STANDISH AYER & WOOD INVESTMENT TRUST, POS AMI, 1997-04-30

STANDISH AYER & WOOD INVESTMENT TRUST
POS AMI, 1997-04-30

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSIONON

April 30, 1997

File No. 811-07603

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT

UNDER

THE INVESTMENT COMPANY ACT OF 1940

AMENDMENT NO. 2 |X|

STANDISH, AYER & WOOD MASTER PORTFOLIO
---------------------------------------------------
(Exact Name of Registrant as Specified in Charter)

P.O. Box 501
George Town, Grand Cayman
Cayman Island, B.W.I.
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(Address of Principal Executive Offices)

Registrant's Telephone Number, including Area Code: (809) 949-2001

Richard S. Wood
Standish, Ayer & Wood, Inc.
One Financial Center
Boston, Massachusetts 02109
--------------------------------------------
(Name and Address of Agent for Service)

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EXPLANATORY NOTES

This Amendment No. 2 to the Registration Statement on Form N-1A (the
"Amendment") has been filed by the Registrant pursuant to Section 8(b) of the
Investment Company Act of 1940, as amended (the "1940 Act"), and Rule 8b-15
thereunder. However, beneficial interests in the series of the Registrant are
not registered under the Securities Act of 1933, as amended (the "1933 Act"),
because such interests will be issued solely in transactions that are exempt
from registration under the 1933 Act. Investments in the Registrant's series may
only be made by investment companies, insurance company separate accounts,
common or commingled trust funds or similar organizations or entities that are
"accredited investors" within the meaning of Regulation D under the 1933 Act.
The Amendment does not constitute an offer to sell, or the solicitation of an
offer to buy, any beneficial interests in any series of the Registrant.

This Amendment relates to the Standish Equity Portfolio, Standish Fixed
Income Portfolio, Standish Global Fixed Income Portfolio, Standish Small
Capitalization Equity Portfolio and Standish Small Capitalization Portfolio II.

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Dated April 30, 1997

STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH EQUITY PORTFOLIO

PART A

THIS PART A DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE
SOLICITATION OF AN OFFER TO BUY, ANY BENEFICIAL INTERESTS IN
STANDISH EQUITY PORTFOLIO.

Responses to Items 1 through 3 and 5A have been omitted pursuant to
paragraph 4 of Instruction F of the General Instructions to Form N-1A.

ITEM 4. GENERAL DESCRIPTION OF REGISTRANT.

Standish, Ayer & Wood Master Portfolio (the "Portfolio Trust") is a
no-load, open-end management investment company which was organized as a master
trust fund under the laws of the State of New York on January 18, 1996.
Beneficial interests in the Portfolio Trust are divided into separate sub-trusts
or series, each having distinct investment objectives and policies, one of
which, the Standish Equity Portfolio (the "Portfolio"), is described herein.
Beneficial interests in the Portfolio are issued solely in transactions that are
exempt from registration under the Securities Act of 1933, as amended (the "1933
Act"). Investments in the Portfolio Trust may only be made by investment
companies, insurance company separate accounts, common or commingled trust funds
or similar organizations or entities that are "accredited investors" within the
meaning of Regulation D under the 1933 Act. This Registration Statement does not
constitute an offer to sell, or the solicitation of an offer to buy, any
"security" within the meaning of the 1933 Act.

INVESTMENT OBJECTIVE AND POLICIES

Investment Objective. The 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.

Principal Investments. The Portfolio seeks to achieve its investment
objective by investing at least 80% of its total assets in equity and
equity-related securities under normal circumstances. The equity and
equity-related securities in which the Portfolio invests include exchange-traded
and over-the-counter common and preferred stock but may also include warrants,
rights, convertible securities, depositary receipts, depositary shares, trust
certificates, shares of other investment companies, limited partnership
interests and equity participations. These equity securities may be issued

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by U.S. or foreign companies. The Portfolio may also enter into repurchase
agreements, engage in short selling and is permitted to invest in restricted and
illiquid securities, although it intends to invest in restricted and illiquid
securities on an occasional basis only. Because of the uncertainty inherent in
all investments, no assurance can be given that the Portfolio will achieve its
investment objective.

Investment Strategies. The Portfolio follows a disciplined investment
strategy, emphasizing stocks which Standish, Ayer & Wood, Inc. ("Standish" or
the "Adviser") believes 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 (e.g., current price earnings ratios, stability
of earnings growth, forecasted changed 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 Portfolio's
holdings. Securities selected for inclusion in the Portfolio's holdings will
represent various industries and sectors.

Other Investments. When Standish believes that foreign markets offer
above average growth potential, the Portfolio may invest without limit in equity
and equity- related securities of foreign issuers that are listed on a United
States Securities Exchange or traded in the U.S. over-the-counter ("OTC")
market. The Portfolio may not invest more than 10% of its total assets in such
securities which are not so listed or traded.

The Portfolio may invest in debt securities and preferred stocks which
are convertible into, or exchangeable for, common stocks. These securities will
be rated Aaa, Aa or A by Moody's Investor Service, Inc. ("Moody's"), or AAA, AA,
or A by Standard and Poor's Ratings Group ("Standard & Poor's"), Duff and Phelps
Credit Rating Co. ("Duff") or Fitch Investors Service, Inc. ("Fitch"), or, if
unrated, determined by the Adviser to be of comparable credit quality. Up to 5%
of the Portfolio's total assets invested in convertible debt securities and
preferred stocks may be rated Baa by Moody's or BBB by Standard & Poor's, Duff,
or Fitch. The Portfolio may also purchase and sell put and call options, enter
into futures contracts on U.S. equity indices, purchase and sell options on such
futures contracts and engage in currency transactions. See "Descriptions of
Securities and Related Risks" and "Strategic Transactions" below for additional
information.

DESCRIPTION OF SECURITIES AND RELATED RISKS

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the entity's preferred stock and other senior equity. Common stock usually
carries with it the right to vote and frequently an exclusive right to do so.

Small Capitalization Stocks. The Portfolio may invest to a lesser
extent, in securities of small capitalization companies. 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 capitalization companies may be traded
only on the over-the-counter market or on a regional securities exchange and may
not be traded daily or in the volume typical of trading on a national securities
exchange. As a result, the disposition by the Portfolio of securities in order
to meet redemptions or otherwise may require the Portfolio to sell securities at
a discount from market prices, over a longer period of time or during periods
when disposition is not desirable.

Convertible Securities. Convertible debt securities and preferred stock
entitle the holder to acquire the issuer's stock by exchange or purchase for a
predetermined rate. Convertible securities are subject both to the credit and
interest rate risks associated with fixed income securities and to the stock
market risk associated with equity securities.

Warrants. Warrants acquired by the Portfolio entitle it to buy common
stock from the issuer at a specified price and time. Warrants are subject to the
same market risks as stocks, but may be more volatile in price. The Portfolio's
investment in warrants will not entitle it to receive dividends or exercise
voting rights and will become worthless if the warrants cannot be profitably
exercised before their expiration dates.

Foreign Securities. The Portfolio may invest without limit in foreign
securities which trade on a U.S. exchange or in the U.S. OTC market, but is
limited to 10% of total assets on those foreign securities which are not so
listed or traded.

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for similar transactions on domestic stock markets. In addition, clearance and
settlement procedures may be different in foreign countries and, in certain
markets, such procedures have on occasion been unable to keep pace with the
volume of securities transactions, thus making it difficult to conduct such
transactions.

Foreign issuers are not generally subject to uniform accounting,
auditing and financial reporting standards comparable to those applicable to
U.S. issuers. There may be less publicly available information about a foreign
issuer than about a U.S. issuer. In addition, there is generally less government
regulation of foreign markets, companies and securities dealers than in the U.
S. Most foreign securities markets may have substantially less trading volume
than U.S. securities markets and securities of many foreign issuers are less
liquid and more volatile than securities of comparable U.S. issuers.
Furthermore, with respect to certain foreign countries, there is a possibility
of nationalization, expropriation or confiscatory taxation, imposition of
withholding or other taxes on dividend or interest payments (or in some cases,
capital gains), limitations on the removal of funds or other assets, political
or social instability or diplomatic developments which could affect investments
in those countries.

Currency Risks. The U.S. dollar value of securities denominated in a
foreign currency will vary with changes in currency exchange rates, which can be
volatile. Accordingly, changes in the value of the currencies in which the
Portfolio's investments are denominated relative to the U.S. dollar will affect
the Portfolio's net asset value. Exchange rates are generally affected by the
forces of supply and demand in the international currency markets, the relative
merits of investing in different countries and the intervention or failure to
intervene of U.S. or foreign governments and central banks. Some countries in
emerging markets also may have managed currencies, which are not free floating
against the U.S. dollar. In addition, emerging markets are subject to the risk
of restrictions upon the free conversion of their currencies into other
currencies. Any devaluations relative to the U.S. dollar in the currencies in
which the Portfolio's securities are quoted would reduce the Portfolio's net
asset value per share.

The Portfolio may enter into forward foreign currency exchange
contracts and cross currency forward contracts with banks or other foreign
currency brokers or dealers to purchase or sell foreign currencies at a future
date and may purchase and sell foreign currency futures contracts and
cross-currency futures contracts to seek to hedge against changes in foreign
currency exchange rates, although the Portfolio has no current intention to
engage in such transactions. A forward foreign currency exchange contract is a
negotiated agreement between the contracting parties to exchange a specified
amount of currency at a specified future time at a specified rate. A
cross-currency forward contract is a forward contract that uses one currency
which historically moves in relation to a second currency to hedge against
changes in that

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second currency. See the "Strategic Transactions" section for a further
discussion of the risks associated with currency transactions.

Emerging Markets. The Portfolio is permitted to invest up to 10% of its
total assets in issuers located in emerging markets generally and up to 3% of
its total assets in issuers of any one specific emerging market country.
Investments 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 Portfolio's investments and the availability to the Portfolio of
additional investments in such emerging markets. The small size of the
securities markets in certain emerging markets and the limited volume of trading
in securities in those markets may make the Portfolio's investments in such
countries less liquid and more volatile than investments in countries with more
developed securities markets (such as the U.S., Japan and most Western European
countries).

Depositary Receipts and Depositary Shares. Depositary receipts and
depositary shares are typically issued by a U.S. or foreign bank or trust
company and evidence ownership of underlying securities of a U.S. or foreign
issuer. Unsponsored programs are organized independently and without the
cooperation of the issuer of the underlying securities. As a result, available
information concerning the issuer may not be as current as for sponsored
depositary instruments and their prices may be more volatile than if they were
sponsored by the issuers of the underlying securities. Examples of such
investments include, but are not limited to, American Depositary Receipts and
Shares ("ADRs" and "ADSs"), Global Depositary Receipts and Shares ("GDRs" and
"GDSs") and European Depository Receipts and Shares ("EDRs" and "EDSs").

Short Term Debt Securities; Money Market Instruments. Although the
Portfolio intends to stay invested in equity and equity-related securities to
the extent practical in light of its objective, the Portfolio may, under normal
market conditions, establish and maintain cash balances and may purchase money
market instruments with maturities of less than one year and short-term interest
bearing fixed income securities with maturities of one to three years
("Short-Term Obligations") to maintain liquidity to meet redemptions. The
Portfolio may also maintain cash balances and invest in money market instruments
and Short-Term Obligations without limitation as a temporary defensive measure.

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Money market instruments in which the Portfolio invests will be rated
at the time of purchase P-1 by Moody's or A-1 or Duff-1 by Standard & Poor's,
Duff and Fitch or, if unrated, determined by the Adviser to be of comparable
quality. Money market instruments and Short-Term Obligations include obligations
issued or guaranteed by the U.S. Government or any of its agencies and
instrumentalities, U.S. and foreign commercial paper, bank obligations,
repurchase agreements and other debt obligations of U.S. and foreign issuers. At
least 95% of the Portfolio's assets that are invested in Short-Term Obligations
must be invested in obligations rated at the time of purchase Aaa, Aa, A or P-1
by Moody's or AAA, AA, A, A-1 or Duff-1 by Standard & Poor's, Duff or Fitch or,
if unrated, determined by the Adviser to be of comparable credit quality. Up to
5% of the Portfolio's total assets invested in Short-Term Obligations may be
invested in obligations rated Baa by Moody's or BBB by Standard & Poor's, Duff
or Fitch or, if unrated, determined by the Adviser to be of comparable credit
quality.

Generally, U.S. Government securities include U.S. Treasury obligations
and obligations issued or guaranteed by U.S. Government agencies,
instrumentalities or sponsored enterprises which are supported by (a) the full
faith and credit of the U.S. Treasury (such as the Government National Mortgage
Association), (b) the right of the issuer to borrow from the U.S. Treasury (such
as securities of the Student Loan Marketing Association), (c) the discretionary
authority of the U.S. Government to purchase certain obligations of the issuer
(such as the Federal National Mortgage Association and Federal Home Loan
Mortgage Corporation), or (d) only the credit of the agency. No assurance can be
given that the U.S. Government will provide financial support to U.S. Government
agencies, instrumentalities or sponsored enterprises in the future. U.S.
Government securities also include Treasury receipts, zero coupon bonds,
deferred interest securities and other stripped U.S. Government securities,
where the interest and principal components of stripped U.S. Government
securities are traded independently ("STRIPS").

Securities rated within the top three investment grade ratings (i.e.,
Aaa, Aa, A or P-1 by Moody's or AAA, AA, A, A-1 or Duff-1 by Standard & Poor's,
Duff or Fitch) are generally regarded as high grade obligations. Securities
rated Baa by Moody's or BBB by Standard & Poor's, Duff or Fitch are generally
considered medium grade obligations and have some speculative characteristics.
Adverse changes in economic conditions or other circumstances are more likely to
weaken the medium grade issuer's capability to pay interest and repay principal
than is the case for high grade securities. If a security is rated differently
by two or more rating agencies, the Adviser uses the highest rating to determine
its rating category. If the rating of a security held by the Portfolio is
downgraded below the minimum rating, the Adviser will determine whether to
retain that security in the Portfolio's portfolio.

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INVESTMENT TECHNIQUES AND RELATED RISKS

Strategic Transactions. The Portfolio may, but is not required to,
utilize various investment strategies to seek to hedge market risks (such as
interest rates, currency exchange rates and broad or specific equity market
movements), or to enhance potential gain. Such strategies are generally accepted
as part of modern portfolio management and are regularly utilized by many mutual
funds and other institutional investors. Techniques and instruments used by the
Portfolio may change over time as new instruments and strategies are developed
or regulatory changes occur.

The ability of the Portfolio to utilize Strategic Transactions
successfully will depend on the Adviser's ability to predict pertinent market
and interest rate movements, which cannot be assured. The Portfolio will comply
with applicable regulatory requirements when implementing these strategies,
techniques and instruments. The Portfolio's activities involving Strategic
Transactions may be limited in order to enable certain investors in the
Portfolio to comply with the requirements of the Internal Revenue Code of 1986,
as amended (the "Code") for qualification as a regulated investment company.

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realize on its investments or cause the Portfolio to hold a security it might
otherwise sell.

The use of options and futures transactions entails certain other
risks. Futures markets are highly volatile and the use of futures may increase
the volatility of the Portfolio's net asset value. In particular, the variable
degree of correlation between price movements of futures contracts and price
movements in the related portfolio position of the Portfolio creates the
possibility that losses on the hedging instrument may be greater than gains in
the value of the Portfolio's position. The writing of options could
significantly increase the Portfolio's portfolio turnover rate and associated
brokerage commissions or spreads. In addition, futures and options markets may
not be liquid in all circumstances and certain over-the-counter options may have
no markets. As a result, in certain markets, the Portfolio might not be able to
close out a transaction without incurring substantial losses. Losses resulting
from the use of Strategic Transactions could reduce net asset value and the net
result may be less favorable than if the Strategic Transactions had not been
utilized. 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
position, at the same time, such transactions can limit any potential gain which
might result from an increase in value of such position. The loss incurred by
the Portfolio in writing options on futures and entering into futures
transactions is potentially unlimited.

The use of currency transactions can result in the Portfolio incurring
losses as a result of a number of factors including the imposition of exchange
controls, suspension of settlements, or the inability to deliver or receive a
specified currency. The Portfolio will attempt to limit its net loss exposure
resulting from Strategic Transactions entered into for non-hedging purposes to
3% of its net assets. In calculating the Portfolio's net loss exposure from such
Strategic Transactions, an unrealized gain from a particular Strategic
Transaction would be netted against an unrealized loss from a related position.
Further information concerning the Portfolio's strategic transactions is set
forth in Part B.

Repurchase Agreements. The Portfolio may invest up to 10% of its net
assets in repurchase agreements. In a repurchase agreement, the Portfolio buys a
security at one price and simultaneously agrees to sell it back at a higher
price. Delays or losses could result if the other party to the agreement
defaults or becomes involvement. Repurchase agreements acquired by the Portfolio
will always be fully collateralized as to principal and interest by money market
instruments and will be entered into only with commercial banks, brokers and
dealers considered creditworthy by the Adviser.

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Portfolio either owns or has the right to obtain at no extra cost the security
sold short. The broker holds the proceeds of the short sale until the settlement
date, at which time the Portfolio delivers the security (or an identical
security) to cover the short position. The Portfolio receives the net proceeds
from the short sale. When the Portfolio enters into a short sale other than
against the box, the Portfolio must first borrow the security to make delivery
to the buyer and must place cash or liquid assets in a segregated account with
the Portfolio's custodian that is marked to market daily. Short sales other than
against the box involve unlimited exposure to loss. No securities will be sold
short if, after giving effect to any such short sale, the total market value of
all securities sold short would exceed 5% of the value of the Portfolio's net
assets.

Restricted and Illiquid Securities. The Portfolio may invest up to 15%
of its net assets in illiquid securities; however, the Portfolio invests in
these securities only on an occasional basis. Illiquid securities are those 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, swap
transactions, certain over-the-counter options and certain restricted
securities. Based upon continuing review of the trading markets for a specific
restricted security, the security may be determined to be eligible for resale to
qualified institutional buyers pursuant to Rule 144A under the Securities Act of
1933 and, therefore, to be liquid. Also, certain illiquid securities may be
determined to be liquid if they are found to satisfy certain relevant liquidity
requirements.

The Board of Trustees has adopted guidelines and delegated to the
Adviser the daily function of determining and monitoring the liquidity of
portfolio securities, including restricted and illiquid securities. The Board of
Trustees, however, retains oversight and is ultimately responsible for such
determinations. The purchase price and subsequent valuation of illiquid
securities normally reflect a discount, which may be significant, from the
market price of comparable securities for which a liquid market exists.

Other Investment Companies. The Portfolio is permitted to invest up to
10% of its total assets in shares of other investment companies and up to 5% of
its total assets in any one investment company as long as that investment does
not represent more than 3% of the total voting stock of the acquired investment
company. Investments in the securities of other investment companies may involve
duplication of advisory fees and other expenses. Because certain emerging
markets are closed to investment by foreigners, the Portfolio may invest in
issuers in those markets primarily through specifically authorized investment
funds. In addition, the Portfolio may invest in investment companies that are
designed to replicate the composition and performance of a particular index. For
example, Standard & Poor's Depositary Receipts ("SPDERS") are exchange-traded
shares of a closed-end investment company designed to replicate the price
performance and dividend yield of the Standard &

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Poor's 500 Composite Stock Price Index. Another example is World Equity
Benchmark Series ("WEBS") which are exchange traded shares of open-end
investment companies designed to replicate the composition and performance of
publicly traded issuers in particular countries. Investments in index baskets
involve the same risks associated with a direct investment in the types of
securities included in the baskets.

Portfolio Turnover. A high rate of portfolio turnover (100% or more)
involves correspondingly higher transaction costs which must be borne directly
by the Portfolio and thus indirectly by its shareholders. It may also result in
the Portfolio's realization of larger amounts of short-term capital gains and
may, under certain circumstances, make it more difficult for an investor in the
Portfolio to qualify as a regulated investment company under the Code. See the
Portfolio's annual report for the Portfolio's portfolio turnover rates.

Short-Term Trading. The Portfolio will sell a portfolio security
without regard to the length of time such security has been held if, in the
Adviser's view, the security meets the criteria for disposal.

Investment Restrictions. The investment objective of the Portfolio is
not fundamental and may be changed by the Board of Trustees without the approval
of shareholders. If there is a change in the Portfolio's investment objectives,
shareholders should consider whether the Portfolio remains an appropriate
investment in light of their current financial situations. The Portfolio's
investment policies set forth in this Part A are non-fundamental and may be
changed without shareholder approval. The Portfolio has adopted fundamental
policies which may not be changed without the approval of the Portfolio's
shareholders. See Part B for additional information. If any percentage
restriction is adhered to at the time of investment, a subsequent increase or
decrease in the percentage resulting from a change in the value of the
Portfolio's assets will not constitute a violation of the restriction.

ITEM 5. MANAGEMENT OF THE PORTFOLIO.

Trustees. The Portfolio is a separate investment series of Standish,
Ayer & Wood Master Portfolio, a master trust fund organized under the laws of
the State of New York. Under the terms of the Declaration of Trust, the affairs
of the Portfolio are managed under the supervision of the Trustees of the
Portfolio Trust.

A majority of the Trustees who are not "interested persons" (as defined
in the 1940 Act) of the Portfolio Trust 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 Portfolio Trust and
investors in the Portfolio Trust, up to and including creating separate boards
of trustees. See "Management of

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the Portfolio" in Part B for more information about the Trustees and officers of
the Portfolio Trust.

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

The Adviser provides fully discretionary management services and
counseling and advisory services to a broad range of clients throughout the
United States and abroad. As of March 31, 1997, Standish or its affiliate,
Standish International Management Company, L.P. ("SIMCO"), managed approximately
$31 billion of assets.

The 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 Standish Equity Fund, a series of Standish, Ayer &
Wood Investment Trust (the "Fund") since its inception in January, 1991 and of
the Portfolio's portfolio since the Fund's conversion to the master-feeder
structure on May 3, 1996. During the past five years, Mr. Tate has served as a
Managing Director of Standish and President of SIMCO (since 1996) and both
Messrs. Tate and Cameron have served as a Director and Vice President of
Standish and a Director of SIMCO (since 1995 for Mr. Cameron).

Subject to the supervision and direction of the Trustees of the
Portfolio Trust, the Adviser manages the Portfolio in accordance with its stated
investment objective and policies, recommends investment decisions for the
Portfolio, places orders to purchase and sell securities on behalf of the
Portfolio and permits the Portfolio to use the name "Standish." For its services
to the Portfolio, the Adviser receives a monthly fee equal on an annual basis to
0.50% of the Portfolio's average daily net assets.

Administrator of the Portfolio. IBT Trust Company (Cayman) Ltd., P.O.
Box 501, Grand Cayman, Cayman Islands, BWI, serves as the administrator to the
Portfolio (the "Portfolio Administrator") pursuant to a written administration
agreement with the Portfolio Trust on behalf of the Portfolio. The Portfolio
Administrator provides the Portfolio Trust with office space for managing its
affairs, and with certain clerical services and facilities. For its services to
the Portfolio Trust, the Portfolio Administrator will receive a fee from the
Portfolio in the amount of $7,500 annually.

Expenses. The Portfolio bears the expenses of its respective operations
other than those incurred by Standish under the investment advisory agreement.
Among other expenses, the Portfolio pays investment advisory fees; bookkeeping,
share pricing and custodian fees and expenses; expenses of notices and reports
to

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interest-holders; expenses of the Portfolio's administrator; legal and auditing
fees; any registration and reporting fees and expenses; and Trustees' fees and
expenses. Expenses of the Portfolio Trust which relate to more than one of its
series are allocated among such series by the Adviser and SIMCO in an equitable
manner, primarily on the basis of relative net asset values.

Portfolio Transactions. Subject to the supervision of the Trustees of
the Portfolio Trust, the Adviser selects the brokers and dealers that execute
orders to purchase and sell portfolio securities for the Portfolio. The Adviser
will generally seek to obtain the best available price and most favorable
execution with respect to all transactions for the Portfolio. The Adviser may
also consider the extent to which a broker or dealer provides research to the
Adviser.

ITEM 6. CAPITAL STOCK AND OTHER SECURITIES.

The Portfolio Trust was organized as a trust under the laws of the
State of New York on January 18, 1996. Under the Declaration of Trust, the
Trustees are authorized to issue beneficial interests in separate series of the
Portfolio Trust. Each investor is entitled to a vote in proportion to the amount
of its investment in the Portfolio. Investments in the Portfolio may not be
transferred, but an investor may withdraw all or any portion of his investment
at any time at net asset value. Investors in the Portfolio (e.g., investment
companies, insurance company separate accounts and common and commingled trust
funds) will not be liable for the obligations of the Portfolio although they
will bear the risk of loss of their entire respective interests in the
Portfolio. However, there is a risk that interest-holders in the Portfolio may
be held personally liable as partners for the Portfolio's obligations. Because
the Portfolio Trust's Declaration of Trust disclaims interest-holder liability
and provides for indemnification against such liability, the risk of an investor
in the Portfolio incurring financial loss on account of such liability is
limited to circumstances in which both inadequate insurance existed and the
Portfolio itself was unable to meet its obligations.

