As filed with the Securities and Exchange Commission on April 23, 1996
Registration Nos. 33-8214
811-4813
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 74 /X/
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 77 /X/
(Check appropriate box or boxes.)
---------------
Standish, Ayer & Wood Investment Trust
(Exact Name of Registrant as Specified in Charter)
One Financial Center, Boston, Massachusetts 02111
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (617) 375-1760
ERNEST V. KLEIN, Esq.
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
/ / Immediately upon filing pursuant to Rule 485(b)
/ / On (date) pursuant to Rule 485(b)
/ / 60 days after filing pursuant to Rule 485(a)(1)
/X/ 0n May 1, 1996 pursuant to Rule 485(a)(1)
/ / 75 days after filing pursuant to Rule 485(a)(2)
/ / 0n (date) pursuant to Rule 485(a)(2)
The Registrant has registered an indefinite number of shares under the
Securities Act of 1933, as amended, pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended. The Rule 24f-2 Notice for the fiscal year ended
December 31, 1995 was filed on or about February 27, 1996.
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST*
Standish Intermediate Tax Exempt Bond Fund
Standish Small Cap Tax-Sensitive Equity Fund
Standish Tax-Sensitive Equity Fund
Cross-Reference Sheet Pursuant to Rule 495(a)
<TABLE>
<CAPTION>
Part A Prospectus
Form Item Cross-Reference
- --------- ---------------
<S> <C> <C>
Item 1. Cover Page Cover Page
Item 2. Synopsis "Expense Information"
Item 3. Condensed Financial "Financial Highlights"
Information
Item 4. General Description Cover Page, "The Fund
of Registrant and Its Shares" and "Investment
Objective and Policies"
Item 5. Management of the Fund "Management" and "Custodian,
Transfer Agent and Dividend Disbursing Agent"
Item 6. Capital Stock and "The Fund and Its Shares",
Other Securities "Purchase of Shares",
"Redemption of Shares", "Dividends and Distributions"
and "Federal Income Taxes"
Item 7. Purchase of Securities Cover Page and "Purchase of
Being Offered Shares"
Item 8. Redemption or "Redemption of Shares"
Repurchase
Item 9. Pending Legal Not Applicable
Proceedings
- -------------
* This Post-Effective Amendment to the Registrant's Registration Statement is
being filed with respect to the series of the Registrant set forth above and
does not affect the Prospectuses and Statements of Additional Information of any
additional series of the Registrant.
<PAGE>
Statement of Additional
Part B Information Cross-
Form Item Reference
--------- ---------
Item 10. Cover Page Cover Page
Item 11. Table of Contents "Contents"
Item 12. General Information
and History Not Applicable
Item 13. Investment Objectives "Investment Objective
and Policies and Policies" and "Investment
Restrictions"
Item 14. Management of the Fund "Management"
Item 15. Control Persons and "Management"
Principal Holders
of Securities
Item 16. Investment Advisory and "Management"
Other Services
Item 17. Brokerage Allocation "Portfolio Transactions"
Item 18. Capital Stock and "The Fund and Its Shares"
Other Securities
Item 19. Purchase, Redemption "Redemption of Shares" and
and Pricing of "Determination of Net Asset
Securities Being Value"
Offered
Item 20. Tax Status "Taxation"
Item 21. Underwriters Not Applicable
Item 22. Calculation of "Calculation of Performance
Performance Data Data"
Item 23. Financial Statements "Experts and Financial Statements"
</TABLE>
<PAGE>
Prospectus dated May 1, 1996
PROSPECTUS
One Financial Center
Boston, Massachusetts 02111
(617) 350-6100
STANDISH TAX-SENSITIVE EQUITY FUND
("EQUITY FUND")
Seeks to maximize after-tax total return, with an emphasis on long-term
growth of capital, through investment primarily in equity securities of
companies that appear to be undervalued.
STANDISH SMALL CAP TAX-SENSITIVE EQUITY FUND ("SMALL CAP FUND")
Seeks to maximize after-tax total return, with an emphasis on long-term
growth of capital, through investment primarily in equity securities of small
capitalization companies that appear to be undervalued.
STANDISH INTERMEDIATE TAX EXEMPT BOND FUND ("TAX EXEMPT FUND")
Seeks to provide a high level of interest income exempt from federal income
taxes, while seeking preservation of shareholders' capital through investing the
Fund's assets in investment grade intermediate-term municipal securities.
Equity Fund, Small Cap Fund and Tax Exempt Fund (collectively, the "Funds")
are members of the Standish, Ayer & Wood family of funds. Each Fund is organized
as a separate diversified investment series of Standish, Ayer & Wood Investment
Trust (the "Trust"), an open-end management investment company. Each Fund's
investment adviser is Standish, Ayer & Wood, Inc., Boston, Massachusetts (the
"Adviser").
Investors may purchase shares of the Funds directly from the Trust's
principal underwriter, Standish Fund Distributors, L.P. (the "Principal
Underwriter"), at the address and phone number listed above without a sales
commission or other transaction charges. Unless waived by the Funds, the minimum
initial investment is $100,000. Additional investments may be made in amounts of
at least $10,000 ($5,000 for the Tax Exempt Fund).
This combined Prospectus is intended to set forth concisely the information
about the Funds 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 Funds and the Trust is
contained in a combined 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 listed above. The Statement of Additional
Information bears the same date as this Prospectus and is incorporated by
reference into this Prospectus.
SHARES OF THE FUNDS 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 FUNDS 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
Financial Highlights..........................................4
Investment Objectives and Policies............................5
Risk Factors, Suitability and Other Investment Practices......7
Calculation of Performance Data..............................13
Dividends and Distributions..................................14
Purchase of Shares...........................................14
Exchange of Shares...........................................15
Redemption of Shares.........................................15
Management...................................................16
Federal Income Taxes.........................................17
The Trust and Its Shares.....................................19
Custodian, Transfer Agent and Dividend-Disbursing Agent......19
Independent Accountants......................................19
Legal Counsel................................................19
Tax Certification Instruction................................20
1
<PAGE>
The Equity Fund and the Small Cap Fund (together, the "Tax-Sensitive Funds")
are designed for investors in the upper federal income tax brackets who are
seeking the highest long-term after-tax total return. In seeking to achieve its
investment objective, the Equity Fund invests primarily in publicly traded
equity securities of United States companies and, to a lesser extent, of foreign
issuers. The Small Cap Fund invests primarily in publicly traded securities,
including securities being issued in initial public offerings, of small
capitalization companies located in the United States and, to a lesser extent,
in foreign countries. The Tax-Sensitive Funds do not normally invest in equity
securities that are restricted as to disposition by federal securities laws or
are otherwise illiquid but may do so to a limited extent under certain
circumstances.
The Tax Exempt Fund is designed for investors in the upper federal income
tax brackets who are seeking a higher level of federally tax-free income than is
normally provided by short-term tax exempt investments, and more price stability
than investments in long-term municipal bonds. Municipal bonds in which the Tax
Exempt Fund invests will be rated, at the time of purchase, within the four
highest ratings by Moody's Investor Services, Inc. ("Moody's"), Standard &
Poor's Ratings Group ("Standard & Poor's") or Fitch Investors Service, Inc.
("Fitch") or, if unrated, determined to be of comparable credit quality.
There can, of course, be no guarantee that a Fund's objective will be
achieved. The Tax-Sensitive Funds are not tax-exempt funds. While the
Tax-Sensitive Funds are managed to consider the impact of federal and state
taxes on shareholders' investment returns, it is expected that the Tax-Sensitive
Funds will earn and distribute taxable income and realize and distribute capital
gains from time to time and neither Tax-Sensitive Fund will be managed
considering any particular state's tax laws.
<TABLE>
<CAPTION>
EXPENSE INFORMATION
Equity Small Cap Tax Exempt
Shareholder Transaction Expenses Fund Fund Fund
---- ---- ----
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases None None None
Maximum Sales Load Imposed on Reinvested Dividends None None None
Deferred Sales Load None None None
Redemption Fees None None None
Exchange Fees None None None
Tax Exempt Fund
Annual Fund Operating Expenses Equity Small Cap (After Expense
(as a percentage of average net assets) Fund Fund Limitation)
---- ---- -----------
Management Fees 0.50% 0.60% 0.25%+
12b-1 Fees None None None
Other Expenses 0.30% 0.25% 0.39%
---- ---- ----
Total Fund Operating Expenses* 0.80% 0.85% 0.65%+
==== ==== ====
(See the next page for footnotes.)
Example:
Hypothetically assume that each Fund's annual return is 5% and that its
operating expenses are exactly as just described. For every $1,000 you invested,
you would have paid the following expenses if you closed your account after the
number or years indicated:
</TABLE>
Equity Small Cap Tax Exempt
Fund Fund Fund
---- ---- ----
After 1 Year $ 8 $ 9 $ 7
After 3 Years $26 $27 $21
After 5 Years N/A N/A $36
After 10 Years N/A N/A $81
The purpose of the above table is to assist an investor in understanding
the various costs and expenses of the Funds that an investor in the Funds will
bear directly or indirectly. See "Management - Investment Adviser" and
"Management - Expenses." The Tax-Sensitive Funds are newly organized and have no
operating history. The figures shown in the caption "Other Expenses," which
includes, among other things, custodian and transfer agent fees, registration
costs and payments for insurance and audit and legal services, and in the
hypothetical example are (1) with respect to the Tax-Sensitive Funds, based on
estimates of the Funds' expenses for their initial fiscal years ending September
30, 1996 and (2) with respect to the Tax Exempt Fund, based upon expenses for
the fiscal year ended December 31, 1995 during which time the Adviser agreed not
to impose a portion of its fee.
2
<PAGE>
* The Adviser has voluntarily agreed to limit each Fund's Total Fund
Operating Expenses (excluding litigation, indemnification and other
extraordinary expenses) to the following percentages of each Fund's average
daily net assets for the Fund's fiscal year ending September 30, 1996: Equity
Fund--1.00%; Small Cap Fund--0.90% and Tax Exempt Fund--0.65%. These agreements
are voluntary and temporary and may be discontinued or revised by the Adviser at
any time after September 30, 1996. On February 9, 1996, the Tax Exempt Fund
changed its fiscal year end from December 31 to September 30.
+ After expense limitation. If the Adviser had not agreed to the limits
described above, Management Fees and Total Fund Operating Expenses of the Tax
Exempt Fund would have been 0.40% and 0.79% for the fiscal year ended December
31, 1995.
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, EACH FUND'S ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN
ACTUAL RETURN GREATER OR LESS THAN 5%.
3
<PAGE>
FINANCIAL HIGHLIGHTS
Equity Fund and Small Cap Fund are newly organized and have no operating
history. The following financial highlights are presented for the Tax Exempt
Fund. The Tax Exempt Fund's financial highlights for the years ended December
31, 1993, 1994 and 1995 have been audited by Coopers & Lybrand L.L.P.,
independent accountants, whose report, together with the financial statements of
the Tax Exempt Fund, is incorporated into the Statement of Additional
Information.
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Intermediate Tax Exempt Bond Fund Series
Financial Highlights
For the period
November 2, 1992
Year ended December 31, (start of business) to
1995 1994 1993 December 31, 1992*
----------- ------------ ----------- ------------------------
<S> <C> <C> <C> <C>
Net asset value - beginning of period $19.91 $21.44 $20.42 $20.00
----------- ------------ ----------- -------------------
Income from investment operations
Net investment income $0.98 $0.95 $0.93 $0.14
Net realized and unrealized gain (loss) 1.49 (1.51) 1.24 0.42
----------- ------------ ----------- -------------------
Total from investment operations $2.47 ($0.56) $2.17 $0.56
----------- ------------ ----------- -------------------
Less distributions declared to shareholders
From net investment income ($0.98) ($0.95) ($0.93) ($0.14)
From realized gains - (0.02) (0.22) -
----------- ------------ ----------- -------------------
Total distributions declared to shareholders ($0.98) ($0.97) ($1.15) ($0.14)
----------- ------------ ----------- -------------------
Net asset value - end of period $21.40 $19.91 $21.44 $20.42
=========== ============ =========== ===================
Total return 12.65% (2.68%) 10.78% 17.02% t
Net assets at end of period (000's omitted) $32,865 $20,514 $17,132 $5,577
Ratios (to average net assets)/Supplemental Data
Expenses ** 0.65% 0.65% 0.65% 0.65% t
Net investment income ** 4.75% 4.62% 4.36% 4.16% t
Portfolio turnover 140% 157% 126% 62%
** The investment adviser did not impose a portion of its advisory fee. If
this reduction had not been undertaken, the net investment income per
share and the ratios would have been:
Net investment income per share $0.95 $0.90 $0.85 $0.12
Ratios (to average net assets):
Expenses 0.79% 0.89% 1.15% 1.47%
Net investment income 4.61% 4.38% 3.86% 3.34%
t Computed on an annualized basis.
* Audited by other auditors.
</TABLE>
Further information about the performance of the Tax Exempt Fund is
contained in the Tax Exempt Fund's Annual Report, which may be obtained from the
Principal Underwriter without charge.
4
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Tax-Sensitive Funds
The Tax-Sensitive Funds are designed for investors in the upper federal
income tax brackets who seek the highest long-term after-tax total return.
Taxable dividends from any source, other than long-term capital gains,
distributed to individuals by mutual funds are currently taxed at federal income
tax rates of up to 39.6%, and the effective tax rate may be higher due to
limitations at higher income levels on allowable deductions and exemptions.
Long-term capital gains distributed to individuals by mutual funds are currently
taxed at federal tax rates of up to 28%. Taxable dividends from any source,
including long-term capital gains, distributed to corporations by mutual funds
are currently taxed at federal income tax rates of up to 35%. Additionally,
state taxes on mutual fund distributions reduce after-tax returns.
The Tax-Sensitive Funds employ various techniques to seek the highest
long-term total return after considering the impact of federal and state income
taxes paid by shareholders on the Funds' distributions.
o The Tax-Sensitive Funds seek to minimize, to the
extent practicable, taxable dividend income by emphasizing securities with
low dividend yields and minimizing investments in debt obligations. The
Tax-Sensitive Funds also intend to be substantially fully invested in
equity investments.
o When selling portfolio securities, each Tax-Sensitive Fund will generally
select the highest cost shares of the specific security (and/or, if gains
will be realized, shares that will produce long-term capital gains) in
order to reduce, to the extent practicable, the realization of capital
gains, particularly short-term capital gains. Additionally, each
Tax-Sensitive Fund may, in furtherance of its investment objective, sell
portfolio securities in order to realize capital losses. Realized capital
losses can be used to offset realized capital gains, thus reducing the
amount of capital gains a Fund will distribute.
o The Tax-Sensitive Funds intend to have relatively low annual portfolio
turnover rates under normal circumstances. For taxpayers in the highest tax
brackets, ordinary income is taxed at a higher tax rate than capital gains
on securities held for more than one year ("long-term capital gains").
Ordinary income includes dividends from a Fund's net investment income and
net short-term capital gains. Net long-term capital gains realized and
distributed by the Tax-Sensitive Funds are treated by shareholders as
long-term capital gains for federal income tax purposes. Therefore, each
Tax-Sensitive Fund intends, when practicable and prudent, to hold
appreciated portfolio securities for more than one year in order to reduce
the realization and, therefore, the distribution to shareholders of
short-term capital gains which are taxable to them as ordinary income.
5
<PAGE>
Although the Tax-Sensitive Funds expect that they will generally use some
or all of the foregoing management techniques in considering the impact of
federal and state income taxes on a shareholder's investment returns, portfolio
management decisions may be made based on other criteria in particular cases,
where warranted by actual or anticipated economic, market or issuer-specific
developments and the Tax-Sensitive Funds may from time to time employ investment
management techniques that produce taxable ordinary income. For example, a
particular security may be sold, even though a Fund may realize a short-term
capital gain, if the value of that security is believed to have peaked or is
anticipated to decline before the Fund would have held it for the long-term
holding period. Similarly, a Fund may from time to time be required to sell
securities it would otherwise have continued to hold in order to generate cash
to pay expenses or satisfy shareholder redemption requests. Further, certain
equity securities and debt obligations in which the Tax-Sensitive Funds will
invest will produce ordinary taxable income on a regular basis.
While attempting to reduce the impact of federal and state income taxes
paid by shareholders on Fund distributions, each of the Tax-Sensitive Funds will
follow a disciplined investment strategy, emphasizing stocks that the Adviser
believes to offer above average potential for capital growth that offer low
dividend yields. Although the precise application of the discipline will vary
according to market conditions, the Adviser intends to use statistical modeling
techniques that utilize stock specific factors, such as current price earnings
ratios, stability of earnings growth, forecasted changes in earnings growth,
trends in consensus analysts' estimates, and measures of earnings results
relative to expectations, to identify equity securities that are attractive as
purchase candidates. Once identified, these securities will be subject to
further fundamental analysis by the Adviser's professional staff before they are
included in the Fund's holdings. Securities selected for inclusion in a Fund's
portfolio will represent various industries and sectors.
Standish Tax-Sensitive Equity Fund
Investment Objective. The Equity Fund seeks to maximize after-tax total
return, consisting of long-term growth of capital with nominal current income,
through investment primarily in equity securities of companies that appear to be
undervalued.
Investment Policies. Under normal circumstances, at least 80% of the Equity
Fund's total assets are invested in equity and equity-related securities, such
as common stocks and preferred stocks. The Equity Fund may invest in equity
securities of foreign issuers that are listed on a U.S. securities exchange or
traded in the U.S. over-the-counter market, but will not invest more than 10% of
its total assets in such securities that are not so
listed or traded.
Although the Equity Fund will prefer long-term capital gains to taxable
dividend income and interest income, the Fund may to a limited extent invest in
debt securities and preferred stocks that are convertible into, or exchangeable
for, common stocks. Generally, such securities will be rated, at the time of
investment, Aaa, Aa or A by Moody's or AAA, AA or A by Standard & Poor's or, if
not rated, are determined by the Adviser to be of comparable credit quality. Up
to 5% of the Fund's total assets invested in convertible debt securities and
preferred stocks may be rated, at the time of investment, Baa by Moody's or BBB
by Standard & Poor's or, if not rated, determined by the Adviser to be of
comparable credit quality. As a temporary matter and for defensive purposes, the
Fund may purchase investment grade short-term debt securities, the amount of
which will depend on market conditions and the needs of the Fund. The Fund will
attempt to reduce risk by diversifying its investments within the investment
policy set forth above.
6
<PAGE>
The Equity Fund may, but is not required to, utilize various investment
strategies and techniques to seek to hedge various market risks (such as broad
or specific equity market movements and currency exchange rate risks) or to seek
to enhance potential gain. Such strategies and techniques are generally accepted
as part of modern portfolio management and are regularly utilized by many mutual
funds. In the course of pursuing its investment objective, the Equity Fund may:
(i) purchase and write (sell) put and call options on securities, equity indices
and other financial instruments; (ii) purchase and sell financial futures
contracts on U.S. equity indices and options thereon; (iii) enter into
repurchase agreements; (iv) enter into various currency transactions, such as
currency forward contracts, currency futures contracts, currency swaps or
options on currencies or currency futures; and (v) make short sales. These
techniques may produce taxable ordinary income and/or short-term or long-term
capital gains. Although the Fund does not normally invest in equity securities
that are restricted as to disposition by federal securities laws or are
otherwise illiquid, the Fund may so invest up to 15% of its net assets when, in
the opinion of the Adviser, investment opportunities presented by such
securities are particularly attractive. For further information concerning the
securities in which the Equity Fund may invest and the investment strategies and
techniques it may employ, see "Risk Factors, Suitability and Other Investment
Practices and Policies" below in this Prospectus.
Standish Small Cap Tax-Sensitive Equity Fund
Investment Objective. The Small Cap Fund seeks to maximize after-tax total
return, consisting of long-term growth of capital with nominal current income,
through investment primarily in equity securities of small capitalization
companies that appear to be undervalued.
Investment Policies. Under normal circumstances, at least 80% of the Small
Cap Fund's total assets are invested in equity and equity-related securities
(such as common stocks, preferred stocks and options, futures and other
strategic transactions based on common stocks) of small capitalization
companies. The Fund invests in publicly traded securities, including securities
issued in initial public offerings. The Fund may invest up to 15% of its total
assets in foreign equity securities, including securities of foreign issuers
that are listed on a U.S. exchange or traded in the U.S. over-the-counter market
and sponsored and unsponsored American Depositary Receipts (ADRs). As a
temporary matter and for defensive purposes, the Fund may purchase investment
grade short-term debt securities, the amount of which will depend on market
conditions and the needs of the Fund.
The common stocks of small growth capitalization in which the Small Cap
Fund invests have market capitalizations up to and including $700 million.
Market capitalization is determined by multiplying the number of fully diluted
equity shares by the current market price per share. Morningstar Mutual Funds, a
leading mutual fund monitoring service, includes in the small-cap category all
funds that invest in companies with median market capitalizations of less than
$1 billion. The Fund expects to emphasize investments in companies involved with
7
<PAGE>
value added products or services in expanding industries. At times, particularly
when the Adviser believes that securities of small capitalization companies are
overvalued, the Fund'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 Fund's total assets. The Fund will attempt
to reduce risk by diversifying its investments within the investment policy set
forth above.
The Small Cap Fund may, but is not required to, utilize various investment
strategies and techniques to seek to hedge various market risks (such as broad
or specific equity market movements and currency exchange rate risks) or to seek
to enhance potential gain. Such strategies and techniques are generally accepted
as part of modern portfolio management and are regularly utilized by many mutual
funds. In the course of pursuing its investment objective, the Small Cap Fund
may: (i) purchase and write (sell) put and call options on securities, equity
indices and other financial instruments; (ii) purchase and sell financial
futures contracts on U.S. equity indices and options thereon; (iii) enter into
repurchase agreements; (iv) enter into various currency transactions, such as
currency forward contracts, currency futures contracts, currency swaps or
options on currencies or currency futures; and (v) make short sales. These
techniques may produce taxable ordinary income and/or short-term or long-term
capital gains. Although the Fund does not normally invest in equity securities
that are restricted as to disposition by federal securities laws or are
otherwise illiquid, the Fund may so invest up to 15% of its net assets when, in
the opinion of the Adviser, investment opportunities presented by such
securities are particularly attractive. For further information concerning the
securities in which the Small Cap Fund may invest and the investment strategies
and techniques it may employ, see "Risk Factors, Suitability and Other
Investment Practices and Policies" below in this Prospectus.
Standish Intermediate Tax Exempt Bond Fund
Investment Objective. The Tax Exempt Fund seeks to provide a high level of
interest income exempt from federal income taxes, while seeking preservation of
shareholders' capital, through investing the Fund's assets primarily in
investment grade intermediate-term municipal securities. The investment
objective of the Fund is a fundamental policy that may not be changed without
shareholder approval.
Investment Policies. The Tax Exempt Fund seeks to achieve its objective by
investing in a diversified portfolio of municipal securities which are
obligations issued by or on behalf of states, territories and possessions
(including Puerto Rico, the U.S. Virgin Islands and Guam) of the United States,
and the District of Columbia and their political subdivisions, agencies,
authorities and instrumentalities, the interest on which is, in the opinion of
bond counsel to the issuer, excluded from gross income for federal income tax
purposes.
Although the Tax Exempt Fund invests primarily in investment grade
municipal bonds of any maturity, it intends to emphasize high quality
intermediate-term municipal bonds. The Fund's dollar-weighted average portfolio
maturity is normally in a range of three to ten years. However, the Fund may
purchase individual securities with effective maturities which are outside of
this range. A mutual fund with an average maturity longer than that of the Fund
8
<PAGE>
will tend to have a higher yield, but will generally exhibit greater share price
volatility. Conversely, a mutual fund with a shorter maturity will generally
have a lower yield, but will generally offer more price stability. The Fund's
emphasis on high quality securities is expected to reduce its share price
volatility. Because the Fund holds investment grade municipal securities, the
income earned on shares of the Fund will tend to be less than it might be on a
portfolio emphasizing lower quality securities.
The Tax Exempt Fund may invest, without percentage limitations, in
municipal bonds rated at the time of purchase within one of the four highest
municipal bond ratings by Moody's (Aaa, Aa, A, Baa), Standard & Poor's (AAA, AA,
A, BBB) or Fitch (AAA, AA, A, BBB) or, if unrated, determined by the Adviser to
be of comparable credit quality. The Fund may invest in municipal notes rated
MIG-1 or MIG-2 by Moody's or at least SP-1 or SP-2 by Standard & Poor's or in
municipal notes that are not rated, provided that, in the opinion of the
Adviser, such notes are of a comparable credit quality. See "Securities Ratings"
below for a discussion of securities ratings generally and how these policies
apply to certain types of rated securities.
Although as a matter of fundamental policy it is authorized to do so, the
Tax Exempt Fund does not expect to invest more than 25% of its total assets in
any one of the following sectors of the municipal securities market: hospitals,
ports, airports, colleges and universities, turnpikes and toll roads, housing
bonds, lease rental bonds, industrial revenue bonds or pollution control bonds.
For the purposes of this limitation, securities whose credit is enhanced by bond
insurance, letters of credit or other means are not considered to belong to a
particular sector.
