STANDISH AYER & WOOD INVESTMENT TRUST
497, 1996-11-19
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Prospectus dated October 11, 1996




                                   PROSPECTUS
                  STANDISH SMALL CAPITALIZATION EQUITY FUND II
                              One Financial Center
                           Boston, Massachusetts 02111
                                 (800) 221-4795

   
     Standish  Small  Capitalization  Equity Fund II (the "Fund") is one fund in
the Standish,  Ayer & Wood family of funds.  The Fund is organized as a separate
diversified  investment  series of Standish,  Ayer & Wood Investment  Trust (the
"Trust"), an open-end management investment company.
     The Fund's investment  objective is to achieve long-term growth of capital.
The Fund  seeks  to  achieve  its  investment  objective  by  investing  all its
investable assets (the "Investable Assets") in the Standish Small Capitalization
Equity Portfolio II (the "Portfolio") which has the same investment objective as
the Fund. The Portfolio  seeks to achieve its investment  objective by investing
at least 80% of its total  assets in equity  and  equity-related  securities  of
small capitalization  companies.  The Portfolio is a series of Standish,  Ayer &
Wood Master Portfolio (the "Portfolio  Trust"),  which is an open-end management
investment company. See "Investment  Policies."  Standish,  Ayer & Wood, Inc. is
the Portfolio's investment adviser ("Standish" or the "Adviser").
     UNLIKE  OTHER  MUTUAL  FUNDS WHICH  DIRECTLY  ACQUIRE AND MANAGE  THEIR OWN
PORTFOLIOS OF SECURITIES,  THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY
INVESTING ALL OF ITS INVESTABLE ASSETS IN THE PORTFOLIO WHICH IS A SEPARATE FUND
WITH AN IDENTICAL INVESTMENT OBJECTIVE.  SEE "SPECIAL INFORMATION CONCERNING THE
HUB AND SPOKE MASTER-FEEDER FUND STRUCTURE" ON PAGE 7.
     Investors  may  purchase  shares  of the Fund  from the  Trust's  principal
underwriter,  Standish Fund Distributors, L.P. (the "Principal Underwriter"), at
the address and phone number set forth above without a sales commission or other
transaction  charges.  Unless waived by the Fund, the minimum initial investment
is $100,000. Additional investments may be made in amounts of at least $10,000.
     This Prospectus is intended to set forth  concisely the  information  about
the Fund and the Trust that a prospective investor should know before investing.
Investors  are  encouraged  to read this  Prospectus  and  retain it for  future
reference. Additional information about the Fund and the Trust is contained in a
Statement of Additional Information which has been filed with the Securities and
Exchange  Commission and is available upon request and without charge by calling
or writing to the Principal  Underwriter at the telephone  number or address set
forth above. The Statement of Additional Information bears the same date as this
Prospectus and is incorporated by reference into this Prospectus.
     Shares of the Fund are not deposits or  obligations  of, or  guaranteed  or
endorsed  by,  any bank or other  insured  depository  institution,  and are not
insured by the Federal Deposit Insurance Corporation,  the Federal Reserve Board
or any other  government  agency.  An  investment in shares of the Fund involves
investment risks, including possible loss of principal.
     THESE  SECURITIES  HAVE NOT BEEN APPROVED OR  DISAPPROVED BY THE SECURITIES
AND  EXCHANGE  COMMISSION  OR  ANY  STATE  SECURITIES  COMMISSION  NOR  HAS  THE
SECURITIES AND EXCHANGE  COMMISSION OR ANY STATE  SECURITIES  COMMISSION  PASSED
UPON THE  ACCURACY OR ADEQUACY OF THIS  PROSPECTUS.  ANY  REPRESENTATION  TO THE
CONTRARY IS A CRIMINAL OFFENSE.

                                    CONTENTS
Expense Information........................................2
Investment Objective and Policies..........................3
Risk Factors and Suitability...............................6
Special Information Concerning the Hub
     and Spoke(R) Master Feeder Fund Structure.............7
Calculations of Performance Data...........................7
Dividends and Distributions................................8
Purchase of Shares.........................................8
Exchange of Shares.........................................8
Redemption of Shares.......................................9
Management................................................10
Federal Income Taxes......................................11
The Fund and The Portfolio................................12
Principal Underwriter.....................................13
Custodian, Transfer Agent and Dividend-
     Disbursing Agent.....................................13
Independent Accountants...................................13
Legal Counsel.............................................13
Tax Certification Instructions............................13
    

<PAGE>

<TABLE>
<CAPTION>
                               EXPENSE INFORMATION
<S>                                                                                                  <C>
   
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases                                                              None
Maximum Sales Load Imposed on Reinvested Dividends                                                   None
Deferred Sales Load                                                                                  None
Redemption Fees                                                                                      None
Exchange Fees                                                                                        None

Annual Operating Expenses (as a percentage of average net assets)
Management Fees  (After Expense Limitation)                                                          0.00%*
12b-1 Fees                                                                                           None
Other Expenses (After Expense Limitation)                                                            0.00%*
Total Operating Expenses (After Expense Limitation)                                                  0.00%*

Example                                                            1 year           3 years
                                                                   ------------------------
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period:                     $  0             $  0
    

</TABLE>
   
     The purpose of the above table is to assist the  investor in  understanding
the various costs and expenses of the Fund and the Portfolio that an investor in
the Fund will bear  directly  or  indirectly.  The figure  shown in the  caption
"Other  Expenses,"  which includes,  among other things,  custodian and transfer
agent fees,  registration  costs and payments for  insurance and audit and legal
services,  is based upon  estimated  amounts for the current  fiscal  year.  The
Trustees of the Trust believe that over time the aggregate per share expenses of
the Fund and the  Portfolio  will not be more than the  expenses  which the Fund
would incur if it were to retain the services of an  investment  adviser and the
Investable  Assets of the Fund were invested directly in the types of securities
being held by the Portfolio.
     * Standish  has  voluntarily  agreed to limit the  master-feeder  aggregate
total  annual  operating  expenses  of the  Fund  and the  Portfolio  (excluding
brokerage commissions,  taxes and extraordinary expenses) for the current fiscal
year  ending  December  31, 1996 to 0.00% of average  daily net  assets.  In the
absence of such an  agreement,  the  management  fee,  other  expenses and total
operating expenses would be 0.60%, 0.25% and 0.85%,  respectively.  Standish may
discontinue or modify such limitation in the future at its discretion.
     For more  information  with  respect  to the  expenses  of the Fund and the
Portfolio see "Management-Investment Adviser" and "Management-Expenses" herein.
     THE  INFORMATION  IN THE  TABLE  AND  HYPOTHETICAL  EXAMPLE  SHOULD  NOT BE
CONSIDERED A  REPRESENTATION  OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN.  MOREOVER,  WHILE THE EXAMPLE  ASSUMES A 5%
ANNUAL  RETURN,  THE FUND'S  ACTUAL  PERFORMANCE  WILL VARY AND MAY RESULT IN AN
ACTUAL RETURN GREATER OR LESS THAN 5%.
    


<PAGE>

                        INVESTMENT OBJECTIVE AND POLICIES

   
Investment Objective
     The Fund seeks to achieve its  investment  objective by  investing  all its
Investable  Assets in the Portfolio which has the same  investment  objective as
the Fund. The Portfolio's investment objective is to achieve long term growth of
capital. The Portfolio seeks to achieve its investment objective by investing at
least 80% of its total assets in equity and  equity-related  securities of small
capitalization  companies.  Equity and equity related  securities include common
stocks, preferred stocks, securities convertible into common stocks and options,
futures  and other  strategic  transactions  based on common  stocks.  Strategic
transactions,  including  transactions in derivative instruments such as options
and futures, are described below under the caption, "Strategic Transactions."
     Because of the uncertainty inherent in all investments, no assurance can be
given  that  either  the  Fund or the  Portfolio  will  achieve  its  investment
objective.  Since the  investment  characteristics  of the Fund will  correspond
directly to those of the Portfolio, the following is a discussion of the various
investments and investment policies of the
Portfolio.

Investment Policies
     The companies in whose equity and  equity-related  securities the Portfolio
invests generally have market capitalizations under 1 billion.
     The Portfolio may  participate in initial  public  offerings for previously
privately   held  companies   which  are  generally   expected  to  have  market
capitalizations under 1 billion after the consummation of the offering and whose
securities are expected to be liquid after the offering. Such companies may have
a more limited operating  history and/or less experienced  management than other
companies in which the Portfolio invests, which may pose additional risks.
     At times,  particularly  when the Adviser believes that securities of small
capitalization  companies are overvalued,  the Portfolio's portfolio may include
securities  of larger,  more mature  companies,  provided  that the value of the
securities  of these  companies  shall not exceed 20% of the  Portfolio's  total
assets.  The Portfolio  will invest in publicly  traded equity  securities  and,
excluding equity securities  received as distributions on portfolio  securities,
will not normally hold equity  securities which are restricted as to disposition
under  federal  securities  laws  or  are  otherwise  illiquid  or  not  readily
marketable  but  may do so to the  extent  permitted  by the  Fund's  investment
restrictions under certain  circumstances.  The Portfolio will attempt to reduce
risk by diversifying  its investments  within the investment  policies set forth
above.
     As a temporary matter or for defensive  purposes,  the Portfolio may invest
all or a portion of its assets in investment grade short-term debt securities or
cash equivalents.
     The investment objectives of the Fund and the Portfolio are not fundamental
policies and may be changed upon notice to the Fund's  Shareholders  but without
the approval of either the Fund's  shareholders  or the  Portfolio's  investors.
Other investment  policies which are not fundamental  policies may be changed by
the Trustees of the Trust and the Trustees of the  Portfolio  Trust  without the
approval of the Fund's shareholders or the Portfolio's investors. The Fund's and
the  Portfolio's  investment  policies are  described  further  below and in the
Statement of Additional Information.
    


<PAGE>

Foreign Securities
     The  Portfolio  may invest up to 15% of its net  assets in  foreign  equity
securities,  including securities of foreign issuers that are listed on a United
States exchange or traded in the U.S.  over-the-counter market and sponsored and
unsponsored American Depositary Receipts (ADRs).  Securities of foreign issuers,
including  emerging  markets  companies,  will be selected for investment by the
Portfolio if the Adviser  believes  these  securities  will offer above  average
capital growth potential. Investing in securities of foreign companies which are
generally  denominated  in foreign  currencies  and utilizing  foreign  currency
transactions involves certain risks of political,  economic and legal conditions
and  developments  not  typically  associated  with  investing in United  States
companies.   Such  conditions  or  developments   might  include   favorable  or
unfavorable  changes in currency  exchange rates,  exchange control  regulations
(including  currency  blockage),  civil  disorder,  expropriation  of  assets of
companies in which the Portfolio  invests,  nationalization  of such  companies,
imposition of withholding taxes on dividend or interest  payments,  and possible
difficulty in obtaining and enforcing judgments against a foreign issuer.  Also,
foreign  securities  may not be as liquid  as,  and may be more  volatile  than,
comparable domestic securities.  Furthermore,  issuers of foreign securities are
subject  to  different,  often less  comprehensive,  accounting,  reporting  and
disclosure requirements than domestic issuers. The Portfolio, in connection with
its purchases and sales of foreign securities, other than securities denominated
in United States dollars, will incur transaction costs in converting currencies.
Also, foreign custodial costs relating to the Portfolio's  portfolio  securities
are higher than domestic  custodial  costs.  Fixed  commissions on foreign stock
exchanges  are generally  higher than  negotiated  commissions  on United States
exchanges.  Finally,  transactions in equity securities effected on some foreign
stock exchanges, and consequently the Portfolio's investments on such exchanges,
may not be settled  promptly and therefore such  investments  may be less liquid
and  subject  to  the  risk  of  fluctuating  currency  exchange  rates  pending
settlement.  Investment  by the  Portfolio in  securities of issuers in emerging
markets  involves  risks in addition to those  discussed  above.  Many  emerging
market countries have  experienced  substantial,  and in some periods  extremely
high,  rates of inflation for many years.  Inflation and rapid  fluctuations  in
inflation  rates  have had and may  continue  to have  negative  effects  on the
economies and securities markets of certain emerging market countries. Moreover,
the economies of individual  emerging market  countries may differ  favorably or
unfavorably  from the U.S.  economy  in such  respects  as the rate of growth of
gross domestic product, the rate of inflation,  capital  reinvestment,  resource
self-sufficiency and balance of payments position.


<PAGE>

   
Short Term Debt Securities; Money Market Instruments
     The  Portfolio  may invest  uncommitted  cash and cash  needed to  maintain
liquidity for redemptions in short-term  debt  securities and cash  equivalents,
including short-term U.S. Government  securities (direct obligations of the U.S.
Government  backed  by the full  faith  and  credit  of the  United  States  and
securities  issued by agencies and  instrumentalities  of the U.S.  Government),
U.S.  and  foreign  commercial  paper,   negotiable   certificates  of  deposit,
non-negotiable fixed time deposits, bankers' acceptances,  repurchase agreements
and other money market securities and instruments.
     When the  Adviser  deems it  advisable  because of market  conditions,  the
Portfolio may temporarily invest in short-term debt securities or retain cash or
cash equivalents without limit. Such investments will be limited to 20% of total
assets unless the Portfolio is in a temporary defensive position.
     The Portfolio's  investments in money market securities  (i.e.,  securities
with  maturities of less than one year) will be limited to securities  which are
rated P-1 by Moody's  Investors  Service,  Inc.  (Moody's)  or A-1 by Standard &
Poor's Ratings Group  ("Standard & Poor's").  The Portfolio will invest at least
95% of its assets which are invested in short-term  interest bearing  securities
(i.e., securities with maturities of one to three years) in securities which are
rated at the time of  investment  Aaa,  Aa or A by Moody's  or AAA,  AA, or A by
Standard & Poor's, or which, if not rated, are of comparable  investment quality
in the opinion of the Adviser.  Up to 5% of assets  invested in such  short-term
securities  may be invested in securities  which are rated Baa by Moody's or BBB
by  Standard & Poor's,  or which,  if not rated,  are of  comparable  investment
quality  in the  opinion  of  the  Adviser.  In the  case  of a  security  rated
differently by the two rating services the higher rating is used in applying the
5% limit.
     In the  event  that  the  rating  on a  security  held  in the  Portfolio's
portfolio is lowered by a rating service,  such action will be considered by the
Adviser in its evaluation of the overall investment merits of that security, but
will not necessarily result in the sale of the security. Securities rated Baa by
Moody's and BBB by Standard & Poor's may have some  speculative  characteristics
and changes in economic  conditions and other  circumstances  are more likely to
lead to weakened  capacity to make  principal and interest  payments than is the
case with higher rated securities.
    

Repurchase Agreements
     The  Portfolio  may  invest  up to 10%  of its  net  assets  in  repurchase
agreements under normal  circumstances.  Repurchase  agreements  acquired by the
Portfolio  will always be fully  collateralized  as to principal and interest by
money market instruments and will be entered into with commercial banks, brokers
and  dealers  considered  creditworthy  by the  Adviser.  If the other  party or
"seller" of a repurchase  agreement defaults,  the Portfolio might suffer a loss
to the extent that the proceeds from the sale of the  underlying  securities and
other collateral held by the Portfolio in connection with the related repurchase
agreement  are less than the  repurchase  price.  In  addition,  in the event of
bankruptcy of the seller or failure of the seller to repurchase  the  securities
as agreed,  the Portfolio could suffer losses,  including loss of interest on or
principal of the security and costs associated with delay and enforcement of the
repurchase agreement.


<PAGE>

   
Strategic Transactions
     The Portfolio may, but is not required to, utilize various other investment
strategies as described  below to hedge  various  market risks (such as interest
rates,  currency  exchange rates, and broad or specific equity market movements)
or to enhance potential gain. Such strategies are generally  accepted as part of
modern portfolio  management and are regularly utilized by many mutual funds and
other institutional investors.  Techniques and instruments used by the Portfolio
may change over time as new  instruments  and  strategies  are  developed  or as
regulatory changes occur.
     In the course of pursuing  its  investment  objective,  the  Portfolio  may
purchase  and sell (write)  exchange  listed and  over-the-counter  put and call
options on securities, equity indices and other financial instruments;  purchase
and sell financial  futures  contracts and options  thereon;  enter into various
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").   Each
Strategic  Transaction  described  above is a derivative  instrument  because it
derives  its  value  from the  security  or  contract  underlying  the  specific
Transaction. Strategic Transactions may be used in an attempt to protect against
possible  changes in the market value of  securities  held in or to be purchased
for the  Portfolio's  portfolio  resulting from  securities  markets or currency
exchange rate fluctuations,  to protect the Portfolio's  unrealized gains in the
value of its portfolio securities, to facilitate the sale of such securities for
investment purposes,  or to establish a position in the derivatives markets as a
temporary  substitute  for  purchasing  or  selling  particular  securities.  In
addition to the hedging  transactions  referred  to in the  preceding  sentence,
Strategic   Transactions  may  also  be  used  to  enhance   potential  gain  in
circumstances  where hedging is not involved although the Portfolio will attempt
to limit its net loss exposure  resulting  from Strategic  Transactions  entered
into for such purposes to not more than 3% of the  Portfolio's net assets at any
one time and, to the extent necessary, the Portfolio will close out transactions
in order to comply with this limitation.  (Transactions  such as writing covered
call  options  are  considered  to  involve  hedging  for the  purposes  of this
limitation.) The Portfolio's use of Strategic  Transactions to enhance potential
gain may be considered  speculative.  In calculating  the  Portfolio's  net loss
exposure from such Strategic Transactions,  an unrealized gain from a particular
Strategic Transaction position would be netted against an unrealized loss from a
related Strategic  Transaction  position.  For example,  if the Adviser believes
that the  Portfolio is  underweighted  in cyclical  stocks and  overweighted  in
consumer  stocks,  the Portfolio may buy a cyclical index call option and sell a
cyclical  index put  option  and sell a  consumer  index  call  option and buy a
consumer index put option. Under such circumstances,  any unrealized loss in the
cyclical  position would be netted  against any unrealized  gain in the consumer
    

<PAGE>

position (and vice versa) for purposes of calculating  the  Portfolio's net loss
exposure.  The ability of the Portfolio to utilize these Strategic  Transactions
successfully  will depend on the Adviser's  ability to predict  pertinent market
movements,  which cannot be assured.  The Portfolio will comply with  applicable
regulatory  requirements  when  implementing  these  strategies,  techniques and
instruments.  The Portfolio's activities involving Strategic Transactions may be
limited to enable the Fund to comply with the  requirements  of  Subchapter M of
the Internal Revenue Code of 1986, as amended (the "Code"), for qualification as
a regulated investment company.

Short-Selling
     The Portfolio  may make short sales,  which are  transactions  in which the
Portfolio  sells a security it does not own in  anticipation of a decline in the
market value of that  security.  To complete such a  transaction,  the Portfolio
must borrow the security to make delivery to the buyer.  The  Portfolio  then is
obligated to replace the security  borrowed by purchasing it at the market price
at the time of replacement.  The price at such time may be more or less than the
price at which the  security  was sold by the  Portfolio.  Until the security is
replaced,  the  Portfolio is required to pay to the lender  amounts equal to any
dividends or interest  which accrue during the period of the loan. To borrow the
security,  the  Portfolio  also may be  required  to pay a premium,  which would
increase the cost of the security  sold.  The proceeds of the short sale will be
retained by the broker,  to the extent  necessary  to meet margin  requirements,
until the short position is closed out.
     Until the Portfolio replaces a borrowed security in connection with a short
sale, the Portfolio  will: (a) maintain daily a segregated  account not with the
broker,  containing cash or liquid  securities,  at such a level that the amount
deposited in the account plus the amount deposited with the broker as collateral
will equal the current value of the security sold short;  or (b) otherwise cover
its short position.
     The  Portfolio  anticipates  that the  frequency  of short  sales will vary
substantially  in different  periods,  and it does not intend that any specified
portion of its assets, as a matter of practice, will be in short sales. However,
no  securities  will be sold short if,  after  effect is given to any such short
sale, the total market value of all securities sold short would exceed 5% of the
value of the Portfolio's net assets.
     In addition to the short sales  discussed  above,  the  Portfolio  may make
short sales "against the box," a transaction in which the Portfolio  enters into
a short sale of a security  which the Portfolio  owns. The proceeds of the short
sale are held by a broker until the settlement  date at which time the Portfolio
delivers the security to close the short  position.  The Portfolio  receives the
net proceeds from the short sale.