The Portfolio Trust reserves the right to create and issue any number
of series, in which case investments in each series would participate equally in
earnings and assets of the particular series. Currently, the Portfolio Trust has
five series: Standish Fixed Income Portfolio, Standish Equity Portfolio,
Standish Small Capitalization Equity Portfolio, Standish Global Fixed Income
Portfolio and Standish Small Capitalization Equity Portfolio II.

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in fundamental policies will be submitted to investors for approval. Investors
have under certain circumstances (e.g. upon application and submission of
certain specified documents to the Trustees by a specified percentage of the
aggregate value of the Portfolio Trust's outstanding interests) the right to
communicate with other investors in connection with requesting a meeting of
investors for the purpose of removing one or more Trustees. Investors also have
the right to remove one or more Trustees without a meeting by a declaration in
writing by a specified number of investors. Upon liquidation of a Portfolio,
investors would be entitled to share pro rata in the net assets of the Portfolio
available for distribution to investors.

Inquiries concerning the Portfolio should be made by contacting the
Portfolio at the Portfolio Trust's registered office in care of the Portfolio
Administrator, P.O. Box 501, Cardinal Avenue, George Town, Grand Cayman, Cayman
Islands, British West Indies.

Please see Item 7 for a discussion of the Portfolio's dividend policy.

ITEM 7. PURCHASE OF SECURITIES BEING OFFERED.

Beneficial interests in the Portfolio are issued solely in transactions
that are exempt from registration under the 1933 Act. See "General Description
of Registrant" above.

An investment in the Portfolio may be made without a sales load by
certain eligible investors. All investments are made at the net asset value next
determined after an order and payment for the investment is received by the
Portfolio or its agent by the designated cutoff time for each accredited
investor. There is no minimum initial or subsequent investment in the Portfolio.
However, because the Portfolio intends to be as fully invested at all times as
is reasonably practicable in order to enhance the yield on its assets,
investments must be made in federal funds (i.e., monies credited to the account
of the Portfolio Trust's custodian bank by a Federal Reserve Bank). The
Portfolio Trust reserves the right to cease accepting investments in the
Portfolio at any time or to reject any investment order.

The net asset value of the Portfolio is computed in U.S. dollars each
day on which the New York Stock Exchange ("NYSE") is open for trading ("Business
Day") (and on such other days as are deemed necessary in order to comply with
Rule 22c-1 under the 1940 Act). This determination is made as of the close of
regular trading on the NYSE which is normally 4:00 p.m., New York time (the
"Valuation Time").

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<PAGE>

quoted bid prices. Securities for which quotations are not readily available and
all 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. Money Market instruments with less than sixty days remaining to maturity
when acquired by the Portfolio are valued on an amortized cost basis unless the
Portfolio Trust's Board of Trustees determines that amortized cost does not
represent fair value. If the Portfolio acquires a money market instrument with
more than sixty days remaining to its maturity, it is valued at current market
value until the sixtieth day prior to maturity and will then be valued at
amortized cost based upon the value on such date unless the Trustees of the
Portfolio Trust determine during such sixty-day period that amortized cost does
not represent fair value. Additional information concerning the Portfolio's
valuation policies is contained in Part B.

Portfolio securities traded on more than one U.S. national securities
exchange or on a U.S. exchange and a foreign securities exchange are valued at
the last sale price from the exchange representing the principal market for such
securities on the business day when such value is determined. The value of all
assets and liabilities expressed in foreign currencies will be converted into
U.S. dollar values at currency exchange rates determined by Investors Bank and
Trust Company, the Portfolio's custodian, to be representative of fair levels at
times prior to the close of trading on the NYSE. If such rates are not
available, the rate of exchange will be determined in good faith under
procedures established by the Trustees. Trading in securities on European and
Far Eastern securities exchanges and over-the-counter markets is normally
completed well before the close of business on the NYSE and may not take place
on all business days that the NYSE is open and may take place on days when the
NYSE is closed. Events affecting the values of portfolio securities that occur
between the time their prices are determined and the close of regular trading on
the NYSE will not be reflected in the Portfolio's calculation of net asset
values unless the Adviser determines that the particular event would materially
affect net asset value, in which case an adjustment will be made.

Each investor in the Portfolio may add to or reduce its investment in
the Portfolio on each Business Day. At each Valuation Time on each such Business
Day, the value of each investor's beneficial interest in the Portfolio will be
determined by multiplying the net asset value of the Portfolio by the
percentage, effective for that day, that represents that investor's share of the
aggregate beneficial interests in the Portfolio. Any additions or withdrawals,
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 the Valuation
Time, on such Business Day plus or minus, as the case may be, the amount of any
additions to or withdrawals from the investor's investment in the Portfolio
effected on such Business Day, and (ii) the denominator of which is the
aggregate net asset value of the Portfolio as of the Valuation Time, on such
Business

A-14

<PAGE>

Day plus or minus, as the case may be, the amount of the net additions to or
withdrawals from 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 the Valuation Time,
on the following Business Day.

The net income of the Portfolio shall consist of (i) all income
accrued, less the amortization of any premium, on the assets of the Portfolio,
less (ii) all actual and accrued expenses of the Portfolio determined in
accordance with generally accepted accounting principles ("Net Income").
Interest income includes discount earned (including both original issue and
market discount) in discount paper accrued ratably to the date of maturity and
any net realized gains or losses on the assets of the Portfolio. All the Net
Income of the Portfolio is allocated pro rata among the investors in the
Portfolio. The Net Income is accrued daily and reflected in each investor's
interest in the Portfolio.

Under the anticipated method of operation of the Portfolio, it is
expected that the Portfolio will not be subject to any U.S. federal or state
income tax. However, any investor in the Portfolio that is subject to U.S.
federal income taxation will take into account its share (as determined in
accordance with the governing instrument of the Portfolio) of the Portfolio's
items of income, gain, loss, deduction and credit in determining its income tax
liability, if any. The determination of such share will be made in a manner that
is intended to comply with the Code and applicable tax regulations.

It is intended that the Portfolio's assets, income and distributions
will be managed in such a way that any investor in the Portfolio that is
otherwise eligible to be treated as a regulated investment company should be
able to satisfy the requirements of Subchapter M of the Code, assuming that the
investor invests all of its investment securities (as such terms are used in the
1940 Act) in the Portfolio.

ITEM 8. REDEMPTION OR REPURCHASE.

An investor in the Portfolio may withdraw all or any portion of its
investment at the net asset value next determined after receipt by the Portfolio
or its agent, by the close of trading (normally 4:00 p.m. Eastern Time) on the
NYSE or, as of such earlier times at which the Portfolio's net asset value is
calculated on each Business Day, by a withdrawal request in proper form. The
proceeds of a withdrawal will be paid by the Portfolio in federal funds normally
on the Business Day the withdrawal is effected, but in any event within five
Business Days following receipt of the request. The Portfolio reserves the right
to pay redemptions in kind. Investments in the Portfolio may not be transferred.

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The right of any investor to receive payment with respect to any
withdrawal may be suspended or the payment of the withdrawal proceeds postponed
during any period in which the NYSE is closed (other than weekends or holidays)
or trading on such exchange is restricted, or, to the extent otherwise permitted
by the 1940 Act, if an emergency exists.

ITEM 9. PENDING LEGAL PROCEEDINGS.

Not applicable.

A-16

<PAGE>

Dated April 30, 1997

STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH EQUITY PORTFOLIO

PART B

ITEM 10. COVER PAGE.

This Part B expands upon and supplements the information contained in
Part A of Standish Equity Portfolio (the "Portfolio"), a separate investment
series of Standish, Ayer & Wood Master Portfolio (the "Portfolio Trust"). This
Part B should be read in conjunction with such Part A. NEITHER PART A NOR THIS
PART B CONSTITUTES AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, ANY
BENEFICIAL INTERESTS IN THE STANDISH EQUITY PORTFOLIO.

ITEM 11. TABLE OF CONTENTS. PAGE

General Information and History.................................... B-1
Investment Objective and Policies.................................. B-1
Management of the Portfolio........................................ B-17
Control Persons and Principal Holders of Securities................ B-20
Investment Advisory and Other Services............................. B-21
Brokerage Allocation and Other Practices........................... B-22
Capital Stock and Other Securities................................. B-23
Purchase, Redemption and Pricing of Securities Being Offered....... B-24
Tax Status......................................................... B-26
Underwriters....................................................... B-30
Calculation of Performance Data.................................... B-31
Financial Statements............................................... B-31

ITEM 12. GENERAL INFORMATION AND HISTORY.

Not applicable.

ITEM 13. INVESTMENT OBJECTIVE AND POLICIES.

Part A contains additional information about the investment objective
and policies of the Portfolio. This Part B should be read only in conjunction
with Part A. This section contains supplemental information concerning the types
of securities and other instruments in which the Portfolio may invest, the
investment policies and portfolio strategies that the Portfolio may utilize and
certain risks attendant to those investments, policies and strategies.

B-1

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Suitability and Risk Factors. An investor should not expect, and the
Portfolio does not intend, that the Portfolio will provide an investment program
which meets all of the requirements of that investor. The companies in which the
Portfolio invests generally reinvest their earnings, and dividend income should
not be expected. Also, notwithstanding the Portfolio's ability to spread risk by
holding securities of a number of companies, shareholders should be able and be
prepared to bear the risk of investment losses which may accompany the
investments contemplated by the Portfolio.

Foreign Securities. Foreign securities may be purchased and sold on
foreign stock exchanges or in over-the-counter markets (but persons affiliated
with the Portfolio will not act as principal in such purchases and sales).
Foreign stock markets are generally not as developed or efficient as those in
the United States. While growing in volume, they usually have substantially less
volume than the New York Stock Exchange ("NYSE"), and securities of some foreign
companies are less liquid and more volatile than securities of comparable United
States companies. Fixed commissions on foreign stock exchanges are generally
higher than negotiated commissions on United States exchanges, although the
Portfolio will endeavor to achieve the most favorable net results on its
portfolio transactions. There is generally less government supervision and
regulation of stock exchanges, brokers and listed companies abroad than in the
United States.

The dividends and interest payable on certain foreign securities may be
subject to foreign withholding taxes and in some cases capital gains from such
securities may also be subject to foreign tax, thus reducing the net amount of
income or gain available for distribution to the Portfolio's shareholders.

Investors should understand that the expense ratio of the Portfolio may
be higher than that of investment companies investing exclusively in domestic
securities because of the cost of maintaining the custody of foreign securities.

B-2

<PAGE>

contractual relationship with the foreign issuer of the security underlying the
Depositary Receipts or Shares to issue and service such Depositary Receipts or
Shares (unsponsored Depositary Receipts or Shares), there may be an increased
possibility that the Portfolio would not become aware of and be able to respond
to corporate actions, such as stock splits or rights offerings involving the
foreign issuer, in a timely manner. In addition, certain benefits which may be
associated with the security underlying the Depositary Receipt or Share may not
inure to the benefit of the holder of such Depositary Receipt or Share. Further,
the lack of information may result in inefficiencies in the valuation of such
instruments. Investment in Depositary Receipts or Shares does not eliminate all
the risks inherent in investing in securities of non-U.S. issuers. The market
value of Depositary Receipts or Shares is dependent upon the market value of the
underlying securities and fluctuations in the relative value of the currencies
in which the Depositary Receipt or Share and the underlying securities are
quoted. However, by investing in Depositary Receipts or Shares, such as ADRs or
ADSs, that are quoted in U.S. dollars, the Portfolio will avoid currency risks
during the settlement period for purchases and sales.

Strategic Transactions. The Portfolio may, but is not required to,
utilize various other investment strategies as described below to seek to hedge
various market risks (such as interest rates, currency exchange rates, and broad
or specific equity market movements), or to enhance potential gain. Such
strategies are generally accepted as part of modern portfolio management and are
regularly utilized by many mutual funds and other institutional investors.
Techniques and instruments used by the Portfolio may change over time as new
instruments and strategies are developed or regulatory changes occur.

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<PAGE>

any one time and, to the extent necessary, the Portfolio will close out
transactions in order to comply with this limitation. (Transactions such as
writing covered call options are considered to involve hedging for the purposes
of this limitation.). In calculating the Portfolio's net loss exposure from such
Strategic Transactions, an unrealized gain from a particular Strategic
Transaction position would be netted against an unrealized loss from a related
Strategic Transaction position. For example, if the Adviser believes that the
Portfolio is underweighted in cyclical stocks and overweighted in consumer
stocks, the Portfolio may buy a cyclical index call option and sell a cyclical
index put option and sell a consumer index call option and buy a consumer index
put option. Under such circumstances, any unrealized loss in the cyclical
position would be netted against any unrealized gain in the consumer position
(and vice versa) for purposes of calculating the Portfolio's net loss exposure.
The ability of the Portfolio to utilize these Strategic Transactions
successfully will depend on the Adviser's ability to predict pertinent market
movements, which cannot be assured. The Portfolio will comply with applicable
regulatory requirements when implementing these strategies, techniques and
instruments. The Portfolio's activities involving Strategic Transactions may be
limited in order to enable certain investors in the Portfolio 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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<PAGE>

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

General Characteristics of Options. Put options and call options
typically have similar structural characteristics and operational mechanics
regardless of the underlying instrument on which they are purchased or sold.
Thus, the following general discussion relates to each of the particular types
of options discussed in greater detail below. In addition, many Strategic
Transactions involving options require segregation of the Portfolio's assets in
special accounts, as described below under "Use of Segregated Accounts."

A put option gives the purchaser of the option, in consideration for
the payment of a premium, the right to sell, and the writer the obligation to
buy (if the option is exercised) the underlying security, commodity, index,
currency or other instrument at the exercise price. For instance, the
Portfolio's purchase of a put option on a security might be designed to protect
its holdings in the underlying instrument (or, in some cases, a similar
instrument) against a substantial decline in the market value by giving the
Portfolio the right to sell such instrument at the option exercise price. A call
option, in consideration for the payment of a premium, gives the purchaser of
the option the right to buy, and the seller the obligation to sell (if the
option is exercised), the underlying instrument at the exercise price. The
Portfolio may purchase a call option on a security, futures contract, index,
currency or other instrument to seek to protect the Portfolio against an
increase in the price of the underlying instrument that it intends to purchase
in the future by fixing the price at which it may purchase such instrument. An
American style put or call option may be exercised at any time during the option
period while a European style put or call option may be exercised only upon
expiration or during a fixed period prior thereto. The Portfolio is authorized
to purchase and sell exchange listed options and over-the counter options ("OTC
options"). Exchange listed options are issued by a regulated intermediary such
as the Options Clearing Corporation ("OCC"), which guarantees the performance of
the obligations of the parties to such options. The discussion below uses the
OCC as an example, but is also applicable to other financial intermediaries.

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<PAGE>

With certain exceptions, exchange listed options generally settle by
physical delivery of the underlying security or currency, although in the future
cash settlement may become available. Index options and Eurodollar instruments
are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.

The Portfolio's ability to close out its position as a purchaser or
seller of an exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. There is no assurance that a liquid option
market on an exchange will exist. In the event that the relevant market for an
option on an exchange ceases to exist, outstanding options on that exchange
would generally continue to be exercisable in accordance with their terms.

The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.

OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct agreement with
the Counterparty. In contrast to exchange listed options, which generally have
standardized terms and performance mechanics, all the terms of an OTC option,
including such terms as method of settlement, term, exercise price, premium,
guarantees and security, are set by negotiation of the parties. The Portfolio
will generally sell (write) OTC options that are subject to a buy-back provision
permitting the Portfolio to require the Counterparty to sell the option back to
the Portfolio at a formula price within seven days. OTC options purchased by the
Portfolio, and portfolio securities covering the amount of the Portfolio's
obligation pursuant to an OTC option sold by it (the cost of the sell-back plus
the in-the-money amount, if any), are subject to the Portfolio's restriction on
illiquid securities, unless determined to be liquid in accordance with
procedures adopted by the Boards of Trustees. For OTC options written with
"primary dealers" pursuant to an agreement requiring a closing purchase
transaction at a formula price, the amount which is considered to be illiquid
may be calculated by reference to a formula price. The Portfolio expects
generally to enter into OTC options that have cash settlement provisions,
although it is not required to do so.

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<PAGE>

Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make delivery of the security, currency or other instrument underlying an OTC
option it has entered into with the Portfolio or fails to make a cash settlement
payment due in accordance with the terms of that option, the Portfolio will lose
any premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Adviser must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be
satisfied. The Portfolio will engage in OTC option transactions only with U.S.
Government securities dealers recognized by the Federal Reserve Bank of New York
as "primary dealers", or broker dealers, domestic or foreign banks or other
financial institutions which have received, combined with any credit
enhancements, a long-term debt rating of A from Standard & Poor's Ratings Group
("S&P") or Moody's Investors Service, Inc. ("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.

If the Portfolio sells (writes) a call option, the premium that it
receives may serve as a partial hedge, to the extent of the option premium,
against a decrease in the value of the underlying securities or instruments in
its portfolio or will increase the Portfolio's income. The sale (writing) of put
options can also provide income.

The Portfolio may purchase and sell (write) call options on securities,
equity securities (including convertible securities) and Eurodollar instruments
that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets, and on securities indices, currencies and futures
contracts. All calls sold by the Portfolio must be "covered" (i.e., the
Portfolio must own the securities or futures contract subject to the call) or
must meet the asset segregation requirements described below as long as the call
is outstanding. In addition, the Portfolio may cover a written call option or
put option by entering into an offsetting forward contract and/or by purchasing
an offsetting option or any other option which, by virtue of its exercise price
or otherwise, reduces the Portfolio's net exposure on its written option
position. Even though the 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 the 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.

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<PAGE>

a result, more than 50% of the Portfolio's assets would be required to be
segregated to cover its potential obligations under such put options other than
those with respect to futures and options thereon. In selling put options, there
is a risk that the Portfolio may be required to buy the underlying security at a
price above the market price.

Options on Securities Indices and Other Financial Indices. The
Portfolio may also purchase and sell (write) call and put options on securities
indices and other financial indices. Options on securities indices and other
financial indices are similar to options on a security or other instrument
except that, rather than settling by physical delivery of the underlying
instrument, they settle by cash settlement. For example, an option on an index
gives the holder the right to receive, upon exercise of the option, an amount of
cash if the closing level of the index upon which the option is based exceeds,
in the case of a call, or is less than, in the case of a put, the exercise price
of the option (except if, in the case of an OTC option, physical delivery is
specified). This amount of cash is equal to the differential between the closing
price of the index and the exercise price of the option, which also may be
multiplied by a formula value. The seller of the option is obligated, in return
for the premium received, to make delivery of this amount upon exercise of the
option. In addition to the methods described above, the Portfolio may cover call
options on a securities index by owning securities whose price changes are
expected to be similar to those of the underlying index, or by having an
absolute and immediate right to acquire such securities without additional cash
consideration (or for additional cash consideration held in a segregated account
by its custodian) upon conversion or exchange of other securities in its
portfolio.

General Characteristics of Futures. The Portfolio may enter into
financial futures contracts or purchase or sell put and call options on such
futures. Futures are generally bought and sold on the commodities exchanges
where they are listed and involve payment of initial and variation margin as
described below. All futures contracts entered into by the Portfolio are traded
on U.S. exchanges or boards of trade that are licensed and regulated by the
Commodity Futures Trading Commission ("CFTC") or on certain foreign exchanges.
The sale of futures contracts creates a firm obligation by the Portfolio, as
seller, to deliver to the buyer the specific type of financial instrument called
for in the contract at a specific future time for a specified price (or, with
respect to index futures and Eurodollar instruments, the net cash amount). The
purchase of futures contracts creates a corresponding obligation by the
Portfolio, as purchaser 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.

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<PAGE>

The Portfolio's use of financial futures and options thereon will in
all cases be consistent with applicable regulatory requirements and in
particular the regulations of the CFTC relating to exclusions from regulation as
a commodity pool operator. Those regulations currently provide that the
Portfolio may use commodity futures and option positions (i) for bona fide
hedging purposes without regard to the percentage of assets committed to margin
and option premiums, or (ii) for other purposes permitted by the CFTC to the
extent that the aggregate initial margin and option premiums required to
establish such non-hedging positions (net of the amount the positions were "in
the money" at the time of purchase) do not exceed 5% of the net asset value of
the Portfolio, after taking into account unrealized profits and losses on such
positions. Typically, maintaining a futures contract or selling an option
thereon requires the Portfolio to deposit with its custodian for the benefit of
a futures commission merchant, or directly with the futures commission merchant,
as security for its obligations an amount of cash or other specified assets
(initial margin) which initially is typically 1% to 10% of the face amount of
the contract (but may be higher in some circumstances). Additional cash or
assets (variation margin) may be required to be deposited directly with the
futures commission merchant thereafter on a daily basis as the value of the
contract fluctuates. The purchase of an option on financial futures involves
payment of a premium for the option without any further obligation on the part
of the Portfolio. If the Portfolio exercises an option on a futures contract it
will be obligated to post initial margin (and potential subsequent variation
margin) for the resulting futures position just as it would for any position.
Futures contracts and options thereon are generally settled by entering into an
offsetting transaction but there can be no assurance that the position can be
offset prior to settlement at an advantageous price, nor that delivery will
occur. The segregation requirements with respect to futures contracts and
options thereon are described below.

Currency Transactions. The Portfolio may engage in currency
transactions with Counterparties 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. The Portfolio may
enter into over-the-counter currency transactions with Counterparties which have
received, combined with any credit enhancements, a long term debt rating of A by
S&P or Moody's, respectively, or that have an equivalent rating from a NRSRO or
(except for OTC currency options) whose obligations are determined to be of
equivalent credit quality by the Adviser.

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The Portfolio's transactions in forward currency contracts and other
currency transactions such as futures, options, options on futures and swaps
will generally be limited to hedging involving either specific transactions or
portfolio positions. See, "Strategic Transactions." Transaction hedging is
entering into a currency transaction with respect to specific assets or
liabilities of the Portfolio, which will generally arise in connection with the
purchase or sale of its portfolio securities or the receipt of income therefrom.
Position hedging is entering into a currency transaction with respect to
portfolio security positions denominated or generally quoted in that currency.

The Portfolio will not enter into a transaction to hedge currency
exposure to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held in its portfolio
that are denominated or generally quoted in or currently convertible into such
currency, other than with respect to proxy hedging as described below.

The Portfolio may also cross-hedge currencies by entering into
transactions to purchase or sell one or more currencies that are expected to
decline in value in relation to other currencies to which the Portfolio has or
in which the Portfolio expects to have portfolio exposure. For example, the
Portfolio may hold a French security and the Adviser may believe that French
francs will deteriorate against German marks. The Portfolio would sell French
francs to reduce its exposure to that currency and buy German marks. This
strategy would be a hedge against a decline in the value of French francs,
although it would expose the Portfolio to declines in the value of the German
mark relative to the U.S. dollar.

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

B-10

<PAGE>

not be present or may not be present during the particular time that the
Portfolio is engaging in proxy hedging. If the Portfolio enters into a currency
hedging transaction, the Portfolio will comply with the asset segregation
requirements described below.

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

Combined Transactions. The Portfolio may enter into multiple
transactions, including multiple options transactions, multiple futures
transactions, multiple currency transactions (including forward currency
contracts) and multiple interest rate transactions, structured notes and any
combination of futures, options, currency and interest rate transactions
("combined 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.

B-11

<PAGE>

not involved although, as described above, the Portfolio will attempt to limit
its net loss exposure resulting from swaps, caps, floors and collars and other
Strategic Transactions entered into for such purposes to not more than 3% of its
net assets at any one time. The Portfolio will not sell interest rate caps or
floors where it does not own securities or other instruments providing the
income stream the Portfolio may be obligated to pay. Interest rate swaps involve
the exchange by the Portfolio with another party of their respective commitments
to pay or receive interest, e.g., an exchange of floating rate payments for
fixed rate payments with respect to a notional amount of principal. A currency
swap is an agreement to exchange cash flows on a notional amount of two or more
currencies based on the relative value differential among them and an index swap
is an agreement to swap cash flows on a notional amount based on changes in the
values of the reference indices. The purchase of a cap entitles the purchaser to
receive payments on a notional principal amount from the party selling such cap
to the extent that a specified index exceeds a predetermined interest rate or
amount. The purchase of a floor entitles the purchaser to receive payments on a
notional principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain rate of return
within a predetermined range of interest rates or values.

