As filed with the Securities and Exchange Commission on June 27, 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. 77 /X/
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 80 /X/
(Check appropriate box or boxes.)
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Standish, Ayer & Wood Investment Trust
(Exact Name of Registrant as Specified in Charter)
One Financial Center, Boston, Massachusetts 02111
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (617) 375-1760
ERNEST V. KLEIN, Esq.
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
/ / Immediately upon filing pursuant to Rule 485(b)
/ / On (date) pursuant to Rule 485(b)
/ / 60 days after filing pursuant to Rule 485(a)(1)
/ / 0n (date) pursuant to Rule 485(a)(1)
/X/ 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.
This Post-Effective Amendment has been executed outside of the United
States by the Trustees and Officers of Standish, Ayer & Wood Master Portfolio.
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST*
Standish Equity Asset Fund
Standish Small Capitalization Equity Asset Fund
Standish Fixed Income Asset Fund
Standish Global Fixed Income Asset 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 Not Applicable
Information
Item 4. General Description Cover Page, "The Funds
of Registrant and the Portfolios", "Investment
Objective and Policies", "Other
Investment Practices and Policies"
and "Risk Factors and Suitability"
Item 5. Management of the Fund "Management" and "Custodian,
Transfer Agent and Dividend
Disbursing Agent"
Item 6. Capital Stock and "The Fund and the Portfolios",
Other Securities "Purchase of Shares", "Redemption of
Shares", "Dividends and
Distributions" and "Federal Income
Taxes"
Item 7. Purchase of Securities Cover Page, "Purchase of
Being Offered Shares" and "Exchange of Shares"
Item 8. Redemption or "Redemption of Shares"
Repurchase
Item 9. Pending Legal Not Applicable
Proceedings
- -------------
* This Post-Effective Amendment to the Registrant's Registration Statement is
being filed with respect to the series of the Registrant set forth above and
does not affect the Prospectuses and Statements of Additional Information of any
additional series of the Registrant.
<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 Funds and Their Shares"
Other Securities and "The Portfolios and Their
Interest"
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>
SUBJECT TO COMPLETION: Dated June 26, 1996
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
Prospectus dated June 27, 1996
PROSPECTUS
One Financial Center
Boston, Massachusetts 02111
(800) 221-4795
STANDISH EQUITY ASSET FUND
("Equity Fund")
Seeks to achieve long-term growth of capital through investment
primarily in equity securities of companies which appear to be undervalued.
STANDISH SMALL CAPITALIZATION EQUITY
ASSET FUND
("Small Cap Fund")
Seeks to achieve long-term growth of capital through investment
primarily in equity securities of small companies which appear to be
undervalued.
STANDISH FIXED INCOME ASSET FUND
("Fixed Income Fund")
Primarily seeks to achieve a high level of current income, consistent
with preserving principal and liquidity, and secondarily seeks capital
appreciation when market factors such as declining interest rates indicate that
capital appreciation may be available without significant risk to principal.
STANDISH GLOBAL FIXED INCOME ASSET FUND
("Global Fixed Income Fund")
Seeks to maximize total return while realizing a market level of
income, consistent with preserving principal and liquidity.
-----------------------------
The Equity, Small Cap, Fixed Income and Global Fixed Income Funds
(collectively, the "Funds") are members of the Standish, Ayer & Wood family of
funds. The Equity, Small Cap and Fixed Income Funds are each organized as a
separate diversified investment series of Standish, Ayer & Wood Investment Trust
(the "Trust"), an open-end management investment company. Global Fixed Income
Fund is organized as a separate non-diversified investment series of the Trust.
UNLIKE OTHER MUTUAL FUNDS WHICH DIRECTLY ACQUIRE AND MANAGE THEIR OWN
PORTFOLIOS OF SECURITIES, EACH FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY
INVESTING ALL OF ITS INVESTABLE ASSETS ("INVESTABLE ASSETS") IN ITS
CORRESPONDING PORTFOLIO ("PORTFOLIO") WHICH IS A SEPARATE MUTUAL FUND WITH AN
IDENTICAL INVESTMENT OBJECTIVE. Each Portfolio is a
series of Standish, Ayer & Wood Master Portfolio (the "Portfolio Trust"), which
is also an open-end management investment company. See "Special Information
Concerning the Hub and Spoke(R) Master-Feeder Fund Structure" on Page 15.
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 (the "SEC") and is
available upon request and without charge by calling or writing to the Principal
Underwriter at the telephone number or address set forth above. The Statement of
Additional Information bears the same date as this Prospectus and is
incorporated by reference into this Prospectus.
Shares of the 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.
-1-
<PAGE>
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 COMMISSIONER OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
[end of first page]
Shares of the Funds may be purchased by entities ("Account
Administrators") that provide omnibus accounting services for groups of
individuals who beneficially own Fund shares ("Omnibus Accounts"). Omnibus
Accounts include pension and retirement plans (such as 401(k) plans, 457 plans
and 403(b) plans), and programs through which personal and/or account
maintenance services are provided to groups of individuals whether or not such
individuals invest on a tax-deferred basis. Individual investors may only
purchase Fund shares through their Omnibus Account Administrators. See "Purchase
of Shares" on page __ for further information. Please contact the Trust's
principal underwriter, Standish Funds Distributor, L.P. (the "Principal
Underwriter"), for information regarding other mutual funds in the Standish,
Ayer & Wood Group of Funds.
No sales commissions or other transaction charges are imposed by the
Trust or its principal underwriter, Standish Funds Distributor, L.P. (the
"Principal Underwriter"), although Administrators may impose such changes and
the Funds may compensate Administrators for providing services for the benefit
of participants in the Omnibus Accounts. Unless waived by the Funds, the minimum
initial investment by an Omnibus Account is $100,000.
Each Portfolio has the same investment objective as its corresponding
Fund.
Standish Equity Portfolio (the "Equity Portfolio"), in which the Equity
Fund invests all of its Investable Assets, invests primarily in a diversified
portfolio of publicly traded equity securities of United States companies and,
to a lesser extent, of foreign issuers.
Standish Small Capitalization Equity Portfolio (the "Small Cap
Portfolio") in which the Small Cap Fund invests all of its Investable Assets,
invests primarily in a diversified portfolio of publicly traded equity
securities of small companies which appear to be undervalued, including
securities being issued in initial public offerings.
Standish Fixed Income Portfolio (the "Fixed Income Portfolio"), in
which the Fixed Income Fund invests all of its Investable Assets, invests
primarily in a diversified portfolio of investment grade fixed income securities
with an average dollar-weighted maturity of 5 to 13 years.
Standish Global Fixed Income Portfolio (the "Global Fixed Income
Portfolio"), in which the Global Fixed Income Fund invests all of its Investable
Assets, invests primarily in a non-diversified portfolio of investment grade
fixed income securities denominated in foreign currencies and the U.S. dollar.
The Global Fixed Income Portfolio expects its yield to be comparable to the
yield of the general market for such securities. The Global Fixed Income Fund
provides a vehicle through which investors may participate in the Global Bond
markets.
See "Investment Objective and Policies" for a further discussion of
each Portfolio's investment policies and restrictions.
Standish, Ayer & Wood, Inc., Boston, Massachusetts ("Standish"), is the
investment adviser for the Equity, Small Cap and Fixed Income Portfolios.
Standish International Management Company, L.P., Boston, Massachusetts
("SIMCO"), is the investment adviser for Global Fixed Income Portfolio. Standish
and SIMCO are sometimes referred to herein as the "Adviser."
CONTENTS
Expense Information....................................................3
Investment Objectives and Policies.....................................4
Other Investment Practices and Policies................................7
Risk Factors and Suitability..........................................13
Special Information Concerning the Hub and
Spoke(R) Master-Feeder Fund Structure........................15
Calculation of Performance Data.......................................16
Dividends and Distributions...........................................16
Purchase of Shares....................................................16
Calculation of Net Asset Value........................................17
Exchange of Shares....................................................18
Redemption of Shares..................................................18
Management............................................................20
Federal Income Taxes .................................................22
The Funds and the Portfolios..........................................23
Principal Underwriter.................................................24
Custodian, Transfer Agent and Dividend
Disbursing Agent.............................................25
Independent Accountants...............................................25
Legal Counsel.........................................................25
Appendix A............................................................26
-2-
<PAGE>
EXPENSE INFORMATION
<TABLE>
<CAPTION>
Small Fixed Global Fixed
Equity Cap Income Income
Fund Fund Fund Fund
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases None None None None
Maximum Sales Load Imposed on Reinvested Dividends None None None None
Deferred Sales Load None None None None
Redemption Fees None None None None
Exchange Fee None None None None
Annual Operating Expenses (as a percentage of average net assets)
Management Fees 0.50% 0.60% 0.32% 0.40%
12b-1 Fees None None None None
Service Fees 0.25% 0.25% 0.25% 0.25%
Other Expenses (After Expense Limitation)* 0.27% 0.55% 0.28% 0.35%
----- ----- ----- -----
Total Operating Expenses (After Expense Limitation)* 1.02% 1.40% 0.85% 1.00%
===== ===== ===== =====
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 of years indicated:
Small Fixed Global Fixed
Equity Cap Income Income
Fund Fund Fund Fund
After 1 Year $10 $14 $8 $10
After 3 Years $32 $44 $27 $32
</TABLE>
The purpose of the above table is to assist the investor in understanding
the various costs and expenses of the Funds and the Portfolios that an investor
in the Funds will bear directly or indirectly. The 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 based upon estimates of the Funds' expenses for
their initial fiscal years ending December 31, 1996. The Trustees of the Trust
believe that over time the aggregate per share expenses of the Funds and
Portfolios will not be more than the expenses that the Funds would incur if they
were to retain the services of an investment adviser and the Investable Assets
of the Funds were invested directly in the types of securities being held by the
Portfolios.
* Standish has voluntarily agreed to limit each Fund's Total Operating Expenses
(excluding litigation, indemnification, taxes and other extraordinary expenses)
to the following percentages of average daily net assets for the Funds' fiscal
years ending December 31, 1996: Equity Fund--1.25%; Small Cap Fund--1.40%; Fixed
Income Fund--0.85%; and Global Fixed Income Fund--1.00%. These agreements are
voluntary and temporary and may be discontinued or revised by Standish at any
time after December 31, 1996. In the absence of such agreements, Other Expenses
and Total Operating Expenses of the Funds are estimated to be: Equity
Fund--0.27% and 1.02%; Small Cap Fund--0.57% and 1.42%; Fixed Income Fund--0.39%
and 0.96%; and Global Fixed Income Fund--0.68% and 1.33%.
For more information regarding the Funds' and the Portfolios' Expenses, see
"Management--Investment Adviser of the Portfolios" and "Management--Expenses"
herein. The Funds' imposition of a service fee may result in a long-term
shareholder indirectly paying more than the equivalent of the maximum front-end
sales charge permitted under the Rules of Fair Practice of the National
Association of Securities Dealers, Inc.
THE INFORMATION IN THE TABLE AND THE 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>
INVESTMENT OBJECTIVES AND POLICIES
Each Fund seeks to achieve its investment objective by investing all of its
Investable Assets in its corresponding Portfolio which has the same investment
objective as the Fund. Because of the risk inherent in all investments, there
can be no assurance that the investment objective of any Fund or Portfolio will
be achieved.
Since the investment characteristics of each Fund will relate directly to
those of its corresponding Portfolio, the following is a discussion of the
various investments and investment policies of the Portfolios.
The investment objective of each Fund and Portfolio is not fundamental.
Investment objectives and policies that are not fundamental may be changed by
the Trustees of the Trust and the Trustees of the Portfolio Trust without the
approval of a Fund's or a Portfolio's investors. If a Fund's investment
objective is changed, investors should consider whether the Fund remains an
appropriate investment in light of their then current financial condition. The
Funds' and the Portfolios' investment policies are described further in the
Statement of Additional Information.
Each Portfolio may, but is not required to, utilize various investment
strategies and techniques to hedge various market risks (such as interest rates,
currency exchange rates and broad or specific equity market movements), or to
enhance potential gain. Such strategies and techniques are generally accepted as
part of modern portfolio management and are regularly utilized by many mutual
funds. In the course of pursuing their respective investment objectives, the
Portfolios may: (i) purchase and write (sell) put and call options on
securities, equity and fixed-income indices and other financial instruments;
(ii) purchase and sell financial futures contracts and options thereon; (iii)
enter into repurchase agreements; (iv) enter into various interest rates
transactions such as swaps, caps, floors or collars; (v) enter into various
currency transactions such as currency forward contracts, currency futures
contracts, currency swaps or options on currencies or currency futures; (vi)
make short sales; and (vii) invest in restricted and illiquid securities,
although the Equity and Small Cap Portfolios do not normally so invest. In
addition, the Fixed Income and Global Fixed Income Portfolios may enter into
forward roll transactions and purchase securities on a "when-issued" or delayed
delivery basis. The Global Fixed Income Portfolio may lend its portfolio
securities and the Small Cap Portfolio may invest in other investment companies.
For a description of these investment strategies and techniques, see "Other
Investment Practices and Policies" below in this Prospectus. THE EQUITY
PORTFOLIO
The Equity Portfolio's investment objective is to achieve long-term growth
of capital through investment primarily in equity and equity-related securities
of companies which appear to be undervalued. Under normal circumstances, at
least 80% of the Equity Portfolio's total assets are invested in such
securities. (Equity and equity-related securities include common stocks,
preferred stocks, securities convertible into common stocks and options, futures
and other strategic transactions based on common stocks.) The Equity Portfolio
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 assets in such securities that are not so listed or
traded. The Equity Portfolio may also invest in debt securities and preferred
stocks which are convertible into, or exchangeable for, common stocks.
The Equity Portfolio will follow a disciplined investment strategy,
emphasizing stocks which the Adviser believes to offer above average potential
for capital growth. 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 Equity Portfolio's holdings. Securities selected for inclusion
in the Equity Portfolio's holdings will represent various industries and
sectors. Foreign securities will be selected for investment by the Equity
Portfolio if the Adviser believes these securities will offer above average
capital growth potential. The Equity Portfolio will attempt to reduce risk by
diversifying its investments within the investment policies set forth above.
For further information concerning the securities in which the Equity
Portfolio may invest and the investment strategies and techniques it may employ
and their associated risks, see "Other Investment Practices and Policies" and
"Risk Factors and
Suitability" below in this Prospectus.
THE SMALL CAP PORTFOLIO
The Small Cap Portfolio's investment objective is to
achieve long-term growth of capital through
investment primarily in equity and equity-related
securities of small capitalization companies. Under
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<PAGE>
normal circumstances, at least 80% of the Small Cap Portfolio's total assets
will be invested in such securities. (Equity and equity-related securities
include common stocks, preferred stocks, securities convertible into common
stocks and options, futures and other strategic transactions based on common
stocks.) The Small Cap Portfolio invests primarily in publicly traded
securities, including securities issued in initial public offerings. The Small
Cap Portfolio may invest up to 15% of its net assets in foreign equity
securities, including securities of foreign issuers that are listed on a U.S.
exchange or traded in the U.S. over-the-counter market and sponsored and
unsponsored American Depositary Receipts ("ADRs").
The common stocks of small capitalization companies in which the Small Cap
Portfolio 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 Small Cap Portfolio expects to emphasize investments in
companies involved with value added products or services in expanding
industries. At times, particularly when the Adviser believes that securities of
small capitalization companies are overvalued, the Small Cap Portfolio's
portfolio may include securities of larger, more mature companies, provided that
the value of the securities of such larger, more mature companies shall not
exceed 20% of the Portfolio's total assets. The Portfolio will attempt to reduce
risk by diversifying its investments within the investment policy set forth
above. The Portfolio may participate in initial public offerings for previously
privately held companies which are expected to have market capitalizations of up
to $700 million after the consummation of the offering and whose securities are
expected to be liquid after the offering. Such companies may have a more limited
operating history and/or less experienced management than other companies in
which the Portfolio invests, which may pose additional risks.
For further information concerning the securities in which the Small Cap
Portfolio may invest in the investment strategies and techniques it may employ
and the associated risks, see "Other Investment Practices and Policies" and
"Risk Factors and
Suitability" below in this Prospectus.
THE FIXED INCOME PORTFOLIO
The Fixed Income Portfolio's investment objective is primarily to achieve a
high level of current income, consistent with conserving principal and
liquidity, and secondarily to seek capital appreciation when changes in interest
rates or other economic conditions indicate that capital appreciation may be
available without significant risk to principal. Such capital appreciation may
result from an improvement in the credit standing of an issuer whose securities
are held by the Fixed Income Portfolio or from a decline in interest rates or
from a combination of both factors. The Fixed Income Portfolio will seek to
achieve its investment objective primarily through investing in a diversified
portfolio of fixed-income securities, generally of investment grade, with an
average dollar-weighted maturity of five to thirteen years. The Fixed Income
Portfolio may also invest to a limited extent in non-investment grade
securities.
The Fixed Income Portfolio may invest in a broad range of fixed-income
securities, including bonds, notes, mortgage-backed and asset-backed securities,
preferred stock and convertible debt securities. The Fixed Income Portfolio may
purchase securities that pay interest on a fixed, variable, floating (including
inverse floating), contingent, in-kind or deferred basis. Under normal market
conditions, at least 65% of the Fixed Income Portfolio's total assets will be
invested in such securities. Because the Fixed Income Portfolio seeks a high
level of current income, the possibility that it will exercise the conversion
options of any high yield convertible debt securities it acquires is remote.
Investors should be aware that investing in mortgage-backed securities involves
risks of fluctuation in yields and market prices and of early prepayments on the
underlying mortgages.
The Fixed Income Portfolio will normally invest in U.S. dollar-denominated
securities, but may invest up to 20% of its total assets in securities
denominated in foreign currencies; provided, however, that at any particular
time, no more than 10% of the Fixed Income Portfolio's total assets will be
invested in foreign securities which are not subject to currency hedging
transactions back into U.S. dollars.
Although the Fixed Income Portfolio will be managed without regard to
potential tax considerations, the Fixed Income Portfolio may invest up to 10% of
its total assets in tax-exempt securities, such as state and municipal bonds, if
the Adviser believes they will provide competitive returns. The Fixed Income
Fund's distributions of its allocable portion of the interest the Fixed Income
Portfolio earns from such securities will not be tax-exempt.
The Fixed Income Portfolio will not have more than 25% of the current value
of its total assets invested in any single industry, provided that this
restriction shall not apply to U.S. Government securities, including mortgage
pass-through securities
-5-
<PAGE>
(GNMAs). Rather, the Fixed Income Portfolio will invest in a broad range of bond
market sectors, especially those deemed by the Adviser to be undervalued and
consequently underpriced and offering higher yields relative to the market as a
whole. Such sectors include mortgage pass-throughs, electric, telephone and gas
utilities, industrials, bank holding companies, Eurodollar bonds and original
issue discount bonds (i.e., bonds which are offered by an issuer at a discount
from their stated par value and which, because of uncertainty about their
quality, are potentially more volatile). In order to achieve its investment
objective, the Fixed Income Portfolio will seek to add value by selecting
undervalued investments, thus taking advantage of lower prices and higher
yields, rather than by varying the maturities of its portfolio investments to
reflect interest rate forecasts.
For further information concerning the securities in which the Fixed Income
Portfolio may invest and the investment strategies and techniques it may employ
and their associated risks, see "Other Investment Practices and Policies" and
"Risk Factors and
Suitability" below in this Prospectus.
THE GLOBAL FIXED INCOME PORTFOLIO
The Global Fixed Income Portfolio's investment objective is to maximize
total return while realizing a market level of income, consistent with
preserving principal and liquidity. The Global Fixed Income Portfolio will seek
to achieve its investment objective primarily through investing in a portfolio
of fixed-income securities, generally of investment grade, denominated in
foreign currencies and the U.S. dollar. Because some of the Global Fixed Income
Portfolio's investments will be denominated in foreign currencies, including
bonds denominated in the European Currency Unit ("ECU"), exchange rates may have
a significant impact on the performance of the Global Fixed Income Portfolio.
The Global Fixed Income Portfolio may also invest to a limited extent in
non-investment grade securities.
The Global Fixed Income Portfolio may invest in a broad range of
fixed-income securities denominated in foreign currencies and U.S. dollars,
including bonds, notes, mortgage-backed and asset-backed, convertible debt
securities, preferred stock (including convertible preferred stock), structured
notes and debt securities issued or guaranteed by national, provincial, state or
other governments with taxing authority or by their agencies or by supranational
entities. The Global Fixed Income Portfolio will invest in other types of fixed
income securities expected to be developed in the future, if the Adviser
determines that such investment is consistent with the Global Fixed Income
Portfolio's investment objective and policies. (The Global Fixed Income Fund
will supplement this Prospectus and, if appropriate, the Statement of Additional
Information before the Global Fixed Income Portfolio makes any such investments
to a significant extent.) Supranational entities include international
organizations designated or supported by governmental entities to promote
economic reconstruction or development, and international banking institutions
and related government agencies. Examples of supranational entities are the
International Bank for Reconstruction and Development (the World Bank), the
European Steel and Coal Community, the Asian Development Bank and the
Inter-American Development Bank.
The Global Fixed Income Portfolio expects to emphasize foreign government
and agency securities, securities of U.S. companies denominated in foreign
currencies, U.S. Government and agency securities, mortgage-backed and
asset-backed securities and securities of foreign companies denominated in U.S.
dollars or foreign currencies. Investors should be aware that investing in
mortgage-backed securities involves risks of fluctuation in yields and market
prices and of early prepayments on the underlying mortgages. The Global Fixed
Income Portfolio may invest in securities that pay interest on a fixed,
variable, floating (including inverse floating), contingent, in-kind or deferred
basis. The Global Fixed Income Portfolio may also invest in unlisted warrants to
purchase fixed income securities. (Warrants are substantially the same as call
options in their nature, use and effect, except that warrants are generally of a
longer term and are issued by the issuer of the underlying security, rather than
by an option writer. See "General Characteristics of Options" in the Statement
of Additional Information.)
While under normal circumstances, at least 65% of the Global Fixed Income
Portfolio's total assets will be invested in the fixed-income securities of
issuers located or primarily doing business in at least three different
countries, the Global Fixed Income Portfolio generally intends to invest in
securities of issuers in no fewer than eight different countries. The Global
Fixed Income Portfolio may, however, invest a substantial portion of its assets
in one or more of those eight countries. The Global Fixed Income Portfolio is a
"non-diversified" fund and may invest a greater portion of its assets in
securities of any one issuer than can a diversified fund. See "Risk Factors and
Suitability" for a description of the risks associated with investments in
foreign securities and the Portfolio's non-diversified status.
In pursuing the Global Fixed Income Portfolio's investment objective, the
Adviser intends to emphasize
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<PAGE>
intermediate-term economic fundamentals relating to various countries in the
international economy, rather than evaluate day-to-day fluctuations in
particular currency and bond markets. The Adviser will review the economic
conditions and prospects relating to various countries in the international
economy and evaluate the available yield differentials with a view toward
maximizing total return.
For further information concerning the securities in which the Global Fixed
Income Portfolio may invest and the investment strategies and techniques it may
employ and their associated risks, see "Other Investment Practices and Policies"
and "Risk Factors and Suitability" below in this Prospectus.
OTHER INVESTMENT PRACTICES AND POLICIES
Mortgage-Backed Pass-Through Securities
The Fixed Income and Global Fixed Income Portfolios may invest in
mortgage-backed "pass-through" securities. Mortgage-backed "pass-through"
securities are subject to regular payments and early prepayments of principal,
which will affect a Fund's current and total returns. It is not possible to
predict accurately the life of a particular issue of mortgage-backed
"pass-through" securities held by a Portfolio. The actual life of any
mortgage-backed "pass-through" security is likely to be substantially shorter
than the original average maturity of the mortgage pool underlying the security
because unscheduled early prepayments of principal on the security owned by a
Portfolio will result from the prepayment, refinancing or foreclosure of the
underlying mortgage loans in the mortgage pool.
For example, mortgagors may increase the rate at which they prepay their
mortgages when interest rates decline sufficiently to encourage refinancing. A
Portfolio, when the monthly payments (which may include unscheduled prepayments)
on a security are passed-through to it, may be able to reinvest them only at a
lower rate of interest. Because of the regular scheduled payments of principal
and the early unscheduled prepayments of principal, mortgage-backed
"pass-through" securities are less effective than other types of obligations as
a means of locking in attractive long-term interest rates. As a result, this
type of security may have less potential for capital appreciation during periods
of declining interest rates than other U.S. Government securities of comparable
maturities, although many issues of mortgage-backed "pass-through" securities
may have a comparable risk of decline in market value during periods of rising
interest rates. Although a security purchased at a premium above its par value
may carry a higher stated rate of return, both a scheduled payment of principal,
which will be made at par, and an unscheduled prepayment of principal generally
will decrease current and total returns and will accelerate the recognition of
income which, when distributed to Fund shareholders, will be taxable as ordinary
income.
Collateralized Mortgage Obligations
The Fixed Income and Global Fixed Income Portfolios may invest in
collateralized mortgage obligations ("CMOs"). The issuer of a CMO effectively
transforms a mortgage pool into obligations comprised of several different
maturities, thus creating mortgage securities that appeal to short-term and
intermediate-term investors as well as the more traditional long-term mortgage
investor. CMOs are debt securities issued by Federal Home Loan Mortgage
Corporation, Federal National Mortgage Corporation and by non-governmental
financial institutions and other mortgage lenders and are generally fully
collateralized by a pool of mortgages held under an indenture. CMOs are issued
in a number of classes or series which have different maturities and are
generally retired in sequence. CMOs are designed to be retired as the underlying
mortgage loans in the mortgage pool are repaid. In the event of sufficient early
prepayments on such mortgages, the class or series of CMO first to mature
generally will be retired prior to its maturity. Thus, the early retirement of a
particular class or series of a CMO held by a Portfolio would affect its
corresponding Fund's current and total returns in the manner indicated above.
In making investments in CMOs, the Adviser will take into account the
following considerations: the total return on CMOs will vary with interest
rates, which cannot be predicted; the maturity of CMOs is variable and is not
known at the time of purchase; prepayments on CMOs will depend upon prevailing
interest rates and CMOs may have a shorter life than expected; and, because CMOs
are relatively new securities and have not been in existence through all market
cycles, the risks of investing in CMOs are not fully known.
Securities Ratings and Portfolio Credit Quality
The convertible debt securities and preferred stocks in which the Equity
Portfolio may invest will generally be rated high quality, i.e., securities
which, at the date of investment, are rated within the three highest grades as
determined by Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa or A) or by
Standard & Poor's Ratings Group ("Standard & Poor's") (AAA, AA or A) or if, not
rated, are determined by the Adviser to be of comparable credit quality. Up to
5% of the Equity Portfolio's total assets invested in convertible debt
securities and preferred stocks may be rated Baa
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by Moody's or BBB by Standard & Poor's or, if not rated, are determined to be of
comparable credit quality by the Adviser.
The Fixed Income and Global Fixed Income Portfolios will generally invest
in investment grade fixed-income securities, i.e., securities which, at the date
of investment, are rated within the four highest grades as determined by Moody's
(Aaa, Aa, A or Baa) or by Standard & Poor's, or solely with respect to Global
Fixed Income Portfolio, Duff & Phelps, Inc. ("Duff & Phelps") or IBAC, Inc.