As a fundamental policy, at least 80% of the Tax Exempt Fund's net assets
will normally be invested in tax-exempt municipal securities. Municipal
securities pay interest income that is excluded from gross income for federal
income tax purposes. Also as a fundamental policy, during normal market
conditions, at least 65% of the Fund's net assets will be invested in municipal
bonds. There may be certain occasions, however, during which more than 20% of
the Tax Exempt Fund's assets may be invested in taxable instruments. In unusual
circumstances, as a temporary defensive measure, the Fund may invest in taxable,
fixed income obligations when the Adviser believes that market conditions, such
as rising interest rates or other adverse factors, would cause serious erosion
of portfolio value. In addition, the Fund may also invest up to 20% of its net
assets in taxable, fixed income obligations when there is a yield disparity
between taxable and municipal securities on an after-tax basis which is
favorable for taxable investments. The Fund's taxable investments will generally
be of comparable credit quality and maturity to the municipal securities in
which the Fund invests and will be limited primarily to obligations issued or
guaranteed by the U.S. Government, its agencies, instrumentalities or
authorities; investment grade corporate debt securities; prime commercial paper;
certain certificates of deposit of domestic banks; and repurchase agreements,
secured by U.S. Government securities, with maturities not in excess of seven
days. To the extent that income dividends include income from taxable sources, a
portion of a shareholder's dividend income will be taxable. See "Federal Income
Taxes" in this Prospectus.
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The Tax Exempt Fund may, but is not required to, utilize various investment
strategies and techniques to seek to hedge various market risks (such as broad
or specific fixed income market movements and interest rate risks), to seek to
manage the effective maturity or duration of fixed-income portfolio securities,
or to enhance potential gain. Such strategies and techniques are generally
accepted as part of modern portfolio management and are regularly utilized by
many mutual funds. In the course of pursuing its investment objective, the Tax
Exempt Fund may: (i) purchase and write (sell) put and call options on
securities, fixed-income indices and other financial instruments; (ii) purchase
and sell financial futures contracts and options thereon; (iii) enter into
repurchase agreements; (iv) purchase securities on a forward commitment, when
issued or delayed delivery basis; and (v) enter into various interest rate
transactions, such as swaps, caps, floors and collars. The Fund may also invest
up to 15% of its net assets in the aggregate of restricted securities,
securities for which there are no readily available marked quotations and other
illiquid securities. For further information concerning the securities in which
the Tax Exempt Fund may invest and the investment strategies and techniques it
may employ, see "Risk Factors, Suitability and Other Investment Practices and
Policies" below in this Prospectus.
RISK FACTORS, SUITABILITY AND
OTHER INVESTMENT PRACTICES
Because each Fund owns different types of investments, its performance is
affected by a variety of factors. The value of a Fund's investments and the
income they generate will vary from day to day, and generally reflect interest
rates, market conditions, and other company, political and economic news. When
you sell your shares, they may be worth more or less than what you paid for
them. Because of the uncertainty inherent in all investments, no assurance can
be given that any Fund will achieve its investment objective.
Investing in Small Capitalization Companies
The Small Cap Fund will emphasize, and the Equity Fund may invest in,
smaller, lesser-known companies. Although investments in securities of small
capitalization companies may present greater opportunities for growth, they also
involve greater risks than are customarily associated with investments in
larger, more mature, better known companies. Small capitalization securities may
be subject to more volatile market movements than larger capitalization
securities, such as those included in the S&P 500 Index. Small capitalization
companies may have limited product lines, markets or financial resources, and
they may depend upon a limited or less experienced management group. Small
capitalization securities may be traded only in 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 a Fund of portfolio securities to meet redemptions or otherwise
may require the Fund to sell securities at a discount from market prices, over a
longer period of time or during periods when disposition is not desirable.
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The Small Cap and Equity Funds may participate in initial public offerings
for previously privately held companies 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
Funds invest, which may pose additional risks. The Small Cap Fund will
participate in initial public offerings of companies that are expected to have
market capitalizations of up to $700 million after consummation of the offering.
Foreign Securities
Although Equity Fund intends to invest primarily in equity securities of
U.S. issuers, the Equity Fund may invest (without limitation) in equity
securities of issuers located in any foreign country, which securities are
listed on a U.S. exchange or traded in the U.S. over-the-counter market. The
Equity Fund will not invest more than 10% of its total assets in foreign equity
securities that are not so listed or traded. Small Cap Fund may invest up to 15%
of its total assets in equity securities of issuers located in any foreign
country, including but, not limited to, securities of foreign issuers that are
listed on a U.S. 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 Equity and Small Cap Funds if the Adviser believes these
securities will offer above average capital growth potential.
Investing in securities of foreign companies and securities denominated in
foreign currencies or utilizing foreign currency transactions involve certain
risks of political, economic and legal conditions and developments not typically
associated with investing in securities of U.S. companies. Such conditions or
developments might include unfavorable changes in currency exchange rates,
exchange control regulations (including currency blockage), civil disorder,
expropriation of assets of companies in which a Fund invests, nationalization of
such companies, imposition of withholding or other foreign taxes on dividend or
interest payments (or, in some cases, capital gains), and possible difficulty in
obtaining and enforcing judgments against a foreign issuer. Also, foreign
securities may not be as liquid 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 Funds, in connection with purchases and
sales of foreign securities, other than securities denominated in U.S. dollars,
will incur transaction costs in converting currencies. Brokerage commissions in
foreign countries are generally fixed, and other transaction costs related to
securities exchanges are generally higher than in the U.S. Most foreign
securities of the Funds are held by foreign subcustodians that satisfy certain
eligibility requirements. Foreign custodial costs relating to the Funds'
portfolio securities are higher than domestic custodial costs. In addition,
foreign settlement of securities transactions is subject to local law and custom
that is not, generally, as well established or as reliable as U.S. regulation
and custom applicable to settlements of securities transactions and,
accordingly, there is generally perceived to be a greater risk of loss in
connection with securities transactions in many foreign countries. Fixed
commissions on foreign stock exchanges are generally higher than negotiated
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commissions on U.S. exchanges. Finally, transactions in equity securities
effected on some foreign stock exchanges, and consequently the Funds'
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. The Equity Fund's policy of investing no more
than 10% of its total assets in foreign securities that are not listed on a U.S.
stock exchange or traded in the U.S. over-the-counter market and the Small Cap
Fund's policy of investing no more than 15% of its total assets in foreign
equity securities are intended to limit each Fund's exposure to the risks
associated with investments in foreign securities.
Investments by the Tax-Sensitive Funds 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
unfavorab ly 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.
Municipal Securities
Municipal securities in which the Tax Exempt Fund may invest include debt
obligations issued to obtain funds for various public purposes, including the
construction of a variety of public facilities such as bridges, highways,
housing, hospitals, mass transportation, schools, streets and water and sewer
works. Other public purposes for which municipal securities or bonds may be
issued include the refunding of outstanding obligations, obtaining funds for
general operating expenses and the obtaining of funds to loan to other public
institutions and facilities. In addition, certain types of industrial revenue
bonds are, or have been under prior tax law, issued by or on behalf of public
authorities to obtain funds to provide privately operated housing facilities,
sports facilities, convention or trade show facilities, airport, mass transit,
port or parking facilities, air or water pollution control facilities and
certain local facilities for water supply, gas, electricity, or sewage or solid
waste disposal. The interest on certain such bonds (and the Fund's distributions
to its shareholders from such interest) may be a tax preference item for
purposes of the federal alternative minimum tax: these bonds are sometimes
referred to as "AMT Bonds" and are treated as taxable obligations for the
purposes of the Fund's policies. See "Federal Income Taxes" in this Prospectus.
Municipal bonds are issued in order to meet long-term capital needs and
generally have maturities of more than one year when issued. The two principal
classifications of municipal bonds are "general obligation" and "revenue" bonds.
General obligation bonds are secured by the pledge of the municipality's faith,
credit and taxing power for the payment of principal and interest, and are
considered the safest type of municipal bond. Revenue bonds are payable only
from the revenues derived from a particular project or facility and are
generally dependent solely on a specific revenue source. Industrial revenue
bonds are a specific type of revenue bond backed by the credit and security of a
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private user. Assessment bonds, which are issued by a specially created district
or project area which levies a tax (generally on its taxable property) to pay
for an improvement or project, may be considered to belong to either category.
There are, of course, other variations in the safety of municipal bonds, both
within a particular classification and between classifications, depending on
numerous factors. The Tax Exempt Fund is not limited with respect to the
categories of municipal securities it may acquire.
Municipal securities also include municipal notes, which are generally
issued to satisfy short-term capital needs and have maturities of one year or
less. Municipal notes include tax anticipation notes, revenue anticipation
notes, bond anticipation notes and construction loan notes. The Fund may also
invest in variable rate demand instruments, which are securities with long
stated maturities, but demand features that allow the holder to demand 100% of
the principal plus interest within one to seven days. The coupon varies daily,
weekly or monthly with the market. The price remains at par, which provides
stability to the portfolio while earning market yields. For federal income tax
purposes, the income earned from municipal securities may be entirely tax free,
taxable or subject only to the federal alternative minimum tax.
Securities Ratings
In the case of a security proposed to be purchased by a Fund that is rated
differently by two or more rating services, the higher rating is used for
purposes of the Funds' rating policies; provided, however, all securities
purchased must also meet the credit standards of the Adviser. Securities rated
Baa by Moody's or BBB by Standard & Poor's and Fitch and unrated securities of
equivalent credit quality are considered medium grade obligations with
speculative characteristics. Adverse changes in economic conditions or other
circumstances are more likely to weaken the issuer's capacity to pay interest
and repay principal on these securities than is the case for issuers of higher
rated securities. Prior to acquiring unrated securities for a Fund's portfolio,
the Adviser considers the terms of the offering and various other factors in
order to initially determine whether the securities are consistent with the
Fund's investment objective and policies and thereafter to determine the
issuer's comparative credit rating. In the event the rating on a security held
in a Fund's portfolio is downgraded by a rating service, such action will be
considered by the Adviser in its evaluation of the overall investment merits of
that security, but will not necessarily result in the sale of the security.
Temporary and Short-Term Investments
Notwithstanding a Fund's investment objective, each Fund may on occasion,
for temporary defensive purposes to preserve capital or to meet redemption
requests, hold part or all of its assets in cash and investment grade money
market instruments (i.e., securities with maturities of less than one year) and
short-term debt securities (i.e., securities with maturities of one to three
years). Each Fund may also invest uncommitted cash and cash needed to maintain
liquidity for redemptions in investment grade money market instruments and
short-term debt securities. Investments in such securities will be limited to
20% of a Fund's total assets unless the Fund is in a temporary defensive
position.
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The money market instruments and short-term debt securities in which the
Funds may invest consist of obligations issued or guaranteed by the U.S.
Government, its agencies, instrumentalities or authorities; instruments
(including negotiable certificates of deposit, non-negotiable fixed time
deposits and bankers' acceptances) of U.S. banks and foreign banks (the
Tax-Sensitive Funds only); repurchase agreements; and prime commercial paper of
U.S. companies and foreign companies (the Tax-Sensitive Funds only).
The Funds' investments in money market securities will be rated, at the
time of investment, P-1 by Moody's or A-1 by Standard & Poor's. At least 95% of
each Tax-Sensitive Fund's assets invested in short-term debt securities will be
rated, at the time of investment, Aaa, Aa, or A by Moody's or AAA, AA, or A by
Standard & Poor's or, if not rated, determined to be of comparable credit
quality by the Adviser. Up to 5% of each Tax-Sensitive Fund's total assets
invested in short-term debt securities may be invested in securities which are
rated Baa by Moody's or BBB by Standard & Poor's or, if not rated, determined to
be of comparable credit quality by the Adviser.
The Tax Exempt Fund's investments in taxable securities, such as money
market and short-term debt securities, will generally be of comparable credit
quality and maturity to the municipal securities in the Tax Exempt Fund invests.
To the extent that income dividends distributed by the Tax Exempt Fund include
income from taxable sources, a portion of a shareholder's dividend income will
be taxable. See "Federal Income Taxes."
Each Fund may invest up to 15% of its net assets in repurchase agreements
under normal circumstances. Repurchase agreements acquired by the Funds 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, a Fund might suffer a loss to the extent that the
proceeds from the sale of the underlying securities and other collateral held by
the Fund 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, a Fund could
suffer losses, including loss of interest on or principal of the security and
costs associated with delay and enforcement of the repurchase agreement.
Strategic and Derivative Transactions
Each Fund 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 (Equity Fund and Small Cap Fund only), and broad
or specific market movements), to enhance potential gain or, with respect to the
Tax Exempt Fund, to manage the effective maturity or duration of fixed-income
portfolio securities. 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 Funds may change
over time as new instruments and strategies are developed or regulatory changes
occur.
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In the course of pursuing their respective investment objectives, the Funds
may purchase and sell (write) exchange-listed and over-the-counter put and call
options on securities, equity indices (Equity Fund and Small Cap Fund only),
fixed-income indices (Tax Exempt Fund only) 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. In
addition, Equity Fund and Small Cap Fund may enter into various currency
transactions such as currency forward contracts, currency futures contracts,
currency swaps or options on currencies or currency futures. The risks
associated with the Funds' transactions in options, futures and other types of
derivative securities including swaps may include some or all of the following:
market risk, leverage and volatility risk, correlation risk, credit risk and
liquidity and valuation risk. These investment techniques are referred to herein
as "Strategic Transactions." Strategic Transactions may be used in an attempt to
protect against possible changes in the market value of securities held in or to
be purchased for a Fund's portfolio resulting from securities markets
fluctuations, currency exchange rate fluctuations (Equity Fund and Small Cap
Fund only), to protect a Fund's unrealized gains in the value of its portfolio
securities, to facilitate the sale of such securities for investment purposes,
to manage the effective duration or maturity of the Tax Exempt Fund's portfolio,
or to establish a position in the derivatives markets as a temporary substitute
for purchasing or selling particular securities. In addition to the hedging
transactions referred to in the preceding sentence, Strategic Transactions may
also be used to enhance potential gain in circumstances where hedging is not
involved although the Funds will attempt to limit their net loss exposure
resulting from Strategic Transactions entered into for such purposes to not more
than 3% of their respective net assets at any one time and, to the extent
necessary, the Funds will close out transactions in order to comply with this
limitation. (Transactions such as writing covered call options are considered to
involve hedging for the purposes of this limitation.) In calculating a Fund's
net loss exposure from such Strategic Transactions, an unrealized gain from a
particular Strategic Transaction position would be netted against an unrealized
loss from a related Strategic Transaction position. For example, if the Adviser
believes that the Equity Fund is underweighted in cyclical stocks and
overweighted in consumer stocks, the Equity Fund 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
Fund's net loss exposure. The ability of the Funds to utilize these Strategic
Transactions successfully will depend on the Adviser's ability to predict
pertinent market movements, which cannot be assured. The Funds will comply with
applicable regulatory requirements when implementing these strategies,
techniques and instruments. The Funds' activities involving Strategic
Transactions may be limited by the requirements of Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), for qualification as a regulated
investment company and by the Funds' tax-related objectives due to the fact that
Strategic Transactions may produce taxable income or short-term capital gain in
many cases and the applicable tax rules may make it more difficult to control
the timing of gains or losses.
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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 Funds, force the purchase or sale, respectively of portfolio securities
at inopportune times or for prices higher than (in the case of purchases due to
the exercise of put options) or lower than (in the case of sales due to the
exercise of call options) current market values, limit the amount of
appreciation the Funds can realize on their respective investments or cause the
Funds to hold a security they might otherwise sell. The use of currency
transactions by the Equity Fund and Small Cap Fund can result in these Funds
incurring losses as a result of a number of factors including the imposition of
exchange controls, suspension of settlements, or the inability to deliver or
receive a specified currency. The use of options and futures transactions
entails certain other risks. In particular, the variable degree of correlation
between price movements of futures contracts and price movements in the related
portfolio position of a Fund creates the possibility that losses on the hedging
instrument may be greater than gains in the value of the Fund's position. The
writing of options could significantly increase a Fund's portfolio turnover rate
and, therefore, associated brokerage commissions or spreads. In addition,
futures and options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Funds 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
Funds in writing options on futures and entering into futures transactions is
potentially unlimited, however as described above, each Fund 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. Further information concerning the Funds'
Strategic Transactions is set forth in the Statement of Additional Information.
Short-Selling
The Tax-Sensitive Funds may make short sales, which are transactions in
which a Fund sells a security it does not own in anticipation of a decline in
the market value of that security or in order to defer the realization of gain
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or loss for federal income tax purposes on a similar security previously sold by
the Fund. To complete a short sale transaction, a Fund must borrow the security
sold short in order to make delivery to the buyer. The Fund 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 Fund. Until the security is replaced, the
Fund 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 Fund may
also 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 a Fund replaces a borrowed security in connection with a short sale,
the Fund will: (a) maintain daily a segregated account not with the broker,
containing cash or U.S. Government securities, at such a level that the amount
deposited in the account plus the amount deposited with the broker as collateral
will equal the current value of the security sold short or (b) otherwise cover
its short position.
A Fund 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
Fund replaces the borrowed security. A Fund 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 that the Fund may be required to pay in
connection with a short sale.
A Fund's loss on a short sale as a result of an increase in the price of a
security sold short is potentially unlimited. The Equity and Small Cap Funds may
purchase call options to provide a hedge against an increase in the price of a
security sold short. When a Fund 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 Fund, the premium and the commission
paid may be more than the amount of the brokerage commission charged if the
security were to be purchased directly. See "Strategic and Derivative
Transactions" above.
The Tax-Sensitive Funds anticipate that the frequency of short sales will
vary substantially in different periods, and they do not intend that any
specified portion of their 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 respective Fund's net assets.
In addition to the short sales discussed above, the Tax-Sensitive Funds may
make short sales "against-the-box." A short sale is against-the-box if the Fund,
at all times when a short position is open, owns an equal amount of securities
sold short or securities convertible into or exchangeable, without payment of
any further consideration, for an equal amount of the securities of the same
issuer as the securities sold short. The proceeds of the short sale are held by
a broker until the settlement date at which time the Fund delivers the security
to close the short position. The Fund receives the net proceeds from the short
sale.
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When-Issued Securities and "Delayed Delivery" Securities
The Tax Exempt Fund may commit up to 40% of its total assets to purchase
securities on a "when-issued" or "delayed delivery" basis, but will only do so
with the intention of actually acquiring the securities. The payment obligation
and the interest rate on these securities will be fixed at the time the Fund
enters into the commitment, but no income will accrue to the Fund until the
securities are delivered and paid for. Unless the Fund has entered into an
offsetting agreement to sell the securities, cash or liquid, high-grade debt
securities equal to the amount of the Fund's commitment will be segregated with
the Fund's custodian to secure the Fund's obligation and to ensure that it is
not leveraged. The market value of the securities when they are delivered may be
less than the amount paid by the Fund. The Fund may sell portfolio securities on
a delayed delivery basis. The market value of the securities when they are
delivered may be more than the amount to be received by the Fund.
Stand-By Commitments
To facilitate liquidity, the Tax Exempt Fund may enter into "stand-by
commitments" permitting it to resell municipal securities to the original seller
at a specified price. Stand-by commitments generally involve no cost.
Any such costs may, however, reduce yields.
Third Party Puts
The Tax Exempt Fund may purchase long-term fixed rate bonds which have been
coupled with an option granted by a third party financial institution allowing
the Fund at specified intervals to tender or put its bonds to the institution
and receive the face value thereof. These third party puts are available in
several different forms, may be represented by custodial receipts or trust
certificates and may be combined with other features. The financial institution
granting the put option does not provide credit enhancement, and typically, if
there is a default on or significant downgrading of the bond, or a loss of its
tax-exempt status, the put option will terminate automatically and the risk to
the Fund will be that of holding a long-term bond. These third party puts will
not be considered to shorten the Fund's maturity.
Illiquid and Restricted Securities
The Equity and Small Cap Funds will normally invest in publicly traded
equity securities and, excluding equity securities received as distributions on
portfolio securities, will not normally hold equity securities which are
illiquid and securities that are subject to legal or contractual restrictions on
resale (i.e., private placements), including securities eligible for resale in
reliance on Rule 144A under the Securities Act of 1933. Each Fund, including the
Tax Exempt Fund, may however invest up to 15% of its net assets in illiquid and
restricted securities when, in the opinion of the Adviser, investment
opportunities presented by such securities are particularly attractive. Illiquid
investments include securities that are not readily marketable, repurchase
agreements maturing in more than seven days, time deposits with a notice or
demand period of more than seven days, certain over-the-counter options, and
restricted securities. The purchase price and subsequent valuation of restricted
and illiquid securities normally reflect a discount, which may be significant,
from the market price of comparable securities for which a liquid market exists.
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Market Changes
Each Fund's net asset value fluctuates as a result of changes in the market
value of portfolio securities. The value of equity securities will fluctuate as
a result of a variety of factors including, but not limited to, general
conditions in the equity markets and the issuer's earning prospects, perceived
value, dividend paying ability, growth rate, market position in the market in
which it operates, and level of financial leverage. 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. Changes by recognized rating services in their ratings of debt securities,
including municipal securities, and in the ability of an issuer to make payments
of interest and repayments of principal will also affect the value of these
investments. Changes in the value of debt securities held in a Fund's portfolio
will not affect cash income derived from those securities but will affect a
Fund's net asset value.
Portfolio Turnover
It is not the policy of any Fund to purchase or sell securities for trading
purposes, and the Tax-Sensitive Funds intend to have low annual portfolio
turnover rates in order to reduce the realization and, therefore, the
distribution to shareholders of capital gains. The Tax Exempt Fund places no
restrictions on portfolio turnover. Notwithstanding the foregoing with respect
to the Tax-Sensitive Funds, a Fund may 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. It is
expected that the portfolio turnover rates of the Equity Fund and the Small Cap
Fund will not exceed 20% and 50%, respectively, in the coming year. The Tax
Exempt Fund's portfolio turnover rates are listed in the section captioned
"Financial Highlights." A rate of turnover of 100% would occur, for example, if
the value of the lesser of purchases and sales of portfolio securities for a
particular year equaled the average monthly value of portfolio securities owned
during the year (excluding securities with a maturity date of one year or less
at the date of acquisition). A high rate of portfolio turnover (100% or more)
involves a correspondingly greater amount of transaction costs which must be
borne directly by a Fund and thus indirectly by its shareholders. It may also
result in the realization of larger amounts of short-term capital gains, a
Fund's distributions of which are taxable to shareholders as ordinary income,
and may under certain circumstances make it more difficult for the Fund to
qualify as a regulated investment company under the Internal Revenue Code.
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Investment Restrictions and Diversification
Except as otherwise noted, the foregoing investment policies are
non-fundamental policies which may be changed by the Trust's Board of Trustees
without the approval of shareholders of the affected Fund. The investment
objectives of each of the Equity Fund and the Small Cap Fund are
non-fundamental. If there is a change in either of these Fund's investment
objective, shareholders should consider whether the Fund remains an appropriate
investment in light of their then current financial positions and needs. Each of
the Funds has adopted certain fundamental policies that may not be changed
without the approval of their respective shareholders. See "Investment
Restrictions" in the combined Statement of Additional Information.
Each Fund is diversified, as defined in the Investment Company Act of 1940.
As such, each Fund has a fundamental policy that limits its investments so that,
with respect to 75% of its assets (i) no more than 5% of the Fund's total assets
will be invested in the securities of a single issuer and (ii) each Fund will
purchase no more than 10% of the outstanding voting securities of a single
issuer. These limitations do not apply to obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities, repurchase agreements
collateralized by U.S. Government securities or investments in other registered
investment companies.
If any percentage restriction described above is adhered to at the time of
investment, a subsequent increase or decrease in the percentage resulting from a
change in the value of a Fund's assets will not constitute a violation of the
restriction.
Other Investment Companies
Each of the Equity Fund and the Small Cap Fund may invest up to 10% of its
total assets in the securities of other investment companies but may not invest
more than 5% of its total assets in the securities of any one investment company
or acquire more than 3% of the voting securities of any other investment
company. For example, the Equity Fund 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 Funds will indirectly bear their proportionate share of any
management fees and other expenses paid by investment companies in which they
invest in addition to the advisory and administration fees paid by the Funds.
However, to the extent that a Fund invests in a registered open-end investment
company, the Adviser will waive its advisory fees on the portion of the Fund's
assets so invested.
Each of the Equity Fund and the Small Cap Fund is authorized to invest all
of its assets in the securities of a single open-end registered investment
company (a "pooled fund") having substantially identical investment objectives,
policies and restrictions as such Fund, notwithstanding any other investment
restriction or policy. Such a structure is commonly referred to as
"master/feeder" or Hub & Spoke(TM). If authorized by the Trustees and subject to
shareholder approval (if then required by applicable law), a Fund would seek to
achieve its investment objective by investing in a pooled fund which would
invest in a portfolio of securities that complies with the Fund's investment
objective, policies and restrictions. The Trustees currently do not intend to
authorize investing in a pooled fund in connection with a master/feeder
structure. Hub & Spoke is a registered trademark of Signature Financial Group,
Inc.
