As filed with the Securities and Exchange Commission on July 25, 1996.
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. 78 |X|
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 81 |X|
(Check appropriate box or boxes.)
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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:
|_| 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)
|X| 0n October 11, 1996 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, 1995 was filed on or about February 27, 1996.
---------------------
This Post-Effective Amendment has been executed outside of the United
States by the Trustees and Officers of Standish, Ayer & Wood Master Portfolio.
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST*
Standish Small Capitalization Equity Fund II
Cross-Reference Sheet Pursuant to Rule 495(a)
<TABLE>
<CAPTION>
Part A Prospectus
Form Item Cross-Reference
<S> <C> <C>
Item 1. Cover Page Cover Page
Item 2. Synopsis "Expense Information"
Item 3. Condensed Financial Not Applicable
Information
Item 4. General Description Cover Page, "The Fund
of Registrant and the Portfolio", "Investment
Objective and Policies" and "Risk
Factors and Suitability"
Item 5. Management of the Fund "Management" and "Custodian,
Transfer Agent and Dividend-
Disbursing Agent"
Item 6. Capital Stock and "The Fund and the Portfolio",
Other Securities "Purchase of Shares", "Redemption of
Shares", "Dividends and
Distributions" and "Federal Income
Taxes"
Item 7. Purchase of Securities Cover Page, "Purchase of
Being Offered Shares" and "Exchange of 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 is
being filed with respect to the series of the Registrant set forth above and
does not affect the Prospectuses and Statements of Additional Information of any
additional series of the Registrant.
1
<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 and "The Portfolio and Its
Investors"
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 "Experts and Financial Statements"
</TABLE>
2
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED July 25, 1996
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
Prospectus dated October , 1996
PROSPECTUS
STANDISH SMALL CAPITALIZATION EQUITY FUND II
One Financial Center
Boston, Massachusetts 02111
(800) 221-4795
Standish Small Capitalization Equity 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's investment objective is to achieve long-term growth of capital.
The Fund seeks to achieve its investment objective by investing all its
investable assets (the "Investable Assets") in the Standish Small Capitalization
Equity Portfolio II (the "Portfolio") which has the same investment objective as
the Fund. The Portfolio seeks to achieve its investment objective by investing
at least 80% of its total assets in equity and equity-related securities of
small capitalization companies. The Portfolio is a series of Standish, Ayer &
Wood Master Portfolio (the "Portfolio Trust"), which is an open-end management
investment company. See "Investment Policies." Standish, Ayer & Wood, Inc. is
the Portfolio's investment adviser ("Standish" or the "Adviser").
UNLIKE OTHER MUTUAL FUNDS WHICH DIRECTLY ACQUIRE AND MANAGE THEIR OWN
PORTFOLIOS OF SECURITIES, THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY
INVESTING ALL OF ITS INVESTABLE ASSETS IN THE PORTFOLIO WHICH IS A SEPARATE FUND
WITH AN IDENTICAL INVESTMENT OBJECTIVE. SEE "SPECIAL INFORMATION CONCERNING THE
HUB AND SPOKE MASTER-FEEDER FUND STRUCTURE" ON PAGE .
Investors may purchase shares of the Fund from the Trust's principal
underwriter, Standish Fund Distributors, L.P. (the "Principal Underwriter"), at
the address and phone number set forth above 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 $10,000.
This Prospectus is intended to set forth concisely the information about
the Fund and the Trust that a prospective investor should know before investing.
Investors are encouraged to read this Prospectus and retain it for future
reference. Additional information about the Fund and the Trust is contained in a
Statement of Additional Information which has been filed with the Securities and
Exchange Commission and is available upon request and without charge by calling
or writing to the Principal Underwriter at the telephone number or address set
forth above. The Statement of Additional Information bears the same date as this
Prospectus and is incorporated by reference into this Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN SHARES OF THE FUND INVOLVES
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
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
Investment Objective and Policies............................................3
Risk Factors and Suitability.................................................7
Special Information Concerning the Hub and Spoke(R) Master
Feeder Fund Structure...................................................7
Calculations of Performance Data.............................................8
Dividends and Distributions..................................................9
Purchase of Shares...........................................................9
Exchange of Shares...........................................................9
Redemption of Shares........................................................10
Management..................................................................11
Federal Income Taxes........................................................13
The Fund and The Portfolio..................................................14
Principal Underwriter.......................................................15
Custodian, Transfer Agent and Dividend-Disbursing
Agent..................................................................15
Independent Accountants.....................................................15
Legal Counsel...............................................................15
Tax Certification Instructions..............................................15
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EXPENSE INFORMATION
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases None
Maximum Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
Annual Operating Expenses (as a percentage of average net
assets)
Management Fees (After Expense Limitation) 0.00%*
12b-1 Fees None
Other Expenses (After Expense Limitation) 0.00%*
Total Operating Expenses (After Expense Limitation) 0.00%*
<TABLE>
<CAPTION>
<S> <C> <C>
Example 1 year 3 years
------ -------
You would pay the following expenses on a $1,000 $ 0 $ 0
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period:
</TABLE>
The purpose of the above table is to assist the investor in understanding
the various costs and expenses of the Fund and the Portfolio that an investor in
the Fund will bear directly or indirectly. The figure shown in the caption
"Other Expenses," which includes, among other things, custodian and transfer
agent fees, registration costs and payments for insurance and audit and legal
services, is based upon estimated amounts for the current fiscal year. The
Trustees of the Trust believe that over time the aggregate per share expenses of
the Fund and the Portfolio will not be more than the expenses which the Fund
would incur if it were to retain the services of an investment adviser and the
Investable Assets of the Fund were invested directly in the types of securities
being held by the Portfolio.
* Standish has voluntarily agreed to limit the master-feeder aggregate total
annual operating expenses of the Fund and the Portfolio (excluding brokerage
commissions, taxes and extraordinary expenses) for the current fiscal year
ending December 31, 1996 to 0.00% of average daily net assets. In the absence of
such an agreement, the management fee, other expenses and total operating
expenses would be 0.60%, 0.25% and 0.85%, respectively. Standish may discontinue
or modify such limitation in the future at its discretion.
For more information with respect to the expenses of the Fund and the
Portfolio see "Management-Investment Adviser" and "Management-Expenses" herein.
THE INFORMATION IN THE TABLE AND HYPOTHETICAL EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5%
ANNUAL RETURN, THE FUND'S ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN
ACTUAL RETURN GREATER OR LESS THAN 5%.
2
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
Investment Objective
The Fund seeks to achieve its investment objective by investing all its
Investable Assets in the Portfolio which has the same investment objective as
the Fund. The Portfolio's investment objective is to achieve long-term growth of
capital. The Portfolio seeks to achieve its investment objective by investing at
least 80% of its total assets in equity and equity-related securities of small
capitalization companies. Equity and equity- related securities include common
stocks, preferred stocks, securities convertible into common stocks and options,
futures and other strategic transactions based on common stocks.
Because of the uncertainty inherent in all investments, no assurance can be
given that either the Fund or the Portfolio will achieve its investment
objective. Since the investment characteristics of the Fund will correspond
directly to those of the Portfolio, the following is a discussion of the various
investments and investment policies of the Portfolio.
Investment Policies
The companies in whose equity and equity-related securities the Portfolio
invests generally have market capitalizations between $400 million and $750
million. The Portfolio expects that no more than 20% of its total assets will be
invested in companies that have a market capitalization above $1 billion.
The Portfolio may participate in initial public offerings for previously
privately held companies which are generally expected to have market
capitalizations over $400 million and under $750 million after the consummation
of the offering and whose securities are expected to be liquid after the
offering. Such companies may have a more limited operating history and/or less
experienced management than other companies in which the Portfolio invests,
which may pose additional risks.
At times, particularly when the Adviser believes that securities of small
capitalization companies are overvalued, the Portfolio's portfolio may include
securities of larger, more mature companies, provided that the value of the
securities of these companies shall not exceed 20% of the Portfolio's total
assets. The Portfolio will invest in publicly traded equity securities and,
excluding equity securities received as distributions on portfolio securities,
will not normally hold equity securities which are restricted as to disposition
under federal securities laws or are otherwise illiquid or not readily
marketable but may do so to the extent permitted by the Fund's investment
restrictions under certain circumstances. The Portfolio will attempt to reduce
risk by diversifying its investments within the investment policies set forth
above.
As a temporary matter or for defensive purposes, the Portfolio may invest
all or a portion of its assets in investment grade short-term debt securities or
cash equivalents.
The investment objectives of the Fund and the Portfolio are not fundamental
policies and may be changed upon notice to but without the approval of either
the Fund's shareholders or the Portfolio's investors. Other investment policies
which are not fundamental policies may be changed by the Trustees of the Trust
and the Trustees of the Portfolio Trust without the approval of the Fund's
shareholders or the Portfolio's investors. The Fund's and the Portfolio's
investment policies are described further below and in the Statement of
Additional Information.
Foreign Securities
The Portfolio may invest up to 15% of its net assets in foreign equity
securities, including securities of foreign issuers that are listed on a United
States exchange or traded in the U.S. over-the-counter market and sponsored and
unsponsored American Depositary Receipts (ADRs). Securities of foreign issuers,
including emerging markets companies, will be selected for investment by the
Portfolio if the Adviser believes these securities will offer above average
capital growth potential. Investing in securities of foreign companies which are
generally denominated in foreign currencies and utilizing foreign currency
transactions involves certain risks of political, economic and legal conditions
and developments not typically associated with investing in United States
companies. Such conditions or developments might include favorable or
unfavorable changes in currency exchange rates, exchange control regulations
(including currency blockage), civil disorder, expropriation of assets of
companies in which the Portfolio invests, nationalization of such companies,
imposition of withholding taxes on dividend or interest payments, and possible
difficulty in obtaining and enforcing judgments against a foreign issuer. Also,
foreign securities may not be as liquid as, and may be more volatile than,
comparable domestic securities. Furthermore, issuers of foreign securities are
subject to different, often less comprehensive, accounting, reporting and
disclosure requirements than domestic issuers. The Portfolio, in connection with
its purchases and sales of foreign securities, other than securities denominated
in United States dollars, will incur transaction costs in converting currencies.
Also, foreign custodial costs relating to the Portfolio's portfolio securities
are higher than domestic custodial costs. Fixed commissions on foreign stock
exchanges
3
<PAGE>
are generally higher than negotiated commissions on United States exchanges.
Finally, transactions in equity securities effected on some foreign stock
exchanges, and consequently the Portfolio's investments on such exchanges, may
not be settled promptly and therefore such investments may be less liquid and
subject to the risk of fluctuating currency exchange rates pending settlement.
Investment by the Portfolio in securities of issuers in emerging markets
involves risks in addition to those discussed above. Many emerging market
countries have experienced substantial, and in some periods extremely high,
rates of inflation for many years. Inflation and rapid fluctuations in inflation
rates have had and may continue to have negative effects on the economies and
securities markets of certain emerging market countries. Moreover, the economies
of individual emerging market countries may differ favorably or unfavorably from
the U.S. economy in such respects as the rate of growth of gross domestic
product, the rate of inflation, capital reinvestment, resource self-sufficiency
and balance of payments position.
Short Term Debt Securities; Money Market Instruments
The Portfolio may invest uncommitted cash and cash needed to maintain
liquidity for redemptions in short-term debt securities and cash equivalents,
including short-term U.S. Government securities (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),
U.S. and foreign commercial paper, negotiable certificates of deposit,
non-negotiable fixed time deposits, bankers' acceptances, repurchase agreements
and other money market securities and instruments.
When the Adviser deems it advisable because of market conditions, the
Portfolio may temporarily invest in short-term debt securities or retain cash or
cash equivalents without limit. Such investments will be limited to 20% of total
assets unless the Portfolio is in a temporary defensive position.
The Portfolio's investments in money market securities (i.e., securities
with maturities of less than one year) will be limited to securities which are
rated P-1 by Moody's Investors Service, Inc. (Moody's) or A-1 by Standard &
Poor's Ratings Group ("Standard & Poor's"). The Portfolio will invest at least
95% of its assets which are invested in short-term interest-bearing securities
(i.e., securities with maturities of one to three years) in securities which are
rated at the time of investment Aaa, Aa or A by Moody's or AAA, AA, or A by
Standard & Poor's, or which, if not rated, are of comparable investment quality
in the opinion of the Adviser. Up to 5% of assets invested in such short-term
securities may be invested in securities which are rated Baa by Moody's or BBB
by Standard & Poor's, or which, if not rated, are of comparable investment
quality in the opinion of the Adviser. In the case of a security rated
differently by the two rating services the higher rating is used in applying the
5% limit.
In the event that the rating on a security held in the Portfolio's
portfolio is lowered by a rating service, such action will be considered by the
Adviser in its evaluation of the overall investment merits of that security, but
will not necessarily result in the sale of the security. Securities rated Baa by
Moody's and BBB by Standard & Poor's may have some speculative characteristics
and changes in economic conditions and other circumstances are more likely to
lead to weakened capacity to make principal and interest payments than is the
case with higher rated securities.
Repurchase Agreements
The Portfolio may invest up to 10% of its net assets in repurchase
agreements under normal circumstances. Repurchase agreements acquired by the
Portfolio will always be fully collateralized as to principal and interest by
money market instruments and will be entered into with commercial banks, brokers
and dealers considered creditworthy by the Adviser. If the other party or
"seller" of a repurchase agreement defaults, the Portfolio might suffer a loss
to the extent that the proceeds from the sale of the underlying securities and
other collateral held by the Portfolio in connection with the related repurchase
agreement are less than the repurchase price. In addition, in the event of
bankruptcy of the seller or failure of the seller to repurchase the securities
as agreed, the Portfolio could suffer losses, including loss of interest on or
principal of the security and costs associated with delay and enforcement of the
repurchase agreement.
Strategic Transactions
The Portfolio may, but is not required to, utilize various other investment
strategies as described below to hedge various market risks (such as interest
rates, currency exchange rates, and broad or specific equity market movements)
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 Portfolio
may change over time as new instruments and strategies are developed or as
regulatory changes occur.
In the course of pursuing its investment objective, the Portfolio may
purchase and sell (write) exchange-listed and over-the-counter put and call
options on securities, equity indices and other financial instruments; purchase
and sell financial futures contracts and options thereon; enter into various
4
<PAGE>
interest rate transactions such as swaps, caps, floors or collars; and enter
into various currency transactions such as currency forward contracts, currency
futures contracts, currency swaps or options on currencies or currency futures
(collectively, all the above are called "Strategic Transactions"). Strategic
Transactions may be used in an attempt to protect against possible changes in
the market value of securities held in or to be purchased for the Portfolio's
portfolio resulting from securities markets or currency exchange rate
fluctuations, to protect the Portfolio's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, 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 Portfolio will attempt to limit its net
loss exposure resulting from Strategic Transactions entered into for such
purposes to not more than 3% of the Portfolio's net assets at any one time and,
to the extent necessary, the Portfolio 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 Portfolio'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 the Portfolio is underweighted in
cyclical stocks and overweighted in consumer stocks, the Portfolio may buy a
cyclical index call option and sell a cyclical index put option and sell a
consumer index call option and buy a consumer index put option. Under such
circumstances, any unrealized loss in the cyclical position would be netted
against any unrealized gain in the consumer position (and vice versa) for
purposes of calculating the Portfolio's net loss exposure. The ability of the
Portfolio to utilize these Strategic Transactions successfully will depend on
the Adviser's ability to predict pertinent market movements, which cannot be
assured. The Portfolio will comply with applicable regulatory requirements when
implementing these strategies, techniques and instruments. The Portfolio's
activities involving Strategic Transactions may be limited to enable the Fund to
comply with the requirements of Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), for qualification as a regulated investment
company.
Strategic Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
the Adviser's view as to certain market movements is incorrect, the risk that
the use of such Strategic Transactions could result in losses greater than if
they had not been used. The writing of put and call options may result in losses
to the Portfolio, 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 Portfolio can realize on its investments or cause the
Portfolio to hold a security it might otherwise sell. The use of currency
transactions can result in the Portfolio incurring losses as a result of a
number of factors including the imposition of exchange controls, suspension of
settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Portfolio creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Portfolio's position. The writing of
options could significantly increase the Portfolio'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 Portfolio might not be able to close out a
transaction without incurring substantial losses, if at all. Although the use of
futures and options transactions for hedging should tend to minimize the risk of
loss due to a decline in the value of the hedged position, at the same time, in
certain circumstances, these transactions tend to limit any potential gain which
might result from an increase in value of such position. The loss incurred by
the Portfolio in writing options on futures and entering into futures
transactions is potentially unlimited; however, as described above, the
Portfolio will attempt to limit its net loss exposure resulting from Strategic
Transactions entered into for non-hedging purposes to not more than 3% of its
net assets at any one time. Futures markets are highly volatile and the use of
futures may increase the volatility of the Portfolio'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 Strategic Transactions had not been utilized. Further
information concerning the Portfolio's Strategic Transactions is set forth in
the Statement of Additional Information.