Other Investment Companies
     The Portfolio may invest up to 10% of its total assets in the securities of
other  investment  companies but may not invest more than 5% of its total assets
in the securities of any one  investment  company or acquire more than 3% of the

<PAGE>

voting securities of any other investment  company.  For example,  the Portfolio
may invest in Standard & Poor's  Depositary  Receipts  (commonly  referred to as
"Spiders"),  which are exchange-traded shares of a closed-end investment company
that are designed to replicate the price  performance  and dividend yield of the
Standard & Poor's 500 Composite Stock Price Index. The Portfolio will indirectly
bear its  proportionate  share of any management fees and other expenses paid by
investment  companies  in which it  invests  in  addition  to the  advisory  and
administration  fees paid by the  Portfolio.  However,  to the  extent  that the
Portfolio invests in a registered open-end investment company,  the Adviser will
not  impose  its  advisory  fees on the  portion  of the  Portfolio's  assets so
invested.

Portfolio Turnover
     It is not the policy of the  Portfolio to purchase or sell  securities  for
trading  purposes.  However,  the Portfolio  places no restrictions on portfolio
turnover and it may sell any portfolio  security without regard to the period of
time it has  been  held.  The  Portfolio  may  therefore  generally  change  its
portfolio  investments at any time in accordance with the Adviser's appraisal of
factors  affecting any particular  issuer or market,  or the economy in general.
Portfolio  turnover is not expected to exceed 150% on an annual basis. A rate of
turnover  of 100%  would  occur,  for  example,  if the  value of the  lesser of
purchases or sales of  portfolio  securities  for a particular  year equaled the
average monthly value of portfolio  securities  owned during the year (excluding
securities with a maturity date of one year or less at the date of acquisition).
A high rate of portfolio  turnover involves a correspondingly  greater amount of
transaction  costs  which  must be  borne  directly  by the  Portfolio  and thus
indirectly  by the  Fund  and  its  shareholders.  It  may  also  result  in the
realization  of  larger  amounts  of  short-term   capital  gains,   the  Fund's
distributions from which are taxable to Fund shareholders as ordinary income and
may, under certain circumstances, make it more difficult for the Fund to qualify
as a regulated investment company under the Code.

   
Investment Restrictions
     Each of the Fund and the Portfolio has adopted certain fundamental policies
which may not be changed without the approval of the Fund's  shareholders or the
Portfolio's investors, as the case may be.
     The Fund has the same investment restrictions as the Portfolio, except that
the Fund may invest  substantially  all of its Investable  Assets in an open-end
management  investment company with substantially the same investment  objective
as the Fund.  Reference below to the Portfolio's  investment  restrictions  also
include the Fund's investment restrictions.  These policies provide, among other
things,  that the Portfolio may not: (i) invest, with respect to at least 75% of
its total assets,  more than 5% in the  securities of any one issuer (other than
the U.S. Government, its agencies or instrumentalities) or acquire more than 10%
of the outstanding  voting securities of any issuer;  (ii) invest 25% or more of
its total assets in a single  industry  except that this  restriction  shall not
apply to U.S.  Government  securities;  or (iii) borrow money, except in amounts
    

<PAGE>

   
not to exceed 33 1/3% of the value of the  Portfolio's  total assets  (including
the  amount  borrowed)  taken at market  value (a) from banks for  temporary  or
short-term purposes or for the clearance of transactions, (b) in connection with
the  redemption of shares or to finance failed  settlements of portfolio  trades
without  immediately  liquidating  portfolio  securities or other assets; (c) in
order to fulfill commitments or plans to purchase additional  securities pending
the  anticipated  sale of other  portfolio  securities  or  assets;  and (d) the
Portfolio  may  enter  into  reverse  repurchase  agreements  and  forward  roll
transactions.
     If any percentage  restriction described above is adhered to at the time of
investment, a subsequent increase or decrease in the percentage resulting from a
change in the value of the Portfolio's assets will not constitute a violation of
the  restriction.  Certain non fundamental  policies and additional  fundamental
policies adopted by the Fund and the Portfolio are described in the Statement of
Additional Information.
                          RISK FACTORS AND SUITABILITY
     The Fund is not intended to provide an  investment  program  meeting all of
the  requirements of an investor.  The companies in which the Portfolio  invests
generally  reinvest their earnings,  and dividend income should not be expected.
Additionally,  notwithstanding  the Portfolio's  ability to diversify and spread
risk by holding securities of a number of portfolio companies,  investors should
invest  in the  Fund  only if they are  able  and  prepared  to bear the risk of
investment  losses  which may  accompany  the  investments  contemplated  by the
Portfolio.
     Although investments in small capitalization  companies may present greater
opportunities  for growth,  they also involve greater risks than are customarily
associated  with  investments  in  larger,  more  established   companies.   The
securities of small companies may be subject to more volatile  market  movements
than securities of larger,  more established  companies.  Smaller  companies may
have limited product lines, markets or financial resources,  and they may depend
upon a limited or less  experienced  management  group.  The securities of small
companies  may be traded  only on the  over-the-counter  market or on a regional
securities  exchange  and may not be traded  daily or in the  volume  typical of
trading on a national securities  exchange.  As a result, the disposition by the
Portfolio of portfolio  securities in order to meet redemptions or otherwise may
require the Portfolio to sell securities at a discount from market prices,  over
a longer period of time or during periods when disposition is not desirable.
    

Strategic Transactions
     Strategic  Transactions have risks associated with them including  possible
default by the other party to the  transaction,  illiquidity  and, to the extent
the Adviser's  view as to certain market  movements is incorrect,  the risk that
the use of such  Strategic  Transactions  could result in losses greater than if
they had not been used. The writing of put and call options may result in losses
to the  Portfolio,  force  the  purchase  or sale,  respectively,  of  portfolio
securities  at  inopportune  times  or for  prices  higher  than (in the case of
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

<PAGE>

amount of appreciation the Portfolio can realize on its investments or cause the
Portfolio  to hold a  security  it might  otherwise  sell.  The use of  currency
transactions  can  result  in the  Portfolio  incurring  losses as a result of a
number of factors including the imposition of exchange  controls,  suspension of
settlements,  or the inability to deliver or receive a specified  currency.  The
use of  options  and  futures  transactions  entails  certain  other  risks.  In
particular,  the  variable  degree of  correlation  between  price  movements of
futures contracts and price movements in the related  portfolio  position of the
Portfolio  creates the possibility that losses on the hedging  instrument may be
greater  than gains in the value of the  Portfolio's  position.  The  writing of
options could  significantly  increase the Portfolio's  portfolio  turnover rate
and, therefore, associated brokerage commissions or spreads.
     In  addition,  futures  and  options  markets  may  not  be  liquid  in all
circumstances  and certain  over-the-counter  options may have no markets.  As a
result,  in  certain  markets,  the  Portfolio  might not be able to close out a
transaction without incurring substantial losses, if at all. Although the use of
futures and options transactions for hedging should tend to minimize the risk of
loss due to a decline in the value of the hedged position,  at the same time, in
certain circumstances, these transactions tend to limit any potential gain which
might result from an increase in value of such  position.  The loss  incurred by
the  Portfolio  in  writing   options  on  futures  and  entering  into  futures
transactions  is  potentially  unlimited;   however,  as  described  above,  the
Portfolio  will attempt to limit its net loss exposure  resulting from Strategic
Transactions  entered into for  non-hedging  purposes to not more than 3% of its
net assets at any one time.  Futures  markets are highly volatile and the use of
futures may increase the volatility of the Portfolio's net asset value. Finally,
entering  into  futures  contracts  would  create a  greater  ongoing  potential
financial risk than would  purchases of options where the exposure is limited to
the cost of the initial  premium.  Losses  resulting  from the use of  Strategic
Transactions  would  reduce  net  asset  value  and the net  result  may be less
favorable  than  if  Strategic  Transactions  had  not  been  utilized.  Further
information  concerning the Portfolio's  Strategic  Transactions is set forth in
the Statement of Additional Information.

Short-Selling
     The Portfolio  will incur a loss as a result of the short sale if the price
of the  security  increases  between  the date of the short sale and the date on
which the Portfolio replaces the borrowed security. The Portfolio will realize a
gain if the security  declines in price between those dates by an amount greater
than  premium and  transaction  costs.  This result is the  opposite of what one
would expect from a cash purchase of a long  position in a security.  The amount
of any gain will be  decreased,  and the  amount of any loss  increased,  by the
amount of any premium or amounts in lieu of dividends or interest the  Portfolio
may be required to pay in connection with a short sale.
     The  Portfolio's  loss on a short  sale as a result of an  increase  in the
price of the security  sold short is  potentially  unlimited.  The Portfolio may
purchase  call options to provide a hedge  against an increase in the price of a
security sold short by the Portfolio. When the Portfolio purchases a call option
it must pay a premium to the person  writing the option and a commission  to the
broker  selling the option.  If the option is  exercised by the  Portfolio,  the
premium  and the  commission  paid may be more than the amount of the  brokerage
commission charged if the security were to be purchased directly.

<PAGE>

   
     SPECIAL INFORMATION CONCERNING THE HUB AND SPOKE(R)1 MASTER-FEEDER FUND
                                    STRUCTURE
      Unlike other mutual funds which directly acquire and manage their own
portfolio  securities,  the Fund seeks to achieve its  investment  objective  by
investing  all of its  Investable  Assets  in the  Portfolio  which has the same
investment  objective as the Fund.  The  Portfolio in turn invests  primarily in
securities consistent with that objective.  Therefore, an investor's interest in
the  Portfolio's  securities  is  indirect.  In addition to selling a beneficial
interest to the Fund,  the  Portfolio  may sell  beneficial  interests  to other
mutual  funds or  institutional  investors.  Such  investors  will invest in the
Portfolio on the same terms and conditions and will pay a proportionate share of
the  Portfolio's  expenses.  However,  the  other  investors  investing  in  the
Portfolio  are not  required to sell their  shares at the same  public  offering
price as the Fund due to the imposition of sales  commissions  and variations in
other operating expenses. Therefore,  investors in the Fund should be aware that
these differences may result in differences in returns  experienced by investors
in the different funds that invest in the Portfolio. Such differences in returns
are also present in other mutual fund structures.  Information  concerning other
holders of interests  in the  Portfolio  is  available  from the Adviser  ((800)
221-4795).  The Hub and Spoke  master-feeder  fund  structure has been developed
relatively  recently,  so shareholders should carefully consider this investment
approach.
     Smaller funds investing in the Portfolio may be materially  affected by the
actions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may experience higher pro rata
operating expenses,  thereby producing lower returns (however,  this possibility
exists as well for traditionally  structured funds that have large institutional
investors).  Additionally, because the Portfolio would have fewer assets in such
a case, it may become less diversified,  resulting in increased  portfolio risk.
Also,  funds  with a greater  pro rata  ownership  in the  Portfolio  could have
effective voting control of the operations of the Portfolio. Except as permitted
by the SEC, whenever the Trust is requested to vote on matters pertaining to the
Portfolio  (other  than a vote by the Fund to  continue  the  operations  of the
Portfolio upon the withdrawal of another  investor in the Portfolio),  the Trust
will hold a meeting of  shareholders  of the Fund and will cast all of its votes
in the same proportion as the votes of the Fund's  shareholders.  The percentage
of the Trust's votes  representing Fund shareholders not voting will be voted by
the  Trustees  or  officers  of the  Trust  in the same  proportion  as the Fund
shareholders who do, in fact,  vote. Fund  shareholders who do not vote will not
affect the Trust's votes at the Portfolio meeting.
     Certain  changes in the  Portfolio's  investment  objectives,  policies  or
restrictions may require the Fund to withdraw its interest in the Portfolio. Any
such withdrawal could result in a distribution "in kind" of portfolio securities
(as opposed to a cash  distribution  from the Portfolio) to the extent permitted
by the  Investment  Company Act of 1940,  as amended (the "1940 Act"),  or rules
adopted  thereunder.  If  securities  are  distributed,  the  Fund  could  incur
brokerage,  tax or other  charges  in  converting  the  securities  to cash.  In
addition, the distribution in kind may result in a less diversified portfolio of
investments or adversely affect the liquidity of the Fund.  Notwithstanding  the
above, there are other means for meeting redemption requests, such as borrowing.
    

<PAGE>

   
     If the Portfolio  proposed to change its investment  objective,  the Fund's
Board of Trustees  would  either vote to approve a  corresponding  change to the
Fund's  investment  objective or approve the Fund's withdrawal of its investment
from the Portfolio.  The Fund may withdraw its investment  from the Portfolio at
any time if the Board of Trustees of the Trust determines that it is in the best
interests of the  shareholders of the Fund to do so (including if the Fund's and
the Portfolio's investment objectives were not substantially the same). Upon any
such  withdrawal,  the Board of Trustees of the Trust would consider what action
might be taken,  including  investing all the  Investable  Assets of the Fund in
another  pooled  investment  entity  having  substantially  the same  investment
objective as the Fund or retaining an investment  adviser to manage directly the
Fund's assets in accordance  with its investment  policies  described above with
respect to the Portfolio. In any event, shareholders of the Fund will receive 30
days prior written notice with respect to any change in the investment objective
of the Fund or the  Portfolio.  See  "Investment  Objective  and Policies" for a
description of the fundamental  policies of the Portfolio that cannot be changed
without  approval  by  the  "vote  of  a  majority  of  the  outstanding  voting
securities" (as defined in the 1940 Act) of the Portfolio.
     For descriptions of the investment objective,  policies and restrictions of
the Portfolio,  see "Investment Objective and Policies." For descriptions of the
management of the  Portfolio,  see  "Management"  herein and in the Statement of
Additional Information.  For descriptions of the expenses of the Portfolio,  see
"Management" herein.
                         CALCULATION OF PERFORMANCE DATA
     From time to time the Fund may  advertise  its total  return.  Total return
figures are based on historical earnings and are not intended to indicate future
performance.
     The "total  return" of the Fund  refers to the  average  annual  compounded
rates  of  return  over  1, 5 and 10  year  periods  (or  shorter  period  since
inception)  that would equate an initial  amount  invested at the beginning of a
stated period to the ending redeemable value of the investment.  The calculation
assumes the  reinvestment  of all  dividends  and  distributions,  includes  all
recurring  fees that are  charged to all  shareholder  accounts  and deducts all
nonrecurring charges at the end of each period.
     From time to time, the Fund may compare its performance  with that of other
mutual funds with similar  investment  objectives,  to stock and other  relevant
indices,  and  to  performance  rankings  prepared  by  recognized  mutual  fund
statistical  services.  In addition,  the Fund's  performance may be compared to
alternative  investment or savings  vehicles  and/or to indices or indicators of
economic activity.
    

<PAGE>

                           DIVIDENDS AND DISTRIBUTIONS
     The Fund's  dividends from  short-term and long term capital gains, if any,
after  reduction by capital  losses,  will be declared and  distributed at least
annually,  as will  dividends  from net investment  income.  In determining  the
amounts  of its  dividends,  the Fund will take  into  account  its share of the
income,  gains or losses,  expenses,  and any other tax items of the  Portfolio.
Dividends from net investment  income and capital gains  distributions,  if any,
are  automatically  reinvested  in  additional  shares  of the Fund  unless  the
shareholder elects to receive them in cash.
                               PURCHASE OF SHARES
     Shares of the Fund may be purchased from the Principal  Underwriter,  which
offers the Fund's shares to the public on a continuous basis. Shares are sold at
the net asset value per share next computed after the purchase order is received
in good  order by the  Principal  Underwriter  and  payment  for the  shares  is
received by the Fund's custodian.  Please see the Fund's account  application or
call the Principal Underwriter for instructions on how to make payment of shares
to the  Fund's  custodian.  Unless  waived  by the  Fund,  the  minimum  initial
investment  is  $100,000.  Additional  investments  may be made in amounts of at
least $10,000.
     Shares of the Fund may also be purchased through securities dealers. Orders
for the  purchase  of Fund  shares  received  by dealers by the close of regular
trading on the New York Stock  Exchange on any business day and  transmitted  to
the  Principal  Underwriter  or its  agent  by the  close  of its  business  day
(normally  4:00 p.m.,  New York City time) will be  effected  as of the close of
regular  trading  on the New York  Stock  Exchange  on that day,  provided  that
payment  for the shares is also  received by the Fund's  custodian  on that day.
Otherwise,  orders will be effected at the net asset value per share  determined
on the next business day. It is the responsibility of dealers to transmit orders
so that they will be received by the Principal  Underwriter  by the close of its
business day.  Shares of the Fund  purchased  through  dealers may be subject to
transaction  fees, no part of which will be received by the Fund,  the Principal
Underwriter or the Adviser.
     The Fund's net asset value per share is computed  each day on which the New
York Stock Exchange is open as of the close of regular  trading  (currently 4:00
p.m.,  New York City  time).  The net asset  value  per share is  calculated  by
determining  the  value  of all  the  Fund's  assets  (i.e.,  the  value  of its
investment in the Portfolio and other assets),  subtracting  all liabilities and
dividing the result by the total number of shares  outstanding.  The Portfolio's
portfolio securities are valued at the last sales prices, on the valuation date,
on the  exchange  or  national  securities  market on which  they are  primarily
traded.  Securities not listed on an exchange or national  securities market, or
securities for which there are no reported transactions,  are valued at the last
quoted bid prices. Securities for which quotations are not readily available and
all other assets will be valued at fair value as determined in good faith by the
Adviser in accordance with procedures  approved by the Trustees of the Portfolio
Trust.  Money market instruments with less than sixty days remaining to maturity
when acquired by the Portfolio are valued on an amortized  cost basis unless the
Portfolio  Trust's Board of Trustees  determines  that  amortized  cost does not
represent fair value. If the Portfolio  acquires a money market  instrument with
more than 60 days  remaining  to its  maturity,  it is valued at current  market
value  until  the  sixtieth  day  prior to  maturity  and will then be valued at
amortized  cost based upon the value on such date  unless  the  Trustees  of the
Portfolio Trust determine  during such sixty-day period that amortized cost does
not represent fair value.  Additional  information  concerning  the  Portfolio's
valuation policies is contained in the Statement of Additional Information.

<PAGE>

     In the sole discretion of the Trust, the Fund may accept securities instead
of cash for the  purchase of shares of the Fund.  The Trust will ask the Adviser
to  determine  that  any  securities  acquired  by the Fund in this  manner  are
consistent  with the  investment  objective,  policies and  restrictions  of the
Portfolio.  The  securities  will be  valued in the  manner  stated  above.  The
purchase of Fund shares for securities instead of cash may cause an investor who
contributes  them  to  realize  a  taxable  gain  or loss  with  respect  to the
securities transferred to the Fund.
     The Trust  reserves  the right in its sole  discretion  (i) to suspend  the
offering of the Fund's shares,  (ii) to reject  purchase orders when in the best
interest  of the Fund and (iii) to  modify  or  eliminate  the  minimum  initial
investment  in Fund  shares.  The  Fund's  investment  minimums  do not apply to
accounts  for which the Adviser or any of its  affiliates  serves as  investment
adviser or to employees of the Adviser or any of its affiliates or to members of
such persons' immediate  families.  The Fund's investment  minimums apply to the
aggregate  value invested in omnibus  accounts  rather than to the investment of
the underlying participants in the omnibus accounts.
                               EXCHANGE OF SHARES
     Shares of the Fund may be exchanged  for shares of one or more funds in the
Standish,  Ayer & Wood  family  of  funds.  Shares  of the Fund  redeemed  in an
exchange  transaction are valued at their net asset value next determined  after
the  exchange  request is received by the  Principal  Underwriter  or its agent.
Shares of a fund  purchased  in an  exchange  transaction  are sold at their net
asset  value next  determined  after the  exchange  request is  received  by the
Principal Underwriter or its agent and payment for the shares is received by the
fund into which your shares are to be  exchanged.  Until receipt of the purchase
price by the fund into which your shares are to be exchanged  (which may take up
to three business  days),  your money will not be invested.  To obtain a current
prospectus  for any of the other  funds in the  Standish,  Ayer & Wood family of
funds, please call the Principal Underwriter at (800) 221-4795.  Please consider
the differences in investment  objectives and expenses of a fund as described in
its prospectus before making an exchange.