The Portfolio will usually enter into swaps on a net basis, i.e., the
two payment streams are netted out in a cash settlement on the payment date or
dates specified in the instrument, with the Portfolio receiving or paying, as
the case may be, only the net amount of the two payments. The Portfolio will not
enter into any swap, cap, floor or collar transaction unless, at the time of
entering into such transaction, the unsecured long-term debt of the
Counterparty, combined with any credit enhancements, is rated at least A by S&P
or Moody's or has an equivalent rating from an NRSRO or the Counterparty issues
debt that is determined to be of equivalent credit quality by the Adviser. If
there is a default by the Counterparty, the Portfolio may have contractual
remedies pursuant to the agreements related to the transaction. The swap market
has grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed. Swaps, caps,
floors and collars are considered illiquid for purposes of the Portfolio's
policy regarding illiquid securities, unless it is determined, based upon
continuing review of the trading markets for the specific security, that such
security is liquid. The Board of Trustees of the Portfolio Trust has adopted
guidelines and delegated to the Adviser the daily function of determining and
monitoring the liquidity of swaps, caps, floors and collars. The 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

B-12

<PAGE>

the position that swaps, caps, floors and collars are illiquid and are subject
to the Portfolio's limitation on investing in illiquid securities.

Eurodollar Contracts. The 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
Portfolio might use Eurodollar futures contracts and options thereon to hedge
against changes in LIBOR, to which many interest rate swaps and fixed income
instruments are linked.

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

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

B-13

<PAGE>

management or the Portfolio's ability to meet redemption requests or other
current obligations.

Money Market Instruments and Repurchase Agreements. When the Adviser
considers investments in equity securities to present excessive risks and to
maintain liquidity for redemptions, the Portfolio may invest all or a portion of
its assets in money market instruments or short-term interest-bearing
securities. It may also invest uncommitted cash in such instruments and
securities.

Money market instruments include short-term U.S. government securities,
U.S. and foreign commercial paper (promissory notes issued by corporations to
finance their short term credit needs), negotiable certificates of deposit,
nonnegotiable fixed time deposits, bankers' acceptances and repurchase
agreements.

U.S. government securities include securities which are direct
obligations of the U.S. government backed by the full faith and credit of the
United States, and securities issued by agencies and instrumentalities of the
U.S. government, which may be guaranteed by the U.S. Treasury or supported by
the issuer's right to borrow from the Treasury or may be backed by the credit of
the federal agency or instrumentality itself. Agencies and instrumentalities of
the U.S. government include, but are not limited to, Federal Land Banks, the
Federal Farm Credit Bank, the Central Bank for Cooperatives, Federal
Intermediate Credit Banks, Federal Home Loan Banks and the Federal National
Mortgage Association.

A repurchase agreement is an agreement under which the Portfolio
acquires money market instruments (generally U.S. government securities,
bankers' acceptances or certificates of deposit) from a commercial bank, broker
or dealer, subject to resale to the seller at an agreed-upon price and date
(normally the next business day). The resale price reflects an agreed-upon
interest rate effective for the period the instruments are held by the Portfolio
and is unrelated to the interest rate on the instruments. The instruments
acquired by the Portfolio (including accrued interest) must have an aggregate
market value in excess of the resale price and will be held by the Portfolio's
custodian bank until they are repurchased. The Trustees will monitor the
standards which the Adviser will use in reviewing the creditworthiness of any
party to a repurchase agreement with the Portfolio.

The use of repurchase agreements involves certain risks. For example,
if the seller defaults on its obligation to repurchase the instruments acquired
by the Portfolio at a time when their market value has declined, the Portfolio
may incur a loss. If the seller becomes insolvent or subject to liquidation or
reorganization under bankruptcy or other laws, a court may determine that the
instruments acquired by the Portfolio are collateral for a loan by the Portfolio
and therefore are subject to sale by the trustee in bankruptcy. Finally, it is
possible that the Portfolio may not be able to substantiate its interest in the
instruments it acquires. While the Trustees

B-14

<PAGE>

acknowledge these risks, it is expected that they can be controlled through
careful documentation and monitoring.

Short-Term Debt Securities. For defensive or temporary purposes, the
Portfolio may invest in investment grade money market instruments and short-term
interest-bearing securities. Such securities may be used to invest uncommitted
cash balances, to maintain liquidity to meet shareholder redemptions, or to take
a defensive position against potential stock market declines. These investments
will include U.S. Government obligations and obligations issued or guaranteed by
any U.S. Government agencies or instrumentalities, instruments of U.S. and
foreign banks (including negotiable certificates of deposit, nonnegotiable fixed
time deposits and bankers' acceptances), repurchase agreements, prime commercial
paper of U.S. and foreign companies, and debt securities that make periodic
interest payments at variable or floating rates.

Yields on debt securities depend on a variety of factors, such as
general conditions in the money and bond markets, and the size, maturity and
rating of a particular issue. Debt securities with longer maturities tend to
produce higher yields and are generally subject to greater potential capital
appreciation and depreciation. The market prices of debt securities usually vary
depending upon available yields, rising when interest rates decline and
declining when interest rates rise.

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

Investment Restrictions. The Portfolio has adopted the following
fundamental policies. The Portfolio's fundamental policies cannot be changed
unless the change is approved by a "vote of the outstanding voting securities"
of the Portfolio, which phrase as used herein means the lesser of (i) 67% or
more of the voting securities of the Portfolio present at a meeting, if the
holders of more than 50% of the outstanding voting securities of the Portfolio
are present or represented by proxy, or (ii) more than 50% of the outstanding
voting securities of the Portfolio.

As a matter of fundamental policy, the Portfolio may not:

1. Invest more than 25% of the current value of its total assets in any
single industry, provided that this restriction shall not apply to U.S.
Government securities.

B-15

<PAGE>

2. Underwrite the securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, the
Portfolio 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 the Portfolio 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 futures
contracts and options on such futures contracts and foreign currency
exchange transactions).

6. With respect to at least 75% 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 the Portfolio
may 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), and pledge its assets to an
extent not greater than 15% of the current value of its total assets to
secure such borrowings.

8. Make loans of portfolio securities, except that the Portfolio may enter
into repurchase agreements.

For purposes of the fundamental investment restriction (1) regarding
industry concentration, the adviser generally classifies issuers by industry in
accordance with classifications set forth in the Directory of Companies Filing
Annual Reports With The Securities and Exchange Commission. In the absence of
such classification or if the Adviser determines in good faith based on its own
information that the economic characteristics affecting a particular issuer make
it more appropriately considered to be engaged in a different industry, the
Adviser may classify an issuer according to its own sources. For instance,
personal credit finance companies and business credit finance companies are
deemed to be separate industries and wholly-owned finance companies are
considered to be in the industry of their parents if their activities are
primarily related to financing the activities of their parents.

The following restrictions are not fundamental policies and may be
changed by the Trustees of the Portfolio Trust without investor approval in
accordance with applicable laws, regulations or regulatory policy. The Portfolio
may not:

B-16

<PAGE>

a. Invest in the securities of an issuer for the purpose of exercising
control or management, but it may do so where it is deemed advisable to
protect or enhance the value of an existing investment.

b. Purchase the securities of any other investment company except to the
extent permitted by the 1940 Act.

c. Invest more than 15% of its net assets in securities which are
illiquid.

d. Purchase additional securities if the Portfolio's borrowings exceed 5%
of the its net assets.

If any percentage restriction described above is adhered to at the time
of investment, a subsequent increase or decrease in the percentage resulting
from a change in the value of the Portfolio's assets will not constitute a
violation of the restriction.

ITEM 14. MANAGEMENT OF THE PORTFOLIO.

Trustees and Officers of the Portfolio Trust. The Trustees and
executive officers of the Portfolio Trust are listed below. All executive
officers of the Portfolio Trust are affiliates of Standish, Ayer & Wood, Inc.,
the Portfolio's investment adviser.
<TABLE>
<CAPTION>

Position Held Principal Occupation
Name, Address and Date of Birth With Trust During Past 5 Years
- ------------------------------- ---------- -------------------
<S> <C> <C>
*D. Barr Clayson, 7/29/35 Vice President Vice President and
c/o Standish, Ayer & Wood, Inc. and Trustee Managing Director,
One Financial Center Standish, Ayer & Wood,
Boston, MA 02111 Inc.; Chairman and
Director, Standish
International Management
Company, L.P.
Samuel C. Fleming, 9/30/40 Trustee Chairman of the Board and
c/o Decision Resources, Inc. 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
Cambridge, MA 02138 Economy,
Harvard University

B-17

<PAGE>

Position Held Principal Occupation
Name, Address and Date of Birth With Trust During Past 5 Years
John H. Hewitt, 4/11/35 Trustee Trustee, The Peabody
P.O. Box 307 Foundation; Trustee,
So. Woodstock, VT 05071 Visiting Nurse Alliance of
Vermont and
New Hampshire
*Edward H. Ladd, 1/3/38 Trustee and Vice Chairman of the Board and
c/o Standish, Ayer & Wood, Inc. President Managing Director,
One Financial Center Standish, Ayer & Wood,
Boston, MA 02111 Inc. since 1990; 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
c/o Essex Street Associates Associates (family
P.O. Box 5600 investment trust officer);
Beverly Farms, MA 01915 Director, Holyoke Mutual
Insurance Company
*Richard S. Wood, 5/21/54 President and Vice President, Secretary,
c/o Standish, Ayer & Wood, Inc. Trustee and Managing Director,
One Financial Center Standish, Ayer & Wood,
Boston, MA 02111 Inc.; Executive Vice
President and Director,
Standish International
Management
Company, L.P.
James E. Hollis III, 11/21/48 Executive Vice Vice President and
c/o Standish, Ayer & Wood, Inc. President, Director, Standish, Ayer
One Financial Center Secretary and & Wood, Inc.
Boston, MA 02111 Treasurer

B-18

<PAGE>

Position Held Principal Occupation
Name, Address and Date of Birth With Trust During Past 5 Years
- ------------------------------- ---------- -------------------
Paul G. Martins, 3/10/56 Vice President Vice President, Standish,
c/o Standish, Ayer & Wood, Inc. Ayer & Wood, Inc. since
One Financial Center October 1996; formerly
Boston, MA 02111 Senior Vice President,
Treasurer and Chief
Financial Officer of Liberty
Financial Bank Group
(1993-95); prior to 1993,
Corporate Controller, The
Berkeley Financial Group
Beverly E. Banfield, 7/6/56 Vice President Vice President and
c/o Standish, Ayer & Wood, Inc. Compliance Officer,
One Financial Center Standish, Ayer & Wood,
Boston, MA 02111 Inc.; Assistant Vice
President and Compliance
Officer, Freedom Capital
Management Corp. (1989-
1992)
Lavinia B. Chase, 6/4/46 Vice President Vice President, Associate
c/o Standish, Ayer & Wood, Inc. Director, Standish, Ayer
One Financial Center & Wood, Inc.
Boston, MA 02111
Anne P. Herrmann, 1/26/56 Vice President Mutual Fund
c/o Standish, Ayer & Wood, Inc. Administrator, Standish,
One Financial Center Ayer & Wood, Inc.
Boston, MA 02111
Denise B. Kneeland, 8/19/51 Vice President Senior Operations,
c/o Standish, Ayer & Wood, Inc. Manager, Standish, Ayer
One Financial Center & Wood, Inc. since
Boston, MA 02111 December 1995, formerly
Vice President Scudder,
Stevens and Clark

*Indicates that Trustee is an interested person of the Portfolio Trust for
purposes of the 1940 Act.

</TABLE>

B-19

<PAGE>

Compensation of Trustees and Officers

The Portfolio Trust pays no compensation to the Trustees of the
Portfolio Trust that are affiliated with the Adviser or to the Portfolio Trust's
officers. None of the Trustees or officers have engaged in any financial
transactions with the Portfolio Trust or the Adviser during the year ended
December 31, 1996.

The following table sets forth all compensation paid to the Portfolio
Trust's Trustees as of the Portfolio's fiscal year ended December 31, 1996:

<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits from
Accrued as Portfolio and
Part of Other
The Portfolio's Funds in
Name of Trustee Portfolio Expenses Complex*
--------------- --------- -------- -------
<S> <C> <C> <C>
D. Barr Clayson $0 $0 $0
Samuel C. Fleming $498 $0 $49,250
Benjamin M. Friedman $460 $0 $45,500
John H. Hewitt $460 $0 $45,500
Edward H. Ladd $0 $0 $0
Caleb Loring, III $460 $0 $45,500
Richard S. Wood $0 $0 $0

* As of the date of this Statement of Additional Information there were
20 registered investment companies (or series thereof) in the fund
complex, five of which were series of the Portfolio Trust. Total
compensation is presented for the calendar year ended December 31,
1996.
</TABLE>

ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.

As of April 1, 1997, the Trustees and officers of the Portfolio Trust
as a group beneficially owned (i.e., had voting and/or investment power) less
than 1% of the then outstanding interests of the Portfolio. At April 1, 1997,
the Standish Equity Fund beneficially owned approximately 100% of the then
outstanding interests of the Portfolio and therefore controlled the Portfolio.
The Standish Equity Fund is a separate diversified series of the Standish, Ayer
& Wood Investment Trust, an open end investment company, located at One
Financial Center, Boston, MA 02111.

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<PAGE>

Registered investment companies investing in the Portfolio have
informed the Portfolio that whenever such an investor is requested to vote on
matters pertaining to the fundamental policies of the Portfolio, the investment
company will hold a meeting of shareholders and will cast its votes as
instructed by the company's shareholders.

ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES.

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

The following, constituting all of the Directors and all of the
shareholders of Standish, are the Standish controlling persons: Caleb F.
Aldrich, Nicholas S. Battelle, Walter M. Cabot, Sr., David H. Cameron, Karen K.
Chandor, D. Barr Clayson, Richard C. Doll, Dolores S. Driscoll, Mark A.
Flaherty, Maria D. Furman, James E. Hollis III, Raymond J. Kubiak, Edward H.
Ladd, Laurence A. Manchester, George W. Noyes, Arthur H. Parker, Howard B.
Rubin, Austin C. Smith, David C. Stuehr, Ralph S. Tate, and Richard S. Wood.

Certain services provided by the Adviser under the advisory agreement
are described in Part A. These services are provided without reimbursement by
the Portfolio for any costs incurred. Under the investment advisory agreement,
the Adviser is paid a fee of 0.50% of the Portfolio's average daily net asset
value. The advisory fees are payable monthly.

For the period April 26, 1996 (commencement of operations) through
December 31, 1996, the Portfolio paid $345,301 in advisory fees to the Adviser.

The Portfolio bears expenses of its operations other than those
incurred by the Adviser pursuant to the investment advisory agreement. Among
other expenses, the Portfolio will pay share pricing and shareholder servicing
fees and expenses; custodian fees and expenses; legal and auditing fees and
expenses; expenses of prospectuses, statements of additional information and
shareholder reports; registration and reporting fees and expenses; and Trustees'
fees and expenses.

B-21

<PAGE>

of voting on such approval. The investment advisory agreement may be terminated
at any time without the payment of any penalty by vote of the Trustees of the
Portfolio Trust or by the "vote of a majority of the outstanding voting
securities" of the Portfolio or by the Adviser, on sixty days' written notice to
the other parties. The investment advisory agreement terminates in the event of
its assignment as defined in the 1940 Act.

In an attempt to avoid any potential conflict with portfolio
transactions for the Portfolio, the Adviser, the Principal Underwriter, 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 Portfolio and its
investors come before those of the Adviser and its employees.

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

Custodian. Investors Bank & Trust Company, 89 South Street, Boston,
Massachusetts 02111, serves as custodian of all cash and securities of the
Portfolio.

Independent Accountants. Coopers & Lybrand, P.O. Box 219, Grand Cayman,
Cayman Islands, BWI, serves as independent accountants for the Portfolio Trust
and will audit the Portfolio's financial statements annually.

ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES.

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<PAGE>

commissions to such broker in an amount greater than the amount another firm may
charge. Research services may include (i) furnishing advice as to the value of
securities, the advisability of investing in, purchasing or selling securities,
and the availability of securities or purchasers or sellers of securities, (ii)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts, and (iii) effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement). Research services
furnished by firms through which the Portfolio effects securities transactions
may be used by the Adviser in servicing other accounts; not all of these
services may be used by the Adviser in connection with the Portfolio generating
the soft dollar credits. The investment advisory fee paid by the Portfolio 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 for the
Portfolio and another advisory account. In some cases, this procedure could have
an adverse effect on the price or the amount of securities available to the
Portfolio. In making such allocations, the main factors considered by the
Adviser will be the respective investment objectives, the relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held, and
opinions of the persons responsible for recommending the investment.

BROKERAGE COMMISSIONS

Aggregate Brokerage
Commissions Paid by the
Portfolio for portfolio
transactions*
---------------------------------------
1994 1995 1996
---- ---- ----
The Portfolio1 N/A N/A $148,871

1 At December 31, 1996, the Portfolio held the following amounts of
securities of its regular brokers or dealers: Travelers, $1,574,000.

* The Portfolio commenced operations on April 26, 1996.

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<PAGE>

ITEM 18. CAPITAL STOCK AND OTHER SECURITIES.

The Portfolio is a series of Standish, Ayer & Wood Master Portfolio, an
open-end management investment company registered under the Investment Company
Act of 1940, as amended. The Portfolio Trust was organized as a master trust
fund under the laws of the State of New York on January 18, 1996. Interests in
the Portfolio have no preemptive or conversion rights, and are fully paid and
non-assessable, except as set forth in the Prospectus. The Portfolio normally
will not hold meetings of holders of such interests except as required under the
1940 Act. The Portfolio would be required to hold a meeting of holders in the
event that at any time less than a majority of its Trustees holding office had
been elected by holders. The Trustees of the Portfolio continue to hold office
until their successors are elected and have qualified. Holders holding a
specified percentage of interests in the Portfolio may call a meeting of holders
in the Portfolio for the purpose of removing any Trustee. A Trustee of the
Portfolio may be removed upon a majority vote of the interests held by holders
in the Portfolio qualified to vote in the election. The 1940 Act requires the
Portfolio to assist its holders in calling such a meeting. Upon liquidation of
the Portfolio, holders in the Portfolio would be entitled to share pro rata in
the net assets of the Portfolio available for distribution to holders. Each
holder in the Portfolio is entitled to a vote in proportion to its percentage
interest in the Portfolio.

ITEM 19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING
OFFERED.

Beneficial interests in the Portfolio are issued solely in transactions
that are exempt from registration under the Securities Act of 1933. See "General
Description of Registrant," "Purchase of Securities Being Offered" and
"Redemption or Repurchase" in Part A.

The value of the Portfolio's net assets (i.e., the value of its
securities and other assets less its liabilities, including expenses payable or
accrued) is determined each day on which the New York Stock Exchange is open (a
"Business Day"). Currently, the New York Stock Exchange is not open on weekends,
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Each investor in the Portfolio
may add to or reduce its investment in the Portfolio on each Business Day. As of
4:00 p.m. (Eastern time) on each Business Day, the value of each investor's
interest in the Portfolio will be determined by multiplying the net asset value
of the Portfolio by the percentage representing that investor's share of the
aggregate beneficial interests in the Portfolio. Any additions or reductions
which are to be effected on that day will then be effected. The investor's
percentage of the aggregate beneficial interests in the Portfolio will then be
recomputed as the percentage equal to the fraction (i) the numerator of which is
the value of such investor's investment in the Portfolio as of 4:00 p.m. on such
day plus or minus, as the case may be, the amount of net additions

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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.

Portfolio securities are valued at the last sale prices on the exchange
or national securities market on which they are primarily traded. Securities not
listed on an exchange or national securities market, or securities for which
there were no reported transactions, are valued at the last quoted bid price.
Securities for which quotations are not readily available and all other assets
are valued at fair value as determined in good faith at the direction of the
Trustees.

Money market instruments with less than sixty days remaining to
maturity when acquired by the Portfolio are valued on an amortized cost basis.
If the Portfolio acquires a money market instrument with more than sixty days
remaining to its maturity, it is valued at current market value until the
sixtieth day prior to maturity and will then be valued at amortized cost based
upon the value on such date unless the Trustees of the Portfolio Trust determine
during such sixty-day period that amortized cost does not represent fair value.

Generally, trading in securities on foreign exchanges is substantially
completed each day at various times prior to the close of regular trading on the
New York Stock Exchange. If a security's primary exchange is outside the U.S.,
the value of such security used in computing the net asset value of the
Portfolio's shares is 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 the Portfolio'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 by the Trustees of the Portfolio Trust.

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1940 Act which limits the Portfolio's obligation to make cash redemption
payments to any investor during any 90-day period to the lesser of $250,000 or
1% of the Portfolio's net asset value at the beginning of such period. An
investor may incur brokerage costs in converting portfolio securities received
upon redemption to cash. The Portfolio intends that it will not redeem an
investor's interest in-kind except in circumstances in which the particular
investor is permitted to redeem in-kind or in the event that the particular
investor completely withdraws its interest in the Portfolio.

ITEM 20. TAX STATUS.

The Portfolio is treated as a partnership for federal income tax
purposes. As such, the Portfolio is not subject to federal income taxation.
Instead, each investor in the Portfolio that is subject to U.S. federal income
taxation must take into account, in computing its federal income tax liability
(if any), its share of the Portfolio's income, gains, losses, deductions,
credits and tax preference items, without regard to whether it has received any
cash distributions from the Portfolio. Because at least one investor in the
Portfolio has qualified and elected to be treated as a "regulated investment
company" ("RIC") under Subchapter M of the Code, the Portfolio normally must
satisfy the applicable source of income and diversification requirements in
order for this investor and any other investor that is a RIC to satisfy them.
The Portfolio will allocate at least annually among its investors the
Portfolio's net investment income, net realized capital gains, and any other
items of income, gain, loss, deduction or credit. The Portfolio will make
allocations to its investors 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 an investor that seeks to
qualify as a RIC to satisfy the tax distribution requirements that apply to the
investor and that must be satisfied in order to avoid Federal income and/or
excise tax on the investor. For purposes of applying the requirements of the
Code regarding qualification as a RIC, the investor will be deemed (i) to own
its proportionate share of each of the assets of the Portfolio and (ii) to be
entitled to the gross income of the Portfolio attributable to such share.

Limitations imposed by the Code on regulated investment companies may,
due to the fact that one or more of such companies invest in the Portfolio,
restrict the Portfolio's ability to enter into futures, options or currency
forward transactions.

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investor that is a RIC to satisfy the distribution requirements referred to
above even though no corresponding cash amounts may concurrently be received,
possibly requiring the disposition by the Portfolio of portfolio securities or
borrowing to obtain the necessary cash. Also, certain losses on transactions
involving options, futures or forward contracts and/or offsetting or successor
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 one or more of certain tax elections are available
and are made. Because the income, gains, and losses of an investor that is a RIC
consist primarily of its share of the income, gains and losses of the Portfolio,
which are directly affected by the provisions described in this paragraph, these
transactions may affect the amount, timing and character of the distributions to
shareholders by such an investor. The Portfolio will take into account the
special tax rules applicable to options, futures or forward contracts in order
to seek to minimize any potential adverse tax consequences.

The Federal income tax rules applicable to currency swaps or interest
rate swaps, caps, floors and collars are unclear in certain respects, and the
Portfolio may be required to account for these instruments under tax rules in a
manner that, under certain circumstances, may limit its transactions in these
instruments.

Foreign exchange gains and losses realized by the Portfolio in
connection with certain transactions, if any, 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 may affect the amount, timing and character of
distributions to shareholders of an investor that is a RIC. In some cases,
elections may be available that would alter this treatment. Any such
transactions that are not directly related to the Portfolio's investment in
stock or securities, possibly including speculative currency positions or
currency derivatives not used for hedging purposes, may increase the amount of
gain it is deemed to recognize from the sale of certain investments held for
less than three months. The share of such gain of an investor qualifying as a
RIC (plus any such gain the investor may realize from other sources) is limited
under the Code to less than 30% of such investor's gross income for its taxable
year, and such transactions could under future Treasury regulations produce
income not among the types of "qualifying income" from which the investor must
derive at least 90% of its gross income for its taxable year.

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of the investor's total assets at the close of any taxable year were to consist
of stock or securities of foreign corporations and the investor were to file an
election with the Internal Revenue Service. The investments of the Portfolio are
expected to be such that an investor that invests substanially all of its assets
in the Portfolio is not likely to meet this 50% requirement.

