Dated September 27, 1996
STANDISH, AYER & WOOD INVESTMENT TRUST
One Financial Center
Boston, Massachusetts 02111
(800) 421-4795
STATEMENT OF ADDITIONAL INFORMATION
Standish Equity Asset Fund
Standish Small Capitalization Equity Asset Fund
Standish Fixed Income Asset Fund
Standish Global Fixed Income Fund
This combined Statement of Additional Information is not a prospectus, but
expands upon and supplements the information contained in the combined
Prospectus dated September 20, 1996, as amended and/or supplemented from time to
time (the "Prospectus"), of Standish Equity Asset Fund ("Equity Fund"), Standish
Small Capitalization Equity Asset Fund ("Small Cap Fund"), Standish Fixed Income
Asset Fund ("Fixed Income Fund") and Standish Global Fixed Income Asset Fund
("Global Fixed Income Fund"), each a separate investment series of Standish,
Ayer & Wood Investment Trust (the "Trust"). The Equity Fund, Small Cap Fund,
Fixed Income Fund and Global Fixed Income Fund are sometimes referred to herein
individually as the "Fund" and collectively as the "Funds." This Statement of
Additional Information should be read in conjunction with the Funds' Prospectus,
a copy of which may be obtained without charge by writing or calling your
Account Administrator or the Trust's principal underwriter, Standish Fund
Distributors, L.P. (the "Principal Underwriter"), at the address and 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 Objectives and Policies...........................2
Investment Restrictions......................................8
Calculation of Performance Data.............................10
Management..................................................12
Service Plan................................................18
Redemption of Shares........................................19
Portfolio Transactions......................................19
Determination of Net Asset Value............................19
The Funds and Their Shares..................................20
The Portfolios and Their Interests..........................20
Taxation....................................................20
Additional Information......................................23
Experts and Financial Statements............................23
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INVESTMENT OBJECTIVE AND POLICIES
As described in the Prospectus, each Fund seeks to achieve its investment
objective by investing all of its investable assets in its corresponding
portfolio ("Portfolio"), each a series of Standish, Ayer & Wood Master Portfolio
(the "Portfolio Trust"), an open-end management investment company. Each
Portfolio has the same investment objective and restrictions as its
corresponding Fund.
The Funds and their corresponding Portfolios are as follows:
<TABLE>
<CAPTION>
Fund Portfolio
- ---- ---------
<S> <C>
Equity Fund Standish Equity Portfolio ("Equity Portfolio')
Small Cap Fund Standish Small Capitalization Equity Portfolio ("Small Cap Portfolio")
Fixed Income Fund Standish Fixed Income Portfolio ("Fixed Income Portfolio")
Global Fixed Income Fund Standish Global Fixed Income Portfolio ("Global Fixed Income Portfolio")
</TABLE>
The Prospectus describes the investment objective of each Fund and its
corresponding Portfolio and summarizes the investment policies they will follow.
Since the investment characteristics of each Fund relate directly to those of
its corresponding Portfolio, the following, which supplements the Prospectus, is
a discussion of the various investment techniques employed by the Portfolios.
See the Prospectus for a more complete description of the Funds' and the
Portfolios' investment objectives, policies and restrictions. Standish, Ayer &
Wood, Inc. ("Standish") is the investment adviser for the Equity, Small Cap and
Fixed Income Portfolios. Standish International Management Company, L.P.
("SIMCO") is the investment adviser for the Global Fixed Income Portfolio.
Standish and SIMCO are sometimes referred to herein as the "Adviser."
Money Market Instruments and Repurchase Agreements
As described in the Prospectus, the Portfolios may invest
all or a portion of their assets in money market instruments or short-term
interest-bearing securities for temporary defensive purposes or to maintain
liquidity for withdrawals. The Portfolios may also invest uncommitted cash in
such instruments and securities.
Money market instruments include short-term U.S. and foreign Government
securities, commercial paper (promissory notes issued by corporations to finance
their short-term credit needs), negotiable certificates of deposit,
non-negotiable fixed time deposits, bankers' acceptances and repurchase
agreements.
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.
<PAGE>
Investments in commercial paper will be rated "Prime-1" by Moody's
Investors Service, Inc. ("Moody's") or "A-1" by Standard & Poor's Ratings Group
("S&P") or Duff 1+ by Duff & Phelps, Inc. which are the highest ratings assigned
by these rating services (even if rated lower by one or more of the other
agencies), or which, if not rated or rated lower by one or more of the agencies
and not rated by the other agency or agencies, are judged by the Adviser to be
of equivalent quality to the securities so rated. In determining whether
securities are of equivalent quality, the Adviser may take into account, but
will not rely entirely on, ratings assigned by foreign rating agencies.
A repurchase agreement is an agreement under which a 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 Portfolios (including accrued
interest) must have an aggregate market value in excess of the resale price and
will be held by the Portfolio Trust's custodian bank until they are repurchased.
The Trustees of the Portfolio Trust will monitor the standards which the Adviser
will use in reviewing the creditworthiness of any party to a repurchase
agreement with the Portfolios.
The use of repurchase agreements involves certain risks. For example, if
the seller defaults on its obligation to repurchase the instruments acquired by
a 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 a 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 a 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
Each 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 or
fixed-income market movements), to manage the effective maturity or duration of
fixed-income securities, or to enhance potential gain. Such strategies are
generally accepted as part of modern portfolio management and are regularly
utilized by many mutual funds and other institutional investors. Techniques and
instruments used by the Portfolios may change over time as new instruments and
strategies are developed or regulatory changes occur.
<PAGE>
In the course of pursuing their investment objectives, the Portfolios may
purchase and sell (write) exchange-listed and over-the-counter put and call
options on securities, equity and fixed-income indices and other financial
instruments; purchase and sell financial futures contracts and options thereon;
enter into various interest rate transactions such as swaps, caps, floors or
collars; and enter into various currency transactions such as currency forward
contracts, currency futures contracts, currency swaps or options on currencies
or currency futures (collectively, all the above are called "Strategic
Transactions"). Strategic Transactions may be used in an attempt to protect
against possible changes in the market value of securities held in or to be
purchased by a Portfolio resulting from securities market or currency exchange
rate fluctuations, to protect a Portfolio's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of the Fixed Income and
Global Fixed Income Portfolios' holdings, 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 be used to enhance potential
gain in circumstances where hedging is not involved although each Portfolio will
attempt to limit its net loss exposure resulting from Strategic Transactions
entered into for such purposes to not more than 3% of its net assets at any one
time and, to the extent necessary, the Portfolios 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 a 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 anticipates that the Belgian franc will appreciate
relative to the French franc, the Global Fixed Income Portfolio may take a long
forward currency position in the Belgian franc and a short foreign currency
position in the French franc. Under such circumstances, any unrealized loss in
the Belgian franc position would be netted against any unrealized gain in the
French franc position (and vice versa) for purposes of calculating the Global
Fixed Income Portfolio's net loss exposure. The ability of the Portfolios to
utilize these Strategic Transactions successfully will depend on the Adviser's
ability to predict pertinent market movements, which cannot be assured. The
Portfolios will comply with applicable regulatory requirements when implementing
these strategies, techniques and instruments. The Portfolios' activities
involving Strategic Transactions may be limited in order to enable the Funds 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.
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
<PAGE>
they had not been used. The writing of put and call options may result in losses
to the Portfolios, 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 Portfolios can realize on their investments or cause
the Portfolios to hold a security they might otherwise sell. The use of currency
transactions can result in the Portfolios 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 a
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 a 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 Portfolios 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 Portfolios in
writing options on futures and entering into futures transactions is potentially
unlimited; however, as described above, each 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 each 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
the Fund's net asset value and the net result may be less favorable than if the
Strategic Transactions had not been utilized.
Collateralized Mortgage Obligations ("CMOs")
The Investment Company Act of 1940, as amended (the "1940 Act"), limits the
ability of one investment company to invest in the securities of another
investment company. The staff of the Securities and Exchange Commission (the
"SEC") takes the position that CMOs and certain other securitized assets are
investment companies for this purpose unless such issuers have complied with an
exemptive rule or have obtained orders from the SEC exempting them from all
provisions of the 1940 Act. The Fixed Income and Global Fixed Income Portfolios
intend to operate within the applicable limitations. See the Prospectus for a
further description of CMOs.
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
<PAGE>
greater detail below. In addition, many Strategic Transactions by a Portfolio
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, a 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. A 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 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 Portfolios are 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.
A 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.
<PAGE>
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 Portfolios
will generally sell (write) OTC options (other than OTC currency options) that
are subject to a buy-back provision permitting a 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 Portfolios do not do so, the OTC options are
subject to the Portfolios' restriction on illiquid securities.) The Portfolios
expect generally to enter into OTC options that have cash settlement provisions,
although they are not required to do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in the OTC option market. 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 a Portfolio or fails to make a cash settlement
payment due in accordance with the terms of that option, a 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 Portfolios 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 S&P or Moody's or an equivalent
rating from any other nationally recognized statistical rating organization
("NRSRO") or which issue debt that is determined to be of equivalent credit
quality by the Adviser. The staff of the Securities and Exchange Commission (the
"SEC") currently takes the position that, absent the buy-back provisions
discussed above, OTC options purchased by the Portfolios, and portfolio
securities "covering" the amount of the Portfolios' obligation pursuant to an
OTC option sold by them (the cost of the sell-back plus the in-the-money amount,
if any) are illiquid, and are subject to the Portfolios' limitation on investing
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 a 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.
<PAGE>
Each Portfolio may purchase and sell (write) call options on securities
including U.S. Treasury and agency securities, mortgage-backed securities (Fixed
Income and Global Fixed Income Portfolios only), corporate debt securities,
equity securities (including convertible securities) (Equity and Small Cap
Portfolios only) 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 Portfolios must
be "covered" (i.e., the Portfolios must own the securities or the futures
contract subject to the call) or must meet the asset segregation requirements
described below as long as the call is outstanding. Even though a Portfolio will
receive the option premium to help offset any loss, the Portfolio may incur a
loss if the exercise price is below the market price for the security subject to
the call at the time of exercise. A call sold by a Portfolio also 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.
Each Portfolio may purchase and sell (write) put options on securities
including U.S. Treasury and agency securities, mortgage-backed securities (Fixed
Income and Global Fixed Income Portfolios only), foreign sovereign debt,
corporate debt securities, equity securities (including convertible securities)
(Equity and Small Cap Portfolios only) and Eurodollar instruments (whether or
not it holds the above securities in its portfolio), and on securities indices,
currencies and futures contracts. A Portfolio will not sell put options if, as a
result, more than 50% of its 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 a
Portfolio may be required to buy the underlying security at a price above the
market price.
Options on Securities Indices and Other Financial Indices
Each 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 upon exercise
of the option. In addition to the methods described above, the Portfolios 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
<PAGE>
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 their portfolios.
General Characteristics of Futures
Each 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 and involve payment of
initial and variation margin as described below. The sale of futures contracts
creates a firm obligation by a 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 a Portfolio, as purchaser, to purchase a
financial instrument at a specific time and price. Options on futures contracts
are similar to options on securities except that an option on a futures contract
gives the purchaser the right in return for the premium paid to assume a
position in a futures contract and obligates the seller to deliver such position
upon exercise of the option.
The Portfolios' 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 Portfolios may use commodity futures and option
positions (i) for bona fide hedging purposes without regard to the percentage of
assets committed to margin and option premiums, or (ii) for other purposes
permitted by the SEC to the extent that the aggregate initial margin and option
premiums required to establish such non-hedging positions (net of the amount
that the positions were "in the money" at the time of purchase) do not exceed 5%
of the net asset value of each Portfolio's portfolio, after taking into account
unrealized profits and losses in such positions. Typically, maintaining a
futures contract or selling an option thereon requires the Portfolios to
deposit, with their custodian for the benefit of a futures commission merchant,
as security for their obligations an amount of cash or other specified assets
(initial margin) which initially is typically 1% to 10% of the face amount of
the contract (but may be higher in some circumstances). Additional cash or
assets (variation margin) may be required to be deposited directly with the
futures commission merchant thereafter on a daily basis as the value of the
contract fluctuates. The purchase of an option on financial futures involves
payment of a premium for the option without any further obligation on the part
of the Portfolios. If a Portfolio exercises an option on a futures contract it
will be obligated to post initial margin (and potential subsequent variation
margin) for the resulting futures position just 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.
<PAGE>
Currency Transactions
Each Portfolio may engage in currency transactions with Counterparties to
seek to hedge the value of portfolio holdings denominated in particular
currencies against fluctuations in relative value or to enhance potential gain.
Currency transactions include 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. A 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 an NRSRO or (except for OTC
currency options) whose obligations are determined to be of equivalent credit
quality by the Adviser.
The Portfolios' 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.
A 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.
Each 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, a
Portfolio may hold a French government bond and the Adviser may believe that
French francs will deteriorate against German marks. A 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 Portfolios may also engage in
proxy hedging. Proxy hedging is often used when the currency to which a
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
<PAGE>
currency whose changes in value are generally considered to be linked to a
currency or currencies in which certain of a 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 a Portfolio's securities denominated
in linked currencies. For example, if the Adviser considers that the Austrian
schilling is linked to the German deutsche mark (the "D-mark"), a 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 Portfolios 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 Portfolios are engaging in proxy hedging. If a
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 exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to the
Portfolios if they are unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges they have 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
Each 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.
<PAGE>
Swaps, Caps, Floors and Collars
Among the Strategic Transactions into which each of the Portfolios may
enter are interest rate, currency and index swaps and the purchase or sale of
related caps, floors and collars. The Portfolios expect 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 their
portfolios, protecting against currency fluctuations, as a duration management
technique or protecting against an increase in the price of securities the
Portfolios anticipate 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, each 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 its net assets at any one time. A 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 a 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 Portfolios 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 a Portfolio receiving or paying, as the case
may be, only the net amount of the two payments. The Portfolios 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, a
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
<PAGE>
of each 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 collars. The
Board of Trustees, however, retains oversight focusing on factors such as
valuation, liquidity and availability of information and is ultimately
responsible for such determinations. The Staff of the SEC currently takes the
position that swaps, caps, floors and collars are illiquid, and are subject to
each Portfolio's limitation on investing in illiquid securities.
Eurodollar Contracts
Each Portfolio may make investments in Eurodollar contracts. Eurodollar
contracts are U.S. dollar-denominated futures contracts or options thereon which
are linked to the London Interbank Offered Rate ("LIBOR"), although foreign
currency-denominated instruments are available from time to time. Eurodollar
futures contracts enable purchasers to obtain a fixed rate for the lending of
funds and sellers to obtain a fixed rate for borrowings. The Portfolios 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 a 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
Each Portfolio will hold securities or other instruments whose values are
expected to offset their obligations under the Strategic Transactions. The
Portfolios will cover Strategic Transactions as required by interpretive
positions of the SEC. A 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 securities
with a value sufficient to cover its potential obligations. The Portfolios 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 their custodian bank in the amount prescribed. In that
<PAGE>
case, a 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
applicable Portfolio's obligation 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. As a
result, there is a possibility that segregation of a large percentage of a
Portfolio's assets could impede portfolio management or a Portfolio's ability to
meet redemption requests or other current obligations.
"When-Issued" and "Delayed Delivery" Securities
The Fixed Income and Global Fixed Income Portfolios may commit up to 15%
and 25%, respectively, of their net assets to purchase securities on a
"when-issued" or "delayed delivery" basis, which means that delivery and payment
for the securities will normally take place 15 to 45 days after the date of the
transaction. The payment obligation and interest rate on the securities are
fixed at the time a Portfolio enters into the commitment, but interest will not
accrue to the Portfolio until delivery of and payment for the securities.
Although the Fixed Income and Global Fixed Income Portfolios will only make
commitments to purchase "when-issued" and "delayed delivery" securities with the
intention of actually acquiring the securities, the Portfolios may sell the
securities before the settlement date if deemed advisable by the Adviser.
Unless a Portfolio has entered into an offsetting agreement to sell the
securities, cash or liquid obligations with a market value equal to the amount
of the Portfolio's commitments will be segregated with the Portfolios' custodian
bank. If the market value of these securities declines, additional cash or
securities will be segregated daily so that the aggregate market value of the
segregated securities equals the amount of the Portfolio's commitments.
Securities purchased on a "when-issued" and "delayed delivery" basis may
have a market value on delivery which is less than the amount paid by the
Portfolio. Changes in market value may be based upon the public's perception of
the creditworthiness of the issuer or changes in the level of interest rates.
Generally, the value of "when-issued" securities will fluctuate inversely to
changes in interest rates, i.e., they will appreciate in value when interest
rates fall and will decline in value when interest rates rise.
Portfolio Turnover
It is not the policy of any Portfolio to purchase or sell securities for
trading purposes. However, the Portfolios are not subject to any restriction on
portfolio turnover and may sell any portfolio security without regard to the
period of time it has been held, except as may be necessary to enable the Funds
to maintain their status as regulated investment companies under the Code. The
Portfolios may therefore generally change their portfolio investments at any
time in accordance with the Adviser's appraisal of factors affecting any
<PAGE>
particular issuer or market, or relevant economic conditions. The portfolio
turnover rates for Equity, Small Cap, Fixed Income and Global Fixed Income
Portfolios are not expected to exceed 200%, 150%, 200% and 250%, respectively,
on an annual basis. A rate of turnover of 100% would occur if the value of the
lesser of purchases and sales of portfolio securities for a particular year
equaled the average monthly value of portfolio securities owned during the year
(excluding short-term securities). A high rate of portfolio turnover (100% or
more) involves a correspondingly greater amount of brokerage commissions and
other costs which must be borne directly by the Portfolios and thus indirectly
by the Funds and their shareholders. It may also result in the realization of
larger amounts of net short-term capital gains, which (when allocated to and
distributed by the Funds) are taxable to the Funds' shareholders as ordinary
income and may, under certain circumstances, make it more difficult for the
Funds to qualify as regulated investment companies under the Code.
INVESTMENT RESTRICTIONS
Each Fund and Portfolio has adopted certain fundamental and non-fundamental
policies. A Fund's and a 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 that Fund or
Portfolio present at a meeting, if the holders of more than 50% of the
outstanding voting securities of that Fund or Portfolio are present or
represented by proxy, or (ii) more than 50% of the outstanding voting securities
of that Fund or Portfolio.
As a matter of fundamental policy, each Portfolio (Fund) may not:
1. Invest more than 25% of the current value of their total assets in any
single industry, provided that this restriction shall not apply to (a)
U.S. Government securities with respect to the Equity Portfolio (Fund)
and Small Cap Portfolio (Fund) only, (b) U.S. Government securities,
including mortgage pass-through securities (GNMAs) with respect to the
Fixed Income Portfolio (Fund) only and (c) debt securities issued or
guaranteed by the United States Government or its agencies or
instrumentalities with respect to Global Fixed Income Portfolio (Fund)
only.
2. Underwrite the securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, a Portfolio
(Fund) may be deemed to be an underwriter under the Securities Act of
1933.
3. Purchase real estate or real estate mortgage loans.
4. Purchase securities on margin (except that each Portfolio (Fund) may
obtain such short-term credits as may be necessary for the clearance of
purchases and sales of securities).
5. Purchase or sell commodities or commodity contracts except that each
Portfolio (Fund) may purchase and sell financial futures contracts and
engage in options on financial futures contracts and foreign currency
exchange transactions.
<PAGE>
6. With respect to at least 75% (50% in the case of Global Fixed Income
Portfolio and Fund only) of its total assets, invest 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.
7. Issue senior securities, borrow money, enter into reverse repurchase
agreements or pledge or mortgage its assets, except that each Portfolio
(Fund) may (a) borrow from banks in an amount up to 15% of the current
value of its total assets as a temporary measure for extraordinary or
emergency purposes (but not investment purposes), (b) pledge its assets
to an extent not greater than 15% of the current value of its total
assets to secure such borrowings and (c) with respect to Fixed Income
Portfolio (Fund) and Global Fixed Income Portfolio (Fund) only, enter
into forward roll transactions.
8. Make loans of portfolio securities, except that (a) each Portfolio
(Fund) may enter into repurchase agreements, (b) the Fixed Income
Portfolio (Fund) (i) may lend portfolio securities in accordance with
the Fund's investment policies up to 33-1/3% of the Portfolio's total
assets taken at market value and (ii) purchase all or a portion of an
issue of debt securities, bank loan participation interests, bank
certificates of deposit, banker's acceptances, debentures or other
securities, whether or not the purchase is made upon the original
issuance of securities and (c) the Global Fixed Income Portfolio (Fund)
may lend its portfolio securities with a value up to 20% of its total
assets (with a 10% limit for any borrower).
Notwithstanding the foregoing, each 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 management
investment company with substantially the same investment objective as that
particular Fund.
The following restrictions are not fundamental policies and may be changed
by the Trustees of the Portfolio Trust (Trust) without investor approval
(shareholder), in accordance with applicable laws, regulations or regulatory
policy. Each Portfolio (Fund) may not:
a. Make short sales of securities unless (a) after effect is given to any
such short sale, the total market value of all securities sold short
would not exceed 5% of the value of the Portfolio's (Fund's) net assets
or (b) at all times during which a short position is open it owns an
equal amount of such securities, or by virtue of ownership of
convertible or exchangeable securities it has the right to obtain
through the conversion or exchange of such other securities an amount
equal to the securities sold short.
b. Invest in companies for the purpose of exercising control or management.
c. Purchase securities of any other investment company, provided that the
Portfolio (Fund) may make such a purchase as a part of a merger,
consolidation or acquisition of assets, and provided further that the
Portfolio (Fund) may make such a purchase in the open market where no
commission or profit to a sponsor or dealer results from the purchase,
other than customary broker's commissions, and then only to the extent
permitted by the 1940 Act.
<PAGE>
d. Purchase or write options, except as described under "Strategic
Transactions."
e. Invest in interests in oil, gas or other exploration or development
programs.
f. Invest more than 5% of the assets of the Portfolio (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, other than debt securities issued or
guaranteed by the U.S. or foreign national, provincial, state or other
governments with taxing authority or by their agencies or by
supranational entities and securities fully collateralized by such
securities.
g. Invest in securities of any company if any officer or director (trustee)
of the Portfolio Trust (Trust) or of the Portfolios' investment adviser
owns more than 1/2 of 1% 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. Invest more than an aggregate of 15% of the net assets of the Portfolio
(Fund) in (a) repurchase agreements that are not terminable within seven
days, (b) securities subject to legal or contractual restrictions on
resale or for which there are no readily available market quotations and
(c) in other illiquid securities, including nonnegotiable fixed time
deposits.
i. Invest more than 10% of its total assets in securities of issuers which
may not be publicly resold without registration under the Securities Act
of 1933.
j. Invest more than 10% (Equity Fund and Portfolio), 10% (Small Cap Fund
and Portfolio), 5% (Fixed Income Fund and Portfolio) and 25% (Global
Fixed Income Fund and Portfolio) of its net assets in repurchase
agreements.
k. Make any additional investments while its outstanding borrowings (bank
borrowings with respect to the Fixed Income Fund and Portfolio) exceed
5% of the current value of its total assets.
l. Invest more than 5% of its total assets in puts, calls, straddles,
spreads, or any combination thereof (other than protective puts).
Notwithstanding any non-fundamental policy, each 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 management investment
company with substantially the same investment objective as the Funds.
Purchases of securities of other investment companies permitted under
restriction (c) above (other than in accordance with the policy of the Funds set
forth in the immediately preceding paragraph) could cause the Portfolios (Funds)
to pay additional advisory fees and distribution fees.