5
<PAGE>
Short-Selling
The Portfolio may make short sales, which are transactions in which the
Portfolio sells a security it does not own in anticipation of a decline in the
market value of that security. To complete such a transaction, the Portfolio
must borrow the security to make delivery to the buyer. The Portfolio then is
obligated to replace the security borrowed by purchasing it at the market price
at the time of replacement. The price at such time may be more or less than the
price at which the security was sold by the Portfolio. Until the security is
replaced, the Portfolio is required to pay to the lender amounts equal to any
dividends or interest which accrue during the period of the loan. To borrow the
security, the Portfolio also may be required to pay a premium, which would
increase the cost of the security sold. The proceeds of the short sale will be
retained by the broker, to the extent necessary to meet margin requirements,
until the short position is closed out.
Until the Portfolio replaces a borrowed security in connection with a short
sale, the Portfolio will: (a) maintain daily a segregated account not with the
broker, containing cash or U.S. Government securities, at such a level that the
amount deposited in the account plus the amount deposited with the broker as
collateral will equal the current value of the security sold short; or (b)
otherwise cover its short position.
The Portfolio will incur a loss as a result of the short sale if the price
of the security increases between the date of the short sale and the date on
which the Portfolio replaces the borrowed security. The Portfolio will realize a
gain if the security declines in price between those dates by an amount greater
than premium and transaction costs. This result is the opposite of what one
would expect from a cash purchase of a long position in a security. The amount
of any gain will be decreased, and the amount of any loss increased, by the
amount of any premium or amounts in lieu of dividends or interest the Portfolio
may be required to pay in connection with a short sale.
The Portfolio's loss on a short sale as a result of an increase in the
price of the security sold short is potentially unlimited. The Portfolio may
purchase call options to provide a hedge against an increase in the price of a
security sold short by the Portfolio. When the Portfolio purchases a call option
it must pay a premium to the person writing the option and a commission to the
broker selling the option. If the option is exercised by the Portfolio, the
premium and the commission paid may be more than the amount of the brokerage
commission charged if the security were to be purchased directly. See "Strategic
Transactions" above.
The Portfolio anticipates that the frequency of short sales will vary
substantially in different periods, and it does not intend that any specified
portion of its assets, as a matter of practice, will be in short sales. However,
no securities will be sold short if, after effect is given to any such short
sale, the total market value of all securities sold short would exceed 5% of the
value of the Portfolio's net assets.
In addition to the short sales discussed above, the Portfolio may make
short sales "against the box," a transaction in which the Portfolio enters into
a short sale of a security which the Portfolio owns. The proceeds of the short
sale are held by a broker until the settlement date at which time the Portfolio
delivers the security to close the short position. The Portfolio receives the
net proceeds from the short sale.
Other Investment Companies
The Portfolio may invest up to 10% of its total assets in the securities of
other investment companies but may not invest more than 5% of its total assets
in the securities of any one investment company or acquire more than 3% of the
voting securities of any other investment company. For example, the Portfolio
may invest in Standard & Poor's Depositary Receipts (commonly referred to as
"Spiders"), which are exchange-traded shares of a closed-end investment company
that are designed to replicate the price performance and dividend yield of the
Standard & Poor's 500 Composite Stock Price Index. The Portfolio will indirectly
bear its proportionate share of any management fees and other expenses paid by
investment companies in which it invests in addition to the advisory and
administration fees paid by the Portfolio. However, to the extent that the
Portfolio invests in a registered open-end investment company, the Adviser will
not impose its advisory fees on the portion of the Portfolio's assets so
invested.
Portfolio Turnover
It is not the policy of the Portfolio to purchase or sell securities for
trading purposes. However, the Portfolio places no restrictions on portfolio
turnover and it may sell any portfolio security without regard to the period of
time it has been held. The Portfolio 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 150% on an annual basis. A rate of
turnover of 100% would occur, for example, if the value of the lesser of
purchases or sales of portfolio securities for a particular year equaled the
average monthly value of portfolio securities owned during the year (excluding
securities with a maturity date of one year or less at the date of acquisition).
A high rate of portfolio
6
<PAGE>
turnover involves a correspondingly greater amount of transaction costs which
must be borne directly by the Portfolio and thus indirectly by the Fund and its
shareholders. It may also result in the realization of larger amounts of
short-term capital gains, the Fund's distributions from which are taxable to
Fund 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
Each of the Fund and the Portfolio has adopted certain fundamental policies
which may not be changed without the approval of the Fund's shareholders or the
Portfolio's investors, as the case may be.
The Fund has the same investment restrictions as the Portfolio, except that
the Fund may invest substantially all of its Investable Assets in an open-end
management investment company with substantially the same investment objective
as the Fund. Reference below to the Portfolio's investment restrictions also
include the Fund's investment restrictions. These policies provide, among other
things, that the Portfolio may not: (i) invest, with respect to at least 75% of
its total assets, more than 5% in the securities of any one issuer (other than
the U.S. Government, its agencies or instrumentalities) or acquire more than 10%
of the outstanding voting securities of any issuer; (ii) invest 25% or more of
its total assets in a single industry except that this restriction shall not
apply to U.S. Government securities; or (iii) borrow money, except in amounts
not to exceed 33 1/3% of the value of the Portfolio's total assets (including
the amount borrowed) taken at market value (a) from banks for temporary or
short-term purposes or for the clearance of transactions, (b) in connection with
the redemption of shares or to finance failed settlements of portfolio trades
without immediately liquidating portfolio securities or other assets; (c) in
order to fulfill commitments or plans to purchase additional securities pending
the anticipated sale of other portfolio securities or assets; and (d) the
Portfolio may enter into reverse repurchase agreements and forward roll
transactions.
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 Portfolio's assets will not constitute a violation of
the restriction. Certain non- fundamental policies and additional fundamental
policies adopted by the Fund and the Portfolio are described in the Statement of
Additional Information.
RISK FACTORS AND SUITABILITY
The Fund is not intended to provide an investment program meeting all of
the requirements of an investor. The companies in which the Portfolio invests
generally reinvest their earnings, and dividend income should not be expected.
Additionally, notwithstanding the Portfolio's ability to diversify and spread
risk by holding securities of a number of portfolio companies, investors should
invest in the Fund only if they are able and prepared to bear the risk of
investment losses which may accompany the investments contemplated by the
Portfolio.
Although investments in small capitalization companies may present greater
opportunities for growth, they also involve greater risks than are customarily
associated with investments in larger, more established companies. The
securities of small companies may be subject to more volatile market movements
than securities of larger, more established companies. Smaller companies may
have limited product lines, markets or financial resources, and they may depend
upon a limited or less experienced management group. The securities of small
companies may be traded only on the over-the-counter market or on a regional
securities exchange and may not be traded daily or in the volume typical of
trading on a national securities exchange. As a result, the disposition by the
Portfolio of portfolio securities in order to meet redemptions or otherwise may
require the Portfolio to sell securities at a discount from market prices, over
a longer period of time or during periods when disposition is not desirable.
The Portfolio's investments in foreign securities and its utilization of
Strategic Transactions and short sales also involve special risks, as discussed
above in the correspondingly captioned sections.
SPECIAL INFORMATION CONCERNING THE HUB AND
SPOKE(R)1 MASTER-FEEDER FUND STRUCTURE
Unlike other mutual funds which directly acquire and manage their own
portfolio securities, the Fund seeks to achieve its investment objective by
investing all of its Investable Assets in the Portfolio which has the same
investment objective as the Fund. The Portfolio in turn invests primarily in
securities consistent with that objective. Therefore, an investor's interest in
the Portfolio's securities is indirect, like investments in other investment
companies and pooled investment vehicles, only more so. In addition to selling a
beneficial interest to the Fund, the Portfolio may sell beneficial interests to
other mutual funds or institutional investors. Such investors will invest in the
- --------
1 Hub and Spoke(R) is a registered service mark of Signature Financial Group,
Inc.
7
<PAGE>
Portfolio on the same terms and conditions and will pay a proportionate share of
the Portfolio's expenses. However, the other investors investing in the
Portfolio are not required to sell their shares at the same public offering
price as the Fund due to the imposition of sales commissions and variations in
other operating expenses. Therefore, investors in the Fund should be aware that
these differences may result in differences in returns experienced by investors
in the different funds that invest in the Portfolio. Such differences in returns
are also present in other mutual fund structures. Information concerning other
holders of interests in the Portfolio is available from the Adviser ((800)
221-4795). The Hub and Spoke master-feeder fund structure has been developed
relatively recently, so shareholders should carefully consider this investment
approach.
Smaller funds investing in the Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may experience higher pro rata
operating expenses, thereby producing lower returns (however, this possibility
exists as well for traditionally structured funds that have large institutional
investors). Additionally, because the Portfolio would have fewer assets in such
a case, it may become less diversified, resulting in increased portfolio risk.
Also, funds with a greater pro rata ownership in the Portfolio could have
effective voting control of the operations of the Portfolio. Except as permitted
by the SEC, whenever the Trust is requested to vote on matters pertaining to the
Portfolio (other than a vote by the Fund to continue the operations of the
Portfolio upon the withdrawal of another investor in the Portfolio), the Trust
will hold a meeting of shareholders of the Fund and will cast all of its votes
in the same proportion as the votes of the Fund's shareholders. The percentage
of the Trust's votes representing Fund shareholders not voting will be voted by
the Trustees or officers of the Trust in the same proportion as the Fund
shareholders who do, in fact, vote. Fund shareholders who do not vote will not
affect the Trust's votes at the Portfolio meeting.
Certain changes in the Portfolio's investment objectives, policies or
restrictions may require the Fund to withdraw its interest in the Portfolio. Any
such withdrawal could result in a distribution "in kind" of portfolio securities
(as opposed to a cash distribution from the Portfolio) to the extent permitted
by the Investment Company Act of 1940, as amended (the "1940 Act"), or rules
adopted thereunder. If securities are distributed, the Fund could incur
brokerage, tax or other charges in converting the securities to cash. In
addition, the distribution in kind may result in a less diversified portfolio of
investments or adversely affect the liquidity of the Fund. Notwithstanding the
above, there are other means for meeting redemption requests, such as borrowing.
If the Portfolio proposed to change its investment objective, the Fund's
Board of Trustees would either vote to approve a corresponding change to the
Fund's investment objective or approve the Fund's withdrawal of its investment
from the Portfolio. The Fund may withdraw its investment from the Portfolio at
any time if the Board of Trustees of the Trust determines that it is in the best
interests of the shareholders of the Fund to do so (including if the Fund's and
the Portfolio's investment objectives were not substantially the same). Upon any
such withdrawal, the Board of Trustees of the Trust would consider what action
might be taken, including investing all the Investable Assets of the Fund in
another pooled investment entity having substantially the same investment
objective as the Fund or retaining an investment adviser to manage directly the
Fund's assets in accordance with its investment policies described above with
respect to the Portfolio. In any event, shareholders of the Fund will receive 30
days prior written notice with respect to any change in the investment objective
of the Fund or the Portfolio. See "Investment Objective and Policies" for a
description of the fundamental policies of the Portfolio that cannot be changed
without approval by the "vote of a majority of the outstanding voting
securities" (as defined in the 1940 Act) of the Portfolio.
For descriptions of the investment objective, policies and restrictions of
the Portfolio, see "Investment Objective and Policies." For descriptions of the
management of the Portfolio, see "Management" herein and in the Statement of
Additional Information. For descriptions of the expenses of the Portfolio, see
"Management" herein.
CALCULATION OF PERFORMANCE DATA
From time to time the Fund may advertise its total return. Total return
figures are based on historical earnings and are not intended to indicate future
performance.
The "total return" of the Fund refers to the average annual compounded
rates of return over 1, 5 and 10 year periods (or shorter period since
inception) 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.
From time to time, the Fund may compare its performance with that of other
mutual funds with similar investment objectives, to stock and other
8
<PAGE>
relevant indices, and to performance rankings prepared by recognized mutual fund
statistical services. In addition, the Fund's performance may be compared to
alternative investment or savings vehicles and/or to indices or indicators of
economic activity.
DIVIDENDS AND DISTRIBUTIONS
The Fund's dividends from short-term and long-term capital gains, if any,
after reduction by capital losses, will be declared and distributed at least
annually, as will dividends from net investment income. In determining the
amounts of its dividends, the Fund will take into account its share of the
income, gains or losses, expenses, and any other tax items of the Portfolio.
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 from the Principal Underwriter, which
offers the Fund's shares to the public on a continuous basis. Shares are sold at
the net asset value per share next computed after the purchase order is received
in good order by the Principal Underwriter and payment for the shares is
received by the Fund's custodian. Please see the Fund's account application or
call the Principal Underwriter for instructions on how to make payment of shares
to the Fund's custodian. Unless waived by the Fund, the minimum initial
investment is $100,000. Additional investments may be made in amounts of at
least $10,000.
Shares of the Fund may also be purchased through securities dealers. 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 Principal Underwriter or its agent by the close of its business day
(normally 4:00 p.m., New York City time) will be effected as of the close of
regular trading on the New York Stock Exchange on that day, provided that
payment for the shares is also received by the Fund's custodian 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 Principal Underwriter by the close of its
business day. Shares of the Fund purchased through dealers may be subject to
transaction fees, no part of which will be received by the Fund, the Principal
Underwriter or the Adviser.
The Fund's net asset value per share is computed each day on which the New
York Stock Exchange is open as of the close of regular trading (currently 4:00
p.m., New York City time). The net asset value per share is calculated by
determining the value of all the Fund's assets (i.e., the value of its
investment in the Portfolio and other assets), subtracting all liabilities and
dividing the result by the total number of shares outstanding. The Portfolio's
portfolio securities are valued at the last sales prices, on the valuation date,
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 are no reported transactions, are valued at the last
quoted bid prices. Securities for which quotations are not readily available and
all other assets will be valued at fair value as determined in good faith by the
Adviser in accordance with procedures approved by the Trustees of the Portfolio
Trust. Additional information concerning the Portfolio's valuation policies is
contained in the Statement of Additional Information.
In the sole discretion of the Trust, the Fund may accept securities instead
of cash for the purchase of shares of the Fund. The Trust will ask the Adviser
to determine that any securities acquired by the Fund in this manner are
consistent with the investment objective, policies and restrictions of the
Portfolio. The securities will be valued in the manner stated above. The
purchase of Fund shares for securities instead of cash may cause an investor who
contributes them to realize a taxable gain or loss with respect to the
securities transferred to the Fund.
The Trust reserves the right in its sole discretion (i) to suspend the
offering of the Fund's shares, (ii) to reject purchase orders when in the best
interest of the Fund and (iii) to modify or eliminate the minimum initial
investment in Fund shares. The Fund's investment minimums do not apply to
accounts for which the Adviser or any of its affiliates serves as investment
adviser or to employees of the Adviser or any of its affiliates or to members of
such persons' immediate families. The Fund's investment minimums apply to the
aggregate value invested in omnibus accounts rather than to the investment of
the underlying participants in the omnibus accounts.
EXCHANGE OF SHARES
Shares of the Fund may be exchanged for shares of one or more 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 Principal Underwriter or its agent.
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
Principal Underwriter or its agent 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
9
<PAGE>
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 Principal Underwriter 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 the Principal
Underwriter, Attn: Mutual Fund Department, One Financial Center, Boston,
Massachusetts 02111. A written exchange request must (a) 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 elect telephonic privileges may exchange shares by calling
the Principal Underwriter at (800) 221-4795. Telephonic privileges are not
available to shareholders automatically. Proper identification will be required
for each telephonic exchange. Please see "Telephone Transactions" below for more
information regarding telephonic transactions.
