notes 6.88 10/4/96 35,000 35,300
First USA Bank Notes 5.75 1/15/99 200,000 196,700
First USA Bank Notes 8.20 2/15/98 250,000 258,668
Hartford National Notes 9.85 6/1/99 500,000 554,255
Midlantic Bank Notes 9.88 12/1/99 75,000 84,196
---------------
$1,663,786
---------------
Federal Agency - 0.4%
- ----------------------------------------------------
Federal Farm Credit Bank Notes 6.60 8/28/98 100,000 $102,029
---------------
Finance Bonds - 23.1%
- ----------------------------------------------------
Avalon Property Reit Notes 7.38 9/15/02 275,000 $277,445
Bear Stearns Co. Notes 6.75 8/15/00 500,000 505,505
Duke Realty Reit Notes 7.38 9/22/05 250,000 250,203
Equitable Co. Notes 9.00 12/15/04 500,000 571,515
ERP Reit Notes 8.50 5/15/99 75,000 78,571
Fairfax Financial Holdings Ltd. Notes 8.25 10/1/15 300,000 309,516
Federal Realty Trust Notes 8.88 1/15/00 225,000 243,131
Goldman Sachs Notes 6.38 6/15/00 500,000 497,495
Meditrust Reit Notes 7.38 7/15/00 100,000 101,504
Merrill Lynch Notes 6.70 8/1/00 500,000 505,890
Merry Land Co. Reit Notes 7.25 10/1/02 250,000 255,820
Minnesota Mutual Notes 8.25 9/15/25 300,000 311,931
New England Mutual Life Notes 7.88 2/15/24 125,000 124,063
Salomon Inc. Notes 7.00 1/20/98 590,000 589,640
Shopping Center Assoc. Reit Notes 6.75 1/15/04 250,000 244,293
Smith Barney Notes 6.50 10/15/02 50,000 49,705
Smith Barney Notes 6.63 6/1/00 400,000 402,464
Taubman Realty Group Notes 8.00 6/15/99 250,000 258,730
TIG Holdings Inc. Notes 8.13 4/15/05 50,000 53,587
United Co. Financial Notes 7.00 7/15/98 50,000 50,457
United Co. Financial Notes 9.35 11/1/99 275,000 297,470
USF & G Notes 7.00 5/15/98 50,000 50,653
Wellsford Residential Property Notes 7.75 8/15/05 400,000 409,248
---------------
$6,438,836
---------------
2
<PAGE>
Portfolio of Investments
(continued)
Par Value
Security Rate Maturity Value (Note 1A)
- ---------------------------------------------------- ------- ----------------------- ------------- ---------------
Industrial Bonds - 11.2%
- ----------------------------------------------------
ADT Operations Notes 8.25 8/1/00 300,000 $314,250
Hertz Corp Notes 6.70 6/15/02 100,000 100,532
Hertz Corp Notes 7.00 4/15/01 35,000 35,655
Methanex Notes 7.75 8/15/05 50,000 51,125
News America Holdings Corp. Notes 9.50 7/15/24 150,000 178,233
News America Holdings Corp. Notes 12.00 12/15/01 70,000 78,201
Owens Illinois Corp. Notes 11.00 12/1/03 500,000 555,000
Paramount Communications Inc. Notes 7.50 1/15/02 55,000 56,300
R. P. Scherer Notes 6.75 2/1/04 50,000 48,722
Ralcorp Holdings Notes 8.75 9/15/04 375,000 409,687
Time Warner Inc. Notes 9.15 2/1/23 650,000 704,990
Viacom Inc. Notes 7.75 6/1/05 575,000 588,122
---------------
$3,120,817
---------------
Original Issue Discount Bonds - 1.3%
- ----------------------------------------------------
U. S. Treasury Principal Strips 0.00 11/15/18 1,600,000 $356,064
---------------
Pass Thru Securities - 39.9%
- ----------------------------------------------------
FDIC Remic 94 C1 8.45 9/25/25 250,000 $266,250
FNMA 7.00 7/01/25-9/01/25 3,976,783 3,945,690
FNMA 7.50 8/01/25-9/01/25 1,838,335 1,858,430
FNMA 8.00 08/01/24-10/1/25 1,013,812 1,040,102
GNMA 7.00 5/15/23-10/15/25 1,302,028 1,294,696
GNMA 7.50 8/15/22-10/15/25 1,291,549 1,309,704
GNMA 8.00 9/15/23 98,729 101,690
GNMA 9.00 1/15/25 767,250 806,332
Lehman Mortgage Notes 95-C2 7.05 9/25/25 275,000 263,914
Resolution Trust Corp. 95-2 7.45 9/15/25 250,000 243,828
---------------
$11,130,636
---------------
Public Utility Bonds- 1.6%
- ----------------------------------------------------
Systems Energy Resources Corp. Notes 7.38 10/1/00 450,000 $447,953
---------------
U.S. Treasury Bonds- 3.2%
- ----------------------------------------------------
U.S. Treasury Bonds 8.13 8/15/19 250,000 $300,938
U.S. Treasury Notes 6.75 5/31/97 555,000 564,108
U.S. Treasury Notes 6.88 8/31/99 25,000 25,918
---------------
$890,964
---------------
Yankee Bonds - 6.4%
- ----------------------------------------------------
Brascan Notes 7.38 10/1/02 500,000 $505,835
London Insurance Group Notes 6.88 9/15/05 250,000 249,718
Novacor Chemical Ltd. Notes 6.50 9/22/00 525,000 523,640
Providence of Quebec Notes 7.50 7/15/23 250,000 247,775
St. Georges Bank Notes 7.15 10/15/05 250,000 251,013
---------------
$1,777,981
---------------
Total Bonds $26,683,582
---------------
(identified cost $ 26,326,955)
3
<PAGE>
Portfolio of Investments
(continued)
Par Value
Security Rate Maturity Value (Note 1A)
- ---------------------------------------------------- ------- ----------------------- ------------- ---------------
Short Term Obligations - 2.9%
- ----------------------------------------------------
Federal Agency Discount Bonds - 2.9%
- ----------------------------------------------------
Federal National Mortgage Association, due 11/2/95 800,000 $799,624
---------------
Total Short Term Obligations $799,624
---------------
(identified cost$ 799,624)
Total Investments - 98.7% $27,483,206
---------------
(identified cost $27,126,579)
Other assets, less liabilities - 1.3% $361,307
---------------
Net Assets - 100% $27,844,513
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund II Series
Statement of Assets and Liabilities
October 31, 1995
(unaudited)
Assets
<S> <C> <C>
Investments, at value (Note 1A)(identified cost, $27,126,579) $27,483,206
Recceivable for investments sold 95
Interest receivable 363,491
Deferred organization expenses 11,591
Receivable from investment advisor (Note 3) 62,130
------------------
Total assets $27,920,513
Liabilities
Payable to custodian $18,996
Accrued investment advisory fee (Note 3) 24,405
Accrued trustee fees 199
Accrued expenses and other liabilities 32,400
--------------
Total liabilities $76,000
------------------
Net Assets $27,844,513
==================
Net Assets consist of
Paid-in capital $27,056,962
Undistributed net investment income (loss) 265,568
Accumulated undistributed net realized gain (loss) 165,356
Net unrealized appreciation (depreciation) 356,627
------------------