<PAGE>
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 a Portfolio'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 Funds in certain states, the
Boards of Trustees of the Trust and the Portfolio Trust may, in their sole
discretion, adopt restrictions on investment policy more restrictive than those
described above. Should the applicable Board of Trustees determine that any such
more restrictive policy is no longer in the best interest of a Fund and its
shareholders or a Portfolio and its interest-holders, as the case may be, the
Fund may cease offering shares in the state involved and the Boards may revoke
such restrictive policy. Moreover, if the states involved shall no longer
require any such restrictive policy, the Boards may, in their sole discretion,
revoke such policy.
CALCULATION OF PERFORMANCE DATA
As indicated in the Prospectus, each Fund may, from time to time, advertise
certain total return information. The average annual total return of a 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 Funds ("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.
The yield of the Fixed Income and Global Fixed Income Funds is computed by
dividing the net investment income per share earned during the period stated in
the advertisement by the maximum offering price per share on the last day of the
period. For the purpose of determining net investment income, the calculation
includes, among expenses of the Fixed Income and Global Fixed Income Funds, all
recurring fees that are charged to all shareholder accounts and any
non-recurring charges for the period stated. In particular, yield is determined
according to the following formula:
Yield = 2 [((a-b/CD) + 1)^6 - 1]
Where: A equals dividends and interest earned during the period; B equals
net expenses accrued for the period; C equals average daily number of shares
outstanding during the period that were entitled to receive dividends; D equals
the maximum offering price per share on the last day of the period.
The Fixed Income and Global Fixed Income Funds may also quote
non-standardized yield, such as yield-to-maturity ("YTM"). YTM represents the
rate of return an investor will receive if a long-term, interest bearing
investment, such as a bond, is held to its maturity date. YTM does not take into
account purchase price, redemption value, time to maturity, coupon yield, and
the time between interest payments.
<PAGE>
Each 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 performance. In particular, the Equity and the
Small Cap Funds may compare their performance to 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 U.S. securities markets; the Small Cap
Fund may also compare its performance to the Russell 2000 Index, which is
generally considered to be representative of unmanaged small capitalization
stocks in the U.S. securities markets; the Fixed Income Fund may compare its
performance to the Lehman Government/Corporate Index, which is generally
considered to be representative of the performance of all domestic,
dollar-denominated, fixed rate, investment grade bonds, and to the Lehman
Brothers Aggregate Index which is composed of securities from the Lehman
Brothers Government/Corporate Bond Index, Mortgage Backed Securities Index and
Yankee Bond Index, and is generally considered to be representative of all
unmanaged, domestic, dollar-denominated, fixed rate, investment grade bonds; and
the Global Fixed Income Fund may compare its performance to J.P. Morgan Global
Index, which is generally considered to be representative of the performance of
fixed rate, domestic government bonds from 11 countries. Comparative performance
may also be expressed by reference to rankings prepared by a mutual fund
monitoring services or by one or more newspapers, newsletters or financial
periodicals. Performance comparisons may be useful to investors who wish to
compare the Funds' past performance to that of other mutual funds and investment
products. Of course, past performance is not a guarantee of future results.
Each Fund is newly organized and has no operating or performance history.
However, other funds in the Standish, Ayer & Wood Group of Funds currently
invest all of their investable assets in the Portfolios. These funds, which have
substantially the same investment objectives, policies and restrictions as their
corresponding Portfolios and Funds, are: Standish Equity Fund with respect to
the Equity Portfolio; Standish Fixed Income Fund with respect to the Fixed
Income Portfolio; Standish Global Fixed Income Fund with respect to the Global
Fixed Income Portfolio; and Standish Small Capitalization Equity Fund with
respect to the Small Cap Portfolio. Each of these funds is referred to in this
Statement of Additional Information as a "corresponding fund." In accordance
with positions expressed by the staff of the SEC, each Fund has adopted the
performance record of its corresponding fund for periods prior to each Fund's
commencement of operations. Any quotation of performance data of a Fund relating
to these periods will include the performance record for its corresponding fund
for these periods. However, because each Fund incurs a service fee payable at
the annual rate equal up to 0.25% of such Fund's average daily net assets, which
service fee is not incurred by its corresponding fund, such quotation of
performance will be adjusted downward to reflect the imposition of such service
fee. In addition, to the extent that the net assets of a Fund are lower than the
net assets of its corresponding fund, fixed expenses incurred by a Fund would be
higher as a percentage of average net assets than for the corresponding fund.
See "Management" and "Service Plan" below in this Statement of Additional
Information for a description of the Funds' expenses. The corresponding funds'
<PAGE>
performance records adopted by the Funds' have not been adjusted to reflect any
higher relative expenses, other than the service fees, expected to be incurred
by the Funds. The Funds' performance would be lower if adjusted to reflect any
higher relative additional expenses.
In addition to average annual return quotations, each Fund may quote as its
own the quarterly and annual performance record of the corresponding fund on a
net (with management fees deducted) and gross basis as follows:
Equity Fund
The average annual total return quotations for the Fund (which includes the
performance record of Standish Equity Fund adjusted to reflect the imposition of
service fees at the rate of 0.25% of average daily net assets) for the one-year
period ended December 31, 1995, and since inception of Standish Equity Fund
(January 2, 1991) to December 31, 1995 are 37.22% and 18.19%, respectively.
Small Cap Fund
The average annual total return quotations for the Fund (which includes the
performance record of Standish Small Capitalization Equity Fund adjusted to
reflect the imposition of service fees at the rate of 0.25% of average daily net
assets) for the one-year and five-year periods ended December 31, 1995 and since
inception of Standish Small Capitalization Equity Fund (September 1, 1990) to
December 31, 1995 are 29.51%, 23.41% and 18.61%, respectively.
Fixed Income Fund
The average annual total return quotations for the Fund (which includes the
performance record of Standish Fixed Income Fund adjusted to reflect the
imposition of service fees at the rate of 0.25% of average daily net assets) for
the one-year and five-year periods ended December 31, 1995 are 18.25% and 9.93%,
<PAGE>
respectively, and since inception of Standish Fixed Income Fund (March 27, 1987)
to December 31, 1995) is 9.18%. The Fund's average annualized yield (which
includes the performance record of Standish Fixed Income Fund adjusted to
reflect the imposition of service fees at the rate of 0.25% of average daily net
assets) for the 30-day period ended June 30, 1996 was 7.16%.
Global Fixed Income Fund
The average annual total return quotation for the Fund (which includes the
performance record of Standard Global Fixed Income Fund adjusted to reflect the
imposition of service fees at the rate of 0.25% of average daily net assets) for
the one-year period ended December 31, 1995 was 17.84%. The average total return
quotation for the Fund (which includes the performance of Standish Global Fixed
Income Fund) for the period January 3, 1994 (commencement of operation of
Standish Global Fixed Income Fund) through December 31, 1995 was 4.51%. The
Fund's average annualized yield (which includes the performance record of
Standish Global Fixed Income Fund adjusted to reflect the imposition of service
fees at the rate of 0.25% of average daily net assets) for the 30-day period
ended June 30, 1996 was 6.58%.
The past performance of the Funds or the corresponding funds is no
guarantee, and is not necessarily indicative, of the future performance of the
Funds. The Funds' actual performance may differ significantly from the past and
future performance of the corresponding funds.
<PAGE>
MANAGEMENT
Trustees and Officers of the Trust and 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 employees of Standish, Ayer & Wood, Inc.
<TABLE>
<CAPTION>
Name, Address and Date of Birth Position Held Principal Occupation
With Trust During Past 5 Years
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
*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 Company
Beverly Farms, MA 01915
*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.
<PAGE>
Name, Address and Date of Birth Position Held Principal Occupation
With Trust 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
David W. Murray, 5/5/40 Treasurer and Secretary Vice President, Treasurer and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Treasurer,
Boston, MA 02111 Standish International Management Company, L.P.
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 02111
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 Officer,
Boston, MA 02111 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
Boston, MA 02111 Standish International 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
<PAGE>
Name, Address and Date of Birth Position Held Principal Occupation
With Trust During Past 5 Years
- --------------------------------------------------------------------------------------------------------------------
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
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,
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, Inc.
c/o Standish, Ayer & Wood, Inc. since November 1993; formerly, Investment Sales,
One Financial Center Cigna Corporation (1993) and
Boston, MA 02111 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
<PAGE>
Name, Address and Date of Birth Position Held Principal Occupation
With Trust During Past 5 Years
- --------------------------------------------------------------------------------------------------------------------
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
Boston, MA 02111 Standish International Management Company, L.P.
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, 1993;
One Financial Center 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, since November 2, 1993;
c/o Standish, Ayer & Wood, Inc. formerly, Standish, Ayer & Wood, Inc. Consultant
One Financial Center Cambridge Associates
Boston, MA 02111
David C. Stuehr, 3/1/58 Vice President Vice President,
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, 1990;
One Financial Center formerly Vice President, Aetna Life & Casualty
Boston, MA 02111 President and Director,
Standish International Management Company, L.P.
<PAGE>
Name, Address and Date of Birth Position Held Principal Occupation
With Trust During Past 5 Years
- --------------------------------------------------------------------------------------------------------------------
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
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
*Indicates that Trustee is an interested person of the Trust for purposes of the 1940 Act.
</TABLE>
Compensation of Trustees and Officers
Each of the Trust and the Portfolio Trust pays no compensation to their
Trustees affiliated with Standish, or to their 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 during the year ended December 31, 1995.
<PAGE>
The following table estimates the compensation to be paid to the Trust's
Trustees by the Funds during their initial fiscal years ending December 31,
1996:
Estimated Aggregate Compensation from the
<TABLE>
<CAPTION>
Total
Pension or Compensation
Small Fixed Global Fixed Retirement Benefits from Funds and
Equity Cap Income Income Accrued as Part of Other Funds in
Name of Trustee Fund** Fund** Fund** Fund** Funds's Expenses Complex*
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
D. Barr Clayson $0 $0 $0 $0 $0 $0
Samuel C. Fleming 6 4 6 4 0 41,771
Benjamin M. Friedman 6 4 6 4 0 36,769
John H. Hewitt 6 4 6 4 0 36,769
Edward H. Ladd 0 0 0 0 0 0
Caleb Loring, III 6 4 6 4 0 36,769
Richard S. Wood 0 0 0 0 0 0
</TABLE>
* As of the date of this Statement of Additional Information there were 18 funds
in the fund complex. ** Estimated. The Funds are newly organized and as of the
date of this Statement of Additional Information the Funds have not paid any
compensation to the Trustees.
Certain Shareholders
As of the date of this Statement of Additional Information, the Trustees
and officers of the Trust and the Portfolios as a group beneficially owned
(i.e., had voting and/or investment power with respect to) less than 1% of the
then outstanding shares of each Fund.
Investment Adviser of the Portfolio Trust
Standish, Ayer & Wood, Inc. serves as the Adviser to the Equity, Small Cap
and Fixed Income Portfolios pursuant to separate investment advisory agreements
with the Portfolio Trust. Standish is a Massachusetts corporation incorporated
in 1993. Standish International Management Company, L.P. serves as the Adviser
to the Global Fixed Income Portfolio pursuant to a written investment advisory
agreement with the Portfolio Trust. Prior to the close of business on May 3,
1996, the Adviser managed the assets contributed to the Portfolios pursuant to
separate investment advisory agreements with the series of the Trust that became
initial interest-holders in the Portfolios. SIMCO is a Delaware limited
partnership organized in 1991 and is registered under the Investment Advisers
Act of 1940. The General Partner of SIMCO is Standish which holds a 99.98%
partnership interest. The Limited Partners of SIMCO, who each holds a 0.01%
interest, are Walter M. Cabot, Sr., a Director of and a Senior Adviser to SIMCO
and Standish, and D. Barr Clayson, Chairman of the Board of SIMCO and a Managing
Director of Standish. Ralph S. Tate, a Vice President, Director and Managing
Director of Standish, is the President of SIMCO. Richard S. Wood, a Vice
President, Director and Managing Director of Standish and the President of the
Trust, is the Executive Vice President of SIMCO.
<PAGE>
The following, constituting all of the Directors and all of the
shareholders of Standish, are Standish's controlling persons: Caleb F. Aldrich,
Nicholas S. Battelle, Walter M. Cabot, David H. Cameron, Karen K. Chandor, D.
Barr Clayson, Richard C. Doll, Dolores S. Driscoll, Mark A. Flaherty, Maria
O'Malley 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 investment advisory
agreements are described in the Prospectus. These services are provided without
reimbursement by the Portfolios for any costs incurred. Under each investment
advisory agreement, the Adviser is paid a fee based upon a percentage of a
Portfolio's average daily net asset value computed as described in the
Prospectus. The fee is paid monthly. The rate at which the fee is paid and
expense limits agreed to by the Adviser and Standish are described in the
Prospectus.
Pursuant to the investment advisory agreements, each Portfolio bears the
expenses of its operations other than those incurred by the Adviser pursuant to
the investment advisory agreement. Among other expenses, each Portfolio will pay
share pricing expenses; custodian fees and expenses; administration fees; legal
and auditing fees and expenses; expenses of notices and reports to interest
holders; registration and reporting fees and expenses; and Trustees' fees and
expenses.
Unless terminated as provided below, each investment advisory agreement
continues in full force and effect until April 26, 1998 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 applicable
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. Each
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 applicable Portfolio or
by the Adviser, on sixty days' written notice to the other party. The investment
advisory agreements terminate in the event of their assignment as defined in the
1940 Act.
In an attempt to avoid any potential conflict with portfolio transactions
for the Portfolios, 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 Funds and their
shareholders, and the Portfolios and their investors, come before those of the
Adviser, its affiliates and their employees.
<PAGE>
Administrator of the Funds
Standish serves as the administrator to each Fund (the "Funds'
Administrator") pursuant to a written administration agreement with the Trust on
behalf of the Funds. Certain services provided by the Funds' Administrator under
the administration agreement are described in the Prospectus. For these
services, the Funds' Administrator currently does not receive any additional
compensation. The Trustees of the Trust may, however, determine in the future to
compensate the Funds' Administrator for its administrative services. The
administration agreement provides that if the total expenses of the Funds and
the Portfolios in any fiscal year exceed the most restrictive expense limitation
applicable to the Funds in any state in which shares of the Funds are then
qualified for sale, the compensation due the Funds' 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 Funds' 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 Funds' administration agreements can be terminated by either party on
not more than sixty days' written notice.
Administrator of the Portfolios
IBT Trust Company (Cayman) Ltd., P.O. Box 501 Grand Cayman, Cayman Islands,
BWI, serves as the administrator to the Portfolios (the "Portfolios'
Administrator") pursuant to a written administration agreement with the
Portfolio Trust on behalf of the Portfolios. The Portfolios' Administrator
provides the Portfolio Trust with office space for managing its affairs, and
with certain clerical services and facilities. For these services, the
Portfolios' Administrator currently receives a fee from each Portfolio in the
amount of $7,500 annually.
The Portfolios' 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 shares of the
Funds. 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
shares of the Funds 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 shares of the Funds. The
Principal Underwriter receives no commissions or other compensation for its
services, and has not received any such amounts in any prior year. The
Underwriting Agreement shall continue in effect with respect to the Funds 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 Funds' 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
<PAGE>
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 each 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.
SERVICE PLAN
The Trust, with respect to each Fund, has adopted a service plan (the
"Service Plan").
Each Service Plan provides that a Fund may compensate entities ("Account
Administrators") that provide omnibus accounting services for groups of
individuals who beneficially own Fund shares ("Omnibus Accounts") for providing
certain personal, account administration and/or shareholder liaison services to
participants in the Omnibus Accounts. Pursuant to the Service Plan, the Funds
may enter into agreements with Account Administrators which purchase shares of
the Funds ("Service Agreements"). Under such Service Agreements or otherwise,
Account Administrators may perform some or all of the following services: (a)
establishing and maintaining Omnibus Accounts with the Funds; (b) establishing
and maintaining subaccounts and subaccount balances for Omnibus Accounts and
their participants ("Participants"); (c) processing orders by Omnibus Accounts
and Participants to purchase, redeem and exchange Fund shares promptly and in
accordance with the effective prospectus relating to such shares; (d)
transmitting to each Fund (or its agent) on each Business Day (as defined below)
a net subscription or net redemption order reflecting subscription, redemption
and exchange orders received by it with respect to the Omnibus Accounts; (e)
receiving and transmitting funds representing the purchase price or redemption
proceeds relating to such orders; (f) mailing Fund prospectuses, statements of
additional information, periodic reports, transaction confirmations and
subaccount information to Omnibus Accounts and Participants; (g) answering
Omnibus Account and Participant inquiries about the Funds, subaccount balances,
distribution options and such other administrative services for the Omnibus
Account and the Participants as provided for in the service agreements between
the Account Administrator and the Omnibus Account; and (h) providing such
statistical and other information as may be reasonably requested by the Funds or
necessary for the Funds to comply with applicable federal or state laws.
As compensation for such services, the Funds may pay each Account
Administrator a service fee in an amount up to 0.25% (on an annualized basis) of
the Fund's average daily net assets attributable to Fund shares that are
attributable to or held in the name of such Account Administrator. Account
Administrators may from time to time be required to meet certain other criteria
in order to receive service fees.
<PAGE>
In accordance with the terms of the Service Plan, Standish provides to the
Trust for review by the Trustees a quarterly written report of the amounts
expended under the Service Plan and the purpose for which such expenditures were
made. In the Trustees' quarterly review of the Service Plan, they will consider
the continued appropriateness and the level of compensation that the Service
Plan provides.
Conflict of interest restrictions (including the Employee Retirement Income
Security Act of 1974 ("ERISA")) may apply to an Account Administrator's receipt
of compensation paid by the Funds in connection with the investment of fiduciary
assets in Fund shares. Account Administrators that are subject to the
jurisdiction of the SEC, the Department of Labor or state securities
commissions, are urged to consult legal advisers before investing fiduciary
assets in Fund shares and receiving service fees.
The Trust believes that fiduciaries of ERISA plans may properly receive
fees under the Service Plan if the plan fiduciary otherwise properly discharges
its fiduciary duties, including (if applicable) those under ERISA. Under ERISA,
a plan fiduciary, such as a trustee or investment manager, must meet the
fiduciary responsibility standards set forth in part 4 of Title I of ERISA.
These standards are designed to help ensure that the fiduciary's decisions are
made in the best interests of the plan and are not colored by self-interest.
Section 403(c)(1) of ERISA provides, in part, that the assets of a plan
shall be held for the exclusive purpose of providing benefits to the plan's
participants and their beneficiaries and defraying reasonable expenses of
administering the plan. Section 404(a)(1) sets forth a similar requirement on
how a plan fiduciary must discharge his or her duties with respect to the plan,
and provides further that such fiduciary must act prudently and solely in the
interest of the participants and beneficiaries. These basic provisions are
supplemented by the per se prohibitions of certain classes of transactions set
forth in Section 406 of ERISA.
Section 406(a)(1)(D) of ERISA prohibits a fiduciary of an ERISA plan from
causing that plan to engage in a transaction if he knows or should know that the
transaction would constitute a direct or indirect transfer to, or use by or for
the benefit of, a party in interest, of any assets of that plan. Section 3(14)
includes, within the definition of "party in interest" with respect to a plan,
any fiduciary with respect to that plan. Thus, Section 406(a)(1)(D) would not
only prohibit a fiduciary from causing the plan to engage in a transaction which
would benefit a third person who is a party in interest, but it also would
prohibit the fiduciary from similarly benefiting himself. In addition, Section
406(b)(1) specifically prohibits a fiduciary with respect to a plan from dealing
with the assets of that plan in his own interest or for his own account. Section
406(b)(3) supplements these provisions by prohibiting a plan fiduciary from
receiving any consideration for his own personal account from any party dealing
with the plan in connection with a transactions involving the assets of the
plan.
In accordance with the foregoing, however, a fiduciary of an ERISA plan may
properly receive service fees under the Service Plan if the fees are used for
the exclusive purpose of providing benefits to the plan's participants and their
beneficiaries or for defraying reasonable expenses of administering the plan for
<PAGE>
which the plan would otherwise be liable. See, e.g., Department of Labor ERISA
Technical Release No. 86-1 (stating a violation of ERISA would not occur where a
broker-dealer rebates commission dollars to a plan fiduciary who, in turn,
reduces its fees for which the plan is otherwise responsible for paying.). Thus,
the fiduciary duty issues involved in a plan fiduciary's receipt of the service
fee must be assessed on a case-by-case basis by the relevant plan fiduciary.
REDEMPTION OF SHARES
Detailed information on redemption of shares is included in the Prospectus.
The Trust may suspend the right to redeem shares of any Fund 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 of
securities owned by the Fund's corresponding Portfolio or determination by the
Fund's corresponding 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 particular Fund.
The Trust intends to pay in cash for all Fund shares redeemed but, under
certain conditions, the Trust may make payment wholly or partly in portfolio
securities from the applicable Portfolios in conformity with a 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 a Fund's obligation to make cash redemption payments to each 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 Portfolios
have advised the Trust that the Portfolios will not redeem in-kind except in
circumstances in which the Funds are permitted to redeem in-kind or except in
the event that a Fund completely withdraws its interest from a Portfolio.
PORTFOLIO TRANSACTIONS
The Adviser is responsible for placing each Portfolio's portfolio
transactions and will do so in a manner deemed fair and reasonable to the
Portfolios 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 Funds. 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 Portfolios may pay commissions to such broker in an
amount greater than the amount another firm may charge. Research services may
include (i) furnishing advice as to the value of securities, the advisability of
<PAGE>
investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities, (ii) furnishing analyses and
reports concerning issuers, industries, securities, economic factors and trends,
portfolio strategy, and the performance of accounts, and (iii) effecting
securities transactions and performing functions incidental thereto (such as
clearance, settlement and custody). Research services furnished by firms through
which the Portfolios effect their 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 Portfolios. The investment advisory fee paid
by the Portfolios under the investment advisory agreements 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 a 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 Portfolios. 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
Each Fund's net asset value per share is computed each day on which the New
York Stock Exchange is open (a "Business Day") as of the close of regular
trading (currently 4:00 p.m., New York City time). Currently, the New York Stock
Exchange is not open 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 a Fund's shares 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 its corresponding Portfolio) less all
liabilities by the number of Fund shares outstanding, and rounding to the
nearest cent per share. Expenses and fees of the Funds are accrued daily and
taken into account for the purpose of determining net asset value.
The value of each 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 its corresponding Fund is determined. Each investor in the Portfolios,
including the Funds, may add to or reduce its investment in the Portfolios on
each Business Day. As of 4:00 p.m. (Eastern time) on each Business Day, the
value of each investor's interest in a 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)
<PAGE>
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.
THE FUNDS AND THEIR SHARES
Each Fund is a separate 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 each Fund. Each share of a Fund 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 any 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
Funds. 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 any of the Funds.
All Fund shares have equal rights with regard to voting, and shareholders
of a 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
investment series 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 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.
<PAGE>
Except as described below, whenever the Trust is requested to vote on a
fundamental policy of or matters pertaining to any Portfolio, the Trust will
hold a meeting of the corresponding 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 any 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 Trust would not request a vote of Fund shareholders
with respect to (a) any proposal relating to a Portfolio, which proposal, if
made with respect to a Fund, would not require the vote of the shareholders of
the Fund, or (b) any proposal with respect to a Portfolio that is identical in
all material respects to a proposal that has previously been approved by
shareholders of the corresponding Fund. Any proposal submitted to holders in a
Portfolio, and that is not required to be voted on by shareholders of the
corresponding Fund, would nonetheless be voted on by the Trustees of the Trust.