General Exchange Information
All exchanges are subject to the following exchange restrictions: (i) the
fund into which shares are being exchanged must be registered for sale in your
state; (ii) exchanges may be made only between funds that are registered in the
same name, address and, if applicable, taxpayer identification number; and (iii)
unless waived by the Trust, the amount to be exchanged must satisfy the minimum
account size of the fund to be exchanged into. Exchange requests will not be
processed until payment for the shares of the current Fund have been received by
the Principal Underwriter. 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 by the Principal
Underwriter or its agent of a redemption request in proper form. Redemptions
will not be processed until a completed Share Purchase Application and payment
for the shares to be redeemed have been received.
Written Redemption
Shares of the Fund may be redeemed by written order to the Principal
Underwriter, Attn: Mutual Fund Department, One Financial Center, Boston,
Massachusetts 02111. A written redemption request must (a) state the name of the
Fund and the number of shares or the dollar amount to be redeemed, (b) identify
the shareholder's account number and (c) be signed by each registered owner
exactly as the shares are registered. Signature(s) must be guaranteed by a
member of either the Securities Transfer Association's STAMP program or the New
York Stock Exchange's Medallion Signature Program or by any one of the following
institutions, provided that such institution meets credit standards established
by Investors Bank 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 that are not
individuals. Redemption proceeds will normally be paid by check mailed within
three business days of receipt by the Principal Underwriter 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 in the case of
payments made by check.
Telephonic Redemption
Shareholders who elect telephonic privileges may redeem shares by calling
the Principal Underwriter at (800) 221-4795. Telephonic privileges are not
available to shareholders automatically. 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
business days thereafter, except as described above for shares purchased by
check. Redemption proceeds will be sent only by check payable to the shareholder
of record at the address of record, unless the shareholder has
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<PAGE>
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. Wire charges, if any,
will be deducted from redemption proceeds. Proper identification will be
required for each telephonic redemption.
Repurchase Order
In addition to redemption of shares by written instruction to the Principal
Underwriter, the Fund may accept telephone orders from brokers or dealers for
the repurchase of Fund shares. The repurchase price is the net asset value per
share next determined after receipt of the repurchase order by the Principal
Underwriter and payment for the shares by the Fund's custodian. Brokers and
dealers are obligated to transmit repurchase orders to the Principal Underwriter
prior to the close of the Principal Underwriter's business day (normally 4:00
p.m.). Brokers or dealers may charge for their services in connection with a
repurchase of Fund shares, but neither the Trust nor the Principal Underwriter
imposes a charge for share repurchases.
Telephone Transactions
By maintaining an account that is eligible for telephonic exchange and
redemption privileges, the shareholder authorizes the Adviser, the Principal
Underwriter, 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 Principal Underwriter, 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
transaction privileges during periods of abnormal market activity. Accordingly,
during periods of volatile economic and market conditions, shareholders may wish
to consider transmitting redemption and exchange requests in writing.
* * * *
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 Portfolio'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 securities withdrawn from the Portfolio for
this purpose. Please see the Statement of Additional Information for further
information regarding the Fund's ability to satisfy redemption requests in-kind.
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 $25,000 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 $25,000. The Fund may eliminate duplicate mailings of Fund materials
to shareholders that have the same address of record.
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.
The Portfolio is a separate investment series of Standish, Ayer & Wood
Master Portfolio, a master trust fund organized under the laws of the State of
New York. Under the terms of the Declaration of Trust, the affairs of the
Portfolio are managed under the supervision of the Trustees of the Portfolio
Trust.
A majority of the Trustees who are not "interested persons" (as defined in
the 1940 Act) of the Trust or the Portfolio Trust, as the case may be, have
adopted written procedures reasonably appropriate to deal with potential
conflicts of interest arising from the fact that the same individuals are
trustees of the Trust and of the Portfolio Trust, up to and including creating
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separate boards of trustees. See "Management" in the Statement of
Additional Information for more information about the Trustees and officers of
the Trust and the Portfolio Trust.
Investment Adviser
Standish, Ayer & Wood, Inc., One Financial Center, Boston, Massachusetts
02111, serves as investment adviser to the Portfolio pursuant to an investment
advisory agreement with the Portfolio Trust and manages the Portfolio's
investments and affairs subject to the supervision of the Trustees of the
Portfolio 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
and abroad. As of September 30, 1996, the Adviser or its affiliate, Standish
International Management Company, L.P. ("SIMCO"), serves as the investment
adviser to each of the following funds in the Standish, Ayer & Wood family of
funds:
Net Assets
(September 30, 1996)
- -----------------------------------------------------------------
Standish Controlled Maturity Fund $
Standish Equity Portfolio
Standish Fixed Income Portfolio
Standish Fixed Income Fund II
Standish Global Fixed Income Portfolio
Standish Intermediate Tax Exempt Bond Fund
Standish International Equity Fund
Standish International Fixed Income Fund
Standish Massachusetts Intermediate Tax
Exempt Bond Fund
Standish Securitized Fund
Standish Short-Term Asset Reserve Fund
Standish Small Capitalization Equity Portfolio
Standish Small Capitalization Equity Portfolio II
Standish Small Cap Tax-Sensitive Equity Fund
Standish Tax-Sensitive Equity Fund
The Adviser's clients also include charitable and educational endowment
funds, financial institutions, trusts and individual investors. As of September
30, 1996, the Adviser managed approximately $ billion of assets.
The Portfolio has two portfolio managers. Mr. Nicholas S. Battelle has been
primarily responsible for the day-to-day management of the Standish Small
Capitalization Equity Fund's portfolio since 1990. During the past five years,
Mr. Battelle has served as a Vice President as well as a Director of the
Adviser. Mr. Andrew L. Beja has been associated with the Adviser since March
1996 as Senior Analyst on the small capitalization company team. Prior to
joining the Adviser, Mr. Beja was a Vice President and analyst at Advest, Inc.
from 1985-1996.
Subject to the supervision and direction of the Trustees of the Portfolio
Trust, the Adviser manages the Portfolio in accordance with its stated
investment objective and policies, recommends investment decisions for the
Portfolio, places orders to purchase and sell securities on behalf of the
Portfolio and permits the Portfolio to use the name "Standish." For its services
to the Portfolio, the Adviser receives a monthly fee equal on an annual basis to
0.60% of the Portfolio's average daily net assets.
Administrator of the Fund
Standish also serves as administrator to the Fund (the "Administrator")
pursuant to an administration agreement. As Administrator, Standish manages the
affairs of the Fund, provides all necessary office space and services of
executive personnel for administering the affairs of the Fund, and allows the
Fund to use the name "Standish." For these services, Standish currently does not
receive any additional compensation. The Trustees of the Trust may, however,
determine in the future to compensate Standish for its administrative services.
Expenses
The Portfolio and the Fund, as the case may be, will be responsible for all
of their respective costs and expenses not expressly stated to be payable by
Standish under the investment advisory agreement with the Portfolio or the
administration agreement with the Fund. Among other expenses, the Portfolio will
pay investment advisory fees; bookkeeping, share pricing and custodian fees and
expenses; expenses of notices and reports to interest-holders; and expenses of
the Portfolio's administrator. The Fund will pay shareholder servicing fees and
expenses, expenses of prospectuses, statements of additional information and
shareholder reports which are furnished to existing shareholders. Each of the
Fund and Portfolio will pay legal and auditing fees; registration and reporting
fees and expenses; and Trustees' fees and expenses. The Trust's Principal
Underwriter, Standish Fund Distributors, L.P., bears, without subsequent
reimbursement, the distribution expenses attributable to the offering and sale
of Fund shares. Expenses of the Trust or the Portfolio Trust which relate to
more than one of their respective series are allocated among such series by the
Adviser and SIMCO in an equitable
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<PAGE>
manner, primarily on the basis of relative net asset
values.
Standish has voluntarily agreed to limit the master- feeder aggregate
annual operating expenses (excluding brokerage commissions, taxes and
extraordinary expenses) of the Fund and the Portfolio. Standish may discontinue
or modify such limitation in the future at its discretion, although it has no
current intention to do so. In addition, Standish has agreed in the
administration agreement to limit the Fund's aggregate annual operating expenses
(excluding brokerage commissions, taxes and extraordinary expenses) to the
permissible limit applicable in any state in which shares of the Fund are then
qualified for sale.
Portfolio Transactions
Subject to the supervision of the Trustees of the Portfolio Trust, the
Adviser selects the brokers and dealers that execute orders to purchase and sell
portfolio securities for the Portfolio. The Adviser will generally seek to
obtain the best available price and most favorable execution with respect to all
transactions for the Portfolio. 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 that
execute orders to purchase and sell portfolio securities for the Portfolio.
FEDERAL INCOME TAXES
The Fund intends to qualify for and elect taxation as a "regulated
investment company" under the Code. If it qualifies for treatment as a regulated
investment company, the Fund will not be subject to federal income tax on income
(including capital gains) distributed to shareholders in the form of dividends
or capital gain distributions in accordance with certain timing requirements of
the Code.
The Fund will be subject to a nondeductible 4% excise tax under the Code to
the extent that it fails to meet certain distribution requirements with respect
to each calendar year. Certain distributions made in order to satisfy the Code's
distribution requirements may be declared by the Fund during October, November
or December of the year but paid during the following January. Such
distributions will be taxable to taxable shareholders as if received on December
31 of the year the distributions are declared, rather than the year in which the
distributions are received.
Shareholders which are taxable entities or persons will be subject to
federal income tax on dividends and capital gain distributions made by the Fund.
These dividends and distributions will be attributable to the Fund's allocable
share of the net income and net long-term and short-term capital gains of the
Portfolio and will also take into account any expenses incurred or income earned
directly by the Fund. Dividends paid by the Fund from net investment income,
certain net foreign currency gains, and any excess of net short-term capital
gain over net long-term capital loss will be taxable to shareholders as ordinary
income, whether received in cash or Fund shares. The portion of such dividends
attributable to the Fund's allocable share of qualifying dividends the Portfolio
receives, if any, may qualify for the corporate dividends received deduction,
subject to certain holding period requirements and debt financing limitations
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.
The Portfolio anticipates that it may be subject to foreign withholding
taxes or other foreign taxes on income (possibly including capital gains) on
certain foreign investments (if any), which will reduce the yield on those
investments. Such taxes may be reduced or eliminated pursuant to an income tax
treaty in some cases. The Fund does not expect to qualify to pass its allocable
share of such foreign taxes and any associated tax deductions or credits through
to its shareholders.
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 tax 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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A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent, if any, the Fund's distributions
are derived from interest on (or, in the case of intangibles taxes, the value of
its assets is attributable to) investments in certain U.S. Government
obligations, provided in some states that certain thresholds for holdings of
such obligations and/or reporting requirements are satisfied. Shareholders
should consult their tax advisers regarding the applicable requirements in their
particular states, including the effect, if any, of the Fund's indirect
ownership (through the Portfolio) of any such obligations.
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 THE PORTFOLIO
The Fund is a separate investment series of Standish, Ayer & Wood
Investment Trust, an unincorporated business trust organized under the laws of
The Commonwealth of Massachusetts pursuant to an Agreement and Declaration of
Trust dated August 13, 1986. Under the Agreement and Declaration of Trust, the
Trustees have authority to issue an unlimited number of shares of beneficial
interest, par value $.01 per share, of the Fund. Each share of the Fund is
entitled to one vote. All Fund shares have equal rights with regard to voting,
redemption, dividends, distributions and liquidation, and shareholders of the
Fund have the right to vote as a separate class with respect to certain matters
under the 1940 Act and the Agreement and Declaration of Trust. Shares of the
Fund do not have cumulative voting rights. Fractional shares have proportional
voting rights and participate in any distributions and dividends. When issued,
each Fund share will be fully paid and nonassessable. Shareholders of the Fund
do not have preemptive or conversion rights. Certificates representing shares of
the Fund will not be issued.
The Trust has established eighteen other series that currently offer their
shares to the public 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 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 meeting of shareholders of the Trust will be called to elect
Trustees. Under the Agreement and Declaration of Trust and the 1940 Act, the
record holders of not less than two-thirds of the outstanding shares of the
Trust may remove a Trustee by votes cast in person or by proxy at a meeting
called for the purpose or by a written declaration filed with each of the
Trust's custodian banks. Except as described above, the Trustees will continue
to hold office and may appoint successor Trustees. Whenever ten or more
shareholders of the Trust who have been such for at least six months, and who
hold in the aggregate shares having a net asset value of at least $25,000 or at
least 1% of the outstanding shares, whichever is less, apply to the Trustees in
writing stating that they wish to communicate with other shareholders with a
view to obtaining signatures to request a meeting, and such application is
accompanied by a form of communication and request which they wish to transmit,
the Trustees shall within five (5) business days after receipt of such
application either (1) afford to such applicants access to a list of the names
and addresses of all shareholders as recorded on the books of the Trust; or (2)
inform such applicants as to the approximate number of shareholders of record
and the approximate cost of mailing to them the proposed communication or form
of request.
The Portfolio, in which all the Investable Assets of the Fund are invested,
is a series of Standish, Ayer & Wood Master Portfolio, an open-end management
investment company. The Portfolio Trust's Declaration of Trust provides that the
Portfolio Trust may establish and designate separate series of the Portfolio
Trust. The interests in the Portfolio Trust are divided into separate series,
and no series of the Portfolio Trust has any preference over any other series.
Investors in other series of the Portfolio Trust will not be involved in any
vote involving only the Portfolio. Investors of all of the series of the
Portfolio Trust will, however, vote together to elect Trustees of the Portfolio
Trust and for certain other matters affecting the Portfolio Trust. As provided
by the 1940 Act, under certain circumstances, the shareholders of one or more
series could control the outcome of these votes. The Portfolio Trust has
established four other series and may establish additional series at any time.
The Portfolio Trust's Declaration of Trust also provides that the Fund and
other entities investing in the Portfolio (e.g., other investment companies,
insurance company separate accounts and common and commingled trust funds) will
not be liable for the obligations of the Portfolio, although they will bear the
risk of loss of their entire respective interests in the Portfolio. However,
there is a risk that interest-holders in the Portfolio may be held personally
liable as
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partners for the Portfolio's obligations. Because the Portfolio Trust's
Declaration of Trust disclaims interest- holder liability and provides for
indemnification against such liability, the risk of the Fund incurring financial
loss on account of such liability is limited to circumstances in which both
inadequate insurance existed and the Portfolio itself was unable to meet its
obligations. As such, it is unlikely that the Fund would experience liability
from the investment structure itself. In any event, shareholders of the Fund
will continue to remain shareholders of a Massachusetts business trust, and the
risk of such a person incurring liability by reason of being a shareholder of
the Fund is remote.
Inquiries concerning the Fund should be made by contacting the Fund or the
Principal Underwriter at the address and telephone number listed on the cover of
this Prospectus.
PRINCIPAL UNDERWRITER
Standish Fund Distributors, L.P., One Financial Center, 26th Floor, Boston,
Massachusetts 02111, serves as the Trust's principal underwriter.
CUSTODIAN, TRANSFER AGENT AND
DIVIDEND-DISBURSING AGENT
Investors Bank & Trust Company, 89 South Street, Boston, Massachusetts
02111, serves as the Fund's transfer and dividend-disbursing agent and as
custodian of all cash and securities of the Portfolio.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., One Post Office Square, Boston, Massachusetts
02109 and Coopers & Lybrand, P.O. Box 219, Grand Cayman, Grand Cayman Islands,
BWI, serve as independent accountants for the Trust and the Portfolio Trust,
respectively, and will audit the Fund's and the Portfolio's respective financial
statements annually.
LEGAL COUNSEL
Hale and Dorr, 60 State Street, Boston, Massachusetts 02109, is legal
counsel to the Trust, the Portfolio Trust and the Adviser.
--------------------------------------------------------------
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 TIN-related
certifications contained in the Account Purchase Application (Application) or
you are otherwise subject to backup withholding. The Fund will not impose backup
withholding as a result of your failure to make any certification, except the
certifications in the Application that directly relate to your TIN and backup
withholding status. 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.
--------------------------------------------------------------
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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<PAGE>
STANDISH SMALL CAPITALIZATION EQUITY FUND II
Investment Adviser
Standish, Ayer & Wood, Inc.
One Financial Center
Boston, Massachusetts 02111
Custodian
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
Independent Accountants
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, Massachusetts 02109
Legal Counsel
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
Principal Underwriter
Standish Fund Distributors, L.P.
One Financial Center
Boston, Massachusetts 02111
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<PAGE>
Subject to Completion
Dated July 25, 1996
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This statement of additional information shall not constitute an
offer to sell or the solicitation of an offer to buy nor shall there be any sale
of these securities in any State in which such offer, solicitation or sale would
be unlawful prior to registration or qualification under the securities laws of
any such State.