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Suitability
None of the Funds is intended to provide an investment program meeting all
of the requirements of an investor. Notwithstanding each Fund's ability to
spread risk by holding securities of a number of portfolio companies,
shareholders should be able and prepared to bear the risk of investment losses
which may accompany the investments contemplated by the Funds.
Because the Tax-Sensitive Funds are managed to seek the highest long-term
total return after considering the impact of federal and state income taxes paid
by shareholders on the Funds' distributions and the Tax Exempt Fund seeks to
provide a high level of interest income exempt from federal income taxes, the
Funds may not be suitable investments for non-taxable investors or persons
investing through tax deferred vehicles (e.g., individual retirement accounts
(IRAs) or other qualified pension and retirement plans).
CALCULATION OF PERFORMANCE DATA
From time to time the Funds may advertise their total returns and the Tax
Exempt Fund may also advertise its yield and tax equivalent yield. Total return,
yield and tax equivalent yield figures are based on historical earnings and are
not intended to indicate future performance. The "total return" of a Fund refers
to the average annual compounded rates of return over 1, 5 and 10 year periods
(or any 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.
The "yield" of the Tax Exempt Fund is computed by dividing the net
investment income per share earned during the period stated in the advertisement
by the maximum offering price (net asset value) per share on the last day of the
period (using the average number of shares entitled to receive dividends). For
the purpose of determining net investment income, the calculation includes among
expenses of the Tax Exempt Fund all recurring fees that are charged to all
shareholder accounts and any nonrecurring charges for the period stated.
Tax equivalent yield demonstrates the yield from a taxable investment
necessary to produce an after-tax yield equivalent to that of a fund, such as
the Tax Exempt Fund, which invests primarily in tax-exempt obligations. It is
computed by dividing the tax-exempt portion of the Tax Exempt Fund's yield
(calculated as indicated above) by one, minus a stated income tax rate and
adding the product to the taxable portion (if any) of the Tax Exempt Fund's
yield.
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Taxable Equivalent Yield Table
Federal
Marginal Taxable Equivalent Rates Based on Tax-Exempt Yield of:
Tax Rate 4% 5% 6% 7% 8% 9% 10%
- --------------------------------------------------------------------------------
31.0% 5.80% 7.25% 8.70% 10.14% 11.59% 13.04% 14.49%
36.0% 6.25% 7.81% 9.38% 10.94% 12.50% 14.06% 15.63%
39.6% 6.62% 8.28% 9.93% 11.59% 13.25% 14.90% 16.56%
Each Fund may from time to time advertise one or more additional
measurements of performance, including but not limited to historical cumulative
total returns, distribution returns, non-standardized yield (Tax Exempt Fund
only), results of actual or hypothetical investments, changes in dividends,
distributions or share values, or any graphic illustration of such data. From
time to time, each Fund may also compare its performance with that of other
mutual funds with similar investment objectives, to relevant indices, and to
performance rankings prepared by recognized mutual fund statistical services. In
addition, a Fund's performance may be compared to alternative investment or
savings vehicles and/or to indices or indicators of economic activity. This data
may cover any period of a Fund's operations and may or may not include the
impact of taxes or other factors.
The following table sets forth the historical total return performance of
all tax-sensitive components of fee paying, domestic equity portfolios under
discretionary management by the Adviser that have substantially similar
investment objectives, policies and strategies as the Equity Fund (the
"Tax-Sensitive Equity Components") as measured by the Standish, Ayer & Wood Tax
Sensitive Equity Composite (the "Composite"). As of December 31, 1995, the
Composite consisted of [25] Tax-Sensitive Equity Components representing
approximately [$ ] million in assets. The performance data of the Tax-Sensitive
Equity Components, as represented by the Composite, has been computed in
accordance with the SEC's standardized formula. Because the gross performance
data does not reflect the deduction of investment advisory fees attributable to
the Tax-Sensitive Equity Components, the net performance data may be more
relevant to potential investors in the Equity Fund in their analysis of the
historical experience of the Adviser in managing tax-sensitive components of
equity portfolios with investment objectives, policies and strategies
substantially similar to those of the Equity Fund. The performance of the
Tax-Sensitive Equity Components would be diminished if cash positions of the
related portfolios were allocated to the Tax-Sensitive Equity Components.
STANDISH, AYER & WOOD TAX-SENSITIVE EQUITY COMPOSITE PERFORMANCE
Average Annual
Total Return For 6 Year
The Periods Ended Cumulative
December 31, 1995 Total
3 Years 5 Years Return
The Composite
Equal Weighted Gross 15.10% 17.70% 121.20%
Equal Weighted Net 14.24% 17.10% 115.00%
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1990 1991 1992 1993 1994 1995
--------------------------------------------------
The Composite
- -------------
Equal weighted
gross total
return -1.83% 32.23% 12.60% 14.94% -4.83% 38.60%
Equal weighted
net total
return -2.33% 31.73% 12.10% 14.44% -5.33% 38.10%
Size weighted
gross total
return -0.12% 32.16% 10.78% 14.44% -4.17% 38.18%
Size weighted
net total
return -0.62% 31.66% 10.28% 13.94% -4.67% 37.68%
The performance of the Tax-Sensitive Equity Components is not that of any
of the Funds, including the Equity Fund, and is not necessarily indicative of
any Fund's future results. Each Fund's actual total return may vary
significantly from the past and future performance of these Components. While
the Tax-Sensitive Equity Components incur inflows and outflows of cash from
clients, there can be no assurance that the continuous offering of the a Fund's
shares and each Fund's obligation to redeem its shares will not impact the
Fund's performance. In the opinion of the Adviser, so long as the Equity Fund
has at least $1.5 million in net assets, the relative difference in the size
between the Equity Fund and the Tax-Sensitive Equity Components should not
affect the relevance of the performance of the Tax-Sensitive Equity Components
to a potential investor in the Equity Fund. Investment returns and the net asset
value of shares of each Fund, including the Equity Fund, will fluctuate in
response to market and economic conditions as well as other factors and an
investment in a Fund involves the risk of loss.
DIVIDENDS AND DISTRIBUTIONS
Each Fund will declare and distribute, at least annually, dividends from
short-term and long-term capital gains, if any, after reduction by capital
losses. The Tax-Sensitive Funds will declare and distribute, at least annually,
any dividends from net investment income. The Tax Exempt Fund will declare daily
and distribute monthly dividends from net investment income. Dividends from net
investment income and capital gains distributions, if any, are automatically
reinvested in additional shares of the appropriate Fund unless the shareholder
elects to receive them in cash. It is possible that a Fund may use equalization
tax accounting in furtherance of its tax objective, which may affect the amount,
timing and character of its distributions. See the Statement of Additional
Information for further information.
PURCHASE OF SHARES
Shares of the Funds may be purchased directly from the Principal
Underwriter, which offers shares of the Funds to the public on a continuous
basis. Shares are sold at the net asset value per share next computed after the
purchase order and payment for the shares is received in good order by the
Principal Underwriter or its agent and payment for the shares is received by the
Funds' custodian. Please see the Funds' account application or call the
Principal Underwriter for instructions on how to make payment of shares to the
Funds' custodian. Unless waived by the Funds, the minimum initial investment is
$100,000. Additional investments may be made in amounts of at least $10,000
($5,000 for the Tax Exempt Fund).
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Shares of the Funds 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 by the close of its business day
(normally 4:00 p.m., New York 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 Funds' 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 Funds purchased through dealers may be subject to transaction
fees, no part of which will be received by the Funds, the Principal Underwriter
or the Adviser.
Each Fund's net asset value per share is computed on 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 time). The net asset value per share is calculated by
determining the value of all a Fund's assets, subtracting all liabilities and
dividing the result by the total number of shares outstanding. Equity and other
taxable 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. Equity and other taxable 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. Municipal securities are
valued by the Adviser or by an independent pricing service approved by the
Trustees, which uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities and
various relationships between securities in determining value. The Tax Exempt
Fund believes that reliable market quotations for municipal securities are
generally not readily available for purposes of valuing its portfolio
securities. As a result, it is likely that most of the valuations of municipal
securities made by the Adviser or provided by such pricing service will be based
upon fair value determined on the basis of the factors listed above (which may
also include use of yield equivalents or matrix pricing). 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. Money market instruments with less than sixty days
remaining to maturity when acquired by a Fund are valued on an amortized cost
basis. If a Fund acquires a money market instrument with more than sixty days
remaining to its maturity, it is valued at current market value until the
sixtieth day prior to maturity and will then be valued at amortized cost based
upon its value on such date unless the Trustees determine during such sixty-day
period that amortized cost does not represent fair value. Additional information
concerning the Funds' valuation policies is contained in the Statement of
Additional Information.
Prospective investors should consider the tax implications of buying shares
of a Fund prior to an anticipated taxable dividend or capital gain distribution
from that Fund. A portion of the purchase price of such shares may be
attributable to the taxable income already earned by the Fund and/or net capital
24
<PAGE>
gains already realized by the Fund that will be included in the anticipated
distribution. The distribution will, nevertheless, generally be taxable to the
investor even if it reduces the net asset value of the Fund's shares below the
investor's cost and economically represents a return of a portion of the
investor's purchase price.
In the sole discretion of the Adviser, each Fund may accept securities
instead of cash for the purchase of Fund shares. The Adviser will determine that
any securities acquired in this manner are consistent with the investment
objective, policies and restrictions of the particular Fund. 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.
Consequently, prospective investors should consult with their own tax advisers
before acquiring Fund shares in exchange for appreciated or depreciated
securities in order to evaluate fully the effect on their particular tax
situations.
The Trust reserves the right in its sole discretion (i) to suspend the
offering of each Fund's shares, (ii) to reject purchase orders when in the best
interest of the particular Fund and (iii) to modify or eliminate the minimum
initial investment requirement in Fund shares. The Funds' 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 Funds' investment minimums
apply to the aggregate value invested in omnibus accounts rather than to the
investment of underlying participants in such omnibus accounts.
EXCHANGE OF SHARES
Shares of the Funds may be exchanged for shares of one or more other funds
in the Standish, Ayer & Wood family of funds. Shares of the Funds redeemed in an
exchange transaction are valued at their net asset value next determined after
the exchange request is received by the Principal Underwriter. 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 Funds may be exchanged by written order to the Principal
Underwriter, One Financial Center, Boston, Massachusetts 02111. A written
exchange request must (a) state the name of the current Fund, (b) state the name
of the fund into which the current Fund shares will be exchanged, (c) state the
number of shares or the dollar amount to be exchanged, (d) identify the
shareholder's account numbers in both funds and (e) be signed by each registered
owner exactly as the shares are registered. Signature(s) must be guaranteed as
listed under "Written Redemption" below.
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<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 share-holders 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 Funds' custodian. 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 Funds 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 Funds may be redeemed by written order to the Principal
Underwriter, One Financial Center, 26th Floor, 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 & Trust Company, the Funds' 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 Funds 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.
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<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 telephonic and written redemption of Fund shares, the
Principal Underwriter 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 the payment for the shares by the Funds' 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 and dealers may charge for their services in connection with a
repurchase of Fund shares, but none of the Funds 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 Funds and the Funds' 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 Funds employ reasonable
procedures to confirm that telephonic instructions are genuine, and follows
telephonic instructions that they reasonably believes to be genuine, neither the
Adviser, nor the Principal Underwriter, nor the Trust, nor any of the Funds, nor
27
<PAGE>
the Funds' 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 Funds intend to
employ personal identification or written confirmation of transactions
procedures, and if they do not, the Funds may be liable for any losses due to
unauthorized or fraudulent instructions. All telephone transaction requests will
be recorded. Shareholders may experience delays in exercising telephone
transaction privileges during periods of abnormal market activity. Accordingly,
during periods of volatile economic and market conditions, shareholders may wish
to consider transmitting redemption and exchange requests in writing.
* * * *
The proceeds paid upon redemption or repurchase may be more or less than
the cost of the shares, depending upon the market value of the applicable Fund's
portfolio investments at the time of redemption or repurchase. Each Fund intends
to pay cash for all shares redeemed, but under certain conditions, the Funds may
make payments wholly or partially in portfolio securities. Please see the
Statement of Additional Information for further information regarding the Funds'
ability to satisfy redemption requests in-kind.
Because of the cost of maintaining shareholder accounts, the Funds may
redeem, at net asset value, the shares in any account that has a value of less
than $25,000 ($10,000 for the Tax Exempt Fund) as a result of redemptions or
transfers. Before doing so, the applicable 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
that will increase the value of the account to at least $25,000 ($10,000 for the
Tax Exempt Fund). The Funds may eliminate duplicate mailings of Fund materials
to shareholders that have the same address of record.
MANAGEMENT
Trustees
Each Fund is a separate investment series of Standish, Ayer
& Wood Investment Trust, a Massachusetts business trust. Under the terms of the
Agreement and Declaration of Trust establishing the Trust, which is governed by
the laws of The Commonwealth of Massachusetts, the Trustees of the Trust are
ultimately responsible for the management of its business and affairs.
Investment Adviser
Standish, Ayer & Wood, Inc. (the "Adviser"), One Financial Center, Boston,
Massachusetts 02111, serves as investment adviser to each Fund pursuant to
separate investment advisory agreements with the Trust and manages each Fund's
investments and affairs subject to the supervision of the Trustees of the Trust.
The Adviser is a Massachusetts corporation incorporated in 1933 and is a
registered investment adviser under the Investment Advisers Act of 1940.
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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 March 31, 1996, the Adviser or its affiliate, Standish
International Management Company, L.P. ("SIMCO"), served as the investment
adviser to each of the following fourteen funds in the Standish, Ayer & Wood
family of funds:
Net Assets
Fund (March 31, 1996)
- --------------------------------------------------------------------------------
Standish Controlled Maturity Fund $ 9,042,346
Standish Equity Portfolio 98,282,505
Standish Fixed Income Portfolio 2,299,158,500
Standish Fixed Income Fund II 10,102,031
Standish Global Fixed Income Portfolio 149,048,965
Standish Intermediate Tax Exempt Bond Fund 31,199,236
Standish International Equity Fund 51,980,946
Standish International Fixed Income Fund 761,073,675
Standish Massachusetts Intermediate
Tax Exempt Bond Fund 32,270,691
Standish Securitized Fund 53,357,787
Standish Short-Term Asset Reserve Fund 272,188,970
Standish Small Capitalization Equity Portfolio 196,260,876
Standish Small Cap Tax-Sensitive Equity Fund 1,588,743
Standish Tax-Sensitive Equity Fund 1,261,111
Corporate pension funds are the largest asset under active management by
Standish. Standish's clients also include charitable and educational endowment
funds, financial institutions, trusts and individual investors. As of March 31,
1996, Standish managed approximately $29 billion in assets.
The Equity Fund's portfolio manager is Laurence A. Manchester. During the
past five years, Mr. Manchester has served as a Vice President and Director of
the Adviser.
The Small Cap Fund's portfolio manager is Nicholas S. Battelle. During the
past five years, Mr. Battelle has served as a Vice President and Director of the
Adviser.
The Tax Exempt Fund's portfolio managers are Maria D. Furman and Raymond J.
Kubiak. During the past five years, Ms. Furman has served as a Vice President
and Director of the Adviser and Mr. Kubiak has been a Vice President and, since
1995, a Director of the Adviser.
Subject to the supervision and direction of the Trustees of the Trust, the
Adviser manages each Fund's portfolio in accordance with its stated investment
objective and policies, recommends investment decisions for the Funds, places
orders to purchase and sell securities on behalf of the Funds, and permits the
Funds to use the name "Standish." The Adviser provides all necessary office
space and services of executive personnel for administering the affairs of the
Funds. For these services, each Fund pays the Adviser a fee monthly equal on an
annual basis to the following percentages of each Fund's average daily net asset
value: Equity Fund--0.50%, Small Cap Fund--0.60% and Tax Exempt Fund--0.40%. For
the Tax Exempt Fund's fiscal year ended December 31, 1995, advisory fees paid to
the Adviser represented 0.25% of the Tax Exempt Fund's average daily net assets
after a fee reduction of $38,426.
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Expenses
Expenses of the Trust that relate to more than one series are allocated
among such series by the Adviser and SIMCO in a manner considered to be
equitable, primarily on the basis of relative net asset values. Each Fund bears
all expenses of its operations other than those incurred by the Adviser under
the investment advisory agreement. Among other expenses, each Fund will pay
investment advisory fees; bookkeeping, share pricing and shareholder servicing
fees and expenses; custodian fees and expenses; legal and auditing fees;
expenses of prospectuses, statements of additional information and shareholder
reports which are furnished to existing shareholders; registration and reporting
fees and expenses; and Trustees' fees and expenses. The Principal Underwriter
bears, without subsequent reimbursement, the distribution expenses attributable
to the offering and sale of Fund shares.
The Adviser has voluntarily agreed for each Fund's fiscal year ending
September 30, 1996 to limit Total Fund Operating Expenses (excluding litigation,
indemnification and other extraordinary expenses) of each Fund to the following
percentages of each Fund's average daily net assets: Equity Fund--1.00%; Small
Cap Fund--0.90%; and Tax Exempt Fund--0.65%. These agreements are voluntary and
temporary and may be discontinued or revised by the Adviser at any time after
September 30, 1996. The Adviser has also agreed to limit each Fund's total
operating expenses (excluding brokerage commissions, taxes and extraordinary
expenses) to the permissible limit applicable in any state in which shares of
the respective Fund are then qualified for sale. If Total Fund Operating
Expenses (as defined above) would exceed the expense limitation, the
compensation due the Adviser for such fiscal year shall be proportionately
reduced by the amount of such excess by a reduction or refund thereof at the
time such compensation is payable after the end of each calendar month, subject
to readjustment during the fiscal year. For the fiscal year ended December 31,
1995, expenses borne by Tax Exempt Fund amounted to $187,291, which represented
0.65% of average daily net assets after an expense reduction of $38,426.
Portfolio Transactions
Subject to the supervision of the Trustees of the Trust, the Adviser
selects the brokers and dealers that execute orders to purchase and sell
portfolio securities for the Funds. The Adviser will generally seek to obtain
the best available price and most favorable execution with respect to all
transactions for the Funds. It is not anticipated that the Tax Exempt Fund will
incur a significant amount of brokerage expenses because municipal securities
are generally traded on a "net" basis in principal transactions without the
addition or deduction of brokerage commissions or transfer taxes.
Subject to the 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 Funds.
FEDERAL INCOME TAXES
Each Fund is treated as a separate entity for federal income tax purposes.
The Tax Exempt Fund presently qualifies and intends to continue to qualify, and
each of the Equity and Small Cap Funds intends to elect to be treated and to
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qualify, for taxation as a separate "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Code"). As a regulated
investment company, each Fund will not be subject to federal income tax on any
net investment income and net realized capital gains that are distributed to
shareholders in accordance with certain timing requirements of the Code.
A 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 Funds 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 of the Equity Fund and Small Cap Fund which are taxable
entities or persons will be subject to federal income tax on dividends and
capital gain distributions (as defined below) made by these Funds. Dividends
paid by the Equity Fund and Small Cap 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 qualifying dividends that Equity Fund or Small Cap Fund
receives, if any, may qualify for the corporate dividends received deduction,
subject to certain holding period requirements and debt financing limitations
under the Code.
The Tax Exempt Fund intends to satisfy applicable requirements of the Code
so that its distributions to shareholders of the tax-exempt interest it earns
will qualify as "exempt-interest dividends," which shareholders are entitled to
treat as tax-exempt interest. Any portion of an exempt-interest dividend that is
attributable to the interest that the Tax Exempt Fund receives on certain
tax-exempt obligations that are "private activity bonds" and, for corporate
shareholders, the entire exempt-interest dividend, may increase a shareholder's
liability, if any, for alternative minimum tax.
Shareholders receiving social security benefits and certain railroad
retirement benefits may be subject to Federal income tax on a portion of such
benefits as a result of receiving investment income, including tax-exempt income
(such as exempt-interest dividends) and other dividends paid by the Funds.
Shares of the Tax Exempt Fund may not be an appropriate investment for persons
who are "substantial users" of facilities financed by industrial development or
private activity bonds, or persons related to "substantial users." Consult your
tax advisor if you think this may apply to you.
Shareholders in the Tax Exempt Fund which are taxable entities or persons
will be subject to federal income tax on capital gain distributions (as defined
below) from the Tax Exempt Fund and on any other dividends they receive from the
Tax Exempt Fund that are not exempt-interest dividends. Dividends paid by the
Tax Exempt Fund from any taxable net investment income, such as interest income
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from taxable debt obligations, accrued market discount recognized by the Fund,
or repurchase agreements, and any excess of net short-term capital gain over net
long-term capital loss will be taxable to shareholders as ordinary income,
whether received in cash or Fund shares. None of the Tax Exempt Fund's exempt-
interest dividends, taxable income dividends or capital gain distributions will
qualify for the corporate dividends received deduction.
Dividends paid by any 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 applicable Fund. Capital gain distributions
do not qualify for the corporate dividends received deduction. Dividends and
capital gain distributions by a Fund may also be subject to state and local or
foreign taxes.
The Equity Fund and the Small Cap Fund anticipate that they 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. These Funds do not expect to
qualify to pass such foreign taxes and any associated tax deductions or credits
through to their shareholders.
Redemptions and repurchases of shares are taxable events on which a
shareholder may recognize a gain or loss. Special rules disallow any losses on
the sale or exchange of shares of the Tax Exempt Fund with a tax holding period
of six months or less, to the extent the shareholder received exempt-interest
dividends with respect to such shares, and recharacterize as long-term any
otherwise allowable losses on the sale or exchange of the shares of any Fund
with a tax holding period of six months or less, to the extent the shareholder
received a capital gain distribution with respect to such shares.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on taxable dividends, capital gain
distributions, and the proceeds of redemptions or repurchases of shares, if they
fail to furnish the Funds with their correct taxpayer identification number and
certain certifications or if they are otherwise subject to backup withholding.
Individuals, corporations and other shareholders that are not U.S. persons under
the Code are subject to different tax rules and may be subject to nonresident
alien withholding at the rate of 30% (or a lower rate provided by an applicable
tax treaty) on amounts treated as ordinary taxable dividends from the Funds and,
unless a current IRS Form W-8 or an acceptable substitute is furnished to the
Funds, to backup withholding on certain payments from the Funds.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent, if any, that a Fund's
distributions are derived from interest on (or, in the case of intangibles
taxes, the value of its assets is attributable to) certain U.S. Government
obligations and/or tax-exempt municipal obligations issued by or on behalf of
the particular state in which the shareholder is subject to tax or a political
subdivision thereof, provided in some states that certain thresholds for
holdings of such obligations and/or reporting requirements are satisfied.
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After the close of each calendar year, each Fund will send a notice to its
shareholders that provides information about the federal tax status of
distributions to shareholders for such fcalendar year.
THE TRUST AND ITS SHARES
Each 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 each Fund. Each share of each 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
Funds have the right to vote as a separate class with respect to certain matters
under the Investment Company Act of 1940 and the Agreement and Declaration of
Trust. Shares of the Funds 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 Funds do not have preemptive or conversion rights.
Certificates representing shares of the Funds will not be issued.
At February 1, 1996, more than 25% of the then outstanding shares of the
Tax Exempt Fund were held by BDG & Co., c/o Bingham, Dana & Gould, 150 Federal
Street, Boston, MA, which was deemed to control the Tax Exempt Fund.
The Trust has established fourteen series that currently offer their shares
to the public and may establish additional
series at any time. Each series is a separate taxpayer, eligible to qualify as a
separate regulated investment company for federal income tax purposes. The
calculation of the net asset value of a series and the tax consequences of
investing in a series will be determined separately for each series.
The Trust is not required to hold annual meetings of shareholders. Special
meetings of shareholders may be called from time to time for purposes such as
electing or removing Trustees, changing a fundamental policy, or approving an
investment advisory agreement.
If less than two-thirds of the Trustees holding office have been elected by
shareholders, a meeting of shareholders of the Trust will be called to elect
Trustees. Under the Agreement and Declaration of Trust and the Investment
Company Act of 1940, the record holders of not less than two-thirds of the
outstanding shares of the Trust may remove a Trustee by votes cast in person or
by proxy at a meeting called for the purpose or by a written declaration filed
with each of the Trust's custodian banks. Except as described above, the
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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.
Subject to Trustee approval and shareholder approval (if then required),
each of the Equity Fund and the Small Cap Fund may pursue its investment
objective by investing all of its investable assets in a pooled fund.
Inquiries concerning the Funds should be made by contacting the Principal
Underwriter at the address and telephone number listed on the cover of this
Prospectus. Although each Fund is offering only its own shares, since the Funds
use this combined Prospectus, it is possible that one Fund might become liable
for a misstatement or omission in this Prospectus regarding another Fund. The
Trustees have considered this factor in approving the use of this combined
Prospectus.
CUSTODIAN, TRANSFER AGENT AND
DIVIDEND-DISBURSING AGENT
Investors Bank & Trust Company, 24 Federal Street, Boston, Massachusetts
02110, serves as the Funds' transfer and dividend-disbursing agent and as
custodian of all cash and securities of the Funds.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., One Post Office Square, Boston, Massachusetts
02109, serves as independent accountants for the Trust and will audit each
Fund's financial statements annually.