THE PORTFOLIOS AND THEIR INTERESTS
Each Portfolio is a series of Standish, Ayer & Wood Master Portfolio, which
like the Funds, is an open-end management investment company under the 1940 Act.
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 Portfolios have no preemptive or conversion rights, and
are fully paid and non-assessable, except as set forth in the Prospectus. The
Portfolios normally will not hold meetings of holders of such interests except
as required under the 1940 Act. The Portfolios would be required to hold a
meeting of holders in the event that at any time less than a majority of the
Trustees of the Portfolio Trust holding office had been elected by holders. The
Trustees of the Portfolio Trust continue to hold office until their successors
are elected and have qualified. Holders holding a specified percentage of
interests in the Portfolio Trust may call a meeting of holders in the Portfolio
Trust for the purpose of removing any Trustee. Trustees of the Portfolio Trust
may be removed upon a majority vote of the interests held by holders in the
Portfolio Trust qualified to vote in the election. The 1940 Act requires the
Portfolio Trust to assist its holders in calling such a meeting. Upon
liquidation of a 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 a Portfolio is entitled to a vote in proportion to its
percentage interest in the Portfolio.
<PAGE>
TAXATION
Each series of the Trust, including each Fund, is treated as a separate
entity for accounting and tax purposes. Each Fund intends to elect and to
qualify to be treated as a "regulated investment company" ("RIC") under
Subchapter M of the Code. As such and by complying with the applicable
provisions of the Code regarding the sources of its income, the timing of its
distributions, and the diversification of its assets, a 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 Code.
The Trust anticipates that each Portfolio will be treated as partnership
for federal income tax purposes. As such, the Portfolios are not subject to
federal income taxation. Instead, a Fund must take into account, in computing
its federal income tax liability (if any), its share of its corresponding
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 each Fund invests its assets in the corresponding Portfolio,
each Portfolio normally must satisfy the applicable source of income and
diversification requirements in order for the Funds to satisfy them. Each
Portfolio will allocate at least annually among its investors, including the
applicable 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 Portfolios will make allocations to the
Funds in a manner intended to comply with the Code and applicable regulations
and will make moneys available for withdrawal at appropriate times and in
sufficient amounts to enable the Funds to satisfy the tax distribution
requirements that apply to the Funds and that must be satisfied in order to
avoid Federal income and/or excise tax on the Funds. For purposes of applying
the requirements of the Code regarding qualification as a RIC, each Fund will be
deemed (i) to own its proportionate share of each of the assets of the
corresponding Portfolio and (ii) to be entitled to the gross income of the
corresponding Portfolio attributable to such share.
Each 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
Funds intend under normal circumstances to seek to avoid liability for such tax
by satisfying such distribution requirements.
The Funds are not subject to Massachusetts corporate excise or franchise
taxes. Provided the Funds qualify as RICs under the Code, they will also not be
required to pay any Massachusetts income tax.
The Funds 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, each 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 Funds and, as noted above, would not be
distributed as such to shareholders.
If the Fixed Income and Global Fixed Income Portfolios invest in certain
zero coupon securities, increasing rate securities or, in general, other
securities with original issue discount (or with market discount if the
<PAGE>
Portfolios elect to include market discount in income currently), the Fixed
Income and Global Fixed Income Portfolios must accrue income on such investments
prior to the receipt of the corresponding cash payments. However, the Fixed
Income and Global Fixed Income Funds must distribute, at least annually, all or
substantially all of their net income, including their distributive share of
such income accrued by the Fixed Income and Global Fixed Income Portfolios, to
shareholders to qualify as RICs under the Code and avoid federal income and
excise taxes. Therefore, the Fixed Income and Global Fixed Income Portfolios may
have to dispose of their portfolio securities under disadvantageous
circumstances to generate cash, or may have to leverage themselves by borrowing
the cash, to provide cash that the Fixed Income and Global Fixed Income Funds
may withdraw from the Portfolios and distribute in order to satisfy the
distribution requirements applicable to the Fixed Income and Global Fixed Income
Funds.
Limitations imposed by the Code on regulated investment companies like the
Funds may restrict a Portfolio's ability to enter into futures, options and
currency forward transactions.
Certain options, futures and forward foreign currency transactions
undertaken by a 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 a Portfolio and
allocable to its corresponding Fund. Any net mark to market gains may also have
to be distributed by the Funds to satisfy the distribution requirements referred
to above even though no corresponding cash amounts may concurrently be received,
possibly requiring the disposition by the Portfolios of portfolio securities or
borrowing to obtain the necessary cash. Also, certain losses by a Portfolio on
its 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 a Portfolio is
eligible and chooses to make one or more tax elections that may be available.
Because a Fund's income, gains and losses consist primarily of its share of the
income, gains and losses of its corresponding Portfolio, which is 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 Portfolios 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 roll transactions,
interest rate or currency swaps, caps, floors and collars are unclear in certain
respects, and the Portfolios may be required to account for these instruments
under tax rules in a manner that, under certain circumstances, may limit their
transactions in these instruments.
If a Portfolio acquires stock in certain foreign corporations that receive
at least 75% of their annual gross income from passive sources (such as
<PAGE>
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 corresponding 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 shareholders. The Funds would not be able to pass
through to their 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 Funds to recognize taxable income or gain
without the concurrent receipt of cash. The Portfolios may limit and/or manage
their stock holdings in passive foreign investment companies to minimize the
Funds' tax liability or maximize their return from these investments.
Investment in debt obligations by the Fixed Income and Global Fixed Income
Portfolios that are at risk of or in default presents special tax issues for the
Fixed Income and Global Fixed Income Funds. Tax rules are not entirely clear
about issues such as when a Portfolio may cease to accrue interest, original
issue discount, or market discount, when and to what extent deductions may be
taken for bad debts or worthless securities, how payments received on
obligations in default should be allocated between principal and income, and
whether exchanges of debt obligations in a workout context are taxable. These
and other issues will be addressed by the Fixed Income and Global Fixed Income
Portfolios, in the event that they hold such obligations, in order to reduce the
risk of the Fixed Income and Global Fixed Income Funds, or any other RIC
investing in the Fixed Income and Global Fixed Income Portfolio, distributing
insufficient income to preserve its status as a RIC and seek to avoid becoming
subject to Federal income or excise tax.
Foreign exchange gains and losses realized by the Portfolios in connection
with certain transactions involving foreign currency denominated debt
securities, 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 Code, which generally
causes such gains and losses to be treated as ordinary income and losses and,
because the Funds invest in the Portfolios, may affect the amount, timing and
character of Fund distributions to shareholders. Any such transactions that are
not directly related to the Portfolios' investment in stock or securities,
possibly including speculative currency positions or currency derivatives not
used for hedging purposes, may increase the amount of gain they are deemed to
recognize from the sale of certain investments held for less than three months.
Each Fund's share of such gain (plus any such gain the Fund may realize from
other sources) is limited under the 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
each Fund must derive at least 90% of its gross income for its taxable year.
For purposes of the dividends received deduction available to corporations,
dividends, if any, received by the Equity, Small Cap and Fixed Income Portfolios
<PAGE>
and allocable to their corresponding Funds from U.S. domestic corporations in
respect of the stock of such corporations held by the Portfolios, for U.S.
Federal income tax purposes, for at least a minimum holding period, generally 46
days, and distributed and designated by the Funds 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 Equity, Small
Cap and Fixed Income Funds 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.
Each 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 a 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 Code, only if more than 50% of the
value of the Fund's total assets (including its share of the Portfolio's assets)
at the close of any taxable year consists 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 Equity, Small Cap and Fixed Income
Portfolios are such that the corresponding Funds generally do not expect to meet
this 50% requirement, shareholders of the Equity, Small Cap and Fixed Income
Funds generally will not directly take into account the foreign taxes, if any,
paid by the Equity, Small Cap and Fixed Income Portfolios and will generally not
be entitled to any related tax deductions or credits. Such taxes will reduce the
amounts these Funds would otherwise have available to distribute. The
investments of the Global Fixed Income Portfolio are such that the Global Fixed
Income Fund expects to meet the 50% requirement discussed above and the Global
Fixed Income Fund may file an election with the Internal Revenue Service
pursuant to which shareholders of the Global Fixed Income Fund will be required
to (i) include in ordinary gross income (in addition to taxable dividends and
distributions actually received) their pro rata shares of qualified foreign
taxes paid by the Global Fixed Income Portfolio and allocable to the Global
Fixed Income Fund even though not actually received by them, and (ii) treat such
respective pro rata portions as foreign taxes paid by them.
If the Global Fixed Income Fund makes this election, shareholders may then
deduct such pro rata portions of qualified foreign taxes in computing their
taxable incomes, or, alternatively, use them as foreign tax credits, subject to
applicable limitations, against their U.S. Federal income taxes. Shareholders
<PAGE>
who do not itemize deductions for Federal income tax purposes will not, however,
be able to deduct their pro rata portion of qualified foreign taxes paid by the
Global Fixed Income Portfolio and allocable to the Global Fixed Income Fund,
although such shareholders will be required to include their share of such taxes
in gross income. Shareholders who claim a foreign tax credit for such foreign
taxes may be required to treat a portion of dividends received from the Global
Fixed Income Fund as a separate category of income for purposes of computing the
limitations on the foreign tax credit. Tax-exempt shareholders will ordinarily
not benefit from this election. Each year that the Global Fixed Income Fund
files the election described above, its shareholders will be notified of the
amount of (i) each shareholder's pro rata share of qualified foreign taxes paid
by the Global Fixed Income Portfolio and allocable to them and (ii) the portion
of the Global Fixed Income Fund's dividends which represents income from each
foreign country.
Due to possible unfavorable consequences under present tax law, the Fixed
Income and Global Fixed Income Portfolios do not currently intend to acquire
"residual" interests in real estate mortgage investment conduits ("REMICs"),
although the Fixed Income and Global Fixed Income Portfolios may acquire
"regular" interests in REMICs.
Distributions from a Fund's current or accumulated earnings and profits
("E&P"), as computed for Federal income tax purposes, will be taxable as
described in the Funds' 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.
At the time of an investor's purchase of shares of a Fund, 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 its
corresponding Portfolio's portfolio. Consequently, subsequent distributions by a
Fund from such income and/or appreciation may be taxable to such investor even
if the net asset value of the investor's shares is, as a result of the
distributions, reduced below the investor's cost for such shares, and the
distributions in reality represent a return of a portion of the purchase price.
Upon a redemption (including a repurchase) of shares of a 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 same
<PAGE>
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 shares of the Funds 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 Funds in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their
investment in the Funds 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 Funds.
ADDITIONAL INFORMATION
The Funds' Prospectus and this Statement of Additional Information omit
certain information contained in the registration statement filed with the
Securities and Exchange Commission, which may be obtained from the Commission's
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment
of the fee prescribed by the rules and regulations promulgated by the
Commission.
EXPERTS AND FINANCIAL STATEMENTS
Coopers & Lybrand L.L.P., independent auditors, will audit each Fund's
financial statements for the fiscal year ending December 31, 1996. Coopers &
Lybrand, P.O. Box 219, Grand Cayman, Grand Cayman Islands, BWI, an affiliate of
Coopers & Lybrand L.L.P., will audit each Portfolio's financial statements for
the fiscal year ending December 31, 1996.
<PAGE>
Standish, Ayer & Wood Master Protfolio
Standish Equity Portfolio Series
Financial Statements
For the Six Months Ended June 30, 1996
(Unaudited)
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Master Portfolio
Standish Equity Portfolio Series
Portfolio of Investments
June 30, 1996
(Unaudited)
Value
Security Shares (Note 1A)
- ------------------------------------------------ ---------------- ------------------
Equities - 96.5%
- ------------------------------------------------
Basic Industry - 6.8%
- ------------------------------------------------
<S> <C> <C>
Avery-Dennison Corp. 25,200 $ 1,382,850
Bemis Co 15,600 546,000
Cleveland-Cliffs Inc. 8,200 320,825
CSX Corp. 24,600 1,186,950
Lafarge Corp. 22,500 455,625
Norfolk Southern Corp. 17,800 1,508,550
Sealed Air Corp. * 15,100 507,738
Union Carbide Corp. 23,900 950,025
------------------
6,858,563
------------------
Capital Goods - 12.9%
- ------------------------------------------------
Allied Signal Inc. 17,900 1,022,538
Case Corp. 13,000 624,000
Deere & Co. 30,200 1,208,000
Dover Corp. 21,500 991,688
Ingersoll Rand Co 22,800 997,500
Johnson Controls Corp. 9,400 653,300
McDonnell Douglas Corp. 34,400 1,668,400
Measurex Corp. 9,700 283,725
Rockwell International Corp. 26,400 1,511,400
Textron Inc. 12,200 974,475
Trinity Industries 14,000 476,000
United Technologies Corp. 22,300 2,564,500
------------------
12,975,526
------------------
Consumer Cyclical - 15.4%
- ------------------------------------------------
AMR Corp. 10,600 964,600
Black & Decker Corp. 32,900 1,270,763
Carnival Corp. 58,500 1,689,188
Chrysler Corp. 34,900 2,163,800
Goodyear Tire & Rubber Co. 15,800 762,350
Jones Apparel Group Inc. 27,000 1,326,375
Kingworld Productions Inc. * 22,700 825,713
Leggett & Platt Inc. 22,900 635,475
Mercantile Stores 17,500 1,025,938
Pier 1 Imports Inc. 73,100 1,087,363
Ross Stores Inc. 29,700 1,032,075
UAL Corp. 29,200 1,569,500
Waban Inc. 47,700 1,138,838
------------------
15,491,978
------------------
<PAGE>
Value
Security Shares (Note 1A)
- ------------------------------------------------ ---------------- ------------------
Consumer Stable - 18.0%
- ------------------------------------------------
Abbott Laboratories 25,500 $ 1,109,250
American Stores Co 15,100 622,875
Becton Dickinson & Co 10,800 866,700
Bristol-Myers Squibb Co 33,200 2,988,000
Equifax Inc. 22,100 580,125
Great Atlantic & Pacific Tea Co 15,400 506,275
Media General Inc. Cl A 12,000 447,000
Millipore Corp. 21,800 912,875
Omnicom Group 22,700 1,055,537
Philip Morris Companies, Inc. 14,600 1,518,400
RJR Holdings Group Inc. 43,800 1,357,800
Safeway Inc. 50,000 1,650,000
Schering-Plough Corp. 48,000 3,012,000
Wallace Computer Services 24,300 1,451,925
------------------
18,078,762
------------------
Energy - 9.4%
- ------------------------------------------------
Amoco Corp. 35,564 2,573,945
British Petroleum Plc 24,591 2,628,163
Kerr - Mcgee Corp. 13,700 833,988
Mobil Corp. 21,700 2,433,113
Phillips Petroleum Co. 23,300 975,688
------------------
9,444,897
------------------
Financial - 14.4%
- ------------------------------------------------
American Bankers Insurance Group 23,200 1,012,100
Bank of Boston Corp. 23,200 1,148,400
BankAmerica Corp. 27,400 2,075,550
Barnett Banks Inc. 14,900 908,900
Cigna Corp. 15,700 1,850,638
Comerica Inc. 17,800 794,325
Nationsbank Corp. 13,100 1,082,388
Northern Trust 20,900 1,206,975
Old Republic International Corp. 17,850 383,775
Reliastar Financial Corp. 23,500 1,013,438
SunAmerica Inc. 16,900 954,850
Travelers Group Inc. 30,700 1,400,688
UST Inc. 15,500 530,875
------------------
14,362,902
------------------
Real Estate - 1.1%
- ------------------------------------------------
Macerich Company (The) 36,100 758,100
South West Property Trust 29,700 397,238
------------------
1,155,338
------------------
<PAGE>
Value
Security Shares (Note 1A)
- ------------------------------------------------ ---------------- ------------------
Technology - 11.6%
- ------------------------------------------------
Adaptec Inc. * 10,100 $ 478,488
Analog Devices Inc., * 33,450 852,975
Atmel Corp. * 39,200 1,180,900
Cabletron Systems Comm * 20,700 1,420,538
Computer Associates Intl Inc. 18,350 1,307,438
Dell Computer Corp. * 9,500 483,313
Gateway 2000 Inc. * 22,000 748,000
Harris Corp.Inc. 11,300 689,300
Intel Corp. 12,300 903,281
Sci Sys Inc. * 11,500 467,188
Sprint Corp. 26,300 1,104,600
Sun Microsystems Corp. * 17,700 1,042,088
Texas Industries Inc. 9,600 658,800
Varian Associates Inc. 8,900 460,575
------------------
11,797,484
------------------
Utilities - 6.9%
- ------------------------------------------------
Ameritech Corp. 33,800 2,006,875
CMS Energy Corp. 28,500 879,938
DQE Inc. 21,750 598,125
DTE Energy Company 25,300 781,138
FPL Group Inc. 18,000 828,000
Panenergy Corp. 14,500 476,688
Unicom Corp. 49,200 1,371,450
------------------
6,942,214
------------------
Total Equities (Identified Cost $84,082,602) 97,107,664
------------------
Short-Term Investments - 3.3%
- ------------------------------------------------
Par
Repurchase Agreements - 3.2% Value
- ------------------------------------------------ ----------------
Prudential-Bache Repurchase Agreement, dated 6/28/96,
4.77% due 7/1/96, to pay $3,254,288 (Collateralized by
FNMAs with rates ranging from 6.225% to 7.075%
and maturity dates ranging from 5/01/23 to 4/01/24 with
an aggregate market value of $3,318,061. 3,252,995 3,252,995
------------------
<PAGE>
Par Value
Security Rate ** Maturity Value (Note 1A)
- ------------------------------------------------ ------------ ------------ ---------------- ------------------
U.S. Government - 0.1%
- ------------------------------------------------
U.S. Treasury Bill *** 5.%11 9/19/1996 140,000 $ 138,404
------------------
Total Short-Term Investments (Identified Cost $3,391,131) 3,391,399
------------------
Total INVESTMENTS (Identified Cost $87,473,733) - 99.8% 100,499,063
Other Assets less Liabilities - 0.2% 177,897
------------------
Net Assets - 100.0% $ 100,676,960
==================
Notes to the Schedule of Investments:
* Non-income producing security.
** Rate noted is Yield to maturity.
*** Denotes all or part of a security pledged as a margin deposit (Note 5).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Master Portfolio
Standish Equity Portfolio Series
Statement of Assets and Liabilities
June 30, 1996
(Unaudited)
Assets:
<S> <C> <C>
Investments, at value (Note 1A) (identified cost, $87,473,733) $ 100,499,063
Receivable for daily variation margin on open
financial futures contracts (Note 6) 18,750
Receivable for investments sold 38,114
Interest and dividends receivable 225,427
Deferred organizational costs (Note 1E) 71,418
-----------------
Total assets 100,852,772
Liabilities:
Accrued investment advisory fee (Note 2) $ 77,253
Accrued trustee fees 537
Accrued expenses and other liabilities 98,022
---------------
Total liabilities 175,812
-----------------
Net Assets $ 676,960
=================
Net Assets consist of
Net proceeds from capital contributions and withdrawals $ 87,633,830
Unrealized appreciation (depreciation) of investments 13,043,130
-----------------
Total net assets $ 100,676,960
=================
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Equity Portfolio Series
Statement of Operations
For the period May 3, 1996 (commencement of operations)
through June 30, 1996 (Unaudited)
Investment Income
Interest Income $ 32,301
Dividend income 434,765
---------------
Total income 467,066
Expenses
Investment advisory fee (Note 2) $ 77,253
Custodian and accounting expenses 18,812
Legal and audit services 8,488
Amortization of organization expense (Note 1E) 2,261
Trustee fees (Note 2) 537
Miscellaneous 3,655
----------------
Total expenses 111,006
---------------
Net investment income (loss) 356,060
---------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Investment security transactions 1,776,675
Financial futures 159,275
----------------
Net realized gain (loss) 1,935,950
Change in unrealized appreciation (depreciation)
Investment securities (644,566)
Financial futures 17,800
----------------
Change in net unrealized appreciation (depreciation) (626,766)
---------------
Net realized and unrealized gain (loss) 1,309,184
---------------
Net increase (decrease) in net assets from operations $ 1,665,244
===============
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Equity Portfolio Series
Statement of Changes in Net Assets
For the period May 3, 1996 (commencement of operations)
through June 30, 1996 (Unaudited)
Increase (Decrease) in Net Assets
From operations
Net investment income (loss) $ 356,060
Net realized gain (loss) 1,935,950
Change in net unrealized appreciation (depreciation) (626,766)
-----------------
Net increase (decrease) in net assets from operations 1,665,244
-----------------
Capital transactions
Assets contributed by Standish Equity Fund at commencement
(including unrealized gain of $13,669,896) 97,994,616
Contributions 1,734,368
Withdrawals (717,268)
-----------------
Increase in net assets resulting from capital transactions 99,011,716
-----------------
Total increase (decrease) in net assets 100,676,960
Net Assets
At beginning of period ---
-----------------
At end of period $ 100,676,960
=================
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Equity Portfolio Series
Supplementary Data
Statement of Changes in Net Assets
For the period May 3, 1996 (commencement of operations)
through June 30, 1996 (Unaudited)
Ratios (to average daily net assets):
Expenses 0.69% *
Net investment income 2.30% *
Portfolio Turnover 77 %
Average Broker Commission Rate $ 0.0456
* Annualized
</TABLE>
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Equity Portfolio Series
Notes to Financial Statements
(Unaudited)
(1).....Significant Accounting Policies:
Standish, Ayer & Wood Master Portfolio (the "Portfolio Trust") was
organized as a master trust fund under the laws of the State of New
York on January 18, 1996 and is registered under the Investment Company
Act of 1940, as amended, as an open-end, management investment company.
Standish Equity Portfolio Series (the "Portfolio") is a separate
diversified investment series of the Portfolio Trust. The following is
a summary of significant accounting policies followed by the Portfolio
in the preparation of the financial statements. The preparation of
financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
A. Investment security valuations--
Securities for which quotations are readily available are valued at the
last sale price, or if no sale, at the closing bid price in the
principal market in which such securities are normally traded.
Securities (including restricted securities) for which quotations are
not readily available are valued primarily using dealer-supplied
valuations or at their fair value as determined in good faith under
consistently applied procedures under the general supervision of the
Board of Trustees. Short term instruments with less than sixty-one days
remaining to maturity when acquired by the Portfolio are valued on an
amortized cost basis. If the Portfolio acquires a short term instrument
with more than sixty days remaining to its maturity, it is valued at
current market value until the sixtieth day prior to maturity and will
then be valued at amortized cost based upon the value on such date
unless the trustees determine during such sixty-day period that
amortized cost does not represent fair value.
B. Repurchase agreements--
It is the policy of the Portfolio to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the
Portfolio to monitor on a daily basis, the market value of the
repurchase agreement's underlying investments to ensure the existence
of a proper level of collateral.
C. Securities transaction and income--
Securities transactions are recorded as of the trade date. Interest
income is determined on the basis of interest accrued. Dividend income
is recorded on the ex-dividend date. Realized gains and losses from
securities sold are recorded on the identified cost basis.
D. Income Taxes--
The Portfolio is treated as a partnership for federal tax purposes. No
provision is made by the Portfolio for federal or state taxes on any
taxable income of the Portfolio because each investor in the Portfolio
is ultimately responsible for the payment of any taxes. Since some of
the Portfolio`s investors are regulated investment companies that
invest all or substantially all of their assets in the Portfolio, the
Portfolio normally must satisfy the source of income and
diversification requirements applicable to regulated investment
companies (under the Code) in order for its investors to satisfy them.
The Portfolio will allocate at least annually among its investors 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.