Written Exchanges
     Shares  of the Fund may be  exchanged  by  written  order to the  Principal
Underwriter,  Attn:  Mutual  Fund  Department,  One  Financial  Center,  Boston,
Massachusetts  02111. A written  exchange request must (a) state the name of the
fund into which the current Fund shares will be exchanged,  (c) state the number
of shares or the dollar amount to be exchanged,  (d) identify the  shareholder's
account numbers in both funds and (e) be signed by each registered owner exactly
as the shares are  registered.  Signature(s)  must be guaranteed as listed under
"Written Redemption" below.


<PAGE>

Telephonic Exchanges
     Shareholders who elect telephonic privileges may exchange shares by calling
the Principal  Underwriter  at (800)  221-4795.  Telephonic  privileges  are not
available to shareholders automatically.  Proper identification will be required
for each telephonic exchange. Please see "Telephone Transactions" below for more
information regarding telephonic transactions.

General Exchange Information
     All exchanges are subject to the following exchange  restrictions:  (i) the
fund into which shares are being  exchanged  must be registered for sale in your
state;  (ii) exchanges may be made only between funds that are registered in the
same name, address and, if applicable, taxpayer identification number; and (iii)
unless waived by the Trust,  the amount to be exchanged must satisfy the minimum
account size of the fund to be exchanged  into.  Exchange  requests  will not be
processed until payment for the shares of the current Fund have been received by
the Principal Underwriter. The exchange privilege may be changed or discontinued
and may be subject to  additional  limitations  upon sixty (60) days'  notice to
shareholders,  including  certain  restrictions  on  purchases  by  market-timer
accounts.
                              REDEMPTION OF SHARES
     Shares of the Fund may be redeemed by any of the methods described below at
the net asset value per share next  determined  after  receipt by the  Principal
Underwriter  or its agent of a redemption  request in proper  form.  Redemptions
will not be processed until a completed  Share Purchase  Application and payment
for the shares to be redeemed have been received.

Written Redemption
     Shares  of the Fund  may be  redeemed  by  written  order to the  Principal
Underwriter,  Attn:  Mutual  Fund  Department,  One  Financial  Center,  Boston,
Massachusetts 02111. A written redemption request must (a) state the name of the
Fund and the number of shares or the dollar amount to be redeemed,  (b) identify
the  shareholder's  account  number and (c) be signed by each  registered  owner
exactly as the shares  are  registered.  Signature(s)  must be  guaranteed  by a
member of either the Securities Transfer  Association's STAMP program or the New
York Stock Exchange's Medallion Signature Program or by any one of the following
institutions,  provided that such institution meets credit standards established
by Investors Bank and Trust Company, the Fund's transfer agent: (i) a bank; (ii)
a securities  broker or dealer,  including a government or municipal  securities
broker or dealer, that is a member of a clearing  corporation or has net capital
of at least $100,000;  (iii) a credit union having  authority to issue signature
guarantees;   (iv)  a  savings  and  loan  association,   a  building  and  loan
association,  a cooperative  bank, or a federal savings bank or association;  or
(v) a national  securities  exchange,  a  registered  securities  exchange  or a
clearing agency.  Additional supporting documents may be required in the case of
estates, trusts, corporations,  partnerships and other shareholders that are not
individuals.  Redemption  proceeds  will normally be paid by check mailed within
three  business  days of  receipt  by the  Principal  Underwriter  of a  written
redemption  request  in proper  form.  If shares to be  redeemed  were  recently
purchased by check, the Fund may delay transmittal of redemption  proceeds until
such time as it has assured  itself that good funds have been  collected for the
purchase of such  shares.  This may take up to fifteen  (15) days in the case of
payments made by check.


<PAGE>

Telephonic Redemption
     Shareholders who elect  telephonic  privileges may redeem shares by calling
the Principal  Underwriter  at (800)  221-4795.  Telephonic  privileges  are not
available to shareholders  automatically.  Redemption proceeds will be mailed or
wired  in  accordance  with  the   shareholder's   instruction  on  the  account
application to a pre-designated  account.  Redemption  proceeds will normally be
paid promptly after receipt of telephonic instructions,  but no later than three
business  days  thereafter,  except as described  above for shares  purchased by
check. Redemption proceeds will be sent only by check payable to the shareholder
of record at the address of record, unless the shareholder has indicated, in the
initial  application  for the  purchase of shares,  a  commercial  bank to which
redemption  proceeds  may be sent by wire.  These  instructions  may be  changed
subsequently  only  in  writing,  accompanied  by  a  signature  guarantee,  and
additional  documentation  in the case of shares held by a corporation  or other
entity or by a fiduciary  such as a trustee or executor.  Wire charges,  if any,
will  be  deducted  from  redemption  proceeds.  Proper  identification  will be
required for each telephonic redemption.

Repurchase Order
     In addition to redemption of shares by written instruction to the Principal
Underwriter,  the Fund may accept  telephone  orders from brokers or dealers for
the repurchase of Fund shares.  The repurchase  price is the net asset value per
share next  determined  after receipt of the  repurchase  order by the Principal
Underwriter  and  payment  for the shares by the Fund's  custodian.  Brokers and
dealers are obligated to transmit repurchase orders to the Principal Underwriter
prior to the close of the Principal  Underwriter's  business day (normally  4:00
p.m.).  Brokers or dealers may charge for their  services in  connection  with a
repurchase of Fund shares,  but neither the Trust nor the Principal  Underwriter
imposes a charge for share repurchases.

Telephone Transactions
     By  maintaining  an account  that is eligible for  telephonic  exchange and
redemption  privileges,  the shareholder  authorizes the Adviser,  the Principal
Underwriter,  the Trust and the Fund's custodian to act upon instructions of any
person to redeem and/or exchange shares from the shareholder's account. Further,
the  shareholder  acknowledges  that,  as long as the  Fund  employs  reasonable
procedures  to confirm that  telephonic  instructions  are genuine,  and follows
telephonic  instructions that it reasonably believes to be genuine,  neither the
Adviser,  nor the Principal  Underwriter,  nor the Trust,  nor the Fund, nor the
Fund's custodian, nor their respective officers or employees, will be liable for
any loss, expense or cost arising out of any request for a telephonic redemption
or  exchange,   even  if  such  transaction   results  from  any  fraudulent  or
unauthorized instructions. Depending upon the circumstances, the Fund intends to
employ  personal   identification   or  written   confirmation  of  transactions
procedures,  and if it does not,  the Fund may be liable  for any  losses due to

<PAGE>

unauthorized or fraudulent instructions. All telephone transaction requests will
be  recorded.   Shareholders  may  experience  delays  in  exercising  telephone
transaction privileges during periods of abnormal market activity.  Accordingly,
during periods of volatile economic and market conditions, shareholders may wish
to consider transmitting redemption and exchange requests in writing.
                                     * * * *
     The proceeds paid upon  redemption  or repurchase  may be more or less than
the cost of the  shares,  depending  upon the  market  value of the  Portfolio's
portfolio investments at the time of redemption or repurchase.  The Fund intends
to pay cash for all shares redeemed, but under certain conditions,  the Fund may
make payments wholly or partially in securities withdrawn from the Portfolio for
this purpose.  Please see the Statement of  Additional  Information  for further
information regarding the Fund's ability to satisfy redemption requests in-kind.
     Because  of the  cost of  maintaining  shareholder  accounts,  the Fund may
redeem,  at net asset value, the shares in any account which has a value of less
than $25,000 as a result of redemptions or transfers.  Before doing so, the Fund
will notify the shareholder  that the value of the shares in the account is less
than the  specified  minimum and will allow the  shareholder  30 days to make an
additional  investment in an amount which will increase the value of the account
to at least $25,000. The Fund may eliminate duplicate mailings of Fund materials
to shareholders that have the same address of record.
                                   MANAGEMENT

Trustees
     The  Fund  is a  separate  investment  series  of  Standish,  Ayer  &  Wood
Investment Trust, a Massachusetts business
trust.  Under the terms of the Agreement and  Declaration of Trust  establishing
the Trust,  which is governed by the laws of The Commonwealth of  Massachusetts,
the Trustees of the Trust are ultimately  responsible  for the management of its
business and affairs.
     The  Portfolio is a separate  investment  series of  Standish,  Ayer & Wood
Master  Portfolio,  a master trust fund organized under the laws of the State of
New York.  Under the terms of the  Declaration  of  Trust,  the  affairs  of the
Portfolio  are managed  under the  supervision  of the Trustees of the Portfolio
Trust.
     A majority of the Trustees who are not "interested  persons" (as defined in
the 1940  Act) of the Trust or the  Portfolio  Trust,  as the case may be,  have
adopted  written  procedures  reasonably  appropriate  to  deal  with  potential
conflicts  of  interest  arising  from the fact  that the same  individuals  are
trustees of the Trust and of the Portfolio  Trust, up to and including  creating
separate  boards of trustees.  See  "Management"  in the Statement of Additional
Information  for more  information  about the Trustees and officers of the Trust
and the Portfolio Trust.

Investment Adviser
     Standish,  Ayer & Wood, Inc., One Financial Center,  Boston,  Massachusetts
02111,  serves as investment  adviser to the Portfolio pursuant to an investment
advisory  agreement  with  the  Portfolio  Trust  and  manages  the  Portfolio's
invest-ments  and  affairs  subject to the  supervision  of the  Trustees of the
Portfolio Trust. The Adviser is a Massachusetts corporation incorporated in 1933
and is a registered  investment  adviser  under the  Investment  Advisers Act of
1940.

<PAGE>

     The Adviser provides fully discretionary management services and counseling
and advisory  services to a broad range of clients  throughout the United States
and abroad.  As of September 30, 1996,  the Adviser or its  affiliate,  Standish
International  Management  Company,  L.P.  ("SIMCO"),  serves as the  investment
adviser to each of the following  funds in the  Standish,  Ayer & Wood family of
funds:

   
                                             Net Assets
                                        (September 30, 1996)
- --------------------------------------------------------------------------------
Standish Controlled Maturity Fund           $     10,540,255
Standish Equity Portfolio                        107,427,474
Standish Fixed Income Portfolio                2,435,532,278
Standish Fixed Income Fund II                     10,434,068
Standish Global Fixed Income Portfolio           157,190,502
Standish Intermediate Tax Exempt Bond Fund        34,789,565
Standish International Equity Fund                48,179,075
Standish International Fixed Income Fund         886,509,347
Standish Massachusetts Intermediate Tax
   Exempt Bond Fund                               32,216,649
Standish Securitized Fund                         51,628,213
Standish Short-Term Asset Reserve Fund           222,525,646
Standish Small Capitalization Equity Portfolio   236,113,563
Standish Small Capitalization Equity Portfolio II
Standish Small Cap Tax-Sensitive Equity Fund       6,742,185
Standish Tax-Sensitive Equity Fund                 2,840,324
    

     The Adviser's  clients also include  charitable and  educational  endowment
funds, financial institutions,  trusts and individual investors. As of September
30, 1996, the Adviser managed approximately $29 billion of assets.
     The Portfolio has two portfolio managers. Mr. Nicholas S. Battelle has been
primarily  responsible  for the  day-to-day  management  of the  Standish  Small
Capitalization  Equity  Portfolio  since 1990.  During the past five years,  Mr.
Battelle  has served as a Vice  President  as well as a Director of the Adviser.
Mr.  Andrew L. Beja has been  associated  with the  Adviser  since March 1996 as
Senior Analyst on the small  capitalization  company team.  Prior to joining the
Adviser,  Mr.  Beja was a Vice  President  and  analyst  at  Advest,  Inc.  from
1985-1996.
     Subject to the  supervision  and direction of the Trustees of the Portfolio
Trust,  the  Adviser  manages  the  Portfolio  in  accordance  with  its  stated
investment  objective  and  policies,  recommends  investment  decisions for the
Portfolio,  places  orders  to  purchase  and sell  securities  on behalf of the
Portfolio and permits the Portfolio to use the name "Standish." For its services
to the Portfolio, the Adviser receives a monthly fee equal on an annual basis to
0.60% of the Portfolio's average daily net assets.


<PAGE>

Administrator of the Fund
     Standish  also serves as  administrator  to the Fund (the  "Administrator")
pursuant to an administration agreement. As Administrator,  Standish manages the
affairs  of the Fund,  provides  all  necessary  office  space and  services  of
executive  personnel for  administering  the affairs of the Fund, and allows the
Fund to use the name "Standish." For these services, Standish currently does not
receive any  additional  compensation.  The Trustees of the Trust may,  however,
determine in the future to compensate Standish for its administrative services.

   
Expenses
     The Portfolio and the Fund, as the case may be, will be responsible for all
of their  respective  costs and expenses not  expressly  stated to be payable by
Standish  under the  investment  advisory  agreement  with the  Portfolio or the
administration agreement with the Fund. Among other expenses, the Portfolio will
pay investment advisory fees; bookkeeping,  share pricing and custodian fees and
expenses;  expenses of notices and reports to interest-holders;  and expenses of
the Portfolio's administrator.  The Fund will pay shareholder servicing fees and
expenses,  expenses of  prospectuses,  statements of additional  information and
shareholder  reports which are furnished to existing  shareholders.  Each of the
Fund and Portfolio will pay legal and auditing fees;  registration and reporting
fees and  expenses;  and  Trustees'  fees and  expenses.  The Trust's  Principal
Underwriter,   Standish  Fund  Distributors,  L.P.,  bears,  without  subsequent
reimbursement,  the distribution  expenses attributable to the offering and sale
of Fund  shares.  Expenses of the Trust or the  Portfolio  Trust which relate to
more than one of their respective  series are allocated among such series by the
Adviser and SIMCO in an equitable manner, primarily on the basis of relative net
asset values.
     Standish has voluntarily agreed to limit the master-feeder aggregate annual
operating expenses  (excluding  brokerage  commissions,  taxes and extraordinary
expenses) of the Fund and the Portfolio. Standish may discontinue or modify such
limitation in the future at its discretion, although it has no current intention
to do so. In addition,  Standish has agreed in the  administration  agreement to
limit the  Fund's  aggregate  annual  operating  expenses  (excluding  brokerage
commissions,   taxes  and  extraordinary  expenses)  to  the  permissible  limit
applicable in any state in which shares of the Fund are then qualified for sale.
    

Portfolio Transactions
     Subject to the  supervision  of the Trustees of the  Portfolio  Trust,  the
Adviser selects the brokers and dealers that execute orders to purchase and sell
portfolio  securities  for the  Portfolio.  The Adviser will  generally  seek to
obtain the best available price and most favorable execution with respect to all
transactions for the Portfolio.  Subject to the  consideration of best price and
execution  and to applicable  regulations,  the receipt of research and sales of
Fund shares may also be  considered  factors in the  selection  of brokers  that
execute orders to purchase and sell portfolio securities for the Portfolio.

<PAGE>

                              FEDERAL INCOME TAXES
     The  Fund  intends  to  qualify  for and  elect  taxation  as a  "regulated
investment company" under the Code. If it qualifies for treatment as a regulated
investment company, the Fund will not be subject to federal income tax on income
(including  capital gains)  distributed to shareholders in the form of dividends
or capital gain distributions in accordance with certain timing  requirements of
the Code.
     The Fund will be subject to a nondeductible 4% excise tax under the Code to
the extent that it fails to meet certain distribution  requirements with respect
to each calendar year. Certain distributions made in order to satisfy the Code's
distribution  requirements may be declared by the Fund during October,  November
or  December  of  the  year  but  paid  during  the  following   January.   Such
distributions will be taxable to taxable shareholders as if received on December
31 of the year the distributions are declared, rather than the year in which the
distributions are received.
     Shareholders  which are  taxable  entities  or  persons  will be subject to
federal income tax on dividends and capital gain distributions made by the Fund.
These dividends and  distributions  will be attributable to the Fund's allocable
share of the net income and net long term and  short-term  capital  gains of the
Portfolio and will also take into account any expenses incurred or income earned
directly by the Fund.  Dividends  paid by the Fund from net  investment  income,
certain net foreign  currency  gains,  and any excess of net short-term  capital
gain over net long-term capital loss will be taxable to shareholders as ordinary
income,  whether received in cash or Fund shares.  The portion of such dividends
attributable to the Fund's allocable share of qualifying dividends the Portfolio
receives,  if any, may qualify for the corporate  dividends received  deduction,
subject to certain holding period  requirements  and debt financing  limitations
under the Code.  Dividends paid by the Fund from net capital gain (the excess of
net long-term  capital gain over net short-term  capital loss),  called "capital
gain distributions," will be taxable to shareholders as long-term capital gains,
whether  received  in cash or Fund  shares  and  without  regard to how long the
shareholder  has held  shares of the Fund.  Capital  gain  distributions  do not
qualify for the corporate  dividends received  deduction.  Dividends and capital
gain distributions may also be subject to state and local or foreign taxes.
     The  Portfolio  anticipates  that it may be subject to foreign  withholding
taxes or other foreign taxes on income  (possibly  including  capital  gains) on
certain  foreign  investments  (if any),  which  will  reduce the yield on those
investments.  Such taxes may be reduced or eliminated  pursuant to an income tax
treaty in some cases.  The Fund does not expect to qualify to pass its allocable
share of such foreign taxes and any associated tax deductions or credits through
to its shareholders.
     Redemptions  and  repurchases  of  shares  are  taxable  events  on which a
shareholder  may  recognize  a gain or loss.  Special  rules  recharacterize  as
long-term  any losses on the sale or  exchange of Fund shares with a tax holding
period of six months or less, to the extent the  shareholder  received a capital
gain distribution with respect to such shares.

<PAGE>

     Individuals and certain other classes of shareholders may be subject to 31%
backup   withholding   of  federal   income  tax  on  dividends,   capital  gain
distributions, and the proceeds of redemptions or repurchases of shares, if they
fail to furnish the Fund with their correct taxpayer  identification  number and
certain  certifications or if they are otherwise subject to backup  withholding.
Individuals, corporations and other shareholders that are not U.S. persons under
the Code are subject to  different  tax rules and may be subject to  nonresident
alien  withholding  tax at the  rate  of 30%  (or a lower  rate  provided  by an
applicable  tax treaty) on amounts  treated as ordinary  dividends from the Fund
and,  unless a current IRS Form W-8 or an acceptable  substitute is furnished to
the Fund, to backup withholding on certain payments from the Fund.
     A state income (and possibly local income and/or  intangible  property) tax
exemption is generally available to the extent, if any, the Fund's distributions
are derived from interest on (or, in the case of intangibles taxes, the value of
its  assets  is  attributable   to)  investments  in  certain  U.S.   Government
obligations,  provided in some states that  certain  thresholds  for holdings of
such  obligations  and/or  reporting  requirements  are satisfied.  Shareholders
should consult their tax advisers regarding the applicable requirements in their
particular  states,  including  the  effect,  if  any,  of the  Fund's  indirect
ownership (through the Portfolio) of any such obligations.
     After  the  close of each  calendar  year,  the Fund  will send a notice to
shareholders  that  provides   information  about  the  federal  tax  status  of
distributions to shareholders for such calendar year.
                           THE FUND AND THE PORTFOLIO
     The  Fund  is a  separate  investment  series  of  Standish,  Ayer  &  Wood
Investment Trust, an  unincorporated  business trust organized under the laws of
The  Commonwealth of  Massachusetts  pursuant to an Agreement and Declaration of
Trust dated August 13, 1986.  Under the Agreement and Declaration of Trust,  the
Trustees  have  authority to issue an unlimited  number of shares of  beneficial
interest,  par value  $.01 per  share,  of the Fund.  Each  share of the Fund is
entitled to one vote.  All Fund shares have equal  rights with regard to voting,
redemption,  dividends,  distributions and liquidation,  and shareholders of the
Fund have the right to vote as a separate class with respect to certain  matters
under the 1940 Act and the Agreement  and  Declaration  of Trust.  Shares of the
Fund do not have cumulative  voting rights.  Fractional shares have proportional
voting rights and participate in any distributions  and dividends.  When issued,
each Fund share will be fully paid and  nonassessable.  Shareholders of the Fund
do not have preemptive or conversion rights. Certificates representing shares of
the Fund will not be issued.
     The Trust has established  eighteen other series that currently offer their
shares to the  public  and may  establish  additional  series at any time.  Each
series is a separate  taxpayer,  eligible  to  qualify  as a separate  regulated
investment  company for federal income tax purposes.  The calculation of the net
asset value of a series and the tax  consequences  of investing in a series will
be determined separately for each series.