If the Portfolio acquires stock in certain foreign corporations that
receive at least 75% of their annual gross income from passive sources (such as
interest, dividends, rents, royalties or capital gain) or hold at least 50% of
their assets in investments producing such passive income ("passive foreign
investment companies"), an investor could be subject to Federal income tax and
additional interest charges on its allocable portion of "excess distributions"
actually or constructively received from such companies or gain from the actual
or deemed sale or other disposition (possibly including dispositions deemed to
occur when an investor's interest in the Portfolio is reduced by a withdrawal or
otherwise) of stock in such companies, even if all income or gain actually
realized and allocated to the investor is timely distributed to its
shareholders. An investor that is a RIC would not be able to pass through to its
shareholders any credit or deduction for such a tax. Certain elections may, if
available, ameliorate these adverse tax consequences, but any such election
could require the investor to recognize taxable income or gain without the
concurrent receipt of cash. The Portfolio may limit and/or manage stock
holdings, if any, in passive foreign investment companies to minimize each
investor's tax liability or maximize its return from these investments.

For purposes of the dividends received reduction available to
corporations, dividends, if any, received by the Portfolio from U.S. domestic
corporations in respect of the stock of such corporations held by the Portfolio,
for U.S. Federal income tax purposes, for at least a minimum holding period,
generally 46 days, and allocated to an investor that is a RIC, should be
eligible to be distributed and designated by such an investor and treated by its
corporate shareholders as qualifying dividends, subject to the limitations and
requirements applicable to such shareholders under the Code. The Portfolio's
dividend income, if any, probably will generally qualify for this deduction.

There are certain tax issues that will be relevant to only certain of
the investors, such as investors who contribute assets rather than cash to the
Portfolio. It is intended that such contributions of assets will not be taxable,
provided certain requirements are met. Such investors are advised to consult
their own tax advisors as to the tax consequences of an investment in the
Portfolio.

Non-U.S. Investors

The following is a discussion of the principal U.S. federal income tax
consequences of an investment in the Portfolio by an entity that is organized or

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established under Non-U.S. laws and that is or would be properly classified as a
corporation under the entity classification principles of U.S. tax law (a
"Foreign Investor"). This discussion assumes that, without considering the
effect, if any, of an investment in the Portfolio, the Foreign Investor will not
be engaged in a trade or business in the U.S. and that the Foreign Investor will
not have any activities in or connections with the U.S. other than its
investment in the Portfolio. This discussion also assumes that the Portfolio
will be classified as a partnership for U.S. federal income tax purposes.

The Portfolio intends to operate so as not to be considered to be
engaged in a trade or business in the U.S. under special U.S. federal income tax
provisions applicable to certain entities the principal business of which is
trading in stocks or securities for their own account. In accordance with such
provisions, the Portfolio intends to maintain its principal office outside the
U.S. and to conduct at least a substantial portion of certain of its activities
outside the U.S. If the Portfolio is not engaged in a trade or business in the
U.S., then a Foreign Investor in the Portfolio will generally not incur any U.S.
taxes in respect of the ownership or disposition of its interest in the
Portfolio, including upon the allocation or distribution to it of the ordinary
income and capital gains realized by the Portfolio, with the exception described
in the next sentence. Foreign Investors may be subject to nonresident alien
withholding tax (which would be withheld by the Portfolio or its agent and paid
to U.S. tax authorities) at the rate of 30% (or a reduced rate if an income tax
treaty rate reduction is available) on certain amounts treated as ordinary
income allocated to them by the Portfolio, except to the extent a U.S.
withholding tax exemption may be available. Such an exemption will generally be
available principally for (i) interest income that qualifies as "portfolio
interest" under U.S. tax law, (ii) other interest from certain short-term debt
obligations or bank deposits, and (iii) interest and dividends that are treated
as non-U.S. source income under the Code (e.g., in general, interest or
dividends paid with respect to the Portfolio's investments in stock or
securities of non-U.S. companies or non-U.S. governmental entities, which may be
subject to withholding or other taxes imposed by the countries in which such
issuers are located). Such an exemption will not, however, be available for
dividend income the Portfolio receives with respect to its investments in stock
of U.S. corporations, certain U.S.-source interest that does not qualify as
portfolio interest, and possibly certain other income. U.S. withholding taxes
could also apply to gains attributable to any interests held by the Portfolio in
U.S. real property other than interests held solely as a creditor, but the
Portfolio anticipates that it will generally not hold the types of interest in
U.S. real property to which these withholding taxes apply.

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Connected Income"). The tax on Effectively Connected Income would be imposed on
a net basis at the rates applicable to U.S. taxpayers generally (and the
after-tax amount of such income could also be subject to a separate branch
profits tax at a 30% rate). The Portfolio would be required to withhold tax from
the portion of its Effectively Connected Income which is allocable to Foreign
Investors at the highest rates applicable to U.S. taxpayers (whether or not
distributions are made by the Portfolio to such Foreign Investors during the
taxable year). To the extent the income of the Portfolio constitutes Effectively
Connected Income, a Foreign Investor may also be subject to U.S. federal income
tax on some or all of the gain it recognizes on the disposition of its interest
in the Portfolio. As stated above, the Portfolio intends to operate in a manner
that will not result in the Portfolio's income being treated as Effectively
Connected Income.

The U.S. nonresident alien withholding taxes which may be applicable to
a Foreign Investor's allocable share of some of the Portfolio's income might in
some cases be reduced or eliminated under a tax treaty between the U.S. and the
foreign country of which the Foreign Investor is a resident, if that country has
an income tax treaty with the U.S., the Foreign Investor qualifies for benefits
under that treaty, the treaty applies to investments made through partnership
entities like the Portfolio, and any other applicable requirements can be
satisfied. Prospective Foreign Investors should consult their tax advisors
regarding the potential applicability to them of an income tax treaty and the
procedures for qualifying for treaty benefits.

Massachusetts Taxation

A Foreign Investor or U.S. investor that is properly classified as a
corporation under U.S. federal and Massachusetts tax principles (collectively,
an "Investor") might be required to pay Massachusetts corporate excise tax if
the Investor or the Portfolio has sufficient activities in or contacts with the
Commonwealth of Massachusetts ("tax nexus") to be subject to Massachusetts
taxing jurisdiction. The Portfolio intends to conduct its operations so that it
should not have tax nexus with Massachusetts and has obtained an opinion of
Price Waterhouse LLC generally to the effect that, based on and subject to
certain assumptions and representations, an Investor that is not otherwise
subject to Massachusetts taxation will not become subject to Massachusetts
taxation solely by virtue of investing in the Portfolio. The Portfolio has also
applied for a letter ruling from the Massachusetts Department of Revenue (the
"Department") to confirm this conclusion. If the Department takes a contrary
position, the Portfolio may consider possible alternative approaches for
avoiding Massachusetts corporate tax liability for Investors. It should be noted
that, under present Massachusetts tax law, an Investor that qualifies as a RIC
under the Code will not be required to pay any Massachusetts income or
Massachusetts corporate excise or franchise tax even if tax nexus with
Massachusetts does exist as a result of investing in the Portfolio.

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ITEM 21. UNDERWRITERS.

Not applicable.

ITEM 22. CALCULATION OF PERFORMANCE DATA.

Not applicable.

ITEM 23. FINANCIAL STATEMENTS.

Investors will receive the Portfolio's unaudited semi-annual reports
and annual reports audited by the Portfolio's independent accountants. The
Portfolio's annual report to interest holders for the fiscal year ended December
31, 1996, which contains financial statements audited by Coopers & Lybrand, is
attached to and incorporated into this Part B.

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Dated April 30, 1997

STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH FIXED INCOME PORTFOLIO

PART A

THIS PART A DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE
SOLICITATION OF AN OFFER TO BUY, ANY BENEFICIAL INTERESTS IN
STANDISH FIXED INCOME PORTFOLIO.

Responses to Items 1 through 3 and 5A have been omitted pursuant to
paragraph 4 of Instruction F of the General Instructions to Form N-1A.

ITEM 4. GENERAL DESCRIPTION OF REGISTRANT.

Standish, Ayer & Wood Master Portfolio (the "Portfolio Trust") is a
no-load, open-end management investment company which was organized as a master
trust fund under the laws of the State of New York on January 18, 1996.
Beneficial interests in the Portfolio Trust are divided into separate sub-trusts
or series, each having distinct investment objectives and policies, one of
which, the Standish Fixed Income Portfolio (the "Portfolio"), is described
herein. Beneficial interests in the Portfolio are issued solely in transactions
that are exempt from registration under the Securities Act of 1933, as amended
(the "1933 Act"). Investments in the Portfolio Trust may only be made by
investment companies, insurance company separate accounts, common or commingled
trust funds or similar organizations or entities that are "accredited investors"
within the meaning of Regulation D under the 1933 Act. This Registration
Statement does not constitute an offer to sell, or the solicitation of an offer
to buy, any "security" within the meaning of the 1933 Act.

INVESTMENT OBJECTIVE AND POLICIES

Investment Objective. The 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.

Securities. Under normal market conditions, substantially all, and at
least 65%, of the Portfolio's total assets are invested in investment grade
fixed income securities. Fixed income securities in which the Portfolio invests
include bonds, notes (including structured or hybrid notes), mortgage-backed
securities, asset-backed securities, convertible securities, Eurodollar and
Yankee Dollar instruments, preferred stocks

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and money market instruments. These fixed income securities may be issued by
U.S. and foreign corporations or entities, U.S. and foreign banks, the U.S.
Government, its agencies, authorities, instrumentalities or sponsored
enterprises, and foreign governments and their political subdivisions. The
Portfolio purchases securities that pay interest on a fixed, variable, floating,
inverse floating, contingent, in-kind or deferred basis. The Portfolio may enter
into repurchase agreements and forward dollar roll transactions, may purchase
zero coupon and deferred payment securities, may buy securities on a when-issued
or delayed delivery basis and may engage in short selling. The Portfolio may
invest up to 20% of its total assets in fixed income securities of foreign
corporations and foreign governments and their political subdivisions, including
securities of issuers located in emerging markets. No more than 10% of the
Portfolio's total assets will be invested in foreign securities not subject to
currency hedging transactions back into U.S. dollars. See "Description of
Securities and Related Risks" and "Investment Techniques and Related Risks"
below for additional information.

Credit Quality. The Portfolio invests primarily in investment grade
fixed income securities. Investment grade securities are those that are rated at
least Baa by Moody's Investors Service, Inc. or BBB by Standard & Poor's Ratings
Group, Duff & Phelps, Inc. or Fitch Investors Service, Inc. or, if unrated,
determined by Standish, Ayer & Wood, Inc. ("Standish" or the "Adviser") to be of
comparable credit quality. Foreign securities in which the Portfolio invests are
rated by IBCA, Ltd., in addition to the above listed ratings organizations. IBCA
uses the same ratings system as does Standard & Poor's, Duff and Fitch. If a
security is rated differently by two or more rating agencies, Standish uses the
highest rating to compute the Portfolio's credit quality and also to determine
its rating category. In the case of unrated sovereign and subnational debt of
foreign countries, Standish may take into account, but will not rely entirely
on, the ratings assigned to the issuers of such securities. If the rating of a
security held by the Portfolio is downgraded below the minimum rating required
for the Portfolio, Standish will determine whether to retain that security in
the Portfolio's portfolio.

Securities rated Baa or P-2 by Moody's or BBB, A-2 or Duff-2 by
Standard & Poor's, Duff or Fitch are generally considered medium grade
obligations and have some speculative characteristics. Adverse changes in
economic conditions or other circumstances are more likely to weaken the medium
grade issuer's capability to pay interest and repay principal than is the case
for high grade securities. The Portfolio may invest up to 15% of its total
assets in below investment grade fixed income securities rated Ba by Moody's or
BB by Standard & Poor's, Duff or Fitch, or, if unrated, determined by Standish
to be of comparable credit quality. Below investment grade securities, commonly
referred to as "junk bonds," carry a higher degree of risk than medium grade
securities and are considered speculative by the rating agencies. Standish
attempts to select for the Portfolio those medium grade and investment grade
fixed income securities that have the potential for upgrade. The

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average dollar-weighted credit quality of the Portfolio's portfolio is expected
to be Aa according to Moody's or AA according to Standard & Poor's, Duff or
Fitch.

Maturity. Under normal market conditions, the Portfolio's average
dollar-weighted effective portfolio maturity will vary from five to thirteen
years.

DESCRIPTION OF SECURITIES
AND RELATED RISKS

GENERAL RISKS

Investments in the Portfolio involves certain risks. The Portfolio
invests primarily in fixed income securities and is subject to risks associated
with investments in such securities. These risks include interest rate risk,
default risk, call and extension risk and the risks associated with direct
investments in foreign securities. See the "Specific Risks" section below for a
description of the risks associated with foreign securities.

Interest Rate Risk. When interest rates decline, the market value of
fixed income securities tends to increase. Conversely, when interest rates
increase, the market value of fixed income securities tends to decline. The
volatility of a security's market value will differ depending upon the
security's duration, the issuer and the type of instrument.

Default Risk/Credit Risk. Investments in fixed income securities are
subject to the risk that the issuer of the security could default on its
obligations causing the Portfolio to sustain losses on such investments. A
default could impact both interest and principal payments.

Call Risk and Extension Risk. Fixed income securities may be subject to
both call risk and extension risk. Call risk exists when the issuer may exercise
its right to pay principal on an obligation earlier than scheduled which would
cause cash flows to be returned earlier than expected. This typically results
when interest rates have declined and the Portfolio will suffer from having to
reinvest in lower yielding securities. Extension risk exists when the issuer may
exercise its right to pay principal on an obligation later than scheduled which
would cause cash flows to be returned later than expected. This typically
results when interest rates have increased and the Portfolio will suffer from
the inability to invest in higher yield securities.

SPECIFIC RISKS

The following sections include descriptions of specific risks that are
associated with the Portfolio's purchase of a particular type of security or the
utilization of a specific investment technique.

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Corporate Debt Obligations. The Portfolio may invest in corporate debt
obligations and zero coupon securities issued by financial institutions and
corporations, including obligations of industrial, utility, banking and other
financial issuers. Corporate debt obligations are subject to the risk of an
issuer's inability to meet principal and interest payments on the obligations
and may also be subject to price volatility due to such factors as market
interest rates, market perception of the creditworthiness of the issuer and
general market liquidity.

U.S. Government Securities. The Portfolio may invest in U.S. Government
securities. Generally, these securities include U.S. Treasury obligations and
obligations issued or guaranteed by U.S. Government agencies, instrumentalities
or sponsored enterprises which are supported by (a) the full faith and credit of
the U.S. Treasury (such as the Government National Mortgage Association
("GNMA")), (b) the right of the issuer to borrow from the U.S. Treasury (such as
securities of the Student Loan Marketing Association), (c) the discretionary
authority of the U.S. Government to purchase certain obligations of the issuer
(such as the Federal National Mortgage Association ("FNMA") and Federal Home
Loan Mortgage Corporation ("FHLMC"), or (d) only the credit of the agency. No
assurance can be given that the U.S. Government will provide financial support
to U.S. Government agencies, instrumentalities or sponsored enterprises in the
future. U.S. Government securities also include Treasury receipts, zero coupon
bonds, deferred interest securities and other stripped U.S. Government
securities, where the interest and principal components of stripped U.S.
Government securities are traded independently ("STRIPS").

Mortgage-Backed Securities. The Portfolio may invest in privately
issued mortgage-backed securities and mortgage-backed securities issued or
guaranteed by the U.S. Government or any of its agencies, instrumentalities or
sponsored enterprises, including, but not limited to, GNMA, FNMA or FHLMC.
Mortgage- backed securities represent direct or indirect participations in, or
are collateralized by and payable from, mortgage loans secured by real property.
Mortgagors can generally prepay interest or principal on their mortgages
whenever they choose. Therefore, mortgage-backed securities are often subject to
more rapid repayment than their stated maturity date would indicate as a result
of principal prepayments on the underlying loans. This can result in
significantly greater price and yield volatility than is the case with
traditional fixed income securities. During periods of declining interest rates,
prepayments can be expected to accelerate, and thus impair the Portfolio's
ability to reinvest the returns of principal at comparable yields. Conversely,
in a rising interest rate environment, a declining prepayment rate will extend
the average life of many mortgage-backed securities, increase the Portfolio's
exposure to rising interest rates and prevent the Portfolio from taking
advantage of such higher yields.

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GNMA securities are backed by the full faith and credit of the U.S.
Government, which means that the U.S. Government guarantees that the interest
and principal will be paid when due. FNMA securities and FHLMC securities are
not backed by the full faith and credit of the U.S. Government; however, these
enterprises have the ability to obtain financing from the U.S. Treasury. See
Part B for additional descriptions of GNMA, FNMA and FHLMC certificates.

Multiple class securities include collateralized mortgage obligations
("CMOs") and Real Estate Mortgage Investment Conduit ("REMIC") pass-through or
participation certificates. CMOs provide an investor with a specified interest
in the cash flow from a pool of underlying mortgages or other mortgage-backed
securities. CMOs are issued in multiple classes, each with a specified fixed or
floating interest rate and a final scheduled distribution date. In most cases,
payments of principal are applied to the CMO classes in the order of their
respective stated maturities, so that no principal payments will be made on a
CMO class until all other classes having an earlier stated maturity date are
paid in full. A REMIC is a CMO that qualifies for special tax treatment under
the Internal Revenue Code of 1986, as amended ("Code"), and invests in certain
mortgages principally secured by interests in real property and other permitted
investments. The Portfolio does not intend to purchase residual interests in
REMICs.

Stripped mortgage-backed securities ("SMBS") are derivative multiple
class mortgage-backed securities. SMBS are usually structured with two different
classes; one that receives 100% of the interest payments and the other that
receives 100% of the principal payments from a pool of mortgage loans. If the
underlying mortgage loans experience prepayments of principal at a rate
different from what was anticipated, the Portfolio may fail to fully recoup its
initial investment in these securities. Although the market for SMBS is
increasingly liquid, certain SMBS may not be readily marketable and will be
considered illiquid for purposes of the Portfolio's limitation on investments in
illiquid securities. The market value of the class consisting entirely of
principal payments generally is unusually volatile in response to changes in
interest rates. The yields on a class of SMBS that receives all or most of the
interest from mortgage loans are generally higher than prevailing market yields
on other mortgage-backed securities because their cash flow patterns are more
volatile and there is a greater risk that the initial investment will not be
fully recouped.

Asset-Backed Securities. The Portfolio may invest in asset-backed
securities. The principal and interest payments on asset-backed securities are
collateralized by pools of assets such as auto loans, credit card receivables,
leases, installment contracts and personal property. Such asset pools are
securitized through the use of special purpose trusts or corporations. Payments
or distributions of principal and interest on asset-backed securities may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit or a pool insurance policy issued by a financial

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institution; however, privately issued obligations collateralized by a portfolio
of privately issued asset-backed securities do not involve any
government-related guaranty or insurance. Like mortgage-backed securities,
asset-backed securities are subject to more rapid prepayment of principal than
indicated by their stated maturity which may greatly increase price and yield
volatility. Asset-backed securities generally do not have the benefit of a
security interest in collateral that is comparable to mortgage assets and there
is the possibility that recoveries on repossessed collateral may not be
available to support payments on these securities.

Convertible Securities. The Portfolio may invest in convertible
securities consisting of bonds, notes, debentures and preferred stocks.
Convertible debt securities and preferred stock acquired by the Portfolio
entitle the Portfolio to exchange such instruments for common stock of the
issuer at a predetermined rate. Convertible securities are subject both to the
credit and interest rate risks associated with debt obligations and to the stock
market risk associated with equity securities.

Sovereign Debt Obligations. The Portfolio may invest in sovereign debt
obligations, which involve special risks that are not present in corporate debt
obligations. The foreign issuer of the sovereign debt or the foreign
governmental authorities that control the repayment of the debt may be unable or
unwilling to repay principal or interest when due, and the Portfolio may have
limited recourse in the event of a default. During periods of economic
uncertainty, the market prices of sovereign debt, and the Portfolio's net asset
value, to the extent it invests in such securities, may be more volatile than
prices of debt obligations of U.S. issuers. In the past, certain foreign
countries have encountered difficulties in servicing their debt obligations,
withheld payments of principal and interest and declared moratoria on the
payment of principal and interest on their sovereign debt.

Below Investment Grade Securities. The Portfolio may invest up to 15%
of its total assets in securities rated below investment grade. Fixed income
securities rated below investment grade 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 below investment grade 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. Below investment grade securities also may have less liquid
markets than higher rated securities, and their liquidity, as well as their
value, may be more severally 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 below
investment grade securities. See Part B for a detailed description of the
ratings assigned to fixed income securities by Moody's, Standard & Poor's, Duff
and Fitch.

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For the fiscal year ended December 31, 1996, the Portfolio's
investments, on an average dollar-weighted basis, calculated at the end of each
month, had the following credit quality characteristics:

Investments Percentage
U.S. Governmental 27.3%
Securities
U.S. Government 21.4%
Agency Securities
Corporate Bonds:
Aaa or AAA 5.8%
Aa or AA 3.5%
A 10.1%
Baa or BBB 18.5%
Ba or BB 13.4%
-----
100.0%

Inverse Floating Rate Securities. The Portfolio may invest in inverse
floating rate securities. The interest rate on an inverse floater resets in the
opposite direction from the market rate of interest to which the inverse floater
is indexed. An inverse floater may be considered to be leveraged to the extent
that its interest rate varies by a magnitude that exceeds the magnitude of the
change in the index rate of interest. The higher the degree of leverage of an
inverse floater, the greater the volatility of its market value.

Zero Coupon and Deferred Payment Securities. The Portfolio may invest
in zero coupon and deferred payment securities. Zero coupon securities are
securities sold at a discount to par value and on which interest payments are
not made during the life of the security. Upon maturity, the holder is entitled
to receive the par value of the security. The Portfolio is required to accrue
income with respect to these securities prior to the receipt of cash payments.
Because the Portfolio generally expects to distribute this accrued income to
interestholders, the Portfolio may have fewer assets with which to purchase
income producing securities. Deferred payment securities are securities that
remain zero coupon securities until a predetermined date, at which time the
stated coupon rate becomes effective and interest becomes payable at regular
intervals. Zero coupon and deferred payment securities may be subject to greater
fluctuation in value and may have less liquidity in the event of adverse market

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<PAGE>

conditions than comparably rated securities paying cash interest at regular
interest payment periods.

Structured or Hybrid Notes. The Portfolio may invest in structured or
hybrid notes. The distinguishing feature of a structured or hybrid note is that
the amount of interest and/or principal payable on the note is based on the
performance of a benchmark asset or market other than fixed income securities or
interest rates. Examples of these benchmarks include stock prices, currency
exchange rates and physical commodity prices. Investing in a structured note
allows the Portfolio to gain exposure to the benchmark market while fixing the
maximum loss that it may experience in the event that the market does not
perform as expected. Depending on the terms of the note, the Portfolio may
forego all or part of the interest and principal that would be payable on a
comparable conventional note; the Portfolio's loss cannot exceed this foregone
interest and/or principal. An investment in structured or hybrid notes involves
risks similar to those associated with a direct investment in the benchmark
asset.

Foreign Securities. The Portfolio may invest to a limited degree in
securities of foreign governments and companies. Investing in securities of
foreign issuers and securities denominated in foreign currencies and utilizing
foreign currency transactions involve 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
unfavorable changes in currency exchange rates, exchange control regulations
(including currency blockage), expropriation of assets of companies in which the
Portfolio invests, nationalization of such companies, imposition of withholding
or other taxes on dividend or interest payments (or, in some cases, capital
gains), and possible difficulty in obtaining and enforcing judgments against a
foreign issuer. Also, foreign securities may not be as liquid 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.
Although the Portfolio invests primarily in securities of established issuers
based in developed foreign countries, it may also invest in securities of
issuers in emerging markets countries. Investments in securities of issuers in
emerging markets countries may involve a high degree of risk and many may be
considered speculative. These investments carry all of the risks of investing in
securities of foreign issuers to a heightened degree.

The Portfolio, in connection with the purchases and sales of foreign
securities (other than those denominated in U.S. dollars), will incur
transaction costs in converting currencies. Also, brokerage costs in purchasing
and selling corporate securities in foreign securities markets are sometimes
higher than such costs in comparable transactions in domestic securities
markets, and foreign custodial costs are higher than domestic custodial costs.

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The Portfolio may enter into forward foreign currency exchange
contracts and cross currency forward contracts with banks or other foreign
currency brokers or dealers to purchase or sell foreign currencies at a future
date. The Portfolio may purchase and sell foreign currency futures contracts and
cross-currency futures contracts to seek to hedge against changes in foreign
currency exchange rates. A forward foreign currency exchange contract is a
negotiated agreement between the contracting parties to exchange a specified
amount of currency at a specified future time at a specified rate. A
cross-currency forward contract is a forward contract that uses one currency
which historically moves in relation to a second currency to hedge against
changes in that second currency. See "Strategic Transactions" within the
"Investment Techniques and Related Risks" section for a further discussion of
the risks associated with currency transactions.