E. Deferred Organizational Expenses--
Costs incurred by the Portfolio in connection with its organization and
initial registration are being amortized on a straight-line basis
through April, 2001.
<PAGE>
(2).....Investment Advisory Fee:
The investment advisory fee paid to Standish, Ayer & Wood, Inc. (SA&W)
for overall investment advisory and administrative services is paid
monthly at the annual rate of 0.50% of the Portfolio's average daily
net assets. The Portfolio pays no compensation directly to its trustees
who are affiliated with the investment adviser or to its officers, all
of whom receive remuneration for their services to the Portfolio from
the investment adviser. Certain of the trustees and officers of the
Portfolio Trust are directors or officers of SA&W.
(3).....Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than purchased
option transactions and short-term obligations, were as follows:
Purchases Sales
---------------------- ----------------------
Investments $95,547,365 $74,678,727
====================== ======================
(4).....Federal Income Tax Basis of Investment Securities:
The cost and unrealized appreciation in value of the investment
securities owned at June 30, 1996, as computed on a federal income tax
basis, were as follows:
Aggregate cost $87,473,733
=====================
Gross unrealized appreciation $14,039,419
Gross unrealized depreciation (1,014,089)
---------------------
Net unrealized appreciation (depreciation) $13,025,330
=====================
(5).....Financial Instruments:
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to enhance
potential gain in circumstances where hedging is not involved. The
nature, risks and objectives of these investments are set forth more
fully in the Portfolio's Prospectus and Statement of Additional
Information. The Portfolio trades the following financial instruments
with off-balance sheet risk:
Options--
Call and put options give the holder the right to purchase or sell,
respectively, a security or currency at a specified price on or before
a certain date. The Portfolio uses options to hedge against risks of
market exposure and changes in securities prices and foreign
currencies, as well as to enhance returns. Options, both held and
written by the Portfolio, are reflected in the accompanying Statement
of Assets and Liabilities at market value. Premiums received from
writing options which expire are treated as realized gains. Premiums
received from writing options which are exercised or are closed are
added to or offset against the proceeds or amount paid on the
transaction to determine the realized gain or loss. If a put option
written by the Portfolio is exercised, the premium reduces the cost
basis of the securities purchased by the Portfolio. The Portfolio, as a
writer of an option, has no control over whether the underlying
securities may be sold (call) or purchased (put) and as a result bears
the market risk of an unfavorable change in the price of the security
underlying the written option. The portfolio entered into no such
transactions during the period May 3, 1996 through June 30, 1996.
<PAGE>
Futures Contracts--
The Portfolio may enter into financial futures contracts for the
delayed sale or delivery of securities or contracts based on financial
indices at a fixed price on a future date. The Portfolio is required to
deposit either in cash or securities an amount equal to a certain
percentage of the contract amount. Subsequent payments are made or
received by the Portfolio each day, dependent on the daily fluctuations
in the value of the underlying security, and are recorded for financial
statement purposes as unrealized gains or losses by the Portfolio.
There are several risks in connection with the use of futures contracts
as a hedging device. The change in value of futures contracts primarily
corresponds with the value of their underlying instruments or index,
which may not correlate with changes in value of the hedged
investments. In addition, there is the risk that the Portfolio may not
be able to enter into a closing transaction because of an illiquid
secondary market. The Portfolio enters into financial futures
transactions primarily to manage its exposure to certain markets and to
changes in securities prices and foreign currencies. At June 30, 1996,
the Portfolio had entered into the following financial futures
contracts:
<TABLE>
<CAPTION>
Expiration Underlying Face Unrealized
Contract Position Date Amount at Value Gain/(Loss)
- ----------------------------------- ------------ ---------------- ------------------------- ----------------------------
<S> <C> <C> <C>
S+P 500 (IO Contracts) Long 09/20/96 $3,384,000 $17,800
========================= ============================
</TABLE>
At June 30, 1996, the Portfolio had segregated sufficient cash and/or
securities to cover margin requirements on open futures contracts.
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio Series
Financial Statements
For the Six Months Ended June 30, 1996
(Unaudited)
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio Series
Portfolio of Investments
June 30, 1996
(Unaudited)
Value
Security Shares (Note 1A)
- -------------------------------------------------------------------------------- -------------- -----------------
Equities - 97.0%
- --------------------------------------------------------------------------------
Basic Industry - 5.1%
- --------------------------------------------------------------------------------
<S> <C> <C>
Greenfield Industries Inc. 64,100 $ 2,115,300
Hughes Supply Inc. 49,100 1,706,225
Intertape Polymer 109,400 2,215,350
Lydall Inc. * 47,100 1,036,200
NN Ball & Roller Inc. 127,650 2,648,738
Om Group Inc. 53,800 2,111,650
-----------------
11,833,463
-----------------
Capital Goods - 0.8%
- --------------------------------------------------------------------------------
Ultrak Inc. * 108,100 1,851,213
-----------------
Consumer Cyclical - 4.7%
- --------------------------------------------------------------------------------
Custom Chrome Inc. * 117,100 3,147,063
Gadzooks Inc. * 46,650 1,504,463
ITI Technologies Inc. * 89,500 2,953,500
Moovies Inc. * 172,100 1,355,288
Quiksilver Inc. * 68,100 2,043,000
-----------------
11,003,314
-----------------
Consumer Stable - 4.7%
- --------------------------------------------------------------------------------
Atlantic Coast Airlines Inc. * 183,800 2,400,888
Midwest Express Holdings * 58,500 1,879,313
Performance Food Group Co. * 136,600 3,551,590
Robert Mondavi Corp. Cl A * 98,500 3,102,750
-----------------
10,934,541
-----------------
Financial - 3.9%
- --------------------------------------------------------------------------------
American Travellers Corp. * 158,650 3,648,950
Olympic Financial Inc. * 161,800 3,721,400
Texas Regional Bancshares Cl A 70,600 1,765,000
-----------------
9,135,350
-----------------
Health Care - 30.1%
- --------------------------------------------------------------------------------
Agouron Pharmaceuticals Inc. * 46,700 1,821,300
Arbor Health Care Company * 104,100 2,836,725
Arris Pharmaceutical Corp. * 112,300 1,319,525
Ballard Medical Products 119,600 2,287,350
Cardiometrics Inc. * 109,200 709,800
Chirex Inc. * 162,000 1,863,000
Conmed Corp. * 97,200 2,587,950
Corvel Corp. * 91,500 3,271,125
Emcare Holdings Inc. * 66,800 1,987,300
FPA Medical Management * 142,300 2,214,544
Fuisz Technologies Ltd. * 123,100 2,338,900
<PAGE>
Value
Security Shares (Note 1A)
- -------------------------------------------------------------------------------- -------------- -----------------
Health Care - (continued)
- --------------------------------------------------------------------------------
Gynecare Inc. * 146,100 $ 1,150,538
Healthplan Services Corp. * 103,800 2,387,400
Horizon Mental Health Management * 103,800 2,958,300
Impath Inc. * 136,600 2,458,800
Innotech Inc. * 131,300 1,468,919
Inphynet Medical Management * 145,500 2,728,125
Martek Biosciences * 78,000 2,281,500
Matrix Pharmaceuticals Inc. * 94,100 1,693,800
Medarex Inc. * 150,900 1,226,063
Medcath Inc. * 89,900 1,078,800
Medquist Inc. * 84,800 1,537,000
Myriad Genetics Inc. * 45,700 1,142,500
National Surgery Centers Inc. * 91,350 2,420,775
Occusystems Inc. * 73,200 2,735,850
Optical Sensors Inc. * 171,900 1,783,463
Orthofix International N.V. * 133,700 1,470,700
Ostx International Inc. * 126,700 1,330,350
Possis Medical, Inc. * 125,900 2,093,088
Protocol Systems Inc. * 120,100 2,762,300
Rochester Medical Corp. * 87,000 1,609,500
Rural/Metro Corp. * 80,000 2,740,000
United Dental Care Inc. * 72,400 3,058,900
Vertex Pharmaceuticals Inc. * 99,500 3,022,313
-----------------
70,376,503
-----------------
Services - 23.0%
- --------------------------------------------------------------------------------
AFGL International Inc. * 111,900 489,563
Air Express International Corp. 90,100 2,545,325
Alternative Resources Corp * 50,100 1,841,175
Analysts International Corp. 71,500 3,003,000
Anchor Gaming * 1,100 66,275
Bet Holdings Inc. Cl A * 95,300 2,513,538
Central Parking Corp. 119,700 3,546,113
Coach Usa Inc. * 115,500 2,569,875
Computer Task Group Inc. 79,600 2,248,700
Continental Waste Industries Inc. * 157,200 3,458,400
Data Processing Resources Corp. * 61,500 1,698,938
Emmis Broadcasting Corp. Cl A * 62,700 3,135,000
May & Speh Inc. * 184,500 2,905,875
Norrell Corp. 62,700 3,080,138
Oacis Healthcare Holdings * 145,400 1,672,100
On Assignment Inc. * 70,200 2,614,950
Patterson Dental Company * 64,450 2,336,313
Personnel Group of America Inc. * 126,200 3,107,675
Prepaid Legal Services Inc. * 100,500 1,859,250
<PAGE>
Value
Security Shares (Note 1A)
- -------------------------------------------------------------------------------- -------------- -----------------
Services - continued
- --------------------------------------------------------------------------------
Right Management Consultants * 75,050 $ 2,739,325
Scandinavian Broadcast Systems * 109,300 2,677,850
Scientific Games Hldgs Corp. * 98,000 2,842,000
Techforce Corp. * 165,400 992,400
-----------------
53,943,778
-----------------
Technology - 24.7%
- --------------------------------------------------------------------------------
Advanced Technology Material * 123,000 1,660,500
Applix, Inc. * 86,600 2,489,750
Astea International Inc * 57,000 1,382,250
B I Inc. * 114,700 1,519,775
Black Box Corp. * 123,100 2,923,625
Brooks Automation Inc. * 91,100 1,047,650
Cidco Inc. * 86,600 3,052,650
Computational Systems Inc. * 120,600 2,607,975
Datastream Systems Inc. * 88,600 3,123,150
Elcom International Inc. * 213,000 2,715,750
Etec Systems Inc. * 69,200 1,539,700
Harbinger Corp * 58,000 1,609,500
Industry Group Inc. * 110,100 2,229,525
Inter Tel Inc. * 97,900 2,563,756
Lecroy Corp. * 72,800 1,456,000
Mdl Information Systems Inc. * 125,000 3,718,750
Meridian Data Inc. * 131,900 1,170,613
Nera As - Telecom ADR 68,100 2,153,663
P-Com Inc. * 72,600 2,286,900
Perceptron Inc. * 100,800 3,679,200
Periphonics Corp. * 62,000 2,108,000
Photronics Inc. * 72,500 1,903,125
Sanmina Corp. * 21,100 569,700
Telxon Corp. 96,800 1,137,400
TSX Corp. * 111,400 3,091,350
Ultradata Corp. * 219,600 1,701,900
Videoserver Inc. * 70,300 2,741,700
-----------------
58,183,857
-----------------
Total Equities (Identified Cost $186,146,966) 227,262,019
-----------------
<PAGE>
Par Value
Security Rate ** Maturity Value (Note 1A)
- -------------------------------------------------------------- ------------- ------------- -------------- ---------------
Short-Term Obligations - 2.8%
- ----------------------------------------------------------------
Repurchase Agreements - 2.7%
- ----------------------------------------------------------------
Prudential-Bache Repurchase Agreement, dated 6/28/96,
4.77% due 7/1/96, to pay $6,344,277 (Collateralized by
FNMA's and FHLMC's with rates ranging from 6.00%
to 8.00% and maturity dates ranging from 6/01/11 to
7/01/26 with an aggregate market value of $6,468,604. 6,341,757 6,341,757
------------
U.S. Government - 0.1%
- ----------------------------------------------------------------
U.S. Treasury Bill *** 5.%11 9/19/1996 190,000 187,834
------------
Total Short-Term Obligations (Identified Cost $6,529,189) 6,529,591
------------
Total Investments (Identified Cost $192,676,155) - 99.8% 233,791,610
Other assets less liabilities - 0.2% 362,287
------------
Net Assets - 100.0% $234,153,897
============
Notes to the Schedule of Investments:
* Non-income producing security.
** Rate noted is Yield to maturity.
*** Denotes all or part of a security pledged as a margin deposit (Note 5).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio Series
Statement of Assets and Liabilities
June 30, 1996
(Unaudited)
Assets:
<S> <C> <C>
Investments, at value (Note 1A) (identified cost, $192,676,155) $ 233,791,610
Cash 60
Receivable for daily variation margin on open
financial futures contracts (Note 5) 60,525
Receivable for investments sold 2,387,677
Interest and dividends receivable 11,699
Deferred organization costs (Note 1E) 71,418
-----------------
Total assets 236,322,989
Liabilities:
Payable for investments purchased $ 1,840,596
Accrued investment advisory fee (Note 2) 223,806
Accrued trustee fees 1,491
Accrued expenses and other liabilities 103,199
----------------
Total liabilities 2,169,092
-----------------
Net Assets $ 234,153,897
=================
Net Assets consist of
Net proceeds from capital contributions and withdrawals $ 193,070,492
Unrealized appreciation (depreciation) of investments 41,083,405
-----------------
Total net assets $ 234,153,897
=================
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio Series
Statement of Operations
For the period May 3, 1996 (commencement of operations)
through June 30, 1996 (Unaudited)
Investment Income
Interest Income $ 55,822
Dividend income (net of withholding tax of $3,344) 54,429
-----------------
Total income 110,251
Expenses
Investment advisory fee (Note 2) $ 223,806
Custodian and accounting expenses 29,504
Legal and audit services 6,432
Registration costs 2,261
Insurance expense 1,491
Miscellaneous 4,618
----------------
Total expenses 268,112
-----------------
Net investment income (loss) (157,861)
-----------------
Realized and Unrealized Gain (Loss):
Net realized gain (loss)
Investment security transactions 11,392,665
Financial futures 145,150
----------------
Net realized gain (loss) 11,537,815
Change in unrealized appreciation (depreciation)
Investment securities (14,133,192)
Financial futures (142,425)
----------------
Change in net unrealized appreciation (depreciation) (14,275,617)
-----------------
Net realized and unrealized gain (loss) (2,737,802)
-----------------
Net increase (decrease) in net assets from operations $ (2,895,663)
=================
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio Series
Statement of Changes in Net Assets
For the period May 3, 1996 (commencement of operations)
through June 30, 1996 (Unaudited)
Increase (Decrease) in Net Assets
From operations
Net investment income (loss) $ (157,861)
Net realized Gain (loss) 11,537,815
Change in net unrealized appreciation (depreciation) (14,275,617)
-----------------
Net increase (decrease) in net assets from operations (2,895,663)
-----------------
Capital transactions
Assets contributed by Standish Small Capitalization Equity Fund at
commencement (including unrealized appreciation of $55,359,023) 233,108,124
Contributions 14,054,497
Withdrawals (10,113,061)
-----------------
Increase in net assets resulting from capital transactions 237,049,560
-----------------
Total increase (decrease) in net assets 234,153,897
Net Assets:
At beginning of period ---
-----------------
At end of period $ 234,153,897
=================
</TABLE>
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio Series
Supplementary Data
Statement of Changes in Net Assets
For the period May 3, 1996 (commencement of operations)
through June 30, 1996 (Unaudited)
Ratios (to average daily net assets):
Expenses 0.*2%
Net investment income (loss) (0.*2%)
Portfolio Turnover 21%
Average Broker Commission Rate $0.0502
* Annualized
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio Series
Notes to Financial Statements
(Unaudited)
(1).....Significant Accounting Policies:
Standish, Ayer & Wood Master Portfolio (the "Portfolio Trust") was
organized as a master trust fund under the laws of the State of New
York on January 18, 1996 and is registered under the Investment Company
Act of 1940, as amended, as an open-end, management investment company.
Standish Small Capitalization Equity Portfolio (the "Portfolio") is a
separate diversified investment series of the Portfolio Trust. The
following is a summary of significant accounting policies followed by
the Portfolio in the preparation of the financial statements. The
preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
A...Investment security valuations--
Securities for which quotations are readily available are valued at the
last sale price, or if no sale, at the closing bid price in the
principal market in which such securities are normally traded.
Securities (including restricted securities) for which quotations are
not readily available are valued primarily using dealer-supplied
valuations or at their fair value as determined in good faith under
consistently applied procedures under the general supervision of the
Board of Trustees. Short term instruments with less than sixty-one days
remaining to maturity when acquired by the Portfolio are valued on an
amortized cost basis. If the Portfolio acquires a short term instrument
with more than sixty days remaining to its maturity, it is valued at
current market value until the sixtieth day prior to maturity and will
then be valued at amortized cost based upon the value on such date
unless the trustees determine during such sixty-day period that
amortized cost does not represent fair value.
B...Repurchase agreements--
It is the policy of the Portfolio to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the
Portfolio to monitor on a daily basis, the market value of the
repurchase agreement's underlying investments to ensure the existence
of a proper level of collateral.
C...Securities transactions and income--
Securities transactions are recorded as of the trade date. Interest
income is determined on the basis of interest accrued. Dividend income
is recorded on the ex-dividend date. Realized gains and losses from
securities sold are recorded on the identified cost basis.
D...Income Taxes--
The Portfolio is treated as a partnership for federal tax purposes. No
provision is made by the Portfolio for federal or state taxes on any
taxable income of the Portfolio because each investor in the Portfolio
is ultimately responsible for the payment of any taxes. Since some of
the Portfolio`s investors are regulated investment companies that
invest all or substantially all of their assets in the Portfolio, the
Portfolio normally must satisfy the source of income and
diversification requirements applicable to regulated investment
companies (under the Code) in order for its investors to satisfy them.
The Portfolio will allocate at least annually among its investors 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.
E...Deferred Organizational Expenses--
Costs incurred by the Portfolio in connection with its organization and
initial registration are being amortized, on a straight-line basis
through April 2001.
<PAGE>
(2).....Investment Advisory Fee:
The investment advisory fee paid to Standish, Ayer & Wood, Inc. (SA&W)
for overall investment advisory and administrative services is paid
monthly at the annual rate of 0.60% of the Portfolio's average daily
net assets. The Portfolio pays no compensation directly to its trustees
who are affiliated with the investment adviser or to its officers, all
of whom receive remuneration for their services to the Portfolio from
the investment adviser. Certain of the trustees and officers of the
Portfolio Trust are directors or officers of SA&W.
(3).....Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than short-term
obligations, were as follows:
Purchases Sales
------------------ -------------------
Investments $49,839,272 $57,901,868
================== ===================
(4).....Federal Income Tax Basis of Investment Securities:
The cost and unrealized appreciation in value of the investment
securities owned at June 30, 1996, as computed on a federal income tax
basis, were as follows:
Aggregate cost $192,676,155
==================
Gross unrealized appreciation $51,629,861
Gross unrealized depreciation (10,546,456)
------------------
Net unrealized appreciation (depreciation) $41,083,405
==================
(5).....Financial Instruments:
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to enhance
potential gain in circumstances where hedging is not involved. The
nature, risks and objectives of these investments are set forth more
fully in the Portfolio's Prospectus and Statement of Additional
Information. The Portfolio trades the following financial instruments
with off-balance sheet risk:
.........Options--
Call and put options give the holder the right to purchase or sell,
respectively, a security or currency at a specified price on or before
a certain date. The Portfolio uses options to hedge against risks of
market exposure and changes in securities prices and foreign
currencies, as well as to enhance returns. Options, both held and
written by the Portfolio, are reflected in the accompanying Statement
of Assets and Liabilities at market value. Premiums received from
writing options which expire are treated as realized gains. Premiums
received from writing options which are exercised or are closed are
added to or offset against the proceeds or amount paid on the
transaction to determine the realized gain or loss. If a put option
written by the Portfolio is exercised, the premium reduces the cost
basis of the securities purchased by the Portfolio. The Portfolio, as a
writer of an option, has no control over whether the underlying
securities may be sold (call) or purchased (put) and as a result bears
the market risk of an unfavorable change in the price of the security
underlying the written option. The Portfolio entered into no such
transactions during the period May 3, 1996 through June 30, 1996.
<PAGE>
.........Futures contracts--
The Portfolio may enter into financial futures contracts for the
delayed sale or delivery of securities or contracts based on financial
indices at a fixed price on a future date. The Portfolio is required to
deposit either in cash or securities an amount equal to a certain
percentage of the contract amount. Subsequent payments are made or
received by the Portfolio each day, dependent on the daily fluctuations
in the value of the underlying security, and are recorded for financial
statement purposes as unrealized gains or losses by the Portfolio.
There are several risks in connection with the use of futures contracts
as a hedging device. The change in value of futures contracts primarily
corresponds with the value of their underlying instruments or indices,
which may not correlate with changes in value of the hedged
investments. In addition, there is the risk that the Portfolio may not
be able to enter into a closing transaction because of an illiquid
secondary market. The Portfolio enters into financial futures
transactions primarily to manage its exposure to certain markets and to
changes in securities prices and foreign currencies. At June 30, 1996,
the Portfolio held the following futures contract:
<TABLE>
<CAPTION>
Expiration Underlying Face Unrealized
Contract Position Date Amount at Value Gain/(Loss)
- --------------------------------------- ------------------- ------------------- ---------------------------------------
<S> <C> <C>
Midcap Sept Futures (48 Contracts) Long 09/20/96 $5,685,600 ($32,050)
================== ==================
</TABLE>
At June 30, 1996, the Portfolio had segregated sufficient securities to cover
margin requirements on open future contracts.