Total $27,844,513
==================
Shares of beneficial interest outstanding 1,361,475
==================
Net asset value, offering price, and redemption price per share $20.45
==================
(Net assets/Shares outstanding)
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund II Series
Statement of Operations
For the Period Ended October 31, 1995
(unaudited)
Investment income
<S> <C> <C>
Interest income $421,882
------------------
Expenses
Investment advisory fee (Note 3) $24,405
Trustees fees 199
Accounting, custody and transfer agent fees 23,493
Registration costs 12,839
Audit services 23,314
Legal fees 1,322
Amortization of organization expense 808
Miscellaneous 177
------------------
Total expenses $86,557
Deduct:
Preliminary waiver of investment advisory fee (Note 3) ($62,130)
------------------
Net expenses 24,427
------------------
Net investment income $397,455
------------------
Realized and unrealized gain (loss)
Net realized gain (loss)
Investment securities $165,356
Change in net unrealized appreciation (depreciation)
Investment securities 356,627
------------------
Net gain (loss) $521,983
------------------
Net increase (decrease) in net assets from operations $919,438
==================
</TABLE>
6
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund II Series
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Period
July 3, 1995 (start
of business) to
October 31, 1995
(unaudited)
Increase (decrease) in Net Assets ----------------
From operations
<S> <C>
Net investment income $397,455
Net realized gain (loss) 165,356
Change in net unrealized appreciation (depreciation) 356,627
-----------------
Net increase (decrease) in net assets from operations $919,438
-----------------
Distributions to shareholders
From net investment income ($131,887)
-----------------
Total distributions to shareholders ($131,887)
-----------------
Fund share (principal) transactions (Note 5)
Net proceeds from sale of shares $27,154,157
Net asset value of shares issued to shareholders in
payment of distributions declared 131,887
Cost of shares redeemed (229,082)
-----------------
Increase (decrease) in net assets from Fund share transactions $27,056,962
-----------------
Net increase (decrease) in net assets $27,844,513
Net Assets
At beginning of period 0
-----------------
At end of period (including undistributed net investment income
of $265,568 at October 31, 1995) $27,844,513
=================
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund II Series
Financial Highlights
For the Period
July 3, 1995
(start of business)
to October 31, 1995
(Unaudited)
---------------------
Per share data (for a share outstanding throughout each period)
<S> <C>
Net asset value - beginning of period $20.00
---------------------
Income from investment operations
Net investment income $0.29
Net realized and unrealized gain (loss) 0.26
---------------------
Total from investment operations 0.55
---------------------
Less distributions declared to shareholders
From net investment income (0.10)
---------------------
Total distributions declared to shareholders (0.10)
---------------------
Net asset value - end of period $20.45
=====================
Total return 2.76%
Ratios (to average net assets)/Supplemental Data
Expenses * 0.40% t
Net investment income * 6.73% t
Portfolio turnover 182% y
Net assets at end of period (000 omitted) $27,844
* The investment adviser did not impose a portion of its advisory fee. If this
reduction had not been undertaken, the net investment income per share and
the ratios would have been:
Net investment income per share $0.24 Ratios (to average net assets):
Expenses 1.42% t
Net investment income 5.37% t
t Computed on an annualized basis.
y The turnover ratio for the period is not annualized.
</TABLE>
8
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund II Series
Notes to Financial Statements
(1) Significant Accounting Policies:
Standish, Ayer & Wood Investment Trust (Trust) is organized as a
Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. Standish Fixed Income Fund II(Fund) is a separate, diversified
investment series of the Trust. The following is a summary of
significant accounting policies consistently followed by the Fund in
the preparation of its financial statements.
A. Investment security valuations--
Securities for which quotations are readily available are valued at the
last price, or if no sale, at the closing bid price in the principal
market in which such securities are normally traded. Securities
(including restricted securities)for which quotations are not readily
available are valued primarily using dealer-supplied valuations or at
their fair value as determined in good faith under consistently applied
procedures under the general supervision of the Board of Trustees.
Short term instruments with less than sixty-one days remaining to
maturity when acquired by the Fund are valued on an amortized cost
basis. If the Fund acquires a short term instrument with more than
sixty 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 the value on such date unless the trustees
determine during such sixty-day period that amortized cost does not
represent fair value.
B. Repurchase agreements--
It is the policy of the Fund to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the Fund
to monitor on a daily basis, the market value of the repurchase
agreement's underlying investments to ensure the existence of a proper
level of collateral.
C. Securities transactions and income--
Securities transactions are recorded as of the trade date. Realized
gains and losses from securities sold are recorded on the identified
cost basis. Interest income is determined on the basis of interest
accrued, adjusted for accretion of discount on debt securities when
required for federal income tax purposes.
D. Federal taxes--
As a qualified regulated investment company, under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the
extent that it distributes all of its taxable income for its fiscal
year.