Statement of Additional Information dated October , 1996
STANDISH SMALL CAPITALIZATION EQUITY FUND II
ONE FINANCIAL CENTER
BOSTON, MASSACHUSETTS 02111
(800) 221-4795
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 October ,
1996 , as amended and/or supplemented from time to time (the "Prospectus"), of
Standish Small Capitalization Equity 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 Fund's Prospectus, a copy of which may be obtained without charge by writing
or calling the Trust's principal underwriter, Standish Fund Distributors, L.P.
(the "Principal Underwriter"), at the address or phone number set forth above.
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.
------------------------------------------
CONTENTS
Investment Objective and Policies............................................2
Investment Restrictions.....................................................10
Calculation of Performance Data.............................................12
Management..................................................................13
Redemption of Shares........................................................19
Portfolio Transactions......................................................19
Determination of Net Asset Value............................................20
Taxation....................................................................20
The Fund and Its Shares.....................................................23
The Portfolio and Its Investors.............................................24
Additional Information......................................................24
Experts and Financial Statements............................................24
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INVESTMENT OBJECTIVE AND POLICIES
As described in the Prospectus, the Fund seeks to achieve its investment
objective by investing all its investable assets in the Standish Small
Capitalization Equity Portfolio II (the "Portfolio"), a series of Standish, Ayer
& Wood Master Portfolio (the "Portfolio Trust"), an open-end management
investment company. The Portfolio has the same investment objective, policies
and restrictions as the Fund.
The Fund's Prospectus describes the investment objective of the Fund and
the Portfolio and summarizes the investment policies they will follow. Since the
investment characteristics of the Fund correspond directly to those of the
Portfolio, the following, which supplements the Prospectus, is a discussion of
the various investment techniques employed by the Portfolio. See the Prospectus
for a more complete description of the Fund's and the Portfolio's investment
objective, policies and restrictions.
Investment Objective
The Portfolio's investment objective is to achieve long-term growth of
capital. The Portfolio seeks to achieve its investment objective by investing at
least 80% of its total assets in equity and equity-related securities of small
capitalization companies. The Portfolio invests primarily in publicly traded
securities including securities issued in initial public offerings. The
Portfolio may invest up to 15% of its net assets in foreign equity securities,
including securities of foreign issuers that are listed on a U.S. exchange or
traded in the over-the-counter market and American Depositary Receipts (ADRs).
In addition, the Portfolio may engage in certain strategic transactions as
discussed below. The Portfolio purchases short-term interest-bearing securities
with uninvested funds, the proportion of which will depend upon market
conditions and the needs of the Portfolio.
Common Stocks
The companies in whose equity and equity-related securities the Portfolio
invests generally have market capitalizations between $400 million and $750
million. Investments are expected to emphasize companies involved with value
added products or services in expanding industries. At times, particularly when
Standish, Ayer & Wood, Inc. ("Standish" or the "Adviser") believes that the
securities of small companies are overvalued, the Portfolio's portfolio may
include securities of larger, more mature companies, provided that the value of
the securities of such larger, more mature companies shall not exceed 20% of the
Portfolio's net assets. The Portfolio will attempt to reduce risk by
diversifying its investments within the investment policies set forth above.
Foreign Securities
Foreign securities may be purchased and sold in over-the-counter markets or
on stock exchanges located in the countries in which the respective principal
offices of their issuers are located, if that is the best available market.
Foreign stock markets are generally not as developed or efficient as those in
the United States. While growing in volume, they usually have substantially less
volume than the New York Stock Exchange, and securities of some foreign
companies are less liquid and more volatile than securities of comparable United
States companies. Fixed commissions on foreign stock exchanges are generally
higher than negotiated commissions on United States exchanges, although the
Portfolio will endeavor to achieve the most favorable net results on its
portfolio transactions. There is generally less government supervision and
regulation of stock exchanges, brokers and listed companies abroad than in the
United States.
The dividends and interest payable on certain of the Portfolio's foreign
portfolio securities may be subject to foreign withholding taxes, (and in some
cases capital gains from such securities may also be subject to foreign taxes)
thus reducing the net amount of income available for distribution to the Fund's
shareholders.
Investors should understand that the expense ratio of the Portfolio may be
higher than that of investment companies investing exclusively in domestic
securities because of the cost of maintaining the custody of foreign securities.
The Portfolio may acquire sponsored and unsponsored ADRs. Unsponsored ADRs
are acquired from banks that do not have a contractual relationship with the
issuer of the security underlying the depositary receipt to issue and secure
such depositary receipt. To the extent that the Portfolio invests in such
unsponsored ADRs there may be an increased possibility that the Portfolio may
not become aware of events affecting the underlying security and thus the value
of the related depositary receipt. In addition, certain benefits (i.e., rights
offerings) which may be associated with the security underlying the depositary
receipt may not inure to the benefit of the holder of such depositary receipt.
Money Market Instruments and Repurchase
Agreements
When the Adviser considers investments in equity securities to present
excessive risks, the Portfolio may invest all or a portion of its assets in debt
securities or cash equivalents. The Portfolio will also invest uncommitted cash
in short-term debt securities.
2
<PAGE>
To maintain liquidity for redemptions or at times when the Adviser deems it
advisable because of market conditions, the Portfolio may invest in short-term
debt securities and short-term securities of the United States government and
its instrumentalities or retain cash or cash equivalents.
Money market instruments include short-term U.S. Government securities,
U.S. and foreign 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.
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.
A repurchase agreement is an agreement under which the Portfolio acquires
money market instruments (generally U.S. Government securities) 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 Portfolio and is unrelated to the interest rate on the
instruments. The instruments acquired by the Portfolio (including accrued
interest) must have an aggregate market value in excess of the resale price and
will be held by the Portfolio's custodian bank until they are repurchased. The
Trustees will consider the standards which the Adviser will use in reviewing the
creditworthiness of any party to a repurchase agreement with the Portfolio.
The use of repurchase agreements involves certain risks. For example, if
the seller defaults on its obligation to repurchase the instruments acquired by
the Portfolio at a time when their market value has declined, the Portfolio 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 Portfolio are collateral for a loan by the Portfolio
and therefore are subject to sale by the trustee in bankruptcy. Finally, it is
possible that the Portfolio 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 Portfolio may, but is not required to, utilize various other investment
strategies as described below to hedge various market risks (such as interest
rates, currency exchange rates, and broad or specific equity 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 Portfolio may
change over time as new instruments and strategies are developed or regulatory
changes occur.
In the course of pursuing its investment objective, the Portfolio may
purchase and sell (write) exchange-listed and over-the-counter put and call
options on securities, equity indices and other financial instruments; purchase
and sell financial futures contracts and options thereon; enter into various
interest rate transactions such as swaps, caps, floors or collars; and enter
into various currency transactions such as currency forward contracts, currency
futures contracts, currency swaps or options on currencies or currency futures
(collectively, all the above are called "Strategic Transactions"). Strategic
Transactions may be used as an attempt to protect against possible changes in
the market value of securities held in or to be purchased for the Portfolio's
portfolio resulting from securities markets or currency exchange rate
fluctuations, to protect the Portfolio's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, 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 Portfolio will attempt to limit its net
loss exposure resulting from Strategic Transactions entered into for such
purposes to not more than 3% of the Portfolio's net assets at any one time and,
to the extent necessary, the Portfolio 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 Portfolio's net loss exposure from such Strategic Transactions,
an unrealized gain from a particular Strategic Transaction position would be
netted against an unrealized loss
3
<PAGE>
from a related Strategic Transaction position. For example, if the Adviser
believes that the Portfolio is underweighted in cyclical stocks and overweighted
in consumer stocks, the Portfolio may buy a cyclical index call option and sell
a cyclical index put option and sell a consumer index call option and buy a
consumer index put option. Under such circumstances, any unrealized loss in the
cyclical position would be netted against any unrealized gain in the consumer
position (and vice versa) for purposes of calculating the Portfolio's net loss
exposure. The ability of the Portfolio to utilize these Strategic Transactions
successfully will depend on the Adviser's ability to predict pertinent market
movements, which cannot be assured. The Portfolio will comply with applicable
regulatory requirements when implementing these strategies, techniques and
instruments. The Portfolio's activities involving Strategic Transactions may be
limited in order to enable the Fund to comply with 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 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 Portfolio, force the purchase or sale, respectively, of portfolio
securities at inopportune times or for prices higher than (in the case of put
options) or lower than (in the case of call options) current market values,
limit the amount of appreciation the Portfolio can realize on its investments or
cause the Portfolio to hold a security it might otherwise sell. The use of
currency transactions can result in the Portfolio incurring losses as a result
of a number of factors including the imposition of exchange controls, suspension
of settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Portfolio creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Portfolio's position. The writing of
options could significantly increase the Portfolio'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 Portfolio 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 Portfolio in
writing options on futures and entering into futures transactions is potentially
unlimited; however, as described above, the Portfolio will attempt to limit its
net loss exposure resulting from Strategic Transactions entered into for non-
hedging purposes to not more than 3% of its net assets at any one time. Futures
markets are highly volatile and the use of futures may increase the volatility
of the Fund's net asset value. Finally, entering into futures contracts would
create a greater ongoing potential financial risk than would purchases of
options where the exposure is limited to the cost of the initial premium. Losses
resulting from the use of Strategic Transactions would reduce net asset value
and the net result may be less favorable than if the Strategic Transactions had
not been utilized.
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 Portfolio'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,
currency or other instrument at the exercise price. For instance, the
Portfolio'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
Portfolio 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
Portfolio may purchase a call option on a security, futures contract, index,
currency or other instrument to seek to protect the Portfolio 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
4
<PAGE>
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
Portfolio 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 or currency, 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 Portfolio'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 Portfolio
will generally sell (write) OTC options (other than OTC currency options) that
are subject to a buy-back provision permitting the Portfolio to require the
Counterparty to sell the option back to the Portfolio at a formula price within
seven days. (To the extent that the Portfolio does not do so, the OTC options
are subject to the Portfolio's restriction on illiquid securities.) The
Portfolio expects generally to enter into OTC options that have cash settlement
provisions, although it is not required to do so.
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, currency or other instrument underlying an OTC option
it has entered into with the Portfolio or fails to make a cash settlement
payment due in accordance with the terms of that option, the Portfolio 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 Portfolio 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 or foreign banks or other
financial institutions which have received, combined with any credit
enhancements, a long-term debt rating of A from Standard & Poor's Ratings Group
("S&P") or Moody's Investor Services ("Moody's") or an equivalent rating from
any other nationally recognized statistical rating organization ("NRSRO") or the
debt of which is determined to be of equivalent credit quality by the Adviser.
The staff of the Securities and Exchange Commission (the "SEC") currently takes
the position that, absent the buy-back provisions discussed above, OTC options
purchased by the Portfolio, and portfolio securities "covering" the amount of
the Portfolio'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 Portfolio's limitation on investing no more than 15% of its assets in
illiquid securities. However, for options written with 'primary dealers' in U.S.
Government securities 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 Portfolio 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 Portfolio's income. The sale (writing) of put
options can also provide income.
5
<PAGE>
The Portfolio may purchase and sell (write) call options on 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, currencies and futures
contracts. All calls sold by the Portfolio must be "covered" (i.e., the
Portfolio must own the securities or futures contract subject to the call) or
must meet the asset segregation requirements described below as long as the call
is outstanding. Even though the Portfolio will receive the option premium to
help protect it against loss, a call sold by the Portfolio exposes the Portfolio
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 Portfolio to hold a security or instrument which it might
otherwise have sold.
The Portfolio may purchase and sell (write) put options on securities
including equity securities (including convertible securities) and Eurodollar
instruments (whether or not it holds the above securities in its portfolio), and
on securities indices, currencies and futures contracts. The Portfolio will not
sell put options if, as a result, more than 50% of the Portfolio'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 Portfolio may be required to buy the
underlying security at a disadvantageous price above the market price.
Options on Securities Indices and Other Financial
Indices
The Portfolio 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 Portfolio 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 Portfolio 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 with payment of initial and
variation margin as described below. The sale of futures contracts creates a
firm obligation by the Portfolio, 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 Portfolio, as purchaser. 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 Portfolio'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 Commodity Futures Trading Commission relating to
exclusions from regulation as a commodity pool operator. Those regulations
currently provide that the Portfolio 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 the
positions were "in the money" at the time of purchase) do not exceed 5% of the
net asset value of the Portfolio'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 Portfolio to deposit
with a financial intermediary 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 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
Portfolio. If the Portfolio exercises an option on a futures contract, it
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will be obligated to post initial margin (and potential subsequent variation
margin) for the resulting futures position just as 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.
Currency Transactions
The Portfolio may engage in currency transactions with Counterparties in
order to hedge the value of portfolio holdings denominated in particular
currencies against fluctuations in relative value or to enhance potential gain.
Currency transactions include forward currency contracts, exchange listed
currency futures, exchange listed and OTC options on currencies, and currency
swaps. A forward currency contract involves a privately negotiated obligation to
purchase or sell (with delivery generally required) a specific currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. A
currency swap is an agreement to exchange cash flows based on the notional
(agreed-upon) difference among two or more currencies and operates similarly to
an interest rate swap, which is described below. The Portfolio may enter into
over-the-counter currency transactions with Counterparties which have received,
combined with any credit enhancements, a long term debt rating of A by S&P or
Moody's, respectively, or that have an equivalent rating from a NRSRO or (except
for OTC currency options) are determined to be of equivalent credit quality by
the Adviser.
The Portfolio's transactions in forward currency contracts and other
currency transactions such as futures, options, options on futures and swaps
will generally be limited to hedging involving either specific transactions or
portfolio positions. See, "Strategic Transactions." Transaction hedging is
entering into a currency transaction with respect to specific assets or
liabilities of a Portfolio, which will generally arise in connection with the
purchase or sale of its portfolio securities or the receipt of income therefrom.
Position hedging is entering into a currency transaction with respect to
portfolio security positions denominated or generally quoted in that currency.
The Portfolio will not enter into a transaction to hedge currency exposure
to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held in its portfolio
that are denominated or generally quoted in or currently convertible into such
currency, other than with respect to proxy hedging as described below.
The Portfolio may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
in relation to other currencies to which the Portfolio has or in which the
Portfolio expects to have portfolio exposure. For example, the Portfolio may
hold a French security and the Adviser may believe that French francs will
deteriorate against German marks. The Portfolio would sell French francs to
reduce its exposure to that currency and buy German marks. This strategy would
be a hedge against a decline in the value of French francs, although it would
expose the Portfolio to declines in the value of the German mark relative to the
U.S. dollar.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Portfolio may also engage in
proxy hedging. Proxy hedging is often used when the currency to which the
Portfolio's portfolio is exposed is difficult to hedge or to hedge against the
dollar. Proxy hedging entails entering into a forward contract to sell a
currency whose changes in value are generally considered to be linked to a
currency or currencies in which certain of the Portfolio's portfolio securities
are or are expected to be denominated, and to buy U.S. dollars. The amount of
the contract would not exceed the value of the Portfolio's securities
denominated in linked currencies. For example, if the Adviser considers that the
Austrian schilling is linked to the German deutschemark (the "D-mark"), the
Portfolio holds securities denominated in schillings and the Adviser believes
that the value of schillings will decline against the U.S. dollar, the Adviser
may enter into a contract to sell D-marks and buy dollars. Proxy hedging
involves some of the same risks and considerations as other transactions with
similar instruments. Currency transactions can result in losses to the Portfolio
if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, there is the risk that the perceived linkage
between various currencies may not be present or may not be present during the
particular time that the Portfolio is engaging in proxy hedging. If the
Portfolio enters into a currency hedging transaction, the Portfolio will comply
with the asset segregation requirements described below.
Risks of Currency Transactions
Currency transactions are subject to risks different from those of other
portfolio transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchases and
sales of currency and related instruments can be negatively affected by
government
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exchange controls, blockages, and manipulations or exchange restrictions imposed
by governments. These can result in losses to the Portfolio if it is unable to
deliver or receive currency or funds in settlement of obligations and could also
cause hedges it has entered into to be rendered useless, resulting in full
currency exposure as well as incurring transaction costs. Buyers and sellers of
currency futures are subject to the same risks that apply to the use of futures
generally. Further, settlement of a currency futures contract for the purchase
of most currencies must occur at a bank based in the issuing nation. Trading
options on currency futures is relatively new, and the ability to establish and
close out positions on such options is subject to the maintenance of a liquid
market which may not always be available. Currency exchange rates may fluctuate
based on factors extrinsic to that country's economy.