<PAGE>

     The Trust is not required to hold annual meetings of shareholders.  Special
meetings of  shareholders  may be called from time to time for purposes  such as
electing or removing  Trustees,  changing a fundamental  policy, or approving an
investment advisory agreement.
     If less than two-thirds of the Trustees holding office have been elected by
shareholders,  a meeting  of  shareholders  of the Trust will be called to elect
Trustees.  Under the  Agreement and  Declaration  of Trust and the 1940 Act, the
record  holders of not less than  two-thirds  of the  outstanding  shares of the
Trust  may  remove a  Trustee  by votes  cast in person or by proxy at a meeting
called  for the  purpose  or by a  written  declaration  filed  with each of the
Trust's  custodian banks.  Except as described above, the Trustees will continue
to  hold  office  and  may  appoint  successor  Trustees.  Whenever  ten or more
shareholders  of the Trust who have been such for at least six  months,  and who
hold in the aggregate  shares having a net asset value of at least $25,000 or at
least 1% of the outstanding shares,  whichever is less, apply to the Trustees in
writing  stating that they wish to communicate  with other  shareholders  with a
view to  obtaining  signatures  to request a meeting,  and such  application  is
accompanied by a form of communication  and request which they wish to transmit,
the  Trustees  shall  within  five  (5)  business  days  after  receipt  of such
application  either (1) afford to such applicants  access to a list of the names
and addresses of all  shareholders as recorded on the books of the Trust; or (2)
inform such  applicants as to the  approximate  number of shareholders of record
and the approximate  cost of mailing to them the proposed  communication or form
of request.
     The Portfolio, in which all the Investable Assets of the Fund are invested,
is a series of Standish,  Ayer & Wood Master Portfolio,  an open-end  management
investment company. The Portfolio Trust's Declaration of Trust provides that the
Portfolio  Trust may establish and  designate  separate  series of the Portfolio
Trust.  The interests in the Portfolio  Trust are divided into separate  series,
and no series of the Portfolio  Trust has any preference  over any other series.
Investors  in other  series of the  Portfolio  Trust will not be involved in any
vote  involving  only  the  Portfolio.  Investors  of all of the  series  of the
Portfolio Trust will, however,  vote together to elect Trustees of the Portfolio
Trust and for certain other matters  affecting the Portfolio  Trust. As provided
by the 1940 Act, under certain  circumstances,  the  shareholders of one or more
series  could  control  the  outcome of these  votes.  The  Portfolio  Trust has
established four other series and may establish additional series at any time.
     The Portfolio Trust's  Declaration of Trust also provides that the Fund and
other entities  investing in the Portfolio (e.g.,  other  investment  companies,
insurance  company separate accounts and common and commingled trust funds) will
not be liable for the obligations of the Portfolio,  although they will bear the
risk of loss of their entire  respective  interests in the  Portfolio.  However,
there is a risk that interest  holders in the  Portfolio may be held  personally
liable as  partners  for the  Portfolio's  obligations.  Because  the  Portfolio
Trust's  Declaration of Trust disclaims  interest-holder  liability and provides
for  indemnification  against  such  liability,  the risk of the Fund  incurring

<PAGE>

financial loss on account of such liability is limited to circumstances in which
both inadequate  insurance  existed and the Portfolio  itself was unable to meet
its  obligations.  As  such,  it is  unlikely  that the  Fund  would  experience
liability from the investment  structure itself.  In any event,  shareholders of
the Fund will continue to remain shareholders of a Massachusetts business trust,
and the  risk  of  such a  person  incurring  liability  by  reason  of  being a
shareholder of the Fund is remote.
     Inquiries  concerning the Fund should be made by contacting the Fund or the
Principal Underwriter at the address and telephone number listed on the cover of
this Prospectus.
                              PRINCIPAL UNDERWRITER
     Standish Fund Distributors, L.P., One Financial Center, 26th Floor, Boston,
Massachusetts 02111, serves as the Trust's principal underwriter.
             CUSTODIAN, TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
     Investors  Bank & Trust  Company,  89 South Street,  Boston,  Massachusetts
02111,  serves  as the  Fund's  transfer  and  dividend-disbursing  agent and as
custodian of all cash and securities of the Portfolio.
                             INDEPENDENT ACCOUNTANTS
     Coopers & Lybrand  L.L.P.,  One Post Office Square,  Boston,  Massachusetts
02109 and Coopers & Lybrand,  P.O. Box 219, Grand Cayman,  Grand Cayman Islands,
BWI, serve as  independent  accountants  for the Trust and the Portfolio  Trust,
respectively, and will audit the Fund's and the Portfolio's respective financial
statements annually.
                                  LEGAL COUNSEL
     Hale and Dorr,  60 State  Street,  Boston,  Massachusetts  02109,  is legal
counsel to the Trust, the Portfolio Trust and
the Adviser.

<PAGE>

                         TAX CERTIFICATION INSTRUCTIONS
     Federal law requires that taxable distributions and proceeds of redemptions
and  exchanges  be  reported  to the IRS and that 31% be withheld if you fail to
provide your correct  Taxpayer  Identification  Number (TIN) and the TIN-related
certifications  contained in the Account Purchase  Application  (Application) or
you are otherwise subject to backup withholding. The Fund will not impose backup
withholding  as a result of your failure to make any  certification,  except the
certifications  in the  Application  that directly relate to your TIN and backup
withholding status. Amounts withheld and forwarded to the IRS can be credited as
a payment of tax when completing your Federal income tax return.
     For most  individual  taxpayers,  the TIN is the  social  security  number.
Special  rules  apply  for  certain  accounts.   For  example,  for  an  account
established under the Uniform Gift to Minors Act, the TIN of the minor should be
furnished. If you do not have a TIN, you may apply for one using forms available
at local  offices  of the Social  Security  Administration  or the IRS,  and you
should write "Applied For" in the space for a TIN on the Application.
     Recipients  exempt  from backup  withholding,  including  corporations  and
certain other  entities,  should  provide  their TIN and  underline  "exempt" in
section 2(a) of the TIN section of the  Application to avoid possible  erroneous
withholding.  Non-resident  aliens  and  foreign  entities  may  be  subject  to
withholding  of up to 30% on certain  distributions  received  from the Fund and
must provide certain  certifications on IRS Form W-8 to avoid backup withholding
with respect to other payments. For further information, see Code Sections 1441,
1442 and 3406 and/or consult your tax adviser.

- --------------------------------------------------------------------------------

   
     No  dealer,  salesman  or  other  person  has been  authorized  to give any
information or to make any  representations  other than those  contained in this
Prospectus or in the Statement of Additional Information, and, if given or made,
such other information or representations must not be relied upon as having been
authorized by the Trust.  This Prospectus does not constitute an offering in any
jurisdiction in which such offering may not be lawfully made.
    


<PAGE>

                  STANDISH SMALL CAPITALIZATION EQUITY FUND II
                               Investment Adviser
                           Standish, Ayer & Wood, Inc.
                              One Financial Center
                           Boston, Massachusetts 02111

                                    Custodian
                         Investors Bank & Trust Company
                                 89 South Street
                           Boston, Massachusetts 02111

                             Independent Accountants
                            Coopers & Lybrand L.L.P.
                             One Post Office Square
                           Boston, Massachusetts 02109

                                  Legal Counsel
                                  Hale and Dorr
                                 60 State Street
                           Boston, Massachusetts 02109

                              Principal Underwriter
                        Standish Fund Distributors, L.P.
                              One Financial Center
                           Boston, Massachusetts 02111



<PAGE>

Statement of Additional Information dated October 11, 1996





                  STANDISH SMALL CAPITALIZATION EQUITY FUND II
                              ONE FINANCIAL CENTER
                           BOSTON, MASSACHUSETTS 02111
                                 (800) 221-4795
                       STATEMENT OF ADDITIONAL INFORMATION

   
     This Statement of Additional  Information is not a prospectus,  but expands
upon and supplements the information  contained in the Prospectus  dated October
11, 1996 , as amended and/or  supplemented from time to time (the "Prospectus"),
of  Standish  Small  Capitalization  Equity  Fund II (the  "Fund"),  a  separate
investment series of Standish Ayer & Wood Investment Trust (the "Trust").
     This Statement of Additional Information should be read in conjunction with
the Fund's Prospectus, a copy of which may be obtained without charge by writing
or calling the Trust's principal underwriter,  Standish Fund Distributors,  L.P.
(the "Principal Underwriter"), at the address or phone number set forth above.
     THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.

                                                   CONTENTS
Investment Objective and Policies.........................2
Investment Restrictions...................................8
Calculation of Performance Data..........................10
Management...............................................11
Redemption of Shares.....................................16
Portfolio Transactions...................................16
Determination of Net Asset Value.........................17
Taxation.................................................17
The Fund and Its Shares..................................19
The Portfolio and Its Investors..........................20
Additional Information...................................20
Experts and Financial Statements.........................20
    

<PAGE>


                        INVESTMENT OBJECTIVE AND POLICIES
     As described in the  Prospectus,  the Fund seeks to achieve its  investment
objective  by  investing  all  its  investable  assets  in  the  Standish  Small
Capitalization Equity PortfolioII (the "Portfolio"),  a series of Standish, Ayer
&  Wood  Master  Portfolio  (the  "Portfolio  Trust"),  an  open-end  management
investment company.  The Portfolio has the same investment  objective,  policies
and restrictions as the Fund.
     The Fund's  Prospectus  describes the investment  objective of the Fund and
the Portfolio and summarizes the investment policies they will follow. Since the
investment  characteristics  of the  Fund  correspond  directly  to those of the
Portfolio, the following,  which supplements the Prospectus,  is a discussion of
the various investment techniques employed by the Portfolio.  See the Prospectus
for a more complete  description  of the Fund's and the  Portfolio's  investment
objective, policies and restrictions.

   
Investment Objective
     The  Portfolio's  investment  objective is to achieve  long-term  growth of
capital. The Portfolio seeks to achieve its investment objective by investing at
least 80% of its total assets in equity and  equity-related  securities of small
capitalization  companies.  The Portfolio  invests  primarily in publicly traded
securities  including  securities  issued  in  initial  public  offerings.   The
Portfolio may invest up to 15% of its net assets in foreign  equity  securities,
including  securities of foreign  issuers that are listed on a U.S.  exchange or
traded in the  over-the-counter  market and American Depositary Receipts (ADRs).
In addition,  the  Portfolio  may engage in certain  strategic  transactions  as
discussed below. The Portfolio purchases short-term  interest-bearing securities
with  uninvested  funds,  the  proportion  of  which  will  depend  upon  market
conditions and the needs of the Portfolio.

Common Stocks
     The companies in whose equity and  equity-related  securities the Portfolio
invests generally have market  capitalizations under 1 billion.  Investments are
expected to emphasize  companies  involved with value added products or services
in expanding industries. At times, particularly when Standish, Ayer & Wood, Inc.
("Standish"  or the "Adviser")  believes that the securities of small  companies
are overvalued, the Portfolio's portfolio may include securities of larger, more
mature companies, provided that the value of the securities of such larger, more
mature  companies  shall not  exceed  20% of the  Portfolio's  net  assets.  The
Portfolio will attempt to reduce risk by diversifying its investments within the
investment policies set forth above.
    

Foreign Securities
     Foreign securities may be purchased and sold in over-the-counter markets or
on stock  exchanges  located in the countries in which the respective  principal
offices of their  issuers are  located,  if that is the best  available  market.
Foreign  stock  markets are  generally not as developed or efficient as those in
the United States. While growing in volume, they usually have substantially less
volume  than  the New  York  Stock  Exchange,  and  securities  of some  foreign
companies are less liquid and more volatile than securities of comparable United
States  companies.  Fixed  commissions on foreign stock  exchanges are generally
higher than  negotiated  commissions  on United States  exchanges,  although the
Portfolio  will  endeavor  to  achieve  the most  favorable  net  results on its

<PAGE>

portfolio  transactions.  There is generally  less  government  supervision  and
regulation of stock  exchanges,  brokers and listed companies abroad than in the
United States.
     The dividends and interest  payable on certain of the  Portfolio's  foreign
portfolio  securities may be subject to foreign  withholding taxes, (and in some
cases capital gains from such  securities  may also be subject to foreign taxes)
thus reducing the net amount of income  available for distribution to the Fund's
shareholders.
     Investors should  understand that the expense ratio of the Portfolio may be
higher  than that of  investment  companies  investing  exclusively  in domestic
securities because of the cost of maintaining the custody of foreign securities.
     The Portfolio may acquire sponsored and unsponsored ADRs.  Unsponsored ADRs
are acquired  from banks that do not have a  contractual  relationship  with the
issuer of the security  underlying  the  depositary  receipt to issue and secure
such  depositary  receipt.  To the  extent  that the  Portfolio  invests in such
unsponsored  ADRs there may be an increased  possibility  that the Portfolio may
not become aware of events affecting the underlying  security and thus the value
of the related depositary receipt.  In addition,  certain benefits (i.e., rights
offerings)  which may be associated with the security  underlying the depositary
receipt may not inure to the benefit of the holder of such depositary receipt.

Money Market Instruments and Repurchase Agreements
     When the Adviser  considers  investments  in equity  securities  to present
excessive risks, the Portfolio may invest all or a portion of its assets in debt
securities or cash equivalents.  The Portfolio will also invest uncommitted cash
in short-term debt securities.
     To maintain liquidity for redemptions or at times when the Adviser deems it
advisable because of market  conditions,  the Portfolio may invest in short-term
debt  securities and short-term  securities of the United States  government and
its instrumentalities or retain cash or cash equivalents.
     Money market  instruments  include short-term U.S.  Government  securities,
U.S. and foreign  commercial paper  (promissory  notes issued by corporations to
finance their  short-term  credit needs),  negotiable  certificates  of deposit,
non-negotiable   fixed  time  deposits,   bankers'  acceptances  and  repurchase
agreements.
     U.S. Government  securities include securities which are direct obligations
of the U.S. Government backed by the full faith and credit of the United States,
and securities issued by agencies and  instrumentalities of the U.S. Government,
which may be guaranteed by the U.S.  Treasury or supported by the issuer's right
to borrow from the Treasury or may be backed by the credit of the federal agency
or instrumentality itself. Agencies and instrumentalities of the U.S. Government
include,  but are not limited to,  Federal  Land Banks,  the Federal Farm Credit
Bank,  the Central Bank for  Cooperatives,  Federal  Intermediate  Credit Banks,
Federal Home Loan Banks and the Federal National Mortgage Association.

<PAGE>

     A repurchase  agreement is an agreement under which the Portfolio  acquires
money  market  instruments   (generally  U.S.  Government   securities)  from  a
commercial  bank,  broker or  dealer,  subject  to  resale  to the  seller at an
agreed-upon  price and date  (normally the next business  day). The resale price
reflects an agreed-upon  interest rate effective for the period the  instruments
are  held  by  the  Portfolio  and is  unrelated  to the  interest  rate  on the
instruments.  The  instruments  acquired  by the  Portfolio  (including  accrued
interest) must have an aggregate  market value in excess of the resale price and
will be held by the Portfolio's  custodian bank until they are repurchased.  The
Trustees will consider the standards which the Adviser will use in reviewing the
creditworthiness of any party to a repurchase agreement with the Portfolio.
     The use of repurchase  agreements  involves certain risks. For example,  if
the seller defaults on its obligation to repurchase the instruments  acquired by
the Portfolio at a time when their market value has declined,  the Portfolio may
incur a loss.  If the seller  becomes  insolvent  or subject to  liquidation  or
reorganization  under  bankruptcy or other laws, a court may determine  that the
instruments acquired by the Portfolio are collateral for a loan by the Portfolio
and therefore are subject to sale by the trustee in bankruptcy.  Finally,  it is
possible that the Portfolio may not be able to substantiate  its interest in the
instruments  it acquires.  While the  Trustees  acknowledge  these risks,  it is
expected  that  they  can  be  controlled  through  careful   documentation  and
monitoring.

Strategic Transactions
     The Portfolio may, but is not required to, utilize various other investment
strategies as described  below to hedge  various  market risks (such as interest
rates,  currency exchange rates, and broad or specific equity market movements),
to manage the effective maturity or duration of fixed-income  securities,  or to
enhance potential gain. Such strategies are generally accepted as part of modern
portfolio  management and are regularly  utilized by many mutual funds and other
institutional  investors.  Techniques and instruments  used by the Portfolio may
change over time as new  instruments  and strategies are developed or regulatory
changes occur.
     In the course of pursuing  its  investment  objective,  the  Portfolio  may
purchase  and sell (write)  exchange-listed  and  over-the-counter  put and call
options on securities, equity indices and other financial instruments;  purchase
and sell financial  futures  contracts and options  thereon;  enter into various
interest rate  transactions such as swaps,  caps,  floors or collars;  and enter
into various currency transactions such as currency forward contracts,  currency
futures  contracts,  currency swaps or options on currencies or currency futures
(collectively,  all the above are called  "Strategic  Transactions").  Strategic
Transactions  may be used as an attempt to protect against  possible  changes in
the market value of securities  held in or to be purchased  for the  Portfolio's
portfolio   resulting  from  securities   markets  or  currency   exchange  rate
fluctuations,  to protect the Portfolio's  unrealized  gains in the value of its
portfolio  securities,  to facilitate the sale of such securities for investment
purposes,  or to establish a position in the derivatives  markets as a temporary
substitute for purchasing or selling particular  securities.  In addition to the

<PAGE>

hedging   transactions   referred  to  in  the  preceding  sentence,   Strategic
Transactions may also be used to enhance  potential gain in circumstances  where
hedging is not  involved  although the  Portfolio  will attempt to limit its net
loss  exposure  resulting  from  Strategic  Transactions  entered  into for such
purposes to not more than 3% of the  Portfolio's net assets at any one time and,
to the extent  necessary,  the Portfolio will close out transactions in order to
comply with this limitation.  (Transactions such as writing covered call options
are  considered  to involve  hedging for the  purposes of this  limitation.)  In
calculating the Portfolio's net loss exposure from such Strategic  Transactions,
an unrealized  gain from a particular  Strategic  Transaction  position would be
netted against an unrealized loss from a related Strategic Transaction position.
For example,  if the Adviser  believes  that the Portfolio is  underweighted  in
cyclical  stocks and  overweighted in consumer  stocks,  the Portfolio may buy a
cyclical  index  call  option  and sell a  cyclical  index put option and sell a
consumer  index  call  option and buy a consumer  index put  option.  Under such
circumstances,  any  unrealized  loss in the cyclical  position  would be netted
against  any  unrealized  gain in the  consumer  position  (and vice  versa) for
purposes of calculating the  Portfolio's  net loss exposure.  The ability of the
Portfolio to utilize these Strategic  Transactions  successfully  will depend on
the Adviser's  ability to predict  pertinent market  movements,  which cannot be
assured. The Portfolio will comply with applicable regulatory  requirements when
implementing  these  strategies,  techniques and  instruments.  The  Portfolio's
activities  involving  Strategic  Transactions may be limited in order to enable
the Fund to comply with the requirements of Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Internal  Revenue Code"),  for qualification as a
regulated investment company.