Eurodollar and Yankee Dollar Investments. The Portfolio may invest in
Eurodollar and Yankee Dollar instruments. Eurodollar instruments are bonds of
foreign corporate and government issuers that pay interest and principal in U.S.
dollars held in banks outside the United States, primarily in Europe. Yankee
Dollar instruments are U.S. dollar denominated bonds typically issued in the
U.S. by foreign governments and their agencies and foreign banks and
corporations. These investments involve risks that are different from
investments in securities issued by U.S. issuers, including potential
unfavorable political and economic developments, foreign withholding or other
taxes, seizure of foreign deposits, currency controls, interest limitations or
other governmental restrictions which might affect payment of principal or
interest.

Tax-Exempt Securities. The Portfolio is managed without regard to
potential tax consequences. If Standish believes that tax-exempt securities will
provide competitive returns, the Portfolio may invest up to 10% of its total
assets in tax-exempt securities.

INVESTMENT TECHNIQUES
AND RELATED RISKS

Strategic Transactions. The Portfolio may, but is not required to,
utilize various investment strategies to seek to hedge market risks (such as
interest rates, currency exchange rates and broad or specific 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
Portfolio may change over time as new instruments and strategies are developed
or regulatory changes occur.

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contracts and options thereon; enter into various interest rate transactions
such as swaps, caps, floors or collars; and enter into currency transactions
such as forward foreign currency exchange contracts, currency futures contracts,
currency swaps and options on currencies or currency futures (collectively, all
the above are called "Strategic Transactions"). Strategic Transactions may be
used in an attempt to protect against possible changes in the market value of
securities held in or to be purchased for the Portfolio's portfolio resulting
from securities markets, currency exchange rate or interest rate fluctuations,
to seek to protect the Portfolio's unrealized gains in the value of portfolio
securities, to facilitate the sale of such securities for investment purposes,
to seek to manage the effective maturity or duration of the Portfolio's
portfolio, or to establish a position in the derivatives markets as a temporary
substitute for purchasing or selling particular securities. In addition to the
hedging transactions referred to in the preceding sentence, Strategic
Transactions may also be used to enhance potential gain in circumstances where
hedging is not involved.

The ability of the Portfolio to utilize Strategic Transactions
successfully will depend on Standish's ability to predict pertinent market and
interest rate movements, which cannot be assured. The Portfolio will comply with
applicable regulatory requirements when implementing these strategies,
techniques and instruments. The Portfolio's activities involving Strategic
Transactions may be limited in order to enable certain investors in the
Portfolio to comply with the requirements of 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 Standish's view as to certain market, interest rate or currency movements
is incorrect, the risk that the use of such Strategic Transactions could result
in losses greater than if they had not been used. The writing of put and call
options may result in losses to the Portfolio, force the purchase or sale,
respectively, of portfolio securities at inopportune times or for prices higher
than (in the case of purchases due to the exercise of put options) or lower than
(in the case of sales due to the exercise of call options) current market
values, limit the amount of appreciation the Portfolio can realize on its
investments or cause the Portfolio to hold a security it might otherwise sell.

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may have no markets. As a result, in certain markets, the Portfolio might not be
able to close out a transaction without incurring substantial losses. Losses
resulting from the use of Strategic Transactions could reduce net asset value
and the net result may be less favorable than if the Strategic Transactions had
not been utilized. Although the use of futures and options transactions for
hedging and managing effective maturity and duration should tend to minimize the
risk of loss due to a decline in the value of the position, at the same time,
such transactions can limit any potential gain which might result from an
increase in value of such position. The loss incurred by the Portfolio in
writing options on futures and entering into futures transactions is potentially
unlimited.

When-Issued and Delayed Delivery Securities. The Portfolio may invest
up to 15% of its net assets in when-issued and delayed delivery securities.
Although the Portfolio will generally purchase securities on a when-issued or
delayed delivery basis with the intention of actually acquiring the securities,
the Portfolio may dispose of these securities prior to settlement if Standish
deems it appropriate to do so. The payment obligation and interest rate on these
securities is fixed at the time the Portfolio enters into the commitment, but no
income will accrue to the Portfolio until they are delivered and paid for.
Unless the Portfolio has entered into an offsetting agreement to sell the
securities, cash or liquid assets equal to the amount of the Portfolio's
commitment must be segregated and maintained with the Portfolio's custodian to
secure the Portfolio's obligation and to partially offset the leverage inherent
in these securities. The market value of the securities when they are delivered
may be less than the amount paid by the Portfolio.

Repurchase Agreements. The Portfolio may invest up to 5% of its net
assets in repurchase agreements. In a repurchase agreement, the Portfolio buys a
security at one price and simultaneously agrees to sell it back at a higher
price. Delays or losses could result if the other party to the agreement
defaults or becomes insolvent. Repurchase agreements acquired by the Portfolio
will always be fully collateralized as to principal and interest by money market
instruments and will be entered into only with commercial banks, brokers and
dealers considered creditworthy by Standish.

Forward Roll Transactions. To seek to enhance current income, the
Portfolio may invest up to 10% of its net assets in forward roll transactions
involving mortgage-backed securities. In a forward roll transaction, the
Portfolio sells a

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<PAGE>

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, the 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 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 the Portfolio may decline below the repurchase price of those securities. At
the time that the Portfolio enters into a forward roll transaction, it will
place cash or liquid assets in a segregated account that is marked to market
daily having a value equal to the repurchase price (including accrued interest).

Leverage. The use of forward roll transactions involves leverage.
Leverage allows any investment gains made with the additional monies received
(in excess of the costs of the forward roll transaction or reverse repurchase
agreement) to increase the net asset value of the Portfolio's shares 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 the Portfolio, the net asset value of the Portfolio would fall
faster than would otherwise be the case.

Short Sales. The Portfolio may engage in short sales and short sales
against the box. In a short sale, the Portfolio sells a security it does not own
in anticipation of a decline in the market value of that security. In a short
sale against the box, the Portfolio either owns or has the right to obtain at no
extra cost the security sold short. The broker holds the proceeds of the short
sale until the settlement date, at which time the Portfolio delivers the
security (or an identical security) to cover the short position. The Portfolio
receives the net proceeds from the short sale. When the Portfolio enters into a
short sale other than against the box, the Portfolio must first borrow the
security to make delivery to the buyer and must place cash or liquid assets in a
segregated account with the Portfolio's custodian that is marked to market
daily. Short sales other than against the box involve unlimited exposure to
loss. No securities will be sold short if, after giving effect to any such short
sale, the total market value of all securities sold short would exceed 5% of the
value of the Portfolio's net assets.

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<PAGE>

with a notice or demand period of more than seven days, certain SMBS, swap
transactions, certain over-the-counter options and certain restricted
securities. Based upon continuing review of the trading markets for a specific
restricted security, the security may be determined to be eligible for resale to
qualified institutional buyers pursuant to Rule 144A under the Securities Act of
1933 and, therefore, to be liquid. Also, certain illiquid securities may be
determined to be liquid if they are found to satisfy certain relevant liquidity
requirements.

The Board of Trustees has adopted guidelines and delegated to Standish
the daily function of determining and monitoring the liquidity of portfolio
securities, including restricted and illiquid securities. The Board of Trustees,
however, retains oversight and is ultimately responsible for such
determinations. The purchase price and subsequent valuation of illiquid
securities normally reflect a discount, which may be significant, from the
market price of comparable securities for which a liquid market exists.

Portfolio Turnover. A high rate of portfolio turnover (100% or more)
involves correspondingly higher transaction costs which must be borne directly
by the Portfolio and thus indirectly by its shareholders. It may also result in
the Portfolio's realization of larger amounts of short-term capital gains and
may, under certain circumstances, make it more difficult for an investor in the
Portfolio's to qualify as a regulated investment company ("RIC") under the Code.
See the Portfolio's annual report for the Portfolio's portfolio turnover rates.

Short-Term Trading. The Portfolio will sell a portfolio security
without regard to the length of time such security has been held if, in
Standish's view, the security meets the criteria for disposal.

Temporary Defensive Investments. The Portfolio may adopt a temporary
defensive position during adverse market conditions by investing without limit
in high quality money market instruments, including short-term U.S. Government
securities, negotiable certificates of deposit, non-negotiable fixed time
deposits, bankers' acceptances, commercial paper, floating-rate notes and
repurchase agreements. The Portfolio may purchase commercial paper of foreign
issuers rated P-1 or its equivalent.

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<PAGE>

any percentage restriction is adhered to at the time of investment, a subsequent
increase or decrease in the percentage resulting from a change in the value of
the Portfolio's assets will not constitute a violation of the restriction.

ITEM 5. MANAGEMENT OF THE FUND.

Trustees. The Portfolio is a separate investment series of Standish, Ayer & Wood
Master Portfolio, a master trust fund organized under the laws of the State of
New York. Under the terms of the Declaration of Trust, the affairs of the
Portfolio are managed under the supervision of the Trustees of the Portfolio
Trust.

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

The Adviser provides fully discretionary management services and
counseling and advisory services to a broad range of clients throughout the
United States and abroad. As of February 28, 1997, Standish or its affiliate,
Standish International Management Company, L.P. ("SIMCO"), managed approximately
$30 billion of assets.

The Portfolio's portfolio manager is Caleb F. Aldrich. Mr. Aldrich has
been primarily responsible for the day-to-day management of the Standish Fixed
Income Fund's portfolio since January 1, 1993 and of the Portfolio's portfolio
since the Standish Fixed Income Fund's conversion to the master-feeder structure
on May 3, 1996. During the past five years, Mr. Aldrich has served as a Director
and Vice President of Standish.

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<PAGE>

$250 million, to 0.35% on the next $250 million and to 0.30% on amounts over
$500 million.

Administrator of the Portfolio. IBT Trust Company (Cayman) Ltd., P.O. Box 501,
Grand Cayman, Cayman Islands, BWI, serves as the administrator to the Portfolio
(the "Portfolio Administrator") pursuant to a written administration agreement
with the Portfolio Trust on behalf of the Portfolio. The Portfolio Administrator
provides the Portfolio Trust with office space for managing its affairs, and
with certain clerical services and facilities. For its services to the Portfolio
Trust, the Portfolio Administrator will receive a fee from the Portfolio in the
amount of $7,500 annually.

Expenses. The Portfolio bears the expenses of its operations other than those
incurred by Standish under the investment advisory agreement. Among other
expenses, the Portfolio pays investment advisory fees; bookkeeping, share
pricing and custodian fees and expenses; expenses of notices and reports to
interest-holders; expenses of the Portfolio's administrator; legal and auditing
fees; any registration and reporting fees and expenses; and Trustees' fees and
expenses. Expenses of the Portfolio Trust which relate to more than one of its
series are allocated among such series by the Adviser and SIMCO in an equitable
manner, primarily on the basis of relative net asset values.

Portfolio Transactions. Subject to the supervision of the Trustees of the
Portfolio Trust, the Adviser selects the brokers and dealers that execute orders
to purchase and sell portfolio securities for the Portfolio. The Adviser will
generally seek to obtain the best available price and most favorable execution
with respect to all transactions for the Portfolio. The Adviser may also
consider the extent to which a broker or dealer provides research to the
Adviser.

ITEM 6. CAPITAL STOCK AND OTHER SECURITIES.

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<PAGE>

circumstances in which both inadequate insurance existed and the Portfolio
itself was unable to meet its obligations.

Investments in the Portfolio have no pre-emptive or conversion rights
and are fully paid and non-assessable, except as set forth above. The Portfolio
Trust is not required and has no current intention to hold annual meetings of
investors, but the Portfolio Trust will hold special meetings of investors when
in the judgment of the Trustees it is necessary or desirable to submit matters
for an investor vote. Changes in fundamental policies will be submitted to
investors for approval. Investors have under certain circumstances (e.g. upon
application and submission of certain specified documents to the Trustees by a
specified percentage of the aggregate value of the Portfolio Trust's outstanding
interests) the right to communicate with other investors in connection with
requesting a meeting of investors for the purpose of removing one or more
Trustees. Investors also have the right to remove one or more Trustees without a
meeting by a declaration in writing by a specified number of investors. Upon
liquidation of a Portfolio, investors would be entitled to share pro rata in the
net assets of the Portfolio available for distribution to investors.

Please see Item 7 for a discussion of the Portfolio's dividend policy.

ITEM 7. PURCHASE OF SECURITIES BEING OFFERED.

Beneficial interests in the Portfolio are issued solely in transactions
that are exempt from registration under the 1933 Act. See "General Description
of Registrant" above.

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order to enhance the yield on its assets, investments must be made in federal
funds (i.e., monies credited to the account of the Portfolio Trust's custodian
bank by a Federal Reserve Bank). The Portfolio Trust reserves the right to cease
accepting investments in the Portfolio at any time or to reject any investment
order.

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 a pricing service or
provided by dealers in such securities. Securities not listed on an exchange or
national securities market, certain mortgage-backed and asset-backed securities
and securities for which there were no reported transactions are valued at the
last quoted bid prices. Fixed income securities for which accurate market prices
are not readily available and all other assets are valued at fair value as
determined in good faith by Standish in accordance with procedures approved by
the Trustees, which may include the use of yield equivalents or matrix pricing.
Money market instruments with less than sixty days remaining to maturity when
acquired by the Portfolio are valued on an amortized cost basis unless the
Trustees determine that amortized cost does not represent fair value. If the
Portfolio acquires a money market instrument with more than sixty days remaining
to its maturity, it is valued at current market value until the sixtieth day
prior to maturity and will then be valued at amortized cost based upon the value
on such date unless the Trustees determine during such sixty-day period that
amortized cost does not represent fair value.

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Portfolio. The percentage so determined will then be applied to determine the
value of the investor's interest in the Portfolio as of the Valuation Time, on
the following Business Day.

ITEM 8. REDEMPTION OR REPURCHASE.

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such exchange is restricted, or, to the extent otherwise permitted by the 1940
Act, if an emergency exists.

ITEM 9. PENDING LEGAL PROCEEDINGS.

Not applicable.

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APPENDIX

MOODY'S RATINGS DEFINITIONS
FOR CORPORATE BONDS AND
SOVEREIGN, SUBNATIONAL AND
SOVEREIGN RELATED ISSUES

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

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

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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
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

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- - 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

BBB-- Political factors a source of significant 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

- - Economies less prosperous and
often more vulnerable to adverse
external influences

- - Variable to high fiscal deficits,
government debt and inflation

- - High and variable external 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

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

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.

- - 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.

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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.

FITCH INVESTORS SERVICE, INC.
LONG-TERM DEBT RATING
DEFINITIONS

AAA - Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.

AA - Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the AAA
and AA categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated F-1+.

A - Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

BBB - Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.

BB - Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.

B - Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.

A-23

<PAGE>

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 currently 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
Portfolio uses the foreign currency or domestic (local) currency rating
depending upon how a security in the portfolio 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 the 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.

A-24

<PAGE>

Dated April 30, 1997

STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH FIXED INCOME PORTFOLIO

PART B

ITEM 10. COVER PAGE.

This Part B expands upon and supplements the information contained in
Part A of Standish Fixed Income Portfolio (the "Portfolio"), a separate
investment series of Standish, Ayer & Wood Master Portfolio (the "Portfolio
Trust"). This Part B should be read in conjunction with such Part A. NEITHER
PART A NOR THIS PART B CONSTITUTES AN OFFER TO SELL, OR THE SOLICITATION OF AN
OFFER TO BUY, ANY BENEFICIAL INTERESTS IN THE STANDISH FIXED INCOME PORTFOLIO.

ITEM 11. TABLE OF CONTENTS. PAGE

General Information and History...................................... B-1
Investment Objective and Policies.................................... B-1
Management of the Portfolio.......................................... B-23
Control Persons and Principal Holders of Securities.................. B-26
Investment Advisory and Other Services............................... B-27
Brokerage Allocation and Other Practices............................. B-29
Capital Stock and Other Securities................................... B-30
Purchase, Redemption and Pricing of Securities Being Offered......... B-30
Tax Status........................................................... B-32
Underwriters......................................................... B-37
Calculation of Performance Data...................................... B-37
Financial Statements................................................. B-38

ITEM 12. GENERAL INFORMATION AND HISTORY.

Not applicable.

ITEM 13. INVESTMENT OBJECTIVE AND POLICIES.

B-1

<PAGE>

portfolio strategies that the Portfolio may utilize and certain risks attendant
to those investments, policies and strategies.

Maturity and Duration

The effective maturity of an individual portfolio security in which the
Portfolio invests is defined as the period remaining until the earliest date
when the Portfolio can recover the principal amount of such security through
mandatory redemption or prepayment by the issuer, the exercise by the Portfolio
of a put option, demand feature or tender option granted by the issuer or a
third party or the payment of the principal on the stated maturity date. The
effective maturity of variable rate securities is calculated by reference to
their coupon reset dates. Thus, the effective maturity of a security may be
substantially shorter than its final stated maturity. Unscheduled prepayments of
principal have the effect of shortening the effective maturities of securities
in general and mortgage-backed securities in particular. Prepayment rates are
influenced by changes in current interest rates and a variety of economic,
geographic, social and other factors and cannot be predicted with certainty. In
general, securities, such as mortgage-backed securities, may be subject to
greater prepayment rates in a declining interest rate environment. Conversely,
in an increasing interest rate environment, the rate of prepayment may be
expected to decrease. A higher than anticipated rate of unscheduled principal
prepayments on securities purchased at a premium or a lower than anticipated
rate of unscheduled payments on securities purchased at a discount may result in
a lower yield (and total return) to the Portfolio than was anticipated at the
time the securities were purchased. The Portfolio's reinvestment of unscheduled
prepayments may be made at rates higher or lower than the rate payable on such
security, thus affecting the return realized by the Portfolio.

Duration of an individual portfolio security is a measure of the
security's price sensitivity taking into account expected cash flow and
prepayments under a wide range of interest rate scenarios. In computing the
duration of its portfolio, the Portfolio will have to estimate the duration of
obligations that are subject to prepayment or redemption by the issuer taking
into account the influence of interest rates on prepayments and coupon flows.
The Portfolio may use various techniques to shorten or lengthen the
option-adjusted duration of its portfolio, including the acquisition of debt
obligations at a premium or discount, and the use of mortgage swaps and interest
rate swaps, caps, floors and collars.

Money Market Instruments and Repurchase Agreements

Money market instruments include short-term U.S. 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.

B-2

<PAGE>

U.S. Government securities include securities which are direct
obligations of the U.S. Government backed by the full faith and credit of the
United States and securities issued by agencies and instrumentalities of the
U.S. Government which may be guaranteed by the U.S. Treasury or supported by the
issuer's right to borrow from the U.S. Treasury or may be backed by the credit
of the federal agency or instrumentality itself. Agencies and instrumentalities
of the U.S. Government include, but are not limited to, Federal Land Banks, the
Federal Farm Credit Bank, the Central Bank for Cooperatives, Federal
Intermediate Credit Banks, Federal Home Loan Banks and the Federal National
Mortgage Association.

Investments in commercial paper by the Portfolio will be rated Prime-1
by Moody's Investors Service, Inc. ("Moody's") or A-1 by Standard & Poor's
Ratings Group ("S&P") or Duff 1+ by Duff & Phelps, which are the highest ratings
assigned by these rating services (even if rated lower by one or more of the
other agencies), or which, if not rated or rated lower by one or more of the
agencies and not rated by the other agency or agencies, are judged by Standish,
Ayer & Wood, Inc. ("Standish" or the "Adviser") to be of equivalent quality to
the securities so rated.

A repurchase agreement is an agreement under which the Portfolio
acquires money market instruments (generally U.S. Government securities) from a
commercial bank, broker or dealer, subject to resale to the seller at an
agreed-upon price and date (normally the next business day). The resale price
reflects an agreed-upon interest rate effective for the period the instruments
are held by the Portfolio and is unrelated to the interest rate on the
instruments. The instruments acquired by the Portfolio (including accrued
interest) must have an aggregate market value in excess of the resale price and
will be held by the custodian bank for the Portfolio until they are repurchased.
In evaluating whether to enter into a repurchase agreement, the Portfolio will
carefully consider the credit worthiness of the seller pursuant to procedures
reviewed and approved by the Board of Trustees of the Portfolio Trust.

B-3

<PAGE>

Structured or Hybrid Notes

As more fully described in Part A, the Portfolio may invest in
structured or hybrid notes. It is expected that not more than 5% of the
Portfolio's net assets will be at risk as a result of such investments. In
addition to the risks associated with a direct investment in the benchmark
asset, investments in structured and hybrid notes involve the risk that the
issuer or counterparty to the obligation will fail to perform its contractual
obligations. Certain structured or hybrid notes may also be leveraged to the
extent that the magnitude of any change in the interest rate or principal
payable on the benchmark asset is a multiple of the change in the reference
price. Leverage enhances the price volatility of the security and, therefore,
the Portfolio's net asset value. Further, certain structured or hybrid notes may
be illiquid for purposes of the Portfolio's limitation on investments in
illiquid securities.

Mortgage-Related Obligations

Some of the characteristics of mortgage-related obligations and the
issuers or guarantors of such securities are described below.

Life of Mortgage-Related Obligations

The average life of mortgage-related obligations is likely to be
substantially less than the stated maturities of the mortgages in the mortgage
pools underlying such securities. Prepayments or refinancing of principal by
mortgagors and mortgage foreclosures will usually result in the return of the
greater part of principal invested long before the maturity of the mortgages in
the pool.

As prepayment rates of individual mortgage pools will vary widely, it
is not possible to predict accurately the average life of a particular issue of
mortgage-related obligations. However, with respect to GNMA Certificates,
statistics published by the FHA are normally used as an indicator of the
expected average life of an issue. The actual life of a particular issue of GNMA
Certificates, however, will depend on the coupon rate of the financing.

GNMA Certificates

The Government National Mortgage Association ("GNMA") was established
in 1968 when the Federal National Mortgage Association ("FNMA") was separated
into two organizations, GNMA and FNMA. GNMA is a wholly-owned government
corporation within the Department of Housing and Urban Development. GNMA
developed the first mortgage-backed pass-through instruments in 1970 for Farmers
Home Administration-FHMA-insured, Federal Housing Administration-FHA-insured and
for Veterans Administration-or VA-guaranteed mortgages ("government mortgages").

B-4

<PAGE>

GNMA purchases government mortgages and occasionally conventional
mortgages to support the housing market. GNMA is known primarily, however, for
its role as guarantor of pass-through securities collateralized by government
mortgages. Under the GNMA securities guarantee program, government mortgages
that are pooled must be less than one year old by the date GNMA issues its
commitment. Loans in a single pool must be of the same type in terms of interest
rate and maturity. The minimum size of a pool is $1 million for single-family
mortgages and $500,000 for manufactured housing and project loans.

Under the GNMA II program, loans with different interest rates can be
included in a single pool and mortgages originated by more than one lender can
be assembled in a pool. In addition, loans made by a single lender can be
packaged in a custom pool (a pool containing loans with specific characteristics
or requirements).

GNMA Guarantee

The National Housing Act authorizes GNMA to guarantee the timely
payment of principal of and interest on securities backed by a pool of mortgages
insured by FHA or FHMA, or guaranteed by VA. The GNMA guarantee is backed by the
full faith and credit of the United States. GNMA is also empowered to borrow
without limitation from the U.S. Treasury if necessary to make any payments
required under its guarantee.

Yield Characteristics of GNMA Certificates

The coupon rate of interest on GNMA Certificates is lower than the
interest rate paid on the VA-guaranteed, FHMA-insured or FHA-insured mortgages
underlying the Certificates, but only by the amount of the fees paid to GNMA and
the issuer. For the most common type of mortgage pool, containing single-family
dwelling mortgages, GNMA receives an annual fee of 0.06% of the outstanding
principal for providing its guarantee, and the issuer is paid an annual fee of
0.44% for assembling the mortgage pool and for passing through monthly payments
of interest and principal to GNMA Certificate holders.

The coupon rate by itself, however, does not indicate the yield which
will be earned on the GNMA Certificates for several reasons. First, GNMA
Certificates may be issued at a premium or discount, rather than at par, and,
after issuance, GNMA Certificates may trade in the secondary market at a premium
or discount. Second, interest is paid monthly, rather than semi-annually as with
traditional bonds. Monthly compounding has the effect of raising the effective
yield earned on GNMA Certificates. Finally, the actual yield of each GNMA
Certificate is influenced by the prepayment experience of the mortgage pool
underlying the GNMA Certificate. If mortgagors prepay their mortgages, the
principal returned to GNMA Certificate holders may be reinvested at higher or
lower rates.