("IBAC") (AAA, AA, A or BBB) or their respective equivalent ratings or, if not
rated, are determined by the Adviser to be of comparable credit quality.
Securities rated Baa by Moody's or BBB by Standard & Poor's, Duff & Phelps or
IBAC and unrated securities of comparable 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.
The Fixed Income and Global Fixed Income Portfolios may invest up to 15% of
their respective net assets in securities rated, at the date of investment,
either Ba by Moody's or BB by Standard & Poor's, or solely with respect to
Global Fixed Income Portfolio, Duff & Phelps or IBAC or, if not rated, are
determined by the Adviser to be of comparable credit quality ("BB Rated
Securities"). BB Rated Securities are classified in the highest category of
non-investment grade securities. Such securities may be considered to be
high-yield securities ("junk bonds"), carry a high degree of risk and are
considered speculative by the major credit rating agencies. The Fixed Income and
Global Fixed Income Portfolios intend to avoid what they perceive to be the most
speculative areas of the BB Rated Securities universe. See "Risk Factors and
Suitability" for a description of risks associated with investments in BB Rated
Securities.
It is anticipated that the average dollar-weighted rated credit quality of
the securities in the Fixed Income and Global Fixed Income Portfolios'
portfolios will be in a range of Aa to A according to the ratings of Moody's or
AA to A according to the ratings of Standard & Poor's, or solely with respect to
Global Fixed Income Portfolio, Duff & Phelps or IBAC, or of comparable credit
quality as determined by the Adviser.
In the case of a security that is rated differently by the rating services,
the highest rating is used in connection with the Portfolios' policies involving
securities ratings. In the event that the rating on a security held in a
Portfolio'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. In
determining whether securities are of comparable credit quality, the Adviser may
take into account, but will not rely entirely on, ratings assigned by foreign
rating agencies. In the case of unrated sovereign, subnational and sovereign
related debt of foreign countries, the Adviser may take into account, but will
not rely entirely on, the ratings assigned to the issuers of such securities.
Appendix A to this Prospectus sets forth excerpts from the descriptions of
ratings of corporate debt securities and sovereign, subnational and sovereign
related debt of foreign countries.
Short Term Debt Securities; Money Market
Instruments
The Portfolios may establish and maintain cash balances for temporary
defensive purposes without limitation in the event of, or in anticipation of, a
general decline in the market prices of securities in which they invest. The
Equity, Small Cap and Global Fixed Income Portfolios may also establish and
maintain cash balances for liquidity to meet shareholder redemptions (the Small
Cap Portfolio will limit such investments to 20% of its total assets unless it
is in a temporary defensive position). A Portfolio's cash balances may be
invested in money market instruments and short-term interest bearing securities
that are rated investment grade in the case of the Equity and Small Cap
Portfolios or high quality in the case of the Fixed Income and Global Fixed
Income Portfolios. Such securities and instruments include, without limitation,
short-term U.S. Government securities (direct obligations of the U.S. Government
backed by the full faith and credit of the United States and securities issued
by agencies and instrumentalities of the U.S. Government), U.S. and foreign
commercial paper, negotiable certificates of deposit, non-negotiable fixed time
deposits, bankers' acceptances and repurchase agreements.
The Equity and Small Cap Portfolios' investments in money market securities
(i.e., securities with maturities of less than one year) will be limited to
securities which are rated P-1 by Moody's or A-1 by Standard & Poor's. The
Equity and Small Cap Portfolios will invest at least 95% of their respective
assets that are invested in short-term interest-bearing securities (i.e.,
securities with maturities of one to three years) in securities which are rated
at the time of investment Aaa, Aa or A by Moody's or AAA, AA, or A by Standard &
Poor's or, if not rated, are determined by the Adviser to be of comparable
quality. Up to 5% of the Equity and Small Cap Portfolios' assets invested in
such short-term securities may be invested in
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securities which are rated Baa by Moody's or BBB by Standard & Poor's or, if not
rated, are of comparable investment quality in the opinion of the Adviser.
Repurchase Agreements
The Equity, Small Cap, Fixed Income and Global Fixed Income Portfolios may
invest up to 10%, 10%, 5% and 25%, respectively, of their net assets in
repurchase agreements under normal circumstances. Repurchase agreements acquired
by a Portfolio will always be fully collateralized as to principal and interest
by money market instruments and will be entered into only with commercial banks,
brokers and dealers considered creditworthy by the Adviser. If the other party
or "seller" of a repurchase agreement defaults, a Portfolio might suffer a loss
to the extent that the proceeds from the sale of the underlying securities and
other collateral held by the Portfolio in connection with the related repurchase
agreement are less than the repurchase price. In addition, in the event of
bankruptcy of the seller or failure of the seller to repurchase the securities
as agreed, a Portfolio could suffer losses, including loss of interest on or
principal of the security and costs associated with delay and enforcement of the
repurchase agreement.
Strategic Transactions
Each Portfolio may, but is not required to, utilize various other
investment strategies as described below to hedge various market risks (such as
interest rates, currency exchange rates, and broad or specific equity or
fixed-income market movements), to manage the effective maturity or duration of
fixed-income securities, or to enhance potential gain. Such strategies are
generally accepted as part of modern portfolio management and are regularly
utilized by many mutual funds and other institutional investors. Techniques and
instruments used by the Portfolios may change over time as new instruments and
strategies are developed or as regulatory changes occur.
In the course of pursuing their investment objectives, the Portfolios may
purchase and sell (write) exchange-listed and over-the-counter put and call
options on securities, equity and fixed-income indices and other financial
instruments; purchase and sell financial futures contracts and options thereon;
enter into various interest rate transactions such as swaps, caps, floors or
collars; and enter into various currency transactions such as currency forward
contracts, currency futures contracts, currency swaps or options on currencies
or currency futures (collectively, all the above are called "Strategic
Transactions"). Strategic Transactions may be used in an attempt to protect
against possible changes in the market value of securities held or to be
purchased by a Portfolio resulting from securities market or currency exchange
rate fluctuations, to protect a Portfolio's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of the Fixed Income and
Global Fixed Income Portfolios' holdings, or to establish a position in the
derivatives markets as a temporary substitute for purchasing or selling
particular securities. In addition to the hedging transactions referred to in
the preceding sentence, Strategic Transactions may be used to enhance potential
gain in circumstances where hedging is not involved although each Portfolio will
attempt to limit its net loss exposure resulting from Strategic Transactions
entered into for such purposes to not more than 3% of its net assets at any one
time and, to the extent necessary, the Portfolios will close out transactions in
order to comply with this limitation. (Transactions such as writing covered call
options are considered to involve hedging for the purposes of this limitation.)
In calculating a Portfolio's net loss exposure from such Strategic Transactions,
an unrealized gain from a particular Strategic Transaction position would be
netted against an unrealized loss from a related Strategic Transaction position.
For example, if the Adviser anticipates that the Belgian franc will appreciate
relative to the French franc, the Global Fixed Income Portfolio may take a long
forward currency position in the Belgian franc and a short foreign currency
position in the French franc. Under such circumstances, any unrealized loss in
the Belgian franc position would be netted against any unrealized gain in the
French franc position (and vice versa) for purposes of calculating the Global
Fixed Income Portfolio's net loss exposure. The ability of the Portfolios to
utilize these Strategic Transactions successfully will depend on the Adviser's
ability to predict pertinent market movements, which cannot be assured. The
Portfolios will comply with applicable regulatory requirements when implementing
these strategies, techniques and instruments. The Portfolios' activities
involving Strategic Transactions may be limited to enable the Funds to comply
with the requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), for qualification as a regulated investment company.
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 Portfolios, force the purchase or sale, respectively, of portfolio
securities at inopportune times or for prices higher than (in the
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case of purchases due to the exercise of put options) or lower than (in the case
of sales due to the exercise of call options) current market values, limit the
amount of appreciation the Portfolios can realize on their investments or cause
the Portfolios to hold a security they might otherwise sell. The use of currency
transactions can result in the Portfolios incurring losses as a result of a
number of factors including the imposition of exchange controls, suspension of
settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of a
Portfolio creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Portfolio's position. The writing of
options could significantly increase a Portfolio's portfolio turnover rate and,
therefore, associated brokerage commissions or spreads. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Portfolios might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time, in certain
circumstances, these transactions tend to limit any potential gain which might
result from an increase in value of such position. The loss incurred by the
Portfolios in writing options on futures and entering into futures transactions
is potentially unlimited; however, as described above, each Portfolio will
attempt to limit its net loss exposure resulting from Strategic Transactions
entered into for non-hedging purposes to not more than 3% of its net assets at
any one time. Futures markets are highly volatile and the use of futures may
increase the volatility of the Portfolios' net asset value. Finally, entering
into futures contracts would create a greater ongoing potential financial risk
than would purchases of options where the exposure is limited to the cost of the
initial premium. Losses resulting from the use of Strategic Transactions would
reduce the Funds' net asset values and the net result may be less favorable than
if Strategic Transactions had not been utilized. Further information concerning
the Portfolios' Strategic Transactions is set forth in the Statement of
Additional Information.
When-Issued and "Delayed Delivery" Securities
The Fixed Income and Global Fixed Income Portfolios may commit up to 15%
and 25%, respectively, of their net assets to purchase securities on a
"when-issued" or "delayed delivery" basis. Although a Portfolio would generally
purchase securities on a when-issued or delayed delivery basis with the
intention of actually acquiring the securities, the Portfolios may dispose of a
when-issued or delayed delivery security prior to settlement if the Adviser
deems it appropriate to do so. The payment obligation and the interest rate on
these securities will be fixed at the time that a Portfolio enters into the
commitment, but no income will accrue to the Portfolio until they are delivered
and paid for. Unless a Portfolio has entered into an offsetting agreement to
sell the securities, cash or liquid, high-grade debt securities equal to the
amount of the Portfolio's commitment will be segregated with the Portfolios'
custodian, to secure the Portfolio's obligations and to ensure that it is not
leveraged. Securities purchased on a "when-issued" basis may have a market value
on delivery which is less than the amount paid by a Portfolio. Changes in market
value may be based upon the public's perception of the creditworthiness of the
issuer or changes in the level of interest rates. Generally, the value of
"when-issued" securities will
fluctuate inversely to changes in interest rates, i.e., they will appreciate in
value when interest rates fall and will depreciate in value when interest rates
rise.
Forward Roll Transactions
In order to enhance current income, the Fixed Income and Global Fixed
Income Portfolios may enter into forward roll transactions with respect to
mortgage-backed securities to the extent of 10% and 5%, respectively, of their
total assets. In a forward roll transaction, a Portfolio sells a mortgage-backed
security to a financial institution, such as a bank or broker-dealer, and
simultaneously agrees to repurchase a similar security from the institution at a
later date at an agreed-upon price. The mortgage-backed securities that are
repurchased will bear the same interest rate as those sold, but generally will
be collateralized by different pools of mortgages with different prepayment
histories than those sold. During the period between the sale and repurchase, a
Portfolio will not be entitled to receive interest and principal payments on the
securities sold. Proceeds of the sale will be invested in short-term
instruments, such as repurchase agreements or other short-term securities, and
the income from these investments, together with any additional fee income
received on the sale and the amount gained by repurchasing the securities in the
future at a lower purchase price, will generate income and gain for the
Portfolio which is intended to exceed the yield on the securities sold. Forward
roll transactions involve the risk that the market value of the securities sold
by a Portfolio may decline below the repurchase price of those securities. At
the time that a Portfolio enters into a forward roll transaction, it will place
in a segregated custodial account cash or liquid, high grade debt
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obligations having a value equal to the repurchase price (including accrued
interest) and will subsequently monitor the account to ensure that the
equivalent value is maintained. The use of forward roll transactions involves
leverage, which allows any investment gains made with additional monies received
(in excess of the cost of the roll transaction) to increase the net asset value
of a Portfolio's interests faster than would otherwise be the case. On the other
hand, if the additional monies received are invested in ways that do not fully
recover the costs of such transactions to a Portfolio, the net asset value of
the Portfolio would fall faster than would otherwise be the case.
Illiquid and Restricted Securities
The Fixed Income and Global Fixed Income Portfolios may invest up to 15% of
their respective net assets in illiquid investments and securities that are
subject to restrictions on resale (i.e., private placements) under the
Securities Act of 1933, as amended (the "1933 Act), including securities
eligible for resale in reliance on Rule 144A under the 1933 Act ("restricted
securities"). Although the Equity and Small Cap Portfolios do not normally
invest in equity securities that are restricted as to disposition by federal
securities laws or are otherwise illiquid, the Equity and Small Cap Portfolios
may so invest up to 15% of their respective net assets when, in the opinion of
the Adviser, investment opportunities represented 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 certain restricted securities, unless it is determined, based upon
continuing review of the trading markets for the specific restricted security,
that such restricted security is eligible for resale under Rule 144A and is
liquid. The Board of Trustees of the Portfolio Trust has adopted guidelines and
delegated to the Adviser the daily function of determining and monitoring the
liquidity of restricted securities. The Board of Trustees, however, retains
oversight focusing on factors such as valuation, liquidity and availability of
information and is ultimately responsible for such determinations. Investing in
restricted securities eligible for resale pursuant to Rule 144A could have the
effect of increasing the level of illiquidity in a Portfolio to the extent that
qualified institutional buyers become for a time uninterested in purchasing
these restricted securities. The purchase price and subsequent valuation of
restricted and illiquid securities normally reflect a discount, which may be
significant, from the market price of comparable securities for which a liquid
market exists.
Short-Selling
Each Portfolio may make short sales, which are transactions in which a
Portfolio sells a security it does not own in anticipation of a decline in the
market value of that security. To complete such a transaction, a Portfolio must
borrow the security to make delivery to the buyer. The Portfolio then is
obligated to replace the security borrowed by purchasing it at the market price
at the time of replacement. The price at such time may be more or less than the
price at which the security was sold by the Portfolio. Until the security is
replaced, the Portfolio is required to pay to the lender amounts equal to any
dividends or interest which accrue during the period of the loan. To borrow the
security, the Portfolio also may be required to pay a premium, which would
increase the cost of the security sold. The proceeds of the short sale will be
retained by the broker, to the extent necessary to meet margin requirements,
until the short position is closed out.
Until a Portfolio replaces a borrowed security in connection with a short
sale, the Portfolio will: (a) maintain daily a segregated account not with the
broker, containing cash or liquid, high grade debt 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 Portfolio will incur a loss as a result of the short sale if the price of
the security increases between the date of the short sale and the date on which
the Portfolio replaces the borrowed security. A Portfolio will realize a gain if
the security declines in price between those dates by an amount greater than
premium and transaction costs. This result is the opposite of what one would
expect from a cash purchase of a long position in a security. The amount of any
gain will be decreased, and the amount of any loss increased, by the amount of
any premium or amounts in lieu of dividends or interest that the Portfolio may
be required to pay in connection with a short sale.
A Portfolio's loss on a short sale as a result of an increase in the price
of a security sold short is potentially unlimited. The Portfolios may purchase
call options to provide a hedge against an increase in the price of a security
sold short. When a Portfolio purchases a call option it must pay a premium to
the person writing the option and a commission to the broker selling the option.
If the options are exercised by the Portfolio, the premium and the commission
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paid may be more than the amount of the brokerage commission charged if the
security were to be purchased directly. See "Strategic Transactions" above.
The Portfolios 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 giving effect to any such
short sale, the total market value of all securities sold short by a Portfolio
would exceed 5% of the value of the Portfolio's net assets.
In addition to the short sales discussed above, the Portfolios may make
short sales "against the box." A short sale is against-the-box if a Portfolio,
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 securities of the same issuer
as the securities sold short. The proceeds of a short sale are held by a broker
until the settlement date at which time the Portfolio delivers the security to
close the short position. The Portfolio receives the net proceeds from the short
sale.
Other Investment Companies
The Small Cap Portfolio may invest up to 10% of its total assets in the
securities of other investment companies but may not invest more than 5% of its
total assets in the securities of any one investment company or acquire more
than 3% of the voting securities of any other investment company. For example,
the Small Cap Portfolio may invest in Standard & Poor's Depositary Receipts
(commonly referred to as "Spiders"), which are exchange-traded shares of a
closed-end investment company that are designed to replicate the price
performance and dividend yield of the Standard & Poor's 500 Composite Stock
Price Index. The Small Cap Portfolio will indirectly bear its proportionate
share of any management fees and other expenses paid by investment companies in
which it invests in addition to the advisory fees paid by the Portfolio.
However, to the extent that the Small Cap Portfolio invests in a registered
open-end investment company, the Adviser will not impose its advisory fees on
the portion of the Portfolio's assets so invested.
Securities Loans
In order to realize additional income, the Global Fixed Income Portfolio
may lend a portion of the securities in its portfolio to broker-dealers and
financial institutions, who from time to time may wish to borrow securities,
generally to carry out transactions for which they have contracted. The market
value of securities loaned by the Global Fixed Income Portfolio may not exceed
20% of the value of its total assets, with a 10% limit for any single borrower.
In order to secure their obligations to return securities borrowed from the
Global Fixed Income Portfolio, borrowers will deposit collateral with the Global
Fixed Income Portfolio's custodian equal to at least 100% of the market value of
the borrowed securities, and the collateral will be "marked to market" daily. As
is the case with any extension of credit, portfolio securities loans involve
certain risks in the event a borrower should fail financially, including delays
or inability to recover the loaned securities or foreclose against the
collateral. The Adviser, under the supervision of the Portfolio Trust's Board of
Trustees, monitors the creditworthiness of the parties to whom the Global Fixed
Income Portfolio makes securities loans.
Portfolio Turnover
It is not the policy of any Portfolio to purchase or sell securities for
trading purposes. However, the Portfolios are not subject to any restriction on
portfolio turnover and may sell any portfolio security without regard to the
period of time it has been held. The Portfolios may therefore generally change
their portfolios' investments at any time in accordance with the Adviser's
appraisal of factors affecting any particular issuer or market, or the economy
in general.
The portfolio turnover rates for Equity, Small Cap, Fixed Income and Global
Fixed Income Portfolios are not expected to be in excess of 200%, 150%, 200% and
250%, respectively, on an annual basis. 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 short-term securities). A high rate
of portfolio turnover involves a correspondingly greater amount of transaction
costs which must be borne directly by the Portfolios and thus indirectly by the
Funds and their shareholders. It may also result in the realization of larger
amounts of net short-term capital gains, the Funds' distributions from which are
taxable to shareholders of the Funds as ordinary income and may, under certain
circumstances, make it more difficult for the Funds to qualify as regulated
investment companies under the Code.
Investment Restrictions
Each Fund and Portfolio has adopted certain fundamental restrictions which
may not be changed
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without the approval of the Fund's shareholders or Portfolio's investors, as the
case may be. Each Fund has the same investment restrictions as its corresponding
Portfolio, except that each Fund may invest substantially all of its Investable
Assets in an open-end management investment company with substantially the same
investment objective as the Fund. References below to the Portfolios' investment
restrictions also include the Funds' investment restrictions. These policies
provide, among other things, that each Portfolio may not: (i) with respect to at
least 50% of the Global Fixed Income Portfolio's total assets and at least 75%
of the Equity, Small Cap and Fixed Income Portfolios' total assets, invest more
than 5% of total assets in the securities of any one issuer (other than the U.S.
Government, its agencies or instrumentalities) or acquire more than 10% of the
outstanding voting securities of any issuer; (ii) issue senior securities,
borrow money or securities, pledge or mortgage its assets or, with respect to
Equity and Small Cap Portfolios only, enter into reverse repurchase agreements,
except that each Portfolio may (a) borrow money from banks as a temporary
measure for extraordinary or emergency purposes (but not for investment
purposes) in an amount up to 15% of the current value of its total assets, (b)
enter into forward roll transactions (Fixed Income and Global Fixed Income
Portfolios only), and (c) pledge its assets to an extent not greater than 15% of
the current value of its total assets to secure such borrowings; however as a
matter of non-fundamental policy, a Portfolio may not make any additional
investments while its outstanding borrowings (bank borrowings with respect to
Fixed Income Portfolio only) exceed 5% of the current value of its total assets;
or (iii) lend portfolio securities, except that (x) the Global Fixed Income
Portfolio may lend its portfolio securities with a value up to 20% of its total
assets (with a 10% limit for any borrower) and the Fixed Income Portfolio may
lend portfolio up to 33-1/3% of its total assets taken at market value and (y)
the Portfolios may enter repurchase agreements.
No Portfolio will invest more than 25% of the current value of its total
assets in any single industry, provided that this restriction shall not apply to
debt securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
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 or Portfolio's assets will not constitute a
violation of the restriction. Certain non-fundamental restrictions and
additional fundamental restrictions adopted by the Funds and the Portfolios are
described in the Statement of Additional Information.
RISK FACTORS AND SUITABILITY
None of the Funds is intended to provide an investment program meeting all
of the requirements of an investor. The Funds are not appropriate investments
for investors seeking complete stability of principal. Additionally,
notwithstanding each Portfolio's ability to spread risk by holding securities of
a number of portfolio companies, investors should invest in the Funds only if
they are able and prepared to bear the risk of investment losses which may
accompany the investments contemplated by the Portfolios. The utilization of
Strategic Transactions and short sales also involve special risks, as discussed
above in the correspondingly captioned sections.
The Funds are designed primarily for investors in Omnibus Accounts who seek
to maximize total return and who may be in a position to benefit from the
reinvestment of the income dividends (if any), which will be declared and
distributed quarterly by the Fixed Income and Global Fixed Income Funds, and any
capital gains distributions paid by the Funds on a tax-deferred basis. The Funds
may also be suitable for other investors, depending upon their investment goals
and financial and tax positions. The companies in which the Equity and Small Cap
Portfolios invest generally reinvest their earnings, and dividend distributions
by the Equity and Small Cap Funds should not be expected.
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 held by the Portfolios
usually vary depending upon available yields, rising when interest rates decline
and declining when interest rates rise. Therefore, to the extent that a
Portfolio invests in debt securities, the value of shares of a Fund investing in
the Portfolio can generally be expected to fluctuate accordingly.
Foreign Securities
The Global Fixed Income Portfolio invests primarily, and the Equity, Small
Cap and Fixed Income Portfolios may invest to a lesser extent, in foreign
securities. Investing in securities of foreign companies which are generally
denominated in foreign currencies and utilizing foreign currency transactions
involves certain risks of political, economic and legal conditions and
developments not typically associated with investing in United States companies.
Such conditions or developments might include favorable or unfavorable changes
in currency exchange rates,
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exchange control regulations (including currency blockage), civil disorder,
expropriation of assets of companies in which a Portfolio invests,
nationalization of such companies, imposition of withholding taxes on dividend
or interest payments, and possible difficulty in obtaining and enforcing
judgments against a foreign issuer. Also, foreign securities may not be as
liquid as, and may be more volatile than, comparable domestic securities.
Furthermore, issuers of foreign securities are subject to different, often less
comprehensive, accounting, reporting and disclosure requirements than domestic
issuers. A Portfolio, in connection with its purchases and sales of foreign
securities, other than securities denominated in U.S. dollars, will incur
transaction costs in converting currencies. Also, foreign custodial costs
relating to a Portfolio's portfolio securities are higher than domestic
custodial costs. Fixed commissions on foreign stock exchanges are generally
higher than negotiated commissions on U.S. exchanges. Finally, transactions in
equity securities effected on some foreign stock exchanges, and consequently a
Portfolio's investments on such exchanges, may not be settled promptly and
therefore such investments may be less liquid and subject to the risk of
fluctuating currency exchange rates pending settlement.
Emerging Markets
The Global Fixed Income Portfolio, and to a lesser extent the Small Cap
Portfolio, may invest in countries with emerging economies or securities markets
("Emerging Markets"). Investment in Emerging Markets involves risks in addition
to those generally associated with investments in foreign securities. Political
and economic structures in many Emerging Markets may be undergoing significant
evolution and rapid development, and such countries may lack the social,
political and economic stability characteristics of more developed countries. As
a result, the risks described above relating to investments in foreign
securities, including the risks of nationalization or expropriation of assets,
may be heightened. In addition, unanticipated political or social developments
may affect the values of the Global Fixed Income and Small Cap Portfolios'
investments and the availability to the Portfolios of additional investments in
such Emerging Markets. The small size and inexperience of the securities markets
in certain Emerging Markets and the limited volume of trading in securities in
those markets may make the Global Fixed Income and Small Cap Portfolios'
investments in such countries less liquid and more volatile than investments in
countries with more developed securities markets (such as the U.S., Japan or
most Western European countries).
Small Capitalization Companies
The Small Cap Portfolio invests primarily, and the Equity Portfolio may
invest to a lesser extent, in equity securities issued by companies with small
market capitalizations. Although investments in small capitalization companies
may present greater opportunities for growth, they also involve greater risks
than are customarily associated with investments in larger, more established
companies. The securities of small companies may be subject to more volatile
market movements than securities of larger, more established companies. Smaller
companies may have limited product lines, markets or financial resources, and
they may depend upon a limited or less experienced management group. The
securities of small companies may be traded only on the over-the-counter market
or on a regional securities exchange and may not be traded daily or in the
volume typical of trading on a national securities exchange. As a result, the
disposition by a Portfolio of securities of small capitalization companies in
order to meet redemptions or otherwise may require the Portfolio to sell such
securities at a discount from market prices, over a longer period of time or
during periods when disposition is not desirable.
BB Rated Securities
The Fixed Income and Global Fixed Income Portfolios may invest up to 15% of
their respective net assets in BB Rated Securities. Investing in BB Rated
Securities involves a higher degree of credit risk (the risk that the issuer
will not make interest or principal payments when due) than investing in higher
rated securities. In the event of an unanticipated default on a BB Rated
Security, a Portfolio will experience a reduction in its income, and could
expect a decline in the market value of the securities so affected. More careful
analysis of the financial condition of each issuer of BB Rated Securities is
therefore necessary. During an economic downturn or substantial period of rising
interest rates, highly leveraged issuers may experience financial stress which
would adversely affect their ability to service their principal and interest
payment obligations, to meet projected business goals and to obtain additional
financing. Periods of economic or political uncertainty and change can be
expected to result in volatility in prices of these securities.
BB Rated Securities generally offer a higher yield, but may be subject to a
higher risk of default in interest or principal payments, than higher rated
securities. The market prices of BB Rated Securities are generally less
sensitive to interest rate changes than higher rated securities, but are
generally more sensitive to adverse economic or political changes or, in the
case of corporate issuers, to individual company developments. BB Rated
Securities also may have less liquid markets than higher rated securities, and
their
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liquidity, as well as their value, may be more severely affected by adverse
economic conditions. Adverse publicity and investor perceptions of the market,
as well as newly enacted or proposed legislation, may also have a negative
impact on the market for BB Rated Securities.