Risks of Strategic Transactions
     Strategic  Transactions have risks associated with them including  possible
default by the other party to the  transaction,  illiquidity  and, to the extent
the Adviser's  view as to certain market  movements is incorrect,  the risk that
the use of such  Strategic  Transactions  could result in losses greater than if
they had not been used. The writing of put and call options may result in losses
to the  Portfolio,  force  the  purchase  or sale,  respectively,  of  portfolio
securities  at  inopportune  times or for prices higher than (in the case of put
options)  or lower than (in the case of call  options)  current  market  values,
limit the amount of appreciation the Portfolio can realize on its investments or
cause the  Portfolio  to hold a security  it might  otherwise  sell.  The use of
currency  transactions can result in the Portfolio  incurring losses as a result
of a number of factors including the imposition of exchange controls, suspension
of settlements, or the inability to deliver or receive a specified currency. The
use of  options  and  futures  transactions  entails  certain  other  risks.  In
particular,  the  variable  degree of  correlation  between  price  movements of
futures contracts and price movements in the related  portfolio  position of the
Portfolio  creates the possibility that losses on the hedging  instrument may be
greater  than gains in the value of the  Portfolio's  position.  The  writing of
options could  significantly  increase the Portfolio's  portfolio  turnover rate
and,  therefore,  associated  brokerage  commissions  or spreads.  In  addition,
futures and options markets may not be liquid in all  circumstances  and certain
over-the-counter  options may have no markets.  As a result, in certain markets,
the  Portfolio  might not be able to close out a transaction  without  incurring
substantial  losses,  if at  all.  Although  the  use  of  futures  and  options
transactions  for  hedging  should  tend to  minimize  the risk of loss due to a

<PAGE>

decline  in the value of the  hedged  position,  at the same  time,  in  certain
circumstances,  they tend to limit any potential gain which might result from an
increase  in value of such  position.  The loss  incurred  by the  Portfolio  in
writing options on futures and entering into futures transactions is potentially
unlimited;  however, as described above, the Portfolio will attempt to limit its
net  loss  exposure  resulting  from  Strategic  Transactions  entered  into for
non-hedging  purposes  to not more  than 3% of its net  assets  at any one time.
Futures  markets are highly  volatile  and the use of futures may  increase  the
volatility  of the  Fund's  net asset  value.  Finally,  entering  into  futures
contracts  would create a greater  ongoing  potential  financial risk than would
purchases  of options  where the  exposure is limited to the cost of the initial
premium.  Losses resulting from the use of Strategic  Transactions  would reduce
net asset value and the net result may be less  favorable  than if the Strategic
Transactions had not been utilized.

General Characteristics of Options
     Put  options  and  call   options   typically   have   similar   structural
characteristics   and  operational   mechanics   regardless  of  the  underlying
instrument on which they are purchased or sold.
     Thus, the following  general  discussion  relates to each of the particular
types of options discussed in greater detail below. In addition,  many Strategic
Transactions  involving options require segregation of the Portfolio's assets in
special accounts, as described below under "Use of Segregated Accounts."
     A put option gives the purchaser of the option,  in  consideration  for the
payment of a premium,  the right to sell,  and the writer the  obligation to buy
(if the  option  is  exercised),  the  underlying  security,  commodity,  index,
currency  or  other  instrument  at  the  exercise  price.  For  instance,   the
Portfolio's  purchase of a put option on a security might be designed to protect
its  holdings  in the  underlying  instrument  (or,  in some  cases,  a  similar
instrument)  against a  substantial  decline in the  market  value by giving the
Portfolio the right to sell such instrument at the option exercise price. A call
option,  in consideration  for the payment of a premium,  gives the purchaser of
the option  the right to buy,  and the  seller  the  obligation  to sell (if the
option is  exercised),  the  underlying  instrument at the exercise  price.  The
Portfolio  may purchase a call option on a security,  futures  contract,  index,
currency  or other  instrument  to seek to  protect  the  Portfolio  against  an
increase in the price of the underlying  instrument  that it intends to purchase
in the future by fixing the price at which it may purchase such  instrument.  An
American style put or call option may be exercised at any time during the option
period  while a European  style put or call  option may be  exercised  only upon
expiration or during a fixed period prior  thereto.  The Portfolio is authorized
to purchase and sell exchange listed options and over-the-counter  options ("OTC
options").  Exchange listed options are issued by a regulated  intermediary such
as the Options Clearing Corporation ("OCC"), which guarantees the performance of
the  obligations of the parties to such options.  The discussion  below uses the
OCC as an example, but is also applicable to other financial intermediaries.

<PAGE>

   
     With  certain  exceptions,  exchange  listed  options  generally  settle by
physical delivery of the underlying security or currency, although in the future
cash settlement may become available.  Index options and Eurodollar  instruments
are cash settled for the net amount, if any, by which the option is in-the-money
(i.e., where the value of the underlying  instrument  exceeds,  in the case of a
call option, or is less than, in the case of a put option, the exercise price of
the option) at the time the option is exercised.  Frequently, rather than taking
or  making  delivery  of  the  underlying  instrument  through  the  process  of
exercising  the option,  listed  options are closed by entering into  offsetting
purchase or sale transactions that do not result in ownership of the new option.
     The Portfolio's  ability to close out its position as a purchaser or seller
of an  exchange  listed  put or call  option  is  dependent,  in part,  upon the
liquidity  of the option  market.  There is no  assurance  that a liquid  option
market on an exchange will exist.  In the event that the relevant  market for an
option on an  exchange  ceases to exist,  outstanding  options on that  exchange
would generally continue to be exercisable in accordance with their terms.
     The hours of trading  for listed  options may not  coincide  with the hours
during which the underlying financial instruments are traded. To the extent that
the  option  markets  close  before the  markets  for the  underlying  financial
instruments,  significant  price  and  rate  movements  can  take  place  in the
underlying markets that cannot be reflected in the option markets.
     OTC options are  purchased  from or sold to securities  dealers,  financial
institutions or other parties  ("Counterparties")  through direct agreement with
the Counterparty.  In contrast to exchange listed options,  which generally have
standardized  terms and performance  mechanics,  all the terms of an OTC option,
including such terms as method of settlement,  term,  exercise  price,  premium,
guarantees and security,  are set by  negotiation of the parties.  The Portfolio
will generally  sell (write) OTC options (other than OTC currency  options) that
are subject to a buy-back  provision  permitting  the  Portfolio  to require the
Counterparty  to sell the option back to the Portfolio at a formula price within
seven days.  (To the extent that the  Portfolio  does not do so, the OTC options
are  subject  to  the  Portfolio's  restriction  on  illiquid  securities.)  The
Portfolio  expects generally to enter into OTC options that have cash settlement
provisions, although it is not required to do so.
     Unless the parties provide for it, there is no central clearing or guaranty
function  in an OTC  option.  As a  result,  if the  Counterparty  fails to make
delivery of the security,  currency or other instrument underlying an OTC option
it has  entered  into  with the  Portfolio  or  fails to make a cash  settlement
payment due in accordance with the terms of that option, the Portfolio will lose
any  premium  it paid for the option as well as any  anticipated  benefit of the
transaction.  Accordingly,  the Adviser must assess the creditworthiness of each
such Counterparty or any guarantor or credit  enhancement of the  Counterparty's
credit to  determine  the  likelihood  that the terms of the OTC option  will be
satisfied.  The Portfolio will engage in OTC option  transactions only with U.S.
Government securities dealers recognized by the Federal Reserve Bank of New York
as `primary  dealers',  or broker  dealers,  domestic or foreign  banks or other
financial   institutions   which  have   received,   combined  with  any  credit
enhancements,  a long-term debt rating of A from Standard & Poor's Ratings Group
("S&P") or Moody's Investor  Services  ("Moody's") or an equivalent  rating from
    

<PAGE>

any other nationally recognized statistical rating organization ("NRSRO") or the
debt of which is determined to be of equivalent  credit  quality by the Adviser.
The staff of the Securities and Exchange  Commission (the "SEC") currently takes
the position that, absent the buy-back  provisions  discussed above, OTC options
purchased by the Portfolio,  and portfolio  securities  "covering" the amount of
the Portfolio's obligation pursuant to an OTC option sold by it (the cost of the
sell-back plus the in-the-money amount, if any) are illiquid, and are subject to
the  Portfolio's  limitation  on  investing  no more  than 15% of its  assets in
illiquid securities. However, for options written with `primary dealers' in U.S.
Government  securities  pursuant to an  agreement  requiring a closing  purchase
transaction  at a formula  price,  the amount which is considered to be illiquid
may be calculated by reference to a formula price.
     If the Portfolio sells (writes) a call option, the premium that it receives
may serve as a partial  hedge,  to the extent of the option  premium,  against a
decrease  in the  value  of the  underlying  securities  or  instruments  in its
portfolio or will increase the  Portfolio's  income.  The sale  (writing) of put
options can also provide income.
     The  Portfolio  may purchase  and sell (write) call options on  securities,
equity securities (including convertible  securities) and Eurodollar instruments
that  are  traded  on  U.S.  and  foreign   securities   exchanges  and  in  the
over-the-counter  markets,  and on securities  indices,  currencies  and futures
contracts.  All  calls  sold by the  Portfolio  must  be  "covered"  (i.e.,  the
Portfolio  must own the securities or futures  contract  subject to the call) or
must meet the asset segregation requirements described below as long as the call
is  outstanding.  Even though the Portfolio  will receive the option  premium to
help protect it against loss, a call sold by the Portfolio exposes the Portfolio
during  the term of the  option  to  possible  loss of  opportunity  to  realize
appreciation  in the market price of the  underlying  security or instrument and
may  require  the  Portfolio  to hold a security  or  instrument  which it might
otherwise have sold.
     The  Portfolio  may  purchase  and sell  (write) put options on  securities
including equity securities  (including  convertible  securities) and Eurodollar
instruments (whether or not it holds the above securities in its portfolio), and
on securities indices,  currencies and futures contracts. The Portfolio will not
sell put options if, as a result,  more than 50% of the Portfolio's assets would
be required to be segregated to cover its potential  obligations  under such put
options other than those with respect to futures and options thereon. In selling
put  options,  there is a risk that the  Portfolio  may be  required  to buy the
underlying security at a disadvantageous price above the market price.

Options on Securities Indices and Other Financial Indices
     The  Portfolio  may also  purchase and sell (write) call and put options on
securities  indices and other financial  indices.  Options on securities indices
and other  financial  indices  are  similar to  options  on a security  or other
instrument  except  that,  rather  than  settling  by  physical  delivery of the
underlying instrument, they settle by cash settlement. For example, an option on
an index gives the holder the right to receive,  upon exercise of the option, an

<PAGE>

   
amount of cash if the closing  level of the index upon which the option is based
exceeds,  in the case of a call,  or is less  than,  in the  case of a put,  the
exercise price of the option (except if, in the case of an OTC option,  physical
delivery is specified). This amount of cash is equal to the differential between
the closing price of the index and the exercise price of the option,  which also
may be multiplied by a formula value. The seller of the option is obligated,  in
return for the premium received, to make delivery of this amount. In addition to
the  methods  described  above,  the  Portfolio  may  cover  call  options  on a
securities  index by owning  securities  whose price  changes are expected to be
similar to those of the underlying index, or by having an absolute and immediate
right to acquire such securities  without  additional cash consideration (or for
additional  cash  consideration  held in a segregated  account by its custodian)
upon conversion or exchange of other securities in its portfolio.
     General Characteristics of Futures
     The Portfolio  may enter into  financial  futures  contracts or purchase or
sell put and call options on such futures. Futures are generally bought and sold
on the  commodities  exchanges where they are listed with payment of initial and
variation  margin as described below.  The sale of futures  contracts  creates a
firm  obligation  by the  Portfolio,  as  seller,  to  deliver  to the buyer the
specific type of financial  instrument  called for in the contract at a specific
future  time for a  specified  price  (or,  with  respect to index  futures  and
Eurodollar instruments,  the net cash amount). The purchase of futures contracts
creates a corresponding  obligation by the Portfolio,  as purchaser.  Options on
futures  contracts are similar to options on securities except that an option on
a futures  contract gives the purchaser the right in return for the premium paid
to assume a position in a futures  contract and  obligates the seller to deliver
such position if the option is exercised.
     The  Portfolio's  use of financial  futures and options thereon will in all
cases be consistent with applicable  regulatory  requirements  and in particular
the  regulations  of  the  Commodity  Futures  Trading  Commission  relating  to
exclusions  from  regulation as a commodity  pool  operator.  Those  regulations
currently  provide  that the  Portfolio  may use  commodity  futures  and option
positions (i) for bona fide hedging purposes without regard to the percentage of
assets  committed  to margin and  option  premiums,  or (ii) for other  purposes
permitted by the SEC to the extent that the aggregate  initial margin and option
premiums required to establish such non-hedging positions (net of the amount the
positions  were "in the money" at the time of  purchase) do not exceed 5% of the
net  asset  value  of the  Portfolio's  portfolio,  after  taking  into  account
unrealized  profits  and  losses on such  positions.  Typically,  maintaining  a
futures  contract or selling an option thereon requires the Portfolio to deposit
with a financial  intermediary as security for its obligations an amount of cash
or other specified  assets  (initial  margin) which initially is typically 1% to
10%  of  the  face  amount  of  the   contract   (but  may  be  higher  in  some
circumstances).  Additional cash or assets (variation margin) may be required to
be  deposited  thereafter  on a  daily  basis  as  the  value  of  the  contract
fluctuates. The purchase of an option on financial futures involves payment of a
    

<PAGE>

premium  for the  option  without  any  further  obligation  on the  part of the
Portfolio.  If the Portfolio exercises an option on a futures contract,  it will
be obligated to post initial margin (and potential  subsequent variation margin)
for the resulting  futures  position just as it would for any position.  Futures
contracts  and  options  thereon  are  generally  settled  by  entering  into an
offsetting  transaction,  but there can be no assurance that the position can be
offset prior to  settlement  at an  advantageous  price,  nor that delivery will
occur.  The  segregation  requirements  with  respect to futures  contracts  and
options thereon are described below.
     Currency Transactions
     The Portfolio may engage in currency  transactions  with  Counterparties in
order to hedge  the  value  of  portfolio  holdings  denominated  in  particular
currencies against  fluctuations in relative value or to enhance potential gain.
Currency  transactions  include  forward  currency  contracts,  exchange  listed
currency  futures,  exchange listed and OTC options on currencies,  and currency
swaps. A forward currency contract involves a privately negotiated obligation to
purchase or sell (with  delivery  generally  required) a specific  currency at a
future date, which may be any fixed number of days from the date of the contract
agreed  upon by the  parties,  at a price  set at the  time of the  contract.  A
currency  swap is an  agreement  to exchange  cash flows  based on the  notional
(agreed-upon)  difference among two or more currencies and operates similarly to
an interest rate swap,  which is described  below.  The Portfolio may enter into
over-the-counter  currency transactions with Counterparties which have received,
combined  with any credit  enhancements,  a long term debt rating of A by S&P or
Moody's, respectively, or that have an equivalent rating from a NRSRO or (except
for OTC currency  options) are determined to be of equivalent  credit quality by
the Adviser.
     The  Portfolio's  transactions  in  forward  currency  contracts  and other
currency  transactions  such as futures,  options,  options on futures and swaps
will generally be limited to hedging  involving either specific  transactions or
portfolio  positions.  See,  "Strategic  Transactions."  Transaction  hedging is
entering  into a  currency  transaction  with  respect  to  specific  assets  or
liabilities of a Portfolio,  which will generally  arise in connection  with the
purchase or sale of its portfolio securities or the receipt of income therefrom.
Position  hedging  is  entering  into a  currency  transaction  with  respect to
portfolio security positions denominated or generally quoted in that currency.
     The Portfolio will not enter into a transaction to hedge currency  exposure
to an  extent  greater,  after  netting  all  transactions  intended  wholly  or
partially to offset other transactions,  than the aggregate market value (at the
time of entering into the  transaction)  of the securities held in its portfolio
that are denominated or generally  quoted in or currently  convertible into such
currency, other than with respect to proxy hedging as described below.
     The Portfolio may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
in  relation  to other  currencies  to which the  Portfolio  has or in which the
Portfolio  expects to have portfolio  exposure.  For example,  the Portfolio may
hold a French  security  and the  Adviser may  believe  that French  francs will
deteriorate  against  German marks.  The  Portfolio  would sell French francs to
reduce its exposure to that currency and buy German marks.  This strategy  would
be a hedge  against a decline in the value of French  francs,  although it would
expose the Portfolio to declines in the value of the German mark relative to the
U.S. dollar.

<PAGE>

     To reduce the effect of currency  fluctuations  on the value of existing or
anticipated holdings of portfolio  securities,  the Portfolio may also engage in
proxy  hedging.  Proxy  hedging  is often  used when the  currency  to which the
Portfolio's  portfolio is exposed is difficult to hedge or to hedge  against the
dollar.  Proxy  hedging  entails  entering  into a  forward  contract  to sell a
currency  whose  changes  in value are  generally  considered  to be linked to a
currency or currencies in which certain of the Portfolio's  portfolio securities
are or are expected to be denominated,  and to buy U.S.  dollars.  The amount of
the  contract  would  not  exceed  the  value  of  the  Portfolio's   securities
denominated in linked currencies. For example, if the Adviser considers that the
Austrian  schilling is linked to the German  deutschemark  (the  "D-mark"),  the
Portfolio holds  securities  denominated in schillings and the Adviser  believes
that the value of schillings will decline against the U.S.  dollar,  the Adviser
may enter  into a  contract  to sell  D-marks  and buy  dollars.  Proxy  hedging
involves some of the same risks and  considerations  as other  transactions with
similar instruments. Currency transactions can result in losses to the Portfolio
if the currency  being hedged  fluctuates in value to a degree or in a direction
that is not anticipated.  Further,  there is the risk that the perceived linkage
between  various  currencies may not be present or may not be present during the
particular  time  that  the  Portfolio  is  engaging  in proxy  hedging.  If the
Portfolio enters into a currency hedging transaction,  the Portfolio will comply
with the asset segregation requirements described below.

Risks of Currency Transactions
     Currency  transactions  are subject to risks  different from those of other
portfolio  transactions.  Because currency control is of great importance to the
issuing governments and influences  economic planning and policy,  purchases and
sales  of  currency  and  related  instruments  can be  negatively  affected  by
government   exchange  controls,   blockages,   and  manipulations  or  exchange
restrictions imposed by governments. These can result in losses to the Portfolio
if it is unable  to  deliver  or  receive  currency  or funds in  settlement  of
obligations  and could  also cause  hedges it has  entered  into to be  rendered
useless,  resulting in full currency  exposure as well as incurring  transaction
costs. Buyers and sellers of currency futures are subject to the same risks that
apply to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most  currencies  must occur at a bank based in the
issuing nation.  Trading options on currency  futures is relatively new, and the
ability to establish  and close out  positions on such options is subject to the
maintenance  of a liquid  market  which may not  always be  available.  Currency
exchange  rates may  fluctuate  based on  factors  extrinsic  to that  country's
economy.

Combined Transactions
     The  Portfolio  may enter into multiple  transactions,  including  multiple
options   transactions,   multiple  futures   transactions,   multiple  currency
transactions  (including forward currency  contracts) and multiple interest rate
transactions, structured notes and any combination of futures, options, currency
and interest rate  transactions  (component  transactions),  instead of a single

<PAGE>

Strategic  Transaction,  as part of a single or combined  strategy  when, in the
opinion of the Adviser, it is in the best interests of the Portfolio to do so. A
combined  transaction  will usually contain elements of risk that are present in
each of its component transactions.  Although combined transactions are normally
entered into based on the Adviser's  judgment that the combined  strategies will
reduce  risk  or  otherwise  more  effectively  achieve  the  desired  portfolio
management  goal, it is possible that the combination will instead increase such
risks or hinder achievement of the portfolio management objective.