B-5

<PAGE>

Market for GNMA Certificates

Since the inception of the GNMA mortgage-backed securities program in
1970, the amount of GNMA Certificates outstanding has grown rapidly. The size of
the market and the active participation in the secondary market by securities
dealers and many types of investors make the GNMA Certificates a highly liquid
instrument. Prices of GNMA Certificates are readily available from securities
dealers and depend on, among other things, the level of market rates, the GNMA
Certificate's coupon rate and the prepayment experience of the pools of
mortgages backing each GNMA Certificate.

FHLMC Participation Certificates

The Federal Home Loan Mortgage Corporation ("FHLMC") was created by the
Emergency Home Finance Act of 1970. It is a private corporation, initially
capitalized by the Federal Home Loan Bank System, charged with supporting the
mortgage lending activities of savings and loan associations by providing an
active secondary market for conventional mortgages. To finance its mortgage
purchases, FHLMC issues FHLMC Participation Certificates and Collateralized
Mortgage Obligations ("CMOs").

Participation Certificates represent an undivided interest in a pool of
mortgage loans. FHLMC purchases whole loans or participations on 30-year and
15-year fixed-rate mortgages, adjustable-rate mortgages ("ARMs") and home
improvement loans. Under certain programs, it will also purchase FHA and VA
mortgages.

Loans pooled for FHLMC must have a minimum coupon rate equal to the
Participation Certificate rate specified at delivery, plus a required spread for
the corporation and a minimum servicing fee, generally 0.375% (37.5 basis
points). The maximum coupon rate on loans is 2% (200 basis points) in excess of
the minimum eligible coupon rate for Participation Certificates. FHLMC requires
a minimum commitment of $1 million in mortgages but imposes no maximum amount.
Negotiated deals require a minimum commitment of $10 million. FHLMC guarantees
timely payment of the interest and the ultimate payment of principal of its
Participation Certificates. This guarantee is backed by reserves set aside to
protect against losses due to default. The FHLMC CMO is divided into varying
maturities with prepayment set specifically for holders of the shorter term
securities. The CMO is designed to respond to investor concerns about early
repayment of mortgages.

FHLMC's CMOs are general obligations, and FHLMC will be required to use
its general funds to make principal and interest payments on CMOs if payments
generated by the underlying pool of mortgages are insufficient to pay principal
and interest on the CMO.

B-6

<PAGE>

A CMO is a cash-flow bond in which mortgage payments from underlying
mortgage pools pay principal and interest to CMO bondholders. The CMO is
structured to address two major shortcomings associated with traditional
pass-through securities: payment frequency and prepayment risk. Traditional
pass-through securities pay interest and amortized principal on a monthly basis
whereas CMOs normally pay principal and interest semi-annually. In addition,
mortgage-backed securities carry the risk that individual mortgagors in the
mortgage pool may exercise their prepayment privileges, leading to irregular
cash flow and uncertain average lives, durations and yields.

A typical CMO structure contains four tranches, which are generally
referred to as classes A, B, C and Z. Each tranche is identified by its coupon
and maturity. The first three classes are usually current interest-bearing bonds
paying interest on a quarterly or semi-annual basis, while the fourth, Class Z,
is an accrual bond. Amortized principal payments and prepayments from the
underlying mortgage collateral redeem principal of the CMO sequentially;
payments from the mortgages first redeem principal on the Class A bonds. When
principal of the Class A bonds has been redeemed, the payments then redeem
principal on the Class B bonds. This pattern of using principal payments to
redeem each bond sequentially continues until the Class C bonds have been
retired. At this point, Class Z bonds begin paying interest and amortized
principal on their accrued value.

The final tranche of a CMO is usually a deferred interest bond,
commonly referred to as the Z bond. This bond accrues interest at its coupon
rate but does not pay this interest until all previous tranches have been fully
retired. While earlier classes remain outstanding, interest accrued on the Z
bond is compounded and added to the outstanding principal. The deferred interest
period ends when all previous tranches are retired, at which point the Z bond
pays periodic interest and principal until it matures. The Adviser would
purchase a Z bond for the Portfolio if it expected interest rates to decline.

FNMA Securities

FNMA was created by the National Housing Act of 1938. In 1968, the
agency was separated into two organizations, GNMA to support a secondary market
for government mortgages and FNMA to act as a private corporation supporting the
housing market.

FNMA pools may contain fixed-rate conventional loans on
one-to-four-family properties. Seasoned FHA and VA loans, as well as
conventional growing equity mortgages, are eligible for separate pools. FNMA
will consider other types of loans for securities pooling on a negotiated basis.
A single pool may include mortgages with different loan-to-value ratios and
interest rates, though rates may not vary beyond two percentage points.

B-7

<PAGE>

Privately-Issued Mortgage Loan Pools

Savings associations, commercial banks and investment bankers issue
pass-through securities secured by a pool of mortgages.

Generally, only conventional mortgages on single-family properties are
included in private issues, though seasoned loans and variable rate mortgages
are sometimes included. Private placements allow purchasers to negotiate terms
of transactions. Maximum amounts for individual loans may exceed the loan limit
set for government agency purchases. Pool size may vary, but the minimum is
usually $20 million for public offerings and $10 million for private placements.

Privately-issued mortgage-related obligations do not carry government
or quasi-government guarantees. Rather, mortgage pool insurance generally is
used to insure against credit losses that may occur in the mortgage pool. Pool
insurance protects against credit losses to the extent of the coverage in force.
Each mortgage, regardless of original loan-to-value ratio, is insured to 100% of
principal, interest and other expenses, to a total aggregate loss limit stated
on the policy. The aggregate loss limit of the policy generally is 5% to 7% of
the original aggregate principal of the mortgages included in the pool.

In addition to the insurance coverage to protect against defaults on
the underlying mortgages, mortgage-backed securities can be protected against
the nonperformance or poor performance of servicers. Performance bonding of
obligations such as those of the servicers under the origination, servicing or
other contractual agreement will protect the value of the pool of insured
mortgages and enhance the marketability.

The rating received by a mortgage security will be a major factor in
its marketability. For public issues, a rating is always required, but it may be
optional for private placements depending on the demands of the marketplace and
investors.

Before rating an issue, a rating agency such as Standard & Poor's or
Moody's will consider several factors, including: the credit worthiness of the
issuer; the issuer's track record as an originator and servicer; the type, term
and characteristics of the mortgages, as well as loan-to-value ratio and loan
amounts; the insurer and the level of mortgage insurance and hazard insurance
provided. Where an equity reserve account or letter of credit is offered, the
rating agency will also examine the adequacy of the reserve and the strength of
the issuer of the letter of credit.

Strategic Transactions

The Portfolio may, but is not required to, utilize various other
investment strategies as described below to seek to hedge various market risks,
to manage the

B-8

<PAGE>

effective maturity or duration of fixed-income securities, or to enhance
potential gain. Such strategies are generally accepted as part of modern
portfolio management and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments used by the Portfolio may
change over time as new instruments and strategies are developed or regulatory
changes occur.

In the course of pursuing its investment objectives, the Portfolio 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 for the Portfolio's portfolio resulting from general market, interest
rate or currency exchange rate fluctuations, to protect the Portfolio's
unrealized gains in the value of its portfolio securities, to facilitate the
sale of such securities for investment purposes, to manage effective maturity or
duration, or to establish a position in the derivatives markets as a temporary
substitute for purchasing or selling particular securities. In addition to the
hedging transactions referred to in the preceding sentence, Strategic
Transactions may also be used to enhance potential gain in circumstances where
hedging is not involved although the Portfolio will attempt to limit its net
loss exposure from Strategic Transaction entered into for non-hedging purposes
to 3% of its net assets. (Transactions such as writing covered call options are
considered to involve hedging for the purposes of this limitation.) In
calculating the Portfolio's net loss exposure from such Strategic Transactions,
an unrealized gain from a particular Strategic Transaction position would be
netted against an unrealized loss from a related Strategic Transaction position.
For example, if the Adviser believes that short-term interest rates as indicated
in the forward yield curve are too high, the Portfolio may take a short position
in a near-term Eurodollar futures contract and a long position in a longer-dated
Eurodollar futures contract. Under such circumstances, any unrealized loss in
the near-term Eurodollar futures position would be netted against any unrealized
gain in the longer-dated Eurodollar futures position (and vice versa) for
purposes of calculating the Portfolio's net loss exposure. The ability of the
Portfolio to utilize these Strategic Transactions successfully will depend on
the Adviser's ability to predict pertinent market and interest rate movements,
which cannot be assured. The Portfolio will comply with applicable regulatory
requirements when implementing these strategies, techniques and instruments. The
Portfolio's activities involving Strategic Transactions may be limited in order
to enable certain investors in the Portfolio to comply with the requirements of
Subchapter M of the Code, for qualification as regulated investment companies.

B-9

<PAGE>

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

General Characteristics of Options

Put options and call options typically have similar structural
characteristics and operational mechanics regardless of the underlying
instrument on which they are purchased or sold. Thus, the following general
discussion relates to each of the

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<PAGE>

particular types of options discussed in greater detail below. In addition, many
Strategic Transactions involving options require segregation of the Portfolio's
assets in special accounts, as described below under "Use of Segregated
Accounts."

A put option gives the purchaser of the option, in consideration for
the payment of a premium, the right to sell, and the writer the obligation to
buy (if the option is exercised), the underlying security, commodity, index,
currency or other instrument at the exercise price. For instance, the
Portfolio's purchase of a put option on a security might be designed to protect
its holdings in the underlying instrument (or, in some cases, a similar
instrument) against a substantial decline in the market value by giving the
Portfolio the right to sell such instrument at the option exercise price. A call
option, in consideration for the payment of a premium, gives the purchaser of
the option the right to buy, and the seller the obligation to sell (if the
option is exercised), the underlying instrument at the exercise price. The
Portfolio may purchase a call option on a security, futures contract, index,
currency or other instrument to seek to protect the Portfolio against an
increase in the price of the underlying instrument that it intends to purchase
in the future by fixing the price at which it may purchase such instrument. An
American style put or call option may be exercised at any time during the option
period while a European style put or call option may be exercised only upon
expiration or during a fixed period prior thereto. The Portfolio is authorized
to purchase and sell exchange listed options and over-the-counter options ("OTC"
options). Exchange listed options are issued by a regulated intermediary such as
the Options Clearing Corporation ("OCC"), which guarantees the performance of
the obligations of the parties to such options. The discussion below uses the
OCC as an example, but is also applicable to other financial intermediaries.

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.

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<PAGE>

OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct agreement with
the Counterparty. In contrast to exchange listed options, which generally have
standardized terms and performance mechanics, all the terms of an OTC option,
including such terms as method of settlement, term, exercise price, premium,
guarantees and security, are set by negotiation of the parties. The Portfolio
will generally sell (write) OTC options that are subject to a buy-back provision
permitting the Portfolio to require the Counterparty to sell the option back to
the Portfolio at a formula price within seven days. OTC options purchased by the
Portfolio, and portfolio securities "covering" the amount of the Portfolio's
obligation pursuant to an OTC option sold by it (the cost of the sell-back plus
the in-the-money amount, if any) are subject to the Portfolio's restriction on
illiquid securities, unless determined to be liquid in accordance with
procedures adopted by the Board of Trustees. For OTC options written with
"primary dealers" pursuant to an agreement requiring a closing purchase
transaction at a formula price, the amount which is considered to be illiquid
may be calculated by reference to a formula price. The Portfolio expects
generally to enter into OTC options that have cash settlement provisions,
although it is not required to do so.

Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make delivery of the security, currency or other instrument underlying an OTC
option it has entered into with the Portfolio or fails to make a cash settlement
payment due in accordance with the terms of that option, the Portfolio will lose
any premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Adviser must assess the credit worthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be
satisfied. The Portfolio will engage in OTC option transactions only with U.S.
Government securities dealers recognized by the Federal Reserve Bank of New York
as "primary dealers," or broker dealers, domestic or foreign banks or other
financial institutions which have received, combined with any credit
enhancements, a long-term debt rating of A from S&P or Moody's or an equivalent
rating from any other nationally recognized statistical rating organization
("NRSRO") or the debt of which is determined to be of equivalent credit quality
by the Adviser.

If the Portfolio sells (writes) a call option, the premium that it
receives may serve as a partial hedge, to the extent of the option premium,
against a decrease in

B-12

<PAGE>

the value of the underlying securities or instruments in its portfolio or will
increase the Portfolio's income. The sale (writing) of put options can also
provide income.

The Portfolio may purchase and sell (write) call options on securities
including U.S. Treasury and agency securities, mortgage-backed securities, asset
backed securities, corporate debt securities, equity securities (including
convertible securities) and Eurodollar instruments that are traded on U.S. and
foreign securities exchanges and in the over-the-counter markets, and on
securities indices, currencies and futures contracts. All calls sold by the
Portfolio must be covered (i.e., the Portfolio must own the securities or the
futures contract subject to the call) or must meet the asset segregation
requirements described below as long as the call is outstanding. In addition,
the Portfolio may cover a written call option or put option by entering into an
offsetting forward contract and/or by purchasing an offsetting option or any
other option which, by virtue of its exercise price or otherwise, reduces the
Portfolio's net exposure on its written option position. Even though the
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 the
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.

The Portfolio may purchase and sell (write) put options on securities
including U.S. Treasury and agency securities, mortgage backed securities, asset
backed securities, foreign sovereign debt, corporate debt securities, equity
securities (including convertible securities) and Eurodollar instruments
(whether or not it holds the above securities in its portfolio), and on
securities indices, currencies and futures contracts. The Portfolio will not
sell put options if, as a result, more than 50% of the Portfolio's assets would
be required to be segregated to cover its potential obligations under such put
options other than those with respect to futures and options thereon. In selling
put options, there is a risk that the Portfolio may be required to buy the
underlying security at a price above the market price.

Options on Securities Indices and Other Financial Indices

The Portfolio may also purchase and sell (write) call and put options
on securities indices and other financial indices. Options on securities indices
and other financial indices are similar to options on a security or other
instrument except that, rather than settling by physical delivery of the
underlying instrument, they settle by cash settlement. For example, an option on
an index gives the holder the right to receive, upon exercise of the option, an
amount of cash if the closing level of the index upon which the option is based
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option (except if, in the case of an OTC option, physical
delivery is specified). This amount of cash is equal to the differential

B-13

<PAGE>

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
Portfolio may cover call options on a securities index by owning securities
whose price changes are expected to be similar to those of the underlying index,
or by having an absolute and immediate right to acquire such securities without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
securities in its portfolio.

General Characteristics of Futures

The Portfolio may enter into financial futures contracts or purchase or
sell put and call options on such futures. Futures are generally bought and sold
on the commodities exchanges where they are listed and involve payment of
initial and variation margin as described below. All futures contracts entered
into by the Portfolio are traded on U.S. exchanges or boards of trade that are
licensed and regulated by the Commodity Futures Trading Commission ("CFTC") or
on certain foreign exchanges.

The sale of futures contracts creates a firm obligation by the
Portfolio, as seller, to deliver to the buyer the specific type of financial
instrument called for in the contract at a specific future time for a specified
price (or, with respect to index futures and Eurodollar instruments, the net
cash amount). The purchase of futures contracts creates a corresponding
obligation by the Portfolio, as purchaser 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, if the option is
exercised.

B-14

<PAGE>

merchant, as security for its obligations an amount of cash or other specified
assets (initial margin) which initially is typically 1% to 10% of the face
amount of the contract (but may be higher in some circumstances). Additional
cash or assets (variation margin) may be required to be deposited directly with
the futures commission merchant thereafter on a daily basis as the value of the
contract fluctuates. The purchase of an option on financial futures involves
payment of a premium for the option without any further obligation on the part
of the Portfolio. If the Portfolio exercises an option on a futures contract it
will be obligated to post initial margin (and potential subsequent variation
margin) for the resulting futures position just as it would for any position.
Futures contracts and options thereon are generally settled by entering into an
offsetting transaction but there can be no assurance that the position can be
offset prior to settlement at an advantageous price, nor that delivery will
occur. The segregation requirements with respect to futures contracts and
options thereon are described below.

Currency Transactions

The Portfolio may engage in currency transactions with Counterparties
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. The Portfolio may enter into
over-the-counter currency transactions with Counterparties which have received,
combined with any credit enhancements, a long term debt rating of A by S&P or
Moody's, respectively, or that have an equivalent rating from a NRSRO or (except
for OTC currency options) are determined to be equivalent credit quality by the
Adviser.

The Portfolio's transactions in forward currency contracts and other
currency transactions such as futures, options, options on futures and swaps
will generally be limited to hedging involving either specific transactions or
portfolio positions. See "Strategic Transactions." Transaction hedging is
entering into a currency transaction with respect to specific assets or
liabilities of the 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.

B-15

<PAGE>

The Portfolio may also cross-hedge currencies by entering into
transactions to purchase or sell one or more currencies that are expected to
decline in value in relation to other currencies to which the Portfolio has or
in which the Portfolio expects to have portfolio exposure. For example, the
Portfolio may hold a French government bond and the Adviser may believe that
French francs will deteriorate against German marks. The Portfolio would sell
French francs to reduce its exposure to that currency and buy German marks. This
strategy would be a hedge against a decline in the value of French francs,
although it would expose the Portfolio to declines in the value of the German
mark relative to the U.S. dollar.

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

B-16

<PAGE>

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

Combined Transactions

The Portfolio may enter into multiple transactions, including multiple
options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions, structured notes and any combination of futures, options, currency
and interest rate transactions ("combined transactions"), instead of a single
Strategic Transaction, as part of a single or combined strategy when, in the
opinion of the Adviser, it is in the best interests of the Portfolio to do so. A
combined transaction will usually contain elements of risk that are present in
each of its component transactions. Although combined transactions are normally
entered into based on the Adviser's judgment that the combined strategies will
reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the portfolio management objective.

Swaps, Caps, Floors and Collars

Among the Strategic Transactions into which the Portfolio may enter are
interest rate, currency and index swaps and the purchase or sale of related
caps, floors and collars. The Portfolio expects to enter into these transactions
primarily for hedging purposes, including, but not limited to, preserving a
return or spread on a particular investment or portion of the Portfolio's
portfolio, protecting against currency fluctuations, as a duration management
technique or protecting against an increase in the price of securities the
Portfolio anticipates purchasing at a later date. Swaps, caps, floors and
collars may also be used to enhance potential gain in circumstances where
hedging is not involved although, as described above, the Portfolio will attempt
to limit its net loss exposure resulting from swaps, caps, floors and collars
and other Strategic Transactions entered into for such purposes. The Portfolio
will attempt to limit net loss exposure from Strategic Transaction entered into
for non-hedging purposes to not more than 3% of its net assets. The Portfolio
will not sell interest rate caps or floors where it does not own securities or
other

B-17

<PAGE>

instruments providing the income stream the Portfolio may be obligated to pay.
Interest rate swaps involve the exchange by the Portfolio with another party of
their respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments with respect to a notional amount
of principal. A currency swap is an agreement to exchange cash flows on a
notional amount of two or more currencies based on the relative value
differential among them and an index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference indices. The
purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such cap to the extent that a specified
index exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount from
the party selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain rate of return within a predetermined range of
interest rates or values.

B-18

<PAGE>

Eurodollar Contracts

The 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 ("LlBOR"), although foreign
currency- denominated contracts are available from time to time. Eurodollar
futures contracts enable purchasers to obtain a fixed rate for the lending of
funds and sellers to obtain a fixed rate for borrowings. The Portfolio might use
Eurodollar futures contracts and options thereon to hedge against changes in
LIBOR, to which many interest rate swaps and fixed income instruments are
linked.

Risks of Strategic Transactions Outside the United States

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

Use of Segregated Accounts

The Portfolio will hold securities or other instruments whose values
are expected to offset its obligations under the Strategic Transactions. The
Portfolio will cover Strategic Transactions as required by interpretive
positions of the SEC. The Portfolio will not enter into Strategic Transactions
that expose the Portfolio to an obligation to another party unless it owns
either (i) an offsetting position in securities or other options, futures
contracts or other instruments or (ii) cash, receivables or liquid securities
with a value sufficient to cover its potential obligations. The Portfolio may
have to comply with any applicable regulatory requirements for Strategic
Transactions, and if required, will set aside cash and other assets in a
segregated account with its custodian bank in the amount prescribed. In that
case, the Portfolio's custodian would maintain the value of such segregated
account equal to the prescribed amount by adding or removing additional cash or
other assets to account for fluctuations in the value of the account and the
Portfolio's obligations on

B-19

<PAGE>

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 the Portfolio's assets could impede
portfolio management or the Portfolio's ability to make distributions or satisfy
other current obligations.

"When-Issued", "Delayed Delivery Securities" and "Forward Commitment" Securities

The Portfolio may invest up to 15% of its net assets in securities
purchased on a when-issued or delayed delivery basis. Delivery and payment for
securities purchased on a when-issued or delayed delivery basis 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 that the
Portfolio enters into the commitment, but interest will not accrue to the
Portfolio until delivery of and payment for the securities. Although the
Portfolio will only make commitments to purchase "when- issued" and "delayed
delivery" securities with the intention of actually acquiring the securities,
the Portfolio may sell the securities before the settlement date if deemed
advisable by the Adviser.

Unless the Portfolio has entered into an offsetting agreement to sell
the securities purchased on a when-issued or forward commitment basis, cash or
liquid obligations with a market value at least equal to the amount of the
Portfolio's commitment will be segregated with the Portfolio's custodian bank.
If the market value of these securities declines, additional cash or securities
will be segregated daily so that the aggregate market value of the segregated
securities equals the amount of the Portfolio's commitment.

Securities purchased on a "when-issued", "delayed delivery" or "forward
commitment" 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 credit worthiness of the issuer or changes in the
level of interest rates. Generally, the value of "when-issued", "delayed
delivery" and "forward commitment" 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.

Portfolio Turnover

It is not the policy of the Portfolio to purchase or sell securities
for trading purposes. However, the Portfolio places no restrictions on portfolio
turnover and it may sell any portfolio security without regard to the period of
time it has been held, except to the extent sales may be limited in order to
enable certain investors in the Portfolio to maintain their status as regulated
investment companies under the Code. The Portfolio may therefore generally
change its portfolio investments at any time in

B-20

<PAGE>

accordance with the Adviser's appraisal of factors affecting any particular
issuer or market, or the economy in general. 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
Portfolio and thus indirectly by its shareholders. It may also result in the
realization of larger amounts of net short-term capital gains, and may, under
certain circumstances, make it more difficult for investors in the Portfolio to
qualify as regulated investment companies under the Code.

INVESTMENT RESTRICTIONS

The Portfolio has adopted the following fundamental policies. Each of
the Portfolio's fundamental policies cannot be changed unless the change is
approved by the "vote of the outstanding voting securities" of the Portfolio,
which phrase as used herein means the lesser of (i) 67% or more of the voting
securities of the Portfolio present at a meeting, if the holders of more than
50% of the outstanding voting securities of the Portfolio are present or
represented by proxy, or (ii) more than 50% of the outstanding voting securities
of the Portfolio.

As a matter of fundamental policy, the Portfolio may not:

1. Invest, with respect to at least 75% of its total assets, more than 5%
in the securities of any one issuer (other than the U.S. Government,
its agencies or instrumentalities) or acquire more than 10% of the
outstanding voting securities of any issuer.

2. Issue senior securities, borrow money or securities or pledge or
mortgage its assets, except that the 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, and (c) pledge its assets to an extent not greater than
15% of the current value of its total assets to secure such borrowings.

3. Lend portfolio securities except that the Portfolio (i) may lend
portfolio securities in accordance with the Portfolio's investment
policies up to 33 1/3% of the Portfolio's total assets taken at market
value, (ii) enter into repurchase agreements, and (iii) purchase all or
a portion of an issue of debt securities, bank loan participation
interests, bank certificates of deposit, bankers' acceptances,
debentures or other securities, whether or not the purchase is made
upon the original issuance of the securities.

B-21

<PAGE>

4. Invest more than 25% of the current value of its total assets in any
single industry, provided that this restriction shall not apply to U.S.
Government securities, including mortgage pass-through securities
(GNMAs).

5. Underwrite the securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, the
Portfolio may be deemed to be an underwriter under the Securities Act
of 1933.

6. Purchase real estate or real estate mortgage loans, although the
Portfolio may purchase marketable securities of companies which deal in
real estate, real estate mortgage loans or interests therein.

7. Purchase securities on margin (except that the Portfolio may obtain
such short-term credits as may be necessary for the clearance of
purchases and sales of securities).

8. Purchase or sell commodities or commodity contracts except that the
Portfolio may purchase and sell financial futures contracts and options
on financial futures contracts and engage in foreign currency exchange
transactions.

A. Invest in the securities of an issuer for the purpose of
exercising control or management, but it may do so where it is
deemed advisable to protect or enhance the value of an
existing investment.