(2) Distributions to Shareholders:
Dividends on shares of the Fund are declared quarterly from net
investment income and distributed quarterly. Dividends from net
investment income and distributions from capital gains, if any, are
automatically reinvested in additional shares of the Fund unless the
shareholder elects to receive them in cash. Distributions are recorded
on the ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for mortgage backed securities. Permanent book and tax basis
differences relating to shareholder distributions will result in
reclassification to paid-in capital.
(3) Investment Advisory Fee:
An investment advisory fee was paid to Standish, Ayer & Wood, Inc.
(SA&W) for overall investment advisory and administrative services, and
general office facilities, quarterly at the annual rate of 0.40% of the
Fund's average daily net assets. The investment adviser had agreed that
the total Fund operating expenses for any fiscal year would not exceed
0.40% of the Fund's average net assets. The Fund pays no compensation
directly to its trustees who are affiliated with the investment adviser
or to its officers, all of whom receive remuneration for their services
to the Fund from the investment adviser. Certain of the trustees and
officers of the Fund are directors or officers of SA&W.
9
<PAGE>
<TABLE>
<CAPTION>
(4) Purchase and Sales of Investments:
Purchase of investments, other than short-term obligations were as
follows:
Purchases Sales
------------------ ------------------
<S> <C> <C>
Investments (non-U.S. government securities) $19,477,802 $186,319
================== ==================
</TABLE>
<TABLE>
<CAPTION>
(5) Shares of Beneficial Interest
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest having a
par value of one cent per share. Transactions in Fund shares were as
follows:
For the Period
July 3, 1995 (start
of business) to
October 31, 1995
(unaudited)
------------------
<S> <C>
Shares sold 1,366,247
Shares issued to shareholders in payment of distributions declared 6,539
Shares redeemed (11,311)
------------------
Net increase 1,361,475
==================
</TABLE>
(6) Federal Income Tax Basis of Investment Securities:
The cost and unrealized depreciation in value of the investment
securities owned at October 31, 1995, as computed on a federal income
tax basis, are as follows:
Aggregate cost $27,126,579
====================
Gross unrealized appreciation $363,888
Gross unrealized depreciation ($7,261)
--------------------
Net unrealized appreciation $356,627
====================
10
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund Series
Financial Statements for the Period Ended
October 31, 1995
(unaudited)
1
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund Series
Portfolio of Investments
October 31, 1995
(unaudited)
Par Value
Security Rate Maturity Value (Note 1A)
- ---------------------------------------------------------------------- ------- --------------- -------------- -----------
Bonds - 89.6%
- ----------------------------------------------------------------------
Asset Backed Securities - 17.7%
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Advanta Home Equity Trust Loan 92-2A1 7.15 6/25/08 31,881 $32,140
AFC Home Equity Loan Trust 93-2 6.00 1/20/13 26,605 26,031
Capital Auto Receivables Trust 93-1A7 5.35 2/17/98 60,000 59,747
Contimortgage Home Equity Loan 95-3A2 6.86 7/15/10 100,000 100,969
Equicon Home Equity 95-2A2 6.50 7/18/10 100,000 99,359
Equicredit Home Equity 93-4A 5.73 12/15/08 87,948 85,145
Equicredit Home Equity 95-4A2 6.35 10/15/09 120,000 119,681
Greentree Financial Corp. 92-2 A2 7.05 1/15/18 50,000 50,656
Greentree Manuf Houses 93-2A2 6.10 7/15/18 75,000 74,859
Greentree Securities Trust 94-A 6.90 2/15/04 117,862 117,641
Greentree Securities Trust 95-A 7.25 7/15/05 46,352 46,598
Home Equity Loan Trust 92-2A 6.65 11/20/12 16,153 16,113
MBNA 91-1A 7.75 10/15/98 60,000 60,937
Merrill Lynch Mortgage Investments 92-D A2 7.40 7/15/17 74,892 75,688
OSCC Home Equity Trust 92-3A2 6.30 9/25/07 81,895 81,179
OSCC Home Equity Trust 92-4 Cl A 6.55 11/25/07 24,069 24,050
RNFC Trust 1995-3a2 6.80 12/20/07 50,000 50,250
SPNB Home Equity 91-2 Cl B 8.15 6/15/20 37,853 38,660
TMS Home Equity 92-B 6.90 7/15/07 36,202 36,315
TMS Home Equity 93-DA1 5.68 2/15/09 92,309 88,847
TMS Home Equity 94-DA4 8.75 9/15/20 25,000 26,453
World Omni Auto Lease 94-BA 7.95 1/25/01 50,000 51,203
----------------
$1,362,521
----------------
Bank Bonds - 10.9%
- ----------------------------------------------------------------------
Bank Of Boston Notes 9.50 8/15/97 75,000 $79,004
Capital One Bank Notes 6.39 6/29/98 50,000 50,061
Capital One Bank Notes 6.66 8/17/98 75,000 75,568
Chase Manhattan Corp. Notes 7.50 12/1/97 50,000 51,400
Citicorp Notes 8.42 2/12/97 125,000 128,678
First Security Bank Notes 6.88 10/4/96 200,000 201,714
First USA Bank Notes 5.75 1/15/99 100,000 98,350
Fleet Bank Notes 7.25 10/15/97 25,000 25,572
Midlantic Bank Notes 9.88 12/1/99 110,000 123,487
----------------
$833,834
----------------
Collateralized Mortgage Bonds - 0.0%
- ----------------------------------------------------------------------
Veterans Affairs 1992-1 Cl A 7.75 9/15/04 538 $537
----------------
Eurodollar Bonds - 2.6%
- ----------------------------------------------------------------------
Forte PLC 7.75 12/19/96 120,000 $122,105
Inco Notes 9.75 4/29/96 25,000 25,397
Westpac Banking Group Notes 8.00 5/28/96 50,000 50,505
----------------
$198,007
2
<PAGE>
Portfolio of Investments
(continued)
Par Value
Security Rate Maturity Value (Note 1A)
- ---------------------------------------------------------------------- ------- --------------- -------------- -----------
Finance Bonds - 18.4%
- ----------------------------------------------------------------------
Associated Corp. Notes 6.88 1/15/97 50,000 $50,459
Bear Stearns Co. Notes 6.75 8/15/00 25,000 $25,275
Chrysler Financial Notes 5.38 10/15/98 50,000 48,750
CIT Group Holdings Notes 7.63 12/5/96 25,000 25,419