Swaps, Caps, Floors and Collars
     Among the  Strategic  Transactions  into which the  Portfolio may enter are
interest  rate,  currency  and index  swaps and the  purchase or sale of related
caps, floors and collars. The Portfolio expects to enter into these transactions
primarily  for hedging  purposes,  including,  but not limited to,  preserving a
return  or  spread on a  particular  investment  or  portion  of its  portfolio,
protecting against currency fluctuations,  as a duration management technique or
protecting  against  an  increase  in the  price  of  securities  the  Portfolio
anticipates purchasing at a later date. Swaps, caps, floors and collars may also
be used to enhance potential gain in circumstances where hedging is not involved
although,  as described  above, the Portfolio will attempt to limit its net loss
exposure  resulting  from swaps,  caps,  floors and collars and other  Strategic
Transactions  entered  into  for  such  purposes  to  not  more  than  3% of the
Portfolio's  net assets at any one time.  The  Portfolio  will not sell interest
rate  caps or  floors  where it does  not own  securities  or other  instruments
providing the income stream the Portfolio may be obligated to pay. Interest rate
swaps  involve  the  exchange  by the  Portfolio  with  another  party  of their
respective commitments to pay or receive interest, e.g., an exchange of floating
rate  payments  for fixed rate  payments  with  respect to a notional  amount of
principal.  A currency swap is an agreement to exchange cash flows on a notional
amount of two or more currencies based on the relative value  differential among
them, and an index swap is an agreement to swap cash flows on a notional  amount
based on changes in the values of the reference  indices.  The purchase of a cap
entitles the purchaser to receive  payments on a notional  principal amount from
the party  selling  such cap to the  extent  that a  specified  index  exceeds a
predetermined  interest  rate or amount.  The  purchase of a floor  entitles the
purchaser  to receive  payments  on a notional  principal  amount from the party
selling  such  floor  to the  extent  that  a  specified  index  falls  below  a
predetermined  interest rate or amount. A collar is a combination of a cap and a
floor that  preserves a certain rate of return within a  predetermined  range of
interest rates or values.
     The Portfolio  will usually enter into swaps on a net basis,  i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Portfolio receiving or paying, as the case
may be, only the net amount of the two payments.  The  Portfolio  will not enter
into any swap, cap, floor or collar transaction  unless, at the time of entering
into  such  transaction,  the  unsecured  long-term  debt  of the  Counterparty,
combined with any credit enhancements,  is rated at least A by S&P or Moody's or

<PAGE>

has an  equivalent  rating from an NRSRO or is  determined  to be of  equivalent
credit quality by the Adviser.  If there is a default by the  Counterparty,  the
Portfolio may have contractual  remedies  pursuant to the agreements  related to
the transaction.  The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
as agents  utilizing  standardized  swap  documentation.  As a result,  the swap
market has become  relatively  liquid.  Caps, floors and collars are more recent
innovations  for  which  standardized  documentation  has  not  yet  been  fully
developed.  Swaps, caps, floors and collars are considered illiquid for purposes
of  the  Portfolio's  policy  regarding  illiquid   securities,   unless  it  is
determined, based upon continuing review of the trading markets for the specific
security,  that such security is liquid.  The Board of Trustees of the Portfolio
Trust has adopted  guidelines and delegated to the Adviser the daily function of
determining and monitoring the liquidity of swaps, caps, floors and collars. The
Portfolio  Trust's Board of Trustees,  however,  retains  oversight  focusing on
factors such as valuation,  liquidity and  availability  of  information  and is
ultimately  responsible for such determinations.  The Staff of the SEC currently
takes the position that swaps, caps, floors and collars are illiquid, and
 are subject to the Portfolio's limitation on investing in
illiquid securities.

Eurodollar Instruments
     The Portfolio may make  investments in Eurodollar  instruments.  Eurodollar
instruments  are U.S.  dollar-denominated  futures  contracts or options thereon
which are  linked to the  London  Interbank  Offered  Rate  ("LIBOR"),  although
foreign  currency-denominated  instruments  are  available  from  time to  time.
Eurodollar  futures  contracts enable  purchasers to obtain a fixed rate for the
lending  of funds  and  sellers  to  obtain a fixed  rate  for  borrowings.  The
Portfolio  might use Eurodollar  futures  contracts and options thereon to hedge
against  changes in LIBOR,  to which many  interest  rate swaps and fixed income
instruments are linked.

Risks of Strategic Transactions Outside the United States
     When conducted outside the United States, Strategic Transactions may not be
regulated  as  rigorously  as in the United  States,  may not involve a clearing
mechanism and related  guarantees,  and are subject to the risk of  governmental
actions affecting trading in, or the prices of, foreign  securities,  currencies
and other  instruments.  The value of such  positions  also  could be  adversely
affected by: (i) lesser  availability than in the United States of data on which
to make trading  decisions,  (ii) delays in the Portfolio's  ability to act upon
economic events  occurring in foreign markets during  non-business  hours in the
United States,  (iii) the imposition of different  exercise and settlement terms
and procedures  and margin  requirements  than in the United States,  (iv) lower
trading volume and liquidity, and (v) other complex foreign political, legal and
economic factors. At the same time, Strategic  Transactions may offer advantages
such as  trading  in  instruments  that are not  currently  traded in the United
States or arbitrage possibilities not available in the United States.


<PAGE>

   
Use of Segregated Accounts
     The Portfolio will hold  securities or other  instruments  whose values are
expected  to offset  its  obligations  under  the  Strategic  Transactions.  The
Portfolio  will  cover  Strategic   Transactions  as  required  by  interpretive
positions of the SEC. The Portfolio will not enter into  Strategic  Transactions
that expose the  Portfolio  to an  obligation  to another  party  unless it owns
either (i) an  offsetting  position  in  securities  or other  options,  futures
contracts or other instruments or (ii) cash,  receivables or liquid,  high grade
debt securities with a value sufficient to cover its potential obligations.  The
Portfolio may have to comply with any  applicable  regulatory  requirements  for
Strategic Transactions, and if required, will set aside cash and other assets in
a segregated account with its custodian bank in the amount  prescribed.  In that
case, the  Portfolio's  custodian  would  maintain the value of such  segregated
account equal to the prescribed amount by adding or removing  additional cash or
other  assets to account  for  fluctuations  in the value of the account and the
Fund's obligations on the underlying  Strategic  Transactions.  Assets held in a
segregated  account  would  not be  sold  while  the  Strategic  Transaction  is
outstanding,  unless  they are  replaced  with  similar  assets  and the  Fund's
obligations on the underlying  Strategic  Transactions.  As a result, there is a
possibility  that  segregation of a large  percentage of the Portfolio's  assets
could impede portfolio  management or the Portfolio's ability to meet redemption
requests or other current obligations.
    

Short-Term Debt Securities
     For defensive or temporary purposes, the Portfolio may invest in investment
grade money market instruments and short-term interest-bearing  securities. Such
securities  may be  used  to  invest  uncommitted  cash  balances,  to  maintain
liquidity  to meet  shareholder  redemptions,  or to take a  defensive  position
against  potential  stock market  declines.  The  Portfolio's  investments  will
include U.S. Government  obligations and obligations issued or guaranteed by any
U.S. Government agencies or  instrumentalities,  instruments of U.S. and foreign
banks (including negotiable  certificates of deposit,  non-negotiable fixed time
deposits and bankers'  acceptances),  repurchase  agreements,  prime  commercial
paper of U.S. and foreign  companies,  and debt  securities  that make  periodic
interest payments at variable or floating rates.
     Yields on debt securities  depend on a variety of factors,  such as general
conditions in the money and bond markets, and the size, maturity and rating of a
particular  issue. Debt securities with longer maturities tend to produce higher
yields and are generally subject to greater  potential capital  appreciation and
depreciation.  The market prices of debt securities  usually vary depending upon
available yields, rising when interest rates decline and declining when interest
rates rise.

Portfolio Turnover
     The Portfolio places no restrictions on portfolio  turnover and it may sell
any portfolio  security  without  regard to the period of time it has been held,
except  as may be  necessary  to enable  the Fund to  maintain  its  status as a
regulated  investment company under the Internal Revenue Code. The Portfolio may
therefore  generally change its portfolio  investments at any time in accordance
with the  Adviser's  appraisal of factors  affecting  any  particular  issuer or
market, or the economy in general.

<PAGE>

   
                             INVESTMENT RESTRICTIONS
     The Fund and the  Portfolio  have each  adopted the  following  fundamental
policies.  Each of the Fund's and the Portfolio's fundamental policies cannot be
changed  unless the change is  approved by the "vote of the  outstanding  voting
securities"  of the Fund or the  Portfolio,  as the case may be, which phrase as
used herein means the lesser of (i) 67% or more of the voting  securities of the
Fund or the Portfolio  present at a meeting,  if the holders of more than 50% of
the  outstanding  voting  securities of the Fund or the Portfolio are present or
represented by proxy, or (ii) more than 50% of the outstanding voting securities
of the Fund or the Portfolio.
     As a matter of fundamental policy, the Portfolio (Fund) may not:
     1.   Invest more than 25% of the current  value of its total  assets in any
          single  industry,  provided that this  restriction  shall not apply to
          U.S.  Government  securities or  mortgage-backed  securities issued or
          guaranteed  as to  principal or interest by the U.S.  Government,  its
          agencies or  instrumentalities;  provided,  however, that the Fund may
          invest all or part of its investable assets in an open-end  registered
          investment company with  substantially the same investment  objective,
          policies and restrictions as the Fund.
     2.   Issue senior securities.  For purposes of this restriction,  borrowing
          money in accordance with paragraph 3 below, making loans in accordance
          with paragraph 8 below, the issuance of shares of beneficial  interest
          in multiple  classes or series,  the deferral of trustees'  fees,  the
          purchase or sale of options,  futures contracts,  forward  commitments
          and repurchase  agreements  entered into in accordance with the Fund's
          investment  policies or within the meaning of  paragraph 6 below,  are
          not deemed to be senior securities.
     3.   Borrow money,  except in amounts not to exceed 33 1/3% of the value of
          the Fund's  total  assets  (including  the amount  borrowed)  taken at
          market value (i)from banks for temporary or short-term purposes or for
          the clearance of transactions,  (ii)in  connection with the redemption
          of Fund shares or to finance failed  settlements  of portfolio  trades
          without immediately  liquidating portfolio securities or other assets;
          (iii)in order to fulfill  commitments or plans to purchase  additional
          securities pending the anticipated sale of other portfolio  securities
          or  assets  and  (iv)the  Fund  may  enter  into  reverse   repurchase
          agreements  and  forward  roll  transactions.  For  purposes  of  this
          investment restriction, investments in short sales, futures contracts,
          options on  futures  contracts,  securities  or  indices  and  forward
          commitments shall not constitute borrowing.
     4.   Underwrite the securities of other issuers, except to the extent that,
          in connection with the disposition of portfolio  securities,  the Fund
          may be deemed to be an  underwriter  under the Securities Act of 1933;
          provided,  however,  that  the  Fund  may  invest  all or  part of its
          investable assets in an open-end  registered  investment  company with
          substantially the same investment objective, policies and restrictions
          as the Fund.

<PAGE>

     5.   Purchase or sell real  estate  except that the Fund may (i) acquire or
          lease  office  space for its own use,  (ii)  invest in  securities  of
          issuers that invest in real estate or interests therein,  (iii) invest
          in  securities  that are secured by real estate or interests  therein,
          (iv) purchase and sell  mortgage-related  securities  and (v) hold and
          sell real estate  acquired by the Fund as a result of the ownership of
          securities.
     6.   Purchase  securities  on margin  (except that the Fund may obtain such
          short-term  credits as may be necessary for the clearance of purchases
          and sales of securities).
     7.   Purchase or sell commodities or commodity  contracts,  except the Fund
          may purchase and sell options on  securities,  securities  indices and
          currency,  futures  con-tracts on securities,  securities  indices and
          currency  and  options  on  such  futures,  forward  foreign  currency
          ex-change contracts, forward commitments, securities index put or call
          warrants and repurchase agreements entered into in accordance with the
          Fund's investment policies.
     8.   Make loans, except that the Fund (1) may lend portfolio  securities in
          accordance  with the Fund's  investment  policies up to 33 1/3% of the
          Fund's total assets taken at market value,  (2) enter into  repurchase
          agreements,  and (3)  purchase  all or a  portion  of an issue of debt
          securities,  bank loan participation  interests,  bank certificates of
          deposit, bankers' acceptances, debentures or other securities, whether
          or not  the  purchase  is  made  upon  the  original  issuance  of the
          securities.
     9.   With respect to 75% of its total  assets,  purchase  securities  of an
          issuer    (other   than   the   U.S.    Government,    its   agencies,
          instrumentalities    or   authorities    or   repurchase    agreements
          collateralized  by U.S.  Government  securities  and other  investment
          companies),  if:  (a) such  purchase  would  cause more than 5% of the
          Fund's  total  assets  taken at  market  value to be  invested  in the
          securities  of such  issuer;  or (b) such  purchase  would at the time
          result in more than 10% of the outstanding  voting  securities of such
          issuer being held by the Fund;  provided,  however,  that the Fund may
          invest all or part of its investable assets in an open-end  registered
          investment company with  substantially the same investment  objective,
          policies and restrictions as the Fund.
     For  purposes  of the  fundamental  investment  restriction  (1)  regarding
industry concentration,  the Adviser generally classifies issuers by industry in
accordance with  classifications  set forth in the Directory of Companies Filing
Annual Reports With The Securities  and Exchange  Commission.  In the absence of
such  classification or if the Adviser determines in good faith based on its own
infor-mation  that the economic  characteristics  affecting a particular  issuer
make it more appropriately considered to be engaged in a different industry, the
Adviser may  classify an issuer  according  to its own  sources.  For  instance,
personal  credit finance  companies and business  credit  finance  companies are
deemed  to  be  separate  industries  and  wholly-owned  finance  companies  are
considered  to be in the  industry  of their  parents  if their  activities  are
primarily related to financing the activities of their parents.

<PAGE>

     Notwithstanding the foregoing, the Fund may invest all of its assets (other
than assets which are not  "investment  securities" (as defined in the 1940 Act)
or are excepted by the SEC) in an open-end investment company with substantially
the same investment objective as the Fund.
     The following  restrictions are not fundamental policies and may be changed
by the Trustees of the Portfolio Trust (Trust)  without  investor  approval,  in
accordance with applicable laws, regulations or regulatory policy. The Portfolio
(Fund) may not:

     (A)  Make short sales of  securities  unless  (i)either (a) after effect is
          given to any such short sale, the total market value of all securities
          sold  short  would not exceed 5% of the value of the Fund's net assets
          or (b) at all times during  which a short  position is open it owns an
          equal  amount  of  such  securities,  or by  virtue  of  ownership  of
          convertible  or  exchangeable  securities  it has the  right to obtain
          through the conversion or exchange of such other  securities an amount
          equal to the securities sold short,  (ii)the securities sold short are
          listed on a national  securities  exchange and  (iii)the  value of the
          securities of any one issuer in which the Fund is short may not exceed
          2% of the Fund's net  assets or 2% of the  securities  of any class of
          any issuer;

     (B)  Invest  in  companies  for  the  purpose  of  exercising   control  or
          management;

     (C)  Purchase a security  of other  investment  companies,  except when the
          purchase is part of a plan of merger, consolidation, reorganization or
          acquisition  or  except  by  purchase  in the  open  market  where  no
          commission or profit to a sponsor or dealer results from the pur-chase
          other  than  customary  brokers'  commissions  and then  only if, as a
          result, (i)not more than 10% of the Fund's assets would be invested in
          securities of other investment companies,  (ii)not more than 3% of the
          total outstanding voting securities of any one such investment company
          would be held by the  Fund and  (iii)not  more  than 5% of the  Fund's
          assets  would  be  invested  in  any  one  such  investment   company;
          pro-vided,  however,  that  the  Fund  may  invest  all or part of its
          investable assets in an open-end  registered  in-vestment company with
          substantially   the   same   in-vestment   objective,   policies   and
          restrictions as the Fund;

     (D)  Invest in interests in oil, gas or other  exploration  or  development
          programs or mineral leases; however, this policy will not prohibit the
          acquisition  of securities of companies  engaged in the  production or
          transmission of oil, gas, or other minerals;

     (E)  Invest more than 5% of the assets of the Fund in the securities of any
          issuers which,  together with their corporate parents, have records of
          less than three years' continuous  operation,  including the operation
          of any predecessor,  excluding obligations issued or guaranteed by the
          U.S. Government or its agencies and securities fully collateralized by
          such  securities  and  excluding  securities  which  have  been  rated
          investment  grade by at least one  nationally  recognized  statistical
          rating organization;  provided,  however, that the Fund may invest all
          or part of its  investable  assets in an open-end  investment  company
          with  substantially  the  same  investment  objective,   policies  and
          restrictions as the Fund;


<PAGE>

     (F)  Invest in restricted  securities or securities  which are illiquid if,
          as a result,  more than 15% of its net  assets  would  consist of such
          securities,  including  repurchase  agreements  maturing  in more than
          seven days,  securities  that are not readily  marketable,  restricted
          securities not eligible for resale pursuant to Rule144A under the 1933
          Act,  purchased OTC options,  certain assets used to cover written OTC
          options,  and privately  issued stripped  mortgage-backed  securities;
          provided that the Fund may invest all or part of its investable assets
          in  an  open-end   investment  company  with  substantially  the  same
          investment objective, policies and restrictions as the Fund;

     (G)  Invest  in  securities  of any  company  if any  officer  or  director
          (Trustee)  of the  Trust or of the  Adviser  owns more than .5% of the
          outstanding securities of such company and such officers and directors
          (Trustees) own in the aggregate more than 5% of the securities of such
          company;

     (H) Purchase  securities while outstanding bank borrowings exceed 5% of the
     Fund's net assets; 

     (I)  Invest in real estate limited partnership  interests,  other than real
          estate investment trusts organized as limited partnerships;

     (J) Purchase or sell (write)  options,  except  pursuant to the limitations
     described  above; 

     (K)  Purchase  warrants  of any issuer,  if, as a result of such  purchase,
          more than 2% of the value of the Fund's total assets would be invested
          in warrants which are not listed on an exchange or more than 5% of the
          value of the total  assets of the Fund would be  invested  in warrants
          generally,  whether or not so listed. For these purposes, warrants are
          to be valued at the lesser of cost or market, but warrants acquired by
          the Fund in units with or attached to debt securities  shall be deemed
          to be without value.

     If any percentage  restriction described above is adhered to at the time of
investment, a subsequent increase or decrease in the percentage resulting from a
change in the value of the  Portfolio's  (Fund's)  assets will not  constitute a
violation of the restriction, except with respect to restriction (G) above.
     In order to permit  the sale of shares of the Fund in certain  states,  the
Board may, in its sole discretion,  adopt restrictions on investment policy more
restrictive than those described above. Should the Board determine that any such
more  restrictive  policy is no longer in the best  interest of the Fund and its
shareholders,  the Fund may cease offering  shares in the state involved and the
Board may revoke such restrictive policy. Moreover, if the states involved shall
no longer  require  any such  restrictive  policy,  the Board  may,  in its sole
discretion, revoke such policy.
    


<PAGE>

                         CALCULATION OF PERFORMANCE DATA
     As indicated in the Prospectus,  the Fund may, from time to time, advertise
certain total return  information.  The average  annual total return of the Fund
for a period is  computed  by  subtracting  the net asset value per share at the
beginning  of the  period  from the net asset  value per share at the end of the
period (after adjusting for the reinvestment of any income dividends and capital
gain distributions), and dividing the result by the net asset value per share at
the beginning of the period.  In particular,  the average annual total return of
the Fund (T) is computed by using the redeemable value at the end of a specified
period of time (ERV) of a hypothetical  initial  investment of $1,000 (P) over a
period of time (N) according to the formula P(1+T)n=ERV.
     In  addition  to  average  annual  return  quotations,  the Fund may  quote
quarterly and annual  performance on a net (with  management and  administration
fees deducted) and gross basis.
     Performance  quotations  should not be considered as  representative of the
Fund's   performance  for  any  specified  period  in  the  future.  The  Fund's
performance  may be compared in sales  literature  to the  performance  of other
mutual funds  having  similar  objectives  or to  standardized  indices or other
measures of  investment  performance.  In  particular,  the Fund may compare its
performance  to the Russell  2000 Index,  which is  generally  considered  to be
representative  of unmanaged  small  capitalization  stocks in the United States
markets,   and  the  S&P  500  Index,  which  is  generally   considered  to  be
representative  of the performance of unmanaged  common stocks that are publicly
traded in the United States securities markets. Comparative performance may also
be  expressed by  reference  to a ranking  prepared by a mutual fund  monitoring
service or by one or more  newspapers,  newsletters  or  financial  periodicals.
Performance  comparisons  may be useful to  investors  who wish to  compare  the
Fund's past  performance to that of other mutual funds and investment  products.
Of course, past performance is not a guarantee of future results.

<PAGE>

                                   MANAGEMENT

Trustees and Officers of the Trust and the Portfolio Trust
     The  Trustees and  executive  officers of the Trust are listed  below.  The
Trustees of the Portfolio Trust are identical to the Trustees of the Trust.  The
officers of the Portfolio Trust are Messrs.  Clayson, Ladd, Wood and Hollis, and
Mss. Banfield,  Chase, Herrmann and Kneeland,  who hold the same office with the
Portfolio Trust as with the Trust.  All executive  officers of the Trust and the
Portfolio Trust are affiliates of Standish,  Ayer & Wood,  Inc., the Portfolio's
investment adviser.