LEGAL COUNSEL
Hale and Dorr, 60 State Street, Boston, Massachusetts 02109, is legal
counsel to the Trust, the Principal Underwriter and the Adviser.
- --------------------------------------------------------------------------------
No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus or in the Statement of Additional Information, and, if given or made,
such other information or representations must not be relied upon as having been
authorized by the Trust. This Prospectus does not constitute an offering in any
jurisdiction in which such offering may not be lawfully made.
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TAX CERTIFICATION INSTRUCTIONS
Federal law requires that taxable distributions and proceeds of redemptions
and exchanges be reported to the IRS and that 31% be withheld if you fail to
provide your correct Taxpayer Identification Number (TIN) and the 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.
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STANDISH TAX-SENSITIVE EQUITY FUND
STANDISH TAX-SENSITIVE SMALL CAP FUND
STANDISH INTERMEDIATE TAX EXEMPT BOND FUND
Investment Adviser
Standish, Ayer & Wood, Inc.
One Financial Center
Boston, Massachusetts 02111
Principal Underwriter
Standish Fund Distributors, L.P.
One Financial Center
Boston, Massachusetts 02111
Custodian
Investors Bank & Trust Company
24 Federal Street
Boston, Massachusetts 02110
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
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May 1, 1996
STANDISH TAX-SENSITIVE EQUITY FUND
STANDISH SMALL CAP TAX-SENSITIVE EQUITY FUND
STANDISH INTERMEDIATE TAX EXEMPT BOND FUND
One Financial Center
Boston, Massachusetts 02111
(617) 350-6100
STATEMENT OF ADDITIONAL INFORMATION
This combined Statement of Additional Information is not a prospectus, but
expands upon and supplements the information contained in the combined
Prospectus dated May 1, 1996, as amended and/or supplemented from time to time
(the "Prospectus"), of Standish Tax-Sensitive Equity Fund ("Equity Fund"),
Standish Small Cap Tax-Sensitive Equity Fund ("Small Cap Fund") and Standish
Intermediate Tax Exempt Bond Fund ("Tax Exempt Fund"), each a separate
investment series of Standish, Ayer & Wood Investment Trust (the "Trust"). The
Equity Fund, Small Cap Fund and Tax Exempt Fund are sometimes referred to herein
individually as the "Fund" and collectively as the "Funds." This Statement of
Additional Information should be read in conjunction with the Funds' Prospectus,
a copy of which may be obtained without charge by writing or calling Standish
Fund Distributors, L.P., the Trust's principal underwriter (the "Principal
Underwriter"), at the address and phone number set forth above.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
CONTENTS
Investment Objectives and Policies............................2
Investment Restrictions......................................10
Calculation of Performance Data..............................13
Management...................................................14
Redemption of Shares.........................................20
Portfolio Transactions.......................................20
Determination of Net Asset Value.............................21
Federal Income Taxes.........................................21
The Trust and Its Shares.....................................24
Additional Information.......................................25
Experts and Financial Statements.............................25
Financial Statements.........................................26
1
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INVESTMENT OBJECTIVES AND POLICIES
The Funds' Prospectus describes the investment objective and policies of
each Fund. The following discussion supplements the description of the Funds'
investment policies in the Prospectus. Each Fund's investment adviser is
Standish, Ayer & Wood, Inc. (the "Adviser").
Portfolio Maturity (Tax Exempt Fund)
Under normal market conditions, the Tax Exempt Fund will maintain a
dollar-weighted average portfolio maturity of between three and ten years. This
means that the dollar-weighted average duration of the Fund's portfolio
investments will be less than the duration of a U.S. Treasury obligation with a
remaining stated maturity of three to ten years. Duration represents the
weighted average maturity of expected cash flows (i.e., interest and principal
payments) on one or more debt obligations, discounted to their present values.
The duration of an obligation is always less than or equal to its stated
maturity and is related to the degree of the volatility in the market value of
the obligation. In computing the duration of its portfolio, the Tax Exempt Fund
will have to estimate the duration of debt obligations that are subject to
prepayment or redemption by the issuer, based on projected cash flows from such
obligations. Subject to the requirement that the Fund's dollar-weighted average
portfolio maturity will not exceed ten years, the Fund may invest in individual
debt obligations of any maturity, including obligations with a remaining stated
maturity of less than three or more than ten years. For purposes of the Fund's
investment policy, an instrument will be treated as having a maturity earlier
than its stated maturity date if the instrument has technical features (such as
puts or demand features) or a variable rate of interest which, in the judgment
of the Adviser, will result in the instrument being valued in the market as
though it has the earlier maturity.
Municipal Securities
The Tax Exempt Fund may invest in all kinds of municipal securities,
including municipal notes, municipal bonds, private activity bonds and variable
rate demand instruments.
Because the Tax Exempt Fund holds investment grade municipal securities,
the income earned on shares of the Fund will tend to be less than it might be on
a portfolio emphasizing lower quality securities. Municipal obligations are
subject to the provisions of bankruptcy, insolvency and other laws affecting the
rights and remedies of creditors, such as the Federal Bankruptcy Code, and laws
which may be enacted by Congress or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon municipalities to levy taxes. There is
also the possibility that as a result of litigation or other conditions the
power or ability of any one or more issuers to pay when due principal of and
interest on its or their municipal obligations may be materially affected.
Although the Tax Exempt Fund's quality standards are designed to minimize the
credit risk of investing in the Fund, that risk cannot be entirely eliminated.
Municipal Notes
The Tax Exempt Fund may invest in municipal notes. Municipal notes are
generally issued to satisfy short-term capital needs and generally have
maturities of one year or less. Municipal notes include: tax anticipation notes;
revenue anticipation notes; bond anticipation notes; and construction loan
notes.
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<PAGE>
Tax anticipation notes are sold to finance working capital needs of
municipalities. They are generally payable from specific tax revenues expected
to be received at a future date. Revenue anticipation notes are issued in
expectation of receipt of other types of revenue such as Federal revenues
available under the Federal Revenue Sharing Program. Tax anticipation notes and
revenue anticipation notes are generally issued in anticipation of various
seasonal revenues such as income, sales, use, and business taxes. Bond
anticipation notes are sold to provide interim financing. These notes are
generally issued in anticipation of long-term financing in the market. In most
cases, these monies provide for the repayment of the notes. Construction loan
notes are sold to provide construction financing. After the projects are
successfully completed and accepted, many projects receive permanent financing
through the Federal Housing Administration under "Fannie Mae" (the Federal
National Mortgage Association) or "Ginnie Mae" (the Government National Mortgage
Association). There are, of course, a number of other types of notes in which
the Tax Exempt Fund may invest which are issued for different purposes and
secured differently from those described above.
Municipal Bonds
The Tax Exempt Fund may invest in municipal bonds. Municipal bonds, which
meet longer term capital needs and generally have maturities of more than one
year when issued, have two principal classifications:
"General Obligation" Bonds and "Revenue" Bonds.
Issuers of General Obligation Bonds include states, counties, cities, towns
and regional districts. The proceeds of these obligations are used to fund a
wide range of public projects including the construction or improvement of
schools, highways and roads, water and sewer systems and a variety of other
public purposes. The basic security of General Obligation Bonds is the issuer's
pledge of its full faith, credit and taxing power for the payment of principal
and interest. The taxes that can be levied for the payment of debt service may
be limited or unlimited as to rate or amount or special assessments.
The principal security for a Revenue Bond is generally the net revenues
derived from a particular facility or group of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source. Revenue
Bonds have been issued to fund a wide variety of capital projects including:
electric, gas, water and sewer systems; highways, bridges and tunnels; port and
airport facilities; colleges and universities; and hospitals. Although the
principal security behind these bonds varies widely, many provide additional
security in the form of a debt service reserve fund whose monies may also be
used to make principal and interest payments on the issuer's obligations.
Housing finance authorities have a wide range of security including partially or
fully insured, rent subsidized and/or collateralized mortgages, and/or the net
revenues from housing or other public projects. In addition to a debt service
reserve fund, some authorities provide further security in the form of a state's
ability (without obligation) to make up deficiencies in the debt service reserve
fund. Lease rental revenue bonds issued by a state or local authority for
capital projects are secured by annual lease rental payments from the state or
locality to the authority sufficient to cover debt service on the authority's
obligations.
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<PAGE>
Industrial Development and Pollution Control Bonds (which are types of
private activity bonds), although nominally issued by municipal authorities, are
generally not secured by the taxing power of the municipality but are secured by
the revenues of the authority derived from payments by the industrial user.
Under federal tax legislation, certain types of Industrial Development Bonds and
Pollution Control Bonds may no longer be issued on a tax-exempt basis, although
previously-issued bonds of these types and certain refundings of such bonds are
not affected.
Other Municipal Securities
There is a variety of hybrid and special types of municipal securities as
well as numerous differences in the security of municipal securities both within
and between the two principal classifications above.
Variable Rate Demand Instruments
The Tax Exempt Fund may purchase variable rate demand instruments that are
tax-exempt municipal obligations providing for a periodic adjustment in the
interest rate paid on the instrument according to changes in interest rates
generally. These instruments also permit the Fund to demand payment of the
unpaid principal balance plus accrued interest upon a specified number of days'
notice to the issuer or its agent. The demand feature may be backed by a bank
letter of credit or guarantee issued with respect to such instrument. A bank
that issues a repurchase commitment may receive a fee from the Fund for this
arrangement. The issuer of a variable rate demand instrument may have a
corresponding right to prepay in its discretion the outstanding principal of the
instrument plus accrued interest upon notice comparable to that required for the
holder to demand payment.
The variable rate demand instruments that the Tax Exempt Fund may purchase
are payable on demand on not more than seven calendar days' notice. The terms of
the instruments provide that interest rates are adjustable at intervals ranging
from daily to up to six months, and the adjustments are based upon the current
interest rate environment as provided in the respective instruments. The Adviser
will select the variable rate demand instruments that the Fund will purchase in
accordance with procedures approved by the Trustees to minimize credit risks.
The Adviser may determine that an unrated variable rate demand instrument meets
the Fund's quality criteria by reason of being backed by a letter of credit or
guarantee issued by a bank that meets the quality criteria of the Fund. Thus,
either the credit of the issuer of the municipal obligation or the guarantor
bank or both will meet the quality standards of the Fund.
The interest rate of the underlying variable rate demand instruments may
change with changes in interest rates generally, but the variable rate nature of
these instruments should decrease changes in value due to interest rate
fluctuations. Accordingly, as interest rates decrease or increase, the potential
for capital gain and the risk of capital loss on the disposition of portfolio
securities are less than would be the case with a comparable portfolio of fixed
income securities. Because the adjustment of interest rates on the variable rate
demand instruments is made in relation to movements of the applicable rate
adjustment index, the variable rate demand instruments are not comparable to
long-term fixed interest rate securities. Accordingly, interest rates on the
variable rate demand instruments may be higher or lower than current market
rates for fixed rate obligations of comparable quality with similar final
maturities.
4
<PAGE>
The maturity of the variable rate demand instruments held by the Tax Exempt
Fund will ordinarily be deemed to be the longer of (1) the notice period
required before the Fund is entitled to receive payment of the principal amount
of the instrument or (2) the period remaining until the instrument's next
interest rate adjustment.
Restricted and Illiquid Municipal Securities
An entire issue of Municipal Securities may be purchased by one or a small
number of institutional investors such as the Tax Exempt Fund. Thus, the issue
may not be said to be publicly offered. Unlike securities which must be
registered under the Securities Act of 1933 prior to offer and sale unless an
exemption from such registration is available, municipal securities which are
not publicly offered may nevertheless be readily marketable. A secondary market
exists for many municipal securities which were not publicly offered initially.
Securities purchased for the Fund are subject to the limitations on
holdings of securities which are not readily marketable contained in the Fund's
investment restrictions. The Adviser determines whether a municipal security is
readily marketable based on whether it may be sold in a reasonable time
consistent with the customs of the municipal markets (usually seven days) at a
price (or interest rate) which accurately reflects its value. The Adviser
believes that the quality standards applicable to the Tax Exempt Fund's
investments enhance marketability. In addition, stand-by commitments and demand
obligations also enhance marketability.
Foreign Securities
Foreign securities may be purchased and sold by the Equity and Small Cap
Funds in over-the-counter markets (but persons affiliated with the Fund will not
act as principal in such purchases and sales) or on stock exchanges located in
the countries in which the respective principal offices of the issuers of the
various securities 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 Equity and
Small Cap Funds will endeavor to achieve the most favorable net results on their
foreign 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 Equity and Small Cap
Funds' 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 tax, thus reducing the net amount of income or gain available for
distribution to the Equity and Small Cap Funds' respective shareholders.
5
<PAGE>
Investors should understand that the expense ratios of the Equity and Small
Cap Funds 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 Small Cap Fund and the Equity Fund 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 a Fund invests in such unsponsored ADRs there may be an increased
possibility that the Fund may not become aware of events affecting the
underlying security and thus the value of the related depositary receipt. In
addition, certain benefits (e.g., 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
The money market instruments in which each Fund may invest include
short-term U.S. Government securities, commercial paper (promissory notes issued
by corporations to finance their short- term credit needs) of foreign (Equity
and Small Cap Funds only) and domestic issuers, 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 U.S. 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.
Investments in commercial paper will be rated Prime-1 by Moody's Investors
Service, Inc. ("Moody's") or A-1 by Standard & Poor's Ratings Group ("S&P") or
Duff 1+ by Duff & Phelps, which are the highest ratings assigned by these rating
services (even if rated lower by one or more of the other agencies), or which,
if not rated or rated lower by one or more of the agencies and not rated by the
other agency or agencies, are judged by the Adviser to be of equivalent quality
to the securities so rated. In determining whether securities are of equivalent
quality, the Adviser may take into account, but will not rely entirely on,
ratings assigned by foreign rating agencies.
A repurchase agreement is an agreement under which a Fund 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 Fund and is unrelated to the interest rate on the instruments. The
instruments acquired by the Funds (including accrued interest) must have an
aggregate market value in excess of the resale price and will be held by the
custodian bank for the Funds until they are repurchased. The Trustees will
monitor the standards which the Adviser will use in reviewing the
creditworthiness of any party to a repurchase agreement with the Funds.
6
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The use of repurchase agreements involves certain risks. For example, if
the seller defaults on its obligation to repurchase the instruments acquired by
a Fund at a time when their market value has declined, the Fund may incur a
loss. If the seller becomes insolvent or subject to liquidation or
reorganization under bankruptcy or other laws, a court may determine that the
instruments acquired by a Fund are collateral for a loan by the Fund and
therefore are subject to sale by the trustee in bankruptcy. Finally, it is
possible that a Fund may not be able to substantiate its interest in the
instruments it acquires. While the Trustees acknowledge these risks, it is
expected that they can be controlled through careful documentation and
monitoring.
Strategic and Derivative Transactions
Each Fund may, but is not required to, utilize various other investment
strategies as described below to seek to hedge various market risks (such as
interest rates, currency exchange rates (Equity and Small Cap Funds) and broad
or specific fixed-income (Tax Exempt Fund) or equity (Equity and Small Cap
Funds) market movements), to manage the effective maturity or duration of
fixed-income securities (Tax Exempt Fund), 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 Funds may change over time as new
instruments and strategies are developed or regulatory changes occur.
In the course of pursuing their respective investment objectives, the Funds
may purchase and sell (write) exchange-listed and over-the-counter put and call
options on securities, equity indices (Equity Fund and Small Cap Fund only),
fixed-income indices (Tax Exempt Fund only) 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. In
addition, Equity Fund and Small Cap Fund may enter into various currency
transactions such as currency forward contracts, currency futures contracts,
currency swaps or options on currencies or currency futures. The risks
associated with the Funds' transactions in options, futures and other types of
derivative securities including swaps may include some or all of the following:
market risk, leverage and volatility risk, correlation risk, credit risk and
liquidity and valuation risk. These investment techniques are referred to herein
as "Strategic Transactions." Strategic Transactions may be used in an attempt to
protect against possible changes in the market value of securities held in or to
be purchased for a Fund's portfolio resulting from securities markets
7
<PAGE>
fluctuations, currency exchange rate fluctuations (Equity Fund and Small Cap
Fund only), to protect a Fund's unrealized gains in the value of its portfolio
securities, to facilitate the sale of such securities for investment purposes,
to manage the effective duration or maturity of the Tax Exempt Fund's portfolio,
or to establish a position in the derivatives markets as a temporary substitute
for purchasing or selling particular securities. In addition to the hedging
transactions referred to in the preceding sentence, Strategic Transactions may
also be used to enhance potential gain in circumstances where hedging is not
involved. (Transactions such as writing covered call options are considered to
involve hedging for the purposes of this limitation.) In calculating a Fund's
net loss exposure from such Strategic Transactions, an unrealized gain from a
particular Strategic Transaction position would be netted against an unrealized
loss from a related Strategic Transaction position. For example, if the Adviser
believes that the Equity Fund is underweighted in cyclical stocks and
overweighted in consumer stocks, the Equity Fund 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
Fund's net loss exposure. The ability of the Funds to utilize these Strategic
Transactions successfully will depend on the Adviser's ability to predict
pertinent market movements, which cannot be assured. The Funds will comply with
applicable regulatory requirements when implementing these strategies,
techniques and instruments. The Funds' activities involving Strategic
Transactions may be limited by the requirements of Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), for qualification as a regulated
investment company or by the Funds' objective to minimize taxable distributions.
Risks of Strategic and Derivative Transactions
The use of Strategic Transactions has associated risks 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 Funds, force the purchase or sale, respectively of portfolio securities
at inopportune times or for prices higher than (in the case of purchases due to
the exercise of put options) or lower than (in the case of sales due to the
exercise of call options) current market values, limit the amount of
appreciation the Funds can realize on their respective investments or cause the
Funds to hold a security they might otherwise sell. The use of currency
transactions by the Equity Fund and Small Cap Fund can result in these Funds
incurring losses as a result of a number of factors including the imposition of
exchange controls, suspension of settlements, or the inability to deliver or
receive a specified currency. The use of options and futures transactions
entails certain other risks. In particular, the variable degree of correlation
between price movements of futures contracts and price movements in the related
portfolio position of a Fund creates the possibility that losses on the hedging
instrument may be greater than gains in the value of the Fund's position. The
writing of options could significantly increase a Fund's portfolio turnover rate
and, therefore, associated brokerage commissions or spreads. In addition,
futures and options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Funds 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
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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
Funds in writing options on futures and entering into futures transactions is
potentially unlimited. 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.
Risks of Strategic and Derivative Transactions Outside the United States
When conducted outside the United States, Strategic Transactions may not be
regulated as rigorously as in the United States, may not involve a clearing
mechanism and related guarantees, and are subject to the risk of governmental
actions affecting trading in, or the prices of, foreign securities, currencies
and other instruments. The value of such positions also could be adversely
affected by: (i) lesser availability than in the United States of data on which
to make trading decisions, (ii) delays in a Fund'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.
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 a Fund's assets in special accounts, as described below
under "Use of Segregated Accounts."
A put option gives the purchaser of the option, in consideration for
the payment of a premium, the right to sell, and the writer the obligation to
buy (if the option is exercised) the underlying security, commodity, index, or
other instrument at the exercise price. For instance, a Fund's purchase of a put
option on a security might be designed to protect its holdings in the underlying
instrument (or, in some cases, a similar instrument) against a substantial
decline in the market value by giving the Fund the right to sell such instrument
at the option exercise price. A call option, in consideration for the payment of
a premium, gives the purchaser of the option the right to buy, and the seller
the obligation to sell (if the option is exercised) the underlying instrument at
the exercise price. A Fund may purchase a call option on a security, currency
(Equity and Small Cap Funds), futures contract, index or other instrument to
seek to protect the Fund against an increase in the price of the underlying
instrument that it intends to purchase in the future by fixing the price at
which it may purchase such instrument. An American style put or call option may
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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 Funds are authorized to purchase and sell exchange listed options
and over-the-counter options ("OTC options"). Exchange listed options are issued
by a regulated intermediary such as the Options Clearing Corporation ("OCC"),
which guarantees the performance of the obligations of the parties to such
options. The discussion below uses the OCC as an example, but is also applicable
to other financial intermediaries.
With certain exceptions, exchange listed options generally settle by
physical delivery of the underlying security or currency, although in the future
cash settlement may become available. Index options and Eurodollar instruments
are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.
A Fund's ability to close out its position as a purchaser or seller of an
exchange listed put or call option is dependent, in part, upon the liquidity of
the option market. There is no assurance that a liquid option market on an
exchange will exist. In the event that the relevant market for an option on an
exchange ceases to exist, outstanding options on that exchange would generally
continue to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
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
Funds will generally sell (write) OTC options (other than OTC currency options)
that are subject to a buy-back provision permitting a Fund to require the
Counterparty to sell the option back to the Fund at a formula price within seven
days. (To the extent that the Funds do not do so, the OTC options are subject to
the Funds' restriction on illiquid securities.) The Funds expect generally to
enter into OTC options that have cash settlement provisions, although they are
not required to do so.
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Unless the parties provide for it, there is no central clearing or guaranty
function in the OTC option market. As a result, if the Counterparty fails to
make delivery of the security, currency (Equity and Small Cap Funds) or other
instrument underlying an OTC option it has entered into with a Fund or fails to
make a cash settlement payment due in accordance with the terms of that option,
the Fund will lose any premium it paid for the option as well as any anticipated
benefit of the transaction. Accordingly, the Adviser must assess the
creditworthiness of each such Counterparty or any guarantor or credit
enhancement of the Counterparty's credit to determine the likelihood that the
terms of the OTC option will be satisfied. The Funds will engage in OTC option
transactions only with U.S. Government securities dealers recognized by the
Federal Reserve Bank of New York as "primary dealers", or broker dealers,
domestic or foreign banks or other financial institutions which have received,
combined with any credit enhancements, a long-term debt rating of A from S&P or
Moody's or an equivalent rating from any other nationally recognized statistical
rating organization ("NRSRO") or which issue debt that is determined to be of
equivalent credit quality by the Adviser. The staff of the Securities and
Exchange Commission (the "SEC") currently takes the position that, absent the
buy-back provisions discussed above, OTC options purchased by the Funds, and
portfolio securities "covering" the amount of the Funds' obligation pursuant to
an OTC option sold by them (the cost of the sell-back plus the in-the-money
amount, if any) are illiquid, and are subject to the Funds' limitation on
investing in illiquid securities. However, for options written with "primary
dealers" pursuant to an agreement requiring a closing purchase transaction at a
formula price, the amount which is considered to be illiquid may be calculated
by reference to a formula price.
If a Fund sells (writes) a call option, the premium that it receives may
serve as a partial hedge, to the extent of the option premium, against a
decrease in the value of the underlying securities or instruments in its
portfolio or will increase the Fund's income. The sale (writing) of put options
can also provide income.
Each Fund may purchase and sell (write) call options on equity (Equity and
Small Cap Funds) and debt (Tax Exempt Fund) securities including U.S. Treasury
and agency securities, municipal notes and bonds (Tax Exempt Fund) 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
(Equity and Small Cap Funds) and futures contracts. All call options sold by the
Funds must be "covered" (i.e., the Fund must own the securities or the futures
contract subject to the call) or must meet the asset segregation requirements
described below as long as the call is outstanding. Even though a Fund will
receive the option premium to help offset any loss, the Fund may incur a loss if
the exercise price is below the market price for the security subject to the
call at the time of exercise. A call option sold by a Fund also exposes the Fund
during the term of the option to possible loss of opportunity to realize
appreciation in the market price of the underlying security or instrument and
may require the Fund to hold a security or instrument which it might otherwise
have sold.
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Each Fund may purchase and sell (write) put options on equity (Equity and
Small Cap Funds) and debt (Tax Exempt Fund) securities including U.S. Treasury
and agency securities, municipal notes and bonds (Tax Exempt Fund) and
Eurodollar instruments (whether or not it holds the above securities in its
portfolio), and on securities indices, currencies (Equity and Small Cap Funds)
and futures contracts. A Fund will not sell put options if, as a result, more
than 50% of the Fund's assets would be required to be segregated to cover its
potential obligations under such put options other than those with respect to
futures and options thereon. In selling put options, there is a risk that a Fund
may be required to buy the underlying security at a price above the market
price.
Options on Securities Indices and Other Financial Indices
Each Fund may also purchase and sell (write) call and put options on
securities indices and other financial indices. Options on securities indices
and other financial indices are similar to options on a security or other
instrument except that, rather than settling by physical delivery of the
underlying instrument, they settle by cash settlement. For example, an option on
an index gives the holder the right to receive, upon exercise of the option, an
amount of cash if the closing level of the index upon which the option is based
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option (except if, in the case of an OTC option, physical
delivery is specified). This amount of cash is equal to the differential between
the closing price of the index and the exercise price of the option, which also
may be multiplied by a formula value. The seller of the option is obligated, in
return for the premium received, to make delivery of this amount upon exercise
of the option. In addition to the methods described above, the Funds 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 the custodian) upon conversion or exchange of other securities in their
portfolios.