ERP Reit Ltd 144A Notes 8.50 5/15/99 50,000 52,381
Finova Notes 8.50 2/15/99 100,000 106,122
Ford Motor Credit Global Notes 5.63 1/15/99 125,000 122,668
General Motors Acceptance Corp. Notes 7.85 5/8/97 50,000 51,304
General Motors Acceptance Corp. Notes 7.00 8/15/97 25,000 25,390
General Motors Acceptance Corp. Notes 7.75 4/15/97 25,000 25,581
Goldman Sachs Group Notes 6.20 2/15/01 75,000 73,932
Meditrust Reit Notes 7.38 7/15/00 50,000 50,752
Morgan Stanley Group Notes 8.00 10/15/96 100,000 101,666
Salomon Inc. Notes 5.47 9/22/97 75,000 73,424
Salomon Inc. Notes 7.00 1/20/98 50,000 49,970
Smith Barney Notes 5.63 11/15/98 50,000 49,093
Smith Barney Notes 6.00 3/15/97 50,000 49,948
Taubman Realty Group Notes 8.00 6/15/99 100,000 103,492
Transamerica Financial Notes 9.88 1/1/98 125,000 134,616
United Co Financial Notes 7.00 7/15/98 120,000 121,097
USF & G Notes 7.00 5/15/98 25,000 25,327
Wellsford Reit Notes 7.25 8/15/00 50,000 51,127
----------------
$1,417,793
----------------
Industrial Bonds - 10.4%
- ----------------------------------------------------------------------
ADT Operations Notes 8.25 8/1/00 75,000 $78,563
Georgia Pacific Notes 9.85 6/15/97 75,000 79,021
Hertz Corp. Notes 9.50 5/15/98 125,000 134,261
Martin Marietta Corp. Notes 8.50 3/1/96 75,000 75,565
News America Holdings Corp. Notes 7.50 3/1/00 150,000 155,286
Novacor Chemical Notes 6.50 9/22/00 75,000 74,806
Occidental Petroleum Corp. Notes 5.90 11/9/98 50,000 49,557
Time Warner Inc. Notes 7.95 2/1/00 150,000 155,936
----------------
$802,995
----------------
Original Issue Discount - 0.3%
- ----------------------------------------------------------------------
FNMA Principal Strips 0.00 3/9/02 25,000 $22,981
----------------
22,981
Pass Thru Securities - 6.8%
- ----------------------------------------------------------------------
FHLMC Gold 7.50 3/1/97-6/1/00 165,229 $168,327
FHLMC 8.00 2/1/00 43,205 44,164
FHLMC Gold 7.50 10/1/00 75,000 76,547
FHLMC 10.50 7/1/15 2,331 2,548
GNMA 9.00 11/15/25 175,000 183,914
Resolution Trust Corp. 92-12A-2A 7.50 8/25/23 17,751 17,884
Resolution Trust Corp. 92-M2 A4 8.47 3/25/20 5,670 5,663
Resolution Trust Corp. 92-M3 A1 7.75 7/25/30 12,509 12,685
Resolution Trust Corp. 92-M3 A2 8.63 7/25/30 10,607 10,902
----------------
$522,634
----------------
3
<PAGE>
Portfolio of Investments
(continued)
Par Value
Security Rate Maturity Value (Note 1A)
- ---------------------------------------------------------------------- ------- --------------- -------------- -----------
Public Utility - 1.0%
- ----------------------------------------------------------------------
Systems Energy Resources Notes 7.38 10/1/00 25,000 $24,886
Systems Energy Resources Notes 7.63 4/1/99 50,000 51,224
----------------
$76,110
----------------
U.S. Treasury Bonds - 16.4%
- ----------------------------------------------------------------------
U.S. Treasury Notes 4.38 8/15/96 110,000 $108,968
U.S. Treasury Notes 5.13 4/30/98 100,000 98,734
U.S. Treasury Notes 5.13 11/30/98 330,000 324,719
U.S. Treasury Notes 5.38 5/31/98 100,000 99,234
U.S. Treasury Notes 6.13 7/31/96 110,000 110,395
U.S. Treasury Notes 6.63 3/31/97 175,000 177,352
U.S. Treasury Notes 6.75 5/31/97 105,000 106,906
U.S. Treasury Notes 6.88 10/31/96 100,000 101,203
U.S. Treasury Notes 7.25 8/31/96 30,000 30,380
U.S. Treasury Notes 7.50 12/31/96 100,000 102,078
----------------
$1,259,969
----------------
Variable Rate Collateralized Bonds - 0.1%
- ----------------------------------------------------------------------
Coll Mtg Oblgn Tr 13 Ser A Var Rt 6.38 1/20/03 9,907 $9,861
----------------
Variable Rate Pass Thrus - 0.8%
- ----------------------------------------------------------------------
Resolution Trust Corp. Ser 92-7 A-1A 6.82 3/25/22 59,509 $58,831
----------------
Variable Interest Bonds - 3.2%
- ----------------------------------------------------------------------
ERP Operating Notes 6.69 12/22/97 50,000 $50,353
FNMA Super Flt 2*5yr Cmt- 4.82 4/29/96 50,000 49,063
Ford Motor Credit Corp. Notes 4.82 7/12/96 25,000 24,750
Health & Rehab Reit Notes 6.66 7/13/99 75,000 73,691
Merrill Lynch Notes 5.54 4/7/97 50,000 49,563
----------------
$247,420
----------------
Yankee Bonds - 1.0%
- ----------------------------------------------------------------------
Brascan Ltd. Notes 7.38 10/1/02 75,000 $75,875
----------------
Total Bonds $6,889,368
(identified cost, $6,870,163)
Short Term Obligations - 13.4%
- ----------------------------------------------------------------------
Federal Agency Discount Bonds - 2.6%
- ----------------------------------------------------------------------
Federal Farm Credit Bank, due 11/14/95 120,000 $119,737
Federal Home Loan Bank, due 11/27/95 75,000 74,673
----------------
$194,410
----------------
U.S. Government Securities - 0.6%
- ----------------------------------------------------------------------
U.S. Treasury Bills, due 6/27/96 50,000 $48,254
----------------
4
<PAGE>
Portfolio of Investments
(continued)
Par Value
Security Rate Maturity Value (Note 1A)
- ---------------------------------------------------------------------- ------- --------------- -------------- -----------
Repurchase Agreeements - 10.2%
- ----------------------------------------------------------------------
Prudential Bache repurchase agreement dated 10/31/95,
5.42% due 11/01/95 to pay $384,278 (Collateralized by
$391,915 Sallie Mae Notes)at cost. 384,221 $384,221
Safety Cash Overnight Investment dated
10/31/95, 5.17%, due 11/1/95 to pay $384,275
(Collateralized by $391,630 U.S. Treasury Note)
at cost. $384,221
Investors Cash Reserve dated 10/31/95, 5.35%,
due 11/1/95 to pay $14,554 (Collateralized by
$14,938 U.S. Treasury Notes) at cost. $14,552
----------------
$782,994
Total Short Term Obligations $1,025,658
----------------
(identified cost, $1,025,000)
Total Investments - 103.0% $7,915,026
----------------
(identified cost, $7,895,163)
Other assets, less liabilities - (3.0)% ($229,347)
----------------
Net Assets - 100% $7,685,679
================