B. Purchase securities of any other investment company except to
the extent permitted by the 1940 Act.

C. Invest more than 15% of its net assets in illiquid securities.

D. Invest more than 5% of its net assets in repurchase
agreements.

B-22

<PAGE>

E. Purchase additional securities if the Portfolio's bank
borrowings exceed 5% of its net assets.

ITEM 14. MANAGEMENT OF THE PORTFOLIO.

Trustees and Officers of the Portfolio Trust

The Trustees and executive officers of the Portfolio Trust are listed
below. All executive officers of the Portfolio Trust are affiliates of Standish,
Ayer & Wood, Inc., the Portfolio's investment adviser.

<TABLE>
<CAPTION>
Name, Address and Date of Birth Position Held With Principal Occupation
Trust During Past 5 Years
<S> <C> <C>
*D. Barr Clayson, 7/29/35 Vice President and Vice President and
c/o Standish, Ayer & Wood, Inc. Trustee Managing Director,
One Financial Center Standish, Ayer & Wood,
Boston, MA 02111 Inc.; Chairman and
Director, 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
1100 Winter Street Officer, Decision
Waltham, MA 02154 Resources, Inc.; 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
Cambridge, MA 02138 Economy,
Harvard University

B-23

<PAGE>

Name, Address and Date of Birth Position Held With Principal Occupation
Trust During Past 5 Years
John H. Hewitt, 4/11/35 Trustee Trustee, The Peabody
P.O. Box 307 Foundation; Trustee,
So. Woodstock, VT 05071 Visiting Nurse Alliance
of Vermont 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,
Boston, MA 02111 Inc. since 1990; 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
c/o Essex Street Associates Associates (family
P.O. Box 5600 investment trust officer);
Beverly Farms, MA 01915 Director, Holyoke
Mutual Insurance
Company
*Richard S. Wood, 5/21/54 President and Vice President,
c/o Standish, Ayer & Wood, Inc. Trustee Secretary, and Managing
One Financial Center Director, Standish, Ayer
Boston, MA 02111 & Wood, Inc.; Executive
Vice President and
Director, Standish
International
Management
Company, L.P.
James E. Hollis III, 11/21/48 Executive Vice Vice President and
c/o Standish, Ayer & Wood, Inc. President, Secretary Director, Standish, Ayer
One Financial Center and Treasurer & Wood, Inc.
Boston, MA 02111

B-24

<PAGE>

Name, Address and Date of Birth Position Held With Principal Occupation
Trust During Past 5 Years
Paul G. Martins, 3/10/56 Vice President Vice President, Standish,
c/o Standish, Ayer & Wood, Inc. Ayer & Wood, Inc. since
One Financial Center October 1996; formerly
Boston, MA 02111 Senior Vice President,
Treasurer and Chief
Financial Officer of
Liberty Financial Bank
Group (1993-95); prior to
1993, Corporate
Controller, The Berkeley
Financial Group
Beverly E. Banfield, 7/6/56 Vice President Vice President and
c/o Standish, Ayer & Wood, Inc. Compliance Officer,
One Financial Center Standish, Ayer & Wood,
Boston, MA 02111 Inc.; Assistant Vice
President and
Compliance Officer,
Freedom Capital
Management Corp.
(1989-1992)
Lavinia B. Chase, 6/4/46 Vice President Vice President, Associate
c/o Standish, Ayer & Wood, Inc. Director, Standish, Ayer
One Financial Center & Wood, Inc.
Boston, MA 02111
Anne P. Herrmann, 1/26/56 Vice President Mutual Fund
c/o Standish, Ayer & Wood, Inc. Administrator, Standish,
One Financial Center Ayer & Wood, Inc.
Boston, MA 02111
Denise B. Kneeland, 8/19/51 Vice President Senior Operations,
c/o Standish, Ayer & Wood, Inc. Manager, Standish, Ayer
One Financial Center & Wood, Inc. since
Boston, MA 02111 December 1995, formerly
Vice President Scudder,
Stevens
and Clark

*Indicates that Trustee is an interested person of the Portfolio Trust for
purposes of the 1940 Act.

B-25
</TABLE>

<PAGE>

Compensation of Trustees and Officers

The following table sets forth all compensation paid to the Portfolio
Trust's Trustees as of the Portfolio's fiscal year ended December 31, 1996:

Pension or Total
Retirement Compensation
Benefits from
Accrued as Portfolio and
Part of Other
The Portfolio's Funds in
Name of Trustee Portfolio Expenses Complex*
--------------- --------- -------- -------
<S> <C> <C> <C>
D. Barr Clayson $0 $0 $0
Samuel C. Fleming $12,309 $0 $49,250
Benjamin M. Friedman $11,372 $0 $45,500
John H. Hewitt $11,372 $0 $45,500
Edward H. Ladd $0 $0 $0
Caleb Loring, III $11,372 $0 $45,500
Richard S. Wood $0 $0 $0

ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.

As of April 1, 1997, the Trustees and officers of the Portfolio Trust
as a group beneficially owned (i.e., had voting and/or investment power) less
than 1% of the then outstanding interests of the Portfolio. At April 1, 1997,
the Standish Fixed Income Fund beneficially owned approximately 100% of the then
outstanding interests of the Portfolio and therefore controlled the Portfolio.
The Standish Fixed Income Fund is a separate diversified series of the Standish,
Ayer & Wood

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<PAGE>

Investment Trust, an open end investment company, located at One Financial
Center, Boston, MA 02111.

ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES.

Investment Adviser of the Portfolio Trust

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

Certain services provided by the Adviser under the advisory agreement
are described in Part A. These services are provided without reimbursement by
the Portfolio for any costs incurred. Under the investment advisory agreement,
the Adviser is paid a fee based on the Portfolio's average daily net asset
value. The advisory fees are payable monthly.

Contractual Advisory Fee Rate
(as a percentage of average daily net assets)
The Portfolio 0.40% of the first $250 million
0.35% of the next $250 million
0.30% of over $500 million

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<PAGE>

During the last three fiscal years ended December 31, the Portfolio paid
advisory fees in the following amounts:

1994 1995 1996
---- ---- ----
The Portfolio N/A N/A 5,121,7561

- ------------------------
1 The Portfolio commenced operations on May 3, 1996.

Unless terminated as provided below, the investment advisory agreement
continues in full force and effect from year to year but only so long as each
such continuance is approved annually (i) by either the Trustees of the
Portfolio Trust or by the "vote of a majority of the outstanding voting
securities" of the Portfolio, and, in either event (ii) by vote of a majority of
the Trustees of the Portfolio Trust who are not parties to the investment
advisory agreement or "interested persons" (as defined in the 1940 Act) of any
such party, cast in person at a meeting called for the purpose of voting on such
approval. The investment advisory agreement may be terminated at any time
without the payment of any penalty by vote of the Trustees of the Portfolio
Trust or by the "vote of a majority of the outstanding voting securities" of the
Portfolio or by the Adviser, on sixty days' written notice to the other parties.
The investment advisory agreement terminates in the event of its assignment as
defined in the 1940 Act.

In an attempt to avoid any potential conflict with portfolio
transactions for the Portfolio, the Adviser, the Principal Underwriter 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 Portfolio and its
investors come before those of the Adviser and its employees.

Administrator of the Portfolio

B-28

<PAGE>

Trust on behalf of the Portfolio. The Portfolio Administrator provides the
Portfolio Trust with office space for managing its affairs, and with certain
clerical services and facilities. For its services to the Portfolio Trust, the
Portfolio Administrator currently receives a fee from the Portfolio in the
amount of $7,500 annually. The Portfolio's administration agreement can be
terminated by either party on not more than sixty days' written notice.

Custodian

Investors Bank & Trust Company, 89 South Street, Boston, Massachusetts
02111, serves as custodian of all cash and securities of the Portfolio.

Independent Accountants

Coopers & Lybrand, P.O. Box 219, Grand Cayman, Cayman Islands, BWI,
serves as independent accountants for the Portfolio Trust and will audit the
Portfolio's financial statements annually.

ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES.

The Adviser is responsible for placing the Portfolio's portfolio
transactions and will do so in a manner deemed fair and reasonable to the
Portfolio and not according to any formula. The primary consideration in all
portfolio transactions will be prompt execution of orders in an efficient manner
at the most favorable price. In selecting broker-dealers and in negotiating
commissions, the Adviser will consider the firm's reliability, the quality of
its execution services on a continuing basis and its financial condition. 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 Portfolio may pay commissions to
such broker in an amount greater than the amount another firm may charge.
Research services may include (i) furnishing advice as to the value of
securities, the advisability of investing in, purchasing or selling securities,
and the availability of securities or purchasers or sellers of securities, (ii)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts, and (iii) effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement). Research services
furnished by firms through which the Portfolio effects securities transactions
may be used by the Adviser in servicing other accounts; not all of these
services may be used by the Adviser in connection with the Portfolio generating
the soft dollar credits. The investment advisory fee paid by the Portfolio under
the investment advisory agreements will not be reduced as a result of the
Adviser's receipt of research services.

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Because most of the Portfolio's securities transactions are effected on
a principal basis involving a "spread" or "dealer mark-up," the Portfolio has
not paid any brokerage commissions during the past three years.

ITEM 18. CAPITAL STOCK AND OTHER SECURITIES.

ITEM 19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING
OFFERED.

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Portfolio securities that are 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 a pricing service or provided by dealers in such securities. 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, which may include the
use of yield equivalents or matrix pricing.

Money market instruments with less than sixty days remaining to
maturity when acquired by the Portfolio are valued on an amortized cost basis.
If the Portfolio acquires a money market instrument with more than sixty days
remaining to its maturity, it is valued at current market value until the
sixtieth day prior to maturity and will then be valued at amortized cost based
upon the value on such date unless the Trustees determine during such sixty-day
period that amortized cost does not represent fair value.

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the composition of the Portfolio's portfolio at the time of the redemption
in-kind. Portfolio securities paid upon withdrawal or reduction of an
interest-holder's investment in the Portfolio will be valued at their then
current market value. The Portfolio Trust has elected to be governed by the
provisions of Rule 18f-1 under the 1940 Act which limits the Portfolio's
obligation to make cash redemption payments to any investor during any 90-day
period to the lesser of $250,000 or 1% of the Portfolio's net asset value at the
beginning of such period. An investor may incur brokerage costs in converting
portfolio securities received upon redemption to cash. The Portfolio intends
that it will not redeem an investor's interest in-kind except in circumstances
in which the particular investor is permitted to redeem in-kind or in the event
that the particular investor completely withdraws its interest in the Portfolio.

ITEM 20. TAX STATUS.

If the Portfolio invests in zero coupon securities, certain increasing
rate or deferred interest securities or, in general, other securities with
original issue discount (or with market discount if the Portfolio elects to
include market discount in income currently), the Portfolio must accrue income
on such investments prior to the receipt of the corresponding cash payments.
However, an investor must distribute, at least annually, all or substantially
all of its net income, including its distributive share of such income accrued
by the Portfolio, to its shareholders to qualify as a RIC under

B-32

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the Code and avoid federal income and excise taxes. Therefore, the Portfolio may
have to dispose of its portfolio securities under disadvantageous circumstances
to generate cash, or may have to leverage itself by borrowing the cash, to
enable its investors to satisfy the distribution requirements.

Limitations imposed by the Code on RICs may, due to the fact that one
or more of such companies invest in the Portfolio, restrict the Portfolio's
ability to enter into futures, options or currency forward transactions.

Certain options, futures or currency forward transactions undertaken by
the Portfolio may cause the Portfolio to recognize gains or losses from marking
to market even though the Portfolio's positions have not been sold or terminated
and affect the character as long-term or short-term (or, in the case of certain
options, futures or forward contracts relating to foreign currency, as ordinary
income or loss) and timing of some capital gains and losses realized by the
Portfolio and allocable to its investors. Any net mark to market gains may also
have to be distributed by an investor that is a RIC to satisfy the distribution
requirements referred to above even though no corresponding cash amounts may
concurrently be received, possibly requiring the disposition by the Portfolio of
portfolio securities or borrowing to obtain the necessary cash. Also, certain
losses on transactions involving options, futures or forward contracts and/or
offsetting or successor 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 one or more of certain tax
elections are available and are made. Because the income, gains and losses of an
investor that is a RIC consist primarily of its share of the income, gains and
losses of the Portfolio, which are directly affected by the provisions described
in this paragraph, these transactions may affect the amount, timing and
character of the distributions to shareholders by such an investor. The
Portfolio will take into account the special tax rules applicable to options,
futures or forward contracts in order to seek to minimize any potential adverse
tax consequences.

The Federal income tax rules applicable to dollar rolls, currency swaps
and interest rate swaps, caps, floors and collars are unclear in certain
respects, and the Portfolio may be required to account for these instruments
under tax rules in a manner that, under certain circumstances, may limit its
transactions in these instruments. Due to possible unfavorable consequences
under present tax law, the Portfolio does not currently intend to acquire
"residual" interests in real estate mortgage investment conduits ("REMICs"),
although it may acquire "regular" interests in REMICs.

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subject to Section 988 of the Code, which generally causes such gains and losses
to be treated as ordinary income and losses and may affect the amount, timing
and character of distributions to shareholders of an investor that is a RIC. In
some cases, elections may be available that would alter this treatment. Any such
transactions that are not directly related to the Portfolio's investment in
stock or securities, possibly including speculative currency positions or
currency derivatives not used for hedging purposes, may increase the amount of
gain it is deemed to recognize from the sale of certain investments held for
less than three months. The share of such gain of an investor qualifying as a
RIC (plus any such gain the investor may realize from other sources) is limited
under the Code to less than 30% of such investor's gross income for its taxable
year, and such transactions could under future Treasury regulations produce
income not among the types of "qualifying income" from which the investor must
derive at least 90% of its gross income for its taxable year.

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Investment in debt obligations by the Portfolio that are at risk of or
in default presents special tax issues for its investors. Tax rules are not
entirely clear about issues such as when the 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 Portfolio, in the event
that it holds such obligations, in order to reduce the risk of its investors who
intend to qualify as RICs, distributing insufficient income to preserve their
status as a RIC or becoming subject to Federal income or excise tax.

For purposes of the dividends received reduction available to
corporations, dividends, if any, received by the Portfolio from U.S. domestic
corporations in respect of the stock of such corporations held by the Portfolio,
for U.S. Federal income tax purposes, for at least a minimum holding period,
generally 46 days, and allocated to an investor that is RIC, should be eligible
to be distributed and designated by such an investor and treated by its
corporate shareholders as qualifying dividends, subject to the limitations and
requirements applicable to such shareholders under the Code. The Portfolio's
dividend income, if any, probably will generally qualify for this deduction, but
the Portfolio does not expect that it will generally earn material amounts of
dividend income.

Non-U.S. Investors

The following is a discussion of the principal U.S. federal income tax
consequences of an investment in the Portfolio by an entity that is organized or
established under Non-U.S. laws and that is or would be properly classified as a
corporation under the entity classification principles of U.S. tax law (a
"Foreign Investor"). This discussion assumes that, without considering the
effect, if any, of an investment in the Portfolio, the Foreign Investor will not
be engaged in a trade or business in the U.S. and that the Foreign Investor will
not have any activities in or connections with the U.S. other than its
investment in the Portfolio. This discussion also assumes that the Portfolio
will be classified as a partnership for U.S. federal income tax purposes.

The Portfolio intends to operate so as not to be considered to be
engaged in a trade or business in the U.S. under special U.S. federal income tax
provisions

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applicable to certain entities the principal business of which is trading in
stocks or securities for their own account. In accordance with such provisions,
the Portfolio intends to maintain its principal office outside the U.S. and to
conduct at least a substantial portion of certain of its activities outside the
U.S. If the Portfolio is not engaged in a trade or business in the U.S., then a
Foreign Investor in the Portfolio will generally not incur any U.S. taxes in
respect of the ownership or disposition of its interest in the Portfolio,
including upon the allocation or distribution to it of the ordinary income and
capital gains realized by the Portfolio, with the exception described in the
next sentence. Foreign Investors may be subject to nonresident alien withholding
tax (which would be withheld by the Portfolio or its agent and paid to U.S. tax
authorities) at the rate of 30% (or a reduced rate if an income tax treaty rate
reduction is available) on certain amounts treated as ordinary income allocated
to them by the Portfolio, except to the extent a U.S. withholding tax exemption
may be available. Such an exemption will generally be available principally for
(i) interest income that qualifies as "portfolio interest" under U.S. tax law,
(ii) other interest from certain short-term debt obligations or bank deposits,
and (iii) interest and dividends that are treated as non-U.S. source income
under the Code (e.g., in general, interest or dividends paid with respect to the
Portfolio's investments in stock or securities of non-U.S. companies or non-U.S.
governmental entities, which may be subject to withholding or other taxes
imposed by the countries in which such issuers are located). Such an exemption
will not, however, be available for dividend income the Portfolio receives with
respect to its investments in stock of U.S. corporations, certain U.S.-source
interest that does not qualify as portfolio interest, and possibly certain other
income. U.S. withholding taxes could also apply to gains attributable to any
interests held by the Portfolio in U.S. real property other than interests held
solely as a creditor, but the Portfolio anticipates that it will generally not
hold the types of interest in U.S. real property to which these withholding
taxes apply.

If the Portfolio were considered to be engaged in a U.S. trade or
business for U.S. federal income tax purposes, any Foreign Investor in the
Portfolio would also be considered to be engaged in a U.S. trade or business and
would be subject to U.S. federal income tax on its allocable share of any income
of the Portfolio which is considered to be effectively connected with such U.S.
trade or business ("Effectively Connected Income"). The tax on Effectively
Connected Income would be imposed on a net basis at the rates applicable to U.S.
taxpayers generally (and the after-tax amount of such income could also be
subject to a separate branch profits tax at a 30% rate). The Portfolio would be
required to withhold tax from the portion of its Effectively Connected Income
which is allocable to Foreign Investors at the highest rates applicable to U.S.
taxpayers (whether or not distributions are made by the Portfolio to such
Foreign Investors during the taxable year). To the extent the income of the
Portfolio constitutes Effectively Connected Income, a Foreign Investor may also
be subject to U.S. federal income tax on some or all of the gain it recognizes
on the disposition of its interest in the Portfolio. As stated above, the
Portfolio intends to

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operate in a manner that will not result in the Portfolio's income being treated
as Effectively Connected Income.

Massachusetts Taxation

ITEM 21. UNDERWRITERS.

Not applicable.

ITEM 22. CALCUALTION OF PERFORMANCE DATA.

Not applicable.

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ITEM 23. FINANCIAL STATEMENTS.

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Dated April 30, 1997

STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH GLOBAL FIXED INCOME PORTFOLIO

PART A

THIS PART A DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE
SOLICITATION OF AN OFFER TO BUY, ANY BENEFICIAL INTERESTS IN
STANDISH GLOBAL FIXED INCOME PORTFOLIO.

Responses to Items 1 through 3 and 5A have been omitted pursuant to
paragraph 4 of Instruction F of the General Instructions to Form N-1A.

ITEM 4. GENERAL DESCRIPTION OF REGISTRANT.

Standish, Ayer & Wood Master Portfolio (the "Portfolio Trust")
is a no-load, open-end management investment company which was organized as a
master trust fund under the laws of the State of New York on January 18, 1996.
Beneficial interests in the Portfolio Trust are divided into separate sub-trusts
or series, each having distinct investment objectives and policies, one of
which, the Standish Global Fixed Income Portfolio (the "Portfolio"), is
described herein. Beneficial interests in the Portfolio are issued solely in
transactions that are exempt from registration under the Securities Act of 1933,
as amended (the "1933 Act"). Investments in the Portfolio Trust may only be made
by investment companies, insurance company separate accounts, common or
commingled trust funds or similar organizations or entities that are "accredited
investors" within the meaning of Regulation D under the 1933 Act. This
Registration Statement does not constitute an offer to sell, or the solicitation
of an offer to buy, any "security" within the meaning of the 1933 Act.

INVESTMENT OBJECTIVE AND POLICIES

Investment Objective. The Portfolio's investment objective is to
maximize total return while realizing a market level of income consistent with
preserving principal and liquidity.

Securities. Under normal market conditions, the Portfolio invests at
least 65% of its total assets in fixed income securities of foreign governments
on their political subdivisions and companies located in countries around the
world, including the United States. Fixed income securities in which the
Portfolio invests include bonds, notes (including structured or hybrid notes),
mortgage-backed securities, asset-backed securities, convertible securities,
Eurodollar and Yankee Dollar instruments, preferred stocks (including
convertible preferred stock), listed and unlisted warrants and money market
instruments. These fixed income securities may be issued by foreign

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and U.S. corporations or entities, foreign governments and their political
subdivisions, the U.S. Government, its agencies, authorities, instrumentalities
or sponsored enterprises, and supranational entities. 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. The Portfolio purchases
securities that pay interest on a fixed, variable, floating, inverse floating,
contingent, in-kind or deferred basis. The Portfolio may enter into repurchase
agreements and forward dollar roll transactions, may purchase zero coupon and
deferred payment securities, may buy securities on a when-issued or delayed
delivery basis, may engage in short sales and may lend portfolio securities. The
Portfolio may enter into various forward foreign currency exchange transactions
and foreign currency futures transactions and utilize over-the-counter ("OTC")
options to seek to manage the Portfolio's currency exposure. See "Description of
Securities and Related Risks" and "Investment Techniques and Related Risks"
below for additional information.

Country Selection. Under normal market conditions, the Portfolio's
assets are invested in securities of issuers located in at least three different
countries, one of which may be the United States. The Portfolio intends,
however, to invest in no fewer than eight foreign countries. The Portfolio may
invest a substantial portion of its assets in one or more of those eight
countries. The Portfolio may also invest up to 10% of its total assets in
emerging markets generally and may invest up to 3% of its total assets in any
one emerging market.

Credit Quality. The Portfolio invests primarily in investment grade
fixed income securities, i.e., securities rated at the time of purchase at least
Baa by Moody's Investors Service, Inc. ("Moody's") or BBB by Standard & Poor's
Ratings Group ("Standard & Poor's"), Duff & Phelps, Inc. ("Duff"), Fitch
Investors Service, Inc. ("Fitch") or IBCA, Ltd. ("IBCA"), or, if unrated,
determined by SIMCO to be of comparable credit quality. If a security is rated
differently by two or more rating agencies, SIMCO uses the highest rating to
compute a Portfolio's credit quality and also to determine its rating category.
In determining whether securities are of equivalent credit quality, SIMCO may
take into account, but will not rely entirely on, ratings assigned by foreign
rating agencies. In the case of unrated sovereign and subnational debt of
foreign countries, SIMCO may take into account, but will not rely entirely on,
the ratings assigned to the issuers of such securities. If the rating of a
security held by a Portfolio is downgraded below the minimum rating required for
the Portfolio, SIMCO will determine whether to retain that security in a Fund's
portfolio.

Securities rated within the top three investment grade ratings (i.e., Aaa, Aa, A
or P-1 by Moody's or AAA, AA, A, A-1 or Duff-1 by Standard & Poor's, Duff, Fitch
or IBCA) are generally regarded as high grade obligations. Securities rated Baa
or P-2 by Moody's or BBB, A-2 or Duff-2 by Standard & Poor's, Duff, Fitch or
IBCA are

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generally considered medium grade obligations and have some speculative
characteristics. Adverse changes in economic conditions or other circumstances
are more likely to weaken the medium grade issuer's capability to pay interest
and repay principal than is the case for high grade securities. If a
non-investment grade fixed income security presents special opportunities for
the Portfolio, the Portfolio may invest up to 15% of its total assets in
securities rated Ba by Moody's or BB by Standard & Poor's, Duff, Fitch or IBCA,
or, if not rated, judged by SIMCO to be of comparable credit quality. Below
investment grade securities, commonly referred to as "junk bonds," carry a
higher degree of risk than investment grade securities and are considered
speculative by the rating agencies. SIMCO attempts to select for the Portfolio
those medium grade and non-investment grade fixed income securities that have
the potential for upgrade.

DESCRIPTION OF SECURITIES
AND RELATED RISKS

GENERAL RISKS

Investments in the Portfolio involves certain risks. The Portfolio
invests primarily in the fixed income securities and is subject to risks
associated with investments in such securities. These risks include interest
rate risk, default risk, call and extension risk and the risks associated with
direct investments in foreign securities. See the "Specific Risks" section below
for a description of the risks associated with foreign securities.

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returned later than expected. This typically results when interest rates have
increased and the Portfolio will suffer from the inability to invest in higher
yield securities.