General Characteristics of Futures
Each Fund may enter into financial futures contracts or purchase or sell
put and call options on such futures. Futures are generally bought and sold on
the commodities exchanges where they are listed and involve payment of initial
and variation margin as described below. The sale of futures contracts creates a
firm obligation by a Fund, as seller, to deliver to the buyer the specific type
of financial instrument called for in the contract at a specific future time for
a specified price (or, with respect to index futures and Eurodollar instruments,
the net cash amount). The purchase of futures contracts creates a corresponding
obligation by a Fund, as purchaser, to purchase a financial instrument at a
specific time and price. Options on futures contracts are similar to options on
securities except that an option on a futures contract gives the purchaser the
right in return for the premium paid to assume a position in a futures contract
and obligates the seller to deliver such position upon exercise of the option.
The Funds' 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 (the "CTFC") relating to
exclusions from regulation as a commodity pool operator. Those regulations
currently provide that the Funds may use commodity futures and option positions
(i) for bona fide hedging purposes without regard to the percentage of assets
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committed to margin and option premiums, or (ii) for other purposes permitted by
the CTFC to the extent that the aggregate initial margin and option premiums
required to establish such non-hedging positions (net the amount the positions
were "in the money" at the time of purchase) do not exceed 5% of each Fund's
respective net asset value, after taking into account unrealized profits and
losses on such positions. Typically, maintaining a futures contract or selling
an option thereon requires a Fund to deposit with its custodian for the benefit
of a futures commission merchant, as security for its obligations an amount of
cash or other specified assets (initial margin) which initially is typically 1%
to 10% of the face amount of the contract (but may be higher in some
circumstances). Additional cash or assets (variation margin) may be required to
be deposited directly with the futures commission merchant thereafter on a daily
basis as the value of the contract fluctuates. The purchase of an option on
financial futures involves payment of a premium for the option without any
further obligation on the part of the Funds. If a Fund exercises an option on a
futures contract it will be obligated to post initial margin (and potential
subsequent variation margin) for the resulting futures position just 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.
Combined Transactions
Each Fund may enter into multiple transactions, including multiple options
transactions, multiple futures transactions, and multiple interest rate
transactions, structured notes and any combination of futures, options, currency
(Equity and Small Cap Funds), multiple currency transactions (including forward
currency contracts) (Equity and Small Cap Funds) and interest rate transactions
("component" transactions), instead of a single Strategic Transaction, as part
of a single or combined strategy when, in the opinion of the Adviser it is in
the best interests of the Fund to do so. A combined transaction will usually
contain elements of risk that are present in each of its component transactions.
Although combined transactions are normally entered into based on the Adviser's
judgment that the combined strategies will reduce risk or otherwise more
effectively achieve the desired portfolio management goal, it is possible that
the combination will instead increase such risks or hinder achievement of the
portfolio management objective.
Currency Transactions
The Equity and Small Cap Funds 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 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
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contract. A currency swap is an agreement to exchange cash flows based on the
notional (agreed-upon) difference among two or more currencies and operates
similarly to an interest rate swap, which is described below. A Fund 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) whose obligations are determined to be of
equivalent credit quality by the Adviser.
The Equity and Small Cap Funds' dealings 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 and Derivative
Transactions." Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of a Fund, which will generally arise
in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.
A Fund will not enter into a transaction to hedge currency exposure to an
extent greater, after netting all transactions intended wholly or partially to
offset other transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currently convertible into such currency,
other than with respect to proxy hedging as described below.
Each of the Equity and Small Cap Funds 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 Fund
has or in which the Fund expects to have portfolio exposure. For example, a Fund
may hold a French security and the Adviser may believe that French francs will
deteriorate against German marks. The Fund 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 Fund to declines in the value of the German mark relative to the U.S.
dollar.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Equity and Small Cap Funds may
also engage in proxy hedging. Proxy hedging is often used when the currency to
which the Fund'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 a Fund'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 Fund'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"), a Fund 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
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same risks and considerations as other transactions with similar instruments.
Currency transactions can result in losses to the Funds 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 Funds are engaging in proxy hedging. If a Fund enters
into a currency hedging transaction, the Fund 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 a Fund 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.
Swaps, Caps, Floors, Spreads and Collars
Among the Strategic Transactions into which each of the Funds may enter are
interest rate, currency rate (Equity and Small Cap Funds only) and index swaps
and the purchase or sale of related caps, floors, spreads and collars. The Funds
expect to enter into these transactions primarily for hedging purposes,
including, but not limited to, preserving a return or spread on a particular
investment or portion of its portfolio, protecting against currency fluctuations
(Equity and Small Cap Funds only) as a duration management technique (Tax Exempt
Fund only) or protecting against an increase in the price of securities a Fund
anticipates purchasing at a later date. Swaps, caps, floors, spreads and collars
may also be used to enhance potential gain in circumstances where hedging is not
involved although, as described above, a Fund will attempt to limit its net loss
exposure resulting from swaps, caps, floors, spreads and collars and other
Strategic Transactions entered into for such purposes to not more than 3% of the
Funds' respective net assets at any one time. A Fund will not sell interest rate
caps or floors where it does not own securities or other instruments providing
the income stream the Fund may be obligated to pay. Interest rate swaps involve
the exchange by a Fund with another party of their respective commitments to pay
or receive interest, e.g., an exchange of floating rate payments for fixed rate
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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. 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 or
a spread 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 Funds will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with a Fund receiving or paying, as the case may
be, only the net amount of the two payments. The Funds will not enter into any
swap, cap, floor, spread or collar transaction unless, at the time of entering
into such transaction, the unsecured long-term debt of the Counterparty,
combined with any credit enhancements, is rated at least A by S&P or Moody's or
has an equivalent rating from an NRSRO or the Counterparty issues debt that is
determined to be of equivalent credit quality by the Adviser. If there is a
default by the Counterparty, a Fund may have contractual remedies pursuant to
the agreements related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and as agents utilizing standardized
swap documentation. As a result, the swap market has become relatively liquid.
Caps, floors, spreads and collars are more recent innovations for which
standardized documentation has not yet been fully developed. Swaps, caps,
floors, spreads and collars are considered illiquid for purposes of each Fund's
policy regarding illiquid securities, unless it is determined, based upon
continuing review of the trading markets for the specific security, that such
security is liquid. The Board of Trustees has adopted guidelines and delegated
to the Adviser the daily function of determining and monitoring the liquidity of
swaps, caps, floors, spreads and collars. The Board of Trustees, however,
retains oversight focusing on factors such as valuation, liquidity and
availability of information and is ultimately responsible for such
determinations. The staff of the SEC currently takes the position that swaps,
caps, floors, spreads and collars are illiquid, and are subject to each Fund's
limitation on investing in illiquid securities.
Eurodollar Contracts
Each Fund may make investments in Eurodollar contracts. Eurodollar
contracts are U.S. dollar-denominated futures contracts or options thereon which
are linked to the London Interbank Offered Rate ("LIBOR"), although foreign
currency-denominated instruments are available from time to time. Eurodollar
futures contracts enable purchasers to obtain a fixed rate for the lending of
funds and sellers to obtain a fixed rate for borrowings. A Fund might use
Eurodollar futures contracts and options thereon to hedge against changes in
LIBOR, to which many interest rate swaps and fixed income instruments are
linked.
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Use of Segregated Accounts
Each Fund will hold securities or other instruments whose values are
expected to offset its obligations under the Strategic Transactions. A Fund will
not enter into Strategic Transactions that expose the Fund to an obligation to
another party unless it owns either (i) an offsetting position in securities or
other options, futures contracts or other instruments or (ii) cash, receivables
or liquid, high grade debt securities with a value sufficient to cover its
potential obligations. The Funds may have to comply with any applicable
regulatory requirements designed to make sure that mutual funds do not use
leverage in Strategic Transactions, and if required, will set aside cash and
other assets in a segregated account with the custodian bank in the amount
prescribed. In that case, the Funds' custodian would maintain the value of such
segregated account equal to the prescribed amount by adding or removing
additional cash or other assets to account for fluctuations in the value of the
account and the applicable Fund's obligations on the related Strategic
Transactions. Assets held in a segregated account would not be sold while the
Strategic Transaction is outstanding, unless they are replaced with similar
assets. As a result, there is a possibility that segregation of a large
percentage of a Fund's assets could impede portfolio management or a Fund's
ability to meet redemption requests or other current obligations.
"When-Issued" and "Delayed Delivery" Securities
The Tax Exempt Fund may commit up to 40% of its net assets to purchase
securities on a "when-issued" and "delayed delivery" basis, which means that
delivery and payment for the securities will normally take place 15 to 45 days
after the date of the transaction. The payment obligation and interest rate on
the securities are fixed at the time the Fund enters into the commitment, but
interest will not accrue to the Fund until delivery of and payment for the
securities. Although the Tax Exempt Fund will only make commitments to purchase
"when-issued" and "delayed delivery" securities with the intention of actually
acquiring the securities, the Fund may sell the securities before the settlement
date if deemed advisable by the Adviser.
Unless the Tax Exempt Fund has entered into an offsetting agreement to sell
the securities purchased on a when issued or delayed delivery basis, cash or
liquid, high-grade debt obligations with a market value at least equal to the
amount of the Fund's commitment will be segregated with the Fund's custodian
bank. If the market value of these securities declines, additional cash or
securities will be segregated daily so that the aggregate market value of the
segregated securities equals the amount of the Fund's commitment.
Securities purchased on a "when-issued" and "delayed delivery" basis may
have a market value on delivery which is less than the amount paid by the Tax
Exempt Fund. Changes in market value may be based upon the public's perception
of the creditworthiness of the issuer or changes in the level of interest rates.
Generally, the value of "when-issued" securities will fluctuate inversely to
changes in interest rates, i.e., they will appreciate in value when interest
rates fall and will depreciate in value when interest rates rise. The Tax Exempt
Fund may sell portfolio securities on a delayed delivery basis. The market value
of the securities when they are delivered may be more than the amount to be
received by the Fund.
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Other Investment Companies
The Equity and Small Cap Funds may each, subject to authorization by the
Trustees, invest all of its investable assets in the securities of a single
open-end registered investment company (a "Portfolio"). If authorized by the
Trustees, a Fund would seek to achieve its investment objective by investing in
a Portfolio, which Portfolio would invest in a portfolio of securities that
complies with the Fund's investment objectives, policies and restrictions. The
Trustees do not intend to authorize investing in this manner at this time.
INVESTMENT RESTRICTIONS
Each Fund has adopted certain fundamental and non-fundamental policies in
addition to those described under "Investment Objectives and Policies" in the
Prospectus. A Fund's fundamental policies cannot be changed unless the change is
approved by the lesser of (i) 67% or more of the voting securities present at a
meeting, if the holders of more than 50% of the outstanding voting securities of
that Fund are present or represented by proxy, or (ii) more than 50% of the
outstanding voting securities of that Fund. A Fund's non-fundamental policies
may be changed by the Board of Trustees, without shareholder approval, in
accordance with applicable laws, regulations or regulatory policy.
Standish Intermediate Tax Exempt Bond Fund
As a matter of fundamental policy, the Tax Exempt Fund may not:
1. 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.
2. Purchase real estate or real estate mortgage loans, although the Fund may
purchase marketable securities of companies which deal in real estate,
real estate mortgage loans or interests therein and may purchase, hold and
sell real estate acquired as a result of ownership of securities or other
instruments.
3. 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).
4. Purchase or sell commodities or commodity contracts except that the Fund
may purchase and sell financial futures contracts and options on financial
futures contracts.
5. 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.
6. Issue senior securities, borrow money or pledge or mortgage its assets,
except that the Fund may borrow from banks as a temporary measure for
extraordinary or emergency purposes (but not investment purposes) in an
amount up to 15% of the current value of its total assets, and pledge its
assets to an extent not greater than 15% of the current value of its total
assets to secure such borrowings; however, the Fund may not make any
additional investments while its outstanding borrowings exceed 5% of the
current value of its total assets.
18
<PAGE>
7. Lend portfolio securities, except that the Fund may enter into repurchase
agreements which are terminable within 7 days.
8. Invest more than an aggregate of 15% of the net assets of the Fund in
securities subject to legal or contractual restrictions on resale or for
which there are no readily available market quotations or in other
illiquid securities.
As a matter of non-fundamental policy, the Tax Exempt Fund may not:
A. Make short sales of securities.
B. Invest in companies for the purpose of exercising control or management.
C. Purchase securities of any other investment company except as part of a
merger, consolidation or acquisition of assets.
D. Purchase or write options, except as described under "Strategic and
Derivative Transactions."
E. 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.
F. 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, other than obligations issued or guaranteed by the U.S.
Government or its agencies, municipal securities which are rated by at
least one nationally recognized municipal bond rating service, and
securities fully collateralized by such securities.
G. Invest in securities of any company if any officer or director (Trustee)
of the Trust or of the Fund's investment adviser owns more than 1/2 of 1%
of the outstanding securities of such company and such officers and
directors (Trustees) own in the aggregate more than 5% of the securities
of such company.
H. Enter into repurchase agreements with respect to more than 15% of its net
assets.
I. 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.
As a matter of non-fundamental policy, the Tax Exempt Fund may not own more
than 10% of the outstanding voting securities of any one issuer. Because
municipal securities are not voting securities, there is no limit on the
percentage of a single issuer's municipal bonds which the Tax Exempt Fund may
own so long as, as to 75% of its total assets, it does not invest more than 5%
of its total assets in the securities of the issuer. Consequently, the Tax
Exempt Fund may invest in a greater percentage of the outstanding securities of
a single issuer than would an investment company which invests in voting
securities.
19
<PAGE>
Although it is allowed to do so, the Tax Exempt Fund does not expect to
invest in securities (other than securities of the U.S. Government, its agencies
or instrumentalities and municipal securities) if more than 25% of the current
value of its total assets would be invested in a single industry. Although
governmental issuers of municipal securities are not considered part of any
"industry," municipal securities backed only by the assets and revenues of
nongovernmental users may, for this purpose, be deemed to be issued by such
nongovernmental users (e.g., industrial development bonds) and constitute an
"industry." Thus, the Tax Exempt Fund does not expect that more than 25% of its
assets will be invested in obligations deemed to be issued by nongovernmental
users in any one industry (e.g., industrial development bonds for health care
facilities) and in taxable obligations of issuers in the same industry. However,
it is possible that the Tax Exempt Fund may invest more than 25% of its assets
in a broader sector of the market for municipal securities.
Determining the issuer of a tax-exempt security will be based upon the
source of assets and revenues committed to meeting interest and principal
payments of each security. A security guaranteed or otherwise backed by full
faith and credit of a governmental entity would generally be considered to
represent a separate security issued by such guaranteeing entity and by the
primary obligor. However, a guarantee of a security shall not be deemed to be a
security issued by the guarantor if the value of all securities guaranteed by
the guarantor and owned by the Tax Exempt Fund is less than 10% of the value of
the total assets of the Fund. Securities backed only by the assets and revenues
of nongovernmental users will be deemed to be issued by such nongovernmental
users.
Standish Tax-Sensitive Equity Fund and Standish Small
Cap Tax-Sensitive Equity Fund
As a matter of fundamental policy, each of the Standish Small Cap
Tax-Sensitive Equity Fund and Standish Tax-Sensitive Equity 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.
20
<PAGE>
3. Borrow money, except in amounts not to exceed 33 1/3% of the value of the
Fund's total assets (including the amount borrowed) taken at market value
(i) from banks for temporary or short-term purposes or for the clearance
of transactions, (ii) in connection with the redemption of Fund shares or
to finance failed settlements of portfolio trades without immediately
liquidating portfolio securities or other assets; (iii) in order to
fulfill commitments or plans to purchase additional securities pending the
anticipated sale of other portfolio securities or assets and (iv) the Fund
may enter into reverse repurchase agreements and forward roll
transactions. For purposes of this investment restriction, investments in
short sales, futures contracts, options on futures contracts, securities
or indices and forward commitments shall not constitute borrowing.
4. Underwrite the securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, the Fund may be
deemed to be an underwriter under the Securities Act of 1933; provided,
however, that the Fund may invest all or part of its investable assets in
an open-end registered investment company with substantially the same
investment objective, policies and restrictions as the Fund.
5. Purchase or sell real estate except that the Fund may (i) acquire or lease
office space for its own use, (ii) invest in securities of issuers that
invest in real estate or interests therein, (iii) invest in securities
that are secured by real estate or interests therein, (iv) purchase and
sell mortgage-related securities and (v) hold and sell real estate
acquired by the Fund as a result of the ownership of securities.
6. Purchase securities on margin (except that the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of securities).
7. Purchase or sell commodities or commodity contracts, except the Fund may
purchase and sell options on securities, securities indices and currency,
futures contracts on securities, securities indices and currency and
options on such futures, forward foreign currency exchange contracts,
forward commitments, securities index put or call warrants and repurchase
agreements entered into in accordance with the Fund's investment policies.
8. Make loans, except that the Fund (1) may lend portfolio securities in
accordance with the Fund's investment policies up to 33 1/3% of the Fund's
total assets taken at market value, (2) enter into repurchase agreements,
and (3) purchase all or a portion of an issue of debt securities, bank
loan participation interests, bank certificates of deposit, bankers'
acceptances, debentures or other securities, whether or not the purchase
is made upon the original issuance of the securities.
9. With respect to 75% of its total assets, purchase securities of an issuer
(other than the U.S. 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;
21
<PAGE>
provided, however, that the Fund may invest all or part of its investable
assets in an open-end registered investment company with substantially the same
investment objective, policies and restrictions as the Fund.
For purposes of the fundamental investment restriction (1) regarding
industry concentration, the Adviser generally classifies issuers by industry in
accordance with classifications set forth in the Directory of Companies Filing
Annual Reports With The Securities and Exchange Commission. In the absence of
such classification or if the Adviser determines in good faith based on its own
information that the economic characteristics affecting a particular issuer make
it more appropriately considered to be engaged in a different industry, the
Adviser may classify an issuer according to its own sources. For instance,
personal credit finance companies and business credit finance companies are
deemed to be separate industries and wholly-owned finance companies are
considered to be in the industry of their parents if their activities are
primarily related to financing the activities of their parents.
As a matter of non-fundamental policy, each of the Standish Tax-Sensitive
Equity Fund and Standish Small Cap Tax-Sensitive Equity Fund may not:
A. Make short sales of securities unless (i) either (a) after effect is given
to any such short sale, the total market value of all securities sold
short would not exceed 5% of the value of the Fund's net assets or (b) at
all times during which a short position is open it owns an equal amount of
such securities, or by virtue of ownership of convertible or exchangeable
securities it has the right to obtain through the conversion or exchange
of such other securities an amount equal to the securities sold short,
(ii) the securities sold short are listed on a national securities
exchange and (iii) the value of the securities of any one issuer in which
the Fund is short may not exceed 2% of the Fund's net assets or 2% of the
securities of any class of any issuer.
B. Invest in companies for the purpose of exercising control or management.
C. Purchase a security of other investment companies, except when the
purchase is part of a plan of merger, consolidation, reorganization or
acquisition or except by purchase in the open market where no commission
or profit to a sponsor or dealer results from the purchase other than
customary brokers' commissions and then only if, as a result, (i) more
than 10% of the Fund's assets would be invested in securities of other
investment companies, (ii) more than 3% of the total outstanding voting
securities of any one such investment company would be held by the Fund or
(iii) more than 5% of the Fund's assets would be invested in any one such
investment company; provided, however, that the Fund may invest all or
part of its investable assets in an open-end registered investment company
with substantially the same investment objective, policies and
restrictions as the Fund.
D. Invest in interests in oil, gas or other exploration or development
programs or mineral leases; however, this policy will not prohibit the
acquisition of securities of companies engaged in the production or
transmission of oil, gas, or other minerals.
22
<PAGE>
E. Invest more than 5% of the assets of the Fund in the securities of any
issuers which, together with their corporate parents, have records of less
than three years' continuous operation, including the operation of any
predecessor, excluding obligations issued or guaranteed by the U.S.
Government or its agencies and securities fully collateralized by such
securities and excluding securities which have been rated investment grade
by at least one nationally recognized statistical rating organization;
provided, however, that the Fund may invest all or part of its investable
assets in an open-end investment company with substantially the same
investment objective, policies and restrictions as the Fund.
F. Invest in restricted securities or securities which are illiquid if, as a
result, more than 15% of its net assets would consist of such securities,
including repurchase agreements maturing in more than seven days,
securities that are not readily marketable, restricted securities not
eligible for resale pursuant to Rule 144A under the 1933 Act, purchased
OTC options, certain assets used to cover written OTC options, and
privately issued stripped mortgage-backed securities; provided that the
Fund may invest all or part of its investable assets in an open-end
investment company with substantially the same investment 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.
The Equity and Small Cap Funds have no current intention of lending
portfolio securities or entering into reverse repurchase agreements or forward
roll transactions. None of the Funds have any current intention to borrow money
for other than temporary of emergency purposes.
Notwithstanding any other fundamental or non-fundamental investment
restriction or policy, the Equity and Small Cap Funds may each invest all of its
assets in the securities of a single open-end registered investment company with
substantially the same fundamental investment objectives, restrictions and
policies as the Fund.
---------------------
23
<PAGE>
If any percentage restriction described above is adhered to at the time of
investment, a subsequent increase or decrease in the percentage resulting from a
change in the value of a Fund's assets will not constitute a violation of the
restriction, except with respect to restriction letter G above.
In order to permit the sale of shares of the Funds in certain states, the
Board may, in its sole discretion, adopt restrictions of 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 a Fund and its
shareholders, the Fund may cease offering shares in the state involved and the
Board may revoke such restrictive policy. Moreover, if the states involved shall
no longer require any such restrictive policy, the Board may, in its sole
discretion, revoke such policy.
CALCULATION OF PERFORMANCE DATA
As indicated in the Prospectus, each Fund may, from time to time, advertise
certain total return information and the Tax Exempt Fund may also advertise
certain yield and tax equivalent yield information. The average annual total
return of a Fund for a period is computed by subtracting the net asset value per
share at the beginning of the period from the net asset value per share at the
end of the period (after adjusting for the reinvestment of any income dividends
and capital gain distributions), and dividing the result by the net asset value
per share at the beginning of the period. In particular, the average annual
total return of a 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.
The yield of the Tax Exempt Fund is computed by dividing the net investment
income per share earned during the period stated in the advertisement by the
maximum offering price per share on the last day of the period. For the purpose
of determining net investment income, the calculation includes, among expenses
of the Tax Exempt Fund, all recurring fees that are charged to all shareholder
accounts and any non-recurring charges for the period stated. In particular, the
yield is determined according to the following formula:
Yield = (2[(A - B + 1)^6 - 1])/CD
Where: A equals dividends and interest earned during the period; B equals
net expenses accrued for the period; C equals average daily number of shares
outstanding during the period that were entitled to receive dividends; D equals
the maximum offering price per share on the last day of the period.
Tax equivalent yield is the net annualized taxable yield needed to produce
a specified tax exempt yield at a given tax rate based on a specified 30-day (or
one month) period, assuming semi-annual compounding of income. The taxable
equivalent yield for the Tax Exempt Fund is based upon the Fund's current
tax-exempt yield and an investor's marginal tax rate. The formula is:
Portfolio's Tax-Free Yield
-------------------------- = Taxable Equivalent Yield
100% - Marginal Tax Rate
24
<PAGE>
The average annual total return quotation for the Tax Exempt Fund since
inception (November 2, 1992 to December 31, 1995) and for the one year period
ended December 31, 1995 were 6.52% and 12.65%, respectively, and the average
annualized yield for the thirty day period ended December 31, 1995 was 4.39%.
The Tax Exempt Fund's tax equivalent yield for the thirty day period ended
December 31, 1995 was 7.27%, assuming a federal income tax rate of 39.6%.
The Tax Exempt Fund may also quote non-standardized yield, such as
yield-to-maturity ("YTM"). YTM represents the rate of return an investor will
receive if a long-term, interest bearing investment, such as a bond, is held to
its maturity date. YTM does not take into account purchase price, redemption
value, time to maturity, coupon yield, and the time between interest payments.
In addition to average annual return and yield and tax equivalent yield
(Tax Exempt Fund) quotations, each Fund may quote quarterly and annual
performance on a net (with management fees and other operating expenses
deducted) and gross basis. The Tax Exempt Fund's net and gross performance is as
follows:
Quarter/Year Net Gross
- --------------------------------------------------------------------------------
1992 2.79% 2.95%
1Q93 3.46% 3.62%
2Q93 2.63% 2.79%
3Q93 2.94% 3.10%
4Q93 1.35% 1.51%
1993 10.78% 11.47%
1Q94 -3.95% -3.79%
2Q94 1.67% 1.83%
3Q94 0.98% 1.15%
4Q94 -1.29% -1.13%
1994 -2.68% -2.02%
1Q95 4.61% 4.77%
2Q95 1.95% 2.12%
3Q95 2.76% 2.95%
4Q95 2.77% 2.94%
1995 12.65% 13.39%
These performance quotations should not be considered as representative of
the Tax Exempt Fund's performance for any specified period in the future.