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund Series
Statement of Assets and Liabilities
October 31, 1995
(unaudited)
Assets
<S> <C> <C>
Investments, at value (Note 1A)(identified cost, $7,895,163) $7,915,026
Receivable for investments sold 101,189
Interest receivable 102,736
Deferred organization expenses 10,937
Receivable from investment advisor (Note 3) 43,244
Other assets 19,905
-----------------
Total assets $8,193,037
Liabilities
Payable for investments purchased $483,461
Accrued investment advisory fee (Note 3) 6,943
Accrued trustee fees 44
Accrued expenses and other liabilities 16,910
--------------
Total liabilities $507,358
-----------------
Net Assets $7,685,679
=================
Net Assets consist of
Paid-in capital $7,606,507
Undistributed net investment income (loss) 52,382
Accumulated undistributed net realized gain (loss) 6,927
Net unrealized appreciation (depreciation) 19,863
-----------------
Total $7,685,679
=================
Shares of beneficial interest outstanding 379,823
=================
Net asset value, offering price, and redemption price per share $20.23
=================
(Net assets/Shares outstanding)
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund Series
Statement of Operations
For the Period Ended October 31, 1995
(unaudited)
Investment income
<S> <C> <C>
Interest income $134,218
-----------------
Expenses
Investment advisory fee (Note 3) $6,943
Trustees fees 44
Accounting, custody and transfer agent fees 19,759
Registration costs 3,793
Audit services 18,585
Legal fees 1,322
Amortization of organization expense 762
------------------
Total expenses $51,208
Deduct:
Preliminary waiver of investment advisory fee and expenses (Note 3) ($43,244)
------------------
Net expenses 7,964
-----------------
Net investment income $126,254
-----------------
Realized and unrealized gain (loss)
Net realized gain (loss)
Investment securities $6,927
Change in net unrealized appreciation (depreciation)
Investment securities 19,863
-----------------
Net gain (loss) $26,790
-----------------
Net increase (decrease) in net assets from operations $153,044
=================
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund Series
Statement of changes in Net Assets
For the Period
July 3, 1995 (start
of business) to
October 31, 1995
(unaudited)
------------------
Increase (decrease) in Net Assets
From operations
<S> <C>
Net investment income $126,254
Net realized gain (loss) 6,927
Change in net unrealized appreciation (depreciation) 19,863
------------------
Net increase (decrease) in net assets from operations $153,044
------------------
Distributions to shareholders
From net investment income ($73,872)
------------------
Total distributions to shareholders ($73,872)
------------------
Fund share (principal) transactions (Note 5)
Net proceeds from sale of shares $7,600,102
Net asset value of shares issued to shareholders in
payment of distributions declared 16,405
Cost of shares redeemed (10,000)
------------------
Increase (decrease) in net assets from Fund share transactions $7,606,507
------------------
Net increase (decrease) in net assets $7,685,679
Net Assets
At beginning of period 0
------------------
At end of period (including undistributed net investment income
of $52,382 at October 31, 1995) $7,685,679
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund Series
Financial Highlights
For the Period
July 3, 1995 (start
of business) to
October 31, 1995
(unaudited)
---------------------
Per share data (for a share outstanding throughout each period)
<S> <C>
Net asset value - beginning of period $20.00
---------------------
Income from investment operations
Net investment income $0.40
Net realized and unrealized gain (loss) 0.08
---------------------
Total from investment operations 0.48
---------------------
Less distributions declared to shareholders
From net investment income (0.25)
---------------------
Total distributions declared to shareholders (0.25)
---------------------
Net asset value - end of period $20.23
=====================
Total return 2.41%
Ratios (to average net assets)/Supplemental Data
Expenses * 0.40% t
Net investment income * 6.22% t
Portfolio turnover 90% y
Net assets at end of period (000 omitted) $7,685
* The investment adviser did not impose a portion of its advisory fee. If this
reduction had not been undertaken, the net investment income per share and
the ratios would have been:
Net investment income per share $0.26 Ratios (to average net assets):
Expenses 2.58% t
Net investment income 4.09% t
t Computed on an annualized basis.
y The turnover ratio for the period is not annualized.
</TABLE>
9
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund Series
Notes to Financial Statements
(1) Significant Accounting Policies:
Standish, Ayer & Wood Investment Trust (Trust) is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as an open-end, management investment company. Standish Controlled
Maturity Fund (Fund) is a separate, diversified investment series of the Trust.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.
A. Investment security valuations--
Securities for which quotations are readily available are valued at the last
price, or if no sale, at the closing bid price in the principal market in which
such securities are normally traded. Securities (including restricted
securities)for which quotations are not readily available are valued primarily
using dealer- supplied valuations or at their fair value as determined in good
faith under consistently applied procedures under the general supervision of the
Board of Trustees.
Short term instruments with less than sixty-one days remaining to maturity when
acquired by the Fund are valued on an amortized cost basis. If the Fund acquires
a short term instrument with more than sixty 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 the value on such date unless
the trustees determine during such sixty-day period that amortized cost does not
represent fair value.