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Fixed Income Portfolio Series
Financial Statements
For the Six Months Ended June 30, 1996
(Unaudited)
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Master Portfolio
Standish Fixed Income Portfolio Series
Portfolio of Investments
(Unaudited)
Par Value
Security Rate Maturity Value (Note 1A)
- ---------------------------------------------- --------- -------------- -------------------- -------------------
Bonds and Notes - 96.4%
- ----------------------------------------------
Asset Backed - 3.5%
- ----------------------------------------------
<S> <C> <C> <C> <C>
Advanta Home Equity Trust Loan 1991-1A 9.%0 2/25/2006 2,184,570 $ 2,251,473
AFC Home Equity Loan Trust 1993-2 6.00 1/20/2013 139,184 134,257
Contimortgage Home Equity 1994-5 A2 9.07 10/15/2009 17,454,272 17,713,359
Contimortgage Home Equity 1995 IA 8.60 2/15/2010 9,488,566 9,574,556
Greentree Securities Trust 1994-A 6.90 2/15/2004 4,776,338 4,730,067
Greentree Securities Trust 1995-A 7.25 7/15/2005 6,795,882 6,782,427
Old Stone Credit Corp. Home Equity Trust 1992-3 A2 6.30 9/25/2007 613,843 603,416
Old Stone Credit Corp. Home Equity Trust 1992-4 Cl A 6.55 11/25/2007 138,012 135,899
The Money Store Home Equity 1992-B 6.90 7/15/2007 693,660 687,590
The Money Store Home Equity 1994-DA4 8.75 9/15/2020 3,250,000 3,362,734
The Money Store Home Equity 1996-B A5 7.18 2/15/2015 18,563,000 18,644,213
UCFC Home Equity Loan Trust 1994 BA-6 7.10 3/10/2023 2,024,864 2,029,926
UCFC Home Equity Loan Trust 1994-D A4 8.78 2/10/2016 16,562,000 17,136,494
-------------------
83,786,411
-------------------
Collateralized Mortgage Obligations - 0.1%
- ------------------------------------------------------------
FNMA P/O Trust 108 0.00 3/01/2020 1,673,220 1,269,033
Midstate Trust II A3 9.35 4/01/1998 625,000 641,602
Veterans Affairs 1992-1 Cl D 7.75 12/15/2014 50,000 49,875
-------------------
1,960,510
-------------------
Corporate - 27.4%
- ----------------------------------------------
Basic Industry - 2.2%
- ----------------------------------------------
AK Steel Holding Corp. 10.75 4/01/2004 17,525,000 18,883,188
Georgia Pacific Corp. 9.95 6/15/2002 4,275,000 4,844,088
Inland Steel Co. 12.00 12/01/1998 3,000,000 3,240,000
Koppers Industries Inc. 8.50 2/01/2004 7,475,000 7,030,686
Owens-Illinois Inc. 11.00 12/01/2003 16,385,000 17,613,875
Ralcorp Holdings Inc. 8.75 9/15/2004 275,000 282,725
-------------------
51,894,562
-------------------
Consumer Cyclical - 2.8%
- ----------------------------------------------
Exide Corp. 10.75 12/15/2002 11,750,000 11,985,000
General Motors Acceptance Corp. 6.50 4/25/2000 5,000,000 4,955,550
General Motors Acceptance Corp. 6.70 4/30/2001 50,485,000 49,996,305
-------------------
66,936,855
-------------------
Consumer Stable - 0.8%
- ----------------------------------------------
ADT Operations 8.25 8/01/2000 8,285,000 8,409,275
Southland Corp. 4.50 6/15/2004 8,075,000 5,854,375
Southland Corp. 5.00 12/15/2003 6,500,000 5,070,000
-------------------
19,333,650
-------------------
Energy - 1.0%
- ----------------------------------------------
Clark Oil 10.50 12/01/2001 9,250,000 9,573,750
Kern River Funding 144A 6.72 9/30/2001 15,000,000 14,791,650
-------------------
24,365,400
-------------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- ---------------------------------------------- --------- -------------- ------------------- -------------------
Financial - 11.8%
- ----------------------------------------------
Advanta Corp. 7.%0 5/01/2001 5,850,000 $ 5,794,074
Anchor Bancorp 8.94 7/09/2003 7,325,000 7,316,210
Bank of Boston Corp. 8.38 12/15/2002 225,000 238,883
Bayview Capital 144A 8.42 6/01/1999 11,000,000 10,972,500
Capital One Bank Co. 5.95 2/15/2001 10,000,000 9,467,000
Capital One Bank Co. 6.39 6/29/1998 250,000 248,448
Capital One Bank Co. 6.84 6/13/2000 8,675,000 8,589,551
Capital One Bank Co. 6.88 4/24/2000 2,550,000 2,528,351
Capital One Bank Co. 7.00 4/30/2001 5,000,000 4,958,350
Capital One Bank Co. 7.35 6/20/2000 6,250,000 6,269,125
Capital One Bank Co. 8.13 3/01/2000 1,515,000 1,558,177
Chartwell Re Holdings 10.25 3/01/2004 3,058,000 3,249,125
Coast Federal Bank 13.00 12/31/2002 5,000,000 5,574,350
Equitable Life 6.95 12/01/2005 10,475,000 10,057,362
First Nationwide 9.13 1/15/2003 5,500,000 5,307,500
First Nationwide 12.25 5/15/2001 13,200,000 14,432,748
First USA Bank 5.75 1/15/1999 200,000 195,022
First USA Bank 5.85 2/22/2001 250,000 236,230
Goldman Sachs Inc. 144A 6.20 12/15/2000 16,725,000 16,251,014
Goldman Sachs Inc. 144A 6.38 6/15/2000 11,850,000 11,629,590
Goldman Sachs Inc. Group L P 144A 6.20 2/15/2001 15,000,000 14,549,100
Hartford National Bank Corp. 9.85 6/01/1999 300,000 322,587
Liberty Mutual Insurance Co. Inc. 144A 8.50 5/15/2025 2,000,000 2,066,000
Merrill Lynch & Co 6.00 3/01/2001 9,705,000 9,246,342
Merrill Lynch & Co 6.50 4/01/2001 11,775,000 11,567,760
Merrill Lynch & Co 6.70 8/01/2000 500,000 497,495
Midatlantic Bank 9.88 12/01/1999 75,000 81,473
Morgan Stanley Group Inc. 6.70 5/01/2001 15,750,000 15,610,613
New England Mutual Life 144A 7.88 2/15/2024 14,650,000 14,114,836
Reliance Group Holdings Corp. 9.00 11/15/2000 17,275,000 17,294,694
Riggs National Corp. 9.65 6/15/2009 125,000 139,813
Salomon Brothers Inc. 6.70 12/01/1998 5,850,000 5,833,854
Salomon Brothers Inc. 6.82 7/26/1999 8,625,000 8,544,443
Salomon Brothers Inc. 7.00 5/15/1999 2,275,000 2,276,160
Salomon Brothers Inc. 7.13 8/01/1999 1,950,000 1,952,399
Salomon Brothers Inc. 7.25 5/01/2001 9,190,000 9,167,209
Salomon Brothers Inc. 7.75 5/15/2000 6,515,000 6,634,811
Salomon Brothers Inc. (a) 5.77 4/05/1999 4,300,000 4,240,875
Signet Bank 9.63 6/01/1999 3,250,000 3,476,363
Smith Barney Holdings 6.63 6/01/2000 300,000 297,288
TIG Holdings Inc. 8.13 4/15/2005 50,000 50,826
United Companies Financial 7.00 7/15/1998 5,050,000 5,055,454
United Companies Financial 9.35 11/01/1999 11,175,000 11,793,089
USAT Holdings Inc. 144A 9.05 5/15/1998 10,000,000 9,800,000
USF&G Corp. 7.00 5/15/1998 50,000 50,310
-------------------
279,537,404
-------------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- ---------------------------------------------- --------- -------------- ------------------- -------------------
Health Care - 0.7%
- ----------------------------------------------
Healthsouth Rehabilitation 9.%0 4/01/2001 14,875,000 $ 15,470,000
R P Scherer Corp. 6.75 2/01/2004 50,000 46,986
-------------------
15,516,986
-------------------
Real Estate - 2.2%
- ----------------------------------------------
Avalon Property REIT 7.38 9/15/2002 175,000 172,324
Duke Realty REIT Investments 7.38 9/22/2005 150,000 144,716
Healthcare Properties REIT 6.50 2/15/2006 7,875,000 7,241,378
Merry Land Co. REIT 7.25 10/01/2002 150,000 149,234
Shopping Center Associates 6.75 1/15/2004 10,000,000 9,426,000
Spieker Properties 6.65 12/15/2000 150,000 145,460
Spieker Properties 6.90 1/15/2004 10,000,000 9,456,000
Sun Communities 7.38 5/01/2001 5,425,000 5,406,881
Taubman Realty Group 8.00 6/15/1999 9,900,000 9,999,000
United Dominion Realty Trust 8.50 9/15/2024 10,000,000 10,591,200
Wellsford Residential Property 7.75 8/15/2005 300,000 297,630
-------------------
53,029,823
-------------------
Services - 5.3%
- ----------------------------------------------
Enterprise Corp. 7.00 6/15/2000 8,225,000 8,247,372
Erac Usa Finance 7.88 3/15/1998 16,775,000 17,132,643
Hertz Corp. 6.70 6/15/2002 100,000 98,012
Hertz Corp. 7.00 4/15/2001 35,000 35,052
News America Holdings Corp. 7.70 10/30/2025 10,500,000 9,661,995
News America Holdings Corp. 8.88 4/26/2023 2,400,000 2,475,840
News America Holdings Corp. 9.50 7/15/2024 4,250,000 4,671,600
News America Holdings Corp. 12.00 12/15/2001 70,000 75,932
Time Warner Inc. 6.85 1/15/2026 6,000,000 5,747,220
Time Warner Inc. 9.13 1/15/2013 32,880,000 34,339,214
Viacom Inc. 6.75 1/15/2003 7,200,000 6,793,272
Viacom Inc. 7.63 1/15/2016 5,525,000 4,986,313
Viacom Inc. 7.75 6/01/2005 30,980,000 30,206,120
-------------------
124,470,585
-------------------
Technology - 0.2%
- ----------------------------------------------
Jones Intercable 9.63 3/15/2002 4,000,000 4,074,000
Utilities - 0.4%
- ----------------------------------------------
System Energy Resources Corp. 7.38 10/01/2000 350,000 338,125
System Energy Resources Corp. 10.50 9/01/1996 9,350,000 9,420,125
-------------------
9,758,250
-------------------
TOTAL Corporate 648,917,515
-------------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- ---------------------------------------------- --------- -------------- -------------------- -------------------
Australia - 0.2%
- ----------------------------------------------
Government
- ----------------------------------------------
New South Wales Treasury 0.%0 9/03/2010 AUD 8,030,000 $ 1,758,446
South Australia Government Finance 0.00 12/21/2015 AUD 8,500,000 1,156,254
Treasury Corp. of Victoria 0.00 8/31/2011 AUD 5,500,000 1,094,136
-------------------
4,008,836
-------------------
Canada - 0.2%
- ----------------------------------------------
Government
- ----------------------------------------------
Govt. of Canada 7.75 9/01/1999 CAD 1,200,000 908,091
Govt. of Canada 8.50 3/01/2000 CAD 2,800,000 2,167,312
Govt. of Canada 8.50 4/01/2002 CAD 1,200,000 934,037
-------------------
4,009,440
-------------------
Denmark - 0.8%
- ----------------------------------------------
Government
- ----------------------------------------------
Denmark Bullet 9.00 11/15/2000 DKK 23,075,000 4,352,662
Kingdom of Denmark 8.00 11/15/2001 DKK 9,700,000 1,764,657
Kingdom of Denmark 8.00 3/15/2006 DKK 9,900,000 1,753,513
Kingdom of Denmark 9.00 11/15/1998 DKK 5,200,000 960,078
-------------------
8,830,910
-------------------
Other
- ----------------------------------------------
Denmark Nykredit 7.00 10/01/2026 DKK 45,392,000 6,757,913
Denmark Nykredit 8.00 10/01/2026 DKK 12,695,000 2,050,383
Denmark Realkredit 7.00 10/01/2026 DKK 3,135,000 466,735
Denmark Realkredit 9.00 10/01/2006 DKK 9,090,000 1,671,326
-------------------
10,946,357
-------------------
TOTAL Denmark 19,777,267
-------------------
Finland - 0.2%
- ----------------------------------------------
Government
- ----------------------------------------------
Govt. of Finland 7.25 4/18/2006 FIM 10,000,000 2,132,096
Govt. of Finland 10.00 9/15/2001 FIM 14,000,000 3,514,140
-------------------
5,646,236
-------------------
France - 0.3%
- ----------------------------------------------
Government
- ----------------------------------------------
French Treasury Bill 7.00 11/12/1999 FRF 20,500,000 4,207,187
-------------------
Other
- ----------------------------------------------
Republic of Argentina 9.88 1/06/1998 FRF 15,300,000 3,089,409
-------------------
TOTAL France 7,296,596
-------------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- ---------------------------------------------- --------- -------------- ------------------- -------------------
Germany - 0.5%
- ----------------------------------------------
Government
- ----------------------------------------------
Baden Wurttemberg 6.%0 1/25/2006 DEM 1,150,000 $ 717,807
Baden Wurttemberg 6.20 11/22/2013 DEM 3,000,000 1,944,055
Federal Republic of Germany 5.88 5/15/2000 DEM 2,255,000 1,514,135
Federal Republic of Germany 6.88 5/12/2005 DEM 2,000,000 1,347,769
Federal Republic of Germany 8.00 7/22/2002 DEM 920,000 666,094
Federal Republic of Germany 8.38 5/21/2001 DEM 2,400,000 1,760,630
Federal Republic of Germany 9.00 10/20/2000 DEM 4,450,000 3,311,220
-------------------
11,261,710
-------------------
Other
- ----------------------------------------------
Province of Buenos Aires 10.00 12/07/1998 DEM 550,000 378,937
Province of Buenos Aires 10.00 3/05/2001 DEM 2,000,000 1,333,990
-------------------
1,712,927
-------------------
TOTAL Germany 12,974,637
-------------------
Ireland - 0.2%
- ----------------------------------------------
Government
- ----------------------------------------------
Irish Gilts 6.25 4/01/1999 IEP 640,000 1,016,717
Irish Gilts 6.50 10/18/2001 IEP 1,460,000 2,290,276
Irish Gilts 9.25 7/11/2003 IEP 1,265,000 2,239,619
-------------------
5,546,612
-------------------
Italy - 0.9%
- ----------------------------------------------
Government
- ----------------------------------------------
Govt. of Italy 8.50 1/01/1999 ITL 7,275,000,000 4,771,774
Govt. of Italy 9.00 11/01/2023 ITL 4,800,000,000 2,970,714
Govt. of Italy 9.50 12/01/1999 ITL 4,600,000,000 3,079,257
Govt. of Italy 10.50 11/01/2000 ITL 7,000,000,000 4,855,067
Govt. of Italy 10.50 11/01/2000 ITL 3,010,000,000 2,087,679
Govt. of Italy 12.50 3/01/2001 ITL 3,500,000,000 2,590,160
-------------------
20,354,651
-------------------
Other
- ----------------------------------------------
Bank Nederlandse 10.50 6/18/2003 ITL 1,300,000,000 902,248
-------------------
TOTAL Italy 21,256,899
-------------------
Japan - 0.4%
- ----------------------------------------------
Other
- ----------------------------------------------
KFW International Finance 6.00 11/29/1999 JPY 301,000,000 3,103,316
Kingdom of Belgium 5.00 12/17/1999 JPY 600,000,000 6,018,054
-------------------
9,121,370
-------------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- ---------------------------------------------- --------- -------------- ------------------- -------------------
New Zealand - 0.3%
- ----------------------------------------------
Government
- ----------------------------------------------
Government Property Services 7.%5 3/15/1999 NZD 4,850,000 $ 3,107,474
Govt. of New Zealand 8.00 11/15/2006 NZD 2,450,000 1,595,568
-------------------
4,703,042
-------------------
Other
- ----------------------------------------------
Fletcher Challenge 10.00 4/30/2005 NZD 1,500,000 1,000,491
Fletcher Challenge Cvt 11.25 12/15/2002 NZD 3,100,000 2,191,313
-------------------
3,191,804
-------------------
TOTAL New Zealand 7,894,846
-------------------
Norway - 0.2%
- ----------------------------------------------
Other
- ----------------------------------------------
Union Bank of Norway 12.75 10/26/2002 NOK 12,500,000 2,048,409
Uni-Storebrand As 11.15 1/15/2002 NOK 8,000,000 1,408,158
Vesta Forsikring 9.50 8/25/2000 NOK 2,000,000 330,358
Vital Forsikring 7.85 9/22/2003 NOK 8,100,000 1,230,601
-------------------
5,017,526
-------------------
Spain - 0.5%
- ----------------------------------------------
Government
- ----------------------------------------------
Castilla Junta 8.30 11/29/2001 ESB 85,000,000 669,532
Junta de Andalucia 11.10 12/02/2005 ESB 690,000,000 5,890,062
Kingdom of Spain 10.00 2/28/2005 ESB 150,820,000 1,260,164
Kingdom of Spain 10.30 6/15/2002 ESB 100,600,000 852,708
Kingdom of Spain 11.30 1/15/2002 ESB 168,000,000 1,478,086
Kingdom of Spain 12.25 3/25/2000 ESB 310,000,000 2,745,300
-------------------
12,895,852
-------------------
Sweden - 0.9%
- ----------------------------------------------
Government
- ----------------------------------------------
Kingdom of Sweden 9.00 4/20/2009 SEK 40,700,000 6,406,755
Kingdom of Sweden 10.25 5/05/2003 SEK 12,000,000 2,030,436
Kingdom of Sweden 13.00 6/15/2001 SEK 40,000,000 7,375,875
Sweden Caisse #1036 10.25 5/05/2000 SEK 24,100,000 4,005,812
------------------
19,818,878
------------------
Other
- ----------------------------------------------
Fulmar Mortgage Sec #1 7.65 11/01/2000 SEK 4,509,600 677,705
------------------
TOTAL Sweden 20,496,583
------------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- ---------------------------------------------- --------- -------------- -------------------- ------------------
Thailand - 0.1%
- ----------------------------------------------
Government
- ----------------------------------------------
Thailand Investment Bills of Exchange 0.%0 10/28/1996 THB 20,000,000 $ 764,827
Thailand Investment Bills of Exchange 0.00 10/29/1996 THB 30,000,000 1,146,957
Thailand Investment Bills of Exchange 0.00 10/31/1996 THB 35,000,000 1,337,455
------------------
3,249,239
------------------
United Kingdom - 1.2%
- ----------------------------------------------
Government
- ----------------------------------------------
UK Gilt Treasury 6.00 8/10/1999 GBP 612,000 926,551
UK Gilt Treasury 7.00 11/06/2001 GBP 2,250,000 3,432,615
UK Gilt Treasury 7.50 12/07/2006 GBP 840,000 1,266,850
UK Gilt Treasury 9.00 3/03/2000 GBP 1,000,000 1,645,832
UK Treasury 6.75 11/26/2004 GBP 2,850,000 4,139,353
UK Treasury 8.00 12/07/2000 GBP 1,850,000 2,956,002
------------------
14,367,203
------------------
Other
- ----------------------------------------------
Birmingham Midshares Soc 9.13 1/05/2006 GBP 1,000,000 1,563,478
Hanson Trust Plc 10.00 4/18/2006 GBP 2,350,000 3,941,538
Mepc Plc 12.00 6/30/2006 GBP 1,280,000 2,423,165
Seeboard Plc 8.50 10/03/2005 GBP 2,000,000 3,065,462
Smithkline Beecham Corp. 8.13 11/25/1998 GBP 1,500,000 2,387,474
Woolwich Building Society 11.63 12/18/2001 GBP 600,000 1,070,518
------------------
14,451,635
------------------
TOTAL United Kingdom 28,818,838
------------------
Yankee Bonds - 7.0%
- ----------------------------------------------
Banponce Corp. 6.75 12/15/2005 175,000 164,329
Brascan Ltd. 7.38 10/01/2002 9,350,000 9,161,037
Cominco Ltd. 6.88 2/15/2006 16,950,000 15,741,126
Doman Industries Limited 8.75 3/15/2004 12,300,000 11,070,000
Domtar Inc. 12.00 4/15/2001 9,500,000 11,067,500
Fletcher Challenge 7.75 6/20/2006 11,150,000 11,306,992
Govt. of Argentina (a) 6.31 3/31/2005 1,138,500 893,723
Hanson America Inc. 2.39 3/01/2001 1,700,000 1,445,000
Malette Inc. 12.25 7/15/2004 7,050,000 7,402,500
Methanex Corp. 7.40 8/15/2002 4,500,000 4,461,210
Methanex Corp. 7.75 8/15/2005 23,560,000 23,153,826
Novacor Chemical 6.50 9/22/2000 525,000 512,190
Republic of Argentina 5.25 3/31/2023 18,300,000 10,019,250
Rogers Cantel 9.38 6/01/2008 14,850,000 14,404,500
Se Banken 144A Euro Step Up 6.63 3/29/2049 15,000,000 14,401,650
St Georges Bank 144A 7.15 10/15/2005 19,200,000 18,569,472
Tembec Finance Corp. 9.88 9/30/2005 9,325,000 8,672,250
------------------
162,446,555
------------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- ---------------------------------------------- --------- -------------- -------------------- ------------------
U.S. Government Agency - 31.5%
- ----------------------------------------------
Other - 0.4%
- ----------------------------------------------
Federal Farm Credit Bank 6.%0 8/28/1998 100,000 $ 100,000
Federal Home Loan Bank 5.32 9/18/1996 9,300,000 9,176,426
------------------
9,276,426
------------------
Pass Thru Securities - 31.1%
- ----------------------------------------------
CSFB 1995-A 144A 6.69 11/15/2005 11,150,000 10,780,656
FDIC Remic Trust 1994-C1 2C 8.45 9/25/2025 250,000 256,016
FHLMC 6.50 3/01/2026 - 5/01/2026 36,464,457 34,151,153
FNMA 6.50 12/01/2025 - 5/01/2026 81,441,533 76,173,081
FNMA 7.00 12/01/1999 - 9/01/2025 256,740,642 247,791,311
GNMA 7.00 4/15/2022 - 1/15/2025 97,609,557 94,031,682
GNMA 7.50 12/15/2021 - 10/15/2025 82,854,640 81,984,053
GNMA 9.00 4/15/2016 - 8/15/2026 105,311,400 111,092,966
GS Mtg Sec Corp. II Erisa 1996-Pl 7.02 2/15/2027 9,549,303 9,483,651
Lehman Brothers Commercial Conduit Mortgage Trust 1995-C2 7.05 9/25/2025 1,930,000 1,788,869
Noranda Inc. 7.00 7/15/2005 7,200,000 6,921,936
Resolution Trust Corp. 1994 C2 E 8.00 4/25/2025 5,507,717 5,294,293
Resolution Trust Corp. 1994-1 Cl M2 7.75 9/25/2029 3,764,761 3,677,700
Resolution Trust Corp. 1994-C1 D 8.00 6/25/2026 7,777,415 7,682,627
Resolution Trust Corp. 1994-C2 D AL 1 8.00 4/25/2025 4,804,624 4,762,584
Resolution Trust Corp. 1995 Cl E 6.90 6/01/2025 13,781,983 11,309,839
Resolution Trust Corp. 1995-2B1 7.45 9/15/2025 2,462,892 2,442,112
Resolution Trust Corp. P-T Ser 1992-M4 A1 8.00 8/25/2023 2,428,580 2,437,687
SKW Ltd. Partnership 9.30 4/15/2005 7,942,000 7,949,446
Structured Asset Security Corp. 1994-C1 D 6.87 8/25/2026 10,000,000 9,309,375
Structured Asset Security Corp. 1996-Cfl C 6.53 2/25/2028 6,700,000 6,369,188
------------------
735,690,225
------------------
TOTAL U.S. Government Agency 744,966,651
------------------
U.S. Treasury Obligations - 20.0%
- ----------------------------------------------
Treasury Bonds - 5.8%
- ----------------------------------------------
U.S. Treasury Bond 7.25 5/15/2016 17,790,000 18,206,998
U.S. Treasury Bond 7.50 11/15/2016 3,825,000 4,018,622
U.S. Treasury Bond 7.63 2/15/2025 37,050,000 39,921,375
U.S. Treasury Bond 7.88 2/15/2021 64,420,000 70,670,673
U.S. Treasury Bond 8.13 8/15/2019 4,295,000 4,821,138
------------------
137,638,806
------------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- ---------------------------------------------- --------- -------------- -------------------- ------------------
Treasury Notes - 14.2%
- ----------------------------------------------
U.S. Treasury Note 5.%3 1/31/1998 31,775,000 $ 31,581,490
U.S. Treasury Note 5.88 2/15/2004 77,240,000 73,824,447
U.S. Treasury Note 6.25 4/30/2001 41,400,000 40,998,938
U.S. Treasury Note 6.25 2/15/2003 32,875,000 32,294,428
U.S. Treasury Note 6.38 1/15/2000 14,795,000 14,792,633
U.S. Treasury Note 6.38 3/31/2001 1,400,000 1,393,868
U.S. Treasury Note 6.88 3/31/2000 43,425,000 44,055,965
U.S. Treasury Note 7.13 2/29/2000 43,150,000 44,127,779
U.S. Treasury Note 6.13 7/31/2000 10,180,000 10,067,104
U.S. Treasury Note (P/O) 0.00 11/15/2018 92,769,000 18,958,273
U.S. Treasury Note (Strip) 0.00 11/15/1999 3,475,000 2,810,823
U.S. Treasury Note (Strip) 0.00 8/15/2008 43,970,000 19,127,390
U.S. Treasury Note (Strip) 0.00 8/15/2015 4,965,000 1,283,651
------------------
335,316,789
------------------
TOTAL U.S. Treasury Obligations 472,955,595
------------------
TOTAL BONDS and NOTES (Identified Cost $2,304,013,422) 2,328,326,962
------------------
Preferred Stock - 1.9% Shares
- ---------------------------------------------- --------------------
Australia & New Zealand Bank 358,000 9,442,250
Bank United of Texas 148,380 3,839,333
Credit Lyon Capital 144A 244,250 5,465,094
First Nationwide Bank 8,400 919,800
Newscorp Overseas Ltd. Ser B 232,000 5,220,000
Public Service of New Hampshire 73,220 1,779,246
Riggs National Corp. 100,000 2,825,000
Time Warner Inc. 10.25% Ser K * 16,365 15,792,225