Each Fund's performance may be compared in sales literature to the
performance of other mutual funds having similar objectives or to standardized
indices or other measures of investment performance. In particular, the Tax
Exempt Fund may compare its performance to various indices (or particular
components thereof), which are generally considered to be representative of the
performance of all municipal securities such as the Lehman Muni 3-5-7-10 Index.
The Equity and Small Cap Funds may each compare their respective performance to
the S&P 500 Index, which is generally considered to be representative of the
performance of unmanaged common stocks that are publicly traded in the United
States securities markets. In addition, the Small Cap 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. 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.
25
<PAGE>
MANAGEMENT
Trustees and Officers
The Trustees and executive officers of the Trust are listed below. All
executive officers of the Trust are affiliates of Standish, Ayer & Wood, Inc.,
the Fund's investment adviser.
<TABLE>
<CAPTION>
Name, Address and Date of Birth Position Held Principal Occupation
With Trust During Past 5 Years
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
*D. Barr Clayson, 7/29/35 Vice President and Trustee Vice President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center President,
Boston, MA 02111 Standish International
Management Company, L.P.
Samuel C. Fleming, 7/8/48 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, 9/30/40 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.
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, 5/2/54 President and Trustee Vice President, Secretary and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center Executive Vice President,
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. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
David W. Murray, 5/5/40 Treasurer and Secretary Vice President, Treasurer and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
26
<PAGE>
Name, Address and Date of Birth Position Held Principal Occupation
With Trust During Past 5 Years
- --------------------------------------------------------------------------------------------------------------------
Caleb F. Aldrich, 9/20/57 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA O2111
Beverly E. Banfield, 7/6/56 Vice President Vice President and Compliance Officer,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center Assistant Vice President and Compliance 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, 1/6/33 Vice President Senior Advisor and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center prior to 1991, President,
Boston, MA 02111 Harvard Management Company
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
Boston, MA 02111
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
Boston, MA 02111
Joseph M. Corrado, 5/13/55 Vice President Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
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
Boston, MA 02111II
27
<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
Boston, MA 02111
Mark A. Flaherty, 4/24/59 Vice President Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
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;
Boston, MA 02111 formerly, 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
Maria D. Furman, 2/3/54 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
Boston, MA 02111
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
28
<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, Standish, Ayer & Wood, Inc.
c/o 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
Boston, MA 02111
Michael C. Schoeck, 10/24/55 Vice President Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc. since August, 1993;
One Financial Center formerly, Vice President,
Boston, MA 02111 Commerzbank, Frankfurt, Germany
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. formerly, Standish, Ayer & Wood, Inc. Consultant
One Financial Center Cambridge Associates
Boston, MA 02111
David C. Stuehr, 3/1/58 Vice President Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
James W. Sweeney, 5/15/59 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Ralph S. Tate, 4/2/47 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc. since April, 1990;
One Financial Center formerly, Vice President, Aetna Life & Casualty
Boston, MA 02111
Michael W. Thompson, 3/31/56 Vice President Vice President, Standish, Ayer & Wood, Inc.
c/o Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Christopher Van Alstyne, 3/24/60 Vice President Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
*Indicates that Trustee is an interested person of the Trust for purposes of the
1940 Act.
</TABLE>
29
<PAGE>
Compensation of Trustees and Officers
The Funds pay no compensation to the Trust's Trustees affiliated with the
Adviser or to the Trust's officers. None of the Trust's Trustees or officers
have engaged in any financial transactions (other than the purchase or
redemption of a Fund's shares) with the Trust or the Adviser during the Tax
Exempt Fund's fiscal year ended December 31, 1995.
The following table sets forth all compensation paid to the Trust's
Trustees as of the Tax Exempt Fund's fiscal year ended December 31, 1995 and
estimates the amount of such fees to be paid by the Equity and Small Cap Funds
during their initial fiscal years ending September 30, 1996:
<TABLE>
<CAPTION>
Pension or
Estimated Estimated Retirement Total
Aggregate Aggregate Aggregate Benefits Compensation*
Compensation Compensation Compensation Accrued as from Funds and
from the from the from the Small Part of Other Funds in
Name of Trustee Tax Exempt Fund Equity Fund* Cap Fund* Fund's Expenses Complex**
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
D. Barr Clayson $0 $0 $0 $0 $0
Phyllis L. Cothran*** 0 0 0 0 0
Richard C. Doll**** 0 0 0 0 0
Samuel C. Fleming 266 39 39 0 41,750
Benjamin M. Friedman 246 34 34 0 36,750
John H. Hewitt 246 34 34 0 36,750
Edward H. Ladd 0 0 0 0 0
Caleb Loring, III 246 34 34 0 36,750
Richard S. Wood 0 0 0 0 0
-------------
*Estimated. The Equity and Small Cap Funds are newly organized.
**As of the date of this Statement of Additional Information, there were 18 mutual funds in the fund complex.
***Ms. Cothran resigned as a Trustee effective January 31, 1995.
****Mr. Doll resigned as Trustee effective December 6, 1995.
</TABLE>
Certain Shareholders
At February 6, 1996, the Trustees and officers of the Trust as a group
beneficially owned (i.e., had voting and/or investment power) less than 1% of
the then outstanding shares of each Fund. At that date, each of the following
persons beneficially owned 5% or more of the then outstanding shares of the Tax
Exempt Fund:
Percentage of
Name and Address Outstanding Shares
- --------------------------------------------------------------------------------
BDG & Co. 26%
Bingham Dana & Gould
Trust Development
150 Federal Street
Boston, MA 02110
YK Investment Partnership 10%
191 Waukegan Road
Suite 209
Northfield, IL 60093
Stephanie L. Hascoe 1972 5%
Trust
Hascoe Associates, Inc.
35 Mason Street
Greenwich, CT 06830
Each of the following persons beneficially owned 5% or more of the then
outstanding shares of the Tax Sensitive Equity Fund:
Percentage of
Name and Address Outstanding Shares
- --------------------------------------------------------------------------------
Michael Putnam Trust 15%
Department of Classics, Brown University
Providence, RI 02912
Dr. David & Alice Baltimore 12%
A/C #4509012
P.O. Box 1537
Boston, MA 02205
Mary Enriquez Cust FBO Diana Enriquez 12%
Schneider UGMA/TX
Restructuring Associates
1050 17th Street NW
Washington, DC 20036
Mr. & Mrs. Robert J. Driscoll 10%
10 Fulling Mill Lane
Hingham, MA 02043
Laurence A. Manchester 9%
41 Berkeley Street
Newton, MA 02165
Mary Schneider Enriquez Cust FBO 6%
J. Nicholas E. Schneider UGMA/TX
Restructuring Associates
1050 17th Street NW
Washington, CD 20036
30
<PAGE>
Additionally, each of the following persons beneficially owned 5% or more
of the then outstanding shares of the Small Capitalization Tax-Sensitive Equity
Fund:
Percentage of
Name and Address Outstanding Shares
- --------------------------------------------------------------------------------
Investors Bank & Trust Custodian FBO 13%
Dorothy Battelle IRA
120 W. Newton Street
Boston, MA 02118
Saturn & Co. 11%
FBO Dr. David & Alice Baltimore
A/C #4509012
P.O. Box 1537
Boston, MA 02205-1537
Mr. & Mrs. Robert J. Driscoll 10%
10 Fulling Mill Lane
Hingham, MA 02043
Frederick C. Cabot 9%
299 Woodland Road
Auburndale, MA 02166
Michael Putnam Trust 9%
Brown University
Dept. of Classics
Providence, RI 02912
Lisen Bonnier Revocable Trust 9%
c/o Bingham Dana & Gould
150 Federal Street
Boston, MA 02110
Investors Bank & Trust Custodian FBO 7%
Nicholas Battelle IRA
120 West Newton Street
Boston, MA 02118
Investment Adviser
Standish, Ayer & Wood, Inc. (the "Adviser") serves as investment adviser to
each Fund pursuant to separate written investment advisory agreements with the
Trust. The Adviser is a Massachusetts corporation organized in 1933 and is
registered under the Investment Advisers Act of 1940.
The following, constituting all of the Directors and all of the
shareholders of the Adviser, are the Adviser's controlling persons: Caleb F.
Aldrich, Nicholas S. Battelle, Walter M. Cabot, Sr., David H. Cameron, Karen K.
Chandor, D. Barr Clayson, Richard C. Doll, Dolores S. Driscoll, Mark A.
Flaherty, Maria D. Furman, James E. Hollis III, Raymond J. Kubiak, Edward H.
Ladd, Laurence A. Manchester, David W. Murray, George W. Noyes, Arthur H.
Parker, Howard B. Rubin, Austin C. Smith, David C. Stuehr, James J. Sweeney,
Ralph S. Tate, and Richard S. Wood.
Certain services provided by the Adviser under the investment advisory
agreements are described in the Prospectus. In addition to those services, the
Adviser provides each Fund with office space for managing its affairs, with the
services of required executive personnel, and with certain clerical services and
facilities. These services are provided by the Adviser without reimbursement by
the Funds for any costs incurred. Under each investment advisory agreement, the
Adviser is paid a fee based upon a percentage of each Fund's average daily net
asset value computed as described in the Prospectus. This fee is paid monthly.
31
<PAGE>
With respect to the Tax Exempt Fund: (a) for the fiscal year ended December
31, 1993, the Adviser agreed not to impose its fees of $49,165 and assumed
$12,010 of expenses; (b) for the fiscal year ended December 31, 1994, the
Adviser agreed not to impose $50,193 of its fee, which would otherwise have been
$82,694; and (c) for the fiscal year ended December 31, 1995, the Adviser agreed
not to impose $38,327 of its fee, which would otherwise have been $116,202.
Pursuant to the investment advisory agreements, each Fund bears the
expenses of its operations other than those incurred by the Adviser pursuant to
the investment advisory agreements. Among other expenses, each Fund will pay
share pricing and shareholder servicing fees and expenses; custodian fees and
expenses; legal and auditing fees and expenses; expenses of prospectuses,
statements of additional information and shareholder reports; registration and
reporting fees and expenses; and Trustees' fees and expenses.
The Adviser has voluntarily agreed for the Tax Exempt Fund's, Equity Fund's
and Small Cap Fund's fiscal years ending September 30, 1996 to limit Total Fund
Operating Expenses (excluding litigation, indemnification and other
extraordinary expenses) of each such Fund to 0.65%, 1.00% and 0.90% of the Tax
Exempt Fund's, Equity Fund's and Small Cap Fund's respective average daily net
assets. These agreements are voluntary and temporary and may be discontinued or
revised by the Adviser at any time after September 30, 1996. In addition, for
the period from January 2, 1996 (commencement of operations) through March 31,
1996, the Adviser voluntarily agreed to limit Total Fund Operating Expenses
(excluding brokerage commissions, taxes and extraordinary expenses) of the Small
Cap Fund and the Equity Fund to 0.00% of each such Fund's average daily net
assets. If any expense limit is exceeded, the compensation due the Adviser for
such fiscal year shall be proportionately reduced by the amount of such excess
by a reduction or refund thereof at the time such compensation is payable after
the end of each calendar month, subject to readjustment during the fiscal year.
Each Fund's investment advisory agreement provides that if the total
expenses (excluding brokerage commissions, taxes and extraordinary expenses) of
the Fund in any fiscal year exceed the most restrictive expense limitation
applicable to the Fund in any state in which shares of the Fund are then
qualified for sale, the compensation due the Adviser shall be reduced by the
amount of the excess, by a reduction or refund thereof at the time such
compensation is payable after the end of each calendar month during the fiscal
year, subject to readjustment during the year. Currently, the most restrictive
state expense limitation provision limits a 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.
Unless terminated as provided below, the Equity Fund's and the Small Cap
Fund's investment advisory agreements continue in full force and effect until
December 31, 1997 and for successive periods of one year thereafter, and the Tax
Exempt Fund's investment advisory agreement continues in full force and effect
for successive periods of one year, but only as long as each such continuance is
approved annually (i) by either the Trustees of the Trust or by vote of a
majority of the outstanding voting securities (as defined in the 1940 Act) of
the applicable Fund, and, in either event (ii) by vote of a majority of the
32
<PAGE>
Trustees of the Trust who are not parties to the investment advisory agreement
or "interested persons" (as defined in the 1940 Act) of any such party, cast in
person at a meeting called for the purpose of voting on such approval. Each
investment advisory agreement may be terminated at any time without the payment
of any penalty by vote of the Trustees of the Trust or by vote of a majority of
the outstanding voting securities (as defined in the 1940 Act) of the applicable
Fund or by the Adviser, on sixty days' written notice to the other parties. The
investment advisory agreements terminate in the event of their "assignment," as
defined in the 1940 Act.
In an attempt to avoid any potential conflict with portfolio transactions
for the Funds, the Adviser and the Trust have adopted extensive restrictions on
personal securities trading by personnel of the Adviser and its affiliates.
These restrictions include: pre-clearance of all personal securities
transactions and a prohibition of purchasing initial public offerings of
securities. These restrictions are a continuation of the basic principle that
the interests of the Funds and their shareholders come before those of the
Adviser, its affiliates and their employees.
Distributor of the Trust
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 Funds' 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 Funds' 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 Funds' shares. The Principal Underwriter receives no
commissions or other compensation for its services, and has not received any
such amounts in any prior year. The Underwriting Agreement shall continue in
effect with respect to a Fund until two years after its execution and for
successive periods of one year thereafter only if it is approved at least
annually thereafter (i) by a vote of the holders of a majority of the Fund's
outstanding shares or by the Trustees of the Trust or (ii) by a vote of a
majority of the Trustees of the Trust who are not "interested persons" (as
defined by the 1940 Act) of the parties to the Underwriting Agreement, cast in
person at a meeting called for the purpose of voting on such approval. The
Underwriting Agreement will terminate automatically if assigned by either party
thereto and is terminable with respect to a Fund 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 applicable 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.
33
<PAGE>
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 a Fund of
securities owned by it or determination by a Fund 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 Funds.
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 Fund portfolio securities. Portfolio securities paid upon redemption
of Fund shares will be valued at their then current market value. The Trust 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.
PORTFOLIO TRANSACTIONS
The Adviser is responsible for placing each Fund's portfolio transactions
and will do so in a manner deemed fair and reasonable to the Funds and not
according to any formula. The primary consideration in all portfolio
transactions will be prompt execution of orders in an efficient manner at the
most favorable price. In selecting broker-dealers and in negotiating
commissions, the Adviser will consider the firm's reliability, the quality of
its execution services on a continuing basis and its financial condition. When
more than one firm is believed to meet these criteria, preference may be given
to firms which also sell shares of the respective 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, a 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
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 Funds effect their securities transactions may be used by the Adviser in
servicing other accounts; not all of these services may be used by the Adviser
in connection with the Funds. The investment advisory fees paid by the Funds
under the advisory agreements will not be reduced as a result of the Adviser's
receipt of research services.
34
<PAGE>
The Adviser also places portfolio transactions for other advisory accounts.
The Adviser will seek to allocate portfolio transactions equitably whenever
concurrent decisions are made to purchase or sell securities for a Fund and
another advisory account. In some cases, this procedure could have an adverse
effect on the price or the amount of securities available to the Funds. In
making such allocations, the main factors considered by the Adviser will be the
respective investment objectives, the relative size of portfolio holdings of the
same or comparable securities, the availability of cash for investment, the size
of investment commitments generally held, and opinions of the persons
responsible for recommending the investment.
DETERMINATION OF NET ASSET VALUE
Each Fund's net asset value is calculated each business day on which the
New York Stock Exchange is open. Currently the New York Stock Exchange is not
open on weekends, New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas. The net asset value
of a 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 time) and is computed by
dividing the value of all securities and other assets of the Fund less all
liabilities by the number of shares outstanding, and adjusting to the nearest
cent per share. Expenses and fees, including the investment advisory fee, are
accrued daily and taken into account for the purpose of determining net asset
value. Portfolio securities are valued in the manner described in the
Prospectus.
FEDERAL INCOME TAXES
Each series of the Trust, including each Fund, is treated as a separate
entity for accounting and tax purposes. The Tax Exempt Fund presently qualifies
and intends to continue to qualify, and each of the Equity and Small Cap Funds
intends to qualify and elect to be treated, as a "regulated investment company"
under Subchapter M of the Code. As such and by complying with the applicable
provisions of the Code regarding the sources of its income, the timing of its
distributions, and the diversification of its assets, a Fund will not be subject
to Federal income tax on its investment company taxable income (i.e., all
income, after reduction by deductible expenses, other than its "net capital
gain," which is the excess, if any, of its net long-term capital gain over its
net short-term capital loss), net tax-exempt interest (if any) and net capital
gain which are distributed to shareholders at least annually in accordance with
the timing requirements of the Code.
Each Fund will be subject to a 4% non-deductible federal excise tax on
certain taxable amounts not distributed (and not treated as having been
distributed) on a timely basis in accordance with annual minimum distribution
requirements. The Funds intend under normal circumstances to avoid liability for
such tax by satisfying such distribution requirements.
The Funds are not subject to Massachusetts corporate excise or franchise
taxes. Provided that the Funds qualify as regulated investment companies under
the Code, they will also not be required to pay any Massachusetts income tax.
The Funds will not distribute net capital gains realized in any year to the
extent that a capital loss is carried forward from prior years against such
gain. For federal income tax purposes, each Fund is permitted to carry forward a
net capital loss in any year to offset its own net capital gains, if any, during
35
<PAGE>
the eight years following the year of the loss. To the extent subsequent net
capital gains are offset by such losses, they would not result in federal income
tax liability to the Funds and, as noted above, would not be distributed as such
to shareholders. The Tax Exempt Fund has $29,197 of capital loss carryforwards,
which expire on December 31, 2002, available to offset future net capital gains.
Limitations imposed by the Code on regulated investment companies like the
Funds may restrict a Fund's ability to enter into futures, options and currency
forward transactions.
Certain options, futures and forward foreign currency transactions (Equity
and Small Cap Funds only) undertaken by a Fund may cause the Fund to recognize
gains or losses from marking to market even though its positions have not been
sold or terminated and affect the character as long-term or short-term (or, in
the case of certain currency forwards, options and futures (Equity and Small Cap
Funds only), as ordinary income or loss) and timing of some capital gains and
losses realized by a Fund. Also, certain losses of a Fund on its transactions
involving options, futures or forward contracts and/or offsetting portfolio
positions may be deferred rather than being taken into account currently in
calculating the Fund's taxable income or gain. Certain of the applicable tax
rules may be modified if a Fund is eligible and chooses to make one or more of
certain tax elections that may be available. These transactions may therefore
affect the amount, timing and character of a Fund's distributions to
shareholders. The Funds will take into account the special tax rules (including
consideration of available elections) applicable to options, futures or forward
contracts in order to minimize any potential adverse tax consequences.
The federal income tax rules applicable to interest rate swaps or currency
swaps (Equity and Small Cap Funds only), and interest rate caps, floors and
collars are unclear in certain respects, and the Funds may be required to
account for these instruments under tax rules in a manner that, under certain
circumstances, may limit their transactions in these instruments.
If either the Equity Fund or the Small Cap Fund acquires stock in certain
non-U.S. 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 "excess distributions"
received from such companies or gain from the sale of stock in such companies,
even if all income or gain actually received by the Fund is timely distributed
to its shareholders. The Equity and Small Cap Funds would not be able to pass
through to their shareholders any credit or deduction for such a tax. Certain
elections may, if available, ameliorate these adverse tax consequences, but any
such election would require the electing Fund to recognize taxable income or
gain without the concurrent receipt of cash. The Equity and Small Cap Funds may
limit and/or manage their stock holdings in passive foreign investment companies
to minimize their tax liability or maximize their return from these investments.
36
<PAGE>
Foreign exchange gains and losses realized by the Equity and Small Cap
Funds 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 Code, which generally causes such gains and losses to be treated as ordinary
income and losses and may affect the amount, timing and character of
distributions to shareholders. Any such transactions that are not directly
related to a Fund'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, which gain is
limited under the Code to less than 30% of its annual gross income, and could
under future Treasury regulations produce income not among the types of
"qualifying income" from which each Fund must derive at least 90% of its annual
gross income.
The Equity and Small Cap Funds may be subject to withholding and other
taxes imposed by foreign countries with respect to their investments in foreign
securities. Tax conventions between certain countries and the U.S. may reduce or
eliminate such taxes. Investors would be entitled to claim U.S. foreign tax
credits with respect to such taxes, subject to certain provisions and
limitations contained in the Code, only if more than 50% of the value of the
Equity Fund's or Small Cap Fund's respective total assets at the close of any
taxable year were to consist of stock or securities of foreign corporations and
the applicable Fund were to file an election with the Internal Revenue Service.
Because the Equity and Small Cap Funds generally do not expect to meet this 50%
requirement, investors generally will not directly take into account the foreign
taxes, if any, paid by the Equity and Small Cap Funds, and will generally not be
entitled to any related tax deductions or credits. Such taxes will reduce the
amounts the Equity and Small Cap Funds would otherwise have available to
distribute.
Distributions from a Fund's current or accumulated earnings and profits
("E&P"), as computed for Federal income tax purposes, will be taxable as
described in the Funds' Prospectus whether taken in shares or in cash. Amounts
that are not allowable as a deduction in computing taxable income, including
expenses associated with earning tax-exempt interest income, do not reduce
current E&P for this purpose. 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, if any, received by the Equity and Small Cap Funds from U.S. domestic
corporations in respect of the stock of such corporations held by the Equity and
Small Cap Funds, for U.S. Federal income tax purposes, for at least a minimum
holding period, generally 46 days, and distributed and designated by the Equity
and Small Cap Funds may be treated as qualifying dividends. Distributions by the
37
<PAGE>
Tax Exempt Fund will not qualify for the dividends received deduction. Corporate
shareholders must meet the minimum holding period requirement referred to above
with respect to their shares of the Equity and Small Cap Funds in order to
qualify for the deduction and, if they borrow to acquire 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.
Taxable distributions by the Tax Exempt Fund include distributions
attributable to income or gains from the Tax Exempt Fund's taxable investments
or transactions, including (i) gains from the sale of portfolio securities or
the right to when-issued securities prior to issuance or from options or futures
transactions and (ii) income attributable to repurchase agreements, securities
lending, recognized market discount, interest rate swaps, caps, floors or
collars, and a portion of the discount from certain stripped tax-exempt
obligations or their coupons.
Distributions by the Tax Exempt Fund of tax-exempt interest
("exempt-interest dividends") timely designated as such by the Tax Exempt Fund
will be treated as tax-exempt interest under the Code, provided that the Tax
Exempt Fund qualifies as a regulated investment company and at least 50% of the
value of its assets at the end of each quarter of its taxable year is invested
in tax-exempt obligations. Shareholders are required to report their receipt of
tax-exempt interest, including such distributions, on their federal income tax
returns. The portion of the Tax Exempt Fund's distributions designated as
exempt-interest dividends may differ from the actual percentage that its
tax-exempt income comprises of its total income during the period of any
particular shareholder's investment. The Tax Exempt Fund will report to
shareholders the amount designated as exempt-interest dividends for each year.
Interest income from certain types of tax-exempt obligations that are
private activity bonds in which the Tax Exempt Fund may invest is treated as an
item of tax preference for purposes of the federal alternative minimum tax. To
the extent that the Tax Exempt Fund invests in these types of tax-exempt
obligations, shareholders will be required to treat as an item of tax preference
for federal alternative minimum purposes that part of the Tax Exempt Fund's
exempt-interest dividends which is derived from interest on these tax-exempt
obligations. Exempt-interest dividends derived from interest income from
tax-exempt obligations that are not private activity bonds may also be included
in determining corporate "adjusted current earnings" for purposes of computing
the alternative minimum tax liability, if any, of corporate shareholders of the
Tax Exempt Fund.
38
<PAGE>
If the Tax Exempt Fund invests in certain zero coupon securities,
increasing rate securities or, in general, other securities with original issue
discount (or with market discount if the Tax Exempt Fund elects to include
market discount in income currently), the Tax Exempt Fund must accrue income on
such investments prior to the receipt of the corresponding cash payments.
However, the Tax Exempt Fund must distribute, at least annually, all or
substantially all of its net taxable and tax-exempt income, including such
accrued income, to shareholders to qualify as a regulated investment company
under the Code and avoid federal income and excise taxes. Therefore, the Tax
Exempt Fund may have to dispose of its portfolio securities under
disadvantageous circumstances to generate cash, or may have to leverage itself
by borrowing the cash, to satisfy distribution requirements. The Equity and
Small Cap Funds would be subject to the same tax rules but do not expect to
acquire such investments.
The Tax Exempt Fund purchases tax-exempt obligations which are generally
accompanied by an opinion of bond counsel to the effect that interest on such
securities is not included in gross income for federal income tax purposes. It
is not economically feasible to, and the Tax Exempt Fund therefore does not,
make any additional independent inquiry into whether such securities are in fact
tax-exempt. Bond counsels' opinions will generally be based in part upon
covenants by the issuers and related parties regarding continuing compliance
with federal tax requirements. Tax laws enacted during the last decade not only
had the effect of limiting the purposes for which tax-exempt bonds could be
issued and reducing the supply of such bonds, but also increased the number and
complexity of requirements that must be satisfied on a continuing basis in order
for bonds to be and remain tax-exempt. If the issuer of a bond or a user of a
bond-financed facility fails to comply with such requirements at any time,
interest on the bond could become taxable, retroactive to the date the
obligation was issued. In that event, a portion of the Tax Exempt Fund's
distributions attributable to interest the Fund received on such bond for the
current year and for prior years could be characterized or recharacterized as
taxable income.