B. Repurchase agreements--
It is the policy of the Fund to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
in support of repurchase agreement investments. Additionally, procedures have
been established by the Fund to monitor on a daily basis, the market value of
the repurchase agreement's underlying investments to ensure the existence of a
proper level of collateral.
C. Securities transactions and income--
Securities transactions are recorded as of the trade date. Realized gains and
losses from securities sold are recorded on the identified cost basis. Interest
income is determined on the basis of interest accrued, adjusted for accretion of
discount on debt securities when required for federal income tax purposes.
D. Federal taxes--
As a qualified regulated investment company, under Subchapter M of the Internal
Revenue Code, the Fund is not subject to income taxes to the extent that it
distributes all of its taxable income for its fiscal year.
(2) Distributions to Shareholders:
Dividends on shares of the Fund are declared quarterly from net investment
income and distributed quarterly. Dividends from net investment income and
distributions from capital gains, if any, are automatically reinvested in
additional shares of the Fund unless the shareholder elects to receive them in
cash. Distributions are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for mortgage backed
securities. Permanent book and tax basis differences relating to shareholder
distributions will result in reclassification to paid-in capital.
(3) Investment Advisory Fee:
An investment advisory fee was paid to Standish, Ayer & Wood, Inc. (SA&W) for
overall investment advisory and administrative services, and general office
facilities, quarterly at the annual rate of 0.35% of the Fund's average daily
net assets. The investment adviser had agreed that the total Fund operating
expenses for any fiscal year would not exceed 0.40% of the Fund's average net
assets. The Fund pays no compensation directly to its trustees who are
affiliated with the investment adviser or to its officers, all of whom receive
remuneration for their services to the Fund from the investment adviser. Certain
of the trustees and officers of the Fund are directors or officers of SA&W.
10
<PAGE>
<TABLE>
<CAPTION>
(4) Purchase and Sales of Investments:
Purchase of investments, other than short-term obligations were as
follows:
Purchases Sales
------------------ ------------------
<S> <C> <C>
Investments (non-U.S. government securities) $6,557,557 $1,803,333
================== ==================
</TABLE>
<TABLE>
<CAPTION>
(5) Shares of Beneficial Interest
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest having a par value of one cent
per share. Transactions in Fund shares were as follows:
For the Period
July 3, 1995 (start
of business) to
October 31, 1995
(unaudited)
------------------
<S> <C>
Shares sold 379,503
Shares issued to shareholders in payment of distributions declared 818
Shares redeemed (498)
------------------
Net increase 379,823
==================
</TABLE>
<TABLE>
<CAPTION>
Federal Income Tax Basis of Investment Securities:
The cost and unrealized depreciation in value of the investment securities owned
at October 31, 1995, as computed on a federal income tax basis, are as follows:
<S> <C>
Aggregate cost $7,895,163
====================
Gross unrealized appreciation $25,028
Gross unrealized depreciation ($5,165)
--------------------
Net unrealized appreciation $19,863
====================
</TABLE>
<TABLE>
<CAPTION>
Delayed Delivery Transactions
The Fund may purchase securities on a when-issued or forward commitment basis.
Payment and delivery may take place a month or more after the date of the
transactions. The price of the underlying securities and the date when the
securities will be delivered and paid for are fixed at the time the transaction
is negotiated. The fund instructs its custodian to segregate securities having a
value at least equal to the amount of the purchase commitment.
At October 31, 1995, the Fund had entered into the following delayed delivery
transactions.
<S> <C> <C> <C> <C>
Type Security Settlement Date Amount
- -------------------------------------------------- -------------------- ------------------------- -------------------
Buy FHLMC Gold, 7.5% 11/28/95 $76,547
</TABLE>
11
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in the Prospectus with respect to Standish Controlled
Maturity Fund:
Financial Highlights
Included in the Statement of Additional Information with respect to Standish
Controlled Maturity Fund:
Schedule of Portfolio Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes In Net Assets
Financial Highlights
Notes to Financial Statements
Included in the Prospectus with respect to Standish Fixed Income Fund II:
Financial Highlights
Included in the Statement of Additional Information with respect to Standish
Fixed Income Fund II:
Schedule of Portfolio Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes In Net Assets
Financial Highlights
Notes to Financial Statements
(b) Exhibits:
(1) Agreement and Declaration of Trust dated
August 13, 1986*
(1A) Certificate of Designation of Standish Fixed Income
Fund**
(1B) Certificate of Designation of Standish
International Fund**
1
<PAGE>
(1C) Certificate of Designation of Standish
Securitized Fund**
(1D) Certificate of Designation of Standish
Short-Term Asset Reserve Fund**
(1E) Certificate of Designation of Standish
Marathon Fund*
(1F) Certificate of Amendment dated November 21,
1989*
(1G) Certificate of Amendment dated November 29,
1989*
(1H) Certificate of Amendment dated April 24, 1990*
(1I) Certificate of Designation of Standish Equity Fund**
(1J) Certificate of Designation of Standish International
Fixed Income Fund**
(1K) Certificate of Designation of Standish Intermediate
Tax Exempt Bond Fund*
(1L) Certificate of Designation of Standish Massachusetts
Intermediate Tax Exempt Bond Fund*
(1M) Certificate of Designation of Standish Global Fixed
Income Fund*
(1N) Certificate of Designation of Standish Controlled
Maturity Fund and Standish Fixed Income Fund II*
(1O) Certificate of Designation of Standish Tax-
Sensitive Small Cap Equity Fund and Standish
Tax-Sensitive Equity Fund**
(2) Bylaws of the Registrant*
(3) Not applicable
(4) Not applicable
(5A) Investment Advisory Agreement between the Registrant
and Standish, Ayer & Wood, Inc. relating to Standish
Fixed Income Fund**
2
<PAGE>
(5B) Investment Advisory Agreement between the Registrant
and Standish, Ayer & Wood, Inc. relating to Standish
Securitized Fund**
(5C) Form of Investment Advisory Agreement between the
Registrant and Standish, Ayer & Wood, Inc. relating
to Standish Short-Term Asset Reserve Fund**
(5D) Investment Advisory Agreement between the Registrant
and Standish, Ayer & Wood, Inc. relating to Standish
Small Capitalization Equity Fund (formerly Standish
Marathon Fund)**
(5E) Investment Advisory Agreement dated September 13, 1989
between the Registrant and Standish, Ayer & Wood, Inc.