Non-Diversified Status (Global Fixed Income Fund
and Portfolio)
The Global Fixed Income Portfolio and the Global Fixed Income Fund are
"non-diversified" investment companies so that with respect to 50% of total
assets, each will be able to invest more than 5% of its assets in obligations of
one or more issuers, while being limited with respect to the other half of its
assets to investments not exceeding 5% of total assets. As a "non-diversified"
investment company, the Global Fixed Income Portfolio may invest a greater
proportion of its assets in the securities of a smaller number of issuers and,
therefore, may be subject to greater market and credit risk than a more broadly
diversified fund. ("Diversified" investment companies, such as the Equity, Small
Cap and Fixed Income Funds and Portfolios, are required under the Investment
Company Act of 1940, as amended (the "1940 Act"), to maintain at least 75% of
total assets in cash (including foreign currency), cash items, U.S. Government
securities, and other securities limited per issuer to not more than 5% of the
investment company's total assets.) In order for the Global Fixed Income Fund to
qualify as a regulated investment company under the Code, the Global Fixed
Income Fund, among other things, may not invest more than 25% of its total
assets (including its share of the assets of the Global Fixed Income Portfolio),
at the close of each quarter of the Global Fixed Income Fund's taxable year, in
obligations of any one issuer (other than U.S. Government securities), and the
investments held by the Global Fixed Income Portfolio must be limited
accordingly. The same tax restrictions apply to the other Funds and,
consequently, Portfolios. In any event, the Global Fixed Income Portfolio does
not intend to invest more than 5% of its assets in the securities of any one
issuer unless such securities are issued or guaranteed by a national government
or are deemed by the Adviser to be of comparable credit quality. The Global
Fixed Income Portfolio does not believe that the credit risk inherent in the
obligations of stable foreign governments is significantly greater than that of
U.S. Government obligations.
SPECIAL INFORMATION CONCERNING THE
HUB AND SPOKE(R) MASTER-FEEDER FUND
STRUCTURE(1)
Unlike other mutual funds which directly acquire and manage their own
portfolio securities, each Fund seeks to achieve its investment objective by
investing all of its Investable Assets in its corresponding Portfolio which has
the same investment objective as the Fund. Each Portfolio in turn invests
primarily in securities consistent with that objective. Therefore, an investor's
interest in a Portfolio's securities is indirect, like investments in other
investment companies and pooled investment vehicles, only more so. In addition
to selling beneficial interests to the Funds, the Portfolios may sell beneficial
interests to other mutual funds or institutional investors. Such investors will
invest in the Portfolios on the same terms and conditions and will pay a
proportionate share of the Portfolios' expenses. However, the other investors
investing in the Portfolios are not required to sell their shares at the same
public offering price as the Funds due to the imposition of sales commissions
and variations in other operating expenses. Therefore, investors in the Funds
should be aware that these differences may result in differences in returns
experienced by investors in the different funds that invest in the Portfolios.
Such differences in returns are also present in other mutual fund structures.
Information concerning other holders of interests in the Portfolios is available
from the Adviser at (800) 221-4795.
Smaller funds investing in a Portfolio may be materially affected by the
actions of larger funds investing in that Portfolio. For example, if a large
fund withdraws from a Portfolio, the remaining funds may experience higher pro
rata operating expenses, thereby producing lower returns (however, this
possibility exists as well for traditionally structured funds that have large
institutional investors). Additionally, because a Portfolio would have fewer
assets in such a case, it may become less diversified, resulting in increased
portfolio risk. Also, funds with a greater pro rata ownership in a Portfolio
could have effective voting control of the operations of the Portfolio. Except
as permitted by the SEC, whenever the Trust is requested to vote on matters
pertaining to a Portfolio (other than a vote by a Fund to continue the
operations of its corresponding Portfolio upon the withdrawal of another
investor in the Portfolio), the Trust will hold a meeting of shareholders of the
applicable Fund and will cast all of its votes in the same proportion as the
votes of the Fund's
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(1)Hub and Spoke(R) is a registered service mark
of Signature Financial Group, Inc.
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<PAGE>
shareholders. The percentage of the Trust's votes representing Fund shareholders
not voting will be voted by the Trustees or officers of the Trust in the same
proportion as Fund shareholders who do, in fact, vote. Fund shareholders who do
not vote will not affect the Trust's votes at any Portfolio's meeting.
Certain changes in a Portfolio's investment objective, policies or
restrictions may require the applicable Fund to withdraw its interest in the
Portfolio. Any such withdrawal could result in a distribution "in kind" of
portfolio securities (as opposed to a cash distribution from the Portfolio) to
the extent permitted by the 1940 Act or the rules adopted thereunder. If
securities are distributed, a Fund could incur brokerage, tax or other charges
in converting the securities to cash. In addition, the distribution in kind may
result in a less diversified portfolio of investments or adversely affect the
liquidity of the Fund. Notwithstanding the above, there are other means for
meeting redemption requests, such as borrowing.
Each Fund may withdraw its investment from its corresponding Portfolio at
any time if the Board of Trustees of the Trust determines that it is in the best
interests of the shareholders of the Fund to do so (including if a Fund's and
its corresponding Portfolio's investment objectives were not substantially the
same). Upon any such withdrawal, the Board of Trustees of the Trust would
consider what action might be taken, including investing all the Investable
Assets of the Fund in another pooled investment entity having substantially the
same investment objective as the Fund or retaining an investment adviser to
manage directly the Fund's assets in accordance with its investment policies
described above with respect to its corresponding Portfolio. In any event, Fund
shareholders will receive 30 days prior written notice with respect to any
change in a Fund's or a Portfolio's investment objective. See "Investment
Objective and Policies" for a description of the fundamental policies of the
Portfolios that cannot be changed without approval by the "vote of a majority of
the outstanding voting securities" (as defined in the 1940 Act) of the
Portfolios.
For descriptions of the investment objective, policies and restrictions of
each Portfolio, see "Investment Objective and Policies" herein. For descriptions
of the management and expenses of the Portfolios, see "Management" herein and in
the Statement of Additional Information.
CALCULATION OF PERFORMANCE DATA
From time to time each Fund may advertise its total return and the Fixed
Income and Global Fixed Income Funds may advertise their yields. Both yield and
total return figures are based on historical earnings and are not intended to
indicate future performance. The "total return" of the Funds 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 Fixed Income and Global Fixed Income Funds is computed
by dividing the net investment income per share earned during the period stated
in the advertisement by the maximum offering price per share on the last day of
the period (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 Funds all recurring fees that are charged to all
shareholder accounts and any nonrecurring charges for the period stated.
From time to time, each Fund may compare its performance with that of other
mutual funds with similar investment objectives, to stock, bond and other
relevant indices, and to performance rankings prepared by recognized mutual fund
statistical services. In addition, each Fund's performance may be compared to
alternative investment or savings vehicles and/or to indices or indicators of
economic activity.
DIVIDENDS AND DISTRIBUTIONS
The Fixed Income and Global Fixed Income Funds' dividends from net
investment income will be declared and distributed quarterly. The Equity and
Small Cap Funds' dividends from net investment income (if any) will be declared
and distributed at least annually. Each Fund's dividends from short-term and
long-term capital gains, if any, after reduction by capital losses, will be
declared and distributed at least annually. In determining the amounts of its
dividends, each Fund will take into account its share of the income, gains or
losses, expenses, and any other tax items of its corresponding Portfolio.
Dividends from net investment income and from short-term and long-term capital
gains, if any, are automatically reinvested in additional shares of the
applicable Fund unless the shareholder elects to receive them in cash.
PURCHASE OF SHARES
Who may purchase Fund shares?
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Shares of the Funds may be purchased only for the account of Omnibus
Accounts. Because individuals may not purchase Fund shares directly, all orders
to purchase Fund shares must be made through the Account Administrator of your
Omnibus Account. If the monies you wish to invest in the Funds are maintained in
a retirement plan sponsored by your employer, please consult with your employer
for information about how to purchase Fund shares. If the monies you wish to
invest in the Funds are maintained in a self-administered retirement plan,
please consult with your Account Administrator for information about how to
purchase Fund shares.
How may Account Administrators invest in the Funds for the account of their
Omnibus Accounts?
In order to make an initial investment in a Fund, Account Administrators
must establish an account with the Funds by furnishing to the Principal
Underwriter the information in the Account Application Form included with this
Prospectus. Account Administrators may purchase Fund shares for Omnibus Accounts
from the Principal Underwriter on any day during which the Funds and the New
York Stock Exchange are open for business (a "Business Day").
What is the minimum investment in Fund Shares?
Unless waived by the Trust, the minimum initial investment by an Omnibus
Account in each Fund is $100,000.
The Funds' investment minimums do not apply to accounts for which the
Adviser or any of its affiliates serves as investment adviser. The Funds'
investment minimums apply to the aggregate value invested in Omnibus Accounts
rather than to the investment of the underlying participants in the Omnibus
Accounts.
At what price are Fund shares offered?
Fund shares are sold at the net asset value per share next computed after
the purchase order is received in good order by the Principal Underwriter or its
agent (including Account Administrators); provided that payment for such shares
is received by the Custodian by 12:00 p.m., New York City Time on the next
Business Day.
May Fund shares be acquired in exchange for securities?
In the sole discretion of the Trust, each Fund may accept securities
instead of cash for the purchase of Fund shares. The Trust will ask the Adviser
to determine that any securities acquired by a Fund in this manner are
consistent with the investment objective, policies and restrictions of the
Fund's corresponding Portfolio. The securities will be valued in the manner
stated below with respect to how the Portfolios value their portfolio
securities. The purchase of Fund shares for securities instead of cash may cause
an investor who contributed them to recognize 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.
Other Purchase Information.
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 a Fund and (iii) to modify or eliminate the minimum initial
investment in Fund shares. Fund shares purchased by Account Administrators for
Omnibus Accounts may be subject to transaction fees, no part of which will be
received by the Funds, the Principal Underwriter or the Adviser.
CALCULATION OF NET ASSET VALUE
Each Fund's net asset value per share is computed each Business Day as of
the close of regular trading on the Exchange (currently 4:00 p.m., New York City
time). Each Fund's net asset value per share is calculated by determining the
value of its assets (i.e., the value of its investment in its corresponding
Portfolio and other assets), subtracting all of its liabilities and dividing the
result by the total number of shares outstanding. For purpose of calculating
each Portfolio's net asset value, equity 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 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. Fixed income securities
(other than money market instruments) for which accurate market prices are
readily available are valued at their current market value on the basis of
quotations, which may be furnished by pricing services or provided by dealers in
such securities. Equity and fixed income securities for which accurate market
prices are not readily available and other assets are valued at fair value as
determined in good faith by the Adviser in accordance with procedures approved
by the Trustees of the Portfolio Trust, which may include the use of yield
equivalents or matrix pricing for fixed income securities. The Portfolios value
short-term obligations with maturities of 60 days or less at original cost plus
either accrued interest or amortized
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discount unless the Trustees of the Portfolio Trust determine that such methods
do not approximate fair value.
Generally, trading in foreign securities is substantially completed each
day at various times prior to the close of regular trading on the New York Stock
Exchange. The values of such securities in the Portfolios' portfolios and used
in computing the net asset value of the Funds' shares are determined as of such
times. Foreign currency exchange rates are also generally determined prior to
the close of regular trading on the New York Stock Exchange. Occasionally,
events which affect the values of such securities and such exchange rates may
occur between the times at which they are determined and the close of regular
trading on the New York Stock Exchange and will therefore not be reflected in
the computation of a Fund's net asset value. If events materially affecting the
value of such securities occur during such period, then these securities are
valued at their fair value as determined in good faith in accordance with
procedures approved by the Trustees of the Portfolio Trust. Additional
information concerning the Portfolios' valuation policies is contained in the
Statement of Additional Information.
EXCHANGE OF SHARES
May Fund shares be exchanged for shares of other mutual funds?
Subject to the terms of your Omnibus Account, shares of any Fund may be
exchanged for shares of any other Fund described in this Prospectus on any
Business Day. Please consider the differences in investment objectives and
expenses of a Fund as described in this Prospectus before making an exchange.
Do sales charges apply to exchanges?
As is the case with initial purchases of Fund shares, exchanges of Fund
shares are made without the imposition of a sales charge.
How may I make an exchange?
Because Fund shares are held for the account of Omnibus Accounts only, all
orders to exchange Fund shares must be made through your Account Administrator.
If the Fund shares you wish to exchange are held for the account of a retirement
plan sponsored by your employer, please consult with your employer for
information about how to exchange Fund shares. If the Fund shares you wish to
exchange are maintained in a self-administered retirement plan, please consult
with your Account Administrator for information about how to exchange Fund
shares.
General Exchange Information
Exchange requests received by the Principal Underwriter or its agent prior
to the close of regular trading of the New York Stock Exchange (currently 4:00
p.m., New York City time) will be effective on that Business Day. 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 Fund accounts 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 has been received by
the 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.
Telephonic Exchanges
Omnibus Accounts are automatically authorized to have telephonic exchange
privileges unless the Account Administrator indicates otherwise on the Account
Application or by writing to the Principal Underwriter. Account Administrators
may exchange shares by calling the Principal Underwriter at (800) 221-4795.
Proper identification will be required for each telephonic exchange. Please see
"Telephone Transactions" below for more information regarding telephonic
transactions.
Written Exchanges
Account Administrators may exchange Fund shares 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.
REDEMPTION OF SHARES
How may Fund shares be redeemed?
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Subject to the restrictions (if any) imposed by your Omnibus Account, you
can arrange to sell or "redeem" some or all of your shares on any Business Day.
All orders to redeem Fund shares must be made through your Account
Administrator. If the Fund shares you wish to redeem are held for the account of
a retirement plan sponsored by your employer, please consult with your employer
for information about how to redeem Fund shares. If the Fund shares you wish to
redeem are maintained in an IRA or other self- administered retirement plan,
please consult with your Account Administrator for information about how to
redeem Fund shares.
Account Administrators may redeem Fund shares 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.
Telephonic Redemption
Omnibus Accounts are automatically authorized to have telephonic redemption
privileges unless the Account Administrator indicates otherwise on the Account
Application or by writing to the Principal Underwriter. Account Administrators
may redeem shares by calling the Principal Underwriter at (800) 221-4795.
Redemption proceeds will be mailed or wired in accordance with the Account
Administrator'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.
Redemption proceeds will be sent only by check payable to the Omnibus Account of
record at the address of record, unless the Account Administrator 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. Wire charges, if any, will be deducted from redemption
proceeds. Proper identification will be required for each telephonic redemption.
Written Redemption
Account Administrators may redeem Fund shares by written order to the
Principal Underwriter, Attn: Mutual Fund Department, 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 Omnibus Account's account number with the Fund and
(c) be signed by each registered owner exactly as the shares are registered.
Signature(s) must be guaranteed by a member of either the Securities Transfer
Association's STAMP program or the New York Stock Exchange's Medallion Signature
Program or by any one of the following institutions, provided that such
institution meets credit standards established by Investors Bank and Trust
Company, the 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. 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.
Telephone Transactions
By maintaining an account that is eligible for telephonic exchange and
redemption privileges, the Account Administrator authorizes the Adviser, the
Principal Underwriter, the Trust and the Custodian to act upon instructions of
any person to redeem and/or exchange shares from the shareholder's account.
Further, the Account Administrator acknowledges on behalf of the Omnibus Account
that, as long as the Funds employ reasonable procedures to confirm that
telephonic instructions are genuine, and follow telephonic instructions that
they reasonably believe to be genuine, neither the Adviser, nor the Principal
Underwriter, nor the Trust, nor the Funds, nor the 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. Account Administrators may
experience delays in exercising telephone transaction privileges during periods
of abnormal market activity. Accordingly, during periods of volatile economic
and market conditions, Account Administrators may wish to consider transmitting
redemption and exchange requests in writing.
* * * *
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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
Portfolio'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
withdrawn from the applicable Portfolio for this purpose. 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 if the value of such
shares has decreased to less than $50,000 as a result of redemptions or
transfers. Before doing so, the applicable Fund will notify the Account
Administrator that the value of the shares in the account is less than the
specified minimum and will allow the shareholder 30 days to make an additional
investment in an amount which will increase the value of the account to at least
$50,000. Each Fund 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.
Each Portfolio is a separate investment series of Standish, Ayer & Wood
Master Portfolio, a master trust fund organized under the laws of the State of
New York. Under the terms of the Declaration of Trust establishing the Master
Portfolio Trust, the affairs of the Portfolios are managed under the supervision
of the Trustees of the Portfolio Trust.
A majority of the Trustees who are not "interested persons" (as defined in
the 1940 Act) of the Trust or the Portfolio Trust, as the case may be, have
adopted written procedures reasonably appropriate to deal with potential
conflicts of interest arising from the fact that the same individuals are
trustees of the Trust and of the Portfolio Trust, up to and including creating
separate boards of trustees. See "Management" in the Statement of Additional
Information for more information about the Trustees and officers of the Trust
and the Portfolio Trust.
Investment Adviser of the Portfolios
Standish, Ayer & Wood, Inc., One Financial Center, Boston, Massachusetts
02111, serves as investment adviser to the Equity, Small Cap and Fixed Income
Portfolios pursuant to separate investment advisory agreements with the
Portfolio Trust. Standish is a Massachusetts corporation incorporated in 1933
and is a registered investment adviser under the Investment Advisers Act of
1940. Standish International Management Company, L.P., One Financial Center,
Boston, MA 02111, serves as investment adviser to the Global Fixed Income
Portfolio pursuant to an investment advisory agreement with the Portfolio Trust.
SIMCO is a Delaware limited partnership which was organized in 1991 and is a
registered investment adviser under the Investment Advisers Act of 1940. The
general partner of SIMCO is Standish which holds a 99.98% partnership interest.
The limited partners of SIMCO, who each hold a 0.01% interest, are Walter M.
Cabot, Sr., Senior Adviser and Director of SIMCO and to Standish, D. Barr
Clayson, Chairman of the Board of SIMCO and a Managing Director of Standish, and
Ralph S. Tate, President of SIMCO and Managing Director of Standish. The Adviser
manages the Portfolios' investments and affairs subject to the supervision of
the Trustees of the Portfolio Trust.
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 July 1, 1996, Standish or SIMCO served as the investment
adviser to each of the following fourteen funds in the Standish, Ayer & Wood
family of funds:
Net Assets
(July 1, 1996)
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Standish Equity Portfolio
Standish Fixed Income Portfolio
Standish Fixed Income Fund II
Standish Global Fixed Income Portfolio
Standish Intermediate Tax Exempt Bond
Fund
Standish International Equity Fund
Standish International Fixed Income Fund
Standish Massachusetts Intermediate
Tax Exempt Bond Fund
Standish Securitized Fund
Standish Short-Term Asset Reserve Fund
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Standish Small Capitalization Equity
Portfolio
Standish Small Cap Tax-Sensitive Equity
Fund
Standish Tax-Sensitive Equity Fund
Corporate pension funds are the largest asset under active management by
the Adviser. The Adviser's clients also include charitable and educational
endowment funds, financial institutions, trusts and individual investors. As of
July 1, 1996, the Adviser managed approximately $29 billion in assets.
The Equity Portfolio's portfolio managers are Ralph S. Tate and David C.
Cameron. Mr. Tate and Mr. Cameron have been primarily responsible for the
day-to-day management of the Equity Portfolio's portfolio since January, 1991
(which, prior to May 3, 1996, included the direct management of Standish Equity
Fund's portfolio). During the past five years, Messrs. Tate and Cameron have
each served as a Director and Vice President of Standish. Mr. Tate has also
served as a Managing Director of Standish since 1996.
The Small Cap Portfolio's portfolio manager is Nicholas S. Battelle. Mr.
Battelle has been primarily responsible for the day-to-day management of the
Small Cap Portfolio's portfolio since August, 1990 (which, prior to May 3, 1996,
included the direct management of Standish Small Capitalization Equity Fund's
portfolio). During the past five years, Mr. Battelle has served as a Director
and Vice President of Standish.
The Fixed Income Portfolio's portfolio manager is Caleb F. Aldrich. Mr.
Aldrich has been primarily responsible for the day-to-day management of the
Fixed Income Portfolio's portfolio since January 1, 1993 (which, prior to May 3,
1996, included the direct management of Standish Fixed Income Fund's portfolio).
During the past five years, Mr. Aldrich has served as a Managing Director (since
1996), Director (since 1992) and Vice President of the Adviser.
The Global Fixed Income Portfolio's portfolio manager is Richard S. Wood.
Mr. Wood has been primarily responsible for the day-to-day management of the
Global Fixed Income Portfolio's portfolio since January 3, 1994 (which, prior to
May 3, 1996, included the direct management of Standish Global Fixed Income
Fund's portfolio). During the past five years, Mr. Wood has served as a Managing
Director (since 1996), Vice President and Director of Standish, President of the
Trust and Executive Vice President of SIMCO.
Subject to the supervision and direction of the Trustees of the Portfolio
Trust, the applicable Adviser manages each Portfolio in accordance with its
stated investment objective and policies, recommends investment decisions for
the Portfolios, places orders to purchase and sell securities on behalf of the
Portfolios and allows the Portfolios to use the name "Standish." For its
advisory services to the Portfolios, the applicable Adviser receives a monthly
fee equal on an annual basis to the following percentages of each Portfolio's
average daily net assets:
Equity Portfolio...................0.50%
Small Cap Portfolio................0.60%
Fixed Income Portfolio.............0.40% of the first
$250 million;
0.35% of the next
$250 million; and
0.30% of average daily
net asset in excess of
$500 million
Global Fixed Income................0.40%
Portfolio
Administrator of the Funds
Standish serves as administrator to each Fund pursuant to an administration
agreement. As administrator, Standish manages the affairs of the Funds, provides
all necessary office space and services of executive personnel for administering
the affairs of the Funds, and allows the Funds to use the name "Standish." For
these services Standish does not receive any compensation. The Trustees of the
Trust may, however, determine in the future to compensate Standish for its
administrative services.
Service Plans
The Trust, on behalf of each Fund, has adopted a service plan pursuant to
which each Fund pays service fees at an aggregate annual rate of up to 0.25% of
a Fund's average daily net assets. The service fee is payable for the benefit of
the participants in the Omnibus Accounts that are shareholders in the Funds and
is intended to be compensation to Account Administrators for providing personal
services and/or account maintenance services to participants in Omnibus Accounts
who are the beneficial owners of Fund shares. The Trust, on behalf of the
applicable Fund, will make quarterly payments to Account Administrators, for the
benefit of their Omnibus Accounts, based on the average net asset value of the
Fund shares that are attributable to the Omnibus Accounts. Account
Administrators that are fiduciaries or parties in interest to Omnibus Accounts
subject to the Employee Retirement Income Security Act of 1974 should consult
with their legal advisers regarding the
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<PAGE>
receipt of service fees. See the Statement of Additional
Information for further information.
Expenses
The Portfolios and Funds, as the case may be, are responsible for all of
their respective costs and expenses not expressly stated to be payable by the
Adviser under the Portfolios' investment advisory agreements or by Standish
under the Funds' administration agreement. Among other expenses, the Portfolios
will pay investment advisory fees; bookkeeping, share pricing and custodian fees
and expenses; expenses of notices and reports to interest-holders; and the
expenses of the Portfolios' administrator. The Funds will pay shareholder
servicing fees and expenses; service fees; expenses of prospectuses, statements
of additional information and reports which are furnished to shareholders. Each
Fund and Portfolio will pay legal and auditing fees; registration and reporting
fees and expenses; and Trustees' fees and expenses. The Trust's Principal
Underwriter, Standish Funds Distributor, L.P., bears without subsequent
reimbursement from the Funds the distribution expenses attributable to the
offering and sale of Fund shares. Expenses of the Trust or the Portfolio Trust
which relate to more than one of their respective series are allocated among
such series by Standish in an equitable manner.
Standish has voluntarily agreed to limit each Fund's Total Operating
Expenses (excluding litigation, indemnification, taxes and other extraordinary
expenses) to the following percentages of average daily net assets for the
Funds' fiscal years ending December 31, 1996: Equity Fund-1.25%; Small Cap
Fund-1.40%; Fixed Income Fund-0.85% and Global Fixed Income Fund-1.00%. These
agreements are voluntary and temporary and may be discontinued or revised by
Standish at any time after December 31, 1996.
In addition, Standish has agreed in the administration agreement to limit
each Fund's aggregate annual operating expenses (excluding litigation,
indemnification, taxes and other extraordinary expenses) to the permissible
limit applicable in any state in which shares of the Funds are then qualified
for sale. The Adviser has also agreed in the advisory agreements to limit Small
Cap Portfolio's and Global Fixed Income Portfolio's total annual operating
expenses (excluding brokerage commissions, taxes and extraordinary expenses) to
1.50% and 0.65%, respectively, of each such Portfolio's average daily net
assets. If any expense limit is exceeded, the compensation due Standish or
SIMCO, as the case may be, 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 such fiscal year.
Portfolio Transactions
Subject to the supervision of the Trustees of the Portfolio Trust, the
Adviser selects the brokers and dealers that execute orders to purchase and sell
portfolio securities for each Portfolio. The Adviser will generally seek to
obtain the best available price and most favorable execution with respect to all
transactions for the Portfolios.
Subject to the consideration of best price and execution and to applicable
regulations, the receipt of research and sales of Fund shares may also be
considered factors in the selection of brokers and dealers that execute orders
to purchase and sell portfolio securities for the Portfolios.
FEDERAL INCOME TAXES
Each Fund intends to elect and to qualify for taxation as a "regulated
investment company" under the Code and to continue to qualify for such treatment
for each taxable year. If a Fund qualifies for treatment as a regulated
investment company, it will not be subject to federal income tax on income
(including capital gains) distributed to shareholders in the form of dividends
or capital gain distributions in accordance with certain timing requirements of
the Code.
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 which are taxable entities or persons will be subject to
federal income tax on dividends and capital gain distributions made by the
Funds. These dividends and distributions will be attributable to each Fund's
allocable share of the net income and net long-term and short-term capital gains
of its corresponding Portfolio and will also take into account any expenses
incurred or income earned directly. Dividends paid by the Funds 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
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income, whether received in cash or Fund shares. Except for Global Fixed Income
Portfolio, a portion, but usually a small portion, of such dividends may qualify
for the corporate dividends received deduction under the Code. Dividends paid by
the Funds 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 Funds. Capital gain distributions do not qualify for the corporate dividends
received deduction. Dividends and capital gain distributions may also be subject
to state and local or foreign taxes.
Each Portfolio anticipates that it will be subject to foreign withholding
taxes or other foreign taxes on income (possibly including capital gains) on
certain of its foreign investments, which will reduce the yield or return from
those investments. Such taxes may be reduced or eliminated pursuant to an income
tax treaty in some cases.
The Equity, Small Cap and Fixed Income Funds anticipate that they generally
will not qualify to pass their allocable shares of such foreign taxes and any
associated tax deductions or credits through to their shareholders. The Global
Fixed Income Fund may qualify to make an election to pass its allocable share of
qualifying foreign taxes paid by the Global Fixed Income Portfolio through to
Global Fixed Income Fund shareholders, who would then include their share of
such taxes in their gross incomes (in addition to the actual dividends and
capital gain distributions received from the Global Fixed Income Fund) and might
be entitled, subject to certain conditions and limitations under the Code, to a
federal income tax credit or deduction for their share of such taxes. Tax-exempt
shareholders generally will not benefit from this election. If the Global Fixed
Income Fund makes this election, it will provide necessary information to its
shareholders regarding any foreign taxes passed through to them. If the Global
Fixed Income Fund does not make this election, it may deduct its allocable share
of the foreign taxes paid by the Global Fixed Income Portfolio in computing the
net income the Global Fixed Income Fund must distribute to shareholders to
satisfy the Code's distribution requirements.