Combined Transactions
The Portfolio may enter into multiple transactions, including multiple
options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions, structured notes and any combination of futures, options, currency
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 Portfolio 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.
Swaps, Caps, Floors and Collars
Among the Strategic Transactions into which the Portfolio may enter are
interest rate, currency and index swaps and the purchase or sale of related
caps, floors and collars. The Portfolio 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,
protecting against currency fluctuations, as a duration management technique or
protecting against an increase in the price of securities the Portfolio
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 Portfolio will attempt to limit its net loss
exposure resulting from swaps, caps, floors and collars and other Strategic
Transactions entered into for such purposes to not more than 3% of the
Portfolio's net assets at any one time. The Portfolio will not sell interest
rate caps or floors where it does not own securities or other instruments
providing the income stream the Portfolio may be obligated to pay. Interest rate
swaps involve the exchange by the Portfolio 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. A currency swap is an agreement to exchange cash flows on a notional
amount of two or more currencies based on the relative value differential among
them, and 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 Portfolio 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 Portfolio receiving or paying, as the case
may be, only the net amount of the two payments. The Portfolio 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 S&P or Moody's or
has an equivalent rating from an NRSRO or is determined to be of equivalent
credit quality by the Adviser. If there is a default by the Counterparty, the
Portfolio 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
developed. Swaps, caps, floors and collars are considered illiquid for purposes
of the Portfolio'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 of the Portfolio
Trust has adopted guidelines and delegated to the Adviser the daily function of
determining and monitoring the liquidity of swaps, caps, floors and
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collars. The Portfolio Trust's 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 Portfolio's limitation on investing in illiquid
securities.
Eurodollar Instruments
The Portfolio may make investments in Eurodollar instruments. Eurodollar
instruments 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
Portfolio 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.
Risks of Strategic Transactions Outside the United
States
When conducted outside the United States, Strategic Transactions may not be
regulated as rigorously as in the United States, may not involve a clearing
mechanism and related guarantees, and are subject to the risk of governmental
actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) lesser availability than in the United States of data on which to make
trading decisions, (ii) delays in the Portfolio's ability to act upon economic
events occurring in foreign markets during non-business hours in the United
States, (iii) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States, (iv) lower trading
volume and liquidity, and (v) other complex foreign political, legal and
economic factors. At the same time, Strategic Transactions may offer advantages
such as trading in instruments that are not currently traded in the United
States or arbitrage possibilities not available in the United States.
Use of Segregated Accounts
The Portfolio will hold securities or other instruments whose values are
expected to offset its obligations under the Strategic Transactions. The
Portfolio will cover Strategic Transactions as required by interpretive
positions of the SEC. The Portfolio will not enter into Strategic Transactions
that expose the Portfolio 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
Portfolio may have to comply with any applicable regulatory requirements for
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 Portfolio'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 and the
Fund's obligations on the underlying Strategic Transactions. Assets held in a
segregated account would not be sold while the Strategic Transaction is
outstanding, unless they are replaced with similar assets and the Fund's
obligations on the underlying Strategic Transactions. As a result, there is a
possibility that segregation of a large percentage of the Portfolio's assets
could impede portfolio management or the Portfolio's ability to meet redemption
requests or other current obligations.
Short-Term Debt Securities
For defensive or temporary purposes, the Portfolio may invest in investment
grade money market instruments and short-term interest-bearing securities. Such
securities may be used to invest uncommitted cash balances, to maintain
liquidity to meet shareholder redemptions, or to take a defensive position
against potential stock market declines. The Portfolio's investments will
include U.S. Government obligations and obligations issued or guaranteed by any
U.S. Government agencies or instrumentalities, instruments of U.S. and foreign
banks (including negotiable certificates of deposit, non-negotiable fixed time
deposits and bankers' acceptances), repurchase agreements, prime commercial
paper of U.S. and foreign companies, and debt securities that make periodic
interest payments at variable or floating rates.
Yields on debt securities depend on a variety of factors, such as general
conditions in the money and bond markets, and the size, maturity and rating of a
particular issue. Debt securities with longer maturities tend to produce higher
yields and are generally subject to greater potential capital appreciation and
depreciation. The market prices of debt securities usually vary depending upon
available yields, rising when interest rates decline and declining when interest
rates rise.
Portfolio Turnover
The Portfolio 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
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may be necessary to enable the Fund to maintain its status as a regulated
investment company under the Internal Revenue Code. The Portfolio 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.
INVESTMENT RESTRICTIONS
The Fund and the Portfolio have each adopted the following fundamental
policies. Each of the Fund's and the Portfolio's fundamental policies cannot be
changed unless the change is approved by the "vote of the outstanding voting
securities" of the Fund or the Portfolio, as the case may be, which phrase as
used herein means the lesser of (i) 67% or more of the voting securities of the
Fund or the Portfolio present at a meeting, if the holders of more than 50% of
the outstanding voting securities of the Fund or the Portfolio are present or
represented by proxy, or (ii) more than 50% of the outstanding voting securities
of the Fund or the Portfolio.
As a matter of fundamental policy, the Portfolio (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;
provided, however, that the Fund may invest all or
part of its investable assets in an open-end
registered investment company with substantially
the same investment objective, policies and
restrictions as the Fund.
2. Issue senior securities. For purposes of this
restriction, borrowing money in accordance with
paragraph 3 below, making loans in accordance
with paragraph 8 below, 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.
3. Borrow money, except 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 (i) from banks for temporary or short-term
purposes or for the clearance of transactions, (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;
provided, however, that the Fund may invest all or
part of its investable assets in an open-end
registered investment company with substantially
the same investment objective, policies and
restrictions as the Fund.
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.
9. With respect to 75% of its total assets, purchase
securities of an issuer (other than the U.S.
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Government, its agencies, instrumentalities or
authorities or repurchase agreements collateralized
by U.S. Government securities and other investment
companies), if: (a) such purchase would cause more than
5% of the Fund's total assets taken at market
value to be invested in the securities of such issuer;
or (b) such purchase would at the time result in more
than 10% of the outstanding voting securities of such
issuer being held by the Fund; provided, however, that
the Fund may invest all or part of its investable assets
in an open-end registered investment company with
substantially the same investment objective, policies
and restrictions as the Fund.
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.
Notwithstanding the foregoing, the Fund may invest all of its assets (other
than assets which are not "investment securities" (as defined in the 1940 Act)
or are excepted by the SEC) in an open-end investment company with substantially
the same investment objective as the Fund.
The following restrictions are not fundamental policies and may be changed
by the Trustees of the Portfolio Trust (Trust) without investor approval, in
accordance with applicable laws, regulations or regulatory policy. The Portfolio
(Fund) may not:
(A) Make short sales of securities unless (i) either (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, (ii) the securities
sold short are listed on a national securities exchange and (iii) the value of
the securities of any one issuer in which the Fund is short may not exceed 2% of
the Fund's net assets or 2% of the securities of any class of any issuer;
(B) Invest in companies for the purpose of exercising control or
management;
(C) Purchase a security of other investment companies, except when the
purchase is part of a plan of merger, consolidation, reorganization or
acquisition or except by purchase in the open market where no commission or
profit to a sponsor or dealer results from the purchase other than customary
brokers' commissions and then only if, as a result, (i) not more than 10% of the
Fund's assets would be invested in securities of other investment companies,
(ii) not more than 3% of the total outstanding voting securities of any one such
investment company would be held by the Fund and (iii) not more than 5% of the
Fund's assets would be invested in any one such investment company; provided,
however, that the Fund may invest all or part of its investable assets in an
open-end registered investment company with substantially the same investment
objective, policies and restrictions as the Fund;
(D) Invest in interests in oil, gas or other exploration or development
programs or mineral leases; 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; provided, however, that the Fund may
invest all or part of its investable assets in an open-end investment company
with substantially the same investment objective, policies and restrictions as
the Fund;
(F) Invest in restricted securities or 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; provided that the Fund may invest all or part of its investable
assets in an open-end investment company with substantially the same investment
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objective, policies and restrictions as the Fund;
(G) 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;
(H) Purchase securities while outstanding bank
borrowings exceed 5% of the Fund's net assets;
(I) Invest in real estate limited partnership interests, other than real
estate investment trusts organized as limited partnerships;
(J) Purchase or sell (write) options, except pursuant to the limitations
described above;
(K) Purchase warrants of any issuer, if, as a result of such purchase, more
than 2% of the value of the Fund's total assets would be invested in warrants
which are not listed on an exchange or more than 5% of the value of the total
assets of the Fund would be invested in warrants generally, whether or not so
listed. For these purposes, warrants are to be valued at the lesser of cost or
market, but warrants acquired by the Fund in units with or attached to debt
securities shall be deemed to be without value.
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 Portfolio's (Fund's) assets will not constitute a
violation of the restriction, except with respect to restriction (G) 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 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 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.
In addition to average annual return 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 Russell 2000 Index, which is generally considered to be
representative of unmanaged small capitalization stocks in the United States
markets, and the S&P 500 Index, which is generally considered to be
representative of the performance of unmanaged common stocks that are publicly
traded in the United States securities markets. 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.
12
<PAGE>
<TABLE>
<CAPTION>
MANAGEMENT
Trustees and Officers of the Trust and the Portfolio Trust
The Trustees and executive officers of the Trust are listed below. The
Trustees of the Portfolio Trust are identical to the Trustees of the Trust. The
officers of the Portfolio Trust are Messrs. Clayson, Ladd, Wood and Hollis, and
Mss. Banfield, Chase, Herrmann and Kneeland, who hold the same office with the
Portfolio Trust as with the Trust. All executive officers of the Trust and the
Portfolio Trust are affiliates of Standish, Ayer & Wood, Inc., the Portfolio's
investment adviser.
<S> <C> <C>
Name, Address and Date of Birth Position Held With Trust Principal Occupation During Past 5 Years
- ---------------------------------------------- ------------------------------------- ----------------------------------------------
*D. Barr Clayson, 7/29/35 Vice President and Trustee Vice President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center Chairman and Director,
Boston, MA 02111 Standish International
Management Company, L.P.
Samuel C. Fleming, 9/30/40 Trustee Chairman of the Board
c/o Decision Resources, Inc. and Chief Executive Officer,
1100 Winter Street Decision Resources, Inc.;
Waltham, MA 02154 through 1989, Senior V.P.
Arthur D. Little
Benjamin M. Friedman, 8/5/44 Trustee William Joseph Maier
c/o Harvard University Professor of Political Economy,
Cambridge, MA 02138 Harvard University
John H. Hewitt, 4/11/35 Trustee Trustee, The Peabody Foundation; Trustee,
P.O. Box 307 Visiting Nurse Alliance of Vermont
So. Woodstock, VT 05071 and New Hampshire
*Edward H. Ladd, 1/3/38 Trustee and Vice President Chairman of the Board
c/o Standish, Ayer & Wood, Inc. and Managing Director,
One Financial Center Standish, Ayer & Wood, Inc. since 1990;
Boston, MA 02111 formerly President of Standish, Ayer &
Wood, Inc.; Director of
Standish International Management
Company, L.P.
Caleb Loring III, 11/14/43 Trustee Trustee, Essex Street Associates
c/o Essex Street Associates (family investment trust office);
P.0. Box 5600 Director, Holyoke Mutual Insurance
Beverly Farms, MA 01915 Company
*Richard S. Wood, 5/21/54 President and Trustee Vice President, Secretary,
c/o Standish, Ayer & Wood, Inc. and Managing Director,
One Financial Center Standish, Ayer & Wood, Inc.;
Boston, MA 02111 Executive Vice President and Director,
Standish International Management
Company, L.P.
Richard C. Doll, 7/8/48 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Vice President and Director,
Boston, MA 02111 Standish International Management
Company, L.P.
13
<PAGE>
Name, Address and Date of Birth Position Held With Trust Principal Occupation During Past 5 Years
- ---------------------------------------------- ------------------------------------- ----------------------------------------------
James E. Hollis III, 11/21/48 Executive Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Treasurer and Secretary Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Caleb F. Aldrich, 9/20/57 Vice President Vice President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA O2111
Beverly E. Banfield, 7/6/56 Vice President Vice President and Compliance Officer,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center Assistant Vice President and Compliance
Boston, MA 02111 Officer, Freedom Capital Management
Corp. (1989-1992)
Nicholas S. Battelle, 6/24/42 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Walter M. Cabot, 1/16/33 Vice President Senior Advisor and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center prior to 1991, President,
Boston, MA 02111 Harvard Management Company;
Senior Advisor and Director of
Standish International Management
Company, L.P.
David H. Cameron, 11/2/55 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center Director of Standish International
Boston, MA 02111 Management Company, L.P.
Karen K. Chandor, 2/13/50 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Lavinia B. Chase, 6/4/46 Vice President Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Susan B. Coan, 5/1/52 Vice President Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA O2111
W. Charles Cook II, 7/16/63 Vice President Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center Vice President,
Boston, MA 02111 Standish International Management
Company, L.P.
Joseph M. Corrado, 5/13/55 Vice President Vice President and Associate Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
14
<PAGE>
Name, Address and Date of Birth Position Held With Trust Principal Occupation During Past 5 Years
- ---------------------------------------------- ------------------------------------- ----------------------------------------------
Dolores S. Driscoll, 2/17/48 Vice President Vice President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center Director,
Boston, MA 02111 Standish International Management
Company, L.P.
Mark A. Flaherty, 4/24/59 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center Vice President
Boston, MA 02111 Standish International Management
Company, L.P.
Maria D. Furman, 2/3/54 Vice President Vice President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center Vice President and Director,
Boston, MA 02111 Standish International Management
Company, L.P.
Anne P. Herrmann, 1/26/56 Vice President Mutual Fund Administrator,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Ann S. Higgins, 4/8/35 Vice President Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Denise B. Kneeland, 8/19/51 Vice President Senior Operations, Manager,
c/o Standish, Ayer &Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center since December 1995; formerly
Boston, MA 02111 Vice President, Scudder, Stevens and Clark
Raymond J. Kubiak, 9/3/57 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Phillip D. Leonardi, 4/24/62 Vice President Vice President, Standish, Ayer & Wood,
c/o Standish, Ayer & Wood, Inc. Inc. since November 1993; formerly,
One Financial Center Investment Sales, Cigna Corporation (1993)
Boston, MA 02111 and Travelers Corporation (1984-1993)
Laurence A. Manchester, 5/24/43 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
George W. Noyes, 11/12/44 Vice President President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center Director of Standish International
Boston, MA 02111 Management Company, L.P.
15
<PAGE>
Name, Address and Date of Birth Position Held With Trust Principal Occupation During Past 5 Years
- ---------------------------------------------- ------------------------------------- ----------------------------------------------
Arthur H. Parker, 8/12/35 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Jennifer A. Pline, 3/8/60 Vice President Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Howard B. Rubin, 10/29/59 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center Executive Vice President and Director
Boston, MA 02111 Standish International Management
Company, L.P.
Michael C. Schoeck, 10/24/55 Vice President Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc. since August,
One Financial Center 1993; formerly, Vice President,
Boston, MA 02111 Commerzbank, Frankfurt, Germany;
Vice President,
Standish International Management
Company, L.P.
Austin C. Smith, 7/25/52 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Stephen A. Smith, 3/13/49 Vice President Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.; formerly,
One Financial Center Consultant Cambridge Associates
Boston, MA 02111
David C. Stuehr, 3/1/58 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
James W. Sweeney, 5/15/59 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center Executive Vice President and Director,
Boston, MA 02111 Standish International Management
Company, L.P.
Ralph S. Tate, 4/2/47 Vice President Vice President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc. since April,
One Financial Center 1990; formerly Vice President, Aetna Life &
Boston, MA 02111 Casualty President and Director,
Standish International Management
Company, L.P.
Michael W. Thompson, 3/31/56 Vice President Vice President and Associate Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
16
<PAGE>
Name, Address and Date of Birth Position Held With Trust Principal Occupation During Past 5 Years
- ---------------------------------------------- ------------------------------------- ----------------------------------------------
Christopher W. Van Alstyne, 3/24/60 Vice President Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center Formerly Regional Marketing Director,
Boston, MA 02111 Gabelli-O'Connor Fixed Income
Management
</TABLE>
*Indicates that Trustee is an interested person of the Trust for purposes of the
1940 Act.
Compensation of Trustees and Officers
Each of the Trust and the Portfolio Trust pays no compensation to the
Trustees of the Trust or the Portfolio Trust affiliated with Standish as the
administrator of the Fund (the "Fund Administrator") or the Adviser,
respectively, or to the Trusts and Portfolio Trust's officers. None of the
Trustees or officers have engaged in any financial transactions (other than the
purchase or redemption of the shares of the series of the Trust) with the Trust,
the Portfolio Trust or the Adviser.