The Tax Exempt Fund may purchase municipal obligations together with the
right to resell the securities to the seller at an agreed upon price or yield
within a specified period prior to the maturity date of the securities. Such a
right to resell is commonly known as a "put" and is also referred to as a
"standby commitment." The Tax Exempt Fund may pay for a standby commitment
either separately, in cash, or in the form of a higher price for the securities
which are acquired subject to the standby commitment, thus increasing the cost
of securities and reducing the yield otherwise available. Additionally, the Tax
Exempt Fund may purchase beneficial interests in municipal obligations held by
trusts, custodial arrangements or partnerships and/or combined with third-party
puts or other types of features such as interest rate swaps; those investments
may require the Tax Exempt Fund to pay "tender fees" or other fees for the
various features provided.
The Internal Revenue Service (the "Service") has issued a revenue ruling to
the effect that, under specified circumstances, a registered investment company
will be the owner of tax-exempt municipal obligations acquired subject to a put
option. The Service has also issued private letter rulings to certain taxpayers
(which do not serve as precedent for other taxpayers) to the effect that
39
<PAGE>
tax-exempt interest received by a regulated investment company with respect to
such obligations will be tax-exempt in the hands of the company and may be
distributed to its shareholders as exempt-interest dividends. The Service has
subsequently announced that it will not ordinarily issue advance ruling letters
as to the identity of a true owner of property in cases involving the sale of
securities or participation interests therein if the purchaser has the right to
cause the security, or the participation interest therein, to be purchased by
either the seller or a third party. The Tax Exempt Fund intends to take the
position that it is the owner of any municipal obligations acquired subject to a
standby commitment or other third party put and that tax-exempt interest earned
with respect to such municipal obligations will be tax-exempt in its hands.
There is no assurance that the Service will agree with such position in any
particular case. Additionally, the federal income tax treatment of certain other
aspects of these investments, including the treatment of tender fees paid by the
Tax Exempt Fund, in relation to various regulated investment company tax
provisions is unclear. However the Adviser intends to manage the Tax Exempt
Fund's portfolio in a manner designed to minimize any adverse impact from the
tax rules applicable to these investments.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Tax Exempt Fund will not be deductible for federal income tax
purposes to the extent it is deemed related to exempt-interest dividends paid by
the Tax Exempt Fund. Pursuant to published guidelines, the Service may deem
indebtedness to have been incurred for the purpose of purchasing or carrying
shares of the Tax Exempt Fund even though the borrowed funds may not be directly
traceable to the purchase of 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
(except in the case of the Tax Exempt Fund) and/or realized or unrealized
appreciation in a Fund's portfolio. Consequently, subsequent distributions from
such income and/or appreciation may be taxable to such investor even if the net
asset value of the investor's shares is, as a result of the distributions,
reduced below the investor's cost for such shares, and the distributions in
reality represent a return of a portion of the purchase price.
The Funds may consider the use of equalization accounting for any taxable
year if it would further the goal of reducing taxable distributions to
shareholders for such year. Under equalization accounting, a Fund's earnings and
profits are allocated in part to redemption proceeds paid by the Fund: although
a redeeming shareholder's tax treatment would not be affected by such an
allocation, in certain circumstances the amounts of realized net income and/or
net capital gains the Fund is required to distribute may be reduced through the
use of equalization accounting. Hence, if a Fund determines that it will use
equalization accounting for a particular year, the amount, timing and character
of its distributions for that year may be affected. The Funds would consider
using equalization accounting for a particular year only if they determine that
such use is consistent with their tax objectives and would produce a benefit for
such year that outweighs any additional tax or accounting complexities or costs.
40
<PAGE>
Upon a redemption (including a repurchase) of shares of the Funds, 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 (except as described below)
be long-term or short-term, depending upon the shareholder's tax holding period
for the shares. Any loss realized on a redemption may be disallowed to the
extent the shares disposed of are replaced within a period of 61 days beginning
30 days before and ending 30 days after the shares are disposed of, such as
pursuant to automatic dividend reinvestments. In such a case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized upon the redemption of shares with a tax holding period of six months
or less will, with respect to the Tax Exempt Fund, be disallowed to the extent
of all exempt-interest dividends paid with respect to such shares and, with
respect to any Fund, the allowable loss on such a redemption 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.
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 Funds in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their
investment in the Funds is effectively connected will be subject to U.S. Federal
income tax treatment that is different from that described above. These
investors may be subject to nonresident alien withholding tax at the rate of 30%
(or a lower rate under an applicable tax treaty) on amounts treated as ordinary
dividends from the Funds and, unless an effective IRS Form W-8 or authorized
substitute is on file, to 31% backup withholding on certain other payments from
the Funds. Non-U.S. investors should consult their tax advisers regarding such
treatment and the application of foreign taxes to an investment in the Funds.
THE TRUST AND ITS SHARES
Each Fund is an investment series of Standish, Ayer & Wood Investment
Trust, an unincorporated business trust organized under the laws of The
Commonwealth of Massachusetts pursuant to an Agreement and Declaration of Trust
dated August 13, 1986, as amended from time to time (the "Declaration"). Under
the Declaration, the Trustees have authority to issue an unlimited number of
shares of beneficial interest, par value $.01 per share, of the Funds. Each
share of a Fund represents an equal proportionate interest in the Fund with each
other share and is entitled to such dividends and distributions as are declared
by the Trustees. Shareholders are not entitled to any preemptive, conversion or
subscription rights. All shares, when issued, will be fully paid and
non-assessable by the Trust. Upon any liquidation of a Fund, shareholders are
entitled to share pro rata in the net assets available for distribution.
41
<PAGE>
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 eleven 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. Pursuant to the Declaration of Trust
and subject to shareholder approval (if then required), the Trustees may
authorize the Fund to invest all of its investable assets in a single open-end
investment company that has substantially the same investment objectives,
policies and restrictions as the Fund. As of the date of this Statement of
Additional Information, the Board does not have any plan to authorize the Fund
to so invest its assets.
All Fund shares have equal rights with regard to voting, and shareholders
of a Fund have the right to vote as a separate class with respect to matters as
to which their interests are not identical to those of shareholders of other
classes of the Trust, including the approval of an investment advisory contract
and any change of investment policy requiring the approval of shareholders.
Pursuant to the Declaration of Trust and subject to shareholder approval
(if then required), the Trustees may authorize each Fund to invest all or part
of its investable assets in a single open-end investment company that has
substantially the same investment objectives, policies and restrictions as the
Fund. As of the date of this Statement of Additional Information, the Board does
not have any plan to authorize any Fund to so invest its assets.
Under Massachusetts law, shareholders of the Trust could, under certain
circumstances, be held liable for the obligations of the Trust. However, the
Declaration 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 both inadequate insurance existed and 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.
42
<PAGE>
ADDITIONAL INFORMATION
The Funds' Prospectus and this Statement of Additional Information omit
certain information contained in the Trust's 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 SEC.
EXPERTS AND FINANCIAL STATEMENTS
The financial statements of the Tax Exempt Fund for the fiscal years ended
December 31, 1993, 1994 and 1995 incorporated by reference from the Tax Exempt
Fund's annual report to shareholders in this Statement of Additional Information
have been audited by Coopers & Lybrand L.L.P., independent accountants, as set
forth in their report appearing elsewhere therein and have been so included in
reliance upon the authority of the report of Coopers & Lybrand L.L.P., as
experts in accounting and auditing. Financial highlights of the Tax Exempt Fund
for the period from November 2, 1992 (commencement of operations) through
December 31, 1992 were audited by Deloitte & Touche LLP, independent auditors,
and have been similarly included in reliance upon the expertise of that firm.
Coopers & Lybrand L.L.P., independent accountants, will audit each Fund's
financial statements for the current fiscal year ending September 30, 1996.
43
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Intermediate Tax Exempt Bond Fund Series
Financial Statements for the Year Ended
December 31, 1995
1
<PAGE>
Standish, Ayer & Wood Investment Trust
Chairman's Message
January 29, 1996
Dear Standish, Ayer & Wood Investment Trust Shareholder:
I am pleased to have an opportunity to review the major developments at
Standish, Ayer & Wood during this past year as they relate to the activities of
the Investment Trust. The major news for our clients in 1995 was the spectacular
performance of the U.S. investment markets. While we would, of course, like to
claim credit for producing the full extent of these splendid returns, the
reality is obvious: The markets themselves are beyond our control. For the year
as a whole, U.S. stocks, as represented by the Standard and Poor's 500 Index,
produced a total return of 37.6%, and higher grade intermediate-term bonds, as
represented by the Lehman Brothers Aggregate Index, provided a total return of
18.5%. Nearly as surprising, stock and bond prices marched steadily upward
throughout the year, a persistent and almost uninterrupted advance.
Even after the subdued markets of 1994, neither we nor most other investment
managers expected 1995 to be anywhere near as good as it turned out to be. In
this context, we are generally pleased by our investment performance. In most
asset classes, we kept pace with or modestly exceeded market returns. We adhered
to our established investment philosophies, which are designed to add reasonably
consistent increments of value. Our clients seem to be pleased by our efforts as
we continue to have very little client turnover.
As a firm, we have registered moderate growth during the year. Reflecting some
flow of new clients as well as market appreciation, our clients' assets under
management at the end of 1995 totalled $29.4 billion, an increase from $24.4
billion at the end of 1994. We are particularly pleased by the growth in new
assets managed for insurance companies and by the increases in assets of both
large capitalization and small capitalization U.S. common stocks.
The asset class of greatest disappointment in 1995 was international equities.
Not only did the asset class continue to provide subpar returns, but our
portfolios underperformed the international equity markets. These results
reflect judgments early in 1995 to hedge a portion of the currency exposure back
to dollars and to have a moderate stake in emerging markets. While we believe we
have rectified those problems, we are not satisfied with the results and are
working vigorously to improve future performance. We are also counseling our
clients not to lose faith in the international equity asset class despite its
recent disappointing returns.
The figure for total Standish assets under management includes about $1.6
billion managed in conjunction with Standish International Management Company,
L.P. (SIMCO), our affiliate that manages overseas assets for domestic clients
and U.S. assets for overseas clients. It also includes $3.9 billion in the
Standish Investment Trust, our mutual fund organization. In addition, the asset
total reflects an increase over the last few years in the assets we manage in
private, non-mutual fund vehicles.
We introduced two new mutual funds at mid-year 1995, namely the Standish Fixed
Income Fund II (which is designed to parallel the Standish Fixed Income Fund but
exclude the purchase of both nondollar bonds and below-investment-grade
securities), and the Standish Controlled Maturity Fund (which is designed for
investors who wish less volatility and interest rate risk than traditional
intermediate-maturity bonds).
At the beginning of 1996, we introduced two additional mutual funds, the
Standish Tax-Sensitive Equity Fund and the Standish Small Cap Tax-Sensitive
Equity Fund. At Standish we have noted for some time the adverse impact for
taxable investors of high portfolio turnover, which triggers capital gains,
possibly including short-term gains that may result in an even greater tax
liability for investors. We believe there is a major opportunity through both
separate account management and these funds to improve aftertax returns by
limiting the portfolio turnover and managing capital gains.
2
<PAGE>
During 1995, Standish acquired all remaining interests in the business of the
joint venture between Consolidated Investment Corp. (CIC) and Standish, entered
into over seven years ago. Consolidated had been formed by Trigon (previously
Blue Cross/Blue Shield of Virginia) to manage shorter-term taxable and tax
exempt fixed income portfolios. We and Trigon agreed that it was best to have
this unit operating under one owner.
Standish continues to be proud of its structure as an independent management
firm with ownership in the hands of investment professionals active in the
business. There were no changes during 1995 either in corporate structure or in
the people who own the enterprise.
We appreciate the opportunity to serve you, and we remain confident that we have
the resources and the organization to do a superior job. We will be working hard
to fulfill your expectations in 1996.
Sincerely yours,
Edward H. Ladd
Chairman
3
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Intermediate Tax Exempt Bond Fund Series
Management Discussion
1995 proved to be a superb year for fixed income investors. Nearly all bond
market sectors turned in excellent total returns for the year, and municipal
bonds were no exception. High returns were primarily the result of the steep
decline in interest rates that occurred throughout the year. The 10 year
maturity U.S. Treasury Note began the year at a yield of 7.83%, and closed the
year out at 5.58%. The yield of typical top quality 10 year municipal bonds
responded by falling from 5.80% at the beginning of the year to 4.65% at year
end. Interest rate declines were driven by evidence that some sectors of the
economy were slowing down and that inflation remain subdued. The Federal Reserve
reversed its tight monetary stance and began to lower short term interest rates
during the summer. All in all, a better year could not have been hoped for by
bondholders, particularly after the tough-going of 1994.
The tax-exempt market did experience some periods of high volatility, however,
and "tax rate risk" re-emerged to cause municipals to underperform Treasuries.
The most important "event" in this respect was the release of some news articles
in April suggesting that the momentum to enact a "flat tax" was gaining ground.
As originally introduced, the flat tax proposals would eliminate income taxes on
dividend and interest, thereby negating the incentive for investors to purchase
tax exempt bonds. Prices of municipal bonds dropped on this news, but regained a
significant amount of the decline over the remainder of the year. Lack of new
issue supply helped to support prices during much of the year; by many
estimates, the municipal market actually declined in size last year as more
bonds were redeemed than issued.
The Fund's total return for the year was 12.65%, slightly behind that of our
benchmark index of 12.93%. Our underperformance is largely the result of a more
conservative posture than the index with respect to the future direction of
interest rates. Our philosophy has been to not make large interest rate bets,
and we continue to adhere to this approach. Our heavier weighting in revenue
bond sectors was a positive for the year, as was our underweighting in
pre-refunded bonds. However, with quality and sector spreads extremely tight and
the size of the market actually getting smaller, it has become increasingly
difficult to outperform the index. Accordingly, during 1995 we increased the
size and quality of our research and trading staffs, and re-doubled our efforts
to find quality, high yielding securities for inclusion into the portfolio.
Raymond J. Kubiak Maria D. Furman
4
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Intermediate Tax Exempt Bond Fund Series
Comparison of Change in Value of $100,000 Investment in Standish
Intermediate Tax Exempt Bond Fund and the Lehman Muni 3-5-7-10 Index
The following is a description of the graphical chart omitted from electronic
format:
This line chart shows the cumulative performance of the Standish Intermediate
Tax Exempt Bond Fund compared with the Lehman Muni 3-5-7-10 Index for the period
November 2, 1992 to December 31, 1995, based upon a $100,000 investment. Also
included are the average annual total returns for one year, three year, and
since inception.
5
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Intermediate Tax Exempt Bond Fund Series
Portfolio of Investments
December 31, 1995
Par Value
Security Rate Maturity Value (Note 1A)
- ---------------------------------------------------------------------- ---------- ------------- ------------- ----------------
Bonds- 96.4%
- ----------------------------------------------------------------------
General Obligations- 14.2%
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cedar Hill ISD TX Perm Fund Gtd 6.80% 08/15/04 500,000 $ 576,875
Cincinnati Public Schools OH 6.15 06/15/02 600,000 644,250
Commonwealth of Massachusetts 7.50 06/01/04 500,000 600,625
Detroit MI 6.00 04/01/00 250,000 257,500
Detroit Michigan State Aid Limited Tax 5.63 05/01/97 500,000 508,125
District of Columbia 5.80 06/01/04 500,000 496,250
Honolulu HI 5.40 09/27/07 500,000 527,500
Lawrence MA State Qualified 5.38 09/15/05 500,000 508,750
Lowell MA State Qualified 7.20 02/15/00 500,000 548,750
-----------------
$ 4,668,625
-----------------
Insured Bonds- 29.2%
- ----------------------------------------------------------------------
Benton County WA School District AMBAC 6.70 12/01/06 580,000 $ 672,075
Bloomington MN Port Authority FSA 5.30 02/01/07 1,000,000 1,022,500
Chicago IL O'Hare Airport MBIA 6.75 01/01/06 500,000 571,875
Cook County IL Community College MBIA 7.40 12/01/00 150,000 170,063
Denver CO Airport MBIA 7.50 11/15/06 500,000 588,125
District of Columbia FSA 5.30 06/01/04 500,000 510,625
Grand Prairie TX AMBAC 6.00 11/01/99 470,000 485,862
Irving TX Hospital Authority Capital Guaranty 5.20 07/01/02 500,000 514,375
Jackson TN Jm Hospital AMBAC 5.50 04/01/10 500,000 511,875
Jefferson County OH Asset Guaranty 6.63 12/01/05 375,000 404,531
Las Cruces NM Electric MBIA 5.50 12/01/11 500,000 502,500
Los Angeles CA Airport FGIC 6.00 05/15/05 500,000 545,625
Mobile AL Water & Sewer FGIC 5.00 01/01/01 500,000 513,125
New York Dorm Canisius College CAPMAC 5.25 07/01/03 500,000 520,000
OK Industrial Authority Health System AMBAC 7.00 08/15/06 500,000 585,000
Orange County CA Transportation FGIC 4.80 02/15/06 500,000 485,000
Scottsdale AZ Hospital AMBAC 8.50 09/01/17 400,000 435,500
Tuscon AZ COP Asset Guaranty 6.00 07/01/04 500,000 537,500
-----------------
$ 9,576,156
-----------------
Housing Revenue- 5.3%
- ----------------------------------------------------------------------
CA Housing Authority MBIA 5.65 08/01/25 400,000 $ 408,000
Colorado HFA- Multi Family Insured Mortgage 7.90 10/01/00 225,000 249,187
Mass HFA Single Family 8.25 06/01/14 300,000 309,600
MI Housing Authority AMBAC 6.40 04/01/05 250,000 266,875
New Mexico Mortgage Finance Authority 5.75 07/01/14 500,000 508,750
-----------------
$ 1,742,412
-----------------
6
<PAGE>
Portfolio of Investments
(continued)
Par Value
Security Rate Maturity Value (Note 1A)
- ---------------------------------------------------------------------- ---------- ------------- ------------- ----------------
LOC GIC- 8.8%
- ----------------------------------------------------------------------
Emporia VA IDB LOC: Bank of Boston 5.80 04/01/04 130,000 $ 130,394
Emporia VA IDB LOC: Bank of Boston 5.80 04/01/04 200,000 200,542
Michigan Housing Authority LOC: Sumitomo 5.50 06/01/18 495,000 499,950
NY Dorm Memorial Hosp LOC: Fleet 5.50 07/01/03 500,000 521,875
Northborough MA IFA LOC: Bank of Boston* 5.75 09/01/99 500,000 513,750
West Virginia Public Energy LOC: Swiss Bank 5.50 07/01/08 1,000,000 1,023,750
-----------------
$ 2,890,261
-----------------
Pre-Refunded/Escrowed- 1.7%
- ----------------------------------------------------------------------
Texas Turnpike Authority 0.00 01/01/20 400,000 $ 570,500
-----------------
Revenue Bonds- 37.2%
- ----------------------------------------------------------------------
Alaska Industrial Development and Export Authority 5.25 04/01/98 215,000 $ 219,838
Alaska Industrial Development and Export Authority 5.50 04/01/01 500,000 521,875
Alaska Industrial Development and Export Authority 6.20 04/01/03 150,000 163,313
Allegheny County PA Industrial Development 5.30 12/01/96 500,000 503,685
Battery Park NY Authority Junior Lien 5.20 11/01/23 500,000 497,500
CO HEFA Rocky Mountain Adventist Hospital 6.00 02/01/98 225,000 228,094
DC Medlantic Hospital 7.00 08/15/05 500,000 535,625
Foothills CA Transportation Agency 0.00 01/01/07 500,000 290,000
Gateway OH Special Tax 7.50 09/01/05 500,000 547,500
Long Beach CA Aquarium 5.75 07/01/05 200,000 198,750
Los Angeles CA Building Authority 5.60 05/01/04 500,000 516,250
Mass IFA Boston Edison 5.75 02/01/14 500,000 499,375
Mass IFA Loomis Project 6.50 07/01/02 250,000 259,062
Mass IFA Resource Recovery 6.15 07/01/02 150,000 158,625
MT Student Loan 5.95 12/01/12 440,000 453,200
New York Medical Center Long Island FHA 6.40 08/15/14 500,000 533,750
New York Medical Center Mercy FHA 5.40 08/15/05 500,000 526,875
New York Medical Center Mt. Sinai FHA 5.95 08/15/09 275,000 285,312
New York Medical Center St. Lukes FHA 5.60 08/15/13 465,000 469,069
New York Medical Center St. Vincent FHA 6.13 02/15/14 555,000 586,219
NH Education Auth Brewster Academy 5.40 06/01/01 505,000 505,000
NH HEFA Nashua Memorial Hospital 6.25 10/01/08 300,000 313,125
NY Empire St Development Corp 6.00 01/01/04 500,000 525,000
NY Urban Development Corp. 6.25 04/01/02 500,000 534,375
OH Economic Development Revenue 5.45 06/01/99 230,000 234,025
Orange County CA Transportation Sales Tax 6.00 02/15/07 500,000 526,875
San Bernadino CA Certificates of Participation 5.25 08/01/04 500,000 493,750
University of New Mexico 7.70 06/01/06 350,000 362,106
WA Public Power Supply Project 5.30 07/01/02 500,000 512,500
Weld County Colorado IDA- Conagra 6.75 12/15/01 200,000 217,750
-----------------
$ 12,218,423
-----------------
7
<PAGE>
Portfolio of Investments
(continued)
Par Value
Security Rate Maturity Value (Note 1A)
- ---------------------------------------------------------------------- ---------- ------------- ------------- ----------------
Total Bonds $ 31,666,377
-----------------
(identified cost $30,562,758)
Short Term Obligations- 2.1%
- ----------------------------------------------------------------------
LOC- 2.1%
- ----------------------------------------------------------------------
Los Angeles CA Daily LOC: Wachovia* 6.00% 12/01/24 300,000 $ 300,000
Umatilla County OR Daily LOC: Societe Generale* 6.00 12/01/24 200,000 200,000
Wilmington DE Daily LOC: Toronto Dome* 6.00 07/01/11 200,000 200,000
-----------------
$ 700,000
-----------------
Repurchase Agreement- 0.0%
- ----------------------------------------------------------------------
Prudential Bache repurchase agreement
dated 12/29/95, 5.39% due 1/2/96 to pay
$2,425 (Collateralized by Federal National Mortgage
Association, 9.00%, due 09/01/22, market value $2,472)
at cost $ 2,424 $ 2,424
-----------------
Total Short Term Obligations $ 702,424
-----------------
(identified cost $702,424)
Total Investments- 98.5% $ 32,368,801
-----------------
(identified cost $31,265,182)
Other assets, less liabilities- 1.5% $ 496,592
-----------------
Net Assets- 100% $ 32,865,393
=================
* The interest rate is the rate in effect at December 31, 1995
The following abbreviations are used in this portfolio:
AMBAC- American Municipal Bond Assurance Corp. HFA- Housing Finance Agency
CAPMAC- Capital Market Assurance Co. IDA- Industrial Development Authority
COP- Certificate of Participation IDB- Industrial Development Bond
FGIC- Financial Guaranty Insurance Co. IFA- Industrial Finance Authority
FHA- Federal Housing Authority ISD- Independent School District
FSA- Financial Security Association LOC- Letter of Credit
GTD- Guaranteed MBIA- Municipal Bond Insurance Association
HEFA- Health & Educational Facilities Authority
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Intermediate Tax Exempt Bond Fund Series
Statement of Assets and Liabilities
December 31, 1995
Assets
<S> <C> <C>
Investments, at value (Note 1A)(identified cost, $31,265,182) $32,368,801
Receivable for investments sold 660,188
Interest receivable 489,879
Deferred organizational expenses (Note 1E) 7,078
Receivable from investment advisor (Note 3) 11,294
--------------------
Total assets $33,537,240
Liabilities
Distribution payable $99,541
Payable for investments purchased 519,239
Accrued investment advisory fee (Note 3) 31,159
Accrued trustee fees 316
Accrued expenses and other liabilities 21,592
-------------------
Total liabilities $671,847
--------------------
Net Assets $32,865,393
====================
Net Assets consist of
Paid-in capital $31,796,162
Accumulated undistributed net realized gain (loss) (34,388)
Net unrealized appreciation (depreciation) 1,103,619
--------------------
Total $32,865,393
====================
Shares of beneficial interest outstanding 1,535,830
====================
Net asset value, offering price, and redemption price per share $21.40
====================
(Net assets/Shares outstanding)
9
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish IntermediateTax Exempt Bond Fund Series
Statement of Operations
Year Ended December 31, 1995
Investment income
Interest income $1,550,770
Expenses
Investment advisory fee (Note 3) $115,482
Trustee fees (Note 3) 1,165
Accounting, custody and transfer agent fees 72,211
Registration costs 14,414
Audit services 15,919
Legal services 1,131
Insurance expense 628
Amortization of organizational expense (Note 1E) 4,410
Miscellaneous 357
--------------------
Total expenses $225,717
Deduct:
Waiver of investment advisory fee (Note 3) $38,426
--------------------
Net expenses 187,291
-------------------
Net investment income $1,363,479
-------------------
Realized and unrealized gain (loss)
Net realized gain (loss)
Investment securities $257,404
Financial futures (57,508)
--------------------
$199,896
Change in net unrealized appreciation (depreciation)
Investment securities 1,841,975
-------------------
Net gain (loss) $2,041,871
-------------------
Net increase (decrease) in net assets from operations $3,405,350
===================
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Intermediate Tax Exempt Bond Fund Series
Statement of Changes in Net Assets
Year ended December 31,
------------------------------------
Increase (decrease) in Net Assets 1995 1994
----------------- -----------------
From operations
<S> <C> <C>
Net investment income $1,363,479 $957,255
Net realized gain (loss) 199,896 (234,284)
Change in net unrealized appreciation (depreciation) 1,841,975 (1,284,419)
----------------- -----------------
Net increase (decrease) in net assets from operations $3,405,350 ($561,448)
----------------- -----------------
Distributions to shareholders
From net investment income ($1,363,479) ($957,255)
From realized capital gains - (18,500)
----------------- -----------------
Total distributions to shareholders ($1,363,479) ($975,755)
----------------- -----------------
Fund share (principal) transactions (Note 5)
Net proceeds from sale of shares $16,771,357 $12,559,281
Net asset value of shares issued to shareholders in
payment of distributions declared 316,498 225,637
Cost of shares redeemed (6,778,640) (7,865,733)
----------------- -----------------
Increase (decrease) in net assets from Fund share transactions $10,309,215 $4,919,185
----------------- -----------------
Net increase (decrease) in net assets $12,351,086 $3,381,982
Net Assets
At beginning of period 20,514,307 17,132,325
----------------- -----------------
At end of period $32,865,393 $20,514,307
================= =================
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Intermediate Tax Exempt Bond Fund Series
Financial Highlights
For the period
November 2, 1992
Year ended December 31, (start of business) to
1995 1994 1993 December 31, 1992*
----------- ------------ ----------- ------------------------
<S> <C> <C> <C> <C>
Net asset value - beginning of period $19.91 $21.44 $20.42 $20.00
----------- ------------ ----------- -------------------
Income from investment operations
Net investment income $0.98 $0.95 $0.93 $0.14
Net realized and unrealized gain (loss) 1.49 (1.51) 1.24 0.42
----------- ------------ ----------- -------------------
Total from investment operations $2.47 ($0.56) $2.17 $0.56
----------- ------------ ----------- -------------------
Less distributions declared to shareholders
From net investment income ($0.98) ($0.95) ($0.93) ($0.14)
From realized gains - (0.02) (0.22) -
----------- ------------ ----------- -------------------
Total distributions declared to shareholders ($0.98) ($0.97) ($1.15) ($0.14)
----------- ------------ ----------- -------------------
Net asset value - end of period $21.40 $19.91 $21.44 $20.42
=========== ============ =========== ===================
Total return 12.65% (2.68%) 10.78% 17.02% t
Ratios (to average net assets)/Supplemental Data
Expenses ** 0.65% 0.65% 0.65% 0.65% t
Net investment income ** 4.75% 4.62% 4.36% 4.16% t
Portfolio turnover 140% 157% 126% 62%
Net assets at end of period (000's omitted) $32,865 $20,514 $17,132 $5,577
** The investment adviser did not impose a portion of its advisory fee. If
this reduction had not been undertaken, the net investment income per
share and the ratios would have been:
Net investment income per share $0.95 $0.90 $0.85 $0.12
Ratios (to average net assets):
Expenses 0.79% 0.89% 1.15% 1.47%
Net investment income 4.61% 4.38% 3.86% 3.34%
t Computed on an annualized basis.