Redemptions and repurchases of shares are taxable events on which a
shareholder may recognize a gain or loss. Special rules recharacterize as
long-term any losses on the sale or exchange of Fund shares with a tax holding
period of six months or less, to the extent the shareholder received a capital
gain distribution with respect to such shares.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on dividends, capital gain
distributions, and the proceeds of redemptions or repurchases of shares, if they
fail to furnish their correct taxpayer identification number and certain
certifications required by the Internal Revenue Service ("IRS") or if they are
otherwise subject to backup withholding. Individuals, corporations and other
shareholders that are not U.S. persons under the Code are subject to different
tax rules and may be subject to nonresident alien withholding tax at the rate of
30% (or a lower rate provided by an applicable tax treaty) on amounts treated as
ordinary dividends from the Funds and, unless a current IRS Form W-8 or an
acceptable substitute is furnished, to backup withholding on certain payments
from the Fund.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent, if any, the Funds' distributions
are derived from interest on (or, in the case of intangibles taxes, the value of
its assets is attributable to) investments in certain U.S. Government
obligations, provided in some states that certain thresholds for holdings of
such obligations and/or reporting requirements are satisfied. Shareholders
should consult their tax advisers regarding the applicable requirements in their
particular states, including the effect, if any, of the Funds' indirect
ownership (through the Portfolios) of any such obligations.
After the close of each calendar year, the Funds will send a notice to
shareholders that provides information about the federal tax status of
distributions to shareholders for such calendar year.
THE FUNDS AND THE PORTFOLIOS
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 1940 Act and the Agreement and Declaration of Trust. Fund shares do
not have cumulative voting rights. Fractional shares have proportional voting
rights and participate in any distributions and dividends. When issued, Fund
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<PAGE>
shares will be fully paid and nonassessable.
Shareholders of the Funds do not have preemptive or
conversion rights. Certificates representing Fund
shares will not be issued.
The Trust has established eighteen 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 special meeting of shareholders of the Trust will be called to
elect Trustees. Under the Agreement and Declaration of Trust and the 1940 Act,
the record holders of not less than two-thirds of the outstanding shares of the
Trust may remove a Trustee by votes cast in person or by proxy at a meeting
called for the purpose or by a written declaration filed with each of the
Trust's custodian banks. Except as described above, the Trustees will continue
to hold office and may appoint successor Trustees. Whenever ten or more
shareholders of the Trust who have been such for at least six months, and who
hold in the aggregate shares having a net asset value of at least $25,000 or
which represent 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.
Each Portfolio is a series of Standish, Ayer & Wood Master Portfolio, an
open-end management investment company. The Portfolio Trust's Declaration of
Trust provides that the Portfolio Trust may establish and designate separate
series of the Portfolio Trust. The Portfolio Trust has established four series
and may establish additional series at any time. The Portfolio Trust's
Declaration of Trust also provides that the Funds and other entities investing
in the Portfolios (e.g., other investment companies, insurance company separate
accounts and common and commingled trust funds) will not be liable for the
obligations of the Portfolios, although they will bear the risk of loss of their
entire respective interests in the Portfolios. However, there is a risk that
interest-holders in the Portfolios may be held personally liable as partners for
the Portfolios' obligations. Because the Portfolio Trust's Declaration of Trust
disclaims interest-holder liability and provides for indemnification against
such liability, the risk of the Funds incurring financial loss on account of
such liability is limited to circumstances in which both inadequate insurance
existed and the Portfolios themselves were unable to meet their obligations. As
such, it is unlikely that the Funds would experience liability from the
investment structure itself. In any event, shareholders of the Funds will
continue to remain shareholders of a Massachusetts business trust, and the risk
of such a person incurring liability by reason of being a shareholder of the
Funds is remote. The interests in the Portfolio Trust are divided into separate
series, such as the Portfolios. No series of the Portfolio Trust has any
preference over any other series.
Investors in a Portfolio will not be involved in any vote specifically
involving only another series of the Portfolio Trust. Investors of all of the
series of the Portfolio Trust will, however, vote together to elect Trustees of
the Portfolio Trust and for certain other matters affecting the Portfolio Trust.
As provided by the 1940 Act, under certain circumstances, the interest- holders
of one or more series could control the outcome of these votes.
Inquiries by an individual concerning a particular Fund should be made by
contacting his or her Account Administrator. 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.
PRINCIPAL UNDERWRITER
Standish Funds Distributor, L.P., One Financial
Center, 26th Floor, Boston, Massachusetts 02111, serves
as the Trust's principal underwriter.
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<PAGE>
CUSTODIAN, TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Investors Bank & Trust Company, 89 South Street, Boston, Massachusetts,
serves as each Fund's transfer agent and dividend disbursing agent and as
custodian of all cash and securities of the Funds and the Portfolios.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., One Post Office Square, Boston, Massachusetts
02109 and Coopers & Lybrand, P.O. Box 219, Grand Cayman, Cayman Islands, BWI,
serve as independent accountants for the Trust and the Portfolio Trust,
respectively, and will annually audit each Fund's and each Portfolio's
respective financial statements.
LEGAL COUNSEL
Hale and Dorr, 60 State Street, Boston, Massachusetts 02109, is legal
counsel to the Trust, the Portfolio Trust 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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<PAGE>
APPENDIX A
KEY TO MOODY'S RATINGS FOR CORPORATE
BONDS AND FOR SOVEREIGN, SUBNATIONAL
AND
SOVEREIGN RELATED ISSUERS
Aaa-Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa-Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A-Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa-Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba-Bonds which are rated Ba are judged to have speculative elements. Their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
STANDARD & POOR'S RATINGS DEFINITIONS
FOR
CORPORATE BONDS
AAA-Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA-Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A-Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB-Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB-Debt rated BB is regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
STANDARD & POOR'S CHARACTERISTICS OF
SOVEREIGN DEBT OF FOREIGN COUNTRIES
AAA-Stable, predictable governments with demonstrated track record of responding
flexibly to changing economic and political circumstances -Key players in the
global trade and financial system -Prosperous and resilient economies, high per
capita incomes -Low fiscal deficits and government debt, low inflation -Low
external debt
AA-Stable, predictable governments with demonstrated track record of responding
to changing economic and political circumstances -Tightly integrated into global
trade and financial system -Differ from AAAs only to a small degree because:
- -Economies are smaller, less prosperous and generally more vulnerable to adverse
external influences (e.g., protection and terms of trade shocks) -More variable
fiscal deficits, government debt and inflation -Moderate to high external debt.
A-Politics evolving toward more open, predictable forms of governance in
environment of rapid economic and social change -Established trend of
integration into global trade and financial system -Economies are smaller, less
prosperous and generally more vulnerable to adverse external influences (e.g.,
protection and
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<PAGE>
terms of trade shocks), but -Usually rapid growth in output and per capita
incomes-Manageable through variable fiscal deficits, government debt and
inflation -Usually low but variable debt.
BB-Political factors a source of major uncertainty, either because system is in
transition or due to external threats, or both, often in environment of rapid
economic and social change -Integration into global trade and financial system
growing but untested -Low to moderate income developing economies but variable
performance and quite vulnerable to adverse external influences -Variable to
high fiscal deficits, government debt and inflation -Very high and variable
debt, often graduates of Brady plan but track record not well established.
DESCRIPTION OF DUFF & PHELPS RATINGS FOR
CORPORATE BONDS AND FOR SOVEREIGN,
SUBNATIONAL AND SOVEREIGN RELATED
ISSUERS
AAA-Highest credit quality. The risk factors are negligible, being only slightly
more than for risk-free U.S. Treasury debt.
AA-High credit quality. Protection factors are strong. Risk is modest but may
vary slightly from time to time because of economic conditions.
A-Protection factors are average but adequate. However, risk factors are more
variable and greater in periods of economic stress.
BBB-Below average protection factors but still considered sufficient for prudent
investment. Considerable variability in risk during economic cycles.
BB-Below investment grade but deemed likely to meet obligations when due.
Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within this category.
IBAC LONG TERM RATINGS FOR CORPORATE
BONDS AND FOR SOVEREIGN, SUBNATIONAL
AND
SOVEREIGN RELATED ISSUES
AAA-Obligations for which there is the lowest expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial, such
that adverse changes in business, economic or financial conditions are unlikely
to increase investment risk substantially.
AA-Obligations for which there is a very low expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial. Adverse
changes in business, economic or financial conditions may increase investment
risk, albeit not very significantly.
A-Obligations for which there is a low expectation of investment risk. Capacity
for timely repayment of principal and interest is strong, although adverse
changes in business, economic or financial conditions may lead to increased
investment risk.
BBB-Obligations for which there is currently a low expectation of investment
risk. Capacity for timely repayment of principal and interest is adequate,
although adverse changes in business, economic or financial conditions are more
likely to lead to increased investment risk than for obligations in other
categories.
BB-Obligations for which there is a possibility of investment risk developing.
Capacity for timely repayment of principal and interest exists, but is
susceptible over time to adverse changes in business, economic or financial
conditions.
* * *
In the case of sovereign, subnational and sovereign related issuers, the
Portfolios used the foreign currency or domestic (local) currency rating
depending upon how the portfolio security is denominated. In the case where the
Portfolio holds a security denominated in a domestic (local) currency and one of
the rating services does not provide a domestic (local) currency rating for the
issuer, the Portfolio will use the foreign currency rating for the issuer; in
the case where a Portfolio holds a security denominated in a foreign currency
and one of the rating services does not provide a foreign currency rating for
the issuer, the Portfolio will treat the security as being unrated.
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<PAGE>
Investment Adviser
(Equity, Small Cap and Fixed Income Portfolios)
Standish, Ayer & Wood, Inc.
One Financial Center
Boston, Massachusetts 02111
Investment Adviser
(Global Fixed Income Portfolio)
Standish International Management Company, L.P.
One Financial Center
Boston, Massachusetts 02111
Custodian
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02110
Principal Underwriter
Standish Funds Distributors, L.P.
One Financial Center
Boston, Massachusetts 02111
Independent Accountants
Coopers & Lybrand, L.L.P.
One Post Office Square
Boston, Massachusetts 02109
Legal Counsel
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
STANDISH EQUITY ASSET FUND
STANDISH SMALL CAPITALIZATION EQUITY
ASSET FUND
STANDISH FIXED INCOME ASSET FUND
STANDISH GLOBAL FIXED INCOME ASSET FUND
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SUBJECT TO COMPLETION: Dated June 26, 1996
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY ANY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE A
PROSPECTUS.
STATEMENT OF ADDITIONAL INFORMATION
STANDISH, AYER & WOOD INVESTMENT TRUST
One Financial Center
Boston, Massachusetts 02111
(800) 421-4795
Standish Equity Asset Fund
Standish Small Capitalization Equity Asset Fund
Standish Fixed Income Asset Fund
Standish Global Fixed Income Fund
This combined Statement of Additional Information is not a prospectus,
but expands upon and supplements the information contained in the combined
Prospectus dated June 27, 1996, as amended and/or supplemented from time to
time (the "Prospectus"), of Standish Equity Asset Fund ("Equity Fund"), Standish
Small Capitalization Equity Asset Fund ("Small Cap Fund"), Standish Fixed Income
Asset Fund ("Fixed Income Fund") and Standish Global Fixed Income Asset Fund
("Global Fixed Income Fund"), each a separate investment series of Standish,
Ayer & Wood Investment Trust (the "Trust"). The Equity Fund, Small Cap Fund,
Fixed Income Fund and Global Fixed Income Fund are sometimes referred to herein
individually as the "Fund" and collectively as the "Funds." This Statement of
Additional Information should be read in conjunction with the Funds' Prospectus,
a copy of which may be obtained without charge by writing or calling your
Account Administrator or the Trust's principal underwriter, Standish Fund
Distributors, L.P. (the "Principal Underwriter"), at the address and phone
number set forth above.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
------------------------------
Contents
Investment Objectives and Policies..............................
Investment Restrictions.........................................
Calculation of Performance Data.................................
Management......................................................
Service Plan....................................................
Redemption of Shares............................................
Portfolio Transactions..........................................
Determination of Net Asset Value.................................
The Funds and Their Shares.......................................
The Portfolios and Their Interests...............................
Taxation.........................................................
Additional Information...........................................
Experts and Financial Statements.................................
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INVESTMENT OBJECTIVE AND POLICIES
As described in the Prospectus, each Fund seeks to achieve its investment
objective by investing all of its investable assets in its corresponding
portfolio ("Portfolio"), each a series of Standish, Ayer & Wood Master Portfolio
(the "Portfolio Trust"), an open-end management investment company. Each
Portfolio has the same investment objective and restrictions as its
corresponding Fund.
The Funds and their corresponding Portfolios are as follows:
Fund Portfolio
Equity Fund Standish Equity Portfolio
("Equity Portfolio')
Small Cap Fund Standish Small Capitalization
Equity Portfolio ("Small Cap
Portfolio")
Fixed Income Fund Standish Fixed Income
Portfolio ("Fixed Income
Portfolio")
Global Fixed Income Fund Standish Global Fixed Income
Portfolio ("Global Fixed Income
Portfolio")
The Prospectus describes the investment objective of each Fund and its
corresponding Portfolio and summarizes the investment policies they will follow.
Since the investment characteristics of each Fund relate directly to those of
its corresponding Portfolio, the following, which supplements the Prospectus, is
a discussion of the various investment techniques employed by the Portfolios.
See the Prospectus for a more complete description of the Funds' and the
Portfolios' investment objectives, policies and restrictions. Standish, Ayer &
Wood, Inc. ("Standish") is the investment adviser for the Equity, Small Cap and
Fixed Income Portfolios. Standish International Management Company, L.P.
("SIMCO") is the investment adviser for the Global Fixed Income Portfolio.
Standish and SIMCO are sometimes referred to herein as the "Adviser."
Money Market Instruments and Repurchase
Agreements
As described in the Prospectus, the Portfolios may invest all or a portion
of their assets in money market instruments or short-term interest-bearing
securities for temporary defensive purposes or to maintain liquidity for
withdrawals. The Portfolios may also invest uncommitted cash in such instruments
and securities.
Money market instruments include short-term U.S. and foreign Government
securities, commercial paper (promissory notes issued by corporations to finance
their short-term credit needs), negotiable certificates of deposit,
non-negotiable fixed time deposits, bankers' acceptances and repurchase
agreements.
U.S. Government securities include securities which are direct obligations
of the U.S. Government backed by the full faith and credit of the United States,
and securities issued by agencies and instrumentalities of the U.S. Government,
which may be guaranteed by the U.S. Treasury or supported by the issuer's right
to borrow from the Treasury or may be backed by the credit of the federal agency
or instrumentality itself. Agencies and instrumentalities of the U.S. Government
include, but are not limited to, Federal Land Banks, the Federal Farm Credit
Bank, the Central Bank for Cooperatives, Federal Intermediate Credit Banks,
Federal Home Loan Banks and the Federal National Mortgage Association.
Investments in commercial paper will be rated "Prime-1" by Moody's
Investors Service, Inc. ("Moody's") or "A-1" by Standard & Poor's Ratings Group
("S&P") or Duff 1+ by Duff & Phelps, Inc. which are the highest ratings assigned
by these rating services (even if rated lower by one or more of the other
agencies), or which, if not rated or rated lower by one or more of the agencies
and not rated by the other agency or agencies, are judged by the Adviser to be
of equivalent quality to the securities so rated. In determining whether
securities are of equivalent quality, the Adviser may take into account, but
will not rely entirely on, ratings assigned by foreign rating agencies.
A repurchase agreement is an agreement under which a Portfolio acquires
money market instruments (generally U.S. Government securities) from a
commercial bank, broker or dealer, subject to resale to the seller at an
agreed-upon price and date (normally the next business day). The resale price
reflects an agreed-upon interest rate effective for the period the instruments
are held by the Portfolio and is unrelated
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to the interest rate on the instruments. The instruments acquired by the
Portfolios (including accrued interest) must have an aggregate market value in
excess of the resale price and will be held by the Portfolio Trust's custodian
bank until they are repurchased. The Trustees of the Portfolio Trust will
monitor the standards which the Adviser will use in reviewing the
creditworthiness of any party to a repurchase agreement with the Portfolios.
The use of repurchase agreements involves certain risks. For example, if
the seller defaults on its obligation to repurchase the instruments acquired by
a Portfolio at a time when their market value has declined, the Portfolio may
incur a loss. If the seller becomes insolvent or subject to liquidation or
reorganization under bankruptcy or other laws, a court may determine that the
instruments acquired by a Portfolio are collateral for a loan by the Portfolio
and therefore are subject to sale by the trustee in bankruptcy. Finally, it is
possible that a Portfolio may not be able to substantiate its interest in the
instruments it acquires. While the Trustees acknowledge these risks, it is
expected that they can be controlled through careful documentation and
monitoring.
Strategic Transactions
Each Portfolio may, but is not required to, utilize various other
investment strategies as described below to hedge various market risks (such as
interest rates, currency exchange rates, and broad or specific equity or
fixed-income market movements), to manage the effective maturity or duration of
fixed-income securities, or to enhance potential gain. Such strategies are
generally accepted as part of modern portfolio management and are regularly
utilized by many mutual funds and other institutional investors. Techniques and
instruments used by the Portfolios may change over time as new instruments and
strategies are developed or regulatory changes occur.
In the course of pursuing their investment objectives, the Portfolios may
purchase and sell (write) exchange-listed and over-the-counter put and call
options on securities, equity and fixed-income indices and other financial
instruments; purchase and sell financial futures contracts and options thereon;
enter into various interest rate transactions such as swaps, caps, floors or
collars; and enter into various currency transactions such as currency forward
contracts, currency futures contracts, currency swaps or options on currencies
or currency futures (collectively, all the above are called "Strategic
Transactions"). Strategic Transactions may be used in an attempt to protect
against possible changes in the market value of securities held in or to be
purchased by a Portfolio resulting from securities market or currency exchange
rate fluctuations, to protect a Portfolio's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of the Fixed Income and
Global Fixed Income Portfolios' holdings, or to establish a position in the
derivatives markets as a temporary substitute for purchasing or selling
particular securities. In addition to the hedging transactions referred to in
the preceding sentence, Strategic Transactions may be used to enhance potential
gain in circumstances where hedging is not involved although each Portfolio will
attempt to limit its net loss exposure resulting from Strategic Transactions
entered into for such purposes to not more than 3% of its net assets at any one
time and, to the extent necessary, the Portfolios will close out transactions in
order to comply with this limitation. (Transactions such as writing covered call
options are considered to involve hedging for the purposes of this limitation.)
In calculating a Portfolio's net loss exposure from such Strategic Transactions,
an unrealized gain from a particular Strategic Transaction position would be
netted against an unrealized loss from a related Strategic Transaction position.
For example, if the Adviser anticipates that the Belgian franc will appreciate
relative to the French franc, the Global Fixed Income Portfolio may take a long
forward currency position in the Belgian franc and a short foreign currency
position in the French franc. Under such circumstances, any unrealized loss in
the Belgian franc position would be netted against any unrealized gain in the
French franc position (and vice versa) for purposes of calculating the Global
Fixed Income Portfolio's net loss exposure. The ability of the Portfolios to
utilize these Strategic Transactions successfully will depend on the Adviser's
ability to predict pertinent market movements, which cannot be assured. The
Portfolios will comply with applicable regulatory requirements when implementing
these strategies, techniques and instruments. The Portfolios' activities
involving Strategic Transactions may be limited in order to enable the Funds to
comply with the requirements of Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), for qualification as a regulated investment
company.
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Risks of Strategic Transactions
Strategic Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
the Adviser's view as to certain market movements is incorrect, the risk that
the use of such Strategic Transactions could result in losses greater than if
they had not been used. The writing of put and call options may result in losses
to the Portfolios, force the purchase or sale, respectively, of portfolio
securities at inopportune times or for prices higher than (in the case of
purchases due to the exercise of put options) or lower than (in the case of
sales due to the exercise of call options) current market values, limit the
amount of appreciation the Portfolios can realize on their investments or cause
the Portfolios to hold a security they might otherwise sell. The use of currency
transactions can result in the Portfolios incurring losses as a result of a
number of factors including the imposition of exchange controls, suspension of
settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of a
Portfolio creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Portfolio's position. The writing of
options could significantly increase a Portfolio's portfolio turnover rate and,
therefore, associated brokerage commissions or spreads. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Portfolios might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time, in certain
circumstances, they tend to limit any potential gain which might result from an
increase in value of such position. The loss incurred by the Portfolios in
writing options on futures and entering into futures transactions is potentially
unlimited; however, as described above, each Portfolio will attempt to limit its
net loss exposure resulting from Strategic Transactions entered into for
non-hedging purposes to not more than 3% of its net assets at any one time.
Futures markets are highly volatile and the use of futures may increase the
volatility of each Portfolio's net asset value. Finally, entering into futures
contracts would create a greater ongoing potential financial risk than would
purchases of options where the exposure is limited to the cost of the initial
premium. Losses resulting from the use of Strategic Transactions would reduce
the Fund's net asset value and the net result may be less favorable than if the
Strategic Transactions had not been utilized.
Collateralized Mortgage Obligations ("CMOs")
The Investment Company Act of 1940, as amended (the "1940 Act"), limits the
ability of one investment company to invest in the securities of another
investment company. The staff of the Securities and Exchange Commission (the
"SEC") takes the position that CMOs and certain other securitized assets are
investment companies for this purpose unless such issuers have complied with an
exemptive rule or have obtained orders from the SEC exempting them from all
provisions of the 1940 Act. The Fixed Income and Global Fixed Income Portfolios
intend to operate within the applicable limitations. See the Prospectus for a
further description of CMOs.
General Characteristics of Options
Put options and call options typically have similar structural
characteristics and operational mechanics regardless of the underlying
instrument on which they are purchased or sold. Thus, the following general
discussion relates to each of the particular types of options discussed in
greater detail below. In addition, many Strategic Transactions by a Portfolio
involving options require segregation of the Portfolio's assets in special
accounts, as described below under "Use of Segregated Accounts."
A put option gives the purchaser of the option, in consideration for the
payment of a premium, the right to sell, and the writer the obligation to buy if
the option is exercised, the underlying security, commodity, index, currency or
other instrument at the exercise price. For instance, a Portfolio's purchase of
a put option on a security might be designed to protect its holdings in the
underlying instrument (or, in some cases, a similar instrument) against a
substantial decline in the market value by giving the Portfolio the right to
sell such instrument at the option exercise price. A call option, in
consideration for the payment of a premium, gives the purchaser of the option
the right to buy, and the seller the obligation to sell if the
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option is exercised, the underlying instrument at the exercise price. A
Portfolio may purchase a call option on a security, futures contract, index,
currency or other instrument to seek to protect the Portfolio against an
increase in the price of the underlying instrument that it intends to purchase
in the future by fixing the price at which it may purchase such instrument. An
American style put or call option may be exercised at any time during the option
period while a European style put or call option may be exercised only upon
expiration or during a fixed period prior thereto. The Portfolios are authorized
to purchase and sell exchange listed options and over-the-counter options ("OTC
options"). Exchange listed options are issued by a regulated intermediary such
as the Options Clearing Corporation ("OCC"), which guarantees the performance of
the obligations of the parties to such options. The discussion below uses the
OCC as an example, but is also applicable to other financial intermediaries.
With certain exceptions, exchange listed options generally settle by
physical delivery of the underlying security or currency, although in the future
cash settlement may become available. Index options and Eurodollar instruments
are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.
A Portfolio's ability to close out its position as a purchaser or seller of
an exchange listed put or call option is dependent, in part, upon the liquidity
of the option market. There is no assurance that a liquid option market on an
exchange will exist. In the event that the relevant market for an option on an
exchange ceases to exist, outstanding options on that exchange would generally
continue to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct agreement with
the Counterparty. In contrast to exchange listed options, which generally have
standardized terms and performance mechanics, all the terms of an OTC option,
including such terms as method of settlement, term, exercise price, premium,
guarantees and security, are set by negotiation of the parties. The Portfolios
will generally sell (write) OTC options (other than OTC currency options) that
are subject to a buy-back provision permitting a Portfolio to require the
Counterparty to sell the option back to the Portfolio at a formula price within
seven days. (To the extent that the Portfolios do not do so, the OTC options are
subject to the Portfolios' restriction on illiquid securities.) The Portfolios
expect generally to enter into OTC options that have cash settlement provisions,
although they are not required to do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in the OTC option market. As a result, if the Counterparty fails to
make delivery of the security, currency or other instrument underlying an OTC
option it has entered into with a Portfolio or fails to make a cash settlement
payment due in accordance with the terms of that option, a Portfolio will lose
any premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Adviser must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be
satisfied. The Portfolios will engage in OTC option transactions only with U.S.
Government securities dealers recognized by the Federal Reserve Bank of New York
as "primary dealers", or broker dealers, domestic or foreign banks or other
financial institutions which have received, combined with any credit
enhancements, a long-term debt rating of A from S&P or Moody's or an equivalent
rating from any other nationally recognized statistical rating organization
("NRSRO") or which issue debt that is determined to be of equivalent credit
quality by the Adviser. The staff of the Securities and Exchange Commission (the
"SEC") currently takes the position that, absent the buy-back provisions
discussed above, OTC options purchased by the Portfolios, and portfolio
securities "covering" the amount of the Portfolios'
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obligation pursuant to an OTC option sold by them (the cost of the sell-back
plus the in-the-money amount, if any) are illiquid, and are subject to the
Portfolios' limitation on investing in illiquid securities. However, for options
written with "primary dealers" in U.S. Government securities pursuant to an
agreement requiring a closing purchase transaction at a formula price, the
amount which is considered to be illiquid may be calculated by reference to a
formula price.
If a Portfolio sells (writes) a call option, the premium that it receives
may serve as a partial hedge, to the extent of the option premium, against a
decrease in the value of the underlying securities or instruments in its
portfolio or will increase the Portfolio's income. The sale (writing) of put
options can also provide income.
Each Portfolio may purchase and sell (write) call options on securities
including U.S. Treasury and agency securities, mortgage-backed securities (Fixed
Income and Global Fixed Income Portfolios only), corporate debt securities,
equity securities (including convertible securities) (Equity and Small Cap
Portfolios only) and Eurodollar instruments that are traded on U.S. and foreign
securities exchanges and in the over-the-counter markets, and on securities
indices, currencies and futures contracts. All calls sold by the Portfolios must
be "covered" (i.e., the Portfolios must own the securities or the futures
contract subject to the call) or must meet the asset segregation requirements
described below as long as the call is outstanding. Even though a Portfolio will
receive the option premium to help offset any loss, the Portfolio may incur a
loss if the exercise price is below the market price for the security subject to
the call at the time of exercise. A call sold by a Portfolio also exposes the
Portfolio during the term of the option to possible loss of opportunity to
realize appreciation in the market price of the underlying security or
instrument and may require the Portfolio to hold a security or instrument which
it might otherwise have sold.