The following table sets forth the compensation estimated to be paid to the
Trust's Trustees by the Fund as of the fiscal year ending December 31, 1996:
<TABLE>
<CAPTION>
Total Compensation from
Aggregate Compensation Fund and Other Funds
Name of Trustee from the Fund ** in Complex*
- --------------------------------- --------------------------------- ---------------------------------
<S> <C> <C>
D. Barr Clayson $0 $0
Samuel C. Fleming 7.33 41,750
Benjamin M. Friedman 6.36 36,750
John H. Hewitt 6.36 36,750
Edward H. Ladd 0 0
Caleb Loring, III 6.36 36,750
Richard S. Wood 0 0
* As of December 31, 1995 there were 14 funds in the fund complex.
** Estimated to be paid during current fiscal year ending December 31, 1996. The
Fund is newly organized and as of the date of this Statement of Additional
Information the Fund has paid no compensation to the Trustees.
- ---------------------------------
</TABLE>
17
<PAGE>
Certain Shareholders
As of the date of this Statement of Additional Information, Trustees and
officers of the Trust and the Portfolio as a group beneficially owned (i.e., had
voting and/or investment power) less than 1% of the outstanding shares of the
Fund.
Investment Adviser of the Portfolio Trust
Standish serves as investment adviser to the Portfolio pursuant to a
written investment advisory agreement with the Portfolio Trust. 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 Adviser's controlling persons: 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, George W. Noyes, Arthur H. Parker, Howard B.
Rubin, Austin C. Smith, David C. Stuehr, James J. Sweeney, Ralph S. Tate and
Richard S. Wood.
Certain services provided by the Adviser under the advisory agreement are
described in the Prospectus. These services are provided without reimbursement
by the Portfolio for any costs incurred. Under the investment advisory
agreement, the Adviser is paid a fee based upon a percentage of the Portfolio's
average daily net asset value computed as described in the Prospectus. The rate
and time at which the fee is paid and expense limits voluntarily agreed to by
the Adviser are described in the Prospectus.
Pursuant to the investment advisory agreement, the Portfolio bears expenses
of its operations other than those incurred by the Adviser pursuant to the
investment advisory agreement. Among other expenses, the Portfolio will pay for
legal and auditing services, taxes and governmental fees, certain insurance
premiums, costs of notices and reports to interest- holders, typesetting and
printing of registration and financial statements for regulatory purposes and
for distribution to existing and prospective interest-holders, bookkeeping and
interest pricing expenses, fees and disbursements of the Portfolio Trust's
custodian, administrator, transfer and dividend disbursing agent or registrar,
or interest and other like expenses properly payable by the Portfolio Trust.
Unless terminated as provided below, the investment advisory agreement
continues in full force and effect for an initial period of two years from the
date of execution and for successive periods of one year thereafter, but only so
long as each such continuance is approved annually (i) by either the Trustees of
the Portfolio Trust or by the "vote of a majority of the outstanding voting
securities" of the Portfolio, and, in either event, (ii) by vote of a majority
of the Trustees of the Portfolio 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 Portfolio
Trust or by the "vote of a majority of the outstanding voting securities" of the
Portfolio or by the 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 Portfolio, the Adviser, the Principal Underwriter, the Trust and the
Portfolio Trust have each 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, and the Portfolio and its investors come before those of the
Adviser, its affiliates and their employees.
Administrator of the Fund
Standish also serves as the Fund Administrator pursuant to a written
administration agreement with the Trust on behalf of the Fund. Certain services
provided by the Fund Administrator under the administration agreement are
described in the Prospectus. For these services, the Fund Administrator
currently does not receive any additional compensation. The Trustees of the
Trust may, however, determine in the future to compensate the Fund Administrator
for its administrative services. The administration agreement provides that if
the total expenses of the Fund and the Portfolio 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 Fund
Administrator 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% of 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. The Fund's administration agreement
18
<PAGE>
can be terminated by either party on not more than sixty days' written notice.
Administrator of the Portfolio
IBT Trust Company (Cayman) Ltd., P.O. Box 501, Grand Cayman, Cayman
Islands, BWI, serves as the administrator to the Portfolio (the "Portfolio
Administrator") pursuant to a written administration agreement with the
Portfolio Trust on behalf of the Portfolio. The Portfolio Administrator provides
the Portfolio Trust with office space for managing its affairs, and with certain
clerical services and facilities. For these services, the Portfolio
Administrator currently receives a fee from the Portfolio in the amount of
$7,500 annually. The Portfolio's administration agreement can be terminated by
either party on not more than sixty days' written notice.
Distributor of the Fund
Standish Fund Distributors, L.P. (the "Principal Underwriter"), an
affiliate of the Adviser, serves as the Trust's exclusive principal underwriter
and holds itself available to receive purchase orders for the Fund's shares. In
that capacity, the Principal Underwriter has been granted the right, as agent of
the Trust, to solicit and accept orders for the purchase of the Fund's shares in
accordance with the terms of the Underwriting Agreement between the Trust and
the Principal Underwriter. Pursuant to the Underwriting Agreement, the Principal
Underwriter has agreed to use its best efforts to obtain orders for the
continuous offering of the Fund's shares. The Principal Underwriter receives no
commissions or other compensation for its services. The Underwriting Agreement
shall continue in effect with respect to the Fund until two years after its
execution and for successive periods of one year thereafter only if it is
approved at least annually thereafter (i) by a vote of the holders of a majority
of the Fund's outstanding shares or by the Trustees of the Trust or (ii) by a
vote of a majority of the Trustees of the Trust who are not "interested persons"
(as defined by the 1940 Act) of the parties to the Underwriting Agreement, cast
in person at a meeting called for the purpose of voting on such approval. The
Underwriting Agreement will terminate automatically if assigned by either party
thereto and is terminable at any time without penalty by a vote of a majority of
the Trustees of the Trust, a vote of a majority of the Trustees who are not
"interested persons" of the Trust, or by a vote of the holders of a majority of
the Fund's outstanding shares, in any case without payment of any penalty on not
more than 60 days' written notice to the other party. The offices of the
Principal Underwriter are located at One Financial Center, 26th Floor, Boston,
Massachusetts 02111.
REDEMPTION OF SHARES
Detailed information on redemption of shares is included in the Prospectus.
The Trust may suspend the right to redeem Fund 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 Portfolio of
securities owned by it or determination by the Portfolio of the value of its net
assets is not reasonably practicable; or (iii) for such other periods as the SEC
may permit for the protection of shareholders of the Fund.
The Trust intends to pay redemption proceeds in cash for all Fund shares
redeemed, but under certain conditions, the Trust may make payment wholly or
partly in portfolio securities from the Portfolio, in conformity to the
applicable rule of the SEC. Portfolio securities paid upon redemption of Fund
shares will be valued at their then current market value. The Trust, on behalf
of each of its series, has elected to be governed by the provisions of Rule
18f-1 under the 1940 Act which limits the Fund's obligation to make cash
redemption 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. The Portfolio has advised the Trust that the Portfolio
will not redeem in-kind except in circumstances in which the Fund is permitted
to redeem in-kind or except in the event the Fund completely withdraws its
interest from the Portfolio.
PORTFOLIO TRANSACTIONS
The Adviser is responsible for placing the Portfolio's portfolio
transactions and will do so in a manner deemed fair and reasonable to the
Portfolio 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 brokers 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 sell shares of the Fund. In addition, if the Adviser
determines in good faith that the amount of commissions charged by a broker is
reasonable in relation to the value of the brokerage and research services
provided by such broker, the Fund may pay commissions to such broker in an
amount greater than the amount another firm may charge. Research services may
include
19
<PAGE>
(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 and settlement). Research services furnished by firms through which
the Portfolio effects its securities transactions may be used by the Adviser in
servicing other accounts; not all of these services may be used by the Adviser
in connection with the Portfolio. The investment advisory fee paid by the
Portfolio 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 by the Portfolio
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
Portfolio. 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.
DETERMINATION OF NET ASSET VALUE
The Fund's net asset value per share is computed on each business day on
which the New York Stock Exchange is open (a "Business Day"). 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 Day. 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 (substantially all of which will be represented by the
Fund's investment in the Portfolio) less all liabilities by the number of Fund
shares outstanding, and rounding to the nearest cent per share. Expenses and
fees of the fund 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 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
will be valued at fair value as determined in good faith by the Adviser in
accordance with procedures approved by the Trustees.
The value of the Portfolio's net assets (i.e., the value of its securities
and other assets less its liabilities, including expenses payable or accrued) is
determined at the same time and on the same days as the net asset value per
share of the Fund is determined. Each investor in the Portfolio, including the
Fund, may add to or reduce its investment in the Portfolio on each Business Day.
As of 4:00 p.m. (Eastern time) on each Business Day, the value of each
investor's interest in the Portfolio will be determined by multiplying the net
asset value of the Portfolio by the percentage representing that investor's
share of the aggregate beneficial interests in the Portfolio. Any additions or
reductions which are to be effected on that day will then be effected. The
investor's percentage of the aggregate beneficial interests in the Portfolio
will then be recomputed as the percentage equal to the fraction (i) the
numerator of which is the value of such investor's investment in the Portfolio
as of 4:00 p.m. on such day plus or minus, as the case may be, the amount of net
additions to or reductions in the investor's investment in the Portfolio
effected on such day, and (ii) the denominator of which is the aggregate net
asset value of the Portfolio as of 4:00 p.m. on such day plus or minus, as the
case may be, the amount of the net additions to or reductions in the aggregate
investments in the Portfolio by all investors in the Portfolio. The percentage
so determined will then be applied to determine the value of the investor's
interest in the Portfolio as of 4:00 p.m. on the following Business Day.
TAXATION
Each series of the Trust, including the Fund, is treated as a separate
entity for accounting and tax purposes. The Fund intends to qualify and intends
to elect to be treated as a "regulated investment company" ("RIC") under
Subchapter M of the Internal Revenue Code. 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 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 in accordance with the timing requirements of
the Internal Revenue Code.
20
<PAGE>
The Trust anticipates that the Portfolio will be treated as a partnership
for federal income tax purposes. As such, the Portfolio is not subject to
federal income taxation. Instead, the Fund must take into account, in computing
its federal income tax liability (if any), its share of the Portfolio's income,
gains, losses, deductions, credits and tax preference items, without regard to
whether it has received any cash distributions from the Portfolio. Because the
Fund invests its assets in the Portfolio, the Portfolio normally must satisfy
the applicable source of income and diversification requirements in order for
the Fund to satisfy them. The Portfolio will allocate at least annually among
its investors, including the Fund, each investor's distributive share of the
Portfolio's net investment income, net realized capital gains, and any other
items of income, gain, loss, deduction or credit. The Portfolio will make
allocations to the Fund in a manner intended to comply with the Internal Revenue
Code and applicable regulations and will make moneys available for withdrawal at
appropriate times and in sufficient amounts to enable the Fund to satisfy the
tax distribution requirements that apply to the Fund and that must be satisfied
in order to avoid Federal income and/or excise tax on the Fund. For purposes of
applying the requirements of the Internal Revenue Code regarding qualification
as a RIC, the Fund will be deemed (i) to own its proportionate share of each of
the assets of the Portfolio and (ii) to be entitled to the gross income of the
Portfolio attributable to such share.
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 seek 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 Code, it will also not be required to pay any Massachusetts income tax.
The Fund will not distribute long-term or short-term capital gain 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 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.
Limitations imposed by the Internal Revenue Code on regulated investment
companies like the Fund may restrict the Portfolio's ability to enter into
futures, options and currency forward transactions.
Certain options, futures and forward foreign currency transactions
undertaken by the Portfolio may cause the Portfolio to recognize gains or losses
from marking to market even though the Portfolio's positions have not been sold
or terminated and affect the character as long-term or short-term (or, in the
case of certain currency forwards, options and futures, as ordinary income or
loss) and timing of some capital gains and losses realized by the Portfolio and
allocable to the Fund. Any net mark to market gains may also have to be
distributed by the Fund to satisfy the distribution requirements referred to
above even though no corresponding cash amounts may concurrently be received,
possibly requiring the disposition by the Portfolio of portfolio securities or
borrowing to obtain the necessary cash. Also, certain of the Portfolio's losses
on the Portfolio's transactions involving options, futures or forward contracts
and/or offsetting or successor Portfolio positions may be deferred rather than
being taken into account currently in calculating the Portfolio's taxable income
or gain. Certain of the applicable tax rules may be modified if the Portfolio is
eligible and chooses to make one or more of certain tax elections that may be
available. Because the Fund's income, gains and losses consist primarily of its
share of the income, gains and losses of the Portfolio, which are directly
affected by the provisions described in this paragraph, these transactions may
affect the amount, timing and character of the Fund's distributions to
shareholders. The Portfolio will take into account the special tax rules
(including consideration of available elections) applicable to options, futures
or forward contracts in order to minimize any potential adverse tax
consequences.
The Federal income tax rules applicable to forward rolls, interest rate or
currency swaps, caps, floors and collars are unclear in certain respects, and
the Portfolio 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.
If the Portfolio acquires stock in certain foreign corporations that
receive at least 75% of their annual gross income from passive sources (such as
interest, dividends, rents, royalties or capital gain) or hold at least 50% of
their assets in investments producing such passive income ("passive foreign
investment companies"), the Fund could be subject to Federal income tax and
additional interest charges on its allocable portion of "excess distributions"
received from such companies or gain from the sale of stock in such companies,
even if all income or gain actually allocated to the Fund is timely distributed
to its
21
<PAGE>
shareholders. The Fund would not be able to pass through to its shareholders any
credit or deduction for such a tax. Certain elections may, if available,
ameliorate these adverse tax consequences, but any such election would require
the Fund to recognize taxable income or gain without the concurrent receipt of
cash. The Portfolio may limit and/or manage its stock holdings in passive
foreign investment companies to minimize the Fund's tax liability or maximize
its return from these investments.
Foreign exchange gains and losses realized by the Portfolio in connection
with certain transactions involving foreign currency-denominated debt
securities, if any, certain foreign currency futures and options, foreign
currency forward contracts, foreign currencies, or payables or receivables
denominated in a foreign currency are subject to Section 988 of the Internal
Revenue Code, which generally causes such gains and losses to be treated as
ordinary income and losses and, because the Fund invests in the Portfolio, may
affect the amount, timing and character of Fund distributions to shareholders.
Any such transactions that are not directly related to the Portfolio's
investment in stock or securities, possibly including speculative currency
positions or currency derivatives not used for hedging purposes, may increase
the amount of gain it is deemed to recognize from the sale of certain
investments held for less than three months. The Fund's share of such gain (plus
any such gain the Fund may realize from other sources) is limited under the
Internal Revenue Code to less than 30% of the Fund's gross income for its
taxable year. Such transactions could under future Treasury regulations produce
income not among the types of "qualifying income" from which the Fund must
derive at least 90% of its gross income for its taxable year.
The Portfolio may be subject to withholding and other taxes imposed by
foreign countries with respect to its investments in foreign securities. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes in some cases. Investors in the Fund would be entitled to claim U.S.
foreign tax credits or deductions with respect to such taxes, subject to certain
provisions and limitations contained in the Internal Revenue Code, only if more
than 50% of the value of the Fund's total assets at the close of any taxable
year were to consist of stock or securities of foreign corporations and the Fund
were to file an election with the Internal Revenue Service. Because the
investments of the Portfolio are such that the Fund will not meet this 50%
requirement, shareholders of the Fund will not directly take into account the
foreign taxes, if any, paid by the Portfolio and allocable to the Fund, and will
not be entitled to any related tax deductions or credits. Such taxes will reduce
the amounts the Fund would otherwise have available to distribute.
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.
For purposes of the dividends received deduction available to corporations,
dividends received by the Portfolio and allocable to the Fund, if any, from U.S.
domestic corporations in respect of the stock of such corporations held by the
Portfolio, for U.S. Federal income tax purposes, for at least a minimum holding
period, generally 46 days, and distributed and designated by the Fund may be
treated as qualifying dividends. Corporate shareholders must meet the minimum
holding period requirement referred to above with respect to their shares of the
Fund in order to qualify for the deduction and, if they borrow to acquire or
otherwise incur debt attributable to such shares, may be denied a portion of the
dividends received deduction. The entire qualifying dividend, including the
otherwise deductible amount, will be included in determining the excess (if any)
of a corporate shareholder's adjusted current earnings over its alternative
minimum taxable income, which may increase its alternative minimum tax
liability.