<TABLE>
   
<CAPTION>
<S>                                               <C>                              <C>
Name, Address and Date of Birth                          Position Held                     Principal Occupation
                                                          With Trust                        During Past 5 Years
- ---------------------------------------------------------------------------------------------------------------

*D. Barr Clayson, 7/29/35                         Vice President and Trustee       Vice President and Managing Director,
c/o Standish, Ayer & Wood, Inc.                                                        Standish, Ayer & Wood, Inc.;
One Financial Center                                                                      Chairman and Director,
Boston, MA 02111                                                                          Standish International
                                                                                         Management Company, L.P.

Samuel C. Fleming, 9/30/40                                  Trustee                        Chairman of the Board
c/o Decision Resources, Inc.                                                           and Chief Executive Officer,
1100 Winter Street                                                                       Decision Resources, Inc.;
Waltham, MA 02154                                                                       through 1989, Senior V.P.
                                                                                             Arthur D.  Little

Benjamin M. Friedman, 8/5/44                                Trustee                        William Joseph Maier
c/o Harvard University                                                               Professor of Political Economy,
Cambridge, MA 02138                                                                         Harvard University

John H. Hewitt, 4/11/35                                     Trustee              Trustee, The Peabody Foundation; Trustee,
P.O. Box 307                                                                        Visiting Nurse Alliance of Vermont
So. Woodstock, VT 05071                                                                      and New Hampshire

*Edward H. Ladd, 1/3/38                           Trustee and Vice President               Chairman of the Board
c/o Standish, Ayer & Wood, Inc.                                                           and Managing Director,
One Financial Center                                                              Standish, Ayer & Wood, Inc. since 1990;
Boston, MA 02111                                                            formerly President of  Standish, Ayer & Wood, Inc.
                                                                                               Director of
                                                                              Standish International Management Company, L.P.

Caleb Loring III, 11/14/43                                  Trustee                  Trustee, Essex Street Associates
c/o Essex Street Associates                                                         (family investment trust office);
P.0. Box 5600                                                                   Director, Holyoke Mutual Insurance 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.

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


<PAGE>

Name, Address and Date of Birth                          Position Held                     Principal Occupation
                                                          With Trust                        During Past 5 Years
- ---------------------------------------------------------------------------------------------------------------

+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                                                                  Senior Advisor and Director of
Boston, MA 02111                                                              Standish International Management Company, L.P.
                                                                                         prior to 1991, President,
                                                                                        Harvard Management Company

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

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

<PAGE>

Name, Address and Date of Birth                          Position Held                     Principal Occupation
                                                          With Trust                        During Past 5 Years
- ---------------------------------------------------------------------------------------------------------------

Dolores S. Driscoll, 2/17/48                            Vice President             Vice President and Managing Director,
c/o Standish, Ayer & Wood, Inc.                                                         Standish, Ayer & Wood, Inc.
One Financial Center                                                                             Director,
Boston, MA 02111                                                              Standish International Management Company, L.P.

Mark A. Flaherty, 4/24/59                               Vice President                 Vice President and Director,
c/o Standish, Ayer & Wood, Inc.                                                         Standish, Ayer & Wood, Inc.
One Financial Center                                                                          Vice President
Boston, MA  02111                                                             Standish International Management Company, L.P.

Maria D. Furman, 2/3/54                                 Vice President             Vice President and Managing Director,
c/o Standish, Ayer & Wood, Inc.                                                         Standish, Ayer & Wood, Inc.
One Financial Center                                                                   Vice President and Director,
Boston, MA 02111                                                              Standish International Management Company, L.P.

Anne P. Herrmann, 1/26/56                               Vice President                  Mutual Fund Administrator,
c/o Standish, Ayer & Wood, Inc.                                                         Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111

Ann S. Higgins, 4/8/35                                  Vice President                       Vice President,
c/o Standish, Ayer & Wood, Inc.                                                         Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111

Denise B. Kneeland, 8/19/51                             Vice President                  Senior Operations Manager,
c/o Standish, Ayer &Wood, Inc.                                                         Standish, Ayer & Wood, Inc.
One Financial Center                                                                  since December 1995; formerly
Boston, MA  02111                                                                Vice President Scudder, Stevens and Clark

Raymond J. Kubiak, 9/3/57                               Vice President                 Vice President and Director,
c/o Standish, Ayer & Wood, Inc.                                                         Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111

Phillip D. Leonardi, 4/24/62                            Vice President          Vice President, Standish, Ayer & Wood, 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

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


<PAGE>

Name, Address and Date of Birth                          Position Held                     Principal Occupation
                                                          With Trust                        During Past 5 Years
- ---------------------------------------------------------------------------------------------------------------

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                                                                          Vice President,
Boston, MA 02111                                                              Standish International Management Company, L.P.
                                                                                         formerly, Vice President,
                                                                                      Commerzbank, Frankfurt, Germany

Austin C. Smith, 7/25/42                                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.                                              Standish, Ayer & Wood, Inc. formerly, Consultant
One Financial Center                                                                       Cambridge Associates
Boston, MA 02111

David C. Stuehr, 3/1/58                                 Vice President                 Vice President and Director,
c/o Standish, Ayer & Wood, Inc.                                                         Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111

James J. 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                                                                      President and Director,
Boston, MA 02111                                                              Standish International Management Company, L.P.
                                                                              formerly Vice President, Aetna Life & Casualty

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>
    


<PAGE>

Compensation of Trustees and Officers
     Each of the Trust  and the  Portfolio  Trust  pays no  compensation  to the
Trustees of the Trust or the  Portfolio  Trust  affiliated  with Standish as the
administrator   of  the  Fund  (the  "Fund   Administrator")   or  the  Adviser,
respectively,  or to the  Trusts and  Portfolio  Trust's  officers.  None of the
Trustees or officers have engaged in any financial  transactions (other than the
purchase or redemption of the shares of the series of the Trust) with the Trust,
the Portfolio Trust or the Adviser.
     The following table sets forth the compensation estimated to be paid to the
Trust's Trustees by the Fund as of the fiscal year ending December31, 1996:

Total Compensation
<TABLE>
<CAPTION>
                                                Aggregate Compensation                     from Fund and
     Name of Trustee                                 from the Fund                    Other Funds in Complex*
- ---------------------------------------------------------------------------------------------------------------

<S>                                                     <C>                                   <C>
   
     D. Barr Clayson                                       $0                                    $0
     Samuel C. Fleming                                   7.33                                 41750
     Benjamin M. Friedman                                6.36                                 36750
     John H. Hewitt                                      6.36                                 36750
     Edward H. Ladd                                         0                                     0
     Caleb Loring, III                                   6.36                                 36750
     Richard S. Wood                                        0                                     0

     *   As of December 31, 1995 there were 14 funds in the fund complex.
     **  Estimated to be paid during current fiscal year ending December 31, 1996.  The Fund is newly
         organized  and  as  of  the  date  of  this   Statement  of  Additional
         Information the Fund has paid no compensation to the Trustees.
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
    


Certain Shareholders
     As of the date of this  Statement of Additional  Information,  Trustees and
officers of the Trust and the Portfolio as a group beneficially owned (i.e., had
voting and/or  investment  power) less than 1% of the outstanding  shares of the
Fund.

Investment Adviser of the Portfolio Trust
     Standish  serves as  investment  adviser  to the  Portfolio  pursuant  to a
written investment advisory agreement with the Portfolio Trust. The Adviser is a
Massachusetts  corporation  organized  in  1933  and  is  registered  under  the
Investment Advisers Act of 1940.

<PAGE>

   
     The  following,   constituting   all  of  the  Directors  and  all  of  the
shareholders of the Adviser,  are the Adviser's  controlling  persons:  Caleb F.
Aldrich,  Nicholas S. Battelle, Walter M. Cabot, Sr., David H. Cameron, Karen K.
Chandor,  D. Barr  Clayson,  Richard  C.  Doll,  Dolores  S.  Driscoll,  Mark A.
Flaherty,  Maria D. Furman,  James E. Hollis III,  Raymond J. Kubiak,  Edward H.
Ladd,  Laurence A.  Manchester,  George W. Noyes,  Arthur H.  Parker,  Howard B.
Rubin,  Austin C. Smith,  David C. Stuehr,  James J. Sweeney,  Ralph S. Tate and
Richard S. Wood.
     Certain services  provided by the Adviser under the advisory  agreement are
described in the Prospectus.  These services are provided without  reimbursement
by  the  Portfolio  for  any  costs  incurred.  Under  the  investment  advisory
agreement,  the Adviser is paid a fee based upon a percentage of the Portfolio's
average daily net asset value computed as described in the Prospectus.  The rate
and time at which the fee is paid and expense  limits  voluntarily  agreed to by
the Adviser are described in the Prospectus.
     Pursuant to the investment advisory agreement, the Portfolio bears expenses
of its  operations  other than those  incurred  by the  Adviser  pursuant to the
investment advisory agreement.  Among other expenses, the Portfolio will pay for
legal and auditing  services,  taxes and governmental  fees,  certain  insurance
premiums,  costs of notices and  reports to  interest-holders,  typesetting  and
printing of registration  and financial  statements for regulatory  purposes and
for distribution to existing and prospective  interest-holders,  bookkeeping and
interest  pricing  expenses,  fees and  disbursements  of the Portfolio  Trust's
custodian,  administrator,  transfer and dividend disbursing agent or registrar,
or interest and other like expenses properly payable by the Portfolio Trust.
     Unless  terminated as provided  below,  the investment  advisory  agreement
continues  in full force and effect for an initial  period of two years from the
date of execution and for successive periods of one year thereafter, but only so
long as each such continuance is approved annually (i) by either the Trustees of
the  Portfolio  Trust or by the "vote of a majority  of the  outstanding  voting
securities" of the Portfolio,  and, in either event,  (ii) by vote of a majority
of the  Trustees of the  Portfolio  Trust who are not parties to the  investment
advisory  agreement or "interested  persons" (as defined in the 1940 Act) of any
such party, cast in person at a meeting called for the purpose of voting on such
approval.  The  investment  advisory  agreement  may be  terminated  at any time
without  the payment of any  penalty by vote of the  Trustees  of the  Portfolio
Trust or by the "vote of a majority of the outstanding voting securities" of the
Portfolio or by the Adviser, on sixty days' written notice to the other parties.
The investment  advisory agreement  terminates in the event of its assignment as
defined in the 1940 Act.
     In an attempt to avoid any potential  conflict with portfolio  transactions
for the Portfolio,  the Adviser,  the Principal  Underwriter,  the Trust and the
Portfolio Trust have each adopted extensive  restrictions on personal securities
trading by  personnel  of the Adviser  and its  affiliates.  These  restrictions
include: pre-clearance of all personal securities transactions and a prohibition
of purchasing  initial public offerings of securities.  These restrictions are a
continuation  of the  basic  principle  that the  interests  of the Fund and its
shareholders,  and the  Portfolio  and its  investors  come before  those of the
Adviser, its affiliates and their employees.
    


<PAGE>

Administrator of the Fund
     Standish  also  serves  as the Fund  Administrator  pursuant  to a  written
administration  agreement with the Trust on behalf of the Fund. Certain services
provided  by the Fund  Administrator  under  the  administration  agreement  are
described  in  the  Prospectus.  For  these  services,  the  Fund  Administrator
currently  does not receive any  additional  compensation.  The  Trustees of the
Trust may, however, determine in the future to compensate the Fund Administrator
for its administrative  services. The administration  agreement provides that if
the total  expenses of the Fund and the  Portfolio in any fiscal year exceed the
most restrictive expense limitation applicable to the Fund in any state in which
shares of the Fund are then  qualified for sale, the  compensation  due the Fund
Administrator  shall be reduced by the amount of the excess,  by a reduction  or
refund  thereof at the time such  compensation  is payable after the end of each
calendar month during the fiscal year, subject to readjustment  during the year.
Currently,  the most restrictive state expense  limitation  provision limits the
Fund's expenses to 2 1/2% of the first $30 million of average net assets,  2% of
the next $70  million of such net assets and 1 1/2% of such net assets in excess
of $100 million. The Fund's administration agreement can be terminated by either
party on not more than sixty days' written notice.

Administrator of the Portfolio
     IBT Trust  Company  (Cayman)  Ltd.,  P.O.  Box 501,  Grand  Cayman,  Cayman
Islands,  BWI,  serves as the  administrator  to the Portfolio  (the  "Portfolio
Administrator")   pursuant  to  a  written  administration  agreement  with  the
Portfolio Trust on behalf of the Portfolio. The Portfolio Administrator provides
the Portfolio Trust with office space for managing its affairs, and with certain
clerical   services  and   facilities.   For  these   services,   the  Portfolio
Administrator  currently  receives  a fee from the  Portfolio  in the  amount of
$7,500 annually. The Portfolio's  administration  agreement can be terminated by
either party on not more than sixty days' written notice.

Distributor of the Fund
     Standish  Fund  Distributors,   L.P.  (the  "Principal  Underwriter"),   an
affiliate of the Adviser,  serves as the Trust's exclusive principal underwriter
and holds itself available to receive purchase orders for the Fund's shares.  In
that capacity, the Principal Underwriter has been granted the right, as agent of
the Trust, to solicit and accept orders for the purchase of the Fund's shares in
accordance with the terms of the  Underwriting  Agreement  between the Trust and
the Principal Underwriter. Pursuant to the Underwriting Agreement, the Principal
Underwriter  has  agreed  to use its  best  efforts  to  obtain  orders  for the
continuous offering of the Fund's shares. The Principal  Underwriter receives no
commissions or other compensation for its services.  The Underwriting  Agreement
shall  continue  in effect  with  respect to the Fund until two years  after its
execution  and for  successive  periods  of one  year  thereafter  only if it is
approved at least annually thereafter (i) by a vote of the holders of a majority
of the Fund's  outstanding  shares or by the  Trustees of the Trust or (ii) by a
vote of a majority of the Trustees of the Trust who are not "interested persons"

<PAGE>

(as defined by the 1940 Act) of the parties to the Underwriting Agreement,  cast
in person at a meeting  called for the purpose of voting on such  approval.  The
Underwriting Agreement will terminate  automatically if assigned by either party
thereto and is terminable at any time without penalty by a vote of a majority of
the  Trustees  of the Trust,  a vote of a majority of the  Trustees  who are not
"interested  persons" of the Trust, or by a vote of the holders of a majority of
the Fund's outstanding shares, in any case without payment of any penalty on not
more than 60 days'  written  notice  to the  other  party.  The  offices  of the
Principal  Underwriter are located at One Financial Center, 26th Floor,  Boston,
Massachusetts 02111.
                              REDEMPTION OF SHARES
     Detailed information on redemption of shares is included in the Prospectus.
The Trust may suspend  the right to redeem  Fund shares or postpone  the date of
payment upon redemption for more than seven days (i) for any period during which
the New York Stock Exchange is closed (other than  customary  weekend or holiday
closings) or trading on the exchange is  restricted;  (ii) for any period during
which an  emergency  exists as a result of which  disposal by the  Portfolio  of
securities owned by it or determination by the Portfolio of the value of its net
assets is not reasonably practicable; or (iii) for such other periods as the SEC
may permit for the protection of shareholders of the Fund.
     The Trust  intends to pay  redemption  proceeds in cash for all Fund shares
redeemed,  but under certain  conditions,  the Trust may make payment  wholly or
partly  in  portfolio  securities  from  the  Portfolio,  in  conformity  to the
applicable  rule of the SEC.  Portfolio  securities paid upon redemption of Fund
shares will be valued at their then current market value.  The Trust,  on behalf
of each of its series,  has elected to be  governed  by the  provisions  of Rule
18f-1  under  the 1940 Act  which  limits  the  Fund's  obligation  to make cash
redemption payments to any shareholder during any 90-day period to the lesser of
$250,000 or 1% of the Fund's net asset value at the beginning of such period. An
investor may incur brokerage costs in converting  portfolio  securities received
upon  redemption to cash. The Portfolio has advised the Trust that the Portfolio
will not redeem in-kind except in  circumstances  in which the Fund is permitted
to redeem  in-kind  or except in the  event the Fund  completely  withdraws  its
interest from the Portfolio.
                             PORTFOLIO TRANSACTIONS
     The  Adviser  is  responsible   for  placing  the   Portfolio's   portfolio
transactions  and  will do so in a manner  deemed  fair  and  reasonable  to the
Portfolio and not  according to any formula.  The primary  consideration  in all
portfolio transactions will be prompt execution of orders in an efficient manner
at  the  most  favorable   price.  In  selecting   brokers  and  in  negotiating
commissions,  the Adviser will consider the firm's  reliability,  the quality of
its execution services on a continuing basis and its financial  condition.  When
more than one firm is believed to meet these  criteria,  preference may be given
to firms  which  also sell  shares  of the Fund.  In  addition,  if the  Adviser
determines in good faith that the amount of  commissions  charged by a broker is
reasonable  in  relation to the value of the  brokerage  and  research  services
provided  by such  broker,  the Fund may pay  commissions  to such  broker in an
amount  greater than the amount another firm may charge.  Research  services may
include (i)furnishing advice as to the value of securities,  the advisability of
investing  in,  purchasing  or  selling  securities,  and  the  availability  of

<PAGE>

securities or purchasers or sellers of securities,  (ii) furnishing analyses and
reports concerning issuers, industries, securities, economic factors and trends,
portfolio  strategy,  and the  performance  of  accounts,  and  (iii)  effecting
securities  transactions and performing  functions  incidental  thereto (such as
clearance and settlement).  Research  services  furnished by firms through which
the Portfolio effects its securities  transactions may be used by the Adviser in
servicing other  accounts;  not all of these services may be used by the Adviser
in  connection  with the  Portfolio.  The  investment  advisory  fee paid by the
Portfolio  under the advisory  agreement  will not be reduced as a result of the
Adviser's receipt of research services.
     The Adviser also places portfolio transactions for other advisory accounts.
The Adviser  will seek to allocate  portfolio  transactions  equitably  whenever
concurrent  decisions  are made to purchase or sell  securities by the Portfolio
and another  advisory  account.  In some  cases,  this  procedure  could have an
adverse  effect  on the  price or the  amount  of  securities  available  to the
Portfolio.  In making  such  allocations,  the main  factors  considered  by the
Adviser will be the  respective  investment  objectives,  the  relative  size of
portfolio  holdings of the same or comparable  securities,  the  availability of
cash for  investment,  the size of investment  commitments  generally  held, and
opinions of the persons responsible for recommending the investment.
                        DETERMINATION OF NET ASSET VALUE
     The Fund's net asset value per share is computed  on each  business  day on
which the New York Stock Exchange is open (a "Business Day").  Currently the New
York Stock Exchange is not open on weekends,  New Year's Day,  Presidents'  Day,
Good Friday,  Memorial Day,  Independence  Day, Labor Day,  Thanksgiving Day and
Christmas  Day. The net asset value of the Fund's shares is determined as of the
close of regular trading on the New York Stock Exchange (currently 4:00 p.m. New
York City time) and is  computed  by dividing  the value of all  securities  and
other assets of the Fund  (substantially all of which will be represented by the
Fund's  investment in the Portfolio)  less all liabilities by the number of Fund
shares  outstanding,  and rounding to the nearest  cent per share.  Expenses and
fees of the fund are  accrued  daily and taken into  account  for the purpose of
determining net asset value.
     Portfolio  securities are valued at the last sale prices on the exchange or
national  securities market on which they are primarily  traded.  Securities not
listed on an exchange or national  securities  market,  or securities  for which
there were no reported  transactions,  are valued at the last quoted bid prices.
Securities for which  quotations are not readily  available and all other assets
will be valued at fair  value as  determined  in good  faith by the  Adviser  in
accordance with procedures approved by the Trustees.