Each Portfolio may purchase and sell (write) put options on securities
including U.S. Treasury and agency securities, mortgage-backed securities (Fixed
Income and Global Fixed Income Portfolios only), foreign sovereign debt,
corporate debt securities, equity securities (including convertible securities)
(Equity and Small Cap Portfolios only) and Eurodollar instruments (whether or
not it holds the above securities in its portfolio), and on securities indices,
currencies and futures contracts. A Portfolio will not sell put options if, as a
result, more than 50% of its assets would be required to be segregated to cover
its potential obligations under such put options other than those with respect
to futures and options thereon. In selling put options, there is a risk that a
Portfolio may be required to buy the underlying security at a price above the
market price.
Options on Securities Indices and Other Financial
Indices
Each Portfolio may also purchase and sell (write) call and put options on
securities indices and other financial indices. Options on securities indices
and other financial indices are similar to options on a security or other
instrument except that, rather than settling by physical delivery of the
underlying instrument, they settle by cash settlement. For example, an option on
an index gives the holder the right to receive, upon exercise of the option, an
amount of cash if the closing level of the index upon which the option is based
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option (except if, in the case of an OTC option, physical
delivery is specified). This amount of cash is equal to the differential between
the closing price of the index and the exercise price of the option, which also
may be multiplied by a formula value. The seller of the option is obligated, in
return for the premium received, to make delivery of this amount upon exercise
of the option. In addition to the methods described above, the Portfolios may
cover call options on a securities index by owning securities whose price
changes are expected to be similar to those of the underlying index, or by
having an absolute and immediate right to acquire such securities without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
securities in their portfolios.
General Characteristics of Futures
Each Portfolio may enter into financial futures contracts or purchase or
sell put and call options on such futures. Futures are generally bought and sold
on the commodities exchanges where they are listed and involve payment of
initial and variation margin as described below. The sale of futures contracts
creates a firm obligation by a Portfolio, as seller, to deliver to the buyer the
specific type of financial instrument called
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for in the contract at a specific future time for a specified price (or, with
respect to index futures and Eurodollar instruments, the net cash amount). The
purchase of futures contracts creates a corresponding obligation by a Portfolio,
as purchaser, to purchase a financial instrument at a specific time and price.
Options on futures contracts are similar to options on securities except that an
option on a futures contract gives the purchaser the right in return for the
premium paid to assume a position in a futures contract and obligates the seller
to deliver such position upon exercise of the option.
The Portfolios' use of financial futures and options thereon will in all
cases be consistent with applicable regulatory requirements and in particular
the regulations of the Commodity Futures Trading Commission relating to
exclusions from regulation as a commodity pool operator. Those regulations
currently provide that the Portfolios may use commodity futures and option
positions (i) for bona fide hedging purposes without regard to the percentage of
assets committed to margin and option premiums, or (ii) for other purposes
permitted by the SEC to the extent that the aggregate initial margin and option
premiums required to establish such non-hedging positions (net of the amount
that the positions were "in the money" at the time of purchase) do not exceed 5%
of the net asset value of each Portfolio's portfolio, after taking into account
unrealized profits and losses in such positions. Typically, maintaining a
futures contract or selling an option thereon requires the Portfolios to
deposit, with their custodian for the benefit of a futures commission merchant,
as security for their obligations an amount of cash or other specified assets
(initial margin) which initially is typically 1% to 10% of the face amount of
the contract (but may be higher in some circumstances). Additional cash or
assets (variation margin) may be required to be deposited directly with the
futures commission merchant thereafter on a daily basis as the value of the
contract fluctuates. The purchase of an option on financial futures involves
payment of a premium for the option without any further obligation on the part
of the Portfolios. If a Portfolio exercises an option on a futures contract it
will be obligated to post initial margin (and potential subsequent variation
margin) for the resulting futures position just as it would for any position.
Futures contracts and options thereon are generally settled by entering into an
offsetting transaction but there can be no assurance that the position can be
offset prior to settlement at an advantageous price, nor that delivery will
occur. The segregation requirements with respect to futures contracts and
options thereon are described below.
Currency Transactions
Each Portfolio may engage in currency transactions with Counterparties to
seek to hedge the value of portfolio holdings denominated in particular
currencies against fluctuations in relative value or to enhance potential gain.
Currency transactions include currency contracts, exchange listed currency
futures, exchange listed and OTC options on currencies, and currency swaps. A
forward currency contract involves a privately negotiated obligation to purchase
or sell (with delivery generally required) a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. A currency swap is
an agreement to exchange cash flows based on the notional (agreed-upon)
difference among two or more currencies and operates similarly to an interest
rate swap, which is described below. A Portfolio may enter into over-the-counter
currency transactions with Counterparties which have received, combined with any
credit enhancements, a long term debt rating of A by S&P or Moody's,
respectively, or that have an equivalent rating from a NRSRO or (except for OTC
currency options) whose obligations are determined to be of equivalent credit
quality by the Adviser.
The Portfolios' transactions in forward currency contracts and other
currency transactions such as futures, options, options on futures and swaps
will generally be limited to hedging involving either specific transactions or
portfolio positions. See "Strategic Transactions." Transaction hedging is
entering into a currency transaction with respect to specific assets or
liabilities of a Portfolio, which will generally arise in connection with the
purchase or sale of its portfolio securities or the receipt of income therefrom.
Position hedging is entering into a currency transaction with respect to
portfolio security positions denominated or generally quoted in that currency.
A Portfolio will not enter into a transaction to hedge currency exposure to
an extent greater, after netting all transactions intended wholly or partially
to offset other transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities held in its portfolio that are
denominated
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or generally quoted in or currently convertible into such currency, other than
with respect to proxy hedging as described below.
Each Portfolio may also cross-hedge currencies by entering into
transactions to purchase or sell one or more currencies that are expected to
decline in value in relation to other currencies to which the Portfolio has or
in which the Portfolio expects to have, portfolio exposure. For example, a
Portfolio may hold a French government bond and the Adviser may believe that
French francs will deteriorate against German marks. A Portfolio would sell
French francs to reduce its exposure to that currency and buy German marks. This
strategy would be a hedge against a decline in the value of French francs,
although it would expose the Portfolio to declines in the value of the German
mark relative to the U.S. dollar.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Portfolios may also engage in
proxy hedging. Proxy hedging is often used when the currency to which a
Portfolio's portfolio is exposed is difficult to hedge or to hedge against the
dollar. Proxy hedging entails entering into a forward contract to sell a
currency whose changes in value are generally considered to be linked to a
currency or currencies in which certain of a Portfolio's portfolio securities
are or are expected to be denominated, and to buy U.S. dollars. The amount of
the contract would not exceed the value of a Portfolio's securities denominated
in linked currencies. For example, if the Adviser considers that the Austrian
schilling is linked to the German deutsche mark (the "D-mark"), a Portfolio
holds securities denominated in schillings and the Adviser believes that the
value of schillings will decline against the U.S. dollar, the Adviser may enter
into a contract to sell D-marks and buy dollars. Proxy hedging involves some of
the same risks and considerations as other transactions with similar
instruments. Currency transactions can result in losses to the Portfolios if the
currency being hedged fluctuates in value to a degree or in a direction that is
not anticipated. Further, there is the risk that the perceived linkage between
various currencies may not be present or may not be present during the
particular time that the Portfolios are engaging in proxy hedging. If a
Portfolio enters into a currency hedging transaction, the Portfolio will comply
with the asset segregation requirements described below.
Risks of Currency Transactions
Currency transactions are subject to risks different from those of other
portfolio transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchases and
sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to the
Portfolios if they are unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges they have entered into to
be rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
Combined Transactions
Each Portfolio may enter into multiple transactions, including multiple
options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions, structured notes and any combination of futures, options, currency
and interest rate transactions ("component" transactions), instead of a single
Strategic Transaction, as part of a single or combined strategy when, in the
opinion of the Adviser, it is in the best interests of the Portfolio to do so. A
combined transaction will usually contain elements of risk that are present in
each of its component transactions. Although combined transactions are normally
entered into based on the Adviser's judgment that the combined strategies will
reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars
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Among the Strategic Transactions into which each of the Portfolios may
enter are interest rate, currency and index swaps and the purchase or sale of
related caps, floors and collars. The Portfolios expect to enter into these
transactions primarily for hedging purposes, including, but not limited to,
preserving a return or spread on a particular investment or portion of their
portfolios, protecting against currency fluctuations, as a duration management
technique or protecting against an increase in the price of securities the
Portfolios anticipate purchasing at a later date. Swaps, caps, floors and
collars may also be used to enhance potential gain in circumstances where
hedging is not involved although, as described above, each Portfolio will
attempt to limit its net loss exposure resulting from swaps, caps, floors and
collars and other Strategic Transactions entered into for such purposes to not
more than 3% of its net assets at any one time. A Portfolio will not sell
interest rate caps or floors where it does not own securities or other
instruments providing the income stream the Portfolio may be obligated to pay.
Interest rate swaps involve the exchange by a Portfolio with another party of
their respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments with respect to a notional amount
of principal. A currency swap is an agreement to exchange cash flows on a
notional amount of two or more currencies based on the relative value
differential among them and an index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference indices. The
purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such cap to the extent that a specified
index exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount from
the party selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain rate of return within a predetermined range of
interest rates or values.
The Portfolios will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with a Portfolio receiving or paying, as the case
may be, only the net amount of the two payments. The Portfolios will not enter
into any swap, cap, floor or collar transaction unless, at the time of entering
into such transaction, the unsecured long-term debt of the Counterparty,
combined with any credit enhancements, is rated at least A by S&P or Moody's or
has an equivalent rating from an NRSRO or is determined to be of equivalent
credit quality by the Adviser. If there is a default by the Counterparty, a
Portfolio may have contractual remedies pursuant to the agreements related to
the transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid. Caps, floors and collars are more recent
innovations for which standardized documentation has not yet been fully
developed. Swaps, caps, floors and collars are considered illiquid for purposes
of each Portfolio's policy regarding illiquid securities, unless it is
determined, based upon continuing review of the trading markets for the specific
security, that such security is liquid. The Board of Trustees of the Portfolio
Trust has adopted guidelines and delegated to the Adviser the daily function of
determining and monitoring the liquidity of swaps, caps, floors and collars. The
Board of Trustees, however, retains oversight focusing on factors such as
valuation, liquidity and availability of information and is ultimately
responsible for such determinations. The Staff of the SEC currently takes the
position that swaps, caps, floors and collars are illiquid, and are subject to
each Portfolio's limitation on investing in illiquid securities.
Eurodollar Contracts
Each Portfolio may make investments in Eurodollar contracts. Eurodollar
contracts are U.S. dollar-denominated futures contracts or options thereon which
are linked to the London Interbank Offered Rate ("LIBOR"), although foreign
currency-denominated instruments are available from time to time. Eurodollar
futures contracts enable purchasers to obtain a fixed rate for the lending of
funds and sellers to obtain a fixed rate for borrowings. The Portfolios might
use Eurodollar futures contracts and options thereon to hedge against changes in
LIBOR, to which many interest rate swaps and fixed income instruments are
linked.
Risks of Strategic Transactions Outside the United
States
9
<PAGE>
When conducted outside the United States, Strategic Transactions may not be
regulated as rigorously as in the United States, may not involve a clearing
mechanism and related guarantees, and are subject to the risk of governmental
actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) lesser availability than in the United States of data on which to make
trading decisions, (ii) delays in a Portfolio's ability to act upon economic
events occurring in foreign markets during non-business hours in the United
States, (iii) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States, (iv) lower trading
volume and liquidity, and (v) other complex foreign political, legal and
economic factors. At the same time, Strategic Transactions may offer advantages
such as trading in instruments that are not currently traded in the United
States or arbitrage possibilities not available in the United States.
Use of Segregated Accounts
Each Portfolio will hold securities or other instruments whose values are
expected to offset their obligations under the Strategic Transactions. The
Portfolios will cover Strategic Transactions as required by interpretive
positions of the SEC. A Portfolio will not enter into Strategic Transactions
that expose the Portfolio to an obligation to another party unless it owns
either (i) an offsetting position in securities or other options, futures
contracts or other instruments or (ii) cash, receivables or liquid, high grade
debt securities with a value sufficient to cover its potential obligations. The
Portfolios may have to comply with any applicable regulatory requirements for
Strategic Transactions, and if required, will set aside cash and other assets in
a segregated account with their custodian bank in the amount prescribed. In that
case, a Portfolio's custodian would maintain the value of such segregated
account equal to the prescribed amount by adding or removing additional cash or
other assets to account for fluctuations in the value of the account and the
applicable Portfolio's obligation on the underlying Strategic Transactions.
Assets held in a segregated account would not be sold while the Strategic
Transaction is outstanding, unless they are replaced with similar assets. As a
result, there is a possibility that segregation of a large percentage of a
Portfolio's assets could impede portfolio management or a Portfolio's ability to
meet redemption requests or other current obligations.
"When-Issued" and "Delayed Delivery" Securities
The Fixed Income and Global Fixed Income Portfolios may commit up to 15%
and 25%, respectively, of their net assets to purchase securities on a
"when-issued" or "delayed delivery" basis, which means that delivery and payment
for the securities will normally take place 15 to 45 days after the date of the
transaction. The payment obligation and interest rate on the securities are
fixed at the time a Portfolio enters into the commitment, but interest will not
accrue to the Portfolio until delivery of and payment for the securities.
Although the Fixed Income and Global Fixed Income Portfolios will only make
commitments to purchase "when-issued" and "delayed delivery" securities with the
intention of actually acquiring the securities, the Portfolios may sell the
securities before the settlement date if deemed advisable by the Adviser.
Unless a Portfolio has entered into an offsetting agreement to sell the
securities, cash, or liquid high-grade debt obligations with a market value
equal to the amount of the Portfolio's commitments will be segregated with the
Portfolios' custodian bank. If the market value of these securities declines,
additional cash or securities will be segregated daily so that the aggregate
market value of the segregated securities equals the amount of the Portfolio's
commitments.
Securities purchased on a "when-issued" and "delayed delivery" basis may
have a market value on delivery which is less than the amount paid by the
Portfolio. Changes in market value may be based upon the public's perception of
the creditworthiness of the issuer or changes in the level of interest rates.
Generally, the value of "when-issued" securities will fluctuate inversely to
changes in interest rates, i.e., they will appreciate in value when interest
rates fall and will decline in value when interest rates rise.
Portfolio Turnover
It is not the policy of any Portfolio to purchase or sell securities for
trading purposes. However, the Portfolios are not subject to any restriction on
portfolio turnover and may sell any portfolio security without regard to the
period of time it has been held, except as may be necessary to enable the Funds
to maintain their status as regulated investment companies under the
10
<PAGE>
Code. The Portfolios may therefore generally change their portfolio investments
at any time in accordance with the Adviser's appraisal of factors affecting any
particular issuer or market, or relevant economic conditions. The portfolio
turnover rates for Equity, Small Cap, Fixed Income and Global Fixed Income
Portfolios are not expected to exceed 200%, 150%, 200% and 250%, respectively,
on an annual basis. A rate of turnover of 100% would occur if the value of the
lesser of purchases and sales of portfolio securities for a particular year
equaled the average monthly value of portfolio securities owned during the year
(excluding short-term securities). A high rate of portfolio turnover (100% or
more) involves a correspondingly greater amount of brokerage commissions and
other costs which must be borne directly by the Portfolios and thus indirectly
by the Funds and their shareholders. It may also result in the realization of
larger amounts of net short-term capital gains, which (when allocated to and
distributed by the Funds) are taxable to the Funds' shareholders as ordinary
income and may, under certain circumstances, make it more difficult for the
Funds to qualify as regulated investment companies under the Code.
INVESTMENT RESTRICTIONS
Each Fund and Portfolio has adopted certain fundamental and non-fundamental
policies. A Fund's and a Portfolio's fundamental policies cannot be changed
unless the change is approved by the "vote of the outstanding voting securities"
of the Fund or the Portfolio, as the case may be, which phrase as used herein
means the lesser of (i) 67% or more of the voting securities of that Fund or
Portfolio present at a meeting, if the holders of more than 50% of the
outstanding voting securities of that Fund or Portfolio are present or
represented by proxy, or (ii) more than 50% of the outstanding voting securities
of that Fund or Portfolio.
As a matter of fundamental policy, each Portfolio (Fund) may not:
1. Invest more than 25% of the current value of
their total assets in any single industry,
provided that this restriction shall not apply to
(a) U.S. Government securities with respect to
the Equity Portfolio (Fund) and Small Cap
Portfolio (Fund) only, (b) U.S. Government
securities, including mortgage pass-through
securities (GNMAs) with respect to the Fixed
Income Portfolio (Fund) only and (c) debt
securities issued or guaranteed by the United
States Government or its agencies or
instrumentalities with respect to Global Fixed
Income Portfolio (Fund) only.
2. Underwrite the securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, a Portfolio
(Fund) may be deemed to be an underwriter under the Securities Act of
1933.
3. Purchase real estate or real estate mortgage
loans.
4. Purchase securities on margin (except that each Portfolio (Fund) may
obtain such short-term credits as may be necessary for the clearance of
purchases and sales of securities).
5. Purchase or sell commodities or commodity contracts except that each
Portfolio (Fund) may purchase and sell financial futures contracts and
engage in options on financial futures contracts and foreign currency
exchange transactions.
6. With respect to at least 75% (50% in the case of Global Fixed Income
Portfolio and Fund only) of its total assets, invest more than 5% in
the securities of any one issuer (other than the U.S. Government, its
agencies or instrumentalities) or acquire more than 10% of the
outstanding voting securities of any issuer.
7. Issue senior securities, borrow money, enter
into reverse repurchase agreements or pledge
or mortgage its assets, except that each
Portfolio (Fund) may (a) borrow from banks in
an amount up to 15% of the current value of its
total assets as a temporary measure for
extraordinary or emergency purposes (but not
investment purposes), (b) pledge its assets to
an extent not greater than 15% of the current
value of its total assets to secure such
borrowings and (c) with respect to Fixed
Income Portfolio (Fund) and Global Fixed
Income Portfolio (Fund) only, enter into
forward roll transactions.
8. Make loans of portfolio securities, except that
(a) each Portfolio (Fund) may enter into
11
<PAGE>
repurchase agreements, (b) the Fixed Income Portfolio (Fund) (i) may
lend portfolio securities in accordance with the Fund's investment
policies up to 33-1/3% of the Portfolio's total assets taken at market
value and (ii) purchase all or a portion of an issue of debt
securities, bank loan participation interests, bank certificates of
deposit, banker's acceptances, debentures or other securities, whether
or not the purchase is made upon the original issuance of securities
and (c) the Global Fixed Income Portfolio (Fund) may lend its portfolio
securities with a value up to 20% of its total assets (with a 10% limit
for any borrower).
Notwithstanding the foregoing, each Fund may invest all of its assets
(other than assets which are not "investment securities" (as defined in the 1940
Act) or are excepted by the SEC) in an open-end management investment company
with substantially the same investment objective as that particular Fund.
The following restrictions are not fundamental
policies and may be changed by the Trustees of the
Portfolio Trust (Trust) without investor approval
(shareholder), in accordance with applicable laws,
regulations or regulatory policy. Each Portfolio (Fund)
may not:
a. Make short sales of securities unless (a) after
effect is given to any such short sale, the total
market value of all securities sold short would
not exceed 5% of the value of the Portfolio's
(Fund's) net assets or (b) at all times during
which a short position is open it owns an equal
amount of such securities, or by virtue of
ownership of convertible or exchangeable
securities it has the right to obtain through the
conversion or exchange of such other securities
an amount equal to the securities sold short.
b. Invest in companies for the purpose of
exercising control or management.
c. Purchase securities of any other investment
company, provided that the Portfolio (Fund)
may make such a purchase as a part of a
merger, consolidation or acquisition of assets,
and provided further that the Portfolio (Fund)
may make such a purchase in the open market
where no commission or profit to a sponsor or
dealer results from the purchase, other than
customary broker's commissions, and then only
to the extent permitted by the 1940 Act.
d. Purchase or write options, except as described
under "Strategic Transactions."
e. Invest in interests in oil, gas or other
exploration or development programs.
f. Invest more than 5% of the assets of the
Portfolio (Fund) in the securities of any issuers
which together with their corporate parents
have records of less than three years'
continuous operation, including the operation
of any predecessor, other than debt securities
issued or guaranteed by the U.S. or foreign
national, provincial, state or other governments
with taxing authority or by their agencies or by
supranational entities and securities fully
collateralized by such securities.
g. Invest in securities of any company if any
officer or director (trustee) of the Portfolio
Trust (Trust) or of the Portfolios' investment
adviser owns more than 1/2 of 1% of the
outstanding securities of such company and
such officers and directors (trustees) own in the
aggregate more than 5% of the securities of
such company.
h. Invest more than an aggregate of 15% of the
net assets of the Portfolio (Fund) in (a)
repurchase agreements that are not terminable
within seven days, (b) securities subject to legal
or contractual restrictions on resale or for
which there are no readily available market
quotations and (c) in other illiquid securities,
including nonnegotiable fixed time deposits.
i. Invest more than 10% (Equity Fund and Portfolio), 10% (Small Cap Fund
and Portfolio), 5% (Fixed Income Fund and Portfolio) and 25% (Global
Fixed Income Fund and Portfolio) of its net assets in repurchase
agreements.
j. Make any additional investments while its outstanding borrowings (bank
borrowings with respect to the Fixed Income Fund and Portfolio) exceed
5% of the current value of its total assets.
12
<PAGE>
Notwithstanding any non-fundamental policy, each Fund may invest all of its
assets (other than assets which are not "investment securities" (as defined in
the 1940 Act) or are excepted by the SEC) in an open-end management investment
company with substantially the same investment objective as the Funds.
Purchases of securities of other investment companies permitted under
restriction (c) above could cause the Portfolios (Funds) to pay additional
management and advisory fees and distribution fees.
If any percentage restriction described above is adhered to at the time of
investment, a subsequent increase or decrease in the percentage resulting from a
change in the value of a Portfolio's assets will not constitute a violation of
the restriction, except with respect to restriction (g) above.
In order to permit the sale of shares of the Funds in certain states, the
Boards of Trustees of the Trust and the Portfolio Trust may, in their sole
discretion, adopt restrictions on investment policy more restrictive than those
described above. Should the applicable Board of Trustees determine that any such
more restrictive policy is no longer in the best interest of a Fund and its
shareholders or a Portfolio and its interest-holders, as the case may be, the
Fund may cease offering shares in the state involved and the Boards may revoke
such restrictive policy. Moreover, if the states involved shall no longer
require any such restrictive policy, the Boards may, in their sole discretion,
revoke such policy.
CALCULATION OF PERFORMANCE DATA
As indicated in the Prospectus, each Fund may, from time to time, advertise
certain total return information. The average annual total return of a Fund for
a period is computed by subtracting the net asset value per share at the
beginning of the period from the net asset value per share at the end of the
period (after adjusting for the reinvestment of any income dividends and capital
gain distributions), and dividing the result by the net asset value per share at
the beginning of the period. In particular, the average annual total return of
the Funds ("T") is computed by using the redeemable value at the end of a
specified period of time ("ERV") of a hypothetical initial investment of $1,000
("P") over a period of time ("n") according to the formula P(1+T)n=ERV.
The yield of the Fixed Income and Global Fixed Income Funds is computed by
dividing the net investment income per share earned during the period stated in
the advertisement by the maximum offering price per share on the last day of the
period. For the purpose of determining net investment income, the calculation
includes, among expenses of the Fixed Income and Global Fixed Income Funds, all
recurring fees that are charged to all shareholder accounts and any non
recurring charges for the period stated. In particular, yield is determined
according to the following formula:
Yield = 2[(A - B + 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.
The Fixed Income and Global Fixed Income Funds may also quote
non-standardized yield, such as yield-to-maturity ("YTM"). YTM represents the
rate of return an investor will receive if a long-term, interest bearing
investment, such as a bond, is held to its maturity date. YTM does not take into
account purchase price, redemption value, time to maturity, coupon yield, and
the time between interest payments.
Each Fund's performance may be compared in sales literature to the
performance of other mutual funds having similar objectives or to standardized
indices or other measures of performance. In particular, the Equity and the
Small Cap Funds may compare their performance to the S&P 500 Index, which is
generally considered to be representative of the performance of unmanaged common
stocks that are publicly traded in the U.S. securities markets; the Small Cap
Fund may also compare its performance to the Russell 2000 Index, which is
generally considered to be representative of unmanaged small capitalization
stocks in the U.S. securities markets; the Fixed Income Fund may compare its
performance to the Lehman Government/Corporate Index, which is generally
considered to be representative of the performance of all domestic,
dollar-denominated, fixed rate, investment
13
<PAGE>
grade bonds, and to the Lehman Brothers Aggregate Index which is composed of
securities from the Lehman Brothers Government/Corporate Bond Index,
Mortgage-Backed Securities Index and Yankee Bond Index, and is generally
considered to be representative of all unmanaged, domestic, dollar-denominated,
fixed rate, investment grade bonds; and the Global Fixed Income Fund may compare
its performance to J.P. Morgan Global Index, which is generally considered to be
representative of the performance of fixed rate, domestic government bonds from
11 countries. Comparative performance may also be expressed by reference to
rankings prepared by a mutual fund monitoring services or by one or more
newspapers, newsletters or financial periodicals. Performance comparisons may be
useful to investors who wish to compare the Funds' past performance to that of
other mutual funds and investment products. Of course, past performance is not a
guarantee of future results.
Each Fund is newly organized and has no operating or performance history.
However, other funds in the Standish, Ayer & Wood Group of Funds currently
invest all of their investable assets in the Portfolios. These funds, which have
substantially the same investment objectives, policies and restrictions as their
corresponding Portfolios and Funds, are: Standish Equity Fund with respect to
the Equity Portfolio; Standish Fixed Income Fund with respect to the Fixed
Income Portfolio; Standish Global Fixed Income Fund with respect to the Global
Fixed Income Portfolio; and Standish Small Capitalization Equity Fund with
respect to the Small Cap Portfolio. Each of these funds is referred to in this
Statement of Additional Information as a "corresponding fund." In accordance
with positions expressed by the staff of the SEC, each Fund has adopted the
performance record of its corresponding fund for periods prior to each Fund's
commencement of operations. Any quotation of performance data of a Fund relating
to these periods will include the performance record for its corresponding fund
for these periods. Each Fund incurs a service fee payable at the annual rate
equal to 0.25% of such Fund's average daily net assets, which service fee is not
incurred by its corresponding fund. In addition, to the extent that the net
assets of a Fund are lower than the net assets of its corresponding fund, fixed
expenses incurred by a Fund would be higher as a percentage of average net
assets than for the corresponding fund. See "Management" and "Service Plan"
below in this Statement of Additional Information for a description of the
Funds' expenses. Pursuant to positions expressed by the staff of the SEC, the
corresponding funds' performance records adopted by the Funds' have not been
adjusted to reflect any higher relative expenses, including the service fees,
expected to be incurred by the Funds. The Funds' performance would be lower if
adjusted to reflect these additional expenses.