Additionally, any corporate shareholder should consult its tax adviser
regarding the possibility that its basis in its shares may be reduced, for
Federal income tax purposes, by reason of "extraordinary dividends" received
with respect to the shares, for the purpose of computing its gain or loss on
redemption or other disposition of the shares.
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 share of the
Portfolio's portfolio. Consequently, subsequent distributions by the Fund on
such shares 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.
22
<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, subject to
the rules described below. Any loss realized on a redemption may be disallowed
to the extent the shares disposed of are replaced with other shares of the Fund
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.
THE FUND AND ITS SHARES
The Fund is an investment series of the 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 of the Trust 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. Shareholders are not entitled to any preemptive,
conversion or subscription rights. All shares, when issued, will be fully paid
and non-assessable by the Trust. Upon any liquidation of the Fund, shareholders
are entitled to share pro rata in the net assets available for distribution.
Pursuant to the Declaration, the Trustees may create additional funds by
establishing additional series of shares in the Trust. The establishment of
additional series would not affect the interests of current shareholders in the
Fund. As of the date of this Statement of Additional Information, the Trustees
have established eighteen other series of the Trust that publicly offer their
shares. Pursuant to the Declaration, the Board may establish and issue multiple
classes of shares for each series of the Trust. As of the date of this Statement
of Additional Information, the Trustees do not have any plan to establish
multiple classes of shares for the Fund.
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 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 his or its liability as a shareholder of the Trust
is limited to circumstances in which the Trust
23
<PAGE>
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 Declaration also
provides that no series of the Trust is liable for the obligations of any other
series. 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.
Except as described below, whenever the Trust is requested to vote on a
fundamental policy of or matters pertaining to the Portfolio, the Trust will
hold a meeting of the Fund's shareholders and will cast its vote proportionately
as instructed by the Fund's shareholders. Fund shareholders who do not vote will
not affect the Trust's votes at the Portfolio meeting. The percentage of the
Trust's votes representing Fund shareholders not voting will be voted by the
Trustees of the Trust in the same proportion as the Fund shareholders who do, in
fact, vote. Subject to applicable statutory and regulatory requirements, the
Fund would not request a vote of its shareholders with respect to (a) any
proposal relating to the Portfolio, which proposal, if made with respect to the
Fund, would not require the vote of the shareholders of the Fund, or (b) any
proposal with respect to the Portfolio that is identical in all material
respects to a proposal that has previously been approved by shareholders of the
Fund. Any proposal submitted to holders in the Portfolio, and that is not
required to be voted on by shareholders of the Fund, would nonetheless be voted
on by the Trustees of the Trust.
THE PORTFOLIO AND ITS INVESTORS
The Portfolio is a series of Standish, Ayer & Wood Master Portfolio, a
newly formed trust, and, like the Fund, is an open-end management investment
company under the Investment Company Act of 1940, as amended. The Portfolio
Trust was organized as a master trust fund under the laws of the State of New
York on January 18, 1996.
Interests in the Portfolio have no preemptive or conversion rights, and are
fully paid and non-assessable except as described in the Prospectus. The
Portfolio normally will not hold meetings of holders of such interests except as
required under the 1940 Act. The Portfolio would be required to hold a meeting
of holders in the event that at any time less than a majority of its Trustees
holding office had been elected by holders. The Trustees of the Portfolio
continue to hold office until their successors are elected and have qualified.
Holders holding a specified percentage of interests in the Portfolio may call a
meeting of holders in the Portfolio for the purpose of removing any Trustee. A
Trustee of the Portfolio may be removed upon a majority vote of the interests
held by holders in the Portfolio qualified to vote in the election. The 1940 Act
requires the Portfolio to assist its holders in calling such a meeting. Upon
liquidation of the Portfolio, holders in the Portfolio would be entitled to
share pro rata in the net assets of the Portfolio available for distribution to
holders. Each holder in the Portfolio is entitled to a vote in proportion to its
percentage interest in the Portfolio.
ADDITIONAL INFORMATION
The Fund's Prospectus and this Statement of Additional Information omit
certain information contained in the registration statement filed with the SEC,
which may be obtained from the SEC'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.
EXPERTS AND FINANCIAL STATEMENTS
Coopers & Lybrand L.L.P., independent accountants, will audit the Fund's
financial statements for the fiscal year ending December 31, 1996. An affiliate
of Coopers & Lybrand, L.L.P., Coopers & Lybrand, will audit the Portfolio's
financial statements for the fiscal year ending December 31, 1996.
24
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
The Portfolio is a newly organized series of the Portfolio Trust and
the Fund is a newly organized series of the Trust and no financial statements
are available.
(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**
(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*
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(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**
(1P) Form of Certificate of Designation of Standish Equity
Asset Fund, Standish Small Capitalization Equity Asset
Fund, Standish Fixed Income Asset Fund and Standish
Global Fixed Income Asset Fund**
(1Q) Form of Certificate of Designation of Standish Small
Capitalization Equity Fund II***
(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
Securitized Fund**
(5B) Form of Investment Advisory Agreement between the
Registrant and Standish, Ayer & Wood, Inc. relating to
Standish Short-Term Asset Reserve Fund**
(5C) Investment Advisory Agreement between the Registrant
and Standish, Ayer & Wood, Inc. relating to Standish
International Fixed Income Fund**
(5D) Assignment of Investment Advisory Agreement between
the Registrant and Standish, Ayer & Wood, Inc.
relating to Standish International Fixed Income Fund**
(5E) Form of Investment Advisory Agreement between the
Registrant and Standish, Ayer & Wood, Inc. relating to
Standish Intermediate Tax Exempt Bond Fund**
(5F) Investment Advisory Agreement between the Registrant
and Standish, Ayer & Wood, Inc. relating to Standish
Massachusetts Intermediate Tax Exempt Bond Fund**
(5G) Investment Advisory Agreement between the Registrant
and Standish, Ayer & Wood, Inc. relating to Standish
Controlled Maturity Fund**
(5H) Investment Advisory Agreement between the Registrant
and Standish, Ayer & Wood, Inc. relating to Standish
Fixed Income Fund II**
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<PAGE>
(5I) Investment Advisory Agreement between the Registrant
and Standish, Ayer & Wood, Inc. relating to Standish
Small Cap Tax-Sensitive Equity Fund**
(5J) Investment Advisory Agreement between the Registrant
and Standish, Ayer & Wood, Inc. relating to Standish
Tax-Sensitive Equity Fund**
(6A) Underwriting Agreement between the Registrant and
Standish Fund Distributors, L.P.**
(6B) Revised Appendix A to Underwriting Agreement between
the Registrant and Standish Fund Distributors, L.P.
with respect to Standish Equity Asset Fund, Standish
Small Capitalization Equity Asset Fund, Standish Fixed
Income Asset Fund and Standish Global Fixed Income
Asset Fund**
(6C) Revised Appendix A to Underwriting Agreement between
the Registrant and Standish Fund Distributors, L.P.
with respect to Standish Small Capitalization Equity
Fund II***
(7) Not applicable
(8A) Master Custody Agreement between the Registrant and
Investors Bank & Trust Company**
(8B) Revised Appendix A to Master Custody Agreement between the
Registrant and Investors Bank & Trust Company with respect
to Standish Equity Asset Fund, Standish Small Capitalization
Equity Asset Fund, Standish Fixed Income Asset Fund and
Standish Global Fixed Income Asset Fund**
(8C) Revised Appendix A to Master Custody Agreement between
the Registrant and Investors Bank & Trust with respect
to Standish Small Capitalization Equity Fund II***
(9A) Transfer Agency and Service Agreement between the
Registrant and Investors Bank & Trust Company**
(9B) Revised Exhibit A to Transfer Agency and Service Agreement
between the Registrant and Investors Bank & Trust Company
with respect to Standish Equity Asset Fund, Standish Small
Capitalization Equity Asset Fund, Standish Fixed Income
Asset Fund and Standish Global Fixed Income Asset Fund**
(9C) Revised Exhibit A to Transfer Agency and Service
Agreement between the Registrant and Investors Bank &
C-3
<PAGE>
Trust Company with respect to Standish Small
Capitalization Equity Fund II***
(9D) Master Administration Agreement between the Registrant
and Investors Bank & Trust Company**
(9E) Revised Exhibit A to Master Administration Agreement between
the Registrant and Investors Bank & Trust Company with
respect to Standish Equity Asset Fund, Standish Small
Capitalization Equity Asset Fund, Standish Fixed Income
Asset Fund and Standish Global Fixed Income Asset Fund**
(9F) Revised Exhibit A to Master Administration Agreement
between the Registrant and Investors Bank & Trust
Company with respect to Standish Small Capitalization
Equity Fund II***
(9G) Form of Administrative Services Agreement between
Standish, Ayer & Wood, Inc. and the Registrant on
behalf of Standish Fixed Income Fund, Standish Equity
Fund, Standish Small Cap Equity Fund and Standish
Global Fixed Income Fund**
(9H) Revised Exhibit A to Administrative Services Agreement
between Standish, Ayer & Wood, Inc. and the Registrant
with respect to Standish Equity Asset Fund, Standish
Small Capitalization Equity Asset Fund, Standish Fixed
Income Asset Fund and Standish Global Fixed Income
Asset Fund**
(9I) Revised Exhibit A to Administrative Services Agreement
between Standish, Ayer & Wood, Inc. and the Registrant
on behalf of Standish Small Capitalization Equity
Fund II***
(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**
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<PAGE>
(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**
(17) Not applicable
(18) Not applicable
(19A) Power of Attorney for Registrant (Richard S. Wood)**
(19B) Power of Attorney for Registrant (David W. Murray)**
(19C) Power of Attorney for Registrant (Samuel C. Fleming)**
(19D) Power of Attorney for Registrant (Benjamin M.
Friedman)**
(19E) Power of Attorney for Registrant (John H. Hewitt)**
(19F) Power of Attorney for Registrant (Edward H. Ladd)**
(19G) Power of Attorney for Registrant (Caleb Loring III)**
(19H) Power of Attorney for Registrant (D. Barr Clayson)**
(19I) Power of Attorney for Standish, Ayer & Wood Master
Portfolio (Richard S. Wood)**
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<PAGE>
(19J) Power of Attorney for Standish, Ayer & Wood Master
Portfolio (Samuel C. Fleming, Benjamin M. Friedman,
John H. Hewitt, Edward H. Ladd, Caleb Loring III,
Richard S. Wood and D. Barr Clayson)**
--------------------
* 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.
*** Filed herewith.
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 June 1, 1996, of
the shares of each series of the Registrant.
Number of Record
Title of Class Holders
Shares of beneficial interest, par value $.01, of:
Standish Fixed Income Fund 441
Standish Securitized Fund 14
Standish Short-Term Asset
Reserve Fund 107
Standish International Fixed
Income Fund 194
Standish Global Fixed Income Fund 49
Standish Equity Fund 148
Standish Small Capitalization
Equity Fund 423
Standish Massachusetts Intermediate
Tax Exempt Bond Fund 82
Standish Intermediate Tax Exempt
Bond Fund 104
Standish International Equity Fund 203
Standish Controlled Maturity Fund 11
Standish Fixed Income Fund II 4
Standish Small Cap Tax-Sensitive
Equity Fund 56
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Standish Tax-Sensitive Equity Fund 33
Standish Equity Asset Fund 0
Standish Small Capitalization
Equity Asset Fund 0
Standish Fixed Income Asset Fund 0
Standish Global Fixed Income Asset Fund 0
Standish Small Capitalization Equity Fund II 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
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.
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<PAGE>
Item 28. Business and Other Connections of Investment Advisers
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,
Standish Fixed Income Fund, Standish Equity Fund, Standish Small Capitalization
Equity Fund, Standish Equity Asset Fund, Standish Small Capitalization Equity
Asset Fund, Standish Fixed Income Asset Fund, Standish Global Fixed Income Asset
Fund and Standish Small Capitalization Equity Fund II 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 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) Standish Fund Distributors, L.P. serves or will
serve as the principal underwriter of each of the series of the
Registrant as listed in Item 26 above.
(b) Directors and Officers of Standish Fund
Distributors, L.P.:
<TABLE>
<CAPTION>
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
<S> <C> <C>
James E. Hollis, III Chief Executive Officer Vice President
Beverly E. Banfield Chief Operating Officer Vice President
</TABLE>
C-8
<PAGE>
The General Partner of Standish Fund Distributors, L.P. is
Standish, Ayer & Wood, Inc.
(c) 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
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 Standish Small Capitalization Equity
Fund II, 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 the Post- Effective
Amendment to its Registration Statement registering
shares of such Fund.
(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.
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<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
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 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Boston and
The Commonwealth of Massachusetts on the 22nd day of July, 1996.
STANDISH, AYER & WOOD
INVESTMENT TRUST
/S/ James E. Hollis, III
James E. Hollis, III, 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.
C-10
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
Richard S. Wood* Trustee and President July 22, 1996
- ------------------------
Richard S. Wood (principal executive
officer)
/s/ James E. Hollis, III Treasurer (principal July 22, 1996
- ------------------------
James E. Hollis, III financial and accounting
officer) and Secretary
D. Barr Clayson* Trustee July 22, 1996
D. Barr Clayson
Samuel C. Fleming* Trustee July 22, 1996
Samuel C. Fleming
Benjamin M. Friedman* Trustee July 22, 1996
Benjamin M. Friedman
John H. Hewitt* Trustee July 22, 1996
John H. Hewitt
Edward H. Ladd* Trustee July 22, 1996
Edward H. Ladd
Caleb Loring III* Trustee July 22, 1996
Caleb Loring III
*By: /s/ James E. Hollis, III
James E. Hollis, III
Attorney-In-Fact
</TABLE>
C-11
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Standish, Ayer & Wood Master Portfolio has duly
caused this Post-Effective Amendment to the Registration Statement of Standish,
Ayer & Wood Investment Trust to be signed on its behalf by the undersigned,
thereunto duly authorized, outside the United States on the 22nd day of July,
1996.
STANDISH, AYER & WOOD
MASTER PORTFOLIO
Richard S. Wood*
Richard S. Wood, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement of Standish, Ayer & Wood
Investment Trust has been signed outside the United States by the following
persons in their capacities with Standish, Ayer & Wood Master Portfolio and on
the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
Richard S. Wood* Trustee and President July 22, 1996
- ----------------------
Richard S. Wood (principal executive
officer)
D. Barr Clayson* Trustee July 22, 1996
D. Barr Clayson
Samuel C. Fleming* Trustee July 22, 1996
Samuel C. Fleming
Benjamin M. Friedman* Trustee July 22, 1996
Benjamin M. Friedman
John H. Hewitt* Trustee July 22, 1996
John H. Hewitt
Edward H. Ladd* Trustee July 22, 1996
Edward H. Ladd
Caleb Loring III* Trustee July 22, 1996
Caleb Loring III
*By: /s/Susan Jakuboski
Susan Jakuboski
Attorney-In-Fact
</TABLE>
C-12
<PAGE>
EXHIBIT INDEX
Exhibit
(1Q) Form of Certificate of Designation of Standish Small
Capitalization Equity Fund II
(6C) Revised Appendix A to Underwriting Agreement between the
Registrant and Standish Fund Distributors, L.P. with respect to
Standish Small Capitalization Equity Fund II
(8C) Revised Appendix A to Master Custody Agreement between the
Registrant and Investors Bank & Trust with respect to Standish
Small Capitalization Equity Fund II
(9C) Revised Exhibit A to Transfer Agency and Service Agreement
between the Registrant and Investors Bank & Trust Company with
respect to Standish Small Capitalization Equity Fund II
(9F) Revised Exhibit A to Master Administration Agreement between the
Registrant and Investors Bank & Trust Company with respect to
Standish Small Capitalization Equity Fund II
(9I) Revised Exhibit A to Administrative Services Agreement between
Standish, Ayer & Wood, Inc. and the Registrant on behalf of
Standish Small Capitalization Equity Fund II
C-13
STANDISH, AYER & WOOD INVESTMENT TRUST
One Financial Center
Boston, Massachusetts 02111
Certificate of Designation
The undersigned, being a Vice President of Standish, Ayer & Wood
Investment Trust (the "Trust"), a trust with transferable shares of the type
commonly called a Massachusetts business trust, DOES HEREBY CERTIFY that,
pursuant to the authority conferred upon the Trustees of the Trust by Section
6.1(b) and Section 9.3 of the Agreement and Declaration of Trust, dated August
13, 1986, as amended (as so amended, the "Declaration of Trust"), and by the
affirmative vote of a Majority of the Trustees at a meeting duly called and held
on June 6 and 7, 1996 the Declaration of Trust is amended as set forth in this
Certificate of Designation.