<PAGE>

     The value of the Portfolio's net assets (i.e.,  the value of its securities
and other assets less its liabilities, including expenses payable or accrued) is
determined  at the same  time and on the same  days as the net  asset  value per
share of the Fund is determined.  Each investor in the Portfolio,  including the
Fund, may add to or reduce its investment in the Portfolio on each Business Day.
As of 4:00  p.m.  (Eastern  time)  on  each  Business  Day,  the  value  of each
investor's  interest in the Portfolio will be determined by multiplying  the net
asset value of the  Portfolio by the  percentage  representing  that  investor's
share of the aggregate beneficial  interests in the Portfolio.  Any additions or
reductions  which  are to be  effected  on that day will then be  effected.  The
investor's  percentage  of the aggregate  beneficial  interests in the Portfolio
will  then  be  recomputed  as the  percentage  equal  to the  fraction  (i) the
numerator of which is the value of such  investor's  investment in the Portfolio
as of 4:00 p.m. on such day plus or minus, as the case may be, the amount of net
additions  to or  reductions  in the  investor's  investment  in  the  Portfolio
effected on such day, and (ii) the  denominator  of which is the  aggregate  net
asset value of the  Portfolio as of 4:00 p.m. on such day plus or minus,  as the
case may be, the amount of the net  additions to or  reductions in the aggregate
investments in the Portfolio by all investors in the  Portfolio.  The percentage
so  determined  will then be applied to  determine  the value of the  investor's
interest in the Portfolio as of 4:00 p.m. on the following Business Day.
                                    TAXATION
     Each  series of the  Trust,  including  the Fund,  is treated as a separate
entity for accounting and tax purposes.  The Fund intends to qualify and intends
to elect  to be  treated  as a  "regulated  investment  company"  ("RIC")  under
Subchapter M of the Internal  Revenue  Code.  As such and by complying  with the
applicable  provisions of the Internal Revenue Code regarding the sources of its
income, the timing of its distributions,  and the diversification of its assets,
the Fund will not be  subject to Federal  income tax on its  investment  company
taxable income (i.e., all income, after reduction by deductible expenses,  other
than its "net capital  gain," which is the excess,  if any, of its net long-term
capital gain over its net  short-term  capital  loss) and net capital gain which
are distributed to  shareholders  in accordance with the timing  requirements of
the Internal Revenue Code.
     The Trust  anticipates  that the Portfolio will be treated as a partnership
for  federal  income tax  purposes.  As such,  the  Portfolio  is not subject to
federal income taxation.  Instead, the Fund must take into account, in computing
its federal income tax liability (if any), its share of the Portfolio's  income,
gains, losses,  deductions,  credits and tax preference items, without regard to
whether it has received any cash distributions  from the Portfolio.  Because the
Fund invests its assets in the  Portfolio,  the Portfolio  normally must satisfy
the applicable  source of income and  diversification  requirements in order for
the Fund to satisfy them.  The Portfolio  will allocate at least  annually among
its investors,  including the Fund,  each investor's  distributive  share of the
Portfolio's net investment  income,  net realized  capital gains,  and any other
items of income,  gain,  loss,  deduction  or credit.  The  Portfolio  will make
allocations to the Fund in a manner intended to comply with the Internal Revenue
Code and applicable regulations and will make moneys available for withdrawal at
appropriate  times and in  sufficient  amounts to enable the Fund to satisfy the

<PAGE>

tax distribution  requirements that apply to the Fund and that must be satisfied
in order to avoid Federal  income and/or excise tax on the Fund. For purposes of
applying the requirements of the Internal  Revenue Code regarding  qualification
as a RIC, the Fund will be deemed (i) to own its proportionate  share of each of
the assets of the  Portfolio  and (ii) to be entitled to the gross income of the
Portfolio attributable to such share.
     The Fund will be  subject  to a 4%  non-deductible  federal  excise  tax on
certain amounts not distributed (and not treated as having been  distributed) on
a timely basis in accordance with annual minimum distribution requirements.  The
Fund intends under normal  circumstances to seek to avoid liability for such tax
by satisfying such distribution requirements.
     The Fund is not  subject to  Massachusetts  corporate  excise or  franchise
taxes.  Provided that the Fund qualifies as a regulated investment company under
the Code, it will also not be required to pay any Massachusetts income tax.
     The Fund will not distribute  long-term or short-term capital gain realized
in any year to the  extent  that a capital  loss is carried  forward  from prior
years against such gain. For federal income tax purposes,  the Fund is permitted
to carry  forward a net  capital  loss in any year to offset its own net capital
gains,  if any,  during the eight years  following  the year of the loss. To the
extent subsequent capital gains are offset by such losses, they would not result
in federal  income tax  liability to the Fund and, as noted above,  would not be
distributed as such to shareholders.
     Limitations  imposed by the Internal  Revenue Code on regulated  investment
companies  like the Fund may  restrict  the  Portfolio's  ability  to enter into
futures, options and currency forward transactions.
     Certain  options,   futures  and  forward  foreign  currency   transactions
undertaken by the Portfolio may cause the Portfolio to recognize gains or losses
from marking to market even though the Portfolio's  positions have not been sold
or terminated  and affect the  character as long-term or short-term  (or, in the
case of certain currency  forwards,  options and futures,  as ordinary income or
loss) and timing of some capital gains and losses  realized by the Portfolio and
allocable  to the  Fund.  Any net  mark to  market  gains  may  also  have to be
distributed  by the Fund to satisfy the  distribution  requirements  referred to
above even though no  corresponding  cash amounts may  concurrently be received,
possibly  requiring the disposition by the Portfolio of portfolio  securities or
borrowing to obtain the necessary cash. Also,  certain of the Portfolio's losses
on the Portfolio's  transactions involving options, futures or forward contracts
and/or offsetting or successor  Portfolio  positions may be deferred rather than
being taken into account currently in calculating the Portfolio's taxable income
or gain. Certain of the applicable tax rules may be modified if the Portfolio is
eligible  and chooses to make one or more of certain tax  elections  that may be
available.  Because the Fund's income, gains and losses consist primarily of its
share of the  income,  gains and  losses of the  Portfolio,  which are  directly
affected by the provisions  described in this paragraph,  these transactions may
affect  the  amount,  timing  and  character  of  the  Fund's  distributions  to
shareholders.  The  Portfolio  will  take into  account  the  special  tax rules
(including  consideration of available elections) applicable to options, futures
or  forward   contracts  in  order  to  minimize  any   potential   adverse  tax
consequences.

<PAGE>

   
     The Federal income tax rules applicable to forward rolls,  interest rate or
currency swaps,  caps, floors and collars are unclear in certain  respects,  and
the Portfolio may be required to account for these  instruments  under tax rules
in a manner that,  under certain  circumstances,  may limit its  transactions in
these instruments.
     If the  Portfolio  acquires  stock in  certain  foreign  corporations  that
receive at least 75% of their annual gross income from passive  sources (such as
interest,  dividends,  rents, royalties or capital gain) or hold at least 50% of
their assets in  investments  producing such passive  income  ("passive  foreign
investment  companies"),  the Fund could be  subject  to Federal  income tax and
additional  interest charges on its allocable portion of "excess  distributions"
received from such  companies or gain from the sale of stock in such  companies,
even if all income or gain actually  allocated to the Fund is timely distributed
to its  shareholders.  The  Fund  would  not be  able  to  pass  through  to its
shareholders any credit or deduction for such a tax.  Certain  elections may, if
available,  ameliorate  these  adverse tax  consequences,  but any such election
would  require  the  Fund  to  recognize  taxable  income  or gain  without  the
concurrent  receipt of cash.  The  Portfolio  may limit and/or  manage its stock
holdings in passive  foreign  investment  companies  to minimize  the Fund's tax
liability or maximize its return from these investments.
     Foreign  exchange gains and losses  realized by the Portfolio in connection
with  certain   transactions   involving   foreign   currency-denominated   debt
securities,  if any,  certain  foreign  currency  futures and  options,  foreign
currency  forward  contracts,  foreign  currencies,  or payables or  receivables
denominated  in a foreign  currency  are subject to Section 988 of the  Internal
Revenue  Code,  which  generally  causes  such gains and losses to be treated as
ordinary income and losses and,  because the Fund invests in the Portfolio,  may
affect the amount,  timing and character of Fund  distributions to shareholders.
Any  such  transactions  that  are  not  directly  related  to  the  Portfolio's
investment  in stock or  securities,  possibly  including  speculative  currency
positions or currency  derivatives not used for hedging  purposes,  may increase
the  amount  of gain  it is  deemed  to  recognize  from  the  sale  of  certain
investments held for less than three months. The Fund's share of such gain (plus
any such gain the Fund may  realize  from other  sources)  is limited  under the
Internal  Revenue  Code to less  than 30% of the  Fund's  gross  income  for its
taxable year. Such transactions could under future Treasury  regulations produce
income  not among  the types of  "qualifying  income"  from  which the Fund must
derive at least 90% of its gross income for its taxable year.
     The  Portfolio  may be subject to  withholding  and other taxes  imposed by
foreign  countries with respect to its  investments in foreign  securities.  Tax
conventions  between certain countries and the U.S. may reduce or eliminate such
taxes in some  cases.  Investors  in the Fund  would be  entitled  to claim U.S.
foreign tax credits or deductions with respect to such taxes, subject to certain
provisions and limitations  contained in the Internal Revenue Code, only if more
than 50% of the value of the  Fund's  total  assets at the close of any  taxable
    

<PAGE>

year were to consist of stock or securities of foreign corporations and the Fund
were to file  an  election  with  the  Internal  Revenue  Service.  Because  the
investments  of the  Portfolio  are such  that the Fund  will not meet  this 50%
requirement,  shareholders  of the Fund will not directly  take into account the
foreign taxes, if any, paid by the Portfolio and allocable to the Fund, and will
not be entitled to any related tax deductions or credits. Such taxes will reduce
the amounts the Fund would otherwise have available to distribute.
     Distributions  from the Fund's current or accumulated  earnings and profits
("E&P"),  as  computed  for  Federal  income  tax  purposes,  will be taxable as
described  in  the  Fund's  Prospectus  whether  taken  in  shares  or in  cash.
Distributions,  if any,  in excess of E&P will  constitute  a return of capital,
which will first reduce an  investor's  tax basis in Fund shares and  thereafter
(after such basis is reduced to zero) will generally give rise to capital gains.
Shareholders  electing to receive distributions in the form of additional shares
will have a cost basis for federal income tax purposes in each share so received
equal to the amount of cash they would have received had they elected to receive
the distributions in cash, divided by the number of shares received.
     For purposes of the dividends received deduction available to corporations,
dividends received by the Portfolio and allocable to the Fund, if any, from U.S.
domestic  corporations in respect of the stock of such  corporations held by the
Portfolio,  for U.S. Federal income tax purposes, for at least a minimum holding
period,  generally 46 days,  and  distributed  and designated by the Fund may be
treated as qualifying  dividends.  Corporate  shareholders must meet the minimum
holding period requirement referred to above with respect to their shares of the
Fund in order to qualify  for the  deduction  and,  if they borrow to acquire or
otherwise incur debt attributable to such shares, may be denied a portion of the
dividends  received  deduction.  The entire qualifying  dividend,  including the
otherwise deductible amount, will be included in determining the excess (if any)
of a corporate  shareholder's  adjusted  current  earnings over its  alternative
minimum  taxable  income,   which  may  increase  its  alternative  minimum  tax
liability.
     Additionally,  any  corporate  shareholder  should  consult its tax adviser
regarding  the  possibility  that its basis in its  shares may be  reduced,  for
Federal income tax purposes,  by reason of  "extraordinary  dividends"  received
with  respect to the shares,  for the purpose of  computing  its gain or loss on
redemption or other disposition of the shares.
     At the time of an  investor's  purchase  of Fund  shares,  a portion of the
purchase price is often  attributable  to  undistributed  net investment  income
and/or  realized  or  unrealized   appreciation  in  the  Fund's  share  of  the
Portfolio's  portfolio.  Consequently,  subsequent  distributions by the Fund on
such  shares  from  such  income  and/or  appreciation  may be  taxable  to such
investor,  even if the net asset value of the investor's  shares is, as a result
of the distributions, reduced below the investor's cost for such shares, and the
distributions in reality represent a return of a portion of the purchase price.

<PAGE>

   
     Upon a  redemption  (including  a  repurchase)  of shares  of the  Fund,  a
shareholder  may realize a taxable gain or loss,  depending  upon the difference
between the redemption  proceeds and the  shareholder's tax basis in his shares.
Such gain or loss will be  treated  as  capital  gain or loss if the  shares are
capital assets in the  shareholder's  hands and will be long-term or short-term,
depending upon the shareholder's  tax holding period for the shares,  subject to
the rules described  below.  Any loss realized on a redemption may be disallowed
to the extent the shares  disposed of are replaced with other shares of the Fund
within a period of 61 days beginning 30 days before and ending 30 days after the
shares are disposed of, such as pursuant to automatic dividend reinvestments. In
such a case,  the basis of the shares  acquired  will be adjusted to reflect the
disallowed  loss.  Any loss  realized  upon the  redemption of shares with a tax
holding period of six months or less will be treated as a long-term capital loss
to the extent of any amounts treated as distributions of long-term  capital gain
with respect to such shares.
     Different   tax   treatment,   including   penalties   on  certain   excess
contributions  and  deferrals,   certain   pre-retirement  and   post-retirement
distributions  and  certain  prohibited  transactions,  is  accorded to accounts
maintained as qualified retirement plans.  Shareholders should consult their tax
advisers for more information.
     The foregoing  discussion  relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e.,  U.S.  citizens or residents and U.S. domestic
corporations,  partnerships,  trusts or estates)  subject to tax under such law.
The discussion does not address special tax rules  applicable to certain classes
of investors,  such as tax-exempt entities,  insurance companies,  and financial
institutions.  Dividends, capital gain distributions,  and ownership of or gains
realized on the  redemption  (including  an exchange) of Fund shares may also be
subject to state and local  taxes.  Shareholders  should  consult  their own tax
advisers as to the  Federal,  state or local tax  consequences  of  ownership of
shares  of, and  receipt of  distributions  from,  the Fund in their  particular
circumstances.
     Non-U.S. investors not engaged in a U.S. trade or business with which their
investment in the Fund is effectively  connected will be subject to U.S. Federal
income  tax  treatment  that is  different  from  that  described  above.  These
investors may be subject to nonresident alien withholding tax at the rate of 30%
(or a lower rate under an applicable tax treaty) on amounts  treated as ordinary
dividends  from the Fund and,  unless an  effective  IRS Form W-8 or  authorized
substitute is on file, to 31% backup  withholding on certain other payments from
the Fund.  Non-U.S.  investors should consult their tax advisers  regarding such
treatment and the application of foreign taxes to an investment in the Fund.
                             THE FUND AND ITS SHARES
     The Fund is an investment series of the Trust, an  unincorporated  business
trust organized under the laws of The Commonwealth of Massachusetts  pursuant to
an Agreement and Declaration of Trust dated August 13, 1986. Under the Agreement
and  Declaration of Trust,  the Trustees of the Trust have authority to issue an
unlimited number of shares of beneficial interest,  par value $.01 per share, of
the Fund. Each share represents an equal proportionate interest in the Fund with
    

<PAGE>

each other share and is  entitled to such  dividends  and  distributions  as are
declared by the  Trustees.  Shareholders  are not  entitled  to any  preemptive,
conversion or subscription  rights. All shares,  when issued, will be fully paid
and non-assessable by the Trust. Upon any liquidation of the Fund,  shareholders
are entitled to share pro rata in the net assets available for distribution.
     Pursuant to the  Declaration,  the Trustees may create  additional funds by
establishing  additional  series of shares in the Trust.  The  establishment  of
additional series would not affect the interests of current  shareholders in the
Fund. As of the date of this Statement of Additional  Information,  the Trustees
have  established  eighteen  other series of the Trust that publicly offer their
shares. Pursuant to the Declaration,  the Board may establish and issue multiple
classes of shares for each series of the Trust. As of the date of this Statement
of  Additional  Information,  the  Trustees  do not have  any plan to  establish
multiple classes of shares for the Fund.
     All Fund shares have equal rights with regard to voting and shareholders of
the Fund have the right to vote as a separate  class with  respect to matters as
to which their  interests  are not identical to those of  shareholders  of other
classes of the Trust,  including any change of investment  policy  requiring the
approval of shareholders.
     Under  Massachusetts  law,  shareholders of the Trust could,  under certain
circumstances,  be held liable for the  obligations of the Trust.  However,  the
Agreement and Declaration of Trust disclaims  shareholder  liability for acts or
obligations of the Trust and requires that notice of this disclaimer be given in
each agreement,  obligation or instrument  entered into or executed by the Trust
or a Trustee.  The Declaration also provides for indemnification from the assets
of the Trust for all losses and  expenses of any Trust  shareholder  held liable
for the  obligations of the Trust.  Thus, the risk of a shareholder  incurring a
financial  loss on account of his or its liability as a shareholder of the Trust
is  limited  to  circumstances  in which the  Trust  would be unable to meet its
obligations.  The possibility  that these  circumstances  would occur is remote.
Upon payment of any liability  incurred by the Trust, the shareholder paying the
liability  will be entitled  to  reimbursement  from the  general  assets of the
Trust.  The Declaration  also provides that no series of the Trust is liable for
the  obligations  of any  other  series.  The  Trustees  intend to  conduct  the
operations of the Trust to avoid, to the extent possible,  ultimate liability of
shareholders for liabilities of the Trust.
     Except as  described  below,  whenever  the Trust is requested to vote on a
fundamental  policy of or matters  pertaining to the  Portfolio,  the Trust will
hold a meeting of the Fund's shareholders and will cast its vote proportionately
as instructed by the Fund's shareholders. Fund shareholders who do not vote will
not affect the Trust's votes at the  Portfolio  meeting.  The  percentage of the
Trust's votes  representing  Fund  shareholders  not voting will be voted by the
Trustees of the Trust in the same proportion as the Fund shareholders who do, in
fact, vote.  Subject to applicable  statutory and regulatory  requirements,  the

<PAGE>

   
Fund  would  not  request a vote of its  shareholders  with  respect  to (a) any
proposal relating to the Portfolio,  which proposal, if made with respect to the
Fund,  would not require the vote of the  shareholders  of the Fund,  or (b) any
proposal  with  respect  to the  Portfolio  that is  identical  in all  material
respects to a proposal that has previously  been approved by shareholders of the
Fund.  Any  proposal  submitted  to  holders in the  Portfolio,  and that is not
required to be voted on by shareholders of the Fund, would  nonetheless be voted
on by the Trustees of the Trust.
                         THE PORTFOLIO AND ITS INVESTORS
     The  Portfolio is a series of  Standish,  Ayer & Wood Master  Portfolio,  a
newly formed trust,  and, like the Fund,  is an open-end  management  investment
company  under the  Investment  Company Act of 1940,  as amended.  The Portfolio
Trust was  organized  as a master  trust fund under the laws of the State of New
York on January 18, 1996.
     Interests in the Portfolio have no preemptive or conversion rights, and are
fully  paid and  non-assessable  except  as  described  in the  Prospectus.  The
Portfolio normally will not hold meetings of holders of such interests except as
required  under the 1940 Act. The Portfolio  would be required to hold a meeting
of holders in the event  that at any time less than a majority  of its  Trustees
holding  office had been  elected by  holders.  The  Trustees  of the  Portfolio
continue to hold office until their  successors are elected and have  qualified.
Holders holding a specified  percentage of interests in the Portfolio may call a
meeting of holders in the Portfolio  for the purpose of removing any Trustee.  A
Trustee of the  Portfolio  may be removed upon a majority  vote of the interests
held by holders in the Portfolio qualified to vote in the election. The 1940 Act
requires the  Portfolio  to assist its holders in calling  such a meeting.  Upon
liquidation  of the  Portfolio,  holders in the  Portfolio  would be entitled to
share pro rata in the net assets of the Portfolio  available for distribution to
holders. Each holder in the Portfolio is entitled to a vote in proportion to its
percentage interest in the Portfolio.
                             ADDITIONAL INFORMATION
     The Fund's  Prospectus  and this Statement of Additional  Information  omit
certain information contained in the registration  statement filed with the SEC,
which may be obtained from the SEC's principal office at 450 Fifth Street, N.W.,
Washington,  D.C.  20549,  upon payment of the fee  prescribed  by the rules and
regulations promulgated by the Commission.
                        EXPERTS AND FINANCIAL STATEMENTS
     Coopers & Lybrand L.L.P.,  independent  accountants,  will audit the Fund's
financial  statements for the fiscal year ending December 31, 1996. An affiliate
of Coopers & Lybrand,  L.L.P.,  Coopers &  Lybrand,  will audit the  Portfolio's
financial statements for the fiscal year ending December31, 1996.
    



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