In addition to average annual return quotations, each Fund may quote as its
own the quarterly and annual performance record of the corresponding fund on a
net (with management fees deducted) and gross basis as follows:
Equity Fund
The average annual total return quotations for the Fund (which includes the
performance record of Standish Equity Fund) for the one year period ended
December 31, 1995, and since inception of Standish Equity Fund (January 2, 1991)
to December 31, 1995 are
37.55% and 18.49%, respectively.
Quarter/Year Net Gross
1Q91 16.30% 16.50%
2Q91 (2.76) (2.53)
3Q91 6.15 6.42
4Q91 11.09 11.34
1991 36.36 34.62
1Q92 (2.77) (2.52)
2Q92 (2.63) (2.38)
3Q92 4.03 4.28
4Q92 11.20 10.74
1992 9.52 9.52
1Q93 7.71 7.91
2Q93 2.76 2.96
14
<PAGE>
3Q93 6.64 6.84
4Q93 2.34 2.54
1993 20.79 21.72
1Q94 (2.30) (2.13)
2Q94 (3.14) (2.96)
3Q94 3.22 3.40
4Q94 (1.50) (1.33)
1994 (3.78) (3.10)
1Q95 8.76 8.93
2Q95 11.10 11.28
3Q95 9.56 9.74
4Q95 3.90 4.09
1995 37.55 38.46
Small Cap Fund
The average annual total return quotations for the Fund (which includes the
performance record of Standish Small Capitalization Equity Fund) for the one and
five year periods ended December 31, 1995 and since inception of Standish Small
Capitalization Equity Fund (September 1, 1990) to December 31, 1995 are 29.83%,
23,71% and 23.23%, respectively.
Quarter/Year Net Gross
1/91 28.41% 28.68%
2/91 2.87 3.12
3/91 12.58 12.73
4/91 10.74 10.94
1991 64.71 65.95
1/92 3.16 3.38
2/92 (12.15) (11.92)
3/92 7.23 7.52
4/92 12.91 13.20
1992 9.74 10.83
1/93 0.62 0.84
2/93 3.45 3.70
3/93 14.45 14.67
4/93 7.63 7.83
1993 28.21 29.30
1/94 (3.48) (3.29)
2/94 (4.39) (4.19)
3/94 5.90 6.11
4/94 (1.42) (1.22)
1994 (3.66) (2.88)
1Q95 6.03 6.22
2Q95 2.55 2.73
3Q95 16.17 16.36
4Q95 2.80 2.98
1995 29.83 30.77
Fixed Income Fund
The average annual total return quotations for the Fund (which includes the
performance record of Standish Fixed Income Fund) for the one and five year
periods ended December 31, 1995 are 18.54% and 10.21%, respectively, and since
inception of Standish Fixed Income Fund (March 27, 1987) to December 31, 1995)
is 9.46%. The Fund's average annualized yield (which includes the performance
record of Standish Fixed Income Fund) for the thirty day period ended December
31, 1995 was 7.12%.
Quarter/Year Net Gross
2Q87 (1.14)% (0.95)%
3Q87 (2.16) (2.04)
4Q87 4.15 4.30
1987 0.74 1.20
15
<PAGE>
1Q88 4.36 4.52
2Q88 1.18 1.29
3Q88 1.98 2.11
4Q88 0.78 0.91
1988 8.53 9.09
1Q89 1.23 1.37
2Q89 7.57 7.70
3Q89 1.13 1.26
4Q89 3.30 3.42
1989 13.76 14.33
1Q90 (0.50) (0.38)
2Q90 3.69 3.84
3Q90 0.89 1.00
4Q90 4.95 5.06
1990 9.23 9.77
1Q91 3.16 3.28
2Q91 1.71 1.84
3Q91 6.19 6.29
4Q91 5.58 5.68
1991 17.65 18.15
1Q92 (0.95) (0.84)
2Q92 4.95 5.04
3Q92 3.43 3.53
4Q92 (0.58) (0.47)
1992 6.88 7.33
1Q93 5.88 5.98
2Q93 3.42 3.52
3Q93 3.42 3.52
4Q93 1.23 1.33
1993 14.64 15.08
1Q94 (3.99) (3.90)
2Q94 (1.88) (1.78)
3Q94 0.67 0.77
4Q94 0.32 0.42
1994 (4.86) (4.48)
1Q95 4.39 4.48
2Q95 5.91 6.01
3Q95 2.46 2.56
4Q95 4.64 4.73
1995 18.54 18.97
Global Fixed Income Fund
The average annual total return quotation for the Fund (which includes the
performance record of Standard Global Fixed Income Fund) for the one year period
ended December 31, 1995 was 18.13%. The average total return quotation for the
Fund (which includes the performance of Standish Global Fixed Income Fund) for
the period January 3, 1994 (commencement of operation of Standish Global Fixed
Income Fund) through December 31, 1995 was 4.77%. The Fund's average annualized
yield (which includes the performance record of Standish Global Fixed Income
Fund) for the 30 day period ended December 31, 1995 was 7.51%.
<TABLE>
<CAPTION>
Quarter/Year Net Gross
<C> <C> <C>
1Q94 (4.80)% (4.64)%
2Q94 (3.56) (3.40)
3Q94 (0.77) (0.05)
4Q94 1.44 1.60
1994 (7.06) (6.46)
1Q95 2.94 3.10
2Q95 5.21 5.36
16
<PAGE>
3Q95 3.80 3.95
4Q95 5.09 5.26
1995 18.13 18.84
</TABLE>
The past performance of the Funds or the corresponding funds is no
guarantee, and is not necessarily indicative, of the future performance of the
Funds. The Funds' actual performance may differ significantly from the past and
future performance of the corresponding funds.
17
<PAGE>
MANAGEMENT
Trustees and Officers of the Trust and Portfolio Trust
The Trustees and executive officers of the Trust are listed below. The
Trustees of the Portfolio Trust are identical to the Trustees of the Trust. The
officers of the Portfolio Trust are Messrs. Clayson, Ladd, Wood, Hollis and
Murray, and Mss. Banfield, Chase, Herrmann and Kneeland, who hold the same
office with the Portfolio Trust as with the Trust. All executive officers of the
Trust and the Portfolio Trust are employees of Standish, Ayer & Wood, Inc.
<TABLE>
<CAPTION>
Name, Address and Date of Birth Position Held With Trust Principal Occupation During Past 5 Years
- -------------------------------------------------------------------- -----------------------------------------------
<S> <C> <C>
D. Barr Clayson, 7/29/35 Vice President and Vice President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Trustee Standish, Ayer & Wood, Inc.;
One Financial Center Chairman and Director,
Boston, MA 02111 Standish International
Management Company, L.P.
Samuel C. Fleming, 9/30/40 Trustee Chairman of the Board
c/o Decision Resources, Inc. and Chief Executive Officer,
1100 Winter Street Decision Resources, Inc.;
Waltham, MA 02154 through 1989, Senior V.P.
Arthur D. Little
Benjamin M. Friedman, 8/5/44 Trustee William Joseph Maier
c/o Harvard University Professor of Political Economy,
Cambridge, MA 02138 Harvard University
John H. Hewitt, 4/11/35 Trustee Trustee, The Peabody Foundation; Trustee,
P.O. Box 307 Visiting Nurse Alliance of Vermont
So. Woodstock, VT 05071 and New Hampshire
*Edward H. Ladd, 1/3/38 Trustee and Vice Chairman of the Board
c/o Standish, Ayer & Wood, Inc. President and Managing Director,
One Financial Center Standish, Ayer & Wood, Inc. since 1990;
Boston, MA 02111 formerly President of Standish, Ayer & Wood, Inc.;
Director of
Standish International Management Company, L.P.
Caleb Loring III, 11/14/43 Trustee Trustee, Essex Street Associates
c/o Essex Street Associates (family investment trust office);
P.0. Box 5600 Director, Holyoke Mutual Insurance Company
Beverly Farms, MA 01915
*Richard S. Wood, 5/21/54 President and Trustee Vice President, Secretary,
c/o Standish, Ayer & Wood, Inc. and Managing Director,
One Financial Center Standish, Ayer & Wood, Inc.;
Boston, MA 02111 Executive Vice President and Director,
Standish International Management Company, L.P.
- --------
*Indicates that Trustee is an interested person of the Trust for purposes of the 1940 Act.
18
<PAGE>
Name, Address and Date of Birth Position Held With Trust Principal Occupation During Past 5 Years
- -------------------------------------------------------------------- -----------------------------------------------
Richard C. Doll, 7/8/48 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center Vice President and Director,
Boston, MA 02111 Standish International Management Company, L.P.
David W. Murray, 5/5/40 Treasurer+ and Secretary+ Vice President, Treasurer and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center Treasurer, Standish International
Boston, MA 02111 Management Company, L.P.
James E. Hollis III, 11/21/48 Executive Vice President, Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Treasurer+ and Secretary+ Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Caleb F. Aldrich, 9/20/57 Vice President Vice President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Beverly E. Banfield, 7/6/56 Vice President Vice President and Compliance Officer,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center Assistant Vice President and Compliance Officer,
Boston, MA 02111 Freedom Capital Management Corp.
(1989-1992)
Nicholas S. Battelle, 6/24/42 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Walter M. Cabot, 1/16/33 Vice President Senior Advisor and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center prior to 1991, President,
Boston, MA 02111 Harvard Management Company
Senior Advisor and Director of
Standish International Management Company, L.P.
David H. Cameron, 11/2/55 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Director of
Boston, MA 02111 Standish International Management Company, L.P.
Karen K. Chandor, 2/13/50 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
- --------
+Mr. Murray resigned as Treasurer and Secretary of the Trust effective
June 28, 1996 and Mr. Hollis was elected Treasurer and Secretary of the Trust
effective upon such resignation.
19
<PAGE>
Name, Address and Date of Birth Position Held With Trust Principal Occupation During Past 5 Years
- -------------------------------------------------------------------- -----------------------------------------------
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 02111
W. Charles Cook II, 7/16/63 Vice President Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center Vice President,
Boston, MA 02111 Standish International Management Company, L.P.
Joseph M. Corrado, 5/13/55 Vice President Vice President and Associate Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Dolores S. Driscoll, 2/17/48 Vice President Vice President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center Director,
Boston, MA 02111 Standish International Management Company, L.P.
Mark A. Flaherty, 4/24/59 Vice President Vice President and Director (since 1995),
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center Vice President
Boston, MA 02111 Standish International Management Company, L.P.
Maria D. Furman, 2/3/54 Vice President Vice President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center Vice President and Director,
Boston, MA 02111 Standish International Management Company, L.P.
Anne P. Herrmann, 1/26/56 Vice President Mutual Fund Administrator,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Ann S. Higgins, 4/8/35 Vice President Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Denise B. Kneeland, 8/19/51 Vice President Senior Operations, Manager,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center since December 1995; formerly
Boston, MA 02111 Vice President Scudder, Stevens and Clark
20
<PAGE>
Name, Address and Date of Birth Position Held With Trust Principal Occupation During Past 5 Years
- -------------------------------------------------------------------- -----------------------------------------------
Raymond J. Kubiak, 9/3/57 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Phillip D. Leonardi, 4/24/62 Vice President Vice President, Standish, Ayer & Wood, Inc.
c/o Standish, Ayer & Wood, Inc. since November 1993; formerly, Investment Sales,
One Financial Center Cigna Corporation (1993) and
Boston, MA 02111 Travelers Corporation (1984-1993)
Laurence A. Manchester, 5/24/43 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
George W. Noyes, 11/12/44 Vice President President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center Director,
Boston, MA 02111 Standish International Management Company, L.P.
Arthur H. Parker, 8/12/35 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Jennifer A. Pline, 3/8/60 Vice President Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Howard B. Rubin, 10/29/59 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center Executive Vice President and Director,
Boston, MA 02111 Standish International Management Company, L.P.
Michael C. Schoeck, 10/24/55 Vice President Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc. since August, 1993;
One Financial Center formerly, Vice President,
Boston, MA 02111 Commerzbank, Frankfurt, Germany;
Vice President,
Standish International Management Company, L.P.
Austin C. Smith, 7/25/52 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Stephen A. Smith, 3/13/49 Vice President Vice President, Standish, Ayer & Wood, Inc.
c/o Standish, Ayer & Wood, Inc. since January 1, 1994;
One Financial Center formerly, consultant
Boston, MA 02111 Cambridge Associates
21
<PAGE>
Name, Address and Date of Birth Position Held With Trust Principal Occupation During Past 5 Years
- -------------------------------------------------------------------- -----------------------------------------------
David C. Stuehr, 3/1/58 Vice President Vice President and Director (since 1995)
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
James W. Sweeney, 5/15/59 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Executive Vice President and Director,
Boston, MA 02111 Standish International Management Company, L.P.
Ralph S. Tate, 4/2/47 Vice President Vice President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc. since April, 1990;
One Financial Center formerly Vice President, Aetna Life & Casualty;
Boston, MA 02111 President and Director,
Standish International Management Company, L.P.
Michael W. Thompson, 3/31/56 Vice President Vice President and Associate Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Christopher W. Van Alstyne, 3/24/60 Vice President Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center Formerly Regional Marketing Director,
Boston, MA 02111 Gabelli-O'Connor Fixed Income Management
22
</TABLE>
<PAGE>
Compensation of Trustees and Officers
Each of the Trust and the Portfolio Trust pays no compensation to their
Trustees affiliated with Standish, or to their officers. None of the Trustees or
officers have engaged in any financial transactions (other than the purchase or
redemption of the shares of the series of the Trust) with the Trust, the
Portfolio Trust or the Adviser during the year ended December 31, 1995.
The following table estimates the compensation to be paid to the
Trust's Trustees by the Funds during their initial fiscal years ending December
31, 1996:
Estimated Aggregate Compensation from the
<TABLE>
<CAPTION>
Total
Pension or Compensation
Small Fixed Global Fixed Retirement Benefits from Funds and
Equity Cap Income Income Accrued as Part of Other Funds in
Name of Trustee Fund** Fund** Fund** Fund** Funds' Expenses Complex*
- ------------------- ----------- ------------- --------------- ----------------- ------------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
D. Barr Clayson $0 $0 $0 $0 $0 $0
Samuel C. Fleming 6 4 6 4 0 41,771
Benjamin M. Friedman 6 4 6 4 0 36,769
John H. Hewitt 6 4 6 4 0 36,769
Edward H. Ladd 0 0 0 0 0 0
Caleb Loring, III 6 4 6 4 0 36,769
Richard S. Wood 0 0 0 0 0 0
</TABLE>
* As of the date of this Statement of Additional Information there were 18 funds
in the fund complex.
** Estimated. The Funds are newly organized and as of the date of this Statement
of Additional Information the Funds have not paid any compensation to the
Trustees.
- ---------------------------
Certain Shareholders
As of the date of this Statement of Additional Information, the Trustees
and officers of the Trust and the Portfolios as a group beneficially owned
(i.e., had voting and/or investment power with respect to) less than 1% of the
then outstanding shares of each Fund.
Investment Adviser of the Portfolio Trust
Standish, Ayer & Wood, Inc. serves as the Adviser to the Equity, Small Cap
and Fixed Income Portfolios pursuant to separate investment advisory agreements
with the Portfolio Trust. Standish is a Massachusetts corporation incorporated
in 1993. Standish International Management Company, L.P. serves as the Adviser
to the Global Fixed Income Portfolio pursuant to a written investment advisory
agreement with the Portfolio Trust. Prior to the close of business on May 3,
1996, the Adviser managed the assets contributed to the Portfolios pursuant to
separate investment advisory agreements with the series of the Trust that became
initial interest-holders in the Portfolios. SIMCO is a Delaware limited
partnership organized in 1991 and is registered under the Investment Advisers
Act of 1940. The General Partner of SIMCO is Standish which holds a 99.98%
partnership interest. The Limited Partners of SIMCO, who each hold a 0.01%
interest, are Walter M. Cabot, Sr., a Director of and a Senior Adviser to SIMCO
and Standish, and D. Barr Clayson, Chairman of the Board of SIMCO and a Managing
Director of Standish. Ralph S. Tate, a Vice President, Director and Managing
Director of Standish, is the President of SIMCO. Richard S. Wood, a Vice
President, Director and Managing Director of Standish and the President of the
Trust, is the Executive Vice President of SIMCO.
The following, constituting all of the Directors and all of the
shareholders of Standish, are Standish's controlling persons: Caleb F. Aldrich,
Nicholas S. Battelle, Walter M. Cabot, David H. Cameron, Karen K. Chandor,
23
<PAGE>
D. Barr Clayson, Richard C. Doll, Dolores S. Driscoll, Mark A. Flaherty, Maria
O'Malley Furman, James E. Hollis III, Raymond J. Kubiak, Edward H. Ladd,
Laurence A. Manchester, George W. Noyes, Arthur H. Parker, Howard B. Rubin,
Austin C. Smith, David C. Stuehr, James J. Sweeney, Ralph S. Tate and Richard S.
Wood.
Certain services provided by the Adviser under the investment advisory
agreements are described in the Prospectus. These services are provided without
reimbursement by the Portfolios for any costs incurred. Under each investment
advisory agreement, the Adviser is paid a fee based upon a percentage of a
Portfolio's average daily net asset value computed as described in the
Prospectus. The fee is paid monthly. The rate at which the fee is paid and
expense limits agreed to by the Adviser and Standish are described in the
Prospectus.
Pursuant to the investment advisory agreements, each Portfolio bears the
expenses of its operations other than those incurred by the Adviser pursuant to
the investment advisory agreement. Among other expenses, each Portfolio will pay
share pricing expenses; custodian fees and expenses; administration fees; legal
and auditing fees and expenses; expenses of notices and reports to interest
holders; registration and reporting fees and expenses; and Trustees' fees and
expenses.
Unless terminated as provided below, each investment advisory agreement
continues in full force and effect until April 26, 1998 and for successive
periods of one year thereafter, but only so long as each such continuance is
approved annually (i) by either the Trustees of the Portfolio Trust or by the
"vote of a majority of the outstanding voting securities" of the applicable
Portfolio, and, in either event (ii) by vote of a majority of the Trustees of
the Portfolio Trust who are not parties to the investment advisory agreement or
"interested persons" (as defined in the 1940 Act) of any such party, cast in
person at a meeting called for the purpose of voting on such approval. Each
investment advisory agreement may be terminated at any time without the payment
of any penalty by vote of the Trustees of the Portfolio Trust or by the "vote of
a majority of the outstanding voting securities" of the applicable Portfolio or
by the Adviser, on sixty days' written notice to the other party. The investment
advisory agreements terminate in the event of their assignment as defined in the
1940 Act.
In an attempt to avoid any potential conflict with portfolio transactions
for the Portfolios, the Adviser, the Principal Underwriter, the Trust and the
Portfolio Trust have each adopted extensive restrictions on personal securities
trading by personnel of the Adviser and its affiliates. These restrictions
include: pre-clearance of all personal securities transactions and a prohibition
of purchasing initial public offerings of securities. These restrictions are a
continuation of the basic principle that the interests of the Funds and their
shareholders, and the Portfolios and their investors, come before those of the
Adviser, its affiliates and their employees.
Administrator of the Funds
Standish serves as the administrator to each Fund (the "Funds'
Administrator") pursuant to a written administration agreement with the Trust on
behalf of the Funds. Certain services provided by the Funds' Administrator under
the administration agreement are described in the Prospectus. For these
services, the Funds' Administrator currently does not receive any additional
compensation. The Trustees of the Trust may, however, determine in the future to
compensate the Funds' Administrator for its administrative services. The
administration agreement provides that if the total expenses of the Funds and
the Portfolios in any fiscal year exceed the most restrictive expense limitation
applicable to the Funds in any state in which shares of the Funds are then
qualified for sale, the compensation due the Funds' Administrator shall be
reduced by the amount of the excess, by a reduction or refund thereof at the
time such compensation is payable after the end of each calendar month during
the fiscal year, subject to readjustment during the year. Currently, the most
restrictive state expense limitation provision limits the Funds' expenses to 2
1/2% of the first $30 million of average net assets, 2% of the next $70 million
of such net assets and 1 1/2% of such net assets in excess of $100 million.
The Funds' administration agreements can be terminated by either party on
not more than sixty days' written notice.
Administrator of the Portfolios
IBT Trust Company (Cayman) Ltd., P.O. Box 501 Grand Cayman, Cayman Islands,
BWI, serves as the administrator to the Portfolios (the "Portfolios'
Administrator") pursuant to a written administration
24
<PAGE>
agreement with the Portfolio Trust on behalf of the Portfolios. The Portfolios'
Administrator provides the Portfolio Trust with office space for managing its
affairs, and with certain clerical services and facilities. For these services,
the Portfolios' Administrator currently receives a fee from each Portfolio in
the amount of $7,500 annually.
The Portfolios' administration agreement can be terminated by either party
on not more than sixty days' written notice.
Distributor of the Fund
Standish Fund Distributors, L.P. (the "Principal Underwriter"), an
affiliate of the Adviser, serves as the Trust's exclusive principal underwriter
and holds itself available to receive purchase orders for the shares of the
Funds. In that capacity, the Principal Underwriter has been granted the right,
as agent of the Trust, to solicit and accept orders for the purchase of the
shares of the Funds in accordance with the terms of the Underwriting Agreement
between the Trust and the Principal Underwriter. Pursuant to the Underwriting
Agreement, the Principal Underwriter has agreed to use its best efforts to
obtain orders for the continuous offering of the shares of the Funds. The
Principal Underwriter receives no commissions or other compensation for its
services, and has not received any such amounts in any prior year. The
Underwriting Agreement shall continue in effect with respect to the Funds until
two years after its execution and for successive periods of one year thereafter
only if it is approved at least annually thereafter (i) by a vote of the holders
of a majority of the Funds' outstanding shares or by the Trustees of the Trust
or (ii) by a vote of a majority of the Trustees of the Trust who are not
"interested persons" (as defined by the 1940 Act) of the parties to the
Underwriting Agreement, cast in person at a meeting called for the purpose of
voting on such approval. The Underwriting Agreement will terminate automatically
if assigned by either party thereto and is terminable at any time without
penalty by a vote of a majority of the Trustees of the Trust, a vote of a
majority of the Trustees who are not "interested persons" of the Trust, or by a
vote of the holders of a majority of each Fund's outstanding shares, in any case
without payment of any penalty on not more than 60 days' written notice to the
other party. The offices of the Principal Underwriter are located at One
Financial Center, 26th Floor, Boston, Massachusetts 02111.
SERVICE PLAN
The Trust, with respect to each Fund, has adopted a service plan (the
"Service Plan").
Each Service Plan provides that a Fund may compensate entities ("Account
Administrators") that provide omnibus accounting services for groups of
individuals who beneficially own Fund shares ("Omnibus Accounts") for providing
certain personal, account administration and/or shareholder liaison services to
participants in the Omnibus Accounts. Pursuant to the Service Plan, the Funds
may enter into agreements with Account Administrators which purchase shares of
the Funds ("Service Agreements"). Under such Service Agreements or otherwise,
Account Administrators may perform some or all of the following services: (a)
establishing and maintaining Omnibus Accounts with the Funds; (b) establishing
and maintaining subaccounts and subaccount balances for Omnibus Accounts and
their participants ("Participants"); (c) processing orders by Omnibus Accounts
and Participants to purchase, redeem and exchange Fund shares promptly and in
accordance with the effective prospectus relating to such shares; (d)
transmitting to each Fund (or its agent) on each Business Day (as defined below)
a net subscription or net redemption order reflecting subscription, redemption
and exchange orders received by it with respect to the Omnibus Accounts; (e)
receiving and transmitting funds representing the purchase price or redemption
proceeds relating to such orders; (f) mailing Fund prospectuses, statements of
additional information, periodic reports, transaction confirmations and
subaccount information to Omnibus Accounts and Participants; (g) answering
Omnibus Account and Participant inquiries about the Funds, subaccount balances,
distribution options and such other administrative services for the Omnibus
Account and the Participants as provided for in the service agreements between
the Account Administrator and the Omnibus Account; and (h) providing such
statistical and other information as may be reasonably requested by the Funds or
necessary for the Funds to comply with applicable federal or state laws.
As compensation for such services, the Funds may pay each Account
Administrator a service fee in an amount up to 0.25% (on an annualized basis) of
the Fund's average daily net assets attributable to Fund shares that are
attributable to or held in the name of such Account Administrator. Account
Administrators
25
<PAGE>
may from time to time be required to meet certain other criteria in order to
receive service fees.
In accordance with the terms of the Service Plan, Standish provides to the
Trust for review by the Trustees a quarterly written report of the amounts
expended under the Service Plan and the purpose for which such expenditures were
made. In the Trustees' quarterly review of the Service Plan, they will consider
the continued appropriateness and the level of compensation that the Service
Plan provides.
Conflict of interest restrictions (including the Employee Retirement Income
Security Act of 1974 ("ERISA")) may apply to an Account Administrator's receipt
of compensation paid by the Funds in connection with the investment of fiduciary
assets in Fund shares. Account Administrators that are subject to the
jurisdiction of the SEC, the Department of Labor or state securities
commissions, are urged to consult legal advisers before investing fiduciary
assets in Fund shares and receiving service fees.
The Trust believes that fiduciaries of ERISA plans may properly receive
fees under the Service Plan if the plan fiduciary otherwise properly discharges
its fiduciary duties, including (if applicable) those under the ERISA. Under
ERISA, a plan fiduciary, such as a trustee or investment manager, must meet the
fiduciary responsibility standards set forth in part 4 of Title I of ERISA.
These standards are designed to help ensure that the fiduciary's decisions are
made in the best interests of the plan and are not colored by self- interest.
Section 403(c)(1) of ERISA provides, in part, that the assets of a plan
shall be held for the exclusive purpose of providing benefits to the plan's
participants and their beneficiaries and defraying reasonable expenses of
administering the plan. Section 404(a)(1) sets forth a similar requirement on
how a plan fiduciary must discharge his or her duties with respect to the plan,
and provides further that such fiduciary must act prudently and solely in the
interest of the participants and beneficiaries. These basic provisions are
supplemented by the per se prohibitions of certain classes of transactions set
forth in Section 406 of ERISA.
Section 406(a)(1)(D) of ERISA, prohibits a fiduciary of an ERISA plan from
causing that plan to engage in a transaction if he knows or should know that the
transaction would constitute a direct or indirect transfer to, or use by or for
the benefit of, a party in interest, of any assets of that plan. Section 3(14)
includes, within the definition of "party in interest" with respect to a plan,
any fiduciary with respect to that plan. Thus, Section 406(a)(1)(D) would not
only prohibit a fiduciary from causing the plan to engage in a transaction which
would benefit a third person who is a party in interest, but it also would
prohibit the fiduciary from similarly benefiting himself. In addition, Section
406(b)(1) specifically prohibits a fiduciary with respect to a plan from dealing
with the assets of that plan in his own interest or for his own account. Section
406(b)(3) supplements these provisions by prohibiting a plan fiduciary from
receiving any consideration for his own personal account from any party dealing
with the plan in connection with a transactions involving the assets of the
plan.