------------------
TOTAL Preferred Stock (Identified Cost $46,496,720) 45,282,948
------------------
<PAGE>
Principal
Amount of Value
Security Contracts (Note 1A)
- ---------------------------------------------- -------------------- ------------------
Purchased Options - 0.1%
- ----------------------------------------------
Deliver/Receive, Excercise Price, Expiration
- ------------------------------------------------------------
AUD 10.00% Call, Str 106.163, 10/25/96 6,850,000 $ 111,744
AUD 10.00% Call, Str 107.541, 10/23/96 4,750,000 54,245
AUD 7.50% Call, Str 90.773, 10/25/96 700,000 11,184
CHF Put/ESB Call, Str 103.000, 8/29/96 4,800,000 25,656
CHF Put/GBP Call, Str 1.9385, 8/7/96 2,400,000 25,690
CHF Put/ITL Call, Str 1230.00, 6/17/97 4,800,000 39,826
CHF Put/USD Call, Str 1.27, 9/6/96 6,650,000 53,865
DEM 6.25% Call, Str 87.980, 11/07/96 10,245,000 93,916
DEM 6.25% Call, Str 99.00, 9/23/96 5,500,000 10,775
DEM 6.50% Call, Str 100.550, 8/20/96 5,500,000 14,438
DEM 7.375% Call, Str 105.910, 9/16/96 8,600,000 28,776
DEM Put / USD Call, Str 1.530, 10/24/96 4,150,000 53,120
DEM Put / USD Call, Str 1.535, 10/25/96 5,800,000 69,020
DEM Put/ESB Call, Str 83.550, 7/9/96 5,900,000 1,935
DEM Put/USD Call, Str 1.550, 4/22/97 3,700,000 62,530
ESB 10.15% Call, Str 105.650, 11/14/96 465,000,000 107,415
ESB Put/JPY Call, Str 1.200, 5/22/97 438,700,000 89,934
ITL 9.00% Call, Str 92.48, 9/17/96 4,800,000,000 100,800
ITL 9.00% Call, Str 95.07, 9/25/96 4,090,000,000 49,080
JPY 2.90% Call, Str 97.854, 7/3/96 440,000,000 440
JPY 3.20% Call, Str 99.512, 7/1/96 340,000,000 680
JPY 4.20% Call, Str 106.983, 7/3/96 440,000,000 880
JPY Put/ ESB Call, Str 1.180, 5/26/97 450,000,000 71,100
JPY Put/AUD Call, Str 85.150, 12/30/96 500,000,000 105,500
JPY Put/AUD Call, Str 86.400, 5/28/97 450,000,000 76,950
JPY Put/ESB Call, Str 1.200, 10/30/96 375,000,000 75,750
JPY Put/ITL Call, Str 14.555, 12/12/96 575,460,000 161,704
JPY Put/NZD Call, Str 72.000, 5/28/97 450,000,000 113,850
SEK 9.00% Call, Str 102.41, 9/17/96 40,800,000 171,278
USD Put/CAD Call, Str 1.35, 9/10/96 3,260,000 9,128
UST Call 5.625% 2/06, Str 97.781, 7/16/96 209,000 0
UST Call 7.625% 2/25, Str 112.484, 7/25/96 370,500 40,523
UST Put 6.00% 02/26, Str 86.0625, 7/26/96 212,000 62,938
UST Put 6.00% 2/26, Str 86.03125, 7/26/96 212,000 62,938
------------------
Total Purchased Options (Premiums Paid $2,686,410) 1,957,608
------------------
<PAGE>
Par Value
Security Value (Note 1A)
- ---------------------------------------------- -------------------- ------------------
Short-Term Investments - 0.3%
- ----------------------------------------------
Repurchase Agreements - 0.3%
- ----------------------------------------------
Prudential-Bache Repurchase Agreement, dated 6/28/96,
4.77% due 7/1/96, to pay $6,682,731 (Collateralized by
FNMAs and FHMLCs with rates ranging from
6.50% to 8.00% and maturity dates ranging from 5/01/06
to 7/01/26 with an aggregate market value of $6,813,689. 6,680,076 $ 6,680,076
------------------
TOTAL Short-Term Investments (Identified Cost $6,680,076) 6,680,076
------------------
TOTAL INVESTMENTS (Identified Cost $2,359,876,628) - 98.8% 2,336,964,646
------------------
Principal
Amount of
Contracts
--------------------
Written Options - 0.0%
- ----------------------------------------------
Deliver/Receive, Excercise Price, Expiration
- ------------------------------------------------------------
AUD 10.00% Call, Str 110.163, 10/25/96 (6,850,000) (36,332)
AUD 10.00% Call, Str 111.541, 10/23/96 (4,750,000) (15,499)
AUD 10.00% Put, Str 102.163, 10/25/96 (6,850,000) (28,311)
AUD 10.00% Put, Str 103.541, 10/23/96 (4,750,000) (31,393)
AUD 7.50% Call, Str 94.773, 10/25/96 (700,000) (3,128)
AUD 7.50% Put, Str 86.773, 10/25/96 (700,000) (1,588)
AUD Put/JPY Call, Str 74.000, 5/28/97 (450,000,000) (63,000)
CAD Put/USD Call, Str 1.38, 9/10/96 (3,260,000) (7,824)
CHF Put/USD Call, Str 1.33, 9/6/96 (6,650,000) (8,645)
DEM 6.25% Call, Str 92.130, 11/7/96 (10,245,000) (15,890)
DEM 6.25% Put, Str 83.830, 11/07/96 (10,245,000) (35,540)
DEM 6.25% Put, Str 95.640, 11/14/96 (5,565,000) (27,753)
DEM Put / USD Call, Str 1.600, 10/24/96 (4,150,000) (12,865)
DEM Put / USD Call, Str 1.605, 10/25/96 (5,800,000) (12,760)
ESB 10.15% Call, Str 108.650, 11/14/96 (465,000,000) (48,360)
ESB Put JPY Call, Str 1.350, 5/22/97 (438,700,000) (26,322)
ESB Put/ JPY Call, Str 1.340, 5/26/97 (450,000,000) (31,950)
ESB Put/CHF Call, Str 111.000, 8/29/96 (4,800,000) (1,915)
ESB Put/JPY Call, Str 1.400, 10/30/96 (375,000,000) (1,875)
ITL 9.00% Call, Str 95.68, 9/17/96 (4,800,000,000) (48,000)
ITL 9.00% Call, Str 97.57, 9/25/96 (4,090,000,000) (24,540)
ITL 9.00% Put, Str 90.36, 9/17/96 (4,800,000,000) (14,400)
ITL 9.00% Put, Str 92.57, 9/25/96 (4,090,000,000) (28,630)
ITL Put/CHF Call, Str 1350.00, 6/17/97 (4,800,000) (44,808)
<PAGE>
Principal
Amount of Value
Security Contracts (Note 1A)
- ---------------------------------------------- -------------------- ------------------
Written Options - 0.0% (Continued)
- ----------------------------------------------
Deliver/Receive, Excercise Price, Expiration
- ------------------------------------------------------------
NZD Put/JPY Call, Str 65.000, 5/28/97 (450,000,000) $ (85,950)
SEK 9.00% Call, Str 105.66, 9/17/96 (40,800,000) (68,136)
SEK 9.00% Put, Str 99.16, 9/17/96 (40,800,000) (24,562)
USD Put/CHF Call, Str 1.140, 10/24/96 (4,150,000) (7,470)
USD Put/CHF Call, Str 1.145, 10/25/96 (5,800,000) (12,180)
USD Put/CHF Call, Str 1.176, 7/10/96 (5,000,000) (2,000)
USD Put/DEM Call, Str 1.425, 4/22/97 (3,700,000) (51,430)
UST Call 7.625% 2/25, Str 112.484, 7/25/96 (370,500) (40,523)
UST Put 6.875% 5/06, Str 99.1875, 7/26/96 (371,000) (118,836)
UST Put 6.875% 5/06, Str 99.203125, 7/26/96 (371,000) (115,938)
------------------
TOTAL Written Options (Premiums Received $2,625,506) (1,098,353)
-------------------
Other Assets less Liabilities - 1.3% 29,699,179
-------------------
Net Assets - 100.0% $ 2,365,565,472
===================
The following abbreviations are used in this portfolio:
AUD - Australian Dollar GNMA - Government National Mortgage Association
DEM - Deutsche Mark IEP - Irish Punt
DKK - Danish Krane ITL - Italian Lira
ESP - Spanish Peseta JPY - Japanese Yen
FHLMC - Federal Home Loan Mortgage Corporation NOK - Norwegian Krone
FIM - Finnish Mark NZD - New Zealand Dollar
FNMA - Federal National Mortgage Association SEK - Swedish Krona
FRF - French Franc THB - Thai Baht
GBP - Great Britain Pound
</TABLE>
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Fixed Income Portfolio Series
Statement of Assets and Liabilities
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Assets:
<S> <C> <C>
Investments, at value (Note 1A) (identified cost, $2,359,876,628) $ 2,336,964,646
Foreign currency, at value (cost, $3,478,484) 3,491,704
Receivable for investments sold 44,940,461
Interest and dividends receivable 35,309,989
Unrealized appreciation on forward foreign currency exchange contracts (Note 6) 690,973
Deferred organizational costs (Note 1F) 71,418
-------------------
Total assets 2,421,469,190
Liabilities:
Payable for investments purchased $ 47,311,221
Payable for delayed delivery transactions (Note 6) 6,732,294
Payable for daily variation margin on open
financial futures contracts (Note 5) 2,606
Written options outstanding, at value (premiums received, $2,625,506) 1,098,353
Accrued investment advisory fee (Note 2) 506,947
Accrued trustee fees 12,109
Accrued expenses and other liabilities 240,187
----------------
Total liabilities 55,903,718
-------------------
Net Assets $ 2,365,565,472
===================
Net Assets consist of
Net proceeds from capital contributions and withdrawals $ 2,386,329,250
Unrealized appreciation (depreciation) of investments (20,763,778)
-------------------
Total net assets $ 2,365,565,472
===================
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Fixed Income Portfolio Series
Statement of Operations
For the period May 3, 1996 (commencement of operations)
through June 30, 1996 (Unaudited)
Investment Income:
Interest Income $ 26,243,204
Dividend income (net of withholding tax of $2,997) 1,035,928
----------------
Total income 27,279,132
Expenses
Investment advisory fee (Note 2) $ 1,129,267
Trustees fees 12,109
Custodian and accounting expenses 129,480
Amortization of organization expense (Note 1F) 2,261
Legal and audit services 43,787
Insurance expense 17,789
Miscellaneous 3,067
----------------
Total expenses 1,337,759
----------------
Net investment income (loss) 25,941,373
----------------
Realized and Unrealized Gain (Loss)
Net realized gain(loss):
Investment security transactions (9,180,083)
Financial futures 47,795
Written options 1,450,613
Foreign currency and forward foreign
currency exchange contracts (369,316)
----------------
Net realized gain (loss) (8,050,991)
Change in unrealized appreciation (depreciation):
Investment securities 34,012,759
Financial futures (9,849)
Written options 1,053,756
Foreign currency transactions and forward foreign
currency contracts (643,117)
----------------
Change in net unrealized appreciation (depreciation) 34,413,549
----------------
Net realized and unrealized gain (loss) 26,362,558
----------------
Net increase (decrease) in net assets from operations $ 52,303,931
================
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Fixed Income Portfolio Series
Statement of Changes in Net Assets
For the period May 3, 1996 (commencement of operations)
through June 30, 1996 (Unaudited)
Increase (Decrease) in Net Assets
From operations
Net investment income (loss) $ 25,941,373
Net realized gain (loss) (8,050,991)
Change in net unrealized appreciation (depreciation) 34,413,549
-------------------
Net increase (decrease) in net assets from operations 52,303,931
-------------------
Capital transactions
Assets contributed by Standish Fixed Income Fund at commencement
(including unrealized depreciation of $55,177,327) 2,294,116,138
Contributions 53,999,410
Withdrawals (34,854,007)
-------------------
Increase in net assets resulting from capital transactions 2,313,261,541
-------------------
Total increase (decrease) in net assets 2,365,565,472
Net Assets
At beginning of period ---
-------------------
At end of period $ 2,365,565,472
===================
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Fixed Income Portfolio Series
Supplementary Data
For the period May 3, 1996 (commencement of operations)
through June 30, 1996 (Unaudited)
Ratios (to average daily net assets):
Expenses 0.*7%
Net investment income 7.*3%
Portfolio Turnover 19%
* Annualized
</TABLE>
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Fixed Income Portfolio Series
Notes to Financial Statements
(Unaudited)
(1).....Significant Accounting Policies:
Standish, Ayer & Wood Master Portfolio (the "Portfolio Trust") was
organized as a master trust fund under the laws of the State of New
York on January 18, 1996 and is registered under the Investment Company
Act of 1940, as amended, as an open-end, management investment company.
Standish Fixed Income Portfolio (the "Portfolio") is a separate
diversified investment series of the Portfolio Trust. The following is
a summary of significant accounting policies consistently followed by
the Portfolio in the preparation of its financial statements. The
preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
A...Investment security valuations--
Securities for which quotations are readily available are valued at the
last sale price, or if no sale price, at the closing bid price in the
principal market in which such securities are normally traded.
Securities (including restricted securities) for which quotations are
not readily available are valued primarily using dealer-supplied
valuations or at their fair value as determined in good faith under
consistently applied procedures under the general supervision of the
Board of Trustees. Short term instruments with less than sixty-one days
remaining to maturity when acquired by the Portfolio are valued at
amortized cost. If the Portfolio acquires a short term instrument with
more than sixty days remaining to its maturity, it is valued at current
market value until the sixtieth day prior to maturity and will then be
valued at amortized cost based upon the value on such date unless the
trustees determine during such sixty-day period that amortized cost
does not represent fair value.
B...Repurchase agreements--
It is the policy of the Portfolio to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book
Entry System or to have segregated within the custodian bank's vault,
all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the
Portfolio to monitor on a daily basis, the market value of the
repurchase agreement's underlying investments to ensure the existence
of a proper level of collateral.
C...Securities transactions and income--
Securities transactions are recorded as of trade date. Interest income
is determined on the basis of interest accrued, adjusted for
amortization of premium or discount on long-term debt securities when
required for federal income tax purposes. Dividend income is recorded
on the ex-dividend date. Realized gains and losses from securities sold
are recorded on the identified cost basis. The Portfolio does not
isolate that portion of the results of operations resulting from
changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or
loss from investments.
D...Income Taxes--
The Portfolio is treated as a partnership for federal tax purposes. No
provision is made by the Portfolio for federal or state taxes on any
taxable income of the Portfolio because each investor in the Portfolio
is ultimately responsible for the payment of any taxes. Since some of
the Portfolio`s investors are regulated investment companies that
invest all or substantially all of their assets in the Portfolio, the
Portfolio normally must satisfy the source of income and
diversification requirements applicable to regulated investment
companies (under the Code) in order for its investors to satisfy them.
The Portfolio will allocate at least annually among its investors 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.
<PAGE>
E...Foreign currency transactions--
Investment security valuations, other assets, and liabilities initially
expressed in foreign currencies are converted into U.S. dollars based
upon current exchange rates. Purchases and sales of foreign investment
securities and income and expenses are converted into U.S. dollars
based upon currency exchange rates prevailing on the respective dates
of such transactions. Section 988 of the Internal Revenue Code provides
that gains or losses on certain transactions attributable to
fluctuations in foreign currency exchange rates must be treated as
ordinary income or loss. For financial statement purposes, such amounts
are included in net realized gains or losses.
F...Deferred Organizational Expenses--
Costs incurred by the Portfolio in connection with its organization and
initial registration are being amortized on a straight-line basis
through April 2001.
(2).....Investment Advisory Fee:
The investment advisory fee paid to Standish, Ayer & Wood, Inc. (SA&W)
for overall investment advisory and administrative services is paid
monthly at the annual rate of 0.40% of the Portfolio's first
$250,000,000 of average daily net assets, 0.35% of the next
$250,000,000 of average daily net assets, and 0.30% of the average
daily net assets in excess of $500,000,000. The Portfolio pays no
compensation directly to its trustees who are affiliated with the
investment adviser or to its officers, all of whom receive remuneration
for their services to the Portfolio from the investment adviser.
Certain of the trustees and officers of the Portfolio Trust are
partners or officers of SA&W.
(3).....Purchases and Sales of Investments:
<TABLE>
<CAPTION>
Purchases and proceeds from sales of investments, short-term
obligations, were as follows:
Purchases Sales
------------------- -------------------
<S> <C> <C>
U.S. Government Securities $268,971,984 $332,349,034
=================== ===================
Investments (non-U.S. government securities) $203,455,236 $96,086,604
=================== ===================
</TABLE>
(4) ....Federal Income Tax Basis of Investment Securities:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at June 30, 1996, as computed on a federal
income tax basis, were as follows:
Aggregate cost $2,360,257,184
=====================
Gross unrealized depreciation ($48,140,419)
Gross unrealized appreciation 24,847,701
---------------------
Net unrealized appreciation (depreciation) ($23,292,718)
=====================
(5).....Financial Instruments
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to enhance
potential gain in circumstances where hedging is not involved. The
nature, risks, and objectives of these instruments are set forth more
fully in the Portfolio's Prospectus and Statement of Additional
Information. The Portfolio trades the following financial instruments
with off-balance sheet risk:
<PAGE>
.........Options--
Call and put options give the holder the right to purchase or sell,
respectively, a security or currency at a specified price on or before
a certain date. The Portfolio uses options to hedge against risks of
market exposure and changes in security prices and foreign currencies,
as well as to enhance returns. Options, both held and written by the
Portfolio, are reflected in the accompanying Statement of Assets and
Liabilities at market value. Premiums received from writing options
which expire are treated as realized gains. Premiums received from
writing options which are exercised or are closed are added to or
offset against the proceeds or amount paid on the transaction to
determine the realized gain or loss. If a put option purchased by the
Portfolio is exercised, the premium reduces the cost basis of the
securities purchased by the Portfolio. The Portfolio, as a writer of an
option, has no control over whether the underlying securities may be
sold (call) or purchased (put) and as a result bears the market risk of
an unfavorable change in the price of the security underlying the
written option. A summary of such transactions for the period May 3,
1996 through June 30, 1996 is as follows:
<TABLE>
<CAPTION>
Written Call Option Transactions
- ----------------------------------------------------------------------------------------------------------------------------
Number
of Contracts Premiums
-------------------- -------------------
<S> <C> <C>
Outstanding, beginning of period 9 $ 1,178,065
Options written 9 1,195,415
Options exercised 0 0
Options expired (3) (925,094)
Options closed (1) (27,250)
-------------- -------------------
Outstanding, end of period 14 $ 1,421,136
============== ===================
Written Call Option Transactions
- ----------------------------------------------------------------------------------------------------------------------------
Number
of Contracts Premiums
-------------------- -------------------
Outstanding, beginning of period 11 $ 768,494
Options written 6 421,150
Options exercised 0 0
Options expired (2) (109,000)
Options closed (2) (292,016)
-------------- -------------------
Outstanding, end of period 13 $ 788,628
============== ===================
Written Cross Currency Option Transactions
- ----------------------------------------------------------------------------------------------------------------------------
Number
of Contracts Premiums
-------------------- -------------------
Outstanding, beginning of period 5 $ 297,199
Options written 5 322,227
Options exercised 0 0
Options expired 0 0
Options closed (3) (203,684)
-------------- -------------------
Outstanding, end of period 7 $ 415,742
============== ===================
</TABLE>
<PAGE>
.........Forward currency exchange contracts--
The Portfolio may enter into forward foreign currency and cross
currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise
upon entering these contracts from the potential inability of
counterparties to meet the terms of their contracts and from
unanticipated movements in the value of a foreign currency relative to
the U.S. dollar and other foreign currencies. The forward foreign
currency and cross currency exchange contracts are marked to market
using the forward foreign currency rate of the underlying currency and
any gains or losses are recorded for financial statement purposes as
unrealized until the contract settlement date. Forward currency
exchange contracts are used by the Portfolio primarily to protect the
value of the Portfolio's foreign securities from adverse currency
movements. At June 30, 1996, the Portfolio held the following forward
foreign currency and cross currency exchange contracts:
<TABLE>
<CAPTION>
Forward Foreign Currency Contracts
- --------------------------------------------------
Local U.S. $ U.S. U.S.
Principal Contract Market Aggregate Unrealized
Contracts to Receive Amount Value Date Value Face Amount Gain/(Loss)
- ------------------------------------------ ------------------ ------------------- --------------------- ----------------
<S> <C> <C> <C> <C> <C>
German Deutsche Mark 30,265,151 8/16/96-11/7/96 $19,987,179 $20,034,568 ($47,389)
Danish Krone 27,532,539 8/22/96 4,698,372 4,852,233 (153,861)
Finnish Markka 14,087,085 8/26/96-8/27/96 3,043,018 3,077,478 (34,460)
French Franc 62,125,574 8/7/96-10/23/96 12,110,325 12,031,459 78,865
British Pound Sterling 5,538,210 7/3/96-7/5/96 8,590,870 8,539,921 50,949
Italian Lira 5,767,659,570 7/2/96 3,757,123 3,750,289 6,834
Japanese Yen 1,728,893,565 8/14/96-8/23/96 15,885,078 16,446,978 (561,900)
Netherland Guilder 2,530,185 8/26/96 1,486,895 1,545,246 (58,350)
Norwegian Krone 41,918,923 9/12/96-1/13/97 6,454,108 6,415,550 38,558
Swedish Krona 42,394,056 7/23/96-8/19/96 6,375,765 6,386,001 (10,236)
European Currency Unit 4,347,427 8/9/96-9/12/96 5,418,681 5,413,538 5,143
------------------- --------------------- ----------------
$87,807,414 $88,493,259 ($685,846)
=================== ===================== ================
Local U.S. $ U.S. U.S.