relating to Standish Fixed Income Fund**
(5F) Investment Advisory Agreement between the Registrant
and Standish, Ayer & Wood, Inc. relating to Standish
Equity Fund**
(5G) Investment Advisory Agreement between the Registrant
and Standish, Ayer & Wood, Inc. relating to Standish
International Fixed Income Fund**
(5H) Assignment of Investment Advisory Agreement between
the Registrant and Standish, Ayer & Wood, Inc.
relating to Standish International Fixed Income Fund**
(5I) Form of Investment Advisory Agreement between the
Registrant and Standish, Ayer & Wood, Inc. relating to
Standish Intermediate Tax Exempt Bond Fund**
(5J) Investment Advisory Agreement between the Registrant
and Standish, Ayer & Wood, Inc. relating to Standish
Massachusetts Intermediate Tax Exempt Bond Fund**
(5K) Investment Advisory Agreement between Standish
International Management Company, L.P. relating to
Standish Global Fixed Income Fund**
(5L) Investment Advisory Agreement between the Registrant
and Standish, Ayer & Wood, Inc. relating to Standish
Controlled Maturity Fund**
(5M) Investment Advisory Agreement between the Registrant
and Standish, Ayer & Wood, Inc. relating to Standish
Fixed Income Fund II**
3
<PAGE>
(5N) Investment Advisory Agreement between the Registrant
and Standish, Ayer & Wood, Inc. relating to Standish
Small Cap Tax-Sensitive Equity Fund**
(5O) Investment Advisory Agreement between the Registrant
and Standish, Ayer & Wood, Inc. relating to Standish
Tax-Sensitive Equity Fund**
(6) Not applicable
(7) Not applicable
(8A) Custodian Agreement for Fixed Income Fund**
(8B) Custodian Agreement for Standish Short-Term Asset
Reserve Fund**
(8C) Custodian Agreement for Standish Small Capitalization
Equity Fund (formerly Standish Marathon Fund)**
(8D) Custodian Agreement for Standish Securitized Fund**
(8E) Custodian Agreement for Standish Equity Fund**
(8F) Custodian Agreement for Standish International Fixed
Income Fund**
(8G) Custodian Agreement for Standish Intermediate Tax
Exempt Bond Fund**
(8H) Custodian Agreement for Standish Massachusetts
Intermediate Tax Exempt Bond Fund**
(8I) Custodian Agreement for Standish Global Fixed Income
Fund**
(8J) Custodian Agreement for Standish Controlled Maturity
Fund*
(8K) Custodian Agreement for Standish Fixed Income Fund II*
(8L) Custodian Agreement for Standish Small Cap Tax-
Sensitive Equity Fund***
(8M) Custodian Agreement for Standish Tax-Sensitive Equity
Fund***
4
<PAGE>
(9) Transfer Agency and Shareholder Service Agreement**
(10A) Opinion and Consent of Counsel for Standish Fixed
Income Fund**
(10B) Opinion and Consent of Counsel for Standish
Securitized Fund**
(10C) Opinion and Consent of Counsel for Standish Short-Term
Asset Reserve Fund**
(10D) Opinion and Consent of Counsel for Standish Small
Capitalization Equity Fund (formerly Standish Marathon
Fund)**
(10E) Opinion and Consent of Counsel for Standish Equity
Fund**
(10F) Opinion and Consent of Counsel for Standish
International Fixed Income Fund**
(10G) Opinion and Consent of Counsel for Standish
Intermediate Tax Exempt Bond Fund**
(10H) Opinion and Consent of Counsel for Standish
Massachusetts Intermediate Tax Exempt Bond Fund**
(10I) Opinion and Consent of Counsel for Standish Global
Fixed Income Fund**
(10J) Opinion and Consent of Counsel for the Registrant**
(11) Not applicable
(12) Not applicable
(13) Form of Initial Capital Agreement between the
Registrant and Standish, Ayer & Wood, Inc.**
(14) Not applicable
(15) Not applicable
(16) Performance Calculations**
(17A) Financial Data Schedule of Standish Controlled
Maturity Fund+
5
<PAGE>
(17B) Financial Data Schedule of Standish Fixed Income
Fund II+
(18) Not applicable
(19A) Power of Attorney (Richard S. Wood)**
(19B) Power of Attorney (David W. Murray)**
(19C) Power of Attorney (Samuel C. Fleming)**
(19D) Power of Attorney (Benjamin M. Friedman)**
(19E) Power of Attorney (John H. Hewitt)**
(19F) Power of Attorney (Edward H. Ladd)**
(19G) Power of Attorney (Caleb Loring III)**
(19H) Power of Attorney (D. Barr Clayson)**
(19I) Power of Attorney (Richard C. Doll)**
--------------------
+ Filed herewith.
* Filed as an exhibit to Registration
Statement No. 33-10615 and incorporated
herein by reference thereto.
** Filed as an exhibit to Registration
Statement No. 33-8214 and incorporated
herein by reference thereto.
*** To be filed by Amendment.
Item 25. Persons Controlled by or under Common Control
with Registrant
No person is directly or indirectly controlled by or under common
control with the Registrant.
Item 26. Number of Holders of Securities
Set forth below is the number of record holders, as of December 1,
1995, of the shares of each series of the Registrant.