A. There is hereby established and designated an
additional Series of the Trust: "Standish Small Capitalization
Equity Fund II."
B. The beneficial interest in the Fund shall be divided into Shares
having a nominal or par value of one cent ($.01) per Share, of which an
unlimited number may be issued, which Shares shall represent interests only in
the Fund. The Shares of the Fund shall have the following rights and
preferences:
1. Assets Belonging to the Fund. Any portion of the Trust
Property allocated to the Fund, and all consideration received by the
Trust for the issue or sale of Shares of the Fund, together with all
assets in which such consideration is invested or reinvested, all
interest, dividends, income, earnings profits and gains therefrom, and
proceeds thereof, including any proceeds derived from the sale,
exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the
same may be, shall be held by the Trustees in trust for the benefit of
the holders of Shares of the Fund and shall irrevocably belong to the
Fund for all purposes, and shall be so recorded upon the books of
account of the Trust, and the Shareholders of any other Fund who are
not Shareholders of the Fund shall not have, and shall be conclusively
deemed to have waived, any claims to the assets of the Fund. Such
consideration, assets, interest, dividends, income, earnings, profits,
gains and proceeds, together with any General Items allocated to the
Fund as provided in the following sentence, are herein referred to
collectively as "Fund-Assets" of the Fund, and as assets "belonging to"
the Fund. In the event that there are any assets, income, earnings,
profits and proceeds thereof, funds, or payments which are not readily
identifiable as belonging to any particular Fund (collectively "General
-1-
<PAGE>
Items"), the Trustees shall allocate such General Items to and among
any one or more of the Funds established and designated from time to
time in such manner and on such basis as they, in their sole
discretion, deem fair and equitable; and any General Items so allocated
to the Fund shall belong to and be part of the Fund Assets of the Fund.
Each such allocation by the Trustees shall be conclusive and binding
upon the Shareholders of all the Funds for all purposes.
2. Liabilities of the Fund. The assets belonging to
the Fund shall be charged with the liabilities in respect of
the Fund and all expenses, costs, charges and reserves attributable to
the Fund, and any general liabilities, expenses, costs, charges or
reserves of the Trust which are not readily identifiable as pertaining
to any particular Fund shall be allocated and charged by the Trustees
to and among any one or more of the Funds established and designated
from time to time in such manner and on such basis as the Trustees in
their sole discretion deem fair and equitable. The indebtedness,
expenses, costs, charges and reserves allocated and so charged to the
Fund are herein referred to as "liabilities of" the Fund. Each
allocation of liabilities, expenses, costs, charges and reserves by the
Trustees shall be conclusive and binding upon the Shareholders of all
the Funds or all purposes. Any creditor of the Fund may look only to
the assets of the Fund to satisfy such creditor's debt.
3. Dividends. Dividends and distributions on Shares of the
Fund may be paid with such frequency as the Trustees may determine,
which may be daily or otherwise pursuant to a standing resolution or
resolutions adopted only once or with such frequency as the Trustees
may determine, to the Shareholders of the Fund, from such of the
income, accrued or realized, and capital gains, realized or unrealized,
and out of the assets belonging to the Fund, as the Trustees may
determine, after providing for actual and accrued liabilities of the
Fund. All dividends and distributions on Shares of the Fund shall be
distributed pro rata to the Shareholders of the Fund in proportion to
the number of such Shares held by such holders at the date and time of
record established for the payment of such dividends or distributions,
except that in connection with any dividend or distribution program or
procedure the Trustees may determine that no dividend or distribution
shall be payable on Shares as to which the Shareholder's purchase order
and/or payment have not been receive by the time or times established
by the Trustees under such program or procedure, or that dividends or
distributions shall be payable on Shares which have been tendered by
the holder thereof for redemption or repurchase, but the redemption or
repurchase
-2-
<PAGE>
proceeds of which have not yet been paid to such Shareholder. Such
dividends and distributions may be made in cash or Shares of the Fund
or a combination thereof as determined by the Trustees, or pursuant to
any program that the Trustees may have in effect at the time for the
election by each Shareholder of the mode of the making of such dividend
or distribution to that Shareholder. Any such dividend or distribution
paid in Shares will be paid at the net asset value thereof as
determined in accordance with subsection (8) hereof.
4. Liquidation. In the event of the liquidation or dissolution
of the Trust or the liquidation of the Fund, the Shareholders of the
Fund shall be entitled to receive, when and as declared by the
Trustees, the excess of the Fund Assets over the liabilities of the
Fund. The assets so distributable to the Shareholders of the Fund shall
be distributed among such Shareholders in proportion to the number of
Shares of the Fund held by them and recorded on the books of the Trust.
The liquidation of the Fund may be authorized by vote of a Majority of
the Trustees, subject to the affirmative vote of "a majority of the
outstanding voting securities" of the Fund, as the quoted phrase is
defined in the Investment Company Act of 1940, as amended (the "1940
Act"), determined in accordance with clause (iii) of the definition of
"Majority Shareholder Vote" in Section 1.4 of the Declaration of Trust.
5. Voting. The Shareholders shall have the voting
rights set forth in or determined under Article 7 of the
Declaration of Trust.
6. Redemption by Shareholder. Each holder of
Shares of the Fund shall have the right at such times as may
be permitted by the Trust to require the Trust to redeem all
or any part of his Shares of the Fund at a redemption price
equal to the net asset value per Share of the Fund next
determined in accordance with subsection (8) hereof after
the Shares are properly tendered for redemption; provided,
that the Trustees may from time to time, in their
discretion, determine and impose a fee for such redemption.
Payment of the redemption price shall be in cash; provided,
however, that if the Trustees determine, which determination
shall be conclusive, that conditions exist which make
payment wholly in cash unwise or undesirable, the Trust may
make payment wholly or partly in Securities or other assets
belonging to the Fund at the value of such Securities or
assets used in such determination of net asset value.
Notwithstanding the foregoing, the Trust may postpone
payment of the redemption price and may suspend the right of
the holders of Shares of the Fund to require the Trust to
-3-
<PAGE>
redeem Shares of the Fund during any period or at any time when and to
the extent permissible under the 1940 Act.
7. Redemption at the Option of the Trust. Each Share
of the Fund shall be subject to redemption at the option of
the Trust at the redemption price which would be applicable if such
Share were then being redeemed by the Shareholder pursuant to
subsection (6) hereof: (i) at any time, if the Trustees determine in
their sole discretion that failure to so redeem may have materially
adverse consequences to the holders of the Shares of the Trust or of
any Fund, or (ii) upon such other conditions with respect to
maintenance of Shareholder accounts of a minimum amount as may from
time to time be determined by the Trustees and set forth in the then
current Prospectus of the Fund. Upon such redemption the holders of the
Shares so redeemed shall have no further right with respect thereto
other than to receive payment of such redemption price.
8. Net Asset Value. The net asset value per Share
of the Fund at any time shall be the quotient obtained by
dividing the value of the net assets of the Fund at such
time (being the current value of the assets belonging to the
Fund, less its then existing liabilities) by the total number of Shares
of the Fund then outstanding, all determined in accordance with the
methods and procedures, including without limitation those with respect
to rounding, established by the Trustees from time to time. The
Trustees may determine to maintain the net asset value per Share of the
Fund at a designated constant dollar amount and in connection therewith
may adopt procedures not inconsistent with the 1940 Act for the
continuing declaration of income attributable to the Fund as dividends
payable in additional Shares of the Fund at the designated constant
dollar amount and for the handling of any losses attributable to the
Fund. Such procedures may provide that in the event of any loss each
Shareholder shall be deemed to have contributed to the shares of
beneficial interest account of the Fund his pro rata portion of the
total number of Shares required to be cancelled in order to permit the
net asset value per Share of the Fund to be maintained, after
reflecting such loss, at the designated constant dollar amount. Each
Shareholder of the Fund shall be deemed to have expressly agreed, by
his investment in the Fund, to make the contribution referred to in the
preceding sentence in the event of any such loss.
9. Transfer. All Shares of the Fund shall be
transferable, but transfers of Shares of the Fund will be
recorded on the Share transfer records of the Trust
applicable to the Fund only at such times as Shareholders
shall have the right to require the Trust to redeem Shares
-4-
<PAGE>
of the Fund and at such other times as may be permitted by
the Trustees.
10. Equality. All Shares of the Fund shall represent an equal
proportionate interest in the assets belonging to the Fund (subject to
the liabilities of the Fund), and each Share of the Fund shall be equal
to each other Share thereof; but the provisions of this sentence shall
not restrict any distinctions permissible under subsection (3) hereof
that may exist with respect to dividends and distributions on Shares of
the Fund. The Trustees may from time to time divide or combine the
Shares of the Fund into a greater or lesser number of Shares of the
Fund without thereby changing the proportionate beneficial interest in
the assets belonging to the Fund or in any way affecting the rights of
the holders of Shares of any other Fund.
11. Rights of Fractional Shares. Any fractional Share
of any Series shall carry proportionately all the rights and
obligations of a whole Share of that Series, including rights and
obligation with respect to voting, receipt of dividends and
distributions, redemption of Shares, and liquidation of the Trust or of
the Fund.
12. Conversion Rights. Subject to compliance with the
requirements of the 1940 Act, the Trustees shall have the
authority to provide that holders of Shares of the Fund shall have the
right to convert said Shares into Shares of one or more other Funds in
accordance with such requirements and procedures as the Trustees may
establish.
13. Master/Feeder. Notwithstanding any other provisions herein
or in the Declaration of Trust as applicable to the Fund, the Trustees
shall have full power in their discretion, without any requirement of
approval by shareholders of the Fund, to invest part or all of the Fund
Assets, or to dispose of parts or all of the Fund Assets and invest the
proceeds of such disposition, in securities issued by one or more other
investment companies registered under the 1940 Act. Any such other
investment company may (but need not) be a trust (formed under the laws
of the Commonwealth of Massachusetts any other state or jurisdiction)
which is classified as a partnership for Federal income tax purposes.
14. Amendment, etc. Subject to the provisions and
limitations of Section 9.3 of the Declaration of Trust and
applicable law, this Certificate of Designation may be amended by an
instrument signed in writing by a Majority of the Trustees (or by an
officer of the Trust pursuant to the Vote of a Majority of the
Trustees), provided that, if any amendment adversely affects the rights
of the Shareholders
-5-
<PAGE>
of the Fund, such amendment may be adopted by an instrument signed in
writing by a Majority of the Trustees (or by an officer of the Trust
pursuant to the vote of a Majority of the Trustees) when authorized to
do so by the vote in accordance with Section 7.1 of the Declaration of
Trust of the holders of a majority of all the Shares of the Fund
outstanding and entitled to vote, without regard to the other Series.
15. Incorporation of Defined Terms. All capitalized
terms which are not defined herein shall have the same
meanings as are assigned to those terms in the Declaration of Trust
filed with the Secretary of State of The Commonwealth of Massachusetts.
The Trustees further direct that, upon the execution of this
Certificate of Designation, the Trust take all necessary action to file a copy
of this Certificate of Designation with the Secretary of State of The
Commonwealth of Massachusetts and at any other place required by law or by the
Declaration of Trust.
IN WITNESS WHEREOF, the undersigned has set his hand and seal this 22nd
day of July, 1996.
By:
James E. Hollis, III
Its: Vice President
-6-
<PAGE>
ACKNOWLEDGMENT
M A S S A C H U S E T T S
SUFFOLK, SS.:
1996
Then personally appeared the above-named Vice President of Standish,
Ayer & Wood Investment Trust and acknowledged the foregoing instrument to be his
free act and deed.
Before me,
Notary Public
My commission expires:________
-7-
UNDERWRITING AGREEMENT
EXHIBIT A
(Revised October 5, 1996)
Portfolios:
1. Standish Intermediate Tax Exempt Bond Fund
2. Standish Small Cap Tax-Sensitive Equity Fund
3. Standish Tax-Sensitive Equity Fund
Effective: February 22, 1996
Portfolios:
4. Standish Equity Fund
5. Standish Fixed Income Fund
6. Standish Global Fixed Income Fund
7. Standish Small Capitalization Equity Fund
Effective: April 29, 1996
Portfolios:
8. Standish Controlled Maturity Fund
9. Standish Fixed Income Fund II
10. Standish International Fixed Income Fund
11. Standish International Equity Fund
12. Standish Massachusetts Intermediate Tax Exempt Bond Fund
13. Standish Securitized Fund
14. Standish Short-Term Asset Reserve Fund
Effective: May 1, 1996
Portfolios:
15. Standish Equity Asset Fund
16. Standish Fixed Income Asset Fund
17. Standish Global Fixed Income Asset Fund
18. Standish Small Capitalization Equity Asset Fund
Effective: June 26, 1996
Portfolios:
19. Standish Small Capitalization Equity Fund II
Effective: October 5, 1996
MASTER CUSTODY AGREEMENT
APPENDIX A
Standish Massachusetts Intermediate Tax Exempt Bond Fund
Standish Intermediate Tax Exempt Bond Fund
Standish International Fixed Income Fund
Standish Fixed Income Fund
Standish Short-Term Asset Reserve Fund
Standish Equity Fund
Standish Small Capitalization Equity Fund
Standish Securitized Fund
Standish Global Fixed Income Fund
Standish Controlled Maturity Fund
Standish Fixed Income Fund II
Standish Tax-Sensitive Equity Fund
Standish Small Cap Tax-Sensitive Equity Fund
Standish Equity Asset Fund
Standish Global Fixed Income Asset Fund
Standish Fixed Income Asset Fund
Standish Small Capitalization Equity Asset Fund
Standish Small Capitalization Equity Fund II
Standish International Equity Fund*
TRANSFER AGENCY AND SERVICE AGREEMENT
APPENDIX A
Standish Massachusetts Intermediate Tax Exempt Bond Fund
Standish Intermediate Tax Exempt Bond Fund
Standish International Fixed Income Fund
Standish Fixed Income Fund
Standish Short-Term Asset Reserve Fund
Standish Equity Fund
Standish Small Capitalization Equity Fund
Standish Securitized Fund
Standish Global Fixed Income Fund
Standish Controlled Maturity Fund
Standish Fixed Income Fund II
Standish Tax-Sensitive Equity Fund
Standish Small Cap Tax-Sensitive Equity Fund
Standish International Equity Fund
Standish Equity Asset Fund
Standish Global Fixed Income Asset Fund
Standish Fixed Income Asset Fund
Standish Small Capitalization Equity Asset Fund
Standish Small Capitalization Equity Fund II
ADMINISTRATIVE SERVICES AGREEMENT
EXHIBIT A
FUNDS
(Revised October 5, 1996)
1. Standish Equity Fund
2. Standish Global Fixed Income Fund
3. Standish Fixed Income Fund
4. Standish Small Capitalization Equity Fund
5. Standish Equity Asset Fund
6. Standish Global Fixed Income Asset Fund
7. Standish Fixed Income Asset Fund
8. Standish Small Capitalization Equity Asset Fund
9. Standish Small Capitalization Equity Fund II
APPENDIX A
Revised October 5, 1996
MASTER ADMINISTRATION AGREEMENT
between
STANDISH, AYER & WOOD INVESTMENT TRUST
and
INVESTORS BANK & TRUST COMPANY
Standish Massachusetts Intermediate Tax Exempt Bond Fund
Standish Intermediate Tax Exempt Bond Fund
Standish International Fixed Income Fund
Standish Fixed Income Fund
Standish Short-Term Asset Reserve Fund
Standish Equity Fund
Standish Small Capitalization Equity Fund
Standish Securitized Fund
Standish Global Fixed Income Fund
Standish Controlled Maturity Fund
Standish Fixed Income Fund II
Standish International Equity Fund
Standish Tax-Sensitive Equity Fund
Standish Small Cap Tax-Sensitive Equity Fund
Standish Equity Asset Fund
Standish Global Fixed Income Asset Fund
Standish Fixed Income Asset Fund
Standish Small Capitalization Equity Asset Fund
Standish Small Capitalization Equity Fund II