Principal Contract Market Aggregate Unrealized
Contracts to Deliver Amount Value Date Value Face Amount Gain/(Loss)
- ------------------------------------------ ------------------ ------------------- --------------------- ----------------
Australian Dollars 2,726,024 8/6/96 $2,138,413 $2,156,285 $17,872
Canadian Dollar 4,874,973 8/9/96-9/25/96 3,578,246 3,578,880 634
German Deutsche Mark 49,758,750 7/25/96-11/8/96 32,869,411 33,352,348 482,937
Danish Krone 143,851,867 8/16/96-11/6/96 24,571,281 25,276,406 705,125
Spanish Peseta 1,523,046,402 7/29/96-9/23/96 11,830,011 11,799,898 (30,113)
Finnish Markka 41,001,552 8/26/96-11/18/96 8,880,679 8,887,297 6,618
French Franc 99,509,735 8/7/96-10/23/96 19,404,829 19,680,517 275,688
British Pound Sterling 23,339,887 7/3/96-9/30/96 36,195,394 35,593,158 (602,237)
Irish Pound 3,533,757 11/18/96-11/22/96 5,643,992 5,523,409 (120,583)
Italian Lira 36,634,593,649 7/2/96-1/2/97 23,765,512 23,288,782 (476,730)
Japanese Yen 2,803,675,966 8/13/96-9/13/96 25,770,243 27,086,282 1,316,039
Netherland Guilder 2,530,185 8/26/96 1,486,895 1,570,373 83,478
Norwegian Krone 86,815,101 7/2/96-1/13/97 13,366,540 13,441,880 75,340
New Zealand Dollars 9,271,976 7/10/96-8/14/96 6,332,726 6,225,182 (107,544)
Swedish Krona 177,835,039 7/23/96-12/17/96 26,744,599 26,289,895 (454,704)
Thai Baht 80,500,000 10/22/96 3,169,187 3,135,956 (33,231)
European Currency Unit 4,347,427 8/9/96-9/12/96 5,418,681 5,472,892 54,211
------------------- --------------------- ----------------
$251,166,642 $252,359,443 $1,192,801
=================== ===================== ================
Forward Foreign Cross Currency Contracts
U.S. $ U.S. $ U.S.
Market Market Contract Unrealized
Contracts to Deliver Value In Exchange for Value Value Date Gain/(Loss)
- ------------------------------------------ ---------------------------------------- --------------------- ----------------
German Deutsche Mark $1,839,427 Spanish Peseta $1,882,073 7/18/96 $42,646
German Deutsche Mark 7,034,129 Finnish Markka 7,230,733 7/25/96-8/30/96 196,604
Finnish Markka 5,393,008 Deutsche Mark 5,323,811 7/25/96-7/29/96 (69,197)
Finnish Markka 783,214 Swedish Krona 848,770 1/8/97 65,556
French Franc 4,045,932 Deutsche Mark 4,037,801 8/7/96 (8,131)
Netherlands Guilder 3,582,076 Danish Krone 3,601,558 9/25/96 19,482
Netherlands Guilder 3,360,851 Norwegian Krone 3,366,282 9/25/96 5,431
Swedish Krona 851,587 Finnish Markka 783,214 1/8/97 (68,373)
---------------- ------------------- ----------------
$26,890,223 $27,074,241 $184,018
================ =================== ================
</TABLE>
<PAGE>
.........Futures contracts--
The Portfolio may enter into financial futures contracts for the
delayed sale or delivery of securities or contracts based on financial
indices at a fixed price on a future date. The Portfolio is required to
deposit either in cash or securities an amount equal to a certain
percentage of the contract amount. Subsequent payments are made or
received by the Portfolio each day, dependent on the daily fluctuations
in the value of the underlying security, and are recorded for financial
statement purposes as unrealized gains or losses by the Portfolio.
There are several risks in connection with the use of futures contracts
as a hedging device. The change in value of futures contracts primarily
corresponds with the value of their underlying instruments or indices,
which may not correlate with changes in the value of hedged
investments. In addition, there is the risk that the Portfolio may not
be able to enter into a closing transaction because of an illiquid
secondary market. The Portfolio enters into financial futures
transactions primarily to manage its exposure to certain markets and to
changes in security prices and foreign currencies. At June 30, 1996,
the Portfolio held the following futures contracts:
<TABLE>
<CAPTION>
Expiration Underlying Face Unrealized
Contract Position Date Amount at Value Gain/(Loss)
- ----------------------------------------- ------------------- ------------------ -------------------------------------
<S> <C> <C> <C> <C>
Australian 10 year bond (18 contracts) Short 09/17/96 $1,707,333 $3,870
=================== ================
</TABLE>
.........Interest rate swap contracts--
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. Credit and market risk exist
with respect to these instruments. 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. At June 30, 1996, there were no open interest rate swap
contracts.
(6).....Delayed Delivery Transactions:
The Portfolio may purchase securities on a when-issued or forward
commitment basis. Payment and delivery may take place a month or more
after the date of the transactions. The price of the underlying
securities and the date when the securities will be delivered and paid
for are fixed at the time the transaction is negotiated. The Portfolio
instructs its custodian to segregate securities having a value at least
equal to the amount of the purchase commitment. At June 30, 1996, the
Portfolio had entered into the following delayed delivery transactions:
<TABLE>
<CAPTION>
Type Security Settlement Date Amount
- ----------------------------- ------------------------------------ -------------------------- -----------------------
<S> <C> <C>
Buy GNMA 08/21/96 $6,732,294
=======================
</TABLE>
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Global Fixed Income Portfolio Series
Financial Statements
For the Six Months Ended June 30, 1996
(Unaudited)
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Master Portfolio
Standish Global Fixed Income Portfolio Series
Portfolio of Investments
(Unaudited)
Security Rate Maturity Value + (Note 1A)
- ---------------------------------------------- ----------- ----------------------------------- --------------------
BONDS and NOTES - 90.1%
Asset Backed - 1.2%
- ----------------------------------------------
<S> <C> <C> <C> <C>
Citibank Credit Card Master Trust 0.%0 2/07/2003 150,000 $ 109,969
Greentree Securities Trust 1994-A 6.90 2/15/2004 713,774 706,859
The Money Store Home Equity 1995-C A3 6.55 9/15/2021 500,000 484,375
The Money Store Home Equity 1996-B A5 7.18 2/15/2015 525,000 527,297
-------------------
1,828,500
-------------------
Collateralized Mortgage Obligations - 0.3%
- --------------------------------------------------------------
UCFC Home Equity Loan Trust 6.50 4/15/2016 500,000 490,000
-------------------
Corporate - 14.3%
- ----------------------------------------------
Basic Industry - 1.0%
- ----------------------------------------------
AK Steel Holding Corp. 10.75 4/01/2004 500,000 538,750
Koppers Industries Inc. 8.50 2/01/2004 500,000 470,280
Owens-Illinois Inc. 11.00 12/01/2003 500,000 537,500
-------------------
1,546,530
-------------------
Consumer Cyclical - 1.0%
- ----------------------------------------------
Exide Corp. 10.00 4/15/2005 500,000 488,125
General Motors Acceptance Corp. 6.70 4/30/2001 1,000,000 990,320
-------------------
1,478,445
-------------------
Consumer Stable - 0.4%
- ----------------------------------------------
Stop & Shop Companies 9.75 2/01/2002 500,000 547,500
-------------------
Energy - 0.7%
- ----------------------------------------------
Clark Oil 10.50 12/01/2001 1,000,000 1,035,000
-------------------
Financial - 6.5%
- ----------------------------------------------
Advanta Corp. 7.00 5/01/2001 450,000 445,698
Anchor Bancorp 8.94 7/09/2003 1,000,000 998,800
Capital One Bank Co. 5.95 2/15/2001 500,000 473,350
Enterprise Corp. 7.00 6/15/2000 500,000 501,360
First Nationwide 12.25 5/15/2001 500,000 546,695
Goldman Sachs Inc. Group L P 144A 6.20 2/15/2001 1,000,000 969,940
Liberty Mutual Insurance Co. Inc. 144A 8.50 5/15/2025 1,000,000 1,033,000
Merrill Lynch & Co 6.00 3/01/2001 500,000 476,370
Morgan Stanley Group Inc. 6.70 5/01/2001 900,000 892,035
Reliance Group Holdings Corp. 9.00 11/15/2000 1,500,000 1,501,704
Salomon Brothers Inc. 7.25 5/01/2001 500,000 498,760
Summit Bancorp 8.63 12/10/2002 538,000 577,150
United Companies Financial 9.35 11/01/1999 1,000,000 1,055,310
-------------------
9,970,172
-------------------
Health Care - 0.3%
- ----------------------------------------------
Healthsouth Rehabilitation 9.50 4/01/2001 500,000 520,000
-------------------
<PAGE>
Par Value
Security Rate Maturity Value + (Note 1A)
- ---------------------------------------------- ----------- ---------------------------------- -------------------
Real Estate - 2.0%
- ----------------------------------------------
Corporate Property 144A 7.%8 3/15/2016 500,000 $ 488,535
Equity Residential Property Operating LP 144A 8.50 5/15/1999 500,000 516,575
Taubman Realty Group 8.00 6/15/1999 1,000,000 1,010,000
Wellsford REIT 9.38 2/01/2002 1,000,000 1,082,500
-------------------
3,097,610
-------------------
Services - 1.8%
- ----------------------------------------------
Comcast Corp. 10.63 7/15/2012 500,000 522,500
News America Holdings Corp. 7.70 10/30/2025 500,000 460,095
Time Warner Inc. 9.13 1/15/2013 250,000 261,095
Time Warner Inc. 9.15 2/01/2023 150,000 153,750
Time Warner Inc. 9.63 5/01/2002 500,000 551,025
Viacom Inc. 7.63 1/15/2016 225,000 203,063
Viacom Inc. 7.75 6/01/2005 575,000 560,637
-------------------
2,712,165
-------------------
Technology - 0.3%
- ----------------------------------------------
Jones Intercable 9.63 3/15/2002 500,000 509,250
-------------------
Utilities - 0.3%
- ----------------------------------------------
System Energy Resources Corp. 7.38 10/01/2000 500,000 483,035
-------------------
TOTAL Corporate 21,899,707
-------------------
Australia - 1.9%
- ----------------------------------------------
Government
- ----------------------------------------------
Govt. of Australia 10.00 10/15/2007 400,000 339,021
New South Wales Treasury 0.00 9/03/2010 600,000 131,391
South Australia Government Finance 0.00 12/21/2015 2,500,000 340,075
State Electric Commission of Victoria 0.00 1/11/2011 1,500,000 316,093
Treasury Corp. of Victoria 0.00 8/31/2011 2,000,000 397,868
-------------------
1,524,448
-------------------
Other
- ----------------------------------------------
News America Holdings 8.63 2/07/2014 2,000,000 1,316,266
-------------------
TOTAL Australia 2,840,714
-------------------
Canada - 1.7%
- ----------------------------------------------
Government
- ----------------------------------------------
Govt. of Canada 7.75 9/01/1999 800,000 605,394
Govt. of Canada 8.50 3/01/2000 1,700,000 1,315,868
Govt. of Canada 8.50 4/01/2002 800,000 622,691
-------------------
2,543,953
-------------------
<PAGE>
Par Value
Security Rate Maturity Value + (Note 1A)
- ---------------------------------------------- ----------- ---------------------------------- -------------------
Denmark - 7.6%
- ----------------------------------------------
Government
- ----------------------------------------------
Kingdom of Denmark 9.%0 11/15/2000 10,600,000 $ 1,999,489
Kingdom of Denmark 8.00 11/15/2001 5,400,000 982,386
Kingdom of Denmark 8.00 3/15/2006 5,500,000 974,174
Kingdom of Denmark 9.00 11/15/1998 5,200,000 960,078
-------------------
4,916,127
-------------------
Other
- ----------------------------------------------
Denmark Nykredit 7.00 10/01/2026 25,695,000 3,825,444
Denmark Nykredit 8.00 10/01/2026 9,374,000 1,514,005
Denmark Realkredit 7.00 10/01/2026 2,507,000 373,240
Denmark Realkredit 9.00 10/01/2006 4,900,000 900,935
Denmark Nykredit 11.00 10/01/2017 15,000 2,803
6,616,427
-------------------
TOTAL Denmark 11,532,554
-------------------
Europe - 0.9%
- ----------------------------------------------
Other
- ----------------------------------------------
Govt. of Italy (Strip) 0.00 3/07/1999 1,017,500 1,065,920
Govt. of Italy (Strip) 0.00 3/07/2005 351,500 225,978
Govt. of Italy (Strip) 0.00 3/07/2010 222,000 87,353
-------------------
1,379,251
-------------------
Finland - 3.1%
- ----------------------------------------------
Government
- ----------------------------------------------
Govt. of Finland 7.25 4/18/2006 14,000,000 2,984,934
Govt. of Finland 10.00 9/15/2001 7,000,000 1,757,070
-------------------
4,742,004
-------------------
France - 1.9%
- ----------------------------------------------
Government
- ----------------------------------------------
French Treasury Bill 7.00 11/12/1999 7,400,000 1,518,692
-------------------
Other
- ----------------------------------------------
Republic of Argentina 9.88 1/06/1998 6,700,000 1,352,878
-------------------
TOTAL France 2,871,570
-------------------
<PAGE>
Par Value
Security Rate Maturity Value + (Note 1A)
- ---------------------------------------------- ----------- ---------------------------------- -------------------
Germany - 4.1%
- ----------------------------------------------
Government
- ----------------------------------------------
Baden Wurttemberg 6.%0 1/25/2006 1,000,000 $ 624,180
Baden Wurttemberg 6.20 11/22/2013 2,000,000 1,296,037
Federal Republic of Germany 8.38 5/21/2001 2,000,000 1,467,192
Federal Republic of Germany 9.00 10/20/2000 1,630,000 1,212,874
-------------------
4,600,283
-------------------
Other
- ----------------------------------------------
Province of Buenos Aires 10.00 12/07/1998 400,000 275,591
Province of Buenos Aires 10.00 3/05/2001 2,000,000 1,333,990
-------------------
1,609,581
-------------------
TOTAL Germany 6,209,864
-------------------
Ireland - 2.9%
- ----------------------------------------------
Government
- ----------------------------------------------
Irish Gilts 6.25 4/01/1999 640,000 1,016,717
Irish Gilts 6.50 10/18/2001 860,000 1,349,067
Irish Gilts 8.00 10/18/2000 640,000 1,062,653
Irish Gilts 9.25 7/11/2003 608,000 1,076,434
-------------------
4,504,871
-------------------
Italy - 8.0%
- ----------------------------------------------
Government
- ----------------------------------------------
Govt. of Italy 8.50 8/01/2004 600,000,000 378,377
Govt. of Italy 9.00 11/01/2023 4,400,000,000 2,723,154
Govt. of Italy 9.50 12/01/1999 3,800,000,000 2,543,734
Govt. of Italy 10.50 11/01/2000 4,300,000,000 2,982,398
Govt. of Italy 12.50 3/01/2001 1,300,000,000 962,059
Italy Cvt 6.50 6/28/2001 1,700,000,000 1,127,240
-------------------
10,716,962
-------------------
Other
- ----------------------------------------------
Abbey National Treasury 10.00 8/24/2000 1,450,000,000 944,933
Bank Nederlandse 10.50 6/18/2003 800,000,000 555,230
-------------------
1,500,163
-------------------
TOTAL Italy 12,217,125
-------------------
Japan - 3.8%
- ----------------------------------------------
Other
- ----------------------------------------------
Glaxo Holdings 4.30 9/28/1998 50,000,000 474,150
International Bank Reconstruction & Development 6.75 3/15/2000 169,000,000 1,797,407
KFW International Finance 6.00 11/29/1999 133,000,000 1,371,233
Kingdom of Belgium 5.00 12/17/1999 210,000,000 2,106,319
-------------------
5,749,109
-------------------
<PAGE>
Par Value
Security Rate Maturity Value + (Note 1A)
- ---------------------------------------------- ----------- ---------------------------------- -------------------
New Zealand - 4.0%
- ----------------------------------------------
Government
- ----------------------------------------------
Government Property Services 7.%5 3/15/1999 2,000,000 $ 1,281,433
Govt. of New Zealand 8.00 7/15/1998 2,200,000 1,473,489
Govt. of New Zealand 8.00 11/15/2006 1,500,000 976,879
-------------------
3,731,801
-------------------
Other
- ----------------------------------------------
Fletcher Challenge 10.00 4/30/2005 1,000,000 666,994
Fletcher Challenge 14.50 9/30/2000 500,000 386,208
Fletcher Challenge Cvt 11.25 12/15/2002 1,900,000 1,343,063
-------------------
2,396,265
-------------------
TOTAL New Zealand 6,128,066
-------------------
Norway - 1.8%
- ----------------------------------------------
Other
- ----------------------------------------------
Uni-Storebrand As 11.15 1/15/2002 11,750,000 1,303,622
Vesta Forsikring 9.50 8/25/2000 3,000,000 495,536
Vital Forsikring 7.85 9/22/2003 6,000,000 911,556
-------------------
2,710,714
-------------------
Spain - 3.8%
- ----------------------------------------------
Government
- ----------------------------------------------
Castilla Junta 8.30 11/29/2001 28,000,000 220,552
Junta de Andalucia 11.10 12/02/2005 248,000,000 2,117,008
Kingdom of Spain 10.00 2/28/2005 164,100,000 1,371,124
Kingdom of Spain 10.30 6/15/2002 84,000,000 712,003
Kingdom of Spain 11.30 1/15/2002 156,000,000 1,372,508
-------------------
5,793,195
-------------------
Sweden - 6.0%
- ----------------------------------------------
Government
- ----------------------------------------------
Kingdom of Sweden 9.00 4/20/2009 15,400,000 2,424,177
Kingdom of Sweden 10.25 5/05/2003 3,600,000 609,131
Kingdom of Sweden 13.00 6/15/2001 22,400,000 4,130,490
-------------------
7,163,798
-------------------
Other
- ----------------------------------------------
Fulmar Mortgage Sec #1 7.65 11/01/2000 2,818,500 423,566
Sweden Caisse #1036 10.25 5/05/2000 9,700,000 1,612,298
-------------------
2,035,864
-------------------
TOTAL Sweden 9,199,662
-------------------
<PAGE>
Par Value
Security Rate Maturity Value + (Note 1A)
- ---------------------------------------------- ----------- ---------------------------------- -------------------
Thailand - 1.0%
- ----------------------------------------------
Government
- ----------------------------------------------
Thailand Investment Bills of Exchange 0.%0 10/28/1996 20,000,000 $ 764,827
Thailand Investment Bills of Exchange 0.00 10/29/1996 20,000,000 764,638
-------------------
1,529,465
-------------------
United Kingdom - 10.2%
- ----------------------------------------------
Government
- ----------------------------------------------
UK Treasury 7.00 11/06/2001 1,565,000 2,387,574
UK Treasury 7.50 12/07/2006 100,000 150,815
UK Treasury 9.00 3/03/2000 296,000 487,166
UK Treasury 6.75 11/26/2004 1,000,000 1,452,405
UK Treasury 8.00 12/07/2000 1,850,000 2,956,002
-------------------
7,433,962
-------------------
Other
- ----------------------------------------------
Birmingham Midshares Soc 9.13 1/05/2006 750,000 1,172,608
Hanson Trust Plc 10.00 4/18/2006 1,650,000 2,767,463
Inco Ltd. 15.75 7/15/2006 200,000 441,630
Mepc Plc 12.00 6/30/2006 750,000 1,419,823
Royal Bank of Scotland 9.63 6/22/2015 350,000 548,385
Seeboard Plc 8.50 10/03/2005 800,000 1,226,185
Woolwich Building Society 11.63 12/18/2001 400,000 713,679
-------------------
8,289,773
-------------------
TOTAL United Kingdom 15,723,735
-------------------
Yankee Bonds - 3.3%
- ----------------------------------------------
Brascan Ltd. 7.38 10/01/2002 500,000 489,895
Cominco Ltd. 6.88 2/15/2006 525,000 487,557
Domtar Inc. 11.75 3/15/1999 1,000,000 1,097,500
Govt. of Argentina (a) 6.31 3/31/2005 940,500 738,293
Methanex Corp. 7.40 8/15/2002 250,000 247,845
Methanex Corp. 7.75 8/15/2005 450,000 442,242
Republic of Argentina 5.25 3/31/2023 250,000 136,875
Se Banken 144A Euro Step Up 6.63 3/29/2049 500,000 480,055
Tembec Finance Corp. 9.88 9/30/2005 1,000,000 930,000
-------------------
TOTAL Yankee Bonds 5,050,262
-------------------
<PAGE>
Par Value
Security Rate Maturity Value + (Note 1A)
- ---------------------------------------------- ----------- ---------------------------------- -------------------
U.S. Government Agency - 3.0%
- ----------------------------------------------
Pass Thru Securities - 3.0%
- ----------------------------------------------
FHLMC 6.%0 3/01/2026 - 3/01/2026 427,80$ 400,662
FHLMC 7.00 3/01/2026 2,015,093 1,940,152
FNMA 7.00 12/01/1999 - 9/01/2025 1,636,137 1,588,840
GNMA 9.00 6/15/2016 - 2/25/2027 224,532 237,449
Resolution Trust Corp. 1995 C1 Cl C 6.90 2/25/2027 500,000 466,250
-------------------
4,633,353
-------------------
TOTAL U.S. Government Agency 4,633,353
-------------------
U.S. Treasury Obligations - 5.3%
- ----------------------------------------------
U.S. Treasury Bond 7.88 2/15/2021 425,000 466,238
U.S. Treasury Note 6.25 4/30/2001 750,000 742,734
U.S. Treasury Note 5.63 11/30/2000 2,150,000 2,082,469
U.S. Treasury Note 5.63 1/31/1998 1,000,000 993,910
U.S. Treasury Note 5.88 2/15/2004 1,725,000 1,648,721
U.S. Treasury Note 6.25 2/15/2003 2,200,000 2,161,148
U.S. Treasury Note 7.13 2/29/2000 50,000 51,133
-------------------
TOTAL U.S. Treasury Obligations 8,146,353
-------------------
Total Bonds and Notes (Identified Cost $136,872,191) 137,724,027
-------------------
Preferred Stock - 0.7%
- ----------------------------------------------
Newscorp Overseas Ltd. Ser B 20,000 450,000
Texaco Capital Llc 14,000 299,250
Time Warner Inc. 10.25% Ser K 200 193,000
Wellsford Residential Property 3,000 74,250
-------------------
TOTAL Preferred Stock (Identified Cost $1,110,000) 1,016,500
-------------------
Principal
<PAGE>
Amount of Value
Security Contracts (Note 1A)
- ---------------------------------------------- -------------------- -------------------
Purchased Options - 0.8%
- ----------------------------------------------
Deliver/Receive, Excercise Price, Expiration
- --------------------------------------------------------------
AUD 10.00% Call, Str 106.163, 10/25/96 1,000,000 $ 16,313
AUD 10.00% Call, Str 107.541, 10/23/96 3,800,000 43,396
AUD 7.50% Call, Str 90.773, 10/25/96 750,000 11,983
CHF Put/ESB Call, Str 103.000, 8/29/96 3,700,000 19,777
CHF Put/GBP Call, Str 1.9385, 8/7/96 1,700,000 18,197
CHF Put/ITL Call, Str 1230.00, 6/17/97 3,700,000 30,699
CHF Put/USD Call, Str 1.27, 9/6/96 4,790,000 38,799
DEM 6.25% Call, Str 87.980, 11/07/96 3,890,000 35,660
DEM 6.25% Call, Str 99.00, 9/23/96 4,250,000 8,326
DEM 6.50% Call, Str 100.550, 8/20/96 4,250,000 11,156
DEM 7.375% Call, Str 105.910, 9/16/96 5,400,000 18,068
DEM Put / USD Call, Str 1.530, 10/24/96 3,250,000 41,600
DEM Put / USD Call, Str 1.535, 10/25/96 4,600,000 54,740
DEM Put/ESB Call, Str 83.550, 7/9/96 4,500,000 1,476
DEM Put/USD Call, Str 1.550, 4/22/97 3,000,000 50,700
ESB 10.15% Call, Str 105.650, 11/14/96 385,000,000 88,935
ESB Put/JPY Call, Str 1.200, 5/22/97 363,800,000 74,579
ITL 9.00% Call, Str 92.48, 9/17/96 4,400,000,000 92,400
ITL 9.00% Call, Str 95.07, 9/25/96 3,750,000,000 45,000
JPY 2.90% Call, Str 97.854, 7/3/96 330,000,000 330
JPY 3.20% Call, Str 99.512, 7/1/96 300,000,000 600
JPY 4.20% Call, Str 106.983, 7/3/96 330,000,000 660
JPY Put/ ESB Call, Str 1.180, 5/26/97 365,000,000 57,670
JPY Put/AUD Call, Str 85.150, 12/30/96 350,000,000 73,850
JPY Put/AUD Call, Str 86.400, 5/28/97 365,000,000 62,415
JPY Put/ESB Call, Str 1.200, 10/30/96 270,000,000 54,540
JPY Put/ITL Call, Str 14.555, 12/12/96 336,936,000 94,679
JPY Put/NZD Call, Str 72.000, 5/28/97 365,000,000 92,345
SEK 9% Call, Str 102.41, 9/17/96 15,400,000 64,649
USD Put/CAD Call, Str 1.35, 9/10/96 2,700,000 7,560
-------------------
Total Purchased Options (Premiums Paid $1,271,125) 1,211,102
-------------------
Short-Term Investments - 6.6%
- ----------------------------------------------
Repurchase Agreements - 3.3%
- ----------------------------------------------
Prudential-Bache Repurchase Agreement, dated 6/28/96,
4.77% due 7/1/96, to pay $5,050,354 (Collateralized by
FNMA's with rates ranging from 7.075% to 7.445% and
and maturity dates ranging from 5/01/14 to 4/01/24
with an aggregate market value of $5,149,324. 5,048,347 5,048,347
-------------------
<PAGE>
Par Value
Security Rate Maturity Value + (Note 1A)