Number of Record
Title of Class Holders
Shares of beneficial interest,
par value $.01, of:
6
<PAGE>
Standish Fixed Income Fund 421
Standish Securitized Fund 15
Standish Short Term Asset
Reserve Fund 125
Standish International Fixed
Income Fund 199
Standish Global Fixed Income Fund 47
Standish Equity Fund 137
Standish Small Capitalization
Equity Fund 475
Standish Mass. Intermediate Tax
Exempt Bond Fund 83
Standish Intermediate Tax Exempt
Bond Fund 101
Standish International Equity Fund 222
Standish Controlled Maturity Fund 6
Standish Fixed Income Fund II 4
Standish Small Cap Tax-Sensitive
Equity Fund 0
Standish Tax-Sensitive Equity Fund 0
Item 27. Indemnification
Under the Registrant's Agreement and Declaration of Trust, any past or
present Trustee or officer of the Registrant is indemnified to the fullest
extent permitted by law against liability and all expenses reasonably incurred
by him in connection with any action, suit or proceeding to which he may be a
party or is otherwise involved by reason of his being or having been a Trustee
or officer of the Registrant. The Agreement and Declaration of Trust of the
Registrant does not authorize indemnification where it is determined, in the
manner specified in the Declaration, that such Trustee or officer has not acted
in good faith in the reasonable belief that his actions were in the best
interest of the Registrant. Moreover, the Declaration does not authorize
indemnification where such Trustee or officer is liable to the Registrant or its
shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his or her duties.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to Trustees, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
7
<PAGE>
proceeding) is asserted by any such Trustee, officer or controlling person
against the Registrant in connection with the securities being registered, and
the Commission is still of the same opinion, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Advisers
a. Standish, Ayer & Wood, Inc. and Standish International
Management Company, L.P.:
The business and other connections of the officers and Directors of
Standish, Ayer & Wood, Inc. ("Standish, Ayer & Wood"), the investment adviser to
all series of the Registrant other than Standish International Equity Fund,
Standish Global Fixed Income Fund Standish International Fixed Income Fund are
listed on the Form ADV of Standish, Ayer & Wood as currently on file with the
Commission (File No. 801-584), the text of which is hereby incorporated by
reference.
The business and other connections of the officers and partners of
Standish International Management Company, L.P. ("Standish International"), the
investment adviser to Standish International Equity Fund, Standish Global Fixed
Income Fund and Standish International Fixed Income Fund, are listed on the Form
ADV of Standish International as currently on file with the Commission (File No.
801-639338), the text of which is hereby incorporated by reference.
The following sections of each such Form ADV are incorporated herein by
reference:
(a) Items 1 and 2 of Part 2;
(b) Section IV, Business Background, of
each Schedule D.
Item 29. Principal Underwriter
(a) Not applicable.
Item 30. Location of Accounts and Records
The Registrant maintains the records required by Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 to 31a-3 inclusive thereunder at
8
<PAGE>
its principal office, located at One Financial Center, Boston, Massachusetts
02111. Certain records, including records relating to the Registrant's
shareholders and the physical possession of its securities, may be maintained
pursuant to Rule 31a-3 at the main offices of the Registrant's transfer and
dividend disbursing agent and custodian.
Item 31. Management Services
Not applicable
Item 32. Undertakings
(a) Not applicable.
(b) With respect to each of Standish Small Cap Tax-
Sensitive Equity Fund and Standish Tax-Sensitive
Equity Fund, the Registrant undertakes to file a
post-effective amendment, using financial
statements which need not be certified, within
four to six months from the effective date of this
Post-Effective Amendment to its Registration
Statement.
(c) The Registrant undertakes to furnish each person to
whom a Prospectus is delivered a copy of Registrant's
latest annual report to shareholders, upon request
and without charge.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to its Registration Statement (which satisfies all the
requirements for effectiveness pursuant to Rule 485(b) under the Securities Act
of 1933) to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston and The Commonwealth of Massachusetts on the
_____ day of December, 1995.
STANDISH, AYER & WOOD
INVESTMENT TRUST
/s/ David W. Murray
David W. Murray, Treasurer
The term "Standish, Ayer & Wood Investment Trust" means and refers to
the Trustees from time to time serving under the Agreement and Declaration of
Trust of the Registrant dated August 13, 1986, a copy of which is on file with
the Secretary of State of The Commonwealth of Massachusetts. The obligations of
the Registrant hereunder are not binding personally upon any of the Trustees,
shareholders, nominees, officers, agents or employees of the Registrant, but
bind only the trust property of the Registrant, as provided in the Agreement and
Declaration of Trust of the Registrant. The execution of this Registration
Statement has been authorized by the Trustees of the Registrant and this
Registration Statement has been signed by an authorized officer of the
Registrant, acting as such, and neither such authorization by such Trustees nor
such execution by such officer shall be deemed to have been made by any of them,
but shall bind only the trust property of the Registrant as provided in its
Declaration of Trust.
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated.
10
<PAGE>
Signature Title Date
Richard S. Wood* Trustee and President December 31, 1995
- ---------------------- (principal executive
Richard S. Wood officer)
David W. Murray* Treasurer (principal December 31, 1995
David W. Murray financial and accounting
officer) and Secretary
D. Barr Clayson* Trustee and Vice December 31, 1995
D. Barr Clayson President
Richard C. Doll* Trustee December 31, 1995
Richard C. Doll
Samuel C. Fleming* Trustee December 31, 1995
Samuel C. Fleming
Benjamin M. Friedman* Trustee December 31, 1995
Benjamin M. Friedman
John H. Hewitt* Trustee December 31, 1995
John H. Hewitt
Edward H. Ladd* Trustee December 31, 1995
Edward H. Ladd
Caleb Loring III* Trustee December 31, 1995
Caleb Loring III
*By: /s/ David W. Murray_
David W. Murray
Attorney-In-Fact
11
<PAGE>
EXHIBIT INDEX
Exhibit
17(a) Financial Data Schedule for Standish Controlled Maturity
Fund
17(b) Financial Data Schedule for Standish Fixed Income Fund II
12
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> Standish Fixed Income Fund II
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-START> JUl-03-1995
<PERIOD-END> Oct-31-1995
<INVESTMENTS-AT-COST> 27,126,579
<INVESTMENTS-AT-VALUE> 27,483,206
<RECEIVABLES> 95
<ASSETS-OTHER> 363,491
<OTHER-ITEMS-ASSETS> 73,721
<TOTAL-ASSETS> 27,920,513
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 76,000
<TOTAL-LIABILITIES> 76,000
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 27,056,962
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 265,568
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 165,356
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 356,627
<NET-ASSETS> 27,844,513
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<TABLE> <S> <C>
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<NAME> Standish Controlled Maturity Fund
<S> <C>
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