In accordance with the foregoing, however, a fiduciary of an ERISA plan may
properly receive service fees under the Service Plan if the fees are used for
the exclusive purpose of providing benefits to the plan's participants and their
beneficiaries or for defraying reasonable expenses of administering the plan for
which the plan would otherwise be liable. See, e.g., Department of Labor ERISA
Technical Release No. 86-1 (stating a violation of ERISA would not occur where a
broker-dealer rebates commission dollars to a plan fiduciary who, in turn,
reduces its fees for which the plan is otherwise responsible for paying.). Thus,
the fiduciary duty issues involved in a plan fiduciary's receipt of the service
fee must be assessed on a case-by-case basis by the relevant plan fiduciary.
REDEMPTION OF SHARES
Detailed information on redemption of shares is included in the Prospectus.
The Trust may suspend the right to redeem shares of any Fund or postpone the
date of payment upon redemption for more than seven days (i) for any period
during which the New York Stock Exchange is closed (other than customary weekend
or holiday closings) or trading on the exchange is restricted; (ii) for any
period during which an emergency exists as a result of which disposal of
securities owned by the Fund's corresponding Portfolio or determination by the
Fund's corresponding Portfolio of the value of its net assets is not reasonably
practicable; or (iii) for such other periods as the SEC may permit for the
protection of shareholders of the particular Fund.
26
<PAGE>
The Trust intends to pay in cash for all Fund shares redeemed but, under
certain conditions, the Trust may make payment wholly or partly in portfolio
securities from the applicable Portfolios in conformity with a rule of the SEC.
Portfolio securities paid upon redemption of Fund shares will be valued at their
then current market value. The Trust, on behalf of each of its series, has
elected to be governed by the provisions of Rule 18f-1 under the 1940 Act which
limits a Fund's obligation to make cash redemption payments to each shareholder
during any 90-day period to the lesser of $250,000 or 1% of the Fund's net asset
value at the beginning of such period. An investor may incur brokerage costs in
converting portfolio securities received upon redemption to cash. The Portfolios
have advised the Trust that the Portfolios will not redeem in-kind except in
circumstances in which the Funds are permitted to redeem in-kind or except in
the event that a Fund completely withdraws its interest from a Portfolio.
PORTFOLIO TRANSACTIONS
The Adviser is responsible for placing each Portfolio's portfolio
transactions and will do so in a manner deemed fair and reasonable to the
Portfolios and not according to any formula. The primary consideration in all
portfolio transactions will be prompt execution of orders in an efficient manner
at the most favorable price. In selecting brokers and in negotiating
commissions, the Adviser will consider the firm's reliability, the quality of
its execution services on a continuing basis and its financial condition. When
more than one firm is believed to meet these criteria, preference may be given
to firms which also sell shares of the Funds. In addition, if the Adviser
determines in good faith that the amount of commissions charged by a broker is
reasonable in relation to the value of the brokerage and research services
provided by such broker, the Portfolios may pay commissions to such broker in an
amount greater than the amount another firm may charge. Research services may
include (i) furnishing advice as to the value of securities, the advisability of
investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities, (ii) furnishing analyses and
reports concerning issuers, industries, securities, economic factors and trends,
portfolio strategy, and the performance of accounts, and (iii) effecting
securities transactions and performing functions incidental thereto (such as
clearance, settlement and custody). Research services furnished by firms through
which the Portfolios effect their securities transactions may be used by the
Adviser in servicing other accounts; not all of these services may be used by
the Adviser in connection with the Portfolios. The investment advisory fee paid
by the Portfolios under the investment advisory agreements will not be reduced
as a result of the Adviser's receipt of research services.
The Adviser also places portfolio transactions for other advisory accounts.
The Adviser will seek to allocate portfolio transactions equitably whenever
concurrent decisions are made to purchase or sell securities by a Portfolio and
another advisory account. In some cases, this procedure could have an adverse
effect on the price or the amount of securities available to the Portfolios. In
making such allocations, the main factors considered by the Adviser will be the
respective investment objectives, the relative size of portfolio holdings of the
same or comparable securities, the availability of cash for investment, the size
of investment commitments generally held, and opinions of the persons
responsible for recommending the investment.
DETERMINATION OF NET ASSET VALUE
Each Fund's net asset value per share is computed each day on which the New
York Stock Exchange is open (a "Business Day") as of the close of regular
trading (currently 4:00 p.m., New York City time). Currently, the New York Stock
Exchange is not open weekends, New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value of a Fund's shares is computed by dividing the value of all
securities and other assets of the Fund (substantially all of which will be
represented by the Fund's investment in its corresponding Portfolio) less all
liabilities by the number of Fund shares outstanding, and rounding to the
nearest cent per share. Expenses and fees of the Funds are accrued daily and
taken into account for the purpose of determining net asset value.
The value of each Portfolio's net assets (i.e., the value of its securities
and other assets less its liabilities, including expenses payable or accrued) is
determined at the same time and on the same days as the net asset value per
share of its corresponding Fund is determined. Each investor in the Portfolios,
including the Funds, may add to or reduce its investment in the
27
<PAGE>
Portfolios on each Business Day. As of 4:00 p.m. (Eastern time) on each Business
Day, the value of each investor's interest in a Portfolio will be determined by
multiplying the net asset value of the Portfolio by the percentage representing
that investor's share of the aggregate beneficial interests in the Portfolio.
Any additions or reductions which are to be effected on that day will then be
effected. The investor's percentage of the aggregate beneficial interests in the
Portfolio will then be recomputed as the percentage equal to the fraction (i)
the numerator of which is the value of such investor's investment in the
Portfolio as of 4:00 p.m. on such day plus or minus, as the case may be, the
amount of net additions to or reductions in the investor's investment in the
Portfolio effected on such day, and (ii) the denominator of which is the
aggregate net asset value of the Portfolio as of 4:00 p.m. on such day plus or
minus, as the case may be, the amount of the net additions to or reductions in
the aggregate investments in the Portfolio by all investors in the Portfolio.
The percentage so determined will then be applied to determine the value of the
investor's interest in the Portfolio as of 4:00 p.m. on the following Business
Day.
THE FUNDS AND THEIR SHARES
Each Fund is a separate investment series of the Trust, an unincorporated
business trust organized under the laws of The Commonwealth of Massachusetts
pursuant to an Agreement and Declaration of Trust dated August 13, 1986. Under
the Agreement and Declaration of Trust, the Trustees of the Trust have authority
to issue an unlimited number of shares of beneficial interest, par value $.01
per share, of each Fund. Each share of a Fund represents an equal proportionate
interest in the Fund with each other share and is entitled to such dividends and
distributions as are declared by the Trustees. Shareholders are not entitled to
any preemptive, conversion or subscription rights. All shares, when issued, will
be fully paid and non-assessable by the Trust. Upon any liquidation of any Fund,
shareholders are entitled to share pro rata in the net assets available for
distribution.
Pursuant to the Declaration, the Trustees may create additional funds by
establishing additional series of shares in the Trust. The establishment of
additional series would not affect the interests of current shareholders in the
Funds. As of the date of this Statement of Additional Information, the Trustees
have established eighteen other series of the Trust that publicly offer their
shares. Pursuant to the Declaration, the Board may establish and issue multiple
classes of shares for each series of the Trust. As of the date of this Statement
of Additional Information, the Trustees do not have any plan to establish
multiple classes of shares for any of the Funds.
All Fund shares have equal rights with regard to voting, and shareholders
of a Fund have the right to vote as a separate class with respect to matters as
to which their interests are not identical to those of shareholders of other
investment series of the Trust, including any change of investment policy
requiring the approval of shareholders.
Under Massachusetts law, shareholders of the Trust could, under certain
circumstances, be held liable for the obligations of the Trust. However, the
Agreement and Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of this disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or a Trustee. The Declaration also provides for indemnification from the assets
of the Trust for all losses and expenses of any Trust shareholder held liable
for the obligations of the Trust. Thus, the risk of a shareholder incurring a
financial loss on account of his or its liability as a shareholder of the Trust
is limited to circumstances in which the Trust would be unable to meet its
obligations. The possibility that these circumstances would occur is remote.
Upon payment of any liability incurred by the Trust, the shareholder paying the
liability will be entitled to reimbursement from the general assets of the
Trust. The Declaration also provides that no series of the Trust is liable for
the obligations of any other series. The Trustees intend to conduct the
operations of the Trust to avoid, to the extent possible, ultimate liability of
shareholders for liabilities of the Trust.
Except as described below, whenever the Trust is requested to vote on a
fundamental policy of or matters pertaining to any Portfolio, the Trust will
hold a meeting of the corresponding Fund's shareholders and will cast its vote
proportionately as instructed by the Fund's shareholders. Fund shareholders who
do not vote will not affect the Trust's votes at any Portfolio meeting. The
percentage of the Trust's votes representing Fund shareholders not voting will
be voted by the Trustees of the Trust in the same proportion as the Fund
shareholders who do, in fact,
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vote. Subject to applicable statutory and regulatory requirements, the Trust
would not request a vote of Fund shareholders with respect to (a) any proposal
relating to a Portfolio, which proposal, if made with respect to a Fund, would
not require the vote of the shareholders of the Fund, or (b) any proposal with
respect to a Portfolio that is identical in all material respects to a proposal
that has previously been approved by shareholders of the corresponding Fund. Any
proposal submitted to holders in a Portfolio, and that is not required to be
voted on by shareholders of the corresponding Fund, would nonetheless be voted
on by the Trustees of the Trust.
THE PORTFOLIOS AND THEIR INTERESTS
Each Portfolio is a series of Standish, Ayer & Wood Master Portfolio, which
like the Funds, is an open-end management investment company under the 1940 Act
The Portfolio Trust was organized as a master trust fund under the laws of the
State of New York on January 18, 1996.
Interests in the Portfolios have no preemptive or conversion rights, and
are fully paid and non-assessable, except as set forth in the Prospectus. The
Portfolios normally will not hold meetings of holders of such interests except
as required under the 1940 Act. The Portfolios would be required to hold a
meeting of holders in the event that at any time less than a majority of the
Trustees of the Portfolio Trust holding office had been elected by holders. The
Trustees of the Portfolio Trust continue to hold office until their successors
are elected and have qualified. Holders holding a specified percentage of
interests in the Portfolio Trust may call a meeting of holders in the Portfolio
Trust for the purpose of removing any Trustee. Trustees of the Portfolio Trust
may be removed upon a majority vote of the interests held by holders in the
Portfolio Trust qualified to vote in the election. The 1940 Act requires the
Portfolio Trust to assist its holders in calling such a meeting. Upon
liquidation of a Portfolio, holders in the Portfolio would be entitled to share
pro rata in the net assets of the Portfolio available for distribution to
holders. Each holder in a Portfolio is entitled to a vote in proportion to its
percentage interest in the Portfolio.
TAXATION
Each series of the Trust, including each Fund, is treated as a separate
entity for accounting and tax purposes. Each Fund intends to elect and to
qualify to be treated as a "regulated investment company" ("RIC") under
Subchapter M of the Code. As such and by complying with the applicable
provisions of the Code regarding the sources of its income, the timing of its
distributions, and the diversification of its assets, a Fund will not be subject
to Federal income tax on its investment company taxable income (i.e., all
income, after reduction by deductible expenses, other than its "net capital
gain," which is the excess, if any, of its net long-term capital gain over its
net short-term capital loss) and net capital gain which are distributed to
shareholders in accordance with the timing requirements of the Code.
The Trust anticipates that each Portfolio will be treated as partnership
for federal income tax purposes. As such, the Portfolios are not subject to
federal income taxation. Instead, a Fund must take into account, in computing
its federal income tax liability (if any), its share of its corresponding
Portfolio's income, gains, losses, deductions, credits and tax preference items,
without regard to whether it has received any cash distributions from the
Portfolio. Because each Fund invests its assets in the corresponding Portfolio,
each Portfolio normally must satisfy the applicable source of income and
diversification requirements in order for the Funds to satisfy them. Each
Portfolio will allocate at least annually among its investors, including the
applicable Fund, each investor's distributive share of the Portfolio's net
investment income, net realized capital gains, and any other items of income,
gain, loss, deduction or credit. The Portfolios will make allocations to the
Funds in a manner intended to comply with the Code and applicable regulations
and will make moneys available for withdrawal at appropriate times and in
sufficient amounts to enable the Funds to satisfy the tax distribution
requirements that apply to the Funds and that must be satisfied in order to
avoid Federal income and/or excise tax on the Funds. For purposes of applying
the requirements of the Code regarding qualification as a RIC, each Fund will be
deemed (i) to own its proportionate share of each of the assets of the
corresponding Portfolio and (ii) to be entitled to the gross income of the
corresponding Portfolio attributable to such share.
Each Fund will be subject to a 4% non-deductible federal excise tax on
certain amounts not distributed (and not treated as having been distributed) on
a timely basis in accordance with annual minimum distribution requirements. The
Funds intend under
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normal circumstances to seek to avoid liability for such tax by satisfying such
distribution requirements.
The Funds are not subject to Massachusetts corporate excise or franchise
taxes. Provided the Funds qualify as RICs under the Code, they will also not be
required to pay any Massachusetts income tax.
The Funds will not distribute long-term or short-term capital gain realized
in any year to the extent that a capital loss is carried forward from prior
years against such gain. For federal income tax purposes, each Fund is permitted
to carry forward a net capital loss in any year to offset its own net capital
gains, if any, during the eight years following the year of the loss. To the
extent subsequent capital gains are offset by such losses, they would not result
in federal income tax liability to the Funds and, as noted above, would not be
distributed as such to shareholders.
If the Fixed Income and Global Fixed Income Portfolios invest in certain
zero coupon securities, increasing rate securities or, in general, other
securities with original issue discount (or with market discount if the
Portfolios elect to include market discount in income currently), the Fixed
Income and Global Fixed Income Portfolios must accrue income on such investments
prior to the receipt of the corresponding cash payments. However, the Fixed
Income and Global Fixed Income Funds must distribute, at least annually, all or
substantially all of their net income, including their distributive share of
such income accrued by the Fixed Income and Global Fixed Income Portfolios, to
shareholders to qualify as RICs under the Code and avoid federal income and
excise taxes. Therefore, the Fixed Income and Global Fixed Income Portfolios may
have to dispose of their portfolio securities under disadvantageous
circumstances to generate cash, or may have to leverage themselves by borrowing
the cash, to provide cash that the Fixed Income and Global Fixed Income Funds
may withdraw from the Portfolios and distribute in order to satisfy the
distribution requirements applicable to the Fixed Income and Global Fixed Income
Funds.
Limitations imposed by the Code on regulated investment companies like the
Funds may restrict a Portfolio's ability to enter into futures, options and
currency forward transactions.
Certain options, futures and forward foreign currency transactions
undertaken by a Portfolio may cause the Portfolio to recognize gains or losses
from marking to market even though the Portfolio's positions have not been sold
or terminated and affect the character as long-term or short-term (or, in the
case of certain currency forwards, options and futures, as ordinary income or
loss) and timing of some capital gains and losses realized by a Portfolio and
allocable to its corresponding Fund. Any net mark to market gains may also have
to be distributed by the Funds to satisfy the distribution requirements referred
to above even though no corresponding cash amounts may concurrently be received,
possibly requiring the disposition by the Portfolios of portfolio securities or
borrowing to obtain the necessary cash. Also, certain losses by a Portfolio on
its transactions involving options, futures or forward contracts and/or
offsetting or successor Portfolio positions may be deferred rather than being
taken into account currently in calculating the Portfolio's taxable income or
gain. Certain of the applicable tax rules may be modified if a Portfolio is
eligible and chooses to make one or more tax elections that may be available.
Because a Fund's income, gains and losses consist primarily of its share of the
income, gains and losses of its corresponding Portfolio, which is directly
affected by the provisions described in this paragraph, these transactions may
affect the amount, timing and character of the Fund's distributions to
shareholders. The Portfolios will take into account the special tax rules
(including consideration of available elections) applicable to options, futures
or forward contracts in order to minimize any potential adverse tax
consequences.
The Federal income tax rules applicable to forward roll transactions,
interest rate or currency swaps, caps, floors and collars are unclear in certain
respects, and the Portfolios may be required to account for these instruments
under tax rules in a manner that, under certain circumstances, may limit their
transactions in these instruments.
If a Portfolio acquires stock in certain foreign corporations that receive
at least 75% of their annual gross income from passive sources (such as
interest, dividends, rents, royalties or capital gain) or hold at least 50% of
their assets in investments producing such passive income ("passive foreign
investment companies"), the corresponding Fund could be subject to Federal
income tax and additional interest charges on its allocable portion of "excess
distributions" received from such companies or gain from the sale of stock in
such companies, even if all income or gain
30
<PAGE>
actually allocated to the Fund is timely distributed to its shareholders. The
Funds would not be able to pass through to their shareholders any credit or
deduction for such a tax. Certain elections may, if available, ameliorate these
adverse tax consequences, but any such election would require the Funds to
recognize taxable income or gain without the concurrent receipt of cash. The
Portfolios may limit and/or manage their stock holdings in passive foreign
investment companies to minimize the Funds' tax liability or maximize their
return from these investments.
Investment in debt obligations by the Fixed Income and Global Fixed Income
Portfolios that are at risk of or in default presents special tax issues for the
Fixed Income and Global Fixed Income Funds. Tax rules are not entirely clear
about issues such as when a Portfolio may cease to accrue interest, original
issue discount, or market discount, when and to what extent deductions may be
taken for bad debts or worthless securities, how payments received on
obligations in default should be allocated between principal and income, and
whether exchanges of debt obligations in a workout context are taxable. These
and other issues will be addressed by the Fixed Income and Global Fixed Income
Portfolios, in the event that they hold such obligations, in order to reduce the
risk of the Fixed Income and Global Fixed Income Funds, or any other RIC
investing in the Fixed Income and Global Fixed Income Portfolio, distributing
insufficient income to preserve its status as a RIC and seek to avoid becoming
subject to Federal income or excise tax.
Foreign exchange gains and losses realized by the Portfolios in connection
with certain transactions involving foreign currency denominated debt
securities, certain foreign currency futures and options, foreign currency
forward contracts, foreign currencies, or payables or receivables denominated in
a foreign currency are subject to Section 988 of the Code, which generally
causes such gains and losses to be treated as ordinary income and losses and,
because the Funds invest in the Portfolios, may affect the amount, timing and
character of Fund distributions to shareholders. Any such transactions that are
not directly related to the Portfolios' investment in stock or securities,
possibly including speculative currency positions or currency derivatives not
used for hedging purposes, may increase the amount of gain they are deemed to
recognize from the sale of certain investments held for less than three months.
Each Fund's share of such gain (plus any such gain the Fund may realize from
other sources) is limited under the Code to less than 30% of the Fund's gross
income for its taxable year. Such transactions could under future Treasury
regulations produce income not among the types of "qualifying income" from which
each Fund must derive at least 90% of its gross income for its taxable year.
For purposes of the dividends received deduction available to corporations,
dividends, if any, received by the Equity, Small Cap and Fixed Income Portfolios
and allocable to their corresponding Funds from U.S. domestic corporations in
respect of the stock of such corporations held by the Portfolios, for U.S.
Federal income tax purposes, for at least a minimum holding period, generally 46
days, and distributed and designated by the Funds may be treated as qualifying
dividends. Corporate shareholders must meet the minimum holding period
requirement referred to above with respect to their shares of the Equity, Small
Cap and Fixed Income Funds in order to qualify for the deduction and, if they
borrow to acquire or otherwise incur debt attributable to such shares, may be
denied a portion of the dividends received deduction. The entire qualifying
dividend, including the otherwise deductible amount, will be included in
determining the excess (if any) of a corporate shareholder's adjusted current
earnings over its alternative minimum taxable income, which may increase its
alternative minimum tax liability. Additionally, any corporate shareholder
should consult its tax adviser regarding the possibility that its basis in its
shares may be reduced, for Federal income tax purposes, by reason of
"extraordinary dividends" received with respect to the shares, for the purpose
of computing its gain or loss on redemption or other disposition of the shares.
Each Portfolio may be subject to withholding and other taxes imposed by
foreign countries with respect to its investments in foreign securities. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes in some cases. Investors in a Fund would be entitled to claim U.S. foreign
tax credits or deductions with respect to such taxes, subject to certain
provisions and limitations contained in the Code, only if more than 50% of the
value of the Fund's total assets (including its share of the Portfolio's assets)
at the close of any taxable year consists of stock or securities of foreign
corporations and the Fund were to file an election with the Internal Revenue
Service. Because the investments of the Equity, Small Cap and Fixed Income
Portfolios are such that the corresponding Funds generally do not
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<PAGE>
expect to meet this 50% requirement, shareholders of the Equity, Small Cap and
Fixed Income Funds generally will not directly take into account the foreign
taxes, if any, paid by the Equity, Small Cap and Fixed Income Portfolios and
will generally not be entitled to any related tax deductions or credits. Such
taxes will reduce the amounts these Funds would otherwise have available to
distribute. The investments of the Global Fixed Income Portfolio are such that
the Global Fixed Income Fund expects to meet the 50% requirement discussed above
and the Global Fixed Income Fund may file an election with the Internal Revenue
Service pursuant to which shareholders of the Global Fixed Income Fund will be
required to (i) include in ordinary gross income (in addition to taxable
dividends and distributions actually received) their pro rata shares of
qualified foreign taxes paid by the Global Fixed Income Portfolio and allocable
to the Global Fixed Income Fund even though not actually received by them, and
(ii) treat such respective pro rata portions as foreign taxes paid by them.
If the Global Fixed Income Fund makes this election, shareholders may then
deduct such pro rata portions of qualified foreign taxes in computing their
taxable incomes, or, alternatively, use them as foreign tax credits, subject to
applicable limitations, against their U.S. Federal income taxes. Shareholders
who do not itemize deductions for Federal income tax purposes will not, however,
be able to deduct their pro rata portion of qualified foreign taxes paid by the
Global Fixed Income Portfolio and allocable to the Global Fixed Income Fund,
although such shareholders will be required to include their share of such taxes
in gross income. Shareholders who claim a foreign tax credit for such foreign
taxes may be required to treat a portion of dividends received from the Global
Fixed Income Fund as a separate category of income for purposes of computing the
limitations on the foreign tax credit. Tax-exempt shareholders will ordinarily
not benefit from this election. Each year that the Global Fixed Income Fund
files the election described above, its shareholders will be notified of the
amount of (i) each shareholder's pro rata share of qualified foreign taxes paid
by the Global Fixed Income Portfolio and allocable to them and (ii) the portion
of the Global Fixed Income Fund's dividends which represents income from each
foreign country.
Due to possible unfavorable consequences under present tax law, the Fixed
Income and Global Fixed Income Portfolios do not currently intend to acquire
"residual" interests in real estate mortgage investment conduits ("REMICs"),
although the Fixed Income and Global Fixed Income Portfolios may acquire
"regular" interests in REMICs.
Distributions from a Fund's current or accumulated earnings and profits
("E&P"), as computed for Federal income tax purposes, will be taxable as
described in the Funds' Prospectus whether taken in shares or in cash.
Distributions, if any, in excess of E&P will constitute a return of capital,
which will first reduce an investor's tax basis in Fund shares and thereafter
(after such basis is reduced to zero) will generally give rise to capital gains.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for federal income tax purposes in each share so received
equal to the amount of cash they would have received had they elected to receive
the distributions in cash, divided by the number of shares received.
At the time of an investor's purchase of shares of a Fund, a portion of the
purchase price is often attributable to undistributed net investment income
and/or realized or unrealized appreciation in the Fund's share of its
corresponding Portfolio's portfolio. Consequently, subsequent distributions by a
Fund from such income and/or appreciation may be taxable to such investor even
if the net asset value of the investor's shares is, as a result of the
distributions, reduced below the investor's cost for such shares, and the
distributions in reality represent a return of a portion of the purchase price.
Upon a redemption (including a repurchase) of shares of a Fund, a
shareholder may realize a taxable gain or loss, depending upon the difference
between the redemption proceeds and the shareholder's tax basis in his shares.
Such gain or loss will be treated as capital gain or loss if the shares are
capital assets in the shareholder's hands and will be long-term or short-term,
depending upon the shareholder's tax holding period for the shares, subject to
the rules described below. Any loss realized on a redemption may be disallowed
to the extent the shares disposed of are replaced with other shares of the same
Fund within a period of 61 days beginning 30 days before and ending 30 days
after the shares are disposed of, such as pursuant to automatic dividend
reinvestments. In such a case, the basis of the shares acquired will be adjusted
to reflect the disallowed loss. Any loss realized upon the redemption of shares
with a tax holding period of six months or less will be treated as a long-term
capital
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loss to the extent of any amounts treated as distributions of long-term capital
gain with respect to such shares.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions and certain prohibited transactions, is accorded to accounts
maintained as qualified retirement plans. Shareholders should consult their tax
advisers for more information.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies, and financial
institutions. Dividends, capital gain distributions, and ownership of or gains
realized on the redemption (including an exchange) of shares of the Funds may
also be subject to state and local taxes. Shareholders should consult their own
tax advisers as to the Federal, state or local tax consequences of ownership of
shares of, and receipt of distributions from, the Funds in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their
investment in the Funds is effectively connected will be subject to U.S. Federal
income tax treatment that is different from that described above. These
investors may be subject to nonresident alien withholding tax at the rate of 30%
(or a lower rate under an applicable tax treaty) on amounts treated as ordinary
dividends from the Fund and, unless an effective IRS Form W-8 or authorized
substitute is on file, to 31% backup withholding on certain other payments from
the Fund. Non-U.S. investors should consult their tax advisers regarding such
treatment and the application of foreign taxes to an investment in the Funds.
ADDITIONAL INFORMATION
The Funds' Prospectus and this Statement of Additional Information omit
certain information contained in the registration statement filed with the
Securities and Exchange Commission, which may be obtained from the Commission's
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment
of the fee prescribed by the rules and regulations promulgated by the
Commission.
EXPERTS AND FINANCIAL STATEMENTS
Coopers & Lybrand L.L.P., independent auditors, will audit each Fund's
financial statements for the fiscal year ending December 31, 1996. Coopers &
Lybrand, P.O. Box 219, Grand Cayman, Grand Cayman Islands, BWI, an affiliate of
Coopers & Lybrand L.L.P., will audit each Portfolio's financial statements for
the fiscal year ending December 31, 1996.