- ---------------------------------------------- ----------- ---------------------------------- -------------------
U.S. Government Agency - 3.3%
- ----------------------------------------------
Federal Home Loan Bank 5.%2 9/18/1996 5,100,000 $ 5,032,234
-------------------
TOTAL Short-Term Investments (Identified Cost $10,080,581) 10,080,581
-------------------
TOTAL INVESTMENTS (Identified Cost $149,333,897) - 98.2% 150,032,210
-------------------
Principal
Written Options - 0.4% Amount of
- ----------------------------------------------
Deliver/Receive, Excercise Price, Expiration Contracts
- -------------------------------------------------------------- --------------------
AUD 10.00% Call, Str 110.163, 10/25/96 (1,000,000) (5,304)
AUD 10.00% Call, Str 111.541, 10/23/96 (3,800,000) (12,399)
AUD 10.00% Put, Str 102.163, 10/25/96 (1,000,000) (4,133)
AUD 10.00% Put, Str 103.541, 10/23/96 (3,800,000) (25,114)
AUD 7.50% Call, Str 94.773, 10/25/96 (750,000) (3,352)
AUD 7.50% Put, Str 86.773, 10/25/96 (750,000) (1,702)
AUD Put/JPY Call, Str 74.000, 5/28/97 (365,000,000) (51,100)
CAD Put/USD Call, Str 1.38, 9/10/96 (2,700,000) (6,480)
CHF Put/USD Call, Str 1.33, 9/6/96 (4,790,000) (6,227)
DEM 6.25% Call, Str 92.130, 11/7/96 (3,890,000) (6,033)
DEM 6.25% Put, Str 83.830, 11/07/96 (3,890,000) (13,494)
DEM 6.25% Put, Str 95.640, 11/14/96 (4,590,000) (22,890)
DEM Put / USD Call, Str 1.600, 10/24/96 (3,250,000) (10,075)
DEM Put / USD Call, Str 1.605, 10/25/96 (4,600,000) (10,120)
ESB 10.15% Call, Str 108.650, 11/14/96 (385,000,000) (40,040)
ESB Put JPY Call, Str 1.350, 5/22/97 (363,800,000) (21,828)
ESB Put/ JPY Call, Str 1.340, 5/26/97 (365,000,000) (25,915)
ESB Put/CHF Call, Str 111.000, 8/29/96 (3,700,000) (1,476)
ESB Put/JPY Call, Str 1.400, 10/30/96 (270,000,000) (1,350)
ITL 9.00% Call, Str 95.68, 9/17/96 (4,400,000,000) (44,000)
ITL 9.00% Call, Str 97.57, 9/25/96 (3,750,000,000) (22,500)
ITL 9.00% Put, Str 90.36, 9/17/96 (4,400,000,000) (13,200)
ITL 9.00% Put, Str 92.57, 9/25/96 (3,750,000,000) (26,250)
ITL Put/CHF Call, Str 1350.00, 6/17/97 (3,700,000) (34,540)
Principal
Written Options - 0.4% (Continued) Amount of
- ----------------------------------------------
Deliver/Receive, Excercise Price, Expiration Contracts
- -------------------------------------------------------------- --------------------
NZD Put/JPY Call, Str 65.000, 5/28/97 (365,000,000) $ (69,715)
SEK 9.00% Call, Str 105.66, 9/17/96 (15,400,000) (25,718)
SEK 9.00% Put, Str 99.16, 9/17/96 (15,400,000) (9,271)
USD Put/CHF Call, Str 1.140, 10/24/96 (3,250,000) (5,850)
USD Put/CHF Call, Str 1.145, 10/25/96 (4,600,000) (9,660)
USD Put/CHF Call, Str 1.176, 7/10/96 (3,900,000) (1,560)
USD Put/DEM Call, Str 1.425, 4/22/97 (3,000,000) (41,700)
-------------------
TOTAL Written Options (Premiums Received $937,152) (572,996)
-------------------
Other Assets less Liabilities - 2.2% 3,290,233
-------------------
Net Assets - 100.0% $ 152,749,447
===================
Notes to the Schedule of Investments:
+ The principal amounts of these bonds are stated in the currency of the country classification.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Master Portfolio
Standish Global Fixed Income Portfolio Series
Statements of Assets and Liabilities
June 30, 1996
(Unaudited)
Assets
<S> <C> <C>
Investments, at value (Note 1A) (identified cost, $149,333,897) $ 150,032,210
Foreign currency, at value (cost, $677,230) 673,889
Receivable for daily variation margin on open
financial futures contracts (Note 5) 10,575
Receivable for investments sold 4,643,186
Interest and dividends receivable 3,213,360
Unrealized appreciation on forward foreign currency
exchange contracts (Note 5) 385,348
Deferred organization expenses (Note 1F) 71,418
-----------------
Total assets 159,029,986
Liabilities
Payable for investments purchased $ 5,498,315
Options written, at value (premiums received $937,153) 572,997
Accrued investment advisory fee (Note 2) 92,370
Accrued trustee fees 772
Accrued expenses and other liabilities 116,085
----------------
Total liabilities 6,280,539
-----------------
Net Assets $ 152,749,447
=================
Net Assets consist of
Net proceeds from capital contributions and withdrawals $ 151,273,410
Unrealized appreciation (depreciation) of investments 1,476,037
-----------------
Total net assets $ 152,749,447
=================
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Global Fixed Income Portfolio Series
Statement of Operations
For the period May 3, 1996 (commencement of operations)
through June 30, 1996 (Unaudited)
Investment Income (Note 1B)
Interest Income $ 1,760,767
Dividend income (net of withholding tax of $1,890) 17,270
----------------
Total income 1,778,037
Expenses
Investment adviser fee (Note 2) $ 92,370
Trustee fees 772
Custodian and accounting expenses 44,424
Legal and audit services 8,347
Insurance expense 881
Amortization of organization expenses (Note 1F) 2,261
Miscellaneous 3,067
----------------
Total expenses 152,122
----------------
Net investment income (loss) 1,625,915
----------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Investment security transactions (144,759)
Financial futures 22,460
Written options 210,120
Foreign currency and forward foreign
currency exchange contracts 13,181
----------------
Net realized gain (loss) 101,002
Change in unrealized appreciation (depreciation)
Investment securities 2,124,410
Financial futures 28,650
Written options 89,430
Foreign currency transactions and forward foreign
currency contracts (535,326)
----------------
Change in net unrealized appreciation (depreciation) 1,707,164
----------------
Net realized and unrealized gain (loss) 1,808,166
----------------
Net increase (decrease) in net assets from operations $ 3,434,081
================
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Global Fixed Income Portfolio Series
Statement of Changes in Net Assets
For the period May 3, 1996 (commencement of operations)
through June 30, 1996 (Unaudited)
Increase (Decrease) in Net Assets:
From operations
Net investment income (loss) $ 1,625,915
Net realized Gain (loss) 101,002
Change in net unrealized appreciation (depreciation) 1,707,164
-----------------
Net increase (decrease) in net assets from operations 3,434,081
-----------------
Capital transactions -
Assets contributed by Standish Global Fixed Income Fund at
commencement (including unrealized depreciation of $231,127) 149,438,650
Contributions 1,919,917
Withdrawals (2,043,201)
-----------------
Increase in net assets resulting from capital transactions 149,315,366
-----------------
Total increase (decrease) in net assets 152,749,447
Net Assets:
At beginning of period ---
-----------------
At end of period $ 152,749,447
=================
</TABLE>
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Global Fixed Income Portfolio Series
Supplementary Data
For the period May 3, 1996 (commencement of operations)
through June 30, 1996 (Unaudited)
Ratios (to average daily net assets):
Expenses 0.*5%
Net investment income 7.*2%
Portfolio Turnover 32%
* Annualized
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Global Fixed Income Portfolio Series
Notes to Financial Statements
(Unaudited)
(1).....Significant Accounting Policies:
Standish, Ayer & Wood Master Portfolio (the "Portfolio Trust") was
organized as master trust fund under the laws of the state of New York
on January 18, 1996 and is registered under the Investment Company Act
of 1940, as amended, as an open-end, management investment company.
Standish Global Fixed Income Portfolio (the "Portfolio") is a separate
non-diversified investment series of the Portfolio Trust. The following
is a summary of significant accounting policies consistently followed
by the Portfolio in the preparation of its financial statements. The
preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
A...Investment security valuations--
Securities for which quotations are readily available are valued at the
last sale price, or if no sale price, at the closing bid price in the
principal market in which such securities are normally traded.
Securities (including restricted securities) for which quotations are
not readily available are valued primarily using dealer-supplied
valuations or at their fair value as determined in good faith under
consistently applied procedures under the general supervision of the
Board of Trustees. Short term instruments with less than sixty-one days
remaining to maturity when acquired by the Portfolio are valued at
amortized cost. If the Portfolio acquires a short term instrument with
more than sixty days remaining to its maturity, it is valued at current
market value until the sixtieth day prior to maturity and will then be
valued at amortized cost based upon the value on such date unless the
trustees determine during such sixty-day period that amortized cost
does not represent fair value.
B...Repurchase agreements--
It is the policy of the Portfolio to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book
Entry System or to have segregated within the custodian bank's vault,
all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the
Portfolio to monitor on a daily basis, the market value of the
repurchase agreements' underlying investments to ensure the existence
of a proper level of collateral.
C...Securities transactions and income--
Securities transactions are recorded as of trade date. Interest income
is determined on the basis of interest accrued, adjusted for
amortization of premium or discount on long-term debt securities when
required for federal income tax purposes. Realized gains and losses
from securities sold are recorded on the identified cost basis. The
Portfolio does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from
the fluctuations arising from changes in market prices of securities
held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
D...Income Taxes--
The Portfolio is treated as a partnership for federal tax purposes. No
provision is made by the Portfolio for federal or state taxes on any
taxable income of the Portfolio because each investor in the Portfolio
is ultimately responsible for the payment of any taxes. Since some of
the Portfolio`s investors are regulated investment companies that
invest all or substantially all of their assets in the Portfolio, the
Portfolio normally must satisfy the source of income and
diversification requirements applicable to regulated investment
companies (under the Code) in order for its investors to satisfy them.
The Portfolio will allocate at least annually among its investors 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.
<PAGE>
E...Foreign currency transactions--
Investment security valuations, other assets and liabilities initially
expressed in foreign currencies are converted into U.S. dollars based
upon current exchange rates. Purchases and sales of foreign investment
securities and income and expenses are converted into U.S. dollars
based upon currency exchange rates prevailing on the respective dates
of such transactions. Section 988 of the Internal Revenue Code provides
that gains or losses on certain transactions attributable to
fluctuations in foreign currency exchange rates must be treated as
ordinary income or loss. For financial statement purposes, such amounts
are included in net realized gains or losses.
F...Deferred organization expense--
Costs incurred by the Portfolio in connection with its organization and
initial registration are being amortized on a straight-line basis
through April, 2001.
(2).....Investment Advisory Fee:
The investment advisory fee paid to Standish International Management
Company, L.P. (SIMCO) for overall investment advisory and
administrative services is paid quarterly at the annual rate of 0.40%
of the Portfolio's average daily net assets. The advisory agreement
provides that if the total annual operating expenses of the Portfolio
(excluding brokerage commissions, taxes and extraordinary expenses) in
any fiscal year exceed 0.65% of the Portfolio's average daily net
assets, the compensation due the adviser shall be reduced by the amount
of the excess. The Portfolio pays no compensation directly to its
trustees who are affiliated with the investment adviser or to its
officers, all of whom receive remuneration for their services to the
Portfolio from the investment adviser. Certain of the trustees and
officers of the Portfolio Trust are partners or officers of SIMCO.
(3).....Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than short-term
investments, were as follows:
<TABLE>
<CAPTION>
Purchases Sales
------------------- -------------------
<S> <C> <C>
U.S. Government Securities $4,587,246 $7,360,656
=================== ===================
Investments (non-U.S. government securities) $41,129,546 $42,348,464
=================== ===================
</TABLE>
(4) ....Federal Income Tax Basis of Investment Securities:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at June 30, 1996, as computed on a federal
income tax basis, were as follows:
Aggregate cost $149,354,048
===================
Gross unrealized appreciation $3,070,119
Gross unrealized depreciation (2,391,957)
-------------------
Net unrealized appreciation (depreciation) $678,162
===================
<PAGE>
(5).....Financial Instruments:
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to enhance
potential gain in circumstances where hedging is not involved. The
nature, risks and objectives of these investments are set forth more
fully in the Portfolio's Prospectus and Statement of Additional
Information. The Portfolio trades the following financial instruments
with off-balance sheet risk:
.........Options--
Call and put options give the holder the right to purchase or sell,
respectively, a security or currency at a specified price on or before
a certain date. The Portfolio uses options to hedge against risks of
market exposure and changes in security prices and foreign currencies,
as well as to enhance returns. Options, both held and written by the
Portfolio, are reflected in the accompanying Statement of Assets and
Liabilities at market value. Premiums received from writing options
which expire are treated as realized gains.
Premiumsreceived from writing options which are exercised or are closed
are added to or offset against the proceeds or amount paid on the
transaction to determine the realized gain or loss. If a put option
written by the Portfolio is exercised, the premium reduces the cost
basis of the securities purchased by the Portfolio. The Portfolio, as a
writer of an option, has no control over whether the underlying
securities may be sold (call) or purchased (put) and as a result bears
the market risk of an unfavorable change in the price of the security
underlying the written option. A summary of such transactions for the
period May 3, 1996 through June 30, 1996 is as follows:
<TABLE>
<CAPTION>
Written Put Option Transactions
- ---------------------------------------------------------------------------------------------------------------------------
Number
of Contracts Premiums
------------------- ------------------
<S> <C> <C>
Outstanding, beginning of period 7 $ 169,988
Options written 7 158,978
Options exercised 0 0
Options expired (1) (21,519)
Options closed (1) (21,255)
------------------- ------------------
Outstanding, end of period 12 $ 286,192
=================== ==================
Written Call Option Transactions
- ---------------------------------------------------------------------------------------------------------------------------
Number
of Contracts Premiums
------------------- ------------------
Outstanding, beginning of period 9 $ 278,244
Options written 5 91,109
Options exercised 0 0
Options expired (1) (41,040)
Options closed (1) (6,397)
------------------- ------------------
Outstanding, end of period 12 $ 321,916
=================== ==================
Written Cross Currency Option Transactions
- ---------------------------------------------------------------------------------------------------------------------------
Number
of Contracts Premiums
------------------- ------------------
Outstanding, beginning of period 5 $ 214,410
Options written 5 260,750
Options exercised 0 0
Options expired 0 0
Options closed (3) (146,115)
------------------- ------------------
Outstanding, end of period 7 $ 329,045
=================== ==================
</TABLE>
<PAGE>
.........Forward currency exchange contracts--
The Portfolio may enter into forward foreign currency and cross
currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise
upon entering these contracts from the potential inability of
counterparties to meet the terms of their contracts and from
unanticipated movements in the value of a foreign currency relative to
the U.S. dollar and other foreign currencies. The forward foreign
currency and cross currency exchange contracts are marked to market
using the forward foreign currency rate of the underlying currency and
any gains or losses are recorded for financial statement purposes as
unrealized until the contract settlement date. Forward currency
exchange contracts are used by the fund primarily to protect the value
of the Portfolio's foreign securities from adverse currency movements.
At June 30, 1996, the Portfolio held the following forward foreign
currency and cross currency exchange contracts:
Forward Foreign Currency Contracts
- --------------------------------------------------
<TABLE>
<CAPTION>
Local U.S. $ U.S. U.S.
Principal Contract Market Aggregate Unrealized
Contracts to Receive Amount Value Date Value Face Amount Gain/(Loss)
- ---------------------------------------------- -------------------- ------------------ ------------------- --------------
<S> <C> <C> <C> <C> <C>
German Deutsche Mark 11,889,652 8/21/96-11/7/96 $7,847,736 $7,831,732 $16,004
Finnish Markka 14,198,311 7/29/96-8/27/96 3,064,801 3,099,946 (35,145)
French Franc 34,617,798 8/7/96-10/23/96 6,745,707 6,705,166 40,541
British Pound Sterling 984,488 7/3/96 1,527,160 1,518,080 9,080
Italian Lira 6,253,415,450 6/28/96-7/2/96 4,074,002 4,067,338 6,665
Japanese Yen 948,259,990 8/14/96-8/23/96 8,713,757 9,022,376 (308,619)
Netherland Guilder 1,421,723 8/26/96 835,494 868,281 (32,787)
Norwegian Krone 16,577,694 9/30/96-1/13/97 2,553,207 2,539,598 13,609
Swedish Krona 19,301,678 7/23/96-8/19/96 2,902,951 2,895,123 7,828
European Currency Unit 1,716,736 8/9/96-10/4/96 2,141,208 2,143,179 (1,971)
------------------- --------------------- ----------------
$40,406,023 $40,690,818 ($284,795)
=================== ===================== ================
Local U.S. $ U.S. U.S.
Principal Contract Market Aggregate Unrealized
Contracts to Receive Amount Value Date Value Face Amount Gain/(Loss)
- ---------------------------------------------- -------------------- ------------------ ------------------- ---------------
Australian Dollars 3,046,703 8/6/96 $2,389,968 $2,409,942 $19,974
Canadian Dollar 3,183,560 8/9/96-9/25/96 2,336,644 2,336,935 291
German Deutsche Mark 22,744,293 7/25/96-11/8/96 15,015,265 15,304,059 288,795
Danish Krone 68,954,869 8/16/96-11/6/96 11,779,688 12,098,526 318,838
Spanish Peseta 734,114,649 7/29/96-9/23/96 5,705,802 5,688,465 (17,337)
Finnish Markka 30,434,871 8/26/96-11/18/96 6,594,214 6,578,551 (15,663)
French Franc 49,525,854 8/7/96-10/24/96 9,656,773 9,817,531 160,758
British Pound Sterling 10,410,892 7/3/96-9/30/96 16,144,526 15,828,292 (316,234)
Irish Pound 2,886,057 11/18/96-11/22/96 4,609,494 4,526,246 (83,247)
Italian Lira 22,605,489,541 7/2/96-1/2/97 14,655,241 14,377,807 (277,434)
Japanese Yen 1,573,465,172 8/13/96-9/13/96 14,459,514 15,185,422 725,908
Netherland Guilder 1,421,723 8/26/96 835,494 882,400 46,906
Norwegian Krone 48,311,317 7/2/96-1/13/97 7,440,655 7,448,286 7,632
New Zealand Dollars 6,736,804 7/10/96-8/14/96 4,602,230 4,518,258 (83,973)
Swedish Krona 80,161,386 7/23/96-12/17/96 12,055,750 11,845,214 (210,536)
Thai Baht 38,000,000 10/22/96 1,496,014 1,480,327 (15,687)
European Currency Unit 2,457,243 8/9/96-10/3/96 3,064,427 3,085,429 21,002
------------------- --------------------- ----------------
$132,841,697 $133,411,690 $569,993
=================== ===================== ================
Forward Foreign Cross Currency Contracts
- ----------------------------------------------------------------------
U.S. $ U.S. $ U.S.
Market Market Contract Unrealized
Contracts to Deliver Value In Exchange for Value Value Date Gain/(Loss)
- ------------------------ ---------------- -------------------- ---------------------------------------- -------------------
German Deutsche Mark $1,248,182 Spanish Peseta $1,277,121 7/18/96 $28,938
German Deutsche Mark 3,902,757 Finnish Markka 4,012,386 7/25/96-8/30/96 109,629
Finnish Markka 3,894,950 Deutsche Mark 3,844,975 7/25/96-7/29/96 (49,976)
Finnish Markka 652,678 Swedish Krona 707,309 1/8/97 54,630
French Franc 2,781,578 Deutsche Mark 2,776,016 8/7/96 (5,562)
Netherlands Guilder 2,936,128 Danish Krone 2,952,097 8/16/96 15,969
Netherlands Guilder 1,906,155 Norwegian Krone 1,909,234 9/25/96 3,080
Swedish Krona 709,656 Finnish Markka 652,678 1/8/97 (56,977)
---------------- ------------------- ----------------
$18,032,084 $18,131,815 $99,731
================ =================== ================
</TABLE>
<PAGE>
.........Futures contracts--
The Portfolio may enter into financial futures contracts for the
delayed sale or delivery of securities or contracts based on financial
indices at a fixed price on a future date. The Portfolio is required to
deposit either in cash or securities an amount equal to a certain
percentage of the contract amount. Subsequent payments are made or
received by the Portfolio each day, dependent on the daily fluctuations
in the value of the underlying security, and are recorded for financial
statement purposes as unrealized gains or losses by the Portfolio.
There are several risks in connection with the use of futures contracts
as a hedging device. The change in value of futures contracts primarily
corresponds with the value of their underlying instruments or indices,
which may not correlate with changes in the value of hedged
investments. In addition, there is the risk that the Portfolio may not
be able to enter into a closing transaction because of an illiquid
secondary market. The Portfolio enters into financial futures
transactions primarily to manage its exposure to certain markets and to
changes in security prices and foreign currencies.
At June 30, 1996, the Portfolio held the following futures contracts:
<TABLE>
<CAPTION>
Expiration Underlying Face Unrealized
Contract Position Date Amount at Value Gain/(Loss)
- --------------------------------------- ------------------- ------------------- ----------------------------------------
<S> <C> <C> <C> <C>
Australian 10 year (10 contracts) Short 09/17/96 ($942,037) $2,301
British Pound (16 contracts) Long 09/02/96 1,323,260 29,260
------------------- ------------------
$381,223 $31,561
=================== ==================
</TABLE>
At June 30, 1996, the Portfolio had segregated sufficient cash and/or
securities to cover margin requirements on open future contracts.
.........Interest rate swap contracts--
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. Credit and market risk exist
with respect to these instruments. 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. At June 30, 1996, there were no open interest rate swap
contracts.