Investing in Foreign Securities. Investing in the securities of foreign issuers
involves risks that are not typically associated with investing in U.S.
dollar-denominated securities of domestic issuers. Investments in foreign
issuers may be affected by changes in currency rates, changes in foreign or U.S.
laws or restrictions applicable to such investments and in exchange control
regulations (i.e., currency blockage). A decline in the exchange rate of the
currency (i.e., weakening of the currency against the U.S. dollar) in which a
portfolio security is quoted or denominated relative to the U.S. dollar would
reduce the value of the portfolio security. Commissions may be higher and
spreads may be greater on transactions in foreign securities than those for
similar transactions in domestic markets. In addition, clearance and settlement
procedures may be different in foreign countries and, in certain markets, such
procedures have on occasion been unable to keep pace with the volume of
securities transactions, thus making it difficult to conduct such transactions.

Foreign issuers are not generally subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to U.S. issuers.
There may be less publicly available information about a foreign issuer than
about a U.S. issuer. In addition, there is generally less government regulation
of foreign markets, companies and securities dealers than in the U.S. Most
foreign securities markets may have substantially less trading volume than U.S.
securities markets and securities of many foreign issuers are less liquid and
more volatile than securities of comparable U.S. issuers. Furthermore, with
respect to certain foreign countries, there is a possibility of nationalization,
expropriation or confiscatory taxation, imposition of withholding or other taxes
on dividend or interest payments (or, in some cases, capital gains), limitations
on the removal of funds or other assets, political or social instability or
diplomatic developments which could affect investments in those countries.

Investing in Emerging Markets. Although the Portfolio invests primarily in
securities of established issuers based in developed foreign countries, it may
also invest in securities of issuers in emerging markets, including issuers in
Asia, Eastern Europe, Latin and South America, the Mediterranean, Russia and
Africa. The Portfolio may also invest in currencies of such countries and may
engage in strategic transactions in the markets of such countries. Investments
in securities of issuers in emerging markets may involve a high degree of risk
and many may be considered speculative. These investments carry all of the risks
of investing in securities of foreign issuers to a heightened degree. These
heightened risks include (i) greater risks of expropriation, confiscatory
taxation, nationalization, and less social, political and economic stability;
(ii) the small current size of the markets for securities of emerging market
issuers and the currently low or nonexistent volume of trading combined with
frequent artificial limits on daily price movements, resulting in lack of
liquidity

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and in price uncertainty; (iii) certain national policies which may restrict the
Portfolio's investment opportunities including limitations on aggregate holdings
by foreign investors and restrictions on investing in issuers or industries
deemed sensitive to relevant national interests; and (iv) the absence of
developed legal structures governing private or foreign investment and private
property.

Currency Risks. The U.S. dollar value of foreign securities denominated in a
foreign currency will vary with changes in currency exchange rates, which can be
volatile. Accordingly, changes in the value of these currencies against the U.S.
dollar will result in corresponding changes in the U.S. dollar value of the
Portfolio's assets quoted in those currencies. Exchange rates are generally
affected by the forces of supply and demand in the international currency
markets, the relative merits of investing in different countries and the
intervention or failure to intervene of U.S. or foreign governments and central
banks. Some countries in emerging markets also may have managed currencies,
which do not float freely against the U.S. dollar and may restrict the free
conversion of their currencies into other currencies. Any devaluations in the
currencies in which the Portfolio's securities are denominated may have a
detrimental impact on the Portfolio's net asset value. The Portfolio utilizes
various investment strategies to seek to minimize the currency risks described
above. These strategies include the use of currency transactions such as
currency forward and futures contracts, cross currency forward and futures
contracts, currency swaps and options and cross currency options on currencies
or currency futures.

SPECIFIC RISKS

The following sections include descriptions of specific risks that are
associated with the Portfolio's purchase of a particular type of security or the
utilization of a specific investment technique.

Sovereign Debt Obligations. The Portfolio may invest in sovereign debt
obligations, which involve special risks that are not present in corporate debt
obligations. The foreign issuer of the sovereign debt or the foreign
governmental authorities that control the repayment of the debt may be unable or
unwilling to repay principal or interest when due, and the Portfolio may have
limited recourse in the event of a default. During periods of economic
uncertainty, the market prices of sovereign debt, and the Portfolio's net asset
value, may be more volatile than prices of debt obligations of U.S. issuers. In
the past, certain foreign countries have encountered difficulties in servicing
their debt obligations, withheld payments of principal and interest and declared
moratoria on the payment of principal and interest on their sovereign debt.

A sovereign debtor's willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its cash
flow situation, the extent of its foreign currency reserves, the availability of
sufficient foreign

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exchange, the relative size of the debt service burden, the sovereign debtor's
policy toward principal international lenders and local political constraints.
Sovereign debtors may also be dependent on expected disbursements from foreign
governments, multilateral agencies and other entities to reduce principal and
interest arrearages on their debt. The failure of a sovereign debtor to
implement economic reforms, achieve specified levels of economic performance or
repay principal or interest when due may result in the cancellation of
third-party commitments to lend funds to the sovereign debtor, which may further
impair such debtor's ability or willingness to service its debts.

Brady Bonds. Brady Bonds are securities created through the exchange of
existing commercial bank loans to public and private entities in certain
emerging markets for new bonds in connection with debt restructurings. Brady
Bonds have been issued since 1989 and do not have a long payment history. In
light of the history of defaults of countries issuing Brady Bonds on their
commercial bank loans, investments in Brady Bonds may be viewed as speculative.
Brady Bonds may be fully or partially collateralized or uncollateralized, are
issued in various currencies (but primarily in U.S. dollars) and are actively
traded in over-the-counter secondary markets. Incomplete collateralization of
interest or principal payment obligations results in increased credit risk. U.S.
dollar-denominated collateralized Brady Bonds, which may be fixed-rate bonds or
floating-rate bonds, are generally collateralized by U.S. Treasury zero coupon
bonds having the same maturity as the Brady bonds.

Obligations of Supranational Entities. The Portfolio may invest in
obligations of supranational entities designated or supported by governmental
entities to promote economic reconstruction or development and of international
banking institutions and related government agencies. Examples include the
International Bank for Reconstruction and Development (the "World Bank"), the
Asian Development Bank and the Inter-American Development Bank. Each
supranational entity's lending activities are limited to a percentage of its
total capital (including "callable capital" contributed by its governmental
members at the entity's call), reserves and net income. There is no assurance
that participating governments will be able or willing to honor their
commitments to make capital contributions to a supranational entity.

U.S. Government Securities. The Portfolio may invest in U.S. Government
securities. Generally, these securities include U.S. Treasury obligations and

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obligations issued or guaranteed by U.S. Government agencies, instrumentalities
or sponsored enterprises which are supported by (a) the full faith and credit of
the U.S. Treasury (such as the Government National Mortgage Association
("GNMA")), (b) the right of the issuer to borrow from the U.S. Treasury (such as
securities of the Student Loan Marketing Association), (c) the discretionary
authority of the U.S. Government to purchase certain obligations of the issuer
(such as the Federal National Mortgage Association ("FNMA") and Federal Home
Loan Mortgage Corporation ("FHLMC"), or (d) only the credit of the agency. No
assurance can be given that the U.S. Government will provide financial support
to U.S. Government agencies, instrumentalities or sponsored enterprises in the
future. U.S. Government securities also include Treasury receipts, zero coupon
bonds, deferred interest securities and other stripped U.S. Government
securities, where the interest and principal components of stripped U.S.
Government securities are traded independently ("STRIPS").

For the fiscal year ended December 31, 1996, the Portfolio's
investments, on an average dollar-weighted basis, calculated at the end of each
month, had the following credit quality characteristics:

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Investments Percentage
U.S. Governmental 6.5%
Securities
U.S. Government 5.1%
Agency Securities
Corporate Bonds:
Aaa or AAA 31.5%
Aa or AA 16.8%
A 11.8%
Baa or BBB 16.6%
Ba or BB 11.7%
-------
100.0%

Mortgage-Backed Securities. The Portfolio may invest in privately
issued mortgage-backed securities and mortgage-backed securities issued or
guaranteed by foreign entities or the U.S. Government or any of its agencies,
instrumentalities or sponsored enterprises. Mortgage-backed securities represent
direct or indirect participations in, or are collateralized by and payable from,
mortgage loans secured by real property. Mortgagors can generally prepay
interest or principal on their mortgages whenever they choose. Therefore,
mortgage-backed securities are often subject to more rapid repayment than their
stated maturity date would indicate as a result of principal prepayments on the
underlying loans. This can result in significantly greater price and yield
volatility than is the case with traditional fixed income securities. During
periods of declining interest rates, prepayments can be expected to accelerate,
and thus impair the Portfolio's ability to reinvest the returns of principal at
comparable yields. Conversely, in a rising interest rate environment, a
declining prepayment rate will extend the average life of many mortgage-backed
securities, increase the Portfolio's exposure to rising interest rates and
prevent the Portfolio from taking advantage of such higher yields.

Asset-Backed Securities. The Portfolio may invest in asset-backed
securities issued by foreign or U.S. entities. The principal and interest
payments on asset- backed securities are collateralized by pools of assets such
as auto loans, credit card receivables, leases, installment contracts and
personal property. Such asset pools are securitized through the use of special
purpose trusts or corporations. Payments or distributions of principal and
interest on asset-backed securities may be guaranteed

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up to certain amounts and for a certain time period by a letter of credit or a
pool insurance policy issued by a financial institution; however, privately
issued obligations collateralized by a portfolio of privately issued
asset-backed securities do not involve any government-related guaranty or
insurance. Like mortgage-backed securities, asset-backed securities are subject
to more rapid prepayment of principal than indicated by their stated maturity
which may greatly increase price and yield volatility. Asset-backed securities
generally do not have the benefit of a security interest in collateral that is
comparable to mortgage assets and there is the possibility that recoveries on
repossessed collateral may not be available to support payments on these
securities.

Eurodollar and Yankee Dollar Investments. The Portfolio may invest in
Eurodollar and Yankee Dollar instruments. Eurodollar instruments are bonds of
foreign corporate and government issuers that pay interest and principal in U.S.
dollars held in banks outside the United States, primarily in Europe. Yankee
Dollar instruments are U.S. dollar denominated bonds typically issued in the
U.S. by foreign governments and their agencies and foreign banks and
corporations. The Portfolio may invest in Eurodollar Certificates of Deposit
("ECDs"), Eurodollar Time Deposits ("ETDs") and Yankee Certificates of Deposit
("Yankee CDs"). ECDs are U.S. dollar- denominated certificates of deposit issued
by foreign branches of domestic banks; ETDs are U.S. dollar-denominated deposits
in a foreign branch of a U.S. bank or in a foreign bank; and Yankee CDs are U.S.
dollar-denominated certificates of deposit

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issued by a U.S. branch of a foreign bank and held in the U.S. These investments
involve risks that are different from investments in securities issued by U.S.
issuers, including potential unfavorable political and economic developments,
foreign withholding or other taxes, seizure of foreign deposits, currency
controls, interest limitations or other governmental restrictions which might
affect payment of principal or interest.

Warrants. Warrants acquired by the Portfolio entitle it to buy common
stock from the issuer at a specified price and time. Warrants are subject to the
same market risks as stocks, but may be more volatile in price. The Portfolio
investment in warrants will not entitle it to receive dividends or exercise
voting rights and will become worthless if the warrants cannot be profitably
exercised before their expiration dates.

INVESTMENT TECHNIQUES
AND RELATED RISKS

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Such strategies are generally accepted as part of modern portfolio management
and are regularly utilized by many mutual funds and other institutional
investors. Techniques and instruments used by the Portfolio may change over time
as new instruments and strategies are developed or regulatory changes occur.

In the course of pursuing its investment objective, the Portfolio may
purchase and sell (write) exchange-listed and over-the-counter put and call
options on securities, 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 currency transactions such as forward foreign currency exchange contracts,
currency futures contracts, currency swaps and options on currencies or currency
futures (collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used in an attempt to protect against possible
changes in the market value of securities held in or to be purchased for the
Portfolio's portfolio resulting from securities markets, currency exchange rate
or interest rate fluctuations, to seek to protect the Portfolio's unrealized
gains in the value of portfolio securities, to facilitate the sale of such
securities for investment purposes, to seek to manage the effective maturity or
duration of the Portfolio's portfolio, or to establish a position in the
derivatives markets as a temporary substitute for purchasing or selling
particular securities. In addition to the hedging transactions referred to in
the preceding sentence, Strategic Transactions may also be used to enhance
potential gain in circumstances where hedging is not involved.

The ability of the Portfolio to utilize Strategic Transactions
successfully will depend on SIMCO's ability to predict pertinent market and
interest rate movements, which cannot be assured. The Portfolio will comply with
applicable regulatory requirements when implementing these strategies,
techniques and instruments. The Portfolio's activities involving Strategic
Transactions may be limited in order to enable certain investors in the
Portfolio to comply with the requirements of 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 SIMCO's view as to certain market, interest rate or currency movements is
incorrect, the risk that the use of such Strategic Transactions could result in
losses greater than if they had not been used. The writing of put and call
options may result in losses to the Portfolio, force the purchase or sale,
respectively, of portfolio securities at inopportune times or for prices higher
than (in the case of purchases due to the exercise of put options) or lower than
(in the case of sales due to the exercise of call options) current market
values, limit the amount of appreciation the Portfolio can realize on its
investments or cause the Portfolio to hold a security it might otherwise sell.

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The use of options and futures transactions entails certain other
risks. Futures markets are highly volatile and the use of futures may increase
the volatility of the Portfolio's net asset value. In particular, the variable
degree of correlation between price movements of futures contracts and price
movements in the related portfolio position of the Portfolio creates the
possibility that losses on the hedging instrument may be greater than gains in
the value of the Portfolio's position. The writing of options could
significantly increase the Portfolio's portfolio turnover rate and associated
brokerage commissions or spreads. In addition, futures and options markets may
not be liquid in all circumstances and certain over-the-counter options may have
no markets. As a result, in certain markets, the Portfolio might not be able to
close out a transaction without incurring substantial losses. Losses resulting
from the use of Strategic Transactions could reduce net asset value and the net
result may be less favorable than if the Strategic Transactions had not been
utilized. Although the use of futures and options transactions for hedging and
managing effective maturity and duration should tend to minimize the risk of
loss due to a decline in the value of the position, at the same time, such
transactions can limit any potential gain which might result from an increase in
value of such position. The loss incurred by the Portfolio in writing options on
futures and entering into futures transactions is potentially unlimited.

When-Issued and Delayed Delivery Securities. The Portfolio may invest
up to 25% of its net assets in when-issued and delayed delivery securities.
Although the Portfolio will generally purchase securities on a when-issued or
delayed delivery basis with the intention of actually acquiring the securities,
the Portfolio may dispose of these securities prior to settlement if SIMCO deems
it appropriate to do so. The payment obligation and interest rate on these
securities is fixed at the time the Portfolio enters into the commitment, but no
income will accrue to the Portfolio until they are delivered and paid for.
Unless the Portfolio has entered into an offsetting agreement to sell the
securities, cash or liquid assets equal to the amount of the Portfolio's
commitment must be segregated and maintained with the Portfolio's custodian to
secure the Portfolio's obligation and to partially offset the leverage inherent
in these securities. The market value of the securities when they are delivered
may be less than the amount paid by the Portfolio.

Portfolio Diversification and Concentration. The Portfolio is
non-diversified which means that it may invest more than 5% of its total assets
in the securities of a single issuer. Investing a significant amount of the
Portfolio's assets in the securities of a

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small number of foreign issuers will cause the Portfolio's net asset value to be
more sensitive to events affecting those issuers. The Portfolio will not
concentrate (invest 25% or more of its total assets) in the securities of
issuers in any one industry. For purposes of this limitation, the staff of the
Securities and Exchange Commission (the "SEC") considers (a) all supranational
organizations as a group to be a single industry and (b) each foreign government
and its political subdivisions to be a single industry.

Repurchase Agreements. The Portfolio may invest up to 25% of its net
assets in repurchase agreements. In a repurchase agreement, the Portfolio buys a
security at one price and simultaneously agrees to sell it back at a higher
price. Delays or losses could result if the other party to the agreement
defaults or becomes insolvent. Repurchase agreements acquired by the Portfolio
will always be fully collateralized as to principal and interest by U.S.
Government and money market instruments and will be entered into only with
commercial banks, brokers and dealers considered creditworthy by SIMCO.

Forward Roll Transactions. To seek to enhance current income, the
Portfolio may invest up to 5% of its total assets in forward roll transactions
involving mortgage-backed securities. In a forward roll transaction, the
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, the 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 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 the Portfolio may decline below the repurchase
price of those securities. At the time that the Portfolio enters into a forward
roll transaction, it will place cash or liquid assets in a segregated account
that is marked to market daily having a value equal to the repurchase price
(including accrued interest).

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Securities Loans. To seek to realize additional income, the Portfolio
may lend a portion of the securities in its portfolio to broker-dealers and
financial institutions, who are seeking securities to consummate transactions
they are obligated to perform under contract. The market value of securities
loaned by the Portfolio may not exceed 20% of the value of the Portfolio's total
assets, with a 10% limit for any single borrower. In order to secure their
obligations to return securities borrowed from the Portfolio, borrowers will
deposit collateral equal to at least 100% of the market value of the borrowed
securities, which will be marked to market daily. As is the case with any
extension of credit, lending portfolio securities involves certain risks in the
event a borrower should fail financially, including delays or inability to
recover the loaned securities or foreclose against the collateral. SIMCO, under
the supervision of the Board of Trustees, monitors the creditworthiness of the
parties to whom the Portfolio makes securities loans.

Restricted and Illiquid Securities. The Portfolio may invest up to 15%
of its net assets in illiquid securities. Illiquid securities are those 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
SMBS], swap transactions, certain over-the-counter options and certain
restricted securities. Based upon continuing review of the trading markets for a
specific restricted security, the security may be determined to be eligible for
resale to qualified institutional buyers pursuant to Rule 144A under the
Securities Act of 1933 and, therefore, to be liquid. Also, certain illiquid
securities may be determined to be liquid if they are found to satisfy certain
relevant liquidity requirements.

The Board of Trustees has adopted guidelines and delegated to SIMCO the
daily function of determining and monitoring the liquidity of portfolio
securities, including restricted and illiquid securities. The Board of Trustees,
however, retains oversight and is ultimately responsible for such
determinations. The purchase price

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and subsequent valuation of illiquid securities normally reflect a discount,
which may be significant, from the market price of comparable securities for
which a liquid market exists.

Portfolio Turnover. A high rate of portfolio turnover (100% or more)
involves correspondingly higher transaction costs which must be borne directly
by the Portfolio and thus indirectly by its shareholders. It may also result in
the Portfolio's realization of larger amounts of short-term capital gains and
may, under certain circumstances, make it more difficult for an investor in the
Portfolio to qualify as a regulated investment company ("RIC") under the Code.
See the Portfolio's annual report for the Portfolio's portfolio turnover rates.

Short-Term Trading. The Portfolio will sell a portfolio security
without regard to the length of time such security has been held if, in SIMCO's
view, the security meets the criteria for disposal.

Temporary Defensive Investments. The Portfolio may maintain cash
balances and purchase money market instruments for cash management and liquidity
purposes. The Portfolio may adopt a temporary defensive position during adverse
market conditions by investing without limit in U.S. and non-U.S. dollar
denominated high quality money market instruments, including short-term U.S.
Government securities, negotiable certificates of deposit, non-negotiable fixed
time deposits, bankers' acceptances, commercial paper, floating-rate notes and
repurchase agreements.

Investment Restrictions. The investment objective of the Portfolio is
not fundamental and may be changed by the Board of Trustees without the approval
of shareholders. If there is a change in the Portfolio's investment objective,
shareholders should consider whether the Portfolio remains an appropriate
investment in light of their current financial situations. The Portfolio's
investment policies set forth in this Part A are non-fundamental and may be
changed without shareholder approval except that the Portfolio's 20% limit on
securities loans (10% limit for any single borrower) are fundamental. The
Portfolio has adopted fundamental policies which may not be changed without the
approval of the Portfolio's shareholders. See "Investment Restrictions" in Part
B. If any percentage restriction is adhered to at the time of investment, a
subsequent increase or decrease in the percentage resulting from a change in the
value of the Portfolio's assets will not constitute a violation of the
restriction.

ITEM 5. MANAGEMENT OF THE FUND.

Trustees. The Portfolio is a separate investment series of Standish, Ayer & Wood
Master Portfolio, a master trust fund organized under the laws of the State of
New York. Under the terms of the Declaration of Trust, the affairs of the
Portfolio are managed under the supervision of the Trustees of the Portfolio
Trust.

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Investment Adviser. SIMCO, One Financial Center, Boston, Massachusetts 02111,
serves as investment adviser to the Portfolio pursuant to an investment advisory
agreement and manages the Portfolio's investments and affairs subject to the
supervision of the Trustees of the Portfolio Trust. SIMCO is a Delaware limited
partnership organized in 1991 and is a registered investment adviser under the
Investment Advisers Act of 1940. The general partner of the Adviser is Standish,
Ayer & Wood, Inc. ("Standish") which holds a 99.98% partnership interest. The
limited partners, who each hold a 0.01% interest in SIMCO, are Walter M. Cabot,
Sr., a Director of and Senior Adviser to SIMCO and Standish, and D. Barr
Clayson, Chairman of the Board of SIMCO and Managing Director of Standish. Ralph
S. Tate, Managing Director of Standish, is President and a Director of SIMCO.
Richard S. Wood, Vice President and a Managing Director of Standish and the
President of the Trust, is the Executive Vice President of SIMCO.

Standish and SIMCO provide fully discretionary management services and
counseling and advisory services to a broad range of clients throughout the
United States and abroad. As of February 28, 1997, Standish or its affiliate,
SIMCO, managed approximately $30 billion of assets.

The Portfolio's portfolio manager is Richard S. Wood. Mr. Wood has been
primarily responsible for the day-to-day management of the Standish Global Fixed
Income Fund's portfolio since inception and of the Portfolio's portfolio since
the Standish Global Fixed Income Fund's conversion to the master-feeder
structure on April 25, 1996. During the past five years, Mr. Wood has served as
a Director and Vice President of Standish, President of the Standish Ayer & Wood
Investment Trust and Executive Vice President of the Adviser.

Administrator of the Portfolio. IBT Trust Company (Cayman) Ltd., P.O.
Box 501, Grand Cayman, Cayman Islands, BWI, serves as the administrator to the
Portfolio (the

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"Portfolio Administrator") pursuant to a written administration agreement with
the Portfolio Trust on behalf of the Portfolio. The Portfolio Administrator
provides the Portfolio Trust with office space for managing its affairs, and
with certain clerical services and facilities. For its services to the Portfolio
Trust, the Portfolio Administrator will receive a fee from the Portfolio in the
amount of $7,500 annually.

Expenses. The Portfolio bears the expenses of its operations other than those
incurred by the Advisor under the investment advisory agreement. Among other
expenses, the Portfolio pays investment advisory fees; bookkeeping, share
pricing and custodian fees and expenses; expenses of notices and reports to
interest-holders; expenses of the Portfolio's administrator; legal and auditing
fees; any registration and reporting fees and expenses; and Trustees' fees and
expenses. Expenses of the Portfolio Trust which relate to more than one of its
series are allocated among such series by the Adviser and Standish in an
equitable manner, primarily on the basis of relative net asset values.

Portfolio Transactions. Subject to the supervision of the Trustees of the
Portfolio Trust, the Adviser selects the brokers and dealers that execute orders
to purchase and sell portfolio securities for the Portfolio. The Adviser will
generally seek to obtain the best available price and most favorable execution
with respect to all transactions for the Portfolio. The Adviser may also
consider the extent to which a broker or dealer provides research to the
Adviser.

ITEM 6. CAPITAL STOCK AND OTHER SECURITIES.

The Portfolio Trust reserves the right to create and issue any number
of series, in which case investments in each series would participate equally in
earnings and

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assets of the particular series. Currently, the Portfolio Trust has five series:
Standish Fixed Income Portfolio, Standish Equity Portfolio, Standish Small
Capitalization Equity Portfolio, Standish Global Fixed Income Portfolio and
Standish Small Capitalization Equity Portfolio II.

Please see Item 7 for a discussion of the Portfolio's dividend policy.

ITEM 7. PURCHASE OF SECURITIES BEING OFFERED.

Beneficial interests in the Portfolio are issued solely in transactions
that are exempt from registration under the 1933 Act. See "General Description
of Registrant" above.

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ITEM 8. REDEMPTION OR REPURCHASE.

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ITEM 9. PENDING LEGAL PROCEEDINGS.

Not applicable.

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APPENDIX

MOODY'S RATINGS DEFINITIONS
FOR CORPORATE BONDS AND
SOVEREIGN, SUBNATIONAL AND
SOVEREIGN RELATED ISSUES

STANDARD & POOR'S RATINGS
DEFINITIONS

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.

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categories.

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