33
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
The following financial statements of Standish Equity Portfolio,
Standish Small Capitalization Equity Portfolio, Standish Fixed Income Portfolio
and Standish Global Fixed Income Portfolio, each a series of Standish, Ayer &
Wood Master Portfolio (the "Portfolio Trust"), are included in the combined
Statement of Additional Information of Standish Equity Asset Fund, Standish
Small Capitalization Equity Asset Fund, Standish Fixed Income Asset Fund and
Standish Global Fixed Income Asset Fund, each a series of Standish, Ayer & Wood
Investment Trust (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*
<PAGE>
(1G) Certificate of Amendment dated November 29,
1989*
(1H) Certificate of Amendment dated April 24, 1990*
(1I) Certificate of Designation of Standish Equity Fund**
(1J) Certificate of Designation of Standish International
Fixed Income Fund**
(1K) Certificate of Designation of Standish Intermediate
Tax Exempt Bond Fund*
(1L) Certificate of Designation of Standish Massachusetts
Intermediate Tax Exempt Bond Fund*
(1M) Certificate of Designation of Standish Global Fixed
Income Fund*
(1N) Certificate of Designation of Standish Controlled
Maturity Fund and Standish Fixed Income Fund II**
(1O) Certificate of Designation of Standish Tax-
Sensitive Small Cap Equity Fund and Standish
Tax-Sensitive Equity Fund**
(1P) Form of Certificate of Designation of Standish Equity
Asset Fund, Standish Small Capitalization Equity Asset
Fund, Standish Fixed Income Asset Fund and Standish
Global Fixed Income Asset Fund***
(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
<PAGE>
Registrant and Standish, Ayer & Wood, Inc. relating to
Standish Intermediate Tax Exempt Bond Fund**
(5F) Investment Advisory Agreement between the Registrant
and Standish, Ayer & Wood, Inc. relating to Standish
Massachusetts Intermediate Tax Exempt Bond Fund**
(5G) Investment Advisory Agreement between the Registrant
and Standish, Ayer & Wood, Inc. relating to Standish
Controlled Maturity Fund**
(5H) Investment Advisory Agreement between the Registrant
and Standish, Ayer & Wood, Inc. relating to Standish
Fixed Income Fund II**
(5I) Investment Advisory Agreement between the Registrant
and Standish, Ayer & Wood, Inc. relating to Standish
Small Cap Tax-Sensitive Equity Fund**
(5J) Investment Advisory Agreement between the Registrant
and Standish, Ayer & Wood, Inc. relating to Standish
Tax-Sensitive Equity Fund**
(6A) Underwriting Agreement between the Registrant and
Standish Fund Distributors, L.P.**
(6B) Revised Appendix A to Underwriting Agreement between
the Registrant and Standish Fund Distributors, L.P.
with respect to Standish Equity Asset Fund, Standish
Small Capitalization Equity Asset Fund, Standish Fixed
Income Asset Fund and Standish Global Fixed Income
Asset Fund***
(7) Not applicable
(8A) Master Custody Agreement between the Registrant and
Investors Bank & Trust Company**
(8B) Revised Appendix A to Master Custody Agreement between the
Registrant and Investors Bank & Trust Company with respect
to Standish Equity Asset Fund, Standish Small Capitalization
Equity Asset Fund, Standish Fixed Income Asset Fund and
Standish Global Fixed Income Asset Fund***
(9A) Transfer Agency and Service Agreement between the
Registrant and Investors Bank & Trust Company**
(9B) Revised Exhibit A to Transfer Agency and Service
Agreement between the Registrant and Investors Bank &
<PAGE>
Trust Company with respect to Standish Equity Asset
Fund, Standish Small Capitalization Equity Asset Fund,
Standish Fixed Income Asset Fund and Standish Global
Fixed Income Asset Fund***
(9C) Master Administration Agreement between the Registrant
and Investors Bank & Trust Company**
(9D) Revised Exhibit A to Master Administration Agreement between
the Registrant and Investors Bank & Trust Company with
respect to Standish Equity Asset Fund, Standish Small
Capitalization Equity Asset Fund, Standish Fixed Income
Asset Fund and Standish Global Fixed Income Asset Fund***
(9E) 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**
(9F) Revised Exhibit A to Administrative Services Agreement
between Standish, Ayer & Wood, Inc. and the Registrant
with respect to Standish Equity Asset Fund, Standish
Small Capitalization Equity Asset Fund, Standish Fixed
Income Asset Fund and Standish Global Fixed Income
Asset Fund***
(10A) Opinion and Consent of Counsel for Standish Fixed
Income Fund**
(10B) Opinion and Consent of Counsel for Standish
Securitized Fund**
(10C) Opinion and Consent of Counsel for Standish Short-Term
Asset Reserve Fund**
(10D) Opinion and Consent of Counsel for Standish Small
Capitalization Equity Fund (formerly Standish Marathon
Fund)**
(10E) Opinion and Consent of Counsel for Standish Equity
Fund**
(10F) Opinion and Consent of Counsel for Standish
International Fixed Income Fund**
(10G) Opinion and Consent of Counsel for Standish
Intermediate Tax Exempt Bond Fund**
(10H) Opinion and Consent of Counsel for Standish
Massachusetts Intermediate Tax Exempt Bond Fund**
(10I) Opinion and Consent of Counsel for Standish Global
<PAGE>
Fixed Income Fund**
(10J) Opinion and Consent of Counsel for the Registrant**
(11) Not applicable
(12) Not applicable
(13) Form of Initial Capital Agreement between the
Registrant and Standish, Ayer & Wood, Inc.**
(14) Not applicable
(15) Not applicable
(16) Performance Calculations**
(17) Not applicable
(18) Not applicable
(19A) Power of Attorney for Registrant (Richard S. Wood)**
(19B) Power of Attorney for Registrant (David W. Murray)**
(19C) Power of Attorney for Registrant (Samuel C. Fleming)**
(19D) Power of Attorney for Registrant (Benjamin M.
Friedman)**
(19E) Power of Attorney for Registrant (John H. Hewitt)**
(19F) Power of Attorney for Registrant (Edward H. Ladd)**
(19G) Power of Attorney for Registrant (Caleb Loring III)**
(19H) Power of Attorney for Registrant (D. Barr Clayson)**
(19I) Power of Attorney for Standish, Ayer & Wood Master
Portfolio (Richard S. Wood)**
(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.
<PAGE>
** Filed as an exhibit to Registration
Statement No. 33-8214 and incorporated
herein by reference thereto.
*** Filed herewith.
Item 25. Persons Controlled by or under Common Control
with Registrant
No person is directly or indirectly controlled by or under common
control with the Registrant.
Item 26. Number of Holders of Securities
Set forth below is the number of record holders, as of June 1, 1996, of
the shares of each series of the Registrant.
Number of Record
Title of Class Holders
-------------- -------
Shares of beneficial interest, par value $.01, of:
Standish Fixed Income Fund 441
Standish Securitized Fund 14
Standish Short-Term Asset
Reserve Fund 107
Standish International Fixed
Income Fund 194
Standish Global Fixed Income Fund 49
Standish Equity Fund 148
Standish Small Capitalization
Equity Fund 423
Standish Massachusetts Intermediate
Tax Exempt Bond Fund 82
Standish Intermediate Tax Exempt
Bond Fund 104
Standish International Equity Fund 203
Standish Controlled Maturity Fund 11
Standish Fixed Income Fund II 4
Standish Small Cap Tax-Sensitive
Equity Fund 56
Standish Tax-Sensitive Equity Fund 33
Standish Equity Asset Fund 0
Standish Small Capitalization
Equity Asset Fund 0
Standish Fixed Income Asset Fund 0
Standish Global Fixed Income Asset Fund 0
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
<PAGE>
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.
Item 28. Business and Other Connections of Investment Advisers
The business and other connections of the officers and Directors of
Standish, Ayer & Wood, Inc. ("Standish, Ayer & Wood"), the investment adviser to
all series of the Registrant other than Standish International Equity Fund,
Standish Global Fixed Income Fund, Standish International Fixed Income Fund,
Standish Fixed Income Fund, Standish Equity Fund and Standish Small
Capitalization Equity 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 and Standish International Fixed Income
<PAGE>
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>
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.
<PAGE>
(b) With respect to each of Standish Equity Asset
Fund, Standish Small Capitalization Equity Asset
Fund, Standish Fixed Income Asset Fund and
Standish Global Fixed Income Asset 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.
<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 17th day of June, 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.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
Richard S. Wood* Trustee and President June 17, 1996
- ----------------------
Richard S. Wood (principal executive
officer)
David W. Murray* Treasurer (principal June 17, 1996
- ----------------------
David W. Murray financial and accounting
officer) and Secretary
D. Barr Clayson* Trustee June 17, 1996
D. Barr Clayson
Samuel C. Fleming* Trustee June 17, 1996
Samuel C. Fleming
Benjamin M. Friedman* Trustee June 17, 1996
Benjamin M. Friedman
John H. Hewitt* Trustee June 17, 1996
John H. Hewitt
Edward H. Ladd* Trustee June 17, 1996
Edward H. Ladd
Caleb Loring III* Trustee June 17, 1996
Caleb Loring III
*By: /s/ David W. Murray
David W. Murray
Attorney-In-Fact
</TABLE>
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Standish, Ayer & Wood Master Portfolio has duly
caused this Post-Effective Amendment to the Registration Statement of Standish,
Ayer & Wood Investment Trust to be signed on its behalf by the undersigned,
thereunto duly authorized, outside the United States on the 17th day of June,
1996.
STANDISH, AYER & WOOD
MASTER PORTFOLIO
Richard S. Wood*
Richard S. Wood, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement of Standish, Ayer & Wood
Investment Trust has been signed outside the United States by the following
persons in their capacities with Standish, Ayer & Wood Master Portfolio and on
the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
Richard S. Wood* Trustee and President June 17, 1996
- ----------------------
Richard S. Wood (principal executive
officer)
D. Barr Clayson* Trustee June 17, 1996
D. Barr Clayson
Samuel C. Fleming* Trustee June 17, 1996
Samuel C. Fleming
Benjamin M. Friedman* Trustee June 17, 1996
Benjamin M. Friedman
John H. Hewitt* Trustee June 17, 1996
John H. Hewitt
Edward H. Ladd* Trustee June 17, 1996
Edward H. Ladd
<PAGE>
Caleb Loring III* Trustee June 17, 1996
Caleb Loring III
*By: /s/ Susan Jakuboski
Susan Jakuboski
Attorney-In-Fact
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit
(1P) Form of Certificate of Designation of Standish Equity
Asset Fund, Standish Small Capitalization Equity Asset
Fund, Standish Fixed Income Asset Fund and Standish Global
Fixed Income Asset Fund
(6B) Revised Appendix A to Underwriting Agreement between the
Registrant and Standish Fund Distributors, L.P. with
respect to Standish Equity Asset Fund, Standish Small
Capitalization Equity Asset Fund, Standish Fixed Income
Asset Fund and Standish Global Fixed Income Asset Fund
(8B) Revised Appendix A to Master Custody Agreement between the
Registrant and Investors Bank & Trust Company with respect to
Standish Equity Asset Fund, Standish Small Capitalization Equity
Asset Fund, Standish Fixed Income Asset Fund and Standish Global
Fixed Income Asset Fund
(9B) Revised Exhibit A to Transfer Agency and Service Agreement between
the Registrant and Investors Bank & Trust Company with respect to
Standish Equity Asset Fund, Standish Small Capitalization Equity
Asset Fund, Standish Fixed Income Asset Fund and Standish Global
Fixed Income Asset Fund
(9D) Revised Exhibit A to Master Administration Agreement between the
Registrant and Investors Bank & Trust Company with respect to
Standish Equity Asset Fund, Standish Small Capitalization Equity
Asset Fund, Standish Fixed Income Asset Fund and Standish Global
Fixed Income Asset Fund
(9F) Revised Exhibit A to Administrative Services Agreement
between Standish, Ayer & Wood, Inc. and the Registrant
with respect to Standish Equity Asset Fund, Standish Small
Capitalization Equity Asset Fund, Standish Fixed Income
Asset Fund and Standish Global Fixed Income Asset Fund
STANDISH, AYER & WOOD INVESTMENT TRUST
One Financial Center
Boston, Massachusetts 02111
Certificate of Designation
The undersigned, being a Vice President of Standish, Ayer & Wood
Investment Trust (the "Trust"), a trust with transferable shares of the type
commonly called a Massachusetts business trust, DOES HEREBY CERTIFY that,
pursuant to the authority conferred upon the Trustees of the Trust by Section
6.1(b) and Section 9.3 of the Agreement and Declaration of Trust, dated August
13, 1986, as amended (as so amended, the "Declaration of Trust"), and by the
affirmative vote of a Majority of the Trustees at a meeting duly called and held
on February 9 and 10, 1996 the Declaration of Trust is amended as set forth in
this Certificate of Designation.
A. There are hereby established and designated four additional Series
of the Trust: "Standish Fixed Income Asset Fund," "Standish Global Fixed Income
Asset Fund," "Standish Equity Asset Fund" and "Standish Small Capitalization
Asset Fund" (references in this Certificate of Designation to the "Fund" shall
apply equally and individually to each of the foregoing Funds.)
B. The beneficial interest in the Fund shall be divided into Shares
having a nominal or par value of one cent ($.01) per Share, of which an
unlimited number may be issued, which Shares shall represent interests only in
the Fund. The Shares of the Fund shall have the following rights and
preferences:
1. Assets Belonging to the Fund. Any portion of the Trust
Property allocated to the Fund, and all consideration received by the
Trust for the issue or sale of Shares of the Fund, together with all
assets in which such consideration is invested or reinvested, all
interest, dividends, income, earnings profits and gains therefrom, and
proceeds thereof, including any proceeds derived from the sale,
exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the
same may be, shall be held by the Trustees in trust for the benefit of
the holders of Shares of the Fund and shall irrevocably belong to the
Fund for all purposes, and shall be so recorded upon the books of
account of the Trust, and the Shareholders of any other Fund who are
not Shareholders of the Fund shall not have, and shall be conclusively
deemed to have waived, any claims to the assets of the Fund. Such
consideration, assets, interest, dividends, income, earnings, profits,
gains and proceeds, together with any General Items allocated to the
Fund as provided in the following sentence, are herein referred to
collectively as "Fund-Assets" of the Fund, and as assets "belonging to"
the Fund. In the event that there are any assets, income, earnings,
profits and proceeds thereof, funds, or payments which are not readily
identifiable as belonging to any particular Fund (collectively "General
Items"), the Trustees shall allocate such General Items to and among
any one or more of the Funds established and designated from time to
time in such manner
<PAGE>
and on such basis as they, in their sole discretion, deem fair and
equitable; and any General Items so allocated to the Fund shall belong
to and be part of the Fund Assets of the Fund. Each such allocation by
the Trustees shall be conclusive and binding upon the Shareholders of
all the Funds for all purposes.
2. Liabilities of the Fund. The assets belonging to
the Fund shall be charged with the liabilities in respect of
the Fund and all expenses, costs, charges and reserves
attributable to the Fund, and any general liabilities,
expenses, costs, charges or reserves of the Trust which are
not readily identifiable as pertaining to any particular
Fund shall be allocated and charged by the Trustees to and
among any one or more of the Funds established and
designated from time to time in such manner and on such
basis as the Trustees in their sole discretion deem fair and
equitable. The indebtedness, expenses, costs, charges and
reserves allocated and so charged to the Fund are herein
referred to as "liabilities of" the Fund. Each allocation
of liabilities, expenses, costs, charges and reserves by the
Trustees shall be conclusive and binding upon the
Shareholders of all the Funds or all purposes. Any creditor
of the Fund may look only to the assets of the Fund to
satisfy such creditor's debt.
3. Dividends. Dividends and distributions on Shares of
the Fund may be paid with such frequency as the Trustees may
determine, which may be daily or otherwise pursuant to a
standing resolution or resolutions adopted only once or with
such frequency as the Trustees may determine, to the
Shareholders of the Fund, from such of the income, accrued
or realized, and capital gains, realized or unrealized, and
out of the assets belonging to the Fund, as the Trustees may
determine, after providing for actual and accrued
liabilities of the Fund. All dividends and distributions on
Shares of the Fund shall be distributed pro rata to the
Shareholders of the Fund in proportion to the number of such
Shares held by such holders at the date and time of record
established for the payment of such dividends or
distributions, except that in connection with any dividend
or distribution program or procedure the Trustees may
determine that no dividend or distribution shall be payable
on Shares as to which the Shareholder's purchase order
and/or payment have not been receive by the time or times
established by the Trustees under such program or procedure,
or that dividends or distributions shall be payable on
Shares which have been tendered by the holder thereof for
redemption or repurchase, but the redemption or repurchase
proceeds of which have not yet been paid to such
Shareholder. Such dividends and distributions may be made
in cash or Shares of the Fund or a combination thereof as
determined by the Trustees, or pursuant to any program that
the Trustees may have in effect at the time for the election
by each Shareholder of the mode of the making of such
dividend or distribution to that Shareholder. Any such
<PAGE>
dividend or distribution paid in Shares will be paid
at the net asset value thereof as determined in
accordance with subsection (8) hereof.
4. Liquidation. In the event of the liquidation or
dissolution of the Trust or the liquidation of the Fund, the
Shareholders of the Fund shall be entitled to receive, when
and as declared by the Trustees, the excess of the Fund
Assets over the liabilities of the Fund. The assets so
distributable to the Shareholders of the Fund shall be
distributed among such Shareholders in proportion to the
number of Shares of the Fund held by them and recorded on
the books of the Trust. The liquidation of the Fund may be
authorized by vote of a Majority of the Trustees, subject to
the affirmative vote of "a majority of the outstanding
voting securities" of the Fund, as the quoted phrase is
defined in the Investment Company Act of 1940, as amended
(the "1940 Act"), determined in accordance with clause (iii)
of the definition of "Majority Shareholder Vote" in Section
1.4 of the Declaration of Trust.
5. Voting. The Shareholders shall have the voting
rights set forth in or determined under Article 7 of the
Declaration of Trust.
6. Redemption by Shareholder. Each holder of Shares of
the Fund shall have the right at such times as may be
permitted by the Trust to require the Trust to redeem all or
any part of his Shares of the Fund at a redemption price
equal to the net asset value per Share of the Fund next
determined in accordance with subsection (8) hereof after
the Shares are properly tendered for redemption; provided,
that the Trustees may from time to time, in their
discretion, determine and impose a fee for such redemption.
Payment of the redemption price shall be in cash; provided,
however, that if the Trustees determine, which determination
shall be conclusive, that conditions exist which make
payment wholly in cash unwise or undesirable, the Trust may
make payment wholly or partly in Securities or other assets
belonging to the Fund at the value of such Securities or
assets used in such determination of net asset value.
Notwithstanding the foregoing, the Trust may postpone
payment of the redemption price and may suspend the right of
the holders of Shares of the Fund to require the Trust to
redeem Shares of the Fund during any period or at any time
when and to the extent permissible under the 1940 Act.
7. Redemption at the Option of the Trust. Each Share
of the Fund shall be subject to redemption at the option of
the Trust at the redemption price which would be applicable
if such Share were then being redeemed by the Shareholder
pursuant to subsection (6) hereof: (i) at any time, if the
Trustees determine in their sole discretion that failure to
<PAGE>
so redeem may have materially adverse consequences to
the holders of the Shares of the Trust or of any
Fund, or (ii) upon such other conditions with respect
to maintenance of Shareholder accounts of a minimum
amount as may from time to time be determined by the
Trustees and set forth in the then current Prospectus
of the Fund. Upon such redemption the holders of the
Shares so redeemed shall have no further right with
respect thereto other than to receive payment of such
redemption price.
8. Net Asset Value. The net asset value per Share of the
Fund at any time shall be the quotient obtained by dividing
the value of the net assets of the Fund at such time (being
the current value of the assets belonging to the Fund, less
its then existing liabilities) by the total number of Shares
of the Fund then outstanding, all determined in accordance
with the methods and procedures, including without
limitation those with respect to rounding, established by
the Trustees from time to time. The Trustees may determine
to maintain the net asset value per Share of the Fund at a
designated constant dollar amount and in connection
therewith may adopt procedures not inconsistent with the
1940 Act for the continuing declaration of income
attributable to the Fund as dividends payable in additional
Shares of the Fund at the designated constant dollar amount
and for the handling of any losses attributable to the Fund.
Such procedures may provide that in the event of any loss
each Shareholder shall be deemed to have contributed to the
shares of beneficial interest account of the Fund his pro
rata portion of the total number of Shares required to be
cancelled in order to permit the net asset value per Share
of the Fund to be maintained, after reflecting such loss, at
the designated constant dollar amount. Each Shareholder of
the Fund shall be deemed to have expressly agreed, by his
investment in the Fund, to make the contribution referred to
in the preceding sentence in the event of any such loss.
9. Transfer. All Shares of the Fund shall be
transferable, but transfers of Shares of the Fund
will be recorded on the Share transfer records of the
Trust applicable to the Fund only at such times as
Shareholders shall have the right to require the
Trust to redeem Shares of the Fund and at such other
times as may be permitted by the Trustees.
10. Equality. All Shares of the Fund shall represent an
equal proportionate interest in the assets belonging to the
Fund (subject to the liabilities of the Fund), and each
Share of the Fund shall be equal to each other Share
thereof; but the provisions of this sentence shall not
restrict any distinctions permissible under subsection (3)
hereof that may exist with respect to dividends and
distributions on Shares of the Fund. The Trustees may from
time to time divide or combine the Shares of the Fund into a
greater or lesser number of Shares of the Fund without
<PAGE>
thereby changing the proportionate beneficial
interest in the assets belonging to the Fund or in
any way affecting the rights of the holders of Shares
of any other Fund.
11. Rights of Fractional Shares. Any fractional Share of
any Series shall carry proportionately all the rights and
obligations of a whole Share of that Series, including
rights and obligation with respect to voting, receipt of
dividends and distributions, redemption of Shares, and
liquidation of the Trust or of the Fund.
12. Conversion Rights. Subject to compliance with the
requirements of the 1940 Act, the Trustees shall have
the authority to provide that holders of Shares of
the Fund shall have the right to convert said Shares
into Shares of one or more other Funds in accordance
with such requirements and procedures as the Trustees
may establish.
13. Master/Feeder. Notwithstanding any other provisions
herein or in the Declaration of Trust as applicable to the
Fund, the Trustees shall have full power in their
discretion, without any requirement of approval by
shareholders of the Fund, to invest part or all of the Fund
Assets, or to dispose of parts or all of the Fund Assets and
invest the proceeds of such disposition, in securities
issued by one or more other investment companies registered
under the 1940 Act. Any such other investment company may
(but need not) be a trust (formed under the laws of the
Commonwealth of Massachusetts any other state or
jurisdiction) which is classified as a partnership for
Federal income tax purposes.
14. Amendment, etc. Subject to the provisions and
limitations of Section 9.3 of the Declaration of Trust and
applicable law, this Certificate of Designation may be
amended by an instrument signed in writing by a Majority of
the Trustees (or by an officer of the Trust pursuant to the
Vote of a Majority of the Trustees), provided that, if any
amendment adversely affects the rights of the Shareholders
of the Fund, such amendment may be adopted by an instrument
signed in writing by a Majority of the Trustees (or by an
officer of the Trust pursuant to the vote of a Majority of
the Trustees) when authorized to do so by the vote in
accordance with Section 7.1 of the Declaration of Trust of
the holders of a majority of all the Shares of the Fund
outstanding and entitled to vote, without regard to the
other Series.
15. Incorporation of Defined Terms. All capitalized
terms which are not defined herein shall have the same
meanings as are assigned to those terms in the Declaration
of Trust filed with the Secretary of State of The
Commonwealth of Massachusetts.
<PAGE>
The Trustees further direct that, upon the execution of this
Certificate of Designation, the Trust take all necessary action to file a copy
of this Certificate of Designation with the Secretary of State of The
Commonwealth of Massachusetts and at any other place required by law or by the
Declaration of Trust.
IN WITNESS WHEREOF, the undersigned has set his hand and seal this day
of ________________, 1996.
By:
Its: Vice President
<PAGE>
ACKNOWLEDGMENT
M A S S A C H U S E T T S
SUFFOLK, SS.: _______________________, 1996
Then personally appeared the above-named Vice President of Standish,
Ayer & Wood Investment Trust and acknowledged the foregoing instrument to be his
free act and deed.
Before me,
_______________________________
Notary Public
My commission expires:________
EXHIBIT A
(Revised June 26, 1996)
Portfolios:
1. Standish Intermediate Tax Exempt Bond Fund
2. Standish Small Cap Tax-Sensitive Equity Fund
3. Standish Tax-Sensitive Equity Fund
Effective: February 22, 1996
Portfolios:
4. Standish Equity Fund
5. Standish Fixed Income Fund
6. Standish Global Fixed Income Fund
7. Standish Small Capitalization Equity Fund
Effective: April 29, 1996
Portfolios:
8. Standish Controlled Maturity Fund
9. Standish Fixed Income Fund II
10. Standish International Fixed Income Fund
11. Standish International Equity Fund
12. Standish Massachusetts Intermediate Tax Exempt Bond Fund
13. Standish Securitized Fund
14. Standish Short-Term Asset Reserve Fund
Effective: May 1, 1996
Portfolios:
15. Standish Equity Asset Fund
16. Standish Fixed Income Asset Fund
17. Standish Global Fixed Income Asset Fund
18. Standish Small Capitalization Equity Asset Fund
Effective: June 26, 1996
APPENDIX A
Standish Massachusetts Intermediate Tax Exempt Bond Fund
Standish Intermediate Tax Exempt Bond Fund
Standish International Fixed Income Fund
Standish Fixed Income Fund
Standish Short-Term Asset Reserve Fund
Standish Equity Fund
Standish Small Capitalization Equity Fund
Standish Securitized Fund
Standish Global Fixed Income Fund
Standish Controlled Maturity Fund
Standish Fixed Income Fund II
Standish Tax-Sensitive Equity Fund
Standish Small Cap Tax-Sensitive Equity Fund
Standish Equity Asset Fund
Standish Global Fixed Income Asset Fund
Standish Fixed Income Asset Fund
Standish Small Capitalization Equity Asset Fund
Standish International Equity Fund*
APPENDIX A
Standish Massachusetts Intermediate Tax Exempt Bond Fund
Standish Intermediate Tax Exempt Bond Fund
Standish International Fixed Income Fund
Standish Fixed Income Fund
Standish Short-Term Asset Reserve Fund
Standish Equity Fund
Standish Small Capitalization Equity Fund
Standish Securitized Fund
Standish Global Fixed Income Fund
Standish Controlled Maturity Fund
Standish Fixed Income Fund II
Standish Tax-Sensitive Equity Fund
Standish Small Cap Tax-Sensitive Equity Fund
Standish International Equity Fund
Standish Equity Asset Fund
Standish Global Fixed Income Asset Fund
Standish Fixed Income Asset Fund
Standish Small Capitalization Equity Asset Fund
APPENDIX A
Revised June 27, 1996
MASTER ADMINISTRATION AGREEMENT
between
STANDISH, AYER & WOOD INVESTMENT TRUST
and
INVESTORS BANK & TRUST COMPANY
Standish Massachusetts Intermediate Tax Exempt Bond Fund
Standish Intermediate Tax Exempt Bond Fund
Standish International Fixed Income Fund
Standish Fixed Income Fund
Standish Short-Term Asset Reserve Fund
Standish Equity Fund
Standish Small Capitalization Equity Fund
Standish Securitized Fund
Standish Global Fixed Income Fund
Standish Controlled Maturity Fund
Standish Fixed Income Fund II
Standish International Equity Fund
Standish Tax-Sensitive Equity Fund
Standish Small Cap Tax-Sensitive Equity Fund
Standish Equity Asset Fund
Standish Global Fixed Income Asset Fund
Standish Fixed Income Asset Fund
Standish Small Capitalization Equity Asset Fund
EXHIBIT A
FUNDS
(Revised June 26, 1996)
1. Standish Equity Fund
2. Standish Global Fixed Income Fund
3. Standish Fixed Income Fund
4. Standish Small Capitalization Equity Fund
5. Standish Equity Asset Fund
6. Standish Global Fixed Income Asset Fund
7. Standish Fixed Income Asset Fund
8. Standish Small Capitalization Equity Asset Fund