* Audited by other auditors.
</TABLE>
12
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Intermediate Tax Exempt Bond Fund Series
Notes to Financial Statements
(1).....Significant Accounting Policies:
Standish, Ayer & Wood Investment Trust (the "Trust") is organized as a
Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. Standish Intermediate Tax Exempt Bond Fund (the "Fund") is a
separate, diversified investment series of the Trust.
The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ
from those estimates.
A...Investment security valuations--
Municipal bonds are normally valued on the basis of valuations
furnished by a pricing service. Taxable obligations, if any, for which
price quotations are readily available are normally valued at the mean
between the latest available bid and ask prices. Securities for which
valuations or market quotations are not readily available are valued at
their fair value as determined in good faith by the investment adviser
in accordance with procedures approved by the trustees.
Short term instruments with less than sixty-one days remaining to
maturity when acquired by the Fund are valued on an amortized cost
basis. If the Fund acquires a short term instrument with more than
sixty days remaining to its maturity, it is valued at current market
value until the sixtieth day prior to maturity and will then be valued
at amortized cost based upon the value on such date unless the trustees
determine during such sixty-day period that amortized cost does not
represent fair value.
B...Repurchase agreements--
It is the policy of the Fund to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the Fund
to monitor on a daily basis, the market value of the repurchase
agreement's underlying investments to ensure the existence of a proper
level of collateral.
C...Securities transactions and income--
Securities transactions are recorded as of the trade date. Interest
income is determined on the basis of interest accrued, adjusted for
amortization of premium or discount on long-term debt securities when
required for federal income tax purposes. Realized gains and losses
from securities sold are recorded on the identified cost basis. The
Fund may use certain derivative instruments the nature, risks and
objectives of which are set forth in the Fund's Prospectus and
Statement of Additional Information.
D...Federal taxes--
As a qualified regulated investment company, under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the
extent that it distributes all of its taxable income for its fiscal
year. Dividends paid by the Fund from net interest earned on tax-exempt
municipal bonds are not includable by shareholders as gross income for
federal income tax purposes because the Fund intends to meet certain
requirements of the Internal Revenue Code applicable to regulated
investment companies which will enable the Fund to pay exempt interest
dividends. The portion of such interest, if any, earned on private
activity bonds issued after August 7, 1986 may be considered a tax
preference item to shareholders.
At December 31, 1995, the Fund, for federal income tax purposes, had
capital loss carryover which will reduce the Fund's taxable income
arising from future net realized gain on investments, if any, to the
extent permitted by the Internal Revenue Code and thus will reduce the
amount of distributions to shareholders which would otherwise be
necessary to relieve the Fund of any liability for federal income tax.
Such capital loss carryover are $27,197 and $5,192 which expire on
December 31, 2002 and December 31, 2003, respectively.
E...Deferred organization expense--
Costs incurred by the Fund in connection with its organization and
initial registration are being amortized, on a straight-line basis,
through October 1997.
13
<PAGE>
(2).....Distributions to Shareholders:
Dividends on shares of the Fund are declared daily from net investment
income and distributed monthly. Net capital gains, if any, are
distributed annually. Dividends from net investment income and
distributions from capital gains, if any, are automatically reinvested
in additional shares of the Fund unless the shareholder elects to
receive them in cash. Distributions are recorded on the ex-dividend
date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted
accounting principles. Permanent book and tax basis differences
relating to shareholder distributions will result in reclassifications
to paid-in capital.
(3).....Investment Advisory Fee:
The investment advisory fee paid to Standish, Ayer & Wood, Inc. (SA&W)
for overall investment advisory and administrative services, and
general office facilities, is paid quarterly at the annual rate of
0.40% of the Fund's average daily net assets. The investment adviser
has agreed that the total Fund operating expenses for any fiscal year
will not exceed 0.65% of the Fund's average daily net assets. For the
year ended December 31, 1995, the investment advisor did not impose
$38,426 of its fee to the Fund which is reflected as a reduction of
expenses on the Statement of Operations. The Fund pays no compensation
directly to its trustees who are affiliated with the investment adviser
or to its officers, all of whom receive remuneration for their services
to the Fund from the investment adviser. Certain of the trustees and
officers of the Fund are directors or officers of SA&W.
(4).....Purchases and Sales of Investments:
<TABLE>
<CAPTION>
Purchases and sales of investments, other than short-term obligations,
were as follows:
Purchases Sales
----------------- -----------------
<S> <C> <C>
Investments (non-U.S. government securities) $50,986,883 $40,572,529
================= ================
</TABLE>
(5).....Shares of Beneficial Interest:
<TABLE>
<CAPTION>
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest having a
par value of one cent per share. Transactions in Fund shares were as
follows:
Year ended December 31,
1995 1994
----------------- --------------------
<S> <C> <C>
Shares sold 821,564 612,015
Shares issued to shareholders 15,149 11,043
in payment of distributions declared
Shares redeemed (331,012) (392,041)
----------------- --------------------
Net increase 505,701 231,017
================= ====================
At December 31, 1995, one shareholder was record owner of approximately
26% of the total outstanding shares of the Fund.
</TABLE>
(6).....Federal Income Tax Basis of Investment Securities:
The cost and unrealized appreciation in value of the investment
securities owned at December 31, 1995, as computed on a federal income
tax basis, are as follows:
Aggregate cost $31,265,182
=================
Gross unrealized appreciation $1,117,896
Gross unrealized depreciation ($14,277)
-----------------
Net unrealized appreciation $1,103,619
=================
14
<PAGE>
(7).....Financial Instruments
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to enhance
potential gain in circumstances where hedging is not involved. The
nature, risks, and objectives of these instruments are set forth more
fully in the Fund's Prospectus and Statement of Additional Information.
The Fund trades the following financial instruments with off-balance
sheet risk:
Futures contracts--
The Fund may enter into financial futures contracts for the delayed
sale or delivery of securities or contracts based on financial indices
at a fixed price on a future date. The Fund is required to deposit
either in cash or securities an amount equal to a certain percentage of
the contract amount. Subsequent payments are made or received by the
Fund each day, dependent on the daily fluctuations in the value of the
underlying security, and are recorded for financial statement purposes
as unrealized gains or losses by the Fund. There are several risks in
connection with the use of futures contracts as a hedging device. The
change in value of futures contracts primarily corresponds with the
value of their underlying instruments or indices, which may not
correlate with changes in value of the hedged investments. In addition,
there is the risk that the Fund may not be able to enter into a closing
transaction because of an illiquid secondary market. The Fund enters
into financial futures transactions primarily to manage its exposure to
certain markets and to changes in securities prices and foreign
currencies. At December 31, 1995, there were no open futures contracts.
- --------------------------------------------------------------------------------
Federal Income Tax Information (Unaudited)
Of the distributions paid by the Fund from net investment income for
the year ended December 31, 1995, $1,354,216 is tax exempt for regular
Federal income tax purposes.
15
<PAGE>
Report of Independent Accountants
To the Trustees of Standish, Ayer & Wood Investment Trust and the Shareholders
of Standish Intermediate Tax Exempt Bond Fund Series:
We have audited the accompanying statement of assets and liabilities of
Standish, Ayer & Wood Investment Trust: Standish Intermediate Tax Exempt Bond
Fund Series (the "Fund"), including the schedule of portfolio investments, as of
December 31, 1995, and the related statement of operations for the year then
ended, changes in net assets for each of the two years in the period then ended
and financial highlights for each of the three years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights for the period from November 2, 1992 (start of business) to December
31, 1992, presented herein, were audited by other auditors, whose report, dated
February 12, 1993, expressed an unqualified opinion on such financial
highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Standish, Ayer & Wood Investment Trust: Standish Intermediate Tax Exempt Bond
Fund Series as of December 31, 1995, the results of its operations for the year
then ended, the changes in net assets for each of the two years in the period
then ended, and financial highlights for each of the three years in the period
then ended, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 13, 1996
16
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Financial Highlights of the following series of the Registrant are
included in the related Prospectuses: Standish Intermediate Tax Exempt Bond
Fund.
The following financial statements are included in the Statements of
Additional Information of the above-referenced series of the Registrant:
Schedule of Portfolio Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes In Net Assets
Financial Highlights
Notes to Financial Statements
(b) Exhibits:
(1) Agreement and Declaration of Trust dated August 13, 1986*
(1A) Certificate of Designation of Standish Fixed Income Fund**
(1B) Certificate of Designation of Standish International Fund**
(1C) Certificate of Designation of Standish Securitized Fund**
(1D) Certificate of Designation of Standish Short-Term Asset
Reserve Fund**
(1E) Certificate of Designation of Standish Marathon Fund*
(1F) Certificate of Amendment dated November 21, 1989*
(1G) Certificate of Amendment dated November 29, 1989*
1
<PAGE>
(1H) Certificate of Amendment dated April 24, 1990*
(1I) Certificate of Designation of Standish Equity Fund**
(1J) Certificate of Designation of Standish International Fixed
Income Fund**
(1K) Certificate of Designation of Standish Intermediate Tax Exempt
Bond Fund*
(1L) Certificate of Designation of Standish Massachusetts
Intermediate Tax Exempt Bond Fund*
(1M) Certificate of Designation of Standish Global Fixed Income
Fund*
(1N) Certificate of Designation of Standish Controlled Maturity
Fund and Standish Fixed Income Fund II**
(1O) Certificate of Designation of Standish Tax- Sensitive Small
Cap Equity Fund and Standish Tax-Sensitive Equity Fund**
(2) Bylaws of the Registrant*
(3) Not applicable
(4) Not applicable
(5A) Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish Securitized
Fund**
(5B) Form of Investment Advisory Agreement between the Registrant
and Standish, Ayer & Wood, Inc. relating to Standish
Short-Term Asset Reserve Fund**
(5C) Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish International
Fixed Income Fund**
(5D) Assignment of Investment Advisory Agreement between the
Registrant and Standish, Ayer & Wood, Inc. relating to
Standish International Fixed Income Fund**
(5E) Form of Investment Advisory Agreement between the Registrant
and Standish, Ayer & Wood, Inc. relating to Standish
Intermediate Tax Exempt Bond Fund**
2
<PAGE>
(5F) Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish Massachusetts
Intermediate Tax Exempt Bond Fund**
(5G) Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish Controlled
Maturity Fund**
(5H) Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish Fixed Income
Fund II**
(5I) Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish Small Cap
Tax-Sensitive Equity Fund**
(5J) Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish Tax-Sensitive
Equity Fund**
(6) Underwriting Agreement between the Registrant and Standish
Fund Distributors, L.P.**
(7) Not applicable
(8) Master Custody Agreement between the Registrant and Investors
Bank & Trust Company**
(9A) Transfer Agency and Service Agreement between the Registrant
and Investors Bank & Trust Company**
(9B) Master Administration Agreement between Registrant and
Investors Bank & Trust Company**
(9C) Form of Administrative Services Agreement between Standish,
Ayer & Wood, Inc. and the Registrant on behalf of Standish
Fixed Income Fund, Standish Equity Fund, Standish Small Cap
Equity Fund and Standish Global Fixed Income Fund**
(10A) Opinion and Consent of Counsel for Standish Fixed Income
Fund**
(10B) Opinion and Consent of Counsel for Standish Securitized Fund**
(10C) Opinion and Consent of Counsel for Standish Short-Term Asset
Reserve Fund**
3
<PAGE>
(10D) Opinion and Consent of Counsel for Standish Small
Capitalization Equity Fund (formerly Standish Marathon Fund)**
(10E) Opinion and Consent of Counsel for Standish Equity Fund**
(10F) Opinion and Consent of Counsel for Standish International
Fixed Income Fund**
(10G) Opinion and Consent of Counsel for Standish Intermediate Tax
Exempt Bond Fund**
(10H) Opinion and Consent of Counsel for Standish Massachusetts
Intermediate Tax Exempt Bond Fund**
(10I) Opinion and Consent of Counsel for Standish Global Fixed
Income Fund**
(10J) Opinion and Consent of Counsel for the Registrant**
(11A) Opinion and Consent of Independent Public Accountants***
(11B) Consent of Independent Public Accountants***
(12) Not applicable
(13) Form of Initial Capital Agreement between the Registrant and
Standish, Ayer & Wood, Inc.**
(14) Not applicable
(15) Not applicable
(16) Performance Calculations**
(17A) Financial Data Schedule of Standish Intermediate Tax Exempt
Bond Fund***
(18) Not applicable
(19A) Power of Attorney for Registrant (Richard S. Wood)**
(19B) Power of Attorney for Registrant (David W. Murray)**
(19C) Power of Attorney for Registrant (Samuel C. Fleming)**
(19D) Power of Attorney for Registrant (Benjamin M. Friedman)**
4
<PAGE>
(19E) Power of Attorney for Registrant (John H. Hewitt)**
(19F) Power of Attorney for Registrant (Edward H. Ladd)**
(19G) Power of Attorney for Registrant (Caleb Loring III)**
(19H) Power of Attorney for Registrant (D. Barr Clayson)**
(19I) Power of Attorney for Standish, Ayer & Wood Master Portfolio
(Richard S. Wood)**
(19J) Power of Attorney for Standish, Ayer & Wood Master Portfolio
(Samuel C. Fleming, Benjamin M. Friedman, John H. Hewitt,
Edward H. Ladd, Caleb Loring III, Richard S. Wood and D. Barr
Clayson)**
--------------------
* Filed as an exhibit to Registration
Statement No. 33-10615 and incorporated
herein by reference thereto.
** Filed as an exhibit to Registration
Statement No. 33-8214 and incorporated
herein by reference thereto.
*** Filed herewith.
Item 25. Persons Controlled by or under Common Control
with Registrant
No person is directly or indirectly controlled by or under common
control with the Registrant.
Item 26. Number of Holders of Securities
Set forth below is the number of record holders, as of April 1, 1996,
of the shares of each series of the Registrant.
Number of Record
Title of Class Holders
-------------- -------
Shares of beneficial interest, par value $.01, of:
Standish Fixed Income Fund 431
Standish Securitized Fun 15
Standish Short-Term Asset
Reserve Fund 107
Standish International Fixed
Income Fund 195
Standish Global Fixed Income Fund 49
Standish Equity Fund 146
Standish Small Capitalization
Equity Fund 419
Standish Massachusetts Intermediate
Tax Exempt Bond Fund 87
Standish Intermediate Tax Exempt
Bond Fund 100
Standish International Equity Fund 207
Standish Controlled Maturity Fund 10
Standish Fixed Income Fund II 4
Standish Small Cap Tax-Sensitive
Equity Fund 46
Standish Tax-Sensitive Equity Fund 24
5
<PAGE>
Item 27. Indemnification
Under the Registrant's Agreement and Declaration of Trust, any past or
present Trustee or officer of the Registrant is indemnified to the fullest
extent permitted by law against liability and all expenses reasonably incurred
by him in connection with any action, suit or proceeding to which he may be a
party or is otherwise involved by reason of his being or having been a Trustee
or officer of the Registrant. The Agreement and Declaration of Trust of the
Registrant does not authorize indemnification where it is determined, in the
manner specified in the Declaration, that such Trustee or officer has not acted
in good faith in the reasonable belief that his actions were in the best
interest of the Registrant. Moreover, the Declaration does not authorize
indemnification where such Trustee or officer is liable to the Registrant or its
shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his or her duties.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to Trustees, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by any such Trustee, officer or controlling person
against the Registrant in connection with the securities being registered, and
the Commission is still of the same opinion, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
6
<PAGE>
Item 28. Business and Other Connections of Investment Advisers
The business and other connections of the officers and Directors of
Standish, Ayer & Wood, Inc. ("Standish, Ayer & Wood"), the investment adviser to
all series of the Registrant other than Standish International Equity Fund,
Standish Global Fixed Income Fund Standish International Fixed Income Fund are
listed on the Form ADV of Standish, Ayer & Wood as currently on file with the
Commission (File No. 801-584), the text of which is hereby incorporated by
reference.
The business and other connections of the officers and partners of
Standish International Management Company, L.P. ("Standish International"), the
investment adviser to Standish International Equity Fund, Standish Global Fixed
Income Fund and Standish International Fixed Income Fund, are listed on the Form
ADV of Standish International as currently on file with the Commission (File No.
801-639338), the text of which is hereby incorporated by reference.
The following sections of each such Form ADV are incorporated herein by
reference:
(a) Items 1 and 2 of Part 2;
(b) Section IV, Business Background, of each Schedule D.
Item 29. Principal Underwriter
(a) Standish Fund Distributors, L.P. serves or will serve
as the principal underwriter of each of the series of
the Registrant as listed in Item 26 above.
(b) Directors and Officers of Standish Fund Distributors,
L.P.:
<TABLE>
<CAPTION>
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
- ---- ---------------- ---------------
<S> <C> <C>
James E. Hollis, III Chief Executive Officer Vice President
Beverly E. Banfield Chief Operating Officer Vice President
</TABLE>
7
<PAGE>
The General Partner of Standish Fund Distributors, L.P. is Standish,
Ayer & Wood, Inc.
(c) Not applicable.
Item 30. Location of Accounts and Records
The Registrant maintains the records required by Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 to 31a-3 inclusive thereunder at
its principal office, located at One Financial Center, Boston, Massachusetts
02111. Certain records, including records relating to the Registrant's
shareholders and the physical possession of its securities, may be maintained
pursuant to Rule 31a-3 at the main offices of the Registrant's transfer and
dividend disbursing agent and custodian.
Item 31. Management Services
Not applicable
Item 32. Undertakings
(a) Not applicable.
(b) With respect to each of Standish Small Cap
Tax-Sensitive Equity Fund and Standish Tax- Sensitive
Equity Fund, the Registrant undertakes to file a
post-effective amendment, using financial statements
which need not be certified, within four to six
months from the effective date of the Post-Effective
Amendment to its Registration Statement registering
shares of such Funds.
(c) The Registrant undertakes to furnish each person to
whom a Prospectus is delivered a copy of Registrant's
latest annual report to shareholders, upon request
and without charge.
8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Boston and
The Commonwealth of Massachusetts on the 22nd day of April, 1996.
STANDISH, AYER & WOOD
INVESTMENT TRUST
/s/ David W. Murray
David W. Murray, Treasurer
The term "Standish, Ayer & Wood Investment Trust" means and refers to
the Trustees from time to time serving under the Agreement and Declaration of
Trust of the Registrant dated August 13, 1986, a copy of which is on file with
the Secretary of State of The Commonwealth of Massachusetts. The obligations of
the Registrant hereunder are not binding personally upon any of the Trustees,
shareholders, nominees, officers, agents or employees of the Registrant, but
bind only the trust property of the Registrant, as provided in the Agreement and
Declaration of Trust of the Registrant. The execution of this Registration
Statement has been authorized by the Trustees of the Registrant and this
Registration Statement has been signed by an authorized officer of the
Registrant, acting as such, and neither such authorization by such Trustees nor
such execution by such officer shall be deemed to have been made by any of them,
but shall bind only the trust property of the Registrant as provided in its
Declaration of Trust.
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated.
9
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
- --------- ----- ----
Richard S. Wood* Trustee and President April 22, 1996
- ----------------------
Richard S. Wood (principal executive
officer)
David W. Murray* Treasurer (principal April 22, 1996
- ----------------------
David W. Murray financial and accounting
officer) and Secretary
D. Barr Clayson* Trustee April 22, 1996
D. Barr Clayson
Samuel C. Fleming* Trustee April 22, 1996
Samuel C. Fleming
Benjamin M. Friedman* Trustee April 22, 1996
Benjamin M. Friedman
John H. Hewitt* Trustee April 22, 1996
John H. Hewitt
Edward H. Ladd* Trustee April 22, 1996
Edward H. Ladd
Caleb Loring III* Trustee April 22, 1996
Caleb Loring III
*By: /s/ David W. Murray
David W. Murray
Attorney-In-Fact
</TABLE>
10
<PAGE>
EXHIBIT INDEX
Exhibit
- -------
(11A) Opinion and Consent of Independent Public Accountants
(11B) Consent of Independent Public Accountants
(17A) Financial Data Schedule of Standish Intermediate Tax Exempt Bond Fund
11
Consent Of Independent Accountants
We consent to the inclusion in Post-Effective Amendment No. 74 to the
Registration Statement on Form N-1A ( 1993 Act File Number 33-8214) of Standish,
Ayer & Wood Investment Trust, Standish, Intermediate Tax Exempt Fund Series,
(the Fund) of our report dated February 13, 1996, on our audit of the financial
statements and financial highlights of the Fund, which report is included in the
Annual Report to Shareholders for the year ended December 31, 1995, which is
also included in this Registration Statement.
We also consent to the references to our Firm under the caption "The Funds
Financial Highlights" in the Prospectus and under the caption "Independent
Accountants" in the Statement of Additional Information of the Registration
Statement.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
April 22, 1996
Exhibit 11
INDEPENDENT AUDITORS' CONSENT
We consent in this Post-Effective Amendment No. 74 to Registration Statement No.
33-8214 of Standish Intermediate Tax Exempt Bond Fund Series of Standish, Ayer &
Wood Investment Trust to the reference to us under the heading "Experts and
Financial Statements" appearing in the Statement of Additional Information,
which is a part of such Registration Statement.
Boston, Massachusetts
April 23, 1996
<TABLE> <S> <C>
<ARTICLE> 6
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<NAME> Standish Intermediate Tax Exempt Bond Fund
<S> <C>
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